Registration
No. 333-
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
MANHATTAN PHARMACEUTICALS,
INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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2834
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36-3898269
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(State or other jurisdiction of
incorporation
or organization) |
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer Identification
Number)
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Manhattan
Pharmaceuticals, Inc.
48
Wall Street
New
York, NY 10005
Telephone:
(212) 582-3950
(Address,
including zip code, and telephone number, including area code, of registrant’s
principal executive offices)
Mr.
Michael G. McGuinness
Chief
Financial Officer
Manhattan
Pharmaceuticals, Inc.
48
Wall Street
New
York, NY 10005
Telephone:
(212) 582-3950
(Name,
address, including zip code, and telephone number, including area code, of agent
for service)
Copies
to:
Anthony
O. Pergola, Esq.
Lowenstein
Sandler PC
65
Livingston Avenue
Roseland,
New Jersey 07068
Telephone:
(973) 597-2500
Approximate date of commencement of
proposed sale to the public: From time to time after the
effective date of this Registration Statement.
If any of the securities being
registered on this Form are to be offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities act of 1933, check the following
box. þ
If this Form is filed to register
additional securities for an offering pursuant to Rule 462(b) under the
Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. o
If this form is a post-effective
amendment filed pursuant to Rule 462(c) under the Securities Act, check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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Large
accelerated filer o
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Accelerated filer o | ||
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Non-accelerated
filer o
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(Do
not check if a smaller reporting company)
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Smaller reporting
company þ
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CALCULATION
OF REGISTRATION FEE
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Title of Each Class of
Securities to be Registered
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Amount to
be Registered (1)
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Proposed
Maximum
Offering
Price
Per Share(2)
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Proposed
Maximum
Aggregate
Offering
Price(2)
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Amount of
Registration
Fee(2)
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Common
Stock, par value $0.001 per share
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45,752,811 | $ | .055 | $ | 2,503,767.75 | $ | 180.00 | |||||||||
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(1)
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Pursuant to Rule 416 under the
Securities Act of 1933, as amended, this registration statement also
covers such indeterminate number of shares of common stock as may be
issuable with respect to the shares being registered hereunder as a result
of stock splits, stock dividends or similar
transactions.
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(2)
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Estimated
solely for the purpose of calculating the amount of the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended,
based upon the average of the high and low sales prices of the
registrant’s common stock on June 3, 2010, as reported on the Over the
Counter Bulletin Board.
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The
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment that specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act, as amended, or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The
information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is
effective. This preliminary prospectus is not an offer to sell nor
does it seek an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted.
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Preliminary
Prospectus
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Subject
to completion, dated June 7, 2010
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Manhattan
Pharmaceuticals, Inc.
45,752,811
Shares
Common
Stock
This
prospectus relates to the resale of up to 45,752,811 shares of common stock
of Manhattan Pharmaceuticals, Inc. that may be sold from time to time by a
certain holders of our securities, or by their respective pledgees, assignees
and other successors-in-interest. We will not receive any proceeds
from the sales of the shares of common stock by the selling
securityholders.
The
distribution of securities offered hereby may be effected in one or more
transactions that may take place on the Over the Counter Bulletin Board,
including ordinary brokers' transactions, privately negotiated transactions or
through sales to one or more dealers for resale of such securities as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the selling
securityholders.
The
prices at which the selling securityholders may sell the shares in this offering
will be determined by the prevailing market price for the shares or in
negotiated transactions. Our common stock is traded on the Over the Counter
Bulletin Board under the symbol “MHAN." On June 3, 2010, the last
reported sales price for our common stock on the Over the Counter Bulletin Board
was $0.06 per share.
These
securities involve a high degree of risk. See “Risk Factors”
beginning on page 5 of this prospectus for factors you should consider before
buying shares of our common stock.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities, or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
The date
of this prospectus is ________, 2010.
TABLE
OF CONTENTS
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Prospectus
Summary
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1
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Risk
Factors
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5
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Special
Note Regarding Forward-Looking Statements
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17
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Use
of Proceeds
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17
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Price
Range for our Common Stock
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18
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Dividend
Policy
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18
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Selected
Financial Information
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19
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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20
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Business
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36
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Management
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49
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Security
Ownership of Certain Beneficial Owners and Management
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57
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Certain
Relationships and Related Transactions
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59
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Description
of Securities to be Registered
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62
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Shares
Eligible for Future Sale
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68
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Selling
Securityholders
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69
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Plan
of Distribution
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74
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Legal
Matters
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76
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Experts
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76
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Disclosure
of Commission Position on Indemnification for Securities Act
Liabilities
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76
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Where
You Can Find Additional Information
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76
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Index
to Financial Statements
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F-1
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This
prospectus contains service marks, trademarks and tradenames of Manhattan
Pharmaceuticals, Inc.
-i-
PROSPECTUS
SUMMARY
This
summary highlights selected information appearing elsewhere in this prospectus
and may not contain all the information that is important to
you. This prospectus includes information about the securities being
offered as well as information regarding our business. You should
carefully read this prospectus and the registration statement of which this
prospectus is a part in their entirety before investing in our common stock,
including the section entitled “Risk Factors” beginning on page 5 and our
financial statements and related notes. Unless the context otherwise
requires, all references to “we,” “us,” “our company,” or “the company” in this
prospectus refer collectively to Manhattan Pharmaceuticals, Inc., a Delaware
corporation.
Overview
We are a
specialty healthcare product company focused on developing and commercializing
innovative treatments for underserved patient populations. We aim to
acquire rights to these technologies by licensing or otherwise acquiring an
ownership interest, funding their research and development and eventually either
bringing the technologies to market or out-licensing. In the short
term, we are focusing our efforts on the commercialization of the four product
candidates we currently have in development: Hedrin™, a novel,
non-insecticide treatment for pediculosis (head lice), which we are developing
through a joint venture, AST-726, a nasally delivered form of
hydroxocobalamin for the treatment of vitamin B12
deficiency, AST-915, an oral treatment for essential tremor and a topical
product for the treatment of psoriasis. Longer term, we intend to
acquire and commercialize low risk, quick to market products, specifically
products that could be marketed over-the-counter, or OTC, treat
everyday maladies, are simple to manufacture, and/or could be classified as
medical devices by the FDA.
We have
not received regulatory approval for, or generated commercial revenues from
marketing or selling any drugs.
Recent
Developments
2010
Private Placement
On April
8, 2010, we completed a private placement of approximately 121 units, which we
refer to has the 2010 Private Placement, with each unit consisting of (i)
357,143 shares of our common stock, $0.001 par value per share and (ii) 535,714
common stock purchase warrants, each of which will entitle the holder to
purchase one additional share of our common stock for a period of five years at
an exercise price of $0.08 per share. The purchase price for each
unit was $25,000. We received aggregate gross proceeds of $3,029,386
in connection with the private placement (including the conversion of a 12%
original issue discount senior subordinated convertible debenture with a stated
value of $400,000 and the interest accrued thereon into units).
The first
closing of the private place was completed on March 2, 2010, at which we sold an
aggregate of 101.9 units. In connection with the first closing, we
issued a warrant to purchase 3,639,289 shares of our common stock at an exercise
price of $0.08 per share to the placement agent as partial compensation for its
services.
The final
closing of the private placement was completed on April 8, 2010, at which we
sold an aggregate of 2.4 additional Units. In connection with the
final closing, we issued a warrant to purchase 12,857 shares of our common stock
at an exercise price of $0.08 per share to the placement agent as partial
compensation for its services. In addition, on April 8, 2010, the
holder of an outstanding 12% original issue discount senior subordinated
convertible debenture, dated October 28, 2009, with a stated value of $400,000
and $21,886 of accrued interest, exercised its option to convert such debenture
(including all accrued interest thereon) into 16.88 units. The
conversion price was equal to the per unit purchase price paid by the investors
in the private placement.
Each of
the investors in the private placement and the holder of the debenture
represented that they were “accredited investors,” as that term is defined in
Rule 501(a) of Regulation D under the Securities Act, and the sale of the Units
was made in reliance on exemptions provided by Regulation D and Section 4(2) of
the Securities Act of 1933, as amended.
- 1
- -
In
connection with the private placement, we entered into a registration rights
agreement pursuant to which we agreed to file a registration statement to
register the resale of the shares of our common stock issued in the private
placement, within 60 days of the final closing date and to cause the
registration statement to be declared effective within 150 days (or 180 days
upon review by the SEC).
Acquisition
of Ariston
On March
8, 2010, we entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Ariston Pharmaceuticals, Inc., a Delaware corporation
("Ariston") and Ariston Merger Corp., a Delaware corporation and our
wholly-owned subsidiary (the "Merger Sub"). Pursuant to the terms and
conditions set forth in the Merger Agreement, on March 8, 2010, the Merger Sub
merged with and into Ariston, with Ariston being the surviving corporation of
the merger. As a result of the merger, Ariston became a wholly-owned
subsidiary of ours.
We merged
with Ariston principally to add new products to our portfolio. Prior to the
merger, Ariston was a private, clinical stage specialty biopharmaceutical
company based in Shrewsbury, Massachusetts that in-licenses, develops and plans
to market novel therapeutics for the treatment of serious disorders of the
central and peripheral nervous systems.
Under the
terms of the Merger Agreement, the consideration payable by us to the
stockholders and note holders of Ariston consists of the issuance of 7,062,423
shares of our common stock at Closing (as defined in the Merger Agreement) plus
the right to receive up to an additional 24,718,481 shares of our common stock
(the “Milestone Shares”) upon the achievement of certain product-related
milestones described below. In addition, we have reserved 38,630,723
shares of our common stock for possible future issuance in connection with the
conversion of $15.45 million of outstanding Ariston convertible promissory
notes. The note holders will not have any recourse to us for
repayment of the notes (their sole recourse being to Ariston, which is our
wholly-owned subsidiary), but the note holders will have the right to convert
the notes into shares of our common stock at the rate of $0.40 per
share. Further, we have reserved 5,000,000 shares of our common stock
for possible future issuance in connection with the conversion of $1.0 million
of an outstanding Ariston convertible promissory note issued in satisfaction of
a trade payable. The note holder will not have any recourse to us for
repayment of the note (their sole recourse being to Ariston, which is our
wholly-owned subsidiary), but the note holder will have the right to convert the
note into shares of our common stock at the rate of $0.20 per
share.
Upon the
achievement of the milestones described below, we would be obligated to issue
portions of the Milestone Shares to the former Ariston stockholders and
noteholders:
• Upon
the affirmative decision of our Board of Directors, provided that such decision
is made prior to March 8, 2011, to further develop the AST-914 metabolite
product candidate, either internally or through a corporate partnership, we
would issue 8,828,029 of the Milestone Shares.
• Upon
the acceptance by the FDA of our filing of the first New Drug Application for
the AST-726 product candidate, we would issue 7,062,423 of the Milestone
Shares.
• Upon
our receipt of FDA approval to market the AST-726 product candidate in the
United States of America, we would issue 8,828,029 of the Milestone
Shares.
Certain
members of our board of directors and certain of our principal stockholders
owned Ariston securities. Timothy McInerney, one of our directors,
owned 16,668 shares of Ariston common stock which represented less than 1% of
Ariston’s outstanding common stock as of the closing of the
Merger. Neil Herskowitz, one of our directors, indirectly owned
convertible promissory notes of Ariston with interest and principal in the
amount of $192,739. Michael Weiser, who was serving as one of our
directors at the time of the Merger, owned 117,342 shares of Ariston common
stock, which represented approximately 2.1% of Ariston’s outstanding common
stock as of the closing of the Merger. Lindsay Rosenwald, a more than
5% beneficial owner of our common stock, in his individual capacity and
indirectly through trusts and companies he controls owned 497,911 shares of
Ariston common stock, which represented approximately 8.9% of Ariston’s
outstanding common stock as of the closing of the Merger and indirectly owned
convertible promissory notes of Ariston in the amount of
$141,438.
- 2
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Corporate
History – Merger Transaction(s)
We were
incorporated in Delaware in 1993 under the name “Atlantic Pharmaceuticals, Inc.”
and, in March 2000, we changed our name to “Atlantic Technology Ventures,
Inc.” In 2003, we completed a “reverse acquisition” of privately held
“Manhattan Research Development, Inc.” In connection with this
transaction, we also changed our name to “Manhattan Pharmaceuticals,
Inc.” From an accounting perspective, the accounting acquirer is
considered to be Manhattan Research Development, Inc. and accordingly, the
historical financial statements are those of Manhattan Research Development,
Inc.
During
2005, we merged with Tarpan Therapeutics, Inc., or Tarpan. Tarpan was
a privately held New York based biopharmaceutical company developing
dermatological therapeutics. This transaction was accounted for as a purchase of
Tarpan by us.
During
2010, we completed a merger pursuant to which we acquired Ariston. We
merged with Ariston principally to add new products to our portfolio. Prior to
the merger, Ariston was a private, clinical stage specialty biopharmaceutical
company based in Shrewsbury, Massachusetts that in-licenses, develops and plans
to market novel therapeutics for the treatment of serious disorders of the
central and peripheral nervous systems. For a more detailed
discussion of the Merger, please see "Business - Recent Developments -
Acquisition of Ariston".
Principal
Executive Offices
Our
executive offices are located 48 Wall Street, New York, NY 10005. Our
telephone number is (212) 582-3950 and our internet address is
www.manhattanpharma.com.
The
Offering
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Common
Stock Offered by Selling Securityholders (1):
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45,752,811
shares
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Common
Stock Issued and Outstanding after this Offering (2):
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120,965,260 shares
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Use
of Proceeds:
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We
will not receive any of the proceeds from the sale of shares of common
stock by the selling securityholders. We will receive the proceeds of
any cash exercise of the warrants.
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Over
the Counter Bulletin Board Symbol:
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MHAN
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(1)
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Includes 2,444,444 shares of common stock issuable upon exercise of warrants held by the selling securityholders. |
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(2)
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Based
on the number of shares of our common stock outstanding as of June 4,
2010. Excludes approximately 171,905,717 shares of our common
stock issuable upon exercise of outstanding warrants and options to
purchase shares of our common stock (including the warrants held by the
selling securityholders) and 71,428,571 shares of our common stock
issuable upon exercise of a right to put, and our right to call, all or a
portion of Nordic Biotech Venture Fund's equity interest in H
Pharmaceuticals K/S.
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- 3
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Summary
Financial Information
The
summary financial information for the fiscal years ended December 31, 2009 and
2008 was derived from our financial statements that have been audited by J.H.
Cohn LLP for the fiscal years then ended. The summary financial
information as of and for the three months ended March 31, 2010 and 2009 and for
the cumulative period from August 6, 2001 (inception) to March 31, 2010 was
derived from our unaudited financial data but, in the opinion of management,
reflects all adjustments necessary for a fair presentation of the results of
such periods. The summary financial information presented below
should be read in conjunction with our financial statements and related notes
appearing in this prospectus beginning on page F-1. See “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” for a
discussion of our financial statements for the fiscal years ended December 31,
2009 and 2008 and for the three months ended March 31, 2010 and
2009.
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Three Months Ended
March, 31
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Years Ended
December 31,
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Cumulative
period from
August 6, 2001
(inception) to
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2010
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2009
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2009
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2010
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March 31, 2010
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(unaudited)
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(unaudited)
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(unaudited)
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Statements
of Operations Data:
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Revenue
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$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
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Research
and development expense
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$ | 17,767 | $ | 44,936 | $ | 40,376 | $ | 1,802,792 | $ | 28,349,978 | ||||||||||
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General
and administrative expense
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$ | 511,678 | $ | 512,400 | $ | 1,731,182 | $ | 2,609,910 | $ | 18,705,133 | ||||||||||
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Net
loss attributable to common shares
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$ | (1,633,169 | ) | $ | (761,844 | ) | $ | (2,793,285 | ) | $ | (4,268,858 | ) | $ | (63,566,604 | ) | |||||
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Net
loss per common share
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$ | (0.02 | ) | $ | (0.01 | ) | $ | (0.04 | ) | $ | (0.06 | ) | N/A | |||||||
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Statements
of Cash Flows Data:
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Net
cash used in operating activities
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$ | (604,827 | ) | $ | (645,797 | ) | $ | (1,049,799 | ) | $ | (4,444,009 | ) | $ | (40,274,191 | ) | |||||
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Net
cash provided by financing activities
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$ | 2,084,746 | $ | 770,270 | $ | 961,772 | $ | 3,909,319 | $ | 41,401,806 | ||||||||||
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Cash
dividends declared
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$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
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At March
31, 2010
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At December
31, 2009
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(unaudited)
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Balance
Sheets Data:
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||||||||
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Total
assets
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$
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20,081,864
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$
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365,662
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Total
liabilities
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$
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27,599,378
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$
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7,150,612
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||||
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Total
stockholders’ deficiency
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$
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(7,517,514
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)
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$
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(6,784,950
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)
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- 4
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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 prospectus
before making an investment in our securities.
Risks Related to Our
Business
We
currently have no product revenues and will need to raise substantial 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 remaining drug development programs and may not continue as a
going concern.
We have
generated no product revenues to date and will not until, and if, we receive
approval from the U.S. Food and Drug Administration, or the FDA, and other
regulatory authorities for any of our four 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, 2009, we had
$17,996 of cash and cash equivalents. We received additional
funding of approximately $3.0 million from a financing transaction completed in
April 2010. We expect that such financing shall be sufficient to fund our
operations through the end of 2010. We will still have to raise substantial
additional funds to complete the development of our product candidates and to
bring them to market. Beyond the capital requirements mentioned above, our
future capital requirements will depend on numerous factors,
including:
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·
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the results of any clinical
trials;
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·
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the
scope and results of our research and development
programs;
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·
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the
time required to obtain regulatory
approvals;
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·
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our
ability to establish and maintain marketing alliances and collaborative
agreements; and
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·
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the
cost of our internal marketing
activities.
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Our
history of operating losses and lack of product revenues may make it difficult
to raise capital on acceptable terms or 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. Our Independent Registered Public Accounting Firm has
concluded that our net losses, negative cash flow, accumulated deficit and
negative working capital as of December 31, 2009, raise substantial doubt about
our ability to continue as a going concern. The inclusion of a going concern
explanatory paragraph in the report of our Independent Registered Public
Accounting Firm will make it more difficult for us to secure additional
financing or enter into strategic relationships with distributors on terms
acceptable to us, if at all, and likely will materially and adversely affect the
terms of any financing that we may obtain.
We
have incurred substantial losses and negative cash flow from operations 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. We have incurred losses in every period since our inception
on August 6, 2001. For the three months ended March 31, 2010 and for the
period from August 6, 2001 (inception) through March 31, 2010, we incurred net
losses applicable to common shares of $1,633,169, and $63,566,604,
respectively. Even if we succeed in developing and commercializing one or
more 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:
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·
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continue
to undertake nonclinical development and clinical trials for our product
candidates;
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- 5
- -
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·
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seek regulatory approvals for our product
candidates;
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·
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implement additional internal systems and
infrastructure;
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·
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lease additional or alternative office facilities;
and
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·
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hire
additional personnel.
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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.
As a
result of our continued losses, our Independent Registered Public Accounting
Firm has included an explanatory paragraph in our financial statements for
the fiscal years ended December 31, 2009 and 2008, expressing doubt as to our
ability to continue as a going concern. The inclusion of a going concern
explanatory paragraph in the report of our Independent Registered Public
Accounting Firm will make it more difficult for us to secure additional
financing or enter into strategic relationships with distributors on terms
acceptable to us, if at all, and likely will materially and adversely affect the
terms of any financing that we may obtain. If we fail to generate
revenues, or if operating expenses exceed our expectations or cannot be adjusted
accordingly, we may not achieve profitability and the value of your investment
could decline significantly.
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:
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·
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continuing
to undertake nonclinical development and clinical
trials;
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·
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participating
in regulatory approval processes;
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·
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formulating and manufacturing products;
and
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|
·
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conducting sales and marketing
activities.
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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 nonclinical and 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
did not engage financial advisors to evaluate the fairness of the consideration
paid to the stockholders and noteholders of Ariston in connection with our
merger with Ariston. We can provide no assurance that the fair value of
the securities paid to the stockholders and noteholders of Ariston in the merger
did not exceed the fair value of the assets acquired.
Ariston
had approximately $16.5 million indebtedness prior to our merger with
them. In connection with the merger, the merger subsidiary of the
combined company assumed Ariston's indebtedness of approximately $16.5
million. Such indebtedness may negatively impact our ability to raise
sufficient additional capital to fund our operations.
Ariston
may have liabilities that were unknown at the time of the consummation of the
merger that became our liabilities upon consummation of the merger with
Ariston.
There may
be liabilities of Ariston and/or its affiliates that were unknown at the time of
the consummation of our merger with Ariston. As a result of our merger with
Ariston, any such unknown liabilities may become our liabilities. In the event
any such liabilities become known following such merger, they may lead to claims
against Ariston, our wholly-owned subsidiary, including but not limited to
lawsuits, administrative proceedings, and other claims. Any such liabilities may
subject us to increased expenses for attorneys’ fees, fines, litigation
expenses, and expenses associated with any subsequent settlements or judgments.
There can be no assurances that such unknown liabilities do not exist. To the
extent that such liabilities become known following the merger with Ariston, any
such liability-related expenses may materially impact our financial condition
and results of operations.
- 6
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We
depend greatly on the intellectual capabilities and experience of our key
executives and the loss of any of them could affect our ability to develop our
remaining products.
We had
only two full-time and two part-time employees as of June 4, 2010. The
loss of either Michael G. McGuinness, our Chief Operating and Financial Officer,
or Malcolm Morville, Chief Executive Officer of Ariston, could harm us.
Mr. McGuinness’ employment agreement with us expired in July 2009. Mr.
Morville’s employment agreement with Ariston expired upon consummation of the
merger with Ariston. Messrs. McGuinness and Morville have been working for us
and Ariston, respectively, on the same terms and conditions that were set forth
in the employment agreements that expired. We cannot predict our success
in hiring or retaining the personnel we require for
continued operations.
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 first
submit to the FDA an IND, which will set forth our plans for clinical testing of
our product candidates. We are unable to estimate the size and timing of
the clinical and non-clinical trials required to bring our product candidates to
market and, accordingly, cannot estimate the time when development of our
product candidates will be completed.
When the
clinical testing for our product candidates is complete, we will submit to the
FDA a 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 nonclinical 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
nonclinical 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:
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delay
commercialization of, and our ability to derive product revenues from, our
product candidates;
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impose
costly procedures on us; and
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diminish
any competitive advantages that we may otherwise
enjoy.
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Even if
we comply with all FDA requests, the FDA may ultimately reject any or all of our
future NDAs. We cannot be sure that we will ever obtain regulatory clearance for
any of our product candidates. Failure to obtain FDA approval of any of our
product candidates 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.
- 7
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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:
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unforeseen
safety issues;
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determination
of dosing issues;
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lack
of effectiveness during clinical
trials;
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slower
than expected rates of patient
recruitment;
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inability to monitor patients adequately during or
after treatment; and
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inability or unwillingness of medical
investigators to follow our clinical
protocols.
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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 nonclinical
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 nonclinical
testing. The clinical trial process may fail to demonstrate that our product
candidates are safe for humans or 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. 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 products.
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:
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perceptions by members of the
health care community, including physicians, about the safety and
effectiveness of our drugs;
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cost-effectiveness of our product
relative to competing
products;
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availability of reimbursement for
our products from government or other healthcare payers;
and
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effectiveness of marketing and
distribution efforts by us and our licensees and distributors, if
any.
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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
product-development program depends upon third-party researchers who are outside
our control.
We
currently are collaborating with several third-party researchers, for the
development of our product candidates. 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.
- 8
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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 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:
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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.
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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.
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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.
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Drug manufacturers are subject to
ongoing periodic unannounced inspection by the FDA, the Drug
Enforcement Agency, 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.
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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.
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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 our 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 our 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.
- 9
- -
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:
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developing
drugs;
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undertaking
nonclinical testing and human clinical
trials;
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obtaining
FDA and other regulatory approvals of
drugs;
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formulating
and manufacturing drugs; and
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launching,
marketing and selling drugs.
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Developments
by competitors may render our products or technologies obsolete or
non-competitive.
Many of
the 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.
See
“Business – Intellectual Property and License Agreements”.
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:
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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;
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if and when patents will
issue;
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whether or not others will obtain
patents claiming aspects similar to those covered by our patents and
patent applications; or
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whether we will need to initiate
litigation or administrative proceedings which may be costly whether we
win or lose.
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- 10
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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. 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, which could
adversely affect our ability to execute our business plan.
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:
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obtain licenses, which may not be
available on commercially reasonable terms, if at
all;
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redesign our products or
processes to avoid
infringement;
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stop using the subject matter
claimed in the patents held by
others;
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pay damages;
or
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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.
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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:
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government
and health administration
authorities;
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private
health maintenance organizations and health insurers;
and
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other
healthcare payers.
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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.
Health
care reform and restrictions on reimbursement may limit our returns on potential
products.
Because
our strategy ultimately depends on the commercial success of our products, we
assume, among other things, that end users of our products will be able to pay
for them. In the United States and other countries, in most cases, the volume of
sales of products like those we are developing depends on the availability of
reimbursement from third-party payors, including national health care agencies,
private health insurance plans and health maintenance organizations. Third-party
payors increasingly challenge the prices charged for medical products and
services. Accordingly, if we succeed in bringing products to market, and
reimbursement is not available or is insufficient, we could be prevented from
successfully commercializing our potential products.
- 11
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The
health care industry in the United States and in Europe is undergoing
fundamental changes as a result of political, economic and regulatory
influences. Reforms proposed from time to time include mandated basic health
care benefits, controls on health care spending, the establishment of
governmental controls over the cost of therapies, creation of large medical
services and products purchasing groups and fundamental changes to the health
care delivery system. We anticipate ongoing review and assessment of health care
delivery systems and methods of payment in the United States and other
countries. We cannot predict whether any particular reform initiatives will
result or, if adopted, what their impact on us will be. However, we expect that
adoption of any reform proposed will impair our ability to market products at
acceptable prices.
Changes
in laws affecting the health care industry could adversely affect our
business.
In the
U.S., there have been numerous proposals considered at the federal and state
levels for comprehensive reforms of health care and its cost, and it is likely
that federal and state legislatures and health agencies will continue to focus
on health care reform in the future. Congress has passed legislation to reform
the U.S. health care system by expanding health insurance coverage, reducing
health care costs and making other changes. While health care reform may
increase the number of patients who have insurance coverage for our products, it
may also include cost containment measures that adversely affect reimbursement
for our products. Congress has also considered legislation to change the
Medicare reimbursement system for outpatient drugs, increase the amount of
rebates that manufacturers pay for coverage of their drugs by Medicaid programs
and facilitate the importation of lower-cost prescription drugs that are
marketed outside the U.S. Some states are also considering legislation that
would control the prices of drugs, and state Medicaid programs are increasingly
requesting manufacturers to pay supplemental rebates and requiring prior
authorization by the state program for use of any drug for which supplemental
rebates are not being paid. Managed care organizations continue to seek price
discounts and, in some cases, to impose restrictions on the coverage of
particular drugs. Government efforts to reduce Medicaid expenses may lead to
increased use of managed care organizations by Medicaid programs. This may
result in managed care organizations influencing prescription decisions for a
larger segment of the population and a corresponding constraint on prices and
reimbursement for our products.
We
operate in a highly regulated industry. As a result, governmental actions may
adversely affect our business, operations or financial condition,
including:
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new laws, regulations or judicial
decisions, or new interpretations of existing laws, regulations or
decisions, related to health care availability, method of delivery and
payment for health care products and
services;
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changes in the FDA and foreign
regulatory approval processes that may delay or prevent the approval of
new products and result in lost market
opportunity;
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changes in FDA and foreign
regulations that may require additional safety monitoring, labeling
changes, restrictions on product distribution or use, or other measures
after the introduction of our products to market, which could increase our
costs of doing business, adversely affect the future permitted uses of
approved products, or otherwise adversely affect the market for our
products;
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new laws, regulations and
judicial decisions affecting pricing or marketing practices;
and
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changes in the tax laws relating
to our operations.
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The
enactment in the U.S. of health care reform, possible legislation which could
ease the entry of competing follow-on biologics in the marketplace, new
legislation or implementation of existing statutory provisions on importation of
lower-cost competing drugs from other jurisdictions, and legislation on
comparative effectiveness research are examples of previously enacted and
possible future changes in laws that could adversely affect our business. In
addition, the Food and Drug Administration Amendments Act of 2007 included new
authorization for the FDA to require post-market safety monitoring, along with
an expanded clinical trials registry and clinical trials results database, and
expanded authority for the FDA to impose civil monetary penalties on companies
that fail to meet certain commitments.
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.
- 12
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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 nonclinical
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.
If
we are not successful in integrating Ariston's product development programs, we
may not be able to operate efficiently after our merger with Ariston, which may
have a material adverse effect on our results of operations and financial
condition.
Achieving
the benefits of our merger with Ariston will depend in part on the successful
integration of Ariston's drug development programs and personnel in a timely and
efficient manner. The integration process requires coordination of different
development, regulatory, and manufacturing teams, and involves the integration
of systems, applications, policies, procedures, business processes and
operations. If we cannot successfully integrate Ariston's programs, we may not
realize the expected benefits of the merger.
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 $5,000,000, 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.
As of
June 4, 2010, our directors, executive officers and principal stockholders
beneficially own approximately 6,877,851 shares of our common stock, which
represents approximately 5.38% of our outstanding voting stock, including shares
underlying outstanding options and warrants which are currently exercisable or
exercisable within 60 days of June 4, 2010. In addition, Nordic
Biotech Venture Fund has the right to acquire up to 85,714,285 shares of our
common stock which would result in Nordic owning approximately 41.47% of our
common stock as of June 4, 2010 (although, as described in Note 18 to our
financial statements at and for the years ended December 31, 2009 and 2008, and
as described in an amendment to Nordic’s Schedule 13D filing with respect to
ownership of our securities, Nordic disputes the anti-dilution method that we
used to calculate the anti-dilution shares issuable to Nordic as a result of our
2010 Private Placement completed on April 8, 2010, which resulted in Nordic
owning 85,714,285 shares as of June 4, 2010, and Nordic claims it acquired the
right to purchase an additional 5,555,556 shares of our common stock upon
exercise of the Nordic Put as a result of Nordic’s making an additional
investment in the Hedrin JV of $500,000 in January 2010; as a result Nordic
claims that it beneficially owns 216,666,666, or 65.5% of our common
stock, which we dispute). Through its stock ownership, its right to
acquire additional shares, its substantial control over the management of the
Hedrin JV (which includes the ability to terminate our management contract with
the Hedrin JV), Nordic has the ability to exert substantial influence over the
election of our Board of Directors, the outcome of issues submitted to our
stockholders, the development of Hedrin and our ability, as a company, to
benefit from the successful development of Hedrin. Accordingly, our
directors, officers and principal stockholders, specifically Nordic, taken as a
whole, have the ability to exert substantial influence over the election of our
Board of Directors and the outcome of issues submitted to our
stockholders.
- 13
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In April
2010, Nordic filed a Schedule 13D/A (the “Nordic Amended 13D”). We are not in
agreement with the disclosure set forth in the Nordic Amended 13D and have
written a letter to Nordic explaining our disagreements. The Nordic
Amended 13D shows an aggregate number of shares of our common stock beneficially
owned by Nordic as 216,666,666, or 65.5%. We believe the correct
beneficial ownership is 85,714,285 shares, or 41.47%. The Nordic
Amended 13D states that Nordic does not believe our determination of the
anti-dilution shares accruing to Nordic as a result of the 2010 Private
Placement was neither reasonable nor made in good faith. As we have
previously stated we believe our determination was both reasonable and made in
good faith. The Nordic Amended 13D further states that Nordic
acquired the right to purchase an additional 5,555,556 shares of our common
stock upon exercise of the Nordic Put as a result of Nordic’s making an
additional investment in the Hedrin JV of $500,000 in January
2010. We are not in agreement with this claim, we do not believe that
Nordic is required to any adjustment to Nordic’s Put as a result of Nordic
making additional capital contributions to the Hedrin JV. In the
letter to Nordic we note that Nordic’s valuation suggestions for the warrants
issued in the 2010 Private Placement ignores the concept of relative value
inherent in the Hedrin JV Agreement.
Risks Related to Our Common
Stock
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 $0.007 in the
fourth quarter of 2008 to a high of $0.23 in the first quarter of 2008.
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:
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The global economic crisis, which
affected stock prices of many companies, and particularly many small
pharmaceutical companies like
ours;
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publicity regarding actual or
potential clinical results relating to products under development by our
competitors or us;
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delay or failure in initiating,
completing or analyzing nonclinical or clinical trials or the
unsatisfactory design or results of these
trials;
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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.
Our
common stock is not listed on a national exchange and there is a limited market
for our common stock which may make it more difficult for you to sell your
stock.
Our
common stock is quoted on the OTC Bulletin Board under the symbol "MHAN.OB."
There is a limited trading market for our common stock which negatively impacts
the liquidity of our common stock not only in terms of the number of shares 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. Accordingly, there can be no assurance as to the liquidity of any
markets that may develop for our common stock, the ability of holders of our
common stock to sell our common stock, or the prices at which holders may be
able to sell our common stock.
- 14
- -
The
fact that our common stock is not listed on a national exchange may negatively
impact our ability to attract investors and to use our common stock to raise
capital to fund our operations.
In order
to maintain liquidity in our common stock, we depend upon the continuing
availability of a market on which our securities may be traded. We need to raise
substantial additional funds in the future to continue our operations and the
fact that our common stock is not listed on a national exchange may impact our
ability to attract investors and to use our common stock to raise sufficient
capital to continue to fund our operations. See the Risk Factor “We have no
product revenues and will need to raise substantial additional funds in the
future. If we are unable to obtain funds necessary to continue our
operations, we will be required to delay, scale back or eliminate one or more of
our drug development programs” above.
If
we fail to file periodic reports with the SEC our common stock may be removed
from the OTCBB.
Pursuant
to the Over-The-Counter Bulletin Board ("OTCBB") rules relating to the timely
filing of periodic reports with the SEC, any OTCBB issuer which fails to file a
periodic report (Form 10-Q's or 10-K's) by the due date of such report (as
extended by the filing of a Form 12b-25), three (3) times during any twenty-four
(24) month period is automatically de-listed from the OTCBB. In the event
an issuer is de-listed, such issuer would not be eligible to be re-listed on the
OTCBB for a period of one-year, during which time any subsequent late filing
would reset the one-year period of de-listing. If we are late in our filings
three times in any twenty-four (24) month period and are de-listed from the
OTCBB, our common stock would likely be listed for trading only on the “Pink
Sheets,” which generally provide an even less liquid market than the
OTCBB. In such event, investors may find it more difficult to trade our
common stock or to obtain accurate, current information concerning market prices
for or common stock.
We
are at greater risk for market fraud since our common stock is not traded on a
national securities exchange.
OTCBB
securities are frequent targets of fraud or market manipulation. Not only
because of their generally low price, but also because the OTCBB reporting
requirements for these securities are less stringent than for listed on a
national securities exchange and no exchange requirements are imposed. Dealers
may dominate the market and set prices that are not based on competitive forces.
Individuals or groups may create fraudulent markets and control the sudden,
sharp increase of price and trading volume and the equally sudden collapse of
market prices.
Penny
stock regulations may impose certain restrictions on marketability of our
securities.
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a “penny stock,” for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules
require:
|
|
·
|
that a broker or dealer approve a
person’s account for transactions in penny stocks;
and
|
|
|
·
|
the broker or dealer receives
from the investor a written agreement to the transaction, setting forth
the identity and quantity of the penny stock to be
purchased.
|
In order
to approve a person’s account for transactions in penny stocks, the broker or
dealer must:
|
|
·
|
obtain financial information and
investment experience objectives of the person;
and
|
|
|
·
|
make a reasonable determination
that the transactions in penny stocks are suitable for that person and the
person has sufficient knowledge and experience in financial matters to be
capable of evaluating the risks of transactions in penny
stocks.
|
- 15
- -
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:
|
|
·
|
sets forth the basis on which the
broker or dealer made the suitability determination;
and
|
|
|
·
|
that the broker or dealer
received a signed, written agreement from the investor prior to the
transaction.
|
Generally,
brokers may be less willing to execute transactions in securities subject to the
“penny stock” rules. This may make it more difficult for investors to
dispose of our common stock and cause a decline in the market value of our
stock.
Disclosure
also must be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks.
If
we are unable to obtain future capital on acceptable terms, this will negatively
affect our business operations and current investors.
We expect
that in the future we will seek additional capital through public or private
financings. Additional financing may not be available on acceptable terms, or at
all. If additional capital is raised through the sale of equity, or securities
convertible into equity, further dilution to then existing stockholders will
result. In addition, certain warrants held by certain of our investors and
the Nordic Put contain full-ratchet anti-dilution protection provisions which
would result in significant dilution to existing stockholders in the event we
are required to raise capital at an effective price per share below $0.07 per
common share. If additional capital is raised through the incurrence of
debt, our business could be affected by the amount of leverage incurred. For
instance, such borrowings could subject us to covenants restricting our business
activities, paying interest would divert funds that would otherwise be available
to support commercialization and other important activities, and holders of debt
instruments would have rights and privileges senior to those of equity
investors. If we are unable to obtain adequate financing on a timely basis, we
may be required to delay, reduce the scope of or eliminate some of our planned
activities, any of which could have a material adverse effect on the
business.
We
have not paid dividends in the past and do not expect to pay dividends in the
future, and any return on investment may be limited to the value of your
stock.
We have
never paid dividends on our common 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.
If
you are not an institutional investor, you may purchase our securities in this
offering only if you reside within certain states and may engage in resale
transactions only in those states and a limited number of other
jurisdictions.
If you
are not an “institutional investor,” you will need to be a resident of certain
jurisdictions to purchase our securities in this offering. The
definition of an “institutional investor” varies from state to state but
generally includes financial institutions, broker-dealers, banks, insurance
companies and other qualified entities. In order to prevent resale
transactions in violation of states’ securities laws, you may engage in resale
transactions only in the states and in other jurisdictions in which an
applicable exemption is available or a registration application has been filed
and accepted. This restriction on resale may limit your ability to
resell the securities purchased in this offering and may impact the price of our
shares.
If you
are not an institutional investor, you generally will not be permitted to
purchase shares in this offering unless there is an available exemption or we
register the shares covered by this prospectus in such states.
- 16
- -
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus, including the sections entitled “Prospectus Summary,” “Risk
Factors,” “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” “Business,” and elsewhere in this prospectus contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1993 (the “Securities Act”) and Section 21E of the Securities Exchange
Act of 1934 that are based on management’s assumptions, expectations and
projections about us, and the industry within which we operate, that have been
made pursuant to the Private Securities Litigation Reform Act of 1995 and which
reflect our expectations regarding our future growth, results of operations,
performance and business prospects and opportunities. These statements also
involve known and unknown risks, uncertainties and other factors that may cause
our or our industry’s actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, those
listed under “Risk Factors” and elsewhere in this prospectus. In some cases, you
can identify forward-looking statements by terminology such as “indicates,”
“may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,”
“predicts,” “potential,” or “continue” or the negative of such terms or other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially.
Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. We caution you not to place undue reliance on these statements,
which speak only as of the date of this prospectus. We are under no duty to
update any of the forward-looking statements after the date of this prospectus
to conform such statements to actual results.
USE
OF PROCEEDS
We are
registering shares of our common stock pursuant to registration rights granted
to the selling securityholders. We will not receive any of the proceeds from the
sale of the common stock by the selling securityholders named in this
prospectus. All proceeds from the sale of the common stock will be paid directly
to the selling securityholders.
If all the warrants exercisable for shares of common stock being
registered in this offering are exercised for cash, we could receive net
proceeds of up to approximately $268,888. We intend to use the estimated net
proceeds received upon exercise of the warrants, if any, for working capital and
general corporate purposes. The warrants may not be exercised, and we cannot
assure you that the warrants will be exercised.
We have
agreed to pay all costs, expenses and fees relating to registering the shares of
our common stock referenced in this prospectus. The selling securityholders will
pay any brokerage commissions and/or similar charges incurred for the sale of
such shares of our common stock.
- 17
- -
PRICE
RANGE FOR OUR COMMON STOCK
Prior to
March 26, 2008 our common stock traded on the American Stock Exchange “AMEX”
under the symbol “MHA”. On March 26, 2008, our common stock was voluntarily
delisted from the AMEX and began trading on the Over the Counter Bulletin Board
under the symbol “MHAN”. The following table lists the high and low price for
our common stock as quoted, in U.S. dollars, on the American Stock Exchange or
the Over the Counter Bulletin Board for the periods indicated:
|
High
|
Low
|
|||||||
|
2008
|
||||||||
|
First
Quarter
|
$ | 0.230 | $ | 0.110 | ||||
|
Second
Quarter
|
$ | 0.180 | $ | 0.100 | ||||
|
Third
Quarter
|
$ | 0.200 | $ | 0.100 | ||||
|
Fourth
Quarter
|
$ | 0.090 | $ | 0.007 | ||||
|
2009
|
||||||||
|
First
Quarter
|
$ | 0.060 | $ | 0.090 | ||||
|
Second
Quarter
|
$ | 0.120 | $ | 0.021 | ||||
|
Third
Quarter
|
$ | 0.100 | $ | 0.070 | ||||
|
Fourth
Quarter
|
$ | 0.090 | $ | 0.060 | ||||
|
2010
|
||||||||
|
First
Quarter
|
$ | 0.084 | $ | 0.060 | ||||
|
Second
Quarter (through June 2, 2010)
|
$ | 0.085 | $ | 0.052 | ||||
The
number of holders of record of our common stock as of June 3, 2010 was
559.
DIVIDEND
POLICY
To date,
we have not paid any dividends on our common stock and we do not intend to pay
dividends for the foreseeable future, but intend instead to retain earnings, if
any, for use in our business operations. The payment of dividends in
the future, if any, will be at the sole discretion of our board of directors and
will depend upon our debt and equity structure, earnings and financial
condition, need for capital in connection with possible future acquisitions and
other factors, including economic conditions, regulatory restrictions and tax
considerations. We cannot guarantee that we will pay dividends or, if we pay
dividends, the amount or frequency of these dividends.
- 18
- -
SELECTED
FINANCIAL INFORMATION
The
selected financial information for the fiscal years ended December 31, 2009 and
2008 was derived from our financial statements that have been audited by J.H.
Cohn LLP for the fiscal years then ended. The selected financial
information at and for the three months ended March 31, 2010 and 2009 and for
the cumulative period from August 6, 2001 (inception) to March 31, 2010 was
derived from our unaudited financial data but, in the opinion of management,
reflects all adjustments necessary for a fair presentation of the results of
such periods. The selected financial information presented below should be read
in conjunction with our financial statements and related notes appearing in this
prospectus beginning on page F-1. See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” for a discussion of
our financial statements for the fiscal years ended December 31, 2009 and 2008
and for the three months ended March 31, 2010 and 2009.
|
Three
Months Ended
March,
31
|
Years
Ended
December
31,
|
Cumulative
period
from
August 6, 2001
(inception)
to
|
||||||||||||||||||
|
2010
|
2009
|
2009
|
2010
|
March
31, 2010
|
||||||||||||||||
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
||||||||||||||||||
|
Statements
of Operations Data:
|
||||||||||||||||||||
|
Revenue
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||
|
Research
and development expense
|
$
|
17,767
|
$
|
44,936
|
$
|
40,376
|
$
|
1,802,792
|
$
|
28,349,978
|
||||||||||
|
General
and administrative expense
|
$
|
511,678
|
$
|
512,400
|
$
|
1,731,182
|
$
|
2,609,910
|
$
|
18,705,133
|
||||||||||
|
Net
loss attributable to common shares
|
$
|
(1,633,169
|
)
|
$
|
(761,844
|
)
|
$
|
(2,793,285
|
)
|
$
|
(4,268,858
|
)
|
$
|
(63,566,604
|
)
|
|||||
|
Net
loss per common share
|
$
|
(0.02
|
)
|
$
|
(0.01
|
)
|
$
|
(0.04
|
)
|
$
|
(0.06
|
)
|
N/A
|
|||||||
|
Statements
of Cash Flows Data:
|
||||||||||||||||||||
|
Net
cash used in operating activities
|
$
|
(604,827
|
)
|
$
|
(645,797
|
)
|
$
|
(1,049,799
|
)
|
$
|
(4,444,009
|
)
|
$
|
(40,274,191
|
)
|
|||||
|
Net
cash provided by financing activities
|
$
|
2,084,746
|
$
|
770,270
|
$
|
961,772
|
$
|
3,909,319
|
$
|
41,401,806
|
||||||||||
|
Cash
dividends declared
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||
|
At
March
31,
2010
|
At
December
31,
2009
|
|||||||
|
(unaudited)
|
||||||||
|
Balance
Sheets Data:
|
||||||||
|
Total
assets
|
$
|
20,081,864
|
$
|
365,662
|
||||
|
Total
liabilities
|
$
|
27,599,378
|
$
|
7,150,612
|
||||
|
Total
stockholders’ deficiency
|
$
|
(7,517,514
|
)
|
$
|
(6,784,950
|
)
|
||
- 19
- -
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The
following discussion contains forward-looking statements and involves numerous
risks and uncertainties, including, but not limited to, those described in the
“Risk Factors” section of this prospectus. Actual results may differ
materially from those contained in any forward-looking
statements. The following discussion should be read in conjunction
with “Selected Financial Information” and our financial statements and notes
thereto included elsewhere in this prospectus.
Overview
We were
incorporated in Delaware in 1993 under the name “Atlantic Pharmaceuticals, Inc.”
and, in March 2000, we changed our name to “Atlantic Technology Ventures,
Inc.” In 2003, we completed a “reverse acquisition” of privately held
“Manhattan Research Development, Inc”. In connection with this
transaction, we also changed our name to “Manhattan Pharmaceuticals, Inc.”
From an accounting perspective, the accounting acquirer is considered to be
Manhattan Research Development, Inc. and accordingly, the historical financial
statements are those of Manhattan Research Development, Inc.
During
2005 we merged with Tarpan Therapeutics, Inc. (“Tarpan”). Tarpan was
a privately held New York based biopharmaceutical company developing
dermatological therapeutics. This transaction was
accounted for as a purchase of Tarpan by the Company.
On March
8, 2010, the Company entered into an Agreement and Plan of Merger (the "Merger
Agreement") by and among the Company, Ariston Pharmaceuticals, Inc., a Delaware
corporation ("Ariston") and Ariston Merger Corp., a Delaware corporation and
wholly-owned subsidiary of the Company (the "Merger Sub"). Pursuant
to the terms and conditions set forth in the Merger Agreement, on March 8, 2010,
the Merger Sub merged with and into Ariston (the "Merger"), with Ariston being
the surviving corporation of the Merger. As a result of the Merger,
Ariston became a wholly-owned subsidiary of the Company.
We are a
specialty healthcare product company focused on developing and
commercializing pharmaceutical treatments for underserved patient
populations. We aim to acquire rights to these technologies by
licensing or otherwise acquiring an ownership interest, funding their research
and development and eventually either bringing the technologies to market or
out-licensing.
You
should read the following discussion of our results of operations and financial
condition in conjunction with the financial statements and notes thereto
appearing elsewhere in this prospectus. 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. You 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”, 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.
- 20
- -
Results
of Operations
Three-month
Period ended March 31, 2010 versus 2009
|
Quarters
ended March 31,
|
Increase
|
%
Increase
|
||||||||||||||
|
2010
|
2009
|
(decrease)
|
(decrease)
|
|||||||||||||
|
Costs
and expenses:
|
||||||||||||||||
|
Research
and development:
|
||||||||||||||||
|
Share-based
compensation
|
$ | - | $ | - | $ | - | 0.00 | % | ||||||||
|
Other
research and development expenses
|
18,000 | 45,000 | (27,000 | ) | -60.00 | % | ||||||||||
|
Total research and development expenses
|
18,000 | 45,000 | (27,000 | ) | -60.00 | % | ||||||||||
|
General
and administrative:
|
||||||||||||||||
|
Share-based
compensation
|
$ | 191,000 | 104,000 | 87,000 | 83.65 | % | ||||||||||
|
Other
general and administrative expenses
|
320,000 | 408,000 | (88,000 | ) | -21.57 | % | ||||||||||
|
Total
general and administrative expenses
|
511,000 | 512,000 | (1,000 | ) | -0.20 | % | ||||||||||
|
Other
income/(expense)
|
(1,104,000 | ) | (205,000 | ) | (899,000 | ) | 438.54 | % | ||||||||
|
Net
loss
|
$ | 1,633,000 | $ | 762,000 | $ | 871,000 | 114.30 | % | ||||||||
During
each of the three month periods ended March 31, 2010 and 2009, we did not
recognize any revenues. We are considered a development stage company
and do not expect to have revenues relating to our products candidates prior to
March 31, 2011, if at all.
For the
quarter ended March 31, 2010 research and development expense was $18,000 as
compared to $45,000 for the quarter ended March 31, 2009. This
decrease of $27,000, or 60%, is primarily due to there being no active product
development projects during the 2010 period and limited product development
activity during the 2009 period.
For the
quarter ended March 31, 2010 general and administrative expense was $511,000 as
compared to $512,000 for the quarter ended March 31, 2009. This
decrease of $1,000 is less than 1%.
For the
quarter ended March 31, 2010 other income/(expense) was $(1,104,000) as compared
to $(205,000) for the quarter ended March 31, 2009. This change of
$(899,000), or 439%, is primarily due to a change in fair value of a derivative
of $872,000, an increase in interest expense of $111,000, a decrease in other
income of $52,000 offset by a decrease in equity in losses of Hedrin JV of
$136,000.
Net loss
for the quarter ended March 31, 2010 was $1,633,000 as compared to $762,000 for
the quarter ended March 31, 2009. This increase of $871,000, or 114%,
is primarily due to an increase in other expense of $899,000 and a decrease in
research and development expenses of $27,000.
Fiscal
Year Ended December 31, 2009 versus Fiscal Year Ended December 31,
2008
During
each of the years ended December 31, 2009 and 2008, we had no revenues, and are
considered a development stage company. We do not expect to have
revenues relating to our products prior to December 31, 2010.
- 21
- -
|
Years
ended December 31,
|
Increase
|
%
Increase
|
||||||||||||||
|
2009
|
2008
|
(decrease)
|
(decrease)
|
|||||||||||||
|
Costs
and expenses:
|
||||||||||||||||
|
Research
and development:
|
||||||||||||||||
|
Share-based
compensation
|
$ | 2,000 | $ | 122,000 | $ | (120,000 | ) | -98.36 | % | |||||||
|
Other
research and development expenses
|
38,000 | 1,681,000 | (1,643,000 | ) | -97.74 | % | ||||||||||
|
Total
research and development expenses
|
40,000 | 1,803,000 | (1,763,000 | ) | -97.78 | % | ||||||||||
|
General
and administrative:
|
||||||||||||||||
|
Share-based
compensation
|
351,000 | 342,000 | 9,000 | 2.63 | % | |||||||||||
|
Other
general and administrative expenses
|
1,380,000 | 2,268,000 | (888,000 | ) | -39.15 | % | ||||||||||
|
Total
general and administrative expenses
|
1,731,000 | 2,610,000 | (879,000 | ) | -33.68 | % | ||||||||||
|
Other
income/(expense):
|
||||||||||||||||
|
Equity
in loss of Hedrin JV
|
(500,000 | ) | (250,000 | ) | (250,000 | ) | 100.00 | % | ||||||||
|
Change
in fair value of derivative
|
(560,000 | ) | - | (560,000 | ) | N/A | ||||||||||
|
Swiss
Pharma settlement
|
251,000 | - | 251,000 | N/A | ||||||||||||
|
Interest
and amortization on Notes Payable
|
(545,000 | ) | (39,000 | ) | (506,000 | ) | 1297.44 | % | ||||||||
|
Other
interest expense
|
(3,000 | ) | (26,000 | ) | 23,000 | -88.46 | % | |||||||||
|
Interest
and other income
|
335,000 | 459,000 | (124,000 | ) | -27.02 | % | ||||||||||
|
Total
other income/(expense)
|
(1,022,000 | ) | 144,000 | (1,166,000 | ) | -809.72 | % | |||||||||
|
Net
loss
|
$ | 2,793,000 | $ | 4,269,000 | $ | (1,476,000 | ) | -34.57 | % | |||||||
For the
year ended December 31, 2009 research and development expense was $40,000 as
compared to $1,803,000 for the year ended December 31, 2008. This decrease
of $1,763,000, or 98%, is primarily due to there being no active product
development projects during 2009, as the Hedrin product is being developed by
the Hedrin JV and as we have ceased development of all other products due to the
lack of funds and other factors.
For the
year ended December 31, 2009 general and administrative expense was $1,731,000
as compared to $2,610,000 for the year ended December 31, 2008. This
decrease of $879,000, or 34%, is primarily comprised of $493,000 of costs
recognized during 2008 related to the Swiss Pharma arbitration award with no
costs recognized during 2009, decreases in public company costs of $107,000, in
travel and related expenses of $63,000, in consulting and temporary help of
$58,000, in rent and related expenses of $51,000, in depreciation expense and
loss on abandonment of fixed assets of $38,000, in business development costs of
$28,000 and in dues and subscriptions of $18,000, partially offset by an
increase in share-based compensation of $9,000.
For the
year ended December 31, 2009 other income/(expense), net, was $(1,022,000) as
compared to $144,000 for the year ended December 31, 2008. This change of
$(1,166,000) , or 810%, is due to the recognition of $(560,000) of change in the
fair value of a derivative liability and $251,000 relating to the
settlement of the Swiss Pharma matter during 2009 with no corresponding amounts
recognized during 2008, of increases in equity in losses of Hedrin JV of
$(250,000), in interest and amortization expense related to Notes Payable of
$(506,000) and a decrease of $(124,000), in management fee revenue from the
Hedrin JV.
Net loss
for the year ended December 31, 2009 was $2,793,000 as compared to $4,269,000
for the year ended December 31, 2008. This decrease of $1,476,000, or 35%,
is primarily due to a decrease in research and development expenses of
$1,763,000, a decrease in general and administrative expense of $879,000
offset by a change in other income/(expense) of
$(1,166,000).
- 22
- -
Liquidity
and Capital Resources
From
inception to March 31, 2010, we incurred a deficit during the development stage
of $63,566,604 primarily as a result of our net losses, and we expect to
continue to incur additional losses through at least March 31, 2011 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 and debt
financings and a joint venture transaction. During the quarter ended
March 31, 2010, we had a net increase in cash and cash equivalents of $2.0
million. This increase resulted largely from net cash provided by
financing activities of $2.1 million and $0.5 million of cash acquired in the
Ariston merger partially offset by net cash used in operating activities of $0.6
million. Total liquid resources as of March 31, 2010 were $2.0
million compared to $18,000 at December 31, 2009.
Our
current liabilities as of March 31, 2010 were $7,203,000 compared to $2,532,000
at December 31, 2009, an increase of $4,671,000. As of March 31,
2010, we had working capital deficit of $4,917,000 compared to working capital
deficit of $2,268,000 at December 31, 2009.
We
received net proceeds of approximately $2,100,000 in March 2010 from the 2010
Private Placement. We also acquired $519,000 of cash in the merger
with Ariston.
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 nonclinical 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, in-licensing activities, competing technological
and market developments, changes in our existing collaborative and licensing
relationships, the resources that we devote to developing manufacturing and
commercializing capabilities, 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 we do obtain will be sufficient to meet our
needs in the long term. Through March 31, 2010, a significant portion
of our financing has been through equity and debt financings and a joint venture
transaction. 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. We
believe 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 March 31, 2010, our management believes that we
have sufficient capital to fund our operations through 2010. Our
management believes that we will need additional equity or debt financing or
will need to generate positive cash flow from the Hedrin JV, or generate
revenues through licensing of its products or entering into strategic alliances
to be able to sustain our operations into 2011. Furthermore, we will
need additional financing thereafter to complete development and
commercialization of our products. There can be no assurances that we
can successfully complete development and commercialization of our
products.
These
matters raise substantial doubt about our ability to continue as a going
concern. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
We have
reported net losses of $1,633,000 and $762,000 for the three month periods ended
March 31, 2010 and 2009, respectively. The net loss attributable to
common shares from date of inception, including preferred stock dividends,
August 6, 2001 to March 31, 2010, amounts to $63,567,000. Management
believes that we will continue to incur net losses through at least March 31,
2011 and for the foreseeable future.
- 23
- -
Joint
Venture Agreement
We and
Nordic Biotech Venture Fund II K/S, or Nordic, entered into a joint venture
agreement on January 31, 2008, which was amended on February 18, 2008 and on
June 9, 2008. Pursuant to the joint venture agreement, in February
2008, (i) Nordic contributed cash in the amount of $2.5 million to H
Pharmaceuticals K/S (formerly Hedrin Pharmaceuticals K/S), a newly formed Danish
limited partnership, or the Hedrin JV, in exchange for 50% of the equity
interests in the Hedrin JV, and (ii) we contributed certain assets to North
American rights (under license) to our Hedrin product to the Hedrin JV in
exchange for $2.0 million in cash and 50% of the equity interests in the Hedrin
JV. On or around June 30, 2008, in accordance with the terms of the
joint venture agreement, Nordic contributed an additional $1.25 million in cash
to the Hedrin JV, $1.0 million of which was distributed to us and equity in the
Hedrin JV was distributed to each of us and Nordic sufficient to maintain our
respective ownership interests at 50%.
Pursuant
to the joint venture agreement, upon the classification by the U.S. Food and
Drug Administration, or the FDA, of Hedrin as a Class II or Class III medical
device, Nordic was required to contribute to the Hedrin JV an additional $1.25
million in cash, $0.5 million of which was to be distributed to us and equity in
the Hedrin JV was to be distributed to each of us and Nordic sufficient to
maintain our respective ownership interests at 50%. The
FDA notified the Hedrin JV that Hedrin has been classified as a Class III
medical device and in February 2009, Nordic made the $1.25 million investment in
the Hedrin JV, the Hedrin JV made the $0.5 million milestone payment to us and
equity in the Hedrin JV was distributed to us and Nordic sufficient to maintain
our respective ownership interests at 50%.
The
Hedrin JV is responsible for the development and commercialization of Hedrin for
the North American market and all associated costs including clinical trials, if
required, regulatory costs, patent costs, and future milestone payments owed to
Thornton & Ross Ltd., or T&R, the licensor of Hedrin. The
Hedrin JV has engaged us to provide management services to the Hedrin JV in
exchange for an annualized management fee, which for the three month periods
ended March 31, 2010 and 2009 was approximately $75,000 and $109,000,
respectively.
The
profits of the Hedrin JV will be shared by us and Nordic in accordance with our
respective equity interests in the Hedrin JV, of which we each currently hold
47.62%, except that Nordic is entitled to receive a minimum return each year
from the Hedrin JV equal to 6% on Hedrin sales, as adjusted for any change in
Nordic’s equity interest in the Hedrin JV, before any distribution is made to
us. If the Hedrin JV realizes a profit in excess of the Nordic
minimum return in any year, then such excess shall first be distributed to us
until our distribution and the Nordic minimum return are in the same ratio as
our respective equity interests in the Hedrin JV and then the remainder, if any,
is distributed to Nordic and us in the same ratio as our respective equity
interests. However, in the event of a liquidation of the Hedrin JV,
Nordic’s distribution in liquidation must equal the amount Nordic invested in
the Hedrin JV ($5.5 million) plus 10% per year, less the cumulative
distributions received by Nordic from the Hedrin JV before any distribution is
made to us. If the Hedrin JV’s assets in liquidation exceed the
Nordic liquidation preference amount, then any excess shall first be distributed
to us until our distribution and the Nordic liquidation preference amount are in
the same ratio as our respective equity interests in the Hedrin JV and then the
remainder, if any, is distributed to Nordic and us in the same ratio as our
respective equity interests. Further, in no event shall Nordic’s
distribution in liquidation be greater than assets available for distribution in
liquidation.
Pursuant
to the terms of the joint venture agreement, Nordic has the right to nominate
one person for election or appointment to our board of directors. The
Hedrin JV's board of directors consists of four members, two members appointed
by us and two members appointed by Nordic. Nordic has the right to
appoint one of the directors as chairman of the board. The chairman
has certain tie breaking powers.
Pursuant
to the joint venture agreement, Nordic has the right to put all or a portion of
its interest in the Hedrin JV in exchange for such number of shares of our
common stock equal to the amount of Nordic’s investment in the Hedrin JV divided
by $0.07, as adjusted for the 2010 Private Placement, and as further adjusted
from time to time for stock splits and other specified events, multiplied by a
conversion factor, which is (i) 1.00 for so long as Nordic's distributions from
the Hedrin JV are less than the amount of its investment, (ii) 1.25 for so long
as Nordic's distributions from the Hedrin JV are less than two times the amount
of its investment but greater than or equal to the amount of its investment
amount, (iii) 1.50 for so long as Nordic's distributions from the Hedrin JV are
less than three times the amount of its investment but greater than or equal to
two times the amount of its investment amount, (iv) 2.00 for so long as Nordic's
distributions from the Hedrin JV are less than four times the amount of its
investment but greater than or equal to three times the amount of its investment
amount and (v) 3.00 for so long as Nordic’s distributions from Hedrin JV are
greater than or equal to four times the amount of its investment. The
put right expires upon the earlier to occur of (i) February 25, 2018 and (ii) 30
days after the date when Nordic's distributions from the Hedrin JV exceed five
times the amount Nordic has invested in the Hedrin JV (or 10 days after such
date if we have provided Nordic notice thereof).
- 24
- -
Pursuant
to the joint venture agreement, we have the right to call all or a portion of
Nordic's equity interest in the Hedrin JV in exchange for such number of shares
of our common stock equal to the portion of Nordic's investment in the Hedrin JV
that we call by the dollar amount of Nordic's investment as of such date in the
Hedrin JV, divided by $0.07, as adjusted for the sale of the Secured
12% Notes in the fourth quarter of 2008, and as further adjusted from time to
time for stock splits and other specified events. The call right is
only exercisable by us if the price of our common stock has closed at or above
$1.40 per share for 30 consecutive trading days. During the first 30
consecutive trading days in which our common stock closes at or above $1.40 per
share, we may exercise up to 25% of the call right. During the second
30 consecutive trading days in which our common stock closes at or above $1.40
per share, we may exercise up to 50% of the call right on a cumulative
basis. During the third consecutive 30 trading days in which our
common stock closes at or above $1.40 per share, we may exercise up to 75% of
the call right on a cumulative basis. During the fourth consecutive
30 days in which our common stock closes at or above $1.40 per share, we may
exercise up to 100% of the call right on a cumulative basis. Nordic
may refuse the call, either by paying $1.5 million multiplied by the percentage
of Nordic's investment being called or forfeiting an equivalent portion of the
put right, calculated on a pro rata basis for the percentage of the Nordic
equity interest called by us. The call right expires on
February 25, 2013. For purposes of Nordic’s right to put, and our
right to call, all or a portion of Nordic’s equity interest in the Hedrin JV,
the amount of Nordic’s investment is currently $5,000,000.
In
connection with our joint venture agreement, on February 25, 2008, Nordic paid
us a non-refundable fee of $150,000 in exchange for the right to receive a
warrant to purchase up to 14,285,714 shares of our common stock at $0.07 per
share, as adjusted for the 2010 Private Placement, and as further adjusted from
time to time for stock splits and other specified events.
In
connection with the joint venture agreement, we entered into a registration
rights agreement with Nordic on February 25, 2008, as modified pursuant to a
letter agreement, dated September 17, 2008, pursuant to which we agreed to file
with the Securities and Exchange Commission, or the SEC, an initial registration
statement registering the resale by Nordic of any shares of our common stock
issuable to Nordic through the exercise of the warrant or the put right,
within10 calendar days following the date on which our annual report on Form
10-K for the year ended December 31, 2007 was required to be filed with the SEC,
which was subsequently extended until May 1, 2008. We filed an
initial registration statement on May 1, 2008, which was declared effective on
October 15, 2008. On June 2, 2009, we filed an additional
Registration Statement registering the additional 28,769,841 shares of our
common stock that may be issued to Nordic upon exercise of a put right,
which we refer to as the Put Shares, held by Nordic as a result of Nordic’s
additional investment of $1,250,000 in the Hedrin JV, as adjusted pursuant to
the anti-dilution provisions of the put right and the additional 3,968,254
shares issuable upon exercise of an outstanding warrant held by Nordic.
The SEC has informed us that we may not register the Put Shares for
resale until Nordic exercises its put right and such shares of common stock are
outstanding. Further, although we diligently pursued registration with the
SEC, such registration statement was not declared effective within 105 days of
the required filing date. We have withdrawn such registration
statement in light of the SEC staff's position that the shares of common stock
underlying Nordic's put right cannot be registered because such shares are not
outstanding and do not underlie a currently outstanding convertible
security.
We also
have agreed to file with the SEC any additional registration statements which
may be required no later than 45 days after the date we first know such
additional registration statement is required; provided, however, that (i) in
the case of the classification by the FDA of Hedrin as a Class II or Class III
medical device described above and the payment in full by Nordic of the related
final milestone payment of $1.25 million, the registration statement with
respect to the additional shares of our common stock relating to such additional
investment must be filed within 45 days after achievement of such
classification; and (ii) in the event we provide Nordic with notice of exercise
of our right to call all or a portion of Nordic's equity interest in the Hedrin
JV, a registration statement with respect to the shares of our common stock
payable to Nordic in connection with such call right (after giving effect to any
reduction in the number of such shares resulting from Nordic's refusal of all or
a portion of such call in accordance with the terms of our joint venture
agreement) must be filed within 16 days after delivery of such notice to
Nordic. If we fail to file a registration statement on time or if a
registration statement is not declared effective by the SEC within 105 days of
the required filing date, or otherwise fail to diligently pursue registration
with the SEC in accordance with the terms of the registration rights agreement,
we will be required to pay as partial liquidated damages and not as a penalty,
to Nordic or its assigns, an amount equal to 0.5% of the amount invested in the
Hedrin JV by Nordic pursuant to the joint venture agreement per month until the
registration statement is declared effective by the SEC; provided, however, that
in no event shall the aggregate amount payable by us exceed 9% of the amount
invested in the Hedrin JV by Nordic under the joint venture
agreement.
- 25
- -
As per
the Limited Partnership Agreement between us and Nordic (the “LPA”) in the event
that a limited partner in the Hedrin JV (a “Limited Partner”) determines, in its
reasonable goods faith discretion, that the Hedrin JV requires additional
capital for the proper conduct of its business that Limited Partner shall
provide each Limited Partner with a written request for contribution of such
Limited Partner’s proportionate share, in accordance to the then respective
equity ownership in the Hedrin JV, of such requested additional capital
amount.
As per
the terms of the LPA, if a Limited Partner declines to so contribute, elects to
contribute but thereafter fails to do so timely, or elects to contribute and
timely does contribute some, but not all of, its proportionate share of the
requested additional capital amount, the other Limited Partner shall have the
option to contribute the remaining balance of such requested additional capital
amount.
As per
the terms of the LPA, the General Partner shall determine the fair market value
of the shares for purposes of determining how to allocate the number of shares
of the Hedrin JV to be issued in consideration for the contribution of
capital. If the General Partner is unable to determine the fair
market value of the shares, the fair market value for the shares shall be
determined in good faith by the contributing Limited Partner if such amount is
equal to or greater than the most recent valuation of such Hedrin JV
shares.
On
December 31, 2009, Nordic delivered a written notice to us for a $1,000,000
capital increase to the Hedrin JV. In January 2010, Nordic made its
capital contribution to the Hedrin JV of $500,000. We did not have
sufficient funds to make such a capital contribution within the required time
prescribed in the LPA.
The
General Partner was unable to determine the fair market value of the
shares. The contributing Limited Partner, Nordic, determined in good
faith that the fair market value of the shares is equal to the most recent
valuation. The most recent valuation was the February 2009 investment
of $1,500,000 into the Hedrin JV by Nordic at $5,000 per share. As a
result of Nordic’s investing an additional $500,000 in the Hedrin JV, the
ownership percentages of the Hedrin JV have changed from 50% to Nordic and 50%
for us to 52.38% to Nordic and 47.62% for us. In the event that
Nordic exercises its option to invest the remaining $500,000 of the $1,000,000
capital increase then the ownership percentage shall change to 54.55% for Nordic
and 45.45% for us.
Disagreement
with Nordic
In April
2010, Nordic filed a Schedule 13D/A (the “Nordic Amended 13D”). We are not in
agreement with the disclosure set forth in the Nordic Amended 13D and have
written a letter to Nordic explaining our disagreements. The Nordic
Amended 13D shows an aggregate number of shares of our common stock beneficially
owned by Nordic as 216,666,666, or 65.5%. We believe the correct
beneficial ownership is 85,714,285 shares, or 41.47%. The Nordic
Amended 13D states that Nordic does not believe our determination of the
anti-dilution shares accruing to Nordic as a result of the 2010 Private
Placement was neither reasonable nor made in good faith. As we have
previously stated we believe our determination was both reasonable and made in
good faith. The Nordic Amended 13D further states that Nordic
acquired the right to purchase an additional 5,555,556 shares of our common
stock upon exercise of the Nordic Put as a result of Nordic’s making an
additional investment in the Hedrin JV of $500,000 in January
2010. We are not in agreement with this claim, we do not believe that
Nordic is required to any adjustment to Nordic’s Put as a result of Nordic
making additional capital contributions to the Hedrin JV. In the
letter to Nordic we note that Nordic’s valuation suggestions for the warrants
issued in the 2010 Private Placement ignores the concept of relative value
inherent in the Hedrin JV Agreement.
- 26
- -
2010
Private Placement
On March
and April 2010, we raised aggregate gross proceeds of approximately $2.6 million
in connection with our 2010 Private Placement. We sold an aggregate
of 104.3 units for a purchase price of $25,000 per unit. We
issued to each investor units consisting of 357,143 shares of our
common stock and 535,714 warrants, each of which entitle the holder to purchase
one additional share of our common stock for a period of five years at an
exercise price of $0.08 per share. In
addition in April 2010, a12% original discount senior secured subordinated
convertible debenture, which we refer to as the Convertible 12% Debenture, with
a stated value of $400,000 and $21,886 of accrued interest, was converted by its
holder into 16.88 units (including all accrued interest thereon). The
conversion price was equal to the per unit purchase price paid by the investors
in the 2010 Private Placement.
Convertible
12% Note Payable
On
October 27, 2009, we entered into a Settlement Agreement and Mutual Release with
Swiss Pharma Contract LTD (“Swiss Pharma”) pursuant to which we agreed to pay
Swiss Pharma $200,000 and issue Swiss Pharma an interest free promissory note in
the principal amount of $250,000 in full satisfaction of the September 5, 2008
arbitration award. The amount of the Arbitration award was $683,027 at September
30, 2009 and is included as a component of accrued expenses in the balance sheet
as of September 30, 2009.
In
conjunction with the Settlement Agreement and Mutual Release with Swiss Pharma
described above, on October 28, 2009, we entered into a subscription agreement
pursuant to which we sold the 12% Convertible Debenture and a warrant to
purchase 2,222,222 shares of our common stock, par value $.001 per share for a
purchase price of $200,000. The warrant is exercisable at an exercise
price of $0.11 per share, subject to adjustment, prior to October 28,
2014. The Convertible 12% Debenture is convertible into shares of our
common stock at an initial conversion price of $0.09 per share, subject to
adjustment or, in the event that we issues new securities in connection with a
financing, the Convertible 12% Debenture may be converted into such new
securities at a conversion price equal to the purchase price paid by the
purchasers of such new securities. The Convertible 12% Debenture was
subordinated to our outstanding Secured 12% Notes in the aggregate principal
amount of $1,725,000. On April 8, 2010, the holder of the Convertible 12%
Debenture converted the 12% Convertible Debenture (including all interest
accrued thereon) into approximately 17 units, with each unit consisting of (i)
357,143 shares of our common stock and (ii) warrants to purchase 535,714 shares
of our common stock at a per share purchase price of $0.08. In
connection with the issuance of the Convertible 12% Debenture and the warrants,
we issued warrants to purchase an aggregate of 222,222 shares of common stock at
an exercise price of $0.11 per share to the placement agent and certain of its
designees.
Secured
10% Notes Payable
On
September 11, 2008, we issued secured 10% promissory notes to certain of our
directors and officers and an employee for aggregate principal amount of
$70,000. Principal and interest on the notes was payable in cash on
March 10, 2009 unless paid earlier by us. The secured 10% notes were
repaid in February 2009 along with interest thereon. In connection
with the issuance of the notes, we issued to the noteholders 5-year warrants to
purchase an aggregate of 140,000 shares of our common stock at an exercise price
of $0.20 per share.
Secured
12% Notes Payable
On
February 3, 2009, we completed a private placement of 345 units, with each unit
consisting of secured 12% notes in the principal amount of $5,000 and a warrant
to purchase up to 166,667 shares of our common stock at an exercise price of
$.09 per share which expires on December 31, 2013, for aggregate gross proceeds
of $1,725,000. The private placement was completed in three closings
which occurred on November 19, 2008 with respect to 207 units, December 23, 2008
with respect to 56 units and February 3, 2009 with respect to 82
units.
- 27
- -
To secure
our obligations under the notes, we entered into a security agreement and a
default agreement with the investors. The security agreement provides that the
notes will be secured by a pledge of our assets other than (i) our interest in
the Hedrin joint venture, including, without limitation, our interest in H
Pharmaceuticals K/S and H Pharmaceuticals General Partner ApS, (ii) our rent
deposit for our former office space, (iii) our refund of a prepayment and (iv)
our tax refund for the 2007 fiscal year from the State of New York and City of
New York. In addition, to provide additional security for our
obligations under the notes, we entered into a default agreement, which provides
that upon an event of default under the notes, we shall, at the request of the
holders of the notes, use our reasonable commercial efforts to either (i) sell a
part or all of our interests in the Hedrin JV or (ii) transfer all or part of
our interest in the Hedrin JV to the holders of the notes, as necessary, in
order to fulfill our obligations under the notes, to the extent required and to
the extent permitted by the applicable Hedrin JV agreements.
In
connection with the private placement, we, the placement agent and the investors
entered into a registration rights agreement. Pursuant to the
registration rights agreement, we agreed to file a registration statement to
register the resale of the shares of our common stock issuable upon exercise of
the warrants issued to the investors in the private placement, within 20 days of
the final closing date and to cause the registration statement to be declared
effective within 90 days (or 120 days upon full review by the
SEC). During the three month period ended March 31,
2009, we filed the registration statement, received a comment letter from
the SEC, responded to the SEC comment letter and re-filed the registration
statement. The registration statement was declared effective by the
SEC on April 17, 2009.
Acquisition
of Ariston Pharmaceuticals, Inc.
On March
8, 2010, we entered into the Merger Agreement by and among Ariston, the Merger
Sub and us. Pursuant to the terms and conditions set forth in the Merger
Agreement, on March 8, 2010, the Merger Sub merged with and into Ariston (the
"Merger"), with Ariston being the surviving corporation of the Merger. As
a result of the Merger, Ariston became our wholly-owned subsidiary.
Under the
terms of the Merger Agreement, the consideration payable by us to the
stockholders and note holders of Ariston consists of the issuance of 7,062,423
shares of our common stock at closing (as defined in the Merger Agreement)
plus the right to
receive up to an additional 24,718,481 shares of our common stock (the
“Milestone Shares”) upon the achievement of certain product-related milestones
described below. In addition, we have reserved 38,630,723 shares of our
Common Stock for possible future issuance in connection with the conversion of
$15.45 million of outstanding Ariston convertible promissory notes. The
note holders will not have any recourse to us for repayment of the notes (their
sole recourse being to Ariston), but the note holders will have the right to
convert the notes into shares of our common stock at the rate of $0.40 per
share. Further, we have reserved 5,000,000 shares of our common stock for
possible future issuance in connection with the conversion of $1.0 million of
outstanding Ariston convertible promissory note issued in satisfaction of a
trade payable. The note holder will not have any recourse to us for
repayment of the note (their sole recourse being to Ariston), but the note
holder will have the right to convert the note into shares of our common stock
at the rate of $0.20 per share.
Upon the
achievement of the milestones described below, we would be obligated to issue
portions of the Milestone Shares to the former Ariston stockholders and
noteholders:
|
|
·
|
Upon the affirmative decision of
our Board of Directors, provided that such decision is made prior to March
8, 2011, to further develop the AST-914 metabolite product candidate,
either internally or through a corporate partnership, we would issue
8,828,029 of the Milestone
Shares.
|
|
|
·
|
Upon the acceptance by the FDA of
our filing of the first New Drug Application for the AST-726 product
candidate, we would issue 7,062,423 of the Milestone
Shares.
|
|
|
·
|
Upon our receipt of FDA approval
to market the AST-726 product candidate in the United States of America,
we would issue 8,828,029 of the Milestone
Shares.
|
Certain
members of our Board of Directors and certain of our principal stockholders
owned Ariston securities. Timothy McInerney, one of our directors, owned
16,668 shares of Ariston common stock which represented less than 1% of
Ariston’s outstanding common stock as of the closing of the Merger. Neil
Herskowitz, one of our directors, indirectly owned convertible promissory notes
of Ariston with interest and principal in the amount of $192,739. Michael
Weiser, who served as one of our directors at the time of the Merger, owned
117,342 shares of Ariston common stock, which represented approximately 2.1% of
Ariston’s outstanding common stock as of the closing of the Merger.
Lindsay Rosenwald, a more than 5% beneficial owner of our common stock, in his
individual capacity and indirectly through trusts and companies he controls
owned 497,911 shares of Ariston common stock, which represented approximately
8.9% of Ariston’s outstanding common stock as of the closing of the Merger and
indirectly owned convertible promissory notes of Ariston in the amount of
$141,438.
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We merged
with Ariston principally to add new products to our portfolio. Ariston, prior to
the Merger, was a private, clinical stage specialty biopharmaceutical
company based in Shrewsbury, Massachusetts that in-licenses, develops and plans
to market novel therapeutics for the treatment of serious disorders of the
central and peripheral nervous systems.
AST-726
Ariston
is developing a nasally-delivered Vitamin B12
remediation treatment which it calls AST-726. AST-726 has demonstrated
pharmacokinetic equivalence to a marketed intramuscular injection product for
Vitamin B12
remediation. Ariston believes that AST-726 may enable both a single,
once-monthly treatment for maintenance of normal Vitamin B12 levels in
deficient patients, and more frequent administration to restore normal levels in
newly diagnosed B12
deficiency. Further, Ariston believes that AST-726 could offer a
convenient, painless, safe and cost-effective treatment for Vitamin B12
deficiency, without the need for intramuscular injections.
Ariston
has positioned AST-726 to currently require only a single, relatively small
Phase III clinical trial prior to submission of a 505(b)(2) new drug application
(“NDA”) to the FDA.
Ariston
has developed a CMC/manufacturing process for AST-726 that Ariston believes
provides a commercially viable stability profile. Ariston has two issued
patents in the United States with respect to AST-726, one of which relates to
its application in Vitamin B12
remediation.
More than
9 million people in the US are deficient in Vitamin B12,
indicating substantial market potential for a facile, convenient, safe and
effective treatment that can replace the need for painful and frequent
intramuscular injections or other less than fully effective delivery forms.
Ariston believes that substantial market opportunity also exists
internationally.
Vitamin
B12
Deficiency-Background of the Disease
Untreated
Vitamin B12
deficiency can result in serious clinical problems including hematological
disorders, such as life-threatening anemias, and a range of central and
peripheral neurological abnormalities such as fatigue, confusion, cognition
impairment, dementia, depression, peripheral neuropathies and gait
disturbances. Neuronal damage may involve peripheral nerves, the spinal
cord and the brain and if the condition is left untreated may become
permanent. Furthermore, clinically asymptomatic patients with low normal
or below normal Vitamin B12 levels
may have changes in blood chemistries, including elevated levels of
methylmalonic acid or homocysteine, known risk factors for other medical
conditions associated with an increased risk of circulatory problems, blood
clots and cardiovascular disease.
The
primary diagnosis of Vitamin B12
deficiency is made when measurement of its blood concentration falls below the
expected normal range of 200 to 900 picograms/ml. Vitamin B12
deficiency is most often caused by pathological conditions that limit the body’s
ability to absorb the vitamin. Such disorders include pernicious anemia,
atrophic gastritis, problems caused by gastric surgical procedures to treat
stomach cancer and obesity, Crohn’s disease and simple age-related
changes. Some studies show the inability to properly absorb Vitamin B12 as a side
effect from chronic use of certain widely prescribed antacid medications such as
Prilosec ® and
diabetes treatments such as Glucophage ®.
Approximately
15% of the elderly and up to 40% of nursing home residents in the U.S. have
Vitamin B12
deficiency. A study of over 11,000 U.S. civilians ages four and older found a 3%
prevalence of Vitamin B12
deficiency in the general population using the 200 picograms/ml deficiency
standard, indicating that approximately 9 million people in the U.S. are in need
of B12
replacement therapy. Some experts advocate a higher deficiency standard of
300-350 picograms/ml on the basis that levels below this coincide with elevated
methylmalonic acid and homocysteine, risk factors for cardiovascular disease as
found in the Framingham Heart Study. On this basis the prevalence of Vitamin
B12
deficiency increases substantially.
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Current
Treatments for Vitamin B12
Deficiency
Once
Vitamin B12
deficiency is diagnosed by a simple blood test, the goal of treatment is
generally to:
o
restore circulating blood levels to normal as rapidly as
possible;
o
replenish and normalize the substantial stores of the
vitamin in the body; and
o
institute a lifelong therapeutic regimen that will maintain
normal levels of the vitamin.
Ariston
believes that parenteral (intramuscular injection) treatment is often considered
the treatment of choice for Vitamin B12
deficiency. Cyanocobalamin is predominantly used for this purpose in the
United States, but hydroxocobalamin, the active ingredient in AST-726, is also
available for pediatrics and for adults for whom injection of cyanocobalamin is
poorly tolerated. Hydroxocobalamin injection is the predominant treatment
for Vitamin B12
deficiency in Europe.
In the
United States, intramuscular injections are generally given by a physician or
nurse, necessitating an office/medical center visit by the patient or a visiting
nurse home call for each treatment. Following a diagnosis of B12
deficiency, injections are required quite frequently in order to restore normal
vitamin levels. Once normalization is achieved, the frequency can be reduced to
once or twice per month. While the treatment is usually highly effective, the
inconvenience and cost of frequent office visits and the pain and side-effects
associated with intramuscular injections are problematic for many
patients.
Intranasal
treatment with Vitamin B12
deficiency seeks to alleviate these problems, but the two intranasal products
currently available in the United States have to be administered on a daily or
weekly basis and are not usually recommended for the treatment of newly
diagnosed patients. Both products are based on
cyanocobalamin.
Oral or
sublingual administration of high doses of Vitamin B12 can
restore deficient patients to normal in certain cases. Such high dose
supplements are generally available in pharmacies and nutrition/health food
stores. Adequate results can almost certainly be obtained when nutritional
insufficiency (e.g., strict vegan diet) is the primary cause of the problem.
However, the normal gastrointestinal tract has a very limited capability to
absorb Vitamin B12 and if
this is compromised, as is the case in many deficient patients, oral or
sublingual supplementation may not be ideal for rapidly restoring circulating
levels and storage depots of the vitamin to normal. In such cases of
pathological Vitamin B12
deficiency, intramuscular injection still often remains the current treatment of
choice.
An
unapproved Vitamin B12 patch is
available in the United States, but Ariston believes that its effectiveness in
moderate to severe Vitamin B12 deficient
patients is substantially untested.
Potential
Advantages of Ariston’s AST-726 Treatment
Ariston
believes that Ariston’s AST-726 treatment has the potential to directly
substitute for and replace the need for injection treatment by applying the
current injection frequency paradigms for both newly diagnosed and normalized
Vitamin B12 deficient
patients. AST-726 is proposed to be self-administered at home by the
patient, without costly, time-consuming and inconvenient visits to a doctor’s
office or medical facility needed for each of the many intramuscular injections
required for life. Because it is delivered through a nasal spray,
additional advantages include freedom from injection pain and reduced anxiety in
individuals, including children and the elderly, who may have fear of
injections. Ariston believes that the delivery profile of AST-726 is
comparable to that of the marketed intramuscular injection, and that therefore
newly diagnosed patients will be able to self-administer the nasal spray on a
daily basis or several times a week to restore their Vitamin B12 status to
normal and will then be self-maintained on a single monthly nasal spray
treatment.
Additional
Clinical Trial Is Needed
AST-726,
a commercial nasal spray formulation of hydroxocobalamin, has satisfactorily
completed preclinical toxicology, and an Investigational New Drug (“IND”)
Application has been filed with the FDA. This product candidate is
being developed utilizing the 505(b)(2) regulatory pathway. AST-726 has
also successfully completed a safety and pharmacokinetic study in healthy
volunteers and an end of Phase II meeting with FDA has been completed. We
are planning a Phase III Vitamin B12
replacement study in the United States. The study is designed to enroll
approximately 40 Vitamin B12 deficient
patients currently treated with injection therapy. Patients will first be
evaluated on injection therapy and then will receive AST-726 by nasal spray on a
monthly basis for 12 weeks. The primary purpose of this study is to
determine that levels of Vitamin B12 in the
patients’ bloodstream remain within the normal range following monthly
administration of AST-726. We anticipate that the data from this study and
additional manufacturing information will support the planned 505(b)(2) new drug
application (“NDA”) filing for AST-726.
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AST-915
AST-915
is an orally delivered treatment for essential tremor. We acquired global
rights to AST-915 as part of the Ariston acquisition. This product
candidate is being studied under a Cooperative Research and Development
Agreement (CRADA) with the National Institutes of Health (NIH) and a Phase 1
clinical study is currently underway in essential tremor patients. AST-915
was formerly referred to as “AST-914 metabolite”.
Essential
Tremor
Essential
tremor is a neurological disorder that is characterized by involuntary shaking
of the hands, arms, head, voice, and upper body. The most disabling tremors
occur during voluntary movement, affecting common skills such as writing, eating
and drinking. Essential tremor is often misdiagnosed as Parkinson’s
disease, yet according to the National Institutes of Neurological Disorders and
Stroke, approximately 8 times as many people have essential tremor as have
Parkinson’s. Essential tremor is not confined to the elderly.
Children, newborns, and middle-aged people can also have the
condition.
Market
opportunity
Essential
tremor is the most common involuntary movement disorder, with increasing
incidence as people age. According to the National Institute of Health
(NIH), essential tremor affects 14% of people 65 years and older, which equates
to approximately 5.4 million Americans. There is no cure for essential
tremor and the currently available drug therapies do not work in certain
patients, produce at best a 50% response in others and have significant side
effects. We believe AST-915 may provide a new treatment option for this
serious and prevalent disorder. We believe that
substantial market opportunity also exists internationally.
Commitments
General
We often
contract with third parties to facilitate, coordinate and perform agreed upon
research and development of our product candidates. To ensure that
research and development costs are expensed as incurred, we record monthly
accruals for clinical trials and nonclinical testing costs based on the work
performed under the contracts.
These
contracts typically call for the payment of fees for services at the initiation
of the contract and/or upon the achievement of certain milestones. This
method of payment often does not match the related expense recognition resulting
in either a prepayment, when the amounts paid are greater than the related
research and development costs recognized, or an accrued liability, when the
amounts paid are less than the related research and development costs
recognized.
Development
Commitments
At
present we have no development commitments.
Hedrin
In
collaboration with Nordic and through the Hedrin JV we are developing Hedrin for
the treatment of pediculosis (head lice). To date, Hedrin has been
clinically studied in 326 subjects and is currently marketed as a device in
Western Europe and as a pharmaceutical in the United Kingdom
(U.K.).
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In a
randomized, controlled, equivalence clinical study conducted in Europe by
T&R, Hedrin was administered to 253 adult and child subjects with head louse
infestation. The study results, published in the British Medical
Journal in June 2005, demonstrated Hedrin’s equivalence when compared to the
insecticide treatment, phenothrin, the most widely used pediculicide in the
U.K. In addition, according to the same study, the Hedrin-treated
subjects experienced significantly less irritation (2%) than those treated with
phenothrin (9%).
An
additional clinical study published in the November 2007 issue of PLoS One, an
international, peer-reviewed journal published by the Public Library of Science
(PLoS), demonstrated Hedrin’s superior efficacy compared to a U.K. formulation
of malathion, a widely used insecticide treatment in both Europe and North
America. In this randomized, controlled, assessor blinded, parallel
group clinical trial, 73 adult and child subjects with head lice infestations
were treated with Hedrin or malathion liquid. Using intent-to-treat
analysis, Hedrin achieved a statistically significant cure rate of 70% compared
to 33% with malathion liquid. Using the per-protocol analysis Hedrin
achieved a highly statistically significant cure rate of 77% compared to 35%
with malathion. In Europe it has been widely documented that head
lice had become resistant to European formulations of malathion, and we believe
this resistance had influenced these study results. To date, there
have been no reports of resistance to U.S. formulations of
malathion. Additionally, Hedrin treated subjects experienced no
irritant reactions, and Hedrin showed clinical equivalence to malathion in its
ability to inhibit egg hatching. Overall, investigators and study
subjects rated Hedrin as less odorous, easier to apply, and easier to wash out,
and 97% of Hedrin treated subjects stated they were significantly more inclined
to use the product again versus 31% of those using malathion.
Two new,
unpublished Hedrin studies were completed by T&R in 2008. In the
first, Hedrin achieved a 100% kill rate in vitro, including in malathion
resistant head lice. In the other, a clinical field study conducted
in Manisa province, a rural area of Western Turkey, Hedrin was administered to
36 adult and child subjects with confirmed head lice
infestations. Using per protocol analysis, Hedrin achieved a 97% cure
rate. Using intent-to-treat analysis, Hedrin achieved a 92% cure rate
since 2 subjects were eliminated due to protocol violations. No
subjects reported any adverse events.
In the
U.S., we, through the Hedrin JV, are pursuing the development of Hedrin as a
medical device. In January 2009, the U.S. Food and Drug
Administration (“FDA”) Center for Devices and Radiological Health (“CDRH”)
notified H Pharmaceuticals that Hedrin had been classified as a Class III
medical device. A Class III designation means that a Premarket
Approval (“PMA”) Application will need to be obtained before Hedrin can be
marketed in the U.S. We expect to be required to complete at least
one clinical trial as part of that PMA Application. At a July 2009
meeting with the FDA, the FDA requested of the Hedrin JV that the confirmatory
clinical trials consist of two parallel studies. The Hedrin JV
estimates that each of the parallel studies will consist of 60
patients. In April 2010, the Hedrin JV received correspondence from
the FDA in which the FDA raised certain questions about the non-clinical aspects
of Hedrin. The Hedrin JV is in the process of responding to those
questions and will not be able to commence the confirmatory clinical trials
until such questions are responded to, to the satisfaction of the
FDA.
To date,
we have incurred $1,084,000 of project costs for the development of
Hedrin. None of these costs were incurred during the three month
period ended March 31, 2010. We do not expect to incur any future
costs as the Hedrin JV is now responsible for all costs associated with
Hedrin.
Topical
GEL for Psoriasis
As a
result of our merger with Tarpan Therapeutics in 2005, we held an exclusive,
worldwide license to develop and commercialize Topical PTH (1-34) for the
treatment of psoriasis. Tarpan acquired the exclusive, worldwide
rights pursuant to a 2004 license agreement with IGI, Inc (“IGI”).
In April
2006, we encountered a stability issue with the original topical PTH (1-34)
product which utilized IGI’s Novosome®
formulation technology. In order to resolve that stability issue we
created a new topical gel version of PTH (1-34).
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In
September 2007, the U.S. FDA accepted our Investigational New Drug (“IND”)
application for this new gel formulation of Topical PTH (1-34), and in October
2007, we initiated and began dosing subjects in a Phase 2a clinical study of
Topical PTH (1-34) for the treatment of psoriasis. This U.S.,
multi-center, randomized, double-blind, vehicle-controlled, parallel group study
was designed to evaluate safety and preliminary efficacy of Topical PTH (1-34)
in patients with mild to moderate psoriasis. Approximately 54
subjects were enrolled and randomized to receive one of two dose levels of
Topical PTH (1-34), or the gel vehicle (placebo), for an 8 week treatment
period. In this study the vehicle was the topical gel (“GEL”) without
the active ingredient, PTH (1-34).
In July
2008, we announced the results of a Phase 2a clinical study where PTH (1-34)
failed to show statistically or clinically meaningful improvements in psoriasis
as compared to the vehicle (placebo). We have conducted no further
clinical activities with PTH (1-34), terminated the agreement with IGI in May
2009 and have no further financial liability or commitment to IGI under the
license agreement.
The gel
vehicle (placebo) used in the above-mentioned study is our proprietary topical
GEL which unexpectedly showed evidence of psoriasis improving
properties. At the end of week 2, 15% of study subjects treated with
the GEL achieved a clear or almost clear state. At the end of week 4,
20% of subjects treated with the GEL had achieved a clear or almost clear state,
and at the end of week 8, 25% of subjects had achieved a clear or almost clear
state. We own worldwide rights to this topical GEL and is exploring
the possibility of developing it as an OTC product for mild
psoriasis.
To date,
we have incurred $6,504,000 of project costs related to our development of
Topical PTH (1-34). These project costs have been incurred since
April 1, 2005, the date of the Tarpan Therapeutics acquisition. None
of these costs were incurred during the three month period ended March 31,
2010.
Summary
of Contractual Commitments
Leases
Rent
expense for the years ended December 31, 2009 and 2008 was $88,363 and $139,636,
respectively. Future minimum rental payments subsequent to December
31, 2009 under an operating lease for our office facility, which expires on
September 30, 2010, are $36,000.
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
All
research and development costs are expensed as incurred and include costs of
consultants who conduct research and development on behalf of our company and
our 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.
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We often
contract with third parties to facilitate, coordinate and perform agreed upon
research and development of a new drug. To ensure that research and
development costs are expensed as incurred, we record monthly accruals for
clinical trials and preclinical testing costs based on the work performed under
the contracts.
These
contracts typically call for the payment of fees for services at the initiation
of the contract and/or upon the achievement of certain
milestones. This method of payment often does not match the related
expense recognition resulting in either a prepayment, when the amounts paid are
greater than the related research and development costs expensed, or an accrued
liability, when the amounts paid are less than the related research and
development costs expensed.
Share-Based
Compensation
We have
stockholder-approved stock incentive plans for employees, directors, officers
and consultants. Prior to January 1, 2006, we accounted for the
employee, director and officer plans using the intrinsic value method. Effective
January 1, 2006, we adopted the share-based payment method for employee options
using the modified prospective transition method. This new method of accounting
for stock options eliminated the option to use the intrinsic value method and
required us to expense the fair value of all employee options over the vesting
period. Under the modified prospective transition method, we
recognized compensation cost which includes a) period compensation cost related
to share-based payments granted prior to, but not yet vested, as of January 1,
2006, based on the grant date fair value estimated in accordance with the
original provisions; and b) period compensation cost related to share-based
payments granted on or after January 1, 2006, based on the grant date fair value
estimated in accordance with the new accounting methodology. In accordance with
the modified prospective method, we have not restated prior period
results.
New
Accounting Pronouncements
In
May 2009, the Financial Accounting Standards Board (“FASB”) issued a
statement which sets forth the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. This statement was effective for interim
or annual periods ending after June 15, 2009, and we adopted the provisions
of this statement for the quarter ended June 30, 2009. The adoption of this
statement did not have a material impact on our financial statements. We
have evaluated all events or transactions that occurred after March 31, 2010 up
through the date we issued these financial statements, and we have disclosed all
events or transactions that have a material impact on our financial
statements.
In
August 2009, the FASB issued a new pronouncement to provide clarification
on measuring liabilities at fair value when a quoted price in an active market
is not available. In particular, this pronouncement specifies that a valuation
technique should be applied that uses either the quote of the liability when
traded as an asset, the quoted prices for similar liabilities when traded as
assets, or another valuation technique consistent with existing fair value
measurement guidance. This statement is prospectively effective for financial
statements issued for interim or annual periods ending after October 1,
2009. The adoption of this statement at December 31, 2009 did not impact our
results of operations or financial condition.
In
January 2010, the FASB issued a new pronouncement, Improving Disclosures about
Fair Value Measurements (ASU 2010-06). This provision amends previous provisions
that require reporting entities to make new disclosures about recurring and
nonrecurring fair value measurements including the amounts of and reasons for
significant transfers into and out of Level 1and Level 2 fair value measurements
and separate disclosure of purchases, sales, issuances, and settlements in the
reconciliation of Level 3 fair value measurements. This pronouncement was
effective for interim and annual reporting periods beginning after December 15,
2009, except for Level 3 reconciliation disclosures which are effective for
interim and annual periods beginning after December 15, 2010. The adoption
of this pronouncement did not have a material impact on our results of
operations or financial condition.
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In
February 2010, the FASB issued new accounting guidance that amends the previous
guidance to (1) eliminate the requirement for an SEC filer to disclose the date
through which it has evaluated subsequent events, (2) clarify the period through
which conduit bond obligors must evaluate subsequent events and (3) refine the
scope of the disclosure requirements for reissued financial statements. We
adopted this new accounting guidance for the quarterly period ended March 31,
2010. The adoption of this guidance did not have a material impact on our
financial statements.
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BUSINESS
Overview
We are a
specialty healthcare product company focused on developing and commercializing
innovative treatments for underserved patient populations. We aim to
acquire rights to these technologies by licensing or otherwise acquiring an
ownership interest, funding their research and development and eventually either
bringing the technologies to market or out-licensing. Our current
portfolio of product candidates includes:
|
·
|
Hedrin™, a
novel, non-insecticide treatment for pediculosis (head
lice)
|
|
·
|
AST-726,
a nasally delivered form of hydroxocobalamin for the treatment of
vitamin B12
deficiency
|
|
·
|
AST-915,
an oral treatment for essential
tremor
|
|
·
|
A
topical GEL for the treatment of mild
psoriasis
|
In the
short term, we are focusing our efforts on the commercialization of Hedrin and
AST-726. We have not received regulatory approval for, or generated
commercial revenue from, marketing or selling any products.
Our
executive offices are located at 48 Wall Street, 11th floor,
New York, NY 10005 USA. Our telephone number is (212) 582-3950 and our
internet website address is www.manhattanpharma.com.
Recent
Developments
On April
8, 2010, we completed a private placement of approximately 121 units, which we
refer to has the 2010 Private Placement, with each unit consisting of (i)
357,143 shares of our common stock, $0.001 par value per share and (ii) 535,714
common stock purchase warrants, each of which will entitle the holder to
purchase one additional share of our common stock for a period of five years at
an exercise price of $0.08 per share. The purchase price for each
unit was $25,000. We received aggregate gross proceeds of $3,029,386
in connection with the private placement (including the conversion of a 12%
original issue discount senior subordinated convertible debenture with a stated
value of $400,000 and the interest accrued thereon into units).
The first
closing of the private place was completed on March 2, 2010, at which we sold an
aggregate of 101.9 units. In connection with the first closing, we
issued a warrant to purchase 3,639,289 shares of our common stock at an exercise
price of $0.08 per share to the placement agent as partial compensation for its
services.
The final
closing of the private placement was completed on April 8, 2010, at which we
sold an aggregate of 2.4 additional Units. In connection with the
final closing, we issued a warrant to purchase 12,857 shares of our common stock
at an exercise price of $0.08 per share to the placement agent as partial
compensation for its services. In addition, on April 8, 2010, the
holder of an outstanding 12% original issue discount senior subordinated
convertible debenture, dated October 28, 2009, with a stated value of $400,000
and $21,886 of accrued interest, exercised its option to convert such debenture
(including all accrued interest thereon) into 16.88 units. The
conversion price was equal to the per unit purchase price paid by the investors
in the private placement.
Each of
the investors in the private placement and the holder of the debenture
represented that they were “accredited investors,” as that term is defined in
Rule 501(a) of Regulation D under the Securities Act, and the sale of the Units
was made in reliance on exemptions provided by Regulation D and Section 4(2) of
the Securities Act of 1933, as amended.
In
connection with the private placement, we entered into a registration rights
agreement pursuant to which we agreed to file a registration statement to
register the resale of the shares of our common stock issued in the private
placement, within 60 days of the final closing date and to cause the
registration statement to be declared effective within 150 days (or 180 days
upon review by the SEC).
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Acquisition
of Ariston
On March
8, 2010, we entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Ariston Pharmaceuticals, Inc., a Delaware corporation
("Ariston") and Ariston Merger Corp., a Delaware corporation and our
wholly-owned subsidiary (the "Merger Sub"). Pursuant to the terms and
conditions set forth in the Merger Agreement, on March 8, 2010, the Merger Sub
merged with and into Ariston, with Ariston being the surviving corporation of
the merger. As a result of the merger, Ariston became a wholly-owned
subsidiary of ours.
We merged
with Ariston principally to add new products to our portfolio. Prior to the
merger, Ariston was a private, clinical stage specialty biopharmaceutical
company based in Shrewsbury, Massachusetts that in-licenses, develops and plans
to market novel therapeutics for the treatment of serious disorders of the
central and peripheral nervous systems.
Under the
terms of the Merger Agreement, the consideration payable by us to the
stockholders and note holders of Ariston consists of the issuance of 7,062,423
shares of our common stock at Closing (as defined in the Merger Agreement) plus
the right to receive up to an additional 24,718,481 shares of our common stock
(the “Milestone Shares”) upon the achievement of certain product-related
milestones described below. In addition, we have reserved 38,630,723
shares of our common stock for possible future issuance in connection with the
conversion of $15.45 million of outstanding Ariston convertible promissory
notes. The note holders will not have any recourse to us for
repayment of the notes (their sole recourse being to Ariston, which is our
wholly-owned subsidiary), but the note holders will have the right to convert
the notes into shares of our common stock at the rate of $0.40 per
share. Further, we have reserved 5,000,000 shares of our common stock
for possible future issuance in connection with the conversion of $1.0 million
of an outstanding Ariston convertible promissory note issued in satisfaction of
a trade payable. The note holder will not have any recourse to us for
repayment of the note (their sole recourse being to Ariston, which is our
wholly-owned subsidiary), but the note holder will have the right to convert the
note into shares of our common stock at the rate of $0.20 per
share.
Upon the
achievement of the milestones described below, we would be obligated to issue
portions of the Milestone Shares to the former Ariston stockholders and
noteholders:
• Upon
the affirmative decision of our Board of Directors, provided that such decision
is made prior to March 8, 2011, to further develop the AST-914 metabolite
product candidate, either internally or through a corporate partnership, we
would issue 8,828,029 of the Milestone Shares.
• Upon
the acceptance by the FDA of our filing of the first New Drug Application for
the AST-726 product candidate, we would issue 7,062,423 of the Milestone
Shares.
• Upon
our receipt of FDA approval to market the AST-726 product candidate in the
United States of America, we would issue 8,828,029 of the Milestone
Shares.
Certain
members of our board of directors and certain of our principal stockholders
owned Ariston securities. Timothy McInerney, one of our directors,
owned 16,668 shares of Ariston common stock which represented less than 1% of
Ariston’s outstanding common stock as of the closing of the
Merger. Neil Herskowitz, one of our directors, indirectly owned
convertible promissory notes of Ariston with interest and principal in the
amount of $192,739. Michael Weiser, who was serving as one of our
directors at the time of the Merger, owned 117,342 shares of Ariston common
stock, which represented approximately 2.1% of Ariston’s outstanding common
stock as of the closing of the Merger. Lindsay Rosenwald, a more than
5% beneficial owner of our common stock, in his individual capacity and
indirectly through trusts and companies he controls owned 497,911 shares of
Ariston common stock, which represented approximately 8.9% of Ariston’s
outstanding common stock as of the closing of the Merger and indirectly owned
convertible promissory notes of Ariston in the amount of $141,438.
Business
Strategy
Our goal
is to locate, develop, and commercialize specialty healthcare products. In
order to achieve this, we look for innovative, or next generation, products with
one or more of the following characteristics:
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Low
clinical, regulatory, and/or marketing
risk
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Quick
to market (such as medical devices, 505(b)(2), or
over-the-counter)
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Low
cost to develop
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Low
cost and/or simple to manufacture
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Serves
a niche or underserved patient
population
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All of
our current products meet some or all of these criteria.
Products
Hedrin
Hedrin is
a novel, non-insecticide, one hour treatment for pediculosis (head lice) and is
currently being developed in the United States as a prescription medical
device. Hedrin is the top selling head lice product in Europe. It is
currently marketed in over 27 countries and, according to Thornton & Ross
Ltd. (“T&R”), achieved 2008 annual sales through its licensees of
approximately $48 million (USD) at in-market public prices, garnering
approximately 23% market share across Europe.
In June
2007, we entered into an exclusive license agreement with T&R and Kerris,
S.A. (“Kerris”) for Hedrin (the “Hedrin License Agreement”). We acquired an
exclusive North American license to certain patent rights and other intellectual
property relating to the product. In addition, and at the same time, we
also entered into a Supply Agreement with T&R pursuant to which T&R will
be our exclusive supplier of Hedrin product (the “Hedrin Supply
Agreement”).
In
February 2008, we entered into a joint venture agreement with Nordic Biotech
Advisors ApS (“Nordic”) to develop and commercialize Hedrin for the North
American market. The joint venture entity, H Pharmaceuticals (“H
Pharmaceuticals” or the “Hedrin JV”), now owns, is developing, and is working to
secure commercialization partners for Hedrin in both the U.S. and Canada.
We manage the day-to-day operations of the Hedrin JV under a management contract
with the Hedrin JV. H Pharmaceuticals is independently funded and is
responsible for all costs associated with the Hedrin project, including any
necessary U.S. clinical trials, patent costs, and future milestones owed to the
original licensor, T&R.
We,
through the Hedrin JV, are currently working to secure commercialization and
marketing partners for the U.S. and Canada.
Pediculosis
(Head lice)
Head lice
(Pediculus humanus
capitis) are small parasitic insects that live mainly on the human scalp
and neck hair. Head lice are not known to transmit disease, but they are
highly contagious and are acquired by direct head-to-head contact with an
infested person’s hair, and may also be transferred with shared combs, hats, and
other hair accessories. They can also live on bedding or upholstered
furniture for a brief period. Head lice are seen across the socioeconomic
spectrum and are unrelated to personal cleanliness or hygiene. Children
are more frequently infested than are adults, and Caucasians more frequently
than other ethnic groups. Lice are most commonly found on the scalp,
behind the ears, and near the neckline at the back of the neck. Common
symptoms include a tickling feeling of something moving in the hair, itching,
irritability caused by poor sleep, and sores on the head caused by
scratching.
Mechanism of
Action
Hedrin is
a novel, non-insecticide combination of silicones (dimethicone and
cyclomethicone) that acts as a pediculicidal (lice killing) agent by disrupting
the insect’s mechanism for managing fluid and breathing. In contrast with
most currently available lice treatments, Hedrin contains no chemical
insecticides. Because Hedrin kills lice by preventing the louse from
excreting waste fluid, rather than by acting on the central nervous system, the
insects cannot build up resistance to the treatment. Recent studies have
indicated that resistance to chemical insecticides may be increasing and
therefore contributing to insecticide treatment failure. We believe there
is significant market potential for a convenient, non-insecticide treatment
alternative. Both silicones in this proprietary formulation of Hedrin are
used extensively in cosmetics and toiletries.
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Product
Development
To date,
Hedrin has been clinically studied in over 400 subjects. In a randomized,
controlled, equivalence, clinical study (conducted in Europe by T&R), Hedrin
was administered to 253 adult and child subjects with head lice
infestation. The study results, published in the British Medical Journal
in June 2005, demonstrated Hedrin’s equivalence when compared to the insecticide
treatment, phenothrin, the most widely used pediculicide in the U.K. In
addition, according to the same study, the Hedrin treated subjects experienced
significantly less irritation (2%) than those treated with phenothrin
(9%).
A
clinical study published in the November 2007 issue of PLoS One, an
international, peer-reviewed journal published by the Public Library of Science
(PLoS), demonstrated Hedrin’s superior efficacy compared to a U.K. formulation
of malathion, a widely used insecticide treatment in both Europe and North
America. In this randomized, controlled, assessor blinded, parallel group
clinical trial, 73 adult and child subjects with head lice infestations were
treated with Hedrin or malathion liquid. Using intent-to-treat analysis,
Hedrin achieved a statistically significant cure rate of 70% compared to 33%
with malathion liquid. Using the per-protocol analysis Hedrin achieved a
highly statistically significant cure rate of 77% compared to 35% with
malathion. In Europe, it has been widely documented that head lice has
become resistant to malathion, and we believe this resistance may have
influenced the study results. To date, there have been no reports of
malathion resistance in the U.S. Additionally, Hedrin treated subjects
experienced no irritant reactions, and Hedrin showed clinical equivalence to
malathion in its ability to inhibit egg hatching. Overall, investigators
and study subjects rated Hedrin as less odorous, easier to apply, and easier to
wash out. In addition, 97% of Hedrin treated subjects stated they were
significantly more inclined to use the product again versus 31% of those using
malathion.
Two
unpublished Hedrin studies were completed by T&R in 2008. In the
first, Hedrin achieved a 100% kill rate in vitro, including malathion resistant
head lice. In the other, a clinical field study conducted in Manisa
province, a rural area of Western Turkey, Hedrin was administered to 36 adult
and child subjects with confirmed head lice infestations. Using per
protocol analysis, Hedrin achieved a 97% cure rate. Using intent-to-treat
analysis, Hedrin achieved a 92% cure rate since 2 subjects were eliminated due
to protocol violations. No subjects reported any adverse
events.
In April
2009, T&R published a new clinical field study where 40 adult and child
subjects with head lice infestations were treated with Hedrin using a 1 hour
application time. Treatment was given twice with 7 days between
applications. In this study, Hedrin achieved a cure rate of
90%.
In the
U.S., we, through the Hedrin JV, are pursuing the development of Hedrin as a
prescription medical device. In January 2009, the U.S. Food and Drug
Administration (“FDA”) Center for Devices and Radiological Health (“CDRH”)
notified H Pharmaceuticals that Hedrin had been classified as a Class III
medical device. A Class III designation means that a Premarket Approval
(“PMA”) Application will need to be obtained before Hedrin can be marketed in
the U.S. In July 2009, the CDRH division of the FDA confirmed that two
pivotal studies, which can occur simultaneously, using the same protocol
consisting of approximately 60 subjects each, or 120 patients in total, are
required for the completion of the PMA Application. In April 2010, the
Hedrin JV received correspondence from the FDA in which the FDA raised certain
questions about the non-clinical aspects of Hedrin (including certain
deficiencies in safety documentation that will require further study). The
Hedrin JV is in the process of responding to those questions and will not be
able to commence the confirmatory clinical trials, and the Hedrin JV’s application to
conduct those trials will not be accepted by the FDA, unless and until such
questions are responded to, to the satisfaction of the FDA.
Market
and Competition
According
to the American Academy of Pediatrics an estimated 6-12 million Americans are
infested with head lice each year, with pre-school and elementary children and
their families affected most often. The total U.S. head lice market is
estimated to be over $200 million with prescription and over-the-counter (OTC)
therapies comprising approximately 50% of that market. The remaining 50%
of the market is comprised of alternative therapies such as tea tree oils,
mineral oils, and “nit picking”, or physical combing to remove lice. In
addition, the head lice market is experiencing an increasing trend toward
healthier, more environmentally friendly consumer products and a growing
activism against pesticide products. We believe there is significant
market potential for a convenient, non-insecticide treatment for head
lice.
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The
prescription and OTC segment of the market is dominated by 4-5 name brand
products and numerous, low cost generics and store brand equivalents. The
active ingredients in these pharmacological therapies are chemical
insecticides. The most frequently prescribed insecticide treatments are
Ovide (malathion) and Kwell (lindane), and the most frequently purchased OTC
brands are Rid (piperonyl butoxide), Nix (permethrin), and Pronto (piperonyl
butoxide). Lindane has been banned in 52 countries worldwide and has now
been banned in the state of California due to its toxicity. In addition,
New York, Michigan, and Minnesota have initiated legislation to ban the use of
lindane. European formulations of malathion have experienced widespread
resistance. Resistance to U.S. formulations of malathion has not been
widely reported to date, but experts believe it is likely to develop with
continued use. Head lice resistance to piperonyl butoxide and permethrin
has been reported in the U.S. and treatment failures are common.
See also
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations- Liquidity and Capital Resources- Research and Development Projects-
Hedrin.”
AST-726
AST-726
is a nasally delivered form of hydroxocobalamin for the treatment of Vitamin
B12
deficiency. We acquired global rights to AST-726 as part of the Ariston
merger. AST-726 has demonstrated pharmacokinetic equivalence to a marketed
intramuscular injection product for Vitamin B12
remediation. We believe that AST-726 may enable both a single,
once-monthly treatment for maintenance of normal Vitamin B12 levels in
deficient patients, and more frequent administration to restore normal levels in
newly diagnosed B12
deficiency. Further, we believe that AST-726 could offer a convenient,
painless, safe and cost-effective treatment for Vitamin B12
deficiency, without the need for intramuscular injections.
Vitamin
B12
Deficiency - Background of the Disease
Untreated
Vitamin B12
deficiency can result in serious clinical problems including hematological
disorders, such as life-threatening anemias, and a range of central and
peripheral neurological abnormalities such as fatigue, confusion, cognition
impairment, dementia, depression, peripheral neuropathies and gait
disturbances. Neuronal damage may involve peripheral nerves, the spinal
cord and the brain and if the condition is left untreated may become
permanent. Furthermore, clinically asymptomatic patients with low normal
or below normal Vitamin B12 levels
may have changes in blood chemistries, including elevated levels of
methylmalonic acid or homocysteine, known risk factors for other medical
conditions associated with an increased risk of circulatory problems, blood
clots and cardiovascular disease.
The
primary diagnosis of Vitamin B12
deficiency is made when measurement of its blood concentration falls below the
expected normal range of 200 to 900 picograms/ml. Vitamin B12
deficiency is most often caused by pathological conditions that limit the body’s
ability to absorb the vitamin. Such disorders include pernicious anemia,
atrophic gastritis, problems caused by gastric surgical procedures to treat
stomach cancer and obesity, Crohn’s disease and simple age-related
changes. Some studies show the inability to properly absorb Vitamin B12 as a side
effect from chronic use of certain widely prescribed antacid medications such as
Prilosec® and
diabetes treatments such as Glucophage®.
Product
Development
AST-726,
a commercial nasal spray formulation of hydroxocobalamin, has satisfactorily
completed preclinical toxicology, and an Investigational New Drug (“IND”)
Application has been filed with the FDA. This product candidate is
being developed utilizing the 505(b)(2) regulatory pathway. AST-726 has
also successfully completed a safety and pharmacokinetic study in healthy
volunteers and an end of Phase II meeting with FDA has been completed. We
are planning a Phase III Vitamin B12
replacement study in the United States. The study is designed to enroll
approximately 40 Vitamin B12 deficient
patients currently treated with injection therapy. Patients will first be
evaluated on injection therapy and then will receive AST-726 by nasal spray on a
monthly basis for 12 weeks. The primary purpose of this study is to
determine that levels of Vitamin B12 in the
patients’ bloodstream remain within the normal range following monthly
administration of AST-726. We anticipate that the data from this study and
additional manufacturing information will support the planned 505(b)(2) new drug
application (“NDA”) filing for AST-726.
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A
CMC/manufacturing process has been developed for AST-726 that we believe
provides a commercially viable stability profile. We have two issued
patents in the United States with respect to AST-726, one of which relates to
its application in Vitamin B12
remediation.
Market
and Competition
More than
9 million people in the U.S. are deficient in Vitamin B12 ,
indicating substantial market potential for a facile, convenient, safe and
effective treatment that can replace the need for painful and frequent
intramuscular injections or other less than fully effective delivery
forms.
Approximately
15% of the elderly and up to 40% of nursing home residents in the U.S. have
Vitamin B12
deficiency. A study of over 11,000 U.S. civilians ages four and older found a 3%
prevalence of Vitamin B12
deficiency in the general population using the 200 picograms/ml deficiency
standard, indicating that approximately 9 million people in the U.S. are in need
of B12
replacement therapy. Some experts advocate a higher deficiency standard of
300-350 picograms/ml on the basis that levels below this coincide with elevated
methylmalonic acid and homocysteine, risk factors for cardiovascular disease as
found in the Framingham Heart Study. On this basis the prevalence of Vitamin
B12
deficiency increases substantially.
We
believe that substantial market opportunity also exists
internationally.
Current
Treatments for Vitamin B12
Deficiency
Once
Vitamin B12
deficiency is diagnosed by a simple blood test, the goal of treatment is
generally to:
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Restore
circulating blood levels to normal as rapidly as
possible;
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Replenish
and normalize the substantial stores of the vitamin in the body;
and
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Institute
a lifelong therapeutic regimen that will maintain normal levels of the
vitamin.
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We
believe that parenteral (intramuscular injection) treatment is often considered
the treatment of choice for Vitamin B12
deficiency. Cyanocobalamin is predominantly used for this purpose in the
United States, but hydroxocobalamin, the active ingredient in AST-726, is also
available for pediatrics and for adults for whom injection of cyanocobalamin is
poorly tolerated. Hydroxocobalamin injection is the predominant treatment
for Vitamin B12
deficiency in Europe.
In the
United States, intramuscular injections are generally given by a physician or
nurse, necessitating an office/medical center visit by the patient or a visiting
nurse home call for each treatment. Following a diagnosis of B12
deficiency, injections are required quite frequently in order to restore normal
vitamin levels. Once normalization is achieved, the frequency can be reduced to
once or twice per month. While the treatment is usually highly effective, the
inconvenience and cost of frequent office visits and the pain and side effects
associated with intramuscular injections are problematic for many
patients.
Intranasal
treatment for Vitamin B12
deficiency seeks to alleviate these problems, but the two intranasal products
currently available in the United States, Nascobal® and
Calomist®, have to
be administered on a daily or weekly basis and are not usually recommended for
the treatment of newly diagnosed patients. Both products are based on
cyanocobalamin.
Oral or
sublingual administration of high doses of Vitamin B12 can
restore deficient patients to normal in certain cases. Such high dose
supplements are generally available in pharmacies and nutrition/health food
stores. Adequate results can almost certainly be obtained when nutritional
insufficiency (e.g., strict vegan diet) is the primary cause of the problem.
However, the normal gastrointestinal tract has a very limited capability to
absorb Vitamin B12 and if
this is compromised, as is the case in many deficient patients, oral or
sublingual supplementation may not be ideal for rapidly restoring circulating
levels and storage depots of the vitamin to normal. In such cases of
pathological Vitamin B12
deficiency, intramuscular injection still often remains the current treatment of
choice.
An
unapproved Vitamin B12 patch is
available in the United States, but we believe that its effectiveness in
moderate to severe Vitamin B12 deficient
patients is substantially untested.
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Potential
Advantages of AST-726 Treatment
We
believe that AST-726 treatment has the potential to directly substitute for and
replace the need for injection treatment by applying the current injection
frequency paradigms for both newly diagnosed and normalized Vitamin B12 deficient
patients. AST-726 is proposed to be self-administered at home by the
patient, without costly, time consuming, and inconvenient visits to a doctor’s
office or medical facility needed for each of the many intramuscular injections
required for life. Because it is delivered through a nasal spray,
additional advantages include freedom from injection pain and reduced anxiety in
individuals, including children and the elderly, who may have fear of
injections. We believe that the delivery profile of AST-726 is comparable
to that of the marketed intramuscular injection, and that therefore newly
diagnosed patients will be able to self-administer the nasal spray on a daily
basis or several times a week to restore their Vitamin B12 status to
normal and will then be self-maintained on a single monthly nasal spray
treatment.
AST-915
AST-915
is an orally delivered treatment for essential tremor. We acquired global
rights to AST-915 as part of the Ariston merger. This product candidate is
being studied under a Cooperative Research and Development Agreement (CRADA)
with the National Institutes of Health (NIH) and a Phase 1 clinical study is
currently underway in essential tremor patients. AST-915 was formerly
referred to as “AST-914 metabolite”.
Essential Tremor
Essential
tremor is a neurological disorder that is characterized by involuntary shaking
of the hands, arms, head, voice, and upper body. The most disabling tremors
occur during voluntary movement, affecting common skills such as writing, eating
and drinking. Essential tremor is often misdiagnosed as Parkinson’s
disease, yet according to the National Institutes of Neurological Disorders and
Stroke, approximately 8 times as many people have essential tremor as have
Parkinson’s. Essential tremor is not confined to the elderly.
Children, newborns, and middle-aged people can also have the
condition.
Market
opportunity
Essential
tremor is the most common involuntary movement disorder, with increasing
incidence as people age. According to the National Institute of Health
(NIH), essential tremor affects 14% of people 65 years and older, which equates
to approximately 5.4 million Americans. There is no cure for essential
tremor and the currently available drug therapies do not work in certain
patients, produce at best a 50% response in others and have significant side
effects. We believe AST-915 may provide a new treatment option for this
serious and prevalent disorder. We believe that
substantial market opportunity also exists internationally.
Topical
GEL for Psoriasis
This
topical GEL was used as the vehicle (placebo) in a prior clinical study versus a
discontinued product candidate, topical PTH (1-34), and showed evidence of
psoriasis improving properties. In that Phase 2a study 15% of study
subjects achieved a clear or almost clear state at the end of week 2. At
the end of week 4, 20% of subjects treated with the GEL had achieved a clear or
almost clear state, and at the end of week 8, 25% of subjects treated with the
GEL had achieved a clear or almost clear state. We own global rights to
this topical GEL and is exploring the possibility of developing it as an OTC
product for mild psoriasis.
Psoriasis
Psoriasis
is a common, chronic, immune-mediated disease that results in the
over-production of skin cells. In healthy skin, immature skin cells migrate from
the lowest layer of the epidermis to the skin’s surface over a period of 28-30
days. In psoriasis, these cells reproduce at an extremely accelerated rate and
advance to the surface in only 7 days. This results in a build up of
excess, poorly differentiated skin cells that accumulate in dry, thick patches
known as plaques. These plaques can appear anywhere on the body resulting in
itching, skin irritation, and disability.
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Market
and Competition
According
to the National Psoriasis Foundation approximately 125 million people worldwide,
including approximately 6 million Americans, suffers from psoriasis. Of
these, approximately 65% (4.4 million) have mild psoriasis and are the most
likely of psoriasis sufferers to be treated with an OTC product. According
to Datamonitor, only an estimated 55% of psoriasis sufferers have been formally
diagnosed by a physician, so the OTC market could potentially be much
larger.
There are
a number of treatments available today for psoriasis, including numerous OTC
creams and ointments that help to reduce inflammation, stop itching, and soothe
skin. Products such as Psoriasin, CortAid, Dermarest, and Cortizone 10 are
the most common, but none are viewed as particularly effective for
psoriasis.
See also
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources - Research and Development Projects
– Topical Psoriasis Product.”
Discontinued
Research and Development Programs
Altoderm™
In April
2007 we entered into a license agreement with T&R, pursuant to which we
acquired exclusive rights to develop and commercialize Altoderm in North
America. Altoderm is a novel, proprietary
formulation of topical cromolyn sodium and is designed to enhance the absorption
of cromolyn sodium into the skin in order to treat pruritus (itch) associated
with dermatologic conditions including atopic dermatitis (eczema).
In a
Phase 3, randomized, double-blind, vehicle-controlled clinical study (conducted
in Europe by T&R) Altoderm was safe and well tolerated, and showed a trend
toward improvement in pruritus, but the efficacy results were
inconclusive. Altoderm treated subjects and vehicle only treated subjects
experienced a similar improvement (each greater than 30%), and therefore, the
study did not achieve statistical significance.
As a
result of the inconclusive European study data and a lack of sufficient funds to
develop Altoderm, in March 2009 we discontinued development and returned the
project to T&R under the terms of the license agreement.
Altolyn™
In April
2007 we entered into a license agreement with T&R, pursuant to which we
acquired exclusive rights to develop and commercialize Altolyn in North America.
Altolyn is a novel,
proprietary oral tablet formulation of cromolyn sodium designed to treat
mastocytosis and possibly other gastrointestinal disorders such as food allergy
and symptoms of irritable bowel syndrome.
Due to
small market opportunity and lack of sufficient funds to develop Altolyn, in
March 2009 we discontinued development and returned the project to T&R under
the terms of the license agreement.
Commercialization,
Marketing, and Sales
In order
to maximize the commercial value of our product candidates, it is likely that we
will partner with, and/or out-license the marketing rights to, a marketing
organization with expertise in the therapeutic areas we operate in. We are
currently working to secure a marketing partner for Hedrin in both the United
States and Canada. Longer term, we may explore the possibility of securing
commercialization partners for AST-726, AST-915, and the topical GEL in the
United States and global territories.
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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.
This knowledge and experience we call “know-how”. 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.
Hedrin
On June
26, 2007, we entered into an exclusive license agreement for Hedrin (“the Hedrin
Agreement’) with T&R and Kerris. Pursuant to the Hedrin Agreement, we have
acquired an exclusive North American license to certain patent rights and other
intellectual property relating to HedrinTM, a
non-insecticide product candidate for the treatment of pediculosis (“head
lice”):
U.S.
Patent Application No. 2007/0142330, entitled, “Method and composition for the
control of arthropods.” Jayne Ansell, Inventor. Application
filed February 12, 2007. This application is a divisional of U.S.
application Ser. No. 10/097,615, filed Mar. 15, 2002, which is a continuation of
International Application No. PCT/GB00/03540, which designated the United States
and was filed on September 14, 2000. This application has not yet
issued as a patent. Any patent that issues will expire on
September 14, 2020.
This
patent application has numerous, detailed and specific claims related to the use
of Hedrin (novel formulation of silicon derivatives) in controlling and
repelling arthropods such as insects and arachnids, and in particular control
and eradication of head lice and their ova.
On
February 25, 2008, we assigned and transferred our rights in Hedrin to the
Hedrin JV. The Hedrin JV is now responsible for all of our obligations
under the Hedrin License Agreement and the Hedrin Supply Agreement.
AST-726
Pursuant
to the Merger Agreement with Ariston, we acquired patent rights and other
intellectual property relating to AST-726:
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1.
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U.S. Patent No. 5,801,161
entitled, “Pharmaceutical composition for the intranasal administration of
hydroxocobalamin.” Franciscus W.H.M. Merkus, Inventor. Application filed
June 17, 1996. Patent issued September 1, 1998. This patent is scheduled
to expire on May, 13, 2014.
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2.
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U.S. Patent No. 5,925,625
entitled, “Pharmaceutical composition for the intranasal administration of
hydroxocobalamin.” Franciscus W.H.M. Merkus, Inventor. Application filed
December 30, 1997. Patent issued July 20, 1999. This patent is scheduled
to expire on May, 13, 2014.
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3.
|
European Patent No. EP0735859B1
(granted July 30, 1997, national phase of PCT Publication No. WO9517164)
entitled, “Pharmaceutical composition for the intranasal administration of
hydroxocobalamin.” Franciscus W.H.M. Merkus, Inventor. Application filed
May 13, 1994. Patents validated in Great Britain, Austria, Belgium,
Denmark, France, Ireland, Italy, the Netherlands, Switzerland, Germany,
Spain, and Sweden are scheduled to expire on May, 13,
2014.
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AST-915
Pursuant
to the Merger Agreement with Ariston, we have acquired patent rights and other
intellectual property relating to AST-915:
U.S.
Patent Application No. PCT/US2009/000876 entitled “Octanoic acid formulations
and methods of treatment using the same.” McLane, Nahab, and Hallet, Inventors.
Application filed February 12, 2009. This application has not yet issued as a
patent.
Manufacturing
We do not
have any manufacturing capabilities. T&R will supply any Hedrin
product required to conduct human clinical studies, and we are in contact with
several contract cGMP manufacturers for the supply of AST-726, AST-915, and the
topical GEL for psoriasis.
Government
Regulations
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:
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nonclinical laboratory tests,
animal studies, and formulation
studies,
|
|
|
·
|
submission to the FDA of an
Investigational New Drug application (IND) or, in the case of medical
devices, an Investigational Device Exemption (IDE), 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 a New
Drug Application (NDA) or, in the case of medical devices a Premarket
Approval (PMA),
|
|
|
·
|
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 or PMA.
|
Nonclinical
tests include laboratory evaluation of product chemistry, toxicity, and
formulation, as well as animal studies. The conduct of the nonclinical tests and
formulation of the compounds for testing must comply with federal regulations
and requirements. The results of the nonclinical tests, together with
manufacturing information and analytical data, are submitted to the FDA as part
of an IND or IDE, which must become effective before human clinical trials may
begin. An IND/IDE 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/IDE. In such a
case, the IND/IDE 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/IDE will result in the FDA allowing clinical trials to
begin.
Clinical
trials involve the administration of the investigational drug or medical device
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/IDE.
- 45
- -
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 1 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 2 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) preliminarily evaluate the efficacy
of the drug for specific indications. Phase 3 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 1,
Phase 2, or Phase 3 testing will be completed successfully within any specified
period of time, if at all. Furthermore, we 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/IDE 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 or PMA 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
nonclinical and 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 a NDA or PMA 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. We intend to rely on Section 505(b)(2) to
obtain approval for AST-726.
Before
approving an NDA or a PMA, 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/PMA 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/PMA. 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/PMA approval, the FDA may require post marketing 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.
- 46
- -
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 or PMA 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/PMA,
including withdrawal of the product from the market.
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 European Union (“EU”) member
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.
History
We were
incorporated in Delaware in 1993 under the name “Atlantic Pharmaceuticals, Inc.”
and, in March 2000, we changed our name to “Atlantic Technology Ventures,
Inc.” In 2003, we completed a “reverse acquisition” of privately held
“Manhattan Research Development, Inc.” In connection with this
transaction, we also changed our name to “Manhattan Pharmaceuticals,
Inc.” From an accounting perspective, the accounting acquirer is
considered to be Manhattan Research Development, Inc. and accordingly, the
historical financial statements are those of Manhattan Research Development,
Inc.
During
2005, we merged with Tarpan Therapeutics, Inc., or Tarpan. Tarpan was
a privately held New York based biopharmaceutical company developing
dermatological therapeutics. This transaction was accounted for as a purchase of
Tarpan by us.
During
2010, we completed a merger pursuant to which we acquired Ariston. We
merged with Ariston principally to add new products to our portfolio. Prior to
the merger, Ariston was a private, clinical stage specialty biopharmaceutical
company based in Shrewsbury, Massachusetts that in-licenses, develops and plans
to market novel therapeutics for the treatment of serious disorders of the
central and peripheral nervous systems. For a more detailed
discussion of the Merger, please see "Business - Recent Developments -
Acquisition of Ariston".
- 47
- -
Employees
We
currently have two full time and two part time employees, including: our Chief
Operating and Financial Officer, the Chief Executive Officer of Ariston and two
persons in business development, clinical management, administration and
finance. None of our employees is covered by a collective bargaining
unit. We believe our relations with our employees are
satisfactory.
Properties
Our
executive offices are located at 48 Wall Street, New York, New York
10005. We currently occupy this space pursuant to a written lease
that expires on September 30, 2010 under which we pay rent of approximately
$4,000 per month.
We
believe that our existing facilities are adequate to meet our current
requirements. We do not own any real property.
Legal
Proceedings
From time
to time, we may be involved in litigation relating to claims arising out of our
operations in the normal course of business. We are not aware of any pending or
threatened legal proceeding that, if determined in a manner adverse to us, could
have a material adverse effect on our business and operations.
- 48
- -
MANAGEMENT
Directors
The name
and age of each of our directors as of June 4, 2010, his position with us, his
principal occupation, and the period during which such person has served as a
director of our company are set forth below. All directors hold
office until the next annual meeting of shareholders or until their respective
successors are elected and qualified. We believe that each of our directors has
professional experience in areas relevant to our strategy and operations. Each
of our directors holds or has held senior-level positions in complex business,
government, or academic settings. We also believe each of our directors has
other attributes necessary to create an effective board: high personal and
professional ethics, integrity and values; practical wisdom and judgment; an
inquisitive and objective perspective; the willingness to engage management and
each other in a constructive and collaborative fashion; the ability to devote
significant time to serve on our board and its committees; and a commitment to
representing the long-term interests of all our shareholders.
|
Name
|
Age
|
Position(s) Held
|
|
Director
Since
|
||
|
Douglas
Abel
|
48
|
Director,
Chairman of the Board
|
2005
|
|||
|
Neil
Herskowitz
|
53
|
Director
|
2004
|
|||
|
Michael
McGuinness
|
56
|
Principal
Operating and Financial Officer and Director
|
2010
|
|||
|
Timothy
McInerney
|
49
|
Director
|
2004
|
|||
|
Malcolm
Morville
|
64
|
Director
|
2010
|
|||
|
David
Shimko
|
50
|
Director
|
2010
|
|||
|
Richard
I. Steinhart
|
|
53
|
|
Director
|
|
2004
|
Douglas
Abel served as our President and Chief Executive Officer from April 2005
until June 2009. Mr. Abel continues to serve as our Chairman of the
Board. Mr. Abel has been a director of our company since
2005. Mr. Abel currently serves as General Manager for Onset
Therapeutics LLC. Mr. Abel was President and CEO of Tarpan
Therapeutics, Inc., a privately-held biopharmaceutical company, from November
2004 until April 2005, when Tarpan was acquired by us. Prior to becoming
President and CEO of Tarpan, Mr. Abel served as Vice President of the
Dermatology Business Unit at Biogen Idec where he worked from August 2000 to
November 2004. While at Biogen, he led more than 100 employees to support the
launch of AMEVIVE®. Before that, Mr. Abel was at Allergan Pharmaceuticals from
December 1987 to August of 2000, with his most recent position being Director of
BOTOX® Marketing. Mr. Abel received his A.B. in chemistry from Lafayette College
and an M.B.A. from Temple University. Mr. Abel’s qualifications to
serve as a director include his 4 years of experience as our Chief Executive
Officer, his experience as the CEO of Tarpan, his experience as a vice president
at Biogen Idec, his A.B. degree in chemistry and his MBA degree. Serving as the
CEO of Manhattan and Tarpan provided him with relevant perspective on the
dynamics and challenges of small, specialty pharmaceutical companies. In
addition, while at Biogen Idec he oversaw the successful growth and evolution of
a business unit.
Neil
Herskowitz has been a director of our company since July 2004. He has
served as the Managing Member of ReGen Partners LLC, an investment fund located
in New York, and as the President of its affiliate, Riverside Contracting LLC
since June 1998. Mr. Herskowitz currently serves as a director of Innovive
Pharmaceuticals (OTCBB: IVPH) a publicly traded pharmaceutical development
company. He also serves on the board of directors of Starting Point Services for
Children, a not-for-profit corporation, and of Vacation Village, a 220-unit
development in Sullivan County, New York. Mr. Herskowitz received a B.B.A. in
Finance from Bernard M. Baruch College in 1978. Mr. Herskowitz’s
qualifications to serve as a director include his executive positions with ReGen
Partners and Riverside Contracting and his service as a director of another
publicly traded company, Innovive Pharmaceuticals. Serving as an executive of
two small companies, ReGen Partners and Riverside Contracting has provided him
with relevant perspective on the dynamics and challenges of small companies. His
service as a director for Innovive Pharmaceuticals has provided him with
relevant perspective on the dynamics and challenges of small, publicly traded
life science companies.
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- -
Michael G.
McGuinness has been our Chief Financial Officer and Secretary since July
2006. Mr. McGuinness was appointed Chief Operating Officer on April 1,
2008. Mr. McGuiness has been a director of our company since March
2010. Prior to joining our company, Mr. McGuinness served as
chief financial officer of Vyteris Holdings (Nevada), Inc. (OTCBB: VYHN), a
product-based drug delivery company, from September 2001 to April 2006, and from
1998 to 2001 he was chief financial officer of EpiGenesis Pharmaceuticals, a
privately-held biotechnology company. Mr. McGuinness received a BBA in public
accounting from Hofstra University. Mr. McGuinness’ qualifications to
serve as a director include his three plus years of service as our Chief
Financial Officer and his service as the chief financial officer of Vyteris and
his BBA degree in public accounting. Serving as a chief financial
officer of publicly traded companies for over eight years has provided him with
relevant perspective on the dynamics and challenges of small, publicly traded
life science companies.
Timothy
McInerney has been a director of our company since July 2004. Mr.
McInerney serves as a partner at Riverbank Capital Securities, Inc., a position
he has held since June 2007. Mr. McInerney currently serves on the
board of directors of ZIOPHARM Oncology Inc. (NASDAQ: ZIOP). From 1992 to
March 2007, Mr. McInerney was a Managing Director of Paramount BioCapital, Inc.
where he oversaw 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 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. Mr. McInerney’s qualifications to serve as a director
include his executive positions with Riverbank Capital and Paramount, his
service as a director of another publicly traded company, ZIOPHARM, his service
as a research analyst at Ladenburg Thalman and his B.S. degree in pharmacy.
Serving as an executive of two financial firms that specialize in small cap
companies, Riverbank Capital and Paramount, and serving on the board of
directors for ZIOPHARM has provided him with relevant perspective on the
dynamics and challenges of small, publicly traded companies.
Malcolm Morville,
Ph.D., has been a director of our company since March
2010. Dr. Morville serves as President and CEO of Ariston, which as a
result of the merger is a wholly-owned subsidiary of our company. Dr.
Morville was appointed President and CEO of Ariston in December 2003 and served
as a director of Ariston until the consummation of our merger with
Ariston. From 1970 to 1988, Dr. Morville was employed by Pfizer, both
in the U.K. and U.S., in the discovery, development and marketing of many drugs
and potential drugs for the treatment of neurology and central nervous system
disorders, infectious, immunological, respiratory, cardiovascular and
gastrointestinal diseases as well as diabetes and obesity. From 1988 to 1993, he
held senior executive management positions at Immulogic Pharmaceuticals
Corporation, a public biotechnology company. From 1993 to 2003, Dr. Morville was
President and CEO and a director of Phytera, Inc., a private biotechnology
corporation. He remains a director of Phytera. From 1993 to 2009, Dr. Morville
was a director of Indevus Pharmaceuticals, Inc. (formerly Interneuron
Pharmaceuticals, Inc.) a public biopharmaceutical company which was acquired by
Endo Pharmaceuticals Holdings, Inc. in March, 2009. Dr. Morville
received his B.Sc. and Ph.D. in biochemistry from the University of Manchester
Institute of Science and Technology in the U.K. Dr. Morville’s
qualifications to serve as a director include his service as the CEO of Ariston,
his service as the CEO of Phytera, his service as an executive with Immulogic
Pharmaceuticals, his service in the discovery, development and marketing
functions for Pfizer and his Ph. D. in biochemistry. Serving as an
executive for Ariston, Phytera and Immulogic Pharmaceuticals has provided Dr.
Morville with relevant perspective on the dynamics and challenges of life
science companies. His service at Pfizer has provided Dr. Morville
with relevant perspective on the dynamics and challenges of the development and
marketing of pharmaceutical products
David Shimko,
Ph.D., was appointed a director of our company in March
2010. Mr. Shimko served as a director of Ariston until the
consummation of our merger with Ariston. Mr. Shimko co-founded Risk
Capital Management Partners LLC, an independent risk management consulting firm
with a specialization in financial risk, and served as its President until it
was acquired by Towers Perrin in June 2006. Mr. Shimko provided
transition services to Towers Perrin in connection with its acquisition of Risk
Capital Management through December 2007. Since the acquisition, Mr.
Shimko has continued to act as an independent risk management consultant and has
served as President of Winhall LLC. Mr. Shimko received his Ph.D. in
finance from Northwestern University. Mr. Shimko’s qualifications to
serve as a director include his service on the board of directors of Ariston,
his service as an executive at Risk Capital and Winhall and his Ph.D. in
economics. Serving as on the board of directors of Ariston and serving as an
executive for Risk Capital and Winhall has provided Mr. Shimko with relevant
perspective on the dynamics and challenges of small companies. His
Ph.D. in economics and his service as an executive with two companies provided
Mr. Shimko with the relevant perspective on the dynamics and challenges of the
audit committee of small, publicly traded companies.
- 50
- -
Richard I.
Steinhart has been a director of our company since July 2004. Since April
2006, Mr. Steinhart has served as Chief Financial Officer of Electro-Optical
Sciences, Inc., a publicly-held medical device company. From May 1992 to April
2006, Mr. Steinhart was 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. Mr. Steinhart's qualifications
to serve as a director include his service as Chief Financial Officer of
Electro-Optical Sciences, as a director include his service principal of Forest
Street Capital, as Chief Financial Officer of Emisphere Technologies, Inc., and
his Certified Public Accounting license. Serving as a chief financial officer of
two life science publicly traded companies, Electro-Optical and Emisphere, and
serving as executive of a financial firm that specialize in small cap companies
has provided Mr. Steinhart with relevant perspective on the dynamics and
challenges of small, life science, publicly traded companies. His
service as a chief financial officer of two public companies and his Certified
Public Accounting license provided Mr. Steinhart with the relevant perspective
on the dynamics and challenges of the audit committee of small, publicly traded
companies.
There are
no family relationships among any of our executive officers, directors and key
employees.
Independence
of the Board of Directors
Our
common stock has not been listed on a national securities exchange since we
voluntarily de-listed our shares from the American Stock Exchange, or AMEX,
effective March 26, 2008 and therefore, we are not subject to any corporate
governance requirements regarding independence of board or committee
members. However, we have chosen the definition of independence
contained in the AMEX rules as a benchmark to evaluate the independence of
its directors. Under the AMEX listing standards, an "independent
director" of a company means a person who is not an officer or employee of the
company or its subsidiaries and who the board of directors has affirmatively
determined does not have a relationship that would interfere with the exercise
of independent judgment in carrying out the responsibilities of a
director. After review of all relevant transactions or relationships
between each director, or any of his family members, and our company, our senior
management and our independent registered public accounting firm, the Board has
determined that all of our directors are independent directors within the
meaning of the applicable AMEX listing standard, except for Mr. Abel, our former
President and Chief Executive Officer, Mr. McGuinness, our Chief Operating and
Financial Officer and Dr. Morville, President and CEO of our wholly owned
subsidiary Ariston.
BOARD
COMMITTEES
The Board
of Directors has three standing committees: an Audit Committee, a Compensation
Committee and a Nominating and Corporate Governance Committee. The following
table provides membership for each of the Board committees:
|
Name
of Committee
|
Membership
|
|
|
Audit
|
Messrs.
Herskowitz, Shimko and Steinhart (Chair)
|
|
|
Compensation
|
Messrs.
Shimko, Steinhart and McInerney (Chair)
|
|
|
Nominating
and Governance
|
Messrs.
Herskowitz, McInerney and Abel
(Chair)
|
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- -
Audit
Committee
The Audit
Committee oversees our accounting and financial reporting process. For these
purposes, the Audit Committee performs several functions. For example, the
Committee evaluates and assesses the qualifications of the independent
registered public accounting firm; determines the engagement of the independent
registered public accounting firm; determines whether to retain or terminate the
existing independent registered public accounting firm; reviews and approves the
retention of the independent registered public accounting firm to perform any
non-audit services; reviews the financial statements to be included in our
Annual Report on Form 10-K; and discusses with management and the independent
registered public accounting firm the results of the annual audit and the
results of our quarterly financial statements. The Board of Directors adopted a
written Audit Committee Charter, a copy of which can be found on our company
website at www.manhattanpharma.com.
Our
Board of Directors has reviewed the definition of independence for Audit
Committee members and has determined that each member of our Audit Committee is
independent (as independence for audit committee members is currently defined
under applicable SEC rules and the relevant AMEX listing
standards. The Board has further determined that Mr. Steinhart
qualifies as an “audit committee financial expert,” as defined by applicable
rules of the SEC.
Compensation
Committee
The
Compensation Committee of the Board of Directors oversees our compensation
policies, plans and programs. The Compensation Committee reviews and approves
corporate performance goals and objectives relevant to the compensation of our
executive officers and other senior management; reviews and recommends to the
Board the compensation and other terms of employment of our Chief Executive
Officer and our other executive officers; administers our equity incentive and
stock option plans; and makes recommendations to the Board concerning the
issuance of awards pursuant to those plans. All current members of the
Compensation Committee are independent (as independence is currently defined
under applicable AMEX listing standards). The Board of Directors has
adopted a written charter of the Compensation Committee, a copy of which can be
found on our company website at www.manhattanpharma.com.
Nominating
and Governance Committee
The
Nominating and Governance Committee considers and recommends to the Board
persons to be nominated for election by the stockholders as directors. In
addition to nominees recommended by directors, the Nominating and Governance
Committee will consider nominees recommended by stockholders if submitted in
writing to our Secretary at the address of Company’s principal offices. The
Board believes that any candidate for director, whether recommended by
stockholders or by the Board, should be considered on the basis of all factors
relevant to the needs of our company and the credentials of the candidate at the
time the candidate is proposed. Such factors include relevant business and
industry experience and demonstrated character and judgment. All current members
of the Nominating and Governance Committee, except for Mr. Abel who serves as
Chair of the Nominating and Corporate Governance Committee are independent (as
independence is currently defined under applicable AMEX listing standards). The
Board of Directors adopted a written charter of the Nominating and Governance
Committee, a copy of which can be found on our company website at www.manhattanpharma.com.
Communication
with the Board of Directors
Although
we have not adopted a formal process for stockholder communications with our
Board of Directors, we believe stockholders should have the ability to
communicate directly with the Board so that their views can be heard by the
Board or individual directors, as applicable, and that appropriate and timely
responses are provided to stockholders. All communications regarding general
matters should be directed to our Secretary at the address below and should
prominently indicate on the outside of the envelope that it is intended for the
complete Board of Directors or for any particular director(s). If no designation
is made, the communication will be forwarded to the entire board. Stockholder
communications to the Board should be sent to: Corporate
Secretary, Attention: Board of Directors (or name(s) of particular directors),
Manhattan Pharmaceuticals, Inc., 48 Wall Street, New York, NY
10005.
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- -
Code
of Ethics
We have
adopted a Code of Business Conduct and Ethics that applies to all officers,
directors and employees of our company. A copy of our Code of Business Conduct
and Ethics is available on our company’s website at www.manhattanpharma.com.
If we make any substantive amendments to the Code of Business Conduct and Ethics
or grant any waiver from a provision of the code to an executive officer or
director, we will promptly disclose the nature of the amendment or waiver by
filing with the SEC a current report on Form 8-K.
Executive
Officers
Set forth
below are the names, ages and titles of all of our executive officers as of
March 23, 2010. All directors hold office until the next annual
meeting of stockholders or until their respective successors are elected and
qualified.
|
Name
|
Age
|
Position
|
||
|
Michael
G. McGuinness
|
56
|
Chief
Operating and Financial Officer &
Secretary
|
The
biographies of our executive officers are set forth below.
Michael G.
McGuinness has been our Chief Financial Officer and Secretary since July
2006. His complete biography is set forth above under the caption "Management -
Directors."
None of
our executive officers is related to any other executive officer or to any of
our directors.
Summary
Compensation of Executive Officers
The
following table sets forth all of the compensation awarded to, earned by or paid
to (i) each individual serving as our principal executive officer during our
last completed fiscal year and (ii) the two most highly compensated executive
officers, other than the principal executive officer, that served as an
executive officer at the conclusion of the fiscal year ended December 31, 2009
and who received total compensation in excess of $100,000 during such fiscal
year (collectively, the “named executives”).
|
Name and Principal
Position
|
Year
|
Salary
|
Bonus
|
Option
Awards
|
Non-equity
Incentive Plan
Compensation
|
Nonqualified
Deferred
Compensation
Earnings
|
All Other
Compensation
|
Total
|
||||||||||||||||||||||
|
Douglas
Abel (1)
|
2009
|
$ | 164,053 | $ | - | $ | 129,571 | (3) | $ | - | $ | - | $ | 30,896 | (2) | $ | 324,520 | |||||||||||||
|
Chief
Executive Officer and President
|
2008
|
$ | 338,750 | $ | - | $ | 153,244 | (3) | $ | - | $ | - | $ | 34,000 | (2) | $ | 525,994 | |||||||||||||
|
Michael
McGuinness
|
2009
|
$ | 277,500 | $ | - | $ | 145,576 | (3) | $ | - | $ | - | $ | 9,800 | (4) | $ | 432,876 | |||||||||||||
|
Chief
Operating and Financial Officer, Secretary
|
2008
|
$ | 263,750 | $ | - | $ | 199,274 | (3) | $ | - | $ | - | $ | 9,000 | (4) | $ | 472,024 | |||||||||||||
- 53
- -
|
|
(1)
|
Mr.
Abel's employment with us ended effective June 15, 2009. Mr.
Abel continues to serve as our Chairman of the
Board.
|
|
|
(2)
|
For
2009 represents consulting fees of $25,000 and a matching contributions by
us pursuant to our company’s 401(k) retirement plan of
$5,896. For 2008 represents a payment in the amount of $25,000,
which amount represents the approximate amount of additional expense
incurred by Mr. Abel relating to his commuting between Boston and New
York, without a tax “gross up”, and a matching contributions by us
pursuant to our company’s 401(k) retirement plan of
$9,000.
|
|
|
(3)
|
Represents
the amount of share-based costs recognized by us during 2009 and 2008
under FASB ASC 718. See Notes to our Financial
Statements included in our annual reports for 2009 and 2008 on Form 10-K
for the assumptions made in the
valuation.
|
|
|
(4)
|
Represents
matching contributions by us pursuant to our company’s 401(k) retirement
plan.
|
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
The
following table sets forth information regarding the unexercised options held by
each of our named executive officers as of December 31, 2009.
|
Option Awards
|
|||||||||||||
|
Name
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
Option
Exercise Price
($)
|
Option
Expiration
Date
|
|||||||||
|
Douglas
Abel
|
1,300,000 | 0 | $ | 0.17 |
03/25/2018
|
||||||||
|
Michael
McGuinness
|
220,000 | 0 | $ | 0.70 |
07/10/2016
|
||||||||
| 60,000 | 0 | $ | 1.35 |
07/10/2016
|
|||||||||
| 213,334 | 106,666 | $ | 0.95 |
04/25/2017
|
|||||||||
| 733,334 | 366,666 | $ | 0.17 |
03/25/2018
|
|||||||||
Employment
Agreements
Douglas
Abel. Mr. Abel’s employment with us was governed by an employment
agreement from April 1, 2005 to June 15, 2009. Mr. Abel’s employment with us
ended on June 15, 2009. The agreement provided
for Mr. Abel to serve as our President and Chief Executive Officer for (i) an
annual base salary of $300,000, subject to a retroactive increase in the amount
of $25,000 upon our completing a financing transaction of at least $5,000,000,
(ii) a signing bonus in the amount of $200,000, which was payable in two
installments during the first year of the agreement, (iii) a discretionary
performance-based bonus in an amount equal to up to 50% of Mr. Abel’s base
salary, and (iv) an option to purchase 2,923,900 shares of our common stock at
$1.50 per share with three-year annual vesting, purchasable for a 10-year term.
In accordance with the terms of his employment agreement and as a result of our
private placement financing that we completed in August 2005, Mr. Abel’s salary
was increased to $325,000 retroactive to April 1, 2005. On
November 19, 2008, at the first closing of our Secured 12% Notes private
placement, we entered an amendment to the employment agreement, which provide
for a reduction of up to one-third of the salary payable to Mr. Abel until we
shall have received at least $2,500,000 of gross proceeds from the sale of the
units or other sales of securities or from other revenue received by us in the
operation of our business or any combination of the foregoing.
- 54
- -
The
employment agreement contained customary provisions relating to confidentiality,
work-product assignment, non-competition and non-solicitation. In the event Mr.
Abel’s employment is terminated by us (other than for cause) during the term of
the agreement, including a termination upon a change of control (as defined in
the agreement), we are required to pay a severance payment ranging from between
6 and 12 month of base salary, depending upon the circumstances of such
termination. No severance was paid or payable upon Mr. Abel’s
termination.
Michael G.
McGuinness. Mr. McGuinness’ employment with us was governed by an
employment agreement from July 7, 2006 to July 6, 2009. Mr. McGuinness continued
working for us without an employment agreement since July 7, 2009 on the same
terms and conditions that were set forth in the employment agreement that
expired. The agreement provided for an initial three-year term of
employment ending July 2009, subject to additional one-year renewal periods upon
the mutual agreement of the parties. Pursuant to the agreement, Mr. McGuinness
was entitled to an annual base salary of $205,000 and an annual bonus, payable
in the discretion of our Board, of up to 30 percent of his annual base salary.
Mr. McGuinness was also entitled to certain other fringe benefits that are made
available to our senior executives from time to time, including medical and
dental insurance and participation in our 401(k) plan. On November
19, 2008, at the first closing of our Secured 12% Notes private placement, we
entered an amendment to the employment agreement, which provide for a reduction
of up to one-third of the salary payable to Mr. McGuinness until we shall have
received at least $2,500,000 of gross proceeds from the sale of the units or
other sales of securities or from other revenue received by us in the operation
of our business or any combination of the foregoing.
In
addition, in accordance with the terms of the employment agreement, we issued to
Mr. McGuinness two 10-year stock options pursuant to our 2003 Stock Option Plan.
The first option relates to 220,000 shares of common stock and is exercisable at
a price of $0.70, the closing price of our common stock on the date of his
employment agreement. The second option relates to 60,000 shares and is
exercisable at a price of $1.35 per share. Both options vest in three annual
installments commencing July 10, 2007. To the extent Mr. McGuinness’ employment
with us is terminated prior to the end of such 10-year term, the options shall
remain exercisable for a period of 90 days.
Mr.
McGuinness’ employment agreement further provided that in the event we terminate
his employment with us other than as a result of death, for “cause,”
“disability” or upon a “change of control” (as those terms are defined in the
agreement), then (1) Mr. McGuinness would continue receiving his base salary and
fringe benefits for a period of six months following such termination, provided,
that our obligation to pay such compensation shall be offset by any amounts
received by Mr. McGuinness from subsequent employment during such 6-month
period, and (2) the vesting of the stock options issued to Mr. McGuinness in
accordance with the employment agreement will accelerate and be deemed vested as
of the date of termination and will remain exercisable for a period of 90 days
following such termination. In the event we terminate Mr. McGuinness’ employment
during the term of the agreement upon a “change of control” and, if at the time
of such termination, the aggregate value of our outstanding common stock is less
than $80 million, then (i) Mr. McGuinness will continue receiving his base
salary and fringe benefits for a period of six months following such termination
and (ii) the portions of the stock options issued in accordance with the
employment agreement that have vested as of the date of such termination or that
are scheduled to vest in the calendar year of such termination will be deemed
vested and will remain exercisable for a period of 90 days following such
termination.
Compensation
of Directors
Non-employee
directors are eligible to participate in our Non-employee Director Compensation
Arrangement, which was adopted on January 30, 2007. Under the
arrangement, non-employee directors are granted an option to purchase 50,000
shares of common stock upon their initial election or appointment to the
board. Thereafter on an annual basis, non-employee directors are
entitled to an option to purchase 50,000 shares of common stock. Each
non-employee director is entitled to a retainer of $20,000 per year, payable on
a quarterly basis. In addition, each such director shall be entitled to a fee of
$1,000 for each meeting of the Board attended in person, or $500 for attending a
meeting by telephone or other electronic means. Each non-employee
director serving on a committee of the Board is entitled to a fee of $1,000 for
each meeting of such committee attended by such director in person, or $500 for
attending a committee meeting by telephone or other electronic
means. Each non-employee director is also entitled to reimbursement
for reasonable out-of-pocket expenses incurred in connection with the
performance of his service as a director, including without limitation, travel
related expenses incurred in connection with attendance at Board or Board
committee meetings.
- 55
- -
Due to
our need to retain funds for our operations payment of cash fees to our
directors were suspended for all periods subsequent to March 31,
2008.
The
following table shows the compensation earned by each of our non-employee
directors for the year ended December 31, 2009:
|
Name
|
Fees
Earned or
Paid
in Cash
|
Option
Awards
(1)
|
All
Other
Compensation
|
Total
|
||||||||||||
|
Neil
Herskowitz (3)
|
$ | - | $ | 10,809 | $ | - | $ | 10,809 | ||||||||
|
Malcolm
Hoenlein (2),(4)
|
$ | - | $ | 10,809 | $ | - | $ | 10,809 | ||||||||
|
Timothy
McInerney (5)
|
$ | - | $ | 10,809 | $ | - | $ | 10,809 | ||||||||
|
Richard
Steinhart (6)
|
$ | - | $ | 10,809 | $ | - | $ | 10,809 | ||||||||
|
Michael
Weiser (2),(7)
|
$ | - | $ | 10,809 | $ | - | $ | 10,809 | ||||||||
|
|
(1)
|
Represents
the amount of share-based costs recognized by us during 2009 under FASB
ASC 718. See Notes to our Financial Statements included
in our annual report for 2009 on Form 10-K for the assumptions made in the
valuation.
|
|
|
(2)
|
Messrs.
Hoenlein and Weiser resigned from the Board of Directors upon the
consummation of the merger with Ariston Pharmaceuticals, Inc. on March 8,
2010.
|
|
|
(3)
|
As
of March 27, 2010, Mr. Herskowitz had options to purchase an aggregate of
516,010 shares of our common stock.
|
|
|
(4)
|
As
of March 27, 2010, Mr. Hoenlein had options to purchase an aggregate of
466,010 shares of our common stock.
|
|
|
(5)
|
As
of March 27, 2010, Mr. McInerney had options to purchase an aggregate of
550,000 shares of our common stock.
|
|
|
(6)
|
As
of March 27, 2009, Mr. Steinhart had options to purchase an aggregate of
516,010 shares of our common stock.
|
|
|
(7)
|
As
of March 27, 2009, Mr. Weiser had options to purchase an aggregate of
480,000 shares of our common stock.
|
Compensation
Committee Interlocks and Insider Participation
There
were no interlocks or other relationships with other entities among our
executive officers and directors that are required to be disclosed under
applicable SEC regulations relating to compensation committee interlocks and
insider participation.
- 56
- -
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS
AND MANAGEMENT
The
following table sets forth information regarding ownership of shares of our
common stock, as of June 4, 2010:
|
|
·
|
by
each person known by us to be the beneficial owner of 5% or
more
|
|
|
·
|
of
our common stock;
|
|
|
·
|
by
each of our directors and executive officers;
and
|
|
|
·
|
by
all of our directors and executive officers as a
group.
|
Except as otherwise indicated, each
person and each group shown in the table has sole voting and investment power
with respect to the shares of common stock indicated. For purposes of the
table below, in accordance with Rule 13d-3 under the Securities Exchange Act of
1934, as amended, a person is deemed to be the beneficial owner, of any shares
of our common stock over which he or she has or shares, directly or indirectly,
voting or investment power or of which he or she has the right to acquire
beneficial ownership at any time within 60 days. As used in this prospectus,
"voting power" is the power to vote or direct the voting of shares and
"investment power" includes the power to dispose or direct the disposition of
shares. Common stock beneficially owned and percentage ownership as of
June 4, 2010 was based on 120,965,260 shares outstanding. Unless otherwise
indicated, the address of each beneficial owner is c/o Manhattan
Pharmaceuticals, Inc., 48 Wall Street, New York, NY 10005.
|
Name of Beneficial Owners, Officers and
Directors
|
Number of Shares
Beneficially Owned
(#)
|
Percentage
Beneficially
Owned (%)
|
||||||
|
Douglas
Abel (1)
|
1,379,000 | 1.13 | % | |||||
|
Neil
Herskowitz (2)
|
725,457 | 0.60 | % | |||||
|
Michael
McGuinness (3)
|
2,734,000 | 2.21 | % | |||||
|
Timothy
McInerney (4)
|
1,313,870 | 1.07 | % | |||||
|
Malcolm
Morville
|
211,568 | 0.17 | % | |||||
|
David
Shimko
|
42,313 | 0.03 | % | |||||
|
Richard
Steinhart (5)
|
471,643 | 0.39 | % | |||||
|
All
directors and officers as a group (6) (7 persons)
|
6,877,851 | 5.38 | % | |||||
|
Lester
Lipschutz (7)
1650
Arch Street, Philadelphia, PA 19103
|
8,943,362 | 6.88 | % | |||||
|
Lindsay
Rosenwald (8)
787
Seventh Avenue, New York, NY 10019
|
13,286,043 | 9.90 | % | |||||
|
Nordic
Biotech Venture Fund II K/S (9)*
Ostergrade
5, DK-1100, Copenhagen K, Denmark
|
85,714,285 | 41.47 | % | |||||
* In April 2010, Nordic filed
a Schedule 13D/A (the “Nordic Amended 13D”). We are not in agreement with the
disclosure set forth in the Nordic Amended 13D and have written a letter to
Nordic explaining our disagreements. The Nordic Amended 13D shows an
aggregate number of shares of our common stock beneficially owned by Nordic as
216,666,666, or 65.5%. We believe the correct beneficial ownership is
85,714,285 shares, or 41.47%. The Nordic Amended 13D states that Nordic
does not believe our determination of the anti-dilution shares accruing to
Nordic as a result of the 2010 Private Placement was neither reasonable nor made
in good faith. As we have previously stated we believe our determination
was both reasonable and made in good faith. The Nordic Amended 13D further
states that Nordic acquired the right to purchase an additional 5,555,556 shares
of our common stock upon exercise of the Nordic Put as a result of Nordic’s
making an additional investment in the Hedrin JV of $500,000 in January
2010. We are not in agreement with this claim, we do not believe that
Nordic is required to any adjustment to Nordic’s Put as a result of Nordic
making additional capital contributions to the Hedrin JV. In the letter to
Nordic we note that Nordic’s valuation suggestions for the warrants issued in
the 2010 Private Placement ignores the concept of relative value inherent in the
Hedrin JV Agreement.
- 57
- -
|
(1)
|
Includes 1,300,000 shares
issuable upon exercise of vested portions of options and 24,000 shares
issuable upon exercise of
warrants.
|
|
(2)
|
Includes 466,010 shares issuable
upon exercise of vested portions of options, and 43,444 shares issuance
upon exercise of warrants; 138,951 shares held by Riverside Contracting,
LLC, a limited liability company of which Mr. Herskowitz is a member
holding 50% ownership and 44,168 shares held by ReGen Capital II, LLC, a
limited liability company of which Mr. Herskowitz is a member holding 50%
ownership.
|
|
(3)
|
Includes 2,700,000 shares
issuable upon the exercise of vested portions of options and 24,000 shares
issuable upon exercise of
warrants.
|
|
(4)
|
Includes 500,000 shares issuable
upon exercise of vested portions of options; and 139,863 shares issuable
upon exercise of
warrants.
|
|
(5)
|
Includes 466,010 shares issuable
upon exercise of vested portions of
options.
|
|
(6)
|
Includes
5,432,020 shares issuable upon exercise of vested portions of options;
231,307 shares issuable upon the exercise of warrants; 138,951 shares held
by Riverside Contracting, LLC, a limited liability company of which Mr.
Herskowitz is a member holding 50% ownership and 44,168 shares held by
ReGen Capital II, LLC, a limited liability company of which Mr. Herskowitz
is a member holding 50%
ownership.
|
|
(7)
|
Includes
8,943,362 shares of Common Stock held by separate trusts for the benefit
of Dr. Rosenwald or his family with respect to which Mr. Lipschutz is
either trustee or investment manager and in either case has investment and
voting power. Mr. Lipschutz disclaims beneficial ownership of these
shares, except to the extent of his pecuniary interest therein, if
any. The foregoing information is derived from a Schedule 13G
filed on behalf of the reporting person on August 1,
2007
|
|
(8)
|
Includes
6,920,516 shares held directly by Dr. Rosenwald, 6,320,163 shares issuable
upon the exercise of warrants, 80 shares held by the Dr. Rosenwald's wife,
over which Dr. Rosenwald may be deemed to have sole voting and dispositive
power, although he disclaims beneficial ownership of such shares except
with regard to his pecuniary interest therein, if any, 33 shares held by
Dr. Rosenwald’s children, over which Dr. Rosenwald may be deemed to have
sole voting and dispositive power, although he disclaims beneficial
ownership of such shares except with regard to his pecuniary interest
therein, if any, and 45,251 shares held by Paramount Biosciences LLC, of
which Dr. Rosenwald is the sole member. The foregoing information is
derived from a Schedule 13G/A filed on behalf of the reporting person on
March 8, 2010.
|
|
(9)
|
Includes
71,428,571 shares issuable upon exercise of Nordic's right to put all or a
portion of Nordic Biotech Venture Fund II K/S' equity interest in H
Pharmaceuticals K/S (formerly Hedrin Pharmaceuticals K/S), a Danish
limited partnership, of which we and Nordic are partners
and 14,285,714 shares issuable upon exercise of an outstanding
warrant held by Nordic. Florian Schonharting and Christian Hansen
have voting and investment control over such
securities.
|
- 58
- -
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
The
Hedrin JV
We and
Nordic Biotech Venture Fund II K/S, or Nordic, entered into a joint venture
agreement on January 31, 2008, which was amended on February 18, 2008 and on
June 9, 2008. Pursuant to the joint venture agreement, in February 2008,
(i) Nordic contributed cash in the amount of $2.5 million to H Pharmaceuticals
K/S (formerly Hedrin Pharmaceuticals K/S), a newly formed Danish limited
partnership, or the Hedrin JV, in exchange for 50% of the equity interests in
the Hedrin JV, and (ii) we contributed certain assets to North American rights
(under license) to our Hedrin product to the Hedrin JV in exchange for $2.0
million in cash and 50% of the equity interests in the Hedrin JV. On or
around June 30, 2008, in accordance with the terms of the joint venture
agreement, Nordic contributed an additional $1.25 million in cash to the Hedrin
JV, $1.0 million of which was distributed to us and equity in the Hedrin JV was
distributed to each of us and Nordic sufficient to maintain our respective
ownership interests at 50%.
Pursuant
to the joint venture agreement, upon the classification by the U.S. Food and
Drug Administration, or the FDA, of Hedrin as a Class II or Class III medical
device, Nordic was required to contribute to the Hedrin JV an additional $1.25
million in cash, $0.5 million of which was to be distributed to us and equity in
the Hedrin JV was to be distributed to each of us and Nordic sufficient to
maintain our respective ownership interests at 50%. The FDA
notified the Hedrin JV that Hedrin has been classified as a Class III medical
device and in February 2009, Nordic made the $1.25 million investment in the
Hedrin JV, the Hedrin JV made the $0.5 million milestone payment to us and
equity in the Hedrin JV was distributed to us and Nordic sufficient to maintain
our respective ownership interests at 50%. In accordance with the terms of
the joint venture agreement, the Hedrin JV has received a total of $1.5 million
cash to be applied toward the development and commercialization of Hedrin in
North America.
The
Hedrin JV will be responsible for the development and commercialization of
Hedrin for the North American market and all associated costs including clinical
trials, if required, regulatory costs, patent costs, and future milestone
payments owed to Thornton & Ross Ltd., or T&R, the licensor of
Hedrin. The Hedrin JV will engage us to provide management services to the
Hedrin JV in exchange for an annualized management fee, which for 2008, on an
annualized basis, is $527,000. The profits of the Hedrin JV will be
shared by us and Nordic in accordance with our respective equity interests in
the Hedrin JV, of which we each currently hold 50%, except that Nordic is
entitled to receive a minimum return each year from the Hedrin JV equal to 6% on
Hedrin sales, as adjusted for any change in Nordic’s equity interest in the
Hedrin JV, before any distribution is made to us. If the Hedrin JV
realizes a profit in excess of the Nordic minimum return in any year, then such
excess shall first be distributed to us until our distribution and the Nordic
minimum return are in the same ratio as our respective equity interests in the
Hedrin JV and then the remainder, if any, is distributed to Nordic and us in the
same ratio as our respective equity interests. However, in the event of a
liquidation of the Hedrin JV, Nordic’s distribution in liquidation must equal
the amount Nordic invested in the Hedrin JV ($5 million) plus 10% per year, less
the cumulative distributions received by Nordic from the Hedrin JV before any
distribution is made to us. If the Hedrin JV’s assets in liquidation
exceed the Nordic liquidation preference amount, then any excess shall first be
distributed to us until our distribution and the Nordic liquidation preference
amount are in the same ratio as our respective equity interests in the Hedrin JV
and then the remainder, if any, is distributed to Nordic and us in the same
ratio as our respective equity interests. Further, in no event shall
Nordic’s distribution in liquidation be greater than assets available for
distribution in liquidation.
Pursuant
to the terms of the joint venture agreement, Nordic has the right to nominate
one person for election or appointment to our board of directors. The
Hedrin JV's board of directors consists of four members, two members appointed
by us and two members appointed by Nordic. Nordic has the right to appoint
one of the directors as chairman of the board. The chairman has certain
tie breaking powers.
- 59
- -
Pursuant
to the joint venture agreement, Nordic has the right to put all or a portion of
its interest in the Hedrin JV in exchange for such number of shares of our
common stock equal to the amount of Nordic’s investment in the Hedrin JV divided
by $0.14, as adjusted from time to time for stock splits and other specified
events, multiplied by a conversion factor, which is (i) 1.00 for so long as
Nordic's distributions from the Hedrin JV are less than the amount of its
investment, (ii) 1.25 for so long as Nordic's distributions from the Hedrin JV
are less than two times the amount of its investment but greater than or equal
to the amount of its investment amount, (iii) 1.50 for so long as Nordic's
distributions from the Hedrin JV are less than three times the amount of its
investment but greater than or equal to two times the amount of its investment
amount, (iv) 2.00 for so long as Nordic's distributions from the Hedrin JV are
less than four times the amount of its investment but greater than or equal to
three times the amount of its investment amount and (v) 3.00 for so long as
Nordic’s distributions from Hedrin JV are greater than or equal to four times
the amount of its investment. The put right expires upon the earlier to
occur of (i) February 25, 2018 and (ii) 30 days after the date when Nordic's
distributions from the Hedrin JV exceed five times the amount Nordic has
invested in the Hedrin JV (or 10 days after such date if we have provided Nordic
notice thereof).
Pursuant
to the joint venture agreement, we have the right to call all or a portion of
Nordic's equity interest in the Hedrin JV in exchange for such number of shares
of our common stock equal to the portion of Nordic's investment in the Hedrin JV
that we call by the dollar amount of Nordic's investment as of such date in the
Hedrin JV, divided by $0.14, as adjusted from time to time for stock splits and
other specified events. The call right is only exercisable by us if the
price of our common stock has closed at or above $1.40 per share for 30
consecutive trading days. During the first 30 consecutive trading days in
which our common stock closes at or above $1.40 per share, we may exercise up to
25% of the call right. During the second 30 consecutive trading days in
which our common stock closes at or above $1.40 per share, we may exercise up to
50% of the call right on a cumulative basis. During the third consecutive
30 trading days in which our common stock closes at or above $1.40 per share, we
may exercise up to 75% of the call right on a cumulative basis. During the
fourth consecutive 30 days in which our common stock closes at or above $1.40
per share, we may exercise up to 100% of the call right on a cumulative
basis. Nordic may refuse the call, either by paying $1.5 million
multiplied by the percentage of Nordic's investment being called or forfeiting
an equivalent portion of the put right, calculated on a pro rata basis for the
percentage of the Nordic equity interest called by us. The call
right expires on February 25, 2013. For purposes of Nordic’s right to put,
and our right to call, all or a portion of Nordic’s equity interest in the
Hedrin JV, the amount of Nordic’s investment is currently
$5,000,000.
As per
the limited Partnership Agreement between us and Nordic (the “LPA”) in the event
that a limited partner in the Hedrin JV (a “Limited Partner”) determines, in its
reasonable goods faith discretion, that the Hedrin JV requires additional
capital for the proper conduct of its business that Limited Partner shall
provide each Limited Partner with a written request for contribution of such
Limited Partner’s proportionate share, in accordance to the then respective
equity ownership in the Hedrin JV, of such requested additional capital
amount.
As per
the terms of the LPA if a Limited Partner declines to so contribute, elects to
contribute but thereafter fails to do so timely, or elects to contribute and
timely does contribute some, but not all of, its proportionate share of the
requested additional capital amount, the other Limited Partner shall have the
option to contribute the remaining balance of such requested additional capital
amount.
As per
the terms of the LPA the general partner shall determine the fair market value
of the shares for purposes of determining how to allocate the number of shares
of the Hedrin JV to be issued in consideration for the contribution of
capital. If the general partner is unable to determine the fair market
value of the shares, the fair market value for the shares shall be determined in
good faith by the contributing Limited Partner if such amount is equal to or
greater than the most recent valuation of such Hedrin JV shares.
On
December 31, 2009 Nordic delivered a written notice to us for a $1,000,000
capital increase to the Hedrin JV. In January 2010, Nordic made its
capital contribution to the Hedrin JV of $500,000. We did not have
sufficient funds to make such a capital contribution within the required time
period prescribed in the LPA.
As the
general partner was unable to determine the fair market value of the shares,
Nordic, the contributing Limited Partner, determined in good faith that the fair
market value of the shares was equal to the most recent valuation. The
most recent valuation was the February 2009 investment of $1,500,000 into the
Hedrin JV by Nordic at $5,000 per share. As a result of Nordic’s investing
an additional $500,000 in the Hedrin JV the ownership percentages of the Hedrin
JV have changed from 50% to Nordic and 50% for us to 52.38% to Nordic and 47.62%
for us. In the event that Nordic exercises its option to invest the
remaining $500,000 of the $1,000,000 capital increase then the ownership
percentage shall change to 54.55% for Nordic and 45.45% for us.
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In April
2010, Nordic filed a Schedule 13D/A (the “Nordic Amended 13D”). We are not in
agreement with the disclosure set forth in the Nordic Amended 13D and have
written a letter to Nordic explaining our disagreements. The Nordic
Amended 13D shows an aggregate number of shares of our common stock beneficially
owned by Nordic as 216,666,666, or 65.5%. We believe the correct
beneficial ownership is 85,714,285 shares, or 41.47%. The Nordic Amended
13D states that Nordic does not believe our determination of the anti-dilution
shares accruing to Nordic as a result of the 2010 Private Placement was neither
reasonable nor made in good faith. As we have previously stated we believe
our determination was both reasonable and made in good faith. The Nordic
Amended 13D further states that Nordic acquired the right to purchase an
additional 5,555,556 shares of our common stock upon exercise of the Nordic Put
as a result of Nordic’s making an additional investment in the Hedrin JV of
$500,000 in January 2010. We are not in agreement with this claim, we do
not believe that Nordic is required to any adjustment to Nordic’s Put as a
result of Nordic making additional capital contributions to the Hedrin JV.
In the letter to Nordic we note that Nordic’s valuation suggestions for the
warrants issued in the 2010 Private Placement ignores the concept of relative
value inherent in the Hedrin JV Agreement.
Issuance
of Secured Promissory Notes and Warrants
On
September 11, 2008, we issued a secured promissory note in the principal amount
of $12,000 to each of Douglas Abel, our former President and Chief Executive
Officer and currently a director of our company; Michael Weiser, a former
director of our company (who was a director at the time such loans were made);
Timothy McInerney, a director of our company; Neil Herskowitz, a director of our
company, and Michael McGuiness, our Chief Financial Officer and Chief Operating
Officer and a director of our company. Principal and interest on the notes
were payable in cash on March 10, 2009 unless paid earlier by us. In
connection with the issuance of the notes, we issued to each noteholder a 5-year
warrant to purchase 24,000 shares of our common stock at an exercise price of
$0.20 per share. We granted to the noteholders a continuing security
interest in certain specific refunds, deposits and repayments due to us and
expected to be repaid to us in the next several months. The secured 10% notes
were repaid in February 2009 along with interest thereon.
Issuance
of Common Shares and Warrants
On March
2, 2010, we raised aggregate gross proceeds of approximately $2,547,500 pursuant
to a private placement of our securities. We entered into subscription
agreements with seventy-seven accredited investors pursuant to which we sold an
aggregate of 101.9 units for a purchase price of $25,000 per unit.
Pursuant to the subscription agreements, we issued to each investor units
consisting of (i) 357,143 shares of our common stock, $0.001 par value per share
and (ii) 535,714 warrants, each of which will entitle the holder to purchase one
additional share of our common stock for a period of five years at an
exercise price of $0.08 per share. Dr. Lindsay Rosenwald, a more than 5%
beneficial owner of our common stock, purchased 10 units for
$250,000.
We
believe that all of the transactions set forth above were made on terms no less
favorable to us than could have been obtained from unaffiliated third
parties. All such transactions have been reviewed by the audit committee
of our Board of Directors and approved by them. All future transactions
between us and our officers, directors and principal shareholders and their
affiliates will be on terms no less favorable than could be obtained from
unaffiliated third parties and will be approved by our audit committee or
another independent committee of our Board of Directors.
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DESCRIPTION
OF SECURITIES TO BE REGISTERED
General
Our
certificate of incorporation, as amended and restated to date, authorizes the
issuance of up to 500,000,000 shares of common stock, par value $0.001 per
share, and 10,000,000 shares of “blank check” preferred stock, par value $0.001
per share. In June 2008, our stockholders approved an amendment to our
certificate of incorporation to increase the total number of shares of our
common stock authorized to be issued from 150,000,000 shares to 300,000,000
shares. In November 2009, our stockholders approved an amendment to
our certificate of incorporation to increase the total number of shares of our
common stock authorized to be issued to from 300,000,000 shares to 500,000,000
shares.
As of
June 4, 2010, there were 120,965,260 shares of our common stock and
no shares of preferred stock issued and outstanding. As of such date, warrants
to purchase up to 160,370,781 shares of our common stock and options to purchase
up to 11,534,936 shares of our common stock were issued and
outstanding.
Common
Stock
Voting. The holders of our
common stock are entitled to one vote for each outstanding share of common stock
owned by that stockholder on every matter properly submitted to the stockholders
for their vote. Stockholders are not entitled to vote cumulatively for the
election of directors.
Dividend Rights. Subject to
the dividend rights of the holders of any outstanding series of preferred stock,
holders of our common stock are entitled to receive ratably such dividends and
other distributions of cash or any other right or property as may be declared by
our board of directors out of our assets or funds legally available for such
dividends or distributions.
Liquidation Rights. In the
event of any voluntary or involuntary liquidation, dissolution or winding up of
our affairs, holders of our common stock would be entitled to share ratably in
our assets that are legally available for distribution to stockholders after
payment of liabilities. If we have any preferred stock outstanding at such time,
holders of the preferred stock may be entitled to distribution and/or
liquidation preferences. In either such case, we must pay the applicable
distribution to the holders of its preferred stock (if any) before it may pay
distributions to the holders of common stock.
Conversion, Redemption and
Preemptive Rights. Holders of our common stock have no conversion,
redemption, preemptive, subscription or similar rights.
Preferred
Stock
We are
authorized to issue up to 10,000,000 shares of preferred stock, none of which
are outstanding, with the Board of Directors having the right to determine the
designations, rights, preferences and powers of each series of preferred stock.
Accordingly, the Board of Directors is empowered, without shareholder approval,
to issue preferred stock with voting, dividend, conversion, redemption,
liquidation or other rights which may be superior to the rights of the holders
of common stock and could adversely affect the voting power and other equity
interests of the holders of common stock.
Warrants
and Rights Granted in Connection with Joint Venture
Put
or Call Right
Pursuant
to our joint venture agreement with Nordic Biotech Venture Fund II K/S, or
Nordic, which was entered into in January 31, 2008 and amended on February 18,
2008, Nordic has the right to put all or a portion of its interest in the Hedrin
JV in exchange for such number of shares of our common stock equal to the amount
of Nordic’s investment in the Hedrin JV divided by $0.14, as adjusted from time
to time for stock splits and other specified events, multiplied by a conversion
factor, which is (i) 1.00 for so long as Nordic’s distributions from the Hedrin
JV are less than the amount of its investment, (ii) 1.25 for so long as Nordic’s
distributions from the Hedrin JV are less than two times the amount of its
investment but greater than or equal to the amount of its investment amount,
(iii) 1.50 for so long as Nordic’s distributions from the Hedrin JV are less
than three times the amount of its investment but greater than or equal to two
times the amount of its investment amount, (iv) 2.00 for so long as Nordic’s
distributions from the Hedrin JV are less than four times the amount of its
investment but greater than or equal to three times the amount of its investment
amount and (v) 3.00 for so long as Nordic’s distributions from Hedrin JV are
greater than or equal to four times the amount of its investment. The put right
expires upon the earlier to occur of (i) February 25, 2018 and (ii) 30 days
after the date when Nordic’s distributions from the Hedrin JV exceed five times
the amount Nordic has invested in the Hedrin JV (or 10 days after such date if
we have provided Nordic notice thereof).
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Pursuant
to the joint venture agreement, we have the right to call all or a portion of
Nordic’s equity interest in the Hedrin JV in exchange for such number of shares
of our common stock equal to the portion of Nordic’s investment in the Hedrin JV
that we call by the dollar amount of Nordic’s investment as of such date in the
Hedrin JV, divided by $0.14, as adjusted from time to time for stock splits and
other specified events. The call right is only exercisable by us if the price of
our common stock has closed at or above $1.40 per share for 30 consecutive
trading days. During the first 30 consecutive trading days in which our common
stock closes at or above $1.40 per share, we may exercise up to 25% of the call
right. During the second 30 consecutive trading days in which our common stock
closes at or above $1.40 per share, we may exercise up to 50% of the call right
on a cumulative basis. During the third consecutive 30 trading days in which our
common stock closes at or above $1.40 per share, we may exercise up to 75% of
the call right on a cumulative basis. During the fourth consecutive 30 days in
which our common stock closes at or above $1.40 per share, we may exercise up to
100% of the call right on a cumulative basis. Nordic may refuse the call, either
by paying $1.5 million multiplied by the percentage of Nordic’s investment being
called or forfeiting an equivalent portion of the put right, calculated on a pro
rata basis for the percentage of the Nordic equity interest called by us. The
call right expires on February 25, 2013.
In April
2010, Nordic filed a Schedule 13D/A (the “Nordic Amended 13D”). We are not in
agreement with the disclosure set forth in the Nordic Amended 13D and have
written a letter to Nordic explaining our disagreements. The Nordic
Amended 13D shows an aggregate number of shares of our common stock beneficially
owned by Nordic as 216,666,666, or 65.5%. We believe the correct
beneficial ownership is 85,714,285 shares, or 41.47%. The Nordic Amended
13D states that Nordic does not believe our determination of the anti-dilution
shares accruing to Nordic as a result of the 2010 Private Placement was neither
reasonable nor made in good faith. As we have previously stated we believe
our determination was both reasonable and made in good faith. The Nordic
Amended 13D further states that Nordic acquired the right to purchase an
additional 5,555,556 shares of our common stock upon exercise of the Nordic Put
as a result of Nordic’s making an additional investment in the Hedrin JV of
$500,000 in January 2010. We are not in agreement with this claim, we do
not believe that Nordic is required to any adjustment to Nordic’s Put as a
result of Nordic making additional capital contributions to the Hedrin JV.
In the letter to Nordic we note that Nordic’s valuation suggestions for the
warrants issued in the 2010 Private Placement ignores the concept of relative
value inherent in the Hedrin JV Agreement.
Warrant
In
connection with our joint venture agreement with Nordic Biotech Venture Fund II
K/S, on February 25, 2008, Nordic paid us a non-refundable fee of $150,000 in
exchange for the right to receive a warrant to purchase up to 7,142,857 shares
of our common stock at $0.14 per share, as adjusted from time to time for stock
splits and other specified events, if Nordic did not exercise all or part of its
put right on or before April 30, 2008. As of April 30, 2008, Nordic had not
exercised all or any portion of its put right and we issued the warrant to
Nordic.
The
warrant entitles the holder to purchase up to 7,142,857 shares of our common
stock (the “Original Warrant Shares”) at an exercise price of $0.14 per share
for a period of five (5) years commencing on the date of issuance. The warrant
may be exercised in whole or in part from time to time during the exercise
period (i) by the surrender of the warrant certificate to us, together with the
payment of the purchase price for the shares to be purchased or (ii) on a
cashless basis, by the surrender of the warrant certificate to us and the
cancellation of a portion of the warrant in payment of the purchase price for
the shares to be purchased. The Original Warrant Shares are the subject of
this prospectus and the registration statement of which this prospectus is a
part.
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The
holder of the warrant is protected against dilution of the equity interest
represented by the underlying shares of our common stock upon the occurrence of
certain events, including, but not limited to, issuance of stock dividends or
stock splits. In addition, the warrant contains certain weighted average
anti-dilution protections in the event that we issue shares of common stock or
securities convertible into shares of common stock at less than the then-current
exercise price per share, subject to exceptions for, among other things,
issuance of (i) options pursuant to existing stock option plans or stock option
plans approved by our outside directors, (ii) securities upon the exercise,
exchange or conversion of outstanding securities, (iii) securities issued
pursuant to acquisition or strategic transactions approved by the majority of
disinterested directors and (iv) less than 50,000 shares, subject to adjustment
for stock splits, combinations and the like, in the aggregate which do not meet
any of the foregoing conditions.
Pursuant
to such anti-dilution provisions, in February 2009 the number of shares
underlying the warrant was increased by 3,968,254 shares of our common stock and
in March 2010 the number of shares underlying the warrant was increased by
3,174,603 shares of our common stock (the “Additional Warrant Shares”) to a
total of 14,285,714 and the price was adjusted to $0.08 per share. The
warrant, as adjusted pursuant to its anti-dilution provisions, entitles the
holder to purchase up to 14,285,714 shares of our common stock at an exercise
price of $0.08 per share for a period of five (5) years commencing on the date
of issuance. The warrant may be exercised in whole or in part from time to time
during the exercise period (i) by the surrender of the warrant certificate to
us, together with the payment of the purchase price for the shares to be
purchased or (ii) on a cashless basis, by the surrender of the warrant
certificate to us and the cancellation of a portion of the warrant in payment of
the purchase price for the shares to be purchased.
Registration
Rights
In
connection with the joint venture agreement, we and Nordic entered into a
registration rights agreement, on February 25, 2008, as modified pursuant to a
letter agreement, dated September 17, 2008, pursuant to which we agreed to file
with the Securities and Exchange Commission, or the SEC, by no later than 10
calendar days following the date on which our Annual Report on Form 10-K for the
year ended December 31, 2007 is required to be filed with the SEC, which was
subsequently waived by Nordic until May 1, 2008, an initial registration
statement registering the resale by Nordic of any shares of our common stock
issuable to Nordic through the exercise of the warrant or the put right. This
registration statement was declared effective on October 15, 2008. We also
have agreed to file with the SEC any additional registration statements which
may be required no later than 45 days after the date we first know such
additional registration statement is required; provided, however, that (i) in
the case of the classification by the FDA of Hedrin as a Class II or Class III
medical device described above and the payment in full by Nordic of the related
final milestone payment of $1.25 million, the registration statement with
respect to the additional shares of our common stock relating to such additional
investment must be filed within 45 days after achievement of such
classification; and (ii) in the event we provide Nordic with notice of exercise
of our right to call all or a portion of Nordic’s equity interest in the Hedrin
JV, a registration statement with respect to the shares of our common stock
payable to Nordic in connection with such call right (after giving effect to any
reduction in the number of such shares resulting from Nordic’s refusal of all or
a portion of such call in accordance with the terms of our joint venture
agreement) must be filed within 16 days after delivery of such notice to Nordic
.. If we fail to file a registration statement on time or if a registration
statement is not declared effective by the SEC within 105 days of the required
filing date, or if we fail to maintain the effectiveness of a registration
statement or otherwise fail to diligently pursue registration with the SEC in
accordance with the terms of the registration rights agreement, we will be
required to pay as partial liquidated damages and not as a penalty, to Nordic or
its assigns, an amount equal to 0.5% of the amount invested in the Hedrin JV by
Nordic pursuant to the joint venture agreement per month until the registration
rights agreement is declared effective by the SEC; provided, however, that in no
event shall the aggregate amount payable by us exceed 9% of the amount invested
in the Hedrin JV by Nordic under the joint venture agreement.
On June
2, 2009, we filed an additional registration statement on Form S-1 with the SEC
registering the additional 28,769,841 shares of our common stock that may be
issued to Nordic upon exercise of a put right held by Nordic as a result of
Nordic’s additional investment of $1.25 million in Hedrin JV pursuant
to the terms of tour agreement with Nordic and as adjusted pursuant to the
anti-dilution provisions of the put right (the "Put Shares") and the
additional 3,968,254 shares issuable upon exercise of an outstanding warrant
held by Nordic. The SEC has informed us that we may not register
the Put Shares for resale until Nordic exercises its put right and such shares
of common stock are outstanding. Further, although we diligently pursued
registration with the SEC, such registration statement was not declared
effective within 105 days of the required filing date. We have withdrawn
such registration statement in light of the SEC staff's position that the shares
of common stock underlying Nordic's put right cannot be registered because such
shares are not outstanding and do not underlie a currently outstanding
convertible security.
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Warrants
Issued in Connection with 2008/2009 Private Placement
Warrants
On
February 3, 2009, we completed a private placement of 345 units, with each unit
consisting of a 12% senior secured note promissory note in the principal amount
of $5,000 and a warrant to up to 166,667 shares of our common stock. Each
warrant has an exercise price of $.09 per share and expires on December 31,
2013. The private placement was completed in three closings which occurred
on November 19, 2008 with respect to 207 units, December 23, 2008 with respect
to 56 units and February 3, 2009 with respect to 82 units.
Placement
Agent
In
connection with the first closing, we paid the placement agent approximately
$151,225. As additional compensation for its services, we issued warrants
to purchase up to an aggregate of 8,625,017 shares of our common stock at an
exercise price of $.09 per share.
We also
granted the placement agent the right to nominate a member of our Board of
Directors and such director shall receive all compensation and benefits provided
to our other directors. Additionally, upon such director’s appointment to
our Board of Directors, he shall be issued a warrant to purchase 1,000,000
shares of common stock at a per share exercise price equal to the greater of (i)
the fair market value on the date of issuance or (ii) $.09. The
Placement Agent subsequently irrevocably waived its right to nominate a member
of our Board of Directors.
Registration
Rights
In
connection with the private placement, we, the placement agent and the
purchasers entered into a registration rights agreement. Pursuant to the
registration rights agreement, we agreed to file a registration statement to
register the resale of the shares of our common stock issuable upon exercise of
the warrants issued to the investors in the private placement, within 20 days of
the final closing date and to cause the registration statement to be declared
effective within 90 days (or 120 days upon full review by the SEC). On
April 2, 2009, the registration rights agreement was amended to, among other
things, require us to register the shares of common stock issuable upon exercise
of the warrants issued to the placement agent as partial compensation for its
services. We filed a registration statement relating to the registration of the
shares underlying the warrants issued to the investors and the private placement
agent on February 23, 2009, which was declared effective by the SEC on April 17,
2009.
Warrants
Issued in Connection with 2010 Private Placement
Warrants
On April
8, 2010, we completed the 2010 Private Placement pursuant to which we issued
approximately 121 units, with each unit consisting of (i) 357,143 shares of our
common stock and (ii) warrants to purchase 535,714 shares of our common
stock. Each warrant has an exercise price of $.08 per share and has a five
year term. The private placement was completed in two closings which
occurred on March 2, 2010 with respect to 101.9 units and April 8, 2010 with
respect to 2.42 units. In addition on April 8, 2010, the holder of an
outstanding 12% original issue discount senior subordinated convertible
debenture, dated October 28, 2009, with a stated value of $400,000 and $21,886
of accrued interest, converted such debenture (including all accrued interest
thereon) into 16.88 units. The conversion price was equal to the per unit
purchase price paid by the investors in the private placement. We have no
obligation to register the shares of common stock underlying these
warrants.
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Placement
Agent
In
connection with the 2010 Private Placement, we paid the placement agent
approximately $312,000 in commission and expense allowance. As additional
compensation for its services, we issued warrants to purchase up to an aggregate
of 5,587,499 shares of our common stock at an exercise price of $.08 per
share.
Registration
Rights
In
connection with the 2010 Private Placement, we entered into a registration
rights agreement pursuant to which we agreed to file a registration statement to
register the resale of the shares of our common stock issued in the private
placement, within 60 days of the final closing date and to cause the
registration statement to be declared effective within 150 days (or 180 days
upon review by the SEC). The registration statement of which this
prospectus forms a part relates to the registration of such shares of common
stock. If this registration statement is not declared effective by the SEC
within 150 days (or 180 days upon full review by the SEC), or otherwise fail to
diligently pursue registration with the SEC in accordance with the terms of the
registration rights agreement, we will be required to pay as partial liquidated
damages and not as a penalty, to each selling securityholder on a monthly basis
an amount in cash equal to 1.0% percent of the aggregate purchase price paid by
such selling securityholder of the shares underlying the warrants such selling
securityholder purchased in the private placement that are not then eligible for
resale pursuant to this registration statement or any other registration
statement; provided, however, that the maximum aggregate liquidated damages
payable to a selling securityholder shall be 10% of the aggregate amount paid by
such selling securityholder for its respective warrants. If we fail to pay
any partial liquidated damages within 10 calendar days after the date payable,
we will be required to pay such liquidation damages in cash only and shall pay
interest thereon at a rate of 18% per annum (or such lesser maximum amount that
is required to be paid by applicable law) to the selling securityholder,
accruing daily from the date such partial liquidated damages are due until such
amounts, plus all such interest thereon.
Additionally,
pursuant to the terms of the 12% original issue discount senior subordinated
convertible debenture we agreed to include in any registration statement filed
by us the shares of common stock into which such debenture was converted as well
as 2,222,222 shares of common stock issuable to the holder of such debenture
upon the exercise of certain warrants and 222,222 shares of common stock
issuable upon the exercise of warrants issued to the placement agent and its
designees in connection with such transaction.
Limitations
on Directors’ Liability
As
permitted by Delaware law, our certificate of incorporation provides the
personal liability of our directors to us or our stockholders for monetary
damages for breach of certain fiduciary duties as a director is
eliminated. The effect of this provision is to restrict our rights and the
rights of our stockholders in derivative suits to recover monetary damages
against a director for breach of certain fiduciary duties as a director, except
that a director will be personally liable for:
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any
breach of his or her duty of loyalty to us or our
stockholders;
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acts
or omissions not in good faith which involve intentional misconduct or a
knowing violation of law;
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the
payment of dividends or the redemption or purchase of stock in violation
of Delaware law; or
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any
transaction from which the director derived an improper personal
benefit.
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This
provision does not affect a director’s liability under the federal securities
laws. To the extent that the our directors, officers and controlling
persons are indemnified under the provisions contained in our certificate of
incorporation, Delaware law or contractual arrangements against liabilities
arising under the Securities Act, we have been advised that, in the opinion of
the SEC, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
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Delaware
Takeover Statute
As a
Delaware corporation, we are subject to Section 203 of the Delaware General
Corporation Law which contains specific provisions regarding “business
combinations” between corporations organized under the laws of the State of
Delaware and “interested stockholders.” These provisions prohibit us
from engaging in a business combination with an interested stockholder for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless:
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prior
to such date, our board of directors approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;
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upon
consummation of the transaction that resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least 85%
of the voting stock of the corporation outstanding at the time the
transaction commenced; or
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on
or subsequent to such date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested
stockholder.
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For
purposes of these provisions, a “business combination” includes mergers,
consolidations, exchanges, asset sales, leases and other transactions resulting
in a financial benefit to the interested stockholder and an “interested
stockholder” is any person or entity that beneficially owns 15% or more of our
outstanding voting stock and any person or entity affiliated with or controlling
or controlled by that person or entity.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is Continental Stock Transfer.
Its address 17 Battery Place, New York, NY 10004 and its telephone number is
212-509-4000.
Listing
Our
common stock is listed on the Over the Counter Bulletin Board under the symbol
“MHAN.”
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SHARES
ELIGIBLE FOR FUTURE SALE
We cannot
predict the effect, if any, that market sales of shares of our common stock or
the availability of shares of our common stock for sale will have on the market
price of our common stock prevailing from time to time. Sales of substantial
amounts of our common stock, including shares issued upon exercise of
outstanding warrants, in the public market after this offering could adversely
affect market prices prevailing from time to time and could impair our ability
to raise capital through the sale of our equity securities.
As of
June 4, 2010, 120,965,260 shares of our common stock were outstanding, which
includes 43,278,606 of the shares of common stock which are registered for
resale hereunder. All of these shares are freely tradable without restriction or
further registration under the Securities Act, except for any shares held by our
affiliates, as that term in is defined in Rule 144 under the Securities
Act.
Restricted
shares may be sold in the public market only if registered or if they qualify
for an exemption from registration under Rule 144 promulgated under the
Securities Act, which rules are summarized below. As of June 4, 2010, 894,552
shares of the outstanding 1,214,524 shares of common stock that are held by our
officers and directors (excluding shares issuable upon exercise of outstanding
options and warrants held by our officers and directors) are eligible for sale
under Rule 144.
Rule
144
The SEC
recently adopted amendments to Rule 144, which became effective on February 15,
2008 and apply to securities acquired both before and after that date. Under
these amendments, a person who has beneficially owned restricted common stock
for at least six months would be entitled to sell their securities provided that
(i) such person is not deemed to have been one of our affiliates at the time of,
or at any time during the three months preceding, a sale and (ii) we are subject
to the Exchange Act periodic reporting requirements for at least three months
before the sale.
Persons
who have beneficially owned restricted common stock for at least six months but
who are our affiliates at the time of, or at any time during the three months
preceding, a sale, would be subject to additional restrictions, by which such
person would be entitled to sell within any three-month period only a number of
securities that does not exceed the greater of either of the
following:
|
|
•
|
1.0%
of the number of ordinary shares then outstanding, which will equal
12,096,526 shares immediately after this offering;
or
|
|
|
•
|
the
average weekly trading volume of the ordinary shares during the four
calendar weeks preceding the filing of a notice on Form 144 with respect
to the sale.
|
Sales
under Rule 144 are also limited by manner of sale provisions, notice
requirements and the availability of current public information about
us.
- 68
- -
SELLING
SECURITYHOLDERS
This
prospectus relates to the possible resale or other disposition by the selling
securityholders of up to 43,308,367 shares of our common stock that are
currently issued and outstanding and 2,444,444 shares of our common stock
issuable upon exercise of certain warrants held by the selling
securityholders. We are registering the shares of common stock to permit
the selling securityholders to resell the shares when and as they deem
appropriate in the manner described in the "Plan of Distribution". The
securities held by the selling securityholder were acquired by the selling
securityholders, as discussed below.
On April
8, 2010, we completed a private placement of 104.3 units, with each unit
consisting of (i) 357,143 shares of our common stock, $0.001 par value per share
and (ii) 535,714 common stock purchase warrants, each of which will entitle the
holder to purchase one additional share of our common stock for a period of five
years at an exercise price of $0.08 per share. The purchase price for each
unit was $25,000. In addition, on April 8, 2010, the holder of an
outstanding 12% original issue discount senior subordinated convertible
debenture, dated October 28, 2009, with a stated value of $400,000 and $21,886
of accrued interest, exercised its option to convert such debenture (including
all accrued interest thereon) into 16.88 units. The conversion price was
equal to the per unit purchase price paid by the investors in the private
placement. We received aggregate gross proceeds of $3,029,386 in
connection with the private placement (including the conversion of a convertible
debenture with a stated value of $400,000 and the interest accrued thereon into
units). In connection with private placement, we issued warrants to
purchase 3,652,146 shares of our common stock at an exercise price of $0.08 per
share to the placement agent as partial compensation for its
services.
In
connection with the private placement, we entered into a registration rights
agreement pursuant to which we agreed to file a registration statement to
register the resale of the shares of our common stock issued in the private
placement, within 60 days of the final closing date and to cause the
registration statement to be declared effective within 150 days (or 180 days
upon review by the SEC). The registration statement of which this
prospectus forms a part relates to the registration of such shares of common
stock. If this registration statement is not declared effective by the SEC
within 150 days (or 180 days upon full review by the SEC), or otherwise fail to
diligently pursue registration with the SEC in accordance with the terms of the
registration rights agreement, we will be required to pay as partial liquidated
damages and not as a penalty, to each selling securityholder on a monthly basis
an amount in cash equal to 1.0% percent of the aggregate purchase price paid by
such selling securityholder of the shares underlying the warrants such selling
securityholder purchased in the private placement that are not then eligible for
resale pursuant to this registration statement or any other registration
statement; provided, however, that the maximum aggregate liquidated damages
payable to a selling securityholder shall be 10% of the aggregate amount paid by
such selling securityholder for its respective warrants. If we fail to pay
any partial liquidated damages within 10 calendar days after the date payable,
we will be required to pay such liquidation damages in cash only and shall pay
interest thereon at a rate of 18% per annum (or such lesser maximum amount that
is required to be paid by applicable law) to the selling securityholder,
accruing daily from the date such partial liquidated damages are due until such
amounts, plus all such interest thereon.
Additionally,
pursuant to the terms of the 12% original issue discount senior subordinated
convertible debenture we agreed to include in this registration statement the
shares of common stock into which such debenture was converted as well as
2,222,222 shares of common stock issuable to the holder of such debenture upon
the exercise of certain warrants and 222,222 shares of common stock issuable
upon the exercise of warrants issued to the placement agent and its designees in
connection with such transaction.
All
of the selling securityholders represented that they were “accredited
investors,” as that term is defined in Rule 501(a) of Regulation D under the
Securities Act, and the private placement and conversion of the debenture was
made in reliance on exemptions provided by Regulation D and Section 4(2) of the
Securities Act of 1933, as amended.
Except as
described above, no material relationship exists between the selling
securityholders and us nor has any such material relationships existed within
the past three years.
- 69
- -
The
following table lists the selling securityholders and presents certain
information regarding their beneficial ownership of our common stock as well as
the number of shares of our common stock they may sell from time to time
pursuant to this prospectus. This table is prepared based on information
supplied to us by the selling securityholders. As of June 4, 2010,
120,965,260 shares of our common stock were issued and outstanding.
As used in this prospectus, the term “selling securityholder” includes the
entity listed below and any donees, pledges, transferees or other successors in
interest selling shares received after the date of this prospectus from the
selling securityholders as a gift, pledge or other transfer.
|
Common Stock Beneficially
Owned After this Offering
|
||||||||||||||||
|
Selling Securityholder
|
Number of
Shares
of Common
Stock
Beneficially
Owned Prior
to the Offering
|
Shares
Being
Offered
|
Number of
Shares of
Common Stock
Beneficially
Owned
|
Percent
of
Shares
Outstanding
|
||||||||||||
|
Lindsay
A. Rosenwald M.D.
|
21,593,733 | (1) | 3,571,430 | 18,022,303 | (1) | 13.65 | % | |||||||||
|
Neel
B. & Martha N. Ackerman
|
8,051,501 | (2) | 2,857,144 | 5,194,357 | (2) | 4.14 | % | |||||||||
|
Douglas
E. Pritchett
|
6,220,955 | (3) | 1,785,715 | 4,435,240 | (3) | 3.54 | % | |||||||||
|
James
C. Orr
|
3,869,050 | (4) | 1,214,287 | 2,654,763 | (4) | 2.15 | % | |||||||||
|
David
Porter and Linda Porter
|
2,887,143 | (5) | 1,142,858 | 1,744,285 | (5) | 1.42 | % | |||||||||
|
James
Harris
|
3,678,573 | (6) | 1,071,429 | 2,607,144 | (6) | 2.11 | % | |||||||||
|
Richard
A. Mullen
|
1,964,287 | (7) | 785,715 | 1,178,572 | (7) | * | ||||||||||
|
David
Ernst
|
2,785,716 | (8) | 714,286 | 2,071,430 | (8) | 1.68 | % | |||||||||
|
Ennio
De Pianto
|
3,506,384 | (9) | 714,286 | 2,792,098 | (9) | 2.26 | % | |||||||||
|
Gerald
A Tomsic 1995 Trust(10)
|
1,785,714 | (11) | 714,286 | 1,071,428 | (11) | * | ||||||||||
|
Gregory
Dovolis
|
2,452,382 | (12) | 714,286 | 1,738,096 | (12) | 1.42 | % | |||||||||
|
James
Buck
|
2,199,048 | (13) | 714,286 | 1,484,762 | (13) | 1.21 | % | |||||||||
|
John
O. Dunkin
|
2,687,262 | (14) | 714,286 | 1,972,976 | (14) | 1.61 | % | |||||||||
|
Kevin
B. Allodi
|
2,119,048 | (13) | 714,286 | 1,404,762 | (13) | 1.15 | % | |||||||||
|
Nicholas
LoPresti
|
1,810,714 | (11) | 714,286 | 1,096,428 | (11) | * | ||||||||||
|
Raymond
Dracker
|
1,952,381 | (15) | 714,286 | 1,238,095 | (15) | 1.01 | % | |||||||||
|
William
S. Silver
|
3,039,049 | (16) | 714,286 | 2,324,763 | (16) | 1.90 | % | |||||||||
|
Landmark
Community Bank Collateral Account FBO Estate of Catherine
Nasser(17)
|
3,952,385 | (18) | 714,286 | 3,238,099 | (18) | 2.61 | % | |||||||||
|
Paul
Sallwasser
|
1,682,620 | (19) | 535,715 | 1,146,905 | (19) | * | ||||||||||
|
David
Pudelsky and Nancy Pudelsky
|
2,009,331 | (20) | 428,572 | 1,580,759 | (20) | 1.30 | % | |||||||||
|
David
W. Maehling
|
1,226,191 | (21) | 357,143 | 869,048 | (21) | * | ||||||||||
|
Frederick
Peet
|
1,559,525 | (22) | 357,143 | 1,202,382 | (22) | * | ||||||||||
|
Mark
B. Ginsburg
|
1,776,192 | (23) | 357,143 | 1,419,049 | (23) | 1.16 | % | |||||||||
|
Michael
Levy
|
1,226,191 | (21) | 357,143 | 869,048 | (21) | * | ||||||||||
|
Paul
V. Washburn and Judith M. Washburn
|
1,226,191 | (21) | 357,143 | 869,048 | (21) | * | ||||||||||
|
P.C.
Desai M.D.
|
2,100,760 | (23) | 357,143 | 1,743,617 | (23) | 1.43 | % | |||||||||
|
Raymond
Yarusi
|
1,059,524 | (24) | 357,143 | 702,381 | (24) | * | ||||||||||
|
Robert
Guercio
|
1,960,602 | (25) | 357,143 | 1,603,459 | (25) | 1.31 | % | |||||||||
|
NFS/FMTC
IRA FBO Robert Derenzi
|
892,857 | (26) | 357,143 | 535,714 | (26) | * | ||||||||||
|
Roger
E. Levy
|
1,226,191 | (21) | 357,143 | 869,048 | (21) | * | ||||||||||
|
Ronnie
L. Bassham
|
892,857 | (26) | 357,143 | 535,714 | (26) | * | ||||||||||
|
Stephen
J. Blaser
|
1,736,192 | (23) | 357,143 | 1,379,049 | (23) | 1.13 | % | |||||||||
|
Stephen
Kitchens and Martha Kitchens
|
892,857 | (26) | 357,143 | 535,714 | (26) | * | ||||||||||
|
Terry
Van Hilsen and Kathy Van Hilsen
|
1,726,192 | (23) | 357,143 | 1,369,049 | (23) | 1.11 | % | |||||||||
|
Terry
Barr and Martha Barr
|
1,392,857 | (27) | 357,143 | 1,035,714 | (27) | * | ||||||||||
|
Frank
A. Papa
|
892,857 | (26) | 357,143 | 535,714 | (26) | * | ||||||||||
|
John
Morris
|
892,857 | (26) | 357,143 | 535,714 | (26) | * | ||||||||||
- 70
- -
|
NFS/FMTC
ROTH IRA FBO Hamilton C. Fish
|
662,858 | (28) | 257,143 | 405,715 | (28) | * | ||||||||||
|
FBO
Garry A. Hansen R/O IRA
|
1,368,990 | (29) | 214,286 | 1,154,704 | (29) | * | ||||||||||
|
George
Wilson and Dianne Wilson
|
894,049 | (30) | 214,286 | 679,763 | (30) | * | ||||||||||
|
Ivy
Schienholz
|
535,715 | (31) | 214,286 | 321,429 | (31) | * | ||||||||||
|
Kevin
Mack
|
2,202,382 | (32) | 214,286 | 1,988,096 | (32) | 1.62 | % | |||||||||
|
Douglas
Matsumori & Mishi Matsumori
|
535,715 | (31) | 214,286 | 321,429 | (31) | * | ||||||||||
|
Suzanne
Schiller
|
585,715 | (31) | 214,286 | 371,429 | (31) | * | ||||||||||
|
Daniel
Y. Leong
|
446,429 | (33) | 178,572 | 267,857 | (33) | * | ||||||||||
|
Darren
R. Williams
|
446,429 | (33) | 178,572 | 267,857 | (33) | * | ||||||||||
|
Edward
A. Kubycheck R/O IRA DCG & TTTEE
|
684,419 | (34) | 178,572 | 505,847 | (34) | * | ||||||||||
|
Gordon
and Price Inc.
|
457,929 | (33) | 178,572 | 279,357 | (33) | * | ||||||||||
|
John
Gasidlo SEP IRA
|
779,763 | (35) | 178,572 | 601,191 | (35) | * | ||||||||||
|
Kim
Mazza, Gary Whyte & Debra Whyte
|
446,429 | (33) | 178,572 | 267,857 | (33) | * | ||||||||||
|
Ladd
D. Smith M.D.
|
446,429 | (33) | 178,572 | 267,857 | (33) | * | ||||||||||
|
Matthew
Ernst
|
1,379,764 | (36) | 178,572 | 1,201,192 | (36) | * | ||||||||||
|
Michael
J. Piatt
|
846,429 | (33) | 178,572 | 667,857 | (33) | * | ||||||||||
|
Randy
Burns
|
789,763 | (35) | 178,572 | 611,191 | (35) | * | ||||||||||
|
R.J.
Burkhalter
|
711,271 | (33) | 178,572 | 532,699 | (33) | * | ||||||||||
|
Ronald Rasmussen
|
780,429 | (37) | 178,572 | 601,857 | (37) | * | ||||||||||
|
Robert
Salvin
|
446,429 | (33) | 178,572 | 267,857 | (33) | * | ||||||||||
|
Hamilton
C. Fish
|
270,001 | (38) | 100,001 | 170,000 | (38) | * | ||||||||||
|
James
C. and Susan M. Arnold
|
723,216 | (39) | 89,286 | 633,930 | (39) | * | ||||||||||
|
The
Marianne Higgins Revocable Trust(40)
|
414,282 | (41) | 89,286 | 324,996 | (41) | * | ||||||||||
|
Richard
Friedman
|
270,992 | (42) | 89,286 | 181,706 | (42) | * | ||||||||||
|
Alan
Lessner and Cathy Lessner
|
223,215 | (42) | 89,286 | 133,929 | (42) | * | ||||||||||
|
Allan
D. Johnson
|
370,239 | (43) | 71,429 | 298,810 | (43) | * | ||||||||||
|
Richard
Kindt
|
820,673 | (44) | 71,429 | 749,244 | (44) | * | ||||||||||
|
The
Silverman 1984 Trust(45)
|
1,414,857 | (27) | 357,143 | 1,057,714 | (27) | * | ||||||||||
|
Lee
P. Bearsch
|
1,785,714 | (11) | 714,286 | 1,071,428 | (11) | * | ||||||||||
|
Michael Spezia
|
2,726,192 | (23) | 357,143 | 2,369,049 | (23) | 1.94 | % | |||||||||
|
James
T. Dustin
|
357,144 | (46) | 142,858 | 214,286 | (46) | * | ||||||||||
|
Lima
Painting Co.
|
1,250,001 | (47) | 500,001 | 750,000 | (47) | * | ||||||||||
|
James
& Maureen Regan
|
1,071,429 | (48) | 428,572 | 642,857 | (48) | * | ||||||||||
|
Kevin
Anderson Well Drilling
|
892,957 | (49) | 357,143 | 535,814 | (49) | * | ||||||||||
|
Jay
Venuti & Michael Yokoyama
|
1,736,608 | (50) | 357,143 | 1,379,465 | (50) | 1.13 | % | |||||||||
|
Alan
Planter
|
892,957 | (49) | 357,143 | 535,814 | (49) | * | ||||||||||
|
James
Leary
|
946,439 | (51) | 208,333 | 738,106 | (50) | * | ||||||||||
|
Robert
E. Jacobson & Saralee A. Jacobson
|
690,478 | (52) | 142,858 | 547,620 | (51) | * | ||||||||||
|
Michael
Rego
|
892,957 | (49) | 357,143 | 535,814 | (49) | * | ||||||||||
|
Children’s
Surgical Association
|
892,957 | (49) | 357,143 | 535,814 | (49) | * | ||||||||||
|
Jack
Kinard
|
357,144 | (53) | 142,858 | 214,286 | (52) | * | ||||||||||
|
Frank
Restivo IRA
|
892,957 | (49) | 357,143 | 535,814 | (49) | * | ||||||||||
|
Linden
Growth Partners Master Fund LP
|
17,505,648 | (54) | 8,250,796 | (55) | 9,255,194 | (56) | 7.11 | % | ||||||||
|
National
Securities Corporation^
|
63,889 | (57) | 63,889 | (57) | — | * | ||||||||||
|
Trey
Marinello^
|
9,722 | (57) | 9,722 | (57) | — | * | ||||||||||
|
Michael
A. Mullen^
|
4,841,179 | (58) | 490,476 | (59) | 4,350,703 | (60) | 3.50 | % | ||||||||
|
Jonathan
Rich^
|
5,556 | (57) | 5,556 | (57) | — | * | ||||||||||
|
Elizabeth
Petter^
|
9,722 | (57) | 9,722 | (57) | — | * |
* Less
than 1%.
^ Except
as indicated by a (^), no selling securityholder is a broker dealer
or an affiliate of a broker-dealer. National Securities Corporation is a
broker-dealer and each of Michael A. Mullen, Trey Marinello, Jonathan Rich
and Elizabeth Petter is a registered representative of National
Securities Corporation.
- 71
- -
|
(1)
|
Includes
11,056,423 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(2)
|
Includes
4,370,080 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(3)
|
Includes
4,345,240 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(4)
|
Includes
2,654,763 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(5)
|
Includes
1,714,285 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(6)
|
Includes
2,607,144 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(7)
|
Includes
1,178,571 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(8)
|
Includes
2,071,430 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(9)
|
Includes
2,752,098 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(10)
|
Gerald
A. Tomsic, as trustee of the Gerald A Tomsic 1995 Trust, has investment
and voting control over the
securities.
|
|
(11)
|
Includes
1,071,428 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(12)
|
Includes
1,738,096 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(13)
|
Includes
1,404,762 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(14)
|
Includes
1,571,428 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(15)
|
Includes
1,238,095 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(16)
|
Includes
1,904,763 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(17)
|
William
K. Nasser, Jr. has investment and voting control over the
securities.
|
|
(18)
|
Includes
3,238,099 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(19)
|
Includes
1,136,905 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(20)
|
Includes
1,476,191 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(21)
|
Includes
869,048 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(22)
|
Includes
1,202,382 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(23)
|
Includes
1,369,049 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(24)
|
Includes
702,381 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(25)
|
Includes
1,398,891 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(26)
|
Includes
535,714 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(27)
|
Includes
1,035,714 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(28)
|
Includes
385,715 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(29)
|
Includes
1,154,564 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(30)
|
Includes
654,763 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(31)
|
Includes
321,429 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(32)
|
Includes
1,988,096 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(33)
|
Includes
267,857 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(34)
|
Includes
434,524 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(35)
|
Includes
601,191 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(36)
|
Includes
1,101,192 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(37)
|
Includes
601,857 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(38)
|
Includes
150,000 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(39)
|
Includes
633,930 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(40)
|
Marianne
Higgins, as trustee of the Marianne Higgins Revocable Trust, has
investment and voting control over the
securities.
|
|
(41)
|
Includes
300,596 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(42)
|
Includes
133,929 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(43)
|
Includes
273,810 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(44)
|
Includes
607,144 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(45)
|
Robert
J. Silverman and Judith Ann Silverman, as co-trustees of The Silverman
1984 Trust, have investment and voting control over the
securities.
|
|
(46)
|
Includes
214,286 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(47)
|
Includes
750,000 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(48)
|
Includes
642,857 shares of common stock underlying warrants held by the selling
securityholder. James Regan is also the holder of 100,000 shares of
common stock and warrants to purchase 833,335 shares of common
stock.
|
|
(49)
|
Includes
535,714 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(50)
|
Includes
1,379,465 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(51)
|
Includes
278,273 shares of common stock underlying warrants held by the selling
securityholder.
|
- 72
- -
|
(52)
|
Includes
547,620 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(53)
|
Includes
214,286 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(54)
|
Includes
11,357,416 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(55)
|
Consists
of 6,028,574 shares of common stock and 2,222,222 shares of common stock
underlying warrants held by the selling
securityholder.
|
|
(56)
|
Includes
9,135,194 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(57)
|
Consists
of share of common stock underlying warrants held by the selling
securityholder.
|
|
(58)
|
Includes
3,982,556 shares of common stock underlying warrants held by the selling
securityholder.
|
|
(59)
|
Consists
of 357,143 shares of common stock and 133,333 shares of common stock
underlying warrants held by the selling
securityholder.
|
|
(60)
|
Includes
3,849,223 shares of common stock underlying warrants held by the selling
securityholder.
|
- 73
- -
PLAN
OF DISTRIBUTION
The
selling securityholders (and any their donees, pledgees, transferees or other
successors-in-interest of a selling securityholder selling shares of our common
stock or interests in shares of common stock received after the date of this
prospectus from a selling securityholder as a gift, pledge, partnership
distribution or other transfer) may, from time to time, sell, transfer or
otherwise dispose of any or all of their shares of common stock or interests in
shares of common stock on any stock exchange, market or trading facility on
which the shares are traded or in private transactions. These dispositions
may be at fixed prices, at prevailing market prices at the time of sale, at
prices related to the prevailing market price, at varying prices determined at
the time of sale, or at negotiated prices.
The
selling securityholders may use any one or more of the following methods when
disposing of shares or interests therein:
|
|
-
|
ordinary brokerage transactions
and transactions in which the broker-dealer solicits
purchasers;
|
|
|
-
|
block trades in which the
broker-dealer will attempt to sell the shares as agent, but may position
and resell a portion of the block as principal to facilitate the
transaction;
|
|
|
-
|
purchases by a broker-dealer as
principal and resale by the broker-dealer for its
account;
|
|
|
-
|
an exchange distribution in
accordance with the rules of the applicable
exchange;
|
|
|
-
|
privately negotiated
transactions;
|
|
|
-
|
short sales effected after the
date the registration statement of which this prospectus is a part is
declared effective by the
Commission;
|
|
|
-
|
through the writing or settlement
of options or other hedging transactions, whether through an options
exchange or otherwise;
|
|
|
-
|
broker-dealers may agree with the
selling securityholders to sell a specified number of such shares at a
stipulated price per share;
and
|
|
|
-
|
a combination of any such methods
of sale.
|
The
selling securityholders may, from time to time, pledge or grant a security
interest in some or all of the shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the shares of common stock, from time to time, under
this prospectus, or under an amendment to this prospectus under Rule 424(b)(3)
or other applicable provision of the Securities Act amending the list of selling
securityholders to include the pledgee, transferee or other
successors-in-interest as selling securityholders under this prospectus.
The selling securityholders also may transfer the shares of common stock in
other circumstances, in which case the transferees, pledgees or other
successors-in-interest will be the selling beneficial owners for purposes of
this prospectus; provided, however, that prior to any such transfer such
information as may be required by the federal securities laws from time to time
with respect to each such selling beneficial owner must be added to the
prospectus by way of a prospectus supplement or post-effective amendment, as
appropriate.
Broker-dealers
engaged by the selling securityholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling securityholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. The
selling securityholders do not expect these commissions and discounts to exceed
what is customary in the types of transactions involved.
- 74
- -
We have
advised the selling securityholders that they may not use shares registered on
this registration statement to cover short sales of common stock made prior to
the date on which this registration statement is declared effective by the
Securities and Exchange Commission. After the registration statement has
been declared effective, in connection with the sale of our common stock or
interests therein, the selling securityholders may enter into hedging
transactions with broker-dealers or other financial institutions, which may in
turn engage in short sales of the common stock in the course of hedging the
positions they assume. The selling securityholders may also sell shares of
our common stock short and deliver these securities to close out their short
positions, or loan or pledge the common stock to broker-dealers that in turn may
sell these securities. The selling securityholders may also enter into
option or other transactions with broker-dealers or other financial institutions
or the creation of one or more derivative securities which require the delivery
to such broker-dealer or other financial institution of shares offered by this
prospectus, which shares such broker-dealer or other financial institution may
resell pursuant to this prospectus (as supplemented or amended to reflect such
transaction).
The
selling securityholders will receive the aggregate proceeds from the sale of the
common stock offered by them. The aggregate proceeds to the selling
securityholders from the sale of the common stock offered by them will be the
purchase price of the common stock less discounts or commissions, if any.
Each of the selling securityholders reserves the right to accept and, together
with their agents from time to time, to reject, in whole or in part, any
proposed purchase of common stock to be made directly or through agents.
We will not receive any of the proceeds from the sale of common stock in this
offering.
The
selling securityholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act of 1933,
provided that they meet the criteria and conform to the requirements of that
rule.
The
selling securityholders and any underwriters, broker-dealers or agents that
participate in the sale of the common stock or interests therein may be
“underwriters” within the meaning of Section 2(11) of the Securities Act.
Any discounts, commissions, concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities
Act. Selling stockholders who are “underwriters” within the meaning of
Section 2(11) of the Securities Act will be subject to the prospectus delivery
requirements of the Securities Act.
To the
extent required, the shares of our common stock to be sold, the names of the
selling securityholders, the respective purchase prices and public offering
prices, the names of any agent, dealer or underwriter, any applicable
commissions or discounts with respect to a particular offer will be set forth in
an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this
prospectus.
In order
to comply with the securities laws of some states, if applicable, the common
stock may be sold in these jurisdictions only through registered or licensed
brokers or dealers. In addition, in some states the common stock may not
be sold unless it has been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied
with.
We have
advised the selling securityholders that the anti-manipulation rules of
Regulation M under the Securities Exchange Act of 1934 may apply to sales of
shares in the market and to the activities of the selling securityholders and
their affiliates. In addition, we will make copies of this prospectus (as
it may be supplemented or amended from time to time) available to the selling
securityholders for the purpose of satisfying the prospectus delivery
requirements of the Securities Act. The selling securityholders may
indemnify any broker-dealer that participates in transactions involving the sale
of the shares of common stock against certain liabilities, including liabilities
arising under the Securities Act.
We have
agreed to pay all expenses incurred in connection with the registration of the
shares pursuant to this registration statement (excluding underwriting,
brokerage and other selling commissions and discounts and other expenses
incurred by the selling securityholders for their own accounts), including,
without limitation, all registration and qualification and filing fees (subject
to laws of applicable jurisdictions), printing, fees and disbursements of
counsel for us and fees. We have agreed to indemnify the selling
securityholders against liabilities, including liabilities under the Securities
Act and state securities laws, relating to the registration of the shares
offered by this prospectus.
- 75
- -
LEGAL
MATTERS
The
legality of the securities offered in this prospectus has been passed upon for
us by Lowenstein Sandler PC, Roseland, New Jersey.
EXPERTS
The
financial statements as of December 31, 2009 and 2008 and for the years then
ended, included in this prospectus have been audited by J.H. Cohn LLP,
independent registered public accounting firm, as stated in its report appearing
in this prospectus and elsewhere in the registration statement of which this
prospectus forms a part, and have been so included in reliance upon the reports
of such firm given upon its authority as experts in accounting and
auditing.
DISCLOSURE
OF COMMISSION POSITION ON
INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the SEC such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by us of
expenses incurred or paid by one of our directors, officers or controlling
persons in the successful defense of any action, suit or proceeding) is asserted
by that director, officer or controlling person in connection with the
securities being registered, we will, unless in the opinion of our counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether that indemnification by us is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of that issue.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
We have
filed with the SEC a registration statement of Form S-1, as amended, relating to
the securities being offered through this prospectus. As permitted by the rules
and regulations of the SEC, the prospectus does not contain all the information
described in the registration statement. For further information about us
and our securities, you should read our registration statement, including the
exhibits and schedules. In addition, we will be subject to the
requirements of the Securities Exchange Act of 1934, as amended, following the
offering and thus will file annual, quarterly and special reports, proxy
statements and other information with the SEC. These SEC filings and the
registration statement are available to you over the Internet at the SEC’s web
site at http://www.sec.gov/. You may also read and copy any document we file
with the SEC at the SEC’s public reference room in at 100 F. Street, N.E., Room
1580, Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further
information about the public reference room. Statements contained in this
prospectus as to the contents of any agreement or other document are not
necessarily complete and, in each instance, you should review the agreement or
document which has been filed as an exhibit to the registration
statement.
- 76
- -
Index
to Financial Statements
|
Page
|
|
|
Unaudited
Condensed Consolidated Financial Statements as of March 31, 2010 and
2009:
|
|
|
Unaudited
Condensed Consolidated Balance Sheets as of March 31, 2010 and December
31, 2009
|
F-2
|
|
Unaudited
Condensed Consolidated Statements of Operations for the Three Months Ended
March 31, 2010 and 2009 and the cumulative period from August 6, 2001
(inception) to March 31, 2010
|
F-3
|
|
Unaudited
Condensed Consolidated Statements of Stockholders’ Equity (Deficiency)
from August 6, 2001 (inception) to March 31, 2010
|
F-4
|
|
Unaudited
Condensed Consolidated Statements of Cash Flows For the Three Months Ended
March 31, 2010 and 2009 and the cumulative period from August 6, 2001
(inception) to March 31, 2010
|
F-6
|
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
F-7
|
|
Financial
Statements as of December 31, 2009 and 2008:
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-25
|
|
Balance
Sheets as of December 31, 2009 and 2008
|
F-26
|
|
Statements
of Operations for the Years Ended December 31, 2009 and 2008 and the
cumulative period from August 6, 2001 (inception) to December 31,
2009
|
F-27
|
|
Statements
of Stockholders’ Equity (Deficiency) for the Years Ended December 31, 2009
and 2008 and the cumulative period from August 6, 2001 (inception) to
December 31, 2009
|
F-28
|
|
Statements
of Cash Flows for the Years Ended December 31, 2009 and 2008 and the
cumulative period from August 6, 2001 (inception) to December 31,
2009
|
F-30
|
|
Notes
to Financial Statements
|
F-31
|
F-1
Part
I – Financial Information
Item
1. Unaudited Condensed Consolidated Financial Statements
MANHATTAN
PHARMACEUTICALS, INC. and SUBSIDIARIES
(A
Development Stage Company)
Condensed
Consolidated Balance Sheets
|
March 31,
|
December 31,
|
|||||||
|
2010
|
2009
|
|||||||
|
(unaudited)
|
(See Note 1)
|
|||||||
|
Assets
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 2,017,280 | $ | 17,996 | ||||
|
Debt
issue costs, current portion
|
148,733 | 158,552 | ||||||
|
Other
current assets
|
119,704 | 87,177 | ||||||
|
Total
current assets
|
2,285,717 | 263,725 | ||||||
|
In-process
research and development
|
17,742,110 | - | ||||||
|
Property
and equipment, net
|
2,745 | 3,541 | ||||||
|
Debt
issue costs
|
29,922 | 77,026 | ||||||
|
Other
assets
|
21,370 | 21,370 | ||||||
|
Total
assets
|
$ | 20,081,864 | $ | 365,662 | ||||
|
Liabilities
and Stockholders' Deficiency
|
||||||||
|
Current
Liabilities:
|
||||||||
|
Secured
12% notes payable, current portion, net
|
$ | 1,655,461 | $ | 1,247,062 | ||||
|
8%
note payable
|
- | 27,000 | ||||||
|
ICON
note payable, current portion
|
333,333 | - | ||||||
|
Accounts
payable and accrued expenses
|
302,728 | 291,175 | ||||||
|
Interest
payable, current portion
|
290,439 | 182,193 | ||||||
|
Derivative
liability
|
4,620,998 | 784,777 | ||||||
|
Total
current liabilities
|
7,202,959 | 2,532,207 | ||||||
|
Convertible
5% notes payable
|
15,452,793 | - | ||||||
|
Secured
12% notes payable, non-current portion, net
|
- | 384,473 | ||||||
|
Convertible
12% note payable, net
|
42,466 | 17,808 | ||||||
|
ICON
convertible note payable, non-current portion
|
666,667 | - | ||||||
|
Non-interest
bearing note payable, net
|
216,900 | 211,900 | ||||||
|
Interest
payable, non-current portion
|
68,417 | 55,048 | ||||||
|
Exchange
obligation
|
3,949,176 | 3,949,176 | ||||||
|
Total
liabilities
|
27,599,378 | 7,150,612 | ||||||
|
Commitments
and contingencies
|
||||||||
|
Stockholders’
deficiency:
|
||||||||
|
Preferred
stock, $.001 par value. Authorized 1,500,000 shares; no shares issued and
outstanding at March 31, 2010 and December 31, 2009
|
- | - | ||||||
|
Common
stock, $.001 par value. Authorized 500,000,000 shares; 114,079,543
shares issued and outstanding at March 31, 2010 and 70,624,232 issued and
outstanding on December 31, 2009
|
114,080 | 70,624 | ||||||
|
Contingently
issuable shares
|
15,890 | - | ||||||
|
Additional
paid-in capital
|
55,919,120 | 55,077,861 | ||||||
|
Deficit
accumulated during the development stage
|
(63,566,604 | ) | (61,933,435 | ) | ||||
|
Total
stockholders’ deficiency
|
(7,517,514 | ) | (6,784,950 | ) | ||||
|
Total
liabilities and stockholders' deficiency
|
$ | 20,081,864 | $ | 365,662 | ||||
See
accompanying notes to consolidated financial statements.
F-2
MANHATTAN
PHARMACEUTICALS, INC. and SUBSIDIARIES
(A
Development Stage Company)
Condensed
Consolidated Statements of Operations
(Unaudited)
|
Three months ended March 31,
|
Cumulative
period from
August 6, 2001
(inception) to
March 31,
|
|||||||||||
|
2010
|
2009
|
2010
|
||||||||||
|
Revenue
|
$ | - | $ | - | $ | - | ||||||
|
Costs
and expenses:
|
||||||||||||
|
Research
and development
|
17,767 | 44,936 | 28,349,978 | |||||||||
|
General
and administrative
|
511,678 | 512,400 | 18,705,133 | |||||||||
|
In-process
research and development charge
|
- | - | 11,887,807 | |||||||||
|
Impairment
of intangible assets
|
- | - | 1,248,230 | |||||||||
|
Loss
on disposition of intangible assets
|
- | - | 1,213,878 | |||||||||
|
Total
operating expenses
|
529,445 | 557,336 | 61,405,026 | |||||||||
|
Operating
loss
|
(529,445 | ) | (557,336 | ) | (61,405,026 | ) | ||||||
|
Other
(income) expense:
|
||||||||||||
|
Equity
in losses of Hedrin JV
|
- | 135,786 | 750,000 | |||||||||
|
Change
in fair value of derivative
|
942,261 | 70,000 | 1,372,331 | |||||||||
|
Interest
and other income
|
(75,314 | ) | (126,728 | ) | (1,942,543 | ) | ||||||
|
Interest
expense
|
236,777 | 125,450 | 878,177 | |||||||||
|
Realized
gain on sale of marketable equity securities
|
- | - | (76,032 | ) | ||||||||
|
Total
other (income) expense
|
1,103,724 | 204,508 | 981,933 | |||||||||
|
Net
loss
|
(1,633,169 | ) | (761,844 | ) | (62,386,959 | ) | ||||||
|
Preferred
stock dividends (including imputed amounts)
|
- | - | (1,179,645 | ) | ||||||||
|
Net
loss applicable to common shares
|
$ | (1,633,169 | ) | $ | (761,844 | ) | $ | (63,566,604 | ) | |||
|
Net
loss per common share:
|
||||||||||||
|
Basic
and diluted
|
$ | (0.02 | ) | $ | (0.01 | ) | ||||||
|
Weighted
average shares of common stock outstanding:
|
||||||||||||
|
Basic
and diluted
|
84,638,502 | 70,624,232 | ||||||||||
See
accompanying notes to consolidated financial statements.
F-3
MANHATTAN
PHARMACEUTICALS, INC. and SUBSIDIARIES
(A
Development Stage Company)
Condensed
Consolidated Statements of Stockholders' Equity (Deficiency)
(Unaudited)
|
Common stock
shares
|
Common stock
amount
|
Additional paid-
in capital
|
Deficit
accumulated
during
development
stage
|
Other
|
Total
stockholders’
equity
(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 | ) | (56,796 | ) | (4,000 | ) | (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 | ||||||||||||||||||
|
Common
stock issued at $0.63 per share, net of expenses
|
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
|
- | - | 9,045,176 | - | 1,000 | 9,046,176 | ||||||||||||||||||
|
Imputed
preferred stock dividend
|
418,182 | (418,182 | ) | - | ||||||||||||||||||||
|
Net
loss
|
- | - | - | (5,960,907 | ) | (5,960,907 | ) | |||||||||||||||||
|
Balance
at December 31, 2003
|
23,362,396 | 23,362 | 14,289,535 | (7,473,205 | ) | (6,760 | ) | 6,832,932 | ||||||||||||||||
| - | ||||||||||||||||||||||||
|
Exercise
of stock options
|
27,600 | 27 | 30,073 | - | 30,100 | |||||||||||||||||||
|
Common
stock issued at $1.10, net of expenses
|
3,368,952 | 3,369 | 3,358,349 | - | 3,361,718 | |||||||||||||||||||
|
Preferred
stock dividend accrued
|
- | - | - | (585,799 | ) | (585,799 | ) | |||||||||||||||||
|
Preferred
stock dividends paid by issuance of shares
|
- | - | 281,073 | - | 25 | 281,098 | ||||||||||||||||||
|
Conversion
of preferred stock to common stock at $1.10 per share
|
1,550,239 | 1,551 | (1,380 | ) | - | (171 | ) | - | ||||||||||||||||
|
Warrants
issued for consulting services
|
- | - | 125,558 | - | (120,968 | ) | 4,590 | |||||||||||||||||
|
Amortization
of unearned consulting costs
|
- | - | - | - | 100,800 | 100,800 | ||||||||||||||||||
|
Unrealized
gain on short-term investments and reversal of unrealized loss on
short-term investments
|
- | - | - | - | 20,997 | 20,997 | ||||||||||||||||||
|
Net
loss
|
- | - | - | (5,896,031 | ) | - | (5,896,031 | ) | ||||||||||||||||
|
Balance
at December 31, 2004
|
28,309,187 | 28,309 | 18,083,208 | (13,955,035 | ) | (6,077 | ) | 4,150,405 | ||||||||||||||||
|
Common
stock issued at $1.11 and $1.15, net of expenses
|
11,917,680 | 11,918 | 12,238,291 | - | 12,250,209 | |||||||||||||||||||
|
Common
stock issued to vendor at $1.11 per share in satisfaction of accounts
payable
|
675,675 | 676 | 749,324 | - | 750,000 | |||||||||||||||||||
|
Exercise
of stock options
|
32,400 | 33 | 32,367 | - | 32,400 | |||||||||||||||||||
|
Exercise
of warrants
|
279,845 | 279 | 68,212 | - | 68,491 | |||||||||||||||||||
|
Preferred
stock dividend accrued
|
- | - | - | (175,663 | ) | (175,663 | ) | |||||||||||||||||
|
Preferred
stock dividends paid by issuance of shares
|
- | - | 477,736 | — | 42 | 477,778 | ||||||||||||||||||
|
Conversion
of preferred stock to common stock at $1.10 per share
|
8,146,858 | 8,147 | (7,251 | ) | - | (896 | ) | - | ||||||||||||||||
|
Share-based
compensation
|
- | - | 66,971 | - | 20,168 | 87,139 | ||||||||||||||||||
|
Reversal
of unrealized gain on short-term investments
|
- | - | - | - | (12,250 | ) | (12,250 | ) | ||||||||||||||||
|
Stock
issued in connection with acquisition of Tarpan Therapeutics,
Inc.
|
10,731,052 | 10,731 | 11,042,253 | - | 11,052,984 | |||||||||||||||||||
|
Net
loss
|
- | - | - | (19,140,997 | ) | (19,140,997 | ) | |||||||||||||||||
|
Balance
at December 31, 2005
|
60,092,697 | 60,093 | 42,751,111 | (33,271,695 | ) | 987 | 9,540,496 | |||||||||||||||||
|
Cashless
exercise of warrants
|
27,341 | 27 | (27 | ) | - | - | ||||||||||||||||||
|
Share-based
compensation
|
- | - | 1,675,499 | - | 1,675,499 | |||||||||||||||||||
|
Unrealized
loss on short-term investments
|
- | - | - | - | (987 | ) | (987 | ) | ||||||||||||||||
|
Costs
associated with private placement
|
- | - | (15,257 | ) | - | (15,257 | ) | |||||||||||||||||
|
Net
loss
|
- | - | - | (9,695,123 | ) | (9,695,123 | ) | |||||||||||||||||
|
Balance
at December 31, 2006
|
60,120,038 | 60,120 | 44,411,326 | (42,966,818 | ) | - | 1,504,628 | |||||||||||||||||
F-4
MANHATTAN
PHARMACEUTICALS, INC. and SUBSIDIARIES
(A
Development Stage Company)
Condensed
Consolidated Statements of Stockholders' Equity (Deficiency)
(Unaudited)
|
Common stock
shares
|
Common
stock
amount
|
Additional
paid-in
capital
|
Deficit
accumulated
during
development
stage
|
Other
|
Total
stockholders’
equity
(deficiency)
|
|||||||||||||||||||
|
Common
stock issued at $0.84 and $0.90 per shares, net of
expenses
|
10,185,502 | $ | 10,186 | $ | 7,841,999 | $ | - | $ | - | $ | 7,852,185 | |||||||||||||
|
Common
stock issued to directors at $0.72 per share in satisfaction of accounts
payable
|
27,776 | 28 | 19,972 | - | - | 20,000 | ||||||||||||||||||
|
Common
stock issued to in connection with in-licensing agreement at $0.90 per
share
|
125,000 | 125 | 112,375 | - | - | 112,500 | ||||||||||||||||||
|
Common
stock issued to in connection with in-licensing agreement at $0.80 per
share
|
150,000 | 150 | 119,850 | - | - | 120,000 | ||||||||||||||||||
|
Exercise
of warrants
|
10,327 | 15 | 7,219 | - | - | 7,234 | ||||||||||||||||||
|
Cashless
exercise of warrants
|
5,589 | - | (6 | ) | - | - | (6 | ) | ||||||||||||||||
|
Share-based
compensation
|
- | - | 1,440,956 | - | - | 1,440,956 | ||||||||||||||||||
|
Warrants
issued for consulting
|
- | - | 83,670 | - | - | 83,670 | ||||||||||||||||||
|
Net
loss
|
- | - | - | (12,032,252 | ) | (12,032,252 | ) | |||||||||||||||||
|
Balance
at December 31, 2007
|
70,624,232 | 70,624 | 54,037,361 | (54,999,070 | ) | - | (891,085 | ) | ||||||||||||||||
|
Sale
of warrant
|
- | - | 150,000 | - | - | 150,000 | ||||||||||||||||||
|
Share-based
compensation
|
- | - | 463,890 | - | - | 463,890 | ||||||||||||||||||
|
Warrants
issued with secured 12% notes
|
- | - | 170,128 | - | - | 170,128 | ||||||||||||||||||
|
Net
loss
|
- | - | - | (4,268,858 | ) | - | (4,268,858 | ) | ||||||||||||||||
|
Balance
at December 31, 2008
|
70,624,232 | 70,624 | 54,821,379 | (59,267,928 | ) | - | (4,375,925 | ) | ||||||||||||||||
|
Cumulative
effect of a change in accounting principle
|
- | - | (150,000 | ) | 127,778 | - | (22,222 | ) | ||||||||||||||||
|
Balance
at January 1, 2009, as adjusted
|
70,624,232 | 70,624 | 54,671,379 | (59,140,150 | ) | - | (4,398,147 | ) | ||||||||||||||||
|
Share-based
compensation
|
- | - | 353,438 | - | - | 353,438 | ||||||||||||||||||
|
Warrants
issued with secured 12% notes
|
- | - | 46,125 | - | - | 46,125 | ||||||||||||||||||
|
Warrant
issued to placement agent - secured 12% notes
|
- | - | 6,919 | - | - | 6,919 | ||||||||||||||||||
|
Net
loss
|
- | - | - | (2,793,285 | ) | - | (2,793,285 | ) | ||||||||||||||||
|
Balance
at December 31, 2009
|
70,624,232 | 70,624 | 55,077,861 | (61,933,435 | ) | - | (6,784,950 | ) | ||||||||||||||||
|
Common
stock issued at $0.07, net of expenses
|
36,392,888 | 36,393 | 2,075,353 | - | - | 2,111,746 | ||||||||||||||||||
|
Shares
issued and issuable in Merger
|
7,062,423 | 7,063 | 1,468,984 | - | 15,890 | 1,491,937 | ||||||||||||||||||
|
Derivative
liability associated with issuance of common stock at
$0.07
|
- | - | (2,893,960 | ) | - | - | (2,893,960 | ) | ||||||||||||||||
|
Share-based
compensation
|
- | - | 190,882 | - | - | 190,882 | ||||||||||||||||||
|
Net
loss
|
- | - | - | (1,633,169 | ) | - | (1,633,169 | ) | ||||||||||||||||
|
Balance
at March 31, 2010
|
114,079,543 | $ | 114,080 | $ | 55,919,120 | $ | (63,566,604 | ) | $ | 15,890 | $ | (7,517,514 | ) | |||||||||||
See
accompanying notes to consolidated financial statements.
F-5
MANHATTAN
PHARMACEUTICALS, INC. and SUBSIDIARIES
(A
Development Stage Company)
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
|
Three months ended March 31,
|
Cumulative period from
August 6, 2001
(inception) to March 31,
|
|||||||||||
|
2010
|
2009
|
2010
|
||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
loss
|
$ | (1,633,169 | ) | $ | (761,844 | ) | $ | (62,386,959 | ) | |||
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
|
Equity
in losses of Hedrin JV
|
- | 135,786 | 750,000 | |||||||||
|
Share-based
compensation
|
190,882 | 104,097 | 4,373,194 | |||||||||
|
Interest
and amortization of OID and issue costs on Secured 12%
Notes
|
110,507 | 119,060 | 694,480 | |||||||||
|
Change
in fair value of derivative
|
942,261 | 70,000 | 1,372,331 | |||||||||
|
Shares
issued in connection with in-licensing agreement
|
- | - | 232,500 | |||||||||
|
Warrants
issued to consultant
|
- | - | 83,670 | |||||||||
|
Amortization
of intangible assets
|
- | - | 145,162 | |||||||||
|
Gain
on sale of marketable equity securities
|
- | - | (76,032 | ) | ||||||||
|
Depreciation
|
796 | 1,576 | 228,258 | |||||||||
|
Non
cash portion of in-process research and development charge
|
- | - | 11,721,623 | |||||||||
|
Loss
on impairment and disposition of intangible assets
|
- | - | 2,462,108 | |||||||||
|
Other
|
- | - | 23,917 | |||||||||
|
Changes
in operating assets and liabilities, net of acquisitions:
|
||||||||||||
|
Decrease/(increase)
in restricted cash
|
- | 215,870 | - | |||||||||
|
Decrease/(increase)
in prepaid expenses and other current assets
|
88,343 | (14,850 | ) | 59,408 | ||||||||
|
Decrease/(increase)
in other assets
|
- | - | (36,370 | ) | ||||||||
|
Increase/(decrease)
in accounts payable and accrued liabilities
|
(426,062 | ) | (515,492 | ) | (43,096 | ) | ||||||
|
Increase/(decrease)
in interest payable, current portion
|
108,246 | - | 108,246 | |||||||||
|
Increase/(decrease)
in interest payable, non-current portion
|
13,369 | - | 13,369 | |||||||||
|
Net
cash used in operating activities
|
(604,827 | ) | (645,797 | ) | (40,274,191 | ) | ||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Purchase
of property and equipment
|
- | - | (239,608 | ) | ||||||||
|
Cash
acquired/(paid) in connection with acquisitions
|
519,365 | - | 493,334 | |||||||||
|
Net
cash provided from the purchase and sale of short-term
investments
|
- | - | 435,938 | |||||||||
|
Proceeds
from sale of license
|
- | - | 200,001 | |||||||||
|
Net
cash provided by investing activities
|
519,365 | - | 889,665 | |||||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Proceeds
from the Hedrin JV agreement
|
- | 500,000 | 3,199,176 | |||||||||
|
Sale
of warrant
|
- | - | 150,000 | |||||||||
|
Repayment
of Secured 10% Notes
|
- | (70,000 | ) | - | ||||||||
|
Repayment
of 8% Notes
|
(27,000 | ) | - | |||||||||
|
Proceeds
from sale of Secured 12% Notes
|
- | 340,270 | 1,345,413 | |||||||||
|
Proceeds
from sale of Convertible 12% Notes
|
- | - | 164,502 | |||||||||
|
Repayments
of notes payable to stockholders
|
- | - | (884,902 | ) | ||||||||
|
Proceeds
(costs) related to sale of common stock, net
|
2,111,746 | - | 28,008,008 | |||||||||
|
Proceeds
from sale of preferred stock, net
|
- | - | 9,046,176 | |||||||||
|
Proceeds
from exercise of warrants and stock options
|
- | - | 138,219 | |||||||||
|
Other,
net
|
- | - | 235,214 | |||||||||
|
Net
cash provided by financing activities
|
2,084,746 | 770,270 | 41,401,806 | |||||||||
|
Net
increase in cash and cash equivalents
|
1,999,284 | 124,473 | 2,017,280 | |||||||||
|
Cash
and cash equivalents at beginning of period
|
17,996 | 106,023 | - | |||||||||
|
Cash
and cash equivalents at end of period
|
$ | 2,017,280 | $ | 230,496 | $ | 2,017,280 | ||||||
|
Supplemental
disclosure of cash flow information:
|
||||||||||||
|
Interest
paid
|
$ | 1,506 | $ | - | $ | 32,936 | ||||||
|
Supplemental
disclosure of noncash investing and financing activities:
|
||||||||||||
|
Investment
in Hedrin JV
|
$ | - | $ | 250,000 | $ | 750,000 | ||||||
|
Warrants
issued with Secured 12% Notes
|
- | - | 223,172 | |||||||||
|
Common
stock issued in satisfaction of accounts payable
|
- | - | 770,000 | |||||||||
|
Imputed
and accrued preferred stock dividend
|
- | - | 1,179,645 | |||||||||
|
Conversion
of preferred stock to common stock
|
- | - | 1,067 | |||||||||
|
Preferred
stock dividends paid by issuance of shares
|
- | - | 759,134 | |||||||||
|
Issuance
of common stock for acquisitions
|
1,491,937 | - | 14,881,163 | |||||||||
|
Issuance
of common stock in connection with in-licensing agreement
|
- | - | 232,500 | |||||||||
|
Marketable
equity securities received in connection with sale of
license
|
- | - | 359,907 | |||||||||
|
Warrants
issued to consultant
|
- | - | 83,670 | |||||||||
|
Net
liabilities assumed over assets acquired in business
combination
|
- | - | (675,416 | ) | ||||||||
See
accompanying notes to consolidated financial statements
F-6
MANHATTAN
PHARMACEUTICALS, INC. and SUBSIDIARIES
(a
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements of Manhattan
Pharmaceuticals, Inc. and subsidiaries (“Manhattan” or the “Company”) have
been prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and the rules and
regulations of the Securities and Exchange Commission. Accordingly, the
unaudited condensed consolidated financial statements do not include all
information and footnotes required by accounting principles generally accepted
in the United States of America for complete annual financial statements.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments, consisting of only normal
recurring adjustments, considered necessary for a fair presentation.
Interim operating results are not necessarily indicative of results that may be
expected for the year ending December 31, 2010 or for any other interim
period. These unaudited condensed consolidated financial statements should
be read in conjunction with the Company’s audited financial statements as of and
for the year ended December 31, 2009, which are included in the Company’s
Annual Report on Form 10-K for such year. The condensed balance
sheet as of December 31, 2009 has been derived from the audited financial
statements included in the Form 10-K for that year.
As of
March 31, 2010, the Company has not generated any revenues from the development
of its products and is therefore still considered to be a development stage
company.
On March
8, 2010, the Company entered into an Agreement and Plan of Merger (the "Merger
Agreement") by and among the Company, Ariston Pharmaceuticals, Inc., a Delaware
corporation ("Ariston") and Ariston Merger Corp., a Delaware corporation and
wholly-owned subsidiary of the Company (the "Merger Sub"). Pursuant to the
terms and conditions set forth in the Merger Agreement, on March 8, 2010, the
Merger Sub merged with and into Ariston (the "Merger"), with Ariston being the
surviving corporation of the Merger. As a result of the Merger, Ariston
became a wholly-owned subsidiary of the Company. The operating results of
Ariston from March 8, 2010 to March 31, 2010 are included in the accompanying
condensed consolidated statements of operations. The condensed
consolidated balance sheets as of March 31, 2010 reflects the acquisition of
Ariston, effective March 8, 2010, the date of the Merger.
Segment
Reporting
The
Company has determined that it operates in only one segment currently, which is
biopharmaceutical research and development.
Financial
Instruments
At March
31, 2010 and December 31, 2009, the fair values of cash and cash equivalents,
accounts payable, the convertible 5% notes payable, the ICON convertible note
payable and the secured 12% notes payable approximate their carrying
values. At March 31, 2010 and December 31, 2009 the fair value of the
convertible 12% note does not approximate its carrying value as a portion of the
fair value is reflected as a component of derivative liability.
F-7
MANHATTAN
PHARMACEUTICALS, INC. and SUBSIDIARIES
(a
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Equity
in Joint Venture
The
Company accounts for its investment in joint venture (see Note 5) using the
equity method of accounting. Under the equity method, the Company records its
pro-rata share of joint venture income or losses and adjusts the basis of its
investment accordingly.
New Accounting
Pronouncements
In May 2009, the Financial
Accounting Standards Board (“FASB”) issued a statement which sets forth the
period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements, the circumstances under
which an entity should recognize events or transactions occurring after the
balance sheet date in its financial statements, and the disclosures that an
entity should make about events or transactions that occurred after the balance
sheet date. This statement was effective for interim or annual periods ending
after June 15, 2009, and the Company adopted the provisions of this
statement for the quarter ended June 30, 2009. The adoption of this
statement did not have a material impact on the Company’s financial
statements. The Company has evaluated all events or transactions that
occurred after March 31, 2010 up through the date we issued these financial
statements, and we have disclosed all events or transactions that have a
material impact on the Company’s financial statements (see Note
10).
In
August 2009, the FASB issued a new pronouncement to provide clarification
on measuring liabilities at fair value when a quoted price in an active market
is not available. In particular, this pronouncement specifies that a valuation
technique should be applied that uses either the quote of the liability when
traded as an asset, the quoted prices for similar liabilities when traded as
assets, or another valuation technique consistent with existing fair value
measurement guidance. This statement is prospectively effective for financial
statements issued for interim or annual periods ending after October 1,
2009. The adoption of this statement at December 31, 2009 did not impact the
Company’s results of operations or financial condition.
In
January 2010, the FASB issued a new pronouncement, Improving Disclosures about
Fair Value Measurements(ASU 2010-06). This provision amends previous provisions
that require reporting entities to make new disclosures about recurring and
nonrecurring fair value measurements including the amounts of and reasons for
significant transfers into and out of Level 1and Level 2 fair value measurements
and separate disclosure of purchases, sales, issuances, and settlements in the
reconciliation of Level 3 fair value measurements. This pronouncement was
effective for interim and annual reporting periods beginning after December 15,
2009, except for Level 3 reconciliation disclosures which are effective for
interim and annual periods beginning after December 15, 2010. The adoption
of this pronouncement did not have a material impact on the Company’s results of
operations or financial condition.
In
February 2010, the FASB issued new accounting guidance that amends the previous
guidance to (1) eliminate the requirement for an SEC filer to disclose the date
through which it has evaluated subsequent events, (2) clarify the period through
which conduit bond obligors must evaluate subsequent events and (3) refine the
scope of the disclosure requirements for reissued financial statements. The
Company adopted this new accounting guidance for the quarterly period ended
March 31, 2010. The adoption of this guidance did not have a material impact on
our financial statements.
F-8
MANHATTAN
PHARMACEUTICALS, INC. and SUBSIDIARIES
(a
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Ariston
Merger
On March
8, 2010, the Company entered into the Merger Agreement by and among the Company,
Ariston and Merger Sub. Pursuant to the terms and conditions set forth in
the Merger Agreement, on March 8, 2010, the Merger Sub merged with and into
Ariston, with Ariston being the surviving corporation of the Merger. As a
result of the Merger, Ariston became a wholly-owned subsidiary of the
Company.
Under the
terms of the Merger Agreement, the consideration payable by the Company to the
stockholders and note holders of Ariston consists of the issuance of 7,062,423
shares of the Company's common stock, par value $0.001 per share, ("Common
Stock") at Closing (as defined in the Merger Agreement) plus the right to
receive up to an additional 24,718,481 shares of Common Stock (the “Milestone
Shares”) upon the achievement of certain product-related milestones described
below. In addition, the Company has reserved 38,630,723 shares of its
Common Stock for possible future issuance in connection with the conversion of
$15.45 million of outstanding Ariston convertible promissory notes. The
noteholders will not have any recourse to the Company for repayment of the notes
(their sole recourse being to Ariston), but the noteholders will have the right
to convert the notes into shares of the Company's Common Stock at the rate of
$0.40 per share. Further, the Company has reserved 5,000,000 shares of its
Common Stock for possible future issuance in connection with the conversion of
$1.0 million of outstanding Ariston convertible promissory note issued in
satisfaction of a trade payable. The noteholder will not have any recourse
to the Company for repayment of the note (their sole recourse being to Ariston),
but the noteholder will have the right to convert the note into shares of the
Company's Common Stock at the rate of $0.20 per share.
Upon the
achievement of the milestones described below, the Company would be obligated to
issue portions of the Milestone Shares to the former Ariston stockholders and
noteholders:
|
|
·
|
Upon
the affirmative decision of the Company’s Board of Directors, provided
that such decision is made prior to March 8, 2011, to further develop the
AST-915, either internally or through a corporate partnership, the Company
would issue 8,828,029 of the Milestone
Shares.
|
|
|
·
|
Upon
the acceptance by the FDA of the Company's filing of the first New Drug
Application for the AST-726 product candidate, the Company would issue
7,062,423 of the Milestone Shares.
|
|
|
·
|
Upon
the Company receiving FDA approval to market the AST-726 product candidate
in the United States of America, the Company would issue 8,828,029 of the
Milestone Shares.
|
Certain
members and former members of the Company's board of directors and principal
stockholders of the Company owned Ariston securities. Timothy McInerney, a
director of Manhattan, owned 16,668 shares of Ariston common stock which
represented less than 1% of Ariston’s outstanding common stock as of the closing
of the Merger. Neil Herskowitz, a director of Manhattan, indirectly owned
convertible promissory notes of Ariston with interest and principal in the
amount of $192,739. Michael Weiser, a director of Manhattan, owned 117,342
shares of Ariston common stock, which represented approximately 2.1% of
Ariston’s outstanding common stock as of the closing of the Merger.
Lindsay Rosenwald, a more than 5% beneficial owner of Manhattan common stock, in
his individual capacity and indirectly through trusts and companies he controls
owned 497,911 shares of Ariston common stock, which represented approximately
8.9% of Ariston’s outstanding common stock as of the closing of the Merger and
indirectly owned convertible promissory notes of Ariston in the amount of
$141,438.
F-9
MANHATTAN
PHARMACEUTICALS, INC. and SUBSIDIARIES
(a
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The
Company merged with Ariston principally to add new products to our portfolio.
Prior to the Merger, Ariston was a private, clinical stage specialty
biopharmaceutical company based in Shrewsbury, Massachusetts that in-licenses,
develops and plans to market novel therapeutics for the treatment of serious
disorders of the central and peripheral nervous systems.
The
Merger date fair value of the total consideration paid was $1,491,937 which
consisted of 7,062,423 shares of the Company’s common stock issued upon the
Merger and 15,890,452 contingently issuable shares upon Ariston’s attaining
certain milestones as described above. The Company does not believe the
attainment of the milestone for AST-915 is highly probable and has recorded no
contingent consideration relative to it. The par value of the contingently
issuable common shares is reflected in the accompanying condensed consolidated
balance sheets as of March 31, 2010 as a component of stockholders’ deficiency,
contingently issuable shares.
The
following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the Merger date:
|
Cash
and cash equivalents
|
$ | 519,365 | ||
|
Other
assets
|
120,870 | |||
|
Total
identifiable assets
|
640,235 | |||
|
Accounts
payable and accrued expenses
|
437,615 | |||
|
ICON
convertible note payable
|
1,000,000 | |||
|
5%
convertible notes payable
|
15,452,793 | |||
|
Total
identifiable liabilities
|
16,890,408 | |||
|
Net
identifiable assets (liabilities)
|
(16,250,173 | ) | ||
|
In-process
research and development acquired
|
17,742,110 | |||
|
Net
assets acquired
|
$ | 1,491,937 |
The following supplemental pro forma
information presents the financial results as if the acquisition of Ariston had
occurred on January 1, 2009 for the quarter ended March 31, 2009 and on January
1, 2010 for the quarter ended March 31, 2010. This supplemental pro forma
information has been prepared for comparative purposes and does not purport to
be indicative of what would have occurred had the acquisition been made on
January 1, 2009 or January 1, 2010, nor are they indicative of future
results.
|
Pro forma consolidated results:
|
Quarter ended March 31,
|
|||||||
|
2009
|
2010
|
|||||||
|
Revenue
|
$ | - | $ | - | ||||
|
Net
loss
|
$ | (1,544,229 | ) | $ | (1,787,172 | ) | ||
|
Basic
and diluted earnings per share
|
$ | (0.02 | ) | $ | (0.02 | ) | ||
F-10
MANHATTAN
PHARMACEUTICALS, INC. and SUBSIDIARIES
(a
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
LIQUIDITY
|
The
Company incurred a net loss of $1,633,169 and negative cash flows from operating
activities of $604,827 for the three month period ended March 31, 2010 and
negative cash flows from operating activities of $645,797 for the three month
period ended March 31, 2009. The net loss applicable to common shares from
date of inception, August 6, 2001, to March 31, 2010 amounts to
$63,566,604.
In the
first quarter of 2009 the Company received approximately $0.3 million from the
final closing of the sale of Secured 12% Notes and approximately $0.5 million in
February 2009 from a joint venture agreement.
In the
first quarter of 2010, the Company received $40,000 from Ariston
Pharmaceuticals, Inc. in exchange for notes in January 2010 and approximately
$2.1 million from an equity financing transaction (see Note 7). The Company
repaid the $40,000 received from Ariston in the first quarter of 2010 and the
$27,000 received from Ariston in the fourth quarter of 2009 together with
interest thereon prior to the Merger.
Management
believes that the Company will continue to incur net losses through at least
March 31, 2011 and for the foreseeable future thereafter. Based on the
resources of the Company available at March 31, 2010, management believes that
the Company has sufficient capital to fund its operations through the end of
2010. Management believes that the Company will need additional equity or
debt financing or will need to generate positive cash flow from a joint venture
agreement, see Note 5, or generate revenues through licensing of its products or
entering into strategic alliances to be able to sustain its operations into
2011. Furthermore, the Company will need additional financing thereafter
to complete development and commercialization of our products. There can
be no assurances that we can successfully complete development and
commercialization of our products.
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.
These
matters raise substantial doubt about the Company’s ability to continue as a
going concern. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
|
3.
|
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 and
stock warrants 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 164,890,446 and 95,358,343 shares
at March 31, 2010 and December 31, 2009, respectively. These amounts do
not include the 71,428,571 shares issuable upon the exercise of the put or call
rights issued in connection with the Hedrin JV (see Note 5) which were subject
to anti-dilution rights upon the issuance of common shares in the 2010 equity
financing transaction (see Note 7).
F-11
MANHATTAN
PHARMACEUTICALS, INC. and SUBSIDIARIES
(a
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
4.
|
SHARE-BASED
COMPENSATION
|
The
Company has stockholder-approved stock incentive plans for employees, directors,
officers and consultants. Prior to January 1, 2006, the Company accounted
for the employee, director and officer plans using the intrinsic value method.
Effective January 1, 2006, the Company adopted the share-based payment method
for employee options using the modified prospective transition method. This new
method of accounting for stock options eliminated the option to use the
intrinsic value method and required the Company to expense the fair value of all
employee options over the vesting period. Under the modified prospective
transition method, the Company recognized compensation cost for the quarters
ended March 31, 2010 and 2009 which includes a) period compensation cost related
to share-based payments granted prior to, but not yet vested, as of January 1,
2006, based on the grant date fair value estimated in accordance with the
original provisions; and b) period compensation cost related to share-based
payments granted on or after January 1, 2006, based on the grant date fair value
estimated in accordance with the new accounting methodology. In accordance with
the modified prospective method, the Company has not restated prior period
results.
The
Company recognizes compensation expense related to stock option grants on a
straight-line basis over the vesting period. For the three month periods
ended March 31, 2010 and 2009, the Company recognized share-based employee
compensation cost of $190,882 and $104,097, respectively. The Company did
not capitalize any share-based compensation cost.
Options
granted to consultants and other non-employees are recorded at fair value at the
date of grant and subsequently adjusted to fair value at the end of each
reporting period until such options vest, and the fair value of the
options, as adjusted, is amortized to consulting expense over the related
vesting period. Accordingly, such options are recorded at fair value at
the date of grant and subsequently adjusted to fair value at the end of
each reporting period until such options vest, and the fair value of the
options, as adjusted, is amortized to consulting expense over the related
vesting period. As a result of adjusting consultant and other non-employee
options to fair value as of March 31, 2010 and 2009 respectively, net of
amortization, the Company recognized an increase to general and administrative
and research and development expenses of $249 for the three month period ended
March 31, 2010 and an increase to general and administrative and research and
development expenses of $378 for the three month period ended March 31, 2009.
The Company has allocated share-based compensation costs to general and
administrative and research and development expenses as
follows:
F-12
MANHATTAN
PHARMACEUTICALS, INC. and SUBSIDIARIES
(a
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
Three months ended March 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
General
and administrative expense:
|
||||||||
|
Share-based
employee compensation cost
|
$ | 190,633 | $ | 103,719 | ||||
|
Share-based
consultant and non-employee cost
|
25 | 38 | ||||||
| 190,658 | 103,757 | |||||||
|
Research
and development expense
|
||||||||
|
Share-based
employee compensation cost
|
- | - | ||||||
|
Share-based
consultant and non-employee cost
|
224 | 340 | ||||||
| 224 | 340 | |||||||
|
Total
share-based cost
|
$ | 190,882 | $ | 104,097 | ||||
To
compute compensation expense in 2010 and 2009 the Company estimated the fair
value of each option award on the date of grant using the Black-Scholes model.
The Company based the expected volatility assumption on a volatility index of
peer companies as the Company did not have a sufficient number of years of
historical volatility of its common stock. The expected term of options
granted represents the period of time that options are expected to be
outstanding. The Company estimated the expected term of stock options by
the simplified method. The expected forfeiture rates are based on the
historical employee forfeiture experiences. To determine the risk-free
interest rate, the Company utilized the U.S. Treasury yield curve in effect at
the time of grant with a term consistent with the expected term of the Company’s
awards. The Company has not declared a dividend on its common stock since
its inception and has no intentions of declaring a dividend in the foreseeable
future and therefore used a dividend yield of zero.
The
following table shows the weighted average assumptions the Company used to
develop the fair value estimates for the determination of the compensation
charges in 2010 and 2009:
|
Three months ended March 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Expected
volatility
|
88 | % | 94 | % | ||||
|
Dividend
yield
|
- | - | ||||||
|
Expected
term (in years)
|
6 | 6 | ||||||
|
Risk-free
interest rate
|
2.47 | % | 1.88 | % | ||||
The
Company has shareholder-approved incentive stock option plans for employees
under which it has granted non-qualified and incentive stock options. In
December 2003, the Company established the 2003 Stock Option Plan (the “2003
Plan”), which provided for the granting of up to 5,400,000 options to officers,
directors, employees and consultants for the purchase of stock. In August
2005, the Company increased the number of shares of common stock reserved for
issuance under the 2003 Plan by 2,000,000 shares. In May 2007, the Company
increased the number of shares of common stock reserved for issuance under the
2003 Plan by 3,000,000 shares. In November 2009, the Company increased the
number of shares of common stock reserved for issuance under the 2003 plan by an
additional 4,600,000 shares. At March 31, 2010, 15,000,000 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 an exercise price equal to or greater than the fair
market value of the shares at the date of grant. The 2003 Plan expires on
December 10, 2013 or when all options have been granted, whichever is sooner. At
March 31, 2010 options to purchase 11,584,936 shares were outstanding, 27,776
shares of common stock were issued and there were 3,387,288 shares
reserved for future grants under the 2003 Plan.
F-13
MANHATTAN
PHARMACEUTICALS, INC. and SUBSIDIARIES
(a
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
In July
1995, the Company established the 1995 Stock Option Plan (the”1995 Plan”), which
provided for the granting of options to purchase up to 130,000 shares of the
Company’s common stock to officers, directors, employees and
consultants. The 1995 Plan was amended several times to increase the
number of shares reserved for stock option grants. In June 2005 the
1995 Plan expired and no further options can be granted. At
March 31, 2010 options to purchase 1,137,240 shares were outstanding and no
shares were reserved for future stock option grants under the 1995
Plan.
A summary
of the status of the Company’s stock options as of March 31, 2010 and changes
during the period then ended is presented below:
|
Shares
|
Weighted
average
exercise
price
|
Weighted
Average
Remaining
Contractual
Term (years)
|
Aggregate
Intrinsic Value
|
|||||||||||||
|
Outstanding
at December 31, 2009
|
7,459,936 | $ | 0.7180 | 6.160 | ||||||||||||
|
Granted
|
4,125,000 | $ | 0.0701 | 9.330 | ||||||||||||
|
Exercised
|
- | |||||||||||||||
|
Cancelled
|
||||||||||||||||
|
Outstanding
at March 31, 2010
|
11,584,936 | $ | 0.4871 | 6.680 | $ | 57,500 | ||||||||||
|
Exercisable
at March 31, 2010
|
9,886,602 | $ | 0.5491 | 6.150 | $ | - | ||||||||||
|
Weighted-average
fair value of options granted during the three month period ended March
31, 2010
|
$ | 0.0464 | ||||||||||||||
As of
March 31, 2010, the total compensation cost related to nonvested option awards
not yet recognized is $83,607. The weighted average period over which
it is expected to be recognized is approximately 2.6 years.
|
5.
|
JOINT
VENTURE
|
In
February 2008, the Company and Nordic Biotech Advisors ApS through its
investment fund Nordic Biotech Venture Fund II K/S (“Nordic”) entered into a
joint venture agreement (the “Hedrin JV Agreement”) to develop and commercialize
the Company's North American rights (under license) to its Hedrin
product.
F-14
MANHATTAN
PHARMACEUTICALS, INC. and SUBSIDIARIES
(a
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Pursuant
to the Hedrin JV Agreement, Nordic formed a new Danish limited partnership, H
Pharmaceuticals K/S, (the "Hedrin JV") and provided it with initial funding of
$2.5 million and the Company assigned and transferred its North American rights
in Hedrin to the Hedrin JV in return for a $2.0 million cash payment from the
Hedrin JV and equity in the Hedrin JV representing 50% of the nominal equity
interests in the Hedrin JV. At closing the Company recognized an
investment in the Hedrin JV of $250,000 and an exchange obligation of
$2,054,630. The exchange obligation represents the Company’s
obligation to Nordic to issue the Company’s common stock in exchange for all or
a portion of Nordic’s equity interest in the Hedrin JV upon the exercise by
Nordic of the put issued to Nordic in the Hedrin JV Agreement
transaction. The put is described below.
In June
2008, Nordic invested an additional $1.0 million, for a total of $3.5 million,
in the Hedrin JV and made an advance of $250,000 to the Hedrin JV and the Hedrin
JV made an additional $1.0 million payment, for a total of $3.0 million, to the
Company. The Hedrin JV also distributed additional ownership equity
sufficient for each of the Company and Nordic to maintain their ownership
interest at 50%. The FDA classified Hedrin as a Class III medical
device in February 2009. Upon attaining this classification of Hedrin
by the FDA, Nordic invested an additional $1.25 million, for a total investment
of $5 million, into the Hedrin JV, the Hedrin JV paid an additional
$0.5 million, for a total of $3.5 million, to the Company and the $250,000 that
Nordic advanced to the Hedrin JV in June became an equity investment in the
Hedrin JV by Nordic.
In
February 2009, the Company’s exchange obligation increased by $1,000,000 and the
Company’s investment in the Hedrin JV increased by $500,000 as a result of the
investment by Nordic of an additional $1.25 million into the Hedrin JV, the
reclassification of the advance made by Nordic in June 2008 to the Hedrin JV of
$250,000 into an equity interest and the payment of $500,000 by the Hedrin JV to
the Company. At March 31,2010, the Company’s exchange obligation is
$3,949,176.
During
the quarters ended March 31, 2010 and 2009, the Company recognized $0 and
$135,786, respectively, of equity in the losses of the Hedrin
JV. This reduced the carrying value of its investment in the Hedrin
JV to $0 at March 31, 2010 and $364,214 at March 31, 2009. As of
March 31, 2010, the Company’s share of the losses is $670,288; equity in losses
of Hedrin JV previously recognized was $500,000 leaving a remaining balance of
$170,288 of losses that was not recognized at March 31, 2010.
The
Hedrin JV is responsible for the development and commercialization of Hedrin for
the North American market and all associated costs including clinical trials, if
required, regulatory costs, patent costs, and future milestone payments owed to
T&R, the licensor of Hedrin.
The
Hedrin JV has engaged the Company to provide management services to the Limited
Partnership in exchange for a management fee. For the quarters ended
March 31, 2010 and 2009, the Company has recognized $75,000 and $108,845,
respectively, of other income from management fees earned from the Hedrin JV
which is included in the Company’s statements of operations for the quarters
ended March 31, 2010 and 2009 as a component of interest and other
income.
As per
the Limited Partnership Agreement between the Company and Nordic (the “LPA”) in
the event that a limited partner in the Hedrin JV (a “Limited Partner”)
determines, in its reasonable good faith discretion, that the Hedrin JV requires
additional capital for the proper conduct of its business that Limited Partner
shall provide each Limited Partner with a written request for contribution of
such Limited Partner’s proportionate share, in accordance to the then respective
equity ownership in the Hedrin JV, of such requested additional capital
amount.
F-15
MANHATTAN
PHARMACEUTICALS, INC. and SUBSIDIARIES
(a
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
As per
the terms of the LPA, if a Limited Partner declines to so contribute, elects to
contribute but thereafter fails to do so timely, or elects to contribute and
timely does contribute some, but not all of, its proportionate share of the
requested additional capital amount, the other Limited Partner shall have the
option to contribute the remaining balance of such requested additional capital
amount.
As per
the terms of the LPA, the General Partner shall determine the fair market value
of the shares for purposes of determining how to allocate the number of shares
of the Hedrin JV to be issued in consideration for the contribution of
capital. If the General Partner is unable to determine the fair
market value of the shares, the fair market value for the shares shall be
determined in good faith by the contributing Limited Partner if such amount is
equal to or greater than the most recent valuation of such Hedrin JV
shares.
On
December 31, 2009, Nordic Biotech Venture Fund II (“Nordic”) delivered a written
notice to the Company for a $1,000,000 capital increase to the Hedrin
JV. In January 2010, Nordic made its capital contribution to the
Hedrin JV of $500,000. The Company did not have sufficient funds to
make such a capital contribution within the required time prescribed in the
LPA.
The
General Partner was unable to determine the fair market value of the
shares. The contributing Limited Partner, Nordic, determined in good
faith that the fair market value of the shares is equal to the most recent
valuation. The most recent valuation was the February 2009 investment
of $1,500,000 into the Hedrin JV by Nordic at $5,000 per share. As a
result of Nordic’s investing an additional $500,000 in the Hedrin JV the
ownership percentages of the Hedrin JV have changed from 50% to Nordic and 50%
for the Company to 52.38% to Nordic and 47.62% for the Company. In
the event that Nordic exercises its option to invest the remaining $500,000 of
the $1,000,000 capital increase then the ownership percentage shall change to
54.55% for Nordic and 45.45% for the Company.
|
6.
|
NOTES
PAYABLE
|
a.
Secured
10% Notes Payable
In
September 2008, Manhattan entered into a series of Secured 10% Notes (the
“Secured 10% Notes”) with certain of our directors, officers and an employee
(the “Secured 10% Note Holders”) for aggregate of
$70,000. Principal and interest on the Secured 10% Notes shall
be paid in cash on March 10, 2009 unless paid earlier by us. Pursuant
to the Secured 10% Notes, we also issued to the Secured 10% Note Holders 5-year
warrants to purchase an aggregate of 140,000 shares of our common stock at an
exercise price of $0.20 per share. Manhattan granted to the Secured
10% Note Holders a continuing security interest in certain specific refunds,
deposits and repayments due Manhattan and expected to be repaid to Manhattan in
the next several months. The Secured 10% Notes plus interest were
repaid on February 4, 2009.
F-16
MANHATTAN
PHARMACEUTICALS, INC. and SUBSIDIARIES
(a
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
b. Secured
12% Notes Payable
On
November 19, 2008, December 23, 2008 and February 3, 2009, the Company completed
the first, second and final closings on a financing transaction (the “Secured
12% Notes Transaction”). The Company sold $1,725,000 of 12% senior
secured notes (the “Secured 12% Notes”) and issued warrants to the investors to
purchase 57.5 million shares of the Company’s common stock at $0.09 per
share. The warrants expire on December 31, 2013. Net
proceeds of $1.4 million were realized from the three closings. In
addition, $78,000 of issuance costs were paid outside of the
closings. Per the terms of the 12% Notes Transaction the net
proceeds were paid into a deposit account (the “Deposit Account”) and
are to be paid out to the Company in monthly installments of $113,300
retroactive to October 1, 2008 and a one-time payment of
$200,000. Per the terms of the 12% Notes Transaction the monthly
installments are to be used exclusively to fund the current operating expenses
of the Company and the one-time payment was to be used for trade payables
incurred prior to October 1, 2008. The Company received $876,700 of
such monthly installments and the one time payment of $200,000 during the year
ended December 31, 2009. There was no remaining balance in
the Deposit Account at December 31, 2009.
National
Securities Corporation (“National”) was the placement agent for the 12% Notes
Transaction. National’s compensation for acting as placement agent is
a cash fee of 10% of the gross proceeds received, a non-accountable expense
allowance of 1.5% of the gross proceeds, reimbursement of certain expenses and a
warrant to purchase such number of shares of the Company’s common stock equal to
15% of the shares underlying the warrants issued to the
investors. The Company paid National a total of $202,000 in placement
agent fees, a non-accountable expense allowance and reimbursement of certain
expenses. In addition, the Company issued warrants to purchase 8.6
million shares of the Company’s common stock at $0.09 per
share. These warrants were valued at $29,110 and are a component of
Secured 12% notes payable issue costs. The warrants expire on
December 31, 2013.
The
Secured 12% Notes mature two years after issuance. Interest on
the Secured 12% Notes is compounded quarterly and payable at
maturity. At March 31, 2010 and December 31, 2009, accrued and unpaid
interest on the Secured 12% Notes amounted to approximately $290,000 and
$229,000, and is reflected in the accompanying balance sheets at
March 31, 2010 and December 31, 2009, respectively, as interest payable on
secured 12% notes payable. The Secured 12% Notes are secured by a pledge of all
of the Company’s assets except for its investment in the Hedrin
JV. In addition, to provide additional security for the Company’s
obligations under the notes, the Company entered into a default agreement, which
provides that upon an event of default under the notes, the Company shall, at
the request of the holders of the notes, use reasonable commercial efforts to
either (i) sell a part or all of the Company’s interests in the Hedrin joint
venture or (ii) transfer all or part of the Company’s interest in the Hedrin JV
to the holders of the notes, as necessary, in order to fulfill the Company’s
obligations under the notes, to the extent required and to the extent permitted
by the applicable Hedrin joint venture agreements.
In
connection with the private placement, the Company, the placement agent and the
investors entered into a registration rights agreement. Pursuant to
the registration rights agreement, we agreed to file a registration statement to
register the resale of the shares of our common stock issuable upon exercise of
the warrants issued to the investors in the private placement, within 20 days of
the final closing date and to cause the registration statement to be declared
effective within 90 days (or 120 days upon full review by the Securities and
Exchange Commission). During the year ended December 31, 2009 we filed the
registration statement, received a comment letter from the SEC and responded to
the comment letter from the SEC. The registration statement was
declared effective on April 17, 2009.
The
Company incurred a total of approximately $424,000 of costs in the issuance of
the $1,725,000 of Secured 12% Notes sold in 2008
and 2009. These costs were capitalized and are being
amortized over the life of the Secured 12% Notes into interest
expense. During the quarter ended March 31, 2010 and the year ended
December 31, 2009, the amount amortized into interest expense was approximately
$52,000 and $206,000, respectively. The remaining unamortized balance
of approximately $149,000 and $201,000 is reflected in the accompanying balance
sheets as of March 31, 2010 and December 31, 2009, respectively, as Secured 12%
Notes payable issue costs.
F-17
MANHATTAN
PHARMACEUTICALS, INC. and SUBSIDIARIES
(a
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The
Company recognized an original issue discount (the “OID”) of approximately
$194,000 on the issuance of the Secured 12% Notes sold for the value of the
warrants issued to the investors. The OID is being amortized over the
life of the Secured 12% Notes into interest expense. During the
quarter ended March 31, 2010 and year ended December 31, 2009 the amount
amortized into interest expense was approximately $24,000 and $94,000,
respectively. The remaining unamortized balance of approximately
$69,000 and $93,000 has been netted against the face amount of the Secured 12%
Notes in the accompanying balance sheets as of March 31, 2010 and December 31,
2009, respectively. As per the terms of the 12% Notes Transaction the
Company’s officers agreed to certain modifications of their employment
agreements.
c. 8%
Note Payable
On
December 21, 2009, the Company entered into a Future Advance Promissory Note
(the “8% Note”) with Ariston under which the Company may withdraw up to $67,000
bearing interest at a rate of 8%. As of December 31, 2009, the
Company had withdrawn $27,000 from Ariston subject to the terms of the 8%
Note. On January 13, 2010, the Company withdrew an additional $20,000
subject to the 8% Note and on January 28, 2010, the Company withdrew an
additional $20,000 subject to the 8% Note.
On March
4, 2010, the Company repaid Ariston the $67,000 withdrawn subject to the 8% Note
and accrued interest of $816.
d. Non-interest
Bearing Note Payable
On
October 27, 2009, the Company entered into a Settlement Agreement and Mutual
Release with Swiss Pharma Contract LTD (“Swiss Pharma”) pursuant to which the
Company agreed to pay Swiss Pharma $200,000 and issue to Swiss Pharma an
interest free promissory note in the principal amount of $250,000 in full
satisfaction of the September 5, 2008 arbitration award. The amount of the
Arbitration award was $683,027 at September 30, 2009 and was included as a
component of accrued expenses.
In
connection with the non-interest bearing note, the Company recognized an
original issue discount of $40,000 of imputed interest on the note,
which is being amortized into interest expense on a straight-line basis over the
two-year term of the note. For the quarter ended March 31, 2010 and
the year ended December 31, 2009, the Company amortized $5,000 and $1,900 of the
OID into interest expense, respectively. The remaining unamortized
balance of $33,100 has been netted against the face amount of the non-interest
bearing note payable in the accompanying balance sheets as of March 31,
2010.
F-18
MANHATTAN
PHARMACEUTICALS, INC. and SUBSIDIARIES
(a
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
e. Convertible
12% Note Payable
In
conjunction with the Settlement Agreement and Mutual Release with Swiss Pharma
described above, on October 28, 2009, the Company entered into a Subscription
Agreement (the “Subscription Agreement”) pursuant to which it sold a 12%
Original Issue Discount Senior Subordinated Convertible Debenture with a stated
value of $400,000 (the “Convertible 12% Note”) and a warrant to purchase
2,222,222 shares of the Company’s common stock, par value $.001 per
share for a purchase price of $200,000. The Convertible
12% Note is convertible into shares of Common Stock at an initial conversion
price of $0.09 per share, subject to adjustment, or, in the event the Company
issues new securities in connection with a financing, the Convertible 12% Note
may be converted into such new securities at a conversion price equal to the
purchase price paid by the purchasers of such new securities. The
Company may also, in its sole discretion, elect to pay interest due on the
Convertible 12% Note quarterly in shares of the Company’s common stock provided
such shares are subject to an effective registration statement. The
Convertible 12% Note is subordinated to the Company’s outstanding Secured 12%
Notes. The Warrant is exercisable at an exercise price of $0.11 per
share, subject to adjustment. Because the Convertible 12% Note and
the Warrant are convertible into shares of the Company, subject to adjustment,
the conversion feature is subject to Derivative Liability accounting (see Note
8).
National
Securities Corporation (“National”) was the placement agent for the Convertible
12% Note transaction. In connection with the issuance of the
Securities, the Company issued warrants to purchase an aggregate of 222,222
shares of Common Stock at an exercise price of $0.11 per share, subject to
adjustment, to the placement agent and certain of its
designees. Because the warrant is convertible into shares of the
Company, subject to adjustment, the warrants are subject to Derivative Liability
accounting (see Note 8). The warrants expire on October 28, 2014.
The
Convertible 12% Notes mature two years after issuance. Interest on
the Convertible 12% Note is compounded quarterly and payable at
maturity. At March 31, 2010 and December 31, 2009, accrued and unpaid
interest on the Convertible 12% Note amounted to approximately $21,000 and
$9,000, respectively, and is reflected in the accompanying balance
sheet at March 31, 2010 and December 31, 2009, respectively, as interest payable
on convertible 12% notes payable.
The
Company incurred a total of approximately $38,000 of costs in the issuance of
the Convertible 12% Note sold in 2009. These costs were capitalized
and are being amortized over the life of the Convertible 12% Note
into interest expense. During the quarter ended March 31, 2010 and
the year ended December 31, 2009, the amount amortized into interest expense was
approximately $5,000 and $3,000, respectively. The remaining
unamortized balance of approximately $30,000 and $35,000, respectively, is
reflected in the accompanying balance sheet as of March 31, 2010 and December
31, 2009, as a non-current asset, convertible 12% note payable issue
costs.
The
Company recognized an original issue discount of approximately $200,000 on the
issuance of the Convertible 12% Notes. The OID is being amortized over the life
of the Convertible 12% Notes into interest expense. During the
quarter ended March 31, 2010 and the year ended December 31, 2009 the amount
amortized into interest expense was approximately $24,000 and $18,000,
respectively. The remaining unamortized balance of approximately
$158,000 and $182,000 has been netted against the face amount of the Convertible
12% Notes in the accompanying balance sheet as of March 31, 2010 and December
31, 2009, respectively.
f.
Convertible
5% Notes Payable
Upon the
Merger, Ariston issued $15,452,793 of five-year 5% notes payable (the “5% Notes
Payable”) in satisfaction of several note payable issuances. The
cumulative liability including accrued and unpaid interest of these several
issuances of notes was $15,452,793 as of the Merger date. Interest is
payable at maturity and compounds annually. The 5% Notes Payable and
accrued and unpaid interest thereon are convertible at the option of the holder
into the Company’s common stock at the conversion price of $0.40 per
share. Ariston agreed to make quarterly payments on the 5% Notes
Payable equal to 50% of the gross proceeds resulting from the revenues received
from the exploitation or commercialization of Ariston’s product candidates,
AST-726 and AST915. The 5% Notes Payable are solely the obligation of
Ariston and have no recourse to the Company other than the conversion feature
discussed above.
F-19
MANHATTAN
PHARMACEUTICALS, INC. and SUBSIDIARIES
(a
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
g. ICON
Convertible Note Payable
Upon the Merger, Ariston satisfied an account payable of $1,275,188 to ICON
Clinical Research Limited through the payment of $275,188 in cash and the
issuance of a three-year 5% note payable (the “ICON Note
Payable”). The principal is to be repaid in 36 monthly installments
of $27,778 commencing in April 2010. Interest is payable monthly in
arrears. . The ICON Convertible Note Payable is convertible at the
option of the holder into the Company’s common stock at the conversion price of
$0.20 per share.
|
7.
|
2010
EQUITY FINANCING
|
On March
2, 2010, the Company raised aggregate gross proceeds of approximately $2,547,500
pursuant to a private placement of its securities (the “2010 Equity
Financing”). The Company entered into subscription agreements (the
"Subscription Agreements") with seventy-seven accredited investors (the
"Investors") pursuant to which the Company sold an aggregate of 101.9 Units (as
defined herein) for a purchase price of $25,000 per Unit. Pursuant to
the Subscription Agreements, the Company issued to each Investor units (the
"Units") consisting of (i) 357,143 shares of common stock, $0.001 par value per
share (the “Common Stock” or “Shares”) of the Company and (ii) 535,714 warrants
(each a “Warrant” and collectively the “Warrants”), each of which will entitle
the holder to purchase one additional share of Common Stock for a period of five
years (each a “Warrant Share” and collectively the “Warrant Shares”) at an
exercise price of $0.08 per share. Because the Warrant Shares are
convertible into shares of the Company, subject to adjustment, the conversion
feature is subject to Derivative Liability accounting (see Note 8).
National
was the placement agent for the 2010 Equity Financing transaction. In
connection with the issuance of the Securities, the Company issued warrants to
purchase an aggregate of 3,369,289 shares of Common Stock at an exercise price
of $0.08 per share, subject to adjustment, to the placement agent and certain of
its designees. Because the warrant is convertible into shares of the
Company, subject to adjustment, the warrants are subject to Derivative Liability
accounting (see Note 8). The warrants expire on March 2, 2015.
The
Nordic Put and Nordic Warrant were issued at a value of $0.14 per share and were
issued with anti-dilution rights. The issuance of any securities at a value of
less than $0.14 per share activates Nordic’s anti-dilution rights. The Secured
12% Note transaction included warrants with an exercise price of $0.09 per
share, this activated Nordic’s anti-dilution rights as reflected in the table
below under the caption “Before the Equity Pipe Transaction”. Any
issuances of any securities subsequent to the Secured 12% Note transaction at a
value of less than $0.09 further activates Nordic’s anti-dilution
rights. The Equity Pipe transaction in March 2010 effectively
included the sale of one share of common stock and a warrant to purchase 1.5
shares of common stock for a price of $0.07. The JV Agreement between Nordic and
Manhattan governs the antidilution protection to Nordic. Section 5.1
of that agreement state ”If shares of Common Stock or Common Stock Equivalents
are issued or sold together with other stock or securities or other assets of
MHA (Manhattan) for a consideration which covers both, the effective price per
share shall be computed with regard to the portion of the consideration so
received that may reasonably be determined in good faith by the Board of
Directors, to be allocable to such Common Stock or Common Stock
Equivalent.” The good faith determination of the effective price per
share was $0.07 for each share of common stock sold and a de minimus value to
the warrants. The Nordic Put and the Nordic Warrant are now valued at
a price of $0.07 per share. The following table shows the effect of
Nordic’s anti-dilution rights.
F-20
MANHATTAN
PHARMACEUTICALS, INC. and SUBSIDIARIES
(a
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
Shares Issuable
Upon Exercise of
Nordic's Put
|
Shares Issuable
Upon Exercise of
Nordic's Warrant
|
Total Shares Issuable
Upon Exercise of
Nordic's Put and
Warrant
|
||||||||||
|
Before
the Equity Pipe Transaction
|
55,555,556 | 11,111,111 | 66,666,667 | |||||||||
|
Antidilution
shares
|
15,873,015 | 3,174,603 | 19,047,618 | |||||||||
|
After
the Equity Pipe Transaction
|
71,428,571 | 14,285,714 | 85,714,285 | |||||||||
In March
2010, we received correspondence from Nordic that questions how we calculated
the anti-dilution shares, as shown above, and suggesting that we did not employ
a good faith estimate. We believe our determination was made in good
faith and is appropriate. See Note 11.
All of
the Investors represented that they were “accredited investors,” as that term is
defined in Rule 501(a) of Regulation D under the Securities Act, and the sale of
the Units was made in reliance on exemptions provided by Regulation D and
Section 4(2) of the Securities Act of 1933, as amended.
In
connection with the closing of the private placement, the Company, the placement
agent acting in connection with the private placement (the “Placement Agent”)
and the Investors entered into a Registration Rights Agreement, dated as of
March 2, 2010, and the Company agreed to file a registration statement to
register the resale of the Shares, within 60 days of the final closing date and
to cause the registration statement to be declared effective within 150 days (or
180 days upon review by the SEC).
The
Company received net proceeds of approximately $2,100,000 after payment of an
aggregate of approximately $300,000 of commissions and expense allowance to the
Placement Agent, and approximately $100,000 of other offering and related costs
in connection with the private placement. In addition, the Company issued a
warrant to purchase 3,639,289 shares of Common Stock at an exercise price of
$0.08 per share to the Placement Agent as additional compensation for its
services.
The
Company did not use any form of advertising or general solicitation in
connection with the sale of the Units. The Shares, the Warrants and the Warrant
Shares are non-transferable in the absence of an effective registration
statement under the Act, or an available exemption therefrom, and all
certificates are imprinted with a restrictive legend to that
effect.
F-21
MANHATTAN
PHARMACEUTICALS, INC. and SUBSIDIARIES
(a
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
8.
|
DERIVATIVE
LIABILITY
|
In April
2008, the FASB issued a pronouncement which provides guidance on determining
what types of instruments or embedded features in an instrument held by a
reporting entity can be considered indexed to its own stock for the purpose of
evaluating the first criteria of the scope exception in the pronouncement on
accounting for derivatives. This pronouncement was effective for financial
statements issued for fiscal years beginning after December 15, 2008. The
adoption of these requirements can affect the accounting for warrants and many
convertible instruments with provisions that protect holders from a decline in
the stock price (or “down-round” provisions). For example, warrants with such
provisions will no longer be recorded in equity. Down-round provisions reduce
the exercise price of a warrant or convertible instrument if a company either
issues equity shares for a price that is lower than the exercise price of those
instruments or issues new warrants or convertible instruments that have a lower
exercise price. We evaluated whether warrants to acquire stock of the Company
contain provisions that protect holders from declines in the stock price or
otherwise could result in modification of the exercise price under the
respective warrant agreements. We determined that the warrant issued to Nordic
in April 2008 (the “Nordic Warrant”), the warrants issued in connection with the
2009 sale of the Convertible 12% Note Payable, and the warrants issued in
connection with the 2010 Equity Financing contained such provisions, thereby
concluding they were not indexed to the Company’s own stock and were
reclassified from equity to derivative liabilities.
In
accordance with this pronouncement, the Company estimated the fair value of the
Nordic Warrant as of January 1, 2009 to be $22,222 by recording
a reduction in additional paid-in capital of $150,000 and a decrease in deficit
accumulated during the development stage of $127,778. The effect of this
adjustment is recorded as a cumulative effect of change in accounting principle
in our statements of stockholders’ equity (deficiency). As of March
31, 2010, the fair value of these derivatives was $815,714 as recorded in the
accompanying balance sheet as of March 31, 2010, as a component of a current
liability, derivative liability. The change of $332,381 in fair value during the
quarter ended March 31, 2010 is reported as a non-cash charge in our statement
of operations as a component of other (income) expense.
In
accordance with this pronouncement the Company estimated the fair value at the
date of issuance of the conversion feature of the Convertible 12% Note and the
fair value of the related warrants to purchase 2,444,444 shares of the Company’s
common stock at $175,100 and $27,390, respectively. As of March 31,
2010 the fair value of these derivatives totaled $375,622 and are recorded in
the accompanying balance sheet as of March 31, 2010 as a component of derivative
liability. The change in fair value of $74,177 during quarter ended
March 31, 2010 is reported as a non-cash charge in our statement of operations
as a component of other (income) expense.
Additionally,
in accordance with this pronouncement the Company estimated the fair value at
the date of issuance of the 54,589,266 warrants issued in connection with the
2010 Equity Financing and the fair value of the related 3,369,289 warrants
issued to the placement agents in the 2010 Equity Financing at
$2,713,087 and $180,873, respectively. As of March 31,
2010 the fair value of these derivatives totaled $3,429,662 and are recorded in
the accompanying consolidated balance sheet as of March 31, 2010 as a component
of derivative liability. The change in fair value of $535,703 during
quarter ended March 31, 2010 is reported as a non-cash charge in the
consolidated statement of operations as a component of other (income)
expense.
|
9.
|
LICENSE
AGREEMENTS
|
Altoderm
License Agreement
On April
3, 2007, the Company entered into a license agreement for “Altoderm” (the
“Altoderm Agreement”) with T&R. Pursuant to the Altoderm Agreement, the
Company acquired an exclusive North American license to certain patent rights
and other intellectual property relating to Altoderm, a topical skin lotion
product candidate using sodium cromoglicate for the treatment of atopic
dermatitis.
In
February 2009, the Company terminated the Altoderm Agreement. The
Company has no further financial liability or commitment to T&R under the
Altoderm Agreement.
F-22
MANHATTAN
PHARMACEUTICALS, INC. and SUBSIDIARIES
(a
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Altolyn
License Agreement
On April
3, 2007, the Company and T&R also entered into a license agreement for
“Altolyn” (the “Altolyn Agreement”). Pursuant to the Altolyn Agreement, the
Company acquired an exclusive North American license to certain patent rights
and other intellectual property relating to Altolyn, an oral formulation product
candidate using sodium cromoglicate for the treatment of mastocytosis, food
allergies, and inflammatory bowel disorder.
In
February 2009, the Company terminated the Altolyn Agreement for
convenience. The Company has no further financial liability or
commitment to T&R under the Altolyn Agreement.
IGI
Agreement for PTH (1-34)
On April
1, 2005, as part of the acquisition of Tarpan Therapeutics, Inc., the Company
acquired a Sublicense Agreement with IGI, Inc. (the “IGI Agreement”) dated April
14, 2004. Under the IGI Agreement the Company received the exclusive,
world-wide, royalty bearing sublicense to develop and commercialize the licensed
technology for the treatment of psoriasis.
In May
2009, the Company terminated the IGI Agreement. The Company has no
further financial liability or commitment to IGI, Inc. under the IGI
Agreement.
|
10.
|
SUBSEQUENT
EVENTS
|
Final Closing of 2010 Equity
Financing
On April
8, 2010, the Company completed the final closing of the 2010 Equity Financing
(see Note 7). In connection with the final closing, the Company sold
an aggregate of 2.4 additional Units and received net proceeds of approximately
$51,700 after payment of an aggregate of $8,300 of commissions and expense
allowance to placement agent. In connection with the final closing, the Company
also issued a warrant to purchase 12,857 shares of Common Stock at an exercise
price of $0.08 per share to the placement agent as additional compensation for
its services.
In
addition on April 8, 2010, the holder the 12% Convertible Note (see Note 6) with
a stated value of $400,000 and $21,886 of accrued interest, exercised its option
to convert its Debenture (including all accrued interest thereon) into 16.88
Units. The conversion price was equal to the per Unit purchase price
paid by the Investors in the private placement.
The
Company issued a total of 6,885,717 shares of common stock and warrants to
purchase 10,328,566 shares of common stock at an exercise price of $0.08 per
share to the investors in the final closing of the 2010 Equity Financing,
including the conversion of the 12% Convertible Note.
F-23
MANHATTAN
PHARMACEUTICALS, INC. and SUBSIDIARIES
(a
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Disagreement
with Nordic
In April
2010 Nordic filed a Schedule 13D/A (the “Amended 13D”). The
Company is not in agreement with the Amended 13D and has written a letter to
Nordic explaining its disagreements. The Amended 13D shows an
aggregate number of shares of the Company’s common stock beneficially owned by
Nordic of 216,666,666, or 65.5%. The Company believes the correct
beneficial ownership is 85,714,286 shares, or 42.9%. The Amended
13D/A states that Nordic does not believe the Company’s determination of the
anti-dilution shares accruing to Nordic as a result of the 2010 Equity Financing
was neither reasonable nor made in good faith. As the Company has
previously stated we believe our determination was both reasonable and made in
good faith. The Amended 13D/A further states that Nordic acquired the
right to purchase an additional 5,555,556 shares of the Company’s common stock
upon exercise of the Nordic Put as a result of Nordic’s making an additional
investment in the Hedrin JV of $500,000 in January 2010. The Company
is not in agreement with this claim, there is no adjustment to Nordic’s Put as a
result of Nordic making additional capital contributions to the Hedrin
JV. In the letter to Nordic the Company also points out that Nordic’s
valuation suggestions for the warrants issued in the 2010 Equity Financing
ignore the concept of relative value inherent in the Hedrin JV
Agreement.
F-24
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Stockholders
Manhattan
Pharmaceuticals, Inc.
We have
audited the accompanying balance sheets of Manhattan Pharmaceuticals, Inc. (a
development stage company) as of December 31, 2009 and 2008, and the related
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, 2009. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. 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 financial statements referred to above present fairly, in all
material respects, the financial position of Manhattan Pharmaceuticals, Inc. as
of December 31, 2009 and 2008, and its 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, 2009, in conformity with accounting principles generally
accepted in the United States of America.
As
discussed in Note 13 to the financial statements, the Company adopted new
accounting guidance for whether an equity linked financial instrument is indexed
to its own stock.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has incurred net losses and negative cash flows from
operating activities from its inception through December 31, 2009 and has an
accumulated deficit and negative working capital as of December 31, 2009. These
matters raise substantial doubt about the Company’s ability to continue as a
going concern. Management’s plans regarding these matters are also described in
Note 2. The accompanying 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 31,
2010
F-25
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Balance
Sheets
|
December 31,
|
December 31,
|
|||||||
|
|
2009
|
2008
|
||||||
|
Assets
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 17,996 | $ | 106,023 | ||||
|
Restricted
cash
|
- | 730,499 | ||||||
|
Secured
12% notes payable issue costs, current portion
|
158,552 | - | ||||||
|
Other
current assets
|
87,177 | 37,718 | ||||||
|
Total
current assets
|
263,725 | 874,240 | ||||||
|
Property
and equipment, net
|
3,541 | 9,072 | ||||||
|
Secured
12% notes payable issue costs
|
42,420 | 330,756 | ||||||
|
Convertible
12% note payable issue costs
|
34,606 | - | ||||||
|
Other
assets
|
21,370 | 34,895 | ||||||
|
Total
assets
|
$ | 365,662 | $ | 1,248,963 | ||||
|
Liabilities
and Stockholders' Deficiency
|
||||||||
|
Current
Liabilities:
|
||||||||
|
Secured
10% notes payable
|
$ | - | $ | 70,000 | ||||
|
8%
note payable
|
27,000 | - | ||||||
|
Secured
12% notes payable, current portion, net
|
1,247,062 | - | ||||||
|
Accounts
payable
|
215,400 | 542,296 | ||||||
|
Interest
payable on secured 12% notes, current portion
|
182,193 | - | ||||||
|
Accrued
expenses
|
75,775 | 874,072 | ||||||
|
Derivative
liability
|
784,777 | - | ||||||
|
Total
current liabilities
|
2,532,207 | 1,486,368 | ||||||
|
Secured
12% notes payable, net
|
384,473 | 1,174,107 | ||||||
|
Interest
payable on secured 12% notes payable
|
46,381 | 15,237 | ||||||
|
Convertible
12% note payable, net
|
17,808 | - | ||||||
|
Interest
payable on convertible 12% note
|
8,667 | - | ||||||
|
Non-interest
bearing note payable, net
|
211,900 | - | ||||||
|
Exchange
obligation
|
3,949,176 | 2,949,176 | ||||||
|
Total
liabilities
|
7,150,612 | 5,624,888 | ||||||
|
Commitments
and contingencies
|
||||||||
|
Stockholders’
deficiency:
|
||||||||
|
Preferred
stock, $.001 par value. Authorized 1,500,000 shares; no shares issued
and outstanding at December 31, 2009 and 2008
|
- | - | ||||||
|
Common
stock, $.001 par value. Authorized 500,000,000 shares;
70,624,232 shares issued and outstanding at December 31, 2009 and
2008
|
70,624 | 70,624 | ||||||
|
Additional
paid-in capital
|
55,077,861 | 54,821,379 | ||||||
|
Deficit
accumulated during the development stage
|
(61,933,435 | ) | (59,267,928 | ) | ||||
|
Total
stockholders’ deficiency
|
(6,784,950 | ) | (4,375,925 | ) | ||||
|
Total
liabilities and stockholders' deficiency
|
$ | 365,662 | $ | 1,248,963 | ||||
See
accompanying notes to financial statements.
F-26
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Statements
of Operations
|
Years ended December 31,
|
Cumulative
period from
August 6, 2001
(inception) to
December 31,
|
|||||||||||
|
2009
|
2008
|
2009
|
||||||||||
|
Revenue
|
$ | - | $ | - | $ | - | ||||||
|
Costs
and expenses:
|
||||||||||||
|
Research
and development
|
40,376 | 1,802,793 | 28,332,211 | |||||||||
|
General
and administrative
|
1,731,182 | 2,609,910 | 18,193,455 | |||||||||
|
In-process
research and development charge
|
- | - | 11,887,807 | |||||||||
|
Impairment
of intangible assets
|
- | - | 1,248,230 | |||||||||
|
Loss
on disposition of intangible assets
|
- | - | 1,213,878 | |||||||||
|
Total
operating expenses
|
1,771,558 | 4,412,703 | 60,875,581 | |||||||||
|
Operating
loss
|
(1,771,558 | ) | (4,412,703 | ) | (60,875,581 | ) | ||||||
|
Other
(income) expense:
|
||||||||||||
|
Equity
in losses of Hedrin JV
|
500,000 | 250,000 | 750,000 | |||||||||
|
Interest
and other income
|
(586,697 | ) | (458,634 | ) | (1,867,229 | ) | ||||||
|
Change
in fair value of derivative
|
560,065 | - | 430,070 | |||||||||
|
Interest
and amortization expense
|
548,359 | 64,790 | 641,400 | |||||||||
|
Realized
gain on sale of marketable equity securities
|
- | - | (76,032 | ) | ||||||||
|
Total
other (income) expense
|
1,021,727 | (143,844 | ) | (121,791 | ) | |||||||
|
Net
loss
|
(2,793,285 | ) | (4,268,859 | ) | (60,753,790 | ) | ||||||
|
Preferred
stock dividends (including imputed amounts)
|
- | - | (1,179,645 | ) | ||||||||
|
Net
loss applicable to common shares
|
$ | (2,793,285 | ) | $ | (4,268,859 | ) | $ | (61,933,435 | ) | |||
|
Net
loss per common share:
|
||||||||||||
|
Basic
and diluted
|
$ | (0.04 | ) | $ | (0.06 | ) | ||||||
|
Weighted
average shares of common stock outstanding:
|
||||||||||||
|
Basic
and diluted
|
70,624,232 | 70,624,232 | ||||||||||
See
accompanying notes to financial statements.
F-27
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Statements
of Stockholders' Equity (Deficiency)
|
Common
stock
shares
|
Common
stock
amount
|
Additional
paid-in
capital
|
Deficit
accumulated
during
development
stage
|
Other
|
Total
stockholders’
equity
(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 | ) | (56,796 | ) | (4,000 | ) | (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 | ||||||||||||||||||
|
Common
stock issued at $0.63 per share, net of expenses
|
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
|
- | - | 9,045,176 | - | 1,000 | 9,046,176 | ||||||||||||||||||
|
Imputed
preferred stock dividend
|
418,182 | (418,182 | ) | - | ||||||||||||||||||||
|
Net
loss
|
- | - | - | (5,960,907 | ) | (5,960,907 | ) | |||||||||||||||||
|
Balance
at December 31, 2003
|
23,362,396 | 23,362 | 14,289,535 | (7,473,205 | ) | (6,760 | ) | 6,832,932 | ||||||||||||||||
| - | ||||||||||||||||||||||||
|
Exercise
of stock options
|
27,600 | 27 | 30,073 | - | 30,100 | |||||||||||||||||||
|
Common
stock issued at $1.10, net of expenses
|
3,368,952 | 3,369 | 3,358,349 | - | 3,361,718 | |||||||||||||||||||
|
Preferred
stock dividend accrued
|
- | - | - | (585,799 | ) | (585,799 | ) | |||||||||||||||||
|
Preferred
stock dividends paid by issuance of shares
|
- | - | 281,073 | - | 25 | 281,098 | ||||||||||||||||||
|
Conversion
of preferred stock to common stock at $1.10 per share
|
1,550,239 | 1,551 | (1,380 | ) | - | (171 | ) | - | ||||||||||||||||
|
Warrants
issued for consulting services
|
- | - | 125,558 | - | (120,968 | ) | 4,590 | |||||||||||||||||
|
Amortization
of unearned consulting costs
|
- | - | - | - | 100,800 | 100,800 | ||||||||||||||||||
|
Unrealized
gain on short-term investments and reversal of unrealized loss on
short-term investments
|
- | - | - | - | 20,997 | 20,997 | ||||||||||||||||||
|
Net
loss
|
- | - | - | (5,896,031 | ) | - | (5,896,031 | ) | ||||||||||||||||
|
Balance
at December 31, 2004
|
28,309,187 | 28,309 | 18,083,208 | (13,955,035 | ) | (6,077 | ) | 4,150,405 | ||||||||||||||||
|
Common
stock issued at $1.11 and $1.15, net of expenses
|
11,917,680 | $ | 11,918 | $ | 12,238,291 | $ | - | $ | 12,250,209 | |||||||||||||||
|
Common
stock issued to vendor at $1.11 per share in satisfaction of accounts
payable
|
675,675 | 676 | 749,324 | - | 750,000 | |||||||||||||||||||
|
Exercise
of stock options
|
32,400 | 33 | 32,367 | - | 32,400 | |||||||||||||||||||
|
Exercise
of warrants
|
279,845 | 279 | 68,212 | - | 68,491 | |||||||||||||||||||
|
Preferred
stock dividend accrued
|
- | - | - | (175,663 | ) | (175,663 | ) | |||||||||||||||||
|
Preferred
stock dividends paid by issuance of shares
|
- | - | 477,736 | — | 42 | 477,778 | ||||||||||||||||||
|
Conversion
of preferred stock to common stock at $1.10 per share
|
8,146,858 | 8,147 | (7,251 | ) | - | (896 | ) | - | ||||||||||||||||
|
Share-based
compensation
|
- | - | 66,971 | - | 20,168 | 87,139 | ||||||||||||||||||
|
Reversal
of unrealized gain on short-term investments
|
- | - | - | - | (12,250 | ) | (12,250 | ) | ||||||||||||||||
|
Stock
issued in connection with acquisition of Tarpan Therapeutics,
Inc.
|
10,731,052 | 10,731 | 11,042,253 | - | 11,052,984 | |||||||||||||||||||
|
Net
loss
|
- | - | - | (19,140,997 | ) | (19,140,997 | ) | |||||||||||||||||
|
Balance
at December 31, 2005
|
60,092,697 | 60,093 | 42,751,111 | (33,271,695 | ) | 987 | 9,540,496 | |||||||||||||||||
|
Cashless
exercise of warrants
|
27,341 | 27 | (27 | ) | - | - | ||||||||||||||||||
|
Share-based
compensation
|
- | - | 1,675,499 | - | 1,675,499 | |||||||||||||||||||
|
Unrealized
loss on short-term investments
|
- | - | - | - | (987 | ) | (987 | ) | ||||||||||||||||
|
Costs
associated with private placement
|
- | - | (15,257 | ) | - | (15,257 | ) | |||||||||||||||||
|
Net
loss
|
- | - | - | (9,695,123 | ) | (9,695,123 | ) | |||||||||||||||||
|
Balance
at December 31, 2006
|
60,120,038 | 60,120 | 44,411,326 | (42,966,818 | ) | - | 1,504,628 | |||||||||||||||||
F-28
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Statements
of Stockholders' Equity (Deficiency)
|
Common stock
shares
|
Common stock
amount
|
Additional paid-
in capit al |
Deficit
accumulated
during
development
stage
|
Other
|
Total
stockholders’
equity
(deficiency)
|
|||||||||||||||||||
|
Common stock issued at $0.84 and $0.90 per
shares, net of expenses
|
10,185,502 | $ | 10,186 | $ | 7,841,999 | $ | - | $ | - | $ | 7,852,185 | |||||||||||||
|
Common
stock issued to directors at $0.72 per share in satisfaction of accounts
payable
|
27,776 | 28 | 19,972 | - | - | 20,000 | ||||||||||||||||||
|
Common
stock issued to in connection with in-licensing agreement at $0.90 per
share
|
125,000 | 125 | 112,375 | - | - | 112,500 | ||||||||||||||||||
|
Common
stock issued to in connection with in-licensing agreement at $0.80 per
share
|
150,000 | 150 | 119,850 | - | - | 120,000 | ||||||||||||||||||
|
Exercise
of warrants
|
10,327 | 15 | 7,219 | - | - | 7,234 | ||||||||||||||||||
|
Cashless
exercise of warrants
|
5,589 | - | (6 | ) | - | - | (6 | ) | ||||||||||||||||
|
Share-based
compensation
|
- | - | 1,440,956 | - | - | 1,440,956 | ||||||||||||||||||
|
Warrants
issued for consulting
|
- | - | 83,670 | - | - | 83,670 | ||||||||||||||||||
|
Net
loss
|
- | - | - | (12,032,252 | ) | (12,032,252 | ) | |||||||||||||||||
|
Balance
at December 31, 2007
|
70,624,232 | 70,624 | 54,037,361 | (54,999,070 | ) | - | (891,085 | ) | ||||||||||||||||
|
Sale
of warrant
|
- | - | 150,000 | - | - | 150,000 | ||||||||||||||||||
|
Share-based
compensation
|
- | - | 463,890 | - | - | 463,890 | ||||||||||||||||||
|
Warrants
issued with secured 12% notes
|
- | - | 170,128 | - | - | 170,128 | ||||||||||||||||||
|
Net
loss
|
- | - | - | (4,268,858 | ) | - | (4,268,858 | ) | ||||||||||||||||
|
Balance
at December 31, 2008
|
70,624,232 | 70,624 | 54,821,379 | (59,267,928 | ) | - | (4,375,925 | ) | ||||||||||||||||
|
Cumulative
effect of a change in accounting principle
|
- | - | (150,000 | ) | 127,778 | - | (22,222 | ) | ||||||||||||||||
|
Balance
at January 1, 2009, as adjusted
|
70,624,232 | 70,624 | 54,671,379 | (59,140,150 | ) | - | (4,398,147 | ) | ||||||||||||||||
|
Share-based
compensation
|
- | - | 353,438 | - | - | 353,438 | ||||||||||||||||||
|
Warrants
issued with secured 12% notes
|
- | - | 46,125 | - | - | 46,125 | ||||||||||||||||||
|
Warrant
issued to placement agent - secured 12% notes
|
- | - | 6,919 | - | - | 6,919 | ||||||||||||||||||
|
Net
loss
|
- | - | - | (2,793,285 | ) | - | (2,793,285 | ) | ||||||||||||||||
|
Balance
at December 31, 2009
|
70,624,232 | $ | 70,624 | $ | 55,077,861 | $ | (61,933,435 | ) | $ | - | $ | (6,784,950 | ) | |||||||||||
See
accompanying notes to financial statements.
F-29
MANHATTAN
PHARMACEUTICALS, INC.
(A
Development Stage Company)
Statements
of Cash Flows
|
Years Ended,
|
Cumulative period from
August 6, 2001
(inception) to
December 31,
|
|||||||||||
|
2009
|
2008
|
2009
|
||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
loss
|
$ | (2,793,285 | ) | $ | (4,268,858 | ) | $ | (60,753,790 | ) | |||
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
|
Equity
in losses of Hedrin JV
|
500,000 | 250,000 | 750,000 | |||||||||
|
Share-based
compensation
|
353,438 | 463,890 | 4,182,311 | |||||||||
|
Interest
and amortization of OID and issue costs on Secured 12%
Notes
|
543,182 | 38,574 | 583,973 | |||||||||
|
Change
in fair value of derivative
|
560,065 | - | 430,070 | |||||||||
|
Shares
issued in connection with in-licensing agreement
|
- | - | 232,500 | |||||||||
|
Warrants
issued to consultant
|
- | - | 83,670 | |||||||||
|
Amortization
of intangible assets
|
- | - | 145,162 | |||||||||
|
Gain
on sale of marketable equity securities
|
- | - | (76,032 | ) | ||||||||
|
Depreciation
|
5,531 | 26,106 | 227,462 | |||||||||
|
Non
cash portion of in-process research and development charge
|
- | - | 11,721,623 | |||||||||
|
Loss
on impairment and disposition of intangible assets
|
- | - | 2,462,108 | |||||||||
|
Other
|
- | 18,327 | 23,917 | |||||||||
|
Changes
in operating assets and liabilities, net of acquisitions:
|
||||||||||||
|
Decrease
(increase) in restricted cash
|
730,499 | (730,499 | ) | - | ||||||||
|
Decrease
in prepaid expenses and other current assets
|
(49,460 | ) | 178,134 | (28,934 | ) | |||||||
|
Decrease
(increase) in other assets
|
13,525 | 35,611 | (36,370 | ) | ||||||||
|
Increase
(decrease) in accounts payable
|
(326,896 | ) | (737,189 | ) | 635,613 | |||||||
|
Increase
(decrease) in accrued expenses
|
(586,398 | ) | 281,895 | (252,647 | ) | |||||||
|
Net
cash used in operating activities
|
(1,049,799 | ) | (4,444,009 | ) | (39,669,364 | ) | ||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Purchase
of property and equipment
|
- | (8,973 | ) | (239,608 | ) | |||||||
|
Cash
paid in connection with acquisitions
|
- | - | (26,031 | ) | ||||||||
|
Net
cash provided from the purchase and sale of short-term
investments
|
- | - | 435,938 | |||||||||
|
Proceeds
from sale of license
|
- | - | 200,001 | |||||||||
|
Net
cash (used in) provided by investing activities
|
- | (8,973 | ) | 370,300 | ||||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Proceeds
from the Hedrin JV agreement
|
500,000 | 2,699,176 | 3,199,176 | |||||||||
|
Sale
of warrant
|
- | 150,000 | 150,000 | |||||||||
|
Proceeds
from sale of (repayment of) Secured 10% Notes
|
(70,000 | ) | 70,000 | - | ||||||||
|
Proceeds
from sale of Secured 12% Notes
|
340,270 | 990,143 | 1,345,413 | |||||||||
|
Proceeds
from sale of 8% Note
|
27,000 | - | 27,000 | |||||||||
|
Proceeds
from sale of Convertible 12% Notes
|
164,502 | - | 164,502 | |||||||||
|
Repayments
of notes payable to stockholders
|
- | - | (884,902 | ) | ||||||||
|
Proceeds
(costs) related to sale of common stock, net
|
- | - | 25,896,262 | |||||||||
|
Proceeds
from sale of preferred stock, net
|
- | - | 9,046,176 | |||||||||
|
Proceeds
from exercise of warrants and stock options
|
- | - | 138,219 | |||||||||
|
Other,
net
|
- | - | 235,214 | |||||||||
|
Net
cash provided by financing activities
|
961,772 | 3,909,319 | 39,317,060 | |||||||||
|
Net
(decrease) increase in cash and cash equivalents
|
(88,027 | ) | (543,663 | ) | 17,996 | |||||||
|
Cash
and cash equivalents at beginning of period
|
106,023 | 649,686 | - | |||||||||
|
Cash
and cash equivalents at end of period
|
$ | 17,996 | $ | 106,023 | $ | 17,996 | ||||||
|
Supplemental
disclosure of cash flow information:
|
||||||||||||
|
Interest
paid
|
$ | 5,397 | $ | 475 | $ | 31,430 | ||||||
|
Supplemental
disclosure of noncash investing and financing activities:
|
||||||||||||
|
Investment
in Hedrin JV
|
$ | 500,000 | $ | 250,000 | $ | 250,000 | ||||||
|
Warrants
issued with Secured 12% Notes
|
53,044 | 170,128 | 223,172 | |||||||||
|
Warrants
issued with 12% Notes
|
27,390 | - | 27,390 | |||||||||
|
Note
issued to settle accrued expenses
|
211,900 | - | 211,900 | |||||||||
|
Common
stock issued in satisfaction of accounts payable
|
- | - | 770,000 | |||||||||
|
Imputed
and accrued preferred stock dividend
|
- | - | 1,179,645 | |||||||||
|
Conversion
of preferred stock to common stock
|
- | - | 1,067 | |||||||||
|
Preferred
stock dividends paid by issuance of shares
|
- | - | 759,134 | |||||||||
|
Issuance
of common stock for acquisitions
|
- | - | 13,389,226 | |||||||||
|
Issuance
of common stock in connection with in-licensing agreement
|
- | - | 232,500 | |||||||||
|
Marketable
equity securities received in connection with sale of
license
|
- | - | 359,907 | |||||||||
|
Warrants
issued to consultant
|
- | - | 83,670 | |||||||||
|
Net
liabilities assumed over assets acquired in business
combination
|
- | - | (675,416 | ) | ||||||||
|
Cashless
exercise of warrants
|
- | - | 33 | |||||||||
See
accompanying notes to financial statements.
F-30
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
|
(1)
|
Merger
and Nature of Operations
|
2003
Reverse Merger
On
February 21, 2003, the Company (formerly known as “Atlantic Technology Ventures,
Inc.”) completed a reverse acquisition of privately held Manhattan Research
Development, Inc. (“Manhattan Research”) (formerly Manhattan Pharmaceuticals,
Inc.), a Delaware corporation. At the effective time of the merger,
the outstanding shares of common stock of Manhattan Research automatically
converted into shares of the Company’s common stock representing 80
percent of the Company’s outstanding voting stock after giving effect to the
merger. 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) under the
purchase method of accounting. In connection with the merger, the
Company changed its name from “Atlantic Technology Ventures, Inc.” to “Manhattan
Pharmaceuticals, Inc.” The results of the combined operations have
been included in the Company’s financial statements since February
2003.
As
described above, the Company resulted from the February 21, 2003 reverse merger
between Atlantic Technology Ventures, Inc. (“Atlantic”), 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.
The
Company is a biopharmaceutical company focused on developing and commercializing
innovative pharmaceutical therapies for underserved patient
populations. The Company acquires rights to these technologies by
licensing or otherwise acquiring an ownership interest, funding their research
and development and eventually either bringing the technologies to market or
out-licensing. We currently have two product candidates in
development: Hedrin™, a novel, non-insecticide treatment of
pediculitis (head lice) which is being developed by the Hedrin JV (see note 6)
and a topical product for the treatment of psoriasis. During 2009,
the Company discontinued development of PTH (1-34), Altoderm and
Altolyn.
Acquisition
of Tarpan Therapeutics, Inc.
In April
2005, the Company merged with Tarpan Therapeutics, Inc., a Delaware corporation
(“Tarpan”), and Tarpan Acquisition Corp., a Delaware corporation. The
acquisition of Tarpan has been accounted for by the Company under the purchase
method of accounting. Under the purchase method, assets acquired and
liabilities assumed by the Company are recorded at their estimated fair values
and the results of operations of the acquired company are consolidated with
those of the Company from the date of acquisition. The excess
purchase price paid by the Company to acquire the net assets of Tarpan was
allocated to acquired in-process research and development totaling
$11,887,807. As required by the purchase method of accounting, the
Company recorded a charge in its consolidated statement of operations for the
year ended December 31, 2005 for the in-process research and
development.
F-31
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
(2) Liquidity
and Basis of Presentation
Liquidity
The
Company incurred a net loss of $2,793,285 and negative cash flows from operating
activities of $1,049,799 for the year ended December 31, 2009 and a net loss of
$4,268,858 and negative cash flows from operating activities of $4,444,009 for
the year ended December 31, 2008. The net loss applicable to common
shares from date of inception, August 6, 2001, to December 31, 2009 amounts to
$61,933,435.
The
Company received approximately $1.8 million in February 2008 and approximately
$0.9 million in June 2008 from a joint venture agreement. This joint
venture agreement is more fully described in Note 8. The Company also
received $70,000 in Secured 10% Notes in September 2008 which was repaid in full
in February 2009. The Company received $1.0 million in November and December
2008 from the sale of Secured 12% Notes.
The
Company received approximately $0.3 million in February 2009 from the final
closing of the sale of Secured 12% Notes, approximately $0.5 million in February
2009 from a joint venture agreement, approximately $0.2 million from the sale of
a Convertible 12% Note and approximately $27,000 from Ariston Pharmaceuticals,
Inc. in exchange for a note in December 2009. In addition, the
Company issued a $0.2 million non-interest bearing note in connection with the
Swiss Pharma Settlement. These notes are more fully described in Notes 9, 10, 11
and 12.
Management
believes that the Company will continue to incur net losses through at least
December 31, 2010 and for the foreseeable future thereafter. Based on
the resources of the Company available at December 31, 2009 and the net proceeds
of $2.2 received in March 2010 from the sale of common stock and warrants,
management believes that the Company has sufficient capital to fund its
operations through 2010. Management believes that the Company will
need additional equity or debt financing or will need to generate positive cash
flow from a joint venture agreement (see Note 6) or generate revenues through
licensing of its products or entering into strategic alliances to be able to
sustain its operations into 2010. Furthermore, we will need
additional financing thereafter to complete development and commercialization of
our products. There can be no assurances that we can successfully
complete development and commercialization of our products.
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.
These
matters raise substantial doubt about the Company’s ability to continue as a
going concern. The accompanying financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
F-32
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
(3) Summary
of Significant Accounting Policies
Basis
of Presentation
The
Company has not generated any revenue from its operations and, accordingly, the
financial statements have been prepared in accordance with the provisions of
accounting and reporting for Development Stage Enterprises.
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
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.
The
Company often contracts with third parties to facilitate, coordinate and perform
agreed-upon research and development of a new drug. To ensure that
research and development costs are expensed as incurred, the Company records
monthly accruals for clinical trials and preclinical testing costs based on the
work performed under the contracts.
These
contracts typically call for the payment of fees for services at the initiation
of the contract and/or upon the achievement of certain
milestones. This method of payment often does not match the related
expense recognition resulting in either a prepayment, when the amounts paid are
greater than the related research and development costs expensed, or an accrued
liability, when the amounts paid are less than the related research and
development costs expensed.
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.
F-33
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
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 99,159,628 and 80,068,144 shares at December 31, 2009
and 2008, respectively. These amounts do not include the 55,555,555
shares issuable upon the exercise of the put or call rights issued in connection
with the Hedrin JV (see Note 6) which were subject to anti-dilution rights upon
the issuance of warrants with the Secured 12% Notes (see Note 8).
Share-Based
Compensation
The
Company has stockholder-approved stock incentive plans for employees, directors,
officers and consultants. Prior to January 1, 2006, the Company
accounted for the employee, director and officer plans using the intrinsic value
method. Effective January 1, 2006, the Company adopted the share-based payment
method for employee options using the modified prospective transition method.
This new method of accounting for stock options eliminated the option to use the
intrinsic value method and required the Company to expense the fair value of all
employee options over the vesting period. Under the modified
prospective transition method, the Company recognized compensation cost for the
years ended December 31, 2009 and 2008 which includes a) period compensation
cost related to share-based payments granted prior to, but not yet vested, as of
January 1, 2006, based on the grant date fair value estimated in accordance with
the original provisions; and b) period compensation cost related to share-based
payments granted on or after January 1, 2006, based on the grant date fair value
estimated in accordance with the new accounting methodology. In accordance with
the modified prospective method, the Company has not restated prior period
results.
The
Company recognizes compensation expense related to stock option grants on a
straight-line basis over the vesting period. For the years ended
December 31, 2009 and 2008, the Company recognized share-based employee
compensation cost of $353,438 and $463,890, respectively. The Company
did not capitalize any share-based compensation cost.
Options
granted to consultants and other non-employees are recorded at fair value at the
date of grant and subsequently adjusted to fair value at the end of each
reporting period until such options vest, and the fair value of the
options, as adjusted, is amortized to consulting expense over the related
vesting period. As a result of adjusting consultant and other non-employee
options to fair value as of December 31, 2009 and 2008, respectively, net of
amortization, the Company recognized an increase to general and administrative
and research and development expenses of $1,725 for the year ended December 31,
2009 and an increase to general and administrative and research and development
expenses of $1,579 for the year ended December 31, 2008. The Company
has allocated share-based compensation costs to general and administrative and
research and development expenses as follows:
F-34
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
|
2009
|
2008
|
|||||||
|
General
and administrative expense:
|
||||||||
|
Share-based
employee compensation cost
|
$ | 351,713 | $ | 341,706 | ||||
|
Share-based
consultant and non-employee cost
|
172 | 158 | ||||||
| 351,885 | 341,864 | |||||||
|
Research
and development expense
|
||||||||
|
Share-based
employee compensation cost
|
- | 120,605 | ||||||
|
Share-based
consultant and non-employee cost
|
1,553 | 1,421 | ||||||
| 1,553 | 122,026 | |||||||
|
Total
share-based compensation
|
$ | 353,438 | $ | 463,890 | ||||
To
compute compensation expense in 2009 and 2008 the Company estimated the fair
value of each option award on the date of grant using the Black-Scholes model.
The Company based the expected volatility assumption on a volatility index of
peer companies as the Company did not have a sufficient number of years of
historical volatility of its common stock. The expected term of
options granted represents the period of time that options are expected to be
outstanding. The Company estimated the expected term of stock options by
the simplified method. The expected forfeiture rates are based on the
historical employee forfeiture experiences. To determine the risk-free
interest rate, the Company utilized the U.S. Treasury yield curve in effect at
the time of grant with a term consistent with the expected term of the Company’s
awards. The Company has not declared a dividend on its common stock
since its inception and has no intentions of declaring a dividend in the
foreseeable future and therefore used a dividend yield of zero.
The
following table shows the weighted average assumptions the Company used to
develop the fair value estimates for the determination of the compensation
charges in 2009 and 2008:
|
2009
|
2008
|
|||||||
|
Expected
volatility
|
94%
|
92.0%
|
||||||
|
Dividend
yield
|
-
|
-
|
||||||
|
Expected
term (in years)
|
6.5
|
5 -
10
|
||||||
|
Risk-free
interest rate
|
2.63
|
2.81
|
||||||
The
Company has shareholder-approved incentive stock option plans for employees
under which it has granted non-qualified and incentive stock
options. In December 2003, the Company established the 2003 Stock
Option Plan (the “2003 Plan”), which provided for the granting of up to
5,400,000 options to officers, directors, employees and consultants for the
purchase of stock. In August 2005, the Company increased the number
of shares of common stock reserved for issuance under the 2003 Plan by 2,000,000
shares. In May 2007, the Company increased the number of shares of
common stock reserved for issuance under the 2003 Plan by 3,000,000
shares. At December 31, 2009, 10,400,000 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 an exercise price equal to or greater than the fair market value
of the shares at the date of grant. The 2003 Plan expires on December
10, 2013 or when all options have been granted, whichever is sooner. At December
31, 2009, options to purchase 6,322,696 shares were outstanding, 27,776 shares
of common stock were issued and there were 4,049,528 shares reserved for future
grants under the 2003 Plan.
F-35
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
In July
1995, the Company established the 1995 Stock Option Plan (the “1995 Plan”),
which provided for the granting of options to purchase up to 130,000 shares of
the Company’s common stock to officers, directors, employees and
consultants. The 1995 Plan was amended several times to increase the
number of shares reserved for stock option grants. In June 2005 the
1995 Plan expired and no further options can be granted. At
December 31, 2009, options to purchase 1,137,240 shares were outstanding and no
shares were reserved for future stock option grants under the 1995
Plan.
Financial
Instruments
At
December 31, 2009 and 2008, the fair values of cash and cash equivalents,
accounts payable and the secured 12% notes payable approximate their carrying
values. At December 31, 2009 the fair value of the convertible 12%
note does not approximate its carrying value as a portion of the fair value is
reflected as a component of derivative liability.
Cash
and Cash Equivalents
Cash
equivalents consist of cash or short term investments with original maturities
at the time of purchase of three months or less.
Property
and Equipment
Property
and equipment are stated at cost. Depreciation is provided using the
straight-line method over estimated useful lives. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation are removed
from the accounts, and any resulting gain or loss is recognized in operations
for the period. Amortization of leasehold improvements is calculated using the
straight-line method over the remaining term of the lease or the life of the
asset, whichever is shorter. The cost of repairs and maintenance is charged to
operations as incurred; significant renewals and improvements are
capitalized.
Equity
in Joint Venture
The
Company accounts for its investment in joint venture (See Note 6) using the
equity method of accounting. Under the equity method, the Company records its
pro-rata share of joint venture income or losses and adjusts the basis of its
investment accordingly.
New
Accounting Pronouncements
In
June 2009, the Financial Accounting Standards Board (“FASB”) issued the
FASB Accounting Standards Codification (“Codification”) as the single source of
authoritative U.S. generally accepted accounting principles (“U.S. GAAP”)
recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative U.S. GAAP for SEC registrants. The Codification is
effective for financial statements issued for interim and annual periods ending
after September 15, 2009. The Codification will supersede all existing
non-SEC accounting and reporting standards. All other nongrandfathered non-SEC
accounting literature not included in the Codification will become
nonauthoritative. The FASB will not issue new standards in the form of
Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts.
Instead, the FASB will issue Accounting Standards Updates, which will serve only
to: (a) update the Codification; (b) provide background information
about the guidance; and (c) provide the bases for conclusions on the change(s)
in the Codification.
F-36
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
In
December 2007, the FASB issued a statement that requires all entities to report
noncontrolling (minority) interests in subsidiaries as equity in the
consolidated financial statements. This statement establishes a single method of
accounting for changes in a parent's ownership interest in a subsidiary that do
not result in deconsolidation and expands disclosures in the consolidated
financial statements. This statement was effective for fiscal years beginning
after December 15, 2008 and interim periods within those fiscal years. The
adoption of this statement did not have any impact on the Company’s financial
statements.
In
February 2008, the FASB issued two Staff Positions as well as other
accounting pronouncements that address fair value measurements on lease
classification. The adoption of these pronouncements did not have a material
impact on the Company’s financial statements.
In March
2008, the FASB issued a pronouncement which requires expanded disclosures about
an entity's derivative instruments and hedging activities. This pronouncement
requires qualitative disclosures about objectives and strategies for using
derivatives, quantitative disclosures about fair value amounts of and gains and
losses on derivative instruments, and disclosures about credit-risk-related
contingent features in derivative instruments. This pronouncement was effective
for the Company as of January 1, 2009, and its adoption did not have any impact
on the Company’s financial statements.
In June
2008, the FASB ratified a pronouncement which provides that an entity should use
a two step approach to evaluate whether an equity-linked financial instrument
(or embedded feature) is indexed to its own stock, including evaluating the
instrument's contingent exercise and settlement provisions. It also clarifies
the impact of foreign currency denominated strike prices and market-based
employee stock option valuation instruments on the evaluation. This statement
was effective for fiscal years beginning after December 15, 2008. The adoption
of this statement had a significant impact on the Company’s financial statements
(see Note 13 to our financial statements for the period ended December 31,
2009).
In
April 2009, the FASB issued a pronouncement which provides guidance on
determining when there has been a significant decrease in the volume and level
of activity for an asset or liability, when a transaction is not orderly, and
how that information must be incorporated into a fair value measurement. This
pronouncement also requires expanded disclosures on valuation techniques and
inputs and specifies the level of aggregation required for all quantitative
disclosures. The provisions of this pronouncement were effective for
the Company’s quarter ending June 30, 2009. The adoption of this pronouncement
did not have any impact on the Company’s financial statements.
In
April 2009, the FASB issued several pronouncements which makes the guidance
on other-than-temporary impairments of debt securities more operational and
requires additional disclosures when a company records an other-than-temporary
impairment. These pronouncements were effective for interim and annual reporting
periods ending after June 15, 2009. The Company adopted these principles in
the second quarter of 2009, which did not have any impact on the Company’s
financial statements.
F-37
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
In
April 2009, the FASB issued several statements which require companies to
disclose in interim financial statements the fair value of financial
instruments. However, companies are not required to provide in interim periods
the disclosures about the concentration of credit risk of all financial
instruments that are currently required in annual financial statements. The
fair-value information disclosed in the footnotes must be presented together
with the related carrying amount, making it clear whether the fair value and
carrying amount represent assets or liabilities and how the carrying amount
relates to what is reported in the balance sheet. In addition, the companies are
required to disclose the method or methods and significant assumptions used to
estimate the fair value of financial instruments and a discussion of changes, if
any, in the method or methods and significant assumptions during the period.
This statement shall be applied prospectively and was effective for interim and
annual periods ending after June 15, 2009. To the extent relevant, the
Company adopted the disclosure requirements of this pronouncement for the
quarter ended June 30, 2009. The adoption of these statements
did not have a material impact on the Company’s financial
statements
In
May 2009, the FASB issued a statement which sets forth the period after the
balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements, and the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. This
statement was effective for interim or annual periods ending after June 15,
2009, and the Company adopted the provisions of this statement for the quarter
ended June 30, 2009. The adoption of this statement did not have a material
impact on the Company’s financial statements. The Company has
evaluated all events or transactions that occurred after December 31, 2009 up
through the date we issued these financial statements, and we have disclosed all
events or transactions that have a material impact on the Company’s financial
statements (see Note 18).
In
August 2009, the FASB issued a new pronouncement to provide clarification
on measuring liabilities at fair value when a quoted price in an active market
is not available. In particular, this pronouncement specifies that a valuation
technique should be applied that uses either the quote of the liability when
traded as an asset, the quoted prices for similar liabilities when traded as
assets, or another valuation technique consistent with existing fair value
measurement guidance. This statement is prospectively effective for financial
statements issued for interim or annual periods ending after October 1,
2009. The adoption of this statement at December 31, 2009 did not impact the
Company’s results of operations or financial condition.
(4) Property
and Equipment
Property
and equipment consists of the following at December 31:
|
2009
|
2008
|
|||||||
|
Property
and equipment
|
$ | 35,905 | $ | 35,905 | ||||
|
Less
accumulated depreciation
|
(32,364 | ) | (26,833 | ) | ||||
|
Net
property and equipment
|
$ | 3,541 | $ | 9,072 | ||||
F-38
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
(5) Stockholders’
Equity
As
described in Note 1 the Company completed a reverse acquisition of privately
held Manhattan Research Development, Inc. on February 21, 2003. In
July 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. The 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 and became effective in September
2003. Accordingly, all share and per share information in these
financial statements has been restated to retroactively reflect the 1-for-5
combination and the effects of the Reverse Merger.
2001
During
2001, the Company issued 10,167,741 shares of its common stock to investors for
subscriptions receivable of $4,000 or $0.0004 per share. During 2002, the
Company received the $4,000 subscription receivable.
2002
During
2002, the Company issued 2,541,935 shares of its common stock to Oleoyl-estrone
Developments, S.L. (“OED”) in conjunction with a license agreement (the OED
License Agreement”). We valued these shares at their then estimated fair value
of $1,000.
During
2002, the Company issued options to purchase 1,292,294 shares of its common
stock in conjunction with several consulting agreements. The fair value of these
options was $60,589. The Company expensed $22,721 in 2002 and $37,868
in 2003.
During
2002 and 2003, the Company completed two private placements. During
2002, the Company issued 3,043,332 shares of its common stock at $0.63 per share
and warrants to purchase 304,333 of its common stock in a private placement.
After deducting commissions and other expenses relating to the private
placement, the Company received net proceeds of $1,704,318.
2003
During
2003, the Company issued an additional 1,321,806 shares of its common stock at
$0.63 per share and warrants to purchase 132,181 shares of its common stock.
After deducting commissions and other expenses relating to the private
placement, the Company received net proceeds of $743,691. In connection with
these private placements, the Company issued to the placement agent warrants to
purchase 1,658,753 shares of its common stock.
As
described in Note 1, during 2003, the Company completed a reverse
acquisition. The Company issued 6,287,582 shares of its common stock
with a value of $2,336,241 in the reverse acquisition.
In
November 2003, the Company issued 1,000,000 shares of its newly-designated
Series A Convertible Preferred Stock (the “Convertible Preferred”) at a price of
$10 per share in a private placement. After deducting commissions and other
expenses relating to the private placement, the Company received net proceeds of
$9,046,176. Each share of Convertible Preferred was 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 Convertible
Preferred was less than the market value of the Company’s common stock on the
date of issuance. Accordingly for the year ended December 31, 2003
the Company recorded a separate charge to deficit accumulated during development
stage for the beneficial conversion feature associated with the issuance of
Convertible Preferred of $418,182. The Convertible Preferred had a
payment-in-kind annual dividend of five percent. 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.
F-39
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
2004
During
2004, the Company issued 3,368,952 shares of its common stock at a price of
$1.10 per share in a private placement. After deducting commissions and other
expenses relating to the private placement, the Company received net proceeds of
$3,361,718. In connection with the common stock private placement and the
Convertible Preferred private placement, the Company issued to the placement
agents a warrant to purchase 1,235,589 shares of its common stock.
During
2004, the Company recorded a dividend on the Convertible Preferred of
$585,799. 24,901 shares of Convertible Preferred were issued in
payment of $282,388 of this in-kind dividend. Also during 2004,
170,528 shares of Convertible Preferred were converted into 1,550,239 shares of
the Company’s common stock at $1.10 per share.
During
2004, the Company issued 27,600 shares of common stock upon the exercise of
stock options.
During
2004, the Company issued warrants to purchase 110,000 shares of its common stock
in conjunction with three consulting agreements. The fair value of these
warrants was $120,968. The Company expensed $100,800 in 2004 and
$20,168 in 2005.
2005
In August
2005, the Company issued 11,917,680 shares of its common stock and warrants to
purchase 2,383,508 shares of its common stock in a private placement at $1.11
and $1.15 per share. After deducting commissions and other expenses
relating to the private placement the Company received net proceeds of
$12,250,209. Paramount BioCapital, Inc. (“Paramount”), an affiliate
of a significant stockholder of the Company, acted as placement agent and was
paid cash commissions and expenses of $967,968 of which $121,625 was paid to
certain selected dealers engaged by Paramount in the private
placement. The Company also issued warrants to purchase 595,449
shares of common stock to Paramount and certain select dealers, of which
Paramount received warrants to purchase 517,184 common
shares. Timothy McInerney and Dr. Michael Weiser, each a director of
the Company, were employees of Paramount BioCapital, Inc. at the time of the
transaction.
During
2005, the Company recorded a dividend on the Convertible Preferred of
$175,663. 41,781 shares of Convertible Preferred were issued in
payment of this $175,663 in-kind dividend and the unpaid portion of the 2004
in-kind dividend, $303,411. Also during 2005, the remaining 896,154
shares of Convertible preferred were converted into 8,146,858 shares of the
Company’s common stock.
During
2005, the Company issued 675,675 shares of its common stock at $1.11 per share
and warrants to purchase 135,135 shares of its common stock to Cato BioVentures,
an affiliate of Cato Research, Inc., in exchange for satisfaction of $750,000 of
accounts payable owed by the Company to Cato Research, Inc. Since the
value of the shares and warrants issued was approximately $750,000, there is no
impact on the statement of operations for this transaction.
F-40
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
During
2005, the Company issued 312,245 shares of common stock upon the exercise of
stock options and warrants.
As
described in Note 1, in April 2005, the Company completed the Merger with
Tarpan. In accordance with the Agreement, the stockholders of Tarpan received
10,731,052 shares of the Company’s common stock with a value of
$11,052,984.
2006
During
2006, the Company issued 27,341 shares of common stock upon the exercise of
warrants.
2007
On March
30, 2007, the Company entered into a series of subscription agreements with
various institutional and other accredited investors for the issuance and sale
in a private placement of an aggregate of 10,185,502 shares of its common stock
for total net proceeds of approximately $7.85 million, after deducting
commissions and other costs of the transaction. Of the total amount of shares
issued, 10,129,947 were sold at a per share price of $0.84, and an additional
55,555 shares were sold to an entity affiliated with a director of the Company,
at a per share price of $0.90, the closing sale price of the common stock on
March 29, 2007. Pursuant to the subscription agreements, the Company also issued
to the investors 5-year warrants to purchase an aggregate of 3,564,897 shares of
common stock at an exercise price of $1.00 per share. The warrants are
exercisable during the period commencing September 30, 2007 and ending March 30,
2012. Gross and net proceeds from the private placement were
$8,559,155 and $7,852,185, respectively.
Pursuant
to these subscription agreements the Company filed a registration statement on
Form S-3 covering the resale of the shares issued in the private placement,
including the shares issuable upon exercise of the investor warrants and the
placement agent warrants, with the Securities and Exchange Commission on May 9,
2007, which was declared effective by the Securities and Exchange Commission on
May 18, 2007.
The
Company engaged Paramount, an affiliate of a significant stockholder of the
Company, as its placement agent in connection with the private placement. In
consideration for its services, the Company paid aggregate cash commissions of
approximately $600,000 and issued to Paramount a 5-year warrant to purchase an
aggregate of 509,275 shares at an exercise price of $1.00 per
share.
2008
During
2008, the Company issued warrants to purchase 140,000 shares of its common stock
to directors, officers and an employee in conjunction with the secured 10% notes
(see Note 8).
During
2008, the Company issued a put for the issuance of 55.6 million shares of its
common stock and a warrant to purchase 11.1 million shares of its common stock
in conjunction with a joint venture transaction (see Notes 6 and
9).
F-41
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
During
2008, the Company issued warrants to purchase 50.4 million shares of its common
stock to the investors and the placement agent in conjunction with the sale of
the secured 12% notes (see Note 10).
2009
During
2009, the Company issued warrants to purchase 15.7 million shares of its common
stock to the investors and the placement agent in conjunction with the sale of
the secured 12% notes (see Note 9).
During
2009, the Company issued warrants to purchase 2.4 million shares of its common
stock to the investors and the placement agent in conjunction with the sale of
the convertible 12% notes (see Note 12).
(6) Joint
Venture
In
February 2008, the Company and Nordic Biotech Advisors ApS through its
investment fund Nordic Biotech Venture Fund II K/S (“Nordic”) entered into a
50/50 joint venture agreement (the “Hedrin JV Agreement”) to develop and
commercialize the Company's North American rights (under license) to its Hedrin
product.
Pursuant
to the Hedrin JV Agreement, Nordic formed a new Danish limited partnership,
Hedrin Pharmaceuticals K/S, (the "Hedrin JV") and provided it with initial
funding of $2.5 million and the Company assigned and transferred its North
American rights in Hedrin to the Hedrin JV in return for a $2.0 million cash
payment from the Hedrin JV and equity in the Hedrin JV representing 50% of the
nominal equity interests in the Hedrin JV. At closing the Company
recognized an investment in the Hedrin JV of $250,000 and an exchange obligation
of $2,054,630. The exchange obligation represents the Company’s
obligation to Nordic to issue the Company’s common stock in exchange for all or
a portion of Nordic’s equity interest in the Hedrin JV upon the exercise by
Nordic of the put issued to Nordic in the Hedrin JV Agreement
transaction. The put is described below.
The
original terms of the Hedrin JV Agreement also provided that should
the Hedrin JV be successful in achieving a payment milestone, namely that by
September 30, 2008, the FDA determines to treat Hedrin as a medical device,
Nordic will purchase an additional $2.5 million of equity in the Hedrin JV,
whereupon the Hedrin JV will pay the Company an additional $1.5 million in cash
and issue additional equity in the JV valued at $2.5 million, thereby
maintaining the Company’s 50% ownership interest in the Hedrin
JV. These terms have been amended as described below.
In June
2008, the Hedrin JV Agreement was amended (the "Hedrin JV Amended
Agreement"). Under the amended terms Nordic invested an additional
$1.0 million, for a total of $3.5 million, in the Hedrin JV and made an advance
of $250,000 to the Hedrin JV and the Hedrin JV made an additional $1.0 million
payment, for a total of $3.0 million, to the Company. The Hedrin JV
also distributed additional ownership equity sufficient for each of the Company
and Nordic to maintain their ownership interest at 50%. The FDA
classified Hedrin as a Class III medical device in February
2009. Under the amended terms, upon attaining this classification of
Hedrin by the FDA, Nordic invested an additional $1.25 million, for a total
investment of $5 million, into the Hedrin JV, the Hedrin JV paid an
additional $0.5 million, for a total of $3.5 million, to the Company and the
$250,000 that Nordic advanced to the Hedrin JV in June became an equity
investment in the Hedrin JV by Nordic. The Hedrin JV was obligated to issue to
the Company and Nordic additional ownership interest in the Hedrin JV, thereby
maintaining each of the Company’s and Nordic’s 50% ownership interest in the
Hedrin JV.
F-42
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
In
February 2009, the Company’s exchange obligation increased by $1,000,000 and the
Company’s investment in the Hedrin JV increased by $500,000 as a result of the
investment by Nordic of an additional $1.25 million into the Hedrin JV, the
reclassification of the advance made by Nordic in June 2008 to the Hedrin JV of
$250,000 into an equity interest and the payment of $500,000 by the Hedrin JV to
the Company. At December 31, 2009, the Company’s exchange obligation is
$3,949,176.
During
the years ended December 31, 2009 and 2008, the Company recognized $500,000 and
$250,000, respectively, of equity in the losses of the Hedrin JV. This
reduced the carrying value of its investment in the Hedrin JV to $0 at both
December 31, 2009 and 2008. As of December 31, 2009, the Company’s share
of the losses is $553,688; equity in losses of Hedrin JV previously recognized
was $250,000 leaving a $250,000 share of the cumulative losses of the Hedrin JV
that was recognized by the Company at December 31, 2009, and a remaining balance
of $53,688 of losses was not recognized at December 31, 2009.
Nordic
has an option to put all or a portion of its equity interest in the Hedrin JV to
the Company in exchange for the Company’s common stock. The shares of the
Company’s common stock to be issued upon exercise of the put will be calculated
by multiplying the percentage of Nordic’s equity in the Hedrin JV that Nordic
decides to put to the Company multiplied by the dollar amount of Nordic’s
investment in Limited Partnership divided by $0.09, as adjusted from time to
time. The put option is exercisable immediately and expires at the earlier
of ten years or when Nordic’s distributions from the Limited Hedrin JV exceed
five times the amount Nordic invested in the Hedrin JV.
The
Company has an option to call all or a portion of Nordic’s equity interest in
the Hedrin JV in exchange for the Company’s common stock. The Company
cannot begin to exercise its call until the price of the Company’s common stock
has closed at or above $1.40 per share for 30 consecutive trading days.
During the first 30 consecutive trading day period in which the Company’s common
stock closes at or above $1.40 per share the Company can exercise up to 25% of
its call option. During the second 30 consecutive trading day period in
which the Company’s common stock closes at or above $1.40 per share the Company
can exercise up to 50% of its call option on a cumulative basis. During the
third 30 consecutive trading day period in which the Company’s common stock
closes at or above $1.40 per share the Company can exercise up to 75% of its
call option on a cumulative basis. During the fourth 30 consecutive trading day
period in which the Company’s common stock closes at or above $1.40 per share
the Company can exercise up to 100% of its call option on a cumulative basis.
The shares of the Company’s common stock to be issued upon exercise of the call
will be calculated by multiplying the percentage of Nordic’s equity in the
Limited Partnership that the Company calls, as described above, multiplied by
the dollar amount of Nordic’s investment in the Hedrin JV divided by
$0.09. Nordic can refuse the Company’s call by either paying the Company
up to $1.5 million or forfeiting all or a portion of their put, calculated on a
pro rata basis for the percentage of the Nordic equity interest called by the
Company.
The
Hedrin JV is responsible for the development and commercialization of Hedrin for
the North American market and all associated costs including clinical trials, if
required, regulatory costs, patent costs, and future milestone payments owed to
T&R, the licensor of Hedrin.
F-43
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
The
Hedrin JV has engaged the Company to provide management services to the Limited
Partnership in exchange for a management fee. For the years ended December
31, 2009 and 2008, the Company has recognized $333,845 and $446,806,
respectively, of other income from management fees earned from the Hedrin JV
which is included in the Company’s statements of operations for the years ended
December 31, 2009 and 2008 as a component of interest and other
income.
Nordic
paid to the Company a non-refundable fee of $150,000 at the closing for the
right to receive a warrant covering 11.1 million shares of the Company’s common
stock, as adjusted due to the 12% Notes Transaction (Note 9) exercisable for
$0.09 per share.. The warrant is issuable 90 days from closing, provided
Nordic has not exercised all or a part of its put, as described below. The
Company issued the warrant to Nordic on April 30, 2008. The per share
exercise price of the warrant was initially based on the volume weighted average
price of the Company’s common stock for the period prior to the signing of the
Hedrin JV Agreement and has been subsequently adjusted due to the 12% Notes
Transaction (see Note 9). On March 2, 2010, pursuant to a private
placement of its securities, the Company issued the Company’s common stock and
warrants with an exercise price of $0.08 per share, further adjusting the Nordic
warrant, (see note 18).
The
Hedrin JV's Board consists of 4 members, 2 appointed by the Company and 2
appointed by Nordic. Nordic has appointed one of the directors as chairman
of the Board. The chairman has certain tie breaking powers.
Nordic
has the right to nominate a person to serve on the Company’s Board of
Directors. Nordic has nominated a person, however, that person has
declined to stand for appointment to the Company’s Board of
Directors.
The
Company granted Nordic registration rights for the shares to be issued upon
exercise of the warrant, the put or the call. The Company filed an initial
registration statement on May 1, 2008. The registration statement was
declared effective on October 15, 2008. On June 2, 2009, the Company filed
an additional Registration Statement registering the additional 28,769,841
shares of Common Stock that may be issued to Nordic upon exercise of a put
right held by Nordic as a result of Nordic’s additional investment of $1,250,000
in Hedrin JV pursuant to the terms of the Partnership
Agreement and as adjusted pursuant to the anti-dilution provisions of the
put right (the "Put Shares") and the additional 3,968,254 shares issuable
upon exercise of an outstanding warrant held by Nordic. The
Securities and Exchange Commission (“SEC”) has informed the Company that the
Company may not register the Put Shares for resale until Nordic exercises its
put right and such shares of Common Stock are outstanding. The Company
believes that it has used commercially reasonable efforts to cause the
registration statement to be declared effective and has satisfied its
obligations under the registration rights agreement with respect to the
registration of the Put Shares. The Company is awaiting input from Nordic
as to whether Nordic would like the Company to continue to pursue registration
of the additional 3,968,254 shares issuable upon exercise of an outstanding
warrant held by Nordic which were included within the June 2009
registration statement.
The
Company is required to file additional registration statements, if required,
within 45 days of the date the Company first knows that such additional
registration statement was required. The Company is required to use
commercially reasonable efforts to cause the additional registration statements
to be declared effective by the SEC within 105 calendar days from the filing
date (the "Effective Date"). If the Company fails to file a registration
statement on time or if a registration statement is not declared effective by
the SEC within 105 days of filing the Company will be required to pay to Nordic,
or its assigns, an amount in cash, as partial liquidated damages, equal to 0.5%
per month of the amount invested in the Hedrin JV by Nordic until the
registration statement is declared effective by the SEC. In no event shall
the aggregate amount payable by the Company exceed 9% of the amount invested in
the Hedrin JV by Nordic.
F-44
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
The
profits of the Hedrin JV will be shared by the Company and Nordic in accordance
with their respective equity interests in the Limited Partnership, which are
currently 50% to each, except that Nordic will get a minimum distribution from
the Hedrin JV equal to 6% on Hedrin sales, as adjusted for any change in
Nordic’s equity interest in the Limited Partnership. If the Hedrin JV
realizes a profit equal to or greater than a 12% royalty on Hedrin sales, then
profits will be shared by the Company and Nordic in accordance with their
respective equity interests in the Limited Partnership. However, in the
event of a liquidation of the Limited Partnership, Nordic’s distribution in
liquidation will be at least equal to the amount Nordic invested in the Hedrin
JV ($5 million) plus 10% per year, less the cumulative distributions received by
Nordic from the Hedrin JV. If the Hedrin JV’s assets in liquidation exceed
the Nordic liquidation preference amount, then any excess shall be distributed
to the Company until its distribution and the Nordic liquidation preference
amount are in the same ratio as the respective equity interests in the Hedrin JV
and the remainder, if any, shall be distributed to Nordic and the Company in the
same ratio as the respective equity interests. Further, in no event shall
Nordic’s distribution in liquidation be greater than assets available for distribution
in liquidation.
|
(7)
|
American
Stock Exchange
|
In
September 2007, the Company received notice from the staff of The American Stock
Exchange, or AMEX, indicating that the Company was not in compliance with
certain continued listing standards set forth in the AMEX Company Guide.
Specifically, AMEX notice cited the Company’s failure to comply, as of June 30,
2007, with section 1003(a)(ii) of the AMEX Company Guide as the Company had less
than $4,000,000 of stockholders’ equity and had losses from continuing
operations and /or net losses in three or four of our most recent fiscal years
and with section 1003(a)(iii) which requires the Company to maintain $6,000,000
of stockholders’ equity if the Company has experienced losses from continuing
operations and /or net losses in its five most recent fiscal years.
In order
to maintain our AMEX listing, the Company was required to submit a plan to AMEX
advising the exchange of the actions the Company has taken, or will take, that
would bring the Company into compliance with all the continued listing standards
by April 16, 2008. The Company submitted such a plan in October
2007. If the Company is not in compliance with the continued listing
standards at the end of the plan period, or if the Company has not made progress
consistent with the plan during the period, AMEX staff could have initiated
delisting proceedings.
Under the
terms of the Hedrin JV Agreement, the number of potentially issuable shares
represented by the put and call features thereof and the warrant issuable to
Nordic, would exceed 19.9% of the Company’s total outstanding shares and would
be issued at a price below the greater of book or market value. As a
result, under AMEX regulations, the Company would not have been able to complete
the transaction without first receiving either stockholder approval for the
transaction, or a formal “financial viability” exception from AMEX’s stockholder
approval requirement. The Company estimated that obtaining stockholder
approval to comply with AMEX regulations would take a minimum of 45 days to
complete. The Company discussed the financial viability exception with
AMEX for several weeks and had neither received the exception nor been denied
the exception. The Company determined that our financial condition
required the Company to complete the transaction immediately, and that the
Company’s financial viability depended on the completion of the Hedrin JV
Agreement without further delay.
F-45
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
Accordingly,
to maintain the Company’s financial viability, on February 28, 2008, the Company
announced that it had formally notified AMEX that the Company intended to
voluntarily delist its common stock from AMEX. The delisting became
effective on March 26, 2008.
The
Company’s common stock now trades on the Over the Counter Bulletin Board under
the symbol “MHAN”. The Company intends to maintain corporate governance,
disclosure and reporting procedures consistent with applicable law.
|
(8)
|
Secured
10% Notes Payable
|
In
September 2008, Manhattan entered into a series of Secured 10% Notes (the
“Secured 10% Notes”) with certain of our directors, officers and an employee
(the “Secured 10% Note Holders”) for aggregate of $70,000. Principal
and interest on the Secured 10% Notes shall be paid in cash on March 10, 2009
unless paid earlier by us. Pursuant to the Secured 10% Notes, we also
issued to the Secured 10% Note Holders 5-year warrants to purchase an aggregate
of 140,000 shares of our common stock at an exercise price of $0.20 per
share. Manhattan granted to the Secured 10% Note Holders a continuing
security interest in certain specific refunds, deposits and repayments due
Manhattan and expected to be repaid to Manhattan in the next several
months. At December 31, 2008 accrued and unpaid interest on the Secured
10% Notes amounted to $1,764 and is reflected in the accompanying balance sheet
as of December 31, 2008 as a component of accrued expenses. The Secured
10% Notes plus interest were repaid on February 4, 2009.
|
(9)
|
Secured
12% Notes Payable
|
On
November 19, 2008, December 23, 2008 and February 3, 2009, the Company completed
the first, second and final closings on a financing transaction (the “Secured
12% Notes Transaction”). The Company sold $1,725,000 of 12% senior secured
notes (the “Secured 12% Notes”) and issued warrants to the investors to purchase
57.5 million shares of the Company’s common stock at $0.09 per share. The
warrants expire on December 31, 2013. Net proceeds of $1.4 million were
realized from the three closings. In addition, $78,000 of issuance costs
were paid outside of the closings. Per the terms of the 12% Notes
Transaction the net proceeds were paid into a deposit account (the
“Deposit Account”) and are to be paid out to the Company in monthly installments
of $113,300 retroactive to October 1, 2008 and a one-time payment of
$200,000. Per the terms of the 12% Notes Transaction the monthly
installments are to be used exclusively to fund the current operating expenses
of the Company and the one-time payment was to be used for trade payables
incurred prior to October 1, 2008. The Company received $876,700 of such
monthly installments and the one time payment of $200,000 during the year ended
December 31, 2009. There was no remaining balance in the Deposit
Account at December 31, 2009.
F-46
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
National
Securities Corporation (“National”) was the placement agent for the 12% Notes
Transaction. National’s compensation for acting as placement agent is a
cash fee of 10% of the gross proceeds received, a non-accountable expense
allowance of 1.5% of the gross proceeds, reimbursement of certain expenses and a
warrant to purchase such number of shares of the Company’s common stock equal to
15% of the shares underlying the warrants issued to the investors. The
Company paid National a total of $202,000 in placement agent fees, a
non-accountable expense allowance and reimbursement of certain expenses, of
which $47,000 was paid during the year ended December 31, 2009. In
addition, the Company issued warrants to purchase 8.6 million shares of the
Company’s common stock at $0.09 per share. These warrants were valued at
$29,110 and are a component of Secured 12% notes payable issue costs. The
warrants expire on December 31, 2013.
The
Secured 12% Notes mature two years after issuance. Interest on the
Secured 12% Notes is compounded quarterly and payable at maturity. At
December 31, 2009 and 2008, accrued and unpaid interest on the Secured 12% Notes
amounted to approximately $229,000 and $15,000, and is reflected in the
accompanying balance sheets at December 31, 2009 and 2008, respectively, as
interest payable on secured 12% notes payable. The Secured 12% Notes are secured
by a pledge of all of the Company’s assets except for its investment in the
Hedrin JV. In addition, to provide additional security for the Company’s
obligations under the notes, the Company entered into a default agreement, which
provides that upon an event of default under the notes, the Company shall, at
the request of the holders of the notes, use reasonable commercial efforts to
either (i) sell a part or all of the Company’s interests in the Hedrin joint
venture or (ii) transfer all or part of the Company’s interest in the Hedrin JV
to the holders of the notes, as necessary, in order to fulfill the Company’s
obligations under the notes, to the extent required and to the extent permitted
by the applicable Hedrin joint venture agreements.
In
connection with the private placement, the Company, the placement agent and the
investors entered into a registration rights agreement. Pursuant to the
registration rights agreement, we agreed to file a registration statement to
register the resale of the shares of our common stock issuable upon exercise of
the warrants issued to the investors in the private placement, within 20 days of
the final closing date and to cause the registration statement to be declared
effective within 90 days (or 120 days upon full review by the Securities and
Exchange Commission). During the year ended December 31, 2009 we filed the
registration statement, received a comment letter from the SEC and responded to
the comment letter from the SEC. The registration statement was declared
effective on April 17, 2009.
The
issuance to the investors of warrants to purchase shares of the Company’s common
stock at $0.09 per share changes the number of shares represented by the Nordic
Put and the number of shares and exercise price of the Nordic Warrant. The
Nordic Put and Nordic Warrant were issued at a value of $0.14 per share and were
issued with anti-dilution rights. The issuance of any securities at a value of
less than $0.14 per share activates Nordic’s anti-dilution rights. As a
result of this transaction the exercise price of the Nordic Put and the Nordic
Warrant were reduced to a price of $0.09 per share. The following table
shows the effect of Nordic’s anti-dilution rights.
|
Shares Issuable
Upon Exercise of
Nordic's Put
|
Shares Issuable
Upon Exercise of
Nordic's Warrant
|
Total Shares
Issuable Upon
Exercise of Nordic's
Put and Warrant
|
||||||||||
|
Before
the 12% Notes Transaction
|
35,714,287 | 7,142,857 | 42,857,144 | |||||||||
|
Antidilution
shares
|
19,841,269 | 3,968,254 | 23,809,523 | |||||||||
|
After
the 12% Notes Transaction
|
55,555,556 | 11,111,111 | 66,666,667 | |||||||||
F-47
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
An equity
transaction completed in March 2010 had a further anti-dilutive effect on the
Nordic Put and Warrant (see Note 18).
The
Company incurred a total of approximately $424,000 of costs in the issuance of
the $1,725,000 of Secured 12% Notes sold in 2008 and 2009. These
costs were capitalized and are being amortized over the life of the Secured 12%
Notes into interest expense. During the years ended December 31, 2009 and
2008, the amount amortized into interest expense was approximately $206,000 and
$16,000, respectively. The remaining unamortized balance of approximately
$201,000 and $331,000 is reflected in the accompanying balance sheets as of
December 31, 2009 and 2008, respectively, as Secured 12% Notes payable issue
costs.
The
Company recognized an original issue discount (the “OID”) of approximately
$194,000 on the issuance of the Secured 12% Notes sold for the value of the
warrants issued to the investors. The OID is being amortized over the life
of the Secured 12% Notes into interest expense. During the years ended
December 31, 2009 and 2008 the amount amortized into interest expense was
approximately $94,000 and $7,000, respectively. The remaining unamortized
balance of approximately $93,000 and $141,000 has been netted against the face
amount of the Secured 12% Notes in the accompanying balance sheets as of
December 31, 2009 and 2008, respectively. As per the terms of the 12%
Notes Transaction the Company’s officers agreed to certain modifications of
their employment agreements.
(10)
8% Note Payable
On
December 21, 2009, the Company entered into a Future Advance Promissory Note
(the “8% Note”) with Ariston under which the Company may withdraw up to
$67,000. Principal and interest accrued at 8% shall be due and payable to
Ariston on February 10, 2010. As of December 31, 2009, the Company has
withdrawn $27,000 from Ariston subject to the terms of the 8% Note, and is
included in the accompanying balance sheet as of December 31, 2009, as a current
liability, 8% note payable.
(11)
Non-interest Bearing Note Payable
On
October 27, 2009, the Company entered into a Settlement Agreement and Mutual
Release with Swiss Pharma Contract LTD (“Swiss Pharma”) pursuant to which the
Company agreed to pay Swiss Pharma $200,000 and issue to Swiss Pharma an
interest free promissory note in the principal amount of $250,000 in full
satisfaction of the September 5, 2008 arbitration award. The amount of the
Arbitration award was $683,027 at September 30, 2009 and was included as a
component of accrued expenses.
In
connection with the non-interest bearing note, the Company recognized an
original issue discount (“OID”) of $40,000 of imputed interest on the
note, which is being amortized into interest expense on a straight line basis
over the two-year term of the note. For the year ended December 31, 2009,
the Company amortized $1,900 of the OID into interest expense. The
remaining unamortized balance of $38,100 has been netted against the face amount
of the non-interest bearing note payable in the accompanying balance sheets as
of December 31, 2009.
F-48
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
(12)
Convertible 12% Note Payable
In
conjunction with the Settlement Agreement and Mutual Release with Swiss Pharma
described above, on October 28, 2009, the Company entered into a Subscription
Agreement (the “Subscription Agreement”) pursuant to which it sold a 12%
Original Issue Discount Senior Subordinated Convertible Debenture with a stated
value of $400,000 (the “Convertible 12% Note”) and a warrant to purchase
2,222,222 shares of the Company’s common stock, par value $.001 per share
for a purchase price of $200,000. The Convertible 12% Note is convertible
into shares of Common Stock at an initial conversion price of $0.09 per share,
subject to adjustment, or, in the event the Company issues new securities in
connection with a financing, the Convertible 12% Note may be converted into such
new securities at a conversion price equal to the purchase price paid by the
purchasers of such new securities. The Company may also, in its sole
discretion, elect to pay interest due on the Convertible 12% Note quarterly in
shares of the Company’s common stock provided such shares are subject to an
effective registration statement. The Convertible 12% Note is subordinated
to the Company’s outstanding Secured 12% Notes. The Warrant is exercisable
at an exercise price of $0.11 per share, subject to adjustment. Because
the Convertible 12% Note and the Warrant are convertible into shares of the
Company, subject to adjustment, the conversion feature is subject to Derivative
Liability accounting (see Note 13).
National
Securities Corporation (“National”) was the placement agent for the Convertible
12% Note transaction. In connection with the issuance of the Securities,
the Company issued warrants to purchase an aggregate of 222,222 shares of Common
Stock at an exercise price of $0.11 per share, subject to adjustment, to the
placement agent and certain of its designees. Because the warrant is
convertible into shares of the Company, subject to adjustment, the warrants are
subject to Derivative Liability accounting (see Note 13). The warrants expire on
October 28, 2014.
The
Convertible 12% Notes mature two years after issuance. Interest on the
Convertible 12% Note is compounded quarterly and payable at maturity. At
December 31, 2009, accrued and unpaid interest on the Convertible 12% Note
amounted to approximately $9,000, and is reflected in the accompanying
balance sheet at December 31, 2009 as interest payable on convertible 12% notes
payable.
The
Company incurred a total of approximately $38,000 of costs in the issuance of
the Convertible 12% Note sold in 2009. These costs were capitalized and
are being amortized over the life of the Convertible 12% Note into
interest expense. During the year ended December 31, 2009, the amount
amortized into interest expense was approximately $3,000. The remaining
unamortized balance of approximately $35,000 is reflected in the accompanying
balance sheet as of December 31, 2009, as a non-current asset, convertible 12%
note payable issue costs.
The
Company recognized an original issue discount (the “OID”) of approximately
$200,000 on the issuance of the Convertible 12% Notes. The OID is being
amortized over the life of the Convertible 12% Notes into interest
expense. During the year ended December 31, 2009 the amount amortized into
interest expense was approximately $18,000. The remaining unamortized
balance of approximately $182,000 has been netted against the face amount of the
Convertible 12% Notes in the accompanying balance sheet as of December 31,
2009.
F-49
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
(13)
Derivative Liability
In April
2008, the FASB issued a pronouncement which provides guidance on determining
what types of instruments or embedded features in an instrument held by a
reporting entity can be considered indexed to its own stock for the purpose of
evaluating the first criteria of the scope exception in the pronouncement on
accounting for derivatives. This pronouncement was effective for financial
statements issued for fiscal years beginning after December 15, 2008. The
adoption of these requirements can affect the accounting for warrants and many
convertible instruments with provisions that protect holders from a decline in
the stock price (or “down-round” provisions). For example, warrants with such
provisions will no longer be recorded in equity. Down-round provisions reduce
the exercise price of a warrant or convertible instrument if a company either
issues equity shares for a price that is lower than the exercise price of those
instruments or issues new warrants or convertible instruments that have a lower
exercise price. We evaluated whether warrants to acquire stock of the Company
contain provisions that protect holders from declines in the stock price or
otherwise could result in modification of the exercise price under the
respective warrant agreements. We determined that the warrant issued to Nordic
in April 2008 (the “Nordic Warrant”) and the warrants issued in connection with
the 2009 sale of the 12% Notes Payable contained such provisions, thereby
concluding they were not indexed to the Company’s own stock and were
reclassified from equity to derivative liabilities.
In
accordance with this pronouncement, the Company estimated the fair value of the
Nordic Warrant as of January 1, 2009 to be $22,222 by recording a
reduction in additional paid in capital of $150,000 and a decrease in deficit
accumulated during the development stage of $127,778. The effect of this
adjustment is recorded as a cumulative effect of change in accounting principle
in our statements of stockholders’ equity (deficiency). As of December 31,
2009, the fair value of these derivatives was $483,333 as recorded in the
accompanying balance sheet as of December 31, 2009, as a component of a current
liability, derivative liability. The change of $461,111 in fair value during the
year ended December 31, 2009 is reported as a non-cash charge in our statement
of operations as a component of other (income) expense. In accordance with
this pronouncement the Company estimated the fair value at the date of issuance
of the conversion feature of the Convertible 12% Note and the fair value of the
related warrants to purchase 2,444,444 shares of the Company’s common stock at
$175,100 and $27,390, respectively. As of December 31, 2009 the fair value
of these derivatives totaled $301,444 and are recorded in the accompanying
balance sheet as of December 31, 2009 as a component of derivative
liability. The change in fair value of $98,954 during the period from
issuance to December 31, 2009 is reported as a non-cash charge in our statement
of operations as a component of other (income) expense.
F-50
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
(14)
Stock Options
A summary
of the status of the Company’s stock options as of December 31, 2009 and changes
during the period then ended is presented below:
|
Shares
|
Weighted
average
exercise
price
|
Weighted
Average
Remaining
Contractual
Term (years)
|
Aggregate
Intrinsic
Value
|
|||||||||||||
|
Outstanding
at December 31, 2008
|
10,633,836 | $ | 0.938 | |||||||||||||
|
Granted
|
- | |||||||||||||||
|
Exercised
|
- | |||||||||||||||
|
Canceled
|
3,007,234 | $ | 1.485 | |||||||||||||
|
Forfeited
|
166,666 | $ | 0.950 | |||||||||||||
|
Outstanding
at December 31, 2009
|
7,459,936 | $ | 0.718 | 6.160 | $ | - | ||||||||||
|
Exercisable
at December 31, 2009
|
6,750,776 | $ | 0.755 | 5.970 | $ | - | ||||||||||
|
Vested
and expected to vest at December 31, 2009
|
7,451,598 | $ | 0.718 | 6.160 | $ | - | ||||||||||
|
Weighted-average
fair value of options granted during the year ended December 31,
2009
|
None
issued
|
|||||||||||||||
As of
December 31, 2009 and 2008, the total compensation cost related to nonvested
option awards not yet recognized is $55,249 and $425,660, respectively.
The weighted average period over which it is expected to be recognized is
approximately 0.26 and 1.18 years, respectively.
The
following table summarizes the information about stock options outstanding at
December 31, 2009:
|
Exercise Price
|
Number of
Options
Outstanding
|
Weighted
Average
Remaining Life
|
Number of
Options
Exercisable
|
|
||||||||
|
$0.12
- $0.17
|
2,950,000 | 8.23 | 2,441,675 | |||||||||
|
$0.20
- $0.28
|
260,750 | 2.05 | 260,750 | |||||||||
|
$0.70
- $1.00
|
2,578,853 | 5.10 | 2,378,018 | |||||||||
|
$1.35
- $1.65
|
1,670,333 | 4.76 | 1,670,333 | |||||||||
|
Total
|
7,459,936 | 6,750,776 | ||||||||||
F-51
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
(15)
Stock Warrants
The
following table summarizes the information about warrants to purchase shares of
our common stock outstanding at December 31, 2009:
|
Exercise
Price
|
Number of
Warrants
Outstanding
|
Remaining
Contractual
Life (years)
|
Number of
Warrants
Exercisable
|
||||||||||
|
$
|
1.49
|
276,741 | 0.67 | 276,741 | |||||||||
|
1.44
|
2,837,351 | 0.65 | 2,837,351 | ||||||||||
|
1.00
|
4,074,172 | 2.25 | 4,074,172 | ||||||||||
|
0.28
|
150,000 | 2.64 | 150,000 | ||||||||||
|
0.09
|
11,111,111 | 3.29 | 11,111,111 | ||||||||||
|
0.09
|
39,675,079 | 3.89 | 39,675,079 | ||||||||||
|
0.09
|
10,733,355 | 3.97 | 10,733,355 | ||||||||||
|
0.09
|
15,716,698 | 4.09 | 15,716,698 | ||||||||||
|
0.20
|
140,000 | 3.69 | 140,000 | ||||||||||
|
0.11
|
2,444,444 | 4.83 | 2,444,444 | ||||||||||
| Total | 87,158,951 | 87,158,951 | |||||||||||
(16)
Income Taxes
There was
no current or deferred income tax expense for the years ended December 31,
2009 or 2008 because of the Company’s operating losses.
The
components of deferred tax assets as of December 31, 2009 and 2008 are as
follows:
|
2009
|
2008
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Tax
loss carryforwards
|
$ | 23,170,000 | $ | 23,947,000 | ||||
|
Research
and development credit
|
1,799,000 | 1,769,000 | ||||||
|
In-process
research and development charge
|
4,850,000 | 4,850,000 | ||||||
|
Share-based
compensation
|
1,603,000 | 1,459,000 | ||||||
|
Other
|
537,000 | - | ||||||
|
Gross
deferred tax assets
|
31,959,000 | 32,025,000 | ||||||
|
Less
valuation allowance
|
(31,959,000 | ) | (32,025,000 | ) | ||||
|
Net
deferred tax assets
|
$ | - | $ | - | ||||
F-52
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
The
reasons for the difference between actual income tax benefit for the years ended
December 31, 2009 and 2008 and the amount computed by applying the
statutory Federal income tax rate to losses before income tax benefit are as
follows:
|
2009
|
2008
|
|||||||||||||||
|
Amount
|
% of
Pre-tax
loss
|
Amount
|
% of
Pre-tax
loss
|
|||||||||||||
|
Federal
income tax benefit at statutory rate
|
$ | (944,000 | ) | (34.0 | )% | $ | (1,451,000 | ) | (34.0 | )% | ||||||
|
State
income taxes, net of federal tax
|
(188,000 | ) | (6.8 | )% | (290,000 | ) | (6.8 | )% | ||||||||
|
Research
and development credits
|
(50,000 | ) | (3.0 | )% | (130,000 | ) | (3.0 | )% | ||||||||
|
Other
|
- | 0.0 | % | 1,000 | 0.0 | % | ||||||||||
|
Change
in valuation allowance
|
1,182,000 | 43.8 | % | 1,870,000 | 43.8 | % | ||||||||||
| $ | - | 0.0 | % | $ | - | 0.0 | % | |||||||||
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, 2009
and 2008 was an increase of $1,182,000 and $1,870,000, 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, 2009, the Company had unused Federal and state net operating
loss carryforwards of approximately $58,523,000 and $48,128,000,
respectively. The net operating loss carryforwards expire in various
amounts through 2029 for Federal and state income 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. Accordingly, a substantial portion of the
Company’s net operating loss carryforwards above will be subject to annual
limitations (currently approximately $100,000) in reducing any future year’s
taxable income. At December 31, 2009, the Company also had research and
development credit carryforwards of approximately $1,799,000 for Federal income
tax purposes which expire in various amounts through 2029.
The
Company files income tax returns in the U.S. Federal, State and Local
jurisdictions. With certain exceptions, the Company is no longer subject
to U.S. Federal and state income tax examinations by tax authorities for years
prior to 2006. However, net operating loss carryforwards and tax credits
generated from those prior years could still be adjusted upon audit.
Effective January 1, 2007, the Company adopted guidance under ASC Topic 740-10
(formerly FIN 48, “Accounting for Uncertainty in Income Taxes – an
interpretation of FASB Statement No. 109”) which clarifies the accounting and
disclosure for uncertainty in income taxes. The adoption of this
interpretation did not have a material impact to the financial statements.
The Company recognizes interest and penalties to uncertain tax position in
income tax expense in the statement of operations.
The
Company had no unrecognized tax benefits at December 31, 2009 that would
affect the annual effective tax rate. Further, the Company is unaware of
any positions for which it is reasonably possible that the total amounts of
unrecognized tax benefits will significantly increase or decrease within the
next twelve months.
F-53
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
(17)
License and Consulting Agreements
IGI
Agreement for PTH (1-34)
On April
1, 2005, as part of the acquisition of Tarpan Therapeutics, Inc., the Company
acquired a Sublicense Agreement with IGI, Inc. (the “IGI Agreement”) dated April
14, 2004. Under the IGI Agreement the Company received the exclusive,
world-wide, royalty bearing sublicense to develop and commercialize the licensed
technology (see Note 1). Under the terms of the IGI Agreement, the Company
was responsible for the cost of the preclinical and clinical development of the
project, including research and development, manufacturing, laboratory and
clinical testing and trials and marketing of licensed products for which the
company will be responsible.
In
consideration for the Company’s rights under the IGI Agreement, a payment of
$300,000 was made upon execution of the agreement, prior to the Company’s
acquisition of Tarpan. In addition the IGI Agreement required the Company
to make certain milestone payments as follows: $300,000 payable upon the
commencement of a Phase 2 clinical trial; $500,000 upon the commencement of a
Phase 3 clinical trial; $1,500,000 upon the acceptance of an NDA application by
the FDA; $2,400,000 upon the approval of an NDA by the FDA; $500,000 upon the
commencement of a Phase 3 clinical trial for an indication other than psoriasis;
$1,500,000 upon the acceptance of and NDA application for an indication other
than psoriasis by the FDA; and $2,400,000 upon the approval of an NDA for an
indication other than psoriasis by the FDA.
During
2007, we achieved the milestone of the commencement of Phase 2 clinical
trial. As a result $300,000 became payable to IGI. This $300,000 is
included in research and development expense for the year ended December 31,
2007. Payment was made to IGI in February 2008.
In
addition, the Company was obligated to pay IGI, Inc. an annual royalty of 6%
annual net sales on annual net sales up to $200,000,000. In any calendar
year in which net sales exceed $200,000,000, the Company was obligated to pay
IGI, Inc. an annual royalty of 9% annual net sales. In May 2009, the
Company terminated the IGI Agreement. The Company has no further financial
liability or commitment to IGI, Inc. under the IGI Agreement.
Hedrin
License Agreement
On June
26, 2007, the Company entered into an exclusive license agreement for “Hedrin”
(the “Hedrin License Agreement”) with Thornton & Ross Ltd. (“T&R”) and
Kerris, S.A. (“Kerris”). Pursuant to the Hedrin License Agreement, the Company
has acquired an exclusive North American license to certain patent rights and
other intellectual property relating to Hedrin(TM), a non-insecticide product
candidate for the treatment of head lice. In addition, on June 26, 2007, the
Company entered into a supply agreement with T&R pursuant to which T&R
will be the Company’s exclusive supplier of Hedrin product the “Hedrin Supply
Agreement”.
In
consideration for the license, the Company issued to T&R and Kerris
(jointly, the “Licensor”) a combined total of 150,000 shares of its common stock
valued at $120,000. In addition, the Company also made a cash payment of
$600,000 to the Licensor. These amounts are included in research and
development expense. Further, the Company agreed to make future milestone
payments to the Licensor in the aggregate amount of $2,500,000 upon the
achievement of various clinical, regulatory, and patent issuance milestones, as
well as up to $2,500,000 in a one-time success fee based on aggregate sales of
the product by the Company and its licensees of at least $50,000,000. The
Company also agreed to pay royalties of 8% (or, under certain circumstances, 4%)
on net sales of licensed products. The Company’s exclusivity under the Hedrin
License Agreement is subject to an annual minimum royalty payment of $1,000,000
(or, under certain circumstances, $500,000) in each of the third through seventh
years following the first commercial sale of Hedrin. The Company may sublicense
its rights under the Hedrin Agreement with the consent of Licensor and the
proceeds resulting from such sublicenses will be shared with the
Licensor.
F-54
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
Pursuant
to the supply agreement, the Company has agreed that it and its sublicensees
will purchase their respective requirements of the Hedrin product from T&R
at agreed upon prices. Under certain circumstances where T&R is unable to
supply Hedrin products in accordance with the terms and conditions of the Supply
Agreement, the Company may obtain products from an alternative supplier subject
to certain conditions. The term of the Supply Agreement ends upon termination of
the Hedrin Agreement.
In
February 2008 the Company assigned and transferred its rights in Hedrin to a
joint venture (see Note 6).
Altoderm
License Agreement
On April
3, 2007, the Company entered into a license agreement for “Altoderm” (the
“Altoderm Agreement”) with T&R. Pursuant to the Altoderm Agreement, the
Company acquired an exclusive North American license to certain patent rights
and other intellectual property relating to Altoderm, a topical skin lotion
product candidate using sodium cromoglicate for the treatment of atopic
dermatitis.
In
February 2009, the Company terminated the Altoderm Agreement. The Company
has no further financial liability or commitment to T&R under the Altoderm
Agreement.
Altolyn
License Agreement
On April
3, 2007, the Company and T&R also entered into a license agreement for
“Altolyn” (the “Altolyn Agreement”). Pursuant to the Altolyn Agreement, the
Company acquired an exclusive North American license to certain patent rights
and other intellectual property relating to Altolyn, an oral formulation product
candidate using sodium cromoglicate for the treatment of mastocytosis, food
allergies, and inflammatory bowel disorder.
In
February 2009, the Company terminated the Altolyn Agreement for
convenience. The Company has no further financial liability or commitment
to T&R under the Altolyn Agreement.
(18)
Subsequent events – Unaudited
8%
Note
On
January 13, 2010, the Company withdrew $20,000 subject to the 8% Note with
Ariston Pharmaceuticals, Inc. (see Note 10 above). Additionally, on
January 28, 2010, the Company withdrew an additional $20,000 subject to the 8%
Note. On March 4, 2010, the Company repaid Ariston the $67,000 withdrawn
subject to the 8% Note and accrued interest of $816.
F-55
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
Equity
PIPE
On March
2, 2010, the Company raised aggregate gross proceeds of approximately $2,547,500
pursuant to a private placement of its securities. The Company entered
into subscription agreements (the "Subscription Agreements") with seventy-seven
accredited investors (the "Investors") pursuant to which the Company sold an
aggregate of 101.9 Units (as defined herein) for a purchase price of $25,000 per
Unit. Pursuant to the Subscription Agreements, the Company issued to each
Investor units (the "Units") consisting of (i) 357,143 shares of common stock,
$0.001 par value per share (the “Common Stock” or “Shares”) of the Company and
(ii) 535,714 warrants (each a “Warrant” and collectively the “Warrants”), each
of which will entitle the holder to purchase one additional share of Common
Stock for a period of five years (each a “Warrant Share” and collectively the
“Warrant Shares”) at an exercise price of $0.08 per share.
The
Nordic Put and Nordic Warrant were issued at a value of $0.14 per share and were
issued with anti-dilution rights. The issuance of any securities at a value of
less than $0.14 per share activates Nordic’s anti-dilution rights. The Secured
12% Note transaction included warrants with an exercise price of $0.09 per
share, this activated Nordic’s anti-dilution rights as reflected in the table
below under the caption “Before the Equity Pipe Transaction”. Any
issuances of any securities subsequent to the Secured 12% Note transaction at a
value of less than $0.09 further activates Nordic’s anti-dilution rights.
The Equity Pipe transaction in March 2010 effectively included the sale of one
share of common stock and a warrant to purchase 1.5 shares of common stock for a
price of $0.07. The JV Agreement between Nordic and Manhattan governs the
antidilution protection to Nordic. Section 5.1 of that agreement state ”If
shares of Common Stock or Common Stock Equivalents are issued or sold together
with other stock or securities or other assets of MHA (Manhattan) for a
consideration which covers both, the effective price per share shall be computed
with regard to the portion of the consideration so received that may reasonably
be determined in good faith by the Board of Directors, to be allocable to such
Common Stock or Common Stock Equivalent.” The good faith determination of
the effective price per share was $0.07 for each share of common stock sold and
a de minimus value to the warrants. The Nordic Put and the Nordic Warrant
are now valued at a price of $0.07 per share. The following table shows
the effect of Nordic’s anti-dilution rights.
|
Shares Issuable
Upon Exercise of
Nordic's Put
|
Shares Issuable
Upon Exercise of
Nordic's Warrant
|
Total Shares
Issuable Upon
Exercise of
Nordic's Put and
Warrant
|
||||||||||
|
Before
the Equity Pipe Transaction
|
55,555,556 | 11,111,111 | 66,666,667 | |||||||||
|
Antidilution
shares
|
15,873,015 | 3,174,603 | 19,047,618 | |||||||||
|
After
the Equity Pipe Transaction
|
71,428,571 | 14,285,714 | 85,714,285 | |||||||||
In March
2010, we received correspondence from Nordic that questions how we calculated
the anti-dilution shares, as shown above, and suggesting that we did not employ
a good faith estimate. We believe our determination was made in good faith
and is appropriate.
All of
the Investors represented that they were “accredited investors,” as that term is
defined in Rule 501(a) of Regulation D under the Securities Act, and the sale of
the Units was made in reliance on exemptions provided by Regulation D and
Section 4(2) of the Securities Act of 1933, as amended.
In
connection with the closing of the private placement, the Company, the placement
agent acting in connection with the private placement (the “Placement Agent”)
and the Investors entered into a Registration Rights Agreement, dated as of
March 2, 2010, and the Company agreed to file a registration statement to
register the resale of the Shares, within 60 days of the final closing date and
to cause the registration statement to be declared effective within 150 days (or
180 days upon review by the SEC).
F-56
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
The
Company received net proceeds of approximately $2,158,000 after payment of an
aggregate of $305,700 of commissions and expense allowance to the Placement
Agent, and approximately $83,000 of other offering and related costs in
connection with the private placement. In addition, the Company issued a warrant
to purchase 3,639,289 shares of Common Stock at an exercise price of $0.08 per
share to the Placement Agent as additional compensation for its
services.
The
Company did not use any form of advertising or general solicitation in
connection with the sale of the Units. The Shares, the Warrants and the Warrant
Shares are non-transferable in the absence of an effective registration
statement under the Act, or an available exemption therefrom, and all
certificates are imprinted with a restrictive legend to that
effect.
Hedrin
JV
As per
the Limited
Partnership Agreement between the Company and Nordic (the “LPA”) in the event
that a limited partner in the Hedrin JV (a “Limited Partner”) determines, in its
reasonable goods faith discretion, that the Hedrin JV requires additional
capital for the proper conduct of its business that Limited Partner shall
provide each Limited Partner with a written request for contribution of such
Limited Partner’s proportionate share, in accordance to the then respective
equity ownership in the Hedrin JV, of such requested additional capital
amount.
As per
the terms of the LPA, if a Limited Partner declines to so contribute, elects to
contribute but thereafter fails to do so timely, or elects to contribute and
timely does contribute some, but not all of, its proportionate share of the
requested additional capital amount, the other Limited Partner shall have the
option to contribute the remaining balance of such requested additional capital
amount.
As per
the terms of the LPA, the General Partner shall determine the fair market value
of the shares for purposes of determining how to allocate the number of shares
of the Hedrin JV to be issued in consideration for the contribution of
capital. If the General Partner is unable to determine the fair market
value of the shares, the fair market value for the shares shall be determined in
good faith by the contributing Limited Partner if such amount is equal to or
greater than the most recent valuation of such Hedrin JV shares.
On
December 31, 2009 Nordic Biotech Venture Fund II (“Nordic”) delivered a written
notice to the Company for a $1,000,000 capital increase to the Hedrin JV.
In January 2010, Nordic made its capital contribution to the Hedrin JV of
$500,000. The Company did not have sufficient funds to make such a capital
contribution within the required time prescribed in the LPA.
The
General Partner was unable to determine the fair market value of the
shares. The contributing Limited Partner, Nordic, determined in good faith
that the fair market value of the shares is equal to the most recent
valuation. The most recent valuation was the February 2009 investment of
$1,500,000 into the Hedrin JV by Nordic at $5,000 per share. As a result
of Nordic’s investing an additional $500,000 in the Hedrin JV the ownership
percentages of the Hedrin JV have changed from 50% to Nordic and 50% for the
Company to 52.38% to Nordic and 47.62% for the Company. In the event that
Nordic exercises its option to invest the remaining $500,000 of the $1,000,000
capital increase then the ownership percentage shall change to 54.55% for Nordic
and 45.45% for the Company.
F-57
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
Ariston
Merger
On March 8, 2010, Manhattan
Pharmaceuticals, Inc. (the “Company” or "Manhattan") entered into an Agreement
and Plan of Merger (the "Merger Agreement") by and among the Company, Ariston
Pharmaceuticals, Inc., a Delaware corporation ("Ariston") and Ariston Merger
Corp., a Delaware corporation and wholly-owned subsidiary of the Company (the
"Merger Sub"). Pursuant to the terms and conditions set forth in the
Merger Agreement, on March 8, 2010, the Merger Sub merged with and into Ariston
(the "Merger"), with Ariston being the surviving corporation of the
Merger. As a result of the Merger, Ariston became a wholly-owned
subsidiary of the Company.
Under the
terms of the Merger Agreement, the consideration payable by the Company to the
stockholders and note holders of Ariston consists of the issuance of 7,062,423
shares of the Company's common stock, par value $0.001 per share, ("Common Stock") at
Closing (as defined in the Merger Agreement) plus the right to receive up
to an additional 24,718,481 shares of Common Stock (the “Milestone Shares”) upon
the achievement of certain product-related milestones described below. In
addition, the Company has reserved 38,630,723 shares of its Common Stock for
possible future issuance in connection with the conversion of $15.45 million of
outstanding Ariston convertible promissory notes. The note holders will
not have any recourse to the Company for repayment of the notes (their sole
recourse being to Ariston), but the note holders will have the right to convert
the notes into shares of the Company's Common Stock at the rate of $0.40 per
share. Further, the Company has reserved 5,000,000 shares of its Common
Stock for possible future issuance in connection with the conversion of $1.0
million of outstanding Ariston convertible promissory note issued in
satisfaction of a trade payable. The note holder will not have any
recourse to the Company for repayment of the note (their sole recourse being to
Ariston), but the note holder will have the right to convert the note into
shares of the Company's Common Stock at the rate of $0.20 per
share.
Upon the
achievement of the milestones described below, the Company would be obligated to
issue portions of the Milestone Shares to the former Ariston stockholders and
noteholders:
|
|
·
|
Upon
the affirmative decision of the Company’ Board of Directors, provided that
such decision is made prior to March 8, 2011, to further develop the
AST-914 metabolite product candidate, either internally or through a
corporate partnership, the Company would issue 8,828,029 of the Milestone
Shares.
|
|
|
·
|
Upon
the acceptance by the FDA of the Company's filing of the first New Drug
Application for the AST-726 product candidate, the Company would issue
7,062,423 of the Milestone Shares.
|
|
|
·
|
Upon
the Company receiving FDA approval to market the AST-726 product candidate
in the United States of America, the Company would issue 8,828,029 of the
Milestone Shares.
|
Certain
members of the Company's board of directors and principal stockholders of the
Company owned Ariston securities. Timothy McInerney, a director of
Manhattan, owned 16,668 shares of Ariston common stock which represented less
than 1% of Ariston’s outstanding common stock as of the closing of the
Merger. Neil Herskowitz, a director of Manhattan, indirectly owned
convertible promissory notes of Ariston with interest and principal in the
amount of $192,739. Michael Weiser, a director of Manhattan, owned 117,342
shares of Ariston common stock, which represented approximately 2.1% of
Ariston’s outstanding common stock as of the closing of the Merger.
Lindsay Rosenwald, a more than 5% beneficial owner of Manhattan common stock, in
his individual capacity and indirectly through trusts and companies he controls
owned 497,911 shares of Ariston common stock, which represented approximately
8.9% of Ariston’s outstanding common stock as of the closing of the Merger and
indirectly owned convertible promissory notes of Ariston in the amount of
$141,438.
F-58
MANHATTAN
PHARMACEUTICALS, INC.
(a
Development Stage Company)
NOTES TO
FINANCIAL STATEMENTS
The
Company merged with Ariston principally to add new products to our portfolio.
Prior to the Mereger, Ariston was a private, clinical stage specialty
biopharmaceutical company based in Shrewsbury, Massachusetts that in-licenses,
develops and plans to market novel therapeutics for the treatment of serious
disorders of the central and peripheral nervous systems.
The
initial accounting for the Merger was incomplete as of the date of these
financials statements, therefore certain required disclosures for the Merger
could not be made.
F-59
45,752,811
Shares
of Common
Stock
Manhattan
Pharmaceuticals, Inc.
Prospectus
________
__, 2010
PART
II
INFORMATION NOT REQUIRED IN
PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution.
The
following table sets forth an estimate of the fees and expenses relating to the
issuance and distribution of the securities being registered hereby, other than
underwriting discounts and commissions, all of which shall be borne by Manhattan
Pharmaceuticals, Inc. (the “Registrant” or the “Company”). All of such fees and
expenses, except for the SEC Registration Fee, are estimated:
|
SEC
registration fee
|
$ | 180.00 | ||
|
Legal
fees and expenses
|
5,000.00 | |||
|
Printing
fees and expenses
|
1,000.00 | |||
|
Accounting
fees and expenses
|
5,000.00 | |||
|
Miscellaneous
fees and expenses
|
820.00 | |||
|
Total
|
$ | 12,000.00 |
Item
14. Indemnification of Officers and Directors
Under
provisions of the amended and restated certificate of incorporation and bylaws
of the Registrant, directors and officers will be indemnified for any and all
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys fees, in connection with threatened, pending or completed actions,
suits or proceedings, whether civil, or criminal, administrative or
investigative (other than an action arising by or in the right of the
Registrant), if such director or officer has been wholly successful on the
merits or otherwise, or is found to have acted in good faith and in a manner he
or she reasonably believes to be in or not opposed to the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In addition,
directors and officers will be indemnified for reasonable expenses in connection
with threatened, pending or completed actions or suits by or in the right of
Registrant if such director or officer has been wholly successful on the merits
or otherwise, or is found to have acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Registrant, except in the case of certain findings by a court that such person
is liable for negligence or misconduct in his or her duty to the Registrant
unless such court or the Delaware Court of Chancery also finds that such person
is nevertheless fairly and reasonably entitled to indemnity. The Registrant’s
certificate of incorporation also eliminates the liability of directors of the
Registrant for monetary damages to the fullest extent permissible under Delaware
law.
Section
145 of the Delaware General Corporation Law states:
(a) A
corporation shall have the power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action arising by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys’ fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
II-1
(b) A
corporation shall have power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, or other enterprise against expenses (including attorneys’ fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect to any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expense which the Court of Chancery or such other court shall
deem proper.
Securities
and Securities and Exchange Commission Position Regarding Indemnification
Liabilities Arising Under the Securities Act
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the Registrant pursuant
to the foregoing provisions, the Registrant has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is
therefore unenforceable.
Item
15. Recent Sales of Unregistered Securities.
On March
30, 2007, the Registrant entered into a series of subscription agreements with
various institutional and other accredited investors for the issuance and sale
in a private placement of an aggregate of 10,185,502 shares of the Registrant’s
common stock for total gross proceeds of approximately $8.56 million. Of the
total amount of shares issued, 10,129,947 were sold at a per share price of
$0.84, and an additional 55,555 shares were sold to an entity affiliated with
Neil Herskowitz, a director of the Registrant, at a per share price of $0.90,
the closing sale price of the Registrant’s common stock on March 29, 2007.
Pursuant to the subscription agreements, the Registrant also issued to the
investors 5-year warrants to purchase an aggregate of 3,564,897 shares of the
Registrant’s common stock at an exercise price of $1.00 per share. The warrants
are exercisable during the period commencing September 30, 2007 and ending March
30, 2012. Pursuant to the subscription agreements, the Registrant
agreed to file a registration statement with the Securities and Exchange
Commission on or before May 14, 2007 covering the resale of the shares issued in
the private placement, including the shares issuable upon exercise of the
investor warrants. The Registrant engaged Paramount BioCapital, Inc.,
as its placement agent in connection with the private placement. In
consideration for its services, the Registrant paid aggregate cash commissions
of approximately $600,000 and issued to Paramount a 5-year warrant to purchase
an aggregate of 509,275 shares at an exercise price of $1.00 per
share. The sale of the shares and warrants was not registered under
the Securities Act of 1933. Rather, the offer and sale of such securities was
made in reliance on the exemption from registration requirements provided by
Section 4(2) of the Securities Act and Regulation D promulgated thereunder. Each
of the investors was “accredited” (as defined under Regulation D) and no general
solicitation was used in connection with the offer and sale of such
securities.
In April
2007, in partial consideration for entering into a license agreement, the
Registrant issued to Thornton & Ross Ltd., the licensor, a total of 125,000
shares of the Registrant’s common stock in accordance with the terms
thereof. The issuance of such common stock was considered to be
exempt from registration under the Securities Act in reliance on Section 4(2) of
the Securities Act, or Regulation D promulgated thereunder, as a transaction by
an issuer not involving a public offering. The recipient of such
common stock represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates issued in this transaction. All recipients either received adequate
information about us or had access to such information.
In June
2007, in consideration for entering into a license agreement, the Registrant
issued to each of Thornton & Ross, Ltd. and Kerra, S.A., each a licensor
thereunder, 75,000 shares of the Registrant’s common stock in accordance with
the terms thereof. The issuances of such common stock were considered
to be exempt from registration under the Securities Act in reliance on Section
4(2) of the Securities Act, or Regulation D promulgated thereunder, as
transactions by an issuer not involving a public offering. The recipients of
such common stock represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates issued in these transactions. All recipients either
received adequate information about the Registrant or had access to such
information.
II-2
In
January 2008, the Registrant and Nordic Biotech Venture Fund II K/S (“Nordic”),
entered into a joint venture agreement the Registrant, as amended on February
18, 2008 and June 9, 2008 (the “Joint Venture Agreement”), pursuant to which in
February 2008, (i) Nordic contributed cash in the amount of $2.5 million to H
Pharmaceuticals K/S (formerly H Pharmaceuticals K/S), a newly formed Danish
limited partnership(the “Hedrin JV”) in exchange for 50% of the equity interests
in the Hedrin JV, and (ii) the Registrant contributed certain assets to North
American rights (under license) to our Hedrin product to the Hedrin JV in
exchange for $2.0 million in cash and 50% of the equity interests in the Hedrin
JV. On or around June 30, 2008, in accordance with the terms of the
Joint Venture Agreement, Nordic contributed an additional $1.25 million in cash
to the Hedrin JV, $1.0 million of which was distributed to us and equity in the
Hedrin JV was distributed to each of us and Nordic sufficient to maintain our
respective ownership interests at 50%. Pursuant to the joint venture
agreement, upon the classification by the U.S. Food and Drug Administration, or
the FDA, of Hedrin as a Class II or Class III medical device, Nordic was
required to contribute to the Hedrin JV an additional $1.25 million in cash,
$0.5 million of which was to be distributed to us and equity in the Hedrin JV
was to be distributed to each of us and Nordic sufficient to maintain our
respective ownership interests at 50%. The FDA notified the Hedrin JV
that Hedrin has been classified as a Class III medical device and in February
2009, Nordic made the $1.25 million investment in the Hedrin JV, the Hedrin JV
made the $0.5 million milestone payment to us.
Pursuant
to the Joint Venture Agreement, Nordic has the right to put all or a portion of
its interest in the Hedrin JV in exchange for such number of shares of common
stock equal to the amount of Nordic’s investment in the Hedrin JV divided by
$0.14, as adjusted from time to time for stock splits and other specified
events, multiplied by a conversion factor, which is (i) 1.00 for so long as
Nordic’s distributions from the Hedrin JV are less than the amount of its
investment, (ii) 1.25 for so long as Nordic’s distributions from the Hedrin JV
are less than two times the amount of its investment but greater than or equal
to the amount of its investment amount, (iii) 1.50 for so long as Nordic’s
distributions from the Hedrin JV are less than three times the amount of its
investment but greater than or equal to two times the amount of its investment
amount, (iv) 2.00 for so long as Nordic’s distributions from the Hedrin JV are
less than four times the amount of its investment but greater than or equal to
three times the amount of its investment amount and (v) 3.00 for so long as
Nordic’s distributions from Hedrin JV are greater than or equal to four times
the amount of its investment. The put right expires upon the earlier
to occur of (i) February 25, 2018 and (ii) 30 days after the date when Nordic’s
distributions from the Hedrin JV exceed five times the amount Nordic has
invested in the Hedrin JV (or 10 days after such date if the Registrant has
provided Nordic notice thereof). Pursuant to the Joint Venture
Agreement, the Registrant has the right to call all or a portion of Nordic’s
equity interest in the Hedrin JV in exchange for such number of shares of common
stock equal to the portion of Nordic’s investment in the Hedrin JV that the
Registrant calls by the dollar amount of Nordic’s investment as of such date in
the Hedrin JV, divided by $0.14, as adjusted from time to time for stock splits
and other specified events. The call right is only exercisable by the
Registrant if the price of common stock has closed at or above $1.40 per share
for 30 consecutive trading days. During the first 30 consecutive
trading days in which the common stock closes at or above $1.40 per share, the
Registrant may exercise up to 25% of the call right. During the
second 30 consecutive trading days in which the common stock closes at or above
$1.40 per share, the Registrant may exercise up to 50% of the call right on a
cumulative basis. During the third consecutive 30 trading days in
which the common stock closes at or above $1.40 per share, the Registrant may
exercise up to 75% of the call right on a cumulative basis. During
the fourth consecutive 30 days in which the common stock closes at or above
$1.40 per share, the Registrant may exercise up to 100% of the call right on a
cumulative basis. Nordic may refuse the call, either by paying $1.5
million multiplied by the percentage of Nordic’s investment being called or
forfeiting an equivalent portion of the put right, calculated on a pro rata
basis for the percentage of the Nordic equity interest called by
us. The call right expires on February 25, 2013.
In
connection with the Joint Venture Agreement, on February 25, 2008, Nordic paid
the Registrant a non-refundable fee of $150,000 in exchange for the right to
receive a warrant to purchase up to 7,142,857 shares of common stock
at $0.14 per share, as adjusted from time to time for stock splits and other
specified events, if Nordic did not exercise all or part of its put right on or
before April 30, 2008. As of April 30, 2008, Nordic had not exercised
all or any portion of its put right and the Registrant issued the warrant to
Nordic. Subsequently pursuant to the anti-dilution provisions of the
warrant, the warrant was adjusted to increase the number of shares underlying
the warrant to a total of 14,285,714 shares and to adjust the exercise price to
$0.08 per share.
II-3
The
offering and sale of the securities under the Joint Venture Agreement were
considered to be exempt from registration under the Securities Act, by virtue of
Section 4(2) thereof and the provisions of Regulation D promulgated
thereunder. Nordic has represented to the Registrant that it is an
“accredited investor,” as that term is defined in Rule 501(a) of Regulation D
under the Securities Act.
On
September 11, 2008, the Registrant entered into a series of 10% secured
promissory notes with certain of its directors and officers and an employee of
the Registrant (for aggregate of $70,000. The maturity date for principal and
interest on the notes was March 10, 2009 unless paid earlier by the
Registrant. These notes were repaid in February 2009 along with
all interest thereon. In connection with the issuance of the notes,
the Registrant also issued to the note holders 5-year warrants to purchase an
aggregate of 140,000 shares of the Registrant’s common stock at an exercise
price of $0.20 per share. The Registrant granted to the note holders
a continuing security interest in certain specific refunds, deposits and
repayments due to the Registrant and expected to be repaid to the Registrant in
the next several months. The issuance of such securities was
considered to be exempt from registration under the Securities Act in reliance
on Section 4(2) of the Securities Act, or Regulation D promulgated thereunder,
as a transaction by an issuer not involving a public offering. The
recipient of such securities represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the
warrant certificates issued in this transaction. All recipients
either received adequate information about us or had access to such
information.
On
February 3, 2009, the Registrant completed a private placement (the “2009
Private Placement”) of 345 units, with each unit consisting of a 12% senior
secured note promissory note in the principal amount of $5,000 and a warrant to
purchase up to 166,667 shares of common stock at an exercise price of $.09 per
share which expires on December 31, 2013, for aggregate gross proceeds of
$1,780,500. The private placement was completed in three closings
which occurred on November 19, 2008 with respect to 207 units, December 23, 2008
with respect to 56 units and February 3, 2009 with respect to 82
units.
On
November 19, 2008, the Registrant completed the initial closing of the 2009
Private Placement pursuant to which it sold 207 units. In connection
with the initial closing, the Registrant issued a warrant to purchase 5,175,010
shares of common stock at an exercise price of $.09 per share to the placement
agent as partial compensation for its services. The Registrant
granted the placement agent the right to nominate a member of its Board of
Directors and such director shall receive all compensation and benefits provided
to its other directors. Additionally, upon such director’s
appointment to the Board of Directors, he or she shall be issued a warrant to
purchase 1,000,000 shares of common stock at a per share exercise price equal to
the greater of (i) the fair market value on the date of issuance or (ii)
$.09. The placement agent subsequently irrevocably waived its
right to nominate a member of the Registrant's Board of Directors.
On
December 23, 2008, the Registrant completed a second closing of the 2009 Private
Placement under the terms of the Securities Purchase Agreement. At
the second closing, the Registrant sold an additional 56 units to
investors. In connection with the second closing, the
Registrant issued to the placement agent a warrant to purchase 1,400,003 shares
of common stock at an exercise price of $.09 per share as additional
compensation for its services.
On
February 3, 2009, the Registrant completed a third closing of the 2009 Private
Placement under the terms of the Securities Purchase Agreement. At
the third closing, the Registrant sold an additional 82 units to
investors. In connection with the third closing, the Registrant
issued to the placement agent a warrant to purchase 2,050,004 shares of common
stock at an exercise price of $.09 per share as additional compensation for its
services.
All of
the investors represented in the 2009 Private Placement represented that they
were “accredited investors,” as that term is defined in Rule 501(a) of
Regulation D under the Securities Act, and the sale of the units was made in
reliance on exemptions provided by Regulation D and Section 4(2) of the
Securities Act of 1933, as amended.
II-4
On
October 28, 2009, the Registrant entered into a Subscription Agreement pursuant
to which it issued a 12% original issue discount senior subordinated convertible
debenture with a stated value of $400,000 and a warrant to purchase 2,222,222
shares of the Registrant’s common stock. The warrant is exercisable
at an exercise price of $0.11 per share, subject to adjustment, prior to October
28, 2014. The convertible 12% debenture was subordinated to the
Registrant's outstanding 12% senior secured promissory notes issued in the 2009
Private Placement in the principal amount of $1,725,000. The
convertible 12% debenture was convertible into shares of common stock at an
initial conversion price of $0.09 per share, subject to adjustment, or, in the
event the Registrant issues new securities in connection with a financing the
convertible 12% debenture may be converted into such new securities at a
conversion price equal to the purchase price paid by the purchasers of such new
securities. On April 8, 2010, the holder converted the convertible
12% debenture, including accrued interest, into approximately 17 units, with
each unit consisting of (i) 357,143 shares of our common stock and (ii) warrants
to purchase 535,714 shares of our common stock at a per share purchase price of
$0.08. In connection with the issuance of convertible 12% debenture
and the warrant, the Registrant issued warrants to purchase an aggregate of
222,222 shares of common stock at an exercise price of $0.11 per share to the
placement agent, and certain of its designees (each of whom represented that he,
she or it was an “accredited investor” as that term is defined in Rule 501(a) of
Regulation D of the Securities Act) as compensation for its services. The
purchaser of the convertible 12% debenture and the warrant represented that it
was an “accredited investor,” as that term is defined in Rule 501(a) of
Regulation D under the Securities Act, and the sale of the Securities was made
in reliance on exemptions provided by Regulation D and Section 4(2) of the
Securities Act of 1933, as amended. The Registrant did not use any
form of advertising or general solicitation in connection with the sale of the
Securities. The convertible 12% debenture and the warrant (including the shares
of common stock issuable upon exercise or conversion thereof) are
non-transferable in the absence of an effective registration statement under the
Securities Act of 1933, as amended, or an available exemption therefrom, and all
certificates are imprinted with a restrictive legend to that
effect.
On April
8, 2010, the Registrant completed a private placement of approximately 121
units, with each unit consisting of (i) 357,143 shares of our common stock,
$0.001 par value per share and (ii) 535,714 common stock purchase warrants, each
of which will entitle the holder to purchase one additional share of our common
stock for a period of five years at an exercise price of $0.08 per
share. The purchase price for each unit was $25,000.
The first
closing of the private place was completed on March 2, 2010, at which the
Registrant sold an aggregate of 101.9 units. In connection with the
first closing, the Registrant issued a warrant to purchase 3,639,289 shares of
common stock at an exercise price of $0.08 per share to the placement agent as
partial compensation for its services. The final closing of the
private placement was completed on April 8, 2010, at which the Registrant sold
an aggregate of 2.4 additional units. In connection with the final
closing, the Registrant issued a warrant to purchase 12,857 shares of common
stock at an exercise price of $0.08 per share to the placement agent as partial
compensation for its services. In addition, on April 8, 2010, the
holder of an outstanding 12% Original Issue Discount Senior Subordinated
Convertible Debenture, dated October 28, 2009, with a stated value of $400,000
and $21,886 of accrued interest, exercised its option to convert such debenture
(including all accrued interest thereon) into 16.88 units. The
conversion price was equal to the per unit purchase price paid by the investors
in the private placement. Each of the investors in the private
placement and the holder of the debenture represented that they were “accredited
investors,” as that term is defined in Rule 501(a) of Regulation D under the
Securities Act, and the sale of the Units was made in reliance on exemptions
provided by Regulation D and Section 4(2) of the Securities Act of 1933, as
amended.
II-5
Item
16. Exhibits and Financial Statement Schedules.
A)
EXHIBITS.
The
following documents are included or incorporated by reference in this
report.
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Exhibit No.
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Description
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2.1
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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).
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|
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2.2
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Agreement
and Plan of Merger among the Registrant, Tarpan Therapeutics, Inc. and
Tarpan Acquisition Corp., dated April 1, 2005 (incorporated by reference
to Exhibit 2.1 of the Registrant’s Form 8-K/A filed June 15,
2005).
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|
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2.3
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Agreement
and Plan of Merger among the Registrant, Ariston Pharmaceuticals, Inc.,
and Ariston Merger Corp. dated March 8, 2010 (incorporated by reference to
the Registrant’s Current Report on Form 8-K filed March 12,
2010.
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3.1
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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).
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3.2
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Bylaws,
as amended to date (incorporated by reference from Registrant’s
registration statement on Form SB-2, as amended (File
No.33-98478)).
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4.1
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Specimen
common stock certificate (incorporated by reference from Registrant’s
registration statement on Form SB-2, as amended (File
No.33-98478)).
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4.2
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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).
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|
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4.3
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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)).
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4.4
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Form
of warrant issued to investors in the Registrant’s August 2005 private
placement (incorporated by reference to Exhibit 4.1 of the Registrant’s
Current Report on Form 8-K filed September 1, 2005).
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4.5
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Form
of warrant issued to placement agents in the Registrant’s August 2005
private placement (incorporated by reference to Exhibit 4.2 of the
Registrant’s Form 8-K filed September 1, 2005).
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4.6
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Warrant,
dated April 30, 2008, issued to Nordic Biotech Venture Fund II K/S
(incorporated by reference to Exhibit 4.6 of the Registrant’s Registration
Statement on Form S-1 filed on May 1, 2008 (File No.
333-150580)).
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4.7
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Form
of Warrant issued to Noteholders on September 11, 2008 (incorporated by
reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K
filed on September 15, 2008)
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4.8
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Form
of Warrant issued to Noteholders on November 19, 2008 (incorporated by
reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K
filed on November 25, 2008)
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4.9
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Form
of Warrant issued to investors in the March 2010 private placement
(incorporated by reference to Exhibit 4.9 to the Registrant's Annual
Report on Form 10-K filed on March 31, 2010)
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4.10
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Form
of Warrant issued to placement agent in the March 2010 private placement
(incorporated by reference to Exhibit 4.10 to the Registrant's Annual
Report on Form 10-K filed on March 31,
2010)
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II-6
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5.1
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Opinion
of Lowenstein Sandler PC
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10.1
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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).
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10.2
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Form
of Notice of Stock Option Grant issued to employees of the Registrant from
April 12, 2000 to February 21, 2003 (incorporated by reference to Exhibit
99.2 of the Registrant’s Registration Statement non Form S-8 filed March
24, 1998 (File 333-48531)).
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10.3
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Schedule
of Notices of Stock Option Grants, the form of which is attached hereto as
Exhibit 4.2.
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10.4
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Form
of Stock Option Agreement issued to employees of the Registrant from April
12, 2000 to February 21, 2003 (incorporated by reference to Exhibit 99.3
to the Registrant’s Registration Statement on Form S-8 filed March 24,
1998 (File 333-48531)).
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10.5
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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).
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10.6
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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).++
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10.7
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2003
Stock Option Plan (incorporated by reference to Exhibit 4.1 to
Registrant’s Registration Statement on Form S-8 filed February 17,
2004).
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10.8
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Employment
Agreement dated April 1, 2005, between the Registrant and Douglas Abel
(incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K/A
filed June 15, 2005).
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10.9
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Sublicense
Agreement dated April 14, 2004 between Tarpan Therapeutics, Inc., the
Registrant’s wholly-owned subsidiary, and IGI, Inc. (incorporated by
reference to Exhibit 10.109 to IGI Inc.’s Form 10-Q for the quarter ended
March 31, 2004 (File No. 001-08568).
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10.10
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Form
of subscription agreement between the Registrant and the investors in the
Registrant’s August 2005 private placement (incorporated by reference as
Exhibit 10.1 to the Registrant’s Form 8-K filed September 1,
2005).
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10.11
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Separation
Agreement between the Registrant and Alan G. Harris December 21, 2007
(incorporated by reference to Exhibit 10.11 to the Registrant’s Form 10-K
filed March 31, 2008.)
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10.12
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Employment
Agreement dated July 7, 2006 between the Registrant and Michael G.
McGuinness (incorporated by reference to Exhibit 10.1 of the Registrant’s
Form 8-K filed July 12, 2006.)
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|
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10.13
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Summary
terms of compensation plan for Registrant’s non-employee directors
(incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed
February 5, 2007).
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10.14
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Form
of Stock Option Agreement issued under the Registrant’s 2003 Stock Option
Plan (Incorporated by reference to Exhibit 10.15 to the Registrant’s Form
10-KSB filed April 2,
2007.)
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II-7
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10.15
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Exclusive
License Agreement for “Altoderm” between Thornton & Ross Ltd. and
Manhattan Pharmaceuticals, Inc. dates April 3, 2007. (Incorporated by
reference to Exhibit 10.3 of the registrant’s form 10-Q for the quarter
ended June 30, 2007 filed on August 14, 2007.)
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10.16
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Exclusive
License Agreement for “Altolyn” between Thornton &Ross Ltd. and
Manhattan Pharmaceuticals, Inc. dated April 3,
2007. (Incorporated by reference to Exhibit 10.4 of the
registrant’s form 10-Q for the quarter ended June 30, 2007 filed on August
14, 2007.)
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10.17
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Exclusive
License Agreement for “Hedrin” between Thornton &Ross Ltd. , Kerris,
S.A. and Manhattan Pharmaceuticals, Inc. dated June 26, 2007.
(Incorporated by reference to Exhibit 10.5 of the registrant’s form 10-Q
for the quarter ended June 30, 2007 filed on August 14,
2007.)
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10.18
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Supply
Agreement for “Hedrin” between Thornton & Ross Ltd. and Manhattan
Pharmaceuticals, Inc. dated June 26, 2007. (Incorporated by reference to
Exhibit 10.6 of the registrant’s form 10-Q for the quarter ended June 30,
2007 filed on August 14, 2007.)
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10.19
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Joint
Venture Agreement between Nordic Biotech Fund II K/S and Manhattan
Pharmaceuticals, Inc. to develop and commercialize “Hedrin” dated January
31, 2008.
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10.20
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Amendment
No. 1, dated February 25, 2008, to the Joint Venture Agreement between
Nordic Biotech Fund II K/S and Manhattan Pharmaceuticals, Inc. to develop
and commercialize “Hedrin” dated January 31, 2008 (Incorporated by
reference to Exhibit 10.20 to the Registrant’s Form 10-K filed March 31,
2008).
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10.21
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Omnibus
Amendment to Joint Venture Agreement and Additional Agreements, dated June
9, 2008, among Manhattan Pharmaceuticals, Inc., Hedrin Pharmaceuticals
K/S, Hedrin Pharmaceuticals General Partner ApS and Nordic Biotech Venture
Fund II K/S. (Incorporated by reference to Exhibit 10.1 of the
Registrant's Current Report on Form 8-K filed on June 13,
2008.)
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10.22
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Assignment
and Contribution Agreement between Hedrin Pharmaceuticals K/S and
Manhattan Pharmaceuticals, Inc. dated February 25,
2008. (Incorporated by reference to Exhibit 10.21 to the
Registrant’s Form 10-K filed March 31, 2008.)
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10.23
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Registration
Rights Agreement between Nordic Biotech Venture Fund II K/S and Manhattan
Pharmaceuticals, Inc. dated February 25, 2008. (Incorporated by
reference to Exhibit 10.22 to the Registrant’s Form 10-K filed March 31,
2008.)
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10.24
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Letter
Agreement, dated September 17, 2008, between Nordic Biotech Venture Fund
II K/S and Manhattan Pharmaceuticals, Inc.
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|
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10.25
|
Amendment
to Employment Agreement by and between Manhattan Pharmaceuticals, Inc. and
Douglas Abel (Incorporated by reference to Exhibit 10.23 to the
Registrant’s Form 10-K filed March 31, 2008.)
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|
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10.26
|
Form
of Secured Promissory Note, dated September 11, 2008 (Incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed on September 15, 2008)
|
|
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10.27
|
Securities
Purchase Agreement, dated November 19, 2008, by and among the Registrant
and the investors listed on Exhibit A-1 and A-2
thereto (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed on November 25,
2008)
|
II-8
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10.28
|
Registration
Rights Agreement, dated November 19, 2008, by and among the Registrant,
the Placement Agent and the investors listed on Exhibit A thereto
(incorporated by reference to Exhibit 10.2 to the Registrant’s Current
Report on Form 8-K filed on November 25, 2008)
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|
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10.29
|
Security
Agreement, dated November 19, 2008, by and among the Registrant and each
person named on Exhibit A-1 and A-2 of the Securities Purchase Agreement
(incorporated by reference to Exhibit 10.3 to the Registrant’s Current
Report on Form 8-K filed on November 25, 2008)
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10.30
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Default
Agreement, dated November 19, 2008, by and among the Registrant and the
persons and entities listed on Schedule A thereto (incorporated by
reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K
filed on November 25, 2008)
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10.31
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Form
of 12% Senior Secured Promissory Note (incorporated by reference to
Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on
November 25, 2008)
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|
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10.32
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Amendment
No. 2 to the Employment Agreement between the Registrant and Douglas Abel,
dated November 19, 2008 (incorporated by reference to Exhibit 10.7 to the
Registrant’s Current Report on Form 8-K filed on November 25,
2008)
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10.33
|
Amendment
No. 1 to the Employment Agreement between the Registrant and Michael
McGuinness, dated November 19, 2008 (incorporated by reference to Exhibit
10.8 to the Registrant’s Current Report on Form 8-K filed on November 25,
2008)
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10.34
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Form
of Placement Agent Warrant (incorporated by reference to Exhibit 10.9 to
the Registrant’s Current Report on Form 8-K filed on November 25,
2008)
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10.35
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Form
of Subscription Agreement by and among Manhattan Pharmaceuticals, Inc.,
the Placement Agent and certain investors listed therein in connection
with the March 2010 private placement (Incorporated by reference to
Exhibit 10.35 to the Registrant’s Annual Report on Form 10-K filed March
31, 2010.)
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10.36
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Placement
Agency Agreement dated December 28, 2009 by and between National
Securities Corporation and Manhattan Pharmaceuticals, Inc. in connection
with the March 2010 private placement (Incorporated by reference to
Exhibit 10.36 to the Registrant’s Annual Report on Form 10-K filed March
31, 2010.)
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10.37
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Registration
Rights Agreement dated March 2, 2010 by and among Manhattan
Pharmaceuticals, Inc., the Placement Agent and certain investors listed
therein in connection with the March 2010 private placement (Incorporated
by reference to Exhibit 10.37 to the Registrant’s Annual Report on Form
10-K filed March 31, 2010.)
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23.1
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Consent
of J.H. Cohn LLP.
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23.2
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Consent
of Lowenstein Sandler PC (incorporated by reference to Exhibit
5.1)
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24.1
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Powers
of Attorney (Included in Signature Page of this Registration
Statement)
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++
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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.
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II-9
Item
17. Undertakings.
The
undersigned Registrant hereby undertakes:
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(1)
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To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration
statement:
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(i)
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To
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933, as amended;
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(ii)
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To
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the
effective registration statement;
and
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(iii)
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To
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration
statement;
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provided, however, that
subparagraphs (i) and (ii) above do not apply if the information required to be
included in a post-effective amendment by these subparagraphs is contained in
periodic reports filed with or furnished to the Commission by the Registrant
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this registration statement.
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(2)
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That,
for the purpose of determining any liability under the Securities Act of
1933, as amended, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
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(3)
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To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
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The
undersigned registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, as amended, each filing of the
Registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan’s annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933, as
amended, may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-10
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, as amended, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of New York, State of New
York, on the 7th day of June 2010.
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Manhattan
Pharmaceuticals, Inc.
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By:
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/s/ Michael G.
McGuinness
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Mr.
Michael G. McGuinness
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Chief
Operating and Financial
Officer
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POWER
OF ATTORNEY
KNOW ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Michael G. McGuinness as his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for the undersigned and in his or her name, place and stead, in
any and all capacities, to sign any or all amendments (including post-effective
amendments) to this Registration Statement and to file the same, with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant
to the requirements of the Securities Act of 1933, the following persons in the
capacities and on the dates indicated have signed this Registration Statement
below.
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/s/ Douglas Abel
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Director
and Chairman of the Board
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June
7, 2010
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Douglas
Abel
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/s/ Michael G. McGuinness
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Chief
Operating and Financial
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June
7, 2010
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Michael
G. McGuinness
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Officer
& Director (principal executive,
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financial
and accounting officer)
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/s/ Neil Herskowitz
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Director
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June
7, 2010
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Neil
Herskowitz
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/s/ Timothy McInerney
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Director
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June
7, 2010
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Timothy
McInerney
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/s/ Malcolm Morville
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Director
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June
7, 2010
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Malcolm
Morville
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/s/ David Shimko
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Director
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June
7, 2010
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David
Shimko
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/s/ Richard Steinhart
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Director
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June
7, 2010
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Richard
Steinhart
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II-11
Exhibit
5.1
June 7,
2010
Manhattan
Pharmaceuticals, Inc.
48 Wall
Street
New York,
NY 10005
Ladies
and Gentlemen:
We have
acted as special counsel to Manhattan Pharmaceuticals, Inc., a Delaware
corporation (the “Company”), in
connection with its preparation and filing with the Securities and Exchange
Commission of a Registration Statement on Form S-1 (the “Registration
Statement”), under the Securities Act of 1933, as amended (the “Securities
Act”). The Registration Statement covers the resale of an
aggregate of 43,308,367 outstanding shares (the “Shares”) of common
stock, par value $0.001 per share, of the Company (the “Common Stock”) and
2,444,444 shares of Common Stock (the “Warrant Shares”)
issuable upon the exercise of outstanding warrants (the “Warrants”).
In
connection with this opinion, we have examined the Registration
Statement. We have also examined such corporate records, certificates
and other documents and such questions of law as we have considered necessary or
appropriate for the purpose of this opinion. We have assumed: (A) the
genuineness and authenticity of all documents submitted to us as originals and
(B) the conformity to originals of all documents submitted to us as copies
thereof. As to certain factual matters, we have relied upon
certificates of officers of the Company and have not sought independently to
verify such matters.
Based
upon the foregoing, it is our opinion that (i) the Shares have been duly
authorized and validly issued, fully paid and non-assessable and (ii) the
Warrant Shares have been duly authorized and, when issued in accordance with the
terms and conditions of the Warrants (including the due payment of any exercise
price therefor specified in the Warrants), will be validly issued, fully paid
and non-assessable.
Our
opinion herein is expressed solely with respect to the federal laws of the
United States and the laws of the State of Delaware. Our opinion is
based on these laws as in effect on the date hereof.
We hereby
consent to the filing of this opinion as an exhibit to the Registration
Statement and to the references to this firm under the heading “Legal Matters”
in the prospectus, which is part of the Registration Statement. In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act.
Very
truly yours,
/s/
Lowenstein Sandler PC
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Exhibit
23.1
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the inclusion in this Registration Statement on Form S-1 of our
report, which includes an explanatory paragraph relating to Manhattan
Pharmaceuticals, Inc.’s ability to continue as a going concern, dated March 31,
2010, on our audits of the financial statements of Manhattan Pharmaceuticals,
Inc. as of December 31, 2009 and 2008, and for the years then ended, and the
period from August 6, 2001 (inception) to December 31, 2009. We also consent to
the reference to our Firm under the captions “Summary Financial Information”,
“Selected Financial Information” and “Experts.”
/s/ J.H.
Cohn LLP
Roseland,
New Jersey
June 7,
2010