Common use of Operating loss Clause in Contracts

Operating loss. 122,168 ---------- 422,168 ---------- (422,168) 692,185 ----------- 4,659,474 ----------- (4,659,474) 7,708,740 ------------ 20,304,909 ------------ (20,304,909) 8,523,093 ------------ 25,386,551 ------------ (25,386,551) Interest income..................... Net loss before income taxes........ 33,961 ---------- (388,207) 160,689 ----------- (4,498,785) 2,825,919 ------------ (17,478,990) 3,020,569 ------------ (22,365,982) Income tax expense.................. Net loss............................ 800 ---------- (389,007) 800 ----------- (4,499,585) 800 ------------ (17,479,790) 2,400 ------------ (22,368,382) Return to series C preferred shareholders for beneficial conversion feature................ -- -- (14,231,595) (14,231,595) Loss available to common ---------- ----------- ------------ ------------ shareholders...................... Basic and diluted loss per share.... $ (389,007) ========== $ (0.39) $(4,499,585) =========== $ (1.35) $(31,711,385) ============ $ (2.33) $(36,599,977) ============ ========== Weighted average shares used in =========== ============ computing basic and diluted loss per share......................... 985,961 3,345,397 13,634,513 ========== =========== ============ --------------------------------------- BALANCE SHEET DATA: 1998 ---------- 1999 ---------- 2000 ----------- Cash and cash equivalents............................. $2,333,512 $9,339,669 $78,926,830 Working capital....................................... 2,264,038 9,095,831 77,320,445 Total assets.......................................... 2,382,600 9,441,173 81,147,046 Total liabilities..................................... 108,108 300,587 2,452,378 Series C redeemable convertible preferred stock....... -- -- -- Series B redeemable convertible preferred stock....... -- 9,703,903 -- Series A convertible preferred stock.................. 2,660 2,660 -- Total stockholders' equity (deficit).................. 2,274,492 (563,317) 78,694,668 19 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS‌ This discussion and analysis should be read in conjunction with our financial statements and accompanying notes included elsewhere in this report. Operating results are not necessarily indicative of results that may occur in future periods. The following discussion contains forward-looking statements that are based upon current expectations. Our actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements. Examples of such forward-looking statements include, but are not limited to: statements about future operating losses and anticipated operating and capital expenditures; statements about increases in our research and development expenses; statements about the timing and progress of our clinical trials; statements about future non-cash charges related to option grants; statements about the sufficiency of our current resources to fund our operations over the next 12 months; statements about anticipated hiring; statements about the build-out of our new facility and the timing of the relocation of our offices; and statements about the effect of changes in interest rates on our business and financial results. Such forward-looking statements involve risks and uncertainties, including, but not limited to, those risks and uncertainties relating to difficulties or delays in development, testing, regulatory approval, production and marketing of the Company's drug candidates, unexpected adverse side effects or inadequate therapeutic efficacy of the Company's drug candidates that could slow or prevent product approval (including the risk that current and past results of clinical trials are not indicative of future results of clinical trials), the uncertainty of patent protection for the Company's intellectual property or trade secrets and the Company's ability to obtain additional financing if necessary. In addition such statements are subject to the risks and uncertainties discussed in the "Risk Factors" section and elsewhere in this document. OVERVIEW Pain Therapeutics, Inc. is developing a new generation of opioid painkillers with improved clinical benefits. We use our technology to reformulate existing opioid painkillers into new drugs which we believe offer enhanced pain relief, fewer adverse side effects and reduced tolerance and addiction compared to existing opioid painkillers. We currently have four opioid painkillers in various stages of Phase II clinical trials. We have yet to generate any revenues from product sales. We have not been profitable and, since our inception, we have incurred a cumulative deficit of approximately $22.4 million through December 31, 2000. These losses have resulted principally from costs incurred in connection with research and development activities, including costs of clinical trials and clinical supplies associated with our product candidates, salaries and other personnel related costs, including the amortization of deferred compensation associated with options granted to employees and non-employees, and general corporate expenses. We expect to incur additional operating losses for the next several years. We also expect to continue to incur significant operating and capital expenditures and anticipate that our expenses will increase substantially in the foreseeable future as we: - continue to undertake preclinical and clinical trials for our product candidates; - seek regulatory approvals for our product candidates; - develop, formulate, manufacture and commercialize our drugs; - implement additional internal systems, develop new infrastructure and complete the build-out of our new facility; - acquire or in-license additional products or technologies, or expand the use of our technology; - maintain, defend and expand the scope of our intellectual property; and - hire additional personnel. Product revenue will depend on our ability to receive regulatory approvals for, and successfully market, our product candidates. In the event that our development efforts result in regulatory approval and successful commercialization of our product candidates, we will generate revenue from direct sales of our products and/or, if we license our products to future collaborators, from the receipt of license fees and royalties from licensed products. Sources of revenue for the foreseeable future may also include payments from potential collaborative arrangements, including license fees, funded research payments, milestone payments and royalties based on revenues received from products commercialized under such arrangements. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2000 AND 1999 Agreement with ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ College of Medicine In May 1998, we entered into an exclusive, worldwide license agreement with ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ College of Medicine for all patents and pending patent applications relating to low-dose opioid antagonist technology. Pursuant to the terms of the license agreement, in 1998 we paid ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ College of Medicine a one-time licensing fee which was recognized as license fee expense in accordance with Financial Accounting Standards No. 2, Accounting for Research and Development Costs, as this technology has no alternative future use. In addition, we have paid ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ College of Medicine research payments that have been recognized as research and development expense. We are also required to make milestone payments to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ College of Medicine upon the achievement of certain regulatory and clinical events, including amounts due upon receipt of our first drug approval in the U.S. and in specified foreign countries. Finally, we must pay ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ College of Medicine royalties based on a percentage of net sales of our products. If a product is combined with a drug or other substance for which we are paying an additional royalty, the royalty rate we pay to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ College of Medicine is generally reduced by one-half. No milestone payments have been triggered. Research and Development Research and development expense consists of drug development work associated with our product candidates, primarily costs of clinical trials and clinical supplies, research payments to the ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ College of Medicine and salaries and other personnel related expenses. Research and development expenses were $12.6 million for the year ended December 31, 2000 compared to $4.0 million for the year ended December 31, 1999. The increase was primarily due to increases in clinical development activities for our product candidates, an increase in amortization of deferred compensation (as described below), charges resulting from stock issuance pursuant to restricted stock purchase agreements and increases in salaries and other personnel related costs associated with increasing staffing in support of these activities. We expect research and development expenses to increase significantly over the next several years as we increase our development efforts and our product candidates enter into further clinical trials. There will be future non-cash charges for the amortization of deferred compensation related to options granted to employees and consultants. General and Administrative General and administrative expense consists primarily of salaries and other personnel related expenses to support our activities, consulting and professional services expenses, facilities expenses and other general corporate expenses. General and administrative expenses increased to $7.7 million for the year ended December 31, 2000 from $0.7 million for the year ended December 31, 1999. This increase was primarily attributable to increases in the amortization of deferred compensation (as described below), charges resulting from stock issuance pursuant to restricted stock purchase agreements, salaries and other personnel related costs associated with increased staffing, consulting and professional services expenses. There will be future non-cash charges for the amortization of deferred compensation related to options granted to employees and consultants.

Operating loss. 122,168 ---------- 422,168 ---------- (422,168) 692,185 ----------- 4,659,474 3,675,075 ----------- (4,659,4743,200,309) 7,708,740 ------------ 20,304,909 ------------ -- -------- 88,086 -------- (20,304,9093,310) 8,523,093 ------------ 25,386,551 ------------ 3,555 -------- 62,075 -------- (25,386,55123,145) Interest Other income..................... Net loss : Other expense, net.......................... Total other income........................ Income (loss) before income taxesminority interest........ 33,961 ---------- (388,207) 160,689 1,478)----------- 86,169 ----------- (4,498,785) 2,825,919 ------------ (17,478,990) 3,020,569 ------------ (22,365,982) Income tax expense.................. Net loss............................ 800 ---------- (389,007) 800 ----------- (4,499,585) 800 ------------ (17,479,790) 2,400 ------------ (22,368,382) Return to series C preferred shareholders for beneficial conversion feature................ -- -- (14,231,5953,114,140) (14,231,595936)-------- 6,429 -------- 3,119 (160)-------- 2,120 -------- (21,025) Loss available to common ---------- Minority interest in net (income) loss of subsidiary................................... (1,334) 836 1,282 ----------- ------------ ------------ shareholders...................... Basic and diluted loss per share.... $ -------- -------- Net income (389,007) ========== $ (0.39) loss)............................. $(4,499,5853,115,474) =========== $ (1.35) 3,955 $(31,711,38519,743) ============ $ (2.33) $(36,599,977) ============ ======== ======== Weighted average shares used in Net income (loss) per share: Basic....................................... $ (19.57) $ .04 $ (.24) =========== ============ computing basic and diluted loss per share......................... 985,961 3,345,397 13,634,513 ========== Diluted..................................... $ (19.57) $ .03 $ (.24) =========== ======== ======== --------------------------------------- BALANCE SHEET DATAShares used in per share computation: 1998 ---------- Basic....................................... 159,169 100,531 83,492 =========== ======== ======== Diluted..................................... 159,169 114,610 83,492 =========== ======== ======== VERISIGN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except share data) ----- ---- Preferred stock: Balance, beginning of year: No shares at January 1, 2000 No shares at January 1, 1999 ---------- 2000 ----------- Cash and cash equivalents............................. $2,333,512 $9,339,669 $78,926,830 Working capital....................................... 2,264,038 9,095,831 77,320,445 Total assets.......................................... 2,382,600 9,441,173 81,147,046 Total liabilities..................................... 108,108 300,587 2,452,378 Series C redeemable convertible 40,124,024 shares at January 1, 1998..................... $ -- $ -- $ 40 Conversion of preferred stock....... -- -- -- Series B redeemable convertible preferred stock....... -- 9,703,903 -- Series A convertible preferred stock.................. 2,660 2,660 -- Total stockholders' equity stock to common stock (deficit).................. 2,274,492 40,124,024) shares in 1998............................................ (563,31740) 78,694,668 19 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS‌ This discussion and analysis should be read in conjunction with our financial statements and accompanying notes included elsewhere in this report. Operating results are not necessarily indicative Balance, end of results that may occur in future periods. The following discussion contains forward-looking statements that are based upon current expectations. Our actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements. Examples of such forward-looking statements include, but are not limited toyear: statements about future operating losses and anticipated operating and capital expenditures; statements about increases in our research and development expenses; statements about the timing and progress of our clinical trials; statements about future non-cash charges related to option grants; statements about the sufficiency of our current resources to fund our operations over the next 12 months; statements about anticipated hiring; statements about the build-out of our new facility and the timing of the relocation of our offices; and statements about the effect of changes in interest rates on our business and financial results. Such forward-looking statements involve risks and uncertainties, including, but not limited to, those risks and uncertainties relating to difficulties or delays in development, testing, regulatory approval, production and marketing of the Company's drug candidates, unexpected adverse side effects or inadequate therapeutic efficacy of the Company's drug candidates that could slow or prevent product approval (including the risk that current and past results of clinical trials are not indicative of future results of clinical trials), the uncertainty of patent protection for the Company's intellectual property or trade secrets and the Company's ability to obtain additional financing if necessary. In addition such statements are subject to the risks and uncertainties discussed in the "Risk Factors" section and elsewhere in this document. OVERVIEW Pain Therapeutics, Inc. is developing a new generation of opioid painkillers with improved clinical benefits. We use our technology to reformulate existing opioid painkillers into new drugs which we believe offer enhanced pain relief, fewer adverse side effects and reduced tolerance and addiction compared to existing opioid painkillers. We currently have four opioid painkillers in various stages of Phase II clinical trials. We have yet to generate any revenues from product sales. We have not been profitable and, since our inception, we have incurred a cumulative deficit of approximately $22.4 million through ----- ----- ---- No shares at December 31, 2000. These losses have resulted principally from costs incurred in connection with research and development activities, including costs 1999 or 1998............. -- -- -- Common stock: Balance, beginning of clinical trials and clinical supplies associated with our product candidates, salaries and other personnel related costs, including the amortization of deferred compensation associated with options granted to employees and non-employees, and general corporate expenses. We expect to incur additional operating losses for the next several years. 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 weyear: - continue to undertake preclinical and clinical trials for our product candidates; - seek regulatory approvals for our product candidates; - develop, formulate, manufacture and commercialize our drugs; - implement additional internal systems, develop new infrastructure and complete the build-out of our new facility; - acquire or in-license additional products or technologies, or expand the use of our technology; - maintain, defend and expand the scope of our intellectual property; and - hire additional personnel. Product revenue will depend on our ability to receive regulatory approvals for, and successfully market, our product candidates. In the event that our development efforts result in regulatory approval and successful commercialization of our product candidates, we will generate revenue from direct sales of our products and/or, if we license our products to future collaborators, from the receipt of license fees and royalties from licensed products. Sources of revenue for the foreseeable future may also include payments from potential collaborative arrangements, including license fees, funded research payments, milestone payments and royalties based on revenues received from products commercialized under such arrangements. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31103,482,841 shares at January 1, 2000 AND 92,346,768 shares at January 1, 1999 Agreement with ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ College ----- ----- ---- 35,145,704 shares at January 1, 1998..................... 103 92 36 Issuance of Medicine In May common stock: 81,600 shares in 1998, we entered into an exclusive, worldwide license agreement with ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ College .................................... -- -- -- Issuance of Medicine common stock through public offerings: 6,390,000 shares in 1999 13,800,000 shares in 1998................................ -- 6 13 Conversion of preferred stock to common stock: 40,124,024 shares in 1998................................ -- -- 40 Issuance of common stock for all patents and pending patent applications relating to low-dose opioid antagonist technology. Pursuant to the terms business combinations: 88,948,676 shares in 2000................................ 89 -- -- Issuance of the license agreement, in 1998 we paid ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ College of Medicine a one-time licensing fee which was recognized as license fee expense in accordance with Financial Accounting Standards No. 2, Accounting for Research and Development Costs, as this technology has no alternative future use. In addition, we have paid ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ College of Medicine research payments that have been recognized as research and development expense. We are also required to make milestone payments to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ College of Medicine upon the achievement of certain regulatory and clinical events, including amounts due upon receipt of our first drug approval in the U.S. and in specified foreign countries. Finally, we must pay ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ College of Medicine royalties based on a percentage of net sales of our products. If a product is combined with a drug or other substance for which we are paying an additional royalty, the royalty rate we pay to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ College of Medicine is generally reduced by one-half. No milestone payments have been triggered. Research and Development Research and development expense consists of drug development work associated with our product candidates, primarily costs of clinical trials and clinical supplies, research payments to the ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ College of Medicine and salaries and other personnel related expenses. Research and development expenses were $12.6 million for the year ended December 31, 2000 compared to $4.0 million for the year ended December 31, 1999. The increase was primarily due to increases in clinical development activities for our product candidates, an increase in amortization of deferred compensation (as described below), charges resulting from common stock issuance pursuant to restricted under employee stock purchase agreements and increases plan: 550,724 shares in salaries and other personnel related costs associated with increasing staffing 2000 547,896 shares in support 1999 232,900 shares in 1998................................... 1 1 -- Exercise of these activities. We expect research and development expenses to increase significantly over the next several years as we increase our development efforts and our product candidates enter into further clinical trials. There will be future non-cash charges for the amortization of deferred compensation related to options granted to employees and consultants. General and Administrative General and administrative expense consists primarily of salaries and other personnel related expenses to support our activities, consulting and professional services expenses, facilities expenses and other general corporate expenses. General and administrative expenses increased to $7.7 million for the year ended December 31, common stock options: 5,657,256 shares in 2000 from $0.7 million for the year ended December 31, 4,198,177 shares in 1999. This increase was primarily attributable to increases in the amortization of deferred compensation (as described below), charges resulting from stock issuance pursuant to restricted stock purchase agreements, salaries and other personnel related costs associated with increased staffing, consulting and professional services expenses. There will be future non-cash charges for the amortization of deferred compensation related to options granted to employees and consultants.