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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                      to
 Commission File No. 0-21198
 
 Zonagen, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware(State or other jurisdiction of
incorporation or organization)
    
    76-0233274(IRS Employer
Identification No.)2408 Timberloch Place, Suite B-1
The Woodlands, Texas(Address of principal executive offices)
    
    77380(Zip Code)
 (281) 719-3400
(Registrants telephone number, including area code)
 
 Securities registered pursuant to Section 12(b) of the Act:
 Name of EachTitle of Each Class
    
    Exchange on Which RegisteredCommon Stock, $.001 par value
    
    Pacific Exchange, Inc.Rights to purchase Series One Junior
    
    Pacific Exchange, Inc.Participating Preferred Stock
 Securities registered pursuant to Section 12(g) of the Act:
 Name of EachTitle of Each Class
    
    Exchange on Which RegisteredCommon Stock, $.001 par value
    
    Nasdaq Capital MarketRights to purchase Series One Junior
    
    Nasdaq Capital MarketParticipating Preferred Stock
 o þ
  o þ
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
 o þ
   Documents incorporated by reference




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##### 



ZONAGEN, INC.
2005 FORM 10-K ANNUAL REPORT
 TABLE OF CONTENTS
 PagePART I
    
    
    
    
    2Item 1.
    
    Business
    
    
    2Item 1A.
    
    Risk Factors
    
    
    12Item 2.
    
    Properties
    
    
    21Item 3.
    
    Legal Proceedings
    
    
    21Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    21PART II
    
    
    
    
    22Item 5.
    
    Market for the Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
    
    
    22Item 6.
    
    Selected Consolidated Financial Data
    
    
    22Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 8.
    
    Financial Statements and Supplementary Data
    
    
    28Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    28Item 9A.
    
    Controls and Procedures
    
    
    28Item 9B.
    
    Other Information
    
    
    29PART III
    
    
    
    
    30Item 10.
    
    Directors and Executive Officers of the Registrant
    
    
    30Item 11.
    
    Executive Compensation
    
    
    30Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    30Item 13.
    
    Certain Relationship and Related Transactions
    
    
    30Item 14.
    
    Principal Accountant Fees and Services
    
    
    30PART IV
    
    
    
    
    31Item 15.
    
    Exhibits and Financial Statement Schedules
    
    
    31Consent of PricewaterhouseCoopers LLPCertification of CEO pursuant to Rule 13(a)-14(a)Certification of CFO pursuant to Rule 13(a)-14(a)Certification of CEO pursuant to 18 U.S.C. Section 1350Certification of CFO pursuant to 18 U.S.C. Section 1350




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PART I
 
 ITEM 1. BUSINESS
 Overview
  TM ®
 TM
  -2-




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Estimate ofProduct
    
    
    
    Current Phase of
    
    
    
    Completion ofCandidate
    
    Indication
    
    Development
    
    Collaborator
    
    Current Phase(1)Proellex
    
    - Uterine fibroids
- Endometriosis
- Breast cancer
    
    - U.S. Phase II
- European Phase II
- Investigative
    
    None
None
None
    
    Initial U.S. Phase II uterine
fibroid data is not expected before late third quarter 2006; initial
3-month European Phase II endometriosis data anticipated fourth
quarter 2006; no development is
being done in the area of
breast cancer at this timeAndroxal
    
    - Testosterone deficiency
    
    U.S. Phase III safety
    
    None
    
    Initial Phase III study data
expected end of third quarter
of 2006VASOMAX®
Phentolamine-based
product
    
    - Male erectile
  dysfunction (MED)
    
    Previously approved
in 8 countries and
previously marketed
in Mexico and
Brazil; partial
clinical hold in the
U.S.
    
    None
    
    Outlicensing activities ongoingOther
phentolamine-based
products
    
    - MED (Bimexes,   ERxin)
- Female sexual dysfunction
    
    Non-U.S. Phase II
studies completed
for all three
products; partial
clinical hold in the
U.S.
    
    None
    
    Outlicensing activities
ongoing and currently
re-evaluating clinical
development requirements
 
 (1)
    
    The information in the column labeled Estimate of Completion of Current Phase contains
forward-looking statements regarding timing of completion of product development phases. The
successful development of our product candidates is highly uncertain. Estimated completion
dates and R&D expenses can vary significantly for each product candidate and are difficult to
predict. The actual timing of completion of those phases could differ materially from the
estimates provided in the table. Business Strategy
  Market Overviews
 Uterine Fibroids
    ®
 -3-




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1.
    
    Bones require estrogen. GnRH agonists induce a low estrogen state in women, and
estrogen is necessary for the maintenance of bone mineral density. Therefore, GnRH agonists
tend to promote bone loss and cannot be used for more than six months at a time, usually in
preparation for a surgical procedure.2.
    
    When women cease treatment with GnRH agonists, their fibroids rapidly regenerate.
  Endometriosis
    Testosterone Deficiency
  ® ® ®
  1.
    
    The use of any of the current therapies, including the transdermal therapies, may
create high peaks of testosterone levels. Such high peaks can lead to excitation and
aggressive behavior, sleeplessness, anxiety, depression and headaches and have been
associated with prostate disease.
 -4-




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2.
    
    While transdermal delivery through gels and patches produces a more constant drug level
in the blood stream, transdermal delivery also results in elevated levels of
dihydrotestosterone, or DHT. Elevated levels of DHT in the blood stream also have been
associated with prostate disease.
 Sexual Dysfunction
  Male Erectile Dysfunction
 ®
 Female Sexual Dysfunction
  Our Product Candidates
  Proellex
 Uterine Fibroids and Endometriosis
   ®
 -5-




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##### Table of Contents



Breast Cancer
 ®
 Hormone Replacement Therapy
  Androxal
   
    
    our U.S. Phase I/II clinical trial results indicate that Androxal does not cause
abnormal peaks in blood testosterone levels which has been observed with some current
testosterone replacement therapies;
    
    our recently completed 13 patient two-week open-label study, that was designed to
evaluate the effects of Androxal on men with normal, borderline or low testosterone
showed that all study subjects, including those that had normal testosterone levels at
the start of the study, exhibited testosterone levels within the normal range and after
the dosing period had concluded, all of the study subjects had returned to their
baseline testosterone levels; and
 -6-




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
    
    the data so far indicate that Androxal therapy is not associated with the elevated
levels of dihydroxytestosterone, or DHT, unlike those associated with transdermal
therapies.
   ®
      -7-




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Phentolamine-Based Products
 ®
   ® ®
  Research and Development
  Agreement with National Institutes of Health
  -8-




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Manufacturing
   Sales and Marketing
  Patents and Proprietary Information
    -9-




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Competition
   ®
 ®
 Governmental Regulation
  -10-




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Third-Party Reimbursement and Pricing Controls
    The Hatch-Waxman Act
  -11-




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Litigation
  Exchange Listings
  Employees and Consultants
 Employees
  Scientific Advisors and Consultants
   
 ITEM 1A. RISK FACTORS
 Our product candidates are at an early stage of development, and if we are not able to
successfully develop and commercialize them, we may not generate sufficient revenues to continue
our business operations.
  -12-




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Because the data from preclinical studies and early clinical trials for our product candidates
are not necessarily predictive of future results, we can provide no assurances that any of them
will have favorable results in clinical trials or receive regulatory approval.
  If we fail to obtain the capital necessary to fund our operations, we will have to delay,
reduce or eliminate our research and development programs or commercialization efforts.
  
    
    delay, reduce the scope of or eliminate one or more of our development programs;
    
    relinquish, license or otherwise dispose of rights to technologies, product
candidates or products that we would otherwise seek to develop or commercialize
ourselves at an earlier stage or on terms that are less favorable than might otherwise
be available; or
    
    liquidate and dissolve our company.
  
    
    the size, complexity, results and timing of our clinical programs;
    
    the cost to obtain sufficient supply of the compounds necessary for our product candidates at a reasonable cost;
    
    the time and costs involved in obtaining regulatory approvals;
    
    the costs involved in preparing, filing , prosecuting, maintaining, defending and enforcing patent claims; and
    
    competing technological and market developments.
  -13-




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We have a history of operating losses, and we expect to incur increasing net losses and may
not achieve or maintain profitability for some time or at all.
  Raising additional funds by issuing securities or through collaboration and licensing
arrangements may cause dilution to existing stockholders, restrict our operations or require us to
relinquish propriety rights.
  We licensed our rights to Proellex from the National Institutes of Health, or NIH, and our
inability to fulfill our commitments and obligations under such license may result in forfeiture of
our rights.
  There is a patent holder that claims priority over our patent application for Androxal.
  We cannot assure that our manufacture, use or sale of our product candidates will not infringe
on the patent rights of others.
  -14-




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We face substantial uncertainty in our ability to protect our patents and proprietary
technology.
  
    
    patent applications for our product Androxal will result in issued patents;
    
    patent protection will be secured for any particular technology;
    
    any patents that have been or may be issued to us, such as our pending patent
application for Androxal, or our licensors, such as the patent(s) and application(s)
underlying our Proellex compound, when issued, will be valid or enforceable;
    
    any patents will provide meaningful protection to us;
    
    others will not be able to design around the patents; or
    
    our patents will provide a competitive advantage or have commercial application.
  We cannot assure that our patents will not be challenged by others.
  Confidentiality agreements with employees and others may not adequately prevent disclosure of
trade secrets and other proprietary information, may not adequately protect our intellectual
property, and will not prevent third parties from independently discovering technology similar to
or in competition with our intellectual property.
  Delays in the commencement of clinical testing of our current and potential product candidates
could result in increased costs to us and delay our ability to generate revenues.
  -15-




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
    
    conducting and completing a two-year rat carcinogenicity study required by the FDA
prior to submission of an NDA for Androxal and Proellex;
    
    demonstrating sufficient safety and efficacy in past clinical trials to obtain
regulatory approval to commence a further clinical trial;
    
    reaching agreement on acceptable terms with prospective contract manufacturers for
manufacturing sufficient quantities of a product candidate; and
    
    obtaining institutional review board approval to conduct a clinical trial at a
prospective site.
  Delays in the completion of, or the termination of, clinical testing of our current and
potential product candidates could result in increased costs to us, and could delay or prevent us
from generating revenues.
  
    
    ongoing discussions with the FDA or other regulatory authorities regarding the scope
or design of our clinical trials;
    
    the FDA may not accept data obtained from clinical studies conducted in Europe or
other non-United States jurisdictions as meeting all applicable FDA clinical trial
standards;
    
    lower than anticipated retention rate of patients in clinical trials;
    
    inspection of the clinical trial operations or trial sites by the FDA or other
regulatory authorities resulting in the imposition of a clinical hold;
    
    lack of adequate funding to continue clinical trials;
    
    insufficient supply or deficient quality of drug candidates or other materials
necessary for the conduct of our clinical trials; or
    
    serious adverse events or other undesirable drug-related side effects experienced by
participants.
    -16-




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Even if we successfully complete clinical trials for Proellex and Androxal, there are no
assurances that we will be able to submit, or obtain FDA approval of, a new drug application.
  If commercialized, our product candidates may not be approved for sufficient governmental or
third-party reimbursements, which would adversely affect our ability to market our product
candidates.
  If we successfully develop products but those products do not achieve and maintain market
acceptance, our business will not be profitable.
  
    
    relative convenience and ease of administration;
    
    the prevalence and severity of any adverse side effects;
    
    availability, effectiveness and cost of alternative treatments;
    
    pricing and cost effectiveness of our drugs;
    
    effectiveness of our or our collaborators sales and marketing strategies; and
    
    our ability to obtain sufficient third-party insurance coverage or reimbursement.
   
    
    new products or technologies are introduced that are more favorably received than our
products, are more cost effective or render our products obsolete;
    
    unforeseen complications arise with respect to use of our products; or
 -17-




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
    
    sufficient third-party insurance coverage or reimbursement does not remain available.
 We currently rely on third-party manufacturers and other third parties for production of our
product candidates, and our dependence on these manufacturers may impair the development of our
product candidates.
     Our product candidates have only been manufactured in small quantities to date, and we may
face delays or complications in manufacturing quantities of our product candidates in sufficient
quantities to meet the demands of late stage clinical trials and marketing.
  Our product candidates require precise, high-quality manufacturing which may not be available
at acceptable costs.
  -18-




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We may experience delays in the development of our product candidates if the third-party
manufacturers of our product candidates cannot meet FDA requirements relating to Good Manufacturing
Practices.
   We rely on third parties to conduct clinical trials for our product candidates, and their
failure to timely and properly perform their obligations may result in costs and delays that
prevent us from obtaining regulatory approval or successfully commercializing our product
candidates.
  Our liability insurance may not provide adequate coverage nor may it always be available on
favorable terms or at all.
  We face significant competition with many companies with substantially greater resources than
we have and other possible advantages.
  -19-




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
    
    develop or license products or other novel technologies that are more effective,
safer or less costly than the product candidates that we are developing;
    
    obtain regulatory approval for products before we do; or
    
    commit more resources than we can to developing, marketing and selling competing products.
   ® ®
 We are thinly staffed and highly dependent on a limited number of management persons and key
personnel, and if we lose these members of our team or are unable to attract and retain additional
qualified personnel, our future growth and ability to compete would suffer.
   Our plan to use collaborations to leverage our capabilities may not be successful.
  -20-




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Healthcare reform measures could adversely affect our business.
  We face high volatility in our stock price.
   
    
    announcements of technology innovations and new products developed by other competitors;
    
    developments relating to proprietary rights and patents;
    
    publicity relating to actual or potential medical results relating to products under
development or being commercialized by our other competitors;
    
    regulatory developments concerning our products in the United States and foreign
countries;
    
    issues concerning the safety of our products in development or similar products being
developed by our competitors; and
    
    economic and other external factors or a disaster or crisis.
 
 ITEM 2. PROPERTIES
  
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  -21-




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PART II
 
 ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
  Price RangeHigh
    
    
    Low2004First Quarter
    
    $
    4.35
    
    
    $
    1.83Second Quarter
    
    
    5.40
    
    
    
    2.44Third Quarter
    
    
    5.95
    
    
    
    2.76Fourth Quarter
    
    
    4.50
    
    
    
    3.072005First Quarter
    
    $
    4.75
    
    
    $
    2.90Second Quarter
    
    
    3.93
    
    
    
    2.79Third Quarter
    
    
    5.88
    
    
    
    3.66Fourth Quarter
    
    
    5.96
    
    
    
    4.432006First Quarter (January 3 through March 6)
    
    $
    10.21
    
    
    $
    4.50
   Dividends
    
 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
  -22-




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STATEMENTS OF OPERATIONS DATA:
 Year Ended December 31,2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005(In thousands except per share amounts)Revenues and Other Income:Licensing fees
    
    $
    2,162
    
    
    $
    4,228
    
    
    $
    
    
    
    $
    
    
    
    $
    Product royalties
    
    
    58
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Research and development grants
    
    
    115
    
    
    
    315
    
    
    
    595
    
    
    
    118
    
    
    
    4Interest income
    
    
    1,526
    
    
    
    711
    
    
    
    318
    
    
    
    104
    
    
    
    630Gain on disposal of fixed assets
    
    
    
    
    
    
    
    
    
    
    102
    
    
    
    
    
    
    
    Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    Total revenues
    
    
    3,861
    
    
    
    5,254
    
    
    
    1,015
    
    
    
    257
    
    
    
    634Expenses:Research and development
    
    
    3,028
    
    
    
    6,420
    
    
    
    2,161
    
    
    
    2,471
    
    
    
    6,101General and administrative
    
    
    1,672
    
    
    
    2,716
    
    
    
    2,183
    
    
    
    1,483
    
    
    
    1,924Total expenses
    
    
    4,700
    
    
    
    9,136
    
    
    
    4,344
    
    
    
    3,954
    
    
    
    8,025Net loss
    
    $
    (839
    )
    
    $
    (3,882
    )
    
    $
    (3,329
    )
    
    $
    (3,697
    )
    
    $
    (7,391
    )Net loss per share  basic and diluted (1)
    
    $
    (0.07
    )
    
    $
    (0.34
    )
    
    $
    (0.29
    )
    
    $
    (0.72
    )
    
    $
    (0.77
    )Shares used in loss per share calculation
    
    
    11,333
    
    
    
    11,412
    
    
    
    11,487
    
    
    
    5,117
    
    
    
    9,647BALANCE SHEET DATA:Cash, cash equivalents and marketable securities
    
    $
    30,056
    
    
    $
    25,138
    
    
    $
    22,946
    
    
    $
    5,536
    
    
    $
    16,832Total assets
    
    
    36,914
    
    
    
    27,370
    
    
    
    24,028
    
    
    
    6,606
    
    
    
    17,682Deficit accumulated during the development stage
    
    
    (75,846
    )
    
    
    (79,728
    )
    
    
    (83,057
    )
    
    
    (86,754
    )
    
    
    (94,145
    )Total stockholders equity
    
    
    30,569
    
    
    
    26,851
    
    
    
    23,487
    
    
    
    5,992
    
    
    
    16,955
 
 (1)
    
    See Note 2. Summary of Significant Accounting Policies of Notes to Consolidated Financial
Statements for a description of the computation of loss per share. -23-




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following managements discussion and analysis should be read in conjunction with our
historical consolidated financial statements and their notes included elsewhere in this Form 10-K .
This discussion contains forward-looking statements that reflect our current views with respect to
future events and financial performance. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain factors, such as those set
forth under Risk Factors and elsewhere in this Form 10-K .
 Overview
        -24-




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Critical Accounting Policies and the Use of Estimates
  Investments-Trading Securities
   Capitalized Patent Costs
   R&D Expense
   -25-




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
    
    The Company has had losses since inception and, therefore, has not been subject to
federal income taxes. The Company has accumulated approximately $2.8 million of research
and development tax credits. As of December 31, 2005 and 2004, the Company had
approximately $84.3 million and $78.5 million, respectively, of net operating loss
(NOL) carry-forwards for federal income tax purposes. Additionally, approximately $1.3
million of NOLs, and approximately $52,000 of research and development tax credits,
expired in 2005. Under SFAS No. 109, Accounting for Income Taxes, an NOL requires the
recognition of a deferred tax asset. As the Company has incurred losses since inception,
and there is no certainty of future revenues, the Companys deferred tax assets have
been reserved in full in the accompanying consolidated financial statements.
    
    Marketable securities are reviewed for other-than-temporary impairment at the
individual security level in each reporting period. The Company has determined that its
marketable securities are not impaired as of December 31, 2005.
    
    The Company reviews for the impairment of capitalized patent costs whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss exists when estimated undiscounted cash flows expected
to result from the patent are less than its carrying amount. The impairment loss
recognized represents the excess of the patent cost as compared to its estimated fair
value. The Company has determined that its capitalized patent costs are not impaired as
of December 31, 2005.
 RECENT ACCOUNTING PRONOUNCEMENTS
  Results of Operations
 Comparison of Years Ended December 31, 2005 and 2004
 Revenues
   Research and Development Expenses.
 General and Administrative Expenses
 -26-




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Comparison of Years Ended December 31, 2004 and 2003
 Revenues
    Research and Development Expenses
 General and Administrative Expenses
 Off-Balance Sheet Arrangements
  Liquidity and Capital Resources
   -27-




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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
  -28-




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ITEM 9B. OTHER INFORMATION
  -29-




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PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  -30-




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PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  Financial Statements
    
    PageReport of Independent Registered Public Accounting Firm
    
    F-1Consolidated Balance Sheets as of December 31, 2005 and 2004
    
    F-2Consolidated Statements of Operations for the Years Ended
December 31, 2005, 2004 and 2003 and (unaudited)
from Inception (August 20, 1987) through December 31, 2005
    
    F-3Consolidated Statement of Stockholders Equity (from inception)
    
    F-4Consolidated Statements of Cash Flows for the Years Ended
December 31, 2005, 2004 and 2003 and (unaudited) from Inception
(August 20, 1987) through December 31, 2005
    
    F-9Notes to Consolidated Financial Statements
    
    F-10
    Exhibit Number
    
    
    
    Identification Of Exhibit3.1
    (a)
    
    
    
    Restated Certificate of Incorporation. Exhibit
3.3 to the Companys Registration Statement on
Form SB-2 (No. 33-57728-FW), as amended
(Registration Statement), is incorporated
herein by reference.3.1
    (b)
    
    
    
    Certificate of Designation of Series One
Junior Participating Preferred Stock dated
September 2, 1999. Exhibit A to Exhibit 4.1 to
the Companys Registration Statement on Form
8-A as filed with the Commission on September
3, 1999 (the Rights Plan Registration
Statement), is incorporated herein by
reference.3.2
    
    
    
    
    Restated Bylaws of the Company. Exhibit 3.4 to
the Registration Statement is incorporated
herein by reference.4.1
    
    
    
    
    Specimen Certificate of Common Stock, $.001
par value, of the Company. Exhibit 4.1 to the
Registration Statement is incorporated herein
by reference.4.2
    
    
    
    
    Rights Agreement dated September 1, 1999
between the Company and Computershare Investor
Services LLC (as successor in interest to
Harris Trust & Savings Bank), as Rights Agent.
Exhibit 4.1 to the Rights Plan Registration
Statement is incorporated herein by reference.4.3
    
    
    
    
    First Amendment to Rights Agreement, dated as
of September 6, 2002, between the Company,
Harris Trust & Savings Bank and Computershare
Investor Services LLC. Exhibit 4.3 to
Amendment No. 1 to the Rights Plan
Registration Statement on Form 8-A/A as filed
with the Commission on September 11, 2002 is
incorporated herein by reference.4.4
    
    
    
    
    Second Amendment to Rights Agreement, dated as
of October 30, 2002, between the Company and
Computershare Investor Services LLC. Exhibit
4.4 to Amendment No. 2 to the Rights Plan
Registration Statement on Form 8-A/A as filed
with the Commission on October 31, 2002 is
incorporated herein by reference.4.5
    
    
    
    
    Third Amendment to Rights Agreement, dated as
of June 30, 2005, between the Company and
Computershare Trust Company, Inc. (as
successor in interest to Computershare
Investor Services, LLC). Exhibit 4.4 to the
Companys Current Report on Form 8-K as filed
with the Commission on June 30, 2005 is
incorporated herein by reference.4.6
    
    
    
    
    Form of Rights Certificate. Exhibit B to
Exhibit 4.1 to the Rights Plan Registration
Statement is incorporated herein by reference.
 -31-




---



##### Table of Contents



Exhibit Number
    
    
    
    Identification Of Exhibit10.1+
    
    
    
    
    Amended and Restated 1993 Employee and
Consultant Stock Option Plan. Exhibit 10.3 to
the Registration Statement is incorporated
herein by reference.10.2+
    
    
    
    
    First Amendment to the Zonagen, Inc. Amended
and Restated 1993 Stock Option Plan. Exhibit
10.22 to the Companys Annual Report on Form
10-K for the year ended December 31, 1999 (the
1999 Form 10-K) is incorporated herein by
reference.10.3+
    
    
    
    
    1996 Non-Employee Directors Stock Option
Plan. Exhibit 10.1 to the Companys Quarterly
Report on Form 10-Q for the fiscal quarter
ended June 30, 1997 is incorporated herein by
reference.10.4+
    
    
    
    
    2000 Non-Employee Directors Stock Option
Plan. Appendix B to the Companys Definitive
Proxy Statement filed on April 26, 2000 is
incorporated herein by reference.10.5+
    
    
    
    
    First Amendment to the Zonagen, Inc. 2000
Non-Employee Directors Stock Option Plan.
Exhibit 10.21 to the 2000 Form 10-K is
incorporated herein by reference.10.6+
    
    
    
    
    Second Amendment to 2000 Non-Employee
Directors Stock Option Plan. Exhibit 10.6 to
the Companys Annual Report on Form 10-K for
the year ended December 31, 2002 (the 2002
Form 10-K) is incorporated herein by
reference.10.7+
    
    
    
    
    Zonagen, Inc. 2004 Stock Option Plan. Exhibit
10.17 to the Companys Registration Statement
on Form S-1 (No. 333-119861), as amended, is
incorporated herein by reference.10.8+
    
    
    
    
    Employment Agreement between the Company and
Joseph S. Podolski. Exhibit 10.5 to the
Registration Statement is incorporated herein
by reference.10.9+
    
    
    
    
    First Amendment to Employment Agreement
between the Company and Joseph S. Podolski.
Exhibit 10.1 to the Companys Quarterly Report
on Form 10-Q for the fiscal quarter ended
March 31, 2001 is incorporated herein by
reference.10.10+
    
    
    
    
    Second Amendment to Employment Agreement
between the Company and Joseph S. Podolski.
Exhibit 10.17 to the 2002 Form 10-K is
incorporated herein by reference.10.11+
    
    
    
    
    Amended and Restated Employment Agreement
between the Company and Louis Ploth, Jr. dated
December 23, 2005. Exhibit 10.1 to the
Companys Current Report on Form 8-K filed
with the Commission on December 23, 2005 is
incorporated herein by reference.10.12
    
    
    
    
    Lease Agreement dated May 11, 2004 between the
Company and Sealy Woodlands, L.P. Exhibit
10.14 to the Companys Annual Report on Form
10-K for the year ended December 31, 2004 is
incorporated herein by reference.10.13++
    
    
    
    
    Letter Agreement dated July 15, 2002 between
the Company, Schering Plough Ltd. and
Schering-Plough Corporation. Exhibit 10.1 to
the Companys Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 2002 is
incorporated herein by reference.10.14++
    
    
    
    
    PHS Patent License Agreement dated April 16,
1999 between the Company and certain agencies
of the United States Public Health Service
within the Department of Health and Human
Services, with amendments. Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 2003 is
incorporated herein by reference.23.1*
    
    
    
    
    Consent of PricewaterhouseCoopers LLP31.1*
    
    
    
    
    Certification Pursuant to Rule 13(a)-14(a) or
15(d)-14(a) of the Exchange Act, As Adopted
Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (Chief Executive Officer)31.2*
    
    
    
    
    Certification Pursuant to Rule 13(a)-14(a) or
15(d)-14(a) of the Exchange Act, As Adopted
Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (Chief Financial Officer)32.1*
    
    
    
    
    Certification Furnished Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (Chief
Executive Officer)32.2*
    
    
    
    
    Certification Furnished Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (Chief
Financial Officer)
 -32-




---



##### Table of Contents



*
    
    Filed herewith.+
    
    Management contract or compensatory plan.++
    
    Portions of this exhibit have been omitted based on a request for
confidential treatment pursuant to Rule 24b-2 of the Exchange Act.
Such omitted portions have been filed separately with the Commission. -33-




---



##### Table of Contents



SIGNATURES
  ZONAGEN, INC.By:
    /s/ Joseph S. PodolskiJoseph S. PodolskiPresident and Chief Executive Officer  Signature
    
    Title
    
    Date/s/ Joseph S. Podolski

                    Joseph S. Podolski
    
    President, Chief Executive Officer
and Director
(Principal Executive Officer)
    
    March 13, 2006/s/ Louis Ploth, Jr.

                    Louis Ploth, Jr.
    
    Chief Financial Officer, VP Business
Development, Director and Secretary
(Principal Financial Officer and
Principal Accounting Officer)
    
    March 13, 2006/s/ Daniel F. Cain
    
    Chairman of the Board
    
    March 13, 2006Daniel F. Cain/s/ Jean L. Fourcroy, M.D., Ph.D., M.P.H.
    
    Director
    
    March 13, 2006Jean L. Fourcroy, M.D., Ph.D., M.P.H./s/ Jeffrey R. Harder
    
    Director
    
    March 13, 2006Jeffrey R. Harder/s/ Nola Masterson
    
    Director
    
    March 13, 2006Nola Masterson./s/ David Poorvin, Ph.D.
    
    Director
    
    March 13, 2006David Poorvin, Ph. D.
 -34-




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
 F-1




---



##### Table of Contents



ZONAGEN, INC. AND SUBSIDIARY
 
 CONSOLIDATED BALANCE SHEETS
 December 31,
    
    
    December 31,2005
    
    
    2004ASSETSCurrent AssetsCash and cash equivalents
    
    $
    2,165
    
    
    $
    736Marketable securities
    
    
    14,667
    
    
    
    4,800Prepaid expenses and other current assets
    
    
    231
    
    
    
    34Total current assets
    
    
    17,063
    
    
    
    5,570Fixed asset,net
    
    
    19
    
    
    
    18Other assets,net
    
    
    600
    
    
    
    1,018Total assets
    
    $
    17,682
    
    
    $
    6,606LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesAccounts payable
    
    $
    338
    
    
    $
    144Accrued expenses
    
    
    389
    
    
    
    470Total current liabilities
    
    
    727
    
    
    
    614Commitments & ContingenciesStockholders EquityUndesignated Preferred Stock, $.001 par value, 5,000,000
shares authorized, none issued and outstanding
    
    
    
    
    
    
    Common Stock, $.001 par value, 20,000,000 shares
authorized, 12,016,636 and 11,989,936 shares issued,
respectively; 10,079,601 and 4,992,901 shares
outstanding, respectively
    
    
    12
    
    
    
    12Additional paid-in capital
    
    
    117,166
    
    
    
    114,455Deferred compensation
    
    
    (130
    )
    
    
    (234
    )Cost of treasury stock, 1,937,035 and 6,997,035 shares, respectively
    
    
    (5,948
    )
    
    
    (21,487
    )Deficit accumulated during the development stage
    
    
    (94,145
    )
    
    
    (86,754
    )Total stockholders equity
    
    
    16,955
    
    
    
    5,992Total liabilities and stockholders equity
    
    $
    17,682
    
    
    $
    6,606
  F-2




---



##### Table of Contents



ZONAGEN, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 From Inception(August 20, 1987)throughFor the Year Ended December 31,

    
    
    December 31,2005
    
    
    2004
    
    
    2003
    
    
    2005(unaudited)Revenues and other incomeLicensing fees
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    28,755Product royalties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    627Research and development grants
    
    
    4
    
    
    
    118
    
    
    
    595
    
    
    
    1,219Interest income
    
    
    630
    
    
    
    104
    
    
    
    318
    
    
    
    13,756Gain on disposal of fixed assets
    
    
    
    
    
    
    
    
    
    
    102
    
    
    
    102Other income
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    35Total revenues and other income
    
    
    634
    
    
    
    257
    
    
    
    1,015
    
    
    
    44,494ExpensesResearch and development
    
    
    6,101
    
    
    
    2,471
    
    
    
    2,161
    
    
    
    100,361General and administrative
    
    
    1,924
    
    
    
    1,483
    
    
    
    2,183
    
    
    
    28,547Interest expense and amortization
of intangibles
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    388Total expenses
    
    
    8,025
    
    
    
    3,954
    
    
    
    4,344
    
    
    
    129,296Loss from continuing operations
    
    
    (7,391
    )
    
    
    (3,697
    )
    
    
    (3,329
    )
    
    
    (84,802
    )Income (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,828
    )Gain on disposal of discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    939Net loss before cumulative effect of
change in accounting principle
    
    
    (7,391
    )
    
    
    (3,697
    )
    
    
    (3,329
    )
    
    
    (85,691
    )Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,454
    )Net loss
    
    $
    (7,391
    )
    
    $
    (3,697
    )
    
    $
    (3,329
    )
    
    $
    (94,145
    )Loss per share  basic and diluted
    
    $
    (0.77
    )
    
    $
    (0.72
    )
    
    $
    (0.29
    )Shares used in loss per share calculation:Basic
    
    
    9,647
    
    
    
    5,117
    
    
    
    11,487Diluted
    
    
    9,647
    
    
    
    5,117
    
    
    
    11,487
  F-3




---



##### Table of Contents



ZONAGEN, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 DeficitAccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    During the
    
    
    TotalPreferred Stock
    
    
    Common Stock
    
    
    Paid-in
    
    
    Deferred
    
    
    Treasury Stock
    
    
    Development
    
    
    StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Shares
    
    
    Amount
    
    
    Stage
    
    
    EquityExchange of common stock ($.004 per share) for
technology rights and services from founding
stockholders
    
    
    
    
    
    $
    
    
    
    
    245,367
    
    
    $
    
    
    
    $
    1
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28
    )
    
    
    (28
    )BALANCE AT DECEMBER 31, 1987 (unaudited)
    
    
    
    
    
    
    
    
    
    
    245,367
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28
    )
    
    
    (27
    )Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (327
    )
    
    
    (327
    )BALANCE AT DECEMBER 31, 1988 (unaudited)
    
    
    
    
    
    
    
    
    
    
    245,367
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (355
    )
    
    
    (354
    )Proceeds from issuance of common stock
    
    
    
    
    
    
    
    
    
    
    65,431
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (967
    )
    
    
    (967
    )BALANCE AT DECEMBER 31, 1989 (unaudited)
    
    
    
    
    
    
    
    
    
    
    310,798
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,322
    )
    
    
    (1,318
    )Proceeds from issuance of common stock
    
    
    
    
    
    
    
    
    
    
    467
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,426
    )
    
    
    (1,426
    )BALANCE AT DECEMBER 31, 1990 (unaudited)
    
    
    
    
    
    
    
    
    
    
    311,265
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,748
    )
    
    
    (2,744
    )Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,820
    )
    
    
    (1,820
    )BALANCE AT DECEMBER 31, 1991 (unaudited)
    
    
    
    
    
    
    
    
    
    
    311,265
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,568
    )
    
    
    (4,564
    )Conversion of 391,305 shares of Series C
preferred stock into common stock
    
    
    
    
    
    
    
    
    
    
    91,442
    
    
    
    
    
    
    
    360
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    360Purchase of retirement of common stock
    
    
    
    
    
    
    
    
    
    
    (23,555
    )
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )Proceeds from issuance of common stock
    
    
    
    
    
    
    
    
    
    
    16,946
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,583
    )
    
    
    (1,583
    )BALANCE AT DECEMBER 31, 1992 (unaudited)
    
    
    
    
    
    
    
    
    
    
    396,098
    
    
    
    1
    
    
    
    370
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,151
    )
    
    
    (5,781
    )Issuance of common stock for cash, April 1, 1993,
and May 12, 1993 ($5.50 per share), net of offering
costs of $1,403
    
    
    
    
    
    
    
    
    
    
    1,534,996
    
    
    
    2
    
    
    
    7,037
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,039Issuance of common stock for cash and license
agreement, December 9, 1993 ($10.42 per share),
net of offering costs of $47
    
    
    
    
    
    
    
    
    
    
    239,933
    
    
    
    
    
    
    
    2,453
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,453Conversion of Series A preferred stock to common stock
    
    
    
    
    
    
    
    
    
    
    179,936
    
    
    
    
    
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    600Conversion of Series B preferred stock to common stock
    
    
    
    
    
    
    
    
    
    
    96,013
    
    
    
    
    
    
    
    378
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    378Conversion of Series C preferred stock to common stock
    
    
    
    
    
    
    
    
    
    
    876,312
    
    
    
    1
    
    
    
    3,443
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,444Conversion of Series D preferred stock to common stock
    
    
    
    
    
    
    
    
    
    
    280,248
    
    
    
    
    
    
    
    599
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    600Conversion of bridge loan to common stock
    
    
    
    
    
    
    
    
    
    
    64,000
    
    
    
    
    
    
    
    256
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    256Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,532
    )
    
    
    (2,532
    )
 F-4




---



##### Table of Contents



ZONAGEN, INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 DeficitAccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    During the
    
    
    TotalPreferred Stock
    
    
    Common Stock
    
    
    Paid-in
    
    
    Deferred
    
    
    Treasury Stock
    
    
    Development
    
    
    StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Shares
    
    
    Amount
    
    
    Stage
    
    
    EquityBALANCE AT DECEMBER 31, 1993 (unaudited)
    
    
    
    
    
    $
    
    
    
    
    3,667,536
    
    
    $
    4
    
    
    $
    15,136
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    (8,683
    )
    
    $
    6,457Deferred compensation resulting from grant of options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    188
    
    
    
    (188
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38Exercise of warrants to purchase common stock
for cash, June 30, 1994 ($3.94 per share)
    
    
    
    
    
    
    
    
    
    
    39,623
    
    
    
    
    
    
    
    156
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    156Issuance of common stock for purchase of FTI,
October 13, 1994
    
    
    
    
    
    
    
    
    
    
    111,111
    
    
    
    
    
    
    
    1,567
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,567Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,970
    )
    
    
    (3,970
    )BALANCE AT DECEMBER 31, 1994
    
    
    
    
    
    
    
    
    
    
    3,818,270
    
    
    
    4
    
    
    
    17,047
    
    
    
    (150
    )
    
    
    
    
    
    
    
    
    
    
    (12,653
    )
    
    
    4,248Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37Exercise of options to purchase common stock for cash,
January and April 1995 ($.10 to $6.13 per share)
    
    
    
    
    
    
    
    
    
    
    4,546
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14Issuance of common stock for cash and a financing
charge, March 9, 1995
    
    
    
    
    
    
    
    
    
    
    16,000
    
    
    
    
    
    
    
    76
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76Issuance of Series A preferred stock for cash,
October 4, 1995, and October 19, 1995 ($10.00 per
share), net of offering costs of $651
    
    
    598,850
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    5,336
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,337Conversion of warrants to purchase common
stock as a result of offering under antidilution clause,
October 19, 1995 ($3.63 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Conversion of Series A preferred stock into
common stock, November and December 1995
    
    
    (94,000
    )
    
    
    
    
    
    
    259,308
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,287
    )
    
    
    (4,287
    )BALANCE AT DECEMBER 31, 1995
    
    
    504,850
    
    
    
    1
    
    
    
    4,098,124
    
    
    
    4
    
    
    
    22,473
    
    
    
    (113
    )
    
    
    
    
    
    
    
    
    
    
    (16,940
    )
    
    
    5,425Deferred compensation resulting from grant of options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    86
    
    
    
    (86
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54Exercise of warrants to purchase common stock for cash,
January through December 1996 ($3.63 per share)
    
    
    
    
    
    
    
    
    
    
    227,776
    
    
    
    
    
    
    
    827
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    827Conversion of Series A preferred stock into
common stock, January through November 1996
    
    
    (507,563
    )
    
    
    (1
    )
    
    
    1,396,826
    
    
    
    2
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of options for services, January 12, 1996
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99Exercise of options to purchase common stock for
cash, February through November 1996 ($.001 to
$5.50 per share)
    
    
    
    
    
    
    
    
    
    
    23,100
    
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75Issuance of common stock for agreement not to
compete, April 13, 1996
    
    
    
    
    
    
    
    
    
    
    19,512
    
    
    
    
    
    
    
    200
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200Exercise of warrants to purchase Series A preferred
stock under cashless exercise provision,
June 5, 1996
    
    
    2,713
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of Series B preferred stock for cash,
September 30, 1996, and October 11, 1996 ($10.00
per share), net of offering costs of $2,557
    
    
    1,692,500
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    14,366
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,368Conversion of Series B preferred stock into common
stock, November through December 1996
    
    
    (177,594
    )
    
    
    
    
    
    
    268,058
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,470
    )
    
    
    (9,470
    )
  F-5




---



##### Table of Contents



ZONAGEN, INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 DeficitAccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    During the
    
    
    TotalPreferred Stock
    
    
    Common Stock
    
    
    Paid-in
    
    
    Deferred
    
    
    Treasury Stock
    
    
    Development
    
    
    StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Shares
    
    
    Amount
    
    
    Stage
    
    
    EquityBALANCE AT DECEMBER 31, 1996
    
    
    1,514,906
    
    
    $
    2
    
    
    
    6,033,396
    
    
    $
    6
    
    
    $
    38,125
    
    
    $
    (145
    )
    
    
    
    
    
    $
    
    
    
    $
    (26,410
    )
    
    $
    11,578Deferred compensation resulting from grant of options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,110
    
    
    
    (2,110
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    854
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    854Exercise of options to purchase common stock
for cash, January through December 1997 ($0.00 to
$22.25 per share)
    
    
    
    
    
    
    
    
    
    
    90,955
    
    
    
    
    
    
    
    522
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    522Exercise of warrants to purchase common stock
for cash, January through December 1997 ($3.63 and
$3.07 per share)
    
    
    
    
    
    
    
    
    
    
    22,368
    
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75Issuance of common stock for a cashless exercise of
Series A preferred stock warrants, February through
September 1997
    
    
    
    
    
    
    
    
    
    
    81,294
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of Series A preferred stock warrants to
purchase common stock for cash, April 1997 ($11.00
per share)
    
    
    
    
    
    
    
    
    
    
    818
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Issuance of common stock for a cashless exercise of
Series B preferred stock warrants, April through
November 1997
    
    
    
    
    
    
    
    
    
    
    88,223
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of Series B preferred stock warrants to
purchase common stock for cash, April through July
1997 ($11.00 per share)
    
    
    
    
    
    
    
    
    
    
    17,169
    
    
    
    
    
    
    
    125
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125Issuance of common stock as final purchase price
for acquisition of FTI, January 31, 1997 ($9.833 per
share)
    
    
    
    
    
    
    
    
    
    
    305,095
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Issuance of common stock as final debt payment
on FTI acquisition, January 31, 1997 ($9.833 per
share)
    
    
    
    
    
    
    
    
    
    
    19,842
    
    
    
    
    
    
    
    94
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94Conversion of Series B preferred stock into common
stock, January through October 1997
    
    
    (1,514,906
    )
    
    
    (2
    )
    
    
    2,295,263
    
    
    
    2
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )Issuance of common stock for cash, July 25, 1997
($30.00 per share), net of offering costs
of $5,439
    
    
    
    
    
    
    
    
    
    
    2,587,500
    
    
    
    3
    
    
    
    72,183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72,186Purchase of treasury stock, December 1997
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,500
    
    
    
    (1,287
    )
    
    
    
    
    
    
    (1,287
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,174
    )
    
    
    (13,174
    )
  F-6




---



##### Table of Contents



ZONAGEN, INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 DeficitAccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    During the
    
    
    TotalPreferred Stock
    
    
    Common Stock
    
    
    Paid-in
    
    
    Deferred
    
    
    Treasury Stock
    
    
    Development
    
    
    StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Shares
    
    
    Amount
    
    
    Stage
    
    
    EquityBALANCE AT DECEMBER 31, 1997
    
    
    
    
    
    $
    
    
    
    
    11,541,923
    
    
    $
    12
    
    
    $
    113,236
    
    
    $
    (1,401
    )
    
    
    61,500
    
    
    $
    (1,287
    )
    
    $
    (39,584
    )
    
    $
    70,976Deferred compensation resulting from grant of options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    422
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    422Forfeiture of stock options, December 1998
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21
    )
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of options to purchase common stock
for cash, January through October 1998 ($0.43 to
$22.25 per share)
    
    
    
    
    
    
    
    
    
    
    63,022
    
    
    
    
    
    
    
    344
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    344Issuance of common stock for services, January
15, 1998
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    
    
    
    
    103
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    103Issuance of common stock for a cashless exercise of
Series B preferred stock warrants, May through
July 1998
    
    
    
    
    
    
    
    
    
    
    11,195
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of treasury stock, January through
September 1998 ($13.00 to $20.65 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    353,800
    
    
    
    (6,197
    )
    
    
    
    
    
    
    (6,197
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,316
    )
    
    
    (12,316
    )BALANCE AT DECEMBER 31, 1998
    
    
    
    
    
    
    
    
    
    
    11,621,140
    
    
    
    12
    
    
    
    113,717
    
    
    
    (958
    )
    
    
    415,300
    
    
    
    (7,484
    )
    
    
    (51,900
    )
    
    
    53,387Deferred compensation resulting from grant of options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (229
    )
    
    
    229
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    239
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    239Exercise of options to purchase common stock
for cash, February through September 1999 ($0.04 to
$8.375 per share)
    
    
    
    
    
    
    
    
    
    
    31,866
    
    
    
    
    
    
    
    72
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72Issuance of common stock for a cashless exercise of
common stock warrants, February 1999
    
    
    
    
    
    
    
    
    
    
    4,775
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock for a cashless exercise of
Series A preferred stock warrants, April 1999
    
    
    
    
    
    
    
    
    
    
    22,131
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock for a cashless exercise of
Series B preferred stock warrants, March through
April 1999
    
    
    
    
    
    
    
    
    
    
    876
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of Series B preferred stock warrants to
purchase common stock for cash, January 1999
($11.00 per share)
    
    
    
    
    
    
    
    
    
    
    536
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,952
    )
    
    
    (11,952
    )BALANCE AT DECEMBER 31, 1999
    
    
    
    
    
    
    
    
    
    
    11,681,324
    
    
    
    12
    
    
    
    113,564
    
    
    
    (490
    )
    
    
    415,300
    
    
    
    (7,484
    )
    
    
    (63,852
    )
    
    
    41,750Deferred compensation resulting from grant of options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    (34
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    283
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    283Exercise of options to purchase common stock
for cash, March through September 2000 ($0.43 to
$8.375 per share)
    
    
    
    
    
    
    
    
    
    
    49,416
    
    
    
    
    
    
    
    112
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112Issuance of common stock through employee stock
purchase plan for cash, December 2000
    
    
    
    
    
    
    
    
    
    
    9,379
    
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21Issuance of common stock to Board of Director members
for services, May through December 2000
    
    
    
    
    
    
    
    
    
    
    2,034
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,155
    )
    
    
    (11,155
    )
  F-7




---



##### Table of Contents



ZONAGEN, INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 DeficitAccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    During the
    
    
    TotalPreferred Stock
    
    
    Common Stock
    
    
    Paid-in
    
    
    Deferred
    
    
    Treasury Stock
    
    
    Development
    
    
    StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Shares
    
    
    Amount
    
    
    Stage
    
    
    EquityBALANCE AT DECEMBER 31, 2000
    
    
    
    
    
    $
    
    
    
    
    11,742,153
    
    
    $
    12
    
    
    $
    113,780
    
    
    $
    (241
    )
    
    
    415,300
    
    
    $
    (7,484
    )
    
    $
    (75,007
    )
    
    $
    31,060Compensation resulting from grant of options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36Compensation resulting from extension of warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    230
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    230Exercise of options to purchase common stock
for cash, February through December 2001 ($0.64 to
$4.00 per share)
    
    
    
    
    
    
    
    
    
    
    12,242
    
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25Issuance of common stock through employee stock
purchase plan for cash, June and December 2001
    
    
    
    
    
    
    
    
    
    
    8,431
    
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25Issuance of common stock to Board of Director members
for services, February through December 2001
    
    
    
    
    
    
    
    
    
    
    2,690
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (839
    )
    
    
    (839
    )BALANCE AT DECEMBER 31, 2001
    
    
    
    
    
    $
    
    
    
    
    11,765,516
    
    
    $
    12
    
    
    $
    113,898
    
    
    $
    (11
    )
    
    
    415,300
    
    
    $
    (7,484
    )
    
    $
    (75,846
    )
    
    $
    30,569Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11Exercise of options to purchase common stock
for cash, January and February 2002 ($0.64 to
$2.94 per share)
    
    
    
    
    
    
    
    
    
    
    31,265
    
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21Issuance of common stock through employee stock
purchase plan for cash, June 2002
    
    
    
    
    
    
    
    
    
    
    4,824
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6Issuance of common stock to Employees
    
    
    
    
    
    
    
    
    
    
    105,000
    
    
    
    
    
    
    
    111
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    111Issuance of common stock to Board of Director members
for services, March through December 2002
    
    
    
    
    
    
    
    
    
    
    11,572
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,882
    )
    
    
    (3,882
    )BALANCE AT DECEMBER 31, 2002
    
    
    
    
    
    $
    
    
    
    
    11,918,177
    
    
    $
    12
    
    
    $
    114,051
    
    
    $
    
    
    
    
    415,300
    
    
    $
    (7,484
    )
    
    $
    (79,728
    )
    
    $
    26,851Issuance of common stock to Board of Director members
for services, February through May 2003
    
    
    
    
    
    
    
    
    
    
    10,871
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14Purchase of treasury stock April ($1.37 to $1.50 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,100
    
    
    
    (49
    )
    
    
    
    
    
    
    (49
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,329
    )
    
    
    (3,329
    )BALANCE AT DECEMBER 31, 2003
    
    
    
    
    
    $
    
    
    
    
    11,929,048
    
    
    $
    12
    
    
    $
    114,065
    
    
    $
    
    
    
    
    449,400
    
    
    $
    (7,533
    )
    
    $
    (83,057
    )
    
    $
    23,487Self Tender Offer of 6,547,635 shares at $2.10
including 60,888 exercised options
    
    
    
    
    
    
    
    
    
    
    60,888
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,547,635
    
    
    
    (13,665
    )
    
    
    
    
    
    
    (13,665
    )Costs associated with self tender offer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (289
    )
    
    
    
    
    
    
    (289
    )Noncash stock compensation related to stock option bonus
program
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78Issuance of 354,474 stock options to employees on
March 29, 2004 and approved on September 29, 2004
(issue price of $2.72, fmv when approved $3.60)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    312
    
    
    
    (312
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,697
    )
    
    
    (3,697
    )BALANCE AT DECEMBER 31, 2004
    
    
    
    
    
    $
    
    
    
    
    11,989,936
    
    
    $
    12
    
    
    $
    114,455
    
    
    $
    (234
    )
    
    
    6,997,035
    
    
    $
    (21,487
    )
    
    $
    (86,754
    )
    
    $
    5,992Issuance of 5,060,000 shares of treasury stock at $4.00
per share February 1, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,641
    
    
    
    
    
    
    
    (5,060,000
    )
    
    
    15,539
    
    
    
    
    
    
    
    18,180Exercise of options to purchase common stock
for cash, January and February 2005 ($2.94 to
$3.47 per share)
    
    
    
    
    
    
    
    
    
    
    26,700
    
    
    
    
    
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85Noncash stock compensation related to stock option bonus
program
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15
    )Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,391
    )
    
    
    (7,391
    )BALANCE AT DECEMBER 31, 2005
    
    
    
    
    
    $
    
    
    
    
    12,016,636
    
    
    $
    12
    
    
    $
    117,166
    
    
    $
    (130
    )
    
    
    1,937,035
    
    
    $
    (5,948
    )
    
    $
    (94,145
    )
    
    $
    16,955
  F-8




---



##### Table of Contents



ZONAGEN, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 From Inception(August 20, 1987)throughFor the Year Ended December 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2003
    
    
    2005(unaudited)Cash Flows from Operating ActivitiesNet loss
    
    $
    (7,391
    )
    
    $
    (3,697
    )
    
    $
    (3,329
    )
    
    $
    (94,145
    )Gain on disposal of discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (939
    )Gain on disposal of assets
    
    
    
    
    
    
    
    
    
    
    (102
    )
    
    
    (102
    )Adjustments to reconcile net loss to net cash
used in operating activities:Noncash financing costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    316Noncash inventory impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,417Noncash patent impairment
    
    
    
    
    
    
    308
    
    
    
    
    
    
    
    1,339Noncash decrease in accounts payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,308
    )Depreciation and amortization
    
    
    7
    
    
    
    9
    
    
    
    78
    
    
    
    3,780Noncash expenses related to stock-based
transactions
    
    
    89
    
    
    
    156
    
    
    
    14
    
    
    
    2,817Common stock issued for agreement not to
compete
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200Series B Preferred Stock issued for consulting
services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18Maturities of marketable securities
    
    
    24,825
    
    
    
    9,850
    
    
    
    51,758
    
    
    
    24,825Purchases of marketable securities
    
    
    (34,692
    )
    
    
    (12,650
    )
    
    
    (37,303
    )
    
    
    (10,957
    )Changes in operating assets and liabilities
(net effects of purchase of businesses in 1988 and 1994):Decrease (increase) in receivables
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (199
    )Decrease (increase) in inventory
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,447
    )Decrease (increase) in prepaid expenses and
other
current assets
    
    
    (197
    )
    
    
    201
    
    
    
    297
    
    
    
    68(Decrease) increase in accounts payable and
accrued expenses
    
    
    114
    
    
    
    73
    
    
    
    22
    
    
    
    1,923Net cash (used in) provided by operating activities
    
    
    (17,245
    )
    
    
    (5,750
    )
    
    
    11,435
    
    

    
    (72,394
    )Cash Flows from Investing ActivitiesMaturities (purchases) of marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,723
    )Capital expenditures
    
    
    (8
    )
    
    
    (21
    )
    
    
    
    
    
    
    (2,297
    )Purchase of technology rights and other assets
    
    
    (183
    )
    
    
    (169
    )
    
    
    (64
    )
    
    
    (2,621
    )Decrease (increase) in note receivable
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    Proceeds from sale of PP&E
    
    
    
    
    
    
    
    
    
    
    225
    
    
    
    225Cash acquired in purchase of FTI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Proceeds from sale of subsidiary, less
$12,345 for operating losses during
1990 phase-out period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    138Proceeds from sale of the assets of FTI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,250Increase in net assets held for disposal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (213
    )Net cash provided by (used in) investing activities
    
    
    (191
    )
    
    
    (190
    )
    
    
    1,161
    
    
    
    (31,238
    )Cash Flows from Financing ActivitiesProceeds from issuance of common stock, netof offering costs
    
    
    18,180
    
    
    
    
    
    
    
    
    
    
    
    102,404(Increase) decrease in prepaid offering costs
    
    
    600
    
    
    
    (316
    )
    
    
    (284
    )
    
    
    Exercise of stock options
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    85Proceeds from issuance of preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,688Purchase of treasury stock
    
    
    
    
    
    
    (13,954
    )
    
    
    (49
    )
    
    
    (21,487
    )Proceeds from issuance of notes payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,839Principal payments on notes payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,732
    )Net cash provided by (used in) financing activities
    
    
    18,865
    
    
    
    (14,270
    )
    
    
    (333
    )
    
    
    105,797Net increase (decrease) in cash and cash equivalents
    
    
    1,429
    
    
    
    (20,210
    )
    
    
    12,263
    
    
    
    2,165Cash and cash equivalents at beginning of period
    
    
    736
    
    
    
    20,946
    
    
    
    8,683
    
    
    
    Cash and cash equivalents at end of period
    
    $
    2,165
    
    
    $
    736
    
    
    $
    20,946
    
    
    $
    2,165
  F-9




---



##### Table of Contents



®
     ®
 F-10




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##### Table of Contents



F-11




---



##### Table of Contents



F-12




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##### Table of Contents



F-13




---



##### Table of Contents



December 31,2005
    
    
    2004
    
    
    2003Net loss, as reported
    
    $
    (7,391
    )
    
    $
    (3,697
    )
    
    $
    (3,329
    )Add: Stock-based employee
compensation expense included in
reported net income, net of
related tax effects
    
    
    89
    
    
    
    156
    
    
    
    14Deduct: Total stock-based
employee compensation expense
determined under fair value
based method for all awards, net
of related tax effects
    
    
    (746
    )
    
    
    (457
    )
    
    
    (1,374
    )Pro forma net loss
    
    $
    (8,048
    )
    
    $
    (3,998
    )
    
    $
    (4,689
    )Loss per
share Basic and diluted  as reported
    
    $
    (0.77
    )
    
    $
    (0.72
    )
    
    $
    (0.29
    )Basic and diluted  pro forma
    
    
    (0.83
    )
    
    
    (0.78
    )
    
    
    (0.41
    )
       December 31,2005
    
    
    2004Laboratory equipment
    
    $
    4
    
    
    $
    4Office equipment
    
    
    18
    
    
    
    10Leasehold improvements
    
    
    7
    
    
    
    729
    
    
    
    21Less  Accumulated depreciation and amortization
    
    
    10
    
    
    
    3Total
    
    $
    19
    
    
    $
    18
 F-14




---



##### Table of Contents



2006
    
    
    392007
    
    
    402008
    
    
    402009
    
    
    402010 & later
    
    
    21Total
    
    $
    180
   December 31,2005
    
    
    2004Research and development costs
    
    $
    7
    
    
    $
    7Payroll
    
    
    159
    
    
    
    Legal
    
    
    45
    
    
    
    48Offering costs
    
    
    
    
    
    
    250Patent costs
    
    
    97
    
    
    
    90Other
    
    
    81
    
    
    
    75Total
    
    $
    389
    
    
    $
    470
     F-15




---



##### Table of Contents



December 31,2005
    
    
    2004Net operating loss carryforwards
    
    $
    28,672
    
    
    $
    26,693Research and development tax credits
    
    
    2,819
    
    
    
    2,871Accruals/expenses not currently deductible
    
    
    1,510
    
    
    
    1,510Total deferred tax assets
    
    
    33,001
    
    
    
    31,074Less  Valuation allowance
    
    
    (33,001
    )
    
    
    (31,074
    )Net deferred tax assets
    
    $
    
    
    
    $
    
        2005
    
    
    2004
    
    
    2003Net loss
    
    $
    (7,391
    )
    
    $
    (3,697
    )
    
    $
    (3,329
    )Weighted average common shares outstanding
    
    
    9,647
    
    
    
    5,117
    
    
    
    11,487Basic earnings per share
    
    $
    (0.77
    )
    
    $
    (0.72
    )
    
    $
    (0.29
    )Weighted average common and dilutive potential common shares outstanding:Weighted average common shares outstanding
    
    
    9,647
    
    
    
    5,117
    
    
    
    11,487Assumed exercise of stock options
    
    
    
    
    
    
    
    
    
    
    9,647
    
    
    
    5,117
    
    
    
    11,487Diluted earnings per share
    
    $
    (0.77
    )
    
    $
    (0.72
    )
    
    $
    (0.29
    )
    F-16




---



##### Table of Contents



F-17




---



##### Table of Contents



2005
    
    
    2004
    
    
    2003Weighted
    
    
    Weighted
    
    
    WeightedAverage
    
    
    Average
    
    
    AverageExercise
    
    
    Exercise
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at beginning of year
    
    
    1,786,846
    
    
    $
    4.77
    
    
    
    1,225,470
    
    
    $
    5.98
    
    
    
    1,531,710
    
    
    $
    6.76Granted
    
    
    85,000
    
    
    
    3.81
    
    
    
    816,464
    
    
    
    2.78
    
    
    
    12,972
    
    
    
    1.23Exercised
    
    
    (26,700
    )
    
    
    3.18
    
    
    
    (60,888
    )
    
    
    1.39
    
    
    
    
    
    
    
    Forfeited
    
    
    (129,783
    )
    
    
    5.92
    
    
    
    (194,200
    )
    
    
    5.24
    
    
    
    (319,212
    )
    
    
    9.52Outstanding at end of year
    
    
    1,715,363
    
    
    
    4.66
    
    
    
    1,786,846
    
    
    
    4.77
    
    
    
    1,225,470
    
    
    
    5.98Exercisable at end of year
    
    
    1,098,141
    
    
    
    5.29
    
    
    
    858,930
    
    
    
    6.44
    
    
    
    810,370
    
    
    
    6.97
  Weighted
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    Average
    
    
    
    
    
    
    AverageNumber
    
    
    Remaining
    
    
    Exercise
    
    
    Number
    
    
    ExerciseRange Of Exercise Prices
    
    
    Outstanding
    
    
    Life
    
    
    Price
    
    
    Exercisable
    
    
    Price$.    00
to
    
    
    
    $
    5.00
    
    
    
    1,443,259
    
    
    
    6.7
    
    
    $
    3.21
    
    
    
    826,037
    
    
    $
    2.965.01 to
    
    
    
    
    10.00
    
    
    
    206,354
    
    
    
    0.7
    
    
    
    8.36
    
    
    
    206,354
    
    
    
    8.3610.01 to
    
    
    
    
    15.00
    
    
    
    7,500
    
    
    
    0.1
    
    
    
    13.44
    
    
    
    7,500
    
    
    
    13.4415.01 to
    
    
    
    
    20.00
    
    
    
    3,250
    
    
    
    3.0
    
    
    
    18.61
    
    
    
    3,250
    
    
    
    18.6120.01 to
    
    
    
    
    25.00
    
    
    
    20,000
    
    
    
    0.6
    
    
    
    21.08
    
    
    
    20,000
    
    
    
    21.0825.01 to
    
    
    
    
    30.00
    
    
    
    30,000
    
    
    
    2.3
    
    
    
    29.67
    
    
    
    30,000
    
    
    
    29.6730.01 to
    
    
    
    
    35.00
    
    
    
    5,000
    
    
    
    4.4
    
    
    
    33.25
    
    
    
    5,000
    
    
    
    33.251,715,363
    
    
    
    
    
    
    
    
    
    
    
    1,098,141
     F-18




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##### Table of Contents



F-19




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##### Table of Contents



First Quarter
    
    
    Second Quarter
    
    
    Third Quarter
    
    
    Fourth QuarterEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2005
    
    
    2005
    
    
    2005
    
    
    2005(In thousands except per share amounts)Revenues and other income:Licensing fees
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Research and development grants
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    Interest income
    
    
    108
    
    
    
    173
    
    
    
    175
    
    
    
    174Total revenues
    
    
    112
    
    
    
    173
    
    
    
    175
    
    
    
    174Expenses:Research and development
    
    
    1,236
    
    
    
    1,355
    
    
    
    1,641
    
    
    
    1,869General and administrative
    
    
    431
    
    
    
    465
    
    
    
    461
    
    
    
    567Total expenses
    
    
    1,667
    
    
    
    1,820
    
    
    
    2,102
    
    
    
    2,436Net loss
    
    $
    (1,555
    )
    
    $
    (1,647
    )
    
    $
    (1,927
    )
    
    $
    (2,262
    )Net loss per share  basic and diluted
    
    $
    (0.19
    )
    
    $
    (0.16
    )
    
    $
    (0.19
    )
    
    $
    (0.22
    )Shares used in loss per share calculation
    
    
    8,326
    
    
    
    10,080
    
    
    
    10,080
    
    
    
    10,080
 First Quarter
    
    
    Second Quarter
    
    
    Third Quarter
    
    
    Fourth QuarterEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2004
    
    
    2004
    
    
    2004
    
    
    2004(In thousands except per share amounts)Revenues and other income:Licensing fees
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Research and development grants
    
    
    64
    
    
    
    53
    
    
    
    2
    
    
    
    Interest income
    
    
    26
    
    
    
    22
    
    
    
    27
    
    
    
    28Gain on disposal of fixed assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Income
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    Total revenues
    
    
    125
    
    
    
    75
    
    
    
    29
    
    
    
    28Expenses:Research and development
    
    
    477
    
    
    
    508
    
    
    
    929
    
    
    
    557General and administrative
    
    
    434
    
    
    
    294
    
    
    
    540
    
    
    
    215Total expenses
    
    
    911
    
    
    
    802
    
    
    
    1,469
    
    
    
    772Net loss
    
    $
    (786
    )
    
    $
    (727
    )
    
    $
    (1,440
    )
    
    $
    (744
    )Net loss per share  basic and diluted
    
    $
    (0.14
    )
    
    $
    (0.15
    )
    
    $
    (0.29
    )
    
    $
    (0.15
    )Shares used in loss per share calculation
    
    
    5,492
    
    
    
    4,993
    
    
    
    4,993
    
    
    
    4,993
    F-20




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##### Table of Contents



INDEX TO EXHIBITS
 Exhibit Number
    
    
    
    Identification Of Exhibit3.1
    (a)
    
    
    
    Restated Certificate of Incorporation. Exhibit
3.3 to the Companys Registration Statement on
Form SB-2 (No. 33-57728-FW), as amended
(Registration Statement), is incorporated
herein by reference.3.1
    (b)
    
    
    
    Certificate of Designation of Series One
Junior Participating Preferred Stock dated
September 2, 1999. Exhibit A to Exhibit 4.1 to
the Companys Registration Statement on Form
8-A as filed with the Commission on September
3, 1999 (the Rights Plan Registration
Statement), is incorporated herein by
reference.3.2
    
    
    
    
    Restated Bylaws of the Company. Exhibit 3.4 to
the Registration Statement is incorporated
herein by reference.4.1
    
    
    
    
    Specimen Certificate of Common Stock, $.001
par value, of the Company. Exhibit 4.1 to the
Registration Statement is incorporated herein
by reference.4.2
    
    
    
    
    Rights Agreement dated September 1, 1999
between the Company and Computershare Investor
Services LLC (as successor in interest to
Harris Trust & Savings Bank), as Rights Agent.
Exhibit 4.1 to the Rights Plan Registration
Statement is incorporated herein by reference.4.3
    
    
    
    
    First Amendment to Rights Agreement, dated as
of September 6, 2002, between the Company,
Harris Trust & Savings Bank and Computershare
Investor Services LLC. Exhibit 4.3 to
Amendment No. 1 to the Rights Plan
Registration Statement on Form 8-A/A as filed
with the Commission on September 11, 2002 is
incorporated herein by reference.4.4
    
    
    
    
    Second Amendment to Rights Agreement, dated as
of October 30, 2002, between the Company and
Computershare Investor Services LLC. Exhibit
4.4 to Amendment No. 2 to the Rights Plan
Registration Statement on Form 8-A/A as filed
with the Commission on October 31, 2002 is
incorporated herein by reference.4.5
    
    
    
    
    Third Amendment to Rights Agreement, dated as
of June 30, 2005, between the Company and
Computershare Trust Company, Inc. (as
successor in interest to Computershare
Investor Services, LLC). Exhibit 4.4 to the
Companys Current Report on Form 8-K as filed
with the Commission on June 30, 2005 is
incorporated herein by reference.4.6
    
    
    
    
    Form of Rights Certificate. Exhibit B to
Exhibit 4.1 to the Rights Plan Registration
Statement is incorporated herein by reference.10.1+
    
    
    
    
    Amended and Restated 1993 Employee and
Consultant Stock Option Plan. Exhibit 10.3 to
the Registration Statement is incorporated
herein by reference.10.2+
    
    
    
    
    First Amendment to the Zonagen, Inc. Amended
and Restated 1993 Stock Option Plan. Exhibit
10.22 to the Companys Annual Report on Form
10-K for the year ended December 31, 1999 (the
1999 Form 10-K) is incorporated herein by
reference.10.3+
    
    
    
    
    1996 Non-Employee Directors Stock Option
Plan. Exhibit 10.1 to the Companys Quarterly
Report on Form 10-Q for the fiscal quarter
ended June 30, 1997 is incorporated herein by
reference.10.4+
    
    
    
    
    2000 Non-Employee Directors Stock Option
Plan. Appendix B to the Companys Definitive
Proxy Statement filed on April 26, 2000 is
incorporated herein by reference.10.5+
    
    
    
    
    First Amendment to the Zonagen, Inc. 2000
Non-Employee Directors Stock Option Plan.
Exhibit 10.21 to the 2000 Form 10-K is
incorporated herein by reference.
 E-1




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##### Table of Contents



Exhibit Number
    
    
    
    Identification Of Exhibit10.6+
    
    
    
    
    Second Amendment to 2000 Non-Employee
Directors Stock Option Plan. Exhibit 10.6 to
the Companys Annual Report on Form 10-K for
the year ended December 31, 2002 (the 2002
Form 10-K) is incorporated herein by
reference.10.7+
    
    
    
    
    Zonagen, Inc. 2004 Stock Option Plan. Exhibit
10.17 to the Companys Registration Statement
on Form S-1 (No. 333-119861), as amended, is
incorporated herein by reference.10.8+
    
    
    
    
    Employment Agreement between the Company and
Joseph S. Podolski. Exhibit 10.5 to the
Registration Statement is incorporated herein
by reference.10.9+
    
    
    
    
    First Amendment to Employment Agreement
between the Company and Joseph S. Podolski.
Exhibit 10.1 to the Companys Quarterly Report
on Form 10-Q for the fiscal quarter ended
March 31, 2001 is incorporated herein by
reference.10.10+
    
    
    
    
    Second Amendment to Employment Agreement
between the Company and Joseph S. Podolski.
Exhibit 10.17 to the 2002 Form 10-K is
incorporated herein by reference.10.11+
    
    
    
    
    Amended and Restated Employment Agreement
between the Company and Louis Ploth, Jr. dated
December 23, 2005. Exhibit 10.1 to the
Companys Current Report on Form 8-K filed
with the Commission on December 23, 2005 is
incorporated herein by reference.10.12
    
    
    
    
    Lease Agreement dated May 11, 2004 between the
Company and Sealy Woodlands, L.P. Exhibit
10.14 to the Companys Annual Report on Form
10-K for the year ended December 31, 2004 is
incorporated herein by reference.10.13++
    
    
    
    
    Letter Agreement dated July 15, 2002 between
the Company, Schering Plough Ltd. and
Schering-Plough Corporation. Exhibit 10.1 to
the Companys Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 2002 is
incorporated herein by reference.10.14++
    
    
    
    
    PHS Patent License Agreement dated April 16,
1999 between the Company and certain agencies
of the United States Public Health Service
within the Department of Health and Human
Services, with amendments. Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 2003 is
incorporated herein by reference.23.1*
    
    
    
    
    Consent of PricewaterhouseCoopers LLP31.1*
    
    
    
    
    Certification Pursuant to Rule 13(a)-14(a) or
15(d)-14(a) of the Exchange Act, As Adopted
Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (Chief Executive Officer)31.2*
    
    
    
    
    Certification Pursuant to Rule 13(a)-14(a) or
15(d)-14(a) of the Exchange Act, As Adopted
Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (Chief Financial Officer)32.1*
    
    
    
    
    Certification Furnished Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (Chief
Executive Officer)32.2*
    
    
    
    
    Certification Furnished Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (Chief
Financial Officer)
 
 *
    
    Filed herewith.+
    
    Management contract or compensatory plan.++
    
    Portions of this exhibit have been omitted based on a request for
confidential treatment pursuant to Rule 24b-2 of the Exchange Act.
Such omitted portions have been filed separately with the Commission. E-2