UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
----
THE SECURITIES EXCHANGE ACT OF 1934
For the three month period ended OCTOBER 31, 2002
____TRANSITION REPORT UNDER SECTION 13 or 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission file number 000-23399
NOVADEL PHARMA INC.
(Exact name of small business issuer as specified in its charter)
Delaware 22-2407152
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
31 State Highway 12
Flemington, New Jersey 08822
(Address of Principal Executive Offices) (Zip Code)
(908)782-3431
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes___No__
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. 14,534,739 shares of common
stock outstanding as of October 31, 2002.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES___ NO X_
NOVADEL PHARMA INC.
BALANCE SHEETS
October 31 July 31,
2002 2002
(Unaudited) (Note 1)
-------------- -------------
ASSETS
CURRENT ASSETS:
Cash $ 2,211,000 $ 3,314,000
Accounts receivable - trade, less allowance for
doubtful accounts of $88,000 at October 31, 2002 and
July 31, 2002 0 1,000
Prepaid expenses and other current assets 111,000 96,000
-------------- -------------
Total Current Assets 2,322,000 3,411,000
-------------- -------------
FURNITURE, FIXTURES, AND EQUIPMENT, LESS
ACCUMULATED DEPRECIATION 478,000 406,000
OTHER ASSETS 23,000 22,000
-------------- -------------
$ 2,823,000 $ 3,839,000
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable-trade $ 183,000 $ 125,000
Accrued expenses and other current liabilities 251,000 191,000
-------------- -------------
Total Current Liabilities 434,000 316,000
-------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock, $.01 par value:
Authorized 1,000,000 shares, none issued
Common stock, $.001 par value:
Authorized - 50,000,000 shares
Issued and outstanding 14,534,739 and 14,448,817;
respectively 15,000 14,000
Additional paid-in capital 13,901,000 13,322,000
Accumulated Deficit (11,527,000) (9,813,000)
-------------- -------------
Total Stockholders' Equity (Deficiency) 2,389,000 3,523,000
-------------- -------------
$ 2,823,000 $ 3,839,000
============== =============
See accompanying notes to financial statements.
2
NOVADEL PHARMA INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
October 31
2002 2001
------------ -----------
CONSULTING REVENUES $ 0 $ 72,000
CONSULTING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,729,000 324,000
------------ -----------
LOSS FROM OPERATIONS (1,729,000) (252,000)
INTEREST INCOME 15,000 5,000
------------ -----------
NET LOSS $(1,714,000) $ (247,000)
============ ===========
BASIC AND DILUTED LOSS PER SHARE $ (.12) $ (.03)
============ ===========
SHARES USED IN COMPUTATION OF BASIC
AND DILUTED LOSS PER SHARE 14,509,523 7,724,900
============ ===========
See accompanying notes to financial statements.
3
NOVADEL PHARMA INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
(Unaudited)
Common Stock
-------------------
Stockholders'
Par Paid-in Accumulated Equity
Shares Value Capital Deficit (Deficiency)
----------- ------- ------------ ------------- -------------
BALANCE, JULY 31, 2002 14,448,817 $14,000 $13,322,000 $ (9,813,000) $ 3,523,000
THREE MONTHS ENDED OCTOBER
31, 2002 -
Shares issued for Warrants exercised 85,922 1,000 (1,000) - -
Options issued for services - - 573,000 - 573,000
Warrants issued for services - - 7,000 - 7,000
Net Loss - - - (1,714,000) (1,714,000)
----------- ------- ------------ ------------- -------------
BALANCE, October 31, 2002 14,534,739 $15,000 $13,901,000 $(11,527,000) $ 2,389,000
=========== ======= ============ ============= =============
See accompanying notes to financial statements.
4
NOVADEL PHARMA INC.
STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
October 31
-------------------------
2002 2001
------------ -----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(1,714,000) $ (247,000)
Adjustments to reconcile net income (loss) to net cash
flows from operating activities:
Options issued for services 573,000 -
Warrants issued for services 7,000 -
Depreciation and amortization 37,000 12,000
Changes in operating assets and liabilities:
Accounts receivable 1,000 (143,000)
Prepaid expenses and other current assets (15,000) 7,000
Due from Joint Venture partner for reimbursable expenses - (4,000)
Accounts payable - trade 58,000 26,000
Accrued expenses and other current liabilities 60,000 142,000
------------ -----------
Net cash flows from operating activities $ (993,000) $( 207,000)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of property and equipment (110,000) (15,000)
------------ -----------
Net cash flows from investing activities (110,000) $ (15,000)
------------ -----------
NET CHANGE IN CASH (1,103,000) $( 222,000)
CASH, BEGINNING OF PERIOD 3,314,000 585,000
------------ -----------
CASH, END OF PERIOD 2,211,000 $ 363,000
============ ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ - $ -
============ ===========
Income taxes paid $ - $ -
============ ===========
See accompanying notes to financial statements.
5
NOVADEL PHARMA INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION:
The balance sheet at the end of the preceding fiscal year has
been derived from the audited balance sheet contained in the
Company's Form 10-KSB and is presented for comparative purposes.
All other financial statements are unaudited. In the opinion of
management, all adjustments, which include only normal recurring
adjustments necessary to present fairly the financial position,
results of operations and cash flows for all periods presented,
have been made in the interim statements. Results of operations
for interim periods are not necessarily indicative of the
operating results for a full year.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company
believes that its current cash levels together with revenues from
operations, will be sufficient to satisfy its cash requirements
for the next five (5) months. However, beyond this point there is
substantial doubt about the Company's ability to continue
operations without obtaining additional financing and/or
consummating a strategic alliance with a well-funded business
partner. There are a number of risks and uncertainties related to
the Company's attempt to complete a financing or strategic
partnering arrangement that are outside the control of the
Company. We may not be able to successfully obtain additional
financing on terms acceptable to the Company, or at all. These
uncertainties raise substantial doubt as to the Company's ability
to continue as a going concern.
Footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been omitted in accordance with the published
rules and regulations of the Securities and Exchange Commission.
The financial statements in this report should be read in
conjunction with the financial statements and notes thereto
included in the Form 10-KSB of NOVADEL PHARMA INC. (the
"Company"), for the year ended July 31, 2002.
NOTE 2 - PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Approximately $71,000 of prepaid supplies, approximately $15,000
of prepaid insurance and approximately $8,000 of employee loan
are included in the $111,000 total. The remainder is other
prepaid expenses.
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Approximately $143,000 of accrued clinical study costs,
approximately $66,000 of accrued employee vacation, approximately
$20,000 of accrued legal and professional fees and approximately
$11,000 of accrued payroll and related payroll taxes are included
in the $251,000 total. The remainder is other accrued expenses
and other current liabilities.
NOTE 3 - STOCK OPTIONS AND WARRANTS:
In October 2002, the Company issued 75,000 options under the 1998
option plan and 200,000 non-plan options to its president. These
options vest immediately, have an exercise price of $1.30 and
expire during October 2007.
In November 2002, the Company extended for one year the
expiration date of its publicly traded warrants (i.e. to November
18, 2003). All other provisions of the warrants remain unchanged.
6
NOVADEL PHARMA INC.
Part I, Item 2. Management's Discussion and Analysis
Novadel Pharma inc., a Delaware corporation (the "Company"), is engaged in
development of novel application drug delivery systems for presently marketed
prescription and over-the-counter ("OTC") drugs and has been a consultant to the
pharmaceutical industry. Since 1992, the Company has used its consulting
revenues to fund its own product development activities.
Since its inception, substantially all of the Company's revenues have been
derived from its consulting activities. The Company has had a history of
recurring losses from operation, giving rise to an accumulated deficit at
October 31, 2002 of approximately $11,527,000. Revenues from consulting may be
expected to continue to decline in the future as the Company shifts its emphasis
away from product development consulting for its clients and towards development
of its own products.
For the reasons stated above, the Company anticipates that it will incur
substantial operating expenses in connection with the testing and approval of
its proposed delivery systems, and expects these expenses will result in
continuing and significant operating losses until such time, if ever, that the
Company is able to achieve adequate sales levels.
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED OCTOBER 2002 [THE "2002 PERIOD"] AND OCTOBER 2001 [THE
"2001 PERIOD"]
Operating revenues for the 2002 Period decreased approximately $72,000 to $0
from $72,000 for the 2001 Period.
Total costs and expenses for the 2002 Period increased approximately $1,405,000
to $1,729,000 from $324,000 for the 2001 Period. This increase includes
approximately: $783,000 in outside consultant fees primarily due to a non-cash
charge of approximately $580,000 for options and warrants issued to consultants;
$208,000 in legal & professional fees; $148,000 in payroll expense primarily
due to additional employees and the establishment of a vacation pay accrual;
$140,000 in laboratory testing and clinical studies costs; $25,000 in
depreciation and amortization expense due to the earlier purchase of internal
laboratory equipment; $22,000 in insurance expenses; $16,000 in laboratory
expenses due to additional lab employees requiring additional supplies and
services; $10,000 in office expenses due to increased activities and a Company
name change; $9,000 increase in travel expenses; and a $7,000 increase in rent.
Interest income increased approximately $10,000 to $15,000 for the 2002 Period
from $5,000 for the 2001 Period due to an increased average cash balance.
The resulting net loss for the 2002 Period was $1,714,000 compared to a net loss
of $247,000 for the 2001 Period.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities approximated $967,000 for the 2002 Period
compared to net cash used in operating activities of approximately $207,000 for
the 2001 Period. Net cash used in operating activities for both the 2002 and
2001 periods was primarily attributable to the net loss of $1,714,000 and
$247,000, respectively. For the 2002 Period, approximately $110,000 was used
for investing activities compared to approximately $15,000 for the 2001 Period.
For the 2002 period, approximately $26,000 was used for financing activities.
Total cash flow for the 2002 period decreased approximately $1,103,000 as
compared to a $222,000 decrease for the 2001 period.
The Company believes that it currently has sufficient cash to satisfy its cash
requirements for at least the next five (5) months.
7
INFLATION
The Company does not believe that inflation has had a material effect on its
results of operations during the past three fiscal years. There can be no
assurance that the Company's business will not be affected by inflation in the
future.
Part 1, Item 3. Controls and Procedures
Within the 90-day period prior to the date of this report, our Chief Executive
Officer and Chief Financial Officer performed an evaluation of our disclosure
controls and procedures, which have been designed to permit us to effectively
identify and timely disclose important information. They concluded that the
controls and procedures were effective. Since the date of the evaluation, we
have made no significant changes in our internal controls or in other factors
that could significantly affect our internal controls.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
In August 2002, the Company issued 85,922 common shares to
satisfy the cashless exercise of 136,482 warrants.
Item 3. Defaults Upon Senior Securities
N/A
Item 4. Submissions of Matters to a Vote of Security Holders
N/A
Item 5. Other Information
N/A
Item 6. Exhibits List and Reports on Form 8-K
(a) List of Exhibits
Exhibit 11. Statement re: computation of earnings per share
for the three months ended October 31, 2002
Exhibit 99.1. Certification of Chief Executive Officer and
Chief Financial Officer
b) Reports on Form 8-K
None
8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOVADEL PHARMA INC
Dated: December 10, 2002 By: /s/ Harry A. Dugger, III
----------------- -----------------------------------
Harry A. Dugger, III, President
(Principal Executive Officer)
Dated: December 10, 2002 By: /s/ Donald J. Deitman
------------------ -----------------------------------
Donald J. Deitman
Chief Financial Officer
9
CERTIFICATION
I, Harry A. Dugger III, Ph.D., certify that:
--------------------------
1. I have reviewed this quarterly report on Form 10-QSB of NovaDel Pharma Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors and material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: December 10, 2002
-----------------
Harry A. Dugger III, Ph.D
President & Chief Executive Officer
/s/ Harry A. Dugger III
-----------------------
(Signature)
10
CERTIFICATION
I, Donald J. Deitman, certify that:
------------------
1. I have reviewed this quarterly report on Form 10-QSB of NovaDel Pharma Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors and material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: December 10, 2002
-----------------
Donald J. Deitman
Chief Financial Officer
/s/ Donald J. Deitman
---------------------
(Signature)
11