SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file No. 000-23399
NOVADEL PHARMA INC.
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(Name of small business issuer as specified in its charter)
Delaware 22-2407152
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
25 Minneakoning Road, Flemington, New Jersey 08822
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (908) 782-3431
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Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
Redeemable Common Stock Purchase Warrants
Check whether the issuer (1) has 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 [ ]
Check if there is no disclosure of delinquent filings pursuant to Item
405 of Regulation S-B contained herein, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X].
State the issuer's revenues for its most recent fiscal year: $2,000
The aggregate market value of the voting and non-voting common equity
of the registrant held by non-affiliates of the registrant at October 27, 2003
was approximately $ 19,027,000 based upon the closing sale price of $2.01 for
the Registrant's Common Stock, $.001 par value, as reported by the National
Association of Securities Dealers OTC Bulletin Board on October 27, 2003.
As of October 27, 2003 the Registrant had 17,972,760 shares of Common
Stock, $.001 par value, outstanding.
Documents incorporated by reference: None
NOVADEL PHARMA INC.
Annual Report on Form 10-KSB
For the Fiscal Year Ended July 31, 2003
TABLE OF CONTENTS
Page
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PART I
Item 1. Business 1
Item 2. Properties 20
Item 3. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of Security Holders 20
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 20
22
Item 6. Management's Discussion and Analysis or Plan of Operations 22
Item 7. Financial Statements 25
Item 8. Changes in and Disagreements with Accountants on Accounting 25
and Financial Disclosure
Item 8A. Controls and Procedures 25
PART III
Item 9. Directors and Executive Officers of the Registrant 26
Item 10. Executive Compensation 30
Item 11. Security Ownership of Certain Beneficial Owners and Management and Related 35
Stockholder Matters
Item 12. Certain Relationships and Related Transactions 37
Item 13. Exhibits List and Reports on Form 8-K 38
Item 14. Principal Accountant Fees and Services F-1 thru F-16
PART I
ITEM 1. BUSINESS.
General
NovaDel Pharma Inc. (formerly known as Flemington Pharmaceutical Corporation),
is engaged in the development of novel application drug delivery systems for
presently marketed prescription and over-the-counter ("OTC") drugs. Our (both
patented and patent-pending) delivery systems are lingual sprays, enabling drug
absorption through the oral mucosa and more rapid absorption into the
bloodstream than presently available oral delivery systems. Our proprietary
delivery system enhances and greatly accelerates the onset of the therapeutic
benefits which the drugs are intended to produce, to provide therapeutic
benefits within minutes of administration. Our development efforts for our novel
drug delivery system are concentrated on drugs which are already available and
proven in the marketplace. In addition to increasing bioavailability by avoiding
metabolism by the liver before entry into the bloodstream, we believe that our
proprietary delivery system offers the following significant advantages: (i)
improved drug safety profile by reducing the required dosage, including possible
reduction of side-effects; (ii) improved dosage reliability; (iii) allowing
medication to be taken without water; and (iv) improved patient convenience and
compliance.
In light of the material expense and delays associated with independently
developing and obtaining approval of pharmaceutical products, we will seek to
develop such products through collaborative arrangements with major
pharmaceutical companies, which will fund that development. Due to our small
revenue base, low level of working capital and the inability to conclude
development agreements with major pharmaceutical companies, we have been unable
aggressively to pursue our product development strategy. We will require
significant additional financing and/or a strategic alliance with a well-funded
development partner to undertake our business plan. See "Management Discussion
and Analysis."
At its inception in 1982, Novadel, then known as Pharmaconsult, was a consultant
to the pharmaceutical industry, focusing on product development activities of
various European pharmaceutical companies. Since 1992 NovaDel has used its
consulting revenues to fund its own product development activities. Our focus on
developing our own products evolved naturally out of our consulting experience
for other pharmaceutical companies. Substantially all of our revenues previously
were derived from our consulting activities. Consulting activities are no longer
a material part of our business. In 1991, we changed our name to Flemington
Pharmaceutical Corporation. Effective October 1, 2002, we changed our name to
NovaDel Pharma Inc. The Company's principal business address is 25 Minneakoning
Road,, Flemington, New Jersey, 08822, and its telephone number is (908)
782-3431.
Safe harbor statements under the private securities litigation reform act of
1995
This Annual Report includes "forward-looking statements" as that term is defined
in the Private Securities Litigation Reform Act of 1995. The safe harbor
provisions of the Securities Exchange Act of 1934 and the Securities Act of 1933
apply to forward-looking statements made by us. These statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," "plans," "future," "intends," "continue,"
"estimate" or "anticipates" or the negatives or variations of these terms, and
other comparable terminology. In addition, any statements discussing strategy
that involve risks and uncertainties are forward-looking.
1
Forward-looking statements involve risks and uncertainties, including those
risks and uncertainties identified in, or incorporated by reference into, this
report. Due to these risks and uncertainties, the actual results that we achieve
may differ materially from these forward-looking statements. These
forward-looking statements are based on current expectations, and we assume no
obligation to update this information. In preparing this report, we may have
made a number of assumptions and projections about the future of our business.
These assumptions and projections could be wrong for several reasons including,
but not limited to, those factors identified in the "Risk Factors" section,
below.
You are urged to carefully review and consider the various disclosures that we
make in this report .These disclosures attempt to advise interested parties of
the risk factors that may affect our business and the market price of our shares
of common stock.
Recent Developments - Private Placement.
In April and May 2003, we sold Units (consisting of common stock and warrants)
to accredited investors on a private placement basis. Investors were issued one
warrant for each four shares purchased. An aggregate of 3,200,345 shares of
common stock and warrants for 800,095 shares were sold to the investors. The
warrants are exercisable for five years, at an exercise price of $2.00 per
share. The securities were sold through Paramount Capital, Inc., a NASD broker-
dealer. The gross proceeds of the private offering were approximately $4.8
million. For its services as placement agent, we paid Paramount a 7.5%
commission fee of the aggregate amount raised (approximately $360,000) and also
issued to Paramount warrants to purchase 160,017 shares of common stock at an
exercise price of $1.65 and 40,004 shares of common stock at an exercise price
of $2.00. In connection with the offering, we agreed to file a registration
statement with the Securities and Exchange Commission to register the resale of
the shares of common stock and the shares underlying the warrants (as well as
the shares underlying Paramount's warrants). We also agreed that if, at any time
following the closing of the offering and continuing for a period of two (2)
years thereafter, we offer shares of our common stock for sale in a capital
raising transaction, we will permit the investors to purchase such number of
shares of common stock to maintain their pro rata ownership percentages of
NovaDel. We also agreed that if, at any time following the closing of the
offering for a period of one year, we sold shares of common stock in a capital
raising transaction (of at least $1 million) at a per share price less than
$1.50, we will issue to the investors additional shares of common stock (so that
they would receive their original shares at such lower price). See "Certain
Relationships and Related Transactions".
2
Product Development
Cardiovascular (Nitroglycerin)
NovaDel's Nitroglycerin product has been formulated and stability testing has
been completed. A United States patent was issued in 1999. An IND was filed with
FDA in early 2002 and clinical trials began in July 2002 and were completed in
December 2002. NovaDel anticipates filing an NDA in the fourth quarter of 2003.
Loratadine Lingual Spray
A loratadine lingual spray formulation has been developed and successfully
undergone stability testing. A Pre-IND meeting with FDA was held in the third
quarter of 2000 and based on the results of that meeting a plan for further
development was prepared. An IND was filed and a pharmacokinetic study was
carried out under this IND to compare the plasma levels following administration
of a 5.0 mg and a 2.5 mg lingual spray to those after administration of a 10 mg
tablet. Both lingual spray doses resulted in higher plasma levels concentrations
than the 10 mg tablet. In the case of the 5.0 mg dose the peak plasma levels
were greater than twice those of the tablet and those after the 2.5 mg dose were
about 50% higher. Therapeutic plasma levels based on the claimed start of
antihistaminic effect for the Claritin(R) tablet (1-3 hours) were achieved
between 24 and thirty minutes. Subsequently, a "wheal and flare" study was
completed, the results of which are currently being evaluated. NovaDel is
presently seeking a partner to complete development of this product.
Clemastine Lingual Spray
The formulation of clemastine lingual spray that was terminated by Novartis in
1998 was revised and a Pre-IND meeting with FDA was held in the third quarter of
2000. Based on the results of that meeting a plan for further development was
prepared and an IND was filed. A pilot nasal challenge efficacy study was
initiated in the second quarter of 2000. This study tested the relative response
of subjects challenged with allergy producing substances to an OTC tablet (1.34
mg) and a lingual spray dose of 0.68 mg. The antihistamine was administered 15
minutes prior to the challenge. The results showed that the spray had the same
antihistaminic effect as the tablet when compared to placebo at 45 minutes after
dosing even though the dose was only half that of the tablet. Eight of the
parameters measured in the study showed a clear trend that the spray was better
than the tablet and the tablet was better than placebo. Even though the study
was only a pilot study, the results appear to support the concept that a
clemastine lingual spray could be a non-sedating antihistamine product in that
there were two cases of drowsiness when the tablet was given and one with the
placebo but none when the lingual spray was administered. A pharmacokinetic
dose-ranging study has been completed and other pilot studies are planned.
NovaDel is seeking a partner to complete development of this product.
Estradiol Sprays
NovaDel presently has two open IND's for the study of Estradiol therapies and
has performed pharmacokinetic studies. Due to questions that recently have been
raised about estrogen therapy, NovaDel is reevaluating the viability of this
development program.
Agreement with Manhattan Pharmaceuticals
3
In April 2003, we entered into a license and development agreement with
Manhattan Pharmaceuticals, Inc. (Manhattan) for the worldwide, exclusive rights
to our lingual spray technology to deliver Propofol for pre-procedural sedation.
The terms of the agreement call for certain milestones and other payments, the
first of which was received during June 2003. One of the Company's Affiliates,
Dr. Lindsay Rosenwald, is also an Affiliate of Manhattan. Manhattan is a
development stage company and has no revenues to date. The agreement has
conditions that stipulate that Manhattan has to raise certain funds before the
Company receives the remaining license fee. There is no assurance that Manhattan
can achieve this. If Manhattan is unable to raise additional funds, there is
significant doubt it would be able to fulfill its remaining commitments to the
Company. See also Notes 6 and 7 to the Financial Statements.
Business Strategy
NovaDel's strategy is to concentrate its product development activities
primarily on those pharmaceuticals for which there already are significant
prescription and OTC sales, where the use of NovaDel's innovative delivery
system will greatly enhance speed of onset of therapeutic effect, reduce side
effects through a reduction of the amount of active drug substance required to
produce a given therapeutic effect, and improve patient convenience or
compliance.
In light of the material expense and delays associated with independently
developing and obtaining approval of pharmaceutical products, we will seek to
develop such products through collaborative arrangements with major
pharmaceutical companies, which will fund that development. NovaDel 's lack of
working capital has impaired its ability to pursue its strategy. See "Management
Discussion and Analysis."
Patented and Patent Pending Delivery Systems
NovaDel has certain patents and pending patent applications for its Lingual
(Oral) Spray delivery system. FDA approval is not a prerequisite for patent
approval. The expected year of marketability of a given product will vary
depending upon the specific drug product with which the delivery system will be
utilized. Each individual use of the delivery system will require registration
with and/or approval by the FDA prior to marketability, and the amount of
regulatory oversight required by the FDA will also depend on the specific type
of drug product for which the delivery system is implemented. The following is a
description of the oral dosage delivery system for which patent applications are
either granted or pending:
Lingual (Oral) Spray. NovaDel's aerosol and pump spray formulations release the
drug in the form of a fine mist into the mouth for immediate absorption into the
bloodstream via the mucosal membranes. NovaDel believes that this delivery
system offers certain advantages, including improving the safety profile of
certain drugs by lowering the required dosage, improving dose reliability, and
allowing medication to be taken without water. Drug absorption through the
mucosal membranes of the mouth is rapid and minimizes the first-pass metabolism
effect (i.e., total or partial inactivation of a drug as it passes through the
gastrointestinal tract and liver).
Proposed Products
NovaDel's proposed products described below are subjected to laboratory testing
and stability studies and tested for therapeutic comparison to the originators'
products by qualified laboratories and clinics. To the extent that two drug
products with the same active ingredients are substantially identical in terms
of their rate and extent of absorption in the human body (bioavailability), they
are considered bioequivalent. If the accumulated data demonstrates
bioequivalency, submission is then made to the
4
FDA (through the filing of an ANDA) for its review and approval to manufacture
and market. If the accumulated data demonstrates that there are differences in
the two drugs' rate and extent of absorption into the human body, or if it is
intended to make additional or different claims regarding therapeutic effect for
the newly developed product, submission is made to the FDA via a NDA for its
review and approval under Section 505(b)(1) or Section 505(b)(2) of the FDC Act.
An NDA submitted under section 505(b)(2) of the FDC Act is generally less
complex than an ordinary NDA. It is NovaDel's expectation that the majority of
its products in development will require the filing of these shorter versions of
an NDA because the products are known chemical entities, but NovaDel or its
licensees will be making new claims as to therapeutic effects or lessened side
effects, or both.
NovaDel estimates that development of new formulations of pharmaceutical
products, including formulation, testing and obtaining FDA approval, generally
takes three to five years for the ANDA process. Development of products
requiring additional clinical studies under Section 505(b)(2) NDAs, may take
four to seven years. There can be no assurance that NovaDel's determinations
will prove to be accurate or that pre-marketing approval relating to its
proposed products will be obtained on a timely basis, or at all. See "Government
Regulation."
NovaDel's currently proposed products fall into the following
therapeutic classes:
o Cardiovascular (Nitroglycerin)
NovaDel's Nitroglycerin product has been formulated and stability testing has
been completed. A United States patent was issued in 1999. An IND was filed with
FDA in early 2002 and clinical trials began in July 2002 and were completed in
December 2002. NovaDel anticipates filing an NDA in the fourth quarter of 2003.
o Antihistamine (Loratadine) Lingual Spray
A loratadine lingual spray formulation has been developed and successfully
undergone stability testing. An IND was filed in the fourth quarter of 2000 and
a pharmacokinetic study was completed in the second quarter of 2001. A phase II
clinical trial has been completed and the results are being evaluated. NovaDel
is seeking a development partner to complete development of this product.
o Antihistamine (Clemastine) Lingual Spray
The formulation of clemastine lingual spray was revised, and an IND was filed. A
pilot nasal challenge efficacy study was initiated in the second quarter of
2000. and was completed in the fourth quarter of 2000. This study tested the
relative response of subjects challenged with allergy producing substances to an
OTC tablet (1.34 mg) and a lingual spray dose of 0.68 mg. The antihistamine was
administered 15 minutes prior to the challenge. The results showed that the
spray had the same antihistaminic effect as the tablet when compared to placebo
at 45 minutes after dosing even though the dose was only half that of the
tablet. Eight of the parameters measured in the study showed a clear trend that
the spray was better than the tablet and the tablet was better than placebo.
Even though the study was only a pilot study, the results support the concept
that a clemastine lingual spray could be an OTC non-sedating antihistamine
product in that there were two cases of drowsiness when the tablet was given and
one with the placebo but none when the lingual spray was administered. A larger
confirmatory study, as well as other pilot studies, is needed. NovaDel is
seeking a partner to complete development of this product.
Marketing and Distribution
5
NovaDel intends, generally, to license products developed with its technology to
other drug companies, or to market its products to pharmaceutical wholesalers,
drug distributors, drugstore chains, hospitals, United States governmental
agencies, health maintenance organizations and other drug companies. It is
anticipated that promotion of the NovaDel 's proposed products will be
characterized by an emphasis on their distinguishing characteristics, such as
dosage form and packaging, as well as possible therapeutic advantages of such
products. NovaDel will seek to position its proposed products as alternatives or
as line extensions to brand-name products. NovaDel believes that to the extent
that the NovaDel 's formulated products are patent-protected, such formulations
may offer brand-name manufacturers the opportunity to expand their product
lines. Alternatively, products which are not patented may be offered to
brand-name manufacturers as substitute products after patent protection on
existing products expire.
Inasmuch as NovaDel does not have the financial or other resources to undertake
extensive marketing activities, NovaDel generally intends to seek to enter into
marketing arrangements, including possible joint ventures or license or
distribution arrangements, with third parties.
NovaDel believes that such third-party arrangements will permit it to maximize
the promotion and distribution of its products while minimizing NovaDel's direct
marketing and distribution costs. Except for the agreement with Manhattan
Pharmaceutical, NovaDel has not entered into any agreements or arrangements with
respect to the marketing of its proposed products and there can be no assurance
that it will do so in the future. See the discussion regarding Manhattan above
and also see Notes 6 and 7 to the Financial Statements. There can be no
assurance that NovaDel's proposed products can be successfully marketed.
Strategies relating to marketing of NovaDel's other proposed formulated products
have not yet been determined; these will be formulated in advance of anticipated
completion of development activities relating to the particular formulated
product. As a company, NovaDel has no experience in marketing or distribution of
its proposed proprietary products, and NovaDel's ability to fund such marketing
activities will require NovaDel to raise additional funds and/or consummate a
strategic alliance or combination with a well-funded business partner.
Manufacturing
NovaDel has determined to internalize the manufacturing of its proposed
products. Presently, NovaDel has established a pilot manufacturing facility at
its present location, which it believes is adequate for its needs in
manufacturing our requirements for formulation development, stability testing
and clinical supplies. It has also leased a new, larger facility which will have
adequate space for its future foreseeable requirements for production
manufacturing and warehouse space. This new space is presently being prepared
for occupancy, which began in third quarter of 2003. The manufacture of
NovaDel's pharmaceutical products will be subject to current Good Manufacturing
Processes ("cGMP") prescribed by the FDA, and pre-approval inspections by the
FDA and foreign authorities prior to the commercial manufacture of any such
products. See "Government Regulation" and "Raw Materials and Suppliers." There
can be no assurance, however, that NovaDel will be successful in constructing
and maintaining such a manufacturing and warehousing facility in compliance with
cGMP. If it is unable to do so, it will become necessary for NovaDel to make
arrangements with a third party contract manufacturer to satisfy NovaDel's
requirements. There can be no assurance that, if necessary, NovaDel will be able
to do so, or be able to do so on commercially satisfactory terms. Failure of
NovaDel to complete successfully the internalization of its manufacturing
requirements, or to conclude an alternative contract manufacturing arrangement,
could have an adverse effect on NovaDel's efforts to obtain regulatory approval
for or to commercialize its products.
6
It is anticipated that NovaDel will arrange with third-party suppliers for
supplies of active and inactive pharmaceutical ingredients and packaging
materials used in the manufacture of NovaDel's proposed products. It is
NovaDel's present intent to seek to enter into similar manufacturing
arrangements for other products to be developed by it in the future.
In addition, the raw materials necessary for the manufacture of NovaDel's
products will, in all likelihood, be purchased by NovaDel from suppliers in the
United States, Europe and Japan and delivered to its manufacturing facility by
such suppliers.
Accordingly, NovaDel may be subject to various import duties applicable to both
finished products and raw materials and may be affected by various other import
and export restrictions as well as other developments impacting upon
international trade. These international trade factors will, under certain
circumstances, have an impact on the manufacturing cost (which will, in turn,
have an impact on the cost to NovaDel of the manufactured product). To the
extent that transactions relating to the purchase of raw materials involve
currencies other than United States dollars (e.g., Swiss francs and Euros), the
operating results of NovaDel will be affected by fluctuations in foreign
currency exchange rates.
Raw Materials and Suppliers
NovaDel believes that the active ingredients used in the manufacture of its
proposed pharmaceutical products are presently available from numerous suppliers
located in the United States, Europe and Japan. Generally, certain raw
materials, including inactive ingredients, are available from a limited number
of suppliers and certain packaging materials intended for use in connection with
NovaDel's lingual spray products may be only available from sole source
suppliers. Although NovaDel believes that it will not encounter difficulties in
obtaining the inactive ingredients or packaging materials necessary for the
manufacture of its products, there can be no assurance that NovaDel will be able
to enter into satisfactory agreements or arrangements for the purchase of
commercial quantities of such materials. The failure to enter into agreements or
otherwise arrange for adequate or timely supplies of principal raw materials and
the possible inability to secure alternative sources of raw material supplies
could have a material adverse effect on the ability to manufacture formulated
products.
Development and regulatory approval of NovaDel's pharmaceutical products are
dependent upon NovaDel's ability to procure active ingredients and certain
packaging materials from FDA-approved sources. Since the FDA approval process
requires manufacturers to specify their proposed suppliers of active ingredients
and certain packaging materials in their applications, FDA approval of a
supplemental application to use a new supplier would be required if active
ingredients or such packaging materials were no longer available from the
specified supplier, which could result in manufacturing delays. Accordingly,
NovaDel will seek to locate alternative FDA approved suppliers.
Government Regulation
The development, manufacture and commercialization of pharmaceutical products
are generally subject to extensive regulation by various federal and state
governmental entities. The FDA, which is the principal United States regulatory
authority, has the power to seize adulterated or misbranded products and
unapproved new drugs, to request their recall from the market, to enjoin further
manufacture or sale, to publicize certain facts concerning a product and to
initiate criminal proceedings. As a result of federal statutes and FDA
regulations, pursuant to which new pharmaceuticals are required to undergo
extensive and rigorous testing, obtaining pre-market regulatory approval
requires extensive time and expenditures.
7
Under the Food, Drug and Cosmetic (FDC) Act, a new drug may not be
commercialized or otherwise distributed in the United States without the prior
approval of the FDA.
The FDA approval process relating to a new drug differs, depending on the nature
of the particular drug for which approval is sought. With respect to any drug
product with active ingredients not previously approved by the FDA, a
prospective drug manufacturer is required to submit a NDA, including complete
reports of pre-clinical, clinical and laboratory studies to prove such product's
safety, quality and efficacy. The NDA process generally requires, before the
submission of the NDA, submission of an IND pursuant to which permission is
sought to begin preliminary clinical testing of the new drug. An NDA based on
published safety and efficacy studies conducted by others may also be required
to be submitted for a drug product with a previously approved active ingredient,
if the method of delivery, strength or dosage is changed. Alternatively, a drug
having the same active ingredients as a drug previously approved by the FDA may
be eligible to be submitted under an ANDA, which is significantly less stringent
than the NDA approval process.
While the ANDA process requires a manufacturer to establish bioequivalence to
the previously approved drug, it permits the manufacturer to rely on the safety
and efficacy studies contained in the NDA for the previously approved drug.
The NDA approval process generally requires between ten (10) to twenty four (24)
months from NDA submission to pre-marketing approval, although in the case of an
NDA submitted pursuant to Section 505(b)(2) of the Act this time frame may be
significantly shorter. NovaDel believes that most products developed in lingual
spray delivery systems (dosage forms) usually will require submission of an NDA
under Section 505(b)(2).
NovaDel estimates that the development of new formulations of pharmaceutical
products, including formulation, testing and obtaining FDA approval, generally
takes four to seven years for the NDA process, although NDAs submitted under
Section 505(b)(2) are generally less complex than an ordinary NDA and may be
acted upon by the FDA in a shorter period of time. There can be no assurance
that NovaDel's determinations will prove to be accurate or that pre-marketing
approval relating to its proposed products will be obtained on a timely basis,
or at all. The FDA application procedure has become more rigorous and costly and
the FDA currently performs pre-approval and periodic inspections of each
finished dosage form and each active ingredient.
The manufacture of NovaDel's pharmaceutical products will be subject to cGMP
prescribed by the FDA, pre-approval inspection by the FDA before beginning
commercial manufacture of such products and periodic cGMP compliance inspections
by the FDA thereafter.
Competition
The markets which NovaDel intends to enter are characterized by intense
competition. NovaDel will be competing against established pharmaceutical
companies which currently market products which are equivalent or functionally
similar to those NovaDel intends to market. Prices of drug products are
significantly affected by competitive factors and tend to decline as competition
increases. In addition, numerous companies are developing or may, in the future,
engage in the development of products competitive with NovaDel's proposed
products. NovaDel expects that technological developments will occur at a rapid
rate and that competition is likely to intensify as enhanced delivery system
technologies gain greater acceptance. Additionally, the markets for formulated
products which NovaDel has targeted for development are intensely competitive,
involving numerous competitors and products. NovaDel will seek to enhance our
competitive position by focusing our efforts on our novel dosage forms.
8
Patents and Protection of Proprietary Information
NovaDel has applied for United States and foreign patent protection for the
buccal spray delivery systems which are the primary focus of its development
activities as well as for NovaDel's delayed contact allergy topical
formulations. Four United States patents have been issued and other applications
are pending. There can be no assurance, however, that any additional patent
applications will be granted, or, if granted, will provide adequate protection
to NovaDel. NovaDel also intends to rely on whatever protection the law affords
to trade secrets, including unpatented know-how. Other companies, however, may
independently develop equivalent or superior technologies or processes and may
obtain patents or similar rights with respect thereto.
Although NovaDel believes that its technology has been developed independently
and does not infringe on the patents of others, there can be no assurance that
the technology does not and will not infringe on the patents of others. In the
event of infringement, NovaDel could, under certain circumstances, be required
to modify its infringing product or process or obtain a license. There can be no
assurance that NovaDel would be able to do either of those things in a timely
manner or at all, and failure to do so could have a material adverse effect on
NovaDel and its business. In addition, there can be no assurance that NovaDel
will have the financial or other resources necessary to enforce a patent
infringement or proprietary rights violation action or to defend itself against
such actions brought by others. If any of the products developed by NovaDel
infringe upon the patent or proprietary rights of others, NovaDel could, under
certain circumstances, be enjoined or become liable for damages, which would
have a material adverse effect on NovaDel.
NovaDel also relies on confidentiality and nondisclosure arrangements with its
licensees and potential development candidates. There can be no assurance that
other companies will not acquire information which NovaDel considers to be
proprietary. Moreover, there can be no assurance that other companies will not
independently develop know-how comparable to or superior to that of NovaDel.
Buccal Nonpolar Sprays. On April 12, 1996 NovaDel filed an application with the
United States Patent and Trademark Office ("USPTO") with claims directed to a
buccal spray composition containing certain amounts of propellant, a non-polar
solvent, and certain classes of drugs, as well as specific drugs within those
classes. The application also included claims directed to soft-bite gelatin
capsules containing these drugs. On September 1, 1998 the USPTO allowed the
claims directed to buccal spray compositions, but rejected the claims directed
to the capsules. In November 1998 NovaDel deleted the capsule claims from this
application to pursue issuance of a patent with claims directed to the buccal
non-polar spray compositions and methods of administering the class of drugs
using the buccal spray compositions. On September 21, 1999 U.S. Patent No.
5,955,098 issued to NovaDel with claims directed to the above-described buccal
non-polar spray compositions and methods.
On February 21, 1997, NovaDel filed an application under the Patent Cooperation
Treaty ("PCT") for the above-subject matter. The International Preliminary
Examination Authority issued an International Preliminary Examination Report
alleging that the subject matter of the invention lacked novelty and/or lacked
an inventive step. This opinion, with which NovaDel disagrees, is not
dispositive. The opinion, however, may be persuasive to individual national
patent offices in countries where NovaDel enters the national phase.
With respect to the above PCT application, in October and November 1998 NovaDel
entered the national phase in Canada and Europe, respectively, with claims
directed to the above subject matter. On April 16, 2003 European patent no. EP 0
904 055 was granted to NovaDel with claims directed to propellant containing
buccal non-polar spray compositions containing similar drugs to those in the
corresponding
9
issued U.S. patent. In Canada, a request for examination was filed with the
Canadian Patent Office on February 7, 2002. An office action has not yet been
received from the Canadian Patent Office.
Buccal Polar Sprays. On April 12, 1996, NovaDel filed an application with the
USPTO with claims directed to propellant free buccal polar spray compositions
containing certain amounts of a polar solvent and certain classes of drugs, as
well as specific drugs within those classes. The application also contained
claims to soft-bite gelatin capsules containing such drugs. A
continuation-in-part ("CIP") application was filed directed to this subject
matter before the original application was allowed to go abandoned. The USPTO
initially rejected the claims in the CIP application. NovaDel deleted the claims
from this application (including the soft-bite capsule claims) and replaced them
with claims directed to methods of using the above-described propellant free
buccal polar spray compositions to administer the drugs. On August 29, 2000 U.S.
Patent No. 6,110,486 issued to NovaDel with claims directed to the
above-described methods of administering the drugs
On February 21, 1997 NovaDel filed a PCT application directed to the
above-described subject matter. The International Preliminary Examination
Authority issued an International Preliminary Examination Report alleging that
the subject matter of the invention lacked novelty and/or lacked an inventive
step. This opinion, with which NovaDel disagrees, is not dispositive. The
opinion, however, may be persuasive to individual national patent offices in
countries where NovaDel enters the national phase.
With respect to the above PCT application, in October and November 1998 NovaDel
entered the national phase in Canada and Europe, respectively. In Canada, a
request for Examination was filed on February 7, 2002. An office action has not
yet been received from the Canadian Patent Office. In Europe, claims directed to
using the propellant free buccal polar spray composition to manufacture a
medicament containing the various classes of drugs is currently being
prosecuted.
Buccal Nonpolar Spray for Nitroglycerin. On April 12,1996 NovaDel filed an
application with the USPTO with claims directed to a buccal spray containing
certain amounts of nitroglycerin, a non-polar solvent, and a propellant The
claims were allowed and on February 9, 1999 the USPTO issued a U.S.Patent No.
5,869,082 to NovaDel for said nitroglycerin buccal spray.
On February 21, 1997, NovaDel filed a PCT application directed to the
above-described subject matter. The International Preliminary Examination
Authority issued an International Preliminary Examination Report alleging that
the subject matter of the invention lacks an inventive step. This opinion, with
which NovaDel disagrees, is not dispositive. The opinion, however, may be
persuasive to individual national patent offices in countries where NovaDel
enters the national phase.
In October 1998, NovaDel entered the national phase in Canada. A request for
examination was filed on February 7, 2002. An office action has not been
received from the Canadian Patent Office.
In November 1998, NovaDel entered the national phase in Europe. A European
patent was granted on April 16, 2003 with claims directed to a buccal spray
containing certain amounts of nitroglycerin, a non-polar solvent, and a
propellant.
Buccal Polar/Nonpolar Sprays or Capsules. On October 1, 1997 NovaDel filed a PCT
application designating a large number of countries including the United States,
directed to the above-described subject matter. The application included claims
directed to a buccal spray composition containing either a polar solvent with
certain classes of drugs, as well as specific drugs in those classes or a
non-polar solvent and a propellant with certain classes of drugs, as well as
specific drugs in those classes; buccal spray composition containing a non-polar
solvent, a flavoring agent, and certain classes of drugs; and
10
methods of administering these drugs using the buccal spray compositions. The
application also contained claims to soft-bite gelatin capsules containing such
drugs. This application differs from the first three applications, discussed
above, in that the claimed compositions include different classes of drugs from
those described in the first three applications. The International Preliminary
Examination Authority issued an International Preliminary Examination Report
alleging that the subject matter of the invention lacked novelty and/or lacked
an inventive step. This opinion, with which NovaDel disagrees, is not
dispositive. The opinion, however, may be persuasive to individual national
patent offices in countries where NovaDel enters the national phase.
On March 29, 2000, NovaDel entered the national phase in the United States by
filing a CIP of the above-identified PCT application with the USPTO. The CIP
application included claims directed to propellant free buccal spray
compositions containing certain amounts of polar or non-polar solvents, and
certain classes of drugs, as well as specific drugs in those classes; buccal
spray compositions containing certain amounts of a propellant, a polar or
non-polar solvent, and certain classes of drugs, as well as specific drugs in
those classes; and methods of administering said drugs using these types of
buccal spray compositions. The application is currently being prosecuted with
claims directed to the propellant free buccal spray compositions and methods of
administering said drugs using these types of buccal spray compositions.
Subsequently, a divisional application was filed claiming priority to the CIP.
The divisional application is currently being prosecuted with claims directed to
the buccal spray compositions containing certain amounts of a propellant, a
polar or non-polar solvent, and certain classes of drugs, as well as specific
drugs in those classes and methods of administering said drugs using these types
of buccal spray compositions.
Based on the above-identified PCT application, NovaDel entered the national
phase in Canada on March 29, 2000. A request for examination was filed on August
29, 2002. An office action has not been received from the Canadian Patent
Office.
Based on the above-identified PCT application, NovaDel also entered the national
phase in Japan on April 3, 2000. A request for examination has not yet been
filed. A request for examination must be filed before October 1, 2004 to pursue
patent protection in Japan.
Based on the above-identified PCT application, NovaDel also entered the national
phase in Europe in April 2000. The European application includes claims directed
to propellant free buccal spray compositions containing certain amounts of a
polar solvent and certain classes of drugs, as well as specific drugs in those
classes and the use thereof to prepare a medicament for use as a buccal spray
for transmucossal administration. Four divisional applications based on this
application have also been filed in Europe. The first divisional application
included claims directed to buccal spray compositions containing certain amounts
of a non-polar solvent, a propellant, and certain classes of drugs, as well as
specific drugs in those classes and the use thereof to prepare a medicament for
use as a buccal spray for transmucossal administration. The second divisional
application included claims directed to propellant free buccal spray
compositions containing certain amounts of a non-polar solvent, and certain
classes of drugs, as well as specific drugs in those classes. The third
divisional application included claims directed to buccal spray compositions
containing certain amounts of a non-polar solvent, a propellant, and an alkaloid
or analgesic. The fourth divisional application included claims directed to a
buccal spray composition containing certain amounts of a polar solvent, a
propellant, and certain classes of drugs, as well as specific drugs in those
classes. Each of the above-identified European applications is currently being
prosecuted.
Antihistamine Syrup and Ointment. On November 10, 1997 NovaDel filed an
application with the USPTO with claims directed to a spray composition for
topical administration containing an
11
antihistamine and a polar solvent or an antihistamine, a non-polar solvent, and
a propellant. In October 1998, the PTO rejected the claims. The claims were
deleted and replaced with a claim directed to a method of controlling the
occurrence of delayed contact dermatitis by applying a lotion composition
containing certain amounts of certain antihistamines in certain amounts of a
polar or non-polar solvent. On May 21, 2002 U.S. patent no. 6,391,282 issued to
for the above-described method.
On November 9, 1998 NovaDel filed the above-identified application with the
Canadian Patent Office and on October 29, 2002 a request for examination was
filed. An office action has not been received from the Canadian Patent Office.
General Comment with Respect to entering the national phase for each of the
foregoing PCT Applications. In addition to its patents and patent applications
in the United States, NovaDel is interested in entering the national phase and
obtaining patent protection in Europe and Canada. At the present time, it is not
possible accurately to predict the expenses involved in pursuing the foregoing
applications in Canada and Europe. For example, NovaDel anticipates that, in the
case of the European applications, it may become necessary to file appeals with
the Board of Appeals in Munich. Expenses may exceed $100,000 (in the aggregate)
before a final disposition is obtained.
Product Liability
NovaDel may be exposed to potential product liability claims by consumers.
NovaDel does not presently maintain product liability insurance coverage.
Although NovaDel will seek to obtain product liability insurance prior to the
commercialization of any products, there can be no assurance that NovaDel will
obtain such insurance or, if obtained, that any such insurance will be
sufficient to cover all possible liabilities. In the event of a successful suit
against NovaDel, insufficiency of insurance coverage could have a material
adverse effect on NovaDel. In addition, certain food and drug retailers require
minimum product liability insurance coverage as a condition precedent to
purchasing or accepting products for retail distribution. Failure to satisfy
such insurance requirements could impede the ability of NovaDel or its
distributors to achieve broad retail distribution of its proposed products,
which would have a material adverse effect upon the business and financial
condition of NovaDel.
Employees
The Company currently has twenty (20) full-time employees, five (5) of whom are
executive officers of the Company, ten (10) of whom are laboratory or support
personnel and five (5) of whom are engaged in administrative functions. The
success of the Company will be dependent in part, upon its ability to hire and
retain additional qualified sales, manufacturing and distribution personnel,
however, there can be no assurance that the Company will be able to hire or
retain such necessary personnel.
Risk factors
You should carefully consider the following risk factors and all other
information contained in this Annual Report before investing in our common
stock. Investing in our common stock involves a high degree of risk. Any of the
following risks could adversely affect our business, financial condition and
results of operations and could result in a complete loss of your investment.
The risks and uncertainties described below are not the only ones we may face.
We have a history of losses and our auditors have qualified their audit
opinion with regard to our ability to continue as a going concern
12
We had an accumulated deficit at July 31, 2003 of approximately $15,628,000. We
incurred operating losses in all of the last eight fiscal years ended July 31
including a net loss of approximately $5,815,000 for the year ended July 31,
2003. Because we increased our product development activities, we anticipate
that we will incur substantial operating expenses in connection with continued
development, testing and approval of our proposed products, and expect these
expenses will result in continuing and, perhaps, significant operating losses
until such time, if ever, that we are able to achieve adequate product sales
levels. Because our rate of expenses is high, and our very limited resources,
our auditors have qualified their audit opinion with regard to our ability to
continue as a going concern.
We will require significant capital requirements for product
development and commercialization
We have significant capital requirements necessary to fund planned expenditures
in connection with the research, development, testing and approval of our
proposed products. We anticipate, based on our current proposed plans and
assumptions relating to our operations (including the timetable of, and costs
associated with, new product development), that the proceeds of our recent
private placement and projected cash flow from operations will be sufficient to
satisfy our contemplated cash requirements for the remainder of the calendar
year 2003. Due to our small revenue base, low level of working capital and
inability to increase the number of development agreements with pharmaceutical
companies, we have been unable to aggressively pursue our product development
strategy. We will require significant additional financing and/or a strategic
alliance with a well-funded development partner to aggressively pursue our
business plan. We have no current arrangements with respect to, or sources of,
additional financing, and there can be no assurance that additional financing
will be available to us on acceptable terms, if at all. Unless we raise
additional financing or significantly reduce our expenses, we will not have
sufficient funds and we will not be to complete development and
commercialization of our proposed products or continue operating. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Our business and revenue is dependent on the successful development of
our products
Revenue received from our product development consists of payments by
pharmaceutical companies for research and bioavailability studies, pilot
clinical trials, and similar milestone-related payments. Our future growth and
profitability will be dependent upon our ability successfully to raise
additional funds to complete the development of, obtain regulatory approvals
for, and license out or market, our proposed products. Accordingly, our
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered in connection with the establishment of a new business in
a highly competitive industry, characterized by frequent new product
introductions. We anticipate that we will incur substantial operating expenses
in connection with the development, testing and approval of our proposed
products and expect these expenses to result in continuing and, perhaps,
significant operating losses until such time, if ever, that we are able to
achieve adequate levels of sales or license revenues. There can be no assurance
that we will be able to raise additional financing, increase revenues
significantly, or achieve profitable operations.
We do not have commercially available products
Our principal efforts are the development of, and obtaining regulatory approvals
for, our proposed products. We anticipate that marketing activities for our
proprietary products, whether by us or one or more licensees, will not begin
until 2004 at the earliest. Accordingly, it is not anticipated that we will
generate any revenues from royalties or sales of proprietary products until
regulatory approvals are obtained and marketing activities begin. There can be
no assurance that any of the proposed proprietary products will prove to be
commercially viable, or if viable, that they will reach the marketplace on the
timetables desired by us. The failure or the delay of these products to achieve
commercial viability would have a material adverse effect on us. See "Business -
Proposed Products" and " - Government Regulation."
13
We have not completed product development
The development of our proposed products has not been completed and we will be
required to devote considerable effort and expenditures to complete such
development. In addition to obtaining adequate financing, satisfactory
completion of development, testing, government approval and sufficient
production levels of such products must be obtained before the proposed products
will become available for commercial sale. We do not anticipate generating
material revenue from product sales until perhaps 2004 or thereafter. Other
potential products remain in the conceptual or very early development stage and
remain subject to all the risks inherent in the development of pharmaceutical
products, including unanticipated development problems, and possible lack of
funds to undertake or continue development. These factors could result in
abandonment or substantial change in the development of a specific formulated
product. There can be no assurance that any of our proposed products will be
successfully developed, be developed on a timely basis or be commercially
accepted once developed. The inability to successfully complete development, or
a determination by us, for financial or other reasons, not to undertake to
complete development of any product, particularly in instances in which we have
made significant capital expenditures, could have a material adverse effect on
us.
We do not have direct consumer marketing experience
We have no experience in marketing or distribution at the consumer level of our
proposed proprietary products. Moreover, we do not have the financial or other
resources to undertake extensive marketing and advertising activities.
Accordingly, we intend generally to rely on marketing arrangements, including
possible joint ventures or license or distribution arrangements with third
parties. We have not entered into any significant agreements or arrangements
with respect to the marketing of our proposed products, and there can be no
assurance that we will do so in the future or that any such products can be
successfully marketed. Our strategy to rely on third party marketing
arrangements could adversely affect our profit margins. See "Business -
Marketing and Distribution."
We must comply with good manufacturing practices
The manufacture of our pharmaceutical products will be subject to current Good
Manufacturing Practices ("cGMP") prescribed by the FDA, pre-approval inspections
by the FDA or foreign authorities, or both, before commercial manufacture of any
such products and periodic cGMP compliance inspections thereafter by the FDA.
There can be no assurance that we or any third party manufacturer will be able
to comply with cGMP or satisfy pre- or post-approval inspections in connection
with the manufacture of our proposed products. Failure or delay by us or any
such manufacturer to comply with cGMP or satisfy pre- or post-approval
inspections would have a material adverse effect on us. See "Business--
Manufacturing."
We are dependent on our suppliers
We believe that the active ingredients used in the manufacture of our proposed
pharmaceutical products are presently available from numerous suppliers located
in the United States, Europe, India and Japan.
14
We believe that certain raw materials, including inactive ingredients, are
available from a limited number of suppliers and that certain packaging
materials intended for use in connection with our spray products currently are
available only from sole source suppliers. Although we do not believe we will
encounter difficulties in obtaining the inactive ingredients or packaging
materials necessary for the manufacture of our products, there can be no
assurance that we will be able to enter into satisfactory agreements or
arrangements for the purchase of commercial quantities of such materials. We
have a written supply agreement with Dynamit Nobel for certain raw materials for
the nitroglycerin lingual spray product. With respect to other suppliers, we
operate primarily on a purchase order basis beyond which there is no contract
memorializing our purchasing arrangements. The inability to enter into
agreements or otherwise arrange for adequate or timely supplies of principal raw
materials and the possible inability to secure alternative sources of raw
material supplies could have a material adverse effect on our ability to arrange
for the manufacture of formulated products. In addition, development and
regulatory approval of our products are dependent upon our ability to procure
active ingredients and certain packaging materials from FDA-approved sources.
Since the FDA approval process requires manufacturers to specify their proposed
suppliers of active ingredients and certain packaging materials in their
applications, FDA approval of a supplemental application to use a new supplier
would be required if active ingredients or such packaging materials were no
longer available from the originally specified supplier, which could result in
manufacturing delays. See "- Business- Raw Materials and Suppliers."
We face intense competition
The markets which we intend to enter are characterized by intense competition.
We or our licensees may be competing against established pharmaceutical
companies which currently market products which are equivalent or functionally
similar to those we intend to market. Prices of drug products are significantly
affected by competitive factors and tend to decline as competition increases. In
addition, numerous companies are developing or may, in the future, engage in the
development of products competitive with our proposed products. We expect that
technological developments will occur at a rapid rate and that competition is
likely to intensify as enhanced dosage from technologies gain greater
acceptance. Additionally, the markets for formulated products which we have
targeted for development are intensely competitive, involving numerous
competitors and products. Most of our prospective competitors possess
substantially greater financial, technical and other resources than we do.
Moreover, many of these companies possess greater marketing capabilities than we
do, including the resources necessary to enable them to implement extensive
advertising campaigns. There can be no assurance that we will have the ability
to compete successfully. See "Business - Competition."
The absence of product liability insurance coverage may affect our
business
We may be exposed to potential product liability claims by consumers. We
presently maintain no product liability insurance coverage. Although we will
seek to obtain product liability insurance before the commercialization of any
proprietary products, there can be no assurance that we will be able to obtain
such insurance or, if obtained, that any such insurance will be sufficient to
cover all possible liabilities to which we may be exposed. In the event of a
successful suit against us, insufficiency of insurance coverage could have a
material adverse effect on us. In addition, certain food and drug retailers
require minimum product liability insurance coverage as a condition precedent to
purchasing or accepting products for retail distribution. Failure to satisfy
such insurance requirements could impede the ability of us or our distributors
to achieve broad retail distribution of our proposed products, which could have
a material adverse effect on us. See "Business - Product Liability."
Extensive government regulation may affect our business
The development, manufacture and commercialization of pharmaceutical products
are generally subject
15
to extensive regulation by various federal and state governmental entities. The
FDA, which is the principal United States regulatory authority, has the power to
seize adulterated or misbranded products and unapproved new drugs, to request
their recall from the market, to enjoin further manufacture or sale, to
publicize certain facts concerning a product and to initiate criminal
proceedings. As a result of federal statutes and FDA regulations, pursuant to
which new pharmaceuticals are required to undergo extensive and rigorous
testing, obtaining pre-market regulatory approval requires extensive time and
expenditures. Under the "FDC Act", a new drug may not be commercialized or
otherwise distributed in the United States without the prior approval of the
FDA. The FDA approval processes relating to new drugs differ, depending on the
nature of the particular drug for which approval is sought. With respect to any
drug product with active ingredients not previously approved by the FDA, a
prospective drug manufacturer is required to submit a new drug application
("NDA"), including complete reports of pre-clinical, clinical and laboratory
studies to prove such product's safety and efficacy. The NDA process generally
requires, before the submission of the NDA, submission of an IND pursuant to
which permission is sought to begin preliminary clinical testing of the new
drug. An NDA, based on published safety and efficacy studies conducted by
others, may also be required to be submitted for a drug product with a
previously approved active ingredient if the method of delivery, strength or
dosage form is changed. Alternatively, a drug having the same active ingredient
as a drug previously approved by the FDA may be eligible to be submitted under
an ANDA, which is significantly less stringent than the NDA approval process.
While the ANDA process requires a manufacturer to establish bioequivalence to
the previously approved drug, it permits the manufacturer to rely on the safety
and efficacy studies contained in the NDA for the previously approved drug. We
believe that products developed in spray dosage form will require submission of
an NDA. We estimate that the development of new formulations of pharmaceutical
products, including formulation, testing and obtaining FDA approval, generally
takes four to seven years for the NDA process. There can be no assurance that
our determinations will prove to be accurate or that pre-marketing approval
relating to our proposed products will be obtained on a timely basis, or at all.
The failure by us to obtain necessary regulatory approvals, whether on a timely
basis, or at all, would have a material adverse effect on our business.
We may not be able to protect and enforce our intellectual property rights.
Our patents, pending patents and other intellectual property rights in the
United States and in selected other countries may not be allowed or competitors
may challenge the validity or scope of these rights. In addition, our
intellectual property rights may not provide us with a significant competitive
advantage. In addition, competitors may design around our proprietary technology
or develop competing technologies. Effective patent, trademark, service mark,
copyright and trade secret protection may not be available in every country in
which we may offer our product.
We rely on a combination of patents, trademarks, trade secrets, confidentiality
agreements and licensing arrangements to establish and protect our proprietary
technology. Employees, consultants and customers have access to our proprietary
and confidential information. Any misuse or misappropriation of this
intellectual property could have an adverse impact on our business. We take
steps to control access to, and the distribution of, our proprietary
information. We cannot guarantee, however, that such safeguards will protect our
intellectual property and other valuable competitive information. If we fail to
successfully enforce our intellectual property rights, our competitive position
will suffer.
Because our success depends on our proprietary technology, if third parties
infringe our intellectual property, we may be forced to expend significant
resources enforcing our rights or suffer competitive injury. We may not be able
to detect infringement and may lose our competitive position in the market
before we do so.
16
Although there are no pending lawsuits regarding our technology or notices that
we are infringing upon intellectual property rights of others, litigation or
infringement claims may occur in the future. Such litigation or claims could
result in substantial costs, and diversion of resources and could have a
material adverse effect on our business, financial condition, and results of
operations.
We are dependent on existing management
Our success is substantially dependent on the efforts and abilities of our
President and Chief Executive Officer, Gary A. Shangold, MD, our founder and
Chief Scientific Officer, Harry A. Dugger, III, Ph.D., our Chairman, John Klein,
our Chief Financial Officer, Donald Deitman, our Vice President - Formulation
Development, Mohammed Abd El-Shafy, Ph.D., and our Vice President-New Business
and Product Development, Barry Cohen. Mr. Klein is not required to devote full
time to us. Decisions concerning our business and our management are and will
continue to be made or significantly influenced by these individuals. The loss
or interruption of their continued services would have a materially adverse
effect on our business operations and prospects.
We are controlled by current stockholders, officers and directors
Our directors, executive officers and principal stockholders and certain of our
affiliates have the ability to influence the election of our directors and most
other stockholder actions. Management and our affiliates currently beneficially
own (including shares they have the right to acquire) approximately 55 % of our
common stock. Specifically, Dr. Rosenwald has the ability to exert significant
influence over the election of the Board of Directors and other matters
submitted to our stockholders for approval. These arrangements may discourage or
prevent any proposed takeover of NovaDel, including transactions in which
stockholders might otherwise receive a premium for their shares over the then
current market prices. Such stockholders may influence corporate actions,
including influencing elections of directors and significant corporate events.
There is a potential adverse effect if we redeem our publicly traded
warrants
The 680,000 warrants issued in connection with our initial public offering may
be redeemed by us, at a redemption price of $.10 per warrant, upon not less then
thirty days prior written notice provided the last sale price of our common
stock on the NASD OTC Bulletin Board, Nasdaq (or another national securities
exchange) for twenty consecutive trading days ending within three days of the
notice of redemption, equals or exceeds 200% of the current warrant exercise
price ($5.80), subject to adjustment. Redemption of the warrants could force the
holders thereof to exercise the warrants and pay the exercise price at a time
when it may be disadvantageous for the holders to do so, to sell the warrants at
the then current market price when they might otherwise wish to hold the
warrants, or to accept the redemption price, which is likely to be substantially
less than the market value of the warrants at the time of redemption. The
warrants expire on November 18, 2003.
The limited prior public market and trading market may cause possible
volatility in our stock price
There has only been a limited public market for our securities and there can be
no assurance that an active trading market in our securities will be maintained.
The OTC Bulletin Board is an unorganized, inter-dealer, over-the-counter market
which provides significantly less liquidity than the Nasdaq Stock market, and
quotes for stocks included on the OTC Bulletin Board are not listed in the
financial sections of newspapers as are those for the Nasdaq Stock Market. In
addition, the stock market in recent years has experienced extreme price and
volume fluctuations that have particularly affected the market prices
17
of many smaller companies. The trading price of our common stock is expected to
be subject to significant fluctuations in response to variations in quarterly
operating results, changes in analysts' earnings estimates, announcements of
innovations by us or our competitors, general conditions in the industry in
which we operate and other factors. These fluctuation, as well as general
economic and market conditions, may have a material or adverse effect on the
market price of our common stock.
Penny stock regulations may impose certain restrictions on
marketability of our securities
The Securities and Exchange Commission (the "Commission") has adopted
regulations which generally define a "penny stock" to be any equity security
that has a market price (as defined) of less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exceptions. As a result,
our common stock is subject to rules that impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally those with assets in
excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together
with their spouse). For transactions covered by these rules, the broker-dealer
must make a special suitability determination for the purchase of such
securities and have received the purchaser's written consent to the transaction
prior to the purchase. Additionally, for any transaction involving a penny
stock, unless exempt, the rules require the delivery, prior to the transaction,
of a risk disclosure document mandated by the Commission relating to the penny
stock market. The broker-dealer must also disclose the commission payable to
both the broker-dealer and the registered representative, current quotations for
the securities and, if the broker-dealer is the sole market maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell our securities and may affect the
ability of investors to sell our securities in the secondary market and the
price at which such purchasers can sell any such securities.
Shareholders should be aware that, according to the Securities and Exchange
Commission, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include:
o control of the market for the security by one or a few
broker-dealers that are often related to the promoter or
issuer;
o manipulation of prices through prearranged matching of
purchases and sales and false and misleading press releases;
o "boiler room" practices involving high pressure sales tactics
and unrealistic price projections by inexperienced sales
persons;
o excessive and undisclosed bid-ask differentials and markups by
selling broker-dealers; and
o the wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired
level, along with the inevitable collapse of those prices with
consequent investor losses.
Our management is aware of the abuses that have occurred historically in the
penny stock market. Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to our common stock.
18
Additional authorized shares of common stock and preferred stock
available for issuance may adversely affect the market
We are authorized to issue 50,000,000 shares of our common stock. As of July 31,
2003 there were 17,972,760 shares of our common stock issued and outstanding.
However, the total number of shares of common stock issued and outstanding does
not include the exercise of options or warrants. We have reserved up to
15,325,755 shares of our common stock for issuance upon exercise of stock
options and warrants. Of the reserved shares, a total of 2,800,000 shares were
reserved among NovaDel's 1992, 1997 and 1998 Stock Option Plans, of which
options to purchase an aggregate of 300,000, 450,000 and 892,500 shares are
issued and outstanding under the respective Plans. (Collectively, a total of
455,000 options issued among the three Plans have been exercised.) Another
3,800,000 shares are reserved for issuance and available for non-plan options
granted pursuant to the terms of certain employment agreements. A significant
number of such options and warrants contain provisions for cashless exercise.
Exercise of the outstanding convertible securities, will reduce the percentage
of common stock held by the public stockholders. Further, the terms on which we
could obtain additional capital during the life of the convertible securities
may be adversely affected, and it should be expected that the holders of the
convertible securities would exercise them at a time when we would be able to
obtain equity capital on terms more favorable than those provided for by such
convertible securities. As a result, any issuance of additional shares of common
stock may cause our current shareholders to suffer significant dilution which
may adversely affect the market.
In addition to the above-referenced shares of common stock which may be issued
without shareholder approval, we have 1,000,000 shares of authorized preferred
stock, the terms of which may be fixed by our Board of Directors. We presently
have no issued and outstanding shares of preferred stock and while we have no
present plans to issue any shares of preferred stock, our Board of Directors has
the authority, without shareholder approval, to create and issue one or more
series of such preferred stock and to determine the voting, dividend and other
rights of holders of such preferred stock. The issuance of any of such series of
preferred stock could have an adverse effect on the holders of common stock.
Shares eligible for future sale may adversely affect the market
Of the 17,972,760 shares of common stock outstanding as of July 31, 2003,
14,472,415 shares may be available for public sale by means of ordinary
brokerage transactions in the open market pursuant to Rule 144, promulgated
under the Act, subject to certain limitations. In general, under Rule 144, a
person (or persons whose shares are aggregated) who has satisfied a one-year
holding period may, under certain circumstances, sell within any three-month
period a number of securities which does not exceed the greater of 1% of the
then outstanding shares of common stock or the average weekly trading volume of
the class during the four calendar weeks prior to such sale. Rule 144 also
permits, under certain circumstances, the sale of securities, without any
limitation, by a person who is not an affiliate of NovaDel and who has satisfied
a two-year holding period.
We have reserved up to 15,325,755 shares of common stock for issuance upon
exercise of various stock options and warrants, of which 1,600,000 shares were
registered under a Registration Statement on Form S-8 and 4,257,242 shares under
a Registration Statement on Form SB-2 under the Act. Any substantial sale of
common stock pursuant to Rule 144 or those registration statements may have an
adverse effect on the market price of our securities.
19
Limitation on director/officer liability
As permitted by Delaware law, our certificate of incorporation limits the
liability of our directors for monetary damages for breach of a director's
fiduciary duty except for liability in certain instances. As a result of our
charter provision and Delaware law, stockholders may have limited rights to
recover against directors for breach of fiduciary duty. In addition, our
certificate of incorporation provides that we shall indemnify our directors and
officers to the fullest extent permitted by law.
We have no history of paying dividends on our common stock
We have never paid any cash dividends on our common stock and do not anticipate
paying any cash dividends on our common stock in the foreseeable future. We plan
to retain any future earnings to finance growth. If we determine that we will
pay dividends to the holders of our common stock, there is no assurance or
guarantee that such dividends will be paid on a timely basis.
ITEM 2. PROPERTIES
Our executive offices are located at 25 Minneakoning Road,, Flemington, New
Jersey. The facility, constituting approximately 31,800 square feet, is occupied
under a ten-year lease. Presently, we are only occupying a portion of the office
space in the building; the remaining office, laboratory, manufacturing and
warehousing space is still being fitted out. No rent or taxes were payable on
this space during fiscal 2003. We also have approximately 4,500 square feet of
laboratory and office space at 31 Route 12 West, Flemington, New Jersey, which
also formerly housed our executive offices. We occupy that space under a five
year lease expiring in September 2005; during fiscal 2003, the Company paid rent
of approximately $92,000, including real estate taxes, for that space.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings to which we are a party and we are not aware of
any possible pending proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no matters
were submitted to a vote of security holders, though the solicitation of proxies
or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Market Information. Since the November 1997 closing of the
public offering, the Company's Common Stock has traded in the over-the-counter
market on the National Association of Securities Dealers, Inc. OTC Bulletin
Board System ("OTC.BB"). Since October 1, 2002, the symbol has been "NVDL".
Before that, the Common Stock traded under the symbol "FLEM". The following
table sets
20
forth the range of high and low closing bid quotations of the Common Stock as
reported by the OTCBB for each fiscal quarter for the past three fiscal years.
High and low bid quotations represent prices between dealers without adjustment
for retail mark-ups, mark-downs or commissions and may not necessarily represent
actual transactions.
Bid Prices
High Low
---- ---
FISCAL 2003
First Quarter (August 1, 2002 through October 31, 2002) 1.90 1.13
Second Quarter (November 1, 2002 through January 31, 2003) 2.80 1.44
Third Quarter (February 1, 2003 through April 30, 2003) 2.43 1.50
Fourth Quarter (May 1, 2003 through July 31, 2003) 2.20 1.50
FISCAL 2002
First Quarter (August 1, 2001 through October 31, 2001) .60 .43
Second Quarter (November 1, 2001 through January 31, 2002) 2.30 .63
Third Quarter (February 1, 2002 through April 30, 2002) 3.79 2.40
Fourth Quarter (May 1, 2002 through July 31, 2002) 3.62 1.65
FISCAL 2001
First Quarter (August 1, 2000 through October 25, 2000) 2.125 .969
Second Quarter (November 1, 2000 through January 31, 2001) 1.562 .438
Third Quarter (February 1, 2001 through April 30, 2001) 1.094 .550
Fourth Quarter (May 1, 2001 through July 31, 2001) .950 .510
The closing bid price of the Company's Common Stock as reported by the OTCBB was
$2.01 on October 27, 2003.
(b) Holders. As of October 27, 2003 there were approximately 74
record holders of the Company's Common Stock.
(c) Dividends. We have never declared or paid a dividend on our
Common Stock, and management expects that all or a substantial portion of our
future earnings will be retained for expansion or development of our business.
The decision to pay dividends, if any, in the future is within the discretion of
the Board of Directors and will depend upon our earnings, capital requirements,
financial condition and
21
other relevant factors such as contractual obligations. Management does not
anticipate that we will pay dividends on the Common Stock in the foreseeable
future. Moreover, there can be no assurance that dividends can or will ever be
paid.
(d) Recent Sales of Unregistered Securities.
In April and May 2003, we sold Units (consisting of common stock and warrants)
to accredited investors. Investors were issued one warrant for each four shares
purchased. The warrants are exercisable for five years, at an exercise price of
$2.00 per share. The securities were sold through Paramount Capital, Inc., a
NASD broker- dealer. The gross proceeds of the private offering were
approximately $4.8 million. For its services as placement agent, we paid
Paramount a 7.5% commission fee of the aggregate amount raised (approximately
$360,000) and also issued to Paramount warrants to purchase 160,017 shares of
common stock at an exercise price of $1.65 and 40,004 shares of common stock at
an exercise price of $2.00. In connection with the offering, we agreed to file a
registration statement with the Securities and Exchange Commission to register
the resale of the shares of common stock and the shares underlying the warrants
(as well as the shares underlying Paramount's warrants). We also agreed that if,
at any time following the closing of the offering and continuing for a period of
two (2) years thereafter, we offer shares of our common stock for sale in a
capital raising transaction, we will permit the investors to purchase such
number of shares of common stock to maintain their pro rata ownership
percentages of NovaDel. We also agreed that if, at any time following the
closing of the offering for a period of one year, we sold shares of common stock
in a capital raising transaction (of at least $1 million) at a per share price
less than $1.50, we will issue to the investors additional shares of common
stock (so that they would receive their original shares at such lower price).
During the fourth quarter of fiscal 2003, a total of 210,577 shares of the
Company's Common Stock were issued in connection with the cashless exercise of
445,000 options.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
General
Since its inception, substantially all of the Company's revenues have been
derived from consulting activities, primarily in connection with product
development for various pharmaceutical companies. The Company has had a history
of recurring losses from operations, giving rise to an accumulated deficit at
July 31, 2003 of approximately $15,628,000. Although substantially all of the
Company's revenues to date have been derived from its consulting business, the
future growth and profitability of the Company will be principally dependent
upon its ability to successfully develop its products and to enter into license
agreements with drug companies who will market and distribute the final
products.
The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company incurred losses
during the fiscal years ended July 31, 2003 (fiscal 2003) and 2002 (fiscal 2002)
and had an accumulated deficit at July 31, 2003 of approximately $15,628,000.
The Company's continued existence is dependent upon its ability to achieve
profitable operations or obtain additional financing. The Company is currently
seeking collaborative arrangements with pharmaceutical companies for joint
development of delivery systems and the successful marketing of these delivery
systems. In order to pursue this strategy, the Company will be required to
obtain financing and/or consummate a strategic alliance with a well-funded
business partner in the near future. In view of
22
the Company's very limited resources, its anticipated expenses (resulting in
significant operating losses) and the competitive environment in which the
Company operates, there can be no assurance that the Company's operations will
be sustained for the duration of its next fiscal year.
Results of Operations
Fiscal Year 2003 Compared to Fiscal Year 2002
Consulting revenues for fiscal 2003 decreased approximately $337,000 or 99% to
$2,000 from $339,000 for fiscal 2002. This revenue decrease for fiscal 2003 was
primarily attributable to a decrease in project management of clinical studies
for clients.
Consulting expenses increased approximately $86,000 or 9% to $1,048,000 from
$962,000 for fiscal 2002. This increase was due to increased payroll and inside
laboratory expenses. Selling, general and administrative expenses increased
approximately $1,135,000 or 30% to $4,902,000 from $3,767,000 for fiscal 2002.
This increase was due, primarily, to the increase in payroll expenses.
Total costs and expenses for fiscal 2003 increased approximately $1,221,000 or
26% to approximately $5,950,000 from approximately $4,729,000 for fiscal 2002.
This increase includes approximately: $880,000 in payroll expense primarily due
to additional employees; $476,000 in deferred compensation expense attributable
to options issued to an employee with an exercise price significantly lower than
the current share price; $307,000 in legal & professional fees; $104,000 in
laboratory testing and clinical studies costs; $68,000 in insurance expense due
to additional employees and general premium increases; $26,000 in trade show and
conference expenses; $19,000 in office expense due to additional employees;
$17,000 in laboratory expenses due to additional lab employees; $16,000 in
travel expenses; $14,000 in outside services; and, $12,000 in automobile
expenses.
Decreases in costs and expenses for the 2003 Period, as compared to the 2002
Period, includes approximately: $554,000 in outside consultant fees due
primarily to a reduction in the options issued to consultants; $131,000 in bad
debt expense; and, $20,000 in employee recruiting and relocation. A buy-out of a
consultant's contract, during the 2002 Period, without a corresponding expense
during the 2003 Period, resulted in an approximate $32,000 decrease in expenses.
Deferred income tax benefit for fiscal 2003 was approximately $84,000 compared
to approximately $88,000 for fiscal 2002. These benefits resulted from the sale
of the Company's New Jersey net operating losses.
The resulting net loss for fiscal 2003 was $5,815,000 compared to a net loss of
$4,290,000 for fiscal 2002.
Liquidity and Capital Resources
From its inception, the Company's principal sources of capital have been
provided by consulting revenues, private placements and a public offering of its
securities, as well as loans and capital contributions from the Company's
principal stockholders. At July 31, 2003 we had working capital of approximately
$2,799,000 as compared to working capital of $3,095,000 at July 31, 2002
representing a net decrease in working capital of approximately $296,000. During
fiscal 2003, we successfully closed an offering of our securities ("Private
Placement"). The Private Placement provided for the sale of
23
approximately 3,200,000 shares of common stock, par value $.001 per share. We
received proceeds, net of offering costs, of approximately $4,336,000.
Net cash used in operating activities was approximately $4,320,000 for fiscal
2003 compared to net cash used in operating activities of approximately
$1,871,000 for fiscal 2002. Net cash used in operating activities for fiscal
2003 was primarily attributable to the net loss of $5,815,000.
We believe that our current cash levels together with revenues from operations,
will be sufficient to satisfy our cash requirements for calendar year 2003.
However, beyond this point there is substantial doubt about our ability to
continue operations without obtaining additional financing and/or consummating a
strategic alliance with a well-funded business partner. Although the Company is
actively seeking additional financing and strategic alliances, there are a
number of risks and uncertainties related to our attempt to complete a financing
or strategic partnering arrangement that are outside our control. We may not be
able to successfully obtain additional financing on terms acceptable to us, or
at all. These uncertainties raise substantial doubt as to our ability to
continue as a going concern. Our auditors have qualified their audit opinion
with regard to our ability to continue as a going concern.
Critical Accounting Policies
Use of Estimates - The accompanying financial statements have been prepared in
conformity with accounting principle generally accepted in the United States.
When more than one accounting principle, or method of its application, is
generally accepted, management selects the principle or method that is
appropriate in the Company's specific circumstances. Application of the
accounting principles requires the Company's management to make estimates about
the future resolution of existing uncertainties and that affect the reported
amounts of assets, liabilities, revenues, expense which in the normal course of
business are subsequently adjusted to actual results. Actual results could
differ from such estimates. In preparing these financial statements, management
has made its best estimates and judgments of the amounts and disclosures
included in the financial statements giving due regard to materiality.
Revenue Recognition, Accounts Receivable and Allowance for Doubtful Accounts -
Revenue is recognized as earned. Invoices, for client project costs, are created
and presented at the end of each month, for that month. Accounts Receivable
reflects these invoices at the end of the month in which the invoice was
created. An Allowance for Doubtful Accounts is created for each invoice
remaining unpaid after 90 days from the invoice date.
Stock - Based Compensation - The Company uses the intrinsic value method
prescribed by APB Opinion No. 25 to measure compensation expense. If the fair
value method had been used to measure compensation expense as prescribed by SFAS
No. 123, net loss would have increased to $6,301,000 for fiscal 2003.
Capital Expenditures - The Company anticipates a twelve (12) to eighteen (18)
months to complete the remaining build-out of its recently occupied leased
facilities for laboratory and manufacturing purposes. Costs of the build-out and
necessary equipment are estimated to be up to $3,500,000
Off-Balance Sheet Arrangements
The Company does not have any so-called "off-balance sheet arrangements" that
have or are reasonably likely to have a current or future effect on its
financial condition, results of operations, liquidity or capital resources.
24
Inflation
We do not believe that inflation has had a material effect on our results of
operations during the past three fiscal years. There can be no assurance that
our business will not be affected by inflation in the future.
New Accounting Pronouncements
See Note 1 to the Financial Statements for a discussion of New Accounting
Pronouncements affecting the Company.
ITEM 7. FINANCIAL STATEMENTS
The response to this item is included as a separate section of this report
commencing on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
ITEM 8A. CONTROLS AND PROCEDURES
As of July 31, 2003, our Chief Executive Officer and Chief Financial Officer
performed an evaluation of the effectiveness of the Company's disclosure
controls and procedures (as defined in SEC Rule 13a-15(e)), which have been
designed to ensure that material information related to the Company is made
known to them and timely disclosed. The Company's management, including the CEO
and CFO, does not expect that the Company's disclosure controls or internal
controls will prevent all error and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the Company have been detected. Notwithstanding the foregoing,
however, based upon their evaluations, our CEO and CFO concluded that the
Company's disclosure controls are effective to provide a reasonable level of
assurance that material information relating to the Company is accumulated and
communicated to management, including the CEO and CFO, as appropriate, to allow
timely decisions regarding required disclosure.
There have been no changes in the Company's internal control over financial
reporting that occurred during the period covered by this report that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
25
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of the Directors and Executive Officers of the Company are
set out below. All Directors are elected annually, to serve until the next
annual meeting of stockholders and until their successors are duly elected and
qualified. Officers are elected annually by the Board and serve at the Board's
pleasure.
-------------------------------------- ------- --------------------------- --------------------------------- ------------
Director
Name Age Position with the Company Principal Occupation Since
-------------------------------------- ------- --------------------------- --------------------------------- ------------
Gary A. Shangold, M.D. 49 President, Chief President and Chief Executive 2003
Executive Officer and Officer of the Company
Director
-------------------------------------- ------- --------------------------- --------------------------------- ------------
Harry A. Dugger, III, Ph.D. 67 Chief Scientific Officer Chief Scientific Officer of the -
Company
-------------------------------------- ------- --------------------------- --------------------------------- ------------
John H. Klein 57 Chairman Consultant 2002
-------------------------------------- ------- --------------------------- --------------------------------- ------------
Robert F. Schaul, Esq. 64 Secretary and Director Attorney 1991
-------------------------------------- ------- --------------------------- --------------------------------- ------------
Donald J. Deitman 60 Chief Financial Officer Chief Financial Officer of the -
Company
-------------------------------------- ------- --------------------------- --------------------------------- ------------
Mohammed Abd El-Shafy 50 Vice President, Vice President of Formulation -
Formulation Development Development for the Company
-------------------------------------- ------- --------------------------- --------------------------------- ------------
William F. Hamilton, Ph.D. 64 Director University Professor 2003
-------------------------------------- ------- --------------------------- --------------------------------- ------------
Lawrence J. Kessel, M.D., FACP 49 Director Physician 2003
-------------------------------------- ------- --------------------------- --------------------------------- ------------
Mark H. Rachesky, M.D. 44 Director Investment Banker 2003
-------------------------------------- ------- --------------------------- --------------------------------- ------------
Charles Nemeroff, M.D., Ph.D. 54 Director University Professor 2003
-------------------------------------- ------- --------------------------- --------------------------------- ------------
Barry Cohen 40 Vice President - New Vice President - New Business -
Business and Product and Product Development of the
Development Company
-------------------------------------- ------- --------------------------- --------------------------------- ------------
Gary Shangold, M.D., President, Chief Executive Officer and Director. Dr.
Shangold joined NovaDel in December 2002 and was elected as a director in March
2003. Previously he had been Vice President and Regulatory Head of Drug
Development at Johnson & Johnson Pharmaceutical Research and Development, LLC.
Before joining the Johnson & Johnson family of companies in 1992, he had been
Medical Director of Obstetrics, Gynecology & Infertility at Serono Laboratories,
Inc. and had been a member of the faculty of Obstetrics and Gynecology at the
University of Chicago's Pritzker School of Medicine from 1983 to 1991. Dr.
Shangold also was an Associate Clinical Professor at the Harvard University
School of Medicine and a Clinical Associate at Massachusetts General Hospital.
Dr. Shangold is a graduate of the University of Pennsylvania and received his
M.D. from Columbia University's College of Physicians and Surgeons.
Harry A. Dugger, III, Ph.D., Chief Scientific Officer. Dr. Dugger is the founder
of NovaDel and served as its President and a Director from its inception in May
1982 until December 2002. Prior to founding NovaDel, from June 1980 to November
1982, Dr. Dugger was employed as Vice President of Research
26
and Development by Bauers-Kray Associates, a company engaged in the development
of pharmaceutical products. From 1964 to 1980, Dr. Dugger was Associate Section
Head for Research and Development at Sandoz Pharmaceuticals Corporation. Dr.
Dugger received an MS in Chemistry from the University of Michigan in 1960 and
received a Ph.D. in Chemistry from the University of Michigan in 1962.
John H. Klein, Chairman of the Board. Mr. Klein joined NovaDel in February 2002
as a consultant and as Chairman of its Board of Directors. From April 1996 to
the present Mr. Klein has been affiliated with a number of enterprises,
including True North Capital (Chairman/ Managing Director), Kindred Healthcare
(Director), US Interactive, Inc. (Director), America's Plan (Director and
Chairman), Coleman Co., Inc. (Director), Sunbeam Corp. (Director), Bi- Logix,
Inc. (Director), Strategic Business and Technology Solutions, LLC (Chairman),
Cybear (Director and Chairman) and Image Vision (Director and Vice Chairman).
From 1996 to 1998, Mr. Klein was Chairman and CEO of Mim Corp. From 1989 to
1996, he was President, CEO and Director of Zenith Laboratories, Inc., which in
1995 merged into IVAX, Inc., of which Mr. Klein was an Executive Officer and
President of its IVAX North American Multi-Source Pharmaceutical Group. Mr.
Klein holds BS and MBA degrees from Roosevelt University, Chicago, Illinois.
Donald Deitman, Chief Financial Officer. Mr. Deitman joined NovaDel in 1998.
From 1988 until joining NovaDel, Mr. Deitman was employed as a business
consultant implementing multi-module MRP II software systems. From 1982 to 1988,
Mr. Deitman was corporate controller for FCS Industries, Inc. of Flemington, New
Jersey. From 1975 to 1982, he was manager of materials and systems for the
Walworth Company operations located in Linden and Elizabeth, NJ and from 1966 to
1975, he was employed by Ortho Pharmaceuticals, Inc. and Ortho Diagnostics, Inc.
Mr. Deitman received a BS in Accounting from Rutgers University in 1972.
Robert F. Schaul, Esq., Secretary and Director. Mr. Schaul has been a Director
of NovaDel since November 1991 and was Vice President, Secretary and General
Counsel of NovaDel from November 1991 to February 1995. He has advised NovaDel
since its formation. Mr. Schaul is also a part-time Municipal Court Judge for a
number of New Jersey municipalities. From 1995 to 1998, Mr. Schaul was Vice
President and General Counsel of Landmark Financial Corp. From 1989 to 1991, Mr.
Schaul was a partner with the law firm of Glynn, Byrnes and Schaul, and for
twenty years prior thereto was an attorney and partner with the law firm Kerby,
Cooper, English, Schaul & Garvin, specializing in business law and business
related litigation. Mr. Schaul received a BA from New York University in 1961
and a JD from Harvard University in 1964.
William F. Hamilton, Ph.D., Director. Dr. Hamilton was elected to the Board in
March 2003. Dr. Hamilton has served on the University of Pennsylvania faculty
since 1967, and is the Landau Professor of Management and Technology, and
Director of the Jerome Fisher Program in Management and Technology at The
Wharton School and the School of Engineering and Applied Science. He serves as a
director of the following publicly-held companies: Neose Technologies, Inc., a
company developing a drug manufacturing process and proprietary drugs, and
Digital Lightwave, Inc., a manufacturer of telecommunications test equipment.
Dr. Hamilton received his B.S. and M.S. in chemical engineering and his M.B.A.
from the University of Pennsylvania, and his Ph.D. in applied economics from the
London School of Economics. Dr. Hamilton is a member of the Board's Audit
Committee and Compensation Committee.
Lawrence Jay Kessel, MD, FACP , Director. Dr. Kessel was elected to the Board in
March 2003. He is President of Lawrence J. Kessel, MD & Associates, PC, Dr
Kessel is president of a five physician practice specializing in Internal
Medicine and Geriatrics since 1984. He graduated Magna Cum Laude
27
with a B.S. degree from the University of Pittsburgh as an honors major in
Biology and subsequently graduated with an MD degree from Temple Medical School.
He completed a formal residency in Internal Medicine at Abington Memorial
Hospital, and is Board Certified in Internal Medicine with added qualification
as a diplomat in Geriatric Medicine. He is an active staff attending and
Clinical Instructor at Chestnut Hill Hospital (University of Pennsylvania
affiliate) and Roxborough Memorial Hospital in Philadelphia, Pennsylvania. Dr.
Kessel is a Board Reviewer for the American Board of Internal Medicine, as well
as a Fellow of the American College of Physicians. He also serves on the
advisory board of Independence Blue Cross and is a Clinical Assistant Professor
in the Department of Medicine at Temple University Medical School.Dr. Kessel
presently serves as a director to Cypress Biosciences, Inc. of San Diego,
California, NovaDel Pharma Inc, of Flemington, New Jersey, Keryx
Biopharmaceuticals, of New York, New York, and Dor BioPharma, Inc. of Lake
Forest, Illinois. He previously served on the Board of Genta, Inc.
Mohammed Abd El-Shafy, Ph.D., Vice President-Formulation Development. Dr.
El-Shafy has been an employee of NovaDel since May of 2002. From 1999 to 2002 he
was employed as a Team Leader and Senior Scientist with Nastech Pharmaceutical
Inc., Hauppauge, New York. From 1998 to 1999 Dr. El-Shafy was a Post-Doctoral
Fellow at the University of Wisconsin's School of Pharmacy. He received his
doctorate in 1997 from the School of Pharmacy, University of Wales, Cardiff,
Wales, UK. From 1983 to 1993 he was an Assistant Lecturer of Pharmaceutical
Sciences on the Faculty of Pharmacy, Al-Azhar University, Cairo, Egypt.
Barry Cohen, Vice President of New Business and Product Development. Mr. Cohen
joined Novadel in May 2003. Before joining Novadel, he was Vice
President-Business Development at Keryx, and before that held several executive
marketing and business development positions at Novartis Consumer Health. Mr.
Cohen holds a BBA in Marketing from Hofstra University and an MBA in Marketing
from Pace University.
Mark H. Rachesky, M.D., Director. Dr. Rachesky joined the Board in June 2003.
Dr. Rachesky is the founder and President of MHR Fund Management LLC and
affiliates, investment managers of various private investment funds that invest
in inefficient market sectors, including special situation equities and
distressed investments. Dr. Rachesky is currently on the board of directors of
Neose Technologies, Inc. a company developing a drug manufacturing process and
proprietary drugs. Dr. Rachesky is a graduate of Stanford University School of
Medicine, and Stanford University School of Business. Dr. Rachesky graduated
from the University of Pennsylvania with a major in Molecular Aspects of Cancer.
Charles Nemeroff, M.D., Ph.D. Dr. Nemeroff joined the Board in September 2003.
Dr. Nemeroff has been the Reunette W. Harris Professor and Chairman of the
Department of Psychiatry and Behavioral Sciences at the Emory University School
of Medicine in Atlanta, Georgia, since 1991. He has served on the Mental Health
Advisory Council of the National Institute of Mental Health and the Biomedical
Research Council for NASA. Dr. Nemeroff is a past President of the American
College of Psychiatrists and a past President of the American College of
Neuropsychopharmacology and is Editor-in-Chief of Neuropsychopharacology. He has
served as Editor-in-Chief of the Psychopharmacology Bulletin, Associate Editor
of Biological Psychiatry and as the Co-Editor-in-Chief of both critical reviews
in Neurobiology and Depression and Anxiety. Dr. Nemeroff serves on the
Scientific Advisory Board of numerous pharmaceutical companies, including Acadia
Pharmaceuticals, Astra Pharmaceuticals, Forest Laboratories, Janssen, Organon,
Glaxo-SmithKline Beecham and Wyeth-Ayerst. Dr. Nemeroff has received numerous
awards for his research, including the Bowis Award from the American College of
Psychiatrists and the Menninger Prize from the American College of Physicians.
In 2002 he was elected to the Institute of Medicine.
28
Code of Ethics
The Company's Board of Directors has been actively considering adoption of a
Code of Ethics to be applicable to its Chief Executive Officer and senior
financial executives. The Code of Ethics will be designed to deter wrong-doing
and promote honest and ethical behavior, full, fair, timely, accurate and
understandable disclosure, and compliance with applicable laws. The Board
anticipates it will adopt the Code of Ethics before the end of the calendar
year. Following adoption. a copy of the Code of Ethics will be provided to any
person without charge upon written request to the Secretary of the Company at
its executive offices, 25 Minneakoning Road, Flemington, N.J.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires officers, directors and persons who
own more than ten (10) percent of a class of equity securities registered
pursuant to Section 12 of the Exchange Act to file reports of ownership and
changes in ownership with both the SEC and the principal exchange upon which
such securities are traded or quoted. Officers, directors and persons holding
greater than ten (10) percent of the outstanding shares of a class of Section
12-registered equity securities ("Reporting Persons") are also required to
furnish copies of any such reports filed pursuant to Section 16(a) of the
Exchange Act with the Company. Based solely on a review of the copies of such
forms furnished to the Company, the Company believes that from August 1, 2002 to
July 31, 2003 all Section 16(a) filing requirements applicable to its Reporting
Persons were complied with.
29
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth a summary for the fiscal years ended July 31,
2003, 2002 and 2001, respectively, of the cash and non-cash compensation
awarded, paid or accrued by the Company to the Company's Chief Executive Officer
("CEO") and its four most highly compensated officers other than the CEO who
served in such capacities at the end of fiscal 2003 (collectively, the "Named
Executive Officers"). There were no restricted stock awards, long-term incentive
plan payouts or other compensation paid during fiscal 2001, 2002 and 2003 to the
Named Executive Officers, except as set forth below:
SUMMARY COMPENSATION TABLE
------------------------------ ------- -------------------------------------- ------------------------------------- ----------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------------- -------------------------------------
AWARDS PAYOUTS
-------------------------- ----------
SECURITIES
RESTRICTED UNDER-LYING
OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION AWARD(S) SAR (1) PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
------------------------------ ------- ------------ ---------- -------------- ------------- ------------ ---------- ----------------
Gary A. Shangold, M.D. 2003 210,900 200,000 0 0 1,000,000 0 0
President and CEO
------------------------------ ------- ------------ ---------- -------------- ------------- ------------ ---------- ----------------
Harry A. Dugger, III, Ph.D. 2003 246,900 0 0 0 275,000 0 12,000
Chief Scientific Officer,
formerly President and CEO
------------------------------ ------- ------------ ---------- -------------- ------------- ------------ ---------- ----------------
2002 347,000 0 0 0 0 0 10,000
------------------------------ ------- ------------ ---------- -------------- ------------- ------------ ---------- ----------------
2001 182,974 0 0 0 0 0 0
------------------------------ ------- ------------ ---------- -------------- ------------- ------------ ---------- ----------------
John H. Klein 2003 300,000 0 0 0 0 0 72,000
Chairman
------------------------------ ------- ------------ ---------- -------------- ------------- ------------ ---------- ----------------
2002 150,000 0 0 0 1,000,000 0 36,000
------------------------------ ------- ------------ ---------- -------------- ------------- ------------ ---------- ----------------
Donald Deitman 2003 124,200 0 0 0 0 0 7,200
Chief Financial Officer
------------------------------ ------- ------------ ---------- -------------- ------------- ------------ ---------- ----------------
2002 104,400 0 0 0 0 0 4,200
------------------------------ ------- ------------ ---------- -------------- ------------- ------------ ---------- ----------------
2001 70,800 0 0 0 0 0 0
------------------------------ ------- ------------ ---------- -------------- ------------- ------------ ---------- ----------------
Robert C. Galler 2003 186,900 0 0 0 350,000 0 0
Vice President
Corporate Development
------------------------------ ------- ------------ ---------- -------------- ------------- ------------ ---------- ----------------
2002 143,600 0 0 0 700,000 0 6,600
------------------------------ ------- ------------ ---------- -------------- ------------- ------------ ---------- ----------------
Mohammed abd Al-Shafy, Ph.D., 2003 144,000 0 0 0 100,000 0 5,400
Vice President -
Formulation Development
------------------------------ ------- ------------ ---------- -------------- ------------- ------------ ---------- ----------------
(1) No Stock Appreciation Rights have been issued.
30
OPTION GRANTS IN LAST FISCAL YEAR
(individual grants)
The following table sets forth information with respect to the Named Executive
Officers concerning grants of options during fiscal 2003:
----------------------------------------------------------------------------------------------------------------------------------
Option/SAR Grants in Last Fiscal Year
----------------------------------------------------------------------------------------------------------------------------------
Individual Grants
---------------------------------- -------------------------- -------------------------- ---------------------- ------------------
(a) (b) (c) (d) (e)
---------------------------------- -------------------------- -------------------------- ---------------------- ------------------
Name Number of Securities % of Total Options/SARs Exercise or Base Expiration
Underlying Options/SARs Granted to Employees in Price ($/Sh) Date
Granted (#) Fiscal Year
---------------------------------- -------------------------- -------------------------- ---------------------- ------------------
Gary A. Shangold, M.D. 1,000,000 54 % $1.93 2 Dec 2007
---------------------------------- -------------------------- -------------------------- ---------------------- ------------------
Harry A Dugger III, Ph.D 275,000 15 % $0.70 14 Nov. 2011
---------------------------------- -------------------------- -------------------------- ---------------------- ------------------
John H. Klein 0 N/A $2.40 31 Jan. 2012
---------------------------------- -------------------------- -------------------------- ---------------------- ------------------
Donald J. Deitman 0 N/A N/A N/A
---------------------------------- -------------------------- -------------------------- ---------------------- ------------------
Robert Galler 350,000 19 % $0.75 11 Dec. 2011
---------------------------------- -------------------------- -------------------------- ---------------------- ------------------
Mohammed Abd El-Shafy, Ph.D. 50,000 3 % $1.51 27 Mar 2008
---------------------------------- -------------------------- -------------------------- ---------------------- ------------------
Barry Cohen 75,000 4 % $2.04 13 May 2013
---------------------------------- -------------------------- -------------------------- ---------------------- ------------------
31
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the Named Executive
Officers concerning the exercises of options during fiscal 2003 and the number
and value of unexercised options held as of the end of fiscal 2003.
--------------------------------- ------------------- ------------------- ---------------------- -----------------------
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NUMBER OF SHARES AT FISCAL YEAR END; AT FISCAL YEAR END
NAME OF EXECUTIVE ACQUIRED ON (EXERCISABLE/ ($); (EXERCISABLE/
OFFICER EXERCISE VALUE REALIZED ($) UNEXERCISABLE) UNEXERCISABLE)
--------------------------------- ------------------- ------------------- ---------------------- -----------------------
Harry A. Dugger, III, Ph.D. 0 - 920,000/0 716,600 / 0
-------------------------------- ------------------- ------------------- ---------------------- -----------------------
John H. Klein 0 - 333,333 / 666,667 0 / 0
-------------------------------- ------------------- ------------------- ---------------------- -----------------------
Gary A. Shangold, M.D. 0 - 0 / 1,000,000 0 / 0
-------------------------------- ------------------- ------------------- ---------------------- -----------------------
Donald Deitman 0 - - -
-------------------------------- ------------------- ------------------- ---------------------- -----------------------
Mohammed Abd El-Shafy, Ph.D. 0 - 150,000/50,000 26,000/0
-------------------------------- ------------------- ------------------- ---------------------- -----------------------
Robert Galler 0 - 1,050,000/0 1,344,000/0
-------------------------------- ------------------- ------------------- ---------------------- -----------------------
Barry Cohen 0 - 0/75,000 0/0
-------------------------------- ------------------- ------------------- ---------------------- -----------------------
Employment Agreements and Change in Control Arrangements
Gary A. Shangold, M.D.. In December 2002, Dr. Shangold entered into a three-year
employment agreement with NovaDel pursuant to which he agreed to serve as its
President and Chief Executive Officer. We agreed to pay Dr. Shangold an annual
base salary of $350,000 and a guaranteed bonus of $150,000. In addition, Dr.
Shangold is eligible to receive: (i) an annual discretionary bonus of up to
$262,500, which shall be determined at the sole discretion of the Board; and
(ii) an investment and fee bonus equal to 5% of all amounts up to an aggregate
of $7,500,000 (i.e., $375,000) invested in, or earned by, NovaDel during his
term. We paid Dr. Shangold a contractual bonus of $200,000 during the fourth
quarter. The investment bonus shall be reduced by certain proceeds received by
Dr. Shangold from his former employer. Pursuant to the agreement, Dr. Shangold
was also granted non-plan options to purchase 1,000,000 shares of our common
stock (at an exercise price of $1.93 per share) which vest over a three year
period.
Harry A. Dugger, III, Ph.D. In February 2002, effective January 1, 2002, Dr.
Dugger entered into a new three-year employment agreement at a base salary, for
the first year, of $248,500 per year (which increases each year by the greater
of the CPI index or 5%). Except for the increase in base salary, there was no
material difference between the new employment agreement and that previously in
effect.
32
John Klein. In February 2002, Mr. Klein entered into a one-year consulting
agreement (which was renewed in February 2003 for an additional one year) at a
base compensation of $300,000, plus certain fringe benefits of approximately
$72,000 per year. Pursuant to the agreement, he was granted 1,000,000 non-plan
options at $2.40 per share. See "Certain relationships and related
transactions." Mr. Klein is also entitled to certain bonuses, in the form of
stock, stock options or other rights or property, as determined by the Board. In
addition, Mr. Klein is entitled to receive certain success fees (based upon a
percentage of net revenues) upon completion of certain types of corporate
transactions (i.e., strategic partnerships, licensing arrangements and the like)
which are introduced to NovaDel by Mr. Klein. The percentage of net revenue
(which is between 4% - 10%) depends upon the share of profits that NovaDel is
entitled to in such transactions.
Donald Deitman. In February 2002, effective January 1, 2002, Mr. Deitman entered
into a three year employment agreement as our Chief Financial Officer. The
agreement provided for a base salary, for the first year, of $125,000 per year
(which increases each year by the greater of the CPI index or 5%). All other
provisions of the agreement are the same as those in effect for our other
executives.
Mohammed Abd El-Shafy, Ph.D. In May 2002, we entered into a three year
employment agreement with Dr. El-Shafy, who was appointed Vice
President-Formulation Development. Pursuant to the agreement, he received a base
salary, for the first year, of $110,000, which increased in April 2003 to
$180,000. In addition, he was granted 150,000 non-plan options at $3.02 per
share. Subsequently, in March 2003, Dr. El-Shafy was granted 50,000 options
under the 1998 Option Plan at an exercise price of $1.51.
Barry Cohen. In May 2003, we entered into a three year employment agreement with
Barry Cohen, who was appointed Vice President-New Business and Product
Development. Pursuant to the agreement, he receives a base salary of $185,000,
plus incentive bonuses. Pursuant to the agreement, he was issued 75,000 options
(exercisable at $2.04 per share) under the 1998 Plan. 60,000 of such options
vest in three equal installments commencing May 2004. These options expire in
May 2008. The balance of such options vest upon achievement of certain
objectives.
Robert C. Galler. In August 2003, Mr. Galler agreed to change from an employee
of the Company as our Vice President - Corporate Development to a consulting
arrangement. At that time, his additional options to purchase 350,000 shares of
our common stock at an exercise price of $.75 per share vested. In August 2003,
he entered into a consulting agreement with the Company at a base compensation
of $180,000 per year and the vesting of additional options. The consulting
agreement terminates in February 2005.
The foregoing agreements also provide for certain non-competition and
non-disclosure covenants on the part of such executive. However, with respect to
the non-competition covenants, a court may determine not to enforce such
provisions or only partially enforce such provisions. Additionally, each of the
foregoing agreements (other than John Klein) provides for certain fringe
benefits, such as inclusion in pension, profit sharing, stock option, savings,
hospitalization and other benefit plans at such times as NovaDel shall adopt
them.
Stock Option Plans
NovaDel has three stock option plans, adopted in 1992, 1997 and 1998,
respectively (collectively referred to as the "Plans"). The 1992 and 1997 Plans
provides for the issuance of options to purchase 500,000 shares of common stock,
and the 1998 Plan provides for the issuance of options to purchase 1,800,000
shares of common stock, for a total of 2,800,000 shares. The 1997 Stock Option
33
Plan is administered by William Hamilton and Lawrence Kessel who constitute the
Compensation Committee of the Board of Directors ("Committee"), and the 1992
Stock Option Plan and 1998 Stock Option Plan are administered by the entire
Board of Directors. For purposes of the following discussion, the term
"Committee" will be used to reference the Committee with respect to the 1997
Stock Option Plan and the entire Board of Directors with respect to the 1992
Stock Option Plan and 1998 Stock Option Plan, as applicable. The Committee has
sole discretion and authority, consistent with the provisions of the Plans, to
select the Eligible Participants to whom options will be granted under the
Plans, the number of shares which will be covered by each option and the form
and terms of the agreement to be used. All employees and officers of the Company
are eligible to participate in the Plans.
At July 31, 2003, 300,000, 450,000 and 892,500 shares of our common stock were
reserved for issuance pursuant to the 1992, 1997 and 1998 Plans, respectively.
The exercise prices for the outstanding options reserved under the 1992 and 1997
Plans range between $.63 and $2.00 per share; and the exercise prices for the
outstanding options reserved under the 1998 Plan range between $.63 and $2.69
per share.
The Committee is empowered to determine the exercise price of options granted
under the Plans, but the exercise price of ISOs must be equal to or greater than
the fair market value of a share of common stock on the date the option is
granted (110% with respect to optionees who own at least 10% of the outstanding
common stock). The Committee has the authority to determine the time or times at
which options granted under the Plans become exercisable, but options expire no
later than ten years from the date of grant (five years with respect to
Optionees who own at least 10% of the outstanding common stock of NovaDel).
Options are nontransferable, other than by will and the laws of descent, and
generally may be exercised only by an employee while employed by NovaDel or
within 90 days after termination of employment (one year from termination
resulting from death or disability).
No ISO may be granted to an employee if, as the result of such grant, the
aggregate fair market value (determined at the time each option was granted) of
the shares with respect to which ISOs are exercisable for the first time by such
employee during any calendar year (under all such plans of NovaDel and any
parent and subsidiary) exceeds $100,000. The Plans do not confer upon any
employee any right with respect to the continuation of employment by NovaDel,
nor do the Plans interfere in any way with the employee's right or NovaDel's
right to terminate the employee's employment at any time.
Non-Plan Options
As of July 31, 2003, we had 4,550,000 non-plan options outstanding as follows:
600,000 options exercisable at $1.84 per share; 1,050,000 options exercisable at
$.75 per share; 1,000,000 options exercisable at $2.40 per share; 1,000,000
options exercisable at $1.93 per share; 200,000 options exercisable at $1.30 per
share; 200,000 options exercisable at $151 per share; 100,000 options
exercisable at $2.15 per share; 250,000 options exercisable at $3.18 per share;
and 150,000 options exercisable at $3.02 per share.
Compensation of Directors
The Directors of the Company are elected annually and serve until the next
annual meeting of stockholders and until a successor shall have been duly
elected and qualified. Effective September 2003, Directors of the Company who
are not employees or consultants receive fees of $2,000 for each meeting of the
Board of Directors attended in person or $1,000 if participated in by telephone.
Directors are also compensated $3,000 for serving or $5,000 for chairing a
committee of the Board. Such Directors also are awarded 100,000 Non-Plan Options
upon their election to the Board, to vest in three equal annual installments
beginning on the first anniversary of their appointment. In addition, such
Directors are to be
34
awarded an additional 50,000 Non-Plan Options for each year of service on the
Board thereafter, beginning on the first anniversary of their election; such
annually awarded options also vest over a three year period. Such Directors are
also reimbursed for expenses incurred in connection with their attendance at
meetings of the Board of Directors or committees. Directors may be removed with
or without cause by a vote of the majority of the stockholders then entitled to
vote.
In March 2003, we issued 100,000 Non-Plan Options to each of Mr. William
Hamilton and Dr. Lawrence Kessel upon their being elected to the Board of
Directors. In March 2003, we also issued 10,000 options to each of Messrs.
Schaul and Komreich under the 1998 Plan. All of these options have an exercise
price of $1.51; the options issued to Messrs. Schaul and Kornreich vested
immediately, those issued to Drs. Hamilton and Kessel vest in three equal annual
installments beginning in March 2004 and expire in March 2008.
In June, 2003, we issued 100,000 Non-Plan Options to Dr. Mark H. Rachesky upon
his being appointed to the Board of Directors. These options have an exercise
price of $2.15 and vest in three equal annual installments beginning in June
2004 and expire in June 2008.
There were no other arrangements pursuant to which any Director was compensated
during fiscal 2003 for any services provided as a Director.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED MATTERS
The following table sets forth information, as of October 15, 2003 with respect
to the beneficial ownership of the outstanding shares of our common stock
(17,972,760 as of such date plus, where relevant for particular beneficial
owners, shares which such beneficial owner has the right to acquire within 60
days), by (i) any holder known to us owning more than five percent (5%) of the
outstanding shares; (ii) our officers and directors; and (iii) the directors and
officers of NovaDel as a group:
Title of Name and Address or Amount and Nature of Percentage of
Class Number in Group(1) Beneficial Ownership Class
----- ------------------ -------------------- -----
Common Stock Harry A. Dugger, III, Ph.D. 2,104,003(2) 11.1%
Common Stock Gary A. Shangold, M.D. 333,333(3) 1.8%
Common Stock John Klein 333,333(4) 1.8%
Common Stock Robert Galler 1.050,000(5) 5.5%
Common Stock Donald Deitman 0 ___
Common Stock Robert F. Schaul, Esq. 274,286(6) 1.5%
Common Stock Mohammed Abd El-Shafy 150,000(7) .8%
Common Stock William F. Hamilton, Ph.D. 0(8) ___
Common Stock Lawrence J. Kessel, M.D., FACP 0(8) ___
35
Common Stock Barry Cohen 0(9) ___
Common Stock Mark H. Rachesky 833,334(10) 4.4%
Common Stock Charles Nemeroff, M.D., Ph.D. 0(11) ---
Common Stock Lindsay Rosenwald 13,233,334(12) 42.4%
Common Stock Biomedical Investment Group, LLC 5,333,334 (12)(13) 22.9%
Common Stock All Executive Officers and Directors as 4,028,289 (2)(3)(4) (6)(7)(8)(9) 26.9%
a group (11 persons) (10) (11)
(1) The address of all holders listed herein is c/o NovaDel Pharma Inc., 25
Minneakoning Road, Flemington, New Jersey 08822.
(2) Includes options to purchase 200,000 shares of common stock (exercisable at
$.70 per share) issued under the 1992 Stock Option Plan which expire in July
2006; options to purchase 50,000 shares of common stock (exercisable at $.70 per
share) under the 1997 Stock Option Plan which expire in December 2006; options
to purchase 95,000 shares of common stock (exercisable at $.70 per share) issued
under the 1998 Stock Option Plan which expire in January 2005; options to
purchase 300,000 shares of common stock issued outside of the Plans (exercisable
at $1.84 per share) which expire November 2007; options to purchase 200,000
shares of common stock issued outside of the Plans (exercisable at $1.30 per
share) which expire October 2007; options to purchase 75,000 shares of common
stock (exercisable at $1.30 per share) issued under the 1998 Stock Option Plan,
which expire in October 2007; 152,000 shares owned by his daughter Christina
Dugger; and 152,000 shares owned by his son Andrew Dugger.
(3) Does not include Non-Plan Options, issued in December 2002, to purchase
1,000,000 shares of common stock at an exercise price of $1.93 per share. These
options vest in three equal annual installments, beginning in December 2003, and
expire in December 2007.
(4) Represents 333,333 Non-Plan Options exercisable at $2.40 per share. Does not
include additional Non-Plan options to purchase 666,667 shares of common stock
at an exercise price of $2.40 per share. These additional options vest in two
equal installments in February 2004 and 2005. All of the options expire in 2012.
(5) Mr. Galler was granted Non-Plan options to purchase 1,050,000 shares of
common stock, at an exercise price of $0.75 per share. 700,000 of the options
expire in September 2011; the remainder of 350,000 expire in December 2011.
(6) Includes: 20,000 options, issued under the 1992 Option Plan, to purchase
common stock at an exercise price of $.63 per share, expiring in July, 2006;
25,000 options issued under the 1997 Option Plan, to purchase common stock at an
exercise price of $.63 per share, expiring in March 2008; 10,000 options issued
under the 1998 Option Plan, to purchase common stock at an exercise price of
$.63 per share, expiring in September 2009: 95,000 options issued under the 1998
Option Plan, to purchase common stock at an exercise price of $.63 per share,
expiring in January 2010; 75,000 options issued under the 1998 Option Plan, to
purchase common stock at an exercise price of $2.69 per share, expiring in
February 2012; and, 10,000 options issued under the 1998 Option Plan to purchase
common stock at an exercise price of $1.51 per share, expiring in March 2008.
(7) Includes Non-Plan Options exercisable at $3.02 per share; does not include
additional Non-Plan Options to purchase 50,000 shares of common stock at an
exercise price of $3.02 per shar,. which additional options vest in May 2004.
All of such options expire in May 2012. Also includes 50,000 options issued
under the 1998 Option Plan to purchase common stock at an exercise price of
$1.51 per share, expiring in March 2008.
36
(8) Does not include options to purchase 100,000 shares of common stock at an
exercise price of $1.51 per share, which shall vest in three annual installments
beginning March 2004.
(9) Does not include 75,000 options issued under the 1998 Plan, to purchase
common stock at an exercise price of $2.01 per share. The options expire in May
2008 and vest subject to certain conditions.
(10) Does not include options to purchase 100,000 shares of common stock at an
exercise price of $2.15 per share, which shall vest in three annual installments
beginning June, 2004. Includes 666,667 shares of common stock and warrants to
purchase 166,667 shares of common stock at an exercise price of $2.00 per share
which expire in April, 2008. Such shares and warrants are held by MHR Capital
Partnership, LP, which is controlled by Dr. Rachesky.
(11) Does not include options to purchase 100,000 shares of common stock at an
exercise price of $1.85 per share, which shall vest in three annual installments
beginning September 2004.
(12) Includes 3,950,000 shares of common stock and warrants to purchase
3,950,000 shares of common stock at an exercise price of $.75 per share which
expire in December 2008. Also includes 2,666,667 shares of common stock and
2,666,667 warrants to purchase 2,666,667 shares of common stock, which expire in
March 2009, owned by Biomedical Investment Group, LLC, which is an affiliate of
Lindsay A. Rosenwald.
(13) Includes warrants to purchase 2,666,667 shares of common stock at an
exercise price of $.75 per share which expire in March 2009.
Shareholder Approval of Equity Compensation Plans
The following table sets forth information as of the end of fiscal 2003 with
respect to the number of shares of the Company's Common Stock issuable pursuant
to equity compensation plans which have and have not been approved by
stockholders.
Equity Compensation Plan Information
=============================== ============================ ============================ ============================
Number of securities to be Weighted average exercise
issued upon exercise of price of outstanding Number of securities
Plan Category outstanding options, options, warrants and remaining available for
warrants and rights rights future issuance
=============================== ============================ ============================ ============================
(a) (b) (c)
=============================== ============================ ============================ ============================
Equity compensation plans 0 N/A N/A
approved by security holders
=============================== ============================ ============================ ============================
Equity compensation plans not 3,717,472 $1.658 N/A
approved by security holders
=============================== ============================ ============================ ============================
TOTAL 3,717,472 $1.658 N/A
=============================== ============================ ============================ ============================
37
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
To the best of management's knowledge, other than (i) compensation for services
as officers and directors described under Item 10, or (ii) as set forth below,
there were no material transactions, or series of similar transactions, or any
currently proposed transactions, or series of similar transactions, to which
NovaDel was or is to be a party, in which the amount involved exceeds $60,000,
and in which any director or executive officer, or any security holder who is
known by us to own of record or beneficially more than 5% of any class of our
common stock, or any member of the immediate family of any of the foregoing
persons, has an interest.
During December 2001, we received net proceeds of approximately $3,000,000 from
a private placement of 4,000,000 units, which were purchased by Lindsay
Rosenwald. Each unit consisted of one share of common stock, and a warrant
(which expires December 2008) to purchase an additional share of our common
stock at an exercise price of $.75. As part of the purchase agreement, we agreed
to elect to the Board a Director to be nominated by Dr. Rosenwald (as of the
date hereof, no such nominee had been selected) and to permit Dr. Rosenwald or a
representative of his to attend Board meetings. Appropriate confidentiality
agreements are in place to protect confidential company information. In March
2002, we received net proceeds of approximately $2,000,000 from a private
placement of 2,666,667 additional units at a sale price of $.75 per unit. These
units were purchased by Biomedical Investment Group LLC, which is affiliated
with Dr. Rosenwald. These warrants expire in March 2009.
In April 2003, we entered into a license and development agreement with
Manhattan Pharmaceuticals, Inc. (Manhattan) for the worldwide, exclusive rights
to out lingual spray technology to deliver Propofol for pre-procedural sedation.
The terms of the agreement call for certain milestones and other payments, the
first of which was received during June 2003. One of the Company's Affiliates,
Dr. Lindsay Rosenwald, is also an Affiliate of Manhattan. Manhattan is a
development stage company and has no revenues to date. The agreement has
conditions that stipulate that Manhattan can achieve this. If Manhattan is
unable to raise additional funds, there is significant doubt it would be able to
fulfill its remaining commitments to the Company. See also Notes 6 and 7 to the
Financial Statements.
During fiscal 2003 the Company paid Mr. Schaul approximately $160,000 for legal
services rendered to the Company.
PART IV
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K
(a) (1) The following financial statements are included in Part II,
Item 7:
Report of Independent Auditors Page F-1
Balance Sheet F-2
Statement of Operations F-3
Statement of Changes in Stockholders' Equity F-4
Statement of Cash Flows F-5
Notes to Financial Statements F-2 thru F-16
38
INDEPENDENT AUDITORS'S REPORT
To the Audit Committee of NOVADEL PHARMA INC.
We have audited the balance sheet of NOVADEL PHARMA INC., formerly known as
Flemington Pharmaceutical Corporation as of July 31, 2003, and the related
statements of operations, changes in stockholders' equity and cash flow for each
of the two years in the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NOVADEL PHARMA INC. at July 31,
2003, and the results of its operations and its cash flows for each of the two
years in the period then ended, are in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has had a recent history of recurring losses
from operations, giving rise to an accumulated deficit through July 31, 2003,
and is currently developing pharmaceutical products which will require
substantial financing to fund anticipated product development costs. Resulting
operating losses and negative cash flows from operations are likely to occur
until, if ever, profitability can be achieved through successful marketing of
newly developed products. These factors raise substantial doubt about the
Company's ability to continue as going concern. Management's plans in regard to
these matters are described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ WISS & COMPANY, LLP
WISS & COMPANY, LLP
Livingston, New Jersey
September 8, 2003
NOVADEL PHARMA INC.
BALANCE SHEET
JULY 31, 2003
ASSETS
CURRENT ASSETS:
Cash and equivalents ....................................................... $ 3,086,000
Accounts receivable - trade ................................................ 2,000
Prepaid expenses and other current assets .................................. 168,000
------------
Total Current Assets ............................................. $ 3,256,000
FURNITURE, FIXTURES, EQUIPMENT
and LEASEHOLD IMPROVEMENTS, LESS
ACCUMULATED DEPRECIATION OF $252,000 ......................................... 714,000
OTHER ASSETS ................................................................. 357,000
-----------
$ 4,327,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable-trade ..................................................... $ 139,000
Accrued expenses and other current liabilities ............................. 318,000
------------
Total Current Liabilities ............................................... $ 457,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 per value:
Authorized shares, none issued ....................................... 1,000,000
Common stock $.001 par value:
Authorized - 50,000,000 shares
Issued and outstanding -17,972,760 shares ......................... 18,000
Additional paid-in capital ................................................ 19,480,000
Accumulated Deficit ....................................................... (15,628,000)
------------
Total Stockholders' Equity ........................................ 3,870,000
-----------
$ 4,327,000
===========
See accompanying notes to financial statements.
F-1
NOVADEL PHARMA INC.
STATEMENT OF OPERATIONS
Year Ended
July 31,
----------------------------------
2003 2002
------------ ------------
CONSULTING REVENUES ................................ $ 2,000 $ 339,000
CONSULTING, RESEARCH AND DEVELOPMENT EXPENSES ...... 1,048,000 962,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ....... 4,902,000 3,767,000
------------ ------------
LOSS FROM OPERATIONS ............................... (5,948,000) (4,390,000)
BUY-OUT OF CONSULTANT'S CONTRACT ................... -- (32,000)
INTEREST INCOME .................................... 49,000 44,000
------------ ------------
NET LOSS BEFORE TAXES .............................. (5,899,000) (4,378,000)
DEFERRED STATE INCOME TAX BENEFIT .................. 84,000 88,000
------------ ------------
NET LOSS ........................................... $ (5,815,000) $ (4,290,000)
============ ============
BASIC AND DILUTED LOSS
PER COMMON SHARE:
Net Loss ......................................... $ (.38) $ (.38)
------------ ------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 15,419,000 11,361,000
============ ============
See accompanying notes to financial statements.
F-2
NOVADEL PHARMA INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock
--------------------------------
Additional
Par Paid-in Accumulated Stockholders'
Shares Value Capital Deficit Equity
------------- --------------- -------------- --------------- ---------------
BALANCE, JULY 31, 2002 14,448,817 $14,000 $13,322,000 $(9,813,000) $3,523,000
------------- --------------- -------------- --------------- ---------------
YEAR ENDED JULY 31, 2003
Common Shares Issued in connection
with private placements, net of costs 3,200,345 3,000 4,333,000 - 4,336,000
Shares issued for Options exercised 210,577 - - - -
Shares issued for Warrants exercised 113,021 1,000 19,000 - 20,000
Options issued for services - - 1,674,000 - 1,674,000
Warrants issued for services - - 7,000 - 7,000
Equity investment from related party - - 125,000 - 125,000
Net Loss - - - (5,815,000) (5,815,000)
------------- --------------- -------------- --------------- ---------------
BALANCE, JULY 31, 2003 17,972,760 $18,000 $19,480,000 $(15,628,000) $3,870,000
============= =============== ============== =============== ===============
See accompanying notes to financial statements.
F-3
NOVADEL PHARMA INC
STATEMENT OF CASH FLOWS
July 31
Year Ended
--------------------------------
2003 2002
----------- -----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(5,815,000) $(4,290,000)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Options issued for services 1,674,000 1,947,000
Warrants issued for services 7,000 54,000
Depreciation and amortization 81,000 77,000
Allowances for Doubtful Accounts (88,000) 79,000
Changes in operating assets and liabilities:
Accounts receivable 87,000 12,000
Demand note receivable, Officer -- 60,000
Prepaid expenses and other current assets (72,000) (39,000)
Due from Joint Venture partner for reimbursable expenses -- 6,000
Other Assets (335,000) (5,000)
Accounts payable - trade 14,000 114,000
Accrued expenses and other current liabilities 127,000 114,000
----------- -----------
Net cash flows from operating activities (4,320,000) (1,871,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of property and equipment (389,000) (316,000)
----------- -----------
Net cash flows from investing activities (389,000) (316,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES -
Proceeds received from the exercise of warrants 20,000 --
Proceeds received from private placements 4,336,000 4,916,000
Capital contributions from related party 125,000 --
----------- -----------
Net cash flows from financing activities 4,481,000 4,916,000
----------- -----------
NET CHANGE IN CASH (228,000) 2,729,000
CASH, BEGINNING OF YEAR 3,314,000 585,000
----------- -----------
CASH, END OF YEAR 3,086,000 $ 3,314,000
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ -- $ --
=========== ===========
Income taxes paid $ -- $ --
=========== ===========
See accompanying notes to financial statements.
F-4
NOVADEL PHARMA INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Nature of the Business and Summary of Significant Accounting Policies:
Nature of the Business - NOVADEL PHARMA INC. (the "Company"), which was formerly
known as Flemington Pharmaceutical Corporation, is incorporated in the State of
Delaware. The Company is engaged in the development of novel pharmaceutical
products combining presently marketed drugs with patent-pending oral dosage
delivery systems of the Company, designed to enhance and accelerate the onset of
the therapeutic benefits which the drugs are intended to produce and is also
engaged in domestic and international consulting activities. Management intends
to develop the products in collaboration with pharmaceutical companies.
Revenues and Costs - Consulting revenues from contract
clinical research are recognized as earned.
Consulting contract costs normally consist of fees paid to
outside clinics for studies and an allocable portion of the
Company's operating expenses. General and administrative costs
pertaining to contracts are charged to expense as incurred.
Cash Equivalents - Cash equivalents include certificates of
deposit and money market instruments purchased with original
maturities of three months or less.
Financial Instruments - Financial instruments include cash and
cash equivalents, accounts receivable, accounts payable and
accrued expenses. The amounts reported for financial
instruments are considered to be reasonable approximations of
their fair values. The fair value estimates presented here in
were based on market or other information available to
management. The use of different assumptions and/or estimation
methodologies could have a material effect on the estimated
fair value amounts.
Furniture, Fixtures, Equipment and Leasehold Improvements -
Furniture, fixtures, equipment and leasehold improvements are
stated at cost. The Company provides for depreciation using
accelerated methods, based upon estimated useful lives of 5 to
7 years for furniture, fixtures, equipment and leasehold
improvements over the useful life of the lease term, if
shorter, for leasehold improvements.
Advertising - The Company expenses advertising costs when they
are incurred. The Company did not incur advertising expenses
in 2003 and 2002.
Research and Development Costs - All research and development
costs are expensed as incurred. These include all internal
costs, external costs related to services contracted by the
Company and research services conducted for others. Research
and development costs consist primarily of salaries and
benefits, contractor fees, clinical drug supplies of
preclinical and clinical development programs, consumable
research supplies and allocated facility and administrative
costs. The Company has incurred research and development
expenses that totaled $660,000 and $606,000 for 2003 and 2002,
respectively.
Income Taxes - Temporary differences between financial
statement and income tax reporting result primarily from net
operating losses. As a result of these temporary differences,
the Company has recorded a deferred tax asset with an
offsetting valuation allowance for the same amount. The
Company received $84,000 and $88,000 in 2003 and 2002,
respectively from the transfer of New Jersey Net operating
losses (See Note 8).
F-5
Defined Contribution Retirement Plans - The Company has a
Simple IRA retirement plan, available to all employees,
providing for contributions at management's discretion. During
the years ended July 2003 and July 2002, the Company made
contributions to the retirement plan of approximately $15,000
and approximately $11,000, respectively.
Risk Concentrations:
(a) Credit Risk - The Company maintains its cash balances
in financial institutions that are insured by the
Federal Deposit Insurance Corporation (FDIC) up to
$100,000 each. Such balances during the fiscal year
ended 2003 have exceeded the FDIC limits.
(b) Major Customers - During fiscal 2003, the Company had
revenue from one customer located in the USA
approximating 100% of the Company's total revenue.
During fiscal 2002, the Company had revenue from two
customers located in the United States approximating
46 % and 40 %, respectively, of the Company's total
revenue.
(c) Supplier Dependence - The Company believes that
certain raw materials, including inactive
ingredients, are available only from a limited number
of suppliers internationally and that certain
packaging materials intended for use in connection
with its spray products currently are available from
limited supply sources. The Company does not believe
it will encounter difficulties in obtaining inactive
ingredients or packaging materials necessary for the
manufacture of its products. However, there can be no
assurance that the Company will be able to enter into
satisfactory purchasing agreements or arrangements,
thereby, causing a potential significant adverse
effect on the Company's ability to arrange for the
manufacture of formulated products.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Earnings (Loss) per Share - Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share" requires the
disclosure of both diluted and basic earnings per share. Basic
earnings per share is based on the weighted average of all
common shares outstanding. The computation of diluted earnings
per share does not assume the conversion, exercise or
contingent issuance of securities that would have an
antidilutive effect on earnings per share.
F-6
Year ended July 31
-------------- --------------
2003 2002
-------------- --------------
Numerator:
Net loss applicable to common shareholders - basic and diluted (5,815,000) (4,290,000)
============== ==============
Denominator:
Denominator for basic earnings (loss) per common share:
Weighted average shares 15,419,000 11,361,000
Effect of dilutive securities - -
-------------- --------------
Denominator for basic and diluted earnings (loss) per common share 15,419,000 11,361,000
============== ==============
Earnings (loss) per common share:
Basic and Diluted (.38) (.38)
The Company uses the intrinsic value method prescribed by APB
Opinion No. 25 to measure compensation expense. If the fair
value method had been used to measure compensation expense as
prescribed by SFAS No. 123, net loss would have increased by
$486,000 or $.03 per share to $6,301,000 or $.41 per share for
fiscal 2003. Net loss would have increased by $1,440,000 or
$.13 per share to $5,730,000 or $.51 per share for fiscal
2002.
Recent Accounting Pronouncements -In November 22, 2002, the
FASB issued FASB Interpretation (FIN) No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees,
including Indirect Guarantees of Indebtedness of Others. FIN
45 requires that a liability be recorded in the guarantor's
balance sheet upon issuance of a guarantee. In addition, FIN
45 requires disclosures about the guarantees that an entity
has issued, including a rollforward of the entity's product
warranty liabilities. The Company does not expect FIN 45 to
have a material impact on its financial position, results of
operations or cash flows.
In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation, Transition and Disclosure. SFAS No.
148 provides alternative methods of transition for a voluntary
change to the fair value base method of accounting for
stock-based employee compensation. SFAS No. 148 also requires
that disclosures of the pro forma effect of using the fair
value method of accounting for stock-based employee
compensation be displayed more prominently and in tabular
format. Additionally, SFAS No. 148 requires disclosure of the
pro forma effect in interim financial statements. The
transition and annual disclosure requirements are effective
for our 2003 fiscal year. The interim disclosure requirements
are not effective. The Company does not expect the adoption of
SFAS NO. 148 to have a material impact on its financial
position, results of operations or cash flow.
In January 2003, the FASB issued FIN 46, Consolidation of
Variable Interest Entities. This Interpretation clarifies the
application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to certain entities in
which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities
without additional subordinated financial support from other
parties. FIN 46 applies to variable interest entities created
after January 31, 2003, and is effective as of July 31, 2003
for variable interest entities created prior to February 1,
2003. The Company does not expect the adoption of FIN 46 to
have a material effect on its financial position, results of
operations or cash flows.
In April 2003, the FASB issued SFAS No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging
F-7
Activities. This statement amends SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, for
implementation issues related to the definition of a
derivative and other FASB projects related to financial
instruments. SFAS No. 149 requires that contracts with
comparable characteristics be accounts for in a similar
fashion. SFAS No. 149 applies prospectively to contracts
entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The Company does
not expect the adoption of SFAS No. 149 to have a material
effect on its financial position, results of operations or
cash flows.
In May 2003, the FASB issued SFAS No. 150, Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity. This statement establishes standards
for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and
equity. SFAS No. 150 requires that financial instruments
within the scope of SFS No. 150 be classified as a liability
or an asset. SFAS No. 150 is effective for all financial
instruments entered into after May 31, 2003 and otherwise, the
beginning of the first interim period after June 15, 2003. The
Company does not expect the adoption of SFAS No. 150 to have a
material effect on its financial position, results of
operations or cash flows.
Note 2 - Management's Plans to Overcome Operating and Liquidity Difficulties
The Company's financial statements have been presented on the
basis that it is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in
the normal course of business.
The Company's continued existence is dependent upon its
ability to achieve profitable operations or obtain additional
financing. The Company is currently seeking collaborative
arrangements with pharmaceutical companies for the joint
development of delivery systems and the successful marketing
of these delivery systems. The Company is exploring merger
opportunities or other strategic alternatives to fund future
operations.
In view of the Company's very limited resources, its
anticipated expenses and the competitive environment in which
the Company operates, there can be no assurance that its
operations will be sustained for the duration of its next
fiscal year.
Note 3 - Other assets and Accrued expenses:
Other assets - Approximately $352,000 of security deposits are
included in the $357,000 total. The remainder is other assets.
Accrued expenses and other current liabilities - Approximately
$76,000 of accrued payroll and related payroll taxes; $150,000
of accrued employee vacation, $32,000 of other expenses and
$33,000 of accrued legal and professional fees are included in
the $318,000 total. The remainder is other accrued expenses
and other current liabilities.
Note 4 - Furniture, Fixtures and Equipment and Leasehold Improvements
Furniture, fixtures, and leasehold improvements equipment is
summarized as follows:
July 31, 2003
-----------------
Equipment $ 713,000
Furniture and fixtures 122,000
Leasehold improvements 131,000
-----------------
966,000
Less: Accumulated depreciation 252,000
=================
$ 714,000
=================
Note 5 - Stockholders' equity:
F-8
Private Placement - In May 2003, the Company completed a
private placement and received net proceeds of approximately
$4,336,000 from the placement of a total of 48.01 Units of the
Company's securities. Each Unit consisted of sixty six
thousand, six hundred, sixty six and two thirds (66,666?)
common shares, par value $.001, and sixteen thousand, six
hundred, sixty six and two thirds (16,666?) warrants. Each
warrant entitles the holder to purchase an additional share of
the Company's common stock at an exercise price of $2.00
within five (5) years. The sale price of each Unit was
$100,000 ($1.50 per share).
Preferred Stock - The Company's Certificate of Incorporation
authorizes the issuance of up to 1,000,000 shares of Preferred
Stock. None of such Preferred Stock has been designated or
issued to date. The Board is authorized to issue shares of
Preferred Stock from time to time in one or more series and to
establish and designate any such series and to fix the number
of shares and the relative conversion rights, voting, terms of
redemption and liquidation.
Note 6 - Related Party Transactions:
License & Development Agreement- In April 2003, the Company
entered into a license and development agreement with
Manhattan Pharmaceuticals, Inc. for the worldwide, exclusive
rights to the Company's proprietary lingual spray technology
(see Note 7). One of the Company's major shareholders is also
a significant shareholder in Manhattan Pharmaceuticals, Inc.
The terms of the agreement require Manhattan Pharmaceuticals,
Inc. (Manhattan) to make payments to the Company based on
achieving certain conditions and milestones. The Company
received $125,000 of a $250,000 non-refundable up-front
licensing fee under the terms of the agreement. The Company
recorded this amount as additional paid-in-capital. The
remaining $125,000 has not been collected. Manhattan is a
development stage company and has no revenues to date. The
agreement has conditions that stipulate that Manhattan has to
raise certain funds before the Company receives the remaining
license fee. There is no assurance that Manhattan can achieve
this. If Manhattan is unable to raise additional funds, there
is significant doubt it would be able to fulfill its remaining
commitments to the Company.
Legal Fees - The Company has incurred legal fees with an
officer and director of the Company. These fees approximated
$160,000 and $125,000 for the years ended July 31, 2003 and
2002, respectively.
Consulting Agreement - In February 2002 the Company entered
into a consulting agreement with John H. Klein, effective
February 1, 2002. In addition, in February 2002, Mr. Klein was
elected as a member and Chairman of the Company's Board of
Directors (see note 7). The Company believes Mr. Klein's
extensive and successful experience in the pharmaceutical
industry brings a strong benefit to the Company's Board.
Note 7 - Commitments and Contingencies:
Employment Agreements - In December 2002, Dr. Shangold entered
into a three-year employment agreement with NovaDel pursuant
to which he agreed to serve as its President and Chief
Executive Officer. We agreed to pay Dr. Shangold an annual
base salary of $350,000 and a guaranteed bonus of $150,000. In
addition, Dr. Shangold is eligible to receive: (i) an annual
discretionary bonus of up to $262,500, which shall be
determined at the sole discretion of the Board; and (ii) an
investment and fee bonus equal to 5% of all amounts up to an
aggregate of $7,500,000 (i.e., $375,000) invested in, or
earned by, NovaDel during his term. We paid Dr. Shangold a
contractual bonus of $200,000 during the fourth quarter. The
investment bonus shall be reduced by certain proceeds received
by Dr. Shangold from his former employer. Pursuant to the
agreement, Dr. Shangold was also granted non-plan options to
purchase 1,000,000 shares of our common stock (at an exercise
price of $1.93 per share) which vest over a three year period.
F-9
In February 2002, effective January 1, 2002, the Company
entered into an employment agreement with its then President
for a base annual salary of $248,500. The agreement provides
for annual cost of living adjustments equal to the greater of
the increase in the Consumer Price Index or 5% with additional
increases and bonuses as shall be approved by the Board. The
agreement has a base term of three years, which became
effective in January 2002. The agreement is thereafter
renewable for additional one-year periods, unless the Company
gives notice to the contrary.
In February 2002, the Company entered into a consulting
agreement with its Chairman for a base annual retainer of
$300,000, plus reimbursement of various expenses and certain
success fees. The agreement has a base term of one year, which
became effective in February 2002. The agreement is thereafter
renewable for additional one-year periods, unless the Company
gives notice to the contrary. In addition, the agreement
granted the consultant 1,000,000 non plan options to purchase
shares of the Company's common stock at an exercise price of
$2.40 per share; as of the date of this report none of such
options had vested.
In February 2002, effective January 1, 2002, the Company
entered into an employment agreement with its Chief Financial
Officer for a base annual salary of $125,000. The agreement
provides for annual cost of living adjustments equal to the
greater of the increase in the Consumer Price Index or 5% with
additional increases and bonuses as shall be approved by the
Board. The agreement has a base term of three years, which
became effective in January 2002. The agreement is thereafter
renewable for additional one-year periods, unless the Company
gives notice to the contrary.
In December 2001, effective the Company entered into an
employment agreement with its Vice President Corporate
Development for a base annual salary of $120,00, later
increased by an amendment to $180,000. The agreement as
amended has a base term of three years, which became effective
in December 2001. The agreement is thereafter renewable for
additional one-year periods, unless the Company gives notice
to the contrary. In addition, the agreement granted the
employee 1,050,000 non plan options to purchase shares of the
Company's common stock at an exercise price of $0.75 per
share; as of the date of this report 1,050,000 of such options
had vested (see Note 10).
In May 2002, the Company entered into an employment agreement
with its Vice President Formulation Development for a base
annual salary of $110,000. The agreement provides for annual
cost of living adjustments equal to the greater of the
increase in the Consumer Price Index or 5% with additional
increases and bonuses as shall be approved by the Board. The
agreement has a base term of three years, which became
effective in May 2002. The agreement is thereafter renewable
for additional one-year periods, unless the Company gives
notice to the contrary. In addition, the agreement granted the
employee 150,000 non plan options to purchase shares of the
Company's common stock at an exercise price of $3.02 per
share; as of the date of this report none of such options had
vested.
In May 2003, the Company entered into a three-year employment
agreement with Barry Cohen pursuant to which he agreed to
serve as the Company's Vice President, New Business & New
Product Development. The Company agreed to pay Mr. Cohen an
annual base salary of $185,000. Pursuant to the agreement, Mr.
Cohen was also granted Plan options to purchase up to 75,000
shares of the Company's common stock at an exercise price of
$2.20 per share (110% of the fair market value on the grant
date) which vest, subject to conditions, over a three year
period. Such options have a term of ten (10) years.
License and Development Agreement - In April 2003, the Company
entered into a license and development agreement with
Manhattan Pharmaceuticals, Inc. for the worldwide, exclusive
rights to the Company's proprietary lingual spray technology
to deliver Propofol for pre-procedural sedation. The terms of
the agreement calls for certain milestone and other payments,
the first of which was partially received during June 2003
(See Note 6).
F-10
Leases - In August 2000, the Company entered into a 5-year
lease agreement, effective October 2000, for approximately
4,500 square feet of office, laboratory and manufacturing
space. Annual rent is approximately $63,000 plus real estate
taxes, currently estimated to be approximately $11,000
annually. Previously, the Company rented office space on a
month to month basis. Rent expense for the Company totaled
approximately $92,000 and $75,000 for the years ended July 31,
2003, and 2002 respectively.
In March 2003, the Company entered into a 10 year lease for
approximately 31,500 sq. feet of office, laboratory,
manufacturing and warehouse space. These premises are
presently being fitted-out and some office space was occupied
during September 2003. Additional occupancy should begin, in
stages, during the 4th calendar quarter of 2003. During the
first 5 years of the lease, the annual rent will be
approximately $330,000 plus a proportionate share of real
estate taxes and common areas. Beginning in the 6th year and
continuing through the 10th year of the lease, the annual rent
will be approximately $363,000 plus a proportionate share of
real estate taxes and common areas.
Future minimum rental payments as follows:
Year Ending July 31,
2004 $480,000
2005 $461,000
2006 $443,000
2007 $443,000
2008 $443,000
2009 and thereafter $443,000
----------
$2,713,000
Government Regulation - The development, manufacture and
commercialization of pharmaceuticals are subject to extensive
regulation by various federal and state government entities.
The Company cannot determine the impact of government
regulations on the development of its delivery systems.
Note 8 - Income Taxes:
No provision for current and deferred income taxes is required
for the years ended July 31, 2003 and 2002.
F-11
The significant components of the Company's net deferred tax
asset are summarized as follows:
July 31
--------------------------------
2003 2002
----------- -----------
Net operating loss carryforwards ........................... $ 5,300,000 $ 2,890,000
----------- -----------
5,300,000 2,890,000
Valuation allowance ......................................... 5,300,000 2,890,000
----------- -----------
Net deferred tax asset ...................................... $ -- $ --
=========== ===========
The following is a reconciliation of income tax benefit
computed at the 34% statutory rate to the provision for income
taxes:
2003 2002
----------- -----------
Federal Tax at statutory rate ............................... $ 1,977,000 $ 1,459,000
State Income Tax ............................................ 349,000 257,000
Non deductible; options issued for services ................. (670,000) (802,000)
Valuation allowance ......................................... (1,656,000) (914,000)
----------- -----------
$ -- $ --
=========== ===========
A valuation allowance is provided when it is more likely than
not that some portion of the will not be realized. The Company
has determined, based on the Company's prior history of
recurring losses, that a full valuation allowance is
appropriate at July 31, 2003 and 2002.
At July 31, 2003, the Company has federal and state net
operating loss carryforwards for financial reporting and
income tax purposes of approximately $15,500,000 and
$10,031,000, respectively, which can be used to offset current
and future taxable income through the year 2024.
Deferred income tax benefit - During December 2002, the
Company received approximately $84,000 as consideration for
transferring approximately $1,116,000 of New Jersey net
operating loss tax benefit to a third party corporation buyer.
The Technology Tax Certificate Transfer Program for
transferring net operating loss and R & D tax benefits is the
responsibility of New Jersey Economic Development Authority.
During December 2001, the Company received approximately
$88,000 from this program.
Note 9 - Stock Options:
At July 31, 2003, the Company had three plans to allow for the
issuance of stock options and other awards, the 1992 Stock
Option Plan, the 1997 Stock Option Plan and the 1998 Stock
Option Plan (the "Plans"). The total number of shares of
common stock reserved for issuance, either as incentive stock
options ("ISO's") under the Internal Revenue Code or as
non-qualified options, under the 1992 and 1997 Plans is
500,000 shares each and 1,800,000 under the 1998 Plan. ISOs
may be granted to employees and officers of the Company and
non-qualified may be granted to consultants, directors,
employees and officers of the Company. Options to purchase
Company's common stock could not be granted at a price less
than the fair market value of the common stock at the date of
grant and will expire not more than ten years from the date of
grant. ISOs granted to a 10% or more stockholder could not be
for less than 110% of fair market value or for a term of more
than 5 years.
F-12
The Company follows the intrinsic method of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" (APB 25) and related interpretations in
accounting for its employee stock options because, as
discussed below, Financial Accounting Standards Board
Statement No. 123, "Accounting for Stock-Based Compensation"
(FAS 123) requires use of option valuation models that were
not developed for use in valuing employee stock options. FAS
123 permits a company to elect to follow the intrinsic method
of APR 25 rather than the alternative fair value accounting
provided under FAS 123, but requires pro forma net income and
earnings per share disclosures as well as various other
disclosures not required under FAS 123 for companies following
APB 25. The Company has adopted the disclosure provisions
required under Financial Accounting Standards Board Statement
No. 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure" (FAS 148). Under APB 25, because the exercise
price of the Company's stock options equals the market price
of the underlying stock on the date of grant, no compensation
expense was recognized.
Pro forma information regarding net income and earnings per
share is required by FAS 123 and FAS 148, and has been
determined as if the Company had accounted for its employee
stock options under the fair value method of that Statement.
The fair value of options granted in 2003 and 2002 were
estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions,
respectively: risk-free interest rates of 4.0%, dividend yield
of 0.0%, volatility factors of the expected market price of
the Company's common stock of 74% in 2003 and 72% in 2002, and
a weighted-average expected life of the options of five years.
The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective
input assumptions including the expected stock price
volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded
options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily
provide a reliable measure of the fair value of its employee
stock options.
For purposes of pro forma disclosures, the estimated fair
value of options is amortized to expense over the options'
vesting period. The Company's pro forma information follows:
Fiscal Year Ended
June 30 June 30
------------------------------------
2003 2002
---------------- ---------------
Net income (loss) as reported $(5,815,000) $(4,290,000)
Stock-based employee compensation expense under fair
value method, net of related tax effects 486,000 1,440,000
---------------- ---------------
Pro forma net loss $ (6,301,000) $(5,730,000)
================ ===============
Income / (Loss) per share:
Basic and diluted, as reported $(.38) $(.38)
Basic and diluted, pro forma $(.41) $(.50)
F-13
Information with respect to stock option activity is as
follows (in thousands, except exercise price amounts):
Outstanding Options
------------------------------------
Options Available Number of Weighted Average
for Grant Options Exercise Price
--------- ------- --------------
Balance at August 1, 2001 .......... -- 2,300 $ 1.53
Additional Shares reserved ......... 2,475 -- --
Grants ............................. 3,378 3,378 1.60
Exercises .......................... -- 10 .63
Cancellations ...................... 1,190 1,190 1.42
----- ----- --------
Balance at July 31, 2002 ........... 287 4,478 1.61
Additional Shares reserved ......... 2,575 -- --
Grants ............................. 2,159 2,159 1.60
Exercises .......................... -- 445 .94
Cancellations ...................... -- -- --
----- ----- --------
Balance at July 31, 2003 ........... 703 6,192 $ 1.66
===== ===== ========
Option price per share: $.63 - $3.18
Options exercisable: 4,100,000
The following table summarizes significant ranges of outstanding and
exercisable plan and non-plan options at July 31, 2003 (in thousands,
except exercise price amounts):
Outstanding Options Options Exercisable
---------------------------------------------- -------------------------------
Weighted Weighted
Average Average Weighted
Remaining Exercise Average
Range of Exercise Prices Options Life in Years Price Options Exercise Price
------------------------ ---------- -------------- ----------- ---------- ----------------
$0.01 - $1.00.............. 2,035 6.9 $ .75 2,035 $ .75
$1.01 - $2.00.............. 2,395 4.1 1.77 1,195 1.68
$2.01 - $3.00.............. 1,362 8.3 2.40 520 2.51
$3.01 - $4.00.............. 400 8.7 3.12 350 3.13
---------- -------------- ----------- ---------- ----------------
6,192 6.2 $1.66 4,100 $1.45
========== ============== =========== ========== ================
In addition to stock options issued by the Company under the
Plans, the Company has reserved 13,383,316 shares of common
stock for non-plan options and warrants as detailed below.
Non-plan Options and Warrants - At July 31, 2003 there were
outstanding the following classes and numbers of instruments
exercisable for Common Stock:
A. 680,000 Class A Warrants, issued in connection with the
Public Offering, exercisable until November 2003, to purchase
a like number of shares of Common Stock at an exercise price
of $5.80 per share. These warrants were originally scheduled
to expire during November 2002. Before expiration, the Company
extended the expiration date by one year, to November 2003.
The Company has not yet made any decision as to whether the
expiration date might be further extended.
F-14
B. 4,550,000 stock options, not issued under any of the plans, as
follows:
o 300,000 options issued on November 19, 1997, vesting
immediately, to the Company's then President, having
an exercise price of $1.84 per share, issued in
connection with his employment agreement in June
1997, exercisable until November 2007.
o 300,000 options issued on November 19, 1997, vesting
immediately, to the Company's then Chairman, having
an exercise price of $1.84 per share, issued in
connection with his employment agreement in June
1997, exercisable until November 2007.
o 700,000 options issued in December 2001, and 350,000
options issued in July 2003, for a total of
1,050,000, vesting immediately, to the Company's Vice
President for Corporate Development, in connection
with his employment agreement, exercisable until
December 2011.
o 1,000,000 options issued in February 2002, vesting in
three equal installments beginning in February 2003,
to the Company's present Chairman in connection with
his consulting agreement, having an exercise price of
$2.40 per share, exercisable until January 2012.
o 250,000 options issued in April 2002, vesting
immediately, to a consultant to provide investment
banking assistance to the Company. These options have
an exercise price of $3.18 per share, exercisable
until April 2012.
o 150,000 options issued in May 2002, vesting in three
equal installments beginning November 15, 2002, to
the Company's Vice President Formulation Development,
in connection with his employment agreement, having
an exercise price of $3.02 per share, exercisable
until May 2012.
o 200,000 options issued in October 2002, to the
Company's Chief Scientific Officer, having an
exercise price of $1.30 per share, exercisable until
October 2007.
o 1,000,000 options issued in December 2002, vesting in
three equal installments beginning in December 2003,
to the Company's present President, having an
exercise price of $1.93 per share, issued in
connection with his employment agreement, exercisable
until December 2007.
o 100,000 options issued in March 2003, to each of two
directors, for a total of 200,000, having an exercise
price of $1.51 per share, exercisable until March
2008.
o 100,000 options issued in June 2003, to a director,
having an exercise price of $2.15 per share,
exercisable until June 2008.
C. 60,000 warrants issued to a public relations company, exercisable
until January 2007 at a price of $2.00.
D. 4,000,000 warrants issued to an investor, in connection with the
fiscal year 2002 private placement, exercisable until December 2008 at
a price of $.75.
F-15
E. 2,666,667 warrants issued to an investor, in connection with the
fiscal year 2002 private placement, exercisable until December 2009 at
a price of $.75.
F. 200,000 warrants issued to a consulting company, exercisable until
January 2010 at a price of $1.00.
G. 200,000 warrants issued to each of two consulting companies, for a
total of 400,000, exercisable until November 2010 at a price of $.75.
H. 76,533 warrants at $.75 per share issued to broker/dealers in
connection with the fiscal year 2001 private placement. 5,000 of such
warrants expire in December 2008, and remaining warrants (71,533)
expire in May 2011.
I. 210,017 warrants at $1.50 per share issued to broker/dealers in
connection with the fiscal year 2003 private placement. 93,167 of such
warrants expire in April 2008, and remaining warrants (116,850) expire
in May 2008.
J. 40,004 warrants at $2.00 per share issued to broker/dealers in
connection with the fiscal year 2003 private placement. 23,292 of such
warrants expire in April 2008, and remaining warrants (16,712) expire
in May 2008.
K. 800,095 warrants at $1.50 per share issued to investors in
connection with the fiscal year 2003 private placement. 465,841 of such
warrants expire in April 2008, and remaining warrants (334,254) expire
in May 2008.
Note 10 - Subsequent Events:
In August 2003, Robert Galler agreed to terminate his employment with
the Company as Vice President - Corporate Development and entered into
a consulting agreement with the Company at a base compensation of
$180,000 per year. The consulting agreement terminates in February
2005.
F-16
(a) (2) List of Exhibits
Incorporated Documents SEC Exhibit Reference
---------------------- ---------------------
2.1 Agreement of Merger dated as of October 29, As filed with the Registrant's Preliminary Proxy
1998 Statement on October 20, 1998, File No. 000-23399
3.1 Certificate of Incorporation of the As filed with the Registrant's Form SB-2, on
Registrant, as amended August 8, 1997, File No. 333-33201
3.2 Bylaws of the Registrant, as amended As filed with the Registrant's Form SB-2, on
August 8, 1997, File No. 333-33201
4.1 Form of Warrant Agreement As filed with the Registrant's Form SB-2, on
October 31, 1997, File No. 333-33201
4.3 Form of Class A Warrant Certificate As filed with the Registrant's Form SB-2, on
October 31, 1997, File No. 333-33201
4.4 Form of Underwriters' Option Agreement As filed with the Registrant's Form SB-2, on
October 31, 1997, File No. 333-33201
10.1 Employment Agreement with Harry A. Dugger, As filed with the Registrant's Form SB-2, on
III, Ph.D. August 8, 1997, File No. 333-33201
10.2 Employment Agreement with John J. Moroney As filed with the Registrant's Form SB-2, on
October 3, 1997, File No. 333-33201
10.3 Agreement dated December 7, 1996 between As filed with the Registrant's Form SB-2, on
the Registrant and Altana, Inc. August 8, 1997, File No. 333-33201
10.4 Registrant's 1992 Stock Option Plan As filed with the Registrant's Form SB-2, on
August 8, 1997, File No. 333-33201
10.5 Form of Option Agreement under the 1992 As filed with the Registrant's Form SB-2, on
Stock Option Plan October 3, 1997, File No. 333-33201
10.6 Registrant's 1997 Stock Option Plan As filed with the Registrant's Form SB-2, on
August 8, 1997, File No. 333-33201
10.7 Form of Option Agreement under the 1997 As filed with the Registrant's Form SB-2, on
Stock Option Plan October 3, 1997, File No. 333-33201
10.8 Agreement with Rapid Spray (Clemastine) As filed with the Registrant's Form SB-2, on
Dated June 2, 1992 August 8, 1997, File No. 333-33201
10.9 Agreement with Rapid Spray (Nitroglycerin) As filed with the Registrant's Form SB-2, on
dated June 2, 1992 August 8, 1997, File No. 333-33201
10.10 Agreement with Creative Technologies, Inc. As filed with the Registrant's Form SB-2, on
dated December 26, 1996 October 3, 1997, File No. 333-33201
10.11 Registrant's 1998 Stock Option Plan As filed with the Registrant's Preliminary Proxy
Statement on October 20, 1998,
File No. 000-23399
10.12 Employment Agreement with Donald P. Cox, As filed with the Registrant's Form 10-KSB on
Ph.D. October 28, 1999, File No. 000-23399
10.13 Employment Agreement with Kenneth Cleaver, As filed with the Registrant's Form 10-KSB on
Ph.D. October 28, 1999, File No. 000-23399
10.14 Amendment to Consulting Agreement with As filed with the Registrant's Form 10-KSB on
Saggi Capital Corp. dated March 25, 1998 October 28, 1999, File No. 000-23399
10.15 Agreement with Altana, Inc., dated December As filed with the Registrant's Form 10-KSB/A on
7, 1996 September 26, 2001, File No. 000-23399
10.16 Agreement with CLL Pharma dated February As filed with the Registrant's Form 10-KSB/A on
12, 1998 September 26, 2001, File No. 000-23399
10.17 Agreement with Nace Resources, Inc., dated As filed with the Registrant's Form 10-KSB/A on
December 29, 1997, together with Amendment September 26, 2001, File No. 000-23399
Number 1 dated February 9, 1998; Amendment
Number 2 dated November 29, 1999; and,
Amendment Number 3, dated May 5, 2000
10.18 Agreement with PolyMASC Pharmaceuticals As filed with the Registrant's Form 10-KSB/A
on plc, dated July 25, 2000 September 26, 2001, File No. 000-23399
10.19 Authorization to proceed with Innovex, Inc. As filed with the Registrant's Form 10-KSB/A on
and Novartis Pharmaceuticals Corp., dated September 26, 2001, File No. 000-23399
June 15, 2000
10.20 Consulting Agreement with John Klein. As filed with the Registrant's Form SB-2, on April
15,2002, File No. 333-86262
10.21 Employment Agreement with Robert Galler. As filed with the Registrant's Form SB-2, on April
15,2002, File No. 333-86262
10.22 Employment Agreement Amendment No. 1 with As filed with the Registrant's Form SB-2, on April
Robert Galler 15,2002, File No. 333-86262
10.23 Employment Agreement with Donald Deitman. As filed with the Registrant's Form SB-2, on April
15,2002, File No. 333-86262
10.24 Common Stock and Warrant Purchase Agreement Incorporated by Reference to Schedule 13D filed on
dated December 12, 2001. December 21, 2001 by Lindsay A. Rosenwald, M.D.
10.25 Amendment No. 1 to Common Stock and Warrant As filed with the Registrant's Form SB-2, on April
Purchase Agreement 15,2002, File No. 333-86262
10.26 Employment Agreement with Mohammed Abd As filed with the Registrant's Form SB-2,
El-Shafy, Ph.D Amendment #2, on September 3, 2002, File No.
333-86262
10.26 Employment Agreement with Gary A. Shangold, As filed with the Registrant's Form 10-QSB for
MD period ended January 31, 2003, File No. 000-23399
10.27 Amendment No. 1 of Employment Agreement As filed with the Registrant's Form 10-QSB for
with Gary A. Shangold, MD period ended January 31, 2003, File No. 000-23399
10.28 Lease Agreement dated March 19, 2003, with As filed with the Registrants' Form 10-QSB for
Macedo Business Park, II, L.L.C period ended April 30, 2003, File No. 000-23399
10.29 Amendment No. 1 of Lease Agreement dated As filed with the Registrant's Form 10-QSB for
March 19, 2003, with Macedo Business Park, period ended April
30, 2003, File No. 000-23399 II, L.L.C.
10.30 Employment Agreement with Barry C. Cohen As filed with the Registrant's Form 10-QSB for
period ended April 30, 2003, File No. 000-23399
10.31 * Agreement with Manhattan
Pharmaceuticals, Inc. dated April 4, 2003.
11.1 * Computation of earnings per share
23.1 * Consent of Wiss & Company LLP
31.1 * Certification of Chief Executive
Officer under Rule 13a-14(a)
31.2 * Certification of Chief Financial
Officer under Rule 13a-14(a)
32.1 * Certification of Chief Executive
Officer under 18 USC 1350
32.2 * Certification of Chief Financial
Officer under 18 USC 1350
* Filed herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of
fiscal 2003.
ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES
[This item is not yet effective.]
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NovaDel Pharma Inc.
Date: October 29, 2003 By: /s/ Gary A. Shangold
-------------------------------
Gary A. Shangold, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report is signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Gary A. Shangold President and Chief Executive Officer (Principal October 29, 2003
---------------------- Executive Officer) and Director
Gary A. Shangold
/s/ Donald J. Deitman Chief Financial Officer October 29, 2003
---------------------- (Principal Financial Officer)
Donald J. Deitman
/s/ John H. Klein Chairman of the Board and Director October 29, 2003
-----------------
John H. Klein
/s/ Robert F. Schaul Secretary and Director October 29, 2003
--------------------
Robert F. Schaul
/s/ William F. Hamilton Director October 29, 2003
---------------------------
William F. Hamilton
/s/ Lawrence J. Kessel Director October 29, 2003
----------------------
Lawrence J. Kessel
/s/ Mark H. Rachesky Director October 29, 2003
--------------------
Mark H. Rachesky
/s/ Charles Nemeroff Director October 29, 2003
--------------------
Charles Nemeroff