UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
--- THE SECURITIES EXCHANGE ACT OF 1934
For the six month period ended JANUARY 31, 2003
____TRANSITION REPORT UNDER SECTION 13 or 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission file number 000-23399
NOVADEL PHARMA INC.
(Exact name of small business issuer as specified in its charter)
Delaware 22-2407152
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
31 State Highway 12
Flemington, New Jersey 08822
(Address of Principal Executive Offices) (Zip Code)
(908)782-3431
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required
to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes___No__
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. 14,548,509 shares of common
stock outstanding as of January 31, 2003.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES NO X
--- ---
NOVADEL PHARMA INC.
BALANCE SHEETS
January 31 July 31,
2003 2002
---------------- ----------------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
Cash $1,524,000 $ 3,314,000
Accounts receivable - trade, less allowance for
doubtful accounts of $88,000 at January 31, 2003 and
July 31, 2002 - 1,000
Prepaid expenses and other current assets 161,000 96,000
---------------- ----------------
Total Current Assets 1,685,000 3,411,000
---------------- ----------------
FURNITURE, FIXTURES, AND EQUIPMENT, LESS
ACCUMULATED DEPRECIATION 441,000 406,000
OTHER ASSETS 26,000 22,000
---------------- ----------------
$2,152,000 $ 3,839,000
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable-trade $ 368,000 $ 125,000
Accrued expenses and other current liabilities 529,000 191,000
---------------- ----------------
Total Current Liabilities 897,000 316,000
---------------- ----------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock, $.01 par value:
Authorized 1,000,000 shares, none issued
Common stock, $.001 par value:
Authorized - 50,000,000 shares
Issued and outstanding 14,548,509 and 14,448,817;
respectively 15,000 14,000
Additional paid-in capital 14,536,000 13,322,000
Accumulated Deficit (13,296,000) (9,813,000)
---------------- ----------------
Total Stockholders' Equity (Deficiency) 1,255,000 3,523,000
---------------- ----------------
$2,152,000 $ 3,839,000
================ ================
See accompanying notes to financial statements.
2
NOVADEL PHARMA INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
January 31, January 31,
--------------------------------------------------------------------------
2003 2002 2003 2002
---------------- ---------------- ----------------- --------------
CONSULTING REVENUES - $183,000 - $255,000
CONSULTING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,871,000 548,000 3,600,000 872,000
---------------- ---------------- ----------------- --------------
LOSS FROM OPERATIONS (1,871,000) (365,000) (3,600,000) (617,000)
BUY-OUT OF CONSULTANT'S
CONTRACT - (33,000) - (33,000)
INTEREST INCOME 18,000 10,000 33,000 15,000
---------------- ---------------- ----------------- --------------
NET LOSS BEFORE TAXES (1,853,000) (388,000) (3,567,000) (635,000)
DEFFERED INCOME TAX BENEFIT 84,000 88,000 84,000 88,000
---------------- ---------------- ----------------- --------------
NET LOSS $(1,769,000) $(300,000) $(3,483,000) $(547,000)
================ ================ ================= ==============
BASIC AND DILUTED LOSS PER SHARE $(.12) $(.03) $(.24) $(.06)
================ ================ ================= ==============
SHARES USED IN COMPUTATION OF
BASIC AND DILUTED LOSS PER
SHARE 14,542,821 9,942,291 14,526,172 8,833,596
================ ================ ================= ==============
See accompanying notes to financial statements.
3
NOVADEL PHARMA INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
(Unaudited)
Common Stock
---------------------------------
Stockholders'
Par Paid-in Accumulated Equity
Shares Value Capital Deficit (Deficiency)
-------------- ---------------- ---------------- ------------------ ----------------
BALANCE, JULY 31, 2002 14,448,817 $ 14,000 $13,322,000 $(9,813,000) $3,523,000
SIX MONTHS ENDED JANUARY 31, 2003 -
Shares issued for Warrants exercised 99,692 1,000 9,000 - 10,000
Options issued for services - - 1,198,000 - 1,198,000
Warrants issued for services - - 7,000 - 7,000
Net Loss - - - (3,483,000) (3,483,000)
-------------- ---------------- ---------------- ------------------ ----------------
BALANCE, JANUARY 31, 2003 14,548,509 $ 15,000 $14,536,000 $(13,296,000) $1,255,000
============== ================ ================ ================== ================
See accompanying notes to financial statements.
4
NOVADEL PHARMA INC.
STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended
January 31,
-------------------------------------------
2003 2002
---------------- -----------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net (loss) $(3,483,000) $(547,000)
Adjustments to reconcile net income (loss) to net cash
flows from operating activities:
Warrants issued for Services 7,000 40,000
Options Issued for Services 1,198,000 -
Shares issued for Warrants exercised 10,000 -
Depreciation & Amortization 74,000 28,000
Allowance for Doubtful Accounts - 6,000
Changes in operating assets and liabilities:
Accounts receivable 1,000 (52,000)
Prepaid expenses and other current assets (65,000) (35,000)
Demand note receivable, officer - 60,000
Due from joint venture partner for reimbursable expenses - (4,000)
Other Assets (4,000) (1,000)
Accounts payable - trade 243,000 114,000
Accrued expenses and other current liabilities 338,000 149,000
---------------- -----------------
Net cash flows from operating activities (1,681,000) (242,000)
---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of property and equipment (109,000) (81,000)
---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES - Proceeds received from issuance of common
stock through
a private placement offering - 2,984,000
---------------- -----------------
NET CHANGE IN CASH (1,790,000) 2,661,000
CASH, BEGINNING OF PERIOD 3,314,000 585,000
---------------- -----------------
CASH, END OF PERIOD $1,524,000 $3,246,000
================ =================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ - $ -
================ =================
Income taxes paid
$ - $ -
================ =================
See accompanying notes to financial statements.
5
NOVADEL PHARMA INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION:
The balance sheet at the end of the preceding fiscal year has been
derived from the audited balance sheet contained in the Company's Form
10-KSB and is presented for comparative purposes. All other financial
statements are unaudited. In the opinion of management, all
adjustments, which include only normal recurring adjustments necessary
to present fairly the financial position, results of operations and
cash flows for all periods presented, have been made in the interim
statements. Results of operations for interim periods are not
necessarily indicative of the operating results for a full year.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The Company believes
that its current cash levels will be sufficient to satisfy its cash
requirements for the next three (3) months. However, beyond this point
there is substantial doubt about the Company's ability to continue
operations without obtaining additional financing and/or consummating
a strategic alliance with a well-funded business partner. There are a
number of risks and uncertainties related to the Company's attempt to
complete a financing or strategic partnering arrangement that are
outside the control of the Company. We may not be able to successfully
obtain additional financing on terms acceptable to the Company, or at
all. These uncertainties raise substantial doubt as to the Company's
ability to continue as a going concern.
Footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been omitted in accordance with the published rules and
regulations of the Securities and Exchange Commission. The financial
statements in this report should be read in conjunction with the
financial statements and notes thereto included in the Form 10-KSB of
NOVADEL PHARMA INC. (the "Company"), for the year ended July 31, 2002.
NOTE 2 - PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Approximately $94,000 of prepaid supplies; $62,000 of prepaid
insurance and $5,000 of employee loan are included in the $161,000
total.
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Approximately $201,000 of accrued employee vacation; $264,000 of
accrued payroll, related payroll taxes and guaranteed bonus (see Note
5); $51,000 of accrued clinical study costs and $10,000 of accrued
legal and professional fees are included in the $529,000 total. The
remainder is other accrued expenses and other current liabilities.
NOTE 3- STOCK OPTIONS AND WARRANTS:
In October 2002, the Company issued 75,000 options under the 1998
option plan and 200,000 non-plan options to its president. These
options vest immediately, have an exercise price of $1.30 and expire
during October 2007.
In November 2002, the Company decided to extend for one year the
expiration date of its publicly traded warrants (i.e. to November 18,
2003). All other provisions of the warrants remain unchanged.
6
In December 2002, pursuant to an employment agreement with Gary A.
Shangold, M.D. (see Note 5, below) 1,000,000 options were issued at an
exercise price of $1.93 per share with a 5 year life. The options vest
and become exercisable in three equal annual installments commencing
December 1, 2003
NOTE 4 - 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.
NOTE 5 - CONTRACTS:
In December 2002, the Company entered into a three-year employment
agreement with Gary A. Shangold, M.D. pursuant to which he agreed to
serve as the Company's President and Chief Executive Officer. The
Company 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, the Company during his term. The Company is obligated to
pay Dr. Shangold at least $200,000 on or before June 30, 2003. Such
investment and fee 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 (see Note 3, above) to
purchase 1,000,000 shares of the Company's common stock (at an
exercise price of $1.93 per share) which vest over a three year
period.
7
NOVADEL PHARMA INC.
Part I, Item 2. Management's Discussion and Analysis
Novadel Pharma inc., a Delaware corporation (the "Company"), is engaged in
development of novel application drug delivery systems for presently marketed
prescription and over-the-counter ("OTC") drugs and has been a consultant to the
pharmaceutical industry. Since 1992, the Company has used its consulting
revenues to fund its own product development activities.
Since its inception, substantially all of the Company's revenues have been
derived from its consulting activities. The Company has had a history of
recurring losses from operation, giving rise to an accumulated deficit at
January 31, 2003 of approximately $13,296,000. For the 6 months ending January
31, 2003, the Company has had no revenue from consulting as the Company has
shifted its emphasis away from product development consulting for its clients
and to development of its own products.
For the reasons stated above, the Company anticipates that it will incur
substantial operating expenses in connection with the testing and approval of
its proposed delivery systems, and expects these expenses will result in
continuing and significant operating losses until such time, if ever, that the
Company is able to achieve adequate sales levels.
In view of the Company's very limited resource, 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 the current fiscal
year.
RESULTS OF OPERATIONS
THE SIX MONTHS ENDED JANUARY 2003 [THE "2003 PERIOD"] AND JANUARY 2002 [THE
"2002 PERIOD"]
Operating revenues for the 2003 Period decreased approximately $255,000 to $0
from $255,000 for the 2002 Period.
Total costs and expenses for the 2003 Period increased approximately $2,728,000
or 313% to $3,600,000 from $872,000 for the 2002 Period. This increase includes
approximately: $1,498,000 in consultants fees primarily due to a non-cash charge
of approximately $1,205,000 for options and warrants issued to consultants;
$520,000 in payroll expense primarily due to the establishment of a vacation pay
accrual and hiring of additional employees; $320,000 in legal & professional
fees; $147,000 in laboratory testing and clinical studies costs; $51,000 in
employee recruiting; $47,000 in insurance expenses due to additional employees
and generally increased premiums; $46,000 in depreciation and amortization
expense due to the earlier purchases of internal laboratory equipment; $29,000
in inside laboratory supplies expenses; $29,000 in trade show and conference
expenses; $29,000 in travel expenses; $14,000 in office expenses due to
additional employees and $12,000 in automobile expenses.
Costs and expenses decreases for the 2003 period, as compared to the 2002
period, includes approximately: $33,000 in buy-out of contract with a consultant
and $17,000 in public company expenses due primarily to a decrease in printing
costs.
Interest income increased approximately $18,000 or 120% to $33,000 for the 2003
Period from $15,000 for the 2002 Period due to an increased average cash
balance.
Deferred income tax benefit for the 2003 period was approximately $84,000
compared to approximately $88,000 for the 2002 period. These benefits resulted
from the sale of the Company's New Jersey net operating losses.
The resulting net loss for the 2003 Period was $3,483,000 compared to a net loss
of $547,000 for the 2002 Period.
8
THE THREE MONTHS ENDED JANUARY 2003 [THE "2003 PERIOD"] AND JANUARY 2002 [THE
"2002 PERIOD"]
Operating revenues for the 2003 Period decreased approximately $183,000 to $0
from $183,000 for the 2002 Period.
Total costs and expenses for the 2003 Period increased approximately $1,323,000
or 241% to $1,871,000 from $548,000 for the 2002 Period. This increase includes
approximately: $716,000 in consultants fees primarily due to a non-cash charge
of approximately $599,000 for options and warrants issued to consultants;
$372,000 in payroll expense primarily due to the establishment of a vacation pay
accrual and hiring of additional employees; $113,000 in legal & professional
fees; $49,000 in employee recruiting; $25,000 in insurance expenses due to
additional employees and increased premiums; $21,000 in depreciation and
amortization expense due to the earlier purchases of internal laboratory
equipment; $20,000 in travel expenses; $10,000 in inside laboratory supplies
expenses; $9,000 in laboratory testing and clinical studies costs and $8,000 in
automobile expenses.
Costs and expenses decreases for the 2003 period, as compared to the 2002
period, includes approximately: $33,000 in buy-out of contract with a
consultant; $18,000 in public company expenses due primarily to decreased
printing costs and $6,000 in bad debt expense.
Interest income increased approximately $8,000 or 80% to $18,000 for the 2003
Period from $10,000 for the 2002 Period due to an increased average cash
balance.
Deferred income tax benefit for the 2003 period was approximately $84,000
compared to approximately $88,000 for the 2002 period. These benefits resulted
from the sale of the Company's New Jersey net operating losses.
The resulting net loss for the 2003 Period was $1,769,000 compared to a net loss
of $300,000 for the 2002 Period.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities approximated $1,681,000 for the 2003
Period compared to net cash used in operating activities of approximately
$242,000 for the 2002 Period. Net cash used in operating activities for both the
2003 and 2002 periods was primarily attributable to the net loss of $3,483,000
and $547,000, respectively. For the 2003 period, $109,000 was used for investing
activities compared to $81,000 for the 2002 Period. For the 2002 period,
$2,984,000 was received from financing activities. Total cash flow for the 2003
period decreased approximately $1,790,000 as compared to a $2,661,000 increase
for the 2002 period.
The Company believes that it currently has sufficient cash to satisfy its cash
requirements for at least the next three (3) months. However, beyond this point
there is substantial doubt about the Company's ability to continue operations
without obtaining additional financing and/or consummating a strategic alliance
with a well-funded business partner. There are a number of risks and
uncertainties related to the Company's attempt to complete a financing or
strategic partnering arrangement that are outside the control of the Company. We
may not be able to successfully obtain additional financing on terms acceptable
to the Company, or at all. These uncertainties raise substantial doubt as to the
Company's ability to continue as a going concern. The Company's auditors have
qualified their audit opinion with regard to the Company's ability to continue
as a going concern.
INFLATION
The Company does not believe that inflation has had a material effect on its
results of operations during the past three fiscal years. There can be no
assurance that the Company's business will not be affected by inflation in the
future.
9
Part 1, Item 3. Controls and Procedures
Within the 90-day period prior to the date of this report, our Chief Executive
Officer and Chief Financial Officer performed an evaluation of our disclosure
controls and procedures, which have been designed to permit us to effectively
identify and timely disclose important information. They concluded that the
controls and procedures were effective. Since the date of the evaluation, we
have made no significant changes in our internal controls or in other factors
that could significantly affect our internal controls.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
In August 2002, the Company issued 85,922 common shares to satisfy the
cashless exercise of 136,482 warrants.
In December 2002 the Company issued 13,770 common shares to satisfy
the exercise of 13,770 warrants.
Item 3. Defaults Upon Senior Securities
N/A
Item 4. Submissions of Matters to a Vote of Security Holders
N/A
Item 5. Other Information
N/A
Item 6. Exhibits List and Reports on Form 8-K
(a) List of Exhibits
** Exhibit 10.26 Employment Agreement Dated December 3, 2002,
between the Company and Gary A. Shangold, M.D.
** Exhibit 10.27 Amendment #1 of Employment Agreement Dated
December 22, 2002, between the Company and
Gary A. Shangold, M.D.
Exhibit 11. Statement re: computation of earnings per share
for the six months ended January 31, 2003
Exhibit 99.1. Certification of Chief Executive Officer and
Chief Financial Officer
b) Reports on Form 8-K
None
** Filed herewith
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOVADEL PHARMA INC
Dated: March 10, 2003 By: /s/ Gary Shangold, M.D.
--------------- ---------------------------------
Gary Shangold, M.D., President
(Principal Executive Officer)
Dated: March 10, 2003 By: /s/ Donald J. Deitman
-------------- ---------------------------------
Donald J. Deitman
Chief Financial Officer
11
CERTIFICATION
I, Gary Shangold, M.D., certify that:
-------------------
1. I have reviewed this quarterly report on Form 10-QSB of NovaDel Pharma Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors and material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 10, 2003
--------------
Gary Shangold, M.D.
President & Chief Executive Officer
/s/ Gary Shangold, M.D.
-----------------------
(Signature)
12
CERTIFICATION
I, Donald J. Deitman, certify that:
------------------
1. I have reviewed this quarterly report on Form 10-QSB of NovaDel Pharma Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors and material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 10, 2003
--------------
Donald J. Deitman
Chief Financial Officer
/s/ Donald J. Deitman
---------------------
(Signature)
13