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 quarterly period ended January 31, 2004
[ ] 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.)
25 Minneakoning Road
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 CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 32,877,642 shares of common
stock outstanding as of March 9, 2004.
1
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOVADEL PHARMA INC.
CONDENSED BALANCE SHEETS
January 31, July 31,
2004 2003
------------ ------------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
Cash $ 12,840,000 $ 3,086,000
Accounts receivable - trade 28,000 2,000
Prepaid expenses and other current assets 338,000 168,000
------------ ------------
Total Current Assets 13,206,000 3,256,000
------------ ------------
FURNITURE, FIXTURES, AND EQUIPMENT, LESS
ACCUMULATED DEPRECIATION 1,025,000 714,000
OTHER ASSETS 355,000 357,000
------------ ------------
$ 14,586,000 $ 4,327,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable-trade $ 73,000 $ 139,000
Accrued expenses and other current liabilities 552,000 318,000
Current portion of deferred revenue 19,000 --
Current portion of capitalized lease obligation 26,000 --
------------ ------------
Total Current Liabilities 670,000 457,000
------------ ------------
Non current portion of deferred revenue 353,000 --
Non current portion of capitalized lease obligation 49,000 --
------------ ------------
Total Liabilities 1,072,000 457,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
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 32,677,642 at January
31, 2004 and 17,972,760 at July 31, 2003 33,000 18,000
Additional paid-in capital 32,250,000 19,480,000
Accumulated deficit (18,769,000) (15,628,000)
------------ ------------
Total Stockholders' Equity 13,514,000 3,870,000
------------ ------------
$ 14,586,000 $ 4,327,000
============ ============
See accompanying notes to condensed financial statements.
2
NOVADEL PHARMA INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
January 31, January 31,
---------------------------- ----------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
LICENSE FEE $ 3,000 $ -- $ 3,000 $ --
CONSULTING REVENUES 18,000 -- 18,000 --
------------ ------------ ------------ ------------
TOTAL REVENUES 21,000 -- 21,000 --
------------ ------------ ------------ ------------
RESEARCH AND DEVELOPMENT 389,000 348,000 678,000 565,000
EXPENSES
CONSULTING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,265,000 1,523,000 2,709,000 3,035,000
------------ ------------ ------------ ------------
TOTAL EXPENSES 1,654,000 1,871,000 3,387,000 3,600,000
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (1,633,000) (1,871,000) (3,366,000) (3,600,000)
INTEREST INCOME 5,000 18,000 11,000 33,000
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES (1,628,000) (1,853,000) (3,355,000) (3,567,000)
DEFFERED INCOME TAX BENEFIT 214,000 84,000 214,000 84,000
------------ ------------ ------------ ------------
NET LOSS $ (1,414,000) $ (1,769,000) $ (3,141,000) $ (3,483,000)
============ ============ ============ ============
BASIC AND DILUTED LOSS PER SHARE $(.06) $(.12) $(.15) $(.24)
============ ============ ============ ============
SHARES USED IN COMPUTATION OF
BASIC AND DILUTED LOSS PER
SHARE 23,247,336 14,542,821 20,610,048 14,526,172
============ ============ ============ ============
See accompanying notes to condensed financial statements.
3
NOVADEL PHARMA INC.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JANUARY 31, 2004
(Unaudited)
Common Stock Additional Total
---------------------------- Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
------------ ------------ ------------ ------------ ------------
BALANCE, August 1, 2003 17,972,760 $ 18,000 $ 19,480,000 $(15,628,000) $ 3,870,000
Stock issued in connection with private
placement, net of costs 13,333,333 14,000 12,771,000 -- 12,785,000
Stock issued to 2003 private investors
in connection with reset provision 1,371,549 1,000 (1,000) -- --
Net Loss -- -- -- (3,141,000) (3,141,000)
------------ ------------ ------------ ------------ ------------
BALANCE, January 31, 2004 32,677,642 $ 33,000 $ 32,250,000 $(18,769,000) $ 13,514,000
============ ============ ============ ============ ============
See accompanying notes to condensed financial statements.
4
NOVADEL PHARMA INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
January 31
-----------------------------
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,141,000) $ (3,483,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Warrants issued for Services -- 7,000
Options Issued for Services -- 1,198,000
Shares issued for Warrants exercised -- 10,000
Depreciation & Amortization 105,000 74,000
Changes in operating assets and liabilities:
Accounts receivable (26,000) 1,000
Prepaid expenses and other current assets (170,000) (65,000)
Other Assets 2,000 (4,000)
Accounts payable - trade (66,000) 243,000
Accrued expenses and other current liabilities 234,000 338,000
Deferred revenue 372,000 --
------------ ------------
Net cash used in operating activities (2,690,000) (1,681,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of property and equipment (329,000) (109,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds received from issuance of common stock through
a private placement offering 12,785,000 --
Payments of capitalized lease obligation (12,000) --
------------ ------------
Net cash provided by financing activities 12,773,000 --
------------ ------------
NET INCREASE (DECREASE) IN CASH 9,754,000 (1,790,000)
CASH, BEGINNING OF PERIOD 3,086,000 3,314,000
------------ ------------
CASH, END OF PERIOD $ 12,840,000 $ 1,524,000
============ ============
SUPPLEMENTAL DISCLOSURE OF INVESTING AND
FINANCING ACTIVITIES:
Equipment acquired under capitalized lease obligation $ 87,000 $ --
============ ============
See accompanying notes to condensed financial statements.
5
NOVADEL PHARMA INC.
NOTES TO CONDENSED 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
previously filed Form 10-KSB of NovaDel Pharma Inc. (the
Company) for the year ended July 31, 2003 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 financial statements. Results of operations for
interim periods are not necessarily indicative of the
operating results to be expected for a full year.
Management of the Company believes that during the second
calendar quarter of 2005, it will be necessary for the Company
to obtain additional financing and/or consummate a well funded
strategic alliance with a 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. The Company may not be
able to successfully obtain additional financing on terms
acceptable to the Company, or at all.
Certain 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 condensed financial statements in this report
should be read in conjunction with the financial statements
and notes thereto included in the Form 10-KSB for the year
ended July 31, 2003.
NOTE 2 - LOSS PER COMMON SHARE
Loss per common share is computed pursuant to SFAS No. 128,
"Earnings Per Share." Basic loss per share is computed as net
loss divided by the weighted average number of common shares
outstanding for the period. Diluted loss per share reflects
the potential dilution that could occur from common shares
issuable through stock options, warrants and convertible debt.
As of January 31, 2004, 20,110,429 (17,322,358 if the
amendment to the Company's Certificate of Incorporation is not
approved) of options and warrants were excluded from the
diluted loss per share computation, as their effect would be
anti-dilutive. The Company has outstanding derivative
securities (options and warrants) which exceed the Company's
authorized and unissued stock under its Certificate of
Incorporation. The Company has a Proposal pending for its
Annual Meeting (presently scheduled for April 19, 2004) to
amend its Certificate of Incorporation to increase its
authorized common stock from 50,000,000 shares to 100,000,000
shares. The Company's stockholders may not approve that
amendment. In that case, we may not have a sufficient number
of shares available to honor the exercise of such derivative
securities; any liability incurred by us in such an
eventuality could have a material adverse effect upon the
Company.
NOTE 3 - CAPITALIZED LEASE OBLIGATION:
In October 2003, the Company entered into a capital lease for
laboratory equipment. This lease requires 36 monthly payments
of $2,827 each.
NOTE 4 - CONTRACTS:
In August 2003, Mr. Robert C. Galler agreed to change from an
employee of the Company as Vice President - Corporate
Development to a consultant 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.
6
NOTE 5 - STOCK OPTIONS AND WARRANTS:
The Company follows the intrinsic value 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, in the
opinion of management, 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 value method of APB 25 rather than the
alternative fair value accounting method provided under FAS
123, but requires pro forma net income (loss) and earnings
(loss) per share disclosures as well as various other
disclosures. 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 has equaled the market
price of the underlying stock on the date of grant, no
compensation expense was recognized.
Pro forma information regarding net loss and loss per share
required by FAS 123 and FAS 148, has been determined as if the
Company had accounted for its employee stock options under the
fair value method of Statement 123.
The fair value of options granted during the three and six
months periods ending January 31, 2004 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 54% for the three months ending
January 31, 2004 and 57% for the six months ending January 31,
2004, and a weighted-average expected life of the options of
eight years for the three months ending January 31, 2004 and
nine years for the six months ending January 31, 2004.
For purposes of pro forma disclosures, the estimated fair
value of options is amortized to expense over the options'
vesting periods. The Company's pro forma information follows:
3 MONTHS ENDED
JANUARY 31,
----------------------------------
2004 2003
------------- -------------
Net Loss, as reported $ (1,414,000) $ (1,769,000)
Stock-based employee compensation expense
under fair value method, net of related
tax effects (46,000) --
------------- -------------
Pro forma net loss $(,1,460,000) $ (1,769,000)
============= =============
Loss per share:
Basic and diluted, as reported $ (.06) $ (.12)
============= =============
Basic and diluted, pro forma $ (.06) $ (.12)
============= =============
6 MONTHS ENDED
JANUARY 31,
----------------------------------
2004 2003
------------- -------------
Net Loss, as reported $ (3,141,000) $ (3,483,000)
Stock-based employee compensation expense
under fair value method, net of related
tax effects (56,000) --
------------- -------------
Pro forma net loss $(,3,197,000) $ (3,483,000)
============= =============
Loss per share:
Basic and diluted, as reported $ (.15) $ (.24)
============= =============
Basic and diluted, pro forma $ (.16) $ (.24)
============= =============
7
In August 2003, the Company issued 75,000 options under the
1998 Option Plan to a new employee. These options vest equally
over 3 years, beginning August 1, 2004, have an exercise price
of $2.23 per share and expire during July 2013.
In August 2003, the Company issued 6,000 options under the
1998 Option Plan to a new employee. These options vest equally
over 3 years, beginning August 19, 2004, have an exercise
price of $1.99 per share and expire during August 2013.
In September 2003, the Company issued 100,000 Non-plan Options
to a new director. These options vest equally over 3 years,
beginning September 9, 2004, have an exercise price of $1.85
per share and expire during September 2008.
In October 2003, the Company issued 60,000 options under the
1998 Option Plan to a new employee. These options vest equally
over 3 years, beginning October 24, 2004, have an exercise
price of $2.10 per share and expire during October 2013.
In November 2003, the Company issued 6,000 options under the
1998 Option Plan to a new employee. These options vest equally
over 3 years, beginning November 25, 2004, have an exercise
price of $1.60 per share and expire during November 2013.
In December 2003, the Company issued 50,000 options under the
1998 Option Plan to a new employee. These options vest equally
over 3 years, beginning December 22, 2004, have an exercise
price of $1.45 per share and expire during December 2013.
In December 2003, the Company issued 75,000 options under the
1998 Option Plan to a new employee. These options vest equally
over 3 years, beginning December 29, 2004, have an exercise
price of $1.50 per share and expire during December 2013.
In January 2004, the Company issued 20,000 options under the
1998 Option Plan to a new employee. These options vest equally
over 3 years, beginning January 12, 2005, have an exercise
price of $1.59 per share and expire during January 2014.
On November 18, 2003, the Company's publicly traded warrants
expired.
NOTE 6 - RELATED PARTY TRANSACTIONS:
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. One of the Company's
significant stockholders is also a significant stockholder of
Manhattan Pharmaceuticals, Inc.
During the six months ended January 31, 2004, the Company
invoiced Manhattan Pharmaceuticals, Inc. approximately
$220,000 for the Company's reimbursable expenses of which
payment of approximately $148,000 was received prior to
January 31, 2004. In November 2003, the Company received
$375,000 from Manhattan Pharmaceuticals, Inc., for license
fees. The Company expects to recognize these license fees over
the 20 year term of the license.
NOTE 7 - PRIVATE PLACEMENT:
During January 2004, the Company completed a private placement
and received net proceeds of approximately $12,785,000 from
the placement of a total of 140 units of the Company's
securities. Each unit consisted of ninety five thousand two
hundred thirty eight (95,238) common shares, par value $.001
and twenty eight thousand five hundred seventy one (28,571)
warrants. Each warrant entitles the holder to purchase an
additional share of the Company's common stock at an exercise
price of $1.40 within five (5) years. The sale price of each
unit was $100,000 ($1.05 per share). A total of 13,333,333
shares and approximately 4,000,000 warrants were issued.
The securities were sold through Paramount Capital, Inc., a
NASD broker-dealer ("Paramount"). For its services as
placement agent, the Company paid Paramount a 7% commission
fee of the aggregate amount raised and also issued to
Paramount (and its designees) unit purchase options to
purchase 1,330,303 shares of common stock at an exercise price
of $1.40 per share and warrants to purchase an additional
399,091 shares of common stock at an
8
exercise price of $1.40 per share. The Company also paid
Paramount a non-accountable expense allowance of $25,000 to
reimburse Paramount for its out-of- pocket expenses. A
significant stockholder of the Company is a controlling
principal of Paramount.
In connection with the Company's April/May 2003 private
placement, the Company had agreed, for a period of one year,
that if the Company issued shares of common stock at a per
share price less than $1.50 (the price per share in such
offering) that such investors would receive "reset price"
shares without any additional consideration being paid to the
Company (so that those investors would receive additional
shares as if they purchased their shares at such lower per
share purchase price). The per share sale price of the January
2004 offering triggered the reset rights of such investors and
1,371,549 shares were issued to these investors for no
additional consideration.
NOTE 8 - SUBSEQUENT EVENTS:
In February 2004, the Company issued 100,000 Non-plan options
to a new director. These options vest equally over 3 years,
beginning February 23, 2005, have an exercise price of $1.65
per share and expire during February 2009.
In February 2004, 200,000 options were exercised for cash,
yielding proceeds to the Company of $200,000.
9
NOVADEL PHARMA INC.
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 operations, giving rise to an accumulated deficit at
January 31, 2004 of $18,769,000.
For the reasons stated above, the Company anticipates that it will incur
substantial operating expenses in connection with the testing and approval of
its proposed delivery systems, and expects these expenses will result in
continuing and significant operating losses until such time, if ever, that the
Company is able to achieve adequate sales levels.
RESULTS OF OPERATIONS
THE SIX MONTHS ENDED JANUARY 2004 [THE "2004 PERIOD"] AND JANUARY 2003 [THE
"2003 PERIOD"]
Operating revenues for the 2004 Period increased approximately $21,000 from $0
for the 2003 Period.
Total expenses for the 2004 Period decreased approximately $213,000 or 6% to
$3,387,000 from $3,600,000 for the 2003 Period. This decrease includes
approximately: $978,000 in consultants fees primarily due to a non-cash charge
for options issued to a consultant during the 2003 Period; $125,000 in cost of
clinical studies primarily due to fewer studies during the 2004 Period and
$17,000 in trade show and conference expenses. Expense increases for the 2004
Period, as compared to the 2003 Period, include approximately: $473,000 in
payroll expense primarily due to the hiring of additional employees; $145,000 in
rent expense due to the leasing and occupying of additional space during the
first fiscal quarter; $39,000 in insurance expenses due to additional employees
and generally increased premiums; $45,000 in outside services due to increased
activity; $42,000 in employee recruiting; $15,000 in depreciation and
amortization expense due to the earlier purchases of internal laboratory
equipment; $26,000 in public company expense due to an increased number of
directors; $20,000 in inside laboratory expenses; $20,000 in travel expenses;
$17,000 in telephone expense; $16,000 in office expenses due to additional
employees and $16,000 in supplies expense necessary for sample products.
Interest income decreased approximately $22,000 or 67% to $11,000 for the 2004
Period from $33,000 for the 2003 Period due to a decreased average cash balance.
Deferred income tax benefit for the 2004 period was approximately $214,000
compared to approximately $84,000 for the 2003 period. These benefits resulted
from the sale of the Company's New Jersey net operating losses.
The resulting net loss for the 2004 Period was $3,141,000 (or $.15 per share)
compared to a net loss of $3,483,000 (or $.24 per share) for the 2003 Period.
10
THE THREE MONTHS ENDED JANUARY 2004 [THE "2004 PERIOD"] AND JANUARY 2003 [THE
"2003 PERIOD"]
Operating revenues for the 2004 Period increased approximately $21,000 from $0
from the 2003 Period.
Total expenses for the 2004 Period decreased approximately $217,000 or 12% to
$1,654,000 from $1,871,000 for the 2003 Period. This decrease includes
approximately: $480,000 in consultants fees primarily due to a non-cash charge
for options issued to a consultant during the 2003 Period; $49,000 in employee
recruiting and $20,000 in legal and professional fees. Expense increases for the
2004 period, as compared to the 2003 period, include approximately: $105,000 in
payroll expense primarily due to the hiring of additional employees; $100,000 in
rent expense due to the leasing and occupying of additional space during the
first fiscal quarter; $30,000 in cost of clinical studies; $24,000 in insurance
expenses due to additional employees and generally increased premiums; $21,000
in inside laboratory expenses; $18,000 in depreciation and amortization expense
due to the earlier purchases of internal laboratory equipment; $14,000 in public
company expense due to an increased number of directors and $14,000 in outside
services due to increased activity.
Interest income decreased approximately $13,000 or 72% to $5,000 for the 2004
Period from $18,000 for the 2003 Period due to a decreased average cash balance.
Deferred income tax benefit for the 2004 period was approximately $214,000
compared to approximately $84,000 for the 2003 period. These benefits resulted
from the sale of the Company's New Jersey net operating losses.
The resulting net loss for the 2004 Period was $1,414,000 (or $.06 per share)
compared to a net loss of $1,769,000 (or $.12 per share).
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities approximated $2,690,000 for the 2004
Period compared to net cash used in operating activities of approximately
$1,681,000 for the 2003 Period. Net cash used in operating activities for both
the 2004 and 2003 periods was primarily attributable to the net loss of
$3,141,000 and $3,483,000, respectively. For the 2004 period, $329,000 was used
for investing activities compared to $109,000 for the 2003 Period. For the 2004
period, $12,773,000 was received from financing activities as a result of the
completion of a private offering of Units (consisting of common stock and
warrants). Total cash flow for the 2004 period increased approximately
$9,754,000 as compared to a $1,790,000 decrease for the 2003 period.
During January 2004, the Company completed a private placement and received net
proceeds of approximately $12,785,000. (See Part I, Note 7)
The Company believes that it currently has sufficient cash to satisfy its cash
requirements into the second calendar quarter of 2005. However, beyond this
point there is substantial doubt about the Company's ability to continue
operations without obtaining additional financing and/or consummating a
well-funded strategic alliance with a 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. (See Part 1, Note 1)
11
OFF BALANCE SHEET ARRANGEMENTS
The Company has no off balance sheet arrangements within the meaning of SEC
rules.
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.
ITEM 3. CONTROLS AND PROCEDURES
As of January 31, 2004, 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.
During the three months ended January 31, 2004, there have been no significant
changes in our internal controls over financial reporting or in other factors,
which have significantly affected, or are reasonable likely to significantly
affect, our internal controls over financial reporting subsequent to such
evaluation.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
N/A
ITEM 2. CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF SECURITIES
In January 2004, the Company sold units (consisting of common
stock and warrants) to accredited investors (at $100,000 per
Unit). Investors were issued three warrants for each ten shares
purchased. A total of 13,333,333 shares and 3,999,957 warrants
were issued. The warrants are exercisable for five years, at an
exercise price of $1.40 per share. The securities were sold
through Paramount Capital, Inc., a NASD broker - dealer and a
related party. The gross proceeds of the private offering were
approximately $14.0 million. For its services as placement agent,
the Company paid Paramount a 7% commission fee of the aggregate
amount raised (approximately $980,000) and also issued to
Paramount options to purchase 14 units at an exercise price of
$110,000 per unit for five years. The shares were sold pursuant to
Regulation D and/or Section 4 (2) of the Act.(See Part I, Note 7)
The per share price ($1.05) of this sale triggered the reset
rights of certain prior investors and 1,371,549 shares were issued
to these investors.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
N/A
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
N/A
12
ITEM 5. OTHER INFORMATION
N/A
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) List of Exhibits
Exhibit 31.1 Rule 13a-14(a) Certification of Chief Executive
Officer
Exhibit 31.2 Rule 13a-14(a) Certification of Chief Financial
Officer
Exhibit 32.1 Certification under 18 U.S.C. 1350
Exhibit 32.2 Certification under 18 U.S.C. 1350
b) Reports on Form 8-K
1. Current report on Form 8-K filed December 3, 2003 disclosing
the Company's Change in Certifying Accountant.
2. Current report on Form 8-K filed December 30, 2003 disclosing
private placement of securities.
3. Current report on Form 8-K/A filed January 6, 2004 relating to
Change in Certifying Accountant.
4. Current report on Form 8-K filed January 12, 2004 disclosing
closing of private placement of securities.
13
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
NOVADEL PHARMA INC
Dated: March 16, 2004 By: /s/ Gary A. Shangold, M.D.
------------------------------------
Gary A. Shangold, M.D.
President & Chief Executive Officer
Dated: March 16, 2004 By: /s/ Donald J. Deitman
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Donald J. Deitman
Chief Financial Officer
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