NVDL - SEC Filings

NOVADEL PHARMA INC filed this 10-Q on 11/01/2011.
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0001043873 us-gaap:TreasuryStockMember 2011-09-30 0001043873 us-gaap:RetainedEarningsMember 2011-09-30 0001043873 us-gaap:AdditionalPaidInCapitalMember 2011-09-30 0001043873 us-gaap:TreasuryStockMember 2010-12-31 0001043873 us-gaap:RetainedEarningsMember 2010-12-31 0001043873 us-gaap:AdditionalPaidInCapitalMember 2010-12-31 0001043873 us-gaap:RetainedEarningsMember 2011-01-01 2011-09-30 0001043873 2011-07-01 2011-09-30 0001043873 2010-07-01 2010-09-30 0001043873 us-gaap:CommonStockMember 2011-09-30 0001043873 us-gaap:CommonStockMember 2010-12-31 0001043873 2010-09-30 0001043873 2009-12-31 0001043873 2011-09-30 0001043873 2010-12-31 0001043873 2010-01-01 2010-09-30 0001043873 us-gaap:CommonStockMember 2011-01-01 2011-09-30 0001043873 us-gaap:AdditionalPaidInCapitalMember 2011-01-01 2011-09-30 0001043873 2011-10-25 0001043873 2011-01-01 2011-09-30 iso4217:USD xbrli:shares iso4217:USD xbrli:shares false --12-31 Q3 2011 2011-09-30 10-Q 0001043873 134890615 Smaller Reporting Company NOVADEL PHARMA INC -9000 -9000 -50872 479000 474000 5000 5273406 27000 <div> Note 5 – Convertible Preferred Stock On February 14, 2011, we completed a public offering of 1,667 shares of our convertible preferred stock at a price of $1,000 per share, with an original issue discount of 4%, for gross proceeds of $1.6 million. The convertible preferred stock was convertible into 16,670,000 shares of common stock at a conversion price of $0.10 per share. The conversion price was also subject to adjustment if the Company issued equity securities (other than certain excluded securities) at a price per share less than the conversion price, such that the conversion price would equal the price per share of such equity securities. The convertible preferred stock was subject to automatic conversion, subject to the satisfaction of certain customary equity conditions, in four equal monthly installments commencing with March 17, 2011. The conversion price on each automatic conversion date was equal to the lower of (i) the conversion price then in effect or (ii) 85% of the average of the three lowest closing bid prices of the Company's common stock during the 20 trading day period prior to automatic conversion date. The Company could elect, at its option but subject to the satisfaction of certain conditions, to redeem the shares of convertible preferred stock in lieu of an automatic conversion occurring. The estimated fair value of the convertible preferred stock and related conversion feature at issuance was $3,250,000. In accordance with FASB ASC 815 Derivatives and Hedging, the original fair value of the embedded conversion feature of $1,579,000 has been recorded as conversion feature liability. The original fair value was computed using the Black-Scholes model under the following assumptions: (1) expected life of .33 years; (2) volatility of 116%; (3) risk free interest of 2.26%, and (4) dividend rate of 0%. In addition, the Company is required to report the conversion liability at fair value and record the fluctuation to the fair value of the conversion feature liability to current operations. As convertible preferred stock converted into common stock, the Company reduces the fair value of the conversion feature attributable to the convertible preferred shares converted and records the value as additional paid in capital. During the six months ended June 30, 2011, the Company recognized the remaining $962,000 of the conversion feature liability in connection with the remaining shares that were converted. The change in the fair value of the conversion feature liability resulted in a net gain of $27,000 for the nine month period ended September 30, 2011. The fair value of conversion feature outstanding at September 30, 2011 was $0 since all of the remaining shares were converted through June 30, 2011. The investors also received Series PA Warrants, with a 5 year term from its initial exercise date, to purchase up to 16,670,000 shares of common stock at an exercise price of $0.15 per share; Series PB Warrants, with a 1 year term, to purchase up to 16,670,000 shares of common stock at an exercise price of $0.10 per share; and Series PC Warrants, with a 5 year term from its initial exercise date, to purchase up to 16,670,000 shares of common stock at an exercise price of $0.15 per share. The Series PC Warrants may be exercised by the investors only to the extent and in the same percentage that the investors exercise its Series PB Warrants. The Series PB Warrants are immediately exercisable, while the other warrants are only exercisable after June 8, 2012. As discussed in Note 6, the Company estimated the fair value of the Series PA, PB and PC Warrants on the grant date of February 14, 2011 to be $7,087,000.   The original fair value of the embedded conversion feature of $1,579,000, the original fair value of the warrants of $7,087,000 and the original issue discount of $67,000 were recorded as discounts to the convertible preferred stock. As a result, the value of the convertible preferred stock liability was reduced to zero. Discounts exceeding the fair value of the convertible preferred stock of $7,066,000 were recorded as interest expense. The discounts to the convertible preferred stock are accreted to interest expense as the convertible preferred stock is converted into common shares. The discount accreted to interest expense for the three month and nine month periods ended September 30, 2011 was $0 and $1,667,000, respectively. In addition, the Company incurred $415,000 of direct costs including warrants issued to our placement agent as part of their compensation for the transaction. The warrants allow for the purchase of up to 333,400 shares of our common stock at an exercise price of $0.15 per share, are only exercisable after June 8, 2012, and expire on June 8, 2017. The fair value of placement agent warrants were computed using the Black-Scholes model under the following assumptions: (1) expected life of 5 years; (2) volatility of 116%, (3) risk free interest of 2.26%, and (4) dividend rate of 0%. The fair value of the warrants was $52,000. The placement agent warrants do not contain provisions that would require liability classification in accordance with ASC 815 – Derivatives and Hedging. The direct costs are recorded as convertible preferred stock issuance costs in other assets. The convertible preferred stock issuance costs are amortized to interest expense as the convertible preferred stock is converted into common stock. Total costs amortized to interest expense for the three month and nine month periods ended September 30, 2011 were $0 and $415,000, respectively. Between February 2011 and June 2011, the 1,667 shares of the convertible preferred stock were converted into 30,987,052 shares of common stock. As of September 30, 2011, no shares of convertible preferred stock were outstanding. </div> <div> Note 7 – Revenue from Licensing Agreements Royalty payments are recognized on sale of the related product, provided the royalty amounts are fixed and determinable, and collection of the related receivable is probable. As of September 30, 2011, the Company has the following deferred revenue from licensing agreements:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="84%" align="center"> <tr><td width="66%"> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Total</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Current</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Non Current</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Hi-Tech Pharmacal Co., Inc.</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3,000,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">3,000,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> BioAlliance Pharma SA</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,481,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">154,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2,327,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Velcera, Inc.</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">973,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">75,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">898,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Other</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">300,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">30,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">270,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Totals</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">6,754,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">259,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">6,495,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> Hi-Tech Pharmacal Co., Inc. – In November 2009, we entered into an exclusive license and distribution agreement with Hi-Tech Pharmacal Co., Inc., through its wholly owned subsidiary ECR Pharmaceuticals Company, Inc., to commercialize and manufacture Zolpimist® in the United States and Canada. Under the terms of the agreement, we received an upfront payment of $3,000,000. The upfront payment has been included in deferred revenue, and the remaining contractual deliverable is not expected in the next twelve months. BioAlliance Pharma SA – In May 2008, we entered into an exclusive license and supply agreement with BioAlliance Pharma SA to develop and commercialize Zensana in Europe. Under the terms of the agreement, we received an upfront fee of $3,000,000. The upfront fee has been included in deferred revenue, and it is being recognized as revenue over the nineteen and one half-year term of the agreement. Velcera, Inc. – In June 2004, we entered into an exclusive worldwide license agreement with Velcera, Inc. to develop and commercialize our patented oral spray drug delivery technology for animals. Under the terms of the agreement, we received an upfront license fee of $1,500,000 in September 2004. The upfront license fee has been included in deferred revenue, and it is being recognized as revenue over the twenty year term of the agreement. </div> <div> Note 3 – Liquidity and Going Concern Our independent registered public accounting firm has included an explanatory paragraph in their report on our 2010 financial statements related to the uncertainty and substantial doubt of our ability to continue as a going concern. As of September 30, 2011, we had cash and cash equivalents of $429,000, negative working capital of $2.0 million, and an accumulated deficit of $91.9 million. Based on our operating plan, we expect that our existing cash and cash equivalents will fund our operations only through December 31, 2011. These conditions raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements have been prepared assuming that we will continue as a going concern. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business. Our management plans to address the expected shortfall of working capital by securing additional funding through equity financings, strategic alternatives or similar transactions. There can be no assurance that we will be able to obtain any sources of funding. If we are unsuccessful in securing funding from any of these sources, we will likely file for bankruptcy.</div> 62000 913000 1514000 1237000

356000

339000

146000

172000

79496000

83369000

168000

52000

2218000

650000

1990000

499000

2663000

1409000

900000

429000

-1254000

-471000

0.001

750000000

98681029

134890615

99000

135000

52000

3259000

259000

3689000

6495000

77000

391000

210000

5663000

1979000

<div> <div> Note 6 – Derivative Liability ASC 815 – Derivatives and Hedging provides guidance to determine what types of instruments, or embedded features in an instrument, are to be considered derivatives. This guidance can affect the accounting for warrants and other convertible instruments that contain provisions to protect holders from a decline in the stock price, or down-round provisions. Down-round provisions reduce the exercise price of a warrant or convertible instrument if a company either issues equity shares for a price that is lower than the exercise price of those instruments, or issues new warrants or convertible instruments that have a lower exercise price. We have determined that the following warrants contain such provisions and should be treated as derivative liabilities.   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="84%"> <tr><td width="58%"> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom" nowrap="nowrap"> Warrant</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Exercise Price</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Number of Warrants</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Expiration Date</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Fair Value September 30, 2011</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Series A</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.04</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">26,859,369</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">March, 31, 2015</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">810,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Series PA</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.15</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">16,670,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">June 8, 2017</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">447,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Series PB</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.10</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">16,670,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">Feb 14, 2012</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">40,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Series PC</td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.15</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">16,670,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">June 8, 2017</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">447,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Total</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,744,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table> The Company estimated the fair value of the Series PA, PB and PC Warrants on the grant date of February 14, 2011 to be $7,087,000. As discussed in Note 5, the Company immediately recognized the value of the warrants that exceeded the fair value of the convertible preferred stock as interest expense and recorded a corresponding derivative liability. As of September 30, 2011, the fair value of the warrants deemed to be derivatives was $1,744,000, as compared to the December 31, 2010 fair value of $611,000, resulting in a reduction in the derivative liability and a corresponding recognition of $5,663,000 in gain in the change in derivative liability for the nine months ended September 30, 2011. In addition, the derivative liability was reduced related to warrant exercises by $292,000 with a corresponding increase in additional paid-in capital.   On May 31, 2011, the Company amended the Series PA and PC Warrants issued in February 2011 to extend the initial exercise date of such warrants to the date that is one year and one day from the effective date of the Company's Post-Effective Amendment No. 2 to the Registration Statement on Form S-1. As a result, the initial exercise date of the Series PA and PC Warrants was amended from February 14, 2012 to June 8, 2012. Since the Series PA and PC Warrants are exercisable for a period of five years from the initial exercise date, the expiration date of the Series PA and PC Warrants automatically adjusted to June 8, 2017 in connection with such amendment. The accounting impact associated with this modification was evaluated in accordance with ASC 815 – Derivatives and Hedges and it was determined that no accounting charge was needed. The Company utilizes the Black-Scholes option pricing model to estimate the fair value of these derivative instruments. The Company considers them to be Level 2 type instruments in accordance with ASC 820-10 – Fair Value Measurements and Disclosures as the inputs used to estimate their value are observable either directly or indirectly. The risk-free interest rate assumptions were based upon the observed interest rates appropriate for the remaining contractual term of the instruments. The expected volatility assumptions were based upon the historical volatility of the Company's common stock. The expected dividend yield was assumed to be zero as the Company has not paid any dividends since its inception and does not anticipate paying dividends in the foreseeable future. The expected term assumptions were based upon the remaining contractual terms of these instruments. The Company values its financial assets and liabilities on a recurring basis and effective January 1, 2009 certain nonfinancial assets and nonfinancial liabilities on a nonrecurring basis based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, a fair value hierarchy that prioritizes observable and unobservable inputs is used to measure fair value into three broad levels, which are described below:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="84%" align="center"> <tr><td width="6%"> </td> <td valign="bottom" width="3%"> </td> <td width="91%"> </td></tr> <tr><td valign="top">Level 1:</td> <td valign="bottom">  </td> <td valign="bottom">Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.</td></tr> <tr><td height="8"> </td> <td height="8" colspan="2"> </td></tr> <tr><td valign="top">Level 2:</td> <td valign="bottom">  </td> <td valign="bottom">Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in inactive markets; or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data.</td></tr> <tr><td height="8"> </td> <td height="8" colspan="2"> </td></tr> <tr><td valign="top">Level 3:</td> <td valign="bottom">  </td> <td valign="bottom">Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.</td></tr></table> In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. Financial liabilities carried at fair value on a recurring basis at September 30, 2011 and December 31, 2010 are classified in the tables below in one of the three categories described above:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="92%" align="center"> <tr><td width="66%"> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="3%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="14" align="center">September 30, 2011</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 1</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 2</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 3</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Total</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Derivative liability</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,744,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">1,744,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr> <tr><td height="16"> </td> <td height="16" colspan="16"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="14" align="center">December 31, 2010</td> <td valign="bottom"> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 1</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 2</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Level 3</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Total</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Derivative liability</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">611,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">—  </td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">611,000</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr style="font-size: 1px;"><td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td valign="bottom">  </td> <td> </td></tr></table>   The assumptions used in the September 30, 2011 fair value measurement of warrants are as follows:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="92%" align="center"> <tr><td width="68%"> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="4%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Series A</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Series PA & PC</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Series PB</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Discount Rate</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1.02</td> <td valign="bottom" nowrap="nowrap">%</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1.02</td> <td valign="bottom" nowrap="nowrap">%</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1.02</td> <td valign="bottom" nowrap="nowrap">%</td></tr> <tr><td valign="top"> Volatility</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">125</td> <td valign="bottom" nowrap="nowrap">%</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">125</td> <td valign="bottom" nowrap="nowrap">%</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">125</td> <td valign="bottom" nowrap="nowrap">%</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Expected Term</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">3.5 years</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">4.69 years</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0.38 years</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Dividend Yield</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0</td> <td valign="bottom" nowrap="nowrap">%</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0</td> <td valign="bottom" nowrap="nowrap">%</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0</td> <td valign="bottom" nowrap="nowrap">%</td></tr></table> The assumptions used in the February 14, 2011 fair value measurement of warrants are as follows:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="76%" align="center"> <tr><td width="75%"> </td> <td valign="bottom" width="8%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="8%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Series PA & PC</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Series PB</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> Discount Rate</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2.26</td> <td valign="bottom" nowrap="nowrap">%</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">2.26</td> <td valign="bottom" nowrap="nowrap">%</td></tr> <tr><td valign="top"> Volatility</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">116</td> <td valign="bottom" nowrap="nowrap">%</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">116</td> <td valign="bottom" nowrap="nowrap">%</td></tr> <tr bgcolor="#cceeff"><td valign="top"> Expected Term</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">5 years</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">1 year</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> Dividend Yield</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0</td> <td valign="bottom" nowrap="nowrap">%</td> <td valign="bottom"> </td> <td valign="bottom"> </td> <td valign="bottom" align="right">0</td> <td valign="bottom" nowrap="nowrap">%</td></tr></table></div></div>

611000

1744000

<div> Note 10 – Recent Accounting Pronouncements The FASB has issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. This ASU represents the converged guidance of the FASB and the IASB (the Boards) on fair value measurement. The collective efforts of the Boards and their staffs, reflected in ASU 2011-04, have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term "fair value." The Boards have concluded the common requirements will result in greater comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRS. The amendments to the FASB Accounting Standards Codification™ (Codification) in this ASU are to be applied prospectively. The amendments are effective during interim and annual periods beginning after December 15, 2011. The Company is in the process of assessing whether the adoption of this ASU will have an impact on its financial statements. </div>

Note 8 – Share-Based Compensation The Company recorded share-based compensation expense of $42,000 and $159,000 for the three and nine months ended September 30, 2011, and $107,000 and $430,000 for the three and nine months ended September 30, 2010. We will continue to incur share-based compensation charges in future periods. As of September 30, 2011, unamortized share-based compensation expense of $200,000 remains to be recognized, which is comprised of $34,000 related to non-performance based stock options to be recognized over a weighted average period of .26 years, and $166,000 related to performance-based stock options which vest upon reaching certain milestones. Expenses related to the performance-based stock options will be recognized if and when the Company determines that it is probable that the milestone will be reached. No options were exercised during the nine month periods ended September 30, 2011 and 2010. During the nine months ended September 30, 2011 and 2010, employees and non-employee directors of the Company were granted stock options under our 2006 Stock Option Plan per the table below:   <table style="border-collapse: collapse;" border="0" cellspacing="0" cellpadding="0" width="68%" align="center"> <tr><td width="63%"> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td> <td valign="bottom" width="7%"> </td> <td> </td> <td> </td> <td> </td></tr> <tr><td valign="bottom" nowrap="nowrap"> Period Ended</td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Grants Issued</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Weighted Average Exercise Price</td> <td valign="bottom"> </td> <td valign="bottom">  </td> <td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" align="center">Weighted Average Fair Value</td> <td valign="bottom"> </td></tr> <tr bgcolor="#cceeff"><td valign="top"> September 30, 2011</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">150,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.06</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.04</td> <td valign="bottom" nowrap="nowrap">  </td></tr> <tr><td valign="top"> September 30, 2010</td> <td valign="bottom">  </td> <td valign="bottom"> </td> <td valign="bottom" align="right">900,000</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.19</td> <td valign="bottom" nowrap="nowrap">  </td> <td valign="bottom">  </td> <td valign="bottom">$</td> <td valign="bottom" align="right">0.13</td> <td valign="bottom" nowrap="nowrap">  </td></tr></table>

-0.04

-0.01

-0.05

0.01

Note 4 – Earnings or Loss Per Share Basic earnings and loss per share is calculated by dividing the net earnings or loss by the weighted average number of common shares outstanding for the period. Diluted earnings per share is calculated by dividing the net earnings by the weighted average number of common shares and the dilutive effect of common share equivalents outstanding for the period. For the purposes of this calculation, restricted stock, stock options and warrants are considered to be common share equivalents, and are determined using the treasury stock method. Common share equivalents are only included in the calculation of diluted earnings or loss per share when their effect is dilutive. There is no difference between basic loss per share and diluted loss per share, because the effect on the earnings per share is anti dilutive for the nine months ended September 30, 2010 and 2011 and the three months ended September 30, 2010. The Company had a profit of $1,172,000 for the three months ended September 30, 2011, and, therefore, the effect of an additional 7.3 million warrants would be dilutive to earnings per share. The computed effect is $0.00 resulting in dilutive earnings per share of $0.01. For the three and nine months ended September 30, 2011, the number of restricted stock, stock options and warrants not included in the computation totaled 75 million and 102 million, respectively. In both the three and nine months ended September 30, 2010 the number of restricted stock, stock options and warrants not included in the computation totaled 33.3 million.

2365000

578000

1950000

565000

6000

-17000

-744000

-199000

-194000

-10000

27000

-12000

-1034000

-276000

1000

9148000

1000

8061000

9009000

2218000

650000

4372000

2514000

199000

66000

195000

65000

<div> Note 2 – The Company NovaDel Pharma Inc. is a specialty pharmaceutical company that develops oral spray formulations of marketed pharmaceutical products. Our patented oral spray drug delivery technology seeks to improve the efficacy, safety, patient compliance, and patient convenience for a broad range of prescription medications. </div>

1500000

1424000

17000

-2771000

-1895000

-3730000

-1312000

-6425000

1172000

4382000

1589000

3339000

922000

-4121000

-1523000

-2967000

-807000

<div> Note 1 – Basis of Presentation The accompanying unaudited condensed financial statements of NovaDel Pharma Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accrual adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for other quarters or the year ending December 31, 2011. The December 31, 2010 condensed balance sheet was derived from audited financial statements but does not include all disclosures required by GAAP and included in the Form 10-K filing. For more complete information, these unaudited condensed financial statements and the notes thereto should be read in conjunction with the audited financial statements for the year ended December 31, 2010 included in our Form 10-K filed with the Securities and Exchange Commission. References in this report to "NovaDel," "Company," "we," "us," and "our" refer to NovaDel Pharma Inc. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. Certain reclassifications have been made to prior period amounts to conform to current period presentation. </div>

7000

391000

211000

-3458000

1979000

-17000

0.001

1000000

346000

70000

187000

292000

221000

144000

744000

<div> Note 9 – Related Party Transactions In September 2006, the Board of Directors appointed Steven B. Ratoff as Chairman of the Board. In connection with Mr. Ratoff's appointment as Chairman of the Board, the Board entered into a consulting arrangement to compensate Mr. Ratoff for his efforts. This arrangement ended in December 2009. In January 2010, our Board of Directors appointed Steven B. Ratoff as President and Chief Executive Officer. Effective as of August 1, 2011, Mr. Ratoff also serves as our Chief Financial Officer and Corporate Secretary, after the resignation of Craig Johnson, our former Chief Financial Officer and Corporate Secretary. Mr. Ratoff has served as a venture partner with ProQuest Investments, or ProQuest, since December 2004. Mr. Ratoff has no authority for investment decisions made by ProQuest. As of September 30, 2011, ProQuest owns 34.7million common shares, or 26%, of our common stock. We entered into an employment agreement with David H. Bergstrom, Ph.D. on December 4, 2006 (the "Employment Agreement"). The Employment Agreement expired by its terms on December 4, 2009. On December 31, 2009, the Compensation Committee of the Board of Directors of the Company (the "Compensation Committee") approved the recommendation to maintain Dr. Bergstrom's services and to continue his employment on the same terms and conditions as the Employment Agreement for a period of one year from the expiration date of the Employment Agreement. On March 23, 2011, the Compensation Committee approved the recommendation to further extend Dr. Bergstrom's employment on the same terms and conditions as the Employment Agreement through June 30, 2011. On July 5, 2011, the Compensation Committee approved the recommendation to further extend Dr. Bergstrom's employment on the same terms and conditions as the Employment Agreement through June 30, 2012. On July 5, 2011, the Company and Dr. Bergstrom entered into an amendment (the "Amendment") to the Employment Agreement memorializing the extended term through June 30, 2012.  </div>

14000

2017000

1011000

1389000

357000

-85432000

-91857000

261000

66000

372000

115000

177000

50000

430000

159000

-5843000

79496000

99000

-85432000

-6000

-8359000

83369000

135000

-91857000

-6000

30987052

3219000

3188000

31000

3012

6000

94786590

97918458

122252393

141903070

94786590

97918458

122252393

134628658