x |
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the Fiscal Year Ended: December 31,
2006
|
o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the transition period from _________ to
_________.
|
Delaware
(State
or other jurisdiction
of
incorporation or organization)
|
04-3321804
(I.R.S.
Employer Identification No.)
|
One
Gateway Center, Suite 504
Newton,
Massachusetts 02458
(Address
of principal executive offices and zip code)
|
Title
of Class
|
Name
of each exchange on which registered
|
|
None
|
Not
Applicable
|
PART
I
|
||
Item
1.
|
Description
of Business
|
2
|
Item
2.
|
Description
of Property
|
9
|
Item
3.
|
Legal
Proceedings
|
10
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
10
|
PART
II
|
||
Item
5.
|
Market
for Common Equity, Related Stockholder Matters and Small Business
Issuer
Purchases of Equity Securities
|
10
|
Item
6.
|
Management's
Discussion and Analysis or Plan of Operation
|
11
|
Item
7.
|
Financial
Statements
|
25
|
Item
8.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
42
|
Item
8a.
|
Controls
and Procedures
|
42
|
Item
8b.
|
Other
Information
|
42
|
PART
III
|
||
Item
9.
|
Directors,
Executive Officers, Promoters and Control Persons
|
43
|
Item
10.
|
Executive
Compensation
|
45
|
Item
11.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
49
|
Item
12.
|
Certain
Relationships and Related Transactions
|
50
|
Item
13.
|
Exhibits
|
51
|
Item
14.
|
Principal
Accountant Fees and Services
|
53
|
ITEM 1. |
DESCRIPTION
OF BUSINESS
|
· |
Group
A: NOV-002, administered intravenously and intramuscularly, in combination
with cytotoxic chemotherapy (carboplatin +
paclitaxel).
|
· |
Group
B: NOV-002, administered intravenously and subcutaneously, in combination
with cytotoxic chemotherapy.
|
· |
Group
C: Cytotoxic chemotherapy alone was administered to this control
group.
|
· |
Pre-clinical
laboratory tests, in
vivo
pre-clinical studies, and formulation
studies;
|
· |
The
submission to the FDA of an Investigational New Drug Application
for human
clinical testing, which must become effective before human clinical
trials
can commence;
|
· |
Adequate
and well controlled human clinical trials to establish the safety
and
efficacy of the product;
|
· |
The
submission of a New Drug Application or Biologic Drug License Application
to the FDA; and
|
· |
FDA
approval of the New Drug Application or Biologic Drug License Application
prior to any commercial sale or shipment of the
product.
|
Item 2. |
Item 3. |
Legal
Proceedings
|
Item 4. |
Submission
of Matters to a Vote of Security
Holders
|
Item 5. |
Market
for Common Equity, Related Stockholder Matters and Small Business
Issuer
Purchases of Equity
Securities
|
Fiscal
Year 2005
|
High
|
Low
|
|||||
First
quarter
|
$
|
N/A
|
$
|
N/A
|
|||
Second
quarter (beginning June 14, 2005)
|
2.90
|
2.00
|
|||||
Third
quarter
|
4.47
|
2.15
|
|||||
Fourth
quarter
|
3.65
|
1.53
|
Fiscal
Year 2006
|
High
|
Low
|
|||||
First
quarter
|
$
|
2.25
|
$
|
1.60
|
|||
Second
quarter
|
1.95
|
0.85
|
|||||
Third
quarter
|
1.05
|
0.63
|
|||||
Fourth
quarter
|
1.02
|
0.60
|
· |
the
resources required to successfully complete our clinical trials;
|
· |
the
time and costs involved in obtaining regulatory approvals;
|
· |
continued
progress in our research and development programs, as well as the
magnitude of these programs;
|
· |
the
cost of manufacturing activities;
|
· |
the
costs involved in preparing, filing, prosecuting, maintaining, and
enforcing patent claims;
|
· |
the
timing, receipt, and amount of milestone and other payments, if any,
from
collaborators; and
|
· |
fluctuations
in foreign exchange rates.
|
|
Payments
Due by Period
|
|
||||||||||||||
|
|
Total
|
|
0-12
Months
|
|
1
- 3 Years
|
|
3
- 5 Years
|
|
After
5 Years
|
|
|||||
Chemotherapy
purchase commitment
|
|
$
|
1,300,000
|
$
|
1,200,000
|
$
|
100,000
|
|
$
|
—
|
|
|
—
|
|
· |
the
number of potential products and technologies in
development;
|
· |
continued
progress and cost of our research and development
programs;
|
· |
progress
with pre-clinical studies and clinical
trials;
|
· |
the
time and costs involved in obtaining regulatory
clearance;
|
· |
costs
involved in preparing, filing, prosecuting, maintaining and enforcing
patent claims;
|
· |
costs
of developing sales, marketing and distribution channels and our
ability
to sell our drugs;
|
· |
costs
involved in establishing manufacturing capabilities for clinical
trial and
commercial quantities of our drugs;
|
· |
competing
technological and market
developments;
|
· |
market
acceptance of our products;
|
· |
costs
for recruiting and retaining management, employees and consultants;
|
· |
costs
for training physicians;
|
· |
our
status as a bulletin-board listed company and the prospects for our
stock
to be listed on a national exchange;
and
|
· |
uncertainty
and economic instability resulting from terrorist acts and other
acts of
violence or war.
|
· |
demonstrating
benefit from delivery of each specific drug for specific medical
indications;
|
· |
demonstrating
through pre-clinical and clinical trials that each drug is safe and
effective; and
|
· |
demonstrating
that we have established a viable Good Manufacturing Process capable
of
potential scale-up.
|
· |
uncertainties
arising from the rapidly growing scientific aspects of drug therapies
and
potential treatments;
|
· |
uncertainties
arising as a result of the broad array of alternative potential treatments
related to cancer, hepatitis and other diseases;
and
|
· |
anticipated
expense and time believed to be associated with the development and
regulatory approval of treatments for cancer, hepatitis and other
diseases.
|
· |
the
receipt of regulatory clearance of marketing claims for the uses
that we
are developing;
|
· |
the
establishment and demonstration of the advantages, safety and efficacy
of
our technologies;
|
· |
pricing
and reimbursement policies of government and third-party payers such
as
insurance companies, health maintenance organizations and other health
plan administrators;
|
· |
our
ability to attract corporate partners, including pharmaceutical companies,
to assist in commercializing our intended products;
and
|
· |
our
ability to market our products.
|
· |
cease
selling, incorporating or using any of our technologies and/or products
that incorporate the challenged intellectual property, which would
adversely affect our future
revenue;
|
· |
obtain
a license from the holder of the infringed intellectual property
right,
which license may be costly or may not be available on reasonable
terms,
if at all; or
|
· |
redesign
our products, which would be costly and
time-consuming.
|
· |
fail
to satisfy financial or contractual obligations to
us;
|
· |
fail
to adequately market our products;
|
· |
cease
operations with little or no notice;
or
|
· |
offer,
design, manufacture or promote competing
products.
|
· |
the
election of directors;
|
· |
the
amendment of charter documents;
|
· |
issuance
of blank-check preferred or convertible stock, notes or instruments
of
indebtedness which may have conversion, liquidation and similar features,
or effecting other financing arrangements;
or
|
· |
the
approval of certain mergers and other significant corporate transactions,
including a sale of substantially all of our assets, or merger with
a
publicly-traded shell or other company.
|
ITEM 7. |
FINANCIAL
STATEMENTS
|
Page
|
||
Report
of Independent Registered Public Accounting
Firm
|
26 | |
Balance
Sheets at December 31, 2006 and December 31,
2005
|
27 | |
Statements
of Operations for the Years Ended December 31, 2006 and
2005
|
28 | |
Statements
of Stockholders’ Equity (Deficiency) for the Years Ended
December 31, 2006 and 2005
|
29 | |
Statements
of Cash Flows for the Years Ended December 31, 2006 and
2005
|
30 | |
Notes
to Financial Statements
|
31 |
December
31,
|
December
31,
|
||||||
|
2006
|
2005
|
|||||
ASSETS | |||||||
CURRENT
ASSETS:
|
|||||||
Cash
and equivalents
|
$
|
9,938,428
|
$
|
4,267,115
|
|||
Restricted
cash
|
1,655,251
|
196,908
|
|||||
Prepaid
expenses and other current assets
|
294,995
|
337,902
|
|||||
Total
current assets
|
11,888,674
|
4,801,925
|
|||||
FIXED
ASSETS, NET
|
23,810
|
22,610
|
|||||
DEFERRED
FINANCING COSTS
|
—
|
24,612
|
|||||
PREPAID
EXPENSES
|
—
|
79,896
|
|||||
DEPOSITS
|
10,875
|
9,656
|
|||||
TOTAL
ASSETS
|
$
|
11,923,359
|
$
|
4,938,699
|
|||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
CURRENT
LIABILITIES:
|
|||||||
Accounts
payable and accrued liabilities
|
$
|
1,088,041
|
$
|
217,156
|
|||
Accrued
compensation
|
225,384
|
—
|
|||||
Total
current liabilities
|
1,313,425
|
217,156
|
|||||
COMMITMENTS
AND CONTINGENCIES
|
|||||||
STOCKHOLDERS’
EQUITY:
|
|||||||
Preferred
Stock, $0.00001 par value; 7,000 shares authorized:
Series
A 8% cumulative convertible preferred stock; 3,264
shares
issued and outstanding (liquidation preference $3,264,000)
|
—
|
—
|
|||||
Common
stock, $0.00001 par value; 100,000,000 shares
authorized;
39,235,272 and 27,921,199 shares issued and
outstanding
at December 31, 2006 and December 31, 2005, respectively
|
392
|
279
|
|||||
Additional
paid-in capital
|
34,294,154
|
20,119,820
|
|||||
Accumulated
deficit
|
(23,684,612
|
)
|
(15,398,556
|
)
|
|||
Total
stockholders’ equity
|
10,609,934
|
4,721,543
|
|||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
11,923,359
|
$
|
4,938,699
|
Year
Ended December 31,
|
|||||||
2006
|
2005
|
||||||
REVENUES:
|
|||||||
Sales
of samples
|
$
|
—
|
$
|
12,584
|
|||
Total
revenues
|
—
|
12,584
|
|||||
COSTS
AND EXPENSES:
|
|||||||
Research
and development
|
6,441,394
|
1,260,682
|
|||||
General
and administrative
|
2,488,414
|
1,318,284
|
|||||
Total
costs and expenses
|
8,929,808
|
2,578,966
|
|||||
OTHER
INCOME (EXPENSE):
|
|||||||
Interest
income
|
637,752
|
49,876
|
|||||
Interest
expense
|
—
|
(109,102
|
)
|
||||
Miscellaneous
|
6,000
|
5,796
|
|||||
Gain
on forgiveness of debt
|
—
|
2,087,531
|
|||||
Restructuring
expense
|
—
|
(2,521,118
|
)
|
||||
Total
other income (expense)
|
643,752
|
(487,017
|
)
|
||||
NET
LOSS
|
(8,286,056
|
)
|
(3,053,399
|
)
|
|||
PREFERRED
STOCK DIVIDEND
|
(261,120
|
)
|
(64,000
|
)
|
|||
PREFERRED
STOCK DEEMED DIVIDEND
|
—
|
(2,077,321
|
)
|
||||
NET
LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS
|
$
|
(8,547,176
|
)
|
$
|
(5,194,720
|
)
|
|
BASIC
AND DILUTED NET LOSS ATTRIBUTABLE TO
COMMON
STOCKHOLDERS PER COMMON SHARE
|
$
|
(0.23
|
)
|
$
|
(0.24
|
)
|
|
SHARES
USED IN COMPUTING BASIC AND
DILUTED
NET LOSS ATTRIBUTABLE TO
COMMON
STOCKHOLDERS PER COMMON SHARE
|
37,179,878
|
21,757,424
|
|
Series
A
|
||||||||||||||||||||||||
Cumulative
|
Total
|
||||||||||||||||||||||||
Convertible
|
Additional
|
Stockholders’
|
|||||||||||||||||||||||
Common
Stock
|
Preferred
Stock
|
Paid-in
|
Accumulated
|
Treasury |
Equity
|
||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
Stock
|
(Deficiency)
|
||||||||||||||||||
BALANCE
AT JANUARY 1, 2005
|
4,426,126
|
$
|
44
|
—
|
$
|
—
|
$
|
7,998,110
|
$
|
(12,345,157
|
)
|
$
|
(1,956
|
)
|
$
|
(4,348,959
|
)
|
||||||||
Issuance
of common stock for financing commitment
|
10,500,000
|
105
|
—
|
—
|
—
|
—
|
—
|
105
|
|||||||||||||||||
Issuance
of common stock upon conversion
of
convertible debt
|
1,760,000
|
18
|
—
|
—
|
1,099,982
|
—
|
—
|
1,100,000
|
|||||||||||||||||
Issuance
of common stock in settlement
of
unsecured debt
|
586,351
|
6
|
—
|
—
|
732,935
|
—
|
—
|
732,941
|
|||||||||||||||||
Issuance
of common stock in restructuring
of
royalty arrangement
|
2,016,894
|
20
|
—
|
—
|
2,521,098
|
—
|
—
|
2,521,118
|
|||||||||||||||||
Issuance
of common stock in merger
|
4,500,000
|
45
|
—
|
—
|
(45
|
)
|
—
|
—
|
—
|
||||||||||||||||
Retirement
of treasury stock in merger
|
(195,672
|
)
|
(2
|
)
|
—
|
—
|
(1,954
|
)
|
—
|
1,956
|
—
|
||||||||||||||
Issuance
of common stock and warrants in private
placement,
net of issuance costs of $891,383
|
4,000,000
|
40
|
—
|
—
|
4,108,577
|
—
|
—
|
4,108,617
|
|||||||||||||||||
Issuance
of common stock for placement agent services
|
125,000
|
1
|
—
|
—
|
156,249
|
—
|
—
|
156,250
|
|||||||||||||||||
Issuance
of common stock for services
|
202,500
|
2
|
—
|
—
|
527,798
|
—
|
—
|
527,800
|
|||||||||||||||||
Compensation
expense associated with options
issued
to non-employees
|
—
|
—
|
—
|
—
|
113,070
|
—
|
—
|
113,070
|
|||||||||||||||||
Issuance
of cumulative convertible preferred stock,
net
of issuance costs of $336,000
|
—
|
—
|
3,200
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||
Issuance
of warrants in connection with
preferred
stock
|
—
|
—
|
—
|
—
|
786,679
|
—
|
—
|
786,679
|
|||||||||||||||||
Beneficial
conversion feature on preferred stock
|
—
|
—
|
—
|
—
|
2,077,321
|
—
|
—
|
2,077,321
|
|||||||||||||||||
Issuance
of cumulative convertible preferred
stock
in payment of dividends
|
—
|
—
|
64
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||
Net
loss
|
—
|
—
|
—
|
—
|
—
|
(3,053,399
|
)
|
—
|
(3,053,399
|
)
|
|||||||||||||||
BALANCE
AT DECEMBER 31, 2005
|
27,921,199
|
279
|
3,264
|
—
|
20,119,820
|
(15,398,556
|
)
|
—
|
4,721,543
|
||||||||||||||||
Exercise
of stock options
|
75,000
|
1
|
—
|
—
|
749
|
—
|
—
|
750
|
|||||||||||||||||
Issuance
of common stock for services
|
85,000
|
1
|
—
|
—
|
144,049
|
—
|
—
|
144,050
|
|||||||||||||||||
Issuance
of common stock and warrants in private
placement,
net of issuance costs of $1,211,232
|
11,154,073
|
111
|
—
|
—
|
13,846,663
|
—
|
—
|
13,846,774
|
|||||||||||||||||
Compensation
expense associated with
options
issued to employees
|
—
|
—
|
—
|
—
|
268,281
|
—
|
—
|
268,281
|
|||||||||||||||||
Compensation
expense associated with
options
issued to non-employees
|
—
|
—
|
—
|
—
|
175,712
|
—
|
—
|
175,712
|
|||||||||||||||||
Dividends
paid on preferred stock
|
—
|
—
|
—
|
—
|
(261,120
|
)
|
—
|
—
|
(261,120
|
)
|
|||||||||||||||
Net
loss
|
—
|
—
|
—
|
—
|
—
|
(8,286,056
|
)
|
—
|
(8,286,056
|
)
|
|||||||||||||||
BALANCE
AT DECEMBER 31, 2006
|
39,235,272
|
$
|
392
|
3,264
|
$
|
—
|
$
|
34,294,154
|
$
|
(23,684,612
|
)
|
$
|
—
|
$
|
10,609,934
|
Year
Ended December 31,
|
|||||||
2006
|
2005
|
||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|||||||
Net
loss
|
$
|
(8,286,056
|
)
|
$
|
(3,053,399
|
)
|
|
Adjustments
to reconcile net loss to cash used in operating
activities:
|
|||||||
Depreciation
and amortization
|
9,516
|
3,244
|
|||||
Stock-based
compensation
|
588,043
|
399,461
|
|||||
Gain
on forgiveness of debt
|
—
|
(2,087,531
|
)
|
||||
Common
stock issued for restructuring expense
|
—
|
2,521,118
|
|||||
Increase
(decrease) in:
|
|||||||
Accounts
receivable
|
—
|
12,584
|
|||||
Prepaid
expenses and other current assets
|
122,803
|
(96,653
|
)
|
||||
Accounts
payable and accrued liabilities
|
870,885
|
(136,538
|
)
|
||||
Accrued
compensation
|
225,384
|
—
|
|||||
Accrued
interest
|
—
|
51,451
|
|||||
Deferred
revenue
|
—
|
(12,584
|
)
|
||||
Deferred
rent
|
—
|
(250
|
)
|
||||
Cash
used in operating activities
|
(6,469,425
|
)
|
(2,399,097
|
)
|
|||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|||||||
Purchases
of property and equipment
|
(10,716
|
)
|
(25,854
|
)
|
|||
Change
in restricted cash
|
(1,458,343
|
)
|
(196,908
|
)
|
|||
Deferred
financing costs
|
24,612
|
(24,612
|
)
|
||||
Deposits
|
(1,219
|
)
|
(4,798
|
)
|
|||
Cash
used in investing activities
|
(1,445,666
|
)
|
(252,172
|
)
|
|||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|||||||
Proceeds
from issuance of common stock, net
|
13,846,774
|
3,714,868
|
|||||
Proceeds
from issuance of Series A 8% cumulative convertible preferred stock,
net
|
—
|
2,864,000
|
|||||
Dividends
paid to preferred stockholders
|
(261,120
|
)
|
—
|
||||
Proceeds
from exercise of stock option
|
750
|
—
|
|||||
Payments
of long-term debt
|
—
|
(1,840
|
)
|
||||
Proceeds
from issuance of promissory notes
|
—
|
850,000
|
|||||
Payment
of promissory notes
|
—
|
(519,000
|
)
|
||||
Cash
provided by financing activities
|
13,586,404
|
6,908,028
|
|||||
INCREASE
(DECREASE) IN CASH AND EQUIVALENTS
|
5,671,313
|
4,256,759
|
|||||
CASH
AND EQUIVALENTS AT BEGINNING OF YEAR
|
4,267,115
|
10,356
|
|||||
CASH
AND EQUIVALENTS AT END OF YEAR
|
$
|
9,938,428
|
$
|
4,267,115
|
|||
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW
INFORMATION
|
|||||||
Cash
paid during the year for interest
|
$
|
—
|
$
|
57,461
|
|||
SUPPLEMENTAL
DISCLOSURES OF NON-CASH ACTIVITIES
|
|||||||
Deemed
dividend on preferred stock
|
$
|
—
|
$
|
2,077,321
|
|||
Preferred
stock issued in payment of dividends
|
$
|
—
|
$
|
64,000
|
|||
Common
stock issued for services
|
$
|
144,050
|
$
|
156,250
|
|||
Common
stock issued on conversion of promissory notes
|
$
|
—
|
$
|
1,100,000
|
|||
Common
stock issued to repay notes payable
|
$
|
—
|
$
|
638,719
|
|||
Common
stock issued in exchange for accounts payable
|
$
|
—
|
$
|
544,221
|
|||
Common
stock issued for accrued interest
|
$
|
—
|
$
|
100,000
|
|||
Common
stock issued for prepaid expenses
|
$
|
—
|
$
|
426,450
|
|||
Demand
notes payable forgiven
|
$
|
—
|
$
|
621,931
|
|||
Accounts
payable forgiven
|
$
|
—
|
$
|
761,880
|
|||
Accrued
compensation forgiven
|
$
|
—
|
$
|
360,357
|
|||
Accrued
interest forgiven
|
$
|
—
|
$
|
343,363
|
2006
|
2005
|
||||||
|
|
||||||
Office
and computer equipment
|
$
|
52,537
|
$
|
49,717
|
|||
Computer
software
|
7,896
|
—
|
|||||
Leasehold
improvements
|
2,500
|
2,500
|
|||||
Total
fixed assets
|
62,933
|
52,217
|
|||||
Less
accumulated depreciation and
amortization
|
(39,123
|
)
|
(29,607
|
)
|
|||
Fixed
assets, net
|
$
|
23,810
|
$
|
22,610
|
Offering
|
Outstanding
(as
adjusted)
|
Exercise
Price
(as
adjusted)
|
Expiration
Date
|
|||||||
2005
Bridge Loans (see Note 8)
|
720,000
|
$
|
0.625
|
April
1, 2010
|
||||||
2005
PIPE:
|
||||||||||
Investors
|
3,333,275
|
$
|
1.35
|
August
9, 2008
|
||||||
Placement
agents and finders
|
503,692
|
$
|
1.35
|
August
9, 2010
|
||||||
Series
A Preferred :
|
||||||||||
Investors –
September
30, 2005 closing
|
909,090
|
$
|
1.35
|
September
30, 2010
|
||||||
Investors –
October 3,
2005 closing
|
60,606
|
$
|
1.35
|
October
3, 2010
|
||||||
2006
PIPE :
|
||||||||||
Investors
|
8,365,542
|
$
|
2.50
|
March
7, 2011
|
||||||
Placement
agents
|
669,244
|
$
|
2.50
|
March
7, 2011
|
||||||
Total
|
14,561,449
|
December
31,
|
|||||||
2006
|
2005
|
||||||
2000
Stock Option Plan
|
73,873
|
73,873
|
|||||
2006
Stock Incentive Plan
|
5,000,000
|
—
|
|||||
Options
issued outside of formalized plans
|
2,578,778
|
2,653,778
|
|||||
Warrants
(1)
|
16,820,135
|
4,829,008
|
|||||
Preferred
stock (1)
|
2,696,283
|
3,393,938
|
|||||
Total
shares reserved for future issuance
|
27,169,069
|
10,950,597
|
Year
Ended
December
31,
|
|||||||
2006
|
2005
|
||||||
Employee
and director stock option grants:
|
|||||||
Research
and development
|
$
|
77,333
|
$
|
—
|
|||
General
and administrative
|
190,948
|
—
|
|||||
268,281
|
—
|
||||||
Non-employee
consultants stock option grants and restricted stock
awards:
|
|||||||
Research
and development
|
11,435
|
67,215
|
|||||
General
and administrative
|
308,327
|
332,246
|
|||||
319,762
|
399,461
|
||||||
Total
stock-based compensation
|
$
|
588,043
|
$
|
399,461
|
|
Year
Ended
December
31,
|
||||||
|
2006
|
2005
|
|||||
Volatility
|
80
|
%
|
0%-80
|
%
|
|||
Weighted-average
volatility
|
80
|
%
|
23
|
%
|
|||
Risk-free
interest rate
|
4.50%-5.05
|
%
|
3.95%-4.81
|
%
|
|||
Expected
life (years)
|
5
|
2-10
|
|||||
Dividend
|
0
|
0
|
|||||
Weighted-average
exercise price
|
$
|
0.99
|
$
|
0.78
|
|||
Weighted-average
grant-date fair value
|
$
|
0.62
|
$
|
0.49
|
Year
Ended
December
31, 2005
|
||||
Net
loss attributable to common stockholders as reported
|
$
|
(5,194,720
|
)
|
|
Stock-based
employee compensation expense determined
under
fair-value-based method
|
(111,082
|
)
|
||
Pro
forma net loss attributable to common stockholders
|
$
|
(5,305,802
|
)
|
|
Basic
and diluted net loss attributable to common
stockholders
per share:
|
||||
As
reported
|
$
|
(0.24
|
)
|
|
Pro
forma
|
$
|
(0.24
|
)
|
Options
Outstanding
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contracted
Term
in
Years
|
Aggregate
Intrinsic
Value
|
||||||||||
Outstanding
at January 1, 2005
|
952,651
|
$
|
0.26
|
|
|||||||||
Options
granted
|
1,775,000
|
$
|
0.78
|
||||||||||
Outstanding
at December 31, 2005
|
2,727,651
|
$
|
0.60
|
8.9
|
$
|
4,294,257
|
|||||||
Options
granted
|
840,000
|
$
|
0.99
|
||||||||||
Options
exercised
|
(75,000
|
)
|
$
|
0.01
|
|||||||||
Outstanding
at December 31, 2006
|
3,492,651
|
$
|
0.70
|
8.4
|
$
|
1,773,777
|
|||||||
Exercisable
at December 31, 2006
|
2,338,112
|
$
|
0.43
|
7.9
|
$
|
1,705,373
|
Options
Outstanding
|
Options
Exercisable
|
|||||||||||||||
Exercise
Price
|
Number
of
Shares
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Weighted
Average
Exercise
Price
|
Number
of
Shares
|
Weighted
Average
Exercise
Price
|
|||||||||||
$
0.01
|
2,053,778
|
7.8
|
$
|
0.01
|
1,974,239
|
$
|
0.01
|
|||||||||
$
0.70 – $2.00
|
885,705
|
9.6
|
$
|
0.98
|
60,705
|
$
|
0.94
|
|||||||||
$
2.01 – $3.22
|
525,000
|
8.6
|
$
|
2.63
|
275,000
|
$
|
2.65
|
|||||||||
$
7.01
|
28,168
|
5.5
|
$
|
7.01
|
28,168
|
$
|
7.01
|
|||||||||
3,492,651
|
8.4
|
$
|
0.70
|
2,338,112
|
$
|
0.43
|
2006
|
2005
|
||||||
Net
operating loss carryforwards
|
$
|
3,700,000
|
$
|
3,331,000
|
|||
Research
and development
expenses
|
3,581,000
|
1,556,000
|
|||||
Tax
credits
|
550,000
|
282,000
|
|||||
Capital
loss carryforward
|
403,000
|
403,000
|
|||||
Gross
deferred tax asset
|
8,234,000
|
5,572,000
|
|||||
Valuation
allowance
|
(8,234,000
|
)
|
(5,572,000
|
)
|
|||
Net
deferred tax asset
|
$
|
—
|
$
|
—
|
· |
Vendors
with overdue balances totaling $1,484,319 settled the outstanding
balances
in exchange for 435,376 shares of Novelos common stock with a deemed
value
of $544,222 and cash of $178,217, resulting in a gain on settlement
of
$761,880;
|
· |
Unsecured
demand notes totaling $188,719 resulting from cash advances from
stockholders were repaid by the issuance of 150,975 shares of common
stock
with a deemed value of $188,719. The accrued interest of $68,677
was
forgiven;
|
· |
Unsecured
demand notes to stockholders were forgiven totaling $621,931 consisting
of
officers’ accrued compensation and accrued consulting fees owed to a
stockholder. The accrued interest of $208,234 on these notes was
also
forgiven;
|
· |
Accrued
interest on secured bridge loans to stockholders totaling $66,452
(described above) was forgiven;
|
· |
Officers
forgave accrued compensation of
$360,357.
|
|
Year
Ended
December
31,
|
||||||
|
2006
|
2005
|
|||||
Stock
options
|
3,492,651
|
2,727,651
|
|||||
Warrants
|
14,561,449
|
4,829,008
|
|||||
Conversion
of preferred stock
|
2,417,774
|
1,939,393
|
|
As
Previously
Reported
|
Revision
|
As
Restated
|
|||||||
|
|
|
||||||||
Year
Ended December 31, 2005:
|
||||||||||
Net
Loss
|
$
|
(3,053,399
|
)
|
$
|
—
|
$
|
(3,053,399
|
)
|
||
Preferred
Stock (Non-cash) Dividend (1)
|
—
|
(64,000
|
)
|
(64,000
|
)
|
|||||
Preferred
Stock Deemed (Non-cash) Dividend
|
—
|
(2,077,321
|
)
|
(2,077,321
|
)
|
|||||
Net
Loss Attributable to Common Stockholders
|
$
|
(3,053,399
|
)
|
$
|
(2,141,321
|
)
|
$
|
(5,194,720
|
)
|
|
Basic
and Diluted Net Loss Attributable to Common
Stockholders
Per Common Share
|
$
|
(0.14
|
)
|
$
|
(0.10
|
)
|
$
|
(0.24
|
)
|
(1)
|
Represents
a quarterly dividend paid to preferred stockholders in the quarter
ended
December 31, 2005 in the form of additional shares of preferred stock,
as
permitted pursuant to the terms of the related agreement. This amount
was
inadvertently not previously included as an adjustment in arriving
at net
loss attributable to common stockholders. The amount was not material
in
relation to net loss attributable to common stockholders and would
not
have changed the basic and diluted net loss attributable to common
stockholders per common share as
reported.
|
ITEM 8. |
CHANGES
AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
ITEM 8a. |
CONTROLS
AND PROCEDURES
|
ITEM 8B. |
OTHER
INFORMATION
|
ITEM 9. |
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS.
|
Name
|
Age
|
Position
|
||
Simyon
Palmin
|
62
|
Chairman
of the Board
|
||
Harry
S. Palmin
|
37
|
President,
Chief Executive Officer, Director
|
||
George
R. Vaughn
|
53
|
Chief
Financial Officer and Chief Accounting Officer
|
||
M.
Taylor Burtis
|
55
|
Vice
President of Regulatory, Quality and Compliance
|
||
Christopher
J. Pazoles, Ph.D.
|
56
|
Vice
President of Research and Development
|
||
Michael
J. Doyle (1) (2) (3)
|
48
|
Director
|
||
Sim
Fass, Ph.D. (1) (2) (3)
|
65
|
Director
|
||
David
B. McWilliams (2) (3)
|
63
|
Director
|
||
Howard
M. Schneider (1) (3)
|
63
|
Director
|
(1) |
Member
of the audit committee.
|
(2) |
Member
of the compensation committee.
|
(3) |
Member
of the nominating and corporate governance
committee.
|
ITEM
10.
|
EXECUTIVE
COMPENSATION
|
Name
and Principal Position
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
(4)
|
|
|
Option
Awards
($) (5)
|
|
|
All
other compensation
($)
(6)
|
|
|
Total
($)
|
|
||
Harry
S. Palmin (1)
President,
Chief Executive Officer
|
2006
2005
|
$
|
225,000
148,000
|
$
|
50,000
29,600
|
$
|
91,410
1,295
|
$
|
0
0
|
$
|
366,410
178,895
|
||||||||
Christopher
J. Pazoles, Ph.D. (2)
Vice
President of Research
and
Development
|
2006
2005
|
$
|
199,200
88,000
|
$
|
40,320
23,700
|
$
|
60,940
647
|
$
|
0
30,500
|
$
|
300,460
142,847
|
||||||||
M.
Taylor Burtis (3)
Vice
President of Quality,
Regulatory
and Compliance
|
2006
2005
|
$
|
186,750
82,500
|
$
|
37,800
17,119
|
$
|
60,940
218,955
|
$
|
0
3,096
|
$
|
285,490
321,670
|
Individual
Grants
|
||||||||||||||||
Name
|
Year
of
Grant
|
Number
of
securities
underlying
unexercised
options
(#)
exercisable
|
Number
of
securities
underlying
unexercised
options
(#)
unexercisable
|
Exercise
or
base
price
($/share)
|
Expiration
date
|
|||||||||||
Harry
S. Palmin
|
2006(1
2005(2
2005(2
2004(3
2003(4
|
)
)
)
)
)
|
—
250,000
150,000
330,000
7,130
|
150,000
—
—
—
|
$
|
0.91
0.01
0.01
0.01
0.70
|
12/11/2016
1/31/2015
3/31/2015
4/1/2014
8/1/2013
|
|||||||||
Christopher
J. Pazoles, Ph.D.
|
2006(1
2005(5
2004(6
|
)
)
)
|
—
150,000
16,667
|
100,000
50,000
—
|
$
|
0.91
0.01
0.01
|
12/11/2016
4/8/2015
4/1/2014
|
|||||||||
M.
Taylor Burtis
|
2006(1
2005(7
|
)
)
|
—
75,000
|
100,000
75,000
|
$
|
0.91
2.20
|
12/11/2016
7/1/2015
|
(1) |
These
shares vest annually in increments of one third over three years
from the
date of grant. The exercise price equals the closing price on the
date of
grant.
|
(2) |
These
shares initially vested over a two-year period. Pursuant to their
terms,
the shares fully vested upon the completion of a non-bridge loan
financing, which occurred in the second quarter of 2005. The exercise
price equals the fair market value of our common stock on the date
of
grant, as determined by our board of directors.
|
(3) |
These
shares initially vested one third upon grant and one third annually
over
the following two years. Pursuant to their terms, one additional
year of
vesting occurred upon the completion of a non-bridge loan financing,
which
occurred in the second quarter of 2005. The exercise price equals
the fair
market value of our common stock on the date of grant, as determined
by
our board of directors.
|
(4) |
These
shares vest annually in increments of one third over three years
from the
date of grant. The exercise price equals the fair market value of
our
common stock on the date of grant as determined by our board of directors.
|
(5) |
These
shares vest in increments of one-fourth every six months over two
years
from the date of grant. The exercise price equals the fair market
value of
our common stock on the date of grant as determined by our board
of
directors.
|
(6) |
These
shares represent the fully vested portion of an option grant made
to Mr.
Pazoles in consideration of consulting services delivered during
2004.
Pursuant to their terms, the shares vested at the completion of the
consulting engagement expire ten years from the date of grant.
|
(7) |
These
shares vest in increments of one-fourth every six months over two
years
from the date of grant. The exercise price equals the closing price
on the
date of grant.
|
Name
and Principal Position
|
Year
|
Director
Fees
($)
(2)
|
Option
Awards
($)
(3)
|
All
other compensation
($)
|
Total
($)
|
|||||||||||
Simyon
Palmin, Chairman and director
of
Russian relations (1)
|
2006
|
$
|
—
|
$
|
—
|
$
|
89,820
|
$
|
89,820
|
|||||||
Michael
J. Doyle, Director
|
2006
|
|
27,500
|
|
10,647
|
—
|
|
38,147
|
||||||||
Sim
Fass, Ph.D., Director
|
2006
|
|
26,500
|
|
10,647 |
—
|
|
37,147
|
||||||||
David
B. McWilliams, Director
|
2006
|
|
22,500
|
|
10,647
|
—
|
|
33,147
|
||||||||
Howard
M. Schneider, Director
|
2006
|
|
31,000
|
|
10,647
|
—
|
|
41,647
|
(1) |
Other
compensation for Simyon Palmin represents salary and bonus he received
in
his capacity as director of Russian relations for the
Company.
|
(2) |
Director
fees include all fees earned for director services including quarterly
fees, meeting fees and committee chairman fees.
|
(3) |
The
fair value of each stock award was estimated on the grant date using
the
Black-Scholes option-pricing model. See Note 6 to the financial statements
for a description of the assumptions used in estimating the fair
value of
stock options.
|
Plan
category
|
Number
of shares to
be
issued upon
exercise
of
outstanding
options,
warrants
and rights
(#)
|
Weighted-average
exercise
price of
outstanding
options,
warrants
and rights
($)
|
Number
of shares
remaining
available for
future
issuance under
equity
compensation plans
(excluding
shares reflected
in
column (a)) (#)
|
|||||||
(a)
|
(b)
|
(c)
|
||||||||
Equity
compensation plans approved by stockholders
|
913,873
|
$
|
1.61
|
4,160,000
|
||||||
Equity
compensation plans not approved by stockholders
|
2,578,778
|
$
|
0.54
|
0
|
||||||
Total
|
3,492,651
|
$
|
0.70
|
4,160,000
|
ITEM
11.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
· |
Each
person known by us to be the beneficial owner of more than five percent
of
our common stock;
|
· |
Each
of our directors;
|
· |
Each
executive officer named in the summary compensation table; and
|
· |
All
of our current directors and executive officers as a
group.
|
Name
and Address of Beneficial Owner
|
Shares
Beneficially Owned
|
|||
Outstanding
|
Right
to Acquire
|
Total
|
Percentage
|
|
Margie
Chassman (1)
445
West 23rd
Street, Apt. 16E
New
York, NY 10011
|
2,553,185
|
66,666
|
2,619,851
|
6.7%
|
Harry
S. Palmin
|
365,118
|
737,130
|
1,102,248
|
2.8%
|
Simyon
Palmin (2)
|
1,947,481
|
487,826
|
2,435,307
|
6.1%
|
Christopher
J. Pazoles, Ph.D.
|
0
|
216,667
|
216,667
|
*
|
M.
Taylor Burtis
|
0
|
112,500
|
112,500
|
*
|
Michael
J. Doyle
|
0
|
80,625
|
80,625
|
*
|
David
McWilliams
|
0
|
158,403
|
158,403
|
*
|
Sim
Fass
|
0
|
105,625
|
105,625
|
*
|
Howard
Schneider
|
0
|
105,625
|
105,625
|
*
|
All
directors and officers as a group (9 persons)
|
2,312,599
|
2,116,901
|
4,429,500
|
10.7%
|
ITEM 12. |
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
Investor
|
Number
of Shares
of
Common stock
|
|||
Margie
Chassman
|
2,475,000
|
|||
Wood
River Trust
|
3,850,000
|
|||
Esther
Blech
|
1,225,000
|
|||
Milton
Chassman
|
1,225,000
|
|||
Aaron
Eiger
|
1,225,000
|
|||
Mark
Germain
|
500,000
|
ITEM 13. |
EXHIBITS
|
Incorporated
by Reference
|
||||||||||
Exhibit
No.
|
Description
|
Filed
with
this
Form
10-KSB
|
Form
|
Filing
Date
|
Exhibit
No.
|
|||||
2.1
|
Agreement
and plan of merger among Common Horizons, Inc., Nove Acquisition,
Inc. and
Novelos Therapeutics, Inc. dated May 26, 2005
|
8-K
|
June
2, 2005
|
99.2
|
||||||
2.2
|
Agreement
and plan of merger between Common Horizons and Novelos Therapeutics,
Inc.
dated June 7, 2005
|
10-QSB
|
August
15, 2005
|
2.2
|
||||||
3.1
|
Certificate
of Incorporation
|
8-K
|
June
17, 2005
|
1
|
||||||
3.3
|
Certificate
of Designations of Series A cumulative convertible preferred
stock
|
8-K
|
October
3, 2005
|
99.2
|
||||||
3.2
|
By-Laws
|
8-K
|
June
17, 2005
|
2
|
||||||
10.1
**
|
Employment
agreement with Christopher J. Pazoles dated July 15, 2005
|
10-QSB
|
August
15, 2005
|
10.4
|
||||||
10.2
**
|
Employment
agreement with Harry Palmin dated January 31, 2006
|
8-K
|
February
6, 2006
|
99.1
|
10.3
**
|
Compensation
for independent directors
|
8-K
|
December
22, 2005
|
99.1
|
||||||
10.4
**
|
2000
Stock Option and Incentive Plan
|
SB-2
|
November
16, 2005
|
10.2
|
||||||
10.5
**
|
Form
of 2004 non-plan non-qualified stock option
|
SB-2
|
November
16, 2005
|
10.3
|
||||||
10.6
**
|
Form
of non-plan non-qualified stock option used from February to May
2005
|
SB-2
|
November
16, 2005
|
10.4
|
||||||
10.7
**
|
Form
of non-plan non-qualified stock option used after May 2005
|
SB-2
|
November
16, 2005
|
10.5
|
||||||
10.8
|
Form
of common stock purchase warrant issued in March 2005
|
SB-2
|
November
16, 2005
|
10.6
|
||||||
10.9
|
Form
of securities purchase agreement dated May 2005
|
8-K
|
June
2, 2005
|
99.1
|
||||||
10.10
|
Form
of subscription agreement dated September 30, 2005
|
8-K
|
October
3, 2005
|
99.1
|
||||||
10.11
|
Form
of Class A common stock purchase warrant dated September 30,
2005
|
8-K
|
October
3, 2005
|
99.3
|
||||||
10.12
|
Form
of share escrow agreement
|
8-K
|
November
3, 2005
|
10.3
|
||||||
10.13
|
Consideration
and new technology agreement dated April 1, 2005 with ZAO BAM
|
10-QSB
|
August
15, 2005
|
10.2
|
||||||
10.14
|
Letter
agreement dated March 31, 2005 with The Oxford Group, Ltd.
|
10-QSB
|
August
15, 2005
|
10.3
|
||||||
10.15
|
Form
of securities purchase agreement dated March 2, 2006
|
8-K
|
March
3, 2006
|
99.2
|
||||||
10.16
|
Form
of common stock purchase warrant dated March 2006
|
8-K
|
March
3, 2006
|
99.3
|
||||||
10.17
|
Placement
Agent Agreement with Oppenheimer & Co. Inc. dated December 19,
2005
|
8-K
|
March
3, 2006
|
99.4
|
||||||
10.18
**
|
2006
Stock Incentive Plan
|
10-QSB
|
November
6, 2006
|
10.1
|
||||||
10.19
|
Form
of Incentive Stock Option under Novelos Therapeutics, Inc.’s 2006 Stock
Incentive Plan
|
8-K
|
December
15, 2006
|
10.1
|
||||||
10.20
|
Form
of Non-Statutory Stock Option under Novelos Therapeutics, Inc.’s 2006
Stock Incentive Plan
|
8-K
|
December
15, 2006
|
10.2
|
||||||
10.21
|
Form
of Non-Statutory Director Stock Option under Novelos Therapeutics,
Inc.’s
2006 Stock Incentive Plan
|
8-K
|
December
15, 2006
|
10.3
|
||||||
31.1
|
Certification
of chief executive officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
X
|
||||||||
31.2
|
Certification
of chief financial officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
X
|
||||||||
32.1
|
Certification
of chief executive officer and chief financial officer pursuant to
Section
906 of the Sarbanes-Oxley Act of 2002
|
X
|
ITEM 14. |
PRINCIPAL
ACCOUNTANT FEES AND
SERVICES
|
2006
|
2005
|
||||||
Audit
|
$
|
79,500
|
$
|
80,775
|
|||
Audit
Related
|
—
|
9,700
|
|||||
Tax
|
—
|
—
|
|||||
All
Other
|
—
|
—
|
|||||
Total
|
$
|
79,500
|
$
|
90,475
|