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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the fiscal year ended December 31, 2007
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 COMMISSION FILE NUMBER 1-32949
 JAVELIN PHARMACEUTICALS, INC.
  Delaware
    
    88-0471759(State or other jurisdiction of incorporation or organization)
    
    (IRS Employer Identification No.)
  
   
   Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, $.001 par value
    
    The American Stock Exchange LLC
  o þ
 o þ
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer þNon-accelerated filer o
    
    Smaller Reporting Company o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



INDEX
 PagePART I.Item 1
    
    Business
    
    
    1Item 1A
    

Risk Factors
    
    
    23Item 1B
    
    Unresolved Staff Comments
    
    
    36Item 2
    
    Properties
    
    
    36Item 3
    
    Legal Proceedings
    
    
    36Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    36PART II.Item 5
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    37Item 6
    
    Selected Financial Data
    
    
    39Item 7
    
    Managements Discussion and Analysis of Financial Condition and Results of Operation
    
    
    40Item 7A
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    51Item 8
    
    Financial Statements and Supplementary Data
    
    
    52Item 9
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    89Item 9A
    
    Controls and Procedures
    
    
    89Item 9B
    
    Other Information
    
    
    89PART III.Item 10
    
    Directors, Executive Officers and Corporate Governance
    
    
    90Item 11
    
    Executive Compensation
    
    
    90Item 12
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    90Item 13
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    90Item 14
    
    Principal Accounting Fees and Services
    
    
    90PART IV.Item 15
    
    Exhibits and Financial Statement Schedules
    
    
    91SIGNATURES
    
    
    
    
    92Exhibit 21
    
    SubsidiariesExhibit 23.1
    
    Consent of McGladrey & Pullen, LLPExhibit 23.2
    
    Consent of PricewaterhouseCoopers LLPExhibit 31.1
    
    CertificationExhibit 31.2
    
    CertificationExhibit 32.1
    
    CertificationExhibit 32.2
    
    CertificationEX-21: LIST OF SUBSIDIARIESEX-23.1: CONSENT OF MCGLADREY & PULLEN LLPEX-23.2: CONSNET OF PRICEWATERHOUSECOOPERS LLPEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION




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PART I.
 
 ITEM 1. BUSINESS.
 Background
   Overview
    1




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Product candidate
    
    Indication
    
    Development stageDyloject
    
    Post-operative pain
    
    Phase 3 (U.S.)(injectable diclofenac)
    
    Post-operative pain, anti-inflammatory
    
    MHRA Pricing
Approval Received
(U.K.)Mutual Recognition Process (other
European Union countries)PMI-150
    
    Acute pain
    
    Phase 3 (U.S.)(intranasal ketamine)Rylomine
    
    Acute moderate-to-severe pain
    
    Phase 3 (U.S.)(intranasal morphine)
 Dyloject (diclofenac sodium injectable
 ® ®)
 ®
  2




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PMI-150 (intranasal ketamine)
   Acute Pain
 3




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Rylomine (intranasal morphine)
 
   Pain pharmaceuticals market overview
  4




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Market opportunity
     TM ® ®
 5




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Pain indications
  Breakthrough cancer pain
  Post-operative pain
  Breakthrough back pain
  Orthopedic injury
  6




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Burn pain
  Strategy
  
    
    Focus on unmet and underserved medical needs in the prescription pain medication
market.Despite advances in medicine and the development of new drugs, pain relief
remains a critical area of unmet and underserved medical need. Increasingly, patients,
advocacy groups and the media are highlighting the shortcomings of pain management. We
will continue to focus on developing and commercializing differentiated pain control
products that provide the flexibility and versatility required to adequately address
the limitations of existing prescription pain drugs.
    
    Efficiently select product candidates to minimize risk and maximize opportunity.We
will continue to use in-house experience and capabilities in product development,
business development, regulatory affairs, risk management and portfolio management to
build and maintain an attractive product portfolio and candidate pipeline.
    
    Develop new products with reduced clinical and regulatory risk.Following the
specialty pharmaceutical business model, we will seek to develop branded
pharmaceuticals with novel formulations, routes of administration, methods and modes of
delivery and new indications from existing approved drugs with established safety
profiles.
    
    Develop commercial partnerships in various global markets.We currently retain U.S. and international marketing and distribution rights for our products. We may license distribution rights to our products in certain global markets to reduce our commercialization risks, enhance market uptake for our brands, and generate capital to find our portfolio development efforts.
 Products
  7




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##### Table of Contents



Dyloject (diclofenac sodium injectable)
 Background.
 ®
   8




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Clinical Results.
 ®
 ® ®
 ® ®
 ®
  9




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PMI-150 (intranasal ketamine)
 Background
  Clinical Results.
   10




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Acute Pain
 Rylomine (intranasal morphine
 Background
 ChiSys TM Delivery Platform. TM TM
   11




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Competitive grants
  Strategic agreements
 Shimoda agreement.
 12




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West Pharmaceutical agreements.
   Ketamine license.
 Sales and marketing
  13




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Competition
   Intellectual property
    14




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Patent numbers
    
    Product candidate
    
    Expiration date5,543,434
    
    Intranasal ketamine
    
    Feb. 25, 20145,679,714
    
    Intranasal ketamine
    
    Oct. 21, 20145,989,582
    
    Intranasal ketamine
    
    Feb. 25, 20146,248,789
    
    Intranasal ketamine
    
    Feb. 25, 20147,273,889
    
    Intranasal ketamine
    
    July 10, 20235,554,388
    
    Rylomine (intranasal morphine)
    
    Sept. 10, 20135,629,011
    
    Rylomine (intranasal morphine)
    
    May 13, 20145,744,166
    
    Rylomine (intranasal morphine)
    
    Aug. 21, 20115,679,660
    
    Dyloject (injectable diclofenac)
    
    Dec. 2, 2014
    Manufacturing
  15




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Government regulation
   
    
    preclinical laboratory and animal tests;
    
    submission of an Investigational New Drug Application (IND), which must become
effective before human clinical trials may begin;
    
    adequate and well-controlled human clinical trials to establish the safety and
efficacy of the product candidate for its intended use;
    
    submission to the FDA of an NDA; and
    
    FDA review and approval of an NDA.
     
    
    Phase 1:The drug is initially introduced into healthy human subjects or patients
and tested for safety, dosage tolerance, absorption, metabolism, distribution and
excretion.
    
    Phase 2:The drug is studied in a limited patient population to identify possible
adverse effects and safety risks, to determine the efficacy of the product for specific
targeted diseases and to determine dosage tolerance and optimal dosage.
    
    Phase 3:When Phase 2 evaluations demonstrate that a dosage range of the drug is
effective and has an
 16




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acceptable safety profile, Phase 3 trials are undertaken to further evaluate dosage and
clinical efficacy and to further test for safety in an expanded patient population,
often at geographically dispersed clinical study sites.
        17




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Other regulatory requirements
  18




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Product candidate
    
    Indication
    
    Development stageDyloject
    
    Post-operative pain
    
    Phase 3 (U.S.)(injectable diclofenac)
    
    Post-operative pain, anti-inflammatory
    
    MHRA Pricing
Approval Received
(U.K.)Mutual Recognition Process (other
European Union countries)PMI-150
    
    Acute pain
    
    Phase 3 (U.S.)(intranasal ketamine)Rylomine
    
    Acute moderate-to-severe pain
    
    Phase 3 (U.S.)(intranasal morphine)
   19




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European product approval
     20




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®
  Pricing controls
    21




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Third-party reimbursements
     Fraud and abuse laws
  22




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Employees
  Available information
 http://www.sec.gov http://www.javelinpharmaceuticals.com
 
 ITEM 1A. RISK FACTORS.
 Risks Related to Our Business
 We currently have no significant product revenues and cannot be certain when significant product
revenues will commence, if ever.
  If we cannot obtain additional financing, our product development and commercialization efforts may
be reduced or discontinued.
  23




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We have incurred significant losses and may never achieve or sustain profitability.
   
    
    continue to undertake pre-clinical development and clinical trials for our product
candidates;
    
    seek regulatory approvals for our product candidates;
    
    implement additional internal systems and infrastructure;
    
    lease additional office facilities;
    
    hire additional personnel to advance commercialization; and
    
    expand research and development activities.
  24




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We have a limited operating history upon which to base an investment decision.
  
    
    continuing to undertake preclinical development and clinical trials;
    
    participating in regulatory approval processes;
    
    formulating and manufacturing products;
    
    entering into arrangements with manufacturers; and
    
    conducting sales and marketing activities either directly or through distributors.
  We cannot guarantee that we are in compliance with all potentially applicable regulations and
compliance with newly-enacted regulations will result in increased costs and management time.
   If we fail to obtain or maintain the necessary U.S. or foreign regulatory approvals for our product
candidates, we will be unable to commercialize them.
  25




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
    
    delay commercialization of, and our ability to derive product revenues from, our
product candidates;
    
    impose costly procedures; and
    
    diminish competitive advantages that we may otherwise enjoy.
     Approval by the FDA does not ensure approval by regulatory authorities in foreign jurisdictions on
a timely basis, or at all.
  26




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Our product candidates contain controlled substances, the supply of which may be limited by U.S.
government policy and the availability of which may generate public controversy, thereby reducing
or restricting any future marketing arrangements or sales.
   Health care reform measures and other statutory or regulatory changes could adversely affect our
business.
   Our product candidates are in the late stages of clinical trials in the United States, and there is
no assurance that final approval will be obtained.
  27




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Clinical trials are expensive, time-consuming and difficult to design and implement, which could
affect allocations of funds and time from other programs.
  
    
    changes to applicable regulatory requirements;
    
    unforeseen safety issues;
    
    determination of dosing issues;
    
    lack of effectiveness in the clinical trials;
    
    slower than expected rates of patient recruitment;
    
    inability to monitor patients adequately during or after treatment;
    
    inability or unwillingness of medical investigators to follow our clinical
protocols;
    
    inability to maintain a supply of the investigational drug in sufficient quantities
to support the trials; and
    
    suspension or termination of clinical trials for various reasons, including
noncompliance with regulatory requirements or changes in the clinical care protocols
and standards of care within the institutions in which our trials take place.
   The results of the clinical trials are uncertain and may not support our product candidate claims.
  28




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Delays in patient enrollment for clinical trials could increase costs and delay regulatory
approvals.
  Physicians and patients may not accept and use our drugs, which would cause a change in the
business strategy with attendant delays and needs for capital for any new business, and possibly
the cessation of business.
  
    
    perceptions by members of the health care community, including physicians, about the
safety and effectiveness of these drugs and the use of controlled substances;
    
    potential concerns by clinicians that new formulations of well-known active
pharmaceutical ingredients may have lower benefit-to-risk ratios than earlier,
widely-used formulations;
    
    cost-effectiveness of these drugs relative to competing products;
    
    availability of reimbursement for our products from government or other healthcare
payers; and
    
    effectiveness of marketing and distribution efforts by us and our licensees and
distributors, if any.
  Our ability to generate product revenues will be diminished if the drugs sell for inadequate prices
or patients are unable to obtain adequate levels of reimbursement, thereby reducing future levels
of revenues and the ability to achieve profitability.
  
    
    government and health administration authorities;
 
    
    private health maintenance organizations and health insurers; and
 
    
    other healthcare payors.
  The drug-development programs depend in large part upon third-party researchers who are outside our
control.
  29




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We will rely exclusively on third parties to supply and manufacture our product candidates, without
any direct control over the quality of our product candidates, or timing for the supply, production
and delivery of our product candidates, thereby possibly adversely affecting any future revenues.
   If we are unable to hire additional qualified personnel, our ability to grow the business may be
harmed. We must hire and retain skilled employees in a tight labor market and will be subject to
high labor costs and related increased employment expenses.
   30




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We have limited experience in marketing and selling our products, and we will likely need to rely
on third party collaborators to do so.
    If our products are not accepted by the market, or if we cannot compete successfully for market
share against other drug companies, we may not achieve sufficient product revenues, and our
business will suffer.
   
    
    developing drugs;
    
    undertaking preclinical testing and human clinical trials;
    
    obtaining FDA and other regulatory approvals of drugs;
    
    formulating and manufacturing drugs; and
    
    launching, marketing and selling drugs.
  31




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Developments by competitors may render our products or technologies obsolete or noncompetitive.
  If we fail to adequately protect or enforce our intellectual property rights or secure rights to
patents of others, we may be unable to exploit our intellectual property rights.
   
    
    the degree and range of protection any patents will afford us against competitors,
including whether third parties will find ways to challenge, invalidate or otherwise
circumvent our patents;
 
    
    if and when patents will issue;
 
    
    whether or not others will obtain patents claiming aspects similar to those covered
by our patents and patent applications; or
 
    
    whether we will need to initiate litigation or administrative proceedings which
would be costly whether we win or lose.
    32




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If we infringe the rights of third parties, we could be prevented from selling our products, forced
to pay damages, and incur substantial costs in defending litigations.
  
    
    obtain licenses, which may not be available on commercially reasonable terms, if at
all;
 
    
    redesign our products or processes to avoid infringement;
 
    
    stop using the subject matter claimed in the patents held by others;
 
    
    pay damages; or
 
    
    defend litigation or administrative proceedings which would be costly whether we win
or lose, and which could result in a substantial diversion of our management resources.
  We may be exposed to liability claims associated with the use of hazardous materials and chemicals.
  We may become subject to substantial product liability claims for which we have limited insurance,
and may be required to limit commercialization of our products in response to product liability
lawsuits.
  33




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Risks related to management
 We may not successfully manage our growth, thereby preventing achievement of our business plan.
  We rely on key executive officers and scientific and medical advisors whose knowledge of our
business and technical expertise would be difficult to replace.
   Risks related to our common stock
 The market price of our common stock may fluctuate significantly, which may cause certain investors
to avoid purchasing our shares.
  
    
    announcement of new products or product enhancements by us or our competitors;
    
    results of the testing and regulatory approval of our products;
    
    developments concerning intellectual property rights and regulatory approvals and
concerns;
    
    quarterly variations in our and our competitors results of operations;
    
    changes in earnings estimates or recommendations by securities analysts;
    
    developments in our industry;
    
    general market conditions and other factors, including factors unrelated to our own
operating performance;
    
    changes in laws or regulations applicable to our products;
    
    changes in the market valuations of similar companies;
    
    announcements by us of significant acquisitions, strategic partnerships, joint
ventures or capital commitments;
 34




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
    
    additions or departures of key personnel;
    
    trading volume of our common stock;
    
    sales of our common stock by us; and
    
    announcements by us of non-compliance with the ASE director independence
requirements.
 There has been a limited market for our common stock, which may accelerate price swings.
  The American Stock Exchange imposes listing standards on our common stock that we may not be able
to fulfill, thereby leading to a possible delisting of our common stock.
   We have not previously paid dividends on our common stock and we do not anticipate doing so in the
foreseeable future.
  We may issue shares of preferred stock that have greater rights than our common stock.
  A significant number of shares of our common stock are subject to options and warrants, and we may
issue additional options and warrants in the future. The issuance of shares of common stock upon
the exercise of these options and warrants, as well as issuances under our 2007 Employee Stock
Purchase Plan, will dilute the interests of other security holders and may depress the price of our
common stock.
  35




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Our principal shareholders own a substantial amount of the shares outstanding and may exert
significant influence on our Company.
  Provisions in our certificate of incorporation and bylaws and provisions under Delaware law may
inhibit a takeover of our Company.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS.
  
 ITEM 2. PROPERTIES.
  
 ITEM 3. LEGAL PROCEEDINGS.
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  36




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PART II.
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
 Principal Market and Market Prices
  Fiscal Year Ended
    
    Fiscal Year EndedFiscal Period
    
    12/31/07
     
    12/31/06High
    
    Low
    
    High
    
    LowFirst Quarter
    
    $
    7.60
    
    
    $
    4.44
    
    
    $
    4.35
    
    
    $
    2.95Second Quarter
    
    
    7.48
    
    
    
    5.65
    
    
    
    4.15
    
    
    
    3.20Third Quarter
    
    
    6.75
    
    
    
    3.77
    
    
    
    3.92
    
    
    
    3.00Fourth Quarter
    
    
    5.74
    
    
    
    3.31
    
    
    
    5.67
    
    
    
    2.66
 Approximate Number of Holders of Our Common Stock
  Dividends
  Transfer Agent
  Securities Authorized For Issuance Under Equity Compensation Plans
 Equity Compensation Plan InformationNumber of securities to be
    
    Weighted average exerciseissued upon exercise of
    
    price of outstanding
    
    Number of securitiesoutstanding options,
    
    options, warrants and
    
    remaining available forPlan Category
    
    warrants and rights
    
    rights
    
    future issuanceEquity compensation
plans approved by
security holders
    
    
    5,845,797
    
    
    $
    3.38
    
    
    
    2,614,065
    (1)Equity compensation
plans not approved
by security holders
    
    
    1,106,444
    
    
    $
    3.87
    
    
    
    Total:
    
    
    6,952,241
    
    
    $
    3.46
    
    
    
    2,614,065
    (1)
 
 (1)
    
    Includes 100,000 shares of common stock available for future issuance under the 2007 Employee
Stock Purchase Plan. 37




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Performance Graph
 The following Performance Graph and related information shall not be deemed soliciting
material or filed with the SEC, nor shall such information be incorporated by reference into any
future filing under the Securities Act of 1933 (the Securities Act), or the Securities Exchange
Act of 1934 (the Exchange Act), each as amended, except to the extent that we specifically
incorporate it by reference into such filing.
  COMPARISON OF 3 YEAR CUMULATIVE TOTAL RETURN*
 
 
 *
    
    $100 invested on 12/7/04 in stock or on 11/30/04 in index-including reinvestment of dividends. Fiscal year ending December 31. 38




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ITEM 6. SELECTED FINANCIAL DATA
  CumulativefromFebruary 23,1998(Inception) toYear Ended December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2007(In thousands, except per share data)Statement of Operations Data:Revenues:Government grants and contracts
    
    $
    
    
    
    $
    842
    
    
    $
    1,548
    
    
    $
    837
    
    
    $
    1,102
    
    
    $
    5,805Operating expenses:Research and development
    
    
    19,019
    
    
    
    10,854
    
    
    
    7,213
    
    
    
    4,806
    
    
    
    2,217
    
    
    
    76,237Selling, general and
administrative
    
    
    13,811
    
    
    
    9,609
    
    
    
    5,222
    
    
    
    2,703
    
    
    
    2,013
    
    
    
    43,541Depreciation and amortization
    
    
    97
    
    
    
    61
    
    
    
    44
    
    
    
    32
    
    
    
    24
    
    
    
    276Total operating expenses
    
    
    32,927
    
    
    
    20,524
    
    
    
    12,479
    
    
    
    7,541
    
    
    
    4,254
    
    
    
    120,054Operating loss
    
    
    (32,927
    )
    
    
    (19,682
    )
    
    
    (10,931
    )
    
    
    (6,704
    )
    
    
    (3,152
    )
    
    
    (114,249
    )Other income
    
    
    
    
    
    
    601
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    605Interest expense
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (356
    )
    
    
    (17
    )
    
    
    (945
    )Interest income
    
    
    1,897
    
    
    
    1,283
    
    
    
    319
    
    
    
    9
    
    
    
    14
    
    
    
    4,119Other income (expense)
    
    
    1,896
    
    
    
    1,884
    
    
    
    319
    
    
    
    (343
    )
    
    
    (3
    )
    
    
    3,779Net loss
    
    
    (31,031
    )
    
    
    (17,798
    )
    
    
    (10,612
    )
    
    
    (7,047
    )
    
    
    (3,155
    )
    
    
    (110,470
    )Deemed dividend related to
beneficial conversion feature of
Series B convertible preferred
stock.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,559
    )Net loss attributable to
common stockholders
    
    $
    (31,031
    )
    
    $
    (17,798
    )
    
    $
    (10,612
    )
    
    $
    (7,047
    )
    
    $
    (3,155
    )
    
    $
    (114,029
    )Net loss per share attributable
to common stockholders:Basic and diluted
    
    $
    (0.68
    )
    
    $
    (0.44
    )
    
    $
    (0.38
    )
    
    $
    (0.64
    )
    
    $
    (0.32
    )Weighted average shares
    
    
    45,463
    
    
    
    40,180
    
    
    
    27,831
    
    
    
    10,937
    
    
    
    9,918
 39




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As of December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003(In thousands)Balance Sheet Data:Cash and cash equivalents
    
    $
    15,931
    
    
    $
    9,273
    
    
    $
    33,307
    
    
    $
    14,783
    
    
    $
    3,151Short term marketable securities
    
    
    21,319
    
    
    
    11,462
    
    
    
    
    
    
    
    
    
    
    
    Working capital
    
    
    30,015
    
    
    
    17,885
    
    
    
    32,988
    
    
    
    12,173
    
    
    
    2,366Convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,183Total assets
    
    
    43,152
    
    
    
    21,441
    
    
    
    34,439
    
    
    
    15,156
    
    
    
    3,510Stockholders equity (deficit)
    
    
    34,511
    
    
    
    18,232
    
    
    
    33,202
    
    
    
    12,342
    
    
    
    (20,673
    )
 
 ITEM 7.

    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
  Forward Looking Statements
   40




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Overview
 ®
      41




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Results of Operations
 Revenues
 
     Research and Development Expenses
 42




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43




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Selling, General and Administrative Expenses
   44




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##### Table of Contents



Interest Income
   Interest Expense
 Other Income.
 Liquidity and Capital Resources
     45




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##### Table of Contents




    
    Conducting commercialization activities in support of Dyloject product launch,
including pre-launch planning, development of market plans, production of commercial
stock, pricing and reimbursement application, development of regional sales and
marketing capabilities;
    
    Conducting remaining nonclinical programs, including carcinogenicity studies to
support both PMI-150 and Rylomine regulatory submission and label extensions;
    
    Conducting clinical programs, including Phase I and Phase 3 clinical trials to
support regulatory submissions and label extensions of our product candidates;
    
    Continuing to support Good Manufacturing Practices (GMP) drug supply requirements
of our nonclinical and clinical trials; completing formal stability testing, analytical
development, methods development, specification development and commercial scale-up;
    
    Maintaining, protecting and expanding our intellectual property;
    
    Developing expanded internal infrastructure; and
    
    Hiring additional personnel.
 Cash used in operating activities
    46




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##### Table of Contents



Cash used in investing activities
    Cash provided by financing activities
    47




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##### Table of Contents



Commitments
  Payments due by periodBeyondTotal
    
    < 1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 YearsOperating leases (1)
    
    $
    3,507,329
    
    
    $
    798,748
    
    
    $
    1,575,953
    
    
    $
    1,132,628
    
    
    $Shimoda License Agreement (2)
    
    
    4,000,000
    
    
    
    4,000,000
    
    
    
    
    
    
    
    
    
    
    Archimedes License Agreements (3)
    
    
    5,000,000
    
    
    
    
    
    
    
    5,000,000
    
    
    
    
    
    
    Manufacturing Supply Agreements (4)
    
    
    25,724,356
    
    
    
    7,894,356
    
    
    
    5,170,000
    
    
    
    12,660,000$
    38,231,685
    
    
    $
    12,693,104
    
    
    $
    11,745,953
    
    
    $
    13,792,628
    
    
    $
 
 (1)
    
    We lease approximately 24,713 square feet of general office space in Cambridge,
Massachusetts and Lake Success, NY, as well as smaller offices in the U.K. and Germany, in addition
to small equipment leases.(2)
    
    Under the license agreement with Shimoda Biotech, Ltd. we are obligated to make aggregate
remaining milestone payments of approximately $4.0 million upon the occurrence of specified
developmental milestones, which include the filing of an NDA with the FDA for Dyloject, the
approval of an NDA by the FDA and the first commercial sale of a licensed product and pay a royalty
based upon our and our sublicensees sales of products, which is subject to change, as noted.(3)
    
    Under the license agreements with Archimedes Pharma Limited (assigned from West
Pharmaceutical Services, Inc.), we may be required to pay an aggregate of $5.0 million for research
and development milestones if certain defined events occur, which include the first filing of a
marketing authorization application with a regulatory agency, first approval of a marketing
authorization application and the first commercial sale of a licensed product, which is subject to
change, as noted.The timing of the remaining milestones is dependent upon factors that are beyond our control,
including our ability to recruit patients, the outcome of future clinical trials and any
requirements imposed on our clinical trials by regulatory agencies. However, for the purpose of
the above table, we have assumed that the payment of the milestones will occur between one to three
years, from December 31, 2006.(4)
    
    Under our Commercial Supply Agreement with Precision Pharma Services, Inc., we committed
to purchase at least $7,650,000 worth of product during the two year period beginning on April 1,
2007. Under our Manufacturing Agreement with Baxter Healthcare Corporation (Baxter), we committed
to purchase at least $13,230,000 worth of Dyloject product manufactured to our specifications,
commencing upon regulatory approval from the FDA. As is customary in such agreements, either party
may terminate upon written notice upon the occurrence of certain events, including breach,
bankruptcy, insolvency or, subject to certain cure provisions and restrictions, including the lack
of FDA approval for Dyloject by a specified date for Baxter. Purchase Commitments
   48




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##### Table of Contents



Critical Accounting Policies and Significant Judgments and Estimates
 Revenue Recognition
   Inventory.
  Intangible
Assets.
  49




---



##### Table of Contents



Research and Development Costs
 Share-based Payments.
  Income Taxes
 Contingencies and Litigation .
  Off Balance Sheet Arrangements
  Recent Accounting Pronouncements
  50




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##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Market Risk Related to Interest Rates and Foreign Currency
  Interest Rate Risk
    Foreign Currency Exchange Risk
  51




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  PageReports of Independent Registered Public Accounting Firms
    
    
    53Consolidated Balance Sheets as of December 31, 2007 and 2006
    
    
    56Consolidated Statements of Operations for the years ended December
31, 2007, 2006, and 2005, and the cumulative period from February 23,
1998 (inception) to December 31, 2007
    
    
    57Consolidated Statements of Redeemable Preferred Stock and
Stockholders Equity (Deficit) for the period from February 23, 1998
(inception) to December 31, 2007, including the years ended December
31, 2007, 2006 and 2005
    
    
    58Consolidated Statements of Cash Flows for the years ended December
31, 2007, 2006 and 2005, and the cumulative period from February 23,
1998 (inception) to December 31, 2007
    
    
    61Notes to the Consolidated Financial Statements
    
    
    63
 52




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
      
 53




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
        
 54




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
    
 55




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##### Table of Contents



Javelin Pharmaceuticals Inc. and Subsidiaries
(A Development Stage Enterprise)
 
 Consolidated Balance Sheets
 December 31,2007
    
    
    2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    15,931,243
    
    
    $
    9,273,479Short term marketable securities available for sale
    
    
    21,319,150
    
    
    
    11,461,674Inventory
    
    
    116,143
    
    
    
    Grant receivable
    
    
    
    
    
    
    113,645Prepaid expenses and other current assets
    
    
    1,289,809
    
    
    
    245,593Total current assets
    
    
    38,656,345
    
    
    
    21,094,391Fixed assets, at cost, net of accumulated depreciation
    
    
    545,195
    
    
    
    237,163Intangible assets, net of accumulated amortization
    
    
    3,795,577
    
    
    
    Other assets
    
    
    154,498
    
    
    
    109,223Total assets
    
    
    43,151,615
    
    
    
    21,440,777Liabilities and Stockholders EquityCurrent liabilities:Accounts payable and accrued expenses
    
    
    8,156,788
    
    
    
    3,151,379Deferred lease liability
    
    
    484,141
    
    
    
    57,869Total current liabilities
    
    
    8,640,929
    
    
    
    3,209,248Commitments and contingenciesStockholders equityPreferred stock, $0.001 par value, 5,000,000 shares
authorized as of December 31, 2007 and 2006, none of
which are outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value; 200,000,000 shares
authorized as of December 31, 2007 and 2006,
respectively; 48,990,845 and 40,409,421 shares issued
and outstanding at December 31, 2007 and 2006,
respectively.
    
    
    48,990
    
    
    
    40,409Additional paid-in capital
    
    
    144,922,785
    
    
    
    97,634,546Other comprehensive income (loss)
    
    
    8,594
    
    
    
    (5,117
    )Deficit accumulated during the development stage
    
    
    (110,469,683
    )
    
    
    (79,438,309
    )Total stockholders equity
    
    
    34,510,686
    
    
    
    18,231,529Total liabilities and stockholders equity
    
    $
    43,151,615
    
    
    $
    21,440,777
  56




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##### Table of Contents



Javelin Pharmaceuticals Inc. and Subsidiaries
(A Development Stage Enterprise)
 
 Consolidated Statements of Operations
 Cumulative fromFebruary 23,1998(inception) toYear Ended December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2005
    
    
    2007Revenues:Government grants and contracts
    
    $
    
    
    
    $
    842,171
    
    
    $
    1,547,753
    
    
    $
    5,804,824Operating expenses:Research and development
    
    
    19,018,854
    
    
    
    10,854,116
    
    
    
    7,212,801
    
    
    
    76,236,567Selling, general and administrative
    
    
    13,810,772
    
    
    
    9,608,598
    
    
    
    5,222,104
    
    
    
    43,541,365
    (1)Depreciation and amortization
    
    
    97,650
    
    
    
    61,008
    
    
    
    44,321
    
    
    
    276,263Total operating expenses
    
    
    32,927,276
    
    
    
    20,523,722
    
    
    
    12,479,226
    
    
    
    120,054,195Operating loss
    
    
    (32,927,276
    )
    
    
    (19,681,551
    )
    
    
    (10,931,473
    )
    
    
    (114,249,371
    )Other income (expense):Interest expense
    
    
    (699
    )
    
    
    (47
    )
    
    
    (65
    )
    
    
    (944,657
    )Interest income
    
    
    1,896,601
    
    
    
    1,282,604
    
    
    
    319,766
    
    
    
    4,119,360Other income
    
    
    
    
    
    
    600,758
    
    
    
    
    
    
    
    604,9851,895,902
    
    
    
    1,883,315
    
    
    
    319,701
    
    
    
    3,779,688Net loss
    
    
    (31,031,374
    )
    
    
    (17,798,236
    )
    
    
    (10,611,772
    )
    
    
    (110,469,683
    )Deemed dividend related to beneficial
conversion feature of Series B redeemable
convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,559,305
    )Net loss attributable to common stockholders
    
    $
    (31,031,374
    )
    
    $
    (17,798,236
    )
    
    $
    (10,611,772
    )
    
    $
    (114,028,988
    )Net loss per share attributable to common
stockholdersBasic and diluted
    
    $
    (0.68
    )
    
    $
    (0.44
    )
    
    $
    (0.38
    )Weighted average shares
    
    
    45,462,653
    
    
    
    40,179,543
    
    
    
    27,831,188
 
 (1)
    
    Includes related party transaction of $1,075,182 cumulative from February 23, 1998
(inception) through December 31, 2002 (see note 13).  57




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##### Table of Contents



Javelin Pharmaceuticals, Inc.
(A Development Stage Enterprise)
 
 Statements of Redeemable Preferred Stock and Stockholders Equity (Deficit)
 DeficitFor the period from February 23, 1998 (inception) to
    
    Series A
    
    Series B
    
    Series C
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock
    
    
    
    
    
    AccumulatedDecember 31, 2007, including the years ended
    
    Redeemable
    
    Redeemable
    
    Redeemable
    
    
    
    
    
    
    
    
    
    Additional
    
    Unearned
    
    Sub-
    
    Other
    
    During the
    
    TotalDecember 31, 2007, 2006 and 2005
    
    Preferred Stock
    
    Preferred Stock
    
    Preferred Stock
    
    Common Stock
    
    Paid-in
    
    Com-
    
    scription
    
    Comprehensive
    
    Development
    
    StockholdersShares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    pensation
    
    Receivable
    
    Income
    
    Stage
    
    EquitySale of Common Stock to founders at inception for cash ($0.001 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,540,812
    
    
    $
    4,541
    
    
    $
    457
    
    
    
    
    
    
    
    ($3,749
    )
    
    
    
    
    
    
    
    
    
    $
    1,249Value of services provided by an affiliate (see Note 12)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89,531
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89,531Net loss for the period February 23, 1998 (inception) to December 31, 1998
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ($470,200
    )
    
    
    (470,200
    )Balance at December 31, 1998
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,540,812
    
    
    
    4,541
    
    
    
    89,988
    
    
    
    
    
    
    
    (3,749
    )
    
    
    
    
    
    
    (470,200
    )
    
    
    (379,420
    )Issuance of 236,128 warrants in June in connection with
bridge financing (see Note 7)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101,564
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101,564Issuance of Common Stock to consultant in June for services (see Note 6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    192,985
    
    
    
    193
    
    
    
    93,263
    
    
    
    
    
    
    
    (106
    )
    
    
    
    
    
    
    
    
    
    
    93,350Issuance of 204,336 warrants to consultants in August for services (see Note 7)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98,598
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98,598Value of services provided by an affiliate (see Note 12)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    155,917
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    155,917Net loss for the year ended December 31, 1999
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,205,559
    )
    
    
    (1,205,559
    )Balance at December 31, 1999
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,733,797
    
    
    
    4,734
    
    
    
    539,330
    
    
    
    
    
    
    
    (3,855
    )
    
    
    
    
    
    
    (1,675,759
    )
    
    
    (1,135,550
    )Issuance of 15,522 warrants to an advisor for services in connection
with sales of Series A redeemable preferred stock in August (see Note 6)
    
    
    
    
    
    
    ($55,790
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,790
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,790Exercise of warrants by consultants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    204,336
    
    
    
    204
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    198Issuance of Common Stock in connection with acquisition
of a license in September (see Note 1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,174,257
    
    
    
    5,175
    
    
    
    18,599,825
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,605,000Sale of 160.565 Units for cash in September ($100,000 per Unit),
net of offering expenses of $1,157,572
    
    
    4,014,125
    
    
    
    14,898,928Issuance of Preferred A warrants in September (see Note 6)
    
    
    
    
    
    
    (960,361
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    960,361
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    960,361Issuance of Preferred A Finders Units for services in September (see Note 6)
    
    
    
    
    
    
    (107,825
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107,825
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107,825Payment of stock subscription receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,201
    
    
    
    
    
    
    
    
    
    
    
    3,201Non-cash compensation in connection with issuance of stock options
to non-employees in August and November (see Note 10)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    707,550
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    707,550Value of services provided by an affiliate (see Note 12)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    163,376
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    163,376Net loss for the year ended December 31, 2000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,023,842
    )
    
    
    (23,023,842
    )Balance at December 31, 2000
    
    
    4,014,125
    
    
    
    13,774,952
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,112,390
    
    
    
    10,113
    
    
    
    21,134,051
    
    
    
    
    
    
    
    (654
    )
    
    
    
    
    
    
    (24,699,601
    )
    
    
    (3,556,091
    )Issuance of Series B Preferred with a beneficial conversion feature for
cash in December (see Note 6)
    
    
    
    
    
    
    
    
    
    
    989,991
    
    
    $
    1,935,044
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,559,305
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,559,305Expenses in connection with sale of Series B stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (474,317
    )Deemed dividend related to beneficial conversion feature of
Series B stock (see Note 6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,559,305
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,559,305
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,559,305
    )Payment of stock subscription receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    544
    
    
    
    
    
    
    
    
    
    
    
    544Exercise of warrants by a consultant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,522
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15Exercise of bridge warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,893
    
    
    
    16
    
    
    
    138
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    154Value of services provided by an affiliate (see Note 12)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    481,299
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    481,299Net loss for the year ended December 31, 2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,067,699
    )
    
    
    (8,067,699
    )Balance at December 31, 2001
    
    
    4,014,125
    
    
    
    13,774,952
    
    
    
    989,991
    
    
    
    5,020,032
    
    
    
    
    
    
    
    
    
    
    
    10,143,805
    
    
    
    10,144
    
    
    
    21,615,488
    
    
    
    
    
    
    
    (110
    )
    
    
    
    
    
    
    (32,767,300
    )
    
    
    (11,141,778
    )Issuance of compensatory stock options to members of the
Board of Directors (see Note 10)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,431,498
    
    
    
    ($1,431,498
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of unearned compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,264,522
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,264,522Value of services provided by an affiliate (see Note 12)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185,059
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185,059Non-cash compensation in connection with issuance of stock options to
a non-employee in September (see Note 10)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62,564
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62,564Reversal of subscription receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110
    
    
    
    
    
    
    
    
    
    
    
    110Net loss for the period ended December 31, 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,059,081
    )
    
    
    (8,059,081
    )Balance at December 31, 2002
    
    
    4,014,125
    
    
    
    13,774,952
    
    
    
    989,991
    
    
    
    5,020,032
    
    
    
    
    
    
    
    
    
    
    
    10,143,805
    
    
    
    10,144
    
    
    
    23,294,609
    
    
    
    (166,976
    )
    
    
    
    
    
    
    
    
    
    
    (40,826,381
    )
    
    
    (17,688,604
    )
 58




---



##### Table of Contents



Javelin Pharmaceuticals, Inc.
(A Development Stage Enterprise)
Statements of Redeemable Preferred Stock and Stockholders Equity (Deficit)
 DeficitFor the period from February 23, 1998 (inception) to
    
    Series A
    
    Series B
    
    Series C
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock
    
    
    
    
    
    AccumulatedDecember 31, 2007, including the years ended
    
    Redeemable
    
    Redeemable
    
    Redeemable
    
    
    
    
    
    
    
    
    
    Additional
    
    Unearned
    
    Sub-
    
    Other
    
    During the
    
    TotalDecember 31, 2007, 2006 and 2005
    
    Preferred Stock
    
    Preferred Stock
    
    Preferred Stock
    
    Common Stock
    
    Paid-in
    
    Com-
    
    scription
    
    Comprehensive
    
    Development
    
    StockholdersShares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    pensation
    
    Receivable
    
    Income
    
    Stage
    
    EquityAmortization of unearned compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    113,069
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    113,069Issuance of Series C Preferred as license payment in August (see Note 8)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,360
    
    
    $
    100,000Conversion of Merger Note to Series C stock in August (see Note 7)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    339,736
    
    
    
    519,795Sale of Series C Preferred for cash in August ($1.53 per share), net of
issuance expenses of $132,496
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,549,254
    
    
    
    3,767,856Non-cash compensation in connection with issuance of stock
options to a non-employee in October (see Note 10)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,672
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,672Exercise of bridge warrants (see Note 7)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,270
    
    
    
    2
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22Net loss for the period ended December 31, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,155,092
    )
    
    
    (3,155,092
    )Balance at December 31, 2003
    
    
    4,014,125
    
    
    
    13,774,952
    
    
    
    989,991
    
    
    
    5,020,032
    
    
    
    2,954,350
    
    
    
    4,387,651
    
    
    
    10,146,075
    
    
    
    10,146
    
    
    
    23,352,301
    
    
    
    (53,907
    )
    
    
    
    
    
    
    
    
    
    
    (43,981,473
    )
    
    
    (20,672,933
    )Conversion of Series A, B and C Preferred Stock to
Common Stock (see Note 6)
    
    
    (4,014,125
    )
    
    
    (13,774,952
    )
    
    
    (989,991
    )
    
    
    (5,020,032
    )
    
    
    (2,954,350
    )
    
    
    (4,387,651
    )
    
    
    8,187,259
    
    
    
    8,187
    
    
    
    23,174,448
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,182,635Sale of common stock in a private placement
(net of expense of $1,853,224) (see Note 6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,139,913
    
    
    
    6,140
    
    
    
    16,227,307
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,233,447Merger transaction with Intrac, Inc. (see Note 1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,153,190
    
    
    
    1,153
    
    
    
    (1,153
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-cash compensation in connection with issuance of
stock options to non-employees (see Note 10)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    132,501
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    132,501Issuance of compensatory stock options to employees (see Note 10)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,094,793
    
    
    
    (1,094,793
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of unearned compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    198,351
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    198,351Issuance of 226,314 warrants in November in connection with
Bridge Debenture financing (see Note 7)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    314,795
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    314,795Net loss for the period ended December 31, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,046,828
    )
    
    
    (7,046,828
    )Balance at December 31, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,626,437
    
    
    
    25,626
    
    
    
    64,294,992
    
    
    
    (950,349
    )
    
    
    
    
    
    
    
    
    
    
    (51,028,301
    )
    
    
    12,341,968Sale of common stock in a private placement
(net of expense of $2,225,411) (see Note 6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,222,215
    
    
    
    14,222
    
    
    
    29,760,351
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,774,573Cancellation of compensatory stock options to employees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,921
    )
    
    
    50,921
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Modification of employee stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125,897
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125,897Issuance of 80,184 warrants to consultants (see Note 6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    152,290
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    152,290Issuance of 40,000 options to consultants (see Note 6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95,200
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95,200Exercise of 1999 Bridge Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    217,964
    
    
    
    217
    
    
    
    1,962
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,179Exercise of Series A Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,518
    
    
    
    27
    
    
    
    102,598
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102,625Issuance of stock for license payment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    169,735
    
    
    
    170
    
    
    
    499,830
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500,000Exercise of Stock Options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,241
    
    
    
    1
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Issuance of stock for liquidation damages
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    140,867
    
    
    
    141
    
    
    
    373,158
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    373,299Amortization of unearned compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    345,672
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    345,672Net loss for the period ended December 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,611,772
    )
    
    
    (10,611,772
    )Balance at December 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,404,977
    
    
    
    40,404
    
    
    
    95,355,368
    
    
    
    (553,756
    )
    
    
    
    
    
    
    
    
    
    
    (61,640,073
    )
    
    
    33,201,943Net loss for the period ended December 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,798,236
    )
    
    
    (17,798,236
    )Unrealized loss on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,117
    )
    
    
    
    
    
    
    (5,117
    )Total comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,803,353
    )Exercise of 2005 private placement warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,444
    
    
    
    4
    
    
    
    9,995
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,999Reclassification of unearned compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (553,756
    )
    
    
    553,756
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,822,939
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,822,939Balance at December 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,409,421
    
    
    
    40,409
    
    
    
    97,634,546
    
    
    
    
    
    
    
    
    
    
    
    (5,117
    )
    
    
    (79,356,309
    )
    
    
    18,231,529
 59




---



##### Table of Contents



Javelin Pharmaceuticals, Inc.
(A Development Stage Enterprise)
Statements of Redeemable Preferred Stock and Stockholders Equity (Deficit)
 DeficitFor the period from February 23, 1998 (inception) to
    
    Series A
    
    Series B
    
    Series C
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock
    
    
    
    
    
    AccumulatedDecember 31, 2007, including the years ended
    
    Redeemable
    
    Redeemable
    
    Redeemable
    
    
    
    
    
    
    
    
    
    Additional
    
    Unearned
    
    Sub-
    
    Other
    
    During the
    
    TotalDecember 31, 2007, 2006 and 2005
    
    Preferred Stock
    
    Preferred Stock
    
    Preferred Stock
  
    Common Stock
    
    Paid-in
    
    Com-
    
    scription
    
    Comprehensive
    
    Development
    
    StockholdersShares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    pensation
    
    Receivable
    
    Income
    
    Stage
    
    EquityBalance at December 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,409,421
    
    
    
    40,409
    
    
    
    97,634,546
    
    
    
    
    
    
    
    
    
    
    
    (5,117
    )
    
    
    (79,356,309
    )
    
    
    18,231,529Net loss for the period ended December 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,031,374
    )
    
    
    (31,031,374
    )Unrealized loss on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,712
    
    
    
    
    
    
    
    13,712Total comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,017,663
    )Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,460,050
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,460,050Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    595,567
    
    
    
    596
    
    
    
    1,400,151
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,400,746Exercise of warrants and units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    436,557
    
    
    
    436
    
    
    
    637,875
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    638,312Sale of common stock under a public offering, net of costs of $3,498,087
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,549,300
    
    
    
    7,549
    
    
    
    41,790,164
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,797,713Balance at December 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,990,845
    
    
    
    48,990
    
    
    
    144,922,785
    
    
    
    
    
    
    
    
    
    
    
    8,594
    
    
    
    (110,469,683
    )
    
    
    34,510,686
   60




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Javelin Pharmaceuticals, Inc. and Subsidiaries
(A Development Stage Enterprise)
 
 Consolidated Statement of Cash Flows
 Cumulative fromYear Ended
    
    
    February 23, 1998December 31,
    
    
    (inception) to2007
    
    
    2006
    
    
    2005
    
    
    December 31, 2007Cash flows from operating activities:Net loss
    
    $
    (31,031,374
    )
    
    $
    (17,798,236
    )
    
    $
    (10,611,772
    )
    
    $
    (110,469,683
    )Adjustments to reconcile net loss to net cash used
in operating activities:Depreciation
    
    
    97,650
    
    
    
    61,008
    
    
    
    44,321
    
    
    
    276,263Amortization of intangible asset
    
    
    4,423
    
    
    
    
    
    
    
    
    
    
    
    4,423Stock-based compensation expense
    
    
    3,460,050
    
    
    
    2,822,939
    
    
    
    
    
    
    
    6,282,989Amortization of premium/discount on marketable
securities
    
    
    (2,364
    )
    
    
    (36,174
    )
    
    
    
    
    
    
    (38,538
    )Amortization of deferred financing costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    252,317Amortization of original issue discount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101,564Amortization of unearned compensation
    
    
    
    
    
    
    
    
    
    
    345,672
    
    
    
    345,672Non-cash expense recognized with issuance of
Common Stock in connection with acquisition of a
license
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,600,000Non-cash expense recognized with issuance of
Preferred Stock for license milestone
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000Non-cash expense recognized with issuance of
Common Stock in connection with liquidation
damages
    
    
    
    
    
    
    
    
    
    
    373,299
    
    
    
    373,299Amortization of discount on debenture
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    314,795Stock options and warrants issued in
consideration for services rendered
    
    
    
    
    
    
    
    
    
    
    373,387
    
    
    
    3,003,076Non-cash expense contributed by affiliate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,075,182Changes in assets and liabilities:(Increase) decrease in grant receivable
    
    
    113,645
    
    
    
    459,856
    
    
    
    (458,327
    )
    
    
    (Increase) in inventory
    
    
    (116,143
    )
    
    
    
    
    
    
    
    
    
    
    (116,143
    )Increase) decrease in prepaid expenses, other
current assets and other assets
    
    
    (1,089,491
    )
    
    
    41,329
    
    
    
    (276,410
    )
    
    
    (1,424,513
    )(Decrease) increase in accounts payable,
accrued expenses and other liabilities
    
    
    3,007,073
    
    
    
    1,943,756
    
    
    
    (1,088,846
    )
    
    
    6,158,455(Decrease) increase in deferred revenue
    
    
    
    
    
    
    (19,522
    )
    
    
    19,522
    
    
    
    (Decrease) increase in deferred lease liability
    
    
    426,272
    
    
    
    47,998
    
    
    
    (7,230
    )
    
    
    484,141Increase in due to Licensor
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500,000Net cash used in operating activities
    
    
    (25,130,259
    )
    
    
    (12,477,046
    )
    
    
    (11,286,384
    )
    
    
    (74,176,701
    )Cash flows from investing activities:Purchases of short term marketable securities
    
    
    (57,401,400
    )
    
    
    (23,250,617
    )
    
    
    
    
    
    
    (80,652,017
    )Redemption of short term marketable securities
    
    
    47,560,000
    
    
    
    11,820,000
    
    
    
    
    
    
    
    59,380,000Acquisition of intangible assets
    
    
    (1,800,000
    )
    
    
    
    
    
    
    
    
    
    
    (1,800,000
    )Capital expenditures
    
    
    (405,682
    )
    
    
    (136,306
    )
    
    
    (68,536
    )
    
    
    (821,459
    )Net cash (used in) provided by investing
activities
    
    
    (12,047,082
    )
    
    
    (11,566,923
    )
    
    
    (68,536
    )
    
    
    (23,893,476
    )Cash flows from financing activities:Proceeds from exercise of warrants
    
    
    636,646
    
    
    
    9,999
    
    
    
    104,804
    
    
    
    752,213Proceeds from exercise of stock options
    
    
    1,400,746
    
    
    
    
    
    
    
    12
    
    
    
    1,400,758Proceeds from sale of Common Stock
    
    
    45,295,800
    
    
    
    
    
    
    
    31,999,984
    
    
    
    95,392,074Proceeds from sale of Preferred Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,451,201Expenses associated with sale of Common Stock
    
    
    (3,498,087
    )
    
    
    
    
    
    
    (2,225,411
    )
    
    
    (7,576,722
    )Expenses associated with sale of Preferred Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,764,385
    )Proceeds from notes payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,015,000Proceeds from issuance of debenture
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,000Repayment of debenture
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,000,000
    )Expenses associated with notes payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (153,719
    )Repayment of notes payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,515,000
    )Net cash provided by financing activities
    
    
    43,835,105
    
    
    
    9,999
    
    
    
    29,879,389
    
    
    
    114,001,421Net increase in cash and cash equivalents
    
    
    6,657,764
    
    
    
    (24,033,970
    )
    
    
    18,524,469
    
    
    
    15,931,243Cash and cash equivalents at beginning of period
    
    
    9,273,479
    
    
    
    33,307,449
    
    
    
    14,782,980
    
    
    
    Cash and cash equivalents at end of period
    
    $
    15,931,243
    
    
    $
    9,273,479
    
    
    $
    33,307,449
    
    
    $
    15,931,243Supplemental disclosures:Cash paid for interest:
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    271,633Supplemental disclosure of noncash investing and
financing activities:Non cash issuance of common stock
    
    $
    
    
    
    $
    
    
    
    $
    500,000
    
    
    $
    500,000
 61




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Javelin Pharmaceuticals, Inc. and Subsidiaries
(A Development Stage Enterprise)
 
 Consolidated Statement of Cash Flows
 Cumulative fromYear Ended
    
    
    February 23, 1998December 31,
    
    
    (inception) to2007
    
    
    2006
    
    
    2005
    
    
    December 31, 2007Non cash
addition of intangible asset
    
    $
    2,000,000
    
    
    
    
    
    
    
    
    
    
    $
    2,000,000Options and warrants issued for services and
financings
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,222,574Conversion of Merger Note and accrued interest to
Series C stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    519,795Recapitalization in connection with Merger with
Intrac
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,153
 62




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##### Table of Contents



Javelin Pharmaceuticals, Inc. and Subsidiaries
(A Development Stage Enterprise)
 
 Notes to the Consolidated Financial Statements
 1. Organization and Business
 ®
    63




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##### Table of Contents



2. Summary of Significant Accounting Policies
 Basis of Preparation
   Use of Estimates
  Concentrations of Credit Risk
  Cash and Cash Equivalents
  Marketable Securities
  64




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##### Table of Contents



Inventory
     Fixed Assets
  Leaseholds
    
    3  5 yearsLaboratory equipment
    
    7 yearsFurniture and fixtures
    
    5 yearsComputer equipment and software
    
    3 years
 Intangible Assets
  65




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##### Table of Contents



Revenue Recognition
   Research and Development Costs
  Patents
  Net Loss Per Share
   66




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##### Table of Contents



Deferred Financing Costs
  Comprehensive Loss
  Impairment of Long-Lived Assets
  Stock-Based Compensation
    Income Taxes
  67




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##### Table of Contents



Recent Accounting Pronouncements
     68




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##### Table of Contents



3. Marketable Securities
  Unrealized
    
    Unrealized
    
    EstimatedCost
    
    Gains
    
    Losses
    
    Fair ValueDecember 31, 2007:Short-term marketable securities:Certificates of Deposit
    
    $
    9,181,337
    
    
    $
    9,444
    
    
    $
    (981
    )
    
    $
    9,189,800Commercial Paper
    
    
    994,532
    
    
    
    
    
    
    
    (182
    )
    
    
    994,350Taxable Auction Securities
    
    
    10,135,000
    
    
    
    
    
    
    
    
    
    
    
    10,135,000Tax Free Auction Securities
    
    
    999,687
    
    
    
    313
    
    
    
    
    
    
    
    1,000,000Total short term marketable securities
    
    $
    21,310,556
    
    
    $
    9,757
    
    
    $
    (1,163
    )
    
    $
    21,319,150
 Unrealized
    
    Unrealized
    
    EstimatedCost
    
    Gains
    
    Losses
    
    Fair ValueDecember 31, 2006:Short-term marketable securities:Certificates of Deposit
    
    $
    1,698,006
    
    
    $
    713
    
    
    $
    (137
    )
    
    $
    1,698,582U.S. Government Securities
    
    
    2,398,785
    
    
    
    
    
    
    
    (5,693
    )
    
    
    2,393,092Taxable Auction Securities
    
    
    7,370,000
    
    
    
    
    
    
    
    
    
    
    
    7,370,000Total short term marketable securities
    
    $
    11,466,791
    
    
    $
    713
    
    
    $
    (5,830
    )
    
    $
    11,461,674
  Less than 12 months
    
    12 Months or More
    
    TotalFair
    
    Unrealized
    
    Fair
    
    Unrealized
    
    Fair
    
    UnrealizedValue
    
    Losses
    
    Value
    
    Losses
    
    Value
    
    LossesDecember 31, 2007:Certificates of Deposit
    
    $
    2,300,435
    
    
    $
    (981
    )
    
    $
    
    
    
    $
    
    
    
    $
    2,300,435
    
    
    $
    (981
    )Commercial Paper
    
    
    994,350
    
    
    
    (182
    )
    
    
    
    
    
    
    
    
    
    
    994,350
    
    
    
    (182
    )Total
    
    $
    3,294,785
    
    
    $
    (1,163
    )
    
    $
    
    
    
    $
    
    
    
    $
    3,294,785
    
    
    $
    (1,163
    )
 Less than 12 months
    
    12 Months or More
    
    TotalFair
    
    Unrealized
    
    Fair
    
    Unrealized
    
    Fair
    
    UnrealizedValue
    
    Losses
    
    Value
    
    Losses
    
    Value
    
    LossesDecember 31, 2006:Certificates of Deposit
    
    $
    496,800
    
    
    $
    (137
    )
    
    $
    
    
    
    $
    
    
    
    $
    496,800
    
    
    $
    (137
    )U.S. Government Securities
    
    
    2,393,092
    
    
    
    (5,693
    )
    
    
    
    
    
    
    
    
    
    
    2,393,092
    
    
    
    (5,693
    )Total
    
    $
    2,889,892
    
    
    $
    (5,830
    )
    
    $
    
    
    
    $
    
    
    
    $
    2,889,892
    
    
    $
    (5,830
    )
  69




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4. Fixed Assets
  December 31,2007
    
    
    2006Leaseholds
    
    $
    4,824
    
    
    $
    15,435Furniture and fixtures
    
    
    132,337
    
    
    
    113,474Laboratory equipment
    
    
    114,593
    
    
    
    114,593Computer equipment
    
    
    247,505
    
    
    
    136,204Computer software
    
    
    43,479
    
    
    
    33,764Construction in progress
    
    
    272,836
    
    
    
    815,574
    
    
    
    413,470Less, accumulated depreciation
    
    
    (270,379
    )
    
    
    (176,307
    )$
    545,195
    
    
    $
    237,163
  5. Intangible Assets
  6. Accounts Payable and Accrued Expenses
  December 31,2007
    
    
    2006Accounts payable
    
    $
    1,431,787
    
    
    $
    685,400Accrued professional fees
    
    
    195,077
    
    
    
    220,333Accrued research and development
    
    
    2,153,864
    
    
    
    964,944Accrued compensation and benefits
    
    
    1,458,598
    
    
    
    878,808Accrued sales and marketing consulting costs
    
    
    658,804
    
    
    
    325,165Accrued milestone payment
    
    
    2,000,000
    
    
    
    Accrued other expenses
    
    
    258,658
    
    
    
    76,729$
    8,156,788
    
    
    $
    3,151,379
 7. Stockholders Equity
 Shares Authorized
  70




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Shares and Warrants Issued
         71




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##### Table of Contents



Public offering of common stock
   8. Notes Payable
 1998 Notes.
  Bridge Notes.
 72




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##### Table of Contents



2000 Note.
 Merger Note.
 Bridge Debenture.
  9.
    
    Commitments and Contingencies
 a.
    
    Operating LeasesWe recognize rental expense for leases on the straight-line basis over the life of the
lease.
 73




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##### Table of Contents



New York, NYOn September 5, 2002, we entered into a sublease (the Sublease) for office space
in New York, New York with a term from December 7, 2002 through December 30, 2003.
Minimum rent for the Sublease was $371,000 per annum, payable in equal monthly
installments of $30,917, except that no rent payment was due for the first 30 days
of the Sublease term (the Free Rent Period). In addition, upon execution of the
Sublease, we prepaid rent for the first two months following the Free Rent Period
and the last two months of the Sublease term, totaling $123,667. We also were
required to pay additional rent, as defined. On September 22, 2003, we entered into
a lease for office space in New York, New York with a term from December 1, 2003
through November 30, 2006. Minimum rent for the lease was initially $125,000 per
annum with a 3% rent escalation every 12 months thereafter, payable in equal monthly
installments, except that no rent payment was due for the first 60 days of the lease
term (the Free Rent Period). In addition, upon execution of the lease, we paid a
security deposit of $31,250. We vacated the New York office space upon termination
of the lease, and received the remainder of our security deposit in January 2007.Cambridge, MAOn May 1, 2005, we entered into a lease for office space in Cambridge,
Massachusetts, which lease was amended effective June 1, 2006. Prior to the
amendment, minimum rent for the lease was payable in equal monthly installments of
$6,810 over the lease term. As a result of the amendment, we assumed additional
office space in our Cambridge facility, the lease term was extended to May 31, 2012,
and the minimum monthly rent for the lease was increased to $15,450 for the first
twelve months, with rent escalations every 12 months thereafter.  In August 2007, we
further amended the lease for our Cambridge facility. As a result of the amendment,
we assumed additional office space effective on each of September 1, 2007 and
January 1, 2008. Minimum monthly rent for the additional space occupied in September
is $31,493 through August 31, 2008, with rent escalations every 12 months
thereafter. Minimum rent for the space to be occupied in January 2008 is $4,462
through August 31, 2008, with rent escalations every twelve months thereafter. The
lease term for all our office space in Cambridge is through May 31, 2012. At
December 31, 2007, our security deposit related to the lease was $133,570.Lake Success, NYIn August 2006, we entered into a new lease for office space in Lake Success, New
York with a three-year extendable term, which commenced on October 1, 2006.  Minimum
rent for the lease is initially $57,477 per annum, with an annual 3.5% rent
escalation. In addition, upon execution of the lease, we paid a security deposit of
$9,580.U.K. and GermanyWe also lease small office spaces in the U.K. and Germany, each of which has terms
of one year or less. At December 31, 2007, our security deposits related to the
leases totaled approximately $11,300.For the years ended December 31, 2007, 2006 and 2005, we recognized rent expense of
$497,055, $326,301 and $176,771, respectively, for all of our leases. A deferred
lease liability of $225,498, $57,869 and $9,871 at December 31, 2007, 2006 and 2005,
respectively, was recorded for rent expense in excess of amounts paid; the amount of
additional rent paid was immaterial.Future minimum lease payments under operating leases having initial or remaining
noncancellable lease terms in excess of one year are as follows:
 74




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##### Table of Contents



As ofDecember 31, 20072008
    
    $
    798,7482009
    
    
    796,0712010
    
    
    779,8822011
    
    
    798,2092012
    
    
    334,419$
    3,507,329
 b.
    
    Legal ProceedingsFrom time to time, we are involved in disputes or legal proceedings
arising in the ordinary course of business.  However, we do not believe that
any such disputes or pending litigation would have a material adverse effect on
our financial position, results of operations or cash flows.
 c.
    
    Research Collaboration, Licensing and Consulting Agreements
 (i)
    
    Stuart Weg, M.D.In September 2000, we assumed a license
agreement, dated February 25, 1998, between the Predecessor Company and Stuart
Weg, M.D. The license granted us exclusive worldwide rights, including the
right to grant sublicenses, for the intellectual property surrounding
transnasal ketamine. In connection therewith, we made an upfront payment to
Dr. Weg, Herbert Brotspies, and Calgar & Associates (collectively the
Founders) and issued the Founders shares of common stock, of which a portion
is held in escrow and will be released to the Founders, if at all, upon the
successful completion of the Phase 3 trial. The release of the shares from
escrow is not contingent on the Founders performance. We also reimbursed the
Founders for patent and other costs. We will pay semi-annual royalty payments
to the Founders based on a percentage of net sales of transnasal ketamine by us
or our sublicensees. In addition, we shall pay the Founders a defined
percentage of all sublicensing fees or other lump sum payments. Under the
terms of the license agreement, we are also obligated to make aggregate future
payments upon the earlier of certain defined dates or satisfaction of certain
clinical and regulatory milestones, which include the filing of a New Drug
Application (NDA) with the Food & Drug Administration (FDA), the approval
of an NDA by the FDA and the first commercial sale of a licensed product. A
defined percentage of such milestone payments shall be creditable against
royalties earned; provided, however, that in no event shall royalties earned be
reduced by more than a certain percentage in any applicable semi-annual period.
We may satisfy a portion of the milestone payments through the issuance of
shares of our common stock provided that we are publicly traded at the time
such milestone payment accrues. In April 2003 the license agreement was
amended to allow for the August 2003 milestone to be paid in cash and Series C
Stock. The Founders agreed to accept 65,360 shares of Series C Stock, valued
at $0.1 million plus $0.15 million in cash as payment in full for the
milestone. In November 2004, the license agreement was amended to defer
payment of the $500,000 milestone from August 25, 2004, to a date on or before
December 31, 2004. We were required to pay interest, at a rate of 4.75% per
annum, on the amount of the milestone payment for the period from August 25,
2004 to the amended payment date. On December 21, 2004 we paid the milestone
payment plus accrued interest totaling $507,964. On December 31, 2004 we
accrued the final milestone payment of $500,000 and on April 7, 2005, we
entered into an agreement and issued 169,735 shares of common stock as
settlement of this final milestone payment, under the license agreement. The
fair value of the shares issued was $500,000, as determined by the equity price
of $2.95 on the date of grant.
 75




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##### Table of Contents



(ii)
    
    In connection with the license agreement described above, in
February 1998 the Predecessor Company entered into a three year Consulting
Agreement, renewable upon mutual consent, with each of Dr. Weg and Dr. Gary,
pursuant to which both Dr. Weg and Dr. Gary were to provide us with such
consulting services as we may reasonably request. In consideration for such
services, we agreed to pay to each of Dr. Weg and Dr. Gary a consulting fee
equal to $75,000 per year, payable in equal monthly installments. These
agreements expired March 2001 and were not renewed.(iii)
    
    West Pharmaceutical Services, Inc.On August 25, 2000, we
entered into a license agreement with West Pharmaceutical Services, Inc.
(West) for rights to develop and commercialize intranasal morphine, fentanyl
and other products. Under the terms of the agreement, we were granted an
exclusive, worldwide, royalty bearing license, including the right to grant
sublicenses, for the rights to the intellectual property covering these
products. The license agreement will expire with the last to expire of the
license patents in 2016. In consideration of the license, we paid and expensed
on September 22, 2000 an up front fee. In addition, we are obligated to make
royalty payments to West based upon net sales of products by us or our
sublicensees, if any, as defined. We are also obligated to pay West a minimum
annual royalty for each licensed product that receives approval by a regulatory
agency to be marketed in any major market country, as defined, and to pay West
a defined amount of any up-front license fees in the event that we sublicense
any rights to any third party. In addition, under a Development Milestone and
Option Agreement entered into in connection with the license agreement, we are
obligated to make aggregate future payments totaling $5.0 million upon reaching
certain defined development milestones, including the filing of an NDA with the
FDA and the approval of an NDA by the FDA of a licensed product. Milestone
payments can be paid in cash or equity upon the satisfaction of certain
clinical and regulatory milestones and provided that we are publicly traded at
the time such milestone payment accrues. Our ability to pay the upfront
payment for the license agreement and the M-6-G fee (see below) was guaranteed
by an affiliate of ours. The guarantee expired upon the payments by us of
amounts owed to West. In addition, we granted West the right of first refusal
to enter into a clinical manufacturing agreement for nasal morphine (see (iv)
(a) below).
 The license agreement and related agreements (see (iv)(a) to (iv)(d) below) may be
terminated by mutual consent of the parties at any time or by either party upon
written notice of default, including non-performance, by the other party that is not
cured within 30 days.
 (iv)
    
    In connection with the West license agreement, we entered into
the following additional agreements:
 (a)
    
    A clinical manufacturing agreement, whereby we
would buy from West 100% of the nasal morphine product required for
conducting the clinical trials subject to Wests ability to supply 100%
of the required product. West would manufacture and package the
clinical product for us. This agreement was terminated effective
September 2002.(b)
    
    An option agreement, whereby we were granted an
option to include morphine -6- glucuronide (M-6-G) as an identified
compound under the license agreement. We paid and expensed a
non-refundable fee in consideration of the option, which expired
unexercised on December 22, 2000.(c)
    
    On October 24, 2000, we expanded our license
agreement to include an additional development agreement with West for
rights to develop and commercialize intranasal fentanyl. Pursuant to
the development agreement, we would undertake a development program for
intranasal fentanyl with West, and
 76




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the parties would endeavor to complete the development program within
the defined time table. However, we could use other suppliers should
West be unable to either provide competitive cost bids or complete
the program within a reasonable timeframe. In addition, under the
development agreement, we were obligated to make aggregate future
payments totaling $6.3 million upon reaching certain defined
development milestones, which included completion of
proof-of-principle studies, successful completion of a Phase 1/2
clinical trial, commencement of a Phase 3 clinical trial, filing of
an NDA with the FDA and the approval of an NDA by the FDA of a
licensed product. These milestone payments could be paid in cash or
equity upon the satisfaction of certain clinical and regulatory
milestones and provided that we were publicly traded at the time such
milestone payment accrues. In October 2003, we and West amended the
license agreement to exclude further development of fentanyl by us.
All rights, duties and obligations between us and West related to
fentanyl were terminated, including aggregate remaining future
milestone payments of $6.3 million.
 (d)
    
    On November 17, 2000, we entered into a
clinical manufacturing agreement with West to manufacture, package,
purchase and sell to us nasal ketamine clinical product according to
agreed upon clinical product specifications and price schedule. The
agreement expired in November 2001.
 (v)
    
    On February 8, 2005, we consented to the assignment of the
license agreements with West to Archimedes Pharma Limited (Archimedes) in
connection with the sale of Wests Drug Delivery business to Archimedes. Under
the terms of the assignment, Archimedes assumed all of Wests obligations and
liabilities under the assigned agreements that by their respective terms are
required to be paid, performed or discharged.(vi)
    
    Shimoda Biotech (Proprietary) Ltd.On December 14, 2001 (the
Effective Date), we entered into an agreement (the Shimoda Agreement) with
Shimoda Biotech (Proprietary) Ltd. and certain affiliated entities
(collectively, Shimoda), for an exclusive worldwide license to commercialize
formulations of pharmaceutical products containing diclofenac. We would pay:
(i) a license fee to Shimoda and reimbursement for expenses, if certain defined
events occur; (ii) two percent of the net proceeds, as defined, of our initial
public offering (IPO) to Shimoda, but not less than $1 million or in excess
of $2 million; (iii) aggregate future milestone payments of $6.0 million
payable upon the satisfaction of certain clinical and regulatory milestones
which includes submission of an NDA with the FDA, approval of an NDA by the FDA
and one year following the date of first sale of a licensed product; and (iv)
royalty payments to Shimoda based upon the sales of products by us or our
sublicensees, if any, as defined. Upon achievement of a milestone, Shimoda has
the option to receive payment in cash or shares of common stock. In the event
Shimoda elects to receive common stock, the number of shares to be issued is
based on a formula whereby the defined milestone payment is divided by the per
share price of our common stock in an IPO as defined. Should common stock be
issued in satisfaction of milestones, we will record a non-cash capital asset
based on the fair value of the consideration paid at the date the milestone is
achieved. Such a transaction could be material and could result in a material
dilution to per share amounts. The Shimoda Agreement may be terminated (i) by
either party due to breach by the other party that is not cured within 60 days
of written notice; (ii) by Shimoda in the event of default by us for
non-payment of amounts due that is not cured with 60 days of written notice; or
(iii) by us at any time by giving 90 days written notice to Shimoda.
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##### Table of Contents



(vii)
    
    In December 2005, we amended the Shimoda Agreement. Under the
terms of the amendment, the total aggregate future milestone payments of $6.0
million payable upon the satisfaction of certain clinical and regulatory
milestones remains unchanged although as amended include allowance of an MAA by
the MHRA, submission of an NDA with the FDA, approval of an NDA by the FDA and
one year following the date of first sale of a licensed product.(viii)
    
    In May 2006, we further amended the Shimoda Agreement. Under the previous
agreement, we were required to launch a commercial product by December 14, 2007
or risk termination of the license at Shimodas option. Under the terms of the
amendment, we are no longer required to launch a commercial product by December
14, 2007. Rather, we will be considered to be compliant with the Shimoda
Agreement if we diligently continue to pursue regulatory approval as of that
date.(ix)
    
    Precision Pharma Services, Inc.In February 2007, we entered
into a Commercial Supply Agreement (the Supply Agreement) with Precision
Pharma Services, Inc. (Precision). The initial term of the Supply Agreement
is two years, and it is renewable in one-year increments. Under the Supply
Agreement, Precision agreed to manufacture our requirements for the supply of
Dyloject, in accordance with U.S. and E.U. good manufacturing practices. We
committed to purchase at least $7,650,000 worth of product during the two year
period beginning on April 1, 2007. Either party may terminate the Supply
Agreement upon written notice if the other party is in material breach of any
provision thereof, subject to applicable 30 or 90 day cure periods. Either
party may also terminate the Supply Agreement upon 60 days prior written
notice upon the occurrence of certain events involving the bankruptcy or
insolvency of the other party, and the Supply Agreement shall automatically
terminate upon the occurrence of certain events specified therein. Moreover,
we may elect to terminate the Supply Agreement if Precision fails to meet its
performance obligations regarding the manufacture of Dyloject in accordance
with good manufacturing practices, and under certain other conditions.(x)
    
    Baxter Healthcare Corporation. In May 2007, we entered into a
Development and Toll Manufacturing Agreement (the Manufacturing Agreement)
with Baxter Healthcare Corporation (Baxter). The agreement is for U.S. drug
supply and has a three year term, renewable thereafter in one-year increments.
Under the Manufacturing Agreement, we committed to purchase at least
$13,230,000 worth of Dyloject product manufactured to our specifications,
commencing upon regulatory approval from the U.S. Food and Drug Administration
(FDA). As is customary in such agreements, either party may terminate upon
written notice upon the occurrence of certain events, including breach,
bankruptcy, insolvency or, subject to certain cure provisions and restrictions,
the lack of FDA approval for Dyloject by a specified date.
 10.

    Net Loss per Share
  78




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##### Table of Contents



2007
    
    2006
    
    2005Numerator:Net loss, basic and diluted
    
    $
    (31,031,374
    )
    
    $
    (17,798,236
    )
    
    $
    (10,611,772
    )Denominator:Weighted average common shares
    
    
    45,462,653
    
    
    
    40,179,543
    
    
    
    27,831,188Net loss per share, basic and diluted
    
    $
    (0.68
    )
    
    $
    (0.44
    )
    
    $
    (0.38
    )
  For the Years Ended December 31,2007
    
    2006
    
    2005Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedWeighted
    
    Average
    
    Weighted
    
    Average
    
    Weighted
    
    AverageAverage
    
    Exercise
    
    Average
    
    Exercise
    
    Average
    
    ExerciseNumber
    
    Price
    
    Number
    
    Price
    
    Number
    
    PriceOptions
    
    
    7,586,030
    
    
    $
    3.41
    
    
    
    6,120,904
    
    
    $
    2.99
    
    
    
    4,889,467
    
    
    $
    2.91Warrants
    
    
    2,526,363
    
    
    
    2.63
    
    
    
    2,830,051
    
    
    
    2.62
    
    
    
    1,922,888
    
    
    
    2.81Total
    
    
    10,112,393
    
    
    
    
    
    
    
    8,950,955
    
    
    
    
    
    
    
    6,812,355
 11. Share-Based Compensation
 Adoption of SFAS 123(R)
    2007
    
    2006Research and development
    
    $
    1,147,138
    
    
    $
    924,218Selling, general and administrative
    
    
    2,312,912
    
    
    
    1,898,721Total impact on results of operations
    
    $
    3,460,050
    
    
    $
    2,822,939Per share impact on results of operations
    
    $
    0.08
    
    
    $
    0.07
 79




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##### Table of Contents



2007
    
    2006Expected volatility
    
    
    80%
    
    
    
    80%Expected life
    
    5.0 years
    
    5.0 yearsDividend yield
    
    
    0%
    
    
    
    0%Risk free interest rate
    
    
    3.3%-5.1%
    
    
    
    4.5%-5.2%Weighted average per share grant date fair value
    
    
    $3.51
    
    
    
    $2.50
  Stock Incentive Plans
 Omnibus Plans
   80




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##### Table of Contents



Options Outstanding

    
    Options ExercisableWeighted-AverageRemaining
    
    Weighted-
    
    
    
    
    
    Weighted-Range of Exercise
    


    Number
    
    Contractual
    
    Average
    
    Number
    
    AveragePrices
    
    Outstanding
    
    Life
    
    Exercise Price
    
    Exercisable
    
    Exercise Price$1.50 - $1.90
    
    
    559,207
    
    
    5.3 years
    
    $
    1.54
    
    
    
    542,540
    
    
    $
    1.52$1.91 - $1.97
    
    
    1,250,050
    
    
    6.5 years
    
    $
    1.96
    
    
    
    1,250,050
    
    
    $
    1.96$1.98 - $2.80
    
    
    527,500
    
    
    7.3 years
    
    $
    2.71
    
    
    
    431,665
    
    
    $
    2.71$2.81 - $3.27
    
    
    664,000
    
    
    8.3 years
    
    $
    3.05
    
    
    
    334,334
    
    
    $
    2.99$3.28 - $3.87
    
    
    760,921
    
    
    8.2 years
    
    $
    3.61
    
    
    
    354,254
    
    
    $
    3.56$3.88 - $4.26
    
    
    675,440
    
    
    7.5 years
    
    $
    4.07
    
    
    
    329,651
    
    
    $
    4.07$4.27 - $7.09
    
    
    1,408,679
    
    
    8.5 years
    
    $
    5.32
    
    
    
    205,326
    
    
    $
    5.37$1.50 - $7.09
    
    
    5,845,797
    
    
    7.5 years
    
    $
    3.38
    
    
    
    3,447,820
    
    
    $
    2.65
 81




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##### Table of Contents



Weighted-
    
    
    
    
    
    
    Weighted-Number
of
    
    
    Average
    
    
    Number
    
    
    Averageshares
    
    
    Exercise Price
    
    
    Exercisable
    
    
    Exercise PriceBalance outstanding, December 31, 2004
    
    
    2,712,575
    
    
    $
    2.32
    
    
    
    1,405,358
    
    
    $
    2.66Granted
    
    
    1,313,750
    
    
    $
    2.75
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (314,770
    )
    
    $
    2.14
    
    
    
    
    
    
    
    Balance outstanding, December 31, 2005
    
    
    3,711,555
    
    
    $
    2.49
    
    
    
    2,009,974
    
    
    $
    2.56Granted
    
    
    1,935,182
    
    
    $
    3.72
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (272,260
    )
    
    $
    3.77
    
    
    
    
    
    
    
    Balance outstanding, December 31, 2006
    
    
    5,374,477
    
    
    $
    2.88
    
    
    
    2,915,632
    
    
    $
    2.54Granted
    
    
    1,421,352
    
    
    $
    5.23
    
    
    
    
    
    
    
    Exercised
    
    
    (540,139
    )
    
    $
    2.23
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (409,893
    )
    
    $
    4.80
    
    
    
    
    
    
    
    Balance outstanding, December 31, 2007
    
    
    5,845,797
    
    
    $
    3.38
    
    
    
    3,447,820
    
    
    $
    2.65
     82




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##### Table of Contents



Non-Plan options
   Options Outstanding
    
    Options ExercisableWeightedAverageRemaining
    
    Weighted
    
    
    
    
    
    WeightedRange of
    
    Number
    
    Contractual
    
    Average
    
    Number
    
    AverageExercise Prices
    
    Outstanding
    
    Life
    
    Exercise Prices
    
    Exercisable
    
    Exercise Price$3.87
    
    
    1,106,444
    
    
    2.8 years
    
    $
    3.87
    
    
    
    1,106,444
    
    
    $
    3.87
  Weighted-
    
    
    
    
    
    Weighted-Number
    
    Average
    
    Number
    
    Averageof Shares
    
    Exercise Price
    
    Exercisable
    
    Exercise PriceBalance outstanding, December 31, 2004
    
    
    1,185,299
    
    
    $
    3.87
    
    
    
    1,185,299
    
    
    $
    3.872005: Exercised
    
    
    (1,241
    )
    
    $
    0.01
    
    
    
    
    
    
    $
    0.01Balance outstanding, December 31, 2005 and 2006
    
    
    1,184,058
    
    
    $
    3.87
    
    
    
    1,184,058
    
    
    $
    3.872007: Exercised
    
    
    (77,614
    )
    
    $
    3.87
    
    
    
    
    
    
    $
    3.87Balance outstanding, December 31, 2007
    
    
    1,106,444
    
    
    $
    3.87
    
    
    
    1,106,444
    
    
    $
    3.87
  83




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##### Table of Contents



Pro-forma Disclosure
  2005Net loss as reported
    
    $
    (10,611,772
    )Add: Stock-based employee compensation included in net loss under APB No. 25
    
    
    345,672Deduct: Total stock-based employee compensation expense determined under
fair value base method for all awards
    
    
    (1,796,017
    )Pro forma net loss
    
    $
    (12,062,117
    )Pro forma net loss per share (basic and diluted)
    
    $
    (0.43
    )
  2005Expected volatility
    
    
    80%Expected life
    
    5 yearsDividend yield
    
    
    0%Risk free interest rate
    
    
    3.4 - 4.5
    %
  12. Warrants and Units
  Placement
    
    Debenture
    
    Bridge
    
    Investor
    
    Consultants
    
    FindersWarrants
    
    Warrants
    
    Warrants
    
    Warrants
    
    Warrants
    
    Units (1)Issuance of Bridge Warrants (see Note 8)


    
    
    
    
    
    
    
    
    236,127Issuance of Consultants Warrants (see Note 8)


    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    204,336Balance outstanding, December 31, 1999


    
    
    
    
    
    
    
    
    236,127
    
    
    
    
    
    
    
    204,336
    
    
    
    Issuance of Preferred A Warrants (see Note7)


    
    
    
    
    
    
    
    
    
    
    
    
    415,403Exercise of Consultants Warrants


    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (204,336
    )Issuance of Finders Units (see Note 7)


    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15.83Issuance of Consultants Warrants (see Note 7)


    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,523Balance outstanding, December 31, 2000


    
    
    
    
    
    
    
    
    236,127
    
    
    
    415,403
    
    
    
    15,523
    
    
    
    15.83Exercise of Bridge Warrant
    
    
    
    
    
    
    
    
    
    
    (15,893
    )Exercise of Consultants Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,523
    )Balance outstanding, December 31, 2001 and 2002


    
    
    
    
    
    
    
    
    220,234
    
    
    
    415,403
    
    
    
    
    
    
    
    15.83Exercise of Bridge Warrants (see Note 8)


    
    
    
    
    
    
    
    
    (2,270
    )Balance outstanding, December 31, 2003
    
    
    
    
    
    
    
    
    
    
    217,964
    
    
    
    415,403
    
    
    
    
    
    
    
    15.83
 84




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##### Table of Contents



Placement
    
    Debenture
    
    Bridge
    
    Investor
    
    Consultants
    
    FindersWarrants
    
    Warrants
    
    Warrants
    
    Warrants
    
    Warrants
    
    Units (1)Issuance of Debenture Warrants (see Note 8)
    
    
    
    
    
    
    226,314Issuance of Placement Warrants (see Note 7)
    
    
    920,987Balance outstanding, December 31, 2004
    
    
    920,987
    
    
    
    226,314
    
    
    
    217,964
    
    
    
    415,403
    
    
    
    
    
    
    
    15.83Exercise of Bridge and Investor Warrants
    
    
    
    
    
    
    
    
    
    
    (217,964
    )
    
    
    (26,518
    )Expiry of Preferred A Warrant (see Note 7)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (388,885
    )Issuance of Consultants Warrants (see Note 7)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,184Issuance of 2005 Investor Warrants (see Note 7)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    711,111Issuance of 2005 Placement Warrants (see Note 7)
    
    
    853,333Balance outstanding, December 31, 2005
    
    
    1,774,320
    
    
    
    226,314
    
    
    
    
    
    
    
    711,111
    
    
    
    80,184
    
    
    
    15.83Exercise of 2005 Investor Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,444
    )Balance outstanding, December 31, 2006
    
    
    1,774,320
    
    
    
    226,314
    
    
    
    
    
    
    
    706,667
    
    
    
    80,184
    
    
    
    15.83Exercise of 2005 Debenture Warrants (see Note 8)
    
    
    
    
    
    
    (113,157
    )Exercise of 2005 Investor Warrants (see Note 7)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (235,555
    )Exercise of 2005 Consultants Warrants (see Note 7)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58,124
    )Exercise of Finders Units (see Note 7)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15.73
    )Expiry of Finders Units (see Note 7)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.10
    )Balance outstanding, December 31, 2007
    
    
    1,774,320
    
    
    
    113,157
    
    
    
    
    
    
    
    471,112
    
    
    
    22,060
    
    
    
    
 
 (1)
    
    Each Finders Unit entitles the holder to purchase 28,459 shares of common stock. Total
issuance entitles holders to purchase 450,506 shares common stock.    13. Related Party Transactions
   14. Income Taxes
  85




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##### Table of Contents



December 31, 2007
    
    
    December 31, 2006Deferred tax assets and valuation allowance:Net operating loss carry forwards  Domestic
    
    $
    29,789,000
    
    
    $
    20,230,000Net operating loss carry forwards  Foreign
    
    
    708,000
    
    
    
    Other deferred tax assets
    
    
    4,900,000
    
    
    
    5,127,000Research and development tax credit carryforwards
    
    
    3,064,000
    
    
    
    2,882,000Valuation allowance
    
    
    (38,461,000
    )
    
    
    (28,239,000
    )
    
    
    
    
    2007
    
    
    2006
    
    
    2005Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentPre tax income (loss)
    
    $
    (30,981,496
    )
    
    
    
    
    
    $
    (17,798,236
    )
    
    
    
    
    
    $
    (10,611,772
    )Federal tax provision (benefit) at statutory rate
    
    
    (10,533,709
    )
    
    
    34
    %
    
    
    (6,051,400
    )
    
    
    34
    %
    
    
    (3,608,002
    )
    
    
    34
    %State income tax benefit net of federal tax
benefit
    
    
    (2,168,829
    )
    
    
    7
    %
    
    
    (1,834,003
    )
    
    
    10
    %
    
    
    (748,462
    )
    
    
    7
    %Permanent differences
    
    
    999,299
    
    
    
    -3
    %
    
    
    382,663
    
    
    
    -2
    %
    
    
    427,039
    
    
    
    -4
    %R & D credit
    
    
    (1,353,485
    )
    
    
    4
    %
    
    
    (1,108,705
    )
    
    
    6
    %
    
    
    (776,328
    )
    
    
    7
    %Change in valuation allowance
    
    
    10,222,000
    
    
    
    -33
    %
    
    
    9,688,000
    
    
    
    -54
    %
    
    
    3,679,000
    
    
    
    -35
    %Change in rate
    
    
    1,468,932
    
    
    
    -5
    %
    
    
    
    
    
    
    0
    %
    
    
    911,066
    
    
    
    -9
    %Other
    
    
    1,365,792
    
    
    
    -4
    %
    
    
    (1,076,555
    )
    
    
    6
    %
    
    
    115,687
    
    
    
    -1
    %Total income tax provision / (benefit)
    
    $
    
    
    
    
    0.0
    %
    
    $
    
    
    
    
    0.0
    %
    
    $
    
    
    
    
    0.0
    %
  Balance at January 1, 2007 (adoption of FIN 48)
    
    $
    Increase/Decrease for tax positions related to the current year
    
    
    Increase/Decrease for tax positions related to prior years
    
    
    Decreases for settlements with applicable taxing authorities
    
    
    Decreases for lapses of statute of limitations
    
    
    Balance at December 31, 2007
    
    $
    
 86




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##### Table of Contents



15. Other Income
  16. Javelin Pharmaceuticals, Inc. 401(k) Plan and Employee Stock Purchase Plan
   87




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##### Table of Contents



SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)
  2007 Quarterly results of operations
 Unaudited Quarter endedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,(In thousands, except per share data)
    
    2007
    
    2007
    
    2007
    
    2007Government grants and contract revenue
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating expensesResearch and development
    
    
    3,332
    
    
    
    4,639
    
    
    
    5,384
    
    
    
    5,664Selling, general and administrative
    
    
    2,774
    
    
    
    3,023
    
    
    
    3,487
    
    
    
    4,527Depreciation and amortization
    
    
    20
    
    
    
    24
    
    
    
    25
    
    
    
    29Operating loss
    
    
    (6,126
    )
    
    
    (7,686
    )
    
    
    (8,896
    )
    
    
    (10,220
    )Other income (expense)
    
    
    223
    
    
    
    452
    
    
    
    675
    
    
    
    547Net loss attributable to common
stockholders
    
    
    (5,903
    )
    
    
    (7,234
    )
    
    
    (8,221
    )
    
    
    (9,674
    )Net loss per share attributable to
common stockholders:Basic and diluted
    
    $
    (0.15
    )
    
    $
    (0.16
    )
    
    $
    (0.17
    )
    
    $
    (0.20
    )Weighted average shares
    
    
    40,244
    
    
    
    44,400
    
    
    
    48,424
    
    
    
    48,661
 2006 Quarterly results of operations
 Unaudited Quarter endedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,(In thousands, except per share data)
    
    2006
    
    2006
    
    2006
    
    2006Government grants and contract revenue
    
    $
    82
    
    
    $
    491
    
    
    $
    155
    
    
    $
    114Operating expensesResearch and development
    
    
    1,324
    
    
    
    3,013
    
    
    
    3,694
    
    
    
    2,823Selling, general and administrative
    
    
    1,688
    
    
    
    2,310
    
    
    
    2,484
    
    
    
    3,127Depreciation and amortization
    
    
    11
    
    
    
    13
    
    
    
    17
    
    
    
    20Operating loss
    
    
    (2,941
    )
    
    
    (4,845
    )
    
    
    (6,040
    )
    
    
    (5,856
    )Other income (expense)
    
    
    916
    
    
    
    315
    
    
    
    343
    
    
    
    310Net loss attributable to common
stockholders
    
    
    (2,025
    )
    
    
    (4,530
    )
    
    
    (5,697
    )
    
    
    (5,546
    )Net loss per share attributable to
common stockholders:Basic and diluted
    
    $
    (0.05
    )
    
    $
    (0.11
    )
    
    $
    (0.14
    )
    
    $
    (0.14
    )Weighted average shares
    
    
    40,178
    
    
    
    40,178
    
    
    
    40,180
    
    
    
    40,182
 88




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
  
 ITEM 9A. CONTROLS AND PROCEDURES.
 Disclosure Controls and Procedures.
 Managements Annual Report on Internal Control over Financial Reporting. Internal Control  Integrated Framework
 Attestation Report of the Registered Public Accounting Firm
 Changes in Internal Control over Financial Reporting.
 
 ITEM 9B. OTHER INFORMATION.
  89




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##### Table of Contents



PART III.
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
  
 ITEM 11. EXECUTIVE COMPENSATION.
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
  90




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##### Table of Contents



PART IV.
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 (a)(1)(2) Financial Statements and Financial Statement Schedule.
  (a)(3) Exhibits.
  91




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##### Table of Contents



SIGNATURES
  JAVELIN PHARMACEUTICALS, INC.By:
    

/s/ Martin J. DriscollName:
    
    Martin J. DriscollTitle:
    
    Chief Executive Officer
 POWER OF ATTORNEY
   Signature
    
    Title
    
    Date/s/ Martin J. Driscoll
Martin J. Driscoll
    
    Chief Executive Officer and Director
(Principal Executive Officer)
    
    March 14, 2008/s/ Stephen J. Tulipano
Stephen J. Tulipano
    
    Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
    
    March 14, 2008/s/ Daniel B. Carr
Daniel B. Carr
    
    Chief Medical Officer, Vice
Chairman of the Board and a Director
    
    March 14, 2008/s/ Fred H. Mermelstein
Fred H. Mermelstein
    
    President and Director
    
    March 14, 2008/s/ Douglas G. Watson
Douglas G. Watson
    
    Chairman of the Board and Director
    
    March 14, 2008/s/ Jackie M. Clegg
Jackie M. Clegg
    
    Director
    
    March 14, 2008/s/ Neil W. Flanzraich
Neil W. Flanzraich
    
    Director
    
    March 14, 2008/s/ Georg Nebgen
Georg Nebgen
    
    Director
    
    March 14, 2008/s/ Peter D. Kiernan, III
Peter D. Kiernan, III
    
    Director
    
    March 14, 2008
 92




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##### Table of Contents



Exhibit Index
 Exhibit No.
    
    Description2.1
    
    Agreement and Plan of Merger dated December 6, 2004 among Intrac, Inc. (Intrac),
Intrac Merger Sub Inc. (Intrac Sub), and Innovative Drug Delivery Systems, Inc.
(IDDS) (filed as Exhibit 2.1 to our Form 8-K filed December 10, 2004 (the December
2004 Form 8-K), and incorporated herein by reference).2.2
    
    Agreement and Plan of Merger, dated as of July 27, 2005, between Intrac and the
Company (filed as Appendix B to the Intrac Proxy Statement, dated August 1, 2005, and
incorporated herein by reference).3.1
    
    Certificate of Incorporation (filed as Exhibit 3.1 to our Form 8-K filed September 9,
2005 (the September 2005 Form 8-K), and incorporated herein by reference).3.2
    
    Certificate of Amendment to Certificate of Incorporation (filed as Exhibit 3.1 to our
Form 8-K filed July 25, 2006, and incorporated herein by reference).3.3
    
    Amended and Restated Bylaws (filed as Exhibit 3.1 to our Form 8-K filed August 1,
2007, and incorporated herein by reference).3.4
    
    First Amendment to the Amended and Restated Bylaws of the Company (filed as Exhibit
3.1 to our Form 8-K filed December 18, 2007, and incorporated herein by reference).3.5
    
    Certificate of Merger between the Company and Intrac Inc. (filed as Exhibit 3.3 to
the September 2005 Form 8-K, and incorporated herein by reference).4.1
    
    2004 Omnibus Stock Incentive Plan (filed as Exhibit 4.1 to the December 2004
Form 8-K, and incorporated herein by reference).4.2
    
    Form of Common Stock Purchase Warrant, dated November 5, 2004, issued by IDDS (filed
as Exhibit 4.3 to our Registration Statement on Form SB-2 (No. 333-122177) filed with
the SEC on January 20, 2005 (the 2005 Form SB-2), and incorporated herein by
reference).4.3
    
    Placement Agent Warrant Agreement, dated December 6, 2004, issued by IDDS (filed as
Exhibit 4.4 to the 2005 Form SB-2, and incorporated herein by reference).4.4
    
    Form of Common Stock Purchase Warrant (filed as Exhibit 4.1 to our Form 8-K filed
November 10, 2005 (the November 2005 Form 8-K), and incorporated herein by
reference).4.5
    
    Form of Placement Agent Warrants (filed as Exhibit 4.2 to the November 2005 Form 8-K,
and incorporated herein by reference).4.6
    
    Common Stock Purchase Warrant, dated September 7, 2005, issued to Aurora Capital LLC
(filed as Exhibit 4.6 to our Form 10-K for the fiscal year ended December 31, 2005
(the 2005 Form 10-K), and incorporated herein by reference).4.7.1
    
    Common Stock Purchase Warrant, dated September 7, 2005, issued to The Investor
Relations Group, Inc. (filed as Exhibit 4.7.1 to the 2005 Form 10-K, and incorporated
herein by reference).
 93




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##### Table of Contents



Exhibit No.
    
    Description4.7.2
    
    Common Stock Purchase Warrant, dated September 30, 2005, issued to The Investor
Relations Group, Inc. (filed as Exhibit 4.7.2 to the 2005 Form 10-K, and incorporated
herein by reference).4.8
    
    Common Stock Purchase Warrant, dated September 7, 2005, issued to Two River Group
Holding, LLC (filed as Exhibit 4.8 to the 2005 Form 10-K, and incorporated herein by
reference).4.9
    
    2007 Employee Stock Purchase Plan (filed as Appendix A to the Proxy Statement on
Schedule 14A filed on May 31, 2007, and incorporated herein by reference).10.1.1
    
    Form of Subscription Agreement for the December 2004 IDDS Placement (filed as Exhibit
10.2 to the December 10 Form 8-K, and incorporated herein by reference).10.1.2
    
    Form of Registration Rights Agreement dated as of December 6, 2004 between IDDS and
each purchaser in the December 2004 IDDS Placement (filed as Exhibit 10.3 to the
December 2004 Form 8-K, and incorporated herein by reference).10.2
    
    License Agreement effective as of December 14, 2001 among Farmarc N.A.N.V., Farmarc
Netherlands B.V., Shimoda Biotech (Proprietary) Ltd. and IDDS (filed as Exhibit 10.11
to the Registration Statement on Form S-1 (No. 333-76190) filed by IDDS with the SEC
(the IDDS Form S-1), and incorporated herein by reference).10.3.1
    
    License Agreement dated as of August 25, 2000 among West Pharmaceutical Services,
Inc., West Pharmaceutical Services Drug Delivery & Clinical Research Centre Ltd. and
IDDS (filed as Exhibit 10.4 to the IDDS Form S-1, and incorporated herein by
reference).10.3.2
    
    Amendment, dated February 8, 2005, to West Pharmaceutical Services Agreement (filed
as Exhibit 10.3.2 to our Form 10-KSB for the fiscal year ended December 31, 2004, and
incorporated herein by reference).10.4
    
    License Agreement effective as of February 25, 1998 between Dr. Stuart Weg and IDDS
(as successor in interest to Pain Management, Inc.) (filed as Exhibit 10.2 to the
IDDS Form S-1, and incorporated herein by reference).10.5
    
    Employment Agreement, dated as of September 7, 2004, between IDDS and Daniel B. Carr
(filed as Exhibit 10.5 to the December 2004 Form 8-K, and incorporated herein by
reference).10.6.1
    
    Securities Purchase Agreement dated as of November 4, 2004 among the Purchasers named
therein and IDDS (filed as Exhibit 10.6.1 to the 2005 Form SB-2, and incorporated
herein by reference).10.6.2
    
    Form of 10% Senior Secured Debenture, dated November 4, 2004, in the aggregate
principal amount of $1,000,000 issued by IDDS (filed as Exhibit 10.6.2 to the 2005
Form SB-2, and incorporated herein by reference).10.7.1
    
    Securities Purchase Agreement, dated as of November 3, 2005 among the investors named
therein and the Company (filed as Exhibit 10.1 to the November 2005 Form 8-K, and
incorporated herein by reference).
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##### Table of Contents



Exhibit No.
    
    Description10.7.2
    
    Registration Rights Agreement, dated as of November 7, 2005, among the Holders named
therein and the Company (filed as Exhibit 10.2 to the November 2005 Form 8-K, and
incorporated herein by reference).10.8
    
    Employment Agreement, dated as of April 8, 2006, between the Company and Stephen J.
Tulipano (filed as Exhibit 10.1 to our Form 8-K filed on April 26, 2006, and
incorporated herein by reference).10.9
    
    Term Sheet for Employment of David B. Bernstein, dated as of March 2, 2006 (filed as
Exhibit 10.2 to our Form 8-K filed on April 26, 2006, and incorporated herein by
reference).10.10*
    
    Commercial Supply Agreement, dated February 15, 2007, between the Company and
Precision Pharma Services, Inc. (filed as Exhibit 10.10 to our Annual Report on Form
10-K for the fiscal year ended December 31, 2006, and incorporated herein by
reference).10.11*
    
    Development and Toll Manufacturing Agreement, dated as of April 25, 2007, between the
Company and Baxter Healthcare Corporation (filed as Exhibit 10.1 to our Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30, 2007, and incorporated
herein by reference).16.1
    
    Letter from Paritz & Company, P.A., dated December 13, 2004 (filed as Exhibit 16.1 to
our Form 8-K filed for an event of December 13, 2004, and incorporated herein by
reference).21**
    
    List of Subsidiaries.23.1**
    
    Consent of McGladrey & Pullen, LLP, independent registered public accounting firm.23.2**
    
    Consent of PricewaterhouseCoopers, LLP, independent registered public accounting firm.24**
    
    Power of Attorney (on signature page).31.1**
    
    Certification of our Chief Executive Officer pursuant to Rules 13a-14 and 15d-14
under the Securities Exchange Act of 1934, as amended.31.2**
    
    Certification of our Chief Financial Officer pursuant to Rules 13a-14 and 15d-14
under the Securities Exchange Act of 1934, as amended.32.1**
    
    Certification of our Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2**
    
    Certification of our Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Portions of this exhibit have been omitted pursuant to a request for confidential
treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended, and
the omitted material has been separately filed with the Securities and Exchange
Commission.**
    
    Filed herewith 95