##### Table of Contents



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, 2006
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 COMMISSION FILE NUMBER 0-31114
 JAVELIN PHARMACEUTICALS, INC.
  Delaware
    
    88-0471759(State or other jurisdiction of incorporation or organization)
    
    (IRS Employer Identification No.)
  
   
    o þ
 o þ
 þ o
 þ
  o þ o
 o þ




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##### 



INDEX
 Page No.PART I.Item 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    23Item 1B.
    
    Unresolved Staff Comments
    
    
    35Item 2.
    
    Properties
    
    
    35Item 3.
    
    Legal Proceedings
    
    
    35Item 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
    
    
    38Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operation
    
    
    40Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    50Item 8.
    
    Financial Statements and Supplementary Data
    
    
    51Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    83Item 9A.
    
    Controls and Procedures
    
    
    83Item 9B.
    
    Other Information
    
    
    83PART III.Item 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    84Item 11.
    
    Executive Compensation
    
    
    87Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    100Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    102Item 14.
    
    Principal Accounting Fees and Services
    
    
    103PART IV.Item 15.
    
    Exhibits and Financial Statement Schedules
    
    
    104SIGNATURESEX-10.10: COMMERCIAL SUPPLY AGREEMENTEX-21: SUBSIDIARIESEX-23.1: CONSENT OF MCGLADREY & PULLEN, LLPEX-23.2: CONSENT OF PRICEWATERHOUSECOOPERS LLPEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION
  2




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##### Table of Contents



PART I.
 
 ITEM 1. BUSINESS
 Background
   Overview
     3




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Product candidate
    
    Territory
    
    Indication
    
    Development stageDyloject
(injectable diclofenac)
    
    U.S.
Europe
    
    Post-operative pain
Post-operative pain, anti-inflammatory
    
    Phase III
MAA ReviewPMI-150
(intranasal ketamine)
    
    U.S.
    
    Acute moderate-to-severe pain
    
    Completing registration
studiesRylomine
(intranasal morphine)
    
    U.S.
    
    Acute moderate-to-severe pain
    
    Phase III
 ®
    4




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##### Table of Contents



Pain Pharmaceuticals Market Overview
  Market Opportunity
    5




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##### Table of Contents



® ®
  Pain Indications
   Breakthrough Cancer Pain
   Post-Operative Pain
 6
    Table of Contents   Breakthrough Back Pain
 (www.ninds.nih.gov/disorders/backpain/ detail_backpain.htm
  Orthopedic Injury
 www.cdc.gov/nchs/data/series/sr_13/sr13_150.pdf
  Burn Pain
 www.ameriburn.org/pub/BurnIncidenceFactSheet.htm
 Strategy
  7
    Table of Contents  
    
    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.
    
    Retain sales and marketing rights to product candidates
through late stage development. We currently retain U.S. and
worldwide marketing and distribution rights for our products.
We may retain marketing rights for narrow distribution
channels in the U.S. and license out broader distribution
channels and non U.S. rights.
 Products
  Dyloject (diclofenac sodium injectable)
 Background
 b b b
 8
    Table of Contents   b b ®
   Clinical Results
 ®
 ® ®
 ® 9
    Table of Contents   ®
 ® ®
  PMI-150 (intranasal ketamine)
 Background
  10




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##### Table of Contents



Clinical Results
    Rylomine (intranasal morphine)
 Background
 ChiSys Delivery Platform
 11
    Table of Contents        Competitive Grants
   U.S. Department of Defense
  Strategic Agreements
  Shimoda Agreement
 12
    Table of Contents     West Pharmaceutical Agreements
    13




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##### Table of Contents



 Ketamine License
  Sales and Marketing
  Competition
   Intellectual Property
 14
    Table of Contents      Patent Numbers
    
    Product Candidate
    
    Expiration Date5,989,582
    
    Intranasal ketamine
    
    Feb. 25, 20146,248,789
    
    Intranasal ketamine
    
    Feb. 25, 20145,543,434
    
    Intranasal ketamine
    
    Feb. 25, 20145,679,714
    
    Intranasal ketamine
    
    Oct. 21, 20145,744,166
    
    Rylomine (intranasal morphine)
    
    Aug. 21, 20115,629,011
    
    Rylomine (intranasal morphine)
    
    May 13, 20145,554,388
    
    Rylomine (intranasal morphine)
    
    Sept. 10, 20135,679,660
    
    Dyloject (injectable diclofenac)
    
    Dec. 2, 2014
    Manufacturing
 15
    Table of Contents     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 a NDA; and
    
    FDA review and approval of a NDA.
     
    
    Phase I: The drug is initially introduced into healthy human
subjects or patients and tested for safety,
 16




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dosage tolerance,
absorption, metabolism, distribution and excretion.
    
    Phase II: 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 III: When Phase II evaluations demonstrate that a dosage
range of the drug is effective and has an acceptable safety
profile, Phase III 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
    Table of Contents         Other Regulatory Requirements
  18




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##### Table of Contents



Product candidate
    
    Territory
    
    Indication
    
    Development stageDyloject
(injectable diclofenac)
    
    U.S.
Europe
    
    Post-operative pain
Post-operative pain, anti-inflammatory
    
    Phase III
MAA ReviewPMI-150
(intranasal ketamine)
    
    U.S.
    
    Acute moderate-to-severe pain
    
    Completing
registration
studiesRylomine
(intranasal morphine)
    
    U.S.
    
    Acute moderate-to-severe pain
    
    Phase III
  19




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European Product Approval












20




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®
  Pricing Controls
     Third-Party Reimbursements
  21




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Fraud and Abuse Laws
  22




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Employees
  Internet Web Site
 http://www.javelinpharmaceuticals.com.
 Available Information
 http://www.sec.gov. http://www.javelinpharmaceuticals.com
 
 ITEM 1A. RISK FACTORS
  Risks Related to Our Business
 We currently have no product revenues and cannot be certain when 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.


Accounting For
Stock-Based Compensation





    
    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 will incur increased costs and management time in seeking to implement the requirements of the
Sarbanes-Oxley Act of 2002 and other corporate regulations.
  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.
      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.
   26




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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.




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;


27



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
    
    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.
  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;
    
    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.
  28




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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.
  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.
  29
    Table of Contents    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.
   We have limited experience in marketing and selling our products, and we may need to rely on a
third party collaborator 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.
  30
    Table of Contents    
    
    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.
  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 protect or exploit our intellectual property rights.
   31




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
    
    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 may be costly whether we win or lose.
    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 may 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.
 32
    Table of Contents    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.
  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.
   33




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Market Risks
 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; and
    
    general market conditions and other factors, including factors
unrelated to our own operating performance.
 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.
  Risks Related to our Common Stock
 We have not previously paid dividends on our common stock and we do not anticipate doing so in the
foreseeable future.
  34




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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 will dilute the interests of other security holders and
may depress the price of our common stock.
  Provisions in our certificate of incorporation and provisions under Delaware law may inhibit a
takeover of our Company.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  
 ITEM 3. LEGAL PROCEEDINGS
  35




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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
    
    12/31/06
    
    12/31/05High
    
    Low
    
    High
    
    LowFirst Quarter
    
    $
    4.35
    
    
    $
    2.95
    
    
    $
    4.20
    
    
    $
    2.50Second Quarter
    
    
    4.15
    
    
    
    3.20
    
    
    
    3.02
    
    
    
    1.90Third Quarter
    
    
    3.92
    
    
    
    3.00
    
    
    
    3.85
    
    
    
    2.30Fourth Quarter
    
    
    5.67
    
    
    
    2.66
    
    
    
    3.49
    
    
    
    1.95
 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
    
    
    5,374,477
    
    
    $
    2.88
    
    
    
    2,125,523Equity compensation
plans not approved
by security holders
    
    
    1,184,058
    
    
    $
    3.87
    
    
    
    0Total:
    
    
    6,558,535
    
    
    $
    3.06
    
    
    
    2,125,523
 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 2 YEAR CUMULATIVE TOTAL RETURN
 
 
 ITEM 6. SELECTED FINANCIAL DATA
  38




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CumulativefromFebruary 23,1998(Inception) toYear Ended December 31,
    
    
    December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2006(In thousands, except per share data)Statement of Operations Data:Revenues:Government grants and contracts
    
    $
    842
    
    
    $
    1,548
    
    
    $
    837
    
    
    $
    1,102
    
    
    $
    287
    
    
    $
    5,804Operating expenses:Research and development
    
    
    10,854
    
    
    
    7,213
    
    
    
    4,806
    
    
    
    2,217
    
    
    
    2,415
    
    
    
    57,218Selling, general and
administrative
    
    
    9,609
    
    
    
    5,222
    
    
    
    2,703
    
    
    
    2,013
    
    
    
    5,975
    
    
    
    29,731Depreciation and amortization
    
    
    61
    
    
    
    44
    
    
    
    32
    
    
    
    24
    
    
    
    13
    
    
    
    179Total operating expenses
    
    
    20,524
    
    
    
    12,479
    
    
    
    7,541
    
    
    
    4,254
    
    
    
    8,403
    
    
    
    87,127Operating loss
    
    
    (19,682
    )
    
    
    (10,931
    )
    
    
    (6,704
    )
    
    
    (3,152
    )
    
    
    (8,116
    )
    
    
    (81,322
    )Other income
    
    
    601
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    605Interest expense
    
    
    
    
    
    
    
    
    
    
    (356
    )
    
    
    (17
    )
    
    
    (3
    )
    
    
    (944
    )Interest income
    
    
    1,283
    
    
    
    319
    
    
    
    9
    
    
    
    14
    
    
    
    60
    
    
    
    2,223Other income (expense)
    
    
    1,884
    
    
    
    319
    
    
    
    (343
    )
    
    
    (3
    )
    
    
    57
    
    
    
    1,884Net loss
    
    
    (17,798
    )
    
    
    (10,612
    )
    
    
    (7,047
    )
    
    
    (3,155
    )
    
    
    (8,059
    )
    
    
    (79,438
    )Deemed dividend related to
beneficial conversion feature of
Series B convertible preferred
stock.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,559
    )Net loss attributable to
common stockholders
    
    $
    (17,798
    )
    
    $
    (10,612
    )
    
    $
    (7,047
    )
    
    $
    (3,155
    )
    
    $
    (8,059
    )
    
    $
    (82,998
    )Net loss per share attributable
to common stockholders:Basic and diluted
    
    $
    (0.44
    )
    
    $
    (0.38
    )
    
    $
    (0.64
    )
    
    $
    (0.32
    )
    
    $
    (0.81
    )Weighted average shares
    
    
    40,180
    
    
    
    27,831
    
    
    
    10,937
    
    
    
    9,918
    
    
    
    9,917
 39




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As of December 31,2006
    
    2005
    
    2004
    
    2003
    
    2002(In thousands)Balance Sheet Data:Cash and cash equivalents
    
    $
    9,273
    
    
    $
    33,307
    
    
    $
    14,783
    
    
    $
    3,151
    
    
    $
    2,172Short term marketable securities
    
    
    11,462
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Working capital
    
    
    17,885
    
    
    
    32,988
    
    
    
    12,173
    
    
    
    2,366
    
    
    
    1,496Convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,183
    
    
    
    18,795Total assets
    
    
    21,441
    
    
    
    34,439
    
    
    
    15,156
    
    
    
    3,510
    
    
    
    2,903Stockholders equity (deficit)
    
    
    18,232
    
    
    
    33,202
    
    
    
    12,342
    
    
    
    (20,673
    )
    
    
    (17,689
    )
 
 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
   Interest Income
   Interest Expense
 Other Income.
 44




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Liquidity and Capital Resources
     
    
    Conduct commercialization activities in support of Dyloject product launch
including pre-launch planning, development of market plans, pricing and reimbursement
application, development of regional sales and marketing capabilities;
    
    Conduct remaining nonclinical programs, including carcinogenicity studies to support
both PMI-150 and Rylomine regulatory submission and label extensions;
    
    Conduct clinical programs, including phase III clinical trials to support regulatory
submissions and label extensions of our product candidates;
    
    Continue to support Good Manufacturing Practices (GMP) drug supply requirements of
our nonclinical and clinical trials; complete formal stability testing, analytical
development, methods development, specification development and commercial scale-up;
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
    
    Maintain, protect and expand our intellectual property;
    
    Develop expanded internal infrastructure; and
    
    Hire additional personnel.
 Cash used in operating activities
     Cash used in investing activities
   Cash provided by financing activities
  46




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##### Table of Contents



Commitments
  Payments due by periodBeyondTotal
    
    < 1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 YearsOperating leases (1)
    
    $
    1,733,539
    
    
    $
    294,988
    
    
    $
    676,913
    
    
    $
    626,428
    
    
    $
    135,210Shimoda License Agreement (2)
    
    
    5,800,000
    
    
    
    2,000,000
    
    
    
    3,800,000
    
    
    
    
    
    
    Archimedes License Agreements (3)
    
    
    5,000,000
    
    
    
    
    
    
    
    5,000,000
    
    
    
    
    
    
    $
    12,533,539
    
    
    $
    2,294,988
    
    
    $
    9,476,913
    
    
    $
    626,428
    
    
    $
    135,210
 
 
 
 
  Purchase Commitments
   Critical Accounting Policies and Significant Judgments and Estimates
 Revenue Recognition
 47




---



##### Table of Contents



Research and Development Costs
 Stock Based Compensation
  2006Research and development
    
    $
    924,218Selling, general and administrative
    
    
    1,898,721Total impact on results of operations
    
    $
    2,822,939Per share impact on results of operations
    
    $
    0.07
   2006Expected volatility
    
    
    80%Expected life
    
    5.0 yearsDividend yield
    
    
    0%Risk free interest rate
    
    
    4.5% - 5.2
    %Weighted average per share grant date fair value
    
    
    $2.50
 48




---



##### Table of Contents



Income Taxes
  Off Balance Sheet Arrangements
  Recent Accounting Pronouncements
   Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109
 49




---



##### 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
  50




---



##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 PageReports
of Independent Registered Public Accounting Firms
    
    
    52Consolidated Balance Sheets as of December 31, 2005 and 2006
    
    
    56Consolidated Statements of Operations for the years ended December 31, 2004, 2005 and 2006,
and the cumulative period from February 23, 1998 (inception) to December 31, 2006
    
    
    57Consolidated Statements of Redeemable Preferred Stock and Stockholders Equity (Deficit)
for the period from February 23, 1998 (inception) to December 31, 2006, including the
years ended December 31, 2004, 2005 and 2006
    
    
    58Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2005 and 2006,
and the cumulative period from February 23, 1998 (inception) to December 31, 2006
    
    
    60Notes to the Consolidated Financial Statements
    
    
    61
 51




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
  
          Internal ControlIntegrated Framework




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
      Managements Annual Report On Internal
    Control Over Financial Reporting Internal ControlIntegrated Framework
        Internal
    ControlIntegrated Framework Internal ControlIntegrated
    Framework
 53




---



##### Table of Contents



/s/ McGladrey & Pullen, LLPBurlington, MassachusettsMarch 14, 2007 54




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
   
 55




---



##### Table of Contents



Javelin Pharmaceuticals Inc. and Subsidiaries
(A Development Stage Enterprise)
 
 Consolidated Balance Sheets
 December 31,2006
    
    
    2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    9,273,479
    
    
    $
    33,307,449Short term marketable securities available for sale
    
    
    11,461,674
    
    
    
    Grant receivable
    
    
    113,645
    
    
    
    573,501Prepaid expenses and other current assets
    
    
    245,593
    
    
    
    343,958Total current assets
    
    
    21,094,391
    
    
    
    34,224,908Fixed assets, at cost, net of accumulated depreciation
    
    
    237,163
    
    
    
    161,866Other assets
    
    
    109,223
    
    
    
    52,188Total assets
    
    
    21,440,777
    
    
    
    34,438,962Liabilities and Stockholders EquityCurrent liabilities:Accounts payable and accrued expenses
    
    
    3,151,379
    
    
    
    1,207,626Deferred revenue
    
    
    
    
    
    
    19,522Deferred lease liability
    
    
    57,869
    
    
    
    9,871Total current liabilities
    
    
    3,209,248
    
    
    
    1,237,019Commitments and contingenciesStockholders equityPreferred stock, $0.001 par value, 5,000,000 shares
authorized as of December 31, 2006 and 2005, none of
which are outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value; 200,000,000 and
100,000,000 shares authorized as of December 31, 2006
and December 31, 2005, respectively; 40,409,421 and
40,404,977 shares issued and outstanding at December
31, 2006 and 2005, respectively.
    
    
    40,409
    
    
    
    40,404Additional paid-in capital
    
    
    97,634,546
    
    
    
    95,355,368Other comprehensive income (loss)
    
    
    (5,117
    )
    
    
    Unearned compensation
    
    
    
    
    
    
    (553,756
    )Deficit accumulated during the development stage
    
    
    (79,438,309
    )
    
    
    (61,640,073
    )Total stockholders equity
    
    
    18,231,529
    
    
    
    33,201,943Total liabilities and stockholders equity
    
    $
    21,440,777
    
    
    $
    34,438,962
  56




---



##### 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 31,2006
    
    
    2005
    
    
    2004
    
    
    2006Revenues:Government grants and contracts
    
    $
    842,171
    
    
    $
    1,547,753
    
    
    $
    836,841
    
    
    $
    5,804,824Operating expenses:Research and development
    
    
    10,854,116
    
    
    
    7,212,801
    
    
    
    4,806,073
    
    
    
    57,217,713Selling, general and administrative
    
    
    9,608,598
    
    
    
    5,222,104
    
    
    
    2,702,673
    
    
    
    29,730,593
    (1)Depreciation and amortization
    
    
    61,008
    
    
    
    44,321
    
    
    
    31,796
    
    
    
    178,613Total operating expenses
    
    
    20,523,722
    
    
    
    12,479,226
    
    
    
    7,540,542
    
    
    
    87,126,919Operating loss
    
    
    (19,681,551
    )
    
    
    (10,931,473
    )
    
    
    (6,703,701
    )
    
    
    (81,322,095
    )Other income (expense):Interest expense
    
    
    (47
    )
    
    
    (65
    )
    
    
    (356,370
    )
    
    
    (943,959
    )Interest income
    
    
    1,282,604
    
    
    
    319,766
    
    
    
    9,016
    
    
    
    2,222,760Other income
    
    
    600,758
    
    
    
     
    
    
    
    4,227
    
    
    
    604,9851,883,315
    
    
    
    319,701
    
    
    
    (343,127
    )
    
    
    1,883,786Net loss
    
    
    (17,798,236
    )
    
    
    (10,611,772
    )
    
    
    (7,046,828
    )
    
    
    (79,438,309
    )Deemed dividend related to beneficial
conversion feature of Series B redeemable
convertible preferred stock
    
    
     
    
    
    
     
    
    
    
     
    
    
    
    (3,559,305
    )Net loss attributable to common stockholders
    
    $
    (17,798,236
    )
    
    $
    (10,611,772
    )
    
    $
    (7,046,828
    )
    
    $
    (82,997,614
    )Net loss per share attributable to common
stockholdersBasic and diluted
    
    ($
    0.44
    )
    
    ($
    0.38
    )
    
    ($
    0.64
    )Weighted average shares
    
    
    40,179,543
    
    
    
    27,831,188
    
    
    
    10,936,922
 
 (1)
    
    Includes related party transaction of $1,075,182 cumulative from February 23, 1998
(inception) through December 31, 2006 (see note 12).  57




---



##### Table of Contents



Javelin Pharmaceuticals, Inc.
(A Development Stage Enterprise)
 
 Statements of Redeemable Preferred Stock and
Stockholders Equity (Deficit)
 DeficitSeries A
    
    Series B
    
    Series C
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock
    
    
    
    
    
    AccumulatedFor the period from February 23, 1998 (inception) to
    
    Redeemable
    
    Redeemable
    
    Redeemable
    
    
    
    
    
    
    
    
    
    Additional
    
    Unearned
    
    Sub-
    
    Other
    
    During the
    
    TotalDecember 31, 2006, including the years ended
    
    Preferred Stock
    
    Preferred Stock
    
    Preferred Stock
    
    Common Stock
    
    Paid-in
    
    Com-
    
    scription
    
    Comprehensive
    
    Development
    
    StockholdersDecember 31, 2004, 2005 and 2006
    
    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)
 DeficitSeries A
    
    Series B
    
    Series C
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock
    
    
    
    
    
    AccumulatedFor the period from February 23, 1998 (inception) to
    
    Redeemable
    
    Redeemable
    
    Redeemable
    
    
    
    
    
    
    
    
    
    Additional
    
    Unearned
    
    Sub-
    
    Other
    
    During the
    
    TotalDecember 31, 2006, including the years ended
    
    Preferred Stock
    
    Preferred Stock
    
    Preferred Stock
    
    Common Stock
    
    Paid-in
    
    Com-
    
    scription
    
    Comprehensive
    
    Development
    
    StockholdersDecember 31, 2004, 2005 and 2006
    
    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
    )
    
    
    (79,438,309
    )
    
    
    18,231,529
 
 59




---



##### Table of Contents



Javelin Pharmaceuticals, Inc. and Subsidiaries
(A Development Stage Enterprise)
 
 Consolidated Statement of Cash Flows
 Cumulative fromYear Ended
    
    
    
    
    
    
    February 23, 1998December 31,
    
    
    
    
    
    
    (inception) to2006
    
    
    2005
    
    
    2004
    
    
    December 31, 2006Cash flows from operating activities:Net loss
    
    $
    (17,798,236
    )
    
    $
    (10,611,772
    )
    
    $
    (7,046,828
    )
    
    $
    (79,438,309
    )Adjustments to reconcile net loss to net cash used
in operating activities:Depreciation
    
    
    61,008
    
    
    
    44,321
    
    
    
    31,796
    
    
    
    178,613Stock based compensation expense
    
    
    2,822,939
    
    
    
    
    
    
    
    
    
    
    
    2,822,939Amortization of premium/discount on marketable
securities
    
    
    (36,174
    )
    
    
    
    
    
    
    
    
    
    
    (36,174
    )Amortization of deferred financing costs
    
    
    
    
    
    
    
    
    
    
    25,000
    
    
    
    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
    
    
    
    
    
    
    
    
    
    
    314,795
    
    
    
    314,795Stock options and warrants issued in
consideration for services rendered
    
    
    
    
    
    
    373,387
    
    
    
    330,852
    
    
    
    3,003,076Non-cash expense contributed by affiliate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,075,182Changes in assets and liabilities:(Increase) decrease in grant receivable
    
    
    459,856
    
    
    
    (458,327
    )
    
    
    59,863
    
    
    
    (113,645
    )Increase) decrease in prepaid expenses, other
current assets and other assets
    
    
    41,329
    
    
    
    (276,410
    )
    
    
    13,799
    
    
    
    (335,022
    )(Decrease) increase in accounts payable,
accrued expenses and other liabilities
    
    
    1,943,756
    
    
    
    (1,088,846
    )
    
    
    1,306,129
    
    
    
    3,151,382Increase in deferred revenue
    
    
    (19,522
    )
    
    
    19,522
    
    
    
    
    
    
    
    (Decrease) increase in deferred lease liability
    
    
    47,998
    
    
    
    (7,230
    )
    
    
    7,075
    
    
    
    57,869Increase in due to Licensor
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    500,000Net cash used in operating activities
    
    
    (12,477,046
    )
    
    
    (11,286,384
    )
    
    
    (4,457,519
    )
    
    
    (49,046,442
    )Cash flows from investing activities:Purchases of short term marketable securities
    
    
    (23,250,617
    )
    
    
    
    
    
    
    

    
    
    
    (23,250,617
    )Redemption of short term marketable securities
    
    
    11,820,000
    
    
    
    
    
    
    
    
    
    
    
    11,820,000Capital expenditures
    
    
    (136,306
    )
    
    
    (68,536
    )
    
    
    (118,629
    )
    
    
    (415,777
    )Net cash (used in) provided by investing
activities
    
    
    (11,566,923
    )
    
    
    (68,536
    )
    
    
    (118,629
    )
    
    
    (11,846,394
    )Cash flows from financing activities:Proceeds from exercise of warrants
    
    
    9,999
    
    
    
    104,804
    
    
    
    
    
    
    
    115,567Proceeds from exercise of stock options
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    12Proceeds from sale of Common Stock
    
    
    
    
    
    
    31,999,984
    
    
    
    18,086,671
    
    
    
    50,096,274Proceeds from sale of Preferred Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,451,201Expenses associated with sale of Common Stock
    
    
    
    
    
    
    (2,225,411
    )
    
    
    (1,853,224
    )
    
    
    (4,078,635
    )Expenses associated with sale of Preferred Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,764,385
    )Proceeds from notes payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,015,000Proceeds from issuance of debenture
    
    
    
    
    
    
    
    
    
    
    1,000,000
    
    
    
    1,000,000Repayment of debenture
    
    
    
    
    
    
    
    
    
    
    (1,000,000
    )
    
    
    (1,000,000
    )Expenses associated with notes payable
    
    
    
    
    
    
    
    
    
    
    (25,000
    )
    
    
    (153,719
    )Repayment of notes payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,515,000
    )Net cash provided by financing activities
    
    
    9,999
    
    
    
    29,879,389
    
    
    
    16,208,447
    
    
    
    70,166,315Net increase in cash and cash equivalents
    
    
    (24,033,970
    )
    
    
    18,524,469
    
    
    
    11,632,299
    
    
    
    9,273,479Cash and cash equivalents at beginning of period
    
    
    33,307,449
    
    
    
    14,782,980
    
    
    
    3,150,681
    
    
    
    Cash and cash equivalents at end of period
    
    $
    9,273,479
    
    
    $
    33,307,449
    
    
    $
    14,782,980
    
    
    $
    9,273,479Supplemental disclosures:Cash paid for interest:
    
    $
    
    
    
    $
    
    
    
    $
    16,575
    
    
    $
    271,633Supplemental disclosure of noncash investing and
financing activities:Non cash issuance of common stock
    
    $
    
    
    
    $
    500,000
    
    
    $
    
    
    
    $
    500,000Options 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
    
    
    $
    1,153
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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
     61




---



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2. Summary of Significant Accounting Policies
 Basis of Preparation
   Use of Estimates
  Concentrations of Credit Risk
  Cash and Cash Equivalents
  Marketable Securities
  62




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Fixed Assets
   Leaseholds
    
    3 yearsLaboratory equipment
    
    7 yearsFurniture and fixtures
    
    5 yearsComputer equipment and software
    
    3 years
 Revenue Recognition
   Research and Development Costs
  Patents
  Net Loss Per Share
  63




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Deferred Financing Costs
  Comprehensive Loss
  Impairment of Long-Lived Assets
  Stock-Based Compensation
    64




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##### Table of Contents



Income Taxes
  Recent Accounting Pronouncements
   Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109
 3. Marketable Securities
  Carrying
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedValue
    
    
    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
  65




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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
    )
  4. Fixed Assets
  December 31,2006
    
    
    2005Leaseholds
    
    $
    15,435
    
    
    $
    4,824Furniture and fixtures
    
    
    113,474
    
    
    
    60,800Laboratory equipment
    
    
    114,593
    
    
    
    116,901Computer equipment
    
    
    136,204
    
    
    
    76,175Computer software
    
    
    33,764
    
    
    
    20,771413,470
    
    
    
    279,471Less, Accumulated depreciation
    
    
    (176,307
    )
    
    
    (117,605
    )$
    237,163
    
    
    $
    161,866
  5. Accounts Payable and Accrued Expenses
  December 31,2006
    
    
    2005Accounts payable
    
    $
    685,400
    
    
    $
    557,252Accrued professional fees
    
    
    220,333
    
    
    
    434,886Accrued research and development
    
    
    964,944
    
    
    
    56,897Accrued compensation and benefits
    
    
    878,808
    
    
    
    133,044Accrued sales and marketing consulting costs
    
    
    325,165
    
    
    
    Accrued other expenses
    
    
    76,729
    
    
    
    25,547$
    3,151,379
    
    
    $
    1,207,626
 6. Stockholders Equity
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67




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7. Notes Payable
 a.
    
    During 1998, we issued two notes payable to two banks with principal amounts of
$145,000 and $80,000, respectively (the Notes). The Notes were due in September 2000
bearing interest of 1% over the Eurodollar rate and the banks prime rate,
respectively. The Notes were guaranteed by one of our investors. At December 31,
1999, the outstanding balances on the Notes were $145,000 and $80,000, respectively,
accrued interest totaled $1,400 and the weighted average interest rate was 7.5%.
During 2000, the $145,000 Note was increased to $245,000.Both Notes were repaid in October 2000, following the issuance of Series A Stock (see
Note 6).b.
    
    During 1999, we raised $1.04 million by issuing notes payable (the Bridge
Notes) and warrants (the Bridge Warrants). The Bridge Notes accrued interest at 12%
per annum for the first twelve months and 15% per annum for up to an additional year.
At December 31, 1999, accrued interest on the Bridge Notes was approximately $86,000.
In November, 2000, after the issuance of Series A Stock, the principal plus accrued
interest totaling approximately $1,238,000 was repaid.In connection with the Bridge Notes, Bridge Warrants to purchase up to 236,127
shares of Common Stock, with an exercise price of approximately $0.01 per share,
were issued to the Bridge Noteholders. The Bridge Warrants contain anti-dilution
provisions and were to expire in September 2005. The fair value of the Bridge
Warrants at the date of issue was $101,564. Accordingly, the Bridge Notes were
recorded at an original issue discount of $101,564, which was amortized to interest
expense over the term of the Bridge Notes. At December 31, 1999, the Bridge Notes
were recorded at $980,256. During the years ended December 31, 2001, 2003 and 2005,
Bridge Warrants to purchase 15,893 shares, 2,270 shares and 217,964 shares of common
stock, respectively, were exercised. At December 31, 2005, all Bridge Warrants had
been exercised (see Note 11).Professional fees incurred in connection with the issuance of the Bridge Notes,
amounting to $128,719, were accounted for as deferred financing costs.In 1999, we issued to three consultants who had arranged the sale of Bridge Notes
warrants to purchase up to 204,336 shares of common stock at an exercise price of
approximately $0.001 per share. The fair value of the warrants, which were accounted
for as deferred financing costs, at the issuance date was $98,598. All of the
warrants were exercised in 2000.
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c.
    
    In July 2000, we issued a one-year note to a commercial bank in the principal
amount of $150,000 and bearing interest, payable monthly, based on the Eurodollar rate
plus 1%. The note was guaranteed by one of our investors. In October 2000, following
the closing of the sale of Series A Stock, the note was repaid.d.
    
    In November 2002, we issued a $500,000 convertible note, due on November 24,
2004, to eXegenics, Inc., pursuant to an agreement for the termination of a proposed
merger with eXegenics, Inc. (the Merger Note). The Merger Note was bearing interest
at prime plus 1%, as defined, which interest was due and payable annually. The unpaid
principal and accrued interest on the Merger Note was to
automatically convert into shares of our equity securities in the event that we completed a private placement, as
defined, before November 24, 2004, or in the event of a consolidation, merger,
combination, or reorganization, as defined. In the event of a private placement, the
Merger Note and accrued interest was to be converted into the same series of securities
offered in the private placement, at the same per share price paid by investors. At
December 31, 2002, accrued interest on the Merger Note totaled $2,625. In August 2003,
following a private placement, the principal and accrued interest, totaling $519,795,
was converted into 339,736 shares of Series C Redeemable Preferred Stock (see Note 6).e.
    
    In November 2004, we entered into a Securities Purchase Agreement and raised
$1.0 million by issuing a Senior Secured Debenture (the Bridge Debentures) and
warrants (the Warrants). The Bridge Debentures accrued interest at 10% per annum for
a maximum term of 12 months. Subject to certain terms and conditions we granted to
investors in the Bridge Debenture a security interest in certain of our assets. At
December 6, 2004, upon the sale of common stock (see Note 6), the principal plus
accrued interest totaling $1,008,611 was repaid, and the security interest in our
assets was released.In connection with the issuance of the Bridge Debentures, we issued warrants to
purchase up to 226,314 shares of common stock, with an exercise price of $2.65 per
share to the purchasers of the Bridge Debentures. The warrants contain
anti-dilution provisions and expire in November 2009. We allocated the total
proceeds to the fair value of the Bridge Debentures and the Warrants in accordance
with APB No. 14, which resulted in $314,795 being allocated to the warrants. This
amount was accounted for as debt discount and amortized to interest expense over the
term of the Bridge Debentures. Professional fees incurred in connection with the
Bridge Debentures, amounting to $25,000, were accounted for as deferred financing
costs and amortized as additional interest expense during the year ended December
31, 2004.
 8. Commitments and Contingencies
 a.
    
    Operating LeasesWe recognize rental expense for leases on the straight-line basis over the life of the
lease.On 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
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space upon termination of the lease, and received the remainder of our security
deposit in January 2007.On 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 twelve months thereafter. At December
31, 2006, our security deposit related to the lease was $97,615.In 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.For the years ended December 31, 2006, 2005 and 2004, we recognized rent
expense of $326,301, $176,771 and $122,355, respectively. A deferred lease
liability of $57,869, $9,871 and $17,101 at December 31, 2006, 2005 and 2004,
respectively, was recorded for rent expense in excess of amounts paid; the amount of
additional rent paid was immaterial.In December 2006, we entered into a three month extendable term lease for office
space in the United Kingdom for Javelin Pharmaceuticals UK Ltd., effective January
1, 2007. Minimum rent is approximately $1,000 per month. We also paid a security
deposit of approximately $2,000.Future minimum lease payments under operating leases having initial or remaining
noncancellable lease terms in excess of one year are as follows:
 As ofDecember 31, 20062007
    
    $
    294,9882008
    
    
    340,2452009
    
    
    336,6672010
    
    
    306,3202011
    
    
    320,108Thereafter
    
    
    135,210$
    1,733,538
 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)
    
    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 III 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
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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.(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)
    
    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
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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).
  (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 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 I/II clinical trial, commencement of a phase III 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.
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(vi)
    
    On December 14, 2001 (the Effective Date), we entered into an
agreement (the Shimoda Agreement) with Shimoda Biotech (Proprietary) Ltd. and
certain affiliated entities (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 charge based
on the fair value of the consideration paid at the date the milestone is
achieved. Such charge 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.(vii)
    
    In December 2005, we amended the license agreement with
Shimoda. 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 license agreement with Shimoda. 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 Agreement if we diligently continue to pursue regulatory approval as
of that date.(ix)
    
    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 thirty (30) or ninety (90) day cure periods. Either party may also
terminate the Supply Agreement upon sixty (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.
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9. Net Loss per Share
   2006
    
    
    2005
    
    
    2004Numerator:Net loss, basic and diluted
    
    ($
    17,798,236
    )
    
    ($
    10,611,772
    )
    
    ($
    7,046,828
    )Denominator:Weighted average common shares
    
    
    40,179,543
    
    
    
    27,831,188
    
    
    
    10,936,922Net loss per share, basic and diluted
    
    ($
    0.44
    )
    
    ($
    0.38
    )
    
    ($
    0.64
    )
  For the Years Ended December 31,2006
    
    
    2005
    
    
    2004Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedWeighted
    
    
    Average
    
    
    Weighted
    
    
    Average
    
    
    Weighted
    
    
    AverageAverage
    
    
    Exercise
    
    
    Average
    
    
    Exercise
    
    
    Average
    
    
    ExerciseNumber

    
    
    Price
    
    
    Number

    
    
    Price
    
    
    Number
    
    
    
    PriceOptions
    
    
    6,120,904
    
    
    $
    2.99
    
    
    
    4,889,467
    
    
    $
    2.91
    
    
    
    3,730,257
    
    
    $
    3.06Warrants
    
    
    2,830,051
    
    
    
    2.62
    
    
    
    1,922,888
    
    
    
    2.81
    
    
    
    770,226
    
    
    
    2.65Convertible Preferred Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,648,919Total
    
    
    8,950,955
    
    
    
    
    
    
    
    6,812,355
    
    
    
    
    
    
    
    12,149,402
 10. Share Based Compensation
 Adoption of SFAS 123(R)
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2006Research and development
    
    $
    924,218Selling, general and administrative
    
    
    1,898,721Total impact on results of operations
    
    $
    2,822,939Per share impact on results of operations
    
    $
    0.07
   2006Expected volatility
    
    
    80%Expected life
    
    5.0 yearsDividend yield
    
    
    0%Risk free interest rate
    
    
    4.5% - 5.2
    %Weighted average per share grant date fair value
    
    
    $2.50
  Stock Incentive Plans
 Omnibus Plans
  75




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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
    
    
    711,969
    
    
    5.1 years
    
    $
    1.53
    
    
    
    678,636
    
    
    $
    1.51$1.91 - $1.97
    
    
    1,424,418
    
    
    6.8 years
    
    $
    1.96
    
    
    
    1,101,921
    
    
    $
    1.96$1.98 - $2.80
    
    
    705,250
    
    
    7.2 years
    
    $
    2.70
    
    
    
    463,584
    
    
    $
    2.69$2.81 - $3.27
    
    
    709,000
    
    
    9.2 years
    
    $
    3.06
    
    
    
    153,000
    
    
    $
    2.85$3.28 - $3.87
    
    
    735,921
    
    
    9.0 years
    
    $
    3.59
    
    
    
    84,254
    
    
    $
    3.67$3.88 - $4.19
    
    
    727,367
    
    
    8.4 years
    
    $
    4.06
    
    
    
    73,685
    
    
    $
    4.05$4.20 - $5.40
    
    
    360,552
    
    
    3.4 years
    
    $
    5.37
    
    
    
    360,552
    
    
    $
    5.37$1.50 - $5.40
    
    
    5,374,477
    
    
    7.2 years
    
    $
    2.88
    
    
    
    2,915,632
    
    
    $
    2.54




Options Outstanding
    

    Options ExercisableWeighted-AverageRemaining
    
    Weighted-
    
    
    
    
    
    Weighted-Range of Exercise
    
    Number
    
    Contractual
    
    Average
    
    Number
    
    AveragePrices
    
    Outstanding
    
    Life
    
    Exercise Price
    
    Exercisable
    
    Exercise Price$1.50
    
    
    661,969
    
    
    7.2 years
    
    $
    1.50
    
    
    
    661,969
    
    
    $
    1.50$1.90
    
    
    50,000
    
    
    9.5 years
    
    $
    1.90
    
    
    
    -
    
    
    
    -$1.96
    
    
    1,451,743
    
    
    8.1 years
    
    $
    1.96
    
    
    
    704,912
    
    
    $
    1.96$1.97
    
    
    6,620
    
    
    8.5 years
    
    $
    1.97
    
    
    
    6,620
    
    
    $
    1.97$2.60
    
    
    50,000
    
    
    9.5 years
    
    $
    2.60
    
    
    
    -
    
    
    
    -$2.70
    
    
    635,750
    
    
    9.3 years
    
    $
    2.70
    
    
    
    150,000
    
    
    $
    2.70$2.80
    
    
    75,000
    
    
    9.2 years
    
    $
    2.80
    
    
    
    -
    
    
    
    -$2.85
    
    
    260,000
    
    
    9.7 years
    
    $
    2.85
    
    
    
    75,000
    
    
    $
    2.85$3.05
    
    
    9,000
    
    
    9.6 years
    
    $
    3.05
    
    
    
    -
    
    
    
    -$3.33
    
    
    75,000
    
    
    9.6 years
    
    $
    3.33
    
    
    
    -
    
    
    
    -$3.45
    
    
    25,000
    
    
    9.7 years
    
    $
    3.45
    
    
    
    -
    
    
    
    -$3.87
    
    
    50,921
    
    
    6.7 years
    
    $
    3.87
    
    
    
    50,921
    
    
    $
    3.87$5.36
    
    
    309,631
    
    
    4.1 years
    
    $
    5.36
    
    
    
    309,631
    
    
    $
    5.36$5.40
    
    
    50,921
    
    
    6.3 years
    
    $
    5.40
    
    
    
    50,921
    
    
    $
    5.40$1.50 - $5.40
    
    
    3,711,555
    
    
    8.0 years
    
    $
    2.49
    
    
    
    2,009,974
    
    
    $
    2.56  76




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##### Table of Contents



Weighted-
    
    
    
    
    
    
    Weighted-Number of
    
    
    Average
    
    
    Number
    
    
    Averageshares
    
    
    Exercise Price
    
    
    Exercisable
    
    
    Exercise PriceBalance outstanding, December 31, 2003
    
    
    1,996,630
    
    
    $
    2.53
    
    
    
    456,781
    
    
    $
    4.59Granted
    
    
    1,101,413
    
    
    $
    1.96
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (385,468
    )
    
    $
    1.64
    
    
    
    
    
    
    
    Balance 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
    
    
    $
    2.54
      77




---



##### 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
    
    
    1,184,058
    
    
    3.4 years
    
    $
    3.87
    
    
    
    1,184,058
    
    
    $
    3.87




Options Outstanding
    
    Options ExercisableWeightedAverageRemaining
    
    Weighted
    
    
    
    
    
    WeightedRange
of
    
    Number
    
    Contractual
    
    Average
    
    Number
    
    AverageExercise Prices
    
    Outstanding
    
    Life
    
    Exercise Prices
    
    Exercisable
    
    Exercise Price$3.87
    
    
    1,184,058
    
    
    4.9 years
    
    $
    3.87
    
    
    
    1,184,058
    
    
    $
    3.87  Number
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-of
    
    
    Average
    
    
    Number
    
    
    AverageShares
    
    
    Exercise Price
    
    
    Exercisable
    
    
    Exercise PriceBalance outstanding, December 31, 2003
    
    
    1,340,529
    
    
    $
    3.87
    
    
    
    1,340,529
    
    
    $
    3.872004: Canceled
    
    
    (155,230
    )
    
    $
    3.87
    
    
    
    
    
    
    $
    3.87Balance 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
    
    
    $
    3.87
 78




---



##### Table of Contents



Pro-forma Disclosure
  Year Ended December 31,2005
    
    
    2004Net loss as reported
    
    $
    (10,611,772
    )
    
    $
    (7,046,828
    )Add: Stock-based employee compensation
included in net loss under APB No. 25
    
    
    345,672
    
    
    
    198,351Deduct: Total stock-based employee
compensation expense determined under fair
value base method for all awards
    
    
    (1,796,017
    )
    
    
    (1,469,442
    )Pro forma net loss
    
    $
    (12,062,117
    )
    
    $
    (8,317,919
    )Proforma net loss per share (basic and diluted)
    
    ($
    0.43
    )
    
    ($
    0.76
    )
  2005
    
    2004Expected volatility
    
    
    80%
    
    
    
80%Expected life
    
    
5
    
    
    
5Dividend yield
    
    
0%
    
    
    
0%Risk free interest rate
    
    
3.4 - 4.5%
    
    
    
4.5%
  11. Warrants and Units
  Placement
    
    
    Debenture
    
    
    Bridge
    
    
    Investor
    
    
    Consultants
    
    
    FindersWarrants
    
    
    Warrants
    
    
    Warrants
    
    
    Warrants
    
    
    Warrants
    
    
    UnitsIssuance of Bridge Warrants (see Note 7)
    
    
    
    
    
    
    
    
    
    
    236,127Issuance of Consultants Warrants (see Note 7)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    204,336Balance outstanding, December 31, 1999
    
    
    
    
    
    
    
    
    
    
    236,127
    
    
    
    
    
    
    
    204,336
    
    
    
    Issuance of Preferred A Warrants (see Note 6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    415,403Exercise of Consultants Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (204,336
    )Issuance of Finders Units (see Note 6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15.83
    (1)Issuance of Consultants Warrants (see Note 6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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 7)
    
    
    
    
    
    
    
    
    
    
    (2,270
    )Balance outstanding, December 31, 2003
    
    
    
    
    
    
    
    
    
    
    217,964
    
    
    
    415,403
    
    
    
    
    
    
    
    15.83Issuance of Debenture Warrants (see Note 7)
    
    
    
    
    
    
    226,314Issuance of Placement Warrants (see Note 6)
    
    
    920,987
 79




---



##### Table of Contents



Placement
    
    
    Debenture
    
    
    Bridge
    
    
    Investor
    
    
    Consultants
    
    
    FindersWarrants
    
    
    Warrants
    
    
    Warrants
    
    
    Warrants
    
    
    Warrants
    
    
    UnitsBalance 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 6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (388,885
    )Issuance of Consultants Warrants (see Note 6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,184Issuance of 2005 Investor Warrants (see Note 6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    711,111Issuance of 2005 Placement Warrants (see Note
6)
    
    
    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
    
    
    
    15.83
 
 (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.  12. Related Party Transactions
  13. Income Taxes
   December 31, 2006
    
    
    December 31, 2005Deferred tax assets and valuation allowance:Net operating loss carry forwards
    
    $
    20,230,000
    
    
    $
    12,969,000Other deferred tax assets
    
    
    5,127,000
    
    
    
    3,612,000Research and development tax credit carryforwards
    
    
    2,882,000
    
    
    
    1,970,000Valuation allowance
    
    
    (28,239,000
    )
    
    
    (18,551,000
    )
    
    
    
    
  2006
    
    
    2005
    
    
    2004Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentPre tax income (loss)
    
    $
    (17,798,236
    )
    
    
    
    
    
    $
    10,611,772
    )
    
    
    
    
    
    $
    (7,046,828
    )Federal tax provision (benefit) at statutory rate
    
    
    (6,051,400
    )
    
    
    34.0
    %
    
    
    (3,608,002
    )
    
    
    34.0
    %
    
    
    (2,395,922
    )
    
    
    34.0
    %State income tax benefit net of federal tax
benefit
    
    
    (1,834,003
    )
    
    
    10.3
    %
    
    
    (748,462
    )
    
    
    7.1
    %
    
    
    (722,216
    )
    
    
    10.2
    %Permanent differences
    
    
    382,663
    
    
    
    -2.2
    %
    
    
    427,039
    
    
    
    -4.0
    %
    
    
    163,617
    
    
    
    -2.2
    %R & D credit
    
    
    (1,108,705
    )
    
    
    6.3
    %
    
    
    (776,328
    )
    
    
    7.3
    %
    
    
    (432,225
    )
    
    
    6.1
    %Change in valuation allowance
    
    
    9,688,000
    
    
    
    -54.4
    %
    
    
    3,679,000
    
    
    
    -34.7
    %
    
    
    3,510,000
    
    
    
    -49.8
    %Change in rate
    
    
    
    
    
    
    
    %
    
    
    911,066
    
    
    
    -8.6
    %
    
    
    
    
    
    
    0.0
    %Other
    
    
    (1,076,555
    )
    
    
    6.0
    %
    
    
    115,687
    
    
    
    -1.1
    %
    
    
    (123,254
    )
    
    
    1.7
    %Total income tax provision / (benefit)
    
    $
    0
    
    
    
    0.0
    %
    
    $
    0
    
    
    
    0.0
    %
    
    $
    0
    
    
    
    0.0
    %
 80




---



##### Table of Contents



14. Other Income
  15. Subsequent Events
  81




---



##### Table of Contents



SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)
  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
 2005 Quarterly results of operations
 Unaudited Quarter EndedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,(In thousands, except per share data)
    
    2005
    
    2005
    
    2005
    
    2005Government grants and contract revenue
    
    $
    368
    
    
    $
    643
    
    
    $
    99
    
    
    $
    438Operating expensesResearch and development
    
    
    1,127
    
    
    
    2,226
    
    
    
    2,415
    
    
    
    1,445General and administrative
    
    
    1,021
    
    
    
    1,279
    
    
    
    1,202
    
    
    
    1,720Depreciation and amortization
    
    
    10
    
    
    
    12
    
    
    
    12
    
    
    
    10Operating loss
    
    
    (1,790
    )
    
    
    (2,874
    )
    
    
    (3,530
    )
    
    
    (2,737
    )Other income (expense)
    
    
    
    
    
    
    46
    
    
    
    55
    
    
    
    218Net loss attributable to common stockholders
    
    
    (1,790
    )
    
    
    (2,828
    )
    
    
    (3,475
    )
    
    
    (2,519
    )Net loss per share attributable to
common stockholders:Basic and diluted
    
    $
    (0.07
    )
    
    $
    (0.11
    )
    
    $
    (0.13
    )
    
    $
    (0.07
    )Weighted average shares
    
    
    25,399
    
    
    
    25,563
    
    
    
    25,824
    
    
    
    34,458
 82




---



##### 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
  83




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##### Table of Contents



PART III.
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 Executive Officers and Directors
  Name
    
    Age
    
    PositionDouglas G. Watson (1)(2)(3)
    
    
    61
    
    
    Chairman of the Board and DirectorDaniel B. Carr, M.D.
    
    
    58
    
    
    Chief Executive Officer, Chief Medical
Officer and DirectorFred H. Mermelstein, Ph.D.
    
    
    47
    
    
    President and DirectorStephen J. Tulipano
    
    
    47
    
    
    Chief Financial OfficerDavid B. Bernstein
    
    
    44
    
    
    Secretary, General Counsel and Chief
Intellectual Property CounselJackie M. Clegg (1)(2)(3)
    
    
    44
    
    
    DirectorMartin J. Driscoll (3)
    
    
    47
    
    
    DirectorNeil W. Flanzraich (1)
    
    
    63
    
    
    DirectorGeorg Nebgen, Ph.D.
    
    
    45
    
    
    Director
 
 1.
    
    Member of Audit Committee2.
    
    Member of Compensation Committee3.
    
    Member of Corporate Governance Committee   Class I Directors
 Douglas G. Watson
 Neil W. Flanzraich
 Georg Nebgen, Ph.D.
 84




---



##### Table of Contents



Class II Directors
 Daniel B. Carr M.D.
 Fred Mermelstein, Ph.D.
 Class III Directors
 Jackie M. Clegg
 Martin J. Driscoll
 85




---



##### Table of Contents



Executive Officers
  Stephen J. Tulipano
 David B. Bernstein
  Corporate Governance
 Board Composition
  Board Committees
  86




---



##### Table of Contents



Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Ethics
 www.javelinpharmaceuticals.com
 
 ITEM 11. EXECUTIVE COMPENSATION
 Compensation Discussion and Analysis
  Objectives of Our Executive Compensation Program
  
    
    attract and retain talented and experienced executives in the highly competitive
and dynamic pharmaceutical industry;
 87




---



##### Table of Contents




    
    motivate and reward executives whose knowledge, skills and performance are
critical to our success;
    
    align the interests of our executives and stockholders by motivating executives
to increase stockholder value;
    
    provide a competitive compensation package in which a significant portion of
total compensation is determined by company and individual results and the creation of
stockholder value; and
    
    foster a shared commitment among executives by coordinating their company and
individual goals.
 Our Executive Compensation Program
   
    
    our understanding of the amount of compensation generally paid by similarly
situated companies to their executives with similar roles and responsibilities;
    
    our executives performance during 2006 in general and as measured against
predetermined company and individual performance goals;
    
    the roles and responsibilities of our executives;
    
    the individual experience and skills of, and expected contributions from, our executives;
    
    the amounts of compensation being paid to our other executives;
    
    our executives historical compensation and performance at our company; and
    
    any contractual commitments we have made to our executives regarding compensation.
  Base Salary
  88




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##### Table of Contents



Annual Cash Incentive Bonuses
    89




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##### Table of Contents



Long-Term Equity Incentive Compensation
     90




---



##### Table of Contents



Other Compensation
  Pension Benefits.
 Nonqualified Deferred Compensation.
 Severance and Change of Control Arrangements.
 Policies Regarding Tax Deductibility of Compensation.
 Summary of Executive Compensation
  91




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##### Table of Contents



SUMMARY COMPENSATION TABLE
 Change in PensionValue andNonqualifiedNon-Equity
    
    DeferredStock
    
    Option
    
    Incentive Plan
    
    Compensation
    
    All OtherName and Principal
    
    
    
    
    
    
    
    
    
    
    
    
    
    Awards
    
    Awards
    
    Compensation
    
    Earnings
    
    Compensation
    
    TotalPosition
    
    Year
    
    Salary ($)
    
    Bonus ($)
    
    ($)
    

($)
(9)
    
    ($)
    
    ($)
    
    ($)
    
    ($)Daniel B. Carr,
M.D.  Chief
Executive Officer
and Chief Medical
Officer
    
    
    2006
    
    
    $
    350,000
    
    
    
    
    
    
    
    
    
    
    $
    688,602
    
    
    $
    180,000
    (3)
    
    
    
    
    
    
    
    
    
    $
    1,218,602Stephen J.
Tulipano, Chief
Financial Officer
(1)
    
    
    2006
    
    
    $
    133,333
    
    
    
    
    
    
    
    
    
    
    $
    74,751
    
    
    $
    64,125
    (4)
    
    
    
    
    
    
    
    
    
    $
    272,209Douglas A.
Hamilton, Chief
Financial Officer
(2)
    
    
    2006
    
    
    $
    88,125
    
    
    
    
    
    
    
    
    
    
    $
    37,099
    
    
    $
    55,000
    (5)
    
    
    
    
    
    $
    277,044
    (10)
    
    $
    457,268Fred H.
Mermelstein, PhD,
President
    
    
    2006
    
    
    $
    228,000
    
    
    
    
    
    
    
    
    
    
    $
    206,041
    
    
    $
    90,706
    (6)
    
    
    
    
    
    
    
    
    
    $
    524,747David B. Bernstein,
Secretary, General
Counsel and Chief
Intellectual
Property Counsel
(8)
    
    
    2006
    
    
    $
    153,125
    
    
    
    
    
    
    
    
    
    
    $
    76,343
    
    
    $
    45,300
    (7)
    
    
    
    
    
    
    
    
    
    $
    274,768
 
 (1)
    
    Mr. Tulipanos term as Chief Financial Officer commenced on May 1, 2006.(2)
    
    Mr. Hamilton resigned as Chief Financial Officer effective May 1, 2006, and as Chief
Operating Officer, Principal Financial Officer and Principal Accounting Officer effective May
12, 2006.(3)
    
    Dr. Carr is entitled to receive certain incentive compensation at the discretion of the Board
of Directors, up to $320,000 per year (or options to purchase up to 200,000 shares of common
stock, at the option of the Board), if certain performance targets are met, pursuant to his
employment agreement.(4)
    
    Mr. Tulipano is entitled to receive a performance-based bonus in the range of 0-49% of his
base salary, with a target bonus of 30%, if certain performance targets are met, pursuant to
his employment agreement.(5)
    
    Pursuant to the terms of a letter agreement that we entered into with Mr. Hamilton upon his
resignation, we agreed to pay him a performance-based bonus equal to $55,000 based upon the
achievement of certain performance targets.(6)
    
    Dr. Mermelstein is entitled to receive a performance-based bonus of up to 89% of his base
salary if certain performance targets are met.(7)
    
    Mr. Bernstein is entitled to receive a performance-based bonus of up to 30% of his base
salary if certain performance targets are met, pursuant to his term sheet with us.(8)
    
    Mr. Bernsteins term as Secretary, General Counsel and Chief Intellectual Property Counsel
commenced in April 2006.(9)
    
    Reflects the dollar amount recognized for financial statement
reporting purposes for the fiscal year ended December 31, 2006 computed in accordance with SFAS 123R, and
thus may include amounts from awards granted  in and prior to 2006. A
discussion of the methods used to calculate these values may be found
in footnote 10, which is in Part II, item 8 of this
report.(10)
    
    Reflects the dollar amount recognized for financial statement
reporting purposes for the fiscal year ended December 31, 2006 computed in accordance with SFAS 123R for the
modification of previously granted options. 92




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##### Table of Contents



Grants of Plan-Based Awards
  GRANTS OF PLAN-BASED AWARDS
 All Other
    
    All OtherStock
    
    OptionAwards:
    
    Awards:
    
    
    
    Grant DateNumber of
    
    Number of
    
    Exercise or
    
    Fair ValueEstimated Future Payouts Under
    
    Estimated Future Payouts Under
    
    Shares of
    
    Securities
    
    Base Price
    
    of StockNon-Equity Incentive Plan Awards
    
    Equity Incentive Plan Awards
    
    Stock or
    
    Underlying
    
    of Option
    
    and OptionGrant
    
    Threshold
    
    Target
    
    Maximum
    
    Threshold
    
    Target
    
    Maximum
    
    Units
    
    Options
    
    Awards
    
    AwardsName
    
    Date
    
    ($)
    
    ($)
    
    ($)
    
    (#)
    
    (#) (1)
    
    ($)
    
    (#)
    
    (#)
    
    ($ / Sh)
    
    ($)Daniel B. Carr, M.D.
    
    
    3/8/06
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4.05
    
    
    $
    340,000Stephen J. Tulipano
    
    
    5/1/06
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3.70
    
    
    $
    373,500Douglas A. Hamilton
    
    
    3/8/06
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,000
    (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4.05
    
    
    $
    204,000Fred H. Mermelstein
    
    
    3/8/06
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4.05
    
    
    $
    204,000David B. Bernstein
    
    
    4/10/06
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3.50
    
    
    $
    352,500
 
 (1)
    
    The options vest in three annual installments, beginning one year following the grant
date.(2)
    
    Mr. Hamilton was granted options to purchase up to 75,000 shares of common stock in March
2006. However, he forfeited all of these unvested options upon his resignation in May 2006. Discussion of Summary Compensation and Grants of Plan-Based Awards Tables
  Employment Agreements
 Payments Upon Termination
or Change-in-Control
  93




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##### Table of Contents



Stock Option Plan
     94




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##### Table of Contents



Outstanding Equity Awards
  OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
 Option Awards
    
    Stock AwardsEquityEquity
    
    IncentiveEquity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Incentive
    
    Plan Awards:Incentive
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Plan Awards:
    
    Market orPlan Awards:
    
    
    
    
    
    
    
    
    
    
    
    
    
    Market
    
    Number of
    
    Payout ValueNumber of
    
    Number of
    
    Number of
    
    
    
    
    
    
    
    
    
    Number of
    
    Value of
    
    Unearned
    
    of UnearnedSecurities
    
    Securities
    
    Securities
    
    
    
    
    
    
    
    
    
    Shares or
    
    Shares or
    
    Shares, Units
    
    Shares, UnitsUnderlying
    
    Underlying
    
    Underlying
    
    
    
    
    
    
    
    
    
    Units of
    
    Units of
    
    or Other
    
    or OtherUnexercised
    
    Unexercised
    
    Unexercised
    
    Option
    
    
    
    
    
    Stock That
    
    Stock That
    
    Rights That
    
    Rights ThatOptions
    
    Options
    
    Unearned
    
    Exercise
    
    Option
    
    Have Not
    
    Have Not
    
    Have Not
    
    Have Not(#)
    
    (#)
    
    Options
    
    Price
    
    Expiration
    
    Vested
    
    Vested
    
    Vested
    
    VestedName
    
    Exercisable
    
    Unexercisable
    
    (#)
    
    ($)
    
    Date
    
    (#)
    
    ($)
    
    (#)
    
    ($)Daniel B. Carr, M.D.
    
    
    611,047
    
    
    
    305,523
    
    
    
    
    
    
    $
    1.96
    
    
    
    9/7/14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,167
    
    
    
    8,333
    
    
    
    
    
    
    $
    2.70
    
    
    
    4/12/15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125,000
    
    
    
    
    
    
    $
    4.05
    
    
    
    3/8/16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stephen J. Tulipano
    
    
    
    
    
    
    150,000
    
    
    
    
    
    
    $
    3.70
    
    
    
    5/1/16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Douglas A. Hamilton
    
    
    155,228
    
    
    
    
    
    
    
    
    
    
    $
    3.87
    
    
    
    11/14/10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    152,762
    
    
    
    
    
    
    
    
    
    
    $
    1.50
    
    
    
    11/12/07
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,921
    
    
    
    
    
    
    
    
    
    
    $
    1.96
    
    
    
    11/12/07
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,000
    
    
    
    
    
    
    
    
    
    
    $
    2.70
    
    
    
    11/12/07
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,000
    
    
    
    
    
    
    
    
    
    
    $
    2.70
    
    
    
    11/12/07
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fred H. Mermelstein,
    
    
    103,485
    
    
    
    
    
    
    
    
    
    
    $
    3.87
    
    
    
    11/14/10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    PhD.
    
    
    51,742
    
    
    
    
    
    
    
    
    
    
    $
    5.36
    
    
    
    2/24/12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,921
    
    
    
    
    
    
    
    
    
    
    $
    3.87
    
    
    
    9/18/12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    254,603
    
    
    
    
    
    
    
    
    
    
    $
    1.50
    
    
    
    8/22/13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    127,301
    
    
    
    
    
    
    
    
    
    
    $
    1.96
    
    
    
    12/15/13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,667
    
    
    
    83,333
    
    
    
    
    
    
    $
    2.70
    
    
    
    4/12/15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,000
    
    
    
    
    
    
    
    
    
    
    $
    2.70
    
    
    
    4/12/15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,000
    
    
    
    
    
    
    $
    4.05
    
    
    
    3/8/16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    David B. Bernstein
    
    
    
    
    
    
    150,000
    
    
    
    
    
    
    $
    3.50
    
    
    
    4/10/16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Options Exercised and Stock Vested
  Pension Benefits
  Nonqualified Deferred Compensation
  95




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##### Table of Contents



Payments Upon Termination or Change-in-Control
 Daniel B. Carr, M.D.
 Death or Disability.
 Cause.
 Change of Control.
 Without Cause or for Good Reason.
 Employee Covenants.
   96




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##### Table of Contents



David B. Bernstein
  Douglas A. Hamilton
  2005 Omnibus Stock Incentive Plan
 Corporate Transactions.
 Termination of Employment.
  97




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##### Table of Contents



DIRECTOR COMPENSATION
 Changein PensionValue andNonqualifiedNon-Equity
    
    DeferredFees Earned or
    
    
    
    
    
    
    
    
    
    Incentive Plan
    
    Compensation
    
    All OtherPaid in Cash
    
    Stock Awards
    
    Option Awards
    
    Compensation
    
    Earnings
    
    Compensation
    
    TotalName
    
    ($)
    
    ($)
    

($)
(4)
    
    ($)
    
    ($)
    
    ($)
    
    ($)Douglas G. Watson (1)
    
    $
    24,500
    
    
    
    
    
    
    $
    132,561
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    157,061Jackie M. Clegg
    
    $
    20,250
    
    
    
    
    
    
    $
    97,574
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    117,824Martin J. Driscoll
    
    $
    9,500
    
    
    
    
    
    
    $
    57,348
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    66,848Neil W. Flanzraich
    
    $
    10,250
    
    
    
    
    
    
    $
    57,348
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    67,598Georg Nebgen
    
    $
    3,500
    
    
    
    
    
    
    $
    7,968
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    11,468Peter M. Kash (2)
    
    $
    7,500
    
    
    
    
    
    
    $
    100,770
    
    
    
    
    
    
    
    
    
    
    $
    103,307
    (5)
    
    $
    211,577William P. Peters (3)
    
    $
    4,000
    
    
    
    
    
    
    $
    61,776
    
    
    
    
    
    
    
    
    
    
    $
    55,530
    (6)
    
    $
    121,306
 
 (1)
    
    As of December 31, 2006, each director had the following number of options outstanding:
Mr. Watson  236,565; Ms. Clegg  175,921; Mr. Driscoll  50,000; Mr. Flanzraich  50,000; Mr.
Nebgen  50,000; Mr. Kash  252,835; and Mr. Peters  75,260.(2)
    
    Mr. Kash resigned as a director as of December 8, 2006, at which time 48,425 unvested options
were accelerated to vest on December 8, 2006, and 26,575 unvested options were forfeited. Upon
his resignation, Mr. Kash executed a consulting agreement pursuant to which he agreed to
provide consulting services to us until December 8, 2007 for a monthly fee of $5,000. Mr.
Kashs options are exercisable for a period of 18 months following the expiration or
termination of the consulting agreement.(3)
    
    Mr. Peters resigned as a director as of June 9, 2006, at which time all of his unvested
options were forfeited, and the expiration date for all of his vested options was extended to
December 8, 2007.(4)
    
    Reflects the dollar amount recognized for financial statement
reporting purposes for the fiscal year ended December 31, 2006
computed in accordance with SFAS 123R, and thus may include
amounts from awards granted in and prior to 2006. A
discussion of the methods used to calculate these values may be found
in footnote 10, Part II, item 8 of this report.(5)
    
    Reflects the dollar amount recognized for financial statement
reporting purposes for the fiscal year ended December 31, 2006
computed in accordance with SFAS 123R for
modification of options upon termination.(6)
    
    Reflects the dollar amount recognized for financial statement
reporting purposes for the fiscal year ended December 31, 2006
computed in accordance with SFAS 123R for the
modification of options upon termination. Director Compensation
  98




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##### Table of Contents



REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
    Douglas G. Watson, Chair
Jackie M. Clegg
 99




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##### Table of Contents



Compensation Committee Interlocks and Insider Participation
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  Name and Addressof Beneficial Owner (2)
    
    Shares Beneficially Owned (1)Number
    
    PercentWexford Capital LLC (3) 
411 West Putnam Avenue, Suite 125
Greenwich, CT 06930
    
    
    5,012,642
    
    
    
    12.34
    %Lindsay A. Rosenwald (4)
c/o Paramount BioCapital Investments, LLC
787 Seventh Avenue, 48th Floor
New York, NY 10019
    
    
    4,356,847
    
    
    
    10.78
    %NGN Capital, LLC (5) 
369 Lexington Avenue, 17th Floor 
New York, NY 10017
    
    
    3,266,667
    
    
    
    8.05
    %Fred H. Mermelstein (6)
    
    
    1,326,202
    
    
    
    3.22
    %Georg Nebgen (7)
    
    
    3,266,667
    
    
    
    8.05
    %Daniel B. Carr (8)
    
    
    665,048
    
    
    
    1.62
    %Douglas G. Watson (9)
    
    
    191,565
    
    
    
    *Jackie M. Clegg (10)
    
    
    125,921
    
    
    
    *David B. Bernstein (11)
    
    
    51,000
    
    
    
    *Stephen J. Tulipano (12)
    
    
    - 0 -
    
    
    
    *Martin J. Driscoll (13)
    
    
    - 0 -
    
    
    
    *Neil W. Flanzraich (13)
    
    
    200,000
    
    
    
    *All officers and directors as a group (14)
    
    
    5,826,403
    
    
    
    13.73
    %
 100




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##### Table of Contents



*
    
    Beneficial ownership of less than 1% is omitted.(1)
    
    The number of shares beneficially owned is determined under SEC rules,
and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under those rules, beneficial
ownership includes any shares as to which the individual has sole or
shared voting power or investment power, and also any shares which the
individual has the right to acquire within 60 days of March 1, 2007,
through the exercise or conversion of any stock option, convertible
security, warrant or other right (a Presently Exercisable security).
Including those shares in the tables does not, however, constitute an
admission that the named stockholder is a direct or indirect
beneficial owner of those shares.(2)
    
    Unless otherwise indicated, each person or entity named in the
table has sole voting power and investment power (or shares that
power with that persons spouse) with respect to all shares of
common stock listed as
owned by that person or entity. Unless otherwise indicated,
the address of each of the following persons is 125 CambridgePark
Drive, Cambridge, MA 02140.(3)
    
    Includes (i) 2,568,198 shares owned of record by Wexford Spectrum
Investors LLC and 111,111 shares obtainable upon exercise of
Presently Exercisable Warrants and (ii) 2,222,222 shares owned of
record by Theta Investors LLC and 111,111 shares obtainable upon
exercise of Presently Exercisable Warrants, as reported on
Schedule 13G/A, filed on February 7, 2006.(4)
    
    Includes (i) an aggregate of 1,672,673 shares with sole voting
and dispositive power; (ii) 386,610 shares owned by Horizon
Biomedical Ventures, LLC, of which Mr. Rosenwald is the managing
member; and (iii) 1,981,064 shares owned by Mr. Rosenwalds wife
for the benefit of his minor children, as reported on a Form 4
dated December 28, 2006. Mr. Rosenwald disclaims beneficial
ownership of the shares held by his wife and by Horizon, except
to the extent of his pecuniary interest therein, if any.(5)
    
    Includes (i) 1,805,689 shares owned of record by NGN Biomed
Opportunity I, L.P., (ii) 1,305,422 shares owned of record by NGN
Biomed Opportunity I GmbH & Co. Beteiligungs KG, and (iii)
155,556 shares obtainable upon exercise of Presently Exercisable
warrants. In their Schedule 13D, filed November 17, 2005, each of
these persons expressly disclaimed membership in a group or
beneficial ownership of any shares of common stock except for
shares held of record.(6)
    
    Includes 771,386 shares obtainable upon exercise of Presently
Exercisable options. Excludes 161,666 shares obtainable upon
exercise of options not Presently Exercisable.(7)
    
    Includes: (i) 1,805,689 shares, and 90,285 shares obtainable upon
exercise of Presently Exercisable warrants, owned of record by
NGN Biomed Opportunity I, L.P. and (ii) 1,305,422 shares, and
65,271 shares obtainable upon exercise of Presently Exercisable
warrants, owned of record by NGN Biomed Opportunity I GmbH & Co.
Beteiligungs KG, and excludes 76,644 shares obtainable upon
exercise of options not Presently Exercisable, as reported on a
Form 3 dated December 8, 2006, a Form 4 dated December 8, 2006
and a Form 4 dated January 3, 2007. Dr. Nebgen is a managing
member of NGN Capital LLC (NGN Capital), which is the sole
general partner of NGN Biomed I, L.P. (NGN GP) and the managing
limited partner of NGN Biomed Opportunity I GmbH & Co.
Beteiliguns KG (NGN Biomed I GMBH). NGN GP is the sole general
partner of NGN Biomed Opportunity I, L.P. Under the operating
agreement for NGN Capital, Dr. Nebgen is deemed to hold the
reported securities for the benefit of NGN Capital. NGN Capital
may, therefore, be deemed the indirect beneficial owner of the
securities, and Dr. Nebgen may be deemed the indirect beneficial
owner through his indirect interest in NGN Capital. Dr. Nebgen
disclaims beneficial ownership of the securities except to the
extent of his pecuniary interest therein, if any.(8)
    
    Includes 661,048 shares obtainable upon exercise of Presently
Exercisable options. Excludes 488,022 shares obtainable upon
exercise of options not Presently Exercisable.(9)
    
    Includes 186,565 shares obtainable upon exercise of Presently
Exercisable options. Excludes 85,000 shares 101




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obtainable upon
exercise of options not Presently Exercisable.(10)
    
    Includes 125,921 shares obtainable upon exercise of Presently
Exercisable options. Excludes 65,000 shares obtainable upon
exercise of options not Presently Exercisable.(11)
    
    Includes 50,000 shares obtainable upon exercise of Presently Exercisable options.
Excludes 143,000 shares obtainable upon exercise of options not
Presently Exercisable.(12)
    
    Excludes 195,000 shares obtainable upon exercise of options not Presently Exercisable.(13)
    
    Excludes 91,604 shares obtainable upon exercise of options not Presently Exercisable.(14)
    
    Includes all shares of the persons denoted in footnotes (6) through (13). 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
    Approval for Related Party Transactions
  Director Independence
  102




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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  Audit Fees.
 Audit-Related Fees.
 Tax Fees.
 All Other Fees.
  Pre-Approval Policies and Procedures
   103




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PART IV.
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a)(1)(2) Financial Statements and Financial Statement Schedule.
  (a)(3) Exhibits.
  104




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SIGNATURES
  JAVELIN PHARMACEUTICALS, INC.By:
Name:
Title:
    
    /s/ Daniel B. Carr

Daniel B. Carr, M.D.
Chief Executive Officer and
Chief Medical Officer
 POWER
OF ATTORNEY
   Signature
    
    Title
    
    Date/s/ Daniel B. Carr

Daniel B. Carr
    
    Chief Executive Officer, Chief
Medical Officer and Director
(Principal Executive Officer)
    
    March 15, 2007/s/ Stephen J. Tulipano

Stephen J. Tulipano
    
    Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
    
    March 15, 2007/s/ Fred H. Mermelstein

Fred H. Mermelstein
    
    President and Director
    
    March 15, 2007/s/ Douglas G. Watson

Douglas G. Watson
    
    Chairman of the Board and Director
    
    March 15, 2007/s/ Jackie M. Clegg

Jackie M. Clegg
    
    Director
    
    March 15, 2007/s/ Martin J. Driscoll

Martin J. Driscoll
    
    Director
    
    March 15, 2007/s/ Neil W. Flanzraich

Neil W. Flanzraich
    
    Director
    
    March 15, 2007/s/ Georg Nebgen

Georg Nebgen
    
    Director
    
    March 15, 2007
 105




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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
10 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
    
    Bylaws (filed as Exhibit 3.2 to the September 2005 Form 8-K, and incorporate herein
by reference).3.4
    
    Certificate of Merger between the Company and Intrac Inc., filed on September 7, 2005
with the Secretary of State of the State of Delaware (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 10 Form 8-K,
and incorporated herein by reference).4.2
    
    Form of Common Stock Purchase Warrant, dated November 5, 2004, issued by IDDS as part
of bridge financing (filed as Exhibit 4.3 to our Registration Statement on Form SB-2
filed 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).4.7.2
    
    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).
 106




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Exhibit No.
    
    Description4.9
    
    Amended and Restated 2005 Omnibus Stock Incentive Plan.10.1.1
    
    Form of Subscription Agreement for 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 10 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 IDDS Registration Statement on Form S-1 (No. 333-76190)(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 the 2004 Form 10KSB, 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 10 Form 8-K, and incorporated herein by
reference).10.6.1
    
    Securities Purchase Agreement dated as of November 4, 2004 among the Purchasers
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
therein and the Company (filed as Exhibit 10.1 to the November 2005 Form 8-K, and
incorporated herein by reference).10.7.2
    
    Registration Rights Agreement, dated as of November 7, 2005, among the Holders
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.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).
 107




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Exhibit No.
    
    Description21*
    
    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.
 
 *
    
    Filed herewith 108