================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE PERIOD ENDED FEBRUARY 28, 2002
OR
[ ] TRANSITION REPORT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE TRANSITION PERIOD FROM TO
-------------- ---------------
COMMISSION FILE NUMBER 0-24050
NORTHFIELD LABORATORIES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3378733
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1560 SHERMAN AVENUE, SUITE 1000, EVANSTON, ILLINOIS 60201-4800
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (847) 864-3500
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT: NOT APPLICABLE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--- ---
APPLICABLE ONLY TO ISSUER INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT. YES NO
--- ---
AS OF FEBRUARY 28, 2002, REGISTRANT HAD 14,265,875 SHARES OF COMMON STOCK
OUTSTANDING
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INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors
Northfield Laboratories Inc.:
We have reviewed the balance sheet of Northfield Laboratories Inc. (a company in
the development stage) as of February 28, 2002, and the related statements of
operations for the three-month periods ended February 28, 2002 and 2001, and
statements of operations and cash flows for the nine-month periods ended
February 28, 2002 and 2001 and for the period from June 19, 1985 (inception)
through February 28, 2002. We have also reviewed the statements of shareholders'
equity (deficit) for the nine-month period ended February 28, 2002 and for the
period from June 19, 1985 (inception) through February 28, 2002. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the balance sheet of Northfield
Laboratories Inc. as of May 31, 2001, and the related statements of operations,
shareholders' equity (deficit), and cash flows for the year then ended and for
the period from June 19, 1985 (inception) through May 31, 2001 (not presented
herein); and in our report dated July 2, 2001, we expressed an unqualified
opinion on those financial statements. In our opinion, the information set forth
in the accompanying balance sheet as of May 31, 2001 and in the accompanying
statement of shareholders' equity (deficit) for the year ended is fairly stated,
in all material respects, in relation to the statement from which it has been
derived.
/s/ KPMG LLP
Chicago, Illinois
March 29, 2002
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Balance Sheets
February 28, 2002 and May 31, 2001
FEBRUARY 28, MAY 31,
ASSETS 2002 2001
------------- -----------
(unaudited)
Current assets:
Cash $ 15,708,003 6,435,540
Short-term marketable securities 4,996,604 22,262,841
Prepaid expenses 172,640 378,142
Other current assets 51,990 455,860
------------- ----------
Total current assets 20,929,237 29,532,383
Property, plant, and equipment, net 2,344,958 2,847,333
Other assets 72,664 122,522
------------- ----------
$ 23,346,859 32,502,238
============= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 484,328 1,772,582
Accrued expenses 171,465 153,905
Accrued compensation and benefits 315,012 261,213
------------- ----------
Total current liabilities 970,805 2,187,700
Other liabilities 175,373 166,860
------------- ----------
Total liabilities 1,146,178 2,354,560
------------- ----------
Shareholders' equity:
Preferred stock, $.01 par value. Authorized 5,000,000 shares;
none issued and outstanding -- --
Common stock, $.01 par value. Authorized 30,000,000 shares;
issued and outstanding 14,265,875 shares
at February 28, 2002, and May 31, 2001, respectively 142,659 142,659
Additional paid-in capital 117,503,271 117,503,271
Deficit accumulated during the development stage (95,445,249) (87,498,252)
------------- ----------
Total shareholders' equity 22,200,681 30,147,678
------------- ----------
$ 23,346,859 32,502,238
============= ==========
See accompanying independent accountants' review report.
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Operations
Three and nine month periods ended February 28, 2002 and February
28, 2001 and for the period from June 19, 1985 (inception)
through February 28, 2002
CUMULATIVE
THREE MONTH PERIODS ENDED NINE MONTH PERIODS ENDED FROM
-------------------------------- ------------------------------ JUNE 19, 1985
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, THROUGH
2002 2001 2002 2001 FEBRUARY 28, 2002
------------ ------------ ------------ ------------- -----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Revenues - license income $ -- -- -- -- $ 3,000,000
Costs and expenses:
Research and development 2,175,834 2,488,972 6,735,183 6,963,676 85,312,588
General and administrative 582,852 620,079 1,950,622 2,047,582 36,207,335
------------- ------------- ------------- ------------- -------------
2,758,686 3,109,051 8,685,805 9,011,258 121,519,923
------------- ------------- ------------- ------------- -------------
Other income and expense:
Interest income 167,966 504,733 738,808 1,645,689 23,157,908
Interest expense -- -- -- -- 83,234
------------- ------------- ------------- ------------- -------------
167,966 504,733 738,808 1,645,689 23,074,674
------------- ------------- ------------- ------------- -------------
Net loss $ (2,590,720) (2,604,318) (7,946,997) (7,365,569) $ (95,445,249)
============= ============= ============= ============= =============
Net loss per basic and diluted share $ (0.18) (0.18) (0.56) (0.52) $ (10.02)
============= ============= ============= ============= =============
Shares used in calculation of
per share data 14,265,875 14,263,003 14,265,875 14,252,632 9,529,403
============= ============= ============= ============= =============
See accompanying independent accountants' review report.
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Shareholders' Equity (Deficit)
Nine month period ended February 28, 2002 and for the
period from June 19, 1985 (inception) through February 28, 2002
SERIES A CONVERTIBLE
PREFERRED STOCK COMMON STOCK PREFERRED STOCK
--------------------- --------------------- ---------------------
NUMBER AGGREGATE NUMBER AGGREGATE NUMBER AGGREGATE
OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT
--------- --------- --------- ---------- ---------- ---------
Issuance of common stock on August 27, 1985 -- $ -- 3,500,000 $35,000 -- $ --
Issuance of Series A convertible preferred stock at
$4.00 per share on August 27, 1985 (net of costs
of issuance of $79,150) -- -- -- -- 250,000 250,000
Net loss -- -- -- -- -- --
---- ------ --------- ------- ------- ---------
Balance at May 31, 1986 -- -- 3,500,000 35,000 250,000 250,000
Net loss -- -- -- -- -- --
Deferred compensation relating to grant of stock
options -- -- -- -- -- --
Amortization of deferred compensation -- -- -- -- -- --
---- ------ --------- ------- ------- ---------
Balance at May 31, 1987 -- -- 3,500,000 35,000 250,000 250,000
Issuance of Series B convertible preferred stock at
$35.68 per share on August 14, 1987 (net of costs
of issuance of $75,450) -- -- -- -- -- --
Net loss -- -- -- -- -- --
Amortization of deferred compensation -- -- -- -- -- --
---- ------ --------- ------- ------- ---------
Balance at May 31, 1988 -- -- 3,500,000 35,000 250,000 250,000
Issuance of common stock at $24.21 per share on
June 7, 1988 (net of costs of issuance of $246,000) -- -- 413,020 4,130 -- --
Conversion of Series A convertible preferred stock to
common stock on June 7, 1988 -- -- 1,250,000 12,500 (250,000) (250,000)
Conversion of Series B convertible preferred stock to
common stock on June 7, 1988 -- -- 1,003,165 10,032 -- --
Exercise of stock options at $2.00 per share -- -- 47,115 471 -- --
Issuance of common stock at $28.49 per share on
March 6, 1989 (net of costs of issuance of $21,395) -- -- 175,525 1,755 -- --
Issuance of common stock at $28.49 per share on
March 30, 1989 (net of costs of issuance of $10,697) -- -- 87,760 878 -- --
Sale of options at $28.29 per share to purchase common
stock at $.20 per share on March 30, 1989 (net of
costs of issuance of $4,162) -- -- -- -- -- --
Net loss -- -- -- -- -- --
Deferred compensation relating to grant of stock options -- -- -- -- -- --
Amortization of deferred compensation -- -- -- -- -- --
---- ------ --------- ------- ------- ---------
Balance at May 31, 1989 -- -- 6,476,585 64,766 -- --
Net loss -- -- -- -- -- --
Deferred compensation relating to grant of stock options -- -- -- -- -- --
Amortization of deferred compensation -- -- -- -- -- --
---- ------ --------- ------- ------- ---------
Balance at May 31, 1990 -- -- 6,476,585 64,766 -- --
Net loss -- -- -- -- -- --
Amortization of deferred compensation -- -- -- -- -- --
---- ------ --------- ------- ------- ---------
Balance at May 31, 1991 -- -- 6,476,585 64,766 -- --
Exercise of stock warrants at $5.60 per share -- -- 90,000 900 -- --
Net loss -- -- -- -- -- --
Amortization of deferred compensation -- -- -- -- -- --
---- ------ --------- ------- ------- ---------
Balance at May 31, 1992 -- -- 6,566,585 65,666 -- --
Exercise of stock warrants at $7.14 per share -- -- 15,000 150 -- --
Issuance of common stock at $15.19 per share on
April 19, 1993 (net of costs of issuance of $20,724) -- -- 374,370 3,744 -- --
Net loss -- -- -- -- -- --
Amortization of deferred compensation -- -- -- -- -- --
---- ------ --------- ------- ------- ---------
Balance at May 31, 1993 -- -- 6,955,955 69,560 -- --
---- ------ --------- ------- ------- ---------
DEFICIT TOTAL
SERIES B CONVERTIBLE ACCUMULATED SHARE-
PREFERRED STOCK ADDITIONAL DURING THE DEFERRED HOLDERS'
NUMBER AGGREGATE PAID-IN DEVELOPMENT COMPEN- EQUITY
OF SHARES AMOUNT CAPITAL STAGE SATION (DEFICIT)
--------- --------- ----------- ----------- -------- ----------
Issuance of common stock
on August 27, 1985 -- $ -- (28,000) -- -- 7,000
Issuance of Series A convertible preferred
stock at $4.00 per share on August 27,
1985 (net of costs of issuance of $79,150) -- -- 670,850 -- -- 920,850
Net loss -- -- -- (607,688) -- (607,688)
-------- --------- ---------- ---------- ---------- ----------
Balance at May 31, 1986 -- -- 642,850 (607,688) -- 320,162
Net loss -- -- -- (2,429,953) -- (2,429,953)
Deferred compensation relating to grant of
stock options -- -- 2,340,000 -- (2,340,000) --
Amortization of deferred compensation -- -- -- -- 720,000 720,000
------- --------- ---------- ---------- ---------- ----------
Balance at May 31, 1987 -- -- 2,982,850 (3,037,641) (1,620,000) (1,389,791)
Issuance of Series B convertible preferred
stock at $35.68 per share on August 14,
1987 (net of costs of issuance of $75,450) 200,633 200,633 6,882,502 -- -- 7,083,135
Net loss -- -- -- (3,057,254) -- (3,057,254)
Amortization of deferred compensation -- -- -- -- 566,136 566,136
------- --------- ---------- ---------- ---------- ----------
Balance at May 31, 1988 200,633 200,633 9,865,352 (6,094,895) (1,053,864) 3,202,226
Issuance of common stock at $24.21 per share
on June 7, 1988 (net of costs of issuance
of $246,000) -- -- 9,749,870 -- -- 9,754,000
Conversion of Series A convertible preferred
stock to common stock on June 7, 1988 -- -- 237,500 -- -- --
Conversion of Series B convertible preferred
stock to common stock on June 7, 1988 (200,633) (200,633) 190,601 -- -- --
Exercise of stock options at $2.00 per share -- -- 93,759 -- -- 94,230
Issuance of common stock at $28.49 per share
on March 6, 1989 (net of costs of issuance
of $21,395) -- -- 4,976,855 -- -- 4,978,610
Issuance of common stock at $28.49 per share
on March 30, 1989 (net of costs of issuance
of $10,697) -- -- 2,488,356 -- -- 2,489,234
Sale of options at $28.29 per share to purchase
common stock at $.20 per share on March 30,
1989 (net of costs of issuance of $4,162) -- -- 7,443,118 -- -- 7,443,118
Net loss -- -- -- (791,206) -- (791,206)
Deferred compensation relating to grant of
stock options -- -- 683,040 -- (683,040) --
Amortization of deferred compensation -- -- -- -- 800,729 800,729
------- --------- ---------- ---------- ---------- ----------
Balance at May 31, 1989 -- -- 35,728,451 (6,886,101) (936,175) 27,970,941
Net loss -- -- -- (3,490,394) -- (3,490,394)
Deferred compensation relating to grant of
stock options -- -- 699,163 -- (699,163) --
Amortization of deferred compensation -- -- -- -- 546,278 546,278
------- --------- ---------- ---------- ---------- ----------
Balance at May 31, 1990 -- -- 36,427,614 (10,376,495) (1,089,060) 25,026,825
Net loss -- -- -- (5,579,872) -- (5,579,872)
Amortization of deferred compensation -- -- -- -- 435,296 435,296
------- --------- ---------- ---------- ---------- ----------
Balance at May 31, 1991 -- -- 36,427,614 (15,956,367) (653,764) 19,882,249
Exercise of stock warrants at $5.60 per share -- -- 503,100 -- -- 504,000
Net loss -- -- -- (7,006,495) -- (7,006,495)
Amortization of deferred compensation -- -- -- -- 254,025 254,025
------- --------- ---------- ---------- ---------- ----------
Balance at May 31, 1992 -- -- 36,930,714 (22,962,862) (399,739) 13,633,779
Exercise of stock warrants at $7.14 per share -- -- 106,890 -- -- 107,040
Issuance of common stock at $15.19 per share
on April 19, 1993 (net of costs of issuance
of $20,724) -- -- 5,663,710 -- -- 5,667,454
Net loss -- -- -- (8,066,609) -- (8,066,609)
Amortization of deferred compensation -- -- -- -- 254,025 254,025
------- --------- ---------- ---------- ---------- ----------
Balance at May 31, 1993 -- -- 42,701,314 (31,029,471) (145,714) 11,595,689
------- --------- ---------- ---------- ---------- ----------
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Shareholders' Equity (Deficit), continued
Nine month period ended February 28, 2002 and for the
period from June 19, 1985 (inception) through February 28, 2002
SERIES A CONVERTIBLE
PREFERRED STOCK COMMON STOCK PREFERRED STOCK
------------------------ ------------------------ ------------------------
NUMBER AGGREGATE NUMBER AGGREGATE NUMBER AGGREGATE
OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT
---------- --------- --------- ---------- --------- ---------
Net loss -- $ -- -- $ -- -- $ --
Issuance of common stock at $6.50 per share
on May 26, 1994 (net of costs of issuance
of $2,061,149) -- -- 2,500,000 25,000 -- --
Cancellation of stock options -- -- -- -- -- --
Amortization of deferred compensation -- -- -- -- -- --
---- ----- ---------- ----------- -------- -----
Balance at May 31, 1994 -- -- 9,455,955 94,560 -- --
Net loss -- -- -- -- -- --
Issuance of common stock at $6.50 per share
on June 20, 1994 (net of issuance costs of
$172,500) -- -- 375,000 3,750 -- --
Exercise of stock options at $7.14 per share -- -- 10,000 100 -- --
Exercise of stock options at $2.00 per share -- -- 187,570 1,875 -- --
Cancellation of stock options -- -- -- -- -- --
Amortization of deferred compensation -- -- -- -- -- --
---- ----- ---------- ----------- -------- -----
Balance at May 31, 1995 -- -- 10,028,525 100,285 -- --
Net loss -- -- -- -- -- --
Issuance of common stock at $17.75 per share
on August 9, 1995 (net of issuance costs of
$3,565,125) -- -- 2,925,000 29,250 -- --
Issuance of common stock at $17.75 per share
on September 11, 1995 (net of issuance costs
of $423,23 -- -- 438,750 4,388 -- --
Exercise of stock options at $2.00 per share -- -- 182,380 1,824 -- --
Exercise of stock options at $6.38 per share -- -- 1,500 15 -- --
Exercise of stock options at $7.14 per share -- -- 10,000 100 -- --
Cancellation of stock options -- -- -- -- -- --
Amortization of deferred compensation -- -- -- -- -- --
---- ----- ---------- ----------- -------- -----
Balance at May 31, 1996 -- -- 13,586,155 135,862 -- --
Net loss -- -- -- -- -- --
Exercise of stock options at $0.20 per share -- -- 263,285 2,633 -- --
Exercise of stock options at $2.00 per share -- -- 232,935 2,329 -- --
Exercise of stock options at $7.14 per share -- -- 10,000 100 -- --
Amortization of deferred compensation -- -- -- -- -- --
---- ----- ---------- ----------- -------- -----
Balance at May 31, 1997 -- -- 14,092,375 140,924 -- --
Net loss -- -- -- -- -- --
Exercise of stock options at $7.14 per share -- -- 5,000 50 -- --
Amortization of deferred compensation -- -- -- -- -- --
---- ----- ---------- ----------- -------- -----
Balance at May 31, 1998 -- -- 14,097,375 140,974 -- --
Net loss -- -- -- -- -- --
Non-cash compensation -- -- -- -- -- --
Exercise of stock options at $7.14 per share -- -- 17,500 175 -- --
Exercise of stock warrants at $8.00 per share -- -- 125,000 1,250 -- --
---- ----- ---------- ----------- -------- -----
Balance at May 31, 1999 -- -- 14,239,875 142,399 -- --
Net loss -- -- -- -- -- --
Non-cash compensation -- -- -- -- -- --
Exercise of stock options at $13.38 per share -- -- 2,500 25 -- --
---- ----- ---------- ----------- -------- -----
Balance at May 31, 2000 -- -- 14,242,375 142,424 -- --
Net loss -- -- -- -- -- --
Exercise of stock options at $6.38 -- -- 6,000 60 -- --
Exercise of stock options at $10.81 -- -- 17,500 175 -- --
---- ----- ---------- ----------- -------- -----
Balance at May 31, 2001 -- -- 14,265,875 $ 142,659 -- --
Net loss (unaudited) -- -- -- -- -- --
---- ----- ---------- ----------- -------- -----
Balance at February 28, 2002 (unaudited) -- $ -- 14,265,875 $ 142,659 -- $ --
==== ===== ========== ============ ======== =====
DEFICIT TOTAL
SERIES B CONVERTIBLE ACCUMULATED SHARE-
PREFERRED STOCK ADDITIONAL DURING THE DEFERRED HOLDERS'
NUMBER AGGREGATE PAID-IN DEVELOPMENT COMPEN- EQUITY
OF SHARES AMOUNT CAPITAL STAGE SATION (DEFICIT)
--------- ---------- ---------- ------------ --------- -----------
Net loss -- $ -- -- (7,363,810) -- (7,363,810)
Issuance of common stock at $6.50 per share
on May 26, 1994 (net of costs of issuance
of $2,061,149) -- -- 14,163,851 -- -- 14,188,851
Cancellation of stock options -- -- (85,400) -- 85,400 --
Amortization of deferred compensation -- -- -- -- 267 267
---- ----- ----------- ------------ ------ -----------
Balance at May 31, 1994 -- -- 56,779,765 (38,393,281) (60,047) 18,420,997
Net loss -- -- -- (7,439,013) -- (7,439,013)
Issuance of common stock at $6.50 per share
on June 20, 1994 (net of issuance costs of
$172,500 -- -- 2,261,250 -- -- 2,265,000
Exercise of stock options at $7.14 per share -- -- 71,300 -- -- 71,400
Exercise of stock options at $2.00 per share -- -- 373,264 -- -- 375,139
Cancellation of stock options -- -- (106,750) -- 106,750 --
Amortization of deferred compensation -- -- -- -- (67,892) (67,892)
---- ----- ----------- ------------ ------ -----------
Balance at May 31, 1995 -- -- 59,378,829 (45,832,294) (21,189) 13,625,631
Net loss -- -- -- (4,778,875) -- (4,778,875)
Issuance of common stock at $17.75 per share
on August 9, 1995 (net of issuance costs of
$3,565,125 -- -- 48,324,374 -- -- 48,353,624
Issuance of common stock at $17.75 per share
on September 11, 1995 (net of issuance costs
of $423,23 -- -- 7,360,187 -- -- 7,364,575
Exercise of stock options at $2.00 per share -- -- 362,937 -- -- 364,761
Exercise of stock options at $6.38 per share -- -- 9,555 -- -- 9,570
Exercise of stock options at $7.14 per share -- -- 71,300 -- -- 71,400
Cancellation of stock options -- -- (80,062) -- 80,062 --
Amortization of deferred compensation -- -- -- -- (62,726) (62,726)
---- ----- ----------- ------------ ------ -----------
Balance at May 31, 1996 -- -- 115,427,120 (50,611,169) (3,853) 64,947,960
Net loss -- -- -- (4,245,693) -- (4,245,693)
Exercise of stock options at $0.20 per share -- -- 50,025 -- -- 52,658
Exercise of stock options at $2.00 per share -- -- 463,540 -- -- 465,869
Exercise of stock options at $7.14 per share -- -- 71,300 -- -- 71,400
Amortization of deferred compensation -- -- -- -- 2,569 2,569
---- ----- ----------- ------------ ------ -----------
Balance at May 31, 1997 -- -- 116,011,985 (54,856,862) (1,284) 61,294,763
Net loss -- -- -- (5,883,378) -- (5,883,378)
Exercise of stock options at $7.14 per share -- -- 35,650 -- -- 35,700
Amortization of deferred compensation -- -- -- -- 1,284 1,284
---- ----- ----------- ------------ ------ -----------
Balance at May 31, 1998 -- -- 116,047,635 (60,740,240) -- 55,448,369
Net loss -- -- -- (7,416,333) -- (7,416,333)
Non-cash compensation -- -- 14,354 -- -- 14,354
Exercise of stock options at $7.14 per share -- -- 124,775 -- -- 124,950
Exercise of stock warrants at $8.00 per share -- -- 998,750 -- -- 1,000,000
---- ----- ----------- ------------ ------ -----------
Balance at May 31, 1999 -- -- 117,185,514 (68,156,573) -- 49,171,340
Net loss -- -- -- (9,167,070) -- (9,167,070)
Non-cash compensation -- -- 57,112 -- -- 57,112
Exercise of stock options at $13.38 per share -- -- 33,425 -- -- 33,450
---- ----- ----------- ------------ ------ -----------
Balance at May 31, 2000 -- -- 117,276,051 (77,323,643) -- 40,094,832
Net loss -- -- -- (10,174,609) -- (10,174,609)
Exercise of stock options at $6.38 -- -- 38,220 -- -- 38,280
Exercise of stock options at $10.81 -- -- 189,000 -- -- 189,175
---- ----- ----------- ------------ ------ -----------
Balance at May 31, 2001 -- -- 117,503,271 (87,498,252) -- 30,147,678
Net loss (unaudited) -- -- -- (7,946,997) -- (7,946,997)
---- ----- ----------- ------------ ------ -----------
Balance at February 28, 2002 (unaudited) -- $ -- 117,503,271 (95,445,249) -- 22,200,681
==== ===== =========== ============ ====== ===========
See accompanying independent accountants' review report
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Cash Flows
Nine month period ended February 28, 2002 and February 28, 2001
and for the period from June 19, 1985 (inception) through February 28, 2002
NINE MONTH PERIOD ENDED CUMULATIVE
----------------------------- FROM
FEBRUARY 28, FEBRUARY 28, JUNE 19, 1985
------------ ------------- THROUGH
2002 2001 FEBRUARY 28, 2002
------------ ------------- ------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net loss $ (7,946,997) (7,365,569) (95,445,249)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 647,858 368,758 16,116,315
Non-cash compensation -- -- 3,552,723
Loss on sale of equipment -- -- 66,359
Changes in assets and liabilities:
Prepaid expenses 205,502 185,641 (381,851)
Other current assets 403,870 (126,983) (1,948,241)
Other assets 49,100 (49,200) 6,852
Accounts payable (1,288,254) 285,786 484,328
Accrued expenses 17,560 (24,458) 171,465
Accrued compensation and benefits 53,799 18,050 315,012
Other liabilities 8,513 19,514 175,373
------------ --------- ----------
Net cash used in operating activities (7,849,049) (6,688,461) (76,886,914)
------------ --------- ----------
Cash flows from investing activities:
Purchase of property, plant, equipment,
and capitalized engineering costs (144,725) (723,556) (18,395,974)
Proceeds from matured marketable securities 22,279,200 7,548,171 401,817,352
Proceeds from sale of marketable securities -- -- 7,141,656
Purchase of marketable securities (5,012,963) (8,218,827) (413,955,614)
Proceeds from sale of equipment -- -- 1,863,023
------------ --------- ----------
Net cash used in investing activities 17,121,512 (1,394,212) (21,529,557)
------------ --------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock -- 227,455 103,749,383
Payment of common stock issuance costs -- -- (5,072,012)
Proceeds from issuance of preferred stock -- -- 6,644,953
Proceeds from sale of stock options to
purchase common shares -- -- 7,443,118
Proceeds from issuance of notes payable -- -- 1,500,000
Repayment of notes payable -- -- (140,968)
------------ --------- ----------
Net cash provided by financing activities -- 227,455 114,124,474
------------ --------- ----------
Net increase (decrease) in cash 9,272,463 (7,855,218) 15,708,003
Cash at beginning of period 6,435,540 15,154,295 --
------------ --------- ----------
Cash at end of period $ 15,708,003 7,299,077 15,708,003
============ ========= ==========
See accompanying independent accountants' review report.
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Notes to Financial Statements
February 28, 2002
(unaudited)
(1) BASIS OF PRESENTATION
The interim financial statements presented are unaudited but, in the
opinion of management, have been prepared in conformity with accounting
principles generally accepted in the United States of America applied
on a basis consistent with those of the annual financial statements.
Such interim financial statements reflect all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation of the
financial position and the results of operations for the interim
periods presented. The results of operations for the interim period
presented are not necessarily indicative of the results to be expected
for the year ending May 31, 2002. The interim financial statements
should be read in connection with the audited financial statements for
the year ended May 31, 2001.
(2) COMPUTATION OF NET LOSS PER SHARE
Basic earnings per share is based on the weighted average number of
shares outstanding and excludes the dilutive effect of unexercised
common stock equivalents. Diluted earnings per share is based on the
weighted average number of shares outstanding and includes the dilutive
effect of unexercised common stock equivalents. Because the Company
reported a net loss for all periods presented, basic and diluted per
share amounts are the same.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Since Northfield's incorporation in 1985, we have devoted substantially
all of our efforts and resources to the research, development and clinical
testing of our potential product, PolyHemeTM. We have incurred operating losses
during each year of our operations since inception and expect to incur
substantial additional operating losses for the next several years. From
Northfield's inception through February 28, 2002, we have incurred operating
losses totaling $95,445,000.
Our success will depend on several factors, including our ability to
obtain Food and Drug Administration ("FDA") regulatory approval of PolyHeme and
our manufacturing facilities, obtain sufficient quantities of blood to
manufacture PolyHeme in commercial quantities, manufacture and distribute
PolyHeme in a cost-effective manner, and enforce our patent positions. We have
experienced significant delays in the development and clinical testing of
PolyHeme. We cannot ensure that we will be able to achieve these goals or that
we will be able to realize product revenues or profitability on a sustained
basis or at all.
In August 2001, we filed a Biologics License Application ("BLA") for PolyHeme
with the FDA following the completion of our most recent clinical trials. In
November 2001, we announced that we had received comments from the FDA's Center
for Biologics Evaluation and Research ("CBER") on our BLA filing and that the
agency was seeking additional information before accepting our application for
filing. During the third quarter of fiscal 2002, our senior management met with
members of the CBER staff and participated in a series of telephone conferences
to discuss the CBER views on our BLA filing. These discussions clarified our
understanding of the CBER position and have assisted us in developing
appropriate
responses to the matters raised by the CBER. While forecasting a definitive
timeline for resolution of the open issues with the CBER is difficult, we
believe we will adequately address their concerns. If our response to the CBER
is unacceptable, we may be required to conduct an additional clinical study to
support our current filing. The character, size and duration of that study are
currently unknown. Whether an additional study to support the current filing is
required or not, we would anticipate continuing clinical studies to expand the
marketing indications for PolyHeme. We do not expect to conduct additional
studies of PolyHeme until we reach an understanding with the CBER regarding the
status of our BLA filing.
We anticipate that research and development expenses will increase
during the foreseeable future. These expected increases are attributable to
additional clinical trials to expand the indications for which PolyHeme may be
marketed, monitoring and reporting the results of these trials and continuing
process development associated with improving our manufacturing capacity to
permit commercial-scale production of PolyHeme. We expect that general and
administrative expenses will increase over the foreseeable future as a result of
increased costs relating to the expansion of our organization in support of
anticipated commercial operations.
RESULTS OF OPERATIONS
We reported no revenues for either the three-month or nine-month
periods ended February 28, 2002 or 2001. From Northfield's inception through
February 28, 2002, we have reported total revenues of $3,000,000, all of which
were derived from licensing fees.
OPERATING EXPENSES
Operating expenses for our third fiscal quarter ended February 28, 2002
totaled $2,759,000, a decrease of $350,000 from the $3,109,000 reported in the
third quarter of the prior year. Measured on a percentage basis, operating
expenses in the third quarter of fiscal 2002 decreased by 11.3%. Expenses
incurred in the prior fiscal year for conducting, monitoring and reporting
clinical trials have been significantly reduced as the trials in process
during the third fiscal quarter of the prior year have been completed. Except
for the infusion of PolyHeme in individual compassionate use cases, Northfield
is not currently enrolling additional patients in clinical trials.
Research and development expenses for the third quarter of the current
fiscal year totaled $2,176,000, a decrease of $313,000, or 12.6%, from the
$2,489,000 reported in the third quarter of the prior fiscal year. This expense
reduction was directly related to the completion of clinical trials and the
subsequent monitoring, data analysis and report preparation.
Research and development expenses for the nine-month period ended
February 28, 2002, totaled $6,735,000, a decrease of $229,000, or 3.3%, from the
$6,964,000 reported in the comparable prior year period. Lower expenses
associated with conducting clinical trials caused the variance. We anticipate
that our research and development expenses for the fourth quarter of fiscal 2002
will approximate those reported for the third quarter.
General and administration expenses in the third quarter of fiscal 2002
totaled $583,000 compared to $620,000 for third quarter of fiscal 2001. This
decrease of $37,000, or 6.0%, was primarily the result of reduced professional
fees.
General and administration expenses for the nine-month period ended
February 28, 2002 totaled $1,951,000, which represents a decrease of $97,000, or
4.7%, from the $2,048,000 in general and administrative expenses incurred during
the nine-month period ended February 28, 2001. This decrease was primarily the
result of reduced professional fees in the current fiscal year.
During the fourth quarter of the current fiscal year, we anticipate
that general and administrative expenses will only modestly increase. We
plan to limit significant increases in our general and administrative expenses
until we reach an understanding with the FDA regarding the status of our BLA
filing for PolyHeme.
INTEREST INCOME
Interest income in the third quarter of fiscal 2002 totaled $168,000,
or a $337,000 decrease from the $505,000 in interest income reported in the
third quarter of fiscal 2001. Significantly lower interest rates in fiscal 2002
along with lower available investment balances accounted for the decrease.
Maturing investments which were yielding in excess of 6% are now
being reinvested at 2 to 3%. In the absence of a major cash infusion, interest
income will continue to be significantly below prior year levels.
Interest income for the nine-month period ended February 28, 2002
totaled $739,000, or a $907,000 decrease from the $1,646,000 in interest income
earned in the comparable prior year period. From May 31, 2001 through February
28, 2002, available investment balances decreased by $7,994,000. This investment
balance decrease combined with a reduction in short-term interest rates of 300
to 400 basis points combined to cause interest income to decline.
NET LOSS
Our net loss for the third quarter ended February 28, 2002 was
$2,591,000, or $.18 per basic share, compared to a net loss of $2,604,000, or
$.18 per basic and diluted share, for the third quarter ended February 28, 2001.
The decrease in the loss per basic and diluted share is primarily the result of
a decrease in clinical trial expenses.
For the nine-month period ended February 28, 2002, Northfield reported
a loss of $7,947,000, or $.56 per basic share, compared to a loss of $7,366,000,
or $.52 per basic share, in the comparable prior year period. The increased loss
was primarily due to the significant reduction in interest income.
LIQUIDITY AND CAPITAL RESOURCES
From Northfield's inception through February 28, 2002, we have used
cash for operating activities and for the purchase of property, plant, equipment
and engineering services in the amount of $95,283,000. For the nine-month
periods ended February 28, 2002 and 2001, these cash expenditures totaled
$7,994,000 and $7,412,000, respectively. The increased cash outlay for the
first nine-months of fiscal 2002 compared to the comparable prior year period is
reflective of increased operating losses and a reduction in accounts payable
balances, which more than offset a reduction in fixed asset purchases.
We have financed our research and development and other activities to
date primarily through the public and private sale of equity securities and, to
a more limited extent, through the licensing of product rights. As of February
28, 2002, we had cash and marketable securities totaling $20,705,000.
At current spending levels, we believe our existing capital resources
will be adequate to satisfy our operating capital requirements and maintain our
existing pilot manufacturing plant and office facilities for approximately 6-8
quarters. Thereafter, we are likely to require substantial additional capital to
continue our operations. Our requirements for and ability to obtain additional
capital are likely to be significantly affected by the outcome of our
discussions with the FDA regarding the status of our BLA filing for PolyHeme.
We are currently unable to fund the construction of a large-scale
greenfield manufacturing facility, which is estimated to cost approximately
$55-60 million, without raising substantial additional capital. Currently, we
have manufacturing capacity of approximately 10,000 units. Initial engineering
studies to expand our manufacturing capacity through build-out in the leased
space adjacent to our existing manufacturing facility is completed. This
engineering indicates an additional capacity of 75,000 units could be developed
in approximately 16 to 20 months at a cost of $28 to $32 million. Like a
large-scale greenfield manufacturing facility, significant additional funding
will be required before the smaller scale expansion facility could be completed.
Northfield has not yet committed to the build-out. We view the smaller facility
as financially prudent yet large enough for commercial viability. We estimate
that we will require at least $40 million in additional funding to build a
smaller scale expansion facility (75,000 unit), fund the subsequent working
capital needs and support an expanded manufacturing, sales and marketing
organization.
We may issue additional equity or debt securities to the public or
enter into collaborative arrangements with strategic partners, which could
provide us with additional funding or absorb expenses we would otherwise be
required to pay. Any one or a combination of these sources may be utilized to
raise the required funding. However, business or market conditions may not be
favorable, which may be detrimental to our ability to raise capital on terms
acceptable to the Company, if at all. Inability to raise sufficient levels of
capital would cause a delay in full commercialization of our product upon
approval by the FDA.
Our capital requirements may vary materially from those now anticipated
because of the results of our clinical testing of PolyHeme, the establishment of
relationships with strategic partners, changes in the scale, timing or cost of
our commercial manufacturing facility, competitive and technological advances,
the FDA regulatory process, changes in our marketing and distribution strategy
and other factors.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported therein. The Company believes the
following critical accounting policy affects its more significant judgments and
estimates used in the preparation of its consolidated financial statements:
NET DEFERRED TAX ASSETS VALUATION
The Company records its net deferred tax assets in the amount that it expects to
realize based on projected future taxable income. In assessing the
appropriateness of its valuation, assumptions and estimates are required such as
the Company's ability to generate future taxable income. In the event that the
Company were to determine that it would be able to realize its deferred tax
assets in the future in excess of its net recorded amount, an adjustment to the
deferred tax asset would increase income in the period such determination was
made. As of February 28, 2002 the Company has recorded a 100 percent valuation
allowance against its deferred tax asset.
CONTRACTUAL OBLIGATIONS
The following table reflects a summary of the company's contractual cash
obligations as of February 28, 2002:
Less Than
Contractual Cash Obligations Total One Year 1-3 Years 4-5 Years
------------- ------------- ------------- ------------
Lease Obligations(1) 2,870,841 835,633 1,503,988 531,220
Other Obligations 1,521,956 830,158 691,798 ---
------------- ------------- ------------- ------------
Total Contractual Cash Obligations 4,392,797 1,665,791 2,195,786 531,220
(1) Northfields Evanston lease agreement is cancellable with six months notice
combined with a termination payment equal to six months base rent and six
months of additional rental payments. If the lease were terminated today the
termination payment would be $315,530.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The marketable security investments of the Company have been made for investment
(as opposed to trading) purposes. Interest rate risk with respect to the
investments of the Company is not significant as all such investments are in
U.S. dollar cash equivalents and short-term investments (with maturities of less
than 12 months), which are by their nature less sensitive to interest rate
movements. The investments of the Company are generally made in U.S. government
and federal agency bonds, high-grade commercial paper, corporate bonds and
certificates of deposit.
PART II. OTHER INFORMATION
Item 6. Exhibits
a) Exhibit 15 - Acknowledgement of Independent Certified Public
Accountants
b) None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this April 11,
2002.
NORTHFIELD LABORATORIES INC.
By: /s/ RICHARD E. DEWOSKIN
-----------------------------------------
Richard E. DeWoskin
Chairman of the Board and
Chief Executive Officer
By: /s/ JACK J. KOGUT
-----------------------------------------
Jack J. Kogut
Secretary and Treasurer
(principal financial officer and
principal accounting officer)