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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 AUGUST 31, 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 AUGUST 31, 2002, REGISTRANT HAD 14,265,875 SHARES OF COMMON STOCK
OUTSTANDING
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report contains forward-looking statements concerning,
among other things, our prospects, clinical and regulatory developments
affecting our potential product and our business strategies. These
forward-looking statements are identified by the use of such terms as "intends,"
"expects," "plans," "estimates," "anticipates," "should" and "believes."
These forward-looking statements involve risks and uncertainties.
Actual results may differ materially from those predicted by the forward-looking
statements because of various factors and possible events, including those
discussed under "Risk Factors" in the Annual Report on Form 10-K for our 2002
fiscal year. Because these forward-looking statements involve risks and
uncertainties, actual results may differ significantly from those predicted in
these forward-looking statements. You should not place a lot of weight on these
statements. These statements speak only as of the date of this document or, in
the case of any document incorporated by reference, the date of that document.
All subsequent written and oral forward-looking statements attributable
to Northfield or any person acting on our behalf are qualified by the cautionary
statements in this section. We will have no obligation to revise these
forward-looking statements.
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 August 31, 2002, and the related statements of
operations and cash flows for the three-month periods ended August 31, 2002 and
2001 and for the period from June 19, 1985 (inception) through August 31, 2002.
We have also reviewed the statements of shareholders' equity (deficit) for the
three-month period ended August 31, 2002 and for the period from June 19, 1985
(inception) through August 31, 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, 2002, 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, 2002 (not presented
herein); and in our report dated July 16, 2002, 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, 2002 and in the accompanying
statement of shareholders' equity (deficit) is fairly stated, in all material
respects, in relation to the statement from which it has been derived.
/s/ KPMG LLP
Chicago, Illinois
October 11, 2002
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Balance Sheets
August 31, 2002 and May 31, 2002
AUGUST 31, MAY 31,
ASSETS 2002 2002
------------- -------------
(unaudited)
Current assets:
Cash $ 12,535,562 17,668,687
Marketable securities 2,677,249 720,000
Prepaid expenses 487,381 540,003
Other current assets 6,439 1,437
------------- -------------
Total current assets 15,706,631 18,930,127
Property, plant, and equipment, net 2,074,029 2,232,204
Other assets 72,158 72,410
------------- -------------
$ 17,852,818 21,234,741
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 571,868 1,077,712
Accrued expenses 300,599 210,109
Accrued compensation and benefits 250,967 338,849
------------- -------------
Total current liabilities 1,123,434 1,626,670
Other liabilities 176,655 177,753
------------- -------------
Total liabilities 1,300,089 1,804,423
------------- -------------
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 at August 31, 2002
and May 31, 2002 142,659 142,659
Additional paid-in capital 117,503,271 117,503,271
Deficit accumulated during the development stage (101,093,201) (98,215,612)
------------- -------------
Total shareholders' equity 16,552,729 19,430,318
------------- -------------
$ 17,852,818 21,234,741
============= =============
See accompanying notes to financial statements.
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Operations (unaudited)
Three months ended August 31, 2002 and 2001 and for the period
from June 19, 1985 (inception) through August 31, 2002
CUMULATIVE
FROM
THREE MONTHS ENDED AUGUST 31, JUNE 19, 1985
------------------------------ THROUGH
2002 2001 AUGUST 31, 2002
------------ ------------ --------------
Revenues - license income $ -- -- 3,000,000
------------ ------------ ------------
Costs and expenses:
Research and development 2,025,802 2,648,674 89,446,322
General and administrative 929,157 842,960 37,886,053
------------ ------------ ------------
2,954,959 3,491,634 127,332,375
------------ ------------ ------------
Other income and expense:
Interest income 77,370 301,062 23,322,408
Interest expense -- -- 83,234
------------ ------------ ------------
77,370 301,062 23,239,174
------------ ------------ ------------
Net loss $ (2,877,589) (3,190,572) (101,093,201)
============ ============ ============
Net loss per share - basic and diluted $ (0.20) (0.22) (10.45)
============ ============ ============
Shares used in calculation of
per share data - basic and diluted 14,265,875 14,265,875 9,669,675
============ ============ ============
See accompanying notes to financial statements.
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Shareholders' Equity (Deficit)
Three months ended August 31, 2002 (unaudited) and for the period
from June 19, 1985 (inception) through August 31, 2002 (unaudited)
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 -- $ --
--------- --------- --------- --------- --------- ---------
See accompanying notes to financial statements.
SERIES B CONVERTIBLE DEFICIT TOTAL
PREFERRED STOCK ACCUMULATED SHARE-
--------------------- 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
-------- -------- ----------- ----------- ----------- -----------
See accompanying notes to financial statements.
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Shareholders' Equity (Deficit)
Three months ended August 31, 2002 (unaudited) and for the period
from June 19, 1985 (inception) through August 31, 2002 (unaudited)
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 $423,238) -- -- 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 -- -- -- -- -- --
Non-cash compensation -- -- -- -- -- --
Exercise of stock options at $6.38 per share -- -- 6,000 60 -- --
Exercise of stock options at $10.81 per share -- -- 17,500 175 -- --
------- -------- ---------- ---------- ---------- ----------
Balance at May 31, 2001 -- -- 14,265,875 142,659 -- --
Net loss -- -- -- -- -- --
------- -------- ---------- ---------- ---------- ----------
Balance at May 31, 2002 -- -- 14,265,875 142,659 -- --
Net loss -- -- -- -- -- --
------- -------- ---------- ---------- ---------- ----------
Balance at August 31, 2002 -- $ -- 14,265,875 $ 142,659 -- $ --
======= ======== ========== ========== ========== ==========
See accompanying notes to financial statements.
SERIES B CONVERTIBLE DEFICIT TOTAL
PREFERRED STOCK ACCUMULATED SHARE-
--------------------- 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 $423,238) -- -- 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)
Non-cash compensation -- -- -- -- -- --
Exercise of stock options at $6.38 per share -- -- 38,220 -- -- 38,280
Exercise of stock options at $10.81 per share -- -- 189,000 -- -- 189,175
--------- --------- ------------ ------------- ---------- ------------
Balance at May 31, 2001 -- -- 117,503,271 (87,498,252) -- 30,147,678
Net loss -- -- -- (10,717,360) -- (10,717,360)
--------- --------- ------------ ------------- ---------- ------------
Balance at May 31, 2002 -- -- 117,503,271 (98,215,612) -- 19,430,318
Net loss -- -- -- (2,877,589) -- (2,877,589)
--------- --------- ------------ ------------- ---------- ------------
Balance at August 31, 2002 -- $ -- $117,503,271 $(101,093,201) $ -- $ 16,552,729
========= ========= ============ ============= ========== ============
See accompanying notes to financial statements.
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Cash Flows
Three months ended August 31, 2002 and 2001 (unaudited)
and the cumulative period from June 19, 1985
(inception) through August 31, 2002 (unaudited)
CUMULATIVE
FROM
THREE MONTHS ENDED AUGUST 31, JUNE 19, 1985
------------------------------ THROUGH
2002 2001 AUGUST 31, 2002
------------ ------------ ---------------
Cash flows from operating activities:
Net loss $ (2,877,589) (3,190,572) (101,093,201)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 211,303 215,953 16,502,017
Non-cash compensation -- -- 3,552,723
Loss on sale of equipment -- -- 66,359
Changes in assets and liabilities:
Prepaid expenses 52,622 108,325 (696,592)
Other current assets (5,002) 309,964 (1,902,690)
Other assets -- -- 6,851
Accounts payable (505,844) (696,661) 571,869
Accrued expenses 90,490 308,153 300,597
Accrued compensation and benefits (87,882) 380,020 250,967
Other liabilities (1,098) 3,754 176,655
------------ ------------ ------------
Net cash used in operating activities (3,123,000) (2,561,064) (82,264,445)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of property, plant, equipment, and
capitalized engineering costs (52,875) (62,722) (18,510,239)
Proceeds from sale of land and equipment -- -- 1,863,023
Proceeds from matured marketable securities -- 5,679,200 408,817,352
Proceeds from sale of marketable securities -- -- 7,141,656
Purchase of marketable securities (1,957,250) (4,999,648) (418,636,259)
------------ ------------ ------------
Net cash provided by (used in) investing activities (2,010,125) 616,830 (19,324,467)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock -- -- 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 -- -- 114,124,474
------------ ------------ ------------
Net (decrease) increase in cash (5,133,125) (1,944,234) 12,535,562
Cash at beginning of period 17,668,687 6,435,540 --
------------ ------------ ------------
Cash at end of period $ 12,535,562 4,491,306 12,535,562
============ ============ ============
See accompanying notes to financial statements.
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Notes to Financial Statements
August 31, 2002
(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, 2003. The interim financial statements should be read in connection
with the audited financial statements for the year ended May 31, 2002.
(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.
ITEM 2. 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, PolyHeme(TM). 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 August 31, 2002, we have incurred operating
losses totaling $101,093,000.
The Food and Drug Administration ("FDA") in November 2001 issued a
refusal to file letter with respect to our Biologics License Application for
PolyHeme. Since that time, we have had numerous meetings and follow-up
discussions with the FDA and are attempting to reach a consensus with the FDA in
order to move forward as quickly as possible toward regulatory approval for
PolyHeme. The FDA regulatory process, however, is subject to significant risks
and uncertainties. The nature, timing and costs of the efforts necessary for us
to obtain regulatory approval for PolyHeme, and the timing of any future
revenues from the commercial sale of PolyHeme, cannot therefore be reasonably
estimated at this time because of the current regulatory status of PolyHeme and
the wide range of possible outcomes arising from our discussion with the FDA.
Our success will depend on several factors, including our ability to
obtain 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,
enforce our patent positions and raise sufficient capital to fund these
activities. 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.
Northfield is planning to expand its potential product indications
through additional clinical trials. Working in the pre-hospital setting, the
planned trials would complement our existing trauma data while opening the
ambulance market, ground and air. The details of the planned studies have not
been finalized and are subject to FDA approval. The timing of the trials will be
dependent on our ability to secure the FDA's approval for the studies.
We anticipate that research and development expenses will increase
during the foreseeable future. These expected increases are attributable to
additional clinical trials, 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 of the three-month periods ended
August 31, 2002 or 2001. From Northfield's inception through August 31, 2002, we
have reported total revenues of $3,000,000, all of which were derived from
licensing fees.
OPERATING EXPENSES
Operating expenses for our first fiscal quarter ended August 31, 2002
totaled $2,955,000, a decrease of $537,000 from the $3,492,000 reported in the
first quarter of fiscal 2002. Measured on a percentage basis, operating expenses
in the first quarter of fiscal 2003 decreased by 15.4%. The difference was due
to lower costs for clinical trials and compensation partially offset by higher
costs for professional services incurred in connection with the defense of a
proxy contest relating to our 2002 annual meeting of shareholders.
Research and development expenses for the first quarter of fiscal 2003
totaled $2,026,000, a decrease of $623,000, or 23.5%, from the $2,649,000
reported in the first quarter of fiscal 2002. Lower expenses were recognized
during the first quarter of fiscal 2003 related to reductions in costs
associated with our clinical trials and decreases in compensation expense.
We anticipate that research and development expenses will increase
significantly in the third and fourth quarter of fiscal 2003. Additional costs
are being planned for multi-center clinical trials in support of expanded
product indications, third party clinical monitoring, biostatistical analysis,
report preparation and continued expansion of our manufacturing organization.
Northfield is conducting a national search for a medical director to directly
oversee the planned clinical trials.
General and administrative expenses in the first quarter of fiscal 2003
totaled $929,000 compared to expenses of $843,000 in the first quarter of 2002,
representing an increase of
$86,000, or 10.2%. This increase was due to increased professional service fees
related to our contested proxy and the increased cost of directors and officers
insurance which was partially offset by decreased compensation costs.
With the exception of enhancing the Company's investor relation's
capabilities, Northfield is not planning any new general and administrative
programs over the balance of the fiscal year. Securing regulatory approval for
PolyHeme(TM) is the highest priority item. Once there is greater clarity on the
probability and timing of approval, general and administrative expenses are
expected to increase to support the commercialization of our product.
INTEREST INCOME
Interest income in the first quarter of fiscal 2003 totaled $77,000, or
a $224,000 decrease from the $301,000 in interest income reported in the first
quarter of fiscal 2002. Short term available interest rates declined by in
excess of 400 basis points from the first quarter of fiscal 2002 which along
with lower available investment balances accounted for the decrease in interest
income. In the absence of a major cash infusion, interest income will continue
to be significantly below prior year levels.
NET LOSS
The net loss for the first quarter ended August 31, 2002 was
$2,878,000, or $.20 per basic share, compared to a net loss of $3,191,000, or
$.22 per basic share, for the first quarter ended
August 31, 2001. The decrease in the loss per basic share is primarily the
result of decreased compensation and reduced clinical trial costs, partially
offset by lower interest income.
LIQUIDITY AND CAPITAL RESOURCES
From Northfield's inception through August 31, 2002, we have used cash
for operating activities and for the purchase of property, plant, equipment and
engineering services in the amount of $100,775,000. For the three-month periods
ended August 31, 2002 and 2001, these cash expenditures totaled $3,176,000 and $
2,624,000, respectively. The increased cash outlay for the first quarter of
fiscal 2003 compared to the prior year period, in spite of decreased losses, is
the result of higher accrued expense balances in the prior year period. Those
increased liabilities in the prior year represented only a deferral of cash
usage from the first quarter of fiscal 2002 to the second quarter of fiscal
2002.
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 August 31,
2002, we had cash and marketable securities totaling $15,213,000.
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 the next 12 to 15 months.
Thereafter and to fund additional clinical trials, we are
likely to require substantial additional capital to continue our operations.
Northfield is actively considering raising additional equity capital to
fund its continued operations, including the proposed additional clinical trials
described above. We may issue additional equity or debt securities to the public
or in private placement transactions. We may also 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.
Business or market conditions may not be favorable, which could delay or prevent
us from raising additional capital. Our failure to obtain additional capital
would likely prevent us from commercializing our product.
We are currently unable to fund the construction of a large-scale
greenfield manufacturing facility, which is estimated to cost approximately $50
million, without raising substantial additional capital. Currently, we have
manufacturing capacity of approximately 10,000 units. Initial engineering on 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.
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 August 31, 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 August 31, 2002:
Less Than
Contractual Cash Obligations Total One Year 1-3 Years 4-5 Years
------------- ------------- ------------- ------------
Lease Obligations(1) $2,158,722 840,157 1,159,096 159,469
Other Obligations 1,479,961 867,313 612,648 ---
------------- ------------- ------------- ------------
Total Contractual Cash Obligations $3,638,683 1,707,470 1,771,744 159,469
(1) Northfield's 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board (FASB) issued
FASB Statement No. 143, Accounting for Asset Retirement Obligations, which
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and for the associated asset retirement
costs. FASB Statement No. 143 requires an enterprise to record the fair value of
an asset retirement obligation as a liability in the period in which it incurs a
legal obligation associated with the retirement of tangible long-lived assets
that result from the acquisition, construction, development and/or normal use
of the assets. The enterprise also is to record a corresponding increase to the
carrying amount of the related long-lived asset (i.e., the associated asset
retirement costs) and to depreciate that cost over the life of the asset. The
liability is changed at the end of each period to reflect the passage of time
and changes in the estimated future cash flows underlying the initial fair value
measurement. Adoption of FASB Statement No. 143 is required for fiscal years
beginning after June 15, 2002. Upon adoption of this provision we expect to
record an additional liability of approximately $138,000.
ITEM 3. 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. A one percentage point decrease or increase on an
investment balance of $15.2 million would change annual interest income by
$152,000.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains a set of disclosure controls and procedures and internal
controls designed to ensure that information required to be disclosed in the
Company's filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The Company's principal
executive and financial officers have evaluated its disclosure controls and
procedures within 90 days prior to the filing of this Quarterly Report on Form
10-Q and have determined that such disclosure controls and procedures are
effective.
Subsequent to the Company's evaluation, there were no significant changes in
internal controls or other factors that could significantly affect internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II. OTHER INFORMATION
Item 6. Exhibits
a) Exhibit 15 - Acknowledgment of Independent Certified Public
Accountants
Exhibit 99.1 - Certification of Chief Executive Officer
Exhibit 99.2 - Certification of Chief Financial Officer
b) Report on Form 8-K:
The Company filed a report dated August 9, 2002, in which Steven A.
Gould, M.D., Chief Executive Officer and Jack J. Kogut, Chief Financial
Officer of Northfield Laboratories Inc., submitted certifications to the
Securities and Exchange Commission pursuant to Section 906 of the
Sarbanes-Oxley Act.
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 October 11,
2002.
NORTHFIELD LABORATORIES INC.
By: /s/ STEVEN A. GOULD, M.D.
--------------------------
Steven A. Gould, M.D.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company in the capacities indicated on October 11, 2002.
SIGNATURE TITLE
/s/ STEVEN A. GOULD, M.D.
- ----------------------------------- Chairman of the Board and Chief
Steven A. Gould, M.D. Executive Officer (principal executive
officer)
/s/ JACK J. KOGUT
- ----------------------------------- Vice President - Finance, Secretary and
Jack J. Kogut Treasurer (principal financial and
accounting officer)
CERTIFICATION
I, Steven A. Gould, M.D., Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Northfield
Laboratories Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, is made known to us
by others, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: October 15, 2002 /s/ Steven A. Gould, M.D.
-------------------------
Steven A. Gould, M.D.
Chief Executive Officer
CERTIFICATION
I, Jack J. Kogut, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Northfield
Laboratories Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, is made known to us
by others, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: October 15, 2002 /s/ Jack J. Kogut
-----------------
Jack J. Kogut
Chief Financial Officer