U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
July 31, 2002 0-11088
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For the fiscal year ended Commission file number
ALFACELL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-2369085
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 Belleville Avenue, Bloomfield, New Jersey 07003
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 748-8082
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
-----------------------------
(Title of Class)
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[_]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or any amendment to
this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes [_] No [X]
The aggregate market value of the Common Stock, par value $.001 per
share, held by non-affiliates based upon the average of the high and low sale
prices as reported by the OTC Bulletin Board on November 8, 2002 was $4,139,518.
As of November 8, 2002 there were 22,872,958 shares of common stock, par value
$.001 per share, outstanding.
The Index to Exhibits appears on page 29.
Documents Incorporated by Reference
None
Table of Contents
PART I Page
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Item 1. Business 3
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 21
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 21
PART III
Item 10. Directors and Executive Officers of the Registrant 21
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial Owners
and Management 26
Item 13. Certain Relationships and Related Transactions 27
Item 14. Controls and Procedures 28
Item 15. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 29
The following trademark appear in this Annual Report: ONCONASE(R) is the
registered trademark of Alfacell Corporation, exclusively for the anti-cancer
indications.
2
Information contained herein contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. All statements,
other than statements of historical fact, regarding our financial position,
potential, business strategy, plans and objectives for future operations are
"forward-looking statements." These statements are commonly identified by the
use of forward-looking terms and phrases such as "anticipates," "believes,"
"estimates," "expects," "intends," "may," "seeks," "should," or "will" or the
negative thereof or other variations thereon or comparable terminology, or by
discussions of strategy. Actual future results may vary from expectations set
forth in these forward-looking statements. The matters set forth in Exhibit 99.1
hereto constitute cautionary statements identifying important factors with
respect to these forward-looking statements, including certain risks and
uncertainties, that could cause actual results to vary significantly from the
future results indicated in these forward-looking statements. Other factors
could also cause actual results to differ significantly from the future results
indicated in these forward-looking statements.
Part I
Item 1. BUSINESS.
Overview
Alfacell Corporation is a biopharmaceutical company, primarily engaged in the
discovery and development of a new therapeutic class of drugs for the treatment
of cancer and other pathological conditions. Based on Alfacell's proprietary
Ribonuclease or RNase technology platform, Our drug discovery and development
program consists of novel therapeutics developed from amphibian ribonucleases.
These primordial enzymes play important roles in nature. They mediate several
essential biological activities, namely, regulation of cell proliferation,
maturation, differentiation and cell death. Therefore, they are ideal candidates
for the development of therapeutics for cancer and other life-threatening
diseases, including HIV and autoimmune diseases, that require anti-proliferative
and apoptotic properties. Alfacell is recognized as a leader in the development
of RNase based therapeutics and as such, has both co-sponsored and been a key
participant in the International Ribonuclease Meetings held every three years.
ONCONASE(R), our trademark name for ranpirnase, our flagship product, is
undergoing the last stage of clinical testing which is called "Phase III". This
international randomized Phase III trial for patients with unresectable
malignant mesothelioma, an inoperable form of cancer found in the lining of the
lung and abdomen is ongoing. We have also conducted other randomized and
non-randomized trials with patients with advanced stages of solid tumors in
other types of cancers.
ONCONASE(R) is a novel amphibian ribonuclease unique among the superfamily of
pancreatic ribonuclease that has been isolated from the eggs of the leopard
frog. We have determined that, thus far, ranpirnase , the active conponent of
ONCONASE(R) , is the smallest known protein belonging to the superfamily of
pancreatic ribonuclease and has been shown, on a molecular level, to re-regulate
the unregulated growth and proliferation of cancer cells. ONCONASE(R), unlike
most cancer drugs, that attack all cells regardless of their phenotype,
malignant vs. normal, and produce a variety of severe toxicities, is not an
indiscriminate cytotoxic agent, but rather, its activity is mediated through
elegant molecular mechanisms. ONCONASE(R) affects primarily exponentially
growing malignant cells.
In February 2001, we received an Orphan Medicinal Product Designation for
ONCONASE(R) from The European Agency for the Evaluation of Medicinal Products
(EMEA). Alfacell has also applied for Fast Track Designation for the indication
of malignant mesothelioma. We will receive a decision from the FDA no later than
December 23, 2002. These designations to ONCONASE(R) may in the future serve to
expedite its regulatory review, assuming the clinical trials have yielded a
positive result.
Our proprietary drug discovery program forms the basis for the development of
recombinant designer RNases for chemical conjugation or chemical construct and
gene fusion products with various targeting moieties such as monoclonal
antibodies, growth factors, cytokines, etc. This program provides for joint
design and generation of new products with outside partners. Both companies may
own these new products, or Alfacell may grant an exclusive license to the
collaborating partner(s).
3
We have established a number of scientific collaborations with the National
Cancer Institute, NCI that are designed. to develop new therapeutic applications
for ONCONASE(R). One collaboration has produced RN321, a conjugate, of
ranpirnase with a monoclonal antibody that demonstrated activity in treating
non-Hodgkin's lymphoma in preclinical studies. These results were presented by
NCI investigators at the 6th International Ribonuclease Meeting in Bath,
England, June 2002, and the manuscript will be submitted for publication.
Preclinical studies are ongoing at NCI in preparation for commencing clinical
trials for the treatment of patients with non-Hodgkin's lymphoma with this new
conjugate.
We have also discovered another series of proteins that may have therapeutic
uses. These proteins appear to be involved in the regulation of both early
embryonic and malignant cell growth. In addition to ranpirnase, Alfacell has
isolated several other proteins from eggs of the leopard frog (Rana pipiens).
All of the proteins characterized to date are RNases. Information on four of
these proteins was presented at the 6th International Ribonuclease Meeting in
Bath, England, June 2002. These products are currently undergoing preclinical
testing. We are currently in negotiations with potential pharmaceutical partners
for the development of these new compounds as conjugates and fusion proteins.
We have entered into a research and development collaboration with Wyeth
Pharmaceuticals to co-develop a number of designer drugs such as conjugates and
fusion proteins for a variety of indications using our proprietary technology.
This collaboration may result in a licensing agreement between the companies,
however; there is no assurance that such an agreement will be reached.
We have signed confidentiality agreements and have entered into negotiations
with a number of companies for US or non-US marketing rights for ONCONASE(R).
Alfacell is engaged in the research, development and clinical trials of its
products both independently and through research collaborations. We have
financed our operations since inception through the sale of our equity
securities, private placements, convertible debentures and loans. These funds
provide us with the resources to acquire staff, facilities, capital equipment,
finance our technology, product development, manufacturing and clinical trials.
Alfacell Corporation, a Delaware corporation, was incorporated in 1981. The
common stock is traded on the OTC Bulletin Board under the symbol "ACEL".
RESEARCH AND DEVELOPMENT PROGRAMS
Research and Development Programs
Research and development expenses for the fiscal years ended July 31, 2002,
2001, and 2000 were $2,033,000, $1,901,000, and $1,880,000, respectively. Our
research and development programs focus primarily on the development of
therapeutics from amphibian ribonucleases. Because ribonucleases have been shown
to be involved in the regulation of cell proliferation, maturation,
differentiation and programmed cell death known as apoptosis, ribonucleases may
be ideal candidates for the development of therapeutics for the treatment of
cancer and other life-threatening diseases, including viral and autoimmune
diseases that require anti-proliferative and pro-apoptotic properties
Technology Platform and Pipeline
Using ribonucleases as therapeutics is a relatively new approach to drug
development. The use of these proteins to re-regulate the unregulated growth and
proliferation of cancer cells is unlike most cancer drugs that attack all cells
regardless of their phenotype, malignant vs. normal, are known to produce a
variety of severe toxicities. ONCONASE(R) and related drug candidates are not
indiscriminate cytotoxic agents, but rather, their activity is mediated through
elegant molecular mechanisms. They affect primarily exponentially growing
malignant cells.
4
Cancer is associated with the over or under production of many types of proteins
in tumor cells. We believe that the ability to selectively halt the production
of certain proteins via ribonuclease activity in tumor cells without damaging
normal cells, may make treatment more effective. To make cancer therapy more
effective and less toxic, Alfacell is developing ONCONASE(R) as a therapeutic
and as an effector moiety, killer molecule for targeted therapies. We believe
that selective degradation of intracellular proteins is central to the process
of programmed cell death, known as apoptosis.
We have devoted significant resources towards the development of recombinant
designer RNases for chemical conjugation and gene fusion products with various
targeting moieties such as monoclonal antibodies, growth factors, cytokines,
etc.
Apoptosis
Apoptosis or programmed cell death is essential for the proper development of
embryos and of many body systems, including the central nervous system, immune
regulation and others. Apoptosis is required to accommodate the billions of new
cells produced daily by our bodies and to eliminate aged or damaged cells.
Abnormal regulation of the apoptosis process can result in disease. For example,
cancer, autoimmune disorders and many viral infections are associated with
inhibited apoptosis or programmed death of cells occurs too slowly. Conversely,
HIV is associated with increased apoptosis or programmed death of cells occurs
too rapidly. This process of programmed cell death is genetically regulated.
Alfacell has been recognized as the first company to discover and develop a
novel family of primordial "regulatory" proteins that have been shown to play a
fundamental role in this process.
ONCONASE(R) (ranpirnase) Pro-Apoptotic Mechanisms
The molecular mechanisms were identified which determine the apoptotic
(programmed) cell death induced by ranpirnase. Ranpirnase preferentially
degrades tRNA, leaving rRNA and mRNA apparently undamaged. The RNA damage
induced by ranpirnase appears to represent a "death signal", or triggers a chain
of molecular events culminating in the activation of caspase proteolytic enzyme
cascades which, in turn, induce disintegration of the cellular components and
finally execute cell death. It has been shown that there is a protein synthesis
inhibition-independent component, which, together with the changes induced by
the protein synthesis inhibition, results in cell death. Ranpirnase-induced
apoptosis did not require the functional p53 tumor suppressor gene product, or
the Fas ligand/Fas/Fas-associating protein with death domain (FADD) and caspase
8, but appeared to involve an activation of the mitochondrial pro-caspase 9, and
also caspase 3 and 7. However, this activation of the mitochondrial pro-caspase
was associated with atypically little release of cytochrome c from mitochondria,
and a lack of the cytosol-to-mitochondria translocation of the pro-apoptotic bax
protein.
Many cancer cells become resistant to most types of cancer treatment, including
chemotherapy, radiation and monoclonal antibodies. Overcoming resistance to
chemotherapy remains a major challenge for cancer therapy. ONCONASE(R) has shown
to overcome multiple drug resistance or prevent resistance to cancer therapy,
thereby dramatically increasing the sensitivity of cancer cells to chemotherapy
and radiation therapy.
It remains unknown whether or not ONCONASE(R) targets and binds preferentially
tumor cells, rather than normal cells of the respective tissues. It is possible
that there is no differential targeting and/or binding, but that tumor cells are
more susceptible to the cytostatic and cytotoxic effects of ONCONASE(R). The
cytostatic effects are manifested by the inhibition of progression in the cell
cycle, G1 phase block and by inhibition of expression of cyclin D3. These
effects have been associated with induction of parallel differentiation and
apoptosis. The cytostatic and differentiation-inducing effects are reflected in
the stabilization of previously progressive tumors observed in our clinical
trials.
5
Overview of Preclinical and Clinical Studies of ONCONASE(R)
In order to affect RNA activity, ONCONASE(R) must enter the cell. After
intravenous injection, ONCONASE(R) distributes rapidly to organs, especially the
kidney. ONCONASE(R) is excreted predominately by the kidney. Biodistribution
studies of ONCONASE(R) in vivo or studies done in laboratory animals have
demonstrated high tumor tissue uptake rates relative to organ distribution.
We have been in collaboration with the National Institutes of Health or NIH,
including NCI, as well as a number of well-renowned academic institutions, in
the US, Europe, and Japan and have developed a considerable body of knowledge in
RNase technology and novel RNase-based therapeutics. We believe that ONCONASE(R)
is recognized as the "gold standard" in RNase research, as reflected by the
plethora of peer-reviewed publications. ONCONASE(R) has demonstrated a broad
spectrum of anti-tumor activity in vitro or studies of tumor cell lines in
laboratory vessels, and was determined to be active in the NCI Cancer Screen.
In vitro and in vivo studies showed both cytostatic and cytotoxic antitumor
activity when used as a single agent and in combination with other agents.
In Vitro
ONCONASE(R), in combination with other drugs, has been shown to be synergistic
which means that the effect of ONCONASE(R) when given in combination with other
drugs is greater than if the drugs were given alone. The results of these
studies have been published. The combination of ONCONASE(R) + tamoxifen resulted
in a significant cell kill in pancreatic, prostate, and ovarian tumor cell lines
as compared to each drug alone. Similar results were found for the following
combinations:
o ONCONASE(R) + phenothiazine for non-small cell lung cancer;
o ONCONASE(R) + lovastatin in pancreatic, ovarian, and two types of
non-small cell lung cancer;
o ONCONASE(R) + cisplatin in ovarian cancer;
o ONCONASE(R) + all-trans-retinoic acid in glioma (brain) cancer;
o ONCONASE(R) + vincristine in colorectal cancer and ;
o ONCONASE(R) + doxorubicin and ONCONASE(R) + Taxol in breast cancer
including resistant variants.
In Vivo Anti-Cancer Activity
ONCONASE(R) as a Single Agent
ONCONASE(R) as a single agent has shown in vivo anti-tumor activity in several
mouse models of solid tumors:
o In the human squamous A-253 carcinoma and the NIH-OVCAR-3 ovarian
adenocarcinoma models, ONCONASE(R) has produced prolonged survival and
delayed time to development of ascites (fluid in the abdomen),
respectively.
o In mice bearing M109 Madison lung carcinoma cells, time to appearance of
ascites and survival were significantly prolonged in ONCONASE(R)-treated
animals as compared to controls. Several histologically confirmed cures
were noted.
o In nude mice bearing human DU-145 prostate carcinoma and pancreatic ASPC-1
carcinoma ONCONASE(R) inhibited growth of the subcutaneously transplanted
tumor.
6
o In several mouse tumor models, ONCONASE(R) not only demonstrated direct
anti-tumor activity but also increased the potential for other drugs to
penetrate the tumor tissue as well as increased the tumor sensitivity to
radiation therapy.
ONCONASE(R) in Combination With Other Agents
Based on in vitro results, ONCONASE(R) in combination with the following
anti-cancer agents has been evaluated by Alfacell and in collaboration with NCI
and the results have been published:
o Vincristine
o Doxorubicin
o Tamoxifen
ONCONASE(R) prolonged the survival of nude mice bearing vincristine-resistant,
HT-29 human colorectal carcinomas transfected with mdr-1 gene when used in
combination with vincristine. These NCI results demonstrated that ONCONASE(R)
can restore the sensitivity of resistant tumor cells to chemotherapy.
NCI experiments in nude mice transplanted intravenously with human breast
carcinoma cells treated with the combination of ONCONASE(R) and doxorubicin have
shown significantly prolonged survival. Tumor growth was significantly inhibited
as demonstrated by a decrease in number pulmonary metastases present at the time
of sacrifice.
NCI reported the ability of ONCONASE(R) to overcome multiple drug resistance as
well as other forms of drug resistance (referring to a drug that no longer kills
cancer cells) both in vitro and in vivo. We believe that these in vivo results
demonstrate the therapeutic utility of ONCONASE(R) in chemotherapy-resistant
tumors, and the findings suggest that ONCONASE(R) in combination with other
agents has broad clinical application in cancer treatments.
Clinical Programs
We have been very selective in our product development strategy, which is
focused on the use of ONCONASE(R) alone or in combination with drugs which have
shown evidence of preclinical and clinical efficacy on tumor types for which
median survivals are typically less than a year and for which there are few or
no approved treatments.
ONCONASE(R) has been in clinical trials since 1991 in the US and 2000 in Europe.
ONCONASE(R) has been tested in Phase I, Phase II and Phase III clinical trials
in more than 40 cancer centers across the United States since 1991 and Europe
2001, including major centers such as Columbia-Presbyterian, University of
Chicago, M.D. Anderson and Cedars-Sinai Cancer Centers.
ONCONASE(R) has been tested as a single agent in patients with a variety of
solid tumors. It has also been tested in combination with tamoxifen in patients
with prostate cancer, advanced pancreatic cancer and renal cell carcinoma as
well as with doxorubicin in patients with malignant mesothelioma.
Onconase(R) Phase III Randomized Clinical Trials
We are currently conducting a two-part Phase III clinical trial of ONCONASE(R)
as a treatment for malignant mesothelioma. The first part of the Phase III trial
compares ONCONASE(R) alone to doxorubicin. Doxorubicin has been considered by
opinion leaders to be the most effective drug for the treatment of malignant
mesothelioma. The second part of the trial compares the combination of
ONCONASE(R) and doxorubicin versus doxorubicin alone. The patient enrollment for
the first part of the clinical trial has been completed. The second part is
currently ongoing and is being conducted in the US, Germany and Italy.
7
We have had a series of meetings with the Food and Drug Administration or FDA to
establish mutually agreed upon parameters for the New Drug Application or NDA to
obtain marketing approval for ONCONASE(R).
Phase III Single Agent Results
The single agent Phase III results of the Treatment Target Group or TTG which
included 104 patients, of which 47 were treated with ONCONASE(R) and 57 were
treated with doxorubicin who met the criteria for Cancer Adult Leukemia Group B
or CALGB prognostic groups 1-4, showed a median survival benefit or MST of 2
months for ONCONASE(R) treated patients 11.6 months vs. 9.6 months. This two
month median survival difference favoring ONCONASE(R) represents a 20% advantage
over an active agent, doxorubicin. Moreover, the clinical activity of
ONCONASE(R) is also evident from the overall 1-year and 2-year survival rates of
ONCONASE(R) vs. doxorubicin, 46.8% vs. 38.6% and 20.2% vs. 12.3%, respectively.
Doxorubicin treatment was associated with a 60% higher risk of death compared to
ONCONASE(R) treatment. Tumor assessment by an independent radiologist for 53
patients revealed evidence of objective clinical activity in 17 patients in each
treatment arm. Four partial responses and 13 stabilization of previously
progressive disease in the ONCONASE(R)-treated patients and 7 partial responses
and 10 stabilization of previously progressive disease in the doxorubicin
treated patients. Despite the small number of patients, the analysis revealed a
statistically significant difference, log rank test, p. = 0.037, in survival of
the responders favoring ONCONASE(R)-treated patients with an MST 23.3 vs. 14.4
months for doxorubicin treated patients as well as the 2 year survival rates of
40% for ONCONASE(R) and 9% for doxorubicin. Preliminary results were presented
at the 2000 American Society of Clinical Oncologists, or ASCO meeting. A
manuscript has been prepared for publication.
These survival advantages were recognized as clinically important in this
patient population by opinion leaders and the FDA. Therefore, the FDA has
requested confirmation of the survival results in the TTG population in Part II
of the ongoing trial.
We have applied for Fast Track Designation for the malignant mesothelioma
indication. We will receive a decision from the FDA no later than December 23,
2002. Fast Track is a formal mechanism to interact with the FDA using approaches
that are available to all applicants for marketing claims for drugs that are
being developed for a serious or life-threatening disease for which there is an
unmet medical need. The benefits of Fast Track include scheduled meetings to
seek FDA input into development plans, the option of submitting an NDA in
sections rather than all components simultaneously, and the option of requesting
evaluation of studies using surrogate endpoints. We intend to use this
designation to reduce the marketing approval timeline for ONCONASE(R).
In February 2001, we received an Orphan Medicinal Product Designation for
ONCONASE(R) from EMEA. We are continuing discussions with EMEA regarding the
Marketing Authorization Application or MAA registration requirements for
ONCONASE(R) for the treatment of malignant mesothelioma.
In the ongoing trial, an interim analysis based on the occurrence of 105 deaths
is planned. Based upon the results of these analyses, we may be able to file an
NDA and an MAA within 6 months after the completion of the analyses. Marketing
approval for ONCONASE(R) as a treatment for malignant mesothelioma may not be
granted by the FDA or EMEA.
We had initiated a Phase III program in patients with advanced pancreatic cancer
in 1995 after meeting with FDA, based on the Phase II results. The median
survival time of 5.5 months for 47 patients with stage 4 disease and liver
involvement treated with the combination of ONCONASE(R) (weekly) + tamoxifen
(daily) was more than double the median survival of such patients reported in
previously published trials treated with a variety of other systemic therapies
(published median survival times ranged from 2.0 to 2.5 months). Multicenter
randomized trials were designed to evaluate ONCONASE(R) + tamoxifen regimen in
untreated patients as well as patients who had failed GEMZAR(R). The primary
endpoint of both trials was survival. Early survival analyses of both trials did
not reveal a significant survival advantage over the controls. Therefore, we
made a decision that further evaluation of this indication was not warranted at
that time and our resources were refocused on the ongoing malignant mesothelioma
program.
8
ONCONASE(R) Phase II Clinical Trials
ONCONASE(R) as a single agent, demonstrated objective clinical activity in 105
patients with uresectable malignant mesothelioma that included many heavily
pretreated patients with refractory tumors. Analysis of the TTG population
confirmed the importance of the CALGB prognostic groups and their utility for
evaluating systemic therapies in this patient population.
Forty-one patients, 39% reported evidence of clinical activity: 4 partial
responses, 2 minor responses and 35 stabilization of previously progressive
disease. The MST of these patients was 18.5 months and the overall 1-year and
2-year survival rates were 61% and 40.8% respectively. Two patients, 1 PR and 1
SD had their residual tumors resected after termination from the study and
remain alive and tumor free for over 4 years after resection. The results of
this trial demonstrated a survival benefit for both newly diagnosed patients and
patients who failed prior therapies. The presentation of these data to the FDA
resulted in the design of our Phase III malignant mesothelioma program.
A multicenter Phase II Broad Eligibility trial designed to evaluate ONCONASE(R)
as a single agent has been conducted and results of the findings for patients
with non-small cell lung cancer (NSCLC) and advanced breast cancer have been
published.
ONCONASE(R) as a single agent, demonstrated objective clinical activity in
patients with advanced NSCLC and breast cancer. The median survival time of 30
patients with advanced NSCLC was greater than that in 19 of 20 regimens when
supportive care, a placebo or another single agent was given. Furthermore it was
greater than 75% of the reported MSTs in combination chemotherapy trials. The
MST and 1 year survival rates of 7.7 months and 27% for ONCONASE(R)-treated
patients compared favorably to 7.2 months and 30% for patients treated with
Navelbine (an approved drug for this indication) as a single agent.
Thirty percent of 17 patients with advanced breast cancer demonstrated objective
clinical activity, which included, one partial response, two minor responses and
significant reduction in bone pain and control of uncontrollable malignant fluid
in the lungs (one patient each).
A series of pilot Phase II studies to evaluate ONCONASE(R) as a single agent,
and ONCONASE(R) + tamoxifen in previously treated patients with unresectable
renal cell cancer were conducted. The results of both the Phase II single agent
and ONCONASE(R) + tamoxifen have been published (abstracts). Although the single
agent study did not demonstrate evidence of clinical activity, the regimen of
ONCONASE(R) + Tamoxifen did demonstrate evidence of clinical activity which
indicated further evaluation in untreated patients is warranted.
Phase II telescopic studies to evaluate the regimen of ONCONASE(R) +
gemcitabine, in patients with NSCLC as well as the regimen of ONCONASE(R) +
Taxatere(R), in patients with advanced breast cancer are planned for 2003.
In summary, results of clinical trials performed to date suggest that
ONCONASE(R) can be safely administered to patients with cancer and that such
treatment may overcome multiple drug resistance and interfere with tumor growth.
Research Collaborations
We are pursuing some of these programs independently, while others are being
undertaken in collaboration with the NIH and other US, European and Japanese
institutions.
We have established a number of scientific collaborations with NCI. The
objective of our collaboration with NCI is to develop new therapeutic
applications for ONCONASE(R). This collaboration has produced RN321, a
conjugate, or chemical construct, of ranpirnase with a monoclonal antibody that
demonstrated activity in treating non-Hodgkin's lymphoma in preclinical studies.
The relative benefit in killing targeted tumor cells versus non-targeted healthy
cells, therapeutic index, is greater than 200,000-fold with this conjugate.
These striking "proof-of-concept" results were
9
presented at the 6th International Ribonuclease Meeting in Bath, England, in
June 2002 and resulted in approval of an NCI sponsored clinical trial and the
associated manuscript will be submitted for publication.
The pleiotropic pattern of biological activity of ONCONASE(R) led to research in
other areas of cancer biology. Two important areas associated with significant
market opportunities are radiation therapy and control of tumor angiogenesis, or
new tumor blood vessel formation. Many types of cancers undergo radiation
therapy at early stages of the disease. However, success of such treatment is
often limited. We believe any agent capable of enhancing tumor radiosensitivity
has great market potential. Moreover, since the growth of essentially all types
of cancer is dependent on new blood vessel formation, any agent, that has
anti-angiogenic activity, is most desirable.
Evaluation Of ONCONASE(R) As A Radiation Enhancer
Published studies have demonstrated that ONCONASE(R) causes an increase in both
tumor blood flow and in median tumor oxygen partial pressure causing tumor cells
to become less resistant to radiation therapy regardless of the presence or
absence of the functional p53 tumor-suppressor gene.
We believe these findings further expand the profile of ONCONASE(R) in vivo
activities and its potential clinical utility and market potential. These
findings have led to the collaboration with the Molecular Radiation Oncology
Sciences Program of the NCI. The Molecular Radiation Therapeutic Branch in
collaboration with the Radiation Biology Branch of the NCI is conducting this
research.
ONCONASE(R) As a Resistance-Overcoming and Apoptosis-Enhancing Agent
The Fas (CD95) cell surface receptor (and its Fas ligand [FasL]) has been
recognized as an important "death" receptor involved in the induction of the
"extrinsic" pathway of apoptosis. The apoptotic pathways have been the preferred
target for new drug development in cancer, autoimmune, and other therapeutic
areas.
The Thoracic Surgery Branch of the NCI confirmed the synergy between ranpirnase
and soluble Fas ligand (sFasL) in inducing significant apoptosis in
sFasL-resistant Fas+tumor cells. These results provided rationale for using
ONCONASE(R) as a potential treatment of FasL-resistant tumors and possibly other
disorders such as the autoimmune lympho-proliferative syndrome (ALPS). Further
research in this area is ongoing.
Evaluation Of ONCONASE(R) As An Anti-Viral Agent
The ribonucleolytic activity was the basis for testing ONCONASE(R) as a
potential anti-viral agent against the human immunodeficiency virus, or HIV. NIH
have performed an independent in vitro screen of ONCONASE(R) against the HIV
virus type 1. The results showed ONCONASE(R) to inhibit replication of HIV by up
to 99.9% after a four-day incubation period at concentrations not toxic to
uninfected cells. In vitro findings by the NIH revealed that ONCONASE(R)
significantly inhibited production of HIV in several persistently infected human
cell lines, preferentially breaking down viral RNA and cellular transfer RNA
while not affecting normal cellular ribosomal RNA and messenger RNAs.
Moreover, the NIH - Division of AIDS also screened ONCONASE(R) for anti-HIV
activity. ONCONASE(R) demonstrated highly significant anti-HIV activity in the
monocyte/macrophage system. Ranpirnase may inhibit viral replication at several
points during the life cycle of HIV, including its early phases. Ranpirnase is
likely to inhibit replication of all different HIV-1 subtypes. These properties
of ranpirnase are particularly relevant in view of the extremely high and
exponentially increasing rate of mutations of HIV that occur during infection,
and which are primarily responsible for the development of resistance to several
currently available antiviral drugs. At present, over 50% of clinical isolates
of HIV are resistant to both reverse transcriptase and protease inhibitors
drugs, and an additional 25%, while being sensitive to protease inhibitors, are
resistant to RT inhibitors drugs. German collaborators continue to investigate
the anti-viral properties of ONCONASE(R). The ribonucleolytic activity of
ONCONASE(R) suggested that it might be active against a variety of RNA viruses,
including HIV (AIDS) and hepatitis C. We believe treatments for both viruses
have huge market potentials.
10
Research And Development Pipeline Of Targeted Therapies
Our proprietary drug discovery program forms the basis for the development of
recombinant designer RNases for chemical conjugation and gene fusion products
with various targeting moieties such as monoclonal antibodies, growth factors,
cytokines etc. We believe these products can be produced in a cost effective and
controlled manufacturing environment.
This program also provides for joint design and generation of new products with
outside partners. Alfacell with any outside partners may both own these new
products, or Alfacell may grant an exclusive license to the collaborating
partner(s).
Ranpirnase Conjugates and Fusion Proteins
The concept of targeting potent toxins as effector molecules to kill cancer or
other specifically targeted cells has been extensively evaluated over the last 2
decades. Several immunotoxins containing bacterial and plant toxins or other
biotoxins, have been evaluated in human clinical trials. Efficacy has always
been limited due to the high incidence of immunogenicity and other intolerable
toxicities, including death. Conjugation of ranpirnase to targeting ligands
appears to eliminate this safety problem.
RN321 is comprised of ranpirnase conjugated to an anti-CD22 monoclonal antibody
for the treatment of non-Hodgkin's Lymphoma. Alfacell, in collaboration with the
NCI, is developing this product. The relative benefit in killing targeted tumor
cells versus non-targeted healthy cells is greater than 200,000-fold with this
conjugate. These striking "proof-of-concept" results were presented at the 6th
International Ribonuclease Meeting in Bath, England, in June 2002 and resulted
in approval of an NCI sponsored clinical trial and the associated manuscript
will be submitted for publication.
Although ranpirnase is active against a variety of human cancers, its activity
is not uniform across different tumor types. However, whether the tumor is more
or less sensitive to ranpirnase as a single agent, its anti-tumor activity can
be greatly augmented by conjugation to different targeting moieties. One of
these moieties is the epidermal growth factor, or EGF, which is a ligand for the
EGF receptor often hyperexpressed on malignant cells. The genetically engineered
ranpirnase conjugates with EGF (rRNP-EGF) exerted significant anti-tumor
activity in human squamous cell head and neck and pancreatic carcinomas, and
human D54MG glioblastoma. Other constructs target tumor blood vessel formation,
which could be potentially used in a broad spectrum of solid tumors. They are in
pre-clinical evaluation by our European collaborators.
Novel Amphibian Ribonucleases
In addition to ONCONASE, Alfacell has isolated several other novel proteins from
eggs of the leopard frog. All of the proteins characterized to date are RNases.
Information on four new proteins was presented at the 6th International
Ribonuclease Meeting., in Bath , England. Preclinical testing of the new
candidates tested shows them to be similarly active to ranpirnase. Their
chemical structure makes them ideal candidates for genetic engineering of
designer products. We are currently in negotiations with potential
pharmaceutical partners for the development of these new compounds.
Collaborations with Pharmaceutical Companies
We have entered into research and development collaboration with Wyeth
Pharmaceuticals to co-develop a number of designer drugs such as conjugates and
fusion proteins for a variety of indications using our proprietary technology.
This collaboration may result in a licensing agreement between the companies,
however; there is no assurance that such an agreement will be reached.
11
Raw Materials
The major active ingredient derived from leopard frog eggs is the protein
ranpirnase. Although we currently acquire our natural source material from a
single supplier, we believe that it is abundantly available from other sources.
We have sufficient egg inventory on hand to produce enough ONCONASE(R) to
complete the current Phase III clinical trial for malignant mesothelioma and
supply ONCONASE(R) for up to two years after commercialization. In addition, we
have successfully completed the cloning of the gene of the natural protein
ranpirnase; however, the use of this recombinant technology may not be more cost
effective than the natural source.
Manufacturing
We have signed an agreement with Scientific Protein Laboratories, a subsidiary
of a division of Wyeth, which will perform the intermediary manufacturing
process of purifying ranpirnase. Scientific Protein Laboratories sends the
intermediate product to a contract filler for the final manufacturing step and
vial filling. Other than these arrangements, we do not have specific
arrangements for the manufacture of our product. Products manufactured for use
in Phase III clinical trials and for commercial sale must be manufactured in
compliance with Current Good Manufacturing Practices. Both Scientific Protein
Laboratories and the contract filler, to whom the intermediate product is sent,
manufacture in accordance with Current Good Manufacturing Practices. For the
foreseeable future, we intend to rely on these manufacturers, or substitute
manufacturers, if necessary, to manufacture our product. We might not be able to
find substitute manufacturers, if necessary. We are dependent upon our contract
manufacturers to comply with Current Good Manufacturing Practices and to meet
our production requirements. It is possible that our contract manufacturers may
not comply with Current Good Manufacturing Practices or deliver sufficient
quantities of our products on schedule.
Marketing
We do not plan to market our products at this time. We have entered into a
number of Confidential Disclosure Agreements and have been in discussions with
several U.S. and multinational biopharmaceutical companies for the selection of
suitable marketing partners for our lead product ONCONASE(R), our proprietary
ribonuclease technology pipeline, as well as several patented product
candidates.
We intend to enter into development and marketing agreements with third parties.
We expect that under such arrangements we would grant exclusive marketing rights
to our corporate partners in return for assuming further research and
development cost, up-front fees, milestone payments and royalties on sales.
Under these agreements, our marketing partner may have the responsibility for a
significant portion of product development and regulatory approval. In the event
that our marketing partner fails to develop a marketable product or fails to
market a product successfully, our business may be adversely affected.
Government Regulation
The manufacturing and marketing of pharmaceutical products in the United States
requires the approval of the FDA under the Federal Food, Drug and Cosmetic Act.
Similar approvals by comparable regulatory agencies are required in most foreign
countries. The FDA has established mandatory procedures and safety standards
that apply to the clinical testing, manufacturing and marketing of
pharmaceutical products in the US. Obtaining FDA approval for a new therapeutic
may take many years and involve substantial expenditures. State, local and other
authorities also regulate pharmaceutical manufacturing facilities.
As the initial step in the FDA regulatory approval process, preclinical studies
are conducted in laboratory dishes and animal models to assess the drug's
efficacy and to identify potential safety problems. Moreover manufacturing
processes and controls for the product are required. The manufacturing
information along with the results of these studies is submitted to the FDA as a
part of the IND, which is filed to obtain approval to begin human clinical
testing. The human clinical testing program typically involves up to three
phases. Data from human trials as well as other regulatory requirements such as
chemistry, manufacturing and controls, pharmacology and toxicology sections, are
submitted to the FDA in an NDA or Biologics License Application, or BLA.
Preparing an NDA or BLA involves
12
considerable data collection, verification and analysis. A similar process in
accordance with EMEA regulations is required to gain marketing approval in
Europe. Moreover, a commercial entity must be established and approved by the
EMEA in a member state of the EU at least three months prior to filing the MAA.
We have not received United States or other marketing approval for any of our
product candidates and may not receive any approvals. We may encounter
difficulties or unanticipated costs in our effort to secure necessary
governmental approvals, which could delay or preclude us from marketing our
products.
With respect to patented products, delays imposed by the governmental approval
process may materially reduce the period during which we may have the exclusive
right to exploit them.
Patents and Proprietary Technology
Since our inception, it has been our policy to protect our proprietary
technology and know-how by filing for and obtaining patents and trademarks which
we consider important to the development of our business. We rely on trade
secrets and know-how and continue to develop our intellectual property rights.
We have obtained, and continue to file, patents concerning our RNase based
technology, drug candidates including but not limited to genes, conjugates and
fusion proteins, novel composition of matter, and methods of manufacture and
use.
In addition, foreign counterparts of certain applications have been filed or
will be filed at the appropriate time. In the United States patents filed prior
to June 8, 1995 will expire 17 years after the date of allowance or, in other
cases 20 years from the date of application. Generally, it is our strategy to
apply for patent protection in the United States, selected European countries
and Japan.
We own the following patents in the United States.
o Patent No. US 6,423,515 B1 issued in July 23, 2002, which covers the
methodology for synthesizing gene sequences of ranpirnase and the
genetically engineered variant.
o Patent No. US 6,290,951 B1 issued in September 18, 2001, which
covers alteration of the cell cycle in vivo, particularly for
inducing apoptosis of tumor cells.
o Patent No. US 6,239,257 B1, issued on May 29, 2001, which covers a
family of variants of ONCONASE(R).
o Patent No. US 6,175,003 B1, issued January 16, 2001, which covers
the genes of ONCONASE(R)and a variant of ONCONASE(R).
o U.S. Patent No. 5,728,805, issued in 1998, which covers a family of
variants of ONCONASE(R).
o U.S. Patents Nos. 5,529,775 and 5,540,925, issued in 1996, and U.S.
Patent No. 5,595,734, issued in 1997, which cover combinations of
ONCONASE(R)with certain other pharmaceuticals.
o U.S. Patent No. 5,559,212, issued in 1996, which covers the amino
acid sequence of ONCONASE(R).
o U.S. Patent No. 4,888,172, issued in 1989, which covers a
pharmaceutical produced from fertilized frog eggs (Rana pipiens) and
the methodology for producing it.
We own four European patents, which have been validated in certain European
countries. These patents cover ONCONASE(R), a variant of ONCONASE(R), process
technology for making ONCONASE(R), and combinations of ONCONASE(R) with certain
other chemotherapeutics. We also have patent applications pending in the United
States, Europe, and Japan. Additionally, we own one Japanese patent and have an
undivided interest in two US patents ,each relating to a Subject Invention, as
that term is defined in Cooperative Research and Development Agreement, or CRADA
to which we and the NIH are parties.
The scope of protection afforded by patents for biotechnological inventions can
be uncertain, and such uncertainty may apply to our patents as well. The patent
applications we have filed, or that we may file in the future, may not result in
patents. Our patents may not give us competitive advantages, may be wholly or
partially invalidated or held unenforceable, or may be held uninfringed by
products that compete with our products. Patents owned by others may adversely
affect our ability to do business. Furthermore, others may independently develop
products that are similar to our products or that duplicate our products, and
may design around the claims of our patents. Although we
13
believe that our patents and patent applications are of substantial value to us,
we cannot assure you that such patents and patent applications will be of
commercial benefit to us, will adequately protect us from competing products or
will not be challenged, declared invalid, or declared uninfringed. We also rely
on proprietary know-how and on trade secrets to develop and maintain our
competitive position. Others may independently develop or obtain access to such
know-how or trade secrets. Although our employees and consultants having access
to proprietary information are required to sign agreements that require them to
keep such information confidential, our employees or consultants may breach
these agreements or these agreements may be held to be unenforceable.
Competition
Currently, there are no approved systemic treatments for malignant mesothelioma.
To our knowledge, no other company is developing a product with the same
mechanism of action as ONCONASE(R). There are several companies, universities,
research teams which are engage in research similar or potentially similar to
those performed by us. Eli Lilly is developing a multi-targeted antifolate
ALIMTA(R) (pemetrexed) for patients with malignant mesothelioma. Preliminary
Phase III results namely response rate and median survival, were presented at
ASCO 2002, however many patients were censored at the time of the analysis.
Final results are not yet published. ALIMTA-related deaths have been reported.
Monitoring folate levels and requiring folic acid + vitamin B12 supplementation
reduced the risk of drug-related deaths.
Some of our competitors have far greater financial resources, larger research
staffs and more extensive physical facilities. These competitors may develop
products that are more effective than ours and may be more successful than us at
producing and marketing their products. We are not aware, however, of any
product currently being marketed that has the same mechanism of action as our
proposed anti-tumor agent, ONCONASE(R). Search of scientific literature reveals
no published information that would indicate that others are currently employing
this method or producing such an anti-tumor agent. Others may develop new
treatments that are more effective than ONCONASE(R).
Employees
As of November 8, 2002, we have 14 employees, of whom 11 were engaged in
research and development activities and three were engaged in administration and
management. We have six employees who hold Ph.D. or M.D. degrees. All of our
employees are covered by confidentiality agreements. We consider relations with
our employees to be excellent. None of our employees are covered by a collective
bargaining agreement. Alfacell has retained the services of independent
contractors and companies with a proven track record for the significant
clinical, regulatory and manufacturing activities required for product
development.
Environmental Matters
Our operations are subject to comprehensive regulation with respect to
environmental, safety and similar matters by the United States Environmental
Protection Agency and similar state and local agencies. Failure to comply with
applicable laws, regulations and permits can result in injunctive actions,
damages and civil and criminal penalties. If we expand or change our existing
operations or propose any new operations, we may need to obtain additional or
amend existing permits or authorizations. We spend time, effort and funds in
operating our facilities to ensure compliance with environmental and other
regulatory requirements.
Such efforts and expenditures are common throughout the biotechnology industry
and generally should have no material adverse effect on our financial condition.
The principal environmental regulatory requirements and matters known to us
requiring or potentially requiring capital expenditures by us do not appear
likely, individually or in the aggregate, to have a material adverse effect on
our financial condition. We believe that we are in compliance with all current
laws and regulations.
14
Item 2. PROPERTIES.
We lease a total of approximately 17,000 square feet in an industrial office
building located in Bloomfield, New Jersey. Our lease expired on December 31,
2001 and are currently negotiating a new lease agreement under similar terms
with the landlord. The monthly rental obligation is $11,333. We believe that the
facility is sufficient for our needs in the foreseeable future.
Item 3. LEGAL PROCEEDINGS.
We are presently not involved in any legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Part II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock is traded on the OTC Bulletin Board, or OTCBB, under the symbol
"ACEL". At the close of business April 27, 1999, we were delisted from The
Nasdaq SmallCap Market, or Nasdaq, for failing to meet the minimum bid price
requirements set forth in the NASD Marketplace Rules. As of November 8, 2002,
there were approximately 1,224 stockholders of record of our common stock.
The following table sets forth the range of high and low sale prices of our
common stock for the two fiscal years ended July 31, 2002 and 2001. The prices
were obtained from OTCBB and are believed to be representative of inter-dealer
quotations, without retail mark-up, mark-down or commission, and may not
necessarily represent actual transactions.
High Low
Year Ended July 31, 2002:
First Quarter $ 0.96 $ 0.33
Second Quarter 1.01 0.35
Third Quarter 0.77 0.42
Fourth Quarter 0.47 0.27
Year Ended July 31, 2001:
First Quarter 1.56 0.75
Second Quarter 1.38 0.53
Third Quarter 2.19 0.72
Fourth Quarter 1.59 0.81
We have not paid dividends on our common stock since inception and we do not
plan to pay dividends in the foreseeable future. Any earnings we may realize
will be retained to finance our growth.
Recent Sales of Unregistered Securities
In June 2002, we sold an aggregate of 285,714 shares of common stock to private
investors at a price of $0.35 per share resulting in gross proceeds of $100,000.
In addition, the private investors were granted five-year warrants to purchase
an aggregate of 285,714 shares of common stock at per share exercise price of
$1.00. These transactions were consummated as a private sale pursuant to Section
4(2) of the Securities Act of 1933, as amended.
In April, June, July and September 2002, we issued warrants to purchase an
aggregate 350,000 shares of common stock in connection with notes payable to
unrelated parties in an aggregate amount of $350,000. The notes were due
15
thirty days from the date of issuance bearing interest at 8% per annum. The
warrants to purchase have an exercise price of $0.60 per share. The total
non-cash interest expense recorded for these warrants was $40,690, based upon
the fair value of such warrants on the date of issuance as estimated by the
Black-Scholes options-pricing model. The notes were either extended for eighteen
months or the lenders can convert the notes at a conversion price of $0.40 per
share plus a five-year warrant for each share of Alfacell common stock issued
upon conversion at an exercise price of $1.00 per share. These transactions were
consummated as a private sale pursuant to Section 4(2) of the Securities Act of
1933, as amended.
The following table provides additional information on the Company's equity
based compensation plans as of July 31, 2002:
Number of securities
remaining available for
Number of securities to future issuance under
be issued upon exercise Weighted-average exercise equity compensation plans
of outstanding options, price of outstanding (excluding securities
Plan Category warrants and rights options, warrants and rights reflected in column a)
------------- ----------------------- ---------------------------- ----------------------
(a) (b) (c)
Equity compensation plans
approved by security holders 2,297,784 $ 1.79 2,326,661
Equity compensation plans not
approved by security holders 1,426,556 $ 1.22 - 0 -
Item 6. SELECTED FINANCIAL DATA.
Set forth below is the selected financial data for our company for the five
fiscal years ended July 31.
Year Ended July 31,
---------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Interest Income $ 4,838 $ 13,121 $ 51,144 $ 168,372 $ 311,822
Net Loss (1) $(2,591,161) $(2,294,936) $(1,722,298) $(3,156,636) $(6,387,506)
Net Loss Per Basic
and Diluted Share $ (.12) $ (.12) $ (.10) $ (.18) $ (.40)
Dividends None None None None None
As of July 31,
---------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Total Assets $ 228,871 $ 201,609 $ 488,099 $ 1,728,648 $ 5,516,678
Long-term Debt $ 315,929 $ 23,663 $ 30,251 None $ 6,727
Total Equity
(Deficiency) $(1,885,437) $ (740,378) $ (131,860) $ 757,200 $ 3,691,838
(1) Included in the net loss of $2,591,161, $2,294,936 and $1,722,298 for
fiscal years ended July 31, 2002, 2001 and 2000, respectively, are tax
benefits of $353,732, $451,395 and $755,854, respectively related to the
sale of certain state tax operating loss carryforwards.
16
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Overview
Since our inception, we have devoted the majority of our resources to the
research and development of ONCONASE(R) and related drug candidates. After we
obtained the results of our preliminary analysis of the Phase III clinical trial
for advanced pancreatic cancer, we closed the pancreatic cancer trials and
redirected our resources towards the completion of the clinical program for
unresectable malignant mesothelioma.
We have had a series of meetings and communications with the FDA and EMEA to
establish mutually agreed upon parameters for the NDA and MAA filings for the
malignant mesothelioma indication. In the ongoing Phase III trial in this
indication, an interim analysis based on the occurrence of 105 deaths is
planned. Based upon the results of these analyses, we may be able to file an NDA
and an MAA within six months after the completion of the analyses. Marketing
approval for ONCONASE(R) as a treatment for malignant mesothelioma may not be
granted by the FDA or EMEA. We are also exploring out-licensing and various
strategic alternatives for our business, research and development operations
with other companies.
In October 2002, we entered into a research collaboration with Wyeth
Pharmaceuticals to co-develop a number of designer drugs such as conjugates and
fusion proteins for a variety of indications using our proprietary technology.
This collaboration may result in a licensing agreement between us, however,
there is no assurance that such agreement will be reached.
We are currently funding the research and development of our products from cash
receipts resulting from the private sales of our securities and from certain
debt financings. The termination of the Phase III clinical trials for advanced
pancreatic cancer had a significant and detrimental impact on the price of our
common stock and our ability to raise additional capital for future operations.
We may not have, or may not be able to obtain, the financial resources required
to pay for all the associated costs of the malignant mesothelioma program to
file in the Unites States and/or foreign registration for the marketing approval
of ONCONASE(R) for this indication.
Results of Operations
Fiscal Years Ended July 31, 2002, 2001 and 2000
Revenues
We are a development stage company as defined in the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 7. We are
devoting substantially all our present efforts to establishing a new business
and developing new drug products. Our planned principal operations of marketing
and/or licensing of new drugs have not commenced and, accordingly, we have not
derived any significant revenue from these operations. We focus most of our
productive and financial resources on the development of ONCONASE(R). We did not
have any sales in fiscal 2002, 2001 and 2000. Investment income for fiscal 2002
was $5,000 compared to $13,000 for fiscal 2001, a decrease of $8,000. This
decrease was due to lower balances of cash and cash equivalents. Investment
income for fiscal 2001 was $13,000 compared to $51,000 for fiscal 2000, a
decrease of $38,000. This decrease was due to lower balances of cash and cash
equivalents.
Research and Development
Research and development expense for fiscal 2002 was $2,033,000 compared to
$1,901,000 for fiscal 2001, an increase of $132,000, or 7%. This increase was
primarily due to an increase in costs in support of ongoing clinical trials for
ONCONASE(R) resulting from the expansion of our Phase III clinical trials for
malignant mesothelioma in Europe. This increase was partially offset by a
decrease in expenses related to outside consultants, reduction of non-cash
expenses relating to stock options issued for consulting services and a decrease
in costs relating to patent and trademark application for ONCONASE(R).
Research and development expense for fiscal 2001 was $1,901,000 compared to
$1,880,000 for fiscal 2000, an increase of $21,000, or 1%. This increase was
primarily due to an increase in costs in support of ongoing clinical trial and
increase in costs related to ONCONASE(R) clinical supplies, both primarily due
to the expansion of our
17
Phase III clinical trial for malignant mesothelioma in Europe. These increases
were offset by a decrease in expenses related to the NDA filing for ONCONASE(R)
with the FDA.
General and Administrative
General and administrative expense for fiscal 2002 was $798,000 compared to
$706,000 for fiscal 2001, an increase of $92,000, or 13%. This increase was
primarily due to an increase in costs related to public relations activities,
increase in legal costs associated with business development activities and
increase in insurance expenses offset by a decrease in non-cash expense relating
to stock options issued for consulting services.
General and administrative expense for fiscal 2001 was $706,000 compared to
$645,000 for fiscal 2000, an increase of $61,000, or 9%. This increase was
primarily due to a 58% increase in costs related to public relations activities,
a 30% increase in non-cash expense relating to stock options issued for
consulting services, a 12% increase in personnel costs and an 87% increase in
costs associated with business development activities.
Interest
Interest expense for fiscal 2002 was $119,000 compared to $153,000 in fiscal
2001, a decrease of $34,000. The decrease was primarily due to the interest
expense on convertible notes and related warrants issued during the fiscal year
ended 2001. The interest expense was based on the value of the warrants using
the Black-Scholes options-pricing model, amortized on a straight-line basis over
the life of the notes.
Interest expense for fiscal 2001 was $153,000 compared to $5,000 in fiscal 2000,
an increase of $148,000. The increase was primarily due to the interest expense
on convertible notes and related warrants issued in April 2001 to related and
unrelated parties. The interest expense was based on the value of the warrants
using the Black-Scholes options-pricing model, amortized on a straight-line
basis over the life of the notes.
Income Taxes
New Jersey has enacted legislation permitting certain corporations located in
New Jersey to sell state tax loss carryforwards and state research and
development credits or tax benefits. For the state fiscal year 2002 (July 1,
2001 to June 30, 2002), we have $1,535,000 total available tax benefits of which
$426,000 was allocated to be sold between July 1, 2001 and June 30, 2002. In
December 2001, we received $354,000 from the sale of an aggregate of $426,000
tax benefits which was recognized as a tax benefit for our fiscal 2002. In
December 2000, we received $451,000 from the sale of an aggregate of $602,000
tax benefits which was recognized as a tax benefit for our fiscal 2001. We will
attempt to sell the remaining balance of our tax benefits in the amount of
approximately $1,109,000 between July 1, 2002 and June 30, 2003, subject to all
existing laws of the State of New Jersey. However, we may not be able to find a
buyer for our tax benefits or that such funds may not be available in a timely
manner.
Net Loss
We have incurred net losses during each year since our inception. The net loss
for fiscal 2002 was $2,591,000 as compared to $2,295,000 in fiscal 2001 and
$1,722,000 in fiscal 2000. The cumulative loss from the date of inception,
August 24, 1981, to July 31, 2002 amounted to $61,563,000. Such losses are
attributable to the fact that we are still in the development stage and
accordingly have not derived sufficient revenues from operations to offset the
development stage expenses.
Liquidity and Capital Resources
We have financed our operations since inception primarily through equity and
debt financing, research product sales and interest income. During the fiscal
year 2002, we had a net increase in cash and cash equivalents of $41,000. This
increase primarily resulted from net cash provided by financing activities in
the amount of $1,572,000, primarily from the private placement of common stock
and warrants, proceeds from long-term borrowings, loans
18
from related parties and proceeds from the exercise of warrants, offset by net
cash used in operating activities of $1,531,000. Total cash resources as of July
31, 2002 were $86,000 compared to $45,000 at July 31, 2001.
Our current liabilities as of July 31, 2002 were $1,798,000 compared to $918,000
at July 31, 2001, an increase of $880,000. The increase was primarily due to an
increase in expenses related to the expansion of our Phase III clinical trial
for malignant mesothelioma in Europe and increasing business development,
investor and public relations activities. As of July 31, 2002 our current
liabilities exceeded our current assets and we had a working capital deficit of
$1,667,000.
New Jersey has enacted legislation permitting certain corporations located in
New Jersey to sell state tax loss carryforwards and state research and
development credits or tax benefits. For the state fiscal year 2002 (July 1,
2001 to June 30, 2002), we have $1,535,000 total available tax benefits of which
$426,000 was allocated to be sold between July 1, 2001 and June 30, 2002. In
December 2001, we received $354,000 from the sale of an aggregate of $426,000
tax benefits which was recognized as a tax benefit for our fiscal 2002. In
December 2000 and 1999, we received $451,000 and $756,000 from the sale of an
aggregate of $602,000 and $1,008,000 tax benefits which was recognized as a tax
benefit for our fiscal years 2001 and 2000, respectively. We will attempt to
sell the remaining balance of our tax benefits in the amount of approximately
$1,109,000 between July 1, 2002 and June 30, 2003, subject to all existing laws
of the State of New Jersey. However, we may not be able to find a buyer for our
tax benefits or that such funds may not be available in a timely manner.
Our continued operations will depend on our ability to raise additional funds
through various potential sources such as equity and debt financing,
collaborative agreements, strategic alliances, sale of tax benefits, revenues
from the commercial sale of ONCONASE(R), licensing of our proprietary RNase
technology and our ability to realize the full potential of our technology and
our drug candidates via out-licensing agreements with other companies. Such
additional funds may not become available as we need them or be available on
acceptable terms. To date, a significant portion of our financing has been
through private placements of common stock and warrants, the issuance of common
stock for stock options and warrants exercised and for services rendered, debt
financing and financing provided by our Chief Executive Officer. Additionally,
we have raised capital through the sale of our tax benefits. Until our
operations generate significant revenues, we will continue to fund operations
from cash on hand and through the sources of capital previously described. From
August through November 6, 2002, we received gross proceeds of approximately
$277,000 from long-term and short-term borrowings from unrelated parties and
from the private placement of common stock and warrants. After taking into
account these net proceeds and the anticipated proceeds from the sale of the
balance of our tax benefits, we believe that our cash and cash equivalents will
be sufficient to meet our anticipated cash needs through January 2003.
Management is continuing its fund raising efforts and anticipates securing
required financing in the first calendar quarter of 2003. The report of our
independent auditors on our financial statements includes an explanatory
paragraph which states that our recurring losses, working capital deficit and
limited liquid resources raise substantial doubt about our ability to continue
as a going concern. Our financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
We will continue to incur costs in conjunction with our U.S. and foreign
registrations for marketing approval of ONCONASE(R). We are currently in
discussions with several potential strategic alliance partners including major
international biopharmaceutical companies to further the development and
marketing of ONCONASE(R) and other related products in our pipeline, as well as
our proprietary technology. However, we cannot be certain that any such
alliances will materialize.
Our common stock was delisted from The Nasdaq SmallCap Market effective at the
close of business April 27, 1999 for failing to meet the minimum bid price
requirements set forth in the NASD Marketplace Rules. Since April 28, 1999, our
common stock has traded on the OTC Bulletin Board under the symbol "ACEL".
Delisting of our common stock from Nasdaq could have a material adverse effect
on our ability to raise additional capital, our stockholders' liquidity and the
price of our common stock.
The market price of our common stock is volatile, and the price of the stock
could be dramatically affected one way or another depending on numerous factors.
The market price of our common stock could also be materially affected by the
marketing approval or lack of approval of ONCONASE(R).
19
Critical Accounting Policies
In December 2001, the SEC requested that all registrants discuss their most
"critical accounting policies" in management's discussion and analysis of
financial condition and results of operations. The SEC indicated that a
"critical accounting policy" is one which is both important to the portrayal of
the company's financial condition and results and requires management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. We
believe based on our current business that there are no critical accounting
policies. Our accounting policies are described in Note 1 to the financial
statements.
Below is a table that presents our contractual obligations and commercial
commitments as of July 31, 2002:
Payments Due by Fiscal Year
---------------------------------------------------------------------
2005 and
Total 2003 2004 2005 Thereafter
----- ---- ---- ---- ----------
Research and development commitments $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
Operating leases 58,200 19,800 19.200 19,200 - 0 -
------ ------ ------ ------ -----
Total contractual cash obligations $ 58,200 $ 19,800 $ 19.200 $ 19,200 $ - 0 -
====== ====== ====== ====== ======
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this Item is submitted as a separate section of this report
commencing on Page F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On December 1, 1993, certain shareholders of Armus Harrison & Co., or AHC,
terminated their association with AHC, or the AHC termination, and AHC ceased
performing accounting and auditing services, except for limited accounting
services to be performed on our behalf. In June 1996, AHC dissolved and ceased
all operations. The report of KPMG LLP with respect to our financial statements
from inception to July 31, 2002 is based on the report of AHC for the period
from inception to July 31, 1992, although AHC has not consented to the use of
such report herein and will not be available to perform any subsequent review
procedures with respect to such report. Accordingly, investors will be barred
from asserting claims against AHC under Section 11 of the Securities Act on the
basis of the use of such report in any registration statement into which such
report is incorporated by reference. In addition, in the event any persons seek
to assert a claim against AHC for false or misleading financial statements and
disclosures in documents previously filed by us, such claim will be adversely
affected and possibly barred. Furthermore, as a result of the lack of a consent
from AHC to the use of its audit report herein, or to its incorporation by
reference into a registration statement, our officers and directors will be
unable to rely on the authority of AHC as experts in auditing and accounting in
the event any claim is brought against such persons under Section 11 of the
Securities Act based on alleged false and misleading Financial Statements and
disclosures attributable to AHC. The discussion regarding certain effects of the
AHC termination is not meant and should not be construed in any way as legal
advice to any party and any potential purchaser should consult with his, her or
its own counsel with respect to the effect of the AHC termination on a potential
investment in our common stock or otherwise.
Part III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Name Age Director Since Position with the Company
- ---------------------------- --- -------------- ----------------------------------------------------
Chairman of the Board, Chief Executive Officer and
Kuslima Shogen 57 1981 Acting Chief Financial Officer
Executive Vice President, Medical Director and
Stanislaw M. Mikulski, M.D. 58 1986 Director
Director and Chairman of the Scientific Advisory
Stephen K. Carter, M.D.(1) 64 1997 Board
20
Donald R. Conklin (1)(2) 66 1997 Director
Martin F. Stadler (1)(2) 60 1997 Director
====================================================================================================================
(1) Member of Compensation Committee
(2) Member of Audit Committee
Business Experience of Directors and Executive Officers
Kuslima Shogen has served as our Chief Executive Officer since September 1986,
as Chairman of the Board since August 1996, as a Director since our inception
and as Acting Chief Financial Officer since June 23, 1999. She also served as
our Chief Financial Officer from September 1986 through July 1994 and as our
President from September 1986 through July 1996. Ms. Shogen formed the company
in 1981 to pursue research that she had initiated while a biology student in the
University Honors Program at Fairleigh Dickenson University. Prior to our
founding, from 1976 to 1981 she was founder and president of a biomedical
research consortium specializing in Good Laboratory Practices and animal
toxicology. During that time, she also served as a consultant for the Lever
Brothers Research Group. Ms. Shogen has received numerous awards for
achievements in biology, including the Sigma Xi first prize from the Scientific
Research Society of North America in 1974 and first prize for the most
outstanding research paper in biology at the Eastern College Science Conferences
competitions in 1972, 1973, and 1974. She earned a B.S. degree in 1974 and an
M.S. degree in 1976 in biology from Fairleigh Dickenson University, or FDU, and
also completed graduate studies in 1978 in embryology. She is a Phi Beta Kappa
graduate. In April 1998, Ms. Shogen received the Pinnacle Award from FDU, the
highest honor the University bestows on its graduates.
Stanislaw M. Mikulski, M.D., F.A.C.P. has served as our Executive Vice President
and Medical Director since 1987 and as a Director since 1986. Prior to his
affiliation with us, Dr. Mikulski was Special Assistant to the Chief of the
Investigational Drug Branch of the National Cancer Institute, and the
Coordinator for Immunotherapy Trials in Cancer for the Division of Cancer
Treatment. Prior to joining us, he maintained a private practice in medical
oncology for over eight years. He is a diplomate of the American Board of
Internal Medicine and Medical Oncology as well as a Fellow of the American
College of Physicians and a member of the American Society of Clinical Oncology,
The American Association for Cancer Research and the American Association for
the Advancement of Science. Dr. Mikulski is currently a clinical assistant
Professor of Medicine at the University of Medicine and Dentistry of New Jersey.
He received his M.D. in 1967 from the Medical School of Warsaw, Poland and
subsequently performed post-doctoral studies in human tumor immunology at the
University of California in Los Angeles.
Stephen K. Carter, M.D. joined the Board of Directors in May 1997 and serves as
Chairman of our Scientific Advisory Board. In addition to his positions with us,
Dr. Carter also serves as a senior clinical consultant to Sugen, Inc. From 1995
through 1997, he served as Senior Vice President of Research and Development for
Boehringer-Ingelheim Pharmaceuticals. Before this, Dr. Carter spent over 13
years with Bristol-Myers Squibb, an international leader in the development of
innovative anti-cancer and anti-viral therapies. He held a variety of senior
executive research and development positions while at Bristol-Myers, including
serving for five years as Senior Vice President of worldwide clinical research
and development of its Pharmaceutical Research Institute. From 1976 to 1982, he
established and directed the Northern California Cancer Program. Prior to this,
he held a number of positions during a nine-year tenure at the National Cancer
Institute, including the position of Deputy Director at the National Institutes
of Health. He has also been a member of the faculties of the medical schools of
Stanford University, the University of California at San Francisco and New York
University. Dr. Carter has published extensively on the development of
anti-cancer drugs, was the co-founding editor of journals devoted to cancer
therapeutics or immunology, and has served on the editorial boards of a number
of additional journals dedicated to cancer treatment. He is a member of the
American Society of Clinical Oncology, the American Association for Cancer
Research, and the Society of Surgical Oncology, as well as several other medical
societies. Dr. Carter earned his B.A. from Columbia University and his M.D. from
New York Medical College. He currently serves on the Board of Directors of Allos
Therapeutics.
21
Donald R. Conklin joined the Board of Directors in May 1997. Prior to his
retirement in May 1997, Mr. Conklin was a senior executive with Schering-Plough,
a major worldwide pharmaceutical firm. During his more than 35 years with
Schering-Plough, he held a variety of key management positions within the firm.
From 1986 to 1994, he served as President of Schering-Plough Pharmaceuticals and
Executive Vice-President of Schering-Plough Corporation. In this position, he
was responsible for worldwide pharmaceutical operations, including the launch of
INTRON A(R) (interferon alfa-2b). Prior to this, Mr. Conklin had served as
President of Schering USA and had held a variety of executive marketing
positions in the United States, Europe, and Latin America. Immediately preceding
his retirement, he was Chairman of Schering-Plough Health Care Products and an
Executive Vice President of Schering-Plough Corporation. Mr. Conklin received
his B.A. with highest honors from Williams College and his M.B.A. degree from
the Rutgers University School of Business. He currently serves on the Board of
Directors of Vertex Pharmaceuticals, Inc. and Ventiv Health, Inc.
Martin F. Stadler joined the Board of Directors in November 1997. At the end of
1996, Mr. Stadler retired from Hoffmann La-Roche, Inc. after 32 years of
pharmaceutical, chemical and diagnostic experience. Mr. Stadler served as senior
vice president and chief financial officer, and was a member of the Hoffmann
La-Roche, Inc. Board of Directors from 1985 through 1996. His responsibilities
included finance, information technology, human resources, quality control and
technical services. Prior to 1985, Mr. Stadler served as vice-president of
strategic planning and business development. Mr. Stadler received his B.S.
degree from Rutgers University and his M.B.A. from Fairleigh Dickenson
University. In April 1999, he received the Pinnacle Award from FDU, the highest
honor the University bestows on its graduates. Mr. Stadler is a member of the
Finance Council of the American Management Association.
In March 1998 the SEC approved the settlement previously disclosed in our
November 1997 Proxy Statement of allegations by the SEC of violations of
Sections 13 and 16 of the Securities Exchange Act of 1934, as amended (the
Exchange Act) by Kuslima Shogen, Chairman and Chief Executive Officer and
Stanislaw Mikulski, Executive Vice President. Ms. Shogen and Dr. Mikulski agreed
to the entry of a cease and desist order and the payment of monetary penalties
totaling $40,000 (payable by us under our indemnity agreements with these
individuals) without admitting or denying any of the SEC's allegations
concerning certain allegedly late filings required to be made by them pursuant
to Sections 13 and 16 of the Exchange Act with respect to changes in beneficial
ownership of our securities. With the exception of one late filing by Ms. Shogen
in 1996, each of the allegedly unreported transactions occurred during the years
1983 to 1994. The alleged reporting violations relate solely to the filings of
required forms. There was no allegation by the SEC of any fraudulent or willful
misconduct. No action was brought against us.
Section 16(a) Beneficial Ownership Reporting Compliance
Ownership of and transactions in our stock by our executive officers and
directors and owners of 10% or more of our outstanding common stock are required
to be reported to the Securities and Exchange Commission pursuant to Section
16(a) of the Securities Exchange Act of 1934, as amended. During the fiscal year
ended July 31, 2002, all reports required to be filed pursuant to Section 16(a)
of the Exchange Act were filed in a timely manner.
Item 11. EXECUTIVE COMPENSATION.
Directors' Compensation
Directors receive no cash compensation in consideration for their serving on the
Board of Directors.
In November 1993 and January 1994, the Board of Directors and the stockholders,
respectively, approved our 1993 Stock Option Plan, or the 1993 Plan, which,
among other things, provides for automatic grants of options under a formula to
non-employee directors or independent directors on an annual basis.
The formula provides that (i) on each December 31st each independent director
receives automatically an option to purchase 15,000 shares of our common stock,
or the regular grant; and (ii) on the date of each independent director's
22
initial election to the Board of Directors, the newly elected independent
director automatically receives an option to purchase the independent director's
pro rata share of the regular grant which equals the product of 1,250 multiplied
by the number of whole months remaining in the calendar year, or the pro rata
grant. Each option granted pursuant to a regular grant and a pro rata grant
vests and becomes exercisable on December 30th following the date of grant. An
option will not become exercisable as to any shares unless the independent
director has served continuously on the Board during the year preceding the date
on which such options are scheduled to vest and become exercisable, or from the
date the independent director joined the Board until the date on which the
options are scheduled to vest and become exercisable. However, if an independent
director does not fulfill such continuous service requirement due to the
independent director's death or disability all options held by the independent
director nonetheless vest and become exercisable as described herein. An option
granted pursuant to the formula remains exercisable for a period of five years
after the date the option first becomes exercisable. The per share exercise
price of an option granted under the formula is equal to the average of the high
and low trade prices of our common stock for the twenty (20) trading days
preceding the date of grant.
During the fiscal year ended July 31, 2002, the following independent directors
listed below were granted options under our 1997 Stock Option Plan, or the 1997
Plan, pursuant to the same formula under the 1993 Plan as set forth above. The
exercise prices of the options are equal to the formula set forth above.
Name Number of Options Exercise Price Expiration
-------------------- ------------------------ -------------------- -----------------------
Stephen K. Carter 15,000 $ 0.66 12/30/07
Donald R. Conklin 15,000 $ 0.66 12/30/07
Martin F. Stadler 15,000 $ 0.66 12/30/07
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended July 31, 2002, the members of our Board of
Directors who served on the Compensation Committee were Stephen K. Carter,
Donald R. Conklin and Martin F. Stadler, all of whom are non-employee directors
and have never been an officer of Alfacell.
In April 2001, our board of directors approved the issuance of 50,000 stock
options under the 1997 Plan to Martin Stadler, which vested on the date of
grant. The exercise price of the stock options was $0.90 per share which was
based on the average of the high and low trade prices of our common stock for
the ten trading days preceding the date of grant.
In April 2001, we issued convertible notes to Kuslima Shogen, our Chief
Executive Officer and a director, two of our directors, Donald Conklin and
Martin Stadler, and unrelated parties in the aggregate amount of $366,993.
Messrs. Conklin and Stadler are members of our Compensation Committee. The notes
were due within ninety days unless the lenders elect to exercise an option to
convert their note into common stock at the conversion price of $0.90 per share.
The related parties named above have elected to convert their notes into an
aggregate 330,000 shares of common stock. In addition, upon conversion, they
received three-year warrants to purchase an aggregate 330,000 shares of common
stock at an exercise price of $2.50 per share that will expire on July 7, 2004.
In October 2001, the Board of Directors approved a change in the exercise price
of the 330,000 warrants issued to related parties from $2.50 per share to $1.50
per share and changed the expiration date to July 7, 2006, to conform with the
private placements to unrelated parties. The notes issued to unrelated parties
with an aggregate balance of $69,993 were renewed for one hundred twenty (120)
days for the same conversion price of $0.90 per share. In addition, upon
conversion, they will receive five-year warrants to purchase an aggregate 77,770
shares of common stock at an exercise price of $1.50 per share. In October 2001,
the remaining noteholders elected to convert an aggregate $64,993 notes payable
into an aggregate 72,214 shares of common stock. In addition, they received
five-year warrants to purchase an aggregate 72,214 shares of common stock at an
exercise price of $1.50 per share.
23
Summary Compensation Table
The following table provides a summary of cash and non-cash compensation for
each of the last three fiscal years ended July 31, 2002, 2001 and 2000 earned by
our Chief Executive Officer and Executive Vice President or our executive
officers during the last fiscal year.
Long Term
Annual Compensation Compensation
-------------------------------------------------- ---------------
Other Annual Securities All Other
Name and Salary(5) Bonus Compensation Underlying Compensation
Principal Position Year ($) ($) ($)(1) Options/SARs(#) ($)(2)
- --------------------- ---- --------- ---- ------------ --------------- -------------
Kuslima Shogen 2002 $150,000 - 0 - - 0 - 115,000 $ 4,154
Chief Executive 2001 150,000 - 0 - - 0 - 115,000 4,154
Officer, Chairman of 2000 150,000 - 0 - - 0 - 215,000(3) 3,615
the Board of
Directors and Acting
Chief Financial
Officer
Stanislaw M. Mikulski
Executive Vice 2002 $130,000 - 0 - - 0 - 55,000 $ 3,900
President and 2001 130,000 - 0 - - 0 - 50,000 3,900
Medical Director 2000 130,000 - 0 - - 0 - 130,000(4) 3,600
(1) Excludes perquisites and other personal benefits which in the aggregate do
not exceed 10% of our executive officers' total annual salary and bonus.
(2) Consists of our contributions to a 401(k) plan.
(3) Of these options, 100,000 expired in December 2001.
(4) Of these options, 75,000 expired in December 2001.
(5) Fiscal year 2002 includes $13,000 and $33,900 of unpaid salary for K.
Shogen and S. Mikulski, respectively.
Option Grants in Last Fiscal Year
The following table contains information concerning the grant of stock options
to our executive officers during the fiscal year ended July 31, 2002:
==================================================================================== ===============================
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Individual Grants Term(2)
- ------------------------------------------------------------------------------------
Number of
Securities % of Total
Underlying Options Granted Exercise or
Options to Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Share)(1) Date
- --------------------- --------------- ----------------- -------------- ------------- -------- ---------- -----------
0%($) 5%($) 10%($)
- --------------------- --------------- ----------------- -------------- ------------- -------- ---------- -----------
Kuslima Shogen 115,000(3) 33.92% $.49 (4) -- $ 2,300 $ 5,750
Stanislaw M. Mikulski 50,000(3) 14.75% $.49 (4) -- $ 1,000 $ 2,500
======================= ============= ================= ============== ============= ======== ========== ===========
24
(1) The exercise price of these options was based on the average of the high
and low trade prices of our common stock for the twenty trading days
preceding the date of grant.
(2) The amounts set forth in the three columns represent hypothetical gains
that might be achieved by the optionees if the respective options are
exercised at the end of their terms. These gains are based on assumed
rates of stock price appreciation of 0%, 5% and 10%. The 0% appreciation
column is included because the exercise prices of the options equal the
market price of the underlying common stock on the date the options were
granted, and thus the options will have no value unless our stock price
increases above the exercise prices.
(3) These options vested and became exercisable as to 20% of the shares on
October 4, 2001 and 20% of the shares each year thereafter.
(4) These options will expire five years after the vesting date.
Option Exercises and Fiscal Year-End Values
The following table sets forth the information with respect to our executive
officers concerning the exercise of options during the fiscal year ended July
31, 2002 and unexercised options held as of July 31, 2002.
=================================================== ================================ ===============================
Number of Securities Value of Unexercised
Underlying Unexercised Options In-The-Money Options
at Fiscal Year-End (#) at Fiscal Year-End($)(2)
- --------------------------------------------------- -------------------------------- -------------------------------
Shares Value
Acquired on Realized
Name Exercise (#) ($) (1) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------- ----------------- ---------- ------------- ------------------ ------------- -----------------
Kuslima Shogen None None 512,685 307,000 $-0- $-0-
Stanislaw M. Mikulski None None 221,281 170,000 $-0- $-0-
====================== ================= ========== ============= ================== ============= =================
(1) Based upon the fair market value of the purchased shares on the option
exercise date less the exercise price paid for the shares.
(2) The fair market value of the common stock at the fiscal year end was based
on the average of the high and low trade prices ($0.34) for the common
stock obtained from the OTC Bulletin Board on the last trading day of the
fiscal year July 31, 2002.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
--------------------------------------------------------------
The following table sets forth certain information concerning stock ownership of
each person who is the beneficial owner of five percent or more of our
outstanding common stock, each of the current directors, each of our executive
officers and all directors and executive officers as a group as of September 30,
2002. Except as otherwise noted, each person has sole voting and investment
power with respect to the shares shown as beneficially owned.
Percentage of Common
Directors, Officers or 5% Stockholders (1) Number of Shares (2) Stock Outstanding (3)
- ------------------------------------------ -------------------- ---------------------
Kuslima Shogen 2,073,305 (4) 8.8%
Stanislaw M. Mikulski 624,531 (5) 2.7%
Stephen K. Carter 183,750 (6) *
25
Donald R. Conklin 454,250 (7) 2.0%
Martin F. Stadler 466,250 (8) 2.0%
All executive officers and directors as a group (five persons) 3,802,086 (9) 15.5%
* Less than one percent.
(1) The address of all officers and directors listed above is in the care of
the company.
(2) All shares listed are common stock. Except as discussed below, none of
these shares are subject to rights to acquire beneficial ownership, as
specified in Rule 13d-3(d)(1) under the Exchange Act, and the beneficial
owner has sole voting and investment power, subject to community property
laws where applicable.
(3) The percentage of stock outstanding for each stockholder is calculated by
dividing (i) the number of shares of Common Stock deemed to be
beneficially held by such stockholder as of September 30, 2002 by (ii) the
sum of (A) the number of shares of common stock outstanding as of
September 30, 2002 plus (B) the number of shares issuable upon exercise of
options or warrants held by such stockholder which were exercisable as of
September 30, 2002 or which will become exercisable within 60 days after
September 30, 2002.
(4) Includes 604,685 shares underlying options which were exercisable as of
September 30, 2002 or which will become exercisable within 60 days after
September 30, 2002 and 110,000 shares underlying warrants which were
exercisable as of September 30, 2002 or which will become exercisable
within 60 days after September 30, 2002.
(5) Includes 263,281 shares underlying options which were exercisable as of
September 30, 2002 or which will become exercisable within 60 days after
September 30, 2002.
(6) Includes 183,750 shares underlying options which were exercisable as of
September 30, 2002 or which will become exercisable within 60 days after
September 30, 2002.
(7) Includes 113,750 shares underlying options which were exercisable as of
September 30, 2002 or which will become exercisable within 60 days after
September 30, 2002 and 110,000 shares underlying warrants which were
exercisable as of September 30, 2002 or which will become exercisable
within 60 days after September 30, 2002.
(8) Includes 131,250 shares underlying options which were exercisable as of
September 30, 2002 or which will become exercisable within 60 days after
September 30, 2002 and 110,000 shares underlying warrants which were
exercisable as of September 30, 2002 or which will become exercisable
within 60 days after September 30, 2002.
(9) Includes all shares owned beneficially by the directors and the executive
officers named in the table.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On July 23, 1991, the Board of Directors authorized us to pay Kuslima Shogen an
amount equal to 15% of any gross royalties which may be paid to us from any
license(s) with respect to our principal product, ONCONASE(R), or any other
products derived from amphibian source extract, produced either as a natural,
synthesized, and/or genetically engineered drug for which we own or are a
co-owner of the patents, or acquire such rights in the future, for a period not
to exceed the life of the patents. If we manufacture and market the drugs
ourselves, we will pay an amount equal to 5% of gross sales from any products
sold during the life of the patents. On April 16, 2001, this agreement was
26
amended and clarified to provide that Ms. Shogen would receive the 15% royalty
payment relating to license(s) or the 5% of the net sales from any products sold
during the life of the patents but not both, unless we and a licensee both
market the licensed product.
In December 1999, our compensation committee approved the issuance of an
aggregate total of 75,000 stock options to our outside board of directors, which
vested on the date of grant. The exercise price of the stock options was $0.47
per share which was based on the average of the high and low trade prices of our
common stock for the twenty trading days preceding the date of grant. An
aggregate 50,000 of these options were exercised.
In April 2001, our board of directors approved the issuance of 50,000 stock
options under the 1997 Plan to Martin Stadler, which vested on the date of
grant. The exercise price of the stock options was $0.90 per share which was
based on the average of the high and low trade prices of our common stock for
the ten trading days preceding the date of grant.
In April 2001, we issued convertible notes to Kuslima Shogen, our Chief
Executive Officer and a director, two of our directors, Donald Conklin and
Martin Stadler, and unrelated parties in the aggregate amount of $366,993.
Messrs. Conklin and Stadler are members of our Compensation Committee. The notes
are due within ninety days unless the lenders elect to exercise an option to
convert their note into common stock at the conversion price of $0.90 per share.
The related parties named above have elected to convert their notes into an
aggregate 330,000 shares of common stock. In addition, upon conversion, they
received three-year warrants to purchase an aggregate 330,000 shares of common
stock at an exercise price of $2.50 per share that will expire on July 7, 2004.
In October 2001, the Board of Directors approved a change in the exercise price
of the 330,000 warrants issued to related parties from $2.50 per share to $1.50
per share and changed the expiration date to July 7, 2006, to conform with the
private placements to unrelated parties. The notes issued to unrelated parties
with an aggregate balance of $69,993 were renewed for one hundred twenty (120)
days for the same conversion price of $0.90 per share. In addition, upon
conversion, they will receive five-year warrants to purchase an aggregate 77,770
shares of common stock at an exercise price of $1.50 per share. In October 2001,
the remaining noteholders elected to convert an aggregate $64,993 notes payable
into an aggregate 72,214 shares of common stock. In addition, they received
five-year warrants to purchase an aggregate 72,214 shares of common stock at an
exercise price of $1.50 per share.
During the fiscal year ended July 31, 2002, Kuslima Shogen, the Company's CEO
has made loans to the Company repayable upon demand bearing interest at 8% per
annum. As of July 31, 2002, the Company owes Ms. Shogen $139,800.
Item 14. CONTROLS AND PROCEDURES.
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management, including
our Chief Executive Officer and acting Chief Financial Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures as of November 11, 2002, the evaluation date. Based upon the
evaluation, the Chief Executive Officer and acting Chief Financial Officer
concluded that, as of the evaluation date, our disclosure controls and
procedures are effective in timely alerting them to the material information
relating to us required to be included in our periodic SEC filings.
(b) Changes in internal controls.
There were no significant changes made in our internal controls during the
period covered by this report or, to our knowledge, in other factors that could
significantly affect these controls subsequent to the date of their evaluation.
27
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) and (2) The response to these portions of Item 14 is
submitted as a separate section of this report commencing on
page F-1.
(a)(3) and (4) Exhibits (numbered in accordance with Item 601 of
Regulation S-K).
Exhibit No. or
Exhibit Incorporation
No. Item Title by Reference
3.1 Certificate of Incorporation *
3.2 By-Laws *
3.3 Amendment to Certificate of Incorporation #
3.4 Amendment to Certificate of Incorporation +++
4.1 Form of Convertible Debenture **
10.1 Form of Stock and Warrant Purchase Agreements used in private placements
completed in April 1996 and June 1996 ##
10.2 Lease Agreement - 225 Belleville Avenue, Bloomfield, New Jersey ###
10.3 Form of Stock Purchase Agreement and Certificate used in connection with various
private placements ***
Form of Stock and Warrant Purchase Agreement and Warrant Agreement
used in Private 10.4 Placement completed on March 21, 1994 ***
10.5 1993 Stock Option Plan and Form of Option Agreement *****
10.6 Debt Conversion Agreement dated March 30, 1994 with Kuslima Shogen ****
10.7 Accrued Salary Conversion Agreement dated March 30, 1994 with Kuslima Shogen ****
10.8 Accrued Salary Conversion Agreement dated March 30, 1994 with Stanislaw Mikulski ****
10.9 Option Agreement dated March 30, 1994 with Kuslima Shogen ****
10.10 Amendment No. 1 dated June 20, 1994 to Option Agreement dated March 30, 1994 with
Kuslima Shogen ****
10.11 Form of Amendment No. 1 dated June 20, 1994 to Option Agreement dated March 30,
1994 with Kuslima Shogen *****
10.12 Form of Amendment No. 1 dated June 20, 1994 to Option Agreement dated March 30,
1994 with Stanislaw Mikulski *****
10.13 Form of Stock and Warrant Purchase Agreement and Warrant Agreement used in Private
Placement completed on September 13, 1994 +
10.14 Form of Subscription Agreements and Warrant Agreement used in Private Placements
closed in October 1994 and September 1995 #
10.15 1997 Stock Option Plan ###
10.16 Separation Agreement with Michael C. Lowe dated October 9, 1997 ++
10.17 Form of Subscription Agreement and Warrant Agreement used in Private Placement
completed on February 20, 1998 +++
10.18 Form of Warrant Agreement issued to the Placement Agent in connection with the
Private Placement completed on February 20, 1998 +++
10.19 Placement Agent Agreement dated December 15, 1997 +++
10.20 Separation Agreement with Gail Fraser dated August 31, 1999 ####
10.21 Form of Subscription Agreement and Warrant Agreement used in Private Placements
completed in February 2000 ++++
10.22 Form of Subscription Agreement and Warrant Agreement used in the August and
September 2000 Private Placements +++++
28
Exhibit No. or
Exhibit Incorporation
No. Item Title by Reference
10.23 Form of Subscription Agreement and Warrant Agreement used in the April 2001
Private Placements ^
10.24 Form of Convertible Note entered into in April 2001 ^
10.25 Form of Subscription Agreement and Warrant Agreement used in the July 2001 Private
Placements ^
10.26 Form of Subscription Agreement and Warrant Agreement used in the August and
October 2001 private placement ^
10.27 Form of Subscription Agreement and Warrant Agreement used in the September 2001,
November 2001 and January 2002 private placements ^
10.28 Warrant issued in the February 2002 private placement ^
10.29 Form of Subscription Agreement and Warrant Agreement used in the March 2002, April
2002 and May 2002 private placements. ^^
21.1 Subsidiaries of Registrant **
23.1 Consent of KPMG LLP #####
99.1 Factors to Consider in Connection with Forward-Looking Statements #####
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section
906 of the Sarbanes-Oxley Act of 2002 #####
99.3 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section
906 of the Sarbanes-Oxley Act of 2002 #####
* Previously filed as exhibit to the Company's Registration Statement on
Form S-18 (File No. 2-79975-NY) and incorporated herein by reference
thereto.
** Previously filed as exhibits to the Company's Annual Report on Form 10-K
for the year ended July 31, 1993 and incorporated herein by reference
thereto.
*** Previously filed as exhibits to the Company's Quarterly Report on Form
10-QSB for the quarter ended January 31, 1994 and incorporated herein by
reference thereto.
**** Previously filed as exhibits to the Company's Quarterly Report on Form
10-QSB for the quarter ended April 30, 1994 and incorporated herein by
reference thereto.
***** Previously filed as exhibits to the Company's Registration Statement
Form SB-2 (File No. 33-76950) and incorporated herein by reference
thereto.
+ Previously filed as exhibits to the Company's Registration Statement on
Form SB-2 (File No. 33-83072) and incorporated herein by reference
thereto.
++ Previously filed as exhibits to the Company's Quarterly Report on Form
10-Q for the quarter ended October 31, 1997 and incorporated herein by
reference thereto.
+++ Previously filed as exhibits to the Company's Quarterly Report on Form
10-Q for the quarter ended January 31, 1998 and incorporated herein by
reference thereto.
++++ Previously filed as exhibits to the Company's Annual Report on Form 10-K
for the year ended July 31, 2000 and incorporated herein by reference
thereto.
29
+++++ Previously filed as exhibits to the Company's Quarterly Report on Form
10-Q for the quarter ended October 31, 2000 and incorporated herein by
reference thereto.
^ Previously filed as exhibits to the Company's Registration Statement on
Form S-1 (File No. 333-38136) and incorporated herein by reference
thereto.
^^ Previously filed as exhibits to the Company's Registration Statement on
Form S-1 (File No. 333-89166) and incorporated herein by reference
thereto.
# Previously filed as exhibits to the Company's Annual Report on Form
10-KSB for the year ended July 31, 1995 and incorporated herein by
reference thereto.
## Previously filed as exhibits to the Company's Registration statement on
Form SB-2 (File No. 333-11575) and incorporated herein by reference
thereto.
### Previously filed as exhibits to the Company's Quarterly Report on Form
10-QSB for the quarter ended April 30, 1997 and incorporated herein by
reference thereto.
#### Previously filed as exhibits to the Company's Annual Report on Form 10-K
for the year ended July 31, 1999 and incorporated herein by reference
thereto.
##### Filed herewith.
(b) Reports on Form 8-K.
None
30
Signature
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ALFACELL CORPORATION
Dated: November 13, 2002 By: /s/ KUSLIMA SHOGEN
Kuslima Shogen, Chief Executive Officer, Acting
Chief Financial Officer and Chairman of the Board
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 registrant and
in the capacities and on the dates indicated.
Dated: November 13, 2002 /s/ KUSLIMA SHOGEN
Kuslima Shogen, Chief Executive Officer, Acting
Chief Financial Officer (Principal Executive Officer,
Principal Accounting Officer) and Chairman of the Board
Dated: November 13, 2002 /s/ STANISLAW M. MIKULSKI
Stanislaw M. Mikulski, M.D., Executive Vice
President and Director
Dated: November 13, 2002 /s/ STEPHEN K. CARTER
Stephen K. Carter, M.D., Director
Dated: November 13, 2002 /s/ DONALD R. CONKLIN
Donald R. Conklin, Director
Dated: November 13, 2002 /s/ MARTIN F. STADLER
Martin F. Stadler, Director
31
CERTIFICATIONS
I, Kuslima Shogen, certify that:
1. I have reviewed this annual report on Form 10-K of Alfacell Corporation;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
Date: November 13, 2002
/s/ Kuslima Shogen
-----------------------------------
Name: Kuslima Shogen
Title: Chief Executive Officer and
Chairman of the Board
32
CERTIFICATIONS
I, Kuslima Shogen, certify that:
1. I have reviewed this annual report on Form 10-K of Alfacell Corporation;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
Date: November 13, 2002
/s/ Kuslima Shogen
-----------------------------------
Name: Kuslima Shogen
Title: Acting Chief Financial
Officer
33
Index
Page
Audited Financial Statements:
Independent Auditors' Report of KPMG LLP...............................................................F-2
Independent Auditors' Report of Armus, Harrison & Co...................................................F-3
Balance Sheets - July 31, 2002 and 2001................................................................F-5
Statements of Operations - Years ended July 31, 2002, 2001, and 2000
and the Period from August 24, 1981
(Date of Inception) to July 31, 2002..............................................................F-6
Statement of Stockholders' Equity (Deficiency)
Period from August 24, 1981
(Date of Inception) to July 31, 2002..............................................................F-7
Statements of Cash Flows - Years ended July 31, 2002, 2001, and 2000
and Period from August 24, 1981
(Date of Inception) to July 31, 2002.............................................................F-12
Notes to Financial Statements - Years ended July 31, 2002, 2001 and
2000 and the Period from August 24, 1981
(Date of Inception) to July 31, 2002.............................................................F-15
F-1
Independent Auditors' Report
The Stockholders and Board of Directors
Alfacell Corporation:
We have audited the accompanying balance sheets of Alfacell Corporation (a
development stage company) as of July 31, 2002 and 2001, and the related
statements of operations, stockholders' equity (deficiency), and cash flows for
each of the years in the three-year period ended July 31, 2002 and the period
from August 24, 1981 (date of inception) to July 31, 2002. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The financial statements of Alfacell Corporation for the period from
August 24, 1981 to July 31, 1992 were audited by other auditors whose report
dated December 9, 1992, except as to note 18 which is July 19, 1993 and note 3
which is October 28, 1993, expressed an unqualified opinion on those statements
with an explanatory paragraph regarding the Company's ability to continue as a
going concern.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audits and, for the effect on the period from
August 24, 1981 to July 31, 2002 of the amounts for the period from August 24,
1981 to July 31, 1992, on the report of other auditors, the financial statements
referred to above present fairly, in all material respects, the financial
position of Alfacell Corporation as of July 31, 2002 and 2001, and the results
of its operations and its cash flows for each of the years in the three-year
period ended July 31, 2002 and the period from August 24, 1981 to July 31, 2002
in conformity with accounting principles generally accepted in the United States
of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations,
has a working capital deficit and has limited liquid resources which raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ KPMG LLP
Short Hills, New Jersey
November 4, 2002
F-2
- --------------------------------------------------------------------------------
On December 1, 1993, certain shareholders of Armus Harrison & Co. ("AHC")
terminated their association with AHC (the "AHC termination"), and AHC ceased
performing accounting and auditing services, except for limited accounting
services to be performed on behalf of the Company. In June 1996, AHC dissolved
and ceased all operations. The report of AHC with respect to the financial
statements of the Company from inception to July 31, 1992 is included herein,
although AHC has not consented to the use of such report herein and will not be
available to perform any subsequent review procedures with respect to such
report. Accordingly, investors will be barred from asserting claims against AHC
under Section 11 of the Securities Act of 1933, as amended (the "Securities
Act") on the basis of the use of such report in any registration statement of
the Company into which such report is incorporated by reference. In addition, in
the event any persons seek to assert a claim against AHC for false or misleading
financial statements and disclosures in documents previously filed by the
Company, such claim will be adversely affected and possibly barred. Furthermore,
as a result of the lack of a consent from AHC to the use of its audit report
herein, or, to its incorporation by reference into a registration statement, the
officers and directors of the Company will be unable to rely on the authority of
AHC as experts in auditing and accounting in the event any claim is brought
against such persons under Section 11 of the Securities Act based on alleged
false and misleading financial statements and disclosures attributable to AHC.
The discussion regarding certain effects of the AHC termination is not meant and
should not be construed in any way as legal advice to any party and any
potential purchaser should consult with his, her or its own counsel with respect
to the effect of the AHC termination on a potential investment in the Common
Stock of the Company or otherwise.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Alfacell Corporation
Bloomfield, New Jersey
We have audited the balance sheets of Alfacell Corporation (a Development Stage
Company) as of July 31, 1992 and 1991, as restated, and the related statements
of operations, stockholders' deficiency, and cash flows for the three years
ended July 31, 1992, as restated, and for the period from inception August 24,
1981 to July 31, 1992, as restated. In connection with our audit of the 1992 and
1991 financial statements, we have also audited the 1992, 1991 and 1990
financial statement schedules as listed in the accompanying index. These
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion
In our opinion the financial statements referred to above present fairly in all
material respects, the financial position of Alfacell Corporation as of July 31,
1992 and 1991, as restated, and for the three years ended July 31, 1992, as
restated, and for the period from inception August 24, 1981 to July 31, 1992, as
restated, and the results of operations and cash flows for the years then ended
in conformity with generally accepted accounting principles.
F-3
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liability in the normal course of business. As shown in the statement of
operations, the Company has incurred substantial losses in each year since its
inception. In addition, the Company is a development stage company and its
principal operation for production of income has not commenced. The Company's
working capital has been reduced considerably by operating losses, and has a
deficit net worth. These factors, among others, as discussed in Note 2 to the
Notes of Financial Statements, indicates the uncertainties about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments relating to the recoverability and classification of recorded
asset amounts and the amount of classification of liabilities that might be
necessary should the Company be unable to continue its existence.
/s/ Armus, Harrison & Co.
----------------------------------
Armus, Harrison & Co.
Mountainside, New Jersey
December 9, 1992
Except as to Note 18 which
is July 19, 1993 and Note 3
which is October 28, 1993
F-4
ALFACELL CORPORATION
(A Development Stage Company)
Balance Sheets
July 31, 2002 and 2001
2002 2001
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 85,843 $ 44,781
Other assets.................................................... 45,754 42,933
------------ ------------
Total current assets........................................ 131,597 87,714
Property and equipment, net of accumulated depreciation and
amortization of $1,120,371 in 2002 and $1,081,423 in 2001....... 28,607 67,555
Other assets 68,667 46,340
------------ ------------
Total assets................................................ $ 228,871 $ 201,609
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term debt............................... $ 8,179 $ 7,057
Loan payable, related party..................................... 139,794 --
Note payable - convertible debt - unrelated party, less debt
discount of $34,511............................................. -- 35,482
Accounts payable................................................ 796,128 409,972
Accrued expenses................................................ 854,278 465,813
------------ ------------
Total current liabilities................................... 1,798,379 918,324
Long-term debt, less current portion................................ 315,929 23,663
------------ ------------
Total liabilities........................................... 2,114,308 941,987
------------ ------------
Stockholders' deficiency:
Preferred stock, $.001 par value. Authorized and unissued,
1,000,000 shares at July 31, 2002 and 2001................... -- --
Common stock $.001 par value. Authorized 40,000,000 shares;
issued and outstanding 22,760,921 shares and 19,802,245
shares at July 31, 2002 and 2001, respectively............... 22,761 19,802
Capital in excess of par value.................................. 59,654,479 58,211,335
Deficit accumulated during development stage.................... (61,562,677) (58,971,515)
------------ ------------
Total stockholders' deficiency.............................. (1,885,437) (740,378)
------------ ------------
Total liabilities and stockholders' deficiency.............. $ 228,871 $ 201,609
============ ============
See accompanying notes to financial statements.
F-5
ALFACELL CORPORATION
(A Development Stage Company)
Statements of Operations
Years ended July 31, 2002, 2001 and 2000,
and the Period from August 24, 1981
(Date of Inception) to July 31, 2002
August 24, 1981
(date of
inception)
to July 31, 2002 2002 2001 2000
---------------- ---------- ---------- ----------
Revenues:
Sales ............................. $ 553,489 -- -- --
Investment income ................. 1,377,123 4,838 13,121 51,144
Other income ...................... 60,103 -- -- --
------------ ---------- ---------- ----------
1,990,715 4,838 13,121 51,144
------------ ---------- ---------- ----------
Cost and expenses:
Cost of sales ..................... 336,495 -- -- --
Research and development .......... 39,901,973 2,032,938 1,900,678 1,879,728
General and administrative ........ 21,663,446 798,053 705,745 644,588
Interest:
Related parties ................ 1,147,547 4,687 108,900 --
Others ......................... 2,064,912 114,054 44,129 4,980
------------ ---------- ---------- ----------
65,114,373 2,949,732 2,759,452 2,529,296
------------ ---------- ---------- ----------
Net loss before state tax benefit ..... $(63,123,658) (2,944,894) (2,746,331) (2,478,152)
State tax benefit ..................... 1,560,981 353,732 451,395 755,854
------------ ---------- ---------- ----------
Net loss ................... $(61,562,677) (2,591,162) (2,294,936) (1,722,298)
============ ========== ========== ==========
Loss per basic and diluted common share $ (0.12) $ (0.12) $ (0.10)
========== ========== ==========
Weighted average number of shares
outstanding ......................... 21,045,000 18,927,000 17,812,000
========== ========== ==========
See accompanying notes to financial statements.
F-6
ALFACELL CORPORATION
(A Development Stage Company)
Statement of Stockholders' Equity (Deficiency)
Period from August 24, 1981
(Date of Inception) to July 31, 2002
Common Stock
----------------------
Deficit
Capital In Common Accumulated
Excess of Stock to During
Number par be Development
of Shares Amount Value Issued Stage
---------- -------- ----------- --------- -----------
Issuance of shares to officers and stockholders for
equipment, research and development, and expense
reimbursement 712,500 $ 713 $ 212,987 -- $ --
Issuance of shares for organizational legal service 50,000 50 4,950 -- --
Sale of shares for cash, net 82,143 82 108,418 -- --
Adjustment for 3 for 2 stock split declared September 8, 1982 422,321 422 (422) -- --
Net loss -- -- -- (121,486) --
---------- ------ ----------- ---------- -----------
Balance at July 31, 1982 1,266,964 1,267 325,933 -- (121,486)
Issuance of shares for equipment 15,000 15 13,985 -- --
Sale of shares to private investors 44,196 44 41,206 -- --
Sale of shares in public offering, net 660,000 660 1,307,786 -- --
Issuance of shares under stock grant program 20,000 20 109,980 -- --
Exercise of warrants, net 1,165 1 3,494 -- --
Net loss -- -- -- -- (558,694)
---------- ------ ----------- ---------- -----------
Balance at July 31, 1983 2,007,325 2,007 1,802,384 -- (680,180)
Exercise of warrants, net 287,566 287 933,696 -- --
Issuance of shares under stock grant program 19,750 20 101,199 -- --
Issuance of shares under stock bonus plan for directors
and consultants 130,250 131 385,786 -- --
Net loss -- -- -- -- (1,421,083)
---------- ------ ----------- ---------- -----------
Balance at July 31, 1984 2,444,891 2,445 3,223,065 -- (2,101,263)
Issuance of shares under stock grant program 48,332 48 478,057 -- --
Issuance of shares under stock bonus plan for directors
and consultants 99,163 99 879,379 -- --
Shares canceled (42,500) (42) (105,783) -- --
Exercise of warrants, net 334,957 335 1,971,012 -- --
Net loss -- -- -- -- (2,958,846)
---------- ------ ----------- ---------- -----------
Balance at July 31, 1985 2,884,843 2,885 6,445,730 -- (5,060,109)
Issuance of shares under stock grant program 11,250 12 107,020 -- --
Issuance of shares under stock bonus plan for directors
and consultants 15,394 15 215,385 -- --
Exercise of warrants, net 21,565 21 80,977 -- --
Net loss -- -- -- -- (2,138,605)
---------- ------ ----------- ---------- -----------
Balance at July 31, 1986 (carried forward) 2,933,052 2,933 6,849,112 -- (7,198,714)
Deferred Total
compensation, Stockholders'
Subscription restricted Equity
Receivable stock (Deficiency)
----------- ------------- --------------
Issuance of shares to officers and stockholders for
equipment, research and development, and expense
reimbursement $ -- $ -- $ 213,700
Issuance of shares for organizational legal service -- -- 5,000
Sale of shares for cash, net -- -- 108,500
Adjustment for 3 for 2 stock split declared September 8, 1982 -- -- --
Net loss -- -- (121,486)
---------- ----------- -----------
Balance at July 31, 1982 -- -- 205,714
Issuance of shares for equipment -- -- 14,000
Sale of shares to private investors -- -- 41,250
Sale of shares in public offering, net -- -- 1,308,446
Issuance of shares under stock grant program -- -- 110,000
Exercise of warrants, net -- -- 3,495
Net loss -- (558,694)
---------- ----------- -----------
Balance at July 31, 1983 -- -- 1,124,211
Exercise of warrants, net -- -- 933,983
Issuance of shares under stock grant program -- -- 101,219
Issuance of shares under stock bonus plan for directors
and consultants -- -- 385,917
Net loss -- -- (1,421,083)
---------- ----------- -----------
Balance at July 31, 1984 -- -- 1,124,247
Issuance of shares under stock grant program -- -- 478,105
Issuance of shares under stock bonus plan for directors
and consultants -- -- 879,478
Shares canceled -- -- (105,825)
Exercise of warrants, net -- 1,971,347
Net loss -- -- (2,958,846)
---------- ----------- -----------
Balance at July 31, 1985 -- -- 1,388,506
Issuance of shares under stock grant program -- -- 107,032
Issuance of shares under stock bonus plan for directors
and consultants -- -- 215,400
Exercise of warrants, net -- -- 80,998
Net loss -- (2,138,605)
---------- ----------- -----------
Balance at July 31, 1986 (carried forward) -- -- (346,669)
F-7
ALFACELL CORPORATION
(A Development Stage Company)
Statement of Stockholders' Equity (Deficiency), Continued
Common Stock
-------------------
Deficit
Capital In Common Accumulated
Excess of Stock to During
Number par be Development
of Shares Amount Value Issued Stage
---------- -------- ----------- --------- -----------
Balance at July 31, 1986 (brought forward) 2,933,052 $2,933 $ 6,849,112 -- $ (7,198,714)
Exercise of warrants at $10.00 per share 14,745 15 147,435 -- --
Issuance of shares under stock bonus plan for directors
and consultants 5,000 5 74,995 -- --
Issuance of shares for services 250,000 250 499,750 -- --
Sale of shares to private investors, net 5,000 5 24,995 -- --
Net loss -- -- -- -- (2,604,619)
--------- ------ ----------- ---------- ------------
Balance at July 31, 1987 3,207,797 3,208 7,596,287 -- (9,803,333)
Issuance of shares for legal and consulting services 206,429 207 724,280 -- --
Issuance of shares under employment incentive program 700,000 700 2,449,300 -- --
Issuance of shares under stock grant program 19,000 19 66,481 -- --
Exercise of options at $3.00 per share 170,000 170 509,830 -- --
Issuance of shares for litigation settlement 12,500 12 31,125 -- --
Exercise of warrants at $7.06 per share 63,925 64 451,341 -- --
Sale of shares to private investors 61,073 61 178,072 -- --
Amortization of deferred compensation, restricted stock -- -- -- -- --
Net loss -- -- -- (3,272,773) --
--------- ------ ----------- ---------- ------------
Balance at July 31, 1988 4,440,724 4,441 12,006,716 -- (13,076,106)
Sale of shares for litigation settlement 135,000 135 1,074,703 -- --
Conversion of debentures at $3.00 per share 133,333 133 399,867 -- --
Sale of shares to private investors 105,840 106 419,894 -- --
Exercise of options at $3.50 per share 1,000 1 3,499 -- --
Issuance of shares under employment agreement 750,000 750 3,749,250 -- --
Issuance of shares under the 1989 Stock Plan 30,000 30 149,970 -- --
Amortization of deferred compensation, restricted stock -- -- -- -- --
Net loss -- -- -- -- (2,952,869)
--------- ------ ----------- ---------- ------------
Balance at July 31, 1989 5,595,897 5,596 17,803,899 -- (16,028,975)
Issuance of shares for legal and consulting services 52,463 52 258,725 -- --
Issuance of shares under the 1989 Stock Plan 56,000 56 335,944 -- --
Sale of shares for litigation settlement 50,000 50 351,067 -- --
Exercise of options at $3.00 - $3.50 per share 105,989 106 345,856 -- --
Sale of shares to private investors 89,480 90 354,990 -- --
Issuance of shares under employment agreement 750,000 750 3,749,250 -- --
Conversion of debentures at $5.00 per share 100,000 100 499,900 -- --
Amortization of deferred compensation, restricted stock -- -- -- -- --
Net loss -- -- -- -- (4,860,116)
--------- ------ ----------- ---------- ------------
Balance at July 31, 1990 (carried forward) 6,799,829 6,800 23,699,631 -- (20,889,091)
Deferred Total
compensation, Stockholders'
Subscription restricted Equity
Receivable stock (Deficiency)
----------- ------------- -------------
Balance at July 31, 1986 (brought forward) -- -- $ (346,669)
Exercise of warrants at $10.00 per share -- -- 147,450
Issuance of shares under stock bonus plan for directors
and consultants -- -- 75,000
Issuance of shares for services -- -- 500,000
Sale of shares to private investors, net -- -- 25,000
Net loss -- -- (2,604,619)
------ ---------- -----------
Balance at July 31, 1987 -- -- (2,203,838)
Issuance of shares for legal and consulting services -- -- 724,487
Issuance of shares under employment incentive program -- (2,450,000) --
Issuance of shares under stock grant program -- -- 66,500
Exercise of options at $3.00 per share -- -- 510,000
Issuance of shares for litigation settlement -- -- 31,137
Exercise of warrants at $7.06 per share -- -- 451,405
Sale of shares to private investors -- -- 178,133
Amortization of deferred compensation, restricted stock -- 449,167 449,167
Net loss -- (3,272,773)
-- ---------- -----------
Balance at July 31, 1988 -- (2,000,833) (3,065,782)
Sale of shares for litigation settlement -- -- 1,074,838
Conversion of debentures at $3.00 per share -- -- 400,000
Sale of shares to private investors -- -- 420,000
Exercise of options at $3.50 per share -- -- 3,500
Issuance of shares under employment agreement -- (3,750,000) --
Issuance of shares under the 1989 Stock Plan -- (150,000) --
Amortization of deferred compensation, restricted stock -- 1,050,756 1,050,756
Net loss -- -- (2,952,869)
-- ---------- -----------
Balance at July 31, 1989 -- (4,850,077) (3,069,557)
Issuance of shares for legal and consulting services -- -- 258,777
Issuance of shares under the 1989 Stock Plan -- (336,000) --
Sale of shares for litigation settlement -- -- 351,117
Exercise of options at $3.00 - $3.50 per share -- -- 345,962
Sale of shares to private investors -- -- 355,080
Issuance of shares under employment agreement -- (3,750,000) --
Conversion of debentures at $5.00 per share -- -- 500,000
Amortization of deferred compensation, restricted stock -- 3,015,561 3,015,561
Net loss -- -- (4,860,116)
-- ---------- -----------
Balance at July 31, 1990 (carried forward) -- (5,920,516) (3,103,176)
F-8
ALFACELL CORPORATION
(A Development Stage Company)
Statement of Stockholders' Equity (Deficiency), Continued
Common Stock
----------------------
Deficit
Capital In Common Accumulated
Excess of Stock to During
Number par be Development
of Shares Amount Value Issued Stage
---------- -------- ----------- --------- ------------
Balance at July 31, 1990 (brought forward) 6,799,829 $6,800 $ 23,699,631 -- $(20,889,091)
Exercise of options at $6.50 per share 16,720 16 108,664 -- --
Issuance of shares for legal consulting services 87,000 87 358,627 -- --
Issuance of shares under the 1989 Stock Plan 119,000 119 475,881 -- --
Amortization of deferred compensation, restricted stock -- -- -- -- --
Net loss -- -- -- -- (5,202,302)
--------- ------ ------------ ---------- ------------
Balance at July 31, 1991 7,022,549 7,022 24,642,803 -- (26,091,393)
Exercise of options at $3.50 per share 1,000 1 3,499 -- --
Sale of shares to private investors 70,731 71 219,829 -- --
Conversion of debentures at $5.00 per share 94,000 94 469,906 -- --
Issuance of shares for services 45,734 46 156,944 -- --
Issuance of shares under the 1989 Stock Plan 104,000 104 285,896 -- --
Amortization of deferred compensation, restricted stock -- -- -- -- --
Net loss -- -- -- -- (4,772,826)
--------- ------ ------------ ---------- ------------
Balance at July 31, 1992 7,338,014 7,338 25,778,877 -- (30,864,219)
Sale of share to private investors 352,667 353 735,147 -- --
Issuance of shares for legal services 49,600 50 132,180 -- --
Issuance of shares for services 5,000 5 9,995 -- --
Issuance of shares under the 1989 Stock Plan 117,000 117 233,883 -- --
Amortization of deferred compensation, restricted stock -- -- -- -- --
Net loss -- -- -- -- (2,357,350)
--------- ------ ------------ ---------- ------------
Balance at July 31, 1993 7,862,281 7,863 26,890,082 -- (33,221,569)
Conversion of debentures at $2.75 per share to $6.00 per
share 425,400 425 1,701,575 -- --
Sale of shares to private investors, net 743,000 743 1,710,048 -- --
Conversion of short-term borrowings 72,800 73 181,927 -- --
Issuance of shares for services 16,200 16 43,334 -- --
Issuance of shares under the 1989 Stock Plan, for services 5,000 5 14,995 -- --
Issuance of options to related parties upon conversion of
accrued interest, payroll and expenses -- -- 3,194,969 -- --
Repurchase of stock options from related party -- -- (198,417) -- --
Issuance of options upon conversion of accrued interest -- -- 142,441 -- --
Common stock to be issued -- -- -- 50,000 --
Amortization of deferred compensation, restricted stock -- -- -- -- --
Net loss -- -- -- (2,234,428) --
--------- ------ ------------ ---------- ------------
Balance at July 31, 1994 (carried forward) 9,124,681 9,125 33,680,954 50,000 (35,455,997)
Deferred Total
compensation, Stockholders'
Subscription restricted Equity
Receivable stock (Deficiency)
----------- ------------- -------------
Balance at July 31, 1990 (brought forward) $ -- $(5,920,516) $(3,103,176)
Exercise of options at $6.50 per share -- -- 108,680
Issuance of shares for legal consulting services -- 358,714
Issuance of shares under the 1989 Stock Plan -- (476,000) --
Amortization of deferred compensation, restricted stock -- 2,891,561 2,891,561
Net loss -- -- (5,202,302)
----- ----------- -----------
Balance at July 31, 1991 -- (3,504,955) (4,946,523)
Exercise of options at $3.50 per share -- -- 3,500
Sale of shares to private investors -- -- 219,900
Conversion of debentures at $5.00 per share -- -- 470,000
Issuance of shares for services -- -- 156,990
Issuance of shares under the 1989 Stock Plan -- (286,000) --
Amortization of deferred compensation, restricted stock -- 3,046,726 3,046,726
Net loss -- -- (4,772,826)
----- ----------- -----------
Balance at July 31, 1992 -- (744,229) (5,822,233)
Sale of share to private investors -- -- 735,500
Issuance of shares for legal services -- -- 132,230
Issuance of shares for services -- (10,000) --
Issuance of shares under the 1989 Stock Plan -- (234,000) --
Amortization of deferred compensation, restricted stock -- 664,729 664,729
Net loss -- -- (2,357,350)
----- ----------- -----------
Balance at July 31, 1993 -- (323,500) (6,647,124)
Conversion of debentures at $2.75 per share to $6.00 per
share -- -- 1,702,000
Sale of shares to private investors, net -- -- 1,710,791
Conversion of short-term borrowings -- -- 182,000
Issuance of shares for services -- -- 43,350
Issuance of shares under the 1989 Stock Plan, for services -- -- 15,000
Issuance of options to related parties upon conversion of
accrued interest, payroll and expenses -- -- 3,194,969
Repurchase of stock options from related party -- -- (198,417)
Issuance of options upon conversion of accrued interest -- -- 142,441
Common stock to be issued -- -- 50,000
Amortization of deferred compensation, restricted stock -- 265,000 265,000
Net loss -- -- (2,234,428)
----- ----------- -----------
Balance at July 31, 1994 (carried forward) -- (58,500) (1,774,418)
F-9
ALFACELL CORPORATION
(A Development Stage Company)
Statement of Stockholders' Equity (Deficiency), Continued
Common Stock
-----------------------
Deficit
Capital In Common Accumulated
Excess of Stock to During
Number of par be Development
Shares Amount Value Issued Stage
----------- -------- ----------- --------- ------------
Balance at July 31, 1994 (brought forward) 9,124,681 $ 9,125 $33,680,954 $ 50,000 $(35,455,997)
Sale of shares to private investors, net 961,000 961 2,023,241 (50,000) --
Conversion of short-term borrowings 17,600 17 43,983 -- --
Issuance of shares for services 30,906 31 77,234 -- --
Exercise of options at $2.27 - $2.50 per share 185,000 185 437,015 -- --
Common stock to be issued -- -- -- 339,008 --
Common stock to be issued, for services -- -- -- 4,800 --
Amortization of deferred compensation, restricted stock -- -- -- -- --
Net loss -- -- -- -- (1,993,123)
---------- ------- ----------- ----------- ------------
Balance at July 31, 1995 10,319,187 10,319 36,262,427 343,808 (37,449,120)
Sale of shares to private investors, net 2,953,327 2,953 8,969,655 (339,008) --
Issuance of shares for services 19,995 20 70,858 (4,800) --
Exercise of options at $2.50 - $3.87 per share 566,700 567 1,657,633 -- --
Sale of warrants -- -- 12,084 -- --
Issuance of options/warrants for services -- -- 50,872 -- --
Common stock to be issued -- -- -- 258,335 --
Subscription receivable -- -- -- -- --
Net loss -- -- -- -- (2,942,152)
---------- ------- ----------- ----------- ------------
Balance at July 31, 1996 13,859,209 13,859 47,023,529 258,335 (40,391,272)
Sale of shares to private investors, net 112,000 112 503,888 -- --
Issuance of options for services -- -- 76,504 -- --
Exercise of options at $2.45 - $4.00 per share, net 729,134 729 2,620,359 (258,335) --
Exercise of warrants at $5.00 per share, net 147,450 148 737,102 -- --
Net loss -- -- -- -- (5,018,867)
---------- ------- ----------- ----------- ------------
Balance at July 31, 1997 14,847,793 14,848 50,961,382 -- (45,410,139)
Sale of shares to private investors, net 2,337,150 2,337 4,199,877 -- --
Issuance of options for services -- -- 199,954 -- --
Exercise of warrants at $2.20 - $2.50 per share 4,950 5 11,080 -- --
Issuance of shares for services, net 50,000 50 99,950 -- --
Net loss -- -- -- -- (6,387,506)
---------- ------- ----------- ----------- ------------
Balance at July 31, 1998 17,239,893 17,240 55,472,243 -- (51,797,645)
Issuance of options for services -- -- 205,593 -- --
Issuance of shares for services, net 46,701 46 16,359 -- --
Net loss -- -- -- -- (3,156,636)
---------- ------- ----------- ----------- ------------
Balance at July 31, 1999 (carried forward) 17,286,594 $17,286 $55,694,195 $ -- $(54,954,281)
Deferred Total
compensation, Stockholders'
Subscription restricted Equity
Receivable stock (Deficiency)
----------- ------------- -------------
Balance at July 31, 1994 (brought forward) $ -- $ (58,500) $(1,774,418)
Sale of shares to private investors, net -- -- 1,974,202
Conversion of short-term borrowings -- -- 44,000
Issuance of shares for services -- -- 77,265
Exercise of options at $2.27 - $2.50 per share -- -- 437,200
Common stock to be issued -- -- 339,008
Common stock to be issued, for services -- -- 4,800
Amortization of deferred compensation, restricted stock -- 58,500 58,500
Net loss -- -- (1,993,123)
--------- ----------- -----------
Balance at July 31, 1995 -- -- (832,566)
Sale of shares to private investors, net -- -- 8,633,600
Issuance of shares for services -- -- 66,078
Exercise of options at $2.50 - $3.87 per share -- -- 1,658,200
Sale of warrants -- -- 12,084
Issuance of options/warrants for services -- -- 50,872
Common stock to be issued -- -- 258,335
Subscription receivable (254,185) -- (254,185)
Net loss -- -- (2,942,152)
--------- ----------- -----------
Balance at July 31, 1996 (254,185) -- 6,650,266
Sale of shares to private investors, net -- -- 504,000
Issuance of options for services -- -- 76,504
Exercise of options at $2.45 - $4.00 per share, net 254,185 -- 2,616,938
Exercise of warrants at $5.00 per share, net -- -- 737,250
Net loss -- -- (5,018,867)
--------- ----------- -----------
Balance at July 31, 1997 -- -- 5,566,091
Sale of shares to private investors, net -- -- 4,202,214
Issuance of options for services -- -- 199,954
Exercise of warrants at $2.20 - $2.50 per share -- -- 11,085
Issuance of shares for services, net -- -- 100,000
Net loss -- -- (6,387,506)
--------- ----------- -----------
Balance at July 31, 1998 -- -- 3,691,838
Issuance of options for services -- -- 205,593
Issuance of shares for services, net -- -- 16,405
Net loss -- -- (3,156,636)
--------- ----------- -----------
Balance at July 31, 1999 (carried forward) $ -- $ -- $ 757,200
F-10
ALFACELL CORPORATION
(A Development Stage Company)
Statement of Stockholders' Equity (Deficiency), Continued
Common Stock
-----------------------
Deficit
Capital In Common Accumulated
Excess of Stock to During
Number of par be Development
Shares Amount Value Issued Stage
----------- -------- ----------- --------- ------------
Balance at July 31, 1999 (brought forward) 17,286,594 $17,286 $55,694,195 $------ $(54,954,281)
Sale of shares to private investors, net 875,000 875 547,417 -- --
Exercise of options at $0.43 - $1.43 per share 95,000 95 45,755 -- --
Issuance of shares for services, net 174,965 175 92,009 -- --
Vesting of options previously issued for services -- -- 146,912 -- --
Net loss -- -- -- -- (1,722,298)
---------- ------- ----------- ------- ------------
Balance at July 31, 2000 18,431,559 18,431 56,526,288 -- (56,676,579)
Sale of shares to private investors, net 863,331 863 955,561 -- --
Exercise of options at $0.29 - $0.85 per share 165,555 166 83,565 -- --
Issuance of shares for services, net 11,800 12 10,018 -- --
Exercise of convertible debentures at $0.90 per share 330,000 330 296,670 -- --
Issuance of warrants with convertible debt -- -- 178,807 -- --
Issuance of options for services -- -- 160,426 -- --
Net loss -- -- -- -- (2,294,936)
---------- ------- ----------- ------- ------------
Balance at July 31, 2001 19,802,245 19,802 58,211,335 -- (58,971,515)
Sale of shares to private investors, net 2,622,122 2,623 1,047,925 -- --
Exercise of stock options and warrants 186,000 186 92,814 -- --
Issuance of shares for services, net 78,340 78 64,048 -- --
Exercise of convertible debentures at $0.90 per share 72,214 72 64,921 -- --
Vesting of options previously issued for services -- -- 173,436 -- --
Net loss -- -- -- -- (2,591,162)
---------- ------- ----------- ------- ------------
Balance at July 31, 2002 22,760,921 $22,761 $59,654,479 $ -- $(61,562,677)
========== ======= =========== ======= ============
Deferred Total
compensation, Stockholders'
Subscription restricted Equity
Receivable stock (Deficiency)
----------- ------------- -------------
Balance at July 31, 1999 (brought forward) $ -- $ -- $ 757,200
Sale of shares to private investors, net -- -- 548,292
Exercise of options at $0.43 - $1.43 per share -- -- 45,850
Issuance of shares for services, net -- -- 92,184
Vesting of options previously issued for services -- -- 146,912
Net loss -- -- (1,722,298)
------- ------------ -----------
Balance at July 31, 2000 -- -- (131,860)
Sale of shares to private investors, net -- -- 956,424
Exercise of options at $0.29 - $0.85 per share -- -- 83,731
Issuance of shares for services, net -- -- 10,030
Exercise of convertible debentures at $0.90 per share -- -- 297,000
Issuance of warrants with convertible debt -- -- 178,807
Issuance of options for services -- -- 160,426
Net loss -- -- (2,294,936)
------- ------------ -----------
Balance at July 31, 2001 -- -- (740,378)
Sale of shares to private investors, net -- -- 1,050,548
Exercise of stock options and warrants -- -- 93,000
Issuance of shares for services, net -- -- 64,126
Exercise of convertible debentures at $0.90 per share -- -- 64,993
Vesting of options previously issued for services -- -- 173,436
Net loss -- -- (2,591,162)
------- ------------ -----------
Balance at July 31, 2002 $(61,562,677 $(1,885,437)
======= ============ ===========
See accompanying notes to financial statements.
F-11
ALFACELL CORPORATION
(A Development Stage Company)
Statements of Cash Flows
Years ended July 31, 2002, 2001 and 2000,
and the Period from August 24, 1981
(Date of Inception) to July 31, 2002
August 24, 1981
(date of
inception)
to
July
31,
2002 2002 2001 2000
--------------- ------------- ------------ ------------
Cash flows from operating activities:
Net loss $(61,562,677) $(2,591,162) $(2,294,936) $(1,722,298)
Adjustments to reconcile net loss to net cash
used in operating activities:
Gain on sale of marketable securities (25,963) -- -- --
Depreciation and amortization 1,531,406 38,948 74,615 93,748
Loss on disposal of property and equipment 18,926 -- -- --
Noncash operating expenses 6,032,053 207,947 304,722 146,912
Amortization of deferred compensation 11,442,000 -- -- --
Amortization of organization costs 4,590 -- -- --
Changes in assets and liabilities:
(Increase) decrease in other current assets (105,621) (2,821) (14,316) 58,224
(Increase) decrease in other assets 27,384 (22,327) 13,527 --
Increase in loans and interest payable, related party 744,539 -- -- --
Increase (decrease) in accounts payable 1,156,364 450,282 249,214 76,901
Increase in accrued payroll and expenses, related parties 2,348,145 -- -- --
Increase (decrease) in accrued expenses 1,383,291 388,465 53,967 (366,804)
------------ ----------- ----------- -----------
Net cash used in operating activities (37,005,563) (1,530,668) (1,613,207) (1,713,317)
------------ ----------- ----------- -----------
Cash flows from investing activities:
Purchase of marketable securities (290,420) -- -- --
Proceeds from sale of marketable equity securities 316,383 -- -- --
Purchase of property and equipment (1,406,836) -- -- (37,575)
Patent costs (97,841) -- -- --
------------ ----------- ----------- -----------
Net cash used in investing activities (1,478,714) -- -- (37,575)
------------ ----------- ----------- -----------
F-12
ALFACELL CORPORATION
(A Development Stage Company)
Statements of Cash Flows, Continued
August 24, 1981
(date of
inception)
to
July
31,
2002 2002 2001 2000
----------------- ----------- ----------- ------------
Cash flows from financing activities:
Proceeds from short-term borrowings $ 849,500 $ -- $ -- $ --
Payment of short-term borrowings (628,500) (5,000) -- --
Increase in loans payable, related party, net 2,768,662 139,794 -- --
Proceeds from bank debt and other long-term debt, net of
deferred debt costs 2,752,460 300,000 -- 41,577
Reduction of bank debt and long-term debt (2,942,460) (6,612) (6,605) (10,515)
Proceeds from issuance of common stock, net 29,360,711 1,050,548 956,424 548,292
Proceeds from exercise of stock options and warrants, net 5,683,254 93,000 83,731 45,850
Proceeds from issuance of convertible debentures, related party 297,000 -- 297,000 --
Proceeds from issuance of convertible debentures, unrelated party 416,993 -- 69,993 --
------------ ----------- ----------- -----------
Net cash provided by financing activities 38,557,620 1,571,730 1,400,543 625,204
------------ ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 85,843 41,062 (212,664) (1,125,688)
Cash and cash equivalents at beginning of period -- 44,781 257,445 1,383,133
------------ ----------- ----------- -----------
Cash and cash equivalents at end of period $ 85,843 $ 85,843 $ 44,781 $ 257,445
============ =========== =========== ===========
Supplemental disclosure of cash flow information - interest paid $ 1,682,641 20,195 $ 8,733 $ 4,980
============ =========== =========== ===========
Noncash financing activities:
Issuance of convertible subordinated debenture for loan payable
to officer $ 2,725,000 $ -- $ -- $ --
============ =========== =========== ===========
Issuance of common stock upon the conversion of convertible
subordinated debentures, related party $ 3,242,000 $ -- $ 297,000 $ --
============ =========== =========== ===========
Conversion of short-term borrowings to common stock $ 226,000 $ -- $ -- $ --
============ =========== =========== ===========
Conversion of accrued interest, payroll and expenses by
related parties to stock options $ 3,194,969 $ -- $ -- $ --
============ =========== =========== ===========
Repurchase of stock options from related party (198,417) $ -- $ -- $ --
============ =========== =========== ===========
Conversion of accrued interest to stock options $ 142,441 $ -- $ -- $ --
============ =========== =========== ===========
Conversions of accounts payable to common stock $ 360,326 $ 64,126 $ 10,030 $ 92,184
============ ========== =========== ============
Conversion of notes payable, bank and accrued interest
to long-term debt $ 1,699,072 $ -- $ -- $ --
============ ========== =========== ============
F-13
ALFACELL CORPORATION
(A Development Stage Company)
Statements of Cash Flows, Continued
August 24, 1981
(date of
inception)
to
July
31,
2002 2002 2001 2000
----------------- ----------- ----------- ------------
Conversion of loans and Interest Payable, related party and
accrued payroll and expenses, related parties to long-term
accrued payroll and other, related party $ 1,863,514 $ -- $ -- $ --
============ ========== =========== ============
Issuance of common stock upon the conversion of convertible
subordinated debentures,other $ 191,993 $ 64,993 $ -- $ --
============ ========== =========== ============
Issuance of common stock for services rendered $ 2,460 $ -- $ -- $ 2,460
============ ========== =========== ============
See accompanying notes to financial statements.
F-14
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements
Years ended July 31, 2002, 2001 and 2000
and the Period From August 24, 1981
(Date of Inception) to July 31, 2002
(1) Summary of Significant Accounting Policies
Business Description
Alfacell Corporation (the "Company") was incorporated in Delaware on
August 24, 1981 for the purpose of engaging in the discovery,
investigation and development of a new class of anti-cancer drugs and
anti-viral agents. The Company is a development stage company as defined
in the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 7. The Company is devoting substantially all of
its present efforts to establishing its business. Its planned principal
operations have not commenced and, accordingly, no significant revenue has
been derived therefrom.
The Company's current operations encompass all the risks inherent in
discovering and developing a new drug, including: an uncertainty regarding
the timing and amount of future revenues to be derived from the Company's
technology; obtaining future capital as needed; attracting and retaining
key personnel; and a business environment with heightened competition,
rapid technological change and strict government regulations.
Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect reported amounts and disclosures in
these financial statements. Actual results could differ from those
estimates.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the respective
assets ranging from three to seven years. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation are
removed from the accounts and any resulting gain or loss is included in
operations for the period.
The cost of repairs and maintenance is charged to operations as incurred;
significant renewals and betterments are capitalized.
Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less, at the time of purchase, to be cash equivalents.
Research and Development
Research and development costs are expensed as incurred.
Fair Value of Financial Instruments
For all financial instruments, their carrying value approximates fair
value due to the short maturity of those instruments. The debt has been
issued at rates which represent prevailing market rates for similar
financings.
F-15
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(1) Summary of Significant Accounting Policies, (Continued)
Comprehensive Income (Loss)
The net loss of $2,591,000, $2,295,000 and $1,722,000, recorded for the
years ended July 31, 2002, 2001 and 2000, respectively, is equal to the
comprehensive loss for those periods in accordance with Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income.
Earnings (Loss) Per Common Share
"Basic" earnings per common share equals net income divided by weighted
average common shares outstanding during the period. "Diluted" earnings
per common share equals net income divided by the sum of weighted average
common shares outstanding during the period plus common stock equivalents,
if dilutive. The Company's Basic and Diluted per share amounts are the
same since the Company is in a loss position and the assumed exercise of
stock options and warrants would be all anti-dilutive. The number of
outstanding options and warrants that could dilute earnings per share in
future periods was 9,040,881, 6,445,748 and 6,156,195 at July 31, 2002,
2001 and 2000, respectively.
Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or
changes in business circumstances occur that indicate that the carrying
amount of the assets may not be recoverable. The Company assesses the
recoverability of long-lived assets held and to be used based on
undiscounted cash flows, and measures the impairment, if any, using
discounted cash flows. SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be disposed of, has not had
a material impact on the Company's financial position, operating results
or cash flows.
Stock Option Plans
Stock based compensation is recognized using the intrinsic value method.
For disclosure purposes, proforma net income (loss) and net income (loss)
per share data are provided in accordance with Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" as if the
fair value method had been applied.
The Company records compensation expense equal to the value of stock
options granted for consulting services rendered to the Company by
non-employees. The value of the options granted to non-employees is
determined by the Black Scholes option pricing model.
(2) Liquidity
The Company has reported net losses of $2,591,000, $2,295,000, and
$1,722,000 for the fiscal years ended July 31, 2002, 2001 and 2000,
respectively. The loss from date of inception, August 24, 1981, to July
31, 2002 amounts to $61,563,000. Also, the Company has a working capital
deficit and limited liquid resources. These factors raise substantial
doubt about its ability to continue as a going concern. The financial
statements do not include any adjustments relating to the recoverability
and classification of reported asset amounts or the amounts or
classification of liabilities which might result from the outcome of this
uncertainty.
F-16
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(2) Liquidity, (Continued)
The Company's continued operations will depend on its ability to raise
additional funds through various potential sources such as equity and debt
financing, collaborative agreements, strategic alliances, sale of tax
benefits, revenues from the commercial sale of ONCONASE(R), licensing its
proprietary RNASE technology and its ability to realize the full potential
of its technology and its drug candidates via out-licensing agreements
with other companies. Such additional funds may not become available or be
available on acceptable terms. To date, a significant portion of the
Company's financing has been through private placements of common stock
and warrants, the issuance of common stock for stock options and warrants
exercised and for services rendered, debt financing and financing provided
by the Company's Chief Executive Officer. Additionally, the Company raised
capital through the sale of a portion of its tax benefits. Until the
Company's operations generate significant revenues, the Company will
continue to fund operations from cash on hand and through the sources of
capital previously described. From August through November 6, 2002, the
Company received gross proceeds of approximately $277,000 from long-term
and short-term borrowings from unrelated parties and from the private
placement of common stock and warrants. No assurances can be provided that
the additional capital will be sufficient to meet the Company's needs.
The Company will continue to incur costs in conjunction with its U.S. and
foreign registrations for marketing approval of ONCONASE(R). The Company
is currently in discussion with several potential strategic alliance
partners including major international biopharmaceutical companies to
further the development and marketing of ONCONASE(R) and other related
products in its pipeline as well as its proprietary technology. However,
there can be no assurance that any such alliances will materialize. The
Company intends to seek foreign marketing approvals for ONCONASE(R) for
the treatment of malignant mesothelioma. Therefore, the Company expanded
its ongoing clinical trial internationally. The Company's ability to raise
funding at this time may be dependent upon other factors including,
without limitation, market conditions, and such funds may not be available
or be available on acceptable terms.
The Company's common stock was delisted from The Nasdaq SmallCap Market
effective at the close of business April 27, 1999 for failing to meet the
minimum bid price requirements set forth in the NASD Marketplace Rules. As
of April 28, 1999, the Company's common stock trades on the OTC Bulletin
Board under the symbol "ACEL". Delisting of the Company's common stock
from Nasdaq could have a material adverse effect on its ability to raise
additional capital, its stockholders' liquidity and the price of its
common stock.
(3) Property and Equipment
Property and equipment, at cost, consists of the following at July 31:
2002 2001
---- ----
Laboratory equipment $ 755,040 $ 755,040
Office equipment 296,105 296,105
Leasehold improvements 97,833 97,833
---------- ----------
Total 1,148,978 1,148,978
Less accumulated depreciation
and amortization 1,120,371 1,081,423
---------- ----------
Property and equipment, net $ 28,607 $ 67,555
========== ==========
F-17
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(4) Long-term Debt
Long-term debt consists of the following at July 31:
2002 2001
---- ----
Note payable, unsecured, unrelated party at 8%
interest and due as follows: $100,000 due
December 4, 2003, $100,000 due February 17,
2004 and $100,000 due March 29, 2004 $300,000 $ --
Note payable, in monthly installments of $1,459, including
principal and interest commencing April 2000 and each
month thereafter until March 2005, secured by equipment 24,108 $30,720
-------- -------
324,108 30,720
Less current portion 8,179 7,057
-------- -------
$315,929 $23,663
======== =======
(5) Loan Payable, Related Party
During the fiscal year ended July 31, 2002, Kuslima Shogen, the Company's
CEO has made loans to the Company repayable upon demand bearing interest
at 8% per annum. As of July 31, 2002, the Company owes Ms. Shogen
$139,800.
(6) Note Payable - Convertible Note
In April 2001, the Company entered into convertible notes payable with
certain related and unrelated parties in the aggregate amount of $366,993.
The notes were due within ninety (90) unless the lenders elect to exercise
an option to convert the note into Alfacell common stock, par value $.001
per share at a conversion price of $0.90 per share (the estimated fair
market value of the stock based on the average of the high and low trade
prices of the Company's common stock for the ten (10) trading days
preceding the loan date). In addition, upon conversion, the lender would
receive a three-year warrant for each share of converted Alfacell common
stock at an exercise price of $2.50 per share that will expire on July 7,
2004. The estimated value of the warrants of $133,793, using the
Black-Scholes options-pricing model, was recorded as interest expense over
the ninety day note term. In July 2001, an aggregate of $297,000 note
payables were converted which resulted in the issuance of 330,000 shares
of the Company's common stock. In addition, upon conversion, the Company
issued the agreed three-year warrants to purchase an aggregate of 330,000
shares of common stock at an exercise price of $2.50 per share. An
aggregate balance of the convertible notes in the amount of $69,993 was
renewed for one hundred twenty (120) days for the same conversion price of
$0.90 per share. In addition, upon conversion, the lender would receive a
five-year warrant for each share of converted Alfacell common stock at an
exercise price of $1.50 per share. The estimated value of the warrants of
$45,000, using the Black-Scholes options-pricing model, was treated as a
debt discount which accrete as interest expense over the one hundred
twenty day note term through October 31, 2001. In October 2001, an
aggregate of $64,993 note payables were converted which resulted in the
issuance of 72,214 shares of the Company's common stock. In addition, upon
conversion, the Company issued the agreed five-year warrants to purchase
an aggregate of 72,214 shares of common stock at an exercise price of
$1.50 per share. Also, in October 2001, the Company's board of directors
approved the change in the exercise price of the 330,000 warrants issued
to related parties upon conversion of notes from $2.50 per share to $1.50
per share and changed the expiration date to July 7, 2006, to conform with
the private placements to unrelated parties.
(7) Leases
The Company leases its facility under a five-year operating lease which
expired on December 31, 2001. We were negotiating a new lease with a
potential new landlord. However, the sale of the property did not occur.
We are currently negotiating our new lease agreement under similar terms
with the original landlord. Rent expense charged to operations was
$136,000, $136,000, and $127,000 in 2001, 2000 and 1999, respectively.
F-18
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(8) Stockholders' Equity
On September 1, 1981, the Company issued 712,500 shares of common stock
(1,068,750 shares adjusted for the stock split on September 8, 1982) to
officers and stockholders in exchange for equipment, research and
development services, stock registration costs, reimbursement of expenses
and other miscellaneous services. The common stock issued for services was
recorded at the estimated fair value of services rendered based upon the
Board of Directors' determination and ratification of the value of
services. Equipment received in exchange for common stock was recorded at
the transferor's cost. Common stock issued for reimbursement of expenses
was recorded based upon expenses incurred. All values assigned for
expenses and services rendered have been charged to operations except for
stock registration costs which were charged against proceeds.
On July 30, 1982, the Company sold 82,143 shares of common stock (123,214
shares adjusted to reflect the stock split on September 8, 1982) to a
private investor at a price of $1.40 per share, resulting in net proceeds
to the Company of approximately $108,500.
On September 8, 1982, the Company declared a 3-for-2 stock split. Shares
previously issued by the Company have been restated in accordance with the
stock split.
On September 8, 1982, the Company issued 15,000 shares of common stock to
an officer and stockholder in exchange for equipment. The equipment
received in exchange for the common stock was recorded at the transferor's
cost.
On November 1, 1982 and January 3, 1983, the Company sold 28,125 and
16,071 shares of common stock, respectively, to private investors at $.93
per share, resulting in net proceeds to the Company of approximately
$41,250.
On January 17, 1983, the Company sold 660,000 shares of its common stock
and 330,000 common stock purchase warrants in a public offering at a price
of $2.50 per share, resulting in net proceeds to the Company of
approximately $1,308,446. The warrants were to expire 12 months after
issuance; however, the Company extended the expiration date to July 16,
1984. During the fiscal years ended July 31, 1983 and 1984, the net
proceeds to the Company from the exercise of the warrants amounted to
$934,000. Each common stock purchase warrant was not detachable from its
common stock or exercisable until six months after the issuance date of
January 17, 1983. Each warrant entitled the holder to purchase one share
of common stock at an exercise price of $3.00 after six months and prior
to nine months after issuance. The exercise price increased to $3.50 after
nine months and prior to 12 months after issuance.
In connection with the public offering, the Company sold 60,000 five-year
purchase warrants to the underwriters at a price of $.001 per warrant.
Each warrant entitled the holder to purchase one share of common stock at
an exercise price of $3.00. Pursuant to the antidilution provisions of the
warrants, the underwriters received warrants to purchase 67,415 shares at
an exercise price of $2.67 per share. As of July 31, 1986, all such
warrants were exercised and the Company received proceeds of approximately
$180,000.
On February 22, 1984, the Company filed a registration statement with the
Securities and Exchange Commission for the issuance of two series of new
warrants, each to purchase an aggregate of 330,000 shares (hereinafter
referred to as one-year warrants and two-year warrants). The one-year
warrants had an exercise price of $6.50 per share and expired July 17,
1985. The two-year warrants had an exercise price of $10.00 per share and
were to expire July 17, 1986. However, the Company extended the expiration
date to August 31, 1987. The one-year warrants and two-year warrants were
issued as of July 17, 1984 on a one-for-one basis to those public offering
warrant holders who exercised their original warrants, with the right to
oversubscribe to any of the warrants not exercised. During the fiscal
years ended July 31, 1985, 1986, 1987 and 1988, the Company received net
proceeds of approximately $2,471,000 as a result of the exercise of the
warrants.
F-19
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(8) Stockholders' Equity, (Continued)
On January 2, 1987, the Company issued 250,000 shares of common stock to
officers and stockholders, including the President and Chief Executive
Officer, in recognition of services performed for the Company. The fair
value of such shares was recorded as compensation expense.
On February 3, 1987, the Company sold 5,000 shares of common stock to a
private investor for $5.00 per share, resulting in net proceeds to the
Company of approximately $25,000.
On September 1, 1987, the Board of Directors approved new wage contracts
for three officers. The contracts provided for the issuance of 700,000
shares of common stock as an inducement for signing. The fair value of
these shares was recorded as deferred compensation and was amortized over
the term of the employment agreements. The contracts also provided for the
issuance of 1,500,000 shares of common stock in 750,000 increments upon
the occurrence of certain events. These shares were issued during the
fiscal years ended July 31, 1989 and 1990 and the fair value of such
shares was recorded as deferred compensation and was amortized over the
remaining term of the employment agreements. The contracts also provided
for five-year options to purchase 750,000 shares of common stock at $3.00
per share; options for the purchase of 170,000 shares were exercised on
June 16, 1988 and the remaining options for the purchase of 580,000 shares
expired on September 2, 1992.
During the fiscal year ended July 31, 1988, the Company issued 206,429
shares of common stock for payment of legal and consulting services. The
fair value of such shares was charged to operations.
During the fiscal year ended July 31, 1988, the Company issued 12,500
shares of common stock in connection with the settlement of certain
litigation. The fair value of these shares was charged to operations.
During the fiscal year ended July 31, 1988, the Company sold 61,073 shares
of common stock to private investors at $2.92 per share resulting in net
proceeds to the Company of approximately $178,133.
On September 21, 1988, the Company entered into a stipulation of
settlement arising from a lawsuit wherein it agreed to pay a total of
$250,000 in 12 monthly installments. Under the agreement, the Company
authorized the issuance on September 7, 1988 and October 18, 1988 of
85,000 and 50,000 shares, respectively, to an escrow account to secure
payment of the $250,000 due under the stipulation of settlement. During
the fiscal year ended July 31, 1989, the Company issued and sold the
135,000 shares of common stock for $1,074,838. On February 14, 1989, the
Board of Directors authorized the issuance of an additional 50,000 shares.
During the year ended July 31, 1990, the shares were sold for $351,117.
The proceeds from the above transactions were used to pay the settlement
and related legal costs, reduce loans from and interest due to the
Company's Chief Executive Officer, and for working capital.
During the fiscal year ended July 31, 1989, the Company sold 105,840
shares of common stock to private investors at $3.97 per share resulting
in net proceeds to the Company of approximately $420,000.
During the fiscal year ended July 31, 1990, the Company issued 52,463
shares of common stock for payment of legal and consulting services. The
fair value of the common stock was charged to operations.
During the fiscal year ended July 31, 1990, the Company issued 50,000
shares of common stock in connection with the settlement of certain
litigation. The fair value of the common stock was charged to operations.
During the fiscal year ended July 31, 1990, the Company sold 89,480 shares
of common stock to private investors at $3.97 per share resulting in net
proceeds to the Company of approximately $355,080.
F-20
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(8) Stockholders' Equity, (Continued)
During the fiscal year ended July 31, 1991, the Company issued 87,000
shares of common stock for payment of legal and consulting services. The
fair value of the common stock was charged to operations.
During the fiscal year ended July 31, 1992, the Company sold 70,731 shares
of common stock to private investors at $2.75 to $3.50 per share resulting
in net proceeds to the Company of approximately $219,900.
During the fiscal year ended July 31, 1992, the Company issued 45,734
shares of common stock as payment for services rendered to the Company.
The fair value of the common stock was charged to operations.
During the fiscal years ended July 31, 1992 and 1990, 94,000 and 50,000
shares of common stock, respectively, were issued to the Company's Chief
Executive Officer upon the conversion of outstanding debentures.
During the fiscal year ended July 31, 1993, the Company sold 352,667
shares of common stock to private investors at prices ranging from $2.00
to $3.00 per share resulting in net proceeds to the Company of
approximately $735,500. In addition, the private investors were granted
options to purchase common stock totaling 587,167 shares at prices ranging
from $3.00 to $7.00. During the fiscal years ended July 31, 1995 and 1996,
322,500 and 228,833 options expired, respectively. A total of 42,167
options due to expire on July 31, 1995 were extended to July 31, 1996 and
their exercise price was reduced to $2.50. During the fiscal year ended
July 31, 1996, 35,834 options were exercised resulting in net proceeds to
the Company of approximately $89,600.
During the fiscal year ended July 31, 1993, the Company issued 54,600
shares of common stock as payment for legal and other services performed
for the Company. The fair value of 49,600 shares was charged to
operations. The remaining 5,000 shares were recorded as deferred
compensation and were amortized over a one-year period, beginning in
February 1993, in accordance with the agreement entered into with the
recipient.
During the fiscal year ended July 31, 1994, the Company issued 7,000
shares of common stock as payment for services performed for the Company.
The fair value of the common stock was charged to operations.
During the fiscal year ended July 31, 1994, the Company sold 25,000 shares
of common stock to a private investor at $2.00 per share resulting in net
proceeds to the Company of $50,000. In addition, the private investor was
granted options to purchase common stock totaling 25,000 shares at $4.00
per common share. These options were exercised in September 1996 resulting
in net proceeds to the Company of $100,000.
During the fiscal year ended July 31, 1994, the Company sold 800,000
shares of common stock to private investors at $2.50 per share resulting
in net proceeds to the Company of $1,865,791. In addition, the private
investors were granted warrants to purchase common stock totaling 800,000
shares at $5.00 per common share. Warrants for the purchase of 147,450
shares were exercised during fiscal 1997 resulting in net proceeds to the
Company of $737,250. The remaining 652,550 warrants expired during fiscal
1997.
During the fiscal year ended July 31, 1994, 400,000 shares of common stock
were issued to the Company's Chief Executive Officer upon the conversion
of outstanding debentures.
During the fiscal year ended July 31, 1994, 25,400 shares of common stock
were issued upon the conversion of other outstanding debentures.
F-21
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(8) Stockholders' Equity, (Continued)
In September 1994, the Company completed a private placement resulting in
the issuance of 288,506 shares of common stock and three-year warrants to
purchase 288,506 shares of common stock at an exercise price of $5.50 per
share. The warrants expired during fiscal 1998. The common stock and
warrants were sold in units consisting of 20,000 shares of common stock
and warrants to purchase 20,000 shares of common stock. The price per unit
was $50,000. The Company received proceeds of approximately $545,000, net
of costs associated with the placement of approximately $55,000 and the
conversion of certain debt by creditors of $121,265 into equivalent
private placement units of 17,600 shares for conversion of short-term
borrowings and 30,906 shares issued for services rendered. In October
1994, an additional two units at $50,000 per unit were sold to a private
investor under the same terms as the September 1994 private placement
resulting in the issuance of 40,000 shares of common stock and warrants to
purchase 40,000 shares of common stock. The warrants expired during fiscal
1998.
During the fiscal year ended July 31, 1995, 185,000 shares of common stock
were issued upon the exercise of stock options by unrelated parties
resulting in net proceeds to the Company of $437,200. The exercise prices
of the options ranged from $2.27 to $2.50, which had been reduced from
$3.50 and $5.00, respectively, during fiscal 1995.
During the fiscal year ended July 31, 1995, the Company sold 681,000
shares of common stock to private investors resulting in net proceeds to
the Company of approximately $1,379,000. The shares were sold at prices
ranging from $2.00 to $2.25.
During the fiscal year ended July 31, 1995, the Company sold 139,080
shares of common stock and 47,405 three-year warrants to purchase shares
of common stock at an exercise price of $4.00 per share to private
investors. The stock and warrants were sold at prices ranging from $2.25
to $2.73 per share and resulted in net proceeds to the Company of
$343,808, of which $4,800 was for services rendered. The common shares
were issued to the investors subsequent to July 31, 1995.
On August 4, 1995, the Company issued 6,060 shares of common stock as
payment for services rendered to the Company. The fair value of the common
stock was charged to operations.
On September 29, 1995, the Company completed a private placement resulting
in the issuance of 1,925,616 shares of common stock and three-year
warrants to purchase an aggregate of 55,945 shares of common stock at an
exercise price of $4.00 per share. Of these shares 1,935 were issued for
services rendered to the Company. The common stock was sold alone at per
share prices ranging from $2.00 to $3.70, and in combination with warrants
at per unit prices ranging from $4.96 to $10.92, which related to the
number of warrants contained in the unit. The Company received proceeds of
approximately $4.1 million, including $1,723,000 for approximately 820,000
shares received during the fiscal year ended July 31, 1995. The warrants
expired in October 1998.
As consideration for the extension of the Company's term loan agreement
with its bank, the Company granted the bank a warrant to purchase 10,000
shares of common stock at an exercise price of $4.19. The warrants were
issued as of October 1, 1995 and expired on August 31, 1997.
In June 1996, the Company sold in a private placement 1,515,330 shares of
common stock and three-year warrants to purchase 313,800 shares of common
stock at an exercise price of $7.50 per share. Of these shares, 12,000
were issued for services rendered to the Company. The common stock was
sold alone at a per share price of $3.70, in combination with warrants at
a per unit price of $12.52 and warrants were sold alone at a per warrant
price of $1.42. Each unit consisted of three shares of common stock and
one warrant. The Company received proceeds of approximately $5.7 million.
The warrants expired during the fiscal 2000.
F-22
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(8) Stockholders' Equity, (Continued)
In June 1996, the Company issued 10,000 five-year stock options as payment
for services rendered. The options vested immediately and have an exercise
price of $4.95 per share. The Company recorded research and development
expense of $28,260 which was the fair value of the stock options on the
date of issuance. The options expired during the fiscal year ended July
31, 2001.
During the fiscal year ended July 31, 1996, 207,316 shares of common stock
were sold from October 1995 to April 1996 at per share prices ranging from
$3.60 to $4.24 resulting in proceeds of approximately $808,000.
During the fiscal year ended July 31, 1996, 656,334 stock options were
exercised by both related and unrelated parties resulting in net proceeds
of approximately $1.9 million to the Company. Of these shares, 89,634 were
issued subsequent to July 31, 1996. The exercise prices of the options
ranged from $2.50 to $3.87 per share.
In August 1996, the Company issued 10,000 stock options with an exercise
price of $4.69 per share exercisable for five years as payment for
services to be rendered. An equal portion of these options vested monthly
for one year commencing September 1, 1996. The Company recorded general
and administrative expense of $27,900 which was the fair value of the
stock options on the date of issuance. The options expired during the
fiscal year ended July 31, 2002.
In March 1997, the Company issued 112,000 shares of common stock at $4.50
per share in a private placement to a single investor resulting in net
proceeds of $504,000 to the Company.
In May 1997, the Company issued 100,000 stock options to a director with
an exercise price of $5.20 per share as payment for serving as Chairman of
the Scientific Advisory Board (the "SAB"). These options will vest as
follows provided the director is then serving as Chairman of the SAB at
the time of vesting: 10,000 vested immediately, 10,000 after one full
calendar year, 10,000 annually for each of the following three years and
50,000 on May 13, 2002. The vesting of the 50,000 options which vest in
May 2002 may be accelerated upon the occurrence of the following events:
25,000 options upon the good faith determination by the Company's Board of
Directors that a substantive collaborative agreement with a major
biopharmaceutical company was a result of Dr. Carter's efforts and 25,000
options upon the good faith determination by the Company's Board of
Directors that Dr. Carter made a material contribution towards the
approval by the United States Food and Drug Administration of a New Drug
Application for the marketing of ONCONASE(R) in the United States. The
Company recorded a total research and development expense of $353,400
which was the fair value on the date of issuance of that portion of the
stock options that had vested as of July 31, 2002. Of these options,
10,000 expired during the fiscal year ended July 31, 2002.
During the fiscal year ended July 31, 1997, 639,500 stock options were
exercised by both related and unrelated parties resulting in net proceeds
of approximately $2.6 million to the Company. The exercise prices of the
options ranged from $2.45 to $4.00 per share.
During the fiscal year ended July 31, 1997, 147,450 warrants were
exercised by both related and unrelated parties resulting in net proceeds
of approximately $737,250 to the Company. The exercise price of the
warrants was $5.00 per share.
F-23
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(8) Stockholders' Equity, (Continued)
In October 1997, the Company issued 75,000 stock options to a director
with an exercise price of $3.66 per share as payment for non-board related
services to be rendered. These options will vest as follows provided he
has been serving continuously on the Company's board of directors at the
time of vesting: 10,000 vested immediately; 10,000 after one full calendar
year; 10,000 annually for each of the following three years; and 25,000 on
October 31, 2002. The vesting and exercisability of the 25,000 options
which vest in October 2002 may be accelerated upon the good faith
determination of the Company's Board of Directors that a substantive
collaborative agreement with a major pharmaceutical/biotechnology company
was a direct result of the director's efforts. A total general and
administrative expense of $185,600 is being amortized over a five-year
period which commenced in October 1997. As of July 31, 2002, the Company
recorded general and administrative expense of $182,100, based upon the
fair value of such 75,000 options on the date of issuance, amortized on a
straight-line basis over the vesting period of the grant.
In October 1997, the Company issued 12,000 five-year stock options to a
consultant with an exercise price of $3.91 per share as payment for
services to be rendered. An equal portion of these options vest monthly
and are to be amortized over a one-year period which commenced in October
1997. In May 1998, the Company terminated the services of the consultant
which resulted in the cancellation of 5,000 options. The Company recorded
a total research and development expense for the remaining 7,000 options
in the amount of $15,800, based upon the fair value of such options on the
date of issuance, amortized on a straight-line basis over the vesting
period of the grant. Of these options, 1,000 expired in October 2002.
On December 9, 1997, the stockholders authorized the amendment of the
Company's Certificate of Incorporation to increase the number of
authorized shares of common stock, par value $.001 from 25,000,000 shares
to 40,000,000 shares.
On December 9, 1997, the stockholders approved the 1997 Stock Option Plan
(the "1997 Plan"). The total number of shares of common stock authorized
for issuance upon exercise of options granted under the 1997 Plan is
2,000,000. Options are granted at fair market value on the date of the
grant and generally are exercisable in 20% increments annually over five
years starting one year after the date of grant and terminate five years
from their initial exercise date.
On January 23, 1998 the Securities and Exchange Commission (the "SEC")
declared effective a registration statement on Form S-3 for the offer and
sale by certain stockholders of up to 3,734,541 shares of common stock. Of
these shares (i) an aggregate of 2,737,480 shares were issued to private
placement investors in private placement transactions which were completed
during the period from March 1994 through March 1997 (the "Earlier Private
Placements"), (ii) an aggregate of 409,745 shares are issuable upon
exercise of warrants which were issued to private placement investors in
the Earlier Private Placements and (iii) an aggregate of 587,316 shares
may be issued, or have been issued, upon exercise of options which were
issued to option holders in certain other private transactions. As a
result of the delisting of the Company's Common Stock from the Nasdaq
SmallCap Market, the Company no longer qualified for the use of a Form S-3
registration statement for this offering when it filed its Annual Report
on Form 10-K for the fiscal year ended July 31, 1999 and thus, this
registration statement was no longer effective. The Company filed a
registration statement on Form S-1 to register these shares, which was
declared effective in February 2002.
F-24
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(8) Stockholders' Equity, (Continued)
In February 1998, the Company completed the February 1998 Private
Placement primarily to institutional investors which resulted in the
issuance of 1,168,575 units at a unit price of $4.00. Each unit consisted
of two (2) shares of the Company's common stock, par value $.001 per share
and one (1) three-year warrant to purchase one (1) share of common stock
at an exercise price of $2.50 per share. The Company received proceeds of
approximately $4,202,000, net of costs associated with the private
placement of approximately $472,000. The placement agent also received
warrants to purchase an additional 116,858 units comprised of the same
securities sold to investors at an exercise price of $4.40 per unit as
part of its compensation. In May 2001, the expiration date of these
warrants was extended from May 19, 2001 to August 17, 2001. The warrants
expired on August 17, 2001.
In March 1998, the Company entered into a conversion agreement with one of
its raw material suppliers (the "Supplier") for the conversion of an
outstanding payable (the "Conversion Agreement") into 50,000 shares of the
Company's Common Stock. Pursuant to the Conversion Agreement, the Company
issued 50,000 shares of Common Stock to the Supplier. The fair value of
the Common Stock approximated the outstanding payable amount of $100,000.
In March 1998, the Company issued 75,000 stock options to a director with
an exercise price of $2.80 per share as payment for non-board related
services to be rendered. These options will vest as follows provided he
has been serving continuously on the Company's board of directors at the
time of vesting: 10,000 vested immediately; 10,000 after one full calendar
year; 10,000 annually for each of the following three years; and 25,000 on
March 24, 2003. The vesting and exercisability of the 25,000 options which
vest in March 2003 may be accelerated upon the good faith determination of
the Company's Board of Directors that a substantive collaborative
agreement and licensing or financing arrangement with a major
pharmaceutical/biotechnology company was a direct result of the director's
efforts. A total general and administrative expense of $138,100 is being
amortized over a five-year period which commenced in March 1998. As of
July 31, 2002, the Company recorded general and administrative expense of
$131,500, based upon the fair value of such 75,000 options on the date of
issuance, amortized on a straight-line basis over the vesting period of
the grant.
On April 20, 1998 the SEC declared effective a registration statement on
Form S-3 for the offer and sale by certain stockholders of up to 3,918,299
shares of common stock. Of these shares (i) an aggregate of 2,337,150
shares of Common Stock were issued to the private placement investors in
the February 1998 Private Placement, (ii) an aggregate of 1,168,575 shares
may be issued upon exercise of the Warrants which were issued to the
private placement investors in the February 1998 Private Placement, (iii)
350,574 shares may be issued upon the exercise of the Placement Agent
Warrant which was issued to the placement agent in the February 1998
Private Placement and the Warrants issuable upon exercise of the Placement
Agent Warrant, (iv) 50,000 shares of Common Stock were issued to a
Supplier in connection with conversion of an outstanding accounts payable,
and (v) 12,000 shares may be issued upon the exercise of options which
were issued as payment for services to be rendered. As a result of the
delisting of the Company's Common Stock from the Nasdaq SmallCap Market,
the Company no longer qualified for the use of a Form S-3 registration
statement for this offering when it filed its Annual Report on Form 10-K
for the fiscal year ended July 31, 1999 and thus, this registration
statement was no longer effective. The Company filed a registration
statement on Form S-1 to register these shares, which was declared
effective in February 2002.
During the fiscal year ended July 31, 1998, the Company issued 833
three-year stock options as payment for services rendered in August 1997.
The options vested thirty days from the issuance date and have an exercise
price of $4.47 per share. The total general and administrative expense
recorded for these options was $1,700, based upon the fair value of such
options on the date of issuance. These options expired in August 2000.
F-25
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(8) Stockholders' Equity, (Continued)
During the fiscal year ended July 31, 1998, the Company issued 15,000
three-year stock options with an exercise price of $4.15 per share as
payment for services to be rendered. An equal portion of these options
vest monthly and a total general and administrative expense of $30,000 is
being amortized over a one-year period which commenced September 1997. The
Company also issued 5,000 three-year stock options with an exercise price
of $4.15 per share as payment for services to be rendered. Of these
options, 833 vested monthly for five months commencing September 30, 1997
and 835 vested on the last day of the sixth month. Total general and
administrative expense of $9,700 was amortized over a six-month period
which commenced September 1997. As of July 31, 1998, the Company recorded
general and administrative expense of $37,100, based upon the fair value
of the 20,000 stock options on the date of the issuance, amortized on a
straight-line basis over the vesting periods of the grants. These options
expired three years after it vested.
During the fiscal year ended July 31, 1998, 4,950 shares of Common Stock
were issued upon the exercise of warrants by unrelated parties resulting
in net proceeds of approximately $11,100 to the Company. The exercise
prices of the warrants ranged from $2.20 to $2.50 per share.
On October 1, 1998 (the "Effective Date"), the Company entered into an
agreement with a consultant (the "Agreement"), resulting in the issuance
of 200,000 five-year stock options with an exercise price of $1.00 per
share as payment for services to be rendered. These options will vest as
follows: an aggregate of 20,000 shall vest on October 1, 1999 or upon
signing of the first corporate partnering deal, whichever shall occur
first; an aggregate of 2,500 of such options shall vest on the last day of
each month over the first twelve months after the Effective Date of the
Agreement; the remaining 150,000 options will vest on the third
anniversary of the Effective Date of the Agreement provided that the
consultant is still providing consulting services to the Company under the
Agreement at that time. The vesting of such remaining options shall be
accelerated as follows: 50,000 of such options or the remainder of the
unvested options, whichever is less, shall vest upon the signing of each
corporate partnering deal in which the total consideration provided in the
Agreement is less than $5,000,000; 100,000 of such options or the
remainder of the unvested options, whichever is less, shall vest upon the
signing of each corporate partnering deal in which the total consideration
provided in the Agreement is greater than $5,000,000 but less than
$10,000,000; 200,000 of such options or the remainder of the unvested
options, whichever is less, shall vest upon the signing of each corporate
partnering deal in which the total consideration provided in the Agreement
is greater than $10,000,000. Should the Company sell a controlling
interest in its assets and/or equity at any time after the signature of
the Agreement, all options will vest. The Company has recorded
approximately $49,300 of general and administrative expense based upon the
fair value of the vested options through July 31, 2000. Additional expense
will be recorded in subsequent periods through October 1, 2001 as the
remainder of the options vest. During the fiscal year ended July 31 2000,
the Agreement was terminated which resulted in the cancellation of 150,000
options.
During the fiscal year ended July 31, 1999, the Company issued 5,000
three-year stock options as payment for services rendered. The options
vested immediately and have an exercise price of $1.43 per share. The
total general and administrative expense recorded for these options was
$4,200, based upon the fair value of such options on the date of issuance.
During the fiscal year ended July 31, 1999, the Company issued 40,701
shares of common stock for payment of legal services. The fair value of
the common stock in the amount of $16,631 was charged to operations.
During the fiscal year ended July 31, 1999, the Company issued 6,000
shares of common stock for payment of services rendered. The fair value of
the common stock in the amount of $2,460 was charged to operations.
During the fiscal year ended July 31, 2000, the Company issued 174,965
shares of common stock for payment of services rendered. The fair value of
the common stock in the amount of $92,184 was charged to operations.
F-26
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(8) Stockholders' Equity, (Continued)
During the fiscal year ended July 31, 2000, the Company issued 95,000
shares of common stock upon the exercise of stock options by unrelated
parties which resulted in gross proceeds of $45,850 to the Company. The
exercise prices of the options ranged from $0.43 to $1.43.
During the fiscal year ended July 31, 2000, the Company sold an aggregate
of 875,000 shares of common stock to private investors at prices ranging
from $0.50 to $1.00 per share resulting in net proceeds of $548,300 to the
Company. In addition, the private investors were granted warrants to
purchase an aggregate of 875,000 shares of common stock, inclusive of
additional warrants issued so that all investors in the private placements
received substantially the same securities, at per share exercise prices
ranging from $1.03 to $4.55. The warrants will expire during the period
commencing May 2003 and ending in May 2005.
During the fiscal year ended July 31, 2001, the Company issued 11,800
shares of common stock for payment of services rendered. The fair value of
the common stock in the amount of $10,030 was charged to operations.
During the fiscal year ended July 31, 2001, the Company sold an aggregate
of 863,331 shares of common stock to private investors at prices ranging
from $0.90 to $1.50 per share resulting in net proceeds of $956,000 to the
Company. In addition, the private investors were granted warrants to
purchase an aggregate of 696,665 shares of common stock at per share
exercise prices ranging from $1.50 to $3.00. The warrants will expire
during the period commencing July 2004 and ending in October 2006.
During the fiscal year ended July 31, 2001, the Company issued 165,555
shares of common stock upon the exercise of stock options by related
parties which resulted in gross proceeds of $83,700 to the Company. The
per share exercise prices of the options ranged from $0.29 to $0.85.
During the fiscal year ended July 31, 2001, the Company issued 50,000
five-year stock options to a director as payment for non-board related
services. These options vested immediately and have an exercise price of
$0.90 per share. The Company recorded general and administrative expense
of $31,600 which was the fair market value of the options, using the
Black-Scholes options-pricing model, on the date of issuance. In addition,
the director will receive a contingent award of 50,000 shares of the
Company's common stock should the Company complete a strategic partnership
or receive an investment from the prospective partner or its affiliates.
During the fiscal year ended July 31, 2001, the Company issued 330,000
shares of common stock upon the conversion of convertible notes from
related parties at $0.90 per share. In addition, upon conversion, the
related parties were granted three-year warrants to purchase an aggregate
of 330,000 shares of common stock at an exercise price of $2.50 per share.
The estimated value of these warrants in the amount of $108,900 was
recorded by the Company as interest expense during the fiscal year ended
July 31, 2001. In October 2001, the board of directors approved a change
of the 330,000 warrants from three-year warrants to five-year warrants and
the exercise price from $2.50 per share to $1.50 per share.
During the fiscal year ended July 31, 2002, the Company issued 72,214
shares of common stock upon the conversion of convertible notes from
unrelated parties at $0.90 per share. In addition, upon conversion, the
unrelated parties were granted five-year warrants to purchase an aggregate
of 72,214 shares of common stock at an exercise price of $1.50 per share.
The estimated value of these warrants in the amount of $32,200 was
recorded by the Company as interest expense during the fiscal year ended
July 31, 2002.
F-27
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(8) Stockholders' Equity, (Continued)
During the fiscal year ended July 31, 2002, the Company issued 78,340
shares of common stock in settlement of accounts payable in the amount of
$64,126. In addition, one of the vendors was granted five-year warrants to
purchase 55,556 shares of common stock at an exercise price of $1.50 per
share. The settled accounts payable amount was credited to equity as the
value of the common stock and warrants.
During the fiscal year ended July 31, 2002, the Company sold an aggregate
of 2,622,122 shares of common stock to private investors at prices ranging
from $0.35 to $0.90 per share resulting in net proceeds of $1,050,000 to
the Company. In addition, the private investors were granted warrants to
purchase an aggregate of 2,673,422 shares of common stock at per share
exercise prices ranging from $0.75 to $1.50. The warrants will expire
during the period commencing August 2006 and ending in June 2007.
During the fiscal year ended July 31, 2002, the Company issued warrants to
purchase 1,500,000 shares of common stock to Roan Meyers Associates L.P.
for an aggregate warrant purchase price of $1,500 in connection with the
engagement of Roan Meyers to render advisory services. Roan Meyers has
already exercised warrants to purchase an aggregate of 186,000 shares of
common stock during the fiscal year ended July 31, 2002 with an exercise
price of $0.50 per share, resulting in net proceeds of $93,000 to the
Company. Warrants to purchase an additional 314,000 shares are currently
exercisable, of which 64,000 shares have an exercise price of $0.50 per
share and 250,000 have an exercise price of $1.00 per share. The remaining
1,000,000 warrants will become exercisable if Roan Meyers is successful in
helping the Company raise capital. For each $1 million in capital
financing raised with the assistance of Roan Meyers, 200,000 warrants will
become exercisable up to 1,000,000 warrants in the aggregate. Of those
1,000,000 warrants, 400,000 are exercisable at $1.00 per share and 600,000
are exercisable at $1.50 per share. The Company recorded an expense equal
to the fair market value of the first 500,000 warrants in February 2002
based upon the fair value of such warrants as estimated by Black-Scholes
pricing model ($153,300), less the $1,500 received from the sale of the
warrants and will record an expense on the additional warrants when they
vest using Black-Scholes to estimate their value at that time.
During the fiscal year ended July 31, 2002, the Company issued an
aggregate of 186,000 shares of common stock upon the exercise of warrants
by an unrelated party which resulted in gross proceeds of $93,000 to the
Company.
During the fiscal year ended July 31, 2002, the Company issued an
aggregate of 75,000 five-year stock options to unrelated parties as an
incentive for lending the Company an aggregate of $75,000 which was repaid
during the quarter. The options vested immediately and have an exercise
price of $1.50 per share. The total non-cash interest expense recorded for
these options was $25,615, based upon the fair value of such option on the
date of issuance as estimated by the Black-Scholes options-pricing model.
During the fiscal year ended July 31, 2002, the Company issued a notes
payable to an unrelated party in an aggregate amount of $300,000. The note
was due thirty days bearing interest at 8% per annum. In addition, the
lender received warrants to purchase 350,000 shares of common stock at an
exercise price of $0.60 per share. The total non-cash interest expense
recorded for these warrants was $40,690, based upon the fair value of such
option on the date of issuance as estimated by the Black-Scholes
options-pricing model. The notes were either extended for eighteen months
or the lenders can convert the notes at a conversion price of $0.40 per
share plus a five-year warrant for each share of Alfacell common stock
issued upon conversion at an exercise price of $1.00 per share.
F-28
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(9) Common Stock Warrants
During the fiscal years 1988 and 1991, the Board of Directors granted
stock purchase warrants to acquire a maximum of 400,000 shares of common
stock at $5.00 per share which were not exercised and expired.
The following table summarizes the activity of common stock warrants
issued in connection with the Private Placements completed in fiscal years
1994 through 2002:
Warrants Exercise Price Expiration
-------- ------------- ----------
Sold in March 1994 Private Placement 800,000 $ 5.00 3/21/97 to 6/21/97
Outstanding at July 31, 1994 800,000 5.00 3/21/97 to 6/21/97
Sold in September 1994 Private Placement 288,506 5.50 12/9/97 to 12/14/97
Sold in October 1994 Private Placement 40,000 5.50 1/21/98
Sold in September 1995 Private Placement 47,405 4.00 10/1/98
---------
Outstanding and exercisable at July 31, 1995 1,175,911 4.00 - 5.50 3/21/97 to 10/1/98
Issued to bank in connection with an
amendment to the Company's term loan 10,000 4.19 8/31/97
Sold in September 1995 Private Placement 8,540 4.00 10/1/98
Outstanding and exercisable at July 31, 1996 1,508,251 4.00 - 7.50 3/21/97 to 9/10/99
Exercised 147,450 5.00 3/21/97 to 6/21/97
Expired 652,550 5.00 3/21/97 to 6/21/97
---------
Outstanding and exercisable at July 31, 1997 708,251 4.00 - 7.50 12/9/97 to 9/10/99
Sold in February 1998 Private Placement 1,168,575 2.50 8/17/01
Issued to the Placement Agent in connection with
the February 1998 Private placement (see note 7) 350,574 2.20 - 2.50 8/17/01
Exercised 4,950 2.20 - 2.50 5/19/01
Expired 338,506 4.19 - 5.50 8/31/97 to 1/21/98
---------
Outstanding and exercisable at July 31, 1998 1,883,944 2.20 - 7.50 10/1/98 to 8/17/01
Expired 55,945 4.00 10/1/98
---------
Sold in February 2000 Private Placement 875,000 1.03 - 4.55 5/28/03 to 5/28/05
Expired 313,800 7.50 8/30/99 to 9/11/99
---------
Outstanding and exercisable at July 31, 2000 2,389,199 1.03 - 4.55 5/19/01 to 5/28/05
Sold in various private placements 696,665 1.50 - 3.00 7/07/04 to 10/30/06
Issued to related parties upon conversion of note
payable 330,000 1.50 7/07/06
---------
Outstanding and exercisable at July 31, 2001 3,415,864 1.03 - 4.55 8/17/01 to 10/30/06
F-29
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(9) Common Stock Warrants, Continued Warrants Exercise Price Expiration
-------------------------------- -------- -------------- ----------
Expired 1,514,199 2.20 - 2.50 8/17/01
Sold in various private placements 2,673,422 0.75 - 1.50 11/03/06 to 9/10/07
Issued to vendor upon settlement of accounts payable 55,556 1.50 8/15/06
Issued to unrelated party for advisory services 1,500,000 0.50 - 1.50 2/6/07
Exercised 186,000 0.50 2/6/07
Issued to unrelated parties upon conversion of
notes payable 72,214 1.50 10/31/06
Issued to unrelated parties in connection with
notes payable 350,000 0.60 11/13/06 - 7/29/07
---------
Outstanding and exercisable at July 31, 2002 6,366,857 0.50 - 4.55 5/28/03 to 9/10/07
========= ===========
(10) Stock Options
1993 Stock Option Plan
The Company's stockholders approved the 1993 stock option plan totaling
3,000,000 shares, which provide that options may be granted to employees,
directors and consultants. Options are granted at market value on the date
of the grant and generally are exercisable in 20% increments annually over
five years starting one year after the date of grant and terminate five
years from their initial exercise date.
1997 Stock Option Plan
The Company's stockholders approved the 1997 stock option plan totaling
2,000,000 shares, which provide that options may be granted to employees,
directors and consultants. Options are granted at market value on the date
of the grant and generally are exercisable in 20% increments annually over
five years starting one year after the date of grant and terminate five
years from their initial exercise date.
The following table summarizes stock option activity for the period
August 1, 1994 to July 31, 2002:
Shares Available Number of Weighted Average Exercise
for Grant Shares Price Per Share
---------------- --------- -------------------------
Balance August 1, 1994 1,926,841 5,935,337 $ 3.76
Granted (818,850) 818,850 2.60
Exercised -- (185,000) 2.36
Canceled -- 1,897,500) 4.30
--------- ---------
Balance July 31, 1995 1,107,991 4,671,687 3.39
Granted (296,205) 296,205 3.99
Exercised -- (656,334) 2.92
Canceled 6,500 (235,333) 4.89
--------- ---------
Balance July 31, 1996 818,286 4,076,225 3.43
1997 Plan 2,000,000 -- --
Granted (932,500) 932,500 4.90
Exercised -- (639,500) 3.82
Canceled 484,845 (484,845) 4.70
--------- ---------
Balance July 31, 1997 2,370,631 3,884,380 3.56
F-30
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(10) Stock Options, Continued
------------------------
Shares Available Number of Weighted Average Exercise
for Grant Shares Price Per Share
---------------- --------- -------------------------
Granted (234,333) 234,333 3.31
Canceled 91,100 (91,100) 3.81
--------- ----------
Balance July 31, 1998 2,227,398 4,027,613 3.54
Granted (595,000) 595,000 0.62
Canceled 443,934 (555,737) 3.97
--------- ----------
Balance July 31, 1999 2,076,332 4,066,876 3.05
Granted (827,000) 827,000 0.52
Exercised -- (95,000) 0.48
Canceled 638,395 (1,031,880) 2.73
--------- ----------
Balance July 31, 2000 1,887,727 3,766,996 2.65
Granted (447,000) 447,000 0.85
Exercised -- (165,555) 0.51
Canceled 774,315 (1,018,557) 3.42
--------- ----------
Balance July 31, 2001 2,215,042 3,029,884 2.24
Granted (544,221) 544,221 0.69
Exercised -- -- --
Canceled 655,840 (900,081) 2.31
--------- ----------
Balance July 31, 2002 2,326,661 2,674,024 1.90
========= ========= ====
The stock options granted in fiscal year ended July 31, 2000 included an
aggregate total of 75,000 stock options issued to the Company's outside
board of directors and an aggregate total of 350,000 stock options issued
to the employees of the Company, which will vest and become exercisable
upon certain milestones, or these options will terminate, and the
employees must be actively employed by Alfacell through the date of the
approval. Compensation expense, if any, will be determined based on the
Company's stock price on the vesting date relative to the options exercise
price. No compensation expense was issued in 2001 and 2002. An aggregate
50,000 options issued to the Company's outside board of directors were
exercised during the fiscal year 2001. The 350,000 stock options issued to
the employees expired during the fiscal year ended July 31, 2002. The
options outstanding at July 31, 2002 will expire between August 1, 2002
and October 4, 2010.
The weighted-average fair value per option at the date of grant for
options granted during the fiscal years 2002, 2001 and 2000 were $0.40,
$0.74 and $0.45, respectively. The fair value was estimated using the
Black-Scholes options pricing model based on the following assumptions:
2002 2001 2000
---- ---- ----
Expected dividend yield 0% 0% 0%
Risk-free interest rate 5.50% 5.50% 6.00%
Expected stock price volatility 88.71% 104.25% 114.50%
Expected term until exercise (years) 5.60 6.00 6.37
Pro forma net loss and loss per share reflecting approximate compensation
cost for the fair value of stock options awarded are as follows:
Net Loss: 2002 2001 2000
---- ---- ----
As reported $ (2,591,162) $ (2,294,936) $ (1,722,298)
Pro forma (2,760,870) (2,522,656) (1,956,667)
Loss per common share:
As reported $ (0.12) $ (0.12) $ (0.10)
Pro forma (0.13) (0.13) (0.20)
F-31
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(10) Stock Options, Continued
The following table summarizes information concerning options outstanding
at July 31, 2002:
Options Outstanding Options Exercisable
-------------------------------------------------- ------------------------------------------
Weighted Average Weighted Weighted
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Shares Term (Years) Price Shares Price
--------------- ------ ------------ ----- ------ -----
$ 0.00 - 1.99 1,598,666 4.38 $ 0.68 938,466 $ 0.71
2.00 - 2.99 95,250 4.21 2.73 50,250 2.80
3.00 - 3.99 688,771 1.16 3.22 663,771 3.20
4.00 - 4.99 98,837 1.91 4.58 98,837 4.58
5.00 - 5.99 147,500 2.77 5.18 147,500 5.18
6.00 - 6.99 45,000 .42 6.97 45,000 6.97
=========== --------- ==== ==== --------- ====
2,674,024 1,943,824
========= =========
Stock option activity prior to adoption of SFAS No. 123 is as follows:
1981 Non-Qualified Stock Option Plan
In 1981, the Board of Directors adopted a non-qualified stock option plan
and had reserved 300,000 shares for issuance to key employees or
consultants. Options were nontransferable and expired if not exercised
within five years. Option grants of 60,000 shares expired unexercised by
July 31, 1991.
Non-Qualified Stock Options
The Board of Directors issued non-qualified stock options which were not
part of the 1981 non-qualified stock option plan or the 1989 Stock Plan as
follows:
Shares Price Range
------ -----------
Granted 1,782,000 $ 3.00-3.87
Exercised (276,989) 3.00-3.50
Canceled (106,000) 3.00-3.50
Expired (649,011) 3.00-3.50
Granted pursuant to conversion of certain liabilities:
Related party 1,324,014 3.20
Unrelated party 73,804 3.20
Repurchased stock options (102,807) 3.20
---------
Balance at July 31, 1994 2,045,011 3.20-3.87
========= =========
In connection with certain private placements, the Board of Directors had
included in the agreements, options to purchase additional shares of the
Company's common stock as follows:
Shares Price Range
------ -----------
Granted (42,167 options were repriced and extended
as described in note 9) 894,887 $ 2.50-7.00
Exercised (81,000) 3.97-6.50
Expired (201,720) 3.97-6.50
---------
Balance at July 31, 1994 612,167 2.50-7.00
======= =========
All of the above options expired as of July 31, 2001.
F-32
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(10) Stock Options, Continued
1989 Stock Plan
On February 14, 1989, the Company adopted the Alfacell Corporation 1989
Stock Plan (the "1989 Stock Plan"), pursuant to which the Board of
Directors could issue awards, options and grants. The maximum number of
shares of common stock that could have been issued pursuant to the option
plan was 2,000,000.
No more options are being granted pursuant to this plan. The per share
option exercise price was determined by the Board of Directors. All
options and shares issued upon exercise were nontransferable and
forfeitable in the event employment was terminated within two years of the
date of hire. In the event the option was exercised and said shares were
forfeited, the Company would return to the optionee the lesser of the
current market value of the securities or the exercise price paid.
The stock option activity is as follows:
Shares Price Range
------ -----------
Granted, February 14, 1989 3,460,000 $ 3.50-5.00
Options issued in connection with share purchase 36,365 2.75
Expired (1,911,365) 2.75-5.00
Canceled (10,000) 5.00
--------
Balance at July 31, 1994 1,575,000 3.50-5.00
========= =========
As of fiscal year ended July 31, 1994, 1,703,159 options were granted
under the 1993 stock option plan.
(11) Stock Grant and Compensation Plans
The Company had adopted a stock grant program effective September 1, 1981,
and pursuant to said plan, had reserved 375,000 shares of its common stock
for issuance to key employees. The stock grant program was superseded by
the 1989 Stock Plan and no further grants will be given pursuant to the
grant plan. The following stock transactions occurred under the Company's
stock grant program:
Year ended Fair Amount of
July 31, Shares Value Compensation
-------- ------ ----- ------------
1983 20,000 $ 5.50 $110,000
1984 19,750 5.125 101,219
1985 48,332 5.125-15.00 478,105
1986 11,250 5.125-15.00 107,032
1988 19,000 3.50 6,500
====== =========== ========
On January 26, 1984, the Company adopted a stock bonus plan for directors
and consultants. The plan was amended on October 6, 1986, to reserve
500,000 shares for issuance under the plan and to clarify a requirement
that stock issued under the Plan could not be transferred until three
years after the date of the grant. The stock bonus plan for directors and
consultants was superseded by the 1989 Stock Plan and no further grants
will be given pursuant to the stock bonus plan for directors and
consultants. The following stock transactions occurred under the Company's
stock bonus plan:
F-33
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(11) Stock Grant and Compensation Plans, Continued
Year ended Fair Amount of
July 31, Shares Value Compensation
-------- ------ ----- ------------
1984 130,250 $ 2.50-3.88 $ 385,917
1985 99,163 3.50-15.00 879,478
1985 (42,500) 2.50 (105,825)*
1986 15,394 9.65-15.00 215,400
1987 5,000 15.00 75,000
====== ============ ==========
* Shares granted in 1984 were renegotiated in 1985 and canceled as a
result of the recipient's termination.
1989 Stock Plan
Under the 1989 Stock Plan, one million shares of the Company's common
stock were reserved for issuance as awards to employees. The 1989 Stock
Plan also provides for the granting of options to purchase common stock of
the Company (see note 8). In addition, the 1989 Stock Plan provided for
the issuance of 1,000,000 shares of the Company's common stock as grants.
To be eligible for a grant, grantees must have made substantial
contributions and shown loyal dedication to the Company.
Awards and grants were authorized under the 1989 Stock Plan during the
following fiscal years:
Year ended Fair Amount of
July 31, Shares Value Compensation
-------- ------ ----- ------------
1989 30,000 $ 5.00 $ 150,000
1990 56,000 6.00 336,000
1991 119,000 4.00 476,000
1992 104,000 2.75 286,000
1993 117,000 2.00 234,000
1994 5,000 3.00 15,000
======= ======= ===========
Compensation expense is recorded for the fair value of all stock awards
and grants over the vesting period. The 1994 stock award was immediately
vested. There were no stock awards in fiscal 2001, 2000 or 1999.
(12) Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS No. 109). Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement
carrying amounts and tax bases of assets and liabilities using enacted tax
rates in effect for all years in which the temporary differences are
expected to reverse.
New Jersey has enacted legislation permitting certain corporations located
in New Jersey to sell state tax loss carryforwards and state research and
development credits or tax benefits. For the state fiscal year 2002 (July
1, 2001 to June 30, 2002), the Company had $1,535,000 total available tax
benefits of which $426,000 was allocated to be sold between July 1, 2001
to June 30, 2002. In December 2001, the Company received $354,000 from the
sale of an aggregate of $426,000 tax benefits which was recognized as a
tax benefit for the fiscal year 2002. In December 2000 and 1999, the
Company received $451,000 and $756,000 from the sale of its allocated tax
benefits which was recognized as a tax benefit for the fiscal years 2001
and 2000, respectively. The Company will attempt to sell the
F-34
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(12) Income Taxes, Continued
remaining balance of its tax benefits in the amount of approximately
$1,109,000 between July 1, 2002 and June 30, 2003, subject to all existing
laws of the State of New Jersey. However, there is no assurance that the
Company will be able to find a buyer for its tax benefits or that such
funds will be available in a timely manner.
At July 31, 2002 and 2001, the tax effects of temporary differences that
give rise to the deferred tax assets are as follows:
Deferred tax assets: 2002 2001
---- ----
Excess of book over tax depreciation and amortization $ 71,018 $ 83,946
Accrued expenses 146,843 131,098
Federal and state net operating loss carryforwards 14,787,041 14,666,868
Research and experimentation and investment tax
credit carry forwards 1,259,070 1,203,536
------------ ------------
Total gross deferred tax assets 16,263,972 16,085,448
Valuation allowance (16,263,972) (16,085,448)
------------ ------------
Net deferred tax assets $ -- $--
============ ============
A valuation allowance is provided when it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The
tax benefit assumed using the federal statutory tax rate of 34% has been
reduced to an actual benefit of zero due principally to the aforementioned
valuation allowance.
At July 31, 2002, the Company has federal net operating loss carryforwards
of approximately $41,000,000 that expire in the years 2003 to 2022. The
Company also has research and experimentation tax credit carryforwards of
approximately $1,250,000 that expire in the years 2003 to 2022. Ultimate
utilization/availability of such net operating losses and credits may be
significantly curtailed if a significant change in ownership occurs in
accordance with the provisions of the Tax Reform Act of 1986.
(13) Other Financial Information
Accrued expenses as of July 31, consist of the following:
2002 2001
---- ----
Payroll and payroll taxes $351,575 $ 43,876
Professional fees 27,000 50,690
Clinical trial grants 374,522 327,745
Other 101,181 43,502
-------- --------
$854,278 $465,813
======== ========
Other current assets as of July 31, consist of the following:
2002 2001
---- ----
Prepaid insurance $ 45,450 $ 35,380
Other 304 7,553
-------- --------
$ 45,754 $ 42,933
======== ========
F-35
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(14) Commitments and Contingencies
On July 23, 1991, the Board of Directors authorized the Company to pay
Kuslima Shogen an amount equal to 15% of any gross royalties which may be
paid to the Company from any license(s) with respect to the Company's
principal product, ONCONASE(R), or any other products derived from
amphibian source extract, produced either as a natural, synthesized,
and/or genetically engineered drug for which the Company is the owner or
co-owner of the patents, or acquires such rights in the future, for a
period not to exceed the life of the patents. If the Company manufactures
and markets its own drugs, then the Company will pay an amount equal to 5%
of net sales from any products sold during the life of the patents. On
April 16, 2001, this agreement was amended and clarified to provide that
Ms. Shogen would receive the 15% royalty payment relating to licensees or
the 5% fee relating to sales but not both, unless the Company and the
licensee both market the licensed product.
The Company has product liability insurance coverage in the amount of
$3,000,000 for clinical trials in the U.S. Additionally, the Company also
maintains product liability insurance in Europe in the amount of
DM20,000,000. No product liability claims have been filed against the
Company. If a claim arises and the Company is found liable in an amount
that significantly exceeds the policy limits, it may have a material
adverse effect upon the financial condition of the Company.
Included in accrued expenses as of July 31, 2002, is $256,000 of unpaid
payroll taxes due to the Internal Revenue Service (IRS) and other state
tax agencies. The Company is currently negotiating a payment plan with the
taxing authorities for the payment of the payroll taxes with interest and
penalties, to be determined. The Company believes that any interest and
penalties assessed by the IRS or state tax agencies will not have a
material adverse effect on the Company financial position and results of
operations.
(15) Research and Development Agreement
In October 2002, the Company entered into a research collaboration with
Wyeth Pharmaceuticals to co-develop a number of designer drugs such as
conjugates and fusion proteins for a variety of indications using the
Company's proprietary technology. This collaboration may result in a
licensing agreement between the companies however, there is no assurance
that such agreement will be reached.
In August 1995, the Company entered into a CRADA with the NCI. In
accordance with this CRADA, the NCI performed research for the Company on
potential uses for its drug technology. During the term of this research
and development agreement, which expired in August 1999, the Company was
obligated to pay approximately $5,200 per month to the NCI. In September
1999, this research and development agreement was amended to expire in
August 2000 and in June 2000 the expiration was extended to expire in
August 2001. Both extensions were without additional cost for the Company.
Total research and development expenses under this arrangement amounted to
$5,200 for the fiscal year ended July 31, 2000.
(16) 401(K) Savings Plan
Effective October 1, 1998, the Company adopted a 401(K) Savings Plan (the
"Plan"). Qualified employees may participate by contributing up to 6% of
their gross earnings to the Plan subject to certain Internal Revenue
Service restrictions. The Company will match an amount equal to 50% of the
first 6% of each participant's contribution. The Company's contribution is
subject to a vesting schedule of 0%, 25%, 50%, 75% and 100% for employment
of less than one year, one year, two years, three years and four years,
respectively, except for existing employees which vesting schedule was
based from the date the Plan was adopted. For the fiscal years ended July
31, 2002, 2001 and 2000, the Company's contribution to the Plan amounted
to $25,717, $23,826 and $21,714, respectively.
F-36
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(17) Quarterly Financial Data (Unaudited)
(In thousands, except per share amounts)
- ------------------ --------------------------------------------------------
2002
--------------------------------------------------------
First Second Third Fourth Totals
- ------------------ ---------- ---------- ---------- --------- ------------
Interest
income $ -- $ .1 $ .1 $ 4.6 $ 4.8
Operating loss (731.1) (697.9) (792.8) (723.2) (2,945.0)
- ------------------ --------- --------- --------- --------- -----------
Net income
(loss) (377.3) (697.9) (792.8) (723.2) (2,591.2)
Loss per share
- basic and
diluted $ (0.02) $ (0.03) $ (0.04) (0.03) $ (0.12)
- ------------------ --------- --------- --------- --------- -----------
- ------------------ --------------------------------------------------------
2001
--------------------------------------------------------
First Second Third Fourth Totals
- ------------------ ---------- ---------- ---------- --------- ------------
Interest
income $ 3.8 $ 3.0 $ 1.5 $ 4.8 $ 13.1
Operating loss (511.9) (688.4) (762.2) (783.8) (2,746.3)
- ------------------ --------- --------- --------- --------- -----------
Net income
(loss) (60.5) (688.4) (762.2) (783.8) (2,294.9)
Loss per share
- basic and
diluted $ 0.00 $ (0.04) $ (0.04) $ (0.04) $ (0.12)
- ------------------ --------- --------- --------- --------- -----------