10-Q 1 c61623e10-q.txt 10-Q FOR PERIOD ENDING FEBRUARY 28, 2001 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED FEBRUARY 28, 2001 OR [ ] TRANSITION REPORT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO -------------- --------------- COMMISSION FILE NUMBER 0-24050 NORTHFIELD LABORATORIES INC. (Exact name of registrant as specified in its charter) DELAWARE 36-3378733 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 1560 SHERMAN AVENUE, SUITE 1000, EVANSTON, ILLINOIS 60201-4800 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (847) 864-3500 FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT: NOT APPLICABLE INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO --- --- APPLICABLE ONLY TO ISSUER INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND REPORTS REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN CONFIRMED BY A COURT. YES NO --- --- AS OF FEBRUARY 28, 2001, REGISTRANT HAD 14,265,875 SHARES OF COMMON STOCK OUTSTANDING ================================================================================ 2 INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Board of Directors Northfield Laboratories Inc.: We have reviewed the balance sheet of Northfield Laboratories Inc. (a company in the development stage) as of February 28, 2001, and the related statements of operations for the three-month periods ended February 28, 2001 and February 29, 2000, and statements of operations and cash flows for the nine-month periods ended February 28, 2001 and February 29, 2000 and for the period from June 19, 1985 (inception) through February 28, 2001. We have also reviewed the statements of shareholders' equity (deficit) for the nine-month period ended February 28, 2001 and for the period from June 19, 1985 (inception) through February 28, 2001. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the balance sheet of Northfield Laboratories Inc. as of May 31, 2000, and the related statements of operations, shareholders' equity (deficit), and cash flows for the year then ended and for the period from June 19, 1985 (inception) through May 31, 2000 (not presented herein); and in our report dated June 29, 2000, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying balance sheet as of May 31, 2000 and in the accompanying statement of shareholders' equity (deficit) is fairly stated, in all material respects, in relation to the statement from which it has been derived. /s/ KPMG LLP Chicago, Illinois March 21, 2001 3 NORTHFIELD LABORATORIES INC. (a company in the development stage) Balance Sheets February 28, 2001 (unaudited) and May 31, 2000
FEBRUARY 28, MAY 31, ASSETS 2001 2000 ------------- ------------- Current assets: Cash $ 7,299,077 15,154,295 Short-term marketable securities 23,799,980 23,129,324 Prepaid expenses 223,629 409,270 Other current assets 632,555 505,572 ------------- ------------- Total current assets 31,955,241 39,198,461 Property, plant, and equipment, net 2,811,257 2,455,701 Other assets 122,775 74,333 ------------- ------------- $ 34,889,273 41,728,495 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,347,153 1,061,367 Accrued expenses 149,551 174,009 Accrued compensation and benefits 268,620 250,570 ------------- ------------- Total current liabilities 1,765,324 1,485,946 Other liabilities 167,231 147,717 ------------- ------------- Total liabilities 1,932,555 1,633,663 ------------- ------------- Shareholders' equity: Preferred stock, $.01 par value. Authorized 5,000,000 shares; none issued and outstanding -- -- Common stock, $.01 par value. Authorized 30,000,000 shares; issued and outstanding 14,265,875 shares at February 28, 2001 and May 31, 2000, respectively 142,659 142,424 Additional paid-in capital 117,503,271 117,276,051 Deficit accumulated during the development stage (84,689,212) (77,323,643) ------------- ------------- Total shareholders' equity 32,956,718 40,094,832 ------------- ------------- $ 34,889,273 41,728,495 ============= =============
See accompanying independent accountants' review report. 4 NORTHFIELD LABORATORIES INC. (a company in the development stage) Statements of Operations Three and nine-month periods ended February 28, 2001 and February 29, 2000 and for the period from June 19, 1985 (inception) through February 28, 2001
CUMULATIVE THREE-MONTH PERIOD ENDED NINE-MONTH PERIOD ENDED FROM ------------------------------ ---------------------------- JUNE 19, 1985 FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, THROUGH 2001 2000 2001 2000 FEBRUARY 28, 2001 (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) ----------- ----------- ----------- ----------- ----------------- Revenues - license income -- -- -- -- 3,000,000 Costs and expenses: Research and development $ 2,488,972 2,364,773 6,963,676 6,851,403 76,104,089 General and administrative 620,079 657,759 2,047,582 1,666,064 33,518,795 ------------ ---------- ---------- ---------- ----------- 3,109,051 3,022,532 9,011,258 8,517,467 109,622,884 ------------ ---------- ---------- ---------- ----------- Other income and expense: Interest income 504,733 558,499 1,645,689 1,707,652 22,016,906 Interest expense -- -- -- -- (83,234) ------------ ---------- ---------- ---------- ----------- 504,733 558,499 1,645,689 1,707,652 21,933,672 ------------ ---------- ---------- ---------- ----------- Net loss $ (2,604,318) (2,464,033) (7,365,569) (6,809,815) (84,689,212) ============ ========== ========== ========== =========== Net loss per basic share $ (0.18) (0.17) (0.52) (0.48) (9.18) ============ ========== ========== ========== =========== Shares used in calculation of per share data 14,263,003 14,240,864 14,252,632 14,240,203 9,224,175 ============ ========== ========== ========== ===========
See accompanying independent accountants' review report. 5 NORTHFIELD LABORATORIES INC. (a company in the development stage) Statements of Shareholders' Equity (Deficit) Nine-month period ended February 28, 2001 and for the period from June 19, 1985 (inception) through February 28, 2001
SERIES A CONVERTIBLE PREFERRED STOCK COMMON STOCK PREFERRED STOCK --------------------- ----------------------- ---------------------- NUMBER AGGREGATE NUMBER AGGREGATE NUMBER AGGREGATE OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT --------- --------- ---------- --------- --------- ---------- Issuance of common stock on August 27, 1985 -- $ -- 3,500,000 $ 35,000 -- $ -- Issuance of Series A convertible preferred stock at $4.00 per share on August 27, 1985 (net of costs of issuance of $79,150) -- -- -- -- 250,000 250,000 Net loss -- -- -- -- -- -- ------ ------- --------- --------- -------- --------- Balance at May 31, 1986 -- -- 3,500,000 35,000 250,000 250,000 Net loss -- -- -- -- -- -- Deferred compensation relating to grant of stock options -- -- -- -- -- -- Amortization of deferred compensation -- -- -- -- -- -- ------ ------- --------- --------- -------- --------- Balance at May 31, 1987 -- -- 3,500,000 35,000 250,000 250,000 Issuance of Series B convertible preferred stock at $35.68 per share on August 14, 1987 (net of costs of issuance of $75,450) -- -- -- -- -- -- Net loss -- -- -- -- -- -- Amortization of deferred compensation -- -- -- -- -- -- ------ ------- --------- --------- -------- --------- Balance at May 31, 1988 -- -- 3,500,000 35,000 250,000 250,000 Issuance of common stock at $24.21 per share on June 7, 1988 (net of costs of issuance of $246,000) -- -- 413,020 4,130 -- -- Conversion of Series A convertible preferred stock to common stock on June 7, 1988 -- -- 1,250,000 12,500 (250,000) (250,000) Conversion of Series B convertible preferred stock to common stock on June 7, 1988 -- -- 1,003,165 10,032 -- -- Exercise of stock options at $2.00 per share -- -- 47,115 471 -- -- Issuance of common stock at $28.49 per share on March 6, 1989 (net of costs of issuance of $21,395) -- -- 175,525 1,755 -- -- Issuance of common stock at $28.49 per share on March 30, 1989 (net of costs of issuance of $10,697) -- -- 87,760 878 -- -- Sale of options at $28.29 per share to purchase common stock at $.20 per share on March 30, 1989 (net of costs of issuance of $4,162) -- -- -- -- -- -- Net loss -- -- -- -- -- -- Deferred compensation relating to grant of stock options -- -- -- -- -- -- Amortization of deferred compensation -- -- -- -- -- -- ------ ------- --------- --------- -------- --------- Balance at May 31, 1989 -- -- 6,476,585 64,766 -- -- Net loss -- -- -- -- -- -- Deferred compensation relating to grant of stock options -- -- -- -- -- -- Amortization of deferred compensation -- -- -- -- -- -- ------ ------- --------- --------- -------- --------- Balance at May 31, 1990 -- -- 6,476,585 64,766 -- -- Net loss -- -- -- -- -- -- Amortization of deferred compensation -- -- -- -- -- -- ------ ------- --------- --------- -------- --------- Balance at May 31, 1991 -- -- 6,476,585 64,766 -- -- Exercise of stock warrants at $5.60 per share -- -- 90,000 900 -- -- Net loss -- -- -- -- -- -- Amortization of deferred compensation -- -- -- -- -- -- ------ ------- --------- --------- -------- --------- Balance at May 31, 1992 -- -- 6,566,585 65,666 -- -- Exercise of stock warrants at $7.14 per share -- -- 15,000 150 -- -- Issuance of common stock at $15.19 per share on April 19, 1993 (net of costs of issuance of $20,724) -- -- 374,370 3,744 -- -- Net loss -- -- -- -- -- -- Amortization of deferred compensation -- -- -- -- -- -- ------ ------- --------- --------- -------- --------- Balance at May 31, 1993 -- -- 6,955,955 69,560 -- -- ------ ------- --------- --------- -------- ---------
(Continued) 6 NORTHFIELD LABORATORIES INC. (a company in the development stage) Statements of Shareholders' Equity (Deficit) Nine-month period ended February 28, 2001 and for the period from June 19, 1985 (inception) through February 28, 2001
SERIES B CONVERTIBLE DEFICIT TOTAL PREFERRED STOCK ACCUMULATED SHARE- --------------------- ADDITIONAL DURING THE DEFERRED HOLDERS' NUMBER AGGREGATE PAID-IN DEVELOPMENT COMPEN- EQUITY OF SHARES AMOUNT CAPITAL STAGE SATION (DEFICIT) --------- --------- ----------- ------------- ---------- ---------- Issuance of common stock on August 27, 1985 -- $ -- (28,000) -- -- 7,000 Issuance of Series A convertible preferred stock at $4.00 per share on August 27, 1985 (net of costs of issuance of $79,150) -- -- 670,850 -- -- 920,850 Net loss -- -- -- (607,688) -- (607,688) ------- ----------- ---------- ---------- ---------- ---------- Balance at May 31, 1986 -- -- 642,850 (607,688) -- 320,162 Net loss -- -- -- (2,429,953) -- (2,429,953) Deferred compensation relating to grant of stock options -- -- 2,340,000 -- (2,340,000) -- Amortization of deferred compensation -- -- -- -- 720,000 720,000 ------- ----------- ---------- ---------- ---------- ---------- Balance at May 31, 1987 -- -- 2,982,850 (3,037,641) (1,620,000) (1,389,791) Issuance of Series B convertible preferred stock at $35.68 per share on August 14, 1987 (net of costs of issuance of $75,450) 200,633 200,633 6,882,502 -- -- 7,083,135 Net loss -- -- -- (3,057,254) -- (3,057,254) Amortization of deferred compensation -- -- -- -- 566,136 566,136 ------- ----------- ---------- ---------- ---------- ---------- Balance at May 31, 1988 200,633 200,633 9,865,352 (6,094,895) (1,053,864) 3,202,226 Issuance of common stock at $24.21 per share on June 7, 1988 (net of costs of issuance of $246,000) -- -- 9,749,870 -- -- 9,754,000 Conversion of Series A convertible preferred stock to common stock on June 7, 1988 -- -- 237,500 -- -- -- Conversion of Series B convertible preferred stock to common stock on June 7, 1988 (200,633) (200,633) 190,601 -- -- -- Exercise of stock options at $2.00 per share -- -- 93,759 -- -- 94,230 Issuance of common stock at $28.49 per share on March 6, 1989 (net of costs of issuance of $21,395) -- -- 4,976,855 -- -- 4,978,610 Issuance of common stock at $28.49 per share on March 30, 1989 (net of costs of issuance of $10,697) -- -- 2,488,356 -- -- 2,489,234 Sale of options at $28.29 per share to purchase common stock at $.20 per share on March 30, 1989 (net of costs of issuance of $4,162) -- -- 7,443,118 -- -- 7,443,118 Net loss -- -- -- (791,206) -- (791,206) Deferred compensation relating to grant of stock options -- -- 683,040 -- (683,040) -- Amortization of deferred compensation -- -- -- -- 800,729 800,729 ------- ----------- ---------- ---------- ---------- ---------- Balance at May 31, 1989 -- -- 35,728,451 (6,886,101) (936,175) 27,970,941 Net loss -- -- -- (3,490,394) -- (3,490,394) Deferred compensation relating to grant of stock options -- -- 699,163 -- (699,163) -- Amortization of deferred compensation -- -- -- -- 546,278 546,278 ------- ----------- ---------- ---------- ---------- ---------- Balance at May 31, 1990 -- -- 36,427,614 (10,376,495) (1,089,060) 25,026,825 Net loss -- -- -- (5,579,872) -- (5,579,872) Amortization of deferred compensation -- -- -- -- 435,296 435,296 ------- ----------- ---------- ---------- ---------- ---------- Balance at May 31, 1991 -- -- 36,427,614 (15,956,367) (653,764) 19,882,249 Exercise of stock warrants at $5.60 per share -- -- 503,100 -- -- 504,000 Net loss -- -- -- (7,006,495) -- (7,006,495) Amortization of deferred compensation -- -- -- -- 254,025 254,025 ------- ----------- ---------- ---------- ---------- ---------- Balance at May 31, 1992 -- -- 36,930,714 (22,962,862) (399,739) 13,633,779 Exercise of stock warrants at $7.14 per share -- -- 106,890 -- -- 107,040 Issuance of common stock at $15.19 per share on April 19, 1993 (net of costs of issuance of $20,724) -- -- 5,663,710 -- -- 5,667,454 Net loss -- -- -- (8,066,609) -- (8,066,609) Amortization of deferred compensation -- -- -- -- 254,025 254,025 ------- ----------- ---------- ---------- ---------- ---------- Balance at May 31, 1993 -- -- 42,701,314 (31,029,471) (145,714) 11,595,689 ------- ----------- ---------- ---------- ---------- ----------
(Continued) 7 NORTHFIELD LABORATORIES INC. (a company in the development stage) Statements of Shareholders' Equity (Deficit), continued Nine months ended February 28, 2001 and for the period from June 19, 1985 (inception) through February 28, 2001
SERIES A CONVERTIBLE SERIES B CONVERTIBLE PREFERRED STOCK COMMON STOCK PREFERRED STOCK PREFERRED STOCK ------------------- ------------------- -------------------- ------------------- NUMBER AGGREGATE NUMBER AGGREGATE NUMBER AGGREGATE NUMBER AGGREGATE OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT --------- --------- --------- --------- --------- --------- --------- --------- Net loss -- $ -- -- $ -- -- $ -- -- $ -- Issuance of common stock at $6.50 per share on May 26, 1994 (net of costs of issuance of $2,061,149) -- -- 2,500,000 25,000 -- -- -- -- Cancellation of stock options -- -- -- -- -- -- -- -- Amortization of deferred compensation -- -- -- -- -- -- -- -- ----- ------- ---------- -------- ----- ------- ----- -------- Balance at May 31, 1994 -- -- 9,455,955 94,560 -- -- -- -- Net loss -- -- -- -- -- -- -- -- Issuance of common stock at $6.50 per share on June 20, 1994 (net of issuance costs of $172,500) -- -- 375,000 3,750 -- -- -- -- Exercise of stock options at $7.14 per share -- -- 10,000 100 -- -- -- -- Exercise of stock options at $2.00 per share -- -- 187,570 1,875 -- -- -- -- Cancellation of stock options -- -- -- -- -- -- -- -- Amortization of deferred compensation -- -- -- -- -- -- -- -- ----- ------- ---------- -------- ----- ------- ----- -------- Balance at May 31, 1995 -- -- 10,028,525 100,285 -- -- -- -- Net loss -- -- -- -- -- -- -- -- Issuance of common stock at $17.75 per share on August 9, 1995 (net of issuance costs of $3,565,125) -- -- 2,925,000 29,250 -- -- -- -- Issuance of common stock at $17.75 per share on September 11, 1995 (net of issuance costs of $423,238) -- -- 438,750 4,388 -- -- -- -- Exercise of stock options at $2.00 per share -- -- 182,380 1,824 -- -- -- -- Exercise of stock options at $6.38 per share -- -- 1,500 15 -- -- -- -- Exercise of stock options at $7.14 per share -- -- 10,000 100 -- -- -- -- Cancellation of stock options -- -- -- -- -- -- -- -- Amortization of deferred compensation -- -- -- -- -- -- -- -- ----- ------- ---------- -------- ----- ------- ----- -------- Balance at May 31, 1996 -- -- 13,586,155 135,862 -- -- -- -- Net loss -- -- -- -- -- -- -- -- Exercise of stock options at $0.20 per share -- -- 263,285 2,633 -- -- -- -- Exercise of stock options at $2.00 per share -- -- 232,935 2,329 -- -- -- -- Exercise of stock options at $7.14 per share -- -- 10,000 100 -- -- -- -- Amortization of deferred compensation -- -- -- -- -- -- -- -- ----- ------- ---------- -------- ----- ------- ----- -------- Balance at May 31, 1997 -- -- 14,092,375 140,924 -- -- -- -- Net loss -- -- -- -- -- -- -- -- Exercise of stock options at $7.14 per share -- -- 5,000 50 -- -- -- -- Amortization of deferred compensation -- -- -- -- -- -- -- -- ----- ------- ---------- -------- ----- ------- ----- -------- Balance at May 31, 1998 -- -- 14,097,375 140,974 -- -- -- -- Net loss -- -- -- -- -- -- -- -- Non-cash compensation -- -- -- -- -- -- -- -- Exercise of stock options at $7.14 per share -- -- 17,500 175 -- -- -- -- Exercise of stock warrants at $8.00 per share -- -- 125,000 1,250 -- -- -- -- ----- ------- ---------- -------- ----- ------- ----- -------- Balance at May 31, 1999 -- -- 14,239,875 142,399 -- -- -- -- Net loss -- -- -- -- -- -- -- -- Non-cash compensation -- -- -- -- -- -- -- -- Exercise of stock options at $13.38 per share -- -- 2,500 25 -- -- -- -- ----- ------- ---------- -------- ----- ------- ----- -------- Balance at May 31, 2000 -- -- 14,242,375 142,424 -- -- -- -- Net loss (unaudited) -- -- -- -- -- -- -- -- Exercise of stock options at $10.81 per share -- -- 17,500 175 -- -- -- -- Exercise of stock options at $6.38 per share -- -- 6,000 60 -- -- -- -- ----- ------- ---------- -------- ----- ------- ----- -------- Balance at February 28, 2001 (unaudited) -- $ -- 14,265,875 $142,659 -- $ -- -- $ -- ===== ======= ========== ======== ===== ======= ===== ========
See accompanying independent accountants' review report. (Continued) 8
DEFICIT TOTAL ACCUMULATED SHARE- ADDITIONAL DURING THE DEFERRED HOLDERS' PAID-IN DEVELOPMENT COMPEN- EQUITY CAPITAL STAGE SATION (DEFICIT) ------------ ------------ ------------ ------------ Net loss -- (7,363,810) -- (7,363,810) Issuance of common stock at $6.50 per share on May 26, 1994 (net of costs of issuance of $2,061,149) 14,163,851 -- -- 14,188,851 Cancellation of stock options (85,400) -- 85,400 -- Amortization of deferred compensation -- -- 267 267 ------------ ------------ ------------ ------------ Balance at May 31, 1994 56,779,765 (38,393,281) (60,047) 18,420,997 Net loss -- (7,439,013) -- (7,439,013) Issuance of common stock at $6.50 per share on June 20, 1994 (net of issuance costs of $172,500) 2,261,250 -- -- 2,265,000 Exercise of stock options at $7.14 per share 71,300 -- -- 71,400 Exercise of stock options at $2.00 per share 373,264 -- -- 375,139 Cancellation of stock options (106,750) -- 106,750 -- Amortization of deferred compensation -- -- (67,892) (67,892) ------------ ------------ ------------ ------------ Balance at May 31, 1995 59,378,829 (45,832,294) (21,189) 13,625,631 Net loss -- (4,778,875) -- (4,778,875) Issuance of common stock at $17.75 per share on August 9, 1995 (net of issuance costs of $3,565,125) 48,324,374 -- -- 48,353,624 Issuance of common stock at $17.75 per share on September 11, 1995 (net of issuance costs of $423,238) 7,360,187 -- -- 7,364,575 Exercise of stock options at $2.00 per share 362,937 -- -- 364,761 Exercise of stock options at $6.38 per share 9,555 -- -- 9,570 Exercise of stock options at $7.14 per share 71,300 -- -- 71,400 Cancellation of stock options (80,062) -- 80,062 -- Amortization of deferred compensation -- -- (62,726) (62,726) ------------ ------------ ------------ ------------ Balance at May 31, 1996 115,427,120 (50,611,169) (3,853) 64,947,960 Net loss -- (4,245,693) -- (4,245,693) Exercise of stock options at $0.20 per share 50,025 -- -- 52,658 Exercise of stock options at $2.00 per share 463,540 -- -- 465,869 Exercise of stock options at $7.14 per share 71,300 -- -- 71,400 Amortization of deferred compensation -- -- 2,569 2,569 ------------ ------------ ------------ ------------ Balance at May 31, 1997 116,011,985 (54,856,862) (1,284) 61,294,763 Net loss -- (5,883,378) -- (5,883,378) Exercise of stock options at $7.14 per share 35,650 -- -- 35,700 Amortization of deferred compensation -- -- 1,284 1,284 ------------ ------------ ------------ ------------ Balance at May 31, 1998 116,047,635 (60,740,240) -- 55,448,369 Net loss -- (7,416,333) -- (7,416,333) Non-cash compensation 14,354 -- -- 14,354 Exercise of stock options at $7.14 per share 124,775 -- -- 124,950 Exercise of stock warrants at $8.00 per share 998,750 -- -- 1,000,000 ------------ ------------ ------------ ------------ Balance at May 31, 1999 117,185,514 (68,156,573) -- 49,171,340 Net loss -- (9,167,070) -- (9,167,070) Non-cash compensation 57,112 -- -- 57,112 Exercise of stock options at $13.38 per share 33,425 -- -- 33,450 ------------ ------------ ------------ ------------ Balance at May 31, 2000 117,276,051 (77,323,643) -- 40,094,832 Net loss (unaudited) -- (7,365,569) -- (7,365,569) Exercise of stock options at $10.81 per share 189,000 -- -- 189,175 Exercise of stock options at $6.38 per share 38,220 -- -- 33,280 ------------ ------------ ------------ ------------ Balance at February 28, 2001 (unaudited) 117,503,271 (84,689,212) -- 32,956,718 ============ ============ ============ ============
(Continued) 9 NORTHFIELD LABORATORIES INC. (a company in the development stage) Statements of Cash Flows Nine-month periods ended February 28, 2001 and February 29, 2000 and for the period from June 19, 1985 (inception) through February 28, 2001
NINE MONTHS ENDED CUMULATIVE ---------------------------- FROM FEBRUARY 28, FEBRUARY 29, JUNE 19, 1985 ---------------------------- THROUGH 2001 2000 FEBRUARY 28, 2001 (UNAUDITED) (UNAUDITED) (UNAUDITED) ----------- ----------- ------------------ Cash flows from operating activities: Net loss $ (7,365,569) (6,809,815) (84,689,212) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 368,758 325,417 15,017,387 Non-cash compensation -- 74,328 3,552,723 Loss on sale of equipment -- -- 66,359 Changes in assets and liabilities: Prepaid expenses 185,641 194,964 (432,840) Other current assets (126,983) (61,126) (2,528,806) Other assets (49,200) -- (42,247) Accounts payable 285,786 (353,771) 1,347,153 Accrued expenses (24,458) (8,716) 149,551 Accrued compensation and benefits 18,050 38,215 268,620 Other liabilities 19,514 16,510 167,231 ------------ ---------- --------- Net cash used in operating activities (6,688,461) (6,583,994) (67,124,081) ------------ ---------- --------- Cash flows from investing activities: Purchase of property, plant, equipment, and capitalized engineering costs (723,556) (2,145,445) (17,764,358) Proceeds from matured marketable securities 7,548,171 15,549,200 362,938,152 Proceeds from sale of marketable securities -- -- 7,141,656 Purchase of marketable securities (8,218,827) (4,909,192) (393,879,789) Proceeds from sale of equipment -- 1,786,436 1,863,023 ------------ ---------- --------- Net cash used in investing activities (1,394,212) 10,280,999 (39,701,316) ------------ ---------- --------- Cash flows from financing activities: Proceeds from issuance of common stock 227,455 33,450 103,749,383 Payment of common stock issuance costs -- -- (5,072,012) Proceeds from issuance of preferred stock -- -- 6,644,953 Proceeds from sale of stock options to purchase common shares -- -- 7,443,118 Proceeds from issuance of notes payable -- -- 1,500,000 Repayment of notes payable -- -- (140,968) Net cash provided by financing activities 227,455 33,450 114,124,474 ------------ ---------- --------- Net increase (decrease) in cash (7,855,218) 3,730,455 7,299,077 Cash at beginning of period 15,154,295 25,855,668 -- ------------ ---------- --------- Cash at end of period $ 7,299,077 29,586,123 7,299,077 ============ ========== ===========
See accompanying independent accountants' review report. 10 NORTHFIELD LABORATORIES INC. (a company in the development stage) Notes to Financial Statements February 28, 2001 (1) BASIS OF PRESENTATION The interim financial statements presented are unaudited but, in the opinion of management, have been prepared in conformity with accounting principles generally accepted in the United States of America applied on a basis consistent with those of the annual financial statements. Such interim financial statements reflect all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the financial position and the results of operations for the interim periods presented. The results of operations for the interim period presented are not necessarily indicative of the results to be expected for the year ending May 31, 2001. The interim financial statements should be read in connection with the audited financial statements for the year ended May 31, 2000. (2) COMPUTATION OF NET LOSS PER SHARE Basic earnings per share is based on the weighted average number of shares outstanding and excludes the dilutive effect of unexercised common stock equivalents. Diluted earnings per share is based on the weighted average number of shares outstanding and includes the dilutive effect of unexercised common stock equivalents. Because the Company reported a net loss for all periods presented, basic and diluted per share amounts are the same. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Since Northfield's incorporation in 1985, we have devoted substantially all of our efforts and resources to the research, development and clinical testing of our potential product, PolyHeme(TM). We have incurred operating losses during each year of our operations since inception and expect to incur substantial additional operating losses for the next several years. From Northfield's inception through February 28, 2001, we have incurred operating losses totaling $84,689,000. Our success will depend on several factors, including our ability to obtain Food & Drug Administration regulatory approval of PolyHeme and our manufacturing facilities, obtain sufficient quantities of blood to manufacture PolyHeme in commercial quantities, manufacture and distribute PolyHeme in a cost-effective manner, and enforce our patent positions. We have experienced significant delays in the development and clinical testing of PolyHeme. We cannot ensure that we will be able to achieve these goals or that we will be able to realize product revenues or profitability on a sustained basis or at all. We anticipate that research and development expenses will increase during the foreseeable future. These expected increases are attributable to anticipated future clinical trials, monitoring and reporting the results of these trials and continuing process development associated with improving our manufacturing capacity to permit commercial-scale production of PolyHeme. We expect that general and administrative expenses will increase over the foreseeable future due to increased expenses relating to the expansion of our organization in support of potential expanded commercial operations. 12 RESULTS OF OPERATIONS We reported no revenues for either of the three-month periods ended February 28, 2001 or 2000. From Northfield's inception through February 28, 2001, we have reported total revenues of $3,000,000, all of which were derived from licensing fees. OPERATING EXPENSES Operating expenses for our third fiscal quarter ended February 28, 2001 totaled $3,109,000, an increase of $86,000 from the $3,023,000 reported in the third quarter of the prior fiscal year. Measured on a percentage basis, total expenses in the third quarter of fiscal 2001 increased by 2.8%. This increase was primarily due to higher costs related to the expansion of our manufacturing organization and facilities. Research and development expenses for the third quarter of fiscal 2001 totaled $2,489,000, an increase of $124,000, or 5.2%, from the $2,365,000, reported in the third quarter of fiscal 2000. The majority of the increase in research and development expenses resulted from increased costs associated with our expanded manufacturing organization and facilities. The clinical trials continue to shift from field work in the hospitals to data accumulation and analysis. Phase II and Phase III trials remain active in the field, but patient accrual has slowed. Research and development expenses for the nine-month period ended February 28, 2001 totaled $6,964,000, an increase of $113,000 or 1.6%, from the $6,851,000 of expense incurred in the comparable prior year period. The nature of expenditures has changed as higher 13 employment levels and salary increases have pushed labor costs up while purchased services have decreased as a 3rd party viral inactivation study conducted during the first half of the last fiscal year has not been repeated. We anticipate that research and development expenses will remain stable over the balance of the fiscal year. Beyond that, we expect these expenses to increase significantly. Additional costs are being planned for additional multi-center clinical trials, third party clinical monitoring, biostatistical analysis, report preparation, expanding our manufacturing organization and developing additional sources of hemoglobin. General and administrative expenses in the third quarter of fiscal 2001 totaled $620,000 compared to expenses of $658,000 in the third quarter of 2000, representing a decrease of $38,000, or 5.8%. The decrease was primarily due to lower travel expense. General and administrative expenses for the nine-month period ended February 28, 2001 totaled $2,048,000, which represents a $382,000, or 22.9%, increase from the $1,666,000 in the comparable prior year period. All of the increase was due to higher legal fees. 14 INTEREST INCOME Interest income in the third quarter of fiscal 2001 totaled $505,000, or a $53,000 decrease from the $558,000 in interest income reported in the third quarter of fiscal 2000. Higher interest rates early in fiscal 2001 somewhat offset lower available investment balances to account for the decrease. Currently available short-term interest rates are yielding over 2% less than the rates available for the comparable prior year period. Consequently, interest income will remain below prior year levels for the remainder of fiscal 2001 as the corporation will be investing smaller amounts which will be earning lower interest rates. Interest income for the nine-month period ended February 28, 2001 totaled $1,646,000, or a $62,000 decrease from the comparable prior year period. Higher interest rates available earlier in the current fiscal year offset declining investment balances and combined to cause the modest decrease in interest income. On a going forward basis, lower available interest rates and lower available investment balances will cause future interest income to remain below prior year levels. NET LOSS The net loss for the third quarter ended February 28, 2001 was $2,604,000, or $.18 per basic share, compared to a net loss of $2,464,000, or $.17 per basic share, for the third quarter ended February 29, 2000. The difference is due to the increased expense associated with our expanded manufacturing organization and facility costs. 15 For the nine-month period ended February 28, 2001, Northfield reported a loss of $7,366,000, or $.52 per basic share, compared to the comparable prior year period results of a loss of $6,810,000, or $.48 per basic share. Higher legal fees combined with an expanded manufacturing organization and higher facility costs accounted for the increased loss. LIQUIDITY AND CAPITAL RESOURCES From Northfield's inception through February 28, 2001, we have used cash for operating activities and for the purchase of engineering services and property, plant and equipment in the amount of $84,888,000. For the nine-month periods ended February 28, 2001 and 2000, these cash expenditures totaled $7,412,000, and $8,729,000, respectively. The decreased cash outlay for fiscal 2001 compared to the comparable prior year period reflects a decreased level of capital spending. We have financed our research and development and other activities to date primarily through the public and private sale of equity securities and, to a more limited extent, through the licensing of product rights. As of February 28, 2001, we had cash and marketable securities totaling $31,099,000. We believe our existing capital resources will be adequate to satisfy our operating capital requirements and maintain our existing manufacturing plant and office facilities for approximately the next 24-30 months. Thereafter, we are likely to require substantial additional capital to continue our 16 operations. We are currently unable to fund the construction of a large-scale greenfield manufacturing facility, which is estimated to cost approximately $45 million, without raising substantial additional capital. Currently, we have manufacturing capacity of approximately 10,000 units. Initial engineering on the leased space adjacent to our existing manufacturing facility is completed. This engineering indicates an additional capacity of 75,000 units could be developed in approximately 16-18 months at a cost of $26-30 million. Like the greenfield project, significant additional funding will be required before the smaller scale expansion facility could be completed. Northfield has not yet committed to the build-out of a smaller scale expansion facility. We view the smaller scale expansion facility as financially prudent yet large enough for commercial viability. We may enter into collaborative arrangements with strategic partners which could provide us with additional funding or absorb expenses we would otherwise be required to pay. We have engaged in discussions with a number of potential strategic partners. These discussions are at various stages and we cannot ensure that any of these arrangements will be consummated. Our capital requirements may vary materially from those now anticipated because of the results of our clinical testing of PolyHeme, the establishment of relationships with strategic partners, changes in the scale, timing or cost of our commercial manufacturing facility, competitive and technological advances, the FDA regulatory process, changes in our marketing and distribution strategy and other factors. 17 PART II. OTHER INFORMATION Item 6. Exhibits a) Exhibit 10.15 - Employment Agreement - Richard DeWoskin Exhibit 10.16 - Employment Agreement - Steven A. Gould, MD Exhibit 10.17 - Employment Agreement - Jack Kogut Exhibit 10.18 - Form of Indemnification Agreement - Director and Executive Officer, Richard DeWoskin and Steven A. Gould, MD Exhibit 10.19 - Form of Indemnification Agreement - Director, Gerald Moss, MD, Bruce Chelberg, David Savner, and Jack Olshansky Exhibit 10.20 - Form of Indemnification Agreement - Executive Officer, Jack Kogut Exhibit 15 - Acknowledgement of Independent Certified Public Accountants b) None. 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on April 13, 2001. NORTHFIELD LABORATORIES INC. By /s/ RICHARD E. DEWOSKIN ----------------------------------------- Richard E. DeWoskin Chairman of the Board and Chief Executive Officer By /s/ JACK J. KOGUT ----------------------------------------- Jack J. Kogut Secretary and Treasurer (principal financial officer and principal accounting officer)