-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bu6rq89jAM5oqRfVhPQx/S0QnC9HIqp9JnQ92OlthXKGd3koaY613jcjSi/sMZqn MutZwiFGd4snM7ead+GPqA== 0000950137-03-000220.txt : 20030114 0000950137-03-000220.hdr.sgml : 20030114 20030114151304 ACCESSION NUMBER: 0000950137-03-000220 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20021130 FILED AS OF DATE: 20030114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHFIELD LABORATORIES INC /DE/ CENTRAL INDEX KEY: 0000920947 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 363378733 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24050 FILM NUMBER: 03513466 BUSINESS ADDRESS: STREET 1: 1560 SHERMAN AVE STREET 2: SUITE 1000 CITY: EVANSTON STATE: IL ZIP: 60201-4800 BUSINESS PHONE: 8478643500 MAIL ADDRESS: STREET 1: 1560 SHERMAN AVE STE 1000 STREET 2: 37TH FLOOR CITY: EVANSTON STATE: IL ZIP: 60201-4800 10-Q 1 c73765e10vq.txt QUARTERLY REPORT ================================================================================ 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 NOVEMBER 30, 2002 OR [ ] TRANSITION REPORT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO -------------- --------------- COMMISSION FILE NUMBER 0-24050 NORTHFIELD LABORATORIES INC. (Exact name of registrant as specified in its charter) DELAWARE 36-3378733 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 1560 SHERMAN AVENUE, SUITE 1000, EVANSTON, ILLINOIS 60201-4800 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (847) 864-3500 FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT: NOT APPLICABLE INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO --- --- APPLICABLE ONLY TO ISSUER INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND REPORTS REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN CONFIRMED BY A COURT. YES NO --- --- AS OF NOVEMBER 30, 2002, REGISTRANT HAD 14,265,875 SHARES OF COMMON STOCK OUTSTANDING ================================================================================ CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION This Quarterly Report contains forward-looking statements concerning, among other things, our prospects, clinical and regulatory developments affecting our potential product and our business strategies. These forward-looking statements are identified by the use of such terms as "intends," "expects," "plans," "estimates," "anticipates," "should," "believes" and similar terms. These forward-looking statements involve risks and uncertainties. Actual results may differ materially from those predicted by the forward-looking statements because of various factors and possible events, including those discussed under "Risk Factors" in our Annual Report on Form 10-K filed with the Securities and Exchange Commission. Because these forward-looking statements involve risks and uncertainties, actual results may differ significantly from those predicted in these forward-looking statements. You should not place a lot of weight on these statements. These statements speak only as of the date of this document or, in the case of any document incorporated by reference, the date of that document. All subsequent written and oral forward-looking statements attributable to Northfield or any person acting on our behalf are qualified by the cautionary statements in this section and in our Annual Report. We will have no obligation to revise these forward-looking statements. INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Board of Directors Northfield Laboratories Inc.: We have reviewed the balance sheet of Northfield Laboratories Inc. (a company in the development stage) as of November 30, 2002, and the related statements of operations for the three-month periods ended November 30, 2002 and 2001, and statements of operations and cash flows for the six-month periods ended November 30, 2002 and 2001, and for the period from June 19, 1985 (inception) through November 30, 2002. We have also reviewed the statements of shareholders' equity (deficit) for the six-month period ended November 30, 2002 and for the period from June 19, 1985 (inception) through November 30, 2002. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the balance sheet of Northfield Laboratories Inc. as of May 31, 2002, and the related statements of operations, shareholders' equity (deficit), and cash flows for the year then ended and for the period from June 19, 1985 (inception) through May 31, 2002 (not presented herein); and in our report dated July 16, 2002, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying balance sheet as of May 31, 2002 and in the accompanying statement of shareholders' equity (deficit) is fairly stated, in all material respects, in relation to the statements from which they have been derived. /s/ KPMG LLP Chicago, Illinois December 16, 2002 NORTHFIELD LABORATORIES INC. (a company in the development stage) Balance Sheets November 30, 2002 (unaudited) and May 31, 2002
NOVEMBER 30, MAY 31, ASSETS 2002 2002 ------------- ------------ Current assets: Cash $ 9,374,093 17,668,687 Marketable securities 2,689,120 720,000 Prepaid expenses 439,501 540,003 Other current assets 11,387 1,437 ------------- ------------ Total current assets 12,514,101 18,930,127 Property, plant, and equipment, net 1,956,869 2,232,204 Other assets 71,906 72,410 ------------- ------------ $ 14,542,876 21,234,741 ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 324,419 1,077,712 Accrued expenses 320,001 210,109 Accrued compensation and benefits 316,804 338,849 ------------- ------------ Total current liabilities 961,224 1,626,670 Other liabilities 172,784 177,753 ------------- ------------ Total liabilities 1,134,008 1,804,423 ------------- ------------ Shareholders' equity: Preferred stock, $.01 par value. Authorized 5,000,000 shares; none issued and outstanding -- -- Common stock, $.01 par value. Authorized 30,000,000 shares; issued and outstanding 14,265,875 at November 30, 2002 and May 31, 2002. 142,659 142,659 Additional paid-in capital 117,503,271 117,503,271 Deficit accumulated during the development stage (104,237,062) (98,215,612) ------------- ------------ Total shareholders' equity 13,408,868 19,430,318 ------------- ------------ $ 14,542,876 21,234,741 ============= ============
See accompanying notes to financial statements. NORTHFIELD LABORATORIES INC. (a company in the development stage) Statements of Operations Three and six month periods ended November 30, 2002 and 2001 and for the period from June 19, 1985 (inception) through November 30, 2002
CUMULATIVE THREE MONTHS ENDED SIX MONTHS ENDED FROM NOVEMBER 30, NOVEMBER 30, JUNE 19, 1985 ------------------------------- ----------------------------- THROUGH 2002 2001 2002 2001 NOVEMBER 30, 2002 ------------ ------------ ------------ ------------ ----------------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) ------------ ------------ ------------ ------------ ----------------- Revenues - license income $ -- -- -- -- 3,000,000 ------------ ------------ ------------ ------------ ------------ Costs and expenses: Research and development 2,243,311 1,910,675 4,269,113 4,559,349 91,689,633 General and administrative 960,746 524,809 1,889,903 1,367,769 38,846,799 ------------ ------------ ------------ ------------ ------------ 3,204,057 2,435,484 6,159,016 5,927,118 130,536,432 ------------ ------------ ------------ ------------ ------------ Other income and expense: Interest income 60,196 269,780 137,566 570,842 23,382,604 Interest expense -- -- -- -- 83,234 ------------ ------------ ------------ ------------ ------------ 60,196 269,780 137,566 570,842 23,299,370 ------------ ------------ ------------ ------------ ------------ Net loss $ (3,143,861) (2,165,704) (6,021,450) (5,356,276) (104,237,062) ============ ============ ============ ============ ============ Net loss per share - basic and diluted $ (0.22) (0.15) (0.42) (0.38) (10.71) ============ ============ ============ ============ ============ Shares used in calculation of per share data - basic and diluted 14,265,875 14,265,875 14,265,875 14,265,875 9,736,023 ============ ============ ============ ============ ============
See accompanying notes to financial statements. NORTHFIELD LABORATORIES INC. (a company in the development stage) Statements of Shareholders' Equity (Deficit) Six month period ended November 30, 2002 (unaudited) and for the period from June 19, 1985 (inception) through November 30, 2002
COMMON STOCK -------------------------------------------------------- NUMBER AGGREGATE NUMBER AGGREGATE 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) -- -- -- -- Net loss -- -- -- -- -------- --------- --------- --------- Balance at May 31, 1986 -- -- 3,500,000 35,000 Net loss -- -- -- -- Deferred compensation relating to grant of stock options -- -- -- -- Amortization of deferred compensation -- -- -- -- -------- --------- --------- --------- Balance at May 31, 1987 -- -- 3,500,000 35,000 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 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 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 -------- --------- --------- ---------
SERIES A CONVERTIBLE SERIES B CONVERTIBLE DEFICIT PREFERRED STOCK PREFERRED STOCK ACCUMULATED TOTAL - ------------------------- --------------------------- ADDITIONAL DURING THE SHAREHOLDERS' NUMBER AGGREGATE NUMBER AGGREGATE PAID-IN DEVELOPMENT DEFERRED EQUITY OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL STAGE COMPENSATION (DEFICIT) - --------- --------- --------- ---------- ----------- ------------ ------------ ------------ -- $ -- -- $ -- $ (28,000) $ -- $ -- $ 7,000 250,000 250,000 -- -- 670,850 -- -- 920,850 -- -- -- -- -- (607,688) -- (607,688) - --------- --------- --------- --------- ----------- ------------ ----------- ----------- 250,000 250,000 -- -- 642,850 (607,688) -- 320,162 -- -- -- -- -- (2,429,953) -- (2,429,953) -- -- -- -- 2,340,000 -- (2,340,000) -- -- -- -- -- -- -- 720,000 720,000 - --------- --------- --------- --------- ----------- ------------ ----------- ----------- 250,000 250,000 -- -- 2,982,850 (3,037,641) (1,620,000) (1,389,791) -- -- 200,633 200,633 6,882,502 -- -- 7,083,135 -- -- -- -- -- (3,057,254) -- (3,057,254) -- -- -- -- -- -- 566,136 566,136 - --------- --------- --------- --------- ----------- ------------ ----------- ----------- 250,000 250,000 200,633 200,633 9,865,352 (6,094,895) (1,053,864) 3,202,226 -- -- -- -- 9,749,870 -- -- 9,754,000 (250,000) (250,000) -- -- 237,500 -- -- -- -- -- (200,633) (200,633) 190,601 -- -- -- -- -- -- -- 93,759 -- -- 94,230 -- -- -- -- 4,976,855 -- -- 4,978,610 -- -- -- -- 2,488,356 -- -- 2,489,234 -- -- -- -- 7,443,118 -- -- 7,443,118 -- -- -- -- -- (791,206) -- (791,206) -- -- -- -- 683,040 -- (683,040) -- -- -- -- -- -- -- 800,729 800,729 - --------- --------- --------- --------- ----------- ------------ ----------- ----------- -- -- -- -- 35,728,451 (6,886,101) (936,175) 27,970,941 -- -- -- -- -- (3,490,394) -- (3,490,394) -- -- -- -- 699,163 -- (699,163) -- -- -- -- -- -- -- 546,278 546,278 - --------- --------- --------- --------- ----------- ------------ ----------- ----------- -- -- -- -- 36,427,614 (10,376,495) (1,089,060) 25,026,825 -- -- -- -- -- (5,579,872) -- (5,579,872) -- -- -- -- -- -- 435,296 435,296 - --------- --------- --------- --------- ----------- ------------ ----------- ----------- -- -- -- -- 36,427,614 (15,956,367) (653,764) 19,882,249 -- -- -- -- 503,100 -- -- 504,000 -- -- -- -- -- (7,006,495) -- (7,006,495) -- -- -- -- -- -- 254,025 254,025 - --------- --------- --------- --------- ----------- ------------ ----------- ----------- -- -- -- -- 36,930,714 (22,962,862) (399,739) 13,633,779 -- -- -- -- 106,890 -- -- 107,040 -- -- -- -- 5,663,710 -- -- 5,667,454 -- -- -- -- -- (8,066,609) -- (8,066,609) -- -- -- -- -- -- 254,025 254,025 - --------- --------- --------- --------- ----------- ------------ ----------- ----------- -- $ -- -- $ -- $42,701,314 $(31,029,471) $ (145,714) $11,595,689 - --------- --------- --------- --------- ----------- ------------ ----------- -----------
NORTHFIELD LABORATORIES INC. (a company in the development stage) Statements of Shareholders' Equity (Deficit) Six month period ended November 30, 2002 (unaudited) and for the period from June 19, 1985 (inception) through November 30, 2002
PREFERRED STOCK COMMON STOCK -------------------------------------------------------- NUMBER AGGREGATE NUMBER AGGREGATE OF SHARES AMOUNT OF SHARES AMOUNT --------- --------- --------- --------- Net loss -- $ -- -- $ -- Issuance of common stock at $6.50 per share on May 26, 1994 (net of costs of issuance of $2,061,149) -- -- 2,500,000 25,000 Cancellation of stock options -- -- -- -- Amortization of deferred compensation -- -- -- -- --------- --------- ---------- ---------- Balance at May 31, 1994 -- -- 9,455,955 94,560 Net loss -- -- -- -- Issuance of common stock at $6.50 per share on June 20, 1994 (net of issuance costs of $172,500) -- -- 375,000 3,750 Exercise of stock options at $7.14 per share -- -- 10,000 100 Exercise of stock options at $2.00 per share -- -- 187,570 1,875 Cancellation of stock options -- -- -- -- Amortization of deferred compensation -- -- -- -- --------- --------- ---------- ---------- Balance at May 31, 1995 -- -- 10,028,525 100,285 Net loss -- -- -- -- Issuance of common stock at $17.75 per share on August 9, 1995 (net of issuance costs of $3,565,125) -- -- 2,925,000 29,250 Issuance of common stock at $17.75 per share on September 11, 1995 (net of issuance costs of $423,238) -- -- 438,750 4,388 Exercise of stock options at $2.00 per share -- -- 182,380 1,824 Exercise of stock options at $6.38 per share -- -- 1,500 15 Exercise of stock options at $7.14 per share -- -- 10,000 100 Cancellation of stock options -- -- -- -- Amortization of deferred compensation -- -- -- -- --------- --------- ---------- ---------- Balance at May 31, 1996 -- -- 13,586,155 135,862 Net loss -- -- -- -- Exercise of stock options at $0.20 per share -- -- 263,285 2,633 Exercise of stock options at $2.00 per share -- -- 232,935 2,329 Exercise of stock options at $7.14 per share -- -- 10,000 100 Amortization of deferred compensation -- -- -- -- --------- --------- ---------- ---------- Balance at May 31, 1997 -- -- 14,092,375 140,924 Net loss -- -- -- -- Exercise of stock options at $7.14 per share -- -- 5,000 50 Amortization of deferred compensation -- -- -- -- --------- --------- ---------- ---------- Balance at May 31, 1998 -- -- 14,097,375 140,974 Net loss -- -- -- -- Non-cash compensation -- -- -- -- Exercise of stock options at $7.14 per share -- -- 17,500 175 Exercise of stock warrants at $8.00 per share -- -- 125,000 1,250 --------- --------- ---------- ---------- Balance at May 31, 1999 -- -- 14,239,875 142,399 Net loss -- -- -- -- Non-cash compensation -- -- -- -- Exercise of stock options at $13.38 per share -- -- 2,500 25 --------- --------- ---------- ---------- Balance at May 31, 2000 -- -- 14,242,375 142,424 Net loss -- -- -- -- Non-cash compensation -- -- -- -- Exercise of stock options at $6.38 per share -- -- 6,000 60 Exercise of stock options at $10.81 per share -- -- 17,500 175 --------- --------- ---------- ---------- Balance at May 31, 2001 -- -- 14,265,875 $ 142,659 Net loss -- -- -- -- --------- --------- ---------- ---------- Balance at May 31, 2002 -- -- 14,265,875 $ 142,659 --------- --------- ---------- ---------- Net loss -- -- -- -- Balance at November 30, 2002 -- $ -- 14,265,875 $ 142,659 ========= ========= ========== ==========
SERIES A CONVERTIBLE SERIES B CONVERTIBLE DEFICIT PREFERRED STOCK PREFERRED STOCK ACCUMULATED TOTAL - ------------------------- --------------------------- ADDITIONAL DURING THE SHAREHOLDERS' NUMBER AGGREGATE NUMBER AGGREGATE PAID-IN DEVELOPMENT DEFERRED EQUITY OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL STAGE COMPENSATION (DEFICIT) - --------- --------- --------- ---------- ----------- ------------ ------------ ------------ -- $ -- -- $ -- $ -- $ (7,363,810) $ -- $ (7,363,810) -- -- -- -- 14,163,851 -- -- 14,188,851 -- -- -- -- (85,400) -- 85,400 -- -- -- -- -- -- -- 267 267 - --------- --------- --------- --------- ------------ ------------- ----------- ------------ -- -- -- -- 56,779,765 (38,393,281) (60,047) 18,420,997 -- -- -- -- -- (7,439,013) -- (7,439,013) -- -- -- -- 2,261,250 -- -- 2,265,000 -- -- -- -- 71,300 -- -- 71,400 -- -- -- -- 373,264 -- -- 375,139 -- -- -- -- (106,750) -- 106,750 -- -- -- -- -- -- -- (67,892) (67,892) - --------- --------- --------- --------- ------------ ------------- ----------- ------------ -- -- -- -- 59,378,829 (45,832,294) (21,189) 13,625,631 -- -- -- -- -- (4,778,875) -- (4,778,875) -- -- -- -- 48,324,374 -- -- 48,353,624 -- -- -- -- 7,360,187 -- -- 7,364,575 -- -- -- -- 362,937 -- -- 364,761 -- -- -- -- 9,555 -- -- 9,570 -- -- -- -- 71,300 -- -- 71,400 -- -- -- -- (80,062) -- 80,062 -- -- -- -- -- -- -- (62,726) (62,726) - --------- --------- --------- --------- ------------ ------------- ----------- ------------ -- -- -- -- 115,427,120 (50,611,169) (3,853) 64,947,960 -- -- -- -- -- (4,245,693) -- (4,245,693) -- -- -- -- 50,025 -- -- 52,658 -- -- -- -- 463,540 -- -- 465,869 -- -- -- -- 71,300 -- -- 71,400 -- -- -- -- -- -- 2,569 2,569 - --------- --------- --------- --------- ------------ ------------- ----------- ------------ -- -- -- -- 116,011,985 (54,856,862) (1,284) 61,294,763 -- -- -- -- -- (5,883,378) -- (5,883,378) -- -- -- -- 35,650 -- -- 35,700 -- -- -- -- -- -- 1,284 1,284 - --------- --------- --------- --------- ------------ ------------- ----------- ------------ -- -- -- -- 116,047,635 (60,740,240) -- 55,448,369 -- -- -- -- -- (7,416,333) -- (7,416,333) -- -- -- -- 14,354 -- 14,354 -- -- -- -- 124,775 -- -- 124,950 -- -- -- -- 998,750 -- -- 1,000,000 - --------- --------- --------- --------- ------------ ------------- ----------- ------------ -- -- -- -- 117,185,514 (68,156,573) -- 49,171,340 -- -- -- -- -- (9,167,070) -- (9,167,070) -- -- -- -- 57,112 -- -- 57,112 -- -- -- -- 33,425 -- -- 33,450 - --------- --------- --------- --------- ------------ ------------- ----------- ------------ -- -- -- -- 117,276,051 (77,323,643) -- 40,094,832 -- -- -- -- -- (10,174,609) -- (10,174,609) -- -- -- -- -- -- -- -- -- -- -- -- 38,220 -- -- 38,280 -- -- -- -- 189,000 -- -- 189,175 - --------- --------- --------- --------- ------------ ------------- ----------- ------------ -- -- -- -- 117,503,271 (87,498,252) -- 30,147,678 -- -- -- -- -- (10,717,360) -- (10,717,360) - --------- --------- --------- --------- ------------ ------------- ----------- ----------- -- -- -- -- 117,503,271 (98,215,612) -- 19,430,318 - --------- ---------- --------- --------- ------------ ------------- ------------ ------------ -- -- -- -- -- (6,021,450) -- (6,021,450) -- $ -- -- $ -- $117,503,271 $(104,237,062) $ -- $ 13,408,868 ========= ========== ========= ========= ============ ============= ============ ============
NORTHFIELD LABORATORIES INC. (a company in the development stage) Statements of Cash Flows Six month periods ended November 30, 2002 and 2001 and the cumulative period from June 19, 1985 (inception) through November 30, 2002
CUMULATIVE FROM SIX MONTHS ENDED NOVEMBER 30, JUNE 19, 1985 ---------------------------------- THROUGH 2002 2001 NOVEMBER 30, 2002 ------------ ----------- ----------------- (unaudited) (unaudited) (unaudited) Cash flows from operating activities: Net loss $ (6,021,450) (5,356,276) (104,237,062) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 406,623 431,905 16,697,337 Non-cash compensation -- -- 3,552,723 Loss on sale of equipment -- -- 66,359 Changes in assets and liabilities: Prepaid expenses 100,502 47,600 (648,712) Other current assets (9,950) 186,897 (1,907,638) Other assets -- 49,101 6,851 Accounts payable (753,293) (970,902) 324,420 Accrued expenses 109,892 (51,794) 319,999 Accrued compensation and benefits (22,045) 58,825 316,804 Other liabilities (4,969) 6,134 172,784 ------------ ----------- -------------- Net cash used in operating activities (6,194,690) (5,598,510) (85,336,135) ------------ ----------- -------------- Cash flows from investing activities: Purchase of property, plant, equipment, and capitalized engineering costs (146,766) (115,094) (18,604,130) Proceeds from sale of land and equipment -- -- 1,863,023 Proceeds from matured marketable securities -- 10,679,200 408,817,352 Proceeds from sale of marketable securities -- -- 7,141,656 Purchase of marketable securities (1,953,138) (4,999,301) (418,632,146) ------------ ----------- -------------- Net cash provided by (used in) investing activities (2,099,904) 5,564,805 (19,414,246) ------------ ----------- -------------- Cash flows from financing activities: Proceeds from issuance of common stock -- -- 103,749,383 Payment of common stock issuance costs -- -- (5,072,012) Proceeds from issuance of preferred stock -- -- 6,644,953 Proceeds from sale of stock options to purchase common shares -- -- 7,443,118 Proceeds from issuance of notes payable -- -- 1,500,000 Repayment of notes payable -- -- (140,968) ------------ ----------- -------------- Net cash provided by financing activities -- -- 114,124,474 ------------ ----------- -------------- Net (decrease) increase in cash (8,294,594) (33,705) 9,374,093 Cash at beginning of period 17,668,687 6,435,540 ------------ ----------- -------------- Cash at end of period $ 9,374,093 6,401,835 9,374,093 ============ =========== ==============
See accompanying notes to financial statements. NORTHFIELD LABORATORIES INC. (a company in the development stage) Notes to Financial Statements November 30, 2002 (1) BASIS OF PRESENTATION The interim financial statements presented are unaudited but, in the opinion of management, have been prepared in conformity with accounting principles generally accepted in the United States of America applied on a basis consistent with those of the annual financial statements. Such interim financial statements reflect all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the financial position and the results of operations for the interim periods presented. The results of operations for the interim period presented are not necessarily indicative of the results to be expected for the year ending May 31, 2003. The interim financial statements should be read in connection with the audited financial statements for the year ended May 31, 2002. (2) COMPUTATION OF NET LOSS PER SHARE Basic earnings per share is based on the weighted average number of shares outstanding and excludes the dilutive effect of unexercised common stock equivalents. Diluted earnings per share is based on the weighted average number of shares outstanding and includes the dilutive effect of unexercised common stock equivalents. Because the Company reported a net loss for all periods presented, basic and diluted per share amounts are the same. (3) LIQUIDITY The Company has incurred recurring losses since its inception and expects that significant additional expenditures will be required to successfully commercialize PolyHeme. The Company has financed its 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 November 30, 2002, the Company had cash and marketable securities totaling $12,063,000. The Company is actively pursuing additional financing to fund its continued operations. The Company may also enter into collaborative arrangements with strategic partners, which could provide the Company with additional funding or absorb expenses the Company would otherwise be required to pay. Any one or a combination of these sources may be utilized to raise the required funding. Business or market conditions may not be favorable, which could delay or prevent the Company from raising additional capital or entering into a collaborative arrangement. If the Company is unable to obtain additional capital or enter into a collaborative arrangement, the Company may be required to curtail its product development and other activities and substantially reduce its scope of operations. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Since Northfield's incorporation in 1985, we have devoted substantially all of our efforts and resources to the research, development and clinical testing of our potential product, PolyHemeTM. We have incurred operating losses during each year of our operations since inception and expect to incur substantial additional operating losses for the next several years. From Northfield's inception through November 30, 2002, we have incurred operating losses totaling $104,237,000. RECENT EVENTS In August 2001, we submitted a Biologics License Application to the Food and Drug Administration seeking regulatory approval for the commercial manufacture and sale of PolyHeme. In November 2001, the FDA issued a refusal to file letter with respect to our Biologics License Application. Since that time, we have had numerous meetings and follow-up discussions with the FDA, have responded to the FDA's questions and are attempting to reach a consensus with the FDA in order to move forward as quickly as possible toward regulatory approval for PolyHeme. Based on our dialogue with the FDA, we submitted a proposed protocol to the FDA in October 2002 for an additional clinical trial in which PolyHeme would be used for the first time in civilian trauma applications to treat severely injured patients before they reach a hospital. Under our proposed protocol, treatment with PolyHeme would begin at the scene of the injury and continue during transport to the hospital by either ground or air ambulance. Because of the complex ethical and legal issues associated with obtaining a waiver of informed consent as part of our proposed trial protocol, we announced that we anticipated that the FDA would require more than the traditional 30-day review period to complete its evaluation of our proposal. In November 2002, the FDA responded with questions and comments regarding our protocol proposal. The FDA's response continued to encourage the concept of a civilian trauma study in the urban prehospital setting, including the proposed primary endpoint of increased survival. The response included questions and comments related to many of the administrative aspects of conducting such a trial in order to be certain that all requirements of the specific regulation allowing for a waiver of consent are fully satisfied. In particular, there were comments regarding the role of both the hospital Institutional Review Board and the local community in authorizing such a study. There were additional comments related to the collection and monitoring of clinical data to ensure maximum safety of the enrolled patients. We also submitted a request for special protocol assessment for our proposed civilian trauma trial. A special protocol assessment represents an acknowledgement and confirmation of a mutual agreement between the sponsoring company and the FDA that successful completion of the proposed trial will form the basis for product approval. If agreement is reached, the FDA reduces the agreement to writing and makes it part of the administrative record. We also intend to request that PolyHeme be designated as a fast track product. It may then be possible for certain portions of our Biologics License Application to be accepted for review prior to completion of our proposed clinical trial, a so-called "rolling BLA." In parallel with our proposed civilian trauma trial, we are also currently developing a treatment Investigational New Drug application with the U.S. Army. The FDA regulatory process is subject to significant risks and uncertainties. The nature, timing and costs of the efforts necessary for us to obtain regulatory approval for PolyHeme, and the timing of any future revenues from the commercial sale of PolyHeme, cannot therefore be reasonably estimated at this time because of the current regulatory status of PolyHeme and the wide range of possible outcomes arising from our discussions with the FDA. Our success will depend on several factors, including our ability to obtain FDA regulatory approval of PolyHeme and our manufacturing facilities, obtain sufficient quantities of blood to manufacture PolyHeme in commercial quantities, manufacture and distribute PolyHeme in a cost-effective manner, enforce our patent positions and raise sufficient capital to fund these activities. We have experienced significant delays in the development and clinical testing of PolyHeme. We cannot ensure that we will be able to achieve these goals or that we will be able to realize product revenues or profitability on a sustained basis or at all. We anticipate that research and development expenses will increase during the foreseeable future. These expected increases are attributable to additional clinical trials, monitoring and reporting the results of these trials and continuing process development associated with improving our manufacturing capacity to permit commercial-scale production of PolyHeme. We expect that general and administrative expenses will increase over the foreseeable future as a result of increased costs relating to the expansion of our organization in support of anticipated commercial operations. RESULTS OF OPERATIONS We reported no revenues for either of the three-month periods or six-month periods ended November 30, 2002 or 2001. From Northfield's inception through November 30, 2002, we have reported total revenues of $3,000,000, all of which were derived from licensing fees. OPERATING EXPENSES Operating expenses for our second fiscal quarter ended November 30, 2002 totaled $3,204,000, an increase of $769,000 from the $2,435,000 reported in the second quarter of the fiscal 2002. Measured on a percentage basis, operating expenses in the second quarter of fiscal 2003 increased by 31.6%. The difference was due to higher costs for manufacturing supplies and higher costs for professional services and associated costs incurred in connection with the defense of a proxy contest relating to our 2002 annual meeting of shareholders. Operating expenses for the six-month period ended November 30, 2002 totaled $6,159,000, an increase of $232,000, or 3.9%, from the $5,927,000 reported for the six-month period ended November 30, 2001. The increase was due to higher costs associated with the defense of our contested proxy. Research and development expenses for the second quarter of fiscal 2003 totaled $2,243,000, an increase of $332,000, or 17.4%, from the $1,911,000 reported in the second quarter of fiscal 2002. Higher expenses were recognized during the second quarter of fiscal 2003 than in the second quarter of fiscal 2002 related to ongoing process enhancements to filters and packaging. The fiscal 2003 second quarter expenses include evaluation purchases to assess new technologies as well as production materials and some modest advance purchasing to mitigate anticipated price increases. Research and development expenses for the six-month period ended November 30, 2002 totaled $4,269,000, a decrease of $290,000, or 6.4%, from the $4,559,000 reported in the comparable prior year period. Increases relating to the purchase of manufacturing supplies were offset by larger decreases in compensation and clinical trials related expenses from those incurred in the prior year period. We anticipate that research and development expenses will increase significantly in the third and fourth quarter of fiscal 2003. Additional costs are being planned for multi-center clinical trials in support of expanded product indications, third party clinical monitoring, biostatistical analysis, report preparation and continued expansion of our manufacturing organization. Northfield is conducting a national search for a medical director to directly oversee the planned clinical trials. General and administrative expenses in the second quarter of fiscal 2003 totaled $961,000 compared to expenses of $525,000 in the second quarter of 2002, representing an increase of $436,000, or 83.0%. This increase was due to increased professional service fees related to the proxy contest in connection with our annual meeting and the increased cost of directors and officers insurance, increased public relations costs and executive recruiting costs. General and administrative expenses for the six-month period ended November 30, 2002 totaled $1,890,000, representing an increase of $522,000, or 38.2%, from general and administrative expenses of $1,368,000 incurred during the six-month period ended November 30, 2001. Virtually, all of the $522,000 variance is attributable to expenses incurred related to the proxy contest in connection with our annual meeting. Other expenses incurred compared to the same prior year period showed a reduction in compensation costs offsetting increased expenses for directors and officers insurance, public relations and recruiting. With the exception of enhancing the Company's investor relation capabilities, Northfield is not planning any new general and administrative programs over the balance of the fiscal year. Securing regulatory approval for PolyHeme is the highest priority item. Once there is greater clarity on the probability and timing of approval, general and administrative expenses are expected to increase to support the commercialization of our product. INTEREST INCOME Interest income in the second quarter of fiscal 2003 totaled $60,000, or a $210,000 decrease from the $270,000 in interest income reported in the second quarter of fiscal 2002. Short term available interest rates declined in excess of 400 basis points from the second quarter of fiscal 2002, which along with lower available investment balances accounted for the decrease in interest income. In the absence of a major cash infusion, interest income will continue to be significantly below prior year levels. For the six-month period ended November 30, 2002, interest income totaled $138,000, or a $433,000 decrease in interest income from the six-month period ended November 30, 2001. Lower investment balances and lower interest rates combined to cause the decrease. NET LOSS The net loss for the second quarter ended November 30, 2002 was $3,144,000, or $.22 per basic share, compared to a net loss of $2,166,000, or $.15 per basic share, for the second quarter ended November 30, 2001. The increase in the loss per basic share is primarily the result of costs relating to increased purchases of manufacturing supplies, expenses related to the proxy contest in connection with our annual meeting and lower interest income. The six-month net loss for the period ended November 30, 2002 totaled $6,021,000, or $.42 per basic share, compared to a net loss of $5,356,000, or $.38 per basic share for the six-month period ended November 30, 2001 and is the result of the expenses related to the proxy contest in connection with our annual meeting and lower interest income. LIQUIDITY AND CAPITAL RESOURCES From Northfield's inception through November 30, 2002, we have used cash for operating activities and for the purchase of property, plant, equipment and engineering services in the amount of $103,940,000. For the six-month periods ended November 30, 2002 and 2001, these cash expenditures totaled $6,341,000 and $5,713,000, respectively. The increased cash outlay for the first half of fiscal 2003 compared to the comparable prior year period resulted from a higher net loss. We have incurred recurring losses since our inception and expect that significant additional expenditures will be required to successfully commercialize PolyHeme. 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 November 30, 2002, we had cash and marketable securities totaling $12,063,000. We believe our existing capital resources will be adequate to satisfy our current operating requirements and maintain our existing pilot manufacturing plant and office facilities for approximately the next 12 months. We will require substantial additional capital to continue our operations beyond the next 12 months and to conduct our planned additional clinical trials. Northfield is actively pursuing additional financing to fund our continued operations, including the proposed additional clinical trials described above. We may issue additional equity or debt securities to the public or in private placement transactions. We may also enter into collaborative arrangements with strategic partners, which could provide us with additional funding or absorb expenses we would otherwise be required to pay. Any one or a combination of these sources may be utilized to raise the required funding. Business or market conditions may not be favorable, which could delay or prevent us from raising additional capital or entering into a collaborative arrangement. If we are unable to obtain additional capital or enter into a collaborative arrangement, we may be required to curtail our product development and other activities and substantially reduce our scope of operations. As of May 31, 2002, we had net operating loss carryforwards of approximately $98,000,000 to offset future federal taxable income through 2022. Due to the degree of uncertainty related to the ultimate realization of such prior losses, no benefit has been recognized in our financial statements as of November 30, 2002. We are currently unable to fund the construction of a large-scale greenfield manufacturing facility, which is estimated to cost approximately $70 million, without raising substantial additional capital. Currently, we have manufacturing capacity of approximately 10,000 units. Initial engineering on the leased space adjacent to our existing manufacturing facility is completed. This engineering indicates an additional capacity of 75,000 units could be developed in approximately 16 to 20 months at a cost of approximately $30 million. Like a large-scale greenfield manufacturing facility, significant additional funding will be required before the smaller scale expansion facility could be completed. Northfield has not yet committed to the build-out. We view the smaller facility as financially prudent yet large enough for commercial viability. Our capital requirements may vary materially from those now anticipated because of the results of our clinical testing of PolyHeme, the establishment of relationships with strategic partners, changes in the scale, timing or cost of our commercial manufacturing facility, competitive and technological advances, the FDA regulatory process, changes in our marketing and distribution strategy and other factors. CRITICAL ACCOUNTING POLICIES The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported therein. The Company believes the following critical accounting policy affects its more significant judgments and estimates used in the preparation of its consolidated financial statements. NET DEFERRED TAX ASSETS VALUATION The Company records its net deferred tax assets in the amount that it expects to realize based on projected future taxable income. In assessing the appropriateness of its valuation, assumptions and estimates are required such as the Company's ability to generate future taxable income. In the event that the Company were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. As of November 30, 2002, the Company has recorded a 100 percent valuation allowance against its deferred tax asset. CONTRACTUAL OBLIGATIONS The following table reflects a summary of the Company's contractual cash obligations as of November 30, 2002:
Less Than Contractual Cash Obligations Total One Year 1-3 Years 4-5 Years ------------- ------------- ------------- ------------ Lease Obligations(1) $2,001,072 851,462 1,076,154 73,456 Other Obligations(2) 1,849,364 886,775 962,589 --- ------------- ------------- ------------- ------------ Total Contractual Cash Obligations $3,850,436 1,738,237 2,038,743 73,456
(1) Northfield's Evanston lease agreement is cancellable with six months notice combined with a termination payment equal to six months base rent and six months of additional rental payments. If the lease were terminated today the termination payment would be $315,530. (2) Other obligations are comprised of employment agreements for Steven A. Gould, M.D., Jack Kogut, combined with a consulting agreement. RECENT ACCOUNTING PRONOUNCEMENTS In August 2001, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and for the associated asset retirement costs. FASB Statement No. 143 requires an enterprise to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. The enterprise also is to record a corresponding increase to the carrying amount of the related long-lived asset (i.e., the associated asset retirement costs) and to depreciate that cost over the life of the asset. The liability is changed at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the initial fair value measurement. Adoption of FASB Statement No. 143 is required for fiscal years beginning after June 15, 2002. Upon adoption of this provision we expect to record an additional liability and corresponding asset of approximately $138,000 to reflect the restoration costs for the leased facility that houses our current manufacturing operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. The marketable security investments of the Company have been made for investment (as opposed to trading) purposes. Interest rate risk with respect to the investments of the Company is not significant as all such investments are in U.S. dollar cash equivalents and short-term investments (with maturities of less than 12 months), which are by their nature less sensitive to interest rate movements. The investments of the Company are generally made in U.S. government and federal agency bonds, high-grade commercial paper, corporate bonds and certificates of deposit. A one percentage point decrease or increase on an investment balance of $12.1 million would change annual interest income by $121,000. ITEM 4. CONTROLS AND PROCEDURES The Company maintains a set of disclosure controls and procedures and internal controls designed to ensure that information required to be disclosed in the Company's filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. The Company's principal executive and financial officers have evaluated its disclosure controls and procedures within 90 days prior to the filing of this Quarterly Report on Form 10-Q and have determined that such disclosure controls and procedures are effective. Subsequent to the Company's evaluation, there were no significant changes in internal controls or other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses. PART II. OTHER INFORMATION Item 6. Exhibits a) Exhibit 10.17 - Form of Severance Protection Agreement between Northfield Laboratories Inc. and each of the following officers: Marc Doubleday - Vice President Process Engineering Robert McGinnis - Vice President Manufacturing Development Sophia Twaddell - Vice President Corporate Communications Exhibit 15 - Acknowledgment of Independent Certified Public Accountants Exhibit 99.1 - Certification of Chief Executive Officer Exhibit 99.2 - Certification of Chief Financial Officer b) Report on Form 8-K: The Company filed a report dated August 9, 2002, in which Steven A. Gould, M.D., Chief Executive Officer and Jack J. Kogut, Chief Financial Officer of Northfield Laboratories Inc., submitted certifications to the Securities and Exchange Commission pursuant to Section 906 of the Sarbanes-Oxley Act. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company in the capacities indicated on January 14, 2003. SIGNATURE TITLE /s/ STEVEN A. GOULD, M.D. - ----------------------------------- Chairman of the Board and Chief Steven A. Gould, M.D. Executive Officer (principal executive officer) /s/ JACK J. KOGUT - ----------------------------------- Vice President - Finance, Secretary and Jack J. Kogut Treasurer (principal financial and accounting officer) CERTIFICATION I, Steven A. Gould, M.D., Chief Executive Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Northfield Laboratories Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to us by others within the registrant, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: January 14, 2003 /s/ Steven A. Gould, M.D. ------------------------- Steven A. Gould, M.D. Chief Executive Officer CERTIFICATION I, Jack J. Kogut, Chief Financial Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Northfield Laboratories Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to us by others within the registrant, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: January 14, 2003 /s/ Jack J. Kogut ----------------- Jack J. Kogut Chief Financial Officer EX-10.17 3 c73765exv10w17.txt FORM OF SEVERANCE PROTECTION AGREEMENT EXHIBIT 10.17 FORM OF SEVERANCE PROTECTION AGREEMENT SEVERANCE PROTECTION AGREEMENT dated October 4, 2002 by and between Northfield Laboratories Inc., a Delaware corporation (the "Company"), and ******* ******* (the "Executive"). The Board of Directors of the Company (the "Board") recognizes that the possibility of a Change in Control (as hereinafter defined) of the Company exists and that the threat or occurrence of a Change in Control may result in the distraction of its key management personnel because of the uncertainties inherent in such a situation. The Board has determined that it is essential and in the best interests of the Company and its stockholders to retain the services of the Executive in the event of the threat or occurrence of a Change in Control and to ensure the Executive's continued dedication and efforts in such event without undue concern for the Executive's personal financial and employment security. In order to induce the Executive to remain in the employ of the Company, particularly in the event of the threat or occurrence of a Change in Control, the Company desires to enter into this Agreement to provide the Executive with certain benefits in the event the Executive's employment is terminated as a result of, or in connection with, a Change in Control. NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein, it is agreed as follows: Section 1. Definitions. For purposes of this Agreement, the following terms have the meanings set forth below: "Board" means the Board of Directors of the Company. "Cause" for the termination of the Executive's employment with the Company will be deemed to exist if the Executive is convicted of any felony or the Executive fails to comply in all material respects with any material term of the Proprietary Information and Inventions Agreement dated as of July 19, 1988 between the Company and the Executive, which conduct or failure is materially injurious to the Company, monetarily or otherwise. "Change in Control" means a change in control of the Company of a nature that would be required to be reported in response to Item 1(a) of the Current Report on Form 8-K, as in effect as of the date of this Agreement, promulgated pursuant to Section 13 or 15(d) of the Securities Exchange Act, whether or not the Company is then subject to the reporting requirements of the Securities Exchange Act; provided that, without limitation, such a change in control will be deemed to have occurred if: (a) there is consummated any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the Company's assets; (b) the stockholders of the Company approve any plan or proposal of liquidation or dissolution of the Company; (c) there is consummated any consolidation or merger of the Company in which the Company is not the surviving or continuing corporation, or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's Common Stock immediately prior to the merger have, directly or indirectly, at least an 80% ownership interest in the outstanding Common Stock of the surviving corporation immediately after the merger; (d) any "person" or "group" (as such terms are used in Section 13(d) and 14(d) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act), directly or indirectly, of securities of the Company representing 15% or more of the combined voting power of the Company's then outstanding voting securities ordinarily having the right to vote for the election of directors; provided that no change in control will be deemed to occur as a result of any acquisition of voting securities directly from the Company (or as a result of the exercise, conversion or exchange of any securities acquired directly from the Company) if the transaction pursuant to which such voting securities or exercisable, convertible or exchangeable securities are issued is approved by vote of at least three-quarters of the directors comprising the Incumbent Board (as defined below); or (e) individuals who, as of the date of this Agreement, constitute the Board (the "Incumbent Board") cease for any reason to constitute a majority of the Board; provided that any individual becoming a director subsequent to the date of this Agreement whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board will be, for purposes of this Agreement, considered as though such individual were a member of the Incumbent Board; provided further that, notwithstanding the foregoing, an individual whose initial assumption of office as a director is in connection with any actual or threatened "solicitation" of "proxies" (as such terms are defined in Rule 14a-1 of Regulation 14A promulgated under the Securities Exchange Act) by any "person" or "group" (as such terms are used in Section 13(d) and 14(d) of the Securities Exchange Act) other than the Incumbent Board will not be considered as a member of the Incumbent Board for purposes of this Agreement. "Code" means the Internal Revenue Code of 1986, as amended. 2 "Company" means Northfield Laboratories Inc., a Delaware corporation, and includes its Successors. "Continuation Period" has the meaning set forth in Section 3.1(b)(iii). "Disability" means the Executive's incapacity due to physical or mental illness or accident such that the Executive is absent from his duties for the Company on a full-time basis for the entire period of six consecutive months or for 270 days in any 365-day period. "Good Reason" for the Executive's termination of employment with the Company will be deemed to exist if, at any time after the occurrence of a Change in Control: (a) the Executive is reassigned to a position of lesser rank or status or to a location other than Evanston, Illinois or Mt. Prospect, Illinois (or such other location as the Executive may agree) without his consent; (b) the Executive's annual base salary is reduced; or (c) the Executive's employment benefits are materially reduced. "Notice of Termination" means a written notice from the Company of the termination of the Executive's employment which indicates the specific termination provision in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. "Person" has the meaning as used in Section 13(d) or 14(d) of the Securities Exchange Act and will include any "group" as such term is used in such sections. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended. "Successor" means a corporation or other entity acquiring all or substantially all the assets and business of the Company, whether by operation of law, by assignment or otherwise. "Termination Date" means (a) in the case of the Executive's death, the Executive's date of death, (b) in the case of the termination of the Executive's employment with the Company by the Executive for Good Reason, the last day of the Executive's employment, and (c) in all other cases, the date specified in the Notice of Termination; provided that if the Executive's employment is terminated by the Company for Cause or due to Disability, the date specified in the Notice of Termination will be at least 30 days after the date the Notice of Termination is given to the Executive. Section 2. Term of Agreement. This Agreement will commence as of October 4, 2002 and will continue in effect until September 30, 2004; provided that commencing 3 on September 30, 2004 and on each September 30 thereafter, the term of this Agreement will automatically be extended for one year unless either the Company or the Executive gives written notice to the other at least 90 days prior to such date that the term of this Agreement will not be so extended. Notwithstanding any such notice by the Company, the term of this Agreement will in any case not expire prior to the expiration of 24 months after the occurrence of a Change in Control. Section 3. Termination of Employment. 3.1. If, during the term of this Agreement, the Executive's employment with the Company is terminated within 24 months following a Change in Control, the Executive will be entitled to the following compensation and benefits: (a) If the Executive's employment with the Company is terminated (i) by the Company for Cause or Disability, (ii) by reason of the Executive's death or (iii) by the Executive other than for Good Reason, the Company will pay to the Executive all compensation, including all accrued vacation pay, earned by the Executive through and including the Termination Date; (b) If the Executive's employment with the Company is terminated for any reason other than as specified Section 3.1(a), the Executive will be entitled to the following: (i) the Company will pay the Executive all compensation, including all accrued vacation pay, earned by the Executive through and including the Termination Date; (ii) the Company will pay the Executive as severance pay, and in lieu of any further compensation for periods subsequent to the Termination Date, in a single payment an amount in cash equal to one time the average of the Executive's annual base salary for the Company's two most recently completed fiscal years preceding the Termination Date; (iii) for a period of 12 months (the "Continuation Period"), the Company will at its expense continue on behalf of the Executive and the Executive's dependents and beneficiaries the medical, dental and hospitalization benefits provided (A) to the Executive at any time during the 180-day period prior to the Change in Control or at any time thereafter or (B) to other similarly situated executives who continue in the employ of the Company during the Continuation Period. The coverage and benefits (including deductibles and costs) provided in this Section 3.1(b)(iii) during the Continuation Period will be no less favorable to the Executive and the Executive's dependents and beneficiaries than the most favorable of such coverages and benefits during any of the periods referred to in clauses (A) and (B) above. The Company's obligation hereunder with respect to the foregoing benefits will be limited to the extent that the Executive 4 obtains any such benefits pursuant to a subsequent employer's benefit plans, in which case the Company may reduce the coverage of any benefits it is required to provide the Executive hereunder as long as the coverages and benefits of the combined benefit plans are no less favorable to the Executive than the coverages and benefits required to be provided hereunder. This Section 3.1(b) will not be interpreted so as to limit any benefits to which the Executive or the Executive's dependents or beneficiaries may be entitled under any of the Company's medical, dental and hospitalization plans, programs or practices following the Executive's termination of employment; and (iv) all stock options issued by the Company to the Executive will become fully vested and the Executive will be permitted to exercise such stock options at any time during the remaining exercise period applicable to such stock options (without giving effect to any requirement that such stock options be exercised within a specified period following the termination of the Executive's employment with the Company). (c) The amounts provided for in Section 3.1(a) and Sections 3.1(b)(i) and (ii) will be paid in a single lump sum cash payment by the Company to the Executive within five days after the Termination Date. (d) The Executive will not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, and no such payment will be offset or reduced by the amount of any compensation or benefits provided to the Executive in any subsequent employment except as specifically provided in Section 3.1(b)(iii). 3.2 Notwithstanding anything contained in this Agreement to the contrary, if the Executive's employment with the Company is terminated prior to a Change in Control and the Executive reasonably demonstrates that such termination (a) was at the request of a Person who has indicated an intention or taken steps reasonably calculated to effect a Change in Control and who subsequently effects a Change in Control or (b) otherwise occurred in connection with, or in anticipation of, a Change in Control which subsequently occurs, then for all purposes of this Agreement, the date of such Change in Control with respect to the Executive will mean the date immediately prior to the date of such termination of the Executive's employment. 3.3. The severance pay and benefits provided for in this Section 3 will be in lieu of any other severance or termination pay to which the Executive may be entitled under any Company severance or termination plan, program, practice or arrangement. The Executive's entitlement to any other compensation or benefits will be determined in accordance with the Company's employee benefit plans and other applicable programs, policies and practices as in effect from time to time. 5 Section 4. Notice of Termination. Following a Change in Control, any purported termination of the Executive's employment by the Company will be communicated by a Notice of Termination to the Executive. For purposes of this Agreement, no such purported termination will be effective without such Notice of Termination. Section 5. Successors; Binding Agreement. This Agreement will be binding upon and will inure to the benefit of the Company and its Successors, and the Company will require any Successors to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. Neither this Agreement nor any right or interest hereunder will be assignable or transferable by the Executive or by the Executive's beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement will inure to the benefit of and be enforceable by the Executive's legal representatives. Section 6. Fees and Expenses. The Company will pay as they become due all legal fees and related expenses (including the costs of experts) incurred by the Executive as a result of the Executive seeking to obtain or enforce any right or benefit provided by this Agreement or by any other plan or arrangement maintained by the Company under which the Executive is or may be entitled to receive benefits. Section 7. Notices. All notices, demands and other communications provided for in the Agreement, including the Notice of Termination, will be in writing and will be deemed to have been duly given when delivered personally to the recipient or when sent to the recipient by telecopy (receipt confirmed), one business day after the date when sent to the recipient by reputable express courier service (charges prepaid) or three business days after the date when mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid. Such notices, demands and other communications will be sent to the Company and the Executive at the addresses indicated below: If to the Company: Northfield Laboratories Inc. 1560 Sherman Avenue Suite 1000 Evanston, Illinois 60201-4800 Attention: Corporate Secretary If to the Executive: ******* ******* **** ****** *******, ** ***** or to such other address or to the attention of such other party as the recipient party has specified by prior written notice to the sending party. 6 Section 8. Nonexclusivity of Rights. Nothing in this Agreement will prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company (except for any severance or termination policies, plans, programs or practices) for which the Executive may qualify, nor will anything herein limit or reduce such rights as the Executive may have under any other agreements with the Company (except for any severance or termination agreement). Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company will be payable in accordance with such plan or program, except as specifically modified by this Agreement. Section 9. No Set-Off. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder will not be affected by any circumstances, including any right of set-off, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others. Section 10. No Change in Employment Relationship. This Agreement and the rights granted to the Executive hereunder are not intended to (a) provide Executive with any severance or other rights prior to the occurrence of a Change in Control or (b) provide the Executive with any right of continuing employment with the Company or otherwise modify the "at will" employment relationship between the Company and the Executive. Section 11. Modification and Waiver. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party will be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Section 12. Severability. The provisions of this Agreement will be deemed severable and the invalidity or unenforceability of any provision will not affect the validity or enforceability of the other provisions hereof. Section 13. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. Section 14. Governing Law. This Agreement will be governed by and construed and enforced in accordance with the laws of the State of Illinois without giving effect to the conflict of laws principles thereof. Any action brought by any party to this Agreement will be brought and maintained in a court of competent jurisdiction in Cook County in the State of Illinois. * * * * * 7 IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written. NORTHFIELD LABORATORIES INC. BY ------------------------------ ITS ----------------------------- --------------------------------- ******* ******* 8 EX-15 4 c73765exv15.txt ACKNOWLEDGMENT OF INDEPENDENT CPAS Ex 15 ACKNOWLEDGMENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS REGARDING INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Board of Directors Northfield Laboratories Inc.: With respect to registration statements on Form S-8 of Northfield Laboratories Inc., we acknowledge our awareness of the use therein of our report dated December 16, 2002 related to our review of interim financial information. Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not considered a part of a registration statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of sections 7 and 11 of the Act. Very truly yours, /s/ KPMG LLP Chicago, Illinois January 14, 2003 EX-99.1 5 c73765exv99w1.txt CERTIFICATE OF CHIEF EXECUTIVE OFFICER EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Northfield Laboratories Inc. on Form 10-Q for the period ended November 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Steven A. Gould, M.D., Chief Executive Officer of Northfield Laboratories Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Northfield Laboratories Inc. Date: January 14, 2003 /s/ STEVEN A. GOULD, M.D. - ------------------------- Steven A. Gould, M.D. Chief Executive Officer EX-99.2 6 c73765exv99w2.txt CERTIFICATE OF CHIEF FINANCIAL OFFICER EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Northfield Laboratories Inc. on Form 10-Q for the period ended November 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jack J. Kogut, Chief Financial Officer of Northfield Laboratories Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Northfield Laboratories Inc. Date: January 14, 2003 /s/ JACK J. KOGUT - ----------------- Jack J. Kogut Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----