As filed with the Securities and Exchange Commission on September 8, 1995
Registration No. 33-83072
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
POST-EFFECTIVE AMENDMENT NO. 1 TO
REGISTRATION STATEMENT
ON
FORM SB-2
UNDER
THE SECURITIES ACT OF 1933
____________________
ALFACELL CORPORATION
(Exact name of Registrant as Specified in its Charter)
DELAWARE 8731 22-2369085
(State or other jurisdiction(Primary (I.R.S. Employer
of incorporation or organi-SIC Code Identification
zation) Number) Number)
225 BELLEVILLE AVENUE
BLOOMFIELD, NEW JERSEY 07003
(201) 748-8082
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
KUSLIMA SHOGEN
ALFACELL CORPORATION
225 BELLEVILLE AVENUE
BLOOMFIELD, NEW JERSEY 07003
(201) 748-8082
(Name, Address, including zip code, and telephone number,
including area code, of agent for service)
With copies to:
KEVIN T. COLLINS, ESQ.
ROSS & HARDIES
65 EAST 55TH STREET
NEW YORK, NEW YORK 10022
Approximate date of commencement of proposed sale to public: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X]
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
[ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
Pursuant to Rule 429 under the Securities Act of 1933, as amended the
Form of Prospectus included herein also relates to securities registered
under the Company's Registration Statement on Form SB-2 (File No. 33-76950)
declared effective on August 3, 1994, is intended for use therewith and
constitutes a post-effective amendment thereto.
<PAGE>
ALFACELL CORPORATION
CROSS REFERENCE SHEET
INFORMATION REQUIRED TO LOCATION IN
BE INCLUDED IN PROSPECTUS REGISTRATION STATEMENT
ITEM 1
Front of Registration Statement and
Outside Front Cover Page of Prospectus...... Cover page of
Registration Statement
and Outside Front Cover
Page of Prospectus
ITEM 2
Inside Front and Outside Back Cover Pages
of Prospectus............................... Inside front cover pageof
Prospectus
ITEM 3
Summary Information and Risk Factors....... Prospectus Summary; Risk
Factors
ITEM 4
Use of Proceeds............................ Use of Proceeds
ITEM 5
Determination of Offering Price............ Not applicable
ITEM 6
Dilution................................... Not applicable
ITEM 7
Selling Security Holders................... Selling Stockholders
ITEM 8
Plan of Distribution....................... Cover Page; Plan of
Distribution
ITEM 9
Legal Proceedings.......................... Business - Legal
Proceedings
ITEM 10
Directors, Executive Officers, Promoters
and Control Persons........................ Management
ITEM 11
Security Ownership of Certain Beneficial
Owners and Management...................... Principal Stockholders
ITEM 12
Description of Securities.................. Description of Securities
ITEM 13
Interest of Named Experts and Counsel...... Not applicable
ITEM 14
Disclosure of Commission Position on
Indemnification for Securities
Act Liabilities............................ Selling Stockholders
ITEM 15
Organization Within Last Five Years........ Not applicable
ITEM 16
Description of Business.................... Business
ITEM 17
Management's Discussion and Analysis or
Plan of Operation....................... Management's Discussion and
Analysis of Financial
Condition and Results of
Operations
ITEM 18
Description of Property................... Business - Properties
ITEM 19
Certain Relationships and Related
Transactions.............................. Certain Transactions
ITEM 20
Market for Common Equity and Related
Stockholder Matters........................ Dividends; Price Range of
Common Stock; Description of
Securities; Shares Eligible
for Future Sale
ITEM 21
Executive Compensation..................... Executive Compensation
ITEM 22
Financial Statements....................... Financial Statements
ITEM 23
Changes In and Disagreements With
Accountants on Accounting
and Financial Matters...................... Not applicable
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER __, 1995.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such state.
PROSPECTUS
3,279,561 Shares
Alfacell Corporation
COMMON STOCK, PAR VALUE $.001 PER SHARE
The Registration Statement, of which this Prospectus forms a part,
registers the offer and sale of up to 3,279,561 shares of Common Stock, par
value $.001 per share (the "Common Stock"), of Alfacell Corporation (the
"Company" or "Alfacell") by certain stockholders (the "Selling
Stockholders"). Of these 3,279,561 shares, 1,002,906 shares are
outstanding and held by certain of the Selling Stockholders (the "Private
Placement Investors"), 1,088,506 shares are issuable upon the exercise of
outstanding warrants to purchase Common Stock (the "Warrants") held by the
Private Placement Investors and 1,188,149 shares are issuable upon the
exercise of certain outstanding options to purchase shares of Common Stock
(the "Options") held by certain of the Selling Stockholders (the "Option
Holders"). The Private Placement Investors acquired the outstanding shares
of Common Stock offered hereby and the Warrants directly from the Company
in private placement transactions which were completed on March 21, 1994
(the "March Private Placement") and September 13, 1994 (the "September
Private Placement"), respectively (collectively, the "Private Placements").
The Option Holders acquired the Options directly from the Company in
private transactions during the period from October 1992 through March
1994. See "Selling Stockholders."
Certain of the Selling Stockholders are officers, directors and
employees of the Company (collectively, the "Related Selling
Stockholders"). Options to purchase an aggregate of 579,678 shares of
Common Stock, Warrants to purchase an aggregate of 60,000 shares of Common
Stock and 60,000 shares of outstanding Common Stock are held by the Related
Selling Stockholders. See "Selling Stockholders." The Company will not
receive any of the proceeds from the sale of Common Stock by the Selling
Stockholders. To the extent the Warrants and Options are exercised the
Company will apply the proceeds thereof to its general corporate purposes.
See "Use of Proceeds."
The Company's Common Stock is traded in the over-the-counter market.
On August 25, 1995 the high bid and low asked quotations of the Common
Stock were $4.00 and $4.13, respectively, as reported by the National
Quotations Bureau.
The Selling Stockholders may sell the shares of Common Stock from time
to time in transactions in the open market, in negotiated transactions, or
by a combination of these methods, at fixed prices that may be changed, at
market prices at the time of sale, at prices related to market prices or at
negotiated prices. The Selling Stockholders may effect these transactions
by selling the Common Stock to or through broker-dealers, who may receive
compensation in the form of discounts or commissions from the Selling
Stockholders or from the purchasers of the Common Stock for whom the
broker-dealers may act as agent or to whom they may sell as principal, or
both. See "Plan of Distribution."
The Company will bear all of the expenses in connection with the
registration of the Common Stock offered hereby, which expenses are
estimated to be $158,000 (including expenses paid through the date of this
Prospectus). The Selling Stockholders will pay any brokerage compensation
in connection with their sale of the Common Stock.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" WHICH COMMENCES ON PAGE THREE OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is September __, 1995.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, (the "Exchange Act") and, in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such
reports and proxy and information statements and other information filed by
the Company can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at its regional offices located at Seven World
Trade Center, Suite 1300, New York, New York 10048, and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511;
and copies of such material can be obtained from the Public Reference
Section of the Commission in Washington, D.C., at prescribed rates.
The Company has filed with the Commission a Registration Statement on
Form SB-2 (the "Registration Statement") under the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the shares of Common
Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and
the shares of Common Stock offered hereby, reference is hereby made to the
Registration Statement, exhibits and schedules.
The following trademark appears in this Prospectus: ONCONASE is a
registered trademark of Alfacell Corporation.
No dealer, salesman or any other person has been authorized to give
any information or to make any representation other than those contained in
this Prospectus in connection with the offering herein contained and, if
given or made, such information or representation must not be relied upon
as having been authorized by the Company. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that there has been no change in the facts herein
set forth since the date hereof.
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information contained in the
body of this Prospectus and should be read in conjunction with the detailed
information and financial statements appearing elsewhere herein.
THE COMPANY
Alfacell Corporation ("Alfacell" or the "Company") is a
biopharmaceutical company organized in 1981 to engage in the discovery,
investigation and development of a new class of anti-cancer drugs isolated
from leopard frog eggs and early embryos. The Company's first product
under development is ONCONASE which targets solid tumors, most of which are
known to be resistant to other chemotherapeutic drugs. To date, the most
significant clinical results with ONCONASE have been observed in
pancreatic, non-small cell lung, mesothelioma and metastatic breast cancer.
In 1995, the American Cancer Society estimates that 377,000 people in the
United States will be diagnosed with lung, breast and pancreatic cancer and
approximately 231,000 will die.
ONCONASE has been used to treat over 245 cancer patients on a weekly
basis including 115 patients with advanced stages of pancreatic, non-small
cell lung, mesothelioma and metastatic breast cancer. Encouraging results
have been observed in Phase I and II clinical trials. Side effects
associated with ONCONASE have been modest, are primarily renal and are
reversible upon reduction of dose or discontinuation of treatment.
Patients treated with ONCONASE have shown no evidence of myelosuppression
(bone marrow suppression), alopecia (hair loss) or other severe toxicities
frequently observed after treatment with most other chemotherapeutic drugs.
Alfacell expects to begin a randomized multi-center Phase III clinical
trial testing ONCONASE in advanced pancreatic cancer in the second half of
1995.
The Company believes that ONCONASE may also be used as an anti-viral
agent. The National Institutes of Health ("NIH") has performed an
independent IN VITRO screen of ONCONASE against the HIV virus type 1 ("HIV
virus"). The results showed ONCONASE to inhibit replication of the HIV
virus 99.9% after a four day incubation period at concentrations not toxic
to uninfected H9 cells. The Company has expanded its collaborative studies
for cancer and anti-HIV activity with the NIH. There can be no assurance
that ONCONASE will show any level of anti-HIV activity in humans.
Notwithstanding the encouraging results obtained with ONCONASE to
date, it is still too early in its development to be able to conclude that
it will prove to be an effective and safe therapeutic. Furthermore, the
marketing approval process for pharmaceuticals in the United States is
expensive and time consuming and there can be no assurance that ONCONASE
will be approved for marketing in the United States by the Food and Drug
Administration (the "FDA"). See "Risk Factors."
On March 21, 1994 the Company completed a private placement of 40
units consisting of an aggregate of 800,000 shares of restricted Common
Stock and warrants to purchase an aggregate of 800,000 shares of Common
Stock at an exercise price of $5.00 per share. The units were sold for
$50,000 per unit and the Company received net proceeds of approximately
$1,695,000 (after giving effect to the purchase of 4.1 units by the
conversion of $182,000 of outstanding Company debt plus $23,000 of
outstanding payables by an unaffiliated creditor and the payment of certain
offering expenses) which has been used primarily for general corporate
purposes, including the funding of research and development activities,
including collaborations with the NIH and the National Cancer Institute
("NCI") and Phase II/III clinical trials. On the date hereof, 772,000
shares of Common Stock and all of the 800,000 Warrants were outstanding.
This prospectus relates to the offer and sale of such 772,000 shares of
outstanding Common Stock and the 800,000 shares of Common Stock underlying
such outstanding Warrants.
On September 13, 1994 the Company completed a private placement of an
aggregate of 288,506 shares of restricted Common Stock and 288,506 Warrants
to purchase an aggregate of 288,506 shares of Common Stock at an exercise
price of $5.50 per share. The shares of Common Stock and Warrants to
purchase Common Stock were sold in units consisting of 20,000 shares of
Common Stock and 20,000 Warrants. An aggregate of 14.4 units were sold at
$50,000 per unit and the Company received net proceeds of approximately
$572,000 (after giving effect to the purchase of 2.4 units by the
conversion of $44,000 of outstanding Company debt plus $77,265 of
outstanding payables by certain unaffiliated creditors and the payment of
certain offering expenses). The Company utilized these net proceeds
primarily for general corporate purposes, including the funding of research
and development activities, including collaborations with the NIH and the
NCI and Phase II/III clinical trials. On the date hereof, 230,906 shares
of Common Stock and all of the 288,506 Warrants were outstanding. This
prospectus relates to the offer and sale of such 230,906 shares of
outstanding Common Stock and the 288,506 shares of Common Stock underlying
such outstanding Warrants.
In April 1995 the Company commenced a private placement which is
ongoing as of the date hereof (the "Current Private Placement"). To date,
the Current Private Placement has resulted in the issuance of 1,864,906
shares of Common Stock and three-year warrants to purchase 95,945 shares of
Common Stock at an exercise price of $4.00 per share. After taking into
account expenses of the offering, the Company has received to date net
proceeds of approximately $3.8 million from the offering. The Company
intends to utilize these net proceeds primarily for general corporate
purposes, including the funding of research and development activities,
including collaborations with the NIH and the NCI and clinical trials
testing ONCONASE in several tumor types. On the date hereof all of the
1,864,906 shares of Common Stock and 95,945 warrants are outstanding. The
Company intends to file a registration statement in the near future to
cover the sale of these shares of Common Stock and the shares of Common
Stock underlying these warrants.
Alfacell, a Delaware corporation, was incorporated in 1981. The
Company's executive offices are located at 225 Belleville Avenue,
Bloomfield, New Jersey 07003, telephone (201) 748-8082.
THE OFFERING
Securities Offered......... This Prospectus relates to an offering by the
Selling Stockholders of up to 3,279,561
shares of Common Stock of the Company. Of
these shares (i) an aggregate of 1,002,906
have been issued to the Private Placement
Investors in the March Private Placement and
the September Private Placement, (ii) an
aggregate of 1,088,506 may be issued upon
exercise of the Warrants which have been
issued to the Private Placement Investors in
the March Private Placement and the September
Private Placement, and (iii) an aggregate of
1,188,149 may be issued upon exercise of the
Options which have been issued to the Option
Holders in certain other private
transactions. See "Selling Stockholders."
Securities Outstanding..... As of July 28, 1995 the Company had
10,318,887 shares of Common Stock
outstanding. Assuming that all of the
Warrants and Options are exercised and no
other shares of Common Stock are issued
subsequent to July 28, 1995, the Company
would have 12,595,542 shares of Common Stock
outstanding.
Use of Proceeds............ The Company will not receive any proceeds
from the sale of the shares of Common Stock
offered by the Selling Stockholders. To date
the Company has received no proceeds from the
exercise of the Warrants and the Options
(except for $437,200 received from the
exercise of options whose underlying shares
were included on the initial registration
statement of which this prospectus forms a
part). If all of the Warrants and Options
are exercised, the Company will receive
estimated additional net proceeds of
$9,552,343. The Company intends to utilize
any proceeds received from the exercise of
the Warrants and Options for general
corporate purposes, including the funding of
research and development activities. There
can be no assurance that any of the
outstanding Warrants or outstanding Options
will be exercised. See "Use of Proceeds."
Risk Factors............... See "Risk Factors" for a discussion of
certain risk factors that should be
considered by prospective investors in
connection with an investment in the shares
of Common Stock offered hereby.
RISK FACTORS
The shares of Common Stock offered hereby are speculative and involve
a high degree of risk. They should not be purchased by anyone who cannot
afford the loss of his or her entire investment. In analyzing this
offering, prospective investors should consider the matters set forth
below, among others, and carefully read this Prospectus.
ACCUMULATED DEFICIT, STOCKHOLDERS' DEFICIENCY AND UNCERTAINTY OF
FUTURE PROFITABILITY. The Company was originally incorporated in 1981. To
date, a significant source of cash for the Company has been public and
private placements of its securities. Cash obtained from these sources has
not been sufficient to cover operating expenses. The Company's President
and Chief Executive Officer and principal stockholder has provided
financing to meet the Company's working capital needs when outside
financing sources were unavailable or insufficient. At April 30, 1995, the
Company had an accumulated deficit of approximately $36.8 million and a
total stockholders' deficiency of approximately $1.8 million. The Company
anticipates that it will continue to incur substantial losses in the
future. The Company is pursuing licensing, marketing and development
arrangements that may result in contract revenue to the Company prior to
its receiving revenues from commercial sales of ONCONASE. There can be no
assurance, however, that the Company will be able to successfully
consummate any such arrangements. The Company's profitability will depend
upon its success in developing, obtaining regulatory approvals for, and
effectively marketing ONCONASE. ONCONASE has not been approved by the FDA.
Potential investors should be aware of the difficulties a development stage
enterprise encounters, especially in view of the intense competition in the
pharmaceutical industry in which the Company competes. There can be no
assurance that the Company's plans will either materialize or prove
successful, that its product under development will be successfully
developed or that such product will generate revenues sufficient to enable
the Company to earn a profit. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
SUBSTANTIAL DOUBT CONCERNING THE COMPANY'S ABILITY TO CONTINUE AS A
GOING CONCERN. The opinion of KPMG Peat Marwick LLP, the independent
auditors of the Company's July 31, 1994 financial statements contained an
explanatory paragraph stating that the Company's recurring losses from
operations, its working capital deficiency and net capital deficiency raise
substantial doubt about the Company's ability to continue as a going
concern.
LEVERAGE. The Company is highly leveraged. At April 30, 1995, the
Company had total assets of approximately $727,000 and total liabilities of
approximately $2.5 million. Of such liabilities, approximately $1.6
million is owed to a bank and is secured by a lien on substantially all of
the Company's assets, including its patents. In the event the Company
defaults on the debt it owes to such bank, the bank may foreclose on the
assets which secure its debt and utilize such assets to satisfy such debt.
Given the current levels of the Company's assets and the debt owed to such
bank, it is highly unlikely that the Company's assets would be sufficient
to fully satisfy the bank's debt. Moreover, upon a liquidation of the
Company, the Company's assets would first be used to repay its secured
creditors and then its unsecured creditors, before any distribution would
be made to holders of the Company's equity securities. Given the current
levels of the Company's assets and its liabilities, it is highly unlikely
that the holders of the Company's Common Stock would receive any
distribution in the event the Company is liquidated.
NEED FOR, AND UNCERTAINTY OF, FUTURE FINANCING. The Company will be
required to expend significant funds on the further development of ONCONASE
and its continued operations will depend on its ability to raise additional
funds through equity or debt financings, collaborative agreements,
strategic alliances and licensing of ONCONASE. There can be no assurance
that such funds will be available to the Company on acceptable terms, if at
all. Taking into account the net proceeds received to date from the
Current Private Placement, the Company believes that its current cash
resources (assuming no exercise of any of the Warrants or Options and the
bank debt is refinanced on or before May 1996) will be sufficient to meet
its anticipated cash needs until August 1996. The Company will be required
to raise additional funds to meet its cash needs thereafter. The Company
continues to be primarily financed by proceeds from private placements of
Common Stock and investments in its equity securities. If the Company is
unable to secure sufficient future financing, it may be necessary for the
Company to curtail or discontinue its research and development activities.
GOVERNMENT REGULATION. The pharmaceutical industry in the United
States is subject to stringent governmental regulation and the sale of
ONCONASE for use in humans in the United States will require the prior
approval of the FDA. The FDA has established mandatory procedures and
safety standards which apply to the clinical testing, manufacture and
marketing of pharmaceutical products. Pharmaceutical manufacturing
facilities are also regulated by state, local and other authorities.
Obtaining FDA approval for a new therapeutic drug may take several years
and involve substantial expenditures. ONCONASE has not been approved for
sale in the United States or elsewhere. There can be no assurance that the
Company will be able to obtain FDA approval for ONCONASE or any of its
future products. Failure to obtain requisite governmental approvals or
failure to obtain approvals of the scope requested will delay or preclude
the Company from marketing its products while under patent protection, or
limit the commercial use of the products, and thereby may have a material
adverse effect on the Company's liquidity and financial condition.
Further, even if governmental approval is obtained, new drugs are subject
to continual review and a later discovery of previously unknown problems
may result in restrictions on the particular product, including withdrawal
of such product from the market.
PATENTS AND PROPRIETARY TECHNOLOGY. The Company has been issued two
patents in the United States and two patents in Europe and has other patent
applications pending. The Company has decided that one of its U.S. patents
does not benefit the Company and it intends to disclaim all the claims of
such U.S. patent. Although the Company believes that its patents and
patent applications are of substantial value to the Company, there can be
no assurance that such patents will be of substantial commercial benefit to
the Company, will afford the Company adequate protection from competing
products or will not be challenged or declared invalid. There can be no
assurance that additional United States patents or foreign patent
equivalents will be issued to the Company. The scope of protection
afforded by patents to biotechnological inventions is uncertain and the
Company is subject to this uncertainty. The Company expects that there
will continue to be significant litigation in the industry regarding
patents and other proprietary rights and, if the Company were to become
involved in such litigation, there could be no assurance that the Company
would have the resources necessary to litigate effectively the contested
issues. Pursuant to its loan agreement with the Company, the Company's
bank has a security interest in the Company's patent portfolio. The bank
has agreed, however, to subordinate its interest to licensees of the
Company if certain conditions are met. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation - Liquidity and
Capital Resources" and "Business - Patents."
INTENSE COMPETITION AND TECHNOLOGICAL OBSOLESCENCE. There are several
companies, universities, research teams and scientists, both private and
government-sponsored, which engage in developing products for the same
indications as the Company. Many of these entities and associations have
far greater financial resources, larger research staffs and more extensive
physical facilities than the Company. Several competitors are more
experienced and have substantially greater clinical, marketing and
regulatory capabilities and managerial resources than the Company. Such
competitors may succeed in their research and development of products for
the same indications as the Company prior to the Company achieving any
measure of success in its efforts.
The number of persons skilled in the research and development of
pharmaceutical products is limited and significant competition exists for
such individuals. As a result of this competition and the Company's
limited resources, the Company may find it difficult to attract skilled
individuals to research, develop and investigate anti-cancer drugs in the
future.
The business in which the Company is engaged is highly competitive and
involves rapid changes in the technologies of discovering, investigating
and developing new drugs. Rapid technological development by others may
result in the Company's products becoming obsolete before the Company
recovers a significant portion of the research, development and
commercialization expenses incurred with respect to those products.
Competitors of the Company are numerous and are expected to increase as new
technologies become available. The Company's success depends upon
developing and maintaining a competitive position in the development of new
drugs and technologies in its area of focus. There can be no assurance
that, if attained, the Company will be able to maintain a competitive
position in the pharmaceutical industry.
DEPENDENCE ON REIMBURSEMENT. Sales of the Company's products, if any,
will be dependent in part on the availability of reimbursement from third
party payors, such as governmental and private insurance plans. Third
party payors are increasingly challenging the prices charged for medical
products and services. Additionally, the containment of health care costs
has become a priority and pharmaceutical and biotechnology drug prices have
been targeted in this effort. If the Company succeeds in bringing any of
its products to market, there can be no assurance that such products will
be considered cost-effective, that reimbursement will be available or, if
available, that the level of reimbursement will be sufficient to allow the
Company to sell its products on a profitable basis.
POTENTIAL PRODUCT LIABILITY. The use of the Company's products during
testing or after regulatory approval entails an inherent risk of adverse
effects which could expose the Company to product liability claims. The
Company maintains product liability insurance coverage in the total amount
of $6,000,000 for claims arising from the use of its products in clinical
trials prior to FDA approval. There can be no assurance that the Company
will be able to maintain its existing insurance coverage or obtain coverage
for the use of its products in the future. Management believes that the
Company maintains adequate insurance coverage for the operation of its
business at this time, however, there can be no assurance that such
insurance coverage and the resources of the Company would be sufficient to
satisfy any liability resulting from product liability claims.
DEPENDENCE UPON KEY PERSONNEL. The success of the Company's
operations during the foreseeable future will largely depend upon the
continued services of its President and Chief Executive Officer, Kuslima
Shogen. Ms. Shogen's one-year employment agreement with the Company
terminated on June 30, 1995. Ms. Shogen continues to be employed by the
Company and it is anticipated that negotiations with respect to a new
employment agreement will commence in the near future; however, there can
be no assurance that such negotiations will commence, that a new employment
agreement will be executed or that Ms. Shogen will remain in the employ of
the Company. Ms. Shogen currently devotes substantially all of her working
time to the Company's affairs. The loss of the services of Ms. Shogen
would adversely affect the Company's operations and prospects. The bank
may call due all amounts payable under its loan to the Company in the event
Ms. Shogen ceases for any reason, except death, to be a full time employee,
officer or director of the Company. The Company carries key person life
insurance on the life of Ms. Shogen with a face value of $1,000,000. The
Company's bank has been assigned this policy as security for the
approximately $1.6 million loan outstanding to the bank. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources." The Company's success depends upon its
ability to attract and retain other highly qualified scientific, managerial
and manufacturing personnel.
NO DIVIDENDS. The Company has not paid any dividends on its Common
Stock since its inception and does not currently foresee the payment of
cash dividends in the future. Furthermore, under the Company's loan
agreement with its bank, the Company is prohibited from paying any
dividends without the bank's consent. The Company currently intends to
retain all earnings, if any, to finance its operations.
LIMITED PUBLIC MARKET AND LIQUIDITY. The Company's Common Stock is
not traded on any exchange and is not quoted on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"). Trading of the
Common Stock in the over-the-counter market is limited.
PREFERRED STOCK; ANTI-TAKEOVER DEVICE. The Company is currently
authorized to issue 1,000,000 shares of preferred stock, par value $.001
per share. The Company's Board of Directors is authorized, without any
approval of the stockholders, to issue the preferred stock and determine
the terms of such preferred stock. As of July 28, 1995, there were no
shares of preferred stock outstanding. See "Description of Securities."
The authorized and unissued shares of preferred stock may be classified as
an "anti-takeover" measure and may discourage attempted takeovers of the
Company which are not approved by the Board of Directors. The authorized
shares of preferred stock will remain available for general corporate
purposes, may be privately placed and can be used to make a change in
control of the Company more difficult. Under certain circumstances, the
Board of Directors could create impediments to, or frustrate, persons
seeking to effect a takeover or transfer in control of the Company by
causing such shares to be issued to a holder or holders who might side with
the Board of Directors in opposing a takeover bid that the Board of
Directors determines is not in the best interests of the Company and its
stockholders, but in which unaffiliated stockholders may wish to
participate. Under Delaware law, the Board of Directors is permitted to
use a depositary receipt mechanism which enables the Board to issue an
unlimited number of fractional interests in each of the authorized and
unissued shares of preferred stock without stockholder approval.
Consequently, the Board of Directors, without further stockholder approval,
could issue authorized shares of preferred stock or fractional interests
therein with rights that could adversely affect the rights of the holders
of the Company's Common Stock to a holder or holders which when voted
together with other securities held by members of the Board of Directors
and the executive officers and their families could prevent the majority
stockholder vote required by the Company's certificate of incorporation to
effect certain matters. Furthermore, the existence of such authorized
shares of preferred stock might have the effect of discouraging any attempt
by a person, through the acquisition of a substantial number of shares of
Common Stock, to acquire control of the Company. Accordingly, the
accomplishment of a tender offer may be more difficult. This may be
beneficial to management in a hostile tender offer, thus having an adverse
impact on stockholders who may want to participate in such tender offer.
CONTROL BY PRESENT MANAGEMENT. The Company's present officers and
directors, as a group, beneficially owned 32.3% of the outstanding Common
Stock of the Company as of July 28, 1995 and thus could in some instances
exercise effective control over the Company. See "Description of
Securities - Common Stock."
VOLATILITY AND POSSIBLE REDUCTION IN PRICE OF COMMON STOCK. The
market price of the Common Stock, like that of the common stock of many
other development stage biotechnology companies, has been and may continue
to be, highly volatile. Factors such as announcements of technological
innovations or new commercial products by the Company or its competitors,
disclosure of results of clinical testing or regulatory proceedings,
governmental regulation and approvals, developments in patent or other
proprietary rights, public concern as to the safety of products developed
by the Company and general market conditions may have a significant effect
on the market price of the Common Stock. In addition, the stock market has
experienced and continues to experience extreme price and volume
fluctuations which have effected the market price of many biotechnology
companies. These broad market fluctuations, as well as general economic
and political conditions, may adversely effect the market price of the
Company's Common Stock.
SALE OF SHARES PURSUANT TO RULE 144. The Company had 10,318,887
shares of Common Stock outstanding as of July 28, 1995. Of these
outstanding shares, approximately 4,140,545 shares are "restricted
securities" as defined in Rule 144 adopted under the Securities Act. Of
these restricted shares, an aggregate of 1,002,906 are covered by this
Registration Statement and were sold in the March Private Placement and in
the September Private Placement, approximately 2,116,639 were eligible to
be sold under Rule 144 as of July 28, 1995, 340,000 will become eligible to
be sold under Rule 144 on various dates commencing on September 14, 1995
through February 22, 1997 and 681,000 were issued and sold in the Current
Private Placement and will be included on a registration statement which
the Company intends to file in the near future. The (i) 1,002,906 shares
of Common Stock included in this Registration Statement will, if sold
pursuant to this Registration Statement and (ii) the 2,276,655 shares of
Common Stock underlying the Warrants and Options included in this
Registration Statement will, if issued upon exercise of the Warrants and
Options and sold pursuant to this Registration Statement be freely
tradeable without restriction under the Securities Act, except that any
shares held by an "affiliate," as that term is defined under the Securities
Act, will be subject to the resale limitations of Rule 144. In addition to
the Warrants to purchase an aggregate of 1,088,506 shares of Common Stock
issued in the March Private Placement and the September Private Placement
and the Options to purchase an aggregate of 1,188,149 shares of Common
Stock, as of July 28, 1995 there were options outstanding to purchase an
aggregate of 3,393,743 shares of Common Stock, which are covered by an
effective Registration Statement on Form S-8 and generally, will be freely
tradeable upon issuance. The Company also has outstanding as of July 28,
1995 warrants, which were issued and sold in the Current Private Placement,
to purchase an aggregate of 95,945 shares for which the Company intends to
file a registration statement in the near future. The future sale of a
substantial number of shares of Common Stock by existing holders of Common
Stock and holders of warrants and options exercisable for Common Stock
pursuant to Rule 144 under the Securities Act or through effective
registration statements may have an adverse impact on the market price of
the Common Stock. See "Shares Eligible for Future Sale."
TERMINATION OF COMPANY'S AUDITORS. The financial statements of the
Company for the fiscal year ended July 31, 1992 included in this
Registration Statement, were audited by the independent accounting firm of
Armus, Harrison & Co. ("AHC"). On December 1, 1993, certain shareholders
of AHC terminated their association with AHC (the "AHC Termination"), and
AHC ceased performing accounting and auditing services, except for limited
accounting services to be performed on behalf of the Company. The report
of AHC with respect to the financial statements of the Company for the
fiscal year ended July 31, 1992 is included in this Registration Statement
in reliance upon the consent and report of AHC. Although investors will
not be barred from asserting claims against the former shareholders of AHC
under Section 11 of the Securities Act on the basis of use of AHC's consent
and reports herein, it may, however, be more difficult to recover any
damages because of the AHC Termination. The discussion regarding certain
effects of the AHC Termination is not meant and should not be construed in
any way as legal advice to any party and any potential purchaser should
consult with his, her or its own counsel with respect to the effect of the
AHC Termination on a potential investment in the Common Stock of the
Company or otherwise.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the shares
of Common Stock offered herein by the Selling Stockholders. If all of the
Warrants and Options are exercised, the Company will receive estimated net
proceeds of approximately $9,552,343. The Company intends to utilize any
proceeds received from the exercise of the Warrants and Options primarily
to fund research and development activities and for general corporate
purposes. There can be no assurance that any of the Warrants or Options
will be exercised.
DIVIDEND POLICY
The Company has not paid any dividends on its Common Stock since its
inception and does not currently foresee the payment of cash dividends in
the future. Furthermore, the Company's loan agreement with its bank
prohibits the payment of any dividends without the bank's consent. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources." The Company currently
intends to retain any earnings to finance its operations.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded under the symbol "ACEL". At the
present time the Company's Common Stock is not quoted on NASDAQ and is not
consistently quoted in the pink sheets. On July 28, 1995, the high bid and
low asked quotations for the Company's Common Stock were $2-1/2 and $2-5/8,
respectively. As of July 28, 1995, there were approximately 1515
stockholders of record of the Company's Common Stock.
The following table sets forth the range of high and low closing bid
quotations obtained from the National Quotations Bureau for the Common
Stock for the three fiscal years ended July 31, 1993, 1994 and 1995. These
quotes are believed to be representative of inter-dealer quotations,
without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.
HIGH LOW
Year Ended July 31, 1993:
First Quarter 4-3/4 1-5/8
Second Quarter 4-3/4 1
Third Quarter 7 2-3/4
Fourth Quarter 6 2-3/4
Year Ended July 31, 1994:
First Quarter 5-3/4 2-1/4
Second Quarter 3-11/16 1-1/2
Third Quarter 3-1/4 1-1/2
Fourth Quarter 5 1-1/2
Year Ended July 31, 1995:
First Quarter 3-1/8 1-5/8
Second Quarter 4 1
Third Quarter 4 1-1/2
Fourth Quarter 2-3/4 1-3/8
<PAGE>
SELECTED FINANCIAL DATA
Set forth below is the selected financial data for the Company for
each of the fiscal years in the five year period ended July 31, 1994 and
for the nine months ended April 30, 1995 and 1994. The financial
statements of the Company for the fiscal years ended July 31, 1992, 1991,
and 1990 from which certain of the selected financial data presented below
were derived, were audited by the independent accounting firm of Armus,
Harrison & Co. ("AHC"). AHC has not performed any audits on behalf of the
Company since completion of the audit for the fiscal year ended July 31,
1992, and KPMG Peat Marwick LLP, independent public accountants, was
engaged to audit and report on the Company's financial statements for the
fiscal years ended July 31, 1994 and 1993. The selected financial data is
qualified in its entirety by, and should be read in conjunction with, the
more detailed information and financial statements and the accompanying
notes included in this Registration Statement. See "Index to Financial
Statements." The interim information with respect to the nine months ended
April 30, 1995 and 1994 is unaudited but, includes in the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation of such data. The results for
the nine months ended April 30, 1995 are not necessarily indicative of the
results expected for the entire year.
On December 1, 1993, certain shareholders of AHC terminated their
association with AHC and AHC ceased performing accounting and auditing
services, except for limited accounting services to be performed on behalf
of the Company. The report of AHC with respect to the financial statements
of the Company for the fiscal year ended July 31, 1992 is included in this
Registration Statement in reliance upon the consent and reports of AHC.
Although investors will not be barred from asserting claims against the
former shareholders of AHC under Section 11 of the Securities Act on the
basis of use of AHC's consent and reports herein, it may, however, be more
difficult to recover any damages. The discussion regarding certain effects
of AHC's present status as set forth herein is not meant and should not be
construed in any way as legal advice to any party and any potential
purchaser should consult with his, her or its own counsel with respect to
the effect of the AHC Termination on a potential investment in the Common
Stock of the Company or otherwise.
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
April 30,
<S> <C> <C>
1995 1994
Revenue $ 9,653 $ 2,315
Net Loss $(1,386,862) $(1,673,391)
Net Loss per share
$ ( .15) $ (.20)
Dividends NONE NONE
AT END OF PERIOD:
Total Assets $ 727,197 $ 1,320,171
Long-Term
Obligations $ 1,532,328 $ 1,615,831
</TABLE>
<TABLE>
<CAPTION>
Year Ended July 31,
<S> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990
Revenue $ 6,064 $ 489 $ 0 $ 1,161 $ 1,141
Net Loss $(2,234,428) $(2,357,350) $(4,772,826) $(5,202,302) $(4,860,116)
Net Loss per share
$ (.26) $ (.31) $ (.67) $ (.76) $ (.84)
Dividends NONE NONE NONE NONE NONE
AT END OF PERIOD:
Total Assets $ 779,763 $ 335,332 $ 266,962 $ 178,364 $ 658,256
Long-Term
Obligations $ 1,593,976 $ 5,439,531 $ 1,427,000 $ 1,397,000 $ 770,000
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS:
REVENUES. The Company is a development stage company as defined in
the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 7. As such, the Company is devoting substantially
all of its present efforts to establishing a new business and developing
new drug products. The Company's planned principal operations of marketing
and/or licensing of new drugs have not commenced and, accordingly, no
significant revenue has been derived therefrom. The Company continues to
marshall all its productive and financial resources to proceed with its
development of ONCONASE and as such has not had any sales in the fiscal
years ended July 31, 1994, 1993, 1992, 1991 and 1990 or in the nine months
ended April 30, 1995 and 1994.
NINE MONTHS ENDED APRIL 30, 1995 AND 1994
RESEARCH AND DEVELOPMENT. Research and development expense for the
nine months ended April 30, 1995 was $800,000 compared to $777,000 for the
same period last year, an increase of $23,000 or 3%. This increase was
primarily due to an increase in consulting fees for the preparation of
chemistry, manufacturing and clinical submissions to the FDA in preparation
for Phase III clinical trials, which were partially offset by a decrease in
non-cash compensation expense attributable to the amortization of expense
related to stock awards made in prior years to the Company's President and
Chief Executive Officer and Medical Director.
GENERAL AND ADMINISTRATIVE. General and administrative expense for
the nine months ended April 30, 1995 was $488,000 compared to $714,000 for
the same period last year, a decrease of $226,000 or 32%. This decrease
was primarily due to a decrease over the same period last year in legal and
accounting fees and a decrease in non-cash compensation expense
attributable to the amortization of expenses related to stock awards made
in prior years to the Company's President and Chief Executive Officer.
INTEREST. Interest expense for the nine months ended April 30, 1995
was $108,000 compared to $184,000 for the same period last year, a decrease
of $76,000 or 41%. This decrease was primarily due to the conversion of
convertible subordinated debentures to common stock and a reduction in
interest rates over the prior year.
NET LOSS. The Company has incurred net losses during each year since its
inception. The net loss for the nine months ended April 30, 1995 was
$1,387,000 as compared to $1,673,000 for the same period last year. The
cumulative loss from the date of inception, August 24, 1981, to April 30,
1995 amounted to $36,843,000. Such losses are attributable to the fact
that the Company is still in the development stage and accordingly has not
derived sufficient revenues from operations to offset the development stage
expenses.
FISCAL YEARS ENDED JULY 31, 1994, 1993 AND 1992
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expense
for fiscal 1994 was $1,114,000 compared to $1,092,000 in fiscal 1993, an
increase of $22,000 or 2%. The increase in fiscal 1994 can be attributed
to an increase in expenses for collection and analysis of the ONCONASE
Phase I and II clinical trial data which was partially offset by a decrease
in fiscal 1994 as compared to fiscal 1993 in non-cash compensation expense
attributable to the amortization of expenses related to stock awards made
in prior years to the Company's President and Chief Executive Officer and
Executive Vice President and Medical Director.
Research and development expense for fiscal 1993 was $1,092,000
compared to $2,624,000 in fiscal 1992, a decrease of $1,532,000 or 58%.
This decrease was primarily due to a decrease in fiscal 1993 as compared to
fiscal 1992 in non-cash compensation expense attributable to the
amortization of expenses related to stock awards made in prior years to the
Company's President and Chief Executive Officer and Executive Vice
President and Medical Director.
GENERAL AND ADMINISTRATIVE. General and administrative expense
remained constant at approximately $904,000 for fiscal 1994 and fiscal year
1993. An increase in legal fees was offset by a decrease in fiscal 1994 as
compared to fiscal 1993 in non-cash compensation expense attributable to
the amortization of expenses related to stock awards made in prior years to
the Company's President and Chief Executive Officer.
General and administrative expense for fiscal 1993 was $904,000
compared to $1,763,000 in fiscal 1992, a decrease of $859,000 or 49%. This
decrease was primarily due to a decrease in fiscal 1993 as compared to
fiscal 1992 in non-cash compensation expense attributable to the
amortization of expenses related to stock awards made in prior years to the
Company's President and Chief Executive Officer.
INTEREST. Interest expense for fiscal 1994 was $223,000 compared to
$362,000 in fiscal 1993, a decrease of $139,000 or 38%. The decrease in
fiscal 1994 was primarily due to the conversion of convertible subordinated
debentures to common stock.
Interest expense for fiscal 1993 was $362,000 compared to $385,000 in
fiscal 1992, a decrease of $23,000 or 6%. The decrease in fiscal 1993 was
due to a reduction in interest rates during 1993.
NET LOSS. The Company has incurred net losses during each year since
its inception. The net loss for fiscal 1994 was $2,234,000 as compared to
$2,357,000 in fiscal 1993 and $4,773,000 in fiscal 1992. The cumulative
loss from the date of inception, August 24, 1981, to July 31, 1994 amounted
to $35,456,000. Such losses are attributable to the fact that the Company
is still in the development stage and accordingly has not derived
sufficient revenues from operations to offset the development stage
expenses.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Alfacell has financed its operations since inception primarily through
equity and debt financing, research product sales and interest income.
During the nine months ended April 30, 1995, the Company had a net increase
in cash of $207,000. This increase resulted from net cash used in
operating activities of $1,173,000 offset by net cash provided by investing
activities of $226,000 principally due to the sale of a marketable security
and by net cash provided by financing activities of $1,154,000, which
resulted primarily from a private placement of common stock and common
stock warrants completed in September 1994, common stock purchases in April
1995 and proceeds from stock options exercised during the nine months ended
April 30, 1995. Subsequent to April 30, 1995, the Company completed a
series of private placements of common stock and common stock warrants
resulting in net proceeds of approximately $3.8 million.
The Company's term loan agreement with its bank requires payment of
the entire unpaid balance on May 31, 1996. It is estimated that the
outstanding balance on that date will be $1,511,000. The Company intends
to refinance the loan or raise sufficient equity to pay off the unpaid
balance. However, there can be no assurance that the Company will be able
to successfully conclude a refinancing or raise sufficient equity to pay
off the unpaid balance.
The Company's continued operations will depend on its ability to raise
additional funds through a combination of equity or debt financing,
collaborative agreements, strategic alliances and revenues from the
commercial sale of ONCONASE. In addition, the Company expects that its
cash needs in the future will increase due to the commencement of Phase III
clinical trials. Taking into account the net proceeds received to date in
the Current Private Placement, the Company believes that its current
resources will be sufficient to meet its anticipated cash needs until
August 1996 (assuming no exercise of any of the Warrants or Options and the
bank debt is refinanced on or before May 1996). To date, a significant
portion of the Company's financing has been provided by its President and
Chief Executive Officer and through private placements of common stock, the
issuance of common stock for services rendered and debt financing. The
Company's long-term liquidity will depend on its ability to raise
substantial additional funds. There can be no assurance that such funds
will be available to the Company on acceptable terms, if at all.
Pursuant to the terms of the Company's Term Loan Agreement with its
bank (the "Term Loan"), without the bank's consent, the Company is
prohibited from incurring any additional indebtedness except as follows:
(i) additional indebtedness to the bank, (ii) indebtedness having a
priority of payment which is expressly junior to and inferior in right of
payment to the prior payment in full to the bank except for certain
advances of $198,417 which may be repaid in certain situations, (iii)
indebtedness arising as a result of obligations of the Company over the
life of its leases which in the aggregate do not exceed $200,000, and (iv)
unsecured indebtedness arising in the ordinary course of the Company's
business which at no time exceeds $400,000. Pursuant to the Term Loan, the
Company is required to make prepayments to the extent its gross revenues
exceed certain levels. Pursuant to a pledge agreement, the Company's
President and CEO has pledged the shares of the Company's Common Stock
owned by her to secure the repayment of the Term Loan. The pledgor may
from time to time request that the bank release a portion of the pledged
stock when market conditions are favorable in order to permit the sale of
such stock whereupon the proceeds will be used to make payments under the
Term Loan. The Term Loan Agreement prohibits the issuance of any shares,
or right to purchase any shares of the Company's stock if the result of
such issuance would be to decrease the ratio of the market value of the
pledged stock to the aggregate outstanding debt of the Company and its
President and Chief Executive Officer to the bank, below 1:1.
The Company's working capital and capital requirements may depend upon
numerous factors including, the progress of the Company's research and
development programs, the timing and cost of obtaining regulatory
approvals, and the levels of resources that the Company devotes to the
development of manufacturing and marketing capabilities.
BUSINESS
OVERVIEW
The Company is a biopharmaceutical company organized in 1981 to engage
in the discovery, investigation and development of a new class of anti-
cancer drugs isolated from leopard frog eggs and early embryos. The
Company's first product under development is ONCONASE which targets solid
tumors, most of which are known to be resistant to other chemotherapeutic
drugs. To date, the most significant clinical results with ONCONASE have
been observed in pancreatic, non-small cell lung, mesothelioma and
metastatic breast cancer. In 1995, the American Cancer Society estimates
that 377,000 people in the United States will be diagnosed with lung,
breast and pancreatic cancer and approximately 231,000 will die.
ONCONASE has been used to treat over 245 cancer patients on a weekly
basis including 115 patients with advanced stages of pancreatic, non-small
cell lung, mesothelioma and metastatic breast cancer. Encouraging results
have been observed in Phase I and II clinical trials. Side effects
associated with ONCONASE have been modest, are primarily renal and are
reversible upon reduction of dose, temporary or permanent discontinuation
of treatment. Patients treated with ONCONASE have shown no evidence of
myelosuppression (bone marrow suppression), alopecia (hair loss) or other
severe toxicities frequently observed after treatment with most other
chemotherapeutic drugs. Alfacell expects to begin a randomized multi-
center Phase III clinical trial testing ONCONASE in advanced pancreatic
cancer in the second half of 1995.
The Company believes that ONCONASE may also be used as an anti-viral
agent. The NIH has performed an independent IN VITRO screen of ONCONASE
against the HIV virus type 1 ("HIV virus"). The results showed ONCONASE to
inhibit replication of the HIV virus 99.9% after a four day incubation
period at concentrations not toxic to uninfected H9 cells. The Company has
expanded its collaborative studies for cancer and anti-HIV activity with
the NIH. There can be no assurance that ONCONASE will show any level of
anti-HIV activity in humans.
Notwithstanding the encouraging results obtained with ONCONASE to
date, it is still too early in its development to be able to conclude that
it will prove to be an effective and safe therapeutic. Furthermore, the
marketing approval process for pharmaceuticals in the United States is
expensive and time consuming and there can be no assurance that ONCONASE
will be approved for marketing in the United States by the FDA.
Beyond the development of ONCONASE, Alfacell has also discovered a
series of biologically active proteins from the same natural source from
which ONCONASE was discovered. These proteins appear to be involved in the
regulation of early embryonic and malignant cell growth; however,
significant additional research will be required in order to develop them
into therapeutics. ONCONASE is a novel compound and represents a new class
of therapeutic compounds whose mechanism of action may be important in
treating resistant solid tumors, as well as potentially having anti-viral
applications. There can be no assurance that development of these proteins
into effective and approvable therapeutics will be accomplished.
ONCONASE
Originally, the Company developed an unpurified biological extract
from early stage leopard frog embryos and eggs. This extract was found to
possess a unique bioactive profile and to be of a unique nature. In 1987,
the Company isolated a specific protein, P-30 Protein, (herein referred to
by its registered tradename ONCONASE). Based upon the complete amino acid
sequence analysis (comparison of the amino acid sequence of ONCONASE with
that of over 10,000 protein sequences registered with the National
Biomedical Research Foundation Protein Identification Resource, Georgetown
University, Washington, DC), it has been established that ONCONASE has a
NOVEL structure. It has also been determined that, thus far, ONCONASE is
the smallest member, belonging to the superfamily of pancreatic
ribonucleases.
POSTULATED MECHANISM OF ACTION
Although all of the mechanism of ONCONASE's anti-tumor activity have
not been fully delineated, the following processes have been identified
experimentally:
Binding of ONCONASE to cell surface receptors followed by:
<circle>Cellular internalization;
<circle>Ribonucleolytic degradation of RNAs;
<circle>Inhibition of protein synthesis;
<circle>Inhibition of the cell growth; and
<circle>Cell death
Pre-clinical and clinical data to date has shown that ONCONASE has the
capacity to enter chemotherapy resistant cells, overcomes multiple drug
resistance ("MDR") and other mechanisms of drug resistance and is
synergistic with many other chemotherapies against numerous tumor cell
lines.
CLINICAL TRIALS
Alfacell has tested ONCONASE in over 245 patients in its Phase I and
II clinical trials. ONCONASE as a single agent was tested in 194 patients
with a variety of solid tumors and 51 advanced pancreatic patients were
treated with ONCONASE in combination with tamoxifen. Alfacell expects to
begin a randomized multi-center Phase III clinical trial testing the
combination of ONCONASE and tamoxifen in advanced pancreatic cancer in the
second half of 1995. IN VITRO results showed ONCONASE to be synergistic
with tamoxifen in inhibiting pancreatic carcinoma tumor cell growth.
Reported toxicities in Phase I and II clinical trials, after treating
more than 245 patients, were primarily renal, dose-related and reversible.
There has been no evidence of myelosuppression (bone marrow suppression),
alopecia (hair loss) or other severe toxicities frequently observed after
treatment with most other chemotherapeutic drugs. Results from Phase II
clinical trials indicate that expanded clinical trials should be performed
in other solid tumors such as non-small cell lung, mesothelioma, and
metastatic breast cancers.
RESEARCH AND DEVELOPMENT
Research and development expenses for the nine month period ended
April 30, 1995 were $800,101. Research and development expenses for the
fiscal years ended July 31, 1994, 1993 and 1992 were $1,114,455,
$1,091,762, and $2,624,088, respectively. During fiscal 1994 the Company's
research and development efforts were focused on the further development of
ONCONASE. During fiscal 1995, the Company's focus was in clinical and
regulatory affairs which included the preparation of chemistry,
manufacturing and clinical submissions to the FDA in preparation for Phase
III clinical trials. In January 1995, the FDA agreed to the Company's
Phase III protocol design for advanced pancreatic cancer.
The Company has a Cooperative Research and Development Agreement
("CRADA") with the NIH. Areas of research include studies of anti-HIV
activity; the study of the mechanism of action of ONCONASE at the cellular
and subcellular levels; tests of the anti-tumor activities of ONCONASE
conjugates; ONCONASE gene therapy; and investigation of anti-tumor activity
of ONCONASE against primary brain tumors.
The Company also has a CRADA with the National Cancer Institute's
("NCI") Biological Response Modifier and Developmental Therapeutics
Programs. Areas of research include characterization of the inhibition of
tumor cell growth by ONCONASE in animal models and IN VITRO and IN VIVO
studies of chemical conjugates of ONCONASE with anti-tumor antibodies.
Management of the Company believes it has discovered a family of
proteins from the same source as ONCONASE which play a role in cell
maturation and cell proliferation and may play a role in developing other
treatments for cancer. At present, the Company is defining a number of
active proteins from the natural source material, in addition to ONCONASE,
which may exhibit cytotoxic, cytostatic effects, and other pharmacological
effects.
RAW MATERIALS AND MANUFACTURING
The major active ingredient in the original extract derived from early
stage leopard frog embryos and eggs is the protein, ONCONASE. Although
Alfacell currently acquires its natural source material from a single
supplier, management believes that it is abundantly available from other
sources. In addition, the Company is conducting research concerning the
alternative manufacturing of ONCONASE through recombinant technology.
However, there can be no assurance that alternative manufacturing methods
will be viable.
The Company has signed a letter of intent with Scientific Protein
Laboratories ("SPL") which will perform the intermediary manufacturing
process which entails purifying ONCONASE. Subsequently, the intermediate
product is sent to a contract filler for the final manufacturing step and
vial filling. Both of these facilities follow current Good Manufacturing
Practices which is a requirement for product manufactured for use in Phase
III clinical trials and for commercial sale.
GOVERNMENT REGULATION
The manufacturing and marketing of pharmaceutical products in the
United States requires the approval of the FDA under the Federal Food, Drug
and Cosmetic Act. Similar approvals by comparable agencies are required in
most foreign countries. The FDA has established mandatory procedures and
safety standards which apply to the clinical testing, manufacture and
marketing of pharmaceutical products. Obtaining FDA approval for a new
therapeutic may take many years and involve substantial expenditures.
Pharmaceutical manufacturing facilities are also regulated by state, local
and other authorities.
As an initial step in the FDA regulatory approval process, pre-
clinical studies are conducted in animal models to assess the drug's
efficacy and to identify potential safety problems. The results of these
studies are submitted to the FDA as a part of the Investigational New Drug
Application ("IND"), which is filed to obtain approval to begin human
clinical testing. The human clinical testing program may involve up to
three phases. Data from human trials are submitted to the FDA in a New
Drug Application ("NDA") or Product License Application ("PLA"). Preparing
an NDA or PLA involves considerable data collection, verification and
analysis.
The Company has not received FDA marketing approval for any products.
Difficulties or unanticipated costs may be encountered by the Company in
its effort to secure necessary governmental approvals, which could delay or
preclude the Company from marketing its products. There can be no
assurance that any of the Company's products will be approved by the FDA.
With respect to patented products, delays imposed by the governmental
approval process may materially reduce the period during which the Company
may have the exclusive right to exploit them. See "Patents."
PATENTS
The Company presently owns two (2) U.S. Patents: No.4,882,421 issued
November 21, 1989 and No.4,888,172 issued December 19, 1989. The Company
has decided that U.S. Patent No. 4,882,421 does not benefit the Company and
accordingly intends to disclaim the presently-undisclaimed claims therein.
U.S. Patent No. 4,882,421 relates to a pharmaceutical that in purified form
is ONCONASE. The Company also owns five other patent applications that are
pending in the United States Patent and Trademark Office ("USPTO"). One of
these relates to the correct sequence of ONCONASE, another discloses a
protein that is closely related to ONCONASE, and the other three relate to
combination therapies that use ONCONASE in addition to other approved
pharmaceuticals.
The Company presently owns two (2) European Patents:
No. 0 440 633 filed March 31, 1989 and No. 0 500 589 filed October 26,
1990. European Patent No. 0 440 633 covers the ONCONASE pharmaceutical and
a method by which it is made, and European Patent No. 0 500 589 covers the
purified ONCONASE protein and certain therapeutically active combinations
of ONCONASE with other pharmaceuticals. Both European patents have been
validated in selected European nations. For each of these European
patents, the Company has filed a counterpart application in Japan; both
Japanese patent applications are presently pending.
The Company owns a European patent application covering certain
combination therapies that use ONCONASE in addition to other approved
pharmaceuticals. The Company has requested examination of this European
patent application. A Japanese counterpart to this European patent
application has been filed and is presently pending.
The Company owns an interest in an application which is pending in the
USPTO and that relates to a Subject Invention (as that term is defined in a
CRADA to which the Company and the National Institutes of Health/Alcohol,
Drug Abuse and Mental Health Administration are parties).
The Company pursues a policy of filing patent applications in the
United States and in selected foreign countries for certain of its
proprietary technology. The scope of protection afforded by patents to
biotechnological inventions is uncertain and the Company is subject to this
uncertainty. There can be no assurance that any of the Company's patent
applications will be approved, that any issued patents will provide the
Company with competitive advantages or will not be challenged by others, or
that the patents of others will not have an adverse effect on the ability
of the Company to do business. Furthermore, there can be no assurance that
others will not independently develop similar products, will not duplicate
any of the Company's products or, if patents are issued to the Company,
will not design around the Company's existing patent rights or patents that
may issue in the future, if any.
The Company also relies on trade secrets, proprietary know-how and
continuing technological innovation to develop and maintain its competitive
position. There can be no assurance that others will not independently
develop such know-how or otherwise obtain access to Alfacell's technology.
While the Company's employees and consultants with access to proprietary
information are generally required to enter into confidentiality
agreements, there can be no assurance that these agreements will be honored
or can be enforced.
Pursuant to the Term Loan, the Company restructured its bank loan and
in connection therewith the bank acquired a security interest in the
Company's patent portfolio. The bank has agreed, however, to subordinate
its interest to licensees of the Company if certain conditions are met.
COMPETITION
There are several companies, universities, research teams and
scientists, both private and government-sponsored, which engage in research
similar or potentially similar to that performed by the Company. Many of
such entities and associations have far greater financial resources, larger
research staffs and more extensive physical facilities than the Company.
These competitors may succeed in their research and development of products
which are more effective than any developed by the Company and may be more
successful than the Company in their production and marketing of such
products. The Company is not aware, however, of any product currently
being marketed which is similar to the Company's proposed anti-tumor agent,
ONCONASE. A search by the Company of scientific literature reveals no
published information which would indicate that others are currently
employing its methods or producing such an anti-tumor agent. However,
there can be no assurance that the Company's methods or anti-tumor agent
are unique and that other drugs or treatment modalities are either not
currently available or may not be developed in the future which are more
effective than ONCONASE, which may treat the same diseases as those which
the Company's product is designed to treat.
EMPLOYEES
As of July 28, 1995, Alfacell employed nine persons, of whom five were
engaged in research and development activities and four were engaged in
administration and management. The Company has three employees who hold
Ph.D. or M.D. degrees. All of the Company's employees are covered by
confidentiality agreements. Alfacell considers relations with its
employees to be very good. None of the Company's employees are covered by
a collective bargaining agreement.
ENVIRONMENTAL MATTERS
The Company's operations are subject to comprehensive regulation with
respect to environmental, safety and similar matters by the United States
Environmental Protection Agency ("EPA") and similar state and local
agencies. Failure to comply with applicable laws, regulations and permits
can result in injunctive actions, damages and civil and criminal penalties.
If the Company expands or changes its existing operations or proposes any
new operations, it may be required to obtain additional or amended permits
or authorizations. The Company spends time, effort and funds in operating
its facilities to ensure compliance with environmental and other regulatory
requirements. Such efforts and expenditures are common throughout the
biotechnology industry and generally should have no material adverse effect
on the Company. The principal regulatory requirements and matters known to
the Company requiring or potentially requiring capital expenditures by the
Company do not appear likely, individually or in the aggregate, to have a
material adverse effect on the Company's financial condition. The Company
believes that it is in compliance with all current laws and regulations.
PROPERTIES
The Company owns no real property. The Company subleases a total of
approximately 12,600 square feet in an industrial and office building
located in Bloomfield, New Jersey. The Company subleases its facility
under a five year operating sublease which was due to expire October 31,
1993, but was extended to October 31, 1996 at a reduced annual rental
obligation commencing April 1, 1993 of $66,000. In addition to the basic
rent, the Company pays its pro rata share of increases in municipal real
estate taxes and utilities over the base year 1988. The Company believes
that the facility is sufficient for its current needs.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company
is a party, or to which any of its properties or assets is subject.
MANAGEMENT
The following table sets forth certain information regarding the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
With
Company
NAME AGE POSITION WITH THE COMPANY SINCE
<S> <C> <C> <C>
Kuslima Shogen 48 President, Chief Executive Officer and 1981
Director
Gail E. Fraser 37 Vice President, Finance and Chief 1994
Financial Officer and Director
Stanislaw M. Mikulski, M.D. 51 Executive Vice President, Medical Director 1986
and Director
Allen Siegel(1) 59 Director 1982
Alan Bell(1)(2) 69 Director 1986
Robert R. Henry(1)(2) 54 Director 1994
</TABLE>
(1) Member of Compensation Committee
(2) Member of Audit Committee
BUSINESS EXPERIENCE
KUSLIMA SHOGEN has served the Company as President and Chief Executive
Officer since September 1986 and as a director since its inception. Ms.
Shogen also served as the Company's Chief Financial Officer from September
1986 through July 14, 1994. Ms. Shogen formed the Company in 1981 to
pursue research which she initiated as a biology student in the University
Honors Program at Fairleigh Dickinson University ("F.D.U."). She was
Executive Vice President of the Company from 1984 until 1986 when she
became President. Prior to incorporating the Company, Ms. Shogen was
founder and president from 1976 to 1981 of a biomedical research consortium
specializing in GLP (Good Laboratory Practices) and animal toxicology.
During that time, she was also a consultant for Lever Brothers Research
Group. Ms. Shogen has received numerous awards for achievements in
biology, including Sigma Xi first prize from the Scientific Research
Society of North America in 1974 and first prize at the Eastern College
Science Conferences competition for most outstanding research paper in
biology in each of 1972, 1973, and 1974. Ms. Shogen received her B.S. in
1974 and M.S. in 1976 (both magna cum laude) from F.D.U. and was the first
teaching fellow from F.D.U.'s Rutherford campus. Among other honors, she
was a Phi Beta Kappa graduate. Ms. Shogen continued graduate studies until
1978. She devotes her full-time to the Company.
GAIL E. FRASER became the Company's Chief Financial Officer on July
15, 1994 and became a director in April 1995. From August 1993 to July
1994, Ms. Fraser served as a consultant to the Company and was the
Company's business, financial and accounting advisor. From April 1989 to
February 1993, Ms. Fraser was Vice President, Finance and Chief Financial
Officer of Enzon, Inc., a biopharmaceutical company located in Piscataway,
New Jersey. From 1982 to 1989, Ms. Fraser served as Vice President,
Finance and Controller for Sidmak Laboratories, Inc., a generic drug
manufacturer located in East Hanover, New Jersey. She received a B.S. in
accounting from Kean College of New Jersey and an M.B.A. from the Wharton
School of the University of Pennsylvania in 1993. Ms. Fraser is a
certified public accountant and devotes her full-time to the Company.
STANISLAW M. MIKULSKI, M.D. F.A.C.P., has served the Company as
Executive Vice President and Medical Director since 1987 and as a director
since 1986. Previously, Dr. Mikulski was Special Assistant to the Chief,
Investigational Drug Branch, National Cancer Institute, and Coordinator for
Immunotherapy Trials in Cancer for the Division of Cancer Treatment,
following his post-doctoral studies at the University of California, Los
Angeles in human tumor immunology. Prior to joining the Company, Dr.
Mikulski maintained a medical practice in medical oncology for over eight
years. He is a diplomate of the American Board of Internal Medicine and
Medical Oncology, as well as a fellow of the American College of Physicians
and a member of the American Society of Clinical Oncology. Dr. Mikulski is
a clinical assistant professor of medicine at the University of Medicine
and Dentistry of New Jersey. He received his M.D., cum laude, in 1967 from
the Medical School in Warsaw, Poland. Dr. Mikulski devotes his full-time
to the Company.
ALLEN SIEGEL, D.D.S., has been a director of the Company since 1982.
He has been a dentist in private practice since 1961. He received a B.S.
in 1955 and a D.D.S. in 1959 from the University of Buffalo.
ALAN BELL has been a director of the Company since 1986. He founded
the international public relations agency, Bell and Stanton, in 1956 and
served as its chairman until 1976. From 1976 to 1983 he was vice-chairman
of Manning Selvage & Lee, Inc., a major public relations firm. In 1983 he
established a new firm, Alan W. Bell Co., Inc. He specializes in financial
public relations and in economic and tourism development counselling.
ROBERT R. HENRY has been a director of the Company since March 1994.
Mr. Henry served as Partner and Managing Director of Morgan Stanley & Co.
Inc. ("Morgan Stanley") from 1977 through 1989. Since 1989 he has been
President of Robert R. Henry & Co., Inc., a firm which advises
international corporations and foreign governments on foreign exchange
risk. Mr. Henry continues to serve as an Advisory Director for Morgan
Stanley.
No director or officer is related to any other director or officer by
blood, marriage or adoption. No arrangement or understanding exists
between an officer or director and any other person under which any officer
or director was elected; however, the Company's bank may call due all
amounts payable under its loan to the Company in the event Ms. Shogen
ceases for any reason, except death, to be a full time employee, officer or
director of the Company.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides a summary of cash and non-cash
compensation for each of the last three fiscal years ended July 31, 1995,
1994 and 1993 with respect to Alfacell's Chief Executive Officer and the
only two other executive officers of the Company (the "Named
Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
COMPENSATION
<S> <C> <C> <C> <C> <C> <C>
NAME AND YEAR SALARY($) BONUS($) OTHER SECURITIES ALL OTHER
PRINCIPAL POSITION ANNUAL UNDERLYING COMPENSATION ($)
COMPENSATION ($){(1)} OPTIONS/
SARS(#)
Kuslima Shogen 1995 $150,000 - 0 - - 0 - - 0 -(3) - 0 -
President and Chief 1994 150,000 - 0 - - 0 - 1,306,529(2) - 0 -
Executive Officer(2) 1993 158,333 - 0 - - 0 - 1,100,000 - 0 -
Gail E. Fraser(4) 1995 $121,163 - 0 - - 0 - - 0 -(3) - 0 -
Vice President, 1994 8,333 - 0 - - 0 - 475,000(5) - 0 -
Finance and Chief 1993 - 0 - - 0 - - 0 - - 0 - - 0 -
Financial Officer
Stanislaw M. Mikulski(6) 1995 $130,000 - 0 - - 0 - - 0 -(3) - 0 -
Executive Vice President 1994 130,000 - 0 - - 0 - 431,409(6) - 0 -
and Medical Director 1993 135,833 - 0 - - 0 - 350,000 - 0 -
</TABLE>
(1) Excludes perquisites and other personal benefits that in the aggregate
do not exceed 10% of the Named Officers' total annual salary and
bonus.
(2) Ms. Shogen resigned from her position as the Company's Chief Financial
Officer in July 1994. No salary was paid to Ms. Shogen in fiscal
1995, 1994 or 1993 and these salary amounts were accrued on the
Company's financial statements as obligations owed to Ms. Shogen. In
consideration for her services to the Company through January 31, 1994
and Ms. Shogen's agreement to release the Company from its obligation
to pay her $1,624,151 in accrued salary on the Company's balance sheet
as of January 31, 1994, in March 1994 the Company granted Ms. Shogen
options to purchase 841,529 shares of the Company's Common Stock at an
exercise price of $3.20 per share.
(3) No options were granted to the Named Officers during the fiscal year
ended July 31, 1995.
(4) Ms. Fraser became an employee of the Company on July 15, 1994.
$96,163 of Ms. Fraser's salary in fiscal 1995 was paid to Ms. Fraser.
That portion of Ms. Fraser's salary which was not paid to her was
accrued on the Company's financial statements as obligations owed to
Ms. Fraser.
(5) Prior to Ms. Fraser joining the Company, Ms. Fraser received under a
consulting agreement an option to purchase 50,000 and 75,000 shares of
the Company's Common Stock at an exercise price of $3.22 and $5.00,
respectively. On July 15, 1994, Ms. Fraser was granted options to
purchase 350,000 shares of Common Stock under the 1993 Stock Option
Plan at an exercise price of $4.11 per share.
(6) No salary was paid to Dr. Mikulski in fiscal 1994 or 1993. $5,000 of
Dr. Mikulski's salary in fiscal 1995 was paid to Dr. Mikulski. Those
portions of Dr. Mikulski's salaries which were not paid to him were
accrued on the Company's financial statements as obligations owed to
Dr. Mikulski. In consideration for his services to the Company and
Dr. Mikulski's agreement to release the Company from its obligation to
pay him $639,619 in accrued salary on the Company's balance sheet as
of January 31, 1994, in March 1994 the Company granted Dr. Mikulski
options to purchase 331,409 shares of the Company's Common Stock at an
exercise price of $3.20 per share.
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth the information with respect to the
Named Officers concerning the exercise of options during the fiscal year
ended July 31, 1995 and unexercised options held as of July 31, 1995.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options
Options at Fiscal Year-End at Fiscal Year-End($)(1)
(#)
<S> <C> <C> <C> <C> <C> <C>
Shares Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
Kuslima Shogen None None 1,005,548 1,180,659 $0$0
Gail E. Fraser None None 195,000 280,000 $0$0
Stanislaw M. Mikulski None None 402,564 278,845 $0 $0
</TABLE>
(1) The exercise price of the unexercised options is greater than the July
31, 1995 market value of the Common Stock and thus the unexercised
options had no value as of that date.
DIRECTORS' COMPENSATION
From time to time members of the Board of Directors have been granted
options to purchase shares of Common Stock and awarded shares of restricted
Common Stock under the Company's 1989 Stock Plan in consideration for their
serving on the Board. It is expected that no additional awards or grants
will be made under the 1989 Stock Plan, and in lieu thereof, option grants
under the 1993 Stock Option Plan will be used to compensate directors in
the future. Except for annual formula awards of an option to purchase
15,000 shares of Common Stock to each of the independent (non-employee)
directors under the 1993 Stock Option Plan adopted by the stockholders in
January 1994, there is no formal arrangement for the compensation of
directors. During the fiscal year ended July 31, 1995, the following
directors were granted the options listed below pursuant to the formula
grant under the 1993 Stock Option Plan in consideration for serving on the
board of directors. The exercise prices of the options granted to
directors in fiscal 1995 are equal to the fair market value of the Common
Stock on the date of grant.
<TABLE>
<CAPTION>
Number of EXPIRATION DATE
NAME OPTIONS EXERCISE PRICE
12/31/00
Allen Siegel(1) 15,000 $2.27
<S> <C> <C> <C>
Alan Bell(2) 15,000 $2.27 12/31/00
Robert R. Henry 15,000 $2.27 12/31/00
</TABLE>
_______________________
(1) On April 17, 1995 the Company extended the exercise period until July
31, 1995 of an option to purchase 100,000 shares held by Dr. Siegel and an
option to purchase 30,000 shares held by Dr. Siegel's wife. The exercise
price for these options was reduced from $5.00 to $2.65, the then current
market price. On July 31, 1995 the exercise period for these options was
extended until July 31, 1996 at the same exercise price. All optionholders
with options expiring on July 31, 1995 had the exercise period of their
options extended until July 31, 1996.
(2) On April 17, 1995 the Company extended the exercise period until July
31, 1995 of an option to purchase 50,000 shares held by Mr. Bell and an
option to purchase 20,000 shares held by Mr. Bell's wife. The exercise
price for these options was reduced from $5.00 to $2.65, the then current
market price. On July 31, 1995 the exercise period for these options was
extended until July 31, 1996 at the same exercise price. All optionholders
with options expiring on July 31, 1995 had the exercise period of their
options extended until July 31, 1996.
EMPLOYMENT AGREEMENTS
Ms. Shogen continues in the employ of the Company; however, her one-
year employment agreement with the Company terminated on June 30, 1995.
Under the agreement, Ms. Shogen was entitled to receive an annual salary of
approximately $150,000. The agreement also required Ms. Shogen to maintain
the confidentiality of Company information and acknowledged that Ms. Shogen
previously entered into an assignment and non-disclosure agreement with
respect to present and future proprietary methods, inventions, productions,
drugs, compounds, know-how and discoveries in processes, whether developed
by her, the Company or a Company affiliate. Upon expiration of this
agreement, the board of directors approved an annual salary of $150,000 for
Ms. Shogen for a period of one year. It is anticipated that negotiations
with respect to a new agreement will commence in the near future.
Ms. Gail E. Fraser commenced her employment with the Company as its
Vice President, Finance, and Chief Financial Officer on July 15, 1994. Ms.
Fraser's one-year employment agreement terminated on July 14, 1995. Under
the agreement, Ms. Fraser was entitled to receive an annual salary of
$100,000 and subsequently received an additional $25,000 for the fiscal
year ended July 31, 1995. The agreement also required Ms. Fraser to
maintain the confidentiality of Company information and to assign to the
Company all tangible and intangible property, including, but not limited
to, inventions, developments or discoveries conceived, made or discovered
by Ms. Fraser solely or in collaboration with others during the term of Ms.
Fraser's employment with the Company. The agreement also provided that
during the term of the agreement and for two years thereafter, Ms. Fraser
is prohibited from directly or indirectly becoming interested in or
associated with an entity engaged to a significant degree in any technology
or area of business in which the Company was involved to a significant
degree during the term of the agreement. On July 15, 1994, Ms. Fraser was
granted options to purchase 350,000 shares of Common Stock under the 1993
Stock Option Plan at an exercise price of $4.11 per share. These options
vest as to 20% of such shares each year during the five year period
commencing July 15, 1995. Upon expiration of this agreement, the board of
directors approved an annual salary of $130,000 for Ms. Fraser for a period
of one year. It is anticipated that negotiations with respect to a new
agreement will commence in the near future.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Compensation Committee was formed in November 1993 and is
comprised of Allen Siegel, Alan Bell and Robert R. Henry. All decisions
regarding executive compensation were made by the Compensation Committee
during the fiscal year ended July 31, 1995.
CERTAIN TRANSACTIONS
Effective May 31, 1993, the Company restructured a pre-existing bank
note (the "Note") to include the principal balance of $1,300,000, accrued
interest of $349,072, and legal fees of $50,000 into a new Term Loan of
$1,699,072. Interest is to be computed at a rate of seven and one-half
percent (7.5%) per annum. The Term Loan is secured by substantially all of
the assets of the Company. Ms. Shogen has personally guaranteed the Note
and has pledged certain collateral, including a substantial portion of the
shares of Common Stock of the Company owned by her and certain options, as
additional collateral. Substantially all of the obligations owed by the
Company to Ms. Shogen are subordinated to the Note. In order to satisfy
the Company's obligations to the bank, Ms. Shogen, from time to time,
pursuant to a pledge agreement ("Pledge Agreement"), has sold portions of
the shares of Common Stock pledged to the bank. Through February 28, 1994,
the monthly payments of interest and principal under the Term Loan have
been paid primarily pursuant to this procedure, and subsequent to such
time, have been paid directly by the Company. The bank loan agreement
prohibits the issuance of any shares, or right to purchase any shares of
the Company's stock if the result of such issuance would be to decrease the
ratio of the market value of Ms. Shogen's pledged stock to the aggregate
outstanding debt of the Company and herself to the bank, below 1:1. In
June 1994, the Term Loan Agreement and the related Pledge Agreement were
amended to provide for, among other things, the issuance to Ms. Shogen, and
subsequent pledge to the bank, of the options discussed below. Based upon
the average of the closing bid and asked prices on July 28, 1995, the
shares of the Company's Common Stock pledged by Ms. Shogen to secure the
Term Loan were valued at $3,438,080 (excluding the value of shares of
Common Stock underlying certain options pledged to the bank) and the
aggregate outstanding debt of the Company and Ms. Shogen to the bank as of
July 28, 1995 was $2,346,002. For more information concerning the Term
Loan see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
From time to time Kuslima Shogen has advanced sums of money to the
Company in the form of unsecured obligations payable on demand (the "demand
loans"). Ms. Shogen has at various times converted portions of the demand
loans into convertible debentures. At July 31, 1992 the Company owed Ms.
Shogen $1,300,000 for convertible debentures owned by her, and a total of
$855,000 in demand loans and accrued interest on the demand loans and on
the convertible debentures owned by Ms. Shogen. During the fiscal year
ended July 31, 1993, (i) Ms. Shogen made $113,000 of additional demand
loans to the Company, (ii) the Company repaid $234,000 of the principal
amount of the demand loans owed to Ms. Shogen and (iii) Ms. Shogen
converted $275,000 of the principal amount of the demand loans into
convertible debentures which were due in October 1996, bore 8% interest and
were convertible into shares of Common Stock at the rate of $2.75 per
share. At July 31, 1993, (i) the Company owed Ms. Shogen $14,000 for loans
which were previously demand loans, but which were subordinated to the
Company's bank debt in connection with the restructuring of such debt and
consequently, reclassified as long-term debt, and (ii) Ms. Shogen owned
convertible debentures in the aggregate principal amount of $1,575,000.
During the fiscal year ended July 31, 1993, $198,000 in interest accrued on
the loans owed to, and the convertible debentures owned by, Ms. Shogen.
None of this interest was paid to Ms. Shogen during the year. In
connection with the restructuring of the Company's bank debt, $657,000 of
interest accrued on the loans owed to, and the convertible debentures owned
by, Ms. Shogen, was subordinated to the Company's bank debt and
consequently, reclassified as long-term debt.
During the fiscal year ended July 31, 1994, Ms. Shogen converted the
outstanding debentures held by her with an aggregate face value of
$1,575,000 into 400,000 shares of the Company's Common Stock at the stated
conversion rates ranging from $2.75 to $6.00 per share. In March 1994, an
aggregate of $931,197 of advances and interest owed by the Company to Ms.
Shogen was converted by Ms. Shogen into options to purchase an aggregate of
482,485 shares of the Company's Common Stock at an exercise price of $3.20
per share. In March 1994, in consideration for her services to the Company
and Ms. Shogen's agreement to release the Company from its obligation to
pay her $1,624,151 in accrued salary on the Company's balance sheet as of
January 31, 1994 (which salary had been accruing since 1986), the Company
granted Ms. Shogen options to purchase 841,529 shares of the Company's
Common Stock at an exercise price of $3.20 per share. In June 1994, the
Company, with its bank's consent, reinstituted certain advances of $198,417
from Ms. Shogen as long term debt that was previously converted into
102,807 of options on March 30, 1994. Such options were returned to the
Company. The Company's bank has consented to allow repayment of such
advances under certain conditions. At July 31, 1994 the Company owed Ms.
Shogen an aggregate of $203,723 in demand loans and accrued interest on the
demand loans owed to Ms. Shogen.
During the fiscal year ended July 31, 1995 the Company, with its
bank's consent, repaid $80,067 of the principal amount on the demand loans.
At July 31, 1995, the Company owed Ms. Shogen an aggregate of $119,139 in
demand loans and accrued interest on the demand loans.
In March 1994, in consideration for his services to the Company and
Dr. Mikulski's agreement to release the Company from its obligation to pay
him $639,619 in accrued salary on the Company's balance sheet as of January
31, 1994, the Company granted Dr. Mikulski options to purchase 331,409
shares of the Company's Common Stock at an exercise price of $3.20 per
share.
On July 23, 1991, the board of directors authorized the Company to pay
to Kuslima Shogen an amount equal to 15% of any gross royalties which may
be paid to the Company from any license(s) with respect to the Company's
principal product, ONCONASE, or any other products derived from amphibian
source extract, produced either as a natural, synthesized, and/or
genetically engineered drug for which the Company owns or is co-owner of
the patent, or acquires such rights in the future, for a period not to
exceed the life of the patents. If the Company manufactures and markets
the drugs by itself, then the Company will pay an amount equal to 5% of
gross sales from any products sold during the life of the patents.
On November 11, 1993, the Company entered into a consulting agreement
(the "Tartan Consulting Agreement") with The Tartan Group ("Tartan"), an
independent consulting firm of which Ms. Gail E. Fraser, the Company's Vice
President, Finance and Chief Financial Officer, is an officer and principal
stockholder. The Tartan Consulting Agreement was effective as of August 1,
1993 and terminated by agreement of both parties on April 30, 1994.
Pursuant to the Tartan Consulting Agreement Ms. Fraser performed
administrative, financial and accounting services for the Company.
Pursuant to the Tartan Consulting Agreement, the Company granted
indemnification to Ms. Fraser with respect to any and all claims, damages
or costs which arise out of her performance of consulting services to the
Company. Tartan received a consulting fee of $45,000.
On May 1, 1994, upon the termination of the Tartan Consulting
Agreement, Ms. Fraser entered into a consulting agreement (the "Fraser
Consulting Agreement") with the Company which terminated by its terms on
June 30, 1994. Under the Fraser Consulting Agreement, Ms. Fraser received
$15,000 and (i) an option to purchase 50,000 shares of the Company's Common
Stock at an exercise price of $3.22 per share at any time during the period
commencing on May 1, 1994 and terminating on November 10, 1997 at 5.00 p.m.
local time and (ii) an option to purchase 75,000 shares of the Company's
Common Stock at an exercise price of $5.00 per share at any time during the
four year period commencing on November 11, 1994 and terminating on
November 10, 1998 at 5.00 p.m. local time. Pursuant to the Fraser
Consulting Agreement, the Company granted indemnification to Ms. Fraser
with respect to any and all claims, damages or costs which arise out of her
performance of consulting services to the Company.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information concerning stock
ownership of each person who is the direct or indirect beneficial owner of
five percent or more of the Company's outstanding Common Stock and of each
director and each Named Officer and all directors and executive officers as
a group as of July 28, 1995. Except as otherwise noted, each person has
sole voting and investment power with respect to the shares shown as
beneficially owned.
<TABLE>
<CAPTION>
DIRECTORS, OFFICERS OR NUMBER OF SHARES{(2)} PERCENTAGE OF COMMON STOCK
5% STOCKHOLDERS{(1)} OUTSTANDING{(3)}
<S> <C> <C>
Kuslima Shogen 2,348,548{(4)} 20.7%
Stanislaw Mikulski 763,814{(5)} 7.1%
Allen Siegel 280,262{(6)} 2.7%
Alan Bell 105,929{(7)} 1.0%
Robert R. Henry 231,250{(8)} 2.2%
Gail E. Fraser 195,000{(9)} 1.9%
All officers and directors AS A GROUP 3,924,803{(10)} 32.1%
(SIX PERSONS)
</TABLE>
(1) The address of all officers and directors listed above is in the
care of the Company.
(2) All shares listed are Common Stock. Except as discussed below,
none of these shares are subject to rights to acquire beneficial
ownership, as specified in Rule 13d-3(d)(1) under the Exchange
Act, and the beneficial owner has sole voting and investment
power, subject to community property laws where applicable.
(3) The percentage of stock outstanding for each stockholder is
calculated by dividing (i) the number of shares of Common Stock
deemed to be beneficially held by such stockholder as of July 28,
1995 by (ii) the sum of (A) the number of shares of Common Stock
outstanding as of July 28, 1995 plus (B) the number of shares
issuable upon exercise of options or warrants held by such
stockholder which were exercisable as of July 28, 1995 or which
will become exercisable within 60 days after July 28, 1995.
(4) Includes 1,005,548 shares subject to options which were
exercisable as of July 28, 1995 or which will become exercisable
within 60 days after July 28, 1995.
(5) Includes 402,564 shares subject to options which were exercisable
as of July 28, 1995 or which will become exercisable within 60
days after July 28, 1995.
(6) Includes 115,000 shares subject to options which were exercisable
as of July 28, 1995 or which will become exercisable within 60
days after July 28, 1995 owned by Dr. Siegel, 40,485 shares owned
by Dr. Siegel's wife, who was an employee of the Company and
30,000 shares subject to options which were exercisable as of
July 28, 1995 or will become exercisable within 60 days of July
28, 1995 owned by Dr. Siegel's wife. Dr. Siegel disclaims
beneficial ownership as to the shares owned by his wife.
(7) Includes 65,000 shares subject to options which were exercisable
as of July 28, 1995 or which will become exercisable within 60
days after July 28, 1995 owned by Mr. Bell, 20,000 shares subject
to options which were exercisable as of July 28, 1995 or which
will become exercisable within 60 days after July 28, 1995 owned
by Mr. Bell's wife, 20,429 shares owned jointly by Mr. and Mrs.
Bell and 500 shares owned by Mrs. Bell. Mr. Bell disclaims
beneficial ownership as to the shares owned by his wife.
(8) Includes 11,250 shares subject to options which were exercisable
as of July 28, 1995 or which will become exercisable within 60
days after July 28, 1995 and 60,000 shares underlying warrants
which were exercisable as of July 28, 1995 or which will become
exercisable within 60 days after July 28, 1995.
(9) Includes 195,000 shares underlying options which were exercisable
as of July 28, 1995 or which will become exercisable within 60
days after July 28, 1995.
(10) Includes all shares owned beneficially by the directors and the
executive officers named in the table.
SELLING STOCKHOLDERS
GENERAL
On March 21, 1994, the Company completed the March Private Placement
resulting in the issuance of 800,000 shares of Common Stock and three-year
warrants (the "Warrants") to purchase 800,000 shares of Common Stock at an
exercise price of $5.00 per share. The Common Stock and Warrants were sold
in units consisting of 20,000 shares of Common Stock and Warrants to
purchase 20,000 shares of Common Stock. The price per unit was $50,000.
Through the date hereof, 28,000 shares of Common Stock have been sold
pursuant to the initial registration statement and no Warrants have been
exercised. After taking into account expenses of the offering, the
conversion of a total of $182,000 of debt by a certain investor, and
conversion of a total of $23,000 of accounts payable by a certain creditor,
the Company received net proceeds of approximately $1,695,000 from the
offering.
On September 13, 1994, the Company completed the September Private
Placement resulting in the issuance of 288,506 shares of Common Stock and
three-year Warrants to purchase 288,506 shares of Common Stock at an
exercise price of $5.50 per share. The Common Stock and Warrants were sold
in units consisting of 20,000 shares of Common Stock and Warrants to
purchase 20,000 shares of Common Stock. The price per unit was $50,000.
Through the date hereof, 57,600 shares of Common Stock have been sold
pursuant to the initial registration statement and no Warrants have been
exercised. After taking into account expenses of the offering, the
conversion of a total of $44,000 of debt by a certain investor, and
conversion of a total of $77,265 of accounts payable by certain creditors,
the Company received net proceeds of approximately $572,000 from the
offering.
The Company's sale of Common Stock and Warrants to several accredited
investors (as that term is defined in Rule 501 under the Securities Act)
and non-accredited investors in each of the March Private Placement and the
September Private Placement was effected in reliance upon Section 4(2) of
the Securities Act and Rule 506 thereunder. Pursuant to stock purchase
agreements entered into by the Company with each of the Private Placement
Investors (the "Purchase Agreements"), the Company agreed to indemnify each
of the Private Placement Investors (all of whom are Selling Stockholders)
against any liabilities, under the Securities Act or otherwise, arising out
of or based upon any untrue or alleged untrue statement of a material fact
in the Registration Statement or this Prospectus or by any omission of a
material fact required to be stated therein except to the extent that such
liabilities arise out of or are based upon any untrue or alleged untrue
statement or omission in any information furnished in writing to the
Company by the Private Placement Investors expressly for use in the
Registration Statement. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers or persons
controlling the Company pursuant to its certificate of incorporation and
by-laws, the Company has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is therefore unenforceable.
The Private Placement Investors have the right, at the Company's
expense, to have the shares of Common Stock offered hereby registered for
the offer and sale to the public under the Securities Act. The Private
Placement Investors in the March Private Placement have the right to have
the offer and sale of their shares of Common Stock registered through
August 3, 1997 and the Private Placement Investors in the September Private
Placement have the right to have the offer and sale of the shares of Common
stock registered through September 14, 1997.
During the period from May 1993 through March 1994 the Company issued
Options to the Selling Stockholders who are Option Holders in private
transactions in reliance upon Section 4(2) of the Securities Act. Many of
the Option Holders are "accredited investors" (as that term is defined in
the Securities Act). Options to purchase an aggregate of 445,000 shares of
Common Stock were issued to the Option Holders under the 1989 Stock Plan in
consideration for services rendered to the Company as either an employee,
director or consultant and are outstanding as of the date hereof. Options
to purchase an aggregate of 289,667 shares of Common Stock were issued in
connection with financing transactions in which the Option Holders also
purchased an aggregate of 202,667 shares of Common Stock privately under
Section 4(2) of the Securities Act for an aggregate purchase price of
$435,500. Of these Options, none have been exercised through the date
hereof. The remaining Options to purchase an aggregate of 453,482 shares
of Common Stock were issued to the Company's President and Chief Executive
Officer and an unaffiliated lender in the conversion of an aggregate of
$875,221 of Company debt. The Company is filing this Registration
Statement voluntarily with respect to the Options in order to encourage the
Option Holders to exercise their Options. The Options expire on various
dates from the date hereof through March 30, 2004. The exercise prices of
the Options range from $2.50 per share to $7.00 per share.
In connection with the registration of the shares of Common Stock
offered hereby, the Company will supply prospectuses to the Selling
Stockholders, use its best efforts to qualify the Common Stock for sale in
the states of New York and New Jersey and indemnify the Selling
Stockholders for certain liabilities relating thereto.
STOCK OWNERSHIP
The table below sets forth the number of shares of Common Stock (i)
owned beneficially by each of the Selling Stockholders; (ii) being offered
by each Selling Stockholder pursuant to this Prospectus; (iii) to be owned
beneficially by each Selling Stockholder after completion of the offering,
assuming that all of the Warrants and Options held by the Selling
Stockholders are exercised and all of the shares offered hereby are sold
and that none of the other shares held by the Selling Stockholders, if any,
are sold and (iv) the percentage to be owned by each Selling Stockholder
after completion of the offering, assuming that all of the shares offered
hereby are sold and that none of the other shares held by the Selling
Stockholders, if any, are sold. For purposes of this table each Selling
Stockholder is deemed to own beneficially (i) the shares of Common Stock
underlying the Warrants and Options, (ii) the issued and outstanding shares
of Common Stock owned by the Selling Stockholder as of July 28, 1995, and
(iii) the shares of Common Stock underlying any other options or warrants
owned by the Selling Stockholder which are exercisable as of July 28, 1995
or which will become exercisable within 60 days after July 28, 1995.
Except as otherwise noted, none of such persons or entities has had any
material relationship with the Company during the past three years.
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Number of Number of Shares Number of Number of Outstanding
Shares Offered Offered and Shares Shares to Shares to be
Number of and Acquired in Acquired in Offered be Owned Owned
Shares March Private September Underlying Beneficially Beneficially
SELLING STOCKHOLDERS Beneficially PLACEMENT PRIVATE OPTIONS After After Completion
OWNED PLACEMENT COMPLETION OF of OFFERING(1)
OFFERING
<S> <C> <C> <C> <C> <C> <C>
Wojciech J. Ardelt(2) 20,000 --- --- 10,000 10,000 *
Albert T. Barlow 88,293 24,000 20,000 --- 44,293 *
Alan W. Bell(3) 105,929 --- --- 50,000 55,929 *
Sheila N. Bell(4) 40,929 --- --- 20,000 20,929 *
Martin C. Blyseth 46,050 20,000 --- --- 26,050 *
Charles H. & Susan D. 60,700 40,000 --- --- 20,700 *
Boynton (5)
Peter M. Buccieri 28,000 12,000 --- --- 16,000 *
Corinne M. Champagne 30,540 --- --- 18,500 12,040 *
Kimberly Computer 65,000 --- --- 32,500 32,500 *
Arthur G. Cooper 40,000 40,000 --- --- 0 *
John Costanzi 50,100 --- --- 20,000 30,100 *
Digital Creations 230,000 --- --- 115,000 115,000 *
Carmen DeSantis 18,000 --- --- 10,000 8,000 *
Colleen A. Dille 32,040 --- --- 18,500 13,540 *
Lili B. Dung 45,000 --- 40,000 --- 5,000 *
Ahmed H. Farag 5,666 --- --- 3,333 2,333 *
Margaret Fraser 20,000 --- 20,000 --- 0 *
John Frohling(6) 67,600 --- 17,600 50,000 0 *
Peter J. Gianacakes 40,000 40,000 --- --- 0 *
Robert Goldberg 35,025 20,000 --- --- 15,025 *
Michael A. Gordon 20,000 20,000 --- --- 0 *
Arthur J. Grymes III 40,000 40,000 --- --- 0 *
Charles W. Halsey, Jr. 20,000 20,000 --- --- 0 *
Donald L. Harjes 20,000 20,000 --- --- 0 *
Robert R. Henry(7) 231,250 80,000 40,000 --- 111,250 *
Heritage Finance & Trust 320,000 240,000 80,000 --- 0 *
Heritage U.S.A. Value 80,000 80,000 --- --- 0 *
Fund
Jane R. Holsapple 20,000 20,000 --- --- 0 *
Edward D. Horowitz 60,000 60,000 --- --- 0 *
David Jacob 44,000 --- 40,000 --- 4,000 *
Mark H. Jay(8) 117,712 18,400 21,812 --- 77,500 *
John B. & Mary C. 20,000 20,000 --- --- 0 *
Kallstrom
A. Roy Knutsen 47,500 40,000 --- --- 7,500 *
Adolf & Adair Konrad 40,000 40,000 --- --- 0 *
Werner O. Kunzli 41,000 20,000 20,000 --- 1,000 *
Stephen C. Lampl & Anne 50,000 --- 40,000 --- 10,000 *
B. Shumadine
Michael Lowe(9) 90,000 --- --- 50,000 40,000 *
James H. Lynch, Jr. 40,000 40,000 --- --- 0 *
Timothy J. Manna 80,000 40,000 40,000 --- 0 *
Jack & Gretchen Maronde 69,500 40,000 --- --- 29,500 *
Linda T. McCarthy(10) 61,000 --- 40,000 10,000 11,000 *
David J. McCash 33,040 --- --- 18,500 14,540 *
Donna M. McCash 12,500 --- --- 10,500 2,000 *
James O. McCash 411,185 80,000 --- 32,834 298,351 2.2%
Michael J. McCash 33,540 --- --- 18,500 15,040 *
Kenneth S. Mesches, M.D. 82,340 --- 40,000 --- 42,340 *
Abraham Mittelman(11) 70,000 --- --- 50,000 20,000 *
Armand Della Monica 7,000 4,000 --- --- 3,000 *
Thruston B. Morton III & 44,000 40,000 --- --- 4,000 *
Patricia R. Morton
Satish P. Patel 80,000 80,000 --- --- 0 *
Michael Pisani(12) 115,000 --- 20,000 --- 95,000 *
Mary M. Richards 36,640 --- --- 18,500 18,140 *
Anatoly G. Ritikoff 7,775 --- --- 3,000 4,775 *
Susan E. Saltus 40,000 40,000 --- --- 0 *
Roger H. Samet 145,000 20,000 40,000 --- 85,000 *
John Schierloh(13) 343,929 145,600 --- 118,804 79,525 *
Warren Schwarz 20,000 20,000 --- --- 0 *
Kuslima Shogen(14) 2,348,548 --- --- 379,678 2,272,612 16.6%
Allen S. Siegel(15) 280,262 --- --- 100,000 180,262 1.3%
Ina Siegel(16) 70,485 --- --- 30,000 40,485 *
Josana Siegel 35,000 20,000 --- --- 15,000 *
Fred A. Starita 9,100 4,000 --- --- 5,100 *
Edward A. Stroud 5,000 4,000 --- --- 1,000 *
Peter Walter 40,000 40,000 --- --- 0 *
Woodmere Court Investment 40,000 40,000 --- --- 0 *
</TABLE>
(*) Less than one percent.
(1) Based upon shares of Common Stock outstanding as of July 28, 1995
after giving effect to shares of Common Stock underlying options or
warrants which are deemed to be owned beneficially by the Selling
Stockholders.
(2) Wojciech J. Ardelt is an employee of the Company and received his
Options for services rendered.
(3) Alan W. Bell is a director and the Assistant Secretary of the Company
and a member of both the Compensation Committee and the Audit
Committee. Mr. Bell received his Options for services rendered. See
"Management" and "Principal Stockholders." Mr. Bell and Sheila N.
Bell, his wife, own 20,429 shares jointly and Mrs. Bell owns 500
shares individually. Mr. Bell disclaims beneficial ownership as to
the shares owned by his wife.
(4) Sheila N. Bell is the wife of Alan Bell who is a director and the
Assistant Secretary of the Company and a member of both the
Compensation Committee and the Audit Committee. Mrs. Bell received
her Options for services rendered. Mr. and Mrs. Bell own 20,429
shares of Common Stock jointly and Mrs. Bell owns 500 shares
individually.
(5) Charles Boynton is a consultant to the Company and his beneficial
ownership includes shares underlying options received for services
rendered.
(6) John Frohling previously served as legal counsel to the Company and
received his shares of Common Stock in the September Private Placement
in consideration for his conversion of $44,000 of debt owed by the
Company to him. Mr. Frohling received his Options for services
rendered.
(7) Robert Henry is a director of the Company and is a member of both the
Compensation Committee and Audit Committee. See "Management."
(8) Mark H. Jay currently serves as the Company's patent attorney. Mr.
Jay received his shares of Common Stock and matching Warrants in the
March Private Placement and the September Private Placement in
consideration for the conversion of $50,265 of accounts payable to him
and received his Options for services rendered.
(9) Michael Lowe is a consultant to the Company and is a member of the
Company's Scientific Advisory Board. He received his Options for
services rendered.
(10) Linda McCarthy has in the past served as the Company's legal counsel.
Ms. McCarthy received her shares of Common Stock in the September
Private Placement in consideration for the conversion of $50,000 of
accounts payable to her and received her Options for services
rendered.
(11) Abraham Mittelman is a consultant to the Company and received his
Options for services rendered.
(12) Michael Pisani is a consultant to the Company and his beneficial
ownership includes shares underlying options he received for services
rendered.
(13) John Schierloh has been a consultant to the Company and received
72,800 shares of Common Stock and matching Warrants in the March
Private Placement in consideration for conversion of $182,000 of debt
owed by the Company to him, 73,804 Options in consideration for
conversion of $142,441 of Company debt and received 45,000 Options for
services rendered.
(14) Kuslima Shogen is the President and Chief Executive Officer and a
director of the Company. Ms. Shogen is also a principal stockholder
of the Company. See "Management" and "Principal Stockholders." As of
the date hereof, Ms. Shogen's Option to purchase 379,678 shares is
exercisable as to 75,936 shares.
(15) Allen Siegel is a director of the Company and a member of the
Compensation Committee and received his Options for services rendered.
Mr. Siegel disclaims beneficial ownership as to the shares owned by
Ina Siegel, his wife. See "Management" and "Principal Stockholders."
(16) Ina Siegel is the wife of Allen Siegel who is a director of the
Company and a member of the Compensation Committee. Ms. Siegel is a
former employee of the Company and received her Options for services
rendered.
PLAN OF DISTRIBUTION
Shares of Common Stock currently outstanding and shares of Common
Stock issuable upon exercise of the Warrants and Options may be sold
pursuant to this Prospectus by the Selling Stockholders. These sales may
occur in privately negotiated transactions or in the over-the-counter
market through brokers and dealers as agents or to brokers and dealers as
principals, who may receive compensation in the form of discounts or
commissions from the Selling Stockholders or from the purchasers of the
Common Stock for whom the broker-dealers may act as agent or to whom they
may sell as principal, or both. The Company has been advised by the
Selling Stockholders that they have not made any arrangements relating to
the distribution of the shares of Common Stock covered by this Prospectus.
In effecting sales, broker-dealers engaged by the Selling Stockholders may
arrange for other broker-dealers to participate. Broker-dealers will
receive commissions or discounts from the Selling Stockholders in amounts
to be negotiated immediately prior to the sale.
Upon being notified by a Selling Stockholder that any material
arrangement (other than a customary brokerage account agreement) has been
entered into with a broker or dealer for the sale of shares through a block
trade, purchase by a broker or dealer, or similar transaction, the Company
will file a supplemented Prospectus pursuant to Rule 424(c) under the
Securities Act disclosing (a) the name of each such broker-dealer, (b) the
number of shares involved, (c) the price at which such shares were sold,
(d) the commissions paid or discounts or concessions allowed to such
broker-dealer(s), (e) if applicable, that such broker-dealer(s) did not
conduct any investigation to verify the information set out or incorporated
by reference in the Prospectus, as supplemented, and (f) any other facts
material to the transaction.
Certain of the Selling Stockholders and any broker-dealers who execute
sales for the Selling Stockholders may be deemed to be "underwriters"
within the meaning of the Securities Act by virtue of the number of shares
of Common Stock to be sold or resold by such persons or entities or the
manner of sale thereof, or both. If any of the Selling Stockholders,
broker-dealers or other holders were determined to be underwriters, any
discounts or commissions received by them or by brokers or dealers acting
on their behalf and any profits received by them on the resale of their
shares of Common Stock might be deemed underwriting compensation under the
Securities Act.
The Selling Stockholders have represented to the Company that any
purchase or sale of the Common Stock by them will be in compliance with
Rules 10b-6 and 10b-7 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). In general, Rule 10b-6 under the Exchange Act
prohibits any person connected with a distribution of the Company's Common
Stock (the "Distribution") from directly or indirectly bidding for, or
purchasing for any account in which he has a beneficial interest, any
Common Stock or any right to purchase Common Stock, or attempting to induce
any person to purchase Common Stock or rights to purchase Common Stock,
until after he has completed his participation in the Distribution (the
"Distribution Period").
During the Distribution Period, Rule 10b-7 under the Exchange Act
prohibits the Selling Stockholders and any other person engaged in the
Distribution from engaging in any stabilizing bid or purchasing the Common
Stock except for the purpose of preventing or retarding a decline in the
open market price of the Common Stock. No such person may effect any
stabilizing transaction to facilitate any offering at the market. Inasmuch
as the Selling Stockholders will be reoffering and reselling the Common
Stock at the market, Rule 10b-7 prohibits them from effecting any
stabilizing transaction with respect to the Common Stock.
DESCRIPTION OF SECURITIES
An aggregate of 3,279,561 shares of the Company's Common Stock are
being included in the Registration Statement of which this Prospectus forms
a part.
COMMON STOCK
The Company is currently authorized to issue 25,000,000 shares of its
Common Stock, par value $.001 per share. As of July 28, 1995, there were
10,318,887 shares of Common Stock issued and outstanding and held of record
by approximately 1515 stockholders.
As of July 28, 1995, 445,000 shares of Common Stock were reserved for
issuance pursuant to the options issued and outstanding under the 1989
Stock Plan, 2,334,678 shares of Common Stock were reserved for issuance
pursuant to outstanding options which were not issued under either the 1989
Stock Plan or the 1993 Stock Option Plan, 800,000 shares of Common Stock
were reserved for issuance pursuant to the Warrants sold in the March
Private Placement, 288,506 shares of Common Stock were reserved for
issuance pursuant to the Warrants sold in the September Private Placement,
95,945 shares were reserved for issuance pursuant to the warrants sold in
the Current Private Placement and 1,898,159 shares of Common Stock were
reserved for issuance pursuant to options issued and outstanding under the
1993 Stock Option Plan.
A majority of the issued and outstanding shares of the Company's
Common Stock must be present at a duly called stockholders' meeting in
order to have a quorum under the Company's By-Laws. In most cases, if a
quorum is present the affirmative vote of the majority of the shares
represented at the meeting constitutes the act of the stockholders.
Consequently, the holders of one share more than one third of the
outstanding Common Stock could exercise effective control over the Company.
The affirmative vote of a majority of all shares entitled to vote, however,
is required to amend the Company's Certificate of Incorporation, as well as
to accomplish certain other matters.
All shares of Common Stock are equal to each other with respect to
voting, liquidation, dividend and other rights. Owners of shares of Common
Stock are entitled to one vote for each share they own at any stockholders'
meeting. Holders of shares of Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors out of funds legally
available therefor, and upon liquidation are entitled to participate pro
rata in a distribution of assets available for such a distribution to
stockholders. The Term Loan restricts the payment of dividends to
stockholders without the bank's consent. There are no preemptive rights or
privileges with respect to any shares of Common Stock. The Common Stock of
the Company does not have cumulative voting rights which means that the
holders of more than 50% of the shares voting for the election of the
directors may elect all of the directors if they choose to do so. In such
event, the holders of the remaining shares aggregating less than 50% would
not be able to elect any directors.
PREFERRED STOCK
The Company is currently authorized to issue 1,000,000 shares of
Preferred Stock, par value $.001 per share. As of July 28, 1995, there
were no shares of Preferred Stock outstanding. The Board of Directors is
empowered, without stockholder approval, to issue one or more series of
Preferred Stock and to determine the rights, preferences, privileges and
restrictions to be granted to, or imposed upon, any such series, including
the voting rights, redemption provisions (including sinking fund
provisions), dividend rights, dividend rates, liquidation preferences and
conversion rights and the description and number of shares constituting any
wholly unissued series of Preferred Stock. Under Delaware law, the Board
of Directors is permitted to use a depositary receipt mechanism which
enables the Board to issue an unlimited number of fractional interests in
each share of Preferred Stock without stockholder approval. Consequently,
the Board of Directors, without further stockholder approval, can issue
Preferred Stock or fractional interests therein, with rights that could
adversely affect the rights of the holders of the Company's Common Stock.
All shares of any one series of Preferred Stock shall be identical in all
respects with all other shares of such series, except that shares of any
one series issued at different times may differ as to the dates from which
dividends thereof shall be cumulative.
WARRANTS
At July 28, 1995, there were outstanding Warrants to purchase 800,000
shares of the Company's Common Stock at an exercise price of $5.00 per
share issued in the March Private Placement, outstanding Warrants to
purchase 288,506 shares of the Company's Common Stock at an exercise price
of $5.50 per share issued in the September Private Placement and
outstanding warrants to purchase 95,945 shares of the Company's Common
Stock at an exercise price of $4.00 per share issued in the Current Private
Placement. Each Warrant is exercisable for a period of three (3) years
commencing three (3) months after the date of its issuance. Issuance dates
range from December 21, 1993 through July 27, 1995.
OPTIONS
At July 28, 1995, there were outstanding options to purchase 4,677,837
shares of the Company's Common Stock with exercise prices ranging from
$2.71 to $7.00 and expiration dates ranging from January 29, 1996 to March
30, 2004.
TRANSFER AGENT
The Transfer Agent for the Common Stock is American Stock Transfer and
Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
The Company had 10,318,887 shares of Common Stock outstanding as of
July 28, 1995. Of these outstanding shares, approximately 4,140,545 shares
are "restricted securities" as defined in Rule 144 adopted under the
Securities Act. Of these restricted shares, 1,002,906 are covered by this
Registration Statement, approximately 2,116,639 were eligible to be sold
under Rule 144 as of July 28, 1995, approximately 340,000 will become
eligible to be sold under Rule 144 on various dates commencing September
14, 1995 through February 22, 1997 and 681,000 were issued and sold in the
Current Private Placement and will be included on a registration statement
which the Company intends to file in the near future. The (i) 1,002,906
shares of Common Stock included in this Registration Statement will, if
sold pursuant to this Registration Statement and (ii) the 2,276,655 shares
of Common Stock underlying the Warrants and Options included in this
Registration Statement will, if issued upon exercise of the Warrants and
Options and sold pursuant to this Registration Statement be freely
tradeable without restriction under the Securities Act, except that any
shares held by an "affiliate," as that term is defined under the Securities
Act, will be subject to the resale limitations of Rule 144. In addition to
the Warrants and Options to purchase an aggregate of 2,276,655 shares of
Common Stock as of July 28, 1995 there were options outstanding to purchase
an aggregate of 3,393,743 shares of Common Stock, all of which are covered
by an effective Registration Statement on Form S-8 and generally, will be
freely tradeable upon issuance. The Company also has outstanding as of
July 28, 1995 warrants to purchase an aggregate of 95,945 shares which were
issued and sold in the Current Private Placement for which the Company
intends to file a registration statement in the near future.
In general, under Rule 144 as currently in effect, any person (or
persons whose shares are aggregated), including affiliates, who have
beneficially owned shares for at least two years is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of one percent of the then outstanding shares of the Company's
Common Stock or the weekly trading volume in the Company's Common Stock
during the four calendar weeks preceding such sale. A person (or persons
whose shares are aggregated), who is not deemed an affiliate of the
Company, and who has beneficially owned shares for at least three years is
entitled to sell such shares under Rule 144 without regard to the
limitations described above.
REGISTRATION RIGHTS
The Private Placement Investors in the March Private Placement
exercised their right, to have the shares of Common Stock issued in such
offering registered, at the Company's expense, for the offer and sale to
the public under the Securities Act. The Company shall not, however, be
required to maintain the effectiveness of a registration statement for more
than three (3) years after the initial effective date thereof, which was
August 3, 1994. In connection with such registration, the Company has
agreed to supply prospectuses to the investors, use its best efforts to
qualify the Common Stock for sale in such states as any holder of same
reasonably designates and indemnify the investors for certain liabilities
relating thereto.
The Private Placement Investors in the September Private Placement
exercised their right, to have the shares of Common Stock issued in the
offering and the shares of Common Stock underlying the Warrants issued in
such offering, registered at the Company's expense, for the offer and sale
to the public under the Securities Act. The Company shall not, however, be
required to maintain the effectiveness of a registration statement for more
than three (3) years after the initial effective date thereof, which was
September 14, 1994. In connection with such registration, the Company has
agreed to supply prospectuses to the investors, use its best efforts to
qualify the Common Stock for sale in the states of New York and New Jersey
and to indemnify the Private Placement Investors for certain liabilities
relating thereto.
The Company's Debt Conversion Agreement dated March 30, 1994 (the
"Conversion Agreement") with Ms. Shogen requires the Company, at the
request of Ms. Shogen, to file a registration statement under the
Securities Act, with respect to all or part of the Common Stock to which
the 379,678 Options granted to Ms. Shogen under the Conversion Agreement
are then exercisable. The Company agreed to bear all of the costs of
registering the shares of Common Stock under the Securities Act and
registering or qualifying such shares of Common Stock with the States of
New York and New Jersey. Such shares of Common Stock underlying these
Options are included in this Registration Statement.
The Company's Debt Conversion Agreement dated March 30, 1994 with a
certain investor (the "Investor Agreement") requires the Company to permit
such investor the opportunity to include the shares of Common Stock
underlying the 73,804 Options granted to him pursuant to the Investor
Agreement, in any registration statement filed by the Company pursuant to
the Conversion Agreement of Ms. Shogen, prior to the expiration of the
Options granted to the investor under the Investor Agreement or the sale of
all of the shares of Common Stock underlying such Options. These shares of
Common Stock are included in this Registration Statement.
Pursuant to the Company's pledge agreements with First Fidelity Bank,
N.A., New Jersey, the bank has the right under certain circumstances to
require the Company to register, at the Company's expense, the shares of
Common Stock owned by Ms. Shogen which have been pledged to the bank. In
connection with such registration, the Company agreed to obtain the
effectiveness of a registration statement and maintain the effectiveness of
such registration statement for a period of one (1) year from the date of
the first offering of the pledged shares of Common Stock or until such
shares are sold. The Company must also register or qualify the pledged
shares of Common Stock in such states as the bank requests.
The Company has filed a registration statement on Form S-8 which
registers 3,000,000 shares reserved for options which may be issued under
the 1993 Stock Option Plan and 1,591,529 shares underlying additional
options granted to Ms. Shogen and Dr. Mikulski.
The private placement investors in the Current Private Placement who
acquired an aggregate of 1,960,851 shares (including shares underlying
warrants) have the right to have the shares of Common Stock issued in the
offering and the shares of Common Stock underlying the warrants issued in
such offering, registered at the Company's expense, for the offer and sale
by such investors to the public under the Securities Act. Any additional
investors in the Current Private Placement will also have such registration
rights. The Company shall not, however, be required to maintain the
effectiveness of a registration statement for more than three (3) years
after the initial effective date thereof. The Company expects to file a
registration statement to cover such shares in the near future. In
connection with such registration, the Company has agreed to supply
prospectuses to the investors, use its best efforts to qualify the Common
Stock for sale in the states of New York and New Jersey (and certain
additional states for one investor) and to indemnify the investors for
certain liabilities relating thereto.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by Ross & Hardies, New York, New York.
EXPERTS
The audited financial statements (including schedules thereto) of
Alfacell Corporation (a development stage company) for the fiscal year
ended July 31, 1992 appearing in this Prospectus and Registration Statement
have been audited by Armus, Harrison & Co. ("AHC"), independent certified
public accountants, as set forth in AHC's reports thereon (which describe
an uncertainty as to a going concern) appearing herein and elsewhere in the
Registration Statement, and are included herein in reliance upon the
consent and report of AHC as experts in accounting and auditing. Such
report of AHC with respect to the financial statements of the Company is
included in this Registration Statement. As of December 1, 1993, certain
shareholders of AHC terminated their association with AHC and AHC has
ceased performing any audit and accounting services, except for limited
accounting services being provided to the Company. Consequently, an
investor's ability to recover damages from AHC for material misstatements
or omissions, if any, in the Registration Statement and Prospectus,
including the financial statements may be significantly limited.
The financial statements and schedules of Alfacell Corporation (a
development stage company) as of July 31, 1994 and 1993, and for the years
then ended, and for the period from August 24, 1981 (date of inception) to
July 31, 1994, included herein or elsewhere in the Registration Statement
have been included herein and in the Registration Statement in reliance
upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein and upon the authority of KPMG Peat
Marwick LLP as experts in accounting and auditing. The reports of KPMG
Peat Marwick LLP covering the July 31, 1994 and 1993 financial statements
and schedules contain an explanatory paragraph stating that the Company's
recurring losses from operations, its working capital deficiency and net
capital deficiency raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements and financial
statement schedules do not include any adjustments that might result from
the outcome of this uncertainty. Further, the report of KPMG Peat Marwick
LLP as it relates to the financial statements for the period from August
24, 1981 (date of inception) to July 31, 1994 is based on the report of
other auditors as to the amounts included therein for the period from
August 24, 1981 (date of inception) to July 31, 1992.
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Index
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report of KPMG Peat Marwick LLP F-2
Independent Auditors' Report of Armus, Harrison & Co. F-4
Audited Financial Statements:
Balance Sheets - July 31, 1994 and 1993 F-5
Statements of Operations - Years ended July 31, 1994,
1993 and 1992 and the Period from August 24, 1981 (Date of
Inception) to July 31, 1994
F-6
Statements of Stockholders' Deficiency - Period from
August 24, 1981 (Date of Inception) to July 31, 1994
F-7
Statements of Cash Flows - Years ended July 31, 1994,
1993 and 1992 and the Period from August 24, 1981 (Date of
Inception) to July 31, 1994
F-10
Notes to Financial Statements - Years ended July 31,
1994, 1993 and 1992 and the Period from August 24, 1981 (Date of
Inception) to July 31, 1994
F-12
Unaudited Financial Statements:
Balance Sheets - At April 30, 1995 F-33
Statements of Operations - for the nine month periods
ended April 30, 1995 and 1994 and the period from August
24, 1981 (Date of Inception) to April 30, 1995
F-34
Statements of Cash Flows - nine months ended April 30,
1995 and 1994 and the period from August 24, 1981 (Date of
Inception) to April 30, 1995
F-35
Notes to Unaudited Financial Statements - for the nine
month periods ended April 30, 1995 and 1994 and the
period from August 24, 1981 (Date of Inception) to April
30, 1995
F-37
</TABLE>
INDEPENDENT AUDITORS' REPORT
To Stockholders and Board of Directors
Alfacell Corporation:
We have audited the accompanying balance sheets of Alfacell Corporation (a
development stage company) as of July 31, 1994 and 1993 and the related
statements of operations, stockholders' deficiency and cash flows for the
years then ended and the period from August 24, 1981 (date of inception) to
July 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements of
Alfacell Corporation (a development stage company) for the year ended July
31, 1992 and the period from August 24, 1981 (date of inception) to July
31, 1992 were audited by other auditors whose report dated December 9,
1992, except as to note 3 which is as of July 19, 1993, expressed an
unqualified opinion on those statements with an explanatory paragraph
regarding the Company's ability to continue as a going concern.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, based on our audits and, for the effect on the period from
August 24, 1981 (date of inception) through July 31, 1994 of the amounts
for the period from August 24, 1981 (date of inception) to July 31, 1992,
on the report of other auditors, the financial statements referred to above
present fairly, in all material respects, the financial position of
Alfacell Corporation (a development stage company) as of July 31, 1994 and
1993, and the results of its operations and its cash flows for the years
then ended and the period from August 24, 1981 (date of inception) to July
31, 1994 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Alfacell Corporation (a development stage company) will continue as a going
concern. As discussed in note 1 to the financial statements, the Company's
recurring losses from operations, its working capital deficiency and net
capital deficiency raise substantial doubt about the entity's ability to
continue as a going concern. Management's plan in regard to these matters
are also described in note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Short Hills, New Jersey
September 29, 1994
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Alfacell Corporation
Bloomfield, New Jersey
We have audited the balance sheets of Alfacell Corporation (a Development
Stage Company) as of July 31, 1992 and 1991, as restated, and the related
statements of operations, stockholders' deficiency, and cash flows for the
three years ended July 31, 1992, as restated, and for the period from
inception August 24, 1981 to July 31, 1992, as restated. In connection with
our audit of the 1992 and 1991 financial statements, we have also audited
the 1992, 1991 and 1990 financial statement schedules as listed in the
accompanying index. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly in
all material respects, the financial position of Alfacell Corporation as of
July 31, 1992 and 1991, as restated, and for the three years ended July 31,
1992, as restated, and for the period from inception August 24, 1981 to
July 31, 1992, as restated, and the results of operations and cash flows
for the years then ended in conformity with generally accepted accounting
Principles.
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the statement of
operations, the Company has incurred substantial losses in each year since
its inception. In addition, the Company is a development stage company and
its principal operation for production of income has not commenced. The
Company's working capital has been reduced considerably by operating
losses, and has a deficit net worth. These factors, among others, as
discussed in Note 2 of the Notes to Financial Statements, indicates the
uncertainties about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts and the amount
of classification of liabilities that might be necessary should the Company
be unable to continue its existence.
Mountainside, New Jersey
December 9, 1992
Except as to Note 18 which
is July 19, 1993 and Note 3
which is October 28, 1993
/s/Armus, Harrison & Co.
Armus, Harrison & Co.
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Balance Sheets
July 31, 1994 and 1993
<TABLE>
<CAPTION>
ASSETS 1994
<S> <C> <C> <C> <C>
1993 Current
assets
Cash $ 202,654 $
--- Marketable 251,209
security
--- Prepaid 68,667
expenses
55,576 Total 522,530
current
assets
55,576
Property and 94,367
equipment,
net of
accumulated
depreciation
and
amortization
of $644,316
in 1994 and
$615,239 in
1993
109,784
Other
assets:
Patents, 82,562
net
49,391 Deferred 73,500
debt costs,
net
115,500 Other 6,804
5,081 162,866
169,972 Total $ 779,763 $
assets
335,332
Current liabilities:
Current portion of long-term debt and bank overdraft $ 88,359 $ 77,074
Loans payable, other 44,000 56,500
Loans and interest payable, related party 203,723 ---
Accounts payable 413,025 474,413
Accrued payroll and expenses, related parties 158,265 729,346
Accrued expenses 52,833 205,592
Total current liabilities 960,205 1,542,925
Long-term debt, less current portion 1,593,976 1,675,687
Accrued payroll and other, related party --- 2,061,844
Convertible subordinated debentures, related party --- 1,575,000
Convertible subordinated debentures, other --- 127,000
Total liabilities 2,554,181 6,982,456
Commitments and contingencies
Stockholders' deficiency:
Preferred stock, $.001 par value
Authorized and unissued, 1,000,000 shares at July 31, --- ---
1994
Common stock $.001 par value. Authorized 25,000,000 shares 9,125 7,863
in 1994, 15,000,000 shares in 1993; issued and
outstanding 9,124,681 shares in 1994 and 7,862,281
shares in 1993
Capital in excess of par value 33,680,954 26,890,082
Common stock to be issued, 20,000 shares in 1994 50,000 ---
Deficit accumulated during development stage (35,455,997) (33,221,569)
(1,715,918) (6,323,624)
Deferred compensation, restricted stock (58,500) (323,500)
Total stockholders' deficiency (1,774,418) (6,647,124)
Total liabilities and stockholders' deficiency $ 779,763 $ 335,332
</TABLE>
See accompanying notes to financial statements.
(continued)
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Statements of Operations
Years ended July 31, 1994, 1993 and 1992,
and the Period from August 24, 1981
(Date of Inception) to July 31, 1994
<TABLE>
<CAPTION>
August 24, 1981 1994 1993 1992
(date of
inception) to
July 31, 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Sales $ 553,489 --- --- ---
Investment income 186,012 6,064 489 ---
Other income 54,103 --- --- ---
793,604 6,064 489 ---
Costs and expenses:
Cost of sales 336,495 --- --- ---
Research and development 19,164,977 1,114,455 1,091,762 2,624,088
General and administrative 14,234,385 903,350 903,955 1,763,278
Interest:
Related parties 1,017,177 74,221 198,330 190,483
Others 1,496,567 148,466 163,792 194,977
36,249,601 2,240,492 2,357,839 4,772,826
Net loss $ (35,455,997) (2,234,428) (2,357,350) (4,772,826)
Loss per common share $ (7.90) (.26) (.31) (.67)
Weighted average number of shares 4,488,000 8,466,000 7,602,0007,071,000
outstanding
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Statement of Stockholders' Deficiency
ALFACELL CORPORATION
(A Development Stage Company)
Statement of Stockholders' Deficiency
Period from August 24, 1981 (Date of Inception) to July 31, 1994
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL COMMON DEFICIT DEFERRED TOTAL
IN STOCK TO ACCUMULATED COMPENSATION, STOCKHOLDERS'
EXCESS BE DURING RESTRICTED DEFICIENCY
OF PAR ISSUED DEVELOPMENT STOCK
VALUE STAGE
<S> <C><C> <C><C> <C><C> <C><C> <C><C> <C><C> <C><C>
NUMBER AMOUNT
OF
SHARES
Issuance of shares to officers and 712,500 $ 212,987 --- --- ---213,700
stockholders for equipment, research and713
development, and expense reimbursement
Issuance of shares for organizational 50,000 50 4,950 --- --- ---5,000
legal services
Sales of shares for cash, net 82,143 82 108,418 --- --- --- 108,500
Adjustment for 3 for 2 stock split 422,321 422 (422) --- --- --- ---
declared September 8, 1982
Net loss --- --- --- --- (121,486) --- (121,486)
Balance at July 31, 1982 1,266,964 1,267 325,933 --- (121,486) --- 205,714
Issuance of shares for equipment 15,000 15 13,985 --- --- --- 14,000
Sale of shares to private investors 44,196 44 41,206 --- --- --- 41,250
Sale of shares in public offering, net 660,000 660 1,307,786 --- --- --- 1,308,446
Issuance of shares under stock grant 20,000 20 109,980 --- --- --- 110,000
program
Exercise of warrants, net 1,165 1 3,494 --- --- --- 3,495
Net loss --- --- --- --- (558,694) --- (558,694)
Balance at July 31, 1983 2,007,325 2,007 1,802,384 --- (680,180) --- 1,124,211
Exercise of warrants, net 287,566 287 933,696 --- --- --- 933,983
Issuance of shares under stock grant 19,750 20 101,199 --- --- --- 101,219
program
Issuance of shares under stock bonus plan 130,250 131 385,786 --- --- ---385,917
for directors and consultants
Net loss --- --- --- --- (1,421,083) --- (1,421,083)
Balance at July 31, 1984 2,444,891 2,445 3,223,065 --- (2,101,263) --- 1,124,247
Issuance of shares under stock grant 48,332 48 478,057 --- --- --- 478,105
program
Issuance of shares under stock bonus plan 99,163 99 879,379 --- --- ---879,478
for directors and consultants
Shares cancelled (42,500) (42) (105,783) --- --- --- (105,825)
Exercise of warrants, net 334,957 335 1,971,012 --- --- --- 1,971,347
Net loss --- --- --- --- (2,958,846) --- (2,958,846)
Balance at July 31, 1985 2,884,843 2,885 6,445,730 --- (5,060,109) --- 1,388,506
Issuance of shares under stock grant 11,250 12 107,020 --- --- --- 107,032
program
Issuance of shares under stock bonus plan 15,394 15 215,385 --- --- ---215,400
for directors and consultants
Exercise of warrants, net 21,565 21 80,977 --- --- --- 80,998
Net loss --- --- --- --- (2,138,605) --- (2,138,605)
Balance at July 31, 1986 2,933,052 2,933 6,849,112 --- (7,198,714) --- (346,669)
Balance at July 31, 1986 (brought forward) $2,933 6,849,112 --- (7,198,714) --- (346,669)
2,933,052
Exercise of warrants at $10.00 per share 14,745 15 147,435 --- --- --- 147,450
Issuance of shares under stock bonus plan 5,000 5 74,995 --- --- ---75,000
for directors and consultants
Issuance of shares for services 250,000 250 499,750 --- --- --- 500,000
Sales of shares to private investors, net 5,000 5 24,995 --- --- --- 25,000
Net loss --- --- --- --- (2,604,619) --- (2,604,619)
Balance at July 31, 1987 3,207,797 3,208 7,596,287 --- (9,803,333) --- (2,203,838)
Issuance of shares for legal and 206,429 207 724,280 --- --- ---724,487
consulting services
Issuance of shares under employment 700,000 700 2,449,300 --- --- (2,450,000)---
incentive agreement
Issuance of shares under stock grant 19,000 19 66,481 --- --- --- 66,500
program
Exercise of options at $3.00 per share 170,000 170 509,830 --- --- --- 510,000
Issuance of shares for litigation 12,500 12 31,125 --- --- ---31,137
settlement
Exercise of warrants at $7.06 per share 63,925 64 451,341 --- --- --- 451,405
Sale of shares to private investors 61,073 61 178,072 --- --- --- 178,133
Amortization of deferred compensation, --- --- --- --- --- 449,167449,167
restricted stock
Net loss --- --- --- --- (3,272,773) --- (3,272,773)
Balance at July 31, 1988 4,440,724 4,441 12,006,716 --- (13,076,106) (2,000,833)(3,065,782)
Sale of shares for litigation settlement 135,000 135 1,074,703 --- --- --- 1,074,838
Conversion of debentures at $3.00 per 133,333 133 399,867 --- --- --- 400,000
share
Sale of shares to private investors 105,840 106 419,894 --- --- --- 420,000
Exercise of options at $3.50 per share 1,000 1 3,499 --- --- --- 3,500
Issuance of shares under employment 750,000 750 3,749,250 --- --- (3,750,000) ---
agreement
Issuance of shares under the 1989 Stock 30,000 30 149,970 --- --- (150,000) ---
Plan
Amortization of deferred compensation, --- --- --- --- --- 1,050,7561,050,756
restricted stock
Net loss --- --- --- --- (2,952,869) --- (2,952,869)
Balance at July 31, 1989 5,595,897 5,596 17,803,899 --- (16,028,975) (4,850,077) (3,069,557)
Issuance of shares for legal and 52,463 52 258,725 --- --- ---258,777
consulting services
Issuance of shares under the 1989 Stock 56,000 56 335,944 --- --- (336,000) ---
Plan
Sale of shares for litigation settlement 50,000 50 351,067 --- --- --- 351,117
Exercise of options at $3.00 - $3.50 per 105,989 106 345,856 --- --- --- 345,962
share
Sale of shares to private investors 89,480 90 354,990 --- --- --- 355,080
Issuance of shares under employment 750,000 750 3,749,250 --- --- (3,750,000) ---
agreement
Conversion of debentures at $5.00 per 100,000 100 499,900 --- --- --- 500,000
share
Amortization of deferred compensation, --- --- --- --- --- 3,015,5613,015,561
restricted stock
Net loss --- --- --- --- (4,860,116) --- (4,860,116)
Balance at July 31, 1990 6,799,829 6,800 23,699,631 --- (20,889,091) (5,920,516) (3,103,176)
Balance at July 31, 1990 (brought forward)6,799,829 $6,80023,699,631 --- (20,889,091) (5,920,516) (3,103,176)
Exercise of options at $6.50 per share 16,720 16 108,664 --- --- --- 108,680
Issuance of shares for legal consulting 87,000 87 358,627 --- --- ---358,714
services
Issuance of shares under the 1989 Stock 119,000 119 475,881 --- --- (476,000) ---
Plan
Amortization of deferred compensation, --- --- --- --- --- 2,891,5612,891,561
restricted stock
Net loss --- --- --- --- (5,202,302) --- (5,202,302)
Balance at July 31, 1991 7,022,549 7,022 24,642,803 --- (26,091,393) (3,504,955)(4,946,523)
Exercise of options at $3.50 per share 1,000 1 3,499 --- --- --- 3,500
Sale of shares to private investors 70,731 71 219,829 --- --- --- 219,900
Conversion of debentures at $5.00 per 94,000 94 469,906 --- --- --- 470,000
share
Issuance of shares for services 45,734 46 156,944 --- --- --- 156,990
Issuance of shares under the 1989 Stock 104,000 104 285,896 --- --- (286,000) ---
Plan
Amortization of deferred compensation, --- --- --- --- --- 3,046,7263,046,726
restricted stock
Net loss --- --- --- --- (4,772,826) --- (4,772,826)
Balance at July 31, 1992 7,338,014 7,338 25,778,877 --- (30,864,219) (744,229) (5,822,233)
Sale of shares to private investors 352,667 353 735,147 --- --- --- 735,500
Issuance of shares for legal services 49,600 50 132,180 --- --- --- 132,230
Issuance of shares for services 5,000 5 9,995 --- --- (10,000) ---
Issuance of shares under the 1989 Stock 117,000 117 233,883 --- --- (234,000) ---
Plan
Amortization of deferred compensation, --- --- --- --- --- 664,729664,729
restricted stock
Net loss --- --- --- --- (2,357,350) --- (2,357,350)
Balance at July 31, 1993 7,862,281 7,863 26,890,082 --- (33,221,569) (323,500) (6,647,124)
Conversion of debentures at $2.75 per 425,400 425 1,701,575 --- --- ---1,702,000
share to $6.00 per share
Sale of shares to private investors, net 743,000 743 1,710,048 --- --- --- 1,710,791
Conversion of short-term borrowings 72,800 73 181,927 --- --- --- 182,000
Issuance of shares for services 16,200 16 43,334 --- --- --- 43,350
Issuance of shares under the 1989 Stock 5,000 5 14,995 --- --- ---15,000
Plan, for services
Issuance of options to related parties --- ---3,194,969 --- --- ---3,194,969
upon conversion of accrued interest,
payroll and expenses
Repurchase of stock options from related --- ---(198,417) --- --- --- (198,417)
party
Issuance of options upon conversion of --- --- 142,441 --- --- ---142,441
accrued interest
Common stock to be issued --- --- --- 50,000 --- --- 50,000
Amortization of deferred compensation, --- --- --- --- --- 265,000265,000
restricted stock
Net loss --- --- --- --- (2,234,428) --- (2,234,428)
Balance at July 31, 1994 9,124,681 $9,12533,680,954 50,000 (35,455,997) (58,500) (1,774,418)
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Statements of Cash Flows, Continued
ALFACELL CORPORATION
(A Development Stage Company)
Statements of Cash Flows
Years ended July 31, 1994, 1993 and 1992,
and the Period from August 24, 1981
(Date of Inception) to July 31, 1994
<TABLE>
<CAPTION>
August 24, 1994 1993 1992
1981 (date of
inception) to
July 31, 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss $(35,455,997) (2,234,428) (2,357,350) (4,772,826)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Gain on sale of marketable (25,963) --- --- ---
securities
Depreciation and amortization 908,294 75,157 42,923 61,001
Loss on disposal of property and 18,926 --- --- ---
equipment
Noncash operating expenses 4,766,211 58,350 132,230 156,990
Amortization of deferred 11,383,500 265,000 664,729 3,046,726
compensation
Amortization of organization 4,590 --- --- ---
costs
Changes in assets and
liabilities:
(Increase) decrease in prepaid (68,667) (13,091) 45,490 (89,388)
expenses
(Increase) decrease in other (11,394) (1,723) 5,586 646
assets
Increase in interest payable, 948,262 5,306 198,330 190,483
related party
Increase (decrease) in accounts 413,025 (61,388) 161,691 (68,773)
payable
Increase in accrued payroll and 2,506,410 386,246 301,979426,924
expenses, related parties
Increase (decrease) in accrued 594,346 (10,318) 228,152 165,908
expenses
Net cash used in operating (14,018,457) (1,530,889) (576,240) (882,309)
activities
Cash flows from investing
activities:
Purchase of marketable equity (290,420) (251,209) --- ---
securities
Proceeds from sale of marketable 65,174 --- --- ---
equity securities
Purchase of property and equipment (964,308) (13,660) (97,049) (3,598)
Patent costs (97,841) (37,251) --- (7,695)
Net cash used in investing (1,287,395) (302,120) (97,049) (11,293)
activities
Cash flows from financing
activities:
Proceeds from short-term $ 849,500 169,500 56,500 ---
borrowings
Payment of short-term borrowings (623,500) --- --- ---
Increase (decrease) in loans 2,628,868 175,798 (107,080)719,766
payable - related party, net
Proceeds from bank debt and other 2,359,548 4,028 (68,980) ---
long-term debt, net of deferred debt
costs
Reduction of bank debt and long- (1,191,785) (67,285) --- ---
term debt
Proceeds from common stock to be 50,000 50,000 --- ---
issued
Proceeds from issuance of common 11,088,875 1,710,791 735,500 223,400
stock, net
Proceeds from issuance of 347,000 --- --- ---
convertible debentures
(Decrease) increase in bank --- (7,169) 7,169 ---
overdraft
Net cash provided by financing 15,508,506 2,035,663 623,109 943,166
activities
Net increase (decrease) in cash 202,654 202,654 (50,180) 49,564
Cash at beginning of period --- --- 50,180 616
Cash at end of period $ 202,654 202,654 --- 50,180
Supplemental disclosure of cash flow $ 1,230,027 144,322 ---8,428
information - interest paid
Noncash financing activities: $ 2,725,000 --- 275,000 500,000
Issuance of convertible
subordinated debenture for loan
payable to officer
Issuance of common stock upon the $ 2,945,000 1,575,000 ---470,000
conversion of convertible
subordinated debentures, related
party
Conversion of short-term $ 182,000 182,000 --- ---
borrowings to common stock
Conversion of accrued interest, $ 3,194,969 3,194,969 --- ---
payroll and expenses by related
parties to stock options
Repurchase of stock options from $ (198,417) (198,417) --- ---
related party
Conversion of accrued interest to $ 142,441 142,441 --- ---
stock options
Conversion of notes payable, bank $ 1,699,072 --- 1,699,072 ---
and accrued interest to long-term
debt
Conversion of loans and interest $ 1,863,514 --- 1,863,514 ---
payable, related party and
accrued payroll and expenses,
related parties to long-term
accrued payroll and other,
related party
Issuance of common stock upon the $ 127,000 127,000 --- ---
conversion of convertible
subordinated debentures, other
</TABLE>
See accompanying notes to financial statements.
(continued)
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements
Years ended July 31, 1994, 1993 and 1992
and the Period from August 24, 1981
(Date of Inception) to July 31, 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION
Alfacell Corporation (the "Company") was incorporated in Delaware on
August 24, 1981 for the purpose of engaging in the discovery, investigation
and development of a new class of anticancer drugs and antiviral agents.
To date, the Company is in the initial stage of its operations and has
not yet engaged in any significant commercial activities.
The Company is a development stage company as defined in the Financial
Accounting Standards Board's Statement of Financial Accounting Standards
No. 7. The Company is devoting substantially all of its present efforts
to establishing its business. Its planned principal operations have not
commenced and, accordingly, no significant revenue has been derived
therefrom.
BASIS OF FINANCIAL STATEMENTS
The Company's financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.
As shown in the financial statements, the Company has reported net losses
of $2,234,428, $2,357,350 and $4,772,826 for the fiscal years ended July
31, 1994, 1993 and 1992, respectively. The loss from date of inception,
August 24, 1981, to July 31, 1994 amounts to $35,455,997. As of July 31,
1994, the Company had a working capital deficit of $437,675, liabilities
exceeded its assets and there is a deficit in stockholders' equity of
$1,774,418. These factors raise substantial doubt about the Company's
ability to continue as a going concern.
The Company's continued operations will depend on its ability to raise
additional funds through a combination of equity or debt financings,
collaborative agreements, strategic alliances and revenues from the
commercial sale of ONCONASE. The Company believes that its current
resources (including proceeds of the recently completed private
placement, see note 18), will be sufficient to meet its anticipated cash
needs until February, 1995. To date, a significant portion of the
Company's financing has been provided by its President and Chief
Executive Officer and through private placements of common stock, the
issuance of common stock for services rendered and debt financing. The
Company's long-term liquidity will depend on its ability to raise
substantial additional funds. There can be no assurance that such funds
will be available to the Company on acceptable terms, if at all.
(continued)
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the
respective assets ranging from five to ten years. When assets are
retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss
is included in operations for the period.
The cost of repairs and maintenance is charged to operations as incurred;
significant renewals and betterments are capitalized.
MARKETABLE SECURITY
The Company's investment in the marketable security is available for sale
to fund its operations. The Company, subject to changes in market
conditions, does not intend to hold the marketable security for an
extended period of time and, accordingly, it has been classified as a
current asset and is carried at fair value.
PATENTS
Costs related to patents are capitalized when incurred. Costs related to
approved patents are being amortized using the straight-line method over
the life of the patent, usually 17 years. Previously unsuccessful patent
costs have been expensed when the patent application is determined to be
worthless.
DEFERRED DEBT COSTS
Deferred debt costs associated with the Company's long-term debt are
being amortized using the straight-line method over the life of the
debt agreement. Accumulated amortization as of July 31, 1994 and 1993
was $48,416 and $6,416, respectively.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
(continued)
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)
NET LOSS PER SHARE
Net loss per share is based on the weighted average number of common
shares outstanding during the period and shares to be issued at the end
of the period. Common stock equivalents are not included in the
computations since the effect would be antidilutive.
(2) MARKETABLE SECURITY
Effective July 31, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 ("SFAS No. 115"), "Accounting for Certain
Investments in Debt and Equity Securities." There was no effect upon
adopting this Statement. Under this new accounting standard, securities
for which there is not the positive intent and ability to hold to
maturity are classified as available-for-sale and are carried at fair
value. Unrealized holding gains and losses on securities classified as
available-for-sale are carried as a separate component of stockholders'
equity. The Company considers its marketable security to be available-
for-sale. The Company's equity security was purchased on June 23, 1994
and the market value approximates its cost. As of July 31, 1994, there
were no unrealized holding gains or losses.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at July 31:
1994 1993
Laboratory equipment $ 568,672 $ 568,672
Office equipment 117,035 103,375
Leasehold improvements 52,976 52,976
$ 738,683 $ 725,023
(continued)
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(4) LONG-TERM DEBT
Long-term debt consists of the following at July 31:
1994 1993
<TABLE>
<CAPTION>
First Fidelity Bank, N.A., New Jersey, payable in $1,645,513 1,699,072
monthly installments of $15,945, including
principal and interest at 7.5% commencing on
October 1, 1993. Subject to other provisions, the
entire unpaid amount shall be due and payable on
May 31, 1996. The note is secured by substantially
all of the assets of the Company and contains
restrictive covenants including restrictions on the
payment of dividends to stockholders. The
President and Chief Executive Officer of the
Company has personally guaranteed the note and has
pledged certain additional collateral including a
majority of the shares of common stock and options
to purchase common stock of the Company owned by
her. Certain obligations owed by the Company to
the officer-shareholder were subordinated to the
bank debt at July 31, 1993.
<S> <C> <C>
Note payable in monthly installments of $600, 16,193 21,195
including principal and interest at 6.3%,
commencing September 1993 and each month thereafter
until September 1996, secured by equipment.
Note payable in monthly installments of $164, 3,559 ----
including principal and interest, commencing May
1994 and each month thereafter until September
1996, secured by equipment.
Notes payable in monthly installments of $822, 17,070 25,325
including principal and interest at 10.37%,
commencing May 1993 and each month thereafter until
April 1996, secured by equipment.
Bank overdraft ----- 7, 169
1,682,335 1,752,761
Less current portion 88,359 77,074
$ 1,593,976 1,675,687
</TABLE>
Principal maturities for the next three years ending July 31, are as
follows:
1995 $88,359
1996 1,590,497
1997 3,479
$1,682,335
(continued)
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(5) LOANS AND INTEREST PAYABLE AND LONG-TERM ACCRUED PAYROLL AND OTHER,
RELATED PARTY
From time to time, the Company's President and Chief Executive Officer
has advanced sums of money to the Company in the form of unsecured
obligations, payable on demand. The Company's President and Chief
Executive Officer at various times has exchanged portions of the short-
term loans payable for convertible debentures. The following table
provides a summary of the related-party loan activity involving the
President and Chief Executive Officer at July 31:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C> <C> <C>
Loans and interest payable,
related party at beginning of $ --- $ 854,777 $ 444,528
year
New loans --- 113,400 818,998
Reduction in loan balance --- (234,142) (99,232)
Accrued interest 5,306 168,991 190,483
Exchanged for convertible --- (275,000) (500,000)
debentures
Repurchase of stock options 198,417 --- ---
Transferred to long-term accrued
payroll and other, related party --- (628,026) ---
Loans and interest payable,
related party at end of year $ 203,723 $ --- $ 854,777
</TABLE>
In connection with the Company's debt restructuring on May 31, 1993,
certain amounts due to the Company's President and Chief Executive
Officer were subordinated to the debt owed to the bank and were
reclassified as a long-term liability. The amount which was reclassified
included accrued payroll for the period prior to August 1, 1992 of
$1,390,819, accrued interest of $628,026, and other advances of $13,660.
At July 31, 1993, long-term accrued payroll and other, related party
consisted of these amounts and additional accrued interest of $29,339
accrued after August 1, 1992.
In March, 1994 the following liabilities were converted into options to
purchase common stock: the long-term liability at July 31, 1993 of
$2,061,844, accrued payroll and expenses, related parties of $729,346 at
July 31, 1993, additional advances by the President and Chief Executive
Officer and accrued interest during the period from August 1, 1993 to
January 31, 1994 of $260,353 and accrued salaries and expense for that
period owed to the President and Chief Executive Officer and to the
Executive Vice President and Medical Director aggregating to $143,426.
These liabilities as of January 31, 1994 were converted into 5-year
options to purchase 1,655,433 shares of common stock at an exercise price
of $3.20. Certain options were issued pursuant to the 1993 Stock Option
Plan (see note 12).
On May 1, 1994, the Company, with its bank's consent, reinstituted
certain advances of $198,417 from the Company's President and Chief
Executive Officer as short-term debt that was previously converted into
102,807 options on March 30, 1994. Such options were returned to the
Company. The Company's bank has consented to allow repayment of such
advances upon the exercise of options by the Company's President and
Chief Executive Officer.
(continued)
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(6) LOANS PAYABLE, OTHER
At July 31, 1994 and 1993, certain Company stockholders had loans outstanding
to the Company aggregating to $44,000 and $56,500, respectively. The
loans, which are payable on demand, do not have any stated interest rate.
(7) LEASES
The Company leases its facility under a five-year operating lease which
was due to expire on October 31, 1993, but has been extended to October
31, 1995. Commencing April 1, 1993, annual payments under the lease
agreement are $66,000. The Company has an option to further extend its
lease, subject to certain conditions, through October 31, 1998, at the
current rent. In addition to the basic rent, the Company pays its pro
rata share of increases in real estate taxes and utilities over the base
year. Rent expense charged to operations was $66,500, $61,334 and
$79,667 in 1994, 1993 and 1992, respectively.
Future minimum lease payments under noncancellable leases are
approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDING JULY 31: OPERATING LEASES
<S> <C>
1995 $ 66,000
1996 16,500
Total minimum lease
payments $ 82,500
</TABLE>
(8) CONVERTIBLE SUBORDINATED DEBENTURES, RELATED PARTY
Convertible subordinated debentures at July 31, 1994 and 1993 consist of
the following:
<TABLE>
<CAPTION>
Rate of INTEREST
AMOUNT DUE DATE CONVERSION RATE
<S> <C> <C> <C> <C>
Issue date:
August 1989 $ 300,000 12.5% August 1993 $ 6.00 per share
July 1991 500,000 13.0% July 1995 4.00 per share
April 1992 500,000 10.0% April 1996 4.00 per share
October 1992 275,000 8.0% October 1996 2.75 per share
Balance at July 31, 1993 1,575,000
Converted during year ended 1,575,000
July 31, 1994
Balance at July 31, 1994 $ --
</TABLE>
(continued)
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(8) CONVERTIBLE SUBORDINATED DEBENTURES, RELATED PARTY, (CONTINUED)
A provision of the debentures provides the holder the right to convert
the principal amount of the debentures into common shares of the Company.
In connection with the Company's debt restructuring on May 31, 1993, the
convertible debentures, related party were subordinated to the bank debt
(see note 4).
In March 1994, in connection with the conversion of certain liabilities
into options to purchase common stock, all remaining outstanding
convertible subordinated debentures, related party in the amount of
$1,575,000 were converted into 400,000 shares of the Company's common
stock.
(9) CONVERTIBLE SUBORDINATED DEBENTURES, OTHER
During November 1990, the Company issued $127,000 of convertible
subordinated debentures which bore interest at 13.5% per annum and were
due November 2, 1994. The debentures were convertible into common shares
at the conversion price of $5.00. During the year ended July 31, 1994,
the debentures were converted into 25,400 shares of the Company's common
stock.
(10) STOCKHOLDERS' DEFICIENCY
On September 1, 1981, the Company issued 712,500 shares of common stock
(1,068,750 shares adjusted for the stock split on September 8, 1982) to
officers and stockholders in exchange for equipment, research and
development services, stock registration costs, reimbursement of expenses
and other miscellaneous services. The common stock issued for services
was recorded at the estimated fair value of services rendered based upon
the Board of Directors' determination and ratification of the value of
services. Equipment received in exchange for common stock was recorded
at the transferor's cost. Common stock issued for reimbursement of
expenses was recorded based upon expenses incurred. All values assigned
for expenses and services rendered have been charged to operations except
for stock registration costs which were charged against proceeds.
On July 30, 1982, the Company sold 82,143 shares of common stock (123,214
shares adjusted to reflect the stock split on September 8, 1982) to a
private investor at a price of $1.40 per share, resulting in net proceeds
to the Company of approximately $108,500.
(continued)
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(10) STOCKHOLDERS' DEFICIENCY, (CONTINUED)
On September 8, 1982, the Company declared a 3 for 2 stock split. Shares
previously issued by the Company have been restated in accordance with
the stock split.
On September 8, 1982, the Company issued 15,000 shares of common stock to
an officer and stockholder in exchange for equipment. The equipment
received in exchange for the common stock was recorded at the
transferor's cost.
On November 1, 1982 and January 3, 1983, the Company sold 28,125 and
16,071 shares of common stock, respectively, to private investors at $.93
per share, resulting in net proceeds to the Company of approximately
$41,250.
On January 17, 1983, the Company sold 660,000 shares of its common stock
and 330,000 common stock purchase warrants in a public offering at a
price of $2.50 per share, resulting in net proceeds to the Company of
approximately $1,308,446. The warrants were to expire 12 months after
issuance; however, the Company extended the expiration date to July 16,
1984. During the fiscal years ended July 31, 1983 and 1984, the net
proceeds to the Company from the exercising of the warrants amounted to
$934,000. Each common stock purchase warrant was not detachable from its
common stock or exercisable until six months after the issuance date of
January 17, 1983. Each warrant entitled the holder to purchase one share
of common stock at an exercise price of $3.00 after six months and prior
to nine months after issuance. The exercise price increased to $3.50
after nine months and prior to twelve months after issuance.
In connection with the public offering, the Company sold 60,000 five-year
purchase warrants to the underwriters at a price of $.001 per warrant.
Each warrant entitled the holder to purchase one share of common stock at
an exercise price of $3.00. Pursuant to the antidilution provisions of
the warrants, the underwriters received warrants to purchase 67,415
shares at an exercise price of $2.67 per share. As of July 31, 1986, all
such warrants were exercised and the Company received proceeds of
approximately $180,000.
On February 22, 1984, the Company filed a registration statement with the
Securities and Exchange Commission for the issuance of two series of new
warrants each to purchase an aggregate of 330,000 shares (hereinafter
referred to as one-year warrants and two-year warrants). The one-year
warrants had an exercise price of $6.50 per share and expired July 17,
1985. The two-year warrants had an exercise price of $10.00 per share
and were to expire July 17, 1986. However, the Company extended the
expiration date to August 31, 1987. The one-year warrants and two-year
warrants were issued as of July 17, 1984 on a one-for-one basis to those
public offering warrant holders who exercised their original warrants,
with the right to oversubscribe to any of the warrants not exercised.
During the fiscal years ended July 31, 1985, 1986, 1987 and 1988, the
Company received net proceeds of approximately $2,471,000 as a result of
the exercising of the warrants.
(continued)
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(10) STOCKHOLDERS' DEFICIENCY, (CONTINUED)
On January 2, 1987, the Company issued 250,000 shares of common stock to
officers and stockholders, including the President and Chief Executive
Officer, in recognition of services performed for the Company. The fair
value of such shares was recorded as compensation expense.
On February 3, 1987, the Company sold 5,000 shares of common stock to a
private investor for $5.00 per share, resulting in net proceeds to the
Company of approximately $25,000.
During the year ended July 31, 1988 the Company issued 206,429 shares of
common stock for payment of legal and consulting services. The fair
value of such shares was charged to operations.
On September 1, 1987, the Board of Directors approved new wage contracts
for three officers. The contracts provided for the issuance of 700,000
shares of common stock as an inducement for signing; the shares of common
stock were issued on November 16, 1987. The fair value of these shares
has been recorded as deferred compensation and is being amortized over
the term of the employment agreements. The contracts also provided for
the issuance of 1,500,000 shares of common stock in 750,000 increments on
the occurrence of certain events. These shares were issued during the
fiscal years ended July 31, 1989 and 1990 and the fair value of such
shares has been recorded as deferred compensation and is being amortized
over the remaining term of the employment agreements. The contracts also
provided for five-year options to purchase 750,000 shares of common stock
at $3.00 per share; options for the purchase of 170,000 shares were
exercised on June 16, 1988 and the remaining options for the purchase of
580,000 shares expired on September 2, 1992.
During fiscal 1988, the Company issued 12,500 shares of common stock in
connection with the settlement of certain litigation. The fair value of
these shares was charged to operations.
During the fiscal year ended July 31, 1988, the Company sold 61,073
shares of common stock to private investors at $2.92 per share resulting
in net proceeds to the Company of approximately $178,133.
On September 21, 1988 the Company entered into a stipulation of
settlement arising from a lawsuit wherein it agreed to pay a total of
$250,000 in 12 monthly installments. Under the agreement, the Company
authorized the issuance on September 7, 1988 and October 18, 1988 of
85,000 and 50,000 shares, respectively, to an escrow account to secure
payment of the $250,000 due under the stipulation of settlement. During
the fiscal year ended July 31, 1989, the Company issued and sold the
135,000 shares of common stock for $1,074,838. On February 14, 1989, the
Board of Directors authorized the issuance of an additional 50,000
shares. During the year ended July 31, 1990, the shares were sold for
$351,117. The proceeds from the above transactions were used to pay the
settlement and related legal costs, reduce loans from the interest due to
the Company's President and Chief Executive Officer, and for working
capital.
(continued)
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(10) STOCKHOLDERS' DEFICIENCY, (CONTINUED)
During the fiscal year ended July 31, 1989, the Company sold 105,840
shares of common stock to private investors at $3.97 per share resulting
in net proceeds to the Company of approximately $420,000.
During the fiscal year ended July 31, 1990, the Company issued 52,463
shares of common stock for payment of legal and consulting services. The
fair value of the common stock was charged to operations.
During the fiscal year ended July 31, 1990, the Company issued 50,000
shares of common stock in connection with the settlement of certain
litigation. The fair value of these shares was charged to operations.
During the fiscal year ended July 31, 1990, the Company sold 89,480
shares of common stock to private investors at $3.97 per share resulting
in net proceeds to the Company of approximately $355,080.
During the fiscal year ended July 31, 1991, the Company issued 87,000
shares of common stock for payment of legal and consulting services. The
fair value of the common stock was charged to operations.
During the fiscal year ended July 31, 1992, the Company sold 70,731
shares of common stock to private investors at $2.75 to $3.50 per share
resulting in net proceeds to the Company of approximately $219,900.
During the fiscal year ended July 31, 1992, the Company issued 45,734
shares of common stock as payment for services rendered to the Company.
The fair value of this common stock was charged to operations.
During the fiscal years ended July 31, 1992 and 1990, 94,000 and 50,000
shares of common stock, respectively, were issued to the Company's
President and Chief Executive Officer upon the conversion of outstanding
debentures.
During the fiscal year ended July 31, 1993, the Company sold 352,667
shares of common stock to private investors at prices ranging from $2.00
to $3.00 resulting in net proceeds to the Company of approximately
$735,500. In addition, the private investors were granted options to
purchase common stock totaling 587,167 shares at prices ranging from
$3.00 to $7.00. The options expire during the fiscal year ending July
31, 1995.
During the fiscal year ended July 31, 1993, the Company issued 54,600
shares of common stock as payment for legal and other services performed
for the Company. The fair value of 49,600 shares was charged to
operations. The remaining 5,000 shares were recorded as deferred
compensation and were amortized over a one-year period, beginning in
February 1993, in accordance with the agreement entered into with the
recipient.
(continued)
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(10) STOCKHOLDERS' DEFICIENCY, (CONTINUED)
During the fiscal year ended July 31, 1994, the Company issued 7,000
shares of common stock as payment for services performed for the Company.
The fair value of the shares issued was charged to operations.
During the fiscal year ended July 31, 1994, the Company sold 25,000
shares of common stock to a private investor at $2.00 per share resulting
in net proceeds to the Company of $50,000. In addition, the private
investor was granted options to purchase common stock totaling 25,000
shares at $4.00 per common share. The options expire during fiscal 1997.
During the fiscal year ended July 31, 1994, the Company sold 800,000
shares of common stock to private investors at $2.50 per share resulting
in net proceeds to the Company of $1,865,791. In addition, the private
investors were granted warrants to purchase common stock totaling 800,000
shares at $5.00 per common share. The warrants expire during fiscal
1997. On August 3, 1994, the Securities and Exchange Commission ("SEC")
declared effective a registration statement for the offer and sale of up
to 1,600,000 shares of common stock, par value $.001 per share for the
common stock and warrants sold to these investors.
During the fiscal year ended July 31, 1994, 400,000 shares of common
stock were issued to the Company's President and Chief Executive Officer
upon the conversion of outstanding debentures.
During the fiscal year ended July 31, 1994, 25,400 shares of common stock
were issued upon the conversion of other outstanding debentures.
(11) COMMON STOCK WARRANTS
The following table summarizes the activity of the common stock warrants
issued in connection
with the public stock offering during 1983:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
<S> <C> <C>
Sold in public offering 330,000 $3.00 - 3.50
Sold to underwriters 60,000 3.00
Exercised (1,165) 3.00
Outstanding at July 31, 1983 388,835 3.00 - 3.50
</TABLE>
(continued)
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(11) COMMON STOCK WARRANTS, (CONTINUED)
<TABLE>
<CAPTION>
SHARES PRICE RANGE
<S> <C> <C>
Exercised (287,566) $3.00-3.50
Expired (41,269) 3.50
Issued (one-year warrants) 288,731 6.50
Issued (two-year warrants) 288,731 10.00
Outstanding at July 31, 1984 637,462 3.00-10.00
Additional underwriters' warrants 7,415 2.67
pursuant to antidilution provisions
Exercised (334,957) 2.67-10.00
Expired (4,359) 6.50
Outstanding and exercisable at July
31, 1985 305,561 2.67-10.00
Reinstated 2,000 6.50
Exercised (21,565) 2.67-10.00
Outstanding and exercisable at July
31, 1986 285,996 10.00
Exercised (14,745) 10.00
Outstanding and exercisable at July
31, 1987 271,251 10.00
Exercised (63,925) 7.06
Expired (207,326)
Outstanding at July 31, 1988 ----
</TABLE>
(continued)
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(11) COMMON STOCK WARRANTS, (CONTINUED)
STOCK PURCHASE WARRANTS
On July 28, 1988, the Board of Directors granted stock purchase warrants
to acquire a maximum of 200,000 shares of common stock at $5.00 per share
which were not exercised and expired.
On July 23, 1991, the Board of Directors granted stock purchase warrants
to purchase 200,000 shares of common stock at $5.00 per share which were
not exercised and expired.
During the year ended July 31, 1994, the Company sold 800,000 warrants in
conjunction with the sale of 800,000 shares of common stock. The
warrants have an exercise price of $5.00 per share, are currently
exercisable and are all outstanding. Expiration dates for the warrants
range from March 21, 1997 to June 21, 1997.
(12) STOCK OPTIONS
1981 NON-QUALIFIED STOCK OPTION PLAN:
In 1981, the Board of Directors adopted a non-qualified stock option plan
and has reserved 300,000 shares for issuance to key employees or
consultants. Options were nontransferable and expired if not exercised
within five years. The maximum amount exercisable in any one year was
one-fifth of the options granted which accumulated if not exercised. The
options were issuable in such amounts as determined by the Board of
Directors and such prices as determined by the Board of Directors, except
that no single recipient will be granted options to purchase more than
15,000 shares.
The following table summarizes stock options outstanding:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
<S> <C> <C> <C> <C>
Granted, August 24, 1984 15,000 $ 5.00
Granted, August 1, 1985 45,000 15.00
Subtotal 60,000 5.00 - 15.00
Cancelled (45,000) 5.00 - 15.00
Outstanding, July 31, 1990 15,000 15.00
Expired (15,000) $ 15.00
Outstanding, July 31, 1991 --- ---
</TABLE>
(continued)
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(12) STOCK OPTIONS, (CONTINUED)
NON-QUALIFIED STOCK OPTIONS:
The Board of Directors issued non-qualified stock options which were not
part of the 1981 non-qualified stock option plan or the 1989 Stock Plan
as follows:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
<S> <C> <C> <C>
Granted 1,032,000 $ 3.00 - 3.50
Exercised (170,000) 3.00
Cancelled (6,000) 3.50
Balance at July 31, 1988 856,000 3.00 - 3.50
Exercised (1,000) 3.50
Balance at July 31, 1989 855,000 3.00 - 3.50
Cancelled (100,000) 3.00
Expired (59,011) 3.50
Exercised (105,989) 3.00 - 3.50
Balance at July 31, 1990, 1991 and 1992 590,000 3.00 - 3.50
Expired (590,000) 3.00 - 3.50
Granted 750,000 3.50
Balance at July 31, 1993 750,000 3.50
Expired ---
Granted pursuant to conversion
of certain liabilities, primarily
related party 1,397,818 3.20
Repurchased stock options (102,807) 3.20
Balance at July 31, 1994 2,045,011 $ 3.20 - 3.50
Exercisable at July 31, 1994 2,045,011 $ 3.20 - 3.50
</TABLE>
The options granted during the fiscal year ended July 31, 1994 will
expire between March 30, 1999 and March 30, 2003. The options granted
during the fiscal year ended July 31, 1993 expire on September 16, 1995.
(continued)
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(12) STOCK OPTIONS, (CONTINUED)
In connection with certain private placements, the Board of Directors
have included in the agreements, options to purchase additional shares of
the Company's common stock as follows:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
<S> <C> <C> <C>
Granted 126,000 $ 3.97
Exercised (included in 1989 proceeds
from sale to private investors) (25,200) 3.97
Balance at July 31, 1989 100,800
Granted 61,720 6.50
Exercised (included in 1990 proceeds
from sale to private investors) (39,080) 3.97
Expired (61,720) 3.97
Balance at July 31, 1990 61,720
Granted 45,000 6.50
Exercised (included in 1991 proceeds
from sale to private investors) (16,720) 6.50
Expired (45,000) 6.50
Balance at July 31, 1991 45,000 6.50
Granted 50,000 5.00
Expired (45,000) 6.50
Balance at July 31, 1992 50,000
Granted 587,167 3.00 - 7.00
Expired (50,000) 5.00
Balance at July 31, 1993 587,167
Granted 25,000 4.00
Balance at July 31, 1994 612,167 $ 3.00 - 7.00
</TABLE>
The options outstanding at July 31, 1994, will expire during the fiscal
years ending July 31, 1995, 1996, and 1997.
(continued)
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(12) STOCK OPTIONS, (CONTINUED)
1989 STOCK PLAN:
On February 14, 1989, the Company adopted the Alfacell Corporation 1989
Stock Plan (the "1989 Stock Plan"), pursuant to which the Board of
Directors shall issue awards, options and grants. The maximum amount of
shares of common stock that may be issued pursuant to the option plan is
2,000,000. The per share option exercise price shall be determined by
the Board of Directors. All options are nontransferable and forfeitable
in the event employment is terminated within two years of the date an
option is exercised or prior to an option being exercised. In the event
the option is exercised and said shares are forfeited, the Company will
return to the optionee the lesser of the current market value of the
securities or the exercise price paid.
The stock option activity is as follows:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
<S> <C> <C> <C>
Granted, February 14, 1989 230,000 $ 5.00
Granted, April 27, 1990 450,000 5.00
Granted, November 2, 1990 260,000 5.00
Granted, April 23, 1991 945,000 5.00
1,885,000
Options issued in connection with
share purchase 36,365 2.75
Expired (680,000) 5.00
Cancelled (10,000) 5.00
Balance at July 31, 1992 1,231,365 2.75 - 5.00
Expired (1,195,000) 5.00
Granted 1,575,000 3.50 - 5.00
Balance at July 31, 1993 1,611,365 2.75 - 5.00
Granted ---
Expired (36,365) 2.75
Balance at July 31, 1994 1,575,000 3.50 - 5.00
Exercisable at July 31, 1994 1,575,000 $ 3.50 - 5.00
</TABLE>
The options outstanding at July 31, 1994 will expire during the fiscal
year ending July 31, 1995.
(continued)
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(12) STOCK OPTIONS, (CONTINUED)
1993 STOCK OPTION PLAN:
The Company's Board of Directors adopted the 1993 Stock Option Plan (the
"Plan") in November 1993 and the stockholders ratified the plan in
January 1994. The total number of shares of common stock authorized for
issuance upon exercise of options granted under the Plan is 3,000,000.
At July 31, 1994, the Company had issued an aggregate of 1,703,159 stock
options under the Plan at exercise prices ranging from $2.71 to $5.00.
These options become exercisable over five years starting at various
dates from the date of grant, up to one year after the grant date. Such
options expire five years after the date they become exercisable.
(13) STOCK GRANT AND COMPENSATION PLANS
The Company had adopted a stock grant program effective September 1,
1981, and pursuant to said Plan, had reserved 375,000 shares of its
common stock for issuance to key employees. The stock grant program was
superseded by the 1989 Stock Plan and no further grants will be given
pursuant to the grant plan. The following stock transactions occurred
under the Company's stock grant program:
<TABLE>
<CAPTION>
AMOUNT OF
YEAR ENDED JULY 31, SHARES FAIR VALUE COMPENSATION
<S> <C> <C> <C> <C> <C>
1983 20,000 $ 5.50 $ 110,000
1984 19,750 5.125 101,219
1985 48,332 5.125 - 15.00 478,105
1986 11,250 5.125 - 15.00 107,032
1988 19,000 $ 3.50 $ 66,500
</TABLE>
On January 26, 1984, the Company adopted a stock bonus plan for directors
and consultants. The plan was amended on October 6, 1986, to reserve
500,000 shares for issuance under the plan and to clarify a requirement
that a stock cannot be transferred until three years after the date of
the grant. The stock bonus plan for directors and consultants was
superseded by the 1989 Stock Plan and no further grants will be given
pursuant to the stock bonus plan for directors and consultants. The
following stock transactions occurred under the Company's stock bonus
plan:
<TABLE>
<CAPTION>
AMOUNT OF
YEAR ENDED JULY 31, SHARES FAIR VALUE COMPENSATION
<S> <C> <C> <C> <C> <C>
1984 130,250 $ 2.50 - 3.88 $ 385,917
1985 99,163 3.50 - 15.00 879,478
1985 (42,500) 2.50 (105,825)*
1986 15,394 9.65 - 15.00 215,400
1987 5,000 $ 15.00 $ 75,000
</TABLE>
* Shares granted in 1984 were renegotiated in 1985 and cancelled as a
result of recipient's termination.
(continued)
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(13) STOCK GRANT AND COMPENSATION PLANS, (CONTINUED)
ALFACELL CORPORATION 1989 STOCK PLAN:
Under the 1989 Stock Plan, one million shares of the Company's common
stock have been reserved for issuance as awards to employees. The 1989
Stock Plan also provides for the granting of options to purchase common
stock of the Company (see note 12). In addition, the 1989 Stock Plan
provides for the issuance of one million shares of the Company's common
stock as grants. To be eligible for a grant, grantees must have made
substantial contributions and shown loyal dedication to the Company and
be ineligible to receive an award or option.
During the fiscal years ended July 31, 1989, 1990, 1991, 1992, 1993 and
1994 the following awards and grants were authorized under the 1989 Stock
Plan:
<TABLE>
<CAPTION>
AMOUNT OF
YEAR ENDED JULY 31, SHARES FAIR VALUE COMPENSATION
<S> <C> <C> <C>
1989 30,000 $5.00 $ 150,000
1990 56,000 6.00 336,000
1991 119,000 4.00 476,000
1992 104,000 2.75 286,000
1993 117,000 2.00 234,000
1994 5,000 $ 3.00 $ 15,000
</TABLE>
Compensation expense is recorded for the fair value of all stock awards
and grants over the vesting period. During the fourth quarter of the
fiscal year ended July 31, 1993, the Company recorded additional expense
of approximately $278,000 ($.04 per share) related to the amortization of
deferred compensation under the 1989 Stock Plan which should have been
recorded as an additional expense of approximately $93,000 for each of
the three previous quarters in fiscal 1993. The 1994 stock award was
immediately vested.
(14) INCOME TAXES
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109) for the
year ended July 31, 1993. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement carrying amounts and tax bases of assets and liabilities using
enacted tax rates in effect for all years in which the temporary
differences are expected to reverse.
(continued)
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(14) INCOME TAXES, (CONTINUED)
At July 31, 1994 and 1993, the tax effects of temporary differences that
give rise to the deferred tax assets are as follows:
<TABLE>
<CAPTION>
Deferred tax assets: 1994 1993
<S> <C> <C>
Excess of book over tax depreciation $ 56,116 $ 56,116
Deferred compensation 55,916 --
Other 1,996 --
Federal and state net operating loss 8,662,634 7,916,411
carryforwards
Research and experimentation and investment tax
credit carryforwards 471,234 437,496
Total gross deferred tax assets 9,247,896 8,410,023
Valuation allowance (9,247,896) (8,410,023)
Net deferred tax assets $ -0- $ -0-
</TABLE>
A valuation allowance is provided when it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
At July 31, 1994, the Company had net operating loss carryforwards of
$21,689,117 that expire in the years 1997 to 2009. The Company also has
investment tax credit carryforwards of $63,076 and research and
experimentation tax credit carryforwards of $408,158 that expire in the
years 1998 to 2009. As of July 31, 1993, the Company had net operating
loss carryforwards of $21,762,136 that expire in the years 1997 to 2008.
The Company also had investment tax credit carryforwards of $63,076 and
research and experimentation tax credits of $374,420, that expire in the
years 1997 to 2008. Ultimate utilization/availability of such net
operating losses and credits may be significantly curtailed if a
significant change in ownership occurs.
(15) OTHER FINANCIAL INFORMATION
Accrued expenses as of July 31, consist of the following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Payroll and payroll taxes $ 12,535 $ 21,677
Interest 10,623 148,915
Professional fees 29,675 35,000
$ 52,833 $ 205,592
</TABLE>
(continued)
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(15) OTHER FINANCIAL INFORMATION, (CONTINUED)
Prepaid expenses as of July 31, consist of the following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Insurance $ 26,223 $ 46,806
NIH research 32,000 --
Other 10,444 8,770
$ 68,667 $ 55,576
</TABLE>
(16) COMMITMENTS AND CONTINGENCIES
The Company is currently in active negotiations with certain officers
with respect to employment agreements. Such officers have agreed in
principle to one-year employment agreements which will commence
retroactively to July 1, and July 15, 1994. Based on current
negotiations, the contracts aggregate to approximately $250,000 and
salary is to be earned evenly for continued employment over the life of
the contract.
On September 1, 1992, the Board of Directors approved annual salaries for
two officers of the Company in the amounts of $150,000 and $130,000,
respectively. In addition, options to purchase an aggregate of 750,000
shares of common stock at $3.50 were granted to the officers; such
options expire on September 16, 1995. On April 1, 1993, one of the
officers signed a written employment agreement with the Company for a
term of one year at an annual salary of $150,000.
On July 23, 1991, the Board of Directors authorized the Company to pay to
the President and Chief Executive Officer of the Company an amount equal
to 15% of any net royalties which may be paid to the Company from any
license(s) with respect to the Company's principal product,
ONCONASE{<reg-trade-mark>,} or any other products derived from amphibian
source extract, produced either as a natural, synthesized, and/or
genetically engineered drug for which the Company is the owner or co-
owner of the patents, or acquires such rights in the future, for a period
not to exceed the life of the patent. If the Company manufactures and
markets its own drugs, then the Company will pay an amount equal to 5% of
net sales from any products sold during the life of the patents. In
addition, the agreement provides for a reduction of indebtedness to the
President and Chief Executive Officer in the amount of $200,000 upon the
Company entering into a licensing agreement for its principal product.
The Company has product liability insurance coverage in the amount of
$6,000,000 for clinical trials. No product liability claims have been
filed against the Company. If a claim arises and the Company is found
liable in an amount that significantly exceeds the policy limits, it may
have a material adverse effect upon the financial condition of the
Company.
(continued)
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Notes to Financial Statements, Continued
(17) RESEARCH AND DEVELOPMENT AGREEMENT
In November 1992, the Company entered into a Cooperative Research and
Development Agreement (CRADA) with the National Institutes of Health
(NIH). In accordance with this CRADA, the NIH will perform research for
the Company on potential uses for its drug technology. During the term
of this research and development agreement, which expires in January
1996, the Company is obligated to pay approximately $5,000 per month to
the NIH. Total research and development expenses under this arrangement
amounted to $43,000 and $17,000 during the years ended July 31, 1994 and
1993, respectively.
(18) SUBSEQUENT EVENTS
On September 13, 1994, the Company completed a private placement
resulting in the issuance of 288,506 shares of common stock and three-
year warrants to purchase shares of common stock at an exercise price of
$5.50 per share. The common stock and warrants were sold in units
consisting of 20,000 shares of common stock and warrants to purchase
20,000 shares of common stock. The price per unit was $50,000. The
Company received proceeds of approximately $570,000, net of conversion of
certain debt by creditors of $121,000 into equivalent private placement
units and costs associated with the placement of approximately $30,000.
On September 14, 1994, the SEC declared effective a registration
statement for the offer and sale of up to 3,217,661 shares of common
stock, par value $.001 per share by existing shareholders and option
holders. Of these shares, 577,012 represent the outstanding common
stock, and common stock underlying the warrants, sold in the private
placement completed on September 13, 1994 and 2,640,649 shares which are
issuable upon exercise of certain outstanding options to purchase shares
of common stock.
(continued)
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
BALANCE SHEET
April 30, 1995
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
APRIL 30, 1995
<S> <C> <C>
Current assets:
Cash $ 410,039
Marketable security ---
Prepaid expenses 53,966
Total current assets 464,005
Property and equipment, net of accumulated depreciation and amortization of $659,723 103,953
at April 30, 1995
Other assets:
Patents, net 78,245
Deferred debt costs, net 42,000
Other 38,994
159,239
Total assets $ 727,197
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term debt $ 100,695
Loans payable, other ---
Loans and interest payable, related party 215,270
Accounts payable 264,499
Accrued payroll and expenses, related parties 349,997
Accrued expenses 42,605
Total current liabilities 973,066
Long-term debt, less current portion 1,532,328
Total liabilities 2,505,394
Commitments and contingencies
Stockholders' deficiency:
Preferred stock, $.001 par value
Authorized and unissued, 1,000,000 shares at April 30, 1995 ---
Common stock $.001 par value
Authorized 25,000,000 shares at April 30, 1995
Issued and outstanding, 9,723,187 shares at April 30, 1995 and 9,124,681 9,723
shares at
July 31, 1994
Capital in excess of par value 35,054,939
Deficit accumulated during development stage (36,842,859)
(1,778,197)
Deferred compensation, restricted stock ---
Total stockholders' deficiency (1,778,197)
Total liabilities and stockholders' deficiency $ 727,197
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Nine months ended April 30, 1995 and 1994,
and the Period from August 24, 1981
(Date of Inception) to April 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED AUGUST 24,
APRIL 30, 1981 (DATE OF
INCEPTION) TO
APRIL 30, 1995
<S> <C> <C> <C> <C> <C> <C>
1995 1994
REVENUE
Sales $ --- $ --- $ 553,489
Investment income 9,653 2,315 195,665
Other income --- --- 54,103
TOTAL REVENUE 9,653 2,315 803,257
COSTS AND EXPENSES
Costs of sales --- --- 336,495
Research and development 800,101 777,190 19,965,078
General and administrative 488,478 714,437 14,722,863
Interest
Related parties 11,547 68,915 1,028,724
Other 96,389 115,164 1,592,956
TOTAL COSTS AND EXPENSES 1,396,515 1,675,706 37,646,116
NET LOSS $ (1,386,862) $ (1,673,391) $ (36,842,859)
Loss per common share $ (.15) $ (0.20) $ (7.47)
Weighted average number of common 9,443,411 8,243,0004,930,083
shares outstanding
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Nine months ended April 30, 1995 and 1994,
and the Period from August 24, 1981
(Date of Inception) to April 30, 1995
(Unaudited)
ALFACELL CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Nine months ended April 30, 1995 and 1994,
and the Period from August 24, 1981
(Date of Inception) to April 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED AUGUST 24,
APRIL 30, 1981 (DATE OF
INCEPTION) TO
APRIL 30, 1995
<S> <C> <C> <C> <C> <C> <C>
1995 1994
Cash flows from operating activities:
Net loss $ (1,386,862) (1,673,391) (36,842,859)
Adjustments used to reconcile net loss to net
cash used in operating activities:
Gain on sale of marketable securities --- --- (25,963)
Depreciation and amortization 51,224 55,473 959,518
Loss on disposal of property and equipment --- --- 18,926
Noncash operating expenses --- 58,350 4,766,211
Amortization of deferred compensation 58,500 200,000 11,442,000
Amortization of organization costs --- --- 4,590
Changes in assets and liabilities:
Decrease (increase) in prepaid expenses 14,701 (5,657) (53,966)
(Increase) in other assets (32,190) --- (43,584)
Increase in interest payable related 11,547 68,915 959,809
party
(Decrease) increase in accounts payable (71,261) 62,052 341,764
Increase in accrued payroll and 191,732 229,0662,698,142
expenses, related parties
(Decrease) increase in accrued expenses (10,228) (25,154) 584,118
Net cash used in operating (1,172,837) (1,030,346) (15,191,294)
activities
Cash flows from investing activities:
Purchase of marketable equity security --- --- (290,420)
Proceeds from sale of marketable equity 251,209 --- 316,383
securities
Purchase of property and equipment (24,993) (2,296) (989,301)
Patent costs --- (17,552) (97,841)
Net cash provided by (used in) 226,216 (19,848) (1,061,179)
investing activities
Cash flows from financing activities:
Proceeds from short-term borrowings $ --- 169,500 849,500
Payment of short-term borrowings --- --- (623,500)
Increase in loans payable - related party, net --- --- 2,628,868
Proceeds from long-term advances, related --- 175,798 ---
party
Proceeds from bank debt and other long-term 17,595 ---2,377,143
debt, net of deferred debt costs
Reduction of bank debt and long-term debt (66,907) (45,927) (1,258,692)
Proceeds from issuance of common stock, net 1,203,318 1,768,772 12,342,193
Proceeds from issuance of convertible --- --- 347,000
debentures
(Decrease) in bank overdraft --- (7,169) ---
Net cash provided by financing 1,154,006 2,060,974 16,662,512
activities
Net increase in cash 207,385 1,010,780 410,039
Cash at beginning of period 202,654 --- ---
Cash at end of period $ 410,039 1,010,780 410,039
Supplemental disclosure of cash flow information - $ 97,039 101,070 1,327,066
interest paid
Noncash financing activities:
Issuance of convertible subordinated debenture $ --- ---2,725,000
for loan payable to officer
Issuance of common stock upon the conversion $ --- 1,575,0002,945,000
of convertible subordinated debentures, related
party
Conversion of short-term borrowings to common $ 44,000 182,000 226,000
stock
Conversion of accrued interest, payroll and $ --- 3,194,9693,194,969
expenses by related parties to stock options
Repurchase of stock options from related party $ --- --- (198,417)
Conversion of accrued interest to stock $ --- 142,441 142,441
options
Conversion of accounts payable to common stock $ 77,265 --- 77,265
Conversion of notes payable, bank and accrued $ --- ---1,699,072
interest to long-term debt
Conversion of loans and interest payable, $ --- --- 1,863,514
related party and accrued payroll and
expenses, related parties to long-term
accrued payroll and other, related party
Issuance of common stock upon the conversion $ --- 127,000127,000
of convertible subordinated debentures, other
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the Company's financial position as of April 30,
1995 and the results of operations for the three and nine month periods ended
April 30, 1995 and 1994 and the period from August 24, 1981 (date of inception)
to April 30, 1995.
The results of operations for the nine months ended April 30, 1995 are
not necessarily indicative of the results to be expected for the full year.
The Company is a development stage company as defined in the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.7.
The Company is devoting substantially all of its present efforts to
establishing a new business. Its planned principal operations have not
commenced and, accordingly, no significant revenue has been derived therefrom.
2. CAPITAL STOCK
On September 13, 1994, the Company completed a private placement
resulting in the issuance of 288,500 shares of common stock and three-year
warrants to purchase an aggregate of 288,500 shares of common stock at an
exercise price of $5.50 per share. The common stock and warrants were sold in
units consisting of 20,000 shares of common stock and warrants to purchase
20,000 shares of common stock. The price per unit was $50,000. The Company
received proceeds of approximately $543,000, including $50,000 received in the
previous quarter, net of conversion of certain debt by creditors of $121,000
into equivalent private placement units and costs associated with the placement
of approximately $57,000.
On September 14, 1994, the Securities and Exchange Commission declared
effective a registration statement for the offer and sale of up to 3,217,661
shares of common stock, par value $.001 per share by existing shareholders and
option holders. Of these shares, 577,000 represent the outstanding common
stock and common stock underlying the warrants sold in the private placement
completed on September 13, 1994 and 2,640,661 shares are issuable upon exercise
of certain outstanding options to purchase shares of common stock.
In October 1994, a private placement of 40,000 shares of common stock at
$2.50 per share was made to a single investor for a total of $100,000.
On January 9, 1995, the Company lowered the exercise price of 110,000
stock options that were expiring on that date from $3.50 to $2.27, the fair
market value of the common stock on that date. The fair market value was
determined by taking the average common stock price for the 20 trading days
prior to January 9, 1995. Exercise of all of these options resulted in gross
proceeds to the Company of $249,700.
On March 17, 1995, the Company extended the term of 320,167 stock options
previously issued to unrelated parties (with expiration dates ranging from
April 30, 1995 to July 15, 1995), to July 31, 1995 and lowered the exercise
price from $5.00 to $2.50. As of April 30, 1995, exercise of 30,000 of these
options has resulted in gross proceeds to the Company of $75,000.
ALFACELL CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. CAPITAL STOCK (CONTINUED)
On April 17, 1995, the Company extended the term of 200,000 stock options
previously issued to related parties (with an expiration date of April 30,
1995), to July 31, 1995 and lowered the exercise price from $5.00 to $2.65, the
fair market value of the common stock on that date. The fair market value was
determined by taking the average common stock price for the 20 trading days
prior to April 17, 1995. As of April 30, 1995, none of these options have been
exercised.
In April 1995, the Company issued 130,000 shares of common stock to three
investors at prices ranging from $2.17 to $2.25 per common share resulting in
gross proceeds to the Company of $283,300.
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Independent Auditors' Report and Consent (See Exhibit 23.2) S-2
<S> <C>
Schedule I - Marketable Securities - Other Investments S-1
Schedule IV - Indebtedness of and to Related Parties - Not Current
S-2
Schedule V - Property, Plant and Equipment S-3
Schedule VI - Accumulated Depreciation, Depletion and Amortization of Property, Plant and
Equipment
S-4
Schedule IX - Short-Term Borrowings S-5
Schedule X -Supplementary Income Statement Information S-6
</TABLE>
S-1
<PAGE>
SCHEDULE I
ALFACELL CORPORATION
(A Development Stage Company)
MARKETABLE SECURITIES - OTHER INVESTMENTS
<TABLE>
<CAPTION>
MARKET VALUE AT BALANCE SHEET
BALANCE SHEET CARRYING AMOUNT
NUMBER OF SHARES DATE
NAME OF ISSUER OR UNITS COST
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1994 RCI Corporation 1 $ 251, 209 251,209 251, 209
Year ended July 31, 1993 None -- -- -- --
Year ended July 31, 1992 None -- -- -- --
</TABLE>
S-1
<PAGE>
SCHEDULE IV
ALFACELL CORPORATION
(A Development Stage Company)
INDEBTEDNESS OF AND TO RELATED PARTIES - NOT
CURRENT
<TABLE>
<CAPTION>
INDEBTEDNESS OF INDEBTEDNESS TO
BALANCE AT BALANCE AT BALANCE AT BALANCE AT
BEGINNING END OF BEGINNING END OF
NAME OF PERSON OF PERIOD ADDITIONS DEDUCTIONS PERIOD OF PERIOD ADDITIONS DEDUCTIONS PERIOD
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended July 31, 1994 - $ -- -- -- -- 1,575,000 -- 1,575,000* --
Kuslima Shogen
Year ended July 31, 1993 - $ -- -- -- -- 1,300,000 275,000 --
1,575,000
Kuslima Shogen
Year ended July 31, 1992 - $ -- -- -- -- 1,050,000 500,000 250,000*
1,300,000
Kuslima Shogen
</TABLE>
* Converted to common stock
S-1
<PAGE>
SCHEDULE V
ALFACELL CORPORATION
(A Development Stage Company)
PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
OTHER CHANGES -
BALANCE AT ADD
BEGINNING OF ADDITIONS AT (DEDUCT) BALANCE AT END
CLASSIFICATION PERIOD COST RETIREMENTS OF PERIOD
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1994
Laboratory equipment $ 568,672 -- -- -- 568,672
Office equipment 103,375 13,660 -- --117,035
Leasehold improvements 52,976 -- -- -- 52,976
$ 725,023 13,660 -- -- 738,683
Year ended July 31, 1993
Laboratory equipment 513,032 56,090 (450) --568,672
Office equipment 62,416 40,959 -- --103,375
Leasehold improvements 52,976 -- -- -- 52,976
$ 628,424 97,049 (450) -- 725,023
Year ended July 31, 1992
Laboratory equipment 612,184 3,598 (102,750) --513,032
Office equipment 62,416 -- -- --62,416
Leasehold improvements 52,976 -- -- -- 52,976
$ 727,576 3,598 (102,750) -- 628,424
</TABLE>
(a) Includes $100,000 of fully depreciated equipment, no longer usable and
scrapped.
S-1
<PAGE>
SCHEDULE VI
ALFACELL CORPORATION
(A Development Stage Company)
ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
ADDITIONS OTHER CHANGES -
BALANCE AT CHARGED TO COSTS ADD
BEGINNING OF AND EXPENSES (DEDUCT) BALANCE AT END
CLASSIFICATION PERIOD RETIREMENTS OF PERIOD
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1994
Laboratory equipment $ 502,542 19,033 -- --521,575
Office equipment 59,721 10,044 -- --69,765
Leasehold improvements 52,976 -- -- -- 52,976
$ 615,239 29,077 -- -- 644,316
Year ended July 31, 1993
Laboratory equipment 468,897 34,095 (450) --502,542
Office equipment 54,457 5,264 -- --59,721
Leasehold improvements 52,976 -- -- -- 52,976
$ 576,330 39,359 (450) -- 615,239
Year ended July 31, 1992
Laboratory equipment 518,068 52,990 (102,161)(a) --468,897
Office equipment 50,599 3,858 -- --54,457
Leasehold improvements 52,976 -- -- -- 52,976
$ 621,643 56,848 (102,161) -- 576,330
</TABLE>
(a) Includes $100,000 of fully depreciated equipment, no longer usable and
scrapped.
S-1
<PAGE>
SCHEDULE IX
ALFACELL CORPORATION
(A Development Stage Company)
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
MAXIMUM AMOUNT AVERAGE AMOUNT WEIGHTED
WEIGHTED OUTSTANDING OUTSTANDING AVERAGE
BALANCE AT AVERAGE DURING THE DURING THE INTEREST RATE
CATEGORY OF AGGREGATE BEGINNING OF INTEREST PERIOD PERIOD* DURING THE
SHORT-TERM BORROWINGS PERIOD RATE PERIOD*
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1994
- banks $ -- -- -- -- --
Year ended July 31, 1994
- banks $ -- 11.00% 1,300,000 1,083,333 11.00%
Year ended July 31, 1994
- banks $ 1,300,000 11.00% 1,300,000 1,300,000 11.00%
</TABLE>
* Averages are calculated using the month-end balances and rates.
S-1
<PAGE>
SCHEDULE X
ALFACELL CORPORATION
(A Development Stage Company)
SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
Charged to costs and
EXPENSES
ITEM
<S> <C>
1. MAINTENANCE AND REPAIRS
Year ended July 31, 1994 $ 10,775
Year ended July 31, 1993 14,633
Year ended July 31, 1992 16,945
2. DEPRECIATION AND AMORTIZATION OF INTANGIBLE ASSETS,
PREOPERATING COSTS AND SIMILAR DEFERRAL
Year ended July 31, 1994 $ 46,080
Year ended July 31, 1993 3,564
Year ended July 31, 1992 4,153
3. TAXES, OTHER THAN PAYROLL AND INCOME
Year ended July 31, 1994 $ 522
Year ended July 31, 1993 250
Year ended July 31, 1992 71
</TABLE>
S-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the General Corporation Law of Delaware (the "GCL")
a corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation), by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
A corporation also may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation. However, in such an action by or on behalf of a corporation, no
indemnification may be made in respect of any claim, issue or matter as to
which the person is adjudged liable to the corporation unless and only to the
extent that the court determines that, despite the adjudication of liability
but in view of all the circumstances, the person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
In addition, the indemnification provided by Section 145 shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office. The Certificate of
Incorporation of the Company is consistent with Section 145 of the GCL and its
Bylaws provide that each director, officer, employee and agent of the Company
shall be indemnified to the extent permitted by the GCL.
In this connection, the Company has entered into indemnification
agreements (the "Indemnity Agreements") with each of its directors. The
Indemnity Agreements are consistent with the Company's By-laws and the
Company's policy to indemnify directors to the fullest extent permitted by law.
The Indemnity Agreements provide for indemnification of directors for
liabilities arising out of claims against such persons acting as directors of
the Company (or any entity controlling, controlled by or under common control
with the Company) due to any actual or alleged breach of duty, neglect, error,
misstatement, misleading statement, omission or other act done, or suffered or
wrongfully attempted by such directors, except as prohibited by law. The
Indemnity Agreements also provide for the advancement of costs and expenses,
including attorneys' fees, reasonably incurred by directors in defending or
investigating any action, suit, proceeding or claim, subject to an undertaking
by such directors to repay such amounts if it is ultimately determined that
such directors are not entitled to indemnification. The Indemnity Agreements
cover future acts and omissions of directors for which actions may be brought.
The Indemnity Agreements also provide that directors, officers, employees
and agents are entitled to indemnification against all expenses (including
attorneys' fees) reasonably incurred in seeking to collect an indemnity claim
or to obtain advancement of expenses from the Company. The rights of directors
under the Indemnity Agreements are not exclusive of any other rights directors
may have under Delaware law, any liability insurance policies that may be
obtained, the Company's By-Laws or otherwise. The Company would not be
required to indemnify a director for any claim based upon the director gaining
in fact a personal profit or advantage to which such director was not legally
entitled, any claim for an accounting of profits made in connection with a
violation of Section 16(b) of the Securities Exchange Act of 1934 or a similar
state or common law provision or any claim brought about or contributed to by
the dishonesty of the director.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a list of the estimated expenses to be incurred by the
Registrant in connection with the distribution of the securities being
registered hereby, other than underwriting discounts and commissions.
Registration $ 5,100
Accountants' Fees and Expenses $ 57,500
Legal Fees and Expenses $ 85,000
Printing Expenses $ 7,500
Miscellaneous $ 2,900
Total $158,000*
* Includes fees and expenses paid to date pursuant to the Registrant's
Registration Statements on Form SB-2 (File Nos. 33-83072 and 33-76950).
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On January 9, 1993, the Company issued 5,000 shares of Common Stock to
Diane Scudiery in payment of accrued wages aggregating $10,000 and 500 shares
of Common Stock to S. Spector for payment of consulting services rendered to
the Company aggregating $1,000. On January 29, 1993, the Company issued 10,000
shares of Common Stock to Mark Jay in payment of legal fees aggregating
$20,000; 75,000 shares of Common Stock to James McCash for an aggregate of
$150,000; 115,000 shares of Common Stock to Digital Creations Inc for an
aggregate of $230,000 and 32,500 shares of Common Stock to Kimberly Computer
Inc. for an aggregate of $65,000. On May 5, 1993, the Company issued 23,500
shares of Common Stock to John Frohling in payment of legal fees aggregating
$69,680. On May 24, 1993, the Company issued 12,000 shares of Common Stock to
James McCash for an aggregate of $36,000; on June 16, 1993, the Company issued
3,000 shares of Common Stock to Anatoly Ritikoff for an aggregate of $9,000; on
June 29, 1993, the Company issued 11,834 shares of Common Stock to James McCash
for an aggregate of $35,500; and on July 15, 1993, the Company issued 3,333
shares of Common Stock to Ahmed Farag for an aggregate of $10,000. Pursuant to
these transactions, the private investors were granted options to purchase an
aggregate of 587,167 shares of Common Stock at prices ranging from $3.00 to
$7.00. On July 28, 1995 the exercise price of options to purchase 30,167
shares of the 587,167 shares was reduced from $5.00 to $2.50 per share and the
exercise period was extended from July 31, 1995 to July 31, 1996. All of the
587,167 options expire during the period October 1994 to May 1996.
In September 1993, the Company sold 25,000 shares of Common Stock to
James McCash, at an aggregate purchase price of $50,000. Pursuant to this
transaction, Mr. McCash was granted options to purchase an aggregate of 25,000
shares of Common Stock at an exercise price of $4.00 per share. These options
expire on September 14, 1996.
On January 5, 1994, $127,000 of convertible debentures were converted
into 25,400 shares of Common Stock by John Schierloh, pursuant to the terms of
the debentures. Additionally, on March 30, 1994 the Company issued 5,000
shares of Common Stock to Ms. Anita Franklin for services rendered to the
Company.
In November 1993, the Company commenced a private placement which was
completed on March 21, 1994. The private placement resulted in the issuance of
800,000 shares of Common Stock and three-year warrants to purchase 800,000
shares of Common Stock at an exercise price of $5.00 per share. The Common
Stock and warrants were sold in units consisting of 20,000 shares of Common
Stock and warrants to purchase 20,000 shares of Common Stock. The price per
unit was $50,000. After taking into account expenses of the offering, the
conversion of debt by a certain investor and conversion of accounts payable by
a certain creditor, the Company received net proceeds of approximately
$1,695,000 from the offering. The units were acquired by the investors in such
private placement transaction from the Company pursuant to purchase agreements
(the "Purchase Agreements"). In the Purchase Agreements, the Company agreed to
bear all expenses in connection with the registration of the Common Stock
(other than underwriting discounts and selling commissions and the fees and
expenses of counsel and other advisors to the investors).
In September 1994, the Company commenced a private placement which was
completed on September 13, 1994. The private placement resulted in the
issuance of 288,506 shares of Common Stock and three-year Warrants to purchase
288,506 shares of Common Stock at an exercise price of $5.50 per share. The
Common Stock and Warrants were sold in units consisting of 20,000 shares of
Common Stock and Warrants to purchase 20,000 shares of Common Stock. The price
per unit was $50,000. After taking into account expenses of the offering, the
conversion of debt by a certain investor and conversion of accounts payable by
certain creditors, the Company received net proceeds of approximately $572,000
from the offering. The units were acquired by the investors in such private
placement transaction from the Company pursuant to Purchase Agreements. In the
Purchase Agreements, the Company agreed to bear all expenses in connection with
the registration of the Common Stock (other than underwriting discounts and
selling commissions and the fees and expenses of counsel and other advisors to
the investors).
Additionally, during the year ended July 31, 1994, $1,575,000 of
convertible debentures were converted into Common Stock by the Company's
President and Chief Executive Officer, pursuant to the terms of the debentures
as follows:
July 31, 1993, convertible debentures,
related party $1,575,000
August 18, 1993, converted to 50,000
shares of Common Stock (300,000)
September 28, 1993, converted to 50,000
shares of Common Stock (200,000)
March 30, 1994, converted to 300,000
shares of Common Stock (1,075,000)
July 31, 1994, convertible debentures,
related party $ --
In February 1995 the Company issued an aggregate of 110,000 shares of
Common Stock upon the exercise of 110,000 options for aggregate consideration
of $249,700; in March 1995 the Company issued an aggregate of 10,000 shares of
Common Stock upon the exercise of 10,000 options for aggregate consideration of
$25,000; in June 1995 the Company issued an aggregate 35,000 shares of Common
Stock upon the exercise of 35,000 options for aggregate consideration of
$87,500; in July 1995 the Company issued an aggregate 10,000 shares of Common
Stock upon the exercise of 10,000 options for aggregate consideration of
$25,000; in August 1995 the Company issued an aggregate of 10,000 shares of
Common Stock upon the exercise of 10,000 options for aggregate consideration of
$25,000.
In April 1995, the Company commenced a private placement which is ongoing
as of the date hereof. To date, the private placement has resulted in the
issuance of 1,864,906 shares of Common Stock and three-year warrants to
purchase 95,945 shares of Common Stock at an exercise price of $4.00 per share.
After taking into account expenses of the offering, the Company has received to
date net proceeds of approximately $3.8 million from the offering. The Common
Stock and warrants were acquired by the investors in such private placement
transaction from the Company pursuant to purchase agreements. In the purchase
agreements, the Company agreed to bear all expenses in connection with the
registration of the Common Stock (other than underwriting discounts and selling
commissions and the fees and expenses of counsel and other advisors to the
investors). 115,000 shares of Common Stock sold in this private placement were
sold pursuant to Regulation S under the Securities Act.
Unless otherwise stated, the foregoing sales of the Company's securities
were effected in private transactions in reliance upon Section 4(2) of the
Securities Act, or upon Section 4(2) of the Securities Act and Rule 506
thereunder.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following are filed either as exhibits to this Registration Statement
or incorporated by reference to the exhibits to prior Registration Statements
and reports of the Registrant as indicated:
(a) EXHIBITS (numbered in accordance with Item 601 of Regulation S-
B).
<TABLE>
<CAPTION>
Exhibit No. or Incorporation
BY REFERENCE
Exhibit
NO. ITEM TITLE
<S> <C> <C>
3.1 Certificate of Incorporation *
3.2 By-Laws *
3.3 Amendment to Certificate of Incorporation *
4.1 Form of Convertible Debenture **
5.1 Opinion of Ross & Hardies +
10.1 Employment Agreement dated as of July 1, 1994 with Kuslima ++
Shogen
10.2 Lease, as amended - 225 Belleville Avenue, Bloomfield, New **
Jersey
10.3 Term Loan Agreement dated as of May 31, 1993 by and between **
the Company and First Fidelity Bank, N.A., New Jersey
10.4 Term Note dated as of May 31, 1993 issued by the Company to **
First Fidelity Bank, N.A., New Jersey
10.5 Patent Security Agreement dated as of May 31, 1993 by and **
between the Company and First Fidelity Bank, N.A., New
Jersey
10.6 Security Agreement dated as of May 31, 1993 by and between **
the Company and First Fidelity Bank, N.A., New Jersey
10.7 Subordination Agreement dated as of May 31, 1993 by and **
among the Company, Kuslima Shogen, and First Fidelity Bank,
N.A., New Jersey
10.8 Form of Stock Purchase Agreement and Certificate used in ***
connection with private placements
10.9 Form of Stock and Warrant Purchase Agreement and Warrant ***
Agreement used in Private Placement completed on March 21,
1994
10.10 The Company's 1993 Stock Option Plan and Form of Option *****
Agreement
10.11 Debt Conversion Agreement dated March 30, 1994 with Kuslima ****
Shogen
10.12 Accrued Salary Conversion Agreement dated March 30, 1994 ****
with Kuslima Shogen
10.13 Accrued Salary Conversion Agreement dated March 30, 1994 ****
with Stanislaw Mikulski
10.14 Debt Conversion Agreement dated March 30, 1994 with John ****
Schierloh
10.15 Option Agreement dated March 30, 1994 with Kuslima Shogen ****
10.16 Option Agreement dated March 30, 1994 with Kuslima Shogen ****
10.17 Amendment No. 1 dated June 20, 1994 to Option Agreement ****
dated March 30, 1994 with Kuslima Shogen
10.18 Amendment No. 1 dated June 17, 1994 to Term Loan Agreement ****
dated May 31, 1993 between Kuslima Shogen and First Fidelity
Bank, N.A., New Jersey
10.19 Second Pledge Agreement dated June 17, 1994 by and among the ****
Company, Kuslima Shogen and First Fidelity Bank, N.A., New
Jersey
10.20 Form of Amendment No. 1 dated June 20, 1994 to Option *****
Agreement dated March 30, 1994 with Kuslima Shogen
10.21 Form of Amendment No. 1 dated June 20, 1994 to Option *****
Agreement dated March 30, 1994 with Stanislaw Mikulski
10.22 Form of Stock and Warrant Purchase Agreement and Warrant +
Agreement used in Private Placement completed on September
13, 1994
10.23 Employment Agreement dated as of July 15, 1994 with Gail E. ++
Fraser
10.24 Form of Subscription Agreements used in private placements ++
closed during the quarter ended April 30, 1995.
21.0 Subsidiaries of Registrant **
23.1 Consent of Ross & Hardies (included in Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP E-1
23.3 Consent of Armus, Harrison, & Co. E-2
24.0 Powers of Attorney +++
</TABLE>
___________________________
* Previously filed as exhibit to the Company's Registration Statement on
Form S-18 (File No. 2-79975-NY) and incorporated herein by reference
thereto.
** Previously filed as exhibits to the Company's Annual Report on Form 10-K
for the year ended July 31, 1993 and incorporated herein by reference
thereto.
*** Previously filed as exhibits to the Company's Quarterly Report on Form
10-QSB for the quarter ended January 31, 1994 and incorporated herein by
reference thereto.
**** Previously filed as exhibits to the Company's Quarterly Report on Form
10-QSB for the quarter ended April 30, 1994 and incorporated herein by
reference thereto.
***** Previously filed as exhibits to the Company's Registration Statement on
Form SB-2 (File No. 33-76950) and incorporated herein by reference
thereto.
+ Previously filed as exhibits hereto.
++ Previously filed as exhibits to the Company's Quarterly Report on Form
10-QSB for the quarter ended April 30, 1995 and incorporated herein by
reference thereto.
+++ Powers of attorney are contained in signatures.
(B) FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules not included in this Registration Statement
have been omitted because they are not applicable or the required information
is shown in the financial statements or notes thereto.
Schedule I -Marketable Securities - Other Investments
Schedule IV -Indebtedness of and to Related Parties - Not Current
Schedule V - Property, Plant and Equipment
Schedule VI - Accumulated Depreciation, Depletion and Amortization of Property,
Plant and Equipment
Schedule IX - Short-term borrowings
Schedule X - Supplementary Income Statement Information
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the Registration
Statement; notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in the volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to any provision or arrangement, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
S-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Bloomfield, State of New Jersey, on September 8,
1995.
ALFACELL CORPORATION
(Registrant)
By:/S/ KUSLIMA SHOGEN
Kuslima Shogen, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Kuslima Shogen and Gail E. Fraser, his
true and lawful attorneys-in-fact and agents, each acting alone, with full
powers of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
Registration Statement and to file the same, with all exhibits thereto, and all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
S-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Bloomfield, State of New Jersey, on September 8,
1995.
ALFACELL CORPORATION
(Registrant)
By:/S/ KUSLIMA SHOGEN
Kuslima Shogen,
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/S/ KUSLIMA SHOGEN Chief Executive September 8, 1995
Kuslima Shogen Officer and Director
(Principal Executive Officer)
/S/ GAIL E. FRASER Vice President, Finance and September 8, 1995
Gail E. Fraser Chief Financial Officer
(Principal Financial Officer
and Director and Principal
Accounting Officer)
/S/ STANISLAW M. MIKULSKI Executive Vice September 8, 1995
Stanislaw M. Mikulski, M.D. President, Medical Director
and Director
Director September _, 1995
Allen Siegel, D.D.S.
/S/ ALAN BELL Director September 3, 1995
Alan Bell
/S/ ROBERT R. HENRY Director September 5, 1995
Robert R. Henry
<PAGE>
EXHIBIT INDEX
Sequential
ExhibitDocument Page Page
NUMBERDESCRIPTION NUMBER
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Armus, Harrison & Co.
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INDEPENDENT AUDITORS' REPORT ON SCHEDULES AND CONSENT
The Board of Directors
Alfacell Corporation:
The audits referred to in our report dated September 29, 1994, included the
related financial statement schedules as of July 31, 1994, and for each of
the years in the two-year period ended July 31, 1994, included in the
registration statement. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statement schedules based on our
audits. In our opinion, such financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference
to our firm under the headings "Selected Financial Data" and "Experts" in
Post-Effective Amendment No. 1 To Registration Statement No. 33-83072 on
Form SB-2 which also constitutes a post-effective amendment to the
Company's Registration Statement No. 33-76950 on Form SB-2.
Our report dated September 29, 1994 contains an explanatory paragraph that
states that the Company's recurring losses from operations, working capital
deficiency and net capital deficiency raise substantial doubt about the
entity's ability to continue as a going concern. The financial statements
and financial statement schedules do not include any adjustments that might
result from the outcome of that uncertainty. Further, our report, as it
relates to the financial statements for the period from August 24, 1981
(date of inception) to July 31, 1994, is based on the report of other
auditors as to the amounts included therein for the period from August 24,
1981 (date of inception) to July 31, 1992.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Short Hills, New Jersey
September 8, 1995
S-1
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INDEPENDENTS AUDITOR'S CONSENT
The Board of Directors
Alfacell Corporation
We consent to the use of our report incorporated herein and to the
reference to our firm under the heading "experts" in the prospectus.
Our report dated December 9, 1992, except as to Note 18 which is July 19,
1993, and Note 3 which is October 28, 1993, contains an explanatory
paragraph that states that the Company's recurring losses from operations,
working capital deficiency and net capital deficiency raise substantial
doubt about the entity's ability to continue as a going concern. The
financial statements and financial statement schedules do not include any
adjustments that might result from the outcome of that uncertainty.
Mountainside, New Jersey
September 8, 1995
/s/Armus, Harrison &
Co.
Armus, Harrison &
Co.
