As filed with the Securities and Exchange Commission on September 6, 1996
Registration No. 333-______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
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)
Gail E. Fraser
Vice President, Finance and
Chief Financial Officer
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(c) 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.
<PAGE>
CALCULATION OF REGISTRATION FEE
Title of
each class Proposed Proposed
of Dollar maximum maximum Amount
securities Amount offering aggregate of
to be to be price per offering registration
REGISTERED REGISTERED UNIT PRICE FEE
Common Stock,
par value $.001
per share 1,728,706(1) $4.94 $ 8,539,808 $2,945
Common Stock,
par value $.001
per share 313,800(2) $4.94 $ 1,550,172 $ 535
Totals 2,042,506 $10,089,980 $3,480
(1) To be offered and sold by selling stockholders; registration fee
based on the average of the bid and asked price for Common Stock
of registrant on September 3, 1996 pursuant to Rule 457(c).
(2) To be offered and sold by selling stockholders upon the exercise
by such selling stockholders of outstanding warrants;
registration fee based on the average of the bid and asked price
for Common Stock of registrant on September 3, 1996 pursuant to
Rule 457(c).
<PAGE>
ALFACELL CORPORATION
CROSS REFERENCE SHEET
INFORMATION REQUIRED TO LOCATION IN
BE INCLUDED IN PROSPECTUS PROSPECTUS
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 page
of 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> i
SUBJECT TO COMPLETION, DATED SEPTEMBER 6, 1996
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
2,042,506 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 2,042,506 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 2,042,506 shares, 1,728,706 shares are
outstanding and held by the Selling Stockholders and 313,800 shares are
issuable upon the exercise of outstanding warrants to purchase Common Stock
(the "Warrants") held by the Selling Stockholders. The Selling
Stockholders acquired the outstanding shares of Common Stock offered hereby
and the Warrants directly from the Company (i) in several private placement
transactions during the period of October 1995 to April 1996 (the
"1995/1996 Private Placements"); (ii) in a private placement transaction
completed on June 11, 1996 (the "June 1996 Private Placement"); and (iii)
in connection with a raw material purchasing agreement dated October 5,
1995 (the "Supply Agreement"). See "Selling Stockholders" and "Certain
Transactions". One of the Selling Stockholders is a director of the
Company. 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 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 30, 1996 the high bid and low asked quotations of the Common
Stock were $4 31/32 and $5 1/16, respectively, as reported by the National
Quotations Bureau.
<PAGE> ii
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 $24,000. 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 5 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 __, 1996
<PAGE> iii
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 (the "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 trademarks appear in this Prospectus:
ONCONASE(registered trademark) is a registered trademark of Alfacell
Corporation; Gemzar(registered trademark) is a registered trademark of Eli
Lilly & Co.
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> iv
TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY........................................................1
RISK FACTORS..............................................................5
USE OF PROCEEDS..........................................................14
DIVIDEND POLICY..........................................................14
CAPITALIZATION...........................................................15
PRICE RANGE OF COMMON STOCK..............................................15
SELECTED FINANCIAL DATA..................................................17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........................18
BUSINESS ................................................................23
MANAGEMENT...............................................................31
EXECUTIVE COMPENSATION...................................................36
CERTAIN TRANSACTIONS.....................................................39
PRINCIPAL STOCKHOLDERS...................................................42
SELLING STOCKHOLDERS.....................................................44
PLAN OF DISTRIBUTION.....................................................48
DESCRIPTION OF SECURITIES................................................49
SHARES ELIGIBLE FOR FUTURE SALE..........................................51
LEGAL MATTERS............................................................55
EXPERTS..................................................................55
INDEX TO FINANCIAL STATEMENTS...........................................F-1
<PAGE> 1
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(registered trademark) 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 1996, the American Cancer Society estimates
that 388,000 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 300 cancer patients on a weekly
basis, including 175 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 with patients with
these tumor types, warranting further trials, some of which are underway.
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.
In November 1995, Alfacell began a randomized multi-center Phase III
clinical trial to test the combination of ONCONASE and tamoxifen versus 5-
fluorouracil ("5-FU") in approximately 200 patients with advanced
pancreatic cancer. A subsequent Phase III clinical trial was initiated in
August 1996, to compare ONCONASE plus tamoxifen against Gemzar(registered
trademark), a Food and Drug Administration ("FDA") approved drug for
pancreatic cancer, in approximately 100 patients.
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 leukemic cells. In addition, in vitro findings by NIH
scientists revealed that ONCONASE significantly inhibited production of the
HIV-1 virus in several persistently infected human cell lines,
preferentially degrading viral RNA while not affecting normal cellular
ribosomal RNA and messenger RNAs. Although the Company plans to further
research ONCONASE and its anti-viral activity, there can be no assurance
that ONCONASE will show any level of anti-HIV activity in humans.
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 these
proteins into therapeutics. There can be no assurance that the development
of these proteins will be accomplished.
On March 21, 1994 the Company completed a private placement (the
"March 1994 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. The per share price
of the Common Stock was $2.50. The Company received net proceeds of
approximately $1,865,791 (including 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 after the payment of
certain offering expenses) which has been used primarily for general
corporate purposes, including the funding of research and development
activities, which include collaborations with the NIH and the National
Cancer Institute ("NCI") and Phase II/III clinical trials. In December
1995, the Commission declared effective a registration statement filed by
the Company with respect to the 772,000 shares of such Common Stock and all
800,000 shares of Common Stock underlying such warrants which remained
unsold by the March 1994 Private Placement investors as of such date.
On September 13, 1994 the Company completed a private placement (the
"September 1994 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. The per share
price of the Common Stock was $2.50. The Company received net proceeds of
approximately $545,000 (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, which include collaborations with the NIH and
the NCI and Phase II/III clinical trials. In December 1995, the Commission
declared effective a registration statement filed by the Company with
respect to 230,906 shares of such Common Stock and all 288,506 shares of
Common Stock underlying such warrants which remained unsold by the
September 1994 Private Placement investors as of such date.
On October 21, 1994 the Company completed a private placement (the
"October 1994 Private Placement") of 40,000 shares of restricted Common
Stock at a per share price of $2.50 and three-year warrants to purchase
40,000 shares of Common Stock at an exercise price of $5.50 per share to a
single investor. On September 29, 1995 the Company completed a private
placement (the "September 1995 Private Placement") of an aggregate of
1,925,616 shares of restricted Common Stock and three-year warrants to
purchase 55,945 shares of Common Stock at an exercise price of $4.00 per
share. The Common Stock was sold alone at per share prices ranging from
$2.00 to $3.70, and in combination with warrants at per share prices
ranging from $4.96 to $10.92, which related to the number of warrants
contained in the unit. After taking into account expenses of the
offerings, the Company received net proceeds of approximately $4.2 million
from the October 1994 and September 1995 Private Placements. The Company
utilized these net proceeds primarily for general corporate purposes,
including the funding of research and development activities, which include
collaborations with the NIH and the NCI and Phase II/III clinical trials.
In December 1995, the Commission declared effective a registration
statement filed by the Company with respect to such 1,965,616 shares of
such Common Stock and 95,945 shares of Common Stock underlying such
warrants.
On November 29, 1995, the Company amended and restated a promissory
note and amended the term loan agreement with its bank (the "Term Loan")
effective as of October 1, 1995. The amendment to the Term Loan provides
for, among other things, the issuance to the bank of a Warrant to purchase
10,000 shares of Common Stock through August 31, 1997 at a per share
exercise price of $4.19. In December 1995, the Commission declared
effective a registration statement filed by the Company with respect to
10,000 shares of Common Stock underlying such warrant.
On April 4, 1996 the Company completed the 1995/1996 Private
Placements for an aggregate of 207,316 shares of restricted Common Stock at
per share prices ranging from $3.60 to $4.24. On June 11, 1996 the Company
completed the June 1996 Private Placement for an aggregate of 1,515,330
shares of restricted Common Stock and three-year Warrants to purchase
313,800 shares of Common Stock at an exercise price of $7.50 per share.
The Common Stock was sold alone at a per share price of $3.70 and in
combination with Warrants at a per unit price of $12.52. Each unit
consisted of three shares of Common Stock and one Warrant. The Warrants
were also sold alone at a per Warrant price of $1.42. After taking into
account expenses of the offerings, the Company received aggregate net
proceeds of approximately $6.5 million from the 1995/1996 Private
Placements and the June 1996 Private Placement. The Company intends to
utilize these net proceeds primarily for general corporate purposes,
including the funding of research and development of its product ONCONASE.
This prospectus relates to the offer and sale by the Selling Stockholders
of such 1,722,646 shares of Common Stock and the 313,800 shares of Common
Stock underlying such Warrants sold in the aggregate in the 1995/1996
Private Placements and the June 1996 Private Placement.
On October 5, 1995 the Company entered into an agreement with one of
its raw material suppliers for the purchase of leopard frog eggs and
embryos. Pursuant to the agreement the Company issued 3,030 shares of
Common Stock to each of Gerald and Doris L. Graska (the "Graskas"). This
Prospectus relates to the offer and sale by the Graskas as Selling
Stockholders of an aggregate of 6,060 shares of Common Stock.
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 2,042,506
shares of Common Stock. Of these shares (i)
1,722,646 were issued in the 1995/1996
Private Placements and the June 1996 Private
Placement, (ii) 313,800 underlie Warrants
which were issued in the June 1996 Private
Placement, which shares may be issued upon
exercise of the Warrants, and (iii) 6,060
were issued to one of the Company's raw
material suppliers. See "Selling
Stockholders" and "Certain Transactions."
Securities Outstanding..... As of July 31, 1996 the Company had
13,858,909 shares of Common Stock
outstanding. Assuming that all of the
Warrants are exercised and no other shares of
Common Stock are issued subsequent to July
31, 1996 the Company would have 14,172,709
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. If all of the
Warrants are exercised, the Company will
receive estimated additional net proceeds of
$2,353,500. The Company intends to utilize
any proceeds received from the exercise of
the Warrants for general corporate purposes,
including the funding of research and
development activities. There can be no
assurance that any of the Warrants 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. Information
contained in this Prospectus contains "forward-looking statements" which
can be identified by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should" or "anticipates" or the
negative thereof or other variations thereon or comparable terminology, or
by discussion of strategy or future plans. See, e.g. "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Prospectus Summary - The Company," "Risk Factors" and "Business". No
assurance can be given that the future results covered by the forward-
looking statements will be achieved. The following matters include
cautionary statements, including certain risks and uncertainties, that
could cause actual results to vary materially from the future results
covered in such forward-looking statements. Other factors could also cause
actual results to vary materially from the future results covered in such
forward-looking statements.
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. At April 30, 1996, the
Company had an accumulated deficit of approximately $39,600,000 and a total
stockholders' equity of approximately $400,000. 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.
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, 1995 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, 1996, the
Company had total assets of approximately $2,600,000 and total liabilities
of approximately $2,200,000. Of such liabilities, approximately $1,500,000
is owed to a bank pursuant to the Term Loan, and is secured by a lien on
substantially all of the Company's assets, including its patents. The Term
Loan agreement contains restrictive covenants which could make it more
difficult to operate the Company's business. 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.
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 significant distribution in the event the Company is
liquidated. The Company's bank debt matures in August 1997, at which time
a principal payment of approximately $1,400,000 will be due.
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 revenues from the commercial sale of ONCONASE. To
date, the Company has had several preliminary discussions regarding
potential collaborative agreements and strategic alliances, however there
can be no assurance that any such arrangements will be consummated. There
can be no assurance that such funds will be available to the Company on
acceptable terms, if at all. The Company believes that its cash on hand,
including marketable securities, as of April 30, 1996 coupled with the
proceeds of the June 1996 Private Placement will be sufficient to meet its
anticipated cash needs for the next two years. The Company will be
required to raise additional funds to meet its cash needs upon exhaustion
of its current cash resources. 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 or refinance its bank debt 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 four
patents in the United States and two patents in Europe, and has other
patent applications pending. The U.S. Patents are Nos. 4,882,421,
4,888,172, 5,529,775 and 5,540,925, and the European patents are Nos. 0 440
633 and 0 500 589. The Company's U.S. Patent No. 4,882,421 contains a
disclosure that in certain respects is erroneous and that complicated the
prosecution of other Company patent applications pending before the U.S.
Patent and Trademark Office ("USPTO"). Because the Company considered
those pending patent applications to be more important than U.S. Patent No.
4,882,421, the Company has disclaimed U.S. Patent No. 4,882,421.
Accordingly, U.S. Patent No. 4,882,421 is not legally enforceable against
anyone. The Company's patent protection is limited to that afforded under
the claims of U.S. Patent Nos. 4,888,172, 5,529,775 and 5,540,925, unless
and until other U.S. patent protection is available to the Company.
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.
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 Company is currently managed by a
small number of key management and operating personnel, whose efforts will
largely determine the Company's success. The loss of key management
personnel, particularly Kuslima Shogen, the Company's Chairman and Chief
Executive Officer, would likely have a material adverse effect on the
Company. See "Management". The bank may call due all amounts payable
under the Term Loan 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 $1,500,000 outstanding under the Term
Loan.
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 Term Loan 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
traded on the Bulletin Board and is not traded on any exchange nor quoted
on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"). As a consequence, trading of the Common Stock in the
over-the-counter market is limited. A limited trading market could result
in an investor being unable to liquidate his or her investment.
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 31, 1996, there were no
shares of preferred stock outstanding. 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 or
Delaware law 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, but have an adverse
impact on stockholders who may want to participate in such tender offer.
CONTROL BY PRESENT MANAGEMENT. The Company's officers and directors,
as a group, beneficially owned 26.0% of the outstanding Common Stock of the
Company as of July 31, 1996 and thus could in some instances exercise
effective control over the Company.
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.
DEPENDENCE ON THIRD PARTIES FOR MANUFACTURING. The Company currently
does not have facilities capable of manufacturing its product in commercial
quantities and, for the foreseeable future, the Company intends to rely on
third parties to manufacture its product. If the Company were to establish
a manufacturing facility, which it currently does not intend to do, the
Company would require substantial additional funds and would be required to
hire and retain significant additional personnel to comply with the
extensive current Good Manufacturing Practices ("cGMP") regulations of the
FDA applicable to such a facility. No assurance can be given that the
Company would be able to make the transition successfully to commercial
production, if it chose to do so.
DEPENDENCE ON THIRD PARTIES FOR MARKETING; NO MARKETING EXPERIENCE.
Neither the Company nor any of its officers or employees has pharmaceutical
marketing experience. The Company intends to enter into development and
marketing agreements with third parties. The Company expects that under
such arrangements it would act as a co-marketing partner or would grant
exclusive marketing rights to its corporate partners in return for up-front
fees, milestone payments and royalties on sales. Under these agreements,
the Company's marketing partner may have the responsibility for a
significant portion of development of the product and regulatory approval.
In the event that the marketing partner fails to develop a marketable
product or fails to market a product successfully, the Company's business
may be adversely affected. If the Company were to market its products
itself, significant additional expenditures and management resources would
be required to develop an internal sales force and there can be no
assurance that the Company would be successful in penetrating the markets
for any products developed or that internal marketing capabilities would be
developed at all.
UTILIZATION OF CARRYFORWARDS. At July 31, 1995, the Company had
federal net operating loss carryforwards of approximately $23,460,000 that
expire in the years 1997 to 2010. The Company also had investment tax
credit carryforwards of approximately $63,000 and research and
experimentation tax credit carryforwards of approximately $410,000 that
expire in the years 1998 to 2010. Ultimate utilization/ availability of
such net operating losses and credits may be significantly curtailed if a
significant change in ownership occurs.
SHARES ELIGIBLE FOR FUTURE SALE. The Company had 13,858,909 shares of
Common Stock outstanding as of July 31, 1996. Of these outstanding shares,
approximately 5,722,547 shares are "restricted securities" as defined in
Rule 144 adopted under the Securities Act. Of these restricted shares,
approximately 1,939,540 were eligible to be sold under Rule 144 as of July
31, 1996. Additionally, of these restricted shares, an aggregate of
1,722,646 are covered by this Registration Statement and were sold in the
1995/1996 Private Placements and the June 1996 Private Placement, 6,060 are
covered by this Registration Statement and were issued pursuant to the
Supply Agreement, an aggregate of 1,924,101 were issued and sold in the
March 1994 Private Placement, September 1994 Private Placement, October
1994 Private Placement and September 1995 Private Placement and 130,200
were issued pursuant to the exercise of options, all of which are included
on registration statements which the Company has filed with the Commission.
Such 3,783,007 shares of restricted Common Stock included in registration
statements filed with the Commission, will, if sold pursuant to their
respective registration statements, 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
313,800 shares of Common Stock issued in the June 1996 Private Placement
and covered by this Registration Statement, as of July 31, 1996 there were
outstanding (i) options to purchase an aggregate of 3,597,743 shares of
Common Stock, which are covered by an effective Registration Statement on
Form S-8, (ii) warrants to purchase an aggregate of 1,088,506 shares of
Common Stock, which were issued and sold in the March 1994 Private
Placement and the September 1994 Private Placement, (iii) warrants to
purchase an aggregate of 105,945 shares of Common Stock, which were issued
and sold in the October 1994 Private Placement, the September 1995 Private
Placement and to the bank in connection with the amendment of the Term
Loan, and (iv) options to purchase an aggregate of 478,482 shares, all of
which underlying shares of Common Stock are included in registration
statements filed by the Company with the Commission. Such 5,584,476 shares
of Common Stock underlying such warrants and options will, if issued upon
exercise of such warrants and options and sold pursuant to their respective
registration statements, 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. 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 from inception to 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. In June
1996, AHC dissolved and ceased all operations. The report of AHC with
respect to the financial statements of the Company from inception to July
31, 1992 is included in this Registration Statement, although AHC has not
consented to the use of such report herein and will not be available to
perform any subsequent review procedures with respect to such report.
Accordingly, investors will be barred from asserting claims against AHC
under Section 11 of the Securities Act on the basis of the use of such
report herein. In addition, in the event any persons seek to assert a
claim against AHC for false or misleading financial statements and
disclosures in documents previously filed by the Company, such claims will
be adversely affected and possibly barred. Furthermore, as a result of the
lack of a consent from AHC to the use of its audit report in this
Prospectus, the officers and directors of the Company will be unable to
rely on the authority of AHC as experts in auditing and accounting in the
event any claim is brought against any such persons under Section 11 of the
Securities Act based on alleged false and misleading financial statements
and disclosures attributable to AHC. The discussion regarding certain
effects of the AHC Termination is not meant and should not be construed in
any way as legal advice to any party and any potential purchaser should
consult with his, her or its own counsel with respect to the effect of the
AHC Termination on a potential investment in the Common Stock of the
Company or otherwise.
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 are exercised, the Company will receive estimated net proceeds of
approximately $2,353,500. The Company intends to utilize any proceeds
received from the exercise of the Warrants primarily to fund research and
development activities and for general corporate purposes. There can be no
assurance that any of the Warrants 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.
CAPITALIZATION
The following table sets forth the capitalization of the Company at
April 30, 1996 and as adjusted solely to reflect the net proceeds received
subsequent to April 30, 1996 from the issuance and sale of the Common Stock
and Warrants in the June 1996 Private Placement.
<TABLE>
<CAPTION>
APRIL 30, 1996
<S> <C> <C> <C> <C>
ACTUAL AS ADJUSTED
Long-term debt 1,418,448 1,418,448
Stockholders' equity:
Preferred stock, $.001 par value. -- --
Authorized and unissued, 1,000,000 shares at April 30,
1996
Common stock, $.001 par value. 11,901 --
Authorized 25,000,000 shares; issued and outstanding -- 13,416
11,900,679 shares at April 30, 1996(1)
Issued and outstanding 13,416,009 shares as adjusted(2)
Capital in excess of par value 39,996,257 45,690,446
Deficit accumulated during development stage (39,605,328) (39,605,328)
Total stockholders' equity 402,830 6,098,534
Total capitalization $ 1,821,278 $ 7,516,982
</TABLE>
______________________
(1) Excludes 5,696,903 shares of Common Stock reserved as of April 30, 1996 for
issuance pursuant to outstanding options and warrants to purchase Common
Stock.
(2) Excludes 5,584,476 shares of Common Stock reserved as of July 31, 1996 for
issuance pursuant to outstanding options and warrants to purchase Common
Stock.
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 quoted on the Bulletin Board.
On August 30, 1996 the high bid and low asked quotations for the Company's
Common Stock were $4 31/32 and $5 1/16, respectively. As of August 30,
1996, there were approximately 1,540 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 periods indicated. 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, 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
Year Ended July 31, 1996:
First Quarter 6-13/16 2-1/8
Second Quarter 5-5/8 2-7/8
Third Quarter 5-3/8 3-3/16
Fourth Quarter 5-7/8 3-7/8
Year Ended July 31, 1997:
First Quarter (Through
August 30, 1996) 4 31/32 4 3/8
<PAGE>
SELECTED FINANCIAL DATA
Set forth below is the selected financial data for the Company for the
nine month periods ended April 30, 1996 and 1995 and for each of the fiscal
years in the five year period ended July 31, 1995. The financial
statements of the Company for the fiscal years ended July 31, 1992 and 1991
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, 1995, 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."
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. In June 1996, AHC dissolved and ceased all operations.
The report of AHC with respect to the financial statements of the Company
from inception to July 31, 1992 is included in this Registration Statement,
although AHC has not consented to the use of such report herein and will
not be available to perform any subsequent review procedures with respect
to such report. Accordingly, investors will be barred from asserting
claims against AHC under Section 11 of the Securities Act on the basis of
the use of such report herein. In addition, in the event any persons seek
to assert a claim against AHC for false or misleading financial statements
and disclosures in documents previously filed by the Company, such claim
will be adversely affected and possibly barred. Furthermore, as a result
of the lack of a consent from AHC to the use of its audit report in this
Prospectus, the officers and directors of the Company will be unable to
rely on the authority of AHC as experts in auditing and accounting in the
event any claim is brought against any such persons under Section 11 of the
Securities Act based on alleged false and misleading financial statements
and disclosures attributable to AHC. The discussion regarding certain
effects of the AHC Termination is not meant and should not be construed in
any way as legal advice to any party and any potential purchaser should
consult with his, her or its own counsel with respect to the effect of the
AHC Termination on a potential investment in the Common Stock of the
Company or otherwise.
<TABLE>
<CAPTION>
Nine Month Periods Ended Year Ended July 31,
APRIL 30,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1995 1994 1993 1992 1991
Revenue $ 105,563 9,653 20,992 $ 6,064 $ 489 $ 0 $ 1,161
Net Loss $ (2,156,208) (1,386,862) (1,993,123) $(2,234,428) $ (2,357,350) $ (4,772,826) $ (5,202,302)
Net Loss per $ (.19) (.15) (.21) $ (.26) $ (.31) $ (.67) $ (.76)
share
Dividends NONE NONE NONE NONE NONE NONE NONE
AT END OF
PERIOD:
Total Assets $ 2,615,907 727,197 1,616,170 $ 779,763 $ 335,332 $ 266,962 $ 178,364
Long-Term $ 1,418,448 1,532,328 7,129(1) $ 1,593,976 $ 5,439,531 $ 1,427,000 $1,397,000
Obligations
</TABLE>
(1) Excludes $1,577,049 of long-term debt which was initially due to
mature on May 31, 1996 and was classified as a current liability at July 31,
1995. In November 1995, the Term Loan agreement related to this debt was
amended, effective October 1, 1995, to extend the maturity date of the Term
Loan to August 31, 1997.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Three and nine month periods ended April 30, 1996 and 1995
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
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 nine months ended April
30, 1996 and 1995. Investment income increased by $96,000 to $106,000 for
the nine month period ended April 30, 1996 compared to the same period last
year.
Research and Development. Research and development expense for the
three months ended April 30, 1996 was $521,000 compared to $243,000 for the
same period last year, an increase of $278,000 or 114%. Research and
development expense for the nine months ended April 30, 1996 was $1,542,000
compared to $800,000 for the same period last year, an increase of $742,000
or 93%. These increases were primarily due to increases in costs
associated with manufacturing clinical supplies of ONCONASE and costs in
support of on-going clinical trials, including the Phase III clinical trial
for pancreatic cancer and the Phase II clinical trial for malignant
mesothelioma.
General and Administrative. General and administrative expense for
the three months ended April 30, 1996 was $197,000 compared to $154,000 for
the same period last year, an increase of $43,000 or 28%. This increase
was primarily due to costs associated with the Company's expansion of
activities associated with public relations. General and administrative
expense for the nine months ended April 30, 1996 was $622,000 compared to
$488,000 for the same period last year, an increase of $134,000 or 27%.
This increase was primarily due to the Company's expansion of activities
associated with public relations and business development.
Interest. Interest expense for the three months ended April 30, 1996
was $31,000 compared to $34,000 for the same period last year, a decrease
of $3,000 or 9%. Interest expense for the nine months ended April 30, 1996
was $98,000 compared to $108,000 for the same period last year, a decrease
of $10,000 or 9%. The decrease was primarily due to the conversion of
convertible subordinated debentures to common stock and a reduction in
short-term loans payable over the prior period.
Net Loss. The Company has incurred net losses during each year since
its inception. The net loss for the three months ended April 30, 1996 was
$718,000 as compared to $430,000 for the same period last year. The net
loss for the nine months ended April 30, 1996 was $2,156,000 as compared to
$1,387,000 for the same period last year. The cumulative loss from the
date of inception, August 24, 1981, to April 30, 1996 amounted to
$39,605,000. 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. The
increases in the net loss for the current period were attributable
generally to the increase in expenses discussed above.
Fiscal Years Ended July 31, 1995, 1994 and 1993
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 fiscal 1995,
1994 and 1993.
Research and Development. Research and development expense for fiscal
1995 was $1,206,000 compared to $1,114,000 for fiscal 1994, an increase of
$92,000 or 8%. 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 and a write-off of previously capitalized patent costs, 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 Chief Executive Officer and Executive Vice
President and Medical Director.
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 Chief Executive Officer and Executive Vice President and Medical
Director.
General and Administrative. General and administrative expense for
fiscal 1995 was $664,000 compared to $903,000 for fiscal 1994, a decrease
of $239,000 or 26%. This decrease was primarily due to a decrease 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 Chief Executive Officer.
General and administrative expense remained constant at approximately
$904,000 for fiscal 1994 and fiscal 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 Chief Executive
Officer.
Interest. Interest expense for fiscal 1995 was $144,000 compared to
$223,000 in fiscal 1994, a decrease of $79,000 or 35%. The decrease in
fiscal 1995 was primarily due to the conversion of convertible subordinated
debentures to Common Stock which took place in fiscal 1994.
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 which took place in fiscal 1994.
Net Loss. The Company has incurred net losses during each year since
its inception. The net loss for fiscal 1995 was $1,993,000 as compared to
$2,234,000 in fiscal 1994 and $2,357,000 in fiscal 1993. The cumulative
loss from the date of inception, August 24, 1981, to April 30, 1996
amounted to approximately $39,600,000. 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 AND CAPITAL RESOURCES
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, 1996, the Company had a net increase
in cash of $9,000. This increase resulted from net cash provided by
financing activities of $3,262,000, primarily from a private placement of
Common Stock and Common Stock warrants completed in September 1995 and
proceeds from the exercise of stock options offset by net cash used in
operating activities of $2,277,000 and net cash used in investing
activities of $976,000 principally due to the purchase of marketable
securities. Total cash resources, including marketable securities, as of
April 30, 1996 were $2,357,000 compared to $1,398,000 at July 31, 1995.
The Term Loan agreement was amended effective as of October 1, 1995.
Among other things, the amendment extended the maturity date of the Term
Loan from May 31, 1996 to August 31, 1997, which has enabled the Company to
reflect substantially the entire principal amount of the Term Loan
outstanding as of April 30, 1996 as long-term debt. This is the primary
reason for the significant decrease in current liabilities as of April 30,
1996 compared to July 31, 1995 and the significant increase in long-term
debt as of April 30, 1996 compared to July 31, 1995. It is estimated that
the outstanding balance on August 31, 1997 will be $1,369,000. At that
time, the Company intends to refinance the Term 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 and debt financing,
collaborative agreements, strategic alliances and revenues from the
commercial sale of ONCONASE. The Company is in discussions with several
potential collaborative partners for further development and marketing of
ONCONASE, however, there can be no assurance that any such arrangements
will be consummated. In addition, the Company expects that its cash needs
in the future will increase due to the on-going Phase III clinical trial.
The Company believes that its cash on hand, including marketable
securities, as of April 30, 1996 coupled with the approximately $5,700,000
net proceeds from the June 1996 Private Placement will be sufficient to
meet its anticipated cash needs for the next two years. To date, a
significant portion of the Company's financing has been through private
placements of common stock, the issuance of common stock for services
rendered, debt financing and financing provided by the Company's Chief
Executive Officer. 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 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, (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 $1,452,000. 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 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 pledgor's
term loan agreement with the bank. 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 such pledged stock to the aggregate outstanding debt of the
Company and pledger to the bank, below 1:1.
The Company's working capital and capital requirements 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 ultimately become resistant to other
chemotherapeutic drugs. To date, the most significant clinical results
with ONCONASE have been observed in advanced pancreatic, non-small cell
lung, malignant mesothelioma and metastatic breast cancer. According to
the American Cancer Society 1996 Facts and Figures, approximately 388,000
people per year 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 300 cancer patients on a weekly
basis, including 175 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 in patients with these
tumor types, warranting further trials, some of which are underway. Side
effects associated with ONCONASE have been modest, are primarily renal and
are reversible upon reduction of dose, or 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. In November 1995, Alfacell began a
randomized multi-center Phase III clinical trial to test the combination of
ONCONASE and tamoxifen versus 5-fluorouracil ("5-FU") in approximately 200
patients with advanced pancreatic cancer. A subsequent Phase III clinical
trial was initiated in August 1996, to compare ONCONASE plus tamoxifen
against Gemzar, an FDA approved drug for pancreatic cancer, in
approximately 100 patients.
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. 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 leukemic cells. In addition, in vitro findings
by NIH scientists revealed that ONCONASE significantly inhibited production
of the HIV-1 virus in several persistently infected human cell lines,
preferentially degrading viral RNA while not affecting normal cellular
ribosomal RNA and messenger RNAs. Although the Company plans to further
research ONCONASE and its anti-viral activity, there can be no assurance
that ONCONASE will show any level of anti-HIV activity in humans.
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 both 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 an unusual 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 protein belonging to the superfamily of
pancreatic ribonucleases.
POSTULATED MECHANISM OF ACTION
Although the full mechanism of ONCONASE's anti-tumor activity has not
been fully delineated, the following processes have been identified
experimentally:
Binding of ONCONASE to cell surface receptors followed by:
. Cellular internalization;
. Ribonucleolytic degradation of RNAs;
. Inhibition of protein synthesis;
. Inhibition of the cell growth; and
. Cell death.
Pre-clinical and clinical data to date have 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 300 patients in its Phase I and
II clinical trials. ONCONASE as a single agent was tested in 230 patients
with a variety of solid tumors and an additional 71 advanced pancreatic
patients were treated with ONCONASE in combination with tamoxifen. 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 300 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.
Alfacell began a randomized multi-center Phase III clinical trial in
November 1995. In May 1996, the FDA approved Gemzar for the treatment of
advanced pancreatic cancer; therefore, in August 1996 the Company broadened
the criteria for inclusion in its study to include patients previously
treated with Gemzar. The trial is designed to compare the survival and
quality of life of patients treated with the combination of ONCONASE and
tamoxifen versus 5-fluorouracil (5-FU), an FDA approved chemotherapy.
Additionally, Alfacell initiated a new Phase III multi-center clinical
trial in August 1996, comparing ONCONASE plus tamoxifen with Gemzar.
ONCONASE is being tested in a Phase II clinical trial for malignant
mesothelioma. No standard therapy exists to treat this deadly cancer, and
most advanced malignant mesotheliomas patients die of progressive disease
within 6-12 months of diagnosis. Results to date have been encouraging;
however, there can be no assurance that previous clinical trial results
will be reflective of future clinical results or will be sufficient to
obtain FDA approval.
RESEARCH AND DEVELOPMENT
Research and development expenses for the fiscal years ended July 31,
1995, 1994 and 1993 were $1,205,523, $1,114,455 and $1,091,762,
respectively. During fiscal 1995, the Company's research and development
efforts were focused 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 and Phase III clinical trials commenced in November 1995.
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 and other pharmacological effects.
RAW MATERIALS
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 of manufacturing ONCONASE through recombinant technology.
However, there can be no assurance that alternative manufacturing methods
will be viable.
MANUFACTURING
The Company has signed an agreement with Scientific Protein
Laboratories ("SPL"), a subsidiary of a division of American Home Products
Corp., 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.
Other than these arrangements, no specific arrangements have been made for
the manufacture of the Company's product. Compliance with CGMP is a
requirement for product manufactured for use in Phase III clinical trials
and for commercial sale. Both SPL, and the contract filler to whom the
intermediate product is sent for the final manufacturing step and vial
filing, manufacture in accordance with CGMP. For the foreseeable future,
the Company intends to rely on these manufacturers, or substitute
manufacturers, if necessary, to manufacture its product. If the Company
were to establish a manufacturing facility, which it currently does not
intend to do, the Company would require substantial additional funds and
would be required to hire and retain significant additional personnel to
comply with the extensive CGMP regulations of the FDA applicable to such a
facility. No assurance can be given that the Company would be able to make
the transition successfully to commercial production, if it chose to do so.
MARKETING
Neither the Company nor any of its officers or employees has
pharmaceutical marketing experience. If the Company were to market its
products itself, significant additional expenditures and management
resources would be required to develop an internal sales force and there
can be no assurance that the Company would be successful in penetrating the
markets for any products developed or that internal marketing capabilities
would be developed at all. The Company intends, in some instances, to
enter into development and marketing agreements with third parties. The
Company expects that under such arrangements it would act as a co-marketing
partner or would grant exclusive marketing rights to its corporate partners
in return for up-front fees, milestone payments and royalties on sales.
Under these agreements, the Company's marketing partner may have the
responsibility for a significant portion of development of the product and
regulatory approval. In the event that the marketing partner fails to
develop a marketable product or fails to market a product successfully, the
Company's business may be adversely affected.
GOVERNMENT REGULATION
The manufacturing and marketing of pharmaceutical products in the
United States requires the approval of the FDA under the Federal Food, Drug
and Cosmetic Act. Similar approvals by comparable 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 has been issued four patents in the United States and two
patents in Europe, and has other patent applications pending. The U.S.
Patents are Nos. 4,882,421, 4,888,172, 5,529,775 and 5,540,925, and the
European patents are Nos. 0 440 633 and 0 500 589. The Company's U.S.
Patent No. 4,882,421 contains a disclosure that in certain respects is
erroneous and that complicated the prosecution of other Company patent
applications pending before the U.S. Patent and Trademark Office ("USPTO").
Because the Company considered those pending patent applications to be more
important than U.S. Patent No. 4,882,421, the Company has disclaimed U.S.
Patent No. 4,882,421. Accordingly, U.S. Patent No. 4,882,421 is not
legally enforceable against anyone. The Company's patent protection is
limited to that afforded under the claims of U.S. Patent Nos. 4,888,172,
5,529,775 and 5,540,925, unless and until other U.S. patent protection is
available to the Company.
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. 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 undivided interest in each of two applications
which are pending in the USPTO and relate to a Subject Invention (as that
term is defined in CRADAs to which the Company and the NIH and NCI 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 agreement, the Company's 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. There are
several chemotherapeutic agents currently used to treat the forms of cancer
which ONCONASE is being used to treat. There can be no assurance that
ONCONASE will prove to be as safe and as effective as currently used drugs
or that new treatments will not be developed which are more effective then
ONCONASE.
EMPLOYEES
As of July 31, 1996 Alfacell employed ten persons, of whom seven were
engaged in research and development activities and three 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 November 11, 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 expects to
lease its current facility directly from the owner of the building upon
expiration of its sublease in November 1996. Negotiations are currently
underway; however, there can be no assurance that such lease will be
consummated. 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>
NAME AGE POSITION WITH THE COMPANY With
Company
SINCE
<S> <C> <C> <C>
Kuslima Shogen 50 Chairman, Chief Executive Officer and 1981
Director
Michael C. Lowe 54 President 1996
Gail E. Fraser 38 Vice President, Finance, Chief 1994
Financial Officer and Director
Stanislaw M. Mikulski, M.D. 51 Executive Vice President, Medical 1986
Director and Director
Allen Siegel(1) 60 Director 1982
Alan Bell(1)(2) 70 Director 1986
Robert R. Henry(1)(2) 55 Director 1994
</TABLE>
(1) Member of Compensation Committee
(2) Member of Audit Committee
BUSINESS EXPERIENCE
Kuslima Shogen has served the Company as Chief Executive Officer since
September 1986, Chairman of the Board of Directors since August 1996 and as
a director since the Company's inception. Ms. Shogen also served as the
Company's Chief Financial Officer from September 1986 through July 14, 1994
and as the Company's President from September 1986 through July 31, 1996.
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 organizing 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.
Michael C. Lowe, Ph.D., became the Company's President on August 1,
1996. From 1988 to July 1996 Dr. Lowe was a principal of The Weinberg
Group Inc. which specializes in assisting clients with applications to the
FDA for human trials of new agents and in gaining marketing approvals. He
has demonstrated expertise in the areas of pharmacology, toxicology,
morphology and pathology for chemotherapeutic agents. Prior to joining The
Weinberg Group, Dr. Lowe was a corporate vice president and director of
toxicology for ICF/Clement, a health scientist administrator at the NIH,
the acting chief of the toxicology branch at the NCI and head of the
pathopharmacology section of the intramural laboratory of chemical
pharmacology at the NCI. There, he oversaw the pre-clinical toxicology
studies of oncolytic drugs emerging from the drug development program of
the NCI, and made risk assessments of the drugs prior to Phase I trials.
Before joining the NIH he was on the faculty of the department of pathology
at the University of Washington. Dr. Lowe received a B.S. in Zoology from
Washington State University, a M.S. and a Ph.D. in Pharmacology from the
University of Washington and postdoctoral training in experimental
pathology at the University of Washington. Dr. Lowe served on the
Company's Scientific Advisory Board and acted as an advisor to the board of
directors through August 31, 1996.
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 was a dentist in private practice from 1961 until his retirement from
active practice in August 1989. He received 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 financial advisory firm. 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.
The Company's scientific advisory board is composed of scientists and
doctors whom management of the Company believes can contribute to the
proper development of its anti-tumor agent. The individuals selected are
highly respected in the national and international fields of oncology and
drug development. The advisory board is made up of the following
individuals.
John J. Costanzi, M.D., has served as a principal investigator in the
Onconase clinical trials program since its inception. He is currently in
the practice of oncology and hematology in Austin, Texas. He formerly
served as Medical Director of the Thompson Cancer Survival Center in
Knoxville, Tennessee, and as professor of medicine and director of the
cancer center for the University of Texas Medical Branch in Galveston. Dr.
Costanzi is board certified in medical oncology and internal medicine and
has participated in many professional and community organizations including
the Southwest Oncology Group, American Cancer Society, and American
Association for Cancer Research. Dr. Costanzi has authored over 140
papers, books and chapters of books in the area of clinical oncology. He
received his M.D. in 1961 from Georgetown University School of Medicine,
Washington, D.C. He completed his post-graduate training at Walter Reed
General Hospital, Washington, D.C. and Wilford Hall Medical Center, San
Antonio, Texas. Dr. Costanzi has received numerous awards in the field of
oncology. He is a frequent lecturer and visiting professor throughout the
United States and abroad. He also serves as a Brigadier General in the
United States Air Force Reserve Medical Corp.
Zbigniew Darzynkiewicz, M.D., Ph.D., is the director of the Cancer
Research Institute at the New York Medical College and a professor of
medicine at New York Medical College. Formerly, Dr. Darzynkiewicz was a
professor of cell biology and genetics at Cornell University Medical
School, a member of Sloan-Kettering Institute for Cancer Research, the head
of the Experimental Cell Research Laboratory, and a director of the Flow
Cytometry Core Facility Network. In addition, Dr. Darzynkiewicz is an
editor of The Cell Proliferation and Cytometry Journals, past president of
The Cell Kinetics Society and past president of the International Society
for Analytical Cytology. Dr. Darzynkiewicz's research concentrates on cell
biology with particular focus on cancer cell growth and the regulatory
mechanisms associated with cell growth and progression through the cell
cycle. He has developed several techniques that have world-wide
application, to analyze metabolic parameters of the cell related to the
cell cycle kinetics, cell sensitivity to anti-tumor drugs and apoptosis.
Most recently, he received a grant from NASA to develop new technologies
for cell staining and analysis applicable to the micro-gravity conditions
of Space Station Freedom. Dr. Darzynkiewicz has authored over 300 original
publications and over 50 chapters and reviews in books devoted to the
subject of cell growth, the regulation of the cell cycle and apoptosis.
Dr. Darzynkiewicz received his M.D. in 1960 and Ph.D. in 1966 from the
Medical School of Warsaw, Warsaw, Poland. He completed his post-graduate
studies at the State University of New York at Buffalo and the Medical
Nobel Institute of Karolinska Institute, Stockholm, Sweden. Since 1974, he
has been associated with the Sloan-Kettering Institute for Cancer Research,
and since 1990, he has been with New York Medical College, Elmsford, New
York.
David N. Mesches, M.D., is professor and chairman of the Department of
Family Medicine at New York Medical College and has held these positions
for the past 16 years. He is the Chief Executive Officer of the Mid-Hudson
Family Health Services Institute, a not-for-profit health care and
education corporation responsible for the primary care of patients and
training of medical students and family practice residents. The original
Onconase Phase I (daily schedule) clinical trials were initiated and
completed under the direction of Dr. Mesches. Dr. Mesches graduated from
the University of Buffalo School of Medicine in 1960. Following his
internship at Mount Sinai Hospital in Detroit, Michigan, he served as a
Captain in the United States Air Force.
Abraham Mittelman, M.D., is associate professor of medicine and
director of experimental oncology at New York Medical College in Valhalla,
New York. Dr. Mittelman graduated from the Autonomous University of
Guadalajara in 1977. Following his residency at Downstate Medical Center,
he became an instructor in medicine at New York - Cornell Medical Center as
well as a fellow in Oncology at Memorial Sloan-Kettering from 1981 through
1983. Dr. Mittelman is an oncologist and hematologist who has been the
principal investigator of numerous cancer trials. Dr. Mittelman has
published over 130 papers on a variety of oncologic topics. He is a member
of the New York State Society of Hematologists and Oncologists.
<PAGE>
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, 1996,
1995 and 1994 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 1996 $150,000 - 0 - - 0 - - 0 -(3) - 0 -
Chief Executive Officer and 1995 150,000 - 0 - - 0 - - 0 -(3) - 0 -
Chairman of the Board of 1994 150,000 - 0 - - 0 - 1,306,529(2) - 0 -
Directors(2)
Gail E. Fraser(4) 1996 $130,000 - 0 - - 0 - - 0 -(3) - 0 -
Vice President, 1995 121,163 - 0 - - 0 - - 0 -(3) - 0 -
Finance and Chief 1994 8,333 - 0 - - 0 - 475,000(5) - 0 -
Financial Officer
Stanislaw M. Mikulski(6) 1996 $130,000 - 0 - - 0 - - 0 -(3) - 0 -
Executive Vice President 1995 130,000 - 0 - - 0 - - 0 -(3) - 0 -
and Medical Director 1994 130,000 - 0 - - 0 - 431,409(6) - 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 President in
August 1996 and Chief Financial Officer in July 1994. No salary was
paid to Ms. Shogen in fiscal 1995 and 1994 and these salary amounts
were accrued on the Company's financial statements as obligations owed
to Ms. Shogen. During fiscal 1996, Ms. Shogen was paid $225,978
representing payment in full of accrued back salary. Ms. Shogen was
paid her salary in full for fiscal 1996. 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 years
ended July 31, 1996 and 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. During fiscal 1996, Ms. Fraser was paid $25,000
representing payment in full of accrued back salary. Ms. Fraser was
paid her salary in full for fiscal 1996.
(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 exercise prices 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. $5,000 of Dr.
Mikulski's salary in fiscal 1995 was paid to Dr. Mikulski. During
fiscal 1996, Dr. Mikulski was paid $194,996 representing payment in
full of accrued back salary. Dr. Mikulski was paid his salary in full
for fiscal 1996. 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 $3.20 per share.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth the information with respect to the
Named Officers concerning the exercise of options during the fiscal year
ended July 31, 1996 and unexercised options held as of July 31, 1996.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options
Options at Fiscal Year-End at Fiscal Year-End($)(2)
(#)
<S> <C> <C> <C> <C> <C> <C>
Shares Acquired on Value
Name Exercise (#) Realized ($)(1) Exercisable Unexercisable Exercisable Unexercisable
Kuslima Shogen 87,500 $82,576 1,255,289 843,418 $1,721,863 $1,354,920
Gail E. Fraser None None 265,000 210,000 $ 171,800 $ 140,700
Stanislaw M. Mikulski 86,500 $77,940 402,346 192,563 $ 545,269 $319,655
</TABLE>
(1)Based upon the fair market value of the purchased shares on
the option exercise date less the exercise price paid for the
shares.
(2)Based upon fair market value of the common stock at fiscal year end
($4.78 per share) less the option exercise price payable per share.
DIRECTORS' COMPENSATION
Members of the Company's board of directors receive no cash compensation in
consideration for their serving on the board of directors.
In November 1993 and January 1994, the board of directors and the
stockholders, respectively, approved the Company's 1993 Stock Option Plan (the
"Plan") which, among other things, provides for automatic grants of options
("Automatic Grants") under a formula (the "Formula") to non-employee directors
("Independent Directors") on an annual basis.
The Formula provides that (i) on each December 31st each Independent
(non-emloyee) Director receives automatically an option to purchase 15,000
shares of the Company's Common Stock (the "Regular Grant"); and (ii) on the
date of each Independent Director's initial election to the board of directors,
pursuant to a vote of the board, such newly elected Independent Director
automatically receives an option to purchase such Independent Director's pro
rata shares of the Regular Grant which equals the product of 1,250 multiplied by
the number of whole months remaining in the calendar year (the "Pro Rata
Grant"). Each option granted pursuant to a Regular Grant and a Pro Rata Grant
vests and becomes exercisable on the December 30th following the date of grant.
Notwithstanding the foregoing, an option will not become exercisable as to any
shares unless such Independent Director has served continuously on the board
during the year preceding the date on which such options are scheduled to vest
and become exercisable, or from the date such Independent Director joined the
board until the date on which such options are scheduled to vest and become
exercisable; provided, however, that if an Independent Director does not fulfill
such continuous service requirement due to such Independent Director's death or
disability all options held by such Independent Director nonetheless vest and
become exercisable as described herein. An option granted pursuant to the
Formula remains exercisable for a period of five years after the date the option
first becomes exercisable.
During the fiscal year ended July 31, 1996, the following directors were
granted the options listed below pursuant to the Formula under the Plan in
consideration for serving on the board of directors. The exercise prices of the
options granted to directors in fiscal 1996 are equal to the fair market value
of the Common Stock on the date of grant.
NUMBER OF EXPIRATION
NAME OPTIONS EXERCISE PRICE DATE
Allen Siegel 15,000 $4.66 12/31/01
Alan Bell 15,000 $4.66 12/31/01
Robert R. Henry 15,000 $4.66 12/31/01
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, 1996.
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 was 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 were paid primarily pursuant to this procedure,
and subsequent to such time, have been paid directly by the Company. 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 Ms. Shogen's pledged stock to the
aggregate outstanding debt of the Company and herself to the bank, below 1:1.
In June 1994, Ms. Shogen's term loan agreement with the bank 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 31,
1996, the shares of the Company's Common Stock pledged by Ms. Shogen to secure
the Term Loan were valued at $6,419,540 (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 31, 1996
was $2,189,855. In connection with the Term Loan, Ms. Shogen also assigned to
the bank her right to payment of up to $200,000 of outstanding debt owed to her
by the Company which amount has been paid to Ms. Shogen by the Company and paid
to the bank by Ms. Shogen. In November 1995, the Note was amended and restated
and the Term Loan agreement was amended to provide for, effective as of October
1, 1995, among other things (i) the extension of the term of the Term Loan from
May 31, 1996 to August 31, 1997, (ii) a re-amortization of the payment of
principal and interest based on a one hundred fifty (150) month amortization
schedule, (iii) an increase in the interest rate from seven and one-half
percent (7.5%) per annum to eight and three eighths percent (8.375%) per annum,
and (iv) the issuance to the bank of a warrant to purchase 10,000 shares of
Common Stock through August 31, 1997 at an exercise price of $4.19 per share.
For more information concerning the Term Loan see "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
During the fiscal years ended July 31, 1996, July 31, 1995 and July 31,
1994, the Company paid to The Weinberg Group $77,060, $158,649 and $6,759,
respectively, for consulting services provided to the Company by The Weinberg
Group. Michael C. Lowe was a principal of the Weinberg Group from 1988 through
July 1996.
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, 1993, (i) the Company owed Ms. Shogen
$14,000 pursuant to 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, 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 and cancelled. The Company's bank has
consented to allow repayment of such advances under certain conditions. During
the fiscal year ended July 31, 1994 Ms. Shogen advanced the Company $184,417
pursuant to demand loans. At July 31, 1994 the Company owed Ms. Shogen an
aggregate of $203,723 pursuant to 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 $138,638 pursuant to
demand loans and accrued interest on the demand loans.
During the nine month period ended April 30, 1996, the Company, with its
bank's consent, repaid $118,350 in principal representing payment in full of
principal of Ms. Shogen's demand loans to the Company. At April 30, 1996, the
Company owed Ms. Shogen an aggregate of $1,250, pursuant to accrued interest on
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.
Robert R. Henry purchased an aggregate of 187,100 shares of Common Stock
and warrants to purchase 60,000 shares of Common Stock in the March 1994
Private Placement, the September 1994 Private Placement and the June 1996
Private Placement on the same terms and conditions as the other participants in
such private placements. Certain of the shares purchased by Mr. Henry in the
June 1996 Private Placement were purchased on behalf of his children.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information concerning stock
ownership of each person who is the 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 31,
1996. 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 PERCENTAGE OF
5% STOCKHOLDERS(1) SHARES(2) COMMON STOCK
OUTSTANDING{(3)}
<S> <C> <C> <C> <C>
Kuslima Shogen 2,598,289(4) 17.2%
Stanislaw Mikulski 763,596(5) 5.4%
Allen Siegel 206,562(6) 1.5%
Alan Bell 50,929(7) *
Robert R. Henry 262,550(8) 1.9%
Gail E. Fraser 265,000(9) 1.9%
All officers and directors 4,146,926(10) 26.0%
as a group (six persons)
</TABLE>
* Less than one percent.
(1) The address of all officers and directors listed above is in the care of
the Company.
(2) All shares listed are Common Stock. Except as discussed below, none of
these shares are subject to rights to acquire beneficial ownership, as
specified in Rule 13d-3(d)(1) under the Exchange Act, and the beneficial
owner has sole voting and investment power, subject to community property
laws where applicable.
(3) The percentage of stock outstanding for each stockholder is calculated by
dividing (i) the number of shares of Common Stock deemed to be
beneficially held by such stockholder as of July 31, 1996 by (ii) the sum
of (A) the number of shares of Common Stock outstanding as of July 31,
1996 plus (B) the number of shares issuable upon exercise of options or
warrants held by such stockholder which were exercisable as of July 31,
1996 or which will become exercisable within 60 days after July 31, 1996.
(4) Includes 1,255,289 shares subject to options which were exercisable as of
July 31, 1996 or which will become exercisable within 60 days after July
31, 1996.
(5) Includes 402,346 shares subject to options which were exercisable as of
July 31, 1996 or which will become exercisable within 60 days after July
31, 1996.
(6) Includes 30,000 shares subject to options which were exercisable as of
July 31, 1996 or which will become exercisable within 60 days after July
31, 1996 owned by Dr. Siegel, 53,785 shares owned by Dr. Siegel's wife,
who was an employee of the Company and 20,000 shares subject to options
which were exercisable as of July 31, 1996 or will become exercisable
within 60 days of July 31, 1996 owned by Dr. Siegel's wife. Dr. Siegel
disclaims beneficial ownership as to the shares owned by his wife.
(7) Includes 30,000 shares subject to options which were exercisable as of
July 31, 1996 or which will become exercisable within 60 days after July
31, 1996 owned by Mr. Bell, 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 26,250 shares subject to options which were exercisable as of
July 31, 1996 or which will become exercisable within 60 days after July
31, 1996 and 60,000 shares underlying warrants which were exercisable as
of July 31, 1996 or which will become exercisable within 60 days after
July 31, 1996.
(9) Includes 265,000 shares underlying options which were exercisable as of
July 31, 1996 or which will become exercisable within 60 days after July
31, 1996.
(10) Includes all shares owned beneficially by the directors and the executive
officers named in the table.
SELLING STOCKHOLDERS
GENERAL
On April 4, 1996 the Company completed the 1995/1996 Private Placements
for an aggregate of 207,316 shares of restricted Common Stock at per share
prices ranging from $3.60 to $4.24. On June 11, 1996 the Company completed the
June 1996 Private Placement for an aggregate of 1,515,330 shares of restricted
Common Stock and three-year Warrants to purchase 313,800 shares of Common Stock
at an exercise price of $7.50 per share. The Common Stock was sold alone at a
per share price of $3.70 and in combination with Warrants at a per unit price
of $12.52. The Warrants were also sold alone at a per Warrant price of $1.42.
After taking into account expenses of the offerings, the Company received
aggregate net proceeds of approximately $6.5 million from the 1995/1996 Private
Placements and the June 1996 Private Placement. The Company intends to utilize
these net proceeds primarily for general corporate purposes, including the
funding of research and development of its product ONCONASE. This prospectus
relates to the offer and sale by the Selling Stockholders of such 1,722,646
shares of Common stock and the 313,800 shares of Common Stock underlying such
Warrants sold in the aggregate in the 1995/1996 Private Placements and the June
1996 Private Placement.
On October 5, 1995 the Company entered into the Supply Agreement with the
Graskas. Pursuant to the Supply Agreement, the Company issued 3,030 shares of
Common Stock to each of the Graskas. This Prospectus relates to the offer and
sale by the Graskas as Selling Stockholders of an aggregate of 6,060 shares of
Common Stock.
The Company's sale of Common Stock and Warrants to accredited investors
(as that term is defined in Rule 501 under the Securities Act) and a non-
accredited investor in the 1995/1996 Private Placements and the June 1996
Private Placement was effected in reliance upon Rule 506 promulgated under the
Securities Act and/or Section 4(2) thereof. The Company's issuance of 6,060
shares of Common Stock to the Graskas pursuant to the Supply Agreement was
effected in reliance upon Section 4(2) of the Securities Act. Pursuant to
stock purchase agreements entered into by the Company with each of the private
placement investors (the "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 or the bank 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 for a period of three years
commencing with the initial effective date of this Registration Statement. The
Company has determined to include the Graska's shares of Common Stock in this
Registration Statement, although it has no obligation to do so.
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 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, (ii) the issued and outstanding shares of Common
Stock owned by the Selling Stockholder as of July 31, 1996, and (iii) the
shares of Common Stock underlying any other options or warrants owned by the
Selling Stockholder which are exercisable as of July 31, 1996 or which will
become exercisable within 60 days after July 31, 1996. Except as otherwise
noted, none of such persons or entities has had any material relationship with
the Company during the past three years.
<TABLE>
<CAPTION>
Number of Number of Number of Shares to Percentage of
Shares Beneficially Shares OFFERED be Owned Outstanding Shares to
SELLING STOCKHOLDERS(1) OWNED Beneficially After be Owned Beneficially
Completion OF After Completion of
OFFERING OFFERING(1)
<S> <C> <C> <C> <C>
Auer & Company 200,000 200,000 0 *
Barlow, Marie 110,100(2) 26,316 83,784 *
Bloom, Walter Dr. 24,000 24,000 0 *
Camp, Herbert L. 80,000 80,000 0 *
Chaikin, Marc 32,000 32,000 0 *
Dung, Lili B.L. 30,000 5,000 25,000 *
Factor, Mallory 80,000 80,000 0 *
Falk, Martin 13,800 13,800 0 *
Foundation Danonia 256,000 256,000 0 *
Foundation Zemara 64,000 64,000 0 *
Goldsmith, Joel 8,000 8,000 0 *
Graska, Doris L.(3) 3,030 3,030 0 *
Graska, Gerald(3) 3,030 3,030 0 *
Henry, Heather J.(4) 5,400 5,400 0 *
Henry, Kimberly A.(4) 5,400 5,400 0 *
Henry, Robert R.(4) 262,550 16,300 246,250 1.80%
Heritage Finance & Trust Co. 220,000 30,000 190,000 1.40%
Jacob, David 29,000 5,000 24,000 *
Katz, Robert 19,000 16,000 3,000 *
Kimberly Computer Group Inc. 40,000 40,000 0 *
Knakal, Jeffrey R. 8,000 8,000 0 *
Madsen, MADS Peter 32,000 32,000 0 *
Manna, Timothy J. 53,000 13,000 40,000 *
Maraist, Michael P. 73,393 32,000 41,393 *
Marden, Bernard A. 320,000 320,000 0 *
Maronde, John & Gretchen JT TEN 56,650 27,100 29,550 *
Merrion Investors LLC 100,000 100,000 0 *
Miller, Joel W. 55,000 55,000 0 *
Morton III, Thruston B. & Patricia R. TEN COM 37,000 13,000 24,000 *
Osso, Rizziero 10,000 8,000 2,000 *
Parallax Partners 80,000 80,000 0 *
Pictet & CIE 40,000 40,000 0 *
Pisani, B. Michael(5) 297,500 150,000 147,500 1.10%
Rankin, Carlton 35,500 25,000 10,500 *
Roberts, Daniel W. & Maureen M. JT TEN 63,000 52,000 11,000 *
Sands, Marvin 24,000 24,000 0 *
Thall, Richard S. & Alice TEN COM 21,000 16,000 5,000 *
Thieme Fonds 27,030 27,030 0 *
Tierney, James G. & Shirley A. TTEES 31,400 27,100 4,300 *
Windsor Partners L.P. 80,000 80,000 0 *
</TABLE>
(*) Less than one percent.
(1) The last name of individual Selling Stockholders is listed first.
(2) Includes 80,784 shares owned by Ms. Barlow's husband.
(3) Doris L. and Gerald Graska are parties to the Companies' Supply
Agreement.
(4) Mr. Henry is a Director of the Company and is a member of both the
compensation committee and audit committee. Heather Henry and
Kimberly Henry are Mr. Henry's daughters. See "Management" and
"Principal Stockholders."
(5) Mr. Pisani's beneficial ownership includes shares underlying options
he received for services rendered.
PLAN OF DISTRIBUTION
Shares of Common Stock currently outstanding and shares of Common
Stock issuable upon exercise of the Warrants 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 2,042,506 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
Common Stock, par value $.001 per share. As of July 31, 1996, there were
13,858,909 shares of Common Stock issued and outstanding and held of record
by approximately 1,540 stockholders.
As of July 31, 1996, 2,180,214 shares of Common Stock were reserved
for issuance pursuant to options issued and outstanding under the 1993
Stock Option Plan, 1,896,011 shares of Common Stock were reserved for
issuance pursuant to outstanding options which were not issued under the
1993 Stock Option Plan, 800,000 shares of Common Stock were reserved for
issuance pursuant to the warrants sold in the March 1994 Private Placement,
288,506 shares of Common Stock were reserved for issuance pursuant to the
warrants sold in the September 1994 Private Placement, 95,945 shares were
reserved for issuance pursuant to the warrants sold in the October 1994 and
September 1995 Private Placements, 10,000 shares were reserved for issuance
pursuant to the warrant issued to the bank in connection with the amendment
of the Term Loan, and 313,800 shares were reserved for issuance pursuant to
the Warrants issued in the June 1996 Private Placement.
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-quarter 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 agreement 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 31, 1996, 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 31, 1996, there were outstanding (i) 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 1994 Private Placement; (ii) 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 1994 Private Placement; (iii)
warrants to purchase 95,945 shares of the Company's Common Stock at
exercise prices ranging from $4.00 to $5.50 per share issued in the October
1994 and September 1995 Private Placements; (iv) warrants to purchase
10,000 shares of the Company's Common Stock at an exercise price of $4.19
per share issued in connection with the amendment to the Company's Term
Loan with its bank; and (v) Warrants to purchase 313,800 shares of Common
Stock at an exercise price of $7.50 per shares issued in the June 1996
Private Placement. Each of the foregoing warrants is exercisable for a
period of three (3) years commencing three (3) months after the date of its
issuance except that the Warrant issued in connection with the amendment to
the Term Loan is exercisable immediately for a period of approximately two
(2) years from the date of its issuance. Issuance dates range from
December 21, 1993 through June 11, 1996.
OPTIONS
At July 31, 1996, there were outstanding options to purchase 4,076,225
shares of the Company's Common Stock with exercise prices ranging from
$2.27 to $7.00 and expiration dates ranging from September 9, 1996 to
February 26, 2006.
TRANSFER AGENT
The Transfer Agent for the Common Stock is American Stock Transfer and
Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
The Company had 13,858,909 shares of Common Stock outstanding as of
July 31, 1996. Of these outstanding shares, approximately 5,722,547 shares
are "restricted securities" as defined in Rule 144 adopted under the
Securities Act. Of these restricted shares, approximately 1,939,540 were
eligible to be sold under Rule 144 as of July 31, 1996. Additionally, of
these restricted shares, an aggregate of 1,722,646 are covered by this
Registration Statement and were sold in the 1995/1996 Private Placements
and the June 1996 Private Placement, 6,060 are covered by this Registration
Statement and were issued pursuant to the Supply Agreement, an aggregate of
1,924,101 were issued and sold in the March 1994 Private Placement,
September 1994 Private Placement, October 1994 Private Placement and
September 1995 Private Placement and 130,200 were issued pursuant to the
exercise of options, all of which are included on registration statements
which the Company has filed with the Commission. Such 3,783,007 shares of
restricted Common Stock included in registration statements filed with the
Commission, will, if sold pursuant to their respective registration
statements, 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 313,800 shares of Common
Stock issued in the June 1996 Private Placement and covered by this
Registration Statement, as of July 31, 1996 there were outstanding (i)
options to purchase an aggregate of 3,597,743 shares of Common Stock, which
are covered by an effective Registration Statement on Form S-8, (ii)
warrants to purchase an aggregate of 1,088,506 shares of Common Stock,
which were issued and sold in the March 1994 Private Placement and the
September 1994 Private Placement, (iii) warrants to purchase an aggregate
of 105,945 shares of Common Stock, which were issued and sold in the
October 1994 Private Placement, the September 1995 Private Placement and to
the bank in connection with the amendment of the Term Loan, and (iv)
options to purchase an aggregate of 478,482 shares, all of which underlying
shares of Common Stock are included in registration statements filed by the
Company with the Commission. Such 5,584,476 shares of Common Stock
underlying such warrants and options will, if issued upon exercise of such
warrants and options and sold pursuant to their respective registration
statements, 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 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 Company is required to use its best efforts to register, no later
than September 1, 1996, on behalf of the private placement investors in the
June 1996 Private Placement the 2,036,446 shares (including shares
underlying Warrants) of Common Stock issued in such offering and the shares
of Common Stock underlying the Warrants issued in such offering, at the
Company's expense, for the offer and sale by such investors to the public
under the Securities Act. The Company shall not, however, be required to
maintain the effectiveness of a registration statement beyond three (3)
years of the initial effective date thereof. The private placement
investors in the 1995/1996 Private Placements were granted the right to
piggy-back on registration statements filed by the Company with the
Commission. 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 investors for certain liabilities relating thereto.
The private placement investors in the October 1994 and September 1995
Private Placements who acquired an aggregate of 2,061,561 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 offerings, registered at the Company's expense, for
the offer and sale by such investors to the public under the Securities
Act. The Company shall not, however, be required to maintain the
effectiveness of a registration statement beyond December 11, 1998. 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, New Jersey, Massachusetts and
certain additional states that may be designated and to indemnify the
investors for certain liabilities relating thereto. In December 1995, a
registration statement was declared effective by the Commission with
respect to those shares remaining unsold as of such date.
The bank has the right, at the Company's expense, to have the shares
of Common Stock underlying the warrant issued to it in connection with the
amendment of the Term Loan registered on a registration statement for the
offer and sale to the public under the Securities Act until the earlier of
October 1, 1999 or the date on which all of the shares underlying such
Warrant are sold. In connection with such registration, the Company has
agreed to supply prospectuses to the bank and, in connection with any
demand registration, use its best efforts to qualify the Common Stock in
such states as the bank may reasonably request and to indemnify the bank
for certain liabilities relating thereto. A registration statement with
respect to such shares was declared effective by the Commission in December
1995.
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. A registration statement with respect to such
shares was declared effective by the Commission in December 1995.
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. A registration
statement with respect to such shares was declared effective by the
Commission in December 1995.
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 on file with the Commission a registration statement
on Form S-8 relating to 2,992,000 shares of Common Stock underlying
outstanding options issued under, or which may be issued under, the 1993
Stock Option Plan and 1,417,529 shares underlying additional outstanding
options granted to Ms. Shogen and Dr. Mikulski.
The private placement investors in the March 1994 Private Placement
have the right to have the shares of Common Stock and the shares of Common
Stock underlying 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 such shares beyond August
3, 1997. 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. In December 1995, the Commission declared effective a
registration statement filed by the Company to cover 772,000 shares of
Common Stock and 800,000 shares of Common Stock underlying warrants issued
in the March 1994 Private Placement which remained unsold on such date.
The private placement investors in the September 1994 Private
Placement have the right, to have the shares of Common Stock, 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 such shares
beyond September 14, 1997. 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 investors for certain liabilities relating
thereto. In December 1995, the Commission declared effective a
registration statement filed by the Company to cover 230,906 shares of
Common Stock and 288,506 shares of Common Stock underlying warrants issued
in the September 1994 Private Placement which remained unsold on such date.
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 financial statements of Alfacell Corporation (a development stage
company) as of July 31, 1995 and 1994, and for each of the years in the
three-year period ended July 31, 1995, and for the period from August 24,
1981 (date of inception) to July 31, 1995, have been included herein and in
the Registration Statement in reliance upon the report 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 report of KPMG Peat Marwick LLP covering the July 31,
1995 financial statements contains 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
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, 1995 is based on the report of AHC as to the amounts
included therein for the period from August 24, 1981 (date of inception) to
July 31, 1992. As discussed further under "Selected Financial Data" and
"Risk Factors - Termination of the Company's Auditors", 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. In
June 1996, AHC dissolved and ceased all operations. The report of AHC with
respect to the Financial Statements of the Company from inception to July
31, 1992 is included in the Registration Statement, although AHC has not
consented to the use of such report herein and will not be able to perform
any subsequent review procedures with respect to such report.
<PAGE>
Index
PAGE
Independent Auditors' Report of KPMG Peat Marwick LLP..................F-2
Independent Auditors' Report of Armus, Harrison & Co. .................F-4
Financial Statements:
Balance Sheets - July 31, 1995 and 1994.........................F-6
Statements of Operations - Years ended July 31, 1995, 1994
and 1993 and the Period from August 24, 1981 (Date of
Inception) to July 31, 1995...................................F-7
Statement of Stockholders' Deficiency - Period from
August 24, 1981 (Date of Inception) to July 31, 1995...........F-8
Statements of Cash Flows - Years ended July 31, 1995, 1994
and 1993 and the Period from August 24, 1981 (Date of
Inception) to July 31, 1995.................................. F-12
Notes to Financial Statements - Years ended July 31, 1995,
1994 and 1993 and the Period from August 24, 1981
(Date of Inception) to July 31, 1995..........................F-15
Balance Sheet as of April 30, 1996 (unaudited).................F-36
Statements of Operations for the three and nine months ended
April 30, 1996 and 1995 (unaudited)
and for the Period from August 24, 1981 (Date of
Inception) to April 30, 1996 (unaudited)......................F-37
Statements of Cash Flows for the nine months ended
April 30, 1996 and 1995 (unaudited) and for the
Period from August 24, 1981 (Date of Inception) to
April 30, 1996 (unaudited)....................................F-38
Notes to Unaudited Financial Statements........................F-40
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Alfacell Corporation:
We have audited the accompanying balance sheets of Alfacell Corporation (a
development stage company) as of July 31, 1995 and 1994, and the related
statements of operations, stockholders' deficiency, and cash flows for each of
the years in the three-year period ended July 31, 1995 and the period from
August 24, 1981 (date of inception) to July 31, 1995. 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 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 18 which is July 19, 1993 and note 3 which is October 28,
1993, expressed an unqualified opinion on those statements with an explanatory
paragraph regarding the Company's ability to continue as a going concern.
We conducted our audits in accordance with 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) to July 31, 1995 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, 1995 and 1994, and the results of its
operations and its cash flows for each of the years in the three-year period
ended July 31, 1995 and the period from August 24, 1981 (date of inception) to
July 31, 1995 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 plans 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, 1995
<PAGE>
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. IN JUNE 1996, AHC DISSOLVED AND CEASED ALL OPERATIONS.
THE REPORT OF AHC WITH RESPECT TO THE FINANCIAL STATEMENTS OF THE COMPANY FROM
INCEPTION TO JULY 31, 1992 IS INCLUDED IN THIS REGISTRATION STATEMENT, ALTHOUGH
AHC HAS NOT CONSENTED TO THE USE OF SUCH REPORT HEREIN AND WILL NOT BE
AVAILABLE TO PERFORM ANY SUBSEQUENT REVIEW PROCEDURES WITH RESPECT TO SUCH
REPORT. ACCORDINGLY, INVESTORS WILL BE BARRED FROM ASSERTING CLAIMS AGAINST
AHC UNDER SECTION 11 OF THE SECURITIES ACT ON THE BASIS OF THE USE OF SUCH
REPORT HEREIN. IN ADDITION, IN THE EVENT ANY PERSONS SEEK TO ASSERT A CLAIM
AGAINST AHC FOR FALSE OR MISLEADING FINANCIAL STATEMENTS AND DISCLOSURES IN
DOCUMENTS PREVIOUSLY FILED BY THE COMPANY, SUCH CLAIM WILL BE ADVERSELY
AFFECTED AND POSSIBLY BARRED. FURTHERMORE, AS A RESULT OF THE LACK OF A
CONSENT FROM AHC TO THE USE OF ITS AUDIT REPORT IN THIS PROSPECTUS, THE
OFFICERS AND DIRECTORS OF THE COMPANY WILL BE UNABLE TO RELY ON THE AUTHORITY
OF AHC AS EXPERTS IN AUDITING AND ACCOUNTING IN THE EVENT ANY CLAIM IS BROUGHT
AGAINST ANY SUCH PERSONS UNDER SECTION 11 OF THE SECURITIES ACT BASED ON
ALLEGED FALSE AND MISLEADING FINANCIAL STATEMENTS AND DISCLOSURES ATTRIBUTABLE
TO AHC. THE DISCUSSION REGARDING CERTAIN EFFECTS OF THE AHC TERMINATION IS NOT
MEANT AND SHOULD NOT BE CONSTRUED IN ANY WAY AS LEGAL ADVICE TO ANY PARTY AND
ANY POTENTIAL PURCHASER SHOULD CONSULT WITH HIS, HER OR ITS OWN COUNSEL WITH
RESPECT TO THE EFFECT OF THE AHC TERMINATION ON A POTENTIAL INVESTMENT IN THE
COMMON STOCK OF THE COMPANY OR OTHERWISE.
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Alfacell Corporation
Bloomfield, New Jersey
We have audited the balance sheets of Alfacell Corporation (a Development Stage
Company) as of July 31, 1992 and 1991, as restated, and the related statements
of operations, stockholders' deficiency, and cash flows for the three years
ended July 31, 1992, as restated, and for the period from inception August 24,
1981 to July 31, 1992, as restated. In connection with our audit of the 1992
and 1991 financial statements, we have also audited the 1992, 1991 and 1990
financial statement schedules as listed in the accompanying index. These
financial statements and financial statement schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion the financial statements referred to above present fairly in all
material respects, the financial position of Alfacell Corporation as of July
31, 1992 and 1991, as restated, and for the three years ended July 31, 1992, as
restated, and for the period from inception August 24, 1981 to July 31, 1992,
as restated, and the results of operations and cash flows for the years then
ended in conformity with generally accepted accounting principles.
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, indicate substantial doubt 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.
Armus, Harrison & Co.
Mountainside, New Jersey
December 9, 1992
Except as to Note 18 which
is July 19, 1993 and Note 3
which is October 28, 1993
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Balance Sheets
July 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
<S> <C> <C> <C> <C>
Current assets:
Cash $ 648,027 $ 202,654
Marketable securities 750,000 251,209
Prepaid expenses 38,607 68,667
Total current assets 1,436,634 522,530
Property and equipment, net of accumulated depreciation 104,301 94,367
and
amortization of $666,261 in 1995 and $644,316 in 1994
Other assets:
Patents, net - 82,562
Deferred debt costs, net 31,500 73,500
Other 43,735 6,804
75,235 162,866
Total assets $ 1,616,170 $ 779,763
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term debt $ 1,602,974 $ 88,359
Loans payable, other - 44,000
Loans and interest payable, related party 138,638 203,723
Accounts payable 183,222 413,025
Accrued payroll and expenses, related parties 414,996 158,265
Accrued expenses 101,777 52,833
Total current liabilities 2,441,607 960,205
Long-term debt, less current portion 7,129 1,593,976
Total liabilities 2,448,736 2,554,181
Commitments and contingencies
Stockholders' deficiency:
Preferred stock, $.001 par value. Authorized and - -
unissued,
1,000,000 shares at July 31, 1995 and 1994
Common stock $.001 par value. Authorized 25,000,000 10,319 9,125
shares;
issued and outstanding 10,319,187 shares in 1995
and
9,124,681 shares in 1994
Capital in excess of par value 36,262,427 33,680,954
Common stock to be issued, 139,080 shares in 1995 343,80850,000
and 20,000 shares in 1994
Deficit accumulated during development stage (37,449,120) (35,455,997)
(832,566) (1,715,918)
Deferred compensation, restricted stock -
(58,500)
Total stockholders' deficiency (832,566) (1,774,418)
Total liabilities and stockholders' deficiency $ 1,616,170 $ 779,763
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Operations
Years ended July 31, 1995, 1994 and 1993,
and the Period from August 24, 1981
(Date of Inception) to July 31, 1995
<S> <C> <C> <C> <C> <C>
August 24, 1995 1994
1981
(date of
inception)
to
July 31,
1995
1993
Revenue:
Sales $ 553,489 - - -
Investment 201,004 14,992 6,064 489
Other income 60,103 6,000 - -
814,596 20,992 6,064 489
Costs and expenses:
Cost of sales 336,495 - - -
Research and development 20,370,500 1,205,523 1,114,455 1,091,762
General and administrative 14,898,820 664,435 903,350 903,955
Interest:
Related parties 1,032,159 14,982 74,221 198,330
Others 1,625,742 129,175 148,466 163,792
38,263,716 2,014,115 2,240,492 2,357,839
Net Loss $ (37,449,120) (1,993,123) (2,234,428) (2,357,350)
Loss per common share $ (7.72) (.21) (.26) (.31)
Weighted average number
of shares outstanding 4,853,000 9,598,000 8,466,000 7,602,000
See accompanying notes to financial statements.
</TABLE>
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Statement of Stockholders' Deficiency
Period from August 24, 1981
(Date of Inception) to July 31, 1995
<TABLE>
<CAPTION>
Common Stock Capital Common Deficit Deferred Total
in stock accumulated compen- stock-
excess to be during sation, holders'
of PAR ISSUED developmentrestrictedDEFICIENCY
VALUE STAGE STOCK
<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
stockholders for equipment, research and
development, and expense reimbursement 712,500 $ 713 212,987 - - - 213,700
Issuance of shares for organizational legal
services 50,000 50 4,950 - - - 5,000
Sale of shares for cash, net 82,143 82 108,418 - - - 108,500
Adjustment for 3 for 2 stock split declared
September 8, 1982 422,321 422 (422) - - - -
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 program 20,000 20 109,980 - - - 110,000
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 program 19,750 20 101,199 - - - 101,219
Issuance of shares under stock bonus plan for
directors and consultants 130,250 131 385,786 - - - 385,917
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 program 48,332 48 478,057 - - - 478,105
Issuance of shares under stock bonus plan for
directors and consultants 99,163 99 879,379 - - - 879,478
Shares canceled (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 program 11,250 12 107,020 - - - 107,032
Issuance of shares under stock bonus plan for
directors and consultants 15,394 15 215,385 - - - 215,400
Exercise of warrants, net 21,565 21 80,977 - - - 80,998
Net loss - - - - (2,138,605) - (2,138,605)
Balance at July 31, 1986 (carried forward) 2,933,052 2,933 6,849,112 - (7,198,714) - (346,669)
<PAGE>
Balance at July 31, 1986 (brought forward) 2,933,052 2,933 6,849,112 - (7,198,714) - (346,669)
Exercise of warrants at $10.00 per share 14,745 15 147,435 - - - 147,450
Issuance of shares under stock bonus plan for
directors and consultants 5,000 5 74,995 - - - 75,000
Issuance of shares for services 250,000 250 499,750 - - - 500,000
Sale 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 consulting
services 206,429 207 724,280 - - - 724,487
Issuance of shares under employment incentive
program 700,000 700 2,449,300 - - (2,450,000) -
Issuance of shares under stock grant program 19,000 19 66,481 - - - 66,500
Exercise of options at $3.00 per share 170,000 170 509,830 - - - 510,000
Issuance of shares for litigation settlement 12,500 12 31,125 - - - 31,137
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,
restricted stock - - - - - 449,167 449,167
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 share 133,333 133 399,867 - - - 400,000
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 agreement 750,000 750 3,749,250 - - (3,750,000) -
Issuance of shares under the 1989 Stock Plan 30,000 30 149,970 - - (150,000) -
Amortization of deferred compensation,
restricted stock - - - - - 1,050,756 1,050,756
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 consulting
services 52,463 52 258,725 - - - 258,777
Issuance of shares under the 1989 Stock Plan 56,000 56 335,944 - - (336,000) -
Sale of shares for litigation settlement 50,000 50 351,067 - - - 351,117
Exercise of options at $3.00 - $3.50 per share 105,989 106 345,856 - - - 345,962
Sale of shares to private investors 89,480 90 354,990 - - - 355,080
Issuance of shares under employment agreement 750,000 750 3,749,250 - - (3,750,000) -
Conversion of debentures at $5.00 per share 100,000 100 499,900 - - - 500,000
Amortization of deferred compensation,
restricted stock - - - - - 3,015,561 3,015,561
Net loss - - - - (4,860,116) - (4,860,116)
Balance at July 31, 1990 (carried forward) 6,799,829 6,800 23,699,631 - (20,889,091)(5,920,516)(3,103,176)
<PAGE>
Balance at July 31, 1990 (brought forward) 6,799,829 6,800 23,699,631 - (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 services 87,000 87 358,627 - - - 358,714
Issuance of shares under the 1989 Stock Plan 119,000 119 475,881 - - (476,000) -
Amortization of deferred compensation,
restricted stock - - - - - 2,891,561 2,891,561
Net loss - - - - (5,202,302) - (5,202,302)
Balance at July 31, 1991 7,022,549 7,022 24,642,803 - (26,091,393) (3,091,393)(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 share 94,000 94 469,906 - - - 470,000
Issuance of shares for services 45,734 46 156,944 - - - 156,990
Issuance of shares under the 1989 Stock Plan 104,000 104 285,896 - - (286,000) -
Amortization of deferred compensation,
restricted stock - - - - - 3,046,726 3,046,726
Net loss - - - - (4,722,826) - (4,722,826)
Balance at July 31, 1992 7,338,014 7,338 25,778,877 - (30,864,219) (744,229)(5,822,233)
Sale of share to private investors 352,667 353 735,147 - - - 735,500
Issuance of shares for legal services 49,000 50 132,180 - - - 132,230
Issuance of shares for services 5,000 5 9,995 - - (10,000) -
Issuance of shares under the 1989 Stock Plan 117,000 117 233,883 - - (234,000) -
Amortization of deferred compensation,
restricted stock - - - - - 664,729 664,729
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 share 425,400 425 1,701,575 - - - 1,702,000
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 72,000 73 181,927 - - - 182,000
Issuance of shares for services 16,200 16 43,334 - - - 43,350
Issuance of shares under the 1989 Stock Plan,
for services 5,000 5 14,995 - - - 15,000
Issuance of options to related parties upon
conversion of accrued interest, payroll and expense - - 3,194,969 - - - 3,194,969
Repurchase of stock options from related party - - (198,417) - - - 3,194,969
Issuance of options upon conversion of
accrued interest - - 142,441 - - - 142,441
Common stock to be issued - - - 50,000 - - 50,000
Amortization of deferred compensation,
restricted stock - - - - - 265,000 265,000
Net loss - - - - (2,234,428) - (2,234,428)
Balance at July 31, 1994 (carried forward) 9,124,681 9,125 33,680,954 50,000 (35,455,997) (58,500)(1,774,418)
<PAGE>
(Continued)
Balance at July 31, 1994 (brought forward) 9,124,681 9,125 33,680,954 50,000 (35,455,997) (58,500) (1,774,418)
Sale of shares to private investors, net 961,000 961 2,023,241 (50,000) - - 1,974,202
Conversion of short-term borrowings 17,600 17 43,983 - - - 44,000
Issuance of shares for services 30,906 31 77,234 - - - 77,265
Exercise of options at $2.27 - $2.50 per share 185,000 185 437,015 - - - 437,200
Common stock to be issued - - - 339,008 - - 339,008
Common stock to be issued, for services - - - 4,800 - - 4,800
Amortization of deferred compensation,
restricted stock - - - - - 58,500 58,500
Net loss - - - - (1,993,123) - (1,993,123)
Balance at July 31, 1995 10,319,187 $ 10,319 36,262,427 343,808 (37,449,120) - (832,566)
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Statements of Cash Flows
Years ended July 31, 1995, 1994 and 1993,
and the Period from August 24, 1981
(Date of Inception) to July 31, 1995
<TABLE>
<CAPTION>
August 24, 1995 1994 1993
1981 (date
of incep-
tion) to
July 31,
1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(37,449,120) (1,993,123) (2,234,428) (2,357,350)
Adjustments to reconcile net loss to net cash used in operating
activities:
Gain on sale of marketable securities (25,963) - - -
Depreciation and amortization 977,993 69,699 75,157 42,923
Loss on disposal of property and equipment 18,926 - - -
Noncash operating expenses 4,771,011 4,800 58,350 132,230
Amortization of deferred compensation 11,442,000 58,500 265,000 664,729
Amortization of organization costs 4,590 - - -
Changes in assets and liabilities:
(Increase) decrease in prepaid expenses (38,607) 30,060 (13,091) 45,490
(Increase) decrease in other assets 28,483 39,877 (1,723) 5,586
Increase (decrease) in loans and interest payable, related party 883,177 (65,085) 5,306 198,330
Increase (decrease) in accounts payable 260,487 (152,538) (61,388) 161,691
Increase in accrued payroll and expenses, related parties 2,763,141 256,731 386,246 301,979
Increase (decrease) in accrued expenses 643,290 48,944 (10,318) 228,152
Net cash used in operating activities (15,720,592) (1,702,135) (1,530,889) (576,240)
Cash flows from investing activities:
Purchase of marketable equity securities (1,040,420) (750,000) (251,209) -
Proceeds from sale of marketable equity securities 316,383 251,209 - -
Purchase of property and equipment (996,187) (31,879) (13,660) (97,049)
Patent costs (97,841) - (37,251) -
Net cash used in investing activities (1,818,065) (530,670) (302,120) (97,049)
(Continued)
</TABLE>
<PAGE>
Statement of Cash Flows, Continued
<TABLE>
<CAPTION>
August
24,
1981
(date of incep- 1995 1994 1993
tion to
July
31,
1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Proceeds from short-term borrowings $ 849,500 - 169,500 56,600
Payment of short-term borrowings (623,500) - - -
Increase (decrease) in loans payable, related party, ne 2,628,868 - 175,798 (107,080)
Proceeds from bank debt and other long-term debt, net of
deferred debt costs 2,377,143 17,595 4,028 (68,980)
Reduction of bank debt and long-term debt (1,281,612) (89,827) (67,285) -
Proceeds from common stock to be issued 389,008 339,008 50,000
Proceeds from issuance of common stock, net 13,063,077 1,974,202 1,710,791 735,500
Proceeds from exercise of stock options 437,200 437,200 - -
Proceeds from issuance of convertible debentures 347,000 - - -
(Decrease) increase in bank overdraft - - (7,169) (7,169)
Net cash provided by financing activities 18,186,684 2,678,178 2,035,663 623,109
Net increase (decrease) in cash 648,027 445,373 202,654 (50,180)
Cash at beginning of period - 202,654 - 50,180
Cash at end of period 648,027 648,027 202,654 -
Supplemental disclosure of cash flow information -
interest paid 1,359,504 129,477 144,322 -
Noncash financing activities:
Issuance of convertible subordinated debenture
for loan payable to officer 2,725,000 - - 275,000
Issuance of common stock upon the conversion of
convertible subordinated debentures,
related party 2,945,000 - 1,575,000 -
Conversion of short-term borrowings to common stock 226,000 44,000 182,000 -
</TABLE>
<PAGE>
Statement of Cash Flows, Continued
<TABLE>
<CAPTION>
August 24,
1981 (date
of inception)
to July 31,
1995 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Conversion of accrued interest, payroll and expenses
by related parties to stock options $ 3,194,969 - 3,194,969 -
Repurchase of stock options from related party (198,417) - (198,417) -
Conversion of accrued interest to stock options 142,441 - 142,441 -
Conversion of accounts payable to common stock 77,265 77,265 - -
Conversion of notes payable, bank and accrued
interest to long-term debt 1,699,072 - - 1,699,072
Conversion of loans and interest payable, related party
and accrued payroll and expenses, related parties to
long-term accrued payroll and other, related party 1,863,514 - - 1,863,514
Issuance of common stock upon the conversion of
convertible subordinated debentures, other 127,000 - 127,000 -
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to Financial Statements, Continued
Notes to Financial Statements
Years ended July 31, 1995, 1994 and 1993
and the Period From August 24, 1981
(Date of Inception) to July 31, 1995
(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
$1,993,123, $2,234,428 and $2,357,350 for the fiscal years ended July 31,
1995, 1994 and 1993, respectively. The loss from date of inception, August
24, 1981, to July 31, 1995 amounts to $37,449,120. As of July 31, 1995, the
Company had a working capital deficit of $1,004,973, liabilities exceeded
its assets and there is a deficit in stockholders' equity of $832,566.
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 16), will be sufficient to meet its anticipated cash needs through
August 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.
(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)
BASIS OF FINANCIAL STATEMENTS, (CONTINUED)
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.
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 SECURITIES
The Company's investments in marketable securities are available for sale to
fund its operations. The Company, subject to changes in market conditions,
does not intend to hold the marketable securities for an extended period of
time and, accordingly, they have been classified as current assets and are
carried at fair value.
PATENTS
Costs related to patents are expensed when incurred. Previously, costs
related to approved patents were capitalized and were amortized using the
straight-line method over the life of the patent, usually 17 years. As a
result of this change in policy, the Company wrote-off $76,807 of
capitalized patent costs during the fiscal year ended July 31, 1995.
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, 1995 and 1994 was
$90,416 and $48,416, respectively.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
(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 SECURITIES
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 securities to be available-for-sale. The Company's
marketable securities were purchased during July 1995 for the current fiscal
year and June 1994 for the prior fiscal year. The market value approximates
cost due to the short holding period. As of July 31, 1995 and 1994, there
were no unrealized holding gains or losses.
(3)PROPERTY AND EQUIPMENT
Property and equipment consists of the following at July 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C> <C>
Laboratory equipment $ 587,443 568,672
Office equipment 130,143 117,035
Leasehold improvements 52,976 52,976
$ 770,562 738,683
</TABLE>
(4)LONG-TERM DEBT
Long-term debt consists of the following at July 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C> <C> <C>
First Fidelity Bank, N.A., New Jersey, payable in
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 President and
Chief Executive Officer are subordinated to the bank
debt. $ 1,577,049 $ 1,645,513
Note payable in monthly installments of $600,
including principal and interest at 6.3%, commencing September
1993 and each month thereafter until September 1996,
secured by equipment. 9,833 16,163
Note payable in monthly installments of $164,
including principal and interest, commencing May 1994 and each
month thereafter until September 1996, secured by
equipment. 2,411 3,559
Note payable in monthly installments of $822,
including principal and interest at 10.4%, commencing May 1993
and each month thereafter until April 1996, secured by
equipment. 8,586 17,070
Note payable in monthly installments of $728,
including principal and interest at 8.5%, commencing February
1995 and each month thereafter until January 1997,
secured by equipment. 12,224 -
1,610,103 1,682,335
Less current portion 1,602,974 88,359
$ 7,129 $ 1,593,976
</TABLE>
(4)LONG-TERM DEBT, (CONTINUED)
Principal maturities for the next two years ending July 31, are as follows:
<TABLE>
<CAPTION>
1996 $ 1,602,974
<S> <C> <C>
1997 7,129
$ 1,610,103
</TABLE>
(5)LOANS AND INTEREST PAYABLE, 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 following table provides a summary of the related-
party loan activity involving the President and Chief Executive Officer at
July 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C> <C> <C>
Loans and interest payable, related party at
beginning of year $ 203,723 $ -
Reduction in loan balance (80,067) -
Accrued interest 14,982 5,306
Repurchase of stock options - 198,417
Loans and interest payable, related party at
end of year $ 138,638 $ 203,723
</TABLE>
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 $143,426. These
liabilities as of January 31, 1994 were converted into 5-year options to
purchase 1,655,423 shares of common stock at an exercise price of $3.20.
Certain options were issued pursuant to the 1993 Stock Option Plan (see note
10).
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 under
certain circumstances and $80,067 was repaid during fiscal 1995.
(6)LOANS PAYABLE, OTHER
At July 31, 1994, a Company stockholder had a loan outstanding to the
Company of $44,000. The loan, which was payable on demand, did not have any
stated interest rate. During fiscal 1995, this loan was converted into
17,600 shares of common stock.
(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 November 11,
1996 at a reduced annual rental obligation commencing April 1, 1993, of
$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 $66,000, $66,500 and $61,334 in 1995, 1994 and 1993,
respectively.
Future minimum lease payments under noncancellable leases are approximately
as follows:
<TABLE>
<CAPTION>
Operating
LEASES
<S> <C> <C>
Year ending July 31:
1996 $ 66,000
1997 16,500
Total minimum lease payments $ 82,500
</TABLE>
(8)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.
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.
(8)STOCKHOLDERS' DEFICIENCY, (CONTINUED)
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 12
months after issuance.
In connection with the public offering, the Company sold 60,000 five-year
purchase warrants to the underwriters at a price of $.001 per warrant. Each
warrant entitled the holder to purchase one share of common stock at an
exercise price of $3.00. Pursuant to the antidilution provisions of the
warrants, the underwriters received warrants to purchase 67,415 shares at an
exercise price of $2.67 per share. As of July 31, 1986, all such warrants
were exercised and the Company received proceeds of approximately $180,000.
On February 22, 1984, the Company filed a registration statement with the
Securities and Exchange Commission for the issuance of two series of new
warrants each to purchase an aggregate of 330,000 shares (hereinafter
referred to as one-year warrants and two-year warrants). The one-year
warrants had an exercise price of $6.50 per share and expired July 17, 1985.
The two-year warrants had an exercise price of $10.00 per share and were to
expire July 17, 1986. However, the Company extended the expiration date to
August 31, 1987. The one-year warrants and two-year warrants were issued as
of July 17, 1984 on a one-for-one basis to those public offering warrant
holders who exercised their original warrants, with the right to
oversubscribe to any of the warrants not exercised. During the fiscal years
ended July 31, 1985, 1986, 1987 and 1988, the Company received net proceeds
of approximately $2,471,000 as a result of the exercising of the warrants.
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.
(8)STOCKHOLDERS' DEFICIENCY, (CONTINUED)
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 and interest due to the Company's President and Chief Executive
Officer, and for working capital.
During the fiscal year ended July 31, 1989, the Company sold 105,840 shares
of common stock to private investors at $3.97 per share resulting in net
proceeds to the Company of approximately $420,000.
During the fiscal year ended July 31, 1990, the Company issued 52,463 shares
of common stock for payment of legal and consulting services. The fair
value of the common stock was charged to operations.
During the fiscal year ended July 31, 1990, the Company issued 50,000 shares
of common stock in connection with the settlement of certain litigation.
The fair value of these shares was charged to operations.
(8)STOCKHOLDERS' DEFICIENCY, (CONTINUED)
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. During
the fiscal year ended July 31, 1995, 322,500 options expired. A total of
30,167 options due to expire on July 31, 1995 were extended to July 31,
1996, their exercise price was reduced to $2.50 and they are currently
outstanding. The remaining 234,500 options are currently outstanding and
will expire during fiscal 1996.
During the fiscal year ended July 31, 1993, the Company issued 54,600 shares
of common stock as payment for legal and other services performed for the
Company. The fair value of 49,600 shares was charged to operations. The
remaining 5,000 shares were recorded as deferred compensation and were
amortized over a one-year period, beginning in February 1993, in accordance
with the agreement entered into with the recipient.
During the fiscal year ended July 31, 1994, the Company issued 7,000 shares
of common stock as payment for services performed for the Company. The fair
value of the 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.
(8)STOCKHOLDERS' DEFICIENCY, (CONTINUED)
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.
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.
In September 1994, the Company completed a private placement resulting in
the issuance of 288,506 shares of common stock and three-year warrants to
purchase 288,506 shares of common stock at an exercise price of $5.50 per
share. The common stock and warrants were sold in units consisting of
20,000 shares of common stock and warrants to purchase 20,000 shares of
common stock. The price per unit was $50,000. The Company received
proceeds of approximately $545,000, net of costs associated with the
placement of approximately $55,000 and the conversion of certain debt by
creditors of $121,265 into equivalent private placement units, of 17,600
shares for conversion of short-term borrowings and 30,906 shares issued for
services rendered. In October 1994, an additional two units at $50,000 per
unit were sold to a private investor under the same terms as the September
1994 private placement resulting in the issuance of 40,000 shares of common
stock.
During the fiscal year ended July 31, 1995, 185,000 shares of common stock
were issued upon the exercise of stock options by unrelated parties
resulting in net proceeds to the Company of $437,200. The exercise prices
of the options ranged from $2.27 to $2.50, which had been reduced from $3.50
and $5.00, respectively, during fiscal 1995.
During the fiscal year ended July 31, 1995, the Company sold 681,000 shares
of common stock to private investors resulting in net proceeds to the
Company of approximately $1,379,000. The shares were sold at prices ranging
from $2.00 to $2.25.
During the fiscal year ended July 31, 1995, the Company sold 139,080 shares
of common stock and 47,405 three-year warrants to purchase shares of common
stock at an exercise price of $4.00 per share to private investors. The
stock and warrants were sold at prices ranging from $2.25 to $2.73 per share
and resulted in net proceeds to the Company of $343,808, of which $4,800 was
for services rendered. The common shares were issued to the investors
subsequent to July 31, 1995.
(9)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> <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
Exercised (287,566) 2.00-3.50
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
pursuant to antidilution provisions 7,415 2.67
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 (207,236)
Outstanding at July 31, 1988 -
</TABLE>
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.
(9)COMMON STOCK WARRANTS, (CONTINUED)
WARRANTS SOLD IN 1994 AND 1995 PRIVATE PLACEMENTS
<TABLE>
<CAPTION>
WARRANTS EXERCISE PRICE EXPIRATION
<S> <C> <C> <C> <C> <C>
Sold in March 1994 Private Placement 800,000 $ 5.00 3/21/97 to 6/21/97
Outstanding at July 31, 1994 800,000 5.00 3/21/97 to 6/21/97
Sold in September 1994 Private Placement 288,506 5.50 12/9/97 to 12/14/97
Sold in October 1994 Private Placement 40,000 5.50 1/21/98
Sold in September 1995 Private Placement 47,405 4.00 10/1/98
Outstanding and exercisable at July 31, 1995 1,175,911 $ 4.00 - 5.50 3/21/97 to 10/1/98
</TABLE>
(10)STOCK OPTIONS
1981 NON-QUALIFIED STOCK OPTION PLAN
In 1981, the Board of Directors adopted a non-qualified stock option plan
and had reserved 300,000 shares for issuance to key employees or
consultants. Options were nontransferable and expired if not exercised
within five years. 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 would 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>
(10)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> <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
Granted pursuant to conversion of certain
liabilities: 1,324,014 3.20
related party
unrelated party 73,804 3.20
Repurchased stock options (102,807) 3.20
Balance at July 31, 1994 and 1995 2,045,011 $ 3.20-3.50
Exercisable at July 31, 1995 1,143,982 $ 3.20-3.50
</TABLE>
The options outstanding at July 31, 1995 will expire between September 16,
1996 and March 30, 2004. Subsequent to July 31, 1995, certain of these
options were extended, see Note 16.
(10)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> <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 (30,167 options were repriced and 587,167 2.50-7.00
extended as described in note 8)
Expired (50,000) 5.00
Balance at July 31, 1993 587,167
Granted 25,000 4.00
Balance at July 31, 1994 612,167 2.50-7.00
Expired (322,500) 3.00
Balance outstanding and exercisable at July
31, 1995 289,667 $ 2.50-7.00
</TABLE>
The options outstanding at July 31, 1995, will expire during the fiscal
years ending July 31, 1996 and 1997.
(10)STOCK OPTIONS, (CONTINUED)
1989 STOCK PLAN
On February 14, 1989, the Company adopted the Alfacell Corporation 1989
Stock Plan (the "1989 Stock Plan"), pursuant to which the Board of Directors
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> <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 5.00
(10,000)
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
Expired (36,365) 2.75
Balance at July 31, 1994 1,575,000 3.50-5.00
Expired (945,000) 3.50-5.00
Exercised (185,000) 2.27-2.50
Balance outstanding and
exercisable at July 31, 1995 445,000 $ 2.50-2.68
</TABLE>
(10)STOCK OPTIONS, (CONTINUED)
In order to induce the exercise of options due to expire, the Board of
Directors approved the extension and repricing of certain options as
follows:
<TABLE>
<CAPTION>
Exercise Price
<S> <C> <C> <C> <C>
No. of Options
NO. OF OPTIONS ORIGINAL REVISED EXERCISED EXPIRATION DATE
110,000 $ 3.50 $ 2.27 110,000 January 9, 1995
320,000 5.00 2.50 75,000 July 31, 1996
200,000* 5.00 2.68 - July 31, 1996
630,000 185,000
</TABLE>
* Options to related parties were repriced at the fair market value of the
common stock at the time of extension.
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.
The stock options activity is as follows:
<TABLE>
<CAPTION>
OPTIONS PRICE RANGE
<S> <C> <C> <C>
Granted 1,371,750 $ 2.71 - 5.00
Granted pursuant to conversion
of certain liabilities, related
party 331,409 3.12
Balance at July 31, 1994 1,703,159 2.71 - 5.00
Granted 188,850 2.27 - 5.00
Balance at July 31, 1995 1,892,009 2.27 - 5.00
Exercisable at July 31, 1995 771,864 $ 2.71 - 5.00
</TABLE>
These options become exercisable over five years starting at various dates
from date of grant, up to one year after the grant date.
The options outstanding at July 31, 1995 will expire from November 10, 1997
to March 13, 2005.
(11)STOCK GRANT AND COMPENSATION PLANS
The Company had adopted a stock grant program effective September 1, 1981,
and pursuant to said Plan, had reserved 375,000 shares of its common stock
for issuance to key employees. The stock grant program was superseded by
the 1989 Stock Plan and no further grants will be given pursuant to the
grant plan. The following stock transactions occurred under the Company's
stock grant program:
<TABLE>
<CAPTION>
Year SHARES Fair Amount
ended VALUE of
JULY 31, 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 $ 6,500
</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>
Year Amount
ended Fair of
JULY 31, SHARES 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.
(11)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 10). 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, the following awards and grants were
authorized under the 1989 Stock Plan:
<TABLE>
<CAPTION>
Year SHARES Fair Amount
ended VALUE of
JULY 31, COMPENSATION
<S> <C> <C> <C> <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. The 1994 stock award was immediately
vested. There were no stock awards in fiscal 1995.
(12)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.
(12)INCOME TAXES, (CONTINUED)
At July 31, 1995 and 1994, the tax effects of temporary differences that
give rise to the deferred tax assets are as follows:
<TABLE>
<CAPTION>
1995 1994
Deferred tax assets:
<S> <C> <C> <C> <C>
Excess of book over tax depreciation $ 26,223 $ 56,116
Deferred compensation 165,999 55,916
Other 7,993 1,996
Federal and state net operating loss carryforwards 8,926,338 8,662,634
Research and experimentation and investment
tax credit carryforwards 473,287 471,234
Total gross deferred tax assets 9,599,840 9,247,896
Valuation allowance (9,599,840) (9,247,896)
Net deferred tax assets $ - $ -
</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, 1995, the Company has federal net operating loss carryforwards
of approximately $23,460,000 that expire in the years 1997 to 2010. The
Company also has investment tax credit carryforwards of $63,076 and research
and experimentation tax credit carryforwards of $410,211 that expire in the
years 1998 to 2010. Ultimate utilization/availability of such net operating
losses and credits may be significantly curtailed if a significant change in
ownership occurs.
(13)OTHER FINANCIAL INFORMATION
Accrued expenses as of July 31, consist of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C> <C> <C>
Payroll and payroll taxes $ 27,539 $ 12,535
Interest 10,196 10,623
Professional fees 23,800 29,675
Other 40,242 -
$ 101,777 $ 52,833
</TABLE>
(13)OTHER FINANCIAL INFORMATION, (CONTINUED)
Prepaid expenses as of July 31, consist of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C> <C> <C>
Insurance $ 31,607 $ 26,223
NIH research - 32,000
Other 7,000 10,444
$ 38,607 $ 68,667
</TABLE>
(14)COMMITMENTS AND CONTINGENCIES
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 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 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 gross 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.
(15)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 $64,000, $43,000
and $17,000 during the years ended July 31, 1995, 1994 and 1993,
respectively.
(16)SUBSEQUENT EVENTS
In order to preserve stock options as a source of financing which were
granted during fiscal year 1993 and due to expire, the Board of Directors
approved effective September 15, 1995, a one-year extension for 750,000
options which were held by officers and due to expire on that day. The
exercise price was increased from $3.50 to $3.87, the fair market value of
the common stock at the time of the extension.
(16)SUBSEQUENT EVENTS, (CONTINUED)
On September 29, 1995, the Company completed a private placement resulting
in the issuance of 1,105,536 shares of common stock and 8,540 three-year
warrants to purchase shares of common stock at an exercise price of $4.00
per share to private and institutional investors. The stock and warrants
were sold at prices ranging from $2.00 to $3.70 per share and resulted in
net proceeds to the Company of approximately $2.3 million.
<PAGE>
Balance Sheet
April 30, 1996
<TABLE>
<CAPTION>
ASSETS April 30,
1996
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash $ 657,043
Marketable securities (at cost which approximates fair (value) 1,700,000
Prepaid expenses 90,746
Total current assets 2,447,789
Property and equipment, net of accumulated depreciation and
amortization of $682,190 at April 30, 1996 114,602
Other assets:
Deferred debt costs, net 25,062
Other 28,454
53,516
Total assets $ 2,615,907
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 93,280
Loans and interest payable, related party 1,250
Accounts payable 351,764
Accrued payroll and expenses, related parties 209,046
Accrued expenses 139,289
Total current liabilities 794,629
Long-term debt, less current portion 1,418,448
Total liabilities 2,213,077
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value
Authorized and unissued, 1,000,000 shares at April 30, 1996 -
Common stock $.001 par value
Authorized 25,000,000 shares at April 30, 1996;
Issued and outstanding 11,900,679 shares at April 30, 1996 11,901
Capital in excess of par value 39,996,257
Deficit accumulated during development stage (39,605,328)
Total stockholders' equity 402,830
Total liabilities and stockholders' equity $ 2,615,907
</TABLE>
See accompanying notes to financial statements.
STATEMENTS OF OPERATIONS
Three months and nine months ended April 30, 1996 and 1995
and the Period from August 24, 1981
(Date of Inception) to April 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED NINE MONTHS ENDED AUGUST 24,
APRIL 30, APRIL 30, 1981 (DATE
OF INCEPTION)
<C> <C> <C> <C> APRIL 30, 1996
1996 1995 1996 1995
REVENUE
Sales $ -- -- -- -- 553,489
Investment income 31,083 1,377 105,563 9,653 306,567
Other income -- -- -- -- 60,103
TOTAL REVENUE 31,083 1,377 105,563 9,653 920,159
COSTS AND EXPENSES
Costs of sales -- -- -- -- 336,495
Research and development 520,826 243,423 1,541,826 800,101 21,912,326
General and Administrative 197,138 153,803 621,627 488,478 15,520,447
Interest
Related parties 45 3,967 1,801 11,547 1,033,960
Other 31,205 30,519 96,517 96,389 1,722,259
TOTAL COSTS AND EXPENSES 749,214 431,712 2,261,771 1,396,515 40,525,487
NET LOSS (718,131) (430,335) (2,156,208) (1,386,862) (39,605,328)
Loss per common share (.06) (.05) (.19) (.15) (7.34)
Weighted average number of common shares outstanding 11,798,079 9,580,030 11,595,982 9,443,411 5,392,511
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS
Nine months ended April 30, 1996 and 1995,
and the Period from August 24, 1981
(Date of Inception) to April 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED AUGUST 24, 1981
APRIL 30, (DATE OF INCEPTION)
TO
<S> <C> <C> <C> <C>
1996 1995 APRIL 30, 1996
Cash flows from operating activities:
Net Loss $ (2,156,208) (1,386,862) (39,605,328)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Gain on sale of marketable securities - - (25,963)
Depreciation and amortization 58,398 51,224 1,036,391
Loss on disposal of property and
equipment - - 18,926
Noncash operating expenses 15,997 - 4,787,008
Amortization of deferred compensation - 58,500 11,442,000
Amortization of organization costs - - 4,590
Changes in assets and liabilities:
(Increase) decrease in prepaid expenses (52,139) 14,701 (90,746)
(Increase) decrease in other assets (5,651) (32,190) 22,832
Increase (decrease) in interest
payable related party (137,388) 11,547 745,789
Increase (decrease) in accounts payable 168,542 (71,261) 429,029
Increase (decrease) in accrued
payroll and expense, related parties (205,950) 191,732 2,557,191
Increase (decrease) in accrued expenses 37,512 (10,228) 680,802
Net cash used in operating activities (2,276,887) (1,172,837) (17,997,479)
Cash flows from investing activities:
Purchase of marketable securities (950,000) - (1,990,420)
Proceeds from sale of marketable equity
securities - 251,209 316,383
Purchase of property and equipment (26,228) (24,993) (1,022,415)
Patent costs - - (97,841)
Net cash provided by (used in)
investing activities (976,228) 226,216 (2,794,293)
</TABLE>
See accompanying notes to financial statements. (continued)
STATEMENTS OF CASH FLOWS, Continued
Nine months ended April 30 1996 and 1995,
and the Period from August 24, 1981
(Date of Inception) to April 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED AUGUST 24, 1981
APRIL 30, (DATE OF INCEPTION)
TO
<S> <C> <C> <C> <C>
1996 1995 APRIL 30, 1996
Cash flows from financing activities:
Proceeds from short-term borrowings $ - - 849,500
Payment of short-term borrowings - - (623,500)
Increase in loans payable - related party, net - - 2,628,868
Proceeds from bank debt and other long-
term debt, net of deferred debt costs 29,540 17,595 2,406,683
Reduction of bank debt and long-term debt (127,915) (66,907) (1,409,527)
Proceeds from common stock to be issued - - 389,008
Proceeds from issuance of common stock, net 3,033,876 1,203,318 16,096,953
Proceeds from exercise of stock options 326,630 - 763,830
Proceeds from issuance of convertible debentures - - 347,000
Net cash provided by financing activities 3,262,131 1,154,006 21,448,815
Net increase (decrease) in cash 9,016 207,385 657,043
Cash at beginning of period 648,027 202,654 -
Cash at end of period $ 657,043 410,039 657,043
Supplemental disclosure of cash flow
information - interest paid $ 96,446 97,039 1,455,950
Noncash financing activities:
Issuance of warrants/options for
services rendered 15,100 - 15,100
Issuance of convertible subordinated
debenture for loan payable to officer $ - - 2,725,000
Issuance of common stock upon the
conversion of convertible subordinated debentures
related party $ - - 2,945,000
Conversion of short-term borrowings to
common stock $ - - 226,000
Conversion of accrued interest, payroll
and expenses by related parties to stock options $ - - 3,194,969
Repurchase of stock options from related party $ - - (198,417)
Conversion of accrued interest to stock options $ - - 142,441
Conversion of accounts payable to
common stock $ - - 77,265
Conversion of notes payable, bank and
accrued interest to long-term debt $ - - 1,699,072
Conversion of loans and interest
payable, related party and accrued payroll
and expenses, related parties to long-
term accrued payroll and other, related
party $ - - 1,863,514
Issuance of common stock upon the conversion
of convertible subordinated debentures, other $ - - 127,000
See accompanying notes to financial statements.
</TABLE>
<PAGE>
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, 1996 and the results of operations for the nine month periods
ended April 30, 1996 and 1995 and the period from August 24, 1981 (date of
inception) to April 30, 1996. The results of operations for the nine
months ended April 30, 1996 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 August 4, 1995, the Company issued 6,060 shares of common stock as
payment for services rendered to the Company. The fair value of this
common stock was charged to operations.
On August 8, 1995, options to purchase 10,000 shares of common stock
were exercised resulting in gross proceeds to the Company of $25,000.
On September 29, 1995, the Company completed a private placement
resulting in the issuance of 1,925,616 shares of restricted common stock
and three-year warrants to purchase an aggregate of 55,945 shares of common
stock at an exercise price of $4.00 per share. The common stock was sold
alone at per share prices ranging from $2.00 to $3.70, and in combination
with warrants at per unit prices ranging from $4.96 to $10.92, which
related to the number of warrants contained in the unit. The Company
received proceeds of approximately $4.1 million, including $1,723,000
received prior to the fiscal year ended July 31, 1995, and incurred net
costs associated with the placement of approximately $18,000.
In October 1995, a private placement of 30,000 shares of common stock
at $3.60 per share was made to a single investor for a total of $108,000.
As consideration for the extension of the Company's term loan
agreement with its bank, the Company granted the bank 10,000 warrants to
purchase 10,000 shares of common stock at an exercise price of $4.19. The
warrants were issued as of October 1, 1995 and expire on August 31, 1997.
On December 11, 1995, the Securities and Exchange Commission declared
effective a registration statement for the offer and sale of up to
2,071,561 shares of common stock by shareholders and warrant holders of the
Company. Of these shares (i) 1,965,616 were issued in private placements
closed in October 1994 and September 1995, (ii) 95,945 underlie warrants
issued in such private placements closed in October 1994 and September 1995
and may be issued upon exercise of the warrants, and (iii) 10,000 underlie
a warrant issued to the Company's bank in connection with the amendment of
its term loan agreement with the bank and may be issued upon exercise of
such warrant.
Also, on December 11, 1995, the Securities and Exchange Commission
declared effective another registration statement for the offer and sale of
up to 3,299,561 shares of common stock by shareholders and option holders
of the Company. Of these shares, (i) an aggregate of 1,002,906 shares were
issued to private placement investors in private placements closed in March
1994 and September 1994, (ii) an aggregate of 30,000 shares were issued
pursuant to the exercise of options, (iii) an aggregate of 1,088,506 shares
may be issued upon exercise of warrants which were issued to private
placement investors in such private placements closed in March 1994 and
September 1994, and (iv) an aggregate of 1,178,149 shares may be issued
upon exercise of certain outstanding options to purchase shares of common
stock.
In November 1995, options to purchase 500 shares of common stock were
exercised resulting in gross proceeds to the Company of $1,560.
In December 1995, a private placement of 102,316 shares of Common
Stock at $3.80 per share was made to several investors for a total of
$388,801.
In December 1995, options to purchase 4,000 shares of Common Stock
were exercised resulting in gross proceeds to the Company of $10,000.
In February 1996, options to purchase 10,000 shares of Common Stock
were exercised resulting in gross proceeds to the Company of $26,800.
In March 1996, options to purchase 48,000 shares of Common Stock were
exercised resulting in gross proceeds to the Company of $127,670.
In March 1996, a private placement of 50,000 shares of Common Stock at
$4.10 per share was made to an investor for a total of $205,000.
In April 1996, options to purchase 51,000 shares of Common Stock were
exercised resulting in gross proceeds to the Company of $135,600.
In April 1996, a private placement of 25,000 shares of Common Stock at
$4.24 per share was made to an investor for a total of $106,000.
3. SUBSEQUENT EVENT
In June 1996, the Company completed a private placement (the "June
1996 Private Placement") resulting in the issuance of approximately
1,600,000 shares of Common Stock and approximately 325,000 three-year
warrants each to purchase one share of Common Stock at an exercise price of
$7.50 per share (the "Warrants") to private and institutional investors.
The Common Stock was sold alone for $3.70 per share and in combination with
Warrants at a per unit price of $12.52. The Warrants were also sold alone
at a per Warrant price of $1.42. Each unit consists of one Warrant and
three Common Shares. The June 1996 Private Placement resulted in net
proceeds to the Company of approximately $6,000,000.
<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 $ 3,500
Accountants' Fees and Expenses $ 6,000
Legal Fees and Expenses $ 10,000
Printing Expenses $ 2,000
Miscellaneous $ 2,500
Total $ 24,000
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 September 22, 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. Of the 587,167 options, 322,500 expired during fiscal 1995 and the
balance will expire during the period January 1996 to July 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 deducting the
expenses of the offering, and including the conversion of debt by a certain
investor and conversion of accounts payable by a certain creditor, the
Company received net proceeds of approximately $1,865,791 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 $545,000 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).
During the fiscal 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
30,000 shares of Common Stock upon the exercise of 30,000 options for
aggregate consideration of $75,000; 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.
On September 29, 1995, the Company completed a private placement which
resulted in the issuance of 1,925,616 shares of Common Stock and three-year
warrants to purchase 55,945 shares of Common Stock at an exercise price of
$4.00 per share. On October 21, 1994, the Company completed a private
placement which resulted in the issuance of 40,000 shares of Common Stock
and 40,000 shares of Common Stock underlying warrants at an exercise price
of $5.50 per share. After taking into account expenses of these offerings,
the Company received net proceeds of approximately $4.2 million from the
offerings. The Common Stock and warrants were acquired by the investors in
such private placement transactions 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.
On November 29, 1995 the Company issued a warrant expiring October 1,
1997 to First Fidelity Bank, N.A., New Jersey to purchase 10,000 shares of
Common Stock.
On April 4, 1996 the Company completed a private placement which
resulted in the issuance of 207,316 shares of restricted Common Stock at
per share prices ranging from $3.60 to $4.24. On June 11, 1996 the Company
completed a private placement which resulted in the issuance of 1,515,330
shares of restricted Common Stock and three-year Warrants to purchase
313,800 shares of Common Stock at an exercise price of $7.50 per share.
The Common Stock was sold alone at a per share price of $3.70 and in
combination with Warrants at a per unit price of $12.52. The Warrants were
also sold alone at a per Warrant price of $1.42. After taking into account
expenses of these offerings, the Company received aggregate net proceeds of
approximately $6.5 million from the offerings. 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).
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
Exhibit REFERENCE
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 Form of Stock and Warrant Purchase Agreements used #
in private placements completed in April 1996 and
June 1996
10.2 Lease, as amended - 225 Belleville Avenue, **
Bloomfield, New Jersey
10.3 Amendment to amended Lease - 225 Belleville ++++
Avenue, Bloomfield, New Jersey
10.4 Term Loan Agreement dated as of May 31, 1993 by **
and between the Company and First Fidelity Bank,
N.A., New Jersey
10.5 Term Note dated as of May 31, 1993 issued by the **
Company to First Fidelity Bank, N.A., New Jersey
10.6 Patent Security Agreement dated as of May 31, 1993 **
by and between the Company and First Fidelity
Bank, N.A., New Jersey
10.7 Security Agreement dated as of May 31, 1993 by and **
between the Company and First Fidelity Bank, N.A.,
New Jersey
10.8 Subordination Agreement dated as of May 31, 1993 **
by and among the Company, Kuslima Shogen, and
First Fidelity Bank, N.A., New Jersey
10.9 Amendment to Subordination Agreement dated as of ++++
May 31, 1993 by and among the Company, Kuslima
Shogen, and First Fidelity Bank, N.A., New Jersey
dated June 30, 1995
10.10 Form of Stock Purchase Agreement and Certificate ***
used in connection with private placements
10.11 Form of Stock and Warrant Purchase Agreement and ***
Warrant Agreement used in Private Placement
completed on March 21, 1994
10.12 The Company's 1993 Stock Option Plan and Form of *****
Option Agreement
10.13 Debt Conversion Agreement dated March 30, 1994 ****
with Kuslima Shogen
10.14 Accrued Salary Conversion Agreement dated March ****
30, 1994 with Kuslima Shogen
10.15 Accrued Salary Conversion Agreement dated March ****
30, 1994 with Stanislaw Mikulski
10.16 Debt Conversion Agreement dated March 30, 1994 ****
with John Schierloh
10.17 Option Agreement dated March 30, 1994 with Kuslima ****
Shogen
10.18 Option Agreement dated March 30, 1994 with Kuslima ****
Shogen
10.19 Amendment No. 1 dated June 20, 1994 to Option ****
Agreement dated March 30, 1994 with Kuslima Shogen
10.20 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
10.21 Second Pledge Agreement dated June 17, 1994 by and ****
among the Company, Kuslima Shogen and First
Fidelity Bank, N.A., New Jersey
10.22 Form of Amendment No. 1 dated June 20, 1994 to *****
Option Agreement dated March 30, 1994 with Kuslima
Shogen
10.23 Form of Amendment No. 1 dated June 20, 1994 to *****
Option Agreement dated March 30, 1994 with
Stanislaw Mikulski
10.24 Form of Stock and Warrant Purchase Agreement and +
Warrant Agreement used in Private Placement
completed on September 13, 1994
10.25 Form of Subscription Agreements and Warrant ++++
Agreement used in private placements closed
between October 1994 and September 1995.
10.26 Amendment No. 1 dated as of October 1, 1995 to ~
Term Loan Agreement dated as of May 31, 1993 by
and between the Company and First Fidelity Bank,
N.A. New Jersey
10.27 Amended and Restated Term Note dated as of October ~
1, 1995 issued by the Company to First Fidelity
Bank, N.A. New Jersey
10.28 Warrant dated as of October 1, 1995 issued by the ~
Company to First Fidelity Bank, N.A. New Jersey
21.0 Subsidiaries of Registrant **
23.1 Consent of Ross & Hardies (included in Exhibit
5.1)
23.2 Consent of KPMG Peat Marwick LLP #
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 to the Company's Registration Statement
on Form SB-2 (File No. 33-83072) and incorporated herein by reference
thereto.
+++ Powers of Attorney are contained in signatures.
++++ Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the year ended July 31, 1995 and incorporated herein by
reference thereto.
~ Previously filed as Exhibits to the Company's Registration Statement
on Form SB-2 (File No. 33-63341 and incorporated herein by reference
thereto.)
# Filed herewith.
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.
<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 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 6, 1996.
ALFACELL CORPORATION
(Registrant)
By:/s/ KUSLIMA SHOGEN
Kuslima Shogen, Chairman
and Chief Executive Officer
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.
<PAGE>
SIGNATURES
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.
/s/ KUSLIMA SHOGEN Chairman, Chief Executive September 6, 1996
Kuslima Shogen Officer and Director
(Principal Executive Officer)
/s/ MICHAEL C. LOWE
Michael C. Lowe, Ph.D. President September 6, 1996
/s/ GAIL E. FRASER Vice President, Finance and September 6, 1996
Gail E. Fraser Chief Financial Officer and
Director (Principal Financial
Officer and Principal
Accounting Officer)
/s/ STANISLAW M. MIKULSKI Executive Vice September 6, 1996
Stanislaw M. Mikulski, M.D. President, Medical Director
and Director
Director September __, 1996
Allen Siegel, D.D.S.
Director September __, 1996
Alan Bell
/s/ ROBERT R. HENRY Director September 6, 1996
Robert R. Henry
September 6, 1996
Alfacell Corporation
225 Belleville Avenue
Bloomfield, NJ 07003
Dear Sirs:
You have requested our opinion with respect to the public offering and
sale by certain stockholders (the "Selling Stockholders") of Alfacell
Corporation (the "Company"), pursuant to a Registration Statement on Form SB-2
(the "Registration Statement") of up to 1,728,706 shares (the "Outstanding
Shares") of the Company's common stock, par value $.001 per share (the "Common
Stock") and up to 313,800 shares of Common Stock issuable upon exercise of
certain outstanding warrants held by certain of the Selling Stockholders (the
"Issuable Shares").
We have examined originals, or copies certified or otherwise identified to
our satisfaction, of such documents and corporate and public records as we
deemed necessary as a basis for the opinion hereinafter expressed. With
respect to such examination we have assumed the genuineness of all signatures
appearing on all documents presented to us as originals, and the conformity to
the originals of all documents presented to us as conformed or reproduced
copies. With respect to factual matters relevant to such opinion, we have
relied, without independent verification thereof, upon certificates of
appropriate state and local officials and executive officers and responsible
employees and agents of the Company.
Based upon the foregoing we are of the following opinion:
1. Based upon the foregoing, and in reliance thereon, and subject to the
limitations and qualifications set forth herein, we are of the opinion that the
Outstanding Shares are legally and validly issued, fully paid, and non-
assessable.
2. Based upon the foregoing, and in reliance thereon, and subject to the
limitations and qualifications set forth herein, we are of the opinion that,
when issued and paid for in accordance with the warrant agreements covering
such shares between the Company and the respective Selling Stockholder, the
Issuable Shares will constitute legally and validly issued, fully paid and non-
assessable shares.
We consent to the use of our name in the Registration Statement and the
related Prospectus under the caption "Legal Matters", and we consent to the
filing of this opinion as an Exhibit to the Registration Statement.
Very truly yours,
/s/ROSS & HARDIES
ROSS & HARDIES
ALFACELL CORPORATION
PURCHASE AGREEMENT FOR
COMMON STOCK
Alfacell Corporation
225 Belleville Avenue
Bloomfield, New Jersey 07003
Attention: Kuslima Shogen, President
and Chief Executive Officer
Dear Ms. Shogen:
The undersigned acknowledges that there is no minimum proceeds
requirement for the closing of this Offering, the Company may close only on
the undersigned's investment and such investment may be inadequate to meet
the Company's cash requirements. The Company intends to utilize the proceeds
of this offering for general corporate purposes.
The undersigned hereby subscribes to purchase ________ shares of Common
Stock, $.001 par value per share (the "Shares") of Alfacell Corporation, a
Delaware corporation (the "Company")at a cost of $_____ per share. The
Shares are being sold in a transaction exempt from registration under the
Securities Act of 1933, as amended (the "Act"). The undersigned tenders
herewith $_____________ in full payment of the purchase price for the
_________ Shares to which the undersigned subscribes (in the manner
indicated on the signature page hereof.)
The undersigned understands that the right to transfer all or any part
of the Shares (hereinafter sometimes collectively referred to as the
"Securities") will be restricted. The undersigned may not transfer the
Securities unless they are registered under the Act and applicable state
securities or "blue sky" laws, or an exemption from such registration is
available. The undersigned recognizes that the Company shall have no
obligation to register the Securities, except as set forth herein.
The undersigned hereby represents, warrants and covenant that:
1. The undersigned is acquiring the Shares for the undersigned's own
account for investment and not with a view towards distribution. The
undersigned will not sell, hypothecate, transfer or otherwise dispose of the
Securities unless such transaction has been registered under the Act or, in
the opinion of counsel for the Company, an exemption from registration is
available.
2. (i) Please check here if the representation contained in this
paragraph 2(i) is applicable to the undersigned _________. (A)If an
individual, (a) the undersigned's individual net worth or joint net worth
with the undersigned's spouse exceeds $1,000,000 as of the date hereof, or
(b) the undersigned's individual income has been in excess of $200,000 in
each of 1995 and 1994 and is expected to be in excess of $200,000 in 1996,
or (c)the undersigned's joint income with the undersigned's spouse has been
in excess of $300,000 in each of 1995 and 1994 and is expected to be in
excess of $300,000 in 1996; or (B) if a corporation, partnership, or other
entity, the foregoing representation applies to all of the equity owners of
the corporation, partnership, or entity.
(ii) If a corporation, partnership, or other entity, was such a
corporation, partnership, or other entity formed for the specific purpose of
acquiring the Shares? _____Yes _____ No
(iii) If the answer to 2(ii) is yes, how many equity owners does
the corporation partnership or entity have? _____
3. Whether or not the representation contained in paragraph 2(i)is
applicable to the undersigned, the undersigned has adequate means of
providing for the undersigned's current needs and possible contingencies and
has no need for liquidity of the Shares. The undersigned's overall
commitment to investments is not disproportionate to the undersigned's net
worth, and acquisition of the Shares will not cause such overall commitment
to become excessive. Prior to the execution hereof, the undersigned has
received and had the opportunity to review, examine and read all documents,
records and books pertaining to this investment, including the Company's
Annual Report on Form 10-K for the fiscal year ended July 31, 1995, the
Company's Quarterly Reports on Form 10-QSB for each of the two quarterly
periods subsequent to the fiscal year ended July 31, 1995 and a copy of the
Company's Proxy Statement as distributed to its stockholders in connection
with the annual meeting of stockholders which was held on December 11, 1995
(collectively, the "Disclosure Documents").
4. The undersigned is knowledgeable and experienced in financial and
business matters. The undersigned recognizes and is fully cognizant of the
fact that the investment contemplated hereby involves a high degree of risk.
The undersigned is able to evaluate the merits and risks of an investment in
the Shares. The undersigned has been given an opportunity to asks questions
of, and receive answers and obtain information from, representatives of the
Company concerning the Company.
5. The undersigned has been given no oral or written representations
or assurances by the Company or any other person acting or purporting to act
on behalf of the Company in connection with the acquisition of the Shares,
in each case except as provided herein or in the Disclosure Documents.
6. The undersigned understands and specifically acknowledges and
agrees that since the Shares have not been registered under the Act, the
certificates representing the Securities will bear a legend to such effect
and a stop transfer order will be placed on the Securities in the Company's
transfer books.
7. By its acceptance hereof, the Company hereby agrees that no later
than September 1, 1996, the Company shall use its best efforts to file a
registration statement (the "Registration Statement") under the Act to
register the resale of the Shares. The Company further agrees to use its
best efforts to cause such Registration Statement to become effective.
In connection with the Registration Statement, the undersigned shall
provide the Company, from time to time, as reasonably requested by the
Company, written information concerning its ownership of the Company's
Shares, their intentions concerning the sale of its Shares and such other
matters as are required in order to enable the Company to prepare, file and
obtain the effectiveness of such Registration Statement. Notwithstanding
any of the foregoing, the Company shall not be required to maintain the
effectiveness of the Registration Statement for more than three (3) years
after the initial effective date thereof.
In connection with any such registration of Shares, the Company shall
supply a reasonable number of prospectuses to the undersigned, use its best
efforts to qualify the Shares for sale in the states of New York and New
Jersey and furnish indemnification in the manner set forth below.
The Company shall bear the entire cost and expense of any such
Registration hereunder. Notwithstanding the foregoing, the undersigned
shall bear the fees of all persons retained by it, such as counsel and
accountants, and any transfer taxes or underwriting discounts or commissions
applicable to the Shares sold by it pursuant to the Registration Statement.
The Company shall indemnify and hold harmless each holder of Shares
that are registered pursuant to the Registration Statement and each
underwriter, within the meaning of the Act, who may purchase from or sell
for any such holder any such Shares and each person, if any, who controls
any such holder or underwriter within the meaning of the Act, from and
against any and all losses, claims, damages and liabilities caused by any
untrue statement of a material fact contained in the Registration Statement
or any post-effective amendment thereto or any prospectus included therein
required to be filed or furnished in connection therewith or caused by any
omission to state therein a material fact required to be stated therein in
order to make the statements made therein, in light of the circumstances
under which they were made, not misleading, except insofar as such losses,
claims, damages or liabilities are caused by any such untrue statement or
omission based upon information furnished or required to be furnished in
writing to the Company by such holder or underwriter expressly for use
therein; PROVIDED, HOWEVER, that such holder or underwriter shall indemnify
the Company, its directors, each officer signing the Registration Statement
and each person, if any, who controls the Company within the meaning of the
Act, from and against any and all losses, claims, damages and liabilities
caused by any untrue statement of a material fact contained in any
Registration Statement or any post-effective amendment thereto or any
prospectus included therein required to be filed or furnished pursuant
thereto or caused by any omission to state therein a material fact required
to be stated therein in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading, insofar as
such losses, claims, damages or liabilities are caused by any untrue
statement or omission based upon information furnished in writing to the
Company by any such holder or underwriter expressly for use therein.
If the indemnification provided for herein from either the holder of
the Shares or the Company is unavailable to an indemnified party (the
"Indemnitee") hereunder in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to herein, then the
party responsible for such indemnification (the "Indemnitor"), in lieu of
indemnifying the Indemnitee, shall contribute to the amount paid or payable
by the Indemnitee as a result of such losses, claims, damages or liabilities
in such proportion as is appropriate to reflect the relative fault of the
Indemnitor and Indemnitee in connection with the actions which resulted in
such losses, claims, damages or liabilities (including legal or other fees
and expenses reasonably incurred in connection with any investigation or
proceeding) as well as any other equitable considerations.
If indemnification is available, the Indemnitor shall indemnify each
Indemnitee to the full extent provided for herein without regard to the
relative fault of the Indemnitor, the Indemnitee or any other equitable
consideration provided for hereunder.
After the Registration Statement becomes effective and in connection
with the sale of the Shares under such Registration Statement, the
undersigned shall take such steps as may be necessary to ensure that the
offer and sale thereof are in compliance with the requirements of the
federal securities laws, including, but not limited to, compliance with the
anti-manipulation requirements of the Securities Exchange Act of 1934, as
amended.
By its acceptance hereof, the Company hereby acknowledges that the
foregoing accurately reflects its understanding concerning the transaction
contemplated hereby.
Very truly yours,
___________________________________
(Signature)
___________________________________
Please type or print name
(and title if applicable)
Name & Address (as it should appear on
certificates):
______________________________________
______________________________________
______________________________________
______________________________________
Social Security Number or
Taxpayer Identification Number
(H)___________________(W)_____________
Telephone Number
______________________________________
As of Date
Number of Units
Amount of Subscription
(U.S. Dollars)
ACCEPTED AND AGREED: Deliver to Address: (if
ALFACELL CORPORATION different from above)
_______________________________
____________________________ _________________________________
Name: Kuslima Shogen
Title: President and CEO
<PAGE>
ALFACELL CORPORATION
PURCHASE AGREEMENT FOR
COMMON STOCK & WARRANTS
Alfacell Corporation
225 Belleville Avenue
Bloomfield, New Jersey 07003
Attention: Kuslima Shogen, President
and Chief Executive Officer
Dear Ms. Shogen:
The undersigned acknowledges that there is no minimum proceeds
requirement for the closing of this Offering, the Company may close only on
the undersigned's investment and such investment may be inadequate to meet
the Company's cash requirements. The Company intends to utilize the
proceeds of this Offering for research and development and general corporate
purposes.
The undersigned hereby subscribes to purchase 16,000 units at $12.52
per unit (the "Units"). Each Unit consists of three (3) shares of Common
Stock, $.001 par value per share (the "Shares") of Alfacell Corporation, a
Delaware corporation (the "Company") and one (1) warrant (the "Warrants").
Each Warrant is exercisable into one (1) Share (the "Warrant Shares"). The
Shares, the Warrants and the Warrant Shares are being sold in a transaction
exempt from registration under the Securities Act of 1933, as amended (the
"Act"). The Warrants will be issued pursuant to a Warrant Agreement in the
form attached hereto as Exhibit A executed by the Company for the benefit of
the undersigned. Each Warrant will be exercisable at $7.50 per share for a
three (3) year period commencing three months after its issuance. The
undersigned tenders herewith $200,320 in full payment of the purchase price
for the 16,000 Units to which the undersigned subscribes (in the manner
indicated on the signature page hereof.)
The undersigned understands that the right to transfer all or any part
of the Shares, the Warrants and the Warrant Shares (hereinafter sometimes
collectively referred to as the "Securities") will be restricted. The
undersigned may not transfer the Securities unless they are registered under
the Act and applicable state securities or "blue sky" laws, or an exemption
from such registration is available. The undersigned recognizes that the
Company shall have no obligation to register the Securities, except as set
forth herein.
The undersigned hereby represents, warrants and covenant that:
1. The undersigned is acquiring the Shares and the Warrants, and at
such time as the undersigned may exercise the Warrants, the Warrant Shares,
for the undersigned's own account for investment and not with a view towards
distribution. The undersigned will not sell, hypothecate, transfer or
otherwise dispose of the Securities unless such transaction has been
registered under the Act or, in the opinion of counsel for the Company, an
exemption from registration is available.
2. (i) Please check here if the representation contained in this
paragraph 2(i) is applicable to the undersigned _________. (A)If an
individual, (a) the undersigned's individual net worth or joint net worth
with the undersigned's spouse exceeds $1,000,000 as of the date hereof, or
(b) the undersigned's individual income has been in excess of $200,000 in
each of 1995 and 1994 and is expected to be in excess of $200,000 in 1996,
or (c)the undersigned's joint income with the undersigned's spouse has been
in excess of $300,000 in each of 1995 and 1994 and is expected to be in
excess of $300,000 in 1996; or (B) if a corporation, partnership, or other
entity, the foregoing representation applies to all of the equity owners of
the corporation, partnership, or entity.
(ii) If a corporation, partnership, or other entity, was such a
corporation, partnership, or other entity formed for the specific purpose of
acquiring the Shares? _____Yes _____ No
(iii) If the answer to 2(ii) is yes, how many equity owners does
the corporation partnership or entity have? _____
3. Whether or not the representation contained in paragraph 2(i)is
applicable to the undersigned, the undersigned has adequate means of
providing for the undersigned's current needs and possible contingencies and
has no need for liquidity of the Securities. The undersigned's overall
commitment to investments is not disproportionate to the undersigned's net
worth, and acquisition of the Securities will not cause such overall
commitment to become excessive. Prior to the execution hereof, the
undersigned has received and had the opportunity to review, examine and read
all documents, records and books pertaining to this investment, including
the Company's Annual Report on Form 10-K for the fiscal year ended July 31,
1995, the Company's Quarterly Reports on Form 10-QSB for each of the two
quarterly periods subsequent to the fiscal year ended July 31, 1995 and a
copy of the Company's Proxy Statement as distributed to its stockholders in
connection with the annual meeting of stockholders which was held on
December 11, 1995 (collectively, the "Disclosure Documents").
4. The undersigned is knowledgeable and experienced in financial and
business matters. The undersigned recognizes and is fully cognizant of the
fact that the investment contemplated hereby involves a high degree of risk.
The undersigned is able to evaluate the merits and risks of an investment in
the Securities. The undersigned has been given an opportunity to ask
questions of, and receive answers and obtain information from,
representatives of the Company concerning the Company.
5. The undersigned has been given no oral or written representations
or assurances by the Company or any other person acting or purporting to act
on behalf of the Company in connection with the acquisition of the
Securities, in each case except as provided herein or in the Disclosure
Documents.
6. The undersigned understands and specifically acknowledges and
agrees that since the Securities have not been registered under the Act, the
certificates representing the Securities will bear a legend to such effect
and a stop transfer order will be placed on the Securities in the Company's
transfer books.
7. By its acceptance hereof, the Company hereby agrees that no later
than September 1, 1996, the Company shall use its best efforts to file a
registration statement (the "Registration Statement") under the Act to
register the resale of the Shares and the Warrant Shares. The Company
further agrees to use its best efforts to cause such Registration Statement
to become effective.
In connection with the Registration Statement, the undersigned shall
provide the Company, from time to time, as reasonably requested by the
Company, written information concerning its ownership of the Company's
Securities, their intentions concerning the sale of its Shares and Warrant
Shares and such other matters as are required in order to enable the Company
to prepare, file and obtain the effectiveness of such Registration
Statement. Notwithstanding any of the foregoing, the Company shall not be
required to maintain the effectiveness of the Registration Statement for
more than three (3) years after the initial effective date thereof.
In connection with any such registration of Shares and Warrant Shares,
the Company shall supply a reasonable number of prospectuses to the
undersigned, use its best efforts to qualify the Shares and Warrants for
sale in the states of New York and New Jersey and furnish indemnification in
the manner set forth below.
The Company shall bear the entire cost and expense of any such
registration hereunder. Notwithstanding the foregoing, the undersigned
shall bear the fees of all persons retained by it, such as counsel and
accountants, and any transfer taxes or underwriting discounts or commissions
applicable to the Shares and Warrant Shares sold by it pursuant to the
Registration Statement.
The Company shall indemnify and hold harmless each holder of Shares and
Warrant Shares that are registered pursuant to the Registration Statement
and each underwriter, within the meaning of the Act, who may purchase from
or sell for any such holder any such Shares or Warrant Shares and each
person, if any, who controls any such holder or underwriter within the
meaning of the Act, from and against any and all losses, claims, damages and
liabilities caused by any untrue statement of a material fact contained in
the Registration Statement or any post-effective amendment thereto or any
prospectus included therein required to be filed or furnished in connection
therewith or caused by any omission to state therein a material fact
required to be stated therein in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading,
except insofar as such losses, claims, damages or liabilities are caused by
any such untrue statement or omission based upon information furnished or
required to be furnished in writing to the Company by such holder or
underwriter expressly for use therein; PROVIDED, HOWEVER, that such holder
or underwriter shall indemnify the Company, its directors, each officer
signing the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, from and against any and all losses,
claims, damages and liabilities caused by any untrue statement of a material
fact contained in any Registration Statement or any post-effective amendment
thereto or any prospectus included therein required to be filed or furnished
pursuant thereto or caused by any omission to state therein a material fact
required to be stated therein in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading,
insofar as such losses, claims, damages or liabilities are caused by any
untrue statement or omission based upon information furnished in writing to
the Company by any such holder or underwriter expressly for use therein.
If the indemnification provided for herein from either the holder of
the Shares and Warrant Shares or the Company is unavailable to an
indemnified party (the "Indemnitee") hereunder in respect of any losses,
claims, damages or liabilities (or actions in respect thereof) referred to
herein, then the party responsible for such indemnification (the
"Indemnitor"), in lieu of indemnifying the Indemnitee, shall contribute to
the amount paid or payable by the Indemnitee as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to
reflect the relative fault of the Indemnitor and Indemnitee in connection
with the actions which resulted in such losses, claims, damages or
liabilities (including legal or other fees and expenses reasonably incurred
in connection with any investigation or proceeding) as well as any other
equitable considerations.
If indemnification is available, the Indemnitor shall indemnify each
Indemnitee to the full extent provided for herein without regard to the
relative fault of the Indemnitor, the Indemnitee or any other equitable
consideration provided for hereunder.
After the Registration Statement becomes effective and in connection
with the sale of the Shares and Warrant Shares under such Registration
Statement, the undersigned shall take such steps as may be necessary to
ensure that the offer and sale thereof are in compliance with the
requirements of the federal securities laws, including, but not limited to,
compliance with the anti-manipulation requirements of the Securities
Exchange Act of 1934, as amended.
By its acceptance hereof, the Company hereby acknowledges that the
foregoing accurately reflects its understanding concerning the transaction
contemplated hereby.
Very truly yours,
___________________________________
(Signature)
___________________________________
Please type or print name
(and title if applicable)
Name & Address (as it should appear on
certificates):
______________________________________
______________________________________
______________________________________
______________________________________
Social Security Number or
Taxpayer Identification Number
(H)___________________(W)_____________
Telephone Number
______________________________________
As of Date
16,000
Number of Units
$200,320
Amount of Subscription
(U.S. Dollars)
ACCEPTED AND AGREED: Deliver to Address: (if
ALFACELL CORPORATION different from above)
_______________________________
____________________________ _________________________________
Name: Kuslima Shogen
Title: President and CEO
<PAGE>
EXHIBIT A
WARRANT TO PURCHASE ___________ SHARES OF COMMON STOCK VOID AFTER 5:00
p.m. NEW JERSEY TIME, ON ______________. THIS WARRANT AND THE SHARES OF
COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF HAVE BEEN AND WILL BE ISSUED
IN TRANSACTIONS WHICH HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES OR BLUE SKY
LAWS. THIS WARRANT AND SUCH SHARES MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, IN WHOLE OR IN PART, IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE
LAW, OR AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
NO. ____ _________ SHARES
ALFACELL CORPORATION
This certifies that, for value received, ______________ the
registered holder hereof or assigns (the "Warrantholder") is entitled to
purchase from Alfacell Corporation, a Delaware corporation (the "Company"),
at any time on and after ____________, 1996, and before 5:00 p.m., New
Jersey time, on ____________, 1999 (the "Termination Date"), at the purchase
price of $7.50 per share (the "Exercise Price"), the number of shares of
Common Stock, par value $.001 per share, of the Company set forth above (the
"Warrant Stock"). The number of shares of Warrant Stock, the Termination
Date and the Exercise Price per share of this Warrant shall be subject to
adjustment from time to time as set forth below.
SECTION I. TRANSFER OR EXCHANGE OF WARRANT.
The Company shall be entitled to treat the Warrantholder as the owner
in fact hereof for all purposes and shall not be bound to recognize any
equitable or other claim to or interest in this Warrant on the part of any
other person. This Warrant shall be transferable only on the books of the
Company, maintained at its principal office upon delivery of this Warrant
Certificate duly endorsed by the Warrantholder or by his duly authorized
attorney or representative, or accompanied by proper evidence of succession,
assignment or authority to transfer. Upon any registration of transfer, the
Company shall deliver a new Warrant Certificate or Certificates to the
persons entitled thereto.
SECTION II. TERM OF WARRANT; EXERCISE OF WARRANTS.
A. TERMINATION. The Company may, in its sole discretion, extend the
Termination Date with respect to the exercise of this Warrant upon notice to
the Warrantholder. As used herein, "Termination Date" shall be deemed to
include any such extensions.
B. EXERCISE. This Warrant shall be exercised by surrender to the
Company, at its principal office, of this Warrant Certificate, together with
the Purchase Form attached hereto duly completed and signed, and upon
payment to the Company of the Exercise Price for the number of shares of
Warrant Stock in respect of which this Warrant is then exercised. Payment
of the aggregate Exercise Price shall be made in cash or by certified or
official bank check.
C. WARRANT CERTIFICATE. Subject to Section III hereof, upon such
surrender of this Warrant Certificate and payment of the Exercise Price as
aforesaid, the Company shall issue and cause to be delivered to or upon the
written order of the Warrantholder a certificate or certificates for the
number of full shares of Warrant Stock so purchased upon the exercise of
such Warrant, together with cash, as provided in Section VI hereof, in
respect of any fractional shares of Warrant Stock otherwise issuable upon
such surrender. Such certificate or certificates representing the Warrant
Stock shall be deemed to have been issued and any person so designated to be
named therein shall be deemed to have become a holder of record of such
shares of Warrant Stock as of the date of receipt by the Company of this
Warrant Certificate and payment of the Exercise Price as aforesaid;
provided, however, that if, at the date of surrender of this Warrant
Certificate and payment of the Exercise Price, the transfer books for the
Warrant Stock or other class of stock purchasable upon the exercise of this
Warrant shall be closed, the certificate or certificates for the shares of
Warrant Stock in respect of which this Warrant is then exercised shall be
deemed issuable as of the date on which such books shall next be opened
(whether before or after the Termination Date) and until such date the
Company shall be under no duty to deliver any certificate for such shares of
Warrant Stock; provided further, however, that the transfer books of record,
unless otherwise required by law, shall not be closed at any one time for a
period longer than twenty (20) days. The rights of purchase represented by
this Warrant shall be exercisable, at the election of the Warrantholder,
either in full or from time to time in part, and, in the event that this
Warrant is exercised in respect of fewer than all of the shares of Warrant
Stock purchasable on such exercise at any time prior to the Termination
Date, a new Warrant Certificate evidencing the remaining Warrant or Warrants
will be issued, and the Company shall deliver the new Warrant Certificate or
Certificates pursuant to the provisions of this Section.
SECTION III. PAYMENT OF TAXES.
The Company will pay all documentary stamp taxes, if any, attributable
to the initial issuance of the shares of Warrant Stock upon the exercise of
this Warrant; provided, however, that the Warrantholder shall pay any tax or
taxes which may be payable in respect of any transfer involved in the issue
or delivery of Warrant Certificates or the certificates for the shares of
Warrant Stock in a name other than that of the Warrantholder in respect of
which this Warrant or shares of Warrant Stock are issued.
SECTION IV. MUTILATED OR MISSING WARRANT CERTIFICATES.
In case this Warrant Certificate shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the Warrantholder, issue and
deliver, in exchange and substitution for and upon cancellation of this
certificate if mutilated, or in lieu of and in substitution for this
certificate if lost, stolen or destroyed, a new Warrant Certificate of like
tenor and representing an equivalent right or interest, but only upon
receipt of evidence satisfactory to the Company of such loss, theft or
destruction of this Warrant Certificate and indemnity, if requested, also
satisfactory to the Company.
SECTION V. RESERVATION OF SHARES OF WARRANT STOCK.
There has been reserved, and the Company shall at all times keep
reserved so long as this Warrant remains outstanding, out of its authorized
Common Stock a number of shares of Common Stock sufficient to provide for
the exercise of the rights of purchase represented by this Warrant. The
transfer agent for the Common Stock and every subsequent transfer agent for
any shares of the Company's capital stock issuable upon the exercise of this
Warrant will be irrevocably authorized and directed at all times to reserve
such number of authorized shares as shall be requisite for such purpose.
SECTION VI. FRACTIONAL SHARES.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of this Warrant. With respect to any fraction of a
share called for upon the exercise of this Warrant, the Company shall pay to
the Warrantholder an amount in cash equal to such fraction multiplied by the
current market price of such fractional share. "Market Price", as of any
date means, (i) the last reported sale price for the shares of Common Stock
as reported by the National Association of Securities Dealers Automated
Quotation National Market System, ("NASDAQ-NMS"), (ii) the closing bid price
for the shares of Common Stock as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") if the shares are
not traded on NASDAQ-NMS, (iii) the average of the closing bid and closing
asked prices of the Common Stock as reported by the National Quotations
Bureau if the shares are not traded on NASDAQ; (iv) the last reported sale
price, if the shares of Common Stock are listed on a national securities
exchange or (v) if market value cannot be calculated as of such date on any
of the foregoing basis, the fair market price determined by the Board of
Directors of the Company, acting with reasonable business judgment.
SECTION VII. EXERCISE PRICE; ANTI-DILUTION PROVISIONS.
A. EXERCISE PRICE. The shares of Warrant Stock shall be purchasable
upon the exercise of this Warrant, at a price of $7.50 per share. The
Company may, in its sole discretion, reduce the Exercise Price applicable to
the exercise of this Warrant upon notice to the Warrantholder. As used
herein, "Exercise Price" shall be deemed to include any such reduction.
If the Company shall at any time issue Common Stock by way of dividend
or other distribution on any stock of the Company or effect a stock split or
reverse stock split of the outstanding shares of Common Stock, the Exercise
Price shall be proportionately decreased in the case of such issuance (on
the day following the date fixed for determining stockholders entitled to
receive such dividend or other distribution or such stock split) or
increased in the case of such reverse stock split (on the date that such
reverse stock split shall become effective), by multiplying the Exercise
Price in effect immediately prior to the stock dividend or other
distribution, stock split or reverse stock split by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately prior to such stock dividend or other distribution, stock split
or reverse stock split, and the denominator of which is the number of shares
of Common Stock outstanding immediately after such stock dividend or other
distribution, stock split or reverse stock split.
B. NO IMPAIRMENT. The Company (a) will not increase the par value of
any shares of stock receivable upon the exercise of this Warrant above the
amount payable therefor upon such exercise, and (b) will take all such
action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common
Stock upon the exercise of this Warrant.
C. NUMBER OF SHARES ADJUSTED. Upon any adjustment of the Exercise
Price pursuant to this Warrant, the Warrantholder shall thereafter (until
another such adjustment) be entitled to purchase upon the exercise of this
Warrant, at the new Exercise Price, the number of shares, calculated to the
nearest full share, obtained by multiplying the number of shares of Warrant
Stock initially issuable upon exercise of this Warrant by the Exercise Price
in effect on the date hereof and dividing the product so obtained by the new
Exercise Price.
SECTION VIII. RECLASSIFICATION, REORGANIZATION OR MERGER.
In case of any reclassification, capital reorganization or other change
of outstanding shares of Common Stock of the Company (other than a change in
par value or as a result of an issuance of Common Stock by way of dividend
or other distribution or of a stock split or reverse stock split) or in case
of any consolidation or merger of the Company with or into another
corporation (other than a merger with a subsidiary in which merger the
Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding
shares of Common Stock of the Company issuable upon exercise of this
Warrant) or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, the
Company shall cause effective provision to be made so that the Warrantholder
shall have the right thereafter, by exercising this Warrant, to purchase the
kind and amount of shares of stock and other securities and property the
Warrantholder would have been entitled to receive if the Warrantholder had
exercised this Warrant immediately prior to such reclassification, capital
reorganization or other change, consolidation, merger, sale or conveyance.
Any such provision shall include provision for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in
this Warrant. The foregoing provisions of this Section shall similarly
apply to successive reclassifications, capital reorganizations and changes
of shares of Common Stock and to successive consolidations, mergers, sales
and conveyances.
SECTION IX. REGISTRATION RIGHTS.
A. The Warrantholder shall have the registration rights with respect
to the resale of the Warrant Stock as set forth in Section 7 of the Purchase
Agreement by and between the Company and the Warrantholder of even date
herewith.
SECTION X. NOTICES TO WARRANTHOLDERS.
So long as this Warrant shall be outstanding and unexercised (a) if the
Company shall pay any dividend or make any distribution upon the Common
Stock or (b) if the Company shall offer to the holders of Common Stock for
subscription or purchase by them any shares of stock of any class or any
other rights or (c) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or
merger of the Company with or into another corporation, sale, lease or
transfer of all or substantially all of the assets of the Company to another
corporation, or the voluntary or involuntary dissolution, liquidation or
winding up of the Company shall be effected, then, in any such case, the
Company shall cause to be delivered to the Warrantholder, at least ten days
prior to the date specified in (i) or (ii) below, as the case may be, a
notice containing a brief description of the proposed action and stating the
date on which (i) a record is to be taken for the purpose of such dividend
or distribution, or (ii) such reclassification, reorganization,
consolidation, merger, conveyance, lease, dissolution, liquidation or
winding up is to take place and the date, if any, as of which the holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
SECTION XI. NOTICES.
Any notice pursuant to this Warrant by the Company or by the
Warrantholder shall be in writing and shall be deemed to have been duly
given if delivered or mailed certified mail, return receipt requested, (a)
if to the Company, to it at 225 Belleville Avenue, Bloomfield, New Jersey
07003, Attention: President and (b) if to the Warrantholder to the
Warrantholder at the address set forth on the signature page hereto. Each
party hereto may from time to time change the address to which such party's
notices are to be delivered or mailed hereunder by notice in accordance
herewith to the other party.
SECTION XII. SUCCESSORS.
All the covenants and provisions of this Warrant by or for the benefit
of the Company or the Warrantholder shall bind and inure to the benefit of
their respective successors and assigns hereunder.
SECTION XIII. APPLICABLE LAW.
This Warrant shall be deemed to be a contract made under the laws of
the State of Delaware applicable to agreements made and to be performed
entirely in Delaware and for all purposes shall be construed in accordance
with the internal laws of Delaware without giving effect to the conflicts of
laws principles thereof.
SECTION XIV. BENEFITS OF THIS WARRANT.
Nothing in this Warrant shall be construed to give to any person or
corporation other than the Company and the Warrantholder any legal or
equitable right, remedy or claim under this Warrant and this Warrant shall
be for the sole and exclusive benefit of the Company and the Warrantholder.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant
Certificate or caused this Warrant Certificate to be duly executed as of the
day and year first above written.
ALFACELL CORPORATION
By: ______________________
Name: Kuslima Shogen
Title: President and Chief
Executive Officer
WARRANTHOLDER
_________________________
Name:
Address:
__________________________
__________________________
__________________________
Social Security or
Taxpayer Indentification Number
<PAGE>
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the Warrant
represented by this Warrant Certificate to the extent of _____ shares of
Common Stock, par value $.001 per share, of Alfacell Corporation, and hereby
makes payment of $_______ in payment of the actual exercise price thereof.
Name: _____________________________________________________________
(Please type or print in block letters)
Address:_____________________________________________________
(Address for delivery of Stock Certificate)
Social Security or
Taxpayer Identification Number:______________________________
Signature:___________________________________________________
<PAGE>
ASSIGNMENT FORM
FOR VALUED RECEIVED, _____________________________ hereby sells, assigns and
transfers unto ______________________________________
(Please type or print in block letters)
Address__________________________________________________________
the right to purchase Common Stock, par value $.001 per share, of Alfacell
Corporation, represented by this Warrant Certificate to the extent of
__________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint ______________________, to transfer the
same on the books of the Company with full power of substitution in the
premises.
__________________________
Signature
Dated: , 199_
Notice: The signature of this assignment must
correspond with the name as it appears upon
the face of this Warrant Certificate in every
particular, without alteration or enlargement
or any change whatever.
SIGNATURE GUARANTEED:
_________________________
<PAGE>
ALFACELL CORPORATION
PURCHASE AGREEMENT FOR
WARRANTS
Alfacell Corporation
225 Belleville Avenue
Bloomfield, New Jersey 07003
Attention: Kuslima Shogen, President
and Chief Executive Officer
Dear Ms. Shogen:
The undersigned acknowledges that there is no minimum proceeds
requirement for the closing of this Offering, the Company may close only on
the undersigned's investment and such investment may be inadequate to meet
the Company's cash requirements. The Company intends to utilize the
proceeds of this Offering for research and development and general corporate
purposes.
The undersigned hereby subscribes to purchase ________ warrants at
$1.42 per warrant (the "Warrants"). Each Warrant is exercisable into one
(1) share (the "Warrant Shares") of Common Stock, $.001 par value per share
of Alfacell Corporation, a Delaware corporation (the "Company"). The
Warrants are being sold in a transaction exempt from registration under the
Securities Act of 1933, as amended (the "Act"). The Warrants will be issued
pursuant to a Warrant Agreement in the form attached hereto as Exhibit A
executed by the Company for the benefit of the undersigned. Each Warrant
will be exercisable at $7.50 per share for a three year period commencing
three months after its issuance. The undersigned tenders herewith
$_________ in full payment of the purchase price for the _________ warrants
to which the undersigned subscribes (in the manner indicated on the
signature page hereof.)
The undersigned understands that the right to transfer all or any part
of the Warrants and the Warrant Shares (hereinafter sometimes collectively
referred to as the "Securities") will be restricted. The undersigned may
not transfer the Securities unless they are registered under the Act and
applicable state securities or "blue sky" laws, or an exemption from such
registration is available. The undersigned recognizes that the Company
shall have no obligation to register the Securities, except as set forth
herein.
The undersigned hereby represents, warrants and covenant that:
1. The undersigned is acquiring the Warrants, and at such time as the
undersigned may exercise the Warrants, the Warrant Shares, for the
undersigned's own account for investment and not with a view towards
distribution. The undersigned will not sell, hypothecate, transfer or
otherwise dispose of the Securities unless such transaction has been
registered under the Act or, in the opinion of counsel for the Company, an
exemption from registration is available.
2. (i) Please check here if the representation contained in this
paragraph 2(i) is applicable to the undersigned _________. (A) If an
individual, (a) the undersigned's individual net worth or joint net worth
with the undersigned's spouse exceeds $1,000,000 as of the date hereof, or
(b) the undersigned's individual income has been in excess of $200,000 in
each of 1995 and 1994 and is expected to be in excess of $200,000 in 1996,
or (c) the undersigned's joint income with the undersigned's spouse has been
in excess of $300,000 in each of 1995 and 1994 and is expected to be in
excess of $300,000 in 1996; or (B) if a corporation, partnership, or other
entity, the foregoing representation applies to all of the equity owners of
the corporation, partnership, or entity.
(ii) If a corporation, partnership, or other entity, was such a
corporation, partnership, or other entity formed for the specific purpose of
acquiring the Shares? _____Yes _____ No
(iii) If the answer to 2(ii) is yes, how many equity owners does
the corporation partnership or entity have? _____
3. Whether or not the representation contained in paragraph 2(i)is
applicable to the undersigned, the undersigned has adequate means of
providing for the undersigned's current needs and possible contingencies and
has no need for liquidity of the Securities. The undersigned's overall
commitment to investments is not disproportionate to the undersigned's net
worth, and acquisition of the Securities will not cause such overall
commitment to become excessive. Prior to the execution hereof, the
undersigned has received and had the opportunity to review, examine and read
all documents, records and books pertaining to this investment, including
the Company's Annual Report on Form 10-K for the fiscal year ended July 31,
1995, the Company's Quarterly Reports on Form 10-QSB for each of the two
quarterly periods subsequent to the fiscal year ended July 31, 1995 and a
copy of the Company's Proxy Statement as distributed to its stockholders in
connection with the annual meeting of stockholders which was held on
December 11, 1995 (collectively, the "Disclosure Documents").
4. The undersigned is knowledgeable and experienced in financial and
business matters. The undersigned recognizes and is fully cognizant of the
fact that the investment contemplated hereby involves a high degree of
risk. The undersigned is able to evaluate the merits and risks of an
investment in the Securities. The undersigned has been given an
opportunity to ask questions of, and receive answers and obtain information
from, representatives of the Company concerning the Company.
5. The undersigned has been given no oral or written representations
or assurances by the Company or any other person acting or purporting to
act on behalf of the Company in connection with the acquisition of the
Securities, in each case except as provided herein or in the Disclosure
Documents.
6. The undersigned understands and specifically acknowledges and
agrees that since the Securities have not been registered under the Act,
the certificates representing the Securities will bear a legend to such
effect and a stop transfer order will be placed on the Securities in the
Company's transfer books.
7. By its acceptance hereof, the Company hereby agrees that no later
than September 1, 1996, the Company shall use its best efforts to file a
registration statement (the "Registration Statement") under the Act to
register the resale of the Warrant Shares. The Company further agrees to
use its best efforts to cause such Registration Statement to become
effective.
In connection with the Registration Statement, the undersigned
shall provide the Company, from time to time, as reasonably requested by
the Company, written information concerning its ownership of the Company's
Securities, their intentions concerning the sale of its Warrant Shares and
such other matters as are required in order to enable the Company to
prepare, file and obtain the effectiveness of such Registration Statement.
Notwithstanding any of the foregoing, the Company shall not be required to
maintain the effectiveness of the Registration Statement for more than
three (3) years after the initial effective date thereof.
In connection with any such registration of Warrant Shares, the
Company shall supply a reasonable number of prospectuses to the
undersigned, use its best efforts to qualify the Warrants for sale in the
states of New York and New Jersey and furnish indemnification in the manner
set forth below.
The Company shall bear the entire cost and expense of any such
registration hereunder. Notwithstanding the foregoing, the undersigned
shall bear the fees of all persons retained by it, such as counsel and
accountants, and any transfer taxes or underwriting discounts or
commissions applicable to the Shares and Warrant Shares sold by it pursuant
to the Registration Statement.
The Company shall indemnify and hold harmless each holder of Warrant
Shares that are registered pursuant to the Registration Statement and each
underwriter, within the meaning of the Act, who may purchase from or sell
for any such holder any such Warrant Shares and each person, if any, who
controls any such holder or underwriter within the meaning of the Act, from
and against any and all losses, claims, damages and liabilities caused by
any untrue statement of a material fact contained in the Registration
Statement or any post-effective amendment thereto or any prospectus
included therein required to be filed or furnished in connection therewith
or caused by any omission to state therein a material fact required to be
stated therein in order to make the statements made therein, in light of
the circumstances under which they were made, not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission based upon information furnished or
required to be furnished in writing to the Company by such holder or
underwriter expressly for use therein; PROVIDED, HOWEVER, that such holder
or underwriter shall indemnify the Company, its directors, each officer
signing the Registration Statement and each person, if any, who controls
the Company within the meaning of the Act, from and against any and all
losses, claims, damages and liabilities caused by any untrue statement of a
material fact contained in any Registration Statement or any post-effective
amendment thereto or any prospectus included therein required to be filed
or furnished pursuant thereto or caused by any omission to state therein a
material fact required to be stated therein in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading, insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or omission based upon information furnished
in writing to the Company by any such holder or underwriter expressly for
use therein.
If the indemnification provided for herein from either the holder of
the Warrant Shares or the Company is unavailable to an indemnified party
(the "Indemnitee") hereunder in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to herein, then the
party responsible for such indemnification (the "Indemnitor"), in lieu of
indemnifying the Indemnitee, shall contribute to the amount paid or payable
by the Indemnitee as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative
fault of the Indemnitor and Indemnitee in connection with the actions which
resulted in such losses, claims, damages or liabilities (including legal or
other fees and expenses reasonably incurred in connection with any
investigation or proceeding) as well as any other equitable considerations.
If indemnification is available, the Indemnitor shall indemnify each
Indemnitee to the full extent provided for herein without regard to the
relative fault of the Indemnitor, the Indemnitee or any other equitable
consideration provided for hereunder.
After the Registration Statement becomes effective and in connection
with the sale of the Warrant Shares under such Registration Statement, the
undersigned shall take such steps as may be necessary to ensure that the
offer and sale thereof are in compliance with the requirements of the
federal securities laws, including, but not limited to, compliance with the
anti-manipulation requirements of the Securities Exchange Act of 1934, as
amended.
By its acceptance hereof, the Company hereby acknowledges that
the foregoing accurately reflects its understanding concerning the
transaction contemplated hereby.
Very truly yours,
___________________________________
(Signature)
___________________________________
Please type or print name
(and title if applicable)
Name & Address (as it should appear on
certificates):
______________________________________
______________________________________
______________________________________
______________________________________
Social Security Number or
Taxpayer Identification Number
(H)___________________(W)_____________
Telephone Number
______________________________________
As of Date
Number of Warrants
Amount of Subscription
(U.S. Dollars)
ACCEPTED AND AGREED: Deliver to Address: (if
ALFACELL CORPORATION different from above)
_______________________________
____________________________ _________________________________
Name: Kuslima Shogen
Title: President and CEO
<PAGE>
ALFACELL CORPORATION
PURCHASE AGREEMENT FOR
COMMON STOCK
Alfacell Corporation
225 Belleville Avenue
Bloomfield, New Jersey 07003
Attention: Kuslima Shogen, President
and Chief Executive Officer
Dear Ms. Shogen:
The undersigned acknowledges that there is no minimum proceeds
requirement for the closing of this Offering, the Company may close only on
the undersigned's investment and such investment may be inadequate to meet
the Company's cash requirements.
The undersigned hereby subscribes to purchase shares of
Common Stock, $.001 par value per share (the "Shares") of Alfacell
Corporation, a Delaware corporation (the "Company")at a cost of $________
per share. The Shares are being sold in a transaction exempt from
registration under the Securities Act of 1933, as amended (the "Act"). The
undersigned tenders herewith
in full payment of the purchase price for the Shares to
which the undersigned subscribes (in the manner indicated on the signature
page hereof.)
The undersigned understands that the right to transfer all or any part
of the Shares (hereinafter sometimes collectively referred to as the
"Securities") will be restricted. The undersigned may not transfer the
Securities unless they are registered under the Act and applicable state
securities or "blue sky" laws, or an exemption from such registration is
available. The undersigned recognizes that the Company shall have no
obligation to register the Securities, except as set forth herein.
The undersigned hereby represents, warrants and covenants that:
1. The undersigned is acquiring the Shares for the undersigned's own
account for investment and not with a view towards distribution. The
undersigned will not sell, hypothecate, transfer or otherwise dispose of
the Securities unless such transaction has been registered under the Act
or, in the opinion of counsel for the Company, an exemption from
registration is available.
2. (i) Please check here if the representation contained in this
paragraph 2(i) is applicable to the undersigned _________. (A)If an
individual, (a) the undersigned's individual net worth or joint net worth
with the undersigned's spouse exceeds $1,000,000 as of the date hereof, or
(b) the undersigned's individual income has been in excess of $200,000 in
each of 1995, 1994 and 1993, or (c)the undersigned's joint income with the
undersigned's spouse has been in excess of $300,000 in each of 1995, 1994
and 1993; or (B) if a corporation, partnership, or other entity, the
foregoing representation applies to all of the equity owners of the
corporation, partnership, or entity.
(ii) If a corporation, partnership, or other entity, was such a
corporation, partnership, or other entity formed for the specific purpose
of acquiring the Shares? _____Yes _____ No
(iii) If the answer to 2(ii) is yes, how many equity owners does
the corporation partnership or entity have? _____
3. Whether or not the representation contained in paragraph 2(i)is
applicable to the undersigned, the undersigned has adequate means of
providing for the undersigned's current needs and possible contingencies
and has no need for liquidity of the Shares. The undersigned's overall
commitment to investments is not disproportionate to the undersigned's net
worth, and acquisition of the Shares will not cause such overall commitment
to become excessive. Prior to the execution hereof, the undersigned has
received and had the opportunity to review, examine and read all documents,
records and books pertaining to this investment, including the Company's
Annual Report on Form 10-K for the fiscal year ended July 31, 1995, and the
Company's Quarterly Reports on Form 10-QSB for the quarterly period
subsequent to the fiscal year ended July 31, 1995, and a copy of the
Company's Proxy Statement as distributed to its stockholders in connection
with the annual meeting of stockholders which was held on December 11, 1995
(collectively, the "Disclosure Documents").
4. The undersigned is knowledgeable and experienced in financial and
business matters. The undersigned recognizes and is fully cognizant of the
fact that the investment contemplated hereby involves a high degree of
risk. The undersigned is able to evaluate the merits and risks of an
investment in the Shares. The undersigned has been given an opportunity to
ask questions of, and receive answers and obtain information from,
representatives of the Company concerning the Company.
5. The undersigned has been given no oral or written representations
or assurances by the Company or any other person acting or purporting to
act on behalf of the Company in connection with the acquisition of the
Shares, in each case except as provided herein or in the Disclosure
Documents.
6. The undersigned understands and specifically acknowledges and
agrees that since the Shares have not been registered under the Act, the
certificates representing the Securities will bear a legend to such effect
and a stop transfer order will be placed on the Securities in the Company's
transfer books.
7. In the event Seller intends to file a registration statement for
its common stock (or any warrant, option or right to purchase stock) for
purposes of registering such stock for public sale under applicable federal
and state securities laws, Seller shall take action to include in such
registration statement to the extent it is able to do so such number of the
Shares as Buyer shall request and will use its best efforts to cause such
registration statement to be declared effective under the Securities Act of
1933 and applicable state securities laws. Buyer shall provide such
information as Seller shall reasonably request to prepare and file such
registration statement.
In connection with any such registration of Shares, the Company shall
supply prospectuses, use its best efforts to qualify the Shares for sale in
the states of New York and New Jersey and furnish indemnification in the
manner set forth below.
The Company shall bear the entire cost and expense of any such
Registration hereunder. Notwithstanding the foregoing, each holder of
Shares shall bear the fees of all persons retained by it, such as counsel
and accountants, and any transfer taxes or underwriting discounts or
commissions applicable to the Shares sold by it pursuant to the
Registration Statement.
The Company shall indemnify and hold harmless each holder of Shares
that are registered pursuant to the Registration Statement and each
underwriter, within the meaning of the Act, who may purchase from or sell
for any such holder any such Shares and each person, if any, who controls
any such holder or underwriter within the meaning of the Act, from and
against any and all losses, claims, damages and liabilities caused by any
untrue statement of a material fact contained in the Registration Statement
or any post-effective amendment thereto or any prospectus included therein
required to be filed or furnished in connection therewith or caused by any
omission to state therein a material fact required to be stated therein in
order to make the statements made therein, in light of the circumstances
under which they were made, not misleading, except insofar as such losses,
claims, damages or liabilities are caused by any such untrue statement or
omission based upon information furnished or required to be furnished in
writing to the Company by such holder or underwriter expressly for use
therein; PROVIDED, HOWEVER, that such holder or underwriter shall indemnify
the Company, its directors, each officer signing the Registration Statement
and each person, if any, who controls the Company within the meaning of the
Act, from and against any and all losses, claims, damages and liabilities
caused by any untrue statement of a material fact contained in any
Registration Statement or any post-effective amendment thereto or any
prospectus included therein required to be filed or furnished pursuant
thereto or caused by any omission to state therein a material fact required
to be stated therein in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading, insofar as
such losses, claims, damages or liabilities are caused by any untrue
statement or omission based upon information furnished in writing to the
Company by any such holder or underwriter expressly for use therein.
By its acceptance hereof, the Company hereby acknowledges that
the foregoing accurately reflects its understanding concerning the
transaction contemplated hereby.
Very truly yours,
___________________________________
(Signature)
___________________________________
Please type or print name
(and title if applicable)
Name & Address (as it should appear on
certificates):
______________________________________
______________________________________
______________________________________
______________________________________
Social Security Number or
Taxpayer Identification Number
(H)___________________(W)_____________
Telephone Number
______________________________________
As of Date
Number of Units
Amount of Subscription
(U.S. Dollars)
ACCEPTED AND AGREED: Deliver to Address: (if
ALFACELL CORPORATION different from above)
_______________________________
____________________________ _________________________________
Name: Kuslima Shogen
Title: President and CEO
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Alfacell Corporation:
We consent to the use of our report included herein and to the reference to
our firm under the headings "Selected Financial Data" and "Experts" in the
Prospectus.
Our report dated September 29, 1995 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
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, 1995,
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 6, 1996
