UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
April 30, 1999 0-11088
For the quarterly period ended Commission file number
ALFACELL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-2369085
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 Belleville Avenue, Bloomfield, New Jersey 07003
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (973) 748-8082
NOT APPLICABLE
(Former name, former address, and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Shares of Common Stock, $.001 par value outstanding as of June 10, 1999:
17,286,594
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
April 30, 1999 and July 31, 1998
<TABLE>
<CAPTION>
April 30,
1999 July 31,
ASSETS (Unaudited) 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,019,869 $ 5,099,453
Prepaid expenses 247,322 117,187
------------ ------------
Total current assets 2,267,191 5,216,640
------------ ------------
Property and equipment, net of accumulated depreciation and amortization
of $919,559 at April 30, 1999 and $843,599 at July 31, 1998 224,078 300,038
------------ ------------
Total assets $ 2,491,269 $ 5,516,678
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 8,641 $ 9,175
Accounts payable 210,497 716,040
Accrued expenses 748,779 1,092,898
------------ ------------
Total current liabilities 967,917 1,818,113
------------ ------------
Long-term debt, less current portion 464 6,727
------------ ------------
Total liabilities 968,381 1,824,840
------------ ------------
Commitments and contingencies Stockholders' equity:
Preferred stock, $.001 par value
Authorized and unissued, 1,000,000 shares at April 30, 1999
and July 31, 1998 -- --
Common stock $.001 par value
Authorized 40,000,000 shares at April 30, 1999 and July 31, 1998;
Issued and outstanding 17,286,594 shares at April 30, 1999
and 17,239,893 shares at July 31, 1998 17,286 17,240
Capital in excess of par value 55,630,306 55,472,243
Deficit accumulated during development stage (54,124,704) (51,797,645)
------------ ------------
Total stockholders' equity 1,522,888 3,691,838
------------ ------------
Total liabilities and stockholders' equity $ 2,491,269 $ 5,516,678
============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Three months and nine months ended April 30, 1999 and 1998,
and the Period from August 24, 1981
(Date of Inception) to April 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended August 24, 1981
April 30, April 30, (Date of Inception)
to
1999 1998 1999 1998 April 30, 1999
---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C>
REVENUE:
Sales $ -- $ -- $ -- $ -- $ 553,489
Investment income 32,055 81,806 140,847 226,332 1,280,495
Other income -- -- -- -- 60,103
------------ ------------ ------------ ------------ ------------
TOTAL REVENUE 32,055 81,806 140,847 226,332 1,894,087
------------ ------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales -- -- -- -- 336,495
Research and development 543,922 1,300,507 1,804,115 3,907,807 33,490,799
General and administrative 199,796 413,146 662,359 1,129,304 19,256,733
Interest:
Related parties -- -- -- -- 1,033,960
Other 739 479 1,432 21,355 1,900,804
------------ ------------ ------------ ------------ ------------
TOTAL COSTS AND EXPENSES 744,457 1,714,132 2,467,906 5,058,466 56,018,791
------------ ------------ ------------ ------------ ------------
NET LOSS $ (712,402) $ (1,632,326) $ (2,327,059) $ (4,832,134) $(54,124,704)
============ ============ ============ ============ ============
Loss per basic and diluted common
share $ (.04) $ (.10) $ (.13) $ (.31) $ (7.52)
============ ============ ============ ============ ============
Weighted average number of shares
outstanding 17,285,987 16,727,344 17,265,936 15,484,248 7,194,447
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Nine months ended April 30, 1999 and 1998,
and the Period from August 24, 1981
(Date of Inception) to April 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended August 24, 1981
April 30, (Date of Inception)
to
1999 1998 April 30, 1999
------ ----- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Loss $ (2,327,059) $ (4,832,134) $(54,124,704)
Adjustments to reconcile net loss to
net cash used in operating activities:
Gain on sale of marketable securities -- -- (25,963)
Depreciation and amortization 75,960 75,491 1,298,824
Loss on disposal of property and equipment -- -- 18,926
Noncash operating expenses 142,244 159,914 5,306,663
Amortization of deferred compensation -- -- 11,442,000
Amortization of organization costs -- -- 4,590
Changes in assets and liabilities:
Increase in prepaid expenses (130,135) (18,624) (247,322)
Decrease in other assets -- -- 36,184
Increase in interest payable, related party -- -- 744,539
Increase (decrease) in accounts payable (488,912) 323,808 404,393
Increase in accrued payroll and expenses, related parties -- -- 2,348,145
Increase (decrease) in accrued expenses (344,119) 12,675 1,290,292
------------ ------------ ------------
Net cash used in operating activities (3,072,021) (4,278,870) (31,503,433)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of marketable equity securities -- -- (290,420)
Proceeds from sale of marketable equity securities -- -- 316,383
Purchase of property and equipment -- (75,314) (1,369,261)
Patent costs -- -- (97,841)
------------ ------------ ------------
Net cash used in investing activities -- (75,314) (1,441,139)
------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements. (continued)
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<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS, Continued
Nine months ended April 30, 1999 and 1998,
and the Period from August 24, 1981
(Date of Inception) to April 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended August 24, 1981
April 30, (Date of Inception)
to
1999 1998 April 30, 1999
------------ ----------- --------------
<S> <C> <C> <C>
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 -- -- 2,410,883
Reduction of bank debt and long-term debt (6,797) (1,379,258) (2,916,350)
Proceeds from issuance of common stock, net (766) 4,311,578 26,807,367
Proceeds from exercise of stock options and warrants, net -- -- 5,460,673
Proceeds from issuance of convertible debentures -- -- 347,000
------------ ------------ ------------
Net cash provided (used) by financing activities (7,563) 2,932,320 34,964,441
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (3,079,584) (1,421,864) 2,019,869
Cash and cash equivalents at beginning of period 5,099,453 7,542,289 --
------------ ------------ ------------
Cash and cash equivalents at end of period $ 2,019,869 $ 6,120,425 $ 2,019,869
============ ============ ============
Supplemental disclosure of cash flow information -
interest paid $ 1,432 $ 21,355 $ 1,647,747
============ ============ ============
Noncash financing activities:
Issuance of convertible subordinated
debenture for loan payable to officer $ -- $ -- $ 2,725,000
============ ============ ============
Issuance of common stock upon the conversion of
convertible subordinated debentures, related party $ -- $ -- $ 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 $ 16,631 $ 100,000 $ 193,896
============ ============ ============
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
============ ============ ============
Issuance of common stock for services rendered $ 2,460 $ -- $ 2,460
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION, BASIS OF PRESENTATION, AND LIQUIDITY
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,
1999 and the results of operations for the three and nine month periods ended
April 30, 1999 and 1998 and the period from August 24, 1981 (date of inception)
to April 30, 1999. The results of operations for the nine months ended April 30,
1999 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.
Effective August 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive Income. SFAS
130 establishes new rules for the reporting and display of comprehensive income
and its components. The net loss of $2,327,000 and $4,832,000, recorded for the
nine months ended April 30, 1999 and 1998, respectively, is equal to the
comprehensive loss for those periods.
The Company has reported net losses since its inception. Also, the Company
has limited liquid resources. These factors raise substantial doubt about its
ability to continue as a going concern. The financial statements do not include
any adjustments relating to the recoverability and classification of reported
asset amounts or the amounts or classification of liabilities which might result
from the outcome of this uncertainty.
2. EARNINGS PER COMMON SHARE
Statement of Financial Accounting Standards No. 128, "Earnings Per Share",
became effective for financial statements for periods ending after December 15,
1997, and requires presentation of two calculations of earnings per common
share. "Basic" earnings per common share equals net income divided by weighted
average common shares outstanding during the period. "Diluted" earnings per
common share equals net income divided by the sum of weighted
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<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS, continued
(Unaudited)
2. EARNINGS PER COMMON SHARE, continued
average common shares outstanding during the period plus common stock
equivalents. The Company's Basic and Diluted per share amounts are the same
since the assumed exercise of stock options and warrants are all anti-dilutive.
The amount of options and warrants excluded from the calculation was 5,927,875
and 5,921,357 at April 30, 1999 and 1998, respectively.
3. CAPITAL STOCK
In August 1998, the Company issued 5,000 three-year stock options as
payment for services rendered. The options vested immediately and have an
exercise price of $1.43 per share. The Company recorded general and
administrative expense of $4,200 which was based upon the fair value of such
options on the date of issuance.
In September 1998, the Company issued 13,717 shares of common stock for
payment of legal services. The fair value of the common stock in the amount of
$10,425 was charged to operations.
On October 1, 1998 (the "Effective Date"), the Company entered into an
agreement with a consultant (the "Agreement"), resulting in the issuance of
200,000 five-year stock options with an exercise price of $1.00 per share as
payment for services to be rendered. These options will vest as follows: an
aggregate of 20,000 shall vest on October 1, 1999 or upon signing of the first
corporate partnering deal, whichever shall occur first; an aggregate of 2,500 of
such options shall vest on the last day of each month over the first twelve
months after the Effective Date of the Agreement; the remaining 150,000 options
will vest on the third anniversary of the Effective Date of the Agreement
provided that the consultant is still providing consulting services to the
Company under the Agreement at that time. The vesting of such remaining options
shall be accelerated as follows: 50,000 of such options or the remainder of the
unvested options, whichever is less, shall vest upon the signing of each
corporate partnering deal in which the total consideration provided in the
Agreement is less than $5,000,000; 100,000 of such options or the remainder of
the unvested options, whichever is less, shall vest upon the signing of each
corporate partnering deal in which the total consideration provided in the
Agreement is greater than $5,000,000 but less than
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<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS, continued
(Unaudited)
3. CAPITAL STOCK, continued
$10,000,000; 200,000 of such options or the remainder of the unvested options,
whichever is less, shall vest upon the signing of each corporate partnering deal
in which the total consideration provided in the Agreement is greater than
$10,000,000. Should the Company sell a controlling interest in its assets and/or
equity at any time after the signature of the Agreement, all options will vest.
The Company has recorded approximately $29,500 of general and administrative
expense based upon the fair value of the vested options through April 30, 1999.
Additional expense will be recorded in subsequent periods through October 1,
2001 as the remainder of the options vest.
In January 1999, the Company issued 26,984 shares of common stock for
payment of legal services. The fair value of the common stock in the amount of
$6,206 was charged to operations.
In February 1999, the Company issued 6,000 shares of common stock for
payment of services rendered. The fair value of the common stock in the amount
of $2,460 was charged to operations.
The Company's common stock, par value $.001 per share (the "Common Stock")
was delisted from The Nasdaq SmallCap Market ("Nasdaq") effective at the close
of business April 27, 1999 for failing to meet the minimum bid price
requirements set forth in the NASD Marketplace Rules. As of April 28, 1999, the
Company's Common Stock was traded on the OTC Bulletin Board under the symbol
"ACEL". Delisting of the Company's Common Stock from Nasdaq, could have a
material adverse effect on the Company including its ability to raise additional
capital, stockholder liquidity and price of the Company's Common Stock.
- 8 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Information contained herein 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 discussions of
strategy. No assurance can be given that the future results covered by the
forward-looking statements will be achieved. The matters set forth in Exhibit
99.1 hereto constitute cautionary statements identifying important factors with
respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to vary materially from the
future results indicated in such forward-looking statements. Other factors could
also cause actual results to vary materially from the future results indicated
in such forward- looking statements.
Results of Operations
Three and nine month periods ended April 30, 1999 and 1998
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 focuses most of its productive and financial
resources on the development of ONCONASE and as such has not had any sales in
the nine months ended April 30, 1999 and 1998. Investment income for the three
months ended April 30, 1999 was $32,000 compared to $82,000 for the same period
last year, a decrease of $50,000. Investment income for the nine months ended
April 30, 1999 was $141,000 compared to $226,000 for the same period last year,
a decrease of $85,000. These decreases were due to lower balances of cash and
cash equivalents.
Research and Development. Research and development expense for the three
months ended April 30, 1999 was $544,000 compared to $1,301,000 for the same
period last year, a decrease of $757,000 or 58%. This decrease was primarily due
to a 64% decrease in costs in support of on-going clinical trials, a 97%
decrease in costs associated with the manufacture of clinical supplies of
ONCONASE, and a 95% decrease in expenses for preparation of an NDA for ONCONASE.
These decreases were primarily due to the closing of the Phase III clinical
trials for pancreatic cancer.
Research and development expense for the nine months ended April 30, 1999
was $1,804,000 compared to $3,908,000 for the same period last year, a decrease
of $2,104,000 or 54%. This decrease was primarily due to a 95% decrease in costs
related to the purchase of raw materials and the manufacture of clinical
supplies of ONCONASE, and a 52% decrease in costs
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<PAGE>
in support of on-going clinical trials and a 79% decrease in expenses for
preparation of an NDA for ONCONASE, both primarily due to the closing of the
Phase III clinical trials for pancreatic cancer.
General and Administrative. General and administrative expense for the
three months ended April 30, 1999 was $200,000 compared to $413,000 for the same
period last year, a decrease of $213,000 or 52%. This decrease was primarily due
to a 97% decrease in legal fees, a 27% reduction in administrative personnel
costs and a 77% decrease in public relations expenses, offset by a $15,000
increase in consulting fees.
General and administrative expense for the nine months ended April 30, 1999
was $662,000 compared to $1,129,000 for the same period last year, a decrease of
$467,000 or 41%. This decrease was primarily due to a 95% decrease in legal
fees, a 30% reduction in administrative personnel costs and a 49% decrease in
public relations expenses, offset by a $58,000 increase in consulting fees.
Interest. Interest expense for the three months ended April 30, 1999 was
$700 compared to $500 for the same period last year, an increase of $200 or 40%.
Interest expense for the nine months ended April 30, 1999 was $1,000 compared to
$21,000 for the same period last year, a decrease of $20,000 or 95%. The
decrease was primarily due to the payment of the entire principal amount of the
Company's $1.4 million term loan during the fiscal year ended July 31, 1998.
Net Loss. The Company has incurred net losses during each year since its
inception. The net loss for the three months ended April 30, 1999 was $712,000
as compared to $1,632,000 for the same period last year, a decrease of $920,000
or 56%. The net loss for the nine months ended April 30, 1999 was $2,327,000 as
compared to $4,832,000 for the same period last year, a decrease of $2,505,000
or 52%. The cumulative loss from the date of inception, August 24, 1981 to April
30, 1999, amounted to $54,125,000. 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.
Year 2000
The Company is in the process of reviewing its business systems, including
its computer systems and computer controlled equipment, and is in the process of
querying its suppliers and vendors as to their progress in identifying and
addressing problems that their systems may face in correctly interpreting and
processing date information as the Year 2000 approaches and is reached. Based on
this review, the Company has implemented a plan to achieve Year 2000 compliance.
While there may be other areas that may affect the Company's operations upon
commercialization of the Company's products under development, the Company has
identified three major areas where Year 2000 compliance is critical for the
normal functioning of the Company's business: Business and Accounting Computer
Systems, Clinical Data Management Systems and Product Manufacturing Systems.
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<PAGE>
Business and Accounting Computer Systems
The Company utilizes standard, widely-available software packages to
perform its word processing, spreadsheet and accounting duties. Inquiries have
revealed that software upgrades are or will be available to ensure Year 2000
compliance. The Company expects to upgrade its Business and Accounting Computer
Systems by the third calendar quarter of 1999. While there is no assurance at
this time that such upgrades will be Year 2000 compliant, the Company does not
believe that non-compliance would have a material effect on the Company's
business. Since the risks of non-compliance are minimal, the Company does not
plan to create a contingency plan for these systems at this time.
Clinical Data Management Systems
The Company utilizes the services of an outside vendor to handle all of its
data management needs with regard to collection and reporting of its clinical
trial data. Two major software systems are utilized to process the data, one of
which has been validated and is Year 2000 compliant. The other system, which
handles collection of the Company's ongoing clinical trial data, is expected to
be Year 2000 compliant with some minor modifications. The vendor believes that
these modifications deal only with display and not storage of the dates. While
it appears that the computer systems utilized to process the Company's clinical
trial data is or will be Year 2000 compliant, non-compliance could have a
material adverse impact on the Company's ability to process the data in a timely
manner for submission to the FDA, if necessary. Since the likelihood of
non-compliance is minimal, the Company does not plan to create a contingency
plan for these systems at this time.
Product Manufacturing Systems
The Company utilizes the services of outside suppliers to manufacture
ONCONASE and perform many of the FDA-required related testing of such product.
The Company has received preliminary responses from such suppliers. Each
supplier reported that they are in the process of completing their Year 2000
programs and expect to be ready by the year 2000. However, there can be no
assurance that these suppliers' remediation efforts will effectively address all
of their Year 2000 problems. Due to regulatory restrictions, the Company does
not believe it would be feasible to locate and retain the services of alternate
suppliers at this time. However, if during the first half of 2000, it became
apparent that a supplier would not be able to support commercialization of
ONCONASE, if approved by the FDA, the Company will then undergo the expense of
transferring its manufacturing processes to alternate suppliers. While the
Company believes that alternate suppliers are available for the manufacture of
ONCONASE, there can be no assurance that the Company can complete the transition
to a new supplier in a timely manner.
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<PAGE>
Year 2000 Summary
The Company has determined that Year 2000 compliance should not have a
material adverse effect on the Company, including the Company's financial
condition, results of operations or cash flow. The Company estimates the cost of
its Year 2000 efforts to be approximately $50,000. The total cost estimate is
based on management's current assessment and is subject to change.
The Company may encounter problems with vendors and suppliers which could
adversely affect the Company's financial condition, results of operations or
cash flow. The Company cannot accurately predict the occurrence and or outcome
of any such problems, nor can the cost of such problems be estimated. In
addition, there can be no assurance that the failure to ensure Year 2000
compliance by a third party would not have a material effect on the Company.
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, 1999, the Company had a net decrease in cash and
cash equivalents of $3,080,000, which resulted primarily from net cash used in
operating activities of $3,072,000. Total cash resources as of April 30, 1999
were $2,020,000 compared to $5,099,000 at July 31, 1998, a decrease of 60%.
The Company's current liabilities as of April 30, 1999 were $968,000
compared to $1,818,000 at July 31, 1998, a decrease of $850,000 or 47%. The
decrease was primarily due to decreases in costs associated with the purchase of
raw materials and the manufacture of ONCONASE, a decrease in costs in support of
on-going clinical trials, primarily due to the closing of the Phase III clinical
trials for pancreatic cancer, and decreased legal fees.
The Company has recurring losses and limited liquid resources. These
factors raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments relating to the
recoverability and classification of reported asset amounts or the amounts or
classification of liabilities which might result from the outcome of this
uncertainty.
Until the Company's operations generate significant revenues, cash reserves
will continue to fund operations. To date, a significant portion of the
Company's financing has been through private placements of common stock and
warrants, the issuance of common stock for stock options exercised and services
rendered, debt financing and financing provided by the Company's Chief Executive
Officer. Based upon reduced spending levels as described below, the Company
believes that its cash and cash equivalents as of April 30, 1999 will only be
sufficient to meet its anticipated cash needs through October 31, 1999. However,
there can be no assurance that the Company will be able to maintain the current
reduced spending levels or that future cash requirements will not increase.
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<PAGE>
The Company has taken steps, and is currently taking additional steps, to
significantly reduce the amount of cash used to fund ongoing operations. These
steps include postponement of certain clinical and regulatory costs associated
with preparation of an NDA for ONCONASE, closing its Phase III program for
advanced pancreatic cancer and postponement of company-sponsored clinical trials
for ONCONASE in indications other than unresectable malignant mesothelioma. The
Company's continued operations will depend on its ability to raise additional
funds through various sources, including collaborative agreements or strategic
alliances. However, there can be no assurance that such additional funds will
become available. The Company does not anticipate it will be able to raise
additional capital in the equity markets in the near future because of the
termination of its Phase III clinical trials for pancreatic cancer. Over the
longer term, the ability of the Company to raise additional capital through the
sale of its securities will primarily depend on the outcome of the Phase III
clinical trial for ONCONASE for treating unresectable malignant mesothelioma.
However, the ability to raise funding at that time may be dependent upon other
factors including without limitation, market conditions, and there can be no
assurance that such funds will be available. Preliminary survival results of the
Phase III trial are expected in the third calendar quarter of 1999. The Company
is currently exploring various strategic alternatives for its business and
research and development operations.
New Jersey has enacted legislation permitting certain New Jersey
corporations to sell tax losses and research and development credits. The
Company has been advised that the state is developing procedures to implement
the program, including potential changes to the legislation in order to clarify
the intent of the legislation. The Company has state tax loss carryforwards and
research and development tax credits available for sale however, there can be no
assurance that the program will be implemented in a timely manner, that the
Company will qualify for inclusion in the program, or that the Company will be
able to find a buyer for its tax losses and research and development credits.
The Company's Common Stock was delisted from The Nasdaq SmallCap Market
effective at the close of business April 27, 1999 for failing to meet the
minimum bid price requirements set forth in the NASD Marketplace Rules. As of
April 28, 1999, the Company's Common Stock was traded on the OTC Bulletin Board
under the symbol "ACEL". Delisting of the Company's Common Stock from Nasdaq,
could have a material adverse effect on the Company including its ability to
raise additional capital, stockholder liquidity and price of the Company's
Common Stock.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
PART II. OTHER INFORMATION
Item 2. (c) Recent Sales of Unregistered Securities
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<PAGE>
In September 1998, the Company converted a $10,425 account payable into
13,717 shares of Common Stock in a private transaction effected in accordance
with the exemption from the registration requirements of the Securities Act of
1933, as amended (the "Securities Act") contained in Section 4(2) of the
Securities Act.
In January 1999, the Company converted a $6,206 account payable into 26,984
shares of Common Stock in a private transaction effected in accordance with the
exemption from the registration requirements of the Securities Act contained in
Section 4(2) of the Securities Act.
In February 1999, the Company issued 6,000 shares of Common Stock for
services rendered in a private transaction effected in accordance with the
exemption from the registration requirements of the Securities Act contained in
Section 4(2) of the Securities Act.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K).
<TABLE>
<CAPTION>
Exhibit No. or
Exhibit Incorporation
No. Item Title by Reference
------- ---------- --------------
<S> <C> <C>
3.1 Certificate of Incorporation *
3.2 By-Laws *
3.3 Amendment to Certificate of Incorporation #
3.4 Amendment to Certificate of Incorporation +++
4.1 Form of Convertible Debenture **
10.1 Form of Stock and Warrant Purchase Agreements used in private
placements completed April 1996 and June 1996 ##
10.2 Lease Agreement - 225 Belleville Avenue, Bloomfield, New
Jersey ###
10.3 Form of Stock Purchase Agreement and Certificate used in
connection with various private placements ***
10.4 Form of Stock and Warrant Purchase Agreement and Warrant
Agreement used in Private Placement completed on March 21,
1994 ***
10.5 The Company's 1993 Stock Option Plan and Form of Option
Agreement *****
10.6 Debt Conversion Agreement dated March 30, 1994 with Kuslima
Shogen ****
10.7 Accrued Salary Conversion Agreement dated March 30, 1994
with Kuslima Shogen ****
</TABLE>
- 14 -
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. or
Exhibit Incorporation
No. Item Title by Reference
------- ---------- --------------
<S> <C> <C>
10.8 Accrued Salary Conversion Agreement dated March 30, 1994
with Stanislaw Mikulski ****
10.9 Debt Conversion Agreement dated March 30, 1994 with John
Schierloh ****
10.10 Option Agreement dated March 30, 1994 with Kuslima Shogen ****
10.11 Option Agreement dated March 30, 1994 with Kuslima Shogen ****
10.12 Amendment No. 1 dated June 20, 1994 to Option Agreement
dated March 30, 1994 with Kuslima Shogen ****
10.13 Form of Amendment No. 1 dated June 20, 1994 to Option
Agreement dated March 30, 1994 with Kuslima Shogen *****
10.14 Form of Amendment No. 1 dated June 20, 1994 to Option
Agreement dated March 30, 1994 with Stanislaw Mikulski *****
10.15 Form of Stock and Warrant Purchase Agreement and Warrant
Agreement used in Private Placement completed on September 13, 1994 +
10.16 Form of Subscription Agreements and Warrant Agreement used
in Private Placements closed in October 1994 and September 1995 #
10.17 1997 Stock Option Plan ###
10.18 Separation Agreement with Michael C. Lowe dated as of
October 9, 1997 ++
10.19 Form of Subscription Agreement and Warrant Agreement used
in Private Placement completed on February 20, 1998 +++
10.20 Form of Warrant Agreement issued to the Placement Agent in
connection with the Private Placement completed on February 20, 1998 +++
10.21 Placement Agent Agreement dated December 15, 1997 +++
27.1 Financial Data Schedule ####
99.1 Factors to Consider in Connection with Forward-Looking ####
Statements
</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.
- 15 -
<PAGE>
*** Previously filed as exhibits to the Company's Quarterly Report on Form
10-QSB for the quarter ended January 31, 1994 and incorporated herein
by reference thereto.
**** Previously filed as exhibits to the Company's Quarterly Report on Form
10-QSB for the quarter ended April 30, 1994 and incorporated herein by
reference thereto.
***** Previously filed as exhibits to the Company's Registration Statement
Form SB-2 (File No. 33-76950) and incorporated herein by reference
thereto.
+ Previously filed as exhibits to the Company's Registration Statement
on Form SB-2 (File No. 33-83072) and incorporated herein by reference
thereto.
++ Previously filed as exhibits to the Company's Quarterly Report on Form
10-Q for the quarter ended October 31, 1997 and incorporated herein by
reference thereto.
+++ Previously filed as exhibits to the Company's Quarterly Report on Form
10-Q for the quarter ended January 31, 1998 and incorporated herein by
reference thereto.
# Previously filed as exhibits to the Company's Annual Report on Form
10-KSB for the year ended July 31, 1995 and incorporated herein by
reference thereto.
## Previously filed as exhibits to the Company's Registration Statement
on Form SB-2 (File No. 333-11575) and incorporated herein by reference
thereto.
### Previously filed as exhibits to the Company's Quarterly Report on Form
10-QSB for the quarter ended April 30, 1997 and incorporated herein by
reference thereto.
#### Filed herewith.
(b) Reports on Form 8-K.
On April 29, 1999, the Company filed a report on Form 8-K that the
Company's Common Stock was delisted from The Nasdaq SmallCap Market effective at
the close of business April 27, 1999 for failing to meet the minimum bid price
requirements set forth in the NASD Marketplace Rules. Effective April 28, 1999,
the Company's Common Stock was listed on the OTC Bulletin Board under the symbol
"ACEL". The OTC Bulletin Board is a regulated quotation service that displays
real-time quotes and last-sale price and volume information in over-the-counter
("OTC") equity securities. An OTC equity security generally is any equity that
is not listed or traded on The Nasdaq Stock Market or other national securities
exchange. Information about the OTC Bulletin Board is available on the internet
at http://www.otcbb.com.
- 16 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALFACELL CORPORATION
--------------------
(Registrant)
June 14, 1999 /s/ GAIL E. FRASER
--------------------------
Gail E. Fraser
Vice President, Finance and
Chief Financial Officer (Principal
Accounting Officer and Principal
Financial Officer)
- 17 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Alfacell Corporation Balance Sheet as of April 30, 1999 and the Statements of
Operations for the nine months ended April 30, 1999 and the Statements of
Operations for the nine months ended April 30, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> APR-30-1999
<CASH> 2,019,869
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,267,191
<PP&E> 1,143,637
<DEPRECIATION> 919,559
<TOTAL-ASSETS> 2,491,269
<CURRENT-LIABILITIES> 967,917
<BONDS> 0
0
0
<COMMON> 17,286
<OTHER-SE> 1,505,602
<TOTAL-LIABILITY-AND-EQUITY> 2,491,269
<SALES> 0
<TOTAL-REVENUES> 140,847
<CGS> 0
<TOTAL-COSTS> 2,466,474
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,432
<INCOME-PRETAX> (2,327,059)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,327,059)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,327,059)
<EPS-BASIC> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
Exhibit 99.1
FACTORS TO CONSIDER IN CONNECTION WITH FORWARD LOOKING STATEMENTS
Development Stage Company, Accumulated Deficit, Stockholders' Deficiency and
Uncertainty of Future Profitability. The Company is a development stage company
which is subject to all of the risks and uncertainties of such a company,
including uncertainties of product development, constraints on financial and
personnel resources and dependence upon and need for third party financing. The
Company's profitability will depend primarily upon its success in developing,
obtaining regulatory approvals for, and effectively marketing ONCONASE. ONCONASE
has not been approved by the United States Food and Drug Administration ("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
products under development will be successfully developed or that such products
will generate revenues sufficient to enable the Company to earn a profit. Since
the Company's incorporation in 1981, a significant source of cash for the
Company has been public and private placements of its securities. At April 30,
1999, the Company had an accumulated deficit of approximately $54,125,000, and a
total stockholders' equity of approximately $1,523,000. 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. To date, the Company has not received any such revenues.
There can be no assurance, however, that the Company will be able to
successfully consummate any such arrangements.
Need for, and Uncertainty of, Future Financing. The Company is currently funding
research and development of its products from cash reserves. The termination of
the Phase III clinical trials for advanced pancreatic cancer is expected to have
a significant and detrimental impact on the Company's ability to raise
additional capital for future operations. Until the Company's operations
generate significant revenues, cash reserves will continue to fund operations.
Based upon reduced spending levels as described below, the Company believes that
its cash and cash equivalents as of April 30, 1999 will be sufficient to meet
its anticipated cash needs through October 31, 1999. The report of the Company's
independent auditors on the Company's financial statements, included elsewhere
herein, includes an explanatory paragraph which states that the Company's
recurring losses and limited liquid resources raise substantial doubt about the
Company's ability to continue as a going concern.
The Company has taken steps, and is currently taking additional steps, to
significantly reduce the amount of cash used to fund ongoing operations. These
steps include postponement of certain clinical and regulatory costs associated
with preparation of an NDA for ONCONASE, closing its Phase III program for
advanced pancreatic cancer and postponement of planned clinical trials for
ONCONASE in indications other than unresectable malignant mesothelioma. The
Company's continued operations will depend on its ability to raise additional
funds through various sources, including collaborative agreements or strategic
alliances. However, there can be no assurance that such additional funds will
become available. The Company does not anticipate it will be able to raise
additional capital through equity markets in the near future because of the
termination of its Phase III clinical trials for pancreatic cancer. Over the
longer term, the ability of the Company to raise additional capital through the
sale of its securities will primarily depend on the outcome of the Phase III
clinical trial for ONCONASE for treating unresectable malignant mesothelioma.
However, the ability to raise funding at that time may be dependent upon other
factors
- 1 -
<PAGE>
including without limitation, market conditions, and there can be no assurance
that such funds will be available. Preliminary survival results of the Phase III
trial are expected in the third calendar quarter of 1999. The Company is
currently exploring various strategic alternatives for its business and research
and development operations.
Uncertainty Associated with Clinical Testing. Historical results of clinical
testing of approved products and those under development are not necessarily
predictive of future results. There can be no assurance that clinical studies of
products under development will demonstrate the safety and efficacy of such
products. The failure to adequately demonstrate the safety and efficacy of a
therapeutic product could delay or prevent regulatory approval of the product.
There can be no assurance that unacceptable toxicities or side effects will not
occur at any time in the course of human clinical trials. The appearance of any
such unacceptable toxicities or side effects could interrupt, limit, delay or
abort the development of any of the Company's drugs. Furthermore, there can be
no assurance that disease resistance will not limit the efficacy of the
Company's current and future drugs, if any. Delays in planned patient enrollment
in the Company's current clinical trials or future clinical trials may result in
increased costs, program delays or both.
Government Regulation; No Assurance of FDA Approval. 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. 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. 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 data from the on-going Phase III
clinical trial for unresectable malignant mesothelioma will be sufficient for
filing an NDA, that such NDA will be filed or if filed, 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.
Uncertain Ability to Protect Patents and Proprietary Technology. The Company
believes it is important to develop new technology and improve its existing
technology. When appropriate, the Company files patent applications to protect
inventions made by its personnel. The Company owns six U.S. Patents: (i) U.S.
Patent No. 4,888,172 issued in 1989, which covers a pharmaceutical produced from
fertilized frog eggs and the methodology for producing it; (ii) U.S. Patent No.
5,559,212 issued in 1996 which covers the amino acid sequence of ONCONASE; (iii)
U.S. Patents Nos. 5,529,775 and 5,540,925 issued in 1996 and U.S. Patent No.
5,595,734 issued in 1997, which cover combinations of ONCONASE with certain
other pharmaceuticals; and (iv) U.S. Patent No. 5,728,805 issued in 1998 which
covers a family of variants of ONCONASE. The Company owns three European patents
which have been validated in certain European countries. These European patents
cover ONCONASE, process technology for making ONCONASE, and combinations of
ONCONASE with certain other chemotherapeutics. The Company also owns other
patent applications, which are pending in the United States, Europe, and Japan.
- 2 -
<PAGE>
Additionally, the Company owns an undivided interest in two applications that
are pending in the United States. Each of these applications relate to a Subject
Invention (as that term is defined in cooperative research and development
agreements to which the Company and the National Institutes of Health (the
"NIH") are parties). Patents covering biotechnological inventions have an
uncertain scope, and the Company is subject to this uncertainty. The Company's
patent applications may not issue as patents. Moreover, the Company's patents
may not provide the Company with competitive advantages and may not withstand
challenges by others. Likewise, patents owned by others may adversely affect the
ability of the Company to do business. Furthermore, others may independently
develop similar products, may duplicate the Company's products, and may design
around patents owned by the Company. The Company's patent protection is limited
to that afforded under the claims of its issued patents, unless and until other
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. 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 the contested issues
effectively.
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 and retain 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.
Uncertain Availability of Health Care Reimbursement. The Company's ability to
commercialize its product candidates may depend in part on the extent to which
reimbursement for the costs of such product will be available from government
health administration authorities, private health insurers and others.
Significant uncertainty exists as to the reimbursement status of newly approved
health care products. There can be no assurance of the availability of adequate
third-party insurance reimbursement coverage that
- 3 -
<PAGE>
enables the Company to establish and maintain price levels sufficient for
realization of an appropriate return on its investment in developing its
products. Government and other third-party payors are increasingly attempting to
contain health care costs by limiting both coverage and the level of
reimbursement for new therapeutic products approved for marketing by the FDA and
by refusing, in some cases, to provide any coverage for uses of approved
products for disease indications for which the FDA has not granted marketing
approval. If adequate coverage and reimbursement levels are not provided by
government and third-party payors for uses of the Company's product candidates,
the market acceptance of these products would be adversely affected.
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. The Company carries
key person life insurance on the life of Ms. Shogen with a face value of
$1,000,000.
Dependence on Third Parties for Manufacturing. The Company does not currently
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 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-promotion partner or would grant exclusive marketing rights
to its corporate partners in return for upfront 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.
- 4 -
<PAGE>
Limited Public Market and Liquidity. As of April 28, 1999, the Company's Common
Stock was traded on the OTC Bulletin Board and is not traded on any exchange nor
quoted on the National Association of Securities Dealers Automated Quotation
("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.
Volatility of Stock Price. The market price of the Company's common stock is
volatile, and the price of the stock could be dramatically affected one way or
another depending on numerous factors. Following the Company's announcement on
July 15, 1998 of the termination of the Phase III clinical trials for pancreatic
cancer, the price of the Company's stock price dropped by approximately 70
percent. The market price of the Company's common stock could also be materially
affected by the results of the Phase III clinical trial for unresectable
malignant mesothelioma. Announcements by the Company or others regarding its
operating results, corporate reorganization matters, existing and future
collaborations, results of clinical trials, scientific discoveries,
technological innovations, commercial products, patents or proprietary rights or
regulatory actions may have a significant effect on the market price of the
Common Stock. Fluctuations in financial performance from period to period also
may have a significant impact on the market price of the Common Stock.
Use of Hazardous Materials. The Company's research and development activities
involve the controlled use of hazardous materials, chemicals, and various
radioactive compounds. Although the Company believes that its safety procedures
for handling and disposing of such materials comply with the standards
prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, the Company could be held liable for any damages
that result and any liability could have an adverse effect on the Company.
- 5 -
