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
January 31, 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 March 12, 1999:
17,286,594
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
January 31, 1999 and July 31, 1998
<TABLE>
<CAPTION>
January 31,
1999 July 31,
(Unaudited) 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,748,719 $ 5,099,453
Prepaid expenses 150,378 117,187
------------ ------------
Total current assets 2,899,097 5,216,640
------------ ------------
Property and equipment, net of accumulated depreciation and amortization
of $894,240 at January 31, 1999 and $843,599 at July 31, 1998 249,397 300,038
------------ ------------
Total assets $ 3,148,494 $ 5,516,678
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 8,822 $ 9,175
Accounts payable 251,005 716,040
Accrued expenses 698,275 1,092,898
------------ ------------
Total current liabilities 958,102 1,818,113
------------ ------------
Long-term debt, less current portion 2,604 6,727
------------ ------------
Total liabilities 960,706 1,824,840
------------ ------------
Commitments and contingencies Stockholders' equity:
Preferred stock, $.001 par value
Authorized and unissued, 1,000,000 shares at January 31, 1999
and July 31, 1998 -- --
Common stock $.001 par value
Authorized 40,000,000 shares at January 31, 1999 and July 31, 1998;
Issued and outstanding 17,280,594 shares at January 31, 1999
and 17,239,893 shares at July 31, 1998 17,281 17,240
Capital in excess of par value 55,582,809 55,472,243
Deficit accumulated during development stage (53,412,302) (51,797,645)
------------ ------------
Total stockholders' equity 2,187,788 3,691,838
------------ ------------
Total liabilities and stockholders' equity $ 3,148,494 $ 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 six months ended
January 31, 1999 and 1998, and
the Period from August 24, 1981
(Date of Inception) to January 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
August 24, 1981
Three Months Ended Six Months Ended (Date of Inception)
January 31, January 31, to January 31,
1999 1998 1999 1998 1999
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUE:
Sales $ -- $ -- $ -- $ -- $ 553,489
Investment income 47,394 59,500 108,792 144,526 1,248,440
Other income -- -- -- -- 60,103
------------ ------------ ------------ ------------ ------------
TOTAL REVENUE 47,394 59,500 108,792 144,526 1,862,032
------------ ------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales -- -- -- -- 336,495
Research and development 664,989 1,411,096 1,260,193 2,607,300 32,946,877
General and administrative 260,995 389,266 462,563 716,158 19,056,937
Interest:
Related parties -- -- -- -- 1,033,960
Others 319 528 693 20,876 1,900,065
------------ ------------ ------------ ------------ ------------
TOTAL COSTS AND EXPENSES 926,303 1,800,890 1,723,449 3,344,334 55,274,334
------------ ------------ ------------ ------------ ------------
NET LOSS $ (878,909) $ (1,741,390) $ (1,614,657) $ (3,199,808) $(53,412,302)
============ ============ ============ ============ ============
Loss per basic and diluted common
share $ (.05) $ (.12) $ (.09) $ (.21) $ (7.32)
============ ============ ============ ============ ============
Weighted average number of shares
outstanding 17,260,356 15,043,921 17,256,238 14,882,968 7,296,671
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Six months ended January 31, 1999
and 1998, and the Period from
August 24, 1981
(Date of Inception) to January 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
August 24, 1981
Six Months Ended (Date of Inception)
January 31, to
1999 1998 January 31, 1999
------------ ------------ ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Loss $ (1,614,657) $ (3,199,808) $(53,412,302)
Adjustments to reconcile net loss to
net cash used in operating activities:
Gain on sale of marketable securities -- -- (25,963)
Depreciation and amortization 50,641 48,146 1,273,505
Loss on disposal of property and equipment -- -- 18,926
Noncash operating expenses 94,741 98,820 5,259,160
Amortization of deferred compensation -- -- 11,442,000
Amortization of organization costs -- -- 4,590
Changes in assets and liabilities:
Increase in prepaid expenses (33,191) (2,031) (150,378)
Decrease in other assets -- -- 36,184
Increase in interest payable, related party -- -- 744,539
Increase (decrease) in accounts payable (448,404) 556,551 444,901
Increase in accrued payroll and expenses, related parties -- -- 2,348,145
Increase (decrease) in accrued expenses (394,623) (152,941) 1,239,788
------------ ------------ ------------
Net cash used in operating activities (2,345,493) (2,651,263) (30,776,905)
------------ ------------ ------------
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 -- (71,457) (1,369,261)
Patent costs -- -- (97,841)
------------ ------------ ------------
Net cash used in investing activities -- (71,457) (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
Six months ended January 31, 1999
and 1998, and the Period from
August 24, 1981
(Date of Inception) to January 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
August 24, 1981
Six Months Ended (Date of Inception)
January 31, to
1999 1998 January 31, 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 (4,476) (1,377,152) (2,914,029)
Proceeds from common stock to be issued -- 479,969 433,358
Proceeds from issuance of common stock, net (765) -- 26,374,010
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 (5,241) (897,183) 34,966,763
------------ ----------- ------------
Net increase (decrease) in cash and cash equivalents (2,350,734) (3,619,903) 2,748,719
Cash and cash equivalents at beginning of period 5,099,453 7,542,289 --
------------ ----------- ------------
Cash and cash equivalents at end of period $ 2,748,719 $ 3,922,386 $ 2,748,719
============ =========== ============
Supplemental disclosure of cash flow information -
interest paid $ 693 $ 20,876 $ 1,647,048
============ =========== ============
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 $ -- $ 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
============ =========== ============
</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 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 January 31,
1999 and the results of operations for the three and six month periods ended
January 31, 1999 and 1998 and the period from August 24, 1981 (date of
inception) to January 31, 1999. The results of operations for the six months
ended January 31, 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 $1,615,000 and $3,200,000, recorded for the
six months ended January 31, 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 6,083,679
and 4,358,208 at January 31, 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 $18,900 of general and administrative
expense based upon the fair value of the vested options through January 31,
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.
The Company has received notification from The Nasdaq Stock Market
("Nasdaq") that the Company is not presently in compliance with the minimum
$1.00 bid price requirement. On March 11, 1999, the Company participated in a
hearing by Nasdaq on this matter in which the Company submitted a plan of
compliance requesting that Nasdaq consider many factors affecting the Company's
business. The Company requested that Nasdaq grant an extension of time for
Alfacell to comply with this and other Nasdaq SmallCap maintenance requirements.
The Company's common stock will continue to be listed on the Nasdaq SmallCap
Market pending the outcome of the hearing. Should Nasdaq decide to delete the
Company's securities, the Company will not be notified of this decision until
after the securities have been removed from the Nasdaq SmallCap Market. There
can be no assurance that the outcome of the hearing will be favorable to the
Company. Delisting of the Company's common stock from the Nasdaq SmallCap
Market, 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 to the Company's Annual Report on Form 10-K for the fiscal year ended July
31, 1998, which is incorporated herein by reference, 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 six month periods ended January 31, 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 six months ended January 31, 1999 and 1998. Investment income for the six
months ended January 31, 1999 was $109,000 compared to $145,000 for the same
period last year, a decrease of $36,000. This decrease was due to lower balances
of cash and cash equivalents.
Research and Development. Research and development expense for the three
months ended January 31, 1999 was $665,000 compared to $1,411,000 for the same
period last year, a decrease of $746,000 or 53%. This decrease was primarily due
to a 94% decrease in costs associated with the purchase of raw materials and the
manufacture of clinical supplies of ONCONASE, and a 31% decrease in costs in
support of on-going clinical trials and an 84% 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.
Research and development expense for the six months ended January 31, 1999
was $1,260,000 compared to $2,607,000 for the same period last year, a decrease
of $1,347,000 or 52%. 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 43% decrease in costs in support of on-going
clinical trials and a 69% 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.
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<PAGE>
General and Administrative. General and administrative expense for the
three months ended January 31, 1999 was $261,000 compared to $389,000 for the
same period last year, a decrease of $128,000 or 33%. This decrease was
primarily due to a 96% decrease in legal fees, a 25% reduction in administrative
personnel costs and a 43% decrease in public relations expenses, offset by a
$34,000 increase in non-cash expense relating to stock options issued for
consulting services.
General and administrative expense for the six months ended January 31,
1999 was $463,000 compared to $716,000 for the same period last year, a decrease
of $253,000 or 35%. This decrease was primarily due to a 93% decrease in legal
fees, a 32% reduction in administrative personnel costs and a 40% decrease in
public relations expenses, offset by a $43,000 increase in non-cash expense
relating to stock options issued for consulting services.
Interest. Interest expense for the three months ended January 31, 1999 was
$300 compared to $500 for the same period last year, a decrease of $200 or 40%.
Interest expense for the six months ended January 31, 1999 was $700 compared to
$20,900 for the same period last year, a decrease of $20,200 or 97%. These
decreases were 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 January 31, 1999 was $879,000
as compared to $1,741,000 for the same period last year, a decrease of $862,000
or 50%. The net loss for the six months ended January 31, 1999 was $1,615,000 as
compared to $3,200,000 for the same period last year, a decrease of $1,585,000
or 50%. The cumulative loss from the date of inception, August 24, 1981 to
January 31, 1999, amounted to $53,412,000. 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. Preliminary
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 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 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 sent written requests to such suppliers in an effort to
determine the status of Year 2000 compliance. Responses are expected through the
second calendar quarter of 1999. The Company will develop contingency plans, if
necessary, during the first half of 1999 in response to assessments of the Year
2000 readiness of these suppliers.
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.
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<PAGE>
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 six months ended January 31, 1999, the Company had a net decrease in cash
and cash equivalents of $2,350,000, which resulted primarily from net cash used
in operating activities of $2,345,000. Total cash resources as of January 31,
1999 were $2,749,000 compared to $5,099,000 at July 31, 1998.
The Company's current liabilities as of January 31, 1999 were $958,000
compared to $1,818,000 at July 31, 1998, a decrease of $860,000. 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 January 31, 1999 will be
sufficient to meet its anticipated cash needs through the fiscal year ending
July 31, 1999. However, there can be no assurance that the Company will be able
to successfully implement the reduced spending measures.
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
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<PAGE>
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 be dependent on the outcome of the Phase III clinical trial for
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.
The Company has received notification from The Nasdaq Stock Market
("Nasdaq") that the Company is not presently in compliance with the minimum
$1.00 bid price requirement. On March 11, 1999, the Company participated in a
hearing by Nasdaq on this matter in which the Company submitted a plan of
compliance requesting that Nasdaq consider many factors affecting the Company's
business. The Company requested that Nasdaq grant an extension of time for
Alfacell to comply with this and other Nasdaq SmallCap maintenance requirements.
The Company's common stock will continue to be listed on the Nasdaq SmallCap
Market pending the outcome of the hearing. Should Nasdaq decide to delete the
Company's securities, the Company will not be notified of this decision until
after the securities have been removed from the Nasdaq SmallCap Market. There
can be no assurance that the outcome of the hearing will be favorable to the
Company. Delisting of the Company's common stock from the Nasdaq SmallCap
Market, 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 4. Submission of Matters to a Vote of Security Holders
(a) An annual meeting of stockholders was held on January 21, 1999.
(b) The directors elected at the annual meeting were Kuslima Shogen, Gail
E. Fraser, Stanislaw M. Mikulski, Stephen K. Carter, Donald R. Conklin and
Martin F. Stadler.
(c) The matters voted upon at the annual meeting and the results of the
voting are set forth below. All of such matters were approved by the
stockholders.
(i) The stockholders voted 13,753,753 shares in favor and withheld
266,823 shares with respect to the election of Kuslima Shogen as a
director; 13,751,313 shares in favor and withheld 267,263 shares with
respect to the election of Gail E. Fraser, as a director; 13,756,453
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<PAGE>
shares in favor and withheld 264,123 shares with respect to the election of
Stanislaw M. Mikulski as a director; 13,820,083 shares in favor and
withheld 198,493 shares with respect to the election of Stephen K. Carter
as a director; 13,822,993 shares in favor and withheld 195,583 shares with
respect to the election of Donald R. Conklin as a director; and 13,822,033
shares in favor and withheld 196,543 shares with respect to the election of
Martin F. Stadler as a director;
(ii) The stockholders voted 13,875,329 shares in favor and 54,113
shares against a proposal to select KPMG LLP to audit the Company's
financial statements for the fiscal year ending July 31, 1999. 89,134
shares abstained from voting on this proposal.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K).
Exhibit No. or
Exhibit Incorporation
No. Item Title by Reference
------- ---------- ------------
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 ****
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 ****
- 14 -
<PAGE>
Exhibit No. or
Exhibit Incorporation
No. Item Title by Reference
------- ---------- ------------
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 ####
* 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.
- 15 -
<PAGE>
***** 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.
#### Previously filed as exhibits to the Company's Annual Report on Form 10-K
for the year ended July 31, 1998 and incorporated herein by reference
thereto.
##### Filed herewith.
(b) Reports on Form 8-K.
None.
- 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)
March 16, 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 January 31, 1999 and the Statements of
Operations for the six months ended January 31, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 2,748,719
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,899,097
<PP&E> 1,143,637
<DEPRECIATION> 894,240
<TOTAL-ASSETS> 3,148,494
<CURRENT-LIABILITIES> 958,102
<BONDS> 0
0
0
<COMMON> 17,281
<OTHER-SE> 2,170,507
<TOTAL-LIABILITY-AND-EQUITY> 3,148,494
<SALES> 0
<TOTAL-REVENUES> 108,792
<CGS> 0
<TOTAL-COSTS> 1,722,756
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 693
<INCOME-PRETAX> (1,614,657)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,614,657)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,614,657)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
