<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED AUGUST 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ______________
COMMISSION FILE NUMBER 0-24050
NORTHFIELD LABORATORIES INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 36-3378733
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1560 SHERMAN AVENUE, SUITE 1000, EVANSTON, ILLINOIS 60201-4800
(Address of principal executive offices) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (847) 864-3500
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE
LAST REPORT: NOT APPLICABLE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
___ ___
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS
AND REPORTS REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT. YES ___ NO __
AS OF AUGUST 31, 1996 REGISTRANT HAD 13,975,045 SHARES OF COMMON STOCK
OUTSTANDING.
================================================================================
<PAGE> 2
Item 1 - Financial Statements
Part I
Financial Information
[KPMG LOGO]
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Financial Statements
August 31, 1996
(See accompanying review report of
KPMG Peat Marwick LLP)
<PAGE> 3
[KPMG PEAT MARWICK LLP LETTERHEAD]
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors
Northfield Laboratories Inc.:
We have reviewed the balance sheets of Northfield Laboratories Inc. (a
company in the development stage) as of August 31, 1996, and the
related statements of operations and cash flows for the three-month
periods ended August 31, 1996 and 1995 and for the period from June 19,
1985, (inception) through August 31, 1996. We have also reviewed the
statements of shareholders' equity for the three-month period ended
August 31, 1996 and for the period from June 19, 1985 (inception)
through August 31, 1996. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of persons
responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with generally
accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the balance sheet of Northfield Laboratories Inc.
as of May 31, 1996, and the related statements of operations,
shareholders' equity, and cash flows for the year then ended and for
the period from June 19, 1985 (inception) through May 31, 1996 (not
presented herein); and in our report dated July 3, 1996, except as to
note 10, which is as of July 8, 1996, we expressed an unqualified
opinion on those financial statements. In our opinion, the information
set forth in the accompanying balance sheet as of May 31, 1996 and in
the accompanying statement of shareholders' equity is fairly stated, in
all material respects, in relation to the statement from which it has
been derived.
/s/ KPMG Peat Marwick LLP
September 25, 1996
1
<PAGE> 4
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Balance Sheets
August 31, 1996 (unaudited) and May 31, 1996
<TABLE>
<CAPTION>
=====================================================================================================================
August 31, May 31,
ASSETS 1996 1996
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash $ 10,479,403 11,688,744
Short-term marketable securities 52,537,281 52,295,647
Prepaid expenses 286,489 362,272
Other current assets 512,631 598,068
- - ---------------------------------------------------------------------------------------------------------------------
Total current assets 63,815,804 64,944,731
Plant and equipment, net 1,292,090 1,310,385
Other assets 70,690 83,442
- - ---------------------------------------------------------------------------------------------------------------------
$ 65,178,584 66,338,558
=====================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ---------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable 477,372 924,097
Accrued expenses 126,852 172,350
Accrued compensation and benefits 178,751 178,050
- - ---------------------------------------------------------------------------------------------------------------------
Total current liabilities 782,975 1,274,497
Other liabilities 113,419 116,101
- - ---------------------------------------------------------------------------------------------------------------------
Total liabilities 896,394 1,390,598
- - ---------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock, $.01 par value. Authorized 5,000,000 shares;
none issued and outstanding - -
Common stock, $.01 par value. Authorized 20,000,000 shares;
issued and outstanding 13,975,045 and 13,586,155 shares
at August 31, 1996 and May 31, 1996, respectively 139,750 135,862
Additional paid-in capital 115,727,099 115,427,120
Deficit accumulated during the development stage (51,581,449) (50,611,169)
Deferred compensation (3,210) (3,853)
- - ---------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 64,282,190 64,947,960
- - ---------------------------------------------------------------------------------------------------------------------
$ 65,178,584 66,338,558
=====================================================================================================================
</TABLE>
See accompanying independent auditors' review report.
2
<PAGE> 5
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Operations
Three months ended August 31, 1996 and August 31, 1995
<TABLE>
<CAPTION>
==============================================================================================================================
Cumulative
from
Three months ended August 31, June 19, 1985
----------------------------- through
1996 1995 August 31,1996
------------------------------------------------
(unaudited) (unaudited) (unaudited)
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues - license income $ - - 3,000,000
Costs and expenses:
Research and development 1,259,955 1,151,572 41,683,982
General and administrative 538,865 536,190 22,782,557
- - ------------------------------------------------------------------------------------------------------------------------------
1,798,820 1,687,762 64,466,539
- - ------------------------------------------------------------------------------------------------------------------------------
Other income and expense:
Interest income 828,540 272,191 9,968,324
Interest expense - - 83,234
- - ------------------------------------------------------------------------------------------------------------------------------
828,540 272,191 9,885,090
- - ------------------------------------------------------------------------------------------------------------------------------
Net loss $ (970,280) (1,415,571) (51,581,449)
==============================================================================================================================
Net loss per share $ (0.07) (0.13) (7.15)
==============================================================================================================================
Shares used in calculation of per share data 13,803,149 10,788,498 7,215,850
==============================================================================================================================
</TABLE>
See accompanying independent auditors' review report.
3
<PAGE> 6
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statement of Shareholders' Equity (Deficit)
August 31, 1996
<TABLE>
<CAPTION>
====================================================================================================================================
Preferred Stock
----------------------------
Number Aggregate
of shares amount
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Issuance of common shares at $0.002 per share on August 27, 1985 - $ -
Issuance of Series A convertible preferred shares at $4.00 per share on
August 27, 1985 (net of costs of issuance of $79,150) - -
Net loss - -
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1986 - -
Net loss - -
Deferred compensation relating to grant of stock options - -
Amortization of deferred compensation - -
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1987 - -
Issuance of Series B convertible preferred shares at $35.68 per share on
August 14, 1987 (net of costs of issuance of $75,450) - -
Net loss - -
Amortization of deferred compensation - -
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1988 - -
Issuance of common shares at $24.21 per share on June 7, 1988 (net of costs of issuance of $246,000) - -
Conversion of Series A convertible preferred shares to common shares on June 7, 1988 - -
Conversion of Series B convertible preferred shares to common shares on June 7, 1988 - -
Exercise of stock options at $2.00 per share - -
Issuance of common shares at $28.49 per share on March 6, 1989 (net of costs of issuance of $21,395) - -
Issuance of common shares at $28.49 per share on March 30, 1989 (net of costs of issuance of $10,697) - -
Sale of options at $28.29 per share to purchase common shares at $.20 per share on
March 30, 1989 (net of costs of issuance of $4,162) - -
Net loss - -
Deferred compensation relating to grant of stock options - -
Amortization of deferred compensation - -
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1989 - -
Net loss - -
Deferred compensation relating to grant of stock options - -
Amortization of deferred compensation - -
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1990 - -
Net loss - -
Amortization of deferred compensation - -
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1991 - -
Exercise of stock warrants at $5.60 per share - -
Net loss - -
Amortization of deferred compensation - -
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1992 - -
Exercise of stock warrants at $7.14 per share - -
Issuance of common shares at $15.19 per share on April 19, 1993 (net of costs of issuance of $20,724) - -
Net loss - -
Amortization of deferred compensation - -
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1993 - -
</TABLE>
See accompanying independent auditors' review report.
4
<PAGE> 7
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statement of Shareholders' Equity (Deficit)
<TABLE>
<CAPTION>
====================================================================================================================================
Series A convertible Series B convertible Deficit Total
Common stock preferred stock preferred stock accumulated share-
- - -------------------- ---------------------- ------------------------ Additional during the Deferred holders'
Number Aggregate Number Aggregate Number Aggregate paid-in development compen- equity
of shares amount of shares amount of shares amount capital stage sation (deficit)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3,500,000 $35,000 - $ - - $ - (28,000) - - 7,000
- - 250,000 250,000 - - 670,850 - - 920,850
- - - - - - - (607,688) - (607,688)
- - ------------------------------------------------------------------------------------------------------------------------------------
3,500,000 35,000 250,000 250,000 - - 642,850 (607,688) - 320,162
- - - - - - - (2,429,953) - (2,429,953)
- - - - - - 2,340,000 - (2,340,000) -
- - - - - - - - 720,000 720,000
- - ------------------------------------------------------------------------------------------------------------------------------------
3,500,000 35,000 250,000 250,000 - - 2,982,850 (3,037,641) (1,620,000) (1,389,791)
- - - - 200,633 200,633 6,882,502 - - 7,083,135
- - - - - - - (3,057,254) - (3,057,254)
- - - - - - - - 566,136 566,136
- - ------------------------------------------------------------------------------------------------------------------------------------
3,500,000 35,000 250,000 250,000 200,633 200,633 9,865,352 (6,094,895) (1,053,864) 3,202,226
413,020 4,130 - - - - 9,749,870 - - 9,754,000
1,250,000 12,500 (250,000) (250,000) - - 237,500 - - -
1,003,165 10,032 - - (200,633) (200,633) 190,601 - - -
47,115 471 - - - - 93,759 - - 94,230
175,525 1,755 - - - - 4,976,855 - - 4,978,610
87,760 878 - - - - 2,488,356 - - 2,489,234
- - - - - - 7,443,118 - - 7,443,118
- - - - - - - (791,206) - (791,206)
- - - - - - 683,040 - (683,040) -
- - - - - - - - 800,729 800,729
- - ------------------------------------------------------------------------------------------------------------------------------------
6,476,585 64,766 - - - - 35,728,451 (6,886,101) (936,175) 27,970,941
- - - - - - - (3,490,394) - (3,490,394)
- - - - - - 699,163 - (699,163) -
- - - - - - - - 546,278 546,278
- - ------------------------------------------------------------------------------------------------------------------------------------
6,476,585 64,766 - - - - 36,427,614 (10,376,495) (1,089,060) 25,026,825
- - - - - - - (5,579,872) - (5,579,872)
- - - - - - - - 435,296 435,296
- - ------------------------------------------------------------------------------------------------------------------------------------
6,476,585 64,766 - - - - 36,427,614 (15,956,367) (653,764) 19,882,249
90,000 900 - - - - 503,100 - - 504,000
- - - - - - - (7,006,495) - (7,006,495)
- - - - - - - - 254,025 254,025
- - ------------------------------------------------------------------------------------------------------------------------------------
6,566,585 65,666 - - - - 36,930,714 (22,962,862) (399,739) 13,633,779
15,000 150 - - - - 106,890 - - 107,040
374,370 3,744 - - - - 5,663,710 - - 5,667,454
- - - - - - - (8,066,609) - (8,066,609)
- - - - - - - - 254,025 254,025
- - ------------------------------------------------------------------------------------------------------------------------------------
6,955,955 69,560 - - - - 42,701,314 (31,029,471) (145,714) 11,595,689
</TABLE>
(Continued)
See accompanying independent auditors' review report.
5
<PAGE> 8
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statement of Shareholders' Equity (Deficit), Continued
<TABLE>
<CAPTION>
====================================================================================================================================
Preferred stock
-------------------------
Number Aggregate
of shares amount
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net loss - $ -
Issuance of common shares at $6.50 per share on May 26, 1994 (net of costs of issuance of $2,061,149) - -
Cancellation of stock options - -
Amortization of deferred compensation - -
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1994 - -
Net loss - -
Issuance of common shares at $6.50 per share on June 20, 1994 (net of issuance costs of $172,500) - -
Exercise of stock options at $7.14 per share - -
Exercise of stock options at $2.00 per share - -
Cancellation of stock options - -
Amortization of deferred compensation - -
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1995 - -
Net loss - -
Issuance of common stock at $17.75 per share on August 9, 1995 (net of issuance costs of $3,565,125) - -
Issuance of common stock at $17.75 per share on September 11, 1995 (net of issuance costs of $423,238) - -
Exercise of stock options at $2.00 per share - -
Exercise of stock options at $6.38 per share - -
Exercise of stock options at $7.14 per share - -
Cancellation of stock options - -
Amortization of deferred compensation - -
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1996 - -
Net loss (unaudited) - -
Exercise of stock options at $0.20 per share (unaudited) - -
Exercise of stock options at $2.00 per share (unaudited) - -
Amortization of deferred compensation (unaudited) - -
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance at August 31, 1996 (unaudited) - $ -
====================================================================================================================================
</TABLE>
See accompanying independent auditors' review report.
6
<PAGE> 9
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statement of Shareholders' Equity (Deficit), Continued
<TABLE>
<CAPTION>
===============================================================================================================================
Series A convertible Series B convertible Deficit Total
Common Stock preferred stock preferred stock accumulated share-
- - ------------------------- --------------------- ----------------------- Additional during the Deferred holders'
Number Aggregate Number Aggregate Number Aggregate paid-in development compen- equity
of shares amount of shares amount of shares amount capital stage sation (deficit)
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- - - - - - - (7,363,810) - (7,363,810)
2,500,000 25,000 - - - - 14,163,851 - - 14,188,851
- - - - - - (85,400) - 85,400 -
- - - - - - - - 267 267
- - -------------------------------------------------------------------------------------------------------------------------------
9,455,955 94,560 - - - - 56,779,765 (38,393,281) (60,047) 18,420,997
- - - - - - - (7,439,013) - (7,439,013)
375,000 3,750 - - - - 2,261,250 - - 2,265,000
10,000 100 - - - - 71,300 - - 71,400
187,570 1,875 - - - - 373,264 - - 375,139
- - - - - - (106,750) - 106,750 -
- - - - - - - - (67,892) (67,892)
- - -------------------------------------------------------------------------------------------------------------------------------
10,028,525 100,285 - - - - 59,378,829 (45,832,294) (21,189) 13,625,631
- - - - - - - (4,778,875) - (4,778,875)
2,925,000 29,250 - - - - 48,324,374 - - 48,353,624
438,750 4,388 - - - - 7,360,187 - - 7,364,575
182,380 1,824 - - - - 362,937 - - 364,761
1,500 15 - - - - 9,555 - - 9,570
10,000 100 - - - - 71,300 - - 71,400
- - - - - - (80,062) - 80,062 -
- - - - - - - - (62,726) (62,726)
- - -------------------------------------------------------------------------------------------------------------------------------
13,586,155 135,862 - - - - 115,427,120 (50,611,169) (3,853) 64,947,960
- - - - - - - (970,280) - (970,280)
263,285 2,633 - - - - 50,025 - - 52,658
125,605 1,255 - - - - 249,954 - - 251,209
- - - - - - - - 643 643
- - -------------------------------------------------------------------------------------------------------------------------------
13,975,045 $ 139,750 - $ - - $ - 115,727,099 (51,581,449) (3,210) 64,282,190
===============================================================================================================================
</TABLE>
7
<PAGE> 10
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Cash Flows
Three months ended August 31, 1996 and August 31, 1995
<TABLE>
<CAPTION>
===============================================================================================================================
Cumulative
from
Three months ended August 31, June 19, 1985
----------------------------- through
1996 1995 August 31, 1996
- - -------------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (970,280) (1,415,571) (51,581,449)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 121,252 303,352 12,498,405
Amortization of deferred compensation 643 (71,394) 3,446,781
Loss on sale of equipment - - 66,359
Changes in assets and liabilities:
Prepaid expenses 75,783 72,173 (286,489)
Other current assets 45,437 58,041 (2,300,548)
Other assets 12,499 16,394 (84,763)
Accounts payable (446,725) 2,419 477,372
Accrued expenses (45,498) 3,145 126,852
Accrued compensation and benefits 701 (18,880) 178,751
Other liabilities (2,682) 3,092 113,419
- - -------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,208,870) (1,047,229) (37,345,310)
- - -------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of plant, equipment, and
capitalized engineering costs (62,704) (16,143) (12,131,452)
Proceeds from matured marketable securities 27,049,200 10,689,336 193,192,381
Proceeds from sale of marketable securities - - 7,141,656
Purchase of marketable securities (27,290,834) (45,279,961) (252,871,318)
Proceeds from sale of equipment - - 76,587
- - -------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (304,338) (34,606,768) (64,592,146)
- - -------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 303,867 49,095,215 102,041,768
Payment of common stock issuance costs - (450,000) (5,072,012)
Proceeds from issuance of preferred stock - - 6,644,953
Proceeds from sale of stock options to
purchase common shares - - 7,443,118
Proceeds from issuance of notes payable - - 1,500,000
Repayment of notes payable - - (140,968)
- - -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 303,867 48,645,215 112,416,859
- - -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (1,209,341) 12,991,218 10,479,403
Cash at beginning of period 11,688,744 1,574,008 -
- - -------------------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 10,479,403 14,565,226 10,479,403
===============================================================================================================================
</TABLE>
See accompanying independent auditors' review report.
8
<PAGE> 11
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Notes to Financial Statements
August 31, 1996
- - -------------------------------------------------------------------------------
(1) BASIS OF PRESENTATION
The interim financial statements as of August 31, 1996 and for the three
months ended August 31, 1996 and 1995 presented herein are unaudited but,
in the opinion of management, have been prepared in conformity with
generally accepted accounting principles applied on a basis consistent with
those of the annual financial statements. Such interim financial
statements reflect all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the financial position and
the results of operations for the interim periods presented. The results
of operations for the interim period presented is not necessarily
indicative of the results to be expected for the year ending May 31, 1997.
The interim financial statements should be read in connection with the
audited financial statements for the year ended May 31, 1996.
(2) COMPUTATION OF NET LOSS PER SHARE
The net loss per common and common equivalent share has been computed using
the weighted average number of common shares outstanding for each period.
Common equivalent shares from stock options and warrants are excluded from
the computation as their effect is antidilutive.
(3) RECLASSIFICATION
Certain amounts have been reclassified to conform with the current year
presentation.
9
<PAGE> 12
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Since its incorporation in 1985, Northfield Laboratories Inc.
("Northfield" or the "Company") has devoted substantially all of its efforts
and resources to the research, development and clinical testing of its
potential product, PolyHeme. Northfield has incurred operating losses during
each year of its operations since inception and expects to incur substantial
additional operating losses for the next several years. From its inception to
August 31, 1996, Northfield incurred operating losses totaling $51,581,449.
The Company's success will depend on several factors including its
ability to obtain Food & Drug Administration regulatory approval of PolyHeme
and the Company's manufacturing facilities, obtain sufficient quantities of
blood to manufacture PolyHeme in commercial quantities, manufacture and
distribute PolyHeme in a cost-effective manner, and enforce its patent
positions. The Company has experienced significant delays in the development
and clinical testing of PolyHeme. There can be no assurance that the Company
will be able to achieve these goals or that it will be able to realize product
revenues or profitability on a sustained basis or at all.
The Company anticipates that research and development expenses will
increase during the foreseeable future. These expected increases are related
to the conducting of future clinical trials, the monitoring and reporting of
results of such trials and continuing process development associated with
increases in the Company's manufacturing capacity to
10
<PAGE> 13
permit commercial scale production of PolyHeme. The Company expects that
general and administrative expenses will increase over the foreseeable future
due to increased expenses relating to the expansion of the Company's
organization in support of commercial operations.
RESULTS OF OPERATIONS
For the First Quarter Ended August 31, 1996 and 1995.
The Company reported no revenues for either of the three-month periods
ended August 31, 1996 or 1995. From its inception through August 31, 1996, the
Company has reported total revenues of $3,000,000, all of which were derived
from licensing fees.
OPERATING EXPENSES
Operating expenses for the Company's first fiscal quarter ended August
31, 1996 totaled $1,799,000, an increase of $111,000 from the $1,688,000
reported in the first quarter of fiscal 1996. Measured on a percentage basis,
total expenses in the first quarter of fiscal 1997 increased by 6.6%.
Research and development expenses for the first quarter of fiscal 1997
totaled $1,260,000, an increase of $108,000, or 9.4%, from the $1,152,000
reported in the first
11
<PAGE> 14
quarter of fiscal 1996. The increase in research and development expenses
resulted primarily from increases in employment costs and clinical trials costs
which offset a decrease in depreciation expense. Employment costs have
increased because the first quarter of fiscal 1996 included a $74,000 reversal
of below market option expense and on a quarter over quarter basis Northfield
has added six employees. Clinical trials expense has increased due to a higher
volume of patients participating this fiscal year. Depreciation expense was
$170,000 less than in the prior year as much of the equipment in the Company's
prototype manufacturing facility is nearing the end of its depreciable life.
The Company anticipates that research and development expenses will increase
over the next several years. Additional costs are being planned for expanded
clinical trials, third-party clinical monitoring, third-party product testing
as well as the engineering and construction of a commercial scale production
facility.
General and administrative expense in the first quarter of fiscal 1997
totaled $539,000 compared to expenses of $536,000 in the first quarter of 1996,
representing an increase of $3,000, or 0.6%. Though the quarter over quarter
expenses are virtually unchanged line item differences in expense categories do
exist. Executive salaries have declined due to the reduction of one position
in fiscal 1997 compared to fiscal 1996. Filing fees have increased due to the
fund raising that occurred in the first quarter of fiscal 1996. The Company
anticipates that general and administrative expenses will exceed fiscal 1996
levels as a result of business development efforts and with the ongoing costs
of serving an expanding shareholder base.
12
<PAGE> 15
INTEREST INCOME
Interest income in the first quarter of fiscal 1997 equaled $829,000,
or a $557,000 increase from the $272,000 in interest income reported in the
first quarter of fiscal 1996. Higher available investment balances in fiscal
1997 resulting from the prior year public stock offering caused interest income
to increase. The level of interest income to be earned over the balance of
fiscal 1997 will be dependent on the rate of investment spending Northfield
makes to prepare for commercialization of its potential product PolyHeme.
NET LOSS
The net loss for the first quarter ended August 31, 1996 was $970,000,
or $.07 per share, compared to a net loss of $1,416,000, or $.13 per share, for
the first quarter ended August 31, 1995. The reduction in the loss per share
is the result of the reduction in the dollar loss as well as having additional
shares outstanding.
LIQUIDITY AND CAPITAL RESOURCES
From its inception through August 31, 1996, the Company has expended
cash in operating activities and for the purchase of plant, equipment and
engineering services in the amount of $49,477,000. For the three-month periods
ended August 31, 1996 and 1995, these cash expenditures totaled $1,272,000 and
$1,063,000, respectively. The first quarter
13
<PAGE> 16
fiscal 1997 net cash outlay of $1,272,000 was low and benefitted from the level
of collected interest income and the timing of payments on accounts payable.
The Company has financed its research and development and other
activities to date through the sale of public and private securities and, to a
more limited extent, through the license of product rights. As of August 31,
1996, the Company had cash and marketable securities totaling $63,017,000.
The Company believes its existing capital resources will be adequate
to satisfy its operating capital requirements for approximately the next 18-24
months. Thereafter, Northfield may require substantial additional funds to
test and seek regulatory approval for PolyHeme and to expand its commercial
capabilities. Construction of a 300,000 unit annual capacity commercial scale
manufacturing facility is currently in the planning stages and (exclusive of
land costs) is estimated to cost $40 million.
The Company expects to use existing resources to finance a commercial
manufacturing facility, though it may enter into collaborative arrangements with
strategic partners which could provide the Company with additional funding or
absorb expenses otherwise payable by the Company. The Company has engaged in
discussions with a number of potential strategic partners, though these
discussions are at preliminary stages and there can be no assurance that any
such arrangement will be consummated.
14
<PAGE> 17
The Company's capital requirements may vary materially from those now
anticipated because of the results of the clinical testing of PolyHeme, the
establishment of relationships with strategic partners, changes in the scale,
timing or cost of the Company's commercial manufacturing facility, competitive
and technological advances, the FDA regulatory process, changes in the
Company's marketing and distribution strategy and other factors.
15
<PAGE> 18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) None.
(b) None.
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on October
7, 1996.
NORTHFIELD LABORATORIES INC.
By: /s/ Richard E. DeWoskin
----------------------------------------------
Chairman of the Board and Chief Executive
Officer
By: /s/ Jack J. Kogut
----------------------------------------------
Vice President - Finance, Secretary and
Treasurer (principal financial officer and
principal accounting officer)
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