<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, 1997
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, 1997, REGISTRANT HAD 14,092,375 SHARES OF COMMON STOCK
OUTSTANDING.
=============================================================
<PAGE> 2
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Financial Statements
August 31, 1997
(See accompanying review report of
KPMG Peat Marwick LLP)
<PAGE> 3
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors
Northfield Laboratories Inc.:
We have reviewed the balance sheet of Northfield Laboratories Inc. (a
company in the development stage) as of August 31, 1997, and the
related statements of operations and cash flows for the three-month
periods ended August 31, 1997 and 1996 and for the period from June 19,
1985 (inception) through August 31, 1997. We have also reviewed the
statements of shareholders' equity (deficit) for the three-month period
ended August 31, 1997 and for the period from June 19, 1985 (inception)
through August 31, 1997. 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, 1997, and the related statements of operations,
shareholders' equity (deficit), and cash flows for the year then ended
and for the period from June 19, 1985 (inception) through May 31, 1997
(not presented herein); and in our report dated July 3, 1997, 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, 1997 and in the accompanying statement of shareholders'
equity (deficit) is fairly stated, in all material respects, in
relation to the statement from which it has been derived.
September 26, 1997
1
<PAGE> 4
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Balance Sheets
August 31, 1997 (unaudited) and May 31, 1997
<TABLE>
<CAPTION>
============================================================================================
August 31, May 31,
ASSETS 1997 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash $ 7,798,231 21,367,496
Short-term marketable securities 50,796,265 38,926,904
Prepaid expenses 266,519 334,875
Other current assets 633,085 417,693
- --------------------------------------------------------------------------------------------
Total current assets 59,494,100 61,046,968
Plant and equipment, net 1,325,329 1,263,361
Other assets 28,013 32,432
- --------------------------------------------------------------------------------------------
$ 60,847,442 62,342,761
============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable 460,523 656,816
Accrued expenses 137,369 121,559
Accrued compensation and benefits 194,242 175,800
- --------------------------------------------------------------------------------------------
Total current liabilities 792,134 954,175
Other liabilities 89,697 93,823
- --------------------------------------------------------------------------------------------
Total liabilities 881,831 1,047,998
- --------------------------------------------------------------------------------------------
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 14,092,375 shares
at August 31, 1997 and May 31, 1997, respectively 140,924 140,924
Additional paid-in capital 116,011,985 116,011,985
Deficit accumulated during the development stage (56,186,656) (54,856,862)
Deferred compensation (642) (1,284)
- --------------------------------------------------------------------------------------------
Total shareholders' equity 59,965,611 61,294,763
- --------------------------------------------------------------------------------------------
$ 60,847,442 62,342,761
============================================================================================
</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, 1997 and 1996 and for the
period from June 19, 1985 (inception) through August 31, 1997
<TABLE>
<CAPTION>
===============================================================================================================
Cumulative
Three months ended from
August 31, June 19, 1985
---------------------- through
1997 1996 August 31, 1997
- ---------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Revenues - license income $ -- -- 3,000,000
Costs and expenses:
Research and development 1,585,734 1,259,955 47,197,499
General and administrative 582,465 538,865 25,143,374
- ---------------------------------------------------------------------------------------------------------------
2,168,199 1,798,820 72,340,873
- ---------------------------------------------------------------------------------------------------------------
Other income and expense:
Interest income 838,405 828,540 13,237,451
Interest expense -- -- 83,234
- ---------------------------------------------------------------------------------------------------------------
838,405 828,540 13,154,217
- ---------------------------------------------------------------------------------------------------------------
Net loss $(1,329,794) (970,280) (56,186,656)
===============================================================================================================
Net loss per share $ (0.09) (0.07) (7.22)
===============================================================================================================
Shares used in calculation of per share data 14,092,375 13,803,149 7,783,078
===============================================================================================================
</TABLE>
See accompanying independent auditors' review report.
3
<PAGE> 6
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statement of Shareholders' Equity (Deficit)
Three months ended August 31, 1997 and for the
period from June 19, 1985 (inception) to August 31, 1997
<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>
4
<PAGE> 7
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statement of Shareholders' Equity (Deficit)
Three months ended August 31, 1997 and for the
period from June 19, 1985 (inception) to August 31, 1997
<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)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <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>
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 -- --
Exercise of stock options at $0.20 per share -- --
Exercise of stock options at $2.00 per share -- --
Exercise of stock options at $7.14 per share -- --
Amortization of deferred compensation -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1997 -- --
Net loss (unaudited) -- --
Amortization of deferred compensation (unaudited) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at August 31, 1997 (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
-- -- -- -- -- -- -- (4,245,693) -- (4,245,693)
263,285 2,633 -- -- -- -- 50,025 -- -- 52,658
232,935 2,329 -- -- -- -- 463,540 -- -- 465,869
10,000 100 -- -- -- -- 71,300 -- -- 71,400
-- -- -- -- -- -- -- -- 2,569 2,569
- ---------------------------------------------------------------------------------------------------------------------------------
14,092,375 140,924 -- -- -- -- 116,011,985 (54,856,862) (1,284) 61,294,763
-- -- -- -- -- -- -- (1,329,794) -- (1,329,794)
-- -- -- -- -- -- -- -- 642 642
- ---------------------------------------------------------------------------------------------------------------------------------
14,092,375 $ 140,924 -- $ -- -- $ -- 116,011,985 (56,186,656) (642) 59,965,611
=================================================================================================================================
</TABLE>
7
<PAGE> 10
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Cash Flows
Three months ended August 31, 1997 and 1996 and for the
period from June 19, 1985 (inception) through August 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Cumulative
Three months ended from
August 31, June 19, 1985
------------------------------ through
1997 1996 August 31, 1997
- ------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,329,794) (970,280) (56,186,656)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 114,752 121,252 12,981,875
Amortization of deferred compensation 642 643 3,449,349
Loss on sale of equipment - 66,359
Changes in assets and liabilities:
Prepaid expenses 68,356 75,783 (266,519)
Other current assets (242,891) 45,437 (2,547,668)
Other assets 4,166 12,499 (43,158)
Accounts payable (196,293) (446,725) 460,523
Accrued expenses 15,810 (45,498) 137,369
Accrued compensation and benefits 18,442 701 194,242
Other liabilities (4,126) (2,682) 89,697
- ---------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,550,936) (1,208,870) (41,664,587)
- ---------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of plant, equipment, and
capitalized engineering costs (148,968) (62,704) (12,520,422)
Proceeds from matured marketable securities 10,049,200 27,049,200 245,791,581
Proceeds from sale of marketable securities - - 7,141,656
Purchase of marketable securities (21,918,561) (27,290,834) (303,729,503)
Proceeds from sale of equipment - - 76,587
- ---------------------------------------------------------------------------------------------------------
Net cash provided by (used in) in investing activities (12,018,329) (304,338) (63,240,101)
- ---------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock - 303,867 102,327,828
Payment of common stock issuance costs - - (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 - 303,867 112,702,919
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (13,569,265) (1,209,341) 7,798,231
Cash at beginning of period 21,367,496 11,688,744 -
- ---------------------------------------------------------------------------------------------------------
Cash at end of period $ 7,798,231 10,479,403 7,798,231
- ---------------------------------------------------------------------------------------------------------
</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, 1997
(1) BASIS OF PRESENTATION
The interim financial statements as of August 31, 1997 and 1996, 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 are not necessarily indicative of the results to
be expected for the year ending May 31, 1998. The interim financial
statements should be read in connection with the audited financial
statements for the year ended May 31, 1997.
(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.
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, 1997, Northfield incurred operating losses totaling $56,186,656.
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, 1997 and 1996.
The Company reported no revenues for either of the three-month periods
ended August 31, 1997 or 1996. From its inception through August 31, 1997, 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, 1997 totaled $2,168,000, an increase of $369,000 from the $1,799,000
reported in the first quarter of fiscal 1997. Measured on a percentage basis,
total expenses in the first quarter of fiscal 1998 increased by 20.5%.
Research and development expenses for the first quarter of fiscal 1998
totaled $1,586,000, an increase of $326,000, or 25.9%, from the $1,260,000
reported in the first
11
<PAGE> 14
quarter of fiscal 1997. All of the increase in research and development
expenses resulted from increases associated with clinical trials. Increased
start up costs for the Phase III trials were incurred for study initiation
fees, site recruitment and qualification, training for the contract research
organization and in finalizing case report forms. Phase II clinical trials
remain open and are on-going, enrolling high volume trauma patients. Higher
expense was also incurred in increasing pilot manufacturing to provide PolyHeme
for the Company's expanded clinical trials. The Company anticipates that
research and development expenses will increase over the next several quarters.
Additional costs are being planned for expanded multi-center clinical trials,
third-party clinical monitoring and third-party product testing.
General and administrative expenses in the first quarter of fiscal 1998
totaled $582,000 compared to expenses of $539,000 in the first quarter of 1997,
representing an increase of $43,000, or 8.1%. During the quarter, Northfield
made a concerted effort to make itself more visible to the investing and
scientific communities. This effort resulted in higher public relations and
travel expenses compared to the prior fiscal year. The Company is planning to
continue this effort over the balance of the fiscal year. The Company
anticipates that general and administrative expenses will exceed fiscal 1997
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 1998 equaled $838,000,
or a $9,000 increase from the $829,000 in interest income reported in the first
quarter of fiscal 1997. Higher interest rates in fiscal 1998 more than offset
lower available investment balances and allowed a small quarter over quarter
gain. The level of interest income to be earned over the balance of fiscal
1998 will be dependent primarily on the rate of investment spending Northfield
makes to prepare for commercialization of its PolyHeme product.
NET LOSS
The net loss for the first quarter ended August 31, 1997 was
$1,330,000, or $.09 per share, compared to a net loss of $970,000, or $.07 per
share, for the first quarter ended August 31, 1996. The increase in the loss
per share is the result of the increase in the dollar loss mitigated by having
additional shares outstanding.
LIQUIDITY AND CAPITAL RESOURCES
From its inception through August 31, 1997, the Company has expended
cash in operating activities and for the purchase of plant, equipment and
engineering services in the amount of $54,185,000. For the three-month periods
ended August 31, 1997 and 1996, these cash expenditures totaled $1,700,000 and
$1,272,000, respectively. The first quarter
13
<PAGE> 16
fiscal 1998 net cash outlay of $1,700,000 was comparatively high and reflected
the stepped up level of clinical and business development effort currently
underway.
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,
1997, the Company had cash and marketable securities totaling $58,594,000.
The Company believes existing capital resources will be adequate to
satisfy its operating capital requirements for approximately the next 18-24
months. Thereafter, the Company may require substantial additional funds to
test and seek regulatory approval for PolyHeme and to build a commercial
capability. The capital required to construct a commercial scale manufacturing
facility is estimated to cost $40-$45 million.
The Company may use existing resources to finance a commercial
manufacturing facility or 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
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBIT 15 - Letter RE: Unaudited Interim Financial Information
EXHIBIT 27 - Financial Data Schedule
(b) None.
<PAGE> 18
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 14, 1997.
NORTHFIELD LABORATORIES INC.
By:
_________________________
Richard E. DeWoskin
Chairman of the Board and Chief
Executive Officer
By:
_________________________
Jack J. Kogut
Vice President - Finance,
Secretary and Treasurer
(principal financial officer
and principal accounting
officer)
<PAGE> 1
EXHIBIT 15
ACKNOWLEDGMENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
REGARDING INDEPENDENT AUDITOR'S REVIEW REPORT
The Board of Directors
Northfield Laboratories Inc.:
With respect to the registration statement on Form S-8 of Northfield
Laboratories Inc., we acknowledge our awareness of the use therein of our
report dated September 26, 1997 related to our review of interim financial
information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the
meaning of sections 7 and 11 of the Act.
KPMG Peat Marwick LLP
Chicago, Illinois
October 10, 1997
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