<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 November 30, 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)
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)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (847) 864-3500
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT: 1560 Sherman Avenue, Suite 1000, Evanston, Illinois 60201-4422
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 NOVMEBER 30, 1996 REGISTRANT HAD 13,995,045 SHARES OF COMMON
STOCK OUTSTANDING.
================================================================================
<PAGE> 2
[KPMG LOGO]
Item 1. Financial Statements
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Financial Statements
November 30, 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 sheet of Northfield Laboratories Inc. (a company
in the development stage) as of November 30, 1996, and the related statements
of operations for the three- and six-month periods ended November 30, 1996 and
1995, and for the period from June 19, 1985 (inception) through November 30,
1996, and the statements of cash flows for the six-month periods ended November
30, 1996 and 1995, and for the period from June 19, 1985 (inception) through
November 30, 1996. We have also reviewed the statements of shareholders'
equity for the six-month period ended November 30, 1996 and for the period from
June 19, 1985 (inception) through November 30, 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 statements from which it has been derived.
Chicago, Illinois
December 20, 1996
1
<PAGE> 4
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Balance Sheets
November 30, 1996 (unaudited) and May 31, 1996
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
November 30, May 31,
ASSETS 1996 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <S>
Current assets:
Cash $ 10,603,731 11,688,744
Short-term marketable securities 51,265,442 52,295,647
Prepaid expenses 214,654 362,272
Other current assets 519,410 598,068
- -----------------------------------------------------------------------------------------------------------------
Total current assets 62,603,237 64,944,731
Plant and equipment, net 1,338,181 1,310,385
Other assets 57,938 83,442
- -----------------------------------------------------------------------------------------------------------------
$ 63,999,356 66,338,558
=================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable 404,873 924,097
Accrued expenses 111,536 172,350
Accrued compensation and benefits 191,369 178,050
- -----------------------------------------------------------------------------------------------------------------
Total current liabilities 707,778 1,274,497
- -----------------------------------------------------------------------------------------------------------------
Other liabilities 107,850 116,101
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 815,628 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 13,995,045 and 13,586,155 shares at
November 30, 1996 and May 31, 1996, respectively 139,950 135,862
Additional paid-in capital 115,766,899 115,427,120
Deficit accumulated during the development stage (52,720,554) (50,611,169)
Deferred compensation (2,567) (3,853)
- -----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 63,183,728 64,947,960
- -----------------------------------------------------------------------------------------------------------------
$ 63,999,356 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 and six months ended November 30, 1996 and 1995 and for the period from
June 19, 1985 through November 30, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cumulative
from
Three months Six months June 19, 1985
ended November 30, ended November 30, through
1996 1995 1996 1995 Nov. 30, 1996
- -------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues - license income $ - - - - 3,000,000
Costs and expenses:
Research and development 1,419,212 1,208,648 2,679,167 2,360,220 43,103,194
General and administrative 541,280 715,665 1,080,145 1,251,855 23,323,837
- -------------------------------------------------------------------------------------------------------------
1,960,492 1,924,313 3,759,312 3,612,075 66,427,031
- -------------------------------------------------------------------------------------------------------------
Other income and expense:
Interest income 821,387 921,319 1,649,927 1,193,510 10,789,711
Interest expense - - - - 83,234
- -------------------------------------------------------------------------------------------------------------
821,387 921,319 1,649,927 1,193,510 10,706,477
Net loss $ (1,139,105) (1,002,994) (2,109,385) (2,418,565) (52,720,554)
=============================================================================================================
Net loss per share $ (0.08) (0.07) (0.15) (0.20) (7.16)
=============================================================================================================
Shares used in calculation of
per share data 13,984,825 13,462,755 13,893,491 12,118,320 7,365,614
=============================================================================================================
</TABLE>
See accompanying independent auditors' review report.
3
<PAGE> 6
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Shareholders' Equity (Deficit)
Six months ended November 30, 1996 and for the period from
June 19, 1985 through November 30, 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>
4
<PAGE> 7
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Shareholders' Equity (Deficit)
Six months ended November 30, 1996 and for the period from
June 19, 1985 through November 30, 1996
<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
- ------------------------------------------------------------------------------------------------------------------------
(Continued)
</TABLE>
5
<PAGE> 8
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements 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 November 30, 1996 (unaudited) - $ -
====================================================================================================================================
</TABLE>
See accompanying independent auditors' review report.
6
<PAGE> 9
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements 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
- - - - - - - (2,109,385) - (2,109,385)
263,285 2,633 - - - - 50,025 - - 52,658
145,605 1,455 - - - - 289,754 - - 291,209
- - - - - - - - 1,286 1,286
- ------------------------------------------------------------------------------------------------------------------------------------
13,995,045 $139,950 - $ - $ - - 115,766,899 (52,720,554) (2,567) 63,183,728
====================================================================================================================================
</TABLE>
7
<PAGE> 10
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Cash Flows
Six months ended November 30, 1996 and 1995 and for the period from
June 19, 1985 through November 30, 1996
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cumulative
from
Six months ended November 30, June 19, 1985
----------------------------- through
1996 1995 Nov. 30, 1996
(unaudited) (unaudited) (unaudited)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,109,385) (2,418,565) (52,720,554)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 242,505 608,191 12,619,658
Amortization of deferred compensation 1,286 (68,505) 3,447,424
Loss on sale of equipment - - 66,359
Changes in assets and liabilities:
Prepaid expenses 147,618 71,487 (214,654)
Other current assets (1,342) (198,020) (2,347,327)
Other assets 24,999 32,786 (72,262)
Accounts payable (519,224) (286,311) 404,873
Accrued expenses (60,813) 103,584 111,536
Accrued compensation and benefits 13,319 (8,220) 191,369
Other liabilities (8,251) (11,139) 107,850
- ----------------------------------------------------------------------------------------------------------
Net cash used in operating activities (2,269,288) (2,174,712) (38,405,728)
- ----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of plant, equipment, and
capitalized engineering costs (189,796) (30,122) (12,258,544)
Proceeds from matured marketable securities 28,049,200 34,538,380 194,192,381
Proceeds from sale of marketable securities - - 7,141,656
Purchase of marketable securities (27,018,996) (71,441,023) (252,599,480)
Proceeds from sale of equipment - - 76,587
- ----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 840,408 (36,932,765) (63,447,400)
- ----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 343,867 56,499,899 102,081,768
Payment of common stock issuance costs - (405,969) (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 343,867 56,093,930 112,456,859
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (1,085,013) 16,986,453 10,603,731
Cash at beginning of period 11,688,744 1,574,008 -
- ----------------------------------------------------------------------------------------------------------
Cash at end of period $ 10,603,731 18,560,461 10,603,731
==========================================================================================================
</TABLE>
See accompanying independent auditors' review report.
8
<PAGE> 11
NORTHFIELD LABORATORIES INC.
(a Company in the development stage)
Notes to Financial Statements
November 30, 1996
(1) BASIS OF PRESENTATION
The interim financial statements presented 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 are 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's
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 November
30, 1996, Northfield incurred operating losses totaling $52,720,554.
The Company's success will depend on several factors, including its ability
to obtain Food and 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 permit commercial scale production of
PolyHeme. The Company expects that general and administrative expenses will
10
<PAGE> 13
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 three-month periods ended November 30, 1996 and 1995, and for the
six-month periods ended November 30, 1996 and 1995.
REVENUE
The Company reported no revenues for either of the three-month periods ended
November 30, 1996 or 1995. The Company also had no revenues to report for
either of the six-month periods ended November 30, 1996 and 1995. From its
inception through November 30, 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 second fiscal quarter ended
November 30, 1996 totaled $1,960,000, an increase of $36,000 from the
$1,924,000 reported in the comparable prior year period. Measured on a
percentage basis, total expenses in the second quarter of fiscal 1997 increased
by 1.9%.
11
<PAGE> 14
Operating expenses for the six-month period ended November 30, 1996 totaled
$3,759,000, which represented an increase of $147,000, or 4.1%, from the
$3,612,000 in operating expenses reported for the six-month period ending
November 30, 1995.
Research and development expenses for the second quarter of fiscal 1997
totaled $1,419,000, an increase of $210,000, or 17.4%, from the $1,209,000
reported in the second quarter of fiscal 1996. The increase in research and
development expenses resulted from higher spending for process development,
clinical trials and the resolution of a use tax issue with the State of
Illinois. These increases were somewhat offset by a decrease in depreciation
expense as the 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
multi-center clinical trials, third-party clinical monitoring, third-party
product testing as well as the planning, engineering and construction of a
commercial scale production facility.
For the six-month period ended November 30, 1996, research and development
expenses totaled $2,679,000, representing an increase of $319,000 from the
research and development expenses reported for the six-month period ended
November 30, 1995. During the first half of fiscal 1997 expenses increased for
process development, staff salaries, clinical trials expense and Illinois use
tax. Executive salaries were also higher this fiscal year due to the reversal
in fiscal 1996 of below market stock option expense. Somewhat offsetting these
increases was the decrease in depreciation expense as the prototype
manufacturing facility is nearing the end of its depreciable life.
12
<PAGE> 15
General and administrative expense in the second quarter of fiscal 1997
totaled $541,000 compared to expenses of $716,000 in the second quarter of
fiscal 1996, representing a decrease of $175,000, or 24.4%. Comparing the
second quarter of fiscal 1997 to the second quarter of fiscal 1996, expenses
decreased for professional services and travel as the corporate focus is
centered on product and FDA related issues.
For the six-month period ended November 30, 1996, general and administrative
expenses totaled $1,080,000, for a $172,000 decrease from the comparable period
ended November 30, 1995. Expense decreases occurred in professional services
and travel as efforts in commercial development are being deferred as corporate
resources are converging on clinical and FDA issues. The Company anticipates
that general and administrative expenses for fiscal 1997 will approximate
fiscal 1996 levels as a result of renewed emphasis on business development
efforts and with the ongoing costs associated with an expanding shareholder
base.
INTEREST INCOME
Interest income in the second quarter of fiscal 1997 equaled $821,000, or a
$100,000 decrease from the $921,000 in interest income reported in the second
quarter of fiscal 1996. Lower interest rates combined with lower fiscal 1997
cash balances caused interest income to decrease. In August 1995, the Company
completed a public stock offering generating net proceeds to the Company of
$48,354,000. In September 1995, the Company sold common
13
<PAGE> 16
shares generating net proceeds to the Company of $7,365,000. The Company
anticipates that interest income for the balance of fiscal 1997 will be less
than interest income for the comparable periods of fiscal 1996.
Interest income for the six-month period ended November 30, 1996 equaled
$1,650,000 or a $456,000 increase from the $1,194,000 reported for the
six-month period ended November 30, 1995. Proceeds from the Company's common
stock offering in the second quarter of fiscal 1996 caused investment balances
to significantly increase which caused interest income to increase.
NET LOSS
The net loss for the second quarter ended November 30, 1996 was $1,139,000,
or $.08 per share, compared to a net loss of $1,003,000, or $.07 per share, for
the second quarter ended November 30, 1995. The increase in the loss per share
to $.08 from $.07 is primarily the result of an increase in dollar loss of
$136,000.
For the six-month period ended November 30, 1996, the Company reported a
loss of $2,109,000, or $.15 per share, compared to a loss of
$2,419,000, or $.20 per share, for the six-month period ended November 30,
1995. The reduction in loss per share is the result of the reduction in the
dollar loss as well as having additional shares outstanding.
14
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
From its inception through November 30, 1996, the Company has expended cash
in operating activities and for the purchase of plant, equipment and
engineering services in the amount of $50,664,000. For the six-month periods
ended November 30, 1996 and 1995, net cash expenditures totaled $2,459,000 and
$2,205,000, respectively.
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 November 30,
1996, the Company had cash and marketable securities totaling $61,869,000.
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 expand its commercial
capabilities. Construction of a 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.
15
<PAGE> 18
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.
16
<PAGE> 19
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> 20
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 January 14, 1997.
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)
<PAGE> 1
EXHIBIT 15
ACKNOWLEDGMENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
REGARDING INDEPENDENT AUDITORS' 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 December 20, 1996 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.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Chicago, Illinois
January 7, 1997
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