<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 February 28, 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)
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:
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 FEBRUARY 28, 1997 REGISTRANT HAD 13,995,045 SHARES OF COMMON
STOCK OUTSTANDING.
================================================================================
<PAGE> 2
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Financial Statements
February 28, 1997
(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 February 28, 1997, and the
related statements of operations and cash flows for the three-and
nine-month periods ended February 28, 1997 and February 29, 1996 and
for the period from June 19, 1985 (inception) through February 28,
1997. We have also reviewed the statements of shareholders' equity
(deficit) for the nine-month period ended February 28, 1997 and for the
period from June 19, 1985 (inception) through February 28, 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, 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
March 21, 1997
<PAGE> 4
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Balance Sheets
February 28, 1997 (unaudited) and May 31, 1996
<TABLE>
<CAPTION>
==================================================================================================
February 28, May 31,
ASSETS 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash $ 10,376,821 11,688,744
Short-term marketable securities 50,416,612 52,295,647
Prepaid expenses 142,820 362,272
Other current assets 497,012 598,068
- --------------------------------------------------------------------------------------------------
Total current assets 61,433,265 64,944,731
Plant and equipment, net 1,303,796 1,310,385
Other assets 45,183 83,442
- --------------------------------------------------------------------------------------------------
$ 62,782,244 66,338,558
==================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable 271,630 924,097
Accrued expenses 94,218 172,350
Accrued compensation and benefits 182,260 178,050
- --------------------------------------------------------------------------------------------------
Total current liabilities 548,108 1,274,497
Other liabilities 99,392 116,101
- --------------------------------------------------------------------------------------------------
Total liabilities 647,500 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 February 28, 1997 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 (53,770,179) (50,611,169)
Deferred compensation (1,926) (3,853)
- --------------------------------------------------------------------------------------------------
Total shareholders' equity 62,134,744 64,947,960
- --------------------------------------------------------------------------------------------------
$ 62,782,244 66,338,558
==================================================================================================
</TABLE>
See accompanying independent auditors' review report.
<PAGE> 5
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Operations
Three and nine months ended February 28, 1997 and February 29, 1996
and for the period from June 19, 1985 through February 28, 1997
<TABLE>
<CAPTION>
======================================================================================================================
Cumulative
Three months Three months Nine months Nine months from
ended ended ended ended June 19, 1985
February 28, February 29, February 28, February 29, through
1997 1996 1997 1996 February 28,1997
- ----------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues - license income $ - - - - 3,000,000
Costs and expenses:
Research and development 1,249,712 1,414,523 3,928,879 3,774,743 44,352,906
General and administrative 576,399 560,513 1,656,544 1,812,368 23,900,236
- ---------------------------------------------------------------------------------------------------------------------
1,826,111 1,975,036 5,585,423 5,587,111 68,253,142
- ---------------------------------------------------------------------------------------------------------------------
Other income and expense:
Interest income 776,486 896,384 2,426,413 2,089,894 11,566,197
Interest expense - - - - 83,234
- ---------------------------------------------------------------------------------------------------------------------
776,486 896,384 2,426,413 2,089,894 11,482,963
- ---------------------------------------------------------------------------------------------------------------------
Net loss $ (1,049,625) (1,078,652) (3,159,010) (3,497,217) (53,770,179)
=====================================================================================================================
Net loss per share $ (0.07) (0.08) (0.23) (0.28) (7.16)
=====================================================================================================================
Shares used in calculation of per share data 13,995,045 13,572,748 13,926,970 12,601,360 7,507,571
=====================================================================================================================
</TABLE>
See accompanying independent auditors' review report.
<PAGE> 6
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Shareholders' Equity (Deficit)
Nine months ended February 28, 1997 and for the period from
June 19, 1985 through February 28, 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>
<PAGE> 7
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Shareholders' Equity (Deficit)
Nine months ended February 28, 1997 and for the period from
June 19, 1985 through February 28, 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)
- --------------------------------------------------------------------------------------------------------------------
<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>
<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 February 28, 1997 (unaudited) - $ -
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying independent auditors' review report.
<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
- - - - - - - (3,159,010) - (3,159,010)
263,285 2,633 - - - - 50,025 - - 52,658
145,605 1,455 - - - - 289,754 - - 291,209
- - - - - - - - 1,927 1,927
- ---------------------------------------------------------------------------------------------------------------------
13,995,045 139,950 - $ - - $ - 115,766,899 (53,770,179) (1,926) 62,134,744
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 10
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Cash Flows
Nine months ended February 28, 1997 and February 29, 1996
and for the period from June 19, 1985 to February 28, 1997
<TABLE>
<CAPTION>
===============================================================================================================
Cumulative
Nine months Nine months from
ended ended June 19,1985
February 28, February 29, through
1997 1996 Feb.28,1997
- ---------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (3,159,010) (3,497,217) (53,770,179)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 355,425 920,343 12,732,578
Amortization of deferred compensation 1,927 (65,615) 3,448,065
Loss on sale of equipment - - 66,359
Changes in assets and liabilities:
Prepaid expenses 219,452 103,722 (142,820)
Other current assets (10,612) (290,029) (2,356,596)
Other assets 37,500 10,413 (59,762)
Accounts payable (652,468) (129,549) 271,630
Accrued expenses (78,131) (170,193) 94,218
Accrued compensation and benefits 4,210 (7,746) 182,260
Other liabilities (16,708) 9,279 99,392
- ---------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (3,298,415) (3,116,592) (39,434,855)
- ---------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of plant, equipment, and
capitalized engineering costs (236,410) (317,168) (12,305,158)
Proceeds from matured marketable securities 38,099,200 64,113,031 204,242,381
Proceeds from sale of marketable securities - - 7,141,656
Purchase of marketable securities (36,220,165) (102,119,605) (261,800,649)
Proceeds from sale of equipment - - 76,587
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) in investing activities 1,642,625 (38,323,742) (62,645,183)
- ---------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 343,867 56,163,930 102,081,768
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 343,867 56,163,930 112,456,859
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (1,311,923) 14,723,596 10,376,821
Cash at beginning of period 11,688,744 1,574,008 -
- ---------------------------------------------------------------------------------------------------------------
Cash at end of period $ 10,376,821 16,297,604 10,376,821
===============================================================================================================
</TABLE>
See accompanying independent auditors' review report.
<PAGE> 11
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Notes to Financial Statements
February 28, 1997
================================================================================
(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.
<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
February 28, 1997, Northfield incurred operating losses totaling $53,770,000.
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
<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 and nine-month periods ended February 28, 1997 and February
29, 1996.
REVENUE
The Company reported no revenues for either of the three-month periods
ended February 28, 1997 or February 29, 1996. The Company also had no revenues
to report for either of the nine-month periods ended February 28, 1997 or
February 29, 1996. From its inception through February 28, 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 third fiscal quarter ended February
28, 1997 totaled $1,826,000, a decrease of $149,000 from the $1,975,000
reported in the comparable prior year period. Measured on a percentage basis,
total expenses in the third quarter of fiscal 1997 decreased by 7.5%.
<PAGE> 14
Operating expenses for the nine-month period ended February 28, 1997
totaled $5,585,000, which represented a decrease of $2,000 from the comparable
in prior year period.
Research and development expenses for the third quarter of fiscal 1997
totaled $1,250,000, a decrease of $165,000, or 11.7%, from the $1,415,000
reported in the third quarter of fiscal 1996. The decrease in research and
development expenses resulted from a decrease in depreciation expenses as the
prototype facility is nearing the end of its depreciable life. This decrease
in depreciation expense more than offset increases incurred from higher
staffing levels and expenses incurred in preparation for our anticipated Phase
III trials.
The Company anticipates that research and development expenses will
increase over the next several years. Additional costs will be incurred 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 nine-month period ended February 28, 1997, research and
development expenses totaled $3,929,000, representing an increase of $154,000,
or 4.1%, from the research and development expenses reported for the nine-month
period ended February 29, 1996. During the first nine months increased
expenses were incurred due to higher staffing levels, expanded process
development efforts and in the execution of the clinical trials. These
increases offset a decrease in depreciation expense.
<PAGE> 15
General and administrative expense in the third quarter of fiscal 1997
totaled $576,000 compared to expenses of $561,000 in the second quarter of
fiscal 1996, representing an increase of $15,000, or 2.7%. Year over year
quarterly expenses show no marked change. During the third quarter of its 1997
fiscal year, the Company focus remained centered on the FDA and product related
issues. Commercial development issues remain secondary to the product.
For the nine-month period ended February 28, 1997, general and
administrative expenses totaled $1,657,000, for a $155,000 decrease, or 8.6%,
from the comparable period ended February 29, 1996. Expense decreases occurred
in professional services and travel as efforts in commercial development are
being deferred. Corporate resources are being focused on clinical and FDA
issues. The Company anticipates general and administrative expenses will grow
over time to create and support commercial activity. For the 1997 fiscal year,
however, the Company anticipates general and administrative expenses will lag
prior year levels.
INTEREST INCOME
Interest income in the third quarter of fiscal 1997 equaled $776,000, or a
$120,000 decrease from the $896,000 in interest income reported in the third
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 shares generating net
proceeds to the Company of $7,365,000. The Company anticipates that
<PAGE> 16
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 nine-month period ended February 28, 1997 equaled
$2,426,000 or a $336,000 increase from the $2,090,000 reported for the
nine-month period ended February 29, 1996. Proceeds from the Company's common
stock offering in the first quarter of fiscal 1996 caused investment balances
to significantly increase which caused interest income to increase.
NET LOSS
The net loss for the third quarter ended February 28, 1997 was $1,050,000,
or $.07 per share, compared to a net loss of $1,079,000, or $.08 per share, for
the third quarter ended February 29, 1996. The reduction in the loss per share
to $.07 from $.08 is primarily the result of an increase in the number of
shares outstanding.
For the nine-month period ended February 28, 1997, the Company reported a
loss of $3,159,000, or $.23 per share, compared to a loss of $3,497,000, or
$.28 per share, for the nine-month period ended February 29, 1996. The
reduction in loss per share is the result of the reduction in the dollar loss
as well as having additional shares outstanding.
LIQUIDITY AND CAPITAL RESOURCES
<PAGE> 17
From its inception through February 28, 1997, the Company has expended
cash in operating activities and for the purchase of plant, equipment and
engineering services in the amount of $51,740.00. For the nine-month periods
ended February 28, 1997 and February 29, 1996, net cash expenditures totaled
$3,535,000 and $3,434,000, 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 February 28,
1997, the Company had cash and marketable securities totaling $60,793,000.
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 is estimated to cost $42 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.
<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.
<PAGE> 19
ITEM 5. OTHER INFORMATION.
Northfield announced on April 2, 1997 that the Company has received
clearance from the Food and Drug Administration to begin Phase III trials of
its blood substitute, PolyHeme.
<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 March 21, 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.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Chicago, Illinois
April 8, 1997
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