<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, 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 NOVEMBER 30, 1997, REGISTRANT HAD 14,092,375 SHARES OF COMMON STOCK
OUTSTANDING.
=============================================================
<PAGE> 2
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Financial Statements
November 30, 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 November 30, 1997, the related statements of
operations for the three months ended November 30, 1997 and 1996, and the
related statements of operations, shareholders' equity (deficit), and cash
flows for the six months ended November 30, 1997 and 1996, and for the period
from June 19, 1985 (inception) through November 30, 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' (deficit) is fairly stated, in all material respects, in
relation to the statements from which it has been derived.
/s/ KPMG PEAT MARWICK LLP
December 22, 1997
<PAGE> 4
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Balance Sheets
November 30, 1997 (unaudited) and May 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
November 30, May 31,
ASSETS 1997 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash $ 10,175,279 21,367,496
Short-term marketable securities 45,656,875 38,926,904
Prepaid expenses 221,647 334,875
Other current assets 241,793 417,693
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 56,295,594 61,046,968
Property, plant and equipment, net 3,155,676 1,263,361
Other assets 27,758 32,432
- ------------------------------------------------------------------------------------------------------------------------------------
$ 59,479,028 62,342,761
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable 448,528 656,816
Accrued expenses 101,759 121,559
Accrued compensation and benefits 264,168 175,800
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 814,455 954,175
- ------------------------------------------------------------------------------------------------------------------------------------
Other liabilities 91,760 93,823
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 906,215 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
November 30, 1997 and May 31, 1997 140,924 140,924
Additional paid-in capital 116,011,985 116,011,985
Deficit accumulated during the development stage (57,580,096) (54,856,862)
Deferred compensation - (1,284)
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 58,572,813 61,294,763
- ------------------------------------------------------------------------------------------------------------------------------------
$ 59,479,028 62,342,761
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying independent auditors' review report.
<PAGE> 5
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Operations
Three and six months ended November 30, 1997 and 1996 and for the period from
June 19, 1985 (inception) through November 30, 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Cumulative
Three months Six months from
ended November 30, ended November 30, June 19, 1985
-------------------------------------------------------- through
1997 1996 1997 1996 Nov. 30, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues - license income $ - - - - 3,000,000
Costs and expenses:
Research and development 1,565,291 1,419,212 3,151,025 2,679,167 48,762,790
General and administrative 622,031 541,280 1,204,496 1,080,145 25,765,405
- ---------------------------------------------------------------------------------------------------------------------------------
2,187,322 1,960,492 4,355,521 3,759,312 74,528,195
- ---------------------------------------------------------------------------------------------------------------------------------
Other income and expense:
Interest income 793,882 821,387 1,632,287 1,649,927 14,031,333
Interest expense - - - - 83,234
- ---------------------------------------------------------------------------------------------------------------------------------
793,882 821,387 1,632,287 1,649,927 13,948,099
- ---------------------------------------------------------------------------------------------------------------------------------
Net loss $(1,393,440) (1,139,105) (2,723,234) (2,109,385) (57,580,096)
=================================================================================================================================
Net loss per share $ (0.10) (0.08) (0.19) (0.15) (7.28)
=================================================================================================================================
Shares used in calculation of per share data 14,092,375 13,984,825 14,092,375 13,893,491 7,911,293
=================================================================================================================================
</TABLE>
See accompanying independent auditors' review report.
<PAGE> 6
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statement of Shareholders' Equity (Deficit)
Six months ended November 30, 1997 and for
the period from June 19, 1985 (inception to
November 30, 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>
(Continued)
<PAGE> 7
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statement of Shareholders' Equity (Deficit)
Six months ended November 30, 1997 and for
the period from June 19, 1985 (inception to
November 30, 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)
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 November 30, 1997 (unaudited) - $ -
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying independent auditors' review report.
(Continued)
<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
- - - - - - - (2,723,234) - (2,723,234)
- - - - - - - - 1,284 1,284
- ----------------------------------------------------------------------------------------------------------------------------------
14,092,375 $ 140,924 - $ - - $ - 116,011,985 (57,580,096) - 58,572,813
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
<PAGE> 10
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Cash Flows
Six months ended November 30, 1997 and 1996 and for the period from
June 19, 1985 (inception) through November 30, 1997
<TABLE>
<CAPTION>
================================================================================================
Cumulative
from
Six months ended November 30, June 19, 1985
----------------------------- through
1997 1996 Nov. 30, 1997
- ------------------------------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,723,234) (2,109,385) (57,580,096)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 200,505 242,505 13,067,628
Amortization of deferred compensation 1,284 1,286 3,449,991
Loss on sale of equipment - - 66,359
Changes in assets and liabilities:
Prepaid expenses 113,228 147,618 (221,647)
Other current assets 120,899 (1,342) (2,183,878)
Other assets 4,168 24,999 (43,156)
Accounts payable (208,288) (519,224) 448,528
Accrued expenses (19,800) (60,813) 101,759
Accrued compensation and benefits 88,368 13,319 264,168
Other liabilities (2,063) (8,251) 91,760
- ------------------------------------------------------------------------------------------------
Net cash used in operating activities (2,424,933) (2,269,288) (42,538,584)
- ------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property, plant, equipment, and
capitalized engineering costs (2,037,313) (189,796) (14,408,767)
Proceeds from matured marketable securities 25,039,199 28,049,200 260,781,580
Proceeds from sale of marketable securities - - 7,141,656
Purchase of marketable securities (31,769,170) (27,018,996) (313,580,112)
Proceeds from sale of equipment - - 76,587
- ------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (8,767,284) 840,408 (59,989,056)
- ------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock - 343,867 102,327,828
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 - 343,867 112,702,919
- ------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (11,192,217) (1,085,013) 10,175,279
Cash at beginning of period 21,367,496 11,688,744 -
- ------------------------------------------------------------------------------------------------
Cash at end of period $ 10,175,279 10,603,731 10,175,279
================================================================================================
</TABLE>
See accompanying independent auditors' review report.
<PAGE> 11
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Notes to Financial Statements
November 30, 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, 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.
<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 through
November 30, 1997, Northfield incurred operating losses totaling $57,580,000.
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, its ability to obtain sufficient quantities
of blood to commercially manufacture PolyHeme, its ability to 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 attributable to
conducting future clinical trials, monitoring and reporting the 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 Second Quarter Ended November 30, 1997 and 1996.
The Company reported no revenues for either of the three-month periods ended
November 30, 1997 or 1996. From its inception through November 30, 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 second fiscal quarter ended November 30,
1997 totaled $2,187,000, an increase of $227,000 from the $1,960,000 reported
in the second quarter of fiscal 1997. Measured on a percentage basis, total
expenses in the second quarter of fiscal 1998 increased by 11.6%.
<PAGE> 14
Research and development expenses for the second quarter of fiscal 1998
totaled $1,565,000, an increase of $146,000, or 10.3%, from the $1,419,000
reported in the second quarter of fiscal 1997. The quarter over quarter
increase in research and development expenses resulted from expanded efforts in
clinical trials and preparatory efforts for commercial manufacturing.
For the six-month period ended November 30, 1997, research and development
expenses totaled $3,151,000, representing an increase of $472,000, or 17.6%,
from the six-month period ended November 30, 1996. Substantially all of the
fiscal year to date increase over the comparable prior year period comes from
increased expenses related to the Phase III clinical trials. Increased
spending was also recorded for preparatory and analysis work for the commercial
manufacturing facility.
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 second quarter of fiscal 1998
totaled $622,000 compared to expenses of $541,000 in the second quarter of
1997, representing an increase of $81,000, or 15.0%. During the quarter
increased expenses were incurred for professional services related to legal
counsel on multiple contract and patent issues and public relations for
enhanced shareholder information. Travel expenditures have also increased due
<PAGE> 15
to business development efforts. The Company anticipates that general and
administrative expenses will continue to increase over the remainder of the
fiscal year.
General and administrative expenses for the six-month period ended
November 30, 1997 totaled $1,205,000 which is a $125,000 increase, or 11.6%,
from the $1,080,000 in the comparable prior year period. The increases are
principally reported in travel and professional services. Travel has increased
due to business development efforts and professional services have increased in
the areas of legal and public relations.
INTEREST INCOME
Interest income in the second quarter of fiscal 1998 equaled $794,000, or a
$27,000 decrease from the $821,000 in interest income reported in the second
quarter of fiscal 1997. Higher interest rates in fiscal 1998 somewhat offset
lower available investment balances and caused a quarter over quarter decrease
in interest income.
Interest income for the six-month period ended November 30, 1997 totaled
$1,632,000 or a $18,000 decrease from the comparable prior year period.
Slightly higher interest rates offset declining available investment balances
combined for the slight year over year decline in interest income.
<PAGE> 16
Interest income is forecast to decline over the remainder of the fiscal year
as the cost of expanded clinical trials and investments in a commercial facility
will significantly lower available investment balances.
NET LOSS
The net loss for the second quarter ended November 30, 1997 was $1,393,000,
or $.10 per share, compared to a net loss of $1,139,000, or $.08 per share, for
the second quarter ended November 30, 1996. The increase in the net loss per
share is the result of the increase in the dollar net loss mitigated by an
increase in shares outstanding.
For the six-month period ended November 30, 1997, Northfield reported a net
loss of $2,723,000, or $.19 per share, compared to the comparable prior year
period results of a net loss of $2,109,000, or $.15 per share. Higher research
and administrative expenses, partially offset by a greater number of shares
outstanding in fiscal 1998, caused the reported net loss and per share net loss
to increase.
LIQUIDITY AND CAPITAL RESOURCES
From its inception through November 30, 1997, the Company has expended cash
in operating activities and for the purchase of property, plant, equipment and
engineering services in the amount of $56,947,000. For the three-month and
six-month periods ended November 30, 1997,
<PAGE> 17
these cash expenditures totaled $2,762,000 and $4,462,000, respectively. The
second quarter fiscal 1998 net cash outlay was high, compared to the first
quarter expenditure of $1,700,000, due primarily to land acquisition costs
related to the Company's planned commercial-scale manufacturing facility.
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, 1997, the
Company had cash and marketable securities totaling $55,832,000.
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 be $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.
<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
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBIT 10.5.1 - 1996 Stock Option Plan
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, 1998.
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 10.5.1
NORTHFIELD LABORATORIES INC.
1996 STOCK OPTION PLAN
1. PURPOSE
The purpose of the Plan is to promote the long-term success of the Company
for the benefit of the Company's stockholders by encouraging the Company's
directors, officers, employees and consultants to have meaningful investments
in the Company. The Company believes that the possibility of participation
under the Plan will provide the Company's directors, officers, employees and
consultants with an incentive to perform more effectively and will assist the
Company in attracting and retaining directors, officers, employees and
consultants of outstanding training, experience and ability.
2. DEFINITIONS
"Authorized Plan Shares" has the meaning set forth in Section 6(a).
"Award" means an award or grant of a Stock Option made to a Participant
pursuant to Section 8.
"Award Agreement" means the agreement provided in connection with an Award
in accordance with Section 10.
"Award Date" means the date that an Award is made, as specified in the
Award Agreement with respect to such Award.
"Board of Directors" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Company" means Northfield Laboratories Inc., a Delaware corporation.
"Committee" means the Stock Option Committee of the Board of Directors or
any successor committee thereto.
"Common Stock" means the Company's Common Stock, par value $.01 per share.
<PAGE> 2
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Fair Market Value" on any date means the average of the highest and the
lowest sales prices of a share of Common Stock on The Nasdaq Stock Market, Inc.
("Nasdaq") for such date; provided that if no sales of Common Stock are
reported on Nasdaq for such date or, in the opinion of the Committee, the sales
of Common Stock on such date are insufficient to constitute a representative
market, then the Fair Market Value of a share of Common Stock on such date
shall be deemed to be the average of the highest and lowest prices of a share
of Common Stock as reported on Nasdaq for the next preceding day on which sales
of Common Stock are reported and a representative market exists.
"ISO" means any Stock Option designated in an Award Agreement as an
"Incentive Stock Option" within the meaning of Section 422 of the Code.
"Non-Qualified Stock Option" means any Stock Option that is not an ISO.
"Option Price" means the purchase price of one share of Common Stock under
a Stock Option.
"Participant" means a director, officer or employee of the Company who has
been selected by the Committee to receive an Award under the Plan.
"Plan" means the Northfield Laboratories Inc. 1996 Stock Option Plan, as
amended from time to time.
"Rule 16b-3" means Rule 16b-3 promulgated by the Securities and Exchange
Commission pursuant to the Exchange Act, as amended from time to time.
"Settlement Date" means, with respect to any Stock Option that has been
exercised in whole or in part, the date or dates upon which shares of Common
Stock are to be delivered to the Participant and the Option Price therefor
paid.
"Stock Option" means any right to purchase shares of Common Stock awarded
pursuant to Section 8.
3. TERM
The Plan shall be effective as of October 1, 1996 and shall remain in
effect through September 30, 2006. After termination of the Plan, no
further Awards may be granted but outstanding Awards shall remain effective in
accordance with their terms and the terms of the Plan.
<PAGE> 3
4. PLAN ADMINISTRATION
(a) The Committee shall be responsible for administering the Plan.
The Committee shall be comprised of two or more members of the Board of
Directors, all of whom shall be "non-employee directors" as defined in
Rule 16b-3 and "outside directors" as that term is used in Section 162 of
the Code and the regulations promulgated thereunder. The Committee shall
have full and exclusive discretionary power to interpret the Plan and
determine eligibility for benefits and to adopt such rules, regulations
and guidelines for administering the Plan as the Committee may deem
necessary or proper. Such power shall include, but not be limited to,
selecting Award recipients, establishing all Award terms and conditions
and, subject to Section 11, adopting modifications and amendments to the
Plan or any Award Agreement. The Committee may delegate to one or more
of its members or to one or more agents or advisors such
non-discretionary administrative duties as it may deem advisable, and the
Committee or any person to whom it has delegated duties as aforesaid may
employ one or more persons to render advice with respect to any
responsibility the Committee or such person may have under the Plan.
(b) The Committee may employ attorneys, consultants, accountants
and other persons and the Committee, the Company and its officers and
directors shall be entitled to rely upon the advice, opinions or
valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee in good faith
shall be final and binding upon the Participants, the Company and all
other interested persons. No member of the Committee shall be personally
liable for any action, determination or interpretation made in good faith
with respect to the Plan or any Award, and all members of the Committee
shall be fully protected by the Company, to the fullest extent permitted
by applicable law, in respect of any such action, determination or
interpretation.
5. ELIGIBILITY
Awards shall be limited to persons who are directors, officers or
employees of or consultants to the Company. In determining the persons to whom
Awards shall be made, the Committee shall, in its sole discretion, take into
account the nature of the person's duties, past and potential contributions to
the success of the Company and such other factors as the Committee shall deem
relevant in connection with accomplishing the purposes of the Plan. A person
who has received an Award or Awards pursuant to the Plan, or who has received
stock options or other awards under any other plan or agreement now
<PAGE> 4
or hereafter in effect, may receive an additional Award or Awards pursuant to
the Plan.
6. AUTHORIZED AWARDS; LIMITATIONS
Except for adjustments pursuant to Section 7, the maximum number of shares
of Common Stock that shall be available for issuance under the Plan (the
"Authorized Plan Shares") shall be 500,000. If an Award expires unexercised or
is forfeited, surrendered, canceled, terminated or settled in cash in lieu of
Common Stock, the shares of Common Stock that were theretofore subject (or
potentially subject) to such Award may again be made subject to an Award
Agreement. Common Stock that may be issued under the Plan may be either
authorized and unissued shares, or issued shares that have been reacquired by
the Company and that are being held as treasury shares. No fractional shares
of Common Stock shall be issued under the Plan; provided that cash, in an
amount equal to the Fair Market Value of a fractional share of Common Stock as
of the Settlement Date of the Award shall be paid in lieu of any fractional
shares in the settlement of Awards payable in shares of Common Stock.
7. ADJUSTMENTS AND REORGANIZATIONS
(a) The Committee may make such adjustments to Awards granted under
the Plan (including the terms, exercise price and otherwise) as it deems
appropriate in the event of changes that impact the Company or the
Company's share price or share status, provided that any such actions are
consistently and equitably applied to all affected Participants.
Notwithstanding the foregoing, insofar as any Award is subject to
performance goals established to qualify payments thereunder as
"performance-based compensation" as described in Section 162(m) of the
Code, the Committee shall have no power to adjust such Awards other than
negative discretion and the power to adjust Awards for corporate
transactions, in either case to the extent permissible under regulations
interpreting Code Section 162(m).
(b) In the event of any merger, reorganization, consolidation,
recapitalization, separation, liquidation, stock dividend, stock split,
extraordinary dividend, spin-off, rights offering, share combination or
other change in the corporate structure of the Company affecting the
Common Stock, the number of Authorized Plan Shares and the kind of shares
that may be delivered under the Plan shall be subject to such equitable
adjustment as the Committee, in its sole discretion, may deem appropriate
in order to preserve the benefits or potential benefits to be made
available under the Plan, and the number and kind and price of shares
subject to outstanding Awards and any other terms of outstanding Awards
shall be subject to such
<PAGE> 5
equitable adjustment as the Committee, in its sole discretion, may
deem appropriate in order to prevent dilution or enlargement of
outstanding Awards.
8. AWARDS
(a) Stock Options granted under the Plan may be either ISOs or
Non-Qualified Stock Options. The Committee may grant any Participant one
or more ISOs, Non-Qualified Stock Options or both types of Stock Options.
The Option Price of a Stock Option shall be not less than 100% of the
Fair Market Value of a share of Common Stock on the Award Date. Stock
Options granted pursuant to the Plan shall be subject to such additional
terms, conditions or restrictions as may be provided in the Award
Agreement relating to such Stock Option.
(b) Anything in the Plan to the contrary notwithstanding, no term
of the Plan relating to ISOs shall be interpreted, amended or altered,
nor shall any discretion or authority awarded under the Plan be
exercised, so as to disqualify the Plan under Section 422 of the Code or,
without the consent of the Participants affected, to disqualify any ISO
under Section 422 of the Code. An ISO shall not be granted to an
individual who, on the date of grant, owns stock possessing more than 10%
of the total combined voting power of all classes of stock of the
Company. The aggregate Fair Market Value, determined on the Award Date,
of the shares of Common Stock or other stock with respect to which one or
more ISOs that are exercisable for the first time by the Participant
during any particular calendar year shall not exceed the $100,000
limitation imposed by Section 422(d) of the Code.
(c) The Option Price shall be paid in full at the time of the
exercise of the Stock Option and may be paid in any of the following
methods or combinations thereof:
(i) in cash or by check, bank draft or money order payable
to the order of the Company;
(ii) by the delivery of shares of Common Stock having an
aggregate Fair Market Value on the date of such exercise equal to
the Option Price;
(iii) by the Participant's simultaneous exercise of Stock
Options, sale of shares of Common Stock acquired thereby and
application of the proceeds therefrom to the payment of the Option
Price pursuant to procedures established by the Committee from
time to time; or
<PAGE> 6
(iv) in any other manner that the Committee shall approve.
9. TRANSFERABILITY AND BENEFICIARIES
Unless otherwise determined by the Committee in its sole discretion, no
Awards under the Plan shall be assignable, alienable, saleable or otherwise
transferable other than by will or the laws of descent and distribution, or
pursuant to a qualified domestic relations order (as defined by the Code) or
Title I of the Employee Retirement Income Security Act or the rules thereunder.
10. AWARD AGREEMENTS
Awards under the Plan shall be evidenced by Award Agreements that set
forth the details, conditions and limitations for each Award, which may include
the term of an Award, the provisions applicable in the event the Participant's
employment with the Company terminates and the Company's authority to
unilaterally or bilaterally amend, modify, suspend, cancel or rescind any
Award.
11. AMENDMENTS
The Committee may suspend, terminate or amend the Plan as it deems
necessary or appropriate to better achieve the purposes of the Plan; provided
that without the approval of the Company's stockholders, no such amendment
shall be made for which stockholder approval is necessary to comply with any
applicable tax or regulatory requirement.
12. TAX WITHHOLDING
The Company shall have the right to (a) make deductions from any
settlement of an Award made under the Plan, including the delivery or vesting
of shares, or require that shares or cash, or both, be withheld from any Award,
in each case in an amount sufficient to satisfy withholding of any federal,
state or local taxes required by law and (b) take such other action as may be
necessary or appropriate to satisfy any such withholding obligations. The
Committee may determine the manner in which such tax withholding may be
satisfied and may permit shares of Common Stock (rounded up to the next whole
number) to be used to satisfy required tax withholding based on the Fair Market
Value of any such shares of Common Stock as of the Settlement Date of the
applicable Award. For this purpose, the Committee may permit the use of
outstanding shares held by the applicable Participant or shares issued or
issuable upon the settlement of the applicable Award.
<PAGE> 7
13. OTHER COMPANY BENEFIT AND COMPENSATION PROGRAMS
Unless otherwise specifically determined by the Committee in its sole
discretion, settlements of Awards received by a Participant under the Plan
shall not be deemed a part of the Participant's regular, recurring compensation
for purposes of calculating payments or benefits from any Company benefit plan
or severance program. Further, the Company may adopt other compensation
programs, plans or arrangements as it deems appropriate or necessary.
14. UNFUNDED PLAN
Unless otherwise determined by the Committee in its sole discretion, the
Plan shall be unfunded and shall not create or be construed to create a trust
or a separate fund or funds. The Plan shall not establish any fiduciary
relationship between the Company and any Participant or other person. To the
extent any person holds any rights by virtue of a grant awarded under the Plan,
such right (unless otherwise determined by the Committee in its sole
discretion) shall be no greater than the right of an unsecured general creditor
of the Company.
15. FUTURE RIGHTS
No person shall have any claim or right to be granted an Award under the
Plan and no Participant shall have any right under the Plan to be retained in
the employment of or to serve as a consultant to the Company.
16. GOVERNING LAW
The validity, construction and effect of the Plan and all Award
Agreements, and any actions taken or relating to the Plan or any Award
Agreement, shall be determined in accordance with applicable federal law and
the internal laws, and not the law of conflicts, of the State of Delaware.
17. SUCCESSORS AND ASSIGNS
The Plan shall be binding on all successors and assigns of each
Participant, including without limitation the estate of such Participant and
the executor, administrator or trustee of such estate, and any receiver or
trustee in bankruptcy or representative of the Participant's creditors.
18. RIGHTS AS A STOCKHOLDER
Except as otherwise provided in any Award Agreement, a Participant shall
have no rights as a stockholder of the Company until he or she becomes the
holder of record of Common Stock.
<PAGE> 8
19. AWARDS; COMPLIANCE WITH SECTION 16
No Award or other transaction shall be permitted under the Plan which
would have the effect of imposing liability for a Participant under Section 16
of the Exchange Act. Irrespective of any other provision of the Plan or any
Award Agreement, any such Award or other transaction purportedly made under or
pursuant to the Plan shall be void ab initio.
<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 registration statement No. 333-15877 on Form S-8 of Northfield
Laboratories Inc., we acknowledge our awareness of the use therein of our
report dated December 22, 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
Chicago, Illinois
January 12, 1998
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