<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, 1998
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 FEBRUARY 28, 1998, REGISTRANT HAD 14,092,375 SHARES OF COMMON STOCK
OUTSTANDING.
=============================================================
<PAGE> 2
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Financial Statements
February 28, 1998
(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 sheets of Northfield Laboratories Inc. (a
company in the development stage) as of February 28, 1998, the related
statements of operations for the three months ended February 28, 1998
and 1997 and the related statements of operations, shareholders' equity
(deficit), and cash flows for the nine months ended February 28, 1998
and 1997, and for the period from June 19, 1985 (inception) through
February 28, 1998. These financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of persons
responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with generally
accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the balance sheet of Northfield Laboratories Inc.
as of May 31, 1997, and the related statements of operations,
shareholders' equity (deficit), and cash flows for the year then ended
and for the period from June 19, 1985 (inception) through May 31, 1997
(not presented herein); and in our report dated July 3, 1997, we
expressed an unqualified opinion on those financial statements. In our
opinion, the information set forth in the accompanying balance sheet as
of May 31, 1997 and in the accompanying statement of shareholders'
equity (deficit) is fairly stated, in all material respects, in
relation to the statements from which it has been derived.
/s/ KPMG PEAT MARWICK LLP
March 20, 1998
<PAGE> 4
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Balance Sheets
February 28, 1998 (unaudited) and May 31, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
February 28, May 31,
ASSETS 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash $ 17,187,955 21,367,496
Short-term marketable securities 36,888,913 38,926,904
Prepaid expenses 158,147 334,875
Other current assets 554,330 417,693
- -------------------------------------------------------------------------------------------------------------------
Total current assets 54,789,345 61,046,968
Property, plant and equipment, net 3,086,917 1,263,361
Other assets 27,507 32,432
- -------------------------------------------------------------------------------------------------------------------
$ 57,903,769 62,342,761
===================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable 379,765 656,816
Accrued expenses 100,218 121,559
Accrued compensation and benefits 184,987 175,800
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 664,970 954,175
Other liabilities 94,852 93,823
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 759,822 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 February 28, 1998
and May 31, 1997 140,924 140,924
Additional paid-in capital 116,011,985 116,011,985
Deficit accumulated during the development stage (59,008,962) (54,856,862)
Deferred compensation - (1,284)
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 57,143,947 61,294,763
- -------------------------------------------------------------------------------------------------------------------
$ 57,903,769 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 nine months ended February 28, 1998 and 1997 and for the period from
June 19, 1985 (inception) through February 28, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative
Three months ended Nine months ended from
February 28, February 28, June 19, 1985
--------------------------- ----------------------------- through
1998 1997 1998 1997 February 28,1998
- ------------------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues - license income $ - - - - 3,000,000
Costs and expenses:
Research and development 1,608,398 1,249,712 4,759,423 3,928,879 50,371,188
General and administrative 585,038 576,399 1,789,534 1,656,544 26,350,443
- ------------------------------------------------------------------------------------------------------------------------------------
2,193,436 1,826,111 6,548,957 5,585,423 76,721,631
- ------------------------------------------------------------------------------------------------------------------------------------
Other income and expense:
Interest income 764,570 776,486 2,396,857 2,426,413 14,795,903
Interest expense - - - - 83,234
- ------------------------------------------------------------------------------------------------------------------------------------
764,570 776,486 2,396,857 2,426,413 14,712,669
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss $ (1,428,866) (1,049,625) (4,152,100) (3,159,010) (59,008,962)
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss per share - basic $ (0.10) (0.07) (0.29) (0.23) (7.35)
- ------------------------------------------------------------------------------------------------------------------------------------
Shares used in calculation of per share data-basic 14,092,375 13,995,045 14,092,375 13,926,970 8,033,074
- ------------------------------------------------------------------------------------------------------------------------------------
</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, 1998 and for the period from
June 19, 1985 (inception) through February 28, 1998
<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)
Statements of Shareholders' Equity (Deficit)
Nine months ended February 28, 1998 and for the period from
June 19, 1985 (inception) through February 28, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Series A convertible Series B convertible Deficit Total
Common stock preferred stock preferred stock accumulated share-
- ------------------------------ ------------------------ ---------------------- Additional during the Deferred holders'
Number Aggregate Number Aggregate Number Aggregate paid-in development compen- equity
of shares amount of shares amount of shares amount capital stage sation (deficit)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3,500,000 $ 35,000 - $ - - $ - (28,000) - - 7,000
- - 250,000 250,000 - - 670,850 - - 920,850
- - - - - - - (607,688) - (607,688)
- ------------------------------------------------------------------------------------------------------------------------------------
3,500,000 35,000 250,000 250,000 - - 642,850 (607,688) - 320,162
- - - - - - - (2,429,953) - (2,429,953)
- - - - - - 2,340,000 - (2,340,000) -
- - - - - - - - 720,000 720,000
- ------------------------------------------------------------------------------------------------------------------------------------
3,500,000 35,000 250,000 250,000 - - 2,982,850 (3,037,641) (1,620,000) (1,389,791)
- - - - 200,633 200,633 6,882,502 - - 7,083,135
- - - - - - - (3,057,254) - (3,057,254)
- - - - - - - - 566,136 566,136
- ------------------------------------------------------------------------------------------------------------------------------------
3,500,000 35,000 250,000 250,000 200,633 200,633 9,865,352 (6,094,895) (1,053,864) 3,202,226
413,020 4,130 - - - - 9,749,870 - - 9,754,000
1,250,000 12,500 (250,000) (250,000) - - 237,500 - - -
1,003,165 10,032 - - (200,633) (200,633) 190,601 - - -
47,115 471 - - - - 93,759 - - 94,230
175,525 1,755 - - - - 4,976,855 - - 4,978,610
87,760 878 - - - - 2,488,356 - - 2,489,234
- - - - - - 7,443,118 - - 7,443,118
- - - - - - - (791,206) - (791,206)
- - - - - - 683,040 - (683,040) -
- - - - - - - - 800,729 800,729
- ------------------------------------------------------------------------------------------------------------------------------------
6,476,585 64,766 - - - - 35,728,451 (6,886,101) (936,175) 27,970,941
- - - - - - - (3,490,394) - (3,490,394)
- - - - - - 699,163 - (699,163) -
- - - - - - - - 546,278 546,278
- ------------------------------------------------------------------------------------------------------------------------------------
6,476,585 64,766 - - - - 36,427,614 (10,376,495) (1,089,060) 25,026,825
- - - - - - - (5,579,872) - (5,579,872)
- - - - - - - - 435,296 435,296
- ------------------------------------------------------------------------------------------------------------------------------------
6,476,585 64,766 - - - - 36,427,614 (15,956,367) (653,764) 19,882,249
90,000 900 - - - - 503,100 - - 504,000
- - - - - - - (7,006,495) - (7,006,495)
- - - - - - - - 254,025 254,025
- ------------------------------------------------------------------------------------------------------------------------------------
6,566,585 65,666 - - - - 36,930,714 (22,962,862) (399,739) 13,633,779
15,000 150 - - - - 106,890 - - 107,040
374,370 3,744 - - - - 5,663,710 - - 5,667,454
- - - - - - - (8,066,609) - (8,066,609)
- - - - - - - - 254,025 254,025
- ------------------------------------------------------------------------------------------------------------------------------------
6,955,955 $ 69,560 - $ - - $ - 42,701,314 (31,029,471) (145,714) 11,595,689
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
<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 shares at $17.75 per share on August 9, 1995 (net of issuance costs of $3,565,125) - -
Issuance of common shares 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 February 28, 1998 (unaudited) - $ -
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying independent auditors' review report.
(Continued)
<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
- - - - - - - (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
- - - - - - - (4,152,100) - (4,152,100)
- - - - - - - - 1,284 1,284
- ------------------------------------------------------------------------------------------------------------------------------------
14,092,375 $140,924 - $ - - $ - 116,011,985 (59,008,962) - 57,143,947
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
<PAGE> 10
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Cash Flows
Nine months ended February 28, 1998 and 1997 and for the period from
June 19, 1985 (inception) to February 28, 1998
<TABLE>
<CAPTION>
========================================================================================================================
Cumulative
from
Nine months ended February 28, June 19, 1985
------------------------------- through
1998 1997 Feb.28, 1998
- ------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(4,152,100) (3,159,010) (59,008,962)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 323,258 355,425 13,190,381
Amortization of deferred compensation 1,284 1,927 3,449,991
Loss on sale of equipment - - 66,359
Changes in assets and liabilities:
Prepaid expenses 176,728 219,452 (158,147)
Other current assets (219,137) (10,612) (2,523,914)
Other assets 4,167 37,500 (43,157)
Accounts payable (277,051) (652,468) 379,765
Accrued expenses (21,341) (78,131) 100,218
Accrued compensation and benefits 9,187 4,210 184,987
Other liabilities 1,029 (16,708) 94,852
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (4,153,976) (3,298,415) (44,267,627)
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property, plant, equipment and
capitalized engineering costs (2,063,556) (236,410) (14,435,010)
Proceeds from matured marketable securities 39,039,196 38,099,200 274,781,577
Proceeds from sale of marketable securities - - 7,141,656
Purchase of marketable securities (37,001,205) (36,220,165) (318,812,147)
Proceeds from sale of equipment - - 76,587
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (25,565) 1,642,625 (51,247,337)
- ------------------------------------------------------------------------------------------------------------------------
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 (4,179,541) (1,311,923) 17,187,955
Cash at beginning of period 21,367,496 11,688,744 -
- ------------------------------------------------------------------------------------------------------------------------
Cash at end of period $17,187,955 10,376,821 17,187,955
========================================================================================================================
</TABLE>
See accompanying independent auditors' review report.
<PAGE> 11
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Notes to Financial Statements
February 28, 1998
- --------------------------------------------------------------------------------
(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
In the third quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," which established new
methods for computing and presenting earnings per share (EPS) and replaced
the presentation of primary and fully diluted EPS with basic (Basic) and
diluted EPS. Basic earnings per share is based on the weighted average
number of shares outstanding and excludes the dilutive effect of
unexercised common stock equivalents. Diluted earnings per share is based
on the weighted average number of shares outstanding and includes the
dilutive effect of unexercised common stock equivalents. Because the
Company reported a net loss for all periods presented, per share amounts
reflect the use of the Basic method only.
<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 February 28, 1998, Northfield incurred operating losses totaling
$59,009,000.
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 its ability to 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 the 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
<PAGE> 13
administrative expenses will increase over the foreseeable future due to
increased expenses relating to the expansion of the Company's organization in
support of commercial operations.
RESULTS OF OPERATIONS
For the Third Quarter Ended February 28, 1998 and 1997.
The Company reported no revenues for either of the three-month periods
ended February 28, 1998 or 1997. From its inception through February 28, 1998,
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, 1998 totaled $2,193,000, an increase of $367,000 from the $1,826,000
reported in the third quarter of fiscal 1997. Measured on a percentage basis,
total expenses in the third quarter of fiscal 1998 increased by 20.1%.
<PAGE> 14
Research and development expenses for the third quarter of fiscal 1998
totaled $1,608,000, an increase of $358,000, or 28.6%, from the $1,250,000
reported in the third 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 nine-month period ended February 28, 1998, research and
development expenses totaled $4,759,000, representing an increase of $830,000,
or 21.1%, from the nine-month period ended February 28, 1997. Substantially
all of the fiscal year to date increase over the comparable prior year period
comes from increased expenses related to the Company's Phase III clinical
trials. Increased spending was also recorded for preparatory and analysis work
for the Company's 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 third quarter of fiscal 1998
totaled $585,000 compared to expenses of $576,000 in the third quarter of 1997,
representing an increase of $9,000, or 1.6%. During the quarter, increased
expenses were incurred for professional services related to legal counsel on
multiple contract and patent issues, which were offset by decreased
expenditures for travel. The Company anticipates that general and
administrative
<PAGE> 15
expenses will continue to increase over the remainder of the fiscal year.
General and administrative expenses for the nine-month period ended
February 28, 1998 totaled $1,790,000 which is a $133,000 increase, or 8.0%,
from the $1,657,000 in the comparable prior year period. The increases are
principally reported in travel and professional services. Travel expense has
increased due to business development efforts, as has legal professional
services.
INTEREST INCOME
Interest income in the third quarter of fiscal 1998 totaled $765,000, or a
$11,000 decrease from the $776,000 in interest income reported in the third
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 nine-month period ended February 28, 1998 totaled
$2,397,000 or a $29,000 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 related to a
commercial manufacturing facility will lower available investment balances.
NET LOSS
The net loss for the third quarter ended February 28, 1998 was $1,429,000,
or $.10 per basic share, compared to a net loss of $1,050,000, or $.07 per
basic share, for the third quarter ended February 28, 1997. The increase in
the net loss per share is the result of the increase in the dollar net loss
somewhat mitigated by an increase in shares outstanding.
For the nine-month period ended February 28, 1998, Northfield reported a
net loss of $4,152,000, or $.29 per basic share, compared to the comparable
prior year period results of a net loss of $3,159,000, or $.23 per basic share.
Higher research expenses for expanding multi-center clinical trials, increased
costs associated with the preparatory efforts for commercial manufacturing and
increased administrative expenses in the professional services area, caused the
reported net loss and per share net loss to increase.
LIQUIDITY AND CAPITAL RESOURCES
From its inception through February 28, 1998, the Company has expended
cash in operating activities and the purchase of property, equipment and
engineering services in the
<PAGE> 17
amount of $58,703,000. For the nine-month period ended February 28, 1998,
these cash expenditures totaled $6,218,000. The nine-month fiscal 1998 net
cash outlay was high, compared to the nine-month fiscal 1997 expenditure of
$3,535,000, due primarily to land acquisition costs related to the Company's
planned commercial scale manufacturing facility and the Company's expanded
multi-center clinical trials.
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,
1998, the Company had cash and marketable securities totaling $54,077,000.
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 for the Company 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
<PAGE> 18
any such arrangement will be consummated.
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 10.1.1 - Amendment to Sublease dated 1/7/98
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 April 9, 1998.
NORTHFIELD LABORATORIES, INC.
By: /s/ Richard DeWoskin
-------------------------------------------
Chairman of the Board and Chief Executive
Officer
By: /s/ Jack Kogut
-------------------------------------------
Vice President - Finance, Secretary and
Treasurer (principal financial officer and
principal accounting officer)
<PAGE> 1
EXHIBIT 10.1.1
AMENDMENT TO SUBLEASE
This instrument dated as of this 7th day of January, 1998, is an Amendment
to Sublease among BANK ONE ILLINOIS, N.A. (as successor to First Illinois Bank
of Evanston, N.A.), as trustee under Trust Agreement dated March 17, 1975 and
known as Trust No. R-1809 (the "Landlord"), ROTARY INTERNATIONAL, an Illinois
not-for-profit corporation (the "Sublandlord") and NORTHFIELD LABORATORIES INC
(the "Subtenant").
W I T N E S S E T H:
First Illinois Bank of Evanston, N.A., not individually but solely as
Trustee under Trust Agreement dated March 17, 1975 and known as Trust No.
R-1809 (the "Landlord"), Rotary International, an Illinois not-for-profit
corporation (the "Sublandlord") and Northfield Laboratories Inc. (the
"Subtenant") entered into a Sublease dated April 20, 1988 (the "Sublease") for
certain premises on the tenth floor of One Rotary Center, Evanston, Illinois
(the "Premises").
Bank One Illinois, N.A. succeeded to all of the interests of Landlord
Landlord, Sublandlord and Subtenant desire to amend the Sublease in
certain respects.
NOW, THEREFORE, in consideration for the mutual covenants for their
respective benefits contained herein, Landlord, Sublandlord and Subtenant agree
that the Sublease is hereby amended, effective August 15, 1998, as follows:
1. The Term of the Sublease is hereby extended by a period beginning
August 15, 1998 and ending February 14, 2006 (the "Extended Term").
2. The Base Rent during the Extended Term shall be as set forth in
Exhibit A attached hereto.
3. Sections A(2) and B of Article 2 of the Sublease are hereby deleted
and the first sentence of Section A(1) is hereby amended to read as follows:
"Subtenant shall pay an Annual Base Rent as determined by this
Article 2 (the "Base Rent")."
1
<PAGE> 2
4. Section C of Article 2 of the Sublease is hereby amended to delete
the reference to "CPI Adjustment" and to provide that all payments shall be
made to Cushman & Wakefield of Illinois, Inc., as agent for Sublandlord, at
P.O. Box 75732, Chicago, Illinois 60606-5732, or as otherwise designated from
time to time by written notice from Sublandlord to Subtenant.
5. Subtenant shall pay its Proportional Share of Taxes and Operating
Expenses in excess of Taxes and Operating Expenses for the Base Year. The
Taxes for the Base Year shall be the Taxes for 1997 which are payable in 1998.
Operating Expenses for the Base Year shall be Operating Expenses incurred in
1998.
6. Article 7 and Exhibit B to the Sublease are hereby deleted and
replaced with the following:
"Subtenant has occupied the Premises since August 14, 1988 and,
accordingly, accepts the condition of the Premises AS IS."
7. Article 9 of the Sublease is hereby amended to provide that any
mechanical engineering required to be done with respect to any alterations to
the Premises shall be done by Environmental Systems Design, Inc.
8. In the eighth and ninth lines of Article 11, the reference to
"Landlord" is hereby deleted and replaced with a reference to "Sublandlord".
9. The final sentence of Article 12(C) is hereby deleted and replaced
with the following:
"Without limiting any release or waiver of liability or recovery
contained in any other provision of this Sublease but rather in
confirmation in furtherance thereof, each of the parties hereto
waives all claims for recovery from the other party for any loss
or damage to any of its property to the extent that it is or could
have been insured under all risk property insurance written on a
full replacement cost basis."
10. Article 17A(1) is hereby deleted and replaced with the following:
"(1) Failure by Subtenant to pay any Rent within seven (7)
days after being invoiced therefore by Sublandlord."
11. Article 17A(2) is hereby deleted and replaced with the following:
2
<PAGE> 3
"(2) Failure by Subtenant to pay within seven (7) days after
noticed thereof from Sublandlord, any other moneys required to be paid
by Subtenant under this Sublease."
12. Article 17A(7) is hereby deleted.
13. Article 20 is hereby deleted and replaced with the following:
"ARTICLE 20
COSTS, EXPENSES AND ATTORNEYS' FEES
In case either party (the "Protected Party") shall, without
fault on its own part, be made a party to any litigation commenced by
or against the other party (the "Offending Party"), then the
Offending Party shall pay all costs, expenses and reasonable
attorneys' fees incurred or paid by the Protected Party in connection
with such litigation. Either party (the "Offending Party") also
shall pay all costs, expenses and reasonable attorneys' fees that may
be incurred or paid by the other party (the "Protected Party") in
enforcing any of the Offending Party's covenants and agreements in
this Sublease."
14. Article 25 of the Sublease is hereby deleted.
15. The following is added as subparagraph 26.F. of the Sublease:
"F. Subtenant, upon giving fifteen (15) days prior written noticed to
Sublandlord, shall have the right without Sublandlord's consent and without
being subject to Sublandlord's right to recapture, to assign the Sublease or
further sublease the Premises to a parent, affiliate or subsidiary corporation
of Subtenant and also to a corporation resulting from a merger or consolidation
which includes Subtenant, or to an entity purchasing all or substantially all
of the assets of Subtenant; provided, however, Subtenant shall remain liable on
all of the obligations of Subtenant under the Sublease."
16. Article 27 of the Sublease is hereby amended to provide that
notice to the Sublandlord shall be addressed to:
ROTARY INTERNATIONAL
One Rotary Center
1560 Sherman Avenue
Evanston IL 60201
Attention: Ms. Jeanette Hamilton
with a copy to:
3
<PAGE> 4
ROSENTHAL AND SCHANFIELD
55 E. Monroe Street, Suite 4600
Chicago IL 60603
Attention: Charles R. Staley, Esq.
17. Article 32 of the Sublease is hereby deleted and replaced with the
following:
"ARTICLE 32
SUBTENANT'S OPTION TO TERMINATE
In the event that Subtenant is not in default under any of the terms of
this Sublease, Subtenant shall have the right to cancel this Sublease effective
any time after February 15, 2002, upon giving Sublandlord written notice of the
termination not less than six (6) months prior to the effective date of the
termination (the "Subtenant's Termination Notice"). Subtenant's Termination
Notice shall be accompanied by a sum of money in the form of cash or certified
or cashier's check payable to Sublandlord, equal to six months Base Rent and
six months Additional Rental Payments calculated at the rate payable on the
date of Subtenant's Termination Notice."
18. Article 33A is hereby deleted and replaced with the following:
"A. Parking. Sublandlord shall lease to Subtenant 14 reserved parking
spaces, identified as numbers 120, 121, 122, 369, 370, 371, 372, 373, 374, 375,
376, 377, 378 and 379, in the garage of the Building at the current rental rate
charged from time to time, to others using spaces in the garage on a monthly
rental basis. The rate Subtenant shall be charged for each such parking space
upon execution of this Amendment to Sublease is Seventy Dollars ($70.00) per
month, and Sublandlord shall provide subtenant with reasonable notice prior to
increasing this amount. If Sublandlord deems it necessary for the efficient
operation of the garage, Sublandlord shall have the right to make reasonable
changes with respect to the location of the parking spaces assigned to
Subtenant."
19. There is hereby added to Article 36 the following additional
subsections:
"(4) The New Premises shall be located above the fifth floor of the
Building.
"(5) The New Premises shall have its predominate exposure on the
4
<PAGE> 5
east side of the Building."
20. Exhibit C to the Sublease is hereby amended by adding the
following:
"13. Subtenant shall not install any CFC's or HCFC's without
Landlord's prior written consent.
"14. Subtenant's Contractors, the subcontractors of Subtenant
or its contractors, Subtenant's vendors, Subtenant's employees and
other parties directly or indirectly controlled by Subtenant shall at
all times possess good labor relations and continually work in
harmony with Landlord's other contractors and subcontractors in the
Building, as a continuing condition of employment."
21. In the event of any conflict between this Amendment to Sublease
and the Sublease, this Amendment to Sublease shall be controlling.
22. Capitalized terms which are not defined herein shall have the
meaning given them in the Sublease.
23. Except as hereby amended, the sublease is hereby ratified and
affirmed.
24. It is expressly understood and agreed that this Amendment to
Sublease is executed on behalf of BANK ONE ILLINOIS, N.A., not personally but
as Trustee as aforesaid, in the exercise of the power and authority conferred
upon and invested in it as such Trustee, and under the direction of the
beneficiaries of a certain Trust Agreement dated March 17, 1975, and known as
Trust No. R-1809. It is further expressly understood and agreed that BANK ONE
ILLINOIS, N.A., as Trustee as aforesaid, has no right or power whatsoever to
manage, control or operate said real estate in any way or to any extent and is
not entitled at any time to collect or receive for any purpose, directly or
indirectly, the rents, issues, profits or proceeds of said real estate or any
lease or sale or any mortgage or any disposition thereof. Nothing in this
Amendment to Sublease contained shall be construed as creating any personal
liability or personal responsibility of the Trustee or any of the beneficiaries
of the Trust, and, in particular, without limiting the generality of the
foregoing, there shall be no personal liability to pay any indebtedness
accruing hereunder or to perform any covenant, either expressly or impliedly
herein contained, or to keep, preserve or sequester any property of said Trust
or for said Trustee to continue as said Trustee; and that so far as the parties
herein are concerned the owner of any indebtedness or liability accruing
hereunder shall look solely to the Trust estate from time-to-time subject to
the provisions of said Trust Agreement for payment thereof, Subtenant hereby
expressly waiving and releasing said personal liability and personal
responsibility on behalf of itself and all persons claiming by, through or
under Subtenant.
5
<PAGE> 6
LANDLORD: BANK ONE ILLINOIS, N.A., as Trustee
under Trust Agreement dated March 17
1975 and known as Trust No. R-1809.
By: /s/ Catherine Martin
-------------------------------
SUBLANDLORD: ROTARY INTERNATIONAL, an Illinois
not-for-profit corporation
By: /s/ Jeanette Hamilton
-------------------------------
SUBTENANT: NORTHFIELD LABORATORIES INC.
By: /s/ Jack Kogut
-------------------------------
6
<PAGE> 1
EXHIBIT 15
ACKNOWLEDGEMENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
REGARDING INDEPENDENT AUTITORS' 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 March 20, 1998 related to our review of interim financial
information.
Pursuant to Rule 436(c) under the Securities Act of 1993, 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
April 8, 1998
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<PERIOD-START> JUN-01-1997
<PERIOD-END> FEB-28-1998
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<CASH> 17,187,955
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