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<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, 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 NOVEMBER 30, 1998, REGISTRANT HAD 14,114,875 SHARES OF COMMON STOCK
OUTSTANDING.
=============================================================================
<PAGE> 2
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Financial Statements
November 30, 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 sheet of Northfield Laboratories Inc. (a company in
the development stage) as of November 30, 1998, and the related statements of
operations and for the three-month and six-month periods ended November 30, 1998
and 1997, and cash flows for the six-month periods ended November 30, 1998 and
1997, and for the period from June 19, 1985 (inception) through November 30,
1998. We have also reviewed the statements of shareholders' equity (deficit) for
the six-month period ended November 30, 1998 and for the period from June 19,
1985 (inception) through November 30, 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, 1998,
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, 1998 (not presented herein); and in our report dated
July 6, 1998, 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, 1998 and in the accompanying statement of shareholders' equity
(deficit) is fairly stated, in all material respects, in relation to the
statement from which it has been derived.
December 21, 1998
<PAGE> 4
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Balance Sheets
November 30, 1998 (unaudited) and May 31, 1998
<TABLE>
<CAPTION>
NOVEMBER 30 MAY 31,
ASSETS 1998 1998
------------- ----------
<S> <C> <C>
Current assets:
Cash $ 28,118,472 26,473,577
Short-term marketable securities 21,748,144 27,030,902
Prepaid expenses 263,602 373,151
Other current assets 43,477 17,657
------------- ----------
Total current assets 50,173,695 53,895,287
Property, plant and equipment, net 2,886,021 2,996,937
Other assets 26,749 27,255
------------- ----------
$ 53,086,465 56,919,479
============= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 523,099 1,037,267
Accrued expenses 69,893 81,522
Accrued compensation and benefits 265,693 253,345
------------- ----------
Total current liabilities 858,685 1,372,134
Other liabilities 100,000 98,976
------------- ----------
Total liabilities 958,685 1,471,110
------------- ----------
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 14,114,875 and 14,097,375 shares
at November 30, 1998 and May 31, 1998, respectively 141,149 140,974
Additional paid-in capital 116,172,410 116,047,635
Deficit accumulated during the development stage (64,185,779) (60,740,240)
------------- ----------
Total shareholders' equity 52,127,780 55,448,369
------------- ----------
$ 53,086,465 56,919,479
============= ==========
</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, 1998 and 1997 and for the
period from June 19, 1985 (inception) through November 30, 1998
<TABLE>
<CAPTION>
CUMULATIVE
FROM
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 19, 1985
NOVEMBER 30, NOVEMBER 30, THROUGH
------------------------ ------------------------- -----------------
1998 1997 1998 1997 NOVEMBER 30, 1998
----------- ----------- ----------- ----------- -----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues - license income $ -- -- -- -- 3,000,000
Costs and expenses:
Research and development 1,876,252 1,565,291 3,682,905 3,151,025 55,969,722
General and administrative 560,459 622,031 1,151,018 1,204,496 28,050,378
----------- ---------- ---------- ---------- -----------
2,436,711 2,187,322 4,833,923 4,355,521 84,020,100
----------- ---------- ---------- ---------- -----------
Other income and expense:
Interest income 672,046 793,882 1,388,384 1,632,287 16,917,555
Interest expense -- -- -- -- 83,234
----------- ---------- ---------- ---------- -----------
672,046 793,882 1,388,384 1,632,287 16,834,321
----------- ---------- ---------- ---------- -----------
Net loss $(1,764,665) (1,393,440) (3,445,539) (2,723,234) (64,185,779)
=========== ========== ========== ========== ===========
Net loss per basic share $ (0.13) (0.10) (0.24) (0.19) (7.66)
=========== ========== ========== ========== ===========
Shares used in calculation of per share data 14,107,045 14,092,375 14,102,184 14,092,375 8,377,541
=========== ========== ========== ========== ===========
</TABLE>
See accompanying independent auditors' review report.
<PAGE> 6
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Shareholders' Equity (Deficit)
Six months ended November 30, 1998 and for the
period from June 19, 1985 (inception) through November 30, 1998
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE
PREFERRED STOCK COMMON STOCK PREFERRED STOCK
-------------------- ------------------------ -----------------------
NUMBER AGGREGATE NUMBER AGGREGATE NUMBER AGGREGATE
OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT
-------------------- ------------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock on August 27, 1985 -- $ -- 3,500,000 $35,000 -- $ --
Issuance of Series A convertible preferred
stock at $4.00 per share on August 27, 1985
(net of costs of issuance of $79,150) -- -- -- -- 250,000 250,000
Net loss -- -- -- -- -- --
------ ------ - -------- ------- ------- --------
Balance at May 31, 1986 -- -- 3,500,000 35,000 250,000 250,000
Net loss -- -- -- -- -- --
Deferred compensation relating to grant of stock options -- -- -- -- -- --
Amortization of deferred compensation -- -- -- -- -- --
------ ------ --------- ------- ------- --------
Balance at May 31, 1987 -- -- 3,500,000 35,000 250,000 250,000
Issuance of Series B convertible preferred stock
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 -- -- 3,500,000 35,000 250,000 250,000
Issuance of common stock at $24.21 per share on
June 7, 1988 (net of costs of issuance of $246,000) -- -- 413,020 4,130 -- --
Conversion of Series A convertible preferred stock
to common stock on June 7, 1988 -- -- 1,250,000 12,500 (250,000) (250,000)
Conversion of Series B convertible preferred stock
to common stock on June 7, 1988 -- -- 1,003,165 10,032 -- --
Exercise of stock options at $2.00 per share -- -- 47,115 471 -- --
Issuance of common stock at $28.49 per share on
March 6, 1989 (net of costs of issuance of $21,395) -- -- 175,525 1,755 -- --
Issuance of common stock at $28.49 per share on
March 30, 1989 (net of costs of issuance of $10,697) -- -- 87,760 878 -- --
Sale of options at $28.29 per share to purchase common
stock 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 -- -- 6,476,585 64,766 -- --
Net loss -- -- -- -- -- --
Deferred compensation relating to grant of stock options -- -- -- -- -- --
Amortization of deferred compensation -- -- -- -- -- --
------ ------ --------- ------- ------ --------
Balance at May 31, 1990 -- -- 6,476,585 64,766 -- --
Net loss -- -- -- -- -- --
Amortization of deferred compensation -- -- -- -- -- --
------ ------ --------- ------- ------ --------
Balance at May 31, 1991 -- -- 6,476,585 64,766 -- --
Exercise of stock warrants at $5.60 per share -- -- 90,000 900 -- --
Net loss -- -- -- -- -- --
Amortization of deferred compensation -- -- -- -- -- --
------ ------ --------- ------- ------ --------
Balance at May 31, 1992 -- -- 6,566,585 65,666 -- --
Exercise of stock warrants at $7.14 per share -- -- 15,000 150 -- --
Issuance of common stock at $15.19 per share on
April 19, 1993 (net of costs of issuance of $20,724) -- -- 374,370 3,744 -- --
Net loss -- -- -- -- -- --
Amortization of deferred compensation -- -- -- -- -- --
------ ------ --------- ------- ------ --------
Balance at May 31, 1993 -- $ -- 6,955,955 $69,560 -- $ --
------ ------ --------- ------- ------ --------
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
SERIES B CONVERTIBLE DEFICIT
PREFERRED STOCK ACCUMULATED
------------------------ ADDITIONAL DURING THE
NUMBER AGGREGATE PAID-IN DEVELOPMENT
OF SHARES AMOUNT CAPITAL STAGE
------------------------ ------------ -----------
<S> <C> <C> <C> <C>
Issuance of common stock on August 27, 1985 -- -- (28,000) --
Issuance of Series A convertible preferred
stock at $4.00 per share on August 27, 1985
(net of costs of issuance of $79,150) -- -- 670,850 --
Net loss -- -- -- (607,688)
------ ------ ---------- ----------
Balance at May 31, 1986 -- -- 642,850 (607,688)
Net loss -- -- -- (2,429,953)
Deferred compensation relating to grant of
stock options -- -- 2,340,000 --
Amortization of deferred compensation -- -- -- --
------ ------ ---------- ----------
Balance at May 31, 1987 -- -- 2,982,850 (3,037,641)
Issuance of Series B convertible preferred stock
at $35.68 per share on August 14, 1987
(net of costs of issuance of $75,450) 200,633 200,633 6,882,502 --
Net loss -- -- -- (3,057,254)
Amortization of deferred compensation -- -- -- --
------ ------ ---------- ----------
Balance at May 31, 1988 200,633 200,633 9,865,352 (6,094,895)
Issuance of common stock at $24.21 per share on
June 7, 1988 (net of costs of issuance of $246,000) -- -- 9,749,870 --
Conversion of Series A convertible preferred stock
to common stock on June 7, 1988 -- -- 237,500 --
Conversion of Series B convertible preferred stock
to common stock on June 7, 1988 (200,633) (200,633) 190,601 --
Exercise of stock options at $2.00 per share -- -- 93,759 --
Issuance of common stock at $28.49 per share on
March 6, 1989 (net of costs of issuance of $21,395) -- -- 4,976,855 --
Issuance of common stock at $28.49 per share on
March 30, 1989 (net of costs of issuance of $10,697) -- -- 2,488,356 --
Sale of options at $28.29 per share to purchase common
stock at $.20 per share on
March 30, 1989 (net of costs of issuance of $4,162) -- -- 7,443,118 --
Net loss -- -- -- (791,206)
Deferred compensation relating to grant of stock options -- -- 683,040 --
Amortization of deferred compensation -- -- -- --
------ ------ ---------- ----------
Balance at May 31, 1989 -- -- 35,728,451 (6,886,101)
Net loss -- -- -- (3,490,394)
Deferred compensation relating to grant of stock options -- -- 699,163 --
Amortization of deferred compensation -- -- -- --
------ ------ ---------- ----------
Balance at May 31, 1990 -- -- 36,427,614 (10,376,495)
Net loss -- -- -- (5,579,872)
Amortization of deferred compensation -- -- -- --
------ ------ ---------- ----------
Balance at May 31, 1991 -- -- 36,427,614 (15,956,367)
Exercise of stock warrants at $5.60 per share -- -- 503,100 --
Net loss -- -- -- (7,006,495)
Amortization of deferred compensation -- -- -- --
------ ------ ---------- ----------
Balance at May 31, 1992 -- -- 36,930,714 (22,962,862)
Exercise of stock warrants at $7.14 per share -- -- 106,890 --
Issuance of common stock at $15.19 per share on
April 19, 1993 (net of costs of issuance of $20,724) -- -- 5,663,710 --
Net loss -- -- -- (8,066,609)
Amortization of deferred compensation -- -- -- --
------ ------ ---------- ----------
Balance at May 31, 1993 -- $ -- 42,701,314 (31,029,471)
------ ------ ---------- ----------
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
TOTAL
SHAREHOLDER'S
DEFERRED EQUITY
COMPENSATION (DEFICIT)
------------ -----------------
<S> <C> <C>
Issuance of common stock on August 27, 1985 -- 7,000
Issuance of Series A convertible preferred
stock at $4.00 per share on August 27, 1985
(net of costs of issuance of $79,150) -- 920,850
Net loss -- (607,688)
---------- ------------
Balance at May 31, 1986 -- 320,162
Net loss -- (2,429,953)
Deferred compensation relating to grant of
stock options (2,340,000) --
Amortization of deferred compensation 720,000 720,000
--------- -----------
Balance at May 31, 1987 (1,620,000) (1,389,791)
Issuance of Series B convertible preferred stock
at $35.68 per share on August 14, 1987
(net of costs of issuance of $75,450) -- 7,083,135
Net loss -- (3,057,254)
Amortization of deferred compensation 566,136 566,136
--------- -----------
Balance at May 31, 1988 (1,053,864) 3,202,226
Issuance of common stock at $24.21 per share on
June 7, 1988 (net of costs of issuance of $246,000) -- 9,754,000
Conversion of Series A convertible preferred stock
to common stock on June 7, 1988 -- --
Conversion of Series B convertible preferred stock
to common stock on June 7, 1988 -- --
Exercise of stock options at $2.00 per share -- 94,230
Issuance of common stock at $28.49 per share on
March 6, 1989 (net of costs of issuance of $21,395) -- 4,978,610
Issuance of common stock at $28.49 per share on
March 30, 1989 (net of costs of issuance of $10,697) -- 2,489,234
Sale of options at $28.29 per share to purchase common
stock at $.20 per share on
March 30, 1989 (net of costs of issuance of $4,162) -- 7,443,118
Net loss -- (791,206)
Deferred compensation relating to grant of stock options (683,040) --
Amortization of deferred compensation 800,729 800,729
--------- -----------
Balance at May 31, 1989 (936,175) 27,970,941
Net loss -- (3,490,394)
Deferred compensation relating to grant of stock options (699,163) --
Amortization of deferred compensation 546,278 546,278
--------- -----------
Balance at May 31, 1990 (1,089,060) 25,026,825
Net loss -- (5,579,872)
Amortization of deferred compensation 435,296 435,296
--------- -----------
Balance at May 31, 1991 (653,764) 19,882,249
Exercise of stock warrants at $5.60 per share -- 504,000
Net loss -- (7,006,495)
Amortization of deferred compensation 254,025 254,025
--------- -----------
Balance at May 31, 1992 (399,739) 13,633,779
Exercise of stock warrants at $7.14 per share -- 107,040
Issuance of common stock at $15.19 per share on
April 19, 1993 (net of costs of issuance of $20,724) -- 5,667,454
Net loss -- (8,066,609)
Amortization of deferred compensation 254,025 254,025
--------- -----------
Balance at May 31, 1993 (145,714) 11,595,689
--------- -----------
</TABLE>
<PAGE> 9
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Shareholders' Equity (Deficit), Continued
Six months ended November 30, 1998 and for the
period from June 19, 1985 (inception) through November 30, 1998
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE
PREFERRED STOCK COMMON STOCK PREFERRED STOCK
-------------------- ---------------------- --------------------
NUMBER AGGREGATE NUMBER AGGREGATE NUMBER AGGREGATE
OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT
-------------------- ---------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Net loss -- $ -- -- $ -- -- $ --
Issuance of common stock at $6.50 per share on
May 26, 1994 (net of costs of issuance of $2,061,149) -- -- 2,500,000 25,000 -- --
Cancellation of stock options -- -- -- -- -- --
Amortization of deferred compensation -- -- -- -- -- --
---- ------ ---------- ----------- ---- -----
Balance at May 31, 1994 -- -- 9,455,955 94,560 -- --
Net loss -- -- -- -- -- --
Issuance of common stock at $6.50 per share on
June 20, 1994 (net of issuance costs of $172,500) -- -- 375,000 3,750 -- --
Exercise of stock options at $7.14 per share -- -- 10,000 100 -- --
Exercise of stock options at $2.00 per share -- -- 187,570 1,875 -- --
Cancellation of stock options -- -- -- -- -- --
Amortization of deferred compensation -- -- -- -- -- --
---- ------ ---------- ----------- ---- -----
Balance at May 31, 1995 -- -- 10,028,525 100,285 -- --
Net loss -- -- -- -- -- --
Issuance of common stock at $17.75 per share on
August 9, 1995 (net of issuance costs of $3,565,125) -- -- 2,925,000 29,250 -- --
Issuance of common stock at $17.75 per share on
September 11, 1995 (net of issuance costs of $423,238) -- -- 438,750 4,388 -- --
Exercise of stock options at $2.00 per share -- -- 182,380 1,824 -- --
Exercise of stock options at $6.38 per share -- -- 1,500 15 -- --
Exercise of stock options at $7.14 per share -- -- 10,000 100 -- --
Cancellation of stock options -- -- -- -- -- --
Amortization of deferred compensation -- -- -- -- -- --
---- ------ ---------- ----------- ---- -----
Balance at May 31, 1996 -- -- 13,586,155 135,862 --
Net loss -- -- -- -- -- --
Exercise of stock options at $0.20 per share -- -- 263,285 2,633 -- --
Exercise of stock options at $2.00 per share -- -- 232,935 2,329 -- --
Exercise of stock options at $7.14 per share -- -- 10,000 100 -- --
Amortization of deferred compensation -- -- -- -- -- --
---- ------ ---------- ----------- ---- -----
Balance at May 31, 1997 -- -- 14,092,375 140,924 -- --
Net loss -- -- -- -- -- --
Exercise of stock options at $7.14 per share -- -- 5,000 50 -- --
Amortization of deferred compensation -- -- -- -- -- --
---- ------ ---------- ----------- ---- -----
Balance at May 31, 1998 -- -- 14,097,375 140,974 -- --
Net loss (unaudited) -- -- -- -- -- --
Exercise of stock options at $7.14 per share -- -- 17,500 175 -- --
---- ------ ---------- ----------- ---- -----
Balance at November 30, 1998 (unaudited) -- $ -- 14,114,875 $ 141,149 -- $ --
==== ====== ========== =========== ==== =====
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
SERIES B CONVERTIBLE DEFICIT
PREFERRED STOCK ACCUMULATED TOTAL
-------------------- ADDITIONAL DURING THE STOCKHOLDERS'
NUMBER AGGREGATE PAID-IN DEVELOPMENT DEFERRED EQUITY
OF SHARES AMOUNT CAPITAL STAGE COMPENSATION (DEFICIT)
-------------------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net loss -- $ -- -- (7,363,810) -- (7,363,810)
Issuance of common stock at $6.50 per share on
May 26, 1994 (net of costs of issuance of
$2,061,149) -- -- 14,163,851 -- -- 14,188,851
Cancellation of stock options -- -- (85,400) -- 85,400 --
Amortization of deferred compensation -- -- -- -- 267 267
---- ----- ----------- ----------- ------- ----------
Balance at May 31, 1994 -- -- 56,779,765 (38,393,281) (60,047) 18,420,997
Net loss -- -- -- (7,439,013) -- (7,439,013)
Issuance of common stock at $6.50 per share on
June 20, 1994 (net of issuance costs of
$172,500) -- -- 2,261,250 -- -- 2,265,000
Exercise of stock options at $7.14 per share -- -- 71,300 -- -- 71,400
Exercise of stock options at $2.00 per share -- -- 373,264 -- -- 375,139
Cancellation of stock options -- -- (106,750) -- 106,750 --
Amortization of deferred compensation -- -- -- -- (67,892) (67,892)
---- ----- ----------- ----------- ------- ----------
Balance at May 31, 1995 -- -- 59,378,829 (45,832,294) (21,189) 13,625,631
Net loss -- -- -- (4,778,875) -- (4,778,875)
Issuance of common stock at $17.75 per share on
August 9, 1995 (net of issuance costs of
$3,565,125) -- -- 48,324,374 -- -- 48,353,624
Issuance of common stock at $17.75 per share on
September 11, 1995 (net of issuance costs of
$423,23 -- -- 7,360,187 -- -- 7,364,575
Exercise of stock options at $2.00 per share -- -- 362,937 -- -- 364,761
Exercise of stock options at $6.38 per share -- -- 9,555 -- -- 9,570
Exercise of stock options at $7.14 per share -- -- 71,300 -- -- 71,400
Cancellation of stock options -- -- (80,062) -- 80,062 --
Amortization of deferred compensation -- -- -- -- (62,726) (62,726)
---- ----- ----------- ----------- ------- ----------
Balance at May 31, 1996 -- -- 115,427,120 (50,611,169) (3,853) 64,947,960
Net loss -- -- -- (4,245,693) -- (4,245,693)
Exercise of stock options at $0.20 per share -- -- 50,025 -- -- 52,658
Exercise of stock options at $2.00 per share -- -- 463,540 -- -- 465,869
Exercise of stock options at $7.14 per share -- -- 71,300 -- -- 71,400
Amortization of deferred compensation -- -- -- -- 2,569 2,569
---- ----- ----------- ----------- ------- ----------
Balance at May 31, 1997 -- -- 116,011,985 (54,856,862) (1,284) 61,294,763
Net loss -- -- -- (5,883,378) -- (5,883,378)
Exercise of stock options at $7.14 per share -- -- 35,650 -- -- 35,700
Amortization of deferred compensation -- -- -- -- 1,284 1,284
---- ----- ----------- ----------- ------- ----------
Balance at May 31, 1998 -- -- 116,047,635 (60,740,240) -- 55,448,369
Net loss (unaudited) -- -- -- (3,445,539) -- (3,445,539)
Exercise of stock options at $7.14 per share -- -- 124,775 -- -- 124,950
---- ----- ----------- ----------- ------- ----------
Balance at November 30, 1998 (unaudited) -- $ -- 116,172,410 (64,185,779) -- 52,127,780
==== ===== =========== =========== ======= ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 11
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Cash Flows
Six months ended November 30, 1998 and 1997 and for the period from June 19,
1985 (inception) through November 30, 1998
<TABLE>
<CAPTION>
CUMULATIVE
SIX MONTHS ENDED FROM
NOVEMBER 30, JUNE 19, 1985
---------------------------------- THROUGH
1998 1997 NOVEMBER 30, 1998
---------------------------------- ------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (3,445,539) (2,723,234) (64,185,779)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 317,652 200,505 13,685,944
Amortization of deferred compensation -- 1,284 3,449,991
Loss on sale of equipment -- -- 66,359
Changes in assets and liabilities:
Prepaid expenses 109,549 113,228 (374,613)
Other current assets (34,987) 120,899 (1,939,728)
Other assets -- 4,168 (42,147)
Accounts payable (514,168) (208,288) 523,099
Accrued expenses (11,629) (19,800) 69,893
Accrued compensation and benefits 12,348 88,368 265,693
Other liabilities 1,024 (2,063) 100,000
--------------- ---------- -----------
Net cash used in operating activities (3,565,750) (2,424,933) (48,381,288)
--------------- ---------- -----------
Cash flows from investing activities:
Purchase of property, plant, equipment
and capitalized engineering costs (197,063) (2,037,313) (14,692,251)
Proceeds from matured marketable securities 30,649,200 25,039,199 315,440,781
Proceeds from sale of marketable securities -- -- 7,141,656
Purchase of marketable securities (25,366,442) (31,769,170) (344,330,582)
Proceeds from sale of equipment -- -- 76,587
--------------- ---------- -----------
Net cash used in investing activities 5,085,695 (8,767,284) (36,363,809)
--------------- ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock -- -- 102,363,528
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 124,950 -- 7,568,068
Proceeds from issuance of notes payable -- -- 1,500,000
Repayment of notes payable -- -- (140,968)
--------------- ---------- -----------
Net cash provided by financing activities 124,950 -- 112,863,569
--------------- ---------- -----------
Net increase (decrease) in cash 1,644,895 (11,192,217) 28,118,472
Cash at beginning of period 26,473,577 21,367,496 --
--------------- ---------- -----------
Cash at end of period $ 28,118,472 10,175,279 28,118,472
=============== ========== ==========
</TABLE>
See accompanying independent auditors' review report.
<PAGE> 12
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Notes to Financial Statements
November 30, 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,
1999. The interim financial statements should be read in connection with
the audited financial statements for the year ended May 31, 1998.
(2) COMPUTATION OF NET LOSS PER SHARE
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> 13
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, 1998, Northfield incurred operating losses totaling $64,186,000.
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, obtain sufficient quantities of blood to
manufacture PolyHeme in commercial quantities, manufacture and distribute
PolyHeme in a cost-effective manner, and enforce its patent positions. The
Company has experienced significant delays in the development and clinical
testing of PolyHeme. There can be no assurance that the Company will be able to
achieve these goals or that it will be able to realize product revenues or
profitability on a sustained basis or at all.
The Company anticipates that research and development expenses will
increase during the foreseeable future. These expected increases are
attributable to anticipated future clinical trials for domestic and
international markets, monitoring and reporting the results of such trials and
continuing process development associated with improving the Company's
manufacturing capacity to permit commercial-scale production of PolyHeme. The
Company expects that general and administrative expenses will increase over the
foreseeable future due to increased expenses relating to the expansion of the
Company's organization in support of expanded commercial operations.
<PAGE> 14
RESULTS OF OPERATIONS
The Company reported no revenues for either of the three-month or
six-month periods ended November 30, 1998 or 1997. From its inception through
November 30, 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 second quarter of fiscal 1999
totaled $2,437,000, an increase of $250,000 from the $2,187,000 reported in the
second quarter of fiscal 1998. Measured on a percentage basis, total expenses in
the second quarter of fiscal 1999 increased by 11.4%. This increase was
primarily due to increased costs associated with the Company's expanding
clinical trials.
Research and development expenses for the second quarter of fiscal 1999
totaled $1,876,000, an increase of $311,000, or 19.9%, from the $1,565,000
reported in the second quarter of fiscal 1998. The increase in research and
development expenses resulted from expanded efforts in clinical trials and
preparatory efforts for commercial manufacturing. Phase II clinical trials
remain open and are on-going, enrolling high volume trauma patients. During the
quarter, Northfield continued amortizing accumulated capitalized engineering
costs. The Company anticipates that research and development expenses will
increase over the next several quarters. Additional costs are planned for
expanded multi-center clinical trials, third-party clinical monitoring as well
as costs to manufacture additional product.
<PAGE> 15
For the six-month period ended November 30, 1998, research and
development expenses totaled $3,683,000, representing an increase of $532,000,
or 16.9%, from the six-month period ended November 30, 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.
General and administrative expenses in the second quarter of fiscal
1999 totaled $560,000 compared to expenses of $622,000 in the second quarter of
1998, representing a decrease of $62,000, or 10.0%. The decrease was due
primarily to decreased travel, as the Company has continued to focus on clinical
development issues. The Company will continue to prioritize research and
development over general and administrative expansion. The Company anticipates
that general and administration expenses will increase over the balance of the
fiscal year.
General and administrative expenses for the six-month period ended
November 30, 1998 totaled $1,151,000 which represents a $53,000 or 4.4% decrease
from the $1,205,000 in the comparable prior year period. The decreases are
reported primarily in travel and professional services.
INTEREST INCOME
Interest income in the second quarter of fiscal 1999 equaled $672,000,
or a $122,000 decrease from the $794,000 in interest income reported in the
second quarter of fiscal 1998. Lower available
<PAGE> 16
investment balances and lower interest rates caused the decrease in interest
income. Interest income for the six-month period ended November 30, 1998 totaled
$1,388,000 or a $244,000 decrease from the comparable prior year period. Lower
interest rates combined with declining available investment balances caused the
year over year decline in interest income.
Interest income is forecast to decline over the balance of the fiscal
year as the cost of expanded clinical trials will significantly lower available
investment balances.
NET LOSS
The net loss for the second quarter ended November 30, 1998 was
$1,765,000, or $.13 per basic share, compared to a net loss of $1,393,000, or
$.10 per basic share, for the second quarter ended November 30, 1997. The
increase in the loss per basic share is the result of the increase in the dollar
loss mitigated somewhat by having additional shares outstanding.
For the six-month period ended November 30, 1998, Northfield reported
a loss of $3,446,000, or $.24 per basic share, compared to the comparable prior
year period results of a loss of $2,723,000, or $.19 per basic share. Higher
research and development expenses, partially offset by additional shares
outstanding in fiscal 1999, caused the reported loss and per basic share loss to
increase.
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
From its inception through November 30, 1998, the Company has expended
cash in operating activities and for the purchase of property, plant, equipment
and engineering services in the amount of $63,074,000. For the six-month period
ended November 30, 1998 and 1997, these cash expenditures totaled $3,763,000 and
$4,462,000, respectively. The second quarter fiscal 1998 net cash outlay was
high, compared to the current year expenditure, 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 public and private sale of equity securities and,
to a more limited extent, through the license of product rights. As of November
30, 1998, the Company had cash and marketable securities totaling $49,867,000.
The Company believes its existing capital resources will be adequate to
satisfy its operating capital requirements and maintain its existing pilot
manufacturing plant and office facilities for approximately the next 30-42
months. Thereafter, the Company is likely to require substantial additional
capital to continue its operations. If the Company uses its own resources to
fund the construction of a commercial-scale manufacturing facility, which is
estimated to cost approximately $45 million, its will significantly accelerate
the Company's need to raise additional capital.
The Company 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
<PAGE> 18
discussions are at preliminary stages and there can be no assurance that 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.
YEAR 2000
The Company has reviewed its information technology and
non-information technology applications and has consulted with its vendors who
provide software services. The Company believes it is substantially year 2000
compliant and that any required changes in coding will be handled in a manner
non-disruptive to the business and at a minimal cost.
Northfield is dependent in its operations on a number of suppliers
whose individual status in achieving a year 2000 conversion is not known at this
time. In the event that Northfield or any of Northfield's significant suppliers
experience disruption due to the year 2000 issue, the Company's operations could
be adversely affected. Northfield has in place an alternative plan for financial
reporting and other systems will be developed on an ad hoc basis.
<PAGE> 19
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBIT 15 - Letter RE: Unaudited Interim Financial Information
EXHIBIT 27 - Financial Data Schedule
(b) None.
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on January 12, 1999.
NORTHFIELD LABORATORIES INC.
By: /s/ Richard E. DeWoskin
-------------------------------
Richard E. DeWoskin
Chairman of the Board and Chief
Executive Officer
By: /s/ Jack J. Kogut
------------------------------
Jack J. Kogut
Secretary and Treasurer
(principal financial officer
and principal accounting
officer)
<PAGE> 1
Exhibit 15
ACKNOWLEDGMENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
REGARDING INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors
Northfield Laboratories Inc.:
With respect to the registration statements on Form S-8 of Northfield
Laboratories Inc., we acknowledge our awareness of the incorporation by
reference therein of our report dated December 21, 1998 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.
Very Truly yours,
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Chicago, Illinois
January 12, 1999
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<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> NOV-30-1998
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<SECURITIES> 21,748,144
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