<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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
----------- -------------
COMMISSION FILE NUMBER 0-24050
NORTHFIELD LABORATORIES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3378733
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization Identification Number)
1560 SHERMAN AVENUE, SUITE 1000, EVANSTON, ILLINOIS 60201-4800
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (847) 864-3500
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT: 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 UNDER
A PLAN CONFIRMED BY A COURT. YES NO
--- ---
AS OF FEBRUARY 28, 1999 REGISTRANT HAD 14,114,875 SHARES OF COMMON STOCK
OUTSTANDING.
================================================================================
<PAGE> 2
NORTHFIELD LABORATORIES, INC.
(a company in the development stage)
Financial Statements
February 28, 1999
(See accompanying review report of
KPMG 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 February 28, 1999, and the related statements of
operations for the three-month and nine-month periods ended February 28, 1999
and 1998, and cash flows for the nine-month periods ended February 28, 1999 and
1998, and for the period from June 19, 1985 (inception) through February 28,
1999. We have also reviewed the statements of shareholders' equity (deficit) for
the nine-month period ended February 28, 1999 and for the period from June 19,
1985 (inception) through February 28, 1999. 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.
March 31, 1999
Chicago, Illinois
<PAGE> 4
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Balance Sheets
February 28, 1999 (unaudited) and May 31, 1998
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
ASSETS 1999 1998
------------- -------------
<S> <C> <C>
Current assets:
Cash $ 26,178,214 26,473,577
Short-term marketable securities 22,039,036 27,030,902
Prepaid expenses 199,884 373,151
Other current assets 439,976 17,657
------------- -------------
Total current assets 48,857,110 53,895,287
Property, plant and equipment, net 2,838,418 2,996,937
Other assets 26,496 27,255
------------- -------------
$ 51,722,024 56,919,479
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 832,906 1,037,267
Accrued expenses 50,486 81,522
Accrued compensation and benefits 301,789 253,345
------------- -------------
Total current liabilities 1,185,181 1,372,134
Other liabilities 100,000 98,976
------------- -------------
Total liabilities 1,285,181 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 February 28, 1999 and May 31, 1998 141,149 140,974
Additional paid-in capital 116,172,410 116,047,635
Deficit accumulated during the development stage (65,876,716) (60,740,240)
------------- -------------
Total shareholders' equity 50,436,843 55,448,369
------------- -------------
$ 51,722,024 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 nine months ended February 28, 1999 and 1998
and for the period from June 19, 1985 (inception)
through February 28, 1999
<TABLE>
<CAPTION>
CUMULATIVE
THREE MONTHS ENDED NINE MONTHS ENDED FROM
FEBRUARY 28, FEBRUARY 28, JUNE 19, 1985
---------------------------- ---------------------------- THROUGH
1999 1998 1999 1998 FEBRUARY 28, 1999
------------ ------------ ------------ ------------ -----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues - license income $ -- -- -- -- 3,000,000
Costs and expenses:
Research and development 1,699,787 1,608,398 5,382,692 4,759,423 57,669,509
General and administrative 597,612 585,038 1,748,630 1,789,534 28,647,990
------------ ------------ ------------ ------------ ------------
(2,297,399) (2,193,436) (7,131,322) (6,548,957) (86,317,499)
------------ ------------ ------------ ------------ ------------
Other income and expense:
Interest income 606,462 764,570 1,994,846 2,396,857 17,524,017
Interest expense -- -- -- -- 83,234
------------ ------------ ------------ ------------ ------------
606,462 764,570 1,994,846 2,396,857 17,440,783
------------ ------------ ------------ ------------ ------------
Net loss $ (1,690,937) (1,428,866) (5,136,476) (4,152,100) (65,876,716)
============ ============ ============ ============ ============
Net loss per share $ (0.12) (0.10) (0.36) (0.29) (7.77)
============ ============ ============ ============ ============
Shares used in calculation of per share data 14,114,875 14,092,375 14,106,368 14,092,375 8,482,215
============ ============ ============ ============ ============
</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, 1999 and for the
period from June 19, 1985 (inception) through February 28, 1999
<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>
(Continued)
<PAGE> 7
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Shareholders' Equity (Deficit)
Nine months ended February 28, 1999 and for the
period from June 19, 1985 (inception) through February 28, 1999
<TABLE>
<CAPTION>
SERIES B CONVERTIBLE DEFICIT
PREFERRED STOCK ACCUMULATED TOTAL
-------------------- ADDITIONAL DURING THE SHAREHOLDERS'
NUMBER AGGREGATE PAID-IN DEVELOPMENT DEFERRED EQUITY
OF SHARES AMOUNT CAPITAL STAGE COMPENSATION (DEFICIT)
--------- ---------- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock on August 27, 1985 -- $ -- (28,000) -- -- 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) -- -- 670,850 -- -- 920,850
Net loss -- -- -- (607,688) -- (607,688)
--------- ---------- ----------- ----------- ------------ -----------
Balance at May 31, 1986 -- -- 642,850 (607,688) -- 320,162
Net loss -- -- -- (2,429,953) -- (2,429,953)
Deferred compensation relating to
grant of stock options -- -- 2,340,000 -- (2,340,000) --
Amortization of deferred compensation -- -- -- -- 720,000 720,000
--------- ---------- ----------- ----------- ------------ -----------
Balance at May 31, 1987 -- -- 2,982,850 (3,037,641) (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) 200,633 200,633 6,882,502 -- -- 7,083,135
Net loss -- -- -- (3,057,254) -- (3,057,254)
Amortization of deferred compensation -- -- -- -- 566,136 566,136
--------- ---------- ----------- ----------- ------------ -----------
Balance at May 31, 1988 200,633 200,633 9,865,352 (6,094,895) (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) -- -- 9,749,870 -- -- 9,754,000
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 -- -- 94,230
Issuance of common stock at $28.49
per share on March 6, 1989 (net of costs
of issuance of $21,395) -- -- 4,976,855 -- -- 4,978,610
Issuance of common stock at $28.49
per share on March 30, 1989 (net of costs
of issuance of $10,697) -- -- 2,488,356 -- -- 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 -- -- 7,443,118
Net loss -- -- -- (791,206) -- (791,206)
Deferred compensation relating to grant of
stock options -- -- 683,040 -- (683,040) --
Amortization of deferred compensation -- -- -- -- 800,729 800,729
--------- ---------- ----------- ----------- ------------ -----------
Balance at May 31, 1989 -- -- 35,728,451 (6,886,101) (936,175) 27,970,941
Net loss -- -- -- (3,490,394) -- (3,490,394)
Deferred compensation relating to
grant of stock options -- -- 699,163 -- (699,163) --
Amortization of deferred compensation -- -- -- -- 546,278 546,278
--------- ---------- ----------- ----------- ------------ -----------
Balance at May 31, 1990 -- -- 36,427,614 (10,376,495) (1,089,060) 25,026,825
Net loss -- -- -- (5,579,872) -- (5,579,872)
Amortization of deferred compensation -- -- -- -- 435,296 435,296
--------- ---------- ----------- ----------- ------------ -----------
Balance at May 31, 1991 -- -- 36,427,614 (15,956,367) (653,764) 19,882,249
Exercise of stock warrants at $5.60 per share -- -- 503,100 -- -- 504,000
Net loss -- -- -- (7,006,495) -- (7,006,495)
Amortization of deferred compensation -- -- -- -- 254,025 254,025
--------- ---------- ----------- ----------- ------------ -----------
Balance at May 31, 1992 -- -- 36,930,714 (22,962,862) (399,739) 13,633,779
Exercise of stock warrants at $7.14 per share -- -- 106,890 -- -- 107,040
Issuance of common stock at $15.19
per share on April 19, 1993 (net of costs of
issuance of $20,724) -- -- 5,663,710 -- -- 5,667,454
Net loss -- -- -- (8,066,609) -- (8,066,609)
Amortization of deferred compensation -- -- -- -- 254,025 254,025
--------- ---------- ----------- ----------- ------------ -----------
Balance at May 31, 1993 -- $ -- 42,701,314 (31,029,471) (145,714) 11,595,689
--------- ---------- ----------- ----------- ------------ -----------
</TABLE>
See accompanying notes to financial statements.
(Continued)
<PAGE> 8
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Shareholders' Equity (Deficit), Continued
Nine months ended February 28, 1999 and for the
period from June 19, 1985 (inception) through February 28, 1999
<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 (unaudited) -- -- 17,500 175 -- --
---------- ---------- ----------- --------- ---------- ---------
Balance at February 28, 1999 (unaudited) -- $ -- 14,114,875 $ 141,149 -- $ --
========== ========== =========== ========= ========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 9
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Shareholders' Equity (Deficit), Continued
Nine months ended February 28, 1999 and for the
period from June 19, 1985 (inception) through February 28, 1999
<TABLE>
<CAPTION>
SERIES B CONVERTIBLE DEFICIT
PREFERRED STOCK ACCUMULATED TOTAL
-------------------- ADDITIONAL DURING THE SHAREHOLDERS'
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 $423,238) -- -- 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) -- -- -- (5,136,476) -- (5,136,476)
Exercise of stock options at $7.14
per share (unaudited) -- -- 124,775 -- -- 124,950
-------- --------- ----------- ------------- ---------- -----------
Balance at February 28, 1999 (unaudited) -- $ -- 116,172,410 (65,876,716) -- 50,436,843
======== ========= =========== ============= ========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 10
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Cash Flows
Nine months ended February 28, 1999 and 1998 and for
the period from June 19, 1985 (inception) through
February 28, 1999
<TABLE>
<CAPTION>
CUMULATIVE
NINE MONTHS ENDED FROM
FEBRUARY 28, JUNE 19, 1985
---------------------------- THROUGH
1999 1998 FEBRUARY 28, 1999
------------ ---------- -----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (5,136,476) (4,152,100) (65,876,716)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 393,646 323,258 13,761,938
Amortization of deferred compensation -- 1,284 3,449,991
Loss on sale of equipment -- -- 66,359
Changes in assets and liabilities:
Prepaid expenses 173,267 176,728 (310,895)
Other current assets (431,486) (219,137) (2,336,227)
Other assets -- 4,167 (42,147)
Accounts payable (204,361) (277,051) 832,906
Accrued expenses (31,036) (21,341) 50,486
Accrued compensation and benefits 48,444 9,187 301,789
Other liabilities 1,024 1,029 100,000
------------ ---------- -----------
Net cash used in operating activities (5,186,978) (4,153,976) (50,002,516)
------------ ---------- -----------
Cash flows from investing activities:
Purchase of property, plant, equipment
and capitalized engineering costs (225,201) (2,063,556) (14,720,389)
Proceeds from matured marketable securities 42,649,200 39,039,196 327,440,781
Proceeds from sale of marketable securities -- -- 7,141,656
Purchase of marketable securities (37,657,334) (37,001,205) (356,621,474)
Proceeds from sale of equipment -- -- 76,587
------------ ---------- -----------
Net cash used in investing activities 4,766,665 (25,565) (36,682,839)
------------ ---------- -----------
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 (295,363) (4,179,541) 26,178,214
Cash at beginning of period 26,473,577 21,367,496 --
------------ ---------- ----------
Cash at end of period $ 26,178,214 17,187,955 26,178,214
============ ========== ==========
</TABLE>
See accompanying independent auditors' review report.
<PAGE> 11
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Notes to Financial Statements
February 28, 1999
(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> 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(TM). 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, 1999, Northfield incurred operating losses totaling $65,877,000.
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> 13
RESULTS OF OPERATIONS
The Company reported no revenues for either of the three-month periods
ended February 28, 1999 or 1998. From its inception through February 28, 1999,
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 quarter of fiscal 1999
totaled $2,297,000, an increase of $104,000 from the $2,193,000 reported in the
third quarter of fiscal 1998. Measured on a percentage basis, total expenses in
the third quarter of fiscal 1999 increased by 4.7%. This increase was primarily
due to increased costs associated with the Company's Phase II and Phase III
clinical trials.
Research and development expenses for the third quarter of fiscal 1999
totaled $1,700,000, an increase of $92,000, or 5.7%, from the $1,608,000
reported in the third quarter of fiscal 1998. The quarter over quarter increase
in research and development expenses resulted from expanded efforts in clinical
trials. 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> 14
For the nine-month period ended February 28, 1999, research and
development expenses totaled $5,383,000, representing an increase of $624,000,
or 13.1%, from the nine-month period ended February 28, 1998. 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 third quarter of fiscal 1999
totaled $598,000 compared to expenses of $585,000 in the third quarter of 1998,
representing an increase of $13,000, or 2.2%. The increase was due primarily to
increased insurance costs. The Company will continue to prioritize research and
development over general and administrative expenses. The Company anticipates
that general and administration expenses will likely increase over the next
several quarters.
General and administrative expenses for the nine-month period ended
February 28, 1999 totaled $1,749,000 which represents a $41,000 or 2.3%,
decrease from the $1,790,000 in the comparable prior year period. The decreases
are reported primarily in travel and professional services.
INTEREST INCOME
Interest income in the third quarter of fiscal 1999 equaled $606,000,
or a $159,000 decrease from the $765,000 in interest income reported in the
third quarter of fiscal 1998. Lower available
<PAGE> 15
investment balances and lower interest rates caused the quarter over quarter
decrease in interest income. Interest income for the nine-month period ended
February 28, 1999 totaled $1,995,000 or a $402,000 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 third quarter ended February 28, 1999 was
$1,691,000, or $.12 per basic share, compared to a net loss of $1,429,000, or
$.10 per basic share, for the third quarter ended February 28, 1998. The
increase in the loss per basic share is primarily the result of the increase in
expense of running the ongoing clinical trials.
For the nine-month period ended February 28, 1999, Northfield reported
a loss of $5,136,000, or $.36 per basic share, compared to the comparable prior
year period results of a loss of $4,152,000, or $.29 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> 16
LIQUIDITY AND CAPITAL RESOURCES
From its inception through February 28, 1999, the Company has expended
cash in operating activities and for the purchase of property, plant, equipment
and engineering services in the amount of $64,723,000. For the three-month and
nine-month periods ended February 28, 1999, these cash expenditures totaled
$1,649,000 and $5,412,000, respectively, as compared to $1,756,000 and
$6,218,000 in the prior year. The third quarter fiscal 1998 net cash outlay was
high, compared to the current year expenditure, due to land acquisition for 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 February
28, 1999, the Company had cash and marketable securities totaling $48,217,000.
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 2 - 3
years. Thereafter, the Company is likely to require substantial additional
capital to continue its operations. The Company is currently unable to fund the
construction of a large-scale manufacturing facility, which is estimated to cost
approximately $45 million, without raising substantial 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.
<PAGE> 17
The Company has engaged in discussions with a number of potential strategic
partners. These discussions are at various 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 internal computer 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
adversely affected.
<PAGE> 18
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> 19
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 13, 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 March 31, 1999 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 LLP
------------------------
KPMG LLP
Chicago, Illinois
April 12, 1999
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