================================================================================ 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, 2002 OR [ ] TRANSITION REPORT 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 ISSUER 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, 2002, REGISTRANT HAD 14,265,875 SHARES OF COMMON STOCK OUTSTANDING ================================================================================ INDEPENDENT ACCOUNTANTS' 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, 2002, and the related statements of operations for the three-month periods ended February 28, 2002 and 2001, and statements of operations and cash flows for the nine-month periods ended February 28, 2002 and 2001 and for the period from June 19, 1985 (inception) through February 28, 2002. We have also reviewed the statements of shareholders' equity (deficit) for the nine-month period ended February 28, 2002 and for the period from June 19, 1985 (inception) through February 28, 2002. 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 auditing standards generally accepted in the United States of America, 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 accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the balance sheet of Northfield Laboratories Inc. as of May 31, 2001, 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, 2001 (not presented herein); and in our report dated July 2, 2001, 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, 2001 and in the accompanying statement of shareholders' equity (deficit) for the year ended is fairly stated, in all material respects, in relation to the statement from which it has been derived. /s/ KPMG LLP Chicago, Illinois March 29, 2002 NORTHFIELD LABORATORIES INC. (a company in the development stage) Balance Sheets February 28, 2002 and May 31, 2001 FEBRUARY 28, MAY 31, ASSETS 2002 2001 ------------- ----------- (unaudited) Current assets: Cash $ 15,708,003 6,435,540 Short-term marketable securities 4,996,604 22,262,841 Prepaid expenses 172,640 378,142 Other current assets 51,990 455,860 ------------- ---------- Total current assets 20,929,237 29,532,383 Property, plant, and equipment, net 2,344,958 2,847,333 Other assets 72,664 122,522 ------------- ---------- $ 23,346,859 32,502,238 ============= ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 484,328 1,772,582 Accrued expenses 171,465 153,905 Accrued compensation and benefits 315,012 261,213 ------------- ---------- Total current liabilities 970,805 2,187,700 Other liabilities 175,373 166,860 ------------- ---------- Total liabilities 1,146,178 2,354,560 ------------- ---------- Shareholders' equity: Preferred stock, $.01 par value. Authorized 5,000,000 shares; none issued and outstanding -- -- Common stock, $.01 par value. Authorized 30,000,000 shares; issued and outstanding 14,265,875 shares at February 28, 2002, and May 31, 2001, respectively 142,659 142,659 Additional paid-in capital 117,503,271 117,503,271 Deficit accumulated during the development stage (95,445,249) (87,498,252) ------------- ---------- Total shareholders' equity 22,200,681 30,147,678 ------------- ---------- $ 23,346,859 32,502,238 ============= ========== See accompanying independent accountants' review report. NORTHFIELD LABORATORIES INC. (a company in the development stage) Statements of Operations Three and nine month periods ended February 28, 2002 and February 28, 2001 and for the period from June 19, 1985 (inception) through February 28, 2002 CUMULATIVE THREE MONTH PERIODS ENDED NINE MONTH PERIODS ENDED FROM -------------------------------- ------------------------------ JUNE 19, 1985 FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, THROUGH 2002 2001 2002 2001 FEBRUARY 28, 2002 ------------ ------------ ------------ ------------- ----------------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) Revenues - license income $ -- -- -- -- $ 3,000,000 Costs and expenses: Research and development 2,175,834 2,488,972 6,735,183 6,963,676 85,312,588 General and administrative 582,852 620,079 1,950,622 2,047,582 36,207,335 ------------- ------------- ------------- ------------- ------------- 2,758,686 3,109,051 8,685,805 9,011,258 121,519,923 ------------- ------------- ------------- ------------- ------------- Other income and expense: Interest income 167,966 504,733 738,808 1,645,689 23,157,908 Interest expense -- -- -- -- 83,234 ------------- ------------- ------------- ------------- ------------- 167,966 504,733 738,808 1,645,689 23,074,674 ------------- ------------- ------------- ------------- ------------- Net loss $ (2,590,720) (2,604,318) (7,946,997) (7,365,569) $ (95,445,249) ============= ============= ============= ============= ============= Net loss per basic and diluted share $ (0.18) (0.18) (0.56) (0.52) $ (10.02) ============= ============= ============= ============= ============= Shares used in calculation of per share data 14,265,875 14,263,003 14,265,875 14,252,632 9,529,403 ============= ============= ============= ============= ============= See accompanying independent accountants' review report. NORTHFIELD LABORATORIES INC. (a company in the development stage) Statements of Shareholders' Equity (Deficit) Nine month period ended February 28, 2002 and for the period from June 19, 1985 (inception) through February 28, 2002 SERIES A CONVERTIBLE PREFERRED STOCK COMMON STOCK PREFERRED STOCK --------------------- --------------------- --------------------- NUMBER AGGREGATE NUMBER AGGREGATE NUMBER AGGREGATE OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT --------- --------- --------- ---------- ---------- --------- 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 -- -- ---- ------ --------- ------- ------- --------- DEFICIT TOTAL SERIES B CONVERTIBLE ACCUMULATED SHARE- PREFERRED STOCK ADDITIONAL DURING THE DEFERRED HOLDERS' NUMBER AGGREGATE PAID-IN DEVELOPMENT COMPEN- EQUITY OF SHARES AMOUNT CAPITAL STAGE SATION (DEFICIT) --------- --------- ----------- ----------- -------- ---------- 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 ------- --------- ---------- ---------- ---------- ---------- NORTHFIELD LABORATORIES INC. (a company in the development stage) Statements of Shareholders' Equity (Deficit), continued Nine month period ended February 28, 2002 and for the period from June 19, 1985 (inception) through February 28, 2002 SERIES A CONVERTIBLE PREFERRED STOCK COMMON STOCK PREFERRED STOCK ------------------------ ------------------------ ------------------------ NUMBER AGGREGATE NUMBER AGGREGATE NUMBER AGGREGATE OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT ---------- --------- --------- ---------- --------- --------- 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 $423,23 -- -- 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 -- -- -- -- -- -- Non-cash compensation -- -- -- -- -- -- Exercise of stock options at $7.14 per share -- -- 17,500 175 -- -- Exercise of stock warrants at $8.00 per share -- -- 125,000 1,250 -- -- ---- ----- ---------- ----------- -------- ----- Balance at May 31, 1999 -- -- 14,239,875 142,399 -- -- Net loss -- -- -- -- -- -- Non-cash compensation -- -- -- -- -- -- Exercise of stock options at $13.38 per share -- -- 2,500 25 -- -- ---- ----- ---------- ----------- -------- ----- Balance at May 31, 2000 -- -- 14,242,375 142,424 -- -- Net loss -- -- -- -- -- -- Exercise of stock options at $6.38 -- -- 6,000 60 -- -- Exercise of stock options at $10.81 -- -- 17,500 175 -- -- ---- ----- ---------- ----------- -------- ----- Balance at May 31, 2001 -- -- 14,265,875 $ 142,659 -- -- Net loss (unaudited) -- -- -- -- -- -- ---- ----- ---------- ----------- -------- ----- Balance at February 28, 2002 (unaudited) -- $ -- 14,265,875 $ 142,659 -- $ -- ==== ===== ========== ============ ======== ===== DEFICIT TOTAL SERIES B CONVERTIBLE ACCUMULATED SHARE- PREFERRED STOCK ADDITIONAL DURING THE DEFERRED HOLDERS' NUMBER AGGREGATE PAID-IN DEVELOPMENT COMPEN- EQUITY OF SHARES AMOUNT CAPITAL STAGE SATION (DEFICIT) --------- ---------- ---------- ------------ --------- ----------- 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 -- -- -- (7,416,333) -- (7,416,333) Non-cash compensation -- -- 14,354 -- -- 14,354 Exercise of stock options at $7.14 per share -- -- 124,775 -- -- 124,950 Exercise of stock warrants at $8.00 per share -- -- 998,750 -- -- 1,000,000 ---- ----- ----------- ------------ ------ ----------- Balance at May 31, 1999 -- -- 117,185,514 (68,156,573) -- 49,171,340 Net loss -- -- -- (9,167,070) -- (9,167,070) Non-cash compensation -- -- 57,112 -- -- 57,112 Exercise of stock options at $13.38 per share -- -- 33,425 -- -- 33,450 ---- ----- ----------- ------------ ------ ----------- Balance at May 31, 2000 -- -- 117,276,051 (77,323,643) -- 40,094,832 Net loss -- -- -- (10,174,609) -- (10,174,609) Exercise of stock options at $6.38 -- -- 38,220 -- -- 38,280 Exercise of stock options at $10.81 -- -- 189,000 -- -- 189,175 ---- ----- ----------- ------------ ------ ----------- Balance at May 31, 2001 -- -- 117,503,271 (87,498,252) -- 30,147,678 Net loss (unaudited) -- -- -- (7,946,997) -- (7,946,997) ---- ----- ----------- ------------ ------ ----------- Balance at February 28, 2002 (unaudited) -- $ -- 117,503,271 (95,445,249) -- 22,200,681 ==== ===== =========== ============ ====== =========== See accompanying independent accountants' review report NORTHFIELD LABORATORIES INC. (a company in the development stage) Statements of Cash Flows Nine month period ended February 28, 2002 and February 28, 2001 and for the period from June 19, 1985 (inception) through February 28, 2002 NINE MONTH PERIOD ENDED CUMULATIVE ----------------------------- FROM FEBRUARY 28, FEBRUARY 28, JUNE 19, 1985 ------------ ------------- THROUGH 2002 2001 FEBRUARY 28, 2002 ------------ ------------- ------------------ (UNAUDITED) (UNAUDITED) (UNAUDITED) Cash flows from operating activities: Net loss $ (7,946,997) (7,365,569) (95,445,249) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 647,858 368,758 16,116,315 Non-cash compensation -- -- 3,552,723 Loss on sale of equipment -- -- 66,359 Changes in assets and liabilities: Prepaid expenses 205,502 185,641 (381,851) Other current assets 403,870 (126,983) (1,948,241) Other assets 49,100 (49,200) 6,852 Accounts payable (1,288,254) 285,786 484,328 Accrued expenses 17,560 (24,458) 171,465 Accrued compensation and benefits 53,799 18,050 315,012 Other liabilities 8,513 19,514 175,373 ------------ --------- ---------- Net cash used in operating activities (7,849,049) (6,688,461) (76,886,914) ------------ --------- ---------- Cash flows from investing activities: Purchase of property, plant, equipment, and capitalized engineering costs (144,725) (723,556) (18,395,974) Proceeds from matured marketable securities 22,279,200 7,548,171 401,817,352 Proceeds from sale of marketable securities -- -- 7,141,656 Purchase of marketable securities (5,012,963) (8,218,827) (413,955,614) Proceeds from sale of equipment -- -- 1,863,023 ------------ --------- ---------- Net cash used in investing activities 17,121,512 (1,394,212) (21,529,557) ------------ --------- ---------- Cash flows from financing activities: Proceeds from issuance of common stock -- 227,455 103,749,383 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 -- 227,455 114,124,474 ------------ --------- ---------- Net increase (decrease) in cash 9,272,463 (7,855,218) 15,708,003 Cash at beginning of period 6,435,540 15,154,295 -- ------------ --------- ---------- Cash at end of period $ 15,708,003 7,299,077 15,708,003 ============ ========= ========== See accompanying independent accountants' review report. NORTHFIELD LABORATORIES INC. (a company in the development stage) Notes to Financial Statements February 28, 2002 (unaudited) (1) BASIS OF PRESENTATION The interim financial statements presented are unaudited but, in the opinion of management, have been prepared in conformity with accounting principles generally accepted in the United States of America 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, 2002. The interim financial statements should be read in connection with the audited financial statements for the year ended May 31, 2001. (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, basic and diluted per share amounts are the same. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Since Northfield's incorporation in 1985, we have devoted substantially all of our efforts and resources to the research, development and clinical testing of our potential product, PolyHemeTM. We have incurred operating losses during each year of our operations since inception and expect to incur substantial additional operating losses for the next several years. From Northfield's inception through February 28, 2002, we have incurred operating losses totaling $95,445,000. Our success will depend on several factors, including our ability to obtain Food and Drug Administration ("FDA") regulatory approval of PolyHeme and our manufacturing facilities, obtain sufficient quantities of blood to manufacture PolyHeme in commercial quantities, manufacture and distribute PolyHeme in a cost-effective manner, and enforce our patent positions. We have experienced significant delays in the development and clinical testing of PolyHeme. We cannot ensure that we will be able to achieve these goals or that we will be able to realize product revenues or profitability on a sustained basis or at all. In August 2001, we filed a Biologics License Application ("BLA") for PolyHeme with the FDA following the completion of our most recent clinical trials. In November 2001, we announced that we had received comments from the FDA's Center for Biologics Evaluation and Research ("CBER") on our BLA filing and that the agency was seeking additional information before accepting our application for filing. During the third quarter of fiscal 2002, our senior management met with members of the CBER staff and participated in a series of telephone conferences to discuss the CBER views on our BLA filing. These discussions clarified our understanding of the CBER position and have assisted us in developing appropriate responses to the matters raised by the CBER. While forecasting a definitive timeline for resolution of the open issues with the CBER is difficult, we believe we will adequately address their concerns. If our response to the CBER is unacceptable, we may be required to conduct an additional clinical study to support our current filing. The character, size and duration of that study are currently unknown. Whether an additional study to support the current filing is required or not, we would anticipate continuing clinical studies to expand the marketing indications for PolyHeme. We do not expect to conduct additional studies of PolyHeme until we reach an understanding with the CBER regarding the status of our BLA filing. We anticipate that research and development expenses will increase during the foreseeable future. These expected increases are attributable to additional clinical trials to expand the indications for which PolyHeme may be marketed, monitoring and reporting the results of these trials and continuing process development associated with improving our manufacturing capacity to permit commercial-scale production of PolyHeme. We expect that general and administrative expenses will increase over the foreseeable future as a result of increased costs relating to the expansion of our organization in support of anticipated commercial operations. RESULTS OF OPERATIONS We reported no revenues for either the three-month or nine-month periods ended February 28, 2002 or 2001. From Northfield's inception through February 28, 2002, we have reported total revenues of $3,000,000, all of which were derived from licensing fees. OPERATING EXPENSES Operating expenses for our third fiscal quarter ended February 28, 2002 totaled $2,759,000, a decrease of $350,000 from the $3,109,000 reported in the third quarter of the prior year. Measured on a percentage basis, operating expenses in the third quarter of fiscal 2002 decreased by 11.3%. Expenses incurred in the prior fiscal year for conducting, monitoring and reporting clinical trials have been significantly reduced as the trials in process during the third fiscal quarter of the prior year have been completed. Except for the infusion of PolyHeme in individual compassionate use cases, Northfield is not currently enrolling additional patients in clinical trials. Research and development expenses for the third quarter of the current fiscal year totaled $2,176,000, a decrease of $313,000, or 12.6%, from the $2,489,000 reported in the third quarter of the prior fiscal year. This expense reduction was directly related to the completion of clinical trials and the subsequent monitoring, data analysis and report preparation. Research and development expenses for the nine-month period ended February 28, 2002, totaled $6,735,000, a decrease of $229,000, or 3.3%, from the $6,964,000 reported in the comparable prior year period. Lower expenses associated with conducting clinical trials caused the variance. We anticipate that our research and development expenses for the fourth quarter of fiscal 2002 will approximate those reported for the third quarter. General and administration expenses in the third quarter of fiscal 2002 totaled $583,000 compared to $620,000 for third quarter of fiscal 2001. This decrease of $37,000, or 6.0%, was primarily the result of reduced professional fees. General and administration expenses for the nine-month period ended February 28, 2002 totaled $1,951,000, which represents a decrease of $97,000, or 4.7%, from the $2,048,000 in general and administrative expenses incurred during the nine-month period ended February 28, 2001. This decrease was primarily the result of reduced professional fees in the current fiscal year. During the fourth quarter of the current fiscal year, we anticipate that general and administrative expenses will only modestly increase. We plan to limit significant increases in our general and administrative expenses until we reach an understanding with the FDA regarding the status of our BLA filing for PolyHeme. INTEREST INCOME Interest income in the third quarter of fiscal 2002 totaled $168,000, or a $337,000 decrease from the $505,000 in interest income reported in the third quarter of fiscal 2001. Significantly lower interest rates in fiscal 2002 along with lower available investment balances accounted for the decrease. Maturing investments which were yielding in excess of 6% are now being reinvested at 2 to 3%. In the absence of a major cash infusion, interest income will continue to be significantly below prior year levels. Interest income for the nine-month period ended February 28, 2002 totaled $739,000, or a $907,000 decrease from the $1,646,000 in interest income earned in the comparable prior year period. From May 31, 2001 through February 28, 2002, available investment balances decreased by $7,994,000. This investment balance decrease combined with a reduction in short-term interest rates of 300 to 400 basis points combined to cause interest income to decline. NET LOSS Our net loss for the third quarter ended February 28, 2002 was $2,591,000, or $.18 per basic share, compared to a net loss of $2,604,000, or $.18 per basic and diluted share, for the third quarter ended February 28, 2001. The decrease in the loss per basic and diluted share is primarily the result of a decrease in clinical trial expenses. For the nine-month period ended February 28, 2002, Northfield reported a loss of $7,947,000, or $.56 per basic share, compared to a loss of $7,366,000, or $.52 per basic share, in the comparable prior year period. The increased loss was primarily due to the significant reduction in interest income. LIQUIDITY AND CAPITAL RESOURCES From Northfield's inception through February 28, 2002, we have used cash for operating activities and for the purchase of property, plant, equipment and engineering services in the amount of $95,283,000. For the nine-month periods ended February 28, 2002 and 2001, these cash expenditures totaled $7,994,000 and $7,412,000, respectively. The increased cash outlay for the first nine-months of fiscal 2002 compared to the comparable prior year period is reflective of increased operating losses and a reduction in accounts payable balances, which more than offset a reduction in fixed asset purchases. We have financed our research and development and other activities to date primarily through the public and private sale of equity securities and, to a more limited extent, through the licensing of product rights. As of February 28, 2002, we had cash and marketable securities totaling $20,705,000. At current spending levels, we believe our existing capital resources will be adequate to satisfy our operating capital requirements and maintain our existing pilot manufacturing plant and office facilities for approximately 6-8 quarters. Thereafter, we are likely to require substantial additional capital to continue our operations. Our requirements for and ability to obtain additional capital are likely to be significantly affected by the outcome of our discussions with the FDA regarding the status of our BLA filing for PolyHeme. We are currently unable to fund the construction of a large-scale greenfield manufacturing facility, which is estimated to cost approximately $55-60 million, without raising substantial additional capital. Currently, we have manufacturing capacity of approximately 10,000 units. Initial engineering studies to expand our manufacturing capacity through build-out in the leased space adjacent to our existing manufacturing facility is completed. This engineering indicates an additional capacity of 75,000 units could be developed in approximately 16 to 20 months at a cost of $28 to $32 million. Like a large-scale greenfield manufacturing facility, significant additional funding will be required before the smaller scale expansion facility could be completed. Northfield has not yet committed to the build-out. We view the smaller facility as financially prudent yet large enough for commercial viability. We estimate that we will require at least $40 million in additional funding to build a smaller scale expansion facility (75,000 unit), fund the subsequent working capital needs and support an expanded manufacturing, sales and marketing organization. We may issue additional equity or debt securities to the public or enter into collaborative arrangements with strategic partners, which could provide us with additional funding or absorb expenses we would otherwise be required to pay. Any one or a combination of these sources may be utilized to raise the required funding. However, business or market conditions may not be favorable, which may be detrimental to our ability to raise capital on terms acceptable to the Company, if at all. Inability to raise sufficient levels of capital would cause a delay in full commercialization of our product upon approval by the FDA. Our capital requirements may vary materially from those now anticipated because of the results of our clinical testing of PolyHeme, the establishment of relationships with strategic partners, changes in the scale, timing or cost of our commercial manufacturing facility, competitive and technological advances, the FDA regulatory process, changes in our marketing and distribution strategy and other factors. CRITICAL ACCOUNTING POLICIES The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported therein. The Company believes the following critical accounting policy affects its more significant judgments and estimates used in the preparation of its consolidated financial statements: NET DEFERRED TAX ASSETS VALUATION The Company records its net deferred tax assets in the amount that it expects to realize based on projected future taxable income. In assessing the appropriateness of its valuation, assumptions and estimates are required such as the Company's ability to generate future taxable income. In the event that the Company were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. As of February 28, 2002 the Company has recorded a 100 percent valuation allowance against its deferred tax asset. CONTRACTUAL OBLIGATIONS The following table reflects a summary of the company's contractual cash obligations as of February 28, 2002: Less Than Contractual Cash Obligations Total One Year 1-3 Years 4-5 Years ------------- ------------- ------------- ------------ Lease Obligations(1) 2,870,841 835,633 1,503,988 531,220 Other Obligations 1,521,956 830,158 691,798 --- ------------- ------------- ------------- ------------ Total Contractual Cash Obligations 4,392,797 1,665,791 2,195,786 531,220 (1) Northfields Evanston lease agreement is cancellable with six months notice combined with a termination payment equal to six months base rent and six months of additional rental payments. If the lease were terminated today the termination payment would be $315,530. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. The marketable security investments of the Company have been made for investment (as opposed to trading) purposes. Interest rate risk with respect to the investments of the Company is not significant as all such investments are in U.S. dollar cash equivalents and short-term investments (with maturities of less than 12 months), which are by their nature less sensitive to interest rate movements. The investments of the Company are generally made in U.S. government and federal agency bonds, high-grade commercial paper, corporate bonds and certificates of deposit. PART II. OTHER INFORMATION Item 6. Exhibits a) Exhibit 15 - Acknowledgement of Independent Certified Public Accountants b) None. 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 this April 11, 2002. 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)