UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
April 30, 2002 0-11088
For the quarterly period ended Commission file number
ALFACELL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-2369085
(State or other jurisdiction of (I.R.S. Employer incorporation or
organization) Identification No.)
225 Belleville Avenue, Bloomfield, New Jersey 07003
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (973) 748-8082
NOT APPLICABLE
(Former name, former address, and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant has (1) 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 |_|
The number of shares of common stock, $.001 par value, outstanding as of
June 12, 2002 was 22,389,207 shares.
ALFACELL CORPORATION
(A Development Stage Company)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
April 30, 2002 and July 31, 2001
April 30,
2002 July 31,
ASSETS (Unaudited) 2001
------------ ------------
Current assets:
Cash and cash equivalents $ 45,516 $ 44,781
Other assets 38,121 42,933
------------ ------------
Total current assets 83,637 87,714
Property and equipment, net of accumulated depreciation and amortization
of $1,112,987 at April 30, 2002 and $1,081,423 at July 31, 2001 35,991 67,555
Other assets 64,267 46,340
------------ ------------
Total assets $ 183,895 $ 201,609
============ ============
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)
Current liabilities:
Current portion of long-term debt $ 8,517 $ 7,057
Notes payable - convertible debt - unrelated party, less debt discount of $34,511
at July 31, 2001 -- 35,482
Accounts payable 783,136 409,972
Accrued expenses 645,684 465,813
Loan payable related party 126,553 --
------------ ------------
Total current liabilities 1,563,890 918,324
Long-term debt, less current portion 117,484 23,663
------------ ------------
Total liabilities 1,681,374 941,987
------------ ------------
Stockholders' (deficiency):
Preferred stock, $.001 par value
Authorized and unissued, 1,000,000 shares at April 30, 2002 and July 31, 2001 -- --
Common stock $.001 par value
Authorized 40,000,000 shares at April 30, 2002 and July 31, 2001;
Issued and outstanding, 21,866,423 shares at April 30, 2002 and 19,802,245
shares at July 31, 2001 21,866 19,802
Capital in excess of par value 59,320,165 58,211,335
Deficit accumulated during development stage (60,839,510) (58,971,515)
------------ ------------
Total stockholders' (deficiency) (1,497,479) (740,378)
------------ ------------
Total liabilities and stockholders' (deficiency) $ 183,895 $ 201,609
============ ============
See accompanying notes to unaudited financial statements.
- 2 -
ALFACELL CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Three months and nine months ended April 30, 2002 and 2001,
and the Period from August 24, 1981
(Date of Inception) to April 30, 2002
(Unaudited)
Three Months Ended Nine Months Ended August 24,
April 30, April 30, 1981 (Date of
--------- --------- Inception) to
2002 2001 2002 2001 April 30, 2002
---- ---- ---- ---- --------------
Revenue:
Sales $ -- $ -- $ -- $ -- $ 553,489
Investment income 125 1,450 282 8,219 1,372,567
Other income -- -- -- -- 60,103
------------ ------------ ------------ ------------ ------------
Total revenue 125 1,450 282 8,219 1,986,159
------------ ------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales -- -- -- -- 336,495
Research and development 531,904 526,716 1,539,885 1,404,552 39,408,920
General and administrative 192,991 193,788 576,605 519,240 21,441,998
Interest:
Related parties -- 32,110 -- 32,110 1,142,860
Others 67,999 11,023 105,517 14,791 2,056,375
------------ ------------ ------------ ------------ ------------
Total costs and expenses 792,894 763,637 2,222,007 1,970,693 64,386,648
------------ ------------ ------------ ------------ ------------
Net loss before state tax benefit (792,769) (762,187) (2,221,725) (1,962,474) (62,400,489)
State tax benefit -- -- 353,730 451,395 1,560,979
------------ ------------ ------------ ------------ ------------
Net loss $ (792,769) $ (762,187) $ (1,867,995) $ (1,511,079) $(60,839,510)
============ ============ ============ ============ ============
Loss per basic and diluted common
share $ (.04) $ (.04) $ (.09) $ (.08)
============ ============ ============ ============
Weighted average number of shares
outstanding 21,020,967 18,911,660 20,553,185 18,802,114
============ ============ ============ ============
See accompanying notes to unaudited financial statements.
- 3 -
ALFACELL CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Nine months ended April 30, 2002 and 2001,
and the Period from August 24, 1981
(Date of Inception) to April 30, 2002
(Unaudited)
Nine Months Ended August 24, 1981
April 30, (Date of Inception)
--------- to
2002 2001 April 30, 2002
---- ---- --------------
Cash flows from operating activities:
Net loss $(1,867,995) $(1,511,079) $(60,839,510)
Adjustments to reconcile net loss to
net cash used in operating activities:
Gain on sale of marketable securities -- -- (25,963)
Depreciation and amortization 31,564 56,538 1,524,022
Loss on disposal of property and equipment -- -- 18,926
Noncash operating expenses 190,783 168,360 6,014,889
Amortization of deferred compensation -- -- 11,442,000
Amortization of organization costs -- -- 4,590
Changes in assets and liabilities:
Decrease (increase) in other current assets 4,812 (10,087) (97,988)
(Increase) decrease in other assets (17,927) -- 31,784
Increase in interest payable-related party -- -- 744,539
Increase in accounts payable 423,164 188,507 1,129,246
Increase in accrued payroll and expenses,
related parties -- -- 2,348,145
Increase in accrued expenses 179,871 62,415 1,187,197
----------- ----------- ------------
Net cash used in operating activities (1,055,728) (1,045,346) (36,518,123)
----------- ----------- ------------
Cash flows from investing activities:
Purchase of marketable equity securities -- -- (290,420)
Proceeds from sale of marketable equity
Securities -- -- 316,383
Purchase of property and equipment -- -- (1,406,836)
Patent costs -- -- (97,841)
----------- ----------- ------------
Net cash used in investing activities -- -- (1,478,714)
----------- ----------- ------------
(continued)
See accompanying notes to unaudited financial statements.
- 4 -
ALFACELL CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS, Continued
Nine months ended April 30, 2002 and 2001,
and the Period from August 24, 1981
(Date of Inception) to April 30, 2002
(Unaudited)
Nine Months Ended August 24, 1981
April 30, (Date of
--------- Inception) to
2002 2001 April 30, 2002
---- ---- --------------
Cash flows from financing activities:
Proceeds from short-term borrowings $ -- $ -- $ 849,500
Payment of short-term borrowings (5,000) -- (628,500)
Increase in loans payable - related party, net 126,553 -- 2,755,421
Proceeds from bank debt and other long-term debt, net of
deferred debt costs 100,000 -- 2,552,460
Reduction of bank debt and long-term debt (4,719) (4,329) (2,940,567)
Proceeds from issuance of common stock, net 789,629 501,274 29,099,792
Proceeds from exercise of stock options and warrants, net 50,000 83,730 5,640,254
Proceeds from issuance of convertible debentures, related party -- 297,000 297,000
Proceeds from issuance of convertible debentures, unrelated party -- 69,993 416,993
Proceeds from common stock to be issued -- 200,000 --
----------- ----------- ------------
Net cash provided by financing activities 1,056,463 1,147,668 38,042,353
----------- ----------- ------------
Net increase in cash and cash equivalents 735 102,322 45,516
Cash and cash equivalents at beginning of period 44,781 257,445 --
----------- ----------- ------------
Cash and cash equivalents at end of period $ 45,516 $ 359,767 $ 45,516
=========== =========== ============
Supplemental disclosure of cash flow information - interest paid $ 6,971 $ 6,763 $ 1,669,417
=========== =========== ============
Noncash financing activities:
Issuance of convertible subordinated debenture for loan payable
to officer $ -- $ -- $ 2,725,000
=========== =========== ============
Issuance of common stock upon the conversion of convertible
subordinated debentures, related party $ -- $ -- $ 3,242,000
=========== =========== ============
Conversion of short-term borrowings to common stock $ -- $ -- $ 226,000
=========== =========== ============
Conversion of accrued interest, payroll and expenses by related
parties to stock options $ -- $ -- $ 3,194,969
=========== =========== ============
Repurchase of stock options from related party $ -- $ -- $ (198,417)
=========== =========== ============
Conversion of accrued interest to stock options $ -- $ -- $ 142,441
=========== =========== ============
Conversion of accounts payable to common stock $ 50,000 $ 10,030 $ 346,200
=========== =========== ============
Conversion of notes payable, bank and accrued interest
to long-term debt $ -- $ -- $ 1,699,072
=========== =========== ============
Conversion of loans and interest payable, related party and
accrued payroll and expenses, related parties to long-term
accrued payroll and other, related party $ -- $ -- $ 1,863,514
=========== =========== ============
Issuance of common stock upon the conversion of convertible
subordinated debentures, other $ 64,993 $ -- $ 191,993
=========== =========== ============
Issuance of common stock for services rendered $ -- $ -- $ 2,460
=========== =========== ============
See accompanying notes to unaudited financial statements.
- 5 -
ALFACELL CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the Company's financial position as of April 30,
2002 and the results of operations for the three and nine month periods ended
April 30, 2002 and 2001 and the period from August 24, 1981 (date of inception)
to April 30, 2002. The results of operations for the nine months ended April 30,
2002 are not necessarily indicative of the results to be expected for the full
year.
The Company is a development stage company as defined in the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No. 7.
The Company is devoting substantially all of its present efforts to establishing
a new business. Its planned principal operations have not commenced and,
accordingly, no significant revenue has been derived therefrom.
Effective August 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive Income. SFAS
130 establishes new rules for the reporting and display of comprehensive income
and its components. The net loss of $1,868,000 and $1,511,000 recorded for the
nine months ended April 30, 2002 and 2001, respectively, is equal to the
comprehensive loss for those periods.
The Company has reported net losses since its inception. Also, the Company
has limited liquid resources. The report of the Company's independent
accountants on the Company's July 31, 2001 financial statements included an
explanatory paragraph which states that the Company's recurring losses, working
capital deficit and limited liquid resources raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements at
July 31, 2001 and April 30, 2002 do not include any adjustments that might
result from the outcome of this uncertainty.
The Company's continued operations will depend on its ability to raise
additional funds through various potential sources such as equity and debt
financing, collaborative agreements, strategic alliances, sale of tax benefits,
revenues from the commercial sale of ONCONASE(R) and its ability to realize the
full potential of its technology and its drug candidates. Such additional funds
may not become available as needed or be available on acceptable terms. To date,
a significant portion of the Company's financing has been through private
placements of common stock and warrants, the issuance of common stock for stock
options and warrants exercised and for services rendered, debt financing and
financing provided by the Company's Chief Executive Officer. Until the Company's
operations generate significant revenues, the Company will need to continue to
fund operations through the sources of capital previously described. From August
2001 through May 2002, the Company received gross proceeds of approximately
$1,346,000 from the private placement of equity from various individual
investors, issuance of notes payable to unrelated parties and the exercise of
warrants by an unrelated party. The Company also has
- 6 -
ALFACELL CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS, Continued
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION, Continued
received from time to time loans payable on demand from a related party. As of
April 30, 2002 the aggregate balance of these loans was $126,500. Additionally,
in December 2001 the Company received $354,000 through the sale of its tax
benefits. As the Company has no liquid resources and significant liabilities, it
needs to raise additional capital in order to remain in operation. The Company
believes its current operating levels require $160,000 of cash per month. The
Company does not presently maintain the cash balance needed to fund its
operations; however, to date it has been able to meet the cash needed for
continued operations. In the near term, management continues to seek additional
capital financing through the sales of equity in private placements and exercise
of warrants but cannot be sure that it will be able to raise capital on
favorable terms or at all. In addition, the Company expects some funds to be
available through loans from its Chief Executive Officer, although no such loans
are required to be made. Once any of these sources, if received, are exhausted,
the Company will need additional financing through the sources described above
to continue its operations. There is no assurance these funds will be received;
however, if the funds are received it will assist in satisfying the Company's
liquidity needs.
2. EARNINGS (LOSS) PER COMMON SHARE
"Basic" earnings (loss) per common share equals net income (loss) divided
by weighted average common shares outstanding during the period. "Diluted"
earnings (loss) per common share equals net income divided by the sum of
weighted average common shares outstanding during the period plus common stock
equivalents. The Company's Basic and Diluted per share amounts are the same
since the assumed exercise of stock options and warrants are all anti-dilutive.
The amount of options and warrants excluded from the calculation was 8,458,511
and 5,604,599 at April 30, 2002 and 2001, respectively.
3. LOAN PAYABLE, RELATED PARTY
From August 2001 to April 2002, Kuslima Shogen the Company's Chief
Executive Officer, loaned the Company some amounts payable upon demand bearing
an interest at 8% per annum. As of April 30, 2002, the loan balance was
$126,500.
4. CAPITAL STOCK
In August 2001, the Company issued 55,556 shares of common stock in
settlement of accounts payable. In addition, the vendor was granted five-year
warrants to purchase 55,556 shares of common stock at an exercise price of $1.50
per share. The settled accounts payable totaled $50,000 and therefore that
amount has been charged to equity as the value of the stock and warrants.
In August 2001, the Company issued 70,000 five-year stock options as
payment for services to be rendered. The options vested immediately and have an
exercise price of $0.75 per share. The total non-cash general and administrative
expense recorded for these options was $35,770, based upon the fair value of
such option on the date of issuance.
- 7 -
ALFACELL CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS, Continued
(Unaudited)
4. CAPITAL STOCK, Continued
During the quarter ended October 31, 2001, the Company sold an aggregate
of 440,000 shares of common stock to private investors at a price of $0.50 to
$0.90 per share resulting in net proceeds of $252,000 to the Company. In
addition, the private investors were granted five-year warrants to purchase an
aggregate of 440,000 shares of common stock at an exercise price of $1.50 per
share.
In October 2001, the Company issued 72,214 shares of common stock upon the
exercise of convertible debentures by unrelated parties. In addition, upon
conversion, the unrelated parties were granted five-year warrants to purchase
72,214 shares of common stock at $1.50 per share.
In December 2001, the Company issued 15,221 five-year stock options as
payment for services rendered. The options vested immediately and have an
exercise price of $0.94 per share. The total non-cash research and development
expense recorded for these options was $4,977, based upon the fair value of such
option on the date of issuance as estimated by the Black-Scholes options-pricing
model.
During the quarter ended January 31, 2002, the Company sold an aggregate
of 359,070 shares of common stock to private investors at a price of $0.50 per
share resulting in net proceeds of $162,200 to the Company. In addition, the
private investors were granted five-year warrants to purchase an aggregate of
409,070 shares of common stock at an exercise price of $1.50 per share.
In February 2002, the Company issued warrants to purchase 1,500,000 shares
of common stock to Roan Meyers Associates L.P. for an aggregate warrant purchase
price of $1,500 in connection with the engagement of Roan Meyers to render
advisory services. Roan Meyers has already exercised warrants to purchase
100,000 shares of common stock in March 2002 with an exercise price of $0.50 per
share, resulting in gross proceeds of $50,000 to the Company. Warrants to
purchase an additional 400,000 shares are currently exercisable, of which
150,000 shares have an exercise price of $0.50 per share and 250,000 have an
exercise price of $1.00 per share. The remaining 1,000,000 warrants will become
exercisable if Roan Meyers is successful in helping the Company raise capital.
For each $1 million in capital financing raised with the assistance of Roan
Meyers, 200,000 warrants will become exercisable up to 1,000,000 warrants in the
aggregate. Of those 1,000,000 warrants, 400,000 are exercisable at $1.00 per
share and 600,000 are exercisable at $1.50 per share. The Company recorded an
expense equal to the fair market value of the first 500,000 warrants in February
2002 based upon the fair value of such warrants as estimated by Black-Scholes
pricing model ($153,300), less the $1,500 received from the sale of the warrants
and will record an expense on the additional warrants when they vest using
Black-Scholes to estimate their value at that time.
In March 2002, the Company issued an aggregate of 75,000 five-year stock
options to unrelated parties as an incentive for lending the Company an
aggregate of $75,000 which was repaid during the quarter. The options vested
immediately and have an exercise price of $1.50 per share. The total non-cash
interest expense recorded for these options was $25,615, based upon the fair
value of such option on the date of issuance as estimated by the Black-Scholes
options-pricing model.
- 8 -
ALFACELL CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS, Continued
(Unaudited)
4. CAPITAL STOCK, Continued
In April 2002, the Company issued a note payable to an unrelated party in
the amount of $100,000. The note was due thirty days bearing interest at 8% per
annum. In addition, the lender received stock options to purchase 100,000 shares
of common stock at an exercise price of $0.60 per share. The total non-cash
interest expense recorded for these options was $40,690, based upon the fair
value of such option on the date of issuance as estimated by the Black-Scholes
options-pricing model. In May 2002, the lender agreed to either extend the note
until December 2003 or convert the note at a conversion price of $0.40 per share
plus a five-year warrant for each share of Alfacell common stock issued upon
conversion at an exercise price of $1.00 per share.
During the quarter ended April 30, 2002, the Company sold an aggregate of
1,038,638 shares of common stock to private investors at a price of $0.44 to
$0.50 per share resulting in net proceeds of $375,400 to the Company. In
addition, the private investors were granted five-year warrants to purchase an
aggregate of 1,038,638 shares of common stock at an exercise price of $0.75 per
share.
In May 2002, the Company issued 22,784 shares of common stock in
settlement of accounts payable in the amount of $14,126. The accounts payable
amount was charged to equity as the value of the common stock.
In May 2002, the Company sold an aggregate of 500,000 shares of common
stock to private investors resulting in net proceeds of $200,000 to the Company.
In addition, the private investors were granted five-year warrants to purchase
an aggregate of 500,000 shares of common stock at an exercise price of $1.00 per
share.
5. SALE OF NET OPERATING LOSSES
New Jersey has enacted legislation permitting certain corporations located
in New Jersey to sell state tax loss carryforwards and state research and
development credits or tax benefits. For the state fiscal year 2002 (July 1,
2001 to June 30, 2002), the Company has $1,477,000 total available tax benefits
of which $426,000 was allocated to be sold between July 1, 2001 and June 30,
2002. In December 2001, the Company received $354,000 from the sale of the
allocated tax benefits which was recognized as a tax benefit for the nine months
ended April 30, 2002. In December 2000, the Company received $451,000 from the
sale of the allocated tax benefits which was recognized as a tax benefit for the
nine months ended April 30, 2001. The Company will attempt to sell the remaining
balance of its tax benefits in the amount of approximately $1,051,000 between
July 1, 2002 and June 30, 2003, subject to all existing laws of the State of New
Jersey. However, there is no assurance that the Company will be able to find a
buyer for its tax benefits or that such funds will be available in a timely
manner.
- 9 -
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Information contained herein contains, in addition to historical
information, forward-looking statements that involve risks and uncertainties.
All statements, other than statements of historical fact, regarding our
financial position, potential, business strategy, plans and objectives for
future operations are "forward-looking statements." These statements are
commonly identified by the use of forward-looking terms and phrases as
"anticipates," "believes," "estimates," "expects," "intends," "may," "seeks,"
"should," or "will' or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy. We cannot be sure that
the future results covered by these forward-looking statements will be achieved.
The matters set forth in Exhibit 99.1 hereto constitute cautionary statements
identifying important factors with respect to these forward-looking statements,
including certain risks and uncertainties, that could cause actual results to
vary significantly from the future results indicated in these forward-looking
statements. Other factors could also cause actual results to differ
significantly from the future results indicated in these forward-looking
statements.
Results of Operations
Three and nine month periods ended April 30, 2002 and 2001
Revenues. We are a development stage company as defined in the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No. 7.
We are devoting substantially all of our present efforts to establishing a new
business and developing new drug products. Our planned principal operations of
marketing and/or licensing of new drugs have not commenced and, accordingly, we
have not derived any significant revenue from these operations. We focus most of
our productive and financial resources on the development of ONCONASE(R) and as
such we have not had any sales in the three and nine month periods ended April
30, 2002 and 2001. Investment income for the three months ended April 30, 2002,
was $100 compared to $1,400 for the same period last year, a decrease of $1,300.
Investment income for the nine months ended April 30, 2002, was $300 compared to
$8,200 for the same period last year, a decrease of $7,900. These decreases were
due to lower balances of cash and cash equivalents.
Research and Development. Research and development expense for the three
months ended April 30, 2002 was $532,000 compared to $527,000 for the same
period last year, an increase of $5,000. This increase was primarily due to an
increase in costs in support of the on-going Phase III clinical trials for
ONCONASE(R) resulting from the expansion of our Phase III clinical trial for
malignant mesothelioma in Europe, partially offset by a decrease in expenses
related to outside consultants, a decrease in costs relating to patent and
trademark applications for ONCONASE(R) and a reduction of non-cash expense
relating to stock options issued for consulting services.
Research and development expense for the nine months ended April 30, 2002
was $1,540,000 compared to $1,405,000 for the same period last year, an increase
of $135,000. This increase was primarily due to an increase in costs in support
of on-going Phase III clinical trial for ONCONASE(R) for malignant mesothelioma
and an increase in cost of clinical supplies related to the clinical trials,
both resulting from the expansion of our Phase III clinical trials for malignant
mesothelioma in Europe. This increase was partially offset by a reduction of a
non-cash expense relating to stock options issued for consulting services, a
decrease in expenses related to outside consultants and an increase in patent
and trademark applications for ONCONASE(R).
General and Administrative. General and administrative expense for the
three months ended April 30, 2002 was $193,000 compared to $194,000 for the same
period last year, a decrease of $1,000. This decrease was primarily due to a
reduction of a non-cash expense relating to stock options issued for
- 10 -
consulting services, partially offset by an increase in public and investor
relations expenses as well as an increase in legal expenses, due to business
development activities.
General and administrative expense for the nine months ended April 30,
2002 was $577,000 compared to $519,000 for the same period last year, an
increase of $58,000. This increase was primarily due to an increase in public
and investor relations expenses and an increase in legal expenses due to
business development activities, partially offset by a reduction in a non-cash
expense relating to stock options issued for consulting services.
Interest. Interest expense for the three months ended April 30, 2002 was
$68,000 compared to $43,000 for the same period last year, an increase of
$25,000. Interest expense for the nine months ended April 30, 2002 was $105,000
compared to $47,000 for the same period last year, an increase of $58,000. These
increases were primarily due to the non-cash interest expense on the notes
payable issued to third parties. The non-cash interest expense was based on the
value of the options using the Black-Scholes options-pricing model at the date
of the issuance.
Income Taxes. New Jersey has enacted legislation permitting certain
corporations located in New Jersey to sell state tax loss carryforwards and
state research and development credits or tax benefits. For the state fiscal
year 2002 (July 1, 2001 to June 30, 2002), we have $1,477,000 total available
tax benefits of which $426,000 was allocated to be sold between July 1, 2001 and
June 30, 2002. In December 2001, we received $354,000 from the sale of allocated
tax benefits which was recognized as a tax benefit for the nine months ended
April 30, 2002. In December 2000, we received $451,000 from the sale of the
allocated tax benefits which was recognized as a tax benefit for the nine months
ended April 30, 2001. We will attempt to sell the remaining balance of our tax
benefits in the amount of approximately $1,051,000 between July 1, 2002 and June
30, 2003, subject to all existing laws of the State of New Jersey. However, we
cannot assure you that we will be able to find a buyer for our tax benefits or
that such funds will be available in a timely manner.
Net Loss. We have incurred net losses during each year since our
inception. The net loss for the three months ended April 30, 2002 was $793,000
as compared to $762,000 for the same period last year, an increase of $31,000.
The net loss for the nine months ended April 30, 2002 was $1,868,000 as compared
to $1,511,000 for the same period last year, an increase of $357,000. The
cumulative loss from the date of inception, August 24, 1981 to April 30, 2002,
amounted to $60,839,000. Such losses are attributable to the fact that we are
still in the development stage and accordingly have not derived sufficient
revenues from operations to offset the development stage expenses.
Liquidity and Capital Resources
We have financed our operations since inception primarily through equity
and debt financing, research product sales and interest income. During the nine
months ended April 30, 2002, we had a net increase in cash and cash equivalents
of $1,000, which resulted primarily from net cash provided by financing
activities of $1,057,000, primarily from the private placement of common stock
and warrants and proceeds from short-term borrowings, offset by net cash used in
operating activities of $1,056,000. Total cash resources as of April 30, 2002
were $46,000 compared to $45,000 at July 31, 2001.
Our current liabilities as of April 30, 2002 were $1,564,000 compared to
$918,000 at July 31, 2001, an increase of $646,000. The increase was primarily
due to an increase in expenses related to the expansion of our Phase III
clinical trial for malignant mesothelioma in Europe and increasing business
development, investor and public relations activities. As of April 30, 2002 our
current liabilities exceeded our current assets and we had a working capital
deficit of $1,480,000.
- 11 -
Our continued operations will depend on our ability to raise additional
funds through various potential sources such as equity and debt financing,
collaborative agreements, strategic alliances, sale of tax benefits, revenues
from the commercial sale of ONCONASE(R) and our ability to realize the full
potential of our technology and our drug candidates. Such additional funds may
not become available as we need them or be available on acceptable terms. To
date, a significant portion of our financing has been through private placements
of common stock and warrants, the issuance of common stock for stock options and
warrants exercised and for services rendered, debt financing and financing
provided by our Chief Executive Officer. Until our operations generate
significant revenues, we will need to continue to fund operations through the
sources of capital previously described. From August 2001 through May 2002, we
received gross proceeds of approximately $1,346,000 from the private placement
of equity from various individual investors, issuance of notes payable to
unrelated parties and the exercise of warrants by an unrelated party. We have
also received from time to time loans payable on demand from a related party. As
of April 30, 2002 the aggregate balance of these loans was $126,500.
Additionally, in December 2001 we received $354,000 through the sale of our tax
benefits. As we have no liquid resources and significant liabilities, we need to
raise additional capital in order to remain in operation. We believe our current
operating levels require $160,000 of cash per month. We do not presently
maintain the cash balance needed to fund our operations; however, to date we
have been able to meet the cash needed for continued operations.
In the near term we continue to seek additional capital financing through
the sales of equity in private placements and exercise of warrants but cannot be
sure that we will be able to raise capital on favorable terms or at all. In
addition, we expect some funds to be available through loans from our Chief
Executive Officer, although no such loans are required to be made. Once any of
these sources, if received, are exhausted, we will need additional financing
through the sources described above to continue our operations. We cannot be
sure these funds will be received; however, if the funds are received it will
assist us in satisfying our liquidity needs. The report of our independent
auditors on our July 31, 2001 financial statements included an explanatory
paragraph which states that our recurring losses, working capital deficit and
limited liquid resources raise substantial doubt about our ability to continue
as a going concern. Our financial statements at July 31, 2001 and April 30, 2002
do not include any adjustments that might result from the outcome of this
uncertainty.
We will continue to incur costs in conjunction with our U.S. and foreign
registrations for marketing approval of ONCONASE(R). We are currently in
discussions with several potential strategic alliance partners, including major
international biopharmaceutical companies, to further the development and
marketing of ONCONASE(R) and other related products in our pipeline. However, we
cannot be sure that any such alliances will materialize.
New Jersey has enacted legislation permitting certain corporations located
in New Jersey to sell state tax loss carryforwards and state research and
development credits or tax benefits. For the state fiscal year 2002 (July 1,
2001 to June 30, 2002), we had $1,477,000 total available tax benefits of which
$426,000 was allocated to be sold between July 1, 2001 and June 30, 2002. In
December 2001, we received $354,000 from the sale of the allocated tax benefits
which was recognized as a tax benefit for the nine months ended April 30, 2002.
In December 2000, we received $451,000 from the sale of the allocated tax
benefits which was recognized as a tax benefit for the nine months ended April
30, 2001. We will attempt to sell the remaining balance of our tax benefits in
the amount of approximately $1,051,000 between July 1, 2002 and June 30, 2003,
subject to all existing laws of the State of New Jersey. However, there is no
assurance that the Company will be able to find a buyer for our tax benefits or
that such funds will be available in a timely manner.
- 12 -
Our common stock was delisted from The Nasdaq SmallCap Market effective at
the close of business April 27, 1999 for failing to meet the minimum bid price
requirements set forth in the NASD Marketplace Rules. As of April 28, 1999, our
common stock trades on the OTC Bulletin Board under the symbol "ACEL.OB".
Delisting of our common stock from Nasdaq could have a material adverse effect
on our ability to raise additional capital, our stockholders' liquidity and the
price of our common stock.
The market price of our common stock is volatile, and the price of the
stock could be dramatically affected one way or another depending on numerous
factors. The market price of our common stock could also be materially affected
by the marketing approval or lack of approval of ONCONASE(R).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
PART II. OTHER INFORMATION
Item 2. (c) Recent Sales of Unregistered Securities
In March 2002, we completed a private placement resulting in the issuance of
200,000 shares of restricted common stock and 200,000 five-year warrants to
purchase an aggregate of 200,000 shares of common stock at an exercise price of
$0.75 per share. We received an aggregate $100,000 from such private placement.
This transaction was consummated as a private sale pursuant to Section 4(2) of
the Securities Act of 1933, as amended.
In April 2002, we completed a private placement resulting in the issuance of
838,638 shares of restricted common stock and 838,638 five-year warrants to
purchase an aggregate of 838,638 shares of common stock at an exercise price of
$0.75 per share. We received an aggregate $375,000 from such private placement.
This transaction was consummated as a private sale pursuant to Section 4(2) of
the Securities Act of 1933, as amended.
In May 2002, we issued 22,784 shares of common stock for payment of accounts
payable in the amount of $14,126 in a transaction consummated as a private sale
pursuant to Section 4(2) of the Securities Act of 1933, as amended.
In May 2002, we completed a private placement resulting in the issuance of
500,000 shares of restricted common stock and 500,000 five-year warrants to
purchase an aggregate of 500,000 shares of common stock at an exercise price of
$1.00 per share. We received an aggregate $200,000 from such private placement.
This transaction was consummated as a private sale pursuant to Section 4(2) of
the Securities Act of 1933, as amended.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K).
Exhibit No. or
Exhibit Incorporation by
No. Item Title Reference
--- ---------- ---------
3.1 Certificate of Incorporation *
3.2 By-Laws *
3.3 Amendment to Certificate of Incorporation #
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Exhibit No. or
Exhibit Incorporation by
No. Item Title Reference
--- ---------- ---------
3.4 Amendment to Certificate of Incorporation +++
4.1 Form of Convertible Debenture **
10.1 Form of Stock and Warrant Purchase Agreements used in private
placements completed April 1996 and June 1996 ##
10.2 Lease Agreement - 225 Belleville Avenue, Bloomfield, New
Jersey ###
10.3 Form of Stock Purchase Agreement and Certificate used in
connection with various private placements ***
10.4 Form of Stock and Warrant Purchase Agreement and Warrant
Agreement used in Private Placement completed on March 21,
1994 ***
10.5 The Company's 1993 Stock Option Plan and Form of Option
Agreement *****
10.6 Debt Conversion Agreement dated March 30, 1994 with Kuslima
Shogen ****
10.7 Accrued Salary Conversion Agreement dated March 30, 1994 with
Kuslima Shogen ****
10.8 Accrued Salary Conversion Agreement dated March 30, 1994 with
Stanislaw Mikulski ****
10.9 Option Agreement dated March 30, 1994 with Kuslima Shogen ****
10.10 Amendment No. 1 dated June 20, 1994 to Option Agreement dated
March 30, 1994 with Kuslima Shogen ****
10.11 Form of Amendment No. 1 dated June 20, 1994 to Option
Agreement dated March 30, 1994 with Kuslima Shogen *****
10.12 Form of Amendment No. 1 dated June 20, 1994 to Option
Agreement dated March 30, 1994 with Stanislaw Mikulski *****
10.13 Form of Stock and Warrant Purchase Agreement and Warrant
Agreement used in Private Placement completed on September 13,
1994 +
10.14 Form of Subscription Agreements and Warrant Agreement used in
Private Placements closed in October 1994 and September 1995 #
10.15 1997 Stock Option Plan ###
10.16 Separation Agreement with Michael C. Lowe dated as of October
9, 1997 ++
10.17 Form of Subscription Agreement and Warrant Agreement used in
Private Placement completed on February 20, 1998 +++
10.18 Form of Warrant Agreement issued to the Placement Agent in
connection with the Private Placement completed on February
20, 1998 +++
10.19 Placement Agent Agreement dated December 15, 1997 +++
10.20 Separation Agreement with Gail Fraser dated August 31, 1999 ####
10.21 Form of Subscription Agreement and Warrant Agreement used in
the February 2000 Private Placement ++++
10.22 Form of Subscription Agreement and Warrant Agreement used in
the August and September 2000 Private Placement +++++
10.23 Form of Subscription Agreement and Warrant Agreement used in
the April 2001 Private Placements ^
10.24 Form of Convertible Note entered into in April 2001 ^
10.25 Form of Subscription Agreement and Warrant Agreement used in
the July 2001 Private Placements ^
10.26 Form of Subscription Agreement and Warrant Agreement used in
the August and October 2001 Private Placements ^
10.27 Form of Subscription Agreement and Warrant Agreement used in
the September 2001, November 2001 and January 2002 Private
Placement ^
- 14 -
Exhibit No. or
Exhibit Incorporation by
No. Item Title Reference
--- ---------- ---------
10.28 Warrant issued in the February 2002 Private Placement ^
10.29 Form of Subscription Agreement and Warrant Agreement used in
the March 2002 and April 2002 Private Placements ^^
99.1 Factors to Consider in Connection with Forward-Looking
Statements #####
* Previously filed as exhibit to the Company's Registration Statement on
Form S-18 (File No. 2-79975-NY) and incorporated herein by reference
thereto.
** Previously filed as exhibits to the Company's Annual Report on Form 10-K
for the year ended July 31, 1993 and incorporated herein by reference
thereto.
*** Previously filed as exhibits to the Company's Quarterly Report on Form
10-QSB for the quarter ended January 31, 1994 and incorporated herein by
reference thereto.
**** Previously filed as exhibits to the Company's Quarterly Report on Form
10-QSB for the quarter ended April 30, 1994 and incorporated herein by
reference thereto.
***** Previously filed as exhibits to the Company's Registration Statement Form
SB-2 (File No. 33-76950) and incorporated herein by reference thereto.
+ Previously filed as exhibits to the Company's Registration Statement on
Form SB-2 (File No. 33-83072) and incorporated herein by reference
thereto.
++ Previously filed as exhibits to the Company's Quarterly Report on Form
10-Q for the quarter ended October 31, 1997 and incorporated herein by
reference thereto.
+++ Previously filed as exhibits to the Company's Quarterly Report on Form
10-Q for the quarter ended January 31, 1998 and incorporated herein by
reference thereto.
++++ Previously filed as exhibits to the Company's Annual Report on Form 10-K
for the year ended July 31, 2000 and incorporated herein by reference
thereto.
+++++ Previously filed as exhibits to the Company's Quarterly Report on Form
10-Q for the quarter ended October 31, 2000 and incorporated herein by
reference thereto.
^ Previously filed as exhibits to the Company's Registration Statement on
Form S-1 (File No. 333-38136) and incorporated herein by reference
thereto.
^^ Previously filed as exhibits to the Company's Registration Statement on
Form S-1 (File No. 333-89166) and incorporated herein by reference
thereto.
# Previously filed as exhibits to the Company's Annual Report on Form 10-KSB
for the year ended July 31, 1995 and incorporated herein by reference
thereto.
## Previously filed as exhibits to the Company's Registration Statement on
Form SB-2 (File No. 333-11575) and incorporated herein by reference
thereto.
- 15 -
### Previously filed as exhibits to the Company's Quarterly Report on Form
10-QSB for the quarter ended April 30, 1997 and incorporated herein by
reference thereto.
#### Previously filed as exhibits to the Company's Annual Report on Form 10-K
for the year ended July 31, 1999 and incorporated herein by reference
thereto.
##### Filed herewith.
(b) Reports on Form 8-K.
None
- 16 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALFACELL CORPORATION
--------------------
(Registrant)
June 14, 2002 /s/ KUSLIMA SHOGEN
---------------------------------------
Kuslima Shogen, Chief Executive
Officer, Acting Chief Financial Officer
(Principal Executive Officer, Principal
Accounting Officer) and Chairman of
the Board
- 17 -