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
January 31, 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
March 20, 2002 was 20,827,785 shares.
ALFACELL CORPORATION
(A Development Stage Company)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
January 31, 2002 and July 31, 2001
January 31,
2002 July 31,
ASSETS (Unaudited) 2001
------------ ------------
Current assets:
Cash and cash equivalents $ 14,483 $ 44,781
Other assets 21,494 42,933
------------ ------------
Total current assets 35,977 87,714
Property and equipment, net of accumulated depreciation and amortization
of $1,105,503 at January 31, 2002 and $1,081,423 at July 31, 2001 43,475 67,555
Other assets 64,267 46,340
------------ ------------
Total assets $ 143,719 $ 201,609
============ ============
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)
Current liabilities:
Current portion of long-term debt $ 7,694 $ 7,057
Notes payable - convertible debt - unrelated party, less debt discount of $34,511
at July 31, 2001 -- 35,482
Accounts payable 689,059 409,972
Accrued expenses 504,987 465,813
Loan payable related party 135,465 --
------------ ------------
Total current liabilities 1,337,205 918,324
Long-term debt, less current portion 20,141 23,663
------------ ------------
Total liabilities 1,357,346 941,987
------------ ------------
Stockholders' (deficiency):
Preferred stock, $.001 par value
Authorized and unissued, 1,000,000 shares at January 31, 2002 and July 31, 2001 -- --
Common stock $.001 par value
Authorized 40,000,000 shares at January 31, 2002 and July 31, 2001;
Issued and outstanding, 20,727,785 shares at January 31, 2002 and
19,802,245 shares at July 31, 2001 20,728 19,802
Capital in excess of par value 58,812,386 58,211,335
Deficit accumulated during development stage (60,046,741) (58,971,515)
------------ ------------
Total stockholders' (deficiency) (1,213,627) (740,378)
------------ ------------
Total liabilities and stockholders' (deficiency) $ 143,719 $ 201,609
============ ============
See accompanying notes to financial statements.
- 2 -
ALFACELL CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Three months and six months ended January 31, 2002 and 2001,
and the Period from August 24, 1981
(Date of Inception) to January 31, 2002
(Unaudited)
Three Months Ended Six Months Ended August 24, 1981
January 31, January 31, (Date of
------------------------------ ------------------------------ Inception) to
2002 2001 2002 2001 January 31, 2002
------------ ------------ ------------ ------------ ----------------
Revenue:
Sales $ -- $ -- $ -- $ -- $ 553,489
Investment income 136 3,015 157 6,769 1,372,442
Other income -- -- -- -- 60,103
------------ ------------ ------------ ------------ ------------
Total revenue 136 3,015 157 6,769 1,986,034
------------ ------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales -- -- -- -- 336,495
Research and development 506,458 509,679 1,007,981 877,836 38,877,016
General and administrative 188,189 179,863 383,614 325,452 21,249,007
Interest:
Related parties -- -- -- -- 1,142,860
Others 3,363 1,867 37,518 3,768 1,988,376
------------ ------------ ------------ ------------ ------------
Total costs and expenses 698,010 691,409 1,429,113 1,207,056 63,593,754
------------ ------------ ------------ ------------ ------------
Net loss before state tax benefit (697,874) (688,394) (1,428,956) (1,200,287) (61,607,720)
State tax benefit -- -- 353,730 451,395 1,560,979
------------ ------------ ------------ ------------ ------------
Net loss $ (697,874) $ (688,394) $ (1,075,226) $ (748,892) $(60,046,741)
============ ============ ============ ============ ============
Loss per basic and diluted common
share $ (.03) $ (.04) $ (.05) $ (.04)
============ ============ ============ ============
Weighted average number of shares
outstanding 20,581,938 18,832,234 20,326,920 18,749,429
============ ============ ============ ============
See accompanying notes to financial statements.
- 3 -
ALFACELL CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Six months ended January 31, 2002 and 2001,
and the Period from August 24, 1981
(Date of Inception) to January 31, 2002
(Unaudited)
Six Months Ended August 24, 1981
January 31, (Date of Inception)
--------------------------------- to
2002 2001 January 31, 2002
------------ ------------ -------------------
Cash flows from operating activities:
Net loss $ (1,075,226) $ (748,892) $(60,046,741)
Adjustments to reconcile net loss to
net cash used in operating activities:
Gain on sale of marketable securities -- -- (25,963)
Depreciation and amortization 24,080 38,060 1,516,538
Loss on disposal of property and equipment -- -- 18,926
Noncash operating expenses 107,315 64,405 5,931,421
Amortization of deferred compensation -- -- 11,442,000
Amortization of organization costs -- -- 4,590
Changes in assets and liabilities:
Decrease (increase) other current assets 21,439 (67,881) (81,361)
(Increase) Decrease in other assets (17,927) -- 31,784
Increase in interest payable-related party -- -- 744,539
Increase in accounts payable 329,087 3,760 1,035,169
Increase in accrued payroll and expenses,
related parties -- -- 2,348,145
Increase in accrued expenses 39,174 2,700 1,046,500
------------ ------------ ------------
Net cash used in operating activities (572,058) (707,848) (36,034,453)
------------ ------------ ------------
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 financial statements.
- 4 -
ALFACELL CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS, Continued
Six months ended January 31, 2002 and 2001,
and the Period from August 24, 1981
(Date of Inception) to January 31, 2002
(Unaudited)
Six Months Ended August 24, 1981
January 31, (Date of
----------------------- Inception) to
2002 2001 January 31, 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 135,465 -- 2,764,333
Proceeds from bank debt and other long-term debt, net of
deferred debt costs -- -- 2,452,460
Reduction of bank debt and long-term debt (2,885) (2,720) (2,938,733)
Proceeds from issuance of common stock, net 414,180 503,493 28,724,343
Proceeds from exercise of stock options and warrants, net -- 46,600 5,590,254
Proceeds from issuance of convertible debentures, related party -- -- 297,000
Proceeds from issuance of convertible debentures, unrelated party -- -- 416,993
-------- -------- ------------
Net cash provided by financing activities 541,760 547,373 37,527,650
-------- -------- ------------
Net (decrease) increase in cash and cash equivalents (30,298) (160,475) 14,483
Cash and cash equivalents at beginning of period 44,781 257,445 --
-------- -------- ------------
Cash and cash equivalents at end of period $ 14,483 $ 96,970 $ 14,483
======== ======== ============
Supplemental disclosure of cash flow information - interest
paid $ 5,278 $ 3,768 $ 1,669,639
======== ======== ============
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 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 January 31,
2002 and the results of operations for the three and six month periods ended
January 31, 2002 and 2001 and the period from August 24, 1981 (date of
inception) to January 31, 2002. The results of operations for the six months
ended January 31, 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 $1,075,000 and $749,000 recorded for the six
months ended January 31, 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 January 31, 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 March 21, 2002, the Company received gross proceeds of
approximately $600,000 from private placements of equity to various individual
investors and exercise of warrants by an unrelated party. The Company also has
received from time to time loans payable on demand from a related party. As of
January 31, 2002 the aggregate balance of these loans was $135,500.
Additionally, in December 2001 the Company has raised capital amounting to
$354,000 through the sale of its tax
- 6 -
ALFACELL CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS, Continued
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION, Continued
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 sales of equity in private placements and exercise of
warrants. 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 will be received it will assist in allowing the Company to satisfy its
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 7,802,895
and 6,060,363 at January 31, 2002 and 2001, respectively.
3. LOAN PAYABLE, RELATED PARTY
From August 2001 to January 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 January 31, 2002, the loan balance was
$135,500.
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 general and administrative expense
recorded for these options was $35,770, based upon the fair value of such option
on the date of issuance.
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.
- 7 -
ALFACELL CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS, Continued
(Unaudited)
4. CAPITAL STOCK, Continued
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.
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.
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 six months
ended January 31, 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
six months ended January 31, 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.
- 8 -
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 to our annual report on Form 10-K for the
fiscal year ended July 31, 2001 which is incorporated herein by reference,
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 six month periods ended January 31, 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 six month periods ended January
31, 2001 and 2000. Investment income for the three months ended January 31, 2002
was $100 compared to $3,000 for the same period last year a decrease of $2,900.
Investment income for the six months ended January 31, 2002, was $200 compared
to $6,800 for the same period last year, a decrease of $6,600. These decreases
were due to lower balances of cash and cash equivalents.
Research and Development. Research and development expense for the three
months ended January 31, 2002 was $506,000 compared to $510,000 for the same
period last year, a decrease of $4,000, or 1%. This decrease was primarily due
to a decrease in expenses in preparation for marketing approval filings of
ONCONASE(R) for the treatment of malignant mesothelioma with the Food and Drug
Administration in the U.S. and with the European Agency for the Evaluation of
Medicinal Products in Europe and a reduction of non-cash expense relating to
stock options issued for consulting services. This decrease was partially offset
by an increase in costs in support of the on-going Phase III clinical trials for
ONCONASE(R) 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, as well as an increase in costs relating to
patent and trademark applications for ONCONASE(R).
Research and development expense for the six months ended January 31, 2002
was $1,008,000 compared to $878,000 for the same period last year, an increase
of $130,000, or 15%. This increase was primarily due to an increase in costs in
support of on-going Phase III clinical trials 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 and an increase in patent and
trademark applications for ONCONASE(R). This increase was partially offset by a
reduction of a non-cash expense relating to stock options issued for consulting
services.
General and Administrative. General and administrative expense for the
three months ended January 31, 2002 was $188,000 compared to $180,000 for the
same period last year, an increase of
- 9 -
$8,000, or 4%. This increase was primarily due to an increase in legal expenses
due to business development activities, offset by a decrease in public relations
activities and a reduction of a non-cash expense relating to stock options
issued for consulting services.
General and administrative expense for the six months ended January 31,
2002 was $383,000 compared to $325,000 for the same period last year, an
increase of $58,000 or 18%. This increase was primarily due to an increase in
public relations expenses and an increase in legal expenses due to business
development activities, 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 January 31, 2002 was
$3,000 compared to $2,000 for the same period last year, an increase of $1,000.
Interest expense for the six months ended January 31, 2002 was $38,000 compared
to $4,000 for the same period last year, an increase of $34,000. These increases
were primarily due to the interest expense on the renewal of the convertible
notes and related warrants issued to unrelated parties in April 2001. The
interest expense was based on the value of the warrants using the Black-Scholes
options-pricing model, amortized on a straight-line basis over the life of the
notes.
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 six months ended
January 31, 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 six months
ended January 31, 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 January 31, 2002 was $698,000 as
compared to $688,000 for the same period last year, an increase of $10,000. The
net loss for the six months ended January 31, 2002 was $1,075,000 as compared to
$749,000 for the same period last year, an increase of $326,000. The cumulative
loss from the date of inception, August 24, 1981 to January 31, 2002, amounted
to $60,046,000. 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 six
months ended January 31, 2002, we had a net decrease in cash and cash
equivalents of $30,000, which resulted primarily from net cash used in operating
activities of $572,000, offset by net cash provided by financing activities of
$542,000, primarily from the private placement of common stock and warrants and
proceeds from short-term borrowings. Total cash resources as of January 31, 2002
were $14,000 compared to $45,000 at July 31, 2001.
Our current liabilities as of January 31, 2002 were $1,337,000 compared to
$918,000 at July 31, 2001, an increase of $419,000. The increase was primarily
due to an increase in expenses related to the expansion of our Phase III
clinical trials for malignant mesothelioma in Europe. As of January 31, 2002 our
current liabilities exceeded our current assets and we had a working capital
deficit of $1,301,000.
- 10 -
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 March 21,
2002, we received gross proceeds of approximately $600,000 from private
placements of equity to various individual investors and 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 January 31, 2002 the aggregate balance of
these loans was $135,500. Additionally, in December 2001 we have raised capital
amounting to $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 sale of equity in private placements and exercise of warrants. 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 will be 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 January 31, 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 quarter ended October 31, 2001. In
December 2000, we received $451,000 from the sale of the allocated tax benefits
which was recognized as a tax benefit for the quarter ended October 31, 2000. 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.
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
- 11 -
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 November 2001, we completed a private placement resulting in the issuance of
209,070 shares of restricted common stock and 259,070 five-year warrants to
purchase an aggregate 259,070 shares of common stock at an exercise price of
$1.50 per share. We received an aggregate $104,535 from such private placement.
In January 2002, we completed a private placement resulting in the issuance of
150,000 shares of restricted common stock and 150,000 five-year warrants to
purchase an aggregate 150,000 shares of common stock at an exercise price of
$1.50 per share. We received an aggregate $75,000 from such private placement.
In February 2002, we completed a private placement resulting in the issuance of
1,500,000 five-year warrants to purchase 1,500,000 shares of common stock. Of
such warrants, 250,000 are exercisable at $0.50 per share, 650,000 are
exercisable at $1.00 per share and 600,000 are exercisable at $1.50 per share.
We received $1,500 from such private placement.
In March 2002, we issued 100,000 shares of common stock upon the exercise of
warrants by an unrelated party resulting in gross proceeds of $50,000, in a
transaction 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 #
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 ***
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Exhibit No. or
Exhibit Incorporation by
No. Item Title Reference
--- ---------- ---------
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
10.19 Private Placement completed on February 20, 1998 +++
10.20 Placement Agent Agreement dated December 15, 1997 +++
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
Private Placement ^^
10.28 Form of Subscription Agreement and Warrant Agreement used in the November 2001
and January 2002 Private Placements ^
10.29 Warrant issued in the February 2002 Private Placement ^
99.1 Factors to Consider in Connection with Forward-Looking Statements ^^^
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* 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 Quarterly Report on
Form 10-Q for the quarter ended October 31, 2001 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, 2001 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.
### 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.
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(b) Reports on Form 8-K.
None
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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)
March 25, 2002 /s/ KUSLIMA SHOGEN
---------------------------------------
Kuslima Shogen, Chief Executive
Officer, Acting Chief Financial Officer
(Principal Executive Officer, Principal
Accounting Officer) and Chairman of
the Board
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