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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
July 31, 1999 0-11088
For the fiscal year 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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
-----------------------------
(Title of Class)
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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock, par value $.001 per share,
held by non-affiliates based upon the average of the high and low sale prices as
reported by the OTC Bulletin Board on November 8, 1999 was $7,922,302. As of
November 8, 1999 there were 17,326,594 shares of Common Stock, par value $.001
per share, outstanding.
The Index to Exhibits appears on page 26.
Documents Incorporated by Reference
None
Table of Contents
PART I Page
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Item 1. Business 1
Item 2. Properties 12
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 12
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 18
Item 8. Financial Statements and Supplementary Data 18
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 18
PART III
Item 10. Directors and Executive Officers of the Registrant 18
Item 11. Executive Compensation 20
Item 12. Security Ownership of Certain Beneficial Owners
and Management 24
Item 13. Certain Relationships and Related Transactions 25
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 26
The following trademark appear in this Annual Report: ONCONASE(R) is the
registered trademark of Alfacell Corporation, exclusively for the anti-cancer
indications.
(i)
Part I
Item 1. BUSINESS.
Overview
Alfacell Corporation ("Alfacell" or the "Company") is a biopharmaceutical
company organized in 1981 and is primarily engaged in the discovery and
development of a new class of anti-cancer drugs from amphibian ribonucleases
("RNases"). RNases degrade ribonucleic acids ("RNA") causing an interruption in
protein synthesis resulting in inhibition of cell growth and induction of
apoptosis (programmed cell death). The Company's first product under development
is ONCONASE(R) (ranpirnase) which targets solid tumors, most of which are known
to become resistant to other chemotherapeutic drugs.
ONCONASE(R) (ranpirnase*) is a novel amphibian RNase that has been isolated from
the eggs of the leopard frog (Rana pipiens). RNases are enzymes that catalyze
the cleavage of phosphodiester bonds of RNAs. RNases mediate several important
biological functions in nature including regulation of angiogenesis, anti-viral
and anti- parasitic defenses, interstrain competition in bacteria and
restrictive pollination in plants. In addition to taking advantage of the
natural biological functions of RNases, amphibian ribonucleases may be more
therapeutically effective in humans than mammalian RNases as they do not appear
to be inhibited by endogenous mammalian RNase inhibitors. Therefore, developing
amphibian ribonucleases into therapeutics, and thereby taking advantage of the
natural role of RNases, may result in a new class of compounds for proliferative
diseases such as cancer and AIDS. The Company retains all commercial rights to
compounds resulting from this program.
ONCONASE has been used to treat patients with advanced stages of solid tumors on
a weekly basis. Based upon Phase II and Phase III clinical data, the most
significant clinical results to date with ONCONASE have been observed in
unresectable malignant mesothelioma. Pilot clinical trials have also been
conducted in non- small cell lung cancer, metastatic breast and renal cell
cancer.
ONCONASE, Alfacell's flagship product, is a novel ribonuclease unique among the
superfamily of pancreatic ribonucleases. Ranpirnase is structurally homologous
to several human RNases, such as pancreatic RNase and angiogenin, which may
account for its relatively low immunogenicity and a favorable safety profile
which has been observed in over 700 patients treated to date. Side effects
associated with ONCONASE have been modest, are primarily renal and are
reversible upon reduction of dose, or temporary or permanent discontinuation of
treatment. Patients treated with ONCONASE have shown little evidence of
myelosuppression (bone marrow suppression), alopecia (hair loss) or other severe
toxicities frequently observed after treatment with most other chemotherapeutic
drugs.
Based on years of preclinical and clinical testing, it is believed that ONCONASE
and related compounds may have utility:
o as a single agent;
o in combination with other anticancer agents;
o as the payload in a targeted conjugate or fusion protein; and
o in a delivery system such as standard or "stealth" liposomes.
*Ranpirnase is the active component of the finished product ONCONASE(R)
1
In June 1997, a Phase III clinical trial was initiated comparing ONCONASE as a
single agent to doxorubicin in patients with unresectable malignant
mesothelioma. Unresectable malignant mesothelioma is a cancer often linked to
asbestos exposure and afflicts approximately 2,500-3,500 newly-diagnosed
patients in the U.S. each year. Epidemiologists have predicted that over the
next 35 years over 250,000 people will die from malignant mesothelioma in Europe
alone. This disease is found in the lining of the lungs and the abdomen. There
is currently no standard Food and Drug Administration ("FDA") approved drug for
this disease. In April 1999, the enrollment for this trial was completed.
Subsequently, the trial was amended to allow for the comparison of the
combination of ONCONASE and doxorubicin versus doxorubicin as a single
therapeutic agent. In July 1998, the Company discontinued two Phase III clinical
trials testing ONCONASE in combination with tamoxifen in pancreatic cancer. This
drug combination did not demonstrate a statistically significant survival
benefit in this indication.
In March 1999, a Phase I/II study was initiated to evaluate the safety and
efficacy of the combination regimen of ONCONASE and 13-cis-retinoic acid and
alpha-interferon under an Investigator IND at MD Anderson Cancer Center, Houston
Texas. No meaningful data from this study are yet available.
Alfacell has established two major scientific collaborations with the National
Institutes of Health (the "NIH"): i) in 1989, a collaboration with the National
Institute of Neurological Disorders and Stroke (the "NINDS") and ii) in 1992, a
collaboration with the National Cancer Institute (the "NCI"). Research primarily
focuses on ONCONASE mechanism of action studies, in vivo synergisms of ONCONASE
with other anti-cancer agents and other routes of administration.
Alfacell has produced a modified recombinant version of ranpirnase which enables
other moieties to be attached to it. This has resulted in a potential new
product line. Ranpirnase conjugate produced by the NINDS which is being
developed for the treatment of patients with primary brain tumors. The NINDS is
also in preclinical testing of ONCONASE as a single agent in primary brain
tumors. The NCI collaboration has also produced a potential new product, a
conjugate of ranpirnase with a monoclonal antibody which has demonstrated
preclinical activity in Non-Hodgkin's lymphoma. Further preclinical testing by
the NINDS and NCI is ongoing (in vivo) in preparation for commencing clinical
trials for these two indications.
Alfacell has also discovered a series of biologically active proteins. These
proteins appear to be involved in the regulation of both early embryonic and
malignant cell growth. However, significant additional research and funding will
be required in order to develop them into therapeutics.
The Company believes that ranpirnase may also be developed as an anti-viral
agent. The NIH has performed an independent in vitro screen of ONCONASE against
the HIV virus type 1 ("HIV"). The results showed ONCONASE to inhibit replication
of HIV by up to 99.9% after a four day incubation period at concentrations not
toxic to uninfected H9 leukemic cells. In addition, in vitro findings by NIH
scientists revealed that ONCONASE significantly inhibited production of HIV in
several persistently infected human cell lines, preferentially degrading viral
RNA and cellular transfer RNA while not affecting normal cellular ribosomal RNA
and messenger RNAs. In addition, the NIH - Division of AIDS found ONCONASE to
have in vitro anti- viral activity. Subject to the availability of the resources
required to do so, the Company plans to conduct further research concerning
anti-viral activity. There can be no assurance that ranpirnase will show any
level of anti-HIV activity in humans.
Information contained herein contains "forward-looking statements" which can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy. No assurance can be given that the future results covered by the
forward-looking statements will be achieved. The
2
matters set forth in Exhibit 99.1 hereto constitute cautionary statements
identifying important factors with respect to such forward-looking statements,
including certain risks and uncertainties, that could cause actual results to
vary materially from the future results indicated in such forward-looking
statements. Other factors could also cause actual results to vary materially
from the future results indicated in such forward-looking statements.
ONCONASE(R) (Ranpirnase) Profile
Originally, the Company developed a biological extract from early stage leopard
frog embryos and eggs which demonstrated potent anti-tumor activity. In 1987,
the Company isolated a specific protein, P-30 Protein (herein referred to as
ranpirnase). In October 1998, the United States Adopted Names Council (USAN)
adopted ranpirnase as the United States adopted name for Alfacell's
antineoplastic P30 protein (trademarked ONCONASE(R)) intended for use in the
treatment of solid tumors. Ranpirnase is the active ingredient (drug substance)
of the finished registered trademarked product ONCONASE. Based upon the complete
amino acid sequence analysis (comparison of the amino acid sequence of
ranpirnase with that of over 10,000 protein sequences registered with the
National Biomedical Research Foundation Protein Identification Resource,
Georgetown University, Washington, DC), it has been established that ranpirnase
has a novel structure. It has also been determined that, thus far, ranpirnase is
the smallest protein belonging to the superfamily of pancreatic ribonucleases.
The Company retains all commercial rights to ONCONASE.
Chemistry
ONCONASE (ranpirnase) is a single peptide chain containing 104 amino acids.
Ranpirnase has a molecular mass of approximately 12,000 daltons and an
isoelectric point of approximately 9.5.
Formulation
Each vial of the finished product ONCONASE(R) for Injection contains 1 mg + 15%
of lyophilized ONCONASE and 40 mg + 15% of mannitol. Storage below -15o C is
recommended. Stability testing is on-going to support refrigerated storage.
Postulated Mechanism of Action
Anti-Tumor Activity
Although the mechanism of action of ONCONASE has not been fully elucidated, a
series of studies have been performed and the results imply that ONCONASE has
several mechanisms of actions. The enzymatic activity of ONCONASE appears to be
essential for its broad spectrum of biological activities. In the 9L glioma cell
system, ONCONASE is able to induce a chain of events that lead to inhibition of
tumor cell proliferation and tumor cell destruction. ONCONASE:
binds to tumor cell surface receptors
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becomes internalized by energy-dependent process
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reaches the cytosol
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degrades various species of intracellular RNA (preferentially tRNA)
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inhibits protein synthesis
|
3
inhibits cell growth and proliferation (primarily blocking the G1
phase of the cell cycle)
|
may induce tumor cell differentiation and/or programmed cell death (apoptosis)
The inhibitory effects of ONCONASE in the G1 phase of the cell cycle appear to
be due to its inhibition of the expression of cyclin D3 and an increase in the
expression of several inhibitors of cyclin-dependent kinases ("CDKs") such as
p16INK4A, p21WAF1, p27KIP1 and hypophosphorylated form of pRb protein, as
demonstrated in the human U937 lymphoma cell line. Inhibiting cell cycle
progression in the G1 phase prevents cells from entering the proliferative
DNA-synthetic phase (S-phase) of the cell cycle. Thus, the cell cycle regulatory
effects of ONCONASE include both down-regulatory and up-regulatory mechanisms.
This pattern of activity may partly explain why tumor cells with their
de-regulated cell cycle control may be more susceptible to ONCONASE than
normally regulated somatic cells. The parallel ONCONASE-induced cell
differentiation and apoptosis observed in this model may reflect a shift in
growth signal transduction pathways from primarily anti-apoptotic to
differentiation-inducing and pro-apoptotic.
Preclinical research
In Vitro Anti-Cancer Activity
ONCONASE has demonstrated a broad spectrum of anti-tumor activity in vitro and
was determined to be active in the NCI Cancer Screen. Scientists at Harvard
Medical School demonstrated that ONCONASE has anti- angiogenic activity. It
antagonizes the pro-angiogenic activity of human angiogenin in the endothelial
cells.
Several synergistic interactions between ONCONASE and other drugs have been
established. The in vitro results are shown in the table below:
SYNERGISMS IN VITRO
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Regimen Cell Line
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ASPC-1 Pancreatic
ONCONASE + Tamoxifen DU-145 Prostatic
OVCAR-3 Ovarian
ACHN Renal Cell Carcinoma
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ONCONASE + Phenothiazine A-549 Non-Small Cell Lung Carcinoma
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ASPC-1 Pancreatic
ONCONASE + Lovastatin A-549 Non-Small Cell Lung
OVCAR -3 Ovarian
HT-520 NSCLC
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ONCONASE + Cisplatin OVCAR-3 Ovarian
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ONCONASE + All-trans-retinoic acid 9L Glioma
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ONCONASE + Vincristine HT-29 mdr-1 Colorectal
MCF-7 AdrRes Breast
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ONCONASE + Doxorubicin HT-29 mdr-1 Colorectal
MDA.MB-231 Res. Breast
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ONCONASE + Taxol MDA.MB-231 Res. Breast
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4
In Vivo Anti-Cancer Activity
There are in vivo data for the synergistic use of ONCONASE with:
o vincristine,
o doxorubicin, and
o tamoxifen.
These synergisms suggest a potential for the therapeutic utility of ONCONASE in
patients with chemotherapy- resistant tumors. NCI reported the ability of
ONCONASE to overcome multiple drug resistance (MDR), both in vitro and in vivo.
Previously, it was shown that ONCONASE could overcome other forms of drug
resistance.
ONCONASE as a Radiosensitizing and Anti-Angiogenic Agent
Collaborative research at the University of Medicine and Dentistry of New Jersey
at Camden and University of Pennsylvannia Medical Center, Department of
Radiation Oncology, revealed:
o radiosensitizing potential of ONCONASE,
o potential co-antiangiogenic activity of ONCONASE, and
o diminution of tumor interstitial fluid pressure by systemically
administered ONCONASE.
Further in vivo studies are planned.
Clinical Development
Alfacell's regulatory strategy for gaining initial marketing approval of
ONCONASE is to demonstrate its safety and efficacy in unresectable malignant
mesothelioma. If successful, the Company would then seek to initiate trials in
other solid tumor indications where:
o median survivals are typically less than a year,
o there are smaller patient populations and thus, smaller clinical
trials would be required, and
o there are few or no approved treatments.
Clinical Trials
ONCONASE has been tested as a single agent in patients with a variety of solid
tumors and in combination with tamoxifen in prostate cancer and advanced
pancreatic and renal cell carcinoma patients. In vitro results showed ONCONASE
to be synergistic with tamoxifen in inhibiting tumor cell growth in the tumor
cell lines originating from these types of cancers.
Reported toxicities in Phase I and II clinical trials, were primarily renal,
dose-related and reversible. There has been little evidence of myelosuppression
(bone marrow suppression), alopecia (hair loss) or other severe toxicities
frequently observed after treatment with most other chemotherapeutic drugs. Due
to its limited funding, the Company has had to be very selective in designing
its Phase III regulatory strategy for gaining FDA approval. Therefore, the
selection criteria focused on those tumor types, which in addition to showing
evidence of preclinical and clinical efficacy, that: i) have small patient
populations, resulting in the number of patients required for Phase III studies
to be small; ii) have a median survival time of 6-12 months from diagnosis, and
iii) are life-threatening with limited competition.
5
In June 1997, Alfacell initiated a Phase III clinical trial for unresectable
malignant mesothelioma comparing ONCONASE to doxorubicin. No standard FDA
approved therapy exists to treat this deadly cancer, and most advanced,
unresectable malignant mesothelioma patients die of progressive disease within
6-12 months of diagnosis. The Company is in the process of analyzing the Phase
III data from this clinical trial in preparation for a pre-NDA meeting with the
FDA.
The table below indicates the status of the various clinical programs:
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Form Clinical Status
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As a single agent ONCONASE is currently in a Phase III
clinical trial for malignant
mesothelioma (originating from the
lining of the lungs and abdomen). The
trial is a randomized, controlled
study. Patient accrual was completed in
April 1999.
Phase II clinical trial results for
this indication have been encouraging;
however, there can be no assurance that
previous clinical trial results will be
reflective of future clinical results
or will be sufficient to obtain FDA
approval.
ONCONASE has been tested in Phase I-III
clinical trials in approximately 35
cancer centers across the U.S.,
including major centers such as
Columbia-Presbyterian, University of
Chicago, M.D. Anderson and Cedars-Sinai
Cancer Centers.
ONCONASE is in preclinical testing for
primary brain tumors at the National
Institute of Neurological Disorders and
Strokes ("NINDS").
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In combination with other anti-
cancer agents Phase I/II clinical studies testing
ONCONASE in combination with tamoxifen
in prostate cancer and renal cell
carcinoma have been completed.
Phase I/II trial testing ONCONASE in
combination with 13-cis-retinoic acid
and alpha-interferon in metastatic
renal cell carcinoma is ongoing at MD
Anderson Cancer Center.
ONCONASE in combination with
doxorubicin in patients with
unresectable malignant mesothelioma is
being evaluated.
In July 1998, Alfacell discontinued two
Phase III clinical trials testing
ONCONASE in combination with tamoxifen
in pancreatic cancer based on the lack
of a demonstrated statistically
significant survival benefit.
Although further clinical trials may be
warranted in other indications,
Alfacell lacks the financial resources
for further studies at this time.
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As the payload in a targeted
conjugate A collaboration with the NINDS has
produced a ranpirnase which conjugate
is currently being evaluated for
clinical testing at the NINDS for
primary brain tumors.
A collaboration with the National
Cancer Institute has produced a
conjugate of ranpirnase and a
monoclonal antibody which has been
deemed active in vivo for Non-Hodgkin's
Lymphoma. The conjugate is being
evaluated by the NCI for clinical
trials starting next year.
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6
Research and Development Programs
Research and development expenses for the fiscal years ended July 31, 1999,
1998, and 1997 were $2,402,000, $5,265,000, and $3,863,000, respectively.
Alfacell's research and development programs focus primarily on the development
of therapeutics from amphibian ribonucleases. These proteins have been shown to
be involved in the regulation of cell proliferation, maturation, differentiation
and apoptosis. Therefore, they may be ideal candidates for the development of
therapeutics, in treatments for cancer and other life-threatening diseases
(including HIV infections), that require anti-proliferative and pro-apoptotic
properties.
The following table outlines the various programs in the Company's research and
development portfolio. Alfacell is pursuing some of these programs
independently, while others are being undertaken in collaboration with the NIH.
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Program Indication
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Cancer:
ONCONASE(R) (ranpirnase) Unresectable malignant mesothelioma
Primary Brain Tumors (1)
AC-RD-3002 (2) Non-Hodgkin's Lymphoma ("NHL")
AC-RD-3003 (1) Primary Brain Tumors
Other Novel Amphibian Ribonuclease Variants Solid Tumors
Proteasome Inhibitors Solid Tumors and NHL
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Viral Disease:
ONCONASE(R) (ranpirnase) HIV Infection
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Anti-inflammatory Diseases:
Ranpirnase Variant-Conjugate Anti-inflammatory and autoimmune diseases
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(1) In collaboration with the NIH - NINDS
(2) In collaboration with the NIH - NCI
Ranpirnase Conjugates and Fusion Proteins: AC-RD-3002 and AC-RD-3003
In addition to use in its native form, ranpirnase is being conjugated to
targeting molecules to ensure its specificity. Several conjugates are being
developed by the NIH in collaboration with Alfacell scientists and have
demonstrated significant activity. In addition, several genes of ranpirnase, its
variants and other amphibian ribonucleases are being synthesized using
"state-of-the-art" recombinant technologies. The Company intends to focus its
efforts on developing novel therapeutics from these genes that selectively
target specific tumors. Production of these engineered genes and products may
also lead to their use in gene therapy applications.
AC-RD-3002 is comprised of ranpirnase conjugated to an anti-CD22 monoclonal
antibody for the treatment of Non-Hodgkin's Lymphoma. The Company, in
collaboration with the NCI, is developing this product. AC-RD- 3002 is in
preclinical testing at the NCI in preparation for commencing clinical trials.
AC-RD-3003 is a recombinant variant of ranpirnase conjugated to a specific
protein. The receptors for this particular protein tend to be expressed at
higher concentrations in proliferating cells, such as tumor cells. Studies have
shown that AC-RD-3003 targets malignant glial cells on primary brain tumors. The
Company, in collaboration with the NINDS, is developing this product. In
preclinical studies performed by the NINDS, ONCONASE as a single agent has shown
activity in primary brain tumors.
7
Proteasome Inhibitors
Cyclins and CDKs are two major groups of protein regulators of cell cycle
progression. Cancer can be defined as the uncontrolled growth and proliferation
of cells often associated with a de-regulated pattern of expression of cyclins
and other regulatory proteins, and the deficient elimination of cells by
apoptosis. In vitro studies of ONCONASE have shown its ability to perturb cell
cycle progression by decreasing expression of cyclin D3 and by increasing
expression of several inhibitors of CDKs.
Cell growth and viability are dependent on the function of the proteasome.
Proteasomal activity is necessary for cell growth by regulating the entry and
exit to and from the mitotic cycle through timely degradation of cyclins and
other regulatory proteins. Proteasome inhibitors interfere with normal
proteasome function, resulting in interruption of cell cycle progression and
induction of apoptosis. Given that ONCONASE and proteasome inhibitors both have
been shown in vitro to modulate fundamental mechanisms governing tumor cell
growth, proliferation and death, Alfacell is testing these two classes of
compounds in combination with ranpirnase and has discovered synergistic
anti-tumor effects. The Company believes that a new class of anti- cancer
compounds can be developed combining ranpirnase and its variants with proteasome
inhibitors. The Company retains all commercial rights to compounds resulting
from this program.
HIV Infection
The drugs currently approved in the United States for treatment of HIV infection
consist primarily of reverse transcriptase inhibitors and protease inhibitors.
There is an extremely high rate of resistance developing to several currently
available anti-viral drugs, primarily due to the exponentially increasing rate
of mutations of HIV that occur during infection. Experimental data shows that
anti-HIV effects of ONCONASE, are quite selective, independent of the HIV
envelope and therefore likely to inhibit replication of the different HIV-1
subtypes. In vitro studies performed by independent scientific collaborators
(including the NIH - Division of AIDS) have demonstrated that ONCONASE:
o acts directly by degrading viral genomic RNA during the pre-integration
complex phase and indirectly by degrading the tRNALys3 isoform which
functions as a primer for viral reverse transcriptase;
o degrades viral RNA of HIV-1 intracellularly, with a dramatic reduction in
the levels of viral transcripts which is sustained for 2-4 days;
o inhibits replication of HIV-1 in a dose-dependent manner by up to 99.9%, as
measured by the p24 antigen capture assay, in acutely and persistently
infected cells, at concentrations that are only minimally cytotoxic to
uninfected H9 cells;
o has highly significant anti-HIV activity in the monocyte/macrophage system.
Ranpirnase, as an enzyme highly specialized in the degradation of RNA molecules,
might be an anti-HIV agent that could be effective, irrespective of viral
mutations that render other antiviral agents ineffective. Ranpirnase could be
particularly useful in targeting the monocyte/macrophage cellular reservoir of
HIV, and may significantly contribute to the control of HIV replication in its
post-integrational phase of the virus life-cycle (e.g., when RT inhibitors are
ineffective) and prevent the emergence of resistant strains of HIV. The Company
retains all commercial rights to compounds resulting from this program. However,
the Company does not currently possess the funds necessary to conduct further
research for this indication.
8
Ranpirnase Variant Conjugates
Alfacell has developed a variant of ranpirnase and conjugated it to a variety of
clinically important proteins. These conjugates are designed to specifically
target relevant molecules in the body and inactivate them. These new products
may have therapeutic applications in the treatment of anti-inflammatory
diseases, e.g. arthiritis and other autoimmune diseases. However, there can be
no assurance that these products will be successfully developed.
Raw Materials
The major active ingredient derived from leopard frog eggs is the protein,
ranpirnase. Although Alfacell currently acquires its natural source material
from a single supplier, management believes that it is abundantly available from
other sources. The Company has sufficient egg inventory on hand to produce
enough ONCONASE to complete the current clinical trials and supply ONCONASE for
up to two years after commercialization. In addition, the Company has
successfully completed the cloning of the natural source product (ranpirnase).
However, there can be no assurance that using the recombinant technology will be
more cost effective over the natural source.
Manufacturing
The Company has signed an agreement with Scientific Protein Laboratories
("SPL"), a subsidiary of a division of American Home Products Corp., which will
perform the intermediary manufacturing process which entails purifying
ranpirnase. Subsequently, the intermediate product is sent to a contract filler
for the final manufacturing step and vial filling. Other than these
arrangements, no specific arrangements have been made for the manufacture of the
Company's product. Compliance with Current Good Manufacturing Practices ("cGMP")
is a requirement for product manufactured for use in Phase III clinical trials
and for commercial sale. Both SPL, and the contract filler to whom the
intermediate product is sent for the final manufacturing step and vial filling,
manufacture in accordance with cGMP. For the foreseeable future, the Company
intends to rely on these manufacturers, or substitute manufacturers, if
necessary, to manufacture its product. There can be no assurance that the
Company would be able to find substitute manufacturers, if necessary. The
Company is dependent upon its contract manufacturers to comply with cGMPs and to
meet production requirements. There can be no assurance that the Company's
contract manufacturers will comply with cGMPs or timely deliver sufficient
quantities of the Company's products.
Marketing
Neither the Company nor any of its officers or employees has pharmaceutical
marketing experience. If the Company were to market its products itself,
significant additional expenditures and management resources would be required
to develop an internal sales force and there can be no assurance that the
Company would be successful in penetrating the markets for any products
developed or that internal marketing capabilities would be developed at all. The
Company intends, in some instances, to enter into development and marketing
agreements with third parties. The Company expects that under such arrangements
it would act as a co- marketing partner or would grant exclusive marketing
rights to its corporate partners in return for up-front fees, milestone payments
and royalties on sales. Under these agreements, the Company's marketing partner
may have the responsibility for a significant portion of development of the
product and regulatory approval. In the event that the marketing partner fails
to develop a marketable product or fails to market a product successfully, the
Company's business may be adversely affected.
9
Government Regulation
The manufacturing and marketing of pharmaceutical products in the United States
requires the approval of the FDA under the Federal Food, Drug and Cosmetic Act.
Similar approvals by comparable regulatory agencies are required in most foreign
countries. The FDA has established mandatory procedures and safety standards
which apply to the clinical testing, manufacture and marketing of pharmaceutical
products. Obtaining FDA approval for a new therapeutic may take many years and
involve substantial expenditures. Pharmaceutical manufacturing facilities are
also regulated by state, local and other authorities.
As an initial step in the FDA regulatory approval process, preclinical studies
are conducted in animal models to assess the drug's efficacy and to identify
potential safety problems. The results of these studies are submitted to the FDA
as a part of the Investigational New Drug Application ("IND"), which is filed to
obtain approval to begin human clinical testing. The human clinical testing
program typically involves up to three phases. Data from human trials are
submitted to the FDA in a New Drug Application ("NDA") or Biologics License
Application ("BLA"). Preparing an NDA or BLA involves considerable data
collection, verification and analysis.
The Company has not received FDA or other marketing approval for any products.
Difficulties or unanticipated costs may be encountered by the Company in its
effort to secure necessary governmental approvals, which could delay or preclude
the Company from marketing its products. There can be no assurance that any of
the Company's products will be approved by the FDA or any foreign country.
With respect to patented products, delays imposed by the governmental approval
process may materially reduce the period during which the Company may have the
exclusive right to exploit them. See --"Patents."
Patents and Trademarks
The Company believes it is important to develop new technology and to improve
its existing technology. When appropriate, the Company files patent applications
to protect inventions in which it has an ownership interest.
The Company owns six U.S. Patents:
a) U.S. Patent No. 4,888,172 issued in 1989, which covers a
pharmaceutical produced from fertilized frog eggs (Rana pipiens) and
the methodology for producing it.
b) U.S. Patent No. 5,559,212 issued in 1996, which covers the amino acid
sequence of ONCONASE.
c) U.S. Patents Nos. 5,529,775 and 5,540,925 issued in 1996 and U.S.
Patent No. 5,595,734 issued in 1997, which cover combinations of
ONCONASE with certain other pharmaceuticals.
d) U.S. Patent No. 5,728,805 issued in 1998 which covers a family of
variants of ONCONASE.
The Company owns three European patents, which have been validated in certain
European countries. These European patents cover ONCONASE, process technology
for making ONCONASE, and combinations of ONCONASE with certain other
chemotherapeutics. The Company also owns other patent applications, which are
pending in the United States, Europe, and Japan. Additionally, the Company owns
one Japanese patent and an undivided interest in two applications that are
pending in the United States. Each of these applications relate to a Subject
Invention (as that term is defined in CRADAs to which the Company and the NIH
are parties).
10
Patents covering biotechnological inventions have an uncertain scope, and the
Company is subject to this uncertainty. The Company's patent applications may
not issue as patents. Moreover, the Company's patents may not provide the
Company with competitive advantages and may not withstand challenges by others.
Likewise, patents owned by others may adversely affect the ability of the
Company to do business. Furthermore, others may independently develop similar
products, may duplicate the Company's products, and may design around patents
owned by the Company.
The Company also relies on proprietary know-how and on trade secrets to develop
and maintain its competitive position. Others may independently develop such
know-how or trade secrets or may otherwise obtain access thereto. Although
Company employees and consultants having access to proprietary information are
required to sign agreements which require them to keep such information
confidential, such agreements may be breached or held to be unenforceable.
Competition
There are several companies, universities, research teams and scientists, both
private and government- sponsored, which engage in research similar, or
potentially similar, to that performed by the Company. Many of such entities and
associations have far greater financial resources, larger research staffs and
more extensive physical facilities than the Company. These competitors may
succeed in their research and development of products which are more effective
than any developed by the Company and may be more successful than the Company in
their production and marketing of such products. The Company is not aware,
however, of any product currently being marketed which has the same mechanism of
action as the Company's proposed anti- tumor agent, ONCONASE. A search by the
Company of scientific literature reveals no published information which would
indicate that others are currently employing its methods or producing such an
anti-tumor agent. There are several chemotherapeutic agents currently used to
treat the forms of cancer which ONCONASE is being used to treat. There can be no
assurance that ONCONASE will prove to be as safe and as effective as currently
used drugs or that new treatments will not be developed which are more effective
than ONCONASE.
Employees
As of November 8, 1999, Alfacell employed fifteen persons, of whom twelve were
engaged in research and development activities and three were engaged in
administration and management. The Company has four employees who hold Ph.D. or
M.D. degrees. All of the Company's employees are covered by confidentiality
agreements. Alfacell considers relations with its employees to be very good.
None of the Company's employees are covered by a collective bargaining
agreement.
Environmental Matters
The Company's operations are subject to comprehensive regulation with respect to
environmental, safety and similar matters by the United States Environmental
Protection Agency ("EPA") and similar state and local agencies. Failure to
comply with applicable laws, regulations and permits can result in injunctive
actions, damages and civil and criminal penalties. If the Company expands or
changes its existing operations or proposes any new operations, it may be
required to obtain additional or amended permits or authorizations. The Company
spends time, effort and funds in operating its facilities to ensure compliance
with environmental and other regulatory requirements. Such efforts and
expenditures are common throughout the biotechnology industry and generally
should have no material adverse effect on the Company. The principal
environmental regulatory requirements and matters known to the Company requiring
or potentially requiring capital expenditures by the Company do not appear
likely, individually or in the aggregate, to have a material adverse effect on
the Company's financial condition. The Company believes that it is in compliance
with all current laws and regulations.
11
Item 2. PROPERTIES.
The Company owns no real property. The Company leases a total of approximately
17,000 square feet in an industrial and office building located in Bloomfield,
New Jersey. The Company leases its facility under a five year operating lease
which is due to expire December 31, 2001. The annual rental obligation, which
commenced January 1, 1997 is $96,775 and is subject to escalation amounts. The
Company believes that the facility is sufficient for its needs in the
foreseeable future.
Item 3. LEGAL PROCEEDINGS.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Part II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the OTC Bulletin Board ("OTCBB") under
the symbol "ACEL". At the close of business April 27, 1999, it was delisted from
The Nasdaq SmallCap Market ("Nasdaq") for failing to meet the minimum bid price
requirements set forth in the NASD Marketplace Rules. As of November 8, 1999,
there were approximately 1,323 stockholders of record of the Company's Common
Stock.
The following table sets forth the range of high and low sale prices of the
Common Stock for the two fiscal years ended July 31, 1999 and 1998. The price
for the periods commencing April 28, 1999 were obtained from OTCBB and the price
for the periods prior to such date were obtained from Nasdaq. These prices are
believed to be representative of inter-dealer quotations, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions.
High Low
---- ---
Year Ended July 31, 1999:
First Quarter 1 - 1/25 13/32
Second Quarter 1/2 7/32
Third Quarter 7/8 13/64
Fourth Quarter 9/16 3/16
Year Ended July 31, 1998:
First Quarter 4 - 5/8 3
Second Quarter 3 - 25/32 2 - 1/4
Third Quarter 4 - 1/2 2 - 1/4
Fourth Quarter 4 - 5/8 3/8
The Company has paid no dividends on its Common Stock since its inception and
does not plan to pay dividends on its Common Stock in the foreseeable future.
Any earnings which the Company may realize will be retained to finance the
growth of the Company.
12
Item 6. SELECTED FINANCIAL DATA.
Set forth below is the selected financial data for the Company for the five
fiscal years ended July 31, 1999.
Year Ended July 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
Revenue $ 168,372 $ 311,822 $ 442,572 $ 184,250 $ 20,992
Net Loss $(3,156,636) $(6,387,506) $(5,018,867) $(2,942,152) $(1,993,123)
Net Loss Per Basic
and Diluted Share $ (.18) $ (.40) $ (.34) $ (.25) $ (.21)
Dividends None None None None None
At Year End: July 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
Total Assets $ 1,728,648 $ 5,516,678 $ 8,034,954 $ 8,487,711 $ 1,616,170
Long-term
Obligations None $ 6,727 $ 15,902 $ 1,398,760 $ 7,129
Total Equity
(Deficiency) $ 757,200 $ 3,691,838 $ 5,566,091 $ 6,650,266 $ (832,566)
13
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Overview
Alfacell has focused the majority of its resources since inception on the
research and development of ONCONASE. After it obtained the results of its
preliminary analysis of the Phase III clinical trial results for advanced
pancreatic cancer, the Company closed the pancreatic cancer trials and
redirected its resources towards the completion of the ongoing Phase III
clinical trial for unresectable malignant mesothelioma. The Company is in the
process of analyzing the Phase III data of its clinical trial for unresectable
malignant mesothelioma in preparation for a Pre-NDA meeting with the FDA. The
Company is also exploring various strategic alternatives for its business and
its research and development operations.
The Company is currently funding research and development of its products from
cash reserves. The termination of the Phase III clinical trials for advanced
pancreatic cancer has had a significant and detrimental impact on the Company's
Common Stock price and its ability to raise additional capital for future
operations. The Company may not have, or be able to obtain the financial
resources necessary to complete the Phase III clinical trial for unresectable
malignant mesothelioma or to file an NDA for ONCONASE for this indication if the
results from such clinical trial were to support such a filing. See
"Management's Discussion and Analysis - Liquidity and Capital Resources."
Results of Operations
Fiscal Years Ended July 31, 1999, 1998 and 1997
Revenues
The Company is a development stage company as defined in the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No. 7.
As such, the Company is devoting substantially all of its present efforts to
establishing a new business and developing new drug products. The Company's
planned principal operations of marketing and/or licensing of new drugs have not
commenced and, accordingly, no significant revenue has been derived therefrom.
The Company focuses most of its productive and financial resources on the
development of ONCONASE and as such has not had any sales in fiscal 1999, 1998
and 1997. Investment income for fiscal 1999 was $168,000 compared to $312,000
for fiscal 1998, a decrease of $144,000. This decrease was due to lower balances
of cash and cash equivalents. Investment income for fiscal 1998 was $312,000
compared to $443,000 for fiscal 1997, a decrease of $131,000. This decrease was
due to lower balances of cash and cash equivalents.
Research and Development
Research and development expense for fiscal 1999 was $2,402,000 compared to
$5,265,000 for fiscal 1998, a decrease of $2,863,000 or 54%. This decrease was
primarily due to a 96% decrease in costs related to the manufacture of clinical
supplies of ONCONASE, a 47% decrease in costs in support of on-going clinical
trials, an 82% decrease in expenses for preparation of an NDA for ONCONASE and a
4% decrease in personnel costs. These decreases were primarily due to the
completion of the patient enrollment of the Phase III clinical trial for
malignant mesothelioma in April 1999 and the closing of the Phase III clinical
trials for pancreatic cancer in July 1998.
14
Research and development expense for fiscal 1998 was $5,265,000 compared to
$3,863,000 for fiscal 1997, an increase of $1,402,000 or 36%. This increase was
primarily due to a 74% increase in costs in support of on-going clinical trials,
including the Phase III clinical trials for pancreatic cancer which were closed
in July 1998 and the Phase II and III clinical trials for unresectable malignant
mesothelioma, a 42% increase in costs related to the manufacture of clinical
supplies of ONCONASE and an 86% increase in expenses in preparation for an NDA
for ONCONASE, offset by a 5% decrease in personnel costs.
General and Administrative
General and administrative expense for fiscal 1999 was $921,000 compared to
$1,413,000 for fiscal 1998, a decrease of $492,000 or 35%. This decrease was
primarily due to a 94% decrease in legal costs, a 25% reduction in
administrative personnel costs and a 56% decrease in public relations expenses,
offset by an $84,000 increase in consulting fees.
General and administrative expense for fiscal 1998 was $1,413,000 compared to
$1,476,000 for fiscal 1997, a decrease of $63,000 or 4%. This decrease was
primarily due to a 28% decrease in personnel costs and a 28% decrease in public
relations activities, offset by a 26% increase in legal costs and a 72% increase
in insurance expense.
Interest
Interest expense for fiscal 1999 was $2,000 compared to $22,000 in fiscal 1998,
a decrease of $20,000 or 91%. The decrease was primarily due to the payment of
the entire principal amount of the Company's $1.4 million term loan agreement
with its bank during the fiscal year ended July 31, 1998.
Interest expense for fiscal 1998 was $22,000 compared to $123,000 in fiscal
1997, a decrease of $101,000 or 82%. The decrease was primarily due to the
payment of the entire principal amount of the Company's term loan on October 3,
1997.
Net Loss
The Company has incurred net losses during each year since its inception. The
net loss for fiscal 1999 was $3,157,000 as compared to $6,388,000 in fiscal 1998
and $5,019,000 in fiscal 1997. The cumulative loss from the date of inception,
August 24, 1981, to July 31, 1999 amounted to $54,954,000. Such losses are
attributable to the fact that the Company is still in the development stage and
accordingly has not derived sufficient revenues from operations to offset the
development stage expenses.
Liquidity and Capital Resources
During fiscal 1999, the Company had a net decrease in cash and cash equivalents
of $3,716,000. This decrease primarily resulted from net cash used in operating
activities of $3,704,000 and a reduction of long-term debt of $9,000. Total cash
resources as of July 31, 1999 were $1,383,000 compared to $5,099,000 at July 31,
1998.
The Company's current liabilities as of July 31, 1999 were $971,000 compared to
$1,818,000 at July 31, 1998, a decrease of $847,000 or 47%. The decrease was
primarily due to a $530,000 decrease in the Company's accounts payable and a
$314,000 decrease in accrued expenses, both primarily due to decreases in costs
associated with the purchase of raw materials and the manufacture of ONCONASE,
decreased legal fees and a decrease in costs in support of on-going clinical
trials, due to the completion of the patient enrollment of the Phase III
clinical trial for malignant mesothelioma and the closing of the Phase III
clinical trials for pancreatic cancer.
15
Until the Company's operations generate significant revenues, cash reserves will
continue to fund operations. 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 exercised and services rendered, debt
financing and financing provided by the Company's Chief Executive Officer. The
Company believes that its cash and cash equivalents as of July 31, 1999 will be
sufficient to meet its anticipated cash needs through January 2000. The report
of the Company's independent auditors on the Company's financial statements,
included elsewhere herein, includes an explanatory paragraph which states that
the Company's recurring losses and limited liquid resources raise substantial
doubt about the Company's ability to continue as a going concern. The financial
statements 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 loss
carryforwards and research and development tax credits and revenues from the
commercial sale of ONCONASE, however there can be no assurance that such
additional funds will become available. The Company is currently in discussion
with several potential strategic alliance partners for further development and
marketing of ONCONASE and the other potential new products in the Company's
pipeline, however there can be no assurance that any such alliances will
materialize. The ability of the Company to raise additional capital through the
sale of its securities will primarily be dependent on the outcome of the Phase
III clinical trial for unresectable malignant mesothelioma. However, the ability
to raise funding at that time maybe dependent upon other factors including
without limitation, market conditions, and there can be no assurance that such
funds will be available. The Company is in the process of analyzing the Phase
III data of its clinical trial for unresectable malignant mesothelioma in
preparation for a Pre-NDA meeting with the FDA.
New Jersey has enacted legislation permitting certain New Jersey corporations to
sell tax loss carryforwards and research and development credits (the "NOLs").
The Company has state NOLs available for sale. In October 1999, the Company was
notified by the state that it has qualified to sell their NOLs. The Company
expects to receive net proceeds of approximately $675,000 by January 2000.
However, there can be no assurance that the Company will be able to find a buyer
for its NOLs or that such funds will be available in a timely manner.
The Company's 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, the Company's Common Stock was traded on the OTC Bulletin Board
under the symbol "ACEL". Delisting of the Company's Common Stock from Nasdaq,
could have a material adverse effect on the Company including its ability to
raise additional capital, stockholder liquidity and price of the Company's
Common Stock.
The market price of the Company's 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 the Company's common stock could also be materially
affected by the results of the Phase III clinical trial for unresectable
malignant mesothelioma.
Year 2000
The Company has completed its review of its business systems, including its
computer systems and computer controlled equipment, and is in the process of
querying its suppliers and vendors as to their progress in identifying and
addressing problems that their systems may face in correctly interpreting and
processing date information as the Year 2000 approaches and is reached. Based on
this review, the Company has implemented
16
a plan to achieve Year 2000 compliance. While there may be other areas that may
affect the Company's operations upon commercialization of the Company's products
under development, the Company has identified three major areas where Year 2000
compliance is critical for the normal functioning of the Company's business:
Business and Accounting Computer Systems, Clinical Data Management Systems and
Product Manufacturing Systems.
Business and Accounting Computer Systems
The Company utilizes standard, widely-available software packages to perform its
word processing, spreadsheet and accounting duties. Inquiries have revealed that
software upgrades are available to ensure Year 2000 compliance. The Company had
completed the upgrade of its Business and Accounting Computer Systems. While
there is no assurance at this time that such upgrades will be Year 2000
compliant, the Company does not believe that non-compliance would have a
material effect on the Company's business. Since the risks of non- compliance
are minimal, the Company does not plan to create a contingency plan for these
systems at this time.
Clinical Data Management Systems
The Company utilizes the services of an outside vendor to handle all of its data
management needs with regard to collection and reporting of its clinical trial
data. This vendor has completed the testing of its computer system for Year 2000
compliance. While it appears that the computer systems utilized to process the
Company's clinical trial data are Year 2000 compliant, non-compliance could have
a material adverse impact on the Company's ability to process the data in a
timely manner for submission to the FDA, if necessary. Since the likelihood of
non-compliance is minimal, the Company does not plan to create a contingency
plan for these systems at this time.
Product Manufacturing Systems
The Company utilizes the services of outside suppliers to manufacture ONCONASE
and perform many of the FDA-required related testing of such product. These
suppliers reported that they are in the process of completing their Year 2000
programs and expect to be ready before year 2000. However, there can be no
assurance that these suppliers' remediation efforts will effectively address all
of their Year 2000 problems. Due to regulatory restrictions, the Company does
not believe it would be feasible to locate and retain the services of alternate
suppliers at this time. However, if during the first half of 2000, it became
apparent that a supplier would not be able to support commercialization of
ONCONASE, if approved by the FDA, the Company will then undergo the expense of
transferring its manufacturing processes to alternate suppliers. While the
Company believes that alternate suppliers are available for the manufacture of
ONCONASE, there can be no assurance that the Company can complete the transition
to a new supplier in a timely manner.
Year 2000 Summary
The Company has determined that Year 2000 compliance should not have a material
adverse effect on the Company, including the Company's financial condition,
results of operations or cash flow. The Company estimates the cost to address
its Year 2000 issues to be approximately $30,000. The total cost estimate is
based on management's current assessment and is subject to change.
The Company may encounter problems with vendors and suppliers which could
adversely affect the Company's financial condition, results of operations or
cash flow. The Company cannot accurately predict the occurrence and or outcome
of any such problems, nor can the cost of such problems be estimated. In
addition, there can be no assurance that the failure to ensure Year 2000
compliance by a third party would not have a material effect on the Company.
17
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this Item is submitted as a separate section of this report
commencing on Page F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On December 1, 1993, certain shareholders of Armus Harrison & Co. ("AHC")
terminated their association with AHC (the "AHC termination"), and AHC ceased
performing accounting and auditing services, except for limited accounting
services to be performed on behalf of the Company. In June 1996, AHC dissolved
and ceased all operations. The report of KPMG LLP with respect to the financial
statements of the Company from inception to July 31, 1999 is based on the report
of AHC for the period from inception to July 31, 1992, although AHC has not
consented to the use of such report herein and will not be available to perform
any subsequent review procedures with respect to such report. Accordingly,
investors will be barred from asserting claims against AHC under Section 11 of
the Securities Act on the basis of the use of such report in any registration
statement of the Company into which such report is incorporated by reference. In
addition, in the event any persons seek to assert a claim against AHC for false
or misleading financial statements and disclosures in documents previously filed
by the Company, such claim will be adversely affected and possibly barred.
Furthermore, as a result of the lack of a consent from AHC to the use of its
audit report herein, or to its incorporation by reference into a registration
statement, the officers and directors of the Company will be unable to rely on
the authority of AHC as experts in auditing and accounting in the event any
claim is brought against such persons under Section 11 of the Securities Act
based on alleged false and misleading Financial Statements and disclosures
attributable to AHC. The discussion regarding certain effects of the AHC
termination is not meant and should not be construed in any way as legal advice
to any party and any potential purchaser should consult with his, her or its own
counsel with respect to the effect of the AHC termination on a potential
investment in the Common Stock of the Company or otherwise.
Part III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Name Age Director Since Position with the Company
- ---- --- -------------- -------------------------
Kuslima Shogen 54 1981 Chief Executive Officer, Acting Chief
Financial Officer,Chairman of the Board
Stanislaw M. Mikulski, M.D. 55 1986 Executive Vice President, Medical Director
and Director
Stephen K. Carter, M.D.(1) 61 1997 Director and Chairman of the Scientific
Advisory Board
Donald R. Conklin (1)(2) 63 1997 Director
Martin F. Stadler (1)(2) 57 1997 Director
18
(1) Member of Compensation Committee
(2) Member of Audit Committee
Business Experience of Directors and Executive Officers
Kuslima Shogen has served as the Company's Chief Executive Officer since
September 1986, as Chairman of the Board since August 1996, as a Director since
the inception of the Company and as Acting Chief Financial Officer since June
23, 1999. She also served as the Company's Chief Financial Officer from
September 1986 through July 1994 and as its President from September 1986
through July 1996. Ms. Shogen formed the Company in 1981 to pursue research that
she had initiated while a biology student in the University Honors Program at
Fairleigh Dickenson University. Prior to founding Alfacell, from 1976 to 1981
she was founder and president of a biomedical research consortium specializing
in Good Laboratory Practices and animal toxicology. During that time, she also
served as a consultant for the Lever Brothers Research Group. Ms. Shogen has
received numerous awards for achievements in biology, including the Sigma Xi
first prize from the Scientific Research Society of North America in 1974 and
first prize for the most outstanding research paper in biology at the Eastern
College Science Conferences competitions in 1972, 1973, and 1974. She earned a
B.S. degree in 1974 and an M.S. degree in 1976 in biology from Fairleigh
Dickenson University ("FDU"), and also completed graduate studies in 1978 in
embryology. She is a Phi Beta Kappa graduate. In April 1998, Ms. Shogen received
the Pinnacle Award from FDU, the highest honor the University bestows on its
graduates.
Stanislaw M. Mikulski, M.D., F.A.C.P. has served the Company as Executive Vice
President and Medical Director since 1987 and as a Director since 1986. Prior to
his affiliation with Alfacell, Dr. Mikulski was Special Assistant to the Chief
of the Investigational Drug Branch of the National Cancer Institute ("NCI") and
the Coordinator for Immunotherapy Trials in Cancer for the Division of Cancer
Treatment. Prior to joining the Company, he maintained a private practice in
medical oncology for over eight years. He is a diplomate of the American Board
of Internal Medicine and Medical Oncology as well as a fellow of the American
College of Physicians and a member of the American Society of Clinical Oncology.
Dr. Mikulski is currently a clinical assistant Professor of Medicine at the
University of Medicine and Dentistry of New Jersey. He received his M.D. in 1967
from the Medical School of Warsaw, Poland and subsequently performed
post-doctoral studies in human tumor immunology at the University of California
in Los Angeles.
Stephen K. Carter, M.D. joined the Board of Directors in May 1997 and serves as
Chairman of the Company's Scientific Advisory Board. In addition to his
positions with Alfacell, Dr. Carter also serves as a senior clinical consultant
to Sugen, Inc. From 1995 through 1997, he served as Senior Vice President of
Research and Development for Boehringer-Ingelheim Pharmaceuticals. Before this,
Dr. Carter spent over 13 years with Bristol-Myers Squibb, an international
leader in the development of innovative anti-cancer and anti-viral therapies. He
held a variety of senior executive research and development positions while at
Bristol-Myers, including serving for five years as Senior Vice President of
worldwide clinical research and development of its Pharmaceutical Research
Institute. From 1976 to 1982, he established and directed the Northern
California Cancer Program. Prior to this, he held a number of positions during a
nine-year tenure at the NCI, including the position of Deputy Director at the
National Institutes of Health. He has also been a member of the faculties of the
medical schools of Stanford University, the University of California at San
Francisco and New York University. Dr. Carter has published extensively on the
development of anti-cancer drugs, was the co-founding editor of journals devoted
to cancer therapeutics or immunology, and has served on the editorial boards of
a number of additional journals dedicated to cancer treatment. He is a member of
the American Society of Clinical Oncology, the American Association for Cancer
Research, and the Society of Surgical Oncology, as well as several other medical
societies. Dr. Carter earned his B.A. from Columbia University and his M.D. from
New York Medical College. He currently serves on the Board of Directors of Allos
Therapeutics.
19
Donald R. Conklin joined the Board of Directors in May 1997. Prior to his
retirement in May 1997, Mr. Conklin was a senior executive with Schering-Plough,
a major worldwide pharmaceutical firm. During his more than 35 years with
Schering-Plough, he held a variety of key management positions within the firm.
From 1986 to 1994, he served as President of Schering-Plough Pharmaceuticals and
Executive Vice-President of Schering-Plough Corporation. In this position, he
was responsible for worldwide pharmaceutical operations, including the launch of
INTRON A(R) (interferon alfa-2b). Prior to this, Mr. Conklin had served as
President of Schering USA and had held a variety of executive marketing
positions in the United States, Europe, and Latin America. Immediately preceding
his retirement, he was Chairman of Schering-Plough Health Care Products and an
Executive Vice President of Schering-Plough Corporation. Mr. Conklin received
his B.A. with highest honors from Williams College and his M.B.A. degree from
the Rutgers University School of Business. He currently serves on the Board of
Directors of Vertex Pharmaceuticals, Inc. and BioTransplant, Inc.
Martin F. Stadler joined the Board of Directors in November 1997. At the end of
1996, Mr. Stadler retired from Hoffmann La-Roche, Inc. after 32 years of
pharmaceutical, chemical and diagnostic experience. Mr. Stadler served as senior
vice president and chief financial officer, and was a member of the Hoffmann La-
Roche, Inc. Board of Directors from 1985 through 1996. His responsibilities
included finance, information technology, human resources, quality control and
technical services. Prior to 1985, Mr. Stadler served as vice- president of
strategic planning and business development. Mr. Stadler received his B.S.
degree from Rutgers University and his M.B.A. from Fairleigh Dickenson
University. In April 1999, he received the Pinnacle Award from FDU, the highest
honor the University bestows on its graduates. Mr. Stadler is a member of the
Finance Council of the American Management Association, a trustee of Fairleigh
Dickenson University and a member of the Advisory Board for Horton
International.
Section 16(a) Beneficial Ownership Reporting Compliance
Ownership of and transactions in the Company's stock by executive officers and
directors of the Company and owners of 10% or more of the Company's outstanding
Common Stock are required to be reported to the Securities and Exchange
Commission pursuant to Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). During the fiscal year ended July 31, 1999, all
reports required to be filed pursuant to Section 16(a) of the Exchange Act were
filed in a timely manner, except that one Form 5 reporting changes in beneficial
ownership for the fiscal year ended July 31, 1998 was filed by each of Mr.
Conklin and Mr. Stadler four months late and by Dr. Carter five months late.
Item 11. EXECUTIVE COMPENSATION.
Directors' Compensation
Directors receive no cash compensation in consideration for their serving on the
Board of Directors.
In November 1993 and January 1994, the Board of Directors and the stockholders,
respectively, approved the Company's 1993 Stock Option Plan (the "1993 Plan")
which, among other things, provides for automatic grants of options ("Automatic
Grants") under a formula (the "Formula") to non-employee directors ("Independent
Directors") on an annual basis.
The Formula provides that (i) on each December 31st each Independent Director
receives automatically an option to purchase 15,000 shares of the Company's
Common Stock (the "Regular Grant"); and (ii) on the date of each Independent
Director's initial election to the Board of Directors, such newly elected
Independent Director automatically receives an option to purchase such
Independent Director's pro rata share of the Regular Grant which equals the
product of 1,250 multiplied by the number of whole months remaining in the
calendar
20
year (the "Pro Rata Grant"). Each option granted pursuant to a Regular Grant and
a Pro Rata Grant vests and becomes exercisable on December 30th following the
date of grant. Notwithstanding the foregoing, an option will not become
exercisable as to any shares unless such Independent Director has served
continuously on the Board during the year preceding the date on which such
options are scheduled to vest and become exercisable, or from the date such
Independent Director joined the Board until the date on which such options are
scheduled to vest and become exercisable; provided, however, that if an
Independent Director does not fulfill such continuous service requirement due to
such Independent Director's death or disability all options held by such
Independent Director nonetheless vest and become exercisable as described
herein. An option granted pursuant to the Formula remains exercisable for a
period of five years after the date the option first becomes exercisable. The
per share exercise price of an option granted under the Formula is required to
be equal to the fair market value of a share of Common Stock on the date of
grant.
During the fiscal year ended July 31, 1999, the following Independent Directors
were granted the options listed below pursuant to the Formula under the 1993
Plan. The exercise prices of the options are equal to the fair market value of
the Common Stock on the date of grant.
Name Number of Options Exercise Price Expiration
- ---- ----------------- -------------- ----------
Stephen K. Carter 15,000 $ 0.29 12/30/04
Donald R. Conklin 15,000 $ 0.29 12/30/04
Martin F. Stadler 15,000 $ 0.29 12/30/04
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended July 31, 1999, the members of the Board of
Directors who served on the Compensation Committee of the Board of Directors
were Stephen K. Carter, Donald R. Conklin and Martin F. Stadler.
Summary Compensation Table
The following table provides a summary of cash and non-cash compensation for
each of the last three fiscal years ended July 31, 1999, 1998 and 1997 earned by
the Chief Executive Officer and the only two other executive officers of the
Company during the last fiscal year (the "Named Executive Officers").
Long Term
Annual Compensation Compensation
---------------------------------------------------------------- ---------------
Securities
Other Annual Underlying All Other
Name and Compensation Options/ Compensation
Principal Position Year Salary($) Bonus($) ($)(1) SARs(#) ($)
- --------------------- -------- ------------ ------------- ---------------- --------------- -----------------
Kuslima Shogen 1999 $150,000 - 0 - - 0 - - 0 - - 0 -
Chief Executive 1998 150,000 - 0 - - 0 - - 0 - - 0 -
Officer and 1997 150,000 - 0 - - 0 - - 0 - - 0 -
Chairman of the
Board of Directors
21
Long Term
Annual Compensation Compensation
---------------------------------------------------------------- ---------------
Securities
Other Annual Underlying All Other
Name and Compensation Options/ Compensation
Principal Position Year Salary($) Bonus($) ($)(1) SARs(#) ($)
- --------------------- -------- ------------ ------------- ---------------- --------------- -----------------
Gail E. Fraser(2) 1999 $130,000 - 0 - - 0 - 115,000(3) - 0 -
Vice President, 1998 130,000 - 0 - - 0 - - 0 - - 0 -
Finance and Chief 1997 130,000 - 0 - - 0 - - 0 - - 0 -
Financial Officer
Stanislaw M. 1999 $130,000 - 0 - - 0 - 50,000(4) - 0 -
Mikulski 1998 130,000 - 0 - - 0 - - 0 - - 0 -
Executive Vice 1997 130,000 - 0 - - 0 - - 0 - - 0 -
President and
Medical Director
(1) Excludes perquisites and other personal benefits which in the aggregate do
not exceed 10% of the Named Executive Officers' total annual salary and
bonus.
(2) Ms. Fraser resigned as the Company's Vice President, Finance and Chief
Financial Officer effective as of June 23, 1999.
(3) These options were granted under the 1993 Plan on December 1, 1998, vested
immediately, have an exercise price of $0.43 per share and will expire on
December 30, 2000 pursuant to a separation agreement between Ms. Fraser and
the Company. See "Employment and Termination Agreements". The price of the
options was based on the fair market value of the Company's Common Stock on
the date of grant.
(4) These options were granted under the 1993 Plan on December 1, 1998, vested
immediately, have an exercise price of $0.43 per share and will expire on
December 1, 2003. The price of the options was based on the fair market
value of the Company's Common Stock on the date of grant.
Option Grants in Last Fiscal Year
The following table contains information concerning the grant of stock options
to the Named Executive Officers during the fiscal year ended July 31, 1999:
22
Individual Grants
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Term (1)
- -------------------------------------------------------------------------------------- -------------------------------------
Number of
Securities % of Total
Underlying Options Granted Exercise
Options to Employees in or Base Expiration
Name Granted (#) Fiscal Year Price Date
($/Share) 0%($) 5%($) 10%($)
- -----------------------------------------------------------------------------------------------------------------------------
Kuslima Shogen -- -- -- -- -- -- --
Stanislaw M. 50,000 (2) 14.49% $0.43 12/01/03 -- $1,075 $2,150
Mikulski
Gail E. Fraser 115,000 (3) 33.33% $0.43 12/30/00 -- $2,473 $4,945
=============================================================================================================================
(1) The amounts set forth in the three columns represent hypothetical gains
that might be achieved by the optionees if the respective options are
exercised at the end of their terms. These gains are based on assumed rates
of stock price appreciation of 0%, 5% and 10%. The 0% appreciation column
is included because the exercise price of the options equals the market
price of the underlying Common Stock on the date the options were granted,
and thus the options will have no value unless the Company's stock price
increases above the exercise price.
(2) These options were granted under the 1993 Plan on December 1, 1998.
(3) These options were granted under the 1993 Plan on December 1, 1998. Ms.
Fraser resigned as the Company's Vice President, Finance and Chief
Financial Officer effective as of June 23, 1999.
Option Exercises and Fiscal Year-End Values
The following table sets forth the information with respect to the Named
Executive Officers concerning the exercise of options during the fiscal year
ended July 31, 1999 and unexercised options held as of July 31, 1999.
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options
Options at Fiscal Year-End at Fiscal Year-End($)(2)
(#)
- -----------------------------------------------------
Shares Value
Name Acquired on Realized
Exercise (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------
Kuslima Shogen None None 1,631,208 - 0 - - 0 - - 0 -
Stanislaw M. None None 445,740 - 0 - - 0 - - 0 -
Mikulski
Gail E. Fraser None None 465,000 - 0 - - 0 - - 0 -
========================================================================================================================
23
(1) Based upon the fair market value of the purchased shares on the option
exercise date less the exercise price paid for the shares.
(2) The fair market value of the Common Stock at the fiscal year end was based
on the average of the high and low trade prices ($0.51) for the Common
Stock obtained from the OTC Bulletin Board on the last trading day of the
fiscal year July 31, 1999.
Employment and Termination Agreements
On August 31, 1999 the Company entered into a separation agreement and general
release with Ms. Gail E. Fraser pursuant to which (i) Ms. Fraser confirmed her
resignation as vice president, finance, chief financial officer, director and
employee of the Company effective as of June 23, 1999 ("Date of Resignation"),
(ii) the Company agreed to pay Ms. Fraser her regular salary for the period
commencing on the Date of Resignation through July 31, 1999, (iii) the Company
and Ms. Fraser agreed that an aggregate of 395,000 options granted to Ms. Fraser
under the 1993 Plan, all of which had vested as of the Date of Resignation will
remain vested and exercisable until December 30, 2000 and an aggregate of 70,000
options granted under the 1993 Plan which had not vested on the Date of
Resignation will be deemed vested as of the Date of Resignation and will remain
exercisable until December 30, 2000, (iv) the Company agreed to pay for health
insurance for Ms. Fraser and her dependents until July 1999, (v) Ms. Fraser and
the Company released each other from all claims and, (vi) Ms. Fraser agreed not
to compete with the Company until December 30, 2000.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information concerning stock ownership of
each person who is the beneficial owner of five percent or more of the Company's
outstanding Common Stock, each of the current directors, each of the Named
Executive Officers and all directors and executive officers as a group as of
October 31, 1999. Except as otherwise noted, each person has sole voting and
investment power with respect to the shares shown as beneficially owned.
Percentage of Common
Directors, Officers or 5% Stockholders (1) Number of Shares (2) Stock Outstanding (3)
- ------------------------------------------ -------------------- ---------------------
Kuslima Shogen 2,703,585 (4) 14.4%
Stanislaw M. Mikulski 782,623 (5) 4.4%
Gail E. Fraser 481,500 (6) 2.7%
Stephen K. Carter 68,750 (7) *
Donald R. Conklin 134,250 (8) *
Martin F. Stadler 126,250 (9) *
All executive officers and directors as a group
(six persons) 4,296,958 (10) 21.6%
* Less than one percent.
(1) The address of all officers and directors listed above is in the care of
the Company.
24
(2) All shares listed are Common Stock. Except as discussed below, none of
these shares are subject to rights to acquire beneficial ownership, as
specified in Rule 13d-3(d)(1) under the Exchange Act, and the beneficial
owner has sole voting and investment power, subject to community property
laws where applicable.
(3) The percentage of stock outstanding for each stockholder is calculated by
dividing (i) the number of shares of Common Stock deemed to be beneficially
held by such stockholder as of October 31, 1999 by (ii) the sum of (A) the
number of shares of Common Stock outstanding as of October 31, 1999 plus
(B) the number of shares issuable upon exercise of options or warrants held
by such stockholder which were exercisable as of October 31, 1999 or which
will become exercisable within 60 days after October 31, 1999.
(4) Includes 1,454,965 shares underlying options which were exercisable as of
October 31, 1999 or which will become exercisable within 60 days after
October 31, 1999.
(5) Includes 421,373 shares underlying options which were exercisable as of
October 31, 1999 or which will become exercisable within 60 days after
October 31, 1999.
(6) Includes 465,000 shares underlying options which were exercisable as of
October 31, 1999 or which will become exercisable within 60 days after
October 31, 1999 owned by Ms. Fraser and 16,500 shares owned by her
husband. Ms. Fraser disclaims beneficial ownership as to the shares owned
by her husband. Ms. Fraser resigned as the Company's Vice President,
Finance, Chief Financial Officer and Director effective as of June 23,
1999.
(7) Includes 68,750 shares underlying options which were exercisable as of
October 31, 1999 or which will become exercisable within 60 days after
October 31, 1999.
(8) Includes 68,750 shares underlying options which were exercisable as of
October 31, 1999 or which will become exercisable within 60 days after
October 31, 1999.
(9) Includes 51,250 shares underlying options which were exercisable as of
October 31, 1999 or which will become exercisable within 60 days after
October 31, 1999 and 25,000 shares underlying warrants which were
exercisable as of October 31, 1999 or which will become exercisable within
60 days after October 31, 1999.
(10) Includes all shares owned beneficially by the directors and the executive
officers named in the table.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On July 23, 1991, the board of directors authorized the Company to pay Kuslima
Shogen an amount equal to 15% of any gross royalties which may be paid to the
Company from any license(s) with respect to the Company's principal product,
ONCONASE, or any other products derived from amphibian source extract, produced
either as a natural, synthesized, and/or genetically engineered drug for which
the Company owns or is co-owner of the patent, or acquires such rights in the
future, for a period not to exceed the life of the patents. If the Company
manufactures and markets the drugs by itself, then the Company will pay an
amount equal to 5% of gross sales from any products sold during the life of the
patents.
25
In August 1998, Ms. Shogen and Dr. Mikulski settled, and the court approved the
settlement, of a claim brought against them in the United States District Court,
District of New Jersey at Newark, New Jersey, by a shareholder under Section
16(b) of the Securities Exchange Act of 1934 for profits alleged to have been
realized by Ms. Shogen and Dr. Mikulski in transactions involving the Company's
securities in 1988 and 1989. Claims under Section 16(b) are for profits
calculated under such statute to have been realized for sales and purchases of
the Company's securities made within a six month period. In this case the
purchases which formed the basis for this claim were issuances of shares of
stock to Ms. Shogen and Dr. Mikulski under employment agreements with the
Company based upon the Company's achievement of certain milestones. No
allegations of fraud were made. Ms. Shogen agreed to pay the Company $91,971.00
and Dr. Mikulski agreed to pay the Company $72,903.00. Such payments are to be
made in a form acceptable to the Company whether in cash, shares of the
Company's common stock or options to purchase the Company's common stock, with
25% of such payments having been made in August 1998 and the remainder of such
amounts payable in three equal installments in August 1999, 2000 and 2001. The
initial payments were made by the cancellation of options to purchase 44,999
shares of common stock owned by Ms. Shogen and the cancellation of options to
purchase 35,669 shares of common stock owned by Dr. Mikulski. The obligation to
make the remaining payments is secured by the pledge to the Company of options
to purchase 154,908 and 122,136 shares of common stock by Ms. Shogen and Dr.
Mikulski, respectively. In August 1999, Ms. Shogen paid the balance in full by
the cancellation of options to purchase 134,995 shares owned by Ms. Shogen and
Dr. Mikulski paid an installment equal to one-third of the balance by the
cancellation of options to purchase 35,367 shares owned by Dr. Mikulski.
In December 1998, the Company issued 115,000 and 50,000 stock options to Gail E.
Fraser and Stanislaw M. Mikulski, respectively, with an exercise price of $0.43
per share, the fair market value of the Company's Common Stock on the date of
grant. These options which vested immediately was approved by the Compensation
Committee. Ms. Fraser resigned as the Company's Vice President, Finance, Chief
Financial Officer and director effective as of June 23, 1999.
Part IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) and (2) The response to these portions of Item 14 is submitted as a
separate section of this report commencing on page F-1.
(a)(3) and (4) Exhibits (numbered in accordance with Item 601 of Regulation
S-K).
Exhibit No.
or
Exhibit Incorporation
No. Item Title by 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 in April 1996 and June 1996 ##
10.2 Lease Agreement - 225 Belleville Avenue, Bloomfield, New Jersey ###
26
Exhibit No.
or
Exhibit Incorporation
No. Item Title by Reference
- ---------- ---------- ------------
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 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 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 ####
21.1 Subsidiaries of Registrant **
23.1 Consent of KPMG LLP ####
27.1 Financial Data Schedule ####
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.
27
**** 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-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.
#### Filed herewith.
(b) Reports on Form 8-K.
On July 13, 1999, the Company filed a report on Form 8-K which reported
under Item 5 thereof, the resignation of its Vice President, Finance, Chief
Financial Officer and Director.
28
Signature
Pursuant to the requirements of Section 13 or 15(d) 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
Dated: November 15, 1999 By: /s/ KUSLIMA SHOGEN
--------------------------------
Kuslima Shogen, Chief Executive
Officer, Acting
Chief Financial Officer and
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Dated: November 15, 1999 /s/ KUSLIMA SHOGEN
--------------------------------
Kuslima Shogen, Chief Executive
Officer, Acting
Chief Financial Officer
(Principal Executive Officer,
Principal Accounting Officer)
and Chairman of the Board
Dated: November 15, 1999 /s/ STANISLAW M. MIKULSKI
--------------------------------
Stanislaw M. Mikulski, M.D.,
Executive Vice
President and Director
Dated: November 15, 1999 /s/ STEPHEN K. CARTER
--------------------------------
Stephen K. Carter, M.D.,
Director
Dated: November 15, 1999 /s/ DONALD R. CONKLIN
--------------------------------
Donald R. Conklin, Director
Dated: November 15, 1999 /s/ MARTIN F. STADLER
--------------------------------
Martin F. Stadler, Director
29
ALFACELL CORPORATION
(A Development Stage Company)
Index
Page
Independent Auditors' Report of KPMG LLP.....................................F-2
Independent Auditors' Report of Armus, Harrison & Co. .......................F-3
Financial Statements:
Balance Sheets - July 31, 1999 and 1998...........................F-5
Statements of Operations - Years ended July 31, 1999, 1998
and 1997 and the Period from August 24, 1981 (Date of
Inception) to July 31, 1999.....................................F-6
Statement of Stockholders' Equity (Deficiency) - Period from
August 24, 1981 (Date of Inception) to July 31, 1999.............F-7
Statements of Cash Flows - Years ended July 31, 1999, 1998
and 1997 and the Period from August 24, 1981 (Date of
Inception) to July 31, 1999.................................... F-11
Notes to Financial Statements - Years ended July 31, 1999,
1998 and 1997 and the Period from August 24, 1981
(Date of Inception) to July 31, 1999............................F-14
F-1
Independent Auditors' Report
The Stockholders and Board of Directors
Alfacell Corporation:
We have audited the accompanying balance sheets of Alfacell Corporation (a
development stage company) as of July 31, 1999 and 1998, and the related
statements of operations, stockholders' equity (deficiency), and cash flows for
each of the years in the three-year period ended July 31, 1999 and the period
from August 24, 1981 (date of inception) to July 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The financial statements of Alfacell Corporation (a development
stage company) for the period from August 24, 1981 (date of inception) to July
31, 1992 were audited by other auditors whose report dated December 9, 1992,
except as to note 18 which is July 19, 1993 and note 3 which is October 28,
1993, expressed an unqualified opinion on those statements with an explanatory
paragraph regarding the Company's ability to continue as a going concern.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and, for the effect on the period from
August 24, 1981 (date of inception) to July 31, 1999 of the amounts for the
period from August 24, 1981 (date of inception) to July 31, 1992, on the report
of other auditors, the financial statements referred to above present fairly, in
all material respects, the financial position of Alfacell Corporation (a
development stage company) as of July 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the years in the three-year period
ended July 31, 1999 and the period from August 24, 1981 (date of inception) to
July 31, 1999 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has limited liquid resources which raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ KPMG LLP
KPMG LLP
Short Hills, New Jersey
November 2, 1999
F-2
On December 1, 1993, certain shareholders of Armus Harrison & Co. ("AHC")
terminated their association with AHC (the "AHC termination"), and AHC ceased
performing accounting and auditing services, except for limited accounting
services to be performed on behalf of the Company. In June 1996, AHC dissolved
and ceased all operations. The report of AHC with respect to the financial
statements of the Company from inception to July 31, 1992 is included herein,
although AHC has not consented to the use of such report herein and will not be
available to perform any subsequent review procedures with respect to such
report. Accordingly, investors will be barred from asserting claims against AHC
under Section 11 of the Securities Act of 1933, as amended (the "Securities
Act") on the basis of the use of such report in any registration statement of
the Company into which such report is incorporated by reference. In addition, in
the event any persons seek to assert a claim against AHC for false or misleading
financial statements and disclosures in documents previously filed by the
Company, such claim will be adversely affected and possibly barred. Furthermore,
as a result of the lack of a consent from AHC to the use of its audit report
herein, or, to its incorporation by reference into a registration statement, the
officers and directors of the company will be unable to rely on the authority of
AHC as experts in auditing and accounting in the event any claim is brought
against such persons under Section 11 of the Securities Act based on alleged
false and misleading financial statements and disclosures attributable to AHC.
The discussion regarding certain effects of the AHC termination is not meant and
should not be construed in any way as legal advice to any party and any
potential purchaser should consult with his, her or its own counsel with respect
to the effect of the AHC termination on a potential investment in the Common
Stock of the Company or otherwise.
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Alfacell Corporation
Bl