##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED August 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM  TO
 COMMISSION FILE NUMBER 0-24050
 NORTHFIELD LABORATORIES INC.
  DELAWARE
(State or other jurisdiction 
of incorporation or organization)
    
    36-3378733
(I.R.S. Employer
Identification Number)1560 SHERMAN AVENUE, SUITE 1000, EVANSTON, 
ILLINOIS
(Address of principal executive offices)
    
    60201-4800
(Zip Code)
  þ o
  o þ o
 o þ




---



##### 



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     (signed) KPMG LLP




---



##### 



PART I
FINANCIAL INFORMATION
 Item 1. Financial Statements
 NORTHFIELD LABORATORIES INC.
   August 31,
    
    
    May 31,2006
    
    
    2006Assets
    
    

(unaudited)Current assets:Cash and cash equivalents
    
    $
    34,499,746
    
    
    
    39,304,602Restricted cash
    
    
    674,762
    
    
    
    926,492Marketable securities
    
    
    23,777,539
    
    
    
    33,679,022Prepaid expenses
    
    
    766,799
    
    
    
    813,104Total current assets
    
    
    59,718,846
    
    
    
    74,723,220Property, plant, and equipment
    
    
    21,151,696
    
    
    
    15,654,049Accumulated depreciation
    
    
    (12,954,596
    )
    
    
    (14,575,118
    )Net property, plant, and equipment
    
    
    8,197,100
    
    
    
    1,078,931Other assets
    
    
    19,659
    
    
    
    68,941$
    67,935,605
    
    
    
    75,871,092Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    3,824,292
    
    
    
    4,481,804Accrued expenses
    
    
    108,178
    
    
    
    134,006Accrued compensation and benefits
    
    
    936,057
    
    
    
    742,038Government grant liability
    
    
    674,762
    
    
    
    926,492Other
    
    
    
    
    
    
    249,580Total liabilities
    
    
    5,543,289
    
    
    
    6,533,920Shareholders equity:Preferred stock, $.01 par value. Authorized 5,000,000 shares;
none issued and outstanding
    
    
    
    
    
    
    Common stock, $.01 par value. Authorized 60,000,000 shares;
issued 26,781,155 at August 31, 2006 and 26,777,655 at
May 31, 2006
    
    
    267,812
    
    
    
    267,777Additional paid-in capital
    
    
    241,848,900
    
    
    
    241,240,276Deficit accumulated during the development stage
    
    
    (179,699,003
    )
    
    
    (172,136,429
    )Deferred compensation
    
    
    
    
    
    
    (9,059)62,417,709
    
    
    
    69,362,565Less cost of common shares in treasury; 1,717 shares and
1,717 shares, respectively
    
    
    (25,393
    )
    
    
    (25,393
    )Total shareholders equity
    
    
    62,392,316
    
    
    
    69,337,172$
    67,935,605
    
    
    
    75,871,092




---



##### 



NORTHFIELD
LABORATORIES INC.
  
 CumulativefromJune 19, 1985Three months ended August 31,
    
    
    through2006
    
    
    2005
    
    
    August 31, 2006(unaudited)
    
    
    (unaudited)
    
    
    (unaudited)Revenues  license income
    
    $
    
    
    
    
    
    
    
    
    3,000,000Costs and expenses:Research and development
    
    
    5,826,112
    
    
    
    5,093,874
    
    
    
    153,607,310General and administrative
    
    
    2,563,649
    
    
    
    1,388,994
    
    
    
    57,839,5498,389,761
    
    
    
    6,482,868
    
    
    
    211,446,859Other income and expense:Interest income
    
    
    827,187
    
    
    
    702,142
    
    
    
    28,906,011Interest expense
    
    
    
    
    
    
    
    
    
    
    83,234827,187
    
    
    
    702,142
    
    
    
    28,822,777Net loss before cumulative effect of change
in accounting principle
    
    
    (7,562,574
    )
    
    
    (5,780,726
    )
    
    
    (179,624,082
    )Cumulative effect of change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    74,921Net loss
    
    $
    (7,562,574
    )
    
    
    (5,780,726
    )
    
    
    (179,699,003
    )Net loss per share  basic and diluted
    
    $
    (0.28
    )
    
    
    (0.22
    )
    
    
    (14.19
    )Shares used in calculation of
per share data  basic and diluted
    
    
    26,775,762
    
    
    
    26,751,396
    
    
    
    12,667,796




---



##### 



NORTHFIELD LABORATORIES INC.
  
 Preferred stock
    
    
    Common stockNumber
    
    
    Aggregate
    
    
    Number
    
    
    Aggregateof shares
    
    
    amount
    
    

of shares
    
    
    amountIssuance of common stock on August 27, 1985
    
    
    
    
    
    $
    
    
    
    
    3,500,000
    
    
    $
    35,000Issuance of Series A convertible preferred stock at $4.00 per share on
August 27, 1985 (net of costs of issuance of $79,150)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at May 31, 1986
    
    
    
    
    
    
    
    
    
    
    3,500,000
    
    
    
    35,000Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred compensation relating to grant of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at May 31, 1987
    
    
    
    
    
    
    
    
    
    
    3,500,000
    
    
    
    35,000Issuance of Series B convertible preferred stock at $35.68 per share on
August 14, 1987 (net of costs of issuance of $75,450)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at May 31, 1988
    
    
    
    
    
    
    
    
    
    
    3,500,000
    
    
    
    35,000Issuance of common stock at $24.21 per share on June 7, 1988 (net of costs of
issuance of $246,000)
    
    
    
    
    
    
    
    
    
    
    413,020
    
    
    
    4,130Conversion of Series A convertible preferred stock to common stock on June 7, 1988
    
    
    
    
    
    
    
    
    
    
    1,250,000
    
    
    
    12,500Conversion of Series B convertible preferred stock to common stock on June 7, 1988
    
    
    
    
    
    
    
    
    
    
    1,003,165
    
    
    
    10,032Exercise of stock options at $2.00 per share
    
    
    
    
    
    
    
    
    
    
    47,115
    
    
    
    471Issuance of common stock at $28.49 per share on March 6, 1989 (net of costs of
issuance of $21,395)
    
    
    
    
    
    
    
    
    
    
    175,525
    
    
    
    1,755Issuance of common stock at $28.49 per share on March 30, 1989 (net of costs of
issuance of $10,697)
    
    
    
    
    
    
    
    
    
    
    87,760
    
    
    
    878Sale of options at $28.29 per share to purchase common stock at $.20 per share on
March 30, 1989 (net of costs of issuance of $4,162)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred compensation relating to grant of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at May 31, 1989
    
    
    
    
    
    
    
    
    
    
    6,476,585
    
    
    
    64,766Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred compensation relating to grant of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at May 31, 1990
    
    
    
    
    
    
    
    
    
    
    6,476,585
    
    
    
    64,766Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at May 31, 1991
    
    
    
    
    
    
    
    
    
    
    6,476,585
    
    
    
    64,766Exercise of stock warrants at $5.60 per share
    
    
    
    
    
    
    
    
    
    
    90,000
    
    
    
    900Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at May 31, 1992
    
    
    
    
    
    
    
    
    
    
    6,566,585
    
    
    
    65,666Exercise of stock warrants at $7.14 per share
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    150Issuance of common stock at $15.19 per share on April 19, 1993 (net of costs of
issuance of $20,724)
    
    
    
    
    
    
    
    
    
    
    374,370
    
    
    
    3,744Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at May 31, 1993
    
    
    
    
    
    
    
    
    
    
    6,955,955
    
    
    
    69,560Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock at $6.50 per share on May 26, 1994 (net of costs of
issuance of $2,061,149)
    
    
    
    
    
    
    
    
    
    
    2,500,000
    
    
    
    25,000Cancellation of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at May 31, 1994
    
    
    
    
    
    
    
    
    
    
    9,455,955
    
    
    
    94,560Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock at $6.50 per share on June 20, 1994 (net of issuance
costs of $172,500)
    
    
    
    
    
    
    
    
    
    
    375,000
    
    
    
    3,750Exercise of stock options at $7.14 per share
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    100Exercise of stock options at $2.00 per share
    
    
    
    
    
    
    
    
    
    
    187,570
    
    
    
    1,875Cancellation of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at May 31, 1995
    
    
    
    
    
    $
    
    
    
    
    10,028,525
    
    
    $
    100,285




---



##### 



Deficit
    
    
    
    
    
    
    
    
    
    
    TotalSeries A convertible
    
    
    Series B convertible
    
    
    
    
    
    
    accumulated
    
    
    
    
    
    
    
    
    
    
    share-preferred stock
    
    
    preferred stock
    
    
    Additional
    
    
    during the
    
    
    Deferred
    
    
    
    
    
    
    holdersNumber
    
    Aggregate
    
    
    Number
    
    
    Aggregate
    
    
    paid-in
    
    
    development
    
    
    compen-
    
    
    Treasury
    
    
    equityof shares
    
    amount
    
    
    of shares
    
    
    amount
    
    
    capital
    
    
    stage
    
    
    sation
    
    
    shares
    
    
    (deficit)
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    (28,000
    )
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    7,000250,000
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    670,850
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    920,850
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (607,688
    )
    
    
    
    
    
    
    
    
    
    
    (607,688
    )250,000
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    642,850
    
    
    
    (607,688
    )
    
    
    
    
    
    
    
    
    
    
    320,162
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,429,953
    )
    
    
    
    
    
    
    
    
    
    
    (2,429,953
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,340,000
    
    
    
    
    
    
    
    (2,340,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    720,000
    
    
    
    
    
    
    
    720,000250,000
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    2,982,850
    
    
    
    (3,037,641
    )
    
    
    (1,620,000
    )
    
    
    
    
    
    
    (1,389,791
    )
    
    
    
    
    
    
    200,633
    
    
    
    200,633
    
    
    
    6,882,502
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,083,135
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,057,254
    )
    
    
    
    
    
    
    
    
    
    
    (3,057,254
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    566,136
    
    
    
    
    
    
    
    566,136250,000
    
    
    250,000
    
    
    
    200,633
    
    
    
    200,633
    
    
    
    9,865,352
    
    
    
    (6,094,895
    )
    
    
    (1,053,864
    )
    
    
    
    
    
    
    3,202,226
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,749,870
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,754,000(250,000)
    
    
    (250,000
    )
    
    
    
    
    
    
    
    
    
    
    237,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (200,633
    )
    
    
    (200,633
    )
    
    
    190,601
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    93,759
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94,230
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,976,855
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,978,610
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,488,356
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,489,234
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,443,118
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,443,118
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (791,206
    )
    
    
    
    
    
    
    
    
    
    
    (791,206
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    683,040
    
    
    
    
    
    
    
    (683,040
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    800,729
    
    
    
    
    
    
    
    800,729
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,728,451
    
    
    
    (6,886,101
    )
    
    
    (936,175
    )
    
    
    
    
    
    
    27,970,941
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,490,394
    )
    
    
    
    
    
    
    
    
    
    
    (3,490,394
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    699,163
    
    
    
    
    
    
    
    (699,163
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    546,278
    
    
    
    
    
    
    
    546,278
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,427,614
    
    
    
    (10,376,495
    )
    
    
    (1,089,060
    )
    
    
    
    
    
    
    25,026,825
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,579,872
    )
    
    
    
    
    
    
    
    
    
    
    (5,579,872
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    435,296
    
    
    
    
    
    
    
    435,296
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,427,614
    
    
    
    (15,956,367
    )
    
    
    (653,764
    )
    
    
    
    
    
    
    19,882,249
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    503,100
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    504,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,006,495
    )
    
    
    
    
    
    
    
    
    
    
    (7,006,495
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    254,025
    
    
    
    
    
    
    
    254,025
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,930,714
    
    
    
    (22,962,862
    )
    
    
    (399,739
    )
    
    
    
    
    
    
    13,633,779
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106,890
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107,040
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,663,710
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,667,454
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,066,609
    )
    
    
    
    
    
    
    
    
    
    
    (8,066,609
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    254,025
    
    
    
    
    
    
    
    254,025
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,701,314
    
    
    
    (31,029,471
    )
    
    
    (145,714
    )
    
    
    
    
    
    
    11,595,689
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,363,810
    )
    
    
    
    
    
    
    
    
    
    
    (7,363,810
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,163,851
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,188,851
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (85,400
    )
    
    
    
    
    
    
    85,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    267
    
    
    
    
    
    
    
    267
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,779,765
    
    
    
    (38,393,281
    )
    
    
    (60,047
    )
    
    
    
    
    
    
    18,420,997
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,439,013
    )
    
    
    
    
    
    
    
    
    
    
    (7,439,013
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,261,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,265,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    373,264
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    375,139
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (106,750
    )
    
    
    
    
    
    
    106,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (67,892
    )
    
    
    
    
    
    
    (67,892
    )
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    59,378,829
    
    
    $
    (45,832,294
    )
    
    $
    (21,189
    )
    
    
    
    
    
    $
    13,625,631




---



##### 



NORTHFIELD LABORATORIES INC.
  
 Preferred stock
    
    
    Common stockNumber
    
    
    Aggregate
    
    
    Number
    
    
    Aggregateof shares
    
    
    amount
    
    
    of shares
    
    
    amountNet loss
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Issuance of common stock at $17.75 per share on August 9, 1995 (net of issuance costs of $3,565,125)
    
    
    
    
    
    
    
    
    
    
    2,925,000
    
    
    
    29,250Issuance of common stock at $17.75 per share on September 11, 1995 (net of issuance costs of
$423,238)
    
    
    
    
    
    
    
    
    
    
    438,750
    
    
    
    4,388Exercise of stock options at $2.00 per share
    
    
    
    
    
    
    
    
    
    
    182,380
    
    
    
    1,824Exercise of stock options at $6.38 per share
    
    
    
    
    
    
    
    
    
    
    1,500
    
    
    
    15Exercise of stock options at $7.14 per share
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    100Cancellation of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at May 31, 1996
    
    
    
    
    
    
    
    
    
    
    13,586,155
    
    
    
    135,862Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options at $0.20 per share
    
    
    
    
    
    
    
    
    
    
    263,285
    
    
    
    2,633Exercise of stock options at $2.00 per share
    
    
    
    
    
    
    
    
    
    
    232,935
    
    
    
    2,329Exercise of stock options at $7.14 per share
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    100Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at May 31, 1997
    
    
    
    
    
    
    
    
    
    
    14,092,375
    
    
    
    140,924Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options at $7.14 per share
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    50Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at May 31, 1998
    
    
    
    
    
    
    
    
    
    
    14,097,375
    
    
    
    140,974Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-cash compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options at $7.14 per share
    
    
    
    
    
    
    
    
    
    
    17,500
    
    
    
    175Exercise of stock warrants at $8.00 per share
    
    
    
    
    
    
    
    
    
    
    125,000
    
    
    
    1,250Balance at May 31, 1999
    
    
    
    
    
    
    
    
    
    
    14,239,875
    
    
    
    142,399Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-cash compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options at $13.38 per share
    
    
    
    
    
    
    
    
    
    
    2,500
    
    
    
    25Balance at May 31, 2000
    
    
    
    
    
    
    
    
    
    
    14,242,375
    
    
    
    142,424Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-cash compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options at $6.38 per share
    
    
    
    
    
    
    
    
    
    
    6,000
    
    
    
    60Exercise of stock options at $10.81 per share
    
    
    
    
    
    
    
    
    
    
    17,500
    
    
    
    175Balance at May 31, 2001
    
    
    
    
    
    
    
    
    
    
    14,265,875
    
    
    
    142,659Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at May 31, 2002
    
    
    
    
    
    
    
    
    
    
    14,265,875
    
    
    
    142,659Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at May 31, 2003
    
    
    
    
    
    
    
    
    
    
    14,265,875
    
    
    
    142,659Issuance of common stock at $5.60 per share on July 28, 2003 (net of costs of issuance of $909,229)
    
    
    
    
    
    
    
    
    
    
    1,892,857
    
    
    
    18,928Issuance of common stock to directors at $6.08 per share on October 30, 2003
    
    
    
    
    
    
    
    
    
    
    12,335
    
    
    
    123Deferred compensation related to stock grants
    
    
    
    
    
    
    
    
    
    
    25,500
    
    
    
    255Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock at $5.80 per share on January 29, 2004 (net of costs of issuance of
$1,126,104)
    
    
    
    
    
    
    
    
    
    
    2,585,965
    
    
    
    25,860Issuance of common stock at $5.80 per share on February 18, 2004 (net of costs of issuance of
$116,423)
    
    
    
    
    
    
    
    
    
    
    237,008
    
    
    
    2,370Issuance of common stock at $5.80 per share on April 15, 2004 (net of costs of issuance of $192,242)
    
    
    
    
    
    
    
    
    
    
    409,483
    
    
    
    4,095Issuance of common stock at $12.00 per share on May 18, 2004 (net of costs of issuance of
$1,716,831.36)
    
    
    
    
    
    
    
    
    
    
    1,954,416
    
    
    
    19,544Exercise of stock options at $6.38 per share
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    150Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at May 31, 2004
    
    
    
    
    
    
    
    
    
    
    21,398,439
    
    
    
    213,984Deferred compensation related to stock grants
    
    
    
    
    
    
    
    
    
    
    5,500
    
    
    
    55Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options between $5.08 and $14.17 per share
    
    
    
    
    
    
    
    
    
    
    167,875
    
    
    
    1,679Cost of shares in treasury, 1,717 shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock to directors at $12.66 per share on September 21, 2004
    
    
    
    
    
    
    
    
    
    
    5,925
    
    
    
    59Issuance of common stock at $15.00 per share on February 9, 2005 (net of costs of issuance of
$4,995,689)
    
    
    
    
    
    
    
    
    
    
    5,175,000
    
    
    
    51,750Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at May 31, 2005
    
    
    
    
    
    $
    
    
    
    
    26,752,739
    
    
    $
    267,527Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options at $7.13 and $10.66 per share
    
    
    
    
    
    
    
    
    
    
    2,875
    
    
    
    29Issuance of common stock to directors at $13.05 per share on September 29, 2005
    
    
    
    
    
    
    
    
    
    
    5,750
    
    
    
    57Issuance of common stock to director at $13.21 per share on October 3, 2005
    
    
    
    
    
    
    
    
    
    
    1,135
    
    
    
    12Issuance of common stock to director at $10.67 per share on February 24, 2006
    
    
    
    
    
    
    
    
    
    
    1,406
    
    
    
    14




---



##### 



Deficit
    
    
    
    
    
    
    
    
    
    
    TotalSeries A convertible
    
    
    Series B convertible
    
    
    
    
    
    
    accumulated
    
    
    
    
    
    
    
    
    
    
    share-preferred stock
    
    
    preferred stock
    
    
    Additional
    
    
    during the
    
    
    Deferred
    
    
    
    
    
    
    holdersNumber
    
    Aggregate
    
    
    Number
    
    
    Aggregate
    
    
    paid-in
    
    
    development
    
    
    compen-
    
    
    Treasury
    
    
    equityof shares
    
    amount
    
    
    of shares
    
    
    amount
    
    
    capital
    
    
    stage
    
    
    sation
    
    
    shares
    
    
    (deficit)
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (4,778,875
    )
    
    $
    
    
    
    
    
    
    
    $
    (4,778,875
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,324,374
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,353,624
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,360,187
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,364,575
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    362,937
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    364,761
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,555
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,570
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (80,062
    )
    
    
    
    
    
    
    80,062
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62,726
    )
    
    
    
    
    
    
    (62,726
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115,427,120
    
    
    
    (50,611,169
    )
    
    
    (3,853
    )
    
    
    
    
    
    
    64,947,960
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,245,693
    )
    
    
    
    
    
    
    
    
    
    
    (4,245,693
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,025
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,658
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    463,540
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    465,869
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,569
    
    
    
    
    
    
    
    2,569
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116,011,985
    
    
    
    (54,856,862
    )
    
    
    (1,284
    )
    
    
    
    
    
    
    61,294,763
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,883,378
    )
    
    
    
    
    
    
    
    
    
    
    (5,883,378
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,650
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,700
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,284
    
    
    
    
    
    
    
    1,284
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116,047,635
    
    
    
    (60,740,240
    )
    
    
    
    
    
    
    
    
    
    
    55,448,369
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,416,333
    )
    
    
    
    
    
    
    
    
    
    
    (7,416,333
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,354
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,354
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124,775
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124,950
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    998,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    117,185,514
    
    
    
    (68,156,573
    )
    
    
    
    
    
    
    
    
    
    
    49,171,340
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,167,070
    )
    
    
    
    
    
    
    
    
    
    
    (9,167,070
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,112
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,112
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,425
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,450
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    117,276,051
    
    
    
    (77,323,643
    )
    
    
    
    
    
    
    
    
    
    
    40,094,832
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,174,609
    )
    
    
    
    
    
    
    
    
    
    
    (10,174,609
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,220
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,280
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    189,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    189,175
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    117,503,271
    
    
    
    (87,498,252
    )
    
    
    
    
    
    
    
    
    
    
    30,147,678
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,717,360
    )
    
    
    
    
    
    
    
    
    
    
    (10,717,360
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    117,503,271
    
    
    
    (98,215,612
    )
    
    
    
    
    
    
    
    
    
    
    19,430,318
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,250,145
    )
    
    
    
    
    
    
    
    
    
    
    (12,250,145
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    117,503,271
    
    
    
    (110,465,757
    )
    
    
    
    
    
    
    
    
    
    
    7,180,173
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,671,843
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,690,771
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,877
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    190,995
    
    
    
    
    
    
    
    (191,250
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,630
    
    
    
    
    
    
    
    35,630
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,846,633
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,872,493
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,255,853
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,258,223
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,178,664
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,182,759
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,716,616
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,736,160
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95,550
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95,700
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,573,798
    )
    
    
    
    
    
    
    
    
    
    
    (14,573,798
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    166,534,302
    
    
    
    (125,039,555
    )
    
    
    (155,620
    )
    
    
    
    
    
    
    41,553,111
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,055
    
    
    
    
    
    
    
    (71,110
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    122,121
    
    
    
    
    
    
    
    122,121
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,739,585
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,741,264
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,393
    )
    
    
    (25,393
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,941
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72,577,561
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72,629,311
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,321,456
    )
    
    
    
    
    
    
    
    
    
    
    (20,321,456
    )
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    240,997,444
    
    
    $
    (145,361,011
    )
    
    $
    (104,609
    )
    
    
    (25,393
    )
    
    $
    95,773,958
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95,550
    
    
    
    
    
    
    
    95,550
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,295
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,324
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,943
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,988
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,986
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000




---



##### 



Exercise of stock options at $10.66, $5.15 and $11.09
per share
    
    
    
    
    
    
    
    
    
    
    8,000
    
    
    
    80Exercise of stock options at $10.66 and $7.13 per share
    
    
    
    
    
    
    
    
    
    
    2,750
    
    
    
    28Exercise of stock options at $5.15 and $7.13 per share
    
    
    
    
    
    
    
    
    
    
    3,000
    
    
    
    30Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at May 31, 2006
    
    
    
    
    
    $
    
    
    
    
    26,777,655
    
    
    $
    267,777Eliminate
remaining deferred compensation (unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of
stock options at $5.15 and $7.13 per share (unaudited)
    
    
    
    
    
    
    
    
    
    
    2,750
    
    
    
    28Exercise of
stock options at $7.13 per share (unaudited)
    
    
    
    
    
    
    
    
    
    
    750
    
    
    
    7Share-based
compensation (unaudited)Net loss
(unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at
August 31, 2006 (unaudited)
    
    
    
    
    
    
    
    
    
    
    26,781,155
    
    
    
    267,812




---



##### 




    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,075
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,155
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,640
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,668
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,905
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,935
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,775,418
    )
    
    
    
    
    
    
    
    
    
    
    (26,775,418
    )
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    241,240,276
    
    
    $
    (172,136,429
    )
    
    $
    (9,059
    )
    
    
    (25,393
    )
    
    $
    69,337,172
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,059
    )
    
    
    
    
    
    
    9,059
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,105
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,1335,348
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,355595,230
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    595,230
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,562,574
    )
    
    
    
    
    
    
    
    
    
    
    (7,562,574
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    241,848,900
    
    
    
    (179,699,003
    )
    
    
    0
    
    
    
    (25,393
    )
    
    
    62,392,316




---



##### 



NORTHFIELD LABORATORIES INC.
  
 CumulativefromJune 19, 1985Three months ended August 31,
    
    
    through2006
    
    
    2005
    
    
    August 31, 2006(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Cash flows from operating activities:Net loss
    
    $
    (7,562,574
    )
    
    
    (5,780,726
    )
    
    
    (179,699,003
    )Adjustments to reconcile net loss to net
cash used in operating activities:Marketable security amortization
    
    
    (420,609
    )
    
    
    (484,070
    )
    
    
    (2,718,812
    )Depreciation and amortization
    
    
    109,729
    
    
    
    59,707
    
    
    
    19,054,500Stock based compensation
    
    
    595,230
    
    
    
    33,065
    
    
    
    4,656,254Loss on sale
of equipment
    
    
    
    
    
    
    
    
    
    
    66,359Changes in assets and liabilities:Prepaid expenses
    
    
    46,305
    
    
    
    112,609
    
    
    
    (976,010
    )Other assets
    
    
    49,282
    
    
    
    (3,272
    )
    
    
    (1,840,569
    )Accounts
payable and accruals
    
    
    (657,512
    )
    
    
    (753,326
    )
    
    
    3,824,292Accrued expenses
    
    
    (25,828
    )
    
    
    (41,793
    )
    
    
    108,178Government grant liability
    
    
    (251,730
    )
    
    
    
    
    
    
    674,762Accrued compensation and benefits
    
    
    194,019
    
    
    
    136,844
    
    
    
    936,057Other liabilities
    
    
    (249,580
    )
    
    
    8
    
    
    
    Net cash used in operating activities
    
    
    (8,173,268
    )
    
    
    (6,720,954
    )
    
    
    (155,913,992
    )Cash flows from investing activities:Purchase of property, plant, equipment, and
capitalized engineering costs
    
    
    (7,227,898
    )
    
    
    (125,337
    )
    
    
    (27,176,211
    )Proceeds from sale of land and equipment
    
    
    
    
    
    
    
    
    
    
    1,863,023Proceeds from matured marketable securities
    
    
    34,000,000
    
    
    
    37,820,000
    
    
    
    651,646,352Proceeds from sale of marketable securities
    
    
    
    
    
    
    
    
    
    
    7,141,656Purchase of marketable securities
    
    
    (23,677,908
    )
    
    
    (20,826,828
    )
    
    
    (679,852,515
    )Net cash provided by (used in) investing activities
    
    
    3,094,194
    
    
    
    16,867,835
    
    
    
    (46,377,695
    )Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    22,488
    
    
    
    29,324
    
    
    
    236,147,623Payment of common stock issuance costs
    
    
    
    
    
    
    
    
    
    
    (14,128,531
    )Proceeds from issuance of preferred stock
    
    
    
    
    
    
    
    
    
    
    6,644,953Proceeds from sale of stock options to
    
    
    
    
    
    
    purchase common shares
    
    
    
    
    
    
    
    
    
    
    7,443,118Proceeds from issuance of notes payable
    
    
    
    
    
    
    
    
    
    
    1,500,000Repayment of notes payable
    
    
    
    
    
    
    
    
    
    
    (140,968
    )Net cash provided by financing activities
    
    
    22,488
    
    
    
    29,324
    
    
    
    237,466,195Net increase (decrease) in cash
    
    
    (5,056,586
    )
    
    
    10,176,205
    
    
    
    35,174,508Cash at beginning of period
    
    
    39,304,602
    
    
    
    6,800,405
    
    
    
    Restricted cash
    
    
    251,730
    
    
    
    
    
    
    
    (674,762
    )Cash at end of period
    
    $
    34,499,746
    
    
    
    16,976,610
    
    
    
    34,499,746Supplemental Schedule of Noncash Financing Activities :Exercise of stock option, 5,000 shares in exchange for
1,717 treasury shares.
    
    $
    
    
    
    
    
    
    
    
    25,393




---



##### 



NORTHFIELD
LABORATORIES INC.
  
 (1) BASIS OF PRESENTATION
  (2) USE OF ESTIMATES
  (3) COMPUTATION OF NET LOSS PER SHARE
  (4) SHARE-BASED COMPENSATION




---



##### 








---



##### 



Three monthsEndedAugust 31, 2005Net loss as reported
    
    $
    (5,780,726
    )Add: Stock based compensation expense
included in statements of
operations
    
    
    33,065Deduct: Total stock based compensation
expense determined under the fair
value method for all awards
    
    
    (469,812
    )Pro forma net loss
    
    $
    (6,217,473
    )Basic and diluted earnings per share:As reported
    
    $
    (.22
    )Pro forma
    
    
    (.23
    )
   2006
    
    2005Expected volatility
    
    
    73.22
    %
    
    
    74.3
    %Risk-free interest rate
    
    
    5.0
    %
    
    
    3.9
    %Dividend yield
    
    
    
    
    
    
    Expected lives
    
    6.9 years
    
    7.2 years




---



##### 



Weighted AverageRange of
    
    
    Weighted
    
    
    RemainingExercise
    
    
    Average
    
    
    Contractual Terms
    
    
    Aggregate IntrinsicShares
    
    
    Prices
    
    
    Exercise Price
    
    
    (years)
    
    
    ValueOutstanding at May 31, 2006
    
    
    1,746,375
    
    
    $
    3.62  $19.00
    
    
    $
    11.11Granted at
fair value
    
    
    65,000
    
    
    $
    9.65  $11.59
    
    
    $
    10.83Exercised
    
    
    3,500
    
    
    $
    5.15  $  7.13
    
    
    $
    6.43Expired
    
    
    0Cancelled
    
    
    16,000
    
    
    $
    5.15  $15.15
    
    
    $
    12.80Outstanding at August 31, 2006
    
    
    1,791,875
    
    
    $
    3.62  $19.00
    
    
    $
    11.10
    
    
    
    6.06
    
    
    $
    2,797,666Exercisable at August 31, 2006
    
    
    533,500
    
    
    $
    3.62  $15.90
    
    
    $
    11.24
    
    
    
    6.06
    
    
    $
    353,440
  (5) RECENTLY ISSUED ACCOUNTING STANDARD
  (6) RESTRICTED CASH
  (7) MARKETABLE SECURITIES
   (8) PROPERTY, PLANT & EQUIPMENT




---



##### 



(9) LEGAL PROCEEDINGS




---



##### 



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
 RECENT DEVELOPMENTS
 
      RESULTS OF OPERATIONS
  OPERATING EXPENSES




---



##### 



INTEREST INCOME
  NET LOSS
  LIQUIDITY AND CAPITAL RESOURCES




---



##### 



CRITICAL ACCOUNTING POLICIES
  NET DEFERRED TAX ASSETS VALUATION




---



##### 



CONTRACTUAL OBLIGATIONS
  LESS THANContractual Obligations
    
    TOTAL
    
    
    ONE YEAR
    
    
    1-3 YEARSLease Obligations (1)
    
    $
    993,019
    
    
    $
    355,129
    
    
    $
    637,890Other Obligations (2)
    
    $
    1,230,000
    
    
    $
    1,230,000
    
    
    
    Total Contractual Cash Obligation
    
    $
    2,223,019
    
    
    $
    1,585,129
    
    
    $
    637,890
 
 (1)
    
    The lease for our Evanston headquarters is cancelable with six months notice combined with a
termination payment equal to three months base rent at any time after February 14, 2009. If the
lease is cancelled as of February 15, 2009 unamortized broker commissions of $17,470 would also be
due.(2)
    
    Represents payments required to be made upon termination of employment agreements with two of
our executive officers. The employment contracts renew automatically unless terminated. Figures
shown represent compensation payable upon the termination of the employment agreements for reasons
other than death, disability, cause or voluntary termination of employment by the executive officer
other than for good reason. Additional payments may be required under the employment agreements in
connection with a termination of employment of the executive officers following a change in control
of Northfield. RECENT ACCOUNTING PRONOUNCEMENT
  ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
  ITEM 4.
    
    CONTROLS AND PROCEDURES.




---



##### 



Part II
OTHER INFORMATION
 Item 1.
    
    Legal Proceedings.
    Item 6.
    
    Exhibits.
 Exhibit 15
    
    Letter regarding unaudited interim financial informationExhibit 31.1
    
    Certification of Steven A. Gould, M.D., pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934Exhibit 31.2
    
    Certification of John J. Hinds, pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934Exhibit 32.1
    
    Certification of Steven A. Gould, M.D., pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002Exhibit 32.2
    
    Certification of John J. Hinds, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002




---



##### 



SIGNATURES
  Signature
    
    Title/s/ Steven A. Gould, M.D.

Steven A. Gould, M.D.
    
    Chairman of the Board and Chief
Executive Officer/s/ John J. Hinds

John J. Hinds
    
    Vice President of Finance