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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JANUARY 31, 1997
OR
/ / 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 0-17085
TECHNICLONE INTERNATIONAL CORPORATION
(Exact name of Registrant as specified in its charter)
CALIFORNIA 95-3698422
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
14282 FRANKLIN AVENUE, TUSTIN, CALIFORNIA 92780
(Address of principal executive offices) (Zip Code)
(714) 838-0500
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed, since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. YES /X/ NO / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES /X/ NO / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
22,167,352 shares of Common Stock
as of February 28, 1997
Page 1 of 54 pages
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PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
The following financial statements required to be provided by this Item
1 and Rule 10.01 of Regulation S-X are filed herewith, at the respective pages
indicated on this Quarterly Report, Form 10-Q:
Page
----
Consolidated Balance Sheets at April 30, 1996 and January 31, 1997 (unaudited)................... 11, 12
Consolidated Statements of Operations for the periods from November 1,
1995 to January 31, 1996 and from November 1, 1996 to January 31, 1997;
from May 1, 1995 to January 31, 1996 and from May 1, 1996 to January
31, 1997 (unaudited)............................................................................. 13
Consolidated Statement of Stockholders' Equity for the period from April 30, 1996
through January 31, 1997 (unaudited)............................................................. 14
Consolidated Statements of Cash Flows for the periods November 1, 1995
to January 31, 1996 and from November 1, 1996 to January 31, 1997; from
May 1, 1995 to January 31, 1996 and from May 1, 1996 to January 31,
1997 (unaudited)................................................................................. 15, 16
Notes to Consolidated Financial Statements....................................................... 17, 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Quarterly Report on Form 10-Q includes certain forward-looking
statements, the realization of which may be impacted by certain important
factors discussed in "Additional Factors that May Affect Future Results".
GOING CONCERN
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the financial
statements, the Company experienced losses during the three and nine month
periods ended January 31, 1997 and had an accumulated deficit at January 31,
1997. During the fiscal year ended April 30, 1996, the Company received
significant funding through the issuance of preferred stock and the sale of
foreign marketing rights for LYM-1. As a result of the sale of the preferred
stock and foreign marketing rights, the Company had cash and short-term
investment balances of $3,062,075 at January 31, 1997.
Historically, the Company has relied on third party and investor funds
to fund its operations and clinical trials, and management expects to receive
additional funds in the future. There can be no assurances that this funding
will be received. If the Company does not receive additional funding, it will be
forced to scale back operations and it could have a material adverse
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effect on the Company. The Company's continuation as a going concern is
dependent on its ability to generate sufficient cash flow to meet its
obligations on a timely basis, to obtain additional financing as may be required
and, ultimately, to attain successful operations. Management believes that the
cash and cash equivalents and short-term investments aggregating approximately
$3,062,000 as of January 31, 1997 are sufficient to support the Company's
estimated operations and other cash needs through at least April 30, 1997.
During October 1992, the Company terminated certain licensing rights
with a stockholder and entered into a new licensing agreement with an unrelated
entity. Under the termination agreement, the Company will be required to make
certain payments, as defined. The new agreement provides for, among other
things, the right for the Company to suggest input on the development and
clinical trial process for its LYM-1 antibody technology. In addition, the
agreement provides for payments to the Company upon attainment of certain
milestones and guaranteed sales prices for specified sales of LYM-1 products.
RESULTS OF OPERATIONS
During the three and the nine month periods ended January 31, 1997, the
Company incurred losses of $1,422,866 and $3,891,161, respectively, compared to
losses of $890,271 and $1,946,394, respectively, for the same periods in the
prior year. The increase in losses over comparable periods in the prior year of
$532,595 and $1,944,767, respectively, are primarily attributable to increases
in activity by the Company associated with the expansion of its facilities,
continuation and expansion of the clinical trial activities for LYM-1 and TNT
antibody technologies and increases in administrative and operational personnel
in preparation for the scale up of the manufacturing process for production of
the LYM-1 antibodies to be used in Phase III clinical trials. The Company
expects losses to increase for the next fiscal year as it further expands the
clinical trials for its LYM-1 and TNT technologies and as it prepares for
manufacturing of LYM-1 antibodies for use in the Phase III trials.
The Company experienced increased revenues of $17,211 and $189,535
during the three and nine month periods ended January 31, 1997, when compared
with the same periods in the prior year. The increased revenues were the result
of increases in rental income and interest income during the current fiscal
year. Rental income increased as a result of the Company's purchase of a second
building on October 25, 1996, which is being partially leased to tenants.
Interest income increased during the current year due to increases in cash
available for investment from the sale of the Class B Convertible Preferred
Stock in December 1995 and the sale of foreign distribution rights in February
1996. Management expects that rental income will approximate $34,000 for the
balance of the fiscal year and that interest income will decline as available
cash is used for operations during the remainder of the fiscal year.
During the three and nine month periods ended January 31, 1997, costs
and expenses increased $549,806 and $2,136,302, respectively, over the
comparable periods in the prior year. The increase in total costs were primarily
attributable to increases in research and development expense, general and
administrative costs and stock based compensation expense.
Research and development expense increased $783,590 for the nine months
ended January 31, 1997 when compared to the same period in the prior year. The
increase in research and development expenses resulted primarily from
preparation for the expansion of Phase III clinical trials of the LYM-1 antibody
and the Company's activities in preparing for Phase I clinical
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trials of the TNT antibody technologies. During fiscal year 1997, preparation
for additional clinical trials resulted in increased consulting, development and
depreciation expenses. As clinical trial activities continue to expand, the
Company expects that research and development expenses will continue to
increase.
For the three month and the nine month periods ended January 31,
1997, general and administrative expenses increased by $294,125 and $873,321
respectively over the comparable periods of the prior year. This increase in
current year expenses has resulted primarily from adding additional facilities
and staff to support the expected expansion of the Company's clinical trials and
its manufacturing capabilities. In addition, the Company incurred additional
costs associated with the Stock Exchange Agreement, the Shareholder's Meeting
and the Company's obtaining director's and officer's liability insurance.
For the three and nine month periods ended January 31, 1997,
noncash stock based compensation increased by $163,096, and $395,832 over the
comparable periods of the prior year. These increases are due to option grants
for the purchase of the Company's common stock to employees, consultants and
members of the Company's Scientific Advisory Board. In September 1996, many of
these options became effective when the shareholders of the Company approved the
Company's 1996 Stock Incentive Plan.
Interest expense increased $46,442 during the quarter ended
January 31, 1997 and $83,559 for the nine months ended January 31, 1997 over the
comparable periods of the prior year. The increase in interest expense is the
result of increased borrowings incurred when the Company purchased its existing
facility in April 1996 and an adjacent building in October 1996. Borrowings for
each of the facilities amounted to $1,020,000.
The Company believes that total costs and expenses will increase
during the remainder of the current fiscal year due to the continued addition of
personnel, the expansion of facilities, increased depreciation, additional stock
based compensation expense, and increased interest expenses due to the purchase
of the Company's facilities.
The Company has begun Phase III testing in multi-center clinical
trials of the LYM-1 antibody in late stage non-Hodgkins lymphoma patients. The
clinical trials are being sponsored by Alpha Therapeutic Corporation, a wholly
owned subsidiary of Green Cross of Japan. The clinical trials are being
conducted at participating medical centers including M.D. Anderson, The
Cleveland Clinic, Cornell University (N.Y.C.), George Washington University and
University of Cincinnati. Following the completion of the clinical trials the
Company expects to file an application with the FDA to market LYM-1 in the
United States.
On February 5, 1996, the Company entered into an agreement with
Cambridge Antibody Technology, Ltd. ("CAT") to develop and market a new class of
products for cancer therapy and diagnosis. The Agreement provides that the CAT
will develop a human monoclonal antibody for the Company's Tumor Necrosis
Technologies ("TNT"). The development of this antibody is based upon CAT's
patented technology for producing fully human monoclonal antibodies. The
Agreement provides that the Company and CAT will be equal partners in the joint
venture and that all costs and expenses associated with the development of the
product will be shared equally between the Company and CAT. It is anticipated
that the joint venture will conduct clinical trials of TNT in both the United
States and Europe. The Company retains exclusive world-wide manufacturing
rights.
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On February 29, 1996 the Company entered into a Distribution
Agreement with Biotechnology Development, Ltd. ("BTD"), a limited partnership
controlled by a major shareholder and a member of the Board of Directors of the
Company. Pursuant to the Distribution Agreement, BTD acquired the marketing
rights for the LYM-1 antibody technology for certain European countries and
other geographic areas not covered by the Company's existing license agreement
with Alpha Therapeutic Corporation. BTD paid the Company $3,000,000 for these
marketing rights. Under the terms of the Distribution Agreement, the Company
retains all manufacturing rights to LYM-1 and will supply LYM-1 to BTD at preset
prices. Additionally, the Company has an option for a thirty month period to
repurchase the marketing rights to LYM-1. The repurchase price, if repurchase is
elected by the Company at its sole discretion, includes a combination of cash,
stock options and royalty payments to be made to BTD, the amount of which
depends on when the repurchase option is elected by the Company.
During March, 1997, the Company reached an agreement to purchase
at least a majority and up to all of the issued and outstanding capital stock of
Peregrine Pharmaceuticals, Inc. ("Peregrine") pursuant to the terms of a Stock
Exchange Agreement. Should the Company acquire 100% of the outstanding stock of
Peregrine, the Company will issue approximately 5,080,000 shares of the
Company's common stock and assume between $400,000 and $500,000 in net
liabilities. The acquisition will be accounted for as a purchase with immediate
recognition of substantially all of the purchase price of approximately
$27,200,000 as an expense for in-process research and development. Peregrine is
a development stage enterprise, has had no revenues to date, and is engaged in
research and development of new technologies for use in therapeutic agents for
treatment of cancerous tumors. Following the acquisition, the Company expects
that annual expenses and cash outflows will increase by approximately
$1,000,000.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1997, the Company had $3,062,705 in cash and short
term investments and working capital of $2,438,567 compared to $8,078,201 in
cash and short term investments and working capital of $7,460,514 at April 30,
1996. The Company must obtain significant additional financing if it is to
continue operations, product development and expansion of clinical trials.
CAPITAL COMMITMENTS
During the remainder of the fiscal year ending April 30, 1997 the
Company expects to acquire significant additional assets including additional
building improvements, furniture, fixtures and equipment to expand operations.
As of January 31, 1997, the Company had commitments to spend
approximately $280,000 on building improvements, furniture, and equipment in
connection with the construction of office and laboratory facilities in the
building which was purchased in April 1996. As of January 31, 1997, the Company
had no firm commitments to acquire additional laboratory and production
equipment. However, the Company expects to acquire significant additional
laboratory and production equipment during the remainder of the current year
ending on April 30, 1997, to expand antibody production capabilities.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
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FUTURE OPERATING RESULTS. Future operating results may be
impacted by a number of factors that could cause actual results to differ
materially from those stated herein. These factors include worldwide economic
and political conditions, industry specific factors, the Company's ability to
maintain access to external financing sources and its financial liquidity, the
Company's ability to timely develop and produce commercially viable products at
competitive prices, the availability and cost of components of those products,
and the Company's ability to manage expense levels.
NEED FOR ADDITIONAL CAPITAL. At January 31, 1997, the Company had
$3,062,075 in cash and short term investments. It has significant commitments
for expenditures for building improvements, equipment, furniture and fixtures
and expects these expenditures to increase in the future. The Company has
experienced negative cash flows since its inception and expects the negative
cash flow to continue for the foreseeable future. The Company expects that the
monthly negative cash flow will increase as a result of increased activities
with the Phase III clinical trials for LYM-1 and as a result of significantly
increased research, development and clinical trial costs associated with the
Company's other products, including Tumor Necrosis Therapy ("TNT") and
technologies to be acquired in connection with the Stock Exchange Agreement. As
a result of the increased expenditure of funds, the Company believes that it
will be necessary for the Company to raise additional capital to sustain
research and development and provide for future clinical trials. The Company
must raise additional equity funds in order to continue its operations until it
is able to generate sufficient additional revenue from the sale and/or licensing
of its products. There can be no assurance that the Company will be successful
in raising such funds on terms acceptable to it or at all, or that sufficient
additional capital will be raised to research and develop the Company's
additional products. The Company is discussing the possibility of raising
additional funds with various investment banking firms and private investors,
but as of January 31, 1997, the Company had not entered into any firm
commitments for additional funds. If the initial results from the Phase III
clinical trials of LYM-1 are poor, then management believes that such results
will have a material adverse effect upon the Company's ability to raise
additional capital, which will affect the Company's ability to continue a
full-scale research and development effort for its antibody technologies. The
Company's future success is highly dependent upon its continued access to
sources of financing which it believes are necessary for the continued growth of
the Company. In the event the Company is unable to maintain access to its
existing financing sources, or obtain other sources of financing there would be
a material adverse effect on the Company's business, financial position and
results of operations.
COMPETITION. The biotechnology industry is intensely competitive
and changing rapidly. Substantially all of the Company's existing competitors
have greater financial resources, larger technical staffs, and larger research
budgets than the Company. There can be no assurance that these competitors will
not be able to expend resources to develop their products prior to the Company's
product being granted approval for marketing by the U.S. Food and Drug
Administration. There can be no assurance that the Company will be able to
compete successfully or that competition will not have a material adverse effect
on the Company's results of operation.
TECHNOLOGY. The Company's future success will depend
significantly upon its ability to develop and test workable products which the
Company will seek FDA approval to market to certain defined groups. A
significant risk remains as to the technological, performance and commercial
success of the Company's technology and products. The products currently under
development by the Company will require significant additional laboratory and
clinical testing and investment over the foreseeable future. The significant
research, development, and testing
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activities, together with resultant increases in associated expenses, are
expected to result in operating losses for the foreseeable future. Although the
Company is optimistic that it will be able to successfully complete development
of one or more of its products, there can be no assurance that (i) the Company's
research and development activities will be successful, or that any proposed
products will prove to be effective in clinical trials; that (ii) the Company
will be able to obtain all necessary governmental clearances and approvals to
market its products; (iii) that such proposed products will prove to be
commercially viable or successfully marketed; or (iv) that the Company will ever
achieve significant revenues or profitable operations. In addition, the Company
may encounter unanticipated problems, including development, manufacturing,
distribution and marketing difficulties. The failure to adequately address such
difficulties could have a material adverse effect on the Company's prospects.
REGULATION. The Company's products are subject to extensive
government regulation in the United States by federal, state and local agencies
including the Food and Drug Administration. The process of obtaining and
maintaining FDA and other required regulatory approvals for the Company's
products is lengthy, expensive and uncertain. There can be no assurance that the
Company can obtain FDA or other regulatory approval for the marketing of its
products or that changes in existing regulations or the adoption of new
regulations will not occur which will adversely affect the Company.
EARTHQUAKE RISKS. The Company's corporate and research facilities
where the majority of its research and development activities are conducted, are
located near major earthquake faults which have experienced earthquakes in the
past. The Company does not carry earthquake insurance on its facility due to its
prohibitive cost. In the event of a major earthquake or other disaster affecting
the Company's facilities, the operations and operating results of the Company
could be adversely affected.
STOCK PRICE FLUCTUATIONS AND LIMITED TRADING VOLUME. The
Company's participation in the highly competitive biotechnology industry often
results in significant volatility in the Company's common stock price. Also, at
times there is a limited trading volume in the Company's stock. This volatility
in the stock price and limited trading volume are significant risks investors
should consider.
FORWARD LOOKING STATEMENTS. This Quarterly Report on Form 10-Q
contains certain forward-looking statements that are based on current
expectations. In light of the important factors that can materially affect
results, including those set forth above and elsewhere in this Form 10-Q, the
inclusion of forward-looking information herein should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved. The Company may encounter competitive,
technological, financial and business challenges making it more difficult than
expected to continue to develop, market and manufacture its products;
competitive conditions within the industry may change adversely; upon
development of the Company's products, demand for the Company's products may
weaken; the market may not accept the Company's products; the Company may be
unable to retain existing key management personnel; the Company's forecasts may
not accurately anticipate market demand; and there may be other material adverse
changes in the Company's operations or business. Certain important factors
affecting the forward looking statements made herein include, but are not
limited to (i) accurately forecasting capital expenditures, and (ii) obtaining
new sources of external financing prior to the expiration of existing support
arrangements or capital. Assumptions relating to budgeting, marketing, product
development and other management decisions are subjective in many
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respects and thus susceptible to interpretations and periodic revisions based on
actual experience and business developments, the impact of which may cause the
Company to alter its capital expenditure or other budgets, which may in turn
affect the Company's financial position and results of operations.
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PART II
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Report on Form 8-K.
(a) Exhibits:
Sequential
Exhibit Number Description Page No.
-------------- ----------- --------
2.1 Stock Exchange Agreement dated as of 19
January 15, 1997 among the Stockholders
of Peregrine Pharmaceuticals, Inc. and
Registrant
27 Financial Data Schedule 54
(b) Reports on Form 8-K: Current Report on Form 8-K as filed with
the Securities and Exchange Commission on February 11, 1997
reporting the Stock Exchange Agreement with certain
stockholders of Peregrine Pharmaceuticals, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECHNICLONE INTERNATIONAL
CORPORATION
By: /ss/ Lon H. Stone
------------------------------
By: /ss/ William V. Moding
------------------------------
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TECHNICLONE INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
April 30, January 31,
1996 1997
------------ -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................. $ 4,179,313 $ 2,065,587
Short-term investments ..................... 3,898,888 997,118
Accounts receivable, net ................... 95,146 31,947
Inventories, net ........................... 93,921 275,351
Prepaid expenses and other current assets .. 17,294 5,383
------------ -----------
Total current assets ....................... 8,284,562 3,375,386
PROPERTY:
Land ....................................... 525,255 1,050,510
Buildings and improvements ................. 1,298,416 3,038,994
Laboratory equipment ....................... 1,139,663 1,353,135
Office furniture and equipment ............. 78,155 219,588
------------ -----------
Total ...................................... 3,041,489 5,662,227
Less accumulated depreciation
and amortization ......................... (722,436) (953,725)
------------ -----------
Property, net .............................. 2,319,053 4,708,502
OTHER ASSETS:
Note receivable from shareholder ........... 350,000
Patents, net ............................... 166,585 182,150
Other ...................................... 5,557 --
------------ -----------
Total other assets ......................... 172,142 532,150
------------ -----------
TOTAL ...................................... $ 10,775,757 $ 8,616,038
============ ===========
See accompanying notes to consolidated financial statements.
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TECHNICLONE INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
April 30, January 31,
1996 1997
------------ ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable ............................................................. $ 230,144 $ 205,685
Accrued legal and accounting fees
(primarily to a related party) ............................................. 99,495 85,000
Accrued payroll and related costs ............................................ 88,791 99,005
Accrued license termination fee .............................................. 100,000 100,000
Accrued royalties ............................................................ 61,667 81,667
Accrued interest ............................................................. -- 16,476
Reserve for contract losses .................................................. 173,563 207,714
Current portion of long-term debt ............................................ 32,968 72,609
Other current liabilities .................................................... 37,420 68,663
------------ ------------
Total current liabilities .................................................... 824,048 936,819
LONG TERM DEBT - MORTGAGE LOANS .............................................. 987,032 1,941,271
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred Stock -- $1.00 par value (authorized, 100,000 shares; Class B
Convertible Preferred Stock, outstanding, 6,800 shares at April 30, 1996 and
2,200 shares at January 31, 1997) (liquidation preference of $2,439,890
at January 31, 1997) ....................................................... 6,800 2,200
Common Stock -- no par value (authorized, 30,000,000 shares; outstanding,
20,048,014 shares at April 30, 1996 and 22,164,352
shares at January 31, 1997) ................................................ 21,133,968 25,406,551
Additional paid-in capital ................................................... 6,061,171 2,457,620
Accumulated deficit .......................................................... (17,760,680) (21,651,841)
------------ ------------
Total ........................................................................ 9,441,259 6,214,530
Less notes receivable from sale of common stock .............................. (476,582) (476,582)
------------ ------------
Net stockholders' equity ..................................................... 8,964,677 5,737,948
------------ ------------
TOTAL ........................................................................ $ 10,775,757 $ 8,616,038
============ ============
See accompanying notes to consolidated financial statements.
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TECHNICLONE INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
January 31, January 31, January 31, January 31,
1996 1997 1996 1997
------------ ------------ ------------ ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES:
Net product sales ................... $ -- $ -- $ -- $ --
Licensing fees ...................... -- -- -- --
Interest income ..................... 42,751 30,899 42,772 198,200
Rental income ....................... -- 29,063 -- 34,107
------------ ------------ ------------ ----------
Total revenues ...................... 42,751 59,962 42,772 232,307
------------ ------------ ------------ ----------
COSTS AND EXPENSES:
Cost of sales ....................... -- -- -- --
Research and development ............ 638,963 685,106 1,239,791 2,023,381
General and administrative:
Unrelated entities ............ 199,529 498,941 574,018 1,387,826
Affiliates .................... 90,287 85,000 156,499 216,012
Noncash - Stock based compensation .. -- 163,096 -- 395,832
Interest ............................ 4,243 50,685 16,858 100,417
------------ ------------ ------------ ----------
Total costs and expenses ............ 933,022 1,482,828 1,987,166 4,123,468
------------ ------------ ------------ ----------
NET LOSS ............................ $ (890,271) $ (1,422,866) $ (1,944,394) (3,891,161)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING ........................ 18,920,450 21,549,001 17,974,426 21,164,263
============ ============ ============ ============
LOSS PER COMMON SHARE ............... $ (.05) $ (.07) $ (.11) $ (.18)
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
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TECHNICLONE INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NOTES
RECEIVABLE
ADDITIONAL ACCUMU- FROM
PREFERRED STOCK COMMON STOCK PAID-IN LATED SALE OF
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STOCK TOTAL
------ ------ ------ ------ ------- ------- ----- -----
BALANCE AT
April 30, 1996............. 6,800 $ 6,800 20,048,014 $21,133,968 $ 6,061,171 $(17,760,680) $ (476,582) $ 8,964,677
- ---------------------------
Common stock issued
upon exercise of stock
options (unaudited)........ 529,200 268,600 268,600
Common stock issued
upon conversion of Class B
Convertible Preferred Stock
(unaudited)................ (4,600) (4,600) 1,587,138 4,003,983 (3,999,383)
Noncash Stock based
compensation (unaudited)... 395,832 395,832
Net loss
(unaudited)................ (3,891,161) (3,891,161)
BALANCE AT
JANUARY 31, 1997
====== ======= ========== =========== =========== ============= ========== ===========
(unaudited) 2,200 $ 2,220 22,164,352 $25,406,551 $ 2,457,620 $(21,651,841) $ (476,582) $ 5,737,948
====== ======= ========== =========== =========== ============= ========== ===========
See accompanying notes to consolidated financial statements.
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TECHNICLONE INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED NINE MONTHS ENDED
January 31, January 31, January 31, January 31,
1996 1997 1996 1997
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM
OPERATING EXPENSES:
Net loss ........................................................ $ (890,271) $(1,422,866) $(1,944,394) $(3,891,161)
Adjustments to reconcile net
loss to net cash used
by operating activities:
Depreciation and amortization ................................ 40,320 107,378 128,238 255,613
Common stock issued for services ............................. 31,250 -- 88,350 --
Stock based compensation expense ............................. -- 163,096 -- 395,832
Changes in operating assets and
liabilities:
(Increase) Decrease in accounts
receivable ................................................ (9,000) (12,005) (6,622) 63,199
(Increase) Decrease in inventories ........................... 183,322 (84,989) 164,779 (181,430)
Decrease in prepaid expenses ................................. -- 419 -- 11,911
Increase (Decrease) in accounts
payable ................................................... 14,905 14,681 (19,251) (24,459)
Increase (Decrease) in accrued and
other current liabilities ................................. (298,707) 107,001 (289,470) (97,589)
----------- ----------- ----------- -----------
Net cash used by operating activities ........................... (928,181) 1,156,647) (1,878,370) (3,272,906)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of short-term
investments .................................................. -- -- (3,909,814) 3,898,888
Purchase of short-term
investments .................................................. (3,909,814) (13,035) -- (997,118)
Other assets .................................................... (124,839) (28,157) (153,558) (34,332)
Property acquisitions ........................................... (23,207) (534,181) (49,547) (2,620,738)
Net cash (used) provided by investing ----------- ----------- ----------- -----------
activities ................................................... $(4,057,860) $ (575,373) $(4,112,919) $ 246,700
----------- ----------- ----------- -----------
[Continued on next page]
See accompanying notes to consolidated financial statements.
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TECHNICLONE INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Continued from previous page]
THREE MONTHS ENDED NINE MONTHS ENDED
January 31, January 31, January 31, January 31,
1996 1997 1996 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
---------- ----------- ---------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Note receivable to shareholder ......... $ -- $ (350,000) $ -- $ (350,000)
Principal payments on short-
and long-term borrowings ............ -- (13,397) -- (26,120)
Proceeds from issuance of
long-term debt ...................... -- -- -- 1,020,000
Proceeds from sale of common stock ..... 90,000 260,000 1,408,952 268,600
Proceeds from sale of preferred stock .. 7,137,544 -- 7,137,544 --
---------- ----------- ---------- -----------
Net cash (used) provided by financing
activities .......................... 7,227,544 (102,797) 8,546,496 912,480
---------- ----------- ---------- -----------
INCREASE (DECREASE) IN CASH ............ 2,241,503 (1,834,817) 2,555,207 (2,113,726)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD .............. 349,346 3,900,404 35,642 4,179,313
---------- ----------- ---------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD .................... $2,590,849 $ 2,065,587 $2,590,849 $ 2,065,587
========== =========== ========== ===========
SUPPLEMENTAL INFORMATION:
Interest paid .......................... $ 4,243 $ 42,165 $ 6,518 $ 83,941
========== =========== ========== ===========
Income taxes paid ...................... $ -- $ -- $ 800 $ 1,034
========== =========== ========== ===========
Non-cash financing activities:
Common Stock issued for forgiveness
of accrued expenses and other current
liabilities ......................... $ 134,000 $ -- $ 134,000 $ --
========== =========== ========== ===========
Common Stock issued upon conversion
of note payable and forgiveness of
accrued interest .................... $ 363,197 $ -- $ 363,197 $ --
========== =========== ========== ===========
See accompanying notes to consolidated financial statements.
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TECHNICLONE INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) In the opinion of management, the accompanying unaudited financial
statements contain all normal recurring adjustments which are necessary
to present fairly the financial position of the Company at January 31,
1997, and the results of its operations and its cash flows for the
three month and nine month periods ended January 31, 1997 and 1996. The
Company believes that the disclosures in the financial statements are
adequate to make the information presented not misleading, while
certain information and footnote disclosures normally included in the
financial statements have been condensed or omitted pursuant to rules
and regulations of the Securities and Exchange Commission. The
financial statements included herein should be read in conjunction with
the financial statements of the Company, included in the Company's
Annual Report on Form 10-K for the year ended April 30, 1996, filed
with the Securities and Exchange Commission on July 26, 1996, as
amended by the Amendment on Form 10-K/A as filed with the Securities
and Exchange Commission on March 5, 1997.
(2) The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown
in the financial statements, the Company suffered losses during the
three and nine month periods ended January 31, 1997 and had an
accumulated deficit at January 31, 1997. During the fiscal year ended
April 30, 1996, the Company received significant funding through the
issuance of preferred stock and the sale of foreign marketing rights
for LYM-1. As a result of the sale of the preferred stock and foreign
marketing rights, the Company had cash and short-term investment
balances of $3,062,075 at January 31, 1997.
Historically, the Company has relied on third party and investor funds
to fund its operations and clinical trials, and management expects to
receive additional funds in the future. There can be no assurances that
this funding will be received. If the Company does not receive
additional funding, it will be forced to scale back operations and it
could have a material adverse effect on the Company. The Company's
continuation as a going concern is dependent on its ability to generate
sufficient cash flow to meet its obligations on a timely basis, to
obtain additional financing as may be required and, ultimately, to
attain successful operations. Management believes that the cash and
cash equivalents and short-term investments aggregating approximately
$3,062,000 as of January 31, 1997 are sufficient to support the
Company's estimated operations and other cash needs through at least
April 30, 1997.
During October 1992, the Company terminated certain licensing rights
with a stockholder and entered into a new licensing agreement with an
unrelated entity. Under the termination agreement, the Company will be
required to make certain payments, as defined. The new agreement
provides for, among other things, the right for the Company to suggest
input on the development and clinical trial process for its LYM-1
antibody technology. In addition, the agreement provides for payments
to the Company upon attainment of certain milestones and guaranteed
sales prices for specified sales of LYM-1 products.
(3) In September 1996, the Company formed a wholly owned subsidiary,
Techniclone Corporation. The subsidiary was incorporated in the state
of Delaware to effect a name change to Techniclone Corporation and to
effect a merger of Techniclone International
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Corporation into the newly formed subsidiary. The name change and
merger is expected to occur in late fiscal 1997.
The consolidated financial statements of the Company include the
accounts of Techniclone International Corporation and its wholly owned
subsidiary, Techniclone Corporation after elimination of its
intercompany accounts and transactions.
(4) On October 25, 1996, the Company purchased land and a building which is
adjacent to the Company's existing facility. The Company purchased the
property for $1,524,663, including a cash down payment of $504,663 and
the origination of a new mortgage loan in the amount of $1,020,000,
which bears interest at the rate of 9.5% per annum.
(5) During the three months and nine months ended January 31, 1997, the
Company recorded $163,096 and $395,832, respectively, in noncash stock
based compensation expense. The increase in this expense primarily
related to option grants made under the Company's 1996 Stock Incentive
Plan (the "Plan"), which became effective upon the approval of the Plan
by the shareholders, to various employees, consultants and members of
the Company's Scientific Advisory Board. The options were granted at
prices ranging between $1.50 and $5.50 per share and have vesting
periods of up to 48 months. The Company expects to incur additional
noncash based compensation expense relating to these grants and other
grants which may be made in the future.
(6) During March, 1997, the Company reached an agreement to purchase at
least a majority and up to all of the issued and outstanding capital
stock of Peregrine Pharmaceuticals, Inc. ("Peregrine"), pursuant to the
terms of a Stock Exchange Agreement. Should the Company acquire 100% of
the outstanding stock of Peregrine, the Company will issue
approximately 5,080,000 shares of the Company's common stock and assume
between $400,000 and $500,000 in net liabilities. The acquisition will
be accounted for as a purchase with immediate recognition of
substantially all of the purchase price of approximately $27,200,000 as
an expense for in-process research and development. Peregrine is a
development stage enterprise, has had no revenues and is engaged in
research and development of new technologies for use in therapeutic
agents for treatment of cancerous tumors.
(7) Results of operations for the interim periods covered by this Report
may not necessarily be indicative of results of operations for the full
fiscal year.
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