1
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 JULY 31, 1995
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 92680
(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 / / 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.
17,936,225 shares of Common Stock
as of August 31, 1995
Page 1 of 14 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
----
Balance Sheets at April 30, 1995 and July 31, 1995 (unaudited) . . . . . . . . . . . . . 7, 8
Statements of Operations for the periods from May 1, 1994
to July 31, 1994 and from May 1, 1995 to July 31, 1995 (unaudited) . . . . . . . . . . . 9
Statement of Stockholders' Deficit for the period from April 30, 1995
through July 31, 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Statements of Cash Flows for the periods from May 1, 1994
to July 31, 1994 and from May 1, 1995 to July 31, 1995 (unaudited) . . . . . . . . . . . 11, 12
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's net loss of $515,102 for the quarter ended July 31, 1995
decreased $4,704,408 in comparison to the net loss of $5,219,510 for the prior
year quarter ended July 31, 1994. This decreased quarterly loss is primarily
attributable to a decrease in current year quarterly total costs and expenses
including an aggregate charge to earnings of $4,835,140 which occurred during
the quarter ended July 31, 1994 (which represented the excess of the fair market
value of the Company stock issued over the net assets acquired of CBI, plus an
additional non-recurring charge relating to CBI stock options assumed by the
Company) in connection with the merger of Cancer Biologies Incorporated ("CBI")
with and into the Company, and which did not recur during the current year, and
a decrease in interest expense of $939, partially offset by a $68,708 increase
in general and administrative expenses and a $60,304 increase in research and
development expenses during the quarter ended July 31, 1995.
Revenues for the quarter ended July 31, 1995 decreased $2,659 compared
to the same prior year period ended July 31, 1994. This decrease resulted
primarily from a $2,633 decrease in licensing revenues, and a $26 decrease in
interest income. Licensing fees decreased $2,633 during the quarter ended July
31, 1995 in comparison to the prior year quarter ended July 31, 1994 due to
decreases in current year licensing fees received relating to the Company's
Histoclone diagnostic antibodies. Management expects revenues from the sales and
licensing of antibodies to increase during the fiscal year ending April 30, 1996
as the Company commences Phase III clinical trials for the LYM-1 antibody.
Interest and other income has decreased during the current year as the level of
idle cash funds available for investment has decreased in comparison to the
prior year quarter ended July 31, 1994.
The Company's total costs and expenses decreased $4,707,067 for the
quarter ended July 31, 1995 in comparison to the same prior year period ended
July 31, 1994. This decrease in total costs and
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expenses is primarily attributable to the aggregate change to earnings of
$4,835,140 incurred during the prior year quarter ended July 31, 1994 relating
to the merger of CBI. Research and development expenses increased $60,304 for
the quarter in comparison to the same prior year period. The increase in
research and development costs resulted from the Company's activities during the
current period in preparing for Phase III clinical trials of the LYM-1 antibody.
General and administrative costs increased $68,708 for the quarter
ended July 31, 1995 in comparison to the same period of the prior year. This
increase in current year expenses has resulted primarily from increased
administrative, payroll and consultant costs associated with clinical trial
preparation. Interest expense decreased $939 during the three months ended July
31, 1995 in comparison to the same period of the prior year due to a slightly
lower level of interest bearing debt outstanding during the current year. The
Company believes that general and administrative costs will increase during the
remainder of the current fiscal year as Phase III clinical trials of the LYM-1
antibody commence.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1995, the Company had $47,782 in cash and receivables and a
working capital deficit of $1,100,168 compared to $38,020 in cash and
receivables and a working capital deficit of $934,121 at April 30, 1995. The
Company raised $298,150 from the sale of Common Stock and exercise of stock
options during the quarter ended July 31, 1995. Subsequent to July 31, 1995 the
Company raised $430,000 from the sale of common stock during the month of August
1995.
The Company is now assisting Mills Biopharmaceuticals, Inc. with the
completion and Nuclear Regulatory Commission ("NRC") licensing of an antibody
labelling facility in Oklahoma so that Phase III clinical trials of the
Company's LYM-1 antibody can begin. The Company currently expects the antibody
labelling facility to be completed in September 1995 and licensed by the NRC in
early October 1995. The Company will incur additional expenses regarding the MBI
Oklahoma labelling facility for LYM-1. These additional expenses will continue
when the clinical trials begin. In addition, the Company's auditor's report on
it's financial statements for the year ended April 30, 1995 indicates that its
recurring losses, accumulated deficit and working capital deficit raise
substantial doubt about its ability to continue as a going concern. The Company
does not have sufficient cash to sustain operations for the next twelve months
without obtaining additional capital. The Company does not have sufficient cash
to sustain operations for the next twelve months without obtaining additional
capital. Accordingly, the Company will have to raise additional capital to fund
continued development of its antibodies and the Phase III clinical trials of
LYM-1 and to continue operations. The Company believes that it may be able to
raise additional capital through the sale of additional equity securities,
however no assurance can be given that the Company can raise additional capital
or that any additional capital raised would be sufficient to fund the
development of LYM-1 and the Phase III clinical trials and to continue
operations. If the Company is not successful in its efforts to raise additional
capital, then it will have to reduce its expenditures and may not be able to
proceed with Phase III clinical trials. The failure to obtain needed financing
could have a material adverse effect on business and financial condition of the
Company.
CAPITAL COMMITMENTS
During the year ending April 30, 1996, the Company expects to acquire
additional assets, however, at July 31, 1995, the Company had no material
commitments for capital expenditures.
FACTORS THAT MAY EFFECT FUTURE RESULTS
At July 31, 1995 the Company had $47,782 in cash which approximates one
week of expenses. The Company has continued to experience negative cash flows
since July 31, 1995 and expects the
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negative cash flow to continue for the foreseeable future. To continue operating
and to proceed with Phase II/III clinical trials for LYM-1, the Company cannot
significantly reduce its operating expenses. The Company has very few tangible
assets upon which it can borrow money. Therefore the Company must raise
additional equity funds in order to continue its operations and there can be no
assurance that the Company will be successful in acquiring such funds on terms
acceptable to it or at all or that any additional capital raised would be
sufficient to fund the development of LYM-1 or the Company's continued
operations.
If the Company is unable to obtain sufficient financing to proceed with
its Phase II/III clinical trials for LYM-1 or if the initial results from the
Phase II/III clinical trials are poor, the Company may not be able to raise
additional financing which would have a material adverse effect on the Company's
financial condition and on its ability to continue its operations.
The Company has developed strategic relationships with Alpha
Therapeutic Corporation and other entities and persons. The Company's dependence
on these relationships raises certain risks with respect to the future success
of the Company and its business.
The bio-tech industry is intensely competitive and changing rapidly.
Substantially all of the Company's existing competitors have larger technical
staff, more established and larger research budgets and significantly greater
financial resources 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.
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 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.
Because of these and other factors effecting the Company's operating
results, including the uncertainties relating to the raising of additional
capital, the results of the Phase II/III clinical trials, the Company's reliance
on strategic relationships, competition and government regulation investors
should carefully consider whether any of the above events might affect future
results or the Company's ability to raise additional capital.
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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:
Exhibit Description
------- -----------
27 Financial Data Schedules (filed herewith)
(b) Reports on Form 8-K: None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECHNICLONE INTERNATIONAL CORPORATION
By: /s/ Lon H. Stone
----------------------------------------------
By: /s/ William V. Moding
----------------------------------------------
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TECHNICLONE INTERNATIONAL CORPORATION
BALANCE SHEETS
April 30, July 31,
1995 1995
----------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . $ 35,642 $ 47,782
Receivables . . . . . . . . . . . . . . . . . . . . . 2,378 --
Inventories . . . . . . . . . . . . . . . . . . . . . 226,457 228,932
----------- ------------
Total current assets . . . . . . . . . . . . . . . . 264,477 276,714
----------- ------------
PROPERTY:
Laboratory equipment . . . . . . . . . . . . . . . . 985,026 1,003,460
Furniture and fixtures . . . . . . . . . . . . . . . 30,844 30,844
----------- ------------
Total . . . . . . . . . . . . . . . . . . . . . . . . 1,015,870 1,034,304
Less accumulated depreciation
and amortization . . . . . . . . . . . . . . . . . (583,328) (623,352)
----------- ------------
Property--net . . . . . . . . . . . . . . . . . . . . 432,542 410,952
----------- ------------
OTHER ASSETS
Patents--net . . . . . . . . . . . . . . . . . . . . 154,081 181,866
Other . . . . . . . . . . . . . . . . . . . . . . . . 5,557 5,557
----------- ------------
Total other assets . . . . . . . . . . . . . . . . . 159,638 187,423
----------- ------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . $ 856,657 $ 875,089
=========== ============
See accompanying notes to financial statements.
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TECHNICLONE INTERNATIONAL CORPORATION
BALANCE SHEETS
April 30, July 31,
1995 1995
------------ -------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS'
DEFICIT
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . $ 137,878 $ 220,393
Accrued legal and accounting fees
(primarily to a related party) . . . . . . . . . . 334,741 333,528
Accrued payroll and related costs . . . . . . . . . . 260,301 301,840
Accrued license termination fee . . . . . . . . . . . 100,000 100,000
Accrued royalties . . . . . . . . . . . . . . . . . . 75,168 95,168
Accrued interest . . . . . . . . . . . . . . . . . . 90,910 96,080
Reserve for contract losses . . . . . . . . . . . . . 132,071 132,071
Other current liabilities . . . . . . . . . . . . . . 67,529 97,802
------------ -------------
Total current liabilities . . . . . . . . . . . . . . 1,198,598 1,376,882
------------ -------------
LONG TERM DEBT TO RELATED PARTY . . . . . . . . . . . 258,500 258,500
------------ -------------
COMMITMENTS
STOCKHOLDERS' DEFICIT:
Preferred Stock--$1.00 par value (authorized,
100,000 shares; Class A Convertible Preferred
Stock, outstanding, 4,225 shares at April 30, 1995
and July 31, 1995)
(liquidation preference of $253,500) . . . . . . . 4,225 4,225
Common Stock--no par value (authorized,
30,000,000 shares; outstanding, 16,768,909
shares at April 30, 1995 and 17,219,558
shares at July 31, 1995) . . . . . . . . . . . . . 17,730,648 18,085,898
Paid-in capital . . . . . . . . . . . . . . . . . . 227,246 227,246
Accumulated deficit . . . . . . . . . . . . . . . . . (18,085,978) (18,601,080)
------------ -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . (123,859) (283,711)
Less notes receivable from sale of common stock . . . (476,582) (476,582)
------------ -------------
Net stockholders' deficit . . . . . . . . . . . . . . (600,441) (760,293)
------------ -------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . $ 856,657 $ 875,089
============ =============
See accompanying notes to financial statements.
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TECHNICLONE INTERNATIONAL CORPORATION
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
JULY 31, JULY 31,
1994 1995
-------------- -------------
(Unaudited) (Unaudited)
REVENUES:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ --
Licensing fees . . . . . . . . . . . . . . . . . . . . . 2,633 --
Interest income . . . . . . . . . . . . . . . . . . . . . 37 11
-------------- -------------
Total revenues . . . . . . . . . . . . . . . . . . . . . 2,670 11
-------------- -------------
COSTS AND EXPENSES:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . -- --
Research and development . . . . . . . . . . . . . . . . 203,752 264,056
General and administrative:
Unrelated entities . . . . . . . . . . . . . . . . . 135,330 213,352
Affiliates . . . . . . . . . . . . . . . . . . . . . 40,601 31,287
Interest . . . . . . . . . . . . . . . . . . . . . . . . 7,357 6,418
Cost in excess of net assets acquired of subsidiary . . . 4,835,140 --
-------------- -------------
Total costs and expenses . . . . . . . . . . . . . . . . 5,222,180 515,113
-------------- -------------
NET LOSS . . . . . . . . . . . . . . . . . . . . . . . . $ (5,219,510) $ (515,102)
-------------- -------------
WEIGHTED AVERAGE SHARES
OUTSTANDING . . . . . . . . . . . . . . . . . . . . . . 15,496,247 16,930,811
============== =============
LOSS PER COMMON SHARE . . . . . . . . . . . . . . . . . . $ (.34) $ (.03)
============== =============
See accompanying notes to financial statements.
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TECHNICLONE INTERNATIONAL CORPORATION
STATEMENT OF STOCKHOLDERS' DEFICIT
NOTES
RECEIVABLE
PREFERRED STOCK COMMON STOCK ACCUMU- FROM
---------------- -------------------- PAID-IN LATED SALE OF
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STOCK TOTAL
------ ------ -------------------- ------- -------- ----------- -----
BALANCE AT
APRIL 30, 1995 . . . . . . 4,225 $4,225 16,768,909 $17,730,648 $ 227,246 $(18,085,978) $(476,582) $(600,441)
Common stock issued
for cash (unaudited) . . . 378,749 290,750 290,750
Common stock issued
in exchange for
services (unaudited) . . . 57,100 57,100 57,100
Common stock issued
upon exercise of
options (unaudited) . . . . 14,800 7,400 7,400
Net loss
(unaudited) . . . . . . . . (515,102) (515,102)
BALANCE AT
JULY 31,1995 ----- ------ ---------- ----------- ------------ ------------ --------- ---------
(unaudited) . . . . . . . . 4,225 $4,225 17,219,558 $18,085,898 $ 227,246 $(18,601,080) $(476,582) $(760,293)
===== ====== ========== =========== ============ ============ ========= =========
See accompanying notes to financial statements.
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TECHNICLONE INTERNATIONAL CORPORATION
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
JULY 31, JULY 31,
1994 1995
-------------- ---------------
(Unaudited) (Unaudited)
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . $ (5,219,510) $ (515,102)
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization . . . . . . . . . 37,341 47,514
Common stock issued
for services . . . . . . . . . . . . . . . . . -- 57,100
Cost in excess of net assets
acquired of subsidiary . . . . . . . . . . . . 4,835,140 --
Changes in operating assets and liabilities:
Decrease in accounts receivable . . . . . . . . -- 2,378
Increase in inventory . . . . . . . . . . . . . (118,320) (2,475)
Increase in deposits . . . . . . . . . . . . . . (14,400) --
Increase (Decrease) in accounts payable . . . . 44,718 82,515
Increase in accrued and
other current liabilities . . . . . . . . . . 45,589 95,769
-------------- ---------------
Net cash used by operating activities . . . . . . . . . . (389,442) (232,301)
-------------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Property acquisitions . . . . . . . . . . . . . . . . . . (3,461) (18,434)
Patent costs capitalized . . . . . . . . . . . . . . . . (818) (35,275)
-------------- ---------------
Net cash used by investing activities . . . . . . . . . . (4,279) (53,709)
-------------- ---------------
[Continued on next page]
See accompanying notes to financial statements.
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TECHNICLONE INTERNATIONAL CORPORATION
STATEMENTS OF CASH FLOWS
[Continued from previous page]
THREE MONTHS ENDED
JULY 31, JULY 31,
1994 1995
-------------- -------------
(Unaudited) (Unaudited)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Principal payments on short-
and long-term borrowings . . . . . . . . . . . . . . . $ (3,743) $ --
Proceeds from sale of common stock . . . . . . . . . . . 411,250 298,150
-------------- -------------
Net cash provided by financing activities . . . . . . . . 407,507 298,150
-------------- -------------
INCREASE IN CASH . . . . . . . . . . . . . . . . . . . . 13,786 12,140
CASH AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . 29,102 35,642
-------------- -------------
CASH AT END OF PERIOD . . . . . . . . . . . . . . . . . . $ 42,888 $ 47,782
============== =============
SUPPLEMENTAL INFORMATION:
Costs in excess of net assets acquired of subsidiary:
Common stock issued . . . . . . . . . . . . . . . . $ 2,504,053 $ --
Stock options assumed . . . . . . . . . . . . . . . 2,577,120 --
Notes receivable acquired . . . . . . . . . . . . . (231,582) --
Minority interest eliminated . . . . . . . . . . . . (14,451)
-------------- -------------
$ 4,835,140 $ --
============== =============
Interest paid . . . . . . . . . . . . . . . . . . . . . . $ 2,187 $ 1,248
============== =============
Income taxes paid . . . . . . . . . . . . . . . . . . . . $ 1,600 $ 800
============== =============
See accompanying notes to financial statements.
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TECHNICLONE INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) The accompanying unaudited financial statements contain all adjustments
(consisting of only normal recurring adjustments) which, in the opinion
of management, are necessary to present fairly the financial position
of the Company at July 31, 1995, and the results of its operations and
its cash flows for the three month periods ended July 31, 1995 and
1994. 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
although the Company believes that the disclosures in the financial
statements are adequate to make the information presented not
misleading. 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,
1995, filed with the Securities and Exchange Commission on July 29,
1995.
(2) 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 has
suffered recurring losses, has a working capital deficit and an
accumulated deficit at July 31, 1995. Management has restructured
certain of its license agreements to provide it with greater control
over the development and clinical trials of its antibodies. Additional
financing is contingent upon achieving certain goals pursuant to terms
of an existing licensing agreement. Clinical trial testing of the
Company's antibodies is required before submission for FDA approval can
be made. If clinical trial test results are poor, then the Company may
not be able to raise additional funding which would have a material
adverse effect on the Company. There can be no assurance that the FDA
will approve the Company's antibodies and if approval is not granted,
then it would have a material adverse effect on the Company. Recently,
the Company has relied on third party and investor funds to fund its
operations and clinical trials and management expects to receive
additional funds from these sources in the future. However, there can
be no assurances that this funding will continue and the Company may
need to seek alternative sources for financing. If the Company does not
receive additional funding, it will be forced to scale back operations
and may not be able to proceed with the clinical trials of its
antibodies which 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. However, no assurance can
be given at this time as to whether the Company will achieve the above.
These factors, among others, raise substantial doubt about the
Company's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
(3) 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.
13
5
0000704562
TECHNICLONE INTERNATIONAL CORPORATION
1,000
U.S. DOLLARS
3-MOS
APR-30-1995
MAY-01-1995
JUL-31-1995
1,000
48
0
0
0
229
277
1,034
(623)
875
1,377
0
18,086
0
4
(18,850)
875
0
0
0
515
0
0
6
(515)
0
(515)
0
0
0
(515)
(.03)
(.03)
