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 JANUARY 31, 1996
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.
19,486,040 shares of Common Stock
as of January 31, 1996
Page 1 of 18 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 January 31, 1996 (unaudited) . . . . . . . . . . . 9, 10
Statements of Operations for the periods from November 1, 1994
to January 31, 1995 and from November 1, 1995 to January 31, 1996;
from May 1, 1994 to January 31, 1995 and from May 1, 1995 to
January 31, 1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Statement of Stockholders' Equity for the period from April 30, 1995
through January 31, 1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Statements of Cash Flows for the periods November 1, 1994 to January 31, 1995
and from November 1, 1995 to January 31, 1996; from May 1, 1994 to
January 31, 1995 and from May 1, 1995 to January 31, 1996 (unaudited) . . . . . . . . . 13, 14
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Financial Data Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's net loss of $890,271 for the quarter ended January 31,
1996 increased $328,437 in comparison to the net loss of $561,834 for the prior
year quarter ended January 31, 1995. This increased quarterly loss is
primarily attributable to a $121,610 increase in general and administrative
expenses and a $252,129 increase in research and development expenses during
the quarter ended January 31, 1996 in comparison to the prior year quarter
ended January 31, 1995. The Company's net loss of $1,944,394 for the nine
months ended January 31, 1996 represents a decrease of $4,186,393 in comparison
to the net loss of $6,130,787 for the nine months ended January 31, 1995. This
decrease in year-to-date loss is primarily attributable to a decrease in
current year total costs and expenses including an aggregate charge to earnings
of $4,835,140 which occurred during the nine months ended January 31, 1995
(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
effected on July 26, 1994, and which did not recur during the current year, and
a decrease in interest expense of $4,347, partially offset by a $246,511
increase in general and administrative expenses and a $445,608 increase in
research and development expenses during the nine months ended January 31,
1996, in comparison to the nine month period ended January 31, 1995.
Revenues for the quarter ended January 31, 1996 increased $42,717,
compared to the same prior year period ended January 31, 1995. This increase
resulted from a $42,717, increase in interest income during the quarter ended
January 31, 1996 in comparison to the same prior year period ended January 31,
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1995. Revenues for the nine months ended January 31, 1996 increased $39,025,
compared to the same prior year period ended January 31, 1995. This increase
resulted primarily from a $41,658 increase in interest income during the
current year. Licensing fees decreased $2,633 during the nine months ended
January 31, 1996 in comparison to the same prior year period ended January 31,
1995 due to decreases in current year licensing fees relating to the Company's
Histoclone diagnostic antibodies. Management expects revenues from the sales
and licensing of antibodies to increase during the remainder of the fiscal year
ending April 30, 1996 as the Company ships its LYM-1 antibody for use in the
Phase III clinical trials. Also, during the last quarter of the current fiscal
year, the Company expects to obtain licensing revenue relating to European
marketing rights for the LYM-1 antibody. Interest and other income has
increased during the current year as the level of idle cash funds available for
investment has increased in comparison to the prior year. Management expects
interest and other income to increase during the remainder of the current year
due to the increase in cash and short term investments from the closing of the
issuance of the Class B Convertible Preferred Stock.
The Company's total costs and expenses increased $371,154 during the
quarter ended January 31, 1996, in comparison to the same prior year period
ended January 31, 1995. This increase resulted primarily from a $252,129
increase in research and development expenses and a $121,610 increase in
general and administrative expenses in comparison to the prior year quarter
ended January 31, 1995. The Company's total costs and expenses decreased
$4,147,368 for the nine months ended January 31, 1996 in comparison to the same
prior year period ended January 31, 1995. This decrease in total costs and
expenses during the current nine month period is primarily attributable to the
aggregate charge to earnings of $4,835,140 incurred during the prior year
relating to the merger of CBI which did not recur during the current year,
partially offset by a $445,608 increase in research and development expenses
and a $246,511 increase in general and administrative expenses. Research and
development expenses increased $252,129 for the quarter and $445,608 for the
nine months ended January 31, 1996 in comparison to the same prior year
periods. The increase in research and development expenses resulted from the
Company's activities during the current year in preparing for Phase III
clinical trials of the LYM-1 antibody.
General and administrative expenses increased $121,610 for the quarter
and $246,511 for the nine months ended January 31, 1996 in comparison to the
same periods 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 and expanded public relations
activities. Interest expense decreased $2,585 during the quarter and $4,347
for the nine months ended January 31, 1996 in comparison to the same periods of
the prior year due to a 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 are expanded and as the Company's stock
becomes relisted on NASDAQ.
On December 27, 1995, the Company issued 7,700 shares of newly created
Class B Convertible Preferred Stock, at a price of $1,000 per share, and on
December 29, 1995 issued an additional 500 shares of Class B Convertible
Preferred Stock, at a price of $1,000 per share, for an aggregate issuance
consideration of $8,200,000 to sixteen (16) offshore investors pursuant to
Regulation S promulgated under the Securities Act of 1933. The Class B
Convertible Preferred Stock is non-voting. The Class B Convertible Preferred
Stock is convertible, commencing immediately after the Closing into Common
Stock of the Company. During the first ninety days after the Closing, each
share of the Class B Convertible Preferred Stock may be converted in multiples
of $50,000 into that number of shares of Common Stock calculated by dividing
$1,000 by 110% of the Fixed Conversion Price which is the lower of (i) $3.06875
(fair market value at the date of issuance) per share of Common Stock or (ii)
85% of the fair market value of the Common Stock on the date of conversion
based on the average bid price during the five trading days prior to the date
of conversion. Beginning 91 days after the Closing Date the number of shares
of Common Stock issued upon conversion of each share of Class B Convertible
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Preferred Stock converted is determined by (i) taking ten percent (10%) of One
Thousand Dollars ($1,000) pro-rated on the basis of a 365 day year, by the
number of days between the last Closing Date and the date of conversion plus
(ii) One Thousand Dollars ($1,000), (iii) divided by the Conversion Price. As
of January 31, 1996, the Fixed Conversion Price was set at $3.06875, which was
the average closing bid price for the Company's Common Stock for the five (5)
trading days ending on December 8, 1995. Additionally, the Class B Convertible
Preferred Stock has a liquidation preference over other classes of the
Company's stock. This liquidation preference is $1,000 per share of Class B
Convertible Preferred Stock plus 10% per annum pro-rated through any
liquidation date. As of January 31, 1996, the outstanding Class B Convertible
Preferred Stock is convertible into 2,451,136 shares of Common Stock at a
conversion price of $3.37563 (110 percent of the Fixed Conversion Price) per
share, and the liquidation preference was $8,294,356. Beginning 91 days after
the Closing Date, as of March 29, 1996, the currently outstanding Class B
Convertible Preferred Stock would be convertible into 2,738,713 shares of
Common Stock at a conversion price of $3.06875 per share and the liquidation
preference would be $8,415,671 under the terms of the Certificate of
Determination of Class B Convertible Preferred Stock.
The Company received $7,137,544 in net proceeds from the sale of Class
B Convertible Preferred Stock after payment of offering commissions and
expenses and legal fees. In connection with the placement of the Class B
Preferred Stock, the Company paid to Swartz Investments, Inc. commissions of
$656,000 and a non-accountable expense allowance of $246,000. In addition, the
Company issued to Swartz Investments, Inc. two five year warrants to purchase
an aggregate of 267,210 shares of the Company's Common Stock at an exercise
price of $3.06875. The Common Stock issuable on exercise of the warrant and on
conversion of the Class B Convertible Preferred Stock (if not otherwise freely
tradeable) is subject to registration pursuant to a Registration Rights
Agreement. Additionally, the Company paid other commissions of $75,000 and
legal fees of $85,456 in connection with the preferred stock placement.
The Company intends to use the proceeds from the offering to support
its LYM-1, Oncolym(TM) manufacturing effort for the Phase III LYM-
1,Oncolym(TM) clinical trials, to fund additional development of its patented
tumor necrosis technologies (TNT) and for working capital. The Company
believes that the additional capital resulting from this offering will be
sufficient to support the Company's relisting of its Common Stock on the NASDAQ
trading system. The Company has applied for relisting on NASDAQ. The
application is currently pending review by NASDAQ.
The Company has begun Phase II/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 held
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
Company and CAT will develop a monoclonal antibody based upon CAT's patented
technology for producing fully human monoclonal antibodies and the Company's
Tumor Necrosis Technologies ("TNT"). The Agreement provides that equity in the
joint venture and costs associated with the development of the product would be
shared equally between the Company and CAT. The Company would retain
exclusive world-wide manufacturing rights. It is anticipated that the joint
venture would conduct clinical trials of TNT concurrently in both the United
States and Europe.
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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 member of the Board of Directors of the Company and a major shareholder of
the Company, which provides for BTD to acquire LYM-1 antibody technology
marketing rights for certain European countries and other geographic areas not
covered by its existing license agreement with Alpha Therapeutic Corporation in
exchange for the payment of $3,000,000 by BTD to the Company. 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 the option under an Option Agreement to repurchase the marketing rights to
LYM-1 for a thirty month period. 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.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1996, the Company had $6,509,663 in cash, short term
investments, and receivables and working capital of $5,920,161 compared to
$38,020 in cash and receivables and a working capital deficit of $934,121 at
April 30, 1995. The Company raised $90,000 from the sale of Common Stock,
stock purchase warrants and from the exercise of stock options during the
quarter ended January 31, 1996 and raised $1,408,952 from the sale of Common
Stock, stock purchase warrants and from stock option exercises during the nine
months ended January 31, 1996. The Company raised $7,137,544 in proceeds, net
of offering costs and legal fees, from the issuance of the Class B Preferred
Stock, which took place on December 27 and December 29, 1995.
The Company's independent auditors' report on its 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. Since that time, the Company has
obtained additional capital from the sale of its equity securities and as of
January 31, 1996, the Company believes it has sufficient working capital to
fund the Phase III clinical trials and continuing development of its other
antibody projects and to sustain operations through December 1997.
Additionally, on February 29, 1996, the Company received $3,000,000 from the
sale of certain European marketing rights for the LYM-1 antibody.
CAPITAL COMMITMENTS
During the remainder of the year ending April 30, 1996 the Company
expects to acquire significant additional assets including the land and
building it currently occupies under lease, as well as additional furniture,
fixtures and equipment to expand operations in the building being purchased.
The Company has entered into a letter of intent to purchase its
existing facility. The Company intends to enter into a definitive real
property purchase agreement with TR Koll Tustin Tech Corp., whereby the Company
will purchase the existing facility for $1,555,620 plus acquisition costs. The
Company expects to close this purchase transaction no later than May 22, 1996.
The Company is seeking mortgage financing for this transaction and currently
expects to complete the purchase by paying a cash down payment of $466,686 (of
which $40,000 had been deposited to escrow as of January 31, 1996) and
obtaining financing for the $1,088,934 balance of the purchase price. There
are no assurances that the Company will be able to find mortgage financing at
acceptable terms. If acceptable mortgage financing cannot be obtained, the
Company may have to pay cash for the entire property purchase price.
As of January 31, 1996, the Company had paid $71,000 as a deposit
toward the purchase of additional laboratory equipment with a total estimated
cost of $142,000. This purchase will be completed in March 1996. Also, as of
January 31, 1996, the Company was intending to purchase additional
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furniture, fixtures and equipment, however, the Company had no material
commitments for additional capital expenditures.
FACTORS THAT MAY AFFECT FUTURE RESULTS
At January 31, 1996 the Company had $6,500,663 in cash and short term
investments which approximates 24 months of expenses. Additionally, on
February 29, 1996, the Company received $3,000,000 from the transfer of certain
marketing rights to LYM-1 in Europe. The Company has continued to experience
negative cash flows since January 31, 1996 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 the significantly increased research
and development with the Company's other products, including Tumor Necrosis
Technologies ("TNT"). 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 the 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 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 several investment banking firms,
but as of January 31, 1996, the Company had not entered into any firm
commitments for additional funds. If the initial results from the Phase II/III
clinical trials of LYM-1 are poor, the results may have a material adverse
effect upon the Company's ability to raise additional capital, which would
affect the Company's ability to continue a full-scale research and development
effort for its antibody technologies.
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 affecting the Company's operating
results, including the results of the Phase II/III clinical trials of LYM-1,
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.
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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:
27 Financial Data Schedule (Filed herewith)
(b) Reports on Form 8-K:
(i) Current Report on Form 8-K as filed on
January 24, 1996 reporting the issuance and
sale of the Series B Convertible Preferred
Stock.
(ii) Current Report on Form 8-K as filed on
February 8, 1996 reporting the agreement with
Cambridge Antibody Technology, Ltd.
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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
BALANCE SHEETS
April 30, January 31,
1995 1996
---------- ----------
(Unaudited)
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . $ 35,642 $ 2,590,849
Short term investments . . . . . . . . . . . . . . . - - 3,909,814
Receivables (net of allowance for uncollectible accounts
of $175,000 at January 31, 1996) . . . . . . . . . . 2,378 9,000
Inventories . . . . . . . . . . . . . . . . . . . . . 226,457 61,678
----------- -------------
Total current assets . . . . . . . . . . . . . . . . 264,477 6,571,341
----------- -------------
PROPERTY:
Laboratory equipment . . . . . . . . . . . . . . . . 985,026 1,006,611
Office furniture and equipment . . . . . . . . . . . 30,844 51,306
----------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . 1,015,870 1,057,917
Less accumulated depreciation
and amortization . . . . . . . . . . . . . . . . . (583,328) (681,684)
----------- -------------
Property--net . . . . . . . . . . . . . . . . . . . . 432,542 376,233
----------- -------------
OTHER ASSETS
Deposits on property to be acquired . . . . . . . . . - - 111,000
Patents--net . . . . . . . . . . . . . . . . . . . . 154,081 174,257
Other . . . . . . . . . . . . . . . . . . . . . . . . 5,557 5,557
----------- -------------
Total other assets . . . . . . . . . . . . . . . . . 159,638 290,814
----------- -------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . $ 856,657 $ 7,238,388
=========== =============
See accompanying notes to financial statements.
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TECHNICLONE INTERNATIONAL CORPORATION
BALANCE SHEETS
April 30, January 31,
1995 1996
---------- ----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . $ 137,878 $ 118,627
Accrued legal and accounting fees
(primarily to related parties) . . . . . . . . . . 334,741 59,056
Accrued payroll and related costs . . . . . . . . . . 260,301 66,223
Accrued license termination fee . . . . . . . . . . . 100,000 100,000
Accrued royalties . . . . . . . . . . . . . . . . . . 75,168 75,168
Accrued interest . . . . . . . . . . . . . . . . . . 90,910 - -
Reserve for contract losses . . . . . . . . . . . . . 132,071 218,031
Other current liabilities . . . . . . . . . . . . . . 67,529 14,075
------------ -------------
Total current liabilities . . . . . . . . . . . . . . 1,198,598 651,180
------------ -------------
LONG TERM DEBT TO RELATED PARTY . . . . . . . . . . . 258,500 - -
------------ -------------
COMMITMENTS
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock--$1.00 par value (authorized,
100,000 shares:
(i) Class A Convertible Preferred Stock,
outstanding, 4,225 shares at April 30, 1995
and no shares outstanding at
January 31, 1996 (liquidation
preference of $253,500 at April 30, 1995) . . 4,225 - -
(ii) Class B Convertible Preferred Stock,
no shares outstanding at April 30, 1995
and 8,200 shares outstanding at
January 31, 1996 (liquidation preference
of $8,294,356 at January 31, 1996) . . . . . . - - 8,200
Common Stock--no par value (authorized,
30,000,000 shares; outstanding, 16,768,909
shares at April 30, 1995 and 19,486,040
shares at January 31, 1996) . . . . . . . . . . . . 17,730,648 19,811,960
Paid-in capital . . . . . . . . . . . . . . . . . . 227,246 7,274,002
Accumulated deficit . . . . . . . . . . . . . . . . . (18,085,978) (20,030,372)
----------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . (123,859) 7,063,790
Less notes receivable from sale of common stock . . . (476,582) (476,582)
------------ -------------
Net stockholders' equity (deficit) . . . . . . . . . (600,441) 6,587,208
------------ -------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . $ 856,657 $ 7,238,388
============ =============
See accompanying notes to financial statements.
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TECHNICLONE INTERNATIONAL CORPORATION
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31,
1995 1996 1995 1996
-------------- -------------- ------------ --------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES:
Licensing fees . . . . . . . . . . $ - - $ - - $ 2,633 $ - -
Interest and other income . . . . . $ 34 42,751 1,114 42,772
----------- -------------- -------------- ---------------
Total revenues . . . . . . . . . . 34 42,751 3,747 42,772
------------ -------------- -------------- ---------------
COSTS AND EXPENSES:
Research and development . . . . . 386,834 638,963 794,183 1,239,791
General and administrative:
Unrelated entities . . . . . . 130,082 199,529 375,019 574,018
Affiliates . . . . . . . . . . 38,124 90,287 108,987 156,499
Interest . . . . . . . . . . . . . 6,828 4,243 21,205 16,858
Cost in excess of net assets
acquired of subsidiary . . . . - - - - 4,835,140 - -
------------ -------------- -------------- ---------------
Total costs and expenses . . . . . 561,868 933,022 6,134,534 1,987,166
------------ -------------- -------------- ---------------
NET LOSS . . . . . . . . . . . . . $ (561,834) $ (890,271) $ (6,130,787) $ (1,944,394)
============ ============== ============== ===============
WEIGHTED AVERAGE SHARES
OUTSTANDING . . . . . . . . . . . 16,263,890 18,920,450 15,869,745 17,974,426
============ ========== ============== ==========
LOSS PER COMMON SHARE . . . . . . . $ (.035) $ (.047) $ (.386) $ (.108)
============ ============== ============== ===============
See accompanying notes to financial statements
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TECHNICLONE INTERNATIONAL CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
NOTES
RECEIVABLE
PREFERRED STOCK COMMON STOCK FROM
--------------- ------------------------ PAID-IN ACCUMULATED 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) 1,957,831 1,423,352 1,423,352
Common stock issued
in exchange for
services (unaudited) 57,100 57,100 57,100
Common stock issued
upon conversion of note
payable and forgiveness of
accrued interest to
related party (unaudited) 235,000 258,500 104,697 363,197
Proceeds from sale and
issuance of stock purchase
warrants (unaudited) 36,250 36,250
Common stock issued
upon exercise of stock
options (unaudited) 129,200 114,600 114,600
Common stock issued
for conversion of
Class A Preferred Stock
(unaudited) . (4,225) (4,225) 338,000 227,760 (223,535) --
Preferred Stock
(Class B ) issued for
cash (unaudited) 8,200 8,200 7,129,344 7,137,544
(net of offering costs and
expenses of $1,062,456)
Net loss
(unaudited) . (1,944,394) (1,944,394)
BALANCE AT
- ----------
January 31,1996
- --------------- ----- ------- ---------- ----------- ------------ ------------ ---------- -----------
(unaudited) . 8,200 $ 8,200 19,486,040 $19,811,960 $ 7,274,002 $(20,030,372) $ (476,582) $ 6,587,208
===== ======= ========== =========== ============ ============ ========== ===========
See accompanying notes to financial statements.
12
13
TECHNICLONE INTERNATIONAL CORPORATION
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31,
1995 1996 1995 1996
-------------- -------------- ------------ --------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . $ (561,834) $ (890,271) $ (6,130,787) $ (1,944,394)
Adjustments to reconcile net
loss to net cash used
in operating activities:
Depreciation and amortization 37,716 40,320 112,625 128,238
Common stock and warrants
issued for services . . . - - 31,250 - - 88,350
Cost in excess of net assets
acquired of subsidiary . . . . - - - - 4,835,140 - -
Changes in operating assets and
liabilities:
(Increase) in accounts
receivable . . . . . . . . . - - (9,000) - - (6,622)
Decrease (increase) in inventory . (12,971) 183,322 (246,656) 164,779
Decrease in other assets . . . . . - - - - 900 - -
Increase (decrease) in accounts
payable . . . . . . . . . . . (25,868) 14,905 50,641 (19,251)
Increase (decrease) in accrued and
other current liabilities . . 155,554 (298,707) 212,404 (289,470)
------------ -------------- -------------- ---------------
Net cash used in operating
activities . . . . . . . . . . . (407,403) (928,181) (1,165,733) (1,878,370)
------------ -------------- -------------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Short term investments . . . . . . -- (3,909,814) -- (3,909,814)
Deposits . . . . . . . . . . . . . 42,400 (111,000) 13,600 (111,000)
Property acquisitions . . . . . . . (675) (23,207) (4,136) (49,547)
Patent costs capitalized . . . . . (5,962) (13,839) (15,831) (42,558)
------------ -------------- -------------- ---------------
Net cash used in investing
activities . . . . . . . . . . . 35,763 (4,057,860) (6,367) (4,112,919)
------------ -------------- -------------- ---------------
[Continued on next page]
See accompanying notes to financial statements.
13
14
TECHNICLONE INTERNATIONAL CORPORATION
STATEMENTS OF CASH FLOWS
[Continued from previous page]
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31,
1995 1996 1995 1996
------------- ------------ -------------- ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on short-
and long-term borrowings . . . $ (4,117) $ - - $ (11,786) $ - -
Proceeds from sale of common
stock and warrants . . . . . . 350,875 90,000 1,202,125 1,408,952
Proceeds from sale of preferred stock - - 7,137,544 - - 7,137,544
------------- ------------ ------------- ------------
Net cash provided by financing
activities . . . . . . . . . . . 346,758 7,227,544 1,190,339 8,546,496
------------- ------------ ------------- ------------
INCREASE IN CASH . . . . . . . . (24,882) 2,241,503 18,239 2,555,207
CASH AT BEGINNING
OF PERIOD . . . . . . . . . . . . 72,223 349,346 29,102 35,642
------------- ------------ ------------- ------------
CASH AT END OF PERIOD . . . . . . $ 47,341 $ 2,590,849 $ 47,341 $ 2,590,849
============= ============ ============= ============
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 . . . . . . . . . . . $ 1,659 $ 4,243 $ 5,696 $ 6,518
============= ============ =========== ============
Income taxes paid . . . . . . . . . $ -- -- $ -- -- $ 1,600 $ 800
============= ============ =========== ============
Non-cash financing activities:
Common stock issued upon
conversion 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 financial statements.
14
15
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 January 31, 1996, and the results
of its operations and its cash flows for the three and nine month
periods ended January 31, 1996 and 1995. 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 as of January 31, 1996. 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. The Company raised $7,137,544 in
proceeds, net of offering costs and legal fees, from the issuance of
the Class B Preferred Stock, which took place on December 27 and
December 29, 1995. 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 materialadverse effect on the Company. The
Company'scontinuation as a going concern is dependent onits 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.
(4) The Company considers all highly-liquid, short-term investments with
an initial maturity of three months or less to be cash equivalents.
Included in short term investments at January 31, 1996 was an
investment in six-month U.S. Treasury Bills which mature on July 11,
1996. The fair market value of cash equivalents and short-term
investments approximates the cost of such investments.
15
16
TECHNICLONE INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
[Continued from previous page]
(5) As of January 31, 1996 the Company had advanced $175,000, under the
terms of a mortgage loan secured by a second lien on land and
building, to Mills Biopharmaceuticals, Inc. ("MBI") for the completion
and Nuclear Regulatory Commission ("NRC") licensing of MBI's antibody
labelling facility in Oklahoma. At this facility, MBI will perform
the radio-isotope labelling of LYM-1 for the Phase II/III clinical
trials. The Company will pay MBI for the labelling services through a
combination of cash and credits against the advanced funds for each
patient treatment dose labelled by MBI. As of January 31, 1996, the
Company had recorded the note receivable and fully provided a reserve
for uncollectibility, due to the uncertainty of eventual collection of
the note which is dependent on successful completion of the Phase
II/III clinical trials of LYM-1.
(6) During the quarter ended January 31, 1996, the Company wrote off
approximately $215,000 in LYM-1 antibody inventory that had been
produced in 1994 and early 1995 and which will not likely be used in
the Phase II/III clinical trials before expiration of an eighteen
month product dating period since the original manufacture date. The
Company began to remanufacture additional LYM-1 antibody in December
1995 to supply the Phase II/III clinical trial sites.
(7) On December 27, 1995, the Company issued 7,700 shares of newly created
Class B Convertible Preferred Stock, at a price of $1,000 per share,
and on December 29, 1995 issued an additional 500 shares of Class B
Convertible Preferred Stock, at a price of $1,000 per share, for an
aggregate issuance consideration of $8,200,000 to sixteen (16)
offshore investors pursuant to Regulation S promulgated under the
Securities Act of 1933. The Class B Convertible Preferred Stock is
non-voting. The Class B Convertible Preferred Stock is convertible,
commencing immediately after the Closing into Common Stock of the
Company. During the first ninety days after the Closing, each share
of the Class B Convertible Preferred Stock may be converted in
multiples of $50,000 into that number of shares of Common Stock
calculated by dividing $1,000 by 110% of the Fixed Conversion Price
which is the lower of (i) $3.06875 (fair market value at the date of
issuance) per share of Common Stock or (ii) 85% of the fair market
value of the Common Stock on the date of conversion based on the
average bid price during the five trading days prior to the date of
conversion. Beginning 91 days after the Closing Date the number of
shares of Common Stock issued upon conversion of each share of Class B
Convertible Preferred Stock converted is determined by (i) taking ten
percent (10%) of One Thousand Dollars ($1,000) pro-rated on the basis
of a 365 day year, by the number of days between the last Closing Date
and the date of conversion plus (ii) One Thousand Dollars ($1,000),
(iii) divided by the Conversion Price. As of January 31, 1996, the
Fixed Conversion Price was set at $3.06875, which was the average
closing bid price for the Company's Common Stock for the five (5)
trading days ending on December 8, 1995. Additionally, the Class B
Convertible Preferred Stock has a liquidation preference over other
classes of the Company's stock. This liquidation preference is $1,000
per share of Class B Convertible Preferred Stock plus 10% per annum
pro-rated through any liquidation date. As of January 31, 1996, the
outstanding Class B Convertible Preferred Stock is convertible into
2,451,136 shares of Common Stock at a conversion price of $3.37563
(110 percent of the Fixed Conversion Price) per share, and the
liquidation preference was $8,294,356. Beginning 91 days after the
Closing Date, as of March 29, 1996, the currently outstanding Class B
Convertible Preferred Stock would be convertible into 2,738,713 shares
of Common Stock at a conversion price of $3.06875 per share and the
liquidation preference would
16
17
TECHNICLONE INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
[Continued from previous page]
be $8,415,671 under the terms of the Certificate of Determination
of Class B Convertible Preferred Stock.
The Company received $7,137,544 in net proceeds from the sale of Class
B Convertible Preferred Stock after payment of offering commissions
and expenses and legal fees. In connection with the placement of the
Class B Preferred Stock, the Company paid to Swartz Investments, Inc.
commissions of $656,000 and a non-accountable expense allowance of
$246,000. In addition, the Company issued to Swartz Investments, Inc.
two five year warrants to purchase an aggregate of 267,210 shares of
the Company's Common Stock at an exercise price of $3.06875. The
Common Stock issuable on exercise of the warrant and on conversion of
the Class B Convertible Preferred Stock (if not otherwise freely
tradeable) is subject to registration pursuant to a Registration
Rights Agreement. Additionally, the Company paid other commissions of
$75,000 and legal fees to a related party of $85,456 in connection
with the preferred stock placement.
(8) On January 2, 1996, the Company issued 235,000 shares of Common Stock
in conversion of an outstanding note payable and forgiveness of
accrued interest to a related party. The $258,500 principal balance
of the note was converted into the Common Stock at the election of the
related party note holder pursuant to the terms of the convertible
note dated December 31, 1991. Also, in conjunction with the
conversion, accrued interest in the amount of $104,697 was forgiven by
the related party note holder. Had conversion of the note occurred on
May 1, 1995, the beginning of the current fiscal year, the current
year statement of operations, including per share amounts, would not
have been materially different.
(9) During the nine month period ended January 31, 1996, under its 1993
Stock Option Plan, the Company granted stock options (at the fair
market value at the date of grant) to purchase 446,550 shares of
Common Stock at $1.00 per share, 20,000 shares at $2.50 per share, and
1,240,000 shares at $5.00 per share. Of these 1,706,550 options,
options to purchase 523,850 shares were vested at January 31, 1996,
and the remaining options vest for 128,850 shares in 1996; 123,850
shares in 1997; 410,000 shares in 1998; 360,000 shares in 2000; and
160,000 shares in 2001.
Also, during the nine month period ended January 31, 1996, the Company
issued warrants to purchase 417,310 shares of Common Stock at prices
ranging between $3.00 and $5.00 per share to consultants and to an
investment banking firm. No value was assigned to the warrants as the
exercise price approximated the fair market value at the date of
grant.
17
5
0000704562
TECHNICLONE INTERNATIONAL CORPORATION
1,000
U.S. DOLLARS
9-MOS
APR-30-1996
MAY-01-1995
JAN-31-1996
1,000
2,591
3,910
184
175
62
6,571
1,058
682
7,238
651
0
19,812
0
8
(13,233)
7,238
0
43
0
1,987
0
0
17
(1,944)
0
(1,944)
0
0
0
(1,944)
(.108)
(.108)
