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 OCTOBER 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 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 / /. 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.
21,535,266 shares of Common Stock
as of November 30, 1996
Page 1 of 19 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, 1996 and October 31, 1996 (unaudited).............................. 11, 12
Statements of Operations for the periods from August 1, 1995 to October
31, 1995 and from August 1, 1996 to October 31, 1996; from May 1, 1995
to October 31, 1995 and from May 1, 1996 to
October 31, 1996 (unaudited) .................................................................. 13
Statement of Stockholders' Equity for the period from April 30, 1996
through October 31, 1996 (unaudited)........................................................... 14
Statements of Cash Flows for the periods August 1, 1995 to October 31,
1995 and from August 1, 1996 to October 31, 1996; from May 1, 1995 to
October 31, 1995 and from May 1, 1996 to October 31, 1996 (unaudited)......................... 15, 16
Notes to Financial Statements.................................................................. 17, 18
ITEM 2 -- 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 in fiscal 1996 and during the first six months of fiscal 1997
and has an accumulated deficit at October 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. If the Company is able to achieve certain goals in relation
to these antibodies, it will receive certain additional financing
pursuant to the terms of an existing license agreement. Historically,
the Company has relied on third party and investor funds to fund its
operations and clinical trials, and management expects that additional
funds will be required in the future to continue to fund operations and
clinical trials. 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
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attain successful operations. During the year ended April 30, 1996, the
Company received significant funding through the issuance of preferred
stock and a foreign distribution agreement which has resulted in cash
and short-term investment balances of $4,884,487 as of October 31,
1996. Management believes that additional capital must be raised to
support the Company's continued operations and other cash needs,
including facilities expansion and construction, during the twelve
months ending on October 31, 1997.
RESULTS OF OPERATIONS
The Company's net loss of $1,520,031 for the quarter ended October 31,
1996 represents an increased loss of $981,010 in comparison to the net loss of
$539,021 for the prior year quarter ended October 31, 1995. This increase in the
net loss for the quarter ended October 31, 1996 is primarily attributable to an
$1,067,043 increase in total costs and expenses partially offset by a $86,033
increase in total revenues. The Company's net loss of $2,468,295 for the six
months ended October 31, 1996 represents an increase of $1,414,172 in comparison
to the net loss of $1,054,123 for the six months ended October 31, 1995. This
increase in the year-to-date loss is primarily attributable to a $1,034,566
increase in total costs and expenses partially offset by a $172,324 increase in
total revenues.
Revenues for the quarter ended October 31, 1996 increased $86,033,
compared to the same prior year period ended October 31, 1995. This increase
resulted from a $80,989 increase in interest income and a $5,044 increase in
rental income in comparison to the same prior year period ended October 31,
1995. Revenues for the six months ended October 31, 1996 increased $172,324
compared to the same prior year period ended October 31, 1995. This increase
resulted from a $167,280 increase in interest income and a $5,044 increase in
rental income in comparison to the same prior year period ended October 31,
1995. Interest income increased during the current year as the level of idle
cash funds available for investment has increased in comparison to the prior
year. Rental income increased during the current year a result of the Company's
purchase of a second building on October 25, 1996, which is partially leased to
tenants. Management expects interest income to increase during the remainder of
the current year in comparison to the prior year due to the increase in cash and
short term investments from the closing of the issuance of the Class B
Convertible Preferred Stock in December 1995 and from a distribution agreement
consummated in February 1996. Management expects rental income from tenants to
increase to approximately $44,000 per quarter for the remainder of the current
year. Management expects revenues from the sales and licensing of antibodies to
increase slightly during the remainder of the fiscal year ending April 30, 1997
as the Company ships its LYM-1 antibody for use in the Phase III clinical
trials.
The Company's total costs and expenses increased $1,067,043 during the
quarter ended October 31, 1996, in comparison to the same prior year period
ended October 31, 1995. This increase resulted from a $423,381 increase in
research and development expenses, a $392,365 increase in general and
administrative expenses, a $232,736 increase for stock based compensation, and a
$18,561 increase in interest expense in comparison to the prior year quarter
ended October 31, 1995. The Company's total costs and expenses increased
$1,586,496 for the six months ended October 31, 1996 in comparison to the same
prior year period ended October 31, 1995. This increase resulted from a $737,447
increase in research and development expenses, a $579,196 increase in general
and administrative expenses, a $232,736 increase in stock compensation expense
and a $37,117 increase in interest expense in comparison to the same prior year
period ended October 31, 1995. Research and development expenses increased
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$423,381 for the quarter ended October 31, 1996 and $737,447 for the six months
ended October 31, 1996 in comparison to the same prior year periods ended
October 31, 1995. The increase in research and development expenses resulted
from the Company's activities during the current year in preparing for and
starting the Phase III clinical trials of the LYM-1 antibody and from the
Company's activities in preparing for Phase I clinical trials of the TNT
antibody technologies which are expected to commence in 1997. The Company
expects significant research and development expenses in the future as clinical
trial activities continue.
General and administrative expenses increased $392,365 for the quarter
ended October 31, 1996 and $579,196 for the six months ended October 31, 1996 in
comparison to the same periods of the prior year. This increase in current year
expenses has resulted primarily from the addition of administrative personnel,
from expanded public relations activities, and from the legal and printing costs
associated with the Company's September 27, 1996 shareholders' meeting. Noncash
stock based compensation increased $232,736 for the three and six month periods
ended October 31, 1996, primarily as a result of options to purchase the
Company's common stock being granted to employees, consultants and members of
the Company's Scientific Advisory Board. These options became effective in
September 1996, upon the approval of the Company's 1996 Stock Incentive Plan by
the shareholders of the Company. Interest expense increased $18,561 during the
quarter ended October 31, 1996 and $37,117 for the six months ended October 31,
1996 in comparison to the same periods of the prior year due to a higher level
of interest bearing debt outstanding during the current year as a result of a
$1,020,000 real estate mortgage loan originated in April 1996 in connection with
the Company's purchase of its existing facility and an additional $1,020,000
real estate mortgage loan originated in October 1996 in connection with the
Company's purchase of an additional building which is adjacent to the building
purchased in April 1996.
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 public relations activities, increased depreciation,
additional stock based compensation expense, and increased interest expenses due
to the purchase of the Company's facility and additional building.
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 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 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 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 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 October 31, 1996, the Company had $4,884,487 in cash and short term
investments and working capital of $4,260,894 compared to $8,078,201 in cash and
short term investments and working capital of $7,460,514 at April 30, 1996.
CAPITAL COMMITMENTS
During the remainder of the 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 October 31, 1996, the Company had commitments to spend
approximately $400,000 on building improvements, furniture, and equipment in
connection with the construction of office facilities in the building which was
purchased in April 1996. As of October 31, 1996, the Company had no additional
firm commitments to acquire 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
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 October 31, 1996, the Company had
$4,884,487 in cash and short term investments. It also had significant
commitments for expenditures for building improvements, equipment, furniture and
fixtures and expects these expenditures to increase in the future. The Company
has continued to experience negative cash flows since its inception and expects
the negative cash flow to continue for the foreseeable future. The
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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"). 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 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 October 31, 1996, 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, 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 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
larger technical staffs, 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.
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 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 the
Company's research and development activities will be successfully completed;
that any proposed products will prove to be effective in clinical trials; that
the Company will be able to obtain all necessary governmental clearances and
approvals to market its products; that such proposed products will prove to be
commercially viable or successfully marketed; or 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.
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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 headquarters facility, at
which the majority of its research and development activities are conducted, is
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 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.
The Company held an annual meeting of the
shareholders (the "Shareholder Meeting") on September
27, 1996.
At the Shareholder Meeting the incumbent directors
Lon H. Stone, William V. Moding, R.C. Shepard, Clive
R. Taylor and Edward Joseph Legere, II were
re-elected and Carmelo J. Santoro was elected to the
Board of Directors to serve until the next meeting of
the shareholders or until their respective successors
are elected and qualified.
The number of shares voted in favor of the election
of Lon H. Stone to the Board of Directors was
18,131,271 and the number of shares voted against or
withheld were 67,406. The number of shares voted in
favor of the election of William V. Moding to the
Board of Directors was 18,133,871 and the number of
shares voted against or withheld were 64,806. The
number of shares voted in favor of the election of
R.C. Shepard to the Board of Directors was 18,133,871
and the number of shares voted against or withheld
were 64,806. The number of shares voted in favor of
the election of Clive R. Taylor to the Board of
Directors was 18,114,912 and the number of shares
voted against or withheld were 83,765. The number of
shares voted in favor of the election of Edward
Joseph Legere II to the Board of Directors was
18,129,176 and the number of shares voted against or
withheld were 69,501. The number of shares voted in
favor of the election of Carmelo J. Santoro to the
Board of Directors was 18,133,628 and the number of
shares voted against or withheld were 65,049.
In addition, the shareholders approved the following:
(i) a change in the Company's state of incorporation
from California to Delaware and certain other changes
in the charter documents of the Company (Proposal 2);
(ii) the Company's 1996 Stock Incentive Plan
(Proposal 3); (iii) the appointment of Deloitte &
Touche LLP as independent auditors (Proposal 4). The
number of shares voting in favor of Proposal 2 was
11,420,710, the number of shares voting against or
withheld were 260,267 and the number of shares which
abstained were 68,970. The number of shares voting in
favor of Proposal 3 was 11,120,445, the number of
shares voting against or withheld were 509,699 and
the number of shares which abstained were 109,803.
The number of shares voting in favor of Proposal 4
was 18,217,178, the number of shares voting against
or withheld were 39,553 and the number of shares
which abstained were 40,546.
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Item 5. Other Information. None.
Item 6. Exhibits and Report on Form 8-K.
(a) Exhibits:
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K: Current Report on Form 8-K as
filed with the Securities and Exchange Commission on
November 1, 1996 reporting the close of the purchase
of the real property commonly known as 14272 Franklin
Avenue, Tustin, California.
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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, October 31,
1996 1996
---- ----
(Unaudited)
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents ............... $ 4,179,313 $ 3,900,404
Short-term investments .................. 3,898,888 984,083
Accounts receivable, net ................ 95,146 19,942
Inventories, net ........................ 93,921 190,362
Prepaid expenses and other current assets 17,294 5,802
------------ -----------
Total current assets .................... 8,284,562 5,100,593
------------ -----------
PROPERTY:
Land .................................... 525,255 1,050,510
Buildings and improvements .............. 1,298,416 2,663,226
Laboratory equipment .................... 1,139,663 1,307,114
Furniture and fixtures .................. 78,155 107,196
------------ -----------
Total ................................... 3,041,489 5,128,046
Less accumulated depreciation
and amortization ...................... (722,436) (855,017)
------------ -----------
Property--net ........................... 2,319,053 4,273,029
------------ -----------
OTHER ASSETS:
Patents, net ............................ 166,585 157,106
Other ................................... 5,557 5,557
------------ -----------
Total other assets ...................... 172,142 162,663
------------ -----------
TOTAL ................................... $ 10,775,757 $ 9,536,285
============ ===========
See accompanying notes to financial statements.
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TECHNICLONE INTERNATIONAL CORPORATION
BALANCE SHEETS
April 30, October 31,
1996 1996
---- ----
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY:
- -------------------------------------
CURRENT LIABILITIES:
Accounts payable ................................... $ 230,144 $ 220,366
Accrued legal and accounting fees
(primarily to a related party) ................... 99,495 60,258
Accrued payroll and related costs .................. 88,791 86,875
Accrued license termination fee .................... 100,000 100,000
Accrued royalties .................................. 61,667 61,667
Accrued interest ................................... -- 7,956
Reserve for contract losses ........................ 173,563 173,563
Current portion of long-term debt .................. 32,968 67,809
Other current liabilities .......................... 37,420 61,205
------------ ------------
Total current liabilities .......................... 824,048 839,699
------------ ------------
LONG TERM DEBT - MORTGAGE LOANS .................... 987,032 1,959,468
------------ ------------
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 2,750 shares at October 31, 1996)
(liquidation preference of $2,980,548
at October 31, 1996) ............................. 6,800 2,750
Common Stock--no par value (authorized,
30,000,000 shares; outstanding, 20,048,014
shares at April 30, 1996 and 21,446,389
shares at October 31, 1996) ...................... 21,133,968 24,667,211
Additional paid-in capital ......................... 6,061,171 2,772,714
Accumulated deficit ................................ (17,760,680) (20,228,975)
------------ ------------
Total .............................................. 9,441,259 7,213,700
Less notes receivable from sale of common stock .... (476,582) (476,582)
------------ ------------
Net stockholders' equity ........................... 8,964,677 6,737,118
------------ ------------
TOTAL .............................................. $ 10,775,757 $ 9,536,285
============ ============
See accompanying notes to financial statements.
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TECHNICLONE INTERNATIONAL CORPORATION
STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
October 31, October 31, October 31, October 31,
1995 1996 1995 1996
--------- --------- --------- --------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES:
Net sales ............................. $ -- $ -- $ -- $ --
Licensing fees ........................ -- -- -- --
Interest income ....................... 10 80,999 21 167,301
Rental income ......................... -- 5,044 -- 5,044
------------ ------------ ------------ ------------
Total revenues ........................ 10 86,043 21 172,345
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales ......................... -- -- -- --
Research and development .............. 336,772 760,153 600,828 1,338,275
General and administrative:
Unrelated entities ............... 161,137 512,670 374,489 888,885
Affiliates ....................... 34,925 75,757 66,212 131,012
Noncash - Stock based compensation -- 232,736 -- 232,736
Interest .............................. 6,197 24,758 12,615 49,732
------------ ------------ ------------ ------------
Total costs and expenses .............. 539,031 1,606,074 1,054,144 2,640,640
------------ ------------ ------------ ------------
NET LOSS .............................. $ (539,021) $ (1,520,031) $ (1,054,123) (2,468,295)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING .......................... 18,070,954 21,256,972 17,503,998 20,971,894
============ ============ ============ ============
LOSS PER COMMON SHARE ................. $ (.03) $ (.07) $ (.06) $ (.12)
============ ============ ============ ============
See accompanying notes to financial statements.
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TECHNICLONE INTERNATIONAL CORPORATION
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)......... 8,000 8,000 8,000
Common Stock issued
upon conversion of Class B
Convertible Preferred Stock
(unaudited)................. (4,050) (4,050) 1,390,375 3,525,243 (3,521,193) --
Noncash Stock based
compensation................ 232,736 232,736
Net loss
(unaudited)................. (2,468,295) (2,468)295
BALANCE AT
OCTOBER 31,1996
(unaudited)................. 2,750 $ 2,750 21,446,389 $24,667,211 $2,772,714 $(20,228,975) $(476,582) $6,737,118
====== ======= ========== =========== ========== ============ ========= ==========
See accompanying notes to financial statements.
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TECHNICLONE INTERNATIONAL CORPORATION
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1995 1996 1995 1996
------------- ------------- ------------- -----------
(Unaudited) (Unaudited) (Unaudited)(Unaudited)
CASH FLOWS FROM
OPERATING EXPENSES:
Net loss ........................................... $(539,021) $(1,520,031) $(1,054,123) $(2,468,245)
Adjustments to reconcile net
loss to net cash used
by operating activities:
Depreciation and amortization ................ 40,404 78,449 87,918 148,235
Common stock issued
for services ............................. -- -- 57,100 --
Stock based compensation expense ............. -- 232,736 -- 232,736
Changes in operating assets and liabilities:
(Increase) Decrease in accounts receivable ... -- (364) 2,378 75,204
(Increase) in inventory ...................... (16,671) (9,482) (18,543) (96,441)
Decrease in prepaid expenses ................. -- 3,392 -- 11,492
Increase (Decrease) in accounts
payable .................................. (116,671) (21,628) (34,156) (38,776)
Increase in accrued and
other current liabilities .................. (86,532) 19,415 9,237 19,586
--------- ----------- ----------- -----------
Net cash used by operating activities .............. (717,888) (1,217,513) (950,189) (2,116,259)
--------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of short-term
investments ..................................... -- -- -- 3,898,888
Purchase of short-term
investments ..................................... -- (984,083) -- (984,083)
Property acquisitions .............................. (7,906) (1,897,127) (26,340) (2,086,557)
Patent costs capitalized ........................... 6,556 -- (28,719) (6,175)
--------- ----------- ----------- -----------
Net cash (used) provided by investing
activities ...................................... (1,350) (2,881,210) (55,059) 822,073
--------- ----------- ----------- -----------
[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 SIX MONTHS ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1995 1996 1995 1996
------------- ------------- ----------- ----------
(Unaudited) (Unaudited) (Unaudited)(Unaudited)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Principal payments on short-
and long-term borrowings ....... $ -- $ (7,623) $ -- $ (12,723)
Proceeds from issuance of
long-term debt ................. -- 1,020,000 -- 1,020,000
Proceeds from sale of common stock 1,020,802 -- 1,318,952 8,000
---------- ----------- ---------- -----------
Net cash provided by financing
activities .................... 1,020,802 1,012,377 1,318,952 1,015,277
---------- ----------- ---------- -----------
INCREASE (DECREASE) IN CASH ...... 301,564 (3,086,346) 313,704 (278,909)
CASH AT BEGINNING OF PERIOD ...... 47,782 6,986,750 35,642 4,179,313
---------- ----------- ---------- -----------
CASH AT END OF PERIOD ............ $ 349,346 $ 3,900,404 $ 349,346 $ 3,900,404
---------- =========== ========== ===========
SUPPLEMENTAL INFORMATION:
Interest paid .................... $ 1,027 $ 25,105 $ 2,275 $ 41,776
========== =========== ========== ===========
Income taxes paid ................ $ -- $ 234 $ 800 $ 1,034
========== =========== ========== ===========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
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17
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 October 31, 1996, and the results of its operations
and its cash flows for the three month and six month periods ended
October 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, 1996, filed with the Securities and Exchange
Commission on July 26, 1996.
(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 experienced
losses in fiscal 1996 and during the first six months of fiscal 1997
and has an accumulated deficit at October 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. If the Company is able to achieve certain goals in relation
to these antibodies, it will receive certain additional financing
pursuant to the terms of an existing license agreement. Historically,
the Company has relied on third party and investor funds to fund its
operations and clinical trials, and management expects that additional
funds will be required 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. During the year ended April 30, 1996, the
Company received significant funding through the issuance of preferred
stock and a foreign distribution agreement which has resulted in cash
and short-term investment balances of $4,884,487 as of October 31,
1996. Management believes that additional capital must be raised to
support the Company's continued operations and other cash needs,
including facilities expansion and construction, during the twelve
months ending on October 31, 1997.
(3) 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.
(4) During the three months ended October 31, 1996, the Company recorded
$232,736 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
17
18
Board. The options were granted at prices ranging between $1.50 and
$5.00 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.
(5) 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.
18
5
0000704562
TECHNICLONE INTERNATIONAL CORPORATION
1,000
U.S. DOLLARS
6-MOS
APR-30-1997
MAY-01-1996
OCT-31-1996
1,000
3,900
984
195
175
190
5,101
5,128
855
9,536
840
0
0
3
24,667
(17,933)
9,536
0
172
0
2,640
0
0
50
(2,468)
0
(2,468)
0
0
0
(2,468)
(.12)
(.12)
