<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT TO FORM 8-K
AMENDMENT NO. 2
CURRENT REPORT
FILED ON MAY 12, 1997
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): APRIL 24, 1997
TECHNICLONE CORPORATION
(Exact name of Registrant as specified in charter)
DELAWARE 0-17085 95-3698422
- ---------------------------- ------------- ------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
14282 FRANKLIN AVENUE, TUSTIN, CALIFORNIA 92780-7017
- ----------------------------------------- -----------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (714) 838-0500
NOT APPLICABLE
(Former name or former address, if changed, since last report)
Page 1 of 29 Pages
Exhibit Index is on Page 6
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On April 24, 1997, Techniclone Corporation, a Delaware corporation (the
"Company") entered into a First Amendment to Stock Exchange Agreement (the
"Amendment") with the stockholders of Peregrine Pharmaceuticals, Inc., a
Delaware corporation ("Peregrine"), pursuant to which the Company agreed to
amend certain provisions of the Stock Exchange Agreement ("Stock Exchange
Agreement') between the Company and the stockholders of Peregrine and to issue
an additional 80,000 shares of its Common Stock in exchange for all of the
issued and outstanding capital stock of Peregrine as set forth in the Amendment.
The Amendment provides that the major stockholders of Peregrine would agree to a
one year lock-up of the Techniclone shares issued to them in the exchange except
that during the lock-up period the Sanderling entities would be permitted to
sell up to 275,000 shares, the Saunders entities would be permitted to sell up
to 275,000 shares, Jennifer Lobo would be permitted to sell up to 90,000 shares
and Philip Thorpe would be permitted to sell up to 50,000 shares. The Amendment
also provides that the Company would sell Sanderling $550,000 worth of its
Common Stock on the Closing Date of the transaction contemplated by the Stock
Exchange Agreement and the Amendment at a purchase price per share equal to
eighty percent (80%) of the average closing price of Techniclone's Common Stock
for the five trading days immediately preceding the Closing Date.
As there are no further contingencies, the Agreements have been
finalized and all of the preconditions to the closing were met before April 30,
1997, the Company will account for the transaction contemplated by the Stock
Exchange Agreement in the year ended April 30, 1997.
The consideration to be paid for the outstanding shares of stock of
Peregrine, consisting of 5,080,000 shares of the Company's Common Stock will be
issued upon a determination by the California Commissioner of Corporations that
the terms and conditions of the transaction are fair to Peregrine's stockholders
or upon the effectiveness of a registration statement filed by the Company
relating to the shares of Common Stock to be issued to the Peregrine
stockholders.
ITEM 5. OTHER EVENTS
On April 25, 1997, Techniclone Corporation, a Delaware corporation (the
"Registrant" or the "Company") entered into a 5% Preferred Stock Investment
Agreement and a Registration Rights Agreement with eleven (11) investors
pursuant to which the Company sold 12,000 shares of 5% Adjustable Convertible
Class C Preferred Stock (the "Class C Stock") for an aggregate purchase price of
$12,000,000. The Company filed a Certificate of Designation with the Delaware
Secretary on April 23, 1997, creating the 5% Adjustable Convertible Class C
Preferred Stock. In connection with the issuance of the Class C Stock, the
Registrant paid Cappello & Laffer Capital Corp. a non-accountable expense
allowance of $100,000 and a $720,000 commission representing six percent of the
Purchase Price of the Class C Stock and issued a Warrant to purchase 1,200
shares of Class C Stock at $1,000 per share.
The Class C Stock is convertible at the option of the holder,
commencing on the day after the fifth month anniversary of the Closing Date,
into a number of shares of Common Stock of the Registrant determined by dividing
$1,000 plus all accrued but unpaid dividends by the Conversion Price. The
Conversion Price is the average of the lowest trading price of Registrant's
Common Stock for the five consecutive trading days ending with the trading
2
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day prior to the conversion date reduced by 13 percent starting on the 1st day
of the 8th month after the Closing Date, 20 percent starting on the 1st day of
the 10th month after the Closing Date, 22.5 percent starting on the 1st day of
the 12th month after the Closing Date, 25 percent starting on the 1st day of the
14th month after the Closing Date, 27 percent starting on the 1st day of the
16th month after the Closing Date and thereafter. At any time after March 24,
1998, the Conversion Price will be the lower of the Conversion Price as
calculated in the preceding sentence or the average of the Closing Price of the
Company's Common Stock for the thirty (30) trading days including and
immediately preceding March 24, 1998 (the "Conversion Cap"). In addition to the
Common Stock issued upon conversion of the Class C Stock, Warrants to purchase
one-fourth of the number of shares of Common Stock issued upon the conversion
will be issued to the converting investor. The Warrants are exercisable at 110
percent of the Conversion Cap for a period of five years from the closing date.
The Holders of the Class C Stock are entitled to receive dividends at
the rate of $50.00 per share per annum commencing September 30, 1997 and
thereafter quarterly. The dividends are to be paid in Class C Stock valued at
$1,000 per share (fractional shares to be paid in cash) or at the option of the
Company in cash. The Class C Stock is subject to mandatory redemption upon
certain events which are within the Company's control, and mandatory conversion
at any time more than twelve (12) months after the closing date, subject to
certain conditions as provided in the Certificate of Designation. Except as
provided in the Certificate of Designation or by Delaware law, the Class C Stock
does not have voting rights.
The Company intends to use the proceeds of the offering to complete the
clinical trials of the LYM-1 antibody, to begin clinical trials of the TNT
antibody, pre-clinical development of the Company's products, construction of
facilities and for general corporate and working capital purposes.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
Listed below are the financial statements, pro forma financial
information and exhibits, if any filed as part of this report.
(a) Financial Statements of Peregrine Pharmaceuticals, Inc. for the
years ended December 31, 1995 and 1996 and for the period from
September 16, 1993 (date of inception) through December 31, 1996
and Independent Auditors' Report.
(b) Unaudited Pro Forma Consolidated Balance Sheet as of January 31,
1997 (as restated) and the Unaudited Pro Forma Consolidated
Statements of Operations for the Nine Months Ended January 31, 1997
(as restated) and Fiscal Year ended April 30, 1996 (as restated).
(c) EXHIBITS
Exhibit No. Description
- ----------- -----------
2.1 First Amendment to Stock Exchange Agreement among the
stockholders of Peregrine Pharmaceuticals, Inc. and Registrant.
3.1 Certificate of Designation of 5% Adjustable Convertible Class C
Preferred Stock as filed with the Delaware Secretary of State
on April 23, 1997.
4.1 5% Preferred Stock Investment Agreement between Registrant and
the Investors.
4.2 Registration Rights Agreement between the Registrant and the
Investors.
4.3 Form of Stock Purchase Warrant, to be issued to the holders of
the Class C Preferred Stock upon conversion of the Class C
Preferred Stock.
4
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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 hereunto duly authorized.
TECHNICLONE CORPORATION
Date: October 14, 1997 By: /s/ William V. Moding
--------------------------------
William V. Moding,
Chief Financial Officer and
Principal Accounting Officer
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EXHIBIT INDEX
Listed below are the financial statements, pro forma financial
information and exhibits filed as part of this report.
<TABLE>
<CAPTION>
Sequentially
Exhibit No. Description Numbered Page
- ----------- ----------- -------------
<S> <C> <C>
-- Unaudited Pro Forma Consolidated Balance Sheet as of 8
January 31, 1997 (as restated) and the Unaudited Pro Forma
Consolidated Statements of Operations for the Nine Months
Ended January 31, 1997 (as restated) and the Fiscal Year
ended April 30, 1996 (as restated).
-- Financial Statements of Peregrine Pharmaceuticals, Inc. 17
for the years ended December 31, 1995 and 1996 and for the
period from September 16, 1993 (date of inception) through
December 31, 1996 and Independent Auditors' Report.
(Incorporated by reference to the Exhibit of the same
number contained in Registrant's Current Report on Form 8-K
as filed with the Commission on May 12, 1997).
2.1 First Amendment to Stock Exchange Agreement among the --
stockholders of Peregrine Pharmaceuticals, Inc. and
Registrant. (Incorporated by reference to the Exhibit of
the same number contained in Registrant's Current Report on
Form 8-K as filed with the Commission on May 12, 1997).
3.1 Certificate of Designation of 5% Adjustable, Convertible --
Class C Preferred Stock as filed with the Delaware
Secretary of State on April 23, 1997. (Incorporated by
reference to the Exhibit of the same number contained in
Registrant's Current Report on Form 8-K as filed with the
Commission on May 12, 1997).
4.1 5% Preferred Stock Investment Agreement between Registrant --
and the Investors. (Incorporated by reference to the
Exhibit of the same number contained in Registrant's
Current Report on Form 8-K as filed with the Commission on
May 12, 1997).
</TABLE>
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<TABLE>
<CAPTION>
Sequentially
Exhibit No. Description Numbered Page
- ----------- ----------- -------------
<S> <C> <C>
4.2 Registration Rights Agreement between the Registrant and
the Investors. (Incorporated by reference to the Exhibit of
the same number contained in Registrant's Current Report on
Form 8-K as filed with the Commission on May 12, 1997).
4.3 Form of Stock Purchase Warrant, to be issued to the holders
of the Class C Preferred Stock upon conversion of the Class
C Preferred Stock. (Incorporated by reference to the
Exhibit of the same number contained in Registrant's
Current Report on Form 8-K as filed with the Commission on
May 12, 1997).
</TABLE>
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The following unaudited pro forma consolidated statements of operations
for the nine month period ended January 31, 1997 and the fiscal year ended April
30, 1996 and the Unaudited Pro Forma Consolidated Balance Sheet as of January
31, 1997 have been prepared assuming that the acquisition of Peregrine
Pharmaceuticals, Inc. (Peregrine) and the issuance of the Series C Preferred
Stock had occurred as of May 1, 1995, for the consolidated statements of
operations presentation and as of January 31, 1997, for the consolidated balance
sheet presentation.
The unaudited pro forma consolidated financial statements are provided
for information purposes only and do not purport to present the financial
position or results of operations of Techniclone Corporation (Techniclone or the
Company) had the acquisition or the issuance of the Series C preferred stock
assumed therein occurred on the dates specified. The unaudited pro forma
consolidated financial statements, as restated, are not necessarily indicative
of the results of operations that may be expected in the future.
Peregrine is a developmental stage enterprise and is engaged in
research and development of new technologies for use in the production of
therapeutic agents for treatment of cancerous tumors. Therefore, the excess of
the purchase price paid by Techniclone over the net tangible assets acquired
will be recorded as in-process research and development in the Company's
consolidated financial statements for the fiscal year ended April 30, 1997.
8
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TECHNICLONE CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JANUARY 31, 1997
RESTATED
<TABLE>
<CAPTION>
TECHNICLONE PEREGRINE
NINE MONTHS NINE MONTHS PRO FORMA
ENDED ENDED TOTALS PRIOR
JANUARY 31, DECEMBER 31, ACQUISITION TO FINANCING FINANCING
1997 1996 ADJUSTMENTS(9) ADJUSTMENTS ADJUSTMENTS(10) CONSOLIDATED
----------- ------------ -------------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Interest income $ 198,200 $ -- $ -- $ 198,200 $ -- $ 198,200
Rental income 34,107 34,107 34,107
----------- ----------- ---- ----------- ----------- ------------
Total revenues 232,307 232,307 232,307
COSTS AND EXPENSES:
Research and development 2,023,381 664,191 2,687,572 2,687,572
General and administrative:
Unrelated entities 1,387,826 368,165 1,755,991 1,755,991
Affiliates 216,012 9,014 225,026 225,026
Stock based compensation 395,832 395,832 395,832
Interest 100,417 36,241 136,658 136,658
------------ ----------- ---- ----------- ----------- ------------
Total costs and expenses 4,123,468 1,077,611 5,201,079 5,201,079
------------ ----------- ---- ----------- ----------- ------------
Net Loss Before Preferred Stock
Accretion and dividends (3,891,161) (1,077,611) (4,968,772) (4,968,772)
Preferred stock accretion and
dividends:
Accretion of discount on 5%
Cumulative Class C Preferred
Stock (1,109,589) (1,109,589)
Imputed dividends for Class B
Convertible Preferred Stock (434,450) (434,450) (434,450)
Imputed dividends for Class C
Convertible Preferred Stock (644,298) (644,298)
------------ ----------- ---- ----------- ----------- ------------
Net Loss Applicable to Common Stock
(Note 11) $(4,325,611) $(1,077,611) $ -- $(5,403,222) $(1,753,887) $ (7,157,109)
============ =========== ==== =========== =========== ============
Weighted Average Shares Outstanding
(Note 11) 26,392,912
============
Net Loss per Share (Note 11) $ (0.27)
============
</TABLE>
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TECHNICLONE CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED APRIL 30, 1996
RESTATED
<TABLE>
<CAPTION>
TECHNICLONE PEREGRINE
FIRST YEAR FISCAL YEAR PRO FORMA
ENDED ENDED TOTALS PRIOR
APRIL 30, MARCH 31, ACQUISITION TO FINANCING FINANCING
1996 1996 ADJUSTMENTS(9) ADJUSTMENTS ADJUSTMENTS(10) CONSOLIDATED
----------- ----------- -------------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Product sales $ 2,580 $ -- $ -- $ 2,580 $ -- $ 2,580
License agreements 3,002,244 3,002,244 3,002,244
Interest income 138,499 138,499 138,499
----------- ----------- ---- ----------- ----------- ------------
Total revenues 3,143,323 3,143,323 3,143,323
COSTS AND EXPENSES:
Cost of sales 2,580 2,580 2,580
Research and development 1,679,558 799,921 2,479,479 2,479,479
General and administrative:
Unrelated entities 947,816 369,964 1,317,780 1,317,780
Affiliates 170,659 88,914 259,573 259,573
Stock based compensation
Interest 17,412 22,099 39,511 39,511
----------- ----------- ---- ----------- ----------- ------------
Total costs and expenses 2,818,025 1,280,898 4,098,923 4,098,923
----------- ----------- ---- ----------- ----------- ------------
Net loss before preferred stock
accretion and dividends 325,298 (1,280,898) -- (955,600) -- (955,600)
Preferred stock accretion and
dividends:
Accretion of discount on Class B
Preferred Stock (5,327,495) (5,327,495) (5,327,495)
Accretion of discount on 5%
Cumulative Class C Preferred
Stock (3,328,767) (3,328,767)
Imputed dividends for Class B
Convertible Preferred Stock (560,467) (560,467) (560,467)
Imputed dividends for Class C
Convertible Preferred Stock (859,064) (859,064)
----------- ----------- ---- ----------- ----------- ------------
Net Loss Applicable to Common Stock
(Note 11) $(5,562,664) $(1,280,898) $ -- $(6,843,562) $(4,187,831) $(11,031,393)
=========== =========== ==== =========== =========== ============
Weighted Average Shares Outstanding
(Note 11) 23,695,006
============
Net Loss per Share (Note 11) $ (0.47)
============
</TABLE>
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TECHNICLONE CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JANUARY 31, 1997
RESTATED
<TABLE>
<CAPTION>
PRO FORMA
TECHNICLONE PEREGRINE TOTALS PRIOR
JANUARY 31, DECEMBER 31, ACQUISITION TO FINANCING FINANCING
1997 1996 ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS(10) CONSOLIDATED
----------- ------------ ----------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $2,065,587 $15,636 $ 550,000 (2) $ 3,153,599 $11,180,000 $14,333,599
(27,624)(3)
550,000 (8)
Investments 997,118 997,118 997,118
Accounts receivable, net 31,947 31,947 31,947
Inventory 275,351 275,351 275,351
Prepaid expenses and other current
assets 5,383 6,000 326,700 (2) 338,083 338,083
---------- ------- ---------- ----------- ----------- -----------
Total current assets 3,375,386 21,636 1,399,076 4,796,098 11,180,000 15,976,098
PROPERTY:
Land 1,050,510 1,050,510 1,050,510
Building and improvements 3,038,994 3,038,994 3,038,994
Laboratory equipment 1,353,135 1,353,135 1,353,135
Office furniture and equipment 219,588 219,588 219,588
---------- ------- ---------- ----------- ----------- -----------
Total 5,662,227 5,662,227 5,662,227
Less accumulated depreciation (953,725) (953,725) (953,725)
---------- ------- ---------- ----------- ----------- -----------
Property, net 4,708,502 4,708,502 4,708,502
OTHER ASSETS:
Note receivable from shareholder 350,000 350,000 350,000
Patents, net 182,150 182,150 182,150
---------- ------- ---------- ----------- ----------- -----------
Total other assets 532,150 532,150 532,150
---------- ------- ---------- ----------- ----------- -----------
TOTAL $8,616,038 $21,636 $1,399,076 $10,036,750 $11,180,000 $21,216,750
========== ======= ========== =========== =========== ===========
</TABLE>
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TECHNICLONE CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JANUARY 31, 1997
RESTATED
(CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA
TECHNICLONE PEREGRINE TOTALS PRIOR
JANUARY 31, DECEMBER 31, ACQUISITION TO FINANCING FINANCING
1997 1996 ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS(10) CONSOLIDATED
----------- ------------ ----------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 205,685 $ 38,370 $ -- $ 244,055 $ -- $ 244,055
Accrued legal and accounting fees 85,000 249,304 334,304 334,304
Accrued payroll and related costs 99,005 41,181 140,186 140,186
Accrued license termination fee 100,000 100,000 100,000
Accrued license and royalties 81,667 273,211 354,878 354,878
Accrued interest 16,476 36,242 52,718 52,718
Reserve for contract losses 207,714 207,714 207,714
Current portion of long-term debt 72,609 72,609 72,609
Other current liabilities 68,663 45,913 114,576 114,576
---------- -------- --------- ---------- ---- ----------
Total current liabilities 936,819 684,221 1,621,040 1,621,040
LONG-TERM DEBT 1,941,271 750,000 876,700 (2) 1,941,271 1,941,271
(876,700)(4)
(750,000)(7)
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred Stock, Class A 294,109 (294,109)(6) --
Preferred Stock, Class B 2 444,108 (444,108)(6) 2 2
Preferred Stock, Class C 926,071 (926,071)(6) -- 12 12
Common Stock 22,164 62 5,080 (1) 27,392 27,392
(137)(1)
10 (4)
8 (5)
43 (6)
14 (7)
148 (8)
</TABLE>
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TECHNICLONE CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JANUARY 31, 1997
RESTATED
(CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA
TECHNICLONE PEREGRINE TOTALS PRIOR
JANUARY 31, DECEMBER 31, ACQUISITION TO FINANCING FINANCING
1997 1996 ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS(10) CONSOLIDATED
----------- ------------ ------------ ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Additional paid-in capital $ 34,166,617 $ 142,146 $ (3,821,416)(1) $ 61,529,898 $11,179,988 $ 72,709,886
26,813,429 (1)
876,690 (4)
388,349 (5)
1,664,245 (6)
749,986 (7)
549,852 (8)
Accumulated Deficit (27,974,253) (3,219,081) (26,632,018)(1) (54,606,271) (54,606,271)
3,635,062 (1)
(27,624)(2)
(388,357)(5)
------------ ----------- ------------ ------------ ----------- ------------
6,214,530 (1,412,585) 2,149,076 6,951,021 11,180,000 18,131,021
Less notes receivable from sale of
common stock (476,582) (476,582) (476,582)
------------ ----------- ------------ ------------ ----------- ------------
Net stockholders' equity 5,737,948 (1,412,585) 2,149,076 6,474,439 11,180,000 17,654,439
------------ ----------- ------------ ------------ ----------- ------------
TOTAL $ 8,616,038 $ 21,636 $ 1,399,076 $ 10,036,750 $11,180,000 $ 21,216,750
============ =========== ============ ============ =========== ============
</TABLE>
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TECHNICLONE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
RESTATED
(1) The acquisition of Peregrine was completed through the issuance of
5,080,000 shares of Techniclone Corporation's common stock in exchange
for all of the outstanding shares of Peregrine's common stock. The
acquisition has been accounted for using the purchase method. The
excess of the purchase price of $26,632,018 over the net assets
acquired of $186,491 has been allocated to in-process research and
development (accumulated deficit). The excess purchase price was
calculated based on the fair market value of the Techniclone common
shares issued plus direct acquisition costs over the net assets
acquired. The net assets acquired were determined based on Peregrine's
net stockholders' equity at December 31, 1996, after consideration of
the following transactions which occurred immediately prior to the
transaction:
o Issuance of convertible notes payable of $876,700 for cash of
$550,000 and notes receivable of $376,700.
o Conversion of outstanding preferred stock of Peregrine with a
carrying value of $1,664,288 into common stock of Peregrine.
o The granting of compensatory stock and options to an advisor and an
employee subsequent to December 31, 1996, valued at $388,357.
o The conversion of all outstanding notes payable aggregating
$1,626,700 into common stock of Peregrine immediately prior to the
transaction.
o The accrual and payment of interest on notes payable from December
31, 1996 (date of historical financial statements) through the pro
forma acquisition date of $27,624.
(2) Pro forma adjustment to reflect the issuance of convertible notes
payable for $876,700 to Peregrine in exchange for cash of $550,000 and
notes receivable of $326,700. Prior to closing the transaction, these
notes payable were converted into common stock of Peregrine.
(3) Pro forma accrual and payment of interest of $27,624 on notes payable
from Peregrine from the date of the historical financial statements
through the pro forma acquisition date. This amount was paid concurrent
with the closing of the acquisition.
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(4) Pro forma adjustment to reflect the conversion of notes payable of
$876,700 to common stock of Peregrine. As these notes were converted to
common stock of Peregrine just prior to the acquisition of Peregrine by
Techniclone, there was no assumption of the preconverted notes payable
to Peregrine by Techniclone.
(5) To reflect the issuance of common stock of Peregrine to an advisor
valued at $307,357 and options to purchase common stock of Peregrine to
an employee valued at $81,000. These grants were made subsequent to
December 31, 1996 and were to be awarded immediately prior to
consummation of the acquisition of Peregrine by Techniclone.
(6) Pro forma adjustment to reflect the conversion of all outstanding
preferred stock of Peregrine (Series A-$294,109, Series B $444,108 and
Series C $926,071) into common stock of Peregrine immediately prior to
the acquisition of Peregrine by Techniclone.
(7) Pro forma adjustment to reflect the conversion of the $750,000 note
payable outstanding at December 31, 1996 to common stock of Peregrine
immediately prior to the acquisition of Peregrine by Techniclone.
(8) In conjunction with the acquisition of Peregrine, the Company agreed to
sell one of the Peregrine's major shareholders additional common stock
at a 20% discount from the Company's trading price on a specified date
($3.82 per share). Indicated amount represents the sale of such Common
Stock. The Company has accounted for the sale of its common stock as an
equity transaction, without compensation expense, as the stock sold
represents restricted stock and the discount from the market value of
20% is considered reasonable in light of the restriction features.
(9) Pro forma acquisition adjustments related primarily to the purchase of
in-process research and development, issuance of stock for prior
services to an employee and a consultant of Peregrine and the accrual
of interest on the notes payable to Peregrine shareholders. As these
adjustments have no continuing impact on the future combined operations
of Techniclone and Peregrine, the amounts have been excluded from the
acquisition adjustments in the accompanying pro forma consolidated
statements of operations.
(10) Pro forma adjustments to record the issuance of $12,000,000 in Class C
Preferred Stock, net of issuance costs of $820,000. As the financing
was the sale of an equity security with dividends payable in preferred
stock, there is no effect on the pro forma
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statement of operations for the nine month period ended January 31,
1997 or the fiscal year ended April 30, 1996.
(11) Pro forma net loss per common share has been calculated by taking the
sum of the net income (loss) for the respective period and the
deducting Class B and Class C Preferred Stock discounts and dividends
of $10,075,793 for the fiscal year ended April 30, 1996 and $2,188,337
for the nine month period ended January 31, 1997 and dividing the sum
by the weighted average shares outstanding during the period.
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Peregrine Pharmaceuticals, Inc.:
We have audited the accompanying balance sheets of Peregrine Pharmaceuticals,
Inc. (a development stage enterprise) (the Company) as of December 31, 1995 and
1996, and the related statements of operations, stockholders' deficit and cash
flows for the years then ended and for the period from September 16, 1993 (date
of inception) through December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Peregrine Pharmaceuticals, Inc. as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for the years then ended and for the period from September 16, 1993 (date of
inception) through December 31, 1996 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 1 to the
financial statements, the Company's recurring losses from operations and its
accumulated deficit and working capital deficit raise substantial doubt about
its ability to continue as a going concern. Management's plans concerning this
matter are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ DELOITTE & TOUCHE, LLP
February 24, 1997, except Note 10
as to which the date is April 2, 1997
17
<PAGE> 18
PEREGRINE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 358,998 $ 15,636
Prepaid expenses and other current assets 6,000
----------- -----------
$ 358,998 $ 21,636
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Accounts payable $ 69,151 $ 38,370
Accrued research fees 108,792 129,461
Accrued license fees 75,000 143,750
Accrued legal fees 72,544 249,304
Accrued payroll and consulting fees 85,930 41,181
Accrued interest payable to stockholders (Note 3) 36,242
Advances payable to stockholders (Note 3) 45,913
----------- -----------
Total current liabilities 411,417 684,221
CONVERTIBLE NOTES PAYABLE TO STOCKHOLDERS (Note 3) 750,000
COMMITMENTS (Notes 4 and 5)
STOCKHOLDERS' DEFICIT (Notes 3, 5, 6, 7 and 10):
Preferred stock, $.0001 par value; 859,260 shares authorized:
Class A convertible preferred stock, 150,000 shares outstanding,
1995 and 1996 (liquidation preference of $300,000) 294,109 294,109
Class B convertible preferred stock, 100,000 shares outstanding,
1995 and 1996 (liquidation preference of $450,000) 444,108 444,108
Class C convertible preferred stock, 179,630 shares outstanding,
1995 and 1996 (liquidation preference of $970,000) 926,071 926,071
Common stock, $.001 par value; 1,500,000 shares authorized;
616,612 shares (1995) and 624,833 shares (1996) outstanding 62 62
Additional paid-in capital 100,646 142,146
Deficit accumulated during development stage (1,817,415) (3,219,081)
----------- -----------
Net stockholders' deficit (52,419) (1,412,585)
----------- -----------
$ 358,998 $ 21,636
=========== ===========
</TABLE>
See independent auditors' report
and notes to financial statements
18
<PAGE> 19
PEREGRINE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM SEPTEMBER 16, 1993
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 16, 1993
(DATE OF INCEPTION)
THROUGH
1995 1996 DECEMBER 31, 1996
----------- ----------- -------------------
<S> <C> <C> <C>
COSTS AND EXPENSES
(Notes 2, 3, 5, 6, 7, 8, and 9):
Research fees $ 236,457 $ 340,000 $ 598,842
License fees 173,558 162,500 343,750
Payroll 198,118 362,272 648,390
Advisor fees 161,239 121,894 374,616
Legal fees 279,788 220,170 545,556
General and administrative:
Unrelated entities 78,613 149,575 361,706
Affiliates 118,552 9,014 287,881
Interest (primarily to stockholders) 22,099 36,241 58,340
----------- ----------- -----------
NET LOSS $(1,268,424) $(1,401,666) $(3,219,081)
=========== =========== ===========
NET LOSS PER COMMON SHARE (NOTE 2) $ (2.48) $ (2.26) $ (5.89)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (NOTE 2) 510,466 620,756 538,500
=========== =========== ===========
</TABLE>
19
<PAGE> 20
PEREGRINE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM SEPTEMBER 16, 1993
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL LOSS DURING NET
------------------- -------------------- PAID-IN DEVELOPMENT STOCKHOLDER'S
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE DEFICIT
------- --------- ---------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, September 16, 1993
(date of inception) -- $ -- -- $ -- $ -- $ -- $ --
Common stock issued for cash 2,457,143 246
Recapitalization and reverse
stock split (2,457,143) (246)
Common stock issued for cash
and services 503,250 51 3,000 3,051
Net loss for period from
September 16, 1993 through
December 31, 1994 (548,991) (548,991)
------- ---------- ---------- ----- -------- ----------- -----------
BALANCES, December 31, 1994 503,250 51 3,000 (548,991) (545,940)
Common stock issued for cash 100,000 10 29,990 30,000
Preferred stock issued for cash
and conversion of debt, net
of offering costs of $55,714 429,630 1,664,288 12,657 1,676,945
Common stock issued in exchange
for services 13,362 1 54,999 55,000
Net loss (1,268,424) (1,268,424)
------- ---------- ---------- ----- -------- ----------- -----------
BALANCES, December 31, 1995 429,630 1,664,288 616,612 62 100,646 (1,817,415) (52,419)
Common stock issued in exchange
for services 8,221 41,500 41,500
Net loss (1,401,666) (1,401,666)
------- ---------- ---------- ----- -------- ----------- -----------
BALANCES, December 31, 1996 429,630 $1,664,288 624,833 $ 62 $142,146 $(3,219,081) $(1,412,585)
======= ========== ========== ===== ======== =========== ===========
</TABLE>
See independent auditors' report and
notes to financial statements.
20
<PAGE> 21
PEREGRINE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM SEPTEMBER 16, 1993
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 16,
1993 (DATE OF
INCEPTION)
THROUGH
DECEMBER 31,
1995 1996 1996
----------- ----------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,268,424) $(1,401,666) $(3,219,081)
Adjustments to reconcile net loss to net cash used
in operating activities:
Common stock issued in exchange for services 55,000 41,500 99,500
Preferred stock issued in exchange for accrued interest 12,657 12,657
Changes in operating assets and liabilities:
Prepaid expenses and other assets 11,264 (6,000) (6,000)
Accounts payable 54,905 (30,781) 38,370
Accrued research fees 92,125 20,669 129,461
Accrued license fees 67,308 68,750 143,750
Accrued legal fees 38,554 176,760 249,304
Accrued payroll and consulting fees (24,851) (44,749) 41,181
Accrued interest payable to stockholders 36,242 36,242
----------- ----------- -----------
Net cash used in operating activities (961,462) (1,139,275) (2,474,616)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of preferred stock 667,288 1,165,788
Proceeds from issuance of common stock 30,051 30,051
Proceeds from issuance of notes and advances
payable to stockholders 498,500 795,913 1,294,413
----------- ----------- -----------
Net cash provided by financing activities 1,195,839 795,913 2,490,252
----------- ----------- -----------
</TABLE>
See independent auditors' report and
notes to financial statements.
21
<PAGE> 22
PEREGRINE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM SEPTEMBER 16, 1993
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 16,
1993 (DATE OF
INCEPTION)
THROUGH
DECEMBER 31,
1995 1996 1996
----------- ----------- -------------
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 234,377 $ (343,362) $ 15,636
CASH AND CASH EQUIVALENTS, beginning of period 124,621 358,998
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 358,998 $ 15,636 $ 15,636
=========== =========== ===========
SUPPLEMENTAL INFORMATION:
Interest paid $ 9,424 $ -- $ 9,424
Income taxes paid $ -- $ -- $ --
NONCASH INVESTING AND FINANCING ACTIVITIES -- Preferred
stock issued upon conversion of note payable and accrued
interest to stockholders $ 512,657 $ -- $ 512,657
</TABLE>
See independent auditors' report and
notes to financial statements.
22
<PAGE> 23
PEREGRINE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM SEPTEMBER 16, 1993
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
- --------------------------------------------------------------------------------
1. GENERAL AND NATURE OF OPERATIONS
Nature of Operations - Peregrine Pharmaceuticals, Inc. (the Company) was
incorporated on September 16, 1993 under the laws of the State of
Delaware. The Company is considered to be in the development stage as
defined under Statement of Financial Accounting Standards (SFAS) No. 7,
Accounting and Reporting by Development Stage Enterprises. The Company
is engaged in research and development of new technologies for use in
the production of therapeutic agents for treatment of cancerous tumors.
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 incurred losses since
inception and has an accumulated deficit at December 31, 1996.
Historically, the Company has relied on third parties and investors to
fund its operations, and management expects to either receive additional
funds in the future or consummate a merger transaction with an unrelated
entity. There can be no assurances that this funding will be received.
If the Company does not receive additional funding or if the merger is
not completed, it will be forced to scale back operations, 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.
In February and March 1997, the Company issued an additional $550,000 in
convertible notes payable, the proceeds from which were used to reduce
certain short-term liabilities and to fund very near-term operations.
Additionally, as of February 24, 1997, the Company was negotiating a
potential merger with an unaffiliated entity, Techniclone International
Corporation (Techniclone). The merger, if consummated, would provide for
the issuance of approximately 5,080,000 shares of Techniclone common
stock and the assumption of net liabilities of approximately $400,000 in
exchange for all of the outstanding shares of the Company's stock. In
conjunction with the merger, certain notes payable and preferred stock
will be converted into common stock of the Company (Note 10).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents - The Company considers all highly-liquid, short-term
investments with an initial maturity of three months or less to be cash
equivalents.
23
<PAGE> 24
PEREGRINE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM SEPTEMBER 16, 1993
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
- --------------------------------------------------------------------------------
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles necessarily requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reported periods. Actual
results could differ from these estimates.
Research and License Fees - Fees from research and license arrangements
involving new technologies which provide for specified minimum fees to
be paid by the Company and do not include cancellation clauses are
expensed upon the earlier of payment of the funding for research or when
the obligation is incurred. Fees from research and license arrangements
with cancellation clauses are expensed as incurred. Contingent fees
related to these agreements are expensed when the contingency is
resolved.
Stock Compensation - The Company periodically issues common stock for
services and grants options to purchase the Company's common stock at
specified prices. The Company accounts for stock-based compensation
issued to employees under Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, and for stock-based
compensation issued to others under SFAS No. 123, Accounting for
Stock-Based Compensation.
The Company measures compensation expense for stock granted for services
based on the fair value of the common stock at the date of issuance. The
fair value is determined based on the more readily determinable of the
value of the service provided or the fair market value of the common
stock as determined on a periodic basis by the Company's Board of
Directors. Compensation expense for options granted to employees is
measured based on the difference between the fair market value of the
stock on the date of grant and the option price and is amortized over
the related vesting period on a straight-line basis. Compensation
expense for options granted to nonemployees is measured based on the
difference between the fair value of the option utilizing a Black
Scholes formula and the option price and is amortized over the vesting
period.
Income Taxes - The Company accounts for income taxes in accordance with
the standards specified in SFAS No. 109, Accounting for Income Taxes.
Net Loss per Common Share - Net loss per share is calculated by dividing
the net loss by the weighted average common shares outstanding. The
weighted average common shares outstanding have been computed assuming
the recapitalization and reverse stock splits occurred at the date of
inception of the Company (Note 6). The effects of possible conversion of
preferred stock and/or the exercise of outstanding options and warrants
have not been considered, as their effect would be antidilutive.
Pro Forma Financial Information - The pro forma financial information
assumes the conversion of the $750,000 in notes payable to shares of
common stock at $5.40 per share, excluding payment of accrued interest,
which will occur concurrent with the closing of the merger transaction
(Note 10).
Fair Value of Financial Instruments - At December 31, 1996, the
Company's financial instruments consist of accounts payable, accrued
liabilities, advances to stockholders and convertible notes payable to
stockholders. The Company believes the historical value of all financial
instruments, except the convertible notes payable to stockholders,
approximates the fair market value due to the short-term nature of the
related instruments. The fair market value of the convertible notes
payable to stockholders approximates $743,500, which reflects a discount
on the notes payable for the
24
<PAGE> 25
PEREGRINE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM SEPTEMBER 16, 1993
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
- --------------------------------------------------------------------------------
difference in the interest rate on the notes payable and an estimated
interest rate for debt instruments with similar terms.
3. ADVANCES AND NOTES PAYABLE TO STOCKHOLDERS
The advances to stockholders represent funds advanced for expenses, were
noninterest-bearing and were due on demand. The advances were repaid
through the issuance of convertible notes payable in January 1997
(Note 10).
In August 1995, the Company issued $500,000 in convertible notes payable
to a primary stockholder. The notes bore interest at 8.25% per annum,
were convertible into Series C preferred stock and were due on February
29, 1996. The notes payable and accrued interest of $12,657 were
converted into Series C preferred stock at $5.40 per share on December
18, 1995. The effect on the statement of operations for the year ended
December 31, 1995 had the notes been converted as of the issuance date
would not have been material.
In May and June 1996, the Company issued $750,000 in convertible notes
payable to three primary stockholders. The notes bear interest at 8.25%
per annum, are due on February 28, 1997, but may be extended with the
consent of the noteholders through July 31, 1997, and are convertible
into Series D preferred stock at a price to be determined at the time of
a subsequent financing. Under the terms of the note agreement, the
noteholders received warrants to purchase shares of the future series of
preferred stock of the Company equal to the note value divided by the
lesser of $6.75 per share or the value of the preferred stock
established in the next subsequent financing. The warrants expire in May
2000.
Interest expense related to the notes payable to stockholders amounted
to $12,657, $36,242 and $48,899 for the years ended December 31, 1995
and 1996 and the period from September 16, 1993 through December 31,
1996, respectively.
In conjunction with the acquisition of the Company by Techniclone, the
notes payable will be converted into shares of the Company's common
stock at $5.40 per share (Note 10). As such, the notes have been
classified as noncurrent liabilities in the accompanying financial
statements.
4. COMMITMENTS
The Company has an employment agreement with an officer of the Company,
which expires in December 1997. Under the terms of the agreement, upon
termination of employment of the officer, the Company would be required
to issue 15,000 shares of the Company's common stock and pay certain
severance costs aggregating $153,000. The total future commitment under
this agreement, assuming no termination of the employee, amounted to
$225,000 at December 31, 1996.
The Company has entered into consulting agreements with various
scientific advisors; such agreements expire through August 1997. The
agreements provide that the Company pay fixed fees or issue common stock
of the Company in exchange for consulting services. Of the amounts
expensed, $55,000, $33,000 and $91,000 were paid through the issuance of
common stock for the years ended December 31, 1995 and 1996 and the
period from September 13, 1996 through December 31, 1996, respectively.
At December 31, 1996, future commitments related to these agreements
amounted to $33,250, due in 1997.
25
<PAGE> 26
PEREGRINE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM SEPTEMBER 16, 1993
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
- --------------------------------------------------------------------------------
5. LICENSE AND RESEARCH AND DEVELOPMENT AGREEMENTS
The Company has entered into several license, sublicense and research
and development agreements with various entities. The license agreements
provide for exclusive, worldwide licensing rights to certain patents and
technology in exchange for certain fixed and contingent payments and
royalties ranging between 2% and 4% of net sales of the related
products. The agreements also provide for reduced royalty payments if
the technology is sublicensed or if products incorporate both the
licensed technology and another technology. Certain of the agreements
are terminable at the discretion of the Company and others are
cancelable through 2001. Amounts expensed in conjunction with these
agreements amounted to $173,558 in 1995, $162,500 in 1996 and $343,750
for the period from September 16, 1993 through December 31, 1996. Total
future fixed commitments, exclusive of royalties, under these agreements
are $181,250 for the year ending December 31, 1997 and $100,000 for the
year ending December 31, 2000.
Contingent future commitments, exclusive of royalties, are as follows:
Payments due upon completion of Phase I clinical trials...... $ 37,500
Annual payments upon patent issuance and until royalties
begin...................................................... 50,000
Payments due upon initiation of Phase II clinical trials..... 175,000
Payments due upon completion of Phase II clinical trials..... 50,000
Payments upon commercial introduction of the related
product or new drug or product license application......... 375,000
Payments upon commercial introduction for each additional
new product encompassing related technology................ 300,000
During 1994 and 1995, the Company entered into sponsored research
agreements with academic medical institutions affiliated with
stockholders of the Company. These agreements expire in 1997. Scheduled
payments of approximately $316,000 are required under these agreements
during the year ending December 31, 1997.
Certain of the Company's scientific advisory board members are
affiliated with these academic institutions.
6. STOCKHOLDERS' DEFICIT
During 1995 and 1996, the Company issued stock for services performed by
employees and consultants. Amounts expensed for such exchanges amounted
to $55,000, $41,500 and $99,500 for the years ended December 31, 1995
and 1996 and the period from September 13, 1996 through December 31,
1996, respectively, and were based on the more readily determinable
value of the service performed or the fair market value of the common
stock at the date of issuance.
During 1995 and 1996, the Company issued various series of preferred
stock. The preferred stock is voting stock and includes provisions for:
preferences in liquidation; antidilution protection; dividends, when and
if declared; conversion into common stock at any time at the option of
the holder and automatically at the time of an initial public offering
of the Company's common stock for proceeds in excess of specified
amounts and redemption at the option of the Company after January 1,
2002 for Series A and Series B.
26
<PAGE> 27
PEREGRINE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM SEPTEMBER 16, 1993
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
- --------------------------------------------------------------------------------
Terms specific to each series of preferred stock as are follows:
Liquidation and Redemption
Series Date conversion value value
------ ---- ---------------- ----------
Series A..... June 1, 1995 $2.00 per share $2.20 per share
Series B..... June 1, 1995 $4.50 per share $4.95 per share
Series C..... December 18, 1995 $5.40 per share None
Prior to 1995, the Company issued common stock to various individuals
for $246. In conjunction with a recapitalization agreement, the initial
stockholders agreed to sell their shares back to the Company for the
initial purchase price. Concurrent with the recapitalization, the
Company declared a 6.1429 to 1 reverse stock split. All per share
amounts and weighted average shares outstanding have been adjusted to
reflect the recapitalization and reverse stock split as if it had
occurred as of September 16, 1993.
7. STOCK OPTIONS AND STOCK WARRANTS
In December 1995, the Company approved a stock incentive plan. The plan
provides for the issuance of statutory and nonstatutory options to
purchase up to 130,000 shares of the Company's common stock at prices to
be determined at the discretion of the Board of Directors. During the
years ended December 31, 1995 and 1996, the Company granted options to
an employee to purchase 4,000 and 2,500 shares, respectively, of the
Company's common stock at $0.30 per share. These options were valued at
$0.30 per share. The difference between the fair value market value of
the stock and the options exercise price has been recorded as being
amortized over the vesting period of four years on a straight-line
basis.
In conjunction with the issuance of the $750,000 notes payable, the
Company issued warrants to purchase a future series of preferred stock.
The number of shares the noteholders would be entitled to purchase was
to be determined by dividing the sum of the outstanding note payable
balance by the lesser of the price of the subsequent Series D preferred
stock price or $6.75 per share. The warrants were scheduled to expire in
May 2000; however, they will be canceled upon the closing date of the
potential merger transaction with Techniclone (Note 10). The warrants
were valued at $9,844, which represents the difference between the
amount of interest to be paid under the terms of the related note
agreement and the estimated interest that would have been charged on a
similar debt instrument at the date of issuance. The value of the
warrant is being amortized using the interest method over the term of
the related note agreement.
8. INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, which requires
the recognition of deferred tax liabilities and assets for the future
consequences of events that have been recognized in the Company's
financial statements or tax returns. In the event the future
consequences of differences between financial reporting bases and tax
bases of the Company's assets and liabilities result in a deferred tax
asset, SFAS No. 109 requires an evaluation of the probability of being
able to realize the future benefits indicated by such asset. A valuation
allowance is provided when it is more likely than not that some portion
or all of the deferred tax asset will not be realized.
27
<PAGE> 28
PEREGRINE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM SEPTEMBER 16, 1993
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
- --------------------------------------------------------------------------------
The valuation allowance increased $501,739 and $569,948 in 1995 and
1996, respectively.
Net deferred tax assets are comprised of the following at December 31:
1996 1995
----------- ---------
Net operating loss carryforwards.......... $ 997,609 $ 539,199
General business and research and
development credits..................... 40,987 16,368
Accounts payable and other accrued costs.. 251,486 164,567
----------- ---------
1,290,082 720,134
Less valuation allowance.................. (1,290,082) (720,134)
----------- ---------
Net deferred taxes........................ $ -- $ --
=========== =========
The Company has net operating loss carryforwards of approximately
$2,494,000 at December 31, 1996, which are available to offset future
taxable income. These loss carryforwards begin to expire in the year
2008. In addition, the Company has research and development tax credits
of approximately $41,000, which are available for future use through the
year 2008.
The items reconciling income taxes applied at the federal statutory rate
to the income tax provision recorded for each of the years ended
December 31, 1995 and 1996 and the period from September 16, 1993
through December 31, 1996 are primarily net operating loss
carryforwards, changes in valuation allowance of deferred tax assets and
state taxes (benefit), net of federal effect.
9. RELATED PARTY TRANSACTIONS
The Company paid certain fees to a stockholder of the Company in
exchange for consulting and research and development services provided
by this stockholder. Consulting fees to the stockholder charged to
operations amounted to $172,000 and $242,800 for the year ended December
31, 1995 and the period from September 16, 1993 through December 31,
1996, respectively.
In addition, the Company paid certain fees to an entity owned by a
stockholder in exchange for administrative services. These amounts
totaled $118,552, $9,014 and $193,354 for the years ended December 31,
1995 and 1996 and the period from September 16, 1993 through December
31, 1996, respectively.
10. SUBSEQUENT EVENTS
On January 28, 1997, the Company issued $550,000 in convertible notes
payable to three primary stockholders and one outside investor group.
The notes bear interest at 8.25% per annum, are due on February 28,
1997, but may be extended with the consent of the noteholders through
May 1, 1997. The notes are convertible into shares of the Company's
common stock at $9.00 per share concurrent with the closing of a
potential merger transaction with Techniclone or if the merger
28
<PAGE> 29
PEREGRINE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM SEPTEMBER 16, 1993
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
- --------------------------------------------------------------------------------
transaction is not completed, then into shares of Series D preferred
stock at a price to be determined at a future date and at the time of a
subsequent financing.
On April 2, 1997, the Board of Directors and stockholders reached an
agreement to merge the Company with Techniclone. Under the terms of the
agreement, the stockholders of the Company will receive approximately
5,080,000 shares of Techniclone's common stock, and Techniclone will
assume net liabilities of approximately $400,000 in exchange for all of
the outstanding stock of the Company.
In conjunction with the merger, the convertible notes payable of
$750,000 will be converted at $5.40 per share and the notes payable of
$550,000 will be converted at $9.00 per share immediately prior to the
closing of the transaction. Accrued interest on these notes as of the
merger closing date will be paid in cash. In addition, an employee will
be granted an additional 420,000 shares of the Company's common stock
just prior to closing of the transaction, and the warrants on the
$750,000 notes payable will be canceled.
In conjunction with the merger, certain notes payable and preferred
stock will be converted into common stock of the Company. On a pro forma
basis, the number of common shares of the Company outstanding just prior
to the merger would be 1,185,131.
29
