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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K/A
AMENDMENT NO. 2
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended April 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 of (I.R.S. Employer
incorporation or organization) 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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
(Title of Class)
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $64,449,225 as of July 1, 1996, based upon average
bid and asked prices of such stock.
[Cover page 1 of 2 pages]
Page 1 of 41 Pages
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APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicated by check mark whether the Registrant has filed all documents
and reports required to be filed by Sections 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 REGISTRANTS
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
20,869,675 shares of Common Stock
as of July 1, 1996
DOCUMENTS INCORPORATED BY REFERENCE.
None.
This Form 10-K/A Amendement No. 2, to the Annual Report on Form 10-K
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" under Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
[Cover page 2 of 2 pages]
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PART I
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
YEAR ENDED APRIL 30, 1996 COMPARED TO YEAR ENDED APRIL 30, 1995
Techniclone International Corporation is engaged in research and
development of new technologies used in the production of monoclonal antibodies
and the production of specific antibodies with prospective research, diagnostic
and therapeutic applications. As shown in the accompanying financial statements,
the Company incurred losses during fiscal 1995 and 1994 and has an accumulated
deficit at April 30, 1996. During October 1992, the Company terminated certain
licensing rights with a stockholder and entered into a new licensing agreement
with an unrelated entity. Under the termination agreement, the Company will be
required to make certain minimum payments as defined. The new agreement provides
for, among other things, the right for the Company to suggest input on the
development and clinical trial process for its LYM-1 antibody technology,
payments to the Company upon attainment of certain milestones and guaranteed
sales prices for specified sales of LYM-1 products. See note 6 to the Financial
Statements.
Historically, the Company has relied on third party and investor funds
to fund its operations and clinical trials, and management expects to receive
additional funds in the future. There can be no assurances that this funding
will be received. If the Company does not receive additional funding, it will be
forced to scale back operations and it could have a material adverse effect on
the Company. The Company's continuation as a going concern is dependent on its
ability to generate sufficient cash flow to meet its obligations on a timely
basis, to obtain additional financing as may be required and, ultimately to
attain successful operations.
The Company's net income of approximately $325,000 for the year ended
April 30, 1996 represents an increase of approximately $7,237,000 compared to
the net loss of approximately $6,912,000 for the prior year ended April 30,
1995. This increase in the net income in the 1996 year is primarily attributable
to a $4,101,000 decrease in total costs and expenses and an increase of
$3,136,000 in total revenues. The decrease in total costs and expenses is
primarily attributable to a decease in an aggregate charge to earnings of
$4,849,591 which occurred during the year ended April 30, 1995 (which
represented the excess of the purchase price over the net tangible assets
acquired or costs related to purchased in-process research and development) in
connection with the acquisition of the remaining minority interest of Cancer
Biologics Incorporated ("CBI") by the Company, which did not recur during the
year ended April 30, 1996.
Total revenues for the year ended April 30, 1996 increased
approximately $3,136,000 compared to the total revenues of $7,000 the prior year
ended April 30, 1995. This increase resulted from increases in sales of
antibodies and other products of approximately $3,000, licensing revenue of
$2,995,000 and interest income of approximately $138,000, in comparison to the
prior year ended April 30, 1995. Licensing fee revenues increased during the
year ended April 30, 1996 primarily from the result of an increase in licensing
fees from Biotechnology Development Ltd. relating to the Company's LYM-1
antibody. On February 29, 1996 the Company entered into a
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distribution agreement with Biotechnology Development, Ltd. ("BTD"), a limited
partnership controlled by a member of the Board of Directors of the Company and
a major shareholder of the Company, which provides for BTD to acquire LYM-1
antibody technology marketing rights for certain European countries and other
geographic areas not covered by its existing license agreement with Alpha
Therapeutic Corporation in exchange for the payment of $3,000,000 by BTD to the
Company. Under the terms of the distribution agreement, the Company retains all
manufacturing rights to LYM-1 and will supply LYM-1 to BTD at preset prices.
Additionally, under the Distribution Agreement, the Company has an Option 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.
On December 27, 1995, the Company issued 7,700 shares of newly created
Class B Convertible Preferred Stock, at a price of $1,000 per share, and on
December 29, 1995 issued an additional 500 shares of Class B Convertible
Preferred Stock, at a price of $1,000 per share, for an aggregate issuance
consideration of $8,200,000 to sixteen (16) offshore investors pursuant to
Regulation S promulgated under the Securities Act of 1933. The Class B
Convertible Preferred Stock is non-voting. The Class B Convertible Preferred
Stock is convertible, commencing immediately after the Closing into Common Stock
of the Company. During the first ninety days after the Closing, each share of
the Class B Convertible Preferred Stock was convertible in multiples of $50,000
into that number of shares of Common Stock calculated by dividing $1,000 by 110%
of the Fixed Conversion Price which is the lower of (i) $3.06875 (fair market
value at the date of issuance) per share of Common Stock or (ii) 85% of the fair
market value of the Common Stock on the date of conversion based on the average
bid price during the five trading days prior to the date of conversion.
Beginning 91 days after the Closing Date the number of shares of Common Stock
issued upon conversion of each share of Class B Convertible Preferred Stock
converted is determined by (i) taking ten percent (10%) of One Thousand Dollars
($1,000) pro-rated on the basis of a 365 day year, by the number of days between
the last Closing Date and the date of conversion plus (ii) One Thousand Dollars
($1,000), (iii) divided by the Conversion Price. As of April 30, 1996, the Fixed
Conversion Price was set at $3.06875, which was the average closing bid price
for the Company's Common Stock for the five (5) trading days ending on December
8, 1995. Additionally, the Class B Convertible Preferred Stock has a liquidation
preference over other classes of the Company's stock. This liquidation
preference is $1,000 per share of Class B Convertible Preferred Stock plus 10%
per annum pro-rated through any liquidation date. As of April 30, 1996 1,400
shares of Class B Convertible Preferred Stock had been converted at the election
of the holder to Common Stock. In connection with these conversions the Company
issued 469,144 shares of Common Stock. As of April 30, 1996, 6,800 shares of
Class B Convertible Preferred Stock remain outstanding which as of April 30,
1996 were convertible into 2,289,951 shares of Common Stock at a conversion
price of $3.06875 per share, with a liquidation preference of $7,027,288.
The Company received $7,137,544 in net proceeds from the sale of the
Class B Convertible Preferred Stock after payment of offering commissions and
expenses and legal fees. In connection with the placement of the Class B
Preferred Stock, the Company paid to Swartz Investments, Inc. commissions of
$656,000 and a non-accountable expense allowance of $246,000. In addition, the
Company issued to Swartz Investments, Inc. two five year warrants to purchase an
aggregate of
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267,210 shares of the Company's Common Stock at an exercise price of $3.06875.
The Common Stock issuable on exercise of the warrant and on conversion of the
Class B Convertible Preferred Stock (if not otherwise freely tradeable) is
subject to registration pursuant to a Registration Rights Agreement.
Additionally, the Company paid other commissions of $75,000 and legal fees of
approximately $85,000 in connection with the preferred stock placement.
The Company intends to use the proceeds from the offering to support
its LYM-1, Oncolym(TM) manufacturing effort for the Phase III LYM-1, Oncolym(TM)
clinical trials, to fund additional development of its patented Tumor Necrosis
Therapy (TNT) and for working capital. Interest income increased during the year
ended April 30, 1996 as the level of cash funds available for investment has
increased in comparison to the prior year ended April 30, 1995.
The Company has had no significant research and development contract
revenue during the year ended April 30, 1996 however the Company expects product
revenues to increase due to the clinical trials of the LYM-1 antibody.
The Company's total costs and expenses decreased approximately
$4,101,000 (or 59%) for the year ended April 30, 1996 in comparison to the year
ended April 30, 1995. Cost of sales increased approximately $3,000 in comparison
to the prior year and sales of antibodies and other products increased
approximately $3,000. Research and development expenses increased approximately
$454,000 (or 37%) for the year ended April 30, 1996 in comparison to the year
ended April 30, 1995. This increase in research and development expenses during
the year ended April 30, 1996 resulted from the Company's activities during the
year ended April 30, 1996 in preparing for the Phase III clinical trials of the
LYM-1 antibody. During the year ended April 30, 1996, the Company increased its
TNT development costs by approximately $63,000, in comparison to the prior year
ended April 30, 1995. Also, during the year ended April 30, 1996, research and
development costs relating to the LYM-1 antibody increased by approximately
$391,000 due to an approximate $286,000 increase in salaries and related costs
for clinical trial preparation and an approximate $105,000 increase in expenses
incurred in supporting the efforts of Mills Biopharmaceuticals, Inc. ("MBI") to
complete and obtain Nuclear Regulatory Commission licensing for its Oklahoma
LYM-1 antibody labeling facility. Management anticipates the Company will have
additional capital requirements and expenses related to development and clinical
trials of its antibodies.
General and administrative expenses incurred by the Company increased
approximately $434,000 (or 63%) during the year ended April 30, 1996 in
comparison to the prior year ended April 30, 1995. The increase in general and
administrative expenses during the year ended April 30, 1996 resulted primarily
from increased administrative, payroll and consultant costs associated with
clinical trial preparation and expanded public relations activities. Interest
expense decreased approximately $10,000 during the year ended April 30, 1996 in
comparison to the year ended April 30, 1995 due to lower levels of interest
bearing debt outstanding during the year. Management believes that general and
administrative costs will increase during the year ending April 30, 1997 as
Phase III clinical trials of the LYM-1 antibody are expanded and due to
increased investor relations activities.
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YEAR ENDED APRIL 30, 1995 COMPARED TO YEAR ENDED APRIL 30, 1994
The Company's net loss of approximately $6,912,000 for the year ended
April 30, 1995 represented an increase of approximately $4,507,000 (or 187%)
compared to the net loss of approximately $2,405,000 for the prior year ended
April 30, 1994. This increase in the net loss in the 1995 year was primarily
attributable to a $4,444,000 increase in total costs and expenses and a $62,000
decrease in total revenues.
Total revenues for the year ended April 30, 1995 decreased
approximately $62,000 compared to the prior year ended April 30, 1994. This
decrease resulted from decreases in sales of antibodies and other products of
approximately $4,000, licensing revenue of $50,000 and interest income of
approximately $8,000, in comparison to the prior year ended April 30, 1994.
Management attributed the decreases in product and antibody sales to lower sales
of the Company's Histoclone products during the year ended April 30, 1995. The
licensing fee revenues decreased during the year ended April 30, 1995 primarily
from a decrease in LYM-1 licensing fees from Alpha Therapeutic Corporation.
Interest income decreased during the year ended April 30, 1995, as the level of
idle cash funds available for investment had decreased in comparison to the
prior year ended April 30, 1994.
The Company had no significant research and development contract
revenue during the year ended April 30, 1995.
The Company's total costs and expenses increased approximately
$4,444,000 (or 180%) for the year ended April 30, 1995 in comparison to the year
ended April 30, 1994. Cost of sales decreased approximately $2,000 during the
year ended April 30, 1995, in comparison to the prior year ended April 30, 1994,
while sales of antibodies and other products decreased approximately $4,000
during the year ended April 30, 1995. Research and development expenses
decreased approximately $91,000 (or 7%) for the year ended April 30, 1995 in
comparison to the year ended April 30, 1994. This decrease in research and
development expenses resulted primarily from an approximate $140,000 decrease in
expenses due to capitalization of inventory costs, and a $160,000 decrease in
development costs of the TNT antibody technologies, offset by approximately
$209,000 in increased research and development expenses relating to the
Company's preparation for commencement of clinical trials of LYM-1 during the
year ended April 30, 1995. During the year ended April 30, 1995, the Company
produced significant quantities of LYM-1 antibody for sale and use when clinical
trials begin. A portion of these production and testing costs of these LYM-1
inventories were capitalized during the year, whereas similar costs incurred
prior to inventory production were expensed as research and development costs
during the prior year ended April 30, 1994. During the year ended April 30,
1995, the Company decreased its TNT development costs by $160,000, in comparison
to the prior year ended April 30, 1994, as funds were redirected to LYM-1
clinical trial preparation. During the year ended April 30, 1995, research and
development costs relating to the LYM-1 antibody increased by approximately
$209,000 due to a $102,000 increase in salaries and related costs for clinical
trial preparation and a $107,000 increase in expenses during the year ended
April 30, 1995 incurred in supporting the efforts of MBI to complete and
obtaining NRC licensing for its Oklahoma LYM-1 antibody labeling facility.
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General and administrative expenses incurred by the Company decreased
approximately $442,000 (or 39%) during the year ended April 30, 1995 in
comparison to the prior year ended April 30, 1994. The decrease in general and
administrative expenses during the year ended April 30, 1995 resulted primarily
from $300,000 expensed in the prior year ended April 30, 1994 associated with
the vesting of contingent stock options and $142,000 in shareholder meeting
expenses incurred in the year ended April 30, 1994, which did not recur in the
year ended April 30, 1995. Interest expense decreased $3,000 during the year
ended April 30, 1995 in comparison to the year ended April 30, 1994 due to lower
levels of interest bearing debt outstanding during the year.
The Company incurred a $4,849,591 charge to earnings during the year
ended April 30, 1995 relating to the acquisition of the remaining minority
interest of CBI, effective on July 26, 1994. The excess of the purchase price
over net tangible assets acquired and liabilities assumed (notes receivable and
accrued liabilities) of $4,849,591 represents the difference between the fair
value of the Company's common stock exchanged and the fair value of notes
receivable and liabilities assumed and the difference between the fair value of
the options to purchase the Company's common stock and the exercise price of the
CBI options exchanged ($2,577,120). The net assets of CBI acquired and assumed
by the Company consisted of notes receivable, accrued liabilities and intangible
assets related to in-process research and development technology associated with
the TNT antibody. The technology associated with the TNT antibody has not
reached technical feasibility, was in the early stages of clinical trials and
did not have any known alternative use other than the potential for treating
cancer patients. The Company expects the continued development of the TNT
antibody technology and clinical trials to continue over the next several years.
Costs associated with the continued development and clinical trials will be
significant.
The Company recorded a $132,071 reserve during the year ended April 30,
1995 for contract losses relating to current and future LYM-1 inventories which
are committed to be sold at below the Company's expected cost to Alpha
Therapeutics for use in the Phase III clinical trials of LYM-1.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1996, the Company had $8,173,347 in cash, investments and
receivables and a working capital surplus of $7,460,514 compared to $38,020 in
cash and receivables and a working capital deficit of $934,121 at April 30,
1995. The Company raised net proceeds of approximately $1,507,000 from the sale
of Common Stock and net proceeds of $7,138,000 from the sale of the Class B
Preferred Stock during the year ended April 30, 1996.
CAPITAL COMMITMENTS
At April 30, 1996, the Company had no material commitments to acquire
additional assets, but expects to acquire additional assets, building
improvements and equipment during the year ending April 30, 1997 to expand its
office and production facilities.
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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, which reflect management's current expectations. 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 April 30, 1996, the Company had
approximately $8,078,000 cash and short term investments which approximates 27
months of expenses. 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 Company expects that the monthly negative cash flow will
increase as a result of increased activities with the Phase III clinical trials
for LYM-1 and the significantly increased research and development with the
Company's other products, including Tumor Necrosis 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 the research
and development and provide for future clinical trials. The Company must raise
additional equity funds in order to continue its operations until it is able to
generate sufficient additional revenue from the sale and licensing of its
products. There can be no assurance that the Company will be successful in
raising such funds on terms acceptable to it or at all, or that sufficient
additional capital will be raised to research and develop the Company's
additional products. The Company is discussing the possibility of raising
additional funds with several investment banking firms, but as of April 30,
1996, the Company had not entered into any firm commitments for additional
funds. If the initial results from the Phase II/III clinical trials of LYM-1 are
poor, the results may have a material adverse effect upon the Company's ability
to raise additional capital, which would affect the Company's ability to
continue a full-scale research and development effort for its antibody
technologies. The 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
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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.
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. The Company's participation in the highly
competitive biotechnology industry often results in significant volatility in
the Company's common stock price. This volatility in the stock price is a
significant risk investors should consider.
FORWARD LOOKING STATEMENTS. This Annual Report on Form 10-K 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-K, 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
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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 IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The financial statements and schedules listed below are filed
as part of this Report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F-1
Balance Sheets as of F-2 & F-3
April 30, 1996 and 1995
Statements of Operations F-4
for each of the three years in the period
ended April 30, 1996.
Statements of Stockholders' Equity F-5 & F-6
(Deficit) for each of the three years in the period
ended April 30, 1996.
Statements of Cash Flows F-7 & F-8
for each of the three years
in the period ended April 30, 1996
Notes to Financial Statements F-9 - F-21
(2) Financial Statement Schedules
II Valuation and Qualifying Accounts F-22
</TABLE>
(3) Exhibits
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page No.
- ------- ----------- ----------
<S> <C> <C>
3.1 Articles of Incorporation of the Registrant, as Amended to Date
(Incorporated by reference to the exhibit contained in Registrant's
Current Report on Form 8-K dated December 27, 1995, as filed with
the Commission on or about January 24, 1996)
3.2 Bylaws of the Registrant, as currently in effect **
</TABLE>
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<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page No.
- ------- ----------- ----------
<S> <C> <C>
4.1 Form of Certificate for Common Stock **
4.2 Form of Techniclone Research Partners I Warrants *
4.3 Form of Series A Convertible Debentures *
4.4 Form of Subscription Agreement entered into with Series B
Convertible Preferred Stock Subscribers (Incorporated by reference
to Exhibit 4.1 contained in Registrant's Report on Form 8-K dated
December 27, 1995, as filed with the Commission on or about January
24, 1996)
4.5 Registration Rights Agreement dated December __, 1995, by and among
Swartz Investments, Inc. and the holders of the Registrant's Series
B Convertible Preferred Stock (incorporated by reference to Exhibit
4.2 contained in Registrant's Current Report on Form 8-K dated
December 27, 1995 as filed with the Commission on or about January
24, 1996)
4.6 Warrant to Purchase Common Stock of Registrant issued to Swartz
Investments, Inc. (Incorporated by reference to Exhibit 4.3
contained in Registrant's Current Report on Form 8-K dated December
27, 1995 as filed with the Commission on or about January 24, 1996
10.5 Research and Development Contract, dated December 31, 1981 and **
amended March 1, 1982, between Registrant and Celltech Partners I
10.6 Option Agreement, dated December 31, 1981 and amended March 1, 1982, **
between Registrant and Celltech Partners
10.12 Secrecy Agreement, dated April 24, 1981, and proposed License **
Agreement by and between Registrant and the Regents of the
University of California
10.16 Agreement to purchase Registrant's Stock dated June 16, 1986, ***
between Registrant and American Cyanamid Company
10.17 Agreement to purchase 400,000 shares of Registrant's Common Stock ****
dated April 29, 1988 between Registrant and American Cyanamid
Company
10.22 1982 Stock Option Plan *****
</TABLE>
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<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page No.
- ------- ----------- ----------
<S> <C> <C>
10.23 Incentive Stock Option, Nonqualified Stock Option and Restricted ******
Stock Purchase Plan - 1986
10.24 Cancer Biologics Incorporated Incentive Stock Option, Nonqualified *
Stock Option and Restricted Stock Purchase Plan - 1987
10.25 Amendment to 1982 Stock Option Plan dated March 1, 1988 *
10.26 Amendment to 1986 Stock Option Plan dated March 1, 1988 *
10.27 License Agreement dated May 12, 1986 between Registrant and Cancer
Biologics Incorporated *
10.28 Lease Agreement dated February 1, 1988 between Registrant and *
McKellar Development of La Jolla
10.29 Stock Purchase Agreement dated November 1987, between Registrant and *
Cancer Biologics Incorporated
10.30 Lease Agreement dated September 10, 1991 between Registrant and
McKellar Development of La Jolla
10.31 Agreement dated February 5, 1996, between Cambridge Antibody
Technology, Ltd. and Registrant (Incorporated by reference to
Exhibit 10.1 contained in Registrant's Current Report on Form 8-K
dated February 5, 1996, as filed with the Commission on or about
February 8, 1996)
10.32 Distribution Agreement dated February 29, 1996, between
Biotechnology Development, Ltd. and Registrant (Incorporated by
reference to Exhibit 10.1 contained in Registrant's Current Report
on Form 8-K dated February 29, 1996, as filed with the Commission on
or about March 7, 1996)
10.33 Option Agreement dated February 29, 1996, by and between
Biotechnology Development, Ltd. And Registrant (Incorporated by
reference to Exhibit 10.2 contained in Registrant's Current Report
on Form 8-K dated February 29, 1996, as filed with the Commission on
or about March 7, 1996)
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page No.
- ------- ----------- ----------
<S> <C> <C>
10.34 Purchase Agreement for Real Property and Escrow Instructions dated
as of March 22, 1996, by and between TR Koll Tustin Tech Corp. and
Registrant (Incorporated by reference to Exhibit 10.1 contained in
Registrant's Current Report on Form 8-K dated March 25, 1996, as
filed with the Commission on or about April 5, 1996)
11.1 Computation of Net Income (Loss) Per Share 39
22 Subsidiaries of the Registrant None
23 Consent of Deloitte & Touche LLP 40
27 Financial Data Schedule 41
</TABLE>
(b) Reports on Form 8-K:
(i) Current Report on Form 8-K as filed with the Commission on
January 24, 1996, reporting the issuance and sale of the
Series B Convertible Preferred Stock
(ii) Current Report on Form 8-K as filed with the Commission on
February 8, 1996, reporting the agreement with Cambridge
Antibody Technology, Ltd.
(iii) Current Report on Form 8-K as filed with the Commission on
March 7, 1996, reporting the Distribution Agreement with
Biotechnology Development, Ltd.
(iv) Current Report on Form 8-K as filed with the Commission on
April 5, 1996, reporting the agreement to purchase the
Company's facility
* Incorporated by reference to the exhibit of the same number contained
in Registrant's Annual Report on Form 10-K for the year ended April 30,
1988.
** Incorporated by reference to the exhibit of the same number contained
in Registrant's Registration Statement on Form S-18 (File No. 2-78552).
*** Incorporated by reference to the exhibit of the same number contained
in Registrant's Annual Report on Form 10-K for the year ended April 30,
1986.
**** Incorporated by reference to the exhibit contained in Registrant's
Current Report on Form 8-K dated April 29, 1988.
14
<PAGE> 15
***** Incorporated by reference to the exhibit contained in Registrant's
Registration Statement on Form S-8 filed August 4, 1983 (File No.
2-85628).
****** Incorporated by reference to the exhibit contained in Registrant's
Registration Statement on Form S-8 dated June 16, 1987 (File No.
33-15102).
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.
TECHNICLONE INTERNATIONAL CORPORATION
Dated: March 3, 1997 By: /ss/Lon H. Stone
-------------------------------
Lon H. Stone, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Amendment has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/ss/ Lon H. Stone Chairman of the Board, March 3, 1997
- --------------------------- President, Chief Executive
Lon H. Stone Officer and Director
/ss/William V. Moding Vice President-Finance, March 3, 1997
- --------------------------- Chief Financial Officer,
William V. Moding Secretary and Director
/ss/Rudolph C. Shepard Assistant Secretary March 3, 1997
- --------------------------- and Director
Rudolph C. Shepard
/ss/ Clive R. Taylor, M.D. Director March 3, 1997
- ---------------------------
Clive R. Taylor, M.D.,
Ph.D.
Director March __, 1997
- ---------------------------
Edward Joseph Legere II
Director March __, 1997
- ---------------------------
Carmelo J. Santoro
</TABLE>
16
<PAGE> 17
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Techniclone International Corporation:
We have audited the accompanying balance sheets of Techniclone International
Corporation (the Company) as of April 30, 1996 and 1995 and the related
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended April 30, 1996. Our audits also included
the financial statement schedule listed in the index at Item 14. 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 Techniclone International Corporation as of
April 30, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended April 30, 1996 in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole presents fairly in all material respects the
information set forth therein.
/s/ Deloitte & Touche LLP
Costa Mesa, California
June 21, 1996
F-1
<PAGE> 18
TECHNICLONE INTERNATIONAL CORPORATION
BALANCE SHEETS
AS OF APRIL 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 3) $ 4,179,313 $ 35,642
Short-term investments (Note 3) 3,898,888
Accounts receivable, net (Note 5) 95,146 2,378
Inventories, net (Note 3) 93,921 226,457
Prepaid expenses and other current assets 17,294
------------ ------------
Total current assets
8,284,562 264,477
PROPERTY (Notes 3 and 4):
Land 525,255
Building and improvements 1,298,416
Laboratory equipment 1,139,663 985,026
Furniture and fixtures 78,155 30,844
------------ ------------
3,041,489 1,015,870
Less accumulated depreciation and amortization (722,436) (583,328)
------------ ------------
Property, net 2,319,053 432,542
OTHER ASSETS (Note 3):
Patents, net 166,585 154,081
Other 5,557 5,557
------------ ------------
Total other assets 172,142 159,638
------------ ------------
$ 10,775,757 $ 856,657
============ ============
</TABLE>
F-2
<PAGE> 19
TECHNICLONE INTERNATIONAL CORPORATION
BALANCE SHEETS
AS OF APRIL 30, 1996 AND 1995 (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 230,144 $ 137,878
Accrued legal and accounting fees (Note 10) 99,495 334,741
Accrued payroll and related costs 88,791 260,301
Accrued license termination fee (Note 6) 100,000 100,000
Accrued royalties (Note 6) 61,667 75,168
Accrued interest (Note 4) 90,910
Reserve for contract losses (Note 11) 173,563 132,071
Current portion of long-term debt (Note 4) 32,968
Other current liabilities (Note 5) 37,420 67,529
------------ ------------
Total current liabilities 824,048 1,198,598
LONG-TERM DEBT (Note 4) 987,032
LONG-TERM DEBT TO RELATED PARTY (Note 4) 258,500
COMMITMENTS (Notes 5 and 6)
STOCKHOLDERS' EQUITY (DEFICIT) (Notes 2, 4, 6, 7 and 8):
Preferred stock - $1 par value; authorized 100,000 shares:
Class A convertible preferred stock, shares outstanding -
1996, no shares; 1995, 4,225 shares
(liquidation preference of $253,500 - 1995) 4,225
Class B convertible preferred stock, shares outstanding -
1996, 6,800 shares; 1995, no shares
(liquidation preference of $7,027,288 - 1996) 6,800
Common stock - no par value; authorized 30,000,000 shares;
outstanding -1996, 20,048,014 shares; 1995, 16,768,909 shares 21,133,968 17,730,648
Additional paid-in capital 6,061,171 227,246
Accumulated deficit (17,760,680) (18,085,978)
------------ ------------
9,441,259 (123,859)
Less notes receivable from sale of common stock (476,582) (476,582)
------------ ------------
Net stockholders' equity (deficit) 8,964,677 (600,441)
------------ ------------
$ 10,775,757 $ 856,657
============ ============
</TABLE>
F-3
<PAGE> 20
TECHNICLONE INTERNATIONAL CORPORATION
STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
REVENUES (Notes 3 and 6):
Net product sales $ 2,580 $ - $ 4,400
Licensing agreements 3,002,244 7,265 56,375
Interest income 138,499 126 8,591
------------ ------------ ------------
Total revenues 3,143,323 7,391 69,366
COSTS AND EXPENSES (Notes 2, 3, 4, 5, 6, 8, 10 and 11):
Cost of sales 2,580 1,680
Research and development 1,679,558 1,225,072 1,315,898
General and administrative:
Unrelated entities 947,816 547,133 914,142
Affiliates 170,659 137,326 212,594
Interest (primarily to related parties) 17,412 27,833 30,467
Charges related to merger 4,849,591 -
Contract losses - 132,071 -
------------ ------------ ------------
Total costs and expenses 2,818,025 6,919,026 2,474,781
------------ ------------ ------------
NET INCOME (LOSS) $ 325,298 $ (6,911,635) $ (2,405,415)
============ ============ ============
NET INCOME (LOSS) PER SHARE -
PRIMARY (Note 3) $0.02 ($0.44) ($0.18)
============ ============ ============
NET INCOME (LOSS) PER SHARE -
FULLY DILUTED (Note 3) $0.02 ($0.44) ($0.18)
============ ============ ============
</TABLE>
F-4
<PAGE> 21
TECHNICLONE INTERNATIONAL CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
-------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
BALANCES, May 1, 1993 10,000 $ 10,000 12,759,393 $ 8,785,520
Common stock issued for cash,
net of issuance costs of $38,696 1,403,232 1,734,129
Issuance of compensatory options
(Note 8) 296,000
Net loss
------------ ------------ -------------- --------------
BALANCES, April 30, 1994 10,000 10,000 14,162,625 10,815,649
Common stock issued for cash,
net of issuance costs of $15,132 1,221,978 1,499,118
Common stock issued upon
conversion of preferred stock (5,775) (5,775) 288,750 311,318
Common stock issued in exchange
for services 10,000 12,500
Common stock issued upon exercise
of options 6,223 10,890
Common stock and compensatory
options issued upon merger of
subsidiary (Note 2) 1,079,333 5,081,173
Net loss
------------ ------------ -------------- --------------
BALANCES, April 30, 1995 4,225 4,225 16,768,909 17,730,648
</TABLE>
<TABLE>
<CAPTION>
NOTES NET
ADDITIONAL RECEIVABLE STOCKHOLDERS'
PAID-IN ACCUMULATED FROM SALE OF EQUITY
CAPITAL DEFICIT COMMON STOCK (DEFICIT)
<S> <C> <C> <C> <C>
BALANCES, May 1, 1993 $ 532,789 $(8,768,928) $ (245,000) $ 314,381
Common stock issued for cash,
net of issuance costs of $38,696 1,734,129
Issuance of compensatory options
(Note 8) 296,000
Net loss (2,405,415) (2,405,415)
------------ ------------ -------------- --------------
BALANCES, April 30, 1994 532,789 (11,174,343) (245,000) (60,905)
Common stock issued for cash,
net of issuance costs of $15,132 1,499,118
Common stock issued upon
conversion of preferred stock (305,543)
Common stock issued in exchange
for services 12,500
Common stock issued upon exercise
of options 10,890
Common stock and compensatory
options issued upon merger of
subsidiary (Note 2) (231,582) 4,849,591
Net loss (6,911,635) (6,911,635)
------------ ------------ -------------- --------------
BALANCES, April 30, 1995 227,246 (18,085,978) (476,582) (600,441)
</TABLE>
F-5
<PAGE> 22
TECHNICLONE INTERNATIONAL CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996 (CONTINUED)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------ -------------- --------------- ----------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Common stock issued for cash - $ - 1,770,396 $ 1,289,352
Class B preferred stock issued for cash,
net of issuance costs of $1,062,456 8,200 8,200
Common stock issued upon conversion
of Class A preferred stock (4,225) (4,225) 338,000 227,760
Common stock issued upon conversion
of Class B preferred stock (1,400) (1,400) 469,144 1,218,605
Common stock issued upon conversion
of note payable and accrued interest
to related party (Note 4) 235,000 258,500
Common stock issued upon
conversion of accrued expenses
and other current liabilities 183,333 134,000
Common stock issued upon exercise of
stock options 226,132 218,003
Common stock issued upon exercise of
stock options in exchange for services 57,100 57,100
Proceeds from sale of stock purchase
warrants, net
Net income
------------ -------------- --------------- ----------------
BALANCES, April 30, 1996 6,800 $6,800 20,048,014 $ 21,133,968
============ ============== =============== ================
</TABLE>
<TABLE>
<CAPTION>
NOTES NET
ADDITIONAL RECEIVABLE STOCKHOLDERS'
PAID-IN ACCUMULATED FROM SALE OF EQUITY
CAPITAL DEFICIT COMMON STOCK (DEFICIT)
<S> <C> <C> <C> <C>
Common stock issued for cash $ - $ - $ - $1,289,352
Class B preferred stock issued for cash,
net of issuance costs of $1,062,456 7,129,344 7,137,544
Common stock issued upon conversion
of Class A preferred stock (223,535)
Common stock issued upon conversion
of Class B preferred stock (1,217,205)
Common stock issued upon conversion
of note payable and accrued interest
to related party (Note 4) 104,697 363,197
Common stock issued upon
conversion of accrued expenses
and other current liabilities 134,000
Common stock issued upon exercise of
stock options 218,003
Common stock issued upon exercise of
stock options in exchange for services 57,100
Proceeds from sale of stock purchase
warrants, net 40,624 40,624
Net income 325,298 325,298
------------ -------------- --------------- ----------------
BALANCES, April 30, 1996 $ 6,061,171 $ (17,760,680) $ (476,582) $ 8,964,677
============ ============== =============== ================
</TABLE>
F-6
<PAGE> 23
TECHNICLONE INTERNATIONAL CORPORATION
STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 325,298 $ (6,911,635) $ (2,405,415)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 169,162 151,368 184,194
Charges related to merger 4,849,591
Common stock issued for services 57,100 12,500
Issuance of compensatory options 296,000
Conversion of interest expense into shares of
common stock 13,787
Increase in reserves 230,793
Changes in operating assets and liabilities:
Accounts receivable (92,768) (2,378) 2,400
Inventories 132,536 (236,499) (57,854)
Prepaid expenses and other current assets (17,294)
Deposits 33,600 (33,600)
Accounts payable and accrued legal and
accounting fees (142,980) 171,980 84,543
Accrued license termination fee 100,000
Other accrued expenses and current liabilities (39,628) 244,106 87,119
------------- ------------- --------------
Net cash provided by (used in)
operating activities 405,213 (1,456,574) (1,742,613)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (3,898,888)
Property acquisitions (2,025,619) (39,262) (55,357)
Increase in other assets (42,558) (7,632) (52,690)
------------- ------------- --------------
Net cash used in investing activities (5,967,065) (46,894) (108,047)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of preferred stock 7,137,544
Proceeds from issuance of common stock 1,547,979 1,510,008 1,734,129
Proceeds from issuance of long-term debt 1,020,000
------------- ------------- --------------
Net cash provided by financing activities 9,705,523 1,510,008 1,734,129
------------- ------------- --------------
</TABLE>
F-7
<PAGE> 24
TECHNICLONE INTERNATIONAL CORPORATION
STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996 (CONTINUED)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ 4,143,671 $ 6,540 $ (116,531)
CASH AND CASH EQUIVALENTS,
beginning of year 35,642 29,102 145,633
-------------- --------------- --------------
CASH AND CASH EQUIVALENTS,
end of year $ 4,179,313 $ 35,642 $ 29,102
============== =============== ==============
SUPPLEMENTAL INFORMATION:
Merger of subsidiary (Note 2):
Common stock issued $ 2,504,053
Compensatory options issued 2,577,120
Notes receivable assumed (231,582)
---------------
Charges related to merger $ 4,849,591
===============
Interest paid $ 3,625 $ 6,998 $ 9,787
Income taxes paid $ 800 $ 1,600 $ 1,600
</TABLE>
For supplemental information relating to conversion of preferred stock into
common stock, common stock issued in exchange for services, common stock issued
upon merger and other noncash transactions, see the statements of stockholders'
equity (deficit) and Notes 2, 7, 8 and 11.
<TABLE>
<S> <C> <C> <C>
NONCASH INVESTING AND FINANCING
ACTIVITIES:
Common stock issued upon conversion of accrued
expenses and other current liabilities $ 134,000 $ - $ -
Common stock issued upon conversion of note
payable and forgiveness of accrued interest to
related party $ 363,197 $ - $ -
</TABLE>
F-8
<PAGE> 25
TECHNICLONE INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996
1. GENERAL AND NATURE OF OPERATIONS
Nature of Operations - Techniclone International Corporation (the
Company) was incorporated on June 3, 1981 under the laws of the State of
California. The Company is engaged in research and development of new
technologies used in the production of monoclonal antibodies and the
production of specific antibodies with prospective research, diagnostic
and therapeutic applications. The Company's activities are primarily
focused on innovative drug delivery systems that permit the destruction
or 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 suffered losses in fiscal
1995 and 1994 and had an accumulated deficit at April 30, 1996. During
October 1992, the Company terminated certain licensing rights with a
stockholder and entered into a new licensing agreement with an unrelated
entity. Under the termination agreement, the Company will be required to
make certain payments, as defined. The new agreement provides for, among
other things, the right for the Company to suggest input on the
development and clinical trial process for its LYM-1 antibody
technology. In addition, the agreement provides for payments to the
Company upon attainment of certain milestones and guaranteed sales
prices for specified sales of LYM-1 products (Note 6).
Historically, the Company has relied on third party and investor funds
to fund its operations and clinical trials, and management expects to
receive additional funds in the future. There can be no assurances that
this funding will be received. If the Company does not receive
additional funding, it will be forced to scale back operations and it
could have a material adverse effect on the Company. The Company's
continuation as a going concern is dependent on its ability to generate
sufficient cash flow to meet its obligations on a timely basis, to
obtain additional financing as may be required and, ultimately, to
attain successful operations. During fiscal 1996, the Company received
significant funding through the issuance of preferred stock (Note 7) and
a foreign distribution agreement (Note 6) which has resulted in
significant available cash as of April 30, 1996. Management believes
that the cash and cash equivalents and short-term investments
aggregating approximately $8,078,000 as of April 30, 1996 are sufficient
to support the Company's estimated operations and other cash needs
through at least April 30, 1997.
2. MERGER
In June 1994, the Company's stockholders approved the acquisition of the
remaining minority interest in the Company's 62%-owned subsidiary,
Cancer Biologics Incorporated (CBI). Pursuant to the agreement and plan
of merger, each share of CBI common stock was converted into the right
to receive one share of the Company's common stock and each CBI option
was converted into the right to acquire shares of the Company's common
stock with the same terms and conditions as specified in the CBI option
agreements. At July 26, 1994, the closing date of the merger, CBI had
F-9
<PAGE> 26
TECHNICLONE INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996 (CONTINUED)
1,079,333 common shares outstanding and options to purchase an
additional 1,416,000 common shares were also outstanding.
The acquisition of the minority interest was accounted for utilizing the
purchase method. The excess of the purchase price over net tangible
assets acquired and liabilities assumed (notes receivable and accrued
liabilities) of $4,849,591 represents the difference between the fair
value of the Company's common stock exchanged and the fair value of net
assets purchased of $2,272,471 and the difference between the fair value
of the options to purchase the Company's common stock and the exercise
price of the CBI options exchanged of $2,577,120. The excess of the
purchase price over the net tangible assets acquired represents the
amount paid for acquired technology (TNT antibody) and related
intangible assets. The excess purchase price of $4,849,591 was charged
to operations on the effective date of the merger as the TNT antibody
technology had not reached technology feasibility and the technology had
no known future alternative uses other than the possibility for treating
cancer patients.
The acquisition of the remaining minority interests of CBI is not
expected to have a significant effect on the future operations of the
Company as the Company was funding all costs and absorbing all losses of
CBI.
3. 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.
Short-term Investments - Short-term investments represent six-month term
treasury bills which expire at various dates through July 1996, are
classified as held-to-maturity, and are stated at cost, which
approximates fair value.
Inventories - Inventories are stated at the lower of first-in, first-out
cost or market and consist of the following at April 30:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Raw materials $ 20,960 $ 11,300
Laboratory supplies 19,598 16,510
Finished goods 79,885 297,369
Reserves (26,522) (98,722)
------------- -------------
$ 93,921 $ 226,457
============= =============
</TABLE>
F-10
<PAGE> 27
TECHNICLONE INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996 (CONTINUED)
The Company estimates reserves on its inventory after considering the
inventory on hand, anticipated usage of the inventory and any sales
agreements for inventory at fixed prices. The reserves at April 30, 1995
and 1996, related to inventory quantities in excess of anticipated usage
and costs in excess of future sales prices for inventories to be used in
the LYM-1 clinical trials.
Property - Property is recorded at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful
lives of the related asset. Generally, the estimated useful lives are 8
to 25 years for buildings and improvements and five years for laboratory
equipment and furniture and fixtures.
Other Assets - Other assets primarily consist of patent costs which are
amortized over the lesser of the estimated useful life of the patent or
the estimated useful life of the related product. Patent costs totaled
$166,585 and $154,081, net of related accumulated amortization of
$140,318 and $110,264, at April 30, 1996 and 1995, respectively. During
fiscal 1994, the Company changed the amortization period of the patents
from 17 years to ten years, which resulted in additional amortization
expense of $34,620 during the year ended April 30, 1994.
Revenue Recognition - Product revenues are recognized upon shipment to
customers. Revenues related to licensing agreements (Note 6) are
recognized when cash has been received and all obligations of the
Company have been met, which is generally upon the transfer of the
technology and license to the licensee.
Net Income (Loss) per Share - Net income (loss) per share is calculated
by dividing net income (loss) by the average number of shares of common
stock and dilutive common stock equivalents outstanding each year,
totaling 21,382,524 in fiscal 1996, 15,794,811 in fiscal 1995 and
13,653,829 in fiscal 1994. Fully diluted net income (loss) per share
reflects the maximum dilution and is based on 21,661,605 shares in
fiscal 1996. Shares issuable upon the exercise of common stock warrants
and options and conversion of outstanding preferred stock have been
included in the per share computations for fiscal 1996 and are excluded
from fiscal 1995 and 1994 per share calculation because their effect is
antidilutive.
Income Taxes - The Company accounts for income taxes in accordance with
the standards specified in Statement of Financial Accounting Standards
(SFAS) No. 109, Accounting for Income Taxes.
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.
Reclassifications - Certain amounts as previously reported have been
reclassified to conform to the fiscal 1996 presentation.
F-11
<PAGE> 28
TECHNICLONE INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996 (CONTINUED)
4. LONG-TERM DEBT
During January 1996, long-term debt to a related party and accrued
interest of $258,500 and $104,697, respectively, were converted into
235,000 shares of common stock at the election of the related party
pursuant to the terms of the convertible note dated December 31, 1991.
Interest expense related to this convertible debt amounted to $13,787
for the year ended April 30, 1996 and $20,680 for each of the two years
ended April 30, 1995.
On April 30, 1996, the Company entered into a $1,020,000 note agreement
with a bank and purchased its principal operating facility in Tustin,
California. The note payable is collateralized by the property, bears
interest at LIBOR, plus 4.25% (9.5% at April 30, 1996) with a minimum
rate of 9.5% and a maximum rate of 14.5%, and matures in April 2011.
Principal and interest payments are due monthly.
Minimum principal payments scheduled on the Company's long-term debt as
of April 30, 1996 are as follows:
<TABLE>
<CAPTION>
Year ending April 30:
<S> <C>
1997 $ 32,968.00
1998 36,253.00
1999 39,866.00
2000 43,606.00
2001 48,183.00
Thereafter 819,124.00
---------------
$ 1,020,000.00
===============
</TABLE>
The Company's long-term debt approximates fair value as the debt was
recently negotiated and represents the borrowing rates currently
available to the Company.
5. COMMITMENTS
On April 30, 1996, the Company terminated the operating lease on its
principal facility in conjunction with the purchase of the property
(Note 4). No future payments or obligations are due under the lease
agreement. Rent expense amounted to approximately $167,000, $180,000 and
$174,000 for each of the three years in the period ended April 30, 1996,
respectively.
During fiscal 1994 and 1996, the Company entered into separate
agreements to advance funds for an aggregate of $117,000 and $175,000,
respectively, to cover certain expenses of an unrelated entity providing
radio-labeling services to the Company. The Company determined that
advanced amounts
F-12
<PAGE> 29
TECHNICLONE INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996 (CONTINUED)
under the 1994 agreement of approximately $117,000 would no longer be
recoverable and expensed all amounts during fiscal 1995. During fiscal
1996, the Company advanced the maximum under the 1996 agreement and
recorded a $175,000 note receivable, which is to be repaid based on
potential future revenues of the Company's product or as terms are
modified in accordance with the agreement. Due to uncertain future
collection, the Company recorded a full valuation reserve on the related
note as of April 30, 1996. Additionally, under a separate agreement, an
unrelated entity advanced the Company $20,000 for each of the two years
ended April 30, 1995, which will be repaid through inventory purchases
from the Company. At April 30, 1996 and 1995, the advanced balance of
$37,420 and $40,000, respectively, have been included in other current
liabilities in the accompanying balance sheets.
During fiscal 1995, the Company entered into agreements with certain
officers, directors and employees of the Company, which expire at
various dates through September 1999. The total future commitment under
these agreements amounts to $632,000. One of the agreements entitles the
employee to receive 2% of net sales of certain products. There were no
sales of these products during fiscal 1995 or 1996.
On February 5, 1996, the Company entered into a joint venture agreement
with an unrelated entity to develop and market a new class of products
for cancer therapy and diagnosis based upon the unrelated party's
patented technology for producing fully human monoclonal antibodies and
the Company's Tumor Necrosis Technologies. The agreement provides that
equity in the joint venture and costs associated with the development of
the product would be shared equally. The activities of the joint venture
were not considered significant for the year ended April 30, 1996. The
Company would retain exclusive world-wide manufacturing rights under the
agreement.
6. LICENSE, RESEARCH AND DEVELOPMENT AGREEMENTS
During October 1992, the Company entered into an agreement to terminate
the licensing rights and certain other rights (the Termination
Agreement) associated with a June 1986 agreement with a stockholder. The
Termination Agreement provides for (1) $100,000 on the date that is the
earlier of the commencement of the first Phase Three clinical trials (as
defined) or a specified number of days after the commencement of the
first Phase Two clinical trials (as defined) for the licensed product,
and (2) $200,000 upon the issuance of a license or other approval for
the initial marketing in the United States of such product. Such
obligations are collateralized by certain licensed patents.
Additionally, the Company must pay net royalties equal to 4% of the
sales revenue related to such licensed product, not to exceed $700,000
and 25% of any royalties received related to such licensed product. The
maximum payments due under the Termination Agreement are $1,100,000 of
which $100,000 has been paid through April 30, 1996. The Company accrued
$100,000 during fiscal 1994 when the Company completed essentially all
of the requirements for commencement of Phase Three clinical trials.
This amount remains outstanding as of April 30, 1996. Upon achieving
each of the above criteria, additional liabilities and expenses will be
incurred.
F-13
<PAGE> 30
TECHNICLONE INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996 (CONTINUED)
Research and development expenses under the June 1986 and a separate
April 1988 agreement, for which all obligations have been fulfilled,
with a stockholder were $215,000 for the year ended April 30, 1994.
There were no expenses related to these agreements for the two-year
period ended April 30, 1996.
During October 1992, the Company entered into an agreement with an
unrelated entity which provides the entity with exclusive licensing
rights to certain patents and products owned by the Company and
exclusive distribution rights in the United States and certain foreign
countries in exchange for: (1) $50,000 upon completion of a specified
meeting with the United States Food and Drug Administration (FDA), (2)
$100,000 upon the first submission to the European regulatory agency to
sell the product in certain countries or six months from the effective
date of the commencement of Phase Three clinical trials, whichever is
sooner, (3) $200,000 upon approval of the first European submission, (4)
$500,000 on the submission to the FDA of a product license application,
and (5) $100,000 per year as a research and development grant after
completion of the Phase Three clinical trials (as defined), of which 50%
is specified for certain research programs. Additionally, the Company is
to receive 10% royalties from any product sales related to this
agreement which will be applied to offset any amounts due under
stipulation (4) above. Under the agreement, the Company received $50,000
during the year ended April 30, 1994, which has been recognized in
licensing revenues in the accompanying financial statements. During
fiscal 1995 and 1996, no licensing revenue was earned related to this
agreement. The $200,000 payment and the right to distribute the
Company's product in certain European countries is dependent upon the
distributor beginning clinical trials in Europe within a specified time
period. If the distributor does not make the required payments or begin
clinical trials as specified in the agreement, distribution rights with
respect to those foreign countries may be forfeited.
The Company has agreements which provide the licensees with the right to
use certain technologies and to manufacture and market products derived
from these technologies in specified geographic areas (as defined), on a
non-exclusive and semi-exclusive basis. The Company recognized revenue
of $6,375, $7,265 and $2,244 related to these agreements during each of
the three years in the period ended April 30, 1996, respectively.
In September 1989, the Company entered into an option and license
agreement with a university under which the Company was granted the
exclusive right to conduct initial marketing, patent and other studies
of specified technologies. During fiscal 1993, the Company was granted
the exclusive worldwide license to use the related technology in
exchange for the payment of a license fee and royalty terms set forth in
the agreement. During the three years ended April 30, 1996, the Company
incurred royalty expenses of $64,000, $43,000 and $80,000, respectively,
under the agreement, of which $67,000 and $47,000 was unpaid and accrued
at April 30, 1995 and 1996, respectively. Future minimum royalties under
this agreement are the lesser of $80,000 per year of 6% of net sales.
F-14
<PAGE> 31
TECHNICLONE INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996 (CONTINUED)
The Company has certain license agreements which require minimum
royalties of the lesser of $6,500 per year or 6% of net sales. All
amounts have been paid or accrued related to these agreements.
The Company has certain license agreements which require minimum
royalties of at least 6% of net sales. No products related to these
agreements have been sold during the three years in the period ended
April 30, 1996; therefore, no amounts have been paid or accrued related
to these agreements.
In February 1996, the Company entered into a distribution agreement with
a partnership in which one of the partners is also a director of the
Company in exchange for a nonrefundable fee of $3,000,000. The
distribution agreement ("Agreement") provides the distributor with
exclusive distribution rights in various foreign counties for one of the
Company's products and the right to assume distribution rights from
another unrelated entity should that unrelated entity forfeit or
relinquish its rights under a separate agreement. Under the terms of the
Agreement, the Company is guaranteed minimum sales prices to the
distributor and has been granted an option to repurchase the
distribution rights, should the Company elect to do so. The repurchase
rights are at the sole discretion of the Company and may be exercised
through July 1998. If the repurchase rights are exercised, the Company
would be required to pay a lump-sum fee ranging from $4,000,000 to
$4,500,000, grant options to the distributor for the purchase of
1,000,000 shares of the Company's common stock at $5.00 per share and
pay royalties ranging between 2% and 5% on sales of the related product
in the geographic areas covered by the Agreement. The Agreement has an
initial term of 15 years with automatic renewals under terms as
specified in the Agreement. The Company recognized the license fee as
revenue during the year ended April 30, 1996, as the Company had no
further obligations under the Agreement that it was required to fulfill.
7. STOCKHOLDERS' EQUITY (DEFICIT)
During December 1995, the Company issued 8,200 shares of non-voting
Class B convertible preferred stock at $1,000 per share, for cash
proceeds of $7,137,544, net of issuance costs of $1,062,456. The Class B
preferred stockholders are entitled to a liquidation preference of
$1,000 per share of Class B preferred stock and an amount equal to 10%
of the original Class B preferred stock issue price per annum since the
issuance date. The preferred stockholders are not entitled to any cash
dividends.
Each preferred share may be converted, at the option of the Class B
preferred stockholder, into that number of common shares calculated by:
(a) taking ten percent (10%) of one thousand dollars ($1,000) pro-rated
for the number of days between the closing date and the conversion date
plus (b) one thousand dollars ($1,000), (c) the sum of which is divided
by the conversion price $3.06875 at April 30, 1996. During fiscal 1996,
1,400 shares of Class B preferred stock were converted into 469,144
common shares. All outstanding Class B preferred stock will
automatically be converted into shares of the Company's common stock on
December 15, 1998.
F-15
<PAGE> 32
TECHNICLONE INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996 (CONTINUED)
The Company has the right to redeem, in whole or in part, the Class B
preferred stock upon receipt of a notice of conversion from the
preferred stockholder. Additionally, the Company has the right to
redeem, at its discretion, any or all of the Class B preferred stock as
long as the initial redemption is equal to or exceeds $1,500,000. The
redemption price at the Company's election ranges from 130% to 105% of
the stated value, depending on the date of redemption notice.
The Class A preferred stockholders were entitled to a liquidation
preference of $60 per share of Class preferred stock and any declared
but unpaid dividends. Class A preferred stockholders could convert, at
their option, each Class A preferred stock share into 80 fully-paid and
nonassessable shares of common stock. As a result of certain common
stock transactions, the conversion ratio had increased from 50 shares of
common stock for each Class A preferred stock at April 30, 1994 to 80
shares thereafter. During fiscal 1995, 5,775 shares of Class A preferred
stock were converted into 288,750 shares of common stock, pursuant to
the election of the Class A preferred stockholders. In connection with
the commencement of the Phase Three clinical trials, the remaining 4,225
shares of Class A preferred stock were automatically converted into
338,000 shares of common stock during fiscal 1996.
As a result of the Company's merger (Note 2), the Company issued
1,079,333 shares of its common stock to stockholders of CBI.
During August 1992 and February 1994, the Company entered into stock
subscription agreements with a director of the Company and an entity
with which the director is affiliated. The parties agreed to purchase
2,000,000 and 1,000,000 shares of the Company's stock at $1.20 and $1.50
per share, respectively, through May 1995. During the years ended April
30, 1994, 1995 and 1996, 1,342,485, 676,167 and 55,833 shares,
respectively, aggregating $1,691,381, $1,014,250 and $83,750,
respectively, were purchased under these agreements, net of issuance
costs incurred in fiscal 1994 of $38,696 which was paid through the
issuance of 32,247 shares of the Company's common stock. There were no
costs incurred related to the fiscal 1995 and 1996 issuances.
Notes receivable from sale of common stock are generally
noninterest-bearing and are due April 30, 1997.
8. STOCK OPTION PLANS AND STOCK WARRANTS
In December 1982, January 1986 and June 1994, the Company adopted stock
option plans providing for the granting of options to officers and key
employees to purchase up to 1,700,000 shares of the
F-16
<PAGE> 33
TECHNICLONE INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996 (CONTINUED)
Company's common stock at prices not less than the fair market value of
the stock at the date of grant. The options generally expire ten years
after the date of grant. Option activity for each of the three years in
the period ended April 30, 1996 is described as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------- ------------------------------- ----------------------------
PRICE PRICE PRICE
SHARES PER SHARE SHARES PER SHARE SHARES PER SHARE
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
beginning
of year 545,000.00 ($.27 - $1.75) 563,667.00 ($.27 - $1.75) 410,000.00 ($.27 - $1.50)
Granted 588,982.00 ($1.00 - $2.50) 153,667.00 ( $1.75)
Exercised (194,432.00) ($1.00 - $2.50) (6,223) ( $1.75)
Canceled (29,000) ($1.75) (12,444) ( $1.75)
------------- ------------ ------------
BALANCE,
end of year 910,550 ($.27 - $1.75) 545,000.00 ($.27 - $1.75) 563,667.00 ($.27 - $1.75)
============= ============ ============
</TABLE>
At April 30, 1996, options to purchase 512,850 shares of the Company's
common stock were exercisable and options to purchase 68,795 shares were
available for grant under these plans. Included in outstanding options
at April 30, 1996 are contingent options to purchase 160,000 shares of
common stock which became exercisable in October 1993 when the Company
attained equity financing of at least $3,000,000. As the fair market
value exceeded the exercise price at the time the contingency was
resolved, the Company recognized $296,000 in compensation expense during
the year ended April 30, 1994 related to these options. Also included in
outstanding options at April 30, 1996 are options to purchase 100,000
shares of common stock which become exercisable only if the Company
experiences a change in ownership of greater than 50%. These options
generally expire ten years after the date of grant.
Subject to stockholder approval, the Company has adopted an additional
stock option plan providing for the granting of options to purchase up
to 2,500,000 shares of the Company's common stock. As of April 30, 1996,
options to purchase 1,795,000 were allocated for grant contingent upon
stockholder approval.
Pursuant to the Company's merger agreement (Note 2) on July 26, 1994,
options to purchase 1,416,000 shares were outstanding at April 30, 1995
under CBI's stock option plan which converted into the right to acquire
shares of the Company's common stock with the same terms and conditions
as specified in the CBI option agreement. During fiscal 1996, 88,800
options were exercised at $.50 per share and 1,327,200 options were
outstanding and exercisable at April 30, 1996. These options expire at
the earlier of termination of employment or January 2003. These
agreements expire in January 2003 and are collateralized by the
Company's common stock.
F-17
<PAGE> 34
TECHNICLONE INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996 (CONTINUED)
During fiscal 1994, the Company granted options to an unrelated party
for the purchase of 100,000 shares of the Company's common stock at
$3.00 per share. These options were granted in conjunction with an
agreement which provides for the unrelated party to seek and attain a
certain level of equity financing for the Company. The shares are
exercisable upon attainment of this financing and expire five years from
such date.
During the year ended April 30, 1996, the Company granted warrants to
purchase restricted shares of common stock to nonemployees pursuant to
services provided. As of April 30, 1996, warrants to purchase an
aggregate 397,310 shares had been granted with 393,310 shares
exercisable at a price per share ranging from $3.00 to $5.30,
exercisable generally through December 2000. The Company estimated that
the difference between the grant price and the fair value of the
warrants on the dates of grant was $348,675 based on the Black Scholes
Model, which must be recognized over the exercise period. Of this
amount, $10,625 was recorded as compensation expense for the year ended
April 30, 1996. Future annual compensation expense ranging from
approximately $34,000 to approximately $90,000 will be recognized
through fiscal 2001. Certain of these warrants have piggy-back
registration rights through the expiration date.
Recently Issued Accounting Standard - In October 1995, the Financial
Accounting Standards Board issued SFAS No. 123, Accounting for
Stock-Based Compensation, which requires adoption of the disclosure
provisions and recognition and measurement provisions for nonemployee
transactions for fiscal years beginning after December 15, 1995. The new
standard defines a fair value method of accounting for stock options and
other equity instruments. Under the fair value method, compensation cost
is measured at the grant date based on the fair value of the award and
is recognized over the service period, which is usually the vesting
period.
Pursuant to the new standard, companies are encouraged, but not
required, to adopt the fair value method of accounting for employee
stock-based transactions. Companies are also permitted to continue to
account for such transactions under the Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, but would be
required to disclose in a note to the financial statements pro forma net
income, and if presented, net income per share as if the Company had
applied the new method of accounting. The accounting requirements of the
new method are effective for all employee awards granted after the
beginning of the fiscal year of adoption. Adoption of the new standard
will have no effect on the Company's cash flows.
The Company has determined that it will not change to the fair value
method and will continue to use Accounting Principles Board Opinion No.
25 for measurement of employee stock-based transactions.
F-18
<PAGE> 35
TECHNICLONE INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996 (CONTINUED)
9. INCOME TAXES
The Company accounts for income taxes under SFAS No. 109. SFAS No. 109
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.
As of April 30, 1996 and 1995, the Company had net deferred tax assets
of approximately $5,211,000 and $5,350,000, respectively, all of which
has been offset by a valuation allowance.
The valuation allowance decreased $139,000 in fiscal 1996 and increased
$815,000 and $4,503,000 in fiscal 1995 and 1994, respectively.
Net deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net operating loss carryforwards $ 4,874,000 $ 4,943,000
Noncash compensation 118,000 118,000
General business and research and development credits 61,000 61,000
Inventory reserve 11,000 40,000
Accrued license fee 40,000 40,000
Accrued interest 36,000
Accrued royalties 25,000 30,000
Accrued vacation 13,000 6,000
Accrued payroll and related costs 24,000
Contract losses 69,000 53,000
Depreciation and amortization (1,000)
---------------- ----------------
5,211,000 5,350,000
Less valuation allowance (5,211,000) (5,350,000)
---------------- ----------------
Net deferred taxes $ - $ -
================ ================
</TABLE>
F-19
<PAGE> 36
TECHNICLONE INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996 (CONTINUED)
Primarily all of the above temporary differences existing at April 30,
1996 will reverse in 1997, except for the net operating loss
carryforwards and the tax credits (see below). The Company's federal net
operating loss carryforwards and the tax credit carryforwards expire as
follows:
<TABLE>
<CAPTION>
YEAR OF NET OPERATING INVESTMENT OTHER
EXPIRATION LOSSES TAX CREDITS TAX CREDITS
<S> <C> <C> <C>
1997 $ 1,300 $ 500 $ -
1998 263,100 1,940 12,700
1999 897,300 1,720 41,500
2000 343,900 1,920
2001 346,800 670
2002 585,600
2003 463,300
2004 1,652,300
2005 1,665,300
2006 986,500
2007 $ 214,100 $ - $ -
2008 1,038,200
2009 2,036,900
2010 1,690,400 - -
-------------- ------------- -------------
$ 12,185,000 $ 6,750 $ 54,200
============== ============= =============
</TABLE>
The items reconciling income taxes applied at the federal statutory rate
to the income tax provision recorded for each of the three years in the
period ended April 30, 1996 are primarily net operating loss
carryforwards, changes in valuation allowance of deferred tax assets and
state tax (benefit), net of federal effect.
10. RELATED PARTY TRANSACTIONS
Certain stockholders, through their separate businesses, have provided
the Company with various legal, accounting and consulting services. A
summary of such professional fees for each of the three years in the
period ended April 30 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Professional fees paid $ 377,378 $ 57,500 $ 150,000
Professional fees expensed $ 170,659 $ 137,300 $ 212,594
Professional fees payable at April 30 $ 65,495 $ 272,214 $ 180,381
</TABLE>
F-20
<PAGE> 37
TECHNICLONE INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996 (CONTINUED)
11. FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of the year ended April 30, 1995, pursuant to
a sales contract with a third party in which the estimated costs related
to this contract exceeded sales prices, the Company increased its lower
of cost or market inventory reserve by $98,722, which has been included
in research and development expenses, and recorded a reserve for
contract losses related to future expected losses from inventory costs
in excess of the sale price of $132,071.
F-21
<PAGE> 38
TECHNICLONE INTERNATIONAL CORPORATION SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
BALANCE CHARGED TO BALANCE
AT BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
<S> <C> <C> <C> <C>
Lower of cost or market inventory
reserve for the year ended
April 30, 1995 $ - $ 98,722 $ - $ 98,722
Lower of cost or market inventory
reserve for the year ended
April 30, 1996 $ 98,722 $237,931 $ (310,131) $ 26,522
Valuation reserve for accounts
receivable for the year ended
April 30, 1996 $ - $175,000 $ - $175,000
</TABLE>
F-22
<PAGE> 1
TECHNICLONE INTERNATIONAL CORPORATION
*COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30
-------------------------------------------------
1996 1995 1994
----------- -------------- --------------
<S> <C> <C> <C>
NET INCOME (LOSS) $ 325,298 $ (6,911,635) $ (2,405,415)
=========== ============== ==============
DATA AS TO NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES:
Weighted average numbers of common shares
outstanding 18,466,359 15,794,811 13,653,829
Common equivalent shares assuming issuance of
shares represented by outstanding stock options
and warrants 1,852,300 * *
Common equivalent shares assuming issuance of
shares upon conversion of preferred stock and
notes payable 1,063,865 * *
----------- -------------- --------------
Weighted average number of common and common
equivalent shares outstanding 21,382,524 15,794,811 13,653,829
=========== ============== ==============
NET INCOME (LOSS) PER SHARE - PRIMARY
$ 0.02 $ (0.44) $ (0.18)
=========== ============== ==============
DATA AS TO NUMBER OF COMMON AND COMMON EQUIVALENT
SHARES ASSUMING FULL DILUTION:
Weighted average number of common and common
equivalent shares outstanding 21,382,524 15,794,811 13,653,829
Excess of incremental shares assumed
to be issued under stock options and
warrants (using market prices at the
end of each year) over shares used in
computing primary net income (loss)
per share (using average market prices
during each year)
279,081 * *
----------- -------------- --------------
Weighted average number of common and common
equivalent shares outstanding assuming full 21,661,605 15,794,811 13,653,829
=========== ============== ==============
dilution
NET INCOME (LOSS) PER SHARE - FULLY DILUTED
$ 0.02 $ (0.44) $ (0.18)
=========== ============== ==============
</TABLE>
- -----------------------------
* Shares issuable upon the exercise of common stock warrants and options and
conversion of preferred stock and notes payable have been excluded because
of their antidilutive effect.
EXHIBIT 11.1
39
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Numbers
2-85628, 33-15102, 33-87662 and 33-87664 of Techniclone International
Corporation on Form S-8 of our report dated June 21, 1996, appearing in this
Annual Report on Form 10-K of Techniclone International Corporation for the year
ended April 30, 1996.
/s/ Deloitte & Touche LLP
Costa Mesa, California
March 3, 1997
EXHIBIT 23
40
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-K FOR THE PERIOD ENDED 4/30/96.
</LEGEND>
<CIK> 0000704562
<NAME> TECHNICLONE INTERNATIONAL CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> APR-30-1996
<EXCHANGE-RATE> 1,000
<CASH> 4,179
<SECURITIES> 3,899
<RECEIVABLES> 270
<ALLOWANCES> 175
<INVENTORY> 94
<CURRENT-ASSETS> 8,285
<PP&E> 3,041
<DEPRECIATION> 722
<TOTAL-ASSETS> 10,776
<CURRENT-LIABILITIES> 824
<BONDS> 0
0
7
<COMMON> 21,134
<OTHER-SE> (12,176)
<TOTAL-LIABILITY-AND-EQUITY> 10,776
<SALES> 3
<TOTAL-REVENUES> 3,143
<CGS> 3
<TOTAL-COSTS> 2,818
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> 325
<INCOME-TAX> 0
<INCOME-CONTINUING> 325
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 325
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
