<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 28, 1997
TRIANGLE PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
Commission File Number: 000-21589
DELAWARE 56-1930728
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4 University Place
4611 University Drive
Durham, North Carolina 27707
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (919) 493-5980
The undersigned registrant, in order to provide the financial statements
required to be included in the Current Report on Form 8-K dated September 11,
1997 in connection with the acquisition of Avid Corporation, hereby amends
the following item, or other portions of such Current Report on Form 8-K set
forth in the pages attached hereto.
<PAGE>
Item 7. Financial Statements and Exhibits.
The financial statements and information in the following table of
contents and attached hereto are hereby filed with the Commission in
accordance with the above-referenced item.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The following financial statements of the Avid Corporation ("Avid"),
are submitted herewith on the indicated pages:
PAGE NO.
Independent Auditor's Report............................................ 5
Consolidated Balance Sheets -
December 31, 1996 and 1995............................................ 6
Consolidated Statements of Operations -
For the Years Ended December 31, 1996 and 1995........................ 7
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996 and 1995........................................... 8
Consolidated Statements of Cash Flows -
For the Years Ended December 31, 1996 and 1995....................... 9
Notes to Consolidated Financial Statements -
For the Years Ended December 31, 1996 and 1995.......................10-20
Condensed Consolidated Balance Sheet as of June 30, 1997 (unaudited)... 21
Condensed Consolidated Statements of Operations -
For the Six Month Periods Ended June 30, 1997 and 1996 (unaudited)... 22
Condensed Consolidated Statements of Cash Flows -
For the Six Month Periods Ended June 30, 1997 and 1996 (unaudited)... 23
Notes to Condensed Consolidated Financial Statements................... 24
2
<PAGE>
(b) PRO FORMA FINANCIAL INFORMATION.
The following unaudited pro forma condensed combined financial information
of Triangle Pharmaceuticals, Inc. ("Triangle" and/or the "Registrant") and
Avid are submitted herewith on the indicated pages.
PAGE NO.
Pro Forma Condensed Combined Balance Sheet at June 30, 1997 (unaudited)..25-26
Pro Forma Condensed Combined Statements of Operations:
For the Year Ended December 31, 1996 (unaudited)........................ 27
For the Six-months Ended June 30, 1997 (unaudited)...................... 28
Notes to Pro Forma Condensed Combined Financial Data (unaudited).......... 29
Signatures................................................................ 30
The unaudited pro forma condensed combined balance sheet of the Registrant as
of June 30, 1997 reflects the financial position of the Registrant after
giving effect to the acquisition of Avid discussed in Item 2 and assumes the
acquisition took place on June 30, 1997 and was accounted for as a purchase.
The unaudited pro forma condensed combined statements of operations for the
fiscal year ended December 31, 1996 and the six-months ended June 30, 1997
assume that the acquisition occurred on January 1, 1996, and are based on
the operations of Registrant and Avid for the year ended December 31, 1996
and the six-months ended June 30, 1997.
The unaudited pro forma condensed combined financial statements have been
prepared by Registrant based on historical information, preliminary estimates
and assumptions management deems appropriate. The unaudited pro forma
condensed combined financial statements presented herein are shown for
illustrative purposes only and are not necessarily indicative of the future
financial position or future results of operations of Registrant, or of the
financial position or results of operations of Registrant that would have
actually occurred had the transaction been in effect as of the date or for
the periods presented.
The unaudited pro forma condensed combined financial statements should be
read in conjunction with the Registrant's 1996 Annual Report on Form 10-K and
the historical Avid financial statements included in Item 7(a) in this
Current Report on Form 8-K/A.
The acquisition of Avid was facilitated by the issuance (or potential
issuance) of shares of Triangle common stock as follows:
SHARES $ VALUES
Total Triangle shares/purchase value exchange
for all of the outstanding capital stock of Avid 400,000 $8,117,500
Reserved for contingent issuance against satisfaction
of certain milestones 2,100,000
Direct cost of acquisition $1,100,000
----------
$9,217,500
----------
----------
3
<PAGE>
(c) EXHIBITS.
EXHIBIT NO. DESCRIPTION
- ---------- -----------
*2.1 Agreement and Plan of Reorganization dated as of June 30, 1997, by and
among Triangle, Merger Sub and Avid.
**2.2 Certificate of Merger between Merger Sub and Avid dated August 28,
1997.
**2.3 Agreement and Plan of Merger between Merger Sub and Avid, dated August
28, 1997.
23.1 Consent of KPMG Peat Marwick LLP.
**99.1 Press Release, dated July 1, 1997.
**99.2 Press Release, dated August 29, 1997.
- ------------
* Incorporated by reference to the same numbered exhibit to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1997, filed with the Securities and Exchange Commission on August 14, 1997.
** Incorporated by reference to the same numbered exhibit to the Company's
Current Report on Form 8-K dated September 11, 1997, filed with the
Securities and Exchange Commission on September 11, 1997.
4
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Avid Corporation:
We have audited the accompanying consolidated balance sheets of Avid
Corporation and subsidiaries (the Company) as of December 31, 1996 and 1995,
and the related consolidated statements of operations, shareholders' equity,
and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Avid
Corporation and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming Avid
Corporation and subsidiaries will continue as a going concern. As discussed
in Note 2 to the consolidated financial statements, the Company has suffered
recurring losses from operations and will require additional capital to fund
future operations. At December 31, 1996, these circumstances raise
substantial doubt about the entity's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2.
The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Philadelphia, PA
June 27, 1997
5
<PAGE>
AVID CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
--------------------------
<TABLE>
ASSETS 1996 1995
------ ------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,709,734 $ 406,600
Short-term investments - 297,254
Prepaid expenses and other current assets 48,557 -
Net assets from discontinued operations 715,358 1,958,233
------------ -----------
Total Current Assets 3,473,649 2,662,087
Property and equipment, net 160,270 245,688
Other assets - 26,399
Net assets from discontinued operations - 573,081
------------ -----------
Total Assets $ 3,633,919 $ 3,507,255
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 105,082 $ 14,627
Accrued expenses 429,915 5,910
Obligation under capital lease, current portion 77,532 91,569
------------ -----------
Total Current Liabilities 612,529 112,106
Obligation under capital lease 64,885 123,294
Stockholders' equity:
Redeemable convertible Preferred Stock,
$0.01 par value, 17,000,000 shares authorized:
Series A, 2,000,000 shares authorized, 2,000,000 shares issued
and outstanding (liquidation values of $1,921,390 and
$1,861,356 at December 31, 1996 and 1995, respectively) 20,000 20,000
Series B, 6,000,000 shares authorized, 2,953,698 shares issued
and outstanding (liquidation values of $5,381,364 and
$4,951,247 at December 31, 1996 and 1995, respectively) 29,537 29,537
Series C, 9,000,000 shares authorized, 3,637,146 shares issued
and outstanding (liquidation value of $6,555,117 at
December 31, 1996) 36,371 -
Common Stock, $0.01 par value, 30,000,000 shares authorized,
7,663,524 shares issued and outstanding at December 31, 1996
and 1995 76,635 76,635
Additional paid-in capital 13,390,000 7,695,356
Accumulated deficit (10,596,038) (4,549,673)
------------ -----------
Total Stockholders' Equity 2,956,505 3,271,855
------------ -----------
Total Liabilities and Stockholders' Equity $ 3,633,919 $ 3,507,255
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
AVID CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
----------------------------------------------
1996 1995
---------- ----------
Operating expenses:
Selling, general, and administrative $ 814,537 $ 847,529
Research and development 3,896,532 1,451,314
---------- ----------
4,711,069 2,298,843
---------- ----------
Loss from operations (4,711,069) (2,298,843)
Other income (expense):
Interest income 14,688 100,301
Interest expense (14,336) (12,669)
Other (956) 165,309
---------- ----------
(604) 252,941
Loss from continuing operations
before provision for income taxes (4,711,673) (2,045,902)
Income tax benefit -- 221,635
---------- ----------
Net loss from continuing operations (4,711,673) (1,824,267)
Discontinued operations (Note 11):
Income (loss) from operations of Quality Biotech
(less applicable income taxes of $252,299 in 1995) (1,334,692) 387,055
----------- ---------
Net loss $(6,046,365) $(1,437,212)
----------- ----------
----------- ----------
See accompanying notes to consolidated financial statements.
7
<PAGE>
AVID CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
----------------------------------------------
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
REDEEMABLE REDEEMABLE REDEEMABLE ADDITIONAL
PREFERRED PREFERRED PREFERRED COMMON PAID-IN ACCUMULATED
STOCK STOCK STOCK STOCK CAPITAL DEFICIT TOTAL
---------- ---------- ---------- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 20,000 $ 29,537 $ -- $ 76,184 $ 7,620,441 $(3,112,461) $4,633,701
Issuance of 200 shares of
Common Stock at $1.06 per
share for option exercise -- -- -- 2 210 -- 212
Issuance of 200 shares of
Common Stock at $0.47 per
share for option exercise -- -- -- 2 92 -- 94
Issuance of 1000 shares of
Common Stock at $1.06 per
share for option exercise -- -- -- 10 1,050 -- 1,060
Issuance of 101,000 shares
of Common Stock as part of
termination agreement at
$1.00 per share -- -- -- 1,010 99,990 -- 101,000
Receipt of 67,333 shares as
payment for options and booked
as Treasury Stock at $1.50
per share -- -- -- (673) (100,327) -- (101,000)
Issuance of 10,000 shares of
Common Stock as part of
consulting agreement at $1.50
per share -- -- -- 100 14,900 -- 15,000
Amortized warrant costs -- -- -- -- 9,000 -- 9,000
Write up of options to fair
value -- -- -- -- 50,000 -- 50,000
Net loss -- -- -- -- -- (1,437,212) (1,437,212)
---------- ---------- ---------- ---------- ----------- ------------ ----------
Balance, December 31, 1995 $ 20,000 $ 29,537 $ -- $ 76,635 $7,695,356 $(4,549,673) $3,271,855
---------- ---------- ---------- ---------- ----------- ------------ ----------
---------- ---------- ---------- ---------- ----------- ------------ ----------
Amortized warrant costs -- -- -- -- 9,000 -- 9,000
Sale of 3,479,518 shares
of Series C Preferred
Stock at $1.75 per share,
net of $642,990 of issuance
costs -- -- 34,795 -- 5,411,371 -- 5,446,166
Sale of 155,428 shares
of Series C Preferred
Stock at $1.75 per share
as part of a commission
agreement -- -- 1,554 -- 270,445 -- 271,999
Issuance of 2,200 shares
of Series C Preferred
Stock at $1.75 per share
as interest payment on a
loan -- -- 22 -- 3,828 -- 3,850
Net loss -- -- -- -- -- (6,046,365) (6,046,365)
---------- ---------- ---------- ---------- ----------- ------------ ----------
Balance, December 31, 1996 $ 20,000 $ 29,537 $ 36,371 $ 76,635 $13,390,000 $(10,596,038) $2,956,505
---------- ---------- ---------- ---------- ----------- ------------ ----------
---------- ---------- ---------- ---------- ----------- ------------ ----------
See accompanying notes to consolidated financial statements.
</TABLE>
8
<PAGE>
AVID CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
----------------------------------------------
<TABLE>
1996 1995
----------- -----------
<S> <C> <C>
Continuing Operations:
Cash flows from operating activities:
Net loss from continuing operations $(4,711,673) $(1,824,267)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 99,205 97,528
Expenses incurred in exchange for equity 275,849 74,915
Change in operating assets and liabilities:
Prepaid expenses (48,557) 5,426
Other assets 26,399 (13,036)
Accounts payable 90,455 (2,172)
Accrued expenses 424,005 (24,844)
----------- -----------
Net cash used in operating activities (3,844,317) (1,686,450)
----------- -----------
Cash flows from investing activities:
Purchases of property, plant, and equipment - (22,613)
Purchase of short term investments - (1,018,259)
Maturity of short term investments 297,254 1,515,294
----------- -----------
Net cash provided from investing activities 297,254 474,422
----------- -----------
Cash flows from financing activities:
Repayment of obligation under capital lease (77,233) (68,242)
Net proceeds from issuance of preferred stock 5,446,166 451
----------- -----------
Net cash provided from (used in) financing activities 5,368,933 (67,791)
----------- -----------
Net cash flows from continuing operations 1,821,870 (1,279,819)
----------- -----------
Discontinued Operations:
Net cash flows from discontinuing operations 481,264 (321,248)
----------- -----------
Increase (decrease) in cash and cash equivalents 2,303,134 (1,601,067)
Cash and cash equivalents, beginning of year 406,600 2,007,667
----------- -----------
Cash and cash equivalents, end of year $ 2,709,734 $ 406,600
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Obligation under capital lease $ 4,787 $ 177,987
Cash paid for interest $ 12,669 $ 14,336
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE>
AVID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
--------------------------
1. ORGANIZATION:
- -----------------
Avid Corporation (the "Company") is a Pennsylvania corporation, whose
principal activities were conducted through two operating divisions, Quality
Biotech Inc. ("Quality Biotech"), a 94.8% owned subsidiary of the Company,
and wholly-owned Avid Therapeutics Inc. ("ATI"). Quality Biotech is a
provider of biosafety testing, serving more than 150 biotechnology and
pharmaceutical companies worldwide. Quality Biotech performs laboratory
tests on biological samples to detect or characterize potentially harmful
viral contaminants. As disclosed in Note 11, Discontinued Operations, the
Company sold its interest in Quality Biotech in May, 1997. As a result, all
financial information has been restated to reflect these discontinued
operations. ATI is engaged in the discovery and development of novel drugs
to treat life-threatening viral diseases.
The Company has not been profitable since its inception. The Company expects
to incur operating losses over the next several years primarily due to
research and development expenditures by ATI. Substantial financing will be
required by the Company to fund research and development activities at ATI.
There is no assurance that such financing will be available when needed or
that ATI will ultimately develop products that will be commercially
successful. The Company had accumulated deficits of $10,596,038 and
$4,549,673 for the years ended December 31, 1996 and 1995, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- -----------------------------------------------
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
transactions have been eliminated in consolidation.
CASH EQUIVALENTS
The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents for the purpose of determining cash flows.
SHORT-TERM INVESTMENTS
Short-term investments at December 31, 1995 consisted primarily of commercial
paper of U.S. companies with contractual maturity dates in January, 1996.
Short-term investments may include investments which the Company believes will
be held to maturity or may be held available for sale. Classifications are
made at the time these investments are purchased based on the Company's intent
and ability to hold such investments until maturity.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Laboratory and office equipment
are depreciated on a straight-line basis over two or five years. Expenditures
for repairs and maintenance are expensed as incurred.
10
<PAGE>
AVID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
--------------------------
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
INCOME TAXES
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Deferred tax assets and liabilities are determined based on the
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will
be in effect when such differences are expected to reverse. The measurement
of deferred tax assets is reduced, if necessary, by a valuation allowance for
any tax benefits which are not expected to be realized. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
the period that such tax rate change is enacted.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principals requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimated.
STOCK OPTION PLAN
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with provisions of Accounting Principles Board ("APB") Opinion
No. 25,, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if
the current market price of the underlying stock exceeded the exercise price.
On January 1, 1995, the Company adopted SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, which permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS No. 123
had been applied. The Company has elected to continue to apply the provisions
of APB Opinion No. 25 and provide the pro forma disclosure provisions of
SFAS No. 123.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is determined by reference to various
market data and other valuation considerations. The fair value of financial
instruments approximates their recorded values due to their short maturities.
11
<PAGE>
AVID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
LIQUIDITY
The Company has suffered losses from operations of approximately
$6.0 million and $1.4 million in 1996 and 1995, respectively. Working
capital of approximately $2.9 million was available at December 31, 1996 to
fund future operations, however, additional sources of capital will be needed
to fund the Company's research and development activities. As discussed in
Note 12, the Company anticipates entering into a reorganization agreement
under which it would effectively be acquired by another corporation. Should
this anticipated restructuring fail to occur the Company will attempt to
secure an additional round of financing or explore sublicensing certain of
its technology in order to gain access to capital. Until the time such
financing or sublicensing were to occur, bridge financing would be necessary.
If such bridge financing were not obtained, the Company would terminate its
operations.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the current
year presentation.
3. INVESTMENTS:
- ----------------
Investments consist of high-grade commercial paper with original maturities
of greater than three months. At December 31, 1995, all of the short-term
investments were deemed as "held to maturity" investments. Accordingly, all
of these investments were carried at amortized cost in the balance sheet
based on the Company's evaluation that it had both the intent and the ability
to hold such investments until maturity. As of December 31, 1995, the fair
market value of short-term investments was $297,254.
4. PROPERTY & EQUIPMENT:
- -------------------------
A summary of property and equipment as of December 31, 1996 and 1995 is as
follows:
1996 1995
--------- ---------
Laboratory equipment $ 47,087 $ 47,087
Equipment under capital lease 310,219 305,432
Office equipment and other 26,521 26,521
--------- ---------
383,827 379,040
Less accumulated depreciation and
amortization (223,557) (133,352)
--------- ---------
$ 160,270 $ 245,688
===================
The Company recorded $99,205 and $97,528 of depreciation and amortization
expenses in 1996 and 1995, respectively.
On January 10, 1994, the Company entered into a lease agreement with a
leasing company, which as amended, expired in January, 1996. Under the terms
of the agreement, the Company could sell and lease back laboratory and office
equipment up to $900,000. In connection with the sales-lease back agreement,
the leasing company received warrants to purchase 48,000 shares of the
Company's Common Stock at $0.75 a share, and 40,000 shares of the Company's
Common Stock at $1.50 a share. The lease is being accounted for as a capital
lease. Payments due under the lease during the years ended December 31 are
as follows:
12
<PAGE>
AVID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
--------------------------
YEAR
----
1997 $ 91,923
1998 65,452
1999 11,015
2000 355
---------
Total minimum lease payments 168,745
Less: Amounts representing interest 26,328
---------
Present value of minimum lease payments 142,417
Less: Current portion of obligation
under capital lease 77,532
---------
Non-current obligation under
capital lease $ 64,885
=========
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK:
- -------------------------------------------
The Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock (together, the "Preferred Stock") are convertible into Common Stock at
the option of the holder at the rate of one share of Common Stock for each
share of Preferred Stock and have voting rights equal to the number of Common
Shares into which they are convertible. The Preferred Stock is automatically
convertible into shares of Common Stock upon consummation of an underwritten
public offering meeting certain minimum requirements, or upon the vote of
66-2/3% of the Preferred Stock holders. The Preferred Stock has an annual
dividend rate equal to the prime rate, as defined, plus 1.0%, and dividends
not paid are cumulative. The prime rate at December 31, 1996 was 8.25% and
at December 31, 1995 was 8.5%. Cumulative dividends on the Preferred Stock
at December 31, 1996 and 1995 were $1,562,315 and $882,056, respectively.
The Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock are redeemable over a five-year period ending March 1, 2002, August 1,
2003, and November 11, 2005, respectively, at the option of the holders at
the rate of $0.75, $1.50 and $1.75 per share, respectively, plus unpaid
dividends.
In 1993 the Company sold 2,000,000 shares of Series A Convertible Preferred
Stock (the "Series A Preferred Stock") for $1,500,000, and incurred $27,716
of transaction costs. A holder of the Series A Preferred Stock received a
warrant to purchase 100,000 shares of Common Stock, with an exercise price
equal to the fair market value of the Common Stock on the date of the grant.
In 1994, the Company sold 2,670,504 shares of the Series B Convertible
Preferred Stock (the "Series B Preferred Stock") for $4,005,756, and incurred
$282,196 of transaction costs. Also in 1994, the Company issued 238,335
shares of Series B Preferred Stock in exchange of 238,335 shares of Common
Stock, and in conjunction with a licensing of certain technology, issued
33,333 shares of the Series B Preferred Stock to the licensor, with share
price equal to the fair market value of the Common Stock on the date of
issue. In 1996, the Company sold 3,479,518 shares of Series C Convertible
Preferred Stock (the "Series C Preferred Stock") for $6,089,156, and incurred
$642,990 of transaction costs. An additional 155,428 shares of Series C
Preferred Stock was issued as part of a commission fee with regard to the
Series C financing round.
13
<PAGE>
AVID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
--------------------------
6. STOCK OPTIONS:
- ------------------
The 1992 Incentive Stock Option and Non-Qualified Stock Option Plan (the
"1992 Plan") was adopted by the Company's Board of Directors and approved by
the Company's shareholders in April, 1992. A total of 560,000 shares of
Company's authorized Common Stock has been reserved for the 1992 Plan to be
used to grant options or shares to employees, directors, advisors, and
consultants. As of December 31, 1995, options had been granted to purchase a
total of 404,786 shares, of which 101,000 have been exercised and 165,278
have vested. As of December 31, 1996, options had been granted to purchase a
total of 446,397 shares, of which 101,000 have been exercised and 183,797 had
vested.
The 1993 Incentive Stock Option and Non-Qualified Stock Option Plan (the
"1993 Plan") was adopted by the Company's Board of Directors and approved by
the Company's shareholders in January, 1993. A total of 750,000 shares of
the Company's authorized Common Stock has been reserved for the 1993 Plan to
be used to grant options or shares to employees, officers, directors,
advisors, and consultants. As of December 31, 1995, options had been granted
to purchase a total of 668,500 shares, of which 318,500 have vested. As of
December 31, 1996, options had been granted to purchase a total of 749,500
shares, of which 421,000 had vested.
The 1995 Incentive Stock Option and Non-Qualified Stock Option Plan (the
"1995 Plan") was adopted by the Company's Board of Directors and approved by
the Company's shareholders in December, 1994. A total of 1,500,000 shares of
the Company's authorized Common Stock has been reserved for the 1995 Plan to
be used to grant options or shares to employees, officers, directors,
advisors, and consultants. As of December 31, 1995, options had been granted
to purchase a total of 524,793 shares, of which 1,400 have been exercised and
262,000 have vested. As of December 31, 1996, options had been granted to
purchase a total of 581,393 shares, of which 1,400 have been exercised and
299,235 have vested.
An option plan for the benefit of employees of Quality Biotech (the "Quality
Biotech Plan") was approved by Quality Biotech's Board of Directors and
shareholders in 1987 (amendments were approved in 1989 and 1993). A total of
30,000 shares of Quality Biotech common stock had been reserved for the
Quality Biotech Plan. In 1995, the Company extended an offer to all of the
Quality Biotech Plan option holders to exchange Company 1995 Plan options for
Quality Biotech Plan options. This exchange resulted in Quality Biotech
employees being granted options to purchase 638,854 shares of Company Common
Stock. As of December 31, 1995, the total options granted from this offer
was 372,773, of which 208,651 have vested. As of December 31, 1996, the
total options granted from this offer was 372,773, of which 268,831 have
vested. This total is included in the 1995 Plan totals above.
14
<PAGE>
AVID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
--------------------------
All Avid Stock Option Plans vest at 20% per year over five years.
The per share weighted-average fair value of stock options granted during
1996 and 1995 was $0.54 and 0.46 on the date of grant using the Black Scholes
option-pricing model with the following weighted-average assumptions: 1996 -
expected dividend yield 0%, risk-free interest rate of 7.65%, and an expected
life of 5 years; 1995 -expected dividend yield 0%, risk-free interest rate of
7.65%, and an expected life of 5 years.
The Company applies APB Opinion No. 25 in accounting for its plans and,
accordingly, no compensation cost has been recognized for its stock options
in the financial statements. Had the Company determined compensation cost
based on the fair value at grant date for its stock options under SFAS No.
123, the Company's net loss would have been increased to the PRO FORMA
amounts indicated below:
1996 1995
Net loss As reported $(6,046,365) $(1,437,212)
Pro forma $(6,145,668) $(1,462,596)
Pro forma net loss reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts
presented above because compensation cost is reflected over the options'
vesting period of five (5) years and compensation cost for options granted
prior to January 1, 1995 is not considered.
The following table sets forth all stock option grants through December 31,
1996 and 1995, including Quality Biotech Plan options. No options were
exercised during 1996 and 102,400 options were exercised during 1995.
OPTIONS OUTSTANDING
-------------------------
SHARES
AVAILABLE FOR PRICE
GRANT SHARES PER SHARE
------------- --------- -----------
Balance at December 31, 1994 1,767,814 1,042,186 $0.10-$1.70
Granted (370,020) 370,020 $ 1.50
Quality Biotech Plan (638,854) 638,854 $0.47-$1.70
Canceled 553,981 (553,981) -
Exercised (102,400) - $0.10-$1.06
--------- --------- -----------
Balance at December 31, 1995 1,210,521 1,497,079 $0.10-$1.70
--------- --------- -----------
--------- --------- -----------
Granted (230,600) 230,600 $1.50-$1.70
Canceled 51,389 (51,389) -
--------- --------- -----------
Balance at December 31, 1996 1,031,310 1,676,290 $0.10-$1.70
--------- --------- -----------
--------- --------- -----------
15
<PAGE>
AVID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
--------------------------
7. STRATEGIC ALLIANCE AND OTHER LICENSE AGREEMENTS:
-----------------------------------------------
STRATEGIC ALLIANCE
The Company and Warner-Lambert Company (W-L) entered into a strategic
alliance in September 1993. Under the agreement, W-L purchased 125,000
shares of the Company's Common Stock for $250,000. In addition, W-L is
required to purchase an additional 125,000 shares of the Company's Common
Stock for $250,000 upon the achievement of certain milestones, as defined.
The agreement grants W-L semi-exclusive worldwide rights, as defined, to
certain technology. In addition, the agreement provides for W-L to pay the
Company certain amounts, as defined, upon the achievement of certain
milestones. Each company will also have the right to receive royalties for
certain products developed by the other party under the agreement.
LICENSE AGREEMENTS
In 1992, the Company entered into a licensing agreement with the Fox Chase
Cancer Center ("Fox Chase"), located in Philadelphia, Pennsylvania, for
certain technologies related to the discovery of antiviral therapeutics. The
Company has agreed to pay Fox Chase royalties for use of the technologies, to
sponsor and pay for a certain level of research to be conducted at Fox Chase,
and has issued to Fox Chase Common Stock of the Company. As of December 31,
1995, the Company had no remaining financial obligation to fund such research.
On March 6, 1996, the Company executed an Exclusive Option Agreement (the
"Option Agreement") with The DuPont Merck Pharmaceutical Company ("DPM").
The agreement granted the Company an exclusive, worldwide option to enter
into an exclusive, worldwide license agreement covering DMP-450, DPM's HIV
Protease Inhibitor. The option had a term of 9 months, and required a
payment of $500,000 within 10 days of signing the Option Agreement. The
Company exercised its option under the Option Agreement and entered into the
License Agreement in December, 1996. The $500,000 payment was recorded in
research and development expense in 1996.
Under the terms of the License Agreement, the Company paid an initial license
fee of $1,750,000 which is included in research and development expense in
1996. The Company acquired a quantity of manufactured DMP-450 under a
separate agreement for a total cost of $500,000 which was included in
research and development expense in 1996. Under the terms of the separate
agreement, $100,000 was paid for the inventory in 1996 and additional
payments of $200,000 each will be made on March 31 and June 30, 1997. The
License Agreement also includes a series of milestone payments to DPM based
on the success of the Company's product development efforts, royalty payments
based on future product sales, and license preservation fees should royalty
and milestone payments not reach certain minimum payments.
The Company has entered into various licensing, research and other
agreements. Should any discoveries be made under such agreements, the Company
would be required to negotiate the licensing of the technology for the
development of the respective discoveries or pay royalties on future product
sales.
16
<PAGE>
AVID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
--------------------------
8. INCOME TAXES:
- -----------------
Income tax expense (benefit) attributed to continuing operations consists of:
1996 1995
--------- ----------
Current:
Federal $ -- $ (221,635)
State -- --
--------- ----------
-- (221,635)
Deferred:
Federal -- --
State -- --
--------- ----------
-- --
--------- ----------
$ -- $ (221,635)
--------- ----------
--------- ----------
The actual provision for income taxes differs from the "expected" provision for
income taxes (computed by applying the U.S. Federal corporate tax rate of 34% to
income before provision for income taxes) as follows:
1996 1995
------------- -----------
Computed expected Federal income tax $ (1,601,969) $ (695,607)
benefit
Change in the beginning of year balance
of the valuation allowance for deferred
tax assets allocated to income tax expense 1,792,032 492,126
State tax benefit (158,877) --
Research and experimentation credit (31,186) (18,154)
------------- -----------
Income tax benefit $ -- $ (221,635)
------------- -----------
------------- -----------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at December 31, 1996 and 1995 is
presented below:
Deferred tax assets:
Net operating loss carryforwards $ 2,546,153 $ 785,307
Research and experimentation credit 113,700 82,514
------------- -----------
Total gross deferred tax assets 2,659,853 867,821
Less valuation allowance (2,659,853) (867,821)
------------- -----------
Net deferred tax assets $ -- $ --
------------- -----------
------------- -----------
The total valuation allowance for the year ended December 31, 1996 and 1995
increased by $1,792,032 and $421,925, respectively. The estimated net tax
loss carryforward as of December 31, 1996 and 1995 was $7,488,685 and
$2,309,726, respectively. The net tax loss carryforward begins to expire in
2007 and the ability of the Company to utilize such losses may be affected by
the potential conversion of the outstanding shares of Avid Corporation
discussed in Note 12.
17
<PAGE>
AVID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
--------------------------
9. COMMITMENTS AND CONTINGENCIES:
- ----------------------------------
The Company leases office and laboratory facilities under a cancelable (at
any time, with six months notice) operating lease. The Company also leases
office and laboratory facilities under a non-cancelable lease which
terminates in April 2001. Rent expense charged to operations was $343,266 and
$325,136 in 1996 and 1995, respectively.
The Company also leases laboratory and office equipment under various
operating leases. Future minimum lease payments applicable to non cancelable
operating leases as of December 31, 1996 are as follows:
1997 416,366
1998 389,895
1999 335,458
2000 301,094
After 2000 13,333
10. EMPLOYEE BENEFIT PLAN:
- --------------------------
The Company maintains a 401(k) retirement saving plan for all eligible
employees of the Company. Company contributions to the plan, if any, are
made at the discretion of the Company's Board of Directors.
Starting in 1995, the Company began matching employee contributions to the
401(k) retirement saving plan. The match for the years ended December 31,
1996 and 1995 was 50% of the first 6% of salary contributed to the plan by
any employee. The Company's contributions for 1996 and 1995 were $74,563 and
$72,935, respectively.
11. DISCONTINUED OPERATIONS:
- ----------------------------
On May 27, 1997, the Company sold its interest in Quality Biotech (140,571
shares of Quality Biotech) to ViroMED Laboratories, Inc. of Minneapolis, MN
and Conrad Heilman, Jr. who became President of Quality Biotech on January
27, 1997. The Company received $200,000 in consideration resulting in an
estimated loss of approximately $1.8 million (including operating losses
through the date of disposal) which is not reflected in the accompanying
financial statements since the sale was unanticipated as of December 31,
1996. The results of Quality Biotech for 1996 and 1995 have been reported
separately as discontinued operations. The components of net assets of
discontinued operations included in the balance sheets at December 31, are as
follows.
18
<PAGE>
AVID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
--------------------------
1996 1995
------------ -----------
Current assets (principally
accounts receivable) $ 1,739,603 $ 1,712,247
Unbilled revenue 123,332 588,476
Accounts payable, accrued
expenses and other (1,916,294) (342,490)
Property, plant and equipment,
net 803,952 --
Minority interest (35,235) --
------------- -----------
Net current assets $ 715,358 $ 1,958,233
------------- -----------
------------- -----------
Property, plant and equipment,
net $ -- $ 793,048
Long-term debt -- (105,467)
Minority interest -- (114,500)
------------- -----------
Net long-term assets $ -- $ 573,081
------------- -----------
------------- -----------
The condensed statement of operations relating to the discontinued operations
for the years ended December 31, are presented below:
1996 1995
------------ -----------
Service revenues $ 5,243,798 $ 5,613,152
Operating expenses (6,603,525) (4,951,014)
Other expense, net (54,230) (1,553)
Minority interest 79,265 (21,231)
------------ -----------
Income (loss) before provision
for income taxes (1,334,692) 639,354
Provision for income taxes -- (252,299)
------------ -----------
Net income (loss) $(1,334,692) $ 387,055
------------ -----------
------------ -----------
REVENUE RECOGNITION
The discontinued operations recognize service revenue for laboratory testing
and consulting services over the estimated period such services are required
to perform the test or service. Costs of service revenue, which are
primarily salaries, supplies, and subcontract services are charged to
operations as incurred. Losses, if any, estimated by the discontinued
operation to be sustained upon completion of the test or service, are charged
to operations when determinable.
Unbilled revenue represents revenue earned for laboratory testing and
consulting services but not billed as of the end of the year.
19
<PAGE>
AVID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
--------------------------
GIMV AGREEMENT
On October 3, 1996, the Company entered into an agreement with GIMV, NV and
Biotech Fund Flanders, NV ("GIMV Agreement") under which the Company agreed
to the following points: the Company agreed to increase the capital of
Quality Biotech, NV by $457,000 by December 31, 1996 and by an additional
$1,000,000 by March 31, 1997; the Company agreed to provide Quality Biotech,
NV with adequate financing to conduct business through January 1, 1999 as
long as it is reasonably justified by business considerations; and the
Company agreed to not cause the dissolution of or move the base of operations
of Quality Biotech, NV and to employ not less than 8 employees after December
31, 1998 without the prior approval of GIMV. If the Company is in default of
any of these points, GIMV may demand that the Company repurchase all Series B
and Series C shares purchased by GIMV, for their original purchase price. The
Company was not in default at December 31, 1996. As part of the ViroMed
transaction, the Company was relieved of all its obligations to GIMV.
COMMITMENTS AND CONTINGENCIES
On May 27, 1997, the Company paid Epic Therapeutics, Inc. (formerly Middlesex
Sciences, Inc.) $200,000 under the terms of a settlement agreement dated
September 18, 1996. Under the terms of the settlement agreement, Quality
Biotech was released from any additional liability related to a dispute over
breach of warranty in connection with two contracts for testing services
performed by Quality Biotech. The $200,000 payment is reflected as an
accrued liability within the net assets of the discontinued operation.
During 1996, Quality Biotech discovered a problem in the production of its
Hepatitis A virus (HAV) inventory. As a result of this problem certain viral
validation protocols performed by Quality Biotech on behalf of their clients
during the period from January 1995 through December 1996 were invalid.
Quality Biotech has recorded a liability for the cost to re-perform these
tests which is reflected as an accrued liability within the net assets of the
discontinued operation.
SIGNIFICANT CLIENTS
QBI had two clients at December 31, 1995 with account balances representing
16% and 15% of the total accounts receivable. QBI had one client with sales
representing 15% of total service revenues during the year ended December 31,
1995. QBI had one client at December 31, 1996 with account balances
representing 22% of the total accounts receivable. QBI had no clients with
sales representing 10% or more of total service revenues during the year
ended December 31, 1996.
12. SUBSEQUENT EVENT:
The Company anticipates that it will enter into an Agreement and Plan of
Reorganization on or before June 30, 1997 under which all of the issued and
outstanding shares of Avid Corporation will be converted into the right to
receive shares of the voting common stock of another corporation with a
portion of the shares being contingent upon certain milestones.
20
<PAGE>
AVID CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS JUNE 30, 1997
------ -------------
Current assets:
Cash and cash equivalents $ 196,042
Prepaid expenses and other current assets 5,614
----------
Total Current Assets 201,656
Property and equipment, net 118,768
----------
Total Assets $ 320,424
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 235,323
Accrued expenses 872,042
Obligation under capital lease, current portion 70,932
Notes payable 200,000
----------
Total Current Liabilities 1,378,297
Obligation under capital lease 32,719
----------
Total Liabilities 1,411,016
----------
Stockholders' equity:
Redeemable convertible Preferred Stock,
$0.01 par value, 17,000,000 shares authorized:
Series A, 2,000,000 shares authorized, 1,683,921 shares
issued and outstanding 16,839
Series B, 6,000,000 shares authorized, 2,953,698 shares
issued and outstanding 29,537
Series C, 9,000,000 shares authorized, 3,694,289 shares
issued and outstanding 36,943
Common Stock, $0.01 par value, 30,000,000 shares authorized,
7,202,543 shares issued and outstanding 72,025
Additional paid-in capital 13,486,482
Accumulated deficit (14,732,418)
----------
Total Stockholders' Equity (1,090,592)
----------
Total Liabilities and Stockholders' Equity $ 320,424
----------
----------
See accompanying notes to unaudited condensed consolidated
financial statements.
21
<PAGE>
AVID CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Operating expenses:
Selling, general, and administrative $ 612,644 $ 444,405
Research and development 1,784,980 998,811
----------- -----------
2,397,624 1,443,216
----------- -----------
Loss from operations (2,397,624) (1,443,216)
----------- -----------
Other income (expense):
Interest income 36,662 14,688
Interest expense (7,196) (1,679)
----------- -----------
29,466 13,009
----------- -----------
Loss from continuing operations
before provision for income taxes (2,368,158) (1,430,207)
----------- -----------
Income tax benefit -- --
----------- -----------
Net loss from continuing operations (2,368,158) (1,430,207)
Discontinued operations:
Loss from operations of Quality Biotech (1,768,222) (262,772)
----------- -----------
Net loss $(4,136,380) $(1,692,979)
----------- -----------
----------- -----------
See accompanying notes to unaudited condensed consolidated financial statements.
</TABLE>
22
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Continuing Operations:
Cash flows from operating activities:
Net loss from continuing operations $(2,368,158) $(1,430,207)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 45,252 43,872
Expenses incurred in exchange for equity 4,500 4,400
Change in operating assets and liabilities:
Prepaid expenses 42,943 (38,732)
Accounts payable 130,241 83,542
Accrued expenses 442,127 31,655
----------- -----------
Net cash used in operating activities (1,703,095) (1,305,470)
----------- -----------
Cash flows from investing activities:
Purchases of property, plant, and equipment (3,750) --
Maturity of short term investments -- 297,254
----------- -----------
Net cash (used in) provided from investing activities (3,750) 297,254
----------- -----------
Cash flows from financing activities:
Proceeds from the issuance of notes payble 200,000 --
Repayment of obligation under capital lease (38,766) (38,467)
Net proceeds from issuance of preferred stock 84,783 (36,026)
----------- -----------
Net cash provided from (used in) financing activities 246,017 (74,493)
----------- -----------
Net cash flows from continuing operations (1,460,828) (1,082,709)
----------- -----------
Discontinued Operations:
Net cash flows from discontinuing operations (1,052,864) 709,057
----------- -----------
Decrease in cash and cash equivalents (2,513,692) (373,652)
Cash and cash equivalents, beginning of the period 2,709,734 406,600
----------- -----------
Cash and cash equivalents, end of the period $ 196,042 $ 32,948
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
23
<PAGE>
AVID CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited financial statements of Avid Corporation and
subsidiaries ("Avid") have been prepared in accordance with generally
accepted accounting principles and applicable Securities and Exchange
Commission regulations for interim financial information. These financial
statements do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
It is presumed that users of this interim financial information have read or
have access to the audited financial statements for the preceding fiscal year
contained in Item 7(a) in this Current Report on Form 8-K/A report. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for fair presentation have been included.
Operating results for the interim periods presented are not necessarily
indicative of the results that may be expected for the full year.
2. Notes Payable
On June 30, 1997 Avid issued promissory notes totaling $200,000 payable
to investors of Avid for bridge debt financing and an additional $225,000 was
issued prior to August 28, 1997, the acquisition closing date. The debt was
used to finance Avid's operations until the merger with Triangle
Pharmaceuticals, Inc. ("Triangle") was finalized. The notes with a 15% per
annum interest rate were payable upon demand and were subsequently paid as a
result of the merger with Triangle. One of the investors was an entity
affiliated withthe venture capital funds providing the financing is managed
by the Chairman of Avid.
24
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(b) PRO FORMA FINANCIAL DATA.
TRIANGLE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------- --------------------------
ASSETS TRIANGLE AVID ADJUSTMENTS COMBINED
(NOTE 1)
----------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $50,111,941 $196,042 $ -- $50,307,983
Restricted deposits 40,850 -- -- 40,850
Investments 24,335,822 -- -- 24,335,822
Interest receivable 278,194 -- -- 278,194
Other receivables 976,068 -- -- 976,068
Prepaid expenses 337,234 5,614 -- 342,848
----------- -------- ------------ -----------
Total current assets 76,080,109 201,656 -- 76,281,765
----------- -------- ------------ -----------
Property, plant and equipment, net 998,452 118,768 (118,768)(d) 998,452
Restricted deposits 97,899 -- -- 97,899
----------- -------- ------------ -----------
Total assets $77,176,460 $320,424 $ (118,768) $77,378,116
----------- -------- ------------ -----------
----------- -------- ------------ -----------
See accompanying notes to unaudited pro forma condensed combined balance sheet.
</TABLE>
25
<PAGE>
TRIANGLE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------- ----------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY TRIANGLE AVID ADJUSTMENT COMBINED
- ------------------------------------ (NOTE 1)
------------ ------------ --------------- -------------
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable ........................ $ 1,348,443 $ 235,323 $ -- $ 1,583,766
Accrued license fees .................... 500,000 -- -- 500,000
Capital lease obligation-current ........ 113,425 70,932 -- 184,357
Other accrued expenses .................. 1,818,447 872,042 1,100,000 (c) 3,790,489
Notes payable ........................... -- 200,000 -- 200,000
------------ ------------ --------------- -------------
Total current liabilities ............. 3,780,315 1,378,297 1,100,000 6,258,612
Capital lease obligation ................ 353,816 32,719 -- 386,535
------------ ------------ --------------- -------------
Total liabilities ..................... 4,134,131 1,411,016 1,100,000 6,645,147
------------ ------------ --------------- -------------
Stockholders' equity:
Common Stock ............................ 19,585 72,025 (72,025)(b) 19,985
400 (a)
Redeemable convertible preferred stock .. -- 83,319 (83,319)(b) --
Warrants ................................ 200,103 -- -- 200,103
Additional paid-in capital .............. 94,019,823 13,486,482 (13,486,482)(b) 102,136,923
8,117,100 (a)
Accumulated deficit during development
stage ................................. (21,045,065) (14,732,418) 14,732,418 (b) (31,471,925)
(10,426,860)(d)
Deferred compensation ................... (152,117) -- -- (152,117)
------------ ------------ --------------- -------------
Total stockholders' equity ............ 73,042,329 (1,090,592) (1,218,768) 70,732,969
------------ ------------ --------------- -------------
Total liabilities and stockholders'
equity .............................. $ 77,176,460 $ 320,424 $ (118,768) $ 77,378,116
------------ ------------ --------------- -------------
------------ ------------ --------------- -------------
</TABLE>
See accompanying notes to pro forma condensed combined financial data.
26
<PAGE>
TRIANGLE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------- ------------------------------
TRIANGLE AVID ADJUSTMENTS COMBINED
(NOTE 2)
------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Operating expenses:
License fees ........................ $ 3,267,147 $ -- $ -- $ 3,267,147
Development ......................... 4,966,732 3,896,532 -- 8,863,264
General and administrative .......... 3,558,041 814,537 -- 4,372,578
------------- ------------ ----------- -------------
11,791,920 4,711,069 -- 16,502,989
Other income (expense):
Interest income ....................... 875,337 14,688 -- 890,025
Interest expense ...................... -- (14,336) -- (14,336)
Other ................................. -- (956) -- (956)
------------- ------------ ----------- -------------
Net loss .............................. $ (10,916,583) $ (4,711,673) $ -- $ (15,628,256)
------------- ------------ ----------- -------------
------------- ------------ ----------- -------------
Pro forma net loss per share .......... $ (0.75) $ (1.05)
------------- -------------
------------- -------------
Shares used in computing pro
forma net loss per share ............ 14,478,951 400,000 (e) 14,878,951
------------- ----------- -------------
------------- ----------- -------------
</TABLE>
See accompanying notes to pro forma condensed combined financial data.
27
<PAGE>
TRIANGLE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------- ------------------------------
TRIANGLE AVID ADJUSTMENTS COMBINED
(NOTE 2)
------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Operating expenses:
License fees ........................ $ 500,000 $ -- $ -- $ 500,000
Development ......................... 6,693,479 1,784,980 -- 8,478,459
General and administrative .......... 3,464,610 612,644 -- 4,077,254
------------- ------------ ----------- -------------
10,658,089 2,397,624 -- 13,055,713
Other income (expense): --
Interest income ..................... 1,497,190 36,662 -- 1,533,852
Interest expense .................... -- (7,196) -- (7,196)
------------- ------------ ----------- -------------
Net loss .............................. $ (9,160,899) $ (2,368,158) $ -- $ (11,529,057)
------------- ------------ ----------- -------------
------------- ------------ ----------- -------------
Net loss per share .................... $ (0.51) $ (0.63)
------------- -------------
------------- -------------
Shares used in computing net loss
per share ........................... 17,825,678 400,000 (e) 18,225,678
------------- ----------- -------------
------------- ----------- -------------
</TABLE>
See accompanying notes to pro forma condensed combined financial data.
28
<PAGE>
TRIANGLE PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL DATA
(UNAUDITED)
Note 1 - Pro Forma Condensed Combined Balance Sheet Adjustments
The unaudited pro forma condensed combined balance sheet adjustments have
been prepared to reflect the acquisition by Triangle Pharmaceuticals, Inc.
("Triangle") of Avid Corporation ("Avid") for an aggregate purchase price of
approximately $9,217,500 consisting of approximately $8,117,500 in
unregistered common stock and approximately $1,100,000 of estimated direct
transaction costs, as if it occured on June 30, 1997.
(a) Represents purchase price consideration paid in the form of 400,000
shares of unregistered Triangle common stock valued at $20.29 per share,
representing a 15% discount from the five day average closing price for
the period June 27 through July 3, 1997.
(b) Represents the elimination of Avid's historical stockholders' equity.
(c) Represents estimated direct transaction costs for legal, accounting and
investment banking services.
(d) Represents estimated allocation of purchase price; assumes that the book
value of Avid's historical tangible assets and liabilities at June 30,
1997 reflect the fair market value of such tangible assets and
liabilities. The fair market value of purchased drug compounds has been
allocated to in-process research and development and expensed. As the
fair market value of the net assets acquired, including in-process
research and development, exceeded the purchase price, all non-current
Avid tangible assets have been written off and the amount charged to
in-process research and development reduced for the remaining excess
under the provisions of APB No. 16. The purchased in-process research
and development of $10.4 million has been deemed to be non-recurring and
directly attributable to the acquisition and accordingly has been
excluded from the pro forma results of operations. The purchased
in-process research and development will be expensed in the period the
transaction is consummated.
Note 2 - Pro Forma Condensed Combined Statement of Operations Adjustments
The unaudited pro forma condensed combined statement of operations
adjustments have been prepared to reflect the acquisition of Avid as if
it occurred on January 1, 1996.
(e) Represents adjustment to reflect the issuance of 400,000 shares of
unregistered Triangle common stock.
29
<PAGE>
TRIANGLE PHARMACEUTICALS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Amendment No. 1 to Current Rreport on Form
8-K/A to be signed on its behalf by the undersigned, hereunto duly
authorized.
TRIANGLE PHARMACEUTICALS, INC.
Date: November 12, 1997 By: /s/ JAMES A. KLEIN, JR.
------------------------------------
James A. Klein, Jr.
Chief Financial Officer and Treasurer
30
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INDEX OF EXHIBITS
EXHIBIT NO. DESCRIPTION
- ---------- -----------
*2.1 Agreement and Plan of Reorganization dated as of June 30, 1997, by and
among Triangle.
**2.2 Certificate of Merger between Merger Sub and Avid dated August 28,
1997.
**2.3 Agreement and Plan of Merger between Merger Sub and Avid, dated August
28, 1997.
23.1 Consent of KPMG Peat Marwick LLP.
**99.1 Press Release, dated July 1, 1997.
**99.2 Press Release, dated August 29, 1997.
- ------------
* Incorporated by reference to the same numbered exhibit to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1997, filed with the Securities and Exchange Commission on August 14, 1997.
** Incorporated by reference to the same numbered exhibit to the Company's
Current Report on Form 8-K dated September 11, 1997, filed with the
Securities and Exchange Commission on September 11, 1997.
31
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EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
The Board of Directors:
We consent to the inclusion of our report dated June 27, 1997, with respect
to the consolidated balance sheets of Avid Corporation and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the years then ended,
which report appears in the Form 8-K/A of Triangle Pharmaceuticals, Inc. to
be filed November 12, 1997.
Philadelphia, Pennsylvania
November 11, 1997
