<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
AMENDMENT NO. 1
Date of Report (Date of earliest event reported): November 23, 1998
TREGA BIOSCIENCES, INC.
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<S> <C> <C>
DELAWARE 0-27972 51-0336233
(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
</TABLE>
9880 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
(Address of Principal Executive Offices) (Zip Code)
(619) 410-6500
(Registrant's telephone number, including area code)
<PAGE> 2
This Current Report on Form 8-K/A Amendment No. 1 is made to the Current
Report on Form 8-K originally filed by Trega Biosciences, Inc. on December 7,
1998 with respect to the acquisition of NaviCyte, Inc. (the "Form 8-K"). Terms
defined in the Form 8-K are used herein as so defined.
Item 7. Financial Statements and Exhibits
A. FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The report of independent auditors, the audited balance sheets of
NaviCyte as of September 30, 1998 and the related audited statements of
operations, net capital deficiency and cash flows for the twelve months
ended September 30, 1998 are filed as a part of this report.
B. PRO FORMA FINANCIAL INFORMATION.
An unaudited pro forma combined balance sheet as of September 30, 1998
and unaudited pro forma combined statements of operations for the year
ended December 31, 1997 and the nine months ended September 30, 1998,
giving effect to the Merger as of September 30, 1998 for the pro forma
combined balance sheet and for the year ended December 31, 1997 and the
nine months ended September 30, 1998 for the pro forma combined
statements of operations, are filed as a part of this report.
C. EXHIBITS.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
-2-
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: February 4, 1999
TREGA BIOSCIENCES, INC.
By /s/ Michael G. Grey
-------------------------------------
Michael G. Grey
President and Chief Executive Officer
By /s/ Gerard A. Wills
-------------------------------------
Gerard A. Wills
Chief Financial Officer
-3-
<PAGE> 4
ITEM 7.A.
Financial Statements
NaviCyte, Inc.
September 30, 1998
with Report of Independent Auditors
<PAGE> 5
NaviCyte, Inc.
Financial Statements
Year ended September 30, 1998
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors..................................1
Audited Financial Statements
Balance Sheet...................................................2
Statement of Operations.........................................3
Statement of Shareholder's Deficit..............................4
Statement of Cash Flows.........................................5
Notes to Financial Statements...................................6
</TABLE>
<PAGE> 6
Report of Independent Auditors
The Board of Directors
NaviCyte, Inc.
We have audited the accompanying balance sheet of NaviCyte, Inc. as of September
30, 1998 and the related statements of operations, shareholder's deficit, and
cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NaviCyte, Inc. at September 30,
1998 and the results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
December 18, 1998
1
<PAGE> 7
NaviCyte, Inc.
Balance Sheet
September 30, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 46,524
Accounts receivable, net of allowance for doubtful accounts of $28,600 111,380
Inventories 45,282
Other current assets 11,453
---------
Total current assets 214,639
Property and equipment, net 89,439
Intangible and other assets, net 84,625
---------
$ 388,703
=========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 231,579
Due to officers 60,000
Current portion of obligations under capital leases and equipment
notes payable 17,863
Deferred revenue 478,666
---------
Total current liabilities 788,108
Obligations under capital leases and equipment notes
payable 4,898
Shareholder's deficit
Common stock, $0.01 par value, 10,000,000 shares authorized,
4,000,000 shares issued and outstanding at September 30, 1998 40,000
Additional paid-in capital 717,616
Deferred compensation (485,921)
Accumulated deficit (675,998)
---------
Total shareholder's deficit (404,303)
---------
$ 388,703
=========
</TABLE>
See accompanying notes.
2
<PAGE> 8
NaviCyte, Inc.
Statement of Operations
Year ended September 30, 1998
<TABLE>
<S> <C>
License and royalty revenue $ 408,548
Simulation revenue 170,000
Product sales, net 417,903
Screening revenue 107,813
Other 83,938
-----------
Total revenue 1,188,202
Cost of goods sold (617,511)
-----------
Gross profit 570,691
Operating expenses:
Research and development 303,431
Selling, general and administrative 832,256
-----------
Total operating expenses (1,135,687)
-----------
Net loss $ (564,996)
===========
</TABLE>
See accompanying notes.
3
<PAGE> 9
NaviCyte, Inc.
Statement of Shareholder's Deficit
Year ended September 30, 1998
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------------- PAID-IN DEFERRED ACCUMULATED SHAREHOLDER'S
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT DEFICIT
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1997 4,000,000 $ 40,000 $ 189,904 $(137,748) $(111,002) $ (18,846)
Deferred compensation -- -- 527,712 (527,712) -- --
Amortization of deferred
compensation -- -- -- 179,539 -- 179,539
Net loss -- -- -- -- (564,996) (564,996)
---------------------------------------------------------------------------------------------
Balance at September 30, 1998 4,000,000 $ 40,000 $ 717,616 $(485,921) $(675,998) $(404,303)
=============================================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 10
NaviCyte, Inc.
Statement of Cash Flows
Year ended September 30, 1998
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss $(564,996)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 29,052
Amortization of deferred compensation 179,539
Change in operating assets and liabilities:
Accounts receivable (18,143)
Inventory (17,139)
Other assets (63,242)
Accounts payable and accrued expenses 47,965
Deferred revenue 478,666
---------
Net cash provided by operating activities 71,702
INVESTING ACTIVITIES
Purchases of property and equipment (24,051)
---------
Net cash used in investing activities (24,051)
FINANCING ACTIVITIES
Principal payments on obligations under capital leases and equipment
notes payable (18,873)
---------
Net cash used in financing activities (18,873)
---------
Net increase in cash and cash equivalents 28,778
Cash and cash equivalents at beginning of year 17,746
---------
Cash and cash equivalents at end of year $ 46,524
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 3,518
=========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Capital lease obligations entered into for equipment $ 8,156
=========
</TABLE>
See accompanying notes.
5
<PAGE> 11
NaviCyte, Inc.
Notes to Financial Statements
September 30, 1998
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION AND BUSINESS
NaviCyte, Inc. (the "Company") was incorporated in the State of Delaware on
September 19, 1996. The Company is an enabling technology drug selection company
that designs and develops proprietary systems, disposable devices, cell based
products, automation hardware and simulation software which can predict human
processing of potential new therapeutic compounds. The Company markets its
services by partnering with pharmaceutical and biotechnology companies and by
providing marketed products to pharmaceutical, biotechnology, veterinary,
agricultural companies and laboratories.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles 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 reporting period.
Actual results could differ from those estimates.
REVENUE RECOGNITION
Non-refundable license fees and milestone payments are recognized when received
as the Company has no other performance obligations. Simulation revenue is
recognized over the contract period based upon the completion of milestones.
Screening revenue is recorded as earned, generally ratably, as research and
development activities are performed under the terms of the contract. Payments
received in excess of amounts earned are deferred. Revenue from product sales
are recognized upon shipment.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a remaining maturity of
less than three months when purchased to be cash equivalents.
6
<PAGE> 12
NaviCyte, Inc.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are recorded at the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment, including equipment under capital leases and equipment
notes payable, are stated at cost and depreciated over the estimated useful
lives of the assets (three to seven years) or the term of the related lease,
using the straight-line method. Amortization of assets acquired under capital
leases is included in depreciation expense.
INTANGIBLE AND OTHER ASSETS
Licensed technology and patent rights are amortized using the straight-line
method over five to ten years.
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees and related Interpretations ("APB 25")
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
Accounting for Stock-Based Compensation ("Statement 123") requires use of option
valuation models which the Company believes were not developed for use in
valuing employee stock options.
Under APB 25, when the exercise price of the Company's employee stock options
equals the fair value of the underlying stock on the date of grant, no
compensation expense is recognized.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income, which is effective for fiscal years beginning
after December 15, 1997. SFAS No. 130 requires that all components of
comprehensive income, including net income, be reported in the financial
statements in the period in
7
<PAGE> 13
NaviCyte, Inc.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING STANDARDS (CONTINUED)
which they are recognized. Comprehensive income is defined as the change in
equity during a period from transactions and other events and circumstances from
non-owner sources. Net income and other comprehensive income, including foreign
currency translation adjustments, and unrealized gains and losses on
investments, shall be reported, net of their related tax effect, to arrive at
comprehensive income. The Company does not believe that comprehensive income or
loss will be materially different than net income or loss.
3. BALANCE SHEET INFORMATION
INVENTORIES
Inventories consist of the following at September 30, 1998:
<TABLE>
<S> <C>
Raw materials $ 986
Finished goods 44,296
-------
$45,282
=======
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment consist of the following at September 30, 1998:
<TABLE>
<S> <C>
Furniture and equipment $ 118,634
Less accumulated depreciation and amortization (29,195)
---------
$ 89,439
=========
</TABLE>
INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following at September 30, 1998:
<TABLE>
<S> <C>
Licensed technology $ 55,000
Patents 40,000
--------
95,000
Less accumulated amortization (10,375)
--------
$ 84,625
========
</TABLE>
8
<PAGE> 14
NaviCyte, Inc.
Notes to Financial Statements (continued)
4. COMMITMENTS
LEASES
The Company leases a facility under an operating lease agreement that expires in
May 2000. Rent expense was $25,326 for the year ended September 30, 1998.
Additionally, the Company leases certain equipment under operating leases with
initial terms in excess of one year.
Annual future minimum lease obligations, including property and equipment under
capital leases, as of September 30, 1998 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------------------
<S> <C> <C>
1999 $29,342 $19,865
2000 17,854 5,086
2001 - 290
---------------------
Total minimum lease payments $ 47,196 25,241
========
Less amount representing interest (2,480)
--------
Total present value of minimum payments 22,761
Less current portion (17,863)
--------
Non-current portion $ 4,898
========
</TABLE>
At September 30, 1998, cost and accumulated amortization of property and
equipment under capital leases was $51,116 and $21,885, respectively.
5. SHAREHOLDER'S EQUITY
COMMON STOCK
In October 1996, the Company issued 4,000,000 shares of common stock at a price
of $0.01 per share to the founder of the Company in exchange for certain
technology rights, including patents which were valued at $40,000.
9
<PAGE> 15
NaviCyte, Inc.
Notes to Financial Statements (continued)
5. SHAREHOLDER'S EQUITY (CONTINUED)
STOCK OPTIONS
In February 1997, the Company adopted the 1997 Stock Option/Stock Issuance Plan
("the Plan"), under which 2,950,000 shares of common stock, as amended, are
reserved for issuance of stock and stock options granted by the Company. The
Plan provides for the grant of incentive and nonstatutory options. The exercise
price of incentive stock options must equal at least the fair value of the
common stock on the date of grant, and the exercise price of nonstatutory stock
options may be no less than 85% of the fair value of the common stock on the
date of grant. The Plan allows for the fair value of the common stock to be
determined by the Board of Directors. The fair value of the common stock as
determined by the Board of Directors is $.01 per share. The options generally
vest over a four year period and expire ten years after the date of grant.
A summary of the Company's stock option activity and related information is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, 1998
---------------------------
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
---------------------------
<S> <C> <C>
Outstanding at beginning of period 1,826,000 $.01
Granted 467,000 .01
Exercised - -
Forfeited - -
--------------------------
Outstanding at end of period 2,293,000 $.01
==========================
Vested 983,096
=========
</TABLE>
The exercise prices for all options outstanding as of September 30, 1998 was
$0.01. The weighted-average remaining contractual life of those options is
approximately 9 years.
At September 30, 1998, options for 657,000 shares were available for future
grant.
10
<PAGE> 16
NaviCyte, Inc.
Notes to Financial Statements (continued)
5. SHAREHOLDER'S EQUITY (CONTINUED)
STOCK OPTIONS (CONTINUED)
Pro forma information regarding net income or loss is required by Statement 123,
and has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value of these
options was estimated at the date of grant using the minimum value (derived from
the Black-Scholes model) option pricing model with the following weighted
average assumptions in 1998: risk-free interest rate of 5.5%; dividend yield of
0%, and a weighted-average life of the option of five years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma loss for the year ended September 30, 1998 is $616,344. The
weighted-average deemed fair value for financial statement presentation purposes
of the options granted in 1998 is $1.13. As noted above, the deemed fair value
of the common stock was determined using more appropriate accounting techniques
for financial statement presentation purposes.
Through September 30, 1998, the Company recorded deferred compensation for the
difference between the exercise price of options granted and the deemed fair
value for financial statement presentation purposes of the Company's common
stock at the date of issuance or grant. The deferred compensation will be
amortized over the vesting period of the related options which is generally four
years. Gross deferred compensation at September 30, 1998 totaled $665,460, and
related amortization expense totaled $179,539 for the year ended September 30,
1998.
6. INCOME TAXES
At September 30, 1998, the Company had federal income tax net operating loss
carryforwards of approximately $308,000.
The federal tax loss carryforwards will begin to expire in 2013 unless
previously utilized.
11
<PAGE> 17
NaviCyte, Inc.
Notes to Financial Statements (continued)
6. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets are shown below. A
valuation allowance of $121,000 has been recognized to offset the deferred tax
assets as realization of such assets is uncertain.
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
---------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 108,000
Other, net 13,000
---------
Total deferred tax assets 121,000
Valuation allowance for deferred tax assets (121,000)
---------
Net deferred tax assets $ --
=========
</TABLE>
7. SUBSEQUENT EVENT
In November 1998, the Company was acquired by Trega Biosciences, Inc. ("Trega")
for 1,428,000 shares of Trega common stock and assumption of options to purchase
1,072,000 shares of Trega common stock with a total combined value of
approximately $6,275,000 and approximately $210,000 in cash.
8. YEAR 2000 (UNAUDITED)
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. As a result, in
approximately one year, computer systems and/or software used by many companies
may need to be upgraded to comply with such "Year 2000" requirements.
Subsequent to the Company being acquired by Trega, the Company developed a plan
to modify its information technology in recognition of the year 2000 issue. The
plan calls for updating existing software and hardware to newer versions that
incorporate corrections to eliminate the problem. All of the updating will be
done in the normal course of business during 1998 and 1999 at minimal
incremental cost. The Company does not expect the year 2000 issue and the plan
to resolve it to have a significant impact on its operations.
12
<PAGE> 18
ITEM 7.B.
Pro Forma
Financial Information
<PAGE> 19
TREGA BIOSCIENCES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED
BALANCE SHEETS
September 30, 1998
(in thousands)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
TREGA NAVICYTE FOR THE PRO FORMA
HISTORICAL HISTORICAL TRANSACTION COMBINED
---------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,953 $ 47 $ (210)(c) $ 2,790
Short-term investments 7,582 -- -- 7,582
Accounts receivable -- 111 -- 111
Inventory -- 45 -- 45
Other current assets 1,407 12 -- 1,419
---------------------------------------------------------------
Total current assets 11,942 215 (210) 11,947
Property and equipment, net 4,292 89 -- 4,381
Intangible and other assets 2,032 85 6,253 (c) 8,370
(350)(f) (350)
---------------------------------------------------------------
$ 18,266 $ 389 $ 5,693 $ 24,348
===============================================================
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 1,981 $ 232 $ 450 (e) $ 2,663
Accrued compensation 569 60 -- 629
Deferred revenue 4,050 479 (350)(f) 4,179
Other accrued liabilities 954 -- -- 954
Current portion of debt obligations 1,005 18 -- 1,023
---------------------------------------------------------------
Total current liabilities 8,559 789 100 9,448
Deferred rent 139 -- -- 139
Obligation under capital leases 144 4 -- 148
Long-term equipment note payable 1,942 -- -- 1,942
Long-term notes payable 34 -- -- 34
Stockholders' equity (deficit):
Common stock 14 40 (39)(a) 15
Additional paid-in capital 73,327 718 5,470 (c) 79,515
Deferred compensation (774) (486) 486 (g) (774)
Common stock issuable 16 -- -- 16
Accumulated deficit (65,135) (676) 676 (b) (65,135)
(1,000)(d) (1,000)
---------------------------------------------------------------
Total stockholders' equity (deficit) 7,448 (404) 5,593 12,637
---------------------------------------------------------------
$ 18,266 $ 389 $ 5,693 $ 24,348
===============================================================
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
1
<PAGE> 20
TREGA BIOSCIENCES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS
Year ended December 31, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
TREGA NAVICYTE FOR THE PRO FORMA
HISTORICAL HISTORICAL TRANSACTION COMBINED
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 7,764 $ 1,188 $ -- $ 8,952
Cost of revenues (341) (618) -- (959)
-----------------------------------------------------------------
Gross profit 7,423 570 -- 7,993
Operating expenses:
Research and development 14,819 303 -- 15,122
Selling, general and administrative 4,346 832 625 (a) 5,803
-----------------------------------------------------------------
(19,165) (1,135) (625) (20,925)
-----------------------------------------------------------------
Loss from operations (11,742) (565) (625) (12,932)
Gain on sale of MPS 1,255 -- -- 1,255
Interest income, net 1,115 -- -- 1,115
-----------------------------------------------------------------
Net loss $ (9,372) $ (565) $ (625) $(10,562)
=================================================================
Loss per share data:
Basic and diluted loss per share $ (.69) $ (.70)
======== ========
Shares used in computing basic and
diluted net loss per share 13,603 1,428 (b) 15,031
======== ============================
</TABLE>
(a) Adjustment to reflect the twelve-month amortization of developed technology
based on the allocation of the assumed purchase price in the September 30,
1998 pro forma balance sheet for NaviCyte, Inc.
(b) Adjustment to the average common shares outstanding for the elimination of
NaviCyte's shares and the issuance of 1,428,000 shares of Trega common
stock.
The above pro forma combined statement of operations does not include a $1.0
million in-process technology charge to be recorded by Trega in conjunction with
the acquisition for the estimated fair value of the in-process technology of
NaviCyte.
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
2
<PAGE> 21
TREGA BIOSCIENCES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS
Nine months ended September 30, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
TREGA NAVICYTE FOR THE PRO FORMA
HISTORICAL HISTORICAL TRANSACTION COMBINED
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 7,217 $ 1,016 $ -- $ 8,233
Cost of revenues -- (462) -- (462)
-------------------------------------------------------------------
Gross profit 7,217 554 -- 7,771
Operating expenses:
Research and development 13,533 288 -- 13,821
Selling, general and administrative 3,619 743 469(a) 4,831
-------------------------------------------------------------------
(17,152) (1,031) (469) (18,652)
-------------------------------------------------------------------
Loss from operations (9,935) (477) (469) (10,881)
Interest income, net 429 -- -- 429
-------------------------------------------------------------------
Net loss $ (9,506) $ (477) $ (469) $(10,452)
==================================================================
Loss per share data:
Basic and diluted loss per share $ (.68) $ (.68)
======== ========
Shares used in computing basic and
diluted net loss per share 13,948 1,428 (b) 15,376
======== ============================
</TABLE>
(a) Adjustment to reflect the nine-month amortization of developed technology
based on the allocation of the assumed purchase price in the September
30, 1998 pro forma balance sheet for NaviCyte, Inc.
(b) Adjustment to the average common shares outstanding for the elimination
of NaviCyte's shares and the issuance of 1,428,000 shares of Trega Common
Stock.
The above pro forma combined statement of operations does not include a $1.0
million in-process technology charge to be recorded by Trega in conjunction with
the acquisition for the estimated fair value of the in-process technology of
NaviCyte.
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
3
<PAGE> 22
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. The unaudited pro forma combined condensed financial statements reflect
the acquisition of NaviCyte, Inc. ("NaviCyte") by Trega Biosciences, Inc.
("Trega") for a purchase price of $7,642,260 in November 1998.
2. The unaudited pro forma combined condensed balance sheet combines Trega's
September 30, 1998 unaudited balance sheet with NaviCyte's September 30,
1998 audited balance sheet.
3. The unaudited pro forma combined condensed statement of operations for
the nine months ended September 30, 1998 combines Trega's unaudited
statement of operations for the nine months ended September 30, 1998 with
NaviCyte's unaudited statement of operations for the nine months ended
September 30, 1998. The unaudited pro forma combined condensed statement
of operations for the year ended December 31, 1997 combines Trega's
audited statement of operations for the year ended December 31, 1997 with
NaviCyte's audited statement of operations for the year ended September
30, 1998.
4. Upon consummation of the acquisition, Trega will acquire all of the
common stock and all outstanding rights to acquire shares of common stock
of NaviCyte in exchange for 1,428,244 shares of Trega common stock, the
assumption by Trega of options to acquire up to 1,071,756 additional
shares of Trega common stock at a weighted average exercise price of $.08
per share, the issuance of cash totaling $210,000 and advances of
$350,000 in cash to NaviCyte by Trega. The purchase price is calculated
to be $7,642,260 based on the fair market value of $2.51 per share of
Trega common stock. The purchase price also includes estimated merger
costs of $450,000 and assumed liabilities of $443,000. The purchase price
(in thousands) was allocated as follows based upon a preliminary
valuation of the tangible and intangible assets, including acquired
in-process technology, by an independent appraiser, as well as
management's best estimates:
<TABLE>
<S> <C>
Current assets acquired $ 215
Property and equipment 89
Intangible and other assets 85
In-process technology 1,000
Developed technology 6,253
-------
$ 7,642
=======
</TABLE>
4
<PAGE> 23
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (continued)
The unaudited pro forma combined condensed balance sheet includes the
adjustments necessary as if the acquisition had occurred on September 30, 1998
and reflects the allocation of the purchase price, issuance of Trega common
stock and elimination of NaviCyte's equity accounts. These adjustments are
summarized as follows:
(a) Elimination of existing NaviCyte common stock, net of par value
related to the Trega common stock issued to NaviCyte
(b) Elimination of NaviCyte's accumulated deficit
(c) Issuance of cash of $210,000 and Trega common stock (1,428,244 shares
@ $.001). Adjustment to record the net assets of NaviCyte and excess
purchase price to developed technology
(d) Write off of NaviCyte's in-process technology
(e) Accrue estimated acquisition costs to be incurred by Trega
(f) Elimination of advances to NaviCyte by Trega. NaviCyte recorded the
advances as deferred revenue and Trega recorded the advances as other
assets.
(g) Elimination of NaviCytes deferred compensation
5. The allocation of the purchase price was applied to the historical balance
sheet and historical statements of operations of Trega and NaviCyte to
arrive at the unaudited pro forma combined condensed balance sheet and
statements of operations. The developed technology is amortized over the
estimated useful life of ten years.
5
<PAGE> 24
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
23.1 Consent of Ernst & Young LLP, Independent Auditors.
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Forms S-8 Nos. 333-17235, 333-17273, 333-2910, 333-40903, 333-65323,
333-2908, 333-65343 and 333-67833) of Trega Biosciences, Inc. of our report
dated December 18, 1998, with respect to the financial statements for the year
ended September 30, 1998 of NaviCyte, Inc., included in the Current Report
(Form 8-K/A) of Trega Biosciences, Inc.
/s/ ERNST & YOUNG LLP
San Diego, California
February 4, 1999
