UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2009.
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
.
Commission file number
000-27748
OPKO Health, Inc.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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75-2402409
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(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer Identification No.)
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4400 Biscayne Blvd.
Miami, FL 33137
(Address of Principal Executive Offices) (ZIP Code)
(305) 575-4100
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
x
YES
o
NO
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
YES
o
NO
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
o
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Accelerated filer
x
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act):
YES
o
NO
x
As of August 4, 2009, the registrant had 252,668,938 shares of common stock outstanding.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements, as that term is defined under the Private
Securities Litigation Reform Act of 1995, or PSLRA, Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements include statements about our expectations, beliefs or intentions regarding our product
development efforts, business, financial condition, results of operations, strategies or prospects.
You can identify forward-looking statements by the fact that these statements do not relate
strictly to historical or current matters. Rather, forward-looking statements relate to
anticipated or expected events, activities, trends or results as of the date they are made.
Because forward-looking statements relate to matters that have not yet occurred, these statements
are inherently subject to risks and uncertainties that could cause our actual results to differ
materially from any future results expressed or implied by the forward-looking statements. Many
factors could cause our actual activities or results to differ materially from the activities and
results anticipated in forward-looking statements. These factors include those described below and
in Item 1A-Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2008,
and described from time to time in our reports filed with the Securities and Exchange Commission.
We do not undertake any obligation to update forward-looking statements. We intend that all
forward-looking statements be subject to the safe-harbor provisions of the PSLRA. These
forward-looking statements are only predictions and reflect our views as of the date they are made
with respect to future events and financial performance.
Risks and uncertainties, the occurrence of which could adversely affect our business, include
the following:
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We have a history of operating losses and we do not expect to become profitable in
the near future.
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Our technologies are in an early stage of development and are unproven.
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Our drug research and development activities may not result in commercially viable
products.
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Following the recommendation of the Independent Data Monitoring Committee, we
terminated the Phase III clinical trial of bevasiranib, our most advanced product
candidate. As a result, we may not continue to develop or be able to successfully
commercialize bevasiranib.
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Our current and planned clinical trials may not satisfy the requirements of the FDA
or other non-United States regulatory authorities.
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We will require substantial additional funding, which may not be available to us on
acceptable terms, or at all.
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We expect to finance future cash needs primarily through public or private offerings,
debt financings or strategic collaborations, which may dilute your stockholdings in the
Company.
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If our competitors develop and market products that are more effective, safer or less
expensive than our future product candidates, our commercial opportunities will be
negatively impacted.
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The regulatory approval process is expensive, time consuming and uncertain and may
prevent us or our collaboration partners from obtaining approvals for the
commercialization of some or all of our product candidates.
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Failure to recruit and enroll patients for clinical trials may cause the development
of our product candidates to be delayed.
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Even if we obtain regulatory approvals for our product candidates, the terms of
approvals and ongoing regulation of our products may limit how we manufacture and market
our product candidates, which could materially impair our ability to generate
anticipated revenues.
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We may not meet regulatory quality standards applicable to our manufacturing and
quality processes.
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Even if we receive regulatory approval to market our product candidates, the market
may not be receptive to our products.
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3
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If we fail to attract and retain key management and scientific personnel, we may be
unable to successfully develop or commercialize our product candidates.
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In the event that we successfully evolve from a company primarily involved in
development to a company also involved in commercialization, we may encounter
difficulties in managing our growth and expanding our operations successfully.
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If we fail to acquire and develop other products or product candidates, at all or on
commercially reasonable terms, we may be unable to diversify or grow our business.
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We have no experience manufacturing our pharmaceutical product candidates and we
therefore intend to rely on third parties to manufacture and supply our pharmaceutical
product candidates, and would need to meet various standards necessary to satisfy FDA
regulations if and when we commence manufacturing.
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We currently have no pharmaceutical marketing, sales or distribution organization.
If we are unable to develop our sales and marketing and distribution capability on our
own or through collaborations with marketing partners, we will not be successful in
commercializing our pharmaceutical product candidates.
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Independent clinical investigators and contract research organizations that we engage
to conduct our clinical trials may not be diligent, careful or timely.
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The success of our business is dependent on the actions of our collaborative
partners.
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If we are unable to obtain and enforce patent protection for our products, our
business could be materially harmed.
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If we are unable to protect the confidentiality of our proprietary information and
know-how, the value of our technology and products could be adversely affected.
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We will rely heavily on licenses from third parties.
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We license patent rights to certain of our technology from third-party owners. If
such owners do not properly maintain or enforce the patents underlying such licenses,
our competitive position and business prospects will be harmed.
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Our commercial success depends significantly on our ability to operate without
infringing the patents and other proprietary rights of third parties.
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Adverse results in material litigation matters or governmental inquiries could have a
material adverse effect upon our business and financial condition.
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Medicare prescription drug coverage legislation and future legislative or regulatory
reform of the health care system may affect our ability to sell our products profitably.
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Failure to obtain regulatory approval outside the United States will prevent us from
marketing our product candidates abroad.
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We may not have the funding available to pursue acquisitions.
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Acquisitions may disrupt our business, distract our management and may not proceed as
planned; and we may encounter difficulties in integrating acquired businesses.
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Non-United States governments often impose strict price controls, which may adversely
affect our future profitability.
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Our business may become subject to economic, political, regulatory and other risks
associated with international operations.
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The market price of our common stock may fluctuate significantly.
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4
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Directors, executive officers, principal stockholders and affiliated entities own a
majority of our capital stock, and they may make decisions that you do not consider to
be in your best interests or in the best interests of our stockholders.
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Compliance with changing regulations concerning corporate governance and public
disclosure may result in additional expenses.
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If we are unable to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act
of 2002, as they apply to us, or our internal controls over financial reporting are not
effective, the reliability of our financial statements may be questioned and our common
stock price may suffer.
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We may be unable to maintain our listing on the NYSE Amex Exchange, which could cause
our stock price to fall and decrease the liquidity of our common stock.
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Future issuances of common stock may depress the trading price of our common stock.
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Provisions in our charter documents and Delaware law could discourage an acquisition
of us by a third party, even if the acquisition would be favorable to you.
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We do not intend to pay cash dividends on our common stock in the foreseeable future.
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5
PART I. FINANCIAL INFORMATION
Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to
the Company, OPKO, we, our, ours, and us refers to OPKO Health, Inc., a Delaware
corporation, including our wholly-owned subsidiaries.
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Item 1.
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Financial Statements
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OPKO Health, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands except share data)
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June 30,
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December 31,
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2009
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2008
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ASSETS
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Current assets
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Cash and cash equivalents
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$
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35,939
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$
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6,678
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Marketable securities
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4,997
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Accounts receivable, net
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2,165
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1,005
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Inventory
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5,151
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4,063
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Prepaid expenses and other current assets
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1,675
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1,720
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Total current assets
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49,927
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13,466
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Property and equipment, net
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560
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659
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Intangible assets, net
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5,524
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6,336
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Goodwill
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1,097
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1,097
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Investment
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2,262
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Other assets
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335
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206
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Total assets
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$
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59,705
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$
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21,764
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LIABILITIES AND SHAREHOLDERS EQUITY
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Current liabilities
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Accounts payable
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$
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2,201
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$
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2,221
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Accrued expenses
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4,014
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5,394
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Current portion of notes payable and capital lease obligations
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86
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97
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Total current liabilities
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6,301
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7,712
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Long-term liabilities and capital lease obligations
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2,595
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1,826
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Line of credit with related party, net unamortized discount of $101 and
$133, respectively
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11,899
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11,867
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Total liabilities
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20,795
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21,405
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Commitments and contingencies
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Shareholders equity
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Series A Preferred stock $0.01 par value, 4,000,000 shares authorized;
932,667 and 953,756 shares issued and outstanding (liquidation value of
$2,448 and $2,384) at June 30, 2009 and December 31, 2008,
respectively
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9
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10
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Series C Preferred Stock $0.01 par value, 500,000 shares authorized;
No shares issued or outstanding
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Common Stock $0.01 par value, 500,000,000 shares authorized;
252,594,059 and 199,020,379 shares issued and outstanding at
June 30, 2009 and December 31, 2008, respectively
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2,526
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1,991
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Treasury stock - 45,154 and 18,000 shares at June 30, 2009 and
December 31, 2008, respectively
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(61
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)
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(24
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Additional paid-in capital
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360,341
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307,498
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Accumulated deficit
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(323,905
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)
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(309,116
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)
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Total shareholders equity
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38,910
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359
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Total liabilities and shareholders equity
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$
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59,705
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$
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21,764
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The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements
.
6
OPKO Health, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share data)
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For the three months ended
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For the six months ended
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June 30,
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June 30,
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2009
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2008
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2009
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2008
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Revenue
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$
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2,347
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$
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879
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$
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4,648
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$
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3,703
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Cost of goods sold
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1,764
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1,025
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3,325
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4,355
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Gross margin (deficit)
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583
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(146
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)
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1,323
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(652
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)
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Operating expenses
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Selling, general and administrative
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2,926
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3,218
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6,183
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8,562
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Research and development
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2,498
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5,479
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8,157
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9,835
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Write-off of acquired in-process
research and development
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1,398
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1,398
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Other operating expenses, principally
amortization of intangible assets
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406
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428
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812
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854
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Total operating expenses
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5,830
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10,523
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15,152
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20,649
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Operating loss
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(5,247
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)
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(10,669
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)
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(13,829
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)
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(21,301
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)
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Other (expense) income, net
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(494
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)
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(249
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)
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(944
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)
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(518
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)
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Loss before income taxes and investment
loss
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(5,741
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)
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(10,918
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)
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(14,773
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)
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(21,819
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)
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Income tax benefit
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(103
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)
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(39
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)
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(138
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)
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(60
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)
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Loss before investment loss in investee
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(5,638
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)
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(10,879
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)
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(14,635
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)
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(21,759
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)
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Loss from investment in investee
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(38
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)
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(38
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)
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|
|
|
|
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|
Net loss
|
|
|
(5,676
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)
|
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|
(10,879
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)
|
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(14,673
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)
|
|
|
(21,759
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)
|
Preferred stock dividend
|
|
|
(58
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)
|
|
|
(55
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)
|
|
|
(116
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)
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|
|
(110
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)
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|
|
|
|
|
|
|
|
|
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|
Net loss attributable to common
shareholders
|
|
$
|
(5,734
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)
|
|
$
|
(10,934
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)
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|
$
|
(14,789
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)
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|
$
|
(21,869
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)
|
|
|
|
|
|
|
|
|
|
|
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|
Loss per common share,
basic and diluted
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$
|
(0.03
|
)
|
|
$
|
(0.06
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)
|
|
$
|
(0.07
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)
|
|
$
|
(0.12
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Weighted average number of common
shares outstanding, basic and diluted
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|
|
225,648,244
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|
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|
183,707,302
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|
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|
212,695,483
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|
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|
182,139,632
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The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements
.
7
OPKO Health, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
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|
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For the six months ended
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June 30,
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|
|
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2009
|
|
|
2008
|
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Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(14,673
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)
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|
$
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(21,759
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)
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Adjustments to reconcile net loss to net cash used in
operating activities:
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|
|
|
|
|
|
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Depreciation and amortization
|
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|
935
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|
|
|
906
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Write-off of acquired in-process research and development
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|
|
|
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1,398
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Accretion of debt discount related to notes payable
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|
32
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|
|
|
109
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Share based compensation
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|
|
1,767
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|
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4,209
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Net recovery of bad debts
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(133
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)
|
|
|
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Provision for inventory obsolescence
|
|
|
52
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|
|
|
|
|
Loss from investment in investee
|
|
|
38
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|
|
|
|
|
Changes in:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,027
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)
|
|
|
558
|
|
Inventory
|
|
|
(1,140
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)
|
|
|
(1,015
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)
|
Prepaid expenses and other current assets
|
|
|
45
|
|
|
|
222
|
|
Other assets
|
|
|
(129
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)
|
|
|
(148
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)
|
Accounts payable
|
|
|
(20
|
)
|
|
|
(812
|
)
|
Accrued expenses
|
|
|
(762
|
)
|
|
|
882
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(15,015
|
)
|
|
|
(15,450
|
)
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Acquisition of business, net of cash
|
|
|
|
|
|
|
48
|
|
Investment in investee
|
|
|
(2,300
|
)
|
|
|
|
|
Purchase of short-term marketable securities
|
|
|
(4,997
|
)
|
|
|
|
|
Capital expenditures
|
|
|
(24
|
)
|
|
|
(239
|
)
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(7,321
|
)
|
|
|
(191
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Issuance of common stock for cash, to related parties
|
|
|
25,000
|
|
|
|
|
|
Issuance of common stock for cash
|
|
|
25,990
|
|
|
|
|
|
Proceeds from bridge loan with related party
|
|
|
3,000
|
|
|
|
|
|
Repayment of bridge loan with related party
|
|
|
(3,000
|
)
|
|
|
|
|
Insurance financing
|
|
|
217
|
|
|
|
190
|
|
Proceeds from the exercise of stock options and warrants
|
|
|
621
|
|
|
|
269
|
|
Repayments of notes payable and capital lease obligations
|
|
|
(231
|
)
|
|
|
(2,707
|
)
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
51,597
|
|
|
|
(2,248
|
)
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
29,261
|
|
|
|
(17,889
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
6,678
|
|
|
|
23,373
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
35,939
|
|
|
$
|
5,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
50
|
|
|
$
|
98
|
|
NON-CASH INVESTING AND FINANCING ACTIVITES
|
|
|
|
|
|
|
|
|
Issuance of capital stock to acquire Vidus in 2008
|
|
$
|
|
|
|
$
|
1,319
|
|
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements
.
8
OPKO Health, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1. BUSINESS AND ORGANIZATION
We are a specialty healthcare company focused on the discovery, development, and
commercialization of proprietary pharmaceuticals, diagnostic and imaging systems and
instrumentation products for the treatment, diagnosis and management of ophthalmic diseases. We
are expanding our operations in the ophthalmology business, as well as in other medical areas that
can lead to important commercial opportunities. We are a Delaware corporation, headquartered in
Miami, Florida.
NOTE 2. SUMMARY OF SIGNIFICANT ACCCOUNTING POLICIES
Basis of Presentation.
The accompanying unaudited interim condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the
United States and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements. In the opinion of
management, all adjustments (consisting of only normal recurring adjustments) considered necessary
to present fairly the Companys results of operations, financial position and cash flows have been
made. The results of operations and cash flows for the six months ended June 30, 2009, are not
necessarily indicative of the results of operations and cash flows that may be reported for the
remainder of 2009 or for future periods. The interim condensed consolidated financial statements
should be read in conjunction with the Consolidated Financial Statements and the Notes to
Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended
December 31, 2008.
Principles of consolidation
. The accompanying unaudited condensed consolidated financial
statements include the accounts of OPKO Health, Inc. and our wholly-owned subsidiaries. All
significant intercompany accounts and transactions are eliminated in consolidation.
Use of estimates.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
Comprehensive loss
. Our comprehensive loss has no components other than net loss for all
periods presented.
Revenue recognition
. Generally, we recognize revenue from product sales when goods are
shipped and title and risk of loss transfer to our customers. Certain of our products are sold
directly to end-users and require that we deliver, install and train the staff at the end-users
facility. As a result, we do not recognize revenue until the product is delivered, installed and
training has occurred. During the three months ended June 30, 2009, revenue derived from sales to
four significant international customers represented approximately 19%, 16%, 15% and 13% of our
revenue, respectively. During the three months ended June 30, 2008, revenue derived from sales to
four significant international customers represented 38%, 14%, 12% and 11% of our revenue,
respectively. During the six months ended June 30, 2009, revenue derived from sales to three
significant international customers represented approximately 19%, 16%, and 15% of our revenue,
respectively. During the six months ended June 30, 2008, revenue derived from sales to four
significant international customers represented approximately 17%, 15%, 14% and 10% of our revenue,
respectively.
9
Product warranties.
Product warranty expense is recorded concurrently with the recording of
revenue for product sales. The costs of warranties are accounted for as a component of cost of
sales. We estimate warranty costs based on our estimated historical experience and adjust for any
known product reliability issues.
The following table reflects the amounts recorded for the three months ended June 30, 2009 and
2008.
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30, 2009
|
|
|
June 30, 2008
|
|
Beginning balance
|
|
$
|
290
|
|
|
$
|
226
|
|
Accrual for products sold
|
|
|
67
|
|
|
|
|
|
Settlements in kind or expired
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
295
|
|
|
$
|
226
|
|
|
|
|
|
|
|
|
The following table reflects the amounts recorded for the six months ended June 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30, 2009
|
|
|
June 30, 2008
|
|
Beginning balance
|
|
$
|
259
|
|
|
$
|
227
|
|
Accrual for products sold
|
|
|
128
|
|
|
|
55
|
|
Settlements in kind or expired
|
|
|
(92
|
)
|
|
|
(56
|
)
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
295
|
|
|
$
|
226
|
|
|
|
|
|
|
|
|
Allowance for returns and doubtful accounts.
Allowances for estimated sales returns are based
upon our history of product returns. The amount of allowance for doubtful accounts at June 30,
2009 and December 31, 2008, was $0.2 million and $0.4 million, respectively. As of June 30, 2009,
accounts receivable from four of our international distributors represented approximately 27%, 17%,
14% and 11%, respectively, of our net accounts receivable balance. As of December 31, 2008,
accounts receivable from two of our international distributors represented approximately 47% and
19%, respectively, of our net accounts receivable balance.
Segment reporting
. Our chief operating decision-maker (CODM) is comprised of our executive
management with the oversight of our board of directors. Our CODM reviews our operating results
and operating plans and makes resource allocation decisions on a company-wide or aggregate basis.
Accordingly, we have aggregated our instrumentation and ophthalmic pharmaceutical and device
research and development activities into a single segment reporting basis. Our products are being
used by and developed for retina specialists, ophthalmologists, and optometrists.
Equity-Based Compensation.
We account for equity-based compensation under Statement of
Financial Accounting Standards, or SFAS 123(R),
Share-Based Payments
. SFAS 123(R) requires that
all equity-based compensation be recognized as an expense in the financial statements and that such
cost be measured at the fair value of the award. Equity-based compensation arrangements to
non-employees are accounted for in accordance with SFAS 123(R) and Emerging Issues Task Force Issue
No. 96-18 (EITF 96-18), Accounting for Equity Instruments That Are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling, Goods or Services, which requires that these equity
instruments are recorded at their fair value on the measurement date. As prescribed under SFAS
123(R), we estimate the grant-date fair value of our stock option grants using a valuation model
known as the Black-Scholes-Merton formula or the Black-Scholes Model and allocate the resulting
compensation expense over the corresponding requisite service period associated with each grant.
The Black-Scholes Model requires the use of several variables to estimate the grant-date fair value
of stock options including expected term, expected volatility, expected dividends and risk-free
interest rate. We perform significant analyses to calculate and select the appropriate variable
assumptions used in the Black-Scholes Model. We also perform significant analyses to estimate
forfeitures of equity-based awards as required by SFAS 123(R). We are required to adjust our
forfeiture estimates on at least an annual basis based on the number of share-based awards that
ultimately vest. The selection of assumptions and estimated forfeiture rates is subject to
significant judgment and future
changes to our assumptions and estimates may have a material impact on our consolidated
financial statements. During the three and six months ended June 30, 2009 we recorded $1.1
million, $1.8 million, respectively, of equity-based compensation expense. During the three and
six months ended June 30, 2008, we recorded $1.5 million and $4.2 million, respectively, of
equity-based compensation expense. During the six months ended June 30, 2009 and 2008, 1,916,765
and 4,451,585 shares of common stock, respectively, were issued in connection with the exercise of
stock options.
10
Fair value.
We adopted the provisions of SFAS 157,
Fair Value Measurements,
or SFAS 157, on
January 1, 2008. SFAS 157 defines fair value, establishes a framework for measuring fair value in
accordance with GAAP, and expands disclosures about fair value measurements. In accordance with
the FASB Staff Position No. FAS 157-2,
Effective Date of the FASB Statement No. 157,
or FSP
157-2, we adopted the provisions of SFAS 157 pertaining to our nonfinancial assets and nonfinancial
liabilities, except those items recognized or disclosed at fair value on an annual or more
recurring basis, on January 1, 2009. Neither of the adoptions of SFAS 157 had a material impact on
our fair value measurements.
SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in
measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted
prices in active markets; Level 2, defined as inputs other than quoted prices in active markets
that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in
which little or no market data exists, therefore requiring an entity to develop its own
assumptions.
As of June 30, 2009, we held money market funds and treasury securities, maturing September
17, 2009, that qualify as cash equivalents as well as marketable securities which were comprised of
treasury securities, maturing October 22, 2009, that are required to be measured at fair value on a
recurring basis. We have $10 million of treasury securities that are recorded at amortized cost,
which reflects their approximate fair value. We intend to hold the treasury securities through
their maturity. In addition, the Ophthalmic Technologies Inc., or (OTI), put options were valued
at fair value utilizing the Black-Scholes valuation method. During
the three and six months ended June 30, 2009, we recorded a
reversal of expense of $0.1 million and $0.1 million,
respectively, reflecting our stock price fluctuations. During the
three and six months ended June 30, 2008, we recorded
$30 thousand and $50 thousand of expense, respectively,
reflecting our stock price fluctuations during that period. Refer to Note 9.
Any future fluctuation in fair value related to these instruments that is judged to be
temporary, including any recoveries of previous write-downs, would be recorded in accumulated other
comprehensive income or loss. If we determine that any future valuation adjustment was
other-than-temporary, we would record a charge to the consolidated statement of operations as
appropriate.
Our financial assets measured at fair value on a recurring basis, subject to the disclosure
requirements of SFAS 157 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements as of June 30, 2009
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
30,941
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
30,941
|
|
Treasury securities
|
|
|
9,995
|
|
|
|
|
|
|
|
|
|
|
|
9,995
|
|
OTI put option
|
|
|
|
|
|
|
187
|
|
|
|
|
|
|
|
187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
40,936
|
|
|
$
|
187
|
|
|
$
|
|
|
|
$
|
41,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and
Financial Liabilities
, or SFAS 159, which gives companies the option to measure eligible financial
assets, financial liabilities, and firm commitments at fair value (i.e., the fair value option), on
an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair
value under other accounting standards. The election to use the fair value option is available
when an entity first recognizes a financial asset or financial liability or upon entering into a
firm commitment. Subsequent changes in fair value must be recorded in earnings. SFAS 159 is
effective for financial statements issued for fiscal years beginning after November 15, 2007. We
adopted SFAS 159 in the first quarter of 2008 and the adoption did not have any impact on our
financial position or results of operations as we elected not to apply fair value measurement on an
instrument by instrument basis.
11
Recent accounting pronouncements:
In December 2007, the FASB issued SFAS No. 141R,
Business
Combinations
, or SFAS 141R. SFAS 141R applies to business combinations and requires, among other
things, the expensing of transaction costs, including deal costs and restructuring costs as
incurred, the capitalization of acquired in-process research and development assets, the recording
at fair value of, certain contingent assets and liabilities including and earn-out arrangements.
Changes in fair value of contingent consideration may be required to be recognized each period into
earnings. In addition, material adjustments made to the initial acquisition purchase accounting
will be required to be recorded back to the acquisition date. This will cause companies to revise
previously reported results when reporting comparative financial information in subsequent filings.
SFAS No. 141R is effective for the Company on a prospective basis for transactions occurring
beginning on January 1, 2009 and earlier adoption is not permitted. We adopted SFAS No. 141R on
January 1, 2009. The adoptions may have a material impact on the Companys consolidated financial
position, results of operations and cash flows if we enter into material business combinations
after January 1, 2009.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated
Financial Statements, an Amendment of ARB No. 51
, or SFAS 160. SFAS 160 requires minority
interests to be recharacterized as noncontrolling interests and reported as a component of equity.
In addition, SFAS160 requires that purchases or sales of equity interests that do not result in a
change in control be accounted for as equity transactions and, upon a loss of control, requires the
interests sold, as well as any interests retained, to be recorded at fair value with any gain or
loss recognized in earnings. SFAS 160 is effective for fiscal years beginning on or after December
15, 2008, with early adoption prohibited. We adopted SFAS No. 160 on January 1, 2009. The
adoption of SFAS No. 160 did not have a material impact on our condensed consolidated financial
statements.
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1,
Interim Disclosures about Fair
Value of Financial Instruments
. FSP FAS 107-1 and APB 28-1 enhance consistency in financial
reporting by increasing the frequency of fair value disclosures. FSP FAS 107-1 and APB 28-1 relate
to fair value disclosures for any financial instruments that are not currently reflected on the
balance sheet of companies at fair value. Prior to issuing this FSP, fair values for these assets
and liabilities were disclosed only once a year. The FSP now requires these disclosures to be made
on a quarterly basis, providing qualitative and quantitative information about fair value estimates
for all those financial instruments not measured on the balance sheet at fair value. FSP FAS 107-1
and APB 28-1 are effective for interim and annual periods ending after June 15, 2009. We adopted
FSP FAS 107-1 and APB 28-1 in the second quarter of fiscal 2009. The adoption of FSP FAS 107-1 and
APB 28-1 did not have a material impact on our condensed consolidated financial statements.
In
April 2009, the FASB issued FSP No. 115-2 and FAS 124-2,
Recognition and Presentation of
Other-Than-Temporary Impairments
. This FSP amends the other-than-temporary impairment guidance in
U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation
and disclosure of the other-than-temporary impairments on debt and equity securities in the
financial statements. The FSP is effective for interim and annual reporting periods ending after
June 15, 2009. We adopted FSP No. 115-2 and FAS 124-2 in the second quarter of fiscal 2009. The
adoption of FSP No. 115-2 and FAS 124-2 did not have a material impact on our condensed
consolidated financial statements.
In April 2009, the FASB issued FASB Staff Position, or FSP, FAS 157-4,
Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly
. FSP FAS 157-4 provides guidelines for making fair
value measurements more consistent with the principles presented in FASB Statement No. 157, Fair
Value Measurements. FSP FAS 157-4 relates to determining fair values when there is no active market
or where the price inputs being used represent distressed sales. It reaffirms what FASB Statement
No. 157 states is the objective of fair value measurementto reflect how much an asset would be
sold for in an orderly transaction (as opposed to a distressed or forced transaction) at the date
of the financial statements under current market conditions. Specifically, it reaffirms the need to
use judgment to ascertain if a formerly active market has become inactive and in determining fair
values when markets have become inactive. FSP FAS 157-4 is effective for interim and annual periods
ending after June 15, 2009. We adopted FSP FAS 157-4 in the second quarter of fiscal 2009. The
adoption of FSP FAS 157-4 did not have a material impact on our condensed consolidated financial
statements.
In
May 2009, the FASB issued SFAS No. 165,
Subsequent Events
. SFAS No. 165 establishes general
standards of accounting for and disclosure of events that occur after the balance sheet date but
before financial statements are issued or are available to be issued. SFAS No.165 requires entities
to disclose the date through which they have evaluated subsequent events and whether the date
corresponds with the issuance of their financial statements. SFAS No. 165 is effective for interim
and annual reporting periods ending after June 15, 2009. We adopted SFAS No. 165
in the second quarter of fiscal 2009. The adoption of SFAS No. 165 did not have a material
impact on our condensed consolidated financial statements.
12
In June 2009, the FASB issued Statement No. 168, or
SFAS No.168,
The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles
. SFAS No.168 will become the single source of authoritative nongovernmental
U.S. generally accepted accounting principles, or GAAP, superseding existing FASB, American
Institute of Certified Public Accountants, or AICPA, Emerging Issues Task Force, or EITF, and
related accounting literature. SFAS No.168 reorganizes the thousands of GAAP pronouncements into
roughly 90 accounting topics and displays them using a consistent structure. Also included is
relevant Securities and Exchange Commission guidance organized using the same topical structure in
separate sections. SFAS No.168 will be effective for financial statements issued for reporting
periods that end after September 15, 2009. As a result, SFAS No.168 is effective for us in the
third quarter of fiscal 2009. This will have an impact on our disclosures in the condensed
consolidated financial statements since all future references to authoritative accounting
literature will be references in accordance with SFAS No.168.
NOTE 3. LOSS PER SHARE
Basic loss per common share is computed by dividing our net loss by the weighted average
number of common shares outstanding during the period. Diluted earnings per common share is
computed by dividing our net loss by the weighted average number of shares outstanding and the
impact of all dilutive potential common shares, primarily stock options. The dilutive impact of
stock options and warrants are determined by applying the treasury stock method.
A total of 15,692,101 and 29,515,241 potential common shares have been excluded from the
calculation of net loss per common share for the three months ended June 30, 2009 and 2008,
respectively, because their inclusion would be anti-dilutive. A total of 15,238,119 and 26,856,410
potential common shares have been excluded from the calculation of net loss per common share for
the six months ended June 30, 2009 and 2008, respectively, because their inclusion would be
anti-dilutive.
NOTE 4. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31,
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
Accounts receivable, net:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
2,366
|
|
|
$
|
1,412
|
|
Less allowance for doubtful accounts
|
|
|
(201
|
)
|
|
|
(407
|
)
|
|
|
|
|
|
|
|
|
|
$
|
2,165
|
|
|
$
|
1,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories, net:
|
|
|
|
|
|
|
|
|
Raw materials (components)
|
|
$
|
2,712
|
|
|
$
|
2,635
|
|
Work-in process
|
|
|
1,520
|
|
|
|
934
|
|
Finished products
|
|
|
1,154
|
|
|
|
749
|
|
Less provision for inventory reserve
|
|
|
(235
|
)
|
|
|
(255
|
)
|
|
|
|
|
|
|
|
|
|
$
|
5,151
|
|
|
$
|
4,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net:
|
|
|
|
|
|
|
|
|
Technology
|
|
$
|
4,597
|
|
|
$
|
4,597
|
|
Customer relationships
|
|
|
2,978
|
|
|
|
2,978
|
|
Covenants not to compete
|
|
|
317
|
|
|
|
317
|
|
Tradename
|
|
|
195
|
|
|
|
195
|
|
Other
|
|
|
7
|
|
|
|
7
|
|
Less amortization
|
|
|
(2,570
|
)
|
|
|
(1,758
|
)
|
|
|
|
|
|
|
|
|
|
$
|
5,524
|
|
|
$
|
6,336
|
|
|
|
|
|
|
|
|
NOTE 5. PRIVATE PLACEMENTS OF STOCK
On May 26, 2009, May 29, 2009, and June 1, 2009, we entered into stock purchase agreements
with a total of seven accredited investors (Investors) pursuant to which the Investors agreed to
make a $31.0 million investment in the Company in exchange for 31,000,000 shares of our common stock, par value $.01 at $1.00 per share representing a range of
discounts of approximately 16% to 21% to the average closing price of
our common stock on the NYSE Amex for the five trading days
immediately preceding the closing date of the agreements.
13
On February 23, 2009, we entered into a Stock Purchase Agreement with Frost Gamma Investments
Trust (the Gamma Trust), of which Phillip Frost, M.D., our Chairman and CEO, is the sole trustee,
pursuant to which the Gamma Trust agreed to make a $20.0 million cash investment in the Company in
exchange for 20,000,000 shares of our common stock, par value $.01 (the Shares), at $1.00 per
share, representing an approximately 20% discount to the average closing price of our common stock
on the NYSE Amex Exchange for the five trading days immediately preceding the effective date of
Audit Committee and stockholder approval of the transaction. We issued the Shares and received the
proceeds on April 27, 2009.
NOTE 6. PROMISSORY NOTE
On March 4, 2009, the Gamma Trust advanced $3.0 million to us pursuant to a Promissory Note we
issued to the Gamma Trust (the Note). The entire amount of this advance and all accrued interest
thereon was due and payable on the earlier of May 4, 2009, or such earlier date following the
closing of the Stock Purchase Transaction with the Gamma Trust discussed in Note 5. The Note bears
interest at a rate equal to 11% per annum and may be prepaid in whole or in part without penalty or
premium. We repaid the Note and $48 thousand of interest on April 27, 2009.
NOTE 7. INVESTMENT IN BIOTECHNOLOGY COMPANY
On June 10, 2009, we entered into a stock purchase agreement with Sorrento Therapeutics, Inc.
(Sorrento), a privately held company with a technology for generating fully human monoclonal
antibodies, pursuant to which we invested $2.3 million in Sorrento. In exchange for the
investment, we acquired approximately one-third of the outstanding common shares of Sorrento and
received a fully-paid, exclusive license to the Sorrento antibody library for the discovery and
development of therapeutic antibodies in the field of ophthalmology.
NOTE 8. RELATED PARTY TRANSACTIONS
On
June 16, 2009, we entered into an agreement to lease approximately 10,000 square feet of
space in Hialeah, Florida to house manufacturing and service operations for our ophthalmic
instrumentation business (the Hialeah Facility) from an entity controlled by Dr. Frost, and Dr.
Jane Hsiao. Pursuant to the terms of a lease agreement, which is effective as of February 1, 2009,
we anticipate paying gross rent of $0.1 million per year for a one-year lease which may be
extended, at our option, for one additional year. From April 2008 through January 2009, we leased
20,000 square feet at the Hialeah Facility from a third party landlord pursuant to a lease
agreement which contained an option to purchase the facility. We initially elected to exercise the
option to purchase the Hialeah Facility in September 2008. Prior to closing, however, we assigned
the right to purchase the Hialeah Facility to an entity controlled by Drs. Frost and Hsiao and
leased back a smaller portion of the facility as a result of several factors, including our
inability to obtain outside financing for the purchase, current business needs, the reduced
operating costs for the smaller space, and the minimization of risk and expense of unutilized
space.
On February 23, 2009, we entered into a Stock Purchase Agreement with the Gamma Trust, of
which Phillip Frost, M.D., our Chairman and CEO is the sole trustee. Refer to Note 5.
On March 4, 2009, the Gamma Trust advanced $3.0 million to us under a Promissory Note we
issued to the Gamma Trust, which was repaid in full on April 27, 2009. Refer to Note 6.
In March 2009, we paid the $45 thousand filing fee to the Federal Trade Commission in
connection with filings made by us and Dr. Frost, under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (HSR). The filings permitted Dr. Frost and his affiliates to acquire
additional shares of our common stock upon expiration of the HSR waiting period on March 23, 2009.
In November 2007, we entered into an office lease with Frost Real Estate Holdings, LLC, an
entity affiliated with Dr. Frost. The lease is for approximately 8,300 square feet of space in an
office building in Miami, Florida, where the Companys principal executive offices are located.
The lease provides for payments of approximately $0.3 million during 2009. The rent is inclusive
of operating expenses, property taxes and parking.
We reimburse Dr. Frost for Company-related use by Dr. Frost and our other executives of an
airplane owned by a company that is beneficially owned by Dr. Frost. We reimburse Dr. Frost in an
amount equal to the cost of a first class airline ticket between the travel cities for each
executive, including Dr. Frost, traveling on the airplane for Company-related business. We do not
reimburse Dr. Frost for personal use of the airplane by Dr. Frost or any other
executive; nor do we pay for any other fixed or variable operating costs of the airplane.
During the three and six months ended June 30, 2009, we recorded general and administrative
expenses of approximately $13 thousand and $46 thousand, respectively, for Company-related travel
by Dr. Frost and other OPKO executives. For the comparable periods of 2008, we recorded
approximately $44 thousand and $86 thousand of general and administrative expense.
14
We have a fully utilized $12.0 million line of credit with the Frost Group, LLC. The Frost
Group members include a trust controlled by Dr. Frost, Dr. Jane H. Hsiao, who is the Vice Chairman
of the board of directors and Chief Technical Officer, Steven D. Rubin who is Executive Vice
President Administration and a director of the Company, and Rao Uppaluri who is the Chief
Financial Officer of the Company. We are obligated to pay interest upon maturity, compounded
quarterly, on outstanding borrowings under the line of credit at an 11% annual rate, which is due
January 11, 2011. The line of credit is collateralized by all of our personal property except our
intellectual property.
On September 19, 2007, we entered into an exclusive technology license agreement with Winston
Laboratories, Inc. (Winston). Subsequent to our entering into the license agreement with
Winston, on November 13, 2007, a group of investors led by the Frost Group, made an investment in
Winston. Currently, the group of investors, led by Dr. Frost, Dr. Hsiao, Mr. Rubin and Dr.
Uppaluri, beneficially own approximately 30% of Winston Pharmaceuticals, Inc., and Mr. Uppaluri has
served as a member of Winstons board of directors since September 2008.
On May 26, 2009, May 29, 2009, and June 1, 2009, we entered into stock purchase agreements
with a total of seven accredited investors pursuant to which we agreed to sell an aggregate of 31
million shares of the Companys Common Stock in exchange for $31 million. Under the terms of each
investment, OPKO issued shares to the investors at a price of $1.00 per Share. Refer to Note 5.
Oracle Partners, LP and Vector Group Ltd. were among the investors in the transaction and purchased
4 million and 5 million shares of our common stock, respectively. Dr. Frost is a limited partner
in Oracle Partners LP. Dr. Frost may also be deemed to beneficially own 11.5% of Vector Group
Ltd.s outstanding stock.
On June 10, 2009, we entered into a stock purchase agreement with Sorrento, pursuant to which
we invested $2.3 million in Sorrento and acquired approximately one-third of the outstanding common
shares of Sorrento and a fully-paid, exclusive license to the Sorrento antibody library for the
discovery and development of therapeutic antibodies in the field of ophthalmology. Refer to Note
7. Dr. Richard Lerner, a member of our Board of Directors, serves as a consultant and scientific
advisory board member to Sorrento and owns less than five percent of its shares. On July 14, 2009,
QuikByte Software, Inc., a Colorado corporation (Quikbyte), entered into a Merger Agreement (the
Merger Agreement) by and among QuikByte, Sorrento, and certain other parties named therein. Upon
the satisfaction or waiver of the conditions set forth in the Merger Agreement, QuikByte will
acquire Sorrento via a merger. At the effective time of the Merger, all of the issued and
outstanding shares of Sorrento common stock (the Sorrento Shares) will be converted into the
right to receive shares of QuikByte common stock, par value $0.0001 per share (the QuikByte Common
Stock). Immediately following the completion of the Merger, the current QuikByte shareholders
will own approximately 4.92% of the surviving company, the Investors (as defined below) will own
approximately 19.83% of the surviving company, and the former holders of Sorrento Shares will own
approximately 75.25% of the surviving company, in each case on a fully-diluted basis. The closing
of the Merger is subject to, among other conditions, QuikBytes receipt of an aggregate investment
of $2 million from certain investors (the Investors) in exchange for shares of QuikByte Common
Stock. QuikByte anticipates that affiliates of Dr. Frost will be included among the Investors.
A group of investors led by the Frost Group (the Frost Investors) previously invested $5
million in Cocrystal Discovery, Inc., a privately held biopharmaceutical company, and agreed to
invest an additional $5 million payable in two equal tranches. As a result of an amendment to the
Frost Investor agreements dated June 9, 2009, OPKO, rather than the Frost Investors, intends to
make the first tranche investment ($2.5 million) on or around September 18, 2009 pursuant to a
definitive agreement to be entered by OPKO at the time of the investment on the same terms as those
previously agreed by the Frost Investors. Following the second tranche investment of $2.5 million
in Cocrystal by the Frost Investors, OPKO will own approximately 16% of Cocrystal and the Frost
Group will own approximately 42% of Cocrystal, each on a fully diluted basis. Dr. Frost, Steve
Rubin, and Jane Hsiao currently serve on the Board of Directors of Cocrystal.
15
NOTE 9. COMMITMENTS AND CONTINGENCIES
On May 7, 2007, Ophthalmic Imaging Systems, or OIS, sued Steven Verdooner, its former
president and our then Executive Vice President, Instrumentation, in California Superior Court for
the County of Sacramento. OIS
later amended its complaint to add claims against the Company and The Frost Group, LLC
alleging breach of fiduciary duty, intentional interference with contract and intentional
interference with prospective economic advantage. Trial in the matter was scheduled to commence on
April 28, 2009. In order to avoid the expense and uncertainty of litigation, and without making
any admission of wrongdoing or liability, we entered into a settlement agreement to fully and
finally resolve the lawsuit on May 4, 2009. The impact of the settlement was not material to the
Company.
We are a party to other litigation in the ordinary course of business. We do not believe that
any such litigation will have a material adverse effect on our business, financial condition, or
results of operations.
We intend to invest $2.5 million in Cocrystal on or about September 18, 2009. Refer to Note
8.
In the event of a termination of an existing employee of OTI, we would become obligated at
such employees sole option to acquire up to 10% of the shares issued to the employee in connection
with the acquisition of OTI at a price of $3.55 per share. In connection with the potential
obligation, we have recorded approximately $0.2 million in accrued expenses as of June 30, 2009,
based on the estimated fair value of the unexercised put option.
On May 6, 2008, we completed the acquisition of Vidus Ocular, Inc., or Vidus. Pursuant to a
Securities Purchase Agreement with Vidus, each of its stockholders, and the holders of convertible
promissory notes issued by Vidus, we acquired all of the outstanding stock and convertible debt of
Vidus in exchange for (i) the issuance and delivery at closing of 658,080 shares of our common
stock (the Closing Shares); (ii) the issuance of 488,420 shares of our common stock to be held in
escrow pending the occurrence of certain development milestones (the Milestone Shares); and (iii)
the issuance of options to acquire 200,000 shares of our common stock. Additionally, in the event
that the stock price for our common stock at the time of receipt of approval or clearance by the
U.S. Food & Drug Administration of a pre-market notification 510(k) relating to the Aquashunt is
not at or above a specified price, we will be obligated to issue an additional 413,850 shares of
our common stock.
We expect to incur losses from operations for the foreseeable future. We expect to incur
substantial research and development expenses, including expenses related to the hiring of
personnel and additional clinical trials. We expect that selling, general and administrative
expenses will also increase as we expand our sales, marketing and administrative staff and add
infrastructure. We intend to finance additional research and development projects, clinical trials
and our future operations with a combination of private placements, payments from potential
strategic research and development, licensing and/or marketing arrangements, public offerings, debt
financing and revenues from future product sales, if any. There can be no assurance, however, that
additional capital will be available to us on acceptable terms, or at all.
NOTE 10. SUBSEQUENT EVENTS
Pursuant to FAS 165, we have reviewed all subsequent events and transactions that occurred
after our June 30, 2009 unaudited condensed consolidated balance sheet dated as of August 7, 2009,
our issue date.
16
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Item 2.
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Managements Discussion and Analysis of Financial Condition and Results of
Operations
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OVERVIEW
You should read this discussion together with the condensed consolidated financial statements,
related Notes, and other financial information included elsewhere in this report and in our Annual
Report on
Form 10-K
for the year ended December 31, 2008 (the
Form 10-K
). The following
discussion contains assumptions, estimates and other forward-looking statements that involve a
number of risks and uncertainties, including those discussed under Risk Factors, in Part II, Item
1A of our
Form 10-K
for the year ended December 31, 2008. These risks could cause our actual
results to differ materially from those anticipated in these forward-looking statements.
We are a specialty healthcare company focused on the discovery, development, and
commercialization of proprietary pharmaceuticals, imaging and diagnostic systems, and instruments
for the treatment, diagnosis, and management of ophthalmic disorders. We are seeking to expand our
operations in the ophthalmology business, as well as in other areas of medicine that may lead to
important commercial opportunities. We actively explore opportunities to acquire complementary
pharmaceuticals, compounds, and technologies, which could, individually or in the aggregate,
materially increase the scale of our business. We also intend to continue exploring strategic
opportunities in medical markets that would allow us to benefit from our business and global
distribution expertise.
We expect to incur substantial losses as we continue the development of our product candidates
and establish a sales and marketing infrastructure in anticipation of the commercialization of our
product candidates. We currently have limited commercialization capabilities, and it is possible
that we may never successfully commercialize any of our pharmaceutical product candidates. To
date, we have devoted a significant portion of our efforts towards research and development. As of
June 30, 2009, we had an accumulated deficit of $323.9 million. Since we do not generate revenue
from any of our pharmaceutical product candidates and have only generated limited revenue from our
instrumentation business, we expect to continue to generate losses in connection with the research
and development activities relating to our product candidates and other technologies. Such
research and development activities are budgeted to expand over time and will require further
resources if we are to be successful. As a result, we believe that our operating losses are likely
to be substantial over the next several years. We will need to obtain additional funds to further
develop our research and development programs, and there can be no assurance that additional
capital will be available to us on acceptable terms, or at all.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2009 AND 2008
Revenue.
Revenue for the three months ended June 30, 2009, was $2.3 million, compared to $0.9
million for the comparable 2008 period. The increase in revenue during the three months ended June
30, 2009, is the result of our decision during the 2008 period to only ship a limited number of
OCT/SLO units internationally while we addressed a warning letter received from the U.S. Food &
Drug Administration (FDA). Results from the three months ended June 30, 2009 primarily reflect
sales of our OCT/SLO product to our international customers. We anticipate demand in both the
U.S. market and international markets will increase during the remainder of 2009 as we begin to
actively promote the OCT/SLO product at tradeshows in the U.S. and internationally.
Gross margin (deficit).
Gross margin for the three months ended June 30, 2009, was $0.6
million compared to a gross deficit of ($0.1) million for the comparable period of 2008. Gross
margin improved for the three months ended June 30, 2009 as compared to the same period in 2008 as
a result of the cost reduction initiatives we began implementing in 2008 to reduce our costs
associated with our OCT/SLO product. During the first half of 2008, we changed a number of
suppliers and processes related to our OCT/SLO product which resulted in lower manufacturing costs,
resulting in higher gross margins on that product during the second half of 2008 and during 2009.
During the three months ended June 30, 2008, we incurred approximately $0.4 million in expense
related to production development including bringing a portion of the manufacturing process for our
OCT/SLO product in-house.
Selling, general and administrative expense.
Selling, general and administrative expense for
the three months ended June 30, 2009, was $2.9 million compared to $3.2 million of expense for the
comparable period of 2008. Selling, general and administrative expenses during the three months
ended June 30, 2009 and 2008, primarily include personnel expenses, including equity-based
compensation expense of $0.8 million and $0.9 million, respectively, and professional fees. The
decrease in selling, general and administrative expenses primarily reflects decreased personnel
costs and sales commissions to our international distributors.
17
Research and development expense.
Research and development expense during the three months
ended June 30, 2009, was $2.5 million compared to $5.5 million for the comparable period of 2008.
The decrease for the three months ended June 30, 2009, primarily reflects the decision in March
2009 to terminate the Phase III clinical trial for bevasiranib. All site close-out activities were
completed during the first half of the second quarter of 2009 and we anticipate that all activities
for the Phase III trial will be complete during the third quarter of 2009. The decrease in
research and development expense in the 2009 period as a result of the clinical trial shut down was
partially offset by increased costs relating to the Aquashunt clinical trial which began in the
first quarter of 2009 and ongoing development costs for our ophthalmic instrumentation business,
which are primarily personnel related expenses. The 2008 period primarily reflects the cost of our
Phase III clinical trial for bevasiranib, including costs of clinical trial site and monitoring
expenses, personnel costs and outside professional fees. The amount for the three months ended
June 30, 2009, includes equity-based compensation expense of $0.4 million, compared to the 2008
period which includes $0.6 million of equity-based compensation expense.
Write-off of Acquired In-Process Research and Development.
On May 6, 2008, we acquired Vidus
Ocular, Inc. (Vidus), a privately held company that is developing Aquashunt, for the treatment
of glaucoma, in a stock for stock transaction. We recorded the assets and liabilities at fair
value, and as a result, we recorded acquired in-process research and development expense and
recorded a charge of $1.4 million. We did not have any such activity during the three months ended
June 30, 2009.
Other operating expenses.
Other operating expenses primarily include amortization of our
intangible assets acquired from OTI.
Other income and expenses.
Other expense was $0.5 million for the first three months of 2009
compared to $0.2 million, net of $0.1 million of interest income for the comparable 2008 period.
Other income primarily consists of interest earned on our cash and cash equivalents and interest
expense reflects the interest incurred on our line of credit. As a result of reduced interest
rates during the three months ended June 30, 2009, interest earned decreased significantly.
Income
taxes.
Income tax benefit for the three months ended June 30, 2009 and 2008, reflects
the Canadian provincial tax credit that is refundable once we file our tax return. This credit
relates to research and development expenses incurred at our OTI locations.
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
Revenue.
Revenue for the six months ended June 30, 2009, was $4.6 million, compared to $3.7
million for the comparable 2008 period. The increase in revenue for the six months ended June 30,
2009, as compared to the first six months of 2008 is a result of our decision in the second quarter
of 2008 to ship only a limited number of OCT/SLO products internationally while we addressed the
FDA warning letter received for our Toronto manufacturing facility. We believe revenue for the six
months ended June 30, 2009, was also impacted by our limited participation at tradeshows during 2008
while we focused on enhancing the product and our manufacturing processes. We began marketing and
selling our OCT/SLO product in the U.S. at the beginning of 2009. We anticipate demand in both
the U.S. market and international markets will increase during the remainder of 2009 as we begin to
actively promote the OCT/SLO product at tradeshows in the U.S. and internationally.
Gross margin (deficit).
Gross margin for the six months ended June 30, 2009, was $1.3 million
compared to a gross deficit of ($0.7) million for the comparable period of 2008. Gross margin for
the six months ended June 30, 2009, improved as a result of the cost reduction initiatives we began
implementing in 2008 to reduce our costs associated with the OCT/SLO product. During the first
half of 2008, we changed a number of suppliers and processes related to our OCT/SLO product which
resulted in lower manufacturing costs, resulting in higher gross margins on that product during the
second half of 2008 and the first six months of 2009. During the three months ended June 30, 2008,
we incurred approximately $0.9 million in expense related to production development including
bringing a portion of the manufacturing process for our OCT/SLO product in-house.
Selling, general and administrative expense.
Selling, general and administrative expense for
the six months ended June 30, 2009, was $6.2 million compared to $8.6 million of expense for the
comparable period of 2008. Selling, general and administrative expenses during the first six
months of 2009 and 2008, primarily include personnel expenses, including equity-based compensation
expense of $1.5 million and $2.9 million, respectively, and professional fees. The decrease in
selling, general and administrative expenses primarily reflects decreased personnel costs,
including severance and approximately $1.4 million related to the acceleration of vesting for stock
options in connection with the termination of certain employees in 2008. In addition, there were
decreased sales
commissions to our international distributors in the six months of 2009. Partially offsetting
these decreases was an increase in professional fees during the six
months ended June 30, 2009, as
compared to the 2008 period. We anticipate selling, general and administrative expenses will
increase during the remainder of 2009 while we increase our sales and marketing activities to
promote and support our OCT/SLO product, including the launch costs in the U.S. and participation
in additional tradeshows in the U.S. and internationally.
18
Research and development expense.
Research and development expense during the six months
ended June 30, 2009, was $8.2 million compared to $9.8 million for the comparable period of 2008.
The decrease for the six months ended June 30, 2009, primarily reflects the decrease in activity of
the Phase III clinical trial for bevasiranib which was terminated in March 2009. The 2008 period
primarily reflects the cost of our Phase III clinical trial for bevasiranib, including costs of
clinical trial site and monitoring expenses, personnel costs and outside professional fees. The
decrease in research and development expense also reflects the decrease in personnel costs,
including equity-based compensation partially offset by increased costs relating to the AquaShunt
clinical trial which began in the first quarter of 2009 and ongoing development costs for our
ophthalmic instrumentation business, which are primarily personnel related expenses. The amount
for the six months ended June 30, 2009, includes equity-based compensation expense of $0.2 million,
compared to the 2008 period which includes $1.3 million of equity-based compensation expense. The
amount for the 2009 period includes the estimated shutdown costs of the trial, including
transitioning patients from the trial onto the standard of care therapy and the costs of analyzing
the data collected and performing statistical analysis. We anticipate all activities related to
this trial will cease in the third quarter of 2009.
Write-off of Acquired In-Process Research and Development.
On May 6, 2008, we acquired Vidus, a privately held company that is developing Aquashunt, for the treatment
of glaucoma, in a stock for stock transaction. We recorded the assets and liabilities at fair
value, and as a result, we recorded acquired in-process research and development expense and
recorded a charge of $1.4 million. We did not have any such activity during the six months ended
June 30, 2009.
Other operating expenses.
Other operating expenses primarily include amortization of our
intangible assets acquired from OTI.
Other income and expenses.
Other expense was $0.9 million for the first six months of 2009
compared to $0.5 million, net of $0.2 million of interest income for the comparable 2008 period.
Other income primarily consists of interest earned on our cash and cash equivalents and interest
expense reflects the interest incurred on our line of credit. As a result of reduced interest
rates, interest earned during the six months ended June 30, 2009, decreased significantly.
Income
taxes.
Income tax benefit for the six months ended June 30, 2009 and 2008, reflects the
Canadian provincial tax credit that is refundable once we file our tax return. This credit relates
to research and development expenses incurred at our Canadian instrumentation locations.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2009, we had cash, cash equivalents and marketable securities of approximately
$40.9 million. Cash used in operations during 2009 primarily reflects payment of liabilities
related to the Phase III clinical trial for bevasiranib and related shut down expenses of that
trial, as well as selling, general and administrative activities related to our corporate and
instrumentation operations. Since our inception, we have not generated significant gross margins
to offset our operating and other expenses and our primary source of cash has been from the private
placement of stock and through credit facilities available to us.
On May 26, 2009, May 29, 2009, and June 1, 2009, we entered into stock purchase agreements
with a total of seven accredited investors (Investors) pursuant to which the Investors agreed to
make a $31.0 million investment in the Company in exchange for 31,000,000 shares of our common
stock, par value $.01 (the Shares), at $1.00 per share.
On March 4, 2009, Frost Gamma Investments Trust (the Gamma Trust), of which Phillip Frost,
M.D., our Chairman and CEO, is the sole trustee, advanced $3.0 million to us under a Promissory
Note we issued to the Gamma Trust (the Note). The entire amount of this Note and all accrued
interest thereon was due and payable on May 4, 2009 or such earlier date following the closing of
the transaction contemplated by the Stock Purchase Agreement with the Gamma Trust, dated February
23, 2009. The Note bears interest at a rate equal to 11% per
annum and may be prepaid in whole or in part without penalty or premium. We repaid the Note
in full, plus accrued interest of $48 thousand on April 27, 2009.
19
On February 23, 2009, we entered into a stock purchase agreement with the Gamma Trust pursuant
to which the Gamma Trust agreed to make a $20.0 million investment in exchange for 20,000,000
shares of our common stock, par value $.01 (the Shares), at $1.00 per share, representing an
approximately 20% discount to the average closing price of our common stock on the NYSE Amex
exchange for the five trading days immediately preceding the effective date of Audit Committee and
stockholder approval of the transaction. We issued the Shares and received the proceeds of $20.0
million on April 27, 2009.
A group of investors led by the Frost Group (the Frost Investors) previously invested $5
million in Cocrystal Discovery, Inc., a privately held biopharmaceutical company, and agreed to
invest an additional $5 million payable in two equal tranches. As a result of an amendment to the
Frost Investor agreements dated June 9, 2009, OPKO, rather than the Frost Investors, intends to
make the first tranche investment ($2.5 million) on or around September 18, 2009 pursuant to a
definitive agreement to be entered by OPKO at the time of the investment on the same terms as those
previously agreed by the Frost Investors. Following the second tranche investment of $2.5 million
in Cocrystal by the Frost Investors, OPKO will own approximately 16% of Cocrystal and the Frost
Group will own approximately 42% of Cocrystal, each on a fully diluted basis. Dr. Frost, Steve
Rubin, and Jane Hsiao currently serve on the Board of Directors of Cocrystal.
We have a fully-drawn $12.0 million line of credit with The Frost Group, LLC, or the Frost
Group, a related party. The Frost Group members include a trust controlled by Dr. Frost, the
Companys Chief Executive Officer and Chairman of the board of directors, Dr. Jane H. Hsiao, Vice
Chairman of the board of directors and Chief Technical Officer, Steven D. Rubin, Executive Vice
President Administration and a director of the Company, and Rao Uppaluri who is the Chief
Financial Officer of the Company. We are obligated to pay interest upon maturity, compounded
quarterly, on outstanding borrowings under the line of credit at an 11% annual rate, which is due
January 11, 2011. The line of credit is collateralized by all of our personal property except our
intellectual property.
We expect to incur losses from operations for the foreseeable future. We expect to incur
substantial research and development expenses, including expenses related to the hiring of
personnel and additional clinical trials. We expect that selling, general and administrative
expenses will also increase as we expand our sales, marketing and administrative staff and add
infrastructure.
We believe the cash and cash equivalents on hand at June 30, 2009, are sufficient to meet our
anticipated cash requirements for operations and debt service for the next 12 months. We based
this estimate on assumptions that may prove to be wrong or are subject to change, and we may be
required to use our available cash resources sooner than we currently expect. If we acquire
additional assets or companies, accelerate our product development programs or initiate additional
clinical trials, we will need additional funds. Our future cash requirements will depend on a
number of factors, including possible acquisitions, the continued progress of our research and
development of product candidates, the timing and outcome of clinical trials and regulatory
approvals, the costs involved in preparing, filing, prosecuting, maintaining, defending, and
enforcing patent claims, and other intellectual property rights, the status of competitive
products, the availability of financing, and our success in developing markets for our product
candidates. If we are not able to secure additional funding when needed, we may have to delay,
reduce the scope of, or eliminate one or more of our clinical trials or research and development
programs.
We intend to finance additional research and development projects, clinical trials, and our
future operations with a combination of private placements, payments from potential strategic
research and development, licensing and/or marketing arrangements, public offerings, debt
financing, and revenues from future product sales, if any. There can be no assurance, however,
that additional capital will be available to us on acceptable terms, or at all.
20
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Accounting 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 sales and expenses during the
reporting period. Actual results could differ from those estimates.
Equity-based compensation.
As of June 23, 2006 (the date of inception), we adopted Statement
of Financial Accounting Standards, or SFAS 123(R),
Share-Based Payments
. SFAS123(R) replaces SFAS
No. 123,
Accounting for Stock-Based Compensation
, and supersedes APB No. 25. SFAS 123(R) requires
that all stock-based compensation be recognized as an expense in the financial statements and that
such cost be measured at the fair value of the award. Equity-based compensation arrangements to
non-employees are accounted for in accordance with SFAS 123(R) and Emerging Issues Task Force Issue
No. 96-18 (EITF 96-18),
Accounting for Equity Instruments That Are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling, Goods or Services
, which requires that these equity
instruments are recorded at their fair value on the measurement date. As prescribed under SFAS
123(R), we estimate the grant-date fair value of our stock option grants using a valuation model
known as the Black-Scholes-Merton formula or the Black-Scholes Model and allocate the resulting
compensation expense over the corresponding requisite service period associated with each grant.
The Black-Scholes Model requires the use of several variables to estimate the grant-date fair value
of stock options including expected term, expected volatility, expected dividends and risk-free
interest rate. We perform significant analyses to calculate and select the appropriate variable
assumptions used in the Black-Scholes Model. We also perform significant analyses to estimate
forfeitures of equity-based awards as required by SFAS 123(R). We are required to adjust our
forfeiture estimates on at least an annual basis based on the number of share-based awards that
ultimately vest. The selection of assumptions and estimated forfeiture rates is subject to
significant judgment and future changes to our assumptions and estimates may have a material impact
on our Consolidated Financial Statements.
Goodwill and intangible assets
. The allocation of the purchase price for acquisitions
requires extensive use of accounting estimates and judgments to allocate the purchase price to the
identifiable tangible and intangible assets acquired, including in-process research and
development, and liabilities assumed based on their respective fair values under the provisions of
SFAS No. 141,
Business Combinations
or, SFAS 141. Additionally, we must determine whether an
acquired entity is considered to be a business or a set of net assets, because a portion of the
purchase price can only be allocated to goodwill in a business combination.
Appraisals inherently require significant estimates and assumptions, including but not limited
to, determining the timing and estimated costs to complete the in-process R&D projects, projecting
regulatory approvals, estimating future cash flows, and developing appropriate discount rates. We
believe the estimated fair values assigned to the Vidus assets acquired and liabilities assumed are
based on reasonable assumptions. However, the fair value estimates for the purchase price
allocation may change during the allowable allocation period under SFAS 141, which is up to one
year from the acquisition date, if additional information becomes available that would require
changes to our estimates.
Allowance for doubtful accounts and revenue recognition
. Generally, we recognize revenue from
product sales when goods are shipped and title and risk of loss transfer to our customers. Certain
of our products are sold directly to end-users and require that we deliver, install and train the
staff at the end-users facility. As a result, we do not recognize revenue until the product is
delivered, installed and training has occurred. Return policies in certain international markets
for our medical device products provide for stringent guidelines in accordance with the terms of
contractual agreements with customers. Our estimates for sales returns are based upon the
historical patterns of products returned matched against the sales from which they originated, and
managements evaluation of specific factors that may increase the risk of product returns. The
allowance for doubtful accounts recognized in our consolidated balance sheets at June 30, 2009 and
December 31, 2008 was $0.2 million and $0.4 million, respectively.
Recent accounting pronouncements
: In December 2007, the FASB issued SFAS No. 141R,
Business
Combinations
, or SFAS 141R. SFAS 141R applies to business combinations and requires, among other
things, the expensing of transaction costs, including deal costs and restructuring costs as
incurred, the capitalization of acquired in-process research and development assets, the recording
at fair value of, certain contingent assets and liabilities including and earn-out arrangements.
Changes in fair value of contingent consideration may be required to be recognized each period into
earnings. In addition, material adjustments made to the initial acquisition purchase accounting
will be required to be recorded back to the acquisition date. This will cause companies to revise
previously reported results when reporting comparative financial information in subsequent
filings. SFAS 141R is effective for the Company on a prospective basis for transactions occurring
beginning on January 1, 2009 and earlier adoption is not permitted. We adopted SFAS 141R on
January 1, 2009. The adoptions may have a material impact on the Companys consolidated financial
position, results of operations and cash flows if we enter into material business combinations
after January 1, 2009.
21
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated
Financial Statements, an Amendment of ARB No. 51,
or SFAS 160. SFAS 160 requires minority interests
to be recharacterized as noncontrolling interests and reported as a component of equity. In
addition, SFAS 160 requires that purchases or sales of equity interests that do not result in a
change in control be accounted for as equity transactions and, upon a loss of control, requires the
interests sold, as well as any interests retained, to be recorded at fair value with any gain or
loss recognized in earnings. SFAS 160 is effective for fiscal years beginning on or after December
15, 2008, with early adoption prohibited. We adopted SFAS 160 on January 1, 2009. The adoption of
SFAS 160 did not have a material impact on our condensed consolidated financial statements.
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1,
Interim Disclosures about Fair
Value of Financial Instruments
. FSP FAS 107-1 and APB 28-1 enhance consistency in financial
reporting by increasing the frequency of fair value disclosures. FSP FAS 107-1 and APB 28-1 relate
to fair value disclosures for any financial instruments that are not currently reflected on the
balance sheet of companies at fair value. Prior to issuing this FSP, fair values for these assets
and liabilities were disclosed only once a year. The FSP now requires these disclosures to be made
on a quarterly basis, providing qualitative and quantitative information about fair value estimates
for all those financial instruments not measured on the balance sheet at fair value. FSP FAS 107-1
and APB 28-1 are effective for interim and annual periods ending after June 15, 2009. We adopted
FSP FAS 107-1 and APB 28-1 in the second quarter of fiscal 2009. The adoption of FSP FAS 107-1 and
APB 28-1 did not have a material impact on our condensed consolidated financial statements.
In
April 2009, the FASB issued FSP No. 115-2 and FAS 124-2,
Recognition and Presentation of
Other-Than-Temporary Impairments
. This FSP amends the other-than-temporary impairment guidance in
U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation
and disclosure of the other-than-temporary impairments on debt and equity securities in the
financial statements. The FSP is effective for interim and annual reporting periods ending after
June 15, 2009. We adopted FSP No. 115-2 and FAS 124-2 in the second quarter of fiscal 2009. The
adoption of FSP No. 115-2 and FAS 124-2 did not have a material impact on our condensed
consolidated financial statements.
In April 2009, the FASB issued FASB Staff Position, or FSP, FAS 157-4,
Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly
. FSP FAS 157-4 provides guidelines for making fair
value measurements more consistent with the principles presented in FASB Statement No. 157, Fair
Value Measurements. FSP FAS 157-4 relates to determining fair values when there is no active market
or where the price inputs being used represent distressed sales. It reaffirms what FASB Statement
No. 157 states is the objective of fair value measurementto reflect how much an asset would be
sold for in an orderly transaction (as opposed to a distressed or forced transaction) at the date
of the financial statements under current market conditions. Specifically, it reaffirms the need to
use judgment to ascertain if a formerly active market has become inactive and in determining fair
values when markets have become inactive. FSP FAS 157-4 is effective for interim and annual periods
ending after June 15, 2009. We adopted FSP FAS 157-4 in the second quarter of fiscal 2009. The
adoption of FSP FAS 157-4 did not have a material impact on our condensed consolidated financial
statements.
In
May 2009, the FASB issued SFAS No. 165,
Subsequent Events
. SFAS No. 165 establishes general
standards of accounting for and disclosure of events that occur after the balance sheet date but
before financial statements are issued or are available to be issued. SFAS No.165 requires entities
to disclose the date through which they have evaluated subsequent events and whether the date
corresponds with the issuance of their financial statements. SFAS No. 165 is effective for interim
and annual reporting periods ending after June 15, 2009. We adopted SFAS No. 165 in the second
quarter of fiscal 2009. The adoption of SFAS No. 165 did not have a material impact on our
condensed consolidated financial statements.
In June 2009, the FASB issued Statement No. 168, or
SFAS No.168,
The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles
. SFAS No.168 will become the single source of authoritative nongovernmental
U.S. generally accepted accounting principles, or GAAP, superseding existing FASB, American
Institute of Certified Public Accountants, or AICPA, Emerging Issues Task Force, or EITF, and
related accounting literature. SFAS No.168 reorganizes the thousands of
GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent
structure. Also included is relevant Securities and Exchange Commission guidance organized using
the same topical structure in separate sections. SFAS No.168 will be effective for financial
statements issued for reporting periods that end after September 15, 2009. As a result, SFAS No.168
is effective for us in the third quarter of fiscal 2009. This will have an impact on our
disclosures in the condensed consolidated financial statements since all future references to
authoritative accounting literature will be references in accordance with SFAS No.168.
22
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|
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Item 3.
|
|
Quantitative and Qualitative Disclosures About Market Risk
|
In the normal course of doing business, we are exposed to the risks associated with foreign
currency exchange rates and changes in interest rates. We do not engage in trading market risk
sensitive instruments or purchasing hedging instruments or other than trading instruments that
are likely to expose us to significant market risk, whether interest rate, foreign currency
exchange, commodity price, or equity price risk.
Our exposure to market risk relates to our cash and investments and to our borrowings. We
maintain an investment portfolio of money market funds and treasury securities. The securities in
our investment portfolio are not leveraged, and are, due to their very short-term nature, subject
to minimal interest rate risk. We currently do not hedge interest rate exposure. Because of the
short-term maturities of our investments, we do not believe that a change in market interest rates
would have a significant negative impact on the value of our investment portfolio except for
reduced income in a low interest rate environment. At June 30, 2009, we had cash, cash equivalents
and marketable securities of $40.9 million. The weighted average interest rate related to our cash
and cash equivalents for the year ended June 30, 2009 was 0.1%. As of June 30, 2009, the principal
value of our credit line was $12.0 million, which bears a weighted average interest rate of 11.0%.
The primary objective of our investment activities is to preserve principal while at the same
time maximizing yields without significantly increasing risk. To achieve this objective, we invest
our excess cash in debt instruments of the U.S. Government and its agencies, bank obligations,
repurchase agreements and high-quality corporate issuers, and money market funds that invest in
such debt instruments, and, by policy, restrict our exposure to any single corporate issuer by
imposing concentration limits. To minimize the exposure due to adverse shifts in interest rates,
we maintain investments at an average maturity of generally less than one month.
|
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Item 4.
|
|
Controls and Procedures
|
The Companys management, under the supervision and with the participation of the Companys
Chief Executive Officer (CEO) and Chief Financial Officer (CFO), has evaluated the
effectiveness of the Companys disclosure controls and procedures as defined in Securities and
Exchange Commission (SEC) Rule 13a-15(e) as of June 30, 2009. Based on that evaluation,
management has concluded that the Companys disclosure controls and procedures are effective to
ensure that information the Company is required to disclose in reports that it files or submits
under the Securities Exchange Act is accumulated and communicated to management, including the CEO
and CFO, as appropriate, to allow timely decisions regarding required disclosure and is recorded,
processed, summarized, and reported within the time periods specified in the SECs rules and forms.
There have been no changes to the Companys internal control over financial reporting that
occurred during the Companys second quarter of 2009 that have materially affected, or are
reasonably likely to materially affect, the Companys internal control over financial reporting.
PART II. OTHER INFORMATION
|
|
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Item 1.
|
|
Legal Proceedings
|
On May 7, 2007, Ophthalmic Imaging Systems, or OIS, sued Steven Verdooner, its former
president and our then Executive Vice President, Instrumentation, in California Superior Court for
the County of Sacramento. OIS later amended its complaint to add claims against the Company and
The Frost Group, LLC. Trial in the matter was scheduled to commence on April 28, 2009. In order
to avoid the expense and uncertainty of litigation, and without making any admission of wrongdoing
or liability, the parties agreed to fully and finally resolve the lawsuit and entered into a
settlement and release on May 4, 2009. The net impact of the settlement was not material to the
Company.
23
Item 1A.
Risk Factors
There have been no material changes from the risk factors as previously disclosed in the Item
1A of the Company Annual Report on Form 10-K.
|
|
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Item 2.
|
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
Refer to the Companys Current Report on Form 8-K filed with the Securities and Exchange
Commission on June 1, 2009.
Item 3.
Defaults Upon Senior Securities
None.
|
|
|
Item 4.
|
|
Submission of Matters to a Vote of Security Holders
|
The following matter was approved at our annual stockholders meeting, which was held on June 10,
2009.
The election to the Board of Directors of the following nominees:
|
|
|
|
|
|
|
Number of
|
|
Number of
|
Name of Nominee
|
|
Votes Cast For
|
|
Votes Withheld
|
Phillip Frost, M.D.
|
|
155,037,370
|
|
405,281
|
Jane H. Hsiao, Ph.D.
|
|
154,970,972
|
|
471,679
|
Steven D. Rubin
|
|
154,042,862
|
|
1,399,789
|
Robert A. Baron
|
|
155,159,442
|
|
283,209
|
Thomas E. Beier
|
|
155,159,442
|
|
283,209
|
Pascal J. Goldschmidt, M.D.
|
|
155,162,142
|
|
280,509
|
Richard A. Lerner, M.D.
|
|
155,151,048
|
|
291,603
|
John A. Paganelli
|
|
155,157,524
|
|
285,127
|
Richard C. Pfenniger, Jr.
|
|
153,895,161
|
|
1,547,490
|
Alice Lin-Tsing Yu , M.D., Ph.D.
|
|
155,162,142
|
|
280,509
|
|
|
|
Item 5.
|
|
Other Information
|
None.
|
|
|
Exhibit 2.1
(1)
|
|
Merger Agreement and Plan of Reorganization,
dated as of March 27, 2007, by and among Acuity
Pharmaceuticals, Inc., Froptix Corporation,
eXegenics, Inc., e-Acquisition Company I-A, LLC,
and e-Acquisition Company II-B, LLC.
|
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|
|
Exhibit 2.2
(4)+
|
|
Securities Purchase Agreement dated May 2, 2008,
among Vidus Ocular, Inc., OPKO Instrumentation,
LLC, OPKO Health, Inc., and the individual
sellers and noteholders named therein.
|
|
|
|
Exhibit 3.1
(2)
|
|
Amended and Restated Certificate of Incorporation.
|
|
|
|
Exhibit 3.2
(3)
|
|
Amended and Restated By-Laws.
|
|
|
|
Exhibit 4.1
(1)
|
|
Form of Common Stock Warrant.
|
24
|
|
|
Exhibit 10.1
|
|
Form of Stock Purchase Agreement for transactions
between the Company and Nora Real Estate SA.,
Vector Group Ltd., Oracle Partners LP, Oracle
Institutional Partners, LP., Chung Chia Company
Limited, Gold Sino Assets Limited and Grandtime
Associates Limited.
|
|
|
|
Exhibit 10.2
|
|
Stock Purchase Agreement dated June 10, 2009,
among Sorrento Therapeutics, Inc. and the
Company.
|
|
|
|
Exhibit 31.1
|
|
Certification by Phillip Frost, Chief Executive
Officer, pursuant to Rule 13a-14(a) and 15d-14(a)
of the Securities and Exchange Act of 1934 as
adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 for the quarterly
period ended June 30, 2009.
|
|
|
|
Exhibit 31.2
|
|
Certification by Rao Uppaluri, Chief Financial
Officer, pursuant to Rule 13a-14(a) and 15d-14(a)
of the Securities and Exchange Act of 1934 as
adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 for the quarterly
period ended June 30, 2009.
|
|
|
|
Exhibit 32.1
|
|
Certification by Phillip Frost, Chief Executive
Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 for the quarterly
period ended June 30, 2009.
|
|
|
|
Exhibit 32.2
|
|
Certification by Rao Uppaluri, Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 for the quarterly
period ended June 30, 2009.
|
|
|
|
+
|
|
Certain confidential material contained in the document has
been omitted and filed separately with the Securities and
Exchange Commission.
|
|
(1)
|
|
Filed with the Companys Current Report on Form 8-K filed
with the Securities and Exchange Commission on April 2,
2007, and incorporated herein by reference.
|
|
(2)
|
|
Filed with the Companys Current Report on Form 8-A filed
with the Securities and Exchange Commission on June 11,
2007, and incorporated herein by reference.
|
|
(3)
|
|
Filed with the Companys Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 31,
2008 and incorporated herein by reference.
|
|
(4)
|
|
Filed with the Companys Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on August
8, 2008 for the Companys three-month period ended June 30,
2008, and incorporated herein by reference.
|
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
Date: August 7, 2009
|
OPKO Health, Inc.
|
|
|
/s/ Adam Logal
|
|
|
Adam Logal
|
|
|
Executive Director of Finance, Chief
Accounting Officer and Treasurer
|
|
26
Exhibit Index
|
|
|
Exhibit Number
|
|
Description
|
Exhibit 10.1
|
|
Form of Stock Purchase Agreement for transactions between
the Company and Nora Real Estate SA., Vector Group Ltd.,
Oracle Partners LP, Oracle Institutional Partners, LP.,
Chung Chia Company Limited, Gold Sino Assets Limited and
Grandtime Associates Limited.
|
|
|
|
Exhibit 10.2
|
|
Stock Purchase Agreement dated June 10, 2009, among
Sorrento Therapeutics, Inc. and the Company.
|
|
|
|
Exhibit 31.1
|
|
Certification by Phillip Frost, Chief Executive Officer,
pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities
and Exchange Act of 1934 as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 for the quarterly period
ended June 30, 2009.
|
|
|
|
Exhibit 31.2
|
|
Certification by Rao Uppaluri, Chief Financial Officer,
pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities
and Exchange Act of 1934 as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 for the quarterly period
ended June 30, 2009.
|
|
|
|
Exhibit 32.1
|
|
Certification by Phillip Frost, Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 for the
quarterly period ended June 30, 2009.
|
|
|
|
Exhibit 32.2
|
|
Certification by Rao Uppaluri, Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 for the
quarterly period ended June 30, 2009.
|
27
Exhibit 10.2
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is entered into as of June 10, 2009 (this
Agreement
),
among Sorrento Therapeutics, Inc., a California corporation (the
Company
), and OPKO
Health, Inc. (
Buyer
).
Preliminary Statements
A. The Company is engaged in the business of developing and commercializing a broad, generally
applicable platform for the generation of fully human monoclonal antibodies based on its
proprietary technology.
B. The Company has agreed to issue to Buyer an aggregate of 2,315,747 shares of the Companys
common stock, no par value (
Company Common Stock
), and Buyer desires to purchase such
shares of Company Common Stock (the
Purchased Shares
) in exchange for $2.3 million in
cash (the
Purchase Price
) on the terms and conditions set forth herein.
C. In connection with the transactions contemplated by this Agreement, the Company has also
agreed to enter into a License Agreement with Buyer, in substantially the form attached hereto as
Schedule A
(the
License Agreement
), and a Shareholders Agreement with Buyer and
the other holders of the Companys outstanding capital stock, in substantially the form attached
hereto as
Schedule B
(the
Shareholders Agreement
)
Agreement
In consideration of the preliminary statements and the respective representations and
warranties, covenants and agreements contained in this Agreement, the parties agree as set forth
below.
ARTICLE 1
DEFINITIONS
In addition to terms defined elsewhere in this Agreement, the following terms when used in
this Agreement shall have the meanings indicated below:
Action
means any claim, action, suit, arbitration, inquiry, proceeding or
investigation by or before any Governmental Authority.
Affiliate
of a specified Person means a Person who directly or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common control with the
specified Person. As used in the foregoing sentence, the term control (including, with
correlative meaning, the terms controlling, controlled by and under common control with)
means the possession, directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting securities, by
contract or otherwise, or such other relationship as, in fact, constitutes actual control.
Company Intellectual Property
means Intellectual Property owned by the Company.
1
Company IP Agreements
means (a) licenses of Intellectual Property by the Company to
any third party, (b) licenses of Intellectual Property by any third party to the Company, (c)
agreements between the Company and any third party relating to the development or use of
Intellectual Property, and (d) consents, settlements, decrees, orders, injunctions, judgments or
rulings governing the use, validity or enforceability of Company Intellectual Property.
Contracts
means all contracts, agreements, covenants, commitments and other
instruments of any kind, whether oral or written, to which the Company is a party or to which any
Assets of the Company are bound.
Environmental Laws
means any Law and any enforceable judicial or administrative
interpretation thereof, including any Governmental Order, relating to pollution or protection of
the environment or natural resources, including, without limitation, those relating to the use,
handling, transportation, treatment, storage, disposal, release or discharge of hazardous
materials.
Founders
shall mean Antonius Schuh, Steve Zaniboni, and Henry Ji.
Governmental Authority
means any national, supranational, state, local or similar
government, governmental, regulatory or administrative authority, agency or commission or any
court, tribunal, or judicial or arbitral body.
Governmental Order
means any order, writ, judgment, injunction, decree, stipulation,
determination or award entered into by or with any Governmental Authority.
Guaranty
means, as to any Person, any contract, agreement or understanding of such
Person pursuant to which such Person guarantees the indebtedness, Liabilities or obligations of
others, directly or indirectly, in any manner, including agreements to purchase such indebtedness,
Liabilities or obligations, or to supply funds to or in any manner invest in others, or to
otherwise assure the holder of such indebtedness, Liabilities or obligations against loss.
Intellectual Property
means (a) all inventions, technology, and other intellectual
property (whether patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent disclosures, statutory
invention registrations together with all reissuances, divisions, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof and all rights therein
provided by Law or international treaties and conventions; (b) all trademarks, service marks, trade
dress, logos, trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith; (c) all copyrightable works, all
copyrights, and all applications, registrations, and renewals in connection therewith; (d) all
trade secrets and confidential information (including databases, ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and techniques, technical
data, designs, drawings, and specifications); (e) all computer programs and software (including
data and source and object codes and related documentation); (f) all other property rights in
connection with the foregoing; and (g) all copies and tangible embodiments thereof (in whatever
form or medium).
Knowledge
means the actual knowledge of the Founders.
2
Law
means any law, statute, ordinance, rule, regulation, order, writ, judgment or
decree.
Liabilities
means any liability, debt or obligation (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated and whether due or to become due), any and all Actions, damages,
deficiencies, fines, penalties, interest, assessments, judgments, losses, Taxes, costs, expenses,
including, without limitation, fees and disbursements of counsel and experts.
Licensed Intellectual Property
means Intellectual Property licensed to the Company
pursuant to the Company IP Agreements.
Liens
means any liens, claims, charges, rights, pledges, security interests,
mortgages, options, title defects or other encumbrances, restrictions or limitations of any nature
whatsoever, including any restriction on the use, voting, transfer or other exercise of any
attributes of ownership.
Material Adverse Effect
means any change in or effect on the business of the Company
that individually, or together with all other such changes and effects, is materially adverse to
the business, assets (including intangible assets), liabilities (contingent or otherwise),
condition (financial or otherwise) or results of operations of the Company.
Organizational Documents
means any and all documents pursuant to which an entity is
organized and/or operates under the applicable laws of its jurisdiction.
Person
means any natural person, corporation, limited liability corporation,
unincorporated organization, partnership, association, joint stock company, joint venture, trust or
government, or any agency or political subdivision of any government, or any other entity.
SEC
means the United States Securities and Exchange Commission.
Securities Act
means the United States Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
Tax
means any national, state, local or other income, gross receipts, franchise,
estimated, alternative minimum, add-on minimum, sales, use, transfer, registration, all gross
receipts, sales, use,
ad valorem
, value added, excise, natural resources, severance, stamp,
occupation, premium, windfall profit, assets, minimum income, environmental, customs, duties, real
property, personal property, capital stock, social security obligations or contributions,
unemployment, disability, payroll, license, employee or other withholding, or other tax or
governmental charge, of any kind whatsoever, including any interest, penalties or additions to tax
or additional amounts in respect of the foregoing; the foregoing shall include any transferee or
secondary liability for a Tax and any liability assumed by agreement or arising as a result of
being (or ceasing to be) a member of any affiliated group of corporations (or being included, or
required to be included, in any tax return relating thereto).
Transaction Documents
means this Agreement, the License Agreement, and the
Shareholders Agreement.
3
ARTICLE 2
PURCHASE OF CAPITAL; CONSIDERATION
2.1
Capital to be Purchased
. Subject to the terms and conditions set forth herein, at
the Closing (as defined below), the Company agrees to issue to Buyer and Buyer agrees to purchase
from the Company the Purchased Shares, which Purchased Shares shall equal upon closing 34.84% of
the Companys issued and outstanding shares of Company Common Stock on a fully diluted basis, after
giving effect to all transactions contemplated as of the Closing, and treating all options,
warrants, convertible securities and rights to purchase securities of the Company, on an
as-exercised and as-converted basis.
2.2
Consideration
. In consideration of the sale of the Purchased Shares by the
Company to Buyer at the Closing, Buyer shall pay or deliver to the Company the Purchase Price, via
wire transfer of immediately available funds (the
Cash Consideration
).
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
In order to induce the Company to enter into this Agreement and to consummate the transactions
contemplated hereby, Buyer makes the representations and warranties set forth below to the Company
as of the date hereof.
3.1
Organization
. Buyer is a corporation duly organized, validly existing and in good
standing under the Laws of Delaware.
3.2
Authorization; Enforceability
. Buyer has all necessary corporate power and
authority to execute and deliver the Transaction Documents, to carry out its obligations and to
consummate the transactions contemplated thereby. The execution and delivery of the Transaction
Documents by Buyer and the consummation by Buyer of the transactions contemplated thereby have been
duly and validly authorized by all requisite corporate action.
3.3
No Violation or Conflict
. The execution and delivery of the Transaction Documents
by Buyer, the consummation by Buyer of the transactions contemplated thereby and compliance by
Buyer with the provisions thereof do not and will not (a) violate or conflict with any provision of
Buyers Organizational Documents; (b) violate or conflict with any Law applicable to Buyer; and (c)
with or without the passage of time or the giving of notice, result in the breach of, or constitute
a default under, or give to others any right of acceleration of performance, termination, amendment
or cancellation of, or result in the creation of any Lien upon any property or assets of, Buyer
pursuant to any instrument, contract, obligation or agreement to which Buyer is a party or by which
Buyer or its properties may be bound or effected.
3.4
Brokers
. Buyer has not employed any financial advisor, broker or finder and has
not incurred and will not incur any brokers, finders, investment banking or similar fees,
commissions or expenses, in connection with the transactions contemplated by this Agreement.
4
3.5
Purchase Entirely for Own Account
. The Purchased Shares to be acquired by the
Buyer will be acquired for investment for the Buyers own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof, and the Buyer has no present
intention of selling, granting any participation in, or otherwise distributing the same. By
executing this Agreement, the Buyer further represents that the Buyer does not presently have any
contract, undertaking, agreement, or arrangement with any person or entity to sell, transfer or
grant participations to such person or entity or to any third person or entity, with respect to any
of the Purchased Shares.
3.6
Disclosure of Information
. The Buyer has had an opportunity to discuss the
Companys business, management, financial affairs, and the terms and conditions of the offering of
the Purchased Shares with the Companys management. The foregoing, however, does not limit or
modify the representations and warranties of the Company in Article 4 of this Agreement or the
right of the Buyer to rely thereon.
3.7
Restricted Securities
. The Buyer understands that the Purchased Shares have not
been, and will not be, registered under the Securities Act, by reason of a specific exemption from
the registration provisions of the Securities Act which depends upon, among other things, the bona
fide nature of the investment intent and the accuracy of the Buyers representations as expressed
herein. The Buyer understands that the Purchased Shares are restricted securities under
applicable U.S. federal and state securities laws and that, pursuant to these laws, the Buyer must
hold the Purchased Shares indefinitely unless they are registered with the SEC and qualified by
state authorities, or an exemption from such registration and qualification requirements is
available. The Buyer acknowledges that the Company has no obligation to register or qualify the
Purchased Shares.
3.8
Legends
. The Buyer understands that the Purchased Shares and any securities
issued in respect of or exchange for the Purchased Shares, may bear the following legends:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE
OR DISTRIBUTION THEREOF. NO SUCH TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE COMPANY OTHERWISE
SATISFIES ITSELF THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION.
Notwithstanding the foregoing, the legend referred to in this Section 3.8 shall be removed and the
Company shall issue a certificate without such legend to the holder of the Purchased Shares if such
Purchased Shares are registered under the Securities Act, or if such holder provides the Company
with an opinion of counsel (which may be counsel for the Company) reasonably acceptable to the
Company to the effect that a public sale or transfer of such Purchased Shares may be made without
registration under the Securities Act.
5
3.9
Accredited Investor
. The Buyer is an accredited investor as defined in Rule
501(a) of Regulation D promulgated under the Securities Act.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce Buyer to enter into this Agreement and to consummate the transactions
contemplated hereby, the Company makes the representations and warranties set forth below to Buyer
as of the date hereof.
4.1
Organization
. The Company has been duly organized and is validly existing and in
good standing under the Laws of the jurisdiction of its incorporation or organization, as the case
may be. The Company is duly qualified or licensed to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by it or the nature of
its business makes such qualification or licensing necessary. The Company has all requisite right,
power and authority to (a) own or lease and operate its properties, (b) conduct its business as
presently conducted and (c) engage in and consummate the transactions contemplated hereby. The
Company is not in violation of any provision of its Organizational Documents.
4.2
Authorization; Enforceability
. The Company has all necessary corporate power and
authority to execute and deliver the Transaction Documents, to carry out its obligations
thereunder, and to consummate the transactions contemplated thereby. The execution and delivery of
the Transaction Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly and validly authorized by all requisite corporate action. This
Agreement has been, and upon execution the other Transaction Documents shall have been, duly and
validly executed and delivered by the Company and constitutes, and upon execution the other
Transaction Documents shall constitute, the legal, valid and binding obligations of the Company,
enforceable in accordance with their respective terms.
4.3
No Violation or Conflict
. The execution and delivery of the Transaction Documents
by the Company, the consummation by the Company of the transactions contemplated thereby, and
compliance by the Company with the provisions thereof, do not and will not: (a) violate or conflict
with any provision of the Companys Organizational Documents; (b) violate or conflict with any Law
applicable to the Company; and (c) with or without the passage of time or the giving of notice,
result in the breach of, or constitute a default under, or give to others any right of acceleration
of performance, termination, amendment or cancellation of, or result in the creation of any Lien
upon any property or assets of the Company, pursuant to any instrument, Contract, obligation or
agreement to which the Company is a party or by which the Company or any of its properties may be
bound or affected.
4.4
Validity of Purchased Shares
. The Purchased Shares, when issued, sold and
delivered to Buyer in accordance with the terms and for the consideration set forth in this
Agreement, will be validly issued, fully paid, non-assessable and free of restrictions on transfer
other than applicable federal and state securities laws, restrictions set forth in the Transaction
Documents and liens or encumbrances created by or imposed by Buyer. The Purchased Shares will
be issued in compliance with all applicable federal and state securities laws.
6
4.5
Organizational Documents and Corporate Records
. A true and complete copy of (a)
the Organizational Documents of the Company, as amended, and (b) the minute books of the Company
have been delivered to Buyer. Such minute books contain complete and accurate records of all
meetings and other corporate actions of the board of directors, committees of the board of
directors, and shareholders of the Company from the date of its incorporation to the date hereof.
All matters requiring the authorization or approval of the board of directors, a committee of the
board of directors, or the shareholders of the Company have been duly and validly authorized and
approved by them.
4.6
Subsidiaries
. The Company does not currently own or control, directly or
indirectly, any interest in any other corporation, partnership, trust, joint venture, limited
liability company, association or other business entity. The Company is not a participant in any
joint venture, partnership or similar arrangement.
4.7
Capitalization
.
Schedule 4.7
describes the equity capitalization of the
Company immediately prior to, and after, Closing, including without limitation, the number of
authorized shares of capital stock, the number of outstanding shares, the names of the holders
thereof and the amount of shares held by each such holder. All of the issued and outstanding
shares of capital stock (i) have been duly authorized and validly issued and are fully paid and
non-assessable and (ii) were issued in compliance with all applicable laws concerning the issuance
of the securities. None of the issued and outstanding shares of capital stock were issued in
violation of any Law, preemptive rights or rights of first refusal or other agreement or rights.
No written or oral agreement or understanding with respect to the disposition of the Companys
shares of capital stock or any rights therein, other as may be contained in the Transaction
Documents, exists.
4.8
Rights, Warrants, Options
. The Company has reserved 10,000,000 shares of Company
Common Stock for issuance to officers, directors, employees and consultants of the Company pursuant
to its 2009 Equity Incentive Plan, which has been duly adopted by the Companys board of directors
and shareholders (the
Stock Plan
). Of such reserved shares of Company Common Stock, no
options to purchase shares have been granted or are currently outstanding. The Company has
furnished Buyer complete and accurate copies of the Stock Plan and forms of agreement approved for
use thereunder. Other than as may be contained in the Transaction Documents or as described in
Schedule 4.7
, there are no equity interests, stock options, warrants, notes, convertible
securities, rights of first refusal, preemptive rights, subscription rights, stock appreciation,
phantom stock or other rights, arrangements or commitments of any character outstanding to which
the Company is a party or by which the Company is bound or relating to the Companys issued or
unissued capital stock, or equity interests of the Company or obligating the Company to issue,
sell, or redeem any capital stock or other equity interests in the Company. Except for the
Transaction Documents, there are no voting trusts, shareholder agreements, proxies or other
agreements or understandings in effect with respect to the Companys capital stock. There are no
outstanding contractual obligations of the Company to provide funds to, or make any investment (in
the form of a loan, capital contribution or otherwise) in any other Person.
7
4.9
Financial Statements; Books and Records
. The books of account and other financial
records of the Company are in all material respects complete and correct, and do not contain or
reflect any material inaccuracies or discrepancies and have been maintained in accordance with good
business and accounting practices.
4.10
Absence of Undisclosed Liabilities
. The Company does not have any Liabilities or
commitments of any nature whatsoever, whether accrued, absolute, contingent or otherwise, other
than those incurred in the ordinary course of business consistent with past practice and which do
not and could not, individually or in the aggregate, have a Material Adverse Effect or otherwise
prevent or materially delay the Company from performing its obligations under the Transaction
Documents.
4.11
Accounts and Notes Receivable and Payable
. Set forth on
Schedule 4.11
is
a true and complete list of unpaid accounts, Liabilities, and notes receivable owing to and owed by
the Company as of the date hereof. All of such accounts and notes receivable and payable
constitute only bona fide, valid and binding claims arising in the ordinary course of the Companys
business, subject, with regard to receivables to no valid defenses, counterclaims or setoffs.
4.12
Tax Matters
. All Tax returns and other similar documents required to be filed
with respect to the Company have been timely filed with the appropriate Governmental Authorities in
all jurisdictions in which such returns and documents are required to be filed, all of the
foregoing are true, correct and complete and reflect accurately all liabilities for Taxes of the
Company for the periods to which such returns and documents relate, and all amounts shown as owing
thereon have been paid. No claims or deficiencies have been asserted against the Company with
respect to any Taxes which have not been paid or otherwise satisfied or for which accruals or
reserves have not been made in the Financial Statements, and there exists no reasonable basis for
the making of any such claims. There are no tax liens on any asset of the Company. The Company
has not waived any restrictions on assessment or collection of Taxes or consented to the extension
of any statute of limitations relating to taxation. The Company has not incurred or will incur any
liability, contingent or otherwise, relating to Taxes or otherwise, in connection with the
transactions contemplated hereby.
4.13
Assets
. The Company owns, leases or has the legal rights to use all properties
and assets (tangible and intangible), including the Company Intellectual Property, used or intended
to be used in the conduct of the Companys business (the
Assets
). The Company has good
and marketable title or leasehold interest to each Asset, free and clear of all Liens.
4.14
Intellectual Property
. (a)
Schedule 4.14(a)
sets forth a true and
complete list of (i) all patents and patent applications, registered trademarks and trademark
applications, registered copyrights and copyright applications included in the Company Intellectual
Property and the Licensed Intellectual Property, and (ii) all Company IP Agreements.
(b) The Company is the sole and exclusive owner of the entire right, title and interest in and
to the Company Intellectual Property free and clear of all Liens, and has a valid and exclusive
license to use the Licensed Intellectual Property in connection with the Companys business. The
Company is the record owner of all Company Intellectual Property with each
applicable governmental authority. The Company is entitled to use all Company Intellectual
Property and Licensed Intellectual Property in the continued operation of the Companys business
without limitation, subject only to the terms of the Company IP Agreements.
8
(c) The Company Intellectual Property and the Licensed Intellectual Property have not been
adjudged invalid or unenforceable in whole or in part, and are valid and enforceable. There have
been no claims made or, to the Companys Knowledge, threatened against Company or the Founders, or
to its Knowledge, any third party owner of Licensed Intellectual Property asserting any grounds of
invalidity, abuse, misuse or unenforceability of any Company Intellectual Property or Licensed
Intellectual Property and no grounds for any such claims exist.
(d) To the Knowledge of the Company, the conduct of the Companys business as currently
conducted or proposed to be conducted does not infringe, violate or misappropriate the Intellectual
Property of any third party, and no Action alleging any of the foregoing are pending, and no Action
has been asserted or, to the Companys Knowledge, threatened against any Founder or the Company
alleging any of the foregoing.
(e) The Company, or any third party owner of Licensed Intellectual Property, has not made any
claim of any infringement, violation or misappropriation by others of the Company Intellectual
Property or the Licensed Intellectual Property or interests therein and no grounds for any such
claims exist.
(f) Except as contemplated by the License Agreement, no interest in any of the Companys
Intellectual Property has been assigned, transferred, licensed or sublicensed by the Company to any
Person.
(g) There have been no claims made or threatened against the Company or any third party owner
challenging the complete and exclusive ownership of or the right to use the Company Intellectual
Property or Licensed Intellectual Property, or suggesting that any other Person has any claim of
legal or beneficial ownership with respect thereto.
(h) The Company is currently in compliance in all material respects with all applicable legal
requirements (including timely payment of filing, examination, maintenance and legal fees)
necessary to protect the Company Intellectual Property or Licensed Intellectual Property.
9
(i) The Company has not been and will not be required, for the conduct of its business as
currently conducted and as currently proposed to be conducted, to utilize any inventions or other
intellectual or other property of any Founders, employees, agents or independent contractors of the
Company made prior to their employment or other engagement by the Company or other than as part of
such employment or engagement for and on behalf of the Company. To the Companys Knowledge, at no
time during the conception, reduction to practice or development of any of the Company Intellectual
Property (whether prior to or during the employment or engagement of any such person by the
Company) was any developer, inventor or other contributor to such Company Intellectual Property (1)
operating under any grants from any governmental entity or agency, hospital, academic institution
or private or other source (any of
the above or sub-division or sub-entity thereof, an
Institution
), performing
research sponsored by any Institution or subject to any employment, consulting, staff or faculty
member or other engagement agreement or arrangement (whether full-time or part-time) or invention
assignment or nondisclosure agreement or other obligation with any third party that would adversely
affect the Companys rights in such Company Intellectual Property, (2) using any facilities of any
Institution in connection with any such conception or development of any such Company Intellectual
Property, or utilizing in connection therewith any time which his relationship or engagement with
any Institution warranted to be devoted to such Institution or to his activities therein or for
which he was receiving compensation from such Institution, (3) researching, developing, teaching,
using or otherwise being involved, in connection with his relationship or engagement with any
Institution, in any matter that relates to any such Company Intellectual Property, or (4) otherwise
engaged in any activity in connection with his relationship or engagement with any Institution that
might serve as a basis for any claim by any Institution with respect to any rights in any such
Company Intellectual Property. Without derogating in any manner from any other representation or
warranty made herein, no Institution has any rights of any kind in any of the Company Intellectual
Property.
(j) None of the Founders or the Companys employees are obligated under any contract
(including licenses, covenants, or commitments of any nature) or other agreement, or subject to any
judgment, decree, or order of any court or administrative agency, that would interfere with the use
of such individuals full time efforts to promote the interests of the Company or that would
interfere with or restrict the Companys business as proposed to be conducted. Neither the
execution nor delivery of this Agreement, nor the carrying on of the Companys business as
presently conducted, will conflict with or result in a breach of the terms, conditions, or
provisions of, or constitute a default under, any contract, covenant, or instrument under which any
of such individual is now obligated.
4.15
Real Property
. The Company does not own or lease any real property.
4.16
Compliance with Environmental Laws
. The Company is in compliance with, and for
the past three years has been in compliance with, all Environmental Laws. There have been no
Governmental Orders issued against the Company for impairment, damage, injury or adverse effect to
the environment or public health and, to the Knowledge of the Company, there have been no private
complaints with respect to any such matters, and there are no circumstances that would form the
basis of any such Governmental Orders.
4.17
Employment Matters
.
(a) The Company does not have any employees. The Company has not agreed to or entered into
any employment, consulting, severance or indemnification arrangements, agreements, or
understandings between the Company and any other Person.
(b) The Company has not established or sponsored, and does not maintain, any employee benefit
plan that is subject to the Employee Retirement Income Security Act of 1974, as amended.
10
4.18
Contracts
.
Schedule 4.18
sets forth a list of all Company Contracts.
Each of the Contracts are in full force and effect and are the valid and legally binding
obligations of the Company and, to the Companys Knowledge, are valid and legally binding
obligations of the counterparties thereto. The Company is not in breach or violation of, or
default under, any of the Contracts, and to the Knowledge of the Company, no counterparty is in
breach or violation of, or default under, any Contract. The Company has not received any claim of
default and no event has occurred which with the giving of notice or lapse of time or both would
constitute such a default. The Company has previously delivered to Buyer true, complete and
correct copies of all Contracts.
4.19
Related Parties
. There are no agreements, understandings, or proposed
transactions between the Company and any of its shareholders, employees, officers, or directors, or
their affiliates. The Company is not indebted, directly, or indirectly, to the Companys
shareholders, consultants, or employees (prospective or otherwise), or to their respective
affiliates, spouses, or children. Except as set forth on
Schedule 4.19
, none of the
Companys shareholders, consultants, employees (prospective or otherwise), or their respective
affiliates, spouses or children are, directly or indirectly, indebted to the Company or, to the
Companys knowledge, have any direct or indirect ownership interest in (i) any firm or corporation
with which the Company is affiliated or with which the Company has a business relationship or (ii)
any firm or corporation which competes or will compete with the Company, other than ownership
positions in publicly traded companies not exceeding two percent of the outstanding capital stock
thereof.
4.20
Compliance with Laws
. The Company is, and has at all times, been in compliance
with all Laws applicable to it, its business or properties and the Company has not received
notification from any Governmental Authority asserting that it is not in compliance with or has
violated any Laws, or threatening to revoke any authorization, consent, approval, franchise,
license, or Permit, and the Company is not subject to any Governmental Order, agreement or consent
decree with any Governmental Authority arising out of previously asserted violations.
4.21
Insurance
. The Company has in full force and effect fire, general liability, and
casualty insurance policies with extended coverage, in such amounts (subject to reasonable
deductions) as customarily carried by similar companies at equivalent stages of development.
4.22
Governmental Consents and Filings
. No consent, approval, order, or authorization
of, or registration, qualification, designation, declaration, or filing with, any federal, state,
or local governmental authority on the part of the Company is required in connection with the
consummation of the transactions contemplated by this Agreement, except for any filings pursuant to
applicable state securities laws and Regulation D of the Securities Act.
4.23
Governmental Authorizations
. The Company has all authorizations, consents,
approvals, franchises, licenses and permits required under applicable Law (including Environmental
Law) for the ownership of the Companys properties, the operation of its business as presently
conducted and proposed to be conducted, and the possession, use and sale of hazardous materials
(collectively, the
Permits
). No suspension, nonrenewal or cancellation of
any of the Permits is pending or threatened, and there is no reasonable basis therefor. The
Company is not in conflict with, or in default or violation of, any Permit.
11
4.24
Legal Proceedings
. There is no Action, mediation or out-of-court settlement
negotiation by or against the Company or affecting any of the Assets or business of the Company or
pending, or to the Knowledge of the Company, threatened. No person who is or was a director or
officer of the Company is a party to any pending or threatened Action, mediation or out-of-court
settlement negotiation in their capacity as directors or officers of the Company. Neither the
Company, nor any Asset is subject to any Governmental Order, nor is any Governmental Order
threatened or pending.
4.25
Brokers
. The Company has not employed any financial advisor, broker or finder or
incurred and will not incur any brokers, finders, investment banking or similar fees, commissions
or expenses in connection with the transactions contemplated by this Agreement.
ARTICLE 5
ADDITIONAL COVENANTS AND AGREEMENTS
5.1
Board Observer
. At all times when Buyer is a shareholder of the Company and is
not otherwise represented on the Companys board of directors, the Company shall invite a
representative of Buyer to attend all meetings of the Companys board of directors (and committees
thereof) in a nonvoting observer capacity and, in this respect, shall give such representative
copies of all notices, minutes, consents, and other materials that it provides to its directors at
the same time that such materials are given to such directors;
provided
,
however
,
that such representative may be excluded from access to any material or meeting or portion thereof,
solely to the extent the Company reasonably believes, upon advice of counsel, that access to such
information or attendance at such meeting or portion thereof could adversely affect the
attorney-client privilege between the Company and its counsel. Buyer agrees, and any
representative of Buyer will agree, not to disclose any confidential information provided to or
learned by it in connection with Buyers rights pursuant to this Section 5.1.
5.2
Indemnification for Finders Fee
. Buyer agrees to indemnify and hold harmless the
Company from any liability for any commission or compensation in the nature of a finders fee (and
the costs and expenses of defending against such liability) for which Buyer or any of its
Affiliates is responsible.
5.3
Negotiation Period
. During the period commencing on the date of Closing and
ending one hundred twenty (120) days thereafter (the
Negotiation Period
), the Company
agrees to negotiate in good faith with respect to, and to use commercially reasonable efforts to
enter into definitive agreements relating to, a reverse merger transaction (the
Transaction
) with QuikByte Software, Inc. (
QuikByte
), on substantially the
terms set forth in the non-binding term sheet attached hereto as
Schedule C
;
provided
,
however
, that in the event that, as of the expiration of the Negotiation
Period, the Company and QuikByte have not entered into definitive agreements relating to the
Transaction but are working in good faith to do so, the Negotiation Period shall automatically be
extended for an additional period of reasonable duration so to allow for the completion and
execution of such definitive agreements relating to such Transaction.
12
ARTICLE 6
INDEMNIFICATION
6.1
Investigation
. The representations, warranties, covenants and agreements set
forth in this Agreement shall not be affected or diminished in any way by any investigation (or
failure to investigate) at any time by or on behalf of the party for whose benefit such
representations, warranties and covenants were made.
6.2
Survival of the Representations and Warranties
. The representations and
warranties contained in this Agreement shall survive the Closing and shall expire and be of no
further force or effect as of the first anniversary of the Closing (the
Termination
Date
);
provided
,
however
, that if written notice of a claim has been given to
the Company prior to such Termination Date, then the relevant representations and warranties shall
survive as to such claim until such claim has been finally resolved.
6.3
Indemnification
.
(a)
Indemnification
. The Company agrees to indemnify and hold harmless Buyer and its
Affiliates and their successors and assigns (the
Buyer Indemnified Parties
) who were or
are a party, or are threatened to be made a party, to any threatened, pending or completed Claim
(as defined below) from any and all demands, claims, losses, liabilities, damages, costs, and
expenses whatsoever (including, without limitation, any fines, penalties, reasonable fees and
disbursements of counsel incurred by the Buyer Indemnified Parties in investigating or defending
any such Claim, and other reasonable expenses incurred investigating and defending any of the
foregoing or enforcing this Article 6), sustained or incurred by a Buyer Indemnified Party
resulting from or arising in connection with any inaccuracy in or breach of any of the
representations or warranties of the Company set forth in this Agreement.
(b)
Indemnification Procedure
.
(i) Promptly after a Buyer Indemnified Party obtains knowledge of the commencement of any
third party Action or of the occurrence of any event or the existence of any state of facts which
may become the basis of a third party claim (any such Action or event or state of facts being
hereinafter referred to in this
Section 6.3
as a
Claim
), in respect of which a
Buyer Indemnified Party is entitled to indemnification under this Agreement, the Buyer Indemnified
Party shall notify the Company of such Claim in writing;
provided
,
however
, that
any failure to give notice (A) will not waive any rights of the Buyer Indemnified Parties and (B)
will not relieve the Company of its obligations as provided in this
Section 6.3
except to
the extent that such failure materially prejudices the defense of such Claim. With respect to any
Claim as to which such notice is given, the Company may elect to assume and control the defense or
otherwise settle such Claim;
provided
,
however
, that in the event of any such
election the Buyer Indemnified Party (1) shall be permitted to join the defense and settlement of
such Claim and to employ counsel reasonably satisfactory to it at its expense, and (2) shall
cooperate fully with the Company in the defense and any settlement of such Claim in any manner
reasonably requested by the Company. The Company shall not make any settlement
of any claims without the written consent of the Buyer Indemnified Party, which consent shall
not be unreasonably withheld or delayed.
13
(ii) If the Company elects not to assume the defense of such Claim or, having assumed the
defense and settlement of such Claim, fails reasonably to contest such Claim in good faith, the
Buyer Indemnified Party, without waiving its right to indemnification shall assume the defense and
settlement of such Claim at the Companys expense,
provided
,
however
, that (A) the
Company shall cooperate with the Buyer Indemnified Party in the defense and settlement of such
Claim in any manner reasonably requested by the Buyer Indemnified Party, and (B) the Buyer
Indemnified Party shall not settle such Claim without the written consent of the Company, which
consent shall not be unreasonably withheld or delayed.
(c) Except in the case of fraud, the indemnification rights of the Buyer Indemnified Parties
pursuant to this Agreement shall constitute the sole and exclusive remedy of the Buyer Indemnified
Parties for breaches of the representations or warranties of the Company set forth in this
Agreement.
ARTICLE 7
CLOSING
7.1
Closing
.
(a) The closing of the purchase, sale and issuance of the Purchased Shares pursuant to this
Agreement (the
Closing
) shall take place at the offices of the Company at 11:00 a.m.
Pacific Time on the date of this Agreement.
(b) At the Closing, the Company shall deliver to Buyer (i) certificates representing the
Purchased Shares; (ii) an executed counterpart of the Purchase Agreement and the License Agreement;
(iii) the Shareholders Agreement executed by each shareholder of the Company; and (iv) evidence of
the assignment to the Company by Dr. Ji of all of his right, title and interest in those patents
and patent applications set forth in
Schedule 7.1(b)
.
(c) At the Closing, Buyer shall (i) deliver the Cash Consideration pursuant to
Section
2.2
; and (ii) an executed counterpart of the Purchase Agreement, the License Agreement, and the
Shareholders Agreement.
ARTICLE 8
MISCELLANEOUS
8.1
Notices
. Any notice or other communication under this Agreement shall be in
writing and shall be delivered personally or sent by certified mail, return receipt requested,
postage prepaid, or sent by facsimile or prepaid overnight courier to the parties at the addresses
set forth below their names on the signature pages of this Agreement (or at such other addresses as
shall be specified by the parties by like notice). Such notices, demands, claims and other
communications shall be deemed given when actually received or (a) in the case of delivery by
overnight service with guaranteed next day delivery, the next day or the day designated for
delivery, (b) in the case of facsimile, the date upon which the transmitting party received
confirmation of receipt by facsimile, telephone or otherwise. A copy of any notices delivered to
Buyer shall also be sent to OPKO Health, Inc., 4400 Biscayne Boulevard, Suite 1180, Miami, Florida
33137, Attn: Deputy General Counsel, Fax (305) 575-4140.
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8.2
Entire Agreement
. This Agreement, the License Agreement and the Shareholders
Agreement, together with their schedules and exhibits, contain every obligation and understanding
between the parties relating to the subject matter hereof and thereof, merge all prior discussions,
negotiations and agreements, if any, between them, and none of the parties shall be bound by any
representations, warranties, covenants, or other understandings, other than as expressly provided
or referred to herein or therein.
8.3
Assignment
. This Agreement may not be assigned by any party without the written
consent of the other parties; provided that Buyer may assign this Agreement to an Affiliate,
whether such Affiliate currently exists or is formed in the future. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective successors, heirs,
personal representatives, legal representatives, and permitted assigns.
8.4
Waiver and Amendment
. Any representation, warranty, covenant, term or condition
of this Agreement which may legally be waived, may be waived, or the time of performance thereof
extended, at any time by the party hereto entitled to the benefit thereof, and any term, condition
or covenant hereof may be amended by the parties hereto at any time. Any such waiver, extension or
amendment shall be evidenced by an instrument in writing executed on behalf of the appropriate
party by a person who, to the extent applicable, has been authorized by its board of directors to
execute waivers, extensions or amendments on its behalf. No waiver by any party hereto, whether
express or implied, of its rights under any provision of this Agreement shall constitute a waiver
of such partys rights under such provisions at any other time or a waiver of such partys rights
under any other provision of this Agreement. No failure by any party hereto to take any action
against any breach of this Agreement or default by another party shall constitute a waiver of the
former partys right to enforce any provision of this Agreement or to take action against such
breach or default or any subsequent breach or default by such other party.
8.5
No Third Party Beneficiary
. Nothing expressed or implied in this Agreement is
intended, or shall be construed, to confer upon or give any Person other than the parties hereto
and their respective successors and permitted assigns, any rights or remedies under or by reason of
this Agreement.
8.6
Severability
. In the event that any one or more of the provisions contained in
this Agreement shall be declared invalid, void or unenforceable, the remainder of the provisions of
this Agreement shall remain in full force and effect, and such invalid, void or unenforceable
provision shall be interpreted as closely as possible to the manner in which it was written.
8.7
Expenses
. Each party agrees to pay, without right of reimbursement from the
other party, the costs incurred by it incident to the performance of its obligations under this
Agreement and the consummation of the transactions contemplated hereby, including, without
limitation, costs incident to the preparation of this Agreement, and the fees and
disbursements of counsel, accountants and consultants employed by such party in connection
herewith.
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8.8
Headings
. The section and other headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of any provisions of
this Agreement.
8.9
Counterparts
. This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original but all of which together shall constitute one and the same
instrument.
8.10
Litigation; Prevailing Party
. In the event of any litigation with regard to this
Agreement, the prevailing party shall be entitled to receive from the non prevailing party and the
non prevailing party shall pay upon demand all reasonable fees and expenses of counsel for the
prevailing party.
8.11
Injunctive Relief
. It is possible that remedies at law may be inadequate and,
therefore, the parties hereto shall be entitled to equitable relief including, without limitation,
injunctive relief, specific performance or other equitable remedies in addition to all other
remedies provided hereunder or available to the parties hereto at law or in equity.
8.12
Governing Law
. This Agreement has been entered into and shall be construed and
enforced in accordance with the laws of the State of California without reference to the choice of
law principles thereof.
8.13
Publicity
. The parties agree to cooperate in issuing any press release or other
public announcement concerning this Agreement or the transactions contemplated hereby. Thereafter,
unless otherwise required by applicable Law, including U.S. securities laws, each party shall use
reasonable best efforts to consult with each other before issuing any press release or otherwise
making any public statements or disclosures with respect to this Agreement or the transactions
contemplated hereby.
8.14
Further Assurances
. The parties shall deliver any and all other instruments or
documents required to be delivered pursuant to, or necessary or proper in order to give effect to,
the provisions of this Agreement, including all such instruments of transfer as may be necessary or
desirable to issuance of the Purchased Shares to Buyer and to consummate the transactions
contemplated by this Agreement.
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IN WITNESS WHEREOF, the parties hereto have each executed and delivered this Agreement as of
the day and year first above written.
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Buyer
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OPKO HEALTH, INC.,
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By:
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/s/
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Name:
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Title:
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4400 Biscayne Boulevard
Miami, Florida 33137
USA
Attn: Jane Hsiao, Chief Technical Officer
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Company
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SORRENTO THERAPEUTICS, INC.
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By:
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/s/
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Name:
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Title:
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Address:
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Attn:
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[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
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