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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2009
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 001-33528
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.) |
4400 Biscayne Blvd., FL 33137
(Address of Principal Executive Offices, Zip Code)
Registrants Telephone Number, Including Area Code: (305) 575-4100
Securities registered pursuant to section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on Which Registered |
Common Stock, $.01 par value per share
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NYSE Amex |
Securities registered pursuant to section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the Registrant has submitted electronically and posted on its
corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. 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 þ
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Non-Accelerated filer o
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Smaller Reporting Company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act).
Yes o No þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates
computed by reference to the price at which the common equity was last sold, as of the last
business day of the registrants most recently completed second fiscal quarter was: $196,865,850.
As of November 3, 2010 the registrant had 255,356,326 shares of common stock outstanding.
Documents Incorporated by Reference
Portions of the registrants definitive proxy statement for its 2010 Annual Meeting of
Stockholders are incorporated by reference in Items 10, 11, 12, 13, and 14 of Part III of this
Annual Report on Form 10-K.
Explanatory Note
OPKO Health, Inc. (the Company) is filing this Amendment No. 1 to the Annual Report on
Form 10-K (the Form 10-K/A) to amend its Annual Report on Form 10-K for the year ended December
31, 2009, which was filed with the Securities and Exchange Commission (SEC) on March 17, 2010
(the Original Filing and together with the Form 10-K/A, the Form 10-K) to include restated
financial statements as described in Note 21 to the consolidated financial statements. The Company
has restated its previously issued consolidated financial statements as of and for the year ended
December 31, 2009, to reflect the Companys determination that it did not properly account for the
September 28, 2009 Series D Convertible Preferred Stock (the Preferred Stock) offering. In
connection with the issuance of 1,209,667 shares of Preferred Stock, we issued warrants to purchase
up to an aggregate of 3,024,194 shares of our common stock at an exercise price of $2.48 per share.
The Company should have allocated the $30 million in proceeds received from the issuance of the
Preferred Stock and warrants to those instruments based on their relative fair values, which would
have resulted in a $3.9 million beneficial conversion feature. Because the
Preferred Stock was immediately convertible into common stock, the beneficial conversion feature
should have been immediately recognized as a deemed dividend and should have increased the loss
attributable to common shareholders. In addition, the Company is correcting the classification of the
Preferred Stock from a component of equity to the mezzanine section of the
balance sheet.
The revisions relate to non-operating and non-cash items as of and for the quarter ended
September 30, 2009, and as of and for the year ended December 31, 2009, and did not impact the
Companys consolidated financial statements for periods prior to September 30, 2009. The
restatement does not change the Companys previously reported revenues, operating income or cash
and cash equivalents shown in its consolidated financial statements for the year ended December 31,
2009.
In connection with the determination to restate its consolidated financial statements for the
year ended December 31, 2009, management has concluded that deficiencies relating to the
accounting for a beneficial conversion feature, and the classification of convertible preferred stock rise to the level of a material weakness, and accordingly will include an amended Item
9A in the Form 10-K/A when filed. A material weakness is defined as a significant deficiency,
or combination of significant deficiencies, that results in more than a remote likelihood that a
material misstatement of the annual or interim financial statements will not be prevented or
detected.
This Form 10-K/A amends the following items in the Companys Original Filing to reflect the
change in accounting treatment:
Part II, Item 6. Selected Financial Data
Part II, Item 8. Financial Statements and Supplementary Data
Part II, Item 9A. Controls and Procedures
Part IV, Item 15. Exhibits, Financial Statement Schedules
Other than as described above, none of the other disclosures in the Original Filing have been
amended or updated. Among other things, forward-looking statements made in the Original Filing have
not been revised to reflect events that occurred or facts that became known to the Company after
the filing of the Original Filing, and
such forward-looking statements should be read in their historical context. Accordingly, this
Annual Report on Form 10-K/A should be read in conjunction with the Companys filings with the
Securities and Exchange Commission subsequent to the Original Filing. Quarterly reports on Form
10-Q during the year ended December 31, 2009 affected by the restatements have not been amended and
should not be relied upon.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected historical consolidated statement of operations data for the years
ended December 31, 2009, 2008, and 2007 and for the period from inception (June 23, 2006) through
December 31, 2006 and the consolidated balance sheet data as of December 31, 2009, 2008, 2007, and
2006, below are derived from our audited consolidated financial statements and related notes
thereto. This data should be read in conjunction with our Managements Discussion and Analysis of
Financial Condition and Results of Operation and our consolidated financial statements and the
related notes thereto.
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For the period |
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For the years ended December 31, |
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from inception |
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2009 |
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June 23, 2006 |
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(restated, |
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through |
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Refer to Note |
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December 31, |
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(in thousands, except share and per shares information) |
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21) |
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2008 |
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2007 |
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2006 |
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Statement of operations data |
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Revenue |
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$ |
13,147 |
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$ |
9,440 |
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$ |
847 |
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$ |
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Cost of goods sold |
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9,567 |
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8,559 |
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808 |
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Gross margin |
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3,580 |
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881 |
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39 |
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Operating expenses: |
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Selling, general and administrative |
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13,518 |
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14,790 |
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12,466 |
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375 |
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Research and development |
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12,881 |
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21,562 |
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10,850 |
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508 |
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Write-off of acquired in-process research and
development |
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2,000 |
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1,398 |
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243,761 |
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Other operating expenses; primarily
amortization of
intangible assets |
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3,201 |
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1,694 |
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150 |
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Total operating expenses |
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31,600 |
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39,444 |
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267,227 |
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883 |
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Operating loss |
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(28,020 |
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(38,563 |
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(267,188 |
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(883 |
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Other (expense) income, net |
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(2,034 |
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(1,354 |
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(671 |
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6 |
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Loss before income taxes and investment losses |
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(30,054 |
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(39,917 |
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(267,859 |
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(877 |
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Income tax benefit |
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294 |
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83 |
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83 |
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Net loss before investment losses |
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(29,760 |
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(39,834 |
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(267,776 |
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(877 |
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Loss from investments in investees |
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(353 |
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(629 |
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Net loss |
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(30,113 |
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(39,834 |
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(268,405 |
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(877 |
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Preferred stock dividend |
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(4,718 |
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(217 |
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(217 |
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Net loss attributable to common shareholders |
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$ |
(34,831 |
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$ |
(40,051 |
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$ |
(268,622 |
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$ |
(877 |
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Loss per share, basic and diluted |
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$ |
(0.15 |
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$ |
(0.21 |
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$ |
(2.09 |
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(0.01 |
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Weighted average number of common shares
outstanding basic and diluted |
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233,191,617 |
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187,713,041 |
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128,772,080 |
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58,733,556 |
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Balance sheet data |
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Total assets |
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$ |
87,430 |
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$ |
21,764 |
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$ |
39,568 |
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$ |
116 |
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Working capital |
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$ |
50,795 |
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$ |
5,754 |
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$ |
19,489 |
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$ |
21 |
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Long-term line of credit with related party, notes
payable, and capital lease obligations, net |
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$ |
11,932 |
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$ |
11,867 |
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$ |
14,235 |
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$ |
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Series D
Preferred Stock |
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$ |
26,128 |
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$ |
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$ |
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$ |
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Shareholders equity |
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$ |
31,599 |
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$ |
359 |
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$ |
16,784 |
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$ |
21 |
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4
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
5
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of OPKO Health, Inc.
We have audited the accompanying consolidated balance sheets of OPKO Health, Inc. and subsidiaries
as of December 31, 2009 and 2008, and the related consolidated statements of operations,
shareholders equity, and cash flows for each of the three years in the period ended December 31,
2009. These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of OPKO Health, Inc. and subsidiaries at December 31,
2009 and 2008, and the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 2009, in conformity with U.S. generally accepted
accounting principles.
As discussed in Note 21, the consolidated financial statements have been restated to correct the
accounting for a beneficial conversion feature and the classification of convertible preferred
stock.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), OPKO Health, Inc. and subsidiaries internal control over financial
reporting as of December 31, 2009, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated March 17, 2010, except for the effects of the material weakness described in the
seventh paragraph of that report, as to which the date is November 10, 2010, expressed an adverse
opinion thereon.
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/s/ Ernst & Young LLP |
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Certified Public Accountants |
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Miami, Florida
March 17, 2010, except for the effects
of the restatement described in Note 21,
as to which the date is November 10, 2010
6
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of OPKO Health, Inc.
We have audited OPKO Health, Inc. and subsidiaries internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal ControlIntegrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). OPKO
Health, Inc. and subsidiaries management is responsible for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over
financial reporting included in the accompanying Managements Annual Report on Internal Control
Over Financial Reporting. Our responsibility is to express an opinion on the companys internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions or that
the degree of compliance with the policies or procedures may deteriorate.
As indicated in the accompanying Managements Annual Report on Internal Control Over Financial
Reporting, managements assessment of and conclusion on the effectiveness of internal control over
financial reporting did not include the internal controls of Pharma Genexx S.A., which is included
in the December 31, 2009 consolidated financial statements of OPKO Health, Inc. and subsidiaries
and constituted $28,024,000 and $17,145,000 of total and net assets, respectively, as of
December 31, 2009 and $4,418,000 and $176,000 of revenues and net loss, respectively, for the year
then ended. Our audit of internal control over financial reporting of OPKO Health, Inc. and
subsidiaries also did not include an evaluation of the internal control over financial reporting of
Pharma Genexx S.A.
In our report dated March 17, 2010, we expressed an unqualified opinion that the Company
maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2009, based on the COSO criteria. Management has subsequently determined that a
deficiency in controls relating to the accounting for a beneficial conversion feature and the
classification of convertible preferred stock existed as of the previous assessment date, and has
further concluded that such deficiency represented a material weakness as of December 31, 2009. As
a result, management has revised its assessment, as presented in the accompanying Managements
Report on Internal Control over Financial Reporting, to conclude that the Companys internal
control over financial reporting was not effective as of December 31, 2009. Accordingly, our
present opinion on the effectiveness of the Companys internal control over financial reporting as
of December 31, 2009, as expressed herein, is different from that expressed in our previous report.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of the companys annual or interim financial
statements will not be prevented or detected on a
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timely basis. The following material weakness has been identified and included in managements
assessment. In its assessment as of December 31, 2009, management identified a material weakness
in the Companys accounting for a beneficial conversion feature and the classification of
convertible preferred stock and, as a result, concluded the Companys previously reported preferred
stock dividend, net loss attributable to common shareholders and loss per share, basic and diluted,
had been understated and its convertible preferred stock should have been reported outside of
shareholders equity. The insufficient controls over the recording of a beneficial conversion
feature and the classification of preferred stock resulted in the restatement of the Companys
consolidated financial statements as of and for the year ended December 31, 2009.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of OPKO Health, Inc. and subsidiaries as of December 31, 2009 and
2008, and the related consolidated statements of operations, shareholders equity and cash flows for each
of the three years in the period ended December 31, 2009.
This material
weakness was considered in determining the nature, timing, and extent of audit tests applied in our
audit of the 2009 consolidated financial statements, and this report does not affect our report
dated March 17, 2010, except for Note 21, as to which the date is November 10, 2010, on those
consolidated financial statements (as restated).
In our opinion, because of the effect of the material weakness described above on the achievement
of the objectives of the control criteria, OPKO Health, Inc. and subsidiaries has not maintained effective internal
control over financial reporting as of December 31, 2009, based on the COSO criteria.
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/s/ Ernst & Young LLP
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Certified Public Accountants |
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Miami, Florida
March 17, 2010, except for
the effects of the material weakness described in the
seventh paragraph above, as to which the date is November 10, 2010
8
OPKO Health, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
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December 31, |
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2009 |
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(restated, Refer to |
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Note 21) |
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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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$ |
42,658 |
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$ |
6,678 |
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Accounts receivable, net |
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8,767 |
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1,005 |
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Inventory, net |
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10,520 |
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4,063 |
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Current tax asset |
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109 |
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Prepaid expenses and other current assets |
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1,764 |
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1,720 |
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Total current assets |
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63,818 |
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13,466 |
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Property and equipment, net |
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593 |
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659 |
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Intangible assets, net |
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12,722 |
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6,336 |
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Goodwill |
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5,408 |
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1,097 |
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Investments |
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4,447 |
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Deferred tax assets |
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427 |
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Other assets |
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15 |
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206 |
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Total assets |
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$ |
87,430 |
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$ |
21,764 |
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LIABILITIES, SERIES D PREFERRED STOCK AND SHAREHOLDERS EQUITY |
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Current liabilities |
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Accounts payable |
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$ |
4,784 |
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$ |
2,221 |
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Accrued expenses |
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3,918 |
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5,394 |
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Current portion of lines of credit and notes payable |
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4,321 |
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97 |
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Total current liabilities |
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13,023 |
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7,712 |
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Long-term liabilities interest payable to related party |
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3,409 |
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1,826 |
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Deferred tax liabilities |
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1,339 |
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Line of credit with related party, net unamortized discount of $68 and
$133, respectively |
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11,932 |
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11,867 |
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Total liabilities |
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29,703 |
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21,405 |
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Commitments and contingencies |
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Series D Preferred Stock $0.01 par value, 2,000,000 shares authorized;
1,209,677 and 0 shares issued and outstanding (liquidation value of
$30,613 and $0) at December 31, 2009 and 2008, respectively |
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26,128 |
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|
|
Shareholders equity |
|
|
|
|
|
|
|
|
Series A Preferred stock $0.01 par value, 4,000,000 shares authorized;
1,025,934 and 953,756 shares issued and outstanding (liquidation value of
$2,564 and $2,384) at December 31, 2009 and 2008, respectively |
|
|
10 |
|
|
|
10 |
|
Series C Preferred Stock $0.01 par value, 500,000 shares authorized;
No shares issued or outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock $0.01 par value, 500,000,000 shares authorized;
253,762,552 and 199,020,379 shares issued and outstanding at
December 31, 2009 and 2008, respectively |
|
|
2,538 |
|
|
|
1,991 |
|
Treasury stock (45,154 and 18,000 shares at December 31, 2009
and 2008, respectively) |
|
|
(61 |
) |
|
|
(24 |
) |
Additional paid-in capital |
|
|
367,028 |
|
|
|
307,498 |
|
Accumulated other comprehensive income |
|
|
1,313 |
|
|
|
|
|
Accumulated deficit |
|
|
(339,229 |
) |
|
|
(309,116 |
) |
|
|
|
|
|
|
|
Total shareholders equity |
|
|
31,599 |
|
|
|
359 |
|
|
|
|
|
|
|
|
Total liabilities, Series D Preferred Stock and shareholders equity |
|
$ |
87,430 |
|
|
$ |
21,764 |
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these
statements.
9
OPKO Health, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
(restated, Refer to |
|
|
|
|
|
|
|
|
|
Note 21) |
|
|
2008 |
|
|
2007 |
|
Revenue |
|
$ |
13,147 |
|
|
$ |
9,440 |
|
|
$ |
847 |
|
Cost of goods sold, excluding amortization
of intangible assets |
|
|
9,567 |
|
|
|
8,559 |
|
|
|
808 |
|
|
|
|
|
|
|
|
|
|
|
Gross margin, excluding amortization of
intangible assets |
|
|
3,580 |
|
|
|
881 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
13,518 |
|
|
|
14,790 |
|
|
|
12,466 |
|
Research and development |
|
|
12,881 |
|
|
|
21,562 |
|
|
|
10,850 |
|
Write-off of acquired in-process research and
development |
|
|
2,000 |
|
|
|
1,398 |
|
|
|
243,761 |
|
Other operating expenses, principally
amortization of intangible assets |
|
|
3,201 |
|
|
|
1,694 |
|
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
31,600 |
|
|
|
39,444 |
|
|
|
267,227 |
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(28,020 |
) |
|
|
(38,563 |
) |
|
|
(267,188 |
) |
Other expense, net |
|
|
(2,034 |
) |
|
|
(1,354 |
) |
|
|
(671 |
) |
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and investment losses |
|
|
(30,054 |
) |
|
|
(39,917 |
) |
|
|
(267,859 |
) |
Income tax benefit |
|
|
294 |
|
|
|
83 |
|
|
|
83 |
|
|
|
|
|
|
|
|
|
|
|
Loss before investment losses |
|
|
(29,760 |
) |
|
|
(39,834 |
) |
|
|
(267,776 |
) |
Loss from investments in investees |
|
|
(353 |
) |
|
|
|
|
|
|
(629 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(30,113 |
) |
|
|
(39,834 |
) |
|
|
(268,405 |
) |
Preferred stock dividend |
|
|
(4,718 |
) |
|
|
(217 |
) |
|
|
(217 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders |
|
$ |
(34,831 |
) |
|
$ |
(40,051 |
) |
|
$ |
(268,622 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share, basic and diluted |
|
$ |
(0.15 |
) |
|
$ |
(0.21 |
) |
|
$ |
(2.09 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding, basic and diluted |
|
|
233,191,617 |
|
|
|
187,713,041 |
|
|
|
128,772,080 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these
statements.
10
OPKO Health, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(in thousands, except share data)
For the years ended December 31, 2007, 2008 and 2009 (restated, refer to Note 21)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Preferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
Stock |
|
|
Series C Preferred Stock |
|
|
Common Stock |
|
|
Treasury |
|
|
Paid-In |
|
|
Accumulated |
|
|
|
|
|
|
Shares |
|
|
Dollars |
|
|
Shares |
|
|
Dollars |
|
|
Shares |
|
|
Dollars |
|
|
Shares |
|
|
Dollars |
|
|
Capital |
|
|
Deficit |
|
|
Total |
|
Balance at December 31, 2006 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
61,775,002 |
|
|
$ |
618 |
|
|
|
|
|
|
$ |
|
|
|
$ |
280 |
|
|
$ |
(877 |
) |
|
$ |
21 |
|
Equity based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,373 |
|
|
|
|
|
|
|
7,373 |
|
Issuance of equity securities for
net monetary assets at $0.42 per
share |
|
|
1,081,750 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
36,607,023 |
|
|
|
366 |
|
|
|
|
|
|
|
|
|
|
|
15,626 |
|
|
|
|
|
|
|
16,003 |
|
Issuance of equity securities to
acquire Acuity Pharmaceuticals,
Inc., at $2.65 per share |
|
|
|
|
|
|
|
|
|
|
457,603 |
|
|
|
5 |
|
|
|
14,778,556 |
|
|
|
148 |
|
|
|
|
|
|
|
|
|
|
|
234,470 |
|
|
|
|
|
|
|
234,623 |
|
Issuance of equity securities to
acquire Ophthalmic
Technologies, Inc. at $2.57 per
share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,682,928 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
6,905 |
|
|
|
|
|
|
|
6,932 |
|
Issuance of equity securities to
acquire software at $3.79 per
share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114 |
|
|
|
|
|
|
|
114 |
|
Issuance of common stock in private
placement to related party at
1.84 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,869,565 |
|
|
|
109 |
|
|
|
|
|
|
|
|
|
|
|
19,891 |
|
|
|
|
|
|
|
20,000 |
|
Issuance of common stock upon
automatic conversion of Series C
preferred stock |
|
|
|
|
|
|
|
|
|
|
(457,603 |
) |
|
|
(5 |
) |
|
|
45,760,300 |
|
|
|
457 |
|
|
|
|
|
|
|
|
|
|
|
(452 |
) |
|
|
|
|
|
|
|
|
Conversion of Series A preferred
stock |
|
|
(213,751 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
213,751 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of common stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
641,972 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
117 |
|
|
|
|
|
|
|
123 |
|
Exercise of common stock warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,985,511 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
(50 |
) |
|
|
|
|
|
|
|
|
Preferred stock dividend |
|
|
86,800 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
Net loss for the year ended
December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(268,405 |
) |
|
|
(268,405 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
|
954,799 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
178,344,608 |
|
|
|
1,783 |
|
|
|
|
|
|
|
|
|
|
|
284,273 |
|
|
|
(269,282 |
) |
|
|
16,784 |
|
Equity-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,730 |
|
|
|
|
|
|
|
6,730 |
|
Issuance of equity securities to
acquire Vidus Ocular, Inc. at
$1.65 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
658,080 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
1,312 |
|
|
|
|
|
|
|
1,319 |
|
Correction of equity securities to
Acuity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,408 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
Exercise of common stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,187,149 |
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
154 |
|
|
|
|
|
|
|
206 |
|
Exercise of common warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,171,899 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
165 |
|
|
|
|
|
|
|
177 |
|
Issuance of common stock in private
placement to related party at 1.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,513,514 |
|
|
|
135 |
|
|
|
|
|
|
|
|
|
|
|
14,865 |
|
|
|
|
|
|
|
15,000 |
|
Series A preferred stock dividend |
|
|
86,678 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Conversion of Series A preferred
stock |
|
|
(87,721 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
87,721 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other disposition of assets for stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,000 |
) |
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
(24 |
) |
Net loss for the year ended
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,834 |
) |
|
|
(39,834 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Preferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
Stock |
|
|
Series C Preferred Stock |
|
|
Common Stock |
|
|
Treasury |
|
|
Paid-In |
|
|
Accumulated |
|
|
|
|
|
|
Shares |
|
|
Dollars |
|
|
Shares |
|
|
Dollars |
|
|
Shares |
|
|
Dollars |
|
|
Shares |
|
|
Dollars |
|
|
Capital |
|
|
Deficit |
|
|
Total |
|
Balance at December 31, 2008 |
|
|
953,756 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
199,020,379 |
|
|
|
1,991 |
|
|
|
(18,000 |
) |
|
|
(24 |
) |
|
|
307,498 |
|
|
|
(309,116 |
) |
|
|
359 |
|
Equity-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,498 |
|
|
|
|
|
|
|
4,498 |
|
Exercise of common stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,984,945 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
664 |
|
|
|
|
|
|
|
694 |
|
Exercise of common warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
706,164 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
24 |
|
Issuance of common stock in
private placement with related
parties at $1.00 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000,000 |
|
|
|
200 |
|
|
|
|
|
|
|
|
|
|
|
19,800 |
|
|
|
|
|
|
|
20,000 |
|
Issuance of common stock in private
placement, including related
parties, at $1.00 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,000,000 |
|
|
|
310 |
|
|
|
|
|
|
|
|
|
|
|
30,680 |
|
|
|
|
|
|
|
30,990 |
|
Relative fair value of warrants
issued
in connection with issuance of 8%
Series D preferred stock (restated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,872 |
|
|
|
|
|
|
|
3,872 |
|
Series A preferred stock dividend |
|
|
93,242 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
Conversion of Series A preferred
stock |
|
|
(21,064 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
21,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
Restricted stock grant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of shares at $3.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,154 |
) |
|
|
(37 |
) |
|
|
|
|
|
|
|
|
|
|
(37 |
) |
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year ended
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,113 |
) |
|
|
(30,113 |
) |
Cumulative translation adjustment
net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,313 |
|
|
|
1,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,800 |
) |
|
|
(28,800 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
(restated) |
|
|
1,025,934 |
|
|
$ |
10 |
|
|
|
|
|
|
$ |
|
|
|
|
253,762,552 |
|
|
$ |
2,538 |
|
|
|
(45,154 |
) |
|
$ |
(61 |
) |
|
$ |
367,028 |
|
|
$ |
(337,916 |
) |
|
$ |
31,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these
statements.
12
OPKO Health, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended |
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(30,113 |
) |
|
$ |
(39,834 |
) |
|
$ |
(268,405 |
) |
Adjustments to reconcile net loss to net cash used in
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
2,357 |
|
|
|
1,823 |
|
|
|
184 |
|
Impairment of goodwill |
|
|
1,097 |
|
|
|
|
|
|
|
|
|
Write-off of acquired in-process research and development |
|
|
2,000 |
|
|
|
1,398 |
|
|
|
243,761 |
|
Accretion of debt discount related to notes payable |
|
|
123 |
|
|
|
190 |
|
|
|
279 |
|
Losses from investments in investees |
|
|
353 |
|
|
|
|
|
|
|
629 |
|
Equity based compensation employees and non-employees |
|
|
4,498 |
|
|
|
6,730 |
|
|
|
7,373 |
|
Provision for bad debts |
|
|
73 |
|
|
|
204 |
|
|
|
|
|
Provision for inventory obsolescence |
|
|
279 |
|
|
|
255 |
|
|
|
|
|
Foreign exchange |
|
|
122 |
|
|
|
|
|
|
|
|
|
Loss on disposal of assets |
|
|
|
|
|
|
148 |
|
|
|
|
|
Changes in: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(1,271 |
) |
|
|
590 |
|
|
|
(554 |
) |
Inventory |
|
|
(928 |
) |
|
|
(2,104 |
) |
|
|
(317 |
) |
Prepaid expenses and other current assets |
|
|
431 |
|
|
|
25 |
|
|
|
(789 |
) |
Other Assets |
|
|
(276 |
) |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
(1,019 |
) |
|
|
(1,225 |
) |
|
|
(607 |
) |
Accrued expenses |
|
|
(1,062 |
) |
|
|
2,506 |
|
|
|
1,497 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(23,336 |
) |
|
|
(29,294 |
) |
|
|
(16,949 |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Investments in investees |
|
|
(4,800 |
) |
|
|
|
|
|
|
(5,000 |
) |
Acquisition of businesses, net of cash |
|
|
(15,632 |
) |
|
|
48 |
|
|
|
2,751 |
|
Acquisition of rolapitant |
|
|
(2,000 |
) |
|
|
|
|
|
|
|
|
Purchase of marketable securities |
|
|
(9,997 |
) |
|
|
|
|
|
|
|
|
Maturities of marketable securities |
|
|
9,997 |
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(172 |
) |
|
|
(378 |
) |
|
|
(489 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(22,604 |
) |
|
|
(330 |
) |
|
|
(2,738 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for cash to related party |
|
|
30,990 |
|
|
|
15,000 |
|
|
|
20,000 |
|
Issuance of common stock |
|
|
20,000 |
|
|
|
|
|
|
|
16,284 |
|
Issuance of Series D preferred stock and warrants,
including related parties |
|
|
30,000 |
|
|
|
|
|
|
|
|
|
Borrowings under line of credit with related party |
|
|
|
|
|
|
|
|
|
|
8,000 |
|
Proceeds from bridge loan with related party |
|
|
3,000 |
|
|
|
|
|
|
|
|
|
Repayment of bridge loan with related party |
|
|
(3,000 |
) |
|
|
|
|
|
|
|
|
Insurance financing and borrowings on lines of credit |
|
|
529 |
|
|
|
371 |
|
|
|
152 |
|
Proceeds from the exercise of stock options and warrants |
|
|
718 |
|
|
|
383 |
|
|
|
123 |
|
Repayments of notes payable and capital lease obligations |
|
|
(317 |
) |
|
|
(2,825 |
) |
|
|
(1,615 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
81,920 |
|
|
|
12,929 |
|
|
|
42,944 |
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
35,980 |
|
|
|
(16,695 |
) |
|
|
23,257 |
|
Cash and cash equivalents at beginning of year |
|
|
6,678 |
|
|
|
23,373 |
|
|
|
116 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
42,658 |
|
|
$ |
6,678 |
|
|
$ |
23,373 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these
statements.
13
OPKO Health, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Business and Organization
We are a specialty healthcare company involved in the discovery, development, and
commercialization of pharmaceutical products, medical devices, vaccines, diagnostic technologies,
and imaging systems. Initially focused on the treatment and management of ophthalmic diseases, we
have since expanded into other areas of major unmet medical need. We are a Delaware corporation,
headquartered in Miami, Florida.
On March 27, 2007, pursuant to the terms of a Merger Agreement and Plan of Reorganization,
Froptix Corporation (Froptix), a development stage research and development company, controlled
by The Frost Group, LLC (the Frost Group) and Acuity Pharmaceuticals, Inc. (Acuity), a
development stage research and development company, and eXegenics were part of a three-way merger
(the Merger). Per that agreement, eXegenics issued new capital stock to acquire all of the
issued and outstanding capital stock of Froptix and Acuity. The Frost Group members include the
Frost Gamma Investment Trust (the Gamma Trust) of which Phillip Frost, M.D., our Chairman and
CEO, is the sole trustee, Jane Hsiao, the Companys Vice Chairman and Chief Technical Officer,
Steven D. Rubin, the Companys Executive Vice President Administration and a director, and Rao
Uppaluri, the Companys Chief Financial Officer.
On June 8, 2007, we changed our name to OPKO Health, Inc. (OPKO or the Company) from
eXegenics, Inc. (eXegenics). Through March 26, 2007, eXegenics was a public shell company whose
assets consisted of cash and nominal other assets.
Note 2 Acquisitions and Investments
On October 12, 2009, we entered into an asset purchase agreement (the Schering Agreement)
with Schering-Plough Corporation (Schering) to acquire rolapitant, our lead pharmaceutical
product candidate, and other assets relating to Scherings neurokinin-1 (NK-1) receptor
antagonist program. Under the terms of the Schering Agreement, we paid Schering $2 million in cash
upon closing and agreed to pay up to an additional $27 million upon certain development milestones.
Rolapitant, the lead product in the NK-1 program, successfully completed Phase II clinical testing
for prevention of nausea and vomiting related to cancer chemotherapy and surgery, and other
indications. Phase I clinical testing has also been completed for a second compound in the same
class. Development of rolapitant and the other assets had been stopped at the time of our
acquisition and there were no ongoing clinical trials. None of the assets acquired have
alternative future uses, nor have they reached a stage of technological feasibility.
The table below reflects the estimated fair value of the net assets acquired at the date of
acquisition:
|
|
|
|
|
(in thousands) |
|
|
|
|
In-process research and development |
|
$ |
2,000 |
|
On October 1, 2009, we entered into a definitive agreement to acquire Pharma Genexx S.A.
(Pharma Genexx), a privately-owned Chilean company engaged in the representation, importation,
commercialization and distribution of pharmaceutical products, over-the-counter products and
medical devices for government, private and institutional markets in Chile. Pursuant to a stock
purchase agreement with Pharma Genexx and its shareholders, Farmacias Ahumada S.A., FASA Chile
S.A., and Laboratorios Volta S.A., we acquired all of the outstanding stock of Pharma Genexx in
exchange for $16 million in cash. A portion of the proceeds will remain in escrow for a period of
time to satisfy indemnification claims. The transaction closed on October 7, 2009.
14
The following table summarizes the estimated fair value of the net assets acquired and
liabilities assumed in the acquisition of Pharma Genexx at the date of acquisition:
|
|
|
|
|
(in thousands) |
|
|
|
|
Current assets (including cash of $368) |
|
$ |
12,208 |
|
Intangible assets |
|
|
7,826 |
|
Goodwill |
|
|
4,983 |
|
Other assets |
|
|
20 |
|
Accounts payable and accrued expenses |
|
|
(9,037 |
) |
|
|
|
|
Total purchase price |
|
$ |
16,000 |
|
|
|
|
|
Effective September 21, 2009, the Company entered into an agreement pursuant to which the
Company invested $2.5 million in cash in Cocrystal Discovery, Inc., a privately held
biopharmaceutical company (Cocrystal) in exchange for 1,701,723 shares of Cocrystals Convertible
Series A Preferred Stock. A group of investors led by the Frost Group (the Frost Investors),
previously invested $5 million in Cocrystal, and agreed to invest an additional $5 million payable
in two equal installments in September 2009 and March 2010. As a result of an amendment to the
Frost Investor agreements dated June 9, 2009, OPKO, rather than the Frost Investors, made the first
installment investment ($2.5 million) on September 21, 2009. Following the first investment, the
members of the Frost Group owned a total of 2,948,645 shares of Cocrystal, representing 33.65% of
Cocrystals voting stock on an as converted basis and the Gamma Trust owned a majority of those
shares, owning 2,768,257 shares. On December 31, 2009 we owned approximately 20% of Cocrystals
outstanding stock. Following the final installment investment of $2.5 million in Cocrystal by the
Frost Investors in or around March 2010, the Company will own approximately 16% of Cocrystal and
members of the Frost Group will own approximately 4,422,967 shares, representing 42% of Cocrystals
voting stock on an as converted basis, including 4,152,386 held by the Gamma Trust. Dr. Frost, Mr.
Rubin, and Dr. Hsiao currently serve on the Board of Directors of Cocrystal and represent 50% of
its board.
We have determined that Cocrystal has insufficient resources to carry out its principal
activities without additional subordinated financial support. As such, Cocrystal meets the
definition of a variable interest entity (VIE). In order to determine the primary beneficiary of
the VIE, we evaluated the related party group to identify who had the most significant power to
control Cocrystal. The Gamma Trust holds in excess of 32% of the voting stock of Cocrystal on a
fully diluted basis as of the date of our investment and after the March 2010 investment by the
Frost Investors, will hold in excess of 42% of the voting stock. In addition, the Gamma Trust
influenced the redesign of Cocrystal and can significantly influence the success of Cocrystal
through its board representation and voting power. As such, we have determined that the Gamma
Trust is the primary beneficiary within the related party group. As a result of our determination
that we are not the primary beneficiary, we have accounted for our investment in Cocrystal under
the equity method.
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. On September 21, 2009,
QuikByte Software, Inc., a Colorado corporation (Quikbyte), acquired Sorrento pursuant to a
Merger Agreement dated July 14, 2009 (the Sorrento Merger) by and among QuikByte, Sorrento, and
certain other parties named therein. At the effective time of the Sorrento Merger, all of the
issued and outstanding shares of Sorrento common stock (the Sorrento Shares) were converted into
the right to receive shares of QuikByte common stock, par value $0.0001 per share (the QuikByte
Common Stock).
On September 18, 2009, QuikByte entered into a Stock Purchase Agreement (the QuikByte Stock
Purchase Agreement) with investors (the QuikByte Investors) pursuant to which QuikByte received
an aggregate investment of $2.0 million in exchange for shares of QuikByte Common Stock (the
QuikByte Financing). The QuikByte Investors included Dr. Frost and other members of OPKO
management. Upon completion of the Sorrento Merger, QuickByte changed its name to Sorrento
Therapeutics, Inc. After giving effect to the Sorrento Financing, OPKO owned approximately
53,113,732 shares of Sorrento Common Stock, or approximately 24% of Sorrentos total outstanding
common stock at December 31, 2009. The closing stock price for Sorrentos common stock, a thinly
traded stock, as quoted on the over-the-counter markets was $1.92 per share on December 31, 2009.
On May 6, 2008, we completed the acquisition of Vidus Ocular, Inc. (Vidus), a privately-held
company that is developing Aquashunt, a shunt to be used in the treatment of glaucoma. Pursuant
to a Securities Purchase Agreement with Vidus, each of its stockholders, and the holders of
convertible promissory notes issued by Vidus,
15
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. A
portion of the Closing Shares and the Milestone Shares remained in escrow for a period of one year
to satisfy indemnification claims.
We accounted for the Vidus acquisition as an asset acquisition. We valued the common stock
issued to Vidus stockholders at the average closing price on the date of the acquisition and the
two days prior to the transaction, or $1.65 per share. In addition, we valued the options to
acquire our common stock that were issued to the founders of Vidus using the Black-Scholes-Merton
pricing model and recorded the value of those options as part of the purchase price of Vidus, or
$1.17 per common stock option. All other contingent consideration will be valued and added to the
purchase price if the milestones occur.
The table below reflects the estimated fair value of the net assets acquired at the date of
acquisition:
|
|
|
|
|
(in thousands) |
|
|
|
|
Current assets (cash of $48) |
|
$ |
48 |
|
In-process research and development |
|
|
1,398 |
|
Accounts payable and accrued expenses |
|
|
(127 |
) |
|
|
|
|
Total purchase price |
|
$ |
1,319 |
|
|
|
|
|
The portion of the purchase price allocated to in-process research and development of $1.4
million was immediately expensed.
On April 13, 2007, we invested $5 million in exchange for common shares of Ophthalmic
Technologies, Inc. (OTI), equaling one-third of the outstanding equity of OTI. On November 28,
2007, we acquired the remaining outstanding shares of OTI and issued approximately 2.7 million
shares of our common stock based upon a purchase price of $10.0 million and a value of $3.55 per
share. OTI provides diagnostic and imaging systems to eye care professionals worldwide through its
distributor network which covers over 50 countries. The minority interest results in OTI from
April 13, 2007 through our acquisition of OTI on November 28, 2007 have been included in our
financial statements.
The following table summarizes the estimated fair value of the net assets acquired and
liabilities assumed in the acquisition OTI at the date of acquisition:
|
|
|
|
|
(in thousands) |
|
|
|
|
Current assets (including cash of $1,616) |
|
$ |
4,682 |
|
Intangible assets |
|
|
8,087 |
|
Other assets |
|
|
602 |
|
Goodwill |
|
|
1,732 |
|
Accounts payable and accrued expenses |
|
|
(3,374 |
) |
|
|
|
|
Total purchase price |
|
$ |
11,729 |
|
|
|
|
|
On March 27, 2007, we acquired Acuity in a stock-for-stock transaction. We valued our common
stock issued to Acuity shareholders at the average closing price of the common stock on the date of
acquisition and the two days prior to the transaction. Acuitys primary focus prior to our
acquisition had been on the development of its lead compound, bevasiranib, for the treatment of Wet
Age-Related Macular Degeneration, or Wet AMD.
16
The following table summarizes the estimated fair value of the net assets acquired and
liabilities assumed in the acquisition of Acuity at the date of acquisition:
|
|
|
|
|
(in thousands) |
|
|
|
|
Current assets (including cash of $1,135) |
|
$ |
1,350 |
|
Property and equipment |
|
|
85 |
|
In-process research and development |
|
|
243,761 |
|
Accounts payable and accrued expenses |
|
|
(3,154 |
) |
Line of credit and term loan |
|
|
(7,419 |
) |
|
|
|
|
Total purchase price |
|
$ |
234,623 |
|
|
|
|
|
The portion of the purchase price allocated to in-process research and development of $243.8
million relates to the acquisition of Acuity and was immediately expensed. The majority of our
research and development expenses have been focused on our most advanced compound, bevasiranib. In
March 2009, we terminated the Phase III clinical trial of bevasiranib. Acuitys second compound,
ACU-NCT-001, did not reach technological feasibility during 2008 and has since been abandoned, and
its other projects are still in various early stages of development.
The purchase price of Acuity includes $1.5 million of costs incurred by us to acquire Acuity,
including $1.3 million of costs associated with the issuance of warrants to the Frost Group as a
result of the increase of the credit line with Acuity.
The following table summarizes that fair value assigned to our major intangible assets
classes:
|
|
|
|
|
|
|
|
|
|
|
Fair value |
|
|
Weighted average |
|
(in thousands) |
|
assigned |
|
|
amortization period |
|
Customer relationships |
|
$ |
7,259 |
|
|
3 years |
Technology |
|
|
4,597 |
|
|
10 years |
Product registrations |
|
|
3,829 |
|
|
10 years |
Covenants not to compete |
|
|
317 |
|
|
3 years |
Tradename |
|
|
578 |
|
|
3 years |
Other |
|
|
7 |
|
|
Indefinite |
|
|
|
|
|
|
|
|
Total amortizing intangible assets |
|
|
16,587 |
|
|
|
|
|
Goodwill |
|
|
5,408 |
|
|
Indefinite |
|
|
|
|
|
|
|
|
Total intangible assets acquired |
|
$ |
21,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
All of the intangible assets acquired and goodwill acquired relate to our acquisitions of
Pharma Genexx and OTI. The weighted average period prior to the next renewal or extension for our
product registrations is 2.7 years. We do not anticipate capitalizing the cost of product
registration renewals, rather we expect to expense, as incurred costs related to the activities
required to renew our product registrations. We do not anticipate goodwill to be tax deductible
for income tax purposes.
The following table includes the pro forma results for the years ended December 31, 2009 and
2008 of the combined companies as though the acquisitions of Pharma Genexx and Vidus had been
completed as of the beginning of each period, respectively, and for the 2008 period includes $0.5
million related to Vidus.
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
(in thousands, except per share amounts) |
|
2009 |
|
|
2008 |
|
Revenue |
|
$ |
25,615 |
|
|
$ |
20,365 |
|
Net loss |
|
$ |
(28,443 |
) |
|
$ |
(39,713 |
) |
Basic and diluted loss per share |
|
$ |
(0.12 |
) |
|
$ |
(0.21 |
) |
This unaudited pro forma financial information is presented for informational purposes only.
The unaudited pro forma financial information may not necessarily reflect our future results of
operations or what the results of operations would have been had we owned and operated each company
as of the beginning of the periods presented.
Note 3 Summary of Significant Accounting Policies
Basis of Presentation. The accompanying consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States and with the
instructions to Form 10-K and of
17
Regulation S-X. The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany transactions and balances have been
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.
Cash and Cash Equivalents. We consider all non-restrictive, highly liquid short-term
investments purchased with a maturity of three months or less on the date of purchase to be cash
equivalents.
Inventories. Inventories are valued at the lower of cost or market (net realizable value).
Cost is determined by the first-in, first-out method.
Property and Equipment. Property and equipment are recorded at cost. Depreciation is
provided using the straight-line method over the estimated useful lives of the assets, generally
five to ten years and includes amortization expense for assets capitalized under capital leases.
The estimated useful life by asset class are as follows: software 3 years, machinery and
equipment 5-8 years, furniture and fixtures 5-10 years and leasehold improvements the
lesser of their useful life or the lease term. Expenditures for repairs and maintenance are
charged to expense as incurred, while betterments reduce accumulated depreciation. Depreciation
expense was $0.2 million, $0.1 million, and $35 thousand for the years ended December 31, 2009,
2008, and 2007, respectively.
Goodwill and Intangible Assets. Goodwill represents the difference between the purchase price
and the estimated fair value of the net assets acquired when accounted for by the purchase method
of accounting and arose from our acquisitions of OTI and Pharma Genexx. Refer to Note 2. We do
not amortize goodwill, however, we perform an annual impairment test of goodwill during the fourth
quarter. During the fourth quarter of 2009, we performed an impairment test and determined the
goodwill related to our instrumentation business was impaired and written down to $0. We evaluate
our goodwill for impairment annually and whenever events and changes in circumstances suggest that
the carrying amount may not be recoverable.
We amortize intangible assets with definite lives on a straight-line basis over their
estimated useful lives, ranging from 3 to 10 years, and review for impairment at least annually, or
sooner when events or changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. We use the straight-line method of amortization as there is no reliably
determinable pattern in which the economic benefits of our intangible assets are consumed or
otherwise used up. Amortization expense was $3.2 million and $1.7 million for the years ended
December 31, 2009 and 2008, respectively. Included in the amortization expense for the year ended
December 31, 2009, is $1.1 million related to the impairment of the goodwill related to our
instrumentation segment. In addition, the 2009 year included amortization related to the
acquisition of Pharma Genexx. Amortization expense for the years ending December 31, 2010, 2011,
2012, 2013, and 2014 is expected to be $3.3 million, $2.2 million, $1.8 million, $0.8 million, and
$0.8 million, respectively.
Impairment of Long-Lived Assets. Long-lived assets, such as property and equipment, are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash
flows expected to be generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, then an impairment charge is recognized by the amount by which the
carrying amount of the asset exceeds the fair value of the asset.
Fair Value Measurements. The carrying amounts of our cash and cash equivalents, accounts
receivable, accounts payable, and accrued expenses approximate their fair value due to the
short-term maturities of these instruments. Investments are considered available-for-sale as of
December 31, 2009 and 2008, and are carried at fair value.
Short-term investments include bank deposits, corporate notes, U.S. treasury securities and
U.S. government agency securities with original maturities of greater than 90 days and remaining
maturities of less than one year. Long-term investments include corporate notes, U.S. treasury
securities and U.S. government agency securities with maturities greater than one year.
18
In evaluating the fair value information, considerable judgment is required to interpret the
market data used to develop the estimates. The use of different market assumptions and/or
different valuation techniques may have a material effect on the estimated fair value amounts.
Accordingly, the estimates of fair value presented herein may not be indicative of the amounts that
could be realized in a current market exchange. Refer to Note 17.
Derivative financial instruments. We record derivative financial instruments on our balance
sheet at their fair value and the changes in the fair value are recognized in income when they
occur, the only exception being derivatives that qualify as hedges. To qualify the derivative
instrument as a hedge, we are required to meet strict hedge effectiveness and contemporaneous
documentation requirements at the initiation of the hedge and assess the hedge effectiveness on an
ongoing basis over the life of the hedge. At December 31, 2009, the forward contracts did not meet
the documentation requirements to be designated as hedges. Accordingly, we recognize all changes
in fair values in income.
Research and Development. Research and development costs are charged to expense as incurred.
We record expense for in-process research and development projects acquired as asset acquisitions
which have not reached technological feasibility and which have no alternative future use. For
in-process research and development projects acquired in business combinations, the in-process
research and development project is capitalized and evaluated for impairment until the development
process has been completed. Once the development process has been completed the asset will be
amortized over its remaining useful life.
Income Taxes. Income taxes are accounted for under the asset-and-liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and
the respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in operations in the
period that includes the enactment date. We periodically evaluate the realizability of our net
deferred tax assets. Our tax accruals are analyzed periodically and adjustments are made as events
occur to warrant such adjustment.
Loss Per Common Share. Basic and diluted earnings or loss per common share is based on the
net loss increased by dividends on preferred stock divided by the weighted average number of common
shares outstanding during the period. In the periods in which their effect would be anti-dilutive,
no effect has been given to outstanding options, warrants or convertible preferred stock in the
diluted computation. The diluted loss per share does not include the weighted average impact of
the outstanding options, warrants, and other contingent consideration of 17,743,032, 24,022,713,
and 30,508,179 shares for the years ended December 31, 2009, 2008, and 2007 respectively, because
their inclusion would have been anti-dilutive. As of December 31, 2009, the holders of our Series
A Preferred Stock and Series D Preferred Stock could convert their Preferred Shares into
approximately 1,025,934 and 12,344,081 shares of our Common Stock, respectively.
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.
Allowance for Doubtful Accounts. We analyze accounts receivable and historical bad debt
levels, customer credit worthiness and current economic trends when evaluating the adequacy of the
allowance for doubtful accounts using the specific identification method. Our reported net loss is
directly affected by managements estimate of the collectability of accounts receivable. Estimated
allowances for sales returns are based upon our history of product returns. The amount of
allowance for doubtful accounts at December 31, 2009 and 2008 was $0.5 million and $0.4 million,
respectively.
Product Warranties. Product warranties are accrued at the time we record revenue for a
product. The costs of warranties are recorded 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.
19
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2009 |
|
|
2008 |
|
Beginning balance |
|
$ |
259 |
|
|
$ |
227 |
|
Accrual for product sold |
|
|
257 |
|
|
|
259 |
|
Settlements in kind or expired |
|
|
(259 |
) |
|
|
(227 |
) |
|
|
|
|
|
|
|
Ending balance |
|
$ |
257 |
|
|
$ |
259 |
|
|
|
|
|
|
|
|
Equity-Based Compensation. We measure the cost of employee services received in exchange for
an award of equity instruments based on the grant-date fair value of the award. That cost is
recognized in the statement of operations over the period during which an employee is required to
provide service in exchange for the award. We record excess tax benefits, realized from the
exercise of stock options as a financing cash inflow rather than as a reduction of taxes paid in
cash flow from operations. Refer to Note 8. Equity-based compensation arrangements to
non-employees are recorded at their fair value on the measurement date. The measurement of
equity-based compensation is subject to periodic adjustment as the underlying equity instruments
vest.
Comprehensive income or loss. Our comprehensive loss for the year ended December 31, 2009
includes net loss for the year and the cumulative translation adjustment, net, for the translation
of our Chilean subsidiarys results and comprehensive loss for the years ended December 31, 2008
and 2007 is comprised entirely of our net loss.
Segment reporting. Our chief operating decision-maker (CODM) is comprised of our executive
management with the oversight of our board of directors. Our CODM review our operating results and
operating plans and make resource allocation decisions on a company-wide or aggregate basis.
Accordingly, we have aggregated our three operating segments, instrumentation, pharmaceutical
operating business and our pharmaceutical and device research and development activities into two
reporting segments, instrumentation and pharmaceutical.
Recent accounting pronouncements: In January 2010, the Financial Accounting Standards Board
(FASB) issued an amendment to the accounting for fair value measurements and disclosures. This
amendment details additional disclosures on fair value measurements, requires a gross presentation
of activities within a Level 3 rollforward, and adds a new requirement to disclose transfers in and
out of Level 1 and Level 2 measurements. The new disclosures are required of all entities that are
required to provide disclosures about recurring and nonrecurring fair value measurements. This
amendment is effective in the first interim or reporting period beginning after December 15, 2009,
with an exception for the gross presentation of Level 3 rollforward information, which is required
for annual reporting periods beginning after December 15, 2010, and for interim reporting periods
within those years. The adoption of this amendment is not expected to have a material impact on
our financial statement disclosures.
In October 2009, the FASB issued an amendment to the accounting for own-share lending
arrangements in contemplation of convertible debt issuance or other financing. This amendment
clarifies how an entity should account for an agreement between a company (share lender) and an
investment bank (share borrower) under which the company loans shares of its stock to the
investment bank, enabling the investment bank to use the shares to enter into equity derivative
contracts with the ultimate investors of the convertible debt. Under the amendment, at the date of
issuance, the share lending arrangement is required to be measured at fair value and recognized as
a debt issuance cost in the financial statements of the entity. The debt issuance cost should be
amortized under the effective interest method over the life of the financing arrangement as
interest cost. This amendment is effective for fiscal years beginning on or after December 15,
2009, and interim periods within those fiscal years. Early adoption is not permitted. The
adoption of this amendment requires retrospective application for all arrangements outstanding as
of the beginning of the fiscal year in which the guidance is initially applied. The adoption of
this amendment is not expected to have a material impact on our results of operations or financial
condition.
In October 2009, the FASB issued an amendment to the accounting for multiple-deliverable
revenue arrangements. This amendment provides guidance on whether multiple deliverables exist, how
the arrangements should be separated, and how the consideration paid should be allocated. As a
result of this amendment, entities may be able to separate multiple-deliverable arrangements in
more circumstances than under existing accounting guidance. This guidance amends the requirement
to establish the fair value of undelivered products and services based on objective evidence and
instead provides for separate revenue recognition based upon managements best estimate of the
selling price for an undelivered item when there is no other means to determine the fair value of
that undelivered item. The existing guidance previously required that the fair value of the
undelivered item reflect the price of the item either sold in a separate transaction between
unrelated third parties or the price charged for each item when the item is sold separately by the
vendor. If the fair value of all of the elements in the arrangement was not determinable, then
revenue was deferred until all of the items were delivered or fair value was determined. This
amendment will be effective prospectively for revenue arrangements entered into or materially
modified in fiscal
20
years beginning on or after June 15, 2010. Early adoption and retrospective application is
also permitted. We are currently evaluating the potential effect of the adoption of this amendment
on our results of operations or financial condition.
In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for
the consolidation of VIEs. This amendment requires an enterprise to qualitatively assess the
determination of the primary beneficiary, or consolidator, of a VIE based on whether the entity
(i) has the power to direct matters that most significantly impact the activities of the VIE, and
(ii) has the obligation to absorb losses or the right to receive benefits of the VIE that could
potentially be significant to the VIE. The amendment changes the consideration of kick-out rights
in determining if an entity is a VIE and requires an ongoing reconsideration of both whether an
entity is a VIE and of the primary beneficiary. This amendment is effective as of January 1, 2010,
for interim periods within that first annual reporting period, and for interim and annual reporting
periods thereafter. Earlier adoption is prohibited. The amendment requires companies to reassess,
under the amended requirements, arrangements existing on or before the effective date of the
amendment that may fit within its scope and requires retrospective application. We are currently
evaluating the potential effect of the adoption of this amendment but do not expect it will have a
material impact on our results of operations or financial condition.
In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for
transfers of financial assets. This amendment seeks to improve the relevance, representational
faithfulness and comparability of the information that a reporting entity provides in its financial
statements about a transfer of financial assets; the effects of a transfer on its financial
position, financial performance and cash flows; and a transferors continuing involvement, if any,
in transferred financial assets. Additionally, on and after the effective date, this amendment
eliminates the concept of a qualifying special-purpose entity for accounting purposes. Therefore,
formerly qualifying special-purpose entities should be evaluated for consolidation by reporting
entities on and after the effective date in accordance with the applicable consolidation guidance.
This amendment is effective as of the beginning of each reporting entitys first annual reporting
period that begins after November 15, 2009, for interim periods within that first annual reporting
period and for interim and annual reporting periods thereafter. Earlier adoption is prohibited.
The adoption of this amendment is not expected to have a material impact on our results of
operations or financial condition.
21
Note 4 Composition of Certain Financial Statement Captions
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
Accounts receivable, net |
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
9,118 |
|
|
$ |
1,412 |
|
Less allowance for doubtful accounts |
|
|
(351 |
) |
|
|
(407 |
) |
|
|
|
|
|
|
|
|
|
$ |
8,767 |
|
|
$ |
1,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories, net |
|
|
|
|
|
|
|
|
Raw materials (components) |
|
$ |
3,764 |
|
|
$ |
2,635 |
|
Work in-process |
|
|
1,365 |
|
|
|
934 |
|
Finished products |
|
|
5,632 |
|
|
|
749 |
|
Less inventory reserve |
|
|
(241 |
) |
|
|
(255 |
) |
|
|
|
|
|
|
|
|
|
$ |
10,520 |
|
|
$ |
4,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
|
|
|
|
Prepaid supplies and clinical |
|
$ |
599 |
|
|
$ |
677 |
|
Other receivables |
|
|
441 |
|
|
|
633 |
|
Prepaid insurance |
|
|
162 |
|
|
|
267 |
|
Tax credit recoverable |
|
|
414 |
|
|
|
143 |
|
Other |
|
|
148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,764 |
|
|
$ |
1,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
|
|
|
|
|
|
Machinery and equipment |
|
$ |
388 |
|
|
$ |
248 |
|
Furniture and fixtures |
|
|
207 |
|
|
|
207 |
|
Software |
|
|
207 |
|
|
|
152 |
|
Leasehold improvements |
|
|
237 |
|
|
|
264 |
|
Less accumulated depreciation |
|
|
(446 |
) |
|
|
(212 |
) |
|
|
|
|
|
|
|
|
|
$ |
593 |
|
|
$ |
659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net |
|
|
|
|
|
|
|
|
Customer relationships |
|
$ |
7,259 |
|
|
$ |
2,978 |
|
Product registrations |
|
|
3,829 |
|
|
|
|
|
Technology |
|
|
4,597 |
|
|
|
4,597 |
|
Tradename |
|
|
578 |
|
|
|
195 |
|
Covenants not to compete |
|
|
317 |
|
|
|
317 |
|
Other |
|
|
7 |
|
|
|
7 |
|
Less accumulated amortization |
|
|
(3,865 |
) |
|
|
(1,758 |
) |
|
|
|
|
|
|
|
|
|
$ |
12,722 |
|
|
$ |
6,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses |
|
|
|
|
|
|
|
|
Income taxes payable |
|
$ |
492 |
|
|
$ |
|
|
Accrued royalties |
|
|
315 |
|
|
|
317 |
|
Accrued distributor commissions |
|
|
372 |
|
|
|
349 |
|
Product warranties medical device products |
|
|
257 |
|
|
|
259 |
|
Clinical trials |
|
|
163 |
|
|
|
2,098 |
|
Customer deposits |
|
|
307 |
|
|
|
345 |
|
Professional fees |
|
|
223 |
|
|
|
331 |
|
Employee benefits |
|
|
340 |
|
|
|
390 |
|
Other |
|
|
1,449 |
|
|
|
1,305 |
|
|
|
|
|
|
|
|
|
|
$ |
3,918 |
|
|
$ |
5,394 |
|
|
|
|
|
|
|
|
The changes to goodwill include $0.2 million from the foreign exchange translation and reflect
the carrying value of the assets and liabilities valued in connection with the Pharma Genexx
acquisition, partially offset by the impairment of $1.1 million of goodwill related to our
instrumentation business. As a result of competition in the U.S. market, the broad global economic
conditions, and pricing pressures globally, we determined that goodwill was impaired for the
instrumentation reporting unit. The impairment loss was determined by calculating the fair value
of the instrumentation reporting unit based on a discounted net present-value calculation. The
purchase price allocation of the assets acquired in the Pharma Genexx acquisition are subject to
change while contingencies that existed on the acquisition date are resolved.
22
The following table reflects the changes in the allowance for doubtful accounts, provision for
inventory reserve and tax valuation allowance accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning |
|
|
Charged to |
|
|
|
|
|
|
Charged to |
|
|
Ending |
|
(in thousands) |
|
balance |
|
|
expense |
|
|
Written-off |
|
|
other |
|
|
balance |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
(407 |
) |
|
|
(73 |
) |
|
|
130 |
|
|
|
|
|
|
$ |
(350 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for inventory reserve |
|
$ |
(255 |
) |
|
|
(279 |
) |
|
|
293 |
|
|
|
|
|
|
$ |
(241 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax valuation allowance |
|
|
(35,197 |
) |
|
|
(16,699 |
) |
|
|
|
|
|
|
199 |
|
|
$ |
(51,697 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
(465 |
) |
|
|
(204 |
) |
|
|
150 |
|
|
|
112 |
|
|
$ |
(407 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for inventory reserve |
|
$ |
|
|
|
|
(255 |
) |
|
|
|
|
|
|
|
|
|
|
(255 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax valuation allowance |
|
$ |
(16,924 |
) |
|
$ |
(19,137 |
) |
|
$ |
|
|
|
$ |
(864 |
) |
|
$ |
(35,197 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 5 Debt
We have a fully-drawn $12.0 million line of credit with the Frost Group. 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.
In connection of our acquisition of Pharma Genexx, we have entered into lines of credit
agreements with seven financial institutions in Chile. Those lines of credit are used primarily as
a source of working capital for inventory purchases. The following table summarizes the lines of
credit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
Amount outstanding at December 31, |
|
|
|
Interest rate on |
|
|
Maximum |
|
|
|
|
|
|
|
Lender |
|
borrowings |
|
|
borrowings |
|
|
2009 |
|
|
2008 |
|
The Frost Group LLC |
|
|
11 % |
|
|
$ |
12,000 |
|
|
$ |
12,000 |
|
|
$ |
12,000 |
|
Itau Bank |
|
Libor +2.8% |
|
|
2,000 |
|
|
|
270 |
|
|
|
|
|
Bank of Chile |
|
Libor +2.8% |
|
|
2,000 |
|
|
|
988 |
|
|
|
|
|
BICE Bank |
|
Libor +2.8% |
|
|
2,000 |
|
|
|
1,459 |
|
|
|
|
|
Santander Bank |
|
Libor +2.8% |
|
|
2,600 |
|
|
|
324 |
|
|
|
|
|
Corp Banca |
|
Libor +2.8% |
|
|
|
|
|
|
62 |
|
|
|
|
|
BBVA Bank |
|
Libor +2.8% |
|
|
3,500 |
|
|
|
1,216 |
|
|
|
|
|
Scotiabank |
|
Libor +2.8% |
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
26,600 |
|
|
$ |
16,319 |
|
|
$ |
12,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 6. The Note bore
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 6
Equity Offerings (restated)
Effective as of September 18, 2009, we entered into a securities purchase agreement (the
Preferred Purchase Agreement) with the private investors named therein (the Preferred
Investors), pursuant to which the Preferred Investors agreed to purchase an aggregate of 1,209,677
shares (the Preferred Shares) of the Companys newly-designated 8.0% Series D Cumulative
Convertible Preferred Stock, par value $0.01 per share (Series D Preferred Stock) (Refer to Note
7) at a purchase price of $24.80 per share, together with warrants (the Warrants) to purchase up
to an aggregate of 3,024,196 shares of the Companys common stock, par value $.01 at an exercise
price of $2.48 per share (the Preferred Investment). Initially, the Series D Preferred Stock was
convertible into ten shares of the Companys Common Stock, and the Preferred Shares purchase price
was based on the average closing price of the Companys Common Stock as reported on the NYSE Amex
for the five days preceding the execution of the Preferred Purchase Agreement. In connection with
the Preferred Investment, the Company issued the Preferred Shares and Warrants and received an
aggregate of $30.0 million in cash on September 28, 2009.
23
The Company allocated the $30.0 million of proceeds from the Preferred Investment
between the Series D Preferred Stock and the Warrants based on their relative fair values as
follows:
|
|
|
|
|
(in thousands) |
|
|
|
|
Series D Preferred Stock |
|
$ |
26,128 |
|
Warrants |
|
|
3,872 |
|
|
|
|
|
Total |
|
$ |
30,000 |
|
|
|
|
|
The Company allocated the $30 million in proceeds received from the issuance of the Preferred Stock and warrants to those instruments based on their relative fair values, which
resulted in a $3.9 million beneficial conversion feature. The Company recorded the $3.9
million beneficial conversion feature as a further discount to the Series D Preferred Stock and an
increase to additional paid-in capital. Because the Series D Preferred Stock was immediately
convertible into shares of the Companys common stock, the discount was immediately recognized as a
deemed dividend and included in preferred stock dividends in accompanying consolidated
statement of operations. Refer to Note 21.
Because the Series D Preferred Stock contains redemption features that are not solely within
the control of the Company, the Series D Preferred Stock is
classified outside of permanent equity. The Series D Preferred
Stock
is recorded at this time at initial fair value and not at its
Liquidation Amount as it is not probable that it will be
redeemed.
The Company agreed to issue the Preferred Shares and the Warrants in reliance upon the
exemption from registration under Section 4(2) of the Securities Act of 1933, as amended (the
Act). The Preferred Shares issued in the Preferred Investment, including the shares of the
Companys Common Stock into which the Preferred Shares and Warrants may be converted, are
restricted securities as that term is defined by Rule 144 under the Act, subject to a three year
contractual lockup, and no registration rights have been granted.
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 at $1.00 per share, representing a range of discounts of approximately 16-21% 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. The shares issued were restricted securities and were exempt
from registration requirements under Section 4(2) of the Act because the transaction did not
involve a public offering.
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 cash investment in the Company in
exchange for 20,000,000 shares (the Shares) of our Common Stock, at $1.00 per share, representing
an approximately 20% discount to the average closing price of our Common Stock on the NYSE Amex 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.
The Shares issued were restricted securities, subject to a two-year lockup and no registration
rights were granted.
On September 10, 2008, we issued 13,513,514 shares of our Common Stock to a group of
investors, including members of the Frost Group, in exchange for $15.0 million. The shares were
issued at $1.11 per share, representing an approximately 40% discount to the five-day average
closing price of our Common Stock on the NYSE Amex. The Shares issued were restricted securities,
subject to a two year lockup, and no registration rights have been granted. The issuance of the
Shares was exempt from the registration requirements under Section 4(2) of the Act because the
transaction did not involve a public offering.
Note 7 Shareholders Equity
Our authorized capital stock consists of 500,000,000 shares of common stock, par value $.01
per share, and 10,000,000 shares of preferred stock, par value $.01 per share.
Common Stock
Subject to the rights of the holders of any shares of preferred stock currently outstanding or
which may be issued in the future, the holders of the common stock are entitled to receive
dividends from our funds legally available when, as and if declared by our board of directors, and
are entitled to share ratably in all of our assets available for distribution to holders of common
stock upon the liquidation, dissolution or winding-up of our affairs subject to the liquidation
preference, if any, of any then outstanding shares of preferred stock. Holders of our common stock
do
24
not have any preemptive, subscription, redemption or conversion rights. Holders of our common
stock are entitled to one vote per share on all matters which they are entitled to vote upon at
meetings of stockholders or upon actions taken by written consent pursuant to Delaware corporate
law. The holders of our common stock do not have cumulative voting rights, which means that the
holders of a plurality of the outstanding shares can elect all of our directors. All of the shares
of our common stock currently issued and outstanding are fully-paid and nonassessable. No
dividends have been paid to holders of our common stock since our incorporation, and no cash
dividends are anticipated to be declared or paid in the reasonably foreseeable future.
In addition to our equity-based compensation plans, we have issued warrants to purchase our
common stock. Refer to Note 8 for additional information on our share-based compensation plans.
The table below provides additional information for warrants outstanding as of December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Weighted average |
|
|
|
|
Warrants |
|
warrants |
|
|
exercise price |
|
|
Expiration date |
|
Outstanding at December 31, 2008 |
|
|
27,245,466 |
|
|
|
|
|
|
|
|
|
Issued |
|
|
3,024,196 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(1,075,500 |
) |
|
|
|
|
|
|
|
|
Expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and Exercisable at
December 31, 2009 |
|
|
29,194,162 |
|
|
$ |
0.89 |
|
|
Various from September 2014 through March, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
Of the 1,075,500 warrants exercised to purchase common stock, 369,336 shares were surrendered
in lieu of a cash payment via the net exercise feature of the warrant agreements.
Preferred Stock
Under our certificate of incorporation, our board of directors has the authority, without
further action by stockholders, to designate up to 10 million shares of preferred stock in one or
more series and to fix or alter, from time to time, the designations, powers and rights of each
series of preferred stock and the qualifications, limitations or restrictions of any series of
preferred stock, including dividend rights, dividend rate, conversion rights, voting rights, rights
and terms of redemption (including sinking fund provisions), redemption price or prices, and the
liquidation preference of any wholly issued series of preferred stock, any or all of which may be
greater than the rights of the common stock, and to establish the number of shares constituting any
such series.
Series A Preferred Stock
Of the authorized preferred stock, 4,000,000 shares have been designated Series A preferred
stock. Dividends are payable on the Series A preferred stock in the amount of $0.25 per share,
payable annually in arrears. At the option of our board of directors, dividends will be paid
either (i) wholly or partially in cash or (ii) in newly issued shares of Series A preferred stock
valued at $2.50 per share to the extent cash dividend is not paid.
Holders of Series A preferred stock have the right to convert their shares, at their option
exercisable at any time, into shares of our common stock on a one-for-one basis subject to
anti-dilution adjustments. These anti-dilution adjustments are triggered in the event of any
subdivision or combination of our outstanding common stock, any payment by us of a stock dividend
to holders of our common stock or other occurrences specified in the certificate of designations
relating to the Series A preferred stock. We may elect to convert the Series A preferred stock
into common stock or a substantially equivalent preferred stock in the case of a merger or
consolidation in which we do not survive, a sale of all or substantially all of our assets or a
substantial reorganization of us.
Each share of Series A preferred stock is entitled to one vote on all matters on which the
common stock has the right to vote. Holders of Series A preferred stock are also entitled to vote
as a separate class on any proposed adverse change in the rights, preferences or privileges of the
Series A preferred stock and any increase in the number of authorized shares of Series A preferred
stock. In the event of any liquidation or winding up of the Company, the holders of the Series A
preferred stock will be entitled to receive $2.50 per share plus any accrued and unpaid dividends
before any distribution to the holders of the common stock and any other class of series of
preferred stock ranking junior to it.
25
We may redeem the outstanding shares of Series A preferred stock for $2.50 per share
(plus accrued and unpaid dividends), at any time.
Series C Preferred Stock
Of the authorized preferred stock, 500,000 shares were designated Series C preferred stock.
On June 22, 2007, 457,603 shares of Series C preferred stock were issued and outstanding and held
by 30 stockholders. Cumulative dividends were payable on the Series C preferred stock in the
amount of $1.54 per share when declared by the board of directors. On June 22, 2007, all
outstanding shares (457,603 shares) of Series C preferred stock automatically converted into shares
of common stock, on a one-hundred-for-one basis.
8%
Series D Cumulative Convertible Preferred Stock
Of the authorized preferred stock, 2,000,000 shares were designated 8% Series D Cumulative
Convertible Preferred Stock (Series D Preferred Stock). Holders of the Series D Preferred Stock
are entitled to receive, when, as and if declared by the Companys Board of Directors, dividends on
each share of Series D Preferred Stock at a rate per annum equal to 8.0% of the sum of (a) $24.80,
plus (b) any and all declared and unpaid and accrued dividends thereon, subject to adjustment for
any stock split, combination, recapitalization or other similar corporate action (the Liquidation
Amount). All dividends shall be cumulative, whether or not earned or declared, accruing on an
annual basis from the issue date of the Series D Preferred Stock. As of December 31, 2009 we had
approximately $0.51 per Series D Preferred Share, or $0.6 million of Series D Preferred Stock
dividends in arrears.
The Holders of Series D Preferred Stock have the right to receive notice of any meeting of
holders of the Companys Common Stock or Series D Preferred Stock and to vote (on an as-converted
into Common Stock basis) upon any matter submitted to a vote of the holders of Common Stock or
Series D Preferred Stock. Except as otherwise expressly set forth in the Companys Amended and
Restated Certificate of Incorporation, as amended from time to time, the holders of Series D
Preferred Stock will vote on each matter submitted to them with the holders of Common Stock and all
other classes and series of the Companys capital stock entitled to vote on such matter, taken
together as a single class.
With respect to dividend distributions (other than required dividends to the holders of the
Companys Series A Preferred Stock) and distributions upon liquidation, winding up or dissolution
of the Company, the Series D Preferred Stock ranks senior to all classes of Common Stock, the
Companys Series A Preferred Stock, the Companys Series C Preferred Stock, and to each other class
of the Companys capital stock existing now or hereafter created that are not specifically
designated as ranking senior to or pari passu with the Series D Preferred Stock.
Upon the occurrence of a Liquidation Event (as defined in the Certificate of Designation),
holders of Series D Preferred Stock are entitled to be paid, subject to applicable law, out of the
assets of the Company available for distribution to its stockholders, an amount in cash (the
Liquidation Payment) for each share of Series D Preferred Stock equal to the greater of (x) the
Liquidation Amount for each such share of Series D Preferred Stock outstanding plus (i) any
declared and unpaid dividends and (ii) accrued dividends or (y) the amount for each share of Series
D Preferred Stock the holders would be entitled to receive pursuant to the Liquidation Event if all
of the shares of Series D Preferred Stock had been converted into Common Stock as of the date
immediately prior to the date fixed for determination of stockholders entitled to receive a
distribution in such Liquidation Event. Such Liquidation Payment will be paid before any cash
distribution will be made or any other assets distributed in respect of any class of securities
junior to the Series D Preferred Stock, including, without limitation, Common Stock and the
Companys Series A Preferred Stock.
The holder of any share of Series D Preferred Stock may at any time and from time to time
convert such share into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing (A) the Liquidation Amount of the share by (B) the Conversion Price, which
is initially $2.48, subject to adjustment as provided in the Certificate of Designation.
Initially, the Series D Preferred Stock is convertible into 10 shares of the Companys Common
Stock.
The Company may, at any time, convert the outstanding Series D Preferred Stock into such
number of fully paid and non-assessable shares of Common Stock as is determined by dividing (A) the
Liquidation Amount of the shares by (B) the Conversion Price, but only if the closing bid price of
the Common Stock exceeds $5.00 per share during any thirty (30) consecutive trading days prior to
each conversion. Initially, the Series D Preferred Stock is convertible into 10 shares of the
Companys Common Stock.
26
To the extent it is lawfully able to do so, the Company may redeem all of the then outstanding
shares of Series D Preferred Stock by paying in cash an amount per share equal to $24.80 plus all
declared or accrued unpaid dividends on such shares, subject to adjustment for any stock dividends
or distributions, splits, subdivisions, combinations, reclassifications, stock issuances or similar
events with respect to the Common Stock.
Note 8 Equity-Based Compensation
We maintain equity-based incentive compensation plans that provide for grants of stock options
and restricted stock to our directors, officers, key employees and certain outside consultants.
Our 2007 Equity Incentive Plan includes all options assumed from the companies combined in the
Merger discussed in Note 1. Stock options granted under the 1996 Stock Option Plan, 2000 Stock
Option Plan and the plans assumed from Froptix and Acuity are exercisable for a period of up to 10
years from date of grant. Equity awards granted under the 2007 Equity Incentive Plan are
exercisable for a period up to 7 years. Vesting periods range from immediate to 5 years.
We classify the cash flows resulting from the tax benefit that arises when the tax deductions
exceed the compensation cost recognized for those equity awards (excess tax benefits) as financing
cash flows. There were no excess tax benefits for the years ended December 31, 2009, 2008, and
2007.
Equity-based compensation arrangements to non-employees are accounted for at their fair value
on the measurement date. The measurement of equity-based compensation is subject to periodic
adjustment over the waiting time of the equity instruments.
Valuation and Expense Information
We recorded equity based compensation expense of $4.5 million, $6.7 million, and $7.4 million
for the years ended December 31, 2009, 2008 and 2007, respectively, all of which were reflected as
operating expense. Of the $4.5 million of equity based compensation expense recorded in the year
ended December 31, 2009, $3.2 was recorded as selling, general and administrative expense and $1.3
million was recorded as research and development expenses. Of the $6.7 million of equity based
compensation expense recorded in the year ended December 31, 2008, $4.2 million was recorded as
selling, general and administrative expense and $2.5 million was recorded as research and
development expenses. For the year ended December 31, 2007, of the $7.4 million of expense
recorded, $4.4 million was recorded as selling, general and administration expense and $3.0 million
was recorded as research and development expense. During the third quarter of 2007, a reversal of
equity-based compensation expense of $8.1 million was recorded as a result of the termination of a
consulting agreement prior to the vesting of any of the equity based awards issued under a
consulting agreement. Originally, we accrued $0.3 million for this expense during 2006 and $7.8
million during the first six months of 2007 as research and development expense.
We estimate forfeitures of stock options and recognize compensation cost only for those awards
expected to vest. Forfeiture rates are determined for all employees and non-employee directors
based on historical experience and our estimate of future vesting. Estimated forfeiture rates are
adjusted from time to time based on actual forfeiture experience.
As of December 31, 2009, there was $8.3 million of unrecognized compensation cost related to
the stock options granted under our stock plans. That cost is expected to be recognized over a
weighted-average period of 2.2 years.
Stock Options
We estimate the fair value of each stock option on the date of grant using a Black-Scholes
option-pricing formula, applying the following assumptions, and amortized the fair value to expense
over the options vesting period using the straight-line attribution approach for employees and
non-employee directors, and for awards issued to non-employees we recognize compensation expense on
a graded basis, with most of the compensation expense being recorded during the initial periods of
vesting:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, 2009 |
|
|
December 31, 2008 |
|
|
December 31, 2007 |
|
Expected term (in years) |
|
|
0.6 - 7.9 |
|
|
|
1.6 - 8.9 |
|
|
|
3.5 - 9.7 |
|
Risk-free interest rate |
|
|
1.4% - 3.0% |
|
|
|
1.5% - 3.7% |
|
|
|
3.2% - 5.2% |
|
Expected volatility |
|
|
70% - 77% |
|
|
|
70% - 75% |
|
|
|
73% - 76% |
|
Expected dividend yield |
|
|
0% |
|
|
|
0% |
|
|
|
0% |
|
27
Expected Term: The expected term of the stock options to employees and non-employee directors
was calculated using the shortcut method. We believe this method is appropriate as our equity
shares have been publicly traded for a limited period of time and as such we do not have sufficient
historical exercise data to provide a reasonable basis upon which to estimate expected term. The
expected term of stock options issued to non-employee consultants is the remaining contractual life
of the options issued.
Risk-Free Interest Rate: The risk-free interest rate is based on the rates paid on securities
issued by the U.S. Treasury with a term approximating the expected life of the option.
Expected Volatility: The expected volatility was based on a peer group of publicly-traded
stocks historical trading which we believe will be representative of the volatility over the
expected term of the options. We believe the peer groups historical volatility is appropriate as
our equity shares have been publicly traded for a limited period of time.
Expected Dividend Yield: We do not intend to pay dividends on common stock for the foreseeable
future. Accordingly, we used a dividend yield of zero in the assumptions.
We maintain incentive stock plans that provide for the grants of stock options to our
directors, officers, employees and non-employee consultants. As of December 31, 2009, there were
13,371,586 shares of common stock reserved for issuance under our 2007 Incentive Plan. We intend
to issue new shares upon the exercise of options. Stock options granted under these plans have
been granted at an option price equal to the closing market value of the stock on the date of the
grant. Options granted under these plans to employees typically become exercisable over four years
in equal annual installments after the date of grant, and to non-employee directors become
exercisable in full after one-year after the grant date, subject to, in each case, continuous
service with the Company during the applicable vesting period. The Company assumed options to
grant common stock as part of the Merger, which reflected various vesting schedules, including
monthly vesting to employees and non-employee consultants.
A summary of option activity under our stock plans as of December 31, 2009, and the changes
during the year is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
remaining |
|
|
Aggregate intrinsic |
|
|
|
|
|
|
|
Weighted average |
|
|
contractual term |
|
|
value (in |
|
Options |
|
Number of options |
|
|
exercise price |
|
|
(years) |
|
|
thousands) |
|
Outstanding at December 31, 2008 |
|
|
11,977,437 |
|
|
$ |
2.06 |
|
|
|
6.1 |
|
|
$ |
7,807 |
|
Granted |
|
|
5,538,500 |
|
|
$ |
1.60 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(2,984,945 |
) |
|
$ |
0.23 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(1,324,936 |
) |
|
$ |
0.96 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
(582,500 |
) |
|
$ |
3.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009 |
|
|
12,623,556 |
|
|
$ |
2.36 |
|
|
|
5.5 |
|
|
$ |
4,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at
December 31, 2009 |
|
|
11,839,931 |
|
|
$ |
2.35 |
|
|
|
5.5 |
|
|
$ |
4,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009 |
|
|
5,107,138 |
|
|
$ |
2.41 |
|
|
|
5.1 |
|
|
$ |
2,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of stock options exercised for the years ended December 31, 2009,
2008, and 2007 were $3.8 million, $9.5 million, and $2.3 million, respectively.
The weighted average grant date fair value of stock options granted for the years ended
December 31, 2009, 2008 and 2007 were $0.99, $1.13, and $2.73, respectively. The total fair value
of stock options vested during the years ended December 31, 2009, 2008 and 2007 were $5.1 million,
$4.1 million and $1.0 million, respectively. The following table provides the grant date fair
value for each of the following groups of stock option activity during 2009:
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average |
|
|
|
|
|
|
|
grant date fair |
|
Options |
|
Number of options |
|
|
value |
|
Nonvested at December 31, 2008 |
|
|
6,116,674 |
|
|
$ |
2.28 |
|
Granted |
|
|
5,538,500 |
|
|
$ |
0.99 |
|
Forfeited |
|
|
1,324,936 |
|
|
$ |
2.15 |
|
Nonvested at December 31, 2009 |
|
|
7,516,418 |
|
|
$ |
1.47 |
|
Restricted Stock
In 2009, the Company issued 30,000 shares of restricted stock to one of its independent board
members. The restricted stock was granted under our 2007 Equity Incentive Plan with a term of
seven years and vesting occurring five years after the grant date with certain events which would
accelerate the vesting of the award. The restricted stock was valued using the grant date fair
value which was equivalent to the closing price on the grant date. We record the cost of
restricted stock over the vesting period.
Note 9 Income Taxes
Loss before income taxes was taxable in the U.S., Canada, and Chile.
The benefit/(expense) for incomes taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended |
|
|
For the Year Ended |
|
|
For the Year Ended |
|
(in thousands) |
|
December 31, 2009 |
|
|
December 31, 2008 |
|
|
December 31, 2007 |
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
State |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
140 |
|
|
|
83 |
|
|
|
83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140 |
|
|
|
83 |
|
|
|
83 |
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
15,602 |
|
|
|
17,075 |
|
|
|
5,274 |
|
State |
|
|
985 |
|
|
|
1,137 |
|
|
|
334 |
|
Foreign |
|
|
266 |
|
|
|
925 |
|
|
|
106 |
|
Change in valuation allowance |
|
|
(16,699 |
) |
|
|
(19,137 |
) |
|
|
(5,714 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total, net |
|
$ |
294 |
|
|
$ |
83 |
|
|
$ |
83 |
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets and liabilities as of December 31, 2009 and 2008 are comprised of
the following:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
December 31, 2009 |
|
|
December 31, 2008 |
|
Deferred income tax assets: |
|
|
|
|
|
|
|
|
Federal net operating loss |
|
$ |
26,690 |
|
|
$ |
17,075 |
|
State net operating loss |
|
|
4,816 |
|
|
|
3,246 |
|
Foreign net operating loss |
|
|
1,198 |
|
|
|
1,622 |
|
Capitalized research and development expense |
|
|
4,378 |
|
|
|
5,098 |
|
Research and development tax credit |
|
|
6,492 |
|
|
|
5,186 |
|
Canadian research and development pool |
|
|
1,464 |
|
|
|
1,202 |
|
Canadian tax credits |
|
|
1,089 |
|
|
|
|
|
Amortization and depreciation |
|
|
258 |
|
|
|
236 |
|
Accruals |
|
|
555 |
|
|
|
511 |
|
Other |
|
|
6,663 |
|
|
|
3,486 |
|
|
|
|
|
|
|
|
Deferred income tax assets |
|
|
53,603 |
|
|
|
37,662 |
|
Deferred income tax liabilities: |
|
|
|
|
|
|
|
|
Intangible assets |
|
|
(3,114 |
) |
|
|
(2,459 |
) |
Other |
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
|
Deferred income tax liabilities |
|
|
(3,114 |
) |
|
|
(2,465 |
) |
|
|
|
|
|
|
|
Net deferred income tax assets |
|
|
50,489 |
|
|
|
35,197 |
|
|
|
|
|
|
|
|
Valuation allowance |
|
|
(51,697 |
) |
|
|
(35,197 |
) |
|
|
|
|
|
|
|
Net deferred income tax liabilities |
|
$ |
(1,208 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
29
The change in deferred income tax assets, liabilities and valuation allowances at December 31,
2009 reflect the acquisition of various legal entities, including the tax attributes. The
acquisitions were accounted for under U.S. GAAP as asset acquisitions. As of December 31, 2009, we
have Federal, state, and foreign net operating loss carryforwards of approximately $123.2 million,
$101.4 million, and $4.7 million, respectively, that expire at various dates through 2029. We have
research and development tax credit carryforwards of approximately $7.6 million that expire in
varying amounts through 2029. We have determined a full valuation allowance is required against
all of our tax assets that we do not expect to be utilized by the turning of deferred income tax
liabilities.
Under Section 382 of the Internal Revenue Code of 1986, as amended, certain significant
changes in ownership may restrict the future utilization of our income tax loss carryforwards and
income tax credit carryforwards in the United States. The annual limitation is equal to the value
of our stock immediately before the ownership change, multiplied by the long-term tax-exempt rate
(i.e., the highest of the adjusted Federal long-term rates in effect for any month in the
three-calendar-month period ending with the calendar month in which the change date occurs). This
limitation may be increased under the IRC§ 338 Approach (IRS approved methodology for determining
recognized Built-In Gain). As a result, federal net operating losses and tax credits may expire
before we are able to fully utilize them.
During 2008, we conducted a study to determine the impact of the various ownership changes
that occurred during 2007 and 2008. As a result, we have concluded that the annual utilization of
our net operating loss carryforwards (NOLs) and tax credits is subject to a limitation pursuant
to Internal Revenue Code section 382. Under the tax law, such NOLs and tax credits are subject to
expiration from 15 to 20 years after they were generated. As a result of the annual limitation
that may be imposed on such tax attributes and the statutory expiration period, some of these tax
attributes may expire prior to our being able to use them. As we have established a valuation
allowance against all of our net deferred tax assets, including such NOLs and tax credits, there is
no current impact on these financial statements as a result of the annual limitation. This study
did not conclude as to whether eXegenics pre-merger NOLs were limited under Section 382. As such,
of the $123.2 million of federal net operating loss carryforwards, at least approximately $52.0
million may not be able to be utilized.
Adoption of FASB ASC Topic 740 (formerly FIN 48)
Prior to January 1, 2007, we recognized income taxes with respect to uncertain tax positions
based upon SFAS No. 5, Accounting for Contingencies, or SFAS No. 5 (codified primarily in FASB
ASC Topic 450, Contingencies). Under former SFAS No. 5, we would record a liability associated
with an uncertain tax position if the liability was both probable and estimable. Prior to January
1, 2007, the liabilities recorded under SFAS No. 5 including interest and penalties related to
income tax exposures, would have been recognized as incurred within income taxes in our
consolidated statements of operations. We recorded no such liabilities in 2006.
Effective January 1, 2007, we adopted FIN 48, Accounting for Uncertainty in Income Taxes
(codified primarily in FASB ASC Topic 740, Income Taxes). Formerly FIN 48, ASC 740 clarifies the
accounting for uncertainty in income taxes recognized in financial statements in accordance with
former SFAS No. 109, Accounting for Income Taxes (codified primarily in FASB ASC Topic 740,
Income Taxes). ASC 740 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or expected to be taken in
a tax return. ASC 740 requires that we determine whether the benefit of our tax positions are more
likely than not to be sustained upon audit, based on the technical merits of the tax position. For
tax positions that are more likely than not to be sustained upon audit, we recognize the greatest
amount of the benefit that is more likely than not to be sustained in our consolidated financial
statements. For tax positions that are not more likely than not to be sustained upon audit, we do
not recognize any portion of the benefit in our consolidated financial statements. The provisions
of ASC 740 also provide guidance on derecognition, classification, interest and penalties,
accounting in interim periods, and disclosure.
Our policy for interest and penalties under ASC 740, related to income tax exposures, was not
impacted as a result of the adoption of the recognition and measurement provisions of ASC 740.
Therefore, we continue to recognize interest and penalties as incurred within income taxes in our
consolidated statements of operations, when applicable.
30
There was no change to our accumulated deficit as of January 1, 2007 as a result of the
adoption of the recognition and measurement provisions of ASC 740.
Uncertain Income Tax Positions
We file Federal income tax returns in the U.S., Canada, Chile, and Taiwan jurisdictions, as
well as with various U.S. states and the Ontario province in Canada. We are subject to tax audits
in all jurisdictions for which we file tax returns. Tax audits by their very nature are often
complex and can require several years to complete. There are currently no tax audits that have
commenced with respect to income returns in any jurisdiction.
U.S. Federal: Under the tax statute of limitations applicable to the Internal Revenue Code, we
are no longer subject to U.S. federal income tax examinations by the Internal Revenue Service for
years before 2005. However, because we are carrying forward income tax attributes, such as net
operating losses and tax credits from 2005 and earlier tax years, these attributes can still be
audited when utilized on returns filed in the future.
State: Under the statutes of limitation applicable to most state income tax laws, we are no
longer subject to state income tax examinations by tax authorities for years before 2005 in states
in which we have filed income tax returns. Certain states may take the position that we are
subject to income tax in such states even though we have not filed income tax returns in such
states and, depending on the varying state income tax statutes and administrative practices, the
statute of limitations in such states may extend to years before 2005.
Foreign: Under the statutes of limitations applicable to our foreign operations, we are no
longer subject to tax examination for years before 2005 in jurisdictions we have filed income tax
returns.
As a result of our January 1, 2007 implementation of ASC 740, the total amount of gross tax
benefits, excluding the offsetting full valuation allowance, that became unrecognized, was
approximately $0.4 million. There were no accrued interest and penalties resulting from such
unrecognized tax benefits. As of December 31, 2009 and December 31, 2008, the total amount of
gross unrecognized tax benefits was approximately $6.8 million and $3.6 million, respectively, and
accrued interest and penalties on such unrecognized tax benefits was $0 in each period.
31
The following table rolls forward the 2009 activity in our gross unrecognized income tax
benefits.
|
|
|
|
|
(in thousands) |
|
|
|
|
Unrecognized tax benefits January 1, 2009 |
|
$ |
3,619 |
|
Gross increases tax positions in prior period |
|
|
3,199 |
|
Gross decreases tax positions in prior period |
|
|
|
|
|
|
|
|
Unrecognized tax benefits at December 31, 2009 |
|
$ |
6,818 |
|
|
|
|
|
There are no net unrecognized tax benefits that, if recognized, would impact the effective tax
rate as of December 31, 2009 as a result of the full valuation allowance.
Other Income Tax Disclosures
The significant elements contributing to the difference between the federal statutory tax rate
and the effective tax rate are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended |
|
|
For the Year Ended |
|
|
For the Year Ended |
|
(in thousands) |
|
December 31, 2009 |
|
|
December 31, 2008 |
|
|
December 31, 2007 |
|
Federal Statutory rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State income taxes, net of federal
benefit |
|
|
3.7 |
|
|
|
3.6 |
|
|
|
3.9 |
|
Foreign income tax |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
Acquired in-process research and
development |
|
|
(2.6 |
) |
|
|
(1.4 |
) |
|
|
(35.3 |
) |
Research and development tax credits |
|
|
6.7 |
|
|
|
10.7 |
|
|
|
(0.1 |
) |
OID |
|
|
5.0 |
|
|
|
|
|
|
|
|
|
Impairment of goodwill |
|
|
(1.4 |
) |
|
|
|
|
|
|
|
|
Other permanent items |
|
|
9.8 |
|
|
|
|
|
|
|
|
|
Change in valuation allowance |
|
|
(55.3 |
) |
|
|
(48.0 |
) |
|
|
(2.1 |
) |
Other |
|
|
0.0 |
|
|
|
0.3 |
|
|
|
(1.4 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1.0 |
% |
|
|
0.2 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
No income taxes were paid prior to 2009; we will be paying income tax in Chile for the 2009
year.
The following table reconciles our losses before income taxes between U.S. and foreign
jurisdictions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year |
|
|
For the Year |
|
|
For the Year |
|
|
|
ended |
|
|
ended |
|
|
ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Pre-tax loss |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
(29,214 |
) |
|
$ |
(37,153 |
) |
|
$ |
(267,542 |
) |
Foreign |
|
|
(840 |
) |
|
$ |
(2,764 |
) |
|
$ |
(317 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(30,054 |
) |
|
$ |
(39,917 |
) |
|
$ |
(267,859 |
) |
|
|
|
|
|
|
|
|
|
|
Note 10 Supplemental Cash Flow Information
Supplemental cash flow information is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year |
|
|
For the Year |
|
|
For the Year |
|
|
|
ended |
|
|
ended |
|
|
ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Interest paid |
|
$ |
95 |
|
|
$ |
101 |
|
|
$ |
370 |
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of capital stock to acquire Acuity |
|
$ |
|
|
|
$ |
|
|
|
$ |
243,623 |
|
|
|
|
|
|
|
|
|
|
|
Issuance of capital stock to acquire OTI |
|
$ |
|
|
|
$ |
|
|
|
$ |
6,932 |
|
|
|
|
|
|
|
|
|
|
|
Issuance of capital stock to acquire Vidus
and Other |
|
$ |
|
|
|
$ |
1,319 |
|
|
$ |
114 |
|
|
|
|
|
|
|
|
|
|
|
32
Note 11 Related Party Transactions
Effective September 21, 2009, we entered into an agreement pursuant to which the we invested
$2.5 million in Cocrystal in exchange for 1,701,723 shares of Cocrystals Convertible Series A
Preferred Stock. A group of Investors, led by the Frost Group (the CoCrystal Investors),
previously invested $5 million in Cocrystal, and agreed to invest an additional $5 million payable
in two equal installments in September 2009 and March 2010. As a result of an amendment to the
CoCrystal Investors agreements dated June 9, 2009, OPKO, rather than the CoCrystal Investors, made
the first installment investment ($2.5 million) on September 21, 2009. Refer to Note 2.
On September 18, 2009, we entered into the Preferred Purchase Agreement with various
investors. Refer to Note 6. Included among the investors is the Gamma Trust, Hsu Gamma
Investment, L.P, a limited partnership controlled by Jane H. Hsiao and Oracle Partners LP, a
limited partnership in which Dr. Frost is a limited partner.
On July 20, 2009, the Company entered into a worldwide exclusive license agreement with
Academia Sinica in Taipei, Taiwan, for a new technology to develop protein vaccines against
influenza and other viral infections. Dr. Alice Yu, a member of our board of directors, is a
Distinguished Research Fellow and Associate Director at the Genomics Research Center, Academia
Sinica.
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,
gross rent is $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 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.
33
On June 10, 2009, we entered into a stock purchase agreement with Sorrento, 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. Refer to Note 2. 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 one
percent of its shares.
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 6.
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 may also be deemed to
beneficially own 11.5% of Vector Group Ltd.s outstanding stock.
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 5.
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.
On February 23, 2009, we entered into a Stock Purchase Agreement with the Gamma Trust, of
which Dr Frost is the sole trustee. Refer to Note 6.
On September 10, 2008, in exchange for a $15.0 million cash investment in the Company, we
issued 13,513,514 shares of our Common Stock to a group of investors which included members of the
Frost Group. The shares were issued at a price of $1.11 per share, representing an approximately
40% discount to the 5 day average trading price of our stock on the NYSE Amex. Refer to Note 6.
On December 5, 2007, we issued 10,869,565 shares of the our Common Stock to members of the
Frost Group in exchange for a $20 million cash investment, or $1.84 per share, representing an
approximately 40% discount to the average trading price of our stock on the NYSE Amex for the five
days preceding the date our board of directors and stockholders approved the issuance of the
shares. The shares issued in the private placement were restricted securities, subject to a two
year lockup, and no registration rights have been granted.
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. We
had previously been leasing this space from Frost Real Estate Holdings on a month-to-month basis
while the parties were negotiating the lease. The lease provides for payments of approximately $18
thousand per month in the first year increasing annually to $24 thousand per month in the fifth
year, plus applicable sales tax. The rent is inclusive of operating expenses, property taxes and
parking. The rent for the first year was reduced to reflect a $30 thousand credit for the costs of
tenant improvements. From January 1, 2008 through October 1, 2008, we leased an additional 1,100
square feet of general office and laboratory space on a ground floor annex of our corporate office
building pursuant to an addendum to the Lease, which required us to pay annual rent of $19 thousand
per year for the annex space.
On September 19, 2007, we entered into an exclusive technology license agreement with Winston
Laboratories, Inc. (Winston). Under the terms of the license agreement, Winston granted us an
exclusive license to the proprietary rights of certain products in exchange for the payment of an
initial licensing fee, royalties, and payments on the occurrence of certain milestones. Drs.
Frost, Uppaluri and Hsiao and Mr. Rubin beneficially own approximately 30% of Winston
Pharmaceuticals, Inc. and Dr. Uppaluri has served as a member of Winstons board of directors since
September 2008. In connection with the license agreement, we reimbursed Winston $29 thousand, $3
thousand and $0 for the years ended December 31, 2009, 2008 and 2007, respectively, for services
provided by Winston personnel to assist us with the clinical program for the product we licensed.
OPKO provided Winston notice of termination of the license agreement on February 23, 2010.
In June 2007, we paid the $125,000 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
34
permitted Dr. Frost and his affiliates to acquire additional shares of our common stock upon
expiration of the HSR waiting period on July 12, 2007.
As part of the Mergers, we assumed a line of credit with the Frost Group from Acuity and
amended and restated that line of credit to increase borrowing availability. In connection with
the increase of the borrowing availability, we issued 4,000,000 warrants to the Frost Group. Refer
to Note 5.
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. For the fiscal years ending
December 31, 2009, 2008, and 2007, we reimbursed Dr. Frost approximately $92 thousand, $108
thousand, and $0, respectively, for Company-related travel by Dr. Frost and other OPKO executives.
During the years ending December 31, 2009, 2008, and 2007, we reimbursed SafeStitch Medical,
Inc. (SafeStitch) approximately $0, $49 thousand, and $0, respectively, for time SafeStitchs
personnel spent assisting us with the implementation of certain quality and control standard
operating procedures at our manufacturing facility in Toronto, Ontario. Dr. Hsiao serves as
chairman of the board of directors for SafeStitch; and Steven Rubin and Richard Pfenniger, each of
whom are members of our board of directors, also serve on the board of directors of SafeStitch.
Note 12 Employee Benefit Plans
Effective January 1, 2007, the OPKO Health Savings and Retirement Plan, or the Plan, permits
employees to contribute up to 50% of qualified pre-tax annual compensation up to annual statutory
limitations. The discretionary company match for employee contributions to the Plan is 100% of up
to the first 4% of the participants earnings contributed to the Plan. Our matching contributions
to the plan were approximately $0.2 million and $0.2 million in the years ended December 31, 2009
and 2008, respectively.
Note 13 Commitments and Contingencies
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 December 31, 2009
based on the estimated fair value of the unexercised put option.
On May 6, 2008, we completed the acquisition of Vidus Ocular, Inc. (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.
On May 7, 2007, Ophthalmic Imaging Systems (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 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 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
35
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 14 Strategic Alliances
We plan to develop a portfolio of product candidates through a combination of internal
development and external partnerships. We have completed strategic deals with the Trustees of the
University of Pennsylvania, the University of Florida Research Foundation, the University of Texas
Southwestern, Academia Sinica, and Redox Pharmaceuticals, among others. In connection with these
license agreements, upon the achievement of certain milestones we are obligated to make certain
payments and upon sales of products developed under the license agreements, have royalty
obligations. At this time, we are unable to estimate the timing and amounts of payments as the
obligations are based on future development of the licensed products.
Note 15 Leases
We conduct certain of our operations under operating lease agreements. Rent expense was
approximately $0.7 million for the year ended December 31, 2009, and $0.6 million for the year
ended December 31, 2008.
As of December 31, 2009, the aggregate future minimum lease payments under all non-cancelable
operating leases with initial or remaining lease terms in excess of one year are as follows:
|
|
|
|
|
Year Ending |
|
(in thousands) |
|
2010 |
|
$ |
448 |
|
2011 |
|
|
428 |
|
2012 |
|
|
261 |
|
2013 |
|
|
|
|
2014 |
|
|
|
|
|
|
|
|
Total minimum lease commitments |
|
$ |
1,137 |
|
|
|
|
|
Note 16 Segments
We currently manage our operations in two reportable segments, pharmaceutical and
instrumentation segments. The pharmaceutical segment consists of two operating segments, our (i)
pharmaceutical research and development segment which is focused on the research and development of
pharmaceutical products, diagnostic tests and vaccines, and (ii) the pharmaceutical operations we
acquired in Chile through the acquisition of Pharma Genexx. The instrumentation segment consists
of ophthalmic instrumentation products and the activities related to the research, development,
manufacture and commercialization of those products. There are no inter-segment sales. We
evaluate the performance of each segment based on operating profit or loss. There is no
inter-segment allocation of interest expense and income taxes.
36
Information regarding our operations and assets for the two segments and the unallocated
corporate operations as well as geographic information are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Pharmaceutical |
|
$ |
4,418 |
|
|
$ |
|
|
|
$ |
|
|
Instrumentation |
|
|
8,729 |
|
|
|
9,440 |
|
|
|
847 |
|
Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
13,147 |
|
|
$ |
9,440 |
|
|
$ |
847 |
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
|
|
|
|
|
|
|
|
|
|
Pharmaceutical |
|
$ |
(11,920 |
) |
|
$ |
(19,437 |
) |
|
$ |
(255,303 |
) |
Instrumentation |
|
|
(6,843 |
) |
|
|
(9,704 |
) |
|
|
(2,119 |
) |
Corporate |
|
|
(9,257 |
) |
|
|
(9,422 |
) |
|
|
(9,766 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(28,020 |
) |
|
$ |
(38,563 |
) |
|
$ |
(267,188 |
) |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
Pharmaceutical |
|
$ |
507 |
|
|
$ |
29 |
|
|
$ |
20 |
|
Instrumentation |
|
|
1,797 |
|
|
|
1,753 |
|
|
|
153 |
|
Corporate |
|
|
53 |
|
|
|
41 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,357 |
|
|
$ |
1,823 |
|
|
$ |
184 |
|
|
|
|
|
|
|
|
|
|
|
Net loss of investees |
|
|
|
|
|
|
|
|
|
|
|
|
Pharmaceutical |
|
$ |
(353 |
) |
|
$ |
|
|
|
$ |
|
|
Instrumentation |
|
|
|
|
|
|
|
|
|
|
(629 |
) |
Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(353 |
) |
|
$ |
|
|
|
$ |
(629 |
) |
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
813 |
|
|
$ |
112 |
|
|
$ |
|
|
Chile |
|
|
4,418 |
|
|
|
|
|
|
|
|
|
All others |
|
|
7,916 |
|
|
|
9,328 |
|
|
|
847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
13,147 |
|
|
$ |
9,440 |
|
|
$ |
847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2009 |
|
|
2008 |
|
Assets |
|
|
|
|
|
|
|
|
Pharmaceutical |
|
$ |
28,813 |
|
|
$ |
389 |
|
Instrumentation |
|
|
12,262 |
|
|
|
14,117 |
|
Corporate |
|
|
46,355 |
|
|
|
7,258 |
|
|
|
|
|
|
|
|
|
|
$ |
87,430 |
|
|
$ |
21,764 |
|
|
|
|
|
|
|
|
During the year ended December 31, 2009, no customers represented greater than 10% of total
revenue. During the year ended December 31, 2008, four customers represented 18%, 17%, 13%, and
11%, respectively, of our revenue. During the year ended December 31, 2007, four customers
represented 19%, 18%, 13%, and 11%, respectively, of our revenue. As of December 31, 2009, two
customers represented 32% and 19% of our accounts receivable balance. As of December 31, 2008, two
customers represented 47% and 19% of our accounts receivable balance.
Note 17 Fair Value Measurement
We record fair value at an exit price, representing the amount that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants. As
such, fair value is a market-based measurement that should be determined based on assumptions that
market participants would use in pricing an asset or liability. We utilize 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.
37
As of December 31, 2009, we held money market funds that qualify as cash equivalents and
forward contracts for inventory purchases (Refer to Note 18) that are required to be measured at
fair value on a recurring basis. Our other assets and liabilities carrying value approximate their
fair value due to their short-term nature.
In addition, the OTI put options were valued at fair value utilizing the Black-Scholes-Merton
valuation method. Refer to Note 13. During the years December 31, 2009, 2008, and 2007, we
recorded a reversal of expense of $35 thousand, expense of $0.1 million and reversal of expense of
$10 thousand, respectively, reflecting our stock price fluctuations.
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 and liabilities measured at fair value on a recurring basis, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements as of December 31, 2009 |
|
|
|
Quoted prices in |
|
|
|
|
|
|
|
|
|
|
|
|
active markets for |
|
|
Significant other |
|
|
Significant |
|
|
|
|
|
|
identical assets |
|
|
observable inputs |
|
|
unobservable inputs |
|
|
|
|
(in thousands) |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3 |
|
|
Total |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
41,299 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
41,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTI put option |
|
$ |
|
|
|
$ |
176 |
|
|
$ |
|
|
|
$ |
176 |
|
Forward contracts |
|
|
|
|
|
|
151 |
|
|
|
|
|
|
|
151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
|
|
|
$ |
327 |
|
|
$ |
|
|
|
$ |
327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 18 Derivative Contracts
We enter into foreign currency forward exchange contracts to cover the risk of exposure to
exchange rate differences arising from inventory purchases on letters of credit. Under these
forward contracts, for any rate above or below the fixed rate, we receive or pay the difference
between the spot rate and the fixed rate for the given amount at the settlement date.
We record derivative financial instruments on our balance sheet at their fair value as an
accrued expense and the changes in the fair value are recognized in income in other expense net
when they occur, the only exception being derivatives that qualify as hedges. To qualify the
derivative instrument as a hedge, we are required to meet strict hedge effectiveness and
contemporaneous documentation requirements at the initiation of the hedge and assess the hedge
effectiveness on an ongoing basis over the life of the hedge. At December 31, 2009, the forward
contracts did not meet the documentation requirements to be designated as hedges. Accordingly, we
recognize all changes in fair values in income.
The outstanding contracts at the end of the year 2009 have been valued at fair value, and
their maturity details are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
Fair value at |
|
|
|
|
Days until maturity |
|
Contract value |
|
|
December 31, 2009 |
|
|
Effect on loss |
|
0 to 30 |
|
$ |
433 |
|
|
$ |
448 |
|
|
$ |
(15 |
) |
31 to 60 |
|
|
458 |
|
|
|
489 |
|
|
|
(31 |
) |
61 to 90 |
|
|
924 |
|
|
|
978 |
|
|
|
(54 |
) |
91 to 120 |
|
|
723 |
|
|
|
728 |
|
|
|
(5 |
) |
121 to 180 |
|
|
796 |
|
|
|
822 |
|
|
|
(26 |
) |
More than 180 |
|
|
2,970 |
|
|
|
2,990 |
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,304 |
|
|
$ |
6,455 |
|
|
$ |
(151 |
) |
|
|
|
|
|
|
|
|
|
|
38
Note 19 Selected Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the 2009 Quarters Ended |
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
|
(in thousands) |
|
March 31, 2009 |
|
|
June 30, 2009 |
|
|
(restated) |
|
|
December 31, 2009 |
|
Revenue |
|
$ |
2,301 |
|
|
$ |
2,347 |
|
|
$ |
1,501 |
|
|
$ |
6,998 |
|
Gross margin |
|
|
740 |
|
|
|
583 |
|
|
|
446 |
|
|
|
1,811 |
|
Net loss attributable to
common shareholders |
|
|
(9,055 |
) |
|
|
(5,734 |
) |
|
|
(10,298 |
) |
|
|
(9,744 |
) |
Basic and diluted loss
per share |
|
$ |
(0.05 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the 2008 Quarters Ended |
|
(in thousands) |
|
March 31, 2008 |
|
|
June 30, 2008 |
|
|
September 30, 2008 |
|
|
December 31, 2008 |
|
Revenue |
|
$ |
2,824 |
|
|
$ |
879 |
|
|
$ |
4,050 |
|
|
$ |
1,687 |
|
Gross (deficit) margin |
|
|
(506 |
) |
|
|
(146 |
) |
|
|
1,081 |
|
|
|
452 |
|
Net (loss) income attributable to
common shareholders |
|
|
(10,935 |
) |
|
|
(10,934 |
) |
|
|
(8,380 |
) |
|
|
(9,801 |
) |
Basic and diluted (loss) income
per share |
|
$ |
(0.06 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.05 |
) |
Due to rounding, the quarterly per share amounts may not mathematically compute to the annual
amount.
In connection with the preparation of our financial statements for the three and nine months
ended September 30, 2010, we reevaluated our accounting for the September 28, 2009 Series D
Convertible Preferred Stock offering and determined that we did not account for a $3.9 million
beneficial conversion feature of the Preferred Stock and that we did not properly classify the
Series D Convertible Preferred Stock outside of shareholders equity in the mezzanine section of
the balance sheet. Refer
to Note 21.
On October 7, 2009 we acquired Pharma Genexx. The results of operations include the results
of Pharma Genexx after that date. During the fourth quarter of 2008, we recorded a reversal of
stock-based compensation expense of $0.5 million related to an error recorded in the first quarter
of 2008. As a result of the error, stock based compensation expense was overstated by $0.5 million
during the first quarter of 2008. The quarterly information was not restated due to immateriality.
Note 20 Subsequent Events
We have reviewed all subsequent events and transactions that occurred after the date of our
December 31, 2009 consolidated balance sheet date as of March 17, 2010, through the time of filing
the Annual Report on Form 10-K on March 17, 2010.
On February 17, 2010, we entered into an agreement to acquire Pharmacos Exakta, S.A. de C.V.
(Exakta), a privately-owned Mexican company, engaged in the manufacture, marketing and
distribution of ophthalmic and other pharmaceutical products for government and private markets
since 1957. Pursuant to a purchase agreement with Exakta and its shareholders, and an affiliate of
the shareholders, Inmobiliaria Chapalita, S.A. de C.V. (Inmobiliaria), the Company acquired all
of the outstanding stock of Exakta and real property owned by Inmobiliaria for a total aggregate
purchase price of $4 million, of which an aggregate of $1.6 million was paid in cash and $2.4
million was paid in shares of Common Stock based on the average closing price of the Companys
Common Stock as reported on the NYSE Amex for the ten trading days ending on February 12, 2010. A
portion of the proceeds will remain in escrow for a period of time for working capital adjustments
and to satisfy indemnification claims.
39
Note 21 Financial Statement Restatement
The
Company is restating its previously issued consolidated financial statements as of and for the three and nine months ended September 30, 2009, and as of and for the year ended December 31,
2009, to reflect the Companys determination that it did not properly account for the September
28, 2009 Series D Convertible Preferred Stock (the Preferred Stock) offering. In connection with
the issuance of 1,209,667 shares of Preferred Stock, we issued warrants to purchase up to an
aggregate of 3,024,194 shares of our Common Stock at an exercise price of $2.48 per share. The
Company should have allocated the $30 million in proceeds received from the issuance of the
Preferred Stock and warrants to those instruments based on their relative fair values, which
would have resulted in a $3.9 million beneficial conversion feature.
Because the Preferred Stock was immediately convertible into common stock, the beneficial
conversion feature should have been immediately recognized as a deemed dividend and
should have increased the loss attributable to common shareholders. In addition, the Company is correcting
the classification of the Preferred Stock from a component of equity to the
mezzanine section of the balance sheet.
The
restated financial statements
as of and for the year ended December 31, 2009, and as of and for the quarter and year-to-date
periods ended September 30, 2009, reflect the following changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheets as of |
|
|
December 31, 2009 |
|
September 30, 2009 |
(in thousands) |
|
As reported |
|
Adjustment |
|
Restated |
|
As reported |
|
Adjustment |
|
Restated |
|
|
|
|
|
Total Liabilities |
|
$ |
29,703 |
|
|
$ |
|
|
|
$ |
29,703 |
|
|
$ |
19,256 |
|
|
$ |
|
|
|
$ |
19,256 |
|
|
|
|
|
|
Series D Preferred
Stock |
|
|
|
|
|
|
26,128 |
|
|
|
26,128 |
|
|
|
|
|
|
|
26,128 |
|
|
|
26,128 |
|
|
|
|
|
|
Shareholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Preferred
Stock |
|
|
10 |
|
|
|
|
|
|
|
10 |
|
|
|
9 |
|
|
|
|
|
|
|
9 |
|
Series D Preferred
Stock |
|
|
12 |
|
|
|
(12 |
) |
|
|
|
|
|
|
12 |
|
|
|
(12 |
) |
|
|
|
|
Common Stock |
|
|
2,538 |
|
|
|
|
|
|
|
2,538 |
|
|
|
2,536 |
|
|
|
|
|
|
|
2,536 |
|
Treasury Stock |
|
|
(61 |
) |
|
|
|
|
|
|
(61 |
) |
|
|
(61 |
) |
|
|
|
|
|
|
(61 |
) |
Additional paid-in
capital |
|
|
393,144 |
|
|
|
(26,116 |
) |
|
|
367,028 |
|
|
|
392,181 |
|
|
|
(26,116 |
) |
|
|
366,065 |
|
Accumulated deficit |
|
|
(339,229 |
) |
|
|
|
|
|
|
(339,229 |
) |
|
|
(330,330 |
) |
|
|
|
|
|
|
(330,330 |
) |
Cumulative
translation
adjustment |
|
|
1,313 |
|
|
|
|
|
|
|
1,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders
equity |
|
|
57,727 |
|
|
|
(26,128 |
) |
|
|
31,599 |
|
|
|
64,347 |
|
|
|
(26,128 |
) |
|
|
38,219 |
|
|
|
|
|
|
Total liabilities, Series D Preferred Stock,
and shareholders
equity |
|
$ |
87,430 |
|
|
$ |
|
|
|
$ |
87,430 |
|
|
$ |
83,603 |
|
|
$ |
|
|
|
$ |
83,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of operations |
|
|
|
For the three months ended September 30, 2009 |
|
|
For the nine months ended September 30, 2009 |
|
|
For the year ended December 31, 2009 |
|
(in thousands) |
|
As reported |
|
Adjustment |
|
Restated |
|
As reported |
|
Adjustment |
|
Restated |
|
As reported |
|
Adjustment |
|
Restated |
|
|
|
|
|
|
|
Net loss |
|
$ |
(6,354 |
) |
|
$ |
|
|
|
$ |
(6,354 |
) |
|
$ |
(21,027 |
) |
|
$ |
|
|
|
$ |
(21,027 |
) |
|
$ |
(30,113 |
) |
|
$ |
|
|
|
$ |
(30,113 |
) |
Preferred stock
dividend |
|
|
(72 |
) |
|
|
(3,872 |
) |
|
|
(3,944 |
) |
|
|
(188 |
) |
|
|
(3,872 |
) |
|
|
(4,060 |
) |
|
|
(846 |
) |
|
|
(3,872 |
) |
|
|
(4,718 |
) |
|
|
|
|
|
|
|
Net loss
attributable to
common shareholders |
|
$ |
(6,426 |
) |
|
$ |
(3,872 |
) |
|
$ |
(10,298 |
) |
|
$ |
(21,215 |
) |
|
$ |
(3,872 |
) |
|
$ |
(25,087 |
) |
|
$ |
(30,959 |
) |
|
$ |
(3,872 |
) |
|
$ |
(34,831 |
) |
|
|
|
|
|
|
|
Basic and diluted
loss per share |
|
$ |
(0.03 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.09 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.11 |
) |
|
$ |
(0.13 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.15 |
) |
|
|
|
|
|
|
|
Weighted average
number of common
shares outstanding,
basic and diluted |
|
|
252,986,149 |
|
|
|
|
|
|
|
252,986,149 |
|
|
|
226,273,290 |
|
|
|
|
|
|
|
226,273,290 |
|
|
|
233,191,617 |
|
|
|
|
|
|
|
233,191,617 |
|
40
|
|
|
ITEM 9A. |
|
CONTROLS AND PROCEDURES. |
Disclosure 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 December 31, 2009. Based on that evaluation, CEO
and CFO have 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.
Managements Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of
1934, as amended. Our internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements according to generally accepted accounting principles. All internal control
systems, no matter how well designed, have inherent limitations. Therefore, even those systems
determined to be effective could provide only reasonable assurance with respect to financial statement
preparation and presentation.
Our management conducted an evaluation of the effectiveness of our internal control over
financial reporting as of December 31, 2009, based on the framework in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. As permitted, our managements assessment of and conclusion on the effectiveness of
our internal controls did not include the internal controls of Pharma Genexx, because it was
acquired by us in a purchase business combination during the fourth quarter of fiscal 2009.
Based on our evaluation under the framework in Internal Control Integrated Framework,
management previously concluded in our Annual Report filed on Form 10-K on March, 17, 2010, that
our internal control over financial reporting was effective as of December 31, 2009. During the
preparation of our financial statements for the quarter ended September 30, 2010, we determined
that a deficiency in controls relating to the accounting for a beneficial conversion feature on,
and the classification of, convertible preferred stock existed as of the previous assessment date
and have further concluded that such a deficiency represented a material weakness as of December 31,
2009. As a result, we conclude that the Companys internal control over financial reporting was
not effective as of December 31, 2009.
The effectiveness of the Companys internal control over financial reporting as of December
31, 2009 has been audited by Ernst & Young LLP, our independent registered public accounting firm,
who also audited our consolidated financial statements included in this Annual Report on Form 10-K,
as stated in their report which appears with our accompanying consolidated financial statements.
Changes to the Companys Internal Control Over Financial Reporting
As part of the Companys September 30, 2010 close
process, the Company identified that it had not properly
accounted for a beneficial conversion feature on, and the classification of
convertible preferred stock. As a result, in 2010 the Company has implemented additional
controls and procedures over financial reporting including adding additional review
procedures on its complex accounting issues.
Beginning in the fourth quarter of 2009, we began implementing a new accounting system, as
well as standards and procedures at Pharma Genexx, S.A., upgrading and establishing controls over
accounting systems, and adding employees who are trained and experienced in the preparation of
financial statements in accordance with U.S. GAAP to ensure that we have in place appropriate
internal control over financial reporting at Pharma Genexx. Other than as set forth above with
respect to Pharma Genexx, there have been no changes to the Companys internal control over
financial reporting that occurred during the Companys fourth fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Companys internal control over
financial reporting. Pharma Genexx, S.A.s assets constituted $28.0 million and $17.1 million of
total and net assets, respectively, as of December 31, 2009 and $4.4 million and $0.2 million of
revenues and net loss, respectively, for the year ended December 31, 2009.
41
PART IV
|
|
|
ITEM 15. |
|
EXHIBITS, FINANCIAL STATEMENT SCHEDULES. |
(a) |
(1) |
|
Financial Statements: See Part II, Item 8 of this report. |
|
|
(2) |
|
Financial Statement Schedules: See Part II, Item 8 of this report. |
|
|
(3) |
|
Exhibits: See below. |
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
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. |
|
|
|
2.2(5)+
|
|
Securities Purchase Agreement dated May 6, 2008, among Vidus Ocular,
Inc., OPKO Instrumentation, LLC, OPKO Health, Inc., and the
individual sellers and noteholders named therein. |
|
|
|
3.1(2)
|
|
Amended and Restated Certificate of Incorporation. |
|
|
|
3.2(4)
|
|
Amended and Restated By-Laws. |
|
|
|
3.3(9)
|
|
Certificate of Designation of Series D Preferred Stock. |
|
|
|
4.1(1)
|
|
Form of Common Stock Warrant. |
|
|
|
4.2(9)
|
|
Form of Common Stock Warrant. |
|
|
|
10.1(1)
|
|
Form of Lockup Agreement. |
|
|
|
10.2(1)
|
|
License Agreement, dated as of March 31, 2003, by and between the
Trustees of the University of Pennsylvania and Acuity
Pharmaceuticals, Inc. (Reich/Tolentino). |
|
|
|
10.3(1)
|
|
License Agreement, dated as of March 31, 2003, by and between the
Trustees of the University of Pennsylvania and Acuity
Pharmaceuticals, Inc. (Reich/Gewirtz). |
|
|
|
10.4(1)
|
|
First Amendment to License Agreement, dated as of August 1, 2003, by
and between the Trustees of the University of Pennsylvania and Acuity
Pharmaceuticals, Inc. (Reich/Tolentino). |
|
|
|
10.5(1)
|
|
First Amendment to License Agreement, dated as of August 1, 2003, by
and between the Trustees of the University of Pennsylvania and Acuity
Pharmaceuticals, Inc. (Gewirtz). |
|
|
|
10.6(1)
|
|
Credit Agreement, dated as of March 27, 2007, by and among eXegenics,
Inc., The Frost Group, LLC, and Acuity Pharmaceuticals, LLC. |
|
|
|
10.7(1)
|
|
Amended and Restated Subordination Agreement, dated as of March 27,
2007, by and among The Frost Group, LLC, Horizon Technology Funding
Company LLC, Acuity Pharmaceuticals, LLC, and eXegenics, Inc. |
|
|
|
10.8(4)
|
|
Share Purchase Agreement, dated April 11, 2007, by and between
Ophthalmic Technologies, Inc. and eXegenics, Inc. |
42
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
10.9(3)
|
|
Lease Agreement dated November 13, 2007, by and between Frost Real
Estate Holdings, LLC and the Company. |
|
|
|
10.10(4)
|
|
Share Purchase Agreement, dated as of November 28, 2007, by and among
Ophthalmic Technologies, Inc., OTI Holdings Limited, and the
Shareholders named therein. |
|
|
|
10.11(4)
|
|
Exchange and Support Agreement, dated as of November 28, 2007, by and
among OPKO Health, Inc. and OTI Holdings Limited and the holders of
exchangeable shares named therein. |
|
|
|
10.12(4)
|
|
Stock Purchase Agreement, dated December 4, 2007, by and between
members of The Frost Group, LLC and the Company. |
|
|
|
10.13(4)*
|
|
OPKO Health, Inc. 2007 Equity Incentive Plan. |
|
|
|
10.14(5)
|
|
Form of Director Indemnification Agreement. |
|
|
|
10.15(5)
|
|
Form of Officer Indemnification Agreement. |
|
|
|
10.16(6)
|
|
Stock Purchase Agreement, dated August 8, 2008 by and among the
Company and the Investors named therein. |
|
|
|
10.17(7)
|
|
Stock Purchase Agreement, dated February 23, 2009 by and between the
Company and Frost Gamma Investments Trust. |
|
|
|
10.18(7)
|
|
Promissory Note to Frost Gamma Investments Trust, dated March 4, 2009. |
|
|
|
10.19(8)
|
|
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. |
|
|
|
10.20(8)
|
|
Stock Purchase Agreement, dated June 10, 2009, by and among the
Company and Sorrento Therapeutics, Inc. |
|
|
|
10.21(9)
|
|
Form of Securities Purchase Agreement Series D Preferred Stock. |
|
|
|
10.22(10)*
|
|
Form of Restricted Share Award Agreement (Director). |
|
|
|
10.23(10)
|
|
Cocrystal Discovery, Inc. Agreements. |
|
|
|
10.24**
|
|
Stock Purchase Agreement, dated October 1, 2009, by and among the
OPKO Chile Limitada and Inversones OPKO Limitada, subsidiaries of the
Company, and the Sellers named therein. |
|
|
|
10.25+**
|
|
Asset Purchase Agreement, dated October 12, 2009, by and between the
Company and Schering Corporation. |
|
|
|
21**
|
|
Subsidiaries of the Company. |
|
|
|
23.1
|
|
Consent of Ernst & Young LLP. |
|
|
|
31.1
|
|
Certification by Phillip Frost, Chief Executive Officer, pursuant to
Exchange Act Rules 13a-14 and 15d-14. |
|
|
|
31.2
|
|
Certification by Rao Uppaluri, Chief Financial Officer, pursuant to
Exchange Act Rules 13a-14 and 15d-14. |
43
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
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. |
|
|
|
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. |
|
|
|
* |
|
Denotes management contract or compensatory plan or arrangement. |
|
** |
|
Filed with the Companys Annual Report on Form 10-K for the year ended December 31, 2009, as originally filed on March 17, 2010. |
|
+ |
|
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 Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 14, 2007
for the Companys three-month period ended September 30, 2007, and incorporated herein by reference. |
|
(4) |
|
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. |
|
(5) |
|
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. |
|
(6) |
|
Filed with the Companys Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 12, 2008
for the Companys three-month period ended September 30, 2008, and incorporated herein by reference. |
|
(7) |
|
Filed with the Companys Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 8, 2009 for the
Companys three-month period ended March 31, 2009, and incorporated herein by reference. |
|
(8) |
|
Filed with the Companys Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 7, 2009 for
the Companys three-month period ended June 30, 2009, and incorporated herein by reference. |
|
(9) |
|
Filed with the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on September 24, 2009,
and incorporated herein by reference. |
|
(10) |
|
Filed with the Companys Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2009
for the Companys three-month period ended September 30, 2009, and incorporated herein by reference. |
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: November 10, 2010 |
OPKO HEALTH, INC.
|
|
|
By: |
/s/ Dr. Phillip Frost
|
|
|
|
Dr. Phillip Frost, |
|
|
|
Chairman of the Board and
Chief Executive Officer |
|
45
EXHIBIT INDEX
|
|
|
Exhibit Number |
|
Description |
23.1
|
|
Consent of Ernst & Young LLP. |
|
|
|
31.1
|
|
Certification by Phillip Frost, Chief
Executive Officer, pursuant to Exchange Act
Rules 13a-14 and 15d-14. |
|
|
|
31.2
|
|
Certification by Rao Uppaluri, Chief
Financial Officer, pursuant to Exchange Act
Rules 13a-14 and 15d-14. |
|
|
|
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. |
|
|
|
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. |