Amendment to Form 8-K

ARATANA THERAPEUTICS, INC.

Date: January 17, 2014

/s/ Steven St. Peter

Steven St. Peter, M.D.

President and Chief Executive Officer

0001193125-14-014627.txt : 20140117 0001193125-14-014627.hdr.sgml : 20140117 20140117170134 ACCESSION NUMBER: 0001193125-14-014627 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20140106 ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20140117 DATE AS OF CHANGE: 20140117 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARATANA THERAPEUTICS, INC. CENTRAL INDEX KEY: 0001509190 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 383826477 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-35952 FILM NUMBER: 14535733 BUSINESS ADDRESS: STREET 1: 1901 OLATHE BOULEVARD CITY: KANSAS CITY STATE: KS ZIP: 66103 BUSINESS PHONE: 913.951.2130 MAIL ADDRESS: STREET 1: 1901 OLATHE BOULEVARD CITY: KANSAS CITY STATE: KS ZIP: 66103 8-K/A 1 d656485d8ka.htm AMENDMENT TO FORM 8-K Amendment to Form 8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): January 6, 2014

ARATANA THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)


Delaware	001-35952	38-3826477
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(I.R.S. Employer Identification No.)

	1901 Olathe Blvd., Kansas City, KS 66103	66103
	(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, include area code: (913) 951-2132

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 9.01.

Financial Statements and Exhibits.

On January 7, 2014, Aratana Therapeutics, Inc. (the “Company”) filed a Current Report on Form 8-K (the “Form 8-K”) describing its acquisition of Okapi Sciences N.V. (“Okapi Sciences”). The Company hereby amends such Current Report on Form 8-K to provide certain financial statements required by Item 9.01 of Form 8-K with respect to Okapi Sciences and pro forma financial information with respect to its acquisition of Okapi Sciences.

(a) Financial Statements of the Businesses Acquired

Audited Financial Statements of Okapi Sciences N.V. as of and for the years ended December 31, 2012 and December 31, 2011 and for the period from December 20, 2007 (date of inception) to December 31, 2012, and the related notes to the financial statements, are attached hereto as Exhibit 99.1.

Unaudited Financial Statements of Okapi Sciences N.V. as of and for the nine months ended September 30, 2013 and September 30, 2012 and for the period from December 20, 2007 (date of inception) to September 30, 2013, and the related notes to the financial statements, are attached hereto as Exhibit 99.2.

(b) Pro Forma Financial Information

The pro forma financial information with respect to the Company’s acquisition of Okapi Sciences N.V. is attached hereto as Exhibit 99.3.

(d) Exhibits


Exhibit No.		Description

23.1		Consent of Deloitte Bedrijfsrevisoren/Reviseurs d’Entreprises, Independent Auditors

99.1		Audited Financial Statements of Okapi Sciences N.V. as of and for the years ended December 31, 2012 and December 31, 2011 and for the period from December 20, 2007 (date of inception) to December 31, 2012, and the related notes to the financial statements.

99.2		Unaudited Financial Statements of Okapi Sciences N.V. as of and for the nine months ended September 30, 2013 and September 30, 2012 and for the period from December 20, 2007 (date of inception) to September 30, 2013, and the related notes to the financial statements.

99.3		Unaudited Pro Forma Consolidated Financial Statements of the Company, as of and for the nine months ended September 30, 2013 and for the year ended December 31, 2012, and the related notes to the financial statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

EXHIBIT INDEX


Exhibit No.		Description

23.1		Consent of Deloitte Bedrijfsrevisoren/Reviseurs d’Entreprises, Independent Auditors

99.1		Audited Financial Statements of Okapi Sciences N.V. as of and for the years ended December 31, 2012 and December 31, 2011 and for the period from December 20, 2007 (date of inception) to December 31, 2012, and the related notes to the financial statements.

99.2		Unaudited Financial Statements of Okapi Sciences N.V. as of and for the nine months ended September 30, 2013 and September 30, 2012 and for the period from December 20, 2007 (date of inception) to September 30, 2013, and the related notes to the financial statements.

99.3		Unaudited Pro Forma Consolidated Financial Statements of the Company, as of and for the nine months ended September 30, 2013 and for the year ended December 31, 2012, and the related notes to the financial statements.

EX-23.1 2 d656485dex231.htm EX-23.1 EX-23.1

Exhibit 23.1

Consent of Deloitte Bedrijfsrevisoren/Reviseurs d’Entreprises, Independent Auditors

We consent to the incorporation by reference in Registration Statement No. 333-189687 on Form S-8 of Aratana Therapeutics, Inc. of our report dated January 13, 2014 related to the financial statements of Okapi Sciences N.V. (the “Company”) as of and for the years ended December 31, 2012 and 2011 and from December 20, 2007 (date of inception) to December 31, 2012 (which report expresses an unmodified opinion on the financial statements and includes as explanatory paragraph indicating that: (a) the financial statements have been prepared assuming that the Company will continue as a going concern, (b) as discussed in Note 1 to the financial statements, the Company devotes substantially all of its efforts to research and development and has incurred losses since inception, (c) such condition raises substantial doubt about its ability to continue as a going concern, and (d) financial statements do not include any adjustments that might result from the outcome of the uncertainty); appearing in this Current Report on Form 8-K/A of Aratana Therapeutics, Inc. dated January 17, 2014.

Diegem, Belgium

January 17, 2014

DELOITTE Bedrijfsrevisoren / Reviseurs d’Entreprises

BV o.v.v.e. CVBA / SC s.f.d. SCRL


/s/ Gert Vanhees				/s/ Koen Neijens
Gert Vanhees				Koen Neijens

EX-99.1 3 d656485dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

OKAPI SCIENCES NV

TABLE OF CONTENTS



INDEPENDENT AUDITORS’ REPORT			2

BALANCE SHEETS			3

STATEMENTS OF OPERATIONS			4

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY			5

STATEMENTS OF CASH FLOWS			6

NOTES TO THE FINANCIAL STATEMENTS			7

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Shareholders of Okapi Sciences NV

We have audited the accompanying financial statements of Okapi Sciences NV (a development stage company) (the “Company”), which comprise the balance sheets as of December 31, 2012 and 2011, and the related statements of operations, statements of changes in equity and statements of cash flows for the years then ended, and for the period from December 20, 2007 (date of inception) to December 31, 2012, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Okapi Sciences NV as of December 31, 2012 and 2011, the results of its operations and its cash flows for the years then ended and for the period from December 20, 2007 (date of inception) to December 31, 2012 in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter Regarding Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company devotes substantially all of its efforts to research and development and has incurred losses since inception. Such condition raises substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.

Diegem, Belgium

January 13, 2014

DELOITTE Bedrijfsrevisoren / Reviseurs d’Entreprises

BV o.v.v.e. CVBA / SC s.f.d. SCRL

Represented by

OKAPI SCIENCES NV

(A Development Stage Enterprise)

BALANCE SHEETS

(Amounts in thousands, except share data)


	DECEMBER 31, 2012			DECEMBER 31, 2011
Assets
Current assets
Cash and cash equivalents	€	933		€	2,408
Trade and other receivables		48			86
Prepaid expenses and other current assets		74			58

Total current assets		1,055			2,552
Property and equipment, net (Note 2)		218			255
Intangible assets, net (Note 3)		551			690
Other assets		13			13

Total assets	€	1,837		€	3,510

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable and accrued expenses	€	268		€	327
Accrued payroll		82			62
Current portion loan payable		8			7
Deferred income (Note 8)		107			206

Total current liabilities		465			602
Loans payable (Note 6)		979			10

Total liabilities		1,444			612

Commitments and contingencies (Notes 6, 7 and 12)

Stockholders’ equity
Common Stock—16,166 shares authorized; 16,166 shares issued; 16,166 shares outstanding		62			62
Preferred Stock—83,712 shares authorized; 83,712 shares issued; 83,712 shares outstanding		382			382
Profit Certificates—11,518 certificates issued		—			—
Additional paid-in capital		9,546			9,510
Deficit accumulated during the development stage		(9,597	)		(7,056	)

Total stockholders’ equity (Note 4)		393			2,898

Total liabilities and stockholders’ equity	€	1,837		€	3,510

The accompanying notes are an integral part of the financial statements.

OKAPI SCIENCES NV

(A Development Stage Enterprise)

STATEMENTS OF OPERATIONS

(Amounts in thousands, except share data)


	YEAR ENDED DECEMBER 31, 2012			YEAR ENDED DECEMBER 31, 2011			CUMULATIVE PERIOD FROM INCEPTION (DEC 20, 2007) TO DECEMBER 31, 2012
Revenue	€	10		€	—		€	10
Cost of sales		8			—			8
Operating expenses
Research and development		1,842			2,393			6,264
General and administrative		512			549			2,384
Amortization of intangible assets (Note 3)		139			247			922
Depreciation of property and equipment (Note 2)		82			63			188

Total operating expenses		2,575			3,252			9,758

Loss from operations		(2,573	)		(3,252	)		(9,756	)
Other income (expense)
Interest income		8			20			98
Interest expense		(6	)		(4	)		(13	)
Other income (Note 8)		36			30			89
Other expense		(6	)		(5	)		(15	)

Total other income (expense)		32			41			159

Loss before income taxes		(2,541	)		(3,211	)		(9,597	)
Income tax (expense) / benefit (Note 9)		—			—			—

Net loss	€	(2,541	)	€	(3,211	)	€	(9,597	)

The accompanying notes are an integral part of the financial statements.

OKAPI SCIENCES NV

(A Development Stage Enterprise)

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Amounts in thousands, except share data)


	COMMON SHARES		AMOUNT		PREFERRED SHARES		AMOUNT		PROFIT CERTIFICATES		ADDITIONAL PAID-IN CAPITAL		DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE			TOTAL STOCKHOLDERS’ EQUITY
Inception—December 20, 2007
Issuance of common stock to founders (Dec. 20, 2007)		9,000	€	6		—	€	—		—	€	—	€	—		€	6
Issuance of Series A preferred stock (Oct. 17, 2008)		—		—		34,469		157		—		3,343		—			3,500
Issuance of common stock (Oct. 17, 2008)		7,166		56		—		—		11,518		1,273		—			1,329
Compensation expense related to warrants		—		—		—		—		—		16		—			16
Cumulative net loss for the period from December 20, 2007 to December 31, 2008		—		—		—		—		—		—		(354	)		(354	)

Balance at December 31, 2008		16,166		62		34,469		157		11,518		4,632		(354	)		4,497
Compensation expense related to warrants		—		—		—		—		—		33		—			33
Net loss		—		—		—		—		—		—		(1,406	)		(1,406	)

Balance at December 31, 2009		16,166		62		34,469		157		11,518		4,665		(1,760	)		3,124
Issuance of Series A preferred stock (Nov. 9, 2010)		—		—		29,546		135		—		2,865		—			3,000
Compensation expense related to warrants		—		—		—		—		—		34		—			34
Net loss		—		—		—		—		—		—		(2,085	)		(2,085	)

Balance at December 31, 2010		16,166		62		64,015		292		11,518		7,564		(3,845	)		4,073
Issuance of Series A preferred stock (Oct. 21, 2011)		—		—		19,697		90		—		1,910		—			2,000
Compensation expense related to warrants		—		—		—		—		—		36		—			36
Net loss		—		—		—		—		—		—		(3,211	)		(3,211	)

Balance at December 31, 2011		16,166		62		83,712		382		11,518		9,510		(7,056	)		2,898
Compensation expense related to warrants		—		—		—		—		—		36		—			36
Net loss		—		—		—		—		—		—		(2,541	)		(2,541	)

Balance at December 31, 2012		16,166	€	62		83,712	€	382		11,518	€	9,546	€	(9,597	)	€	393

The accompanying notes are an integral part of the financial statements.

OKAPI SCIENCES NV

(A Development Stage Enterprise)

STATEMENTS OF CASH FLOWS

(Amounts in thousands)


	YEAR ENDED DECEMBER 31, 2012			YEAR ENDED DECEMBER 31, 2011			CUMULATIVE PERIOD FROM INCEPTION (DEC 20, 2007) TO DECEMBER 31, 2012
Cash flows from operating activities
Net loss	€	(2,541	)	€	(3,211	)	€	(9,597	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		221			311			1,110
Non-cash compensation expense related to warrants		36			36			156
Non-cash interest expense		2			—			2
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(16	)		212			(74	)
Trade and other receivables		38			(24	)		(48	)
Other assets		—			—			(13	)
Accounts payable and accrued expenses		(60	)		(187	)		266
Accrued payroll		20			26			82
Deferred income		(99	)		206			107

Net cash used in operating activities		(2,399	)		(2,631	)		(8,009	)

Cash flows from investing activities
Purchases of property and equipment		(45	)		(162	)		(406	)
Purchases of intangible assets		—			—			(145	)

Net cash used in investing activities		(45	)		(162	)		(551	)

Cash flows from financing activities
Proceeds from issuance common stock		—			—			6
Proceeds from issuance Series A preferred stock		—			2,000			8,500
Proceeds from issuance of convertible bridge loan		976			—			976
Proceeds from issuance of loans payable		—			23			23
Repayment of long-term debt		(7	)		(5	)		(12	)

Net cash provided by financing activities		969			2,018			9,493

Net increase (decrease) in cash and cash equivalents		(1,475	)		(775	)		933
Cash and cash equivalents, beginning of period		2,408			3,183			—

Cash and cash equivalents, end of period	€	933		€	2,408		€	933

Supplemental disclosure of cash flow information:
Cash paid for interest	€	4		€	4		€	11

The accompanying notes are an integral part of the financial statements.

OKAPI SCIENCES NV

(A Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

(Amounts in thousands, except share data)

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General—OKAPI SCIENCES NV (the “Company” or “Okapi”) (a development stage enterprise) was incorporated on December 20, 2007 under the laws of Belgium. The address of the registered office is Ambachtenlaan 1, 3001 Heverlee, Belgium. The Company is a biopharmaceutical company focused on the licensing, development and commercialization of innovative prescription medicines for animals. The Company has licensed and / or is developing four antiviral compounds to treat viral infections in pets: feline herpes (OSDC-12), feline aids (OSDC-2), canine parvo (OSDC-6) and feline calici (OSDC-7); one compound for the treatment of canine lymphoma (OSDC-5); and two compounds to treat viral infections in livestock: classical swine fever (OSDC-3) and foot-and-mouth disease (OSDC-4). The Company has also co-developed a diagnostic kit to detect koi herpes virus (OSDK-1) in carp which is marketed through an independent distributor. Since its inception, the Company has devoted substantially all of its efforts to research and development, recruiting management and technical staff, acquiring operating assets and raising capital. Accordingly, the Company is considered to be in the development stage.

Basis of Presentation—The financial statements have been prepared in accordance with generally accepted accounting principles in the United States.

Going Concern—The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As the Company devotes substantially all of its efforts to research and development, it has incurred losses since inception. The ability of the Company to continue its operations is dependent on Management’s plans, which include potential mergers or business combinations with other entities, potential collaboration agreements, further implementation of its business plan and continuing to raise funds through debt or equity raises. In the course of 2008, 2010 and 2011 the Company raised €8,500 equity through a so-called round A financing. As disclosed in Note 6, the Company, on December 14, 2012, entered into a convertible bridge loan agreement with certain existing shareholders raising €2,000 in 2012 and 2013. During the course of 2013 management prepared a round B financing and at the same time also considered entering into a business combination that would grant it access to further financing. Note 13 contains subsequent events after the balance sheet date that have improved the Company’s financial position after the balance sheet date, including the signing of a Share Purchase Agreement with a third party on January 6, 2014, that would grant the Company further access to the necessary funding in order to allow it to continue as a going concern.

Cash and Cash Equivalents—The Company considers all highly liquid instruments with a maturity of three months or less at the time of purchase to be cash equivalents. As at December 31, 2012 and December 31, 2011, the Company had no cash equivalents.

Property and Equipment—is stated at cost less accumulated depreciation and impairment, if any. Acquisition costs include expenditures that are directly attributable to the acquisition of the asset. Depreciation is calculated using the straight-line method based on the estimated useful lives of the related assets and starts when the asset is available for use as intended by management. Property and equipment is reviewed for impairment annually and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company did not recognize an impairment in 2012 or 2011.

The range of useful lives for fixed assets is as follows:


		YEARS
Laboratory equipment and machinery		3 to 5
Office equipment, furniture and fixtures		3 to 5
Vehicles		3
Leasehold improvements		3 to 10

OKAPI SCIENCES NV

(A Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share data)

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Intangible Assets—relate to purchased software, patents and licenses and are amortized over their economical useful lives (3 to 19 years). Intangible assets with definite lives are reviewed for impairment annually and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company did not recognize an impairment in 2012 or 2011.

Revenue Recognition—The Company is still in a development stage and no significant revenue is realized from operations. The Company recognized these revenues when all of the following criteria were met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the price to the buyer is fixed or determinable; and collectability is reasonably assured.

Research and Development—Expenditures for own research and development are expensed when incurred.

Grants—The Company receives grants from governmental or semi-governmental institutions and organizations. The Company recognizes such grants when it is probable that the Company will comply with the conditions attached to the grant arrangement and the grant will be received. Government grants are recognized in the statements of operations on a systematic basis over the periods in which the Company recognizes the related costs for which the government grant is intended to compensate. Government grants are typically related to reimbursements for research and development costs incurred and are therefore recognized as a reduction of the related research and development expense in the statements of operations.

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recently Issued and Adopted Accounting Pronouncements—The Company has evaluated all recent accounting pronouncements and believes that none of them will have a material effect on the Company’s financial statements.

2. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:


	LABORATORY EQUIPMENT AND MACHINERY			OFFICE EQUIPMENT, FURNITURE AND FIXTURES			VEHICLES			LEASEHOLD IMPROVEMENTS			P&E TOTAL
Net carrying amount January 1, 2011	€	82			22			4			49		€	157
Additions		70			18			21			53			162
Disposals		—			(1	)		—			—			(1	)
Depreciation / Amortization		(36	)		(12	)		(6	)		(9	)		(63	)

Net carrying amount December 31, 2011		116			27			19			93			255
Additions		12			7			21			5			45
Disposals		—			—			—			—			—
Depreciation / Amortization		(45	)		(12	)		(13	)		(12	)		(82	)

Net carrying amount December 31, 2012	€	83			22			27			86		€	218

OKAPI SCIENCES NV

(A Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share data)

2. PROPERTY AND EQUIPMENT (continued)

Gross book value and accumulated depreciation / amortization at the balance sheet date are as follows:


AS AT:	DECEMBER 31, 2012			DECEMBER 31, 2011
Laboratory equipment and machinery	€	185		€	174
Office equipment, furniture and fixtures		59			52
Vehicles		47			26
Leasehold improvements		111			106

Total	€	402		€	358
Less Accumulated depreciation / amortization		(184	)		(103	)
Less Impairment		—			—

Net	€	218		€	255

3. INTANGIBLE ASSETS

Intangible assets consist of the following:


	PATENTS AND LICENSES			SOFTWARE			INTANGIBLES TOTAL
Net carrying amount January 1, 2011	€	931			6		€	937
Additions		—			—			—
Disposals		—			—			—
Amortization		(246	)		(1	)		(247	)

Net carrying amount December 31, 2011		685			5			690
Additions		—			—			—
Disposals		—			—			—
Amortization		(138	)		(1	)		(139	)

Net carrying amount December 31, 2012	€	547			4		€	551

Gross book value and accumulated amortization at the balance sheet date are as follows:


AS AT:	DECEMBER 31, 2012			DECEMBER 31, 2011
Patents and licenses	€	1,456		€	1,456
Software		6			6

Total	€	1.462		€	1.462
Less Accumulated amortization		(911	)		(772	)
Less Impairment		—			—

Net	€	551		€	690

4. STOCKHOLDERS’ EQUITY

On October 21, 2011, the Company increased its share capital through the issuance of 19,697 new Series A preferred shares, due to the exercise of warrants.

OKAPI SCIENCES NV

(A Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share data)

4. STOCKHOLDERS’ EQUITY (continued)

These warrants were granted to our investors in 2008, immediately after the incorporation of the Company, and exercised on October 21, 2011 at a price of €101.54, increasing the Company’s equity by €2,000.

As at December 31, 2012 and December 31, 2011, paid-in capital of the Company was €444, represented by 16,166 common shares and 83,712 Series A preferred shares. Rights attributed to common shares and Series A preferred shares are as follows:

Each common share and each Series A preferred share has voting rights. Certain transactions require a qualified majority from the preferred A shareholders.

In case of liquidation of the Company, preferred A shareholders will receive liquidation proceeds up to their respective original subscription price plus a compound interest of 8% per year. Subsequently, the remainder of the liquidation proceeds shall be distributed equally.

Next to the common shares and Series A preferred shares, the Company also issued 11,518 profit certificates. These certificates were granted on October 17, 2008 to certain shareholders of the Company in partial remuneration of a contribution in kind. These profit certificates share in the profit of the Company, if any, and have the same voting rights as common shares. Profit certificates are converted to common shares in case of liquidation of the company or change in control. Profit certificates have no face amount under Belgian law.

5. STOCK-BASED COMPENSATION

ASC 718 requires that the Company account for all stock-based compensation transactions using a fair-value method and recognize the fair value of each award as an expense over the service period. The fair value of the Company’s warrants issued for services is based upon the price of the Company’s common stock at the grant date. The Company estimates the fair value of its warrants, as of the grant date, using the Black-Scholes option-pricing model. The fair value of each warrant is recognized on a straight-line basis over the vesting or service period.

The following table summarizes the assumptions used and the resulting fair value of warrants granted:


	2008 WARRANTS			2011 WARRANTS
Warrants granted		5,282			500
Weighted-average assumptions:
Expected life		5.0 years			5.0 years
Risk-free interest rate		3	%		1	%
Expected volatility		50.0	%		50.0	%
Dividend yield		—			—
Grant date fair value per share	€	33.16		€	31.15

The expected life was estimated at issuance based upon historical experience and management’s expectation of exercise behavior. The expected volatility of the Company’s stock price is based on industry practice. The risk-free interest rate is based upon the yield on government bonds having a term similar to the expected warrant life. Dividend yield is estimated at zero because the Company does not anticipate paying dividends in the foreseeable future.

Stock-based compensation awards vest over time and require continued service to the Company. The amount of compensation expense recognized is based upon the number of warrants that are ultimately expected to vest.

As a result of the Company’s history of operating losses and of the uncertainty regarding future operating results, no income tax benefit has been recognized.

OKAPI SCIENCES NV

(A Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share data)

5. STOCK-BASED COMPENSATION (continued)

As at December 31, 2012 and as at December 31, 2011, the Company had 5,782 warrants outstanding that have not expired or been forfeited. These warrants were granted respectively in 2008 (5,282) and in 2011 (500) and all have an exercise price of €71.08. Each warrant gives the right to purchase one common share of the Company. The exercise of all outstanding warrants would therefore result in a capital increase of €411.

The remaining unrecognized compensation cost at the end of December 31, 2012 and December 31, 2011 was respectively €24 and €60.

6. DEBT AND FINANCING AGREEMENTS

On April 12, 2011, the Company entered into a 3 year loan agreement (annual interest rate 3.96%-fixed) with BNP Paribas Fortis Bank for the purchase of a company vehicle. The loan was for a total amount of €23. There was no accrued interest on the balance sheet as at December 31, 2012 and 2011.

Estimated future principal payments on this loan agreement are as follows:


Year Ending December 31,
2013	€	8
2014		3

Total	€	11

On December 14, 2012, the Company entered into a convertible bridge loan agreement (annual interest rate 8.00%-fixed) with certain existing shareholders. The bridge loan is convertible into 21,001 Series A preferred shares.

The bridge loan agreement is for a total amount of €2,000, consisting of two tranches of €1,000 each. The convertible debt was issued without discount or premium and the conversion option does not contain a beneficial conversion feature. The bridge loan contains mandatory conversion features as well as voluntary conversion features in case of change of control or in case the Series B financing does not take place by the end of 2013. The first tranche was paid by the lenders in December 2012 (€976) and February 2013 (€24). The payment of the second tranche occurred in May 2013 (€477), June 2013 (€511) and July 2013 (€12). On December 31, 2012, there was accrued interest on the balance sheet for an amount of €2.

Estimated future principal payments on this loan agreement are as follows:


Year Ending December 31,
2012	€	—
2013		—
2014		2,000

Total	€	2,000

The fair value of the debt approximates the carrying value of the debt.

OKAPI SCIENCES NV

(A Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share data)

7. LEASES

In 2009, the Company entered into an operating lease agreement of a building consisting of office and laboratory space and storage facilities in Heverlee, Belgium. The initial agreement was concluded for a period of 9 years, starting on November 1, 2009 and expiring on October 30, 2018. In 2010 and 2011, additional leases were signed for an annex to the building. The initial lease agreement contains a clause allowing each party to end the lease on October 30, 2012 or October 30, 2015. The total lease costs of the office building amounted to €74 and €72 for the years ended December 31, 2012 and 2011, respectively.

The other lease agreements primarily refer to car rental / lease agreements for periods varying from 1 to 5 years.

The following is a schedule of future minimum rental payments (exclusive of VAT) required under operating leases:


FUTURE MINIMUM RENTAL PAYMENTS ESTIMATED AT THE END OF THE YEAR ENDING	DECEMBER 31, 2012		DECEMBER 31, 2011
2012	€	—	€	121
2013		117		117
2014		117		117
2015		110		110
2016		105		105
2017		105		—
Thereafter		87		192

Total	€	641	€	762

Future rental payments and future rental expenses are aligned.

8. SUPPORT AGREEMENTS / DEFERRED INCOME

The Company recognized €364 and €382 of aggregate grant income from IWT and EUVIRNA in the years ended December 31, 2012 and 2011, respectively. These amounts are recognized as a reduction of research and development expenses in the accompanying statement of operations as they are intended to compensate research and development costs.

Deferred income contains €107 and €206 as at December 31, 2012 and 2011, respectively, as not all the conditions were fulfilled to recognize these received grant amounts into income.

Agentschap voor Innovatie door Wetenschap en Technologie (hereafter IWT)

The Flemish government stimulates innovation in Flanders. Therefore, it grants IWT annually the budgets necessary to finance company research and development (R&D).

During the years ended December 31, 2012 and 2011, the Company recognized €266 and €330, respectively, from a research and development grant from IWT. Grant income received for projects running over several years was accrued / deferred where appropriate and recognized in the years matching the incurred costs relating to these projects.

European Training Network on (+)RNA Virus Replication and Antiviral Drug Development (hereafter EUVIRNA)

Understanding the molecular mechanisms of virus replication is crucial for antiviral drug development. In EUVIRNA, virologists (specialized in different viruses and technologies) and antiviral researchers (specialized in different aspects of the drug discovery process) join forces, aiming to translate knowledge and applying tools to identify or develop novel antiviral strategies / drugs.

OKAPI SCIENCES NV

(A Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share data)

8. SUPPORT AGREEMENTS / DEFERRED INCOME (continued)

European Training Network on (+)RNA Virus Replication and Antiviral Drug Development (hereafter EUVIRNA) (continued)

To achieve these goals, EUVIRNA employs Early Stage Researchers (ESR, mostly PhD students) and Experienced Researchers (ER, mostly postdoctoral researchers), who are stationed at one of the academic or industrial partners.

During the years ended December 31, 2012 and 2011, the Company recognized €98 and €52, respectively, from a grant from EUVIRNA. Grant income received for this project running over several years was deferred where appropriate and recognized in the years matching the incurred salary costs relating to this project.

Other

The Company also benefits from a withholding tax reduction offered by the Belgian government reducing the withholding taxes due on gross salaries of employees that perform research and development activities. The benefit to the Company amounted to €99 and €61 for the years ended December 31, 2012 and December 31, 2011, respectively. Such withholding tax deductions are deducted from the payroll charges which are included in research and development within operating expenses in the accompanying statement of operations.

9. TAXES

The tax effects of temporary differences that give rise to deferred tax assets are as follows:


DEFERRED TAX ASSET	DECEMBER 31, 2012			DECEMBER 31, 2011
NOL and other tax carry forwards	€	3,834		€	3,160
Research and development costs		192			—

Subtotal		4,026			3,160
Valuation allowance		(4,026	)		(3,160	)

Deferred tax asset	€	0		€	0

The Company had approximately €10,511 and €8,534 of tax losses carried forward at December 31, 2012 and 2011, respectively. These tax loss carry-forwards can be utilized in Belgium without any time limitation.

Furthermore the Company has approximately € 586 of tax credits in Belgium (at December 31, 2012 and 2011), which if unused will expire in 2019. There are also tax credits in Belgium for an amount of €180 and €178 at December 31, 2012 and 2011, respectively, which can be utilized without any time limitation.

At December 31, 2012 and December 31, 2011, the Company, which is a Development Stage company, had recorded a full valuation allowance against its gross deferred tax assets as it is unclear when sufficient taxable income will be available to utilize these assets.

The Company is subject to income taxes in Belgium. The statutory tax rate in Belgium is 33.99%. Tax regulations are subject to the interpretation of the related tax laws and regulations and require judgment to apply. The Company is currently not under examination by the tax authorities and all fiscal years from 2008 onwards remain subject to examination.

The Company has no uncertain tax positions.

10. RELATED PARTIES

No transactions have taken place with related parties, other than the convertible bridge loan agreement disclosed in Note 6, service agreements, compensation arrangements, expense allowances and other similar items in the ordinary course of business.

OKAPI SCIENCES NV

(A Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share data)

10. RELATED PARTIES (continued)

Total management compensation for the years ended December 31, 2012 and 2011 amounts to €322 and €330, respectively.

Total amounts due to related parties as at December 31, 2012 and 2011 amount to €26 and €33, respectively.

11. EMPLOYEE BENEFIT PLANS

The Company has a defined contribution plan for eligible employees. The plan, which covers substantially all employees, requires the Company to pay 5.00% of each participating employee’s compensation of annual gross wages into the plan.

The Company contributed €26 and €20 to the plan during the years ended December 31, 2012 and 2011, respectively.

12. COMMITMENTS AND CONTINGENCIES

Aside from the agreements and commitments disclosed in Notes 6 and 7, there were no other material commitments or contingencies as at December 31, 2012 and 2011, respectively.

13. SUBSEQUENT EVENTS

On August 21, 2013, the Company entered into a license agreement with a large international pharmaceutical company for the further development and commercialization of one of its feline antiviral products. This agreement will offer the Company the necessary means to proceed with the required research and development of the product over the coming years. Since signing the agreement, the Company has received €1,061 in the form of a signing fee and research and development support.

As disclosed in Note 6, the Company entered on December 14, 2012 into a convertible bridge loan agreement with certain existing shareholders with the intention to bridge the period between the date of the agreement and the closing of the Series B financing round. In May 2013 (€477), June 2013 (€511) and July 2013 (€12), the Company received the proceeds from the second tranche of the convertible bridge loan agreement. On January 6, 2014, the shareholders approved the conversion into capital (Series A preferred shares) of the €2,000 bridge loan and €132 accrued interest. Furthermore, on January 6, 2014, the 5,782 outstanding warrants were exercised. The January 6, 2014 transactions led to a total stockholders’ equity increase of €2,543.

On January 6, 2014, all of the outstanding shares of capital of the Company were acquired by Aratana Therapeutics, Inc. (“Aratana”), pursuant to the terms of a Stock Purchase Agreement (the “Purchase Agreement”), dated January 6, 2014, by and among the Company, Aratana, and Wildcat Acquisition BVBA, a wholly owned subsidiary of Aratana (“Buyer”), the holders of all of the outstanding capital stock of Okapi (collectively, the “Sellers”) and Thuja Capital Healthcare Fund BV, as the Sellers’ representative.

Under the terms of the Stock Purchase Agreement, in consideration for all of the outstanding capital stock of Okapi, the Buyer (i) paid approximately €10.3 million in cash at the closing, subject to a post-closing working capital adjustment, (ii) issued a promissory note (which was guaranteed by Aratana) in the principal amount of €11.0 million, which bears interest at a rate of 7% per annum, payable quarterly in arrears, with a maturity date of December 31, 2014, subject to mandatory prepayment in the event of a specified future equity financing by Aratana and (iii) agreed to pay an additional €12 million on or prior to April 7, 2014, subject to mandatory prepayment in cash in the event of a specified future equity financing, provided that if not paid in cash by April 7, 2014, payment shall be made in the form of shares of Aratana common stock (the “Shares”) based on the average closing price of Aratana’s common stock during the 10-trading day period ending April 4, 2014, subject to a maximum of

OKAPI SCIENCES NV

(A Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS (Continued)

(Amounts in thousands, except share data)

13. SUBSEQUENT EVENTS (continued)

1,060,740 shares and a minimum of 707,160 shares. Aratana agreed to file a registration statement with the Securities and Exchange Commission to register for resale any shares of common stock issued pursuant to the terms of the Purchase Agreement described in clause (iii) above.

Subsequent events have been evaluated up to January 10, 2014, the date the financial statements were available to be issued.

EX-99.2 4 d656485dex992.htm EX-99.2 EX-99.2

Exhibit 99.2

OKAPI SCIENCES NV

TABLE OF CONTENTS


BALANCE SHEETS (Unaudited)			2

STATEMENTS OF OPERATIONS (Unaudited)			3

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)			4

STATEMENTS OF CASH FLOWS (Unaudited)			5

NOTES TO THE FINANCIAL STATEMENTS (Unaudited)			6

OKAPI SCIENCES NV

(A Development Stage Enterprise)

BALANCE SHEETS (Unaudited)

(Amounts in thousands, except share data)


	SEPTEMBER 30, 2013			DECEMBER 31, 2012
Assets
Current assets
Cash and cash equivalents	€	537		€	933
Trade and other receivables		53			48
Prepaid expenses and other current assets		492			74

Total current assets		1,082			1,055
Property and equipment, net (Note 2)		172			218
Intangible assets, net (Note 3)		462			551
Other assets		13			13

Total assets	€	1,729		€	1,837

Liabilities and Stockholders’ Equity (Deficit)
Current liabilities
Accounts payable and accrued expenses	€	281		€	268
Accrued payroll		82			82
Current portion loan payable		2,005			8
Current portion deferred revenue		156			107

Total current liabilities		2,524			465
Loans payable (Note 6)		—			979
Deferred revenue (Note 8)		400			—

Total liabilities		2,924			1,444

Commitments and contingencies (Notes 6, 7 and 12)

Stockholders’ equity (deficit)
Common Stock—16,166 shares authorized; 16,166 shares issued; 16,166 shares outstanding		62			62
Preferred Stock—83,712 shares authorized; 83,712 shares issued; 83,712 shares outstanding		382			382
Profit Certificates—11,518 certificates issued		—			—
Additional paid-in capital		9,565			9,546
Deficit accumulated during the development stage		(11,204	)		(9,597	)

Total stockholders’ equity (deficit) (Note 4)		(1,195	)		393

Total liabilities and stockholders’ equity (deficit)	€	1,729		€	1,837

The accompanying notes are an integral part of the financial statements.

OKAPI SCIENCES NV

(A Development Stage Enterprise)

STATEMENTS OF OPERATIONS (Unaudited)

(Amounts in thousands, except share data)


	NINE MONTHS ENDED SEPTEMBER 30, 2013			NINE MONTHS ENDED SEPTEMBER 30, 2012			CUMULATIVE PERIOD FROM INCEPTION (DEC 20, 2007) TO SEPTEMBER 30, 2013
Revenue	€	—		€	10		€	10
Cost of sales		—			8			8
Operating expenses
Research and development		911			1,302			7,175
General and administrative		469			385			2,853
Amortization intangible assets (Note 3)		89			105			1,011
Depreciation property and equipment		59			60			247
(Note 2)

Total operating expenses		1,528			1,852			11,286

Loss from operations		(1,528	)		(1,850	)		(11,284	)

Other income (expense)
Interest income		1			7			99
Interest expense		(88	)		(3	)		(101	)
Other income (Note 8)		13			25			102
Other expense		(5	)		(5	)		(20	)

Total other income (expense)		(79	)		24			80

Loss before income taxes		(1,607	)		(1,826	)		(11,204	)
Income tax (expense) / benefit (Note 9)		—			—			—

Net loss	€	(1,607	)	€	(1,826	)	€	(11,204	)

The accompanying notes are an integral part of the financial statements.

OKAPI SCIENCES NV

(A Development Stage Enterprise)

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (Unaudited)

(Amounts in thousands, except share data)


	COMMON SHARES		AMOUNT		PREFERRED SHARES		AMOUNT		PROFIT CERTIFICATES		ADDITIONAL PAID-IN CAPITAL		DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE			TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)
Inception—December 20, 2007
Issuance of common stock to founders (Dec. 20, 2007)		9,000	€	6		—	€	—		—	€	—	€	—		€	6
Issuance of Series A preferred stock (Oct. 17, 2008)		—		—		34,469		157		—		3,343		—			3,500
Issuance of common stock (Oct. 17, 2008)		7,166		56		—		—		11,518		1,273		—			1,329
Compensation expense related to warrants		—		—		—		—		—		16		—			16
Cumulative net loss for the period from December 20, 2007 to December 31, 2008		—		—		—		—		—		—		(354	)		(354	)

Balance at December 31, 2008		16,166		62		34,469		157		11,518		4,632		(354	)		4,497
Compensation expense related to warrants		—		—		—		—		—		33		—			33
Net loss		—		—		—		—		—		—		(1,406	)		(1,406	)

Balance at December 31, 2009		16,166		62		34,469		157		11,518		4,665		(1,760	)		3,124
Issuance of Series A preferred stock (Nov. 9, 2010)		—		—		29,546		135		—		2,865		—			3,000
Compensation expense related to warrants		—		—		—		—		—		34		—			34
Net loss		—		—		—		—		—		—		(2,085	)		(2,085	)

Balance at December 31, 2010		16,166		62		64,015		292		11,518		7,564		(3,845	)		4,073
Issuance of Series A preferred stock (Oct. 21, 2011)		—		—		19,697		90		—		1,910		—			2,000
Compensation expense related to warrants		—		—		—		—		—		36		—			36
Net loss		—		—		—		—		—		—		(3,211	)		(3,211	)

Balance at December 31, 2011		16,166		62		83,712		382		11,518		9,510		(7,056	)		2,898
Compensation expense related to warrants		—		—		—		—		—		36		—			36
Net loss		—		—		—		—		—		—		(2,541	)		(2,541	)

Balance at December 31, 2012		16,166		62		83,712		382		11,518		9,546		(9,597	)		393
Compensation expense related to warrants		—		—		—		—		—		19		—			19
Net loss		—		—		—		—		—		—		(1,607	)		(1,607	)

Balance at September 30, 2013		16,166	€	62		83,712	€	382		11,518	€	9,565	€	(11,204	)	€	(1,195	)

The accompanying notes are an integral part of the financial statements.

OKAPI SCIENCES NV

(A Development Stage Enterprise)

STATEMENTS OF CASH FLOWS (Unaudited)

(Amounts in thousands)


	NINE MONTHS ENDED SEPTEMBER 30, 2013			NINE MONTHS ENDED SEPTEMBER 30, 2012			CUMULATIVE PERIOD FROM INCEPTION (DEC 20, 2007) TO SEPTEMBER 30, 2013
Cash flows from operating activities
Net loss	€	(1,607	)	€	(1,826	)	€	(11,204	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		148			165			1,258
Non-cash compensation expense related to warrants		19			27			175
Non-cash interest expense		86			—			88
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(418	)		58			(492	)
Trade and other receivables		(5	)		(88	)		(53	)
Other assets		—			—			(13	)
Accounts payable and accrued expenses		(73	)		(170	)		193
Accrued payroll		—			6			82
Deferred income		449			(85	)		556

Net cash used in operating activities		(1,401	)		(1,913	)		(9,410	)

Cash flows from investing activities
Purchases of property and equipment		(13	)		(34	)		(419	)
Purchases of intangible assets		—			—			(145	)

Net cash used in investing activities		(13	)		(34	)		(564	)

Cash flows from financing activities
Proceeds from issuance common stock		—			—			6
Proceeds from issuance Series A Preferred stock		—			—			8,500
Proceeds from issuance of convertible bridge loan		1,024			—			2,000
Proceeds from issuance of long-term debt		—			—			23
Repayment of long-term debt		(6	)		(6	)		(18	)

Net cash provided by financing activities		1,018			(6	)		10,511

Net increase (decrease) in cash and cash equivalents		(396	)		(1,953	)		537
Cash and cash equivalents, beginning of period		933			2,408			—

Cash and cash equivalents, end of period	€	537		€	455		€	537

Supplemental disclosure of cash flow information:
Cash paid for interest	€	2		€	3		€	13

The accompanying notes are an integral part of the financial statements.

OKAPI SCIENCES NV

(A Development Stage Enterprise)

NOTES TO THE FINANCIAL STATEMENTS (Unaudited)

(Amounts in thousands, except share data)

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation—The financial statements have been prepared in accordance with generally accepted accounting principles in the United States.

Cash and Cash Equivalents—The Company considers all highly liquid instruments with a maturity of three months or less at the time of purchase to be cash equivalents. As at September 30, 2013 and December 31, 2012, the Company had no cash equivalents.

The range of useful lives for fixed assets is as follows:


		YEARS
Laboratory equipment and machinery		3 to 5
Office equipment, furniture and fixtures		3 to 5
Vehicles		3
Leasehold improvements		3 to 10

OKAPI SCIENCES NV

(A Development Stage Enterprise)

NOTES TO THE FINANCIAL STATEMENTS (Unaudited) (Continued)

(Amounts in thousands, except share data)

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Research and Development—Expenditures for own research and development are expensed when incurred.

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recently Issued and Adopted Accounting Pronouncements—The Company has evaluated all recent accounting pronouncements and believes that none of them will have a material effect on the Company’s financial statements.

2. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:


	LABORATORY EQUIPMENT AND MACHINERY			OFFICE EQUIPMENT, FURNITURE AND FIXTURES			VEHICLES			LEASEHOLD IMPROVEMENTS			P&E TOTAL
Net carrying amount January 1, 2012	€	116			27			19			93		€	255
Additions		12			7			21			5			45
Disposals		—			—			—			—			—
Depreciation / Amortization		(45	)		(12	)		(13	)		(12	)		(82	)

Net carrying amount December 31, 2012		83			22			27			86			218
Additions		9			4			—			—			13
Disposals		—			—			—			—			—
Depreciation / Amortization		(28	)		(10	)		(12	)		(9	)		(59	)

Net carrying amount September 30, 2013	€	64			16			15			77		€	172

OKAPI SCIENCES NV

(A Development Stage Enterprise)

NOTES TO THE FINANCIAL STATEMENTS (Unaudited) (Continued)

(Amounts in thousands, except share data)

2. PROPERTY AND EQUIPMENT (continued)

Gross book value and accumulated depreciation / amortization at the balance sheet date are as follows:


AS AT:	SEPTEMBER 30, 2013			DECEMBER 31, 2012
Laboratory equipment and machinery	€	194		€	185
Office equipment, furniture and fixtures		63			59
Vehicles		47			47
Leasehold improvements		111			111

Total	€	415		€	402
Less Accumulated depreciation / amortization		(243	)		(184	)
Less Impairment		—			—

Net	€	172		€	218

3. INTANGIBLE ASSETS

Intangible assets consist of the following:


	PATENTS AND LICENSES			SOFTWARE			INTANGIBLES TOTAL
Net carrying amount January 1, 2012	€	685			5		€	690
Additions		—			—			—
Disposals		—			—			—
Amortization		(138	)		(1	)		(139	)

Net carrying amount December 31, 2012		547			4			551
Additions		—			—			—
Disposals		—			—			—
Amortization		(88	)		(1	)		(89	)

Net carrying amount September 30, 2013	€	459			3		€	462

Gross book value and accumulated amortization at the balance sheet date are as follows:


AS AT:	SEPTEMBER 30, 2013			DECEMBER 31, 2012
Patents and licenses	€	1,456		€	1,456
Software		6			6

Total	€	1.462		€	1.462
Less Accumulated amortization		(1,000	)		(911	)
Less Impairment		—			—

Net	€	462		€	551

OKAPI SCIENCES NV

(A Development Stage Enterprise)

NOTES TO THE FINANCIAL STATEMENTS (Unaudited) (Continued)

(Amounts in thousands, except share data)

4. STOCKHOLDERS’ EQUITY (DEFICIT)

As at September 30, 2013 and December 31, 2012, paid-in capital of the Company was € 444, represented by 16,166 common shares and 83,712 Series A preferred shares. Rights attributed to common shares and Series A preferred shares are as follows:

Each common share and each Series A preferred share has voting rights. Certain transactions require a qualified majority from the preferred A shareholders.

5. STOCK-BASED COMPENSATION

The following table summarizes the assumptions used and the resulting fair value of warrants granted:


	2008 WARRANTS			2011 WARRANTS
Warrants granted		5,282			500
Weighted-average assumptions:
Expected life		5.0 years			5.0 years
Risk-free interest rate		3	%		1	%
Expected volatility		50.0	%		50.0	%
Dividend yield		—			—
Grant date fair value per share	€	33.16		€	31.15

As a result of the Company’s history of operating losses and of the uncertainty regarding future operating results, no income tax benefit has been recognized.

OKAPI SCIENCES NV

(A Development Stage Enterprise)

NOTES TO THE FINANCIAL STATEMENTS (Unaudited) (Continued)

(Amounts in thousands, except share data)

5. STOCK-BASED COMPENSATION (continued)

As at September 30, 2013 and as at December 31, 2012, the Company had 5,782 warrants outstanding that have not expired or been forfeited. These warrants were granted respectively in 2008 (5,282) and in 2011 (500) and all have an exercise price of €71.08. Each warrant gives the right to purchase one common share of the Company. The exercise of all outstanding warrants would therefore result in a capital increase of €411.

The remaining unrecognized compensation cost at the end of September 30, 2013 and December 31, 2012 was respectively €5 and €24.

6. DEBT AND FINANCING AGREEMENTS

Estimated future principal payments on this loan agreement are as follows:


Twelve months period ending September 30, 2014	€	5

Total	€	5

The bridge loan agreement is for a total amount of €2,000, consisting of two tranches of €1,000 each. The convertible debt was issued without discount or premium and the conversion option does not contain a beneficial conversion feature. The bridge loan contains mandatory conversion features as well as voluntary conversion features in case of change of control or in case the Series B financing does not take place by the end of 2013. The first tranche was paid by the lenders in December 2012 (€976) and February 2013 (€24). The payment of the second tranche occurred in May 2013 (€477), June 2013 (€511) and July 2013 (€12). On September 30, 2013, there was accrued interest on the balance sheet for an amount of €88.

Estimated future principal payments on this loan agreement are as follows:


Twelve months period ending September 30, 2014	€	2,000

Total	€	2,000

The fair value of the debt approximates the carrying value of the debt.

7. LEASES

In 2009, the Company entered into an operating lease agreement of a building consisting of office and laboratory space and storage facilities in Heverlee, Belgium. The initial agreement was concluded for a period of 9 years, starting on November 1, 2009 and expiring on October 30, 2018. In 2010 and 2011, additional leases were signed for an annex to the building. The initial lease agreement contains a clause allowing each party to end the lease on October 30, 2012 or October 30, 2015. The total lease costs of the office building amounted to €77 and €54 for the nine months ended September 30, 2013 and 2012, respectively.

OKAPI SCIENCES NV

(A Development Stage Enterprise)

NOTES TO THE FINANCIAL STATEMENTS (Unaudited) (Continued)

(Amounts in thousands, except share data)

7. LEASES (continued)

The other lease agreements primarily refer to car rental / lease agreements for periods varying from 1 to 5 years.

The following is a schedule of future minimum rental payments (exclusive of VAT) required under operating leases:


Future minimum rental payments estimated at the end of the twelve months period ending September 30,
2014	€	126
2015		121
2016		112
2017		110
2018		105
Thereafter		9

Total	€	583

Future rental payments and future rental expenses are aligned.

8. AGREEMENTS / DEFERRED REVENUE

The Company recognized €251 and €269 of aggregate grant income from IWT and EUVIRNA in the nine months ended September 30, 2013 and 2012, respectively. These amounts are recognized as a reduction of research and development expenses in the accompanying statement of operations as they are intended to compensate research and development costs.

Deferred revenue and current portion of deferred revenue contain €556 (of which €56 relating to grant income and €500 to the upfront payment from NAH) and €107 (fully relating to grant income) as at September 30, 2013 and December 31, 2012, respectively, as not all the conditions were fulfilled to recognize these received grant amounts and upfront payment into income.

Agentschap voor Innovatie door Wetenschap en Technologie (hereafter IWT)

The Flemish government stimulates innovation in Flanders. Therefore, it grants IWT annually the budgets necessary to finance company research and development (R&D).

During the nine months ended September 30, 2013 and 2012, the Company recognized €168 and €201, respectively, from a research and development grant from IWT. Grant income received for projects running over several years was accrued / deferred where appropriate and recognized in the years matching the incurred costs relating to these projects.

European Training Network on (+)RNA Virus Replication and Antiviral Drug Development (hereafter EUVIRNA)

During the nine months ended September 30, 2013 and 2012, the Company recognized €83 and €68, respectively, from a grant from EUVIRNA. Grant income received for this project running over several years was deferred where appropriate and recognized in the years matching the incurred salary costs relating to this project.

OKAPI SCIENCES NV

(A Development Stage Enterprise)

NOTES TO THE FINANCIAL STATEMENTS (Unaudited) (Continued)

(Amounts in thousands, except share data)

8. AGREEMENTS / DEFERRED REVENUE (continued)

Novartis Animal Health (hereafter NAH)

On August 21, 2013, the Company entered into a license agreement with NAH for the further development and commercialization of one of its feline antiviral products. This agreement will offer the Company the necessary means to proceed with the required research and development of the product over the coming years.

During the nine months ended September 30, 2013, the Company received from NAH an upfront payment of €500 upon signing of the definitive agreement. This amount is included in current portion of deferred revenue and deferred revenue at September 30, 2013.

The Company recognized €489 of income from NAH in the nine months ended September 30, 2013, related to the reimbursement of research and development expenses. This amount is recognized as a reduction of research and development expenses in the accompanying statement of operations as they are intended to reimburse research and development costs.

Prepaid expenses and other current assets contains €489 as at September 30, 2013, as the related research and development expenses had not yet been invoiced to NAH.

Other

The Company also benefits from a withholding tax reduction offered by the Belgian government reducing the withholding taxes due on gross salaries of employees that perform research and development activities. The benefit to the Company amounted to €69 and €69 for the nine months ended September 30, 2013 and 2012, respectively. Such withholding tax deductions are deducted from the payroll charges which are included in research and development within operating expenses in the accompanying statement of operations.

9. TAXES

The tax effects of temporary differences that give rise to deferred tax assets are as follows:


	SEPTEMBER 30, 2013			DECEMBER 31, 2012
DEFERRED TAX ASSET
NOL and other tax carry forwards	€	4,433		€	3,834
Research and development costs		133			192

Subtotal		4,566			4,026
Valuation allowance		(4,566	)		(4,026	)

Deferred tax asset	€	0		€	0

The Company had approximately €12,276 and €10,511 of tax losses carried forward at September 30, 2013 and December 31, 2012, respectively. These tax loss carry-forwards can be utilized in Belgium without any time limitation.

Furthermore the Company has approximately €586 of tax credits in Belgium (at September 30, 2013 and December 31, 2012), which if unused will expire in 2019. There are also tax credits in Belgium for an amount of €180 (at September 30, 2013 and December 31, 2012), which can be utilized without any time limitation.

OKAPI SCIENCES NV

(A Development Stage Enterprise)

NOTES TO THE FINANCIAL STATEMENTS (Unaudited) (Continued)

(Amounts in thousands, except share data)

9. TAXES (continued)

At September 30, 2013 and December 31, 2012, the Company, which is a Development Stage company, had recorded a full valuation allowance against its gross deferred tax assets as it is unclear when sufficient taxable income will be available to utilize these assets.

The Company has no uncertain tax positions.

10. RELATED PARTIES

Total management compensation for the nine months ended September 30, 2013 and December 31, 2012 amounts to €248 and €245, respectively.

Total amounts due to related parties as at September 30, 2013 and December 31, 2012 amount to €146 and €26, respectively.

11. EMPLOYEE BENEFIT PLANS

The Company contributed €21 and €20 to the plan during the nine months ended September 30, 2013 and 2012, respectively.

12. COMMITMENTS AND CONTINGENCIES

Aside from the agreements and commitments disclosed in Notes 6 and 7, there were no other material commitments or contingencies as at September 30, 2013 and December 31, 2012, respectively.

13. SUBSEQUENT EVENTS

As disclosed in Note 6, the Company entered on December 14, 2012 into a convertible bridge loan agreement with certain existing shareholders with the intention to bridge the period between the date of the agreement and the closing of the Series B financing round. On January 6, 2014, the shareholders approved the conversion into capital (Series A preferred shares) of the €2,000 bridge loan and €132 accrued interest. Furthermore, on January 6, 2014, the 5,782 outstanding warrants were exercised. The January 6, 2014 transactions led to a total stockholders’ equity increase of €2,543.

OKAPI SCIENCES NV

(A Development Stage Enterprise)

NOTES TO THE FINANCIAL STATEMENTS (Unaudited) (Continued)

(Amounts in thousands, except share data)

13. SUBSEQUENT EVENTS (continued)

Under the terms of the Stock Purchase Agreement, in consideration for all of the outstanding capital stock of Okapi, the Buyer (i) paid approximately €10,300 in cash at the closing, subject to a post-closing working capital adjustment, (ii) issued a promissory note (which was guaranteed by Aratana) in the principal amount of €11,000, which bears interest at a rate of 7% per annum, payable quarterly in arrears, with a maturity date of December 31, 2014, subject to mandatory prepayment in the event of a specified future equity financing by Aratana and (iii) agreed to pay an additional €12,000 on or prior to April 7, 2014, subject to mandatory prepayment in cash in the event of a specified future equity financing, provided that if not paid in cash by April 7, 2014, payment shall be made in the form of shares of Aratana common stock (the “Shares”) based on the average closing price of Aratana’s common stock during the 10-trading day period ending April 4, 2014, subject to a maximum of 1,060,740 shares and a minimum of 707,160 shares. Aratana agreed to file a registration statement with the Securities and Exchange Commission to register for resale any shares of common stock issued pursuant to the terms of the Purchase Agreement described in clause (iii) above.

Subsequent events have been evaluated up to January 10, 2014, the date the financial statements were available to be issued.

EX-99.3 5 d656485dex993.htm EX-99.3 EX-99.3

Exhibit 99.3

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

On October 15, 2013, Aratana Therapeutics, Inc. (“Aratana”, the “Company”) acquired Vet Therapeutics, Inc. (“Vet Therapeutics”), pursuant to the terms of an Agreement and Plan of Merger (the “Merger Agreement”), dated October 13, 2013, by and among Vet Therapeutics, Aratana, Jayhawk Acquisition Corporation, a wholly-owned subsidiary of Aratana (“Merger Sub”), and Jeffrey Miles, as the stockholders’ representative. In connection with the consummation of the transactions contemplated by the Merger Agreement, Merger Sub merged with and into Vet Therapeutics, and Vet Therapeutics survived as a wholly-owned subsidiary of Aratana (the “Vet Merger”).

On January 6, 2014, Aratana acquired all of the outstanding shares of capital stock of Okapi Sciences NV (“Okapi”), pursuant to the terms of a Stock Purchase Agreement (the “Purchase Agreement”), dated January 6, 2014, by and among Aratana, Wildcat Acquisition BVBA, a wholly owned subsidiary of Aratana (“Buyer”), the holders of all of the outstanding capital stock of Okapi (collectively, the “Sellers”) and Thuja Capital Healthcare Fund BV, as the Sellers’ representative (the “Okapi Acquisition”).

The following unaudited pro forma consolidated financial information was prepared to give effect to the completed Vet Merger and the completed Okapi Acquisition. The unaudited pro forma consolidated balance sheet as of September 30, 2013 gives effect to the Vet Merger and the Okapi Acquisition as if each occurred on September 30, 2013. The unaudited pro forma consolidated statements of operations for the year ended December 31, 2012 and nine months ended September 30, 2013 give effect to the Vet Merger and the Okapi Acquisition as if each occurred on January 1, 2012. The unaudited pro forma consolidated financial statements are derived from the audited historical financial statements of Aratana, Vet Therapeutics and Okapi as of and for the year ended December 31, 2012, the audited historical financial statements of Vet Therapeutics as of and for the nine months ended September 30, 2013, and the unaudited historical financial statements of Aratana and Okapi as of and for the nine months ended September 30, 2013.

The unaudited pro forma consolidated financial information was prepared in accordance with the rules and regulations of the SEC and should not be considered indicative of the consolidated financial position or results of operations that would have occurred if the Vet Merger and the Okapi Acquisition had occurred on the dates indicated, nor are they indicative of the future consolidated financial position or results of operations of Aratana, Vet Therapeutics and Okapi following completion of the Vet Merger and the Okapi Acquisition. The unaudited pro forma consolidated financial information does not reflect the potential realization of cost savings, restructuring or other costs relating to the integration of Vet Therapeutics and Okapi. The historical consolidated financial statements of Aratana, Vet Therapeutics and Okapi have been adjusted in the unaudited pro forma consolidated financial information to give effect to pro forma events that are (1) directly attributable to the Vet Merger and the Okapi Acquisition (2) factually supportable, and (3) with respect to the unaudited pro forma statements of operations, expected to have a continuing impact on the consolidated results.

The unaudited pro forma consolidated financial information is based on the preliminary information available and management’s preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed. The finalization of the Company’s purchase accounting assessments may result in changes to the valuation of assets acquired and liabilities assumed, particularly in regards to indefinite and definite-lived intangible assets and deferred tax assets and liabilities, as well as the estimated fair value of purchase consideration transferred to the sellers of Vet Therapeutics or Okapi, which could be material. The Company will finalize the purchase price allocations as soon as practicable within the measurement period in accordance with Accounting Standards Codification Topic 805 “Business Combinations” (“ASC 805”), but in no event later than one year from October 15, 2013, the Vet Merger date, with respect to the Vet Merger, and January 6, 2014, the Okapi Acquisition date, with respect to the Okapi Acquisition.

The unaudited pro forma consolidated financial information should be read in conjunction with the accompanying notes hereto. In addition, the unaudited pro forma consolidated financial information was based on and should be read in conjunction with the following:

•

Aratana’s historical audited financial statements and related notes thereto as of and for the year ended December 31, 2012 contained in its Registration Statement on Form S-1 filed with the SEC on January 14, 2013;

•

Aratana’s historical unaudited financial statements and related notes thereto as of and for the nine months ended September 30, 2013 contained in its Quarterly Report on Form 10-Q filed with the SEC on November 14, 2013;

•

Vet Therapeutics’ historical audited financial statements and related notes thereto as of and for the year ended December 31, 2012 and as of and for the nine months ended September 30, 3013 filed as Exhibit 99.1 of Aratana’s Form 8-K/A filed with the SEC on December 23, 2013;

•

Okapi’s historical audited financial statements and related notes thereto as of and for the year ended December 31, 2012, which are attached to this Form 8-K/A as Exhibit 99.1; and

•

Okapi’s historical unaudited financial statements and related notes thereto as of and for the nine months ended September 30, 2013, which are attached to this Form 8-K/A as Exhibit 99.1.

ARATANA THERAPEUTICS, INC.

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

As of September 30, 2013

(In thousands, except share and per share amounts)


	HISTORICAL									VET THERAPEUTICS PRO FORMA ADJUSTMENTS			NOTE 5	OKAPI PRO FORMA ADJUSTMENTS			NOTE 6	PRO FORMA CONSOLIDATED
	ARATANA			VET THERAPEUTICS			OKAPI			VET THERAPEUTICS PRO FORMA ADJUSTMENTS			NOTE 5	OKAPI PRO FORMA ADJUSTMENTS			NOTE 6	PRO FORMA CONSOLIDATED
Assets
Current assets:
Cash and cash equivalents	$	46,169		$	2,170		$	727		$	(263	)	(A)	$	(13,910	)	(A)	$	34,893
Short-term marketable securities		6,137			—			—			—				—				6,137
Accounts receivable		—			92			72			—				—				164
Inventory		—			141			—			32		(B)		—				173
Prepaid expenses and other current assets		305			6			666			—				—				977

Total current assets		52,611			2,409			1,465			(231	)			(13,910	)			42,344
Property and equipment, net		21			76			233			—				—				330
Other long-term assets		36			3			18			—				—				57
Intangible assets, net		—			—			625			46,520		(C)		28,775		(B)		75,920
Goodwill		—			—			—			19,055		(D)		17,907		(C)		36,962

Total assets	$	52,668		$	2,488		$	2,341		$	65,344			$	32,772			$	155,613

Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable	$	816		$	22		$	244		$	—			$	—			$	1,082
Accrued expenses		1,658			804			248			361		(E)		909		(D)		3,980
Current portion loan payable		1,250			—			—			2,500		(F)		—				3,750
Convertible notes payable		—			2,300			2,714			(2,300	)	(G)		(2,714	)	(E)		—
Deferred income		800			—			—			—				—				800
Current portion deferred licensing revenue		—			1,920			211			(1,865	)	(H)		—				266
Current portion contingent consideration		—			—			—			—				15,166		(F)		15,166
Other current liabilities		530			—			—			—				—				530

Total current liabilities		5,054			5,046			3,417			(1,304	)			13,361				25,174
Loan payable		3,691			—			—			7,487		(F)		—				11,178
Notes payable		—			—			—			3,000		(J)		14,889		(G)		17,889
Deferred licensing revenue		—			480			542			(480	)	(H)		—				542
Contingent consideration		—			—			—			3,810		(K)		—				3,810
Deferred tax liabilities, net		—			—			—			5,989		(I)		3,813		(H)		9,802
Other long-term liabilities		87			—			—			—				—				87

Total liabilities		8,832			5,526			3,959			18,502				32,063				68,882

Stockholders’ equity (deficit):
Common stock		21			—			84			2		(L)		(84	)	(I)		23
Preferred stock		—			—			517			—				(517	)	(I)		—
Additional paid-in capital		77,429			565			12,946			33,883		(L)		(12,946	)	(I)		111,877
Deficit accumulated during the development stage		(33,614	)		(3,603	)		(15,165	)		12,957		(L)		14,256		(I)		(25,169	)

Total stockholders’ equity (deficit)		43,836			(3,038	)		(1,618	)		46,842				709				86,731

Total liabilities and stockholders’ equity (deficit)	$	52,668		$	2,488		$	2,341		$	65,344			$	32,772			$	155,613

The accompanying notes are an integral part of these unaudited pro forma consolidated financial statements.

ARATANA THERAPEUTICS, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2013

(In thousands, except share and per share amounts)


	HISTORICAL									VET THERAPEUTICS PRO FORMA ADJUSTMENTS			NOTE 5			OKAPI PRO FORMA ADJUSTMENTS			NOTE 6			PRO FORMA CONSOLIDATED
	ARATANA			VET THERAPEUTICS			OKAPI			VET THERAPEUTICS PRO FORMA ADJUSTMENTS			NOTE 5			OKAPI PRO FORMA ADJUSTMENTS			NOTE 6			PRO FORMA CONSOLIDATED
Revenues:
Licensing revenue	$	—		$	1,440		$	—		$	—					$	—					$	1,440
Product sales		—			157			—			—						—						157

Total revenues		—			1,597			—			—						—						1,597

Costs and expenses:
Cost of product sales		—			137			—			—						—						137
Royalty expense		—			70			—			—						—						70
Research and development		7,817			1,350			1,200			—						54			(J	)		10,421
General and administrative		3,911			360			618			(257	)		(M	)		24			(J	)		4,656
Depreciation of property and equipment		—			—			78			—						(78	)		(J	)		—
Amortization of acquired intangible assets		—			—			117			1,367			(N	)		(117	)		(K	)		1,367

Total costs and expenses		11,728			1,917			2,013			1,110						(117	)					16,651


Loss from operations		(11,728	)		(320	)		(2,013	)		(1,110	)					117						(15,054	)

Other income (expense):
Interest income		51			4			1			—						—						56
Interest expense		(182	)		(87	)		(116	)		(483	)		(O	)		(368	)		(L	)		(1,236	)
Other income		455			—			17			—						—						472
Other expense		—			—			(7	)		—						—						(7	)

Total other income (expense)		324			(83	)		(105	)		(483	)					(368	)					(715	)

Loss before income taxes		(11,404	)		(403	)		(2,118	)		(1,593	)					(251	)					(15,769	)
Income tax benefit		—			—			—			5,092			(P)			804			(M	)		5,896

Net loss	$	(11,404	)	$	(403	)	$	(2,118	)	$	3,499					$	553					$	(9,873	)


Net loss per share, basic and diluted	$	(1.50	)																			$	(1.00	)


Weighted average shares outstanding, basic and diluted		7,601,388									1,859,375			(Q	)								9,460,763

The accompanying notes are an integral part of these unaudited pro forma consolidated financial statements.

ARATANA THERAPEUTICS, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

For the Year Ended December 31, 2012

(In thousands, except share and per share amounts)


	HISTORICAL									VET THERAPEUTICS PRO FORMA ADJUSTMENTS			NOTE 5			OKAPI PRO FORMA ADJUSTMENTS			NOTE 6			PRO FORMA CONSOLIDATED
	ARATANA			VET THERAPEUTICS			OKAPI			VET THERAPEUTICS PRO FORMA ADJUSTMENTS			NOTE 5			OKAPI PRO FORMA ADJUSTMENTS			NOTE 6			PRO FORMA CONSOLIDATED
Revenues:
Licensing revenue	$	—		$	160		$	13		$	—					$	—					$	173

Costs and expenses:
Cost of product sales		—			—			10			—						—						10
Research and development		7,291			993			2,368			—						76			(J	)		10,728
General and administrative		2,987			167			658			—						29			(J	)		3,841
In-process research and development		1,500			—			—			—						—						1,500
Depreciation of property and equipment		—			—			105			—						(105	)		(J	)		—
Amortization of acquired intangible assets		—			—			179			1,822			(N	)		(179	)		(K	)		1,822

Total operating expenses		11,778			1,160			3,320			1,822						(179	)					17,901

Loss from operations		(11,778	)		(1,000	)		(3,307	)		(1,822	)					179						(17,728	)

Other income (expense):
Interest income		21			1			10			—						—						32
Interest expense		—			(115	)		(8	)		(645	)		(O	)		(982	)		(L	)		(1,750	)
Other income		121			—			46			—						—						167
Other expense		—			—			(8	)		—						—						(8	)

Total other income (expense)		142			(114	)		40			(645	)					(982	)					(1,559	)

Loss before income taxes		(11,636	)		(1,114	)		(3,267	)		(2,467	)					(803	)					(19,287	)
Income tax benefit		—			—			—			5,782			(P	)		1,384			(M	)		7,166

Net loss		(11,636	)		(1,114	)		(3,267	)		3,315						581						(12,121	)
Unaccreted dividends on convertible preferred stock		(2,035	)		—			—			—						—						(2,035	)

Net loss attributable to common stockholders	$	(13,671	)	$	(1,114	)	$	(3,267	)	$	3,315					$	581					$	(14,156	)

Net loss per share attributable to common stockholders, basic and diluted	$	(34.53	)																			$	(6.28	)

Weighted average shares outstanding, basic and diluted		395,918									1,859,375			(Q	)								2,255,293

The accompanying notes are an integral part of these unaudited pro forma consolidated financial statements.

ARATANA THERAPEUTICS, INC.

Notes to Unaudited Pro Forma Consolidated Financial Information

(In thousands, except per share amounts)

1. Description of Transactions

Acquisition of Vet Therapeutics, Inc.

On October 15, 2013, Aratana (the “Company”) acquired Vet Therapeutics, Inc. (“Vet Therapeutics”) pursuant to the terms of an Agreement and Plan of Merger (the “Merger Agreement”), dated October 13, 2013, by and among Vet Therapeutics, Aratana, Jayhawk Acquisition Corporation, a wholly owned subsidiary of Aratana (“Merger Sub”), and Jeffrey Miles, as the stockholders’ representative. In connection with the consummation of the transactions contemplated by the Merger Agreement, Merger Sub merged with and into Vet Therapeutics, and Vet Therapeutics survived as a wholly-owned subsidiary of Aratana (the “Vet Merger”).

Under the terms of the Merger Agreement, Aratana agreed to pay to the former shareholders of Vet Therapeutics common stock aggregate merger consideration, subject to post-closing working capital adjustments, of (i) $30,000 in cash (the “Vet Cash Consideration”), (ii) 625,000 shares (the “the Merger Shares”) of Aratana’s common stock, fair value of $14,700, and (iii) a promissory note in the principal amount of $3,000 with a maturity date of December 31, 2014. The Company funded cash consideration with the proceeds from a $19,750 private placement of its common stock, $10,000 in borrowings from its amended credit facility and available cash on hand. The promissory note bears interest at a rate of 7% per annum, payable quarterly in arrears, and is subject to prepayment in the event of specified future equity financings by Aratana. Aratana also agreed to pay up to $5,000 in contingent cash consideration in connection with the achievement of certain regulatory and manufacturing milestones for Vet Therapeutics’ B-cell lymphoma product.

The Vet Merger has been accounted for under the purchase method of accounting in accordance with applicable accounting guidance on business combinations. The total estimated purchase price, calculated as described below, was allocated to the net tangible assets and intangible assets of Vet Therapeutics acquired in connection with the Vet Merger based on their estimated fair values as of the completion of the Vet Merger, and the excess was allocated to goodwill. The process for measuring the fair value of Vet Therapeutics identifiable intangible assets, liabilities and certain tangible assets requires the use of significant assumptions, including estimates of future cash flows and appropriate discount rates.

The fair value of Vet Therapeutics assets acquired and liabilities assumed, as reflected in the unaudited pro forma consolidated financial information, was measured in accordance with Accounting Standards Codification Topic 820 “Fair Value Measurement and Disclosure” (“ASC 820”), which establishes the framework for measuring fair values. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). Market participants are buyers and sellers in the principal (most advantageous) market for the asset or liability. Additionally, under ASC 820, fair value measurements for an asset assume the highest and best use of that asset by market participants.

Acquisition of Okapi Sciences N.V.

On January 6, 2014, Aratana acquired all of the outstanding shares of capital stock of Okapi Sciences N.V. (“Okapi”) pursuant to the terms of a Stock Purchase Agreement (the “Purchase Agreement”), dated January 6, 2014, by and among Aratana, Wildcat Acquisition BVBA, a wholly owned subsidiary of Aratana, the holders of all of the outstanding capital stock of Okapi (collectively, the “Sellers”) and Thuja Capital Healthcare Fund BV, as the Sellers’ representative (the “Okapi Acquisition”).

ARATANA THERAPEUTICS, INC.

Notes to Unaudited Pro Forma Consolidated Financial Information

(In thousands, except per share amounts)

Under the terms of the Purchase Agreement, in consideration for all of the outstanding capital stock of Okapi, Aratana (i) paid €10,277 in cash (the “Okapi Cash Consideration”) at the closing, subject to a post-closing working capital adjustment, (ii) issued a promissory note, which was guaranteed by Aratana, in the principal amount of €11,000, which bears interest at a rate of 7% per annum, payable quarterly in arrears, with a maturity date of December 31, 2014, subject to mandatory prepayment in the event of a specified future equity financing by Aratana, and (iii) agreed to pay an additional $16,308 on or prior to April 7, 2014, subject to mandatory prepayment in cash in the event of a specified future equity financing, provided that if not paid in cash by April 7, 2014, payment shall be made in the form of shares of Aratana common stock based on the average closing price of Aratana’s common stock during the 10-trading day period ending April 4, 2014, subject to a maximum of 1,060,740 shares and a minimum of 707,160 shares. Pursuant to the terms of the Purchase Agreement, Aratana agreed to file a registration statement with the SEC to register for resale any shares of common stock issued as described in (iii) above.

The Okapi Acquisition has been accounted for under the purchase method of accounting in accordance with applicable accounting guidance on business combinations. The total estimated purchase price, calculated as described below, was allocated to the net tangible assets and intangible assets of Okapi acquired in connection with the Okapi Acquisition based on their estimated fair values as of the completion of the Okapi Acquisition, and the excess was allocated to goodwill. The process for measuring the fair value of Okapi’s identifiable intangible assets, liabilities and certain tangible assets requires the use of significant assumptions, including estimates of future cash flows and appropriate discount rates.

The fair value of Okapi’s assets acquired and liabilities assumed, as reflected in the unaudited pro forma consolidated financial information, was measured in accordance with ASC 820, which establishes the framework for measuring fair values. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). Market participants are buyers and sellers in the principal (most advantageous) market for the asset or liability. Additionally, under ASC 820, fair value measurements for an asset assume the highest and best use of that asset by market participants.

2. Basis of Unaudited Pro Forma Presentation

The unaudited pro forma consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the SEC, and present the pro forma results of operations of the combined companies based upon the historical financial statements of Aratana, Vet Therapeutics and Okapi. The unaudited pro forma consolidated balance sheet as of September 30, 2013 gives effect to the Vet Merger and the Okapi Acquisition as if each occurred on September 30, 2013. The unaudited pro forma consolidated statements of operations for the year ended December 31, 2012 and nine months ended September 30, 2013 give effect to the Vet Merger and the Okapi Acquisition as if each occurred on January 1, 2012. The historical consolidated financial statements have been adjusted in the unaudited pro forma consolidated financial statements to give effect to pro forma events that are (1) directly attributable to the Vet Merger and the Okapi Acquisition, (2) factually supportable, and (3) with respect to the unaudited pro forma statements of operations, expected to have a continuing impact on the consolidated results.

The Euro-denominated historical statements of operations of Okapi for the nine months ended September 30, 2013 and for the year ended December 31, 2012 have been converted into U.S. dollars using exchange rates of $1.3170 = €1.00 and $1.2857 = €1.00, respectively, which represent the average U.S. dollar to Euro exchange rate for each of the respective periods. The Euro-denominated historical balance sheet of Okapi as of September 30, 2013 has been converted into U.S. dollars using an exchange rate of $1.3535 = €1.00, which represents the U.S. dollar to Euro exchange rate on September 30, 2013.

The unaudited pro forma consolidated financial statements are presented for illustrative purposes only and are not necessarily indicative of the operating results that would have been achieved had the Vet Merger and the Okapi Acquisition occurred as of the dates indicated above or the results that may be attained in the future.

ARATANA THERAPEUTICS, INC.

Notes to Unaudited Pro Forma Consolidated Financial Information

(In thousands, except per share amounts)

3. Preliminary Purchase Prices

Vet Merger

The Vet Merger-date fair value of the consideration transferred to the sellers of Vet Therapeutics, less cash acquired, was $49,340, which consisted of the following:


Fair value of consideration transferred:

Vet Cash Consideration	$	30,000
Fair value of Merger Shares		14,700
Fair value of promissory note		3,000
Fair value of contingent consideration		3,810

Fair value of total consideration		51,510
Less cash acquired		(2,170	)

Total consideration transferred, net of cash acquired	$	49,340

Vet Cash Consideration: The Company partially funded the Vet Cash Consideration from the proceeds from a $19,750 private placement of its common stock and from $10,000 in borrowings from its amended credit facility, both of which are described more fully below.

Private Placement: On October 13, 2013, the Company entered into a share purchase agreement with various accredited investors, pursuant to which Aratana agreed to sell an aggregate of 1,234,375 shares (the “Private Placement Shares”) of its common stock for an aggregate purchase price of $19,750, or $16.00 per share (the “Private Placement”). Under the terms of the share purchase agreement, as amended October 22, 2013, the Private Placement Shares are not required to be registered for resale.

Amendment to Loan and Security Agreement: In March 2013, the Company entered into a loan and security agreement (the “Credit Facility”) with Square 1 Bank as lender. On October 11, 2013, Aratana entered into an amendment to the Credit Facility, which, among other things, increased the amount that remains available for Aratana to draw by an additional $5,000, to a total of $10,000. Simultaneously with the closing of the Credit Facility amendment on October 11, 2013, Aratana borrowed an additional $10,000 available under the amended Credit Facility. Pursuant to the terms of the Credit Facility amendment, upon consummation of the Vet Merger, Vet Therapeutics became a co-borrower under the credit facility and granted a security interest in substantially all of its assets to Square 1 Bank.

Fair Value of Merger Shares: Under the terms of the Vet Merger Agreement, the Company agreed to transfer 625,000 unregistered shares of its common stock without registration rights to the sellers of Vet Therapeutics. On October 15, 2013, the closing date of the Vet Merger, the fair market value of Aratana’s publicly traded common stock was $27.67 per share. In order to determine the fair value of consideration transferred to Vet Therapeutics shareholders related to the Merger Shares, the Company applied a discount for the lack of marketability of 15% to the Company’s closing stock price on the closing date of the Vet Merger to account for the lack of access to an active public market for these shares. The analysis resulted in aggregate purchase consideration related to the Merger Shares of $14,700.

ARATANA THERAPEUTICS, INC.

Notes to Unaudited Pro Forma Consolidated Financial Information

(In thousands, except per share amounts)

Fair Value of Contingent Consideration: Under the terms of the Merger Agreement, the Company agreed to pay up to $5,000 in contingent cash consideration in connection with the achievement of certain regulatory and manufacturing milestones for Vet Therapeutics’ B-cell lymphoma product. This contingent consideration is recorded as a liability and measured at fair value using a discounted cash flow model utilizing significant unobservable inputs, including the probability of achieving each of the potential milestones and an estimated discount rate commensurate with the risks of the expected cash flows attributable to the milestones. The analysis resulted in aggregate contingent purchase consideration of $3,810. Significant increases or decreases in any of the probabilities of success would result in a significantly higher or lower fair value, respectively, and commensurate changes to this liability. The fair value of contingent consideration and the associated liability will be adjusted to fair value at each reporting date until actual settlement occurs, with the changes in fair value reflected in earnings.

Okapi Acquisition

The Okapi Acquisition-date fair value of the consideration transferred to the sellers of Okapi, less cash acquired, was $43,238, which consisted of the following:


Fair value of consideration transferred:

Okapi Cash Consideration	$	13,910
Fair value of promissory note		14,889
Fair value of contingent consideration		15,166

Fair value of total consideration		43,965
Less cash acquired		(727	)

Total consideration transferred, net of cash acquired	$	43,238

Okapi Cash Consideration: The Company funded the Okapi Cash Consideration from cash on hand.

Fair Value of Contingent Consideration: Under the terms of the Purchase Agreement, Aratana agreed to pay up to $16,308 on or prior to April 7, 2014, subject to mandatory prepayment in cash in the event of a specified future equity financing, provided that if not paid in cash by April 7, 2014, payment shall be made in the form of shares of Aratana common stock based on the average closing price of Aratana’s common stock during the 10-trading day period ending April 4, 2014, subject to a maximum of 1,060,740 shares and a minimum of 707,160 shares. Contingent consideration is recorded as a liability and measured at fair value using a probability-weighted model utilizing significant observable and unobservable inputs, including the volatility in the market price of the Company’s common stock, the expected probability of settling the contingent consideration in either cash or shares, and an estimated discount rate commensurate with the risks of these outcomes. This analysis resulted in a preliminary estimated fair value of contingent consideration of $15,166. This estimate is preliminary, subject to finalization of the Company’s determination of the fair value of the contingent consideration liability as of the closing date. Significant increases or decreases in any of the probabilities of the method of settlement or estimated stock price volatility would result in a significantly higher or lower fair value, respectively, and commensurate changes to this liability. The fair value of contingent consideration and the associated liability will be adjusted to fair value at each reporting date until actual settlement occurs, with the changes in fair value reflected in earnings.

ARATANA THERAPEUTICS, INC.

Notes to Unaudited Pro Forma Consolidated Financial Information

(In thousands, except per share amounts)

4. Preliminary Purchase Price Allocations

Vet Therapeutics

The following table summarizes the preliminary estimated fair values of tangible and intangible assets acquired and liabilities assumed as of the date of Vet Merger:


Accounts receivable	$	92
Inventory		173
Other current assets		6
Property, plant and equipment		76
Other long-term assets		3
Identifiable intangible assets		46,520
Accounts payable and accrued expenses		(441	)
Deferred revenue		(55	)
Deferred tax liabilities, net		(16,089	)

Total identifiable net assets		30,285

Goodwill		19,055

Total net assets acquired	$	49,340

The following table sets forth the components of the identifiable intangible assets acquired by drug program and their estimated useful lives as of the date of Vet Merger:


	FAIR VALUE		USEFUL LIFE
Antibody for B-cell lymphoma (now referred to as AT-004)	$	36,440		20 years
Antibody for T-cell lymphoma (now referred to as AT-005)		10,080		20 years

Total intangible assets subject to amortization	$	46,520

ARATANA THERAPEUTICS, INC.

Notes to Unaudited Pro Forma Consolidated Financial Information

(In thousands, except per share amounts)

Any adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from October 15, 2013, the Vet Merger date. With the exception of inventory and deferred revenue, the fair values of tangible assets acquired and liabilities assumed of Vet Therapeutics approximate their carrying value as of the Vet Merger date.

The identifiable intangible assets recognized by the Company as a result of the Vet Merger relate to Vet Therapeutics’ technology and consist primarily of its intellectual property related to Vet Therapeutics’ B-cell and T-cell antibodies and the estimated net present value of future cash flows from commercial agreements related to the B-cell technology.

The Vet Therapeutics B-cell technology, which is now referred to as AT-004, was valued using the discounted cash flow method, a form of the income approach, which incorporates the estimated royalty income and milestone payments to be generated from this technology. The estimated cash flows are then discounted to present value. Accordingly, the primary components of this method consist of the determination of cash flows, the probability of achieving and the anticipated timing of the milestone payments, and an appropriate rate of return.

The Vet Therapeutics T-cell technology, which was considered in-process research and development (“IPR&D”) as of the acquisition date and is now referred to as AT-005, was valued using a multi-period excess earnings method, a form of the income approach, which incorporates the estimated future cash flows to be generated from this technology. Excess earnings are the earnings remaining after deducting the market rates of return on the estimated values of contributory assets, including debt-free net working capital, tangible assets, and intangible assets. The excess earnings are thereby calculated for each year of a multi-year projection period and discounted to present value. Accordingly, the primary components of this method consist of the determination of excess earnings and an appropriate rate of return.

For the B-cell technology, the Company will recognize straight-line amortization expense over the estimated useful life of the asset. The Company will not amortize the asset related to the T-cell technology until commercialization has been achieved.

Preliminary estimated amortization expense related to the B-cell technology, based upon the Company’s acquired intangible asset as of September 30, 2013, is as follows:


YEAR ENDING DECEMBER 31,
Remaining 2013	$	456
2014		1,822
2015		1,822
2016		1,822
2017		1,822
Thereafter		28,696

Total	$	36,440

The preliminary valuation analysis conducted by Aratana determined that the aggregate fair value of identifiable assets acquired less the aggregate fair value of identifiable liabilities assumed by the Company was less than the purchase price. As the purchase price exceeded the fair value of assets and liabilities acquired or assumed, goodwill was recognized. Goodwill is calculated as the difference between the Vet Merger-date fair value of the consideration transferred and the fair values of the assets acquired and liabilities assumed. The goodwill is not expected to be deductible for income tax purposes. Goodwill is recorded as an indefinite-lived asset and is not amortized but tested for impairment on an annual basis or when indications of impairment exist.

ARATANA THERAPEUTICS, INC.

Notes to Unaudited Pro Forma Consolidated Financial Information

(In thousands, except per share amounts)

Okapi

The following table summarizes the preliminary estimated fair values of tangible and intangible assets acquired and liabilities assumed as of the date of the Okapi Acquisition:


Accounts receivable	$	72
Prepaid expenses and other current assets		666
Property and equipment		233
Other long-term assets		18
Identifiable intangible assets		29,400
Accounts payable and accrued expenses		(492	)
Deferred revenue		(753	)
Deferred tax liabilities, net		(3,813	)
Total identifiable net assets		25,331

Goodwill		17,907

Total net assets acquired	$	43,238

The following table sets forth the components of the identifiable intangible assets acquired by drug program and their estimated useful lives as of the date of the Okapi Acquisition:


	FAIR VALUE		USEFUL LIFE
Oftalvir	$	3,400	13 years
Felivir		13,500	15 years
Canilox		5,300	13 years
Parvo		7,200	14 years

Total intangible assets subject to amortization	$	29,400

ARATANA THERAPEUTICS, INC.

Notes to Unaudited Pro Forma Consolidated Financial Information

(In thousands, except per share amounts)

The purchase price allocation has been prepared on a preliminary basis and is subject to change as additional information becomes available concerning the fair value of the assets acquired and liabilities assumed and of the deferred tax assets and liabilities. Any adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from January 6, 2014, the Okapi Acquisition date. With the exception of intangible assets, the fair values of assets acquired and liabilities assumed of Okapi approximate their carrying value as of the Okapi Acquisition date.

The identifiable intangible assets recognized by the Company as a result of the Okapi Acquisition relate to Okapi’s technology and consist primarily of its intellectual property related to Okapi’s Oftalvir, Felivir, Canilox and Parvo programs and the estimated net present value of future cash flows from commercial agreements related to the Oftalvir program.

All Okapi programs, which were considered IPR&D as of the acquisition date, were valued using a multi-period excess earnings method, a form of the income approach, which incorporates the estimated future cash flows to be generated from this technology. Excess earnings are the earnings remaining after deducting the market rates of return on the estimated values of contributory assets, including debt-free net working capital, tangible, and intangible assets. The excess earnings are thereby calculated for each year of a multi-year projection period and discounted to present value. Accordingly, the primary components of this method consist of the determination of excess earnings and an appropriate rate of return.

The Company will not amortize the intangible assets related to the Okapi programs until commercialization of each program has been achieved.

The preliminary valuation analysis conducted by Aratana determined that the aggregate fair value of identifiable assets acquired less the aggregate fair value of identifiable liabilities assumed by the Company was less than the purchase price. As the purchase price exceeds the fair value of assets and liabilities acquired or assumed, goodwill was recognized. Goodwill is calculated as the difference between the Okapi Acquisition-date fair value of the consideration transferred and the fair values of the assets acquired and liabilities assumed. The goodwill is not expected to be deductible for income tax purposes. Goodwill is recorded as an indefinite-lived asset and is not amortized but tested for impairment on an annual basis or when indications of impairment exist.

5. Vet Therapeutics Pro Forma Adjustments

The following pro forma adjustments are included in the Company’s unaudited pro forma consolidated financial information related to the Vet Merger:

Unaudited Pro Forma Consolidated Balance Sheet

Adjustments to the unaudited pro forma consolidated balance sheet as of September 30, 2013 were as follows:

(A)

Cash—The Company recorded adjustments related to (i) $19,750 received from the Private Placement, (ii) $9,987 received from additional borrowing under the amended Credit Facility, excluding fees paid to the lender of $13, and (iii) Cash Consideration of $30,000 paid to former Vet Therapeutics shareholders.

(B)	Inventory—The Company recorded an adjustment to reflect a net increase of $32 to record acquired inventory at fair market value.

(C)	Intangible assets, net—The Company recorded an adjustment to reflect acquired identifiable intangible assets of $46,520, which consist primarily of intellectual property related to Vet Therapeutics’ B-cell and T-cell antibodies.

(D)

Goodwill—The Company recorded $19,005 of goodwill, representing the excess of the aggregate purchase consideration transferred as of the acquisition date over the preliminary fair values of recorded tangible and intangible asset acquired and liabilities assumed in the Vet Merger. The amount of goodwill actually to be recorded in connection with the acquisition is subject to change once the Company’s valuation of the fair value of tangible and intangible assets acquired and liabilities assumed is completed.

ARATANA THERAPEUTICS, INC.

Notes to Unaudited Pro Forma Consolidated Financial Information

(In thousands, except per share amounts)

(E)	Accrued expenses—The Company recorded an adjustment to reflect a $746 liability for transaction costs, including advisory, legal and accounting expenses, incurred as a result of the Vet Merger.

The Company recorded an adjustment to reflect a reduction of $385 related to the forgiveness of the accrued interest payable on the convertible notes outstanding prior to the close of the Vet Merger, which was recorded as a capital contribution in the financial statements of Vet Therapeutics as it was a transaction among Vet Therapeutics shareholders.

(F)

Current portion loan payable and Loan payable—The Company recorded an adjustment to reflect a current debt liability of $2,500 related to payments due over the next twelve months under the amended Credit Facility entered into concurrently with the Merger Agreement. The remaining $7,500 outstanding principal balance of the Credit Facility was reduced to $7,487 by $13 of debt discount and was recorded as a long-term debt liability.

(G)

Convertible notes payable—The Company recorded an adjustment to reflect a reduction of $2,300 in convertible notes payable in the financial statements of Vet Therapeutics related to the conversion of the convertible notes payable into Vet Therapeutics Series A preferred stock prior to close of the Vet Merger.

(H)	Current portion deferred licensing revenue and Deferred licensing revenue—The Company recorded an adjustment to adjust the carrying value of the deferred licensing revenue to its fair value of $55, which represents the estimated cost of the remaining effort.

(I)	Deferred taxes—The Company recorded an adjustment to reflect a net deferred tax liability of $16,089 due to the book and tax basis differences of the assets acquired and liabilities assumed using an estimated blended U.S. federal and state tax rate of 38.0%.

The basis differences in acquired assets and liabilities result in positive sources of income in the future. As such, the Vet Merger impacted the Company’s assessment of its valuation allowance against deferred tax assets, resulting in the release of its valuation allowance of $10,100 as of the Vet Merger date. As a result, the Company recorded an adjustment of $10,100 to deferred tax assets and accumulated deficit. The deferred tax liability of $16,089 is offset by deferred tax assets of $10,100 being recognized as a result of the release of the valuation allowance.

(J)	Notes payable—The Company recorded an adjustment to reflect a $3,000 liability related to the promissory note given to former Vet Therapeutics shareholders. The Company determined that the fair value of the note approximated carrying value.

(K)	Contingent consideration—The Company recorded an adjustment to reflect a $3,810 liability related to the fair value of the contingent consideration at the acquisition date tied to the achievement of certain regulatory and manufacturing milestones for Vet Therapeutics’ B-cell lymphoma product.

ARATANA THERAPEUTICS, INC.

Notes to Unaudited Pro Forma Consolidated Financial Information

(In thousands, except per share amounts)

(L)

Common stock, Additional paid-in capital, Deficit accumulated during the development stage—The Company recorded an adjustment of $353 to eliminate Vet Therapeutics’ historical shareholders equity, which included the adjustments to Vet Therapeutics historical equity related to (i) the conversion of outstanding convertible notes and (ii) the forgiveness of accrued interest on the convertible notes, as follows:


Adjustment to eliminate Vet Therapeutics additional paid-in capital:
Historical Vet Therapeutics additional paid-in capital	$	565
Adjustment related to conversion of Vet Therapeutics convertible notes prior to the Vet Merger		2,300
Adjustment related to forgiveness of interest on Vet Therapeutics convertible notes		385
Total Vet Therapeutics additional paid-in capital before elimination		3,250
Pro forma adjustment to eliminate Vet Therapeutics additional paid-in capital		(3,250	)

Total Vet Therapeutics additional paid-in capital after elimination	$	—
Adjustment to eliminate Vet Therapeutics accumulated deficit:
Historical Vet Therapeutics accumulated deficit	$	(3,603	)
Pro forma adjustment to eliminate Vet Therapeutics accumulated deficit		3,603
Total Vet Therapeutics accumulated deficit after elimination	$	—
Total pro forma adjustments to eliminate Vet Therapeutics stockholders’ deficit	$	353

The Company recorded an adjustment to reflect a $746 increase in accumulated deficit for transaction costs, including advisory, legal and accounting expenses, incurred as a result of the Vet Merger.

The Company recorded an adjustment to reflect a $10,100 decrease to accumulated deficit related to the release of its deferred tax asset valuation allowance as a result of the book and tax basis differences in the assets acquired and liabilities assumed in connection with the Vet Merger.

The Company recorded adjustments to reflect the issuance of 625,000 Merger Shares, $.001 par value, issued in conjunction with the Vet Merger and the issuance of 1,234,375 shares of common stock, $.001 par value, issued in the Private Placement that occurred concurrently with the Vet Merger. The Company recorded adjustments of $14,699 and $19,749, respectively, to additional paid-in capital related to these issuances.

ARATANA THERAPEUTICS, INC.

Notes to Unaudited Pro Forma Consolidated Financial Information

(In thousands, except per share amounts)

Unaudited Pro Forma Consolidated Statements of Operations

Adjustments to the unaudited pro forma consolidated statements of operations for the nine months ended September 30, 2013 and year ended December 31, 2012, respectively, were as follows:

(M)

General and administrative—The Company recorded an adjustment to reflect a reduction $257 to general and administrative expense for the nine months ended September 30, 2013 to eliminate the advisory, legal and accounting expenses incurred as a result of the Vet Merger, which are not expected to have a continuing impact on results of operations.

(N)	Amortization of acquired intangible assets—The Company recorded adjustments of $1,367 and $1,822 for the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively, to reflect the amortization of intangible assets acquired in the Vet Merger.

(O)

Interest expense—The Company recorded adjustments of $412 and $550 for the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively, to reflect the interest expense on the outstanding principal balance under the Credit Facility and the amortization of the debt discount associated with the Credit Facility. The Credit Facility bears interest at a rate of the greater of (i) 2.25% plus the prime rate or (ii) 5.5%. To calculate the interest expense above, the Company assumed an interest rate of 5.5%, which was the interest rate applicable to the Credit Facility on the Vet Merger date. A 1/8th percent increase in this rate would result in an increase to the above noted interest expense by approximately $9 and $13 for the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively.

The Company recorded adjustments of $158 and $210 for the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively, to reflect the interest expense associated with the promissory note issued to former Vet Therapeutics shareholders in conjunction with the Vet Merger. The promissory note bears interest at a rate of 7%, which the Company used to calculate the interest expense above.

The Company recorded adjustments to reflect reductions of expense of $87 and $115 for the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively, to eliminate interest expense related to outstanding Vet Therapeutics convertible notes payable that were converted into Vet Therapeutics Series A preferred stock prior to close of the Vet Merger.

(P)	Income tax benefit—The Company recorded adjustments of $605 and $937 for the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively, to reflect the tax impact of the pro forma adjustments above using an estimated blended U.S. federal and state tax rate of 38.0%.

The basis differences in acquired assets and liabilities result in positive sources of income in the future for Vet Therapeutics. As a result, the Company recorded adjustments of $153 and $423 to reflect the income tax benefit resulting from Vet Therapeutics’ historical pre-tax losses for the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively, using an estimated blended U.S. federal and state tax rate of 38.0%.

As a result of Aratana’s release of the valuation allowance recorded against its deferred tax assets, the Company recorded adjustments of $4,334 and $4,422 to reflect the income tax benefit resulting from Aratana’s historical pre-tax losses for the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively, using an estimated blended U.S. federal and state tax rate of 38.0%.

(Q)

Weighted average shares outstanding basic and diluted—The weighted average shares outstanding used to compute basic and diluted net loss per share for the nine months ended September 30, 2013 and the year ended December 31, 2012 have been adjusted to give effect to the issuance of 625,000 Merger Shares and 1,234,375 Private Placement Shares as if such issuances had occurred on January 1, 2012.

ARATANA THERAPEUTICS, INC.

Notes to Unaudited Pro Forma Consolidated Financial Information

(In thousands, except per share amounts)

The above pro forma consolidated statements of operations for the nine months ended September 30, 2013 and for the year ended December 31, 2012 do not include adjustments related to (i) $746 of transaction costs incurred by the Company subsequent to September 30, 2013, (ii) an increase to costs of goods sold of $32 related to the fair value adjustment to Vet Therapeutics’ inventory acquired as part of the Vet Merger, or (iii) the release of Aratana’s valuation allowance of $3,812 as of January 1, 2012, as a result of the Vet Merger. These adjustments are considered non-recurring in nature and have been excluded from the adjustments above.

6. Okapi Pro Forma Adjustments

The following pro forma adjustments are included in the Company’s unaudited pro forma consolidated financial information related to the Okapi Acquisition:

Unaudited Pro Forma Consolidated Balance Sheet

Adjustments to the unaudited pro forma consolidated balance sheet as of September 30, 2013 were as follows:

(A)

Cash—The Company recorded an adjustment related to Okapi Cash Consideration of $13,910 paid to former Okapi shareholders. The Euro-denominated Okapi Cash Consideration payment of €10,277 has been converted into U.S. dollars using an exchange rate of $1.3535 = €1.00, which represents the U.S. dollar to Euro exchange rate on September 30, 2013.

(B)	Intangible assets, net—The Company recorded an adjustment to reflect acquired identifiable intangible assets of $29,400, which consist primarily of intellectual property related to Okapi’s Oftalvir, Felivir, Canilox and Parvo programs.

The Company recorded an adjustment of $625 to eliminate the historical carrying value of Okapi’s intangible assets.

(C)

Goodwill––The Company recorded $17,907 of goodwill, representing the excess of the aggregate purchase consideration transferred as of the acquisition date over the preliminary fair values of recorded tangible and intangible asset acquired and liabilities assumed in the Okapi Acquisition. The amount of goodwill actually to be recorded in connection with the acquisition is subject to change once the Company’s valuation of the fair values of contingent purchase consideration and of tangible and intangible assets acquired and liabilities assumed is completed.

(D)	Accrued expenses—The Company recorded an adjustment to reflect a $909 liability for transaction costs, including advisory, legal and accounting expenses, incurred as a result of the Okapi Acquisition.

(E)	Convertible notes payable—The Company recorded an adjustment to reflect a reduction of $2,714 in convertible notes payable in the financial statements of Okapi related to the conversion of the convertible notes payable into Okapi Series A preferred stock prior to close of the Okapi Acquisition.

(F)	Contingent consideration—The Company recorded an adjustment to reflect a $15,166 liability related to the preliminary fair value of the contingent consideration agreed to by Aratana in connection with the Okapi Acquisition.

(G)

Notes payable—The Company recorded an adjustment to reflect a $14,889 liability related to the promissory note given to former Okapi shareholders. The Company determined that the fair value of the note approximated its carrying value. The Euro-denominated promissory note of €11,000 has been converted into U.S. dollars using an exchange rate of $1.3535 = €1.00, which represents the U.S. dollar to Euro exchange rate on September 30, 2013.

(H)	Deferred taxes—The Company recorded an adjustment to reflect a net deferred tax liability of $3,813 due to the book and tax basis differences of the assets acquired and liabilities assumed using the Belgian statutory federal tax rate of 33.99%.

ARATANA THERAPEUTICS, INC.

Notes to Unaudited Pro Forma Consolidated Financial Information

(In thousands, except per share amounts)

(I)

Common stock, Preferred stock, Additional paid-in capital, Deficit accumulated during the development stage—The Company recorded an adjustment of $1,096 to eliminate Okapi’s historical shareholders’ deficit, which included the adjustments to Okapi historical equity related to the conversion of outstanding convertible notes into shares of Okapi Series A preferred stock immediately prior to the Okapi Acquisition as follows:


Adjustment to eliminate Okapi preferred stock:
Historical Okapi preferred stock	$	517
Adjustment related to conversion of Okapi convertible notes payable		2,714

		3,231
Pro forma adjustment to eliminate Okapi preferred stock		(3,231	)
Adjustments to eliminate remaining Okapi stockholders’ deficit:
Pro forma adjustment to eliminate Okapi common stock		(84	)
Pro forma adjustment to eliminate Okapi additional paid-in capital		(12,946	)
Pro forma adjustment to eliminate Okapi deficit accumulated during the development stage		15,165

Total pro forma adjustments to eliminate Okapi stockholders’ deficit	$	(1,096	)

The Company recorded an adjustment to reflect a $909 increase in accumulated deficit for transaction costs, including advisory, legal and accounting expenses, incurred as a result of the Okapi Acquisition.

Unaudited Pro Forma Consolidated Statements of Operations

Adjustments to the unaudited pro forma consolidated statements of operations for the nine months ended September 30, 2013 and year ended December 31, 2012, respectively, were as follows:

(J)

Conforming adjustments—The Company recorded a decrease of $78 to depreciation expense and increases of $54 and $24 to research and development expense and general and administrative expense, respectively, during the nine months ended September 30, 2013 to conform the presentation of depreciation expense in the unaudited pro forma statement to be consistent with the Company’s presentation, which allocates depreciation expense to its to functional areas.

The Company recorded a decrease of $105 to depreciation expense and increases of $76 and $29 to research and development expense and general and administrative expense, respectively, during the year ended December 31, 2012 to conform the presentation of depreciation expense in the unaudited pro forma statement to be consistent with the Company’s presentation, which allocates depreciation expense to its functional areas.

ARATANA THERAPEUTICS, INC.

Notes to Unaudited Pro Forma Consolidated Financial Information

(In thousands, except per share amounts)

(K)

Amortization of acquired intangible assets—The Company recorded adjustments of $117 and $179 to reduce amortization expense for the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively, to eliminate the historical amortization of Okapi’s intangible assets, which were recorded at fair value by the Company as a result of the Okapi Acquisition. The Company will not amortize the intangible assets until commercialization of each program has been achieved.

(L)

Interest expense—The Company recorded adjustments of $484 and $990 for the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively, to reflect the interest expense associated with the promissory note issued to former Okapi shareholders in conjunction with the Okapi Acquisition. The promissory note bears interest at a rate of 7%, which the Company used to calculate the interest expense above. The Euro-denominated interest expense during the nine months ended September 30, 2013 and for the year ended December 31, 2012 has been converted into U.S. dollars using exchange rates of $1.3170 = €1.00 and $1.2857 = €1.00, respectively, which represent the average U.S. dollar to Euro exchange rate for each of the respective periods.

The Company recorded adjustments to reflect reductions of expense of $116 and $8 for the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively, to eliminate interest expense related to outstanding Okapi loans payable that were converted into Okapi Series A preferred stock prior to close of the Okapi Acquisition.

(M)	Income tax benefit—The Company recorded adjustments of $85 and $273 for the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively, to reflect the tax impact of the pro forma adjustments above using the Belgian statutory tax rate of 33.99%.

The basis differences in acquired assets and liabilities result in positive sources of income in the future for Okapi. As a result, the Company recorded adjustments of $719 and $1,111 to reflect the income tax benefit resulting from Okapi’s historical pre-tax losses for the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively, using the Belgian statutory tax rate of 33.99%.

The above pro forma consolidated statements of operations for the nine months ended September 30, 2013 and the year ended December 31, 2012 do not include an adjustment related to $909 of transaction costs related to the Vet Merger and Okapi Acquisition incurred by the Company subsequent to September 30, 2013. This adjustment is considered non-recurring in nature and has been excluded from the adjustments above.