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Federal Criminal TrialtranscripttranscriptSo-Han Spivey — Direct/Cross/Redirect (Continued) - Day 6 - Federal Criminal TrialJudge Davila instructed jurors not to consider punishment, after which So-Han Spivey completed direct, cross, and redirect testimony about Theranos's finances, revenue recognition, contracts, and forecasts. Spivey was excused, and the government called Erika Cheung.
John C. BosticRobert S. LeachKevin M. DowneyLance A. WadeEdward J. DavilaBrian BennettSo-Han SpiveyJudge DavilaSo-Han SpiveyMr. LeachMr. WadeCourt ClerkMr. DowneyMr. BennettMr. Bosticjury_instructionsdirectcrossredirect
Federal Criminal Trial/Day 6/September 14, 2021
3 pages·2 witnesses·2,311 lines
Judge Davila instructed jurors not to consider punishment, after which So-Han Spivey completed direct, cross, and redirect testimony about Theranos's finances, revenue recognition, contracts, and forecasts. Spivey was excused, and the government called Erika Cheung.
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Jury InstructionDirectCrossRedirect

So-Han Spivey — Direct/Cross/Redirect (Continued)

Robert S. Leach Lance A. Wade So-Han Spivey
1,576 lines
Proceedings
Jury InstructionJury Instruction on PunishmentLine 4
DirectSo-Han Spivey — DirectLine 3
CrossSo-Han Spivey — CrossLine 1
RedirectSo-Han Spivey — RedirectLine 1
Jury InstructionJury Instr.Jury Instruction on Punishment
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JUDGE DAVILA: PLEASE HAVE A SEAT. IN JUST A MOMENT I'M GOING TO ASK YOU TO STATE YOUR NAME. LADIES AND GENTLEMEN OF THE JURY, I DO WANT TO -- I AM GOING TO READ YOU AN INSTRUCTION AGAIN. I WANT TO READ THIS INSTRUCTION NOW. I'VE HAD SOME CONVERSATION WITH COUNSEL, AND I THINK IT APPROPRIATE FOR ME TO READ TO YOU AN INSTRUCTION. YOU WILL RECEIVE FINAL INSTRUCTIONS AT THE END OF THE CASE, BUT FOR NOW I'D LIKE TO READ THIS INSTRUCTION TO YOU. THE PUNISHMENT PROVIDED BY LAW FOR THIS CRIME IS FOR THE COURT TO DECIDE. YOU MAY NOT CONSIDER PUNISHMENT IN DECIDING WHETHER THE GOVERNMENT HAS PROVED ITS CASE AGAINST MS. HOLMES BEYOND A REASONABLE DOUBT. SO THANK YOU VERY MUCH, LADIES AND GENTLEMEN. COUNSEL, DO YOU HAVE QUESTIONS? COULD YOU STATE YOUR NAME AGAIN, PLEASE, FOR THE RECORD.

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SO-HAN SPIVEY: SO HAN SPIVEY.

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JUDGE DAVILA: THANK YOU.

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(GOVERNMENT'S WITNESS, SO HAN SPIVEY, WAS PREVIOUSLY SWORN.)

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JUDGE DAVILA: I JUST WANT TO REMIND THE WITNESS, YOU'RE STILL UNDER OATH, MS. SPIVEY. DO YOU UNDERSTAND THAT?

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MR. LEACH: THANK YOU SO MUCH, YOUR HONOR.

DirectDirect So-Han Spivey Robert S. Leach
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DIRECT EXAMINATION (RESUMED) BY MR. LEACH:

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MR. LEACH: MS. SPIVEY, WHEN WE WERE LAST HERE WE WERE DISCUSSING WHAT HAD BEEN MARKED AS EXHIBIT 578 AND THERANOS'S BALANCE SHEET AND INCOME STATEMENT FROM 2010 AND 2009. DO YOU RECALL THAT TESTIMONY?

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MR. LEACH: I'D LIKE TO NOW DRAW YOUR ATTENTION TO WHAT HAS BEEN MARKED AS EXHIBIT 615. YOUR HONOR, I UNDERSTAND THE PARTIES STIPULATE TO THE ADMISSION OF 615?

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MR. WADE: WE DO, YOUR HONOR.

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JUDGE DAVILA: ALL RIGHT. THANK YOU. THIS IS EXHIBIT 615?

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MR. LEACH: YES, YOUR HONOR.

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JUDGE DAVILA: ALL RIGHT. THANK YOU. SO THAT WILL BE ADMITTED BY STIPULATION. IT MAY BE PUBLISHED.

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(GOVERNMENT'S EXHIBIT 615 WAS ADMITTED.)

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MR. LEACH: THANK YOU, YOUR HONOR.

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MR. LEACH: IF I COULD PLEASE -- MS. HOLLIMAN, IF YOU WOULD ZOOM INTO THE TOP HALF OF THE EMAIL. WONDERFUL. DO YOU SEE THIS EMAIL?

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MR. LEACH: AND TO REFRESH US, DANISE YAM WAS THE NAME YOU WERE USING AT THE TIME THAT YOU WERE AT THERANOS AS THE CORPORATE CONTROLLER?

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MR. LEACH: AND DO YOU SEE ELIZABETH HOLMES NAME IN THE TO LINE?

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MR. LEACH: THERE'S AN ATTACHMENT TO THIS EMAIL. IT SAYS, FINANCIAL STATEMENT ANALYSIS TEMPLATE-THERANOS.PDF; AND THEN FS 12/31/11. DO YOU SEE THAT?

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MR. LEACH: AND WHAT DOES THAT 12/31/11 REFER TO?

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SO-HAN SPIVEY: DECEMBER 31, 2011.

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MR. LEACH: AND WHAT DOES FS REFER TO?

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SO-HAN SPIVEY: FINANCIAL STATEMENTS.

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MR. LEACH: AND ARE YOU PROVIDING FINANCIAL STATEMENTS FOR THE TIME PERIOD 2011 TO MS. HOLMES DURING THIS EMAIL?

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MR. LEACH: IF WE COULD GO TO PAGE 4, MS. HOLLIMAN. AND IF WE COULD PLEASE ZOOM IN ON THE TOP PORTION OF THE DOCUMENT. UP AT THE TOP, MS. SPIVEY, IT SAYS THERANOS INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS. DO YOU SEE THAT?

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MR. LEACH: AND WHAT IS THE CONSOLIDATED STATEMENTS OF OPERATIONS?

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SO-HAN SPIVEY: THAT'S THE CONSOLIDATED STATEMENTS.

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MR. LEACH: AND TO THE RIGHT THERE ARE TWO COLUMNS FOR 2011 AND 2012. WHAT DO THOSE CONVEY. I'M SORRY, 2011 AND 2010. WHAT DO THOSE COLUMNS CONVEY?

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SO-HAN SPIVEY: THAT'S THE INCOME FOR THE YEAR OF 2010 AND 2011.

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MR. LEACH: OKAY. AND DID YOU BELIEVE THAT YOU WERE PROVIDING ACCURATE INFORMATION TO THE DEFENDANT ABOUT THERANOS'S 2011 AND 2010 FINANCIAL STATEMENTS?

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MR. LEACH: THERE'S A LINE FOR REVENUE. DO YOU SEE THAT?

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MR. LEACH: WHAT IS REVENUE?

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SO-HAN SPIVEY: THAT'S THE INCOME THAT THE COMPANY GETS FOR PROVIDING SERVICES.

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MR. LEACH: AND WHAT WAS THERANOS'S REVENUE FOR 2010?

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SO-HAN SPIVEY: $1,401,305.

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MR. LEACH: AND THE REVENUE FOR 2011, WHAT WAS THAT?

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SO-HAN SPIVEY: $518,248.

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MR. LEACH: FURTHER DOWN IN THE INCOME STATEMENT THERE'S A LINE FOR NET LOSS. DO YOU SEE THAT?

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MR. LEACH: AND WHAT IS THE NET LOSS?

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SO-HAN SPIVEY: THAT IS THE COMPANY THAT -- THAT'S THE MONEY THAT THE COMPANY LOST FOR THAT YEAR.

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MR. LEACH: SO THE NET LOSS FOR 2011 IS APPROXIMATELY $27.66 MILLION?

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MR. LEACH: AND THE LOSS FOR 2010 WAS APPROXIMATELY $16.2 MILLION?

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MR. LEACH: IF WE COULD GO TO PAGE 3, PLEASE. AND IF WE CAN ZOOM IN, PLEASE, MS. HOLLIMAN ON THE TEXT ON PAGE 3 ALL OF THE WAY DOWN TO THE MIDDLE. WONDERFUL. THANK YOU. MS. SPIVEY, DO YOU SEE AT THE TOP WHERE IT SAYS CONSOLIDATED BALANCE SHEETS DECEMBER 2011 AND 2010?

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MR. LEACH: AND I DRAW YOUR ATTENTION TO A LINE ROUGHLY FOUR FROM THE BOTTOM CALLED THE ACCUMULATED DEFICIT. DOWN A LITTLE. RIGHT THERE (INDICATING). THANK YOU, MS. HOLLIMAN. DO YOU SEE THAT LINE, MS. SPIVEY?

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MR. LEACH: AND WHAT IS MEANT BY ACCUMULATED DEFICIT?

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SO-HAN SPIVEY: THAT'S THE ACCUMULATED LOSSES FOR THE COMPANY SINCE INCEPTION.

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MR. LEACH: SO WHAT WAS THE ACCUMULATED DEFICIT FOR THERANOS IN 2010?

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SO-HAN SPIVEY: 76.5 MILLION.

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MR. LEACH: AND WHAT DOES THAT MEAN?

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SO-HAN SPIVEY: THAT MEANS SINCE INCEPTION THE COMPANY LOST 76.5 MILLION.

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MR. LEACH: WHEN YOU SAY "INCEPTION" THAT'S 2003, 2004?

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MR. LEACH: AND WHAT IS THE ACCUMULATED DEFICIT FOR THERANOS AS THE YEAR ENDED 2011?

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SO-HAN SPIVEY: ABOUT 104 MILLION.

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MR. LEACH: IF I CAN NOW DRAW YOUR ATTENTION TO WHAT HAS BEEN MARKED AS EXHIBIT 792. I BELIEVE THE PARTIES STIPULATED TO THE ADMISSION OF THIS EXHIBIT.

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MR. WADE: WE DO, YOUR HONOR.

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JUDGE DAVILA: ALL RIGHT. THANK YOU. IT'S ADMITTED, AND IT MAY BE PUBLISHED.

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(GOVERNMENT'S EXHIBIT 792 WAS RECEIVED IN EVIDENCE.)

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BY MR. LEACH:

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MR. LEACH: AND IF I COULD, LET'S START, MS. HOLLIMAN, WITH THE TOP PORTION OF THE EMAIL IF WE COULD. THANK YOU. DO YOU SEE YOUR NAME IN THE FROM LINE, MS. SPIVEY?

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MR. LEACH: AND DO YOU SEE MS. HOLMES NAME IN THE TO LINE?

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MR. LEACH: AND DO YOU SEE THE DATE FEBRUARY 12TH, 2013?

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MR. LEACH: THERE ARE TWO ATTACHMENTS TO THIS EMAIL. ONE IS TITLED FS 2012.XLSX. DO YOU SEE THAT?

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MR. LEACH: AND WHAT DOES FS STAND FOR?

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SO-HAN SPIVEY: FINANCIAL STATEMENTS.

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MR. LEACH: AND THE 2012, WHAT DOES THAT REFER TO?

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SO-HAN SPIVEY: YEAR 2012.

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MR. LEACH: IS THAT A DOCUMENT THAT YOU PREPARED?

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MR. LEACH: OKAY. AND THE SUBJECT OF THIS EMAIL CHAIN IS STANFORD. DO YOU SEE THAT? OR IT INCLUDES THE NAME STANFORD. DO YOU SEE THAT?

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MR. LEACH: AND WHAT RELATIONSHIP DID THERANOS HAVE WITH STANFORD?

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SO-HAN SPIVEY: STANFORD IS A LANDLORD TO THERANOS.

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MR. LEACH: AND IF I COULD NOW DRAW YOUR ATTENTION TO THE BOTTOM PORTION OF PAGE 1, THE EMAIL THAT EXPANDS -- THAT GOES OVER PAGE 1 TO PAGE 2. MS. HOLLIMAN, I DON'T KNOW IF YOU CAN SHOW ALL OF THAT. DO YOU SEE WHERE IT SAYS, "SOME TIME AGO WE MET WITH STANFORD AND SHARED SOME FINANCIAL INFORMATION IN A TEMPLATE THEY REQUESTED"?

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MR. LEACH: AND IN THIS EMAIL WERE YOU ATTEMPTING TO PROVIDE TRUE AND ACCURATE INFORMATION ABOUT THERANOS'S FINANCIAL CONDITION TO MS. HOLMES?

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MR. LEACH: LET ME PLEASE DRAW YOUR ATTENTION TO PAGE 6 OF THE DOCUMENT OF THE EXHIBIT. P. AND I'D LIKE TO DISPLAY THE NATIVE FILE, IF WE COULD, MS. HOLLIMAN. MS. SPIVEY, DO YOU SEE THE TABS DOWN AT THE BOTTOM BS, IS, CF, AND TB?

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MR. LEACH: AND WHAT DO THOSE REFER TO?

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SO-HAN SPIVEY: BS IS BALANCE SHEETS, IS IS INCOME STATEMENT, AND CF IS CASH FLOW STATEMENT, AND TB IS TRIAL BALANCE.

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MR. LEACH: AND PLEASE, LET'S START WITH THE BALANCE SHEET. WERE YOU TRYING TO PROVIDE ACCURATE INFORMATION TO MS. HOLMES ABOUT THE COMPANY'S ASSETS, LIABILITIES, AND STOCKHOLDERS EQUITY IN THIS DOCUMENT?

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MR. LEACH: UP IN ROW 5 AND 6 THERE WILL DATES, AND THERE IS A LINE WITH THREE ZEROS. CAN YOU EXPLAIN WHAT THOSE THREE ZEROS MEANS FOR US?

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SO-HAN SPIVEY: THAT MEANS THAT THOSE NUMBERS PRESENTED IS IN THOUSANDS.

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MR. LEACH: OKAY. SO IF WE LOOK AT THE CASH FOR YEAR END DECEMBER 31ST, 2012, THAT'S APPROXIMATELY $51 MILLION, NOT $51,000?

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MR. LEACH: AND IF WE COULD GO TO THE LINE FOR THE ACCUMULATED DEFICIT DOWN BELOW LINE 32. WHAT WAS THE ACCUMULATED DEFICIT FOR THERANOS AS OF DECEMBER 2012?

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SO-HAN SPIVEY: APPROXIMATELY 161 MILLION.

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MR. LEACH: NOW IF WE COULD PLEASE GO TO THE TAB IS. WERE YOU TRYING TO PROVIDE ACCURATE INFORMATION TO MS. HOLMES IN THIS TAB?

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MR. LEACH: AND DOES THIS INCOME STATEMENT COVER THE TIME PERIOD 2002 AND THE FIRST MONTH OF 2013?

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MR. LEACH: THERE APPEAR TO BE FOUR ROWS TO THE LEFT: OPERATING LOSS, INTEREST AND OTHER INCOME, NET, INTEREST EXPENSE, AND NET LOSS. DO YOU SEE THOSE?

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MR. LEACH: AND THERE'S NO LINE FOR REVENUE IN THIS SPREADSHEET. WHY IS THAT?

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SO-HAN SPIVEY: BECAUSE THERE WAS NO REVENUE FOR THE COMPANY.

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MR. LEACH: SO THERE WAS NO REVENUE FOR THE COMPANY AT ALL IN 2012?

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MR. LEACH: AND FOR THE YEAR 2012 THERE'S THE NUMBER IN RED, PARENTHESIS, 57,111. WHAT DOES THAT SIGNIFY?

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SO-HAN SPIVEY: THAT'S THE COMPANY, ALL OF THE EXPENSES FOR THE COMPANY FOR THE YEAR.

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MR. LEACH: AND IS THAT IN MILLIONS OR IN THOUSANDS OR SOME OTHER NUMBER?

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SO-HAN SPIVEY: THAT'S 57 MILLION.

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MR. LEACH: THAT WAS THE NET LOSS FOR 2012?

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MR. LEACH: OKAY. THANK YOU. WE CAN TAKE THAT DOWN, MS. HOLLIMAN. MS. SPIVEY, YOU SHOULD HAVE A BINDER IN FRONT OF YOU, AND I'D LIKE TO DRAW YOUR ATTENTION TO WHAT HAS BEEN MARKED AS EXHIBIT 1901. DO YOU HAVE THAT IN FRONT OF YOU?

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MR. LEACH: DOES THIS APPEAR TO BE AN EMAIL THAT YOU AUTHORED?

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MR. LEACH: AND THERE ARE TWO NAMES AT THE TOP, MARK KUCHARSKI AND DENNIS ONDYAK. WHO ARE THEY?

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SO-HAN SPIVEY: THEY ARE THE ACCOUNTANTS FOR THE TAX FIRM THAT THERANOS USED.

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MR. LEACH: AND DID YOU WORK WITH THOSE ACCOUNTANTS AT THE TAX FIRM IN ORDER TO PREPARE ACCURATE TAX RETURNS ON BEHALF OF THERANOS?

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MR. LEACH: THERE'S A NUMBER OF ATTACHMENTS TO THIS EMAIL. GENERALLY SPEAKING, WHAT ARE THESE?

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SO-HAN SPIVEY: THESE ARE THE SCHEDULE AND FINANCIAL INFORMATION THAT THERANOS PROVIDED TO ACCOUNTANTS SO THAT THEY CAN PREPARE THE TAX RETURN.

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MR. LEACH: WERE THESE EXCEL FILES MADE AT OR NEAR THE TIME IN ORDER TO PREPARE ACCURATE TAX RETURNS?

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MR. LEACH: AND DID YOU KEEP THESE DOCUMENTS IN THE ORDINARY COURSE OF BUSINESS?

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MR. LEACH: OKAY. AND WAS IT YOUR REGULAR PRACTICE TO PREPARE THESE DOCUMENTS SO THAT THERANOS COULD ACCURATELY REPORT ITS INCOME AND EXPENSES TO THE I.R.S.?

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MR. LEACH: ONE OF THE EXCEL SPREADSHEETS IS -- OR ONE OF THE ATTACHMENTS IS TITLED TB 12/31/13. IT'S THE SECOND ONE FROM THE BOTTOM. DO YOU SEE THAT?

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MR. LEACH: AND WHAT DOES TB STAND FOR?

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SO-HAN SPIVEY: TRIAL BALANCE.

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MR. LEACH: AND WHAT IS THAT TRIAL BALANCE FOR?

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MR. LEACH: AND DID YOU PREPARE THAT TRIAL BALANCE AND MAINTAIN THAT IN THE ORDINARY COURSE OF BUSINESS?

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MR. LEACH: AND DID YOU PREPARE IT BASED ON DATA FROM THE QAD SYSTEM?

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MR. LEACH: YOUR HONOR, I OFFER EXHIBIT 1901 AND THE ATTACHMENTS TB 12-31-13.

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JUDGE DAVILA: ANY OBJECTION?

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MR. WADE: WE HAVE NO OBJECTION TO THE TRIAL BALANCE. WE OBJECT TO THE DOCUMENT ITSELF UNDER 401 AND 805.

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JUDGE DAVILA: DO YOU WISH TO RESPOND?

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MR. LEACH: IT'S THE STATEMENT OF AN AGENT.

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JUDGE DAVILA: I THINK IT QUALIFIES UNDER 803, SO I'LL ADMIT IT.

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(GOVERNMENT'S EXHIBIT 1901 WAS RECEIVED IN EVIDENCE.)

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MR. LEACH: IF YOU COULD PLEASE DISPLAY IT. MS. KRATZMANN, IF I COULD USE THE ELMO?

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COURT CLERK: YES.

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BY MR. LEACH:

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MR. LEACH: MS. SPIVEY, WHILE MY LAPTOP IS REBOOTING LET ME ORIENT HERE EVERYONE ON 1901. DO YOU SEE YOUR NAME IN THE FROM LINE?

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MR. LEACH: DENNIS ONDYAK AND MARK KUCHARSKI, THEY'RE WITH THE TAX PREPARATION FIRM?

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MR. LEACH: AND I WAS DRAWING YOUR ATTENTION TO TB 12/31/13. DO YOU SEE THAT?

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MR. LEACH: LET ME PLEASE DRAW YOUR ATTENTION TO PAGE 59. DO YOU SEE THE TITLE THERANOS INC. AND SUBSIDIARY AT THE TOP?

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MR. LEACH: AND IS THIS THE INCOME STATEMENTS FOR YEAR ENDED DECEMBER 31ST, 2013, 2012, 2011, AND 2010?

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MR. LEACH: WHAT WAS THE REVENUE FOR THERANOS FOR 2013?

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MR. LEACH: AND DOWN AT THE BOTTOM THERE'S A NET LOSS OF $92,367,725. DO YOU SEE THAT?

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MR. LEACH: AND WHAT DOES THAT SIGNIFY?

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SO-HAN SPIVEY: THAT'S ALL OF THE EXPENSES FOR THE YEAR.

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MR. LEACH: FOR THE YEAR 2013?

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MR. LEACH: THANK YOU, MS. SPIVEY. WE CAN PUT THAT DOCUMENT TO THE SIDE. LET ME DRAW YOUR ATTENTION TO WHAT HAS BEEN MARKED AS 5206. I BELIEVE WE STIPULATED TO THE ADMISSION OF 5206.

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MR. WADE: WE DO, YOUR HONOR.

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JUDGE DAVILA: ALL RIGHT. THANK YOU. IT'S ADMITTED. IT MAY BE PUBLISHED.

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(GOVERNMENT'S EXHIBIT 5206 WAS RECEIVED IN EVIDENCE.)

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MR. LEACH: MAY I APPROACH THE WITNESS, YOUR HONOR?

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BY MR. LEACH:

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MR. LEACH: (HANDING.) MS. SPIVEY, I'M PLACING ON THE SCREEN THE FIRST PAGE OF EXHIBIT 5206. DO YOU SEE YOUR NAME IN THE FROM LINE?

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MR. LEACH: AND IS THIS TO MS. HOLMES AND MR. BALWANI?

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MR. LEACH: THE SUBJECT OF THIS EMAIL IS 409A -- OR 409A VALUATION ANALYSIS. WHAT IS A 409A VALUATION ANALYSIS?

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SO-HAN SPIVEY: THAT'S THE I.R.S. TAX CODE FOR THE VALUATION FOR OPTIONS.

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MR. LEACH: WHAT DO YOU MEAN BY OPTIONS?

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SO-HAN SPIVEY: THAT'S THE OPTION THAT WE GIVE TO EMPLOYEES, DIRECTOR, CONSULTANTS, AND THEY CAN BUY COMPANY STOCK AT A PREDETERMINED PRICE.

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MR. LEACH: AND WHY WAS IT NECESSARY FOR THERANOS TO VALUE THESE STOCK OPTIONS?

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SO-HAN SPIVEY: SO THE COMPANY KNOWS WHAT THE PREDETERMINED PRICE SHOULD BE.

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MR. LEACH: OKAY. AND IN THIS EMAIL YOU ARE WRITING TO MS. HOLMES, "ATTACHED PLEASE FIND THE LATEST 409A REPORT. THE VALUE GOES UP FROM $1.56 (FROM $1.44 IN DECEMBER) DUE TO THE LATEST FUNDING IN FEB AND MARCH 2015." DO YOU SEE THAT LANGUAGE?

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MR. LEACH: AND WHAT DID YOU MEAN BY "THE LATEST FUNDING IN FEB AND MARCH OF 2015"?

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SO-HAN SPIVEY: LOOKING AT THIS EMAIL I BELIEVE THERE WAS A ROUND OF FINANCING TO RAISE MONEY IN FEBRUARY AND MARCH OF 2015.

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MR. LEACH: RAISE MONEY FROM WHOM?

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SO-HAN SPIVEY: INVESTORS.

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MR. LEACH: AND DOES THE COMPANY RECORD ANY TYPE OF EXPENSE RELATED TO ITS STOCK OPTIONS IN ITS FINANCIAL STATEMENTS?

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MR. LEACH: AND DOES THAT HAVE ANY CONNECTION TO THE 409A VALUATION ANALYSIS THAT YOU'RE TALKING ABOUT HERE?

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MR. LEACH: CAN YOU EXPLAIN THAT FOR US, PLEASE?

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SO-HAN SPIVEY: SO EACH OPTION -- SO THE COMPANY WILL -- WHEN THE COMPANY GRANT AN OPTION, THIS PART IS CONSIDERED AN EXPENSE ON THE FINANCIAL STATEMENTS. SO IT'S BASED ON THE -- HOW MUCH EXPENSE THE COMPANY RECOGNIZED IS BASED ON THE VALUE.

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MR. LEACH: AND ARE YOU PROCURING THIS REPORT IN ORDER TO MAKE SURE THAT YOU GET THAT VALUE RIGHT IN THE FINANCIAL STATEMENTS?

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MR. LEACH: LET ME PLEASE DRAW YOUR ATTENTION TO PAGE 14. I UNDERSTAND FROM MS. HOLLIMAN THAT WE CAN HAVE IT DISPLAYED WITHOUT THE ELMO. WERE YOU ABLE TO SEE PAGE 14 ON THE SCREEN, MS. SPIVEY?

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MR. LEACH: THERE'S A NAME AT THE BOTTOM, ARANCA. WHAT IS ARANCA?

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SO-HAN SPIVEY: ARANCA IS THE INDEPENDENT FIRM THAT PROVIDE THE VALUATION SERVICE TO THERANOS.

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MR. LEACH: AND WHAT WAS ARANCA ENGAGED TO DO?

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SO-HAN SPIVEY: LIKE THE ENGAGEMENT WOULD LET THERANOS KNOW WHAT THE FAIR VALUE OF THE COMMON STOCK SHOULD BE.

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MR. LEACH: OKAY. DID YOU DO YOUR BEST TO PROVIDE ACCURATE INFORMATION TO ARANCA?

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MR. LEACH: AND DID YOU CONSULT WITH MS. HOLMES ABOUT THE INFORMATION YOU WERE PROVIDING TO ARANCA?

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MR. LEACH: AND WHY DID YOU DO THAT?

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SO-HAN SPIVEY: BECAUSE SHE HAS THE BEST INFORMATION ON WHAT THE COMPANY PROJECTION AND FORECAST IS.

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MR. LEACH: AND WHAT TYPES OF INFORMATION DID YOU PROVIDE TO ARANCA?

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SO-HAN SPIVEY: TYPICALLY IT WOULD BE THE HISTORICAL FINANCIAL INFORMATION, AND THE PROJECTION FOR THE NEXT FIVE YEARS, AND THE CAPITALIZATION RECORD FOR THE COMPANY.

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MR. LEACH: WHEN YOU SAY "PROJECTION FOR THE NEXT FIVE YEARS," WHAT DO YOU MEAN?

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SO-HAN SPIVEY: THAT MEANS WHAT THE COMPANY FORECAST FOR THE FINANCIAL INFORMATION FOR THE NEXT FIVE YEARS THAT -- LIKE THE REVENUE, AND EXPENSES, AND CAPITAL EXPENDITURE, ET CETERA.

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MR. LEACH: AND DID YOU HAVE DISCUSSIONS WITH MS. HOLMES ABOUT WHAT FINANCIAL PROJECTIONS TO PROVIDE TO ARANCA?

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MR. LEACH: AND DID YOU HAVE MORE THAN ONE, MORE THAN ONE DISCUSSION?

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MR. LEACH: IF WE COULD ZOOM OUT, PLEASE, MS. HOLLIMAN. I WANT TO DRAW YOUR ATTENTION TO THE MIDDLE OF THE PAGE WHERE IT SAYS, "THERANOS INC., FMV OF COMMON STOCK AS OF MARCH 25, 2015." DO YOU SEE THAT?

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MR. LEACH: AND WHAT IS FMV?

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SO-HAN SPIVEY: FAIR MARKET VALUE.

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MR. LEACH: AND IF WE CAN PLEASE GO TO PAGE 17. AND IF WE COULD PLEASE ZOOM IN ON SECTION 1.1, THE BACKGROUND. MS. SPIVEY, DO YOU SEE WHERE IT SAYS, "ARANCA, INC., ('ARANCA') HAS BEEN ENGAGED BY THERANOS'S INC., ('THERANOS' OR "THE COMPANY') TO CONDUCT VALUATION ANALYSIS OF THE COMPANY AND PREPARE A WRITTEN REPORT TO EXPRESS OUR OPINION ON THE FAIR MARKET VALUE (FMV) OF ITS COMMON STOCK." DO YOU SEE THAT LANGUAGE?

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MR. LEACH: AND IS THAT A FAIR SUMMARY OF WHAT ARANCA WAS ENGAGED TO DO?

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MR. LEACH: NOW, IF WE COULD GO OUT, PLEASE, MS. HOLLIMAN, AND LOOK AT SECTION 1.2, THE FIRST BULLET OR THE FIRST FOUR WOULD BE GREAT. THANK YOU SO MUCH. DO YOU SEE IN THE FIRST BULLET WHERE IT SAYS, "WE UNDERSTAND THIS REPORT AND ITS CONCLUSIONS WOULD BE USED BY THE COMPANY'S BOARD OF DIRECTORS SOLELY IN CONNECTION WITH DETERMINING THE EXERCISE PRICE FOR GRANTING OPTIONS TO ITS EMPLOYEES TO COMPLY WITH IRC SECTION 409A." DO YOU SEE THAT LANGUAGE?

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MR. LEACH: AND WAS THAT YOUR UNDERSTANDING AT THE TIME WHEN ARANCA WAS PREPARING THIS REPORT?

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MR. LEACH: IN THE FOURTH BULLET IT SAYS, "IN PREPARING OUR ANALYSIS, DANISE YAM, CORPORATE CONTROLLER, PROVIDED INFORMATION REGARDING THERANOS'S BUSINESS, PRODUCTS AND SERVICES, OPERATIONS, PAST PERFORMANCE AND FINANCIAL RESULTS, FINANCIAL CONDITION, DEVELOPMENT, AND BUDGET." DO YOU SEE THAT LANGUAGE?

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MR. LEACH: IS THAT ACCURATE?

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MR. LEACH: AND IN THE COURSE OF DOING THAT, DID YOU CONSULT WITH MS. HOLMES?

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MR. LEACH: THANK YOU. MS. HOLLIMAN, IF WE COULD PLEASE GO TO PAGE 19. AND IF WE COULD ZOOM IN ON THE TOP PART. GREAT. MS. SPIVEY, DO YOU SEE WHERE IT SAYS, "DURING THE COURSE OF OUR ANALYSIS WE HAVE CONDUCTED LIMITED REVIEWS, INQUIRIES, AND INTERVIEWS." DO YOU SEE THAT LANGUAGE?

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MR. LEACH: AND IN BULLET NUMBER 2 IT SAYS, "REVIEW OF FINANCIAL STATEMENTS." DO YOU SEE THAT LANGUAGE?

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MR. LEACH: IS THAT ACCURATE?

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MR. LEACH: AND HOW ABOUT NUMBER 3, "REVIEW OF FORECASTED FINANCIAL STATEMENTS." IS THAT ACCURATE?

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MR. LEACH: IF WE CAN ZOOM OUT, PLEASE, MS. HOLLIMAN, AND NOW GO TO PAGE 2, THE NEXT PAGE. AND IF WE CAN ZOOM IN ON THE SUMMARY OF FINDINGS DOWN AT THE BOTTOM. THANK YOU. DO YOU SEE A SIGNATURE ON THIS, MS. SPIVEY?

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MR. LEACH: AND THE NAME IS HEMENDRA ARAN. IS THAT THE PERSON FROM ARANCA WHO YOU WORKED WITH IN PART TO PREPARE THIS VALUATION ANALYSIS?

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MR. LEACH: HOW LONG DID THERANOS USE ARANCA FOR?

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SO-HAN SPIVEY: THEY USED IT BEFORE I JOINED THE COMPANY.

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MR. LEACH: AND YOU JOINED WHEN? CAN YOU PLEASE REMIND US.

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MR. LEACH: OKAY. IF WE COULD PLEASE GO TO PAGE 20. I'M SORRY, PAGE 23, MS. HOLLIMAN. WONDERFUL. IF WE COULD PLEASE ZOOM IN ON THE TABLE AT THE TOP. DO YOU HAVE THAT IN FRONT OF YOU, MS. SPIVEY?

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MR. LEACH: IN THIS TABLE THERE'S A LIST OF CLASS OF STOCK. DO YOU SEE THAT?

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MR. LEACH: AND THERE'S SERIES A, B, C, C-1, C-1 WITH AN ASTERISK, AND C-2. WHAT DO THOSE REPRESENT?

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SO-HAN SPIVEY: THOSE ARE THE DIFFERENT SERIES OF PREFERRED STOCK.

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MR. LEACH: HOW DOES SERIES A DIFFER FROM SERIES B?

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SO-HAN SPIVEY: THAT WAS DEPENDING ON THE TIME OF THE INVESTMENT.

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MR. LEACH: OKAY. IS IT FAIR TO ASSUME FROM THIS THAT THE C-2 SERIES COMES LATER THAN THE SERIES A INVESTORS?

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MR. LEACH: OKAY. I WANT TO FOCUS ON THE SERIES C-2. THERE'S AN ISSUE PRICE OF $17 IF YOU GO TO THE RIGHT. WHAT DOES THAT $17 REPRESENT?

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SO-HAN SPIVEY: THAT EACH SHARE OF THE PREFERRED STOCK C-2 COSTS $17.

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MR. LEACH: IS THAT THE PRICE PER SHARE THAT INVESTORS WERE PAYING FOR C-2 INVESTMENTS?

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MR. LEACH: AND TO THE RIGHT THERE'S A COLUMN FOR INVESTED CAPITAL, $730,109,863. WHAT DOES THAT REPRESENT?

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SO-HAN SPIVEY: THAT REPRESENTS THE AMOUNT OF MONEY THAT THERANOS RECEIVED FROM THE C-2 INVESTORS.

280

MR. LEACH: OKAY. AND ROUGHLY WHAT TIME PERIOD WAS THE C-2 FINANCING ROUND?

281

SO-HAN SPIVEY: PROBABLY 2014, 2015.

282

MR. LEACH: SO LATER ON IN THE COMPANY'S TENURE?

284

MR. LEACH: OKAY. LET'S PLEASE GO NOUN TO PAGE 54. ACTUALLY, I THINK IT'S FURTHER DOWN, WHICH I'M LOOKING FOR SECTION 7.2, MS. HOLLIMAN, WHICH I'LL GET YOU. PAGE 67. MY APOLOGIES. IF WE COULD ZOOM IN, PLEASE, ON THE TOP HALF OF THIS WHERE THERE'S HISTORICAL FINANCIALS INCOME STATEMENT. THANK YOU. DO YOU SEE WHERE IT SAYS 7.2.1 INCOME STATEMENT, MS. SPIVEY?

286

MR. LEACH: AND THERE'S A ROW SUMMARY INCOME STATEMENT IN 3 ZEROS, DECEMBER 11TH, DECEMBER 12TH, AND THEN IT MOVES FORWARD. ARE THOSE THE YEAR ENDS FOR THOSE INCOME STATEMENTS?

288

MR. LEACH: AND BENEATH THAT IT SAYS F Y-A. WHAT DOES FY-A MEAN?

289

SO-HAN SPIVEY: FINANCIAL YEAR ACTUAL.

290

MR. LEACH: SO THOSE ARE THE REAL RESULTS AS COMPARED TO PROJECTED RESULTS?

292

MR. LEACH: AND DID YOU DO YOUR BEST TO PROVIDE ACCURATE INFORMATION TO ARANCA ON THESE POINTS?

294

MR. LEACH: AND IN DECEMBER OF '14 THERE'S A NUMBER 150. DO YOU SEE THAT?

296

MR. LEACH: AND WHAT DOES THAT MEAN?

297

SO-HAN SPIVEY: THAT'S THE INCOME THAT THE COMPANY RECORDED FOR SERVICES PROVIDED.

298

MR. LEACH: SO $150,000?

300

MR. LEACH: AND TO THE RIGHT FOR THE PERIOD ENDING MARCH 15TH THERE'S THE NUMBER 14. DO YOU SEE THAT?

302

MR. LEACH: AND WHAT DOES THAT MEAN?

303

SO-HAN SPIVEY: THAT'S THE REVENUE THAT THE COMPANY RECORDED FOR SERVICES PROVIDED.

304

MR. LEACH: $14,000?

305

SO-HAN SPIVEY: $14,000, YES.

306

MR. LEACH: OKAY. AND DO YOU RECALL THINGS GETTING MATERIALLY BETTER FOR THE YEAR 2015?

308

MR. LEACH: I'M SORRY?

310

MR. LEACH: LET'S LOOK AT THE NEXT PAGE, PLEASE. PAGE 68. THERE'S A BALANCE SHEET AT THE TOP. ACTUALLY, IF WE COULD ZOOM IN ON THE ENTIRETY OF THE TEXT, MS. HOLLIMAN. PERFECT. THANK YOU. ALL RIGHT. DID YOU PROVIDE THIS BALANCE SHEET, THE INFORMATION IN THIS BALANCE SHEET TO ARANCA, MS. SPIVEY?

312

MR. LEACH: AND DOWN TOWARDS THE BOTTOM THERE'S A LINE FOR SOMETHING CALLED RETAINED EARNINGS. DO YOU SEE THAT ROW, MS. SPIVEY?

314

MR. LEACH: AND WHAT IS RETAINED EARNINGS?

315

SO-HAN SPIVEY: THAT'S THE ACCUMULATED INCOME AND LOSS FOR THE YEAR.

316

MR. LEACH: AND IS THAT SYNONYMOUS WITH ACCUMULATED DEFICIT?

318

MR. LEACH: AND THE TERM THAT WE SAW IN PRIOR SPREADSHEETS?

320

MR. LEACH: WHAT WAS THE ACCUMULATED DEFICIT OR RETAINED EARNINGS AS OF DECEMBER 2014 --

322

MR. LEACH: IF WE COULD ZOOM OUT FOR THE WITNESS.

323

SO-HAN SPIVEY: APPROXIMATELY 376 MILLION.

324

MR. LEACH: AND THAT'S THE ACCUMULATED DEFICIT AS OF 2013? OR 2014, EXCUSE ME?

326

MR. LEACH: OKAY. THANK YOU. WE CAN TAKE THIS DOWN, PLEASE, MS. HOLLIMAN. I'D LIKE TO SHIFT FOCUS A LITTLE BIT FROM THERANOS'S OVERALL FINANCIAL CONDITION AND TALK ABOUT SOME PARTICULAR RELATIONSHIPS THAT THERANOS HAD, MS. SPIVEY. I'D LIKE TO DRAW YOUR ATTENTION, PLEASE, TO EXHIBIT 431. I BELIEVE WE HAVE STIPULATED TO THE ADMISSION OF 431.

327

MR. WADE: WE HAVE, YOUR HONOR.

328

JUDGE DAVILA: THANK YOU. IT'S ADMITTED, AND IT MAY BE PUBLISHED.

329

(GOVERNMENT'S EXHIBIT 431 WAS RECEIVED IN EVIDENCE.)

330

BY MR. LEACH:

331

MR. LEACH: LET'S FOCUS ON THE TOP PORTION OF THIS EMAIL, MS. SPIVEY. DO YOU SEE YOUR FORMER NAME IN THE TOP PART OF THE EMAIL?

333

MR. LEACH: AND THIS IS TO AN INDIVIDUAL AT KPMG. REMIND US, WE'VE TALKED A LITTLE BIT ABOUT KPMG LAST WEEK, WHAT WAS KPMG DOING FOR THERANOS?

334

SO-HAN SPIVEY: KPMG WAS THE AUDITOR TO THERANOS.

335

MR. LEACH: OKAY. AND THE SUBJECT IS FOR PFIZER REV REC. DO YOU SEE THAT?

337

MR. LEACH: AND WHAT IS REV REC?

338

SO-HAN SPIVEY: IT'S REVENUE RECOGNITION.

339

MR. LEACH: AND WHAT DOES THAT MEAN?

340

SO-HAN SPIVEY: THAT MEANS HOW MUCH MONEY THAT THE -- REVENUE THAT THE COMPANY CAN RECORD FOR THE YEAR.

341

MR. LEACH: AND WHY WERE YOU FORWARDING THIS EMAIL TO KPMG IN OR AROUND 2011?

342

SO-HAN SPIVEY: THIS IS TO BACK UP THE REVENUE THAT THE COMPANY RECORDED IN THE FINANCIAL BOOK.

343

MR. LEACH: REVENUE RELATING TO WHICH CUSTOMER?

345

MR. LEACH: OKAY. I'D LIKE TO DRAW YOUR ATTENTION TO THE FIRST EMAIL IN THIS CHAIN. IF I CAN ZOOM OUT A LITTLE BIT, MS. HOLLIMAN. MAYBE THE TOP HALF OF THE DOCUMENT WOULD BE GOOD. DO YOU SEE THE EMAIL FROM ELIZABETH HOLMES TO AIDAN POWER AND CRAIG LIPSET ON OCTOBER 10TH, 2008?

347

MR. LEACH: AND WHO DO YOU UNDERSTAND THOSE FOLKS TO BE?

349

MR. LEACH: AND WHO DO YOU UNDERSTAND THOSE FOLKS TO BE?

350

SO-HAN SPIVEY: I'M NOT SURE.

351

MR. LEACH: AND DO YOU BELIEVE THEM TO BE WITH PFIZER?

352

SO-HAN SPIVEY: I'M NOT SURE.

353

MR. LEACH: OKAY. THERE'S A NAME IN THE CC LINE MARC THIBONNIER. WHO IS HE?

354

SO-HAN SPIVEY: HE'S THE CHIEF MEDICAL OFFICER AT THAT TIME.

355

MR. LEACH: BACK IN 2008?

357

MR. LEACH: AND MS. HOLMES WROTE IN THE SECOND PARAGRAPH, "IN THE INTEREST OF FINISHING AS QUICKLY AS POSSIBLE, WE VARIED THE ENROLLMENT SCHEDULES OF SOME OF OUR EXISTING AND NEW PATIENTS, AS YOU WILL SEE IN THE ATTACHED. "THROUGHOUT THIS PROCESS, WE HAVE BEEN COMPILING THE DATA FOR OUR FINAL REPORT. I'M VERY PLEASED TO PRESENT YOU WITH THE FINAL DATA -- SEE THE ATTACHED STUDY REPORT." DO YOU SEE THAT LANGUAGE?

359

MR. LEACH: AND MS. HOLMES FORWARDS THIS TO YOU SHORTLY AFTER SENDING IT TO AIDAN POWER AND CRAIG LIPSET AND WRITES, "THE REPORT HAS BEEN SUBMITTED. WE CAN NOW INVOICE FOR THE REMAINING 400K." DO YOU SEE THAT LANGUAGE?

361

MR. LEACH: AND WHAT DID THAT MEAN?

362

SO-HAN SPIVEY: SO MY RECOLLECTION OF THIS CONSIDER IS THAT THERANOS WOULD PROVIDE A STUDY REPORT TO PFIZER FOR A TOTAL OF $900,000 AND PFIZER WOULD -- ALREADY PAID $500,000 BEFORE 2008, AND THE REMAINING 400,000 WOULD BE PAID WHEN THERANOS PROVIDED THE REPORTS.

363

MR. LEACH: IS THIS MS. HOLMES GIVING YOU DIRECTION TO RECOGNIZE ADDITIONAL REVENUE ON THE PFIZER CONTRACT?

364

SO-HAN SPIVEY: TO INVOICE FOR THE REMAINING AMOUNT.

365

MR. LEACH: WHAT DO YOU MEAN BY "INVOICE"?

366

SO-HAN SPIVEY: TO SEND PFIZER THE INVOICE SO THEY WOULD PAY THE AMOUNT.

367

MR. LEACH: OKAY. LET ME DRAW YOUR ATTENTION TO PAGE 3 OF THIS DOCUMENT. IF WE COULD ZOOM IN ON THE TOP PORTION OF PAGE 3. LET'S INCLUDE ALL OF THE TEXT AT THE TOP, PLEASE. THERE WE GO. THANK YOU, MS. HOLLIMAN. MS. SPIVEY, DO YOU -- THERE'S A LOGO AT THE TOP THAT SAYS, "THERANOS REDEFINING HEALTHCARE." DO YOU SEE THAT?

369

MR. LEACH: AND IS THAT THERANOS'S OLD LOGO?

371

MR. LEACH: AND DID THAT CHANGE AT SOME POINT IN TIME?

373

MR. LEACH: OKAY. AND THEN IT SAYS, THERANOS'S ANGIOGENESIS STUDY REPORT PREPARED FOR DR. AIDAN POWER, PFIZER, INC." DO YOU SEE THAT LANGUAGE?

375

MR. LEACH: AND DO YOU BELIEVE THAT TO BE THE REPORT THAT MS. HOLMES WAS REFERRING TO IN HER EMAIL THAT SHE WAS FORWARDING TO YOU?

377

MR. LEACH: AND DO YOU BELIEVE THAT THIS WAS PROVIDED TO PFIZER AS SUPPORT FOR THE INVOICE?

379

MR. LEACH: LET ME PLEASE DRAW YOUR ATTENTION TO WHAT HAS BEEN MARKED AS 5219. AND I BELIEVE THE PARTIES HAVE AGREED TO THE ADMISSION OF 5219?

380

MR. WADE: WE DO, YOUR HONOR.

381

JUDGE DAVILA: ALL RIGHT. THANK YOU. IT'S ADMITTED AND MAY BE PUBLISHED.

382

(GOVERNMENT'S EXHIBIT 5219 WAS RECEIVED IN EVIDENCE.)

383

MR. LEACH: MS. HOLLIMAN, IF WE CAN PLEASE ZOOM IN ON THE TOP HALF OF THIS.

384

MR. LEACH: DO YOU SEE YOUR NAME IN THE FROM LINE, MS. SPIVEY?

386

MR. LEACH: AND IS THIS AN EMAIL THAT YOU SENT TO FOLKS AT KPMG IN CONNECTION WITH THEIR AUDIT WORK?

388

MR. LEACH: AND DID KPMG EVER RENDER AN OPINION ON THERANOS'S FINANCIAL STATEMENTS?

390

MR. LEACH: THERE ARE TWO EXCEL -- OR FOUR EXCEL SPREADSHEETS ON THIS, TWO TITLED CONTRACT SUMMARY. DO YOU SEE THOSE?

392

MR. LEACH: ARE THOSE DOCUMENTS THAT YOU PREPARED?

394

MR. LEACH: OKAY. IF WE COULD PLEASE DISPLAY PAGE 14, THE NATIVE FILE. IF WE COULD MOVE TO THE LEFT, PLEASE, MS. HOLLIMAN. I THINK WE NEED TO MOVE THIS OVER TO THE LEFT. THERE WE GO. AND IF WE COULD GO ALL OF THE WAY TO THE TOP, PLEASE. WONDERFUL. THANK YOU. UP IN THE RIGHT-HAND CORNER IT SAYS, "THERANOS INC. SALES CONTRACT SUMMARY YE 12/31/2009." WHAT DOES YE STAND FOR?

395

SO-HAN SPIVEY: YEAR ENDED.

396

MR. LEACH: AND IN THE FIRST COLUMN THERE'S A CUSTOMER AND IT SAYS ASTRAZENECA. WHAT IS MEANT BY THAT?

397

SO-HAN SPIVEY: THE CUSTOMER IS ASTRAZENECA.

398

MR. LEACH: AND WAS ASTRAZENECA A PHARMACEUTICAL COMPANY THAT THERANOS DID SOME BUSINESS WITH?

400

MR. LEACH: AND TO THE RIGHT IN THE COLUMN UNDER D IT SAYS 1/31/2008. DO YOU SEE THAT?

402

MR. LEACH: AND WHAT DOES THAT REFER TO?

403

SO-HAN SPIVEY: THE CONTRACT WAS EFFECTIVE ON THAT DATE.

404

MR. LEACH: AND THEN THERE'S A LINE CONTRACT TOTAL, 25,000. DO YOU SEE THAT?

406

MR. LEACH: AND WHAT DOES THAT MEAN?

407

SO-HAN SPIVEY: THERANOS WOULD PROVIDE SERVICES OR PRODUCT FOR THAT CONTRACT AMOUNT.

408

MR. LEACH: OKAY. AND THERE ARE TWO CONTRACTS HERE FOR ASTRAZENECA AND ONE TOTALLED 25,000 AND ONE TOTALLED 225,000. IF WE CAN GO DOWN TO THE NEXT ROW. OTHER THAN THOSE TWO CONTRACTS, DID THERANOS HAVE ANY REVENUE GENERATING CONTRACTS WITH ASTRAZENECA?

410

MR. LEACH: AND IN ROW 2 THERE'S CELGENE CORPORATION. DO YOU SEE THAT?

412

MR. LEACH: AND THE AMOUNT OF THAT CONTRACT IS $106,000. DO YOU SEE THAT?

414

MR. LEACH: AND I'LL COME BACK TO CELGENE IN A MOMENT. BUT LET ME FIRST ASK ABOUT ROW 11, NOVARTIS. DO YOU SEE THAT?

416

MR. LEACH: AND WHAT IS THE DATE OF THE NOVARTIS CONTRACT?

417

SO-HAN SPIVEY: JUNE 24TH, 2008.

418

MR. LEACH: AND WHAT IS THE AMOUNT?

420

MR. LEACH: AND IF WE CAN SCROLL DOWN A LITTLE MORE. OUTSIDE OF THAT 65,000 NOVARTIS CONTRACT, DID THERANOS HAVE ANY REVENUE GENERATING CONTRACTS WITH NOVARTIS?

422

MR. LEACH: IN ROW, IN ROW 12 THERE'S CENTOCOR, AND I'LL COME BACK TO THAT IN A MOMENT, MS. SPIVEY. I WANTED TO ASK ABOUT ROW 13, MERCK, FOR $12,000. OUTSIDE OF THAT AGREEMENT, DID THERANOS HAVE ANY REVENUE GENERATING CONTRACTS WITH MERCK?

424

MR. LEACH: AND FURTHER DOWN THE ROW THERE'S PFIZER. DO YOU SEE THAT?

426

MR. LEACH: AND DO YOU BELIEVE THAT TO BE A REFERENCE TO THE EXHIBIT THAT WE JUST LOOKED AT?

428

MR. LEACH: AND THAT WAS A $900,000 CONTRACT?

430

MR. LEACH: OUTSIDE OF THIS $900,000 CONTRACT WITH PFIZER DATED DECEMBER 15TH, 2006, DID THERANOS HAVE ANY REVENUE GENERATING CONTRACTS WITH PFIZER?

432

MR. LEACH: HOW ABOUT THE MAYO CLINIC IN ROW 15. OUTSIDE OF THE $60,000 CONTRACT REFERENCED THERE, DID THERANOS HAVE ANY REVENUE GENERATION CONTRACTS WITH THE MAYO CLINIC?

434

MR. LEACH: IN ROW 18 THERE'S SCHERING-PLOUGH. DO YOU SEE THAT?

436

MR. LEACH: AND WHAT WAS THE VALUE OF THE SCHERING-PLOUGH AGREEMENT?

438

MR. LEACH: AND WHAT WAS THE DATE?

439

SO-HAN SPIVEY: APRIL 30TH, 2009.

440

MR. LEACH: OUTSIDE OF THIS AGREEMENT, DID THERANOS HAVE ANY REVENUE GENERATING CONTRACTS WITH SCHERING-PLOUGH?

442

MR. LEACH: AND LET ME PLEASE NOW DRAW YOUR -- I WANT TO GO BACK TO CENTOCOR AND CELGENE IN THE CONTEXT OF PAGE 16 OF THIS EXHIBIT, ANOTHER EXCEL FILE. WONDERFUL. WE'RE NOW LOOKING AT PAGE 6 OF THIS EXHIBIT, MS. SPIVEY. UP AT THE TOP IT SAYS YE 12/31/2009. DO YOU ACTUALLY BELIEVE THIS TO BE THE CONTRACTS REVENUE ANALYSIS FOR 2010?

443

SO-HAN SPIVEY: I BELIEVE SO.

444

MR. LEACH: AND OUTSIDE OF THE CONTRACTS ON THIS SPREADSHEET FOR CENTOCOR AND CELGENE, DID THERANOS HAVE ANY REVENUE GENERATING CONTRACTS WITH THOSE TWO PHARMACEUTICAL COMPANIES?

446

MR. LEACH: DOWN AT THE -- IN ROW 11 THERE'S A REFERENCE TO SOMETHING CALLED THE AMERICAN BURN ASSOCIATION. WHAT IS THAT?

447

SO-HAN SPIVEY: WHAT DO YOU MEAN?

448

MR. LEACH: WHAT WAS THAT CONTRACT? WHAT WAS THAT ARRANGEMENT?

449

SO-HAN SPIVEY: OH. SO THERANOS WOULD PROVIDE SOME -- THE CARTRIDGES AND THE DEVICE TO AMERICAN BURN ASSOCIATION FOR THE AMOUNT OF THE CONTRACT TOTAL OF 288,000.

450

MR. LEACH: OUTSIDE OF THE CONTRACT LISTED HERE, DID THERANOS HAVE ANY REVENUE GENERATING CONTRACTS WITH THE AMERICAN BURN ASSOCIATION?

452

MR. LEACH: DID THERANOS HAVE ANY REVENUE GENERATING CONTRACTS WITH THE DEPARTMENT OF DEFENSE?

454

MR. LEACH: HOW ABOUT THE UNITED STATES MILITARY?

456

MR. LEACH: HOW ABOUT ANY HOSPITAL CHAINS?

458

MR. LEACH: THANK YOU, MS. HOLLIMAN. YOU CAN TAKE THAT DOWN. I'D LIKE TO NOW DRAW YOUR ATTENTION, MS. HOLMES, TO EXHIBIT 5172. I BELIEVE THAT THE PARTIES STIPULATE TO THE ADMISSION OF 5172.

459

MR. WADE: WE DO, YOUR HONOR.

460

JUDGE DAVILA: THANK YOU. IT'S ADMITTED, AND IT MAY BE PUBLISHED.

461

(GOVERNMENT'S EXHIBIT 5172 WAS RECEIVED IN EVIDENCE.)

462

BY MR. LEACH:

463

MR. LEACH: BEFORE WE GET TO THE EXHIBIT, MS. SPIVEY, I'D LIKE TO DRAW YOUR ATTENTION THAT LAST WEEK WE TALKED ABOUT THE TIME PERIOD OF 2009. WAS THERANOS SHORT ON CASH AT THE BEGINNING OF 2009?

465

MR. LEACH: AND HOW WOULD YOU DESCRIBE THE COMPANY'S CASH POSITION AT THAT TIME PERIOD?

466

SO-HAN SPIVEY: THE CASH POSITION WAS VERY TIGHT IN 2009.

467

MR. LEACH: AND I'D LIKE TO NOW MOVE FORWARD IN TIME TO 2013. DO YOU HAVE THAT TIMEFRAME IN MIND?

469

MR. LEACH: OKAY. IN 2013 WAS THERANOS ALSO EXPERIENCING SOME CASH DIFFICULTIES?

470

SO-HAN SPIVEY: IT STARTED TO GET A BIT TIGHT, NOT TO THE EXTENT OF 2009, BUT WE WERE WATCHING THE CASH POSITION VERY CLOSELY.

471

MR. LEACH: OKAY. LET ME DRAW YOUR ATTENTION TO 5172 IF WE COULD. UP IN THE TOP LEFT-HAND CORNER OF THIS THERANOS SPREADSHEET IT SAYS THERANOS CASH BALANCE. DO YOU SEE THAT?

473

MR. LEACH: AND IS THIS A DOCUMENT THAT YOU PREPARED?

475

MR. LEACH: AND WHY DID YOU PREPARE THIS?

476

SO-HAN SPIVEY: TO SHOW ELIZABETH HOLMES AND SUNNY BALWANI OF THE CASH POSITION IN EACH WEEK.

477

MR. LEACH: DID YOU DO THAT ON A REGULAR BASIS?

478

SO-HAN SPIVEY: YES. WEEKLY.

479

MR. LEACH: USING DOCUMENTS SUCH AS EXHIBIT 5172?

481

MR. LEACH: OKAY. MS. HOLLIMAN, IF WE COULD MOVE TO THE LEFT TO COLUMNS EL AND E9. A LITTLE MORE TO THE LEFT. THERE WE GO. LET'S USE E9 IF WE COULD. I'M SORRY, EN. EXCUSE ME. IN COLUMN EN, MS. SPIVEY, THERE'S TWO ROWS BEGINNING AND ENDING. WHAT DO THOSE ROWS SIGNIFY?

482

SO-HAN SPIVEY: THAT'S THE WEEK STARTING SEPTEMBER 23RD.

483

MR. LEACH: THERE WE GO. LET'S LEAVE IT RIGHT THERE, MS. HOLLIMAN. THANK YOU. SO 9-23 TO 9-29, THAT'S THE LAST WEEK OF SEPTEMBER 2013?

485

MR. LEACH: OKAY. AND WHAT WAS THE TOTAL CASH BALANCE FOR THAT WEEK?

486

SO-HAN SPIVEY: AS OF 9-29 THE CASH BALANCE WAS ABOUT 14.5 MILLION.

487

MR. LEACH: OKAY. AND IF WE COULD GO JUST A LITTLE BIT TO THE LEFT, MS. HOLLIMAN, PLEASE. AND THE WEEK BEFORE THAT WAS THE TOTAL CASH BALANCE 16.6 MILLION?

489

MR. LEACH: AND THE WEEK BEFORE THAT IT WAS 18.82 MILLION?

491

MR. LEACH: AND IS THIS WHAT YOU WERE REFERRING TO WHEN YOU WERE SAYING THAT THINGS WERE GETTING TIGHT?

493

MR. LEACH: IN ROW 14 THERE'S SOME AMOUNTS FOR TOTAL PAYMENTS. DO YOU SEE THAT? IN ROW 24.

495

MR. LEACH: WHAT DOES TOTAL PAYMENTS REPRESENT?

496

SO-HAN SPIVEY: THAT'S THE AMOUNTS THAT THERANOS OR THE CASH THAT THERANOS BURNED FOR THAT WEEK.

497

MR. LEACH: AND DID YOU SAY BURNED?

499

MR. LEACH: OKAY. ARE YOU FAMILIAR WITH THE TERM BURN RATE?

501

MR. LEACH: AND WHAT DOES BURN RATE MEAN?

502

SO-HAN SPIVEY: THAT'S ALL OF THE EXPENSES AND OUTGOING PAYMENTS.

503

MR. LEACH: OKAY. AND SO DOES THIS INDICATE THAT IN THE WEEK OF SEPTEMBER 23RD, 2013, THERANOS WAS SPENDING $2.16 MILLION IN CASH?

505

MR. LEACH: AND THE WEEK BEFORE THAT IT WAS 2.217?

507

MR. LEACH: AND THE WEEK BEFORE THAT IT WAS 1.194 MILLION?

509

MR. LEACH: AND DOES THAT ROUGHLY APPROXIMATE THE WEEKLY BURN RATE OF THERANOS DURING THIS TIME PERIOD?

511

MR. LEACH: IF WE COULD DOWN FURTHER IN ROW 27 THERE'S A LINE FOR OPTION STOCK PROCEEDS. DO YOU SEE THAT?

513

MR. LEACH: WHAT DOES THAT REFER TO?

514

SO-HAN SPIVEY: THAT'S THE MONEY THAT THERANOS RECEIVED EITHER FROM EXERCISED OPTION OR FROM SELLING STOCK.

515

MR. LEACH: SO DOES THIS REFLECT THAT IN THE WEEK OF SEPTEMBER 30TH, 2013, THERANOS RECEIVED $21 MILLION THROUGH THE EXERCISE OF OPTIONS OR THE SALE OF STOCK TO AN INVESTOR?

517

MR. LEACH: AND IF WE COULD PLEASE MOVE TO THE RIGHT, MS. HOLLIMAN -- PERFECT. FEBRUARY 3RD, 2014, THERE'S A LINE FOR $114,559,985. MAYBE WE CAN MOVE UP A LITTLE BIT SO WE CAN SEE IT, MS. HOLLIMAN. THERE WE GO. DOWN A LITTLE MORE, PLEASE. RIGHT HERE, THIS NUMBER (INDICATING). DOES THAT -- DOES $114 MILLION REPRESENT MONEY RECEIVED FROM THE EXERCISE OF STOCK OPTIONS OR INVESTMENTS FROM INVESTORS?

519

MR. LEACH: OKAY. AS THE CORPORATE CONTROLLER -- WILL YOU TAKE THAT DOWN, MS. HOLLIMAN. THANK YOU. AS THE CORPORATE CONTROLLER OF THERANOS, WERE YOU RESPONSIBLE FOR MONITORING THE COMPANY'S SPENDING ON PARTICULAR EXPENSES?

521

MR. LEACH: AND WERE YOU -- DO YOU KNOW WHETHER THE DEFENDANT EARNED A SALARY DURING HER TIME AT THERANOS?

523

MR. LEACH: AND FOR THE TIME PERIOD OF 2015, APPROXIMATELY WHAT AMOUNT WAS THE DEFENDANT'S SALARY?

525

MR. LEACH: $400,000?

527

MR. LEACH: BUT FOR THE TIME PERIOD 2010 THROUGH 2014, DO YOU KNOW APPROXIMATELY WHAT THE DEFENDANT'S SALARY WAS?

529

MR. LEACH: $200,000?

531

MR. LEACH: ARE YOU FAMILIAR WITH A COMPANY CALLED FLIGHT LOGISTICS INC.?

533

MR. LEACH: AND WHAT IS FLIGHT LOGISTICS INC.?

534

SO-HAN SPIVEY: IT'S THE COMPANY THAT PROVIDE PRIVATE JET SERVICES TO THERANOS.

535

MR. LEACH: AND WHEN YOU SAY IT'S THE COMPANY THAT PROVIDED PRIVATE JET SERVICES TO THERANOS, WHAT DO YOU MEAN?

536

SO-HAN SPIVEY: THAT MEANS WHEN ELIZABETH HOLMES AND -- USED TO TRAVEL THROUGH A PRIVATE JET, THAT WE WOULD PAY THROUGH THAT COMPANY AND THEY WOULD ARRANGE THE FLIGHT FOR THERANOS.

537

MR. LEACH: AND DID YOU HAVE A ROLE IN ARRANGING FLIGHTS FOR MS. HOLMES ON THIS PRIVATE JET?

539

MR. LEACH: OKAY. WHO HANDLED THAT?

540

SO-HAN SPIVEY: I'M NOT SURE.

541

MR. LEACH: WERE YOU REQUIRED TO APPROVE THE INVOICES FOR A PRIVATE JET BY THE DEFENDANT?

543

MR. LEACH: AND WHO ELSE USED THIS PRIVATE JET THAT THERANOS WAS PAYING FOR?

544

SO-HAN SPIVEY: I CAN'T REMEMBER.

545

MR. LEACH: OKAY. AND WHAT TYPES OF PURPOSES WAS THIS PRIVATE JET USED FOR? WHERE WAS THE DEFENDANT GOING?

546

SO-HAN SPIVEY: I'M NOT SURE.

547

MR. LEACH: OKAY. DO YOU HAVE A BALLPARK OF HOW MUCH MONEY THERANOS SPENT ON PRIVATE JETS FOR MS. HOLMES'S USE?

548

SO-HAN SPIVEY: I CAN'T RECALL.

549

MR. LEACH: MORE THAN 500,000?

550

SO-HAN SPIVEY: I CAN'T RECALL.

551

MR. LEACH: MORE THAN A MILLION?

552

SO-HAN SPIVEY: I DON'T KNOW.

553

MR. LEACH: OKAY. ARE YOU FAMILIAR WITH A COMPANY CALLED SIEMENS?

555

MR. LEACH: AND WHAT IS SIEMENS?

556

SO-HAN SPIVEY: WE -- THERANOS PURCHASED EQUIPMENT AND SOME LAB SUPPLIES FROM THAT COMPANY.

557

MR. LEACH: OKAY. AND WERE YOU RESPONSIBLE FOR APPROVING INVOICES FROM SIEMENS?

559

MR. LEACH: WHO WAS RESPONSIBLE FOR DOING THAT?

560

SO-HAN SPIVEY: SO THERANOS USED QAD AND A PURCHASING SYSTEM, WHICH I CAN'T REMEMBER WHAT IT'S CALLED, BUT THERE'S AN APPROVAL SYSTEM THAT THERANOS USED. SO THE STAFF WILL SUBMIT A PURCHASE REQUISITION, AND IT WOULD GO THROUGH THE APPROVAL PROCESS BASED ON THE AMOUNT, AND SO AFTER IT'S APPROVED, THEN THE PURCHASING TEAM WILL PLACE THE PURCHASE ORDER. AND WHEN THE COMPANY RECEIVED WHAT WE PURCHASED, ACCORDING TO THE PURCHASE ORDER, THEN THE STAFF WILL RECEIVE THAT INTO QAD. SO FROM AN ACCOUNTING PERSPECTIVE, I ONLY -- WE ONLY LOOK AT WHAT HAS BEEN RECEIVED AND THEN AFTER WE MATCH UP WITH THE INVOICE AND THEN WE CAN PROCESS PAYMENT.

561

MR. LEACH: OKAY. SO YOU KNOW THE COMPANY SPENT MONEY ON SIEMENS FOR SOME TYPE OF EQUIPMENT; IS THAT FAIR?

563

MR. LEACH: BUT YOU WEREN'T RESPONSIBLE FOR APPROVING THAT?

564

SO-HAN SPIVEY: I WASN'T INVOLVED IN THAT APPROVAL PROCESS.

565

MR. LEACH: OKAY. AND DID YOU HAVE ANY INSIGHT INTO WHAT THE SIEMENS EQUIPMENT WAS BEING USED FOR?

567

MR. LEACH: OKAY. LET ME SHIFT TOPICS, MS. SPIVEY. THE LAST TOPIC I WANT TO GO BACK TO IS ARANCA. YOU SHOULD HAVE IN BINDER NUMBER 2 EXHIBIT 5085. DOES THIS APPEAR TO BE AN EMAIL FROM YOU TO ELIZABETH HOLMES DATED MAY 25TH, 2013?

569

MR. LEACH: AND DOES THE SUBJECT APPEAR TO BE 409A?

571

MR. LEACH: AND, AGAIN, WHAT IS 409A?

572

SO-HAN SPIVEY: IT'S THE I.R.S. TEST CODE FOR STOCK OPTION.

573

MR. LEACH: AND FROM TIME TO TIME DID YOU HAVE DISCUSSIONS WITH MS. HOLMES ABOUT 409A ANALYSES?

575

MR. LEACH: YOUR HONOR, I OFFER EXHIBIT 5085.

576

MR. WADE: NO OBJECTION, YOUR HONOR.

577

JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.

578

(GOVERNMENT'S EXHIBIT 5085 WAS RECEIVED IN EVIDENCE.)

579

BY MR. LEACH:

580

MR. LEACH: AND, MS. HOLLIMAN, IF WE COULD PLEASE ZOOM IN ON THE TOP PORTION WITH THE TEXT. DO YOU SEE THE EMAIL AT THE BOTTOM WHERE MS. HOLMES APPEARS TO WRITE, "CAN YOU FORWARD ME THE LATEST YOU HAVE ON GETTING THIS DONE AGAIN -- I AM GOING TO GET WHATEVER WE NEED DONE DONE THIS WEEKEND." DO YOU SEE THAT LANGUAGE?

582

MR. LEACH: AND YOU WRITE BACK, "HERE ARE THE THREE LATEST MODEL WE HAVE." THERE'S A LINE FOR 5/31/10, 7/01/10, 7/01/11. WHAT DO THOSE DATES REFER TO?

583

SO-HAN SPIVEY: MAY 31ST, 2010, JULY 1ST, 2010, AND JULY 1ST, 2011.

584

MR. LEACH: AND ARE THOSE DATES OF MODELS THAT ARANCA WAS PREPARING?

586

MR. LEACH: AND FOR THE MAY 31ST, 2010, YOU WROTE, "BASED ON THIS MODEL, ARANCA CAME BACK WITH A VALUE OF $0.44." IS THAT THE PRICE PER SHARE FOR COMMON STOCK?

588

MR. LEACH: AND "THE IMPACT WAS THAT YOUR OPTION PLUS ALL OF THE OTHER OPTIONS THAT WERE GRANTED IN JUNE WOULD BE GRANTED BELOW VALUE." WHAT DOES THAT MEAN?

589

SO-HAN SPIVEY: SO THE COMPANY GRANTED OPTIONS TO ELIZABETH HOLMES IN MAY AND ALSO TO A LIST OF EMPLOYEES IN JUNE 2010 AT A LOWER VALUE.

590

MR. LEACH: AND WHAT DOES THAT MEAN? WHAT CONSEQUENCE DOES THAT HAVE?

591

SO-HAN SPIVEY: IF THE COMPANY GRANTED OPTION BELOW FAIR MARKET VALUE, THEN IT WOULD TRIGGER TAX CONSEQUENCE TO THE OPTIONEE.

592

MR. LEACH: AND THE OPTIONEE HERE WOULD BE THE DEFENDANT, MS. HOLMES?

593

SO-HAN SPIVEY: TO MS. HOLMES AND TO THE OTHER OPTIONEES THAT WE GRANTED THE OPTION IN JUNE.

594

MR. LEACH: YOU TESTIFIED LAST WEEK THAT KPMG WAS ALSO RAISING QUESTIONS WITH RESPECT TO THE VALUE OF THE OPTION GRANT IN 2010. DO YOU UNDERSTAND THAT TESTIMONY?

596

MR. LEACH: AND DID THAT ISSUE EVER GET RESOLVED WITH KPMG?

598

MR. LEACH: AND IN THE DISCUSSION WITH KPMG, WERE THEY ADVOCATING FOR A HIGHER PRICE FOR THE OPTIONS OR A LOWER PRICE FOR THE OPTIONS?

600

MR. LEACH: THANK YOU. WE CAN PUT THIS ASIDE, MS. HOLLIMAN. LET ME DRAW YOUR ATTENTION TO WHAT HAS BEEN MARKED AS EXHIBIT 5141. I UNDERSTAND THAT WE ARE STIPULATING TO THE ADMISSION OF 5141?

601

MR. WADE: THAT'S CORRECT, YOUR HONOR.

602

JUDGE DAVILA: THANK YOU. IT'S ADMITTED. IT MAY BE PUBLISHED.

603

(GOVERNMENT'S EXHIBIT 5141 WAS RECEIVED IN EVIDENCE.)

604

BY MR. LEACH:

605

MR. LEACH: PERFECT, MS. HOLLIMAN. THANK YOU. DO YOU SEE YOUR NAME AT THE TOP OF THIS EMAIL, MS. SPIVEY?

607

MR. LEACH: AND THE DATE IS DECEMBER 8TH, 2013?

609

MR. LEACH: AND IT'S TO SOMEONE NAMED VALESKA HINTZ. WHO IS THAT?

610

SO-HAN SPIVEY: SHE'S THE SENIOR ATTORNEY AT THERANOS.

611

MR. LEACH: AND YOU HAVE COPIED MS. HOLMES ON THIS EMAIL; IS THAT RIGHT?

613

MR. LEACH: THE SUBJECT IS 409A VALUATION REPORTS. DO YOU SEE THAT?

615

MR. LEACH: AND IS THAT A REFERENCE TO THESE 409A VALUATION REPORTS THAT ARANCA WAS PREPARING?

617

MR. LEACH: AND LET'S LOOK AT PAGE 2, PLEASE. WE'RE LOOKING AT PAGE 2 OF THE EXHIBIT, THE ATTACHMENT TO THE EMAIL. IS THIS ARANCA REPORT VALUING THERANOS'S COMMON STOCK AS OF SEPTEMBER 30TH, 2013?

619

MR. LEACH: AND IF I COULD DRAW YOUR ATTENTION TO PAGE 38. THANK YOU, MS. HOLLIMAN. THERE WE GO. AND IF WE COULD ZOOM IN ON THE TOP PORTION, THE TABLE AT THE TOP. MS. YAM, I DRAW YOUR ATTENTION TO THE EXISTING SHAREHOLDERS AS OF SEPTEMBER 30TH, 2013, AND I DON'T SEE A REFERENCE TO THE C-2 INVESTORS. IS IT FAIR TO CONCLUDE FROM THIS THAT THE C-2 INVESTORS COME THEREAFTER?

621

MR. LEACH: AND IF WE COULD PLEASE GO TO PAGE 51. MS. SPIVEY, THERE'S A SUMMARY INCOME STATEMENT AT THE TOP WITH DIFFERENT YEARS GOING OUT TO 2017. DO YOU SEE THAT?

623

MR. LEACH: AND THERE'S A ROW WITH 3 MTH-F, FY-F. DO YOU SEE THAT?

625

MR. LEACH: AND HELP US TO UNDERSTAND WHAT THAT MEANS?

626

SO-HAN SPIVEY: SO THE FIRST COLUMN IS 3 MONTH FORECAST AND 2013, AND THE NEXT ROW IS FOR THE YEAR 2013 FORECAST SO ON AND SO FORTH.

627

MR. LEACH: SO THE F IS FOR THE FORECAST?

629

MR. LEACH: AND THESE FORECASTED REVENUE NUMBERS, WHERE DOES ARANCA GET THOSE?

630

SO-HAN SPIVEY: THEY GOT THAT FROM ME.

631

MR. LEACH: AND WHERE DID YOU GET THEM FROM?

632

SO-HAN SPIVEY: FROM ELIZABETH HOLMES.

633

MR. LEACH: WHAT WAS THE REVENUE FORECAST THAT THERANOS PROVIDED FOR YEAR ENDED 2013?

634

SO-HAN SPIVEY: 50 MILLION.

635

MR. LEACH: HOW ABOUT 2015 OR 2014?

636

SO-HAN SPIVEY: ABOUT 90 MILLION.

637

MR. LEACH: AND 2015?

638

SO-HAN SPIVEY: 112 MILLION.

639

MR. LEACH: AND YOU'VE HAD DISCUSSION WITH MS. HOLMES ABOUT THESE NUMBERS?

641

MR. LEACH: DID YOU EVER PROVIDE FINANCIAL PROJECTIONS TO INVESTORS?

643

MR. LEACH: DID MS. HOLMES OR MR. BALWANI ASK YOU TO PREPARE REVENUE PROJECTIONS FOR ANYBODY INTERESTED IN INVESTING IN THE COMPANY?

645

MR. LEACH: LET ME DRAW YOUR ATTENTION, PLEASE, TO EXHIBIT 3533. I BELIEVE WE HAVE STIPULATED TO THE ADMISSION OF 3533?

646

MR. WADE: WE HAVE, YOUR HONOR.

647

JUDGE DAVILA: THANK YOU. IT'S ADMITTED, AND IT MAY BE PUBLISHED.

648

(GOVERNMENT'S EXHIBIT 3533 WAS RECEIVED IN EVIDENCE.)

649

MR. LEACH: IF WE CAN PLEASE ZOOM IN, MS. HOLLIMAN, ON JUST THE TEXT TO ABOUT RIGHT HERE (INDICATING).

650

MR. LEACH: DO YOU SEE YOUR NAME IN THE FROM LINE ON THIS EMAIL, MS. SPIVEY?

652

MR. LEACH: AND DO YOU SEE MS. HOLMES'S NAME IN THE TO LINE?

654

MR. LEACH: AND THE SUBJECT IS 409A PREP. IS THIS ANOTHER REFERENCE TO DISCUSSIONS ABOUT 409A VALUATIONS?

656

MR. LEACH: AND IS THIS AN EXAMPLE OF YOU CONSULTING WITH THE DEFENDANT ABOUT WHAT REVENUE PROJECTIONS TO PROVIDE TO ARANCA?

658

MR. LEACH: THANK YOU. IF WE COULD NOW LOOK AT 3527. I BELIEVE WE HAVE STIPULATED TO 3527.

659

MR. WADE: WE HAVE, YOUR HONOR.

660

JUDGE DAVILA: THANK YOU. IT'S ADMITTED, AND MAY BE PUBLISHED.

661

(GOVERNMENT'S EXHIBIT 3527 WAS RECEIVED IN EVIDENCE.)

662

MR. LEACH: THAT'S GOOD, MS. HOLLIMAN. RIGHT THERE. THANK YOU. IS THERE SOME WAY TO DELETE MY WRITING? THANK YOU.

663

MR. LEACH: MS. SPIVEY, IS THIS ANOTHER EXAMPLE OF YOU DISCUSSING 409A VALUATIONS WITH THE DEFENDANT?

665

MR. LEACH: OKAY. IN THE MIDDLE ON DECEMBER 22ND, 2014, YOU WROTE "I SENT OVER THE PROJECTION TO ARANCA LAST NIGHT. THEY KNOW WE HAVE A DEADLINE BEFORE THE END OF THE YEAR AND WILL WORK WITH THAT. "I USED THE SAME ASSUMPTIONS FOR REVENUE AS IN OCTOBER, ROUGHLY $100M, $300M, $300M, AND $500M IN 2015 THRU 2018." WHAT DID YOU MEAN BY THAT?

666

SO-HAN SPIVEY: THAT'S THE REVENUE PROJECTION THAT WE USE FOR THE FORECAST.

667

MR. LEACH: THAT YOU WOULD USE FOR THE LAST FORECAST?

669

MR. LEACH: AND ARE YOU ASKING FOR PERMISSION TO USE THOSE SAME FORECASTS FOR THE NEXT VALUATION?

671

MR. LEACH: AND MS. HOLMES WRITES BACK, "100M FOR 15 RIGHT." YOU REPLY, "YES." AND THEN SHE WRITES, "THX." DO YOU SEE THAT?

673

MR. LEACH: AND WHAT DID THAT MEAN? WHAT ARE YOU TALKING ABOUT THERE?

674

SO-HAN SPIVEY: FROM HERE SHE WANTS TO CONFIRM THAT WE USE 100 MILLION FOR 2015, AND I RESPOND YES.

675

MR. LEACH: AND THAT'S 115 MILLION IN REVENUE FOR THE YEAR END 2015?

676

SO-HAN SPIVEY: 100 MILLION, YES.

677

MR. LEACH: AND THE DATE OF THIS EMAIL EXCHANGE IS THE END OF 2014?

679

MR. LEACH: LET ME DRAW YOUR ATTENTION TO EXHIBIT 5190. I BELIEVE WE HAVE STIPULATED TO THE ADMISSION OF 5190?

680

MR. WADE: WE HAVE, YOUR HONOR.

681

JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.

682

(GOVERNMENT'S EXHIBIT 5190 WAS RECEIVED IN EVIDENCE.)

683

BY MR. LEACH:

684

MR. LEACH: MS. SPIVEY, IS THIS AN EMAIL WITH YOU SENDING THE FINAL DECEMBER 2014 ARANCA VALUATION REPORTS TO MS. HOLMES?

686

MR. LEACH: OKAY. AND IS THE REPORT ATTACHED IN THERANOS 409A REPORT, DECEMBER 15TH, 2014?

688

MR. LEACH: AND IS THIS ANOTHER EXAMPLE OF YOU DISCUSSING 409A ANALYSES WITH MS. HOLMES?

690

MR. LEACH: OKAY. ONE MORE FOR ARANCA. IF WE CAN PLEASE LOOK AT EXHIBIT 2623. I BELIEVE WE HAVE STIPULATED TO THE ADMISSION OF 2623?

691

MR. WADE: THAT'S CORRECT, YOUR HONOR.

692

JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.

693

(GOVERNMENT'S EXHIBIT 2623 WAS RECEIVED IN EVIDENCE.)

694

BY MR. LEACH:

695

MR. LEACH: IF WE CAN PLEASE LOOK AT PAGE 2 OF THIS EMAIL THREAD. AND IF WE CAN HIGHLIGHT THE TOP PART OF THE PAGE DOWN TO THE TABLE. THE SUBJECT OF THIS IS SUNIL DHAWAN. DO YOU KNOW WHO SUNIL DHAWAN IS?

696

SO-HAN SPIVEY: HE WAS THE CONTRACT LAB DIRECTOR AT THERANOS.

697

MR. LEACH: THANK YOU. AND DOES THIS EMAIL THREAD RELATE TO POSSIBLE OPTION GRANTS FOR DR. DHAWAN?

699

MR. LEACH: AND YOU WROTE TO ELIZABETH HOLMES AND SUNNY BALWANI ON JUNE 27TH, 2015, "PLEASE SEE ATTACHED FOR THE FULL PROJECTION MODEL. THE QUICKEST TURNAROUND TIME IS TWO WEEKS, DEPENDING ON HOW MUCH CHANGES TO THE ASSUMPTIONS WE ARE MAKING. THE ASSUMPTIONS WE HAD BEEN USING SINCE SEPTEMBER 2014 WERE AS FOLLOWS." AND THEN THERE'S A COLUMN WITH REVENUE NUMBERS FOR 2015 TO 2018. DO YOU SEE THOSE?

701

MR. LEACH: AND WHAT DID YOU MEAN "THE ASSUMPTIONS WE HAD BEEN USING SINCE SEPTEMBER 2014 WERE AS FOLLOWS"?

702

SO-HAN SPIVEY: THESE ARE THE ASSUMPTIONS THAT THE COMPANY USED TO CREATE AND PROJECT ALL OF THE FORECAST FINANCIAL STATEMENTS.

703

MR. LEACH: AND AM I RIGHT TO READ THIS AS YOU TELLING SINCE SEPTEMBER OF 2014 THERANOS HAD BEEN TELLING ARANCA THAT ITS PROJECTED REVENUE FOR 2015 WAS $113 MILLION?

705

MR. LEACH: LET ME PLEASE DRAW YOUR ATTENTION TO EXHIBIT 4859. DO YOU HAVE 4859 IN FRONT OF YOU, MS. SPIVEY?

707

MR. LEACH: OKAY. PRIOR TO 2015, HAD YOU EVER SEEN THIS DOCUMENT BEFORE?

709

MR. LEACH: DID YOU HAVE ANY ROLE IN PREPARING FINANCIAL PROJECTIONS FOR INVESTORS?

711

MR. LEACH: AND DID YOU HAVE ANY IDEA WHERE THIS DOCUMENT CAME FROM?

713

MR. LEACH: DO YOU HAVE ANY IDEA WHAT SUPPORT THERE WAS FOR THE PARTICULAR NUMBERS ON THE RIGHT SIDE OF THIS DOCUMENT?

715

MR. LEACH: DID YOU PROVIDE ANY INFORMATION TO MS. HOLMES OR MR. BALWANI ABOUT THE INFORMATION IN THE RIGHT TWO COLUMNS OF THIS DOCUMENT?

717

MR. LEACH: YOUR HONOR, I'D LIKE TO OFFER 4859 RIGHT NOW. I THINK THIS WILL COME IN THROUGH ANOTHER WITNESS, AND I THINK IT MAY AID TO GO THROUGH IT NOW.

718

MR. WADE: WE WOULD OBJECT UNDER 602 AND 802.

719

JUDGE DAVILA: DO YOU HAVE A FOUNDATIONAL WITNESS THAT IS AVAILABLE?

720

MR. LEACH: YES, LATER IN THE TRIAL, YES.

721

JUDGE DAVILA: ALL RIGHT. LADIES AND GENTLEMEN, I'M GOING TO ADMIT THIS NOW PROVISIONALLY, THAT IS TO SAY THAT I AM GOING TO ALLOW EXAMINATION BY BOTH SIDES ON THIS NOW SUBJECT TO THE FOUNDATION BEING LAID FOR ITS ADMITTANCE LATER. IF THAT DOESN'T HAPPEN, YOU'LL HEAR ME TELL YOU TO STRIKE ANY TESTIMONY AND THIS EXHIBIT. IF THE FOUNDATION IS LAID, I WILL TELL YOU THAT AND INFORM YOU OF THAT AS WELL THAT IT MAY BE CONSIDERED. SO FOR NOW IT'S ADMITTED PROVISIONALLY, SUBJECT TO THE FOUNDATION BEING LAID IN THE FUTURE.

722

(GOVERNMENT'S EXHIBIT 4859 WAS PROVISIONALLY RECEIVED IN EVIDENCE.)

723

MR. LEACH: THANK YOU, YOUR HONOR. UNDERSTOOD.

724

JUDGE DAVILA: SO IT MAY BE PUBLISHED AT THIS TIME.

725

BY MR. LEACH:

726

MR. LEACH: MS. SPIVEY, COULD YOU SEE IN THE UPPER LEFT-HAND CORNER WHERE IT SAYS PROJECTED STATEMENT OF INCOME?

728

MR. LEACH: AND THERE'S SOME HANDWRITING ON THIS PAGE. YOU DON'T KNOW WHOSE HANDWRITING THAT IS?

729

SO-HAN SPIVEY: I DON'T KNOW.

730

MR. LEACH: AND THERE ARE TWO COLUMNS FOR 1231, 2014, AND 12/31/2015. DO YOU SEE THOSE?

732

MR. LEACH: AND THERE'S A REVENUE PROJECTION FOR DECEMBER 31ST, 2014, OF $140 MILLION. DO YOU SEE THAT?

734

MR. LEACH: AND DID YOU PROVIDE THAT NUMBER TO ANYBODY?

736

MR. LEACH: AND DO YOU HAVE ANY IDEA WHERE THAT NUMBER CAME FROM?

738

MR. LEACH: TO THE RIGHT THERE'S A TOTAL REVENUE OF 990 MILLION FOR DECEMBER 31ST, 2015. DO YOU SEE THAT?

740

MR. LEACH: AND DID YOU PROVIDE THAT NUMBER TO SOMEBODY?

742

MR. LEACH: DO YOU HAVE ANY IDEA WHERE THAT NUMBER CAME FROM?

744

MR. LEACH: DO YOU HAVE ANY EXPLANATION FOR WHY THAT NUMBER IS DIFFERENT THAN THE NUMBERS THAT WERE PROVIDED TO ARANCA?

746

MR. LEACH: AND CAN YOU THINK OF ANY REASON WHY THERANOS WOULD PROVIDE ONE SET OF NUMBERS TO ARANCA AND A DIFFERENT SET OF NUMBERS TO A DIFFERENT AUDIENCE?

747

SO-HAN SPIVEY: NO, I DON'T KNOW.

748

MR. LEACH: THANK YOU, MS. HOLLIMAN. YOU CAN PLEASE TAKE THAT DOWN. LET ME DRAW YOUR ATTENTION TO EXHIBIT 3233.

749

JUDGE DAVILA: I'M SORRY, WHAT EXHIBIT IS IT?

750

MR. LEACH: 3233, YOUR HONOR.

751

JUDGE DAVILA: THANK YOU.

752

BY MR. LEACH:

753

MR. LEACH: DOES THIS APPEAR TO BE A COPY OF THERANOS'S TAX RETURN FOR THE YEAR ENDED DECEMBER 31ST, 2015, MS. SPIVEY?

755

MR. LEACH: AND DID YOU HAVE A HAND IN PREPARING THIS OR GIVING INFORMATION TO CONSULTANTS TO PREPARE THIS?

757

MR. LEACH: AND DID THERANOS PREPARE TAX RETURNS IN THE ORDINARY COURSE OF BUSINESS?

759

MR. LEACH: WAS IT MADE AT OR NEAR THE TIME OF THE INFORMATION IN THE QAD SYSTEM AND OTHER FINANCIAL RECORDS?

761

MR. LEACH: AND WAS IT THERANOS'S PRACTICE TO KEEP ITS TAX RETURNS SO THAT IT COULD DEMONSTRATE ITS INCOME AND EXPENSES TO THE I.R.S.?

763

MR. LEACH: YOUR HONOR, I OFFER EXHIBIT 3233.

764

MR. WADE: WE OBJECT UNDER 401, YOUR HONOR.

765

JUDGE DAVILA: THANK YOU. THE OBJECTION IS OVERRULED. IT MAY BE ADMITTED UNDER 803. THE FOUNDATION HAS BEEN LAID. IT MAY BE PUBLISHED.

766

(GOVERNMENT'S EXHIBIT 3233 WAS RECEIVED IN EVIDENCE.)

767

MR. LEACH: LET'S ZOOM IN BRIEFLY, PLEASE, MS. HOLLIMAN AT THE TOP OF THE TEXT.

768

MR. LEACH: DO YOU SEE THE DATE DECEMBER 31ST, 2015, MS. SPIVEY?

770

MR. LEACH: AND THERE'S A REFERENCE TO MOSS ADAMS LLP. IS THAT THE TAX PREPARATION FIRM?

772

MR. LEACH: AND LET ME PLEASE DRAW YOUR ATTENTION TO PAGE 4 THERE'S AN ENTRY OF $429,210 FOR GROSS RECEIPTS OR SALES. DO YOU SEE THAT?

774

MR. LEACH: AND DO YOU BELIEVE THAT TO BE THE REVENUE FOR THERANOS IN 2015?

776

MR. LEACH: AND IF I COULD PLEASE DRAW YOUR ATTENTION TO PAGE 8 THERE'S A NUMBER NEGATIVE $585,079,242. DO YOU SEE THAT IN RETAINED EARNINGS?

778

MR. LEACH: IS THAT A REFERENCE TO THERANOS'S ACCUMULATED DEFICIT FROM 2003 UP THROUGH 2015?

780

MR. LEACH: THANK YOU, MS. SPIVEY. THANK YOU, YOUR HONOR. I HAVE NOTHING FURTHER.

781

JUDGE DAVILA: THANK YOU. CROSS-EXAMINATION?

782

MR. WADE: YES, YOUR HONOR. YOUR HONOR, MAYBE THE JURY WOULD LIKE TO STAND UP AS I'M JUST TRANSITIONING MY MATERIALS?

783

JUDGE DAVILA: WELL, THANK YOU FOR THAT. FOLKS, YOU MAY STAND IF YOU WOULD LIKE.

784

(STRETCHING.)

785

JUDGE DAVILA: LET ME ASK COUNSEL, WILL WE BE RECESSING AT 11:00?

786

MR. DOWNEY: I THINK SOME TIME BETWEEN 11:00 AND 11:15. WHATEVER SEEMS SENSIBLE.

787

JUDGE DAVILA: THANK YOU. THANK YOU FOR THAT.

788

(PAUSE IN PROCEEDINGS.)

789

JUDGE DAVILA: LADIES AND GENTLEMEN OF THE JURY, ONE THING I'M GOING TO ASK YOU TO DO IS TO LOOK AT YOUR SCHEDULES OVER THE NEXT DAY AND MAYBE TODAY. IT MAY BE THAT I'M GOING TO ASK YOU IF WE COULD -- I TOLD YOU THAT WE END AT 2:00 P.M. I MAY ASK IF WE CAN EXTEND THAT AN HOUR TO MAYBE GO UNTIL 3:00 O'CLOCK ON SOME DAYS JUST TO CAPTURE EXTRA TIME. WE LOST FRIDAY'S TESTIMONY, AS YOU KNOW. I'D LIKE TO GET US ON SCHEDULE AND KEEP US ON SCHEDULE FOR YOUR CONVENIENCE. BUT I JUST WANT TO LET YOU KNOW IN ADVANCE OF THAT FOR YOUR PLANNING IF YOU MIGHT INVESTIGATE MAYBE ENDING AT 3:00 O'CLOCK. CANDIDLY, THERE MAY BE SOME DAYS THAT I'M GOING TO ASK YOU MAYBE WE'LL GO UNTIL 4:00 O'CLOCK. I'M NOT GOING TO KEEP YOU UNTIL 5:00, I PROMISE YOU THAT, ON ANY DAY. I DO WANT TO POINT OUT ONE OTHER THING. I THINK WE DO HAVE THE HEPA FILTERS NOW IN THE COURTROOM, AND THEY SHOULD BE BY COUNSEL TABLE. I THINK THAT'S RIGHT. I HAVEN'T HEARD THEM KICK THEM OVER YET SO I ASSUME THAT THEY'RE WELL PLACED. BUT I JUST WANT TO LET YOU KNOW THAT, LADIES AND GENTLEMEN, WE DO HAVE SOME ADDITIONAL FILTRATION HERE IN THE COURTROOM. /// ///

CrossCross So-Han Spivey Lance A. Wade
790

CROSS-EXAMINATION BY MR. WADE:

791

MR. WADE: GOOD MORNING, MS. SPIVEY.

792

SO-HAN SPIVEY: GOOD MORNING.

793

MR. WADE: MY NAME IS LANCE WADE. I REPRESENT MS. HOLMES. I'D LIKE TO ASK YOU A FEW QUESTIONS HERE THIS MORNING.

795

MR. WADE: WE'VE NEVER MET BEFORE; CORRECT?

797

MR. WADE: IT'S NICE TO MEET YOU. MS. YAM, I'D LIKE TO START WITH GOVERNMENT EXHIBIT 5702. IF WE COULD CALL THAT UP.

798

COURT CLERK: COUNSEL, THAT HAS NOT BEEN ADMITTED.

799

MR. WADE: I'M SORRY. I CALLED THE WRONG NUMBER. 5172.

800

MR. WADE: DO YOU RECALL THIS DOCUMENT, MS. SPIVEY?

802

MR. WADE: AND THIS IS A DOCUMENT THAT RELATES TO THE CASH FLOW OF THE COMPANY FROM THE PERIOD 2011 UNTIL THE END OF 2015?

804

MR. WADE: AND THIS WAS THE TYPE OF DOCUMENTS THAT YOU WOULD REGULARLY PROVIDE MS. HOLMES?

806

MR. WADE: AND IT WAS FOCUSSED ON THE CASH?

808

MR. WADE: AND THAT WAS AN AREA OF THE FINANCES THAT MS. HOLMES WAS MOST KEENLY FOCUSSED ON?

809

SO-HAN SPIVEY: I'M NOT SURE. I PROVIDE THIS ON A WEEKLY BASIS.

810

MR. WADE: THIS WAS THE REPORT THAT YOU PROVIDED TO HER MOST FREQUENTLY?

812

MR. WADE: AND WE'VE TALKED ABOUT SOME DIFFERENT ACCOUNTING PRINCIPLES HERE THIS MORNING. I'D LIKE TO EXPLORE THE DIFFERENCES BETWEEN CASH AND REVENUE. OKAY?

813

SO-HAN SPIVEY: UH-HUH, YES.

814

MR. WADE: THEY'RE NOT THE SAME; CORRECT?

816

MR. WADE: AND WHEN CASH COMES IN THE DOOR FROM A CUSTOMER AND GOES INTO THE THERANOS BANK ACCOUNT, THAT DOESN'T MEAN THAT IT'S REVENUE; CORRECT?

818

MR. WADE: SOMETIMES IT'S CONSIDERED DEFERRED REVENUE?

820

MR. WADE: AND IT WILL SIT ON THE BOOKS OF THE COMPANY AS DEFERRED REVENUE UNTIL CERTAIN CONDITIONS ARE MET AND IT CAN BE RECOGNIZED IN THE REVENUE; CORRECT?

822

MR. WADE: BUT THE CASH IS IN THE BANK ACCOUNT; CORRECT?

824

MR. WADE: AND THE CASH CAN BE SPENT BY THE COMPANY; CORRECT?

826

MR. WADE: AND IN THIS CASE THE CASH WAS INVESTED BY THE COMPANY INTO VARIOUS THINGS LIKE RESEARCH AND DEVELOPMENT?

828

MR. WADE: AND SO WHEN MR. LEACH WAS ASKING ABOUT REVENUE, HE WAS FOCUSSED ON AN ACCOUNTING JUDGMENT THAT IS MADE; CORRECT?

829

SO-HAN SPIVEY: CAN YOU REPEAT THAT.

830

MR. WADE: SURE. LET ME TRY IT A DIFFERENT WAY. THERE ARE MANY RULES THAT RELATE TO WHEN YOU CAN RECOGNIZE CASH AS REVENUE; CORRECT?

832

MR. WADE: AND THERE ARE A LOT OF ACCOUNTING CONCEPTS RELATED TO THAT?

834

MR. WADE: AND, IN FACT, IN THIS TIME PERIOD THERE WERE NUMEROUS ACCOUNTING PRINCIPLES AND OPINIONS THAT RELATED TO REVENUE RECOGNITION; CORRECT?

836

MR. WADE: AND THAT'S A PRETTY TECHNICAL ACCOUNTING JUDGMENT; CORRECT?

838

MR. WADE: AND THAT WAS A JUDGMENT THAT YOU WERE INTERACTING WITH FREQUENTLY WITH KPMG AND OTHERS; CORRECT?

840

MR. WADE: AND OFTENTIMES IT WOULD HINGE ON VERY PARTICULAR ELEMENTS OF FACTS AND CIRCUMSTANCES THAT RELATED TO A PARTICULAR CONTRACT; CORRECT?

842

MR. WADE: AND SO YOU'D HAVE TO LOOK AT THE TERMS OF A CONTRACT, FOR EXAMPLE, AND ASSESS WHETHER IT WOULD MEET THE TECHNICAL PROVISION OF THE ACCOUNTING?

844

MR. WADE: AND THAT'S A VERY DETAILED ANALYSIS?

846

MR. WADE: THAT WAS DONE BY YOU AND OTHER ACCOUNTANTS WITHIN THE COMPANY?

848

MR. WADE: AND IN CONJUNCTION WITH DISCUSSIONS ABOUT THOSE MATTERS WITH YOUR OUTSIDE ACCOUNTANTS FROM TIME TO TIME; CORRECT?

850

MR. WADE: AND, IN FACT, WE SAW ONE EMAIL BY MR. LEACH WHERE SOME INFORMATION WAS FORWARDED A FEW MONTHS AFTER IT WAS RECEIVED SO THAT THE ACCOUNTANTS COULD GIVE THEIR VIEW FOR WHETHER A PFIZER CONTRACT COULD BE RECOGNIZED AS REVENUE; CORRECT?

852

MR. WADE: BUT THAT MONEY HAD BEEN IN THE DOOR FOR A LONG TIME?

854

MR. WADE: AND THE COMPANY HAD BEEN USING THAT MONEY FOR A LONG TIME?

856

MR. WADE: I'LL COME BACK TO SOME DETAILS RELATING TO THAT IN A MINUTE, BUT LET ME SHIFT TO SOME OF YOUR TESTIMONY WITH RESPECT TO CHALLENGES THAT THE COMPANY FACED IN 2009. DO YOU RECALL THAT TESTIMONY?

858

MR. WADE: AND DO YOU RECALL IN LATE 2008 AND EARLY 2009 THE COUNTRY WAS EXPERIENCING A FINANCIAL CRISIS?

860

MR. WADE: AND DO YOU RECALL THAT BEAR STEARNS COLLAPSED IN OCTOBER OF 2008 AND IT PRECIPITATED A FINANCIAL CRISIS THAT BESET THE COUNTRY FOR A NUMBER OF YEARS?

862

MR. WADE: AND AS A RESULT OF THAT A LOT OF COMPANIES WERE GOING THROUGH HARD TIMES; CORRECT?

863

SO-HAN SPIVEY: I'M NOT SURE.

864

MR. WADE: WELL, WERE YOU AWARE OF AT LEAST ONE COMPANY THAT WAS GOING THROUGH HARD TIMES?

866

(LAUGHTER.)

867

BY MR. WADE:

868

MR. WADE: OKAY. AND THERE WERE A LOT OF WORKERS AT THAT TIME WHO WERE GOING THROUGH HARD TIMES AS A RESULT OF A FINANCIAL CRISIS; CORRECT?

869

SO-HAN SPIVEY: I'M NOT SURE.

870

MR. WADE: YOU'RE NOT AWARE OF ANY OF THAT?

872

MR. WADE: OKAY. AND IN THIS TIME PERIOD MS. HOLMES WAS VERY FOCUSSED ON THE CASH MANAGEMENT OF THE COMPANY; CORRECT?

874

MR. WADE: AND IT WAS SIMILAR TO THE TYPE OF ANALYSIS THAT WE WERE DISCUSSING IN CONNECTION WITH THE EXHIBIT?

876

MR. WADE: SHE WOULD LOOK AT MONEY COMING IN AND MONEY GOING OUT?

878

MR. WADE: AND THERE WOULD BE A NEED AS A STRUGGLING BUSINESS TO PRIORITIZE THOSE DEMANDS; CORRECT?

880

MR. WADE: AND YOU WORKED WITH HER HARD ON THAT TO TRY AND DO THAT CORRECTLY?

882

MR. WADE: AND ENSURING THAT THERANOS EMPLOYEES WOULD GET PAID WAS A PARTICULAR FOCUS FOR MS. HOLMES; CORRECT?

883

SO-HAN SPIVEY: I'M NOT -- I MEAN, I'M NOT SURE WHAT SHE PRIORITIZE OR HOW SHE PRIORITIZE.

884

MR. WADE: WELL, YOU RECALL YOUR TESTIMONY YESTERDAY ABOUT THE PAYROLL -- I'M SORRY, NOT YESTERDAY. IT FEELS LIKE YESTERDAY MAYBE. YOU RECALL YOUR TESTIMONY LAST WEEK WITH RESPECT TO THE PAYROLL AND EFFORTS TO ENSURE THAT PAYROLL WAS MADE?

886

MR. WADE: AND THERE WERE SOME EXTRAORDINARY EFFORTS TO MAKE SURE THAT A CHECK CLEARED THE BANK SO THAT THE PAYROLL WOULD CLEAR. DO YOU RECALL THAT?

888

MR. WADE: AND THAT WAS SOMETHING THAT MS. HOLMES CARED A LOT ABOUT IN THAT INSTANCE; CORRECT?

889

SO-HAN SPIVEY: IN THAT INSTANCE, YES.

890

MR. WADE: AND, IN FACT, THE COMPANY ALWAYS MADE ITS PAYROLL, DID IT NOT?

892

MR. WADE: THAT'S TRUE IN THE ENTIRE TIME PERIOD THAT YOU WORKED AT THE COMPANY?

894

MR. WADE: NOW, WHEN YOU STARTED AT THE COMPANY IN 2006, THERANOS ALREADY HAD SOME INVESTORS?

896

MR. WADE: AND THE COMPANY WAS INVESTING A LOT OF ITS CAPITAL IN RESEARCH AND DEVELOPMENT?

898

MR. WADE: AND FROM THE TIME THAT YOU ARRIVED AT THERANOS THAT CONTINUED INVESTMENT CONTINUED UNTIL 2015; CORRECT?

900

MR. WADE: AND THAT WAS TYPICALLY THE LARGEST EXPENDITURE THAT THE COMPANY MADE?

901

SO-HAN SPIVEY: I'M NOT SURE.

902

MR. WADE: WE CAN LOOK AT SOME DETAILED EXPENSE RECORDS IN A MOMENT THAT MIGHT HELP REFRESH YOUR RECOLLECTION ON THAT. YOU TALKED A BIT ABOUT THE PHARMACEUTICAL COMPANIES THAT THERANOS DID BUSINESS WITH. DO YOU RECALL THAT TESTIMONY?

904

MR. WADE: AND THERANOS RECEIVED MILLIONS OF DOLLARS FROM CONTRACTS THAT IT HAD AND WORK THAT IT DID WITH THOSE COMPANIES; CORRECT?

906

MR. WADE: AND INITIALLY THAT WAS CASH THAT CAME IN THE DOOR?

908

MR. WADE: AND CUSTOMER RECEIPTS?

910

MR. WADE: AND THEN AT DIFFERENT POINTS IN TIME IT WOULD BE RECOGNIZED AS REVENUE?

912

MR. WADE: AFTER YOUR ACCOUNTING JUDGMENTS WERE MADE?

914

MR. WADE: AND THERE WERE SOMETIMES WHERE THE COMPANY WAS SUPPORTED BY BANK LOANS?

916

MR. WADE: AND THERE WERE MANY TIMES WHEN THERANOS HAD LARGE AMOUNTS OF CASH IN THE BANK BUT IT ACCEPTED ADDITIONAL INVESTMENTS ANYWAY; CORRECT?

918

MR. WADE: IN FACT, LET'S LOOK AT 5172 AGAIN. LET ME BRING YOU TO COLUMN GR. AND THIS IS FOR THE WEEK OF OCTOBER 2014; CORRECT?

920

MR. WADE: AND AT THIS TIME THE COMPANY HAD A HUNDRED MILLION DOLLARS IN THE BANK?

922

MR. WADE: AND IF YOU LOOK IN COLUMN GS, NOTWITHSTANDING THE FACT THAT IT HAD $113 MILLION IN THE BANK, IT TOOK AN ADDITIONAL INVESTMENT OF $130 MILLION; CORRECT?

924

MR. WADE: AND THAT'S REFLECTED IN ROW 27?

926

MR. WADE: AND IN EARLY NOVEMBER 2014, IF WE CAN GO TO GT, YOU SEE THE COMPANY HAD SIGNIFICANT CASH ON HAND. DO YOU SEE THAT?

928

MR. WADE: I'M SORRY. LET ME FOCUS YOU FIRST ON GS. GS THEY HAVE $233 MILLION ON HAND; CORRECT?

930

MR. WADE: AND THEN NOTWITHSTANDING THAT THEY TOOK IN THE NEXT WEEK ANOTHER HUNDRED MILLION DOLLAR INVESTMENT?

932

MR. WADE: AND THIS PATTERN OCCURRED THROUGHOUT 2014 AND '15?

934

MR. WADE: THERANOS WASN'T JUST RECEIVING INVESTMENT BECAUSE IT NEEDED IMMEDIATE CASH?

936

MR. WADE: YOU TESTIFIED ON DIRECT ABOUT THAT TIME PERIOD IN 2009, AND I'D LIKE TO FOCUS ON SOME PAYMENTS THAT WERE RECEIVED IN 2009. AND I'LL DO THAT BY BRINGING UP EXHIBITS 7753, WHICH I BELIEVE THAT THE GOVERNMENT HAS STIPULATED TO ADMITTING?

937

MR. LEACH: THAT'S CORRECT, YOUR HONOR.

938

JUDGE DAVILA: ALL RIGHT. THAT IS ADMITTED, AND IT MAY BE PUBLISHED.

939

(DEFENDANT'S EXHIBIT 7753 WAS RECEIVED IN EVIDENCE.)

940

BY MR. WADE:

941

MR. WADE: AND DO YOU SEE THIS IS AN EMAIL THAT YOU -- IF WE CAN BLOW UP THE TOP. I'M JUST FOCUSSED ON THE DATE, MS. SPIVEY. THIS IS A DOCUMENT THAT YOU PREPARED IN NOVEMBER 2016 AT THE REQUEST OF SOME COMPANY EMPLOYEES AND AGENTS AND IT INCLUDED A LIST OF RECEIPTS FROM PHARMA. DO YOU SEE THAT?

943

MR. WADE: AND A CONTRACT SUMMARY?

945

MR. WADE: AND SOME OF THE RELATED CONTRACTS FOR THAT. DO YOU RECALL COMPILING THIS?

946

SO-HAN SPIVEY: LOOKING AT THIS EMAIL, I DON'T RECALL IT OUTSIDE OF THIS EMAIL.

947

MR. WADE: OKAY. BUT YOU RECALL THAT YOU KEPT SOME OF THESE RECORDS DURING YOUR TIME AT THE COMPANY?

949

MR. WADE: AND I'D LIKE TO LOOK AT THE ATTACHMENT AND BRING UP BATES ENDING 5721.

950

(PAUSE IN PROCEEDINGS.)

951

MR. WADE: I WOULD ASK THE COURT'S INDULGENCE WHILE WE IRON OUT A TECHNICAL DETAIL.

952

JUDGE DAVILA: YES, OF COURSE.

953

(PAUSE IN PROCEEDINGS.)

954

BY MR. WADE:

955

MR. WADE: I'VE CALLED UP AN ATTACHMENT TO EXHIBIT 7753. AND DO YOU SEE THAT THIS IS A DOCUMENT THAT SHOWS WHEN DIFFERENT PAYMENTS WERE RECEIVED FROM THE PHARMACEUTICAL COMPANIES THAT THERANOS DID WORK FOR?

957

MR. WADE: AND CAN YOU SEE FROM THIS THAT THERANOS, FROM JANUARY TO MARCH OF 2009, IF I CAN PULL THAT UP. DO YOU SEE THAT? DO YOU SEE IN THAT TIME PERIOD THERANOS RECEIVED ABOUT $3.7 MILLION IN PAYMENTS FROM CELGENE, CENTOCOR, AND THE MAYO CLINIC?

959

MR. WADE: AND IN THE APRIL THROUGH JUNE PERIOD OF 2009 THE COMPANY RECEIVED $1.8 MILLION IN PAYMENTS FROM CENTOCOR AND SCHERING-PLOUGH?

961

MR. WADE: AND THEN IN THE PERIODS THAT FOLLOW, IF WE SCROLL TO THE RIGHT YOU SEE IN THE 2009 AND 2010 PERIOD THEY'RE APPROACHING ANOTHER $2 MILLION IN PAYMENTS?

962

SO-HAN SPIVEY: HUH, WHERE AM I LOOKING AT?

963

MR. WADE: WELL, YOU SEE CELGENE THERE'S 1.4 MILLION COMBINED IN 2010? DO YOU SEE THAT?

964

SO-HAN SPIVEY: 1.1 MILLION, RIGHT.

965

COURT CLERK: DO YOU WANT ME TO CLEAR IT?

966

MR. WADE: PLEASE.

967

MR. WADE: THE PAYMENT IS RIGHT NEAR THE PENCIL AND GOING TO THE RIGHT. DO YOU SEE THAT?

969

MR. WADE: AND FROM THE AMERICAN BURN ASSOCIATION THERE WAS A $250,000 PAYMENT?

971

MR. WADE: ACTUALLY TWO PAYMENTS, ONE FOR 250,000 AND ONE FOR 38,000?

973

MR. WADE: AND THAT AMERICAN BURN ASSOCIATION, THAT WAS WORK THAT WAS DONE IN CONNECTION WITH THE DEPARTMENT OF DEFENSE?

975

(PAUSE IN PROCEEDINGS.)

976

BY MR. WADE:

977

MR. WADE: I'D LIKE TO TALK QUICKLY ABOUT THE STOCK OPTIONS ISSUE THAT YOU'VE BEEN ASKED QUESTIONS ABOUT IN CONNECTIONS WITH THE DEALING WITH KPMG. DO YOU RECALL THAT TESTIMONY?

979

MR. WADE: AND THE ISSUE RELATED TO OPTIONS THAT WERE GRANTED ON MAY 31ST, 2010?

981

MR. WADE: AND THOSE WERE OPTIONS THAT WERE GRANTED AND APPROVED AT THE MEETING OF THE THERANOS BOARD OF DIRECTORS?

983

MR. WADE: AND THE OPTION PRICE THAT IS REFLECTED HAS TO REFLECT THE FAIR MARKET VALUE ON THE DATE THAT THEY'RE GRANTED; CORRECT?

985

MR. WADE: AND PART OF THAT IS THAT IF THE OPTION IS BELOW FAIR MARKET VALUE, THERE'S AN EXPENSE THAT THE COMPANY TAKES?

987

MR. WADE: BECAUSE THAT WOULD BE A NON-CASH COMPENSATION EXPENSE?

989

MR. WADE: BUT THERE'S NO COMPENSATION EXPENSE IF THEY'RE DONE ON FAIR MARKET VALUE ON DATE OF AGREEMENT?

991

MR. WADE: AND YOU ALSO AVOID CREATING VARIOUS TAX IMPLICATIONS IF YOU DO THEM ON FAIR MARKET VALUE, AT FAIR MARKET VALUE ON THE DAY OF THE GRANT?

993

MR. WADE: AND SO THERE'S AN EFFORT THAT IS MADE IN GOOD FAITH BY THE COMPANY TO TRY AND ASSESS THE FAIR MARKET VALUE SO THAT IT COMPLIES WITH ALL OF THOSE REQUIREMENTS; CORRECT?

995

MR. WADE: AND THAT'S THE PROCESS THAT YOU WERE ENGAGED IN WITH VARIOUS PROFESSIONAL FIRMS IN CONNECTION WITH THESE OPTIONS?

997

MR. WADE: DO YOU RECALL THAT IN THIS TIME PERIOD IT WAS ACTUALLY YOU WHO REACHED OUT TO KPMG TO SEEK SPECIFIC ASSISTANCE FROM THEM IN ANALYZING THESE OPTIONS?

998

SO-HAN SPIVEY: WHAT DOES THAT MEAN?

999

MR. WADE: WELL, LET ME SEE IF I CAN REFRESH YOUR RECOLLECTION. MAY I APPROACH, YOUR HONOR?

1001

BY MR. WADE:

1002

MR. WADE: (HANDING.) MS. SPIVEY, I'M SHOWING YOU WHAT HAS BEEN MARKED FOR IDENTIFICATION PURPOSES AT THIS POINT IS DX 13744. DO YOU RECOGNIZE THIS EMAIL?

1004

MR. WADE: AND DOES THIS REFRESH YOUR RECOLLECTION THAT YOU REACHED OUT TO KPMG BECAUSE YOU WANTED TO GET ITS TAKE ON THESE STOCK OPTIONS MATTERS?

1006

MR. WADE: IT WASN'T KPMG RAISING AN ISSUE. YOU, ON BEHALF OF THE COMPANY, ACTUALLY REACHED OUT AND SOLICITED THEIR ADVICE?

1007

SO-HAN SPIVEY: I BELIEVE MY RECOLLECTION OF THIS IS THAT THEY PERFORMED THE AUDIT OF THE FINANCIAL STATEMENT FOR THE COMPANY, AND THIS WAS PART OF THE ISSUE THAT THEY RAISED AND THE COMPANY AND KPMG WAS TRYING TO WORK TOGETHER TO RESOLVE THAT.

1008

MR. WADE: DIDN'T YOU TELL KPMG IN APRIL OF 2011 THAT WITH RESPECT TO THE 409A ISSUE WE WOULD LIKE TO GET THEIR TAKE ON THIS MATTER?

1010

MR. WADE: AND DIDN'T YOU ADVISE KPMG THAT YOU HAD DISCUSSED THESE ISSUES WITH LEGAL AND VALUATION FIRMS?

1012

MR. WADE: AND THAT THOSE PROFESSIONALS SUGGESTED THAT YOU REACH OUT TO KPMG?

1013

MR. LEACH: YOUR HONOR, CAN HE BE CLEAR IF THIS IS REFRESHING THE RECOLLECTION OR READING FROM THE DOCUMENT.

1014

JUDGE DAVILA: WELL, THE DOCUMENT IS NOT IN EVIDENCE.

1016

JUDGE DAVILA: I DON'T KNOW IF YOU'RE READING FROM THE DOCUMENT. IF YOU'RE SEEKING TO REFRESH THE RECOLLECTION OF THIS WITNESS, PLEASE DO SO BY THE QUESTION.

1017

MR. WADE: I'M SEEKING TO REFRESH HER RECOLLECTION IF SHE RECALLS TELLING KPMG WHETHER THEY WERE REFERRED TO THE ACCOUNTANTS BY THEIR LEGAL AND VALUATION ADVISORS.

1018

JUDGE DAVILA: DO YOU UNDERSTAND THE QUESTION? MS. SPIVEY, DO YOU UNDERSTAND HIS QUESTION?

1019

SO-HAN SPIVEY: CAN YOU REPEAT.

1020

BY MR. WADE:

1021

MR. WADE: DOES LOOKING AT THIS DOCUMENT REFRESH YOUR RECOLLECTION THAT YOU WERE CONSULTING WITH LEGAL AND VALUATION ADVISORS ON THESE OPTION ISSUES?

1023

MR. WADE: AND DOES IT REFRESH YOUR RECOLLECTION THAT AS A RESULT OF THOSE CONSULTATIONS YOU WANTED TO REACH OUT TO KPMG?

1024

SO-HAN SPIVEY: I CAN'T RECALL WHETHER THEY RAISED THE ISSUE AND WE RESPOND OR WE REACHED OUT TO THEM. I CAN'T RECALL THAT.

1025

MR. WADE: AND 13744 DOES NOT REFRESH YOUR RECOLLECTION ON THAT POINT?

1027

MR. WADE: OKAY. DO YOU RECALL WHETHER THERE WAS A REQUEST IMMEDIATELY FOLLOWING THIS OR IN THE WEEK THAT FOLLOWED THIS TO HAVE KPMG PERFORM SOME SPECIAL PROCEDURES RELATING TO LOOKING AT THESE OPTIONS?

1028

SO-HAN SPIVEY: I DON'T REMEMBER.

1029

MR. WADE: LET ME SEE IF I CAN REFRESH YOUR RECOLLECTION. MAY I APPROACH?

1031

BY MR. WADE:

1032

MR. WADE: (HANDING.)

1033

JUDGE DAVILA: SO, MR. WADE, YOUR QUESTION IS, DO YOU RECALL THAT THERE WAS A REQUEST IMMEDIATELY FOLLOWING THIS OR IN THE WEEK FOLLOWING THIS TO HAVE KPMG PERFORM SOME SPECIAL PROCEDURES RELATING TO THE OPTIONS?

1034

MR. WADE: CORRECT.

1035

JUDGE DAVILA: ALL RIGHT. SO THAT'S THE QUESTION, MS. SPIVEY. LOOK AT THIS DOCUMENT AND SEE IF THIS DOCUMENT REFRESHES YOUR RECOLLECTION AS TO THAT QUESTION.

1036

(PAUSE IN PROCEEDINGS.)

1037

JUDGE DAVILA: HAVE YOU FINISHED LOOKING AT THAT DOCUMENT?

1039

BY MR. WADE:

1040

MR. WADE: DOES THAT REFRESH YOUR RECOLLECTION ON THAT?

1041

SO-HAN SPIVEY: I DON'T REMEMBER THIS DOCUMENT.

1042

MR. WADE: OKAY. AND YOU DON'T RECALL KPMG LOOKING AT THAT ISSUE IN THAT TIME PERIOD?

1043

SO-HAN SPIVEY: I REMEMBER THEY -- THERANOS AND KPMG DISCUSSED THIS ISSUE, BUT I DID NOT REMEMBER THIS PARTICULAR DOCUMENT THAT THEY PERFORMED.

1044

MR. WADE: DO YOU RECALL THAT KPMG CONCLUDED BASED ON THEIR TEST WORK THAT THE SHARE BASED PAYMENT EXPENSE APPEARS TO BE COMPLETE AND ACCURATE, EXIST, AND BE PROPERLY VALUED AND PRESENTED? DO YOU RECALL THAT?

1046

MR. LEACH: OBJECTION. HEARSAY.

1047

JUDGE DAVILA: I'LL LET THE ANSWER REMAIN. YOU CAN ASK ANOTHER QUESTION.

1048

SO-HAN SPIVEY: ARE YOU STILL LOOKING AT THIS DOCUMENT THAT --

1049

BY MR. WADE:

1050

MR. WADE: I'M JUST ASKING IF YOU RECALL THAT KPMG CAME TO THE CONCLUSION THAT THERANOS'S VIEWS WITH RESPECT TO THE PRICING OF THOSE OPTIONS WAS ACCURATE?

1052

MR. WADE: AND THIS DOCUMENT DOESN'T REFRESH YOUR RECOLLECTION AS TO THAT?

1054

MR. WADE: YOUR HONOR, MAYBE NOW WOULD BE A GOOD TIME FOR A BREAK.

1055

JUDGE DAVILA: FOLKS, LET'S TAKE OUR RECESS NOW. LET'S TAKE ABOUT 30 MINUTES, IT PROBABLY WILL BE 35 MINUTES BY THE TIME WE GET YOU BACK IN HERE. SO PLEASE RECALL MY ADMONITION. YOU'RE NOT TO DISCUSS THE CASE WITH ANYONE, INCLUDING YOURSELVES. DON'T REACH ANY CONCLUSIONS ABOUT ANYTHING UNTIL THE CASE HAS BEEN PRESENTED TO YOU FOR YOUR DELIBERATIONS. HAVE A GOOD BREAK. THANK YOU. MS. SPIVEY, YOU CAN STAND DOWN AS WELL. THANK YOU.

1056

SO-HAN SPIVEY: THANK YOU.

1057

(RECESS FROM 11:14 A.M. UNTIL 11:49 A.M.)

1058

JUDGE DAVILA: PLEASE BE SEATED. THANK YOU. WE'RE BACK ON THE RECORD. OUR JURY IS PRESENT, AND ALTERNATES ARE PRESENT, AND COUNSEL AND THE DEFENDANT ARE PRESENT. IF WE CAN GET OUR WITNESS BACK. GOOD AFTERNOON, MS. SPIVEY. MR. WADE, WOULD YOU LIKE TO CONTINUE?

1059

MR. WADE: I WOULD, YOUR HONOR. THANK YOU.

1060

MR. WADE: GOOD AFTERNOON, MS. SPIVEY. I'D LIKE TO TALK BRIEFLY ABOUT MR. BALWANI.

1062

MR. WADE: HE JOINED THE COMPANY IN 2009; IS THAT CORRECT?

1064

MR. WADE: AND WHEN HE JOINED THE COMPANY, HE REPORTED DIRECTLY TO -- YOU REPORTED DIRECTLY TO HIM AS WELL; CORRECT?

1065

SO-HAN SPIVEY: REPORTED? I REPORTED DIRECTLY TO ELIZABETH HOLMES.

1066

MR. WADE: YOU DIDN'T ALSO DIRECTLY REPORT TO MR. BALWANI?

1067

SO-HAN SPIVEY: I WOULD KEEP HIM INVOLVED.

1068

MR. WADE: YOU KEPT HIM INVOLVED IN THE FINANCIAL AFFAIRS OF THE COMPANY?

1070

MR. WADE: AND YOU PROVIDED HIM INFORMATION I THINK WE TALKED ABOUT EARLIER TODAY?

1072

MR. WADE: AND WITH RESPECT TO THESE 409A ISSUES AND THE ARANCA ISSUES, HE WAS SOMETIMES INVOLVED IN REVIEWING THE MATERIALS THAT WENT TO THE VALUATION FIRM AS WELL; CORRECT?

1074

MR. WADE: AND DO YOU RECALL THAT MR. BALWANI WAS PARTICULARLY INVOLVED IN DEVELOPING SOME MODELS WITHIN THE COMPANY?

1075

SO-HAN SPIVEY: I'M NOT SURE.

1076

MR. WADE: YOU DON'T RECALL HIM BEING INVOLVED IN ANY FINANCIAL MODELS?

1078

MR. WADE: DO YOU RECALL HIM BEING INVOLVED IN FINANCIAL PROJECTIONS?

1079

SO-HAN SPIVEY: AS FAR AS I CAN REMEMBER FROM MY POINT IT'S ONLY FOR THE 409A.

1080

MR. WADE: 409A PURPOSE?

1082

MR. WADE: LET ME PUT UP DTX 13710, WHICH I BELIEVE THE GOVERNMENT HAS STIPULATED TO.

1083

COURT CLERK: CAN YOU SAY THAT NUMBER AGAIN, PLEASE, COUNSEL.

1085

MR. LEACH: I DON'T BELIEVE I HAVE THAT.

1086

MR. WADE: SORRY, BOB. I'LL SKIP TO THE NEXT ONE.

1087

MR. WADE: LET ME SHOW YOU EXHIBIT 13711.

1088

MR. LEACH: NO OBJECTION, YOUR HONOR.

1089

JUDGE DAVILA: THAT'S RECEIVED. YOU'RE ASKING THAT THAT BE ADMITTED?

1090

MR. WADE: YES, YOUR HONOR.

1091

JUDGE DAVILA: IT'S RECEIVED WITHOUT OBJECTION, AND IT MAY BE PUBLISHED.

1092

(DEFENDANT'S EXHIBIT 13711 WAS RECEIVED IN EVIDENCE.)

1093

BY MR. WADE:

1094

MR. WADE: MS. YAM, WE WERE TALKING ABOUT YOUR 409A PROJECTIONS WITH MR. BALWANI; CORRECT?

1096

MR. WADE: AND ON THIS MS. HOLMES IS ASKING WHAT DROVE THE $50 MILLION IN REVENUE PROJECTION. DO YOU SEE THAT?

1098

MR. WADE: AND WHAT WAS YOUR RESPONSE?

1099

SO-HAN SPIVEY: SUNNY'S ESTIMATE.

1100

MR. WADE: SO THAT WAS INFORMATION THAT YOU RECEIVED FROM MR. BALWANI?

1102

MR. WADE: AND MR. BALWANI WORKED WITH YOU ON THE PREPARATION OF FINANCIAL INFORMATION IN ADVANCE OF BOARD MEETINGS; CORRECT?

1103

SO-HAN SPIVEY: USUALLY I GOT THE DATA FROM THE QAD SYSTEM.

1104

MR. WADE: AND YOU PREPARED BALANCE SHEETS FOR THOSE QUARTERLY BOARD MEETINGS?

1106

MR. WADE: AND YOU PROVIDED THOSE TO MR. BALWANI?

1108

MR. WADE: I'D LIKE TO PUBLISH DOCUMENT EXHIBIT 4859, PLEASE. THIS IS ALREADY IN EVIDENCE, YOUR HONOR.

1109

JUDGE DAVILA: ALL RIGHT.

1110

BY MR. WADE:

1111

MR. WADE: DO YOU RECALL THE GOVERNMENT SHOWING YOU THIS DOCUMENT?

1113

MR. WADE: AND YOU DIDN'T HAVE ANY FAMILIARITY WITH THIS DOCUMENT?

1115

MR. WADE: DO YOU KNOW THE PURPOSE FOR WHICH IT WAS PREPARED?

1117

MR. WADE: DO YOU KNOW WHETHER IT WAS PROVIDED TO INVESTORS?

1119

MR. WADE: DO YOU KNOW WHAT DISCUSSIONS OCCURRED IN CONNECTION WITH THE HANDWRITING THAT IS ASSOCIATED?

1121

MR. WADE: DO YOU SEE UP IN THE UPPER LEFT-HAND CORNER WHERE IT SAYS "PROJECTED STATEMENT OF INCOME"?

1123

MR. WADE: AND DO YOU KNOW WHAT "INCOME" MEANS IN THE CONTEXT OF THIS DOCUMENT?

1124

SO-HAN SPIVEY: THE REVENUE THAT THE COMPANY PROJECTED.

1125

MR. WADE: WELL, IT SAYS TOTAL REVENUE DOWN BELOW; CORRECT?

1127

MR. WADE: AND DO YOU KNOW WHAT ACCOUNTING PRINCIPLES WERE USED IN CONNECTION WITH THE PREPARATION OF THIS?

1129

MR. WADE: NO. DO YOU KNOW WHO PREPARED THIS DOCUMENT?

1131

MR. WADE: DO YOU KNOW WHEN THIS DOCUMENT WAS PREPARED?

1133

MR. WADE: I'D LIKE TO SHOW YOU DOCUMENT NUMBER 1853, WHICH I BELIEVE THE GOVERNMENT HAS STIPULATED TO.

1134

MR. LEACH: NO OBJECTION, YOUR HONOR.

1135

JUDGE DAVILA: IT MAY BE ADMITTED.

1136

(GOVERNMENT'S EXHIBIT 1853 WAS RECEIVED IN EVIDENCE.)

1137

BY MR. WADE:

1138

MR. WADE: DO YOU SEE I HAVE ON THE SCREEN 1853, MS. YAM?

1140

MR. WADE: AND DOES THAT DOCUMENT LOOK FAMILIAR TO EXHIBIT 4859 WHICH WE WERE JUST LOOKING AT?

1142

MR. WADE: OKAY. AND THIS VERSION HAS TWO PAGES. I'D LIKE TO TURN YOUR ATTENTION TO THE SECOND PAGE OF THIS DOCUMENT. DO YOU SEE THIS DOCUMENT?

1144

MR. WADE: AND IS THIS A DOCUMENT THAT YOU'RE FAMILIAR WITH?

1146

MR. WADE: AND IS THIS A DOCUMENT THAT YOU BELIEVE YOU PREPARED?

1148

MR. WADE: AND THIS DOCUMENT IS DATED AS OF JULY 14TH, 2014; CORRECT?

1150

MR. WADE: AND DO YOU SEE ABOUT MAYBE TWO-THIRDS OF THE WAY DOWN THE PAGE THERE'S AN INDICATION OF DEFERRED REVENUE AND CUSTOMER DEPOSITS? DO YOU SEE THAT?

1152

MR. WADE: AND THE AMOUNT THERE IS HOW MUCH?

1153

SO-HAN SPIVEY: ABOUT 169 MILLION.

1154

MR. WADE: ABOUT $169 MILLION?

1156

MR. WADE: AND THAT WAS INFORMATION THAT MR. BALWANI -- YOU PROVIDED TO -- STRIKE THAT. THAT WAS INFORMATION THAT YOU PROVIDED IN CONNECTION WITH THIS EXHIBIT?

1158

MR. WADE: AND IF I COULD PUT UP DOCUMENT 7761, AND WITH THE GOVERNMENT'S STIPULATION MOVE THAT INTO EVIDENCE, YOUR HONOR.

1159

MR. LEACH: NO OBJECTION, YOUR HONOR.

1160

JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.

1161

(DEFENDANT'S EXHIBIT 7761 WAS RECEIVED IN EVIDENCE.)

1162

BY MR. WADE:

1163

MR. WADE: AND IF WE CAN BLOW UP THE TOP, PLEASE. MS. YAM, DO YOU SEE THIS IS AN EMAIL BETWEEN YOU AND MR. BALWANI ON JULY 15TH, 2014?

1165

MR. WADE: AND THE SUBJECT MATTER IS BS AT 063014?

1167

MR. WADE: AND DO YOU KNOW WHAT THAT REFERS TO?

1168

SO-HAN SPIVEY: BALANCE SHEET AS OF JUNE 30TH, 2014.

1169

MR. WADE: AND IF WE CAN LOOK AT THE ATTACHMENT TO THIS EMAIL. DOES THIS APPEAR TO BE -- I'LL DRAW YOUR ATTENTION TO THE DEFERRED REVENUE AND CUSTOMER DEPOSITS ON LINE 25 OF THIS BALANCE SHEET. DO YOU SEE THAT?

1171

MR. WADE: AND THAT'S ALMOST 169 MILLION THERE?

1173

MR. WADE: AND SO YOU BELIEVE THAT THIS IS THE INFORMATION THAT MADE IT INTO EXHIBIT 1853?

1175

MR. WADE: IT APPEARS TO MATCH?

1177

MR. WADE: SO THE FINANCIAL INFORMATION THAT YOU PROVIDED TO MR. BALWANI MADE IT INTO THIS DOCUMENT, THE EXHIBIT 1853; CORRECT?

1179

MR. WADE: IF I COULD BRING UP 1853 AGAIN. FOCUSSING ON PAGE 1 OF THIS EXHIBIT, DO YOU RECALL WHETHER YOU EVER SAW A LIVE SPREADSHEET, A NATIVE FILE THAT DEPICTED THIS INFORMATION?

1181

MR. WADE: NO, YOU DON'T BELIEVE THAT YOU DID SEE THAT?

1182

SO-HAN SPIVEY: I DON'T THINK SO.

1183

MR. WADE: SO YOU DON'T KNOW IF THIS IS A SPREADSHEET, YOU DON'T KNOW WHETHER THERE'S OTHER INFORMATION THAT FED INTO IT; CORRECT?

1185

MR. WADE: I'D LIKE TO ASK YOU A COUPLE OF QUESTIONS ABOUT INVESTORS, AND I CAN TAKE THIS DOCUMENT DOWN. YOU DIDN'T ATTEND MEETINGS WITH POTENTIAL INVESTORS, DID YOU?

1187

MR. WADE: YOU WERE THE CONTROLLER AT THE COMPANY?

1189

MR. WADE: AND YOUR PRINCIPAL JOB WAS THE ACCOUNTING OF THE COMPANY?

1191

MR. WADE: AND DEALING WITH INVESTORS WAS NOT ONE OF YOUR JOB RESPONSIBILITIES?

1193

MR. WADE: AND ARE YOU AWARE THAT THE COMPANY SOMETIMES WOULD HAVE MEETINGS WITH POTENTIAL INVESTORS WHERE THEY WOULD PROVIDE INFORMATION ABOUT THE COMPANY?

1194

SO-HAN SPIVEY: I HAVE NO PERSONAL KNOWLEDGE OF THAT.

1195

MR. WADE: DID YOU KNOW WHETHER THAT WAS HAPPENING OR NOT?

1196

SO-HAN SPIVEY: I DON'T KNOW.

1197

MR. WADE: BUT YOU KNOW THE COMPANY RECEIVED MONEY FROM INVESTORS?

1199

MR. WADE: SO IT MUST HAVE COME FROM SOMEWHERE?

1201

MR. WADE: WHEN YOU WERE ASKED OR IF YOU WERE ASKED TO PROVIDE INFORMATION TO INVESTORS, DID YOU ALWAYS PROVIDE ACCURATE INFORMATION?

1203

MR. WADE: AND, IN FACT, WHENEVER YOU WERE REQUESTED TO PROVIDE INFORMATION TO ANYONE, DID YOU ALWAYS TRY TO PROVIDE ACCURATE INFORMATION?

1205

MR. WADE: YOU'RE A CPA; CORRECT?

1207

MR. WADE: AND YOU'RE A LICENSED PROFESSIONAL?

1209

MR. WADE: AND YOU ALWAYS TRIED TO PROVIDE THE MOST ACCURATE FINANCIAL INFORMATION THAT YOU COULD?

1211

MR. WADE: SOMETIMES ACCOUNTING RECORDS ARE NOT STATIC; CORRECT?

1212

SO-HAN SPIVEY: I'M NOT SURE WHAT THAT MEANS.

1213

MR. WADE: LET ME SEE IF I CAN UNPACK THAT. YOU SOMETIMES MAKE ENTRIES INTO THE BOOKS AND RECORDS OF THE COMPANY AND HAVE TO CHANGE THOSE IN THE FUTURE AFTER ADDITIONAL ACCOUNTING JUDGMENTS ARE MADE WITH RESPECT TO A PARTICULAR ENTRY; IS THAT RIGHT?

1215

MR. WADE: ONE EXAMPLE OF THAT WOULD BE DEFERRED REVENUE THAT WE TALKED ABOUT EARLIER; CORRECT?

1217

MR. WADE: AND YOU MIGHT BOOK THE REVENUE, BUT THEN DECIDE THAT SOME OF IT WOULD NEED TO BE DEFERRED?

1219

MR. WADE: OR YOU MIGHT DEFER REVENUE AND THEN DECIDE THAT SOME OF IT MIGHT NEED TO BE RECOGNIZED?

1221

MR. WADE: AND IN CONNECTION WITH THE FINANCIAL ACTIVITY OF THE COMPANY, THERE ARE A VARIETY OF DIFFERENT REPORTS THAT YOU PREPARE?

1223

MR. WADE: WE'VE SEEN MANY OF THEM TODAY AND THEY PROVIDE DIFFERENT VANTAGE POINTS INTO THE FINANCIAL PERFORMANCE OF THE COMPANY?

1225

MR. WADE: AND WE SAW INCOME STATEMENTS THAT PROVIDE ONE VIEWPOINT; CORRECT?

1227

MR. WADE: AND THOSE USUALLY INVOLVE GAAP ACCOUNTING; CORRECT?

1229

MR. WADE: AND WE SAW A BALANCE SHEET?

1231

MR. WADE: AND THAT USUALLY DISPLAYS THE COMPANY'S ASSETS, LIABILITIES, AND SHAREHOLDER'S EQUITY?

1233

MR. WADE: AND THEN WE SAW THE CASH FLOW STATEMENT WHICH JUST TRACKS THE CASH IN AND OUT?

1235

MR. WADE: AND WITH RESPECT TO ARANCA, WE SAW SOME VALUATION REPORTS; CORRECT?

1237

MR. WADE: AND WE FOCUSSED ON A COUPLE OF PARAGRAPHS WITHIN THOSE REPORTS. DO YOU RECALL THAT?

1239

MR. WADE: BUT THOSE DOCUMENTS ARE EXTREMELY LENGTHY; CORRECT?

1241

MR. WADE: MAYBE 150 PAGES?

1242

SO-HAN SPIVEY: SOMETHING LIKE THAT.

1243

MR. WADE: AND THEY PROVIDE VERY DETAILED ANALYSES?

1245

MR. WADE: AND THEY PROVIDE MANY DIFFERENT VALUATION APPROACHES?

1247

MR. WADE: AND OFTENTIMES THAT COME UP WITH DIFFERENT ANSWERS?

1249

MR. WADE: SOMETIMES THOSE ANSWERS AS TO VALUATION CAN RANGE SIGNIFICANTLY?

1250

SO-HAN SPIVEY: I'M NOT SURE.

1251

MR. WADE: THEY CAN -- THERE CAN BE SIGNIFICANT DIFFERENCES BETWEEN THE VALUATIONS BASED UPON DIFFERENT VALUATION METHODS?

1252

SO-HAN SPIVEY: THERE ARE USUALLY DIFFERENCES.

1253

MR. WADE: WELL, LET ME PULL UP ONE OF THEM AND WE CAN ASK RELATED TO THAT EXHIBIT 5206, WHICH IS ALREADY IN EVIDENCE. I'D LIKE TO TURN TO PAGE 52 AT THE BOTTOM. SORRY, 52.

1254

MR. BENNETT: BATES NUMBER?

1255

MR. WADE: 1078552.

1256

MR. WADE: AND THIS IS THE EMAIL CHAIN IN EXHIBIT 5206, IN WHICH THE ARANCA REPORT WAS ULTIMATELY TRANSMITTED TO THE COMPANY. DO YOU RECALL THAT EMAIL CHAIN?

1258

MR. WADE: AND WITHIN THIS CHAIN DO YOU SEE THAT YOU ARE BEING PROVIDED SOME INFORMATION BY ARUN MONTENA AT ARANCA?

1260

MR. WADE: AND HE'S TALKING ABOUT SOME DIFFERENT VALUATION APPROACHES WITHIN THIS EMAIL?

1262

MR. WADE: AND HOW ONE OF THOSE VALUATION APPROACHES VALUED THE COMPANY AT $1.96 BILLION?

1264

MR. WADE: AND HOW ONE OF THE VALUATION APPROACHES VALUED THE COMPANY AT $9.5 BILLION?

1266

MR. WADE: THAT WAS THE POST MONEY VALUATION?

1268

MR. WADE: AND SO IS IT FAIR TO SAY BASED ON DIFFERENT METHODOLOGIES, THERE CAN BE A PRETTY FAIR RANGE IN THE VALUATIONS OF A COMPANY?

1270

(PAUSE IN PROCEEDINGS.)

1271

BY MR. WADE:

1272

MR. WADE: WE TALKED ABOUT, BEFORE THE BREAK, HOW SOMETIMES CASH HAD TO BE REFERRED TO AS DEFERRED REVENUE. DO YOU RECALL THAT?

1274

MR. WADE: AND THAT WAS THE RESULT OF THE APPLICATION OF ACCOUNTING PRINCIPLES?

1276

MR. WADE: AND SOMETIMES WHEN YOU COULD RECOGNIZE THE REVENUE WOULD BE SUBJECT TO DEBATE?

1278

MR. WADE: I'D LIKE TO SHOW YOU AND MOVE INTO EVIDENCE DTX 13719, WHICH I BELIEVE THE GOVERNMENT HAS STIPULATED TO.

1279

MR. LEACH: THAT'S CORRECT, YOUR HONOR. NO OBJECTION.

1280

JUDGE DAVILA: ALL RIGHT. IT'S ADMITTED, AND IT MAY BE PUBLISHED.

1281

(DEFENDANT'S EXHIBIT 13719 WAS RECEIVED IN EVIDENCE.)

1282

BY MR. WADE:

1283

MR. WADE: I'D LIKE TO START AT THE BOTTOM OF THIS EMAIL CHAIN IN WHICH YOU SENT DECEMBER 12TH, 2014. DO YOU SEE THAT?

1285

MR. WADE: AND THIS SAYS IN HERE, YOU WRITE, "AFTER ADDING BACK 50 MILLION, THE DEFERRED REVENUE IS 168 MILLION." DO YOU SEE THAT?

1287

MR. WADE: AND IT TALKS WHAT THAT INCLUDES; RIGHT?

1289

MR. WADE: AND THAT INCLUDES MONEY THAT YOU RECEIVED FROM CUSTOMERS OVER A PERIOD OF TIME?

1291

MR. WADE: AND IF I CAN MOVE TO THE NEXT EMAIL IN THE CHAIN. THAT'S AN EMAIL IN RESPONSE FROM MR. BALWANI TO YOU AND MS. HOLMES. DO YOU SEE THAT?

1293

MR. WADE: AND THAT'S DECEMBER 12TH, 2014?

1295

MR. WADE: AND HE'S SUGGESTING THAT CELGENE SHOULD BE RECOGNIZED IN 2013. DO YOU SEE THAT?

1297

MR. WADE: AND HE THEN SAYS KEEP 165 AS DEFERRED AND -- FOR 2013. DO YOU SEE THAT?

1299

MR. WADE: AND HE'S SUGGESTING THAT THE 165 MILLION COULD BE RECOGNIZED -- COULD BE CATEGORIZED AS DEFERRED REVENUE?

1301

MR. WADE: THAT'S FOR THE 2013 PERIOD?

1303

MR. WADE: HE THEN SAYS, "BUT IN 2014, WE WILL RECOGNIZE AT LEAST 100 MILLION OF IT." DO YOU SEE THAT?

1305

MR. WADE: AND THIS EMAIL IS SENT ON DECEMBER 12TH, 2014; CORRECT?

1307

MR. WADE: AND JUST SO WE'RE CLEAR, IT'S NOT AS THOUGH 100 MILLION IS JUST GOING TO FALL OUT OF THE SKY IN DECEMBER OF 2014; CORRECT?

1309

MR. WADE: THAT 100 MILLION HAD BEEN BOOKED INTO THE COMPANY AS CASH; CORRECT?

1311

MR. WADE: AND MR. BALWANI IS EXPRESSING THE VIEW THAT 100 MILLION OF THAT COULD BE RECOGNIZED IN 2014?

1313

MR. WADE: NOW, DO YOU RECALL AT THE END OF 2013 OR THE BEGINNING OF 2014 THE COMPANY RECEIVED A $75 MILLION PAYMENT FROM WALGREENS?

1315

MR. WADE: AND THAT WAS BOOKED AS REVENUE IN -- ON DECEMBER 31ST, 2013?

1317

MR. WADE: IT WAS BOOKED ON -- IT WAS ADDED TO THE BOOKS AS CASH ON DECEMBER 31ST OF 2013?

1319

MR. WADE: AND IT WAS DEFERRED REVENUE AT THAT POINT?

1321

MR. WADE: AND THAT WAS AMONG THIS MONEY THAT THERE WAS DISCUSSION AS TO WHEN IT COULD BE RECOGNIZED; CORRECT?

1323

MR. WADE: IF WE CAN GO TO DTX 5172, WHICH IS ALREADY IN EVIDENCE, AND I'D LIKE TO GO TO ROW 26 WHERE IT SAYS "CUSTOMER RECEIPTS." DO YOU SEE THAT?

1325

MR. WADE: AND WE'VE BEEN TALKING A LITTLE BIT ABOUT WHEN MONEY WAS RECEIVED FROM CUSTOMERS. DO YOU RECALL THAT TESTIMONY?

1327

MR. WADE: AND THIS IS WHERE IT WOULD SHOW UP; CORRECT?

1329

MR. WADE: AND SO, FOR EXAMPLE, COLUMN DC IN THE FIRST WEEK OF 2013 SHOWS $25 MILLION IN CUSTOMER RECEIPTS; CORRECT?

1331

MR. WADE: AND DO YOU KNOW WHERE THAT PAYMENT WAS FROM?

1332

SO-HAN SPIVEY: I DON'T REMEMBER.

1333

MR. WADE: OKAY. WELL, LET ME START BACK. LET ME GO TO COLUMN D AND WE'LL RUN THROUGH AND JUST GET A SENSE OF THE CUSTOMER RECEIPTS. IN COLUMN D, WE START SMALL, ROW 26. I'LL STAY IN ROW 26 THROUGHOUT. DO YOU SEE THERE'S $462 THERE?

1335

MR. WADE: AND AS YOU WORK YOUR WAY ACROSS COLUMN H, THERE'S 60,000?

1337

MR. WADE: AND COLUMN J, THERE'S 201,000?

1339

MR. WADE: AND IN COLUMN N4, 358?

1341

MR. WADE: AND LET ME JUMP TO COLUMN AC. DO YOU SEE THERE THAT'S $5 MILLION?

1343

MR. WADE: AND COLUMN AH IS $30 MILLION?

1345

MR. WADE: COLUMN AO, ANOTHER 5 MILLION COMES IN?

1347

MR. WADE: COLUMN AU, THERE'S $15 MILLION?

1349

MR. WADE: COLUMN AZ, DO YOU SEE 18 MILLION -- 18.5 MILLION?

1351

MR. WADE: COLUMN BY, DO YOU SEE 40 MILLION?

1353

MR. WADE: DC, DO YOU SEE 25 MILLION?

1355

MR. WADE: DD IS 4 MILLION?

1357

MR. WADE: AND IF I GO TO FC, THAT WAS -- THOSE WERE CUSTOMER RECEIPTS FOR $75 MILLION FROM WALGREENS THAT WE MENTIONED A MINUTE AGO. DO YOU SEE THAT?

1359

MR. WADE: AND IN ALL, THE COMPANY RECEIVED FROM CUSTOMERS HUNDREDS OF MILLIONS OF DOLLARS; CORRECT?

1361

MR. WADE: AND IT RECEIVED THESE PAYMENTS FROM CAPITAL BLUE CROSS?

1363

MR. WADE: AND SAFEWAY?

1365

MR. WADE: AND WALGREENS?

1367

MR. WADE: AND BLUE CROSS BLUE SHIELD OF WYOMING?

1369

MR. WADE: AND BLUE CROSS BLUE SHIELD OF MASSACHUSETTS?

1371

MR. WADE: AND BLUE CROSS BLUE SHIELD OF NORTH CAROLINA?

1373

MR. WADE: AND A LOT OF THIS MONEY WAS CASH THAT WAS RECEIVED AND USED, BUT IT WAS BOOKED AS DEFERRED REVENUE; CORRECT?

1375

MR. WADE: I'D LIKE TO RETURN BRIEFLY TO THE BURN STUDY WE HEARD ABOUT AND SHOW YOU DOCUMENT 7091, WHICH I BELIEVE THE GOVERNMENT STIPULATED TO ADMIT. WE MOVE THE ADMISSION, YOUR HONOR.

1376

MR. LEACH: THAT'S CORRECT, YOUR HONOR, NO OBJECTION.

1377

JUDGE DAVILA: IT'S ADMITTED. IT MAY BE PUBLISHED.

1378

(DEFENDANT'S EXHIBIT 7091 WAS RECEIVED IN EVIDENCE.)

1379

BY MR. WADE:

1380

MR. WADE: LET ME BLOW UP THE TOP SO WE CAN ORIENT YOU. THIS IS AN EMAIL THAT YOU RECEIVED IN DECEMBER OF 2009. DO YOU SEE THAT?

1382

MR. WADE: AND THIS MAKES YOU AWARE OF INFORMATION RELATING TO PAYMENTS THAT WERE TO BE PROVIDED BY THE BURN CENTER?

1384

MR. WADE: FOR THE BURN STUDY? I'M SORRY.

1386

MR. WADE: AND IF WE CAN TURN TO -- AS ONE OF YOUR ROLES IN DETERMINING REVENUE RECOGNITION AND BOOKING ITEMS ON THE BOOKS OF THE COMPANY, WOULD YOU OFTENTIMES GET CONTRACT DOCUMENTATION AND INFORMATION TO KEEP IN YOUR FILES?

1388

MR. WADE: OKAY. I'D LIKE TO LOOK AT THE DOCUMENT THAT FOLLOWS THE ATTACHMENT.

1390

MR. WADE: AND THIS PARTICULAR DOCUMENT WAS A GRANT THAT WAS PROVIDED; CORRECT?

1392

MR. WADE: AND SO IN THIS PARTICULAR CASE WITH THE BURN STUDY, THIS IS -- THIS WAS EFFECTIVELY THE CONTRACT; IS THAT RIGHT?

1393

SO-HAN SPIVEY: I DON'T RECALL THIS DOCUMENT.

1394

MR. WADE: OKAY. BUT YOU RECALL -- YOU SAW THAT YOU RECEIVED THIS DOCUMENT AS PART OF THAT EMAIL?

1396

MR. WADE: AND THIS WOULD HAVE BEEN A DOCUMENT THAT MIGHT HAVE GIVEN YOU INFORMATION THAT YOU WOULD USE TO DETERMINE REVENUE RECOGNITION; IS THAT FAIR? MAYBE IF WE LOOK AT THE FULL DOCUMENT YOU CAN TAKE A LOOK.

1397

(PAUSE IN PROCEEDINGS.)

1398

SO-HAN SPIVEY: I AM NOT SURE. I DON'T RECALL THIS DOCUMENT.

1399

BY MR. WADE:

1400

MR. WADE: YOU DON'T RECALL THE DOCUMENT?

1402

MR. WADE: OKAY. THANK YOU. AS THE CONTROLLER OF THE COMPANY, DID YOU HAVE A SENSE FOR HOW THE COMPANY WAS SPENDING ITS MONEY?

1404

MR. WADE: AND ONE OF THE THINGS THAT YOU WOULD DO WAS BOOK, CATEGORIZE DIFFERENT EXPENSES ACCORDING TO DIFFERENT PARTS OF THE BUSINESS; CORRECT?

1406

MR. WADE: AND THAT INCLUDES, FOR EXAMPLE, FOR RESEARCH AND DEVELOPMENT?

1408

MR. WADE: OR ADMINISTRATIVE EXPENSES?

1410

MR. WADE: AND SO AS EXPENSES WOULD COME IN, YOU WOULD CATEGORIZE HOW IT WAS DEPICTED IN THE FINANCIAL STATEMENTS?

1412

MR. WADE: I'D LIKE TO SHOW YOU DX 578, WHICH I BELIEVE IS -- WHICH IS ALREADY IN EVIDENCE. DO YOU RECALL THIS DOCUMENT? THESE WERE SOME FINANCIAL STATEMENTS THAT WERE EMAILED TO KPMG?

1414

MR. WADE: AND I'D LIKE TO LOOK AT THE ATTACHMENT THAT INCLUDES THE TRIAL BALANCE. WHILE WE'RE PULLING THAT UP, WHAT IS THE TRIAL BALANCE?

1415

SO-HAN SPIVEY: IT'S THE FINANCIAL ACCOUNTS, ALL OF THE FINANCIAL ACCOUNTS OF THE COMPANY THAT HAS ALL OF THE ASSETS, LIABILITY, SHAREHOLDER'S EQUITY, EXPENSES, INCOME.

1416

MR. WADE: OKAY. AND IF I CAN GO TO THE BS TAB. THIS IS THE CONSOLIDATED BALANCE SHEET THAT WE LOOKED AT EARLIER. DO YOU RECALL THAT?

1418

MR. WADE: AND IF WE CAN SCROLL DOWN. DO YOU SEE IN COLUMN B THERE THE DEFERRED REVENUE?

1420

MR. WADE: AND THAT'S $77 MILLION IN DEFERRED REVENUE?

1422

MR. WADE: IF WE CAN GO TO THE PL BY GROUP. THIS SHOWS THE CATEGORIZATION OF SOME OF THE EXPENSES; IS THAT CORRECT?

1424

MR. WADE: AND IF WE CAN -- YOU SEE IN COLUMN I IT SAYS R&D?

1426

MR. WADE: AND THAT IN COLUMN K IT SAYS GRAND TOTAL?

1428

MR. WADE: AND IF WE CAN GO TO THE BOTTOM. DO YOU SEE IN COLUMN I IT SHOWS $21.9 MILLION IN R&D EXPENSES?

1430

MR. WADE: AND THAT'S OUT OF 26.2 MILLION IN TOTAL?

1432

MR. WADE: AND DO YOU RECALL THE YEAR THIS IS FOR?

1433

SO-HAN SPIVEY: WAS IT 2010?

1434

MR. WADE: WE CAN GO TO THE TOP. LET'S GO TO THE BALANCE SHEET. THAT WILL SHOW THE DATE CLEARLY. THAT WAS FOR 2011?

1435

SO-HAN SPIVEY: IT COULD BE. I DON'T KNOW. I HAVEN'T LOOKED AT THE DATA.

1436

MR. WADE: LET ME PULL UP DTX 4176, WHICH I BELIEVE IS IN EVIDENCE.

1437

COURT CLERK: CAN YOU SAY THAT NUMBER AGAIN, PLEASE, COUNSEL. COUNSEL, WHAT IS THE NUMBER?

1438

MR. WADE: 4176, WHICH I WILL MOVE INTO EVIDENCE ACTUALLY, YOUR HONOR. I APOLOGIZE. WITH STIPULATION.

1439

MR. LEACH: NO OBJECTION. THANK YOU, YOUR HONOR.

1440

JUDGE DAVILA: IT'S ADMITTED. IT CAN BE PUBLISHED.

1441

(DEFENDANT'S EXHIBIT 4176 WAS RECEIVED IN EVIDENCE.)

1442

BY MR. WADE:

1443

MR. WADE: AND DO YOU SEE HERE -- DO YOU RECOGNIZE THIS DOCUMENT?

1445

MR. WADE: AND WHAT IS THIS DOCUMENT?

1446

SO-HAN SPIVEY: THAT'S THE CONSOLIDATED INCOME STATEMENTS FOR THE COMPANY.

1447

MR. WADE: AND DOES IT SHOW THE OPERATING EXPENSES?

1449

MR. WADE: AND FOR 2013, WHAT WERE THE TOTAL OPERATING EXPENSES?

1450

SO-HAN SPIVEY: 92 MILLION.

1451

MR. WADE: AND THE AMOUNT THAT WAS SPENT ON RESEARCH AND DEVELOPMENT?

1452

SO-HAN SPIVEY: ABOUT 68 MILLION.

1453

MR. WADE: AND FOR 2012, WHAT WERE THE TOTAL OPERATING EXPENSES?

1454

SO-HAN SPIVEY: ABOUT 67 MILLION.

1455

MR. WADE: AND THE TOTAL AMOUNT SPENT ON RESEARCH AND DEVELOPMENT?

1456

SO-HAN SPIVEY: ABOUT 53 MILLION.

1457

MR. WADE: AND FOR 2011, YOU SEE THAT THERE WAS 28.2 MILLION IN TOTAL OPERATING EXPENSES?

1459

MR. WADE: AND 22 MILLION IN RESEARCH AND DEVELOPMENT?

1461

MR. WADE: AND SO YOU SEE THERE THAT THERE ARE OPERATING LOSSES?

1463

MR. WADE: AND THE GOVERNMENT PREVIOUSLY REFERRED TO ACCUMULATED DEFICIT. DO YOU RECALL THAT?

1465

MR. WADE: AND A BIG REASON FOR THESE OPERATING LOSSES WAS BECAUSE OF THE SIGNIFICANT INVESTMENT AND THE RESEARCH AND DEVELOPMENT; IS THAT RIGHT?

1467

MR. WADE: DID YOU MAINTAIN THE CAPITALIZATION TABLE FOR THE COMPANY AS WELL?

1469

MR. WADE: AND THAT IS A LISTING THAT IDENTIFIES THE VARIOUS SHAREHOLDERS?

1471

MR. WADE: AND YOU WOULD TRACK THAT AS NEW SHAREHOLDERS WOULD BE ADDED?

1473

MR. WADE: AND WHO WAS THE LARGEST SHAREHOLDER?

1474

SO-HAN SPIVEY: I'M NOT SURE.

1475

MR. WADE: WAS MS. HOLMES THE LARGEST SHAREHOLDER?

1476

SO-HAN SPIVEY: I WOULD THINK SO, BUT I, I DON'T, I DON'T REMEMBER.

1477

MR. WADE: WELL, MS. HOLMES OWNED ABOUT HALF OF THE COMPANY; CORRECT?

1478

SO-HAN SPIVEY: I DON'T REMEMBER AT THIS TIME.

1479

MR. WADE: THAT WASN'T SOMETHING YOU FOCUSSED ON?

1480

SO-HAN SPIVEY: I WOULD HAVE TO LOOK AT THE DATA.

1481

MR. WADE: DO YOU RECALL PROCESSING ANY STOCK SALES FOR MS. HOLMES?

1482

SO-HAN SPIVEY: I'M SORRY?

1483

MR. WADE: DID YOU EVER PROCESS ANY STOCK SALES FOR MS. HOLMES?

1485

MR. WADE: SHE NEVER SOLD ANY STOCK, DID SHE?

1487

MR. WADE: THE COURT'S INDULGENCE.

1488

(DISCUSSION AMONGST DEFENSE COUNSEL OFF THE RECORD.)

1489

MR. WADE: WE HAVE NO FURTHER QUESTIONS, YOUR HONOR.

1490

JUDGE DAVILA: RECROSS? EXCUSE ME. REDIRECT?

1491

MR. LEACH: VERY BRIEFLY, YOUR HONOR. THANK YOU. /// /// /// ///

RedirectRedirect So-Han Spivey Robert S. Leach
1492

REDIRECT EXAMINATION BY MR. LEACH:

1493

MR. LEACH: GOOD MORNING AGAIN, MS. SPIVEY. MR. WADE ASKED YOU A LOT OF QUESTIONS ABOUT DEFERRED REVENUE. DO YOU RECALL THAT TESTIMONY?

1495

MR. LEACH: WHAT IS DEFERRED REVENUE?

1496

SO-HAN SPIVEY: IT'S MONEY THAT THE COMPANY RECEIVED BUT WE HAVE NOT PROVIDES SERVICES OR PRODUCT.

1497

MR. LEACH: HAVE YOU EARNED THE REVENUE AT THAT POINT?

1499

MR. LEACH: AND IF YOU DON'T PERFORM UNDER THE CONTRACT, IF YOU DON'T EARN THE REVENUE, DO YOU GET TO KEEP THE MONEY?

1500

SO-HAN SPIVEY: DEPENDING ON THE CONTRACTS. THERE COULD BE A CLAUSE FOR A REFUND.

1501

MR. LEACH: SO THE REASON THAT YOU DON'T MOVE DEFERRED REVENUE INTO REVENUE IS BECAUSE THE COMPANY HASN'T DONE WHAT IT NEEDS TO IN ORDER TO EARN THAT MONEY; IS THAT FAIR?

1503

MR. LEACH: AND IS THERE SOME POSSIBILITY THAT YOU HAVE TO GIVE THAT MONEY BACK?

1505

MR. LEACH: MR. WADE ALSO ASKED YOU ABOUT THE COMPANY'S FINANCIAL CONDITION IN 2009. I'D LIKE TO BRING YOUR ATTENTION TO EXHIBIT 256, WHICH I THINK WE STIPULATE TO THE ADMISSION OF.

1506

MR. WADE: YES, YOUR HONOR.

1507

JUDGE DAVILA: THANK YOU. IT IS ADMITTED, AND IT MAY BE PUBLISHED.

1508

(GOVERNMENT'S EXHIBIT 256 WAS RECEIVED IN EVIDENCE.)

1509

BY MR. LEACH:

1510

MR. LEACH: AND IF WE CAN PLEASE LOOK AT THE -- DO YOU SEE YOUR EMAIL IN THE TOP, MS. SPIVEY? DO YOU SEE YOUR NAME AT THE TOP OF THE EMAIL?

1512

MR. LEACH: AND DO YOU SEE THAT THIS IS AN EMAIL TO ELIZABETH HOLMES?

1514

MR. LEACH: AND DO YOU ATTACH FINANCIAL STATEMENTS FOR THE PERIOD ENDING DECEMBER 2009?

1516

MR. LEACH: LET ME DRAW YOUR ATTENTION TO THE NATIVE FILE, WHICH I BELIEVE IS PAGE 5. IF I COULD DRAW YOUR ATTENTION, PLEASE, TO THE TAB MONTHLY PL. IF WE CAN MOVE A LITTLE BIT TO THE LEFT, PLEASE, MS. HOLLIMAN. PERFECT. THANK YOU. THERE'S A LINE THERE FOR TOTAL OPERATING EXPENSES. DO YOU SEE THAT, MS. SPIVEY?

1518

MR. LEACH: AND IN JANUARY IT'S 936,000?

1520

MR. LEACH: AND FEBRUARY $1 MILLION?

1522

MR. LEACH: THOSE ARE THE MONTHLY EXPENSES THAT THE COMPANY IS INCURRING DURING THAT TIME PERIOD?

1524

MR. LEACH: AND WOULD THOSE AMOUNTS HAVE TO BE OFFSET BY ANY CASH FROM THE PHARMACEUTICAL CONTRACTS THAT MIGHT BE COMING IN AT ANY PARTICULAR TIME?

1525

SO-HAN SPIVEY: CAN YOU REPEAT?

1526

MR. LEACH: LET ME ASK YOU A BETTER QUESTION. MR. WADE SHOWED YOU SOME RECEIPTS FROM PHARMACEUTICAL CONTRACTS DURING YOUR CROSS-EXAMINATION. DO YOU RECALL THAT TESTIMONY?

1528

MR. LEACH: AND WOULD THOSE CASH RECEIPTS BE OFFSET BY EXPENSES THAT THE COMPANY IS INCURRING DURING THAT SAME TIME PERIOD?

1530

MR. LEACH: THANK YOU. WE CAN TAKE THAT DOWN, MS. HOLLIMAN. AND IF WE CAN PLEASE GO BACK TO MR. WADE ASKED YOU A COUPLE OF QUESTIONS ABOUT DIFFERENT VALUATION METHODS FOR THE 409 ANALYSIS, AND HE DREW YOUR ATTENTION TO EXHIBIT 5206, PAGE 4. DO YOU RECALL THIS EMAIL WHERE YOU WERE BEING ASKED QUESTIONS ABOUT THE DIFFERENT VALUATION METHODS THAT WENT INTO ARANCA'S ANALYSIS?

1532

MR. LEACH: AND DO YOU RECALL ATTENTION BEING DRAWN -- WHOOPS. IF WE CAN ZOOM OUT, PLEASE, MS. HOLLIMAN. THANK YOU. I THINK YOU WERE ASKED ABOUT THIS THING CALLED A POST MONEY VALUATION OF 9.5 BILLION?

1534

MR. LEACH: DO YOU RECALL BEING ASKED ABOUT THAT?

1536

MR. LEACH: AND THAT'S BASED ON THE RECENT SERIES C-2 FUNDING. DO YOU SEE THAT LANGUAGE?

1538

MR. LEACH: AND IS THAT ESSENTIALLY THE VALUE ASSIGNED TO THE SHARE PRICE FOR THE C-2 FINANCING?

1539

SO-HAN SPIVEY: THE SHARE PRICE.

1540

MR. LEACH: WELL, I THINK WE TALKED EARLIER ABOUT THE C-2 SHARE PRICE BEING $17 A SHARE. IF YOU MULTIPLY THAT BY THE NUMBER OF SHARES, YOU GET SOMETHING IN THE NEIGHBORHOOD OF $9.5 BILLION?

1541

MR. WADE: OBJECTION, YOUR HONOR. 602 AND 701, 702.

1542

JUDGE DAVILA: OVERRULED. I DON'T THINK THIS CALLS FOR EXPERT TESTIMONY. IT'S MULTIPLICATION OF THE FIGURES, SO -- DO YOU WANT TO REPEAT THE QUESTION?

1543

BY MR. LEACH:

1544

MR. LEACH: SURE. DO YOU UNDERSTAND THE POST MONEY VALUATION REFERRED HERE TO BE BASED ON THE C-2 SHARE PRICE?

1546

MR. LEACH: OKAY. AND THEN AT THE BOTTOM OF THIS PARAGRAPH IT SAYS, "WE HAVE NOT ASSIGNED ANY WEIGHT TO THIS APPROACH." DO YOU SEE THAT LANGUAGE?

1548

MR. LEACH: AND DO YOU UNDERSTAND THAT TO BE ARANCA TELLING YOU THAT EVEN THOUGH THE C-2 FINANCING IS AT THIS PRICE, WE'RE NOT ASSIGNING THAT ANY WEIGHT IN HOW WE VALUE THESE STOCK OPTIONS?

1550

MR. LEACH: OKAY. THANK YOU, MS. SPIVEY. THANK YOU, YOUR HONOR. I HAVE NOTHING FURTHER.

1551

MR. WADE: NOTHING FURTHER, YOUR HONOR.

1552

JUDGE DAVILA: MAY THIS WITNESS BE EXCUSED?

1553

MR. LEACH: YES, YOUR HONOR.

1554

MR. WADE: YES, YOUR HONOR.

1555

JUDGE DAVILA: THANK YOU. YOU'RE EXCUSED. THANK YOU.

1556

SO-HAN SPIVEY: THANK YOU.

1557

JUDGE DAVILA: DOES THE GOVERNMENT HAVE ANOTHER WITNESS?

1558

MR. BOSTIC: YES, YOUR HONOR. THE UNITED STATES CALLS ERIKA CHEUNG. MAY I APPROACH THE STAND, YOUR HONOR?

1559

JUDGE DAVILA: YES. IF YOU COULD COME FORWARD, PLEASE, AND I'LL HAVE YOU STAND BY THE WITNESS STAND THERE. OUR COURTROOM DEPUTY WILL PLACE YOU OATH. AND IF YOU'LL RAISE YOUR RIGHT HAND, SHE HAS A QUESTION FOR YOU.

1560

(GOVERNMENT'S WITNESS, ERIKA CHEUNG, WAS SWORN.)

1562

COURT CLERK: THANK YOU.

1563

JUDGE DAVILA: THANK YOU. PLEASE HAVE A SEAT HERE. MAKE YOURSELF COMFORTABLE. FEEL FREE TO ADJUST THE CHAIR AND MICROPHONE AS YOU NEED. I'LL ENCOURAGE YOU TO SPEAK DIRECTLY INTO THE MICROPHONE. WHEN YOU ARE COMFORTABLE, COULD YOU PLEASE STATE YOUR NAME AND THEN SPELL IT, PLEASE.

1564

SO-HAN SPIVEY: MY NAME IS ERIKA CHEUNG. AND THAT'S SPELLED E-R-I-K-A, AND LAST NAME CHEUNG, C-H-E-U-N-G.

1565

JUDGE DAVILA: THANK YOU. COUNSEL.

1566

MR. BOSTIC: THANK YOU, YOUR HONOR. AND, YOUR HONOR, PLEASE CORRECT ME IF I'M WRONG, MY UNDERSTANDING IS THAT IF WITNESSES ARE VACCINATED, THE COURT IS AMENABLE TO THEM TESTIFYING WITHOUT A MASK?

1568

MR. BOSTIC: MS. CHEUNG, MAY I ASK IF YOU'RE COMFORTABLE DISCLOSING AND IF YOU'RE VACCINATED, IF THAT IS TRUE WOULD YOU LIKE TO REMOVE YOUR MASK?

1569

SO-HAN SPIVEY: I'M VACCINATED AND I AM COMFORTABLE TAKING OFF MY MASK.

1570

JUDGE DAVILA: ALL RIGHT. THANK YOU. YOU MAY DO SO.

1571

MR. BOSTIC: AND, YOUR HONOR, DOES THE SAME GO FOR QUESTIONING COUNSEL?

1572

JUDGE DAVILA: IT DOES. AND I THINK WE ESTABLISHED THAT ALL PARTIES ON ALL TEAMS ARE ALL VACCINATED.

1573

MR. BOSTIC: YES, YOUR HONOR.

1574

JUDGE DAVILA: AND, MS. CHEUNG, JUST TO LET YOU KNOW, WE HAVE AN AIR FILTER SYSTEM JUST BELOW YOU AND I THINK IT'S OPERATIONAL NOW.

1575

SO-HAN SPIVEY: YEAH, IT IS.

1576

JUDGE DAVILA: GREAT. THANK YOU. COUNSEL.

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