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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Lifeline Sci | LSE:LSIC | London | Ordinary Share | COM SHS USD0.01 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 308.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From May 2019 to May 2024
TIDMLSIC
RNS Number : 8740J
Lifeline Scientific, Inc
14 September 2016
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
Lifeline Scientific, Inc.
("LSI" or the "Company")
PUBLICATION OF PROXY STATEMENT AND NOTICE OF SPECIAL MEETING
Lifeline Scientific, Inc. (AIM: LSIC), a leading international provider of clinical products and services in the field of transplantation, announces that it has today published a proxy statement (the "Proxy Statement") in connection with the recommended cash acquisition of the entire issued and to be issued share capital of LSI to be effected pursuant to a merger agreement entered into with Shanghai Genext Medical Technology Co., Ltd. and certain of its affiliates (the "Merger"), as announced on 2 September 2016.
The Proxy Statement incorporates a notice convening a special meeting of LSI's stockholders (the "Special Meeting") to be held on 6 October 2016, at 9.00 a.m. local time (US CDT) at the Westin Chicago Northwest, 400 Park Boulevard, Itasca, Illinois, 60143.
The Proxy Statement, together with certain accompanying documents, has been posted to stockholders today, and will also be available shortly on the Company's website at http://www.lifeline-scientific.com/investor-relations.
The Proxy Statement includes the unaudited condensed consolidated financial statements for LSI and its subsidiaries as of 30 June 2016 and for the six month period then ended, which are appended to this announcement to ensure full disclosure. LSI expects to publish its full half-yearly report for the period ended 30 June 2016 on or around 26 September 2016.
Further Details of the Cancellation
One of the resolutions being proposed at the Special Meeting is for the approval of the cancellation (the "Cancellation") of the admission of LSI's common stock to trading on the AIM market of the London Stock Exchange plc ("AIM"), conditioned upon closing of the Merger. In accordance with the AIM Rules for Companies, approval of the Cancellation requires the passing of a resolution of the LSI stockholders by at least 75% of the votes cast in person or by proxy at the Special Meeting.
At least twenty business days prior to the effective time of the Merger, the Company intends to make an application to the London Stock Exchange plc for the Cancellation to take effect from 7.00 a.m. (London time) on the next business day after the date of the effective time of the Merger. LSI will announce further details of the Cancellation timetable in due course.
Subject to the passing of the resolution approving the Cancellation at the Special Meeting, it is expected that the last day of dealing in LSI's common stock prior to their suspension from AIM and the last day for registration of transfers of LSI's common stock will be the date of the effective time of the Merger. No transfers of LSI's common stock will be registered after that time and date. All of LSI's shares of common stock and the depositary interests representing such common stock held in CREST will be cancelled with effect from the effective time of the Merger.
Expected Timetable of Principal Events
Hot Features
Premium
Event Date and Time*
Record date for determining stockholders of 2 September 2016
record who are entitled to vote at the Special
Meeting (and for determining the holders of
Depositary Interests entitled to provide instructions
to the Depositary for voting with respect
thereto)
Latest time for Forms of Instruction from 3:00 p.m. on 3 October
Depositary Interest holders to arrive with 2016
the Depositary
Latest time for Depositary Interest holders 3:00 p.m. on 3 October
to provide voting instructions via the CREST 2016
system
Latest time for Forms of Proxy from stockholders 3:00 p.m. on 4 October
of record to arrive with LSI's registrar 2016
Latest time for stockholders of record to 3:00 p.m. on 4 October
deliver a Proxy via the Internet 2016
Special Meeting 9:00 a.m. (Chicago
time) on 6 October
2016
Merger Closing Date Likely in the fourth
quarter of 2016. Actual
date depends on the
date when all closing
conditions have been
met
Date of the cancellation of the admission Likely the business
of LSI's common stock to trading on AIM day after the Merger
Closing Date
* All times are local time in London unless otherwise noted.
For further information:
Lifeline Scientific, Inc. www.lifeline-scientific.com
David Kravitz, CEO Tel: +1 847 294 0300
Lisa Kieres, CFO Tel: +1 847 294 0300
Piper Jaffray Ltd. (Financial Tel: +44 (0)20 7796 8400
Adviser to LSI)
Neil Mackison / Graeme Smethurst
Panmure Gordon (UK) Limited Tel: +44 (0)20 7886 2500
Freddy Crossley / Duncan Montieth (Corporate
Finance)
Tom Salvesen (Corporate Broking)
Walbrook PR Limited Tel: +44 (0)20 7933 8780 or lifeline@walbrookpr.com
Paul McManus / Lianne Cawthorne Mob: +44 (0)7980 541 893 / +44 (0)7584
391 303
About Lifeline Scientific Inc.
Lifeline Scientific, Inc. is a Chicago-based global medical technology company with regional offices in Brussels and Sao Paulo. The Company's focus is the development of innovative products that improve transplant outcomes and lower the overall costs of transplantation. Its lead product, LifePort Kidney Transporter, is the global market-leading medical device for hypothermic machine preservation of donor kidneys. LifePorts and novel solutions designed for preservation of other organs are in development, with LifePort Liver Transporter next in line for commercial launch. For more information please visit www.lifeline-scientific.com
LIFELINE SCIENTIFIC, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
30 June 2016 and 2015
CONSOLIDATED BALANCE SHEETS
30 June 2016 and 2015 (In US Dollars unless otherwise noted) UNAUDITED
2016 2015
US$ US$
----------------------------------------------- ------------- -------------
Current Assets
----------------------------------------------- ------------- -------------
Cash and cash equivalents 7,474,263 3,052,021
----------------------------------------------- ------------- -------------
Receivables
----------------------------------------------- ------------- -------------
Customers (net of allowance for doubtful
accounts of $224,370 and $308,000 as of
30 June 2016 and 2015, respectively) 8,260,770 6,508,385
----------------------------------------------- ------------- -------------
Grant - 12,000
----------------------------------------------- ------------- -------------
Deferred tax assets 97,472 97,472
----------------------------------------------- ------------- -------------
Income taxes receivable 44,166 56,030
----------------------------------------------- ------------- -------------
Inventories, net 6,787,436 6,830,276
----------------------------------------------- ------------- -------------
Prepaid expenses, deposits, and other 1,302,936 1,254,061
----------------------------------------------- ------------- -------------
Total Current Assets 23,967,043 17,810,245
----------------------------------------------- ------------- -------------
Non-current Assets
----------------------------------------------- ------------- -------------
Property and equipment (net of accumulated
depreciation and amortisation) 3,396,632 3,284,459
----------------------------------------------- ------------- -------------
Intangibles (net of accumulated amortisation) 5,708,301 4,899,709
----------------------------------------------- ------------- -------------
Deferred tax assets 10,042,213 3,242,213
----------------------------------------------- ------------- -------------
Goodwill 64,710 64,710
----------------------------------------------- ------------- -------------
Other - 67,671
----------------------------------------------- ------------- -------------
Total Non-current Assets 19,211,856 11,558,762
----------------------------------------------- ------------- -------------
Total Assets 43,178,899 29,369,007
----------------------------------------------- ------------- -------------
Current Liabilities
----------------------------------------------- ------------- -------------
Revolving line of credit - 2,171,147
----------------------------------------------- ------------- -------------
Accounts payable 3,362,644 1,173,453
----------------------------------------------- ------------- -------------
Capital lease obligations due within one
year 15,559 18,630
----------------------------------------------- ------------- -------------
Accrued expenses
----------------------------------------------- ------------- -------------
Interest due within one year - 6,186
----------------------------------------------- ------------- -------------
Salaries and other compensation 841,813 706,056
----------------------------------------------- ------------- -------------
Other 1,013,059 1,565,080
----------------------------------------------- ------------- -------------
Deferred rent 80,822 83,162
----------------------------------------------- ------------- -------------
Deferred revenue 120,382 106,728
----------------------------------------------- ------------- -------------
Total Current Liabilities 5,434,279 5,830,442
----------------------------------------------- ------------- -------------
Non-current Liabilities
----------------------------------------------- ------------- -------------
Deferred rent (net of portion included
in current liabilities) 322,056 245,361
----------------------------------------------- ------------- -------------
Capital leases (net of portion included
in current liabilities) 23,901 39,946
----------------------------------------------- ------------- -------------
Total Non-current Liabilities 345,957 285,307
----------------------------------------------- ------------- -------------
Total Liabilities 5,780,236 6,115,749
----------------------------------------------- ------------- -------------
Stockholders' Equity
----------------------------------------------- ------------- -------------
Common stock, $0.01 par value; authorized
- 30,000,000 shares; issued and outstanding
19,530,031 and 19,516,434 shares as of
30 June 2016 and 2015, respectively 195,300 195,164
----------------------------------------------- ------------- -------------
Additional paid-in capital 93,738,433 93,674,973
----------------------------------------------- ------------- -------------
Other accumulated comprehensive loss (817,555) (750,533)
----------------------------------------------- ------------- -------------
Accumulated deficit (55,717,515) (69,866,346)
----------------------------------------------- ------------- -------------
Total Stockholders' Equity 37,398,663 23,253,258
----------------------------------------------- ------------- -------------
Total Liabilities and Stockholders' Equity 43,178,899 29,369,007
----------------------------------------------- ------------- -------------
CONSOLIDATED STATEMENTS OF OPERATIONS
six months to 30 June 2016 and 2015 (In US Dollars unless otherwise noted) UNAUDITED
2016 2015
US$ US$
--------------------------------------------- ----------- -----------
Net revenue
--------------------------------------------- ----------- -----------
Product sales and service fee revenue 18,187,195 15,019,466
--------------------------------------------- ----------- -----------
Total net revenue 18,187,195 15,019,466
--------------------------------------------- ----------- -----------
Cost of revenue 6,744,490 6,070,896
--------------------------------------------- ----------- -----------
Gross profit 11,442,705 8,948,570
--------------------------------------------- ----------- -----------
Gross profit percentage 62.9% 59.6%
--------------------------------------------- ----------- -----------
Operating expenses
--------------------------------------------- ----------- -----------
Research and development 371,125 512,662
--------------------------------------------- ----------- -----------
Selling, general, and administrative 9,046,142 8,261,543
--------------------------------------------- ----------- -----------
Loss from disposal of property and
equipment 3,351 3,979
--------------------------------------------- ----------- -----------
Loss from abandonment of intangibles - 35,539
--------------------------------------------- ----------- -----------
Total operating expenses 9,420,618 8,813,723
--------------------------------------------- ----------- -----------
Income from operations 2,022,087 134,847
--------------------------------------------- ----------- -----------
Other expense (income)
--------------------------------------------- ----------- -----------
Interest expense 2,661 37,087
--------------------------------------------- ----------- -----------
Interest income (715) (348)
--------------------------------------------- ----------- -----------
Total other expense 1,946 36,739
--------------------------------------------- ----------- -----------
Income before income taxes 2,020,141 98,108
--------------------------------------------- ----------- -----------
Income tax expense 83,599 3,197
--------------------------------------------- ----------- -----------
Net income 1,936,542 94,911
--------------------------------------------- ----------- -----------
Basic income per share 0.10 0.00
--------------------------------------------- ----------- -----------
Diluted income per share 0.09 0.00
--------------------------------------------- ----------- -----------
Basic weighted average shares outstanding
(in shares) 19,530,031 19,498,865
--------------------------------------------- ----------- -----------
Diluted weighted average shares outstanding
(in shares) 20,448,415 20,077,680
--------------------------------------------- ----------- -----------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
six months to 30 June 2016 and 2015 (In US Dollars unless otherwise noted) UNAUDITED
2016 2015
US$ US$
------------------------------ ---------- ----------
Net income 1,936,542 94,911
------------------------------ ---------- ----------
Foreign currency translation 14,827 (228,238)
------------------------------ ---------- ----------
Comprehensive income (loss) 1,951,369 (133,327)
------------------------------ ---------- ----------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS's EQUITY
six months to 30 June 2016 and 2015 (In US Dollars unless otherwise noted) UNAUDITED
Lifeline Scientific, Inc. Stockholders
------------------- -------------------------------------------------------------------------------------------------
Other Accumulated
Additional Comprehensive Accumulated
Total Shares Par Value Paid-in Capital Loss Deficit
------------------- ----------- ----------- ---------- ------------------ ------------------ -------------------
US$ US$ US$ US$ US$
------------------- ----------- ----------- ---------- ------------------ ------------------ -------------------
Balance, 1 January
2015 23,261,074 19,496,434 194,964 93,549,662 (522,295) (69,961,257)
------------------- ----------- ----------- ---------- ------------------ ------------------ -------------------
Issuance of common
stock in
conjunction with
option exercise 11,903 20,000 200 11,703 - -
------------------- ----------- ----------- ---------- ------------------ ------------------ -------------------
Stock-based
compensation 113,608 - - 113,608 - - ------------------- ----------- ----------- ---------- ------------------ ------------------ ------------------- Foreign currency translation (228,238) - - - (228,238) - ------------------- ----------- ----------- ---------- ------------------ ------------------ ------------------- Net income 94,911 - - - - 94,911 ------------------- ----------- ----------- ---------- ------------------ ------------------ ------------------- Balance, 30 June 2015 23,253,258 19,516,434 195,164 93,674,973 (750,533) (69,866,346) ------------------- ----------- ----------- ---------- ------------------ ------------------ ------------------- Balance, 1 January 2016 35,417,185 19,530,031 195,300 93,708,324 (832,382) (57,654,057) ------------------- ----------- ----------- ---------- ------------------ ------------------ ------------------- Stock-based compensation 30,109 - - 30,109 - - ------------------- ----------- ----------- ---------- ------------------ ------------------ ------------------- Foreign currency translation 14,827 - - - 14,827 - ------------------- ----------- ----------- ---------- ------------------ ------------------ ------------------- Net income 1,936,542 - - - - 1,936,542 ------------------- ----------- ----------- ---------- ------------------ ------------------ ------------------- Balance, 30 June 2016 37,398,663 19,530,031 195,300 93,738,433 (817,555) (55,717,515) ------------------- ----------- ----------- ---------- ------------------ ------------------ -------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
six months to 30 June 2016 and 2015 (In US Dollars unless otherwise noted) UNAUDITED
2016 2015
US$ US$
----------------------------------------------- ------------ ------------
Cash flows from operating activities
----------------------------------------------- ------------ ------------
Net income 1,936,542 94,911
----------------------------------------------- ------------ ------------
Adjustments to reconcile net income to
net cash provided by operating activities:
----------------------------------------------- ------------ ------------
Depreciation and amortisation of property
and equipment 538,004 471,590
----------------------------------------------- ------------ ------------
Amortisation of intangibles 115,247 112,219
----------------------------------------------- ------------ ------------
Stock-based compensation 30,109 113,608
----------------------------------------------- ------------ ------------
Loss on disposal of property and equipment 3,351 3,979
----------------------------------------------- ------------ ------------
Loss on abandonment of intangibles - 35,539
----------------------------------------------- ------------ ------------
(Increase) decrease in:
----------------------------------------------- ------------ ------------
Receivables 1,571,558 2,487,086
----------------------------------------------- ------------ ------------
Inventories (1,706,680) (922,366)
----------------------------------------------- ------------ ------------
Prepaid expenses and deposits (331,235) (440,334)
----------------------------------------------- ------------ ------------
Other assets (53,357) 267,793
----------------------------------------------- ------------ ------------
Increase (decrease) in:
----------------------------------------------- ------------ ------------
Accounts payable 352,865 (1,186,997)
----------------------------------------------- ------------ ------------
Accrued expenses (757,671) (218,918)
----------------------------------------------- ------------ ------------
Deferred revenue 14,599 61,350
----------------------------------------------- ------------ ------------
Deferred rent 43,672 75,504
----------------------------------------------- ------------ ------------
Other liabilities (175,434) -
----------------------------------------------- ------------ ------------
Total adjustments (354,972) 860,053
----------------------------------------------- ------------ ------------
Net cash provided by operating activities 1,581,570 954,964
----------------------------------------------- ------------ ------------
Cash flows from investing activities
----------------------------------------------- ------------ ------------
Payments related to intangible assets
and legal fees
----------------------------------------------- ------------ ------------
associated with patent filings (625,892) (610,420)
----------------------------------------------- ------------ ------------
Capital expenditures (387,941) (505,524)
----------------------------------------------- ------------ ------------
Proceeds from sales of property and equipment 18,409 -
----------------------------------------------- ------------ ------------
Net cash used in investing activities (995,424) (1,115,944)
----------------------------------------------- ------------ ------------
Cash flows from financing activities
----------------------------------------------- ------------ ------------
Cash received from option exercises - 11,903
----------------------------------------------- ------------ ------------
Repayments under capital lease obligations,
net (7,037) (14,520)
----------------------------------------------- ------------ ------------
Principal payments on long-term debt - (2,106)
----------------------------------------------- ------------ ------------
Net cash used in financing activities (7,037) (4,723)
----------------------------------------------- ------------ ------------
Effect of foreign currency exchange rate
changes on cash (10,097) (106,053)
----------------------------------------------- ------------ ------------
Net increase (decrease) in cash and cash
equivalents 569,012 (271,756)
----------------------------------------------- ------------ ------------
Cash and cash equivalents, beginning of
period 6,905,251 3,323,777
----------------------------------------------- ------------ ------------
Cash and cash equivalents, end of period 7,474,263 3,052,021
----------------------------------------------- ------------ ------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General: The accompanying condensed consolidated financial statements of Lifeline Scientific, Inc. (the "Company") are unaudited and do not include all of the footnotes required by accounting principles generally accepted in the United States of America ("US GAAP"). In the opinion of management of the Company, these condensed consolidated financial statements contain all adjustments necessary for a fair presentation of the results for the interim periods presented. These statements should be read in conjunction with the Company's annual report as of and for the year ended 31 December 2015.
Principles of Consolidation: The Company was incorporated in the state of Delaware as Organ Recovery Systems, Inc. on 1 October 1998. On 20 December 2007, the Company changed its name to Lifeline Scientific, Inc. The Company is consolidated with the following wholly-owned subsidiaries:
ORS Europe, NV
Cell and Tissue Systems, Inc.
Organ Recovery Systems, Inc.
ORS Representacoes do Brasil LTDA
Intercompany balances and transactions have been eliminated in consolidation.
On 19 December 2014, the Company jointly formed Tissue Testing Technologies LLC ("T3") with another party. T3 was formed to meet regulatory requirements in order to obtain research grants from various government sources. Under the terms of the operating agreement, the Company owns 49% of T3 and the other party owns 51%. The Company has not made an investment in T3 as of 30 June 2016 and 2015. There are two receivables in other current assets at 30 June 2016 totalling US$22,234 for start-up loans made by the Company to T3. T3 made monthly payments of US$2,265 on these loans during the six months ended 30 June 2016 and 2015. The loans are expected to be paid off by 30 June 2017.
Cash and Cash Equivalents: The Company considers all money market accounts and short-term investments with an original maturity of three months or less and US Treasury money markets to be cash equivalents. The majority of cash and cash equivalents as of 30 June 2016 and 30 June 2015 were held through a single financial institution, and the balances held at times may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.
Receivables: Receivables are carried at original invoice or closing statement amount less estimates made for doubtful receivables. Management determines the allowance for doubtful accounts by reviewing and identifying troubled accounts on a monthly basis and by using historical experience applied to an aging of accounts. A receivable is considered to be past due if any portion of the receivable balance is outstanding for more than 90 days. The Company does not charge interest on past due receivables. Receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded when received.
Inventories: Inventories are valued at the lower of cost (first-in, first-out) or market.
Depreciation and Amortisation: The Company's policy is to depreciate or amortise the cost of property and equipment over the estimated useful lives of the assets using the straight-line method. The cost of leasehold improvements is amortised over the estimated useful lives, or the applicable lease term, if shorter.
Years
------------------------- ------
Computer equipment 3-5
------------------------- ------
Furniture and fixtures 5-7
------------------------- ------
Equipment under capital
lease 5-7
------------------------- ------
Laboratory equipment 3-7
------------------------- ------
Leasehold improvements 5-8
------------------------- ------
Tooling and moulds 1-15
------------------------- ------
Vehicles 5
------------------------- ------
Long-Lived Assets: Long-lived assets to be held are reviewed for events or changes in circumstances that indicate that their carrying value may not be recoverable. The Company periodically reviews the carrying value of long-lived assets to determine whether or not an impairment to such value has occurred. Management of the Company believes that no impairment of long-lived assets exists as of 30 June 2016 and 2015.
Intangibles: The cost of intangible assets is being amortised over the remaining lives of the assets acquired as follows:
Years
--------------------- ------
Certification marks 20
--------------------- ------
Patents 17
--------------------- ------
Licensing agreement 10
--------------------- ------
Professional and regulatory fees associated with obtaining the licenses that enable the Company to sell its products (i.e. certification marks) are capitalised and amortised over the shorter of the useful life of the related licenses or 20 years. Legal fees associated with filings for patents that are pending are capitalised if management believes that it is probable that such patent applications will be successful. Patent costs are not amortised until the patent is obtained. During the year ended 31 December 2010, the Company signed an agreement that allows for the licensing of technology to support the Company's product development efforts. The agreement is being amortised over the remaining estimated life of the licensed technology, or 10 years.
Goodwill: Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. In accordance with accounting for goodwill under US GAAP, goodwill is not amortised, but instead tested for impairment on an annual basis. The Company has applied Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2011-08, "Testing Goodwill for Impairment", in connection with the performance of the annual goodwill impairment test. Under FASB ASU 2011-08, entities are provided with the option of first performing a qualitative assessment on none, some, or all of its reporting units to determine whether further quantitative impairment testing is necessary. An entity may also bypass the qualitative assessment for any reporting unit in any period and proceed directly to the quantitative impairment test.
Goodwill must be tested on an annual basis or if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. During the six months ended 31 December 2015, the Company was not required to record any impairments to the carrying value of goodwill or indefinite-lived intangible assets. During the six months ended 30 June 2016 and 2015, the Company identified no events or circumstances that would trigger an interim assessment of goodwill.
Deferred Rent: Minimum rent expense is recognised over the term of the lease. The Company recognises minimum rent starting when possession of the property is taken from the landlord. When a lease contains a predetermined fixed escalation of the minimum rent, rent expense is recognised on a straight-line basis. Any difference between the recognised rent expense and the amounts payable under the lease is reported as deferred rent in the consolidated balance sheets. The Company records include a tenant allowance on its facility lease in Itasca, Illinois, which is recorded as a component of deferred rent and amortised as a reduction to rent expense over the term of the lease. Future payments for common area maintenance, insurance, real estate taxes, and other occupancy costs to which the Company is obligated are excluded from future minimum lease payments.
Fair Value of Financial Instruments: US GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. US GAAP describes three approaches to measuring the fair value of assets and liabilities: the market approach, the income approach, and the cost approach. Each approach includes multiple valuation techniques. US GAAP does not prescribe which valuation technique should be used when measuring fair value, but does establish a fair value hierarchy that prioritises the inputs used in applying the various techniques. Inputs broadly refer to the assumptions that market participants use to make pricing decisions, including assumptions about risk. Level 1 inputs are given the highest priority in the hierarchy while Level 3 inputs are given the lowest priority. Assets and liabilities carried at fair value are classified in one of the following three categories based on the nature of the inputs to the valuation technique used:
Level Observable inputs that reflect unadjusted quoted
1 - prices for identical assets or liabilities in active
markets as of the reporting date. Active markets
are those in which transactions for the asset or
liability occur in sufficient frequency and volume
to provide pricing information on an ongoing basis.
Level Observable market-based inputs or unobservable inputs
2 - that are corroborated by market data.
Level Unobservable inputs that are not corroborated by
3 - market data. These inputs reflect management's best
estimate of fair value using its own assumptions
about the assumptions a market participant would
use in pricing the asset or liability.
The carrying values of cash and cash equivalents, accounts receivable, and accounts payable approximate their fair values because of the short-term nature of these instruments. The carrying values of long-term debt and the revolving line of credit approximate their fair values as the stated interest rates approximate current market interest rates of long-term debt and revolving lines of credit with similar terms.
Product Warranty: Estimated future costs applicable to products sold under warranty are charged to expense in the year of sale and the related liability is classified as current. The accrued warranty liability as of 30 June 2016 and 2015 was $181,555 and $168,047, respectively.
Revenue Recognition: Product sales revenue is recognised upon shipment of product to the client. Service fee revenue is recognised when services are performed. Deferred and unbilled revenue is recognised in the consolidated balance sheets.
The Company sells extended warranties on its LifePort product for a specific period of months. This revenue is deferred and recognised over the term of the warranties on a straight-line basis.
Income Taxes: Income taxes are provided for the tax effects of transactions reported in the condensed consolidated financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of property and equipment, bad debts, intangibles, and accrued expenses for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. The carrying value of the Company's deferred tax assets is dependent upon its ability to generate sufficient taxable income in the future. The Company has established a valuation allowance against its net deferred tax assets to reflect the uncertainty of realising the deferred tax benefits, given historical losses and limited history of current earnings. A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realised. During the six months ended 31 December
2015, $6,800,000 of the valuation allowance was reversed to reflect the likelihood of future taxable income, which will most likely result in the utilisation of a portion of the Company's net operating losses. During the six months ended 30 June 2016, the Company determined no change to this estimate was required.
The Company is subject to US federal, state, and local taxes as well as foreign taxes in Belgium and Brazil. The Company's tax years extending back to the year ended 31 December 2011 remain open to examination for both federal and state jurisdictions; for foreign jurisdictions the Company's tax years extending back to December 31, 2012 remain open for examination. The Company's policy is to recognise interest and penalties related to uncertain tax positions as a component of income tax expense. During the six months ended 30 June 2016 and 2015, the Company did not recognise expense for interest and penalties. As of 30 June 2016 and 2015, the Company had $150,000 and $137,000, respectively, accrued for the payment of interest and penalties. The Company does not expect the total amount of unrecognised tax benefits to significantly change during the next 12 months.
The Company's condensed consolidated financial statements provide for any related US tax liabilities on earnings of foreign subsidiaries that may be repatriated, aside from qualifying undistributed earnings of certain foreign subsidiaries that are intended to be indefinitely reinvested in operations outside of the US.
The Company accounts for unrecognised tax benefits in accordance with US GAAP, which prescribes a more likely than not threshold for condensed consolidated financial statement presentation and measurement of a tax position taken or expected to be taken in a tax return. A tax position is recognised as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognised is the largest amount of tax benefit that is greater than 50% likely of being realised on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded.
Stock Options: In accordance with US GAAP, the Company accounts for the cost of employee services received in exchange for an award of equity instruments utilising the grant date fair value of the award. Stock-based awards that do not require future service (i.e., vested awards) are expensed immediately. The expense associated with stock-based employee awards that require future service are amortised over the relevant service period.
Management Estimates: The preparation of condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The estimates included by the Company in these condensed consolidated financial statements relate to warranty reserves, allowance for doubtful accounts, the allowance for excess and obsolete inventories, the useful lives of patents and the license agreement, the useful lives of depreciable property and equipment, and the valuation allowance for deferred tax assets.
Research and Development: Expenditures relating to the development of new products and procedures are expensed as incurred.
Foreign Currency Translation: The financial position and results of operations of the Company's foreign subsidiaries are measured using the subsidiary's local currency as the functional currency. Assets and liabilities of the foreign subsidiaries are translated to US dollars using exchange rates in effect as of the consolidated balance sheet dates. Income and expense items are translated at monthly average rates of exchange. The resultant translation gains or losses are included as part of the components of stockholders' equity designated as other comprehensive loss.
Contingencies: From time to time, the Company may experience litigation arising in the ordinary course of business. These claims are evaluated for possible exposure by management of the Company and their legal counsel. The company believes that the ultimate resolution of any such matters will not have a material adverse effect on its condensed consolidated financial position.
NOTE 2 - INVENTORIES
Inventories consist of the following as of 30 June 2016 and 2015:
2016 2015
US$ US$
--------------------------------------- ---------- ----------
Medical devices, parts, and solutions 6,960,452 6,004,709
--------------------------------------- ---------- ----------
Raw materials 534,214 1,015,567
--------------------------------------- ---------- ----------
Inventory reserve (707,230) (190,000)
--------------------------------------- ---------- ----------
Inventory, net 6,787,436 6,830,276
--------------------------------------- ---------- ----------
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of 30 June 2016 and 2015:
2016 2015
US$ US$
------------------------------------------- ------------ ------------
Property and equipment in progress 578,718 340,564
------------------------------------------- ------------ ------------
Computer equipment 666,103 626,386
------------------------------------------- ------------ ------------
Furniture and fixtures 856,970 832,946
------------------------------------------- ------------ ------------
Equipment under capital lease 107,415 109,468
------------------------------------------- ------------ ------------
Laboratory equipment 3,327,249 2,991,381
------------------------------------------- ------------ ------------
Leasehold improvements 1,251,425 1,134,308
------------------------------------------- ------------ ------------
Tooling and moulds 2,123,102 1,717,619
------------------------------------------- ------------ ------------
Vehicles 130,270 131,180
------------------------------------------- ------------ ------------
9,041,252 7,883,852
------------------------------------------- ------------ ------------
Accumulated depreciation and amortisation (5,644,620) (4,599,393)
------------------------------------------- ------------ ------------
Property and equipment, net 3,396,632 3,284,459
------------------------------------------- ------------ ------------
During the six months ended 30 June 2016 and 30 June 2015, the Company recognised property and equipment depreciation and amortisation expense of $538,004 and $471,590 respectively.
NOTE 4 - INTANGIBLES
Intangible assets consist of the following as of 30 June 2016 and 2015:
2016 2015
US$ US$
-------------------------------- ------------ ------------
Licensing agreement 141,931 141,931
-------------------------------- ------------ ------------
Regulatory certification fees 1,667,045 1,133,242
-------------------------------- ------------ ------------
Patents issued 2,756,935 2,519,092
-------------------------------- ------------ ------------
Patents pending 2,504,959 2,229,582
-------------------------------- ------------ ------------
7,070,870 6,023,847
-------------------------------- ------------ ------------
Less: Accumulated amortisation (1,362,569) (1,124,138)
-------------------------------- ------------ ------------
Intangibles, net 5,708,301 4,899,709
-------------------------------- ------------ ------------
During the six months ended 30 June 2016 and 30 June 2015, the Company recognised intangible amortisation expense of $115,247 and $112,219, respectively. During the six months ended 30 June 2016 and 30 June 2015, the Company abandoned patents issued and patents pending with an original cost of $0 and $35,539, respectively.
NOTE 5 - LINE OF CREDIT AGREEMENT
On 18 September 2014, the Company entered into a loan and security agreement with The PrivateBank and Trust Company ("PB"). The loan and security agreement provides for a revolving line of credit, not to exceed an aggregate principal amount of $6,000,000 but limited to qualifying receivables and inventories, as defined. The outstanding principal under the loan and security agreement accrues interest at PB's prime rate, as defined. The loan and security agreement contains financial covenants which require the Company to maintain a minimum tangible net worth, as defined, and a minimum fixed charge coverage ratio, as defined. The Company was in compliance with its financial covenants as of 30 June 2016 and 2015. As of 30 June 2016 and 2015, there was US$0 and US$2,171,147, respectively, outstanding on the revolving line of credit. The loan and security agreement is secured by substantially all assets of the Company, and expires 31 August 2016. PB has formal credit approval to increase the line of credit to $10,000,000 and extend maturity through 31 August 2017 with the remaining open items of legal documentation currently in process.
NOTE 6 - INCOME TAXES
At the end of its interim six month periods, the Company makes its best estimate of the annual expected effective income tax rate and applies that rate to its ordinary earnings or loss for each six month interim period. The income tax provision or benefit related to significant, unusual, or extraordinary items, if applicable, that will be separately reported or reported net of their related tax effects are individually computed and recognised in the six month interim period in which those items occur. In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realisability of a beginning of the year tax asset in future years or income tax contingencies is recognised in the six month interim period in which the change occurs.
The computation of the annual expected effective income tax rate at each six month interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax loss for the year, projections of the proportion of loss taxed in foreign jurisdictions, permanent and temporary differences, and the likelihood of the realisability of deferred tax assets generated in the current year. The accounting estimates used to compute the provision or benefit for income taxes may change as new events occur, more experience is acquired, additional information is obtained, or the Company's tax environment changes.
Income tax expense consists of the following components for the six months ended 30 June 2016 and 2015:
2016 2015
US$ US$
--------------------------- ------- ---------
Current expense (benefit)
--------------------------- ------- ---------
Federal 32,822 (27,739)
--------------------------- ------- ---------
Foreign 30,777 10,936
--------------------------- ------- ---------
State 20,000 20,000
--------------------------- ------- ---------
Total income tax expense 83,599 3,197
--------------------------- ------- ---------
The net deferred tax assets (liabilities) in the accompanying condensed consolidated balance sheets include the following components as of 30 June 2016 and 2015:
2016 2015
US$ US$
-------------------------- ------------ -------------
Deferred tax liabilities (1,959,658) (1,635,716)
-------------------------- ------------ -------------
Deferred tax assets 20,691,888 22,213,229
-------------------------- ------------ -------------
Net deferred tax assets 18,732,230 20,577,513
-------------------------- ------------ -------------
Valuation allowance (8,592,545) (17,237,828)
-------------------------- ------------ -------------
Net deferred tax assets 10,139,685 3,339,685
-------------------------- ------------ -------------
The income tax benefit differs from the federal statutory tax rate generally as a result of changes in each jurisdiction's valuation allowance and permanent differences, such as meals and entertainment expenses. A valuation allowance has been provided to reduce the deferred tax assets to the amount that is more likely than not to be realised.
As of 30 June 2016, the Company has federal and state net operating loss carryforwards totalling $56,238,000, which may be used to offset future taxable income. If not used, the carryforwards will expire as follows:
Year US $ -------------------------- ----------- 2022 892,000 -------------------------- ----------- 2023 7,720,000 -------------------------- ----------- 2024 6,412,000 -------------------------- ----------- 2025 11,136,000 -------------------------- ----------- 2026 12,197,000 -------------------------- ----------- 2027 14,131,000 -------------------------- ----------- 2028 3,750,000 -------------------------- ----------- Total loss carryforwards 56,238,000 -------------------------- -----------
As a result of changes in ownership at the IPO date, the Company estimates there will be future limitations on the utilisation of operating loss carryforwards pursuant to Internal Revenue Code Section 382. Any unused annual loss limitation carries forward to a future year. The annual limitation on loss carryforwards that could be utilised is approximately $2,600,000 after the six months ending 30 June 2016 and 30 June 2015. Additionally, the cumulative unused loss limitation, which carried into the year ended 31 December 2015, was approximately $18,267,000.
NOTE 7 - STOCK OPTIONS
A summary of option activity under the Second Amended and Restated Stock Option and Restricted Stock Plan (the "2007 Plan") as of 30 June 2016 and 2015, and the changes during the six months ended 30 June 2016 and 2015 is as follows:
Weighted- Weighted-
Average Average Aggregate
Exercise Remaining Intrinsic
Number Price Contractual Value
of Shares GBP Term GBP
----------------------------- ---------- ---------- ------------ ----------
Outstanding as of 1 January
2015 2,071,640 1.30 5.37 688,156
----------------------------- ---------- ---------- ------------ ----------
Exercised (20,000) 0.39
----------------------------- ---------- ---------- ------------ ----------
Forfeitures (4,375) 2.13
----------------------------- ---------- ---------- ------------ ----------
Expirations (4,000) 1.90
----------------------------- ---------- ---------- ------------ ----------
Outstanding as of 30 June
2015 2,043,265 1.30 4.87 1,306,908
----------------------------- ---------- ---------- ------------ ----------
Outstanding as of 1 January
2016 1,963,640 1.29 4.41 1,312,825
----------------------------- ---------- ---------- ------------ ----------
Granted 15,000 1.90
----------------------------- ---------- ---------- ------------ ----------
Forfeitures (1,750) 1.43
----------------------------- ---------- ---------- ------------ ----------
Expirations (1,750) 1.43
----------------------------- ---------- ---------- ------------ ----------
Outstanding as of 30 June
2016 1,975,140 1.29 3.95 3,181,124
----------------------------- ---------- ---------- ------------ ----------
Vested or expected to vest
as of 30 June 2016 1,973,427
----------------------------- ---------- ---------- ------------ ----------
Options exercisable as of
30 June 2016 1,904,438
----------------------------- ---------- ---------- ------------ ----------
The Company recognised compensation expense of $30,109 and $113,608 for the six months ended 30 June 2016 and 2015, respectively. As of 30 June 2016, there was approximately $47,743 of total unrecognised compensation cost related to nonvested share-based compensation arrangements granted under the 2007 Plan. That cost is expected to be recognised over a weighted-average period of 0.6 years.
NOTE 8 - EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share include the dilutive effect of stock options and warrants, using the treasury stock method. The following table sets forth the computation of basic and diluted earnings per share for the six months ended 30 June 2016 and 2015:
2016 2015
US$ US$
---------------------------------------------------- ----------- -----------
Net income attributed to common stock shareholders 1,936,542 94,911
---------------------------------------------------- ----------- -----------
Weighted average shares outstanding for
basic earnings per share 19,530,031 19,498,865
---------------------------------------------------- ----------- -----------
Dilutive effect of stock options 918,384 578,815
---------------------------------------------------- ----------- -----------
Weighted average shares outstanding for
diluted earnings per share 20,448,415 20,077,680
---------------------------------------------------- ----------- -----------
Basic income per share 0.10 0.00
---------------------------------------------------- ----------- -----------
Diluted income per share 0.09 0.00
---------------------------------------------------- ----------- -----------
NOTE 9 - RELATED PARTY TRANSACTIONS
During the year ended 31 December 2010, the Company entered into a consulting agreement with a company in which Steven Mayer, a former member of the Company's Board of Directors, is a director. Mr. Mayer performed the consulting services. Fees for services rendered under the consulting agreement were $7,500 for the six months ended 30 June 2015. Mr. Mayer ceased to be a Director of the Company on 25 June 2015.
Additionally, during the six months ended June 2016 and 2015, the Company did business with a company in which David Kravitz and Steven Mayer are directors and have an ownership interest. Fees for research and development related products and services rendered were $0 and $65,000 for the six months ended 30 June 2016 and 2015, respectively. These payments represented expensed products and services of $0 and $15,000 for the six months ended 30 June 2016 and 2015, respectively, and asset purchases of $0 and $50,000, respectively.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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September 14, 2016 12:13 ET (16:13 GMT)
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