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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Lifeline Sci. S | LSE:LSI | London | Ordinary Share | COM SHS USD0.01 (REG S) |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 137.00 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
TIDMLSI
RNS Number : 9507C
Lifeline Scientific, Inc
23 April 2013
23 April 2013
Lifeline Scientific, Inc.
("Lifeline" or "the Company")
Results for the Twelve Months Ended 31 December 2012
- Significant progress in geographical expansion and product development -
Lifeline Scientific, the medical technology company, announces results for the twelve months ended 31 December 2012. Lifeline is focused on developing technologies to help improve clinical outcomes in transplantation. Its lead product, LifePort(R) Kidney Transporter, is a clinically proven, market leading renal preservation and transport system designed to address the global challenge of human donor organ shortages.
Financial Highlights
-- Total Revenue for the period US$30.2 million (2011: US$25.4 million) with Revenue from Transplantation products and services increased by 20% to US$29.1 million (2011: US$24.2 million)
o Revenue from single-use disposables increased by 20% to US$27.8 million (2011: US$23.1 million)
-- Revenue from outside North America increased 140% from US$2.2 million to US$5.3 million, driven by investments targeted at geographic expansion
o Initial sales of US$1.3 million recorded in Brazil
-- Gross Profit increased 12.8% to US$18.3 million (2011: US$16.2 million) demonstrating the underlying growth in the business
-- Operating profit decreased to US$0.1 million (2011: US$1.9 million), or US$1.3 million before non-recurring items, reflecting planned strategic investments in product development and geographic expansion
o R&D spending increased to US$3.2 million in 2012 (2011: US$2.4 million), reflecting the progression of the LifePort Liver Transporter development
-- Cash of US$5.7 million at the period end (2011: US$9.4 million)
Operational Highlights
-- Commenced the sale of LifePort Kidney Transporter 1.1 which includes several important new features including embedded GPS and enhanced data capture of key organ performance measures
-- Regulatory approval received from Brazil for the company's complete line of products and first commercial sales recorded despite ANVISA public strike in June-September 2012
o First two LifePort clinical programmes in Brazil were established in the states of Ceara and Rio
-- Regulatory approval received at year-end in the nation of Colombia, a growing market in renal transplantation, for LifePort Kidney Transporter, disposables and solution product line
-- Progressed LifePort's full portfolio of products through SFDA registration in China in 2012, with approval anticipated for summer 2013, and pre-approval sales recorded
-- Commercial prototype of LifePort Liver Transporter presented at the 24th International Congress of The Transplantation Society in Berlin
-- Secured a national UK tender for an initial 2400 litre order of Lifeline's SPS-1, a market leading solution used in organ transplant procedures, and invitation to bid on UK national multi-year tender
David Kravitz, Chief Executive Officer of Lifeline, said:
"2012 has been an important year for Lifeline, during which we have made significant progress towards our twin growth objectives of geographical expansion for our LifePort Kidney Transporter product line and continued efforts to deliver market-driven enhancements to our existing product lines and develop new products.
I have been particularly satisfied with the regulatory and commercial traction we achieved in Brazil, where the attainment of regulatory approval for our full suite of LifePort Kidney Transporter products enabled nation-wide market access and the recording of our first sales in one of the world's largest national transplant markets. Likewise, our efforts toward obtaining regulatory clearances in China for our full suite of Kidney transplant products have progressed well. I am also pleased to say that the commercial prototype of LifePort Liver Transporter was presented for the first time at the 24th International Congress of The Transplantation Society in Berlin and received a strong positive reception, marking a meaningful step in our commitment to developing additional technologies to improve donor organ availability and transplantation outcomes.
I remain confident that the marked increase in sales recorded outside of North America, along with the progress made on key product development efforts underscores the importance of the strategic investments we have made throughout 2012 and how these investments can accelerate revenue growth, profitability and shareholder value."
For further information please contact:
Lifeline Scientific, Inc. +1 847-294-0300 David Kravitz, CEO Panmure Gordon +44 (0)20 7886 2500 Freddy Crossley (Corporate Finance) Adam Pollock / Victoria Boxall (Corporate Broking) FTI Consulting Simon Conway / John Dineen +44 (0)20 7831 3113
About LifePort Kidney Transporter
Created with the challenges of organ recovery and transport in mind, LifePort Kidney Transporter is a proprietary medical device designed to provide improved kidney preservation, evaluation and transport prior to transplantation. Today, it is widely recognised as the world's leading machine preservation device for kidneys. Employed by surgeons in over 140 leading transplant programmes in 25 countries worldwide, LifePorts have successfully preserved over 40,000 kidneys intended for clinical transplant. The product provides a sealed, sterile, protected environment where a solution is gently pumped through the kidney at cold temperatures to minimise damage while the organ is outside the body. LifePort is lightweight and portable, allowing organs to be perfused from the time of recovery until transplant. It is designed to travel unaccompanied by land or air, safely transporting the kidneys across town or between countries. While the kidney is being perfused, LifePort records data on temperature, flow rate, vascular resistance and pressure every 10 seconds providing surgeons with additional data prior to transplant. LifePort is the only system with clinical outcomes data produced from an independent, prospective, randomised, statistically powered, multi-centre clinical trial. Study results have been widely published in scientific journals, including the New England Journal of Medicine. Data indicates that patients receiving LifePort preserved kidneys experienced significant reduction in the incidence and duration of delayed graft function and increased graft survival at 1-year and 3-years post transplant. LifePort has also been recognised for its design and engineering. It has received prominent awards for design excellence from the medical device industry, has been selected for exhibition at the Smithsonian Cooper-Hewitt, National Design Museum and is part of the permanent Collection of The Museum of Modern Art (MoMA) in New York City.
Upcoming events
Expected mailing date for the annual report: 14th May 2013. It will also be available on the Company website, www.lifeline-scientific.com.
Date of Annual General Meeting: 12th June 2013.
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 is the market-leading and clinically validated LifePort Kidney Transporter. Devices for preservation of the liver, pancreas, heart and lung are in late stage pre-clinical development.
Chairman's Statement
I am pleased to report that 2012 was another year of strong growth and positive new development for Lifeline Scientific. Increased sales of LifePort Kidney Transporter and related consumables, together with significant expansion of our organ preservation solution business, continued to drive revenue growth, with revenue increasing by 20% to US$29.1 million.
We continue to extend our global reach and top line growth, which was advanced by expanding global usage of our core LifePort business. While North American revenue increased by 8% to US$23.8 million, I am pleased to note that revenue from outside North America increased significantly, by 140% to US$5.3 million. This performance reflects the immense efforts and planned, targeted investments we made to expand into high growth emerging markets.
Gross profit increased 12.8% to US$18.3 million (2011: US$16.2), demonstrating the underlying growth in business. Operating profit, however, decreased to US$0.1 million (2011: US$1.9 million), or US$1.3 million before non-recurring items (being US$1.2 million spent in 2012 on the prosecution of a lawsuit against a competitor and former vendor to the Company). This profit decrease reflects planned strategic investments in product development and geographic expansion, particularly the LifePort Liver Transporter. At year end, we had cash in hand of US$5.7 million (2011: US$9.4 million).
Geographic Expansion
We achieved regulatory approval for the full LifePort product line in Brazil (April 2012), leading to first-year sales of US$1.3 million (2011: US$nil). Although nation-wide labour strikes effectively stopped our commercial activities for several months, by year-end, we had established four LifePort clinical sites in Brazil. We are now well positioned for growth within Brazil and expansion into other South American countries.
We collaborated with our China-based distributor to support a national LifePort Kidney Transporter demonstration study across seven leading transplantation centres. China's State Food and Drug Administration (SFDA) regulatory filings for our complete LifePort and related product lines were advanced during 2012, with an aim for full approval during 2013. China represents a potentially significant new LifePort market for the Company.
Europe remains an important growth market for the Company, as the practice of machine perfusion for kidneys continues to expand in the region. The introduction of a national programme for machine perfusion of all ECD kidneys in France was a welcome development that should help progress our efforts in this important market.
Product Development
This year, record R&D expenditure of US$3.2 million (2011: US$2.4 million) enabled us to make meaningful advances in developing innovative, state-of-the-art solutions to help improve the field of transplantation medicine. We delivered our first upgrades to the LifePort Kidney Transporter platform, and in July, the Company presented the first commercial prototype of our LifePort Liver Transporter at an international transplant congress in Berlin. Following design advancements based upon clinician inputs from Berlin and focus groups in North America, preparations for regulatory filings within the US and EU began with formal submissions planned for 1H13.
Outlook
Lifeline Scientific is dedicated to developing technologies that support the global transplantation community in their mission to improve outcomes, and ultimately, the lives of those patients on transplant waiting lists. We believe we have reached a peak in our R&D investment, and expect the prudent investments made in product development and emerging markets to strengthen our market leadership and enable us to continue to build on our significant commercial traction, yielding profits and value for our investors in the future.
Chief Executive Officer's review
Excellent revenue growth across our core transplantation products and services was driven in large part by a sharp increase in sales growth outside of North America, where our existing business remains strong.
During 2012 we continued our recent trend focusing on activities targeted at supporting expansion of our LifePort Kidney Transporter business into new geographical territories, product line extensions and market-driven new product development.
The Company's accomplishments in 2012 were guided by three unchanged strategic initiatives:
-- Driving continued expansion into key geographic transplant markets
-- Responding to unmet clinical needs and a changing regulatory environment through technology innovation
-- Securing our market leadership through strategic investments and sustainable revenue growth
2012 was a year in which we began to see meaningful returns on recent investments in geographical expansion. Strong revenue growth across our product and service offering was driven in large part by a sharp increase in sales growth outside of North America. While North American revenue increased 8%, revenue from outside North America increased by 140%.
We also remain committed to investing in developments that offer the potential to both reduce the overall cost of medicine, and improve transplantation outcomes for patients, while providing Lifeline Scientific with a strong foundation for long-term growth and financial strength. This commitment is evidenced by our on-going work on the development of the LifePort Liver Transporter, as revealed in its commercial prototype format, presented at the 24th International Congress of the Transplantation Society in Berlin in July, 2012.
Driving Continued Expansion into Key Geographic Transplant Markets
Our significant increase in revenue outside North America was hard earned and represents good progress. Throughout 2012 we continued to invest in staff and infrastructure aimed at supporting increased worldwide utilisation of our LifePort Kidney Transporter. We believe these investments will enable continued growth and capability to respond nimbly to new market opportunities for our LifePort platform.
South America
Notably, ANVISA regulatory approval in Brazil for our full product line was a key development during 2012. Brazil is a key emerging market in transplant medicine and the Company made a strong start to establish its market presence. Notwithstanding a nationwide labour strike lasting several months that interrupted our product launch, we recorded our first commercial sales for LifePort Kidney Transporters and related consumables (US$1.3 million), facilitated by leading transplant programmes in the major hospitals of Rio de Janeiro, Fortaleza and Saõ Paulo. Importantly, initial reports by Brazilian clinicians employing LifePort were gratifying, as significant improvements in post-transplant outcomes were reported, including meaningful reductions in delayed graft function of transplanted kidneys. We continue to believe that the Brazilian market offers substantial potential for Lifeline Scientific's products and services in the coming years.
We are well positioned to accelerate growth in Brazil and other South American countries through our Saõ Paulo-based office. At the end of 2012, we received approval for product registration in the nation of Colombia, a growing renal transplant market, for our full line of products, including LifePort Kidney Transporter, related disposables and organ preservation and flush solutions.
China
China has recently emerged as a promising, growth market for transplantation. 2012 was a year of strong progress for our efforts in China. Through transformational new legislation (Regulation on Human Organ Transplantation), well-funded programmes and a national commitment to developing an ethical and sustainable organ transplantation system for its public, China appears to be on track for achieving their aims of establishing improvements in organ donation and allocation and becoming a responsible member of the global transplantation community. We fully support their efforts in this regard and have witnessed significant progress.
During 2012, with the support of our mainland China based distribution partners, we helped initiate a successful LifePort Kidney Transporter demonstration study in seven transplant centres across China. Product registration with the State Food and Drug Administration (SFDA) for all our products made good progress during 2012. Market development activities are continuing, ahead of anticipated SFDA approvals and a potential market launch of LifePort Kidney Transporter in the second half of 2013.
Europe
We continue to focus on securing reimbursement and expanding the use of LifePort Kidney Transporter within key European markets. The nation of France established reimbursement for the perfusion of ECD kidneys, a significant development in an important European growth market for Lifeline Scientific. Market access negotiations in Germany also advanced, creating an opportunity for LifePort Kidney Transporter's potential adoption during 2013/2014.
In the UK, the Company secured a national tender for a substantial order of our branded organ preservation and flush solution SPS-1, boosting overall sales.
Responding to Clinical Needs and a Changing Regulatory Environment Through Technology Innovation
Lifeline Scientific is fully committed to the development of product innovations that enable the global transplant community we serve to address unmet needs, transform transplantation outcomes and lower the overall cost of medicine. To this end, we collaborate on projects with transplant research centres around the world. These range from finding big-data solutions to address global, clinical challenges such as post-transplant patient adherence to developing technologies that help improve both the quality and availability of donor organs.
As a result of continued investment in activities aimed at consolidating our market leading position in renal preservation and transport, and the development of new products, most notably our LifePort Liver Transporter, R&D expenditure increased to US$3.2 million in 2012.
During 2012 we made significant progress in developing our LifePort Liver Transporter. In July, we unveiled the first commercial prototype to the European clinical transplant community. This was an important development milestone that also provided opportunity for meaningful clinician feedback. We remain on track with integration of clinician-driven technological enhancements and preparations for US and EU regulatory filings.
We also reached key development milestones for our Universal SealRing cannula, a product designed to enable LifePort use with living donor kidneys and improve support for a variety of renal vasculature. Important progress was also made in the development of LifePort embedded technology that delivers measured levels of oxygen in solution and real-time point of care assays for perfusate-based markers of renal and hepatic damage.
Other R&D highlights include the completion and first sales of our upgraded LifePort Kidney 1.1 Transporters, with important features including embedded GPS, enhanced data capture of key organ performance parameters and state-of-the-art digital displays.
We are confident that our focus on strategic investments in research and development will provide opportunity for the creation of improved products to serve the clinical needs of transplantation, successful expansion of the LifePort brand and strengthening of our global market leadership position.
Securing our Market Leadership Through Strategic Investments and Sustainable Revenue Growth
We believe revenue within our core franchise of kidney transplantation will continue the positive growth trend of previous years. While our planned investments in geographic expansion, existing product enhancements and new product development resulted in higher operating and development costs for 2012 compared to 2011, we believe these expenditures were prudent and timely, and will result in meaningful revenue growth and profitability.
Our Future
The future for Lifeline Scientific and our LifePort brand is strong, and we remain optimistic about continued growth. As global demand for organ transplants continues to increase, market and technological drivers create compelling requirements for scientifically proven solutions to improve donor organ availability and transplantation outcomes.
Whether through new product development, geographic expansion or strategic acquisitions, we are committed to achieving sustainable profitable growth, while supporting the global transplant community in their efforts to save the lives of patients suffering from end-stage organ disease.
We are moving into an exciting stage of the Company's growth that expects to see reduced R&D spend with an increased focus on commercial sales and marketing. Investments we have undertaken to further strengthen our market leadership will continue to afford us significant opportunity to build profits and value for our investors in the short, medium and longer-term.
David Kravitz
Chief Executive Officer
Consolidated Balance Sheets
31 December 2012 and 2011
2012 2011 US$ US$ ------------------------------------------------- ------------- ------------- Current Assets Cash and cash equivalents 5,746,406 9,352,480 Receivables Customers (Net of allowance for doubtful accounts of US$2,693 and US$2,644 as of 31 December 2012 and 2011, respectively) 5,444,416 3,865,307 Employees 1,014 3,941 Grant 67,752 106,065 Inventories 4,409,579 1,871,344 Deferred tax assets 16,285 16,285 Income taxes receivable - 183,057 Prepaid expenses and deposits 1,066,717 978,256 Total Current Assets 16,752,169 16,376,735 ------------------------------------------------- ------------- ------------- Non-current Assets Property and equipment (Net of accumulated depreciation and amortisation) 2,501,349 1,438,331 Intangibles (Net of accumulated amortisation) 2,812,820 2,230,913 Deferred tax assets 1,023,400 1,023,400 Goodwill 64,710 64,710 Other 123,805 110,212 ------------------------------------------------- ------------- ------------- Total Non-current Assets 6,526,084 4,867,566 ------------------------------------------------- ------------- ------------- Total Assets 23,278,253 21,244,301 ------------------------------------------------- ------------- ------------- Current Liabilities Accounts payable 2,438,654 1,276,053 Long-term debt due within one year 181,568 6,568 Capital lease obligations due within one year 26,316 32,285 Accrued expenses Salaries and other compensation 1,149,918 678,468 Other 502,412 853,304 Income taxes payable 103,043 - Deferred rent 44,989 44,532 Deferred revenue 307,148 44,144 ------------------------------------------------- ------------- ------------- Total Current Liabilities 4,754,048 2,935,354 ------------------------------------------------- ------------- ------------- Non-current Liabilities Long-term debt (Net of portion included in current liabilities) 1,189,336 961,749 Deferred rent (Net of portion included in current liabilities) 271,399 133,526 Accrued interest 330,380 253,780 Capital leases (Net of portion included in current liabilities) 2,625 29,989 ------------------------------------------------- ------------- ------------- Total Non-current Liabilities 1,793,740 1,379,044 ------------------------------------------------- ------------- ------------- Total Liabilities 6,547,788 4,314,398 ------------------------------------------------- ------------- ------------- Lifeline Scientific, Inc. Stockholders' Equity Common stock, US$0.01 par value; authorised - 30,000,000 shares; issued and outstanding 19,424,959 shares as of 31 December 2012 and 2011 194,249 194,249 Additional paid-in capital 94,045,479 93,786,981 Other accumulated comprehensive loss (250,283) (256,031) Accumulated deficit (76,359,173) (76,148,329) ------------------------------------------------- ------------- ------------- Total Lifeline Scientific, Inc. Stockholders' Equity 17,630,272 17,576,870 Non-controlling interest (899,807) (646,967) ------------------------------------------------- ------------- ------------- Total Stockholders' Equity 16,730,465 16,929,903 ------------------------------------------------- ------------- ------------- Total Liabilities and Stockholders' Equity 23,278,253 21,244,301 ------------------------------------------------- ------------- -------------
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Statements of Operations
Years Ended 31 December 2012 and 2011
2012 2011 US$ US$ ---------------------------------------------------- ------------ ------------ Revenue Product sales and service fee revenue 29,130,623 24,175,115 Grant revenue 1,021,220 1,215,989 ---------------------------------------------------- ------------ ------------ Total Revenue 30,151,843 25,391,104 Cost of Revenue 11,870,438 9,181,055 ---------------------------------------------------- ------------ ------------ Gross Profit 18,281,405 16,210,049 ---------------------------------------------------- ------------ ------------ Operating Expense Research and development 3,173,614 2,387,739 Selling, general, and administrative 14,785,706 11,816,377 Loss from disposals of property and equipment 52,623 9,566 Loss from abandonment of patents 142,015 105,622 ---------------------------------------------------- ------------ ------------ Total Operating Expense 18,153,958 14,319,304 ---------------------------------------------------- ------------ ------------ Income from Operations 127,447 1,890,745 ---------------------------------------------------- ------------ ------------ Other Expense (Income) Change in fair value of warrants - (599,264) Interest expense 85,725 89,744 Interest income (4,177) (6,311) Total Other Expense (Income) 81,548 (515,831) ---------------------------------------------------- ------------ ------------ Income Before Income Taxes 45,899 2,406,576 Income Tax Expense (Benefit) 509,583 (871,464) ---------------------------------------------------- ------------ ------------ Net (Loss) Income (463,684) 3,278,040 Less: Net Loss Attributable to Non-controlling Interest 252,840 197,073 ---------------------------------------------------- ------------ ------------ Net (Loss) Income Attributable to Lifeline Scientific, Inc. (210,844) 3,475,113 ---------------------------------------------------- ------------ ------------ Basic (loss) earnings per share (0.01) 0.18 ---------------------------------------------------- ------------ ------------ Diluted (loss) earnings per share (0.01) 0.17 ---------------------------------------------------- ------------ ------------ Basic weighted average shares outstanding (in shares) 19,424,959 19,415,075 ---------------------------------------------------- ------------ ------------ Diluted weighted average shares outstanding (in shares) 20,088,631 20,245,760 ---------------------------------------------------- ------------ ------------
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Statements of Comprehensive (Loss) Income
Years Ended 31 December 2012 and 2011
2012 2011 US$ US$ ------------------------------------------ ----------- ----------- Net (Loss) Income (463,684) 3,278,040 Foreign Currency Translation 5,748 (12,306) ------------------------------------------ ----------- ----------- Comprehensive (Loss) Income (457,936) 3,265,734 Comprehensive Loss Attributable to Non-controlling Interest (252,840) (197,073) ------------------------------------------ ----------- ----------- Comprehensive (Loss) Income Attributable to Lifeline Scientific, Inc. (205,096) 3,462,807 ------------------------------------------ ----------- -----------
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Statements of Changes in Stockholders' Equity
Years Ended 31 December 2012 and 2011
Lifeline Scientific, Inc. Stockholders Other Additional Ac-cumulated Par Paid-in Comprehen- Accumulated Non-controll-ing Total Amount Capital sive Loss Deficit Interest US$ Shares US$ US$ US$ US$ US$ Balance, 1 January 2011 13,295,322 19,297,197 192,972 93,419,411 (243,725) (79,623,442) (449,894) -------------- ------------- ------------- ---------- ------------- ------------- --------------- ------------------ Issuance of common stock related to cash and cashless warrant exercises 87,484 92,012 919 86,565 - - - Issuance of common stock in conjunction with option exercises 22,115 35,750 358 21,757 - - - Professional fees in conjunction with equity financing (1,588) - - (1,588) - - - Stock-based compensation 260,836 - - 260,836 - - - Foreign currency translation (12,306) - - - (12,306) - - Net income (loss) 3,278,040 - - - - 3,475,113 (197,073) -------------- ------------- ------------- ---------- ------------- ------------- --------------- ------------------ Balance, 31 December 2011 16,929,903 19,424,959 194,249 93,786,981 (256,031) (76,148,329) (646,967) -------------- ------------- ------------- ---------- ------------- ------------- --------------- ------------------ Stock-based compensation 258,498 - - 258,498 - - - Foreign currency translation 5,748 - - - 5,748 - - Net loss (463,684) - - - - (210,844) (252,840) Balance, 31 December 2012 16,730,465 19,424,959 194,249 94,045,479 (250,283) (76,359,173) (899,807) -------------- ------------- ------------- ---------- ------------- ------------- --------------- ------------------
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Statements of Cash Flows
Years Ended 31 December 2012 and 2011
2012 2011 US$ US$ -------------------------------------------- ------------ ------------ Cash Flows from Operating Activities Net (Loss) Income (463,684) 3,278,040 -------------------------------------------- ------------ ------------ Adjustments to reconcile net (loss) income to net cash used in operating activities Depreciation 569,661 319,934 Amortisation 87,079 121,815 Change in fair value of warrants - (599,264) Stock-based compensation 258,498 260,836 Loss on disposals of property and equipment 52,623 9,566 Loss on abandonment of patents 142,015 105,622 Deferred taxes - (1,039,685) (Increase) decrease in Receivables (1,542,288) (883,126) Inventories (2,535,208) (239,695) Prepaid expenses and deposits (44,486) (510,504) Other assets 149,853 (243,883) Increase (decrease) in Accounts payable 1,148,439 (1,077,634) Accrued expenses 233,245 305,060 Accrued interest 71,556 (5,549) Deferred revenue 262,539 (70,832) Deferred rent 138,330 (47,274) Total Adjustments (1,008,144) (3,594,613) -------------------------------------------- ------------ ------------ Net Cash Used in Operating Activities (1,471,828) (316,573) -------------------------------------------- ------------ ------------ Cash Flows from Investing Activities Payments of legal fees associated with patent filings (811,001) (645,136) Capital expenditures (1,685,848) (812,420) Proceeds from sales of property and equipment - 6,684 -------------------------------------------- ------------ ------------ Net Cash Used in Investing Activities (2,496,849) (1,450,872) -------------------------------------------- ------------ ------------ Cash Flows from Financing Activities (Repayments) borrowings under capital lease obligations, net (34,095) 13,918 Cash received from warrant exercises - 35,282 Cash received from option exercises - 22,115 Borrowings of long-term debt 525,000 - Principal payments on long-term debt (139,788) (8,517) Payments of financing fees - (1,588) Net Cash Provided By Financing Activities 351,117 61,210 -------------------------------------------- ------------ ------------ Effect of Foreign Currency Exchange Rate Changes on Cash 11,486 (9,333) -------------------------------------------- ------------ ------------ Net Decrease in Cash and Cash Equivalents (3,606,074) (1,715,568) Cash and Cash Equivalents, Beginning of Year 9,352,480 11,068,048 -------------------------------------------- ------------ ------------ Cash and Cash Equivalents, End of Year 5,746,406 9,352,480 -------------------------------------------- ------------ ------------
The accompanying notes are an integral part of the consolidated financial statements.
Note 1 - Industry Operations
Lifeline Scientific, Inc. (the "Company") is a US corporation whose common shares trade publicly on the AIM Market on the London Stock Exchange (AIM:LSI.c and LSI.s). The Company is in the business of delivering, to targeted medical markets, a portfolio of related proprietary technologies, which include devices, solutions, and protocols designed to maximise the use and availability of organs, tissues, and cells. The Company serves the kidney transplant market today with its LifePort product line, and also sells solutions to service the broader organ transplant industry. All sales are generated from US manufacturing. Approximately 80% of the Company's sales are to US customers. Of the Company's long-lived assets, approximately 96% are within the US. A LifePort Liver product line is planned for a commercial launch during the year ending 31 December 2014, and other organ-related products are in development. The Company views itself as operating as one segment.
Note 2 - Summary of Significant Accounting Policies
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 subsidiaries:
Bowman Research, Inc. * (inactive after 31 December 2009)
ORS Europe, NV *
Cell and Tissue Systems, Inc. **
Organ Recovery Systems, Inc. *
ORS Representacoes do Brasil LTDA*
* A wholly-owned subsidiary
** 49% owned
Intercompany balances and transactions have been eliminated in consolidation.
The Consolidation Topic of accounting principles generally accepted in the US ("US GAAP") requires consolidation by the primary beneficiary where the variable interest entity does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties. The application of this guidance resulted in the consolidation of Cell and Tissue Systems, Inc. ("CTS"), which was created during the year ended 31 December 2005 and was deemed to be a variable interest entity. CTS was primarily formed to meet regulatory requirements in order to enhance its ability and capacity to apply for funding from available government sources. All grant revenue reported in the consolidated statements of operations is related to CTS, and this constitutes all of CTS' revenue. The Company contributed US$490 for the 49% ownership needed to form the variable interest entity. CTS has an accumulated deficit as of 31 December 2012 and 2011.
In accordance with the requirements of the accounting standard under US GAAP that establishes accounting and reporting standards for non-controlling interests in a subsidiary in consolidated financial statements, the Company classifies the non-controlling interest of CTS within the equity section of the consolidated balance sheets and separately reports the amounts attributable to controlling and non-controlling interests in the consolidated statements of operations for all periods presented.
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 31 December 2012 and 2011 were held through a single financial institution, and the balances held at times 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 of the Company 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 31 December 2012 and 2011.
Intangibles
The cost of intangible assets are being amortised over the remaining lives of the assets as follows:
Years ------ Patents 17 License agreement 10
Legal fees associated with filings for patents that are pending are capitalised if management of the Company 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 ten 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 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 years ended 31 December 2012 and 2011, the Company was not required to record any impairments to the carrying value of goodwill or indefinite-lived intangible assets.
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 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 1 - Observable inputs that reflect unadjusted quoted 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 2 - Observable market-based inputs or unobservable inputs that are corroborated by market data.
-- Level 3 - Unobservable inputs that are not corroborated by 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 approximates their fair values because of the short-term nature of these instruments. The carrying value of long-term debt approximates its fair values as the stated interest rates approximate current market interest rates of long-term debt 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. A summary of the account activity for the warranty accrual is as follows during the years ended 31 December 2012 and 2011.
2012 2011 US$ US$ ------------------------------------ ---------- ---------- Accrued warranty, beginning of year 72,283 69,071 Provision for warranty 289,502 246,711 Warranty claims (281,447) (243,499) Accrued warranty, end of year 80,338 72,283 ------------------------------------ ---------- ----------
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.
Grant revenue is recognised when earned. Grant revenues are deemed earned to the extent of the total allowable expenditures incurred, which are specified in the grant contract. In some cases, a portion of the grant revenue is paid at the time the grant is initiated. These advances are deferred and recognised using the proportional performance model. Unbilled services are at times recorded for revenue recognised to date and relate to amounts that are currently unbillable to the client pursuant to contractual terms.
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.
Shipping and Handling Costs
Shipping and handling costs billed to customers of US$148,709 and US$124,269 are netted with expense and have been included in cost of sales on the consolidated statements of operations during the years ended 31 December 2012 and 2011, respectively.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the 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, limited history of earnings, and a current loss. 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. The Company is subject to US federal, state, and local taxes as well as foreign taxes in Belgium and Brazil. During the year ended 31 December 2011, approximately US$1,040,000 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.
The Company's 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 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.
Derivative Financial Instruments
The Company does not use derivative financial instruments to hedge exposures to cash flow risks or market risks. However, certain financial instruments, such as the warrants described in Note 7, have been classified as liabilities based on US GAAP guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity's own stock. Although the Company's warrants were indexed to the common stock of the Company and were classified in stockholders' equity, they do not meet the exception as clarified under US GAAP because the warrants are also indexed to a foreign currency, as the common stock trades in British pound sterling.
As a result, the warrants were not considered indexed to the Company's own stock, and as such, all changes in the fair value of these warrants were recognised in earnings until such time that the warrants were exercised or expired.
Management Estimates
The preparation of consolidated financial statements in conformity with US GAAP requires management of the Company 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 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 consolidated financial statements relate to warranty reserves, allowance for doubtful accounts, the useful lives of patents, 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) income.
Subsequent Events
The Company has evaluated subsequent events through 8 April 2013, the date the consolidated financial statements were available to be issued. No reportable subsequent events occurred through 8 April 2013.
Contingencies
From time to time, the Company may experience litigation arising in the ordinary course of its 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 consolidated financial position.
Reclassification
Certain amounts as of 31 December 2011 and for the year then ended have been reclassified to conform to the presentation as of 31 December 2012 and for the year then ended. These reclassifications had no effect on net income or stockholders' equity.
Note 3 - Concentrations
The Company receives the majority of its grant revenue under several grant contracts from the National Institutes of Health. During the years ended 31 December 2012 and 2011, the Company received approximately US$879,000 and US$1,097,000, respectively. The receivable balances from the National Institutes of Health were US$48,567 and US$56,833 as of 31 December 2012 and 2011, respectively.
As of 31 December 2012, three vendors accounted for 17.25%, 15.28%, and 10.57% of accounts payable, respectively. As of 31 December 2011, one vendor accounted for 14.30% of accounts payable. During the year ended 31 December 2012, one vendor accounted for approximately 11.00% of purchases.
Note 4 - Inventories
2012 2011 US$ US$ -------------------------------------- ---------- ---------- Medical devices, parts, and solutions 3,595,863 1,510,989 Raw materials 813,716 360,355 -------------------------------------- ---------- ---------- 4,409,579 1,871,344 -------------------------------------- ---------- ----------
Note 5 - Property and Equipment
2012 2011 US$ US$ ------------------------------------------ ------------------ -------------- Property and equipment in progress 342,883 83,923 Computer equipment 354,918 481,144 Furniture and fixtures 565,941 445,299 Equipment under capital lease 136,651 258,533 Laboratory equipment 1,804,262 1,595,314 Leasehold improvements 1,048,216 869,943 Tooling and moulds 834,145 568,678 Vehicles 158,709 166,647 ------------------------------------------ ------------------ -------------- 5,245,725 4,469,481 Accumulated depreciation and amortisation (2,744,376) (3,031,150) ------------------------------------------ ------------------ -------------- 2,501,349 1,438,331 ------------------------------------------ ------------------ --------------
During the years ended 31 December 2012 and 2011, the Company recognised depreciation expense of US$569,661 and US$319,934, respectively.
Note 6 - Intangibles
Intangible assets consist of the following:
2012 2011 US$ US$ -------------------------------- ----------- ----------- License agreement 141,931 141,931 Patents issued 1,548,289 1,119,693 Patents pending 1,789,490 1,549,100 -------------------------------- ----------- ----------- 3,479,710 2,810,724 Less: Accumulated amortisation (666,890) (579,811) 2,812,820 2,230,913 -------------------------------- ----------- -----------
During the years ended 31 December 2012 and 2011, the Company abandoned patents issued and patents pending with an original cost of US$142,015 and US$170,228, respectively.
During the years ended 31 December 2012 and 2011, the Company recognised amortisation expense of US$87,079 and US$121,815, respectively.
The following schedule by year represents future intangible amortisation, assuming patent pending costs will be reclassified as patents issued and amortisation will begin at the midpoint of the following year:
Year Ending 31 December: US$ ------------------------- ---------- 2013 149,199 2014 202,377 2015 200,601 2016 199,329 2017 197,181 Thereafter 1,864,133 ------------------------- ---------- 2,812,820 ------------------------- ----------
Note 7 - Warrants
At various times from July 2004 through June 2007, the Company issued currency denominated warrants in the amount of US$7,789,505, in connection with the issuance of convertible promissory notes, all of which were converted into common stock at the Initial Public Offering ("IPO"). The majority of the warrants remaining outstanding at the date of the IPO were not affected by the reverse stock split in accordance with the agreements. The warrants expired at various dates from March 2009 to January 2011. The determination of the actual number of common shares the warrants were convertible into at any point in time was derived by formula per the individual warrant agreements. As these were currency denominated warrants, the number of common shares ultimately issued upon exercise varied due to foreign currency translation adjustments between the British pound sterling and the US dollar. These warrants represent no issuable shares of common stock outstanding as of 31 December 2012 and 2011.
In May 2008 and December 2007, in conjunction with the IPO, the Company issued warrants, which were convertible into common stock. The warrant holder could have exercised each warrant held to purchase a share of common stock at an exercise price of GBP1.95, or as adjusted as defined by the agreement. The 2008 and 2007 warrant grants expired during January 2011. The fair value of the common stock at grant date was less than the exercise price of the warrants. The number of common stock equivalent warrants granted was 2,570,884 and the value of the warrants on the date of grant was determined to be US$0. The value of the warrants was calculated using the Black-Scholes option pricing model. These warrants represent no issuable shares of common stock outstanding as of 31 December 2012 and 2011.
In August of 2009, in conjunction with the terms of the Silicon Valley Bank loan and security working capital line of credit, the Company issued a warrant, convertible into 51,874 shares of common stock. The warrant was exercisable for a period of five years, at a share price of US$0.6506, the trailing 20-day market value of the Company's common stock at the grant date. The value of the warrant on the date of grant was determined to be US$16,493 during the year ended 31 December 2009 by the Black-Scholes option pricing model. This estimated fair value of the warrant was recorded as a prepaid expense in the current assets section of the Company's consolidated financial statements and was being amortised as additional bank charges, using the straight line method over the period from the date of issuance to the initial August 2011 maturity date of the credit facility. Charges related to this warrant totalled US$0 and US$5,121 during the years ended 31 December 2012 and 2011, respectively. This warrant was exercised during the year ended 31 December 2010.
Warrant activity during the years ended 31 December 2012 and 2011 is as follows:
Issuable Common Stock ---------------------------------------- -------------- Outstanding as of 1 January 2011 1,664,839 Granted - Exercised (125,593) Expired (1,539,215) Adjustment due to currency and share - price changes ---------------------------------------- -------------- Outstanding as of 31 December 2011 31 Granted - Exercised - Expired - ---------------------------------------- -------------- Outstanding as of 31 December 2012 31 ---------------------------------------- --------------
From 1 January 2011 through the warrant expiration of 7 January 2011, 125,593 of the 1,664,839 outstanding issuable common stock from warrants as of 31 December 2010 were exercised, resulting in 28,994 common shares issued by the Company. The remaining 1,539,113 warrants expired on 7 January 2011. In conjunction with the 7 January 2011 expiration of warrants, the Company recognised US$599,264 in income in January 2011.
In addition, 102 miscellaneous warrants with no value attributed to them expired in November 2011. As of 31 December 2012 and 2011, 31 miscellaneous warrants remain outstanding with issue dates from 2004 through 2005 and expirations between 2014 and 2015. No value is attributed to these warrants as they are deemed to be immaterial in value as they were subject to the effects of the 5,000 to 1 reverse stock split in connection with the Company's IPO on 7 January 2008.
From January 2009 through their expiration on 7 January 2011, the Company classified its warrants as derivative financial instruments, and as such recognised the fair value of such warrants. The fair value of the warrant liabilities is as follows during the years ended 31 December 2012 and 2011:
Fair Value US$ ------------------------------------ ----------- Outstanding as of 1 January 2011 651,466 Exercised (52,202) Expired (599,264) Change in fair value - ------------------------------------ ----------- Outstanding as of 31 December 2011 - Exercised - Expired - Change in fair value - ------------------------------------ ----------- Outstanding as of 31 December 2012 - ------------------------------------ -----------
The following tables set forth by level within the fair value hierarchy the Company's warrant liabilities that were accounted for at fair value on a recurring basis as of 31 December 2012 and 2011. As required by US GAAP, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the placement within the fair value hierarchy levels.
Nonrecurring Fair Value Measurements at Reporting Date Using: ------------------------------------------------------- Description Quoted In Active Market Significant Significant Total Income Fair Values for Identical Other Observable Unobservable for the as of 31 Asset (Level Inputs (Level Inputs (Level Year Ended December 1) 2) 3) 31 December US$ US$ US$ US$ US$ --------------------- ------------- ---------------- ------------------- ---------------- ------------- Warrant liabilities - - - - - 2012 Warrant liabilities 2011 - - - - 599,264
These warrants did not trade in an active securities market. No warrant value applies as of 31 December 2012 and 2011.
Note 8 - Financing Agreements
During August 2009, the Company entered into a two-year working capital line of credit agreement with Silicon Valley Bank ("SVB") to support potential future cash needs of the Company. This line of credit agreement, and amendments in 2010, 2011, and 2012, currently provide for a revolving line of credit not to exceed an aggregate principal amount of US$3,000,000, limited to qualifying receivables as defined, and grants a security interest in and lien upon all of the assets of Lifeline Scientific, Inc. and Organ Recovery Systems, Inc. in favour of SVB. The maturity of the line of credit agreement is 21 September 2014. The outstanding principal under the revolving line of credit accrued interest at an annual rate of 1.25% above the prime rate (4.50% as of 31 December 2012). In addition, a US$750,000, 36 month term loan at a 5.50% unsecured or a 2.75% secured rate was made available to the Company. During the year ended 31 December 2012, the Company drew upon this term loan in the amount of US$525,000 (at a secured rate of 2.75%) to support the Company's growth plans. The financing agreements contain a financial covenant which requires the Company to maintain minimum adjusted quick ratio levels (as defined). The Company was in compliance with or has obtained a waiver for this covenant as of 31 December 2012 and 2011. As of 31 December 2012 and 2011, there were no amounts outstanding on the line of credit and the outstanding balance on the term loan was US$393,750 and US$0 respectively.
Note 9 - Long-Term Debt
2012 2011 US$ US$ -------------------------------------------------------- ---------- ---------- Construction loan payable to the Company's landlord, payable in 60 monthly installments of US$711, interest to be charged at 6% and payments due in March 2010 through March 2015; unsecured. 13,873 22,411 Subordinated loan payable by ORS Europe, NV to IWT; at the option of ORS Europe, NV, principal and interest payable on an installment basis beginning May 2014 through February 2017; interest charged at an annual rate of 8.43%. Debt subordinated to the intercompany payable to Lifeline Scientific, Inc. 963,281 945,906 Term loan payable to SVB, payable in 36 monthly installments of US$14,583 plus interest charged at secured annual rate of 2.75%; payments due 1 April 2012 through 1 March 2015; secured by cash collateral account at SVB in an amount corresponding to current loan balance. 393,750 - Capital lease obligations, payable in monthly installments, including interest at various annual rates, payments due July 2009 through June 2016; secured by the underlying equipment. 28,941 62,274 -------------------------------------------------------- ---------- ---------- Long-term debt, net 1,399,845 1,030,591 Less current maturities (207,884) (38,853) -------------------------------------------------------- ---------- ---------- 1,191,961 991,738 -------------------------------------------------------- ---------- ----------
Maturities on long-term debt other than capital leases are as follows as of 31 December 2012:
Year Ending 31 December: US$ -------------------------------- ---------- 2013 181,568 2014 422,968 2015 365,001 2016 321,094 2017 80,273 -------------------------------- ---------- Total minimum payments required 1,370,904 -------------------------------- ----------
The following is a schedule by year of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of 31 December 2012:
Year Ending 31 December: US$ ------------------------------------ -------- 2013 29,958 2014 1,197 2015 1,197 2016 599 ------------------------------------ -------- Total minimum payments required 32,951 Less amounts representing estimated executory costs (1,614) Less amount representing interest (2,396) ------------------------------------ -------- Present value of net minimum lease payments 28,941 ------------------------------------ --------
Assets held under capital lease as of 31 December 2012 and 2011 had a cost of US$136,651 and US$258,533, respectively, and accumulated depreciation of US$61,601 and US$90,289, respectively.
Note 10 - Income Taxes
Income tax expense (benefit) consists of the following components for the years ended 31 December 2012 and 2011:
2012 2011 US$ US$ -------------------- --------- ------------ Current Federal 60,908 29,292 Foreign 128,160 - State 320,515 138,929 -------------------- --------- ------------ 509,583 168,221 -------------------- --------- ------------ Deferred Federal 21,682 3,691,698 State 3,156 537,468 -------------------- --------- ------------ 24,838 4,229,166 -------------------- --------- ------------ Valuation allowance (24,838) (5,268,851) -------------------- --------- ------------ Total income taxes 509,583 (871,464) -------------------- --------- ------------
A reconciliation of income tax expense (benefit), with amounts determined by applying the statutory US federal income tax rate to income before income taxes is as follows for the years ended 31 December 2012 and 2011:
2012 2011 US$ US$ ------------------------------------------------- --------- ------------ Computed income tax expense at federal statutory rate 15,606 818,236 State and local (benefit) income taxes, net of federal benefit (228) 120,599 Permanent items 125,433 (144,429) Changes in prior year estimates 156,159 (39,008) Other state taxes 61,653 - Valuation allowance 15,715 (1,636,981) Unrecognized tax benefits 94,000 - Foreign tax expense (12,298) - Other 53,543 10,119 ------------------------------------------------- --------- ------------ Income tax expense (benefit) 509,583 (871,464) ------------------------------------------------- --------- ------------ Effective income tax rate 1110.23% (36.21%) ------------------------------------------------- --------- ------------
The net deferred tax assets in the accompanying consolidated balance sheets include the following components as of 31 December 2012 and 2011:
2012 2011 US$ US$ --------------------------------- ------------- ------------- Deferred tax liabilities Property and equipment (42,136) (109,699) Intangible assets (991,004) (758,363) --------------------------------- ------------- ------------- (1,033,140) (868,062) Deferred tax assets Subpart F income 268,025 - Accrued expenses 221,672 81,399 Net operating loss carryforwards 21,231,419 22,024,205 Inventories 594,224 141,325 Deferred rent 123,233 51,404 22,438,573 22,298,333 Net deferred tax assets 21,405,433 21,430,271 Valuation allowance (20,365,748) (20,390,586) --------------------------------- ------------- ------------- Net deferred tax assets 1,039,685 1,039,685 --------------------------------- ------------- -------------
The income tax expense (benefit) differs from the federal statutory tax rate generally as a result of changes in the valuation allowance, permanent differences such as meals and entertainment expenses, state income taxes, foreign income taxes, and the amending of a state income tax return during the year ended 31 December 2012. A valuation allowance has been provided to reduce the deferred tax assets to the amount that is more likely than not to be realised.
The Company has federal net operating loss carryforwards totalling US$59,456,000, which may be used to offset future taxable income. If not used, the carryforwards will expire in future years as follows:
Year US$ ------------------------- ----------- 2022 4,110,000 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 59,456,000 ------------------------- -----------
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 future year. The annual limitation on loss carryforwards that could be utilised is approximately US$5,600,000 through the year ended 31 December 2012 and US$2,600,000 after the year ended 31 December 2012. The cumulative unused loss limitation which carried into the year ended 31 December 2012 was approximately US$14,000,000.
The Company files tax returns in the US federal and various state jurisdictions, along with Belgium and Brazil foreign tax jurisdictions. The Company's tax years extending back to the year ended 31 December 2008 remain open to examination for both federal and state jurisdictions. The Company's policy is to recognise interest and penalties related to uncertain tax positions as a component of income tax expense. During the years ended 31 December 2012 and 2011, the Company recognised US$94,000 and US$0, respectively, in interest and penalties. As of 31 December 2012 and 2011, the Company had US$94,000 and US$0, 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.
Cash payments for income taxes were US$208,000 and US$850,000 during the years ended 31 December 2012 and 2011, respectively.
Note 11 - Common Stock
In accordance with its third amended and restated certificate of incorporation dated 20 December 2007, the total number of shares the Company is authorised to issue is 30,000,000, all of which is designated as common stock with US$0.01 par value. Each share of common stock entitles the holder to one vote on each matter submitted to a vote of the stockholders of the Company. The holders of the common stock shall be entitled to receive dividends when, and if, declared by the Board of Directors of the Company.
Note 12 - Stock Options
In December 2007, the Company approved a Second Amended and Restated Stock Option and Restricted Stock Plan (the "2007 Plan"). As of 31 December 2012 and 2011, the 2007 Plan reserves 2,330,995 shares of common stock for grant (or 12% of the issued and outstanding common stock). The 2007 Plan permits granting of awards to selected employees, consultants, and directors of the Company in the form of options to purchase shares and shares of restricted stock. Options granted may include nonqualified options as well as incentive stock options. The 2007 Plan is currently administered by the Board of Directors of the Company.
The 2007 Plan gives broad power to the Board of Directors of the Company to administer and interpret the 2007 Plan, including the authority to select the individuals to be granted options and restricted stock, and to prescribe the particular form and conditions of each option or restricted stock granted. The 2007 Plan shall continue in effect for a term of 10 years unless terminated sooner under provisions of the 2007 Plan. It is the Company's policy to issue new stock certificates to satisfy stock option exercises.
During the years ended 31 December 2012 and 2011, the Company granted 38,000 and 672,500 nonqualified stock options, respectively, to employees and key consultants of the Company. The options were granted at the fair market value of the common stock on the date of the grant and have a 10 year contractual term. Plan stock options generally vest over four years.
A summary of option activity under the 2007 Plan as of 31 December 2012 and 2011, and the changes during the years ended 31 December 2012 and 2011 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 2011 1,327,840 0.70 8.08 1,986,119 Granted 672,500 2.10 Exercised (35,750) 0.39 55,958 Forfeitures (27,250) 2.01 ------------------------------- ----------- ---------- ------------- ----------- Outstanding as of 31 December 2011 1,937,340 1.18 7.89 1,368,782 ------------------------------- ----------- ---------- ------------- ----------- Granted 38,000 1.39 Exercised - - - Forfeitures (5,500) 1.89 Expirations (11,500) 0.58 ------------------------------- ----------- ---------- ------------- ----------- Outstanding as of 31 December 2012 1,958,340 1.18 6.95 1,071,045 ------------------------------- ----------- ---------- ------------- ----------- Vested or expected to vest as of 31 December 2012 1,936,838 1.17 6.93 1,070,554 ------------------------------- ----------- ---------- ------------- ----------- Options exercisable as of 31 December 2012 1,374,715 0.85 6.31 1,034,716 ------------------------------- ----------- ---------- ------------- -----------
A summary of the Company's nonvested options under the 2007 Plan as of 31 December 2012 and 2011 and changes during the years ended 31 December 2012 and 2011 is presented as follows:
Weighted- Average Grant-Date Fair Value Shares (GBP) ------------------------------------------ ---------- ------------ Nonvested options as of 1 January 2011 515,000 0.42 Granted 672,500 0.83 Vested (334,250) 0.30 Forfeitures (27,250) 1.07 ------------------------------------------ ---------- ------------ Nonvested options as of 31 December 2011 826,000 0.78 ------------------------------------------ ---------- ------------ Granted 38,000 0.48 Vested (274,875) 0.73 Forfeitures (5,500) 0.75 ------------------------------------------ ---------- ------------ Nonvested options as of 31 December 2012 583,625 0.78 ------------------------------------------ ---------- ------------
The following is a summary of the Company's stock options outstanding and stock options exercisable under the 2007 Plan as of 31 December 2012:
Options Outstanding Options Exercisable ----------------- ------------------------- ------------------------- Weighted- Weighted- Average Average Exercise Exercise Exercise Prices Options Price Options Price (GBP) Outstanding (GBP) Exercisable (GBP) ----------------- ------------- ---------- ------------- ---------- 0.39-0.72 935,840 0.42 909,090 0.42 1.15-1.50 313,000 1.46 275,000 1.47 1.70-2.33 709,500 2.07 190,625 2.04 ----------------- ------------- ---------- ------------- ---------- Total 1,958,340 1.18 1,374,715 1.17 ----------------- ------------- ---------- ------------- ----------
The Company recognised compensation expense of US$258,498 and US$260,836 during the years ended 31 December 2012 and 2011, respectively. As of 31 December 2012, there was approximately US$575,943 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 1.24 years.
No options were exercised during the year ended 31 December 2012. 35,750 options were exercised during the year ended 31 December 2011, at a weighted average exercise price of GBP0.39.
Fair value was estimated as of the grant date based on a Black-Scholes option pricing model using the following weighted average assumptions during the years ended 31 December 2012 and 2011:
2012 2011 ------------------------------------ -------- -------- Risk-free interest rate 0.88% 1.94% Expected volatility rate 34.13% 36.99% Dividend yield 0.0% 0.0% Expected Life 6.1 6.2 Fair Value per share on grant date GBP0.48 GBP0.83
When estimating forfeitures, the Company considers historical terminations as well as anticipated retirements.
Note 13 - Operating Leases
The Company conducts its operations in facilities leased under a number of operating leases. Rent expense under these agreements amounted to US$512,878 and US$414,803 during the years ended 31 December 2012 and 2011, respectively.
The following is a schedule by year of future minimum lease payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of 31 December 2012:
Year Ending 31 December: US$ -------------------------------- 2013 492,891 2014 539,399 2015 466,860 2016 507,100 2017 444,730 Thereafter 205,344 -------------------------------- ---------- Total minimum payments required 2,656,324 -------------------------------- ----------
Note 14 - 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 years ended 31 December 2012 and 2011:
2012 2011 ------------------------------------- ------------- ------------- Net income available to common stock shareholders US$(210,844) US$3,475,113 Weighted average shares outstanding for basic earnings per share 19,424,959 19,415,075 Dilutive effect of stock options 663,672 830,685 Weighted average shares outstanding for diluted earnings per share 20,088,631 20,245,760 Basic earnings per share US$(0.01) US$0.18 Diluted earnings per share US$(0.01) US$0.17
Note 15 - Employee Benefit Plan
The Company sponsors a limited employer matching 401(k) plan for all employees of the Company. The plan provides for contributions in such amounts as determined by the Board of Directors of the Company, and the employer match is discretionary. Contributions of US$65,969 and US$61,121 were made during the years ended 31 December 2012 and 2011, respectively.
Note 16 - Other Cash Flow Information
Cash payments of interest were US$15,567 and US$95,014 during the years ended 31 December 2012 and 2011, respectively.
During the year ended 31 December 2011, the Company acquired two vehicles and office equipment via leases considered to be capital leases. The capital lease obligation for these assets was US$77,292.
From 1 January 2011 through the warrant expiration of 7 January 2011, various holders of US$340,000 in dollar denominated warrants originally issued during the years ended 31 December 2007 and 2006, in cashless exercises, converted their warrants into 28,994 shares of common stock.
See Notes 7, 10, and 12 for additional noncash transactions.
Note 17 - Board Remuneration
During the years ended 31 December 2012 and 2011, the Company's Board of Directors earned remuneration for their activities as directors. In addition, David Kravitz's renumeration reflects his role as Chief Executive Officer of the Company. Compensation amounts are as follows:
2012 2011 US$ US$ --------------- -------- -------- David Kravitz 587,652 614,500 John Garcia 85,000 85,000 Eric Swenden 42,500 42,500 Andrew Clark 42,500 42,500 Klaas de Boer 42,500 42,500 Steven Mayer 42,500 42,500
In addition, David Kravitz received benefits in the form of health and life insurance coverage during the years ended 31 December 2012 and 2011 of $32,960 and $33,743, respectively. Directors did not receive any pension contributions from the Company during the years ended 31 December 2012 and 2011.
Note 18 - 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 member of the Company's Board of Directors, is a director. Mr. Mayer performs the consulting services. Fees for services rendered under the consulting agreement were US$72,000 during each of the years ended 31 December 2012 and 31 December 2011.
Additionally, during the years ended 31 December 2012 and 2011, 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 US$173,000 and US$85,000 during the years ended 31 December 2012 and 2011, respectively. As of 31 December 2012 and 2011, the Company had prepaid deposits of US$177,500 and US$171,000, respectively, for products to be placed in service and services expected to be rendered during the following year.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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