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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 : 4343W
Lifeline Scientific, Inc
27 April 2016
Lifeline Scientific, Inc.
("Lifeline" or the "Company")
Final Results
Results for the twelve months ended 31 December 2015
Lifeline Scientific (AIM: LSIC), the transplantation technology company, announces results for the year ended 31 December 2015, representing another year of solid growth with revenues and operating profits ahead of market expectations. The installed base of Lifeline's core product, LifePort(R) Kidney Transporter, grew to 211 transplant programmes in 29 countries. The Company remains confident of delivering future growth with new proprietary LifePort products and geographic expansion.
Financial Highlights
-- Transplantation products and services revenues up 14% to US$39.4m (2014: US$34.6m)
-- LifePort single-use consumable sales up 15% to US$23.6m (2014: US$20.6m)
-- North American revenues up 10% to US$30.1m (2014: US$27.3m)
-- Revenues outside of North America up 27%, reaching US$9.3m (2014: US$7.3m)
-- Gross profit up 10% to US$23.7m (2014: US$21.6m) -- Operating profit increased by 139% to US$5.7m (2014: US$2.4m)
-- Net income increased by 248% to US$12.3m after, or US$5.5m before, non-recurring items (2014: US$3.5m after or US$2.2m before non-recurring items)
-- Net cash generated from operations of US$8.2m (2014: US$1.8m) -- Cash of US$6.9m as of 31 December 2015 (as of 30 June 2015: US$3.1m)
In 2015, adjustment for release of US$6.3m deferred tax allowance. In 2014, adjustment for release of US$1.3m deferred tax allowance.
Operational Highlights
-- LifePort sites in transplant programmes worldwide increased to 211 (2014: 193) -- Strong progress in key geographic markets:
-- Strong growth in North America, sales up 10% to US$30.1m (2014: US$27.3m)
-- Sales in China increased 79% to US$3.4m (2014: US$1.9m)
-- Sales in Strategic Europe and Rest of World (outside of the Americas and China) of US$4.6m (2014: US$4.8m). In local currency (Euros) revenue grew 13% to EUR4.1m (2014: EUR3.6m)
-- Sales in South America of US$1.3m (2014: US$.6m)
-- New key business wins for LifePort(R) and preservation solutions across the US and Brazil
-- CFDA approval for Lifeline's full LifePort(R) Kidney Transporter and organ preservation solutions
-- Further clinical evidence published supporting LifePort(R) Kidney Transporter and LifePort(R) Liver Transporter
David Kravitz, Chief Executive Officer of Lifeline, commented: "We are pleased to report an encouraging year of development in 2015. We have seen significant improvements in our full year revenues and profitability, and this performance has advanced across all strategic initiatives. We have seen growth in all of our major markets and continue to maintain a robust cash position. The prospects for the Company remain strong and we believe we are at a key inflection point for future growth. We look forward to an exciting 2016 where we are focused on building and delivering further shareholder value."
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 Panmure Gordon (UK) Limited Tel: +44 (0)20 7886 2500 Freddy Crossley (Corporate Finance) Tom Salvesen (Corporate Broking) Walbrook PR Limited Tel: +44 (0) 20 7933 8780 or lifeline@walbrookpr.com Paul McManus Mob: +44 (0)07980 541 893 Mike Wort Mob: +44 (0)7900 608 002
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
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 help improve kidney preservation, evaluation and transport prior to transplantation. It has been widely studied in clinical trials throughout the world and is the standard of care for machine preservation of donor kidneys. Employed by surgeons in over 211 leading transplant programmes in 29 countries, LifePorts have successfully preserved more than 75,000 kidneys indicated for clinical transplant. For more information please visit www.organ-recovery.com
About LifePort Liver Transporter
LifePort Liver Transporter is modelled upon the clinically proven technology platform of LifePort Kidney Transporter and the Company's investigational HMP system successfully used in clinical transplant studies by surgeons at New York-Presbyterian Hospital/Columbia University Medical Center. LifePort Liver Transporter and the Company's proprietary machine preservation solution, Vasosol(R), are in the process of US and international regulatory registrations. The system is designed to help improve outcomes in liver transplantation by enabling the clinical use of hypothermic machine perfusion, and has been developed in consultation with clinical and research teams specialising in liver transplantation at Columbia University Medical Center and the University of Chicago. The system employs a rugged, streamlined ergonomic design for ease of use and transportability from donor bedside to recipient operating room. For more information please visit: http://www.organ-recovery.com/pipeline.php
CHAIRMAN'S STATEMENT
I am delighted to report an excellent year of growth with full-year revenues and an operating profit ahead of expectations. Full-year revenues grew by 11.8% to US$39.4m (2014: US$35.2m).* Operating profit has increased significantly during the year to US$5.7m (2014: US$2.4m), built on strong sales of the Company's lead products in new and existing transplant programmes across the world and control of the Company's operating costs.
Transplantation products and services revenues increased by 13.7% to US$39.4m (2014: US$34.6m), with much of the growth driven by significant orders in North America, China, Brazil and France for the Company's flagship LifePort Kidney Transporter and related proprietary consumables.
A key measure of performance is the sale of our proprietary LifePort Kidney Transporter single-use consumables. Sales of these higher margin products increased by 13.9% from last year to US$23.4m (2014: US$20.5m) as more types of donor kidneys are perfused and more programmes are started. Sales of proprietary consumables associated with LifePort Kidney Transporter now represent 59.3% of transplantation-related revenues (2014: 59.2%). Revenues increased by 14.7% for all of our single-use consumables, including our branded organ flush and preservation solutions. In addition, the Company recorded pre-regulatory approval sales of its LifePort Liver Transporter product portfolio of US$0.4m in 2015 (2014: US$0.1m).
Revenues from North America rose by 10.1% to US$30.1m (2014: US$27.3m), driven by increased sales in existing accounts and conversion of new accounts to Lifeline Scientific's full suite of products. Revenues outside of North America reached US$9.3m (2014: US$7.3m), with sales in China increasing by 79.2% to US$3.4m (2014: US$1.9m) and sales to our Brazilian distributor increasing to US$1.3m (2014: US$0.6m). While overall sales in euros were up in Europe and Rest of World by 12.9%, overall reported revenue from the region was slightly down due to currency fluctuations.
Gross profit increased by 9.8% to US$23.7m (2014: US$21.6m) with a gross margin of 60.2% (2014: 61.3%), representing an increase over last year of US$2.1m. 2015 gross margin was impacted by several factors, including foreign currency changes, initial pre-approval sales of LifePort Liver Transporter products, increased revenue to China at distributor pricing and product mix reflecting increased sales of SPS-1(R) (UW Solution) for the year. Operating profit (2015: US$5.7m) increased significantly over last year (2014: US$2.4m) as a reduction in research and development costs reduced total operating expenses and reported pre-tax profit increased to US$5.7m (2014: US$2.3m).
The Company will report 2015 basic earnings per share of US$0.63, and US$0.28 adjusted for a non-recurring item of deferred tax allowance release (2014: US$0.18 reported and US$0.12 adjusted for non-recurring items of deferred tax allowance release).
Net cash generated from operations for the period was US$8.2m (2014: US$1.8m). The cash position of the Company is strong, with cash balances as of 31 December 2015 of US$6.9m (30 June 2015: US$3.1m) having paid off its revolver balance of US$2.2m by year end 2015. The Company is now debt free. Overall research and development spending in 2015 decreased to US$1.2m (2014: US$2.6m), in line with expectations as work on LifePort Liver Transporter moved into pre-commercialisation phase.
In September 2015 the Board announced a review of strategic and financial alternatives to enhance shareholder value. Since that time the Board has been actively reviewing a number of options including possible strategic mergers, strategic acquisitions, a potential sale of the Company, and a potential listing of the Company's shares on the NASDAQ market.
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April 27, 2016 02:01 ET (06:01 GMT)
Since the announcement we have witnessed a number of positive business developments as well as certain macroeconomic headwinds, which the Board wishes to assess fully prior to finalising its strategy. Wider macroeconomic issues which the Board has assessed include the decline in the number of small capitalization life science financings on the NASDAQ market in 2016 compared to 2015, and the decline in the British sterling to US dollar exchange rate.
On the business front the Company has achieved a major step forward in its financial performance with its strong growth in full-year revenues and an operating profit significantly ahead of expectations. The Board believes that the opportunities represented by its existing business, combined with China's Food and Drug Administration (CFDA) approvals of LifePort Kidney Transporter and related single-use consumables and solutions, recent progress in Brazil, and the prospects of LifePort Liver Transporter, are not fully reflected in the Company's current market value.
The Board can confirm that, while the final outcome of the strategic review has not yet been reached, it is in discussions with a number of interested parties which may or may not lead to an offer for the Company. While no assurances can be made as to the outcome of these discussions, progress has been made towards a strategy which the Board believes will enhance value for shareholders. The Board expects to be in a position to provide a further update on the progress of the strategic review process by the end of June 2016.
The Company starts 2016 well positioned to continue its growth around the world. I would like to thank the Board of Directors and staff for their excellent work throughout the year and their valuable contribution to the strong performance of the business.
John Garcia
Chairman
*2014 consolidated revenue figure includes US$0.6m of grant revenue related to CTS. In 2015 grant revenue, now received by T3, a strategic affiliate of the company, is no longer consolidated into Lifeline Scientific's full revenue.
STRATEGIC REPORT / CHIEF EXECUTIVE OFFICER'S STATEMENT
Revenue and operating profit grew ahead of market expectations in 2015 as we achieved important regulatory goals and major new account wins in existing and emerging territories. The momentum created by our investments in key geographic market development over the last several years has resulted in substantial growth in our North American, emerging Asian and South American markets. Our LifePort Kidney Transporter has become the clinical standard of care for machine preservation of donor kidneys and continues to make important contributions toward transforming outcomes in renal transplantation worldwide.
By end of the year, LifePort Kidney Transporters were operating in 211 transplant programmes in 29 countries worldwide, an increase of 18 new programmes from 2014.
Geographical Expansion
North America
North America continues to be the largest contributor to the Company's revenue base, with sales reaching US$30.1m (2014: US$27.3m), accounting for 76.4% of worldwide revenue (2014: 78.9%). New and expanded business includes key accounts in transplant programmes serving the regions of southern California, Kentucky, Nebraska, Alabama and northern Florida.
Strategic Europe / Rest of World
Sales in Strategic Europe /Rest of World (ROW), which we define as sales from outside of the Americas and China, increased by 12.9% although the revenue to the Company was less due to fluctuations in the currency exchange rate in 2015 (US$4.6m) compared with 2014 (US$4.8m). New LifePort Kidney Transporter accounts were opened at leading transplant centres in France (7), Switzerland (3), Spain (2) and Austria (1).
France is one of Europe's three largest national markets for kidney transplant procedures and remains a key territory for the Company.
Including 2 accounts added post period, all 34 transplant centers in France have adopted LifePort Kidney Transporter for use with national organ preservation protocols for expanded-criteria donor kidneys.
In addition to our achievements in France, the Swiss national transplant system adopted LifePort Kidney Transporter as their standard of care for machine preservation of expanded criteria donor (ECD) kidneys as well as kidneys donated after cardiac death (DCD).
South America
Brazil, the world's second largest national renal transplant market, represents a significant opportunity for the Company, with an estimated 127 transplant programmes performing an approximately 4,500 kidney transplants annually from deceased donors.
We are experiencing continued support for adoption of LifePort Kidney Transporter among leading clinicians and organ procurement centres across the country. During 2015 we welcomed Real Hospital Português de Beneficência em Pernambuco and the State of Goiás as new LifePort Kidney Transporter customers bringing the total number of reported LifePort sites in Brazil to 10.
In addition, the Company's Brazil Distributor received a significant order of LifePort Kidney Transporter consumables and preservation solutions from the Health Ministry of the State of Rio de Janeiro. These orders come on the back of significant new clinical evidence developed from Brazil's adoption of LifePort Kidney Transporter. Data from four major transplant programmes presented at the annual Brazilian Society of Transplantation, including Brazil's pivotal randomised controlled multi-centre LifePort Kidney Transporter study, demonstrated important clinical and economic benefits for LifePort Kidney Transporter versus the present standard-of-care donor kidney preservation, static cold storage (SCS). Notable findings included significantly faster recovery of renal function post-transplantation, significant reductions in the incidents of acute rejection and significantly reduced length of hospital stay in kidneys preserved using LifePort Kidney Transporter versus those in SCS.
We continue to work closely with leading Brazilian transplant surgeons, organ procurement organisations and health ministry officials to create practical solutions to logistical and process challenges associated with the importation of our products from the US.
The Company recorded sales to its Brazilian distributor of US$1.3m (2014: US$0.6m). Our preservation solutions business saw 4,100 litres sold in 2015 (2014: 3,490 litres).
Elsewhere in South America, we are in the process of introducing our LifePort Kidney Transporter and preservation solution products into key emerging markets of Colombia, Peru and Panama.
China
Progress in China has been substantial. 4Q15 saw China's Food and Drug Administration (CFDA) approving LifePort Kidney Transporter and its full complement of single-use consumables, giving us first-mover advantage for hypothermic machine preservation of donor kidneys in this promising market. This positive development followed our 1Q15 announcement of regulatory approvals in China for our market leading clinical organ preservation and flush solutions, SPS-1 (UW Solution) and KPS-1(R).
Sales to our China based distributor increased in 2015 by 79.2% to US$3.4m (2014: US$1.9m).
As of year-end, a total of 21 of China's major renal transplant centres are reported to have adopted LifePort Kidney Transporter under observational research protocols prior to CFDA approval, employing LifePort in an estimated 1,340 transplant procedures. Since CFDA approval, Lifeline Scientific has been working closely with its China based distributor on a phased nation-wide commercial launch of the Company's products to China's reported 169 renal transplant centres.
With China's official transplant waiting list reported at over 30,000 patients, and a reported several hundred thousand end-stage renal and liver disease patient population, the Company believes that China has potential to become a larger transplant market than both the US and Europe combined within the next 5-10 years.
New Clinical Evidence
We continue to be encouraged by the publication of scientific research papers and clinical data supporting adoption of LifePort Kidney Transporter and the regulatory clearances for LifePort Liver Transporter.
These data underpin a founding principle of Lifeline Scientific: to help patients in need of a life-saving transplant by enabling clinicians to transform transplant outcomes through improved technology for organ preservation, evaluation and transport. During the period under review there have been many papers presented at key meetings and publications appearing in leading journals.
From the US came a landmark analysis of the use of machine perfusion in 9,882 standard-criteria donors (SCD). The study concludes that machine perfusion of donated kidneys using technology such as LifePort Kidney Transporter, was beneficial in reducing rates of delayed graft function (DGF) in SCD kidneys. While there is wide spread clinical support for the benefits of using LifePort Kidney Transporter in DCD and ECD organs (so called marginal organs), the use of machine perfusion for SCD kidneys has not been universally adopted. We hope the very compelling results of this study will help encourage many more centres to adopt protocols for the broader use of LifePort Kidney Transporter, beyond cases that involve marginal organs.
In South America, a prospective, controlled, randomised clinical study in 10 centres compared outcomes of transplant patients with kidneys preserved on LifePort Kidney Transporter versus the present standard of kidney preservation in Brazil: static cold storage. Led by clinicians at the highly regarded Hospital do Rim, the world's largest volume renal transplant centre, the study investigators report their initial data showed a statistically significant reduction in DGF, faster recovery of kidney function post-transplant, and reduced incidence of acute graft rejection.
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April 27, 2016 02:01 ET (06:01 GMT)
In liver machine perfusion, an important study supporting the new LifePort Liver Transporter was published in the American Journal of Transplantation titled: "Hypothermic Machine Preservation (HMP) Facilitates Successful Transplantation of "Orphan" Extended Criteria Donor Livers." The HMP liver transplant recipients experienced higher 1-year survival rates, shorter hospital stays and fewer long-term complications. Even more impressive, the HMP livers used in the study were considered "orphan livers," defined as organs rejected by every transplant centre in the United Network for Organ Sharing (UNOS) region where they were originally offered. The authors concluded that HMP (using an investigational prototype LifePort Liver Transporter system), has meaningful clinical utility with the potential to increase the number of donor livers suitable for transplantation, closing the wide gap between organ supply and demand.
Organ preservation solutions
As with the past several years, we remain the largest provider of preservation solutions used in transplantation. Our offering of preservation solutions continues to be a helpful convenience for clients and an important revenue source for the Company. We anticipate future growth in this sector in North America with a considerable contribution from China and Brazil. Europe should also be a source of revenue growth following the grant of our solution CE mark, which we received post-period close in February 2016.
New Product Innovations
LifePort Liver Transporter
Two important clinical studies have now been published supporting the use of LifePort Liver Transporter. While in the regulatory review process for our LifePort Liver Transporter System, we continue to gather data from observational human factors studies designed to help us prepare for end-user training and providing logistical advice to client liver transplant centres during our post-clearance product launch. These data are confirming LifePort Liver Transporter's intended design for ease of use and robustness under the rigours of real-life organ recovery practice. In preparation for further studies and the launch of LifePort Liver Transporter we are also building commercial product inventory, customer training programmes and service infrastructure.
Research Innovations
The Company continues to sponsor strategically selected research in collaboration with the academic transplant community. This research is aimed at advancing the state--of--the--art of organ, tissue and cell preservation for transplantation. While not material to the Company's overall budget, our sponsorship is most often provided through transfers of our products and support services in exchange for certain intellectual property and commercial rights. Our research focus follows published priorities of the major US and European clinical transplant societies in three main areas: basic science, translational science (including pre-clinical models designed to advance translation of validated mechanistic discoveries to clinical applications) and clinical science. Of notable interest are:
Tissue Testing Technologies, LLC ("T3"), a 49% owned strategic affiliate, was awarded three new grants totalling US$1.6m by the US National Institutes of Health (NIH) to create improved preservation and evaluation systems for various cells, tissues and organs. The awards focus on specific aspects of cryopreservation aimed at improving tissue viability and ensuring process standardisation and consistency of supply. The research includes protocols specifically designed to advance Lifeline Scientific's proprietary ice-free vitrification technology (-70degC preservation) of engineered human tissue equivalents used for in vitro toxicology testing.
Through our sponsored research and product development collaborations, meaningful advancements were also made in the development of LifePort-based technology for real time, ex vivo evaluation of key biomarkers of organ viability and patient point-of-care therapeutic drug monitoring (TDM) assays for commonly used post-transplant immunosuppressant drugs.
Initial studies evaluating aspects of the multi-thermic LifePort WorkStation and LifePort embedded technologies for delivering supplemental oxygen to perfusate during ex vivo organ preservation are also underway.
Intellectual Property
Our strategy for growth and creating intrinsic Company value includes a keen focus on intellectual property protection. We routinely seek patent coverage in geographically important regions for important discoveries that are relevant to our present and envisioned future business. During 2015, the Company added 14 new issued patents to its portfolio. This new intellectual property covers LifePort organ preservation and related technology, along with our cell and tissue preservation innovations. At year-end, the Company's intellectual property portfolio included 67 US issued and 26 US pending patents, and 148 international issued and 113 international pending patent applications.
Outlook
2015 demonstrated LifePort Kidney Transporter's growing recognition as the clinical standard of care worldwide for machine preservation of deceased donor kidneys, as the installed LifePort Kidney Transporter base expanded globally into 18 major new transplant programmes delivering excellent growth in 2015. We expect 2016 to be a year of continued geographic expansion, particularly across China and Brazil.
The key milestone CFDA approval in China has given us a significant leadership advantage in this emerging market as our full suite of products, led by LifePort Kidney Transporter, are rolled out nationwide. We are confident that Asia is a major growth territory with the potential to become the largest regional market in the world for transplantation products and services over the next 10 years and beyond.
The new clinical evidence we are currently observing out of Brazil makes a clear and convincing case that deceased donor kidney transplants will have better outcomes if the kidneys are machine perfused with LifePort Kidney Transporter rather than being preserved in static cold storage. The existing demand for our portfolio of products and encouraging support from the clinical community is a reminder of the significance this market holds for the Company's future growth.
For our LifePort Liver Transporter system, we continue to advance the US regulatory review and preparations for commercial product introduction. Strong support from surgeons persists as they endeavour to find new ways to improve preservation and recover more livers for transplantation in the hope of reducing the number of people who die on waiting lists each year.
The prospects for Lifeline Scientific remain solid for 2016, and we believe that the Company is at a key inflection point for its next round of important growth. As our success comes by way of immense dedication and effort from all who comprise our global organisation, I thank my colleagues for their unwavering services throughout the year. I am also grateful to our shareholders, customers, distributors, vendors and research collaborators for their support and encouragement throughout 2015. Together we are building a growing and sustainable business while serving a noble worldwide effort of doctors and healthcare professionals to bring life-saving transplants to thousands of patients suffering end-stage disease.
David Kravitz
Chief Executive Officer
Consolidated Balance Sheets
31 December 2015 and 2014
Hot Features
Premium
2015 2014
US$ US$
--------------------------------------------------------------- ------------- -------------
Current assets
Cash and cash equivalents 6,905,251 3,323,777
Receivables
Customers (Net of allowance for doubtful accounts of
US$220,404 and US$308,000 as of 31 December 2015 and
2014, respectively) 9,802,996 9,301,587
Employees 6,158 39
Grant - 57,695
Inventories, net 5,077,966 5,935,966
Deferred tax assets 559,330 191,044
Prepaid expenses, deposits, and other 964,616 812,930
Total current assets 23,316,317 19,623,038
--------------------------------------------------------------- ------------- -------------
Non-current assets
Property and equipment (Net of accumulated depreciation
and amortisation) 3,559,678 3,361,352
Intangibles (Net of accumulated amortisation) 5,197,656 4,437,047
Deferred tax assets 9,580,355 3,148,641
Goodwill 64,710 64,710
--------------------------------------------------------------- ------------- -------------
Total non-current assets 18,402,399 11,011,750
--------------------------------------------------------------- ------------- -------------
Total assets 41,718,716 30,634,788
--------------------------------------------------------------- ------------- -------------
Current liabilities
Revolving line of credit - 2,171,147
Accounts payable 3,009,635 2,260,522
Long-term debt due within one year - 2,106
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Capital lease obligations due within one year 16,533 21,863
Accrued expenses
Interest due within one year - 6,186
Salaries and other compensation 1,392,961 1,285,080
Other 1,314,374 1,126,256
Income taxes payable 77,278 42,217
Deferred rent 83,107 25,019
Deferred revenue 103,965 72,508
--------------------------------------------------------------- ------------- -------------
Total current liabilities 5,997,853 7,012,904
--------------------------------------------------------------- ------------- -------------
Non-current liabilities
Deferred rent (Net of portion included in current liabilities) 274,394 305,678
Capital leases (Net of portion included in current
liabilities) 29,284 55,132
--------------------------------------------------------------- ------------- -------------
Total non-current liabilities 303,678 360,810
--------------------------------------------------------------- ------------- -------------
Total liabilities 6,301,531 7,373,714
--------------------------------------------------------------- ------------- -------------
Lifeline Scientific, Inc. stockholders' equity
Common stock, US$0.01 par value; authorised - 30,000,000
shares as of 31 December 2015 and 2014; issued and
outstanding 19,530,031 and 19,496,434 shares as of
31 December 2015 and 2014, respectively 195,300 194,964
Additional paid-in capital 93,708,324 93,549,662
Other accumulated comprehensive loss (832,382) (522,295)
Accumulated deficit (57,654,057) (69,961,257)
--------------------------------------------------------------- ------------- -------------
Total stockholders' equity 35,417,185 23,261,074
Total liabilities and stockholders' equity 41,718,716 30,634,788
--------------------------------------------------------------- ------------- -------------
The accompanying footnotes are an integral part of the consolidated financial statements.
Consolidated Statements of Operations
Years Ended 31 December 2015 and 2014
2015 2014
US$ US$
------------------------------------------------- -------------- --------------
Revenue
Product sales and service fee revenue 39,386,476 34,637,945
Grant revenue - 592,624
------------------------------------------------- -------------- --------------
Total revenue 39,386,476 35,230,569
Cost of revenue 15,666,920 13,622,702
------------------------------------------------- -------------- --------------
Gross profit 23,719,556 21,607,867
------------------------------------------------- -------------- --------------
Gross profit percentage 60.2% 61.3%
------------------------------------------------- -------------- --------------
Operating expense
Research and development 1,155,929 2,604,284
Selling, general, and administrative 16,784,368 16,590,058
Loss (gain) from disposals of property and
equipment 8,961 (16,921)
Loss from abandonment of patents 38,441 27,546
------------------------------------------------- -------------- --------------
Total operating expense 17,987,699 19,204,967
------------------------------------------------- -------------- --------------
Income from operations 5,731,857 2,402,900
------------------------------------------------- -------------- --------------
Other expense (income)
Interest expense 75,854 105,947
Interest income (4,760) (1,898)
Total other expense 71,094 104,049
------------------------------------------------- -------------- --------------
Income before income taxes 5,660,763 2,298,851
Income tax benefit (6,646,437) (1,242,524)
------------------------------------------------- -------------- --------------
Net income 12,307,200 3,541,375
------------------------------------------------- -------------- --------------
Basic earnings per share 0.63 0.18
------------------------------------------------- -------------- --------------
Diluted earnings per share 0.61 0.18
------------------------------------------------- -------------- --------------
Basic weighted average shares outstanding (in
shares) 19,512,325 19,459,457
------------------------------------------------- -------------- --------------
Diluted weighted average shares outstanding
(in shares) 20,161,727 20,112,011
------------------------------------------------- -------------- --------------
The accompanying footnotes are an integral part of the consolidated financial statements.
Consolidated Statements of Comprehensive Income
Years Ended 31 December 2015 and 2014
2015 2014
US$ US$
------------------------------- ------------- ------------
Net Income 12,307,200 3,541,375
Foreign Currency Translation (310,087) (268,585)
---------------------------------- ------------- ------------
Comprehensive Income 11,997,113 3,272,790
The accompanying footnotes are an integral part of the consolidated financial statements.
Consolidated Statements of Changes in Stockholders' Equity
Years Ended 31 December 2015 and 2014
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
2014 19,685,198 19,446,720 194,467 94,326,509 (253,710) (73,502,632) (1,079,436)
-------------- ------------- ------------- ---------- -------------- ------------- --------------- ------------------
Issuance of
common
stock in
conjunction
with
cashless
option
exercise - 49,714 497 (497) - - -
Stock-based
compensation 303,596 - - 303,596 - - -
Foreign
currency
translation (268,585) - - - (268,585) - -
Acquisition
of
remaining
51.00%
shares of
CTS (510) - - (1,079,946) - - 1,079,436
Net income 3,541,375 - - - - 3,541,375 -
Balance, 31
December
2014 23,261,074 19,496,434 194,964 93,549,662 (522,295) (69,961,257) -
-------------- ------------- ------------- ---------- -------------- ------------- --------------- ------------------
Issuance of
common
stock in
conjunction
with cash
and cashless
option
exercise 11,903 33,597 336 11,567 - - -
Stock-based
compensation 147,095 - - 147,095 - - -
Foreign
currency
translation (310,087) - - - (310,087) - -
Net income 12,307,200 - - - - 12,307,200 -
Balance, 31
December
2015 35,417,185 19,530,031 195,300 93,708,324 (832,382) (57,654,057) -
-------------- ------------- ------------- ---------- -------------- ------------- --------------- ------------------
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The accompanying footnotes are an integral part of the consolidated financial statements.
Consolidated Statements of Cash Flows
Years Ended 31 December 2015 and 2014
2015 2014
US$ US$
---------------------------------------------- ------------ ------------
Cash flows from operating activities
Net income 12,307,200 3,541,375
---------------------------------------------- ------------ ------------
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 972,273 891,584
Amortisation 238,119 193,458
Stock-based compensation 147,095 303,596
Loss (gain) from disposals of property
and equipment 8,961 (16,921)
Loss from abandonment of patents 38,441 27,546
Deferred income taxes (6,800,000) (1,300,000)
(Increase) decrease in
Receivables (591,783) (1,341,179)
Inventories 821,571 (665,338)
Prepaid expenses, deposits, and other (118,678) 478,891
Increase (decrease) in
Accounts payable 772,951 133,708
Income taxes payable 35,061 (120,123)
Accrued expenses 300,243 123,106
Accrued interest (6,186) (302,876)
Deferred revenue 54,244 (50,657)
Deferred rent 14,759 (60,113)
Total adjustments (4,112,929) (1,705,318)
---------------------------------------------- ------------ ------------
Net cash provided by operating activities 8,194,271 1,836,057
---------------------------------------------- ------------ ------------
Cash flows from investing activities
Payments related to intangible assets and
legal fees associated with patent filings (1,037,169) (1,042,902)
Capital expenditures (1,256,865) (1,379,934)
Proceeds from sales of property and equipment 20,969 -
Acquisition of remaining 51.00% shares
of CTS - (510)
Net cash used in investing activities (2,273,065) (2,423,346)
---------------------------------------------- ------------ ------------
Cash flows from financing activities
Cash received from option exercises 11,903 -
(Repayments) borrowings under capital lease
obligations, net (26,138) 17,328
Borrowings on revolving line of credit - 3,171,147
Payments on revolving line of credit (2,171,147) (1,000,000)
Principal payments on long-term debt - (1,127,284)
Net cash (used in) provided by financing
activities (2,185,382) 1,061,191
---------------------------------------------- ------------ ------------
Effect of foreign currency exchange rate
changes on cash and cash equivalents (154,350) (172,265)
---------------------------------------------- ------------ ------------
Net increase in cash and cash equivalents 3,581,474 301,637
Cash and cash equivalents, beginning of
year 3,323,777 3,022,140
---------------------------------------------- ------------ ------------
Cash and cash equivalents, end of year 6,905,251 3,323,777
---------------------------------------------- ------------ ------------
The accompanying footnotes 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 contract manufacturing. During the year ended 31 December 2015, revenue earned from customers by geographic location was: 76.22% within North America, 11.61% within Europe, and 12.17% from other foreign markets. During the year ended 31 December 2014, revenue earned from customers by geographic location was: 79.25% within North America, 13.75% within Europe, and 7.00% from other foreign markets. As of 31 December 2015 and 2014, 95.49% and 95.97%, respectively, of the Company's long-lived assets are within the US. A LifePort Liver product line is planned for a commercial launch during the year ending 31 December 2017 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:
ORS Europe, NV *
Cell and Tissue Systems, Inc. **
Organ Recovery Systems, Inc. *
ORS Representacoes do Brasil LTDA*
* A wholly-owned subsidiary
** 49.00% owned prior to 19 December 2014; a wholly-owned subsidiary afterwards
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 49.00% ownership needed to form the variable interest entity.
On 19 December 2014, the Company acquired the remaining outstanding 51.00% stock of CTS for $510. No gain or loss was recorded in connection with this transaction as the Company has already been consolidating CTS. The non-controlling interest was derecognized in connection with the acquisition of the equity interest not already owned. The difference between the non-controlling interest and the consideration paid is reflected in the equity of the Company.
Also 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 49.00% of T3 and the other party owns 51.00%. The Company did not make an investment in T3 in the years ended 31 December 2015 and 2014. There are two receivables in other current assets at 31 December 2015 totalling US$37,070 for start-up loans made by the Company to T3. T3 made monthly payments of US$2,265 on these loans during the year ended 31 December 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 31 December 2015 and 2014 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. Management of 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. In general, a receivable is considered to be past due if any portion of the receivable balance is outstanding for more than 90 days past its terms. 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 net realizable value. As of 31 December 2015 and 2014, the Company has an allowance of US$351,899 and US$190,000 respectively for slower-moving inventories.
Depreciation and Amortisation
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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 2015 and 2014.
Intangibles
The cost of intangible assets are being amortised over the remaining lives of the assets as follows:
Years
------
Certification marks 20
Patents 17
License 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 amortized over the shorter of the useful lives of the related licenses or 20 years. 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 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 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 2015 and 2014, the Company did not record any impairments to the carrying value 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 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 of the Company'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 the revolving line of credit and long-term debt approximates their fair values as the stated interest rates approximate current market interest rates of revolving lines of credit and 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 and have been included in other accrued expenses. A summary of the account activity for the warranty accrual is as follows during the years ended 31 December 2015 and 2014.
2015 2014
US$ US$
------------------------------------ ---------- ----------
Accrued warranty, beginning of year 89,282 136,789
Provision for warranty 286,198 287,950
Warranty claims (201,406) (335,457)
Accrued warranty, end of year 174,074 89,282
------------------------------------ ---------- ----------
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.
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 past historical losses and a limited history of significant 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. The Company is subject to US federal, state, and local taxes as well as foreign taxes in Belgium and Brazil. During the years ended 31 December 2015 and 2014, respectively, US$6,800,000 and US$1,300,000 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 loss carryforwards. However, due to the uncertain nature of the regulatory pathway for the LifePort Liver product line, as well as the unpredictability of revenue in Brazil and China, only a portion of the valuation allowance has been reversed.
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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 50.00% 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.
Reclassification
Certain amounts as of and for the year ended 31 December 2014 have been reclassified to conform with the presentation as of and for the year ended 31 December 2015. These reclassifications had no effect on net income or stockholders' equity.
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, the allowance for doubtful accounts, the allowance for excess and obsolete inventories, 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 a component of other comprehensive income.
Subsequent Events
The Company has evaluated subsequent events through 4 April 2016, the date the consolidated financial statements were available to be issued. No reportable subsequent events occurred through 4 April 2016.
Contingencies
During the year ended 31 December 2013, the Company settled a dispute with a third party. Under the settlement, the Company was owed US$1,000,000, payable through April 2015. The Company recognised the settlement amount as a reduction to selling, general, and administrative expenses in the consolidated statements of operations for the year ended 31 December 2013. As of 31 December 2015 and 2014, respectively, the Company has recorded the current portion of this settlement of US$0 and US$152,174 in prepaid expenses, deposits, and other in the consolidated balance sheets. During the years ended 31 December 2015 and 2014, respectively, the Company received payments totalling US$152,174 and US$456,522. As of 31 December 2015, the settlement has been paid in full.
In addition to the aforementioned matter, 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 consolidated financial position.
Note 3 - Concentrations
As of 31 December 2015, two vendors accounted for 57.94% and 12.57% of accounts payable, respectively. As of 31 December 2014, two vendors accounted for 60.23% and 10.29% of accounts payable, respectively. During the year ended 31 December 2015, two vendors accounted for 27.52% and 9.33% of purchases, respectively. During the year ended 31 December 2014, two vendors accounted for 21.14% and 16.81% of purchases, respectively.
As of 31 December 2015, one customer accounted for 36.02% of customer receivables. As of 31 December 2014, one customer accounted for 20.76% of customer receivables.
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 2015 and 2014, the Company earned US$0 and US$416,861, respectively. The receivable balances from the National Institutes of Health were US$0 and US$13,883 as of 31 December 2015 and 2014, respectively. Since 19 December 2014, when it became a wholly owned subsidiary of the Company, CTS has been inactive and will remain so.
Note 4 - Inventories
Inventories consist of the following as of 31 December 2015:
2015 2014
US$ US$
-------------------------------------------- ---------- ----------
Medical devices, parts, and solutions 4,578,278 5,158,005
Raw materials 851,587 967,961
-------------------------------------------- ---------- ----------
5,429,865 6,125,966
Reserve for excess and obsolete inventories (351,899) (190,000)
-------------------------------------------- ---------- ----------
5,077,966 5,935,966
-------------------------------------------- ---------- ----------
Note 5 - Property and Equipment
Property and equipment consist of the following as of 31 December 2015:
2015 2014
US$ US$
------------------------------------------------ ------------------ ------------------
Property and equipment in progress 679,220 188,512
Computer equipment 632,995 600,893
Furniture and fixtures 831,090 847,630
Equipment under capital lease 97,919 127,757
Laboratory equipment 3,152,240 2,858,537
Leasehold improvements 1,177,335 1,224,575
Tooling and moulds 1,923,217 1,555,274
Vehicles 128,185 141,438
------------------------------------------------ ------------------ ------------------
8,622,201 7,544,616
Less: Accumulated depreciation and amortisation (5,062,523) (4,183,264)
------------------------------------------------ ------------------ ------------------
3,559,678 3,361,352
------------------------------------------------ ------------------ ------------------
During the years ended 31 December 2015 and 2014, the Company recognised depreciation expense of US$972,273 and US$891,584, respectively.
Note 6 - Intangibles
Intangible assets consist of the following as of 31 December 2015:
2015 2014
US$ US$
-------------------------------- ------------- -------------
License agreement 141,931 141,931
Certification mark fees 1,302,354 926,296
Patents issued 2,722,171 2,431,885
Patents pending 2,281,239 1,987,922
-------------------------------- ------------- -------------
6,447,695 5,488,034
Less: Accumulated amortisation (1,250,039) (1,050,987)
5,197,656 4,437,047
-------------------------------- ------------- -------------
During the years ended 31 December 2015 and 2014, the Company abandoned patents issued and patents pending with an original cost of US$77,508 and US$29,304, respectively.
During the years ended 31 December 2015 and 2014, the Company recognised amortisation expense of US$238,119 and US$193,458, respectively.
The following schedule by year represents future intangible amortisation, assuming certification mark fees and patent pending costs will be reclassified as issued and amortisation will begin at the midpoint of the following year:
Year Ending 31 December: US$
2016 337,391
2017 436,299
2018 414,874
2019 379,364
2020 367,938
Thereafter 3,261,790
----------- ----------
5,197,656
----------- ----------
Note 7 - Financing Agreements
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In previous years, the Company entered into a 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 subsequent amendments provided 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 granted 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 was 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.
On 18 September 2014, the Company entered into a new loan and security agreement with The PrivateBank and Trust Company ("PB"). At close, the Company used proceeds from the loan to repay certain long-term debt obligations, including all amounts due to SVB. The loan and security agreement provides for a revolving line of credit, not to exceed an aggregate principal amount of US$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 (3.50% and 3.25% as of 31 December 2015 and 2014, respectively). 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 31 December 2015 and 2014. The loan and security agreement is secured by substantially all assets of the Company and expires 31 August 2016. As of 31 December 2015 and 2014, there was US$0 and US$2,171,147, respectively, outstanding on the revolving line of credit.
Note 8 - Long-Term Debt
2015 2014
US$ US$
------------------------------------------------------- --------- ---------
Construction loan payable to the Company's
landlord, payable in 60 monthly instalments
of US$711, interest was charged at 6.00% and
payments were due in March 2010 through March
2015; unsecured. - 2,106
Capital lease obligations, payable in monthly
instalments, including interest at various
annual rates, payments due April 2011 through
September 2018; secured by the underlying equipment. 45,817 76,995
------------------------------------------------------- --------- ---------
Long-term debt, net 45,817 79,101
Less current maturities (16,533) (23,969)
------------------------------------------------------- --------- ---------
29,284 55,132
------------------------------------------------------- --------- ---------
The following is a schedule by year of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of 31 December 2015:
Year Ending 31 December: US$ ------------------------------------ -------- 2016 26,545 2017 31,281 2018 2,169 Total minimum payments required 59,995 Less amounts representing estimated executory costs (7,636) Less amount representing interest (6,542) ------------------------------------ -------- Present value of net minimum lease payments 45,817 ------------------------------------ --------
Assets held under capital lease as of 31 December 2015 and 2014 had a cost of US$97,919 and US$127,757, respectively, and accumulated depreciation of US$44,940 and US$42,386, respectively.
Note 9 - Income Taxes
Income tax benefit consists of the following components for the years ended 31 December 2015 and 2014:
2015 2014
US$ US$
-------------------------- ------------ --------------
Current
Federal provision 56,907 55,702
Foreign provision 48,305 68,902
State provision (benefit) 48,351 (67,128)
-------------------------- ------------ --------------
153,563 57,476
-------------------------- ------------ --------------
Deferred
Federal provision 1,610,774 632,228
State provision 234,509 92,045
-------------------------- ------------ --------------
1,845,283 724,273
-------------------------- ------------ --------------
Valuation allowance (8,645,283) (2,024,273)
-------------------------- ------------ --------------
Total income taxes (6,646,437) (1,242,524)
-------------------------- ------------ --------------
A reconciliation of income tax 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 2015 and 2014:
2015 2014
US$ US$
------------------------------------------------- ------------ ------------
Computed income tax expense at federal statutory
rate 1,924,659 781,609
State and local income taxes, net of federal
benefit 280,208 113,793
Permanent items 251,278 231,605
Changes in prior year estimates (72,300) (149,702)
Valuation allowance (8,645,283) (2,024,273)
Unrecognized tax benefits 13,000 19,000
Foreign tax (benefit) expense (17,548) 16,321
Differences in statutory rates (380,451) (230,877)
------------------------------------------------- ------------ ------------
Income tax benefit (6,646,437) (1,242,524)
------------------------------------------------- ------------ ------------
Effective income tax benefit rate -117.41% -54.05%
------------------------------------------------- ------------ ------------
The net deferred tax assets in the accompanying consolidated balance sheets include the following components as of 31 December 2015 and 2014:
2015 2014
US$ US$
-------------------------------------------------------- ------------ -------------
Deferred tax liabilities
Intangible assets (1,959,658) (1,635,716)
-------------------------------------------------------- ------------ -------------
Deferred tax assets
Stock-based compensation expense 523,459 500,619
Accrued expenses 263,609 291,822
Net operating loss carryforwards 18,105,722 19,826,905
Property and equipment 59,301 34,081
Inventories 713,416 726,302
Deferred rent 105,089 98,520
Allowance for doubtful accounts 85,847 119,966
Research and development and other credit carryforwards 835,445 615,014
-------------------------------------------------------- ------------ -------------
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 the valuation allowance, permanent differences such as meals and entertainment expenses, state income taxes, and foreign income
taxes. 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$56,238,000 as of 31 December 2015, which may be used to offset future taxable income. If not used, the carryforwards will expire in future years as follows:
Year US$ ------------------------- ----------- 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 ------------------------- -----------
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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$2,600,000 through the years ended 31 December 2015 and 31 December 2014. The cumulative unused loss limitation which carried into the year ended 31 December 2015 was approximately US$18,267,000.
The Company files tax returns in the US federal and various state jurisdictions, along with Belgium and Brazil foreign tax jurisdictions. The Company's tax years extending back to the year ended 31 December 2011 remain open to examination for both federal and state jurisdictions. The Company's policy is to recognise interest and penalties related to uncertain tax positions as a component of income tax expense. A summary of the activity related to unrecognised tax benefits is as follows during the years ended 31 December 2015 and 2014:
2015 2014
US$ US$
--------------------------------------------------- --------- ---------
Liability for unrecognized tax benefits, beginning
of year 137,000 118,000
Lapse of applicable statutes of limitations (40,000) (30,000)
Accrued interest and penalties 53,000 49,000
--------------------------------------------------- --------- ---------
Liability for unrecognized tax benefits, end
of year 150,000 137,000
--------------------------------------------------- --------- ---------
The Company records the liability for unrecognized tax benefits as a component of income taxes payable. 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$92,000 and US$139,000 during the years ended 31 December 2015 and 2014, respectively.
Note 10 - 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 11 - 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 2015 and 2014, the 2007 Plan reserves 2,343,603 and 2,339,572 shares of common stock, respectively, for grant (or 12.00% of the issued and outstanding common stock). The 2007 Plan permits granting of awards 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 ten 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 2015 and 2014, the Company granted 0 and 17,500 nonqualified stock options, respectively, to employees and directors of the Company. The options were granted at the fair market value of the common stock on the date of the grant, have a 10-year contractual term, and vest over four years.
A summary of option activity under the 2007 Plan as of 31 December 2015 and 2014 and the changes during the years ended 31 December 2015 and 2014 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
2014 2,141,640 1.27 6.30 1,150,005
Granted 17,500 1.43
Exercised (68,800) 0.39 70,758
Forfeitures (5,875) 1.93
Expirations (12,825) 0.87
------------------------------- ----------- ---------- ------------- -----------
Outstanding as of 31 December
2014 2,071,640 1.30 5.37 688,156
------------------------------- ----------- ---------- ------------- -----------
Exercised (85,750) 1.35 70,628
Forfeitures (5,125) 2.09
Expirations (17,125) 2.07
------------------------------- ----------- ---------- ------------- -----------
Outstanding as of 31 December
2015 1,963,640 1.29 4.41 1,312,825
------------------------------- ----------- ---------- ------------- -----------
Vested or expected to vest as
of 31 December 2015 1,957,884 1.28 4.40 1,312,825
------------------------------- ----------- ---------- ------------- -----------
Options exercisable as of 31
December 2015 1,841,990 1.25 4.22 1,312,825
------------------------------- ----------- ---------- ------------- -----------
A summary of the Company's nonvested options under the 2007 Plan as of 31 December 2015 and 2014 and changes during the years ended 31 December 2015 and 2014 is presented as follows:
Weighted-
Average
Grant-Date
Fair Value
Shares (GBP)
------------------------------------------ ---------- ------------
Nonvested options as of 1 January 2014 584,050 0.75
Granted 17,500 0.49
Vested (244,823) 0.78
Forfeitures (5,875) 0.44
------------------------------------------ ---------- ------------
Nonvested options as of 31 December 2014 350,852 0.72
------------------------------------------ ---------- ------------
Vested (224,077) 0.77
Forfeitures (5,125) 0.80
------------------------------------------ ---------- ------------
Nonvested options as of 31 December 2015 121,650 0.63
------------------------------------------ ---------- ------------
The following is a summary of the Company's stock options outstanding and stock options exercisable under the 2007 Plan as of 31 December 2015:
Options Outstanding Options Exercisable
----------------- ------------------------- -------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Exercise Prices Options Price Options Price
(GBP) Outstanding (GBP) Exercisable (GBP)
----------------- ------------- ---------- ------------- ----------
0.39-0.72 805,840 0.42 805,840 0.42
1.15-1.50 280,500 1.45 262,250 1.45
1.70-2.33 877,300 2.03 773,900 2.04
------------------ ------------- ---------- ------------- ----------
Total 1,963,640 1.29 1,841,990 1.25
------------------ ------------- ---------- ------------- ----------
The Company recognised compensation expense of US$147,095 and US$303,596 during the years ended 31 December 2015 and 2014, respectively. As of 31 December 2015, there was approximately US$70,628 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 0.70 years.
85,750 options were exercised during the year ended 31 December 2015 at a weighted average price of GBP1.35. 20,000 options were exercised for cash of US$11,903, 65,750 options were exercised utilising a cashless exercise option, and 33,597 shares were issued related to these options. 68,800 options were exercised during the year ended 31 December 2014 at a weighted average price of GBP0.39. As a result of utilising a cashless exercise option, 49,714 shares were issued related to these options.
(MORE TO FOLLOW) Dow Jones Newswires
April 27, 2016 02:01 ET (06:01 GMT)
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 2015 and 2014:
2015 2014
------------------------------------ ------ --------
Risk-free interest rate - 1.90%
Expected volatility rate - 31.84%
Dividend yield - 0.00%
Expected life - 5.94
Fair value per share on grant date - GBP0.49
When estimating forfeitures, the Company considers historical terminations as well as anticipated retirements.
Note 12 - Operating Leases
The Company conducts its operations in facilities leased under a number of operating leases. Rent expense under these agreements amounted to US$349,626 and US$489,410 during the years ended 31 December 2015 and 2014, respectively.
The following is a schedule by year of future minimum lease payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of 31 December 2015:
Year Ending 31 December: US$ 2016 408,942 2017 470,737 2018 443,776 2019 355,018 2020 362,288 Thereafter 245,969 ----------------------- ---------- Total minimum payments required 2,286,730 ----------------------- ----------
Note 13 - 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 2015 and 2014:
2015 2014
------------------------------------- -------------- -------------
Net income available to common
stock shareholders US$12,307,200 US$3,541,375
Weighted average shares outstanding
for basic earnings per share 19,512,325 19,459,457
Dilutive effect of stock options 649,402 652,554
Weighted average shares outstanding
for diluted earnings per share 20,161,727 20,112,011
Basic earnings per share US$0.63 US$0.18
Diluted earnings per share US$0.61 US$0.18
Note 14 - 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$108,643 and US$86,349 were made during the years ended 31 December 2015 and 2014, respectively.
Note 15 - Other Cash Flow Information
Cash payments of interest were US$75,854 and US$105,947 during the years ended 31 December 2015 and 2014, respectively.
See Notes 9 and 11 for additional noncash transactions.
Note 16 - Board Remuneration
During the years ended 31 December 2015 and 2014, the Company's Board of Directors earned remuneration in the form of current benefits for their activities as directors. In addition, David Kravitz's remuneration reflects his role as Chief Executive Officer of the Company. Note that compensation amounts are as follows:
2015 2014
US$ US$
---------------- -------- --------
David Kravitz 704,925 629,850
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 * 21,250 42,500
In addition, David Kravitz received other current benefits in the form of health and life insurance coverage during the years ended 31 December 2015 and 2014 of US$32,242 and US$33,460, respectively. Mr. Kravitz also received US$6,625 and US$6,094 of 401(k) contributions from the Company during the years ended 31 December 2015 and 2014, respectively. The Directors did not receive any post-employment or share-based payments from the Company during the years ended 31 December 2015 and 2014.
* Steven Mayer served on the Company's Board of Directors through 25 June 2015.
Note 17 - 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 US$33,750 and US$91,750 and have been included in selling, general, and administrative expenses in the consolidated statements of operations during the years ended 31 December 2015 and 2014, respectively.
Additionally, during the years ended 31 December 2015 and 2014, 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$156,725 and US$351,000 during the years ended 31 December 2015 and 2014, respectively. During the years ended 31 December 2015 and 2014, the Company placed net assets of US$50,000 and US$421,532, respectively, which were purchased from the related party and required for an independent clinical research study into service, which are reflected in property and equipment, net in the consolidated balance sheets as of 31 December 2015 and 2014.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR AKADKKBKBKQB
(END) Dow Jones Newswires
April 27, 2016 02:01 ET (06:01 GMT)
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