TIDMLSI TIDMLSIC
RNS Number : 6948F
Lifeline Scientific, Inc
29 April 2014
29 April 2014
Lifeline Scientific, Inc.
("Lifeline" or the "Company")
Results for the Twelve Months Ended 31 December 2013
Lifeline Scientific (AIM: LSIC, LSI), the transplantation
technology company, announces results for the year ended 31
December 2013, a strong year of growth with revenues and operating
profits ahead of previous market expectations.
Financial Highlights
-- Transplantation products and services revenues up 11.1% US$32.4m (2012: US$29.1m)
-- LifePort(R)single-use consumable sales up 13.9% to US$18.4m
(2012: US$16.1m)
-- North American revenues up 2% to US$24.3m (2012:
US$23.8m)
-- Revenues outside of North America up 52% to US$8.0m (2012:
US$5.3m) - with solid growth in Brazil and China
-- Gross profit up 8.7% to US$19.9m (2012: US$18.3m)
-- Operating profit increased to US$1.9m (2012:US$0.1m), or
US$0.9m before non-recurring items*
-- Net income increased to US$2.9m (2012:US$0.2m loss), or US$0.9m before non-recurring items
-- Cash of US$3.0m as of 31 December 2013 (as of 30 June 2013: US$3.0m)
*adjustment of US$1.0m favourable legal settlement
adjustment for legal settlement and for release of US$1.0m
deferred tax valuation allowance
Operational Highlights
-- Strong geographical expansion outside of the US:
-- Sales to strategic Europe up 25% to US$4.9m (2012:
US$3.9m)
-- A French national tender win
-- Product sales in Brazil up 51% to US$1.9m (2012: US$1.3m)
-- Sales to China reaching US$1.3m (2012: US$0.1m)
-- Further clinical evidence published supports the clinical and
economic benefits of LifePort Kidney Transporter
-- New product innovations continue with further progress to the LifePort Liver Transporter
David Kravitz, Chief Executive Officer of Lifeline, said:
"The strong second half trading in 2013 has provided the
business with solid momentum going into the new financial year. I
am optimistic about the prospects of the business for 2014, both in
terms of potential for delivering continued growth in operating
profits and shareholder return, but also offering meaningful
technology innovations in support of surgeons worldwide in their
daily mission of providing life-saving transplants to patients with
end-stage organ disease."
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/Fred Walsh (Corporate
Finance)
Adam Pollock (Corporate Broking)
Tel: +44 (0)20 7933 8780 or lifeline@walbrookpr.com
Walbrook
Paul McManus Mob: +44 (0)7980 541 893
Mike Wort Mob: +44 (0)7900 608 002
Upcoming events
Expected mailing date for the annual report: 23 May 2014. It
will also be available on the Company website,
www.lifeline-scientific.com.
Date of Annual General Meeting: 19 June 2014
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. 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 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 165 leading transplant centres in 27
countries worldwide, LifePorts have successfully preserved over
47,000 kidneys indicated for clinical transplant. For more
information please visit www.organ-recovery.com
Lifeline Scientific, Inc. Shares
As a US Company listed on the London Stock Exchange's AIM
exchange, Lifeline Scientific, Inc. trades under two lines of
stock, AIM: LSIC (unrestricted shares), LSI (restricted shares).
While affiliates of the Company are required to hold restricted
(RegS) shares, all others may hold restricted or unrestricted
shares. Unrestricted shares may be electronically traded through
the CREST system. Both lines of stock have identical rights,
preferences and privileges. Non-affiliates may transfer restricted
shares to the unrestricted line after purchase through the
Company's registrar. Total shares outstanding for the Company at
this time are 19,446,720, with 12,973,680 shares in issue under the
LSIC line and 6,473,040 shares in issue under the LSI line.
Chairman's Statement
I am delighted to report that 2013 has been another year of
solid growth, with the positive momentum seen in the first half of
the year continued into the second. As a result, we are reporting
full year revenues ahead of previous expectations and operating
profit well ahead of previous market expectations. We continue to
be very well positioned in our home US market, and combined with
good progress in key emerging markets, we expect to see strong
demand for our products and services continue in 2014.
Full year revenues grew by nearly 10.2% to US$33.2m (2012:
US$30.2m). Transplantation products and services revenues increased
11.1% to US$32.4m (2012: US$29.1m), with much of the growth driven
by significant orders from Brazil and China for our flagship
LifePort Kidney Transporter and related products in the second
half.
Revenues from single-use consumables, which also includes flush
and preservation solutions, increased by 6%. A key measure of our
performance is the sale of our proprietary singleuse consumables
for the LifePort Kidney Transporter. Sales of these higher margin
products increased by 13.9% compared to last year tof US$18.4m
(2012: US$16.1m). Sales of proprietary consumables associated with
the LifePort Kidney Transporter now represent 56.7% of
transplantation related revenues (2012: 55.3%).
Revenues from our more mature North American home market rose 2%
to US$24.3m (2012: US$23.8m). Sales outside of this core market
rose 52% to US$8.0m (2012: US$5.3m), with sales in Brazil and China
more than doubling to US$3.18m (2012: US$1.4m).
Gross profit increased by 8.7% to US$19.9m (2012: US$18.3m) with
a Gross margin of 59.8% in line with last year (2012: 60.6%) due in
part to strong sales of the Company's LifePort Kidney Transporters
of US$1.7m (2012: US $0.6m) and the resulting business mix.
Operating profit improved significantly to US$1.9m (2012:
US$0.1m), due to sales growth, the result of a non-recurring legal
settlement, and a reduction in research and development for the
year. Operating profit adjusted for non-recurring items is US$0.9m
(2012: US$0.1m). This adjustment is namely the recognition of a
favourable US$1.0m legal settlement from a third party, further
details of which are given below. Adjusted Pre-tax profit (Income
before income taxes) increased to US$0.9m (2012: US$0.05m), with a
reported Pre-tax profit of
US$1.9m. The Company will report Basic earnings per share of
US$0.15 (2012: US$0.01 loss).
The cash position of the Company remains healthy, with cash
balances as at 31 December 2013 of US$3.0m (30 June 2013: US$3.0m),
reflecting investments in both working capital to support growth,
and development costs associated with our LifePort Liver
Transporter. Overall R&D spending reduced slightly to US$2.9m
(2012: US$3.2m). Net cash used in operating activities came to
US$0.4m (2012: US$1.5m), reflecting a large increase in receivables
due following significant orders received at the end of the year,
as well as an investment in inventory to support the strong order
pipeline from China, Brazil, and the French tender win.
As outlined at the Half Year Results, the Company settled a
dispute with a third party during the year. Under the settlement,
the Company is owed US$1.0m, payable through April 2015. The
Company has recognised the settlement amount as a reduction to
selling, general, and administrative expenses in the consolidated
statements of operations. As of 31 December 2013, the Company has
received payments of US$391,301 related to this settlement.
Revenues for the period since the year end have been encouraging
and are in line with our expectations for the first quarter. We
have seen continued strong demand from our core markets in the US
and Europe, and we remain confident about the future growth
prospects in Brazil and China.
I would like to thank the Board and staff for their excellent
work throughout the year and their valuable contribution to the
strong performance of the business. We start 2014 well positioned
to advance on the opportunities available to us and I look forward
to reporting on the continued success of the Group over the coming
year.
John Garcia
Chairman
Chief Executive Officer's review
Our 2013 performance reflects the continued success of extending
our expertise within the North American transplant market to key
growth territories abroad. Most significantly, in the second half
of this year strong demand for our flagship LifePort Kidney
Transporter and related products resulted in significant orders
from Brazil and China. We also experienced strong growth in
revenues from Europe throughout the year.
We are immensely grateful as a company that transplant
professionals worldwide now have access to the LifePort Kidney
Transporter; a product shown to improve transplant outcomes and
help increase the number of kidneys available for
transplantation.
At the end of the financial year we had an installed base of
LifePorts at 160 transplant centres in 27 countries, with LifePort
adopted for machine preservation in 19 new transplant programmes
during the year.
Geographical expansion
We continue to achieve steady revenues from transplantation
products within our core North American market. The region is
presently the largest contributor to revenues, accounting for just
over 75% of worldwide revenues.
Our long-term strategic initiative to invest in geographic
expansion continues to pay off as the installed base of LifePorts
increased in key growth territories, particularly in the EU,
Brazil, and China, driving incremental sales of our proprietary
LifePort Kidney Transporter consumables. With transporter sales
worldwide nearly tripling in the period to US$1.7m (2012: US$0.6m)
we expect to see additional benefits from the pull through of
higher margin single use consumable items in 2014.
Strategic Europe/Rest of World (ROW)
Sales in Strategic Europe (ROW), which we define as sales from
outside of the Americas and China, were very encouraging, having
increased by nearly 25% to US$4.9m (2012: US$3.9m). During the
period, CE mark certification renewal was secured for our LifePort
Kidney Transporter family of single-use disposable products.
Among the largest markets in Europe for kidney transplants is
France with a reported 2,687 renal transplant procedures from
deceased donors performed in 2012. During 2013 the French
transplant authorities concluded an extensive clinical, logistical
and technical review of LifePort Kidney Transporter, as part of the
French health ministry's competitive national tender for machine
preservation products. Soon after calendar year end 2013, we were
very pleased to announce our winning of the national tender to
exclusively supply LifePort Kidney Transporters and related
products to kidney transplant centres across 23 public hospitals in
France. This is a significant contract in terms of our European
expansion, and as mentioned in our Outlook, it provides an
important contribution to our Company's growth in 2014.
Market access negotiations in Germany continued to advance with
the aim of establishing contract terms and a harmonized national
clinical protocol for Germany's formal evaluation and potential
national implementation of LifePort reimbursement.
Brazil
Brazil represents a significant market opportunity for the
Company, with an estimated 135 transplant programmes performing a
reported 4,500 kidney transplants annually from deceased donors.
The country also reports a rapidly growing trend of end-stage renal
disease, with chronic dialysis or transplant as the only
therapies.
We continue to work closely with the Brazilian Government to
develop a pragmatic solution to challenges associated with the
importation of our products, chief among them being long cycle
times from institutional order placement to successful importation
and delivery. The solutions under consideration include a national
purchase contract wherein the federal government would acquire
LifePorts on behalf of Brazilian state or federal government
hospitals. We will provide an update as talks progress during
2014.
In mid 2012 we received ANVISA regulatory approval for
commercial sale of our full suite of products in Brazil. Revenues
from LifePort Kidney Transporters and related consumables increased
by 51% in 2013 to US$1.9m (2012: US$1.3m).
To date, over 600 LifePorted kidneys have been transplanted at
eight leading transplant centres in Brazil. Excellent
post-transplant results have been reported by clinicians and we
expect this number to increase in 2014. We are also in process of
securing ANVISA regulatory approval for our new LifePort 1.1 with
embedded GPS/GPRS, among several other meaningful new features.
China
Over the last several years, China's national transplant system
has been undergoing transformational improvements. This initiative
is based upon an adaptation of North America's successful model for
organ donation, procurement management, and algorithm-based donor
organ allocation, and is fully backed by China's national health
ministry. Based upon progress to date, in the coming years this
region may become one of the largest national venues for the
Company's products and services.
Today China reports having a network of over 165 licensed renal
transplant centres with dozens more centres anticipated to be
developed due to rising demand. Chinese health authorities have
described a growing trend in end-stage renal disease, which in turn
drives increased needs for kidney transplantation. In concert with
the nation's comprehensive transplant system overhaul, the Company
has made considerable investments in establishing key national
distributor and transplant centre relationships. These efforts are
showing promise as we achieved a significant uplift in revenues
over the year to US$1.3m (2012: US$0.1m).
The full commercial launch of LifePort Kidney Transporter in
China will be driven by the timing of Chinese regulatory approvals.
Our products have been in the process of registration with China's
FDA for the last two years and we remain optimistic these approvals
will come in 2014. We are confident that positive results recently
reported from the inaugural seven centre, 100 patient LifePort
feasibility study, and subsequent successful follow-on single
centre studies, will help accelerate the regulatory approval
process.
Presently, LifePort Kidney Transporter is imported to China
under a research protocol. This has been a successful interim
measure, as seen by the sales uplift described above, and by
encouraging outcomes data reported by clinicians at China Society
of Transplantation congresses over the last few years. We are also
very encouraged by recent public presentations and statements by
Huang Jiefu, Head of the National Organ Transplantation Committee,
and other surgeon leadership, regarding progress of the new
national policy for deceased organ donation, which includes the
recognition that machine preservation technologies have a
considerable positive impact on the success of organ transplant
procedures. This momentum suggests we may potentially see robust
nationwide adoption of our products following Chinese regulatory
approval and full commercial launch.
New Clinical Evidence
The body of scientific publications providing clinical and
economic evidence in support of hypothermic machine preservation
continued to grow over the year. New data was produced from the
landmark European Machine Preservation Trial (MPT), an independent,
multi-national, randomised, controlled trial comparing outcomes of
LifePort machine preserved kidneys with the traditional method of
static cold storage (ice-box preservation).
Study results of three year outcomes data from the MPT,
demonstrated a significant long term benefit for organ survival
following the use of LifePort in expanded criteria donor kidney
('ECD') transplantation. The study was published in the March, 2013
edition of Transplant International. Notably, the data showed that
only 32.9% of ECD kidneys with Delayed Graft Function (DGF)
survived if statically stored , compared with 68.7% of kidneys
preserved on LifePort. DGF often occurs in ECD kidneys, and is
known to adversely impact near and long term graft performance and
survival rates.
In January 2014, the medical journal, Transplantation, published
a retrospective analysis of the impact of machine preservation on
close to 95,000 renal transplants in the USA between 2000 and 2011.
The study, conducted by University of British Columbia transplant
specialists, concluded that machine preservation leads to improved
patient outcomes by reducing DGF over cold static storage.
New Product Innovations
Universal SealRing Cannula
Our new Universal SealRing Cannula with innovative ease-of-use
features was successfully launched during the year and drew
favourable reviews from transplant surgeons and organ procurement
professionals. Initial observations suggest the new cannula allows
a broader range of renal vascular access and LifePort connectivity
which should enable more kidneys to be indicated for LifePort vs.
the box of ice. This invention also uniquely enables LifePort use
with living donor kidneys, a potential new market.
LifePort Liver Transporter
The development of our proprietary LifePort Liver Transporter
has progressed in line with expectations. As highlighted above
R&D costs reduced slightly in the year, reflecting the end of
LifePort Liver Transporter's major R&D spend phase and the
focus on pre-commercial launch market activities.
Our LifePort Liver Transporter commercial prototype received
favourable reviews in its US debut at the American Transplant
Congress in 2013. Data from initial clinical liver transplants
using LifePort's early prototype and proprietary new solution at
New York's Columbia Medical University were encouraging, suggesting
that LifePort could provide unique clinical and cost benefits.
Initially observed were improvements in patient outcomes, as well
as a lowering of the overall cost of near-term post transplant
care, compared to the status quo of ice box storage. These
observations were based upon results from a cohort study of 42
clinical transplantation procedures, including 31 expanded criteria
livers that had been rejected upon offer by other centres within
the region.
The process of regulatory registration is well underway for both
the US and EU. While timing for achieving regulatory clearances
cannot be predicted, we continue to aim for commercial availability
late in 2014.
Recently, we were gratified to receive initial interest for the
LifePort Liver Transporter from key opinion leaders within the
Chinese liver transplant surgical community. End-stage liver
disease is a significant and growing problem in China. We are
currently in discussions with our Chinese colleagues to explore
ways in which the LifePort Liver Transporter might be clinically
employed under humanitarian use or research protocols prior to full
regulatory approval.
LifePort Rolling Transport Cover
Designed to add additional protection and mobility for LifePort
logistics management, the new rolling transport cover also allows
for user friendly storage of key documentation and other elements
required to be stored during organ recovery and transport from the
point of donation to recipient bedside. This innovation further
supports LifePort's ability to travel as unattended cargo while
fully operational.
Research Innovations
Recognising that innovation from independent investigators has
always been an important part of transplant medicine, the Company
sponsors a number of strategically selected academic research
programmes aimed to advance the state of the art of organ, tissue,
and cell preservation for transplantation. While not material to
our overall budget, our sponsorship is most often provided through
transfers of our products or support services in exchange for
certain intellectual property rights. We are also party to several
third party institutional grant funded research projects.
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. Our
most potentially promising and important research programmes
include:
Basic Science
-- Development and validation of perfusate derived biomarkers of
renal and hepatic graft dysfunction
Translational Science
-- Development and validation of surrogate markers for long-term
outcomes in kidney and liver allografts
-- Studies to determine the effects of ice-free cryopreservation
on protective immunity in allogeneic tissue for transplantation
-- Adherence monitoring to help define predictors of chronic
rejection, cancer and infections after transplant, including
epigenetic influences in determining transplant outcomes
-- Development of patient point of care assays for remote
monitoring and measurement of immunosuppressant drug levels and key
biomarkers of patient health
Clinical Science
-- Reducing post-transplant complications in renal and liver allografts
-- Optimising organ utilisation by improving organ viability through machine perfusion based interventions in the pre-transplant period including ex vivo conditioning
-- Improving the post-transplant patient experience and
clinician support thereof, by addressing the challenges of therapy
adherence
Solutions
We are a market leading provider of preservation solutions used
in transplantation. With anticipated regulatory clearance for our
SPS-1 UW preservation solution expected in China and EU in the
second half of 2014, we look forward to continued growth from our
solutions products in 2014.
Intellectual Property
During the period 50 new patents were issued covering LifePort
organ preservation and related technology, along with our cell and
tissue preservation innovations. The Company's IP portfolio now
includes 59 US issued and 39 US pending patents, and 102
international issued and 113 international pending patent
applications. The strategic planning and management of our
intellectual property portfolio is a key initiative of the Company,
aimed to strengthen its market leadership with IP as a competitive
barrier to market entry.
Outlook
The strong second half trading in 2013 has provided the business
with solid momentum going into the new financial year. Geographic
expansion will remain a key initiative of the Company. Adoption of
our LifePort products in Brazil and China has continued in the
first quarter of the year and we expect that regulatory approval in
China will drive further advancements in 2014.
Our confidence in delivering continued growth in 2014 has been
strengthened by the award of a major national tender to supply
LifePort Kidney Transporters and related products to 23 renal
transplant programmes in France. This is the first national tender
award in the EU for the Company and provides a solid platform for
driving sales in one of Europe's largest national markets for
kidney transplantations.
Supported by strategic inventory build during second half of
2013, we entered 2014 well prepared for continued sales growth.
Our pipeline of product introductions will also allow us to
address new areas of clinical need and to provide technology that
will bring additional benefits to both kidney and liver
transplantation. Key milestones targeted for new and existing
products include US and EU regulatory approvals for our LifePort
Liver Transporter, EU regulatory renewal for SPS-1, and broad
regulatory clearances in China.
I am optimistic about the prospects of our business for 2014,
both in terms of potential for delivering continued growth in
operating profits and shareholder return, and in offering
meaningful technology innovations in support of surgeons worldwide
in their daily mission to bring life-saving transplants to
thousands of patients suffering from end-stage organ disease.
I would like to thank my colleagues for their constancy and hard
work, as well as our shareholders and customers for their support
over the course of 2013. We are encouraged by positive momentum
starting the new year, and look forward to another solid
performance in 2014 for Lifeline Scientific.
David Kravitz
Chief Executive Officer
Consolidated Balance Sheets
31 December 2013 and 2012
2013 2012
US$ US$
------------------------------------------------------- ------------- -------------
Current Assets
Cash and cash equivalents 3,022,140 5,746,406
Receivables
Customers (Net of allowance for doubtful
accounts of US$0 and US$2,693 as of 31 December
2013 and 2012, respectively) 8,156,638 5,444,416
Employees 4,283 1,014
Grant 55,884 67,752
Inventories 5,341,207 4,409,579
Deferred tax assets 97,472 16,285
Prepaid expenses, deposits, and other 1,128,148 1,066,717
Total Current Assets 17,805,772 16,752,169
------------------------------------------------------- ------------- -------------
Non-current Assets
Property and equipment (Net of accumulated
depreciation and amortisation) 2,807,084 2,501,349
Intangibles (Net of accumulated amortisation) 3,615,149 2,812,820
Deferred tax assets 1,942,213 1,023,400
Goodwill 64,710 64,710
Other 256,102 123,805
------------------------------------------------------- ------------- -------------
Total Non-current Assets 8,685,258 6,526,084
------------------------------------------------------- ------------- -------------
Total Assets 26,491,030 23,278,253
------------------------------------------------------- ------------- -------------
Current Liabilities
Accounts payable 2,124,571 2,438,654
Long-term debt due within one year 434,834 181,568
Capital lease obligations due within one
year 9,914 26,316
Accrued expenses
Interest due within one year 148,462 -
Salaries and other compensation 969,079 1,149,918
Other 1,399,397 502,412
Income taxes payable 162,340 103,043
Deferred rent 74,669 44,989
Deferred revenue 78,122 307,148
------------------------------------------------------- ------------- -------------
Total Current Liabilities 5,401,388 4,754,048
------------------------------------------------------- ------------- -------------
Non-current Liabilities
Long-term debt (Net of portion included
in current liabilities) 801,310 1,189,336
Deferred rent (Net of portion included in
current liabilities) 348,512 271,399
Accrued interest (Net of portion included
in current liabilities) 197,239 330,380
Capital leases (Net of portion included
in current liabilities) 57,383 2,625
------------------------------------------------------- ------------- -------------
Total Non-current Liabilities 1,404,444 1,793,740
------------------------------------------------------- ------------- -------------
Total Liabilities 6,805,832 6,547,788
------------------------------------------------------- ------------- -------------
Lifeline Scientific, Inc. Stockholders'
Equity
Common stock, US$0.01 par value; authorised
- 30,000,000 shares as of 31 December 2013
and 2012; issued and outstanding 19,446,720
and 19,424,959 shares as of 31 December
2013 and 2012, respectively 194,467 194,249
Additional paid-in capital 94,326,509 94,045,479
Other accumulated comprehensive loss (253,710) (250,283)
Accumulated deficit (73,502,632) (76,359,173)
------------------------------------------------------- ------------- -------------
Total Lifeline Scientific, Inc. Stockholders'
Equity 20,764,634 17,630,272
Non-controlling interest (1,079,436) (899,807)
------------------------------------------------------- ------------- -------------
Total Stockholders' Equity 19,685,198 16,730,465
------------------------------------------------------- ------------- -------------
Total Liabilities and Stockholders' Equity 26,491,030 23,278,253
------------------------------------------------------- ------------- -------------
The accompanying footnotes are an integral part of the
consolidated financial statements.
Consolidated Statements of Operations
Years Ended 31 December 2013 and 2012
2013 2012
US$ US$
---------------------------------------------------- ------------- -------------
Revenue
Product sales and service fee revenue 32,367,008 29,130,623
Grant revenue 866,305 1,021,220
---------------------------------------------------- ------------- -------------
Total Revenue 33,233,313 30,151,843
Cost of Revenue 13,370,078 11,870,438
---------------------------------------------------- ------------- -------------
Gross Profit 19,863,235 18,281,405
---------------------------------------------------- ------------- -------------
Operating Expense
Research and development 2,930,128 3,173,614
Selling, general, and administrative 14,903,551 14,785,706
Loss from disposals of property and equipment 503 52,623
Loss from abandonment of patents 86,433 142,015
---------------------------------------------------- ------------- -------------
Total Operating Expense 17,920,615 18,153,958
---------------------------------------------------- ------------- -------------
Income from Operations 1,942,620 127,447
---------------------------------------------------- ------------- -------------
Other Expense (Income)
Interest expense 93,993 85,725
Interest income (5,731) (4,177)
Total Other Expense 88,262 81,548
---------------------------------------------------- ------------- -------------
Income Before Income Taxes 1,854,358 45,899
Income Tax (Benefit) Expense (822,554) 509,583
---------------------------------------------------- ------------- -------------
Net Income (Loss) 2,676,912 (463,684)
Less: Net Loss Attributable to Non-controlling
Interest 179,629 252,840
---------------------------------------------------- ------------- -------------
Net Income (Loss) Attributable to Lifeline
Scientific, Inc. 2,856,541 (210,844)
---------------------------------------------------- ------------- -------------
Basic Earnings (Loss) Per Share 0.15 (0.01)
---------------------------------------------------- ------------- -------------
Diluted Earnings (Loss) Per Share 0.14 (0.01)
---------------------------------------------------- ------------- -------------
Basic Weighted Average Shares Outstanding (in
shares) 19,434,558 19,424,959
---------------------------------------------------- ------------- -------------
Diluted Weighted Average Shares Outstanding
(in shares) 20,104,983 19,424,959
---------------------------------------------------- ------------- -------------
The accompanying footnotes are an integral part of the
consolidated financial statements.
Consolidated Statements of Comprehensive Income (Loss)
Years Ended 31 December 2013 and 2012
2013 2012
US$ US$
----------------------------------------------------- ------------ ------------
Net Income (Loss) 2,676,912 (463,684)
Foreign Currency Translation (3,427) 5,748
----------------------------------------------------- ------------ ------------
Comprehensive Income (Loss) 2,673,485 (457,936)
Comprehensive Loss Attributable to Non-controlling
Interest (179,629) (252,840)
----------------------------------------------------- ------------ ------------
Comprehensive Income (Loss) Attributable
to Lifeline Scientific, Inc. 2,853,114 (205,096)
----------------------------------------------------- ------------ ------------
The accompanying footnotes are an integral part of the
consolidated financial statements.
Consolidated Statements of Changes in Stockholders' Equity
Years Ended 31 December 2013 and 2012
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
2012 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)
-------------- ------------- ------------- ---------- ------------- ------------- --------------- ------------------
Issuance of
common
stock in
conjunction
with
cashless
option
exercise - 21,761 218 (218) - - -
Stock-based
compensation 281,248 - - 281,248 - - -
Foreign
currency
translation (3,427) - - - (3,427) - -
Net Income 2,676,912 - - - - 2,856,541 (179,629)
Balance, 31
December
2013 19,685,198 19,446,720 194,467 94,326,509 (253,710) (73,502,632) (1,079,436)
-------------- ------------- ------------- ---------- ------------- ------------- --------------- ------------------
The accompanying footnotes are an integral part of the
consolidated financial statements.
Consolidated Statements of Cash Flows
Years Ended 31 December 2013 and 2012
2013 2012
US$ US$
-------------------------------------------- ------------ ------------
Cash Flows from Operating Activities
Net Income (Loss) 2,676,912 (463,684)
-------------------------------------------- ------------ ------------
Adjustments to Reconcile Net Income
(Loss) to Net Cash Used in Operating
Activities
Depreciation 743,821 569,661
Amortisation 201,862 87,079
Stock-based compensation 281,248 258,498
Loss on disposals of property and equipment 503 52,623
Loss on abandonment of patents 86,433 142,015
Deferred income taxes (1,000,000) -
(Increase) decrease in
Receivables (2,640,047) (1,542,288)
Inventories (917,787) (2,535,208)
Prepaid expenses, deposits, and other (459,819) (44,486)
Other assets (168,413) 149,853
Increase (decrease) in
Accounts payable (215,081) 1,148,439
Accrued expenses 1,072,463 233,245
Accrued interest 55,621 71,556
Deferred revenue (201,196) 262,539
Deferred rent 106,172 138,330
Total Adjustments (3,054,220) (1,008,144)
-------------------------------------------- ------------ ------------
Net Cash Used in Operating Activities (377,308) (1,471,828)
-------------------------------------------- ------------ ------------
Cash Flows from Investing Activities
Payments related to intangible assets
and legal fees associated with patent
filings (1,090,624) (811,001)
Capital expenditures (1,045,626) (1,685,848)
Net Cash Used in Investing Activities (2,136,250) (2,496,849)
-------------------------------------------- ------------ ------------
Cash Flows from Financing Activities
Repayments under capital lease obligations,
net (18,425) (34,095)
Borrowings of long-term debt - 525,000
Principal payments on long-term debt (178,750) (139,788)
Net Cash (Used in) Provided By Financing
Activities (197,175) 351,117
-------------------------------------------- ------------ ------------
Effect of Foreign Currency Exchange
Rate Changes on Cash (13,533) 11,486
-------------------------------------------- ------------ ------------
Net Decrease in Cash and Cash Equivalents (2,724,266) (3,606,074)
Cash and Cash Equivalents, Beginning
of Year 5,746,406 9,352,480
-------------------------------------------- ------------ ------------
Cash and Cash Equivalents, End of Year 3,022,140 5,746,406
-------------------------------------------- ------------ ------------
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 manufacturing. A majority of the
Company's sales are in North America and 98.02% of the Company's
long-lived assets are within the US. A LifePort Liver product line
is planned for a commercial launch during either the year ending 31
December 2014 or the year ending 31 December 2015, 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
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.
CTS has an accumulated deficit as of 31 December 2013 and 2012.
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 2013 and 2012 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. 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 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 2013 and
2012.
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 amortised over the shorter
of the useful lives of the related licenses or twenty 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 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 2013 and
2012, the Company was not required to 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 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 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 2013 and 2012.
2013 2012
US$ US$
------------------------------------ ---------- ----------
Accrued warranty, beginning of year 80,338 72,283
Provision for warranty 296,786 289,502
Warranty claims (240,335) (281,447)
Accrued warranty, end of year 136,789 80,338
------------------------------------ ---------- ----------
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$178,778
and US$148,709 are netted with expense and have been included in
cost of sales on the consolidated statements of operations during
the years ended 31 December 2013 and 2012, 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 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 year ended
31 December 2013, US$1,000,000 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.
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.
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 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 income (loss).
Subsequent Events
The Company has evaluated subsequent events through 4 April
2014, the date the consolidated financial statements were available
to be issued. No reportable subsequent events occurred through 4
April 2014.
Contingencies
During the twelve months ended 31 December 2013, the Company
settled a dispute with a third party. Under the settlement, the
Company is owed US$1,000,000, payable through April 2015. The
Company has recognised the settlement amount as a reduction to
selling, general, and administrative expenses in the consolidated
statements of operations. As of 31 December 2013, the Company has
received payments of US$391,301 related to this matter and the
third party is current with the settlement payment terms.
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.
Reclassification
Certain amounts as of 31 December 2012 and for the year then
ended have been reclassified to conform to the presentation as of
31 December 2013 and for the year then ended. These
reclassifications had no effect on net loss or stockholders'
equity.
Note 3 - Concentrations
As of 31 December 2013, two vendors accounted for 27.06% and
12.95% of accounts payable, respectively. As of 31 December 2012,
three vendors accounted for 17.25%, 15.28%, and 10.57% of accounts
payable, respectively. During the year ended 31 December 2013, two
vendors accounted for 12.73% and 12.31% of purchases. During the
year ended 31 December 2012, one vendor accounted for 11.00% of
purchases.
As of 31 December 2013, two customers accounted for 15.11% and
12.87% of accounts receivable, respectively.
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 2013 and 2012, the Company
earned US$761,902 and US$879,014, respectively. The receivable
balances from the National Institutes of Health were US$44,705 and
US$48,567 as of 31 December 2013 and 2012, respectively.
Note 4 - Inventories
2013 2012
US$ US$
-------------------------------------- ---------- ----------
Medical devices, parts, and solutions 4,476,897 3,595,863
Raw materials 864,310 813,716
-------------------------------------- ---------- ----------
5,341,207 4,409,579
-------------------------------------- ---------- ----------
Note 5 - Property and Equipment
2013 2012
US$ US$
------------------------------------------ ------------------ ------------------
Property and equipment in progress 534,147 342,883
Computer equipment 396,170 354,918
Furniture and fixtures 832,233 565,941
Equipment under capital lease 82,348 136,651
Laboratory equipment 2,158,311 1,804,262
Leasehold improvements 1,151,934 1,048,216
Tooling and moulds 883,776 834,145
Vehicles 225,129 158,709
------------------------------------------ ------------------ ------------------
6,264,048 5,245,725
Accumulated depreciation and amortisation (3,456,964) (2,744,376)
------------------------------------------ ------------------ ------------------
2,807,084 2,501,349
------------------------------------------ ------------------ ------------------
During the years ended 31 December 2013 and 2012, the Company
recognised depreciation expense of US$743,821 and US$569,661,
respectively.
Note 6 - Intangibles
Intangible assets consist of the following:
2013 2012
US$ US$
-------------------------------- ----------- -----------
License agreement 141,931 141,931
Certification mark fees 396,128 -
Patents issued 1,855,400 1,548,289
Patents pending 2,080,978 1,789,490
-------------------------------- ----------- -----------
4,474,437 3,479,710
Less: Accumulated amortisation (859,288) (666,890)
3,615,149 2,812,820
-------------------------------- ----------- -----------
During the years ended 31 December 2013 and 2012, the Company
abandoned patents issued and patents pending with an original cost
of US$95,897 and US$142,015, respectively.
During the years ended 31 December 2013 and 2012, the Company
recognised amortisation expense of US$201,862 and US$87,079,
respectively.
The following schedule by year represents future intangible
amortisation, assuming certification mark fees and patent pending
costs will be reclassified as issued and amortisation will begin at
the midpoint of the following year:
Year Ending 31 December: US$
2014 221,169
2015 290,813
2016 290,157
2017 289,696
2018 273,776
Thereafter 2,249,538
------------------------- ----------
3,615,149
------------------------- ----------
Note 7 - 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 executed in 2010 through 2013,
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 (3.25% as of 31 December 2013).
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 financial covenants which required the Company to maintain
minimum adjusted quick ratio levels (as defined) at 31 December
2012 and a required minimum tangible net worth (as defined) at 31
December 2013. The Company was in compliance with its covenant as
of 31 December 2013. As of 31 December 2013 and 2012, there were no
amounts outstanding on the line of credit and the outstanding
balance on the term loan was US$218,750 and US$393,750,
respectively.
Note 8 - Long-Term Debt
2013 2012
US$ US$
------------------------------------------------------- ---------- ----------
Construction loan payable to the Company's
landlord, payable in 60 monthly installments
of US$711, interest to be charged at 6.00%
and payments due in March 2010 through March
2015; unsecured. 10,122 13,873
Subordinated loan payable by ORS Europe, NV
to IWT; at the option of ORS Europe, NV, principal
and interest payable quarterly on an installment
basis of EUR60,822 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. 1,007,271 963,281
Term loan payable to SVB, payable in 36 monthly
installments of US$14,583 plus interest charged
at secured annual rate of 2.75%; payments due
1 April, 2012 through 1 March, 2015; secured
by cash collateral account at SVB in an amount
corresponding to current loan balance. 218,750 393,750
Capital lease obligations, payable in monthly
installments, including interest at various
annual rates, payments due April 2011 through
September 2018; secured by the underlying equipment. 67,298 28,941
------------------------------------------------------- ---------- ----------
Long-term debt, net 1,303,441 1,399,845
Less current maturities (444,748) (207,884)
------------------------------------------------------- ---------- ----------
858,693 1,191,961
------------------------------------------------------- ---------- ----------
Maturities on long-term debt other than capital leases are as
follows as of 31 December 2013:
Year Ending 31 December: US$
-------------------------------- -----------------
2014 434,834
2015 381,613
2016 335,757
2017 83,940
Total minimum payments required 1,236,144
-------------------------------- -----------------
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 2013:
Year Ending 31 December: US$
------------------------------------ ---------
2014 21,353
2015 21,548
2016 20,949
2017 37,392
2018 2,841
Total minimum payments required 104,083
Less amounts representing estimated
executory costs (22,558)
Less amount representing interest (14,228)
------------------------------------ ---------
Present value of net minimum lease
payments 67,297
------------------------------------ ---------
Assets held under capital lease as of 31 December 2013 and 2012
had a cost of US$82,348 and US$136,651, respectively, and
accumulated depreciation of US$10,964 and US$61,601,
respectively.
Note 9 - Income Taxes
Income tax (benefit) expense consists of the following
components for the years ended 31 December 2013 and 2012:
2013 2012
US$ US$
-------------------- ------------ ---------
Current
Federal 23,826 60,908
Foreign 63,234 128,160
State 90,386 320,515
-------------------- ------------ ---------
177,446 509,583
-------------------- ------------ ---------
Deferred
Federal 564,521 21,682
State 82,188 3,156
-------------------- ------------ ---------
646,709 24,838
-------------------- ------------ ---------
Valuation allowance (1,646,709) (24,838)
-------------------- ------------ ---------
Total income taxes (822,554) 509,583
-------------------- ------------ ---------
A reconciliation of income tax (benefit) expense, 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 2013 and 2012:
2013 2012
US$ US$
------------------------------------------------- ------------ ----------
Computed income tax expense at federal statutory
rate 538,131 15,606
State and local income taxes (benefit), net
of federal benefit 78,346 (228)
Permanent items 219,618 125,433
Changes in prior year estimates (111,769) 156,159
Other state taxes - 61,653
Valuation allowance (1,646,709) (24,838)
Unrecognised tax benefits 24,000 94,000
Foreign tax expense (benefit) 39,234 (12,298)
Other 36,595 94,096
------------------------------------------------- ------------ ----------
Income tax (benefit) expense (822,554) 509,583
------------------------------------------------- ------------ ----------
Effective income (benefit) tax rate -44.36% 1,110.23%
------------------------------------------------- ------------ ----------
The net deferred tax assets in the accompanying consolidated
balance sheets include the following components as of 31 December
2013 and 2012:
2013 2012
US$ US$
-------------------------------------------------------- ------------- -------------
Deferred tax liabilities
Property and equipment (20,364) (42,136)
Intangible assets (1,366,639) (991,004)
-------------------------------------------------------- ------------- -------------
(1,387,003) (1,033,140)
Deferred tax assets
Stock compensation expense 349,863 268,025
Accrued expenses 361,542 221,672
Net operating loss carryforwards 20,633,700 21,231,419
Inventories 678,119 594,224
Deferred rent 122,503 123,233
Research and development and other credit carryforwards 543,062 543,062
22,688,789 22,981,635
Net deferred tax assets 21,301,786 21,948,495
Valuation allowance (19,262,101) (20,908,810)
-------------------------------------------------------- ------------- -------------
Net deferred tax assets 2,039,685 1,039,685
-------------------------------------------------------- ------------- -------------
The income tax (benefit) expense 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$57,712,000 as of 31 December 2013, which may be used
to offset future taxable income. If not used, the carryforwards
will expire in future years as follows:
Year US$
------------------------- -----------
2022 2,366,000
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 57,712,000
------------------------- -----------
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 2013 and US$2,600,000 after the year ended 31 December
2013. The cumulative unused loss limitation which carried into the
year ended 31 December 2013 was approximately US$16,402,000.
The Company files tax returns in the US federal and various
state jurisdictions, along with Belgium and Brazil foreign tax
jurisdictions. The Company's tax years extending back to the year
ended 31 December 2009 remain open to examination for both federal
and state jurisdictions. The Company's policy is to recognise
interest and penalties related to uncertain tax positions as a
component of income tax expense. A summary of the activity related
to unrecognised tax benefits is as follows during the years ended
31 December 2013 and 2012:
2013 2012
US$ US$
--------------------------------------------------- --------- -------
Liability for unrecognised tax benefits, beginning 94,000 -
of year
Lapse of applicable statutes of limitations (30,000) -
Accrued interest and penalties 54,000 94,000
--------------------------------------------------- --------- -------
Liability for unrecognised tax benefits, end
of year 118,000 94,000
--------------------------------------------------- --------- -------
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$106,000 and US$208,000
during the years ended 31 December 2013 and 2012, 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 2013 and 2012, the 2007 Plan reserves 2,333,606
and 2,330,995 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 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 2013 and 2012, the Company
granted 219,000 and 38,000 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 2013 and 2012, and the changes during the years ended 31
December 2013 and 2012 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
2012 1,937,340 1.18 7.89 1,368,782
Granted 38,000 1.39
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
------------------------------- ----------- ---------- ------------- -----------
Granted 219,000 1.90
Exercised (30,000) 0.39
Forfeitures (3,075) 2.07
Expirations (2,625) 0.80
------------------------------- ----------- ---------- ------------- -----------
Outstanding as of 31 December
2013 2,141,640 1.27 6.30 1,150,005
------------------------------- ----------- ---------- ------------- -----------
Vested or expected to vest as
of 31 December 2013 2,121,967 1.26 6.28 1,149,756
------------------------------- ----------- ---------- ------------- -----------
Options exercisable as of 31
December 2013 1,557,590 1.00 5.58 1,143,022
------------------------------- ----------- ---------- ------------- -----------
A summary of the Company's nonvested options under the 2007 Plan
as of 31 December 2013 and 2012 and changes during the years ended
31 December 2013 and 2012 is presented as follows:
Weighted-
Average
Grant-Date
Fair Value
Shares (GBP)
------------------------------------------ ---------- ------------
Nonvested options as of 1 January 2012 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
------------------------------------------ ---------- ------------
Granted 219,000 0.66
Vested (215,500) 0.74
Forfeitures (3,075) 0.57
------------------------------------------ ---------- ------------
Nonvested options as of 31 December 2013 584,050 0.75
------------------------------------------ ---------- ------------
The following is a summary of the Company's stock options
outstanding and stock options exercisable under the 2007 Plan as of
31 December 2013:
Options Outstanding Options Exercisable
----------------- ------------------------- -------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Exercise Prices Options Price Options Price
(GBP) Outstanding (GBP) Exercisable (GBP)
----------------- ------------- ---------- ------------- ----------
0.39-0.72 903,840 0.42 903,840 0.42
1.15-1.50 313,000 1.46 284,500 1.47
1.70-2.33 924,800 2.03 369,250 2.05
----------------- ------------- ---------- ------------- ----------
Total 2,141,640 1.27 1,557,590 1.00
----------------- ------------- ---------- ------------- ----------
The Company recognised compensation expense of US$281,248 and
US$258,498 during the years ended 31 December 2013 and 2012,
respectively. As of 31 December 2013, there was approximately
US$530,686 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 1.08 years.
30,000 options were exercised during the year ended 31 December
2013 at a weighted average price of GBP0.39. As a result of
utilising a cashless exercise option, 21,761 shares were issued
related to these options. No options were exercised during the year
ended 31 December 2012.
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 2013 and
2012:
2013 2012
------------------------------------ -------- --------
Risk-free interest rate 0.91% 0.88%
Expected volatility rate 33.73% 34.13%
Dividend yield 0.0% 0.0%
Expected life 6.2 6.1
Fair value per share on grant date GBP0.66 GBP0.48
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$492,444 and US$512,878 during the years ended 31
December 2013 and 2012, respectively.
The following is a schedule by year of future minimum lease
payments required under operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of 31
December 2013:
Year Ending 31 December: US$
2014 533,447
2015 474,272
2016 513,197
2017 450,827
2018 209,917
------------------------- ----------
Total minimum payments
required 2,181,660
------------------------- ----------
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 2013 and
2012:
2013 2012
---------------------------------------- ------------- -------------
Net income available (loss applicable)
to common stock shareholders US$2,856,541 US$(210,844)
Weighted average shares outstanding
for basic earnings per share 19,434,558 19,424,959
Dilutive effect of stock options 670,425 -
Weighted average shares outstanding
for diluted earnings (loss) per
share 20,104,983 19,424,959
Basic earnings (loss) per share US$0.15 US$(0.01)
Diluted earnings (loss) per share US$0.14 US$(0.01)
Diluted loss per share is the same as basic loss per share
because the effects of potentially dilutive securities are
anti-dilutive.
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$86,573 and US$65,969 were made during the years ended 31
December 2013 and 2012, respectively.
Note 15 - Other Cash Flow Information
Cash payments of interest were US$95,841 and US$15,567 during
the years ended 31 December 2013 and 2012, respectively.
During the year ended 31 December 2013, the Company acquired a
vehicle and office equipment via leases considered to be capital
leases. The capital lease obligation for these assets was
US$77,558.
See Notes 9 and 11 for additional noncash transactions.
Note 16 - Board Remuneration
During the years ended 31 December 2013 and 2012, the Company's
Board of Directors earned remuneration for their activities as
directors. In addition, David Kravitz's remuneration reflects his
role as Chief Executive Officer of the Company. Compensation
amounts are as follows:
2013 2012
US$ US$
--------------- -------- --------
David Kravitz 642,980 587,652
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 2013 and 2012 of US$31,297 and US$32,960, respectively.
Directors did not receive any pension contributions from the
Company during the years ended 31 December 2013 and 2012.
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
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$120,000 and US$72,000 and
have been included in selling, general, and administrative expenses
in the consolidated statements of operations during the years ended
31 December 2013 and 31 December 2012, respectively.
Additionally, during the years ended 31 December 2013 and 2012,
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$324,500 and US$173,000 during the years ended 31 December
2013 and 2012, respectively. As of 31 December 2013 and 2012, the
Company had assets of US$402,500 and US$177,500, respectively,
included in prepaid expenses, deposits, and other and property and
equipment in the consolidated balance sheets 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
FR QKFDNPBKDNQB
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