TIDMLSIC
RNS Number : 7516K
Lifeline Scientific, Inc
26 September 2016
Lifeline Scientific, Inc.
("LSI" and or the "Company")
Half-year Report
Lifeline Scientific (AIM: LSIC), the transplantation technology
company, announces its half yearly results for the six months ended
30 June 2016. The Company is pleased to report solid progress in
H1, achieving top line growth whilst advancing planned new product
and territory expansion initiatives.
Financial highlights
-- Transplantation products and services revenues up by 21.1% to US$18.2m (H1 2015: US$15.0m)
-- North America revenues up 20.4% to US$15.0m (H1 2015:
US$12.4m)
-- Revenue outside of North America of US$3.2m up 24.4% (H1
2015: US$2.6m) representing 17.7% of total revenue (H1 2015:
17.2%)
-- LifePort(R) proprietary consumables up 24.7% to US$10.6m (H1
2015: US$8.5m)
-- Gross profit increased 27.9% to US$11.4m (H1 2015: US$8.9m)
-- Income from operations increased US$1.9m to US$2.0m (2015: US$0.1m)
-- Net income increased US$1.8m to US$1.9m (H1 2015: US$0.1m)
-- Net cash generated from operations of US$1.6m (H1 2015: US$1.0m)
-- Cash of US$7.5m as of 30 June 2016 (as of 31 December 2015: US$6.9m)
Operational highlights
-- Installed base of LifePort Kidney Transporters grew to 219
transplant programmes in 32 countries worldwide (H1 2015: 204
programmes in 28 countries)
-- Established six new LifePort sites in Europe and Middle East
-- US FDA review progressing for LifePort Liver Transporter
-- Several new patents issued supporting LifePort and related products
David Kravitz, Chief Executive Officer of Lifeline, said:
"Achievements during the first half of 2016 have helped grow our
diverse commercial base from which we will continue to expand the
Company's support of clinical transplant markets worldwide. Whilst
the first half of 2016 has been materially better than the same
period last year, the overall performance for the full year is
presently expected to be broadly in line with 2015 due to
exceptional demand in H1 2016 normalising in the second half. Our
focus remains on the development and commercialisation of products
and services designed to improve patient outcomes in
transplantation."
For further information, please contact:
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)7980 541 893
Lianne Cawthorne Mob: +44 (0)7584 391 303
About Lifeline Scientific Inc.
Lifeline Scientific, Inc. is a Chicago-based global medical
technology company with regional offices in Brussels and São 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 (HMP) 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 219 leading transplant programmes in 32 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 (LLT) is modelled upon the clinically
proven technology platform of LifePort Kidney Transporter and the
Company's early LLT prototype 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
Revenues from transplantation products and services were up
21.1% to US$18.2m (H1 2015: US$15.0m), representing overall growth
of 21.1% compared to the same period last year.
We continue to be successful in executing our strategic
initiatives of increasing revenues in core US and EU markets and
expanding our footprint in China and South America. North America
remains our largest market with revenues up 20.4% to US$15.0m (H1
2015: US$12.4m). Revenues outside North America were up by 24.4% to
US$3.2m (H1 2015: US$2.6m) and represent 17.7% of the total revenue
for the period (H1 2015: 17.2%). Our China based distributor placed
their initial major stocking order in December, 2015 following
China's FDA (CFDA) approval of our full product line. Revenues for
China were slightly down to US$135k (H1 2015: US$194k).
In France, adoption of the full suite of LifePort Kidney
Transporter products continues to increase with 38 Transplant and
Procurement centres in France and its territories deploying 133
LifePort Kidney Transporters. France remains one of the three
largest national markets for kidney transplant procedures in
Europe. Revenues for Europe were up 10.2% to US$2.6m (H1 2015:
US$2.3m).
LifePort proprietary consumable revenue is up 24.7% at US$10.6m
(H1 2015: US$8.5m) and sales of our solutions products increased by
22.4% to US$6.8m (H1 2015: US$5.6m. LifePort Kidney Transporter
unit sales were down slightly to US$0.4m year-on-year (H1 2015:
US$0.5m).
Gross profit increased 27.9% to US$11.4m (H1 2015: US$8.9m), due
primarily to growth in trading during H1 and an increase in the
proportion of higher margin proprietary consumables sold.
Net cash generated from operations for the period increased
significantly to US$1.6m (H1 2015: US$1.0m). The cash position of
the Company remains strong, with cash balances as of 30 June 2016
of US$7.5m (31 December 2015: US$6.9m). The Company remains debt
free having paid off its revolver balance of US$2.2m at year-end
2015.
The opportunities represented by Lifeline's existing business,
combined with CFDA approvals of our products and regulatory process
advancement for our LifePort Liver Transporter, keep Lifeline's
prospects strong for the balance of 2016 and beyond.
Post period-end, the Company provided an update on the status of
its Strategic Review process which commenced following the 21
September 2015 announcement that LSI would undertake a
comprehensive review of strategic and financial alternatives to
enhance shareholder value. On 2 September 2016, we announced that
we had entered into a definitive merger agreement with Shanghai
Genext Medical Technology Co., Ltd ("SGM") in which SGM would
acquire LSI for approximately US$87.8m in cash (the "Acquisition"),
equating to an offer price of approximately 312 pence per share
based on the US Dollar to British Pound Sterling exchange rate at
the time of announcement (being 1.310) (1) , which represents a
51.3% premium to the mid-market closing price on 18 September
2015(2) . If approved by LSI shareholders, upon Closing, this all
cash offer will provide full liquidity for LSI shareholders of
record as of the Closing date and will also create one of the
largest and fastest growing international medical technology
companies serving the clinical transplant sector.
(1) the exact amount per share to be paid in British Pounds
Sterling will be determined at the closing of the Acquisition,
based on the US Dollar to British Pound Sterling exchange rate
reported by the Financial Times at such time
(2) being the last dealing day prior to the date that Lifeline
first announced the Company would launch a comprehensive review of
strategic and financial alternatives to enhance shareholder
value
John Garcia
Chairman
26 September 2016
Chief Executive Officer's review
During the first six months of the year, we have been encouraged
by continued strong growth in key geographic markets. This is a
result of our on-going focus on growth in our North American based
business combined with continued geographic expansion in Europe,
South America and China. For the first six months of 2016, revenues
outside of North America have grown to US$3.2m, representing 17.7%
of total turnover.
Geographic Expansion
North America
Growth in our North America base continues, with sales
significantly ahead of the same period last year. The increase is
due in part to contributions from a number of significant new
accounts acquired in 2015.
Strategic Europe
We have established an additional six new LifePort sites in
Europe and the Middle East. As the experience of using the LifePort
to improve transplantation services increases, we are confident
that more transplant centres across Europe will adopt LifePort in
the near future.
Rest of World
Underpinning our strategy for growth in South America, Brazil
continues to represent the largest and highest potential market for
our products in South America, and our largest country customer
to-date, with sales of more than US$500k for the period. Based upon
reported significant improvement in transplant outcomes with
LifePort vs standard of care, we remain confident that South
America and, in particular Brazil, will contribute significantly to
the growth of non-US sales in the coming years.
China
Since CFDA approval of LifePort Kidney Transporter in 4Q15, LSI
has been working closely with its China based distributor to
support their phased commercial launch to the nation's reported 169
renal transplant centres. Initial stocking orders were placed by
our distributor during 4Q15 and we are anticipating additional
stocking orders throughout the balance of 2016 in support of their
product roll-out.
New Product Innovations
The Company's focus on new product innovations for the remainder
of 2016 will be on preparations for commercial launch of our
LifePort Liver Transporter System which is currently progressing
through regulatory review.
Outlook
Achievements during the first half of 2016 have given us a
strong and increasingly diverse commercial base from which to
expand the Company's future efforts in support of transplant
markets worldwide. Whilst the first half of 2016 has been
materially better than the same period last year, the overall
performance for the full year is presently expected to be broadly
in line with 2015, due to exceptional demand in H1 2016 normalising
in the second half.
David Kravitz
Chief Executive Officer
26 September 2016
LIFELINE SCIENTIFIC, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
30 June 2016 and 2015
CONSOLIDATED BALANCE SHEETS
30 June 2016 and 2015 (In US Dollars unless otherwise noted)
UNAUDITED
2016 2015
US$ US$
----------------------------------------------- ------------- -------------
Current Assets
----------------------------------------------- ------------- -------------
Cash and cash equivalents 7,474,263 3,052,021
----------------------------------------------- ------------- -------------
Receivables
----------------------------------------------- ------------- -------------
Customers (net of allowance for doubtful
accounts of $224,370 and $308,000 as of
30 June 2016 and 2015, respectively) 8,260,770 6,508,385
----------------------------------------------- ------------- -------------
Grant - 12,000
----------------------------------------------- ------------- -------------
Deferred tax assets 97,472 97,472
----------------------------------------------- ------------- -------------
Income taxes receivable 44,166 56,030
----------------------------------------------- ------------- -------------
Inventories, net 6,787,436 6,830,276
----------------------------------------------- ------------- -------------
Prepaid expenses, deposits, and other 1,302,936 1,254,061
----------------------------------------------- ------------- -------------
Total Current Assets 23,967,043 17,810,245
----------------------------------------------- ------------- -------------
Non-current Assets
----------------------------------------------- ------------- -------------
Property and equipment (net of accumulated
depreciation and amortisation) 3,396,632 3,284,459
----------------------------------------------- ------------- -------------
Intangibles (net of accumulated amortisation) 5,708,301 4,899,709
----------------------------------------------- ------------- -------------
Deferred tax assets 10,042,213 3,242,213
----------------------------------------------- ------------- -------------
Goodwill 64,710 64,710
----------------------------------------------- ------------- -------------
Other - 67,671
----------------------------------------------- ------------- -------------
Total Non-current Assets 19,211,856 11,558,762
----------------------------------------------- ------------- -------------
Total Assets 43,178,899 29,369,007
----------------------------------------------- ------------- -------------
Current Liabilities
----------------------------------------------- ------------- -------------
Revolving line of credit - 2,171,147
----------------------------------------------- ------------- -------------
Accounts payable 3,362,644 1,173,453
----------------------------------------------- ------------- -------------
Capital lease obligations due within one
year 15,559 18,630
----------------------------------------------- ------------- -------------
Accrued expenses
----------------------------------------------- ------------- -------------
Interest due within one year - 6,186
----------------------------------------------- ------------- -------------
Salaries and other compensation 841,813 706,056
----------------------------------------------- ------------- -------------
Other 1,013,059 1,565,080
----------------------------------------------- ------------- -------------
Deferred rent 80,822 83,162
----------------------------------------------- ------------- -------------
Deferred revenue 120,382 106,728
----------------------------------------------- ------------- -------------
Total Current Liabilities 5,434,279 5,830,442
----------------------------------------------- ------------- -------------
Non-current Liabilities
----------------------------------------------- ------------- -------------
Deferred rent (net of portion included
in current liabilities) 322,056 245,361
----------------------------------------------- ------------- -------------
Capital leases (net of portion included
in current liabilities) 23,901 39,946
----------------------------------------------- ------------- -------------
Total Non-current Liabilities 345,957 285,307
----------------------------------------------- ------------- -------------
Total Liabilities 5,780,236 6,115,749
----------------------------------------------- ------------- -------------
Stockholders' Equity
----------------------------------------------- ------------- -------------
Common stock, $0.01 par value; authorized
- 30,000,000 shares; issued and outstanding
19,530,031 and 19,516,434 shares as of
30 June 2016 and 2015, respectively 195,300 195,164
----------------------------------------------- ------------- -------------
Additional paid-in capital 93,738,433 93,674,973
----------------------------------------------- ------------- -------------
Other accumulated comprehensive loss (817,555) (750,533)
----------------------------------------------- ------------- -------------
Accumulated deficit (55,717,515) (69,866,346)
----------------------------------------------- ------------- -------------
Total Stockholders' Equity 37,398,663 23,253,258
----------------------------------------------- ------------- -------------
Total Liabilities and Stockholders' Equity 43,178,899 29,369,007
----------------------------------------------- ------------- -------------
CONSOLIDATED STATEMENTS OF OPERATIONS
six months to 30 June 2016 and 2015 (In US Dollars unless
otherwise noted) UNAUDITED
2016 2015
US$ US$
--------------------------------------------- ----------- -----------
Net revenue
--------------------------------------------- ----------- -----------
Product sales and service fee revenue 18,187,195 15,019,466
--------------------------------------------- ----------- -----------
Total net revenue 18,187,195 15,019,466
--------------------------------------------- ----------- -----------
Cost of revenue 6,744,490 6,070,896
--------------------------------------------- ----------- -----------
Gross profit 11,442,705 8,948,570
--------------------------------------------- ----------- -----------
Gross profit percentage 62.9% 59.6%
--------------------------------------------- ----------- -----------
Operating expenses
--------------------------------------------- ----------- -----------
Research and development 371,125 512,662
--------------------------------------------- ----------- -----------
Selling, general, and administrative 9,046,142 8,261,543
--------------------------------------------- ----------- -----------
Loss from disposal of property and
equipment 3,351 3,979
--------------------------------------------- ----------- -----------
Loss from abandonment of intangibles - 35,539
--------------------------------------------- ----------- -----------
Total operating expenses 9,420,618 8,813,723
--------------------------------------------- ----------- -----------
Income from operations 2,022,087 134,847
--------------------------------------------- ----------- -----------
Other expense (income)
--------------------------------------------- ----------- -----------
Interest expense 2,661 37,087
--------------------------------------------- ----------- -----------
Interest income (715) (348)
--------------------------------------------- ----------- -----------
Total other expense 1,946 36,739
--------------------------------------------- ----------- -----------
Income before income taxes 2,020,141 98,108
--------------------------------------------- ----------- -----------
Income tax expense 83,599 3,197
--------------------------------------------- ----------- -----------
Net income 1,936,542 94,911
--------------------------------------------- ----------- -----------
Basic income per share 0.10 0.00
--------------------------------------------- ----------- -----------
Diluted income per share 0.09 0.00
--------------------------------------------- ----------- -----------
Basic weighted average shares outstanding
(in shares) 19,530,031 19,498,865
--------------------------------------------- ----------- -----------
Diluted weighted average shares outstanding
(in shares) 20,448,415 20,077,680
--------------------------------------------- ----------- -----------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
six months to 30 June 2016 and 2015 (In US Dollars unless
otherwise noted) UNAUDITED
2016 2015
US$ US$
------------------------------ ---------- ----------
Net income 1,936,542 94,911
------------------------------ ---------- ----------
Foreign currency translation 14,827 (228,238)
------------------------------ ---------- ----------
Comprehensive income (loss) 1,951,369 (133,327)
------------------------------ ---------- ----------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS's EQUITY
six months to 30 June 2016 and 2015 (In US Dollars unless
otherwise noted) UNAUDITED
Lifeline Scientific, Inc. Stockholders
------------------- -------------------------------------------------------------------------------------------------
Other Accumulated
Additional Comprehensive Accumulated
Total Shares Par Value Paid-in Capital Loss Deficit
------------------- ----------- ----------- ---------- ------------------ ------------------ -------------------
US$ US$ US$ US$ US$
------------------- ----------- ----------- ---------- ------------------ ------------------ -------------------
Balance, 1 January
2015 23,261,074 19,496,434 194,964 93,549,662 (522,295) (69,961,257)
------------------- ----------- ----------- ---------- ------------------ ------------------ -------------------
Issuance of common
stock in
conjunction with
option exercise 11,903 20,000 200 11,703 - -
------------------- ----------- ----------- ---------- ------------------ ------------------ -------------------
Stock-based
compensation 113,608 - - 113,608 - -
------------------- ----------- ----------- ---------- ------------------ ------------------ -------------------
Foreign currency
translation (228,238) - - - (228,238) -
------------------- ----------- ----------- ---------- ------------------ ------------------ -------------------
Net income 94,911 - - - - 94,911
------------------- ----------- ----------- ---------- ------------------ ------------------ -------------------
Balance, 30 June
2015 23,253,258 19,516,434 195,164 93,674,973 (750,533) (69,866,346)
------------------- ----------- ----------- ---------- ------------------ ------------------ -------------------
Balance, 1 January
2016 35,417,185 19,530,031 195,300 93,708,324 (832,382) (57,654,057)
------------------- ----------- ----------- ---------- ------------------ ------------------ -------------------
Stock-based
compensation 30,109 - - 30,109 - -
------------------- ----------- ----------- ---------- ------------------ ------------------ -------------------
Foreign currency
translation 14,827 - - - 14,827 -
------------------- ----------- ----------- ---------- ------------------ ------------------ -------------------
Net income 1,936,542 - - - - 1,936,542
------------------- ----------- ----------- ---------- ------------------ ------------------ -------------------
Balance, 30 June
2016 37,398,663 19,530,031 195,300 93,738,433 (817,555) (55,717,515)
------------------- ----------- ----------- ---------- ------------------ ------------------ -------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
six months to 30 June 2016 and 2015 (In US Dollars unless
otherwise noted) UNAUDITED
2016 2015
US$ US$
----------------------------------------------- ------------ ------------
Cash flows from operating activities
----------------------------------------------- ------------ ------------
Net income 1,936,542 94,911
----------------------------------------------- ------------ ------------
Adjustments to reconcile net income to
net cash provided by operating activities:
----------------------------------------------- ------------ ------------
Depreciation and amortisation of property
and equipment 538,004 471,590
----------------------------------------------- ------------ ------------
Amortisation of intangibles 115,247 112,219
----------------------------------------------- ------------ ------------
Stock-based compensation 30,109 113,608
----------------------------------------------- ------------ ------------
Loss on disposal of property and equipment 3,351 3,979
----------------------------------------------- ------------ ------------
Loss on abandonment of intangibles - 35,539
----------------------------------------------- ------------ ------------
(Increase) decrease in:
----------------------------------------------- ------------ ------------
Receivables 1,571,558 2,487,086
----------------------------------------------- ------------ ------------
Inventories (1,706,680) (922,366)
----------------------------------------------- ------------ ------------
Prepaid expenses and deposits (331,235) (440,334)
----------------------------------------------- ------------ ------------
Other assets (53,357) 267,793
----------------------------------------------- ------------ ------------
Increase (decrease) in:
----------------------------------------------- ------------ ------------
Accounts payable 352,865 (1,186,997)
----------------------------------------------- ------------ ------------
Accrued expenses (757,671) (218,918)
----------------------------------------------- ------------ ------------
Deferred revenue 14,599 61,350
----------------------------------------------- ------------ ------------
Deferred rent 43,672 75,504
----------------------------------------------- ------------ ------------
Other liabilities (175,434) -
----------------------------------------------- ------------ ------------
Total adjustments (354,972) 860,053
----------------------------------------------- ------------ ------------
Net cash provided by operating activities 1,581,570 954,964
----------------------------------------------- ------------ ------------
Cash flows from investing activities
----------------------------------------------- ------------ ------------
Payments related to intangible assets
and legal fees
----------------------------------------------- ------------ ------------
associated with patent filings (625,892) (610,420)
----------------------------------------------- ------------ ------------
Capital expenditures (387,941) (505,524)
----------------------------------------------- ------------ ------------
Proceeds from sales of property and equipment 18,409 -
----------------------------------------------- ------------ ------------
Net cash used in investing activities (995,424) (1,115,944)
----------------------------------------------- ------------ ------------
Cash flows from financing activities
----------------------------------------------- ------------ ------------
Cash received from option exercises - 11,903
----------------------------------------------- ------------ ------------
Repayments under capital lease obligations,
net (7,037) (14,520)
----------------------------------------------- ------------ ------------
Principal payments on long-term debt - (2,106)
----------------------------------------------- ------------ ------------
Net cash used in financing activities (7,037) (4,723)
----------------------------------------------- ------------ ------------
Effect of foreign currency exchange rate
changes on cash (10,097) (106,053)
----------------------------------------------- ------------ ------------
Net increase (decrease) in cash and cash
equivalents 569,012 (271,756)
----------------------------------------------- ------------ ------------
Cash and cash equivalents, beginning of
period 6,905,251 3,323,777
----------------------------------------------- ------------ ------------
Cash and cash equivalents, end of period 7,474,263 3,052,021
----------------------------------------------- ------------ ------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General: The accompanying condensed consolidated financial
statements of Lifeline Scientific, Inc. (the "Company") are
unaudited and do not include all of the footnotes required by
accounting principles generally accepted in the United States of
America ("US GAAP"). In the opinion of management of the Company,
these condensed consolidated financial statements contain all
adjustments necessary for a fair presentation of the results for
the interim periods presented. These statements should be read in
conjunction with the Company's annual report as of and for the year
ended 31 December 2015.
Principles of Consolidation: The Company was incorporated in the
state of Delaware as Organ Recovery Systems, Inc. on 1 October
1998. On 20 December 2007, the Company changed its name to Lifeline
Scientific, Inc. The Company is consolidated with the following
wholly-owned subsidiaries:
ORS Europe, NV
Cell and Tissue Systems, Inc.
Organ Recovery Systems, Inc.
ORS Representacoes do Brasil LTDA
Intercompany balances and transactions have been eliminated in
consolidation.
On 19 December 2014, the Company jointly formed Tissue Testing
Technologies LLC ("T3") with another party. T3 was formed to meet
regulatory requirements in order to obtain research grants from
various government sources. Under the terms of the operating
agreement, the Company owns 49% of T3 and the other party owns 51%.
The Company has not made an investment in T3 as of 30 June 2016 and
2015. There are two receivables in other current assets at 30 June
2016 totalling US$22,234 for start-up loans made by the Company to
T3. T3 made monthly payments of US$2,265 on these loans during the
six months ended 30 June 2016 and 2015. The loans are expected to
be paid off by 30 June 2017.
Cash and Cash Equivalents: The Company considers all money
market accounts and short-term investments with an original
maturity of three months or less and US Treasury money markets to
be cash equivalents. The majority of cash and cash equivalents as
of 30 June 2016 and 30 June 2015 were held through a single
financial institution, and the balances held at times may exceed
federally insured limits. The Company has not experienced any
losses in such accounts. The Company believes it is not exposed to
any significant credit risk on cash and cash equivalents.
Receivables: Receivables are carried at original invoice or
closing statement amount less estimates made for doubtful
receivables. Management determines the allowance for doubtful
accounts by reviewing and identifying troubled accounts on a
monthly basis and by using historical experience applied to an
aging of accounts. A receivable is considered to be past due if any
portion of the receivable balance is outstanding for more than 90
days. The Company does not charge interest on past due receivables.
Receivables are written off when deemed uncollectible. Recoveries
of receivables previously written off are recorded when
received.
Inventories: Inventories are valued at the lower of cost
(first-in, first-out) or market.
Depreciation and Amortisation: The Company's policy is to
depreciate or amortise the cost of property and equipment over the
estimated useful lives of the assets using the straight-line
method. The cost of leasehold improvements is amortised over the
estimated useful lives, or the applicable lease term, if
shorter.
Years
------------------------- ------
Computer equipment 3-5
------------------------- ------
Furniture and fixtures 5-7
------------------------- ------
Equipment under capital
lease 5-7
------------------------- ------
Laboratory equipment 3-7
------------------------- ------
Leasehold improvements 5-8
------------------------- ------
Tooling and moulds 1-15
------------------------- ------
Vehicles 5
------------------------- ------
Long-Lived Assets: Long-lived assets to be held are reviewed for
events or changes in circumstances that indicate that their
carrying value may not be recoverable. The Company periodically
reviews the carrying value of long-lived assets to determine
whether or not an impairment to such value has occurred. Management
of the Company believes that no impairment of long-lived assets
exists as of 30 June 2016 and 2015.
Intangibles: The cost of intangible assets is being amortised
over the remaining lives of the assets acquired as follows:
Years
--------------------- ------
Certification marks 20
--------------------- ------
Patents 17
--------------------- ------
Licensing agreement 10
--------------------- ------
Professional and regulatory fees associated with obtaining the
licenses that enable the Company to sell its products (i.e.
certification marks) are capitalised and amortised over the shorter
of the useful life of the related licenses or 20 years. Legal fees
associated with filings for patents that are pending are
capitalised if management believes that it is probable that such
patent applications will be successful. Patent costs are not
amortised until the patent is obtained. During the year ended 31
December 2010, the Company signed an agreement that allows for the
licensing of technology to support the Company's product
development efforts. The agreement is being amortised over the
remaining estimated life of the licensed technology, or 10
years.
Goodwill: Goodwill results from business acquisitions and
represents the excess of the purchase price over the fair value of
acquired tangible assets and liabilities and identifiable
intangible assets. In accordance with accounting for goodwill under
US GAAP, goodwill is not amortised, but instead tested for
impairment on an annual basis. The Company has applied Financial
Accounting Standards Board ("FASB") Accounting Standards Update
("ASU") No. 2011-08, "Testing Goodwill for Impairment", in
connection with the performance of the annual goodwill impairment
test. Under FASB ASU 2011-08, entities are provided with the option
of first performing a qualitative assessment on none, some, or all
of its reporting units to determine whether further quantitative
impairment testing is necessary. An entity may also bypass the
qualitative assessment for any reporting unit in any period and
proceed directly to the quantitative impairment test.
Goodwill must be tested on an annual basis or if an event occurs
or circumstances change that would more likely than not reduce the
fair value of the reporting unit below its carrying amount. During
the six months ended 31 December 2015, the Company was not required
to record any impairments to the carrying value of goodwill or
indefinite-lived intangible assets. During the six months ended 30
June 2016 and 2015, the Company identified no events or
circumstances that would trigger an interim assessment of
goodwill.
Deferred Rent: Minimum rent expense is recognised over the term
of the lease. The Company recognises minimum rent starting when
possession of the property is taken from the landlord. When a lease
contains a predetermined fixed escalation of the minimum rent, rent
expense is recognised on a straight-line basis. Any difference
between the recognised rent expense and the amounts payable under
the lease is reported as deferred rent in the consolidated balance
sheets. The Company records include a tenant allowance on its
facility lease in Itasca, Illinois, which is recorded as a
component of deferred rent and amortised as a reduction to rent
expense over the term of the lease. Future payments for common area
maintenance, insurance, real estate taxes, and other occupancy
costs to which the Company is obligated are excluded from future
minimum lease payments.
Fair Value of Financial Instruments: US GAAP defines fair value
as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants as of the measurement date. US GAAP describes three
approaches to measuring the fair value of assets and liabilities:
the market approach, the income approach, and the cost approach.
Each approach includes multiple valuation techniques. US GAAP does
not prescribe which valuation technique should be used when
measuring fair value, but does establish a fair value hierarchy
that prioritises the inputs used in applying the various
techniques. Inputs broadly refer to the assumptions that market
participants use to make pricing decisions, including assumptions
about risk. Level 1 inputs are given the highest priority in the
hierarchy while Level 3 inputs are given the lowest priority.
Assets and liabilities carried at fair value are classified in one
of the following three categories based on the nature of the inputs
to the valuation technique used:
Level Observable inputs that reflect unadjusted quoted
1 - prices for identical assets or liabilities in active
markets as of the reporting date. Active markets
are those in which transactions for the asset or
liability occur in sufficient frequency and volume
to provide pricing information on an ongoing basis.
Level Observable market-based inputs or unobservable inputs
2 - that are corroborated by market data.
Level Unobservable inputs that are not corroborated by
3 - market data. These inputs reflect management's best
estimate of fair value using its own assumptions
about the assumptions a market participant would
use in pricing the asset or liability.
The carrying values of cash and cash equivalents, accounts
receivable, and accounts payable approximate their fair values
because of the short-term nature of these instruments. The carrying
values of long-term debt and the revolving line of credit
approximate their fair values as the stated interest rates
approximate current market interest rates of long-term debt and
revolving lines of credit with similar terms.
Product Warranty: Estimated future costs applicable to products
sold under warranty are charged to expense in the year of sale and
the related liability is classified as current. The accrued
warranty liability as of 30 June 2016 and 2015 was $181,555 and
$168,047, respectively.
Revenue Recognition: Product sales revenue is recognised upon
shipment of product to the client. Service fee revenue is
recognised when services are performed. Deferred and unbilled
revenue is recognised in the consolidated balance sheets.
The Company sells extended warranties on its LifePort product
for a specific period of months. This revenue is deferred and
recognised over the term of the warranties on a straight-line
basis.
Income Taxes: Income taxes are provided for the tax effects of
transactions reported in the condensed consolidated financial
statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of property and
equipment, bad debts, intangibles, and accrued expenses for
financial and income tax reporting. The deferred tax assets and
liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled. The carrying value
of the Company's deferred tax assets is dependent upon its ability
to generate sufficient taxable income in the future. The Company
has established a valuation allowance against its net deferred tax
assets to reflect the uncertainty of realising the deferred tax
benefits, given historical losses and limited history of current
earnings. A valuation allowance is required when it is more likely
than not that all or a portion of a deferred tax asset will not be
realised. During the six months ended 31 December 2015, $6,800,000
of the valuation allowance was reversed to reflect the likelihood
of future taxable income, which will most likely result in the
utilisation of a portion of the Company's net operating losses.
During the six months ended 30 June 2016, the Company determined no
change to this estimate was required.
The Company is subject to US federal, state, and local taxes as
well as foreign taxes in Belgium and Brazil. The Company's tax
years extending back to the year ended 31 December 2011 remain open
to examination for both federal and state jurisdictions; for
foreign jurisdictions the Company's tax years extending back to
December 31, 2012 remain open for examination. The Company's policy
is to recognise interest and penalties related to uncertain tax
positions as a component of income tax expense. During the six
months ended 30 June 2016 and 2015, the Company did not recognise
expense for interest and penalties. As of 30 June 2016 and 2015,
the Company had $150,000 and $137,000, respectively, accrued for
the payment of interest and penalties. The Company does not expect
the total amount of unrecognised tax benefits to significantly
change during the next 12 months.
The Company's condensed consolidated financial statements
provide for any related US tax liabilities on earnings of foreign
subsidiaries that may be repatriated, aside from qualifying
undistributed earnings of certain foreign subsidiaries that are
intended to be indefinitely reinvested in operations outside of the
US.
The Company accounts for unrecognised tax benefits in accordance
with US GAAP, which prescribes a more likely than not threshold for
condensed consolidated financial statement presentation and
measurement of a tax position taken or expected to be taken in a
tax return. A tax position is recognised as a benefit only if it is
"more likely than not" that the tax position would be sustained in
a tax examination, with a tax examination being presumed to occur.
The amount recognised is the largest amount of tax benefit that is
greater than 50% likely of being realised on examination. For tax
positions not meeting the "more likely than not" test, no tax
benefit is recorded.
Stock Options: In accordance with US GAAP, the Company accounts
for the cost of employee services received in exchange for an award
of equity instruments utilising the grant date fair value of the
award. Stock-based awards that do not require future service (i.e.,
vested awards) are expensed immediately. The expense associated
with stock-based employee awards that require future service are
amortised over the relevant service period.
Management Estimates: The preparation of condensed consolidated
financial statements in conformity with US GAAP requires management
to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of the condensed consolidated financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates. The estimates included by the Company in these condensed
consolidated financial statements relate to warranty reserves,
allowance for doubtful accounts, the allowance for excess and
obsolete inventories, the useful lives of patents and the license
agreement, the useful lives of depreciable property and equipment,
and the valuation allowance for deferred tax assets.
Research and Development: Expenditures relating to the
development of new products and procedures are expensed as
incurred.
Foreign Currency Translation: The financial position and results
of operations of the Company's foreign subsidiaries are measured
using the subsidiary's local currency as the functional currency.
Assets and liabilities of the foreign subsidiaries are translated
to US dollars using exchange rates in effect as of the consolidated
balance sheet dates. Income and expense items are translated at
monthly average rates of exchange. The resultant translation gains
or losses are included as part of the components of stockholders'
equity designated as other comprehensive loss.
Contingencies: From time to time, the Company may experience
litigation arising in the ordinary course of business. These claims
are evaluated for possible exposure by management of the Company
and their legal counsel. The company believes that the ultimate
resolution of any such matters will not have a material adverse
effect on its condensed consolidated financial position.
NOTE 2 - INVENTORIES
Inventories consist of the following as of 30 June 2016 and
2015:
2016 2015
US$ US$
--------------------------------------- ---------- ----------
Medical devices, parts, and solutions 6,960,452 6,004,709
--------------------------------------- ---------- ----------
Raw materials 534,214 1,015,567
--------------------------------------- ---------- ----------
Inventory reserve (707,230) (190,000)
--------------------------------------- ---------- ----------
Inventory, net 6,787,436 6,830,276
--------------------------------------- ---------- ----------
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of 30 June
2016 and 2015:
2016 2015
US$ US$
------------------------------------------- ------------ ------------
Property and equipment in progress 578,718 340,564
------------------------------------------- ------------ ------------
Computer equipment 666,103 626,386
------------------------------------------- ------------ ------------
Furniture and fixtures 856,970 832,946
------------------------------------------- ------------ ------------
Equipment under capital lease 107,415 109,468
------------------------------------------- ------------ ------------
Laboratory equipment 3,327,249 2,991,381
------------------------------------------- ------------ ------------
Leasehold improvements 1,251,425 1,134,308
------------------------------------------- ------------ ------------
Tooling and moulds 2,123,102 1,717,619
------------------------------------------- ------------ ------------
Vehicles 130,270 131,180
------------------------------------------- ------------ ------------
9,041,252 7,883,852
------------------------------------------- ------------ ------------
Accumulated depreciation and amortisation (5,644,620) (4,599,393)
------------------------------------------- ------------ ------------
Property and equipment, net 3,396,632 3,284,459
------------------------------------------- ------------ ------------
During the six months ended 30 June 2016 and 30 June 2015, the
Company recognised property and equipment depreciation and
amortisation expense of $538,004 and $471,590 respectively.
NOTE 4 - INTANGIBLES
Intangible assets consist of the following as of 30 June 2016
and 2015:
2016 2015
US$ US$
-------------------------------- ------------ ------------
Licensing agreement 141,931 141,931
-------------------------------- ------------ ------------
Regulatory certification fees 1,667,045 1,133,242
-------------------------------- ------------ ------------
Patents issued 2,756,935 2,519,092
-------------------------------- ------------ ------------
Patents pending 2,504,959 2,229,582
-------------------------------- ------------ ------------
7,070,870 6,023,847
-------------------------------- ------------ ------------
Less: Accumulated amortisation (1,362,569) (1,124,138)
-------------------------------- ------------ ------------
Intangibles, net 5,708,301 4,899,709
-------------------------------- ------------ ------------
During the six months ended 30 June 2016 and 30 June 2015, the
Company recognised intangible amortisation expense of $115,247 and
$112,219, respectively. During the six months ended 30 June 2016
and 30 June 2015, the Company abandoned patents issued and patents
pending with an original cost of $0 and $35,539, respectively.
NOTE 5 - LINE OF CREDIT AGREEMENT
On 18 September 2014, the Company entered into a loan and
security agreement with The PrivateBank and Trust Company ("PB").
The loan and security agreement provides for a revolving line of
credit, not to exceed an aggregate principal amount of $6,000,000
but limited to qualifying receivables and inventories, as defined.
The outstanding principal under the loan and security agreement
accrues interest at PB's prime rate, as defined. The loan and
security agreement contains financial covenants which require the
Company to maintain a minimum tangible net worth, as defined, and a
minimum fixed charge coverage ratio, as defined. The Company was in
compliance with its financial covenants as of 30 June 2016 and
2015. As of 30 June 2016 and 2015, there was US$0 and US$2,171,147,
respectively, outstanding on the revolving line of credit. The loan
and security agreement is secured by substantially all assets of
the Company, and expires 31 August 2016. PB has formal credit
approval to increase the line of credit to $10,000,000 and extend
maturity through 31 August 2017 with the remaining open items of
legal documentation currently in process.
NOTE 6 - INCOME TAXES
At the end of its interim six month periods, the Company makes
its best estimate of the annual expected effective income tax rate
and applies that rate to its ordinary earnings or loss for each six
month interim period. The income tax provision or benefit related
to significant, unusual, or extraordinary items, if applicable,
that will be separately reported or reported net of their related
tax effects are individually computed and recognised in the six
month interim period in which those items occur. In addition, the
effect of changes in enacted tax laws or rates, tax status,
judgment on the realisability of a beginning of the year tax asset
in future years or income tax contingencies is recognised in the
six month interim period in which the change occurs.
The computation of the annual expected effective income tax rate
at each six month interim period requires certain estimates and
assumptions including, but not limited to, the expected pre-tax
loss for the year, projections of the proportion of loss taxed in
foreign jurisdictions, permanent and temporary differences, and the
likelihood of the realisability of deferred tax assets generated in
the current year. The accounting estimates used to compute the
provision or benefit for income taxes may change as new events
occur, more experience is acquired, additional information is
obtained, or the Company's tax environment changes.
Income tax expense consists of the following components for the
six months ended 30 June 2016 and 2015:
2016 2015
US$ US$
--------------------------- ------- ---------
Current expense (benefit)
--------------------------- ------- ---------
Federal 32,822 (27,739)
--------------------------- ------- ---------
Foreign 30,777 10,936
--------------------------- ------- ---------
State 20,000 20,000
--------------------------- ------- ---------
Total income tax expense 83,599 3,197
--------------------------- ------- ---------
The net deferred tax assets (liabilities) in the accompanying
condensed consolidated balance sheets include the following
components as of 30 June 2016 and 2015:
2016 2015
US$ US$
-------------------------- ------------ -------------
Deferred tax liabilities (1,959,658) (1,635,716)
-------------------------- ------------ -------------
Deferred tax assets 20,691,888 22,213,229
-------------------------- ------------ -------------
Net deferred tax assets 18,732,230 20,577,513
-------------------------- ------------ -------------
Valuation allowance (8,592,545) (17,237,828)
-------------------------- ------------ -------------
Net deferred tax assets 10,139,685 3,339,685
-------------------------- ------------ -------------
The income tax benefit differs from the federal statutory tax
rate generally as a result of changes in each jurisdiction's
valuation allowance and permanent differences, such as meals and
entertainment expenses. A valuation allowance has been provided to
reduce the deferred tax assets to the amount that is more likely
than not to be realised.
As of 30 June 2016, the Company has federal and state net
operating loss carryforwards totalling $56,238,000, which may be
used to offset future taxable income. If not used, the
carryforwards will expire as follows:
Year US $
-------------------------- -----------
2022 892,000
-------------------------- -----------
2023 7,720,000
-------------------------- -----------
2024 6,412,000
-------------------------- -----------
2025 11,136,000
-------------------------- -----------
2026 12,197,000
-------------------------- -----------
2027 14,131,000
-------------------------- -----------
2028 3,750,000
-------------------------- -----------
Total loss carryforwards 56,238,000
-------------------------- -----------
As a result of changes in ownership at the IPO date, the Company
estimates there will be future limitations on the utilisation of
operating loss carryforwards pursuant to Internal Revenue Code
Section 382. Any unused annual loss limitation carries forward to a
future year. The annual limitation on loss carryforwards that could
be utilised is approximately $2,600,000 after the six months ending
30 June 2016 and 30 June 2015. Additionally, the cumulative unused
loss limitation, which carried into the year ended 31 December
2015, was approximately $18,267,000.
NOTE 7 - STOCK OPTIONS
A summary of option activity under the Second Amended and
Restated Stock Option and Restricted Stock Plan (the "2007 Plan")
as of 30 June 2016 and 2015, and the changes during the six months
ended 30 June 2016 and 2015 is as follows:
Weighted- Weighted-
Average Average Aggregate
Exercise Remaining Intrinsic
Number Price Contractual Value
of Shares GBP Term GBP
----------------------------- ---------- ---------- ------------ ----------
Outstanding as of 1 January
2015 2,071,640 1.30 5.37 688,156
----------------------------- ---------- ---------- ------------ ----------
Exercised (20,000) 0.39
----------------------------- ---------- ---------- ------------ ----------
Forfeitures (4,375) 2.13
----------------------------- ---------- ---------- ------------ ----------
Expirations (4,000) 1.90
----------------------------- ---------- ---------- ------------ ----------
Outstanding as of 30 June
2015 2,043,265 1.30 4.87 1,306,908
----------------------------- ---------- ---------- ------------ ----------
Outstanding as of 1 January
2016 1,963,640 1.29 4.41 1,312,825
----------------------------- ---------- ---------- ------------ ----------
Granted 15,000 1.90
----------------------------- ---------- ---------- ------------ ----------
Forfeitures (1,750) 1.43
----------------------------- ---------- ---------- ------------ ----------
Expirations (1,750) 1.43
----------------------------- ---------- ---------- ------------ ----------
Outstanding as of 30 June
2016 1,975,140 1.29 3.95 3,181,124
----------------------------- ---------- ---------- ------------ ----------
Vested or expected to vest
as of 30 June 2016 1,973,427
----------------------------- ---------- ---------- ------------ ----------
Options exercisable as of
30 June 2016 1,904,438
----------------------------- ---------- ---------- ------------ ----------
The Company recognised compensation expense of $30,109 and
$113,608 for the six months ended 30 June 2016 and 2015,
respectively. As of 30 June 2016, there was approximately $47,743
of total unrecognised compensation cost related to nonvested
share-based compensation arrangements granted under the 2007 Plan.
That cost is expected to be recognised over a weighted-average
period of 0.6 years.
NOTE 8 - EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by
the weighted average number of shares of common stock outstanding
during the period. Diluted earnings per share include the dilutive
effect of stock options and warrants, using the treasury stock
method. The following table sets forth the computation of basic and
diluted earnings per share for the six months ended 30 June 2016
and 2015:
2016 2015
US$ US$
---------------------------------------------------- ----------- -----------
Net income attributed to common stock shareholders 1,936,542 94,911
---------------------------------------------------- ----------- -----------
Weighted average shares outstanding for
basic earnings per share 19,530,031 19,498,865
---------------------------------------------------- ----------- -----------
Dilutive effect of stock options 918,384 578,815
---------------------------------------------------- ----------- -----------
Weighted average shares outstanding for
diluted earnings per share 20,448,415 20,077,680
---------------------------------------------------- ----------- -----------
Basic income per share 0.10 0.00
---------------------------------------------------- ----------- -----------
Diluted income per share 0.09 0.00
---------------------------------------------------- ----------- -----------
NOTE 9 - RELATED PARTY TRANSACTIONS
During the year ended 31 December 2010, the Company entered into
a consulting agreement with a company in which Steven Mayer, a
former member of the Company's Board of Directors, is a director.
Mr. Mayer performed the consulting services. Fees for services
rendered under the consulting agreement were $7,500 for the six
months ended 30 June 2015. Mr. Mayer ceased to be a Director of the
Company on 25 June 2015.
Additionally, during the six months ended June 2016 and 2015,
the Company did business with a company in which David Kravitz and
Steven Mayer are directors and have an ownership interest. Fees for
research and development related products and services rendered
were $0 and $65,000 for the six months ended 30 June 2016 and 2015,
respectively. These payments represented expensed products and
services of $0 and $15,000 for the six months ended 30 June 2016
and 2015, respectively, and asset purchases of $0 and $50,000,
respectively.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR KZLFLQKFZBBV
(END) Dow Jones Newswires
September 26, 2016 02:00 ET (06:00 GMT)
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