TIDMLSI
RNS Number : 9507C
Lifeline Scientific, Inc
23 April 2013
23 April 2013
Lifeline Scientific, Inc.
("Lifeline" or "the Company")
Results for the Twelve Months Ended 31 December 2012
- Significant progress in geographical expansion and product
development -
Lifeline Scientific, the medical technology company, announces
results for the twelve months ended 31 December 2012. Lifeline is
focused on developing technologies to help improve clinical
outcomes in transplantation. Its lead product, LifePort(R) Kidney
Transporter, is a clinically proven, market leading renal
preservation and transport system designed to address the global
challenge of human donor organ shortages.
Financial Highlights
-- Total Revenue for the period US$30.2 million (2011: US$25.4
million) with Revenue from Transplantation products and services
increased by 20% to US$29.1 million (2011: US$24.2 million)
o Revenue from single-use disposables increased by 20% to
US$27.8 million (2011: US$23.1 million)
-- Revenue from outside North America increased 140% from US$2.2
million to US$5.3 million, driven by investments targeted at
geographic expansion
o Initial sales of US$1.3 million recorded in Brazil
-- Gross Profit increased 12.8% to US$18.3 million (2011:
US$16.2 million) demonstrating the underlying growth in the
business
-- Operating profit decreased to US$0.1 million (2011: US$1.9
million), or US$1.3 million before non-recurring items, reflecting
planned strategic investments in product development and geographic
expansion
o R&D spending increased to US$3.2 million in 2012 (2011:
US$2.4 million), reflecting the progression of the LifePort Liver
Transporter development
-- Cash of US$5.7 million at the period end (2011: US$9.4 million)
Operational Highlights
-- Commenced the sale of LifePort Kidney Transporter 1.1 which
includes several important new features including embedded GPS and
enhanced data capture of key organ performance measures
-- Regulatory approval received from Brazil for the company's
complete line of products and first commercial sales recorded
despite ANVISA public strike in June-September 2012
o First two LifePort clinical programmes in Brazil were
established in the states of Ceara and Rio
-- Regulatory approval received at year-end in the nation of
Colombia, a growing market in renal transplantation, for LifePort
Kidney Transporter, disposables and solution product line
-- Progressed LifePort's full portfolio of products through SFDA
registration in China in 2012, with approval anticipated for summer
2013, and pre-approval sales recorded
-- Commercial prototype of LifePort Liver Transporter presented
at the 24th International Congress of The Transplantation Society
in Berlin
-- Secured a national UK tender for an initial 2400 litre order
of Lifeline's SPS-1, a market leading solution used in organ
transplant procedures, and invitation to bid on UK national
multi-year tender
David Kravitz, Chief Executive Officer of Lifeline, said:
"2012 has been an important year for Lifeline, during which we
have made significant progress towards our twin growth objectives
of geographical expansion for our LifePort Kidney Transporter
product line and continued efforts to deliver market-driven
enhancements to our existing product lines and develop new
products.
I have been particularly satisfied with the regulatory and
commercial traction we achieved in Brazil, where the attainment of
regulatory approval for our full suite of LifePort Kidney
Transporter products enabled nation-wide market access and the
recording of our first sales in one of the world's largest national
transplant markets. Likewise, our efforts toward obtaining
regulatory clearances in China for our full suite of Kidney
transplant products have progressed well. I am also pleased to say
that the commercial prototype of LifePort Liver Transporter was
presented for the first time at the 24th International Congress of
The Transplantation Society in Berlin and received a strong
positive reception, marking a meaningful step in our commitment to
developing additional technologies to improve donor organ
availability and transplantation outcomes.
I remain confident that the marked increase in sales recorded
outside of North America, along with the progress made on key
product development efforts underscores the importance of the
strategic investments we have made throughout 2012 and how these
investments can accelerate revenue growth, profitability and
shareholder value."
For further information please contact:
Lifeline Scientific, Inc. +1 847-294-0300
David Kravitz, CEO
Panmure Gordon +44 (0)20 7886 2500
Freddy Crossley (Corporate Finance)
Adam Pollock / Victoria Boxall (Corporate
Broking)
FTI Consulting
Simon Conway / John Dineen +44 (0)20 7831 3113
About LifePort Kidney Transporter
Created with the challenges of organ recovery and transport in
mind, LifePort Kidney Transporter is a proprietary medical device
designed to provide improved kidney preservation, evaluation and
transport prior to transplantation. Today, it is widely recognised
as the world's leading machine preservation device for kidneys.
Employed by surgeons in over 140 leading transplant programmes in
25 countries worldwide, LifePorts have successfully preserved over
40,000 kidneys intended for clinical transplant. The product
provides a sealed, sterile, protected environment where a solution
is gently pumped through the kidney at cold temperatures to
minimise damage while the organ is outside the body. LifePort is
lightweight and portable, allowing organs to be perfused from the
time of recovery until transplant. It is designed to travel
unaccompanied by land or air, safely transporting the kidneys
across town or between countries. While the kidney is being
perfused, LifePort records data on temperature, flow rate, vascular
resistance and pressure every 10 seconds providing surgeons with
additional data prior to transplant. LifePort is the only system
with clinical outcomes data produced from an independent,
prospective, randomised, statistically powered, multi-centre
clinical trial. Study results have been widely published in
scientific journals, including the New England Journal of Medicine.
Data indicates that patients receiving LifePort preserved kidneys
experienced significant reduction in the incidence and duration of
delayed graft function and increased graft survival at 1-year and
3-years post transplant. LifePort has also been recognised for its
design and engineering. It has received prominent awards for design
excellence from the medical device industry, has been selected for
exhibition at the Smithsonian Cooper-Hewitt, National Design Museum
and is part of the permanent Collection of The Museum of Modern Art
(MoMA) in New York City.
Upcoming events
Expected mailing date for the annual report: 14th May 2013. It
will also be available on the Company website,
www.lifeline-scientific.com.
Date of Annual General Meeting: 12th June 2013.
About Lifeline Scientific Inc.
Lifeline Scientific, Inc. is a Chicago-based global medical
technology company with regional offices in Brussels and Sao Paulo.
The Company's focus is the development of innovative products that
improve transplant outcomes and lower the overall costs of
transplantation. Its lead product is the market-leading and
clinically validated LifePort Kidney Transporter. Devices for
preservation of the liver, pancreas, heart and lung are in late
stage pre-clinical development.
Chairman's Statement
I am pleased to report that 2012 was another year of strong
growth and positive new development for Lifeline Scientific.
Increased sales of LifePort Kidney Transporter and related
consumables, together with significant expansion of our organ
preservation solution business, continued to drive revenue growth,
with revenue increasing by 20% to US$29.1 million.
We continue to extend our global reach and top line growth,
which was advanced by expanding global usage of our core LifePort
business. While North American revenue increased by 8% to US$23.8
million, I am pleased to note that revenue from outside North
America increased significantly, by 140% to US$5.3 million. This
performance reflects the immense efforts and planned, targeted
investments we made to expand into high growth emerging
markets.
Gross profit increased 12.8% to US$18.3 million (2011: US$16.2),
demonstrating the underlying growth in business. Operating profit,
however, decreased to US$0.1 million (2011: US$1.9 million), or
US$1.3 million before non-recurring items (being US$1.2 million
spent in 2012 on the prosecution of a lawsuit against a competitor
and former vendor to the Company). This profit decrease reflects
planned strategic investments in product development and geographic
expansion, particularly the LifePort Liver Transporter. At year
end, we had cash in hand of US$5.7 million (2011: US$9.4
million).
Geographic Expansion
We achieved regulatory approval for the full LifePort product
line in Brazil (April 2012), leading to first-year sales of US$1.3
million (2011: US$nil). Although nation-wide labour strikes
effectively stopped our commercial activities for several months,
by year-end, we had established four LifePort clinical sites in
Brazil. We are now well positioned for growth within Brazil and
expansion into other South American countries.
We collaborated with our China-based distributor to support a
national LifePort Kidney Transporter demonstration study across
seven leading transplantation centres. China's State Food and Drug
Administration (SFDA) regulatory filings for our complete LifePort
and related product lines were advanced during 2012, with an aim
for full approval during 2013. China represents a potentially
significant new LifePort market for the Company.
Europe remains an important growth market for the Company, as
the practice of machine perfusion for kidneys continues to expand
in the region. The introduction of a national programme for machine
perfusion of all ECD kidneys in France was a welcome development
that should help progress our efforts in this important market.
Product Development
This year, record R&D expenditure of US$3.2 million (2011:
US$2.4 million) enabled us to make meaningful advances in
developing innovative, state-of-the-art solutions to help improve
the field of transplantation medicine. We delivered our first
upgrades to the LifePort Kidney Transporter platform, and in July,
the Company presented the first commercial prototype of our
LifePort Liver Transporter at an international transplant congress
in Berlin. Following design advancements based upon clinician
inputs from Berlin and focus groups in North America, preparations
for regulatory filings within the US and EU began with formal
submissions planned for 1H13.
Outlook
Lifeline Scientific is dedicated to developing technologies that
support the global transplantation community in their mission to
improve outcomes, and ultimately, the lives of those patients on
transplant waiting lists. We believe we have reached a peak in our
R&D investment, and expect the prudent investments made in
product development and emerging markets to strengthen our market
leadership and enable us to continue to build on our significant
commercial traction, yielding profits and value for our investors
in the future.
Chief Executive Officer's review
Excellent revenue growth across our core transplantation
products and services was driven in large part by a sharp increase
in sales growth outside of North America, where our existing
business remains strong.
During 2012 we continued our recent trend focusing on activities
targeted at supporting expansion of our LifePort Kidney Transporter
business into new geographical territories, product line extensions
and market-driven new product development.
The Company's accomplishments in 2012 were guided by three
unchanged strategic initiatives:
-- Driving continued expansion into key geographic transplant markets
-- Responding to unmet clinical needs and a changing regulatory
environment through technology innovation
-- Securing our market leadership through strategic investments and sustainable revenue growth
2012 was a year in which we began to see meaningful returns on
recent investments in geographical expansion. Strong revenue growth
across our product and service offering was driven in large part by
a sharp increase in sales growth outside of North America. While
North American revenue increased 8%, revenue from outside North
America increased by 140%.
We also remain committed to investing in developments that offer
the potential to both reduce the overall cost of medicine, and
improve transplantation outcomes for patients, while providing
Lifeline Scientific with a strong foundation for long-term growth
and financial strength. This commitment is evidenced by our
on-going work on the development of the LifePort Liver Transporter,
as revealed in its commercial prototype format, presented at the
24th International Congress of the Transplantation Society in
Berlin in July, 2012.
Driving Continued Expansion into Key Geographic Transplant
Markets
Our significant increase in revenue outside North America was
hard earned and represents good progress. Throughout 2012 we
continued to invest in staff and infrastructure aimed at supporting
increased worldwide utilisation of our LifePort Kidney Transporter.
We believe these investments will enable continued growth and
capability to respond nimbly to new market opportunities for our
LifePort platform.
South America
Notably, ANVISA regulatory approval in Brazil for our full
product line was a key development during 2012. Brazil is a key
emerging market in transplant medicine and the Company made a
strong start to establish its market presence. Notwithstanding a
nationwide labour strike lasting several months that interrupted
our product launch, we recorded our first commercial sales for
LifePort Kidney Transporters and related consumables (US$1.3
million), facilitated by leading transplant programmes in the major
hospitals of Rio de Janeiro, Fortaleza and Saõ Paulo. Importantly,
initial reports by Brazilian clinicians employing LifePort were
gratifying, as significant improvements in post-transplant outcomes
were reported, including meaningful reductions in delayed graft
function of transplanted kidneys. We continue to believe that the
Brazilian market offers substantial potential for Lifeline
Scientific's products and services in the coming years.
We are well positioned to accelerate growth in Brazil and other
South American countries through our Saõ Paulo-based office. At the
end of 2012, we received approval for product registration in the
nation of Colombia, a growing renal transplant market, for our full
line of products, including LifePort Kidney Transporter, related
disposables and organ preservation and flush solutions.
China
China has recently emerged as a promising, growth market for
transplantation. 2012 was a year of strong progress for our efforts
in China. Through transformational new legislation (Regulation on
Human Organ Transplantation), well-funded programmes and a national
commitment to developing an ethical and sustainable organ
transplantation system for its public, China appears to be on track
for achieving their aims of establishing improvements in organ
donation and allocation and becoming a responsible member of the
global transplantation community. We fully support their efforts in
this regard and have witnessed significant progress.
During 2012, with the support of our mainland China based
distribution partners, we helped initiate a successful LifePort
Kidney Transporter demonstration study in seven transplant centres
across China. Product registration with the State Food and Drug
Administration (SFDA) for all our products made good progress
during 2012. Market development activities are continuing, ahead of
anticipated SFDA approvals and a potential market launch of
LifePort Kidney Transporter in the second half of 2013.
Europe
We continue to focus on securing reimbursement and expanding the
use of LifePort Kidney Transporter within key European markets. The
nation of France established reimbursement for the perfusion of ECD
kidneys, a significant development in an important European growth
market for Lifeline Scientific. Market access negotiations in
Germany also advanced, creating an opportunity for LifePort Kidney
Transporter's potential adoption during 2013/2014.
In the UK, the Company secured a national tender for a
substantial order of our branded organ preservation and flush
solution SPS-1, boosting overall sales.
Responding to Clinical Needs and a Changing Regulatory
Environment Through Technology Innovation
Lifeline Scientific is fully committed to the development of
product innovations that enable the global transplant community we
serve to address unmet needs, transform transplantation outcomes
and lower the overall cost of medicine. To this end, we collaborate
on projects with transplant research centres around the world.
These range from finding big-data solutions to address global,
clinical challenges such as post-transplant patient adherence to
developing technologies that help improve both the quality and
availability of donor organs.
As a result of continued investment in activities aimed at
consolidating our market leading position in renal preservation and
transport, and the development of new products, most notably our
LifePort Liver Transporter, R&D expenditure increased to US$3.2
million in 2012.
During 2012 we made significant progress in developing our
LifePort Liver Transporter. In July, we unveiled the first
commercial prototype to the European clinical transplant community.
This was an important development milestone that also provided
opportunity for meaningful clinician feedback. We remain on track
with integration of clinician-driven technological enhancements and
preparations for US and EU regulatory filings.
We also reached key development milestones for our Universal
SealRing cannula, a product designed to enable LifePort use with
living donor kidneys and improve support for a variety of renal
vasculature. Important progress was also made in the development of
LifePort embedded technology that delivers measured levels of
oxygen in solution and real-time point of care assays for
perfusate-based markers of renal and hepatic damage.
Other R&D highlights include the completion and first sales
of our upgraded LifePort Kidney 1.1 Transporters, with important
features including embedded GPS, enhanced data capture of key organ
performance parameters and state-of-the-art digital displays.
We are confident that our focus on strategic investments in
research and development will provide opportunity for the creation
of improved products to serve the clinical needs of
transplantation, successful expansion of the LifePort brand and
strengthening of our global market leadership position.
Securing our Market Leadership Through Strategic Investments and
Sustainable Revenue Growth
We believe revenue within our core franchise of kidney
transplantation will continue the positive growth trend of previous
years. While our planned investments in geographic expansion,
existing product enhancements and new product development resulted
in higher operating and development costs for 2012 compared to
2011, we believe these expenditures were prudent and timely, and
will result in meaningful revenue growth and profitability.
Our Future
The future for Lifeline Scientific and our LifePort brand is
strong, and we remain optimistic about continued growth. As global
demand for organ transplants continues to increase, market and
technological drivers create compelling requirements for
scientifically proven solutions to improve donor organ availability
and transplantation outcomes.
Whether through new product development, geographic expansion or
strategic acquisitions, we are committed to achieving sustainable
profitable growth, while supporting the global transplant community
in their efforts to save the lives of patients suffering from
end-stage organ disease.
We are moving into an exciting stage of the Company's growth
that expects to see reduced R&D spend with an increased focus
on commercial sales and marketing. Investments we have undertaken
to further strengthen our market leadership will continue to afford
us significant opportunity to build profits and value for our
investors in the short, medium and longer-term.
David Kravitz
Chief Executive Officer
Consolidated Balance Sheets
31 December 2012 and 2011
2012 2011
US$ US$
------------------------------------------------- ------------- -------------
Current Assets
Cash and cash equivalents 5,746,406 9,352,480
Receivables
Customers (Net of allowance for doubtful
accounts of US$2,693 and
US$2,644 as of 31 December 2012 and 2011,
respectively) 5,444,416 3,865,307
Employees 1,014 3,941
Grant 67,752 106,065
Inventories 4,409,579 1,871,344
Deferred tax assets 16,285 16,285
Income taxes receivable - 183,057
Prepaid expenses and deposits 1,066,717 978,256
Total Current Assets 16,752,169 16,376,735
------------------------------------------------- ------------- -------------
Non-current Assets
Property and equipment (Net of accumulated
depreciation and amortisation) 2,501,349 1,438,331
Intangibles (Net of accumulated amortisation) 2,812,820 2,230,913
Deferred tax assets 1,023,400 1,023,400
Goodwill 64,710 64,710
Other 123,805 110,212
------------------------------------------------- ------------- -------------
Total Non-current Assets 6,526,084 4,867,566
------------------------------------------------- ------------- -------------
Total Assets 23,278,253 21,244,301
------------------------------------------------- ------------- -------------
Current Liabilities
Accounts payable 2,438,654 1,276,053
Long-term debt due within one year 181,568 6,568
Capital lease obligations due within one
year 26,316 32,285
Accrued expenses
Salaries and other compensation 1,149,918 678,468
Other 502,412 853,304
Income taxes payable 103,043 -
Deferred rent 44,989 44,532
Deferred revenue 307,148 44,144
------------------------------------------------- ------------- -------------
Total Current Liabilities 4,754,048 2,935,354
------------------------------------------------- ------------- -------------
Non-current Liabilities
Long-term debt (Net of portion included
in current liabilities) 1,189,336 961,749
Deferred rent (Net of portion included in
current liabilities) 271,399 133,526
Accrued interest 330,380 253,780
Capital leases (Net of portion included
in current liabilities) 2,625 29,989
------------------------------------------------- ------------- -------------
Total Non-current Liabilities 1,793,740 1,379,044
------------------------------------------------- ------------- -------------
Total Liabilities 6,547,788 4,314,398
------------------------------------------------- ------------- -------------
Lifeline Scientific, Inc. Stockholders'
Equity
Common stock, US$0.01 par value; authorised
- 30,000,000 shares;
issued and outstanding 19,424,959 shares
as of 31 December 2012 and 2011 194,249 194,249
Additional paid-in capital 94,045,479 93,786,981
Other accumulated comprehensive loss (250,283) (256,031)
Accumulated deficit (76,359,173) (76,148,329)
------------------------------------------------- ------------- -------------
Total Lifeline Scientific, Inc. Stockholders'
Equity 17,630,272 17,576,870
Non-controlling interest (899,807) (646,967)
------------------------------------------------- ------------- -------------
Total Stockholders' Equity 16,730,465 16,929,903
------------------------------------------------- ------------- -------------
Total Liabilities and Stockholders' Equity 23,278,253 21,244,301
------------------------------------------------- ------------- -------------
The accompanying notes are an integral part of the consolidated
financial statements.
Consolidated Statements of Operations
Years Ended 31 December 2012 and 2011
2012 2011
US$ US$
---------------------------------------------------- ------------ ------------
Revenue
Product sales and service fee revenue 29,130,623 24,175,115
Grant revenue 1,021,220 1,215,989
---------------------------------------------------- ------------ ------------
Total Revenue 30,151,843 25,391,104
Cost of Revenue 11,870,438 9,181,055
---------------------------------------------------- ------------ ------------
Gross Profit 18,281,405 16,210,049
---------------------------------------------------- ------------ ------------
Operating Expense
Research and development 3,173,614 2,387,739
Selling, general, and administrative 14,785,706 11,816,377
Loss from disposals of property and equipment 52,623 9,566
Loss from abandonment of patents 142,015 105,622
---------------------------------------------------- ------------ ------------
Total Operating Expense 18,153,958 14,319,304
---------------------------------------------------- ------------ ------------
Income from Operations 127,447 1,890,745
---------------------------------------------------- ------------ ------------
Other Expense (Income)
Change in fair value of warrants - (599,264)
Interest expense 85,725 89,744
Interest income (4,177) (6,311)
Total Other Expense (Income) 81,548 (515,831)
---------------------------------------------------- ------------ ------------
Income Before Income Taxes 45,899 2,406,576
Income Tax Expense (Benefit) 509,583 (871,464)
---------------------------------------------------- ------------ ------------
Net (Loss) Income (463,684) 3,278,040
Less: Net Loss Attributable to Non-controlling
Interest 252,840 197,073
---------------------------------------------------- ------------ ------------
Net (Loss) Income Attributable to Lifeline
Scientific, Inc. (210,844) 3,475,113
---------------------------------------------------- ------------ ------------
Basic (loss) earnings per share (0.01) 0.18
---------------------------------------------------- ------------ ------------
Diluted (loss) earnings per share (0.01) 0.17
---------------------------------------------------- ------------ ------------
Basic weighted average shares outstanding (in
shares) 19,424,959 19,415,075
---------------------------------------------------- ------------ ------------
Diluted weighted average shares outstanding
(in shares) 20,088,631 20,245,760
---------------------------------------------------- ------------ ------------
The accompanying notes are an integral part of the consolidated
financial statements.
Consolidated Statements of Comprehensive (Loss) Income
Years Ended 31 December 2012 and 2011
2012 2011
US$ US$
------------------------------------------ ----------- -----------
Net (Loss) Income (463,684) 3,278,040
Foreign Currency Translation 5,748 (12,306)
------------------------------------------ ----------- -----------
Comprehensive (Loss) Income (457,936) 3,265,734
Comprehensive Loss Attributable to
Non-controlling Interest (252,840) (197,073)
------------------------------------------ ----------- -----------
Comprehensive (Loss) Income Attributable
to Lifeline Scientific, Inc. (205,096) 3,462,807
------------------------------------------ ----------- -----------
The accompanying notes are an integral part of the consolidated
financial statements.
Consolidated Statements of Changes in Stockholders' Equity
Years Ended 31 December 2012 and 2011
Lifeline Scientific, Inc. Stockholders
Other
Additional Ac-cumulated
Par Paid-in Comprehen- Accumulated Non-controll-ing
Total Amount Capital sive Loss Deficit Interest
US$ Shares US$ US$ US$ US$ US$
Balance, 1
January
2011 13,295,322 19,297,197 192,972 93,419,411 (243,725) (79,623,442) (449,894)
-------------- ------------- ------------- ---------- ------------- ------------- --------------- ------------------
Issuance of
common
stock related
to cash and
cashless
warrant
exercises 87,484 92,012 919 86,565 - - -
Issuance of
common
stock in
conjunction
with option
exercises 22,115 35,750 358 21,757 - - -
Professional
fees in
conjunction
with equity
financing (1,588) - - (1,588) - - -
Stock-based
compensation 260,836 - - 260,836 - - -
Foreign
currency
translation (12,306) - - - (12,306) - -
Net income
(loss) 3,278,040 - - - - 3,475,113 (197,073)
-------------- ------------- ------------- ---------- ------------- ------------- --------------- ------------------
Balance, 31
December
2011 16,929,903 19,424,959 194,249 93,786,981 (256,031) (76,148,329) (646,967)
-------------- ------------- ------------- ---------- ------------- ------------- --------------- ------------------
Stock-based
compensation 258,498 - - 258,498 - - -
Foreign
currency
translation 5,748 - - - 5,748 - -
Net loss (463,684) - - - - (210,844) (252,840)
Balance, 31
December
2012 16,730,465 19,424,959 194,249 94,045,479 (250,283) (76,359,173) (899,807)
-------------- ------------- ------------- ---------- ------------- ------------- --------------- ------------------
The accompanying notes are an integral part of the consolidated
financial statements.
Consolidated Statements of Cash Flows
Years Ended 31 December 2012 and 2011
2012 2011
US$ US$
-------------------------------------------- ------------ ------------
Cash Flows from Operating Activities
Net (Loss) Income (463,684) 3,278,040
-------------------------------------------- ------------ ------------
Adjustments to reconcile net (loss)
income to net cash used in operating
activities
Depreciation 569,661 319,934
Amortisation 87,079 121,815
Change in fair value of warrants - (599,264)
Stock-based compensation 258,498 260,836
Loss on disposals of property and equipment 52,623 9,566
Loss on abandonment of patents 142,015 105,622
Deferred taxes - (1,039,685)
(Increase) decrease in
Receivables (1,542,288) (883,126)
Inventories (2,535,208) (239,695)
Prepaid expenses and deposits (44,486) (510,504)
Other assets 149,853 (243,883)
Increase (decrease) in
Accounts payable 1,148,439 (1,077,634)
Accrued expenses 233,245 305,060
Accrued interest 71,556 (5,549)
Deferred revenue 262,539 (70,832)
Deferred rent 138,330 (47,274)
Total Adjustments (1,008,144) (3,594,613)
-------------------------------------------- ------------ ------------
Net Cash Used in Operating Activities (1,471,828) (316,573)
-------------------------------------------- ------------ ------------
Cash Flows from Investing Activities
Payments of legal fees associated with
patent filings (811,001) (645,136)
Capital expenditures (1,685,848) (812,420)
Proceeds from sales of property and
equipment - 6,684
-------------------------------------------- ------------ ------------
Net Cash Used in Investing Activities (2,496,849) (1,450,872)
-------------------------------------------- ------------ ------------
Cash Flows from Financing Activities
(Repayments) borrowings under capital
lease obligations, net (34,095) 13,918
Cash received from warrant exercises - 35,282
Cash received from option exercises - 22,115
Borrowings of long-term debt 525,000 -
Principal payments on long-term debt (139,788) (8,517)
Payments of financing fees - (1,588)
Net Cash Provided By Financing Activities 351,117 61,210
-------------------------------------------- ------------ ------------
Effect of Foreign Currency Exchange
Rate Changes on Cash 11,486 (9,333)
-------------------------------------------- ------------ ------------
Net Decrease in Cash and Cash Equivalents (3,606,074) (1,715,568)
Cash and Cash Equivalents, Beginning
of Year 9,352,480 11,068,048
-------------------------------------------- ------------ ------------
Cash and Cash Equivalents, End of Year 5,746,406 9,352,480
-------------------------------------------- ------------ ------------
The accompanying notes are an integral part of the consolidated
financial statements.
Note 1 - Industry Operations
Lifeline Scientific, Inc. (the "Company") is a US corporation
whose common shares trade publicly on the AIM Market on the London
Stock Exchange (AIM:LSI.c and LSI.s). The Company is in the
business of delivering, to targeted medical markets, a portfolio of
related proprietary technologies, which include devices, solutions,
and protocols designed to maximise the use and availability of
organs, tissues, and cells. The Company serves the kidney
transplant market today with its LifePort product line, and also
sells solutions to service the broader organ transplant industry.
All sales are generated from US manufacturing. Approximately 80% of
the Company's sales are to US customers. Of the Company's
long-lived assets, approximately 96% are within the US. A LifePort
Liver product line is planned for a commercial launch during the
year ending 31 December 2014, and other organ-related products are
in development. The Company views itself as operating as one
segment.
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation
The Company was incorporated in the state of Delaware as Organ
Recovery Systems, Inc. on 1 October 1998. On 20 December 2007, the
Company changed its name to Lifeline Scientific, Inc. The Company
is consolidated with the following subsidiaries:
Bowman Research, Inc. * (inactive after 31 December 2009)
ORS Europe, NV *
Cell and Tissue Systems, Inc. **
Organ Recovery Systems, Inc. *
ORS Representacoes do Brasil LTDA*
* A wholly-owned subsidiary
** 49% owned
Intercompany balances and transactions have been eliminated in
consolidation.
The Consolidation Topic of accounting principles generally
accepted in the US ("US GAAP") requires consolidation by the
primary beneficiary where the variable interest entity does not
have sufficient equity at risk to finance its activities without
additional subordinated financial support from other parties. The
application of this guidance resulted in the consolidation of Cell
and Tissue Systems, Inc. ("CTS"), which was created during the year
ended 31 December 2005 and was deemed to be a variable interest
entity. CTS was primarily formed to meet regulatory requirements in
order to enhance its ability and capacity to apply for funding from
available government sources. All grant revenue reported in the
consolidated statements of operations is related to CTS, and this
constitutes all of CTS' revenue. The Company contributed US$490 for
the 49% ownership needed to form the variable interest entity. CTS
has an accumulated deficit as of 31 December 2012 and 2011.
In accordance with the requirements of the accounting standard
under US GAAP that establishes accounting and reporting standards
for non-controlling interests in a subsidiary in consolidated
financial statements, the Company classifies the non-controlling
interest of CTS within the equity section of the consolidated
balance sheets and separately reports the amounts attributable to
controlling and non-controlling interests in the consolidated
statements of operations for all periods presented.
Cash and Cash Equivalents
The Company considers all money market accounts and short-term
investments with an original maturity of three months or less and
US Treasury money markets to be cash equivalents. The majority of
cash and cash equivalents as of 31 December 2012 and 2011 were held
through a single financial institution, and the balances held at
times exceed federally insured limits. The Company has not
experienced any losses in such accounts. The Company believes it is
not exposed to any significant credit risk on cash and cash
equivalents.
Receivables
Receivables are carried at original invoice or closing statement
amount less estimates made for doubtful receivables. Management of
the Company determines the allowance for doubtful accounts by
reviewing and identifying troubled accounts on a monthly basis and
by using historical experience applied to an aging of accounts. A
receivable is considered to be past due if any portion of the
receivable balance is outstanding for more than 90 days. The
Company does not charge interest on past due receivables.
Receivables are written off when deemed uncollectible. Recoveries
of receivables previously written off are recorded when
received.
Inventories
Inventories are valued at the lower of cost (first-in,
first-out) or market.
Depreciation and Amortisation
The Company's policy is to depreciate or amortise the cost of
property and equipment over the estimated useful lives of the
assets using the straight-line method. The cost of leasehold
improvements is amortised over the estimated useful lives, or the
applicable lease term, if shorter.
Years
------
Computer equipment 3-5
Furniture and fixtures 5-7
Equipment under capital
lease 5-7
Laboratory equipment 3-7
Leasehold improvements 5-8
Tooling and moulds 1-15
Vehicles 5
Long-Lived Assets
Long-lived assets to be held are reviewed for events or changes
in circumstances that indicate that their carrying value may not be
recoverable. The Company periodically reviews the carrying value of
long-lived assets to determine whether or not an impairment to such
value has occurred. Management of the Company believes that no
impairment of long-lived assets exists as of 31 December 2012 and
2011.
Intangibles
The cost of intangible assets are being amortised over the
remaining lives of the assets as follows:
Years
------
Patents 17
License agreement 10
Legal fees associated with filings for patents that are pending
are capitalised if management of the Company believes that it is
probable that such patent applications will be successful. Patent
costs are not amortised until the patent is obtained. During the
year ended 31 December 2010, the Company signed an agreement that
allows for the licensing of technology to support the Company's
product development efforts. The agreement is being amortised over
the remaining estimated life of the licensed technology, or ten
years.
Goodwill
Goodwill results from business acquisitions and represents the
excess of the purchase price over the fair value of acquired
tangible assets and liabilities and identifiable intangible assets.
In accordance with accounting for goodwill under US GAAP, goodwill
is not amortised, but instead tested for impairment on an annual
basis. The Company has applied Financial Accounting Standards Board
("FASB") Accounting Standards Update ("ASU") No. 2011-08, "Testing
Goodwill for Impairment," in connection with the performance of the
annual goodwill impairment test. Under ASU 2011-08, entities are
provided with the option of first performing a qualitative
assessment on none, some, or all of its reporting units to
determine whether further quantitative impairment testing is
necessary. An entity may also bypass the qualitative assessment for
any reporting unit in any period and proceed directly to the
quantitative impairment test. Goodwill must be tested on an annual
basis or if an event occurs or circumstances change that would more
likely than not reduce the fair value of the reporting unit below
its carrying amount. During the years ended 31 December 2012 and
2011, the Company was not required to record any impairments to the
carrying value of goodwill or indefinite-lived intangible
assets.
Deferred Rent
Minimum rent expense is recognised over the term of the lease.
The Company recognises minimum rent starting when possession of the
property is taken from the landlord. When a lease contains a
predetermined fixed escalation of the minimum rent, rent expense is
recognised on a straight-line basis. Any difference between the
recognised rent expense and the amounts payable under the lease is
reported as deferred rent in the consolidated balance sheets. The
Company records include a tenant allowance on its facility lease in
Itasca, Illinois, which is recorded as a component of deferred rent
and amortised as a reduction to rent expense over the term of the
lease. Future payments for common area maintenance, insurance, real
estate taxes, and other occupancy costs to which the Company is
obligated are excluded from minimum lease payments.
Fair Value of Financial Instruments
US GAAP defines fair value as the price that would be received
to sell an asset or paid to transfer a liability in an orderly
transaction between market participants as of the measurement date.
US GAAP describes three approaches to measuring the fair value of
assets and liabilities: the market approach, the income approach,
and the cost approach. Each approach includes multiple valuation
techniques. US GAAP does not prescribe which valuation technique
should be used when measuring fair value, but does establish a fair
value hierarchy that prioritises the inputs used in applying the
various techniques. Inputs broadly refer to the assumptions that
market participants use to make pricing decisions, including
assumptions about risk. Level 1 inputs are given the highest
priority in the hierarchy while Level 3 inputs are given the lowest
priority. Assets and liabilities carried at fair value are
classified in one of the following three categories based on the
nature of the inputs to the valuation technique used:
-- Level 1 - Observable inputs that reflect unadjusted quoted
prices for identical assets or liabilities in active markets as of
the reporting date. Active markets are those in which transactions
for the asset or liability occur in sufficient frequency and volume
to provide pricing information on an ongoing basis.
-- Level 2 - Observable market-based inputs or unobservable
inputs that are corroborated by market data.
-- Level 3 - Unobservable inputs that are not corroborated by
market data. These inputs reflect management's best estimate of
fair value using its own assumptions about the assumptions a market
participant would use in pricing the asset or liability.
The carrying values of cash and cash equivalents, accounts
receivable, and accounts payable approximates their fair values
because of the short-term nature of these instruments. The carrying
value of long-term debt approximates its fair values as the stated
interest rates approximate current market interest rates of
long-term debt with similar terms.
Product Warranty
Estimated future costs applicable to products sold under
warranty are charged to expense in the year of sale, and the
related liability is classified as current. A summary of the
account activity for the warranty accrual is as follows during the
years ended 31 December 2012 and 2011.
2012 2011
US$ US$
------------------------------------ ---------- ----------
Accrued warranty, beginning of year 72,283 69,071
Provision for warranty 289,502 246,711
Warranty claims (281,447) (243,499)
Accrued warranty, end of year 80,338 72,283
------------------------------------ ---------- ----------
Revenue Recognition
Product sales revenue is recognised upon shipment of product to
the client. Service fee revenue is recognised when services are
performed. Deferred and unbilled revenue is recognised in the
consolidated balance sheets.
Grant revenue is recognised when earned. Grant revenues are
deemed earned to the extent of the total allowable expenditures
incurred, which are specified in the grant contract. In some cases,
a portion of the grant revenue is paid at the time the grant is
initiated. These advances are deferred and recognised using the
proportional performance model. Unbilled services are at times
recorded for revenue recognised to date and relate to amounts that
are currently unbillable to the client pursuant to contractual
terms.
The Company sells extended warranties on its LifePort product
for a specific period of months. This revenue is deferred and
recognised over the term of the warranties on a straight-line
basis.
Shipping and Handling Costs
Shipping and handling costs billed to customers of US$148,709
and US$124,269 are netted with expense and have been included in
cost of sales on the consolidated statements of operations during
the years ended 31 December 2012 and 2011, respectively.
Income Taxes
Income taxes are provided for the tax effects of transactions
reported in the consolidated financial statements and consist of
taxes currently due plus deferred taxes related primarily to
differences between the basis of property and equipment, bad debts,
intangibles, and accrued expenses for financial and income tax
reporting. The deferred tax assets and liabilities represent the
future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities are
recovered or settled. The carrying value of the Company's deferred
tax assets is dependent upon its ability to generate sufficient
taxable income in the future. The Company has established a
valuation allowance against its net deferred tax assets to reflect
the uncertainty of realising the deferred tax benefits, given
historical losses, limited history of earnings, and a current loss.
A valuation allowance is required when it is more likely than not
that all or a portion of a deferred tax asset will not be realised.
The Company is subject to US federal, state, and local taxes as
well as foreign taxes in Belgium and Brazil. During the year ended
31 December 2011, approximately US$1,040,000 of the valuation
allowance was reversed to reflect the likelihood of future taxable
income, which will most likely result in the utilisation of a
portion of the Company's net operating losses.
The Company's consolidated financial statements provide for any
related US tax liabilities on earnings of foreign subsidiaries that
may be repatriated, aside from qualifying undistributed earnings of
certain foreign subsidiaries that are intended to be indefinitely
reinvested in operations outside of the US.
The Company accounts for unrecognised tax benefits in accordance
with US GAAP, which prescribes a more likely than not threshold for
consolidated financial statement presentation and measurement of a
tax position taken or expected to be taken in a tax return. A tax
position is recognised as a benefit only if it is "more likely than
not" that the tax position would be sustained in a tax examination,
with a tax examination being presumed to occur. The amount
recognised is the largest amount of tax benefit that is greater
than 50% likely of being realised on examination. For tax positions
not meeting the "more likely than not" test, no tax benefit is
recorded.
Stock Options
In accordance with US GAAP, the Company accounts for the cost of
employee services received in exchange for an award of equity
instruments utilising the grant date fair value of the award.
Stock-based awards that do not require future service (i.e., vested
awards) are expensed immediately. The expense associated with
stock-based employee awards that require future service are
amortised over the relevant service period.
Derivative Financial Instruments
The Company does not use derivative financial instruments to
hedge exposures to cash flow risks or market risks. However,
certain financial instruments, such as the warrants described in
Note 7, have been classified as liabilities based on US GAAP
guidance for determining whether an equity-linked financial
instrument (or embedded feature) is indexed to an entity's own
stock. Although the Company's warrants were indexed to the common
stock of the Company and were classified in stockholders' equity,
they do not meet the exception as clarified under US GAAP because
the warrants are also indexed to a foreign currency, as the common
stock trades in British pound sterling.
As a result, the warrants were not considered indexed to the
Company's own stock, and as such, all changes in the fair value of
these warrants were recognised in earnings until such time that the
warrants were exercised or expired.
Management Estimates
The preparation of consolidated financial statements in
conformity with US GAAP requires management of the Company to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities as of the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The estimates included by the Company in these consolidated
financial statements relate to warranty reserves, allowance for
doubtful accounts, the useful lives of patents, the useful lives of
depreciable property and equipment, and the valuation allowance for
deferred tax assets.
Research and Development
Expenditures relating to the development of new products and
procedures are expensed as incurred.
Foreign Currency Translation
The financial position and results of operations of the
Company's foreign subsidiaries are measured using the subsidiary's
local currency as the functional currency. Assets and liabilities
of the foreign subsidiaries are translated to US dollars using
exchange rates in effect as of the consolidated balance sheet
dates. Income and expense items are translated at monthly average
rates of exchange. The resultant translation gains or losses are
included as part of the components of stockholders' equity
designated as other comprehensive (loss) income.
Subsequent Events
The Company has evaluated subsequent events through 8 April
2013, the date the consolidated financial statements were available
to be issued. No reportable subsequent events occurred through 8
April 2013.
Contingencies
From time to time, the Company may experience litigation arising
in the ordinary course of its business. These claims are evaluated
for possible exposure by management of the Company and their legal
counsel. The Company believes that the ultimate resolution of any
such matters will not have a material adverse effect on its
consolidated financial position.
Reclassification
Certain amounts as of 31 December 2011 and for the year then
ended have been reclassified to conform to the presentation as of
31 December 2012 and for the year then ended. These
reclassifications had no effect on net income or stockholders'
equity.
Note 3 - Concentrations
The Company receives the majority of its grant revenue under
several grant contracts from the National Institutes of Health.
During the years ended 31 December 2012 and 2011, the Company
received approximately US$879,000 and US$1,097,000, respectively.
The receivable balances from the National Institutes of Health were
US$48,567 and US$56,833 as of 31 December 2012 and 2011,
respectively.
As of 31 December 2012, three vendors accounted for 17.25%,
15.28%, and 10.57% of accounts payable, respectively. As of 31
December 2011, one vendor accounted for 14.30% of accounts payable.
During the year ended 31 December 2012, one vendor accounted for
approximately 11.00% of purchases.
Note 4 - Inventories
2012 2011
US$ US$
-------------------------------------- ---------- ----------
Medical devices, parts, and solutions 3,595,863 1,510,989
Raw materials 813,716 360,355
-------------------------------------- ---------- ----------
4,409,579 1,871,344
-------------------------------------- ---------- ----------
Note 5 - Property and Equipment
2012 2011
US$ US$
------------------------------------------ ------------------ --------------
Property and equipment in progress 342,883 83,923
Computer equipment 354,918 481,144
Furniture and fixtures 565,941 445,299
Equipment under capital lease 136,651 258,533
Laboratory equipment 1,804,262 1,595,314
Leasehold improvements 1,048,216 869,943
Tooling and moulds 834,145 568,678
Vehicles 158,709 166,647
------------------------------------------ ------------------ --------------
5,245,725 4,469,481
Accumulated depreciation and amortisation (2,744,376) (3,031,150)
------------------------------------------ ------------------ --------------
2,501,349 1,438,331
------------------------------------------ ------------------ --------------
During the years ended 31 December 2012 and 2011, the Company
recognised depreciation expense of US$569,661 and US$319,934,
respectively.
Note 6 - Intangibles
Intangible assets consist of the following:
2012 2011
US$ US$
-------------------------------- ----------- -----------
License agreement 141,931 141,931
Patents issued 1,548,289 1,119,693
Patents pending 1,789,490 1,549,100
-------------------------------- ----------- -----------
3,479,710 2,810,724
Less: Accumulated amortisation (666,890) (579,811)
2,812,820 2,230,913
-------------------------------- ----------- -----------
During the years ended 31 December 2012 and 2011, the Company
abandoned patents issued and patents pending with an original cost
of US$142,015 and US$170,228, respectively.
During the years ended 31 December 2012 and 2011, the Company
recognised amortisation expense of US$87,079 and US$121,815,
respectively.
The following schedule by year represents future intangible
amortisation, assuming patent pending costs will be reclassified as
patents issued and amortisation will begin at the midpoint of the
following year:
Year Ending 31 December: US$
------------------------- ----------
2013 149,199
2014 202,377
2015 200,601
2016 199,329
2017 197,181
Thereafter 1,864,133
------------------------- ----------
2,812,820
------------------------- ----------
Note 7 - Warrants
At various times from July 2004 through June 2007, the Company
issued currency denominated warrants in the amount of US$7,789,505,
in connection with the issuance of convertible promissory notes,
all of which were converted into common stock at the Initial Public
Offering ("IPO"). The majority of the warrants remaining
outstanding at the date of the IPO were not affected by the reverse
stock split in accordance with the agreements. The warrants expired
at various dates from March 2009 to January 2011. The determination
of the actual number of common shares the warrants were convertible
into at any point in time was derived by formula per the individual
warrant agreements. As these were currency denominated warrants,
the number of common shares ultimately issued upon exercise varied
due to foreign currency translation adjustments between the British
pound sterling and the US dollar. These warrants represent no
issuable shares of common stock outstanding as of 31 December 2012
and 2011.
In May 2008 and December 2007, in conjunction with the IPO, the
Company issued warrants, which were convertible into common stock.
The warrant holder could have exercised each warrant held to
purchase a share of common stock at an exercise price of GBP1.95,
or as adjusted as defined by the agreement. The 2008 and 2007
warrant grants expired during January 2011. The fair value of the
common stock at grant date was less than the exercise price of the
warrants. The number of common stock equivalent warrants granted
was 2,570,884 and the value of the warrants on the date of grant
was determined to be US$0. The value of the warrants was calculated
using the Black-Scholes option pricing model. These warrants
represent no issuable shares of common stock outstanding as of 31
December 2012 and 2011.
In August of 2009, in conjunction with the terms of the Silicon
Valley Bank loan and security working capital line of credit, the
Company issued a warrant, convertible into 51,874 shares of common
stock. The warrant was exercisable for a period of five years, at a
share price of US$0.6506, the trailing 20-day market value of the
Company's common stock at the grant date. The value of the warrant
on the date of grant was determined to be US$16,493 during the year
ended 31 December 2009 by the Black-Scholes option pricing model.
This estimated fair value of the warrant was recorded as a prepaid
expense in the current assets section of the Company's consolidated
financial statements and was being amortised as additional bank
charges, using the straight line method over the period from the
date of issuance to the initial August 2011 maturity date of the
credit facility. Charges related to this warrant totalled US$0 and
US$5,121 during the years ended 31 December 2012 and 2011,
respectively. This warrant was exercised during the year ended 31
December 2010.
Warrant activity during the years ended 31 December 2012 and
2011 is as follows:
Issuable
Common Stock
---------------------------------------- --------------
Outstanding as of 1 January 2011 1,664,839
Granted -
Exercised (125,593)
Expired (1,539,215)
Adjustment due to currency and share -
price changes
---------------------------------------- --------------
Outstanding as of 31 December 2011 31
Granted -
Exercised -
Expired -
---------------------------------------- --------------
Outstanding as of 31 December 2012 31
---------------------------------------- --------------
From 1 January 2011 through the warrant expiration of 7 January
2011, 125,593 of the 1,664,839 outstanding issuable common stock
from warrants as of 31 December 2010 were exercised, resulting in
28,994 common shares issued by the Company. The remaining 1,539,113
warrants expired on 7 January 2011. In conjunction with the 7
January 2011 expiration of warrants, the Company recognised
US$599,264 in income in January 2011.
In addition, 102 miscellaneous warrants with no value attributed
to them expired in November 2011. As of 31 December 2012 and 2011,
31 miscellaneous warrants remain outstanding with issue dates from
2004 through 2005 and expirations between 2014 and 2015. No value
is attributed to these warrants as they are deemed to be immaterial
in value as they were subject to the effects of the 5,000 to 1
reverse stock split in connection with the Company's IPO on 7
January 2008.
From January 2009 through their expiration on 7 January 2011,
the Company classified its warrants as derivative financial
instruments, and as such recognised the fair value of such
warrants. The fair value of the warrant liabilities is as follows
during the years ended 31 December 2012 and 2011:
Fair Value
US$
------------------------------------ -----------
Outstanding as of 1 January 2011 651,466
Exercised (52,202)
Expired (599,264)
Change in fair value -
------------------------------------ -----------
Outstanding as of 31 December 2011 -
Exercised -
Expired -
Change in fair value -
------------------------------------ -----------
Outstanding as of 31 December 2012 -
------------------------------------ -----------
The following tables set forth by level within the fair value
hierarchy the Company's warrant liabilities that were accounted for
at fair value on a recurring basis as of 31 December 2012 and 2011.
As required by US GAAP, assets and liabilities are classified in
their entirety based on the lowest level of input that is
significant to the fair value measurement. The Company's assessment
of the significance of a particular input to the fair value
measurement requires judgment, and may affect the placement within
the fair value hierarchy levels.
Nonrecurring Fair Value Measurements
at Reporting Date Using:
-------------------------------------------------------
Description Quoted In
Active Market Significant Significant Total Income
Fair Values for Identical Other Observable Unobservable for the
as of 31 Asset (Level Inputs (Level Inputs (Level Year Ended
December 1) 2) 3) 31 December
US$ US$ US$ US$ US$
--------------------- ------------- ---------------- ------------------- ---------------- -------------
Warrant liabilities - - - - -
2012
Warrant liabilities
2011 - - - - 599,264
These warrants did not trade in an active securities market. No
warrant value applies as of 31 December 2012 and 2011.
Note 8 - Financing Agreements
During August 2009, the Company entered into a two-year working
capital line of credit agreement with Silicon Valley Bank ("SVB")
to support potential future cash needs of the Company. This line of
credit agreement, and amendments in 2010, 2011, and 2012, currently
provide for a revolving line of credit not to exceed an aggregate
principal amount of US$3,000,000, limited to qualifying receivables
as defined, and grants a security interest in and lien upon all of
the assets of Lifeline Scientific, Inc. and Organ Recovery Systems,
Inc. in favour of SVB. The maturity of the line of credit agreement
is 21 September 2014. The outstanding principal under the revolving
line of credit accrued interest at an annual rate of 1.25% above
the prime rate (4.50% as of 31 December 2012). In addition, a
US$750,000, 36 month term loan at a 5.50% unsecured or a 2.75%
secured rate was made available to the Company. During the year
ended 31 December 2012, the Company drew upon this term loan in the
amount of US$525,000 (at a secured rate of 2.75%) to support the
Company's growth plans. The financing agreements contain a
financial covenant which requires the Company to maintain minimum
adjusted quick ratio levels (as defined). The Company was in
compliance with or has obtained a waiver for this covenant as of 31
December 2012 and 2011. As of 31 December 2012 and 2011, there were
no amounts outstanding on the line of credit and the outstanding
balance on the term loan was US$393,750 and US$0 respectively.
Note 9 - Long-Term Debt
2012 2011
US$ US$
-------------------------------------------------------- ---------- ----------
Construction loan payable to the Company's
landlord, payable in 60 monthly installments
of US$711, interest to be charged at 6% and
payments due in March 2010 through March 2015;
unsecured. 13,873 22,411
Subordinated loan payable by ORS Europe, NV
to IWT; at the option of ORS Europe, NV, principal
and interest payable on an installment basis
beginning May 2014 through February 2017; interest
charged at an annual rate of 8.43%. Debt subordinated
to the intercompany payable to Lifeline Scientific,
Inc. 963,281 945,906
Term loan payable to SVB, payable in 36 monthly
installments of US$14,583 plus interest charged
at secured annual rate of 2.75%; payments due
1 April 2012 through 1 March 2015; secured
by cash collateral account at SVB in an amount
corresponding to current loan balance. 393,750 -
Capital lease obligations, payable in monthly
installments, including interest at various
annual rates, payments due July 2009 through
June 2016; secured by the underlying equipment. 28,941 62,274
-------------------------------------------------------- ---------- ----------
Long-term debt, net 1,399,845 1,030,591
Less current maturities (207,884) (38,853)
-------------------------------------------------------- ---------- ----------
1,191,961 991,738
-------------------------------------------------------- ---------- ----------
Maturities on long-term debt other than capital leases are as
follows as of 31 December 2012:
Year Ending 31 December: US$
-------------------------------- ----------
2013 181,568
2014 422,968
2015 365,001
2016 321,094
2017 80,273
-------------------------------- ----------
Total minimum payments required 1,370,904
-------------------------------- ----------
The following is a schedule by year of future minimum lease
payments under capital leases together with the present value of
the net minimum lease payments as of 31 December 2012:
Year Ending 31 December: US$
------------------------------------ --------
2013 29,958
2014 1,197
2015 1,197
2016 599
------------------------------------ --------
Total minimum payments required 32,951
Less amounts representing estimated
executory costs (1,614)
Less amount representing interest (2,396)
------------------------------------ --------
Present value of net minimum lease
payments 28,941
------------------------------------ --------
Assets held under capital lease as of 31 December 2012 and 2011
had a cost of US$136,651 and US$258,533, respectively, and
accumulated depreciation of US$61,601 and US$90,289,
respectively.
Note 10 - Income Taxes
Income tax expense (benefit) consists of the following
components for the years ended 31 December 2012 and 2011:
2012 2011
US$ US$
-------------------- --------- ------------
Current
Federal 60,908 29,292
Foreign 128,160 -
State 320,515 138,929
-------------------- --------- ------------
509,583 168,221
-------------------- --------- ------------
Deferred
Federal 21,682 3,691,698
State 3,156 537,468
-------------------- --------- ------------
24,838 4,229,166
-------------------- --------- ------------
Valuation allowance (24,838) (5,268,851)
-------------------- --------- ------------
Total income taxes 509,583 (871,464)
-------------------- --------- ------------
A reconciliation of income tax expense (benefit), with amounts
determined by applying the statutory US federal income tax rate to
income before income taxes is as follows for the years ended 31
December 2012 and 2011:
2012 2011
US$ US$
------------------------------------------------- --------- ------------
Computed income tax expense at federal statutory
rate 15,606 818,236
State and local (benefit) income taxes, net
of federal benefit (228) 120,599
Permanent items 125,433 (144,429)
Changes in prior year estimates 156,159 (39,008)
Other state taxes 61,653 -
Valuation allowance 15,715 (1,636,981)
Unrecognized tax benefits 94,000 -
Foreign tax expense (12,298) -
Other 53,543 10,119
------------------------------------------------- --------- ------------
Income tax expense (benefit) 509,583 (871,464)
------------------------------------------------- --------- ------------
Effective income tax rate 1110.23% (36.21%)
------------------------------------------------- --------- ------------
The net deferred tax assets in the accompanying consolidated
balance sheets include the following components as of 31 December
2012 and 2011:
2012 2011
US$ US$
--------------------------------- ------------- -------------
Deferred tax liabilities
Property and equipment (42,136) (109,699)
Intangible assets (991,004) (758,363)
--------------------------------- ------------- -------------
(1,033,140) (868,062)
Deferred tax assets
Subpart F income 268,025 -
Accrued expenses 221,672 81,399
Net operating loss carryforwards 21,231,419 22,024,205
Inventories 594,224 141,325
Deferred rent 123,233 51,404
22,438,573 22,298,333
Net deferred tax assets 21,405,433 21,430,271
Valuation allowance (20,365,748) (20,390,586)
--------------------------------- ------------- -------------
Net deferred tax assets 1,039,685 1,039,685
--------------------------------- ------------- -------------
The income tax expense (benefit) differs from the federal
statutory tax rate generally as a result of changes in the
valuation allowance, permanent differences such as meals and
entertainment expenses, state income taxes, foreign income taxes,
and the amending of a state income tax return during the year ended
31 December 2012. A valuation allowance has been provided to reduce
the deferred tax assets to the amount that is more likely than not
to be realised.
The Company has federal net operating loss carryforwards
totalling US$59,456,000, which may be used to offset future taxable
income. If not used, the carryforwards will expire in future years
as follows:
Year US$
------------------------- -----------
2022 4,110,000
2023 7,720,000
2024 6,412,000
2025 11,136,000
2026 12,197,000
2027 14,131,000
2028 3,750,000
------------------------- -----------
Total loss carryforwards 59,456,000
------------------------- -----------
As a result of changes in ownership at the IPO date, the Company
estimates there will be future limitations on the utilisation of
operating loss carryforwards pursuant to Internal Revenue Code
Section 382. Any unused annual loss limitation carries forward to
future year. The annual limitation on loss carryforwards that could
be utilised is approximately US$5,600,000 through the year ended 31
December 2012 and US$2,600,000 after the year ended 31 December
2012. The cumulative unused loss limitation which carried into the
year ended 31 December 2012 was approximately US$14,000,000.
The Company files tax returns in the US federal and various
state jurisdictions, along with Belgium and Brazil foreign tax
jurisdictions. The Company's tax years extending back to the year
ended 31 December 2008 remain open to examination for both federal
and state jurisdictions. The Company's policy is to recognise
interest and penalties related to uncertain tax positions as a
component of income tax expense. During the years ended 31 December
2012 and 2011, the Company recognised US$94,000 and US$0,
respectively, in interest and penalties. As of 31 December 2012 and
2011, the Company had US$94,000 and US$0, respectively, accrued for
the payment of interest and penalties. The Company does not expect
the total amount of unrecognised tax benefits to significantly
change during the next 12 months.
Cash payments for income taxes were US$208,000 and US$850,000
during the years ended 31 December 2012 and 2011, respectively.
Note 11 - Common Stock
In accordance with its third amended and restated certificate of
incorporation dated 20 December 2007, the total number of shares
the Company is authorised to issue is 30,000,000, all of which is
designated as common stock with US$0.01 par value. Each share of
common stock entitles the holder to one vote on each matter
submitted to a vote of the stockholders of the Company. The holders
of the common stock shall be entitled to receive dividends when,
and if, declared by the Board of Directors of the Company.
Note 12 - Stock Options
In December 2007, the Company approved a Second Amended and
Restated Stock Option and Restricted Stock Plan (the "2007 Plan").
As of 31 December 2012 and 2011, the 2007 Plan reserves 2,330,995
shares of common stock for grant (or 12% of the issued and
outstanding common stock). The 2007 Plan permits granting of awards
to selected employees, consultants, and directors of the Company in
the form of options to purchase shares and shares of restricted
stock. Options granted may include nonqualified options as well as
incentive stock options. The 2007 Plan is currently administered by
the Board of Directors of the Company.
The 2007 Plan gives broad power to the Board of Directors of the
Company to administer and interpret the 2007 Plan, including the
authority to select the individuals to be granted options and
restricted stock, and to prescribe the particular form and
conditions of each option or restricted stock granted. The 2007
Plan shall continue in effect for a term of 10 years unless
terminated sooner under provisions of the 2007 Plan. It is the
Company's policy to issue new stock certificates to satisfy stock
option exercises.
During the years ended 31 December 2012 and 2011, the Company
granted 38,000 and 672,500 nonqualified stock options,
respectively, to employees and key consultants of the Company. The
options were granted at the fair market value of the common stock
on the date of the grant and have a 10 year contractual term. Plan
stock options generally vest over four years.
A summary of option activity under the 2007 Plan as of 31
December 2012 and 2011, and the changes during the years ended 31
December 2012 and 2011 is as follows:
Weighted- Weighted-
Average Average Aggregate
Exercise Remaining Intrinsic
Number Price Contractual Value
of Shares (GBP) Term (GBP)
------------------------------- ----------- ---------- ------------- -----------
Outstanding as of 1 January
2011 1,327,840 0.70 8.08 1,986,119
Granted 672,500 2.10
Exercised (35,750) 0.39 55,958
Forfeitures (27,250) 2.01
------------------------------- ----------- ---------- ------------- -----------
Outstanding as of 31 December
2011 1,937,340 1.18 7.89 1,368,782
------------------------------- ----------- ---------- ------------- -----------
Granted 38,000 1.39
Exercised - - -
Forfeitures (5,500) 1.89
Expirations (11,500) 0.58
------------------------------- ----------- ---------- ------------- -----------
Outstanding as of 31 December
2012 1,958,340 1.18 6.95 1,071,045
------------------------------- ----------- ---------- ------------- -----------
Vested or expected to vest as
of 31 December 2012 1,936,838 1.17 6.93 1,070,554
------------------------------- ----------- ---------- ------------- -----------
Options exercisable as of 31
December 2012 1,374,715 0.85 6.31 1,034,716
------------------------------- ----------- ---------- ------------- -----------
A summary of the Company's nonvested options under the 2007 Plan
as of 31 December 2012 and 2011 and changes during the years ended
31 December 2012 and 2011 is presented as follows:
Weighted-
Average
Grant-Date
Fair Value
Shares (GBP)
------------------------------------------ ---------- ------------
Nonvested options as of 1 January 2011 515,000 0.42
Granted 672,500 0.83
Vested (334,250) 0.30
Forfeitures (27,250) 1.07
------------------------------------------ ---------- ------------
Nonvested options as of 31 December 2011 826,000 0.78
------------------------------------------ ---------- ------------
Granted 38,000 0.48
Vested (274,875) 0.73
Forfeitures (5,500) 0.75
------------------------------------------ ---------- ------------
Nonvested options as of 31 December 2012 583,625 0.78
------------------------------------------ ---------- ------------
The following is a summary of the Company's stock options
outstanding and stock options exercisable under the 2007 Plan as of
31 December 2012:
Options Outstanding Options Exercisable
----------------- ------------------------- -------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Exercise Prices Options Price Options Price
(GBP) Outstanding (GBP) Exercisable (GBP)
----------------- ------------- ---------- ------------- ----------
0.39-0.72 935,840 0.42 909,090 0.42
1.15-1.50 313,000 1.46 275,000 1.47
1.70-2.33 709,500 2.07 190,625 2.04
----------------- ------------- ---------- ------------- ----------
Total 1,958,340 1.18 1,374,715 1.17
----------------- ------------- ---------- ------------- ----------
The Company recognised compensation expense of US$258,498 and
US$260,836 during the years ended 31 December 2012 and 2011,
respectively. As of 31 December 2012, there was approximately
US$575,943 of total unrecognised compensation cost related to
nonvested share-based compensation arrangements granted under the
2007 Plan. That cost is expected to be recognised over a
weighted-average period of 1.24 years.
No options were exercised during the year ended 31 December
2012. 35,750 options were exercised during the year ended 31
December 2011, at a weighted average exercise price of GBP0.39.
Fair value was estimated as of the grant date based on a
Black-Scholes option pricing model using the following weighted
average assumptions during the years ended 31 December 2012 and
2011:
2012 2011
------------------------------------ -------- --------
Risk-free interest rate 0.88% 1.94%
Expected volatility rate 34.13% 36.99%
Dividend yield 0.0% 0.0%
Expected Life 6.1 6.2
Fair Value per share on grant date GBP0.48 GBP0.83
When estimating forfeitures, the Company considers historical
terminations as well as anticipated retirements.
Note 13 - Operating Leases
The Company conducts its operations in facilities leased under a
number of operating leases. Rent expense under these agreements
amounted to US$512,878 and US$414,803 during the years ended 31
December 2012 and 2011, respectively.
The following is a schedule by year of future minimum lease
payments required under operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of 31
December 2012:
Year Ending 31 December: US$
--------------------------------
2013 492,891
2014 539,399
2015 466,860
2016 507,100
2017 444,730
Thereafter 205,344
-------------------------------- ----------
Total minimum payments required 2,656,324
-------------------------------- ----------
Note 14 - Earnings per Share
Basic earnings per share is computed by dividing net income by
the weighted average number of shares of common stock outstanding
during the period. Diluted earnings per share include the dilutive
effect of stock options and warrants, using the treasury stock
method. The following table sets forth the computation of basic and
diluted earnings per share for the years ended 31 December 2012 and
2011:
2012 2011
------------------------------------- ------------- -------------
Net income available to common
stock shareholders US$(210,844) US$3,475,113
Weighted average shares outstanding
for basic earnings per share 19,424,959 19,415,075
Dilutive effect of stock options 663,672 830,685
Weighted average shares outstanding
for diluted earnings per share 20,088,631 20,245,760
Basic earnings per share US$(0.01) US$0.18
Diluted earnings per share US$(0.01) US$0.17
Note 15 - Employee Benefit Plan
The Company sponsors a limited employer matching 401(k) plan for
all employees of the Company. The plan provides for contributions
in such amounts as determined by the Board of Directors of the
Company, and the employer match is discretionary. Contributions of
US$65,969 and US$61,121 were made during the years ended 31
December 2012 and 2011, respectively.
Note 16 - Other Cash Flow Information
Cash payments of interest were US$15,567 and US$95,014 during
the years ended 31 December 2012 and 2011, respectively.
During the year ended 31 December 2011, the Company acquired two
vehicles and office equipment via leases considered to be capital
leases. The capital lease obligation for these assets was
US$77,292.
From 1 January 2011 through the warrant expiration of 7 January
2011, various holders of US$340,000 in dollar denominated warrants
originally issued during the years ended 31 December 2007 and 2006,
in cashless exercises, converted their warrants into 28,994 shares
of common stock.
See Notes 7, 10, and 12 for additional noncash transactions.
Note 17 - Board Remuneration
During the years ended 31 December 2012 and 2011, the Company's
Board of Directors earned remuneration for their activities as
directors. In addition, David Kravitz's renumeration reflects his
role as Chief Executive Officer of the Company. Compensation
amounts are as follows:
2012 2011
US$ US$
--------------- -------- --------
David Kravitz 587,652 614,500
John Garcia 85,000 85,000
Eric Swenden 42,500 42,500
Andrew Clark 42,500 42,500
Klaas de Boer 42,500 42,500
Steven Mayer 42,500 42,500
In addition, David Kravitz received benefits in the form of
health and life insurance coverage during the years ended 31
December 2012 and 2011 of $32,960 and $33,743, respectively.
Directors did not receive any pension contributions from the
Company during the years ended 31 December 2012 and 2011.
Note 18 - Related Party Transactions
During the year ended 31 December 2010, the Company entered into
a consulting agreement with a company in which Steven Mayer, a
member of the Company's Board of Directors, is a director. Mr.
Mayer performs the consulting services. Fees for services rendered
under the consulting agreement were US$72,000 during each of the
years ended 31 December 2012 and 31 December 2011.
Additionally, during the years ended 31 December 2012 and 2011,
the Company did business with a company in which David Kravitz and
Steven Mayer are directors and have an ownership interest. Fees for
research and development related products and services rendered
were US$173,000 and US$85,000 during the years ended 31 December
2012 and 2011, respectively. As of 31 December 2012 and 2011, the
Company had prepaid deposits of US$177,500 and US$171,000,
respectively, for products to be placed in service and services
expected to be rendered during the following year.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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Lifeline Sci. S (LSE:LSI)
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