TIDMLSI
RNS Number : 8633B
Lifeline Scientific, Inc
24 April 2012
24 April 2012
Lifeline Scientific, Inc.
("Lifeline" or "the Company")
Results for the Twelve Months Ended 31 December 2011
- Investing for Growth -
Lifeline Scientific, the medical technology company, announces
results for the twelve months ended 31 December 2011. 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
-- Revenue from transplantation products and services increased
by 10.7% to US$24.2 million (2010: US$21.8 million), as a result of
increased unit sales of LifePort Kidney Transporter and a
significant increase in sales of solutions and consumable
products
-- Gross margin increased to 63.8% (2010: 62.9%)
-- Operating profit decreased to US$1.9 million (2010: US$4.5
million) reflecting planned strategic investments in product
development and geographic expansion
-- Cash of US$9.4 million at period end (2010: US$11.1 million)
Operational Highlights
-- Sales of 49 new LifePort Kidney Transporters, bringing the
total installed base worldwide to 441
o 135 centres in 23 countries now employing LifePort Kidney
Transporters
o Initial sales recorded in Australia and three new transplant
centres in Switzerland
o Advances made in securing reimbursement within key European
markets
-- Established South American regional office in Brazil (Sao
Paulo) and secured initial orders of approximately US$0.95 million
for LifePort Kidney Transporter and related consumables
-- Progress in China towards obtaining regulatory approvals and
distribution for the Company's full suite of transplant
products
-- Progress made on LifePort Liver Transporter, which presently
remains on track for initial clinical availability by the end of
2012
Post period end
-- Regulatory approval received in Brazil from the medical
regulatory authority, Agencia Nacional de Vigilancia Sanitaria,
ANVISA, enabling full market access for the Company's complete line
of clinical transplantation products
-- Study results from the landmark Machine Preservation Trial
(MPT) published in the New England Journal of Medicine showed that
3-year graft survival is significantly greater in all transplanted
kidneys machine perfused in the LifePort(R) Kidney Transporter
compared to those stored in a traditional box of ice (static cold
storage) (91% vs. 87%, p=0.04). (i) The graft survival difference
at three years was most pronounced for kidneys from expanded
criteria donors (86% vs. 76%, p=0.01). Expanded criteria donors are
those over the age of 60 or those over 50 with secondary health
conditions such as hypertension or diabetes mellitus. Over the past
decade, organs from these donors comprise nearly half of the
deceased donor kidneys transplanted in the US and EU. (ii,iii)
David Kravitz, Chief Executive Officer of Lifeline, said:
"Our primary focus for 2011 was to make significant progress in
our geographic expansion and key product development efforts; we
strongly believe that the investments we have committed towards
achieving these objectives will translate into sustainable revenue
growth and profitability in the medium term. We are particularly
pleased with the post period-end receipt of regulatory approval in
Brazil, which now enables full market access in this increasingly
important transplant market, and we have subsequently realised our
first orders. Furthermore, our efforts toward obtaining regulatory
clearances in China for our full suite of transplant products are
advancing. I am also pleased to be able to reiterate the steady
progress we have made in the development of our LifePort Liver
Transporter, which is presently on track for initial clinical
availability by year end 2012.
Our accomplishments in 2011 have positioned us well for
continued growth and we are excited about our prospects for the
future."
For further information please contact:
Lifeline Scientific, Inc. +1 847-294-0300
David Kravitz, CEO
Seymour Pierce +44 (0)20 7107 8000
Sarah Jacobs / Mark Percy (Corporate
Finance)
David Banks (Corporate Broking)
FTI Consulting +44 (0)20 7831 3113
Simon Conway / John Dineen
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 135 leading transplant programmes in
23 countries worldwide, LifePorts have successfully preserved over
38,000 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.
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 FDA cleared, CE marked 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 2011 was a year of significant
advancement for Lifeline Scientific. Revenues in transplantation
products and services increased by 10.7%, with gross profit
increasing to 63.8%. Our LifePort Liver Transporter programme also
made important progress. Our global reach expanded with a regional
office opening in Brazil and further market development in
China.
Results
We have continued to increase sales and presence in the world's
transplantation centres: by the end of 2011, LifePort Kidney
Transporter was being used in 135 centres in 23 countries. Revenue
in 2011 in our transplantation products and services increased by
10.7% to US$24.2 million (2010: US$21.8million) while operating
profit was US$1.9 million (2010: US$4.5 million).
The increase in revenue was primarily the result of increased
unit sales of LifePort Kidney Transporter and a significant
increase in sales of our solutions and consumable products. Our
decline in operational profit was a result of continued strategic
investments in key geographic market expansion and product
development, which we strongly feel will translate into growth in
revenue and profitability in the medium term. At year end the
Company had cash in hand of US$9.4 million (2010: US$11.1
million).
Geographic Expansion
We completed the establishment of our South American regional
office in San Paulo and secured orders of US$0.95 million in
LifePort Kidney Transporter products from this market during 2011.
Following receipt in April 2012 of regulatory approval for our full
LifePort product line in Brazil, we expect our commercial efforts
in this market to gain momentum. We had initial sales of LifePort
units into Australia and three new transplant centres in
Switzerland. Advances in achieving reimbursement within key
European markets and our progress in China towards obtaining
regulatory approvals and distribution were also significant
accomplishments in 2011 that should lead to solid future
growth.
Product Development
Product line innovations aimed at meeting unmet needs in the
global transplant market will continue to be a cornerstone of our
future growth. In 2011 we advanced our product development efforts,
most notably furthering commercial development of our LifePort
Liver Transporter. We are pleased to report that steady progress
has been made in the development of the device and related
proprietary machine preservation solution, and we are presently on
track for initial clinical availability by the end of 2012.
Finance
In 2010 we expanded our working capital line with Silicon Valley
Bank moving from US$1.5 million to US$3.0 million. During 2011 the
Company entered into amendments to this credit agreement to reduce
interest rates applied and provide for a US$0.75 million term loan
to support the Company's growth plans. This working capital line
and term loan, coupled with cash on hand at year end (US$13.1
million combined), puts us in a strong position to fuel future
growth.
Outlook
Our expanding worldwide commercialisation efforts and growing
clinical adoption of our LifePort Kidney Transporter leaves me
confident that sales will continue to advance. In particular, our
efforts in Brazil are expected to gain momentum during 2012
following receipt of regulatory approvals to enable market access
for our full suite of clinical transplant products. We have made
meaningful advancements toward obtaining regulatory clearances in
China for our complete line of transplant products. The LifePort
Liver Transporter and other LifePort product innovations are
presently on plan for their initial clinical availability by year
end. All of these developments create a positive and favourable
outlook for Lifeline Scientific's future.
John Garcia Chairman
5 April 2012
Chief Executive Officer's Review
"During 2011 we accelerated investment into critical geographic
and product development programmes while delivering continued
strong year over year growth in revenue and contribution margin
within our core LifePort kidney preservation business. Driving
further growth in this key clinical area will remain a major focus
for us during 2012, while we continue to make meaningful
investments in strategic geographic expansion, product line
enhancements and new product development."
Our accomplishments in 2011 were guided by three main strategic
initiatives:
-- Driving continued expansion into key geographic transplant markets
-- Responding to clinical needs and a changing regulatory
environment through technology innovation
-- Securing our market leadership through strategic investments
and sustainable revenue growth
Driving continued expansion into key geographic transplant
markets
Our focus during 2011 remained the expansion of our core kidney
transplantation-related business, primarily centered in the US and
Europe. We continued to invest in developing new regions and in
securing reimbursement within key European markets. Incremental
investment in staff and infrastructure during 2012 will be targeted
mainly to support anticipated international growth and ensure
Lifeline Scientific is well positioned to respond to new market
opportunities for the LifePort platform as they arise.
Along with US and European expansion, we made strong progress
toward commercialisation in Brazil. With initial orders of
approximately $0.95 million for the Company's LifePort Kidney
Transporter and related consumables facilitated by government
grants, leading transplant programs in the cities of Rio and
Fortaleza are set to be the first adopters. Brazilian regulatory
clearances for the Company's full line of clinical transplantation
products are now in hand, while training and market development
efforts within key regions of Brazil were commenced in anticipation
of full market access. These activities along with the extensive
market development efforts expended during 2011 have reinforced our
belief that the Brazil market offers substantial potential for
Lifeline Scientific's products and services in the coming
years.
We are also making progress in China, another promising emerging
market for transplantation. SFDA regulatory applications and
distribution plans for our full suite of transplant products are
advancing. These efforts are progressing in parallel with China's
implementation of comprehensive new legislation (Regulation on
Human Organ Transplantation), the nation's first significant step
towards establishing a voluntary organ donation system. China's
stated aims under their new regulations are supported by
well-funded programmes and a national commitment to developing an
ethical and sustainable organ transplantation system for its public
and be accepted as a responsible member of the international
transplantation community.
Market development activities have commenced with the securing
of a distributorship agreement for our complete product line with
an established China market leading transplant products
distributor. Training and certification of clinical staff at
leading regional kidney transplant hospitals has begun, while
further training and support of our distributor's efforts around
its LifePort Kidney Transporter market launch will be ongoing
during 2012.
Responding to clinical needs and a changing regulatory
environment through technology innovation
Meaningful innovations around several existing products as well
the development of new product lines were also a major focus in
2011. LifePort Liver Transporter, one of our several new technology
initiatives, made significant progress and presently remains on
target for initial clinical availability by year end 2012. Due to
the timing of availability of certain LifePort Liver Transporter
components and vendor resources, approximately US$0.5 million of
product development spend originally anticipated for the second
half of 2011, is now expected to be incurred in 2012 and contribute
to higher product development costs this year than in 2011.
To further our market leadership position, we continue to invest
in technological enhancements for our LifePort Kidney Transporter.
Several important new features underwent development during 2011
including GPS/GPRS, precision controlled oxygen delivery capability
and enhanced data capture of key organ performance parameters,
among others.
We have also developed a novel cannula designed to improve upon
our prior models, including enabling LifePort use with living donor
kidneys. These advancements arose as our response to demands from
the field to address unmet needs. EU regulatory changes pertaining
to the transportation of donor organs will also drive certain
additional new developments.
Securing our market leadership through strategic investments and
sustainable revenue growth
We see revenue and contribution margin within our core kidney
transplantation franchise continuing the positive growth trend of
prior years. While our strategic investments into geographic
expansion and product development initiatives discussed above
suggest that operating and product development costs for 2012 could
be materially higher than 2011, given present conditions, we are
confident that such investments are prudent and timely, aimed to
translate into accelerating revenue growth and profitability in the
medium term.
Our Future
The future for our company and our LifePort brand appears
strong.
We have made solid progress toward building a market leadership
position within the field of transplant medicine, while forging
meaningful working relationships with clinical transplant and organ
procurement communities worldwide. We remain committed to pursuing
innovative research, market driven product development and
carefully targeted geographic expansion. As worldwide demand for
organ transplants continues to grow, compelling needs arise for
more scientifically proven technologies to improve donor organ
availability and transplantation outcomes. We are grateful for the
opportunity to play a part in filling these critical needs, while
supporting the global transplant community in their noble mission
to save lives of patients suffering from end stage organ
disease.
David Kravitz Chief Executive Officer
5 April 2012
Consolidated Balance Sheets 2011 2010
31 December 2011 and 2010 US$ US$
-------------------------------------------------- ------------- -------------
Current Assets
Cash and cash equivalents 9,352,480 11,068,048
Receivables
Customers (Net of allowance for doubtful
accounts of US$2,644 and US$2,744 as of
31 December 2011 and 2010, respectively) 3,865,307 3,037,398
Employees 3,941 8,797
Grant 106,065 88,737
Inventories 2,022,621 1,638,665
Deferred tax asset 16,285 -
Income taxes receivable 183,057 -
Prepaid expenses and deposits 978,256 468,363
Total Current Assets 16,528,012 16,310,008
-------------------------------------------------- ------------- -------------
Non-current Assets
Property and equipment (Net of accumulated
depreciation and amortisation) 1,287,054 969,219
Intangibles (Net of accumulated amortisation) 2,230,913 1,813,214
Deferred tax asset 1,023,400 -
Goodwill 64,710 64,710
Other 110,212 52,365
-------------------------------------------------- ------------- -------------
Total Non-current Assets 4,716,289 2,899,508
-------------------------------------------------- ------------- -------------
Total Assets 21,244,301 19,209,516
-------------------------------------------------- ------------- -------------
Current Liabilities
Accounts payable 1,276,053 2,408,635
Long-term debt due within one year 6,568 6,311
Capital lease obligations due within one
year 32,285 24,780
Warrant liabilities - 651,466
Accrued expenses
Salaries and other compensation 678,468 694,220
Other 853,304 491,748
Deferred rent 44,532 47,275
Deferred revenue 44,144 115,287
-------------------------------------------------- ------------- -------------
Total Current Liabilities 2,935,354 4,439,722
-------------------------------------------------- ------------- -------------
Non-current Liabilities
Long-term debt (Net of portion included
in current liabilities) 961,749 1,002,334
Deferred rent (Net of portion included in
current liabilities) 133,526 178,057
Accrued interest 253,780 267,719
Capital leases (Net of portion included
in current liabilities) 29,989 26,362
-------------------------------------------------- ------------- -------------
Total Non-current Liabilities 1,379,044 1,474,472
-------------------------------------------------- ------------- -------------
Total Liabilities 4,314,398 5,914,194
-------------------------------------------------- ------------- -------------
Lifeline Scientific, Inc. Stockholders'
Equity
Common stock, US$0.01 par value; authorised
- 30,000,000 shares;
issued and outstanding 19,424,959 and 19,297,197
shares as of 31 December 2011 and 2010,
respectively 194,249 192,972
Additional paid-in capital 93,786,981 93,419,411
Other accumulated comprehensive loss (256,031) (243,725)
Accumulated deficit (76,148,329) (79,623,442)
-------------------------------------------------- ------------- -------------
Total Lifeline Scientific, Inc. Stockholders'
Equity 17,576,870 13,745,216
Non-controlling interest (646,967) (449,894)
-------------------------------------------------- ------------- -------------
Total Stockholders' Equity 16,929,903 13,295,322
-------------------------------------------------- ------------- -------------
Total Liabilities and Stockholders' Equity 21,244,301 19,209,516
-------------------------------------------------- ------------- -------------
The accompanying notes are an integral part of the consolidated
financial statements.
Consolidated Statements of Operations 2011 2010
Years Ended 31 December 2011 and 2010 US$ US$
---------------------------------------------------- ------------ ------------
Revenue
Product sales and service fee revenue 24,175,115 21,847,159
Grant revenue 1,215,989 1,323,231
---------------------------------------------------- ------------ ------------
Total Revenue 25,391,104 23,170,390
Cost of Revenue 9,181,055 8,593,001
---------------------------------------------------- ------------ ------------
Gross Profit 16,210,049 14,577,389
---------------------------------------------------- ------------ ------------
Operating Expense
Research and development 2,387,739 689,124
Selling, general, and administrative 11,816,377 9,358,193
Loss from disposals of property and equipment 9,566 -
Loss from abandonment of patents 105,622 -
---------------------------------------------------- ------------ ------------
Total Operating Expense 14,319,304 10,047,317
---------------------------------------------------- ------------ ------------
Income from Operations 1,890,745 4,530,072
---------------------------------------------------- ------------ ------------
Other (Income) Expense
Change in fair value of warrants (599,264) 1,916,714
Interest expense 89,744 60,023
Interest income (6,311) (7,125)
Total Other (Income) Expense, Net (515,831) 1,969,612
---------------------------------------------------- ------------ ------------
Income Before Income Taxes 2,406,576 2,560,460
Income Tax (Benefit) Expense (871,464) 569,630
---------------------------------------------------- ------------ ------------
Net Income 3,278,040 1,990,830
Less: Net Loss Attributable to Non-controlling
Interest 197,073 212,670
---------------------------------------------------- ------------ ------------
Net Income Attributable to Lifeline Scientific,
Inc. 3,475,113 2,203,500
---------------------------------------------------- ------------ ------------
Basic earnings per share 0.18 0.12
---------------------------------------------------- ------------ ------------
Diluted earnings per share 0.17 0.12
---------------------------------------------------- ------------ ------------
Basic weighted average shares outstanding
(in shares) 19,415,075 17,695,274
---------------------------------------------------- ------------ ------------
Diluted weighted average shares outstanding
(in shares) 20,245,760 18,809,690
---------------------------------------------------- ------------ ------------
The accompanying notes are an integral part of the consolidated
financial statements.
Consolidated Statements of Lifeline Scientific, Inc. Stockholders
Changes in Stockholders'
Equity
Years Ended 31 December 2011
and 2010
----------------------------------------------------------
Other Non-controlling
Additional Ac-cumulated Interest
Par Paid-in Comprehen- Accumulated US$
Total Amount Capital sive Loss Deficit
US$ Shares US$ US$ US$ US$
-------------- ------------- -------------- --------- ------------ ------------- -------------- ----------------
Balance, 31
December
2009 5,243,184 17,446,704 174,467 87,415,833 (282,950) (81,826,942) (237,224)
--------------- ------------ -------------- --------- ------------ ------------- -------------- ----------------
Issuance of
common
stock related
to cash and
cashless
warrant
exercises 6,040,676 1,769,333 17,693 6,022,983 - - -
Issuance of
common
stock related
to stock
option
exercises 26,852 27,160 272 26,580 - - -
Issuance of
common
stock in
conjunction
with equity
financing 90,371 54,000 540 89,831 - - -
Professional
fees
in conjunction
with equity
financing (276,935) - - (276,935) - - -
Stock-based
compensation 141,119 - - 141,119 - - -
Foreign
currency
translation 39,225 - - - 39,225 - -
Net income
(loss) 1,990,830 - - - - 2,203,500 (212,670)
--------------- ------------ -------------- --------- ------------ ------------- -------------- ----------------
Balance, 31
December
2010 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)
--------------- ------------ -------------- --------- ------------ ------------- -------------- ----------------
The accompanying notes are an integral part of the consolidated
financial statements.
Consolidated Statements of Comprehensive 2011 2010
Income US$ US$
Years Ended 31 December 2011 and 2010
---------------------------------------------------- ----------- -----------
Net Income 3,278,040 1,990,830
Foreign Currency Translation (12,306) 39,225
---------------------------------------------------- ----------- -----------
Comprehensive Income 3,265,734 2,030,055
Comprehensive Loss Attributable to Non-controlling
Interest (197,073) (212,670)
---------------------------------------------------- ----------- -----------
Comprehensive Income Attributable to
Lifeline Scientific, Inc. 3,462,807 2,242,725
---------------------------------------------------- ----------- -----------
The accompanying notes are an integral part of the consolidated
financial statements.
Consolidated Statements of Cash Flows 2011 2010
Years Ended 31 December 2011 and 2010 US$ US$
--------------------------------------------- ------------ -----------
Cash Flows from Operating Activities
Net income 3,278,040 1,990,830
--------------------------------------------- ------------ -----------
Adjustments to reconcile net income
to net cash (used in)
provided by operating activities
Depreciation 319,934 333,165
Amortisation 121,815 44,400
Amortisation of discount on note receivable - (6,255)
Change in fair value of warrants (599,264) 1,916,714
Stock-based compensation 260,836 141,119
Loss on disposal of property and equipment 9,566 -
Loss on abandonment of patents 105,622 -
Deferred taxes (1,039,685) -
(Increase) decrease in
Receivables (883,126) (405,844)
Inventories (390,972) (884,178)
Prepaid expenses and deposits (510,504) (235,626)
Other assets (243,883) 25,559
Increase (decrease) in
Accounts payable (1,077,634) 1,049,013
Accrued expenses 305,060 336,111
Accrued interest (5,549) (10,302)
Deferred revenue (70,832) (18,177)
Deferred rent (47,274) (4,294)
--------------------------------------------- ------------ -----------
Total Adjustments (3,745,890) 2,281,405
--------------------------------------------- ------------ -----------
Net Cash (Used in) Provided by Operating
Activities (467,850) 4,272,235
--------------------------------------------- ------------ -----------
Cash Flows from Investing Activities
Payments of legal fees associated with
patent filings (645,136) (486,466)
Capital expenditures (661,143) (342,910)
Proceeds from sale of property and equipment 6,684 -
Proceeds from sale of patent - 120,000
--------------------------------------------- ------------ -----------
Net Cash Used in Investing Activities (1,299,595) (709,376)
--------------------------------------------- ------------ -----------
Cash Flows from Financing Activities
Borrowings (repayments) under capital
lease obligations, net 13,918 (30,212)
Cash received from warrant exercises 35,282 4,645,815
Cash received from option exercises 22,115 26,852
Borrowings of long-term debt - 1,333
Principal payments of long-term debt (8,517) (4,414)
Payments of financing fees (1,588) (186,564)
Net Cash Provided By Financing Activities 61,210 4,452,810
--------------------------------------------- ------------ -----------
Effect of Foreign Currency Exchange
Rate Changes on Cash (9,333) (16,563)
--------------------------------------------- ------------ -----------
Net (Decrease) Increase in Cash and
Cash Equivalents (1,715,568) 7,999,106
Cash and Cash Equivalents, Beginning
of Year 11,068,048 3,068,942
--------------------------------------------- ------------ -----------
Cash and Cash Equivalents, End of Year 9,352,480 11,068,048
--------------------------------------------- ------------ -----------
The accompanying notes are an integral part of the consolidated
financial statements.
Note 1 - Industry Operations
Lifeline Scientific, Inc. (the Company), is a U.S. 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. A
LifePort Liver product line is planned for a launch during the year
ending 31 December 2013, and other organ-related products are in
development.
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 U.S. (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. 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 2011 and 2010.
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
U.S. Treasury money markets to be cash equivalents. The majority of
cash and cash equivalents as of 31 December 2011 and 2010 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
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
------
Grant assets 3-5
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 believes that no impairment of
long-lived assets exists at 31 December 2011 and 2010.
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 believes that it is probable that
such patent applications will be successful. Patent costs are not
amortised until the patent is obtained. Additionally, 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 early adopted the FASB 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. During the years ended 31 December
2011 and 2010, 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 sheet. 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 for the
years ended 31 December 2011 and 2010.
2011 2010
US$ US$
------------------------------------ ---------- ----------
Accrued warranty, beginning of year 69,071 36,188
Provision for warranty 246,711 184,091
Warranty claims (243,499) (151,208)
Accrued warranty, end of year 72,283 69,071
------------------------------------ ---------- ----------
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$124,269
and US$130,930 are netted with expense and have been included in
cost of sales on the consolidated statements of operations during
the years ended 31 December 2011 and 2010, 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 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.
The Company is subject to U.S. 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 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 was recognised in earnings until such time that the
warrants were exercised or expired.
Management Estimates
The preparation of 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 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 U.S. dollars using
exchange rates in effect as of the consolidated balance sheet
dates. Income and expense items are translated at monthly average
rates of exchange. The resultant translation gains or losses are
included as part of the components of stockholders' equity
designated as other comprehensive income.
Subsequent Events
The Company has evaluated subsequent events through 5 April
2012, the date the consolidated financial statements were available
to be issued. In March 2012, the Company drew upon the term loan
with Silicon Valley Bank in the amount of US$525,000 out of the
US$750,000 available to the Company to support the Company's growth
plans (See Note 8).
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.
Note 3 - Notes Receivable
The Company sold a patent during the year ended 31 December 2008
and accepted a note from the purchaser in lieu of a cash
settlement. The patent was sold for US$300,000 payable by a
US$60,000 down payment and 24 installments of US$10,000. The
Company recorded the present value of the note using a 10% discount
rate, which the Company believed fairly represented the borrowing
rate the purchaser may have obtained from an alternative lender at
the date of the transaction. The unamortised discount on the note
receivable was US$0 as of 31 December 2011 and 2010, and the
Company recognised interest related to the note of US$0 and
US$6,255 during the years ended 31 December 2011 and 2010,
respectively. The note receivable was collateralised by the patent
ownership. The note was paid in full as of 31 December 2010.
Note 4 - Inventories
2011 2010
US$ US$
-------------------------------------- ---------- ----------
Medical devices, parts, and solutions 1,662,266 1,235,265
Raw materials 360,355 403,400
-------------------------------------- ---------- ----------
2,022,621 1,638,665
-------------------------------------- ---------- ----------
Note 5 - Property and Equipment
2011 2010
US$ US$
------------------------------------------ ------------------ --------------
Property and equipment in progress 83,923 18,372
Computer equipment 481,144 373,156
Furniture and fixtures 445,299 364,086
Equipment under capital lease 258,533 203,283
Laboratory equipment 1,444,037 1,365,965
Leasehold improvements 869,943 784,765
Tooling and moulds 568,678 554,329
Vehicles 166,647 77,819
------------------------------------------ ------------------ --------------
4,318,204 3,741,775
Accumulated depreciation and amortisation (3,031,150) (2,772,556)
------------------------------------------ ------------------ --------------
1,287,054 969,219
------------------------------------------ ------------------ --------------
During the years ended 31 December 2011 and 2010, the Company
recognised depreciation expense of US$319,934 and US$333,165,
respectively.
Note 6 - Intangibles
Intangible assets consist of the following:
2011 2010
US$ US$
------------------------------- ----------- -----------
License agreement 141,931 -
Patents issued 1,119,693 832,809
Patents pending 1,549,100 1,503,006
------------------------------- ----------- -----------
2,810,724 2,335,815
Less: Accumulated amortisation (579,811) (522,601)
2,230,913 1,813,214
------------------------------- ----------- -----------
During the years ended 31 December 2011 and 2010, the Company
abandoned patents issued and patents pending with an original cost
of US$170,228 and US$0, respectively.
During the years ended 31 December 2011 and 2010, the Company
recognised amortisation expense of US$121,815 and US$44,400,
respectively.
The following schedule by year represents future intangible
amortisation, assuming patent pending costs will be reclassified as
patents issued and amortisation will begin at the midpoint of the
following year:
Year Ending 31 December: US$
2012 120,770
2013 166,332
2014 166,332
2015 166,332
2016 166,332
Thereafter 1,444,815
------------------------- ----------
2,230,913
------------------------- ----------
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 U.S. dollar. These warrants represent 0 and
122,571 issuable shares of common stock outstanding as of 31
December 2011 and 2010, respectively.
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 US$3.02 as of 31 December 2010), 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 0 and 1,542,268 issuable
shares of common stock outstanding as of 31 December 2011 and 2010,
respectively.
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 5 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 August 2011 maturity date of the credit
facility. Charges related to this warrant totalled US$5,121 and
US$8,247 during the years ended 31 December 2011 and 2010,
respectively. This warrant was exercised during the year ended 31
December 2010.
Warrant activity during the years ended 31 December 2011 and
2010 is as follows:
Issuable
Common Stock
----------------------------------------- --------------
Outstanding as of 31 December 2009 4,263,600
Granted -
Exercised (2,604,039)
Expired -
Adjustment due to currency and share
price changes 5,278
----------------------------------------- --------------
Outstanding as of 31 December 2010 1,664,839
Granted -
Exercised (125,593)
Expired (1,539,215)
Adjustment due to currency changes
and share price changes -
----------------------------------------- --------------
Outstanding as of 31 December 2011 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$599,264 in income in January 2011.
In addition, 102 miscellaneous warrants with no value attributed
to them expired in November 2011. As of 31 December 2011, 31
miscellaneous warrants remain outstanding with issue dates from
2004 through 2005 and expirations between 2014 and 2015. No value
is attributed to these warrants as they are deemed to be immaterial
in value as they were subject to the effects of the 5,000 to 1
reverse stock split in connection with the Company's IPO on 7
January 2008.
From January 2009 through their expiration on 7 January 2011,
the Company classified its warrants as deriviative financial
instruments, and as such recognised the fair value of such
warrants. The fair value of the warrant liabilities is as follows
during the years ended 31 December 2011 and 2010:
Fair Value
US$
Outstanding as of 31 December 2009 129,613
Exercised (1,394,861)
Expired -
Change in fair value 1,916,714
------------------------------------ ------------
Outstanding as of 31 December 2010 651,466
Exercised (52,202)
Expired (599,264)
Change in fair value -
------------------------------------ ------------
Outstanding as of 31 December 2011 -
------------------------------------ ------------
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 2011 and 2010.
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:
-----------------------------------------------------
Total Income
Quoted In Active Significant Significant (Loss)
Fair Values Market for Other Observable Unobservable for the
as of 31 Identical Asset Inputs (Level Inputs Year Ended
December (Level 1) 2) (Level 3) 31 December
Description US$ US$ US$ US$ US$
--------------------- ------------ ----------------- ------------------ -------------- -------------
Warrant liabilities
2011 - - - - 599,264
Warrant liabilities
2010 (651,466) - (651,466) - (1,916,714)
These warrants did not trade in an active securities market. No
warrant value applies as of 31 December 2011. The Company
calculated the fair value of these warrants as of 31 December 2010
by using the Black-Scholes option pricing model and the following
significant observable inputs:
31 December
2010
-------------------------- ------------
Risk-free interest rate 0.08%
Expected volatility rate 4.90%
Dividend yield 0.00%
Expected life (years) 0.02
Note 8 - Line of Credit Agreement
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 agreement
provided for a revolving line of credit not to exceed an aggregate
principal amount of US$1,500,000, 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 outstanding principal under the
revolving line of credit accrued interest at an annual rate of 2%
above the prime rate. During August 2010, July 2011, and November
2011, the Company entered into amendments to this credit agreement,
to extend the maturity to September, 2012, increase limits, reduce
interest rates applied, and provide for a term loan to support the
Company's growth plans. The working capital line limit has been
increased to US$3,000,000, the interest rate has been reduced to
prime plus 1.25%, and a US$750,000, 36 month term loan at a 5.50%
unsecured or a 2.75% secured rate has been made available to the
Company. The Company did not borrow against either facility during
the years ended 31 December 2011 and 2010. As of 31 December 2011
and 2010, the Company was in compliance with all covenants, which
require the Company to maintain minimum Adjusted Quick ratio levels
(in 2011) and earnings before interest, taxes, depreciation, and
amortisation (EBITDA) levels (in 2010).
Note 9 - Long-Term Debt
2011 2010
US$ US$
----------------------------------------------------- ---------- ----------
Construction loan payable to the Company's
landlord, payable in 60 monthly installments
of US$711, interest to be charged at 6% and
payments due in March 2010 through March 2015;
unsecured. 22,411 30,671
Subordinated loan payable by ORS Europe, NV
to IWT; at the option of ORS Europe, NV, principal
and interest payable on an installment basis
beginning May 2014 through February 2017; interest
charged at an annual rate of 8.43% for all
periods except 2010 and 2009, where interest
charged at 5.77%; terms were extended for two
years during both 2011 and 2009; debt subordinated
to the intercompany payable to Lifeline Scientific,
Inc. 945,906 977,974
Capital lease obligations, payable in monthly
installments, including interest at various
annual rates, payments due July 2009 through
June 2016; secured by the underlying equipment. 62,274 51,142
----------------------------------------------------- ---------- ----------
Long-term debt, net 1,030,591 1,059,787
Less current maturities (38,853) (31,091)
----------------------------------------------------- ---------- ----------
991,738 1,028,696
----------------------------------------------------- ---------- ----------
Maturities on long-term debt other than capital leases are as
follows as of 31 December 2011:
Year Ending 31 December: US$
-------------------------------- ---------
2012 6,568
2013 7,669
2014 244,493
2015 315,459
2016 315,302
Thereafter 78,826
-------------------------------- ---------
Total minimum payments required 968,317
-------------------------------- ---------
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 2011:
Year Ending 31 December: US$
------------------------------------ ---------
2012 49,776
2013 27,228
2014 1,197
2015 1,197
2016 599
------------------------------------ ---------
Total minimum payments required 79,997
Less amounts representing estimated
executory costs (10,231)
Less amount representing interest (7,492)
------------------------------------ ---------
Present value of net minimum lease
payments 62,274
------------------------------------ ---------
Note 10 - Income Taxes
Income tax (benefit) expense consists of the following
components for the years ended 31 December 2011 and 2010:
2011 2010
US$ US$
-------------------- -------------- -------------
Current
Federal 29,292 123,721
Foreign - -
State 138,929 445,909
-------------------- -------------- -------------
168,221 569,630
-------------------- -------------- -------------
Deferred
Federal 3,691,698 2,137,648
Foreign - -
State 537,468 302,917
-------------------- -------------- -------------
4,229,166 2,440,565
-------------------- -------------- -------------
Valuation allowance (5,268,851) (2,440,565)
-------------------- -------------- -------------
Total income taxes (871,464) 569,630
-------------------- -------------- -------------
The net deferred tax assets (liabilities) in the accompanying
consolidated balance sheets include the following components:
2011 2010
US$ US$
--------------------------------- ------------- -------------
Deferred tax liabilities
Property and equipment (109,699) (120,704)
Intangible assets (758,363) (646,449)
--------------------------------- ------------- -------------
(868,062) (767,153)
Deferred tax assets
Net operating loss carryforwards 22,024,205 26,007,275
Receivables - 1,140
Inventories 141,325 111,745
Deferred rent 51,404 87,469
Accrued expenses 81,399 218,961
--------------------------------- ------------- -------------
22,298,333 26,426,590
Net deferred tax assets 21,430,271 25,659,437
Valuation allowance (20,390,586) (25,659,437)
--------------------------------- ------------- -------------
Net deferred tax assets 1,039,685 -
--------------------------------- ------------- -------------
The income tax (benefit) expense differs from the federal
statutory tax rate generally as a result of changes in the
valuation allowance and permanent differences, such as meals and
entertainment expenses and state income taxes. A valuation
allowance has been provided to reduce the deferred tax assets to
the amount that is more likely than not to be realised.
The Company has federal net operating loss carryforwards
totalling US$61,788,000, which may be used to offset future taxable
income. If not used, the carryforwards will expire as follows:
Year US$
------------------------- -----------
2021 945,000
2022 5,497,000
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 61,788,000
------------------------- -----------
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 ending
31 December 2012 and US$2,600,000 after the year ending 31 December
2012. The cumulative unused loss limitation which carried into the
year ended 31 December 2011 is approximately US$8,400,000.
The Company files tax returns in the U.S. 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 2007 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 other income and expense. During the years ended 31
December 2011 and 2010, the Company did not recognise expense for
interest and penalties, and does not have any amounts accrued as of
31 December 2011 and 2010, as the Company does not believe it has
taken any uncertain tax positions. 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$850,000 and US$92,772
during the years ended 31 December 2011 and 2010, 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 2011 and 2010, the 2007 Plan reserves 2,330,995
and 2,315,664 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 2011 and 2010, the Company
granted 672,500 and 93,000 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. Accelerated vesting was applied to grants during the year
ended 31 December 2010 to certain employees with long-standing
tenure with the Company.
A summary of option activity under the 2007 Plan as of 31
December 2011 and 2010, and the changes during the years ended 31
December 2011 and 2010 is as follows:
Weighted- Weighted-
Average Average Aggregate
Exercise Remaining Intrinsic
Number Price Contractual Value
of Shares (GBP) Term (GBP)
------------------------------- ----------- ---------- ------------- -----------
Outstanding as of 31 December
2009 1,262,000 0.63 8.99 637,045
Granted 93,000 1.63
Exercised (27,160) 0.62 27,276
------------------------------- ----------- ---------- ------------- -----------
Outstanding as of 31 December
2010 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
------------------------------- ----------- ---------- ------------- -----------
Vested or expected to vest
as of 31 December 2011 1,900,389 1.16 7.86
------------------------------- ----------- ---------- ------------- -----------
Options exercisable as of
31 December 2011 1,111,340 0.63 7.05 1,269,350
------------------------------- ----------- ---------- ------------- -----------
A summary of the Company's nonvested options under the 2007 Plan
as of 31 December 2011 and 2010 and changes during the years ended
31 December 2011 and 2010 is presented as follows:
Weighted-
Average
Grant-Date
Fair Value
Shares (GBP)
------------------------------------------ ---------- ------------
Nonvested options, 31 December 2009 750,000 0.29
Granted 93,000 0.99
Vested (328,000) 0.28
------------------------------------------ ---------- ------------
Nonvested options as of 31 December 2010 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
------------------------------------------ ---------- ------------
The following is a summary of the Company's stock options
outstanding and stock options exercisable under the 2007 Plan as of
31 December 2011:
Options Outstanding Options Exercisable
----------------- ------------------------- -------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Exercise Prices Options Price Options Price
(GBP) Outstanding (GBP) Exercisable (GBP)
----------------- ------------- ---------- ------------- ----------
0.39-0.72 946,840 0.42 891,840 0.42
1.15-1.50 275,000 1.47 206,250 1.47
1.70-2.33 715,500 2.07 13,250 1.70
----------------- ------------- ---------- ------------- ----------
Total 1,937,340 1.18 1,111,340 0.63
----------------- ------------- ---------- ------------- ----------
The Company recognised compensation expense of US$260,836 and
US$141,119 during the years ended 31 December 2011 and 2010,
respectively. As of 31 December 2011, there was approximately
US$757,774 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 1.69 years.
35,750 and 27,160 options were exercised during the years ended
31 December 2011 and 2010, respectively, at a weighted average
exercise price of GBP0.39 and GBP0.62.
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 2011 and
2010:
2011 2010
------------------------------------ -------- --------
Risk-free interest rate 1.94% 2.18%
Expected volatility rate 36.99% 45.79%
Dividend yield 0.0% 0.00%
Expected Life 6.2 6.1
Fair Value per share on grant date GBP0.83 GBP0.99
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$414,803 and US$374,130 during the years ended 31
December 2011 and 2010, respectively.
The following is a schedule by year of future minimum lease
payments required under operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of 31
December 2011:
Year Ending 31 December: US$
2012 522,565
2013 401,728
2014 409,575
2015 365,903
2016 338,630
Thereafter 415,697
-------------------------------- ----------
Total minimum payments required 2,454,098
-------------------------------- ----------
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 2011 and
2010:
2011 2010
------------------------------------- ------------- -------------
Net income available to common
stock shareholders US$3,475,113 US$2,203,500
Weighted average shares outstanding
for basic earnings per share 19,415,075 17,695,274
Dilutive effect of warrants - 191,418
Dilutive effect of stock options 830,685 922,998
Weighted average shares outstanding
for diluted earnings per share 20,245,760 18,809,690
Basic earnings per share US$0.18 US$0.12
Diluted earnings per share US$0.17 US$0.12
Note 15 - Employee Benefit Plan
The Company sponsors a limited employer matching 401(k) plan for
all employees. The plan provides for contributions in such amounts
as determined by the Board of Directors, and the employer match is
discretionary. Contributions of US$61,121 and $0 were made during
the years ended 31 December 2011 and 2010, respectively.
Note 16 - Other Cash Flow Information
Cash payments of interest were US$95,014 and US$54,884 during
the years ended 31 December 2011 and 2010, 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.
During the year ended 31 December 2010, various holders of
US$2,322,064 in dollar denominated warrants and 51,874 in share
denominated warrants, originally issued in the years 2005 through
2008, in cashless exercises, converted their warrants into 223,125
shares of common stock. 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 3, 7, 10, and 12 for additional noncash
transactions.
Note 17 - Major Sources of Revenue
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 2011 and 2010, the Company
received approximately US$1,097,000 and US$1,257,000, respectively.
The receivable balances for the granting agencies were US$56,833
and US$82,020 as of 31 December 2011 and 2010, respectively.
Note 18 - Board Remuneration
During the years ended 31 December 2011 and 2010, the Company's
Board of Directors earned remuneration for their activities as
directors. In addition, Mr. Kravitz's renumeration reflects his
role as Chief Executive Officer of the Company. Amounts are as
follows:
2011 2010
US$ US$
--------------- -------- --------
David Kravitz 614,500 584,300
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
Note 19 - 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 performed the consulting services. Fees for services rendered
under the consulting agreement were US$72,000 and US$48,000 during
the years ended 31 December 2011 and 31 December 2010,
respectively.
Additionally, during the year ended 31 December 2011, the
Company did business with a company in which David Kravitz and
Steven Mayer are directors and owners. Fees for products and
services rendered were US$85,000 during the year ended 31 December
2011. As of 31 December 2011, the Company had prepaid US$171,000
for products and services to be rendered during the year ending 31
December 2012.
References
i Moers C, Pirenne J, Paul, A, Ploeg RJ. Machine perfusion or
cold storage in deceased-donor kidney transplantation. N.Eng J Med
2012;366:770-1.
ii Eurotransplant data provided on request.
(iii) OPTN. Available at
http://optn.transplant.hrsa.gov/ContentDocuments/PG_Scorecard_090611.xls#.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR BKNDBDBKDPQB
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