TIDMLSIC
RNS Number : 3350L
Lifeline Scientific, Inc
27 April 2015
27 April 2015
Lifeline Scientific, Inc.
("Lifeline" or the "Company")
Final Results
Results for the twelve months ended 31 December 2014
Lifeline Scientific (AIM: LSIC), the transplantation technology
company, announces results for the year ended 31 December 2014, a
strong year of growth with revenues and operating profits ahead of
previous market expectations. The installed base of Lifeline's core
product, LifePort Kidney Transporter, grew to 193 transplant
programmes in 28 countries.
Financial Highlights
-- Transplantation products and services revenues up 7% to US$34.6m (2013: US$32.4m)
-- LifePort(R) single-use consumable sales up 12% to US$20.6m
(2013: US$18.4m)
-- North American revenues up 12% to US$27.3m (2013:
US$24.3m)
-- Revenues outside of North America reaching US$7.3m (2013:
US$8.0m)
-- Gross profit up 9% to US$21.6m (2013: US$19.9m)
-- Operating profit before and after non-recurring items
increased to US$2.4m (2013: US$1.9m after, or US$0.9m before
non-recurring items)*
-- Net income increased to US$3.5m after non-recurring items,
and US$2.2m before (2013: US$2.9m after or US$0.9m before
non-recurring items)
-- Net cash generated from operations of US$1.8m (2013: US$ 0.4m cash used)
-- Cash of US$3.3m as of 31 December 2014 (as of 30 June 2014: US$2.5m)
*adjustment of US$1.0m favourable legal settlement
in 2014, adjustment for release of US$1.3m deferred tax
allowance. In 2013, adjustment for legal settlement and for release
of US$1.0m deferred tax valuation allowance
Operational Highlights
-- Transplant programme customers worldwide increased by 21% to 193 (2013:160)
-- Strong geographical expansion globally:
-- Strong growth in North America, sales up 12% to US$27.3m
(2013: US$24.3m)
-- Sales in China increased by over 51% to US$1.9m (2013:
US$1.3m)
-- Sales in Strategic Europe and Rest of World (outside of the
Americas and China) of US$4.84m (2013: US$4.85m)
-- 27% growth in Strategic Europe and Rest of World LifePort
proprietary disposable sales
-- New key accounts established for LifePort and preservation
solutions in several of the largest transplant regions in the
US
-- LifePort Kidney Transporters specified by the transplant
community in France to support their national ECD programme where
more than 100 LifePorts are currently in use
-- 37 new issued patents added to the Company's portfolio
-- Chinese FDA approval for Lifeline's full line of organ preservation solutions at year-end
-- Further clinical evidence published supporting LifePort Kidney Transporter
David Kravitz, Chief Executive Officer of Lifeline, said: "2014
saw continued growth of LifePort adoption and use, especially
within leading transplant programmes in our established North
American market, as well as China and Europe. Expanding our
presence within emerging markets in South America with an emphasis
on Brazil will be a strong focus and we presently expect
significant pick-up in trading there during the course of 2015. I
am encouraged about the prospects of the business in 2015, both in
terms of potential for delivering continued growth in revenues and
operating profit and building shareholder value."
For further information:
Lifeline Scientific, www.lifeline-scientific.com
Inc.
David Kravitz, CEO Tel: +1 847 294 0300
Lisa Kieres, CFO Tel: +1 847 294 0300
Panmure Gordon (UK) Tel: +44 (0)20 7886 2500
Limited
Freddy Crossley (Corporate
Finance)
Maisie Atkinson (Corporate
Broking)
Walbrook PR Limited Tel: +44 (0) 20 7933 8780
or lifeline@walbrookpr.com
Paul McManus Mob: +44 (0)7980 541 893
Mike Wort Mob: +44 (0)7900 608 002
About Lifeline Scientific Inc.
Lifeline Scientific, Inc. is a Chicago-based global medical
technology company with regional offices in Brussels and Sao Paulo.
The Company's focus is the development of innovative products that
improve transplant outcomes and lower the overall costs of
transplantation. Its lead product, LifePort Kidney Transporter, is
the global market-leading medical device for hypothermic machine
preservation (HMP), of donor kidneys. LifePorts and novel solutions
designed for preservation of other organs are in development, with
LifePort Liver Transporter next in line for commercial launch. For
more information please visit www.lifeline-scientific.com
About LifePort Kidney Transporter
Created with the challenges of organ recovery and transport in
mind, LifePort Kidney Transporter is a proprietary medical device
designed to help improve kidney preservation, evaluation and
transport prior to transplantation. It has been widely studied in
clinical trials throughout the world and is the standard of care
for machine preservation of kidneys. Employed by surgeons in over
190 leading transplant programmes in 28 countries, LifePorts have
successfully preserved over 55,000 kidneys indicated for clinical
transplant. For more information please visit
www.organ-recovery.com
About LifePort Liver Transporter
LifePort Liver Transporter is modelled upon the clinically
proven technology platform of LifePort Kidney Transporter. The
Company's early liver HMP prototype was successfully used under a
US FDA Investigational Device Exemption in clinical transplant
studies by surgeons at New York-Presbyterian Hospital/Columbia
University Medical Center. LifePort Liver Transporter and the
Company's proprietary machine preservation solution, Vasosol(R),
are in the process of US and European regulatory registrations. The
system is designed to help improve outcomes in liver
transplantation by enabling the clinical use of hypothermic machine
perfusion, and has been developed in consultation with clinical and
research teams specializing in liver transplantation at Columbia
University Medical Center and the University of Chicago. The system
employs a rugged, streamlined ergonomic design for ease of use and
transportability from donor bedside to recipient operating room.
For more information please visit:
http://www.organ-recovery.com/pipeline.php
CHAIRMAN'S STATEMENT
I am delighted to report another solid year of growth with
full-year revenues and an operating profit ahead of previous
expectations. Operating profit before non-recurring items has
increased significantly during the year to US$2.4m (2013: US$0.9m),
built on strong sales of the Company's lead products in new and
existing programmes across the world.
Full-year revenues grew by 6.0% to US$35.2m (2013:
US$33.2m).
Transplantation products and services revenues increased by 7.0%
to US$34.6m (2013: US$32.4m), with much of the growth driven by
significant orders from North America, China and France for the
Company's flagship LifePort Kidney Transporter and related products
and consumables.
A key measure of performance is the sale of our proprietary
LifePort Kidney Transporter single-use consumables. Sales of these
higher margin products increased by 12.3% from last year to
US$20.6m (2013: US$18.4m). Sales of proprietary consumables
associated with LifePort Kidney Transporter now represent 59.5% of
transplantation related revenues (2013: 56.7%). Revenues increased
by 8.7% for all of our single-use consumables, including our
branded flush and preservation solutions.
Revenues from North America rose by 12.3% to US$27.3m (2013:
US$24.3m), driven by additional penetration in existing accounts
and conversion of new accounts to Lifeline's full suite of
products. Sales outside of North America reached US$7.3m (2013:
US$8.0m), with sales in China increasing by 51.3% to US$1.9m (2013:
US$1.3m) and sales to our Brazilian distributor falling to US$0.6m
(2013: US$1.9m). The decline in sales in Brazil was largely a
function of the complexities and long lead times around product
importation, yet clinician demand for Lifeline's products continues
to increase and the Company continues to see strong opportunity for
future growth. We are working on solutions to these issues and
expect a significant pick up in Brazilian revenues as they are
resolved.
Gross profit increased by 8.8% to US$21.6m (2013: US$19.9m) with
a gross margin of 61.3% (2013: 59.8%), representing an increase
over last year of US$1.7m. This was due primarily to the growth in
proprietary consumable sales in 2014.
Operating profit before and after non-recurring items (US$2.4m)
increased significantly over last year (2013: US$1.9m after;
US$0.9m before non-recurring items). The 2013 adjustment was namely
the recognition of a favourable US$1.0m legal settlement from a
third party. Reported pre-tax profit increased to US$2.3m (2013:
US$1.9m), with adjusted pre-tax profit, excluding all non-recurring
items of US$2.3m (2013: US$0.9m).
The Company will report basic earnings per share of US$0.18, and
US$0.12 adjusted for a non-recurring item of deferred tax allowance
release (2013: US$0.15 reported and US$0.04 adjusted for 2013
non-recurring items of litigation settlement and deferred tax
allowance release).
Net cash generated from operations for the period was US$1.8m
(2013: Net cash used US$0.4m), reflecting an increase in
profitability and lower investments in cash for working capital in
the year. The cash position of the Company remains healthy, with
cash balances as of 31 December 2014 of US$3.3m (30 June 2014:
US$2.5m) and a revolver balance of US$2.1m (30 June 2014: US$1.0m).
Note that US$1.1m of the revolver increase over the period
refinanced higher-interest long-term debt in September 2014.
Overall R&D spending in 2014 decreased slightly, in line with
expectations, to US$2.6m (2013: US$2.9m).
Revenues for the period since the year-end are in line with the
Company's expectations. We have seen consistent demand from our
core markets in the US and Europe, and we remain optimistic about
future growth prospects in Brazil and China. As well, efforts
continue in earnest to advance the regulatory registrations of
LifePort Liver Transporter and preparations for product launch
pending regulatory clearance.
I would like to thank the Board of Directors and staff for their
excellent work throughout the year and their valuable contribution
to the strong performance of the business. We start 2015 well
positioned to advance on the opportunities available to us and I
look forward to reporting on the continued success of the Group
over the coming year.
John Garcia
Chairman
Chief Executive Officer's Review
We delivered our eighth straight year of revenue growth in 2014
as worldwide market demand continued for our transplant products
and services. Operating profit also grew significantly over 2013.
Positive patient outcomes and strong clinician support continued to
be the main drivers of transplant programme adoption. The Company
saw particularly solid performance within North America as well as
further significant orders from China and France for our flagship
LifePort Kidney Transporter and related portfolio of products.
These achievements were reached in parallel with completing
development and technical performance validations of our LifePort
Liver Transporter system, along with good progress in preparation
for regulatory approvals in the US and EU as we aim for commercial
availability in 2015.
By year-end, LifePort Kidney Transporters were operating in 193
transplant programmes in 28 countries, an increase of 33 new
transplant programmes from 2013.
Territories Progress
North America
We achieved strong growth in the North American market in 2014,
with transplantation product and service sales reaching US$27.3m
(2013: US$24.3m). This region remains the largest contributor to
our revenue base, accounting for 78.9% of worldwide sales (2013:
75.2%). We anticipate this performance continuing in 2015,
supported by growth from new accounts for our full product line in
some of the largest transplant regions in the US, including the San
Francisco Bay area, the Greater Miami/South Florida region,
Indiana, and South Carolina. LifePort Kidney Transporters are now
the standard for machine preservation of kidneys in 81% of US Organ
Procurement Organisations and in all provinces of Canada.
Strategic Europe/Rest of World
Sales in Strategic Europe/Rest Of World (ROW), which we define
as sales from outside of the Americas and China, were steady in
2014 (US$4.84m), compared to 2013 (US$4.85m). Encouraging within
these figures is the 27.2% growth in LifePort proprietary
single-use consumables.
France, one of the largest markets in Europe for kidney
transplants (2,673 deceased donor transplants in 2013), has chosen
LifePort as the standard of care for machine preservation of
kidneys. It is the first country in Europe to adopt a national
programme for machine preservation of all of its Expanded Criteria
Donor (ECD) kidneys while it is already mandatory in France to
machine perfuse kidneys Donated After Cardiac Death (DCD).
Our Company won a competitive tender to supply LifePort Kidney
Transporters to the French national transplant service, Agence de
la biomédecine, in November 2013. Today 31 of France's 35 renal
transplant programmes are routinely preserving their ECD kidneys
with LifePort while more than one hundred LifePort Kidney
Transporters are installed nationwide. An estimated 625 LifePort
preserved ECD kidneys were reported as successfully transplanted
last year in France, an increase of 220% from 2013. We presently
expect strong LifePort usage to continue in 2015.
Other highlights from 2014 include the expansion of LifePort
Kidney Transporter into new clinical transplant centres in Spain
and Italy, increased adoption in the major transplant centres of
Scandinavia, and the start of a national machine preservation
programme for DCD kidneys in Israel.
Market access negotiations in Germany continued throughout the
year. We advanced contract negotiations and a harmonised national
clinical protocol for Germany's formal evaluation and potential
national implementation of LifePort reimbursement. Clinical data
supports that LifePort adoption could improve outcomes and lower
overall costs of transplantation in Germany, principally by way of
reducing Delayed Graft Function and related remedial treatments.
The Company has been working closely with and encouraged by German
transplant community clinical leaders to persist in our efforts to
secure national reimbursement.
South America
Brazil continues to be a significant potential market for our
Company's products, with approximately 129 transplant programmes
estimated to perform over 4,000 kidney transplants annually from
deceased donors. The Company has established Agência Nacional de
Vigilância Sanitária (ANVISA) regulatory approvals for LifePort
Kidney Transporter and its full line of related single-use
consumables and solutions, and is working on regulatory clearances
for our next-generation LifePort Kidney Transporter 1.1.
Whilst the pace of progress in Brazil has been slower than we
wish due to long lead times and complexities around product
importation, clinical experience and enthusiasm for LifePort
continues to grow. Surgeon demand for LifePort, driven by
compelling patient outcomes, has come from both small and
large-scale transplant centres. At the Hospital do Rim, the largest
renal transplant centre in the world (reporting an estimated 900
transplant procedures each year), data collection from their
75-patient LifePort clinical study is nearing completion.
Preliminary data indicates LifePort's ability to significantly help
improve post-transplantation outcomes and reduce the time
transplant recipients spend in hospital.
During 2014 we worked closely with leading Brazilian transplant
surgeons and organ procurement organisations along with Brazilian
health ministry leaders to develop a pragmatic solution to
challenges associated with the importation of our products. This
effort remains a top priority for the Company in 2015. Despite
these challenges, the Company recorded sales to its Brazilian
distributor of US$0.6m (2013: US$1.9m). Our preservation solutions
business is starting to grow with 3,409 liters sold in 2014 (2013:
3,200). We expect to see significant pick-up in product sales in
2015.
Elsewhere in South America, we are introducing LifePort Kidney
Transporter and our preservation solution products. We anticipate
that key markets outside Brazil for 2015 will be Colombia and
Panama where we have secured arrangements with specialist regional
distributors and renal transplant surgeons are requesting our
products.
China
Substantial progress continues in China toward making our full
product line available for commercialisation. In February of 2015,
we announced the receipt of Chinese FDA approvals for our SPS-1 and
KPS-1 organ preservation and flush solutions, and we remain
optimistic that LifePort Kidney Transporter will achieve regulatory
approval in the first half of 2015.
While our products continue to be imported by our China based
distributor and employed under clinical research protocols, our
sales there increased in 2014 by 51.3% to US$1.9m (2013:
US$1.3m).
China's national transplant system continues to modernise and
LifePort's clinical results as reported by Chinese surgeons remain
strong. Based upon this progress, we are optimistic that China may
become one of the largest national venues for the Company's
products and services. Currently, China reports having a network of
over 165 licensed renal transplant centres, with the opening of
further centres expected within the next 3-5 years due to rising
demand based on the rapid rise of end-stage renal disease.
Recently, China's health ministry estimated that over 300,000
patients are on waiting lists for organ transplantation.
New clinical experience
Clinical adoption and use of LifePort Kidney Transporter are
growing as rapidly as the body of scientific evidence supporting
its value in improving patient outcomes, reducing patient waiting
lists and post-transplant costs of care.
The University of British Columbia recently published data from
an analysis of more than 100,000 deceased donor kidney transplants
between 1995 and 2010. The study found that hypothermic machine
perfusion was associated with a reduced risk of Delayed Graft
Function (DGF) in all types of deceased donor kidneys except the
very lowest risk deceased donors. Gill J et al, Transplantation.
2014 97(1)
Around the world, surgeons are keen to share their clinical
experiences with machine perfusion. A number of single-centre
comparative trials have now been completed evaluating LifePort
machine perfusion to the historical standard, static cold storage.
These include a study from Dublin, Ireland, demonstrating the
benefit of machine perfusion of ECD kidneys in reducing the
incidence of DGF and significantly improving key markers of renal
health-serum creatinine levels at one and three months
post-transplant. (Forde J. et al, Irish Journal of Medical Science.
Dec. 2014) A further single-centre study from Spain found similar
results, with a reduced incidence of DGF and reduced hospital stay
in a population that had received machine perfused ECD kidneys.
This finding was particularly important as 80% of Spain's donor
population are categorised as ECDs. This has led to other key
Spanish transplant centres recently implementing a LifePort
programme. (G mez, V. et al, Transplantation Proceedings, 2012)
Recently, transplant surgeons in Birmingham, UK, (the second
largest volume renal transplant programme in the UK) have reported
that longer cold ischaemic time does not jeopardise outcomes in
renal transplantation if kidneys are machine perfused. As a result,
a standard protocol has been implemented whereby every kidney
unlikely to be implanted before 8pm is kept overnight on LifePort
for transplantation the following day. This new protocol has
reportedly led to a better quality of life for the clinical
transplant staff and inspired the installation of a LifePort
programme in Belfast, Northern Ireland, where typically busy
surgical schedules during daylight hours cause limited availability
of operating theatres and delays in transplant procedures. (World
Transplant Congress 2014, Abstract #D2683)
In Brazil, where rates of DGF run at between 60% to 70% and
hospital stays are on average 20 days post-transplantation, the
advent of LifePort machine perfusion offers the potential to
significantly improve patient outcomes and reduce the cost of
transplantation in this developing nation. Recent experience in the
Hospital Israelita Albert Einstein (Einstein) has demonstrated a
reduction of more than five days in hospital stay for those
patients receiving machine perfused kidneys compared to those
receiving statically cold stored kidneys (13.8 days vs. 19 days).
Based upon this evidence, Einstein reports that nearly all deceased
donor kidneys are placed on LifePort prior to transplantation.
(World Transplant Congress 2014, Abstract C1862)
In December 2014, an important clinical study of hypothermic
machine perfusion of 31 donor livers for transplant was published
in the American Journal of Transplantation. The study used a
prototype of LifePort Liver Transporter and the Company's new
proprietary Vasosol machine perfusion solution (Vasosol). It
examined the use of hypothermic machine perfusion versus static
cold storage for "orphan" donor livers (defined as donated livers
that had been rejected by all other transplant centres within the
originating United Network for Organ Sharing region, and were
otherwise likely to be discarded). During the post-transplantation
twelve-month follow-up, as compared to the standard of static
preservation in a cool box filled with ice, there were
significantly fewer complications and patients were able to spend
less time in the hospital.
The authors concluded that hypothermic machine perfusion assists
in the safe use of such marginal livers, even those rejected by
multiple centres. They proposed that the incorporation of this
technique into clinical practice will help close the gap between
organ supply and demand, improving both clinical and economic
outcomes of liver transplantation. (Guarrera, JV, et al. American
Journal of Transplantation. 2015)
Organ preservation solutions
As with the past several years, we remain the largest provider
of preservation solutions used in transplantation. Our offering of
preservation solutions continues to be a helpful convenience for
clients and an important revenue source for the Company. We
anticipate future growth in this sector in North America with a
considerable contribution from China and Brazil. Europe should also
be a source of revenue growth upon granting of our solution CE
mark, which we anticipate in 2015.
New product innovations
LifePort Liver Transporter
Final development, component and systems validations and
regulatory registration for LifePort Liver Transporter and Vasosol
solution were a key focus in 2014. We also successfully completed
requisite bench testing and large animal pre-clinical studies of
both machine and ex-vivo liver performance under typical organ
procurement, transport and surgical suite conditions. Our
development efforts were buoyed by very encouraging published
clinical data suggesting important clinical benefits of hypothermic
machine preservation for recovering marginal donor livers for
transplantation. While timing for achievement of regulatory
clearances cannot be predicted, we are making good progress and
continue to prepare for commercial availability in 2015.
As incidence of end-stage liver disease rises, transplant
waiting lists continue to grow throughout the world. In response,
surgeons are trying to find ways to expand the pool of available
donors without reducing graft and patient survival. The opportunity
for LifePort machine perfusion to help enable the use of older and
more marginal donor organs is promising and could potentially offer
new hope for many people waiting for a life-saving liver
transplant.
Universal SealRing (USR) cannula
Our new proprietary USR cannula was conceived nearly three years
ago to enable LifePort preservation of kidneys with compromised
vascular access, a donor population that includes living donor
kidneys and represents nearly 40% of all kidneys transplanted
worldwide. Since then, this new cannula has gone through rigorous
development and testing by our Company in close collaboration with
clinical transplant specialists. This effort is starting to show
promise. Recent clinical results have proven the Universal SealRing
works safely and effectively with traditional donor organs and
uniquely enables the use of deceased donor kidneys that have
limited vascular access and might otherwise have been discarded. In
2014, we saw rapid adoption of the USR cannula with 73% of
customers in North America now using it routinely in deceased donor
transplantation and in two centres, for the first time, in living
donor transplant procedures.
LifePort Kidney Transporter "rolling" cover
The LifePort Kidney Transporter "rolling" cover is another
product innovation that came out of our close collaboration with
the clinical community. Designed with significant input from
clinical organ procurement and logistics experts to give enhanced
protection and manoeuvrability to the LifePort Kidney Transporter
while in transit, this product has enabled commuter rail and
airline companies to accept the unattended transportation of
LifePort while fully operational. France is the first country to
adopt the Transporter Cover and we anticipate additional sales in
the EU region and beyond in 2015.
Research innovations
The Company continues to sponsor research within the transplant
community aimed at advancing the state of the art of organ, tissue,
and cell preservation. While not material to our overall operating
budget, our sponsorship is generally provided through contractual
transfers of our products or support services in exchange for
certain intellectual property rights. Our research interests
follows stated priorities of the major US and European clinical
transplant societies in three main areas: basic science,
translational science (including pre-clinical models designed to
advance translation of validated mechanistic discoveries to
clinical applications), and clinical science.
During 2014, our most potentially promising and important
research programmes included:
Basic science
-- Development and validation of perfusate derived biomarkers of
renal and hepatic graft dysfunction.
Translational science
-- An adherence monitoring study to help define predictors of
chronic rejection, cancer and infections after transplant.
-- Development of patient point of care assays for remote
monitoring and measurement of immunosuppressant drug levels and key
biomarkers of patient health.
-- Development and validation of surrogate markers for long-term
outcomes in kidney and liver allografts.
-- Research to determine the effects of our unique ice-free
cryopreservation system on protective immunity in allogeneic tissue
for transplantation.
-- Research on the effects of maintaining vascular flow during
machine preservation for reducing reperfusion injury and
determining sufficiency of oxygenation levels during LifePort
machine preservation.
Clinical science
-- Reduction of post-transplant complications in renal and liver allografts.
-- Optimising organ utilisation by improving organ viability
through machine perfusion based interventions in the
pre--transplant period including ex vivo conditioning.
-- Improving post-transplant outcomes, patient experience and
clinician support, by addressing the challenges of post-transplant
therapeutics adherence.
Intellectual property
Our strategy for growth and creating intrinsic Company value
includes a keen focus on intellectual property protection. We
routinely seek patent coverage in geographically important regions
for important discoveries that are relevant to our present and
envisioned future business. During 2014, the Company added 37 new
issued patents to its portfolio. This new intellectual property
covers LifePort organ preservation and related technology, along
with our cell and tissue preservation innovations. The Company's IP
portfolio now includes 65 US issued and 27 US pending patents, and
133 international issued and 86 international pending patents.
Outlook
We are very encouraged by the continued growth of LifePort
adoption and use, especially within leading transplant programmes
in our established North American market, China and Europe. Further
revenue growth in the US will come from use of machine perfusion in
a wider range of deceased donor kidneys, as surgeons continue to
recognise the benefits of machine perfusion for improving patient
outcomes and enabling more life-saving transplants. LifePort's
regulatory approval in China is presently expected in the first
half of 2015, which will enable a national product launch of our
full product line in this large emerging market.
While our efforts in Brazil have been slowed by excess
bureaucracy and long lead times for product importation, clinician
demand and patient outcomes success in key Brazilian transplant
centres is strong and growing. As Brazil is one of the three
largest untapped national markets for LifePort, we will maintain a
strong focus there and we expect a significant pick-up in trading
during 2015. LifePort Kidney Transporter and our preservation
solutions should gain traction in new markets within South America,
led by Colombia and Panama. We also anticipate broader use of
LifePort in France to support the country's planned efforts to
expand its pool of available donors, while Switzerland is expected
to follow France's success with LifePort and introduce a national
LifePort programme for all their ECD kidneys.
Our LifePort Liver Transporter system's regulatory approval will
also be a key focus in 2015. We anticipate demand from surgeons as
the clinical community looks to find new ways to deliver more and
better quality livers for transplantation in the hope of reducing
the number of people who die on waiting lists each year.
Overall, we are optimistic about the prospects of Lifeline
Scientific and look forward to another solid performance in 2015.
We see continued growth in revenue and operating profit, and as we
continue to drive our planned new product and territory expansion
initiatives to build shareholder value for the long-term.
As our success comes by way of immense dedication and effort of
all who comprise our global organisation, I thank my colleagues for
their unwavering services throughout the year. I am also grateful
to our shareholders, customers, distributors and vendors for their
support and encouragement throughout 2014. Together, we are
building a growing and sustainable business while serving a noble
worldwide effort of doctors and healthcare professionals to bring
life-saving transplants to thousands of patients suffering from
end-stage organ disease.
David Kravitz
Chief Executive Officer
Consolidated Balance Sheets
31 December 2014 and 2013
2014 2013
US$ US$
--------------------------------------------------- ------------- -------------
Current Assets
Cash and cash equivalents 3,323,777 3,022,140
Receivables
Customers (Net of allowance for doubtful
accounts of US$308,000 and US$2,693 as
of 31 December 2014 and 2013, respectively) 9,301,587 8,156,638
Employees 39 4,283
Grant 57,695 55,884
Inventories 5,935,966 5,341,207
Deferred tax assets 191,044 97,472
Prepaid expenses, deposits, and other 812,930 1,128,148
Total Current Assets 19,623,038 17,805,772
--------------------------------------------------- ------------- -------------
Non-current Assets
Property and equipment (Net of accumulated
depreciation and amortisation) 3,281,940 2,807,084
Intangibles (Net of accumulated amortisation) 4,437,047 3,615,149
Deferred tax assets 3,148,641 1,942,213
Goodwill 64,710 64,710
Other 79,412 256,102
--------------------------------------------------- ------------- -------------
Total Non-current Assets 11,011,750 8,685,258
--------------------------------------------------- ------------- -------------
Total Assets 30,634,788 26,491,030
--------------------------------------------------- ------------- -------------
Current Liabilities
Revolving line of credit 2,171,147 -
Accounts payable 2,260,522 2,124,571
Long-term debt due within one year 2,106 434,834
Capital lease obligations due within one
year 21,863 9,914
Accrued expenses
Interest due within one year 6,186 148,462
Salaries and other compensation 1,285,080 969,079
Other 1,126,256 1,399,397
Income taxes payable 42,217 162,340
Deferred rent 25,019 74,669
Deferred revenue 72,508 78,122
--------------------------------------------------- ------------- -------------
Total Current Liabilities 7,012,904 5,401,388
--------------------------------------------------- ------------- -------------
Non-current Liabilities
Long-term debt (Net of portion included
in current liabilities) - 801,310
Deferred rent (Net of portion included
in current liabilities) 305,678 348,512
Accrued interest (Net of portion included
in current liabilities) - 197,239
Capital leases (Net of portion included
in current liabilities) 55,132 57,383
--------------------------------------------------- ------------- -------------
Total Non-current Liabilities 360,810 1,404,444
--------------------------------------------------- ------------- -------------
Total Liabilities 7,373,714 6,805,832
--------------------------------------------------- ------------- -------------
Lifeline Scientific, Inc. Stockholders'
Equity
Common stock, US$0.01 par value; authorised
- 30,000,000 shares as of 31 December
2014 and 2013; issued and outstanding
19,496,434 and 19,446,720 shares as of
31 December 2014 and 2013, respectively 194,964 194,467
Additional paid-in capital 93,549,662 94,326,509
Other accumulated comprehensive loss (522,295) (253,710)
Accumulated deficit (69,961,257) (73,502,632)
--------------------------------------------------- ------------- -------------
Total Lifeline Scientific, Inc. Stockholders'
Equity 23,261,074 20,764,634
Non-controlling interest - (1,079,436)
--------------------------------------------------- ------------- -------------
Total Stockholders' Equity 23,261,074 19,685,198
--------------------------------------------------- ------------- -------------
Total Liabilities and Stockholders' Equity 30,634,788 26,491,030
--------------------------------------------------- ------------- -------------
The accompanying footnotes are an integral part of the
consolidated financial statements.
Consolidated Statements of Operations
Years Ended 31 December 2014 and 2013
2014 2013
US$ US$
----------------------------------------------- ------------- ------------
Revenue
Product sales and service fee revenue 34,637,945 32,367,008
Grant revenue 592,624 866,305
----------------------------------------------- ------------- ------------
Total Revenue 35,230,569 33,233,313
Cost of Revenue 13,622,702 13,370,078
----------------------------------------------- ------------- ------------
Gross Profit 21,607,867 19,863,235
----------------------------------------------- ------------- ------------
Operating Expense
Research and development 2,604,284 2,930,128
Selling, general, and administrative 16,590,058 14,903,551
(Gain) loss from disposals of property
and equipment (16,921) 503
Loss from abandonment of patents 27,546 86,433
----------------------------------------------- ------------- ------------
Total Operating Expense 19,204,967 17,920,615
----------------------------------------------- ------------- ------------
Income from Operations 2,402,900 1,942,620
----------------------------------------------- ------------- ------------
Other Expense (Income)
Interest expense 105,947 93,993
Interest income (1,898) (5,731)
Total Other Expense 104,049 88,262
----------------------------------------------- ------------- ------------
Income Before Income Taxes 2,298,851 1,854,358
Income Tax Benefit (1,242,524) (822,554)
----------------------------------------------- ------------- ------------
Net Income 3,541,375 2,676,912
Less: Net Loss Attributable to Non-controlling
Interest - 179,629
----------------------------------------------- ------------- ------------
Net Income Attributable to Lifeline
Scientific, Inc. 3,541,375 2,856,541
----------------------------------------------- ------------- ------------
Basic Earnings Per Share 0.18 0.15
----------------------------------------------- ------------- ------------
Diluted Earnings Per Share 0.18 0.14
----------------------------------------------- ------------- ------------
Basic Weighted Average Shares Outstanding
(in shares) 19,459,457 19,434,558
----------------------------------------------- ------------- ------------
Diluted Weighted Average Shares
Outstanding (in shares) 20,112,011 20,104,983
----------------------------------------------- ------------- ------------
The accompanying footnotes are an integral part of the
consolidated financial statements.
Consolidated Statements of Comprehensive Income (Loss)
Years Ended 31 December 2014 and 2013
2014 2013
US$ US$
------------------------------------ ------------ ------------
Net Income 3,541,375 2,676,912
Foreign Currency Translation (268,585) (3,427)
--------------------------------------- ------------ ------------
Comprehensive Income 3,272,790 2,673,485
Comprehensive Loss Attributable
to Non-controlling Interest - (179,629)
--------------------------------------- ------------ ------------
Comprehensive Income Attributable
to Lifeline Scientific, Inc. 3,272,790 2,853,114
--------------------------------------- ------------ ------------
The accompanying footnotes are an integral part of the
consolidated financial statements.
Consolidated Statements of Changes in Stockholders' Equity
Years Ended 31 December 2014 and 2013
Lifeline Scientific, Inc. Stockholders
Other
Ac-cumulated
Additional Comprehen- Non-controll-ing
Par Paid-in sive Accumulated Interest
Total Amount Capital Loss Deficit US$
US$ Shares US$ US$ US$ US$
Balance, 1
January 2013 16,730,465 19,424,959 194,249 94,045,479 (250,283) (76,359,173) (899,807)
--------------- ------------- ------------- ---------- -------------- ------------- --------------- ------------------
Issuance of
common stock
in
conjunction
with cashless
option
exercise - 21,761 218 (218) - - -
Stock-based
compensation 281,248 - - 281,248 - - -
Foreign
currency
translation (3,427) - - - (3,427) - -
Net income 2,676,912 - - - - 2,856,541 (179,629)
Balance, 31
December 2013 19,685,198 19,446,720 194,467 94,326,509 (253,710) (73,502,632) (1,079,436)
--------------- ------------- ------------- ---------- -------------- ------------- --------------- ------------------
Issuance of
common stock
in
conjunction
with cashless
option
exercise - 49,714 497 (497) - - -
Stock-based
compensation 303,596 - - 303,596 - - -
Foreign
currency
translation (268,585) - - - (268,585) - -
Acquisition
of remaining
51.00% shares
of CTS (510) - - (1,079,946) - - 1,079,436
Net income 3,541,375 - - - - 3,541,375 -
Balance, 31
December 2014 23,261,074 19,496,434 194,964 93,549,662 (522,295) (69,961,257) -
--------------- ------------- ------------- ---------- -------------- ------------- --------------- ------------------
The accompanying footnotes are an integral part of the
consolidated financial statements.
Consolidated Statements of Cash Flows
Years Ended 31 December 2014 and 2013
2014 2013
US$ US$
-------------------------------------- ------------ ------------
Cash Flows from Operating Activities
Net Income 3,541,375 2,676,912
-------------------------------------- ------------ ------------
Adjustments to Reconcile Net
Income to Net Cash Used in Operating
Activities
Depreciation 891,584 743,821
Amortisation 193,458 201,862
Stock-based compensation 303,596 281,248
(Gain) loss on disposals of property
and equipment (16,921) 503
Loss on abandonment of patents 27,546 86,433
Deferred income taxes (1,300,000) (1,000,000)
(Increase) decrease in
Receivables (1,341,179) (2,640,047)
Inventories (665,338) (917,787)
Prepaid expenses, deposits, and
other 477,726 (459,819)
Other assets 1,165 (168,413)
Increase (decrease) in
Accounts payable 133,708 (215,081)
Accrued expenses 2,983 1,072,463
Accrued interest (302,876) 55,621
Deferred revenue (50,657) (201,196)
Deferred rent (60,113) 106,172
Total Adjustments (1,705,318) (3,054,220)
-------------------------------------- ------------ ------------
Net Cash Provided by (Used in)
Operating Activities 1,836,057 (377,308)
-------------------------------------- ------------ ------------
Cash Flows from Investing Activities
Payments related to intangible
assets and legal fees associated
with patent filings (1,042,902) (1,090,624)
Capital expenditures (1,379,934) (1,045,626)
Acquisition of remaining 51.00% (510) -
shares of CTS
Net Cash Used in Investing Activities (2,423,346) (2,136,250)
-------------------------------------- ------------ ------------
Cash Flows from Financing Activities
Borrowings (repayments) under
capital lease obligations, net 17,328 (18,425)
Borrowings on revolving line 3,171,147 -
of credit
Payments on revolving line of (1,000,000) -
credit
Principal payments on long-term
debt (1,127,284) (178,750)
Net Cash Provided by (Used in)
Provided By Financing Activities 1,061,191 (197,175)
-------------------------------------- ------------ ------------
Effect of Foreign Currency Exchange
Rate Changes on Cash (172,265) (13,533)
-------------------------------------- ------------ ------------
Net Increase (Decrease) in Cash
and Cash Equivalents 301,637 (2,724,266)
Cash and Cash Equivalents, Beginning
of Year 3,022,140 5,746,406
-------------------------------------- ------------ ------------
Cash and Cash Equivalents, End
of Year 3,323,777 3,022,140
-------------------------------------- ------------ ------------
The accompanying footnotes are an integral part of the
consolidated financial statements.
Note 1 - Industry Operations
Lifeline Scientific, Inc. (the "Company") is a US corporation
whose common shares trade publicly on the AIM Market on the London
Stock Exchange (AIM:LSI.c). The Company is in the business of
delivering, to targeted medical markets, a portfolio of related
proprietary technologies, which include devices, solutions, and
protocols designed to maximise the use and availability of organs,
tissues, and cells. The Company serves the kidney transplant market
today with its LifePort product line, and also sells solutions to
service the broader organ transplant industry. All sales are
generated from US contract manufacturing. During the year ended 31
December 2014, revenue earned from customers by geographic location
was: 79.25% within North America, 13.75% within Europe, and 7.00%
from other foreign markets. During the year ended 31 December 2013,
revenue earned from customers by geographic location was: 75.90%
within North America, 14.54% within Europe, and 9.56% from other
foreign markets. As of 31 December 2014, 95.97% of the Company's
long-lived assets are within the US. A LifePort Liver product line
is planned for a commercial launch during the year ending 31
December 2015
and other organ-related products are in development. The Company
views itself as operating as one segment.
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation
The Company was incorporated in the state of Delaware as Organ
Recovery Systems, Inc. on 1 October 1998. On 20 December 2007, the
Company changed its name to Lifeline Scientific, Inc. The Company
is consolidated with the following subsidiaries:
ORS Europe, NV *
Cell and Tissue Systems, Inc. **
Organ Recovery Systems, Inc. *
ORS Representacoes do Brasil LTDA*
* A wholly-owned subsidiary
** 49.00% owned prior to 19 December 2014; a wholly-owned
subsidiary afterwards
Intercompany balances and transactions have been eliminated in
consolidation.
The Consolidation Topic of accounting principles generally
accepted in the US ("US GAAP") requires consolidation by the
primary beneficiary where the variable interest entity does not
have sufficient equity at risk to finance its activities without
additional subordinated financial support from other parties. The
application of this guidance resulted in the consolidation of Cell
and Tissue Systems, Inc. ("CTS"), which was created during the year
ended 31 December 2005 and was deemed to be a variable interest
entity. CTS was primarily formed to meet regulatory requirements in
order to enhance its ability and capacity to apply for funding from
available government sources. All grant revenue reported in the
consolidated statements of operations is related to CTS, and this
constitutes all of CTS' revenue. The Company contributed US$490 for
the 49.00% ownership needed to form the variable interest entity.
CTS had an accumulated deficit as of 31 December 2013.
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 classified 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 the year ended 31 December 2013.
On 19 December 2014, the Company acquired the remaining
outstanding 51.00% stock of CTS for $510. No gain or loss was
recorded in connection with this transaction as the Company has
already been consolidating CTS. The non-controlling interest was
derecognized in connection with the acquisition of the equity
interest not already owned. The difference between the
non-controlling interest and the consideration paid is reflected in
the equity of the Company.
Also on 19 December 2014, the Company jointly formed Tissue
Testing Technologies LLC ("T3") with another party. T3 was formed
to meet regulatory requirements in order to obtain research grants
from various government sources. Under the terms of the operating
agreement, the Company owns 49.00% of T3 and the other party owns
51.00%. The Company did not make an investment and T3 had
substantially no activity during the year ended 31 December
2014.
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 2014 and 2013 were held
through a single financial institution, and the balances held at
times exceed federally insured limits. The Company has not
experienced any losses in such accounts. The Company believes it is
not exposed to any significant credit risk on cash and cash
equivalents.
Receivables
Receivables are carried at original invoice or closing statement
amount less estimates made for doubtful receivables. Management of
the Company determines the allowance for doubtful accounts by
reviewing and identifying troubled accounts on a monthly basis and
by using historical experience applied to an aging of accounts. In
general, a receivable is considered to be past due if any portion
of the receivable balance is outstanding for more than 90 days past
its terms. The Company does not charge interest on past due
receivables. Receivables are written off when deemed uncollectible.
Recoveries of receivables previously written off are recorded when
received.
Inventories
Inventories are valued at the lower of cost (first-in,
first-out) or market. As of 31 December 2014, the Company has an
allowance of $190,000 for slower-moving inventories. No such
allowance was provided by the Company as of 31 December 2013.
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 2014 and
2013.
Intangibles
The cost of intangible assets are being amortised over the
remaining lives of the assets as follows:
Years
------
Certification marks 20
Patents 17
License agreement 10
Professional and regulatory fees associated with obtaining the
licenses that enable the Company to sell its products (i.e.
certification marks) are capitalised and amortized over the shorter
of the useful lives of the related licenses or twenty years. Legal
fees associated with filings for patents that are pending are
capitalised if management of the Company believes that it is
probable that such patent applications will be successful. Patent
costs are not amortised until the patent is obtained. During the
year ended 31 December 2010, the Company signed an agreement that
allows for the licensing of technology to support the Company's
product development efforts. The agreement is being amortised over
the remaining estimated life of the licensed technology, or ten
years.
Goodwill
Goodwill results from business acquisitions and represents the
excess of the purchase price over the fair value of acquired
tangible assets and liabilities and identifiable intangible assets.
In accordance with accounting for goodwill under US GAAP, goodwill
is not amortised, but instead tested for impairment on an annual
basis. The Company has applied Financial Accounting Standards Board
("FASB") Accounting Standards Update ("ASU") No. 2011-08, "Testing
Goodwill for Impairment," in connection with the performance of the
annual goodwill impairment test. Under ASU 2011-08, entities are
provided with the option of first performing a qualitative
assessment on none, some, or all of its reporting units to
determine whether further quantitative impairment testing is
necessary. An entity may also bypass the qualitative assessment for
any reporting unit in any period and proceed directly to the
quantitative impairment test. Goodwill must be tested on an annual
basis or if an event occurs or circumstances change that would more
likely than not reduce the fair value of the reporting unit below
its carrying amount. During the years ended 31 December 2014 and
2013, the Company was not required to record any impairments to the
carrying value of goodwill.
Deferred Rent
Minimum rent expense is recognised over the term of the lease.
The Company recognises minimum rent starting when possession of the
property is taken from the landlord. When a lease contains a
predetermined fixed escalation of the minimum rent, rent expense is
recognised on a straight-line basis. Any difference between the
recognised rent expense and the amounts payable under the lease is
reported as deferred rent in the consolidated balance sheets. The
Company records include a tenant allowance on its facility lease in
Itasca, Illinois, which is recorded as a component of deferred rent
and amortised as a reduction to rent expense over the term of the
lease. Future payments for common area maintenance, insurance, real
estate taxes, and other occupancy costs to which the Company is
obligated are excluded from minimum lease payments.
Fair Value of Financial Instruments
US GAAP defines fair value as the price that would be received
to sell an asset or paid to transfer a liability in an orderly
transaction between market participants as of the measurement date.
US GAAP describes three approaches to measuring the fair value of
assets and liabilities: the market approach, the income approach,
and the cost approach. Each approach includes multiple valuation
techniques. US GAAP does not prescribe which valuation technique
should be used when measuring fair value, but does establish a fair
value hierarchy that prioritises the inputs used in applying the
various techniques. Inputs broadly refer to the assumptions that
market participants use to make pricing decisions, including
assumptions about risk. Level 1 inputs are given the highest
priority in the hierarchy while Level 3 inputs are given the lowest
priority. Assets and liabilities carried at fair value are
classified in one of the following three categories based on the
nature of the inputs to the valuation technique used:
-- Level 1 - Observable inputs that reflect unadjusted quoted
prices for identical assets or liabilities in active markets as of
the reporting date. Active markets are those in which transactions
for the asset or liability occur in sufficient frequency and volume
to provide pricing information on an ongoing basis.
-- Level 2 - Observable market-based inputs or unobservable
inputs that are corroborated by market data.
-- Level 3 - Unobservable inputs that are not corroborated by
market data. These inputs reflect management of the Company's best
estimate of fair value using its own assumptions about the
assumptions a market participant would use in pricing the asset or
liability.
The carrying values of cash and cash equivalents, accounts
receivable, and accounts payable approximates their fair values
because of the short-term nature of these instruments. The carrying
value of the revolving line of credit and long-term debt
approximates their fair values as the stated interest rates
approximate current market interest rates of revolving lines of
credit and long-term debt with similar terms.
Product Warranty
Estimated future costs applicable to products sold under
warranty are charged to expense in the year of sale, and the
related liability is classified as current and have been included
in other accrued expenses. A summary of the account activity for
the warranty accrual is as follows during the years ended 31
December 2014 and 2013.
2014 2013
US$ US$
------------------------------------ ---------- ----------
Accrued warranty, beginning of year 136,789 80,338
Provision for warranty 287,950 296,786
Warranty claims (335,457) (240,335)
Accrued warranty, end of year 89,282 136,789
------------------------------------ ---------- ----------
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$170,534
and US$178,778 are netted with expense and have been included in
cost of sales on the consolidated statements of operations during
the years ended 31 December 2014 and 2013, respectively.
Income Taxes
Income taxes are provided for the tax effects of transactions
reported in the consolidated financial statements and consist of
taxes currently due plus deferred taxes related primarily to
differences between the basis of property and equipment, bad debts,
intangibles, and accrued expenses for financial and income tax
reporting. The deferred tax assets and liabilities represent the
future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities are
recovered or settled. The carrying value of the Company's deferred
tax assets is dependent upon its ability to generate sufficient
taxable income in the future. The Company has established a
valuation allowance against its net deferred tax assets to reflect
the uncertainty of realising the deferred tax benefits, given past
historical losses and a limited history of significant earnings. A
valuation allowance is required when it is more likely than not
that all or a portion of a deferred tax asset will not be realised.
The Company is subject to US federal, state, and local taxes as
well as foreign taxes in Belgium and Brazil. During the years ended
31 December 2014 and 2013, respectively, US$1,300,000 and
US$1,000,000 of the valuation allowance was reversed to reflect the
likelihood of future taxable income, which will most likely result
in the utilisation of a portion of the Company's net operating loss
carryforwards.
The Company's consolidated financial statements provide for any
related US tax liabilities on earnings of foreign subsidiaries that
may be repatriated, aside from qualifying undistributed earnings of
certain foreign subsidiaries that are intended to be indefinitely
reinvested in operations outside of the US.
The Company accounts for unrecognised tax benefits in accordance
with US GAAP, which prescribes a more likely than not threshold for
consolidated financial statement presentation and measurement of a
tax position taken or expected to be taken in a tax return. A tax
position is recognised as a benefit only if it is "more likely than
not" that the tax position would be sustained in a tax examination,
with a tax examination being presumed to occur. The amount
recognised is the largest amount of tax benefit that is greater
than 50.00% likely of being realised on examination. For tax
positions not meeting the "more likely than not" test, no tax
benefit is recorded.
Stock Options
In accordance with US GAAP, the Company accounts for the cost of
employee services received in exchange for an award of equity
instruments utilising the grant date fair value of the award.
Stock-based awards that do not require future service (i.e., vested
awards) are expensed immediately. The expense associated with
stock-based employee awards that require future service are
amortised over the relevant service period.
Management Estimates
The preparation of consolidated financial statements in
conformity with US GAAP requires management of the Company to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities as of the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The estimates included by the Company in these consolidated
financial statements relate to warranty reserves, the allowance for
doubtful accounts, the allowance for excess and obsolete
inventories, the useful lives of patents, the useful lives of
depreciable property and equipment, and the valuation allowance for
deferred tax assets.
Research and Development
Expenditures relating to the development of new products and
procedures are expensed as incurred.
Foreign Currency Translation
The financial position and results of operations of the
Company's foreign subsidiaries are measured using the subsidiary's
local currency as the functional currency. Assets and liabilities
of the foreign subsidiaries are translated to US dollars using
exchange rates in effect as of the consolidated balance sheet
dates. Income and expense items are translated at monthly average
rates of exchange. The resultant translation gains or losses are
included as part of the components of stockholders' equity
designated as a component of other comprehensive income.
Subsequent Events
The Company has evaluated subsequent events through 3 April
2015, the date the consolidated financial statements were available
to be issued. No reportable subsequent events occurred through 3
April 2015.
Contingencies
During the year ended 31 December 2013, the Company settled a
dispute with a third party. Under the settlement, the Company is
owed $1,000,000, payable through April 2015. The Company recognized
the settlement amount as a reduction to selling, general, and
administrative expenses in the consolidated statements of
operations for the year ended 31 December 2013. As of 31 December
2014 and 2013, respectively, the Company has recorded the current
portion of this settlement of $152,174 and $456,522 in prepaid
expenses, deposits, and other in the consolidated balance sheets.
As of 31 December 2013, the Company has recorded the non-current
portion of this settlement of $152,174 in other non-current assets
in the consolidated balance sheets. During the years ended 31
December 2014 and 2013, respectively, the Company received payments
totalling $456,522 and $391,304. The third party is current with
the settlement terms.
In addition to the aforementioned matter, from time to time, the
Company may experience litigation arising in the ordinary course of
business. These claims are evaluated for possible exposure by
management of the Company and their legal counsel. The Company
believes that the ultimate resolution of any such matters will not
have a material adverse effect on its consolidated financial
position.
Note 3 - Concentrations
As of 31 December 2014, two vendors accounted for 60.23% and
10.29% of accounts payable, respectively. As of 31 December 2013,
two vendors accounted for 27.06% and 12.95% of accounts payable,
respectively. During the year ended 31 December 2014, two vendors
accounted for 21.14% and 16.81% of purchases, respectively. During
the year ended 31 December 2013, two vendors accounted for 12.73%
and 12.31% of purchases, respectively.
As of 31 December 2014, one customer accounted for 20.76% of
customer receivables. As of 31 December 2013, two customers
accounted for 15.11% and 12.87% of customer receivables,
respectively.
The Company receives the majority of its grant revenue under
several grant contracts from the National Institutes of Health.
During the years ended 31 December 2014 and 2013, the Company
earned US$416,861 and US$761,902, respectively. The receivable
balances from the National Institutes of Health were US$13,883 and
US$44,705 as of 31 December 2014 and 2013, respectively.
Note 4 - Inventories
2014 2013
US$ US$
-------------------------------------- ---------- ----------
Medical devices, parts, and solutions 5,158,005 4,476,897
Raw materials 967,961 864,310
-------------------------------------- ---------- ----------
6,125,966 5,341,207
Reserve for excess and obsolete
inventories (190,000) -
-------------------------------------- ---------- ----------
5,935,966 5,341,207
-------------------------------------- ---------- ----------
Note 5 - Property and Equipment
2014 2013
US$ US$
------------------------------------------ ------------------ ------------------
Property and equipment in progress 188,512 534,147
Computer equipment 600,893 396,170
Furniture and fixtures 847,630 832,233
Equipment under capital lease 127,757 82,348
Laboratory equipment 2,858,537 2,158,311
Leasehold improvements 1,145,163 1,151,934
Tooling and moulds 1,555,274 883,776
Vehicles 141,438 225,129
------------------------------------------ ------------------ ------------------
7,465,204 6,264,048
Accumulated depreciation and amortisation (4,183,264) (3,456,964)
------------------------------------------ ------------------ ------------------
3,281,940 2,807,084
------------------------------------------ ------------------ ------------------
During the years ended 31 December 2014 and 2013, the Company
recognised depreciation expense of US$891,584 and US$743,821,
respectively.
Note 6 - Intangibles
Intangible assets consist of the following:
2014 2013
US$ US$
-------------------------------- ------------- -----------
License agreement 141,931 141,931
Certification mark fees 926,296 396,128
Patents issued 2,431,885 1,855,400
Patents pending 1,987,922 2,080,978
-------------------------------- ------------- -----------
5,488,034 4,474,437
Less: Accumulated amortisation (1,050,987) (859,288)
4,437,047 3,615,149
-------------------------------- ------------- -----------
During the years ended 31 December 2014 and 2013, the Company
abandoned patents issued and patents pending with an original cost
of US$29,304 and US$95,897, respectively.
During the years ended 31 December 2014 and 2013, the Company
recognised amortisation expense of US$193,458 and US$201,862,
respectively.
The following schedule by year represents future intangible
amortisation, assuming certification mark fees and patent pending
costs will be reclassified as issued and amortisation will begin at
the midpoint of the following year:
Year Ending 31
December: US$
--------------- ----------
2015 283,596
2016 362,854
2017 362,392
2018 353,888
2019 336,025
Thereafter 2,738,292
--------------- ----------
4,437,047
--------------- ----------
Note 7 - Financing Agreements
During August 2009, the Company entered into a two-year working
capital line of credit agreement with Silicon Valley Bank ("SVB")
to support potential future cash needs of the Company. This line of
credit agreement, and subsequent amendments provided for a
revolving line of credit not to exceed an aggregate principal
amount of US$3,000,000, limited to qualifying receivables as
defined, and granted a security interest in and lien upon all of
the assets of Lifeline Scientific, Inc. and Organ Recovery Systems,
Inc. in favour of SVB. The maturity of the line of credit agreement
was 21 September 2014. The outstanding principal under the
revolving line of credit accrued interest at an annual rate of
1.25% above the prime rate (3.25% as of 31 December 2013). In
addition, a US$750,000, 36 month term loan at a 5.50% unsecured or
a 2.75% secured rate was made available to the Company, of which
the Company drew upon US$525,000 (at a secured rate of 2.75%)
during the year ended 31 December 2012 to support the Company's
growth plans. The financing agreements contained financial
covenants which required the Company to maintain a required minimum
tangible net worth (as defined) as of 31 December 2013.
As of 31 December 2013, there were no amounts outstanding on the
line of credit and the outstanding balance on the term loan was
US$218,750.
On 18 September 2014, the Company entered into a new loan and
security agreement with The PrivateBank and Trust Company ("PB").
At close, the Company used proceeds from the loan and security
agreement to repay the subordinated loan payable to IWT of
$1,081,393 and satisfy all amounts under the previous SVB loan
agreement of US$1,089,755. The loan and security agreement provides
for a revolving line of credit, not to exceed an aggregate
principal amount of US$6,000,000 but limited to qualifying
receivables and inventories, as defined. The outstanding principal
under the loan and security agreement accrues interest at PB's
prime rate (3.25% as of 31 December 2014). The loan and security
agreement contains financial covenants which require the Company to
maintain a minimum tangible net worth, as defined, and a minimum
fixed charge coverage ratio, as defined. The Company was in
compliance with its financial covenants as of 31 December 2014. The
loan and security agreement is secured by substantially all assets
of the Company and expires 17 September 2015. As of 31 December
2014, there was US$2,171,147 outstanding on the revolving line of
credit.
Note 8 - Long-Term Debt
2014 2013
US$ US$
-------------------------------------------- --------- ----------
Construction loan payable to the
Company's landlord, payable in 60
monthly installments of US$711,
interest to be charged at 6.00%
and payments due in March 2010 through
March 2015; unsecured. 2,106 10,122
Subordinated loan payable by ORS
Europe, NV to IWT; at the option
of ORS Europe, NV, principal and
interest payable quarterly on an
installment basis of EUR60,822 beginning
May 2014 through February 2017;
interest charged at an annual rate
of 8.43%. Debt subordinated to the
intercompany payable to Lifeline
Scientific, Inc. This loan was repaid
in September 2014 in conjunction
with the financing obtained from
PB. - 1,007,271
Term loan payable to SVB, payable
in 36 monthly installments of US$14,583
plus interest charged at secured
annual rate of 2.75%; payments due
1 April, 2012 through 1 March, 2015;
secured by cash collateral account
at SVB in an amount corresponding
to current loan balance. This loan
was repaid in September 2014 in
conjunction with the financing obtained
from PB. - 218,750
Capital lease obligations, payable
in monthly installments, including
interest at various annual rates,
payments due April 2011 through
September 2018; secured by the underlying
equipment. 76,995 67,298
-------------------------------------------- --------- ----------
Long-term debt, net 79,101 1,303,441
Less current maturities (23,969) (444,748)
-------------------------------------------- --------- ----------
55,132 858,693
-------------------------------------------- --------- ----------
Maturities on long-term debt other than capital leases are as
follows as of 31 December 2014:
Year Ending 31 December: US$
-------------------------------- -----------------
2015 2,106
Total minimum payments required 2,106
-------------------------------- -----------------
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 2014:
Year Ending 31 December: US$
-------------------------------- ---------
2015 34,724
2016 34,026
2017 35,516
2018 2,418
Total minimum payments required 106,684
Less amounts representing
estimated executory costs (14,182)
Less amount representing
interest (15,507)
-------------------------------- ---------
Present value of net minimum
lease payments 76,995
-------------------------------- ---------
Assets held under capital lease as of 31 December 2014 and 2013
had a cost of US$127,757 and US$82,348, respectively, and
accumulated depreciation of US$42,386 and US$10,964,
respectively.
Note 9 - Income Taxes
Income tax benefit consists of the following components for the
years ended 31 December 2014 and 2013:
2014 2013
US$ US$
-------------------- -------------- ------------
Current
Federal 55,702 23,826
Foreign 68,902 63,234
State (67,128) 90,386
-------------------- -------------- ------------
57,476 177,446
-------------------- -------------- ------------
Deferred
Federal 632,228 564,521
State 92,045 82,188
-------------------- -------------- ------------
724,273 646,709
-------------------- -------------- ------------
Valuation allowance (2,024,273) (1,646,709)
-------------------- -------------- ------------
Total income taxes (1,242,524) (822,554)
-------------------- -------------- ------------
A reconciliation of income tax benefit, with amounts determined
by applying the statutory US federal income tax rate to income
before income taxes is as follows for the years ended 31 December
2014 and 2013:
2014 2013
US$ US$
--------------------------------------- ------------ ------------
Computed income tax expense at federal
statutory rate 681,711 538,131
State and local income taxes, net
of federal benefit 99,249 78,346
Permanent items 231,605 219,618
Changes in prior year estimates (149,702) (111,769)
Valuation allowance (2,024,273) (1,646,709)
Unrecognized tax benefits 19,000 24,000
Foreign tax expense 49,903 39,234
Other (150,017) 36,595
--------------------------------------- ------------ ------------
Income tax benefit (1,242,524) (822,554)
--------------------------------------- ------------ ------------
Effective income benefit rate -54.05% -44.36%
--------------------------------------- ------------ ------------
The net deferred tax assets in the accompanying consolidated
balance sheets include the following components as of 31 December
2014 and 2013:
2014 2013
US$ US$
----------------------------------- ------------- -------------
Deferred tax liabilities
Property and equipment - (20,364)
Intangible assets (1,635,716) (1,366,639)
----------------------------------- ------------- -------------
(1,635,716) (1,387,003)
Deferred tax assets
Stock compensation expense 500,619 349,863
Accrued expenses 291,822 361,542
Net operating loss carryforwards 19,826,905 20,633,700
Property and equipment 34,081 -
Inventories 726,302 678,119
Deferred rent 98,520 122,503
Allowance for doubtful accounts 119,966 -
Research and development and other
credit carryforwards 615,014 543,062
22,213,229 22,688,789
Net deferred tax assets 20,577,513 21,301,786
Valuation allowance (17,237,828) (19,262,101)
----------------------------------- ------------- -------------
Net deferred tax assets 3,339,685 2,039,685
----------------------------------- ------------- -------------
The income tax benefit differs from the federal statutory tax
rate generally as a result of changes in the valuation allowance,
permanent differences such as meals and entertainment expenses,
state income taxes, and foreign income taxes. A valuation allowance
has been provided to reduce the deferred tax assets to the amount
that is more likely than not to be realised.
The Company has federal net operating loss carryforwards
totalling US$58,479,000 as of 31 December 2014, which may be used
to offset future taxable income. If not used, the carryforwards
will expire in future years as follows:
Year US$
------------------------- -----------
2022 3,133,000
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 58,479,000
------------------------- -----------
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$2,600,000 through the year ended 31
December 2014 and 31 December 2013. The cumulative unused loss
limitation which carried into the year ended 31 December 2014 was
approximately US$16,766,000.
The Company files tax returns in the US federal and various
state jurisdictions, along with Belgium and Brazil foreign tax
jurisdictions. The Company's tax years extending back to the year
ended 31 December 2010 remain open to examination for both federal
and state jurisdictions. The Company's policy is to recognise
interest and penalties related to uncertain tax positions as a
component of income tax expense. A summary of the activity related
to unrecognised tax benefits is as follows during the years ended
31 December 2014 and 2013:
2014 2013
US$ US$
----------------------------------------- --------- ---------
Liability for unrecognized tax benefits,
beginning of year 118,000 94,000
Lapse of applicable statutes of
limitations (30,000) (30,000)
Accrued interest and penalties 49,000 54,000
----------------------------------------- --------- ---------
Liability for unrecognized tax benefits,
end of year 137,000 118,000
----------------------------------------- --------- ---------
The Company does not expect the total amount of unrecognised tax
benefits to significantly change during the next 12 months.
Cash payments for income taxes were US$139,000 and US$106,000
during the years ended 31 December 2014 and 2013, respectively.
Note 10 - Common Stock
In accordance with its third amended and restated certificate of
incorporation dated 20 December 2007, the total number of shares
the Company is authorised to issue is 30,000,000, all of which is
designated as common stock with US$0.01 par value. Each share of
common stock entitles the holder to one vote on each matter
submitted to a vote of the stockholders of the Company. The holders
of the common stock shall be entitled to receive dividends when,
and if, declared by the Board of Directors of the Company.
Note 11 - Stock Options
In December 2007, the Company approved a Second Amended and
Restated Stock Option and Restricted Stock Plan (the "2007 Plan").
As of 31 December 2014 and 2013, the 2007 Plan reserves 2,339,572
and 2,333,606 shares of common stock respectively for grant (or
12.00% of the issued and outstanding common stock). The 2007 Plan
permits granting of awards of restricted stock. Options granted may
include nonqualified options as well as incentive stock options.
The 2007 Plan is currently administered by the Board of Directors
of the Company.
The 2007 Plan gives broad power to the Board of Directors of the
Company to administer and interpret the 2007 Plan, including the
authority to select the individuals to be granted options and
restricted stock, and to prescribe the particular form and
conditions of each option or restricted stock granted. The 2007
Plan shall continue in effect for a term of ten years unless
terminated sooner under provisions of the 2007 Plan. It is the
Company's policy to issue new stock certificates to satisfy stock
option exercises.
During the years ended 31 December 2014 and 2013, the Company
granted 17,500 and 219,000 nonqualified stock options,
respectively, to employees and directors of the Company. The
options were granted at the fair market value of the common stock
on the date of the grant, have a ten year contractual term, and
vest over four years.
A summary of option activity under the 2007 Plan as of 31
December 2014 and 2013 and the changes during the years ended 31
December 2014 and 2013 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
2013 1,958,340 1.18 6.95 1,071,045
Granted 219,000 1.90
Exercised (30,000) 0.39 30,900
Forfeitures (3,075) 2.07
Expirations (2,625) 0.80
----------------------------- ----------- ---------- ------------- -----------
Outstanding as of 31
December 2013 2,141,640 1.27 6.30 1,150,005
----------------------------- ----------- ---------- ------------- -----------
Granted 17,500 1.43
Exercised (68,800) 0.39 70,758
Forfeitures (5,875) 1.93
Expirations (12,825) 0.87
----------------------------- ----------- ---------- ------------- -----------
Outstanding as of 31
December 2014 2,071,640 1.30 5.37 688,156
----------------------------- ----------- ---------- ------------- -----------
Vested or expected to
vest as of 31 December
2014 2,063,363 1.29 5.36 688,156
----------------------------- ----------- ---------- ------------- -----------
Options exercisable as
of 31 December 2014 1,720,788 1.16 4.93 688,156
----------------------------- ----------- ---------- ------------- -----------
A summary of the Company's nonvested options under the 2007 Plan
as of 31 December 2014 and 2013 and changes during the years ended
31 December 2014 and 2013 is presented as follows:
Weighted-
Average
Grant-Date
Fair
Value
Shares (GBP)
------------------------------------- ---------- ------------
Nonvested options as of 1 January
2013 583,625 0.78
Granted 219,000 0.66
Vested (215,500) 0.74
Forfeitures (3,075) 0.57
------------------------------------- ---------- ------------
Nonvested options as of 31 December
2013 584,050 0.75
------------------------------------- ---------- ------------
Granted 17,500 0.49
Vested (244,823) 0.78
Forfeitures (5,875) 0.44
------------------------------------- ---------- ------------
Nonvested options as of 31 December
2014 350,852 0.72
------------------------------------- ---------- ------------
The following is a summary of the Company's stock options
outstanding and stock options exercisable under the 2007 Plan as of
31 December 2014:
Options Outstanding Options Exercisable
----------------- ------------------------- -------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Exercise Prices Options Price Options Price
(GBP) Outstanding (GBP) Exercisable (GBP)
----------------- ------------- ---------- ------------- ----------
0.39-0.72 825,840 0.42 825,840 0.42
1.15-1.50 330,500 1.46 298,375 1.46
1.70-2.33 915,300 2.03 596,573 2.04
------------------ ------------- ---------- ------------- ----------
Total 2,071,640 1.30 1,720,788 1.16
------------------ ------------- ---------- ------------- ----------
The Company recognised compensation expense of US$303,596 and
US$281,248 during the years ended 31 December 2014 and 2013,
respectively. As of 31 December 2014, there was approximately
US$223,576 of total unrecognised compensation cost related to
nonvested share-based compensation arrangements granted under the
2007 Plan. That cost is expected to be recognised over a
weighted-average period of 0.82 years.
68,800 options were exercised during the year ended 31 December
2014 at a weighted average price of GBP0.39. As a result of
utilising a cashless exercise option, 49,714 shares were issued
related to these options. 30,000 options were exercised during the
year ended 31 December 2013 at a weighted average price of GBP0.39.
As a result of utilising a cashless exercise option, 21,761 shares
were issued related to these options.
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 2014 and
2013:
2014 2013
-------------------------- -------- --------
Risk-free interest rate 1.90% 0.91%
Expected volatility rate 31.84% 33.73%
Dividend yield 0.0% 0.0%
Expected life 5.94 6.2
Fair value per share on
grant date GBP0.49 GBP0.66
When estimating forfeitures, the Company considers historical
terminations as well as anticipated retirements.
Note 12 - Operating Leases
The Company conducts its operations in facilities leased under a
number of operating leases. Rent expense under these agreements
amounted to US$489,410 and US$492,444 during the years ended 31
December 2014 and 2013, respectively.
The following is a schedule by year of future minimum lease
payments required under operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of 31
December 2014:
Year Ending 31 December: US$
------------------------- ----------
2015 387,924
2016 427,460
2017 434,106
2018 197,377
------------------------- ----------
Total minimum payments
required 1,446,867
------------------------- ----------
Note 13 - Earnings per Share
Basic earnings per share is computed by dividing net income by
the weighted average number of shares of common stock outstanding
during the period. Diluted earnings per share include the dilutive
effect of stock options and warrants, using the treasury stock
method. The following table sets forth the computation of basic and
diluted earnings per share for the years ended 31 December 2014 and
2013:
2014 2013
--------------------------------- ------------- -------------
Net income available to
common stock shareholders US$3,541,375 US$2,856,541
Weighted average shares
outstanding for basic earnings
per share 19,459,457 19,434,558
Dilutive effect of stock
options 652,554 670,425
Weighted average shares
outstanding for diluted
earnings per share 20,112,011 20,104,983
Basic earnings per share US$0.18 US$0.15
Diluted earnings per share US$0.18 US$0.14
Note 14 - Employee Benefit Plan
The Company sponsors a limited employer matching 401(k) plan for
all employees of the Company. The plan provides for contributions
in such amounts as determined by the Board of Directors of the
Company, and the employer match is discretionary. Contributions of
US$86,349 and US$86,573 were made during the years ended 31
December 2014 and 2013, respectively.
Note 15 - Other Cash Flow Information
Cash payments of interest were US$105,947 and US$95,841 during
the years ended 31 December 2014 and 2013, respectively.
During the year ended 31 December 2014, the Company acquired
vehicles via leases considered to be capital leases. The capital
lease obligation for these assets was US$36,405.
See Notes 9 and 11 for additional noncash transactions.
Note 16 - Board Remuneration
During the years ended 31 December 2014 and 2013, the Company's
Board of Directors earned remuneration in the form of current
benefits for their activities as directors. In addition, David
Kravitz's remuneration reflects his role as Chief Executive Officer
of the Company. Note that compensation amounts are as follows:
2014 2013
US$ US$
--------------- -------- --------
David Kravitz 629,850 642,980
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 other current benefits in
the form of health and life insurance coverage during the years
ended 31 December 2014 and 2013 of US$33,460 and US$31,297,
respectively. Mr. Kravitz also received US$6,094 of 401(k)
contributions from the Company during the years ended 31 December
2014. The Directors did not receive any post-employment or
share-based payments from the Company during the years ended 31
December 2014 and 2013.
Note 17 - Related Party Transactions
During the year ended 31 December 2010, the Company entered into
a consulting agreement with a company in which Steven Mayer, a
member of the Company's Board of Directors, is a director. Mr.
Mayer performs the consulting services. Fees for services rendered
under the consulting agreement were US$91,750 and US$120,000 and
have been included in selling, general, and administrative expenses
in the consolidated statements of operations during the years ended
31 December 2014 and 31 December 2013, respectively.
Additionally, during the years ended 31 December 2014 and 2013,
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$351,000 and US$324,500 during the years ended 31 December
2014 and 2013, respectively. During the year ended 31 December
2014, the Company placed net assets of $421,532 which were required
for an independent clinical research study into service, which are
reflected in property and equipment, net in the consolidated
balance sheet as of 31 December 2014. As of 31 December 2013, the
Company had net assets of US$402,500 which were included in prepaid
expenses, deposits, and property and equipment.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR PKPDQFBKKPQB
Lifeline Sci (LSE:LSIC)
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Lifeline Sci (LSE:LSIC)
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