Source - RNS
RNS Number : 8740J
Lifeline Scientific, Inc
14 September 2016
 

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION

 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

 

Lifeline Scientific, Inc.
("LSI" or the "Company")

 

PUBLICATION OF PROXY STATEMENT AND NOTICE OF SPECIAL MEETING

 

Lifeline Scientific, Inc. (AIM: LSIC), a leading international provider of clinical products and services in the field of transplantation, announces that it has today published a proxy statement (the "Proxy Statement") in connection with the recommended cash acquisition of the entire issued and to be issued share capital of LSI to be effected pursuant to a merger agreement entered into with Shanghai Genext Medical Technology Co., Ltd. and certain of its affiliates (the "Merger"), as announced on 2 September 2016.

 

The Proxy Statement incorporates a notice convening a special meeting of LSI's stockholders (the "Special Meeting") to be held on 6 October 2016, at 9.00 a.m. local time (US CDT) at the Westin Chicago Northwest, 400 Park Boulevard, Itasca, Illinois, 60143.

 

The Proxy Statement, together with certain accompanying documents, has been posted to stockholders today, and will also be available shortly on the Company's website at http://www.lifeline-scientific.com/investor-relations.

 

The Proxy Statement includes the unaudited condensed consolidated financial statements for LSI and its subsidiaries as of 30 June 2016 and for the six month period then ended, which are appended to this announcement to ensure full disclosure.  LSI expects to publish its full half-yearly report for the period ended 30 June 2016 on or around 26 September 2016.

 

Further Details of the Cancellation

One of the resolutions being proposed at the Special Meeting is for the approval of the cancellation (the "Cancellation") of the admission of LSI's common stock to trading on the AIM market of the London Stock Exchange plc ("AIM"), conditioned upon closing of the Merger.  In accordance with the AIM Rules for Companies, approval of the Cancellation requires the passing of a resolution of the LSI stockholders by at least 75% of the votes cast in person or by proxy at the Special Meeting.

 

At least twenty business days prior to the effective time of the Merger, the Company intends to make an application to the London Stock Exchange plc for the Cancellation to take effect from 7.00 a.m. (London time) on the next business day after the date of the effective time of the Merger.  LSI will announce further details of the Cancellation timetable in due course.

 

Subject to the passing of the resolution approving the Cancellation at the Special Meeting, it is expected that the last day of dealing in LSI's common stock prior to their suspension from AIM and the last day for registration of transfers of LSI's common stock will be the date of the effective time of the Merger.  No transfers of LSI's common stock will be registered after that time and date.  All of LSI's shares of common stock and the depositary interests representing such common stock held in CREST will be cancelled with effect from the effective time of the Merger.

 

 

 

Expected Timetable of Principal Events

 

Event

 

Date and Time*

Record date for determining stockholders of record who are entitled to vote at the Special Meeting (and for determining the holders of Depositary Interests entitled to provide instructions to the Depositary for voting with respect thereto)

 

 

2 September 2016

Latest time for Forms of Instruction from Depositary Interest holders to arrive with the Depositary

 

 

3:00 p.m. on 3 October 2016

Latest time for Depositary Interest holders to provide voting instructions via the CREST system

 

 

3:00 p.m. on 3 October 2016

Latest time for Forms of Proxy from stockholders of record to arrive with LSI's registrar

 

 

3:00 p.m. on 4 October 2016

Latest time for stockholders of record to deliver a Proxy via the Internet

 

 

3:00 p.m. on 4 October 2016

Special Meeting

 

9:00 a.m. (Chicago time) on 6 October 2016

 

Merger Closing Date

 

Likely in the fourth quarter of 2016. Actual date depends on the date when all closing conditions have been met

 

Date of the cancellation of the admission of LSI's common stock to trading on AIM

 

Likely the business day after the Merger Closing Date

* All times are local time in London unless otherwise noted.


For further information:

 

Lifeline Scientific, Inc.

www.lifeline-scientific.com

David Kravitz, CEO

Tel: +1 847 294 0300

Lisa Kieres, CFO

Tel: +1 847 294 0300

 

 

Piper Jaffray Ltd. (Financial Adviser to LSI)

Tel: +44 (0)20 7796 8400

Neil Mackison / Graeme Smethurst

 

 

 

Panmure Gordon (UK) Limited

Tel: +44 (0)20 7886 2500

Freddy Crossley / Duncan Montieth (Corporate Finance)

 

Tom Salvesen (Corporate Broking)

 

 

 

Walbrook PR Limited

Tel: +44 (0)20 7933 8780 or [email protected]

Paul McManus / Lianne Cawthorne

Mob: +44 (0)7980 541 893 / +44 (0)7584 391 303

 

 

     

 About Lifeline Scientific Inc.

Lifeline Scientific, Inc. is a Chicago-based global medical technology company with regional offices in Brussels and 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 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

 

LIFELINE SCIENTIFIC, INC.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2016 and 2015

 

CONSOLIDATED BALANCE SHEETS

30 June 2016 and 2015 (In US Dollars unless otherwise noted) UNAUDITED

 

 

2016

US$

2015

US$

Current Assets

 

 

Cash and cash equivalents

7,474,263

3,052,021

Receivables

 

 

Customers (net of allowance for doubtful accounts of $224,370 and $308,000 as of 30 June 2016 and 2015, respectively)

8,260,770

6,508,385

Grant

-

12,000

Deferred tax assets

97,472

97,472

Income taxes receivable

44,166

56,030

Inventories, net

6,787,436

6,830,276

Prepaid expenses, deposits, and other

1,302,936

1,254,061

Total Current Assets

23,967,043

17,810,245

Non-current Assets

 

 

Property and equipment (net of accumulated depreciation and amortisation)

3,396,632

3,284,459

Intangibles (net of accumulated amortisation)

5,708,301

4,899,709

Deferred tax assets

10,042,213

3,242,213

Goodwill

64,710

64,710

Other

-

67,671

Total Non-current Assets

19,211,856

11,558,762

Total Assets

43,178,899

29,369,007

Current Liabilities

 

 

Revolving line of credit

-

2,171,147

Accounts payable

3,362,644

1,173,453

Capital lease obligations due within one year

15,559

18,630

Accrued expenses

 

 

Interest due within one year

-

6,186

Salaries and other compensation

841,813

706,056

Other

1,013,059

1,565,080

Deferred rent

80,822

83,162

Deferred revenue

120,382

106,728

Total Current Liabilities

5,434,279

5,830,442

Non-current Liabilities

 

 

Deferred rent (net of portion included in current liabilities)

322,056

245,361

Capital leases (net of portion included in current liabilities)

23,901

39,946

Total Non-current Liabilities

345,957

285,307

Total Liabilities

5,780,236

6,115,749

Stockholders' Equity

 

 

Common stock, $0.01 par value; authorized - 30,000,000 shares; issued and outstanding 19,530,031 and 19,516,434 shares as of 30 June 2016 and 2015, respectively

195,300

195,164

Additional paid-in capital

93,738,433

93,674,973

Other accumulated comprehensive loss

(817,555)

(750,533)

Accumulated deficit

(55,717,515)

(69,866,346)

Total Stockholders' Equity

37,398,663

23,253,258

Total Liabilities and Stockholders' Equity

43,178,899

29,369,007

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS

six months to 30 June 2016 and 2015 (In US Dollars unless otherwise noted) UNAUDITED

 

 

2016

US$

2015

US$

Net revenue

 

 

Product sales and service fee revenue

18,187,195

15,019,466

Total net revenue

18,187,195

15,019,466

Cost of revenue

6,744,490

6,070,896

Gross profit

11,442,705

8,948,570

Gross profit percentage

62.9%

59.6%

Operating expenses

 

 

Research and development

371,125

512,662

Selling, general, and administrative

9,046,142

8,261,543

Loss from disposal of property and equipment

3,351

3,979

Loss from abandonment of intangibles

-

35,539

Total operating expenses

9,420,618

8,813,723

Income from operations

2,022,087

134,847

Other expense (income)

 

 

Interest expense

2,661

37,087

Interest income

(715)

(348)

Total other expense

1,946

36,739

Income before income taxes

2,020,141

98,108

Income tax expense

83,599

3,197

Net income

1,936,542

94,911

Basic income per share

0.10

0.00

Diluted income per share

0.09

0.00

Basic weighted average shares outstanding (in shares)

19,530,031

19,498,865

Diluted weighted average shares outstanding (in shares)

20,448,415

20,077,680

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

six months to 30 June 2016 and 2015 (In US Dollars unless otherwise noted) UNAUDITED

 

 

2016

US$

2015

US$

 

 

 

Net income

1,936,542

94,911

 

 

 

Foreign currency translation

14,827

(228,238)

 

 

 

Comprehensive income (loss) 

1,951,369

(133,327)

 

 

 

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS's EQUITY

six months to 30 June 2016 and 2015 (In US Dollars unless otherwise noted) UNAUDITED

 

 

Lifeline Scientific, Inc. Stockholders

 

Total

Shares

Par Value

Additional Paid-in Capital

Other Accumulated Comprehensive Loss

Accumulated Deficit

 

US$

 

US$

US$

US$

US$

Balance, 1 January 2015

23,261,074

19,496,434

194,964

93,549,662

(522,295)

(69,961,257)

Issuance of common  stock in conjunction  with option exercise

11,903

20,000

200

11,703

-

-

Stock-based compensation

113,608

-

-

113,608

-

-

Foreign currency translation

(228,238)

-

-

-

(228,238)

-

Net income

94,911

-

-

-

-

94,911

Balance, 30 June 2015

23,253,258

19,516,434

195,164

93,674,973

(750,533)

(69,866,346)

 

 

 

 

 

 

 

Balance, 1 January 2016

35,417,185

19,530,031

195,300

93,708,324

(832,382)

(57,654,057)

Stock-based compensation

30,109

-

-

30,109

-

-

Foreign currency translation

14,827

-

-

-

14,827

-

Net income

1,936,542

-

-

-

-

1,936,542

Balance, 30 June 2016

37,398,663

19,530,031

195,300

93,738,433

(817,555)

(55,717,515)

 

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

six months to 30 June 2016 and 2015 (In US Dollars unless otherwise noted) UNAUDITED

 

 

2016

US$

2015

US$

Cash flows from operating activities

 

 

Net income

1,936,542

94,911

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

Depreciation and amortisation of property and equipment

538,004

471,590

Amortisation of intangibles

115,247

112,219

Stock-based compensation

30,109

113,608

Loss on disposal of property and equipment

3,351

3,979

Loss on abandonment of intangibles

-

35,539

(Increase) decrease in:

 

 

Receivables

1,571,558

2,487,086

Inventories

(1,706,680)

(922,366)

Prepaid expenses and deposits

(331,235)

(440,334)

Other assets

(53,357)

267,793

Increase (decrease) in:

 

 

Accounts payable

352,865

(1,186,997)

Accrued expenses

(757,671)

(218,918)

Deferred revenue

14,599

61,350

Deferred rent

43,672

75,504

Other liabilities

(175,434)

-

Total adjustments

(354,972)

860,053

Net cash provided by operating activities

1,581,570

954,964

Cash flows from investing activities

 

 

Payments related to intangible assets and legal fees

 

 

associated with patent filings

(625,892)

(610,420)

Capital expenditures

(387,941)

(505,524)

Proceeds from sales of property and equipment

18,409

-

Net cash used in investing activities

(995,424)

(1,115,944)

Cash flows from financing activities

 

 

Cash received from option exercises

-

11,903

Repayments under capital lease obligations, net

(7,037)

(14,520)

Principal payments on long-term debt

-

(2,106)

Net cash used in financing activities

(7,037)

(4,723)

Effect of foreign currency exchange rate changes on cash

(10,097)

(106,053)

Net increase (decrease) in cash and cash equivalents

569,012

(271,756)

Cash and cash equivalents, beginning of period

6,905,251

3,323,777

Cash and cash equivalents, end of period

7,474,263

3,052,021

 

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

General: The accompanying condensed consolidated financial statements of Lifeline Scientific, Inc. (the "Company") are unaudited and do not include all of the footnotes required by accounting principles generally accepted in the United States of America ("US GAAP").  In the opinion of management of the Company, these condensed consolidated financial statements contain all adjustments necessary for a fair presentation of the results for the interim periods presented.  These statements should be read in conjunction with the Company's annual report as of and for the year ended 31 December 2015. 

 

Principles of Consolidation:  The Company was incorporated in the state of Delaware as Organ Recovery Systems, Inc. on 1 October 1998. On 20 December 2007, the Company changed its name to Lifeline Scientific, Inc. The Company is consolidated with the following wholly-owned subsidiaries:

 

ORS Europe, NV

Cell and Tissue Systems, Inc.

Organ Recovery Systems, Inc.

ORS Representacoes do Brasil LTDA

 

Intercompany balances and transactions have been eliminated in consolidation.

 

On 19 December 2014, the Company jointly formed Tissue Testing Technologies LLC ("T3") with another party.  T3 was formed to meet regulatory requirements in order to obtain research grants from various government sources.  Under the terms of the operating agreement, the Company owns 49% of T3 and the other party owns 51%.  The Company has not made an investment in T3 as of 30 June 2016 and 2015.  There are two receivables in other current assets at 30 June 2016 totalling US$22,234 for start-up loans made by the Company to T3.  T3 made monthly payments of US$2,265 on these loans during the six months ended 30 June 2016 and 2015.  The loans are expected to be paid off by 30 June 2017.

 

Cash and Cash Equivalents:  The Company considers all money market accounts and short-term investments with an original maturity of three months or less and US Treasury money markets to be cash equivalents. The majority of cash and cash equivalents as of 30 June 2016 and 30 June 2015 were held through a single financial institution, and the balances held at times may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.

 

Receivables:  Receivables are carried at original invoice or closing statement amount less estimates made for doubtful receivables. Management determines the allowance for doubtful accounts by reviewing and identifying troubled accounts on a monthly basis and by using historical experience applied to an aging of accounts. A receivable is considered to be past due if any portion of the receivable balance is outstanding for more than 90 days.  The Company does not charge interest on past due receivables. Receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded when received.

 

Inventories:  Inventories are valued at the lower of cost (first-in, first-out) or market.

 

 

Depreciation and Amortisation:  The Company's policy is to depreciate or amortise the cost of property and equipment over the estimated useful lives of the assets using the straight-line method. The cost of leasehold improvements is amortised over the estimated useful lives, or the applicable lease term, if shorter.

 

 

Years

Computer equipment

3-5

Furniture and fixtures

5-7

Equipment under capital lease

5-7

Laboratory equipment

3-7

Leasehold improvements

5-8

Tooling and moulds

1-15

Vehicles

5

 

Long-Lived Assets:  Long-lived assets to be held are reviewed for events or changes in circumstances that indicate that their carrying value may not be recoverable.  The Company periodically reviews the carrying value of long-lived assets to determine whether or not an impairment to such value has occurred.  Management of the Company believes that no impairment of long-lived assets exists as of 30 June 2016 and 2015.

 

Intangibles:  The cost of intangible assets is being amortised over the remaining lives of the assets acquired as follows:

 

Years

Certification marks

20

Patents

17

Licensing agreement

10

 

Professional and regulatory fees associated with obtaining the licenses that enable the Company to sell its products (i.e. certification marks) are capitalised and amortised over the shorter of the useful life of the related licenses or 20 years.  Legal fees associated with filings for patents that are pending are capitalised if management believes that it is probable that such patent applications will be successful. Patent costs are not amortised until the patent is obtained. During the year ended 31 December 2010, the Company signed an agreement that allows for the licensing of technology to support the Company's product development efforts.  The agreement is being amortised over the remaining estimated life of the licensed technology, or 10 years.

 

Goodwill:  Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets.  In accordance with accounting for goodwill under US GAAP, goodwill is not amortised, but instead tested for impairment on an annual basis.  The Company has applied Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2011-08, "Testing Goodwill for Impairment", in connection with the performance of the annual goodwill impairment test.  Under FASB ASU 2011-08, entities are provided with the option of first performing a qualitative assessment on none, some, or all of its reporting units to determine whether further quantitative impairment testing is necessary.  An entity may also bypass the qualitative assessment for any reporting unit in any period and proceed directly to the quantitative impairment test.

 

Goodwill must be tested on an annual basis or if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount.  During the six months ended 31 December 2015, the Company was not required to record any impairments to the carrying value of goodwill or indefinite-lived intangible assets.  During the six months ended 30 June 2016 and 2015, the Company identified no events or circumstances that would trigger an interim assessment of goodwill.

 

Deferred Rent:  Minimum rent expense is recognised over the term of the lease. The Company recognises minimum rent starting when possession of the property is taken from the landlord. When a lease contains a predetermined fixed escalation of the minimum rent, rent expense is recognised on a straight-line basis.  Any difference between the recognised rent expense and the amounts payable under the lease is reported as deferred rent in the consolidated balance sheets.  The Company records include a tenant allowance on its facility lease in Itasca, Illinois, which is recorded as a component of deferred rent and amortised as a reduction to rent expense over the term of the lease. Future payments for common area maintenance, insurance, real estate taxes, and other occupancy costs to which the Company is obligated are excluded from future minimum lease payments.

 

Fair Value of Financial Instruments:  US GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. US GAAP describes three approaches to measuring the fair value of assets and liabilities: the market approach, the income approach, and the cost approach. Each approach includes multiple valuation techniques. US GAAP does not prescribe which valuation technique should be used when measuring fair value, but does establish a fair value hierarchy that prioritises the inputs used in applying the various techniques. Inputs broadly refer to the assumptions that market participants use to make pricing decisions, including assumptions about risk. Level 1 inputs are given the highest priority in the hierarchy while Level 3 inputs are given the lowest priority. Assets and liabilities carried at fair value are classified in one of the following three categories based on the nature of the inputs to the valuation technique used:

 

Level 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 approximate their fair values because of the short-term nature of these instruments. The carrying values of long-term debt and the revolving line of credit approximate their fair values as the stated interest rates approximate current market interest rates of long-term debt and revolving lines of credit with similar terms.

 

Product Warranty:  Estimated future costs applicable to products sold under warranty are charged to expense in the year of sale and the related liability is classified as current.  The accrued warranty liability as of 30 June 2016 and 2015 was $181,555 and $168,047, respectively.

 

Revenue Recognition:  Product sales revenue is recognised upon shipment of product to the client. Service fee revenue is recognised when services are performed.  Deferred and unbilled revenue is recognised in the consolidated balance sheets.

 

The Company sells extended warranties on its LifePort product for a specific period of months. This revenue is deferred and recognised over the term of the warranties on a straight-line basis. 

 

Income Taxes:  Income taxes are provided for the tax effects of transactions reported in the condensed consolidated financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of property and equipment, bad debts, intangibles, and accrued expenses for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. The carrying value of the Company's deferred tax assets is dependent upon its ability to generate sufficient taxable income in the future. The Company has established a valuation allowance against its net deferred tax assets to reflect the uncertainty of realising the deferred tax benefits, given historical losses and limited history of current earnings. A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realised.  During the six months ended 31 December 2015, $6,800,000 of the valuation allowance was reversed to reflect the likelihood of future taxable income, which will most likely result in the utilisation of a portion of the Company's net operating losses.  During the six months ended 30 June 2016, the Company determined no change to this estimate was required.

 

The Company is subject to US federal, state, and local taxes as well as foreign taxes in Belgium and Brazil.  The Company's tax years extending back to the year ended 31 December 2011 remain open to examination for both federal and state jurisdictions; for foreign jurisdictions the Company's tax years extending back to December 31, 2012 remain open for examination.  The Company's policy is to recognise interest and penalties related to uncertain tax positions as a component of income tax expense.  During the six months ended 30 June 2016 and 2015, the Company did not recognise expense for interest and penalties.  As of 30 June 2016 and 2015, the Company had $150,000 and $137,000, respectively, accrued for the payment of interest and penalties.  The Company does not expect the total amount of unrecognised tax benefits to significantly change during the next 12 months.

 

The Company's condensed consolidated financial statements provide for any related US tax liabilities on earnings of foreign subsidiaries that may be repatriated, aside from qualifying undistributed earnings of certain foreign subsidiaries that are intended to be indefinitely reinvested in operations outside of the US.

 

The Company accounts for unrecognised tax benefits in accordance with US GAAP, which prescribes a more likely than not threshold for condensed consolidated financial statement presentation and measurement of a tax position taken or expected to be taken in a tax return. A tax position is recognised as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.  The amount recognised is the largest amount of tax benefit that is greater than 50% likely of being realised on examination.  For tax positions not meeting the "more likely than not" test, no tax benefit is recorded.

 

Stock Options:  In accordance with US GAAP, the Company accounts for the cost of employee services received in exchange for an award of equity instruments utilising the grant date fair value of the award. Stock-based awards that do not require future service (i.e., vested awards) are expensed immediately. The expense associated with stock-based employee awards that require future service are amortised over the relevant service period.

 

Management Estimates:  The preparation of condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.  The estimates included by the Company in these condensed consolidated financial statements relate to warranty reserves, allowance for doubtful accounts, the allowance for excess and obsolete inventories, the useful lives of patents and the license agreement, the useful lives of depreciable property and equipment, and the valuation allowance for deferred tax assets.

 

Research and Development:  Expenditures relating to the development of new products and procedures are expensed as incurred.

 

Foreign Currency Translation:  The financial position and results of operations of the Company's foreign subsidiaries are measured using the subsidiary's local currency as the functional currency. Assets and liabilities of the foreign subsidiaries are translated to US dollars using exchange rates in effect as of the consolidated balance sheet dates. Income and expense items are translated at monthly average rates of exchange. The resultant translation gains or losses are included as part of the components of stockholders' equity designated as other comprehensive loss.

 

Contingencies:  From time to time, the Company may experience litigation arising in the ordinary course of business.  These claims are evaluated for possible exposure by management of the Company and their legal counsel.  The company believes that the ultimate resolution of any such matters will not have a material adverse effect on its condensed consolidated financial position.

 

NOTE 2 - INVENTORIES

 

Inventories consist of the following as of 30 June 2016 and 2015:

 

 

2016

US$

2015

US$

Medical devices, parts, and solutions

6,960,452

6,004,709

Raw materials

534,214

1,015,567

Inventory reserve

(707,230)

(190,000)

Inventory, net

6,787,436

6,830,276

 

NOTE 3 - PROPERTY AND EQUIPMENT

 

Property and equipment consists of the following as of 30 June 2016 and 2015:

 

 

2016

US$

2015

US$

Property and equipment in progress

578,718

340,564

Computer equipment

666,103

626,386

Furniture and fixtures

856,970

832,946

Equipment under capital lease

107,415

109,468

Laboratory equipment

3,327,249

2,991,381

Leasehold improvements

1,251,425

1,134,308

Tooling and moulds

2,123,102

1,717,619

Vehicles

130,270

131,180

 

9,041,252

7,883,852

Accumulated depreciation and amortisation

(5,644,620)

(4,599,393)

Property and equipment, net

3,396,632

3,284,459

 

During the six months ended 30 June 2016 and 30 June 2015, the Company recognised property and equipment depreciation and amortisation expense of $538,004 and $471,590 respectively.

 

NOTE 4 - INTANGIBLES

 

Intangible assets consist of the following as of 30 June 2016 and 2015:

 

 

2016

US$

2015

US$

Licensing agreement

141,931

141,931

Regulatory certification fees

1,667,045

1,133,242

Patents issued

2,756,935

2,519,092

Patents pending

2,504,959

2,229,582

 

7,070,870

6,023,847

Less: Accumulated amortisation

(1,362,569)

(1,124,138)

Intangibles, net

5,708,301

4,899,709

 

During the six months ended 30 June 2016 and 30 June 2015, the Company recognised intangible amortisation expense of $115,247 and $112,219, respectively.  During the six months ended 30 June 2016 and 30 June 2015, the Company abandoned patents issued and patents pending with an original cost of $0 and $35,539, respectively.

 

NOTE 5 - LINE OF CREDIT AGREEMENT

 

On 18 September 2014, the Company entered into a loan and security agreement with The PrivateBank and Trust Company ("PB").  The loan and security agreement provides for a revolving line of credit, not to exceed an aggregate principal amount of $6,000,000 but limited to qualifying receivables and inventories, as defined.  The outstanding principal under the loan and security agreement accrues interest at PB's prime rate, as defined.  The loan and security agreement contains financial covenants which require the Company to maintain a minimum tangible net worth, as defined, and a minimum fixed charge coverage ratio, as defined.  The Company was in compliance with its financial covenants as of 30 June 2016 and 2015. As of 30 June 2016 and 2015, there was US$0 and US$2,171,147, respectively, outstanding on the revolving line of credit.    The loan and security agreement is secured by substantially all assets of the Company, and expires 31 August 2016.  PB has formal credit approval to increase the line of credit to $10,000,000 and extend maturity through 31 August 2017 with the remaining open items of legal documentation currently in process.

 

NOTE 6 - INCOME TAXES

 

At the end of its interim six month periods, the Company makes its best estimate of the annual expected effective income tax rate and applies that rate to its ordinary earnings or loss for each six month interim period.  The income tax provision or benefit related to significant, unusual, or extraordinary items, if applicable, that will be separately reported or reported net of their related tax effects are individually computed and recognised in the six month interim period in which those items occur.  In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realisability of a beginning of the year tax asset in future years or income tax contingencies is recognised in the six month interim period in which the change occurs. 

 

The computation of the annual expected effective income tax rate at each six month interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax loss for the year, projections of the proportion of loss taxed in foreign jurisdictions, permanent and temporary differences, and the likelihood of the realisability of deferred tax assets generated in the current year.  The accounting estimates used to compute the provision or benefit for income taxes may change as new events occur, more experience is acquired, additional information is obtained, or the Company's tax environment changes. 

 

Income tax expense consists of the following components for the six months ended 30 June 2016 and 2015:

 

 

2016

US$

2015

US$

Current expense (benefit)

 

 

Federal

32,822

(27,739)

Foreign

30,777

10,936

State

20,000

20,000

Total income tax expense

83,599

3,197

 

 

The net deferred tax assets (liabilities) in the accompanying condensed consolidated balance sheets include the following components as of 30 June 2016 and 2015:

 

2016

US$

2015

US$

Deferred tax liabilities

(1,959,658)

(1,635,716)

Deferred tax assets

20,691,888

22,213,229

Net deferred tax assets

18,732,230

20,577,513

Valuation allowance

(8,592,545)

(17,237,828)

Net deferred tax assets

10,139,685

3,339,685

 

The income tax benefit differs from the federal statutory tax rate generally as a result of changes in each jurisdiction's valuation allowance and permanent differences, such as meals and entertainment expenses.  A valuation allowance has been provided to reduce the deferred tax assets to the amount that is more likely than not to be realised.

 

As of 30 June 2016, the Company has federal and state net operating loss carryforwards totalling $56,238,000, which may be used to offset future taxable income. If not used, the carryforwards will expire as follows:

 

Year

US $

2022

892,000

2023

7,720,000

2024

6,412,000

2025

11,136,000

2026

12,197,000

2027

14,131,000

2028

3,750,000

Total loss carryforwards

56,238,000

 

As a result of changes in ownership at the IPO date, the Company estimates there will be future limitations on the utilisation of operating loss carryforwards pursuant to Internal Revenue Code Section 382.  Any unused annual loss limitation carries forward to a future year.  The annual limitation on loss carryforwards that could be utilised is approximately $2,600,000 after the six months ending 30 June 2016 and 30 June 2015.  Additionally, the cumulative unused loss limitation, which carried into the year ended 31 December 2015, was approximately $18,267,000.

 

 

NOTE 7 - STOCK OPTIONS 

 

A summary of option activity under the Second Amended and Restated Stock Option and Restricted Stock Plan (the "2007 Plan") as of 30 June 2016 and 2015, and the changes during the six months ended 30 June 2016 and 2015 is as follows:

 

 

 

Weighted-

Weighted-

 

 

 

Average

Average

Aggregate

 

 

Exercise

Remaining

Intrinsic

 

Number

Price

Contractual

Value

 

of Shares

£

Term

£

 

 

 

 

 

Outstanding as of 1 January 2015

2,071,640

1.30

5.37

688,156

Exercised

(20,000)

0.39

 

 

Forfeitures

(4,375)

2.13

 

 

Expirations

(4,000)

1.90

 

 

Outstanding as of 30 June 2015

2,043,265

1.30

4.87

1,306,908

 

 

 

 

 

Outstanding as of 1 January 2016

1,963,640

1.29

4.41

1,312,825

Granted

15,000

1.90

 

 

Forfeitures

(1,750)

1.43

 

 

Expirations

(1,750)

1.43

 

 

Outstanding as of 30 June 2016

1,975,140

1.29

3.95

3,181,124

 

 

 

 

 

Vested or expected to vest as of 30 June 2016

1,973,427

 

 

 

 

 

 

 

 

Options exercisable as of 30 June 2016

1,904,438

 

 

 

 

The Company recognised compensation expense of $30,109 and $113,608 for the six months ended 30 June 2016 and 2015, respectively.  As of 30 June 2016, there was approximately $47,743 of total unrecognised compensation cost related to nonvested share-based compensation arrangements granted under the 2007 Plan.  That cost is expected to be recognised over a weighted-average period of 0.6 years.

 

NOTE 8 - EARNINGS PER SHARE

 

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period.  Diluted earnings per share include the dilutive effect of stock options and warrants, using the treasury stock method.  The following table sets forth the computation of basic and diluted earnings per share for the six months ended 30 June 2016 and 2015:

 

 

2016

US$

2015

US$

Net income attributed to common stock shareholders

1,936,542

94,911

Weighted average shares outstanding for basic earnings per share

19,530,031

19,498,865

Dilutive effect of stock options

918,384

578,815

Weighted average shares outstanding for diluted earnings per share

20,448,415

20,077,680

Basic income per share

0.10

0.00

Diluted income per share

0.09

0.00

 

 

 

NOTE 9 - RELATED PARTY TRANSACTIONS

 

During the year ended 31 December 2010, the Company entered into a consulting agreement with a company in which Steven Mayer, a former member of the Company's Board of Directors, is a director.   Mr. Mayer performed the consulting services.  Fees for services rendered under the consulting agreement were $7,500 for the six months ended 30 June 2015. Mr. Mayer ceased to be a Director of the Company on 25 June 2015.

 

Additionally, during the six months ended June 2016 and 2015, the Company did business with a company in which David Kravitz and Steven Mayer are directors and have an ownership interest.   Fees for research and development related products and services rendered were $0 and $65,000 for the six months ended 30 June 2016 and 2015, respectively.  These payments represented expensed products and services of $0 and $15,000 for the six months ended 30 June 2016 and 2015, respectively, and asset purchases of $0 and $50,000, respectively.


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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