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10-K - FORM 10-K - UNIVERSAL BIOSENSORS INC | w81850e10vk.htm |
EX-31.1 - EX-31.1 - UNIVERSAL BIOSENSORS INC | w81850exv31w1.htm |
EX-31.2 - EX-31.2 - UNIVERSAL BIOSENSORS INC | w81850exv31w2.htm |
EX-32.0 - EX-32.0 - UNIVERSAL BIOSENSORS INC | w81850exv32w0.htm |
Exhibit 13
Universal
Biosensors, Inc.
2010 Annual Report
Contents
F-2 | ||||
F-11 | ||||
F-13 | ||||
F-14 | ||||
F-15 | ||||
F-16 | ||||
F-17 | ||||
F-38 |
Form 10-K
of Universal Biosensors, Inc. enclosed herewith is incorporated
herein.
F-1
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
Universal
Biosensors, Inc.
The following discussion and analysis of our financial condition
and results of operations should be read in conjunction with our
financial statements and related notes that appear elsewhere in
this Annual Report. In addition to historical financial
information, the following discussion contains forward-looking
statements that reflect our plans, estimates and beliefs. Our
actual results may differ materially from those discussed in the
forward-looking statements in our
Form 10-K.
Factors that could cause or contribute to these differences
include those discussed below and elsewhere in our
Form 10-K,
particularly in Risk Factors.
Our
Business
We are a specialist medical diagnostics company focused on the
research, development and manufacture of in vitro
diagnostic test devices for consumer and professional
point-of-care
use. The blood test devices we are developing comprise a novel
disposable test strip and a reusable meter. These simple to use
portable test devices require a finger prick of blood and are
designed to be used by the patient (at the
point-of-care)
to provide accurate and quick results to enable new treatment or
an existing treatment to be immediately reviewed.
We use our technology base to develop electrochemical-cell based
tests.
We have developed a blood glucose test (used in the management
of diabetes) with LifeScan, Inc. (LifeScan US), an
affiliate of Johnson & Johnson. We commenced
manufacture of the blood glucose test strips for this test in
our facility in Corporate Avenue, Rowville, Melbourne, in
December 2009. This test was launched by LifeScan US in the
Netherlands in January 2010 and in Australia in September 2010,
under the trade name One Touch
Verio®.
We act as a non-exclusive manufacturer of the blood glucose test
strips. LifeScan US and its affiliates (collectively referred to
as LifeScan) will establish their own manufacturing
capability and, in the future, is likely to manufacture all or a
large proportion of its own requirements. Subject to mutually
agreed terms, we intend to develop other tests for LifeScan in
the field of diabetes and blood glucose management.
We are working on a prothrombin time test for monitoring the
therapeutic range of the anticoagulant warfarin based on
measuring activity of the enzyme thrombin. We are developing a
D-dimer test on our immunoassay platform for the detection and
monitoring of several conditions associated with thrombotic
disease, particularly deep venous thrombosis (clots in the leg)
and pulmonary embolism (clots in the lung). We are developing a
C-reactive protein test on our immunoassay platform to assist in
the diagnosis and management of inflammatory conditions. We are
also developing other tests using the electrochemical cell
technology. We do not currently intend to establish our own
sales and marketing force to commercialize any of the non-blood
glucose products which we develop. Rather, our efforts are
focused on establishing collaborative partnerships for the tests
derived from the platform. In the second half of 2009 we
commenced business development efforts to establish partnerships
in fields outside the area of blood glucose and diabetes. To
date we have not secured a partnership and cannot predict with
any certainty if or when our efforts might be successful.
Results
of Operations
Manufacture
of Products
In November 2009, LifeScan received initial regulatory clearance
to sell their blood glucose product which we developed with
them. We commenced manufacture of the blood glucose test strips
required for this product in our facility in Rowville,
Melbourne, in December 2009. This test was launched by LifeScan
in the
F-2
Netherlands in January 2010 and in Australia in September 2010,
under the trade name One Touch
Verio®.
The manufacturing results of the blood glucose test strips
during the respective periods are as follows:
Years Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
A$ | A$ | A$ | ||||||||||
Revenue
|
11,760,009 | 132,733 | | |||||||||
Cost of goods sold
|
(10,801,062 | ) | (458,162 | ) | | |||||||
958,947 | (325,429 | ) | | |||||||||
Pursuant to the agreement we have with LifeScan, one of two
pricing methodologies will apply depending on whether we are
manufacturing above or below a specified quantity of blood
glucose tests strips in a quarter. If less than the specified
quantity of test strips is produced within a quarter, we are
considered to be in the interim costing period. In
the interim costing period, the Company is not expected to
generate any profit from the manufacture of test strips, but is
expected to recover most of its glucose manufacturing costs. As
manufactured volumes increase beyond the specified quantity of
blood glucose test strips per quarter, the interim costing
period will cease to apply and a different pricing methodology
will apply, at which time we expect our blood glucose
manufacturing operations to be profitable. We ceased to be in
the interim costing period during the second half of 2010 at
which time we generated profits from our blood glucose
manufacturing operations. Our quarterly results from our blood
glucose manufacturing operations for the 2010 financial year
reflect this.
Quarters Ended | ||||||||||||||||
December 31 | September 30 | June 30 | March 31 | |||||||||||||
A$ | A$ | A$ | A$ | |||||||||||||
Revenue
|
5,672,739 | 3,202,873 | 1,359,584 | 1,524,813 | ||||||||||||
Cost of goods sold
|
(4,189,520 | ) | (3,136,390 | ) | (1,936,716 | ) | (1,538,436 | ) | ||||||||
1,483,219 | 66,483 | (577,132 | ) | (13,623 | ) | |||||||||||
Services
Performed
We provide various services to LifeScan. The revenue is grouped
into the following categories:
| Contract research and development we undertake contract research and development in the area of diabetes management for LifeScan. Contract research and development revenue up to the 2009 financial year has been recorded under the caption Research and development income. As we commenced commercial production in 2010, the research and development was seen more as a service we provide to LifeScan which meant presenting it within Revenue from Services; | |
| Product enhancement a service fee based on the number of strips sold by LifeScan is payable to us as an ongoing reward for our services and efforts to enhance the product; | |
| Other services ad-hoc services provided on an agreed basis based on LifeScans requirements. |
There are different arrangements for each service being
provided. The net contribution during the respective periods in
relation to the provision of services is as follows:
Years Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
A$ | A$ | A$ | ||||||||||
Revenue from services
|
6,420,027 | 2,850,071 | 3,121,754 | |||||||||
Cost of services
|
(1,481,674 | ) | (169,241 | ) | (3,121,754 | ) | ||||||
4,938,353 | 2,680,830 | | ||||||||||
Income Research and development income
|
| 1,337,125 | 1,170,190 |
F-3
The contribution during the 2010 financial year has increased by
23% compared to the 2009 financial year and reflects increase in
the scope of the services we performed for LifeScan. During the
2008 financial year, we provided certain services under an
arrangement where no margin was earned as the costs of providing
the services was equal to the revenue recognized.
Milestone
Payment
We received a milestone payment of A$17,722,641 in 2009
triggered by the first grant to LifeScan of regulatory clearance
to sell the blood glucose test.
Research
and Development Expenses
Research and development expenses are related to developing
electrochemical cell platform technologies. Research and
development expenses consist of costs associated with research
activities, as well as costs associated with our product
development efforts, including pilot manufacturing costs.
Research and development expenses include:
| consultant and employee related expenses, which include consulting fees, salary and benefits; | |
| materials and consumables acquired for the research and development activities; | |
| external research and development expenses incurred under agreements with third party organizations and universities; and | |
| facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment and laboratory and other supplies. | |
| Our research and development activities can be described as follows: |
(a) | Blood glucose |
In 2009, we completed the research and development efforts
relating to the first blood glucose test which we undertook for
LifeScan. We currently undertake some minor research and
development activities relating to this product.
There are other blood glucose research and development
activities undertaken by us from time to time on behalf of
LifeScan. These are recorded under the caption Cost of
Services as these are specifically funded by LifeScan, the
revenue for which is recorded under Revenue from
Services.
(b) | Blood coagulation |
Since 2005, we have undertaken development work on a prothrombin
time test for monitoring the therapeutic range of the
anticoagulant, warfarin, based on measuring activity of the
enzyme thrombin. A working prototype has been developed. We
expect product validation for this test in 2011.
(c) | Immunoassay |
We are developing a C-reactive protein test on our immunoassay
platform to assist in the diagnosis and management of
inflammatory conditions. Development work on this project has
been undertaken since 2004. A prototype on this test has been
developed.
We are also developing a D-dimer test on our immunoassay
platform for the detection and monitoring of several conditions
associated with thrombotic disease, particularly deep venous
thrombosis (clots in the leg) and pulmonary embolism (clots in
the lung). Development work on this project has been undertaken
since early 2008.
These tests illustrate the ability for the electrochemical cell
platform technology to be expanded to a range of immunoassay
tests.
F-4
(d) | DNA/RNA |
We have undertaken some early stage feasibility work assessing
the possibility of using DNA binding chemistries to build a
strip test for DNA, RNA and as a possible alternative method for
improving the sensitivity of protein assays. This concept work
is at an early stage and may not yield any positive results. In
the event the feasibility shows promise, we would need to
negotiate suitable licence terms to access the technology.
We do not currently intend to establish our own sales and
marketing force to commercialize any of the non-blood glucose
products which we develop. Rather, our strategy is focused on
establishing collaborative partnerships for our platform with
major multinationals whose ambition is to lead in key clinical
and market segments. We have commenced business development
efforts to establish partnerships in fields outside the area of
blood glucose and diabetes.
Research and development expenses for the respective periods are
as follows:
Years Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
A$ | A$ | A$ | ||||||||||
Research and development expenses
|
6,482,150 | 14,898,072 | 11,885,871 | |||||||||
Research grants received recognized against related research and
development expenses
|
| | (300,613 | ) | ||||||||
Research and development expenses as reported
|
6,482,150 | 14,898,072 | 11,585,258 | |||||||||
Research and development expenditure decreased by 56% during
2010 compared to the previous financial year and reflects the
conclusion of the development phase for the blood glucose
product, wherein the major body of the work was carried out in
2008 and 2009 and the blood glucose product was launched in
January 2010. All costs pertaining to this project after January
2010 are now captured in cost of goods sold as opposed to being
treated as a research and development expenditure as they were
prior to January 2010.
While it is entirely within our control as to how much we spend
on research and development activities in the future, we cannot
predict what it will cost to complete our individual research
and development programs successfully or when or if they will be
commercialized. The timing and cost of any program is dependent
upon achieving technical objectives, which are inherently
uncertain.
In addition, our business strategy contemplates that we may
enter into collaborative arrangements with third parties for one
or more of our non-blood glucose programs. In the event that we
are successful in securing such third party collaborative
arrangements, the third party will direct the research and
development activities
General
and Administrative Expenses
General and administrative expenses currently consist
principally of salaries and related costs, including stock
option expense, for personnel in executive, finance, accounting,
information technology and human resources functions. Other
general and administrative expenses include depreciation,
repairs and maintenance, insurance, facility costs not otherwise
included in research and development expenses, consultancy fees
and professional fees for legal, audit and accounting services.
General and administrative expenses for the respective periods
are as follows:
Years Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
A$ | A$ | A$ | ||||||||||
General and administrative expenses
|
7,185,550 | 5,635,569 | 5,510,127 | |||||||||
General and administrative expenses increased by 28% during 2010
compared to the previous financial year. This increase in
expenses reflects growth in the size and complexity of our
operations and also efforts put into business development to
establish partnerships in the field outside the area of glucose
and diabetes.
F-5
There are also incremental costs associated with our shares
trading in the form of CHESS Depositary Interests
(CDIs) quoted on the Australian Securities Exchange
(ASX) and compliance costs associated with being a
United States issuer subject to Securities and Exchange
Commission (SEC) reporting requirements. In relation
to the latter, 2010 is the first financial year wherein we have
to furnish an attestation report of our registered public
accounting firm regarding internal controls over financial
reporting.
Interest
Income
Interest income increased to A$1,192,889 in 2010 from A$809,459
in 2009. The increase in interest income is attributable to
increased returns on the funds invested and the higher amounts
of funds invested. Interest income decreased to A$809,459 in
2009 from A$2,542,060 in 2008. The decrease in interest income
is attributable to lower returns and the lower amounts of funds
invested for most of the year.
Critical
Accounting Estimates and Judgments
Our consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United
States of America (U.S. GAAP). The preparation
of these consolidated financial statements requires us to make
estimates and assumptions that affect the reported amounts of
assets, liabilities, income, costs and expenses, and related
disclosures. We evaluate our estimates and assumptions on an
ongoing basis. Our actual results may differ from these
estimates.
We believe that of our significant accounting policies, which
are described in the notes to our consolidated financial
statements, the following accounting policies involve a greater
degree of judgment and complexity. Accordingly, we believe that
the following accounting policies are the most critical to aid
in fully understanding and evaluating our consolidated financial
condition and results of operations.
(a) | Revenue Recognition |
The Company recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred, the sales price is
fixed or determinable, and collection is probable. Product is
considered delivered to the customer once it has been shipped
and title and risk of loss have been transferred.
In addition, the Company enters into arrangements, which contain
multiple revenue generating activities. The revenue for these
arrangements is recognized as each activity is performed or
delivered, based on the relative fair value and the allocation
of revenue to all deliverables based on their relative selling
price. In such circumstances, the Company uses a hierarchy to
determine the selling price to be used for allocation of revenue
to deliverables, vendor-specific objective evidence, third-party
evidence of selling price and best estimate of selling price.
The Companys process for determining its best estimate of
selling price for deliverables without vendor-specific objective
evidence or third-party evidence of selling price involves
managements judgment. The Companys process considers
multiple factors that may vary depending upon the unique facts
and circumstances related to each deliverable.
(b) | Stock-Based Compensation |
We account for stock-based employee compensation arrangements
using the modified prospective method as prescribed in
accordance with the provisions of ASC 718
Compensation Stock Compensation.
Each of the inputs to the Trinomial Lattice model is discussed
below.
Share
Price at Valuation Date
The value of the options granted in 2008 and 2009 have been
determined using the average closing price of the Companys
common stock on the ASX on the five days on which the
Companys common stock has traded prior to the approval of
grant. The value of the options granted in 2010 has been
determined using the closing price of our common stock trading
in the form of CDIs on ASX at the time of grant of the options.
The ASX is the only exchange upon which our securities are
quoted.
F-6
Volatility
With respect to the options granted in 2008, 2009 and 2010, we
applied an annual volatility determined partially by reference
to the annual volatilities of a number of ASX listed companies
of a similar size and with similar operations but also having
regard to the volatility on the trading data of our shares in
the form of CDIs available from the ASX.
Time to
Expiry
All options granted under our share option plan have a maximum
10 year term and are non-transferable.
Risk Free
Rate
The risk free rate which we applied is equivalent to the yield
on an Australian government bond with a time to expiry
approximately equal to the expected time to expiry on the
options being valued.
(c) | Research and Development Expenditure |
We receive grant funding under state and government research
grant agreements to undertake work on the applicable grant
programs. In order to receive the grant funding, our existing
grant agreements require us to incur specified eligible
expenditure in the conduct of the applicable grant program.
There are circumstances where grant funding may not be payable
and there are certain limited circumstances, such as when we
fail to use our best endeavors to commercialize the program
within a reasonable time of completion of the program or upon
termination of a grant due to our breach of the agreement or our
insolvency, where we may be required to repay some or all of the
research grants. To date we have not been required to repay any
of our grant monies. The grants are recognized against the
related research and development expenses as and when the
relevant research expenditure is incurred.
(d) | Income Taxes |
We apply ASC 740 Income Taxes (formerly
Statement of Financial Accounting Standards No. 109
Accounting for Income Taxes) which establishes
financial accounting and reporting standards for the effects of
income taxes that result from a companys activities during
the current and preceding years. Deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carry
forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
Where it is more likely than not that some portion or all of the
deferred tax assets will not be realized the deferred tax assets
are reduced by a valuation allowance. The valuation allowance is
sufficient to reduce the deferred tax assets to the amount that
is more likely than not to be realized.
(e) | Impairment of Long-Lived Assets |
We review our capital assets, including patents and licenses,
for impairment whenever events or changes in business
circumstances indicate that the carrying amount of the assets
may not be fully recoverable. In performing the review, we
estimate undiscounted cash flows from products under development
that are covered by these patents and licenses. An impairment
loss would be recognized when estimated undiscounted future cash
flows expected to result from the use of the asset and its
eventual disposition is less than the carrying amount of the
asset. If the evaluation indicates that the carrying value of an
asset is not recoverable from its undiscounted cash flows, an
impairment loss is measured by comparing the carrying value of
the asset to its fair value, based on discounted cash flows.
F-7
Financial
Condition, Liquidity and Capital Resources
Net
Financial Assets/(Liabilities)
Our net financial assets/(liabilities) position is shown below:
Years Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
A$ | A$ | A$ | ||||||||||
Financial assets:
|
||||||||||||
Cash and cash equivalents
|
23,271,766 | 31,291,011 | 28,334,864 | |||||||||
Accounts receivables
|
3,588,798 | 415,397 | 31,657 | |||||||||
Total financial assets
|
26,860,564 | 31,706,408 | 28,366,521 | |||||||||
Debt:
|
||||||||||||
Short and long term debt/borrowings
|
| | | |||||||||
Total debt
|
| | | |||||||||
Net financial assets
|
26,860,564 | 31,706,408 | 28,366,521 | |||||||||
We rely largely on our existing cash and cash equivalents and
operating cash flow to provide for the working capital needs of
our operations. We believe we have sufficient cash and cash
equivalents to fund our operations for at least the next twelve
months. However, in the event, our financing needs for the
foreseeable future are not able to be met by our existing cash
and cash equivalents and operating cash flow, we would seek to
raise funds through public or private equity offerings, debt
financings, and through other means to meet the financing
requirements. There is no assurance that funding would be
available at acceptable terms, if at all.
Measures
of Liquidity and Capital Resources
The following table provides certain relevant measures of
liquidity and capital resources:
Years Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
A$ | A$ | A$ | ||||||||||
Cash and cash equivalents
|
23,271,766 | 31,291,011 | 28,334,864 | |||||||||
Working capital
|
26,250,899 | 32,118,842 | 30,845,011 | |||||||||
Ratio of current assets to current liabilities
|
6.89 : 1 | 13.05 : 1 | 17.19 : 1 | |||||||||
Shareholders equity per common share
|
0.30 | 0.33 | 0.31 |
The movement in cash and cash equivalents and working capital in
each of the years was primarily due to the timing of cash
receipts, payments, sales and accruals in the ordinary course of
business. 2009 was also impacted by the receipt of a milestone
payment of A$17,722,641. We have not identified any
collectability issues with respect to receivables.
Summary
of Cash Flows
Years Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
A$ | A$ | A$ | ||||||||||
Cash provided by/(used in):
|
||||||||||||
Operating activities
|
(6,414,248 | ) | 5,867,156 | (7,140,386 | ) | |||||||
Investing activities
|
(2,320,293 | ) | (2,990,007 | ) | (6,471,419 | ) | ||||||
Financing activities
|
715,296 | 78,998 | (11,616 | ) | ||||||||
Net increase/(decrease) in cash and cash equivalents
|
(8,019,245 | ) | 2,956,147 | (13,623,421 | ) | |||||||
F-8
Our net cash used in operating activities in 2008 was primarily
for our research and development projects with no significant
funding at all. The increase in operating activities from 2008
to 2009 is predominantly as a result of the receipt of the
milestone payment of A$17,722,641 in December 2009. The increase
has been offset by our payments for our ongoing operations. Our
net cash used in operating activities in 2010 was primarily for
our ongoing research and development efforts and efforts
involved in establishing our commercial scale manufacturing.
Our net cash used in investing activities for all years is
primarily for the purchase of various plant and equipment and
fit out of our facilities. Our net cash used in investing
activities was high in the early years including in 2008 as we
were involved in establishing our commercial scale manufacturing
which required substantial investment including fitting out our
new facilities and purchase of manufacturing plant and equipment.
Our net cash provided by financing activities is primarily
proceeds received from employees exercising their options.
Off-Balance
Sheet Arrangement
The future minimum lease payments under non-cancelable operating
leases (with initial or remaining lease terms in excess of one
year) as of December 31, 2010 are:
A$ | ||||
Less than 1 year
|
537,526 | |||
1 3 years
|
1,124,013 | |||
3 5 years
|
146,312 | |||
More than 5 years
|
| |||
Total minimum lease payments
|
1,807,851 | |||
The above relates to our operating lease obligations in relation
to the lease of our premises and certain office equipment.
Contractual
Obligations
Our future contractual obligations at December 31, 2010
were as follows:
Payments Due by Period | ||||||||||||||||||||
Less Than |
More Than |
|||||||||||||||||||
Total | 1 Year | 13 Years | 35 Years | 5 Years | ||||||||||||||||
A$ | A$ | A$ | A$ | A$ | ||||||||||||||||
Long-Term Debt Obligations
|
| | | | | |||||||||||||||
Asset Retirement Obligations(1)
|
1,998,060 | | | 1,998,060 | | |||||||||||||||
Operating Lease Obligations(2)
|
1,807,851 | 537,526 | 1,124,013 | 146,312 | | |||||||||||||||
Purchase Obligations(3)
|
5,402,250 | 5,402,250 | | | | |||||||||||||||
Other Long-Term Liabilities on
|
||||||||||||||||||||
Balance Sheet under GAAP(4)
|
160,675 | | 100,509 | 58,235 | 1,931 | |||||||||||||||
Total
|
9,368,836 | 5,939,776 | 1,224,522 | 2,202,607 | 1,931 | |||||||||||||||
(1) | Represents legal obligations associated with the retirement and removal of long-lived assets. | |
(2) | Our operating lease obligations relate primarily to the lease of our premises. | |
(3) | Represents outstanding purchase orders | |
(4) | Represents long service leave owing to the employees. |
F-9
Segments
We operate in one segment. Our principal activities are
research and development, commercial manufacture of approved
medical or testing devices and the provision of services
including contract research work. We operate predominantly in
one geographical area, being Australia.
Recent
Accounting Pronouncements
See Notes to Consolidated Financial Statements
Note 2. Summary of Significant Accounting Policies.
Financial
Risk Management
The overall objective of our financial risk management program
is to seek to minimize the impact of foreign exchange rate
movements and interest rate movements on our earnings. We manage
these financial exposures through operational means and by using
financial instruments. These practices may change as economic
conditions change.
Foreign
Currency Market Risk
We transact business in various foreign currencies, including
U.S. dollars and Euros. We have established a foreign
currency hedging program using forward contracts to hedge the
net projected exposure for each currency and the anticipated
sales and purchases in U.S. dollars and Euros. The goal of
this hedging program is to economically guarantee or lock-in the
exchange rates on our foreign exchange exposures. The Company
does not hold or issue derivative financial instruments for
trading purposes. However, derivatives that do not qualify for
hedge accounting are accounted for as trading instruments.
As at balance sheet date, there were no open derivatives.
Interest
Rate Risk
Our exposure to interest income sensitivity, which is affected
by changes in the general level of Australian interest rates
because the majority of our investments are in AUD in cash and
cash equivalents. The primary objective of our investment
activities is to preserve principal while at the same time
maximizing the income we receive without significantly
increasing risk. Our investment portfolio is subject to interest
rate risk but due to the short duration of our investment
portfolio, we believe an immediate 10% change in interest rates
would not be material to our financial condition or results of
operations.
F-10
![(PRICEWATERHOUSECOOPERSLOGO](w81850w8185001.gif)
PricewaterhouseCoopers
ABN 52 780 433 757
Darling Park Tower 2
201 Sussex Street
GPO BOX 2650
SYDNEY NSW 1171
DX 77 Sydney
Australia
Telephone +61 2 8266 0000
Facsimile +61 2 8266 9999
pwc.com.au
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Universal
Biosensors, Inc.
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, consolidated
statements of stockholders equity and comprehensive income
and consolidated statements of cash flows present fairly, in all
material respects, the financial position of Universal
Biosensors, Inc. and its subsidiaries at December 31, 2010
and December 31, 2009, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 2010 in conformity with accounting
principles generally accepted in the United States of America.
In addition, in our opinion, the financial statement schedule
listed in the appendix under Item 15(a)(2) present fairly,
in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial
statements. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2010, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these financial
statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in Managements Report on
Internal Control over Financial Reporting appearing under
Item 9A. Our responsibility is to express opinions on these
financial statements, on the financial statement schedule, and
on the Companys internal control over financial reporting
based on our audits (which was an integrated audit in 2010). We
conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company;
F-11
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers
PricewaterhouseCoopers
Sydney
March 10, 2011
F-12
Universal
Biosensors, Inc.
Consolidated
Balance Sheets
December 31, |
December 31, |
|||||||
2010 | 2009 | |||||||
A$ | A$ | |||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
23,271,766 | 31,291,011 | ||||||
Inventories, net
|
3,191,093 | 305,124 | ||||||
Accrued income
|
| 118,305 | ||||||
Accounts receivable
|
3,588,798 | 415,397 | ||||||
Prepayments
|
303,181 | 2,289,149 | ||||||
Other current assets
|
356,196 | 364,339 | ||||||
Total current assets
|
30,711,034 | 34,783,325 | ||||||
Property, plant and equipment
|
32,713,280 | 27,898,099 | ||||||
Less accumulated depreciation
|
(9,586,365 | ) | (6,597,956 | ) | ||||
Property, plant and equipment net
|
23,126,915 | 21,300,143 | ||||||
Total assets
|
53,837,949 | 56,083,468 | ||||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current liabilities:
|
||||||||
Accounts payable
|
1,764,364 | 434,207 | ||||||
Accrued expenses
|
2,099,477 | 1,201,893 | ||||||
Financial instruments
|
| 47,412 | ||||||
Deferred income
|
| 559,931 | ||||||
Employee entitlements provision
|
596,294 | 421,040 | ||||||
Total current liabilities
|
4,460,135 | 2,664,483 | ||||||
Non-current liabilities:
|
||||||||
Asset retirement obligations
|
1,998,060 | 1,842,547 | ||||||
Employee entitlements provision
|
160,675 | 262,436 | ||||||
Total non-current liabilities
|
2,158,735 | 2,104,983 | ||||||
Total liabilities
|
6,618,870 | 4,769,466 | ||||||
Commitments and contingencies (Note 3)
|
| | ||||||
Stockholders equity:
|
||||||||
Preferred stock, $0.01 par value. Authorized
1,000,000 shares; issued and outstanding nil in 2010 (2009:
nil)
|
||||||||
Common stock, $0.0001 par value. Authorized
300,000,000 shares; issued and outstanding
158,871,495 shares in 2010 (2009: 157,155,933)
|
15,887 | 15,716 | ||||||
Additional paid-in capital
|
77,034,717 | 74,566,698 | ||||||
Accumulated deficit
|
(22,922,688 | ) | (24,353,151 | ) | ||||
Current year earnings/(loss)
|
(6,610,525 | ) | 1,430,463 | |||||
Accumulated other comprehensive income
|
(298,312 | ) | (345,724 | ) | ||||
Total stockholders equity
|
47,219,079 | 51,314,002 | ||||||
Total liabilities and stockholders equity
|
53,837,949 | 56,083,468 | ||||||
See accompanying notes to the financial statements
F-13
Universal
Biosensors, Inc.
Consolidated
Statements of Operations
Years Ended December 31, | ||||||||||||
|
2010 | 2009 | 2008 | |||||||||
A$ | A$ | A$ | ||||||||||
Revenue
|
||||||||||||
Revenue from products
|
$ | 11,760,009 | $ | 132,733 | $ | | ||||||
Revenue from services
|
6,420,027 | 2,850,071 | 3,121,754 | |||||||||
Research and development income
|
| 1,337,125 | 1,170,190 | |||||||||
Milestone payment
|
| 17,722,641 | | |||||||||
Total revenue
|
18,180,036 | 22,042,570 | 4,291,944 | |||||||||
Operating costs & expenses
|
||||||||||||
Cost of goods sold(1)
|
10,801,062 | 458,162 | | |||||||||
Cost of services
|
1,481,674 | 169,241 | 3,121,754 | |||||||||
Research and development (2 and 3)
|
6,482,150 | 14,898,072 | 11,585,258 | |||||||||
General and administrative(4)
|
7,185,550 | 5,635,569 | 5,510,127 | |||||||||
Total operating costs & expenses
|
25,950,436 | 21,161,044 | 20,217,139 | |||||||||
Profit/(loss) from operations
|
(7,770,400 | ) | 881,526 | (15,925,195 | ) | |||||||
Other income/(expense)
|
||||||||||||
Interest income
|
1,192,889 | 809,459 | 2,542,060 | |||||||||
Interest expense
|
| (9,636 | ) | (9,489 | ) | |||||||
Fee income
|
| | 1,131,222 | |||||||||
Other
|
(33,014 | ) | (250,886 | ) | 265,310 | |||||||
Total other income/(expense)
|
1,159,875 | 548,937 | 3,929,103 | |||||||||
Net profit/(loss) before tax
|
(6,610,525 | ) | 1,430,463 | (11,996,092 | ) | |||||||
Income tax benefit/(expense)
|
| | 206 | |||||||||
Net profit/(loss)
|
$ | (6,610,525 | ) | $ | 1,430,463 | $ | (11,995,886 | ) | ||||
Basic net profit/(loss) per share
|
$ | (0.04 | ) | $ | 0.01 | $ | (0.08 | ) | ||||
Average weighted number of shares used as denominator in
calculating basic net profit/(loss) per share
|
157,584,044 | 157,013,578 | 156,970,679 | |||||||||
Diluted net profit/(loss) per share
|
$ | (0.04 | ) | $ | 0.01 | $ | (0.08 | ) | ||||
Average weighted number of shares used as denominator in
calculating diluted net profit/(loss) per share
|
157,584,044 | 161,354,802 | 156,970,679 | |||||||||
Notes:
|
||||||||||||
1 Includes non-cash compensation expense (cost of goods
sold)
|
$ | 168,512 | $ | 21,207 | $ | | ||||||
2 Net of research grant income in these amounts
|
$ | | $ | | $ | 300,613 | ||||||
3 Includes non-cash compensation expense (research and
development)
|
$ | 859,551 | $ | 653,474 | $ | 661,497 | ||||||
4 Includes non-cash compensation expense (general and
administrative)
|
$ | 648,940 | $ | 404,090 | $ | 299,611 |
See accompanying notes to the financial statements.
F-14
Universal
Biosensors, Inc.
Consolidated
Statement of Changes in Stockholders Equity and
Comprehensive Income
Additional |
Other |
Total |
||||||||||||||||||||||
Ordinary Shares |
Paid-in |
Accumulated |
Comprehensive |
Stockholders |
||||||||||||||||||||
|
Shares | Amount | Capital | Deficit | Income | Equity | ||||||||||||||||||
A$ | A$ | A$ | A$ | A$ | ||||||||||||||||||||
Balances at January 1, 2008
|
156,958,812 | 15,696 | 72,389,505 | (12,357,265 | ) | (298,312 | ) | 59,749,624 | ||||||||||||||||
Transaction costs on shares issued
|
| | (16,663 | ) | | | (16,663 | ) | ||||||||||||||||
Comprehensive income
|
||||||||||||||||||||||||
Net loss
|
| | | (11,995,886 | ) | | (11,995,886 | ) | ||||||||||||||||
Total Comprehensive income
|
(11,995,886 | ) | ||||||||||||||||||||||
Exercise of stock options issued to employees
|
18,124 | 2 | 5,045 | | | 5,047 | ||||||||||||||||||
Stock option expense
|
| | 961,108 | | | 961,108 | ||||||||||||||||||
Balances at December 31, 2008
|
156,976,936 | 15,698 | 73,338,995 | (24,353,151 | ) | (298,312 | ) | 48,703,230 | ||||||||||||||||
Comprehensive Income
|
||||||||||||||||||||||||
Loss on derivatives and hedges, net of tax
|
| | | | (47,412 | ) | (47,412 | ) | ||||||||||||||||
Net profit
|
| | | 1,430,463 | | 1,430,463 | ||||||||||||||||||
Total Comprehensive income
|
1,383,051 | |||||||||||||||||||||||
Exercise of stock options issued to employees
|
138,327 | 14 | 78,984 | | | 78,998 | ||||||||||||||||||
Shares issued to employees
|
40,670 | 4 | 69,948 | | | 69,952 | ||||||||||||||||||
Stock option expense
|
| | 1,078,771 | | | 1,078,771 | ||||||||||||||||||
Balances at December 31, 2009
|
157,155,933 | 15,716 | 74,566,698 | (22,922,688 | ) | (345,724 | ) | 51,314,002 | ||||||||||||||||
Comprehensive income
|
||||||||||||||||||||||||
Gain on derivatives and hedges, net of tax
|
| | | | 47,412 | 47,412 | ||||||||||||||||||
Net loss
|
| | | (6,610,525 | ) | | (6,610,525 | ) | ||||||||||||||||
Total Comprehensive income
|
(6,563,113 | ) | ||||||||||||||||||||||
Exercise of stock options issued to employees
|
1,667,581 | 167 | 715,129 | | | 715,296 | ||||||||||||||||||
Shares issued to employees
|
47,981 | 4 | 75,887 | | | 75,891 | ||||||||||||||||||
Stock option expense
|
| | 1,677,003 | | | 1,677,003 | ||||||||||||||||||
Balances at December 31, 2010
|
158,871,495 | 15,887 | 77,034,717 | (29,533,213 | ) | (298,312 | ) | 47,219,079 | ||||||||||||||||
See accompanying notes to the financial statements.
F-15
Universal
Biosensors, Inc.
Consolidated
Statements of Cash Flows
Years Ended December 31, | ||||||||||||
|
2010 | 2009 | 2008 | |||||||||
A$ | A$ | A$ | ||||||||||
Cash flows from operating activities provided by/(used
in):
|
||||||||||||
Net profit/(loss)
|
(6,610,525 | ) | 1,430,463 | (11,995,886 | ) | |||||||
Adjustments to reconcile net profit/(loss) to net cash provided
by/(used in) operating activities:
|
||||||||||||
Depreciation and impairment of plant and equipment
|
2,990,858 | 2,851,285 | 2,266,847 | |||||||||
Share based payments expense
|
1,677,003 | 1,078,771 | 961,108 | |||||||||
Loss on fixed assets disposal
|
2,618 | 60,658 | 34,207 | |||||||||
Change in assets and liabilities:
|
||||||||||||
Inventory
|
(2,885,969 | ) | (305,124 | ) | 486,633 | |||||||
Accounts receivables
|
(3,733,332 | ) | (114,713 | ) | 439,691 | |||||||
Prepaid expenses and other current assets
|
(6,079 | ) | 141,331 | 191,728 | ||||||||
Accrued income
|
118,305 | | (38,494 | ) | ||||||||
Income tax payable
|
| | (18,000 | ) | ||||||||
Deferred revenue
|
| 290,904 | | |||||||||
Employee entitlements
|
73,493 | 50,192 | 264,286 | |||||||||
Accounts payable and accrued expenses
|
1,959,380 | 383,389 | 267,494 | |||||||||
Net cash provided by/(used in) operating activities
|
(6,414,248 | ) | 5,867,156 | (7,140,386 | ) | |||||||
Cash flows from investing activities:
|
||||||||||||
Proceeds/(purchases) from sale of investment securities
|
| | 3,123,501 | |||||||||
Instalment payments to acquire plant and equipment
|
(988,334 | ) | (2,145,808 | ) | (3,616,235 | ) | ||||||
Purchases of property, plant and equipment
|
(1,331,959 | ) | (844,199 | ) | (5,978,685 | ) | ||||||
Net cash used in investing activities
|
(2,320,293 | ) | (2,990,007 | ) | (6,471,419 | ) | ||||||
Cash flows from financing activities:
|
||||||||||||
Transaction costs on share issue
|
| | (16,663 | ) | ||||||||
Proceeds from borrowings
|
| 479,673 | | |||||||||
Repayment of borrowings
|
| (479,673 | ) | | ||||||||
Proceeds from stock options exercised
|
715,296 | 78,998 | 5,047 | |||||||||
Net cash provided by/(used in) financing activities
|
715,296 | 78,998 | (11,616 | ) | ||||||||
Net increase/(decrease) in cash and cash equivalents
|
(8,019,245 | ) | 2,956,147 | (13,623,421 | ) | |||||||
Cash and cash equivalent at beginning of period
|
31,291,011 | 28,334,864 | 41,958,285 | |||||||||
Effect of exchange rate fluctuations on the balances of cash
held in foreign currencies
|
| | | |||||||||
Cash and cash equivalents at end of period
|
23,271,766 | 31,291,011 | 28,334,864 | |||||||||
See accompanying notes to the financial statement
F-16
Universal
Biosensors, Inc.
Notes to
Consolidated Financial Statements
(for the
years ended December 31, 2008, 2009 and 2010)
(1) | Basis of Presentation |
These financial statements are presented in accordance with
accounting principles generally accepted in the United States of
America (U.S. GAAP). All amounts are expressed
in Australian dollars (AUD or A$) unless
otherwise stated.
The Companys financial statements have been prepared
assuming the Company will continue as a going concern. We rely
largely on our existing cash and cash equivalents balance and
operating cash flow to provide for the working capital needs of
our operations. We believe we have sufficient cash and cash
equivalents to fund our operations for at least the next twelve
months. However, in the event, our financing needs for the
foreseeable future are not able to be met by our existing cash
and cash equivalents balance and operating cash flow, we would
seek to raise funds through public or private equity offerings,
debt financings, and through other means to meet the financing
requirements. There is no assurance that funding would be
available at acceptable terms, if at all.
During 2010, the Group ceased to be a development stage
enterprise as it has established its commercial scale
manufacturing and is generating revenue from its manufacturing
operations.
(2) | Summary of Significant Accounting Policies |
Principles
of Consolidation
The consolidated financial statements include the financial
statements of the Company and its wholly owned subsidiary
Universal Biosensors Pty Ltd (collectively referred to as
Universal Biosensors or the Group). All
intercompany balances and transactions have been eliminated on
consolidation.
Use of
Estimates
The preparation of the consolidated financial statements
requires management of the Company to make a number of estimates
and assumptions relating to the reported amount of assets and
liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the
period. Significant items subject to such estimates and
assumptions include the carrying amount of property, plant and
equipment, deferred income taxes, asset retirement obligations
and obligations related to employee benefits. Actual results
could differ from those estimates.
Cash &
Cash Equivalents
The Company considers all highly liquid investments purchased
with an initial maturity of three months or less to be cash
equivalents. For cash and cash equivalents, the carrying amount
approximates fair value due to the short maturity of those
instruments.
Short-Term
Investments
(Held-to-maturity)
Short-term investments constitute all highly liquid investments
with term to maturity from three months to twelve months. The
carrying amount of short-term investments is equivalent to its
fair value.
Concentration
of Credit Risk and Other Risks and Uncertainties
Cash and cash equivalents and accounts receivables consists of
financial instruments that potentially subject the Company to
concentration of credit risk to the extent of the amount
recorded on the balance sheet. The Companys cash and cash
equivalents are invested with two of Australias four
largest banks. The Company is exposed to credit risk in the
event of default by the banks holding the cash or cash
equivalents to the extent of the amount recorded on the balance
sheets. The Company has not experienced any losses on its
F-17
Universal
Biosensors, Inc.
Notes to
Consolidated Financial Statements
(Continued)
deposits of cash and cash equivalents. The Company has not
identified any collectability issues with respect to receivables.
Derivative
Instruments and Hedging Activities
Derivative
financial instruments
The Company uses derivative financial instruments to hedge its
exposure to foreign exchange arising from operating, investing
and financing activities. The Company does not hold or issue
derivative financial instruments for trading purposes. However,
derivatives that do not qualify for hedge accounting are
accounted for as trading instruments.
Derivative financial instruments are recognized initially at
fair value. Subsequent to initial recognition, derivative
financial instruments are stated at fair value. The gain or loss
on remeasurement to fair value is recognized immediately in the
income statement. However, where derivatives qualify for hedge
accounting, recognition of any resultant gain or loss depends on
the nature of the item being hedged.
Cash flow
hedges
Exposure to foreign exchange risks arises in the normal course
of the Companys business and it is the Companys
policy to use forward exchange contracts to hedge anticipated
sales and purchases in foreign currencies. The amount of forward
cover taken is in accordance with approved policy and internal
forecasts.
Where a derivative financial instrument is designated as a hedge
of the variability in cash flows of a recognized asset or
liability, or a highly probable forecast transaction, the
effective part of any gain or loss on the derivative financial
instrument is recognized directly in equity. When the forecast
transaction subsequently results in the recognition of a
non-financial asset or non-financial liability, the associated
cumulative gain or loss is removed from equity and included in
the initial cost or other carrying amount of the non-financial
asset or liability. If a hedge of a forecast transaction
subsequently results in the recognition of a financial asset or
a financial liability, then the associated gains and losses that
were recognized directly in equity are reclassified into the
income statement in the same period or periods during which the
asset acquired or liability assumed affects the income statement.
For cash flow hedges, other than those covered by the preceding
statement, the associated cumulative gain or loss is removed
from equity and recognized in the income statement in the same
period or periods during which the hedged forecast transaction
affects the income statement and on the same line item as that
hedged forecast transaction. The ineffective part of any gain or
loss is recognized immediately in the income statement.
When a hedging instrument expires or is sold, terminated or
exercised, or the Company revokes designation of the hedge
relationship but the hedged forecast transaction is still
probable to occur, the cumulative gain or loss at that point
remains in equity and is recognized in accordance with the above
policy when the transaction occurs. If the hedged transaction is
no longer expected to take place, then the cumulative unrealized
gain or loss recognized in equity is recognized immediately in
the income statement.
Inventory
Inventories are stated at the lower of cost or net realizable
value. Net realizable value is the estimated selling price in
the ordinary course of business less the estimated costs of
completion and estimated costs necessary to make the sale.
Inventories are principally determined under the average cost
method which approximates cost. Cost comprises direct materials,
direct labour and an appropriate portion of variable and fixed
overhead expenditure, the latter being allocated on the basis of
normal operating capacity. Cost also
F-18
Universal
Biosensors, Inc.
Notes to
Consolidated Financial Statements
(Continued)
includes the transfer from equity of any gains/losses on
qualifying cash flow hedges relating to purchases of raw
material. Costs of purchased inventory are determined after
deducting rebates and discounts.
Years Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
A$ | A$ | A$ | ||||||||||
Raw materials at cost
|
2,798,045 | 289,069 | | |||||||||
Work in progress at cost
|
188,629 | 16,055 | | |||||||||
Finished goods at cost
|
204,419 | | | |||||||||
3,191,093 | 305,124 | | ||||||||||
Receivables
Trade accounts receivable are recorded at the invoiced amount
and do not bear interest. The allowance for doubtful accounts is
the best estimate of the amount of probable credit losses in the
existing accounts receivable. The allowance is determined based
on a review of individual accounts for collectibility, generally
focusing on those accounts that are past due. The current year
expense to adjust the allowance for doubtful accounts, if any,
is recorded within general and administrative expenses in the
consolidated statements of operations. Account balances are
charged against the allowance when it is probable the receivable
will not be recovered.
Property,
Plant, and Equipment
Property, plant, and equipment are recorded at acquisition cost,
less accumulated depreciation.
Depreciation on plant and equipment is calculated using the
straight-line method over the estimated useful lives of the
assets. The estimated useful life of machinery and equipment is
3 to 10 years. Leasehold improvements are amortized on the
straight-line method over the shorter of the remaining lease
term or estimated useful life of the asset. Maintenance and
repairs are charged to operations as incurred and include minor
corrections and normal services and does not include items of a
capital nature.
The Company receives Victorian government grant monies under
grant agreements to support our development activities,
including in connection with the purchase of plant and
equipment. Plant and equipment is presented net of the
government grant. The grant monies are recognized against the
acquisition costs of the related plant and equipment as and when
the related assets are purchased. Grant monies received in
advance of the relevant expenditure are treated as deferred
income and included in Current Liabilities on the
balance sheet as the Company does not control the monies until
the relevant expenditure has been incurred. Grants due to the
Company under the grant agreement are recorded as Currents
Assets on the balance sheet.
Research
and Development
Research and development expenses consist of costs incurred to
further the Groups research and development activities and
include salaries and related employee benefits, costs associated
with clinical trial and preclinical development, regulatory
activities, research-related overhead expenses, costs associated
with the manufacture of clinical trial material, costs
associated with developing a commercial manufacturing process,
costs for consultants and related contract research, facility
costs and depreciation. Research and development costs are
expensed as incurred.
The Group receives Australian Commonwealth government grant
funding under an R&D Start Grant Agreement as compensation
for expenses incurred in respect of certain research activities
into dry chemistry immunosensors. Such grants reduce the related
research and development expenses as and when the relevant
research expenses are incurred. Grants received in advance of
incurring the relevant expenditure are treated as
F-19
Universal
Biosensors, Inc.
Notes to
Consolidated Financial Statements
(Continued)
deferred research grants and included in Current
Liabilities on the balance sheet as the Group has not
earned these amounts until the relevant expenditure has been
incurred. Grants due to the Group under research agreements are
included in Current Assets as accrued income on the
balance sheet.
Research and development expenses for years ended
December 31, 2010, 2009 and 2008 are as follows:
Years Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
A$ | A$ | A$ | ||||||||||
Research and development expenses
|
6,482,150 | 14,898,072 | 11,885,871 | |||||||||
Research grants received recognized against related research and
development expenses
|
| | (300,613 | ) | ||||||||
Research and development expenses as reported
|
6,482,150 | 14,898,072 | 11,585,258 | |||||||||
Income
Taxes
The Company applies ASC 740 Income Taxes
(formerly Statement of Financial Accounting Standards
No. 109 Accounting for Income Taxes) which
establishes financial accounting and reporting standards for the
effects of income taxes that result from a companys
activities during the current and preceding years. Deferred tax
assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit
carry forwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
Where it is more likely than not that some portion or all of the
deferred tax assets will not be realized the deferred tax assets
are reduced by a valuation allowance. The valuation allowance is
sufficient to reduce the deferred tax assets to the amount that
is more likely than not to be realized. A reconciliation of the
valuation and qualifying accounts is attached as Schedule ii.
We are subject to income taxes in the United States and
Australia. U.S. federal income tax returns up to the 2009
financial year have been filed. Internationally, consolidated
income tax returns up to the 2009 financial year have been filed.
Asset
Retirement Obligations
Asset retirement obligations (ARO) are legal
obligations associated with the retirement and removal of
long-lived assets. ASC 410 Asset Retirement and
Environmental Obligations (formerly
SFAS No. 143 Accounting for Asset
Retirement Obligations) requires entities to record the fair
value of a liability for an asset retirement obligation when it
is incurred. When the liability is initially recorded, the
Company capitalizes the cost by increasing the carrying amounts
of the related property, plant and equipment. Over time, the
liability increases for the change in its present value, while
the capitalized cost depreciates over the useful life of the
asset. The Company derecognizes ARO liabilities when the related
obligations are settled.
The ARO is in relation to our premises where in accordance with
the terms of the lease, the lessee has to restore part of the
building upon vacating the premises.
F-20
Universal
Biosensors, Inc.
Notes to
Consolidated Financial Statements
(Continued)
Our overall ARO changed as follows:
Years Ended December 31, | ||||||||
2010 | 2009 | |||||||
A$ | A$ | |||||||
Opening balance at January 1
|
1,842,547 | 1,699,133 | ||||||
Accretion expense
|
155,513 | 143,414 | ||||||
Ending balance at December 31
|
1,998,060 | 1,842,547 | ||||||
Fair
Value of Financial Instruments
The carrying value of all current assets and current liabilities
approximates fair value because of their short-term nature. The
estimated fair value of all other amounts has been determined,
depending on the nature and complexity of the assets or the
liability, by using one or all of the following approaches:
| Market approach based on market prices and other information from market transactions involving identical or comparable assets or liabilities. | |
| Cost approach based on the cost to acquire or construct comparable assets less an allowance for functional and/or economic obsolescence. | |
| Income approach based on the present value of a future stream of net cash flows |
These fair value methodologies depend on the following types of
inputs:
| Quoted prices for identical assets or liabilities in active markets (Level 1 inputs) | |
| Quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active or are directly or indirectly observable (Level 2 inputs) | |
| Unobservable inputs that reflect estimates and assumptions (Level 3 inputs) |
Impairment
of Long-Lived Assets
The Company reviews its capital assets, including patents and
licenses, for impairment whenever events or changes in business
circumstances indicate that the carrying amount of the assets
may not be fully recoverable. In performing the review, the
Company estimates undiscounted cash flows from products under
development that are covered by these patents and licenses. An
impairment loss would be recognized when estimated undiscounted
future cash flows expected to result from the use of the asset
and its eventual disposition is less than the carrying amount of
the asset. If the evaluation indicates that the carrying value
of an asset is not recoverable from its undiscounted cash flows,
an impairment loss is measured by comparing the carrying value
of the asset to its fair value, based on discounted cash flows.
Australian
Goods and Services Tax (GST)
Revenues, expenses and assets are recognized net of the amount
of associated GST, unless the GST incurred is not recoverable
from the taxation authority. In this case it is recognized as
part of the cost of acquisition of the asset or as part of the
expense. Receivables and payables are stated inclusive of the
amount of GST receivable or payable. The net amount of GST
recoverable from, or payable to, the taxation authority is
included with other receivables or payables in the balance
sheet. Cash flows are presented on a gross basis.
Borrowings
In March 2009, Universal Biosensors Pty Ltd entered into an
arrangement with Pacific Premium Funding Pty Limited to fund the
Groups insurance premium. The total amount financed was
A$479,673 at inception.
F-21
Universal
Biosensors, Inc.
Notes to
Consolidated Financial Statements
(Continued)
Interest was charged at a rate of 2% per annum and the
short-term borrowing was repayable over an eight month period.
The short-term borrowing was secured by the insurance premium
refund. The borrowing was fully repaid in August 2009.
Revenue
Recognition
Revenue
from products and services and milestone payment
The revenue from products and the milestone payment are part of
an arrangement with multiple deliverables. Universal Biosensors
and LifeScan are parties to a Master Services and Supply
Agreement which was originally entered into in October 29,
2007 and which contains the terms pursuant to which Universal
Biosensors Pty Ltd would provide certain services in the field
of blood glucose monitoring to LifeScan and would generally act
as a non-exclusive manufacturer of blood glucose test strips. On
May 15, 2009, the agreement was amended and restated.
The Master Services and Supply Agreement may be terminated as a
result of a party defaulting on its material obligations, a
party becoming insolvent, at LifeScans option after paying
a lump sum service fee, or as a result of other factors detailed
in the Master Services and Supply Agreement.
Revenue received under the Master Services and Supply Agreement
was recognised in accordance with
ASC 605-25
which was issued by the FASB in October 2009 and is effective
prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after
June 15, 2010. Early adoption and retrospective application
are also permitted. The Company elected to early adopt the
provisions of
ASC 605-25
as of January 1, 2009 as there was a material modification
to the Master Services and Supply Agreement in May 2009. Since
there were no amounts recognized in the financial statements
relating to the deliverables under the arrangement for the
previous three quarters in 2009, there was no impact on
previously filed financial statements during that year.
Revenue is earned under the arrangement described above as
follows:
| milestone payment. The Company received a milestone payment of A$17,722,641 in December 2009 triggered by the first grant to LifeScan of regulatory clearance to sell the blood glucose product; | |
| contract manufacturing. One of two pricing methodologies will apply depending on whether we are manufacturing above or below a specified quantity of blood glucose tests strips in a quarter. If less than the specified quantity of test strips is produced within a quarter, we are considered to be in the interim costing period. In the interim costing period, the Company is not expected to generate manufacturing profit, but is expected to recover most of its glucose manufacturing costs. As manufactured volumes increase beyond the specified quantity of blood glucose test strips per quarter, the interim costing period will cease to apply and a different pricing methodology will apply, at which time we expect our blood glucose manufacturing operations to be profitable. We ceased to be in the interim costing period during the second half of 2010 at which time we generated profits from our blood glucose manufacturing operations; and | |
| product enhancement. A service fee based on the number of strips sold by LifeScan is payable to us as an ongoing reward for our services and efforts to enhance the product. |
The milestone payment is considered a separate unit of
accounting as it has stand-alone value to LifeScan on the basis
that subsequent to receiving regulatory approval to market this
product, LifeScan can manufacture and sell the product on an
ongoing basis without involving us. There are no other
activities related to this deliverable and consideration is
contingent upon regulatory approval. The best estimate of
selling price is commensurate with the efforts expended over a
number of years plus a reasonable margin to assist LifeScan to
achieve the agreed deliverable.
F-22
Universal
Biosensors, Inc.
Notes to
Consolidated Financial Statements
(Continued)
Contract manufacturing of the strip by us is considered a
separate unit of accounting as it has stand-alone value to
LifeScan as these will be on-sold by LifeScan to its customers.
We generally act only as a non-exclusive manufacturer of the
blood glucose test strips we developed for LifeScan. There are
no general rights of return of the delivered item. There are no
other activities related to this deliverable. Consideration is
contingent upon receiving firm purchase orders from LifeScan.
The best estimate of selling price for contract manufacturing
and ongoing efforts to enhance the product has been based on
expected costs plus a reasonable margin at normalized volumes.
The ongoing efforts to enhance the product is considered a
separate unit of accounting as it has stand-alone value to
LifeScan as it increases the marketability of the product. There
are no general rights of return of the delivered item. There are
no other activities related to this deliverable. Consideration
is contingent upon the sale of the strips by LifeScan. The best
estimate of selling price for this deliverable is based on the
expected efforts required to achieve this deliverable plus a
reasonable margin.
All consideration within the contract is contingent. The
remaining undelivered items are not priced at a significant
incremental discount to the delivered items. Revenue for each
deliverable will be recognized as each contingency is met and
the consideration becomes fixed and determinable. The milestone
payment in 2009 is considered to be a substantive payment and
the entire amount has been recognized as revenue when the
regulatory approval was received. Revenue for contract
manufacturing is recognised in accordance with generally
accepted accounting principles as outlined in
ASC 605-10-S99,
which requires that four basic criteria be met before revenue
can be recognized: (i) persuasive evidence of an
arrangement exists; (ii) the price is fixed or
determinable; (iii) collectability is reasonably assured;
and (iv) product delivery has occurred or services have
been rendered. Revenue for ongoing efforts to enhance the
product is also recognised in accordance with ASC
605-10-S99
when the final product is sold by LifeScan.
Management has concluded that the core operations of the Company
are expected to be the research and development activities,
commercial manufacture of approved medical or testing devices
and the provision of services such as those specified under the
Master Services and Supply Agreement including contract research
work. The Companys ultimate goal is to utilize the
underlying technology and skill base for the development of a
marketable product that the Company will manufacture. The
Company considers the income received from the milestone
payment, contract manufacturing and the ongoing efforts to
enhance the product indicative of its core operating activities
or revenue producing goals of the Company, and as such have
accounted for this income as Net sales and gross
revenues.
We perform other services for LifeScan from time to time based
on their requirements. There are different arrangements for each
service being provided. Revenue recognition principles are
assessed for each new contractual arrangement and the
appropriate accounting is determined for each service. Revenues
received in advance of performing the services are treated as
deferred income and included in liabilities on the balance sheet
as the Group has not earned these amounts until the relevant
services have been performed. We recognize revenue from these
services, other than as already detailed above, on the following
basis:
(1) as we perform the services
Under the terms of our arrangement with LifeScan, we provide
certain services relating to the blood glucose field. In
accordance with ASC 605 Revenue Recognition
(formerly Emerging Issues Task Force (EITF) Issue
99-19),
revenue has been recognized on a gross basis as the Company has
earned revenue from the provision of services. Other factors
which management considered, which support the gross basis of
revenue recognition are as follows:
| the Company was responsible for providing the service and was also the primary obligor with respect to purchasing goods and services from third party suppliers which in turn were used to provide services to LifeScan; |
F-23
Universal
Biosensors, Inc.
Notes to
Consolidated Financial Statements
(Continued)
| the Company had unmitigated general inventory risk; | |
| the Company had credit risk; and | |
| pricing was not fixed but determined by the level of activity. |
The principles of revenue recognition in ASC 605 have all
been satisfied; services were performed by us which were
supported by purchase orders issued by LifeScan on a regular
basis, collection was assured, delivery of the services had
occurred and the amount was objectively determined.
(2) on a proportional performance basis where revenues is
related to costs incurred in providing the services required
under the contract
The Company has provided services to LifeScan to enable LifeScan
to establish its own manufacturing line for the blood glucose
sensor strips. The proportional performance method has been used
to recognize revenue. We believe this method is appropriate as
the contract amount was determined prior to the commencement of
the service, LifeScan receives value as the services are
performed and LifeScan need not re-perform the services that it
has already received from the Company should the service
arrangement be terminated.
Research
and development income
On April 1, 2002, the Company and LifeScan entered into a
Development and Research Agreement pursuant to which the Company
agreed to undertake contract research and development for
LifeScan in the area of diabetes management to extend and
develop the glucose sensor technology owned by LifeScan. The
research and development activities are supervised by a steering
committee comprised of representatives from both the Company and
LifeScan. In consideration of us undertaking the research and
development activities, LifeScan makes quarterly payments to the
Company. The Development and Research Agreement automatically
renews for successive one year periods on the same terms and
conditions unless either LifeScan or the Company gives written
notice of termination not less than nine months prior to the end
of the relevant one year period (in which case the agreement
terminates at the end of the relevant one year period), or the
Development and Research Agreement is otherwise terminated in
accordance with its terms. LifeScan owns all intellectual
property developed by the Group under the Development and
Research Agreement and the Group receives a license to such
intellectual property outside of the LifeScan Field.
The income derived from the Development and Research Agreement
is recognized over the period in which the agreed upon research
services are completed. The Company recognizes income for
accounting purposes ratably over the annual grant period. Under
the Development and Research Agreement, the Company is not
matching the income to a specific expenditure but instead to a
specified period of research. The annual research and
development income received from LifeScan is agreed upon with
LifeScan from time to time and is subject to the Company
continuing its research and development activities in the blood
glucose area, the provision of quarterly reports and other
obligations under the Development and Research Agreement. The
Company has and continues to satisfy the requirements of the
Development and Research Agreement.
Income recognized pursuant to the Development and Research
Agreement has all been received in the financial years stated.
No upfront payments have been received from LifeScan. There are
no claw backs or repayment obligations relating to the
Development and Research Agreement.
Fee
Income
Pursuant to the agreement with LifeScan, consideration of
A$1,131,222 was paid in 2008 by LifeScan in consideration of the
grant of rights by us. The grant of rights to LifeScan included
a detailed written description of the Companys process for
the manufacture of the initial blood glucose product, including
all underlying know-how relevant to the process. Whilst the
non-refundable fee is part of an arrangement with
F-24
Universal
Biosensors, Inc.
Notes to
Consolidated Financial Statements
(Continued)
multiple deliverables, this fee and the deliverable associated
with it was considered a separate unit of accounting. There are
no other activities related to this deliverable and there is
objective and reliable evidence of the fair value of the
undelivered items. The fair value of the rights as determined by
management was based on estimated market value of labour hours
consumed in writing up the documents relating to the rights.
There are no general rights of return of the delivered items.
These rights were internally generated and were carried at zero
value within our financial statements. The rights were
transferred and the consideration received in January 2008 at
which time the service requirements (granting of the rights) had
been fully satisfied.
The grant of these rights is considered to be a discrete
earnings event as they are not linked in any way to the other
deliverables in the arrangement and there is a risk that the
other deliverables may not be achieved. The other deliverables
in the arrangement are primarily related to manufacturing and
the Companys ability to manufacture which can only occur
once regulatory approval is received to market the product.
Regulatory approval to market the product was only received in
November 2009 and up until that date there was a risk that
regulatory approval would not be obtained. Under the arrangement
we have with LifeScan, they have the option of terminating the
arrangement, which includes the rights for us to manufacture the
product. There was no such risk involved in fulfilling our
service requirements for the grant of rights as the service
requirements were completed and fully satisfied when the
consideration was received at which point the rights were
transferred to LifeScan. These rights have value to LifeScan as
they are able to use this information to build their own
manufacturing capability.
Management has concluded that the core operations of the Company
in the short term are expected to be research and development
activities and the commercial manufacture of approved medical or
testing devices and the provision of services such as those
specified under the Master Services and Supply Agreement. The
Companys ultimate goal is to utilize the underlying
technology and skill base for the development of other
marketable products that the Company will manufacture. The
Company considers the income received for the grant of rights is
not indicative of its core operating activities or revenue
producing goals of the Company, and as such have accounted for
this income as non-operating income.
Interest
revenue
Interest revenue is recognized as it accrues, taking into
account the effective yield on the cash and cash equivalents.
Foreign
Currency
Functional
and reporting currency
Items included in the financial statements of each of the
Groups entities are measured using the currency of the
primary economic environment in which the entity operates
(the functional currency). The functional currency
of the Company and Universal Biosensors Pty Ltd is AUD for all
years presented.
The consolidated financial statements are presented using a
reporting currency of Australian dollars. Effective October
2008, the Company changed its reporting currency from
U.S. Dollars (USD) to AUD. Prior to October 2008, the
Company reported its consolidated balance sheet, statement of
operations and stockholders equity and cash flows in USD.
The change in reporting currency is to better reflect the
Companys performance and to improve investors
ability to compare the Companys financial results.
Transactions
and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from
the settlement of such transactions and from the translation at
year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognized in the
Statement of Operations.
F-25
Universal
Biosensors, Inc.
Notes to
Consolidated Financial Statements
(Continued)
The Company has recorded foreign currency transaction
gains/(losses) of (A$512,474), (A$250,886) and A$265,310 for
each of the years ended December 31, 2010, 2009 and 2008,
respectively.
The results and financial position of all the Group entities
that have a functional currency different from the reporting
currency are translated into the reporting currency as follows:
| assets and liabilities for each balance sheet item reported are translated at the closing rate at the date of that balance sheet; | |
| income and expenses for each income statement are translated at average exchange rates (unless this is not a reasonable approximation of the effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and | |
| all resulting exchange differences are recognized as a separate component of equity. |
On consolidation, exchange differences arising from the
translation of any net investment in foreign entities are taken
to the Accumulated Other Comprehensive Income.
Commitments
and Contingencies
Liabilities for loss contingencies, arising from claims,
assessments, litigation, fines, and penalties and other sources
are recorded when it is probable that a liability has been
incurred and the amount of the assessment can be reasonably
estimated. These were nil as at December 31, 2010 (2009:
nil).
Patent
and License Costs
Legal fees incurred for patent application costs have been
charged to expense and reported in research and development
expense.
Clinical
Trial Expenses
Clinical trial costs are a component of research and development
expenses. These expenses include fees paid to participating
hospitals and other service providers, which conduct certain
testing activities on behalf of the Company. Depending on the
timing of payments to the service providers and the level of
service provided, the Company records prepaid or accrued
expenses relating to these costs.
These prepaid or accrued expenses are based on estimates of the
work performed under service agreements.
Leased
Assets
All of the Companys leases for the years ended
December 31, 2010, 2009 and 2008 are considered operating
leases. The costs of operating leases are charged to the
statement of operations on a straight-line basis over the lease
term.
Stock-based
Compensation
As of January 1, 2006, the Company adopted ASC 718,
using the modified prospective method, which requires
measurement of compensation expense of all stock-based awards at
fair value on the date of grant and amortization of the fair
value over the vesting period of the award. The Company has
elected to use the straight-line method of amortization. Under
the modified prospective method, the provisions of ASC 718
apply to all awards granted or modified after the date of
adoption. In addition, the unrecognized expense of awards not
yet vested at the date of adoption, determined under the
original provisions of ASC 718 shall be recognized in net
income in the periods after adoption. The fair value of stock
options is determined using the Trinomial Lattice model, which
is consistent with valuation techniques previously utilized for
options in
F-26
Universal
Biosensors, Inc.
Notes to
Consolidated Financial Statements
(Continued)
footnote disclosures required under ASC 718, as amended by
ASC 718 (formerly SFAS No. 148
Accounting for Stock-Based Compensation Transition and
Disclosure). Such value is recognized as expense over the
service period, net of estimated forfeitures, using the
straight-line method under ASC 718. There were no
transitional adjustments on adoption of ASC 718.
Pension
Costs
The Company contributes to standard defined contribution
superannuation funds on behalf of all employees at nine percent
of each such employees salary. Superannuation is a
compulsory savings program whereby employers are required to pay
a portion of an employees remuneration to an approved
superannuation fund that the employee is typically not able to
access until they are retired. The Company permits employees to
choose an approved and registered superannuation fund into which
the contributions are paid. Contributions are charged to the
statement of operations as they become payable.
Net
Profit/(Loss) per Share and Anti-dilutive
Securities
Basic and diluted net profit/(loss) per share is presented in
conformity with ASC 260 Earnings per Share
(formerly Statement of Financial Accounting Standards
No. 128 Earnings Per Share). Basic and diluted
net profit/(loss) per share has been computed using the
weighted-average number of common shares outstanding during the
period. Other than in a profit making year, the potentially
dilutive options issued under the Universal Biosensors Employee
Option Plan were not considered in the computation of diluted
net profit/(loss) per share because they would be anti-dilutive
given the Companys loss making position.
Total
Comprehensive Income
The Company follows ASC 220 Comprehensive
Income (formerly SFAS No. 130 Reporting
Comprehensive Income (Loss)). Comprehensive income is defined as
the total change in shareholders equity during the period
other than from transactions with shareholders, and for the
Company, includes net income and cumulative translation
adjustments.
Recent
Accounting Pronouncements
In January 2010, the FASB issued ASU
No. 2010-06
Fair Value Measurements and Disclosures Topic 820
Improving Disclosures about Fair Value Measurements.
This ASU requires certain new disclosures and clarifies existing
disclosure requirements about fair value measurement as set
forth in Codification Subtopic
820-10. The
FASBs objective is to improve these disclosures and, thus,
increase the transparency in financial reporting. This ASU is
effective for fiscal years beginning on or after
December 15, 2009, and interim periods within those fiscal
years. The adoption of this ASU did not have a material impact
on the Companys consolidated financial statements.
On February 25, 2010, the FASB issued ASU
2010-09
Subsequent Events Topic 855 Amendments to Certain
Recognition and Disclosure Requirements, effective
immediately. The amendments in the ASU remove the requirement
for an SEC filer to disclose a date through which subsequent
events have been evaluated in both issued and revised financial
statements. Revised financial statements include financial
statements revised as a result of either correction of an error
or retrospective application of U.S. GAAP. The FASB
believes these amendments remove potential conflicts with the
SECs literature. The adoption of this ASU did not have a
material impact on the Companys consolidated financial
statements.
In April 2010, the FASB codified the consensus reached in
Emerging Issues Task Force Issue
No. 08-09,
Milestone Method of Revenue Recognition. FASB ASU
No. 2010-17
Revenue Recognition Milestone Method (Topic
605) provides guidance on defining a milestone and
determining when it may be appropriate to apply the milestone
method of revenue recognition for research and development
transactions. FASB ASU
F-27
Universal
Biosensors, Inc.
Notes to
Consolidated Financial Statements
(Continued)
No. 2010 17 is effective for fiscal years
beginning on or after June 15, 2010, and is effective on a
prospective basis for milestones achieved after the adoption
date. The Company does not expect this ASU will have a material
impact on its financial position or results of operations when
it adopts this update for the fiscal year beginning
January 1, 2011.
In April 2010, the FASB issued ASU
2010-13,
Compensation Stock Compensation (Topic 718):
Effect of Denominating the Exercise Price of a Share-Based
Payment Award in the Currency of the Market in Which the
Underlying Equity Security Trades, or ASU
2010-13.
This ASU provides amendments to Topic 718 to clarify that an
employee share-based payment award with an exercise price
denominated in currency of a market in which a substantial
portion of the entitys equity securities trades should not
be considered to contain a condition that is not a market,
performance, or service condition. Therefore, an entity would
not classify such an award as a liability if it otherwise
qualifies as equity. The amendments in this ASU are effective
for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2010. The Company does
not expect the adoption of ASU
2010-13 to
have a significant impact on its consolidated financial
statements.
(3) | Commitments and Contingent Liabilities |
Operating
Leases
Universal Biosensors Pty Ltd entered into a lease with respect
to premises at 1 Corporate Avenue, Rowville Victoria which
commenced on November 1, 2006 for an initial period of
seven years and five months, with two options to renew the lease
for successive five-year periods. The Companys primary
bank has issued a bank guarantee of A$250,000 in relation to a
rental bond to secure the payments under the lease. This bank
guarantee is secured by a security deposit held at the bank.
In accordance with the terms of the lease, the lessee has to
restore part of the building upon vacating the premises.
The Company has also entered into a lease with respect to
certain office equipment. The lease is for a period of
60 months which commenced in December 2007.
Future minimum lease payments under non-cancelable operating
leases (with initial or remaining lease terms in excess of one
year) as of December 31, 2010 are:
A$ | ||||
2011
|
537,526 | |||
2012
|
556,082 | |||
2013
|
567,931 | |||
2014
|
146,312 | |||
2015 and thereafter
|
| |||
Total minimum lease payments
|
1,807,851 | |||
Rent expense was A$556,584, A$533,749 and A$514,984 for the
fiscal years ended December 31, 2010, 2009 and 2008,
respectively.
Government
research grants
Universal Biosensors Pty Ltd received a research grant from the
Commonwealth of Australia under the Research and development
START Program up to a maximum grant amount of A$2,366,063
payable over the period from January 1, 2005 to
September 30, 2007. The grant was previously set to expire
on September 30, 2007. However, the term of the grant was
extended to September 30, 2009. The Commonwealth of
Australia
F-28
Universal
Biosensors, Inc.
Notes to
Consolidated Financial Statements
(Continued)
may terminate the grant agreement for breach of the agreement by
Universal Biosensors Pty Ltd, for failure to undertake the
required research, if there is a change in control of Universal
Biosensors Pty Ltd, or on the grounds of insolvency. In certain
limited circumstances where Universal Biosensors Pty Ltd fails
to use its best endeavors to commercialize the project within a
reasonable time of completion or upon termination of the grant
due to breach or insolvency, the Commonwealth of Australia may
require Universal Biosensors Pty Ltd to repay some or the entire
grant. The Company continues the development of the project
funded by the R&D START Program.
The Company believes that the likelihood of being required to
repay grant funding is remote because the Company continues to
act in good faith with respect to the grant. A Research and
development START grant advance of $118,305 was received during
2010 (2009: nil, 2008: A$262,119) and income of nil during 2010
(2009: nil, 2008: A$300,613) was recognized. Accrued income at
December 31, 2010 was nil (2009: A$118,305, 2008:
A$118,305).
On October 28, 2006, Universal Biosensors Pty Ltd was
awarded a grant by the State of Victoria to support the
establishment of a medical diagnostic manufacturing facility in
Victoria, Australia for the manufacture of new technologies for
disease monitoring and to increase support of local and export
markets. These payments are subject to the achievement of
milestones which include capital expenditure by Universal
Biosensors Pty Ltd of predetermined minimum amounts. The State
of Victoria may require Universal Biosensors Pty Ltd to refund
any amounts paid under the grant together with interest should
Universal Biosensors Pty Ltd commit a breach of its obligations
under the grant agreement. The State of Victoria may also
withhold, suspend, cancel or terminate any payment or payments
upon a failure to comply with obligations or if Universal
Biosensors Pty Ltd chooses not to proceed with these initiatives
or it becomes insolvent. The total amount received under the
Victorian State Government Grant during 2010 was A$39,875 (2009:
A$130,000, 2008: A$130,000). This grant has been recognized
against the acquisition cost of the related plant and equipment.
On October 1, 2010, Universal Biosensors Pty Ltd was
awarded a grant of A$250,000 by the State of Victoria to assist
in the upgrade of the current manufacturing facility to
ultimately support the production of strips for a new point of
care test. These payments are subject to the achievement of
milestones which include capital expenditure by Universal
Biosensors Pty Ltd of predetermined minimum amounts. The State
of Victoria may require Universal Biosensors Pty Ltd to refund
any amounts paid under the grant together with interest should
Universal Biosensors Pty Ltd fail to complete the upgrade within
a stipulated timeframe or fails to fulfill its commitments
towards the upgrade. The State of Victoria may also withhold,
suspend, cancel or terminate any payment or payments upon a
failure to comply with obligations or if Universal Biosensors
Pty Ltd chooses not to proceed with these initiatives or it
becomes insolvent. No amounts have been received under this
grant to date. This grant will be recognized against the
acquisition cost of the related plant and equipment.
Guarantees
There are cross guarantees given by Universal Biosensors, Inc.
and Universal Biosensors Pty Ltd as described in note 15.
No deficiencies of assets exist in any of these companies. No
liability was recognized by the parent entity or the
consolidated entity in relation to this guarantee, as the fair
value of the guarantees is immaterial.
(4) | Income Taxes |
The Company is subject to income tax in Australia and is
required to pay taxes on its Australian profits. As provided
under the Australian income tax laws, the Company and its wholly
owned resident subsidiary have formed a tax-consolidated group.
Universal Biosensors, Inc. is required to lodge
U.S. federal income tax returns. It currently is in a tax
loss situation.
F-29
Universal
Biosensors, Inc.
Notes to
Consolidated Financial Statements
(Continued)
A reconciliation of the (benefit)/provision for income taxes
with the amount computed by applying the Australian statutory
company tax rate of 30% to the profit/(loss) before income taxes
is as follows:
Years Ended December 31, | ||||||||||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||||||||||
$ | % | $ | % | $ | % | |||||||||||||||||||
Profit/(loss) before income taxes
|
(6,610,525 | ) | 1,430,463 | (11,996,092 | ) | |||||||||||||||||||
Computed by applying income tax rate of home jurisdiction
|
(1,983,157 | ) | 30 | 429,139 | 30 | (3,598,828 | ) | 30 | ||||||||||||||||
Research & development incentive
|
(421,341 | ) | 6 | (3,524,333 | ) | (246 | ) | (702,124 | ) | 6 | ||||||||||||||
Disallowed expenses/(income):
|
||||||||||||||||||||||||
Share based payment
|
503,100 | (7 | ) | 323,631 | 22 | 288,332 | (3 | ) | ||||||||||||||||
Other
|
4,730 | | (226,924 | ) | (16 | ) | 2,600 | | ||||||||||||||||
Change in valuation allowance
|
1,896,668 | (29 | ) | 2,998,487 | 210 | 4,010,020 | (33 | ) | ||||||||||||||||
Adjustment in respect of current income tax of prior years
|
| | | | (206 | ) | | |||||||||||||||||
Income tax expense/(benefit)
|
| | | | (206 | ) | | |||||||||||||||||
Significant components of the Companys deferred tax assets
are shown below:
As of December 31, | ||||||||
2010 | 2009 | |||||||
Deferred tax assets:
|
||||||||
Operating loss carry forwards
|
12,925,915 | 10,903,873 | ||||||
Unamortized capital raising cost
|
104,850 | 352,651 | ||||||
Depreciation and amortization
|
(143,647 | ) | (392,582 | ) | ||||
Asset retirement obligations
|
46,654 | 43,024 | ||||||
Employee entitlements
|
227,090 | 205,043 | ||||||
Other accruals
|
807,922 | 587,802 | ||||||
Total deferred tax assets
|
13,968,784 | 11,699,811 | ||||||
Valuation allowance for deferred tax assets
|
(13,968,784 | ) | (11,699,811 | ) | ||||
Net deferred tax asset
|
| | ||||||
Significant components of deferred income taxes reflect the net
tax effect of temporary differences between the carrying amounts
of assets and liabilities for financial reporting and tax
purposes. A valuation allowance has been established, as
realization of such assets is not more likely than not.
At December 31, 2010 the Company has A$43,086,384
(A$36,346,242 at December 31, 2009) of accumulated tax
losses available for carry forward against future earnings,
which under Australian tax laws do not expire but may not be
available under certain circumstances.
(5) | Employee Incentive Schemes |
(a) | Stock Option Plan |
In 2004, the Company adopted an employee option plan
(Plan). Options may be granted pursuant to the Plan
to any person considered by the board to be employed by the
Group on a permanent basis (whether full time, part time or on a
long term casual basis). Each option gives the holder the right
to subscribe for one share of common stock. The total number of
options that may be issued under the Plan is such maximum
F-30
Universal
Biosensors, Inc.
Notes to
Consolidated Financial Statements
(Continued)
amount permitted by law and the Listing Rules of the ASX. The
exercise price and any exercise conditions are determined by the
board at the time of grant of the options. Any exercise
conditions must be satisfied before the options vest and become
capable of exercise. The options lapse on such date determined
by the board at the time of grant or earlier in accordance with
the Plan. Options granted to date have had a term up to
10 years and generally vest in equal tranches over three
years.
An option holder is not permitted to participate in a bonus
issue or new issue of securities in respect of an option held
prior to the issue of shares to the option holder pursuant to
the exercise of an option. If Universal Biosensors changes the
number of issued shares through or as a result of any
consolidation, subdivision, or similar reconstruction of the
issued capital of the Company, the total number of options and
the exercise price of the options (as applicable) will likewise
be adjusted. Options granted in 2008, 2009 and 2010 were
1,553,000, 4,164,200 and 914,500 respectively.
In accordance with ASC 718, the fair value of the option
grants was estimated on the date of each grant using the
Trinomial Lattice model. The assumptions for these grants were:
Grant Date | ||||||||||||||||||||||||||||||||||||||||
Nov-10
|
Nov-10 | Feb-10 | Nov-09 | Jun-09 | Jun-09 | May-09 | Feb-09 | Aug-08 | Mar-08 | |||||||||||||||||||||||||||||||
Exercise Price (A$)
|
Nil | $ | 1.58 | $ | 1.60 | $ | 1.72 | Nil | $ | 0.94 | Nil | $ | 0.50 | $ | 0.70 | $ | 0.89 | |||||||||||||||||||||||
Share Price at Grant Date (A$)
|
$ | 1.58 | $ | 1.58 | $ | 1.60 | $ | 1.73 | $ | 0.95 | $ | 0.95 | $ | 1.18 | $ | 0.43 | $ | 0.71 | $ | 0.91 | ||||||||||||||||||||
Volatility
|
72 | % | 72 | % | 77 | % | 78 | % | 80 | % | 80 | % | 81 | % | 77 | % | 71 | % | 76 | % | ||||||||||||||||||||
Expected Life
|
7 years | 7 years | 7 years | 10 years | 10 years | 10 years | 10 years | 10 years | 10 years | 10 years | ||||||||||||||||||||||||||||||
Risk Free Interest Rate
|
5.27 | % | 5.27 | % | 5.34 | % | 5.63 | % | 5.49 | % | 5.49 | % | 4.87 | % | 4.26 | % | 5.85 | % | 5.87 | % | ||||||||||||||||||||
Fair Value of Option (A$)
|
$ | 1.58 | $ | 0.96 | $ | 0.99 | $ | 1.13 | $ | 0.95 | $ | 0.62 | $ | 1.04 | $ | 0.28 | $ | 0.45 | $ | 0.59 |
Each of the inputs to the Trinomial Lattice model is discussed
below.
Share
price at valuation date
The value of the options granted in 2008 and 2009 have been
determined using the average closing price of the Companys
common stock on the ASX on the five days on which the
Companys common stock has traded prior to the approval of
grant. The value of the options granted in 2010 has been
determined using the closing price of our common stock trading
in the form of CDIs on ASX at the time of grant of the options.
The ASX is the only exchange upon which our securities are
quoted.
Volatility
With respect to the options granted in 2008, 2009 and 2010, we
applied an annual volatility determined partially by reference
to the annual volatilities of a number of ASX listed companies
of a similar size and with similar operations but also having
regard to the volatility on the trading data of our shares in
the form of CDIs available from the ASX.
Time to
expiry
All options granted under our share option plan have a maximum
10 year term and are non-transferable.
Risk free
rate
The risk free rate which we applied is equivalent to the yield
on an Australian government bond with a time to expiry
approximately equal to the expected time to expiry on the
options being valued.
F-31
Universal
Biosensors, Inc.
Notes to
Consolidated Financial Statements
(Continued)
Stock option activity during the current period is as follows:
Weighted |
||||||||
Number of |
Average |
|||||||
Shares | Exercise Price | |||||||
A$ | ||||||||
Balance at December 31, 2009
|
10,039,486 | 0.85 | ||||||
Granted
|
914,500 | 1.12 | ||||||
Exercised
|
(1,667,581 | ) | 0.49 | |||||
Lapsed
|
(746,701 | ) | 1.12 | |||||
Balance at December 31, 2010
|
8,539,704 | 0.93 | ||||||
At December 31, 2010, the number of options exercisable was
5,908,214 (2009: 5,808,324 and 2008: 4,324,915).
The following table represents information relating to stock
options outstanding under the plans as of December 31, 2010:
Options Outstanding | ||||||||||||||||
Weighted |
||||||||||||||||
Average |
Options |
|||||||||||||||
Remaining |
Exercisable |
|||||||||||||||
Exercise Price
|
Shares | Life in Years | Shares | |||||||||||||
A$ | ||||||||||||||||
2010 | $0.30 | 1,556,770 | 3.00 | 1,556,770 | ||||||||||||
$0.35 | 453,099 | 5.00 | 453,099 | |||||||||||||
$1.18 | 623,000 | 6.20 | 623,000 | |||||||||||||
$1.20 | 590,000 | 6.70 | 590,000 | |||||||||||||
$0.89 | 874,000 | 7.20 | 874,000 | |||||||||||||
$0.70 | 275,334 | 7.60 | 179,997 | |||||||||||||
$0.50 | 120,000 | 8.10 | 78,665 | |||||||||||||
Nil | 79,167 | 8.40 | 45,833 | |||||||||||||
$0.94 | 1,261,667 | 8.50 | 836,011 | |||||||||||||
Nil | 434,167 | 8.50 | 54,167 | |||||||||||||
$1.72 | 1,700,000 | 8.90 | 600,006 | |||||||||||||
$1.60 | 50,000 | 6.10 | 16,666 | |||||||||||||
$1.58 | 422,500 | 6.90 | | |||||||||||||
Nil | 100,000 | 6.90 | |
F-32
Universal
Biosensors, Inc.
Notes to
Consolidated Financial Statements
(Continued)
The table below sets forth the number of employee stock options
exercised and the number of shares issued in the period from
December 31, 2007. We issued these shares in reliance upon
exemptions from registration under Regulation S under the
Securities Act of 1933, as amended.
Number of Options |
||||||||||||
Exercised and |
||||||||||||
Corresponding |
||||||||||||
Number of Shares |
Weighted Average |
Proceeds |
||||||||||
Period Ending
|
Issued | Exercise Price | Received | |||||||||
A$ | A$ | |||||||||||
2008
|
18,124 | 0.35 | 5,047 | |||||||||
2009
|
138,327 | 0.60 | 78,998 | |||||||||
2010
|
1,667,581 | 0.49 | 715,296 | |||||||||
Total
|
1,824,032 | 799,341 | ||||||||||
(b) | Restricted Share Plan |
Our Employee Share Plan was adopted by the Board of Directors in
2009. The Employee Share Plan permits our Board to grant shares
of our common stock to our employees and directors. The number
of shares able to be granted is limited to the amount permitted
to be granted at law, the ASX Listing Rules and by the limits on
our authorized share capital in our certificate of
incorporation. All our employees are eligible for shares under
the Employee Plan. The Company currently proposes to continue to
issue A$1,000 worth of restricted shares of common stock to
employees of the Company on a recurring basis, but no more
frequently than annually. The restricted shares have the same
terms of issue as our existing shares of common stock but are
not able to be traded until the earlier of three years from the
date on which the shares are issued or the date the relevant
employee ceases to be an employee of the Company or any of its
associated group of companies.
The table below sets forth the restricted shares issued by the
Company:
Market |
||||||||
Number of |
Value of |
|||||||
Restricted |
Restricted |
|||||||
Shares Issued | Shares Issued | |||||||
November, 2009
|
40,670 | A$ | 69,952 | |||||
May, 2010
|
581 | A$ | 999 | |||||
November, 2010
|
47,400 | A$ | 74,892 |
(6) | Related Party Transactions |
Details of related party transactions material to the operations
of the Group other than compensation arrangements, expense
allowances, and other similar items in the ordinary course of
business, are set out below:
Based on the latest Amendment to Schedule 13G filed on
February 10, 2011, Johnson & Johnson and Johnson
and Johnson Development Corporation beneficially owned
approximately 11% of the Companys shares.
F-33
Universal
Biosensors, Inc.
Notes to
Consolidated Financial Statements
(Continued)
The following transactions occurred with LifeScan, a wholly
owned subsidiary of Johnson & Johnson:
As of December, 31 | ||||||||
2010 | 2009 | |||||||
A$ | A$ | |||||||
Current Receivables
|
||||||||
Sale of goods
|
3,588,798 | 396,378 | ||||||
Sale of services
|
| 19,019 | ||||||
3,588,798 | 415,397 | |||||||
Revenue
|
||||||||
Revenue from products
|
11,760,009 | 132,733 | ||||||
Revenue from services
|
6,420,027 | 2,850,071 | ||||||
Research and development income
|
| 1,337,125 | ||||||
Milestone payment
|
| 17,722,641 | ||||||
18,180,036 | 22,042,570 | |||||||
(7) | Financial Instruments |
Financial
Assets and Liabilities
Years Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
A$ | A$ | A$ | ||||||||||
Financial assets:
|
||||||||||||
Cash and cash equivalents
|
23,271,766 | 31,291,011 | 28,334,864 | |||||||||
Accounts receivables
|
3,588,798 | 415,397 | 31,657 | |||||||||
Total financial assets
|
26,860,564 | 31,706,408 | 28,366,521 | |||||||||
Debt:
|
||||||||||||
Short and long term debt/borrowings
|
| | | |||||||||
Total debt
|
| | | |||||||||
Net financial assets
|
26,860,564 | 31,706,408 | 28,366,521 | |||||||||
The carrying value of the cash and cash equivalents and the
accounts receivables approximates fair value because of their
short-term nature.
We regularly review all our financial assets for impairment.
There were no impairments recognized in 2010, 2009 and 2008.
Derivative Instruments and Hedging Activities
See Notes to Consolidated Financial Statements
Note 2. Summary of Significant Accounting Policies.
F-34
Universal
Biosensors, Inc.
Notes to
Consolidated Financial Statements
(Continued)
(8) | Property, Plant and Equipment |
As of December, 31 | ||||||||
2010 | 2009 | |||||||
A$ | A$ | |||||||
Plant and equipment
|
15,110,554 | 13,271,715 | ||||||
Leasehold improvements
|
8,810,036 | 8,328,270 | ||||||
Capital work in process
|
8,792,690 | 6,298,114 | ||||||
32,713,280 | 27,898,099 | |||||||
Accumulated depreciation
|
(9,586,365 | ) | (6,597,956 | ) | ||||
Property, plant & equipment, net
|
23,126,915 | 21,300,143 | ||||||
Capital work in process relates to assets under construction and
comprises primarily of specialized manufacturing equipment.
Legal right to the assets under construction rests with the
Company. The amounts capitalized for capital work in process
represents the percentage of expenditure that has been
completed, and once the assets are placed into service the
Company begins depreciating the respective assets. The
accumulated amortisation of capitalised leasehold improvements
for the fiscal years ended December 31, 2010, 2009 and 2008
was A$4,090,724, A$2,770,434 and A$1,501,516, respectively.
The Company receives Victorian government grants under certain
research agreements to purchase plant and equipment. Plant and
equipment is presented net of the government grant of A$449,875
for the year ended December 31, 2010 (2009: A$410,000). The
grants are recognized against the acquisition costs of the
related plant and equipment as and when the related assets are
purchased. Grants received in advance of the relevant
expenditure are treated as deferred income and included in
Current Liabilities on the balance sheet as the Company does not
control the monies until the relevant expenditure has been
incurred. Grants due to the Company under research agreements
are recorded as Currents Assets on the balance sheet.
Depreciation expense was A$2,990,858, A$2,851,285 and
A$2,266,847 for the fiscal years ended December 31, 2010,
2009 and 2008, respectively.
(9) | Accrued Expenses |
Accrued expenses consist of the following:
As of December, 31 | ||||||||
2010 | 2009 | |||||||
A$ | A$ | |||||||
Legal, tax and accounting fees
|
591,184 | 176,000 | ||||||
Salary and related on-costs
|
587,695 | 327,665 | ||||||
Research and development materials
|
120,000 | 698,228 | ||||||
Inventory
|
657,142 | | ||||||
Other
|
143,456 | | ||||||
2,099,477 | 1,201,893 | |||||||
(10) | Stockholders Equity Common Stock |
Holders of common stock are generally entitled to one vote per
share held on all matters submitted to a vote of the holders of
common stock. At any meeting of the shareholders, the presence,
in person or by proxy, of the majority of the outstanding stock
entitled to vote shall constitute a quorum. Except where a
greater
F-35
Universal
Biosensors, Inc.
Notes to
Consolidated Financial Statements
(Continued)
percentage is required by the Companys Amended and
Restated Certificate of Incorporation or By-laws, the
affirmative vote of the holders of a majority of the shares of
common stock then represented at the meeting and entitled to
vote at the meeting shall be sufficient to pass a resolution.
Holders of common stock are not entitled to cumulative voting
rights with respect to the election of directors, and the common
stock does not have pre-emptive rights.
Trading in our shares of common stock on ASX is undertaken using
CHESS Depositary Interests (CDIs). Each CDI
represents beneficial ownership in one underlying share. Legal
title to the shares underlying CDIs is held by CHESS Depositary
Nominees Pty Ltd (CDN), a wholly owned subsidiary of
ASX.
Holders of CDIs have the same economic benefits of holding the
shares, such as dividends (if any), bonus issues or rights
issues as though they were holders of the legal title. Holders
of CDIs are not permitted to vote but are entitled to direct CDN
how to vote. Subject to Delaware General Corporation Law,
dividends may be declared by the Board and holders of common
stock may be entitled to participate in such dividends from time
to time.
(11) | Retirement Benefits |
Universal Biosensors Pty Ltd contributes to standard defined
contributions superannuation funds on behalf of all employees at
an amount up to nine per cent of employee salary. The Company
permits employees to choose the superannuation fund into which
the contributions are paid, provided the fund is appropriately
registered.
Universal Biosensors Pty Ltd contributed A$714,123, A$698,919
and A$587,885 for the fiscal years ended December 31, 2010,
2009 and 2008, respectively.
(12) | Net Profit/(Loss) per Share |
Basic net profit/(loss) per ordinary share was computed by
dividing the net profit/(loss) applicable to common stock by the
weighted-average number of common stock outstanding during the
period. Options granted to employees under the Universal
Biosensors Employee Option Plan are considered to be potential
ordinary shares for the purpose of calculating diluted net
profit/(loss) per share. However, all these were not included in
the calculation of diluted net profit/(loss) per share in the
year when the Group made a net loss as the effect of including
them is anti-dilutive.
Years Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
A$ | A$ | A$ | ||||||||||
Weighted average number of ordinary shares used as denominator
in calculating:
|
||||||||||||
Basic net profit/(loss) per share
|
157,584,044 | 157,013,578 | 156,970,679 | |||||||||
Diluted net profit/(loss) per share
|
157,584,044 | 161,354,802 | 156,970,679 | |||||||||
(13) | Guarantees and Indemnifications |
The certificate of incorporation and amended and restated
by-laws of the Company provide that the Company will indemnify
officers and directors and former officers and directors in
certain circumstances, including for expenses, judgments, fines
and settlement amounts incurred by them in connection with their
services as an officer or director of the Company or its
subsidiaries, provided that such person acted in good faith and
in a manner such person reasonably believed to be in the best
interests of the Company.
F-36
Universal
Biosensors, Inc.
Notes to
Consolidated Financial Statements
(Continued)
In addition to the indemnities provided in the certificate of
incorporation and amended and restated by-laws, the Company has
entered into indemnification agreements with certain of its
officers and each of its directors. Subject to the relevant
limitations imposed by applicable law, the indemnification
agreements, among other things:
| indemnify the relevant officers and directors for certain expenses, judgments, fines and settlement amounts incurred by them in connection with their services as an officer or director of the Company or its subsidiaries; and | |
| require the Company to make a good faith determination whether or not it is practicable to maintain liability insurance for officers and directors or to ensure the Companys performance of its indemnification obligations under the agreements. |
The Company maintains directors and officers
liability insurance providing for the indemnification of our
directors and certain of our officers against certain
liabilities incurred as a director or officer, including costs
and expenses associated in defending legal proceedings. In
accordance with the terms of the insurance policy and commercial
practice, the amount of the premium is not disclosed.
No liability has arisen under these indemnities as at
December 31, 2010.
(14) | Segments |
The Company operates in one segment. The principal activities of
the Company are research and development, commercial manufacture
of approved medical or testing devices and the provision of
services including contract research work.
The Company operates predominantly in one geographical area,
being Australia.
(15) | Deed of Cross Guarantee |
Universal Biosensors, Inc. and its wholly owned subsidiary,
Universal Biosensors Pty Ltd, are parties to a deed of cross
guarantee under which each company guarantees the debts of the
other. By entering into the deed, the wholly-owned entity has
been relieved from the requirements to prepare a financial
report and directors report under Class Order 98/1418
(as amended) issued by the Australian Securities and Investments
Commission.
The above companies represent a Closed Group for the
purposes of the Class Order, and as there are no other
parties to the Deed of Cross Guarantee that are controlled by
Universal Biosensors, Inc., they also represent the
Extended Closed Group.
The consolidated financial statements presented within this
report comprise that of Universal Biosensors, Inc. and its
wholly owned subsidiary, Universal Biosensors Pty Ltd. These two
entities also represent the Closed Group and the
Extended Closed Group.
F-37
Universal
Biosensors, Inc.
(for the
years ended December 31, 2008, 2009 and 2010)
Additions | ||||||||||||||||||||
Balance at |
Charged to |
Charged to |
||||||||||||||||||
Beginning of |
Costs and |
Other |
Balance at |
|||||||||||||||||
Period | Expenses | Accounts | Deductions | End of Period | ||||||||||||||||
A$ | A$ | A$ | A$ | A$ | ||||||||||||||||
Year ended December 31, 2008
|
||||||||||||||||||||
Deferred income tax valuation allowance
|
6,080,529 | 4,010,020 | 510,571 | | 10,601,120 | |||||||||||||||
Year ended December 31, 2009
|
||||||||||||||||||||
Deferred income tax valuation allowance
|
10,601,120 | 2,998,487 | | (1,899,796 | ) | 11,699,811 | ||||||||||||||
Year ended December 31, 2010
|
||||||||||||||||||||
Deferred income tax valuation allowance
|
11,699,811 | 1,896,668 | 372,305 | | 13,968,784 |
F-38