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EX-32 - EX-32 - UNIVERSAL BIOSENSORS INC | w82604exv32.htm |
EX-31.1 - EX-31.1 - UNIVERSAL BIOSENSORS INC | w82604exv31w1.htm |
EX-31.2 - EX-31.2 - UNIVERSAL BIOSENSORS INC | w82604exv31w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
Universal Biosensors, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 98-0424072 | |
(State or other jurisdiction of incorporation | (I.R.S. Employer Identification Number) | |
or organization) | ||
Universal Biosensors, Inc. | ||
1 Corporate Avenue, | ||
Rowville, 3178, Victoria | ||
Australia | Not Applicable | |
(Address of principal executive offices) | (Zip Code) |
Telephone: +61 3 9213 9000
(Registrants telephone number,
including area code)
(Registrants telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definition of accelerated filer, large
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date: 159,008,161 shares of Common Stock, U.S.$0.0001 par value, outstanding
as of May 5, 2011.
UNIVERSAL BIOSENSORS, INC.
TABLE OF CONTENTS
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Exhibit 31.1 |
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Exhibit 31.2 |
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Exhibit 32.0 |
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31 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32 |
2
Table of Contents
Universal Biosensors, Inc.
Item 1 Financial Statements
Consolidated Condensed Balance Sheets
(Unaudited)
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
A$ | A$ | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
20,571,889 | 23,271,766 | ||||||
Inventories, net |
3,059,242 | 3,191,093 | ||||||
Accounts receivable |
1,485,448 | 3,588,798 | ||||||
Prepayments |
555,448 | 303,181 | ||||||
Other current assets |
1,085,998 | 356,196 | ||||||
Total current assets |
26,758,025 | 30,711,034 | ||||||
Property, plant and equipment |
32,830,029 | 32,713,280 | ||||||
Less accumulated depreciation |
(10,404,682 | ) | (9,586,365 | ) | ||||
Property, plant and equipment net |
22,425,347 | 23,126,915 | ||||||
Total assets |
49,183,372 | 53,837,949 | ||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
278,125 | 1,764,364 | ||||||
Accrued expenses |
1,598,722 | 2,099,477 | ||||||
Employee entitlements provision |
684,057 | 596,294 | ||||||
Total current liabilities |
2,560,904 | 4,460,135 | ||||||
Non-current liabilities: |
||||||||
Asset retirement obligations |
2,040,214 | 1,998,060 | ||||||
Employee entitlements provision |
151,356 | 160,675 | ||||||
Total non-current liabilities |
2,191,570 | 2,158,735 | ||||||
Total liabilities |
4,752,474 | 6,618,870 | ||||||
Commitments and contingencies |
| | ||||||
Stockholders equity: |
||||||||
Preferred stock, $0.01 par value. Authorized 1,000,000 shares;
issued and outstanding nil in 2011 (2010: nil) |
||||||||
Common stock, $0.0001 par value. Authorized 300,000,000
shares; issued and outstanding 159,008,161
shares in 2011 (2010: 158,871,495) |
15,901 | 15,887 | ||||||
Additional paid-in capital |
77,293,754 | 77,034,717 | ||||||
Accumulated deficit |
(29,533,213 | ) | (22,922,688 | ) | ||||
Current year earnings/(loss) |
(3,047,232 | ) | (6,610,525 | ) | ||||
Accumulated other comprehensive income |
(298,312 | ) | (298,312 | ) | ||||
Total stockholders equity |
44,430,898 | 47,219,079 | ||||||
Total liabilities and stockholders equity |
49,183,372 | 53,837,949 | ||||||
See accompanying notes to the financial statements
3
Table of Contents
Universal Biosensors, Inc.
Consolidated Condensed Statements of Operations
(Unaudited)
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
A$ | A$ | |||||||
Revenue |
||||||||
Revenue from products |
$ | 3,319,401 | $ | 1,524,813 | ||||
Revenue from services |
245,920 | 1,893,133 | ||||||
Total revenue |
3,565,321 | 3,417,946 | ||||||
Operating costs & expenses |
||||||||
Cost of goods sold (1) |
3,492,052 | 1,538,436 | ||||||
Cost of services |
63,519 | 246,064 | ||||||
Research and development (2 and 3) |
1,747,507 | 1,554,227 | ||||||
General and administrative (4) |
1,405,358 | 1,469,609 | ||||||
Total operating costs & expenses |
6,708,436 | 4,808,336 | ||||||
Profit/(loss) from operations |
(3,143,115 | ) | (1,390,390 | ) | ||||
Other income/(expense) |
||||||||
Interest income |
224,875 | 305,019 | ||||||
Interest expense |
| | ||||||
Fee income |
| | ||||||
Other |
(128,992 | ) | (10,291 | ) | ||||
Total other income/(expense) |
95,883 | 294,728 | ||||||
Net profit/(loss) before tax |
(3,047,232 | ) | (1,095,662 | ) | ||||
Income tax benefit/(expense) |
| | ||||||
Net profit/(loss) |
$ | (3,047,232 | ) | $ | (1,095,662 | ) | ||
Basic and diluted net loss per share |
$ | (0.02 | ) | $ | (0.01 | ) | ||
Average
weighted number of shares used as
denominator |
158,952,569 | 157,229,023 | ||||||
Notes : |
||||||||
1 Includes non-cash compensation expense (cost of
goods sold) |
$ | 20,428 | $ | 40,688 | ||||
2 Net of research grant income in these amounts |
$ | | $ | | ||||
3 Includes non-cash compensation expense (research
and development) |
$ | 99,114 | $ | 245,968 | ||||
4 Includes non-cash compensation expense (general
and administrative) |
$ | 73,383 | $ | 172,130 |
See accompanying notes to the financial statements.
4
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Universal Biosensors, Inc.
Consolidated Condensed Statements of Changes in Stockholders Equity and Comprehensive Income
(Unaudited)
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, 2010 |
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 |
| | | (1,095,662 | ) | | (1,095,662 | ) | ||||||||||||||||
Total Comprehensive income |
(1,048,250 | ) | ||||||||||||||||||||||
Exercise of stock options issued to employees |
145,578 | 14 | 79,356 | | | 79,370 | ||||||||||||||||||
Shares issued to employees |
| | | | ||||||||||||||||||||
Stock option expense |
| | 458,786 | | | 458,786 | ||||||||||||||||||
Balances at March 31, 2010 |
157,301,511 | 15,730 | 75,104,840 | (24,018,350 | ) | (298,312 | ) | 50,803,908 | ||||||||||||||||
Balances at January 1, 2011 |
158,871,495 | 15,887 | 77,034,717 | (29,533,213 | ) | (298,312 | ) | 47,219,079 | ||||||||||||||||
Comprehensive income |
||||||||||||||||||||||||
Gain on derivatives and hedges, net of tax |
| | | | | | ||||||||||||||||||
Net loss |
| | | (3,047,232 | ) | | (3,047,232 | ) | ||||||||||||||||
Total Comprehensive income |
(3,047,232 | ) | ||||||||||||||||||||||
Exercise of stock options issued to employees |
136,666 | 14 | 66,112 | | | 66,126 | ||||||||||||||||||
Shares issued to employees |
| | | | | | ||||||||||||||||||
Stock option expense |
| | 192,925 | | | 192,925 | ||||||||||||||||||
Balances at March 31, 2011 |
159,008,161 | 15,901 | 77,293,754 | (32,580,445 | ) | (298.312 | ) | 44,430,898 | ||||||||||||||||
See accompanying notes to the financial statements.
5
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Universal Biosensors, Inc.
Consolidated Condensed Statements of Cash Flows
(Unaudited)
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
A$ | A$ | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
(3,047,232 | ) | (1,095,662 | ) | ||||
Adjustments to reconcile net loss to net cash used in
operating activities: |
||||||||
Depreciation and impairment of plant & equipment |
821,660 | 725,400 | ||||||
Share based payments expense |
192,925 | 458,786 | ||||||
Loss on fixed assets disposal |
4,669 | | ||||||
Change in assets and liabilities: |
||||||||
Inventory |
131,851 | 81,160 | ||||||
Accounts receivables |
2,295,850 | (2,472,125 | ) | |||||
Prepaid expenses and other current assets |
(1,145,187 | ) | (460,932 | ) | ||||
Employee entitlements |
78,444 | 40,386 | ||||||
Accounts payable and accrued expenses |
(1,434,070 | ) | 87,852 | |||||
Net cash provided by/(used in) operating
activities |
(2,101,090 | ) | (2,635,135 | ) | ||||
Cash flows from investing activities: |
||||||||
Instalment payments to acquire plant and equipment |
| (811,303 | ) | |||||
Purchases of property, plant and equipment |
(664,913 | ) | (154,448 | ) | ||||
Net cash used in investing activities |
(664,913 | ) | (965,751 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from stock options exercised |
66,126 | 79,370 | ||||||
Net cash provided by/(used in) financing
activities |
66,126 | 79,370 | ||||||
Net increase/(decrease) in cash and cash equivalents |
(2,699,877 | ) | (3,521,516 | ) | ||||
Cash and cash equivalent at beginning of period |
23,271,766 | 31,291,011 | ||||||
Cash and cash equivalents at end of period |
20,571,889 | 27,769,495 | ||||||
See accompanying notes to the financial statement
6
Table of Contents
Universal Biosensors, Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
Organization of the Company
We were incorporated as a corporation in the State of Delaware pursuant to the Delaware
General Corporation Law on September 14, 2001. Our wholly owned subsidiary and primary operating
vehicle, Universal Biosensors Pty Ltd ACN 098 234 309, was incorporated as a proprietary limited
company in Australia under the Corporations Act 2001 (Commonwealth of Australia) on September 21,
2001. Our research and development and manufacturing activities are undertaken in Melbourne,
Australia, by Universal Biosensors Pty Ltd. Our shares of common stock in the form of CHESS
Depositary Interests (CDIs) were quoted on the Australian Securities Exchange (ASX) on December
13, 2006 and continue to be quoted on that exchange. Our securities are not currently traded on
any other public market.
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 have rights to an extensive patent portfolio comprising patent applications owned by our
wholly owned Australian subsidiary, Universal Biosensors Pty Ltd, and a large number of patents and
patent applications licensed to us by LifeScan, Inc. (LifeScan US), an affiliate of Johnson &
Johnson. LifeScan US has granted us a worldwide, royalty free, exclusive license, with a right to
sub-license certain electrochemical cell technologies in all fields of use excluding the field of
diabetes and blood glucose management generally, the rights to which are retained by LifeScan US
pursuant to a license agreement with us (License Agreement). We are also parties to a Development
and Research Agreement with LifeScan US pursuant to which we undertake contract research and
development for LifeScan US in the area of diabetes management and the development of a blood
glucose test for diabetics (Development and Research Agreement). We are also parties to a Master
Services and Supply Agreement with LifeScan US which contains the terms pursuant to which Universal
Biosensors Pty Ltd provides certain services in the field of blood glucose monitoring and acts as a
non-exclusive manufacturer of the blood glucose test strips we developed. Unless otherwise noted,
references to LifeScan are either references to LifeScan US or its affiliates collectively or
either of them individually as the context requires.
We use our technology base to develop a range of electrochemical-cell based tests.
We have developed a blood glucose test (used in the management of diabetes) with LifeScan. 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 initially launched by LifeScan in the
Netherlands in January 2010. Since then, the test has been launched in Australia, France, Italy,
Germany, the United Kingdom, Ireland, Spain and Portugal under the trade name One Touch Verio®.
We act as a non-exclusive manufacturer of the blood glucose test strips. In the future, we expect
that LifeScan will 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 also developing a C-reactive protein test on our
immunoassay platform to assist in the diagnosis and management of inflammatory conditions. 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 for our tests outside the fields
of blood glucose and diabetes. To date we have not secured a partnership outside of blood glucose
and diabetes and cannot predict with any certainty when or whether our efforts may be successful.
We use third party contractors to assist us in securing partners.
7
Table of Contents
Universal Biosensors, Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
Interim Financial Statements
The accompanying unaudited consolidated condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States (U.S. GAAP) and
with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial
information. Accordingly, they do not include all of the information and footnotes required by U.S.
GAAP for complete financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 2011 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2011. For further information, refer
to the financial statements and footnotes thereto as of and for the year ended December 31, 2010,
included in the Form 10-K of Universal Biosensors, Inc.
The year-end condensed balance sheet data as at December 31, 2010 was derived from audited
financial statements, but does not include all disclosures required by U.S. GAAP.
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 Company and its wholly owned subsidiary Universal Biosensors Pty Ltd
(collectively referred to as Universal Biosensors or 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.
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. 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.
8
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Universal Biosensors, Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
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 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 may use 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 generally 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.
9
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Universal Biosensors, Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
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 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.
Three Months Ended | Year Ended | |||||||
March 31, 2011 | December 31, 2010 | |||||||
A$ | A$ | |||||||
Raw materials at cost |
2,798,689 | 2,798,045 | ||||||
Work in progress at cost |
77,639 | 188,629 | ||||||
Finished goods at cost |
182,914 | 204,419 | ||||||
3,059,242 | 3,191,093 | |||||||
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.
March 31, 2011 | December, 31 2010 | |||||||
A$ | A$ | |||||||
Plant and equipment |
15,951,220 | 15,110,554 | ||||||
Leasehold improvements |
8,831,425 | 8,810,036 | ||||||
Capital work in process |
8,047,384 | 8,792,690 | ||||||
32,830,029 | 32,713,280 | |||||||
Accumulated depreciation |
(10,404,682 | ) | (9,586,365 | ) | ||||
Property, plant & equipment, net |
22,425,347 | 23,126,915 | ||||||
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 three month period ended March 31, 2011 and for fiscal year ended December 31,
2010 was A$4,452,057 and A$4,090,724, respectively.
10
Table of Contents
Universal Biosensors, Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
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$624,875 at
March 31, 2011 and A$449,875 at December 31, 2010. 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$821,660 and A$725,400 for the three months ended March 31, 2011 and
2010, respectively.
Research and Development
Research and development expenses consist of costs incurred to further the Groups research
and development activities and include salaries and related employee benefits, costs associated
with clinical trial and preclinical development, regulatory activities, research-related overhead
expenses, costs associated with the manufacture of clinical trial material, costs associated with
developing a commercial manufacturing process, costs for consultants and related contract research,
facility costs and depreciation. Research and development costs are expensed as incurred.
Research and development expenses for the three months ended March 31, 2011 and 2010 are as
follows:
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
A$ | A$ | |||||||
Research and development expenses |
1,747,507 | 1,554,227 | ||||||
Research grants received recognized against related
research and development expenses |
| | ||||||
Research and development expenses as reported |
1,747,507 | 1,554,227 | ||||||
Income Taxes
The Company applies ASC 740 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. At present there is a full valuation allowance recognized.
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 requires
entities to record the fair value of a liability
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Universal Biosensors, Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
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.
Our overall ARO changed as follows:
Three Months Ended | Year Ended | |||||||
March 31, 2011 | December 31, 2010 | |||||||
A$ | A$ | |||||||
Opening balance at January 1 |
1,998,060 | 1,842,547 | ||||||
Accretion expense |
42,154 | 155,513 | ||||||
Ending balance at December 31 |
2,040,214 | 1,998,060 | ||||||
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.
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Universal Biosensors, Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
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.
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 in December 2009; |
| 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 were in the interim costing period during the first quarter of 2011; 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.
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.
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Universal Biosensors, Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
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.
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; | ||
| 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 proportional performance method used to recognize revenue is appropriate as the contract amount was |
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Universal Biosensors, Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
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. |
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.
The Company has recorded foreign currency transaction losses of A$111,103 and A$29,468 for the
three month period ended March 31, 2011 and 2010, 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 March 31, 2011 and
December 31, 2010.
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Universal Biosensors, Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
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 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 footnote disclosures
required under ASC 718, as amended by ASC 718. 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.
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 option grants issued during
the 2010 financial year and for the three month period ended
March 31, 2011 were:
Grant Date | ||||||||||||||||
Mar-11 | Nov-10 | Nov-10 | Feb-10 | |||||||||||||
Exercise Price (A$) |
1.37 | Nil | 1.58 | 1.60 | ||||||||||||
Share Price at Grant Date (A$) |
1.37 | 1.58 | 1.58 | 1.60 | ||||||||||||
Volatility |
70 | % | 72 | % | 72 | % | 77 | % | ||||||||
Expected Life |
7 years | 7 years | 7 years | 7 years | ||||||||||||
Risk Free Interest Rate |
5.36 | % | 5.27 | % | 5.27 | % | 5.34 | % | ||||||||
Fair Value of Option (A$) |
0.83 | 1.58 | 0.96 | 0.99 |
Stock option activity during the current period is as follows:
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Notes to Consolidated Condensed Financial Statements (Unaudited)
Weighted average | ||||||||
exercise price | ||||||||
Number of shares | A$ | |||||||
Balance at December 31, 2010 |
8,539,704 | 0.93 | ||||||
Granted |
367,000 | 1.37 | ||||||
Exercised |
(136,666 | ) | 0.51 | |||||
Lapsed |
(104,335 | ) | 1.46 | |||||
Balance at March 31, 2011 |
8,665,703 | 0.95 | ||||||
The number of options exercisable as at March 31, 2011 and December 31, 2010 was
5,721,548 and 5,908,214, respectively.
As of March 31, 2011, there was A$1,580,140 of unrecognized compensation expense related to
unvested share-based compensation arrangements under the Employee Option Plan. This expense is
expected to be recognized as follows:
Fiscal Year | A$ | |||
2011 remaining periods |
938,879 | |||
2012 |
506,984 | |||
2013 |
125,080 | |||
2014 |
9,197 | |||
1,580,140 | ||||
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. 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. 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
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Notes to Consolidated Condensed Financial Statements (Unaudited)
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 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
adoption of this ASU did not have a material impact on its financial position or results of
operations.
In April 2010, the FASB issued ASU 2010-13, CompensationStock 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
adoption of ASU 2010-13 did not have a material impact on the Companys consolidated financial
statements.
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.
The following transactions occurred with LifeScan, a wholly owned subsidiary of Johnson &
Johnson:
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Notes to Consolidated Condensed Financial Statements (Unaudited)
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
A$ | A$ | |||||||
Current Receivables |
||||||||
Sale of goods |
1,201,986 | 800,071 | ||||||
Sale of services |
90,962 | 1,642,417 | ||||||
1,292,948 | 2,442,488 | |||||||
Revenue |
||||||||
Revenue from products |
3,319,401 | 1,524,813 | ||||||
Revenue from services |
245,920 | 1,893,133 | ||||||
3,565,321 | 3,417,946 | |||||||
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Universal Biosensors, Inc.
Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis provides information that we believe is relevant to an
assessment and understanding of our results of operations and financial condition. You should read
this analysis in conjunction with our audited consolidated financial statements and related
footnotes and Managements Discussion and Analysis of Financial Condition and Results of Operations
included in our Form 10-K filed with the United States Securities and Exchange Commission (SEC).
This Form 10-Q contains, including this discussion and analysis, certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, which are intended to be covered by the safe harbors created by such acts.
For this purpose, any statements that are not statements of historical fact may be deemed to be
forward looking statements, including statements relating to future events and our future financial
performance. Those statements in this Form 10-Q containing the words believes, anticipates,
plans, expects, and similar expressions constitute forward looking statements, although not all
forward looking statements contain such identifying words.
The forward looking statements contained in this Form 10-Q are based on our current
expectations, assumptions, estimates and projections about the Company and its businesses. All
such forward looking statements involve known and unknown risks, uncertainties and other factors
that may cause our actual results to be materially different from those results expressed or
implied by these forward-looking statements, including those set forth in this Quarterly Report on
Form 10-Q.
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
a 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 initially in the Netherlands in January 2010
and has subsequently been launched in Australia, France, Italy, Germany, the United Kingdom,
Ireland, Spain and Portugal 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,
are likely to manufacture all or a large proportion of their 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
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Universal Biosensors, Inc.
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 initially in the Netherlands in January 2010 and has subsequently been
launched in Australia, France, Italy, Germany, the United Kingdom, Ireland, Spain and Portugal
under the trade name One Touch Verio®. The manufacturing results of the blood glucose test strips
during the respective periods are as follows:
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
A$ | A$ | |||||||
Revenue from products |
3,319,401 | 1,524,813 | ||||||
Cost of goods sold |
(3,492,052 | ) | (1,538,436 | ) | ||||
(172,651 | ) | (13,623 | ) | |||||
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 were in the interim costing period
during the three months ended March 31, 2011 and 2010.
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; | ||
| 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:
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
A$ | A$ | |||||||
Revenue from services |
245,920 | 1,893,133 | ||||||
Cost of services |
(63,519 | ) | (246,064 | ) | ||||
182,401 | 1,647,069 | |||||||
The net contribution during the three months ended March 31, 2011 has decreased by 89%
compared to the same period in the previous financial year. The primary reason for the decrease is
that whilst in 2010, we had commenced agreed upon contract research and development on behalf of
LifeScan, we are still discussing the scope and terms of the contract research and development to
be undertaken by us during the 2011 financial year. There is no guarantee that we will be awarded a
research and development contract by LifeScan for the 2011 financial year.
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
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Universal Biosensors, Inc.
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.
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
during 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.
(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:
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Universal Biosensors, Inc.
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
A$ | A$ | |||||||
Research and development expenses |
1,747,507 | 1,554,227 | ||||||
Research and development expenditure increased by 12% during the three months ended
March 31, 2011 compared to the same period previous financial year and reflects the development
stage of one of our research and development projects being undertaken this financial year. The
prothrombin time test project is in the final stages of the development phase and is targeted to be
ready for regulatory approval during the first quarter of 2012. Additional costs are incurred in
the final stages of the development phase of any research and development activity, including the
prothrombin time test, as validation and testing of the test product increases. None of our
research and development projects were in an advanced stage during the same period previous
financial year.
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 and potentially fund 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:
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
A$ | A$ | |||||||
General and administrative expenses |
1,405,358 | 1,469,609 | ||||||
General and administrative expenses remained flat during the three months ended March
31, 2011 compared to the same period previous financial year.
Interest Income
Interest income decreased by 26% during the three months ended March 31, 2011 compared to the
same period previous financial year. The decrease in interest income is attributable to the lower
amounts of funds invested.
Critical Accounting Estimates and Judgments
Our consolidated financial statements are prepared in accordance with accounting principles
generally accepted in the
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Universal Biosensors, Inc.
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 since 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
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.
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Universal Biosensors, Inc.
(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 requested 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 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.
Financial Condition, Liquidity and Capital Resources
Net Financial Assets/(Liabilities)
Our net financial assets/(liabilities) position is shown below:
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Universal Biosensors, Inc.
Three Months Ended | Year Ended | |||||||
March 31, 2011 | December 31, 2010 | |||||||
A$ | A$ | |||||||
Financial assets: |
||||||||
Cash and cash equivalents |
20,571,889 | 23,271,766 | ||||||
Accounts receivables |
1,485,448 | 3,588,798 | ||||||
Other |
793,840 | 310,000 | ||||||
Total financial assets |
22,851,177 | 27,170,564 | ||||||
Debt: |
||||||||
Short and long term debt/borrowings |
| | ||||||
Total debt |
| | ||||||
Net financial assets |
22,851,177 | 27,170,564 | ||||||
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:
Three Months Ended | Year Ended | |||||||
March 31, 2011 | December 31, 2010 | |||||||
A$ | A$ | |||||||
Cash and cash equivalents |
20,571,889 | 23,271,766 | ||||||
Working capital |
24,197,121 | 26,250,899 | ||||||
Ratio of current assets to current liabilities |
10.45 : 1 | 6.89 : 1 | ||||||
Shareholders equity per common share |
0.28 | 0.30 |
The changes in cash and cash equivalents and working capital from December 31, 2010 to
March 31, 2011 was primarily due to the timing of cash receipts, payments, sales and accruals in
the ordinary course of business. We have not identified any collectability issues with respect to
receivables.
Summary of Cash Flows
Three Months Ended | Year Ended | |||||||
March 31, 2011 | December 31, 2010 | |||||||
A$ | A$ | |||||||
Cash provided by/(used in): |
||||||||
Operating activities |
(2,101,090 | ) | (6,414,248 | ) | ||||
Investing activities |
(664,913 | ) | (2,320,293 | ) | ||||
Financing activities |
66,126 | 715,296 | ||||||
Net increase/(decrease) in cash and cash equivalents |
(2,699,877 | ) | (8,019,245 | ) | ||||
Our net cash used in operating activities during the three months ended March 31, 2011 was
primarily for our research and development projects.
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Universal Biosensors, Inc.
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 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 March 31, 2011 are:
A$ | ||||
Less than 1 year |
542,145 | |||
1 3 years |
1,131,903 | |||
3 5 years |
| |||
More than 5 years |
| |||
Total minimum lease payments |
1,674,048 | |||
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 March 31, 2011 were as follows:
Payments Due By Period | ||||||||||||||||||||
Total | Less than 1 | 1 3 years | 3 5 years | More than 5 | ||||||||||||||||
A$ | A$ | A$ | A$ | A$ | ||||||||||||||||
Long-Term Debt Obligations |
| | | | | |||||||||||||||
Asset Retirement Obligations (1) |
2,040,214 | | 2,040,214 | | | |||||||||||||||
Operating Lease Obligations (2) |
1,674,048 | 542,145 | 1,131,903 | | | |||||||||||||||
Purchase Obligations (3) |
4,769,325 | 4,769,325 | | | | |||||||||||||||
Other
Long-Term Liabilities on Balance Sheet under GAAP (4) |
151,356 | | 81,739 | 67,240 | 2,377 | |||||||||||||||
Total |
8,634,943 | 5,311,470 | 3,253,856 | 67,240 | 2,377 | |||||||||||||||
(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. |
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 Australia.
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Universal Biosensors, Inc.
Item 3 Quantitative and Qualitative Disclosures About Market Risk
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
Since the majority of our cash and cash equivalents investments are in AUD, our exposure to
interest income is affected by changes in the general level of Australian interest rates. 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.
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Universal Biosensors, Inc.
Item 4. Controls and Procedures
Disclosure Controls and Procedures. At the end of the period covered by this report, the
Company evaluated the effectiveness of the design and operation of its disclosure controls and
procedures. The Companys disclosure controls and procedures are designed to ensure that
information required to be disclosed by the Company in the reports that it files or submits under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be disclosed by the Company
in the reports that it files or submits under the Exchange Act is accumulated and communicated to
the Companys management, including its principal executive and principal financial officers, or
persons performing similar functions, as appropriate to allow timely decisions regarding required
disclosure. Paul Wright, Chief Executive Officer, and Salesh Balak, Chief Financial Officer,
reviewed and participated in this evaluation. Based on this evaluation, Messrs. Wright and Balak
concluded that, as of the end of the period covered by this report, the Companys disclosure
controls and procedures were effective.
Changes in Internal Control Over Financial Reporting. During the fiscal quarter ended
March 31, 2011, there were no changes in the Companys internal control over financial reporting
identified in connection with the evaluation of such referred to above in this Item 4 that have
materially affected, or are reasonably likely to materially affect, the Companys internal control
over financial reporting.
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Universal Biosensors, Inc.
PART II
Item 1 Legal Proceedings
None.
Item 1A Risk Factors
None.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
With the exception of the issuance of shares of Common Stock upon the exercise of stock
options issued to employees, there has been no sale of equity securities since December 31, 2010.
The table below sets forth the number of employee stock options exercised and the number of shares
issued in the three month period ended March 31, 2011. The Company issued these shares in reliance
upon exemptions from registration under Regulation S under the Securities Act of 1933, as amended.
Number of Options Exercised | Option | Proceeds | ||||||||||
and Corresponding Number | Exercise | Received | ||||||||||
Exercise Date | of Shares Issued | Price | (A$) | |||||||||
January |
50,000 | A$0.89 | 44,500 | |||||||||
January |
26,667 | Nil | | |||||||||
January |
13,333 | A$0.50 | 6,667 | |||||||||
January |
6,666 | A$0.94 | 6,266 | |||||||||
March |
40,000 | US$0.22 | 8,693 | |||||||||
136,666 | 66,126 | |||||||||||
The funds raised will be used for working capital requirements including the continued
development of our existing pipeline and point-of-care tests and to identify and develop additional
tests.
Item 3 Defaults Upon Senior Securities
None.
Item 4 [Removed and Reserved]
Item 5 Other Information
None.
Item 6 Exhibits
Exhibit No | Description | Location | ||
10.1 |
Employment agreement between Universal Biosensors Pty Ltd and Mr. Paul Wright executed February 21, 2011 | Incorporated by reference to our current report on Form 8-K filed on February 25, 2011 as Exhibit 10.1 | ||
31.1
|
Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer) | Filed herewith | ||
31.2
|
Rule 13a-14(a)/15d-14(a) Certification (Principal Financial Officer) | Filed herewith | ||
32.0*
|
Section 1350 Certificate | Filed herewith |
* | This exhibit is furnished rather than filed, and shall not be incorporated by reference into any filing of the registrant in accordance with Item 601 of Registration S-K |
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Universal Biosensors, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
UNIVERSAL BIOSENSORS, INC.
(Registrant) |
||||
Date: May 5, 2011 | By: | /s/ PAUL WRIGHT | ||
Paul Wright | ||||
Principal Executive Officer | ||||
Date: May 5, 2011 | By: | /s/ SALESH BALAK | ||
Salesh Balak | ||||
Principal Financial Officer | ||||
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INDEX TO EXHIBITS
Quarterly Report on Form 10-Q
Dated May 5, 2011
Quarterly Report on Form 10-Q
Dated May 5, 2011
Exhibit No | Description | Location | ||
10.1 |
Employment agreement between Universal Biosensors Pty Ltd and Mr. Paul Wright executed February 21, 2011 | Incorporated by reference to our current report on Form 8-K filed on February 25, 2011 as Exhibit 10.1 | ||
31.1
|
Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer) | Filed herewith | ||
31.2
|
Rule 13a-14(a)/15d-14(a) Certification (Principal Financial Officer) | Filed herewith | ||
32.0
|
Section 1350 Certificate | Filed herewith |
32