10-Q

UNITED STATES

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 September 30, 2017

Commission File Number: 000-52607

Universal Biosensors, Inc.

(Exact name of registrant as specified in its charter)

Delaware	98-0424072
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
Universal Biosensors, Inc. 1 Corporate Avenue, Rowville, 3178, Victoria Australia	Not Applicable
(Address of principal executive offices)	(Zip Code)

Telephone: +61 3 9213 9000

(Registrant’s 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  ☒     No   ☐

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  ☒     No  ☐

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	☐	Accelerated Filer	☐
Non-Accelerated Filer	☐  (Do not check if a smaller reporting company)	Smaller reporting company	☒

Emerging growth company   ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes   ☐     No   ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 176,431,883 shares of Common Stock, U.S.$0.0001 par value, outstanding as of October 24, 2017.

UNIVERSAL BIOSENSORS, INC.

TABLE OF CONTENTS

			Page
PART I	FINANCIAL INFORMATION
Item 1	Financial Statements
	1)	Consolidated condensed balance sheets at September  30, 2017 and December 31, 2016 (unaudited)	1
	2)	Consolidated condensed statements of comprehensive income/(loss) for the three and nine months ended September 30, 2017 and 2016 (unaudited)	2
	3)	Consolidated condensed statements of changes in stockholders’ equity and comprehensive income/(loss) for the period ended September 30, 2017 and 2016 (unaudited)	3
	4)	Consolidated condensed statements of cash flows for the nine months ended September 30, 2017 and 2016 (unaudited)	4
	5)	Notes to consolidated condensed financial statements (unaudited)	5
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Item 3	Quantitative and Qualitative Disclosures About Market Risk		40
Item 4	Controls and Procedures		41
PART II	OTHER INFORMATION
Item 1	Legal Proceedings		42
Item 1A	Risk Factors		42
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		42
Item 3	Defaults Upon Senior Securities		42
Item 4	Mine Safety Disclosures		42
Item 5	Other Information		42
Item 6	Exhibits		42
	Exhibit 10.1
	Exhibit 10.2
	Exhibit 31.1
	Exhibit 31.2
	Exhibit 32 Exhibit 101
SIGNATURES			44

Unless otherwise noted, references on this Form 10-Q to “Universal Biosensors”, the “Company,” “Group,” “we,” “our” or “us” means Universal Biosensors, Inc. (“UBI”) a Delaware corporation and, when applicable, its wholly owned Australian operating subsidiary, Universal Biosensors Pty Ltd (“UBS”) and UBS’ wholly owned Canadian operating subsidiary, Hemostasis Reference Laboratory Inc. (“HRL”). Unless otherwise noted, all references in this Form 10-Q to “$”, “A$” or “dollars” and dollar amounts are references to Australian dollars. References to “US$” are references to United States dollars. References to “CAD$” are references to Canadian dollars.

Universal Biosensors, Inc.

Item 1 Financial Statements

Consolidated Condensed Balance Sheets (Unaudited)

	September 30, 2017			December 31, 2016
	A$			A$
ASSETS
Current assets:
Cash and cash equivalents		19,832,390			20,402,322
Inventories, net		642,268			839,250
Accounts receivable		5,797,184			4,848,009
Prepayments		697,142			1,078,335
Other current assets		8,380,338			8,074,384
Total current assets		35,349,322			35,242,300
Non-current assets:
Property, plant and equipment		37,602,820			36,809,266
Less accumulated depreciation		(26,958,532	)		(25,282,248	)
Property, plant and equipment - net		10,644,288			11,527,018
Other non-current assets		3,220,000			3,220,000
Total non-current assets		13,864,288			14,747,018
Total assets		49,213,610			49,989,318
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		1,073,183			547,324
Accrued expenses		1,484,423			1,785,134
Borrowings		34,819			369,630
Other liability		2,640,871			1,713,743
Deferred revenue		658,675			0
Employee entitlements provision		1,676,936			1,523,854
Total current liabilities		7,568,907			5,939,685
Non-current liabilities:
Asset retirement obligations		2,600,000			2,600,000
Employee entitlements provision		78,675			125,993
Long term secured loan		18,881,951			20,286,827
Other liability		0			1,415,563
Deferred revenue		5,161,646			6,366,975
Total non-current liabilities		26,722,272			30,795,358
Total liabilities		34,291,179			36,735,043
Commitments and contingencies		0			0
Stockholders’ equity:
Preferred stock, US$0.01 par value. Authorized 1,000,000 shares; issued and outstanding nil in 2017 (2016: nil)
Common stock, US$0.0001 par value. Authorized 300,000,000 shares; issued and outstanding 176,431,883 shares in 2017 (2016: 176,386,884)		17,643			17,639
Additional paid-in capital		93,522,470			93,167,465
Accumulated deficit		(79,632,626	)		(80,882,902	)
Current year income		1,318,644			1,250,276
Accumulated other comprehensive loss		(303,700	)		(298,203	)
Total stockholders’ equity		14,922,431			13,254,275
Total liabilities and stockholders’ equity		49,213,610			49,989,318

See accompanying notes to the financial statements.

1

Universal Biosensors, Inc.

Consolidated Condensed Statements of Comprehensive Income/(Loss) (Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
	A$			A$			A$			A$
Revenue
Revenue from products		1,764,855			0			4,062,470			183,480
Revenue from services		4,580,751			3,287,296			16,610,487			13,602,548
Total revenue		6,345,606			3,287,296			20,672,957			13,786,028
Operating costs & expenses
Cost of goods sold		998,674			31,899			2,913,808			272,468
Cost of services		254,330			0			737,135			0
Total cost of goods sold & services		1,253,004			31,899			3,650,943			272,468
Contribution from products & services		5,092,602			3,255,397			17,022,014			13,513,560
Other operating costs & expenses
Product support		215,057			0			550,173			0
Depreciation		626,260			595,327			1,471,851			1,919,123
Research and development		3,197,146			3,284,279			7,626,210			9,364,284
General and administrative		1,624,974			1,475,998			4,855,136			4,482,518
Total operating costs & expenses		5,663,437			5,355,604			14,503,370			15,765,925
Profit/(loss) from operations		(570,835	)		(2,100,207	)		2,518,644			(2,252,365	)
Other income/(expense)
Interest income		15,772			89,669			74,625			140,538
Interest expense		(1,922	)		(2,812	)		(8,649	)		(8,436	)
Financing costs		(685,613	)		(716,088	)		(2,089,328	)		(2,167,521	)
Other		61,873			567,155			823,352			932,384
Total other income/(expense)		(609,890	)		(62,076	)		(1,200,000	)		(1,103,035	)
Net income/(loss) before tax		(1,180,725	)		(2,162,283	)		1,318,644			(3,355,400	)
Income tax benefit/(expense)		0			0			0			0
Net income/( loss)		(1,180,725	)		(2,162,283	)		1,318,644			(3,355,400	)
Earnings per share
Basic net income/(loss) per share		(0.01	)		(0.01	)		0.01			(0.02	)
Average weighted number of shares - basic		176,410,144			176,205,084			176,395,711			176,181,015
Diluted net income/(loss) per share		(0.01	)		(0.01	)		0.01			(0.02	)
Average weighted number of shares - diluted		176,410,144			176,205,084			177,602,842			176,181,015
Other comprehensive gain/(loss), net of tax:
Foreign currency translation reserve		(4,451	)		0			(5,497	)		0
Reclassification for gain/(loss) realized in net income/(loss)		0			0			0			0
Other comprehensive gain/(loss)		(4,451	)		0			(5,497	)		0
Comprehensive gain/(loss)		(1,185,176	)		(2,162,283	)		1,313,147			(3,355,400	)

See accompanying notes to the financial statements.

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Universal Biosensors, Inc.

Consolidated Condensed Statements of Changes in Stockholders’ Equity and Comprehensive Income/(Loss) (Unaudited)

	Ordinary shares				Additional Paid- in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income/(Loss)			Total Stockholders’ Equity
	Shares		Amount
			A$		A$			A$			A$			A$
Balances at January 1, 2016		176,112,584		17,611		94,419,308			(80,882,902	)		(298,312	)		13,255,705
Net loss		0		0		0			(3,355,400	)		0			(3,355,400	)
Exercise of stock options issued to employees		77,500		8		(8	)		0			0			0
Other comprehensive income/(loss)		0		0		0			0			0			0
Shares issued to employees		15,000		2		5,998			0			0			6,000
Stock option expense		0		0		(1,473,907	)		0			0			(1,473,907	)
Balances at September 30, 2016		176,205,084		17,621		92,951,391			(84,238,302	)		(298,312	)		8,432,398
Balances at January 1, 2017		176,386,884		17,639		93,167,465			(79,632,626	)		(298,203	)		13,254,275
Net income		0		0		0			1,318,644			0			1,318,644
Exercise of stock options issued to employees		44,999		4		762			0			0			766
Other comprehensive income/(loss)		0		0		0			0			(5,497	)		(5,497	)
Stock option expense		0		0		354,243			0			0			354,243
Balances at September 30, 2017		176,431,883		17,643		93,522,470			(78,313,982	)		(303,700	)		14,922,431

See accompanying notes to the financial statements.

3

Universal Biosensors, Inc.

Consolidated Condensed Statements of Cash Flows (Unaudited)

	Nine Months Ended September 30,
	2017			2016
	A$			A$
Cash flows from operating activities:
Net income/(loss)		1,318,644			(3,355,400	)
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation and amortization		1,929,614			1,987,375
Share based payments expense		354,243			(1,473,907	)
Loss on fixed assets disposal		2,409			1,280
Unrealized foreign exchange losses/(gains)		(159,889	)		(314,883	)
Financing costs - amortization of warrants		158,672			164,895
Change in assets and liabilities:
Inventory		196,982			(206,735	)
Accounts receivables		(949,175	)		(261,935	)
Prepaid expenses and other current assets		75,239			9,254,126
Deferred revenue		(546,655	)		3,226,721
Employee entitlements		105,655			206,256
Accounts payable and accrued expenses		(315,077	)		(768,589	)
Net cash provided by/(used in) operating activities		2,170,662			8,459,204
Cash flows from investing activities:
Purchases of property, plant and equipment		(997,503	)		(311,351	)
Net cash used in investing activities		(997,503	)		(311,351	)
Cash flows from financing activities:
Repayment of borrowings		(334,811	)		(324,459	)
Proceeds from stock options exercised		767			0
Net cash used in financing activities		(334,044	)		(324,459	)
Net increase/(decrease) in cash and cash equivalents		839,115			7,823,394
Cash and cash equivalents at beginning of period		20,402,322			14,350,307
Effect of exchange rate fluctuations on the balances of cash held in foreign currencies		(1,409,047	)		(533,211	)
Cash and cash equivalents at end of period		19,832,390			21,640,490

See accompanying notes to the financial statements.

4

Universal Biosensors, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

Organization of the Company

We were incorporated in the State of Delaware on September 14, 2001 and our shares of common stock in the form of CHESS Depositary Interests (“CDIs”) have been quoted on the Australian Securities Exchange (“ASX”) since December 13, 2006. Our securities are not currently traded on any other public market. Our wholly owned subsidiary and primary operating vehicle, UBS, was incorporated as a proprietary limited company in Australia on September 21, 2001. UBS conducts our primary research, development and manufacturing activities in Melbourne, Australia. A subsidiary of UBS, HRL was incorporated in British Columbia, Canada on November 30, 2016. On December 16, 2016, HRL acquired the assets of the Hemostasis Reference Laboratory business from LifeLabs, Inc. HRL conducts coagulation testing and calibration services for products we manufacture as well as for other international customers in Hamilton, Canada.

We have rights to an extensive patent portfolio, with certain patents owned by UBS and a number licensed to UBS by LifeScan, Inc. (“LifeScan”) and other third party licensors. Unless otherwise noted, references to “LifeScan” in this document are references collectively or individually to LifeScan, Inc., and/or LifeScan Europe, a division of Cilag GmbH International, both affiliates of Johnson and Johnson.

We are using our electrochemical cell technology platform to develop point-of-care testing systems for a number of different markets. Our current focus is as set out below:

• Coagulation testing market – we are working with Siemens Healthcare Diagnostics, Inc. (“Siemens”) in relation to a range of products for the point-of-care coagulation testing market, pursuant to a Collaboration Agreement with Siemens (“Collaboration Agreement”). The first such product developed with Siemens, the Xprecia Stride™ Coagulation Analyzer, received CE mark approval on December 9, 2014 and US Food and Drug Administration (“FDA”) approval on October 4, 2016. The Xprecia Stride™ Coagulation Analyzer is now available in U.S., Europe, the Middle East, Africa, Asia Pacific, Latin America and Canada. Under the terms of a supply agreement with Siemens (“Supply Agreement”), UBS is the manufacturer of test strips for this product and two further tests still in development for Siemens.

• Blood glucose – we provide services to LifeScan as required from time to time, pursuant to a Master Services and Supply Agreement (“Master Services and Supply Agreement”) and a development and research agreement (“Development and Research Agreement”) with LifeScan.

• Other electrochemical-cell based tests – we are working on demonstrating the broader application of our technology platform. We may seek to enter into collaborative arrangements, strategic alliances or distribution agreements with respect to any products or technologies arising from this work.

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 nine months ended September 30, 2017 are

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Universal Biosensors, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

not necessarily indicative of the results that may be expected for the year ending December 31, 2017. For further information, refer to the financial statements and footnotes thereto as of and for the year ended December 31, 2016, included in the Form 10-K of Universal Biosensors, Inc.

The year-end consolidated condensed balance sheets data as at December 31, 2016 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. Certain prior year amounts in the consolidated condensed financial statements have been reclassified to conform to the current presentation.

Basis of Presentation

The Company’s consolidated condensed 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, operating cash flow and government grants and rebates 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.

Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries, UBS and HRL. 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 revenue recognition, the carrying amount of property, plant and equipment, deferred income taxes, asset retirement obligations, obligations related to employee benefits, warrants and research and development tax incentive income. 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 their fair value.

Concentration of Credit Risk and Other Risks and Uncertainties

Cash and cash equivalents and accounts receivable consist of financial instruments that potentially subject the Company to concentration of credit risk to the extent of the amount recorded on the consolidated condensed balance sheets. The Company’s cash and cash equivalents are primarily invested with one of Australia’s 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 consolidated condensed 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.

6

Universal Biosensors, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

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 Company’s business and it is the Company’s 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 unrealized 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.

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 consolidated condensed statements of comprehensive income in the same period or periods during which the hedged forecast transaction affects the consolidated condensed statements of comprehensive income and on the same line item as that hedged forecast transaction. The ineffective part of any gain or loss is recognized immediately in the consolidated condensed statements of comprehensive income.

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 consolidated condensed statements of comprehensive income.

Derivative Instruments and Hedging Activities

In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider our own and counterparty credit risk. For periods ended September 30, 2017 and December 31, 2016, we did not have any assets or liabilities that utilize Level 3 inputs. The valuation of our foreign exchange derivatives are based on the market approach using observable market inputs, such as forward rates and incorporate non-performance risk (the credit standing of the counterparty when the derivative is in a net asset position, and the credit standing of the Company when the derivative is in a net liability position). Our derivative assets are categorized as Level 2. The fair value methodologies described as Level 2 and 3 inputs are defined elsewhere in these notes to the consolidated condensed financial statements.

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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 dispose. 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.

	Nine Months Ended September 30,		Year Ended December 31,
	2017		2016
	A$		A$
Raw materials		391,040		315,970
Work in progress		222,753		523,280
Finished goods		28,475		0
		642,268		839,250

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 collectability, 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 condensed statements of comprehensive income. Account balances are charged against the allowance when it is probable the receivable will not be recovered.

	Nine Months Ended September 30,		Year Ended December 31,
	2017		2016
	A$		A$
Accounts receivable		5,797,184		4,848,009
Allowance for doubtful debts		0		0
		5,797,184		4,848,009

Property, Plant, and Equipment - net

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, include normal services, and do not include items of a capital nature.

The Company receives Commonwealth of Australia grant monies under grant agreements to support its 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.

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Universal Biosensors, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

Research and Development

Research and development expenses consist of costs incurred to further the Group’s research and product 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 and facility costs. Research and development costs are expensed as incurred.

Research and development expenses for the respective periods are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	A$		A$		A$		A$
Research		77,038		189,612		417,632		558,715
Development		3,120,108		3,094,667		7,208,578		8,805,569
Research and development expenses		3,197,146		3,284,279		7,626,210		9,364,284

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 company’s 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 December 31, 2016 the Company has A$22,307,475 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. The Company also has A$5,800,672 of non-refundable R&D tax offset as at December 31, 2016. The R&D Tax offset is a non-refundable tax offset, which assists to reduce the Company’s tax liability. Once the liability has been reduced to zero, any excess offset may be carried forward into future income years. UBI has US tax losses available for carry forward against future earnings of US$1,011,321 as of December 31, 2016.

We are subject to income taxes in the United States, Canada and Australia. U.S. federal income tax returns up to and including the 2016 financial year have been filed for UBI. In Australia, consolidated income tax returns of UBI and UBS up to and including the 2016 financial year have been filed. HRL has filed its tax returns in Canada for the 2016 financial year.

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 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.

9

Universal Biosensors, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

Our overall ARO changed as follows:

	Nine Months Ended September 30,		Year Ended December 31,
	2017		2016
	A$		A$
Opening balance		2,600,000		2,600,000
Accretion expense		0		0
Ending balance		2,600,000		2,600,000

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) and Canadian Harmonized Sales Tax (HST)

Revenues, expenses and assets are recognized net of the amount of associated GST and HST, unless the GST and HST 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 and HST receivable or payable. The net amount of GST and HST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the consolidated condensed balance sheets.

10

Universal Biosensors, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

Revenue Recognition

We recognize revenue from all sources based on the provisions of the U.S. SEC’s Staff Accounting Bulletin No. 104 and ASC 605 Revenue Recognition.

The Company’s revenue represents revenue from sales of products, provision of services and collaborative research and development agreements.

We recognize revenue from sales of products at the time title of goods passes to the buyer and the buyer assumes the risks and rewards of ownership, assuming all other revenue recognition criteria have been met. Generally, this is at the time products are shipped to the customer.

Revenue from services is recognized when a persuasive evidence of an arrangement exists, services have been rendered, the price is fixed or determinable, and collectability is reasonably assured. Revenue recognition principles are assessed for each new contractual arrangement and the appropriate accounting is determined for each service.

Where our agreements contain multiple elements, or deliverables, such as the manufacture and sale of products, provision of services or research and development activities, they are assessed to determine whether separate delivery of the individual elements of such arrangements comprises more than one unit of accounting. Where an arrangement can be divided into separate units of accounting (each unit constituting a separate earnings process), the arrangement consideration is allocated amongst those varying units based on the relative selling price of the separate units of accounting and the applicable revenue recognition criteria applied to the separate units. Selling prices are determined using fair value as determined by either vendor specific objective evidence or third party evidence of the selling price, when available, or the Company’s best estimate of selling price when fair value is not available for a given unit of accounting.

Under ASC 605-25, the delivered item(s) are separate units of accounting, provided (i) the delivered item(s) have value to a customer on a stand-alone basis, and (ii) if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item(s) is considered probable and substantially in our control. Where the arrangement cannot be divided into separate units, the individual deliverables are combined as a single unit of accounting and the total arrangement consideration is recognized across other deliverables in the arrangement or over the estimated collaboration period. Payments under these arrangements typically include one or more of the following: non-refundable, upfront payments; funding of research and/or development efforts; and milestone payments.

We typically generate milestone payments from our customers pursuant to the various agreements we have with them. Non-refundable milestone payments which represent the achievement of a significant technical/regulatory hurdle in the research and development process pursuant to collaborative agreements, and are deemed to be substantive, are recognized as revenue upon the achievement of the specified milestone. If the non-refundable milestone payment is not substantive or stand-alone value, the non-refundable milestone payment is deferred and recognized as revenue either over the estimated performance period stipulated in the agreement or across other deliverables in the arrangement.

Management has concluded that the core operations of the Company are expected to be research and development activities, commercial manufacture of approved medical or testing devices and the provision of services. The Company’s ultimate goal is to utilize the underlying technology and skill base for the development of marketable products that the Company will manufacture. The Company considers revenue from the sales of products, revenue from services and the income received from milestone payments indicative of its core operating activities or revenue producing goals of the Company, and as such have accounted for this income as “revenues”.

Master Services and Supply Agreement

In October 2007, the Company and LifeScan entered into a Master Services and Supply Agreement, under which the Company would provide certain services to LifeScan in the field of blood glucose monitoring and act as a non-exclusive manufacturer of blood glucose test strips. The Master Services and Supply Agreement was subsequently amended and restated in May 2009. The Company

11

Universal Biosensors, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

has concluded the Master Services and Supply Agreement should be accounted for as three separate units of accounting: 1) research and development to assist LifeScan in receiving regulatory clearance to sell the blood glucose product (milestone payment), 2) contract manufacturing of the blood glucose test strips (contract manufacturing) which ceased in December 2013, and 3) ongoing services and efforts to enhance the product (product enhancement).

All consideration within the Master Services and Supply Agreement is contingent. The Company concluded the undelivered items were not priced at a significant incremental discount to the delivered items and revenue for each deliverable will be recognized as each contingency is met and the consideration becomes fixed and determinable. The milestone payment was considered to be a substantive payment and the entire amount has been recognized as revenue when the regulatory approval was received. Revenues for contract manufacturing and ongoing efforts to enhance the product are recognized as revenue from products or revenue from services, respectively, when the four basic criteria for revenue recognition are met.

Collaboration Agreement

On September 9, 2011 the Company entered into a Collaboration Agreement with Siemens to develop coagulation related products for hospital point-of-care and ambulatory care coagulation markets. In addition to an up-front, non-refundable payment of A$2,961,245 (equivalent to US$3 million), the Collaboration Agreement (as amended) contains a further seven payments from Siemens upon the achievement of certain defined milestones. These seven milestones, to a large extent, relate to feasibility, regulatory submissions and the launch of the products to be developed. The Company has concluded that the up-front payment is not a separate unit of accounting and recorded the amount as deferred revenue to be recognized as revenue across other deliverables in the arrangement with Siemens based upon the Company’s best estimate of selling price. The deliverables related to each of the seven milestones are considered substantive and are not priced at a significant incremental discount to the other deliverables. As the achievement of the seven milestones is contingent upon a future event, the revenue for each deliverable will be recognized as the contingencies are met and the consideration becomes fixed and determinable.

Of the seven milestones, the Company has delivered on four as of September 30, 2017. The last milestone delivered was in July 2015.

Interest income

Interest income is recognized as it accrues, taking into account the effective yield on the cash and cash equivalents.

Research and development tax incentive income    

Research and development tax incentive income is recognized when there is reasonable assurance that the income will be received, the relevant expenditure has been incurred, and the consideration can be reliably measured.

The research and development tax incentive is one of the key elements of the Australian Government’s support for Australia’s innovation system and is supported by legislative law primarily in the form of the Australian Income Tax Assessment Act 1997 as long as eligibility criteria are met. Generally speaking, entities which are an R&D entity involved in eligible R&D activities may claim research and development tax incentive income as follows:

(1) as a 43.5% refundable tax offset if aggregate turnover (which generally means an entity’s total income that it derives in the ordinary course of carrying on a business, subject to certain exclusions) of the entity is less than A$20 million (the legislative rate for tax year prior to June 30, 2016 was 45%), or

(2) as a 38,5% non-refundable tax offset if aggregate turnover of the entity is more than A$20 million (the legislative rate for tax year prior to June 30, 2016 was 40%).

Historically, the Company has had aggregate turnover less than A$20 million and in accordance with SEC Regulation

12

Universal Biosensors, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

S-X Article 5-03, the Company’s research and development tax incentive income has been recognized as non-operating income as it is not indicative of the core operating activities or revenue producing goals of the Company. Management has assessed the Company’s research and development activities and expenditures to determine which activities and expenditures are likely to be eligible under the tax incentive regime described above. At each period end management estimates the refundable tax offset available to the Company based on available information at the time. This estimate is also reviewed by external tax advisors on an annual basis.

In the nine months ended September 30, 2017, the aggregate turnover of the Company has exceeded A$20 million and accordingly it is not eligible for a refundable tax offset (“research and development tax incentive income”). The eligible R&D activities and expenditures are however able to be claimed as a non-refundable tax offset as part of the current year income tax computation and any amounts included as a tax asset will be subject to recognition rules under ASC 740 “Income Taxes”.

For the nine months ended September 30, 2016, there was no reasonable assurance that the aggregate turnover of the Company for the year ending December 31, 2016 would be less than A$20 million and accordingly A$0 was recorded as research and development tax incentive income. However, as at December 31, 2016, the Company ascertained that the aggregate turnover for the year ending December 31, 2016 was less than A$20 million and accordingly recorded research and tax development tax incentive income of $7,400,000. As at June 30, 2017, upon finalising its tax returns, the Company determined that the research and development tax incentive income for the 2016 financial year is $7,522,341. This amount has been recorded as “Other current assets” in the consolidated condensed balance sheets. As at June 30, 2017, an amount of A$122,341, being the difference in research and development tax incentive income recorded as at June 30, 2017 and December 31, 2016 has been recorded as “Other Income” in the consolidated condensed statements of comprehensive income/(loss). This amount has also been recorded as “Other Income” in the consolidated condensed statements of comprehensive income/(loss) as at September 30, 2017.

Foreign Currency

Functional and reporting currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The functional currency of UBI and UBS is AUD or A$ for all years presented. The functional currency of HRL is CAD$.

The consolidated financial statements are presented using a reporting currency of Australian dollars.

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 consolidated condensed statements of comprehensive income.

The Company has recorded foreign currency translation and transaction gains/(losses) of A$61,873 and A$406,625 for the three months ended September 30, 2017 and 2016, respectively and A$703,420 and A$769,257 for the nine months ended September 30, 2017 and 2016, 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 item reported 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

13

Universal Biosensors, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

• 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 September 30, 2017.

Patent and License Costs

Legal and maintenance fees incurred for patent application costs have been charged to expense and reported in general and administrative expense.

We have an obligation to pay 50% of the patent fees paid by LifeScan in respect of the patents we license from LifeScan prior to the date of the first commercial sale of a non-glucose product that utilizes the technology licensed from LifeScan and 50% of the patent fees incurred by LifeScan in respect of such patents thereafter. This obligation was triggered with the first commercial sale of the Xprecia Stride^TM Coagulation Analyzer by Siemens in December 2014 and an amount of US$517,831 was accrued at inception. The repayment of this amount to LifeScan, which commenced in November 2015, is being made over a 24 month period in equal monthly installments. The patent fees payable to LifeScan as at September 30, 2017 have been recorded as “Current liabilities - Other liability” in consolidated condensed balance sheets.    

Marketing Support Payment

During 2009, LifeScan chose not to proceed with the registration of the then current product but to proceed with an enhanced product, called OneTouch^® Verio^®, and acknowledged that there would be a delay as a result. As a result of this change, LifeScan agreed to pay additional amounts per strip manufactured by us in 2010 and 2011 up to a specified volume limit (“manufacturing initiation payments”). At the same time, we agreed to pay LifeScan a marketing support payment in each of the two years following the first calendar year in which 1 billion strips are sold by LifeScan equal to 40% of the total manufacturing initiation payments made. LifeScan has sold just over 900 million strips in the 2015 financial year. Management has concluded that this loss contingency be accrued in 2015 as “Other liability” in consolidated balance sheets as it is both probable and the amount can be reliably estimated. The total amount of marketing support payments to be paid to LifeScan is US$2,048,602 (equivalent to A$2,663,290) and have been recorded as “Current liabilities - Other liability” in consolidated condensed balance sheets as at September 30, 2017.

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 Company’s leases for the periods ending September 30, 2017 and December 31, 2016 are considered operating leases. The costs of operating leases are charged to the consolidated condensed statements of comprehensive income on a straight-line basis over the lease term.

14

Universal Biosensors, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

Stock-based Compensation

We measure stock-based compensation at grant date, based on the estimated fair value of the award, and recognize the cost as an expense on a straight-line basis over the vesting period of the award. We estimate the fair value of stock options using the Trinomial Lattice model. We also grant our employees Restricted Stock Units (“RSUs”) and Zero Priced Employee Options (“ZEPOs”). RSUs are stock awards granted to employees that entitle the holder to shares of common stock as the award vests. ZEPOs are stock options granted to employees that entitle the holder to shares of common stock as the award vests. The value of RSUs are determined and fixed on the grant date based on the Company’s stock price. The exercise price of ZEPOs is nil.

We record deferred tax assets for awards that will result in deductions on our income tax returns, based on the amount of compensation cost recognized and our statutory tax rate in the jurisdiction in which we will receive a deduction. Differences between the deferred tax assets recognized for financial reporting purposes and the actual tax deduction reported in our income tax return are recorded in expense or in capital in excess of par value if the tax deduction exceeds the deferred tax assets or to the extent that previously recognized credits to paid-in-capital are still available if the tax deduction is less than the deferred tax asset.

(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 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. In addition to time based vesting, options granted may be also subject to the achievement of specified predetermined key performance indicators.

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 the Company 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.

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
	Feb-17			Dec-16			Apr-16
Exercise Price (A$)		0.50			0.33			0.50
Share Price at Grant Date (A$)		0.39			0.33			0.29
Volatility		69	%		69	%		70	%
Expected Life (years)		7			7			7
Risk Free Interest Rate		2.47	%		2.60	%		2.23	%
Fair Value of Option (A$)		0.13			0.19			0.08

15

Universal Biosensors, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

Stock option activity during the current period is as follows:

	Number of shares			Weighted average exercise price A$
Balance at December 31, 2016		16,264,169			0.67
Granted		2,629,500			0.50
Exercised		(44,999	)		0.02
Lapsed		(2,236,670	)		0.90
Balance at September 30, 2017		16,612,000			0.61

The number of options exercisable as at September 30, 2017 and 2016 was 10,963,629 and 8,746,124, respectively. The total stock compensation expense/(income) recognized in the consolidated condensed statements of comprehensive income was A$154,218 and A$231,818 for the three months ended September 30, 2017 and 2016, respectively and A$354,243 and (A$1,473,907) for the nine months ended September 30, 2017 and 2016, respectively.

As of September 30, 2017, there was A$128,782 of unrecognized compensation expense related to unvested share-based compensation arrangements under the Employee Option Plan. This expense is expected to be recognized over the vesting years as follows:

Fiscal Year	A$
2017		57,446
2018		66,620
2019		4,716
		128,782

The aggregate intrinsic value for all options outstanding as at September 30, 2017 and 2016 was zero.

(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 (although our Board has determined not to issue equity to non-executive 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 Share Plan. The Company currently intends to continue to issue A$1,000 worth of RSUs 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 RSUs issued by the Company since January 1, 2016:

	Number of Restricted Shares Issued		Market Value of Restricted Shares Issued (A$)
February, 2016		15,000		6,000
December, 2016		181,800		59,994

16

Universal Biosensors, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

Restricted stock awards activity during the current period is as follows:

	Number of shares			Weighted average issue price A$
Balance at December 31, 2016		575,580			0.31
Granted		0			0.00
Release of restricted shares		(47,187	)		0.32
Balance at September 30, 2017		528,393			0.31

Employee Benefit Costs

The Company contributes 9.5% of each employee’s salary to standard defined contribution superannuation funds on behalf of all UBS employees. Superannuation is a compulsory savings program whereby employers are required to pay a portion of an employee’s remuneration to an approved superannuation fund that the employee is typically not able to access until they have reached the statutory requirement age. Whilst the Company has a third party default superannuation fund, it permits UBS employees to choose an approved and registered superannuation fund into which the contributions are paid. Contributions are charged to the consolidated condensed statements of comprehensive income as they become payable.

Registered Retirement Savings Plan and Deferred Sharing Profit Plan

The Company provides eligible HRL employees a retirement plan through Sun Life Assurance Company of Canada. The retirement plan includes a Registered Retirement Savings Plan (“RRSP”) and Deferred Profit Sharing Plan (“DPSP”). The RRSP is voluntary and the employee contributions are matched by the Company up to a maximum of 5% based on their continuous years of service and placed into the DPSP. The Company contributes 1% to 2% of the employee’s base earnings towards the DPSP. The DPSP contributions are vested immediately and expensed. There are no unfunded liabilities.

Benefit Plan

The Company provides eligible HRL employees through Sun Life Assurance Company of Canada a Benefit Plan to its employees. In general, the Benefit Plan includes extended health care, dental care, basic life insurance, basic accidental death and dismemberment, and disability insurance.

Net Income/(Loss) per Share and Anti-dilutive Securities

Basic and diluted net income/(loss) per share is presented in conformity with ASC 260 – Earnings per Share. Basic and diluted net income/(loss) per share has been computed using the weighted-average number of common shares outstanding during the period. Diluted net income/(loss) per share is calculated by adjusting the basic net income/(loss) per share by assuming all dilutive potential ordinary shares are converted.

Total Comprehensive Income/(Loss)

The Company follows ASC 220 – Comprehensive Income/(Loss). Comprehensive income/(loss) 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/(loss).

17

Universal Biosensors, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

The tax effect allocated to each component of other comprehensive income/(loss) is as follows:

	Before-Tax Amount A$		Tax (Expense)/ Benefit A$		Net-of-Tax Amount A$
Nine Months Ended September 30, 2017
Foreign currency translation reserve		5,497		0		5,497
Reclassification for gains realised in net income		0		0		0
Other comprehensive loss		5,497		0		5,497
Nine Months Ended September 30, 2016
Unrealized loss on derivative instruments		0		0		0
Reclassification for gains realised in net income		0		0		0
Other comprehensive loss		0		0		0

Business combinations

Business combinations are accounted for using the acquisition method of accounting. Acquisition cost is measured as the aggregate of the fair value at the date of acquisition of the assets given, equity instruments issued or liabilities incurred or assumed. Acquisition related costs are expensed as incurred (except for those costs arising on the issue of equity instruments which are recognized directly in equity). Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at fair value on the acquisition date. Goodwill is measured as the excess of the acquisition cost, the amount of any non-controlling interest and the fair value of any previous UBI equity interest in the acquiree, over the fair value of the identifiable net assets acquired.

Reclassification

Certain prior year amounts have been reclassified to conform to the current year presentation.

Revision    

In 2016, the Company classified patent application costs (including legal and maintenance fees) within the general and administrative expense line in the Consolidated Statement of Comprehensive Income. The patent application costs of A$99,113 and A$624,866 for the three and nine months ended September 30, 2016 have been reclassified from Research and development expenses to General and administrative expenses to conform to current year classification. The Company has concluded that this reclassification was not material to the Consolidated Statements of Comprehensive Income/(Loss) and the reclassification had no impact on the pre-tax income/(loss), net income/(loss) or earnings per share for the year ended December 31, 2016.

Government grants

UBS was awarded a grant from the Commonwealth of Australia under the Next Generation Manufacturing Investment Programme up to a maximum grant amount of A$575,000 payable over a three year period commencing from January 1, 2017. The grants are paid upon achievement of pre-agreed milestones. The milestones generally relate to UBS placing purchase orders, commissioning upgrades and validating the equipment. Amongst other reasons, the Commonwealth of Australia may terminate the grant agreement for breach of the agreement by UBS or for failure to undertake the required programme. Under these circumstances, the Commonwealth of Australia may require UBS to repay some or the entire grant. The Company continues to undertake the project funded by the Commonwealth of Australia.

No amounts have been received under this grant to date. In the event UBS had achieved milestones and received grant payments, it 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.

18

Universal Biosensors, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

Recent Accounting Pronouncements     

On May 28, 2014, the FASB issued ASU 2014-09 which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.

The core principle of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” In applying the revenue model to contracts within its scope, an entity will:

• Identify the contract(s) with a customer (step 1).

• Identify the performance obligations in the contract (step 2).

• Determine the transaction price (step 3).

• Allocate the transaction price to the performance obligations in the contract (step 4).

• Recognize revenue when (or as) the entity satisfies a performance obligation (step 5).

The ASU applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. Certain of the ASU’s provisions also apply to transfers of nonfinancial assets, including in-substance nonfinancial assets that are not an output of an entity’s ordinary activities (e.g., sales of (1) property, plant, and equipment; (2) real estate; or (3) intangible assets). Existing accounting guidance applicable to these transfers (e.g., ASC 360-20) has been amended or superseded.

Compared with current U.S. GAAP, the ASU also requires significantly expanded disclosures about revenue recognition.

The ASU is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016, for public entities. Early application is not permitted (however, early adoption is optional for entities reporting under IFRSs).

Entities have the option of using either a full retrospective or a modified approach to adopt the guidance in the ASU:

• Full retrospective application — Retrospective application would take into account the requirements in ASC 250 (with certain practical expedients).

• Modified retrospective application — Under the modified approach, an entity recognizes “the cumulative effect of initially applying the ASU as an adjustment to the opening balance of retained earnings of the annual reporting period that includes the date of initial application” (revenue in periods presented in the financial statements before that date is reported under guidance in effect before the change). Using this approach, an entity applies the guidance in the ASU to existing contracts (those for which the entity has remaining performance obligations) as of, and new contracts after, the date of initial application. The ASU is not applied to contracts that were completed before the effective date (i.e., an entity has no remaining performance obligations to fulfil). Entities that elect the modified approach must disclose an explanation of the impact of adopting the ASU, including the financial statement line items and respective amounts directly affected by the standard’s application.

On May 9, 2016, the FASB issued ASU 2016-12 which amends certain aspects on the Board’s new revenue standard, ASU 2014-09. The amendments include further clarifications on collectability, presentation of sales tax and other similar taxes collected from customers, non-cash consideration, contract modifications and completed contracts at transaction and transition technical correction.

On May 3, 2016, the FASB issued ASU 2016-11 which rescinds certain SEC guidance from the FASB Accounting Standards Codification in response to announcements made by the SEC at the EITF’s March 3, 2016 meeting.

On December 21, 2016, the FASB issued ASU 2016-20, which makes certain technical corrections (i.e., minor changes and enhancements) to the Board’s new revenue standard, ASU 2014-09. The amendments clarify, rather than change, the new revenue standard’s core revenue recognition principles.

19

Universal Biosensors, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

The Company is currently evaluating the method and impact the adoption of ASU 2014-09 will have on the Company’s financial statements.

On August 12, 2015 the FASB issued ASU 2015-14 which defers the effective date of ASU 2014-09 by one year. For public entities, the standard will be effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017. Early adoption will be permitted as of the original effective date in ASU 2014-09 (i.e., annual reporting periods beginning after December 15, 2016, including interim reporting periods within those annual periods).

On July 22, 2015, the FASB issued ASU 2015-11, which requires entities to measure most inventory “at the lower of cost and net realizable value,” thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market (market in this context is defined as one of three different measures, one of which is net realizable value). The ASU does not apply to inventories that are measured by using either the last-in, first-out method or the retail inventory method. For public business entities, the ASU is effective prospectively for annual periods beginning after December 15, 2016, and interim periods therein. Early adoption is permitted. The Company has adopted this guidance and it has not had a material impact on the Company’s financial statements.

On November 20, 2015, the FASB issued ASU 2015-17 as part of its simplification initiative (i.e., FASB’s effort to reduce the cost and complexity of certain aspects of U.S. GAAP). The ASU requires entities to present deferred tax assets (DTAs) and deferred tax liabilities (DTLs) as non-current in a classified balance sheet. It thus simplifies the current guidance, which requires entities to separately present DTAs and DTLs as current or non-current in a classified balance sheet. Netting of DTAs and DTLs by tax jurisdiction is still required under the new guidance. For public business entities, the ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The adoption of this guidance has not had a material impact on the Company’s financial statements.

On February 25, 2016, the FASB issued ASU 2016-02, its new standard on accounting for leases. ASU 2016-02 introduces a lessee model that brings most leases on the balance sheet. The new standard also aligns many of the underlying principles of the new lessor model with those in ASC 606, the FASB’s new revenue recognition standard (e.g., those related to evaluating when profit can be recognized). Furthermore, the ASU addresses other concerns related to the current leases model. For example, the ASU eliminates the requirement in current U.S. GAAP for an entity to use bright-line tests in determining lease classification. The standard also requires lessors to increase the transparency of their exposure to changes in value of their residual assets and how they manage that exposure.

The new guidance will be effective for public business entities for annual periods beginning after December 15, 2018, and interim periods therein. Early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2016-02 will have on the Company’s financial statements.

On March 17, 2016, the FASB issued ASU 2016-08, which amends the principal-versus agent implementation guidance and illustrations in the Board’s new revenue standard (ASU 2014-09). The FASB issued the ASU in response to concerns identified by stakeholders, including those related to (1) determining the appropriate unit of account under the revenue standard’s principal-versus-agent guidance and (2) applying the indicators of whether an entity is a principal or an agent in accordance with the revenue standard’s control principle.

Among other things, the ASU clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. As defined in the ASU, a specified good or service is “a distinct good or service (or a distinct bundle of goods or services) to be provided to the customer.” Therefore, for contracts involving more than one specified good or service, the entity may be the principal for one or more specified goods or services and the agent for others.

The ASU has the same effective date as the new revenue standard (as amended by the one-year deferral and the early adoption provisions in ASU 2015-14). In addition, entities are required to adopt the ASU by using the same transition method they used to adopt the new revenue standard. The Company is currently evaluating the impact the adoption of ASU 2016-08 will have on the Company’s financial statements.

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Universal Biosensors, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

On March 30, 2016, the FASB issued ASU 2016-09, which simplifies several aspects of the accounting for employee share-based payment transactions for both public and non-public entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. For public business entities, the ASU is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. For all other entities, the ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within annual reporting periods beginning after December 15, 2018. The adoption of this guidance has not had a material impact on the Company’s financial statements.

On August 26, 2016, the FASB issued ASU 2016-15, which amends the guidance in ASC 230 on the classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of the ASU is to reduce the diversity in practice that has resulted from the lack of consistent principles on this topic. The ASU’s amendments add or clarify guidance on eight cash flow issues:

• Debt prepayment or debt extinguishment costs.

• Settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing.

• Contingent consideration payments made after a business combination.

• Proceeds from the settlement of insurance claims.

• Proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies.

• Distributions received from equity method investees.

• Beneficial interests in securitization transactions.

• Separately identifiable cash flows and application of the predominance principle.

For public business entities, the guidance in the ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, it is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted for all entities. The Company has adopted this guidance and it has not had a material impact on the Company’s financial statements.

On November 17, 2016, the FASB issued ASU 2016-18, which amends ASC 230 to add or clarify guidance on the classification and presentation of restricted cash in the statement of cash flows. For public business entities, the guidance is effective for fiscal years beginning after December 15, 2017, including interim periods therein. For all other entities, it is effective for fiscal years beginning after December 15, 2018, and interim periods thereafter. Early adoption is permitted for all entities. The Company is currently evaluating the impact the adoption of ASU 2016-18 will have on the Company’s financial statements.

On October 24, 2016, the FASB issued ASU 2016-16, which removes the prohibition in ASC 740 against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. For public business entities, the ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. For all other entities, the ASU is effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted for all entities as of the beginning of a fiscal year for which neither the annual or interim (if applicable) financial statements have been issued. If an entity chooses to early adopt the amendments in the ASU, it must do so in the first interim period of its annual financial statements (if the entity issues interim financial statements). That is, an entity cannot adopt the amendments in the ASU in a later interim period and apply them as if they were in effect as of the beginning of the year. Entities should apply the ASU’s amendments on a modified retrospective basis, recognizing the effects in retained earnings as of the beginning of the year of adoption. The Company has adopted this guidance and it has not had a material impact on the Company’s financial statements.

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Notes to Consolidated Condensed Financial Statements (Unaudited)

On January 5, 2017, the FASB issued ASU 2017-01 to clarify the definition of a business in ASC 805, which was among the primary issues raised in connection with the FAF’s post-implementation review report on FASB Statement 141(R) (codified in ASC 805). The amendments in the ASU are intended to make application of the guidance more consistent and cost-efficient. The ASU is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods therein. For all other entities, the ASU is effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The ASU must be applied prospectively on or after the effective date, and no disclosures for a change in accounting principle are required at transition. Early adoption is permitted for transactions (i.e., acquisitions or dispositions) that occurred before the issuance date or effective date of the standard if the transactions were not reported in financial statements that have been issued or made available for issuance. The Company has adopted this guidance and it has not had a material impact on the Company’s financial statements.

On January 26, 2017, the FASB issued ASU 2017-04, which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. As a result, under the ASU, “an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount [and] should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.” The ASU is effective prospectively for fiscal years beginning after December 15, 2019 for public business entities that are SEC filers. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company has adopted this guidance and it has not had a material impact on the Company’s financial statements.

On May 10, 2017, the FASB issued ASU 2017-09, which amends the scope of modification accounting for share-based payment arrangements. The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. For all entities, the ASU is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. The Company is currently evaluating the impact the adoption of ASU 2017-09 will have on the Company’s financial statements.

On May 16, 2017, the FASB issued ASU 2017-10 in response to a consensus reached by the EITF at its March 2017 meeting. The ASU addresses “diversity in practice in how an operating entity determines the customer of the operation services for transactions within the scope of ASC 853” by “clarifying that the grantor is the customer of the operation services in all cases for those arrangements.” The amendments also allow for a “more consistent application of other aspects of the revenue guidance, which are affected by this customer determination.” For entities that have not yet adopted ASC 606, the effective date is aligned with that for ASC 606. For public business entities that have adopted ASC 606, the ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For most other entities, the ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2017-10 will have on the Company’s 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:

In September 2011, we entered into a non-exclusive license agreement with SpeeDx Pty Ltd (“SpeeDx”) pursuant to which SpeeDx granted us a license to use its proprietary MNAzyme technology in the field of molecular diagnostics. Under the agreement we make milestone payments totaling A$500,000 to SpeeDx if certain specified targets are achieved, and royalty payments ranging from 5% to 15% of that portion of our sales and licensing revenues arising from SpeeDx technology or products incorporating SpeeDx technology.

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Universal Biosensors, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

The license agreement and the obligation to pay royalties continues until SpeeDx’s patent rights have expired, lapsed, are found to be invalid or are rejected. The agreement will terminate by mutual agreement or by one party for breach or insolvency of the other. SpeeDx may also terminate the license agreement if the research and development on a first licensed product is not completed by UBS within 7 years (subject to certain exceptions), and UBS may terminate if it determines that it does not wish to proceed with further commercialization of SpeeDx’s technology.

Mr. Denver is a director of SpeeDx and up until August 7, 2017 was a director of the Company. With effect from October 1, 2017, Mr. Denver will remain with the Company in an advisory capacity for a minimum of 12 months.

Mr. Coleman is Non-Executive Chairman of the Company and Executive Chairman of Viburnum Funds Pty Ltd. Viburnum Funds Pty Ltd, as an investment manager for its associated funds holds a beneficial interest and voting power over approximately 15.85% of our shares.

Borrowings

Future maturities, interest and other payments under the Company’s long term secured loan pursuant to the credit agreement (described below) as of September 30, 2017 and December 31, 2016 are as follows:

	September 30, 2017					December 31, 2016
	US$			A$		US$			A$
2017		442,750					1,756,563
2018		16,694,000					16,694,000
Thereafter		0					0
Total minimum payments		17,136,750					18,450,563
Less amount representing interest and other fees		(2,136,750	)				(3,450,563	)
Gross balance of long term debt		15,000,000					15,000,000
Less fair value of warrants recorded within loan (a)		(815,655	)				(815,655	)
Plus interest accretion		617,216					495,203
Total carrying value		14,801,561			18,881,951		14,679,548			20,286,827
Less current portion		0			0		0			0
Total carrying value, non-current portion		14,801,561			18,881,951		14,679,548			20,286,827

The carrying value of the borrowings approximates its fair value. The fair value is estimated by discounting future cash flows at the currently offered rates for borrowings of similar remaining maturities.

(a) The warrants issued in December 2013 had a fair value of US$815,655 as of September 30, 2017 and December 31, 2016, and are included in equity.

Athyrium Credit Agreement

On December 19, 2013 (“Closing Date”), UBI and its wholly owned subsidiary, UBS (together UBI and UBS, the “Transaction Parties”) entered into a credit agreement with Athyrium Opportunities Fund (A) LP (“Athyrium A”), as administrative agent (the “Administrative Agent”) and as a lender, and Athyrium Opportunities Fund (B) LP (“Athyrium B”) as a lender (Athyrium A and Athyrium B together with any other lenders party thereto from time to time, the “Lenders”) for a secured term loan of up to US$25 million, which was amended on January 30, 2015 (“Credit Agreement”). Of this amount, US$15 million had been drawn at December 31, 2013 and a further US$10 million was available to be drawn down on or before July 31, 2015, however UBS decided not to take up the additional debt funding.

The term loan has a maturity date of December 19, 2018 (“Maturity Date”) and bears interest at 10.5% per annum payable in cash quarterly in arrears over the five year term, and as otherwise described in the Credit Agreement. A default

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Universal Biosensors, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

interest rate of 13% per annum shall apply during the existence of a default under the Credit Agreement. Other than as summarized below, UBS is not required to make payments of principal for amounts outstanding under the term loan until maturity, December 19, 2018. The term loan under the Credit Agreement is secured by substantially all of UBI and UBS’ assets. UBI (together with any future subsidiaries) guarantees all of UBS’s obligations under the term loan.

Voluntary prepayments of the term loans are not permitted prior to the second anniversary of the Closing Date, except in the event of a change of control of a Transaction Party. After the second anniversary, UBS can make voluntary repayments in minimum principal amounts of US$2,500,000 together with interest, plus the premium described below. UBS must make mandatory prepayments in certain prescribed circumstances, including in the event of raising additional debt financing, a sale or transfer of assets other than in certain circumstances and in the event of other specified extraordinary receipts. Extraordinary receipts include cash received or paid other than in the ordinary course of business, such as tax refunds (other than GST and R&D tax rebates), LifeScan lump sum fee payments and Siemens termination fees. In such events, UBS must prepay to the Lenders 100% of the net cash proceeds received up to the outstanding principal amount of the loans drawn down, together with all accrued and unpaid interest thereon and all other obligations. In the event of any prepayment on or prior to the second anniversary of the Closing Date with respect to any obligations under the Credit Agreement, UBS must also pay a prepayment premium of 20% of the principal of such prepayment due and payable on the applicable date. In the event of any prepayment after the second anniversary of the Closing Date with respect to any obligations under the Credit Agreement, UBS must pay a prepayment premium commencing at 15% of the principal of such prepayment due and payable on the applicable date and reducing pro-rata on a monthly basis until the Maturity Date.

Unless the facility is otherwise terminated earlier pursuant to the terms of the Credit Agreement, UBS (as the borrower) is required to repay the outstanding principal amount of the loans drawn down, together with all accrued and unpaid interest thereon and all other obligations on Maturity Date.

UBS paid a non-refundable fee of US$625,000 to the Lenders on the Closing Date (being 2.5% of the aggregate credit facility) and a non-refundable fee of US$200,000 to the Lenders in connection with the January 2015 amendment to the Credit Agreement. A 2% commitment fee based on any available unused borrowing commitment was paid by UBS under the Credit Agreement until July 31, 2015. The Lenders are also entitled to receive 30% of the net proceeds of milestone payments paid under the Collaboration Agreement by and among UBS, UBI and Siemens, up to a maximum of US$600,000 in the aggregate, of which US$300,000 was paid in February 2015 and the balance of US$300,000 was paid in August 2015 (upon receipt of two further milestone payments). UBS has also agreed to pay certain taxes arising in connection with the Credit Agreement and other Loan Documents, including withholding taxes. UBS has also agreed to pay certain reasonable out-of-pocket expenses incurred by the Lenders in connection with the loan documents, including the January 2015 amendment, or as may be incurred in connection with the enforcement or protection of their rights.

The Credit Agreement also contains certain covenants, including among other things, covenants: (i) relating to the delivery of financial and other information and certificates, notices of defaults, litigation and other material events; payment of taxes and other obligations; maintenance of insurance; (ii) which limit or restrict the incurrence of liens; the making of investments; the incurrence of certain indebtedness; mergers, dispositions, liquidations, or consolidations and significant asset sales; restricted payments; transactions with affiliates other than on normal and arms-length terms; burdensome agreements; prepayment of other indebtedness; ownership of subsidiaries; and (iii) which require UBS to maintain unrestricted cash of not less than US$2,000,000 in a specified bank account at any time.

As further described below, pursuant to the Credit Agreement, UBI issued to the Lenders warrants entitling the holder to purchase up to an aggregate total of 4.5 million shares of UBI’s common stock in the form of CDIs at a price of A$1.00 per share (the “Exercise Price”), which represents a 117% premium over the closing price of UBI’s common stock on December 19, 2013. The warrants are immediately exercisable and have a term of seven years.

Other

In December 2015, UBS entered into an arrangement with Elantis Premium Funding Ltd to fund the Group’s 2016 insurance premium. The total amount financed was A$360,510 at inception and the short-term borrowing was fully repaid in September 2016.

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Universal Biosensors, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

Interest was being charged at a fixed rate of 2.60% per annum. In December 2016, UBS entered into an arrangement with Elantis Premium Funding Ltd to fund the Group’s 2017 insurance premium. The total amount financed was A$369,630 at inception and the short-term borrowing will be fully repaid in October 2017. Interest is charged at a fixed rate of 2.60% per annum. The short-term borrowing is secured by the insurance premium refund.

Warrants

Pursuant to the Credit Agreement, UBI issued to the Lenders warrants entitling the holder to purchase up to an aggregate total of 4.5 million shares of UBI’s common stock in the form of CDIs at a price of A$1.00 per share (the “Exercise Price”), which represents a 117% premium over the closing price of UBI’s common stock on December 19, 2013. The warrants are immediately exercisable and have a term of seven years.

The warrants may be exercised at any time until December 19, 2020, in whole or in part in minimum multiples of 500,000 shares of common stock. The holder of the warrants can pay the Exercise Price in cash or it has the right to pay all or a portion of the Exercise Price by making a cashless exercise, therefore reducing the number of shares of common stock the holder would otherwise be issued.

The warrant is subject to adjustments in the event of certain issuances by UBI, such as bonus issues, pro rata (rights) issues and reorganizations (e.g., consolidation, subdivision).

The Company assessed that the warrants are not liabilities within scope of ASC 480-10-25. The warrants are legally detachable from the loan and separately exercisable and as such meet the definition of a freestanding derivative instrument pursuant to ASC 815.

However, the scope exception in accordance with ASC 815-10-15-74 applies to warrants and it meets the requirements of ASC 815 that would be classified in stockholders’ equity. Therefore, the warrants were initially accounted for within stockholders’ equity, and subsequent changes in fair value will not be recorded. The fair value of the warrant was estimated using the Trinomial Lattice model.

The debt issuance costs were recorded as deferred issuance costs and are amortized as interest expense, using the effective interest method, over the term of the loan pursuant to ASC 835-30-35-2.

Restricted Cash

Restricted cash maintained by the Company in the form of term deposits is as follows:

	Nine Months Ended September 30,		Year Ended December 31,
	2017		2016
	A$		A$
Financial covenant pursuant to the Credit Agreement		2,900,000		2,900,000
Collateral for facilities		335,000		320,000
		3,235,000		3,220,000

Financial covenant pursuant to the credit agreement is recorded under the caption “Other non-current assets” in the consolidated condensed balance sheets. $320,000 of the collateral for facilities is recorded under the caption “Other non-current assets” whilst the remaining balance is recorded under the caption “Other current assets”.

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Universal Biosensors, Inc.

Item 2 Management’s 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 Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our most recent 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”, “intends”, “may”, “assumes”, “illustration”, 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. Our plan of operations over the remainder of the fiscal year ending December 2017 and key aspects of our strategy for increasing shareholder value include:

• manufacturing products (test strips and analyzers) for our customers and future partners as required;

• undertaking research and development work for our customers and partners;

• providing support services to our customers and partners;

• extending our electrochemical cell technology and demonstrating the broader application of our technology platform for markets with significant commercial potential; and

• seeking to enter into collaborative, strategic or distribution arrangements with other life sciences companies or other industry participants with respect to the development and commercialization of specific tests or specific fields.

We were incorporated in the State of Delaware on September 14, 2001 and our shares of common stock in the form of CHESS Depositary Interests have been quoted on the ASX since December 13, 2006. Our securities are not currently traded on any other public market. Our wholly owned subsidiary and primary operating vehicle, UBS, was incorporated as a proprietary limited company in Australia on September 21, 2001. UBS conducts our primary research, development and manufacturing activities in Melbourne, Australia. A subsidiary of UBS, HRL was incorporated in British Columbia, Canada on November 30, 2016. On December 16, 2016, HRL acquired the assets of the Hemostasis Reference Laboratory business from LifeLabs, Inc. HRL conducts coagulation testing and calibration services for products we manufacture as well as for other international customers in Hamilton, Canada.    

We have rights to an extensive patent portfolio, with certain patents owned by UBS and a number licensed to UBS by LifeScan, Inc. and other third party licensors.    

We are using our electrochemical cell technology platform to develop point-of-care testing systems for a number of different markets. Our current focus is as set out below:

• Coagulation testing market – we are working with Siemens in relation to a range of products for the point-of-care coagulation testing market pursuant to a Collaboration Agreement. The first such product developed with Siemens, the Xprecia Stride™ Coagulation Analyzer, received CE mark approval on December 9, 2014 and FDA approval on October 4, 2016. The Xprecia Stride™ Coagulation Analyzer is now available in U.S., Europe, the Middle East, Africa, Asia Pacific, Latin America and Canada. Under the terms of a Supply Agreement with Siemens, UBS is the manufacturer of test strips for this product and two further tests still in development for Siemens.

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Universal Biosensors, Inc.

• Blood glucose – we provide services to LifeScan as required from time to time, pursuant to a Master Services and Supply Agreement and a Development and Research Agreement with LifeScan.

• Other electrochemical-cell based tests – we are working on demonstrating the broader application of our technology platform. We may seek to enter into collaborative arrangements, strategic alliances or distribution agreements with respect to any products or technologies arising from this work.

Results of Operations

Analysis of Consolidated Revenue

Our total revenue increased by 93% and 50% to A$6,345,606 and A$20,672,957, respectively during the three and nine months ended September 30, 2017 compared to the same period in the previous financial year. Increase in total revenue was as a result of increased sales of the Xprecia Stride^TM (refer to the section below on “Revenue from Products” for more details) and OneTouch Verio^® strips (refer to the section below on “Revenue from Services” for more details).

Revenue from Products

The financial results of the PT-INR test strips for the Xprecia Stride^TM Coagulation Analyzer we manufactured and sold to Siemens during the respective periods are as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
	A$			A$			A$			A$
Revenue from products		1,764,855			0			4,062,470			183,480
Cost of goods sold		(998,674	)		(31,899	)		(2,913,808	)		(272,468	)
Production margin		766,181			(31,899	)		1,148,662			(88,988	)

We commenced manufacture of the PT-INR test strips on behalf of Siemens during the third quarter of 2014. The revenues from the manufacture and sale of PT-INR strips to Siemens in 2016 were low as Siemens were undertaking a limited marketing release of the product. The increase in revenues in 2017 is as a result of the full commercial launch by Siemens of the Xprecia Stride^TM Coagulation Analyzer after successful completion of its limited release including commencement of sales activities in U.S. during the current quarter. The Xprecia Stride™ Coagulation Analyzer is available in U.S., Europe, the Middle East, Africa, Asia Pacific, Latin America and Canada. The movement in revenues is primarily volume driven. The volumes and associated revenues during the early stages of the commercialization of Xprecia Stride^TM Coagulation Analyzer are expected to be volatile as management believes some of the strip sales to Siemens is inventory buildup for future sales. The production margin from the sale of our PT-INR strips has been steadily improving but is expected to remain volatile, reflecting early stage production. This trend is also representative of a new product entrant within our industry.

Revenue from Services

We provide various services to our customers and partners. The revenue is grouped into the following categories:

• Product enhancement – a quarterly service fee based on the number of strips sold by LifeScan which falls within a valid claim of certain LifeScan patents is payable to us as an ongoing reward for our services and efforts to enhance the product;

• Contract research and development – we undertake contract research and development on behalf of our customers and partners;

• Other services – calibration services provided by HRL and other ad-hoc services provided on an agreed basis according to our customers and partners requirements.

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Universal Biosensors, Inc.

There are different arrangements for each service being provided. The net margin during the respective periods in relation to the provision of services is as follows:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017			2016		2017			2016
	A$			A$		A$			A$
Revenue from services:
Quarterly service fee		4,278,165			3,287,296		15,733,157			13,602,548
Other services		302,586			0		877,330			0
		4,580,751			3,287,296		16,610,487			13,602,548
Cost of services		(254,330	)		0		(737,135	)		0
Net margin		4,326,421			3,287,296		15,873,352			13,602,548

Quarterly service fee – Details of the number of Verio^® blood glucose test strips sold by LifeScan and the quarterly service fees generated by us is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	Millions		Millions		Millions		Millions
No. of strips sold		447		348		1,284		1,051
Quarterly service fees - USD		3.35		2.61		12.13		10.38
Quarterly service fees - AUD		4.28		3.29		15.73		13.60

Overall volume is increasing reflecting ongoing market penetration and growth. The number of Verio^® blood glucose test strips sold by LifeScan increased by 28% and 22% during the three and nine months ended September 30, 2017 compared to the same period in the previous financial year. The quarterly service fees increased by 30% and 16% during the same period reflecting the strengthening of the AUD against the USD.

The quarterly service fee for each quarter in a LifeScan financial year is calculated based on the number of OneTouch Verio^® blood glucose test strips sold in such LifeScan financial year as follows: US$0.0125 per strip for the first 500 million strips sold in a financial year and US$0.0075 per strip for sales in excess of 500 million strips in such financial year. Quarterly service fees are reported and paid by LifeScan in USD.

LifeScan has the ability to buy out, or “convert,” its obligation to pay quarterly service fees to us in certain situations set out in the Master Services and Supply Agreement. At any time after the end of the quarter following receipt by us of an aggregate of US$45 million in quarterly service fees, LifeScan has the option to give notice of its election to convert its obligation to continue paying the quarterly service fees. In the event LifeScan delivers notice of conversion, LifeScan will remain obligated to pay the quarterly service fees for the remainder of LifeScan’s financial year (as defined in Johnson & Johnson’s internal accounting policies and procedures, which ends on the last Sunday of any given calendar year) in which the notice was given, and, after the end of that financial year, LifeScan must pay us a one-time lump sum fee to buy out its obligation to pay future quarterly service fees. The amount of this one-time lump sum service fee is calculated by multiplying the sum of all quarterly service fees for the LifeScan financial year in which notice of conversion is given, by the applicable multiplier for such financial year as set forth in the Master Services and Supply Agreement. As of September 30, 2017, we had received aggregate quarterly service fees of US$43.53 million. The amount of the quarterly service fee for the quarter ended September 30, 2017 is US$3.35 million, which amount had not yet been received as of September 30, 2017. Based on payment terms set out in the Master Services and Supply Agreement, we expect this sum to be received by us during the fourth quarter of LifeScan’s 2017 financial year after which the aggregate of quarterly service fees receipted by us would exceed US$45 million. At any time after the end of the fourth quarter of LifeScan’s 2017 financial year, LifeScan has the option to give notice of its election to convert its obligation to continue paying the quarterly service fees. Since we have not received an aggregate of US$45 million as of September 30, 2017, the earliest LifeScan can give notice of conversion is during its 2018 financial year. If LifeScan gives notice of conversion during LifeScan’s 2018 financial year or any subsequent LifeScan financial year, the applicable multiplier is 2.0.

By way of illustration only:

• If the aggregate quarterly service fees received by us from LifeScan first exceed US$45 million in the fourth quarter of LifeScan’s 2017 financial year, then the earliest LifeScan could deliver notice of conversion to us is the first quarter of LifeScan’s 2018 financial year, and if LifeScan sells 2 billion strips in LifeScan’s 2018 financial year, then:

• the total 2018 financial year quarterly service fees payable to us would equal US$17.5 million – i.e., 500,000,000*US$0.0125 + 1,500,000,000*US$0.0075; and

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Universal Biosensors, Inc.

• the one-time lump sum fee that would be payable to us after the end of LifeScan’s 2018 financial year would equal US$35.0 million – i.e., US$17.5 million multiplied by 2.0.

The above scenarios and calculations are an illustration only intended to provide an example of how the conversion option would operate, and there can be no assurance as to when, if ever, we will have received an aggregate of US$45 million in quarterly service fees from LifeScan, or as to the number of OneTouch Verio^® strips that LifeScan may sell in any financial year, or as to when, if ever, LifeScan will exercise its conversion option.

LifeScan’s obligation to pay quarterly service fees will also terminate if LifeScan terminates the Master Services and Supply Agreement for our uncured material breach, in the event of certain change of control events of our company, or for certain regulatory reasons.

Contract research and development – The nature and scope of contract research and development is determined by our customers and partners based upon their requirements and therefore our revenues and margins tend to fluctuate. We did not generate any revenue from contract research and development during the three and nine months ended September 30, 2017 and 2016.

Other services - We generated revenues principally from calibration services performed by HRL and from Siemens based on work undertaken for them.

Contribution from Products & Services

The net contribution from our products and services is as follows:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017		2016
	A$		A$			A$		A$
Quarterly service fees		4,278,165		3,287,296			15,733,157		13,602,548
Manufacturing contribution		766,181		(31,899	)		1,148,662		(88,988	)
Other services		48,256		0			140,195		0
Contribution from products & services		5,092,602		3,255,397			17,022,014		13,513,560

The increase in year to date total contributions from products and services reflected in the table above is primarily represented by the growth in the quarterly service fee which has a 100% margin.

The manufacturing operation is currently running on one shift with all costs being expensed. The Company is investing in scale up projects which will improve efficiency and yields and lead to a profitable manufacturing operation. The result of this action is currently reflected in the manufacturing contribution whereby the same has been improving steadily. We are targeting a margin of 40% which we believe is typical of device manufacturers with shared investment and research and development risk. The manufacturing operation has the flexibility to expand in order to support volume increases on the Siemens contract.

Contribution from other services fluctuated over the period due to the calibration services performed by HRL and our partners R&D services requirements.

Product Support

Product support relates to post-market technical support provided by us to Siemens for the Xprecia Stride™ Coagulation Analyzer.

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Product support for the respective periods are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	A$		A$
Product support		215,057		0		550,173		0

As revenue from products increases, we expect product support expenditure to increase as well.

Depreciation

Depreciation of certain fixed assets are based on output. As more units are being produced for commercial production, a larger proportion of depreciation is charged to cost of goods sold as opposed to research and development expenses resulting in a decline in depreciation charged to research and development. Similarly, if more production is research and development oriented, a higher proportion of depreciation expense will be charged to research and development.

Depreciation for the respective periods have been charged as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	A$		A$
Research and development expenses		584,515		564,000		1,341,700		1,836,399
General and administrative expenses		41,745		31,327		130,151		82,724
Depreciation		626,260		595,327		1,471,851		1,919,123

Research and Development Expenses

Research and development expenses are related to the development of new technologies and products based on the electrochemical cell platform.

The Company conducts research and development activities to build an expanding portfolio of product-based revenues and cash flows and increase the value of UBI’s core technology assets. Research is focused on demonstrating technical feasibility of new technology applications. Development activity is focused on turning these technology platforms into commercial-ready product and represents the majority of the Company’s research and development expenses.

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, salaries 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, and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities and other supplies.

Our principal research and development activities can be described as follows:

(a) Blood coagulation testing

In September 2011 we entered into a Collaboration Agreement with Siemens which was amended in September 2012 and March 2016, pursuant to which we will develop a range of test strips and reader products for the hospital point-of-care and alternative site coagulation testing markets. The first such product developed with Siemens, the Xprecia Stride™ Coagulation Analyzer, received CE mark approval on December 9, 2014 and FDA approval on October 4, 2016. The Xprecia Stride™ Coagulation Analyzer is now available for sale in U.S., Europe, the Middle East, Africa, Asia Pacific, Latin America and Canada. In 2012, we entered into a Supply Agreement with Siemens under which we manufacture and supply the test strips for this product and will manufacture and supply the test strips for two further tests still in development with Siemens.

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(b) DNA/RNA

We have undertaken some early stage feasibility work assessing the possibility of using DNA binding chemistries to build a low-cost 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. To enable us to access certain molecular diagnostic technology, we entered into a license with SpeeDx. SpeeDx is an Australian technology company focused on the development of catalytic nucleic acid enzymes for medical diagnostics and other applications.

Total research and development expenses for the respective periods are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	A$		A$		A$		A$
Research		77,038		189,612		417,632		558,715
Development		3,120,108		3,094,667		7,208,578		8,805,569
Research and development expenses		3,197,146		3,284,279		7,626,210		9,364,284

Depending on the scope of research and development activities we undertake and the stages of development of each of these activities, our research and development expenditure will fluctuate.

In converting an idea or a concept into a commercial product, a number of development stages are required. As an idea or concept is developed into a commercial-ready product, technical risk reduces, but the effort and cost expended increases. In our research and development program, the first phase is conducting exploratory research and feasibility studies. In this phase, the idea is investigated by a small focused team to establish the viability of the concept as the base for a product. Once this hurdle has been passed, the project enters the development phases, which include building prototype strips and instruments, finalizing the product design, carrying out extensive testing, creating the required documentation and developing or validating the product manufacturing processes. This requires a larger group of people and a higher use of materials compared to the research phase, so is typically more expensive, but necessary to be able to commercialize a product.

Research and development expenditure principally reflects the effort required in product development of the tests we are developing. Research and development expenditure decreased by 3% and 19%, respectively during the three and nine months ended September 30, 2017 compared to the same period in the previous financial year. The first quarter of 2016 includes costs incurred for the development of our own Prothrombin Time International Normalized Ratio self-testing device hence a larger spend on research and development expenditure for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2017. The Prothrombin Time International Normalized Ratio self-testing device project was put on hold in April 2016. Research and development expenditure for the current quarter is greater than the previous two quarters as we have initiated development clinical trials and validation runs for the two tests we are undertaking on behalf of Siemens. This activity is required to validate the results and the processes before we commence the regulatory clinical trials currently planned for 2018.

While we have a degree of 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 may direct the research and development activities and may contribute towards all or part of the cost of these activities, both of which will influence our research and development expenditure. Research and development activities undertaken on behalf of our customers and partners for the three months ended September 30, 2017 and 2016 were A$2,223,905 and A$1,451,788, respectively and A$4,965,247 and A$5,550,750 for the nine months ended September 30, 2017 and 2016, respectively.

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Universal Biosensors, Inc.

General and Administrative Expenses

General and administrative expenses currently consist principally of salaries and related costs, including stock option expense, for personnel in executive, business development, finance, accounting, information technology and human resources functions. Other general and administrative expenses include repairs and maintenance, insurance, facility costs not otherwise included in research and development expenses, consultancy fees and professional fees for legal including legal and maintenance fees incurred for patent applications, audit and accounting services. General and administrative expenses increased by 10% and 8% for the three months and nine months ended September 30, 2017 compared to the same period in the previous financial year. The increase in expenditure primarily represents the costs involved in maintaining the HRL business which we acquired in December 2016 and consultancy fees incurred during the current quarter to renew the board and management changes. The lower expenditure in 2016 also reflects reversal of options expense for departing employees in April 2016.

General and administrative expenses for the respective periods are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	A$		A$		A$		A$
General and administrative expenses		1,624,974		1,475,998		4,855,136		4,482,518

Interest Income

The movement in interest income is generally attributable to the amount of funds available for investment in Australian currency noting that a large proportion of our funds is held in US denominated currency. As at September 30, 2017 and 2016, 94% and 55%, respectively of our funds were held in US denominated currency which currently does not produce any investment interest. Declining interest rates have also resulted in lower interest income.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	A$		A$		A$		A$
Interest income		15,772		89,669		74,625		140,538

Interest Expense

Interest expense relates to interest being charged on a short-term borrowing initiated by the Company each year. These short-term loans are taken out every year to fund our insurance premiums and are repaid during the financial year. The insurance premiums at inception were A$369,630 and A$360,510 for the financial years 2017 and 2016, respectively. The interest rates were 2.60% for the financial years 2017 and 2016. Increase in year to date interest expense is generally attributable to the higher premium financed and under accrual of interest expense as at December 31, 2016.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	A$		A$		A$		A$
Interest expense		1,922		2,812		8,649		8,436

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Universal Biosensors, Inc.

Financing Costs

In December 2013, UBS accessed new capital via a US$25,000,000 loan facility of which US$15,000,000 was drawn in December 2013. The breakdown of the financing costs is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	A$		A$		A$		A$
Interest expense		508,960		532,819		1,553,222		1,614,138
Warrants expense		51,994		54,431		158,672		164,895
Other debt issuance costs		124,659		128,838		377,434		388,488
		685,613		716,088		2,089,328		2,167,521

Interest expense relates to applicable interest of 10.5% levied on the loan. The debt issuance costs were recorded as deferred issuance costs and are amortized as interest expense, using the effective interest method, over the term of the loan.

Decrease in financing costs is primarily a result of strengthening of the AUD against the USD, noting that our loan is denominated in USD. For the three and nine month period ending September 30, 2017, the period-over-period foreign currency movements relative to the AUD dollar would have had a unfavorable impact (exclusive of hedging impact) on our reported results of A$26,245 and A$60,527, respectively.

Other

Recorded under this caption are primarily research and development tax incentive income and foreign exchange movements.

Research and development tax incentive income is recognized when there is reasonable assurance that the income will be received, the relevant expenditure has been incurred, and the consideration can be reliably measured.

In the nine months ended September 30, 2017 the aggregate turnover of the Company has exceeded A$20 million and it is not eligible for a refundable tax offset (“research and development tax incentive income”). The eligible R&D activities and expenditures are however able to be claimed as a non-refundable tax offset as part of the current year income tax computation and any amounts included as a tax asset will be subject to recognition rules under ASC 740 “Income Taxes”.

For the nine months ended September 30, 2016, there was no reasonable assurance that the aggregate turnover of the Company for the year ending December 31, 2016 would be less than A$20 million and accordingly A$0 was recorded as research and development tax incentive income. However, as at December 31, 2016, the Company ascertained that the aggregate turnover for the year ending December 31, 2016 was less than A$20 million and accordingly recorded research and tax development tax incentive income of $7,400,000. As at June 30, 2017, upon finalising its tax returns, the Company determined that the research and development tax incentive income for the 2016 financial year is $7,522,341. This amount has been recorded as “Other current assets” in the consolidated condensed balance sheets. As at June 30, 2017, an amount of A$122,341, being the difference in research and development tax incentive income recorded as at June 30, 2017 and December 31, 2016 has been recorded as “Other Income” in the consolidated condensed statements of comprehensive income/(loss). Research and development tax incentive income of A$162,172 recorded for the 2016 financial period relates to under accrual of the receivable in the previous financial year. For the financial year ended December 31, 2015, we had recorded a receivable of $9,200,000 based on our original estimate. We however claimed and received an amount of A$9,362,172 from the Australian Government in September 2016 following a change in original estimate.

Consequently, research and development tax incentive income recorded for the three months ended September 30, 2017 and 2016 were A$0 and A$162,172, respectively and A$122,341 and A$162,172, respectively for the nine months ended September 30, 2017 and 2016. The balance, for all periods, is primarily represented by foreign exchange movements arising from the settlement of foreign denominated transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies.

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 reasonably assured. 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 the Company’s best estimate of selling price. The Company’s process for determining its best estimate of selling price for deliverables without vendor-specific objective evidence or third-party evidence of selling price involves management’s judgment. The Company’s 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 and Exercise Price at Valuation Date

With the exception of ZEPOs, the exercise price of the options granted 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 exercise price of ZEPOs is nil. The ASX is the only exchange upon which our securities are quoted.

Volatility

We applied volatility having regard to the historical price change 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) Income Taxes

We apply ASC 740 – Income Taxes which establishes financial accounting and reporting standards for the effects of

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Universal Biosensors, Inc.

income taxes that result from a company’s 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.

(d) Impairment of Long-Lived Assets

We review our capital assets 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.

(e) Warrants

In connection with our US$15 million loan facility, we issued to the Lenders warrants entitling the holder to purchase up to an aggregate total of 4.5 million shares of UBI’s common stock in the form of CDIs at a price of A$1.00 per share. The fair value of the warrants to purchase common stock is estimated using the Trinomial Lattice model. Each of the inputs to the Trinomial Lattice model is discussed below.

Exercise Price at Valuation Date

The exercise price of the warrants has been determined as stated in the Credit Agreement. For further details, see Notes to Consolidated Condensed Financial Statements - Summary of Significant Accounting Policies – Borrowings – Athyrium Credit Agreement.

Volatility

We applied volatility having regard to the historical price change of our shares in the form of CDIs available from the ASX.

Time to Expiry

The warrants have a term of seven years.

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 warrants to purchase common stock being valued.

(f) Research and development tax incentive income

Research and development tax incentive income is recognized when there is reasonable assurance that the income will be received, the relevant expenditure has been incurred, and the consideration can be reliably measured. The research and development tax incentive is one of the key elements of the Australian Government’s support for Australia’s innovation system and is supported by legislative law primarily in the form of the Australian Income Tax Assessment Act 1997 as long as eligibility criteria are met.

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Universal Biosensors, Inc.

Management has assessed the Company’s research and development activities and expenditures to determine which activities and expenditures are likely to be eligible under the tax incentive regime described above. At each period end management estimates the refundable tax offset available to the Company based on available information at the time. This estimate is also reviewed by external tax advisors on an annual basis.

Financial Condition, Liquidity and Capital Resources

Net Financial Assets

Our net financial assets position is shown below:

	Nine Months Ended September 30,		Year Ended December 31,
	2017		2016
	A$		A$
Financial assets:
Cash and cash equivalents		19,832,390		20,402,322
Accounts receivables		5,797,184		4,848,009
Total financial assets		25,629,574		25,250,331
Debt:
Short term borrowings		34,819		369,630
Long term secured loan		18,881,951		20,286,827
Total debt		18,916,770		20,656,457
Net financial assets		6,712,804		4,593,874

Since inception, we have financed our business primarily through the issuance of equity securities, funding from strategic partners, government grants and rebates (including the research and development tax incentive income), cash flows generated from operations, and the loan discussed below.

On December 19, 2013 we entered into the Credit Agreement which was subsequently amended in January 2015 with Lenders for a US$25 million secured term loan. The term loan has a maturity date of December 19, 2018 and bears interest at 10.5% per annum. Interest payments are due quarterly over the five-year term of the term loan and, other than as described elsewhere herein, we are not required to make payments of principal for amounts outstanding under the term loan until the Maturity Date. Subject to certain exceptions, the term loan is secured by substantially all of our assets, including our intellectual property. For further details, see Notes to Consolidated Financial Statements - Summary of Significant Accounting Policies – Borrowings – Athyrium Credit Agreement.

To a large extent, the increase in revenue and the strengthening of the AUD against the USD which has resulted in the decline of our US denominated loan has resulted in an improvement to our net financial asset position. Note a major portion of our net financial assets/(liabilities) is denominated in USD, including the long term secured loan hence is subject to variation with movements in exchange rates. Cash and cash equivalents as at December 31, 2016 includes A$9,362,172 received for the research and development tax incentive income for the 2015 financial year. We are yet to receive the research and development tax incentive income of A$7,522,341 for the 2016 financial year.

We believe we have sufficient cash and cash equivalents to fund our operations for at least the next twelve months. Liquidity risk is the risk that the Company may encounter difficulty meeting obligations associated with financial liabilities. The Company manages liquidity risk through the management of its capital structure. The purpose of liquidity management is to ensure that there is sufficient cash to meet all the financial commitments and obligations of the Company as they come due. In managing the Company’s capital, management estimates future cash requirements by preparing a budget and a multi-year plan for review and approval by the Board. The budget is reviewed and updated periodically and establishes the approved activities for the next twelve months and estimates the costs associated with those activities. The multi-year plan estimates future activity along with the potential cash requirements and is based upon management’s assessment of current progress along with the expected results from the coming years’ activity. Budget to actual variances are prepared and reviewed by management and are presented on a regular basis to the Board of Directors.

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Universal Biosensors, Inc.

The carrying value of the cash and cash equivalents and the accounts receivable approximates fair value because of their short-term nature.

We regularly review all our financial assets for impairment. There were no impairments recognized as at September 30, 2017 or for the year ended December 31, 2016.

Derivative Instruments and Hedging Activities

In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider our own and counterparty credit risk. At September 30, 2017 and December 31, 2016, we did not have any assets or liabilities that utilize Level 3 inputs. The valuation of our foreign exchange derivatives is based on the market approach using observable market inputs, such as forward rates, and incorporates non-performance risk (the credit standing of the counterparty when the derivative is in a net asset position, and the credit standing of the Company when the derivative is in a net liability position). Our derivative assets are categorized as Level 2.

We had no outstanding contracts as at September 30, 2017 and December 31, 2016. We recognized gains of nil for the periods ended September 30, 2017 and December 31, 2016. No amount of ineffectiveness was recorded in earnings for these designated cash flow hedges for the periods ended September 30, 2017 and December 31, 2016. For further details, see Notes to Consolidated Financial Statements – Summary of Significant Accounting Policies.

Measures of Liquidity and Capital Resources

The following table provides certain relevant measures of liquidity and capital resources:

	Nine Months Ended September 30,		Year Ended December 31,
	2017		2016
	A$		A$
Cash and cash equivalents		19,832,390		20,402,322
Working capital		27,780,415		29,302,615
Ratio of current assets to current liabilities		4.67 : 1		5.93 : 1
Shareholders’ equity per common share		0.08		0.08

The movement in cash and cash equivalents and working capital during the above periods was primarily due to cash flows generated from/used in operations including outflows arising from the effort required to complete the products in development, servicing of the secured loan and the timing of payments and accruals in the ordinary course of business.

Despite increasing revenues, cash and cash equivalents and working capital declined during the relevant period primarily as a result of the timing of the receipt of the research and development tax incentive income and movement in exchange rates which is a non-cash currency translation adjustment. Research and development tax incentive income of A$9,362,172 for the 2015 financial year was receipted in September 2016 whilst for the 2016 financial year a sum of A$7,522,341 was receipted in October 2017. The movement in exchange rates represents the strengthening of the AUD against the USD during the relevant period. We plan to build our USD cash reserves to enable the repayment of the USD denominated loan in December 2018.

We have not identified any collection issues with respect to receivables.

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Summary of Cash Flows

	Nine Months Ended September 30,
	2017			2016
	A$			A$
Cash provided by/(used in):
Operating activities		2,170,662			8,459,204
Investing activities		(997,503	)		(311,351	)
Financing activities		(334,044	)		(324,459	)
Net increase/(decrease) in cash and cash equivalents		839,115			7,823,394

Our net cash provided by operating activities for all periods represents receipts offset by payments for our research and development projects including efforts involved in establishing and maintaining our manufacturing operations, interest on our long term secured loan and general and administrative expenditure. Despite increased revenue growth and managements effort to contain costs and reduce wastage, the net cash provided by operating activities declined for the nine months ended September 30, 2017 when compared to the same period in the previous financial year as a result of the receipt of the research and development tax incentive income of A$9,362,172 for the 2015 financial year by the Company in September 2016, noting that the 2016 financial year research and development tax incentive income of A$7,522,341 is yet to be received by the Company.

Our net cash used in investing activities for all periods is primarily for the purchase of various plant and equipment and for the various continuous improvement program we are undertaking.

Our net cash used in financing activities principally represents repayment of the short-term borrowing.

Off-Balance Sheet Arrangement

The future minimum lease payments under non-cancellable operating leases (with initial or remaining lease terms in excess of one year) as of September 30, 2017 are:

	A$
Less than 1 year		686,308
1 – 3 years		424,506
3 – 5 years		0
More than 5 years		0
Total minimum lease payments		1,110,814

The above relates to our operating lease obligations in relation to the lease of our premises and certain office equipment.

38

Universal Biosensors, Inc.

Contractual Obligations

Our future contractual obligations at September 30, 2017 were as follows:

	Payments Due By Period
	Total		Less than 1 year		1 – 3 years		3 – 5 years		More than 5 years
	A$		A$		A$		A$		A$
Asset Retirement Obligations (1)		2,600,000		0		2,600,000		0		0
Operating Lease Obligations (2)		1,110,814		686,308		424,506		0		0
Purchase Obligations (3)		1,522,120		1,522,120		0		0		0
Long term secured loan (4)		18,881,951		0		18,881,951		0		0
Financing costs (5)		2,725,794		2,240,799		484,995		0		0
Other liability (6)		2,640,871		2,640,871		0		0		0
Other Long-Term Liabilities on Balance Sheet (7)		78,675		0		57,323		19,754		1,598
Total		29,560,225		7,090,098		22,448,775		19,754		1,598

(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) US$15 million payable to the lenders on maturity date pursuant to the Credit Agreement.

(5) Interest payable to the lenders pursuant to the Credit Agreement.

(6) Represents patent fees and marketing support fees payable to LifeScan.

(7) 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, being Australia and continue to derive significant revenues from LifeScan.    

The Company’s material long-lived assets are all based in Australia.

39

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 US$, CAD$ 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 US$, CAD$ 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.

The Company is currently using natural hedging to limit currency exposure.

Specifically, in relation to the secured term loan, we have established a program to reduce or even eliminate the impact of any foreign exchange exposure. The secured term loan is denominated in US$ and the bullet repayment of US$15 million in December 2018 is to be made in US$ as well. The goal is to build our US$ cash reserves which will reduce our foreign exchange exposure until the cash reserves reach US$15 million at which time the foreign exchange exposure from the principal of our term loan will be eliminated. We expect to build our US$ cash reserves from our US receipts to US$15 million before the secured term loan is repaid. On this basis, during the interim period, our foreign exchange exposure will only be to translation losses and there should not be any realized losses when the secured term loan is repaid.

The Company has recorded foreign currency translation and transaction gains/(losses) of A$61,873 and A$406,625 for the three months ended September 30, 2017 and 2016, respectively and A$703,420 and A$769,257 for the nine months ended September 30, 2017 and 2016, respectively.

Interest Rate Risk

Since the majority of our investments are in cash and cash equivalents in U.S. or Australian dollars, our interest income is not materially affected by changes in the general level of U.S. and 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.

Inflation

Our business is subject to the general risks of inflation. Our results of operations depend on our ability to anticipate and react to changes in the price of raw materials and other related costs over which we may have little control. Our inability to anticipate and respond effectively to an adverse change in the price could have a significant adverse effect on our results of operations. In the face of increasing costs, the Company strives to maintain its profit margins through cost reduction programs, productivity improvements and periodic price increases.

40

Universal Biosensors, Inc.

Item 4. Controls and Procedures

Disclosure Controls and Procedures. At the end of the period covered by this report, the Company and management evaluated the effectiveness of the design and operation of its disclosure controls and procedures. The Company’s 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 SEC’s 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 Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Rick Legleiter, Chief Executive Officer, and Salesh Balak, Chief Financial Officer, reviewed and participated in this evaluation. Based on this evaluation, Messrs. Legleiter and Balak concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting. During the fiscal quarter ended September 30, 2017, there were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation referred to above in this Item 9A that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

41

Universal Biosensors, Inc.

PART II

Item 1 Legal Proceedings

None.

Item 1A Risk Factors

In addition to the other information discussed in this report, the factors described in Part I, Item 1A. “Risk Factors” in our 2016 Annual Report on Form 10-K filed with the SEC on March 21, 2017 should be considered as they could materially affect our business, financial condition or future results. There have not been any significant changes with respect to the risks described in our 2016 Form 10-K, but these are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may adversely affect our business, financial condition or operating results.

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

There has been no sale of equity securities by the Company or purchase of equity securities by the Company, or by an affiliated purchaser on behalf of the Company, since December 31, 2016.

Item 3 Defaults Upon Senior Securities

None.

Item 4 Mine Safety Disclosures

Not applicable.

Item 5 Other Information

None.

Item 6 Exhibits

Exhibit No	Description	Location
10.1	Executive Service Agreement between UBS and Mr. Rick Legleiter, dated August 7, 2017	Incorporated by reference to our Current Report on Form 8-K filed on August 7, 2017 as Exhibit 10.1
10.2	Consultancy Agreement between UBS and Mr. Andrew Denver, dated August 7, 2017	Incorporated by reference to our Current Report on Form 8-K filed on August 7, 2017 as Exhibit 10.2
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	Section 1350 Certificate	Furnished herewith

42

Universal Biosensors, Inc.

101 The following materials from the Universal Biosensors, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Condensed Balance Sheets, (ii) the Consolidated Condensed Statements of Comprehensive Income, (iii) the Consolidated Condensed Statements of Changes in Stockholder’s Equity, (iv) the Consolidated Condensed Statements of Cash Flows and (v) the Notes to Consolidated Condensed Financial Statements text Filed herewith

43

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)
	By:	/s/ Rick Legleiter
Date: October 24, 2017		Rick Legleiter
		Principal Executive Officer

	By:	/s/ Salesh Balak
Date: October 24, 2017		Salesh Balak
		Principal Financial Officer

44

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Rick Legleiter, certify that:

1. I have reviewed this report on Form 10-Q of Universal Biosensors, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 24, 2017

/s/ Rick Legleiter

Rick Legleiter

Principal Executive Officer

Universal Biosensors, Inc.

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Salesh Balak, certify that:

1. I have reviewed this report on Form 10-Q of Universal Biosensors, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 24, 2017

/s/ Salesh Balak

Salesh Balak

Principal Financial Officer

Universal Biosensors, Inc.

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 *

In connection with the quarterly report of Universal Biosensors, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company does hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of such officer’s knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

The undersigned have executed this Certificate as of the 24^th day of October, 2017.

/s/ Rick Legleiter

Rick Legleiter

Principal Executive Officer

/s/ Salesh Balak

Salesh Balak

Principal Financial Officer

* This certification is being furnished as required by Rule 13a-14(b) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code, and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent such certification is explicitly incorporated by reference in such filing.

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2017	Oct. 24, 2017
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q3
Trading Symbol	UBI
Entity Registrant Name	UNIVERSAL BIOSENSORS INC
Entity Central Index Key	0001279695
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		176,431,883

XML

Consolidated Condensed Balance Sheets (Unaudited)	Sep. 30, 2017 AUD	Dec. 31, 2016 AUD
Current assets:
Cash and cash equivalents	AUD 19,832,390	AUD 20,402,322
Inventories, net	642,268	839,250
Accounts receivable	5,797,184	4,848,009
Prepayments	697,142	1,078,335
Other current assets	8,380,338	8,074,384
Total current assets	35,349,322	35,242,300
Non-current assets:
Property, plant and equipment	37,602,820	36,809,266
Less accumulated depreciation	(26,958,532)	(25,282,248)
Property, plant and equipment - net	10,644,288	11,527,018
Other non-current assets	3,220,000	3,220,000
Total non-current assets	13,864,288	14,747,018
Total assets	49,213,610	49,989,318
Current liabilities:
Accounts payable	1,073,183	547,324
Accrued expenses	1,484,423	1,785,134
Borrowings	34,819	369,630
Other liability	2,640,871	1,713,743
Deferred revenue	658,675	0
Employee entitlements provision	1,676,936	1,523,854
Total current liabilities	7,568,907	5,939,685
Non-current liabilities:
Asset retirement obligations	2,600,000	2,600,000
Employee entitlements provision	78,675	125,993
Long term secured loan	18,881,951	20,286,827
Other liability	0	1,415,563
Deferred revenue	5,161,646	6,366,975
Total non-current liabilities	26,722,272	30,795,358
Total liabilities	34,291,179	36,735,043
Commitments and contingencies	0	0
Stockholders' equity:
Preferred stock, US$0.01 par value. Authorized 1,000,000 shares; issued and outstanding nil in 2017 (2016: nil)
Common stock, US$0.0001 par value. Authorized 300,000,000 shares; issued and outstanding 176,431,883 shares in 2017 (2016: 176,386,884)	17,643	17,639
Additional paid-in capital	93,522,470	93,167,465
Accumulated deficit	(79,632,626)	(80,882,902)
Current year income	1,318,644	1,250,276
Accumulated other comprehensive loss	(303,700)	(298,203)
Total stockholders' equity	14,922,431	13,254,275
Total liabilities and stockholders' equity	AUD 49,213,610	AUD 49,989,318

XML

Consolidated Condensed Balance Sheets (Unaudited) (Parenthetical) - $ / shares	Sep. 30, 2017	Dec. 31, 2016
Statement of Financial Position [Abstract]
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	300,000,000	300,000,000
Common stock, shares issued	176,431,883	176,386,884
Common stock, shares outstanding	176,431,883	176,386,884

XML

Consolidated Condensed Statements of Comprehensive Income/(Loss) (Unaudited) - AUD	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Revenue
Revenue from products	AUD 1,764,855	AUD 0	AUD 4,062,470	AUD 183,480
Revenue from services	4,580,751	3,287,296	16,610,487	13,602,548
Total revenue	6,345,606	3,287,296	20,672,957	13,786,028
Operating costs & expenses
Cost of goods sold	998,674	31,899	2,913,808	272,468
Cost of services	254,330	0	737,135	0
Total cost of goods sold & services	1,253,004	31,899	3,650,943	272,468
Contribution from products & services	5,092,602	3,255,397	17,022,014	13,513,560
Other operating costs & expenses
Product support	215,057	0	550,173	0
Depreciation	626,260	595,327	1,471,851	1,919,123
Research and development	3,197,146	3,284,279	7,626,210	9,364,284
General and administrative	1,624,974	1,475,998	4,855,136	4,482,518
Total operating costs & expenses	5,663,437	5,355,604	14,503,370	15,765,925
Profit/(loss) from operations	(570,835)	(2,100,207)	2,518,644	(2,252,365)
Other income/(expense)
Interest income	15,772	89,669	74,625	140,538
Interest expense	(1,922)	(2,812)	(8,649)	(8,436)
Financing costs	(685,613)	(716,088)	(2,089,328)	(2,167,521)
Other	61,873	567,155	823,352	932,384
Total other income/(expense)	(609,890)	(62,076)	(1,200,000)	(1,103,035)
Net income/(loss) before tax	(1,180,725)	(2,162,283)	1,318,644	(3,355,400)
Income tax benefit/(expense)	0	0	0	0
Net income/( loss)	AUD (1,180,725)	AUD (2,162,283)	AUD 1,318,644	AUD (3,355,400)
Earnings per share
Basic net income/(loss) per share	AUD (0.01)	AUD (0.01)	AUD 0.01	AUD (0.02)
Average weighted number of shares - basic	176,410,144	176,205,084	176,395,711	176,181,015
Diluted net income/(loss) per share	AUD (0.01)	AUD (0.01)	AUD 0.01	AUD (0.02)
Average weighted number of shares - diluted	176,410,144	176,205,084	177,602,842	176,181,015
Other comprehensive gain/(loss), net of tax:
Foreign currency translation reserve	AUD (4,451)	AUD 0	AUD (5,497)	AUD 0
Reclassification for gain/(loss) realized in net income/(loss)	0	0	0	0
Other comprehensive gain/(loss)	(4,451)	0	(5,497)	0
Comprehensive gain/(loss)	AUD (1,185,176)	AUD (2,162,283)	AUD 1,313,147	AUD (3,355,400)

XML

Consolidated Condensed Statements of Changes in Stockholders' Equity and Comprehensive Income/(Loss) (Unaudited) - AUD	Total	Ordinary Shares [Member]	Additional Paid-in Capital [Member]	Accumulated Deficit [Member]	Accumulated Other Comprehensive Income/(Loss) [Member]
Beginning Balance at Dec. 31, 2015	AUD 13,255,705	AUD 17,611	AUD 94,419,308	AUD (80,882,902)	AUD (298,312)
Beginning Balance, Shares at Dec. 31, 2015		176,112,584
Net income/( loss)	(3,355,400)	AUD 0	0	(3,355,400)	0
Exercise of stock options issued to employees	0	AUD 8	(8)	0	0
Exercise of stock options issued to employees, Shares		77,500
Other comprehensive income/(loss)	0	AUD 0	0	0	0
Shares issued to employees	6,000	AUD 2	5,998	0	0
Shares issued to employees, Shares		15,000
Stock option expense	(1,473,907)	AUD 0	(1,473,907)	0	0
Ending Balance at Sep. 30, 2016	8,432,398	AUD 17,621	92,951,391	(84,238,302)	(298,312)
Ending Balance, Shares at Sep. 30, 2016		176,205,084
Beginning Balance at Dec. 31, 2016	13,254,275	AUD 17,639	93,167,465	(79,632,626)	(298,203)
Beginning Balance, Shares at Dec. 31, 2016		176,386,884
Net income/( loss)	1,318,644	AUD 0	0	1,318,644	0
Exercise of stock options issued to employees	766	AUD 4	762	0	0
Exercise of stock options issued to employees, Shares		44,999
Other comprehensive income/(loss)	(5,497)	AUD 0	0	0	(5,497)
Stock option expense	354,243	0	354,243	0	0
Ending Balance at Sep. 30, 2017	AUD 14,922,431	AUD 17,643	AUD 93,522,470	AUD (78,313,982)	AUD (303,700)
Ending Balance, Shares at Sep. 30, 2017		176,431,883

XML

Consolidated Condensed Statements of Cash Flows (Unaudited) - AUD	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Cash flows from operating activities:
Net income/(loss)	AUD 1,318,644	AUD (3,355,400)
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation and amortization	1,929,614	1,987,375
Share based payments expense	354,243	(1,473,907)
Loss on fixed assets disposal	2,409	1,280
Unrealized foreign exchange losses/(gains)	(159,889)	(314,883)
Financing costs - amortization of warrants	158,672	164,895
Change in assets and liabilities:
Inventory	196,982	(206,735)
Accounts receivables	(949,175)	(261,935)
Prepaid expenses and other current assets	75,239	9,254,126
Deferred revenue	(546,655)	3,226,721
Employee entitlements	105,655	206,256
Accounts payable and accrued expenses	(315,077)	(768,589)
Net cash provided by/(used in) operating activities	2,170,662	8,459,204
Cash flows from investing activities:
Purchases of property, plant and equipment	(997,503)	(311,351)
Net cash used in investing activities	(997,503)	(311,351)
Cash flows from financing activities:
Repayment of borrowings	(334,811)	(324,459)
Proceeds from stock options exercised	767	0
Net cash used in financing activities	(334,044)	(324,459)
Net increase/(decrease) in cash and cash equivalents	839,115	7,823,394
Cash and cash equivalents at beginning of period	20,402,322	14,350,307
Effect of exchange rate fluctuations on the balances of cash held in foreign currencies	(1,409,047)	(533,211)
Cash and cash equivalents at end of period	AUD 19,832,390	AUD 21,640,490

XML

Organization of the Company

9 Months Ended

Sep. 30, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization of the Company

Organization of the Company

We were incorporated in the State of Delaware on September 14, 2001 and our shares of common stock in the form of CHESS Depositary Interests (“CDIs”) have been quoted on the Australian Securities Exchange (“ASX”) since December 13, 2006. Our securities are not currently traded on any other public market. Our wholly owned subsidiary and primary operating vehicle, UBS, was incorporated as a proprietary limited company in Australia on September 21, 2001. UBS conducts our primary research, development and manufacturing activities in Melbourne, Australia. A subsidiary of UBS, HRL was incorporated in British Columbia, Canada on November 30, 2016. On December 16, 2016, HRL acquired the assets of the Hemostasis Reference Laboratory business from LifeLabs, Inc. HRL conducts coagulation testing and calibration services for products we manufacture as well as for other international customers in Hamilton, Canada.

We have rights to an extensive patent portfolio, with certain patents owned by UBS and a number licensed to UBS by LifeScan, Inc. (“LifeScan”) and other third party licensors. Unless otherwise noted, references to “LifeScan” in this document are references collectively or individually to LifeScan, Inc., and/or LifeScan Europe, a division of Cilag GmbH International, both affiliates of Johnson and Johnson.

We are using our electrochemical cell technology platform to develop point-of-care testing systems for a number of different markets. Our current focus is as set out below:

• Coagulation testing market – we are working with Siemens Healthcare Diagnostics, Inc. (“Siemens”) in relation to a range of products for the point-of-care coagulation testing market, pursuant to a Collaboration Agreement with Siemens (“Collaboration Agreement”). The first such product developed with Siemens, the Xprecia Stride™ Coagulation Analyzer, received CE mark approval on December 9, 2014 and US Food and Drug Administration (“FDA”) approval on October 4, 2016. The Xprecia Stride™ Coagulation Analyzer is now available in U.S., Europe, the Middle East, Africa, Asia Pacific, Latin America and Canada. Under the terms of a supply agreement with Siemens (“Supply Agreement”), UBS is the manufacturer of test strips for this product and two further tests still in development for Siemens.

• Blood glucose – we provide services to LifeScan as required from time to time, pursuant to a Master Services and Supply Agreement (“Master Services and Supply Agreement”) and a development and research agreement (“Development and Research Agreement”) with LifeScan.

• Other electrochemical-cell based tests – we are working on demonstrating the broader application of our technology platform. We may seek to enter into collaborative arrangements, strategic alliances or distribution agreements with respect to any products or technologies arising from this work.

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Interim Financial Statements

9 Months Ended

Sep. 30, 2017

Quarterly Financial Information Disclosure [Abstract]

Interim Financial Statements

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 nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. For further information, refer to the financial statements and footnotes thereto as of and for the year ended December 31, 2016, included in the Form 10-K of Universal Biosensors, Inc.

The year-end consolidated condensed balance sheets data as at December 31, 2016 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. Certain prior year amounts in the consolidated condensed financial statements have been reclassified to conform to the current presentation.

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Basis of Presentation

9 Months Ended

Sep. 30, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation

The Company’s consolidated condensed 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, operating cash flow and government grants and rebates 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.

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2017

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries, UBS and HRL. 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 revenue recognition, the carrying amount of property, plant and equipment, deferred income taxes, asset retirement obligations, obligations related to employee benefits, warrants and research and development tax incentive income. 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 their fair value.

Concentration of Credit Risk and Other Risks and Uncertainties

Cash and cash equivalents and accounts receivable consist of financial instruments that potentially subject the Company to concentration of credit risk to the extent of the amount recorded on the consolidated condensed balance sheets. The Company’s cash and cash equivalents are primarily invested with one of Australia’s 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 consolidated condensed 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 Company’s business and it is the Company’s 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 unrealized 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.

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 consolidated condensed statements of comprehensive income in the same period or periods during which the hedged forecast transaction affects the consolidated condensed statements of comprehensive income and on the same line item as that hedged forecast transaction. The ineffective part of any gain or loss is recognized immediately in the consolidated condensed statements of comprehensive income.

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 consolidated condensed statements of comprehensive income.

Derivative Instruments and Hedging Activities

In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider our own and counterparty credit risk. For periods ended September 30, 2017 and December 31, 2016, we did not have any assets or liabilities that utilize Level 3 inputs. The valuation of our foreign exchange derivatives are based on the market approach using observable market inputs, such as forward rates and incorporate non-performance risk (the credit standing of the counterparty when the derivative is in a net asset position, and the credit standing of the Company when the derivative is in a net liability position). Our derivative assets are categorized as Level 2. The fair value methodologies described as Level 2 and 3 inputs are defined elsewhere in these notes to the consolidated condensed financial statements.

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 dispose. 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.

	Nine Months Ended September 30,		Year Ended December 31,
	2017		2016
	A$		A$
Raw materials		391,040		315,970
Work in progress		222,753		523,280
Finished goods		28,475		0
		642,268		839,250

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 collectability, 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 condensed statements of comprehensive income. Account balances are charged against the allowance when it is probable the receivable will not be recovered.

	Nine Months Ended September 30,		Year Ended December 31,
	2017		2016
	A$		A$
Accounts receivable		5,797,184		4,848,009
Allowance for doubtful debts		0		0
		5,797,184		4,848,009

Property, Plant, and Equipment - net

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, include normal services, and do not include items of a capital nature.

The Company receives Commonwealth of Australia grant monies under grant agreements to support its 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.

Research and Development

Research and development expenses consist of costs incurred to further the Group’s research and product 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 and facility costs. Research and development costs are expensed as incurred.

Research and development expenses for the respective periods are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	A$		A$		A$		A$
Research		77,038		189,612		417,632		558,715
Development		3,120,108		3,094,667		7,208,578		8,805,569
Research and development expenses		3,197,146		3,284,279		7,626,210		9,364,284

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 company’s 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 December 31, 2016 the Company has A$22,307,475 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. The Company also has A$5,800,672 of non-refundable R&D tax offset as at December 31, 2016. The R&D Tax offset is a non-refundable tax offset, which assists to reduce the Company’s tax liability. Once the liability has been reduced to zero, any excess offset may be carried forward into future income years. UBI has US tax losses available for carry forward against future earnings of US$1,011,321 as of December 31, 2016.

We are subject to income taxes in the United States, Canada and Australia. U.S. federal income tax returns up to and including the 2016 financial year have been filed for UBI. In Australia, consolidated income tax returns of UBI and UBS up to and including the 2016 financial year have been filed. HRL has filed its tax returns in Canada for the 2016 financial year.

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 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:

	Nine Months Ended September 30,		Year Ended December 31,
	2017		2016
	A$		A$
Opening balance		2,600,000		2,600,000
Accretion expense		0		0
Ending balance		2,600,000		2,600,000

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) and Canadian Harmonized Sales Tax (HST)

Revenues, expenses and assets are recognized net of the amount of associated GST and HST, unless the GST and HST 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 and HST receivable or payable. The net amount of GST and HST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the consolidated condensed balance sheets.

Revenue Recognition

We recognize revenue from all sources based on the provisions of the U.S. SEC’s Staff Accounting Bulletin No. 104 and ASC 605 Revenue Recognition.

The Company’s revenue represents revenue from sales of products, provision of services and collaborative research and development agreements.

We recognize revenue from sales of products at the time title of goods passes to the buyer and the buyer assumes the risks and rewards of ownership, assuming all other revenue recognition criteria have been met. Generally, this is at the time products are shipped to the customer.

Revenue from services is recognized when a persuasive evidence of an arrangement exists, services have been rendered, the price is fixed or determinable, and collectability is reasonably assured. Revenue recognition principles are assessed for each new contractual arrangement and the appropriate accounting is determined for each service.

Where our agreements contain multiple elements, or deliverables, such as the manufacture and sale of products, provision of services or research and development activities, they are assessed to determine whether separate delivery of the individual elements of such arrangements comprises more than one unit of accounting. Where an arrangement can be divided into separate units of accounting (each unit constituting a separate earnings process), the arrangement consideration is allocated amongst those varying units based on the relative selling price of the separate units of accounting and the applicable revenue recognition criteria applied to the separate units. Selling prices are determined using fair value as determined by either vendor specific objective evidence or third party evidence of the selling price, when available, or the Company’s best estimate of selling price when fair value is not available for a given unit of accounting.

Under ASC 605-25, the delivered item(s) are separate units of accounting, provided (i) the delivered item(s) have value to a customer on a stand-alone basis, and (ii) if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item(s) is considered probable and substantially in our control. Where the arrangement cannot be divided into separate units, the individual deliverables are combined as a single unit of accounting and the total arrangement consideration is recognized across other deliverables in the arrangement or over the estimated collaboration period. Payments under these arrangements typically include one or more of the following: non-refundable, upfront payments; funding of research and/or development efforts; and milestone payments.

We typically generate milestone payments from our customers pursuant to the various agreements we have with them. Non-refundable milestone payments which represent the achievement of a significant technical/regulatory hurdle in the research and development process pursuant to collaborative agreements, and are deemed to be substantive, are recognized as revenue upon the achievement of the specified milestone. If the non-refundable milestone payment is not substantive or stand-alone value, the non-refundable milestone payment is deferred and recognized as revenue either over the estimated performance period stipulated in the agreement or across other deliverables in the arrangement.

Management has concluded that the core operations of the Company are expected to be research and development activities, commercial manufacture of approved medical or testing devices and the provision of services. The Company’s ultimate goal is to utilize the underlying technology and skill base for the development of marketable products that the Company will manufacture. The Company considers revenue from the sales of products, revenue from services and the income received from milestone payments indicative of its core operating activities or revenue producing goals of the Company, and as such have accounted for this income as “revenues”.

Master Services and Supply Agreement

In October 2007, the Company and LifeScan entered into a Master Services and Supply Agreement, under which the Company would provide certain services to LifeScan in the field of blood glucose monitoring and act as a non-exclusive manufacturer of blood glucose test strips. The Master Services and Supply Agreement was subsequently amended and restated in May 2009. The Company has concluded the Master Services and Supply Agreement should be accounted for as three separate units of accounting: 1) research and development to assist LifeScan in receiving regulatory clearance to sell the blood glucose product (milestone payment), 2) contract manufacturing of the blood glucose test strips (contract manufacturing) which ceased in December 2013, and 3) ongoing services and efforts to enhance the product (product enhancement).

All consideration within the Master Services and Supply Agreement is contingent. The Company concluded the undelivered items were not priced at a significant incremental discount to the delivered items and revenue for each deliverable will be recognized as each contingency is met and the consideration becomes fixed and determinable. The milestone payment was considered to be a substantive payment and the entire amount has been recognized as revenue when the regulatory approval was received. Revenues for contract manufacturing and ongoing efforts to enhance the product are recognized as revenue from products or revenue from services, respectively, when the four basic criteria for revenue recognition are met.

Collaboration Agreement

On September 9, 2011 the Company entered into a Collaboration Agreement with Siemens to develop coagulation related products for hospital point-of-care and ambulatory care coagulation markets. In addition to an up-front, non-refundable payment of A$2,961,245 (equivalent to US$3 million), the Collaboration Agreement (as amended) contains a further seven payments from Siemens upon the achievement of certain defined milestones. These seven milestones, to a large extent, relate to feasibility, regulatory submissions and the launch of the products to be developed. The Company has concluded that the up-front payment is not a separate unit of accounting and recorded the amount as deferred revenue to be recognized as revenue across other deliverables in the arrangement with Siemens based upon the Company’s best estimate of selling price. The deliverables related to each of the seven milestones are considered substantive and are not priced at a significant incremental discount to the other deliverables. As the achievement of the seven milestones is contingent upon a future event, the revenue for each deliverable will be recognized as the contingencies are met and the consideration becomes fixed and determinable.

Of the seven milestones, the Company has delivered on four as of September 30, 2017. The last milestone delivered was in July 2015.

Interest income

Interest income is recognized as it accrues, taking into account the effective yield on the cash and cash equivalents.

Research and development tax incentive income    

Research and development tax incentive income is recognized when there is reasonable assurance that the income will be received, the relevant expenditure has been incurred, and the consideration can be reliably measured.

The research and development tax incentive is one of the key elements of the Australian Government’s support for Australia’s innovation system and is supported by legislative law primarily in the form of the Australian Income Tax Assessment Act 1997 as long as eligibility criteria are met. Generally speaking, entities which are an R&D entity involved in eligible R&D activities may claim research and development tax incentive income as follows:

(1) as a 43.5% refundable tax offset if aggregate turnover (which generally means an entity’s total income that it derives in the ordinary course of carrying on a business, subject to certain exclusions) of the entity is less than A$20 million (the legislative rate for tax year prior to June 30, 2016 was 45%), or

(2) as a 38,5% non-refundable tax offset if aggregate turnover of the entity is more than A$20 million (the legislative rate for tax year prior to June 30, 2016 was 40%).

Historically, the Company has had aggregate turnover less than A$20 million and in accordance with SEC Regulation

S-X Article 5-03, the Company’s research and development tax incentive income has been recognized as non-operating income as it is not indicative of the core operating activities or revenue producing goals of the Company. Management has assessed the Company’s research and development activities and expenditures to determine which activities and expenditures are likely to be eligible under the tax incentive regime described above. At each period end management estimates the refundable tax offset available to the Company based on available information at the time. This estimate is also reviewed by external tax advisors on an annual basis.

In the nine months ended September 30, 2017, the aggregate turnover of the Company has exceeded A$20 million and accordingly it is not eligible for a refundable tax offset (“research and development tax incentive income”). The eligible R&D activities and expenditures are however able to be claimed as a non-refundable tax offset as part of the current year income tax computation and any amounts included as a tax asset will be subject to recognition rules under ASC 740 “Income Taxes”.

For the nine months ended September 30, 2016, there was no reasonable assurance that the aggregate turnover of the Company for the year ending December 31, 2016 would be less than A$20 million and accordingly A$0 was recorded as research and development tax incentive income. However, as at December 31, 2016, the Company ascertained that the aggregate turnover for the year ending December 31, 2016 was less than A$20 million and accordingly recorded research and tax development tax incentive income of $7,400,000. As at June 30, 2017, upon finalising its tax returns, the Company determined that the research and development tax incentive income for the 2016 financial year is $7,522,341. This amount has been recorded as “Other current assets” in the consolidated condensed balance sheets. As at June 30, 2017, an amount of A$122,341, being the difference in research and development tax incentive income recorded as at June 30, 2017 and December 31, 2016 has been recorded as “Other Income” in the consolidated condensed statements of comprehensive income/(loss). This amount has also been recorded as “Other Income” in the consolidated condensed statements of comprehensive income/(loss) as at September 30, 2017.

Foreign Currency

Functional and reporting currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The functional currency of UBI and UBS is AUD or A$ for all years presented. The functional currency of HRL is CAD$.

The consolidated financial statements are presented using a reporting currency of Australian dollars.

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 consolidated condensed statements of comprehensive income.

The Company has recorded foreign currency translation and transaction gains/(losses) of A$61,873 and A$406,625 for the three months ended September 30, 2017 and 2016, respectively and A$703,420 and A$769,257 for the nine months ended September 30, 2017 and 2016, 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 item reported 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 September 30, 2017.

Patent and License Costs

Legal and maintenance fees incurred for patent application costs have been charged to expense and reported in general and administrative expense.

We have an obligation to pay 50% of the patent fees paid by LifeScan in respect of the patents we license from LifeScan prior to the date of the first commercial sale of a non-glucose product that utilizes the technology licensed from LifeScan and 50% of the patent fees incurred by LifeScan in respect of such patents thereafter. This obligation was triggered with the first commercial sale of the Xprecia Stride^TM Coagulation Analyzer by Siemens in December 2014 and an amount of US$517,831 was accrued at inception. The repayment of this amount to LifeScan, which commenced in November 2015, is being made over a 24 month period in equal monthly installments. The patent fees payable to LifeScan as at September 30, 2017 have been recorded as “Current liabilities - Other liability” in consolidated condensed balance sheets.    

Marketing Support Payment

During 2009, LifeScan chose not to proceed with the registration of the then current product but to proceed with an enhanced product, called OneTouch^® Verio^®, and acknowledged that there would be a delay as a result. As a result of this change, LifeScan agreed to pay additional amounts per strip manufactured by us in 2010 and 2011 up to a specified volume limit (“manufacturing initiation payments”). At the same time, we agreed to pay LifeScan a marketing support payment in each of the two years following the first calendar year in which 1 billion strips are sold by LifeScan equal to 40% of the total manufacturing initiation payments made. LifeScan has sold just over 900 million strips in the 2015 financial year. Management has concluded that this loss contingency be accrued in 2015 as “Other liability” in consolidated balance sheets as it is both probable and the amount can be reliably estimated. The total amount of marketing support payments to be paid to LifeScan is US$2,048,602 (equivalent to A$2,663,290) and have been recorded as “Current liabilities - Other liability” in consolidated condensed balance sheets as at September 30, 2017.

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 Company’s leases for the periods ending September 30, 2017 and December 31, 2016 are considered operating leases. The costs of operating leases are charged to the consolidated condensed statements of comprehensive income on a straight-line basis over the lease term.

Stock-based Compensation

We measure stock-based compensation at grant date, based on the estimated fair value of the award, and recognize the cost as an expense on a straight-line basis over the vesting period of the award. We estimate the fair value of stock options using the Trinomial Lattice model. We also grant our employees Restricted Stock Units (“RSUs”) and Zero Priced Employee Options (“ZEPOs”). RSUs are stock awards granted to employees that entitle the holder to shares of common stock as the award vests. ZEPOs are stock options granted to employees that entitle the holder to shares of common stock as the award vests. The value of RSUs are determined and fixed on the grant date based on the Company’s stock price. The exercise price of ZEPOs is nil.

We record deferred tax assets for awards that will result in deductions on our income tax returns, based on the amount of compensation cost recognized and our statutory tax rate in the jurisdiction in which we will receive a deduction. Differences between the deferred tax assets recognized for financial reporting purposes and the actual tax deduction reported in our income tax return are recorded in expense or in capital in excess of par value if the tax deduction exceeds the deferred tax assets or to the extent that previously recognized credits to paid-in-capital are still available if the tax deduction is less than the deferred tax asset.

(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 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. In addition to time based vesting, options granted may be also subject to the achievement of specified predetermined key performance indicators.

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 the Company 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.

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
	Feb-17			Dec-16			Apr-16
Exercise Price (A$)		0.50			0.33			0.50
Share Price at Grant Date (A$)		0.39			0.33			0.29
Volatility		69	%		69	%		70	%
Expected Life (years)		7			7			7
Risk Free Interest Rate		2.47	%		2.60	%		2.23	%
Fair Value of Option (A$)		0.13			0.19			0.08

Stock option activity during the current period is as follows:

	Number of shares			Weighted average exercise price  A$
Balance at December 31, 2016		16,264,169			0.67
Granted		2,629,500			0.50
Exercised		(44,999	)		0.02
Lapsed		(2,236,670	)		0.90
Balance at September 30, 2017		16,612,000			0.61

The number of options exercisable as at September 30, 2017 and 2016 was 10,963,629 and 8,746,124, respectively. The total stock compensation expense/(income) recognized in the consolidated condensed statements of comprehensive income was A$154,218 and A$231,818 for the three months ended September 30, 2017 and 2016, respectively and A$354,243 and (A$1,473,907) for the nine months ended September 30, 2017 and 2016, respectively.

As of September 30, 2017, there was A$128,782 of unrecognized compensation expense related to unvested share-based compensation arrangements under the Employee Option Plan. This expense is expected to be recognized over the vesting years as follows:

Fiscal Year	A$
2017		57,446
2018		66,620
2019		4,716
		128,782

The aggregate intrinsic value for all options outstanding as at September 30, 2017 and 2016 was zero.

(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 (although our Board has determined not to issue equity to non-executive 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 Share Plan. The Company currently intends to continue to issue A$1,000 worth of RSUs 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 RSUs issued by the Company since January 1, 2016:

	Number of Restricted Shares Issued		Market Value of Restricted Shares Issued (A$)
February, 2016		15,000		6,000
December, 2016		181,800		59,994

Restricted stock awards activity during the current period is as follows:

	Number of shares			Weighted average issue price  A$
Balance at December 31, 2016		575,580			0.31
Granted		0			0.00
Release of restricted shares		(47,187	)		0.32
Balance at September 30, 2017		528,393			0.31

Employee Benefit Costs

The Company contributes 9.5% of each employee’s salary to standard defined contribution superannuation funds on behalf of all UBS employees. Superannuation is a compulsory savings program whereby employers are required to pay a portion of an employee’s remuneration to an approved superannuation fund that the employee is typically not able to access until they have reached the statutory requirement age. Whilst the Company has a third party default superannuation fund, it permits UBS employees to choose an approved and registered superannuation fund into which the contributions are paid. Contributions are charged to the consolidated condensed statements of comprehensive income as they become payable.

Registered Retirement Savings Plan and Deferred Sharing Profit Plan

The Company provides eligible HRL employees a retirement plan through Sun Life Assurance Company of Canada. The retirement plan includes a Registered Retirement Savings Plan (“RRSP”) and Deferred Profit Sharing Plan (“DPSP”). The RRSP is voluntary and the employee contributions are matched by the Company up to a maximum of 5% based on their continuous years of service and placed into the DPSP. The Company contributes 1% to 2% of the employee’s base earnings towards the DPSP. The DPSP contributions are vested immediately and expensed. There are no unfunded liabilities.

Benefit Plan

The Company provides eligible HRL employees through Sun Life Assurance Company of Canada a Benefit Plan to its employees. In general, the Benefit Plan includes extended health care, dental care, basic life insurance, basic accidental death and dismemberment, and disability insurance.

Net Income/(Loss) per Share and Anti-dilutive Securities

Basic and diluted net income/(loss) per share is presented in conformity with ASC 260 – Earnings per Share. Basic and diluted net income/(loss) per share has been computed using the weighted-average number of common shares outstanding during the period. Diluted net income/(loss) per share is calculated by adjusting the basic net income/(loss) per share by assuming all dilutive potential ordinary shares are converted.

Total Comprehensive Income/(Loss)

The Company follows ASC 220 – Comprehensive Income/(Loss). Comprehensive income/(loss) 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/(loss).

The tax effect allocated to each component of other comprehensive income/(loss) is as follows:

	Before-Tax Amount A$		Tax (Expense)/ Benefit A$		Net-of-Tax Amount A$
Nine Months Ended September 30, 2017
Foreign currency translation reserve		5,497		0		5,497
Reclassification for gains realised in net income		0		0		0
Other comprehensive loss		5,497		0		5,497
Nine Months Ended September 30, 2016
Unrealized loss on derivative instruments		0		0		0
Reclassification for gains realised in net income		0		0		0
Other comprehensive loss		0		0		0

Business combinations

Business combinations are accounted for using the acquisition method of accounting. Acquisition cost is measured as the aggregate of the fair value at the date of acquisition of the assets given, equity instruments issued or liabilities incurred or assumed. Acquisition related costs are expensed as incurred (except for those costs arising on the issue of equity instruments which are recognized directly in equity). Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at fair value on the acquisition date. Goodwill is measured as the excess of the acquisition cost, the amount of any non-controlling interest and the fair value of any previous UBI equity interest in the acquiree, over the fair value of the identifiable net assets acquired.

Reclassification

Certain prior year amounts have been reclassified to conform to the current year presentation.

Revision    

In 2016, the Company classified patent application costs (including legal and maintenance fees) within the general and administrative expense line in the Consolidated Statement of Comprehensive Income. The patent application costs of A$99,113 and A$624,866 for the three and nine months ended September 30, 2016 have been reclassified from Research and development expenses to General and administrative expenses to conform to current year classification. The Company has concluded that this reclassification was not material to the Consolidated Statements of Comprehensive Income/(Loss) and the reclassification had no impact on the pre-tax income/(loss), net income/(loss) or earnings per share for the year ended December 31, 2016.

Government grants

UBS was awarded a grant from the Commonwealth of Australia under the Next Generation Manufacturing Investment Programme up to a maximum grant amount of A$575,000 payable over a three year period commencing from January 1, 2017. The grants are paid upon achievement of pre-agreed milestones. The milestones generally relate to UBS placing purchase orders, commissioning upgrades and validating the equipment. Amongst other reasons, the Commonwealth of Australia may terminate the grant agreement for breach of the agreement by UBS or for failure to undertake the required programme. Under these circumstances, the Commonwealth of Australia may require UBS to repay some or the entire grant. The Company continues to undertake the project funded by the Commonwealth of Australia.

No amounts have been received under this grant to date. In the event UBS had achieved milestones and received grant payments, it 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.

Recent Accounting Pronouncements     

On May 28, 2014, the FASB issued ASU 2014-09 which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.

The core principle of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” In applying the revenue model to contracts within its scope, an entity will:

• Identify the contract(s) with a customer (step 1).

• Identify the performance obligations in the contract (step 2).

• Determine the transaction price (step 3).

• Allocate the transaction price to the performance obligations in the contract (step 4).

• Recognize revenue when (or as) the entity satisfies a performance obligation (step 5).

The ASU applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. Certain of the ASU’s provisions also apply to transfers of nonfinancial assets, including in-substance nonfinancial assets that are not an output of an entity’s ordinary activities (e.g., sales of (1) property, plant, and equipment; (2) real estate; or (3) intangible assets). Existing accounting guidance applicable to these transfers (e.g., ASC 360-20) has been amended or superseded.

Compared with current U.S. GAAP, the ASU also requires significantly expanded disclosures about revenue recognition.

The ASU is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016, for public entities. Early application is not permitted (however, early adoption is optional for entities reporting under IFRSs).

Entities have the option of using either a full retrospective or a modified approach to adopt the guidance in the ASU:

• Full retrospective application — Retrospective application would take into account the requirements in ASC 250 (with certain practical expedients).

• Modified retrospective application — Under the modified approach, an entity recognizes “the cumulative effect of initially applying the ASU as an adjustment to the opening balance of retained earnings of the annual reporting period that includes the date of initial application” (revenue in periods presented in the financial statements before that date is reported under guidance in effect before the change). Using this approach, an entity applies the guidance in the ASU to existing contracts (those for which the entity has remaining performance obligations) as of, and new contracts after, the date of initial application. The ASU is not applied to contracts that were completed before the effective date (i.e., an entity has no remaining performance obligations to fulfil). Entities that elect the modified approach must disclose an explanation of the impact of adopting the ASU, including the financial statement line items and respective amounts directly affected by the standard’s application.

On May 9, 2016, the FASB issued ASU 2016-12 which amends certain aspects on the Board’s new revenue standard, ASU 2014-09. The amendments include further clarifications on collectability, presentation of sales tax and other similar taxes collected from customers, non-cash consideration, contract modifications and completed contracts at transaction and transition technical correction.

On May 3, 2016, the FASB issued ASU 2016-11 which rescinds certain SEC guidance from the FASB Accounting Standards Codification in response to announcements made by the SEC at the EITF’s March 3, 2016 meeting.

On December 21, 2016, the FASB issued ASU 2016-20, which makes certain technical corrections (i.e., minor changes and enhancements) to the Board’s new revenue standard, ASU 2014-09. The amendments clarify, rather than change, the new revenue standard’s core revenue recognition principles.

The Company is currently evaluating the method and impact the adoption of ASU 2014-09 will have on the Company’s financial statements.

On August 12, 2015 the FASB issued ASU 2015-14 which defers the effective date of ASU 2014-09 by one year. For public entities, the standard will be effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017. Early adoption will be permitted as of the original effective date in ASU 2014-09 (i.e., annual reporting periods beginning after December 15, 2016, including interim reporting periods within those annual periods).

On July 22, 2015, the FASB issued ASU 2015-11, which requires entities to measure most inventory “at the lower of cost and net realizable value,” thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market (market in this context is defined as one of three different measures, one of which is net realizable value). The ASU does not apply to inventories that are measured by using either the last-in, first-out method or the retail inventory method. For public business entities, the ASU is effective prospectively for annual periods beginning after December 15, 2016, and interim periods therein. Early adoption is permitted. The Company has adopted this guidance and it has not had a material impact on the Company’s financial statements.

On November 20, 2015, the FASB issued ASU 2015-17 as part of its simplification initiative (i.e., FASB’s effort to reduce the cost and complexity of certain aspects of U.S. GAAP). The ASU requires entities to present deferred tax assets (DTAs) and deferred tax liabilities (DTLs) as non-current in a classified balance sheet. It thus simplifies the current guidance, which requires entities to separately present DTAs and DTLs as current or non-currentin a classified balance sheet. Netting of DTAs and DTLs by tax jurisdiction is still required under the new guidance. For public business entities, the ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The adoption of this guidance has not had a material impact on the Company’s financial statements.

On February 25, 2016, the FASB issued ASU 2016-02, its new standard on accounting for leases. ASU 2016-02 introduces a lessee model that brings most leases on the balance sheet. The new standard also aligns many of the underlying principles of the new lessor model with those in ASC 606, the FASB’s new revenue recognition standard (e.g., those related to evaluating when profit can be recognized). Furthermore, the ASU addresses other concerns related to the current leases model. For example, the ASU eliminates the requirement in current U.S. GAAP for an entity to use bright-line tests in determining lease classification. The standard also requires lessors to increase the transparency of their exposure to changes in value of their residual assets and how they manage that exposure.

The new guidance will be effective for public business entities for annual periods beginning after December 15, 2018, and interim periods therein. Early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2016-02 will have on the Company’s financial statements.

On March 17, 2016, the FASB issued ASU 2016-08, which amends the principal-versus agent implementation guidance and illustrations in the Board’s new revenue standard (ASU 2014-09). The FASB issued the ASU in response to concerns identified by stakeholders, including those related to (1) determining the appropriate unit of account under the revenue standard’s principal-versus-agent guidance and (2) applying the indicators of whether an entity is a principal or an agent in accordance with the revenue standard’s control principle.

Among other things, the ASU clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. As defined in the ASU, a specified good or service is “a distinct good or service (or a distinct bundle of goods or services) to be provided to the customer.” Therefore, for contracts involving more than one specified good or service, the entity may be the principal for one or more specified goods or services and the agent for others.

The ASU has the same effective date as the new revenue standard (as amended by the one-year deferral and the early adoption provisions in ASU 2015-14). In addition, entities are required to adopt the ASU by using the same transition method they used to adopt the new revenue standard. The Company is currently evaluating the impact the adoption of ASU 2016-08 will have on the Company’s financial statements.

On March 30, 2016, the FASB issued ASU 2016-09, which simplifies several aspects of the accounting for employee share-based payment transactions for both public and non-public entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. For public business entities, the ASU is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. For all other entities, the ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within annual reporting periods beginning after December 15, 2018. The adoption of this guidance has not had a material impact on the Company’s financial statements.

On August 26, 2016, the FASB issued ASU 2016-15, which amends the guidance in ASC 230 on the classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of the ASU is to reduce the diversity in practice that has resulted from the lack of consistent principles on this topic. The ASU’s amendments add or clarify guidance on eight cash flow issues:

• Debt prepayment or debt extinguishment costs.

• Settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing.

• Contingent consideration payments made after a business combination.

• Proceeds from the settlement of insurance claims.

• Proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies.

• Distributions received from equity method investees.

• Beneficial interests in securitization transactions.

• Separately identifiable cash flows and application of the predominance principle.

For public business entities, the guidance in the ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, it is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted for all entities. The Company has adopted this guidance and it has not had a material impact on the Company’s financial statements.

On November 17, 2016, the FASB issued ASU 2016-18, which amends ASC 230 to add or clarify guidance on the classification and presentation of restricted cash in the statement of cash flows. For public business entities, the guidance is effective for fiscal years beginning after December 15, 2017, including interim periods therein. For all other entities, it is effective for fiscal years beginning after December 15, 2018, and interim periods thereafter. Early adoption is permitted for all entities. The Company is currently evaluating the impact the adoption of ASU 2016-18 will have on the Company’s financial statements.

On October 24, 2016, the FASB issued ASU 2016-16, which removes the prohibition in ASC 740 against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. For public business entities, the ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. For all other entities, the ASU is effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted for all entities as of the beginning of a fiscal year for which neither the annual or interim (if applicable) financial statements have been issued. If an entity chooses to early adopt the amendments in the ASU, it must do so in the first interim period of its annual financial statements (if the entity issues interim financial statements). That is, an entity cannot adopt the amendments in the ASU in a later interim period and apply them as if they were in effect as of the beginning of the year. Entities should apply the ASU’s amendments on a modified retrospective basis, recognizing the effects in retained earnings as of the beginning of the year of adoption. The Company has adopted this guidance and it has not had a material impact on the Company’s financial statements.

On January 5, 2017, the FASB issued ASU 2017-01 to clarify the definition of a business in ASC 805, which was among the primary issues raised in connection with the FAF’s post-implementation review report on FASB Statement 141(R) (codified in ASC 805). The amendments in the ASU are intended to make application of the guidance more consistent and cost-efficient. The ASU is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods therein. For all other entities, the ASU is effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The ASU must be applied prospectively on or after the effective date, and no disclosures for a change in accounting principle are required at transition. Early adoption is permitted for transactions (i.e., acquisitions or dispositions) that occurred before the issuance date or effective date of the standard if the transactions were not reported in financial statements that have been issued or made available for issuance. The Company has adopted this guidance and it has not had a material impact on the Company’s financial statements.

On January 26, 2017, the FASB issued ASU 2017-04, which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. As a result, under the ASU, “an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount [and] should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.” The ASU is effective prospectively for fiscal years beginning after December 15, 2019 for public business entities that are SEC filers. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company has adopted this guidance and it has not had a material impact on the Company’s financial statements.

On May 10, 2017, the FASB issued ASU 2017-09, which amends the scope of modification accounting for share-based payment arrangements. The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. For all entities, the ASU is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. The Company is currently evaluating the impact the adoption of ASU 2017-09 will have on the Company’s financial statements.

On May 16, 2017, the FASB issued ASU 2017-10 in response to a consensus reached by the EITF at its March 2017 meeting. The ASU addresses “diversity in practice in how an operating entity determines the customer of the operation services for transactions within the scope of ASC 853” by “clarifying that the grantor is the customer of the operation services in all cases for those arrangements.” The amendments also allow for a “more consistent application of other aspects of the revenue guidance, which are affected by this customer determination.” For entities that have not yet adopted ASC 606, the effective date is aligned with that for ASC 606. For public business entities that have adopted ASC 606, the ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For most other entities, the ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2017-10 will have on the Company’s financial statements.

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Related Party Transactions

9 Months Ended

Sep. 30, 2017

Related Party Transactions [Abstract]

Related Party Transactions

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:

In September 2011, we entered into a non-exclusive license agreement with SpeeDx Pty Ltd (“SpeeDx”) pursuant to which SpeeDx granted us a license to use its proprietary MNAzyme technology in the field of molecular diagnostics. Under the agreement we make milestone payments totaling A$500,000 to SpeeDx if certain specified targets are achieved, and royalty payments ranging from 5% to 15% of that portion of our sales and licensing revenues arising from SpeeDx technology or products incorporating SpeeDx technology.

The license agreement and the obligation to pay royalties continues until SpeeDx’s patent rights have expired, lapsed, are found to be invalid or are rejected. The agreement will terminate by mutual agreement or by one party for breach or insolvency of the other. SpeeDx may also terminate the license agreement if the research and development on a first licensed product is not completed by UBS within 7 years (subject to certain exceptions), and UBS may terminate if it determines that it does not wish to proceed with further commercialization of SpeeDx’s technology.

Mr. Denver is a director of SpeeDx and up until August 7, 2017 was a director of the Company. With effect from October 1, 2017, Mr. Denver will remain with the Company in an advisory capacity for a minimum of 12 months.

Mr. Coleman is Non-Executive Chairman of the Company and Executive Chairman of Viburnum Funds Pty Ltd. Viburnum Funds Pty Ltd, as an investment manager for its associated funds holds a beneficial interest and voting power over approximately 15.85% of our shares.

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Borrowings

9 Months Ended

Sep. 30, 2017

Debt Disclosure [Abstract]

Borrowings

Borrowings

Future maturities, interest and other payments under the Company’s long term secured loan pursuant to the credit agreement (described below) as of September 30, 2017 and December 31, 2016 are as follows:

	September 30, 2017					December 31, 2016
	US$			A$		US$			A$
2017		442,750					1,756,563
2018		16,694,000					16,694,000
Thereafter		0					0
Total minimum payments		17,136,750					18,450,563
Less amount representing interest and other fees		(2,136,750	)				(3,450,563	)
Gross balance of long term debt		15,000,000					15,000,000
Less fair value of warrants recorded within loan (a)		(815,655	)				(815,655	)
Plus interest accretion		617,216					495,203
Total carrying value		14,801,561			18,881,951		14,679,548			20,286,827
Less current portion		0			0		0			0
Total carrying value, non-current portion		14,801,561			18,881,951		14,679,548			20,286,827

The carrying value of the borrowings approximates its fair value. The fair value is estimated by discounting future cash flows at the currently offered rates for borrowings of similar remaining maturities.

(a) The warrants issued in December 2013 had a fair value of US$815,655 as of September 30, 2017 and December 31, 2016, and are included in equity.

Athyrium Credit Agreement

On December 19, 2013 (“Closing Date”), UBI and its wholly owned subsidiary, UBS (together UBI and UBS, the “Transaction Parties”) entered into a credit agreement with Athyrium Opportunities Fund (A) LP (“Athyrium A”), as administrative agent (the “Administrative Agent”) and as a lender, and Athyrium Opportunities Fund (B) LP (“Athyrium B”) as a lender (Athyrium A and Athyrium B together with any other lenders party thereto from time to time, the “Lenders”) for a secured term loan of up to US$25 million, which was amended on January 30, 2015 (“Credit Agreement”). Of this amount, US$15 million had been drawn at December 31, 2013 and a further US$10 million was available to be drawn down on or before July 31, 2015, however UBS decided not to take up the additional debt funding.

The term loan has a maturity date of December 19, 2018 (“Maturity Date”) and bears interest at 10.5% per annum payable in cash quarterly in arrears over the five year term, and as otherwise described in the Credit Agreement. A default interest rate of 13% per annum shall apply during the existence of a default under the Credit Agreement. Other than as summarized below, UBS is not required to make payments of principal for amounts outstanding under the term loan until maturity, December 19, 2018. The term loan under the Credit Agreement is secured by substantially all of UBI and UBS’ assets. UBI (together with any future subsidiaries) guarantees all of UBS’s obligations under the term loan.

Voluntary prepayments of the term loans are not permitted prior to the second anniversary of the Closing Date, except in the event of a change of control of a Transaction Party. After the second anniversary, UBS can make voluntary repayments in minimum principal amounts of US$2,500,000 together with interest, plus the premium described below. UBS must make mandatory prepayments in certain prescribed circumstances, including in the event of raising additional debt financing, a sale or transfer of assets other than in certain circumstances and in the event of other specified extraordinary receipts. Extraordinary receipts include cash received or paid other than in the ordinary course of business, such as tax refunds (other than GST and R&D tax rebates), LifeScan lump sum fee payments and Siemens termination fees. In such events, UBS must prepay to the Lenders 100% of the net cash proceeds received up to the outstanding principal amount of the loans drawn down, together with all accrued and unpaid interest thereon and all other obligations. In the event of any prepayment on or prior to the second anniversary of the Closing Date with respect to any obligations under the Credit Agreement, UBS must also pay a prepayment premium of 20% of the principal of such prepayment due and payable on the applicable date. In the event of any prepayment after the second anniversary of the Closing Date with respect to any obligations under the Credit Agreement, UBS must pay a prepayment premium commencing at 15% of the principal of such prepayment due and payable on the applicable date and reducing pro-rata on a monthly basis until the Maturity Date.

Unless the facility is otherwise terminated earlier pursuant to the terms of the Credit Agreement, UBS (as the borrower) is required to repay the outstanding principal amount of the loans drawn down, together with all accrued and unpaid interest thereon and all other obligations on Maturity Date.

UBS paid a non-refundable fee of US$625,000 to the Lenders on the Closing Date (being 2.5% of the aggregate credit facility) and a non-refundable fee of US$200,000 to the Lenders in connection with the January 2015 amendment to the Credit Agreement. A 2% commitment fee based on any available unused borrowing commitment was paid by UBS under the Credit Agreement until July 31, 2015. The Lenders are also entitled to receive 30% of the net proceeds of milestone payments paid under the Collaboration Agreement by and among UBS, UBI and Siemens, up to a maximum of US$600,000 in the aggregate, of which US$300,000 was paid in February 2015 and the balance of US$300,000 was paid in August 2015 (upon receipt of two further milestone payments). UBS has also agreed to pay certain taxes arising in connection with the Credit Agreement and other Loan Documents, including withholding taxes. UBS has also agreed to pay certain reasonable out-of-pocket expenses incurred by the Lenders in connection with the loan documents, including the January 2015 amendment, or as may be incurred in connection with the enforcement or protection of their rights.

The Credit Agreement also contains certain covenants, including among other things, covenants: (i) relating to the delivery of financial and other information and certificates, notices of defaults, litigation and other material events; payment of taxes and other obligations; maintenance of insurance; (ii) which limit or restrict the incurrence of liens; the making of investments; the incurrence of certain indebtedness; mergers, dispositions, liquidations, or consolidations and significant asset sales; restricted payments; transactions with affiliates other than on normal and arms-length terms; burdensome agreements; prepayment of other indebtedness; ownership of subsidiaries; and (iii) which require UBS to maintain unrestricted cash of not less than US$2,000,000 in a specified bank account at any time.

As further described below, pursuant to the Credit Agreement, UBI issued to the Lenders warrants entitling the holder to purchase up to an aggregate total of 4.5 million shares of UBI’s common stock in the form of CDIs at a price of A$1.00 per share (the “Exercise Price”), which represents a 117% premium over the closing price of UBI’s common stock on December 19, 2013. The warrants are immediately exercisable and have a term of seven years.

Other

In December 2015, UBS entered into an arrangement with Elantis Premium Funding Ltd to fund the Group’s 2016 insurance premium. The total amount financed was A$360,510 at inception and the short-term borrowing was fully repaid in September 2016. Interest was being charged at a fixed rate of 2.60% per annum. In December 2016, UBS entered into an arrangement with Elantis Premium Funding Ltd to fund the Group’s 2017 insurance premium. The total amount financed was A$369,630 at inception and the short-term borrowing will be fully repaid in October 2017. Interest is charged at a fixed rate of 2.60% per annum. The short-term borrowing is secured by the insurance premium refund.

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Warrants

9 Months Ended

Sep. 30, 2017

Text Block [Abstract]

Warrants

Warrants

Pursuant to the Credit Agreement, UBI issued to the Lenders warrants entitling the holder to purchase up to an aggregate total of 4.5 million shares of UBI’s common stock in the form of CDIs at a price of A$1.00 per share (the “Exercise Price”), which represents a 117% premium over the closing price of UBI’s common stock on December 19, 2013. The warrants are immediately exercisable and have a term of seven years.

The warrants may be exercised at any time until December 19, 2020, in whole or in part in minimum multiples of 500,000 shares of common stock. The holder of the warrants can pay the Exercise Price in cash or it has the right to pay all or a portion of the Exercise Price by making a cashless exercise, therefore reducing the number of shares of common stock the holder would otherwise be issued.

The warrant is subject to adjustments in the event of certain issuances by UBI, such as bonus issues, pro rata (rights) issues and reorganizations (e.g., consolidation, subdivision).

The Company assessed that the warrants are not liabilities within scope of ASC 480-10-25. The warrants are legally detachable from the loan and separately exercisable and as such meet the definition of a freestanding derivative instrument pursuant to ASC 815.

However, the scope exception in accordance with ASC 815-10-15-74 applies to warrants and it meets the requirements of ASC 815 that would be classified in stockholders’ equity. Therefore, the warrants were initially accounted for within stockholders’ equity, and subsequent changes in fair value will not be recorded. The fair value of the warrant was estimated using the Trinomial Lattice model.

The debt issuance costs were recorded as deferred issuance costs and are amortized as interest expense, using the effective interest method, over the term of the loan pursuant to ASC 835-30-35-2.

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Restricted Cash

9 Months Ended

Sep. 30, 2017

Cash and Cash Equivalents [Abstract]

Restricted Cash

Restricted Cash

Restricted cash maintained by the Company in the form of term deposits is as follows:

	Nine Months Ended September 30,		Year Ended December 31,
	2017		2016
	A$		A$
Financial covenant pursuant to the Credit Agreement		2,900,000		2,900,000
Collateral for facilities		335,000		320,000
		3,235,000		3,220,000

Financial covenant pursuant to the credit agreement is recorded under the caption “Other non-current assets” in the consolidated condensed balance sheets. $320,000 of the collateral for facilities is recorded under the caption “Other non-current assets” whilst the remaining balance is recorded under the caption “Other current assets”.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2017

Accounting Policies [Abstract]

Principles of Consolidation

Principles of Consolidation

The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries, UBS and HRL. All intercompany balances and transactions have been eliminated on consolidation.

Use of Estimates

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 revenue recognition, the carrying amount of property, plant and equipment, deferred income taxes, asset retirement obligations, obligations related to employee benefits, warrants and research and development tax incentive income. Actual results could differ from those estimates.

Cash & Cash Equivalents

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 (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 their fair value.

Concentration of Credit Risk and Other Risks and Uncertainties

Concentration of Credit Risk and Other Risks and Uncertainties

Cash and cash equivalents and accounts receivable consist of financial instruments that potentially subject the Company to concentration of credit risk to the extent of the amount recorded on the consolidated condensed balance sheets. The Company’s cash and cash equivalents are primarily invested with one of Australia’s 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 consolidated condensed 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 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 Company’s business and it is the Company’s 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 unrealized 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.

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 consolidated condensed statements of comprehensive income in the same period or periods during which the hedged forecast transaction affects the consolidated condensed statements of comprehensive income and on the same line item as that hedged forecast transaction. The ineffective part of any gain or loss is recognized immediately in the consolidated condensed statements of comprehensive income.

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 consolidated condensed statements of comprehensive income.

Derivative Instruments and Hedging Activities

In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider our own and counterparty credit risk. For periods ended September 30, 2017 and December 31, 2016, we did not have any assets or liabilities that utilize Level 3 inputs. The valuation of our foreign exchange derivatives are based on the market approach using observable market inputs, such as forward rates and incorporate non-performance risk (the credit standing of the counterparty when the derivative is in a net asset position, and the credit standing of the Company when the derivative is in a net liability position). Our derivative assets are categorized as Level 2. The fair value methodologies described as Level 2 and 3 inputs are defined elsewhere in these notes to the consolidated condensed financial statements.

Inventory

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 dispose. 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.

	Nine Months Ended September 30,		Year Ended December 31,
	2017		2016
	A$		A$
Raw materials		391,040		315,970
Work in progress		222,753		523,280
Finished goods		28,475		0
		642,268		839,250

Receivables

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 collectability, 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 condensed statements of comprehensive income. Account balances are charged against the allowance when it is probable the receivable will not be recovered.

	Nine Months Ended September 30,		Year Ended December 31,
	2017		2016
	A$		A$
Accounts receivable		5,797,184		4,848,009
Allowance for doubtful debts		0		0
		5,797,184		4,848,009

Property, Plant, and Equipment - net

Property, Plant, and Equipment - net

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, include normal services, and do not include items of a capital nature.

The Company receives Commonwealth of Australia grant monies under grant agreements to support its 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.

Research and Development

Research and Development

Research and development expenses consist of costs incurred to further the Group’s research and product 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 and facility costs. Research and development costs are expensed as incurred.

Research and development expenses for the respective periods are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	A$		A$		A$		A$
Research		77,038		189,612		417,632		558,715
Development		3,120,108		3,094,667		7,208,578		8,805,569
Research and development expenses		3,197,146		3,284,279		7,626,210		9,364,284

Income Taxes

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 company’s 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 December 31, 2016 the Company has A$22,307,475 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. The Company also has A$5,800,672 of non-refundable R&D tax offset as at December 31, 2016. The R&D Tax offset is a non-refundable tax offset, which assists to reduce the Company’s tax liability. Once the liability has been reduced to zero, any excess offset may be carried forward into future income years. UBI has US tax losses available for carry forward against future earnings of US$1,011,321 as of December 31, 2016.

We are subject to income taxes in the United States, Canada and Australia. U.S. federal income tax returns up to and including the 2016 financial year have been filed for UBI. In Australia, consolidated income tax returns of UBI and UBS up to and including the 2016 financial year have been filed. HRL has filed its tax returns in Canada for the 2016 financial year.

Asset Retirement Obligations

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 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:

	Nine Months Ended September 30,		Year Ended December 31,
	2017		2016
	A$		A$
Opening balance		2,600,000		2,600,000
Accretion expense		0		0
Ending balance		2,600,000		2,600,000

Fair Value of Financial Instruments

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

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) and Canadian Harmonized Sales Tax (HST)

Australian Goods and Services Tax (GST) and Canadian Harmonized Sales Tax (HST)

Revenues, expenses and assets are recognized net of the amount of associated GST and HST, unless the GST and HST 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 and HST receivable or payable. The net amount of GST and HST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the consolidated condensed balance sheets.

Revenue Recognition

Revenue Recognition

We recognize revenue from all sources based on the provisions of the U.S. SEC’s Staff Accounting Bulletin No. 104 and ASC 605 Revenue Recognition.

The Company’s revenue represents revenue from sales of products, provision of services and collaborative research and development agreements.

We recognize revenue from sales of products at the time title of goods passes to the buyer and the buyer assumes the risks and rewards of ownership, assuming all other revenue recognition criteria have been met. Generally, this is at the time products are shipped to the customer.

Revenue from services is recognized when a persuasive evidence of an arrangement exists, services have been rendered, the price is fixed or determinable, and collectability is reasonably assured. Revenue recognition principles are assessed for each new contractual arrangement and the appropriate accounting is determined for each service.

Where our agreements contain multiple elements, or deliverables, such as the manufacture and sale of products, provision of services or research and development activities, they are assessed to determine whether separate delivery of the individual elements of such arrangements comprises more than one unit of accounting. Where an arrangement can be divided into separate units of accounting (each unit constituting a separate earnings process), the arrangement consideration is allocated amongst those varying units based on the relative selling price of the separate units of accounting and the applicable revenue recognition criteria applied to the separate units. Selling prices are determined using fair value as determined by either vendor specific objective evidence or third party evidence of the selling price, when available, or the Company’s best estimate of selling price when fair value is not available for a given unit of accounting.

Under ASC 605-25, the delivered item(s) are separate units of accounting, provided (i) the delivered item(s) have value to a customer on a stand-alone basis, and (ii) if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item(s) is considered probable and substantially in our control. Where the arrangement cannot be divided into separate units, the individual deliverables are combined as a single unit of accounting and the total arrangement consideration is recognized across other deliverables in the arrangement or over the estimated collaboration period. Payments under these arrangements typically include one or more of the following: non-refundable, upfront payments; funding of research and/or development efforts; and milestone payments.

We typically generate milestone payments from our customers pursuant to the various agreements we have with them. Non-refundable milestone payments which represent the achievement of a significant technical/regulatory hurdle in the research and development process pursuant to collaborative agreements, and are deemed to be substantive, are recognized as revenue upon the achievement of the specified milestone. If the non-refundable milestone payment is not substantive or stand-alone value, the non-refundable milestone payment is deferred and recognized as revenue either over the estimated performance period stipulated in the agreement or across other deliverables in the arrangement.

Management has concluded that the core operations of the Company are expected to be research and development activities, commercial manufacture of approved medical or testing devices and the provision of services. The Company’s ultimate goal is to utilize the underlying technology and skill base for the development of marketable products that the Company will manufacture. The Company considers revenue from the sales of products, revenue from services and the income received from milestone payments indicative of its core operating activities or revenue producing goals of the Company, and as such have accounted for this income as “revenues”.

Master Services and Supply Agreement

Master Services and Supply Agreement

In October 2007, the Company and LifeScan entered into a Master Services and Supply Agreement, under which the Company would provide certain services to LifeScan in the field of blood glucose monitoring and act as a non-exclusive manufacturer of blood glucose test strips. The Master Services and Supply Agreement was subsequently amended and restated in May 2009. The Company has concluded the Master Services and Supply Agreement should be accounted for as three separate units of accounting: 1) research and development to assist LifeScan in receiving regulatory clearance to sell the blood glucose product (milestone payment), 2) contract manufacturing of the blood glucose test strips (contract manufacturing) which ceased in December 2013, and 3) ongoing services and efforts to enhance the product (product enhancement).

All consideration within the Master Services and Supply Agreement is contingent. The Company concluded the undelivered items were not priced at a significant incremental discount to the delivered items and revenue for each deliverable will be recognized as each contingency is met and the consideration becomes fixed and determinable. The milestone payment was considered to be a substantive payment and the entire amount has been recognized as revenue when the regulatory approval was received. Revenues for contract manufacturing and ongoing efforts to enhance the product are recognized as revenue from products or revenue from services, respectively, when the four basic criteria for revenue recognition are met.

Collaboration Agreement

Collaboration Agreement

On September 9, 2011 the Company entered into a Collaboration Agreement with Siemens to develop coagulation related products for hospital point-of-care and ambulatory care coagulation markets. In addition to an up-front, non-refundable payment of A$2,961,245 (equivalent to US$3 million), the Collaboration Agreement (as amended) contains a further seven payments from Siemens upon the achievement of certain defined milestones. These seven milestones, to a large extent, relate to feasibility, regulatory submissions and the launch of the products to be developed. The Company has concluded that the up-front payment is not a separate unit of accounting and recorded the amount as deferred revenue to be recognized as revenue across other deliverables in the arrangement with Siemens based upon the Company’s best estimate of selling price. The deliverables related to each of the seven milestones are considered substantive and are not priced at a significant incremental discount to the other deliverables. As the achievement of the seven milestones is contingent upon a future event, the revenue for each deliverable will be recognized as the contingencies are met and the consideration becomes fixed and determinable.

Of the seven milestones, the Company has delivered on four as of September 30, 2017. The last milestone delivered was in July 2015.

Interest income

Interest income

Interest income is recognized as it accrues, taking into account the effective yield on the cash and cash equivalents.

Research and development tax incentive income

Research and development tax incentive income    

Research and development tax incentive income is recognized when there is reasonable assurance that the income will be received, the relevant expenditure has been incurred, and the consideration can be reliably measured.

The research and development tax incentive is one of the key elements of the Australian Government’s support for Australia’s innovation system and is supported by legislative law primarily in the form of the Australian Income Tax Assessment Act 1997 as long as eligibility criteria are met. Generally speaking, entities which are an R&D entity involved in eligible R&D activities may claim research and development tax incentive income as follows:

(1) as a 43.5% refundable tax offset if aggregate turnover (which generally means an entity’s total income that it derives in the ordinary course of carrying on a business, subject to certain exclusions) of the entity is less than A$20 million (the legislative rate for tax year prior to June 30, 2016 was 45%), or

(2) as a 38,5% non-refundable tax offset if aggregate turnover of the entity is more than A$20 million (the legislative rate for tax year prior to June 30, 2016 was 40%).

Historically, the Company has had aggregate turnover less than A$20 million and in accordance with SEC Regulation

S-X Article 5-03, the Company’s research and development tax incentive income has been recognized as non-operating income as it is not indicative of the core operating activities or revenue producing goals of the Company. Management has assessed the Company’s research and development activities and expenditures to determine which activities and expenditures are likely to be eligible under the tax incentive regime described above. At each period end management estimates the refundable tax offset available to the Company based on available information at the time. This estimate is also reviewed by external tax advisors on an annual basis.

In the nine months ended September 30, 2017, the aggregate turnover of the Company has exceeded A$20 million and accordingly it is not eligible for a refundable tax offset (“research and development tax incentive income”). The eligible R&D activities and expenditures are however able to be claimed as a non-refundable tax offset as part of the current year income tax computation and any amounts included as a tax asset will be subject to recognition rules under ASC 740 “Income Taxes”.

For the nine months ended September 30, 2016, there was no reasonable assurance that the aggregate turnover of the Company for the year ending December 31, 2016 would be less than A$20 million and accordingly A$0 was recorded as research and development tax incentive income. However, as at December 31, 2016, the Company ascertained that the aggregate turnover for the year ending December 31, 2016 was less than A$20 million and accordingly recorded research and tax development tax incentive income of $7,400,000. As at June 30, 2017, upon finalising its tax returns, the Company determined that the research and development tax incentive income for the 2016 financial year is $7,522,341. This amount has been recorded as “Other current assets” in the consolidated condensed balance sheets. As at June 30, 2017, an amount of A$122,341, being the difference in research and development tax incentive income recorded as at June 30, 2017 and December 31, 2016 has been recorded as “Other Income” in the consolidated condensed statements of comprehensive income/(loss). This amount has also been recorded as “Other Income” in the consolidated condensed statements of comprehensive income/(loss) as at September 30, 2017.

Foreign Currency

Foreign Currency

Functional and reporting currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The functional currency of UBI and UBS is AUD or A$ for all years presented. The functional currency of HRL is CAD$.

The consolidated financial statements are presented using a reporting currency of Australian dollars.

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 consolidated condensed statements of comprehensive income.

The Company has recorded foreign currency translation and transaction gains/(losses) of A$61,873 and A$406,625 for the three months ended September 30, 2017 and 2016, respectively and A$703,420 and A$769,257 for the nine months ended September 30, 2017 and 2016, 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 item reported 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

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 September 30, 2017.

Patent and License Costs

Patent and License Costs

Legal and maintenance fees incurred for patent application costs have been charged to expense and reported in general and administrative expense.

We have an obligation to pay 50% of the patent fees paid by LifeScan in respect of the patents we license from LifeScan prior to the date of the first commercial sale of a non-glucose product that utilizes the technology licensed from LifeScan and 50% of the patent fees incurred by LifeScan in respect of such patents thereafter. This obligation was triggered with the first commercial sale of the Xprecia Stride^TM Coagulation Analyzer by Siemens in December 2014 and an amount of US$517,831 was accrued at inception. The repayment of this amount to LifeScan, which commenced in November 2015, is being made over a 24 month period in equal monthly installments. The patent fees payable to LifeScan as at September 30, 2017 have been recorded as “Current liabilities - Other liability” in consolidated condensed balance sheets.

Marketing Support Payment

Marketing Support Payment

During 2009, LifeScan chose not to proceed with the registration of the then current product but to proceed with an enhanced product, called OneTouch^® Verio^®, and acknowledged that there would be a delay as a result. As a result of this change, LifeScan agreed to pay additional amounts per strip manufactured by us in 2010 and 2011 up to a specified volume limit (“manufacturing initiation payments”). At the same time, we agreed to pay LifeScan a marketing support payment in each of the two years following the first calendar year in which 1 billion strips are sold by LifeScan equal to 40% of the total manufacturing initiation payments made. LifeScan has sold just over 900 million strips in the 2015 financial year. Management has concluded that this loss contingency be accrued in 2015 as “Other liability” in consolidated balance sheets as it is both probable and the amount can be reliably estimated. The total amount of marketing support payments to be paid to LifeScan is US$2,048,602 (equivalent to A$2,663,290) and have been recorded as “Current liabilities - Other liability” in consolidated condensed balance sheets as at September 30, 2017.

Clinical Trial Expenses

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

Leased Assets

All of the Company’s leases for the periods ending September 30, 2017 and December 31, 2016 are considered operating leases. The costs of operating leases are charged to the consolidated condensed statements of comprehensive income on a straight-line basis over the lease term.

Stock-based Compensation

Stock-based Compensation

We measure stock-based compensation at grant date, based on the estimated fair value of the award, and recognize the cost as an expense on a straight-line basis over the vesting period of the award. We estimate the fair value of stock options using the Trinomial Lattice model. We also grant our employees Restricted Stock Units (“RSUs”) and Zero Priced Employee Options (“ZEPOs”). RSUs are stock awards granted to employees that entitle the holder to shares of common stock as the award vests. ZEPOs are stock options granted to employees that entitle the holder to shares of common stock as the award vests. The value of RSUs are determined and fixed on the grant date based on the Company’s stock price. The exercise price of ZEPOs is nil.

We record deferred tax assets for awards that will result in deductions on our income tax returns, based on the amount of compensation cost recognized and our statutory tax rate in the jurisdiction in which we will receive a deduction. Differences between the deferred tax assets recognized for financial reporting purposes and the actual tax deduction reported in our income tax return are recorded in expense or in capital in excess of par value if the tax deduction exceeds the deferred tax assets or to the extent that previously recognized credits to paid-in-capital are still available if the tax deduction is less than the deferred tax asset.

(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 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. In addition to time based vesting, options granted may be also subject to the achievement of specified predetermined key performance indicators.

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 the Company 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.

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
	Feb-17			Dec-16			Apr-16
Exercise Price (A$)		0.50			0.33			0.50
Share Price at Grant Date (A$)		0.39			0.33			0.29
Volatility		69	%		69	%		70	%
Expected Life (years)		7			7			7
Risk Free Interest Rate		2.47	%		2.60	%		2.23	%
Fair Value of Option (A$)		0.13			0.19			0.08

Stock option activity during the current period is as follows:

	Number of shares			Weighted average exercise price  A$
Balance at December 31, 2016		16,264,169			0.67
Granted		2,629,500			0.50
Exercised		(44,999	)		0.02
Lapsed		(2,236,670	)		0.90
Balance at September 30, 2017		16,612,000			0.61

The number of options exercisable as at September 30, 2017 and 2016 was 10,963,629 and 8,746,124, respectively. The total stock compensation expense/(income) recognized in the consolidated condensed statements of comprehensive income was A$154,218 and A$231,818 for the three months ended September 30, 2017 and 2016, respectively and A$354,243 and (A$1,473,907) for the nine months ended September 30, 2017 and 2016, respectively.

As of September 30, 2017, there was A$128,782 of unrecognized compensation expense related to unvested share-based compensation arrangements under the Employee Option Plan. This expense is expected to be recognized over the vesting years as follows:

Fiscal Year	A$
2017		57,446
2018		66,620
2019		4,716
		128,782

The aggregate intrinsic value for all options outstanding as at September 30, 2017 and 2016 was zero.

(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 (although our Board has determined not to issue equity to non-executive 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 Share Plan. The Company currently intends to continue to issue A$1,000 worth of RSUs 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 RSUs issued by the Company since January 1, 2016:

	Number of Restricted Shares Issued		Market Value of Restricted Shares Issued (A$)
February, 2016		15,000		6,000
December, 2016		181,800		59,994

Restricted stock awards activity during the current period is as follows:

	Number of shares			Weighted average issue price  A$
Balance at December 31, 2016		575,580			0.31
Granted		0			0.00
Release of restricted shares		(47,187	)		0.32
Balance at September 30, 2017		528,393			0.31

Employee Benefit Costs

Employee Benefit Costs

The Company contributes 9.5% of each employee’s salary to standard defined contribution superannuation funds on behalf of all UBS employees. Superannuation is a compulsory savings program whereby employers are required to pay a portion of an employee’s remuneration to an approved superannuation fund that the employee is typically not able to access until they have reached the statutory requirement age. Whilst the Company has a third party default superannuation fund, it permits UBS employees to choose an approved and registered superannuation fund into which the contributions are paid. Contributions are charged to the consolidated condensed statements of comprehensive income as they become payable.

Registered Retirement Savings Plan and Deferred Sharing Profit Plan

Registered Retirement Savings Plan and Deferred Sharing Profit Plan

The Company provides eligible HRL employees a retirement plan through Sun Life Assurance Company of Canada. The retirement plan includes a Registered Retirement Savings Plan (“RRSP”) and Deferred Profit Sharing Plan (“DPSP”). The RRSP is voluntary and the employee contributions are matched by the Company up to a maximum of 5% based on their continuous years of service and placed into the DPSP. The Company contributes 1% to 2% of the employee’s base earnings towards the DPSP. The DPSP contributions are vested immediately and expensed. There are no unfunded liabilities.

Benefit Plan

Benefit Plan

The Company provides eligible HRL employees through Sun Life Assurance Company of Canada a Benefit Plan to its employees. In general, the Benefit Plan includes extended health care, dental care, basic life insurance, basic accidental death and dismemberment, and disability insurance.

Net Income/(Loss) per Share and Anti-dilutive Securities

Net Income/(Loss) per Share and Anti-dilutive Securities

Basic and diluted net income/(loss) per share is presented in conformity with ASC 260 – Earnings per Share. Basic and diluted net income/(loss) per share has been computed using the weighted-average number of common shares outstanding during the period. Diluted net income/(loss) per share is calculated by adjusting the basic net income/(loss) per share by assuming all dilutive potential ordinary shares are converted.

Total Comprehensive Income/(Loss)

Total Comprehensive Income/(Loss)

The Company follows ASC 220 – Comprehensive Income/(Loss). Comprehensive income/(loss) 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/(loss).

The tax effect allocated to each component of other comprehensive income/(loss) is as follows:

	Before-Tax Amount A$		Tax (Expense)/ Benefit A$		Net-of-Tax Amount A$
Nine Months Ended September 30, 2017
Foreign currency translation reserve		5,497		0		5,497
Reclassification for gains realised in net income		0		0		0
Other comprehensive loss		5,497		0		5,497
Nine Months Ended September 30, 2016
Unrealized loss on derivative instruments		0		0		0
Reclassification for gains realised in net income		0		0		0
Other comprehensive loss		0		0		0

Business combinations

Business combinations

Business combinations are accounted for using the acquisition method of accounting. Acquisition cost is measured as the aggregate of the fair value at the date of acquisition of the assets given, equity instruments issued or liabilities incurred or assumed. Acquisition related costs are expensed as incurred (except for those costs arising on the issue of equity instruments which are recognized directly in equity). Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at fair value on the acquisition date. Goodwill is measured as the excess of the acquisition cost, the amount of any non-controlling interest and the fair value of any previous UBI equity interest in the acquiree, over the fair value of the identifiable net assets acquired.

Reclassification

Reclassification

Certain prior year amounts have been reclassified to conform to the current year presentation.

Revision

Revision    

In 2016, the Company classified patent application costs (including legal and maintenance fees) within the general and administrative expense line in the Consolidated Statement of Comprehensive Income. The patent application costs of A$99,113 and A$624,866 for the three and nine months ended September 30, 2016 have been reclassified from Research and development expenses to General and administrative expenses to conform to current year classification. The Company has concluded that this reclassification was not material to the Consolidated Statements of Comprehensive Income/(Loss) and the reclassification had no impact on the pre-tax income/(loss), net income/(loss) or earnings per share for the year ended December 31, 2016.

Government grants

Government grants

UBS was awarded a grant from the Commonwealth of Australia under the Next Generation Manufacturing Investment Programme up to a maximum grant amount of A$575,000 payable over a three year period commencing from January 1, 2017. The grants are paid upon achievement of pre-agreed milestones. The milestones generally relate to UBS placing purchase orders, commissioning upgrades and validating the equipment. Amongst other reasons, the Commonwealth of Australia may terminate the grant agreement for breach of the agreement by UBS or for failure to undertake the required programme. Under these circumstances, the Commonwealth of Australia may require UBS to repay some or the entire grant. The Company continues to undertake the project funded by the Commonwealth of Australia.

No amounts have been received under this grant to date. In the event UBS had achieved milestones and received grant payments, it 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.

Recent Accounting Pronouncements

Recent Accounting Pronouncements     

On May 28, 2014, the FASB issued ASU 2014-09 which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.

The core principle of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” In applying the revenue model to contracts within its scope, an entity will:

• Identify the contract(s) with a customer (step 1).

• Identify the performance obligations in the contract (step 2).

• Determine the transaction price (step 3).

• Allocate the transaction price to the performance obligations in the contract (step 4).

• Recognize revenue when (or as) the entity satisfies a performance obligation (step 5).

The ASU applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. Certain of the ASU’s provisions also apply to transfers of nonfinancial assets, including in-substance nonfinancial assets that are not an output of an entity’s ordinary activities (e.g., sales of (1) property, plant, and equipment; (2) real estate; or (3) intangible assets). Existing accounting guidance applicable to these transfers (e.g., ASC 360-20) has been amended or superseded.

Compared with current U.S. GAAP, the ASU also requires significantly expanded disclosures about revenue recognition.

The ASU is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016, for public entities. Early application is not permitted (however, early adoption is optional for entities reporting under IFRSs).

Entities have the option of using either a full retrospective or a modified approach to adopt the guidance in the ASU:

• Full retrospective application — Retrospective application would take into account the requirements in ASC 250 (with certain practical expedients).

• Modified retrospective application — Under the modified approach, an entity recognizes “the cumulative effect of initially applying the ASU as an adjustment to the opening balance of retained earnings of the annual reporting period that includes the date of initial application” (revenue in periods presented in the financial statements before that date is reported under guidance in effect before the change). Using this approach, an entity applies the guidance in the ASU to existing contracts (those for which the entity has remaining performance obligations) as of, and new contracts after, the date of initial application. The ASU is not applied to contracts that were completed before the effective date (i.e., an entity has no remaining performance obligations to fulfil). Entities that elect the modified approach must disclose an explanation of the impact of adopting the ASU, including the financial statement line items and respective amounts directly affected by the standard’s application.

On May 9, 2016, the FASB issued ASU 2016-12 which amends certain aspects on the Board’s new revenue standard, ASU 2014-09. The amendments include further clarifications on collectability, presentation of sales tax and other similar taxes collected from customers, non-cash consideration, contract modifications and completed contracts at transaction and transition technical correction.

On May 3, 2016, the FASB issued ASU 2016-11 which rescinds certain SEC guidance from the FASB Accounting Standards Codification in response to announcements made by the SEC at the EITF’s March 3, 2016 meeting.

On December 21, 2016, the FASB issued ASU 2016-20, which makes certain technical corrections (i.e., minor changes and enhancements) to the Board’s new revenue standard, ASU 2014-09. The amendments clarify, rather than change, the new revenue standard’s core revenue recognition principles.

The Company is currently evaluating the method and impact the adoption of ASU 2014-09 will have on the Company’s financial statements.

On August 12, 2015 the FASB issued ASU 2015-14 which defers the effective date of ASU 2014-09 by one year. For public entities, the standard will be effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017. Early adoption will be permitted as of the original effective date in ASU 2014-09 (i.e., annual reporting periods beginning after December 15, 2016, including interim reporting periods within those annual periods).

On July 22, 2015, the FASB issued ASU 2015-11, which requires entities to measure most inventory “at the lower of cost and net realizable value,” thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market (market in this context is defined as one of three different measures, one of which is net realizable value). The ASU does not apply to inventories that are measured by using either the last-in, first-out method or the retail inventory method. For public business entities, the ASU is effective prospectively for annual periods beginning after December 15, 2016, and interim periods therein. Early adoption is permitted. The Company has adopted this guidance and it has not had a material impact on the Company’s financial statements.

On November 20, 2015, the FASB issued ASU 2015-17 as part of its simplification initiative (i.e., FASB’s effort to reduce the cost and complexity of certain aspects of U.S. GAAP). The ASU requires entities to present deferred tax assets (DTAs) and deferred tax liabilities (DTLs) as non-current in a classified balance sheet. It thus simplifies the current guidance, which requires entities to separately present DTAs and DTLs as current or non-currentin a classified balance sheet. Netting of DTAs and DTLs by tax jurisdiction is still required under the new guidance. For public business entities, the ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The adoption of this guidance has not had a material impact on the Company’s financial statements.

On February 25, 2016, the FASB issued ASU 2016-02, its new standard on accounting for leases. ASU 2016-02 introduces a lessee model that brings most leases on the balance sheet. The new standard also aligns many of the underlying principles of the new lessor model with those in ASC 606, the FASB’s new revenue recognition standard (e.g., those related to evaluating when profit can be recognized). Furthermore, the ASU addresses other concerns related to the current leases model. For example, the ASU eliminates the requirement in current U.S. GAAP for an entity to use bright-line tests in determining lease classification. The standard also requires lessors to increase the transparency of their exposure to changes in value of their residual assets and how they manage that exposure.

The new guidance will be effective for public business entities for annual periods beginning after December 15, 2018, and interim periods therein. Early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2016-02 will have on the Company’s financial statements.

On March 17, 2016, the FASB issued ASU 2016-08, which amends the principal-versus agent implementation guidance and illustrations in the Board’s new revenue standard (ASU 2014-09). The FASB issued the ASU in response to concerns identified by stakeholders, including those related to (1) determining the appropriate unit of account under the revenue standard’s principal-versus-agent guidance and (2) applying the indicators of whether an entity is a principal or an agent in accordance with the revenue standard’s control principle.

Among other things, the ASU clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. As defined in the ASU, a specified good or service is “a distinct good or service (or a distinct bundle of goods or services) to be provided to the customer.” Therefore, for contracts involving more than one specified good or service, the entity may be the principal for one or more specified goods or services and the agent for others.

The ASU has the same effective date as the new revenue standard (as amended by the one-year deferral and the early adoption provisions in ASU 2015-14). In addition, entities are required to adopt the ASU by using the same transition method they used to adopt the new revenue standard. The Company is currently evaluating the impact the adoption of ASU 2016-08 will have on the Company’s financial statements.

On March 30, 2016, the FASB issued ASU 2016-09, which simplifies several aspects of the accounting for employee share-based payment transactions for both public and non-public entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. For public business entities, the ASU is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. For all other entities, the ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within annual reporting periods beginning after December 15, 2018. The adoption of this guidance has not had a material impact on the Company’s financial statements.

On August 26, 2016, the FASB issued ASU 2016-15, which amends the guidance in ASC 230 on the classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of the ASU is to reduce the diversity in practice that has resulted from the lack of consistent principles on this topic. The ASU’s amendments add or clarify guidance on eight cash flow issues:

• Debt prepayment or debt extinguishment costs.

• Settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing.

• Contingent consideration payments made after a business combination.

• Proceeds from the settlement of insurance claims.

• Proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies.

• Distributions received from equity method investees.

• Beneficial interests in securitization transactions.

• Separately identifiable cash flows and application of the predominance principle.

For public business entities, the guidance in the ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, it is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted for all entities. The Company has adopted this guidance and it has not had a material impact on the Company’s financial statements.

On November 17, 2016, the FASB issued ASU 2016-18, which amends ASC 230 to add or clarify guidance on the classification and presentation of restricted cash in the statement of cash flows. For public business entities, the guidance is effective for fiscal years beginning after December 15, 2017, including interim periods therein. For all other entities, it is effective for fiscal years beginning after December 15, 2018, and interim periods thereafter. Early adoption is permitted for all entities. The Company is currently evaluating the impact the adoption of ASU 2016-18 will have on the Company’s financial statements.

On October 24, 2016, the FASB issued ASU 2016-16, which removes the prohibition in ASC 740 against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. For public business entities, the ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. For all other entities, the ASU is effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted for all entities as of the beginning of a fiscal year for which neither the annual or interim (if applicable) financial statements have been issued. If an entity chooses to early adopt the amendments in the ASU, it must do so in the first interim period of its annual financial statements (if the entity issues interim financial statements). That is, an entity cannot adopt the amendments in the ASU in a later interim period and apply them as if they were in effect as of the beginning of the year. Entities should apply the ASU’s amendments on a modified retrospective basis, recognizing the effects in retained earnings as of the beginning of the year of adoption. The Company has adopted this guidance and it has not had a material impact on the Company’s financial statements.

On January 5, 2017, the FASB issued ASU 2017-01 to clarify the definition of a business in ASC 805, which was among the primary issues raised in connection with the FAF’s post-implementation review report on FASB Statement 141(R) (codified in ASC 805). The amendments in the ASU are intended to make application of the guidance more consistent and cost-efficient. The ASU is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods therein. For all other entities, the ASU is effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The ASU must be applied prospectively on or after the effective date, and no disclosures for a change in accounting principle are required at transition. Early adoption is permitted for transactions (i.e., acquisitions or dispositions) that occurred before the issuance date or effective date of the standard if the transactions were not reported in financial statements that have been issued or made available for issuance. The Company has adopted this guidance and it has not had a material impact on the Company’s financial statements.

On January 26, 2017, the FASB issued ASU 2017-04, which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. As a result, under the ASU, “an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount [and] should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.” The ASU is effective prospectively for fiscal years beginning after December 15, 2019 for public business entities that are SEC filers. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company has adopted this guidance and it has not had a material impact on the Company’s financial statements.

On May 10, 2017, the FASB issued ASU 2017-09, which amends the scope of modification accounting for share-based payment arrangements. The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. For all entities, the ASU is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. The Company is currently evaluating the impact the adoption of ASU 2017-09 will have on the Company’s financial statements.

On May 16, 2017, the FASB issued ASU 2017-10 in response to a consensus reached by the EITF at its March 2017 meeting. The ASU addresses “diversity in practice in how an operating entity determines the customer of the operation services for transactions within the scope of ASC 853” by “clarifying that the grantor is the customer of the operation services in all cases for those arrangements.” The amendments also allow for a “more consistent application of other aspects of the revenue guidance, which are affected by this customer determination.” For entities that have not yet adopted ASC 606, the effective date is aligned with that for ASC 606. For public business entities that have adopted ASC 606, the ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For most other entities, the ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2017-10 will have on the Company’s financial statements.

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2017

Accounting Policies [Abstract]

Inventory, Net

Costs of purchased inventory are determined after deducting rebates and discounts.

	Nine Months Ended September 30,		Year Ended December 31,
	2017		2016
	A$		A$
Raw materials		391,040		315,970
Work in progress		222,753		523,280
Finished goods		28,475		0
		642,268		839,250

Summary of Receivables

Account balances are charged against the allowance when it is probable the receivable will not be recovered.

	Nine Months Ended September 30,		Year Ended December 31,
	2017		2016
	A$		A$
Accounts receivable		5,797,184		4,848,009
Allowance for doubtful debts		0		0
		5,797,184		4,848,009

Research and Development Expenses

Research and development expenses for the respective periods are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	A$		A$		A$		A$
Research		77,038		189,612		417,632		558,715
Development		3,120,108		3,094,667		7,208,578		8,805,569
Research and development expenses		3,197,146		3,284,279		7,626,210		9,364,284

Asset Retirement Obligations

Our overall ARO changed as follows:

	Nine Months Ended September 30,		Year Ended December 31,
	2017		2016
	A$		A$
Opening balance		2,600,000		2,600,000
Accretion expense		0		0
Ending balance		2,600,000		2,600,000

Assumptions for Option Grants Issued

The assumptions for these grants were:

	Grant Date
	Feb-17			Dec-16			Apr-16
Exercise Price (A$)		0.50			0.33			0.50
Share Price at Grant Date (A$)		0.39			0.33			0.29
Volatility		69	%		69	%		70	%
Expected Life (years)		7			7			7
Risk Free Interest Rate		2.47	%		2.60	%		2.23	%
Fair Value of Option (A$)		0.13			0.19			0.08

Stock Option Activity

Stock option activity during the current period is as follows:

	Number of shares			Weighted average exercise price A$
Balance at December 31, 2016		16,264,169			0.67
Granted		2,629,500			0.50
Exercised		(44,999	)		0.02
Lapsed		(2,236,670	)		0.90
Balance at September 30, 2017		16,612,000			0.61

Unrecognized Compensation Expense Related to Unvested Share-Based Compensation Arrangements Expected to be Recognized

This expense is expected to be recognized over the vesting years as follows:

Fiscal Year	A$
2017		57,446
2018		66,620
2019		4,716
		128,782

RSUs Issued

The table below sets forth the RSUs issued by the Company since January 1, 2016:

	Number of Restricted Shares Issued		Market Value of Restricted Shares Issued (A$)
February, 2016		15,000		6,000
December, 2016		181,800		59,994

Restricted Stock Awards Activity

Restricted stock awards activity during the current period is as follows:

	Number of shares			Weighted average issue price A$
Balance at December 31, 2016		575,580			0.31
Granted		0			0.00
Release of restricted shares		(47,187	)		0.32
Balance at September 30, 2017		528,393			0.31

Effects of Allocated Tax to Each Component of Other Comprehensive Income/(loss)

The tax effect allocated to each component of other comprehensive income/(loss) is as follows:

	Before-Tax Amount A$		Tax (Expense)/ Benefit A$		Net-of-Tax Amount A$
Nine Months Ended September 30, 2017
Foreign currency translation reserve		5,497		0		5,497
Reclassification for gains realised in net income		0		0		0
Other comprehensive loss		5,497		0		5,497
Nine Months Ended September 30, 2016
Unrealized loss on derivative instruments		0		0		0
Reclassification for gains realised in net income		0		0		0
Other comprehensive loss		0		0		0

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Borrowings (Tables)

9 Months Ended

Sep. 30, 2017

Debt Disclosure [Abstract]

Future Maturities, Interest and Other Payments under Company's Long Term Secured Loan Pursuant to Credit Agreement

Future maturities, interest and other payments under the Company’s long term secured loan pursuant to the credit agreement (described below) as of September 30, 2017 and December 31, 2016 are as follows:

	September 30, 2017					December 31, 2016
	US$			A$		US$			A$
2017		442,750					1,756,563
2018		16,694,000					16,694,000
Thereafter		0					0
Total minimum payments		17,136,750					18,450,563
Less amount representing interest and other fees		(2,136,750	)				(3,450,563	)
Gross balance of long term debt		15,000,000					15,000,000
Less fair value of warrants recorded within loan (a)		(815,655	)				(815,655	)
Plus interest accretion		617,216					495,203
Total carrying value		14,801,561			18,881,951		14,679,548			20,286,827
Less current portion		0			0		0			0
Total carrying value, non-current portion		14,801,561			18,881,951		14,679,548			20,286,827

The carrying value of the borrowings approximates its fair value. The fair value is estimated by discounting future cash flows at the currently offered rates for borrowings of similar remaining maturities.

(a) The warrants issued in December 2013 had a fair value of US$815,655 as of September 30, 2017 and December 31, 2016, and are included in equity.

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Restricted Cash (Tables)

9 Months Ended

Sep. 30, 2017

Cash and Cash Equivalents [Abstract]

Restricted Cash Maintained by the Company in the Form of Term Deposits

Restricted cash maintained by the Company in the form of term deposits is as follows:

	Nine Months Ended September 30,		Year Ended December 31,
	2017		2016
	A$		A$
Financial covenant pursuant to the Credit Agreement		2,900,000		2,900,000
Collateral for facilities		335,000		320,000
		3,235,000		3,220,000

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Basis of Presentation - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2017
Minimum [Member]
Basis Of Presentation [Line Items]
Sufficient cash and cash equivalents to fund our operations	12 months

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Summary of Significant Accounting Policies - Additional Information (Detail)			3 Months Ended		6 Months Ended	9 Months Ended			12 Months Ended
	Jun. 30, 2016	Jun. 29, 2016	Sep. 30, 2017 AUD Strips Milestone shares	Sep. 30, 2016 AUD shares	Jun. 30, 2017 AUD	Sep. 30, 2017 AUD Strips Milestone shares	Sep. 30, 2017 USD ($) shares	Sep. 30, 2016 AUD shares	Dec. 31, 2016 AUD Payment	Dec. 31, 2016 USD ($) Payment	Dec. 31, 2015 Strips	Jun. 30, 2017 USD ($)	Dec. 31, 2016 USD ($)	Sep. 09, 2011 AUD	Sep. 09, 2011 USD ($)
Summary Of Significant Accounting Policies [Line Items]
Minimum maturity period of highly liquid investments purchase						3 months	3 months
Short-term investments maturity period, minimum						3 months	3 months
Short-term investments maturity period, maximum						12 months	12 months
Accumulated tax losses available for carry forward against future earnings									AUD 22,307,475
Non-refundable R&D tax offset									5,800,672
Number of milestone payments delivered | Milestone			4			4
Refundable tax offset research and development tax incentive income						AUD 20,000,000
Refundable tax offset percentage	43.50%	45.00%
Non-refundable tax offset research and development tax incentive income						20,000,000
Non-refundable tax offset percentage	38.50%	40.00%
Research and development tax incentive income claim						20,000,000
Research and development tax incentive income								AUD 0		$ 7,400,000
Foreign currency translation and transaction gains/(losses)			AUD 61,873	AUD 406,625		703,420		AUD 769,257
Commitments and contingencies			AUD 0			AUD 0			0
First obligation to reimburse patent fees paid by LifeScan			50.00%			50.00%
Obligation to reimburse patent fees paid by LifeScan thereafter			50.00%			50.00%
Monthly installment period for patent fees						24 months	24 months
Amount to be paid on first commercial sale of non-glucose product | $							$ 517,831
Percentage of manufacturing initial payment			40.00%			40.00%
Duration of payment of marketing support payment on achieving target sales						2 years	2 years
Target strips to be sold for payment of marketing support payment | Strips			1,000,000,000			1,000,000,000
Total amount of expected marketing support payments						AUD 2,663,290	$ 2,048,602
Number of strips sold | Strips											900,000,000
Number of common stock given to each option holder | shares						1	1
Number of options exercisable | shares			10,963,629	8,746,124		10,963,629		8,746,124
Stock compensation expense/(income) recognized			AUD 154,218	AUD 231,818		AUD 354,243		AUD (1,473,907)
Restricted shares of common stock to employees			1,000			AUD 1,000
Period of non traded years of existing shares of common stock						3 years	3 years
Employer contribution percentage						9.50%	9.50%
Unfunded liabilities | $												$ 0
Restatement Adjustment [Member]
Summary Of Significant Accounting Policies [Line Items]
Research and development tax incentive income | $										$ 7,522,341
Employee Stock Option [Member]
Summary Of Significant Accounting Policies [Line Items]
Vesting period of options granted						3 years	3 years
Unrecognized compensation expense related to unvested share-based compensation arrangements			128,782			AUD 128,782
Aggregate intrinsic value for all options outstanding			0	0		AUD 0		0
Internal Revenue Service (IRS) [Member]
Summary Of Significant Accounting Policies [Line Items]
Accumulated tax losses available for carry forward against future earnings | $													$ 1,011,321
Other Income [Member]
Summary Of Significant Accounting Policies [Line Items]
Difference in research and development tax incentive income					AUD 122,341				AUD 122,341
General and Administrative Expense [Member]
Summary Of Significant Accounting Policies [Line Items]
Amount reclassified from Research and development expenses				AUD 99,113				AUD 624,866
Collaborative Arrangement [Member]
Summary Of Significant Accounting Policies [Line Items]
Non-refundable payment														AUD 2,961,245	$ 3,000,000
Maximum number of payments entity may receive from Siemens | Payment									7	7
Universal Biosensors Pty Ltd [Member]
Summary Of Significant Accounting Policies [Line Items]
Government grants term						3 years	3 years
Government grants commencement date						Jan. 01, 2017	Jan. 01, 2017
Government grants received | $							$ 0
Maximum [Member]
Summary Of Significant Accounting Policies [Line Items]
Estimated useful life of machinery and equipment						10 years	10 years
Maximum [Member] | Employee Stock Option [Member]
Summary Of Significant Accounting Policies [Line Items]
Term of options granted						10 years	10 years
Maximum [Member] | RRSP [Member]
Summary Of Significant Accounting Policies [Line Items]
Employer matching contribution percentage						5.00%	5.00%
Maximum [Member] | DPSP [Member]
Summary Of Significant Accounting Policies [Line Items]
Employer contribution percentage						2.00%	2.00%
Maximum [Member] | Universal Biosensors Pty Ltd [Member]
Summary Of Significant Accounting Policies [Line Items]
Government grants receivable			AUD 575,000			AUD 575,000
Minimum [Member]
Summary Of Significant Accounting Policies [Line Items]
Estimated useful life of machinery and equipment						3 years	3 years
Minimum [Member] | DPSP [Member]
Summary Of Significant Accounting Policies [Line Items]
Employer contribution percentage						1.00%	1.00%

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Summary of Significant Accounting Policies - Inventory, Net (Detail) - AUD	Sep. 30, 2017	Dec. 31, 2016
Accounting Policies [Abstract]
Raw materials	AUD 391,040	AUD 315,970
Work in progress	222,753	523,280
Finished goods	28,475	0
Inventory, Net, Total	AUD 642,268	AUD 839,250

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Summary of Significant Accounting Policies - Summary of Receivables (Detail) - AUD	Sep. 30, 2017	Dec. 31, 2016
Accounting Policies [Abstract]
Accounts receivable	AUD 5,797,184	AUD 4,848,009
Allowance for doubtful debts	0	0
Accounts Receivable, Net, Current, Total	AUD 5,797,184	AUD 4,848,009

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Summary of Significant Accounting Policies - Research and Development Expenses (Detail) - AUD	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Accounting Policies [Abstract]
Research	AUD 77,038	AUD 189,612	AUD 417,632	AUD 558,715
Development	3,120,108	3,094,667	7,208,578	8,805,569
Research and development expenses	AUD 3,197,146	AUD 3,284,279	AUD 7,626,210	AUD 9,364,284

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Summary of Significant Accounting Policies - Asset Retirement Obligations (Detail) - AUD	9 Months Ended	12 Months Ended
	Sep. 30, 2017	Dec. 31, 2016
Accounting Policies [Abstract]
Opening balance	AUD 2,600,000	AUD 2,600,000
Accretion expense	0	0
Ending balance	AUD 2,600,000	AUD 2,600,000

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Summary of Significant Accounting Policies - Assumptions for Option Grants Issued (Detail) - AUD / shares	1 Months Ended
	Feb. 28, 2017	Dec. 31, 2016	Apr. 30, 2016
Feb-17 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise Price	AUD 0.50
Share Price at Grant Date	AUD 0.39
Volatility	69.00%
Expected Life (years)	7 years
Risk Free Interest Rate	2.47%
Fair Value of Option	AUD 0.13
Dec-16 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise Price		AUD 0.33
Share Price at Grant Date		AUD 0.33
Volatility		69.00%
Expected Life (years)		7 years
Risk Free Interest Rate		2.60%
Fair Value of Option		AUD 0.19
Apr-16 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise Price			AUD 0.50
Share Price at Grant Date			AUD 0.29
Volatility			70.00%
Expected Life (years)			7 years
Risk Free Interest Rate			2.23%
Fair Value of Option			AUD 0.08

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Summary of Significant Accounting Policies - Stock Option Activity (Detail) - Employee Stock Option [Member]	9 Months Ended
	Sep. 30, 2017 AUD / shares shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock Options, Outstanding Number of shares, Beginning Balance | shares	16,264,169
Stock Options, Number of shares, Granted | shares	2,629,500
Stock Options, Number of shares, Exercised | shares	(44,999)
Stock Options, Number of shares, Lapsed | shares	(2,236,670)
Stock Options, Outstanding Number of shares, Ending Balance | shares	16,612,000
Stock Options, Weighted average exercise price, Beginning Balance | AUD / shares	AUD 0.67
Stock Options, Weighted average exercise price, Granted | AUD / shares	0.50
Stock Options, Weighted average exercise price, Exercised | AUD / shares	0.02
Stock Options, Weighted average exercise price, Lapsed | AUD / shares	0.90
Stock Options, Weighted average exercise price, Ending Balance | AUD / shares	AUD 0.61

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Summary of Significant Accounting Policies - Unrecognized Compensation Expense Related to Unvested Share-Based Compensation Arrangements Expected to be Recognized (Detail) - Employee Stock Option [Member]	Sep. 30, 2017 AUD
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
2017	AUD 57,446
2018	66,620
2019	4,716
Total	AUD 128,782

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Summary of Significant Accounting Policies - RSUs Issued (Detail) - AUD	1 Months Ended
	Dec. 31, 2016	Feb. 29, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Number of Restricted Shares Issued	181,800	15,000
Market Value of Restricted Shares Issued	AUD 59,994	AUD 6,000

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Summary of Significant Accounting Policies - Restricted Stock Awards Activity (Detail) - Restricted Stock [Member]	9 Months Ended
	Sep. 30, 2017 AUD / shares shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares, Beginning Balance | shares	575,580
Number of shares, Granted | shares	0
Number of shares, Release of restricted shares | shares	(47,187)
Number of shares, Ending Balance | shares	528,393
Weighted average issue price, Beginning Balance | AUD / shares	AUD 0.31
Weighted average issue price, Granted | AUD / shares	0.00
Weighted average issue price, Release of restricted shares | AUD / shares	0.32
Weighted average issue price, Ending Balance | AUD / shares	AUD 0.31

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Summary of Significant Accounting Policies - Effects of Allocated Tax to Each Component of Other Comprehensive Income/(loss) (Detail) - AUD	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Accounting Policies [Abstract]
Foreign currency translation reserve, before-tax amount			AUD 5,497
Unrealized loss on derivative instruments, before-tax amount				AUD 0
Unrealized loss on derivative instruments, tax (expense)/ benefit				0
Unrealized loss on derivative instruments, net-of-tax amount				0
Foreign currency translation reserve, reclassification for gains realized in net income, before-tax amount			0
Reclassification for gains realized in net income, before-tax amount				0
Reclassification for gains realized in net income, tax (expense)/ benefit				0
Reclassification for gains realized in net income, net-of-tax amount	AUD 0	AUD 0	0	0
Other comprehensive loss, before- tax amount			5,497	0
Foreign currency translation reserve, tax (expense)/ benefit			0
Foreign currency translation reserve, reclassification for gains realized in net income, tax (expense)/ benefit			0
Other comprehensive loss, tax (expense)/ benefit			0	0
Foreign currency translation reserve, net-of-tax amount	4,451	0	5,497	0
Foreign currency translation reserve, Reclassification for gains realized in net income, net-of-tax amount			0
Other comprehensive gain/(loss)	AUD 4,451	AUD 0	AUD 5,497	AUD 0

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Related Party Transactions - Additional Information (Detail) - AUD	1 Months Ended
	Sep. 30, 2011	Sep. 30, 2017
SpeeDx [Member]
Related Party Transaction [Line Items]
Agreement of milestone payments	AUD 500,000
License agreement termination period	7 years
SpeeDx [Member] | Minimum [Member]
Related Party Transaction [Line Items]
Sales and licensing revenues payments	5.00%
SpeeDx [Member] | Maximum [Member]
Related Party Transaction [Line Items]
Sales and licensing revenues payments	15.00%
Viburnum Funds Pty Ltd [Member]
Related Party Transaction [Line Items]
Ownership shares held in Company which has one of our directors		15.85%

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Borrowings - Future Maturities, Interest and Other Payments under Company's Long Term Secured Loan Pursuant to Credit Agreement (Detail)	Sep. 30, 2017 AUD	Sep. 30, 2017 USD ($)	Dec. 31, 2016 AUD	Dec. 31, 2016 USD ($)
Borrowings
2017		$ 442,750		$ 1,756,563
2018		16,694,000		16,694,000
Thereafter		0		0
Total minimum payments		17,136,750		18,450,563
Less amount representing interest and other fees		(2,136,750)		(3,450,563)
Gross balance of long term debt		15,000,000		15,000,000
Less fair value of warrants recorded within loan		(815,655)		(815,655)
Plus interest accretion		617,216		495,203
Total carrying value	AUD 18,881,951	14,801,561	AUD 20,286,827	14,679,548
Less current portion	0	0	0	0
Total carrying value, non-current portion	18,881,951	14,801,561	20,286,827	14,679,548
Total carrying value	AUD 18,881,951	$ 14,801,561	AUD 20,286,827	$ 14,679,548

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Borrowings - Future Maturities, Interest and Other Payments under Company's Long Term Secured Loan Pursuant to Credit Agreement (Parenthetical) (Detail) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Debt Disclosure [Abstract]
Fair value included in equity	$ 815,655	$ 815,655

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Borrowings - Additional Information (Detail) AUD / shares in Units, shares in Millions		1 Months Ended				9 Months Ended
	Dec. 19, 2013 USD ($) shares	Oct. 31, 2017 AUD	Aug. 31, 2015 USD ($)	Feb. 28, 2015 USD ($)	Jan. 30, 2015 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2016 AUD	Sep. 30, 2017 AUD Milestone	Sep. 30, 2017 USD ($) Milestone	Dec. 31, 2016 USD ($)	Dec. 31, 2015 AUD	Dec. 31, 2013 USD ($)	Dec. 19, 2013 AUD / shares
Debt Instrument [Line Items]
Secured term loan, drawn amount									$ 15,000,000	$ 15,000,000
Milestone payments paid			$ 300,000	$ 300,000
Number of common stock entitled by issuing warrants | shares	4.5
Exercise price of warrants | AUD / shares													AUD 1.00
Percentage of premium over closing price of common stock	117.00%
Warrants exercisable period						7 years
Elantis Premium Funding Ltd [Member]
Debt Instrument [Line Items]
Interest charged								2.60%	2.60%		2.60%
Total amount financed | AUD								AUD 369,630			AUD 360,510
Repayment of financed amount | AUD							AUD 360,510
Elantis Premium Funding Ltd [Member] | Subsequent Event [Member]
Debt Instrument [Line Items]
Repayment of financed amount | AUD		AUD 369,630
Athyrium Credit Agreement [Member]
Debt Instrument [Line Items]
Athyrium credit agreement, date						Dec. 19, 2013
Secured term loan, amount	$ 25,000,000
Secured term loan, drawn amount												$ 15,000,000
Secured term loan, undrawn amount									$ 10,000,000
Term loan maturity date						Dec. 19, 2018
Interest charged								10.50%	10.50%
Term loan period						5 years
Default interest rate under credit agreement						13.00%
Minimum voluntary repayments						$ 2,500,000
Percentage of prepayment to lenders on net cash proceeds received						100.00%
Prepayment premium prior to second anniversary, percentage						20.00%
Prepayment premium after second anniversary, percentage						15.00%
Non-refundable fee paid	$ 625,000				$ 200,000
Non-refundable fee as percentage of aggregate credit facility	2.50%
Percentage of commitment fee paid	2.00%
Percentage of milestone payments						30.00%
Maximum milestone payments to be paid						$ 600,000
Number of milestone payments | Milestone								2	2
Minimum unrestricted cash required									$ 2,000,000
Number of common stock entitled by issuing warrants | shares	4.5
Exercise price of warrants | AUD / shares													AUD 1.00
Percentage of premium over closing price of common stock	117.00%
Warrants exercisable period						7 years

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Warrants - Additional Information (Detail) - AUD / shares	9 Months Ended
	Sep. 30, 2017	Dec. 19, 2013
Other Liabilities Disclosure [Abstract]
Number of common stock entitled by issuing warrants		4,500,000
Exercise price of warrants		AUD 1.00
Percentage of premium over closing price of common stock		117.00%
Warrants exercisable period	7 years
Warrants exercise expiration date	Dec. 19, 2020
Warrants exercise in multiples of shares, minimum	500,000

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Restricted Cash - Restricted Cash Maintained by the Company in the Form of Term Deposits (Detail) - AUD	Sep. 30, 2017	Dec. 31, 2016
Restricted Cash and Cash Equivalents Items [Line Items]
Restricted cash	AUD 3,235,000	AUD 3,220,000
Financial Covenant Pursuant to the Credit Agreement [Member]
Restricted Cash and Cash Equivalents Items [Line Items]
Restricted cash	2,900,000	2,900,000
Collateral for Facilities [Member]
Restricted Cash and Cash Equivalents Items [Line Items]
Restricted cash	AUD 335,000	AUD 320,000

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Restricted Cash - Additional Information (Detail) - AUD	Sep. 30, 2017	Dec. 31, 2016
Restricted Cash and Cash Equivalents Items [Line Items]
Collateral for facilities	AUD 3,235,000	AUD 3,220,000
Collateral for Facilities [Member]
Restricted Cash and Cash Equivalents Items [Line Items]
Collateral for facilities	335,000	AUD 320,000
Collateral for Facilities [Member] | Other Non-current Assets [Member]
Restricted Cash and Cash Equivalents Items [Line Items]
Collateral for facilities	AUD 320,000