UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from to
Commission File Number:
Universal Biosensors, Inc.
(Exact name of registrant as specified in its charter)
| | | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
| Universal Biosensors, Inc. 1 Corporate Avenue , | Not Applicable | |
| (Address of principal executive offices) | (Zip Code) | |
| Telephone: +61 | ||
| (Registrant’s telephone number, including area code) | ||
Securities registered pursuant to Section 12(b) of the Act: None
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| | ☑ | 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
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
UNIVERSAL BIOSENSORS, INC.
TABLE OF CONTENTS
| Page |
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| PART I |
FINANCIAL INFORMATION |
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| Item 1 |
Financial Statements (unaudited) |
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| 1) |
Consolidated condensed balance sheets at June 30, 2021 and December 31, 2020 |
1 |
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| 2) |
Consolidated condensed statements of comprehensive income/(loss) for the three and six months ended June 30, 2021 and 2020 |
2 |
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| 3) |
Consolidated condensed statements of changes in stockholders’ equity and comprehensive income/(loss) for the three and six months ended June 30, 2021 and 2020 |
3 |
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| 4) |
Consolidated condensed statements of cash flows for the six months ended June 30, 2021 and 2020 |
5 |
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| 5) |
Notes to consolidated condensed financial statements |
6 |
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| Item 2 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
19 |
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| Item 3 |
Quantitative and Qualitative Disclosures About Market Risk |
25 |
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| Item 4 |
Controls and Procedures |
25 |
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| PART II |
OTHER INFORMATION |
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| Item 1 |
Legal Proceedings |
26 |
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| Item 1A |
Risk Factors |
26 |
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| Item 2 |
Unregistered Sales of Equity Securities and Use of Proceeds |
26 |
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| Item 3 |
Defaults Upon Senior Securities |
26 |
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| Item 4 |
Mine Safety Disclosures |
26 |
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| Item 5 |
Other Information |
26 |
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| Item 6 |
Exhibits |
26 |
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| Exhibit 31.1 |
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| Exhibit 31.2 |
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| Exhibit 32 |
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| Exhibit 101 | |||
| SIGNATURES |
27 |
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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)
| June 30, 2021 | December 31, 2020 | |||||||
| A$ | A$ | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | ||||||||
| Inventories, net | ||||||||
| Accounts receivable | ||||||||
| Prepayments | ||||||||
| Restricted cash | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Property, plant and equipment | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant and equipment - net | ||||||||
| Intangible assets | ||||||||
| Less amortization of intangible assets | ( | ) | ( | ) | ||||
| Intangible assets - net | ||||||||
| Right-of-use asset | ||||||||
| Restricted cash | ||||||||
| Total non-current assets | ||||||||
| Total assets | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Contingent consideration | ||||||||
| Other liabilities | ||||||||
| Contract liabilities | ||||||||
| Lease liability | ||||||||
| Employee entitlements liabilities | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Asset retirement obligations | ||||||||
| Long-term loan - unsecured | ||||||||
| Employee entitlements liabilities | ||||||||
| Deferred income tax liability | ||||||||
| Lease liability | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | - | - | ||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, US$ par value. Authorized shares; issued and outstanding at June 30, 2021 (nil at December 31, 2020) | ||||||||
| Common stock, US$ par value. Authorized shares; issued and outstanding shares at June 30, 2021 ( at December 31, 2020) | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Current year loss | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | ||||||||
See accompanying Notes to Consolidated Condensed Financial Statements.
Universal Biosensors, Inc.
Consolidated Condensed Statements of Comprehensive Income/(Loss) (Unaudited)
| Three Months Ended June 30 |
Six Months Ended June 30 |
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| 2021 |
2020 |
2021 |
2020 |
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| A$ |
A$ |
A$ |
A$ |
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| Revenue |
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| Revenue from products |
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| Revenue from services |
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| Total revenue |
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| Operating costs and expenses |
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| Cost of goods sold |
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| Cost of services |
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| Total cost of goods sold and services |
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| Gross profit/(loss) |
( |
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| Other operating costs and expenses |
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| Product support |
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| Depreciation and amortization |
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| Research and development |
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| Selling, general and administrative |
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| Total operating costs and expenses |
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| Loss from operations |
( |
) | ( |
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| Other income/(expense) |
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| Interest income |
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| Financing costs |
( |
) | ( |
) | ( |
) | ( |
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| Research and development tax incentive income |
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| Exchange gain/ (loss) |
( |
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| Other income |
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| Total other income |
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| Net loss before tax |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Income tax benefit/(expense) |
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| Net loss |
( |
) | ( |
) | ( |
) | ( |
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| Loss per share |
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| Net loss per share - basic and diluted |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Average weighted number of shares - basic and diluted |
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| Other comprehensive gain/(loss), net of tax: |
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| Foreign currency translation reserve |
( |
) | ( |
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| Reclassification for gain/(loss) realized in net income |
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| Other comprehensive income/(loss) |
( |
) | ( |
) | ||||||||||||
| Comprehensive loss |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
See accompanying Notes to Consolidated Condensed Financial Statements.
Universal Biosensors, Inc.
Consolidated Condensed Statements of Changes in Stockholders’ Equity and Comprehensive Income/(Loss) (Unaudited)
Three Months Ended June 30, 2021
| Ordinary shares |
Additional Paid-in Capital |
Accumulated Deficit |
Other comprehensive Income/ (Loss) |
Total Stockholders’ Equity |
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| Shares |
Amount |
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| A$ |
A$ |
A$ |
A$ |
A$ |
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| Balances at April 1, 2021 |
( |
) | ( |
) | ||||||||||||||||||||
| Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||
| Other comprehensive loss |
- | ( |
) | ( |
) | |||||||||||||||||||
| Exercise of stock options issued to employees |
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| Share based payment expense |
- | |||||||||||||||||||||||
| Balances at June 30, 2021 |
( |
) | ( |
) | ||||||||||||||||||||
Six Months Ended June 30, 2021
| Ordinary shares |
Additional Paid-in Capital |
Accumulated Deficit |
Other comprehensive Income/ (Loss) |
Total Stockholders’ Equity |
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| Shares |
Amount |
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| A$ |
A$ |
A$ |
A$ |
A$ |
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| Balances at January 1, 2021 |
( |
) | ( |
) | ||||||||||||||||||||
| Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||
| Other comprehensive loss |
- | ( |
) | ( |
) | |||||||||||||||||||
| Exercise of stock options issued to employees |
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| Share based payment expense |
- | |||||||||||||||||||||||
| Balances at June 30, 2021 |
( |
) | ( |
) | ||||||||||||||||||||
See accompanying Notes to Consolidated Condensed Financial Statements.
Universal Biosensors, Inc.
Consolidated Condensed Statements of Changes in Stockholders’ Equity and Comprehensive Income/(Loss) (Unaudited)
Three Months Ended June 30, 2020
| Ordinary shares |
Additional Paid-in Capital |
Accumulated Deficit |
Other comprehensive Income/ (Loss) |
Total Stockholders’ Equity |
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| Shares |
Amount |
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| A$ |
A$ |
A$ |
A$ |
A$ |
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| Balances at April 1, 2020 |
( |
) | ( |
) | ||||||||||||||||||||
| Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||
| Other comprehensive income |
- | |||||||||||||||||||||||
| Share based payment expense |
- | |||||||||||||||||||||||
| Balances at June 30, 2020 |
( |
) | ( |
) | ||||||||||||||||||||
Six Months Ended June 30, 2020
| Ordinary shares |
Additional Paid-in Capital |
Accumulated Deficit |
Other comprehensive Income/ (Loss) |
Total Stockholders’ Equity |
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| Shares |
Amount |
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| A$ |
A$ |
A$ |
A$ |
A$ |
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| Balances at January 1, 2020 |
( |
) | ( |
) | ||||||||||||||||||||
| Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||
| Other comprehensive income |
- | |||||||||||||||||||||||
| Share based payment expense | - | |||||||||||||||||||||||
| Balances at June 30, 2020 |
( |
) | ( |
) | ||||||||||||||||||||
See accompanying Notes to Consolidated Condensed Financial Statements.
Universal Biosensors, Inc.
Consolidated Condensed Statements of Cash Flows (Unaudited)
| Six Months Ended June 30 |
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| 2021 |
2020 |
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| A$ |
A$ |
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| Cash flows from operating activities: |
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| Net loss |
( |
) | ( |
) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: |
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| Depreciation and amortization |
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| Share based payments expense |
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| Gain on fixed assets disposal |
( |
) | ||||||
| Unrealized foreign exchange gains |
( |
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| Change in assets and liabilities: |
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| Inventory |
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| Accounts receivable |
( |
) | ||||||
| Prepayment and other assets |
( |
) | ( |
) | ||||
| Contract liabilities |
( |
) | ( |
) | ||||
| Employee entitlements |
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| Accounts payable and accrued expenses |
( |
) | ||||||
| Net cash used in operating activities |
( |
) | ( |
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| Cash flows from investing activities: |
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| Proceeds from sale of property, plant and equipment |
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| Purchases of property, plant and equipment |
( |
) | ( |
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| Net cash used in investing activities |
( |
) | ( |
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| Cash flows from financing activities: |
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| Proceeds from borrowings |
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| Proceeds from stock options exercised |
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| Net cash provided by financing activities |
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| Net decrease in cash, cash equivalents and restricted cash |
( |
) | ( |
) | ||||
| Cash, cash equivalents and restricted cash at beginning of period |
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| Effect of exchange rate fluctuations on the balances of cash held in foreign currencies |
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| Cash, cash equivalents and restricted cash at end of period |
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See accompanying Notes to Consolidated Condensed Financial Statements.
Universal Biosensors, Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
1. Our Business
We are a specialist biosensors company focused on commercializing a range of biosensors in oenology (wine industry), human health including oncology, coagulation, women’s health and fertility, veterinarian and environmental testing using our patented platform technology and hand-held point of use devices.
Key recent updates to our Company include:
In March 2021 the Company successfully launched its new product, the Sentia™ (Sentia) hand-held wine analyzer. Sentia measures free SO₂ levels in post-fermentation wine and other analytical tests including Malic Acid, Glucose and Fructose, are planned to be commercialized during the next six months.
During the three months ended June 30, 2021 the Company entered into Distribution Agreements with Companies to distribute Sentia devices and strips primarily in Canada, the USA, New Zealand, Chile, South Africa, Spain and Switzerland. Prior to the second quarter, our Sentia products were already being distributed in the USA and Australia.
During 2021, the Company commenced the direct distribution of Xprecia Stride™ in global markets and continues to invest in the development of a new point-of-care coagulation device.
During the three months ended June 30, 2021 the Company entered into Distribution Agreements with Companies to distribute Xprecia Stride™ in Czech Republic, Chile, Switzerland, Malaysia and Romania. Prior to the second quarter, Xprecia Stride™ was already being distributed to a Macedonian Company and to Siemens, who distributes Xprecia Stride™ in global markets.
In April 2021, the Company entered into an exclusive license and supply agreement with Lubris BioPharma LLC. The agreement provides two things:
| ● | It provides UBI with global exclusive access to a technology that extends the detection limits of UBI’s platform electro chemical technology by more than 1 million times which catapults UBI’s technology into multiple new fields of detection and monitoring including oncology and fertility. | |
| ● | The second part of the agreement is to commercialize the Tn Antigen biosensor used for the detection, staging and monitoring of cancer. The Tn biosensor was developed by Deakin University (Deakin), Swinburne University of Technology (Swinburne) and The University of Wollongong (UoW) using technology supplied by Lubris. The Company has now successfully completed the proof of concept for the detection of cancer using the biosensor from a finger prick of whole blood samples. |
During December 2020, the Company entered into a global exclusive license agreement with LifeScan Global Corporation to develop a biosensor test to be used for the detection and monitoring of diabetes in animals.
During December 2020, the Company entered into a services agreement with Bayer Inc. pursuant to which the Company will provide testing services at HRL. Revenue to be generated from this contract is expected to be million over
Key aspects of our strategy for increasing shareholder value and our plan of operations over the remainder of the fiscal year ending December 2021 include:
| ● | commence clinical trials for our oncology partner, Tn Antigen; | |
| ● | develop new applications for our technology platform in markets with commercial potential; | |
| ● | enter into collaborative, strategic or distribution arrangements with industry participants with respect to the development and commercialization of our products; | |
| ● | manufacture products; | |
| ● | provide the necessary post-market support for our customers and partners; | |
| ● | provide laboratory services for our customers and partners; and | |
| ● | identify, investigate and evaluate merger and acquisition opportunities. |
2. Certain Uncertainties
Depending on the duration of the COVID-19 crisis and continued negative impacts on economic activity, the Company may experience negative impacts in 2021 which cannot be predicted.
Universal Biosensors, Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
3. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP” or “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 information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of the Company’s management, the consolidated condensed financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. Operating results for the six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. These consolidated condensed financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K” or “Annual Report”) filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 24, 2021. The year-end consolidated condensed balance sheets data as at December 31, 2020 was derived from audited financial statements but does not include all disclosures required by U.S. GAAP.
Principles of Consolidation
The consolidated condensed 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 condensed 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 condensed financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the recognition of revenue, initial recognition of intangible assets, carrying value of intangible assets and their useful lives, carrying amount of property, plant and equipment, carrying value of inventory, deferred income taxes, asset retirement obligations, liabilities related to employee benefits, lease obligations and research and development tax incentive income. Actual results could differ from those estimates.
Recent Accounting Pronouncements
The Company assesses the adoption impacts of recently issued accounting standards by the Financial Accounting Standards Board on the Company's financial statements as well as material updates to previous assessments, if any, from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020. There were no new material accounting standards issued in the fiscal first quarter of 2021 that impacted the Company.
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.
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 Australian dollars (“AUD” or “A$”) for all years presented. The functional currency of HRL is Canadian Dollars (“CAD$”) for all years presented.
The consolidated condensed 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/(loss).
Universal Biosensors, Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
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/(Loss).
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). |
Concentration of Credit Risk and Other Risks and Uncertainties
Cash, cash equivalents and restricted cash 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, cash equivalents and restricted cash 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, cash equivalents and restricted cash 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, cash equivalents and restricted cash. The Company has not identified any collectability issues with respect to receivables.
Cash, Cash Equivalents and Restricted Cash
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.
The Company maintains cash and restricted cash, which includes performance guarantee issued in favor of a customer, tenant security deposits and credit card security deposits.
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. Costs of purchased inventory are determined after deducting rebates and discounts. The Company recognizes inventory on the condensed consolidated balance sheet when they have concluded that the substantial risks and rewards of ownership, as well as the control of the asset, have been transferred.
Universal Biosensors, Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
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 expense to adjust the allowance for doubtful accounts, if any, is recorded within selling, general and administrative expenses in the consolidated condensed statements of comprehensive income/(loss). Account balances are charged against the allowance when it is probable the receivable will not be recovered.
Prepayments
Prepaid expenses represent expenditures that have not yet been recorded by the Company as an expense, but have been paid for in advance. The Company’s prepayments are primarily represented by insurance premiums paid annually in advance.
Other Current Assets
The Company’s other current assets is primarily represented by the estimated receivable in relation to the research and development tax incentive income.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at acquisition cost, less accumulated depreciation.
Depreciation on plant and equipment is calculated using the straight-line method over the estimated useful lives of the assets. The estimated useful life of machinery and equipment is
Impairment of Long-Lived Assets
The Company reviews its 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, the Company estimates undiscounted cash flows from products under development that are covered by these patents and licenses. An impairment loss is 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.
Intangible Assets
The intangible assets, having finite useful lives, are amortized over their estimated useful lives. Finite life intangible assets are amortized over the shorter of their contractual or useful economic lives. The intangible assets comprise of distribution rights and are amortized on a straight-line basis over
Impairment of Intangible Assets
Intangible assets with an indefinite life are tested for impairment at least annually and when there is an indication of impairment.
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.
Universal Biosensors, Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
Leases
On January 1, 2020, the Company adopted the requirements of Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842)” (“ASU No. 2016-02”), using the modified retrospective method and used the effective date as the date of initial application. As a result of this adoption, the following accounting policies were implemented or changed.
At contract inception, the Company determines if the new contractual arrangement is a lease or contains a leasing arrangement. If a contract contains a lease, the Company evaluates whether it should be classified as an operating or a finance lease. Currently, all of the Company’s leases have been classified as operating leases. Upon modification of the contract, the Company will reassess to determine if a contract is or contains a leasing arrangement.
The Company records lease liabilities based on the future estimated cash payments discounted over the lease term, defined as the non-cancellable time period of the lease, together with all the following:
| ● | periods covered by an option to extend the lease if the Company is reasonably certain to exercise the extension option; and | |
| ● | periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise the termination option. |
Leases may also include options to terminate the arrangement or options to purchase the underlying lease property. The Company does not separate lease and non-lease components of contracts. Lease components provide the Company with the right to use an identified asset, which consist of the Company’s real estate properties and office equipment. Non-lease components consist primarily of maintenance services.
As an implicit discount rate is not readily determinable in the Company’s lease agreements, the Company uses its estimated secured incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. For certain leases with original terms of 12 months or less, the Company recognizes lease expense as incurred and does not recognize any lease liabilities. Short-term and long-term portions of operating lease liabilities are classified as lease liabilities in the Company’s consolidated condensed balance sheets.
A right-of-use (“ROU”) asset is measured as the amount of the lease liability with adjustments, if applicable, for lease incentives, initial direct costs incurred by the Company, and lease prepayments made prior to or at lease commencement. ROU assets are classified as operating lease right-of-use assets, net of accumulated amortization, on the Company’s consolidated condensed balance sheets. The Company evaluates the carrying value of ROU assets if there are indicators of potential impairment and performs the analysis concurrent with the review of the recoverability of the related asset group. If the carrying value of the asset group is determined to not be fully recoverable and is in excess of its estimated fair value, the Company will record an impairment loss in its consolidated condensed statements of income and comprehensive income/(loss).
Lease payments may be fixed or variable, however, only fixed payments or in-substance fixed payments are included in the Company’s lease liability calculation. Variable lease payments are recognized in operating expenses in the period in which the obligation for those payments are incurred.
As part of the adoption of ASU No. 2016-02, the Company elected the following practical expedients:
| 1) | lease vs. non-lease components relating to the real estate asset class; | |
| 2) | the short-term lease exemption; and | |
| 3) | the package of practical expedients, which permits the Company to not reassess prior conclusions about lease identification, lease classification, and initial direct costs under the new standard. In addition, the Company elected not to adopt the practical expedient related to hindsight. |
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.
Universal Biosensors, Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
Warrants
Pursuant to a lending agreement dated December 19, 2013, UBI issued warrants entitling the holder to purchase up to an aggregate total of
Revenue Recognition
The Group recognizes revenue predominantly from the sale of coagulation and wine testing devices and the provision of coagulation testing services based on the provisions of ASC 606 Revenue from Contracts with Customers. In accordance with this provision, to determine whether to recognize revenue, the Group follows a five-step process:
| a) | Identifying the contract with a customer; | |
| b) | Identifying the performance obligations within the customer contract; | |
| c) | Determining the transaction price; | |
| d) | Allocating the transaction price to the performance obligation; and | |
| e) | Recognizing revenue when/as performance obligations are satisfied. |
Nature of goods and services
The following is a description of products and services from which the Company generates its revenue.
| Products and services | Nature, timing of satisfaction of performance obligations, and significant payment terms |
| Coagulation testing products | Our point-of-care coagulation testing products use electrochemical cell to measure Prothrombin Time (PT/INR), a test used to monitor the effect of the anticoagulant therapy warfarin.
The performance obligation for the sale of these products is satisfied at a point-in-time when the Company transfers control of the products to its customer. The point of transfer of control of the products is dictated by individual terms contained within a customer agreement, as are the payment terms. The transaction price is fixed.
|
| Coagulation testing services | HRL provides non-diagnostic laboratory services and performs coagulation testing services on behalf of customers.
The performance obligation for the services is satisfied when the testing has been finalized and results have been reported to the customer. In some cases, the performance obligations will be satisfied as predetermined milestones have been achieved by the Company.
Standard payment terms are generally 30-60 days upon invoice date. The transaction price is fixed.
|
| Wine testing products | Our Sentia wine analyzer is used to measure free SO₂ levels in post-fermentation wine.
The performance obligation for the sale of this product is satisfied at a point-in-time when the Company transfers control of the products to its customer. The point of transfer of control of the products is dictated by the individual terms contained within a customer agreement, as are the individual payment terms. The transaction price is fixed. |
See Note 11 to the Consolidated Condensed Financial Statements for a disaggregation of revenue.
Universal Biosensors, Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
Interest Income
Interest income is recognized as it accrues, taking into account the effective yield and consists primarily of interest earned on cash, cash equivalents and restricted cash in interest-bearing accounts.
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. Subject to meeting a number of conditions, an entity which is an R&D entity involved in eligible R&D activities may claim research and development tax incentive income as follows:
| (1) | as a |
| (2) | as a |
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 R&D 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 six months ended June 30, 2021 there is reasonable assurance that the aggregate turnover of the Company for the year ending December 31, 2021 will be less than A$20,000,000 and accordingly an estimated and has been recorded as a research and development tax incentive income for the three and six month periods ended June 30, 2021. The Company will review its forecasted aggregate turnover on a quarterly basis to determine if the R&D tax offsets are refundable or captured as part of the current year income tax computation.
Federal and State Government Subsidies
In response to the COVID-19 pandemic, governments in the countries in which we operate implemented government assistance measures to assist in mitigating some of the impact of the pandemic on our results and liquidity. To the extent appropriate, we applied for such government grants in Australia and Canada and recognize the grants at their fair value as other income when there is reasonable assurance that we have complied with all conditions attached to them.
Research and Development Expenditure
Research and development (“R&D”) 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, facility costs and depreciation. R&D costs are expensed as incurred.
Clinical Trial Expenses
Clinical trial costs are a component of R&D 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.
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
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.
Employee Benefit Costs
For all periods shown, the Company has contributed
Registered Retirement Savings Plan and Deferred Sharing Profit Plan
The Company provides eligible HRL employees a retirement plan. 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
Benefit Plan
The Company provides eligible HRL employees a Benefit Plan. In general, the Benefit Plan includes extended health care, dental care, basic life insurance, basic accidental death and dismemberment, and disability insurance.
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.
Pursuant to the U.S. tax reform rules, UBI is subject to regulations addressing Global Intangible Low-Taxed Income ("GILTI"). The GILTI rules are provisions of the U.S. tax code enacted as a part of tax reform legislation in the U.S. passed in December 2017. Mechanically, the GILTI rule functions as a global minimum tax for all U.S. shareholders of controlled foreign corporations (“CFCs”) and applies broadly to certain income generated by a CFC. The Company can make an accounting policy election to either: (1) treat GILTI as a period cost if and when incurred; or (2) recognize deferred taxes for basis differences that are expected to reverse as GILTI in future years. The Company has elected to treat GILTI as a period cost.
We are subject to income taxes in the United States, Canada and Australia. The 2020 Australian tax return has been filed and tax returns up to and including the 2019 financial year have been filed in the United States and Canada.
Universal Biosensors, Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
4. Cash, cash equivalents and restricted cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated condensed balance sheets that sum to the total of the same such amounts shown in the consolidated condensed statements of cash flows.
| June 30, 2021 |
December 31, 2020 |
|||||||
| A$ |
A$ |
|||||||
| Cash and cash equivalents |
||||||||
| Restricted cash – current assets |
||||||||
| Restricted cash – non-current assets |
||||||||
Restricted cash maintained by the Company in the form of term deposits is as follows:
| June 30, 2021 |
December 31, 2020 |
|||||||
| A$ |
A$ |
|||||||
| Performance guarantee (a) - current assets |
||||||||
| Collateral for facilities (b) - non-current assets |
||||||||
| Performance guarantee (a) - non-current assets |
||||||||
| (a) |
Performance guarantee represents letter of credit issued in favour of Siemens pursuant to the 2019 Siemens Agreements. The performance guarantee was initially issued for and the same reduces in equal quarterly amounts over the |
|
| (b) |
Collateral for facilities represents bank guarantee of for commercial lease of UBS’ premises and security deposit on Company’s credit cards of |
Interest earned on the restricted cash for the three months ended June 30, 2021 and 2020 was and respectively and and for the six months ended June 30, 2021 and 2020, respectively.
5. Inventories
| June 30, 2021 |
December 31, 2020 |
|||||||
| A$ |
A$ |
|||||||
| Raw materials |
||||||||
| Work in progress |
||||||||
| Finished goods |
||||||||
6. Receivables
| June 30, 2021 |
December 31, 2020 |
|||||||
| A$ |
A$ |
|||||||
| Accounts receivable |
||||||||
| Allowance for doubtful accounts |
||||||||
Universal Biosensors, Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
7. Leases
The Company’s lease portfolio consists primarily of operating leases for office space and equipment with contractual terms expiring from November 2021 to December 2025. Lease contracts may include one or more renewal options that allow the Company to extend the lease term, typically from years per each renewal option. The exercise of lease options is generally at the discretion of the Company. None of the Company’s leases contain residual value guarantees, substantial restrictions, or covenants. The Company’s leases are substantially within Australia.
| June 30, 2021 | December 31, 2020 | |||||||
| A$ | A$ | |||||||
| Operating lease right-of-use assets: | ||||||||
| Non-current | ||||||||
| Operating lease liabilities: | ||||||||
| Current | ||||||||
| Non-current | ||||||||
| Weighted average remaining lease terms (in years) | ||||||||
| Weighted average discount rate | % | % | ||||||
The components of lease income/expense were as follows:
| Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| A$ | A$ | |||||||
| Fixed payment operating lease expense | ||||||||
| Short-term lease expense | ||||||||
| Sub-lease income | ||||||||
The sub-lease income was deemed an operating lease.
Supplemental cash flow information related to the Company’s leases was as follows:
| Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| A$ | A$ | |||||||
| Operating cash flows from operating leases | ||||||||
Future lease payments are as follows:
| As at June 30, 2021 | ||||
| A$ | ||||
| 2021 | ||||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total future lease payments | ||||
| Less: imputed interest | ||||
| Total operating lease liabilities | ||||
| Current | ||||
| Non-current | ||||
On January 1, 2021, the lease for 1 Corporate Avenue was terminated and a new lease entered into simultaneously. The lease expires on December 31, 2025 with an option to renew the lease for two further terms of years each. The renewal option periods have not been included in the lease term as the Company is not reasonably certain that they will be exercised.
Universal Biosensors, Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
On June 28, 2021, HRL entered into a premises lease with a -year contractual period ending in February 2032 and the Company is making arrangements to relocate the operation. The lease does not include an option to renew the lease for a further term.
As of June 30, 2021, the Company has not entered into any other lease agreements that have not yet commenced.
8. Contingent Consideration
Pursuant to the Siemens Acquisition and the agreement dated September 2019, the Company has agreed to pay to Siemens within five days of Siemens achieving a pre-defined milestone. The Company has the discretion of advising Siemens when the milestone is to be achieved but from the date notification is sent by the Company, Siemens has 90 days to fulfill this milestone. Notification has not yet been issued to Siemens. Once the milestone is achieved, it will enable UBI to use Siemens proprietary reagent which will allow UBI to access markets in certain jurisdictions.
9. Other Liabilities
Other liabilities represents a marketing support payment due to one of our partners and is payable in US currency. The balance will be paid once supporting documentation has been provided to the Company.
10. Borrowings
The long-term unsecured loan is a government guaranteed loan called Canada Emergency Business Account (CEBA) of to help eligible businesses with operating costs. This is among the business support measures introduced in the Canadian Federal Government’s COVID-19 Economic Response Plan, with the following terms:
| ● |
the loan is interest-free and no principal repayment is required before December 31, 2022; |
| ● |
if the Company chooses to repay at least of the loan by December 31, 2022, the remaining balance will be forgiven; |
| ● |
if the loan is not repaid by the above mentioned date, it will be converted into a 3-year term loan and will be charged an interest rate of 5% per annum. Interest-only payments are required each month; and |
| ● |
at the end of the 3-year term, the entire balance of the loan is due for repayment by December 31, 2025. |
11. Revenue
Disaggregation of Revenue
In the following table, revenue is disaggregated by major product and service line, and timing of revenue recognition.
| Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| A$ | A$ | A$ | A$ | |||||||||||||
| Major product/service lines | ||||||||||||||||
| Coagulation testing products | ||||||||||||||||
| Coagulation testing services | ||||||||||||||||
| Wine testing products | ||||||||||||||||
| Timing of revenue recognition | ||||||||||||||||
| Products and services transferred at a point in time | ||||||||||||||||
Universal Biosensors, Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
Contract Balances
The following table provides information about receivables, and contract liabilities from contracts with customers.
| June 30, 2021 | June 30, 2020 | |||||||
| A$ | A$ | |||||||
| Receivables | ||||||||
| Contract liabilities: | ||||||||
| - Current | ||||||||
| - Non-current | ||||||||
The Company’s contract liabilities represent the Company’s obligation to transfer products to customers for which the Company has received consideration from customers, but the transfer has not yet been completed.
Significant changes in the contract assets and the contract liabilities balances during the period are as follows:
| Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| A$ | A$ | |||||||
| Contract Liabilities - Current | ||||||||
| Opening balance | ||||||||
| Closing balance | ||||||||
| Net increase/(decrease) | ( | ) | ||||||
| Contract Liabilities - Non-Current | ||||||||
| Opening balance | ||||||||
| Closing balance | ||||||||
| Net increase/(decrease) | ( | ) | ||||||
As at June 30, 2021 the Company expects all of the Group’s contract liabilities to be realized by December 31, 2021.
12. Other Income
Other income is recognized when there is reasonable assurance that the income will be received and the consideration can be reliably measured.
Other income is as follows for the relevant periods:
| Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||
| A$ |
A$ |
A$ |
A$ |
|||||||||||||
| Insurance recovery |
||||||||||||||||
| Federal and state government subsidies |
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| Rental income |
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| Other income |
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Insurance recovery for the six months ended June 30, 2020 represents as partial reimbursement of our legal costs which was incurred during mediation with Siemens.
Federal and state government subsidies which primarily include Australian JobKeeper payments and Canada Emergency Wage Subsidy, represent assistance provided by these authorities as a stimulus during COVID-19. The Company was ineligible to receive Australian JobKeeper payments in relation to the 2021 financial year.
Universal Biosensors, Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
13. Total Comprehensive Income/(Loss)
The Company follows ASC 220 – Comprehensive Income. 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 |
Tax (Expense)/ Benefit |
Net-of-Tax Amount |
||||||||||
| A$ |
A$ |
A$ |
||||||||||
| Six Months Ended June 30, 2021 |
||||||||||||
| Foreign currency translation reserve |
( |
) | ( |
) | ||||||||
| Reclassification for gains realized in net income |
||||||||||||
| Other comprehensive loss |
- | - | - | |||||||||
| ( |
) | ( |
) | |||||||||
| Six Months Ended June 30, 2020 |
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| Foreign currency translation reserve |
||||||||||||
| Reclassification for gains realized in net income |
||||||||||||
| Other comprehensive income |
- | - | - | |||||||||
14. 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:
Mr. Coleman is a 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
There were no other material related party transactions or balances as at June 30, 2021 other than as disclosed above.
15. 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 as at June 30, 2021 and December 31, 2020. Purchase commitments contracted for as at June 30, 2021 and December 31, 2020 were and respectively.
Refer to note 8 for details of the Company’s Contingent Consideration.
16. Segment Information
We operate in segment. We are a specialist biosensors Company focused on the development, manufacture and commercialization of a range of point-of-use devices for measuring different analytes across different industries.
We operate predominantly in geographical area, being Australia.
The Company’s material long-lived assets are all based in Australia.
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 Annual Report on 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, as amended (the “Exchange Act”) 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 “anticipates”, “assumes”, “believes”, “can”, “could”, “estimates”, “expects”, “future”, “illustration”, “intends”, “may”, “plans”, “predicts”, “will”, “would” 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. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.
Results of Operations
Analysis of Consolidated Revenue
Our total revenue increased by 237% and 219% during the three and six months ended June 30, 2021, compared to the same periods in the previous financial year as explained further below.
Revenue from Products
The financial results of the coagulation testing products and wine testing products we sold during the respective periods are as follows:
| Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||
| A$ |
A$ |
A$ |
A$ |
|||||||||||||
| Revenue from products |
1,407,358 | 461,114 | 2,571,048 | 829,859 | ||||||||||||
| Cost of goods sold |
(864,340 | ) | (329,113 | ) | (1,406,377 | ) | (744,631 | ) | ||||||||
| Gross profit |
543,018 | 132,001 | 1,164,671 | 85,228 | ||||||||||||
| Gross profit margin |
39 | % | 29 | % | 45 | % | 10 | % | ||||||||
The movements in revenues during the three and six months ended June 30, 2021, compared to the same periods in the previous financial year are primarily driven by volume increases.
Coagulation testing product sales increased by 152% and 140% during the three and six months ended June 30, 2021, compared to the same periods in the previous financial year due primarily to higher net sales from an existing customer and sales to new customers in the global market.
The Company benefited from a new revenue stream in 2021 following the successful launch of our Sentia, Free Sulphur Dioxide wine testing product world-wide.
Products gross margin increased during the three and six months ended June 30, 2021, compared to the same periods in the previous financial year due primarily to higher products volume, a different product mix and an increase in throughput.
Revenue from Services
The financial results of the coagulation testing services we provided during the respective periods are as follows:
| Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||
| A$ |
A$ |
A$ |
A$ |
|||||||||||||
| Coagulation testing services |
434,921 | 85,502 | 820,840 | 233,587 | ||||||||||||
| Cost of services |
(323,040 | ) | (229,931 | ) | (620,109 | ) | (449,144 | ) | ||||||||
| Gross profit/(loss) |
111,881 | (144,429 | ) | 200,731 | (215,557 | ) | ||||||||||
| Gross profit/(loss) margin |
26 | % | (169 | %) | 24 | % | (92 | %) | ||||||||
Our revenue from coagulation testing services increased by 409% and 251% during the three and six months ended June 30, 2021, compared to the same periods in the previous financial year. The primary reasons for the increase in revenues and subsequently the gross margins are as follows:
| - |
HRL’s operations were temporarily shut down during March to May 2020 which impacted its ability to generate revenue during this period. In comparison, HRL’s operations have been operational during 2021; and |
|
| - |
HRL entered into new contracts during 2021, including a contract with Bayer Inc. |
Adjusted EBITDA
Adjusted EBITDA is earnings before interest, taxes, depreciation, amortization and accretion of asset retirement obligations. EBITDA is a non-GAAP measurement. Management uses Adjusted EBITDA because it believes that such measurements are widely accepted financial indicators used by investors and analysts to analyze and compare companies on the basis of operating performance and that these measurements may be used by investors to make informed investment decisions, including our ability to generate earnings sufficient to service our debt, and enhances our understanding of our financial performance and highlights operational trends. These measures are not in accordance with, or an alternative for, U.S. GAAP. The most comparable GAAP measure is net earnings from continuing operations. Consolidated adjusted EBITDA should not be considered in isolation or as a substitution for analysis of our results as reported under GAAP.
Adjusted EBITDA for the respective periods and a reconciliation of net loss to adjusted EBITDA is as follows:
| Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||
| A$ |
A$ |
A$ |
A$ |
|||||||||||||
| Net loss |
(1,779,804 | ) | (3,060,033 | ) | (3,210,113 | ) | (4,523,102 | ) | ||||||||
| Interest income |
(14,384 | ) | (82,274 | ) | (31,744 | ) | (221,406 | ) | ||||||||
| Depreciation and amortization |
649,081 | 618,940 | 1,236,975 | 1,249,172 | ||||||||||||
| Accretion expense |
32,492 | 77,400 | 64,984 | 77,400 | ||||||||||||
| Adjusted EBITDA |
(1,112,615 | ) | (2,445,967 | ) | (1,939,898 | ) | (3,417,936 | ) | ||||||||
The improvement in adjusted EBITDA during the three and six months ended June 30, 2021, compared to the same periods in the previous financial year is primarily a result of revenue growth that has resulted in a decline in the net loss between the respective periods.
Product Support
Product support relates to post-market technical support provided by us for the Xprecia Stride™ and Sentia test devices.
Depreciation and Amortization Expenses
| Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||
| A$ |
A$ |
A$ |
A$ |
|||||||||||||
| Depreciation: |
||||||||||||||||
| Charged to cost of goods sold & services |
103,322 | 54,420 | 163,535 | 111,616 | ||||||||||||
| Charged to other operating costs & expenses |
137,804 | 156,565 | 262,013 | 321,646 | ||||||||||||
| 241,126 | 210,985 | 425,548 | 433,262 | |||||||||||||
| Amortization: |
||||||||||||||||
| Charged to other operating costs & expenses |
407,955 | 407,955 | 811,427 | 815,910 | ||||||||||||
| Total depreciation and amortization |
649,081 | 618,940 | 1,236,975 | 1,249,172 | ||||||||||||
Depreciation of fixed assets is calculated on a straight-line basis over the useful life of property, plant and equipment. Depreciation is allocated to cost of goods sold and R&D based on output. The overall decline in depreciation for the six months ended June 30, 2021 compared to the same period in the prior year is due to certain fixed assets being fully written off. The increase in depreciation for the 3 months ended June 30, 2021 compared to the same period in the prior year is due to current period fixed asset additions.
Amortization expense represents intangible assets amortized over their estimated useful lives. These intangible assets were acquired in September 2019 pursuant to the Siemens Acquisition and are being amortized on a straight-line basis over 10 years.
Research and Development Expenses
R&D expenditure principally reflects the effort required in product development of the tests we are developing.
The primary focus of the R&D activities during the first and second quarter of 2021 were developing:
| ● |
additional tests on our wine testing platform (Malic Acid, Glucose and Fructose, Acetic Acid and Total Acid); |
|
| ● |
UBI’s next generation PT-INR Coagulation platform; and |
|
| ● |
UBI’s Tn Antigen biosensor used for the detection, staging and monitoring of cancer |
R&D expenditure increased by 1% and 7% during the three and six months ended June 30, 2021, compared to the same periods in the previous financial year. We are undertaking development of multiple R&D projects which accounts for the increase in expenditure. Conversely, in three and six months ended June 30, 2020, the focus on R&D activities was on the development of our initial wine testing platform test which was launched in 2021.
The timing and cost of any development program is dependent upon a number of factors including achieving technical objectives, which are inherently uncertain, and subsequent regulatory approvals. We have project plans in place for all our development programs which we use to plan, manage and assess our projects. As part of this procedure, we also undertake commercial assessments of such projects to optimize outcomes and decision making.
Additionally, 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 products 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, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment and laboratory and other supplies. |
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist principally of salaries and related costs, including stock option expense for certain personnel. Other selling, general and administrative expenses include shipping and handling costs incurred when fulfilling customer orders, repairs and maintenance, insurance, facility costs not otherwise included in R&D expenses, consultancy fees and professional fees for legal including legal services and maintenance fees incurred for patent applications, audit and accounting services.
Selling, general and administrative expenses decreased by 28% and 22% during the three and six months ended June 30, 2021, compared to the same periods in the previous financial year. The decrease was primarily due to cost management and a reduction in external consultant fees.
Interest Income
Interest income decreased by 83% and 86% during the three and six months ended June 30, 2021, compared to the same periods in the previous financial year. The decrease in interest income is generally attributable to the lower amount of funds available for investment and lower interest rates.
Financing Costs
Disclosed in this account is accretion expense which is associated with the Company’s ARO.
Research and Development Tax Incentive Income
In the six months ended June 30, 2021 there is reasonable assurance that the aggregate turnover of the Company for the year ending December 31, 2021 will be less than A$20,000,000 and accordingly an estimated A$648,019 and A$1,260,285 has been recorded as a research and development tax incentive income for the three and six month periods ended June 30, 2021. The increase year on year for both the three and six month periods is driven by the increase in eligible research and development expenditure incurred in the respective periods of 2021 as compared to the same periods in 2020.
Research and development tax incentive income for the 2020 financial year has not yet been received and as such is recorded in “Other current assets” in the consolidated balance sheets.
Exchange Gain/ (Loss)
Foreign exchange gains and losses arise from the settlement of foreign currency transactions that are translated into the functional currency using the exchange rates prevailing at the dates of the transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies.
Other Income
Other income is as follows for the relevant periods:
| Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||
| A$ |
A$ |
A$ |
A$ |
|||||||||||||
| Insurance recovery |
1,087 | - | 2,262 | 600,000 | ||||||||||||
| Federal and state government subsidies |
70,009 | 501,826 | 153,001 | 501,826 | ||||||||||||
| Rental income |
46,676 | 43,600 | 92,276 | 92,134 | ||||||||||||
| Other income |
- | 1,013 | 135,450 | 1,013 | ||||||||||||
| 117,772 | 546,439 | 382,989 | 1,194,973 | |||||||||||||
Insurance recovery for the six months ended June 30, 2020 represents A$600,000 as partial reimbursement of our legal costs which was incurred during mediation with Siemens.
Federal and state government subsidies which primarily include Australian JobKeeper payments and Canada Emergency Wage Subsidy, represent assistance provided by these authorities as a stimulus during COVID-19. The Company was ineligible to receive Australian JobKeeper payments in relation to the 2021 financial year.
Certain Uncertainties
Depending on the duration of the COVID-19 crisis and continued negative impacts on economic activity, the Company may experience negative impacts in 2021 which cannot be predicted.
Critical Accounting Estimates and Judgments
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material.
Note 3, “Summary of Significant Accounting Policies” in Item 1 of this Form 10-Q and in the Notes to consolidated financial statements in Item 3 of the 2020 Form 10-K, and “Critical Accounting Estimates and Judgments” in Item 7 of the 2020 Form 10-K describe the significant accounting policies and methods used in the preparation of the Company’s consolidated condensed financial statements. There have been no material changes to the Company’s critical accounting policies and estimates since the 2020 Form 10-K.
Financial Condition, Liquidity and Capital Resources
Net Financial Assets
Our net financial assets position is shown below:
| June 30, 2021 |
December 31, 2020 |
|||||||
| A$ |
A$ |
|||||||
| Financial assets |
||||||||
| Cash and cash equivalents |
18,864,249 | 23,561,807 | ||||||
| Accounts receivable |
749,317 | 73,073 | ||||||
| Total financial assets |
19,613,566 | 23,634,880 | ||||||
| Debt: |
||||||||
| Short and long term debt/ loan |
64,391 | 40,741 | ||||||
| Total debt |
64,391 | 40,741 | ||||||
| Net financial assets |
19,549,175 | 23,594,139 | ||||||
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 a long-term loan.
The decline in our net financial assets position is primarily a result of ongoing investment in our R&D activities and the general operations of the Company.
We believe we have sufficient cash and cash equivalents to fund our operations for at least the next twelve months from the date of issuance. 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.
The carrying value of the cash and cash equivalents and the accounts receivables approximates fair value because of their short-term nature.
We regularly review all our financial assets for impairment. There were no impairments recognized as at June 30, 2021 or for the year ended December 31, 2020.
The Company is continuing to monitor the potential impact of COVID-19, if any, on the Company’s business and financial position.
Derivative Instruments and Hedging Activities
We had no derivatives or outstanding contracts in place through the period ended June 30, 2021 and for the year ended December 31, 2020.
Measures of Liquidity and Capital Resources
The following table provides certain relevant measures of liquidity and capital resources:
| June 30, 2021 |
December 31, 2020 |
|||||||
| A$ |
A$ |
|||||||
| Cash and cash equivalents |
18,864,249 | 23,561,807 | ||||||
| Working capital |
20,844,911 | 22,433,054 | ||||||
| Ratio of current assets to current liabilities |
3.76 : 1 |
3.50 : 1 |
||||||
| Shareholders’ equity per common share |
0.20 | 0.21 | ||||||
The movement in cash and cash equivalents and working capital during the above periods was primarily the result of ongoing investment in our R&D activities and the general operations of the Company.
We have not identified any collection issues with respect to receivables.
Summary of Cash Flows
| Six Months Ended June 30, 2021 |
Year Ended December 31, 2020 |
|||||||
| A$ |
A$ |
|||||||
| Cash provided by/ (used in): |
||||||||
| Operating activities |
(5,467,991 | ) | (8,291,139 | ) | ||||
| Investing activities |
(320,792 | ) | (372,204 | ) | ||||
| Financing activities |
85,171 | 43,644 | ||||||
| Net increase/ (decrease) in cash, cash equivalents and restricted cash |
(5,703,612 | ) | (8,619,699 | ) | ||||
Our net cash used in operating activities for all periods represents receipts offset by payments for our R&D projects including efforts involved in establishing and maintaining our manufacturing operations and selling, general and administrative expenditure. Cash outflows from operating activities primarily represent the ongoing investment in our R&D activities and the general operations of the Company.
Our net cash used in investing activities for all periods is primarily for the purchase of various equipment and for the various continuous improvement programs we are undertaking.
Our net cash increase in financing activities for the six months ended June 30, 2021 represents CAD$20,000 received in the form of a long-term unsecured government guaranteed loan which was introduced in the Canadian Federal Government’s COVID-19 Economic Response Plan and funds received in relation to the exercise of stock options issued to employees
Off-Balance Sheet Arrangement
As of June 30, 2021 and December 31, 2020, we did not have any off-balance sheet arrangements, as such term is defined under Item 303 of Regulation S-K, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Segment Operating Performance
We operate in one segment. We are a specialist biosensors company focused on the development, manufacture and commercialization of a range of point-of-use devices for measuring different analytes across different industries.
We operate predominantly in one geographical area, being Australia.
The Company’s material long-lived assets are all based in Australia.
Item 3 Quantitative and Qualitative Disclosures About Market Risk
As a “smaller reporting company”, we are not required to provide the information called for by this Item.
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. John Sharman, Principal Executive Officer, and Salesh Balak, Principal Financial Officer, reviewed and participated in this evaluation. Based on this evaluation, Messrs. Sharman 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 June 30, 2021, 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 4 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II
Item 1 Legal Proceedings
None.
Item 1A Risk Factors
The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in Part I, Item 1A of the 2020 Form 10-K under the heading “Risk Factors,” any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price. There have been no material changes to the Company’s risk factors since the 2020 Form 10-K.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
None.
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 |
||
| 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 |
Furnished herewith |
|||
| 101 |
The following materials from the Universal Biosensors, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Consolidated Condensed Balance Sheets, (ii) the Consolidated Condensed Statements of Comprehensive Income/(Loss), (iii) the Consolidated Condensed Statements of Changes in Stockholders’ Equity and Comprehensive Income/(Loss), (iv) the Consolidated Condensed Statements of Cash Flows and (v) the Notes to Consolidated Condensed Financial Statements |
Filed herewith |
||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) |
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. |
||||
| By: |
/s/ John Sharman |
|||
| Date: August 6, 2021 |
John Sharman |
|||
| Principal Executive Officer |
||||
| By: |
/s/ Salesh Balak |
||
| Date: August 6, 2021 |
Salesh Balak |
||
| Principal Financial Officer |