Universal Biosensors
UNIVERSAL BIOSENSORS, INC.
ANNUAL REPORT
FOR THE YEAR ENDED
DECEMBER 31, 2016
CONTENTS
1 LETTER FROM THE CHAIRMAN AND CEO
2 FORM 10-K
107 ASX ADDITIONAL INFORMATION
109 CORPORATE DIRECTORY
LETTER
FROM THE CHAIRMAN AND CEO
Dear Shareholders,
I am pleased to report that 2016
has been a year of progress
and achievement for UBI. We
maintained our focus on our
two lead products – OneTouch®
Verio blood glucose test strips
and Xprecia Stride™ Coagulation
Analyser test strips. Importantly,
we were also successful in
lowering the cost base of our
business and transitioning UBI
to profitability.
In February 2017, we released our
full year financial results for the
year ending 31 December 2016.
We reported strong revenue
growth, net profit and positive
operating cash flow. This
performance was underpinned
by continued growth in Quarterly
Service Fees received from the
sales of OneTouch® Verio blood
glucose test strips. Ongoing
market share gains in the blood
glucose market, by our partner
LifeScan, have continued to deliver
strong revenue growth for UBI.
While the revenue reported
from the supply of test strips
for the Siemens Xprecia Stride™
Coagulation Analyser were not
significant in 2016, growth in
2017 is expected to ramp-up.
FDA approval to sell the Xprecia
Stride™ Analyser in the US was
received in October 2016. We
believe the Xprecia Stride™
Analyser will make an increasingly
valuable contribution to our
financial position going forward
and we look forward to advancing
our work with Siemens to drive
growth of this product in the US
marketplace.
We announced in December 2016
our acquisition of the Hemostasis
Reference Laboratory (HRL)
business of LifeLabs. HRL has one
of the most diverse offerings of
specialised coagulation quality
testing and calibration services
in the world and complete access
to this expertise will give us
more certainty and control over
production of our Xprecia Stride™
test strips. The HRL acquisition
demonstrates our confidence in
the growth of the Xprecia Stride™
Coagulation Analyser test strips
moving forward.
During the year, we also confirmed
our eligibility to receive the
Australian Government’s R&D tax
incentive in respect of our R&D
expenditure in 2016. This $7.4
million incentive will help subsidise
costs and support our focused
development pipeline going
forward.
Looking to the year ahead,
I expect UBI will continue the
positive momentum it has
demonstrated in 2016.
From a development perspective,
our strong track record of
innovation and partnerships in
the Point-of-Care diagnostics
space also lays the foundation
for successful new products.
Thank you for your continued
interest in the company, and I look
forward to keeping you updated
on our activity in the future.
Yours sincerely
Andrew Denver
Chairman and Chief Executive
Officer
Universal Biosensors, Inc. 1
FORM 10-K
2 Universal Biosensors, Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ Annual Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2016
OR
☐ Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 000-52607
Universal Biosensors, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
98-0424072
(I.R.S. Employer
Identification Number)
Universal Biosensors, Inc.
1 Corporate Avenue,
Rowville, 3178, Victoria
Australia
(Address of principal executive offices)
Telephone: +61 3 9213 9000
(Registrant’s telephone number,
including area code)
Not Applicable
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Shares of Common Stock, par value US$0.0001 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ☐ No ☒
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. ☐
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 definitions of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)
Accelerated filer
☐
Smaller reporting company ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The approximate aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant was
A$35,886,472 (equivalent to US$26,649,294) as of June 30, 2016.
The number of shares outstanding of each of the registrant’s classes of common stock as of March 14, 2017:
Title of Class
Common Stock, par value US$0.0001 per share
Number of Shares
176,386,884
Documents incorporated by reference:
Certain information contained in the registrant’s definitive Proxy Statement for the 2017 annual meetings of stockholders, to be filed
not later than 120 days after the end of the fiscal year covered by this report, is incorporated by reference into Part III hereof.
Information contained on pages F-2 through F-46 of our Annual Report to Stockholders for the fiscal year ended December 31, 2016
(our “2016 Annual Report”) is incorporated by reference in our response to Items 7, 7A, 8 and 9A of Part II.
TABLE OF CONTENTS
Page
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FORWARD-LOOKING STATEMENTS
PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 5.
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ISSUER PURCHASES OF EQUITY SECURITIES
SELECTED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
CONTROLS AND PROCEDURES
OTHER INFORMATION
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTING FEES AND SERVICES
EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES
FORM 10-K SUMMARY
ITEM 13.
ITEM 14.
PART IV
ITEM 15.
ITEM 16.
SIGNATURES
Unless otherwise noted, references on this Form 10-K 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 its wholly owned Canadian operating subsidiary, Hemostasis Reference
Laboratory Inc. (“HRL”). Our principal place of business is located at 1 Corporate Avenue, Rowville, Victoria 3178, Australia. Our
telephone number is +61 3 9213 9000. Unless otherwise noted, all references in this Form 10-K 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.
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FORWARD-LOOKING STATEMENTS
This Form 10-K, together with other statements and information publicly disseminated by us, contains certain forward looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying
with these safe harbor provisions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors
that may cause our, our customers and partners’ or our industry’s actual results, levels of activity, performance or achievements to be
materially different from those anticipated by the forward-looking statements. All statements, other than statements of historical facts,
are forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
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our business and product development strategies;
our expectations with respect to collaborative, strategic or distribution arrangements;
our expectations with respect to the timing and amounts of revenues from our customers and partners;
our expectations with respect to the services we provide to, and the development projects we undertake for, our customers
and partners;
our expectations with respect to regulatory submissions, approvals, market launches of products we develop or are
involved in developing;
our expectations with respect to sales of products we develop or are involved in developing and the quantities of such
products to be manufactured by us;
our expectations with respect to our research and development programs, the timing of product development and our
associated research and development expenses;
the ability to protect our owned or licensed intellectual property; and
our estimates regarding our capital requirements, the sufficiency of our cash resources, our debt repayment obligations and
our need for additional financing.
The words “anticipates,” believes,” “continue,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “projects,”
“should,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-
looking statements contain these identifying words. You should not place undue reliance on these forward-looking statements, which
apply only as of the date of this Form 10-K. The forward-looking statements included in this Form 10-K do not guarantee our future
performance, and actual results could differ from those contemplated by these forward-looking statements. Actual results or events
could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. We
undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the
statement is made or to reflect the occurrence of unanticipated events. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in cautionary statements throughout this Form 10-K, particularly those set forth in
section “Item 1A - Risk Factors.” However, new factors emerge from time to time and it is not possible for us to predict which factors
will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except to the extent
required by applicable law or regulation, we do not undertake to update or revise any forward-looking statements.
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PART I
ITEM 1. BUSINESS.
The following discussion and analysis should be read in conjunction with our financial statements and related notes included
elsewhere in this Form 10-K. This discussion and analysis contain forward-looking statements based upon current expectations that
involve risks and uncertainties. Our actual results and the timing of events could differ materially from those anticipated in these
forward-looking statements as a result of several factors, including those set forth in the section entitled “Item 1A - Risk Factors”
and elsewhere in this Form 10-K.
Business overview
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.
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, Universal
Biosensors Pty Ltd (“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, Hemostasis
Reference Laboratory Inc. (“HRL”) was incorporated in British Columbia, Canada on November 30, 2016. On December 16, 2016,
HRL acquired 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.
Our principal place of business is 1 Corporate Avenue, Rowville, Victoria 3178, Australia. Our principal telephone number in
Australia is +61 3 9213 9000. Our agent for service in the United States is Corporation Service Company of 2711 Centerville Road,
Suite 400, Wilmington, DE 19808, United States. HRL’s principal place of business is 15(H) Wing, Second Floor, 711 Concession
Street, Hamilton, Ontario and its registered office is 310-318 Homer Street, Vancouver, British Columbia V6B 2V2, Canada. We also
maintain a website at www.universalbiosensors.com and HRL maintains a website at www.hemostasislab.com. The information
contained in, or that can be accessed through, our websites is not part of this Form 10-K.
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. 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:
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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 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.
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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.
Our Strategy
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. Key aspects of our strategy for generating shareholder value include:
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manufacturing products (test strips and analyzers) for our customers and future partners as required;
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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.
Plan of Operations for the Remainder of the Fiscal Year Ending December 2017
Our plan of operations over the remainder of the fiscal year ending December 2017 is to:
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manufacture products;
undertake research and development work for our customers and partners;
provide the necessary post-market support for our customers and partners;
demonstrate the broader application of our technology platform for markets with significant commercial potential, focusing
initially on enzymatic, immunoassay and molecular diagnostic point-of-care tests; and
seek 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.
Financial information about segments
We operate in one segment. Our principal activities are the research, development and manufacture of in vitro diagnostic test
devices for consumer and professional point-of-care use. Although our products are intended for sale worldwide, we operate
predominantly in one geographical area, that being Australia. For details of our revenues, profit and loss and total assets, refer to our
2016 Annual Report.
Description of 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.
Industry background
We operate in the high growth, point-of-care segment of the global in vitro diagnostics (IVD) industry. A large proportion of
clinical diagnostics has historically been performed by trained personnel at dedicated or centralized testing sites including hospital
laboratories and commercial pathology laboratories. Significant interest has developed in techniques and technologies that allow
testing to be performed “on-the-spot” (in real time at the patient’s side). Point-of-care testing can be further divided into consumer
self-testing or testing of patients by one of a variety of medical or laboratory professionals in locations such as clinics, physician’s
office laboratories and emergency departments. While not all tests are suited to being performed at the point-of-care, we believe our
electrochemical cell technology and other technologies could be a suitable platform for adapting a number of relevant central
laboratory tests to a point-of-care format.
Point-of-care tests in development and partnering strategy
We are also working to demonstrate the broader application of our technology platform for markets with significant commercial
potential across enzymatic, immunoassay and molecular diagnostic point-of-care tests. Our strategy is to apply the electrochemical
cell technology to different fields and biomarkers and then to either enter into collaborative arrangements or strategic alliances with
third parties to develop and commercialize products for those fields or, as the case may be, to complete the development of the
products and commercialize them using distributors. To date, we have developed a blood glucose test with LifeScan and a
coagulation PT-INR test with Siemens, both of which are now sold by LifeScan and Siemens, respectively. We intend to continue to
work with Siemens to develop other test strip and reader products for the point-of-care coagulation market.
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Principal Products and Services
UBS is the manufacturer of PT-INR coagulation test strips for Siemens’ Xprecia StrideTM Coagulation Analyzer. We intend to
continue to work with Siemens to develop a range of other products for the point-of-care coagulation testing market which UBS
expects to manufacture once approved for sale. UBS also conducts research and development to demonstrate the broader application
of our technology platform.
UBS provides LifeScan with research and development services from time to time. Between 2009 and 2013, UBS acted as a
non-exclusive manufacturer of blood glucose test strips for LifeScan’s OneTouch Verio® blood glucose testing product. While UBS
no longer manufactures the OneTouch Verio® blood glucose test strips for LifeScan, under the Master Services and Supply
Agreement, UBS continues to be paid the quarterly service fee based on the number of OneTouch Verio® strips sold, irrespective of
the manufacturer of the strips in consideration of services provided. At any time after the end of the quarter following receipt by us of
US$45 million in quarterly service fees, LifeScan has the option to give notice of conversion of the quarterly service fees. In the event
notice is given, LifeScan is only required to the pay the quarterly service fees for the remainder of LifeScan’s financial year in which
the notice was given. In addition, after the end of that financial year, LifeScan must pay a one-time lump sum fee. This one-time lump
sum service fee is calculated by multiplying the sum of all quarterly service fees for the relevant financial year in which notice is
given by a multiplier (2.2x if notice is given in 2017 or 2x if notice is given in 2018 and beyond). As of December 31, 2016, we had
receipted cumulative quarterly service fees of US$31.6 million. The service fees for the quarter ending December 31, 2016 amounted
to US$3.1 million and remained unpaid as at balance date. The cumulative quarterly service fees receipted and accrued as at
December 31, 2016 is US$34.7 million.
Facilities
Universal Biosensors Pty Ltd leases approximately 5,000 square meters of office, research and development and manufacturing
facilities at 1 Corporate Avenue, Rowville in Melbourne, Australia. We have had ISO 13485 certification continuously at that site
since May 2007. The lease for 1 Corporate Avenue expires on March 31, 2019 with an option to renew the lease for two further terms
of five years each.
HRL leases approximately 482 square meters of office and laboratory facilities at 15(H) Wing, Second Floor, 711 Concession
Street, Hamilton, Ontario. As part of the acquisition of the assets of the Hemostasis Reference Laboratory business, HRL was
transferred ISO 13485:2003 and ISO 13485 certification, which has been held continuously at the site since May 15, 2014 and July
2011, respectively. The lease for 711 Concession Street expires on January 31, 2020 with 2 further options to renew each for 5 years.
Either HRL or its landlord can terminate the lease early by giving 6 months’ notice.
Raw materials
Raw materials essential to our business are purchased worldwide in the ordinary course of business from numerous suppliers. In
general, these materials are available from multiple sources. Certain of our products in development may be more reliant on sole
sources of supply. We seek to enter into long term contracts of supply with respect to these materials and intend to develop mitigation
strategies, which may include development work to enable substitute materials to be used.
Distribution
Siemens is responsible to the sales and distribution of its products. With respect to certain of our products in development,
including our PT-INR test, part of our strategy is to establish distribution arrangements in the future.
Regulatory clearances
In all major territories of the world, regulatory clearances are required prior to marketing diagnostic tests. The regulatory
clearance requirements vary from country to country and product to product, however, regulatory clearances typically require a
satisfactory “technical file”, which provides the regulatory bodies with details of the design and previous testing of the product
including safety and efficacy data as well as the details of the conduct of trials which show the suitability for use of the product at the
point-of-care. Regulators also require demonstration of continuing compliance with an appropriate quality management system. There
is no common international regulatory body and we, or our relevant customer or partner or distributor, would be required to submit
for clearance to sell in each of the major jurisdictions in which we or our relevant customers and partners seeks to market products.
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For example, for Europe, a “Notified Body” assesses the quality system and product technical file, whereas in the United States, the
Food and Drug Administration, or “FDA”, is the regulatory body responsible for the examination of the design and performance of
the device and for assessment of our quality system.
In the case of point-of-care tests, there are often additional requirements that a manufacturer must meet such as an examination
of certain aspects affecting test suitability for non-professional users. In Europe, certain codified standards describe the requirements
of tests whilst in the United States, tests to be used by non-laboratory professionals must gain waiver status under the United States
Clinical Laboratory Improvement Amendments of 1988. Amongst other clearances, we will also require clearance for export of
medical devices from the Therapeutics Goods Administration, or “TGA”, in Australia.
If we are developing a product for a customer or partner, our customers and partners are generally responsible for obtaining and
maintaining all applicable regulatory approvals and determining the location and timing for submissions for regulatory clearance. We
may provide a supporting role in this process. We will however be responsible for the regulatory approvals of the products which we
wish to take to market through distributors.
The importance and duration of all our patents, trademarks and licenses
We rely on a combination of patent, copyright, trademark and trade secret laws, as well as confidentiality agreements, to
establish and protect our proprietary rights which in the aggregate we believe to be of material importance to us in the operation of
our business. Our continued success depends to a large extent on our ability to protect and maintain our owned and licensed patents
and patent applications, copyright, trademark and trade secrets.
Our point-of-care tests in development draw upon an extensive portfolio of patents and patent applications as well as know-how
either owned by UBS or licensed to UBS. We patent the technology, inventions and improvements that we consider important to the
development of our business.
We rely on the owned patent applications and the patents and patent applications licensed to us in the manufacture of the
point-of-care diagnostic tests being developed by us and to enable us to grant rights to our customers and partners to commercialize
products that we may develop.
Our owned and licensed patents extend for varying periods according to the date of patent filing or grant and the legal term of
patents in the various countries where patent protection is obtained. The actual protection afforded by a patent, which can vary from
country to country, depends upon the type of patent, the scope of its coverage and the availability of legal remedies in the country.
Based on current product sales and our projects, the owned and licensed patents and patent applications that we consider most
significant by virtue of their importance to our platform together with the last of the patents to expire within the patent family are set
forth in the table below.
Patent
Apparatus and Method for Electrochemical Protease Sensor (this patent family relates to a sensor to detect
cleavage of an electrochemical substrate for use in measuring blood or plasma coagulation in assays such as
prothrombin time and thrombin potential)
Electrochemical On-Board Control Detection (this patent family relates to an on-board control system of a
sensor, wherein the control system can test/verify the viability of the sensor)
Electrochemical Cell (this patent family relates to a method and an electrochemical biosensor for determining
the concentration of an analyte in a carrier)
Electrochemical Method (this patent family provides an improved method and biosensor for determination of
the concentration of an analyte in a carrier which provides improved accuracy, reliability and speed over prior
techniques)
Electrochemical Method for Measuring Chemical Reaction Rates (this patent family relates to the measurement
of the progress of a chemical reaction that generates an electroactive reaction product that is subsequently
detected at an electrode amperometrically or coulometrically)
Electrochemical Cell Connector (this patent family relates to a connector to provide electrical connection
between an electrochemical cell of a strip type sensor and meter circuitry)
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Expiration
Year
2028
2030
2022
2024
2023
2026
Patent
Method and Apparatus for Rapid Electrochemical Analysis (this patent application relates to an improved
method and apparatus for electrochemical analysis)
Methods and Apparatus for Analyzing a Sample in the Presence of Interferents (this patent application relates to
methods and apparatus for determining analyte concentrations in a rapid and accurate manner)
System and Method for measuring an Analyte in a Sample (this patent relates to a method for measuring a
temperature corrected glucose concentration over a temperature range)
Systems and Methods for Discriminating Control Solution from a Physiological Sample (this patent application
relates to systems and methods for discriminating between a control solution and blood sample)
Systems and Methods of Discriminating Control Solution from a Physiological Sample (this patent application
relates to systems and methods for discriminating between a control solution and a blood sample based on a
summation of current values and comparing reference values to threshold values)
Expiration
Year
2026
2026
2029
2028
2027
We intend to continue to file and prosecute patent applications when and where appropriate to attempt to protect our rights in
our proprietary technologies.
Pursuant to our License Agreement with LifeScan, LifeScan is responsible for prosecution and maintenance of the patents and
patent applications licensed to us by them. In the event that LifeScan elects not to proceed with the prosecution of a patent application
licensed to us by them or discontinues the payment of fees, we have the right to assume and continue at our own expense the
prosecution of any such patent or patent applications. We also license intellectual property from Siemens and SpeeDx Pty Ltd, who
are both primarily responsible for the prosecution and maintenance of the patents and patent applications licensed to us by them.
Our ability to build and maintain our proprietary position for our technology and products will depend on our success in
obtaining effective claims and those claims being enforced once granted and, with respect to intellectual property licensed to us, the
licensee’s success in obtaining effective claims and those claims being enforced once granted. The patent positions of companies like
ours are generally uncertain and involve complex legal and factual questions for which important legal principles remain unresolved.
Some countries in which we or our customers or partners may seek approval to sell point-of-care tests that we have been involved in
developing, may fail to protect our owned and licensed intellectual property rights to the same extent as the protection that may be
afforded in the United States or Australia. Some legal principles remain unresolved and there has not been a consistent policy
regarding the breadth or interpretation of claims allowed in patents in the United States, the United Kingdom, the European Union,
Australia or elsewhere. In addition, the specific content of patents and patent applications that are necessary to support and interpret
patent claims is highly uncertain due to the complex nature of the relevant legal, scientific and factual issues. Changes in either patent
laws or in interpretations of patent laws in the United States, the United Kingdom, the European Union, Australia or elsewhere may
diminish the value of our intellectual property or narrow the scope of our patent protection.
Seasonality
We do not expect sales of our products and services to be materially impacted by seasonality.
The practices of the registrant and the industry (respective industries) relating to working capital items.
The nature of the Company’s business requires it to maintain sufficient levels of inventory to meet contractually agreed delivery
requirements of customers. The Company provides its customers with payment terms prevalent in the industry.
Dependence on single customer
We continue to receive a significant portion of our revenue from LifeScan. All revenue from products was recognized in
connection with the manufacture of the test strips for Siemens’ Xprecia StrideTM Coagulation Analyzer.
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Revenue from products
Revenue from services
Research and development tax incentive income
Interest income
Total income
% of total income derived from - LifeScan
- Siemens
- Other
2016
A$
584,550
18,246,267
7,562,172
201,096
26,594,085
Years Ended December 31,
2015
A$
1,323,564
15,451,414
9,224,349
242,574
26,241,901
2014
A$
215,486
9,314,198
9,935,083
260,904
19,725,671
68%
3%
29%
49%
15%
36%
34%
14%
52%
Revenue from services is primarily represented by the receipt of the quarterly service fees from LifeScan. Our dependence on
the quarterly service fees from LifeScan for a significant proportion of our revenue is likely to continue until we start to receive
meaningful revenues from Siemens relating to the Xprecia StrideTM Coagulation Analyzer and other partnering and collaborative
arrangements or strategic alliances with third parties and from the sale of our own products.
We did not have any significant backlog orders as of December 31, 2016 and 2015.
Competitive conditions of our business
Despite the Xprecia StrideTM Coagulation Analyzer being available in Europe, the Middle East, Africa, Asia Pacific, Latin
America and Canada, our revenue is currently highly dependent on the success of the OneTouch Verio® blood glucose product we
have developed with LifeScan. OneTouch Verio® was first launched in the Netherlands in January 2010 by LifeScan and has
subsequently been launched in countries that represent over 90% of the world self-monitoring blood glucose market including North
America, major European markets and Australia. LifeScan is responsible for all sales and marketing decisions and any decision to
introduce the product to new territories and the timing of those decisions.
The global diabetes market place is intensely competitive and dominated by multinationals such as LifeScan, Roche, Abbott and
Panasonic Healthcare. Changes to reimbursement of blood glucose monitoring supplies in the US market have further intensified
pricing competition and margin pressures. In addition, in 2013, the International Standards Organization released new guidelines that
increase the accuracy and performance requirements for blood glucose monitoring systems. Although OneTouch Verio® has been
well received in the jurisdictions in which it has been launched, LifeScan controls the commercialization of the OneTouch Verio®
product and we do not know whether customers will prefer it over competitive offerings, nor the rate at which it might continue to be
adopted.
Siemens is responsible for all sales and marketing decisions with respect to the products we develop for them and for any
decision to introduce the products to new territories and the timing of those decisions. In December 2014, Siemens received the CE
mark approval for sale of the Xprecia StrideTM Coagulation Analyzer in Europe and initiated the European limited release of its first
point-of-care coagulation testing device. On October 4, 2016, Siemens received regulatory clearance from the US FDA to sell the
Xprecia Stride™ Coagulation Analyzer in the US.
The worldwide point-of-care coagulation testing market was estimated at around US$1.0 billion in 2014 and is forecast to grow
by around 10% per annum to US$1.4 billion by 2018. The coagulation testing market is dominated by PT-INR testing, which
represents around 70% of this market. Roche is currently the largest player in the point-of-care professional PT-INR testing market.
Roche has a well established brand recognition, sales and marketing force, and has significant resources available to support its
product.
Core to our business strategy is the extension of our intellectual property platform to enable other tests currently done in the
central laboratory to be migrated to the point-of-care settings. Our belief is that much testing done in the central lab can more
efficiently and profitably be performed at the point-of-care. With the exception of blood glucose testing, most point-of-care testing is
currently conducted in professional settings. The healthcare professional has a choice and can request tests from a central laboratory,
or services provider, or choose to have the test performed at the point-of-care. Thus we face competition not just from other
companies active in the point-of-care space, but also the providers of testing who operate in centralized settings.
9
Our research and development expenditure during the last three fiscal years were as follows:
Research and development expenses
Research and development tax incentive income
2016
A$
Years Ended December 31,
2015
A$
14,987,462 19,120,842 16,616,051
(9,224,349) (9,935,083)
9,896,493 6,680,968
(7,562,172)
7,425,290
2014
A$
We undertake our own research and development and on behalf of our customers and partners. Research and development
activities undertaken on behalf of our customers and partners were A$7,125,162, A$9,014,377 and A$9,971,035 for the fiscal years
ended 2016, 2015 and 2014, respectively.
Employees
At March 14, 2017, we had 83 full time employees in our facilities, spanning production, engineering, operations, quality and
regulatory, research and development and administration.
Financial information about geographic areas
We operate in one segment. Our principal activities are research and development, commercial manufacture of approved
medical or testing devices and the provision of services including contract research work. We operate predominantly in one
geographical area, being Australia. Our total revenue as disclosed below is attributed to countries based on location of customer.
Location has been determined generally based on contractual arrangements.
Home country - Australia
Foreign countries
- U.S.A.
- Germany
- Switzerland
Total - foreign countries
Total income
Years Ended December 31,
2015
A$
2016
A$
7,763,268
9,466,923
2014
A$
10,323,745
258,069
584,550
2,594,570
1,323,564
17,988,198 12,856,844
18,830,817 16,774,978
26,594,085 26,241,901
2,482,288
215,486
6,704,152
9,401,926
19,725,671
Our material long-lived assets are all based in Australia.
Available Information
We file annual and quarterly reports, proxy statements and other information with the Securities and Exchange Commission (the
“SEC”), copies of which are available on ASX. Stockholders may read and copy any reports, proxy and information statements or
other information that we file at the SEC’s Public Reference Room at 100 F. Street, NE, Washington, D.C 20549. Please call the SEC
at 1-800-SEC-0330 for further information about the public reference rooms. Our public filings (including our Annual Report on
Form 10-K and proxy statement) are also available from commercial document retrieval services and at the website maintained by us
at http://universalbiosensors.com and the SEC at http://www.sec.gov.
We provide without charge to each person solicited by the Proxy Statement a copy of our Annual Report on Form 10-K,
including our financial statements but excluding the exhibits to Form 10-K other than Exhibit 13. The Annual Report includes a list of
the exhibits that were filed with the Form 10-K, and we will furnish a copy of any such exhibit to any person who requests it upon the
payment of our reasonable expenses in providing the requested exhibit. For further information, please contact our Company
Secretary, Cameron Billingsley at +61 2 8115 9801 or write us at 1 Corporate Avenue, Rowville VIC 3178 Australia. You may also
send an email to us at companysecretary@universalbiosensors.com.
10
ITEM 1A. RISK FACTORS.
Investing in our shares or CDIs involves a high degree of risk. Before you invest in our shares or CDIs, you should understand the
high degree of risk involved. You should carefully consider the following risks and other information in this Form 10-K, including
our financial statements and related notes appearing elsewhere in this Form 10-K, before you decide to invest in our shares or CDIs.
If any of the events described below actually occurs, our business, financial condition and operating results could be harmed. In such
an event, the market price of our CDIs would likely decline and you could lose part or all of your investment.
Our products may not be successful in the marketplace.
Our success and the success of products that we are involved in developing is ultimately dependent on the level of market
acceptance and sales of those products. Market acceptance will depend on, amongst other things, the ability to provide and maintain
evidence of safety, efficacy and cost effectiveness of the products, the advantages and profile over competing products, the level of
support from clinicians, the relative convenience and ease of use, cost-effectiveness compared to other products, the availability of
reimbursement from national health authorities, the timing of market introduction and the success of marketing and sales efforts by
our customers and partners. Additionally, it is difficult to determine the market opportunity for new technologies and our estimates
may not accurately reflect the actual demand in the target markets.
Our commercial opportunity will be reduced or eliminated if the size of the market opportunity is less than we expect or if our
competitors develop and commercialize products that are safer, more effective, more convenient, less expensive, or reach markets
sooner or are marketed better than products that we are involved in developing.
The blood glucose test strips for the OneTouch Verio® product which we developed with LifeScan were first launched in the
Netherlands in January 2010 and are now available in much of the world’s self-monitored blood glucose market including North
America, major European markets and Australia. While market acceptance for OneTouch Verio® has been positive to date, there is no
guarantee that the product will secure and maintain adequate market share in a timely fashion.
The coagulation test strips for the Xprecia StrideTM Coagulation Analyzer which we developed with Siemens were first released
in Europe in December 2014. This product represents Siemens’ first entry into this point-of-care coagulation testing market and as
such, there is no track record of market acceptance for the product. As such, there can be no guarantee this product will gain market
share in a timely fashion (or at all) from the market’s largest player, Roche. Roche has a well established brand recognition, sales and
marketing forces, and has significant resources available to support its product.
Likewise, we cannot be sure that any other products we are involved in developing with our customers and partners, such as the
other test strip and reader products for the point-of-care coagulation markets that we are developing with Siemens or our own PT-INR
test, will be successful in the marketplace or will secure and maintain adequate market share.
Our ability to be or maintain profitability in the future will be adversely affected if any of the products that we are involved in
developing fail to achieve or maintain market acceptance or compete effectively in the market place. It would reduce or eliminate our
revenues from product sales and/or manufacturing and have a material adverse effect on our business and financial position.
We are currently dependent on revenue from LifeScan.
UBI continues to receive revenue from coagulation test strip manufacturing on behalf of Siemens. Even though we expect this
figure to grow significantly over time, the majority of our products and services revenue is currently derived from LifeScan. With
effect from December 31, 2013, we no longer manufacture OneTouch Verio® blood glucose test strips for LifeScan, however, we are
paid a quarterly service fee based on the number of strips sold. To date, our business has been dependent on the sales of the blood
glucose test strips for the OneTouch Verio® product to partially fund our operations. Any changes in the level of test strip sales will
directly affect the amount of the quarterly service fee paid by LifeScan and, as a result, our business.
LifeScan has the ability to terminate the obligation to pay quarterly service fees to us in certain situations set out in the Master
Services and Supply Agreement or with the agreement of UBS.
11
At any time after the end of the quarter following receipt by us of US$45 million in quarterly service fees, LifeScan has the option to
give notice of conversion of the quarterly service fees. In the event notice is given, LifeScan is only required to the pay the quarterly
service fees for the remainder of LifeScan’s financial year in which the notice was given. In addition, after the end of that financial
year, LifeScan must pay a one-time lump sum fee. This one-time lump sum service fee is calculated by multiplying the sum of all
quarterly service fees for the relevant financial year in which notice is given by a multiplier (2.2x if notice is given in 2017 or 2x if
notice is given in 2018 and beyond). As of December 31, 2016, we had receipted cumulative quarterly service fees of
US$31.6 million. The service fees for the quarter ending December 31, 2016 amounted to US$3.1 million and remained unpaid as at
balance date. The cumulative quarterly service fees receipted and accrued as at December 31, 2016 is US$34.7 million. LifeScan may
also terminate the obligation to pay quarterly service fees if certain other factors detailed in the Master Services and Supply
Agreement arise, including LifeScan ceasing to sell the product, termination for breach, insolvency and bankruptcy, change of control
and regulatory termination.
Although the Xprecia StrideTM Coagulation Analyzer was released in Europe in December 2014 and received regulatory
clearance in October 2016 from the US FDA, the demand for the product is currently unknown. While there is no minimum
commitment, if Siemens does not submit purchase orders for a certain amount of product, our manufacturing capacity may not be
fully utilized. If this occurs, we will be faced with surplus capacity in our manufacturing operations and our revenues will decline.
Further, Siemens may obtain the right to manufacture product or have a third party manufacture product on its behalf if certain events
occur (for example, insolvency, failure to supply). The Supply Agreement with Siemens may also be terminated as a result of either
party defaulting on its material obligations. If any of these circumstances arise, we would cease to have the potential to receive
manufacturing revenues from the sale of product purchased by Siemens.
An important part of our strategy is to seek to enter into other collaborative arrangements or strategic alliances with respect to
the development and commercialization of specific tests or in specific fields. Our dependence on LifeScan for a significant proportion
of our revenue is likely to continue until we start to receive meaningful revenues from other collaborative arrangements or strategic
alliances with third parties, such as our arrangement with Siemens, and/or until we receive meaningful revenues from our own
products which we intend to commercialize through distributors.
Our current and future customers and partners may choose to utilize less of our research and development services. If the
development and research work we undertake was materially reduced or ceased, we would lose an ongoing source of income which
would have a material adverse effect on our business and financial position.
Our Credit Agreement has financial and non-financial covenants, and default of any covenant could materially adversely
impact us.
On December 19, 2013 UBI and UBS entered into a credit agreement with Athyrium Opportunities Fund (A) LP, as
administrative agent (the “Administrative Agent”) and as a lender, and Athyrium Opportunities Fund (B) LP as a lender (Athyrium A
and Athyrium B together with any other lenders party thereto from time to time, the “Lenders”), which was amended on January 30,
2015, for a secured term loan of up to US$25,000,000 (the “Credit Agreement”). A first tranche loan of US$15,000,000 was drawn
on December 2013 and a further two tranches each of US$5,000,000 were able to be drawn within 30 days of any fiscal quarter
ending on or before July 31, 2015 in which UBS satisfied certain conditions. Even though these commercial conditions were satisfied,
UBI elected not to draw down the additional US$10,000,000. Unless the facility is otherwise terminated earlier pursuant to the terms
of the Credit Agreement, UBS 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 December 19, 2018 (the “Maturity Date”). The Credit Agreement is
secured by substantially all of the assets of UBS and UBI, including the stock in UBS held by UBI. The obligations of UBS under the
Credit Agreement are guaranteed by UBI.
UBS’ ability to maintain compliance with the covenants in our Credit Agreement is dependent upon, among other things, our
ability to continue to execute our business plans and our ability to generate cash from operations. The debt facility is subject to certain
specified events of default, defaults relating to non-payment, breach of covenants or inaccuracy of representations and warranties,
cross-defaults to other indebtedness, bankruptcy and insolvency defaults, material judgment defaults, regulatory defaults, the
occurrence of a material adverse effect, or un-remedied material breach by UBS or UBI or termination of a key contract. The
occurrence of an event of default could result in the amounts owing under the Credit Agreement, including all unpaid principal and
interest being due and payable, and could result in the administrative agent enforcing its security over the assets of UBS and UBI. If
the loans are accelerated or commitments terminated, we could face substantial liquidity problems and may be forced to dispose of
material assets or operations, seek to obtain equity capital, or restructure or refinance our indebtedness. Such alternative measures
12
may not be available or successful. Also, our debt covenants may limit our ability to dispose of material assets or operations or to
restructure or refinance our indebtedness. Even if we are able to restructure or refinance our indebtedness, the economic terms may
not be favorable to us. In addition, an event of default under our key commercial contracts could result in a cross-default under our
Credit Agreement. All of the foregoing could have serious consequences to our financial condition and results of operations and could
cause us to become bankrupt or insolvent.
Deviations from expected results of operations and/or expected cash requirements could result in a default under our Credit
Agreement and/or adversely affect our financial condition and results of operations.
Our principal sources of liquidity are cash flows from operations, cash and cash equivalents and our existing debt facility. Our
operating activities generally provide a proportion of cash to fund our working capital requirements and, together with borrowings
under our debt facility, are expected to be sufficient to fund our operating needs and capital requirements for at least the next twelve
months, based on current assumptions regarding the amount and timing of such expenditures and anticipated cash flows. Although we
currently expect to remain in compliance with the Credit Agreement, based on our current expectations, any significant deviation in
actual results from our expected results of operations, any significant deviation in the amounts or timing of material expenditures
from current estimates, the termination of any of our key commercial contracts with LifeScan or Siemens, or other significant
unanticipated expenses could result in a default under our Credit Agreement, have a material adverse effect on our financial condition
and/or may result in the need for additional debt or equity financing.
Our debt covenants may affect our liquidity or limit our ability to complete acquisitions, incur debt, make investments, sell
assets, merge or complete other significant transactions.
The Credit Agreement includes provisions that place limitations on a number of our activities, including but not limited to our
ability to: incur additional debt; create liens on our assets or make guarantees; make certain investments or loans; pay dividends;
dispose of or sell assets; or enter into acquisitions, mergers or similar transactions, without the consent of the Lenders. These consent
requirements could restrict our ability to pursue opportunities to expand our business operations. We are required to maintain
unrestricted cash of US$2,000,000 in a specified bank account at all times.
Our business strategy and revenue relies on our ability to enter collaborative arrangements with other companies and there is a
risk that we will not be able to enter into collaborative arrangements with respect to our products.
Our business strategy involves demonstrating the broader application of our technology platform for a number of different
products/technologies and then entering into collaborative arrangements, licensing agreements, strategic alliances or distribution
arrangements for these products/technologies. We have not established any internal product sales and marketing capacity and to
achieve commercial success we must enter into and maintain successful arrangements with others to sell, market and distribute
products that we are involved in developing. We may not be able to enter into such collaborative arrangements, strategic alliances or
distributions arrangements in a timely fashion and on acceptable terms, if at all. Our inability to enter such arrangements would be
detrimental to our strategy, business and financial position. Our ability to enter into collaborative, strategic or distribution
arrangements will suffer if the technologies developed by us are not perceived as being comparable or superior to established
laboratory methods or other products.
If we are unable to enter collaborative or distribution arrangements with respect to certain of our products/technologies, we may
have to change strategy, delay, reduce the scope of or eliminate some or all of our development programs or liquidate some or all of
our assets or seek to raise additional capital. As a result, we may not be able to pursue what we consider to be worthwhile commercial
opportunities and significant monies and management time invested may be rendered unproductive and worthless. Our inability to
enter collaborative or strategic arrangements would thus have a material adverse effect on our business and financial position.
Entering collaborative arrangements with respect to our products will expose us to risks and uncertainties related to those
collaborations and alliances.
To the extent we are able to enter into collaborative or strategic arrangements with respect to our products, we will be exposed
to risks and uncertainties related to those arrangements. The customer or partner will generally make the key decisions on product
choice, regulatory approvals, product launch, product manufacture and marketing and promotion. Decisions made by our partner with
13
respect to the commercialization of the products we develop with them will significantly affect the extent and timing of revenues to
us. For example, our partner may choose not to launch new products we develop, may choose to launch the products in a limited
number of jurisdictions, may delay the launch of products, may undertake only limited sales and marketing efforts to commercialize
the products, all of which would have a material adverse effect on our business and financial position. Collaborative arrangements,
licensing agreements or strategic alliances will subject us to a number of risks, including the risk that:
•
•
•
•
•
•
•
we do not control the amount and timing of resources that our strategic partners may devote to our products;
we do not control the decision to pursue a product, the timing of product launches and extent of marketing and sales
activities;
our customer or partners may experience financial difficulties;
we may be required to relinquish important rights such as marketing and distribution rights;
business combinations or significant changes in a partner’s business strategy may also adversely affect a
collaborator’s willingness or ability to complete its obligations under any arrangement;
a collaborator could independently move forward with a competing product developed either independently or in
collaboration with others, including our competitors; and
collaborative arrangements are often terminated or allowed to expire, which would delay the development and may
increase the cost of developing our products.
Likewise, distribution arrangements will also expose us to a number of additional comparable risks, including that the
distributor may not perform as required.
Allegedly defective design or the manufacture of allegedly defective products could potentially expose us to substantial costs,
write-offs and reputational damage.
Allegedly defective designs or manufacture of allegedly defective products exposes us to the risk of product liability claims and
product recalls. Any such claims have the potential to result in substantial costs, write-offs and potential delays in our shipment of
product to customers, decreased demand for products and services, loss of revenue and cash flow, reputational damage, costs of
related litigation, increases in our insurance premiums and increased scrutiny by regulatory agencies, claims by our customers and
may trigger the dissolution of partnerships or collaborative relationships. The occurrence of certain of these events may trigger an
event of default under our Credit Agreement. While we will seek to mitigate our loss by obtaining appropriate insurances and
appropriate contractual protections, if we are unable to maintain our insurance at an acceptable cost or on acceptable terms with
adequate coverage, or negotiate appropriate contractual protections or otherwise protect against potential product liability claims, we
will be exposed to significant liabilities. Recalls would harm our business and compromise the performance of our obligations to our
customers and would have a material adverse effect on our business and financial results and may result in claims by our customers or
partners and may trigger the dissolution of partnerships or collaborative relationships. Any claim for damages by our customers or
other claim against us could be substantial.
There are many elements to manufacturing products that can cause variability beyond acceptable limits. We may be required to
discard defective products after we have incurred significant material and labor costs, resulting in manufacturing delays and delayed
shipment to customers. Further, if our suppliers are unable to provide materials in conformance with specifications, we may be
required to discard materials, which may also cause delays in the manufacture and shipment of products.
Reduced margins would have a material adverse effect on our business and financial position.
Our margins may be reduced and costs increased which would have a material adverse effect on our business and financial
position. The primary factors that pose this risk include selling prices, increased manufacturing costs or currency fluctuations.
Increases in our costs to manufacturing products or conducting development work may decrease our margins or cause us to
suffer a loss on the manufactured products. Additionally, we may suffer decreased margins due to the global reach of our business
exposing us to market risk from changes in foreign currency exchange rates. The majority of our cash reserves are in US dollars and
expenses are in Australian dollars, and we are exposed to foreign exchange exposure particularly when we have to convert our US
dollar cash reserves into Australian dollars to fund our operations. Additionally, we use, from time to time, financial instruments,
primarily foreign currency forward contracts to hedge certain forecasted foreign currency commitments arising from trade accounts
receivables, trade accounts payable and fixed purchase obligations. These hedging activities are largely dependent upon the accuracy
of our
14
forecasts and as such, our foreign currency forward contracts may not cover our full exposure to exchange rate fluctuations. Although
we believe our foreign exchange policies are reasonable and prudent under the circumstances, we may experience losses from
un-hedged currency fluctuations, which could be significant. If our costs increase or our margins decrease, it would have an adverse
effect on our business and financial position.
New product design and development and clinical testing is costly, labor intensive and the outcomes uncertain.
The design and development of different tests on our platform takes a number of years to complete, is costly and the outcomes
are uncertain. Although development risk generally reduces the further a test is developed, the tests we develop have a significant
degree of technical risk, and irrespective of the stage of development, design and development work and product validation, the
development of the test may be unsuccessful or not warrant product commercialization. If development activities are unsuccessful,
we may need to delay, reduce the scope of or eliminate some or all of our development programs and significant monies and
management time invested may be rendered unproductive and worthless.
Our agreements with our product development and manufacturing customers to date have contained milestone based payments,
many of which are payable upon the achievement of technical development milestones. Such milestone payments may not cover the
cost of our research and development activities. In the event we are not successful in achieving the relevant development milestone,
we will not receive the milestone payments associated with the milestone which would have an adverse effect on our revenue and
financial position. Failure to achieve certain development milestones may have an impact on our covenants under the Credit
Agreement. Furthermore, if we are unable to develop a product for a customer, it may eliminate an important revenue stream for us
which may result in us not being profitable, or trigger dissolution of partnerships or collaborative relationships.
Diagnostic devices must be tested for safety and performance in laboratory and clinical trials before regulatory clearance for
marketing is achieved. Such studies are costly, time consuming and unpredictable. Clinical trials may not be successful and marketing
authorization may not be granted which may result in us not being profitable, or trigger dissolution of partnerships or collaborative
relationships. The outcome of early clinical trials may not be predictive of the success of later clinical trials. Failed clinical trials may
result in considerable investments of time and money being rendered unproductive and worthless.
Additionally, unanticipated trial costs or delays could cause substantial additional expenditure that is not reimbursed by a
partner, cause us to miss milestones which trigger a financial payment or cause us or a partner to delay or modify our plans
significantly. This would harm our business, financial condition and results of operations.
If we cannot maintain our intellectual property rights, our ability to make or develop point-of-care tests would be restricted or
eliminated, and the value of our technology and diagnostic tests may be adversely affected.
Our ability to obtain proprietary rights, maintain trade secret protection and operate without infringing the proprietary rights of
third parties is an integral part of our business.
A number of companies, universities and research institutions have or may be granted patents that cover technologies that we
need to complete development of a particular product. We may choose or be required to seek licenses under third party patents which
would be costly, may not be available on commercially acceptable terms, or at all. Further, we may be unaware of other third party
patents or proprietary rights that are infringed by our point-of-care tests.
Much of our platform intellectual property rights are licensed to us from LifeScan. If we were to breach the License Agreement
and LifeScan were to validly terminate the agreement in response, it would seriously restrict or eliminate our ability to develop and
commercialize our existing and future tests which would have a material adverse effect on us as it would restrict or eliminate our
existing commercialization opportunities. We also license other intellectual property from third parties as part of our other
development efforts.
LifeScan and our other licensors have a considerable degree of control over the manner that the intellectual property licensed to
us is maintained and protected and, as a result, we have reduced control with respect to the maintenance and protection of our
licensed patent portfolio. LifeScan is responsible for the prosecution and maintenance of the intellectual property it licenses to us and
we are largely dependent on them to defend proceedings or prosecute infringers. The same applies to our other licensors. Our
business would be harmed if the licensed patents were infringed or misappropriated. Prosecuting third parties and defending ourselves
against third-party claims would be costly, time consuming and divert management’s attention from our business, potentially leading
to delays in our development or commercialization efforts. Additionally, if third parties made successful claims, we may be liable for
substantial damages or license fees, be required to stop marketing the infringing product or take other actions that are adverse to our
business.
15
Risks associated with regulatory clearance and changes to regulation.
The products we are involved in developing are medical devices and therefore subject to extensive regulation in all major
markets. The process of obtaining regulatory clearance is costly and time consuming and there can be no assurance that the required
regulatory clearances will be obtained. Products cannot be commercially sold without regulatory clearance. We and our customers
and partners may be unable to obtain the necessary clearances to sell or if the clearances are delayed, revoked or subject to
unacceptable conditions, the product may not be able to be commercialized which would have a material adverse effect on us.
If we were required and able to change suppliers and third party contract manufacturers, applicable regulatory bodies may
require new testing and compliance inspections and require that we demonstrate structural and functional comparability between the
same products manufactured by different organizations, resulting in additional costs and potential delays which could be detrimental
to our business.
Furthermore, regulation is ongoing and manufacturers and marketers of products are subject to continuous review and periodic
inspections. Potentially costly responses may be required to be given by us and our customers including product modification, or
post-marketing clinical trials as a condition of approval to further substantiate safety and efficacy or investigate issues of interest. If
we or our customers fail to comply with applicable regulatory requirements it may result in fines, delays, suspensions of clearances,
seizures, recalls of products, operating restrictions or criminal prosecutions and could have a material adverse effect on our
operations. Any such regulatory action may also constitute an event of default under our Credit Agreement. Additionally, changes in
existing regulations or the adoption of new regulations could make regulatory compliance by us more difficult in future and could
hamper our ability to produce our products when we require.
Risks associated with suppliers.
Similar to most major manufacturers in our industry, we are dependent upon our suppliers for certain raw materials and
components. We have preferred suppliers, making us vulnerable to supply disruption, which could harm our business and delay
manufacturing operations. We seek to enter into long term contractual arrangements with certain of our suppliers, however we may
not always be able to do so on acceptable terms. If our manufacturing requirements change, such long term contractual arrangements
may cause us to have excess or obsolete inventory. We may not be able to guarantee the supply of certain of our materials which may
in turn affect our ability to supply product to our customers. We may have difficulty locating alternative suppliers in a timely manner
or on commercially acceptable terms, and switching components may require product redesign and further regulatory clearance which
could significantly delay production. Likewise, our customers and partners are subject to supply risks which may delay their ability to
supply customers with product which would impact our revenue and have a consequential adverse effect on our business and results
of operations.
To the extent we agree to be responsible for manufacturing meters for any of our customers and partners, we anticipate that we
will outsource the manufacture of these meters. There is no guarantee that we will be able to enter into any such arrangement on
acceptable terms, if at all, and as a result there is a risk of lengthy and costly delays of bringing our products to market. Further, if our
contract manufacturers fail to achieve and maintain required production yields or manufacturing standards, it could result in product
withdrawals, delays, recalls, product liability claims and other problems that could seriously harm our business. Any meter shortages
or manufacturing delays could result in delays or reduction in our revenues, with consequential adverse effect on our business and
results of operations.
We face risks manufacturing product or providing services.
There are technical challenges to establishing and maintaining commercial manufacturing for products, including maintaining
the consistency of our incoming raw materials, equipment design and automation, material procurement, production yields and
quality control and assurance. We may fail to achieve and maintain required production yields or manufacturing standards which
could result in financial loss, patient injury or death, product recalls or withdrawals, product shortages, delays or failures in product
testing or delivery, breach of our agreements with any partner and other problems that could seriously harm our business.
16
The success of our business is heavily dependent upon market factors such as growth of the point-of-care testing market and our
ability to compete effectively within the highly competitive in vitro diagnostics market.
Our business success relies on the growth of both the existing and emerging point-of-care testing market. We cannot be sure that
this market will grow as we anticipate. Such growth will require continued support and demand from payers, patients and healthcare
professionals and the endorsement by professional bodies that influence the practice of medicine. Research and clinical data may not
sufficiently support point-of-care testing, nor may the health economic benefits sufficiently support point-of-care testing as an
alternative to current practice. Even if the data is compelling, significant resources may be required to educate users and change in
practice may be slower and more costly than we anticipate. If point-of-care testing fails to be adopted at the rate we expect, the sector
may remain unattractive to the size of partner we seek to attract and as a consequence, we may need to change our business model.
This may require us to incur more cost and/or our anticipated growth will be adversely affected and our results will suffer.
We may face intense competition in development, marketing and selling point-of-care tests.
The market for in vitro diagnostics is intensely competitive, price sensitive and subject to rapid change. We and our customers
and partners may be unable to accurately anticipate changes in the markets and the direction of technological innovation and the
demands of end users, competitors may develop improved technologies and the market place may conclude that our products are
obsolete. Our larger competitors enjoy several competitive advantages including significantly greater financial resources, greater
brand recognition, greater expertise in conducting clinical trials, obtaining regulatory approvals and managing manufacturing
operations, and greater experience in product sales and marketing. Early-stage companies may also prove to be significant
competitors.
Competition will be faced from existing products as well as products in development. Point-of-care tests are likely to experience
significant and continuing competition from traditional pathology laboratory based testing as well as other point-of-care tests. Our
and our customers’ and partners’ commercial opportunity will be reduced or eliminated if competitors develop and commercialize
safer, more effective, more convenient, or cheaper products, or reach the market sooner than we do. Any such developments
adversely affecting the market for products developed by us may force us and our partners to reduce production or discontinue
manufacturing which would cause our operating results to suffer. There can be no assurances given with respect to our or any
partner’s ability to compete effectively in the competitive markets in which we operate.
Adverse economic conditions may harm our business.
Market and economic conditions have been challenging worldwide. Continuing concerns have led to increased market volatility
and diminished expectations for world economies. These factors may include fluctuations in foreign exchange rates, inflation, interest
rates, rate of economic growth, taxation laws, consumer spending, unemployment rates, government fiscal, monetary and regulatory
policies and consumer and business sentiment. Any of these factors have the potential to cause costs to increase or revenues to
decline. Continued turbulence in the US, Australian and other international markets and economies may adversely affect our ability to
enter into collaborative arrangements, the behavior and financial condition of our current and any future customers and partners and
the spending patterns of users of the products we are developing. This may adversely impact demand for our services and for products
developed by us. In addition, economic conditions could also impact our suppliers, which may impact on their ability to provide us
with materials and components which in turn may negatively impact our business.
Our operations may not be profitable.
Whilst we have made a small profit for the 2016 financial year, our operations may not be profitable in future. To date, we have
funded our operations and capital expenditures from revenue from the sale of products and provision of services and with proceeds
from the sale of our securities, government grants and rebates including the research and development tax incentive income and
interest on investments. On December 19, 2013 we entered into the Credit Agreement which has provided debt financing for our
business. We may, however, require additional capital to fund our business operations, which may not be available on acceptable
commercial terms, or at all.
17
We may not be able to raise capital or secure credit if and when required.
We may not be able to raise capital or secure further credit if and when required. If we are unable to raise capital or secure
further credit when required, we may have to delay, reduce the scope of or eliminate some or all of our development programs or
commercialization efforts or liquidate some or all of our assets.
We rely on government grants and rebates.
Our principal sources of liquidity are cash flows from operations (revenue from services and product sales) and our existing debt
facility. We have also financed our business operations through government grants and rebates, including the tax incentive income.
The research and development tax incentive is one of the key elements of the Australian Government’s support for Australia’s
innovation system and if eligible, provides the recipient with a tax offset for research and development activities. For the year ended
December 31, 2016 we recorded research and development tax incentive income receivable of $7.4 million. There have been recent
proposals to change the structure of the innovation and research and development funding landscape in Australia which may or may
not impact the research and development tax incentive income receivable for the 2016 financial year. For the 2017 financial year we
are unlikely to qualify for the 45% refundable research and development tax offset. Under existing legislation, we will however
qualify for the 40% non-refundable research and development tax offset. There can be no assurance that we will continue to qualify
and be eligible for such incentives or that the Australian Government will continue to provide incentives, offsets, grants and rebates
on similar terms or at all.
The loss of a key employee or the inability to recruit and retain high caliber staff to manage future anticipated growth could
have a material adverse effect on our business.
As with most growth companies, our future success is substantially dependent on our key personnel. Certain key personnel
would be difficult to replace and the loss of any such key personnel may adversely impact the achievement of our objectives. Our
ability to operate successfully and manage the business depends significantly on attracting and retaining additional highly qualified
personnel. The loss of any key personnel may be disruptive or have a material adverse effect on the future of our business. The
competition for qualified employees in scientific research and medical diagnostic and laboratory industries is particularly intense and
there are a limited number of persons with the necessary skills and experience.
Our primary development and manufacturing operations are conducted at a single location. Any disruption at our facility could
adversely affect our operations and increase our expenses.
Our primary operations are conducted at our Corporate Avenue facility in Melbourne, Australia. We take precautions to
safeguard our facilities, including security, health and safety protocols and maintain applicable insurance. However, we may be
impacted by industrial action or operating equipment and facilities may not operate as intended or be unavailable as a result of
unanticipated failures or other events outside of our control such as a natural disaster, fire, flood or earthquake or catastrophic
breakdowns or deliberate acts of destruction. The occurrence of any of these events may restrict our ability to supply product or our
ability to provide coagulation testing and calibration services, could cause substantial delays in our operations, damage or destroy our
manufacturing and laboratory equipment or inventory, and cause us to incur additional expenses. The insurance we maintain against
fires, floods, earthquakes and other natural disasters may not be adequate to cover our losses in any particular case.
Investors may be subject to Australian and/or US taxation.
The receipt of dividends by Australian tax resident security holders and any subsequent disposal of our securities by any such
Australian tax resident may have both United States and Australian tax consequences depending upon their individual circumstances.
This may result in a security holder being subject to tax in both jurisdictions and a tax credit may or may not be available in one
jurisdiction to offset the tax paid in the other jurisdiction depending upon the security holder’s individual circumstances.
The price of our shares is highly volatile and could decline significantly.
Our shares of common stock in the form of CDIs were quoted on the ASX and began trading on December 13, 2006. The price
of our shares is highly volatile and could decline significantly. The market price of our shares historically has been, and we expect
will continue to be, subject to significant fluctuations over short periods of time. Some of the factors that may cause the market price
of our common stock to fluctuate include:
•
the entry into, or termination of, key agreements, including collaboration and supply agreements and licensing agreements;
18
•
•
•
•
•
•
•
•
•
•
•
•
any inability to obtain additional financing on favorable terms to fund our operations and pursue our business plan if
additional financing becomes necessary;
future sales of our common stock or debt or convertible debt securities or other capital-raising activities, and the terms of
those issuances of securities;
future revenue streams from product sales, if any, by our collaborative partners, and the extent of demand for, and sales of,
our products;
the initiation of material developments in, or conclusion of litigation to enforce or defend any of our intellectual property
rights or otherwise;
our results of operations and financial condition, including our cash reserves, cash burn and cost level;
general and industry-specific economic and regulatory conditions that may affect our ability to successfully develop and
commercialize products;
the loss of key employees;
the introduction of technological innovations or other products by our competitors;
sales of a substantial number of CDIs by our large stockholders;
changes in estimates or recommendations by securities analysts, if any, who cover our common stock;
issuance of shares by us, and sales in the public market of the shares issued, upon exercise of our outstanding warrants; and
period-to-period fluctuations in our financial results.
For example, from the initial quotation of our shares in the form of CDIs on the Australian Securities Exchange on
December 13, 2006 until March 14, 2017, the closing price per share of our shares ranged from a low of A$0.14 during May 2014 to
a high of A$2.02 during the first quarter of the 2010 fiscal year and was A$0.39 on March 14, 2017. We may experience a material
decline in the market price of our CDIs, regardless of our operating performance and therefore, a holder of our shares may not be able
to sell those shares at or above the price paid by such holder for such shares. Sales by our larger shareholders may create volatility or
impact how the value of our shares is perceived.
Class action litigation has been brought in the past against companies which have experienced volatility in the market price of
their securities. We may become involved in this type of litigation in the future. Litigation of this type is often extremely expensive
and diverts management’s attention and our resources.
Our securities are not currently traded on any United States public markets and there are currently restrictions on the ability of
United States persons to acquire our securities on the ASX.
There is no public market for our shares in the United States or in any other jurisdiction other than Australia. We have not
determined whether we will seek the quotation of our shares on any United States public trading market. Even if our shares are in the
future listed on a United States public market, the liquidity of our shares may not improve, and the United States market price may
not accurately reflect the price or prices at which purchasers or sellers would be willing to purchase or sell our common stock.
In addition, our securities are “restricted securities” as that term is defined in Rule 144 under the United States Securities Act of
1933, as amended (“Securities Act”). Restricted securities may be resold to U.S. persons as defined in Regulation S only if registered
for resale or pursuant to an exemption from registration under the Securities Act. We have not agreed to register any of our common
stock for resale by security holders.
We may be involved in litigation.
There has been substantial litigation and other proceedings in the medical diagnostic industries. Defending against litigation and
other third party claims would be costly and time consuming and would divert management’s attention from our business, which
could lead to delays in our development or commercialization efforts. If third parties are successful in their claims, we might have to
pay substantial damages or take other actions that are adverse to our business.
19
Changes in laws may adversely affect our business.
Our business and the business of our customers and partners are subject to the laws and regulations in a number of jurisdictions.
Unforeseen changes in laws and government policy both in Australia, the EU, the US and elsewhere, could materially impact our’
operations, assets, contracts and profitability.
We are exposed to risks relating to evaluations of controls required by Section 404 of the Sarbanes-Oxley Act.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley
Act of 2002 (“Sarbanes-Oxley Act”) and related regulations implemented by the SEC, have substantially increased legal and financial
compliance costs. We expect that our ongoing compliance with applicable laws and regulations, including the Securities Exchange
Act of 1934 as amended (“Exchange Act”) and the Sarbanes-Oxley Act, will involve significant and potentially increasing costs. In
particular, we must annually evaluate our internal controls systems to allow management to report on our internal controls. We must
perform the system and process evaluation and testing (and any necessary remediation) required to comply with the management
certification and, when applicable, auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. If we are not able to
continue to satisfy the requirements of Section 404 adequately, we may be subject to sanctions or investigation by regulatory
authorities, including the SEC. Any action of this type could adversely affect our financial results, investors’ confidence in our
company and our ability to access capital markets, and could cause our stock price to decline.
A significant amount of our shares are controlled by individuals or voting blocks, and the interests of such individuals or voting
blocks could conflict with those of the other stockholders.
Single stockholders with significant holdings or relatively small groups of stockholders have the power to influence matters
requiring the approval of stockholders. Viburnum Funds Pty Ltd, as investment manager for its associated funds and entities holds a
beneficial interest and voting power over approximately 15.51% of our shares. For details of our substantial stockholders and the
interests of our directors, refer to “Item 12 — Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters”.
We have never paid a dividend and we do not intend to pay dividends in the foreseeable future which means that holders of
shares of common stock and CDIs may not receive any return on their investment from dividends.
To date, we have not declared or paid any cash dividends on our shares or CDIs and currently intend to retain any future
earnings, if any, for funding growth. We do not anticipate paying any dividends in the foreseeable future.
Even if we were to declare or pay any cash dividends, we do not have any franking credits that will allow us to pass on tax paid
at the company level to shareholders which can be used to reduce income tax paid on dividends by our shareholders.
Our success is reliant on the accuracy, reliability and proper use of sophisticated information processing systems and
management information technology and the interruption in these systems could have a material adverse effect on our business,
financial condition and results of operations.
Our success is reliant on the accuracy, reliability and proper use of sophisticated information processing systems and
management information technology. Our information technology systems are designed and selected in order to facilitate the entering
of order entry, customer billing, to maintain customer records, to provide product traceability, to accurately track purchases, to
manage accounting, finance, administration and manufacturing, generate reports and provide customer service and technical support.
Any interruption in these systems could have a material adverse effect on our business, financial condition and results of operations.
Provisions in our charter documents and under Delaware law could make the possibility of our acquisition, which may be
beneficial for our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove current
management.
Provisions in our certificate of incorporation and our bylaws may delay or prevent an acquisition of us or a change in our
management, and frustrate or prevent attempts by our stockholders to replace or remove our current management by making it more
difficult to remove our current directors. Such provisions include:
•
the division of our Board into classes whose terms expire at staggered intervals over a three year period and advance notice
requirements for nominations to our Board and proposing matters that can be acted upon at shareholder meetings;
20
•
•
the requirement that actions by our stockholders by written consent be unanimous; and
the ability of our Board to issue preferred stock.
Limitation on Independent Registered Public Accounting Firm’s Liability.
The liability of PricewaterhouseCoopers (an Australian partnership which we refer to as PwC Australia), with respect to claims
arising out of its audit report included in this Annual Report, is subject to the limitations set forth in the Professional Standards Act
1994 of New South Wales, Australia, as amended (the Professional Standards Act) and Chartered Accountants Australia and New
Zealand (NSW) scheme adopted by Chartered Accountants Australia and New Zealand on 8 October 2014 and approved by the New
South Wales Professional Standards Council pursuant to the Professional Standards Act (the NSW Accountants Scheme). For matters
occurring on or prior to 7 October 2014, the liability of PwC Australia may be subject to the limitations set forth in predecessor
schemes. The current NSW Accountants Scheme expires on 7 October 2019 unless further extended or replaced.
The Professional Standards Act and the NSW Accountants Scheme may limit the liability of PwC Australia for damages with
respect to certain civil claims arising in, or governed by the laws of, New South Wales directly or vicariously from anything done or
omitted to be done in the performance of its professional services for us, including, without limitation, its audits of our financial
statements. The extent of the limitation depends on the timing of the relevant matter and is:
•
•
in relation to matters occurring on or after 8 October 2013, a maximum liability for audit work of A$75 million; or
in relation to matters occurring on or prior to 7 October 2013, the lesser of (in the case of audit services) ten times the
reasonable charge for the service provided and a maximum liability for audit work of A$75 million.
The limitations do not apply to claims for breach of trust, fraud or dishonesty.
In addition, there is equivalent professional standards legislation in place in other states and territories in Australia and
amendments have been made to a number of Australian federal statutes to limit liability under those statutes to the same extent as
liability is limited under state and territory laws by professional standards legislation. Accordingly, liability for acts or omissions by
PwC Australia in Australian states or territories other than New South Wales may be limited in a manner similar to that in New South
Wales. These limitations of liability may limit recovery upon the enforcement in Australian courts of any judgement under US or
other foreign laws rendered against PwC Australia based on or related to its audit report on our financial statements. Substantially all
of PwC Australia’s assets are located in Australia. However, the Professional Standards Act and the NSW Accountants Scheme have
not been subject to judicial consideration and therefore how the limitation might be applied by the courts and the effect of the
limitation on the enforcement of foreign judgements are untested.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
21
ITEM 2. PROPERTIES.
UBS leases approximately 5,000 square meters of office, research and development and manufacturing facilities at 1 Corporate
Avenue, Rowville in Melbourne, Australia. The lease for the premises at 1 Corporate Avenue Rowville expires on March 31, 2019
with an option to renew the lease for two further terms of five years each.
We will manufacture our test strips using custom manufacturing equipment.
Depending on the number of strips required to be manufactured, it may become necessary in the future for us to acquire
additional large scale equipment to satisfy manufacturing demand. If our existing facilities and equipment are fully utilized for the
manufacture of test strips for one of our customers or our own products, we will need to secure additional or alternative facilities and
establish additional large scale equipment sufficient to future manufacturing requirements.
HRL leases approximately 482 square meters of office and laboratory facilities at 15(H) Wing, Second Floor, 711 Concession
Street, Hamilton, Ontario. The lease for 711 Concession Street expires on January 31, 2020 with 2 further options to renew each for 5
years. Either HRL or its landlord can terminate the lease early by giving 6 months’ notice.
22
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal or arbitration proceedings pending against us.
23
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
24
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market information
Our shares of common stock are not currently traded on any established United States public trading market. We have not
determined whether we will seek the quotation of our shares of common stock on any United States public trading market. We cannot
assure you that we will seek to be quoted on any United States public trading market or that we would meet any applicable listing
requirements.
Our shares of common stock are traded on the ASX in the form of CHESS Depositary Interests, or CDIs, under the ASX trading
code “UBI”. The Clearing House Electronic Subregister System, or “CHESS”, is an electronic system which manages the settlement
of transactions executed on the ASX and facilitates the paperless transfer of legal title to ASX quoted securities. CHESS cannot be
used directly for the transfer of securities of U.S. domiciled companies. CDIs are used as a method of holding and transferring the
legal title of these securities on the ASX which are not able to be electronically traded in CHESS. CDIs are exchangeable, at the
option of the holder, into shares of our common stock at a ratio of 1:1. The main difference between holding CDIs and holding the
underlying securities (in this case our shares) is that a holder of CDIs has beneficial ownership of the equivalent number of our shares
instead of legal title. Legal title is held by CHESS Depositary Nominees Pty Ltd, or CDN, and the shares are registered in the name of
CDN and held by CDN on behalf of and for the benefit of the holders of CDIs. CDN is a wholly owned subsidiary of ASX.
Holders of CDIs who do not wish to have their trades settled in CDIs on the ASX may request that their CDIs be converted into
shares, in which case legal title to the shares of common stock are transferred to the holder of the CDIs. Likewise, stockholders who
wish to be able to trade on the ASX can do so by requesting that their shares be converted into CDIs and by lodging their applicable
share certificate with our share registrar and signing a share transfer form with respect to the relevant shares. Our share registrar will
then transfer the shares from the stockholder to CDN and establish a CDI holding in the name of the stockholder (now a CDI holder).
High and low sale prices of our CDIs on the ASX
The sale prices of our shares traded in the form of CDIs are quoted on the ASX in Australian dollars. Our CDIs were first
quoted on the ASX on December 13, 2006. Twenty minute delayed trading prices of our CDIs are available through the ASX at
www.asx.com.au.
The following tables sets forth, for the periods indicated, the highest and lowest market prices in Australian dollars for our CDIs
reported on the ASX:
Fiscal Year 2016
Fiscal Year 2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High A$
0.47
0.34
0.32
0.38
0.37
0.37
0.43
0.49
Low A$
0.31
0.25
0.27
0.27
0.17
0.22
0.30
0.35
Security details
As of March 14, 2017, there were 176,386,884 shares of our common stock issued and outstanding and 18,893,669 employee
options that are exercisable for an equivalent number of shares of common stock (11,941,626 of which were exercisable or
exercisable within 60 days thereafter). All of our issued and outstanding shares of common stock are fully paid.
25
Under applicable U.S. securities laws all of the shares of our common stock are “restricted securities” as that term is defined in
Rule 144 under the Securities Act. Restricted securities may be resold to U.S. persons as defined in Regulation S only if registered or
pursuant to an exemption from registration under the Securities Ac. We have not agreed to register any of our common stock for
resale by security holders.
Holders
Currently, CDN holds the majority of our shares on behalf of and for the benefit of the holders of CDIs. The balance of the
shares are held by certain of our employees generally as part of our restricted employee share scheme. Set out below is the aggregate
number of our registered holders of CDIs and shares at the specific date below:
Date
At March 14, 2017
Dividends
Total Number of
Registered Holders
1,651
Number of Holders that
are United States
Residents
11
To date, we have not declared or paid any cash dividends on our shares or CDIs and currently intend to retain any future
earnings, if any, for funding growth. We do not anticipate paying any dividends in the foreseeable future.
Recent Sales of Unregistered Securities
•
Warrants
In connection with the Credit Agreement, we granted to the lenders warrants entitling the holders to purchase an aggregate total
of 4,500,000 shares of our common stock at an exercise price of A$1.00 per share, exercisable at any time until December 19, 2020
(“Warrants”). The holder of a Warrant has the option to pay the exercise price in cash or by making a cashless exercise. The number
of shares of common stock to be issued on exercise of the Warrants and/or the exercise price of the Warrants will be adjusted in
certain circumstances including bonus issues, pro-rata issues and reorganizations of share capital.
The issue of the Warrants was made in reliance upon the exemption from registration pursuant to Rule 4(a)(2) of the Securities
Act and Regulation D, promulgated thereunder. The lenders were “accredited investors,” as defined in Rule 501 promulgated under
the Securities Act and no general solicitation or advertising was used in connection with the issuance of the Warrants. The holders of
the Warrants may not re-sell any Warrants or shares issued upon exercise of the Warrants into the U.S. or to a U.S. person (as defined
in the Securities Act and the rules promulgated thereunder) unless the resale of the securities is registered under the Securities Act or
an exemption is available or within Australia for a period of one year after the date of issue of the relevant security.
26
Exercise of Employee Stock Options
The table below sets forth the number of employee stock options exercised and the number of shares of common stock issued
within the past three financial years. We issued these shares in reliance upon exemptions from registration under Regulation S under
the Securities Act of 1933 on the basis that none of the recipient of such shares are “U.S. person” as such term is defined in
Regulation S.
Period Ending
2014
March, 2014
2015
December, 2015
2016
March, 2016
Number of Options Exercised and
Corresponding Number of Shares Issued
Option Exercise
Price
8,333
A$0.00
Proceeds
Received
(A$)
0
72,496
US$0.26
26,127
77,500
A$0.00
0
The funds raised have been and will be used for working capital requirements including the continued development of our
existing pipeline of point-of-care tests and to identify and develop additional tests.
Restricted Employee Shares Issued to Employees
Our Employee Share Plan was adopted by the Board of Directors in 2009. The Employee Share Plan permits our Board to grant
shares of our common stock to our employees and directors. The number of shares able to be granted is limited to the amount
permitted to be granted at law, the ASX Listing Rules and by the limits on our authorized share capital in our certificate of
incorporation. All our permanent full-time employees are eligible for shares under the Employee Share Plan. The Company currently
proposes to issue A$1,000 worth of restricted shares of common stock to employees of the Company on a recurring basis, but no
more frequently than annually. The restricted shares have the same terms of issue as our existing shares of common stock but are not
able to be traded until the earlier of three years from the date on which the shares are issued or the date the relevant employee ceases
to be an employee of the Company or any of its associated group of companies. We issue these shares in reliance upon exemptions
from registration under Regulation S under the Securities Act on the basis that none of the recipient of such shares are “U.S. person”
as such term is defined in Regulation S.
The table below sets forth the restricted shares issued by the Company within the past three financial years:
June, 2014
January, 2015
July, 2015
December, 2015
February, 2016
December, 2016
Number of
Restricted Shares
Issued
Market Value of
Restricted Shares
Issued (A$)
2,040
282,555
4,347
142,208
15,000
181,800
1,000
64,988
1,000
63,994
6,000
59,994
Restricted stock awards activity during the current period is as follows:
Balance at December 31, 2015
Granted
Release of restricted shares
Balance at December 31, 2016
Number of shares
Weighted average
issue price (A$)
542,816
196,800
(164,036)
575,580
0.35
0.34
0.44
0.31
Number of Securities
Remaining for future
issuance
(1)
(1) The number of securities 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 amended and restated certificate of incorporation. The Listing Rules of ASX
generally prohibits companies whose securities are quoted on ASX from issuing securities exceeding 15% of issued share
capital in any 12 month period, without stockholder approval.
27
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
There were no repurchases of equity securities in 2016.
Total Return Stock Performance Graph
The following line graph compares the cumulative total stockholder return on our common stock from December 31, 2011
through December 31, 2016 with the cumulative total return of a major market index and a published industry index. The graph
below assumes an investment of A$100.00 on December 31, 2011 in our common stock, and compares its performance with the
Standard and Poor’s/Australian Securities Exchange 200 Index and the Standard and Poor’s/Australian Securities Exchange Health
Care 200 Index. We paid no dividends on our common stock during the period covered by the graph. The Indices included in the
graph reflect a cumulative total return based upon the reinvestment of dividends of the stocks included in those indices. Measurement
points are December 31, 2011 and the last trading day of each subsequent year end through December 31, 2016.
The comparisons shown in the graph above are based upon historical data. The stock price performance shown in the graph is
not necessarily indicative of, nor is it intended to forecast, the potential future performance of our common stock. This graph shall not
be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, and will not
be deemed incorporated by reference into any filing under the Securities Act, whether made before or after the date hereof, regardless
of any general incorporation language in such filing.
28
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data should be read in conjunction with Item 7. “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and consolidated financial statements and notes thereto contained in Item 8.
“Financial Statements and Supplementary Data” of this report.
The following table represents our selected financial data for the dates and periods indicated.
Revenue
Revenue from products
Revenue from services
Total revenue
Operating costs & expenses
Cost of goods sold
Cost of services
Total cost of goods sold & services
Contribution from products & services
Other operating costs & expenses
Research and development
General and administrative
Total operating costs & expenses
Loss from operations
Other income/(expense)
Interest income
Interest expense
Financing costs
Patent fees
Marketing support payment
Other
Total other income
Net income/(loss) before tax
Income tax benefit/(expense)
Net income/(loss)
Earnings per share
Basic net income/(loss) per share
Average weighted number of shares - basic
Diluted net income/(loss) per share
Average weighted number of shares - diluted
2016
A$
584,550
18,246,267
18,830,817
996,788
154,998
1,151,786
17,679,031
Years Ended December 31,
2014
A$
2013
A$
2015
A$
2012
A$
1,323,564
15,451,414
16,774,978
1,136,143
244,073
1,380,216
15,394,762
215,486 10,170,804 19,368,745
9,314,198
4,918,868 10,277,698
9,529,684 15,089,672 29,646,443
313,374 10,455,567 17,987,049
242,453
669,042
1,187,244
555,827 11,642,811 18,656,091
3,446,861 10,990,352
8,973,857
14,987,462
6,414,855
21,402,317
(3,723,286)
19,120,842
6,670,768
25,791,610
(10,396,848)
16,616,051 15,483,902 13,482,459
6,143,748
6,790,524
22,759,799 21,684,688 20,272,983
(13,785,942) (18,237,827)
6,200,786
(9,282,631)
201,096
(8,436)
(2,894,300)
0
0
7,675,202
4,973,562
1,250,276
0
1,250,276
242,574
(15,106)
(3,308,068)
1,404,184
(2,804,000)
8,300,848
3,820,432
(6,576,416)
0
(6,576,416)
499,970
260,904
(22,640)
(15,905)
(797,126)
(2,646,092)
0
(2,133,626)
0
0
6,923,816
9,004,534
6,604,020
4,469,815
(9,316,127) (11,633,807)
0
(9,316,127) (11,633,807)
0
437,171
(29,263)
0
0
0
(256,499)
151,409
(9,131,222)
0
(9,131,222)
0.01
176,189,052
0.01
177,373,769
(0.04)
(0.05)
(0.07)
(0.06)
175,881,165
175,608,634 174,428,259 160,417,411
(0.04)
(0.05)
(0.07)
(0.06)
175,881,165
175,608,634 174,428,259 160,417,411
Other comprehensive gain/(loss), net of tax:
Foreign currency translation reserve
Reclassification for (gains)/losses realized in net income
Other comprehensive gain/(loss)
Comprehensive gain/(loss)
109
0
109
1,250,385
0
0
0
(6,576,416)
0
0
0
(9,316,127) (11,633,807)
0
0
0
0
(83,339)
(83,339)
(9,214,561)
Balance Sheet Data:
Cash and cash equivalents
Total assets
Short term borrowings
Other liability
Long term secured loan
Total stockholders’ equity
Years Ended December 31,
2014
A$
2013
A$
2015
A$
2012
A$
14,350,307
44,951,745
324,459
3,453,710
19,868,560
13,255,705
16,329,829 23,742,422 23,649,417
47,532,638 54,619,699 49,066,850
0
0
0
0
17,499,194 15,857,966
0
19,740,945 29,683,940 39,372,139
498,890
2,133,626
2016
A$
20,402,322
49,989,318
369,630
3,129,306
20,286,827
13,254,275
29
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The information required by this item is incorporated by reference to our 2016 Annual Report under the caption “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” on pages F2 to F16.
30
ITEM 7A. 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.
31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
We refer you to the “Consolidated Balance Sheets”, “Consolidated Statements of Comprehensive Income/(Loss)”,
“Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income/(Loss)”, “Consolidated Statements of
Cash Flows”, and “Notes to Consolidated Financial Statements”, on pages F18 through F46, and “Report of Independent Registered
Public Accounting Firm” on page F17 of our 2016 Annual Report.
Supplementary Financial Information
The following is a summary of the unaudited quarterly results of operations:
Revenue
Revenue from products
Revenue from services
Total revenue
Operating costs & expenses
Cost of goods sold
Cost of services
Total cost of goods sold & services
Contribution from products & services
Other operating costs & expenses
Research and development
General and administrative
Total operating costs & expenses
Profit/(loss) from operations
Other income/(expense)
Interest income
Interest expense
Financing costs
Patent fees
Marketing support payment
Other
Total other income/(expense)
Net income/(loss) before tax
Income tax benefit/(expense)
Net income/(loss)
Earnings per share
Basic net income/(loss) per share
Diluted net income/(loss) per share
Other comprehensive gain/(loss), net of tax:
Foreign currency translation reserve
Reclassification for gain/(loss) realized in net
income
Other comprehensive (loss)/gain
Comprehensive gain/(loss)
Year ended December 31, 2016
Quarter Ended
March 31
A$
Quarter Ended
June 30
A$
Quarter Ended
September 30
A$
Quarter Ended
December 31
A$
183,480
4,913,739
5,097,219
187,144
0
187,144
4,910,075
4,999,752
1,493,970
6,493,722
(1,583,647)
25,241
(2,812)
(732,337)
0
0
638,615
(71,293)
(1,654,940)
0
(1,654,940)
0
5,401,513
5,401,513
53,425
0
53,425
5,348,088
2,878,405
1,038,194
3,916,599
1,431,489
25,628
(2,812)
(719,096)
0
0
(273,386)
(969,666)
461,823
0
461,823
0
3,287,296
3,287,296
401,070
4,643,719
5,044,789
31,899
0
31,899
3,255,397
724,320
154,998
879,318
4,165,471
3,947,392
1,408,212
5,355,604
(2,100,207)
3,161,913
2,474,479
5,636,392
(1,470,921)
89,669
(2,812)
(716,088)
0
0
567,155
(62,076)
(2,162,283)
0
(2,162,283)
60,558
0
(726,779)
0
0
6,742,818
6,076,597
4,605,676
0
4,605,676
(0.01)
(0.01)
0.00
0.00
(0.01)
(0.01)
0
0
0
0.03
0.03
109
0
0
(1,654,940)
0
0
461,823
0
0
(2,162,283)
0
109
4,605,785
32
Revenue
Revenue from products
Revenue from services
Total revenue
Operating costs & expenses
Cost of goods sold
Cost of services
Total cost of goods sold & services
Contribution from products & services
Other operating costs & expenses
Research and development
General and administrative
Total operating costs & expenses
Profit/(loss) from operations
Other income/(expense)
Interest income
Interest expense
Financing costs
Patent fees
Marketing support payment
Other
Total other income/(expense)
Net loss before tax
Income tax benefit/(expense)
Net loss
Earnings per share
Basic net income/(loss) per share
Diluted net income/(loss) per share
Year ended December 31, 2015
Quarter Ended
March 31
A$
Quarter Ended
June 30
A$
Quarter Ended
September 30
A$
Quarter Ended
December 31
A$
72,117
3,037,820
3,109,937
67,140
10,960
78,100
3,031,837
4,941,983
1,624,131
6,566,114
(3,534,277)
56,741
(2,834)
(1,027,568)
0
0
1,640,196
666,535
(2,867,742)
0
(2,867,742)
344,289
4,006,580
4,350,869
273,026
179,993
453,019
3,897,850
4,952,733
1,502,167
6,454,900
(2,557,050)
43,233
(7,084)
(752,544)
0
0
2,013,594
1,297,199
(1,259,851)
0
(1,259,851)
552,617
5,445,093
5,997,710
354,541
2,961,921
3,316,462
458,644
48,751
507,395
5,490,315
337,333
4,369
341,702
2,974,760
4,987,015
1,529,799
6,516,814
(1,026,499)
4,239,111
2,014,671
6,253,782
(3,279,022)
104,885
(4,250)
(778,102)
0
0
1,541,108
863,641
(162,858)
0
(162,858)
37,715
(938)
(749,854)
1,404,184
(2,804,000)
3,105,950
993,057
(2,285,965)
0
(2,285,965)
(0.02)
(0.02)
(0.01)
(0.01)
0.00
0.00
(0.01)
(0.01)
Other comprehensive loss, net of tax:
Unrealised gain/(loss) on derivative instruments
Reclassification for gain/(loss) realized in net
income
Other comprehensive (loss)/gain
Comprehensive loss
0
0
0
0
0
(2,867,742)
0
0
(1,259,851)
0
0
(162,858)
0
0
0
(2,285,965)
33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
34
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures. At the end of the period covered by this report, the Company evaluated the effectiveness
of the design and operation of its disclosure controls and procedures. The 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. Andrew Denver, Executive Chairman, and Salesh Balak, Chief Financial
Officer, reviewed and participated in this evaluation. Based on this evaluation, Messrs. Denver 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 December 31, 2016, 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.
35
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in
Rule 13a-15(f) and 15d-15(e) under the Exchange Act). Our internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles and includes those policies and procedures that:
•
•
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and the dispositions of the assets of the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with authorizations of management and
the board of directors of the Company; and
•
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,
or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluations of effectiveness to future periods are subject to risk that controls may become inadequate because of
changes in conditions or because of declines in the degree of compliance with the policies or procedures.
Our management, with the participation of the Principal Executive Officer and Principal Financial Officer, assessed the
effectiveness of the Company’s internal control over financial reporting as of December 31, 2016. In making this assessment, the
Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”) in Internal Control-Integrated Framework (2013).
Based on this evaluation, our management, with the participation of the Principal Executive Officer and Principal Financial
Officer, concluded that, as of December 31, 2016, our internal control over financial reporting was effective.
/s/ Andrew Denver
Andrew Denver
Principal Executive Officer
March 21, 2017
/s/ Salesh Balak
Salesh Balak
Principal Financial Officer
36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
Being a smaller reporting company, the Independent registered Public Accounting Firm is not required to test or report on the
effectiveness of internal control over financial reporting.
37
None.
ITEM 9B. OTHER INFORMATION
38
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by this item regarding our directors and executive officers is incorporated by reference to our
Definitive Proxy Statement to be filed with the SEC in connection with our Annual Meeting of Stockholders in 2017 (the “2017
Proxy Statement”) under the caption “Management of the Company.”
The information required by this item regarding “Compliance with Section 16(a) of the Exchange Act” is incorporated by
reference to the 2017 Proxy Statement under the caption “Other Matters – Section 16(a) Beneficial Ownership Reporting
Compliance.”
We have adopted our Code of Ethics for Senior Financial Officers, a code of ethics that applies to our Principal Executive
Officer and Principal Financial Officer. This code of ethics may be accessed and reviewed through our website at
www.universalbiosensors.com. We intend to satisfy any disclosure requirement under item 5.05 of Form 8-K regarding an
amendment to, or waiver from, a provision of the Code of Ethics for our Principal Executive Officer and Principal Financial Officer,
by posting such information on our website at www.universalbiosensors.com
The information regarding the procedures by which security holders may recommend nominees to our Board of Directors is
incorporated by reference to the 2017 Proxy Statement under the caption “Management of the Company – Board Committees –
Remuneration and Nomination Committee.” There have been no material changes to the procedures by which security holders may
recommend nominees to our Board of Directors.
The information required by this item regarding our Audit and Compliance Committee is incorporated by reference to the 2017
Proxy Statement under the caption “Management of the Company – Board Committees – Audit and Compliance Committee.”
39
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference to the 2017 Proxy Statement under the captions
“Management of the Company – Compensation of Directors”, “Executive Compensation” and “Management of the Company –
Board Committees – Compensation Committee Interlocks and Insider Participation.”
Discussions on the frequency of the shareholder advisory votes on executive compensation are incorporated by reference to the
2017 Proxy Statement under the caption “Executive Compensation”.
40
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
The information regarding the security ownership of certain beneficial owners and management is incorporated by reference to
the 2017 Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management.”
The information regarding “Securities Authorized for Issuance under Equity Compensation Plans” is incorporated by reference
to our 2017 Proxy Statement under the caption “Executive Compensation – Equity Compensation Plan Information.”
41
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this item is incorporated by reference to the 2017 Proxy Statement under the caption “Certain
Relationships and Related Transactions,” and “Management of the Company.”
42
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this item is incorporated by reference to the 2017 Proxy Statement under the caption “Independent
Public Accountants – Audit Fees.”
43
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES.
PART IV
(a)(1)
Financial Statements
The following financial statements are incorporated by reference from pages F-17 through F-46 of our Annual Report to
Stockholders for the fiscal year ended December 31, 2016, as provided in Item 8 hereof:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Income/((Loss)
Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income/(Loss)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
F-17
F-18
F-19
F-20
F-21
F-22
(a)(2)
Financial Statement Schedules – Schedule II—Valuation and Qualifying Accounts. All other schedules are omitted
because of the absence of the conditions under which they are required or because the required information is included
elsewhere in the financial statements.
(a)(3) and (b) Exhibits – Refer below.
Exhibit
Number
3.1
Amended and restated articles of incorporation dated
December 5, 2006.
Description
Location
3.2
Amended and restated by-laws dated December 5, 2006.
10.1
10.2
Amended and Restated License Agreement, between
LifeScan, Inc. and Universal Biosensors Pty Ltd dated on
August 29, 2011 and effective as of August 19, 2011.
Amended and Restated Development and Research
Agreement between Cilag GmbH International and
Universal Biosensors Pty Ltd dated on August 29, 2011 and
effective as of August 19, 2011.
10.3
Form of indemnity agreement entered into with directors of
us, our chief financial officer and company secretary
Incorporated by reference to our General Form for
Registration of Securities on Form 10 filed on April 30,
2007 as Exhibit 3.1.
Incorporated by reference to our Amendment No. 5 to Form
10 filed on April 29, 2008 as Exhibit 3.2.
Incorporated by reference to our Current Report on Form
8-K filed on August 30, 2011 as Exhibit 10.1.
Incorporated by reference to our Current Report on Form
8-K filed on August 30, 2011 as Exhibit 10.2.
Incorporated by reference to our General Form for
Registration of Securities on Form 10 filed on April 30,
2007 as Exhibit 10.3.
10.4
Lease of premises 1 Corporate Avenue, Rowville, Victoria,
Australia by and between Universal Biosensors Pty Ltd and
Heyram Properties Pty Ltd.
Incorporated by reference to our General Form for
Registration of Securities on Form 10 filed on April 30,
2007 as Exhibit 10.5.
10.5
Employee Option Plan.
10.6
Employment agreement between Universal Biosensors Pty
Ltd and Mr. Salesh Balak effective November 27, 2006.
10.7
Employment agreement between Universal Biosensors Pty
Ltd and Mr. Garry Chambers effective April 1, 2006.
10.8
Employment agreement between Universal Biosensors Pty
Ltd and Dr Ronald Chatelier dated April 1, 2006.
44
Incorporated by reference to our General Form for
Registration of Securities on Form 10 filed on April 30,
2007 as Exhibit 10.7.
Incorporated by reference to our General Form for
Registration of Securities on Form 10 filed on April 30,
2007 as Exhibit 10.8.
Incorporated by reference to our General Form for
Registration of Securities on Form 10 filed on April 30,
2007 as Exhibit 10.9.
Incorporated by reference to our General Form for
Registration of Securities on Form 10 filed on April 30,
2007 as Exhibit 10.10.
10.9
Employment agreement between Universal Biosensors Pty
Ltd and Dr Alastair Hodges effective April 1, 2006.
Incorporated by reference to our General Form for
Registration of Securities on Form 10 filed on April 30,
2007 as Exhibit 10.11.
10.10
10.11
Employment agreement between Universal Biosensors Pty
Ltd and Mr. Adrian Oates dated August 15, 2007.
Incorporated by reference to our Form 10-K filed on
March 16, 2010 as Exhibit 10.12.
Amended and Restated Master Services and Supply
Agreement (which amends and restates the Master Services
and Supply Agreement by and between Universal
Biosensors Pty. Ltd., Universal Biosensors, Inc., and
LifeScan, Inc. dated October 29, 2007 filed on
November 14, 2007 as Exhibit 10.1 to our Quarterly Report
on Form 10-Q and the First Amendment to the Master
Services and Supply Agreement filed on March 30, 2009 as
Exhibit 10.14 to our Annual Report on Form 10-K).
Incorporated by reference to our Quarterly Report on Form
10-Q filed on August 7, 2009 as Exhibit 10.3.
Confidentiality treatment has been granted for portions of
this exhibit. These confidential portions have been omitted
and were filed separately with the SEC.
10.12
Manufacturing Initiation Payment Addendum to Master
Services and Supply Agreement (which is an addendum to
the Amended and Restated Master Services and Supply
Agreement filed on August 7, 2009 as Exhibit 10.3 to our
Quarterly Report on Form 10-Q).
Incorporated by reference to our Quarterly Report on Form
10-Q filed on August 7, 2009 as Exhibit 10.4.
Confidentiality treatment has been granted for portions of
this exhibit. These confidential portions have been omitted
and were filed separately with the SEC.
10.13
Collaboration Agreement between Universal Biosensors Pty
Ltd and Siemens Healthcare Diagnostics Inc. dated
September 9, 2011.
10.14
Statement of Work for MAP Feasibility Project between
Universal Biosensors Pty Ltd, LifeScan, Inc. and Cilag
GmbH International dated October 11, 2011.
10.15
10.16
Novation Agreement and First Amendment to the Amended
and Restated Master Services and Supply Agreement
between Universal Biosensors, Inc., Universal Biosensors
Pty Ltd, LifeScan, Inc. and Cilag GmbH International dated
October 11, 2011.
Second Amendment to the Amended and Restated Master
Services and Supply Agreement between Universal
Biosensors, Inc., Universal Biosensors Pty Ltd, LifeScan,
Inc. and Cilag GmbH International dated October 11, 2011.
Incorporated by reference to our Quarterly Report on Form
10-Q filed on November 3, 2011 as Exhibit 10.20.
Confidentiality treatment has been granted for portions of
this exhibit. These confidential portions have been omitted
and were filed separately with the SEC.
Incorporated by reference to our Quarterly Report on Form
10-Q filed on November 3, 2011 as Exhibit 10.21.
Confidentiality treatment has been granted for portions of
this exhibit. These confidential portions have been omitted
and were filed separately with the SEC.
Incorporated by reference to our Quarterly Report on Form
10-Q filed on November 3, 2011 as Exhibit 10.22.
Incorporated by reference to our Quarterly Report on Form
10-Q filed on November 3, 2011 as Exhibit 10.23.
Confidentiality treatment has been granted for portions of
this exhibit. These confidential portions have been omitted
and were filed separately with the SEC.
10.17
Employment agreement between Universal Biosensors Pty
Ltd and Mr. Paul Wright effective March 1, 2011.
Incorporated by reference to our Current Report on Form
8-K filed on February 25, 2011 as Exhibit 10.1.
45
10.18
Amendment to Collaboration Agreement between Universal
Biosensors Pty Ltd and Siemens Healthcare Diagnostics,
Inc. dated September 20, 2012.
10.19
Supply Agreement between Universal Biosensors Pty Ltd
and Siemens Healthcare Diagnostics, Inc. dated
September 20, 2012.
Supplemental Agreement – Reader Product Support
Obligations and Responsibilities between Universal
Biosensors Pty Ltd and Siemens Healthcare Diagnostics,
Inc. dated September 20, 2012.
Credit Agreement dated December 19, 2013 by and among
Athyrium Opportunities Fund (A) LP as Administrative
Agent and a Lender, Universal Biosensors Pty Ltd as
borrower, Universal Biosensors, Inc. as a Guarantor, and
the other Lenders and Guarantors as party thereto from time
to time.
Third Amendment to Amended and Restated Master
Services and Supply Agreement by and among Universal
Biosensors, Inc., Universal Biosensors Pty Ltd, and Cilag
GmbH International.
Incorporated by reference to our Quarterly Report on
Form 10-Q/A filed on February 4, 2013 as Exhibit 10.1.
Confidentiality treatment has been granted for portions of
this exhibit. These confidential portions have been omitted
and were filed separately with the SEC.
Incorporated by reference to our Quarterly Report on
Form 10-Q/A filed on February 4, 2013 as Exhibit 10.2.
Confidentiality treatment has been granted for portions of
this exhibit. These confidential portions have been omitted
and were filed separately with the SEC.
Incorporated by reference to our Quarterly Report on
Form 10-Q/A filed on February 4, 2013 as Exhibit 10.3.
Confidentiality treatment has been granted for portions of
this exhibit. These confidential portions have been omitted
and were filed separately with the SEC.
Incorporated by reference to our Current Report on
Form 8-K filed on December 20, 2013 as Exhibit 10.1.
Incorporated by reference to our Current Report on
Form 8-K filed on December 20, 2013 as Exhibit 10.2.
Common Stock Purchase Warrant by and among Athyrium
Opportunities Fund (A) LP and Universal Biosensors, Inc.
Incorporated by reference to our Current Report on
Form 8-K filed on December 20, 2013 as Exhibit 10.3.
Common Stock Purchase Warrant by and among Athyrium
Opportunities Fund (B) LP and Universal Biosensors, Inc.
Incorporated by reference to our Current Report on
Form 8-K filed on December 20, 2013 as Exhibit 10.4.
Deed of Extension of Lease between Universal Biosensors
Pty Ltd and Bowmayne Pty Ltd dated March 24, 2014.
Incorporated by reference to our Quarterly Report on
Form 10-Q filed on April 25, 2014 as Exhibit 10.34.
Amendment dated January 30, 2015 to Credit Agreement
by and among Athyrium Opportunities Fund (A) LP as
Administrative Agent and a Lender, Universal Biosensors
Pty Ltd as borrower, Universal Biosensors, Inc. as a
Guarantor, and the other Lenders and Guarantors as party
thereto from time to time.
Incorporated by reference to our Current Report on
Form 8-K filed on February 2, 2015 as Exhibit 10.1.
Separation Agreement between the Company and Paul
Wright dated February 18, 2016.
Incorporated by reference to our Current Report on
Form 8-K filed on February 19, 2016 as Exhibit 10.1.
Employment Agreement between the Company and
Andrew Denver, dated February 19, 2016.
Incorporated by reference to our Current Report on
Form 8-K filed on February 19, 2016 as Exhibit 10.2.
Letter agreement entitled “Conditional Prepayment of
Milestones and other amendments” between Universal
Biosensors Pty Ltd and Siemens Healthcare Diagnostics
Inc. dated March 9, 2016.
46
Incorporated by reference to our Quarterly Report on
Form 10-Q filed on April 21, 2016 as Exhibit 10.2.
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
Amendment to Collaboration Agreement between Universal
Biosensors Pty Ltd and Siemens Healthcare Diagnostics
Inc. dated March 9, 2016.
Incorporated by reference to our Current Report on
Form 8-K filed on March, 2016 as Exhibit 99.1.
13.0 Annual Report.
14.0
Code of Ethics.
21.0 List of Subsidiaries.
24.0 Power of Attorney.
Filed herewith.
Incorporated by reference to our Annual Report on
Form 10-K filed on March 28, 2008 as Exhibit 14.0.
Filed herewith.
Included on signature page.
31.1
31.2
32.0
101
Certification of Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act.
Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act.
Certification of Principal Executive Officer and Principal
Financial Officer pursuant to Section 906 of the Sarbanes-
Oxley Act.
The following materials from the Universal Biosensors, Inc.
Annual Report on Form 10-K for the financial year ended
December 31, 2016 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.
47
Filed herewith.
Filed herewith.
Filed herewith.
As provided in Rule 406T of Regulation S-T, this
information is furnished herewith and not filed for purposes
of Sections 11 and 12 of the Securities Act of 1933 and
Section 18 of the Securities Exchange Act of 1934.
None.
ITEM 16. Form 10-K SUMMARY
48
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 21, 2017
Universal Biosensors, Inc.
(Registrant)
By:
/s/ Andrew Denver
Andrew Denver
Principal Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints Andrew Denver and Salesh Balak and each of
them, his or her attorneys-in-fact, each with the power of substitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this report on Form 10-K, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents,
and each of them full power and authority to do and perform each and every act and all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that such attorneys in-fact and agents or any of them or his or their substitute
or substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following on behalf of
the registrant and in the capacities and on the dates indicated:
Signature
/s/ Andrew Denver
Andrew Denver
/s/ Salesh Balak
Salesh Balak
/s/ David Hoey
David Hoey
/s/ Denis Hanley
Denis Hanley
/s/ Judith Smith
Judith Smith
/s/ Marshall Heinberg
Marshall Heinberg
/s/ Craig Coleman
Craig Coleman
Title
Date
Executive Chairman and Chief Executive Officer
(Principal Executive Officer)
March 21, 2017
Chief Financial Officer
(Principal Financial Officer and Principal Accounting
Officer)
Director
Director
Director
Director
Director
49
March 21, 2017
March 21, 2017
March 21, 2017
March 21, 2017
March 21, 2017
March 21, 2017
Exhibit
Number
3.1
10.1
10.2
10.3
10.4
10.6
10.7
10.8
10.9
10.10
10.11
INDEX TO EXHIBITS
Description
Location
Amended and restated articles of incorporation dated
December 5, 2006.
3.2
Amended and restated by-laws dated December 5, 2006.
Amended and Restated License Agreement, between
LifeScan, Inc. and Universal Biosensors Pty Ltd dated on
August 29, 2011 and effective as of August 19, 2011.
Amended and Restated Development and Research
Agreement between Cilag GmbH International and
Universal Biosensors Pty Ltd dated on August 29, 2011 and
effective as of August 19, 2011.
Form of indemnity agreement entered into with directors of
us, our chief financial officer and company secretary
Incorporated by reference to our General Form for
Registration of Securities on Form 10 filed on April 30,
2007 as Exhibit 3.1.
Incorporated by reference to our Amendment No. 5 to Form
10 filed on April 29, 2008 as Exhibit 3.2.
Incorporated by reference to our Current Report on Form
8-K filed on August 30, 2011 as Exhibit 10.1.
Incorporated by reference to our Current Report on Form
8-K filed on August 30, 2011 as Exhibit 10.2.
Incorporated by reference to our General Form for
Registration of Securities on Form 10 filed on April 30,
2007 as Exhibit 10.3.
Lease of premises 1 Corporate Avenue, Rowville, Victoria,
Australia by and between Universal Biosensors Pty Ltd and
Heyram Properties Pty Ltd.
Incorporated by reference to our General Form for
Registration of Securities on Form 10 filed on April 30,
2007 as Exhibit 10.5.
10.5
Employee Option Plan.
Employment agreement between Universal Biosensors Pty
Ltd and Mr. Salesh Balak effective November 27, 2006.
Employment agreement between Universal Biosensors Pty
Ltd and Mr. Garry Chambers effective April 1, 2006.
Employment agreement between Universal Biosensors Pty
Ltd and Dr Ronald Chatelier dated April 1, 2006.
Employment agreement between Universal Biosensors Pty
Ltd and Dr Alastair Hodges effective April 1, 2006.
Incorporated by reference to our General Form for
Registration of Securities on Form 10 filed on April 30,
2007 as Exhibit 10.7.
Incorporated by reference to our General Form for
Registration of Securities on Form 10 filed on April 30,
2007 as Exhibit 10.8.
Incorporated by reference to our General Form for
Registration of Securities on Form 10 filed on April 30,
2007 as Exhibit 10.9.
Incorporated by reference to our General Form for
Registration of Securities on Form 10 filed on April 30,
2007 as Exhibit 10.10.
Incorporated by reference to our General Form for
Registration of Securities on Form 10 filed on April 30,
2007 as Exhibit 10.11.
Employment agreement between Universal Biosensors Pty
Ltd and Mr. Adrian Oates dated August 15, 2007.
Incorporated by reference to our Form 10-K filed on
March 16, 2010 as Exhibit 10.12.
Amended and Restated Master Services and Supply
Agreement (which amends and restates the Master Services
and Supply Agreement by and between Universal
Biosensors Pty. Ltd., Universal Biosensors, Inc., and
LifeScan, Inc. dated October 29, 2007 filed on
November 14, 2007 as Exhibit 10.1 to our Quarterly Report
on Form 10-Q and the First Amendment to the Master
Services and Supply Agreement filed on March 30, 2009 as
Exhibit 10.14 to our Annual Report on Form 10-K).
50
Incorporated by reference to our Quarterly Report on Form
10-Q filed on August 7, 2009 as Exhibit 10.3.
Confidentiality treatment has been granted for portions of
this exhibit. These confidential portions have been omitted
and were filed separately with the SEC.
10.12
Manufacturing Initiation Payment Addendum to Master
Services and Supply Agreement (which is an addendum to
the Amended and Restated Master Services and Supply
Agreement filed on August 7, 2009 as Exhibit 10.3 to our
Quarterly Report on Form 10-Q).
Incorporated by reference to our Quarterly Report on Form
10-Q filed on August 7, 2009 as Exhibit 10.4.
Confidentiality treatment has been granted for portions of
this exhibit. These confidential portions have been omitted
and were filed separately with the SEC.
10.13
Collaboration Agreement between Universal Biosensors Pty
Ltd and Siemens Healthcare Diagnostics Inc. dated
September 9, 2011.
10.14
Statement of Work for MAP Feasibility Project between
Universal Biosensors Pty Ltd, LifeScan, Inc. and Cilag
GmbH International dated October 11, 2011.
Novation Agreement and First Amendment to the Amended
and Restated Master Services and Supply Agreement
between Universal Biosensors, Inc., Universal Biosensors
Pty Ltd, LifeScan, Inc. and Cilag GmbH International dated
October 11, 2011.
Second Amendment to the Amended and Restated Master
Services and Supply Agreement between Universal
Biosensors, Inc., Universal Biosensors Pty Ltd, LifeScan,
Inc. and Cilag GmbH International dated October 11, 2011.
10.15
10.16
10.17
10.18
10.19
Supply Agreement between Universal Biosensors Pty Ltd
and Siemens Healthcare Diagnostics, Inc. dated
September 20, 2012.
10.20
Supplemental Agreement – Reader Product Support
Obligations and Responsibilities between Universal
Biosensors Pty Ltd and Siemens Healthcare Diagnostics,
Inc. dated September 20, 2012.
51
Incorporated by reference to our Quarterly Report on Form
10-Q filed on November 3, 2011 as Exhibit 10.20.
Confidentiality treatment has been granted for portions of
this exhibit. These confidential portions have been omitted
and were filed separately with the SEC.
Incorporated by reference to our Quarterly Report on Form
10-Q filed on November 3, 2011 as Exhibit 10.21.
Confidentiality treatment has been granted for portions of
this exhibit. These confidential portions have been omitted
and were filed separately with the SEC.
Incorporated by reference to our Quarterly Report on Form
10-Q filed on November 3, 2011 as Exhibit 10.22.
Incorporated by reference to our Quarterly Report on Form
10-Q filed on November 3, 2011 as Exhibit 10.23.
Confidentiality treatment has been granted for portions of
this exhibit. These confidential portions have been omitted
and were filed separately with the SEC.
Incorporated by reference to our Quarterly Report on Form
10-Q/A filed on February 4, 2013 as Exhibit 10.1.
Confidentiality treatment has been granted for portions of
this exhibit. These confidential portions have been omitted
and were filed separately with the SEC.
Incorporated by reference to our Quarterly Report on Form
10-Q/A filed on February 4, 2013 as Exhibit 10.2.
Confidentiality treatment has been granted for portions of
this exhibit. These confidential portions have been omitted
and were filed separately with the SEC.
Incorporated by reference to our Quarterly Report on Form
10-Q/A filed on February 4, 2013 as Exhibit 10.3.
Confidentiality treatment has been granted for portions of
this exhibit. These confidential portions have been omitted
and were filed separately with the SEC.
Employment agreement between Universal Biosensors Pty
Ltd and Mr. Paul Wright effective March 1, 2011.
Incorporated by reference to our Current Report on Form
8-K filed on February 25, 2011 as Exhibit 10.1.
Amendment to Collaboration Agreement between Universal
Biosensors Pty Ltd and Siemens Healthcare Diagnostics,
Inc. dated September 20, 2012.
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
Credit Agreement dated December 19, 2013 by and among
Athyrium Opportunities Fund (A) LP as Administrative
Agent and a Lender, Universal Biosensors Pty Ltd as
borrower, Universal Biosensors, Inc. as a Guarantor, and
the other Lenders and Guarantors as party thereto from time
to time.
Third Amendment to Amended and Restated Master
Services and Supply Agreement by and among Universal
Biosensors, Inc., Universal Biosensors Pty Ltd, and Cilag
GmbH International.
Incorporated by reference to our Current Report on Form
8-K filed on December 20, 2013 as Exhibit 10.1.
Incorporated by reference to our Current Report on Form
8-K filed on December 20, 2013 as Exhibit 10.2.
Common Stock Purchase Warrant by and among Athyrium
Opportunities Fund (A) LP and Universal Biosensors, Inc.
Incorporated by reference to our Current Report on Form
8-K filed on December 20, 2013 as Exhibit 10.3.
Common Stock Purchase Warrant by and among Athyrium
Opportunities Fund (B) LP and Universal Biosensors, Inc.
Incorporated by reference to our Current Report on Form
8-K filed on December 20, 2013 as Exhibit 10.4.
Deed of Extension of Lease between Universal Biosensors
Pty Ltd and Bowmayne Pty Ltd dated March 24, 2014.
Incorporated by reference to our Quarterly Report on Form
10-Q filed on April 25, 2014 as Exhibit 10.34.
Amendment dated January 30, 2015 to Credit Agreement
by and among Athyrium Opportunities Fund (A) LP as
Administrative Agent and a Lender, Universal Biosensors
Pty Ltd as borrower, Universal Biosensors, Inc. as a
Guarantor, and the other Lenders and Guarantors as party
thereto from time to time.
Incorporated by reference to our Current Report on Form
8-K filed on February 2, 2015 as Exhibit 10.1.
Separation Agreement between the Company and Paul
Wright dated February 18, 2016.
Incorporated by reference to our Current Report on Form
8-K filed on February 19, 2016 as Exhibit 10.1.
Employment Agreement between the Company and
Andrew Denver, dated February 19, 2016.
Incorporated by reference to our Current Report on Form
8-K filed on February 19, 2016 as Exhibit 10.2.
Letter agreement entitled “Conditional Prepayment of
Milestones and other amendments” between Universal
Biosensors Pty Ltd and Siemens Healthcare Diagnostics
Inc. dated March 9, 2016.
Amendment to Collaboration Agreement between Universal
Biosensors Pty Ltd and Siemens Healthcare Diagnostics
Inc. dated March 9, 2016
14.0
Code of Ethics.
21.0 List of Subsidiaries.
24.0 Power of Attorney.
Incorporated by reference to our Quarterly Report on Form
10-Q filed on April 21, 2016 as Exhibit 10.2.
Incorporated by reference to our Current Report on Form
8-K filed on March, 2016 as Exhibit 99.1.
Incorporated by reference to our Annual Report on Form
10-K filed on March 28, 2008 as Exhibit 14.0.
Filed herewith.
Included on signature page.
31.1
31.2
Certification of Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act.
Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act.
Filed herewith.
Filed herewith.
52
32.0
101
Certification of Principal Executive Officer and Principal
Financial Officer pursuant to Section 906 of the Sarbanes-
Oxley Act.
Filed herewith.
The following materials from the Universal Biosensors, Inc.
Annual Report on Form 10-K for the financial year ended
December 31, 2016 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.
53
As provided in Rule 406T of Regulation S-T, this
information is furnished herewith and not filed for purposes
of Sections 11 and 12 of the Securities Act of 1933 and
Section 18 of the Securities Exchange Act of 1934.
Universal Biosensors, Inc.
2016 Annual Report
Contents
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Income/(Loss)
Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income/(Loss)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Schedule ii – Valuation and Qualifying Accounts
F-2
F-17
F-18
F-19
F-20
F-21
F-22
F-46
Unless otherwise noted, references on this Annual Report 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”).
F-1
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Universal Biosensors, Inc.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our
financial statements and related notes that appear elsewhere in this Annual Report. In addition to historical financial information, the
following discussion contains forward-looking statements that reflect our plans, estimates and beliefs and other forward-looking
information, including the types of forward looking statements described in our Form 10-K. Our (and our customer’s, partners’ and
industry’s) actual results, levels of activity, performance or achievements may differ materially from those discussed in the forward-
looking statements below and elsewhere in our Form 10-K. Factors that could cause or contribute to these differences include those
discussed below and elsewhere in our Form 10-K, particularly in “Risk Factors.”
Our Business
We are a specialist medical diagnostics company focused on the research, development and manufacture of in vitro diagnostic
test devices for consumer and professional point-of-care use. 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;
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.
Our plan of operations over the remainder of the fiscal year ending December 2017 is to:
•
•
•
•
•
manufacture products;
undertake research and development work;
provide the necessary post-market support for our customers and partners;
demonstrate the broader application of our technology platform for markets with significant commercial potential, focusing
initially on enzymatic, immunoassay and molecular diagnostic point-of-care tests; and
seek 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 (“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, Hemostasis Reference Laboratory Inc. (“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
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,
F-2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Universal Biosensors, Inc.
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 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.
Results of Operations
Analysis of Consolidated Revenue
Strong sales of the OneTouch Verio® strips have resulted in our total revenue increasing over the past three years. Revenue from
the sales of the OneTouch Verio® strips is recorded under the caption “Revenue from Services”.
Our total revenue during the 2016 financial year increased by 12% to A$18,830,817 compared to the 2015 financial year. Our
2015 total revenues increased by 76% to A$16,774,978 compared to the 2014 financial year.
Revenue from Products
The financial results of the PT-INR test strips we manufactured on behalf of Siemens during the respective periods are as
follows:
Revenue from products
Cost of goods sold
Gross margin
Years Ended December 31,
2015
A$
1,323,564
(1,136,143)
187,421
2016
A$
584,550
(996,788)
(412,238)
-71%
14%
2014
A$
215,486
(313,374)
(97,888)
-45%
We commenced manufacture of the PT-INR test strips on behalf of Siemens during the third quarter of 2014. The movement in
revenues is primarily volume driven. The revenues from the manufacture and sale of PT-INR strips to Siemens were initially low as
Siemens were undertaking a limited marketing release of the product in Europe. The increase in revenues in 2015 was as a result of
the full commercial launch by Siemens of the Xprecia StrideTM Coagulation Analyzer in Europe after successful completion of its
limited release. There was a decline in revenue from Siemens in 2016 as they continued to sell inventory purchased from us in 2015.
The production margin from the sale of our PT-INR strips is low and volatile, reflecting early stage production. This trend is also
representative of a new product entrant within our industry. The sales program for Xprecia Stride™ is expected to expand in the 2017
financial year.
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 – ad-hoc services provided on an agreed basis according to our customers and partners requirements.
F-3
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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:
Years Ended December 31,
2015
A$
2016
A$
2014
A$
Revenue from services:
Quarterly service fee
Contract research and development
Other services
Cost of services
Net margin
396,266
17,850,001 12,828,861 6,448,033
0 1,955,340 1,750,486
667,213 1,115,679
18,246,267 15,451,414 9,314,198
(244,073) (242,453)
18,091,269 15,207,341 9,071,745
(154,998)
Quarterly service fee - The quarterly service fee from LifeScan increased by 39% during the 2016 financial year compared to
the 2015 financial year and by 99% during the 2015 financial year when compared to the 2014 financial year, reflecting ongoing
market penetration and growth.
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. The 2015 financial year was the
first year wherein the volume of OneTouch Verio® blood glucose test strips sold exceeded 500 million strips. Quarterly service fees
are reported and paid by LifeScan in USD. Accordingly, revenues recognized by us from quarterly services fees paid by LifeScan
were impacted by the movement of the AUD against the USD over the periods covered above. In the years ended December 31, 2016
and 2015, revenue from quarterly service fees were up 40% and 31%, respectively due to depreciation of AUD against 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 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. If LifeScan gives notice of conversion during LifeScan’s 2017 financial year, the applicable multiplier is 2.2, and if
LifeScan gives notice of conversion during LifeScan’s 2018 financial year or any subsequent LifeScan financial year, the applicable
multiplier is 2.0. As of December 31, 2016, we had received aggregate quarterly service fees of US$31.6 million. The amount of the
quarterly service fee for the quarter ended December 31, 2016 is US$3.1 million, which amount had not yet been paid as of
December 31, 2016.
By way of illustration only:
•
If the aggregate quarterly service fees received by us from LifeScan first exceed US$45 million in the second quarter of
LifeScan’s 2017 financial year, then the earliest LifeScan could deliver notice of conversion to us is the third quarter of
LifeScan’s 2017 financial year, and if LifeScan sells 2 billion strips in LifeScan’s 2017 financial year, then:
•
the total 2017 financial year quarterly service fees payable by LifeScan to us would equal US$17.5 million –
i.e., 500,000,000*US$0.0125 + 1,500,000,000*US$0.0075; and
F-4
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Universal Biosensors, Inc.
•
the one-time lump sum fee that would be payable to us after the end of LifeScan’s 2017 financial year would
equal US$38.5 million – i.e., US$17.5 million multiplied by 2.2; and
•
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
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 a change of control 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 2016. Revenue from contract research and development related to services
provided to Siemens during 2014 and 2015 were as follows:
•
In December 2014, the Company delivered on its third milestone under the Collaboration Agreement with Siemens when it
completed the development work of the Xprecia Stride™ Coagulation Analyzer and the product was launched by Siemens
in Europe. Of the total amount of A$1,750,486 (equivalent to US$1,428,571) recognized as revenue from services in 2014
for this milestone, A$1,225,340 (equivalent to US$1.0 million) relates to the achievement of the milestone whilst the
balance relates to a portion of the deferred US$3 million up-front payment allocated to these milestones.
•
In July 2015, the Company delivered on its fourth milestone when Siemens made a premarket 510(k) submission to the
FDA for regulatory clearance to sell the Xprecia Stride™ Coagulation System in the US. Of the total amount of
A$1,955,340 (equivalent to US$1,428,571) recognized as revenue from services in 2015 for this milestone, A$1,368,738
(equivalent to US$1,000,000) relates to the achievement of the milestone whilst the balance relates to a portion of the
deferred US$3 million up-front payment allocated to these milestones.
Other services - We generated revenues principally from Siemens based on work undertaken for them.
Contribution from Products & Services
The net contribution from our products and services is as follows:
Quarterly service fees
Manufacturing contribution
Milestone payments
Other services
Contribution from products & services
Years Ended December 31,
2016
A$
17,850,001
(412,238)
0
241,268
17,679,031
2015
A$
12,828,861
187,421
1,955,340
423,140
15,394,762
2014
A$
6,448,033
(97,888)
1,750,486
873,226
8,973,857
The increase in period-to-period 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 contribution for financial
F-5
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Universal Biosensors, Inc.
years 2014 to 2016 represents sale of our PT-INR strips the production margin for which is low and volatile, reflecting early stage
production. The third and the fourth Siemens milestones were delivered by us in December 2014 and July 2015, respectively. There
were no milestones delivered by us in 2016. Contribution from other services fluctuated over the period due to our partners R&D
services requirements.
The Australian consumer price index rose 1.5% over the twelve months to the December quarter 2016 and it did not have a
material impact on our net sales, revenue and income.
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, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of
facilities, depreciation of leasehold improvements and equipment and laboratory and other supplies.
Our 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 US Food and Drug Administration (“FDA”) approval on October 4, 2016. The Xprecia
Stride™ Coagulation Analyzer is now available in 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.
(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 Pty Ltd (“SpeeDx”). SpeeDx is an Australian technology company focused on the development of
catalytic nucleic acid enzymes for medical diagnostics and other applications.
F-6
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Universal Biosensors, Inc.
Research and development expenses for the respective periods are as follows:
Research
Development
Research and development expenses
1,230,652
1,296,396
13,756,810 17,824,446
14,987,462 19,120,842
Years Ended December 31,
2015
A$
2016
A$
2014
A$
1,194,323
15,421,728
16,616,051
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 decreased by 22% during 2016 compared to 2015 and increased by 15% during 2015
compared to 2014. During these three years, our research and development activities were primarily focused around the blood
coagulation platform. The increase in 2015 principally reflects the effort required to complete the latter stages of the development
phase prior to launch of the various Siemens tests we are developing including our own PT-INR test for use in decentralized settings.
In April 2016, we put the development of our own PT-INR self-testing device on hold in response to proposed regulatory changes and
market factors which resulted in a decline in the level of our research and development expenditure spend in 2016.
Research and development expenses, net of the research and development tax incentive income for the respective periods are as
follows:
Research and development expenses
Research and development tax incentive income
2016
A$
Years Ended December 31,
2015
A$
14,987,462 19,120,842 16,616,051
(9,224,349) (9,935,083)
9,896,493 6,680,968
(7,562,172)
7,425,290
2014
A$
Included in the research and development tax incentive income for the 2014, 2015 and 2016 financial years is an amount of
A$1,735,083, A$24,349 and A$162,172, respectively which relates to research and development tax incentive income the Company
received from the Australian Government for the years ended December 31, 2013, 2014 and 2015 following a change in the original
estimate. We expect to receive A$7,400,000 as research and development tax incentive income for the 2016 financial year.
The non-cash components of depreciation and share based payments expense included in the research and development
expenditure are as follows:
Depreciation
Share based payments
2,308,667 2,349,502
(48,750)
1,311,865 2,300,752
(996,802)
Years Ended December 31,
2015
A$
2016
A$
2014
A$
2,296,374
(461,824)
1,834,550
The negative values in share based payments are as a result of reversal of expense due to forefeiture of the options which had
not vested for departing employees.
F-7
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Universal Biosensors, Inc.
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 were A$7,125,162, A$9,014,377 and A$9,971,035, respectively for 2016, 2015 and 2014.
General and Administrative Expenses
General and administrative expenses currently consist principally of salaries and related costs, including stock option expense,
for personnel in executive, business development, finance, accounting, information technology and human resources functions. Other
general and administrative expenses include depreciation, repairs and maintenance, insurance, facility costs not otherwise included in
research and development expenses, consultancy fees and professional fees for legal, audit and accounting services. General and
administrative expenses are generally fixed in nature.
General and administrative expenses for the respective periods are as follows:
General and administrative expenses
6,414,855 6,670,768
Years Ended December 31,
2015
A$
2016
A$
2014
A$
6,143,748
General and administrative expenses decreased by 4% during 2016 compared to 2015 and increased by 9% during 2015
compared to 2014. Decrease in general and administrative expenses occurred as a result of reversal of options for departing
employees and also reflect management’s ongoing efforts to restrict spending on non-core activities. Increase in general and
administrative expenses during 2015 was primarily driven by increase in employee emoluments noting that shares and options, being
non-cash costs, were issued to employees twice during the 2015 financial year. Shares and options issued in the first quarter of 2015
were however for the 2014 financial year.
The non-cash components of depreciation and share based payments expense included in the general and administrative
expenditure are as follows:
Depreciation
Share based payments
2016
A$
Years Ended December 31,
2015
A$
125,309 126,438 124,093
(321,007) (16,182) (166,044)
(195,698) 110,256 (41,951)
2014
A$
The negative values in share based payments are as a result of reversal of expense due to forfeiture of the options which had not
vested for departing employees.
Interest Income
Interest income decreased by 17% during 2016 compared to 2015 and decreased by 7% during 2015 compared to 2014. The
decrease in interest income is generally attributable to the lower amount of funds available for investment in Australian currency and
lower interest rates on offer. As at December 31, 2016, 74% (2015: 98% and 2014: 93%) of our funds were held in US denominated
currency which currently does not produce any investment interest.
F-8
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Universal Biosensors, Inc.
Interest income
Interest Expense
Years Ended December 31,
2015
A$
201,096 242,574 260,904
2014
A$
2016
A$
Interest expense predominantly 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. Decrease in
interest expense is in line with the interest rate charged to us every year. The interest rates were 2.60%, 2.84% and 2.88% for the
financial years 2016, 2015 and 2014, respectively.
Interest expense
Financing Costs
Years Ended December 31,
2015
A$
15,106
2016
A$
8,436
2014
A$
15,905
In December 2013, UBS accessed new capital via a US$25,000,000 loan facility of which US$15,000,000 was drawn in
December 2013. The breakdown of the financing costs is as follows:
Interest expense
Other debt issuance costs
2,370,860 2,358,016
950,052
2,894,300 3,308,068
523,440
Years Ended December 31,
2015
A$
2016
A$
2014
A$
1,962,740
683,352
2,646,092
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. Increase in
financing costs in 2015 when compared to 2014 are as a result of the costs incurred during the first quarter of 2015 in extending
UBI’s option to draw down a further US$10 million until July 31, 2015. This has been recorded as “Other debt issuance costs” and
includes a one-time fee of US$200,000 and a commitment fee of 2% of the unused borrowing commitment under the Credit
Agreement. The commitment fee ceased to be charged as at July 31, 2015. As the loan is denominated in USD, interest expense and
other charges relating to the loan are subject to variation with movements in exchange rates. In the years ended December 31, 2016
and 2015, the year-over-year foreign currency movements relative to the AUD dollar would have had a favourable impact (exclusive
of hedging impact) on our reported results of A$408,135 and A$400,655, respectively.
Patent Fees
We have an obligation to pay 50% of the patent fees in respect of the patents we license from LifeScan which were paid by
LifeScan prior to the date of the first commercial sale of a non-glucose product that falls under the licensed patents 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 StrideTM Coagulation Analyzer by Siemens in December 2014. An amount of US$1.75 million was initially accrued in
December 2014. However, the Company and LifeScan subsequently agreed to revise this amount to US$517,831 (equivalent to
A$708,775) during the fourth quarter of 2015. 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 reimbursement of patent fees payable to LifeScan have been
recorded as “Other liability” in consolidated balance sheets. As a result of the revision of the amount due to LifeScan, this resulted in
reversal of the patent fees in 2014. This amount has been recorded as “Patent Fees” in the consolidated statements of comprehensive
income.
F-9
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Universal Biosensors, Inc.
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 year in which 1 billion strips are sold by LifeScan equal to 40% of the total manufacturing initiation payments made.
LifeScan sold just over 900 million strips in the 2015 financial year. Management concluded that this loss contingency be accrued in
2015 as “Other liability” in the consolidated balance sheets as it is both probable and the amount can be reliably estimated. LifeScan
has sold over a billion strips during the 2016 financial year. The total amount of marketing support payments to be paid to LifeScan is
US$2,048,602 (equivalent to A$2,804,000).
Other
Recorded under this caption are research and development tax incentive income and foreign exchange movements.
The Company had recorded research and development tax incentive income of A$6,279,954 for 2013 but received an amount of
$8,015,037 as research and tax development incentive income in September 2014. Of the A$9,935,083 research and development tax
incentive recorded for the year ended December 31, 2014, A$1,735,083 relate to research and development tax incentive income the
Company received from the Australian Government for the year ended December 31, 2013 following a change in original estimate.
Similarly, included in the 2015 and 2016 research and development tax incentive income are amounts of A$24,349 and A$162,172,
respectively which relates to prior years change in estimate of the research and development tax incentive income. The Company
expects to receive and has recorded research and development tax incentive income of A$7,400,000 for 2016 in “Other current
assets”. The remaining balance after the research and development tax incentive income for all years under this caption 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.
The research and development tax incentive receivable has been recorded as “Other current assets” in the consolidated balance
sheets.
The research and development tax incentive is one of the key elements of the Australian Government’s support for Australia’s
innovation system. It was developed to assist businesses recover some of the costs of undertaking research and development. The
research and development tax incentive provides a tax offset to eligible companies that engage in research and development activities.
Companies engaged in research and development may be eligible for either:
•
•
a 45% refundable tax offset for entities with an aggregated turnover of less than A$20 million per annum, (the legislative
rate for the tax year commencing July, 1 2016 will be reduced to 43.5%), or
a 40% non-refundable tax offset for all other entities (the legislative rate for the tax year commencing July, 1 2016 will be
reduced to 38.5%).
Critical Accounting Estimates and Judgments
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”). The preparation of these consolidated financial statements requires us to make estimates
and assumptions that affect the reported amounts of assets, liabilities, income, costs and expenses, and related disclosures. We
evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates.
We believe that of our significant accounting policies, which are described in the notes to our consolidated financial statements,
the following accounting policies involve a greater degree of judgment and complexity. Accordingly, we believe that the following
accounting policies are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results
of operations.
F-10
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Universal Biosensors, Inc.
(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 Zero Exercise Price Employee Options (“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 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.
F-11
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Universal Biosensors, Inc.
(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 Financial Statements – Note 16, 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.
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.
F-12
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Universal Biosensors, Inc.
Financial Condition, Liquidity and Capital Resources
Net Financial Assets/(Liabilities)
Our net financial assets/(liabilities) position is shown below:
Financial assets:
Cash and cash equivalents
Accounts receivables
Total financial assets
Debt:
Short term borrowings
Long term secured loan
Total debt
Net financial assets/(liabilities)
Years Ended December 31,
2015
A$
2016
A$
2014
A$
20,402,322
4,848,009
25,250,331
14,350,307
3,153,584
17,503,891
16,329,829
3,799,705
20,129,534
369,630
20,286,827
20,656,457
4,593,874
324,459
19,868,560
20,193,019
(2,689,128)
498,890
17,499,194
17,998,084
2,131,450
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, receipt of the research and development tax incentive income of A$9,362,172 in September 2016 and increase in
quarterly service fees 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.
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.
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 for the years ended December 31,
2016, 2015 and 2014.
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 the years ended December 31, 2016,
2015 and 2014, 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.
F-13
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Universal Biosensors, Inc.
We had no outstanding contracts as at December 31, 2016, 2015 and 2014, respectively. The fair value of these contracts at
December 31, 2016, 2015 and 2014 were nil. During the years ended December 31, 2016, 2015 and 2014, we recognized gains of nil.
No amount of ineffectiveness was recorded in earnings for these designated cash flow hedges for the years ended December 31, 2016,
2015 and 2014. For further details, see Notes to Consolidated Financial Statements – Note 2, Summary of Significant Accounting
Policies.
Measures of Liquidity and Capital Resources
The following table provides certain relevant measures of liquidity and capital resources:
Cash and cash equivalents
Working capital
Ratio of current assets to current liabilities
Shareholders’ equity per common share
20,402,322 14,350,307
29,302,615 24,041,164
6.03 : 1
0.08
5.93 : 1
0.08
Years Ended December 31,
2015
A$
2016
A$
2014
A$
16,329,829
23,779,492
4.66 : 1
0.11
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 development of the research
and development products, servicing of the secured loan and the timing of payments and accruals in the ordinary course of business.
The increased cash flows during 2016 are primarily a result of increased quarterly service fees from LifeScan, prepayment of
milestones totaling US$3.75 million from Siemens and the receipt of the research and development tax incentive income of
A$9,362,172 relating to the 2015 research and development spend.
We have not identified any collection issues with respect to receivables.
Summary of Cash Flows
Cash provided by/(used in):
Operating activities
Investing activities
Financing activities
Net increase/(decrease) in cash and cash equivalents
The Company has generated positive cash flows in 2016.
Years Ended December 31,
2015
A$
2014
A$
2016
A$
7,048,670
(1,272,160)
45,171
5,821,681
(527,840)
(1,270,392)
(1,378,658)
(3,176,890)
(7,468,062)
(947,386)
261,742
(8,153,706)
Our net cash provided by or used in 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. The continuous improvement in operating cash flows during the
2014 to 2016 financial years is primarily due to the increased receipts from quarterly service fees from LifeScan, receipt of milestone
payments from Siemens and receipt of the research and development tax incentive income.
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.
F-14
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Universal Biosensors, Inc.
Our net cash used in financing activities principally represents financing charges made to the Lenders pursuant to the Credit
Agreement.
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 December 31, 2016 are:
Less than 1 year
1 – 3 years
3 – 5 years
More than 5 years
Total minimum lease payments
A$
673,069
941,608
0
0
1,614,677
The above relates to our operating lease obligations in relation to the lease of our premises and certain office equipment.
Contractual Obligations
Our future contractual obligations at December 31, 2016 were as follows:
Payments Due By Period
Total
A$
Less than 1
year
A$
1 – 3 years 3 – 5 years
A$
A$
More than 5
years
A$
Asset Retirement Obligations (1)
Operating Lease Obligations (2)
Purchase Obligations (3)
Long term secured loan (4)
Financing costs (5)
Other liability (6)
Other Long-Term Liabilities on Balance Sheet (7)
Total
20,286,827
2,600,000
0
673,069
1,614,677
1,112,655 1,112,655
0
0
0
0
0
4,768,605 2,427,533
0
3,129,306 1,713,743
113,431 11,592
0
33,638,063 5,927,000 27,968,501 11,592
2,600,000
941,608
0
0 20,286,827
2,341,072
1,415,563
125,993
0
0
0
0
0
0
970
970
(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.
Interest payable to the lenders pursuant to the Credit Agreement
(5)
(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.
F-15
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Universal Biosensors, Inc.
Recent Accounting Pronouncements
See Notes to Consolidated Financial Statements – Note 2, Summary of Significant Accounting Policies.
Financial Risk Management
The overall objective of our financial risk management program is to seek to minimize the impact of foreign exchange rate
movements and interest rate movements on our earnings. We manage these financial exposures through operational means and by
using financial instruments. These practices may change as economic conditions change.
Foreign Currency Market Risk
We transact business in various foreign currencies, including U.S. dollars and Euros. We have established a foreign currency
hedging program using forward contracts to hedge the net projected exposure for each currency and the anticipated sales and
purchases in U.S. dollars and Euros. The goal of this hedging program is to economically guarantee or lock-in the exchange rates on
our foreign exchange exposures. The Company does not hold or issue derivative financial instruments for trading purposes. However,
derivatives that do not qualify for hedge accounting are accounted for as trading instruments.
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 USD and the bullet repayment of US$15 million in December
2018 is to be made in USD as well. The goal is to build our USD 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 USD 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
realised losses when the secured term loan is repaid.
The Company has recorded foreign currency transaction gains/(losses) of A$112,075, (A$959,343) and (A$918,479) in each of
the years ended December 31, 2016, 2015 and 2014, 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.
F-16
To the Board of Directors and Shareholders of Universal Biosensors, Inc.:
Report of Independent Registered Public Accounting Firm
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of comprehensive income,
changes in stockholders’ equity and comprehensive income and cash flows present fairly, in all material respects, the financial
position of Universal Biosensors, Inc. and its subsidiaries as of December 31, 2016 and December 31, 2015, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2016 in conformity with accounting
principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in
the index appearing under Item 15(a)(2) present fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial
statement schedule based on our audits. We conducted our audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
PricewaterhouseCoopers
Sydney, Australia
March 21, 2017
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo NSW 2000
T +61 2 8266 0000, F +61 2 8266 9999, www.pwc.com.au
F-17
Universal Biosensors, Inc.
Consolidated Balance Sheets
ASSETS
Current assets:
Cash and cash equivalents
Inventories, net
Accounts receivable
Prepayments
Other current assets
Total current assets
Non-current assets:
Property, plant and equipment
Less accumulated depreciation
Property, plant and equipment - net
Other non-current assets
Total non-current assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Borrowings
Other liabilities
Employee entitlements provision
Total current liabilities
Non-current liabilities:
Asset retirement obligations
Employee entitlements provision
Long term secured loan
Other liabilities
Deferred revenue
Total non-current liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Preferred stock, US$0.01 par value. Authorized 1,000,000 shares; issued and outstanding nil in
2016 (2015: nil)
Common stock, US$0.0001 par value. Authorized 300,000,000 shares; issued and outstanding
176,386,884 shares in 2016 (2015: 176,112,584)
Additional paid-in capital
Accumulated deficit
Current year income/(loss)
Accumulated other comprehensive income
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to the financial statements
F-18
December 31, December 31,
2016
A$
2015
A$
839,250
20,402,322 14,350,307
355,268
4,848,009 3,153,584
1,078,335 1,408,943
8,074,384 9,555,441
35,242,300 28,823,543
36,809,266 35,563,364
(25,282,248) (22,655,162)
11,527,018 12,908,202
3,220,000 3,220,000
14,747,018 16,128,202
49,989,318 44,951,745
547,324
894,677
1,785,134 1,905,724
324,459
369,630
354,387
1,713,743
1,523,854 1,303,132
5,939,685 4,782,379
125,993
2,600,000 2,600,000
172,574
20,286,827 19,868,560
1,415,563 3,099,323
6,366,975 1,173,204
30,795,358 26,913,661
36,735,043 31,696,040
0
0
17,639
17,611
93,167,465 94,419,308
(80,882,902) (74,306,486)
1,250,276 (6,576,416)
(298,312)
(298,203)
13,254,275 13,255,705
49,989,318 44,951,745
Universal Biosensors, Inc.
Consolidated Statements of Comprehensive Income/(Loss)
Revenue
Revenue from products
Revenue from services
Total revenue
Operating costs & expenses
Cost of goods sold
Cost of services
Total cost of goods sold & services
Contribution from products & services
Other operating costs & expenses
Research and development
General and administrative
Total operating costs & expenses
Loss from operations
Other income/(expense)
Interest income
Interest expense
Financing costs
Patent fees
Marketing support payment
Other
Total other income
Net income/(loss) before tax
Income tax benefit/(expense)
Net income/(loss) before tax
Earnings per share
Basic net income/(loss) per share
Diluted net income/(loss) per share
Other comprehensive gain/(loss), net of tax:
Foreign currency translation reserve
Reclassification for gains realized in net income
Other comprehensive gain/(loss)
Comprehensive gain/(loss)
2016
A$
Years Ended December 31,
2015
A$
2014
A$
584,550
18,246,267
18,830,817
996,788
154,998
1,151,786
17,679,031
1,323,564
15,451,414
16,774,978
1,136,143
244,073
1,380,216
15,394,762
215,486
9,314,198
9,529,684
313,374
242,453
555,827
8,973,857
14,987,462
6,414,855
21,402,317
(3,723,286)
19,120,842
6,670,768
25,791,610
(10,396,848)
16,616,051
6,143,748
22,759,799
(13,785,942)
201,096
(8,436)
(2,894,300)
0
0
7,675,202
4,973,562
1,250,276
0
$ 1,250,276
242,574
(15,106)
(3,308,068)
1,404,184
(2,804,000)
8,300,848
3,820,432
(6,576,416)
0
$ (6,576,416)
260,904
(15,905)
(2,646,092)
(2,133,626)
0
9,004,534
4,469,815
(9,316,127)
0
$ (9,316,127)
0.01
0.01
(0.04)
(0.04)
(0.05)
(0.05)
109
0
109
1,250,385
0
0
0
(6,576,416)
0
0
0
(9,316,127)
See accompanying notes to the financial statements.
F-19
Universal Biosensors, Inc.
Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income/(Loss)
Balances at January 1, 2014
Net loss
Exercise of stock options issued to employees
Shares issued to employees
Stock option expense
Balances at December 31, 2014
Net loss
Exercise of stock options issued to employees
Shares issued to employees
Stock option expense
Balances at December 31, 2015
Net income
Other comprehensive income
Exercise of stock options issued to employees
Shares issued to employees
Stock option expense
Balances at December 31, 2016
Ordinary shares
Additional
Paid-in
Capital
A$
Shares
Amount
A$
175,600,605 17,560 94,955,051
0
0
999
0
8,333
2,040
0
0
0
1
0
(627,868)
175,610,978 17,561 94,328,182
0
26,120
129,938
(64,932)
0
72,496
429,110
0
0
7
43
0
176,112,584 17,611 94,419,308
0
0
(8)
0
0
8
20
0 (1,317,809)
0
0
77,500
196,800
0
65,974
176,386,884 17,639 93,167,465
Accumulated
Deficit
A$
(64,990,359)
(9,316,127)
0
0
0
(74,306,486)
(6,576,416)
0
0
0
(80,882,902)
1,250,276
0
0
0
0
(79,632,626)
Accumulated
Other
Comprehensive
Income
A$
(298,312) 29,683,940
Total
Stockholders’
Equity
A$
0 (9,316,127)
0
0
0
0
1,000
(627,868)
(298,312) 19,740,945
0 (6,576,416)
0
0
0
26,127
129,981
(64,932)
(298,312) 13,255,705
0 1,250,276
109
0
65,994
109
0
0
0 (1,317,809)
(298,203) 13,254,275
See accompanying notes to the financial statements.
F-20
Universal Biosensors, Inc.
Consolidated Statements of Cash Flows
Cash flows from operating activities provided by/(used in):
Net income/(loss)
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating
Years Ended December 31,
2015
A$
2014
A$
2016
A$
1,250,276 (6,576,416) (9,316,127)
activities:
Depreciation and amortization
Share based payments expense
Loss on fixed assets disposal
Unrealized foreign exchange losses
Financing costs - amortization of warrants
Change in assets and liabilities:
Inventory
Accounts receivable
Prepaid expenses and other assets
Deferred revenue
Employee entitlements
Accounts payable and accrued expenses
Net cash provided by/(used in) operating activities
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment
Purchases of property, plant and equipment
Payments to acquire business
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from borrowings
Repayment of borrowings
Borrowing costs
Proceeds from stock options exercised
Net cash provided by/(used in) financing activities
2,646,185 2,697,151 2,512,946
(1,317,809)
1,280
(32,138)
220,180
(64,932)
329
953,010
218,988
(627,868)
16,195
718,336
181,779
42,182
(393,243)
646,121 (1,631,838)
(483,982)
(1,694,425)
126,095
1,324,771 (1,028,500)
(348,270)
(394,358)
5,193,771
240,135
64,077
234,770
(299,574) 2,743,815 1,229,856
7,048,670
(527,840) (7,468,062)
0
0
(1,212,660) (1,270,392)
0
(1,272,160) (1,270,392)
(59,500)
7,941
(955,327)
0
(947,386)
369,630
(324,459)
360,510 1,051,662
(534,941)
0 (1,230,354)
26,127
0
45,171 (1,378,658)
0
261,742
(552,772)
(237,148)
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalent at beginning of period
Effect of exchange rate fluctuations on the balances of cash held in foreign currencies
Cash and cash equivalents at end of period
5,821,681 (3,176,890) (8,153,706)
14,350,307 16,329,829 23,742,422
741,113
20,402,322 14,350,307 16,329,829
230,334 1,197,368
See accompanying notes to the financial statement
F-21
Universal Biosensors, Inc.
Notes to Consolidated Financial Statements
(for the years ended December 31, 2014, 2015 and 2016)
(1)
Basis of Presentation
These consolidated financial statements are presented in accordance with “U.S. GAAP”. All amounts are expressed in
Australian dollars (“AUD” or “A$”) unless otherwise stated.
The Company’s consolidated financial statements have been prepared assuming the Company will continue as a going concern.
We rely largely on our existing cash and cash equivalents balance and operating cash flow to provide for the working capital needs of
our operations. We believe we have sufficient cash and cash equivalents to fund our operations for at least the next twelve months.
However, in the event, our financing needs for the foreseeable future are not able to be met by our existing cash and cash equivalents
balance and operating cash flow, we would seek to raise funds through public or private equity offerings, debt financings, and
through other means to meet the financing requirements. There is no assurance that funding would be available at acceptable terms, if
at all.
(2)
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 the carrying amount of property, plant and equipment, deferred income taxes, asset
retirement obligations and obligations related to employee benefits. Actual results could differ from those estimates.
Cash & Cash Equivalents
The Company considers all highly liquid investments purchased with an initial maturity of three months or less to be cash
equivalents. For cash and cash equivalents, the carrying amount approximates fair value due to the short maturity of those
instruments.
Short-Term Investments (Held-to-maturity)
Short-term investments constitute all highly liquid investments with term to maturity from three months to twelve months. The
carrying amount of short-term investments is equivalent to 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 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 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.
F-22
Universal Biosensors, Inc.
Notes to Consolidated Financial Statements
(for the years ended December 31, 2014, 2015 and 2016)
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 statements of comprehensive income in the same period or periods during which the hedged
forecast transaction affects the consolidated 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 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 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 years ended December 31, 2014,
2015 and 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 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.
Raw materials
Work in progress
Finished goods
F-23
2016
A$
Years Ended December 31,
2015
A$
315,970 270,683 351,007
523,280 52,841 46,443
0
0 31,744
839,250 355,268 397,450
2014
A$
Universal Biosensors, Inc.
Notes to Consolidated Financial Statements
(for the years ended December 31, 2014, 2015 and 2016)
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 statements of
comprehensive income. Account balances are charged against the allowance when it is probable the receivable will not be recovered.
Accounts receivable
Allowance for doubtful debts
4,848,009
0
4,848,009
3,153,584
0
3,153,584
Years Ended December 31,
2015
A$
2016
A$
2014
A$
3,799,705
0
3,799,705
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, facility costs and depreciation. Research and
development costs are expensed as incurred.
Research and development expenses for the respective periods are as follows:
Research
Development
Research and development expenses
1,230,652
1,296,396
13,756,810 17,824,446
14,987,462 19,120,842
Years Ended December 31,
2015
A$
2016
A$
2014
A$
1,194,323
15,421,728
16,616,051
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.
F-24
Universal Biosensors, Inc.
Notes to Consolidated Financial Statements
(for the years ended December 31, 2014, 2015 and 2016)
Where it is more likely than not that some portion or all of the deferred tax assets will not be realized, the deferred tax assets are
reduced by a valuation allowance. The valuation allowance is sufficient to reduce the deferred tax assets to the amount that is more
likely than not to be realized. A reconciliation of the valuation and qualifying accounts is attached as Schedule ii.
We are subject to income taxes in the United States, Canada and Australia. U.S. federal income tax returns up to and including
the 2015 financial year have been filed. In Australia, consolidated income tax returns up to and including the 2015 financial year have
been filed. HRL will file its first tax return 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:
Opening balance at January 1
Accretion expense
Ending balance at December 31
2,600,000 2,600,000
0
0
2,600,000 2,600,000
Years Ended December 31,
2015
A$
2016
A$
2014
A$
2,549,928
50,072
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)
F-25
Universal Biosensors, Inc.
Notes to Consolidated Financial Statements
(for the years ended December 31, 2014, 2015 and 2016)
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 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.
F-26
Universal Biosensors, Inc.
Notes to Consolidated Financial Statements
(for the years ended December 31, 2014, 2015 and 2016)
Management has concluded that the core operations of the Company are expected to be the research and development activities,
commercial manufacture of approved medical or testing devices and the provision of services. 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 milestone are
considered substantive and are not priced at a significant incremental discount to the other deliverables. As the achievement of the
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 December 31, 2016. Two milestones were delivered in 2012
and the milestones achieved subsequent to January 1, 2014 are as follows:
•
In December 2014, the Company delivered on its third milestone when it completed the development of the Xprecia
Stride™ Coagulation Analyzer and the product was launched by Siemens. Of the total amount of A$1,750,486 (equivalent
to US$1,428,571) recognized as revenue from services in December 2014, A$1,225,340 (equivalent to US$1,000,000)
relates to the achievement of the milestone whilst the balance relates to a portion of the deferred US$3 million up-front
payment allocated to these milestones.
•
In July 2015, the Company delivered on its fourth milestone when Siemens made a premarket 510(k) submission to the
FDA for regulatory clearance to sell the Xprecia Stride™ Coagulation Analyzer in the US. Of the total amount of
A$1,955,340 (equivalent to US$1,428,571) recognized as revenue from services in July 2015, A$1,368,738 (equivalent to
US$1,000,000) relates to the achievement of the milestone whilst the balance relates to a portion of the deferred
US$3 million up-front payment allocated to these milestones.
F-27
Universal Biosensors, Inc.
Notes to Consolidated Financial Statements
(for the years ended December 31, 2014, 2015 and 2016)
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 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, or
2.
as a non-refundable tax offset if aggregate turnover of the entity is more than A$20 million.
In accordance with SEC Regulation S-X Article 5-03, the Company’s research and development 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.
The Company has recorded research and development tax incentive income of A$7,562,172, A$9,224,349 and A$9,935,083,
respectively under the caption “Other” in the consolidated statements of comprehensive income in each of the years ended
December 31, 2016, 2015 and 2014, respectively.
Of the A$9,935,083 research and development tax incentive recorded in other income for the year ended December 31, 2014,
A$1,735,083 relates to research and development tax incentive income the Company received from the Australian Government for
the year ended December 31, 2013 following a change in the original estimate. Similarly, included in the 2015 and 2016 research and
development tax incentive income are amounts of A$24,349 and A$162,172, respectively which relates to prior years change in
estimate of the research and development tax incentive income.
Foreign Currency
Functional and reporting currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (“the functional currency”). The functional currency of UBI and UBS is AUD or
A$ for all years presented. The functional currency of HRL is Canadian dollars (“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 statements of
comprehensive income.
The Company has recorded foreign currency transaction gains/(losses) of A$112,075, (A$959,343) and (A$918,479) in each of
the years ended December 31, 2016, 2015 and 2014, respectively.
F-28
Universal Biosensors, Inc.
Notes to Consolidated Financial Statements
(for the years ended December 31, 2014, 2015 and 2016)
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 December 31, 2016.
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.
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 years ended December 31, 2016, 2015 and 2014 are considered operating leases. The costs
of operating leases are charged to the consolidated 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 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. See note 5 for further details.
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.
F-29
Universal Biosensors, Inc.
Notes to Consolidated Financial Statements
(for the years ended December 31, 2014, 2015 and 2016)
Employee Benefit Costs
UBS contributes to standard defined contribution superannuation funds on behalf of all its UBS employees. This contribution
amount, formerly equal to 9.25% of each employee’s salary, was increased by law to 9.50% from July 1, 2014 of each such
employee’s salary. 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 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.
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 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
The Company follows ASC 220 – Comprehensive Income. Comprehensive income is defined as the total change in
shareholders’ equity during the period other than from transactions with shareholders, and for the Company, includes net income.
The tax effect allocated to each component of other comprehensive income is as follows:
2016
Foreign currency translation reserve
Reclassification for gains realised in net income
Other comprehensive gain
2015
Unrealized loss on derivative instruments
Reclassification for gains realised in net income
Other comprehensive gain
2014
Unrealized loss on derivative instruments
Reclassification for gains realised in net income
Other comprehensive gain
F-30
Before-Tax
Amount
A$
Tax (Expense)/
Benefit
A$
Net-of-Tax
Amount
A$
109
0
109
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
109
0
109
0
0
0
0
0
0
Universal Biosensors, Inc.
Notes to Consolidated Financial Statements
(for the years ended December 31, 2014, 2015 and 2016)
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 recognised 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.
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.
F-31
Universal Biosensors, Inc.
Notes to Consolidated Financial Statements
(for the years ended December 31, 2014, 2015 and 2016)
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.
The Company is currently evaluating the method and impact the adoption of ASU 2014-09 will have on the Company’s
consolidated 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 January 9, 2015, the FASB issued ASU 2015-01 to eliminate from U.S. GAAP the concept of an extraordinary item, which
is an event or transaction that is both (1) unusual in nature and (2) infrequently occurring. Under the ASU, an entity will no longer
(1) segregate an extraordinary item from the results of ordinary operations; (2) separately present an extraordinary item on its income
statement, net of tax, after income from continuing operations; or (3) disclose income taxes and earnings-per-share data applicable to
an extraordinary item. ASU 2015-01 is effective for annual periods beginning after December 15, 2015, and interim periods within
those annual periods. Entities may apply the guidance prospectively or retrospectively to all prior periods presented in the financial
statements. Early adoption is permitted if the guidance is applied as of the beginning of the annual period of adoption. This guidance
was adopted in 2015. The adoption of this guidance has not had a material impact on the Company’s financial statements.
On April 7, 2015, the FASB issued ASU 2015-03 as part of its simplification initiative. The ASU changes the presentation of
debt issuance costs in financial statements. Under the ASU, an entity presents such costs in the balance sheet as a direct deduction
from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. For public business
entities, the guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2015. Early adoption is allowed for all entities for financial statements that have not been previously issued. Entities
should apply the new guidance retrospectively to all prior periods (i.e., the balance sheet for each period should be adjusted). The
adoption of this guidance has not had a material impact on the Company’s financial statements.
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. This guidance was adopted in
2015. 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.
F-32
Universal Biosensors, Inc.
Notes to Consolidated Financial Statements
(for the years ended December 31, 2014, 2015 and 2016)
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 consolidated 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
consolidated 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 consolidated financial statements.
F-33
Universal Biosensors, Inc.
Notes to Consolidated Financial Statements
(for the years ended December 31, 2014, 2015 and 2016)
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 is currently evaluating the impact the adoption of ASU
2016-16 will have on the Company’s consolidated 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 is currently evaluating the impact the adoption of
ASU 2017-01 will have on the Company’s consolidated 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 is currently
evaluating the impact the adoption of ASU 2017-04 will have on the Company’s consolidated financial statements.
Revision
Beginning in 2016, the Company has classified patent application costs (including legal and maintenance fees) within the
general and administrative expense line in the Consolidated Statement of Comprehensive Income/(Loss). As a result, patent
application costs of A$643,000 in 2015 and A$520,000 in 2014 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, net income or earnings per share for the years ended December 31, 2015 and 2014.
F-34
Universal Biosensors, Inc.
Notes to Consolidated Financial Statements
(for the years ended December 31, 2014, 2015 and 2016)
(3)
Commitments and Contingent Liabilities
For details on our contingent liabilities, see Notes to Consolidated Financial Statements – Note 2, Summary of Significant
Accounting Policies.
Operating Leases
The lease for 1 Corporate Avenue, Rowville Victoria expires on March 31, 2019, with two options to renew the lease each for
successive five-year periods. The Company’s primary bank has issued a bank guarantee of A$250,000 in relation to a rental bond to
secure the payments under the lease. This bank guarantee is secured by a security deposit held at the bank and has been recorded as
“Other non-current assets” in consolidated balance sheets.
In accordance with the terms of the lease, the lessee has to restore part of the building upon vacating the premises.
HRL leases approximately 482 square meters of office and laboratory facilities at 15(H) Wing, Second Floor, 711 Concession
Street, Hamilton, Ontario. The lease for 711 Concession Street expires on January 31, 2020 with 2 further options to renew each for 5
years.
The Company has also entered into a lease with respect to certain office equipment. The lease is for a period of 60 months
which commenced in November 2012.
Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one
year) as of December 31, 2016 are:
Less than 1 year
1 – 3 years
3 – 5 years
More than 5 years
Total minimum lease payments
A$
673,069
941,608
0
0
1,614,677
Rent expense was A$626,437, A$647,104 and A$551,119 for the fiscal years ended December 31, 2016, 2015 and 2014,
respectively.
Guarantees
There are cross guarantees given by Universal Biosensors, Inc. and Universal Biosensors Pty Ltd as described in note 15. No
deficiencies of assets exist in any of these companies. No liability was recognized by the parent entity or the consolidated entity in
relation to this guarantee, as the fair value of the guarantees is immaterial.
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$575,000 payable over a three year period commencing from January 1, 2017. The
grants are paid upon achievement of pre-agreed milestones. The milestones generally relate to UBS placing purchase orders,
commissioning upgrades and validating the equipment. Amongst other reasons, the Commonwealth of Australia may terminate the
grant agreement for breach of the agreement by UBS or for failure to undertake the required programme. Under these circumstances,
the Commonwealth of Australia may require UBS to repay some or the entire grant. The Company continues to undertake the project
funded by the Commonwealth of Australia.
No amounts have been received under this grant to date. In the event UBS had achieved milestones and received grant
payments, it believes that the likelihood of being required to repay grant funding is remote because the Company continues to act in
good faith with respect to the grant.
F-35
Universal Biosensors, Inc.
Notes to Consolidated Financial Statements
(for the years ended December 31, 2014, 2015 and 2016)
(4)
Income Taxes
The Company is subject to income tax in Australia and is required to pay taxes on its Australian profits. As provided under the
Australian income tax laws, UBI and its wholly owned resident subsidiary UBS have formed a tax-consolidated group. UBI is
required to lodge U.S. federal income tax returns and HRL is required to lodge tax returns in Canada. UBI and HRL are currently in a
tax loss situation.
A reconciliation of the (benefit)/provision for income taxes with the amount computed by applying the Australian statutory
company tax rate of 30% to the net income/(loss) before income taxes is as follows:
Net income/(loss) before income taxes
Computed by applying income
Research & development incentive
Disallowed expenses/(income):
Share based payment
Other
Change in valuation allowance
Income tax expense/(benefit)
2016
A$
1,347,547
404,264
2,664,682
Years ended December 31,
2015
2014
%
30
197
A$
%
A$
(6,576,416)
(9,316,127)
(1,972,925) 30 (2,794,838)
3,560,728 (54) 2,502,701
(395,343)
(12,460)
(2,661,143)
0
(29)
(1)
(197)
0
(19,480) 0
120,837 (2)
(1,689,160) 26
0 0
(188,360)
3,136
477,361
0
%
30
(27)
2
0
(5)
0
The components of our net income/(loss) before income taxes as either domestic or foreign is as follows:
Foreign
Domestic (Australia)
2016
A$
As of December 31,
2015
A$
2014
A$
0
1,347,547
1,347,547
0
(6,576,416)
(6,576,416)
0
(9,316,127)
(9,316,127)
Significant component of the Company’s deferred tax assets are shown below:
Deferred tax assets:
Operating loss carry forwards
Unamortized capital raising cost
Depreciation and amortization
Asset retirement obligations
Employee entitlements
Accruals
Decline in value of patents
Unrealized exchange loss
Other
Total deferred tax assets
Valuation allowance for deferred tax assets
Net deferred tax asset
As of December 31,
2016 A$
2015 A$
6,784,868
0
1,372,387
780,000
493,406
1,513,551
1,096,101
75,887
(9,791)
12,106,409
(12,106,409)
0
9,527,727
38,395
1,270,986
780,000
442,712
1,667,495
949,423
645,095
(178,958)
15,142,875
(15,142,875)
0
Significant components of deferred income taxes reflect the net tax effect of temporary differences between the carrying
amounts of assets and liabilities for financial reporting and tax purposes. A valuation allowance has been established, as realization of
such assets is not more likely than not.
F-36
Universal Biosensors, Inc.
Notes to Consolidated Financial Statements
(for the years ended December 31, 2014, 2015 and 2016)
At December 31, 2016 the Company has A$22,616,230 (A$32,032,988 at December 31, 2015) 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 and 2015. The R&D Tax offset is a non-refundable
tax offset, which assists to reduce a 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$1,011,321 as of
December 31, 2016 and 2015.
(5)
(a)
Employee Incentive Schemes
Stock Option Plan
In 2004, the Company adopted an employee option plan (“Plan”). Options may be granted pursuant to the Plan to any person considered
by the board to be employed by the Group on a permanent basis (whether full time, part time or on a long term casual basis). Each option gives
the holder the right to subscribe for one share of common stock. The total number of options that may be issued under the Plan is such
maximum amount permitted by law and the Listing Rules of the Australian Securities Exchange (“ASX”). The exercise price and any exercise
conditions are determined by the board at the time of grant of the options. Any exercise conditions must be satisfied before the options vest and
become capable of exercise. The options lapse on such date determined by the board at the time of grant or earlier in accordance with the Plan.
Options granted to date have had a term up to 10 years and generally vest in equal tranches over three years.
An option holder is not permitted to participate in a bonus issue or new issue of securities in respect of an option held prior to the issue of
shares to the option holder pursuant to the exercise of an option. If the Company changes the number of issued shares through or as a result of
any consolidation, subdivision, or similar reconstruction of the issued capital of the Company, the total number of options and the exercise price
of the options (as applicable) will likewise be adjusted. Options granted in 2014, 2015 and 2016 were 152,000, 1,015,000, and 9,291,000,
respectively.
In accordance with ASC 718, the fair value of the option grants was estimated on the date of each grant using the Trinomial Lattice
model. The assumptions for these grants were:
Exercise Price (A$)
Share Price at Grant Date (A$)
Volatility
Expected Life (years)
Risk Free Interest Rate
Fair Value of Option (A$)
Dec-16
0.33
0.33
Apr-16
0.50
0.29
Dec-15
0.45
0.45
Jan-15
0.00
0.23
Jan-15
0.23
0.23
Aug-14
0.17
0.17
69%
7
2.60%
0.19
70%
7
2.23%
0.08
70%
7
2.56%
0.26
72%
7
2.27%
0.23
72%
7
2.27%
0.14
71%
7
3.13%
0.10
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 value of all other 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. ZEPOs exercise price are 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.
F-37
Universal Biosensors, Inc.
Notes to Consolidated Financial Statements
(for the years ended December 31, 2014, 2015 and 2016)
Stock option activity during the current period is as follows:
Balance at December 31, 2015
Granted
Exercised
Lapsed
Balance at December 31, 2016
Number of shares
9,709,661
9,291,000
(77,500)
(2,658,992)
16,264,169
Weighted average
issue price
A$
0.99
0.50
0.00
1.25
0.67
At December 31, 2016, the number of options exercisable was 11,941,626 (2015: 8,662,448 and 2014: 8,611,392). At
December 31, 2016, total stock compensation income recognized in the consolidated condensed statements of comprehensive income
was A$1,317,809 (2015: A$64,932 and 2014: A$627,868).
The following table represents information relating to stock options outstanding under the plans as of December 31, 2016:
Exercise Price
A$
$ 1.18
$ 1.20
$ 0.89
$ 0.70
$ 0.50
$ 0.00
$ 0.00
$ 0.94
$ 1.72
$ 1.60
$ 1.58
$ 0.00
$ 1.37
$ 1.00
$ 0.89
$ 0.00
$ 0.75
$ 0.73
$ 1.09
$ 0.00
$ 0.79
$ 0.71
$ 0.49
$ 0.00
$ 0.17
$ 0.23
$ 0.00
$ 0.45
$ 0.50
$ 0.33
Options Outstanding
Shares
529,000
525,000
645,000
102,000
8,000
50,001
388,334
698,667
1,095,000
50,000
216,000
91,667
213,000
66,000
222,500
100,000
50,000
74,000
270,000
100,000
24,000
30,000
290,000
160,000
80,000
352,500
160,000
382,500
9,035,000
256,000
16,264,169
Weighted average
remaining life in years
0
1
1
2
2
2
2
2
3
0
1
1
1
2
2
2
2
3
3
3
3
4
4
4
5
5
5
6
6
7
F-38
Options
Exercisable
Shares
529,000
525,000
645,000
102,000
8,000
50,001
388,334
698,667
1,095,000
50,000
216,000
91,667
213,000
66,000
222,500
100,000
50,000
74,000
270,000
100,000
24,000
30,000
290,000
160,000
53,333
234,970
106,664
127,490
5,421,000
0
11,941,626
Universal Biosensors, Inc.
Notes to Consolidated Financial Statements
(for the years ended December 31, 2014, 2015 and 2016)
The table below sets forth the number of employee stock options exercised and the number of shares issued in the period from
December 31, 2014. We issued these shares in reliance upon exemptions from registration under Regulation S under the Securities
Act of 1933, as amended.
Period Ending
2014
2015
2016
Number of Options Exercised
and Corresponding Number of
Shares Issued
8,333
72,496
77,500
Weighted
Average
Exercise Price
0.00
A$
0.26
US$
0.00
Proceeds
Received
(A$)
0
26,127
0
As of December 31, 2016, there was A$244,924 of unrecognized compensation expense related to unvested share-based
compensation arrangements under the Employee Option Plan. This expense is expected to be recognized as follows:
Fiscal Year
2017
2018
2019
A$
166,139
73,396
5,389
244,924
The aggregate intrinsic value for all options outstanding as at December 31, 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 proposes to continue to issue A$1,000 worth of restricted shares of common stock to
employees of the Company on a recurring basis, but no more frequently than annually. The restricted shares have the same terms of
issue as our existing shares of common stock but are not able to be traded until the earlier of three years from the date on which the
shares are issued or the date the relevant employee ceases to be an employee of the Company or any of its associated group of
companies.
The table below sets forth the restricted shares issued by the Company since January 1, 2014:
June, 2014
January, 2015
July, 2015
December, 2015
February, 2016
December, 2016
Number of
Restricted Shares
Issued
Market Value of
Restricted Shares
Issued (A$)
2,040
282,555
4,347
142,208
15,000
181,800
1,000
64,988
1,000
63,994
6,000
59,994
Restricted stock awards activity during the current period is as follows:
Balance at December 31, 2015
Granted
Release of restricted shares
Balance at December 31, 2016
Number of shares
542,816
196,800
(164,036)
575,580
Weighted average
issue price (A$)
0.35
0.34
0.44
0.31
F-39
Universal Biosensors, Inc.
Notes to Consolidated Financial Statements
(for the years ended December 31, 2014, 2015 and 2016)
(6)
Related Party Transactions
Details of related party transactions material to the operations of the Group other than compensation arrangements, expense
allowances, and other similar items in the ordinary course of business, are set out below:
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.
In August 2013, we entered into a consulting agreement with SpeeDx pursuant to which we provided certain services relating to
the establishment and maintenance of a quality management system at SpeeDx. Consulting fees received under this agreement in 2014
were A$77,758. In addition, a success fee of A$50,000 was paid by SpeeDx in 2014 as the criteria for successful completion of the
engagement was met.
Mr. Denver is a director of the Company and SpeeDx. Talu Ventures Pty Ltd, of which Mr. Jane is a director, is a fund manager of
a fund which holds approximately 33% of the issued shares in SpeeDx. Mr. Jane resigned as a director of the Company in March 2015.
Until September 27, 2013, PFM Cornerstone Limited held approximately 6% of our shares (PFM Cornerstone Limited no longer holds
any of our shares), and until June 28, 2016, PFM Cornerstone Limited also held approximately 33% of the issued shares in SpeeDx.
Messrs Denver and Hanley are directors of the Company and until June 28, 2016 were directors of PFM Cornerstone Limited.
Mr. Hanley is now a director of Biotech Investment Holdings 1 Pty Ltd and Biotech Investment Holdings 2 Pty Ltd which each
respectively own approximately 14% of the issued share capital of SpeeDx.
Mr. Coleman is a director of the Company and Executive Chairman of Viburnum Funds Pty Ltd. Viburnum Funds Pty Ltd, as an
investment manager for its associated funds holds a beneficial interest and voting power over approximately 15.51% of our shares.
(7)
Financial Instruments
Financial Assets
Financial assets:
Cash and cash equivalents
Accounts receivables
Financial instruments
Total financial assets
Debt:
Short term borrowings
Long term secured loan
Total debt
Net financial assets/(liabilities)
Years Ended December 31,
2016
A$
2015
A$
20,402,322
4,848,009
0
25,250,331
14,350,307
3,153,584
0
17,503,891
369,630
20,286,827
20,656,457
4,593,874
324,459
19,868,560
20,193,019
(2,689,128)
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 in 2016, 2015 and 2014.
F-40
Universal Biosensors, Inc.
Notes to Consolidated Financial Statements
(for the years ended December 31, 2014, 2015 and 2016)
Derivative Instruments and Hedging Activities
We had no outstanding contracts as at December 31, 2016, 2015 and 2014, respectively. During the years ended December 31,
2016, 2015 and 2014, we recognized gains of nil. No amount of ineffectiveness was recorded in earnings for these designated cash flow
hedges for the years ended December 31, 2016, 2015 and 2014. For further details, see Notes to Consolidated Financial Statements –
Note 2, Summary of Significant Accounting Policies.
(8)
Property, Plant and Equipment, net
Plant and equipment
Leasehold improvements
Capital work in process
Accumulated depreciation
Property, plant & equipment, net
As of December, 31
2016
A$
25,913,814
8,952,420
1,943,032
36,809,266
(25,282,248)
11,527,018
2015
A$
24,676,687
8,943,645
1,943,032
35,563,364
(22,655,162)
12,908,202
Capital work in process relates to assets under construction and comprises primarily specialized manufacturing equipment. Legal
right to the assets under construction rests with the Company. The amounts capitalized for capital work in process represent the
percentage of expenditure that has been completed, and once the assets are placed into service, the Company begins depreciating the
respective assets. The accumulated amortisation of capitalised leasehold improvements for the fiscal years ended December 31, 2016,
2015 and 2014 was A$7,958,666, A$7,517,590, and A$7,096,926, respectively.
From 2017 to 2019, the Company is entitled to receive Commonwealth of Australia grant monies under grant agreements to
support its development activities, including in connection with the purchase of plant and equipment. Plant and equipment is presented
net of the government grant of A$Nil for the year ended December 31, 2016. The grants are recognized against the acquisition costs of
the related plant and equipment as and when the related assets are purchased. Grants received in advance of the relevant expenditure are
treated as deferred income and included in Current Liabilities on the balance sheet as the Company does not control the monies until the
relevant expenditure has been incurred. Grants due to the Company under research agreements are recorded as Currents Assets on the
balance sheet.
Depreciation expense was A$2,646,185, A$2,697,151, and A$2,512,946, for the fiscal years ended December 31, 2016, 2015 and
2014, respectively.
(9)
Accrued Expenses
Accrued expenses consist of the following:
Legal, tax and accounting fees
Salary and related costs
Research and development materials
Other
As of December, 31
2015
2016
A$
A$
559,017
670,154
654,701
21,852
1,905,724
715,251
56,234
896,227
117,422
1,785,134
(10)
Stockholders’ Equity - Common Stock
Holders of common stock are generally entitled to one vote per share held on all matters submitted to a vote of the holders of
common stock. At any meeting of the shareholders, the presence, in person or by proxy, of the majority of the outstanding stock entitled
F-41
Universal Biosensors, Inc.
Notes to Consolidated Financial Statements
(for the years ended December 31, 2014, 2015 and 2016)
to vote shall constitute a quorum. Except where a greater percentage is required by the Company’s amended and restated certificate of
incorporation or by-laws, the affirmative vote of the holders of a majority of the shares of common stock then represented at the meeting
and entitled to vote at the meeting shall be sufficient to pass a resolution. Holders of common stock are not entitled to cumulative voting
rights with respect to the election of directors, and the common stock does not have pre-emptive rights.
Trading in our shares of common stock on ASX is undertaken using CHESS Depositary Interests (“CDIs”). Each CDI represents
beneficial ownership in one underlying share. Legal title to the shares underlying CDIs is held by CHESS Depositary Nominees Pty Ltd
(“CDN”), a wholly owned subsidiary of ASX.
Holders of CDIs have the same economic benefits of holding the shares, such as dividends (if any), bonus issues or rights issues as
though they were holders of the legal title. Holders of CDIs are not permitted to vote but are entitled to direct CDN how to vote. Subject
to Delaware General Corporation Law, dividends may be declared by the Board and holders of common stock may be entitled to
participate in such dividends from time to time.
(11)
Net Income/(Loss) per Share
Basic net income/(loss) per ordinary share was computed by dividing the net income/(loss) applicable to common stock by the
weighted-average number of common stock outstanding during the period. Warrants issued to the Lenders and options granted to
employees under the Universal Biosensors Employee Option Plan are considered to be potential ordinary shares for the purpose of
calculating diluted net income/(loss) per share.
Weighted average shares used as denominator in calculating:
Basic net income/(loss) per share
Diluted net income/(loss) per share
176,189,052
177,373,769
175,881,165
175,881,165
175,608,634
175,608,634
Years Ended December 31,
2015
2016
2014
The number of shares not included in the calculation of basic net income/(loss) per ordinary share because the impact would be
anti-dilutive were 1,184,717, Nil and Nil for the years ended December 31, 2016, 2015 and 2014, respectively.
(12)
Guarantees and Indemnifications
The certificate of incorporation and amended and restated by-laws of the Company provide that the Company will indemnify
officers and directors and former officers and directors in certain circumstances, including for expenses, judgments, fines and settlement
amounts incurred by them in connection with their services as an officer or director of the Company or its subsidiaries, provided that
such person acted in good faith and in a manner such person reasonably believed to be in the best interests of the Company, and, with
respect to any criminal action or proceeding, the Company had reasonable cause to believe that such person’s conduct was not unlawful.
In addition to the indemnities provided in the certificate of incorporation and amended and restated by-laws, the Company has
entered into indemnification agreements with certain of its officers and each of its directors. Subject to the relevant limitations imposed
by applicable law, the indemnification agreements, among other things:
•
•
indemnify the relevant officers and directors for certain expenses, judgments, fines and settlement amounts incurred by them in
connection with their services as an officer or director of the Company or its subsidiaries; and
require the Company to make a good faith determination whether or not it is practicable to maintain liability insurance for officers
and directors or to ensure the Company’s performance of its indemnification obligations under the agreements.
The Company maintains directors’ and officers’ liability insurance providing for the indemnification of our directors and certain of
our officers against certain liabilities incurred as a director or officer, including costs and expenses associated in defending legal
proceedings. In accordance with the terms of the insurance policy and commercial practice, the amount of the premium is not disclosed.
No liability has arisen under these indemnities as of December 31, 2016.
F-42
Universal Biosensors, Inc.
Notes to Consolidated Financial Statements
(for the years ended December 31, 2014, 2015 and 2016)
(13)
Segments
The Company operates in one segment. The principal activities of the Company are research and development, commercial
manufacture of approved medical or testing devices and the provision of services including contract research work.
The Company operates predominantly in one geographical area, being Australia and continues to derive significant revenues
from LifeScan.
The Company’s material long-lived assets are all based in Australia.
(14)
Deed of Cross Guarantee
Universal Biosensors, Inc. and its wholly owned subsidiary, Universal Biosensors Pty Ltd, are parties to a deed of cross
guarantee under which each company guarantees the debts of the other. By entering into the deed, the wholly-owned entity has been
relieved from the requirements to prepare a financial report and directors’ report under Class Order 98/1418 (as amended) issued by
the Australian Securities and Investments Commission.
The above companies represent a “Closed Group” for the purposes of the Class Order, and as there are no other parties to the
Deed of Cross Guarantee that are controlled by Universal Biosensors, Inc., they also represent the “Extended Closed Group”.
The consolidated financial statements presented within this report comprise that of Universal Biosensors, Inc. and its wholly
owned subsidiary, Universal Biosensors Pty Ltd. These two entities also represent the “Closed Group” and the “Extended Closed
Group”.
(15)
Borrowings
Future maturities, interest and other payments under the Company’s long term secured loan pursuant to the credit agreement
(described below) as of December 31, 2016 is as follows:
2016
2017
2018
Thereafter
Total minimum payments
Less amount representing interest and other fees
Gross balance of long term debt
Less fair value of warrants recorded within loan (a)
Plus interest accretion
Total carrying value
Less current portion
Total carrying value, non-current portion
December 31, 2016
US$
A$
0
1,756,563
16,694,000
0
18,450,563
(3,450,563)
15,000,000
(815,655)
495,203
December 31, 2015
A$
US$
1,761,375
1,756,563
16,694,000
0
20,211,938
(5,211,938)
15,000,000
(815,655)
331,625
14,679,548 20,286,827 14,515,970 19,868,560
0
0
14,679,548 20,286,827 14,515,970 19,868,560
0
0
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 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
F-43
Universal Biosensors, Inc.
Notes to Consolidated Financial Statements
(for the years ended December 31, 2014, 2015 and 2016)
“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, with a further US$10 million available to be drawn down on or before July 31, 2015 if UBS satisfied certain
conditions precedent relating to product revenues.
Whilst UBS met the commercial conditions required under the Credit Agreement to draw down an additional US$10 million, it
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
F-44
Universal Biosensors, Inc.
Notes to Consolidated Financial Statements
(for the years ended December 31, 2014, 2015 and 2016)
“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 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 September 2017. Interest is charged at a fixed rate of 2.60% per annum. The short-term borrowing is
secured by the insurance premium refund.
(16) 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$1.00 per share (the “Exercise Price”), which represents
a 117% premium over the closing price of UBI’s common stock on December 19, 2013. The warrants are immediately exercisable
and have a term of seven years.
The warrants may be exercised at any time until December 19, 2020, in whole or in part in minimum multiples of 500,000
shares of common stock. The holder of the warrants can pay the Exercise Price in cash or it has the right to pay all or a portion of the
Exercise Price by making a cashless exercise, therefore reducing the number of shares of common stock the holder would otherwise
be issued.
The warrant is subject to adjustments in the event of certain issuances by UBI, such as bonus issues, pro rata (rights) issues and
reorganizations (e.g. consolidation, subdivision).
The Company assessed that the warrants are not liabilities within scope of ASC 480-10-25. The warrants are legally detachable
from the loan and separately exercisable and as such meet the definition of a freestanding derivative instrument pursuant to ASC 815.
However, the scope exception in accordance with ASC 815-10-15-74 applies to warrants and it meets the requirements of ASC
815 that would be classified in stockholders’ equity. Therefore, the warrants were initially accounted for within stockholders’ equity,
and subsequent changes in fair value will not be recorded. The fair value of the warrant was estimated using the Trinomial Lattice
model.
The debt issuance costs were recorded as deferred issuance costs and are amortized as interest expense, using the effective
interest method, over the term of the loan pursuant to ASC 835-30-35-2.
(17)
Restricted Cash
Restricted cash maintained by the Company in the form of term deposits is as follows:
Financial covenant pursuant to the credit agreement
Collateral for facilities
2,900,000 2,900,000
320,000
3,220,000 3,220,000
320,000
Years Ended December 31,
2015
A$
2016
A$
2014
A$
2,600,000
320,000
2,920,000
Financial covenant pursuant to the credit agreement and collateral for facilities is recorded under the caption “Other non-current
assets” in the consolidated balance sheets.
F-45
Universal Biosensors, Inc.
Schedule ii – Valuation and Qualifying Accounts
(for the years ended December 31, 2014, 2015 and 2016)
Year ended December 31, 2014
Deferred income tax valuation allowance
Year ended December 31, 2015
Deferred income tax valuation allowance
Year ended December 31, 2016
Deferred income tax valuation allowance
Additions
Balance at
Beginning of
Period
A$
Charged to
Costs and
Expenses
A$
Charged to
Other
Accounts
A$
Deductions
A$
Balance at end
of Period
A$
23,413,313
477,361
(6,854,223)
0 17,036,451
17,036,451 (1,689,161)
(204,415)
0 15,142,874
15,142,874 (2,661,144)
(375,321)
0 12,106,409
F-46
LIST OF SUBSIDIARIES
Exhibit 21
Universal Biosensors Pty Ltd.
Hemostasis Reference Laboratory Inc.
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, Andrew Denver, certify that:
1.
2.
3.
4.
I have reviewed this report on Form 10-K of Universal Biosensors, Inc.;
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;
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;
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: March 21, 2017
/s/ Andrew Denver
Andrew Denver
Principal Executive Officer
Universal Biosensors, Inc.
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.
2.
3.
4.
I have reviewed this report on Form 10-K of Universal Biosensors, Inc.;
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;
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;
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: March 21, 2017
/s/ Salesh Balak
Salesh Balak
Principal Financial Officer
Universal Biosensors, Inc.
Exhibit 32.0
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 annual report of Universal Biosensors, Inc. (the “Company”) on Form 10-K for the period ended
December 31, 2016, 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)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
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 21st day of March 2017.
/s/ Andrew Denver
Andrew Denver
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.
ASX ADDITIONAL INFORMATION
Additional information required by Australian Securities Exchange Ltd and not shown elsewhere in this report
is as follows. The information is current as at April 19, 2017.
The Company’s shares of common stock are traded on the Australian Securities Exchange in the form of
CHESS Depositary Interests, or CDIs. CHESS Depositary Nominees Pty Ltd (CDN), a wholly owned subsidiary
of Australian Securities Exchange Ltd, holds legal title in the Company’s shares of common stock on behalf
of holders of CDIs.
Substantial holders
The following holders of CDIs have disclosed a substantial shareholder notice to ASX.
Name
Viburnum Funds Pty Ltd*
KFT Investments Pty Ltd
Beneficial interests in shares of common stock
Number
27,963,451
17,975,043
Percentage
15.85
10.02
*The relevant interests of the substantial holder are registered in the name of J P Morgan Nominees Australia Limited
Distribution of equity securities
As at April 19, 2017 there were:-
•
175,830,804 fully paid shares of common stock held by CDN on behalf of 1,629 individual holders of CDIs.
Holders of CDIs have the right to direct CDN, as the holder of record of the underlying shares of common
stock represented by their CDIs, how it should vote the underlying shares.
• 559,412 unquoted fully paid restricted shares of common stock held by 62 employees of the Company.
All issued restricted shares of common stock carry one vote per share.
•
18,347,169 unquoted options over shares of common stock held by 70 individual optionholders.
Optionholders do not carry any right to vote until the options are exercised and shares (traded in
the form of CDIs) are issued.
• 4,500,000 unquoted warrants over shares of common stock held by 2 warrant holders. The warrants
do not carry any right to vote until the warrants are exercised and shares (traded in the form of CDIs)
are issued.
The following distribution schedule sets out the numbers of holders in each class of equity security.
Beneficial interests
in shares of
common stock
traded as CDIs
Beneficial interests
in restricted employee
shares of common stock
Unquoted options
over shares of
common stock
Warrants
over shares of
common stock
180
374
244
672
159
1,629
–
1
61
–
–
62
–
2
–
43
25
70
–
–
–
–
2
2
Holding ranges
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 – and over
Number of holders
The number of investors holding less than a marketable parcel of 1,112 CDIs (based on a price of $0.45 per CDI
at 19 April 2017) was 189. They hold 103,017 CDIs in total.
Universal Biosensors, Inc. 107
25.250
10.190
3.762
3.548
2.659
1.847
1.824
1.614
1.321
1.268
1.259
1.134
1.106
1.000
0.907
0.871
0.768
0.719
0.680
0.670
CDIs held
Percentage held
Largest 20 holders of CDIs
Name of holder
J P Morgan Nominees Australia Limited
KFT Investments Pty Ltd
Mr Denis Michael Hanley
Talu Ventures Pty Ltd
Mr Andrew Leslie Denver
Armada Trading Pty Limited
Armada Trading Pty Ltd
Dr Alastair Mcindoe Hodges
CVC Ltd
Mr Garry Chambers
Citicorp Nominees Pty Limited
Hornet Computer Systems Pty Limited
Moore Family Nominee Pty Ltd
Mclean Engineering Pty Ltd
D J & C Nominees Pty Ltd
Talu Ventures Pty Ltd
44,538,061
17,975,043
6,635,661
6,257,743
4,690,768
3,258,523
3,216,666
2,846,615
2,329,417
2,236,637
2,220,249
2,000,000
1,950,000
1,764,183
1,600,000
1,536,641
Mr Andrew Denver & Mrs Linda Denver
1,354,528
Ronald Chatelier
Willben Pty Ltd
1,267,970
1,200,000
Mr Andrew Denver & Mrs Linda Denver
1,181,812
110,060,517
62.396
Restricted securities
As at April 19, 2017, there are 559,412 fully paid restricted shares of common stock issued to 62 employees
pursuant to the terms and conditions of the Universal Biosensors, Inc. employee share plan. The restricted
shares are not able to be traded until the earlier of: (i) three years from the date on which the shares are
issued; or (ii) the date on which an employee ceases to be an employee of Universal Biosensors, Inc. or its
associated group of companies.
On-market buy-back
There is no current on-market buy-back.
108 Universal Biosensors, Inc.
CORPORATE DIRECTORY
Board of Directors
External Auditor
PricewaterhouseCoopers
One International Towers Sydney
Watermans Quay
Barangaroo, New South Wales 2000
Australia
Australian Legal Adviser
PFM Legal Pty Ltd
Level 7
257 Clarence Street
Sydney New South Wales 2000
Australia
US Legal Adviser
Venable LLP
600 Massachusetts Avenue, NW
Washington DC 20001
United States of America
Mr Andrew Denver (Executive Chairman)
Mr Denis Hanley
Mr Marshall Heinberg
Ms Judith Smith
Mr David Hoey
Mr Craig Coleman
Company Secretary
Mr Cameron Billingsley
Registered Office in Australia
1 Corporate Avenue
Rowville Victoria 3178
Australia
Telephone: +61 3 9213 9000
Facsimile: +61 3 9213 9099
Email: info@universalbiosensors.com
Website: www.universalbiosensors.com
ASX code: UBI
Name and address of Universal Biosensors’
registered agent in the United States
Corporation Service Company
2711 Centerville Road, Suite 400,
Wilmington, County of New Castle
Delaware, Unites States of America
Share Registry
Boardroom Pty Limited
Level 12, Grosvenor Place
225 George Street
Sydney New South Wales 2000
Australia
Telephone: +61 2 9290 9600
Facsimile: +61 2 9279 0664
Email: enquiries@boardroomlimited.com.au
Website: www.boardroomlimited.com.au
Design by Transmission. www.transmissiondesign.com.au
www.transmissiondesign.com.au
transmissiondesign.com.au
Universal Biosensors, Inc. 109
Universal Biosensors