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EXCEL - IDEA: XBRL DOCUMENT - UNIVERSAL BIOSENSORS INC | Financial_Report.xls |
EX-32 - EXHIBIT 32 - UNIVERSAL BIOSENSORS INC | d246642dex32.htm |
EX-31.1 - EXHIBIT 31.1 - UNIVERSAL BIOSENSORS INC | d246642dex311.htm |
EX-31.2 - EXHIBIT 31.2 - UNIVERSAL BIOSENSORS INC | d246642dex312.htm |
EX-10.20 - EXHIBIT 10.20 - UNIVERSAL BIOSENSORS INC | d246642dex1020.htm |
EX-10.22 - EXHIBIT 10.22 - UNIVERSAL BIOSENSORS INC | d246642dex1022.htm |
EX-10.23 - EXHIBIT 10.23 - UNIVERSAL BIOSENSORS INC | d246642dex1023.htm |
EX-10.21 - EXHIBIT 10.21 - UNIVERSAL BIOSENSORS INC | d246642dex1021.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
Universal Biosensors, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 98-0424072 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) | |
Universal Biosensors, Inc. 1 Corporate Avenue, Rowville, 3178, Victoria Australia |
Not Applicable | |
(Address of principal executive offices) | (Zip Code) |
Telephone: +61 3 9213 9000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x 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 x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer | ¨ | Accelerated Filer | x | |||
Non-Accelerated Filer | ¨ (Do not check if a smaller reporting company) | 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 x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: 159,025,161 shares of Common Stock, U.S.$0.0001 par value, outstanding as of November 3, 2011.
Table of Contents
TABLE OF CONTENTS
Page | ||||||||||
PART I |
FINANCIAL INFORMATION | |||||||||
Item 1 |
||||||||||
1 | ) | Consolidated condensed balance sheets at September 30, 2011 and December 31, 2010 (unaudited) |
3 | |||||||
2 | ) | 4 | ||||||||
3 | ) | 5 | ||||||||
4 | ) | 6 | ||||||||
5 | ) | Notes to consolidated condensed financial statements (unaudited) |
7 | |||||||
Item 2 |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
18 | ||||||||
Item 3 |
26 | |||||||||
Item 4 |
27 | |||||||||
Item 1 |
28 | |||||||||
Item 1A |
28 | |||||||||
Item 2 |
28 | |||||||||
Item 3 |
28 | |||||||||
Item 4 |
28 | |||||||||
Item 5 |
28 | |||||||||
Item 6 |
28 | |||||||||
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Exhibit 10.20 |
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Exhibit 10.21 |
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Exhibit 10.22 |
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Exhibit 10.23 |
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Exhibit 31.1 |
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Exhibit 31.2 |
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Exhibit 32 |
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Exhibit 101 |
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30 |
2
Table of Contents
Universal Biosensors, Inc.
Item 1 | Financial Statements |
Consolidated Condensed Balance Sheets (Unaudited)
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
A$ | A$ | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
18,815,709 | 23,271,766 | ||||||
Inventories, net |
3,074,512 | 3,191,093 | ||||||
Accounts receivable |
1,284,192 | 3,588,798 | ||||||
Prepayments |
293,574 | 303,181 | ||||||
Other assets |
764,009 | 46,196 | ||||||
|
|
|
|
|||||
Total current assets |
24,231,996 | 30,401,034 | ||||||
Non-current assets: |
||||||||
Property, plant and equipment |
32,929,088 | 32,713,280 | ||||||
Less accumulated depreciation |
(12,111,144 | ) | (9,586,365 | ) | ||||
|
|
|
|
|||||
Property, plant and equipment - net |
20,817,944 | 23,126,915 | ||||||
Other assets |
310,000 | 310,000 | ||||||
|
|
|
|
|||||
Total non-current assets |
21,127,944 | 23,436,915 | ||||||
|
|
|
|
|||||
Total assets |
45,359,940 | 53,837,949 | ||||||
|
|
|
|
|||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
628,433 | 1,764,364 | ||||||
Accrued expenses |
988,476 | 2,099,477 | ||||||
Deferred income |
1,243,558 | | ||||||
Employee entitlements provision |
846,177 | 596,294 | ||||||
|
|
|
|
|||||
Total current liabilities |
3,706,644 | 4,460,135 | ||||||
Non-current liabilities: |
||||||||
Asset retirement obligations |
2,124,532 | 1,998,060 | ||||||
Employee entitlements provision |
172,630 | 160,675 | ||||||
Deferred income |
1,658,077 | | ||||||
|
|
|
|
|||||
Total non-current liabilities |
3,955,239 | 2,158,735 | ||||||
|
|
|
|
|||||
Total liabilities |
7,661,883 | 6,618,870 | ||||||
|
|
|
|
|||||
Commitments and contingencies |
| | ||||||
|
|
|
|
|||||
Stockholders equity: |
||||||||
Preferred stock, $0.01 par value. Authorized 1,000,000 shares; issued and outstanding nil in 2011 (2010: nil) |
||||||||
Common stock, $0.0001 par value. Authorized 300,000,000 shares; issued and outstanding 159,025,161 shares in 2011 (2010: 158,871,495) |
15,902 | 15,887 | ||||||
Additional paid-in capital |
78,825,740 | 77,034,717 | ||||||
Accumulated deficit |
(29,533,213 | ) | (22,922,688 | ) | ||||
Current year loss |
(11,312,060 | ) | (6,610,525 | ) | ||||
Accumulated other comprehensive income |
(298,312 | ) | (298,312 | ) | ||||
|
|
|
|
|||||
Total stockholders equity |
37,698,057 | 47,219,079 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
45,359,940 | 53,837,949 | ||||||
|
|
|
|
See accompanying notes to the financial statements
3
Table of Contents
Universal Biosensors, Inc.
Consolidated Condensed Statements of Operations Consolidated Condensed Statements of Operations (Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
A$ | A$ | A$ | A$ | |||||||||||||
Revenue |
||||||||||||||||
Revenue from products |
$ | 2,153,518 | $ | 3,202,873 | $ | 7,740,685 | $ | 6,087,270 | ||||||||
Revenue from services |
318,869 | 1,785,331 | 1,040,918 | 5,082,243 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenue |
2,472,387 | 4,988,204 | 8,781,603 | 11,169,513 | ||||||||||||
Operating costs & expenses |
||||||||||||||||
Cost of goods sold (1) |
2,314,082 | 3,136,390 | 8,500,926 | 6,611,542 | ||||||||||||
Cost of services |
61,257 | 376,398 | 265,763 | 869,652 | ||||||||||||
Research and development (2) |
2,317,556 | 1,543,482 | 7,035,045 | 4,897,260 | ||||||||||||
General and administrative (3) |
2,029,467 | 1,675,868 | 5,235,725 | 4,934,461 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating costs & expenses |
6,722,362 | 6,732,138 | 21,037,459 | 17,312,915 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss from operations |
(4,249,975 | ) | (1,743,934 | ) | (12,255,856 | ) | (6,143,402 | ) | ||||||||
Other income/(expense) |
||||||||||||||||
Interest income |
145,228 | 289,296 | 549,547 | 922,264 | ||||||||||||
Other |
749,727 | (47,473 | ) | 394,249 | 96,220 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other income/(expense) |
894,955 | 241,823 | 943,796 | 1,018,484 | ||||||||||||
Net loss before tax |
(3,355,020 | ) | (1,502,111 | ) | (11,312,060 | ) | (5,124,918 | ) | ||||||||
Income tax benefit/(expense) |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss |
$ | (3,355,020 | ) | $ | (1,502,111 | ) | $ | (11,312,060 | ) | $ | (5,124,918 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Basic and diluted net loss per share |
$ | (0.02 | ) | $ | (0.01 | ) | $ | (0.07 | ) | $ | (0.03 | ) | ||||
Average weighted number of shares used as denominator in calculating basic and diluted net loss per share |
159,022,118 | 157,378,290 | 158,995,955 | 157,305,384 | ||||||||||||
Notes: |
||||||||||||||||
1 Includes non-cash compensation expense (cost of goods sold) |
$ | 60,731 | $ | 28,489 | $ | 152,273 | $ | 114,228 | ||||||||
2 Includes non-cash compensation expense (research and development) |
$ | 301,842 | $ | 172,215 | $ | 746,019 | $ | 690,526 | ||||||||
3 Includes non-cash compensation expense (general and administrative) |
$ | 327,015 | $ | 129,969 | $ | 815,760 | $ | 521,128 |
See accompanying notes to the financial statements.
4
Table of Contents
Universal Biosensors, Inc.
Consolidated Condensed Statements of Changes in Stockholders' Equity and Comprehensive Income Consolidated Condensed Statements of Changes in Stockholders Equity and Comprehensive Income (Unaudited)
Ordinary shares | Additional Paid-in |
Accumulated | Accumulated Comprehensive |
Total Stockholders |
||||||||||||||||||||
Shares | Amount | Capital | Deficit | (Loss)/Income | Equity | |||||||||||||||||||
A$ | A$ | A$ | A$ | A$ | ||||||||||||||||||||
Balances at January 1, 2010 |
157,155,933 | 15,716 | 74,566,698 | (22,922,688 | ) | (345,724 | ) | 51,314,002 | ||||||||||||||||
Comprehensive income |
||||||||||||||||||||||||
Loss on derivatives and hedges, net of tax |
| | | | 47,412 | 47,412 | ||||||||||||||||||
Net loss |
| | | (5,124,918 | ) | | (5,124,918 | ) | ||||||||||||||||
|
|
|||||||||||||||||||||||
Total comprehensive income |
(5,077,506 | ) | ||||||||||||||||||||||
|
|
|||||||||||||||||||||||
Exercise of stock options issued to employees |
291,450 | 29 | 181,026 | | | 181,055 | ||||||||||||||||||
Shares issued to employees |
581 | | 999 | | | 999 | ||||||||||||||||||
Stock option expense |
| | 1,325,882 | | | 1,325,882 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balances at September 30, 2010 |
157,447,964 | 15,745 | 76,074,605 | (28,047,606 | ) | (298,312 | ) | 47,744,432 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balances at January 1, 2011 |
158,871,495 | 15,887 | 77,034,717 | (29,533,213 | ) | (298,312 | ) | 47,219,079 | ||||||||||||||||
Comprehensive income |
||||||||||||||||||||||||
Net loss |
| | | (11,312,060 | ) | | (11,312,060 | ) | ||||||||||||||||
|
|
|||||||||||||||||||||||
Total comprehensive loss |
(11,312,060 | ) | ||||||||||||||||||||||
|
|
|||||||||||||||||||||||
Exercise of stock options issued to employees |
153,666 | 15 | 76,971 | | | 76,986 | ||||||||||||||||||
Stock option expense |
| | 1,714,052 | | | 1,714,052 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balances at September 30, 2011 |
159,025,161 | 15,902 | 78,825,740 | (40,845,273 | ) | (298,312 | ) | 37,698,057 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the financial statements.
5
Table of Contents
Universal Biosensors, Inc.
Consolidated Condensed Statements of Cash Flows Consolidated Condensed Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, | ||||||||
2011 | 2010 | |||||||
A$ | A$ | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
(11,312,060 | ) | (5,124,918 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Depreciation and impairment of plant & equipment |
2,553,838 | 2,213,954 | ||||||
Share based payments expense |
1,714,052 | 1,325,882 | ||||||
Loss on fixed assets disposal |
17,715 | | ||||||
Change in assets and liabilities: |
||||||||
Inventory |
116,581 | (1,153,656 | ) | |||||
Accounts receivables |
2,304,606 | (2,464,834 | ) | |||||
Prepaid expenses and other current assets |
(853,824 | ) | (170,165 | ) | ||||
Accrued income |
| 118,305 | ||||||
Deferred revenue |
3,055,301 | | ||||||
Employee entitlements |
261,838 | 103,841 | ||||||
Accounts payable and accrued expenses |
(1,518,386 | ) | 70,954 | |||||
|
|
|
|
|||||
Net cash used in operating activities |
(3,660,339 | ) | (5,080,637 | ) | ||||
|
|
|
|
|||||
Cash flows from investing activities: |
||||||||
Instalment payments to acquire plant and equipment |
| (831,321 | ) | |||||
Purchases of property, plant and equipment |
(872,704 | ) | (577,240 | ) | ||||
|
|
|
|
|||||
Net cash used in investing activities |
(872,704 | ) | (1,408,561 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Proceeds from stock options exercised |
76,986 | 181,055 | ||||||
|
|
|
|
|||||
Net cash provided by financing activities |
76,986 | 181,055 | ||||||
|
|
|
|
|||||
Net decrease in cash and cash equivalents |
(4,456,057 | ) | (6,308,143 | ) | ||||
Cash and cash equivalent at beginning of period |
23,271,766 | 31,291,011 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of period |
18,815,709 | 24,982,868 | ||||||
|
|
|
|
See accompanying notes to the financial statement
6
Table of Contents
Notes to Consolidated Condensed Financial Statements (Unaudited)
Organization of the Company
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 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 research, development and manufacturing activities in Melbourne, Australia.
We have rights to an extensive patent portfolio owned by UBS and licensed to UBS under a license agreement between LifeScan and UBS (License Agreement). 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.
Blood glucose - UBS is a party to a Master Services and Supply Agreement with LifeScan which contains the terms pursuant to which UBS provides services and acts as a non-exclusive manufacturer of the blood glucose test strips we developed. The strips are sold by LifeScan as part of the One Touch Verio®. LifeScan continues its global rollout of the product which is currently available in major European markets and in Australia. We also undertake research and development work for LifeScan pursuant to a development and research agreement (Development and Research Agreement).
Coagulation testing market In September 2011, UBS entered into a collaboration agreement with Siemens Healthcare Diagnostics, Inc. (Siemens) pursuant to which UBS will develop a range of test strip and reader products for the point-of-care coagulation market for Siemens.
Other electrochemical-cell based tests We use our technology base to develop a range of electrochemical-cell based tests and are currently developing a D-dimer test and other point-of-care tests for the immunoassay and molecular diagnostics markets.
Interim Financial Statements
The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. For further information, refer to the financial statements and footnotes thereto as of and for the year ended December 31, 2010, included in the Form 10-K of Universal Biosensors, Inc.
The year-end consolidated condensed balance sheet data as at December 31, 2010 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. Certain prior year amounts in the consolidated condensed financial statements have been reclassified to conform to the current presentation.
Basis of Presentation
All amounts in the financial statements are expressed in Australian dollars (AUD or A$) unless otherwise stated.
Universal Biosensors, Inc. and its wholly owned subsidiary UBS (collectively referred to as Universal Biosensors or the Group or the Company) 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
7
Table of Contents
Universal Biosensors, Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
working capital needs of our operations. We believe we have sufficient cash and cash equivalents to fund our operations for at least the next twelve months. However, in the event, our financing needs for the foreseeable future are not able to be met by our existing cash and cash equivalents balance and operating cash flow, we would seek to raise funds through public or private equity offerings, debt financings, and through other means to meet the financing requirements. There is no assurance that funding would be available at acceptable terms, if at all.
During 2010, the Company ceased to be a development stage enterprise as it has established its commercial scale manufacturing and is generating revenue from its manufacturing operations.
Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiary UBS. All intercompany balances and transactions have been eliminated on consolidation.
Use of Estimates
The preparation of the consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the carrying amount of property, plant and equipment, deferred income taxes, asset retirement obligations and obligations related to employee benefits. Actual results could differ from those estimates.
Cash & Cash Equivalents
The Company considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents. For cash and cash equivalents, the carrying amount approximates fair value due to the short maturity of those instruments.
Short-Term Investments (Held-to-maturity)
Short-term investments constitute all highly liquid investments with term to maturity from three months to twelve months. The carrying amount of short-term investments is equivalent to its fair value.
Concentration of Credit Risk and Other Risks and Uncertainties
Cash and cash equivalents and accounts receivables consists of financial instruments that potentially subject the Company to concentration of credit risk to the extent of the amount recorded on the balance sheet. The Companys cash and cash equivalents are invested with two of Australias four largest banks. The Company is exposed to credit risk in the event of default by the banks holding the cash or cash equivalents to the extent of the amount recorded on the balance sheets. The Company has not experienced any losses on its deposits of cash and cash equivalents. The Company has not identified any collectability issues with respect to receivables.
Derivative Instruments and Hedging Activities
Derivative financial instruments
The Company may use derivative financial instruments to hedge its exposure to foreign exchange arising from operating, investing and financing activities. The Company does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments.
Derivative financial instruments are recognized initially at fair value. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain or loss on remeasurement to fair value is recognized immediately in the income statement. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged.
8
Table of Contents
Universal Biosensors, Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
Cash flow hedges
Exposure to foreign exchange risks arises in the normal course of the Companys business and it is generally the Companys policy to use forward exchange contracts to hedge anticipated sales and purchases in foreign currencies. The amount of forward cover taken is in accordance with approved policy and internal forecasts.
Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognized asset or liability, or a highly probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognized directly in equity. When the forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, the associated cumulative gain or loss is removed from equity and included in the initial cost or other carrying amount of the non-financial asset or liability. If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or a financial liability, then the associated gains and losses that were recognized directly in equity are reclassified into the income statement in the same period or periods during which the asset acquired or liability assumed affects the income statement.
For cash flow hedges, other than those covered by the preceding statement, the associated cumulative gain or loss is removed from equity and recognized in the income statement in the same period or periods during which the hedged forecast transaction affects the income statement and on the same line item as that hedged forecast transaction. The ineffective part of any gain or loss is recognized immediately in the income statement.
When a hedging instrument expires or is sold, terminated or exercised, or the Company revokes designation of the hedge relationship but the hedged forecast transaction is still probable to occur, the cumulative gain or loss at that point remains in equity and is recognized in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, then the cumulative unrealized gain or loss recognized in equity is recognized immediately in the income statement.
Inventory
Inventories are stated at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and estimated costs necessary to make the sale. Inventories are principally determined under the average cost method which approximates cost. Cost comprises direct materials, direct labour and an appropriate portion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Cost also includes the transfer from equity of any gains/losses on qualifying cash flow hedges relating to purchases of raw material. Costs of purchased inventory are determined after deducting rebates and discounts.
September 30, 2011 | December 31, 2010 | |||||||
A$ | A$ | |||||||
Raw materials at cost |
1,906,412 | 2,798,045 | ||||||
Work in progress at cost |
111,997 | 188,629 | ||||||
Finished goods at cost |
1,056,103 | 204,419 | ||||||
|
|
|
|
|||||
3,074,512 | 3,191,093 | |||||||
|
|
|
|
Receivables
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the best estimate of the amount of probable credit losses in the existing accounts receivable. The allowance is determined based on a review of individual accounts for collectibility, generally focusing on those accounts that are past
9
Table of Contents
Universal Biosensors, Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
due. The current year expense to adjust the allowance for doubtful accounts, if any, is recorded within general and administrative expenses in the consolidated statements of operations. Account balances are charged against the allowance when it is probable the receivable will not be recovered.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at acquisition cost.
Depreciation on plant and equipment is calculated using the straight-line method over the estimated useful lives of the assets. The estimated useful life of machinery and equipment is 3 to 10 years. Leasehold improvements are amortized on the straight-line method over the shorter of the remaining lease term or estimated useful life of the asset. Maintenance and repairs are charged to operations as incurred and include minor corrections and normal services and does not include items of a capital nature.
September 30, 2011 | December 31, 2010 | |||||||
A$ | A$ | |||||||
Plant and equipment |
18,671,951 | 15,110,554 | ||||||
Leasehold improvements |
8,722,639 | 8,810,036 | ||||||
Capital work in process |
5,534,498 | 8,792,690 | ||||||
|
|
|
|
|||||
32,929,088 | 32,713,280 | |||||||
Accumulated depreciation and amortisation |
(12,111,144 | ) | (9,586,365 | ) | ||||
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|
|
|
|||||
Property, plant & equipment, net |
20,817,944 | 23,126,915 | ||||||
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|
|
Capital work in process relates to assets under construction and comprises primarily of specialized manufacturing equipment. Legal right to the assets under construction rests with the Company. The amounts capitalized for capital work in process represents the percentage of expenditure that has been completed, and once the assets are placed into service the Company begins depreciating the respective assets. The accumulated amortisation of capitalised leasehold improvements for the period from inception to September 30, 2011 and December 31, 2010 was A$5,153,738 and A$4,090,724, respectively.
The Group receives Victorian government grants under certain research agreements to purchase plant and equipment. Plant and equipment is presented net of the government grant of A$680,221 at September 30, 2011 and A$449,875 at December 31, 2010. The grants are recognized against the acquisition costs of the related plant and equipment as and when the related assets are purchased. Grants received in advance of the relevant expenditure are treated as deferred income and included in Current Liabilities on the balance sheet as the Company does not control the monies until the relevant expenditure has been incurred. Grants due to the Company under research agreements are recorded as Currents Assets on the balance sheet.
Depreciation expense was A$859,507 and A$761,290 for the three months ended September 30, 2011 and 2010, respectively and A$2,553,838 and A$2,213,954 for the nine months ended September 30, 2011 and 2010, respectively.
Research and Development
Research and development expenses consist of costs incurred to further the Groups research and development activities and include salaries and related employee benefits, costs associated with clinical trial and preclinical development, regulatory activities, research-related overhead expenses, costs associated with the manufacture of clinical trial material, costs associated with developing a commercial manufacturing process, costs for consultants and related contract research, facility costs and depreciation. Research and development costs are expensed as incurred.
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Notes to Consolidated Condensed Financial Statements (Unaudited)
Research and development expenses for the three and nine months ended September 30, 2011 and 2010 are as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
A$ | A$ | A$ | A$ | |||||||||||||
Research and development expenses |
2,317,556 | 1,543,482 | 7,035,045 | 4,897,260 | ||||||||||||
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|
|
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|
|
Income Taxes The Company applies ASC 740 - Income Taxes which establishes financial accounting and reporting standards for the effects of income taxes that result from a companys activities during the current and preceding years. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Where it is more likely than not that some portion or all of the deferred tax assets will not be realized, the deferred tax assets are reduced by a valuation allowance. The valuation allowance is sufficient to reduce the deferred tax assets to the amount that is more likely than not to be realized. At present there is a full valuation allowance recognized.
We are subject to income taxes in the United States and Australia. U.S. federal income tax returns up to the 2010 financial year have been filed. Internationally, consolidated income tax returns up to the 2010 financial year have been filed.
Asset Retirement Obligations
Asset retirement obligations (ARO) are legal obligations associated with the retirement and removal of long-lived assets. ASC 410 Asset Retirement and Environmental Obligations requires entities to record the fair value of a liability for an asset retirement obligation when it is incurred. When the liability is initially recorded, the Company capitalizes the cost by increasing the carrying amounts of the related property, plant and equipment. Over time, the liability increases for the change in its present value, while the capitalized cost depreciates over the useful life of the asset. The Company derecognizes ARO liabilities when the related obligations are settled.
The ARO is in relation to our premises where in accordance with the terms of the lease, the lessee has to restore part of the building upon vacating the premises.
Our overall ARO changed as follows:
Nine Months Ended September 30, 2011 |
Year Ended December 31, 2010 |
|||||||
A$ | A$ | |||||||
Opening balance |
1,998,060 | 1,842,547 | ||||||
Accretion expense |
126,472 | 155,513 | ||||||
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|
|||||
Ending balance |
2,124,532 | 1,998,060 | ||||||
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|
|
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 |
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Notes to Consolidated Condensed Financial Statements (Unaudited)
| Cost approach based on the cost to acquire or construct comparable assets less an allowance for functional and/or economic obsolescence |
| Income approach based on the present value of a future stream of net cash flows |
These fair value methodologies depend on the following types of inputs:
| Quoted prices for identical assets or liabilities in active markets (Level 1 inputs) |
| Quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active or are directly or indirectly observable (Level 2 inputs) |
| Unobservable inputs that reflect estimates and assumptions (Level 3 inputs) |
Impairment of Long-Lived Assets
The Company reviews its capital assets, including patents and licenses, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. In performing the review, the Company estimates undiscounted cash flows from products under development that are covered by these patents and licenses. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than the carrying amount of the asset. If the evaluation indicates that the carrying value of an asset is not recoverable from its undiscounted cash flows, an impairment loss is measured by comparing the carrying value of the asset to its fair value, based on discounted cash flows.
Australian Goods and Services Tax (GST)
Revenues, expenses and assets are recognized net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognized as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet. Cash flows are presented on a gross basis.
Revenue Recognition
We recognize revenue from all sources based on the provisions of the U.S. SECs Staff Accounting Bulletin No. 104 and ASC 605 Revenue Recognition.
The Companys 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. Generally, this is at the time products are shipped to the customer.
Revenue from services are 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.
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Notes to Consolidated Condensed Financial Statements (Unaudited)
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 their best estimate of selling price and the applicable revenue recognition criteria applied to the separate units.
Under ASC 605-25, which the Company adopted on January 1, 2009, 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. We record upfront payments and other similar non-refundable payments received under these agreements as deferred revenue and recognize them as revenue either over the estimated performance period stipulated in the agreement or across other deliverables in the arrangement. Non-refundable milestone payments which represent the achievement of a significant technical/regulatory hurdle in the research and development process, pursuant to collaborative agreements, are recognized as revenue upon the achievement of the specified milestone.
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 Companys ultimate goal is to utilize the underlying technology and skill base for the development of a marketable product that the Company will manufacture. The Company considers 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.
Interest income
Interest income is recognized as it accrues, taking into account the effective yield on the cash and cash equivalents.
Foreign Currency
Functional and reporting currency
Items included in the financial statements of each of the Groups entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The functional currency of the Company and UBS is AUD or A$ for all years presented.
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 Statement of Operations.
The Company has recorded foreign currency transaction (losses)/gains of A$852,183 and (A$382,664) for the three months ended September 30, 2011 and 2010, respectively and A$484,504 and (A$242,634) for the nine months ended September 30, 2011 and 2010, respectively.
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Notes to Consolidated Condensed Financial Statements (Unaudited)
The results and financial position of all the Group entities that have a functional currency different from the reporting currency are translated into the reporting currency as follows:
| assets and liabilities for each balance sheet item reported are translated at the closing rate at the date of that balance sheet; |
| income and expenses for each income statement are translated at average exchange rates (unless this is not a reasonable approximation of the effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and |
| all resulting exchange differences are recognized as a separate component of equity. |
On consolidation, exchange differences arising from the translation of any net investment in foreign entities are taken to the Accumulated Other Comprehensive Income.
Commitments and Contingencies
Liabilities for loss contingencies, arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. These were nil as at September 30, 2011 and December 31, 2010.
Patent and License Costs
Legal fees incurred for patent application costs have been charged to expense and reported in research and development expense. Legal fees incurred for patents relating to commercialized products are capitalized and amortised over the life of the patents.
Clinical Trial Expenses
Clinical trial costs are a component of research and development expenses. These expenses include fees paid to participating hospitals and other service providers, which conduct certain testing activities on behalf of the Company. Depending on the timing of payments to the service providers and the level of service provided, the Company records prepaid or accrued expenses relating to these costs.
These prepaid or accrued expenses are based on estimates of the work performed under service agreements.
Leased Assets
All of the Companys leases are considered operating leases. The costs of operating leases are charged to the statement of operations on a straight-line basis over the lease term.
Stock-based Compensation
As of January 1, 2006, the Company adopted ASC 718, using the modified prospective method, which requires measurement of compensation expense of all stock-based awards at fair value on the date of grant and amortization of the fair value over the vesting period of the award. The Company has elected to use the straight-line method of amortization. Under the modified prospective method, the provisions of ASC 718 apply to all awards granted or modified after the date of adoption. In addition, the unrecognized expense of awards not yet vested at the date of adoption, determined under the original provisions of ASC 718 shall be recognized in net income in the periods after adoption. The fair value of stock options is determined using the Trinomial Lattice model, which is consistent with valuation techniques previously utilized for options in footnote disclosures required under ASC 718, as amended by ASC 718. Such value is recognized as expense over the service period, net of estimated forfeitures, using the straight-line method under ASC 718. There were no transitional adjustments on adoption of ASC 718.
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Notes to Consolidated Condensed Financial Statements (Unaudited)
In accordance with ASC 718, the fair value of the option grants was estimated on the date of each grant using the Trinomial Lattice model. The assumptions for these option grants issued during the 2010 financial year and for the nine month period ended September 30, 2011 were:
Grant Date | ||||||||||||||||||||||||
Sep-11 | Mar-11 | Feb-11 | Nov-10 | Nov-10 | Feb-10 | |||||||||||||||||||
Exercise Price (A$) |
1.00 | 1.37 | 1.38 | Nil | 1.58 | 1.60 | ||||||||||||||||||
Share Price at Grant Date (A$) |
1.00 | 1.37 | 1.38 | 1.58 | 1.58 | 1.60 | ||||||||||||||||||
Volatility |
69 | % | 70 | % | 71 | % | 72 | % | 72 | % | 77 | % | ||||||||||||
Expected Life (years) |
7 | 7 | 7 | 7 | 7 | 7 | ||||||||||||||||||
Risk Free Interest Rate |
3.89 | % | 5.36 | % | 5.45 | % | 5.27 | % | 5.27 | % | 5.34 | % | ||||||||||||
Fair Value of Option (A$) |
0.59 | 0.83 | 0.83 | 1.58 | 0.96 | 0.99 |
Stock option activity during the current period is as follows:
Number of shares | Weighted average exercise price A$ |
|||||||
Balance at December 31, 2010 |
8,539,704 | 0.93 | ||||||
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|
|
|||||
Granted |
2,753,000 | 1.37 | ||||||
Exercised |
(153,666 | ) | 0.52 | |||||
Lapsed |
(196,668 | ) | 1.30 | |||||
|
|
|||||||
Balance at September 30, 2011 |
10,942,370 | 1.04 | ||||||
|
|
The number of options exercisable as at September 30, 2011 and December 31, 2010 was 5,744,550 and 5,908,214, respectively.
As of September 30, 2011, there was A$1,952,640 of unrecognized compensation expense related to unvested share-based compensation arrangements under the Employee Option Plan. This expense is expected to be recognized as follows:
Fiscal Year | A$ | |||
2011 remaining periods |
719,050 | |||
2012 |
947,442 | |||
2013 |
271,790 | |||
2014 |
14,358 | |||
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|
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1,952,640 | ||||
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|
Employee Benefit Costs
The Group contributes to standard defined contribution superannuation funds on behalf of all employees at nine percent of each such employees salary. Superannuation is a compulsory savings program whereby employers are required to pay a portion of an employees remuneration to an approved superannuation fund that the employee is typically not able to access until they are retired. The Company permits employees to choose an approved and registered superannuation fund into which the contributions are paid. Contributions are charged to the statement of operations as they become payable.
Net Profit/(Loss) per Share and Anti-dilutive Securities
Basic and diluted net profit/(loss) per share is presented in conformity with ASC 260 Earnings per Share. Basic and diluted net profit/(loss) per share has been computed using the weighted-average number of common shares outstanding during the period. Other than in a profit making year, the potentially dilutive options issued under the Universal Biosensors Employee Option Plan were not considered in the computation of diluted net profit/(loss) per share because they would be anti-dilutive given the Companys loss making position.
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Notes to Consolidated Condensed Financial Statements (Unaudited)
Total Comprehensive Income
The Company follows ASC 220 Comprehensive Income. Comprehensive income is defined as the total change in shareholders equity during the period other than from transactions with shareholders, and for the Company, includes net income and cumulative translation adjustments.
Recent Accounting Pronouncements
In April 2010, the FASB issued ASU 2010-13, CompensationStock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades, or ASU 2010-13. This ASU provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in currency of a market in which a substantial portion of the entitys equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The adoption of ASU 2010-13 did not have a material impact on the Companys consolidated financial statements.
Related Party Transactions
Details of related party transactions material to the operations of the Group other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business, are set out below:
Based on the latest Amendment to Schedule 13G filed on February 10, 2011, Johnson and Johnson Development Corporation (a venture capital subsidiary of Johnson & Johnson) beneficially held 18,207,030 shares in the Company as at December 31, 2010. The latest available Thomson Renters report, a third party independent analyst, indicates that as of September 15, 2011, Johnson and Johnson Development Corporation has reduced their shareholding to 14,931,659 shares in the Company.
The following transactions occurred with LifeScan, a wholly owned subsidiary of Johnson & Johnson:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
A$ | A$ | A$ | A$ | |||||||||||||
Current Receivables |
||||||||||||||||
Sale of products |
1,183,281 | 2,018,684 | ||||||||||||||
Sale of services |
96,246 | 213,784 | ||||||||||||||
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1,279,527 | 2,232,468 | |||||||||||||||
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Revenue |
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Revenue from products |
2,153,518 | 3,202,873 | 7,740,685 | 6,087,270 | ||||||||||||
Revenue from services |
318,869 | 1,785,331 | 1,040,918 | 5,082,243 | ||||||||||||
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2,472,387 | 4,988,204 | 8,781,603 | 11,169,513 | |||||||||||||
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In September 2011, we entered into a license agreement with SpeeDx Pty Ltd (SpeeDx) pursuant to which SpeeDx granted us a license in the field of molecular diagnostics. Under the agreement we make milestone payments and royalty payments to SpeeDx. Messrs Denver and Jane are directors of the Company and SpeeDx Pty Ltd. Certain of our substantial shareholders also hold substantial shareholdings in SpeeDx. CM Capital Pty Ltd, which holds approximately 11% of our shares and of which Mr Jane is a director, holds approximately 34% of the issued shares in SpeeDx. PFM
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Universal Biosensors, Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
Cornerstone Limited, which holds approximately 8% of our shares and of which Messrs Denver and Hanley and Dr Adam are directors, holds approximately 34% of the issued shares in SpeeDx. Johnson & Johnson Development Corporation has a beneficial interest in approximately 9% of our shares. An affiliate of Johnson & Johnson, Johnson and Johnson Research Pty Ltd owns approximately 13% of issued shares in SpeeDx.
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Item 2 | Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our results of operations and financial condition. You should read this analysis in conjunction with our audited consolidated financial statements and related footnotes and Managements Discussion and Analysis of Financial Condition and Results of Operations included in our Form 10-K filed with the United States Securities and Exchange Commission (SEC). This Form 10-Q contains, including this discussion and analysis, certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by such acts. For this purpose, any statements that are not statements of historical fact may be deemed to be forward looking statements, including statements relating to future events and our future financial performance. Those statements in this Form 10-Q containing the words believes, anticipates, plans, expects, and similar expressions constitute forward looking statements, although not all forward looking statements contain such identifying words.
The forward looking statements contained in this Form 10-Q are based on our current expectations, assumptions, estimates and projections about the Company and its businesses. All such forward looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results to be materially different from those results expressed or implied by these forward-looking statements, including those set forth in this Quarterly Report on Form 10-Q.
Our Business
We are a specialist medical diagnostics company focused on the research, development and manufacture of in vitro diagnostic test devices for consumer and professional point-of-care use.
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 wholly owned subsidiary and primary operating vehicle, UBS was incorporated as a proprietary limited company in Australia on September 21, 2001. UBS conducts our research, development and manufacturing activities in Melbourne, Australia.
We have rights to an extensive patent portfolio owned by UBS and licensed to UBS under a license agreement between LifeScan and UBS (License Agreement). 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.
Blood glucose UBS is a party to a Master Services and Supply Agreement with LifeScan which contains the terms pursuant to which UBS provides services and acts as a non-exclusive manufacturer of the blood glucose test strips we developed. The strips are sold by LifeScan as part of the One Touch Verio®. LifeScan continues its global rollout of the product which is currently available in major European markets and in Australia. We also undertake research and development work for LifeScan pursuant to a development and research agreement (Development and Research Agreement).
Coagulation testing market In September 2011, UBS entered into collaboration agreement with Siemens Healthcare Diagnostics, Inc. (Siemens) pursuant to which UBS will develop a range of test strip and reader products for the point-of-care coagulation market for Siemens.
Other electrochemical-cell based tests We use our technology base to develop a range of electrochemical-cell based tests and are currently developing a D-dimer test and other point-of-care tests for the immunoassay and molecular diagnostics markets.
We do not currently intend to establish our own sales and marketing force to commercialize any of the non-blood glucose products which we develop. Rather, our strategy is focused on establishing collaborative partnerships for our platform with major multinationals whose ambition is to lead in key clinical and market segments.
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Results of Operations
Revenue from Products
We commenced manufacture of blood glucose test strips for the One Touch Verio® product in December 2009. LifeScan is continuing its global launch of the One Touch Verio® . The manufacturing results of the blood glucose test strips during the respective periods are as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
A$ | A$ | A$ | A$ | |||||||||||||
Revenue from products |
2,153,518 | 3,202,873 | 7,740,685 | 6,087,270 | ||||||||||||
Cost of goods sold |
(2,314,082 | ) | (3,136,390 | ) | (8,500,926 | ) | (6,611,542 | ) | ||||||||
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|
|||||||||
(160,564 | ) | 66,483 | (760,241 | ) | (524,272 | ) | ||||||||||
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|
Pursuant to the agreement we have with LifeScan, one of two pricing methodologies will apply depending on whether we are manufacturing above or below a specified quantity of blood glucose tests strips in a quarter. If less than the specified quantity of test strips is produced within a quarter, we are considered to be in the interim costing period. In the interim costing period, the Company is not expected to generate any profit from the manufacture of test strips, but is expected to recover most of its glucose manufacturing costs. As manufactured volumes increase beyond the specified quantity of blood glucose test strips per quarter, the interim costing period will cease to apply and a different pricing methodology will apply, at which time we expect our blood glucose manufacturing operations to be profitable. We were in the interim costing period during the three and nine months period ended September 30, 2011 and 2010. Revenue from product sales varies every quarter and is dependent upon LifeScans requirements.
Revenue from Services
We provide various services to LifeScan. The revenue is grouped into the following categories:
| Contract research and development we undertake contract research and development in the area of diabetes management for LifeScan; |
| Product enhancement a service fee based on the number of strips sold by LifeScan is payable to us as an ongoing reward for our services and efforts to enhance the product; |
| Other services ad-hoc services provided on an agreed basis based on LifeScans requirements. |
There are different arrangements for each service being provided. The net contribution during the respective periods in relation to the provision of services is as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
A$ | A$ | A$ | A$ | |||||||||||||
Revenue from services |
318,869 | 1,785,331 | 1,040,918 | 5,082,243 | ||||||||||||
Cost of services |
(61,257 | ) | (376,398 | ) | (265,763 | ) | (869,652 | ) | ||||||||
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|
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|
|
|||||||||
257,612 | 1,408,933 | 775,155 | 4,212,591 | |||||||||||||
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|
The net contribution during the three and nine months ended September 30, 2011 has decreased by 82% and 82% compared to the same period in the previous financial year. The nature and scope of the services is determined by our partner. In October 2011, we commenced a new research and development project for LifeScan to determine the feasibility of an innovative blood glucose product. The feasibility project is expected to take 12 months for which we expect to receive US$4.5 million subject to our achieving certain milestones.
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Milestone Payment
We received a non-refundable payment of US$3 million in September 2011 upon entering into a collaboration agreement with Siemens. This deliverable is not a separate unit of accounting and has been recorded as deferred revenue and will be recognized as revenue across other deliverables in the arrangement with Siemens.
Research and Development Expenses
Research and development expenses are related to developing electrochemical cell platform technologies. Research and development expenses consist of costs associated with research activities, as well as costs associated with our product development efforts, including pilot manufacturing costs. Research and development expenses include:
| consultant and employee related expenses, which include consulting fees, salary and benefits; |
| materials and consumables acquired for the research and development activities; |
| external research and development expenses incurred under agreements with third party organizations and universities; and |
| facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment and laboratory and other supplies. |
Our principal research and development activities can be described as follows:
(a) Blood coagulation
Since 2005, we have undertaken development work on a prothrombin time test for monitoring the therapeutic range of the anticoagulant, warfarin, based on measuring activity of the enzyme thrombin. In September 2011 we entered into a collaboration agreement with Siemens pursuant to which will develop a range of test strip and reader products for the point-of-care coagulation market. The first test to be developed will be a modified version of a prothrombin time (PT)/ International normalized ratio (INR) test developed by UBS, followed by other tests in the point-of-care coagulation market.
We expect product validation for this test during 2012.
(b) Immunoassay
We are continuing to develop on our immunoassay platform. We are developing a D-dimer test for the detection and monitoring of several conditions associated with thrombotic disease, particularly deep venous thrombosis (clots in the leg) and pulmonary embolism (clots in the lung). Development work on this project has been undertaken since early 2008.
This test illustrates the ability for the electrochemical cell platform technology to be expanded to a range of immunoassay tests.
(c) DNA/RNA
We have undertaken some early stage feasibility work assessing the possibility of using DNA binding chemistries to build a strip test for DNA, RNA and as a possible alternative method for improving the sensitivity of protein assays. This concept work is at an early stage and may not yield any positive results. We have recently entered into a license to access certain molecular diagnostic technology.
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Research and development expenses for the respective periods are as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
A$ | A$ | A$ | A$ | |||||||||||||
Research and development expenses |
2,317,556 | 1,543,482 | 7,035,045 | 4,897,260 | ||||||||||||
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|
|
Research and development expenditure increased by 50% and 44% during the three and nine months ended September 30, 2011 compared to the same period in the previous financial year and reflects the development stage of one of our research and development projects (prothrombin time test) being undertaken this financial year. Research and development costs generally increase during the final stages of any research and development activity.
While it is entirely within our control as to how much we spend on research and development activities in the future, we cannot predict what it will cost to complete our individual research and development programs successfully or when or if they will be commercialized. The timing and cost of any program is dependent upon achieving technical objectives, which are inherently uncertain.
In addition, our business strategy is to enter into collaborative arrangements with third parties. These third parties will have an important role in directing and potentially funding the research and development activities.
General and Administrative Expenses
General and administrative expenses currently consist principally of salaries and related costs, including stock option expense, for personnel in executive, finance, quality and regulatory, accounting, information technology and human resources functions. Other general and administrative expenses include depreciation, repairs and maintenance, insurance, facility costs not otherwise included in research and development expenses, consultancy fees and professional fees for legal, audit and accounting services.
General and administrative expenses for the respective periods are as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
A$ | A$ | A$ | A$ | |||||||||||||
General and administrative expenses |
2,029,467 | 1,675,868 | 5,235,725 | 4,934,461 | ||||||||||||
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General and administrative expenditure increased by 21% and 6% during the three and nine months ended September 30, 2011 compared to the same period previous financial year. This increase in expenses mainly reflects efforts put into business development to establish partnerships in the field outside the area of glucose and diabetes.
Interest Income
Interest income decreased by 50% and 40% during the three and nine months ended September 30, 2011 compared to the same period in the previous financial year. The decrease in interest income is attributable to the lower amount of funds available for investment.
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.
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We believe that of our significant accounting policies, which are described in the notes to our consolidated financial statements, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, we believe that the following accounting policies are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.
(a) Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collection is probable. Product is considered delivered to the customer once it has been shipped and title and risk of loss have been transferred.
In addition, the Company enters into arrangements which contain multiple revenue generating activities. The revenue for these arrangements is recognized as each activity is performed or delivered, based on the relative fair value and the allocation of revenue to all deliverables based on their relative selling price. In such circumstances, the Company uses a hierarchy to determine the selling price to be used for allocation of revenue to deliverables, vendor-specific objective evidence, third-party evidence of selling price and best estimate of selling price. The Companys process for determining its best estimate of selling price for deliverables without vendor-specific objective evidence or third-party evidence of selling price involves managements judgment. The Companys process considers multiple factors that may vary depending upon the unique facts and circumstances related to each deliverable.
(b) Stock-Based Compensation
We account for stock-based employee compensation arrangements using the modified prospective method as prescribed in accordance with the provisions of ASC 718 Compensation Stock Compensation.
Each of the inputs to the Trinomial Lattice model is discussed below.
Share Price at Valuation Date
The value of the options granted in 2008 and 2009 have been determined using the average closing price of the Companys common stock on the ASX on the five days on which the Companys common stock has traded prior to the approval of grant. The value of the options granted since 2010 has been determined using the closing price of our common stock trading in the form of CDIs on ASX at the time of grant of the options. The ASX is the only exchange upon which our securities are quoted.
Volatility
We applied an annual volatility determined partially by reference to the annual volatilities of a number of ASX listed companies of a similar size and with similar operations but also having regard to the volatility on the trading data of our shares in the form of CDIs available from the ASX.
Time to Expiry
All options granted under our share option plan have a maximum 10 year term and are non-transferable.
Risk Free Rate
The risk free rate which we applied is equivalent to the yield on an Australian government bond with a time to expiry approximately equal to the expected time to expiry on the options being valued.
(c) Research and Development Expenditure
We receive grant funding under state and government research grant agreements to undertake work on the applicable grant programs. In order to receive the grant funding, our existing grant agreements require us to incur specified eligible expenditure in the conduct of the applicable grant program. There are circumstances where grant funding may not be
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payable and there are certain limited circumstances, such as when we fail to use our best endeavors to commercialize the program within a reasonable time of completion of the program or upon termination of a grant due to our breach of the agreement or our insolvency, where we may be required to repay some or all of the research grants. To date we have not been requested to repay any of our grant monies. The grants are recognized against the related research and development expenses as and when the relevant research expenditure is incurred.
(d) Income Taxes
We apply ASC 740 Income Taxes which establishes financial accounting and reporting standards for the effects of income taxes that result from a companys activities during the current and preceding years. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Where it is more likely than not that some portion or all of the deferred tax assets will not be realized the deferred tax assets are reduced by a valuation allowance. The valuation allowance is sufficient to reduce the deferred tax assets to the amount that is more likely than not to be realized.
(e) Impairment of Long-Lived Assets
We review our capital assets, including patents and licenses, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. In performing the review, we estimate undiscounted cash flows from products under development that are covered by these patents and licenses. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than the carrying amount of the asset. If the evaluation indicates that the carrying value of an asset is not recoverable from its undiscounted cash flows, an impairment loss is measured by comparing the carrying value of the asset to its fair value, based on discounted cash flows.
Financial Condition, Liquidity and Capital Resources
Net Financial Assets/(Liabilities)
Our net financial assets/(liabilities) position is shown below:
Nine Months Ended | Year Ended | |||||||
September 30, 2011 | December 31, 2010 | |||||||
A$ | A$ | |||||||
Financial assets: |
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Cash and cash equivalents |
18,815,709 | 23,271,766 | ||||||
Accounts receivables |
1,284,192 | 3,588,798 | ||||||
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Total financial assets |
20,099,901 | 26,860,564 | ||||||
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Debt: |
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Short and long term debt/borrowings |
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Total debt |
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Net financial assets |
20,099,901 | 26,860,564 | ||||||
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We rely largely on our existing cash and cash equivalents and operating cash flow to provide for the working capital needs of our operations. We believe we have sufficient cash and cash equivalents to fund our operations for at least the next twelve months. However, in the event, our financing needs for the foreseeable future are not able to be met by our existing cash and cash equivalents and operating cash flow, we would seek to raise funds through public or private equity offerings, debt financings, and through other means to meet the financing requirements. There is no assurance that funding would be available at acceptable terms, if at all.
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Measures of Liquidity and Capital Resources
The following table provides certain relevant measures of liquidity and capital resources:
Nine Months Ended | Year Ended | |||||||
September 30, 2011 | December 31, 2010 | |||||||
A$ | A$ | |||||||
Cash and cash equivalents |
18,815,709 | 23,271,766 | ||||||
Working capital |
20,525,352 | 25,940,899 | ||||||
Ratio of current assets to current liabilities |
6.54 : 1 | 6.82 : 1 | ||||||
Shareholders equity per common share |
0.24 | 0.30 |
The changes in cash and cash equivalents and working capital from December 31, 2010 to September 30, 2011 was primarily due to the timing of cash receipts, payments, sales and accruals in the ordinary course of business. We have not identified any collectability issues with respect to receivables.
Summary of Cash Flows
Nine Months Ended September 30, | ||||||||
2011 | 2010 | |||||||
A$ | A$ | |||||||
Cash provided by/(used in): |
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Operating activities |
(3,660,339 | ) | (5,080,637 | ) | ||||
Investing activities |
(872,704 | ) | (1,408,561 | ) | ||||
Financing activities |
76,986 | 181,055 | ||||||
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Net decrease in cash and cash equivalents |
(4,456,057 | ) | (6,308,143 | ) | ||||
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Our net cash used in operating activities during the nine months ended September 30, 2011 and 2010 was primarily for our research and development projects and the support and infrastructure required to assist in carrying out these research and development activities.
Our net cash used in investing activities for all years is primarily for the purchase of various plant and equipment and fit out of our facilities.
Our net cash provided by financing activities is primarily proceeds received from employees exercising their options.
Off-Balance Sheet Arrangement
The future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) as of September 30, 2011 are:
A$ | ||||
Less than 1 year |
551,382 | |||
1 3 years |
855,057 | |||
3 5 years |
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More than 5 years |
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Total minimum lease payments |
1,406,439 | |||
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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 September 30, 2011 were as follows:
Payments Due By Period | ||||||||||||||||||||
Total | Less than 1 year |
1 3 years | 3 5 years | More than
5 years |
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A$ | A$ | A$ | A$ | A$ | ||||||||||||||||
Long-Term Debt Obligations |
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Asset Retirement Obligations (1) |
2,124,532 | | 2,124,532 | | | |||||||||||||||
Operating Lease Obligations (2) |
1,406,439 | 551,382 | 855,057 | | | |||||||||||||||
Purchase Obligations (3) |
4,008,351 | 2,008,351 | 2,000,000 | | | |||||||||||||||
Other Long-Term Liabilities on Balance Sheet under GAAP (4) |
172,630 | | 114,323 | 53,230 | 5,077 | |||||||||||||||
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Total |
7,711,952 | 2,559,733 | 5,093,912 | 53,230 | 5,077 | |||||||||||||||
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(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 and contractual obligations that are payable on the achievement of certain milestones |
(4) | Represents long service leave owing to the employees. |
Segments
We operate in one segment. Our principal activities are research and development, commercial manufacture of approved medical or testing devices and the provision of services including contract research work. We operate predominantly in one geographical area - Australia.
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Item 3 | Quantitative and Qualitative Disclosures About Market Risk |
Financial Risk Management
The overall objective of our financial risk management program is to seek to minimize the impact of foreign exchange rate movements and interest rate movements on our earnings. We manage these financial exposures through operational means and by using financial instruments. These practices may change as economic conditions change.
Foreign Currency Market Risk
We transact business in various foreign currencies, including U.S. dollars and Euros. We have established a foreign currency hedging program using forward contracts to hedge the net projected exposure for each currency and the anticipated sales and purchases in U.S. dollars and Euros. The goal of this hedging program is to economically guarantee or lock-in the exchange rates on our foreign exchange exposures. The Company does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments.
During the three month period ended September 30, 2011, the Company did not hedge its exposure to foreign exchange. As at balance sheet date, there were no open derivatives.
Interest Rate Risk
Since the majority of our cash and cash equivalents investments are in AUD, our exposure to interest income is affected by changes in the general level of Australian interest rates. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive without significantly increasing risk. Our investment portfolio is subject to interest rate risk but due to the short duration of our investment portfolio, we believe an immediate 10% change in interest rates would not be material to our financial condition or results of operations.
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Item 4. | Controls and Procedures |
Disclosure Controls and Procedures. At the end of the period covered by this report, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures. The Companys disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Companys management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Paul Wright, Chief Executive Officer, and Salesh Balak, Chief Financial Officer, reviewed and participated in this evaluation. Based on this evaluation, Messrs. Wright and Balak concluded that, as of the end of the period covered by this report, the Companys disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting. During the fiscal quarter ended September 30 , 2011, there were no changes in the Companys internal control over financial reporting identified in connection with the evaluation of such that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
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Item 1 | Legal Proceedings |
None.
Item 1A | Risk Factors |
None.
Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds |
With the exception of the issuance of shares of Common Stock upon the exercise of stock options issued to employees, there has been no sale of new equity securities by the Company since December 31, 2010. The table below sets forth the number of employee stock options exercised and the number of shares issued in the nine month period ended September 30, 2011. The Company issued these shares in reliance upon exemptions from registration under Regulation S under the Securities Act of 1933, as amended.
Exercise Date | Number of Options Exercised and Corresponding Number of Shares Issued |
Option Exercise Price |
Proceeds Received (A$) | |||
January |
50,000 | A$0.89 | 44,500 | |||
January |
26,667 | Nil | | |||
January |
13,333 | A$0.50 | 6,667 | |||
January |
6,666 | A$0.94 | 6,266 | |||
March |
40,000 | US$0.22 | 8,693 | |||
May |
6,667 | A$0.70 | 4,667 | |||
May |
2,333 | A$0.94 | 2,193 | |||
August |
8,000 | A$0.50 | 4,000 | |||
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153,666 | 76,986 | |||||
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The funds raised will be used for working capital requirements including the continued development of our existing pipeline and point-of-care tests and to identify and develop additional tests.
Item 3 | Defaults Upon Senior Securities |
None.
Item 4 | [Removed and Reserved] |
Item 5 | Other Information |
None.
Item 6 | Exhibits |
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Exhibit |
Description |
Location | ||
10.20 | Collaboration Agreement between Siemens Healthcare Diagnostics, Inc. and Universal Biosensors Pty Ltd | Filed herewith confidential treatment requested | ||
10.21 | Statement of Work for MAP Feasibility Project | Filed herewith - confidential treatment requested | ||
10.22 | Novation Agreement and First Amendment to the Amended and Restated Master Services and Supply Agreement between LifeScan, Inc, Cilag GmbH International, Universal Biosensors Pty Ltd and Universal Biosensors, Inc. | Filed herewith | ||
10.23 | Second Amendment to the Amended and Restated Master Services and Supply Agreement between Cilag GmbH International, Universal Biosensors Pty Ltd and Universal Biosensors, Inc. | Filed herewith - confidential treatment requested | ||
31.1 | Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer) | Filed herewith | ||
31.2 | Rule 13a-14(a)/15d-14(a) Certification (Principal Financial Officer) | Filed herewith | ||
32 | Section 1350 Certificate | Furnished herewith | ||
101 | The following materials from the Universal Biosensors, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Condensed Balance Sheets, (ii) the Consolidated Condensed Statements of Operations, (iii) the Consolidated Condensed Statements of Changes in Stockholders Equity and Comprehensive Income, (iv) the Consolidated Condensed Statements of Cash Flows and (v) the Notes to Consolidated Condensed Financial Statements tagged as blocks of text | 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 |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
UNIVERSAL BIOSENSORS, INC. (Registrant) | ||||
By: | /s/ Paul Wright | |||
Date: November 3, 2011 | Paul Wright | |||
Principal Executive Officer | ||||
By: | /s/ Salesh Balak | |||
Date: November 3, 2011 | Salesh Balak | |||
Principal Financial Officer |
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INDEX TO EXHIBITS
Quarterly Report on Form 10-Q
Dated November 3, 2011
Exhibit |
Description |
Location | ||
31.1 | Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer) | Filed herewith | ||
31.2 | Rule 13a-14(a)/15d-14(a) Certification (Principal Financial Officer) | Filed herewith | ||
32 | Section 1350 Certificate | Furnished herewith | ||
10.20 | Collaboration Agreement between Siemens Healthcare Diagnostics, Inc. and Universal Biosensors Pty Ltd | Filed herewith confidential treatment requested | ||
10.21 | Statement of Work for MAP Feasibility Project | Filed herewith - confidential treatment requested | ||
10.22 | Novation Agreement and First Amendment to the Amended and Restated Master Services and Supply Agreement between LifeScan, Inc, Cilag GmbH International, Universal Biosensors Pty Ltd and Universal Biosensors, Inc. | Filed herewith | ||
10.23 | Second Amendment to the Amended and Restated Master Services and Supply Agreement between Cilag GmbH International, Universal Biosensors Pty Ltd and Universal Biosensors, Inc. | Filed herewith - confidential treatment requested | ||
101 | The following materials from the Universal Biosensors, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Condensed Balance Sheets, (ii) the Consolidated Condensed Statements of Operations, (iii) the Consolidated Condensed Statements of Changes in Stockholders Equity and Comprehensive Income, (iv) the Consolidated Condensed Statements of Cash Flows and (v) the Notes to Consolidated Condensed Financial Statements tagged as blocks of text |
31