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EX-32 - EXHIBIT 32 - UNIVERSAL BIOSENSORS INCex_207199.htm
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EX-31.1 - EXHIBIT 31.1 - UNIVERSAL BIOSENSORS INCex_207197.htm
 

 



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

☑  QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

 

or

 

☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 .

 

Commission File Number: 000-52607

 

Universal Biosensors, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

98-0424072

     

(State or other jurisdiction of incorporation

or organization)

 

(I.R.S. Employer Identification Number)

     

Universal Biosensors, Inc.

1 Corporate Avenue,

Rowville, 3178, Victoria

Australia

 

 

 

 

Not Applicable

(Address of principal executive offices)

 

(Zip Code)

 

Telephone: +61 3 9213 9000

 
 

(Registrant’s telephone number,

including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large Accelerated Filer ☐

Accelerated Filer ☐

Non-Accelerated Filer ☑    

Smaller reporting company ☑

Emerging growth company ☑  


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

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 177,571,854 shares of Common Stock, U.S.$0.0001 par value, outstanding as of October 29, 2020.

 

 

 

 

UNIVERSAL BIOSENSORS, INC.


TABLE OF CONTENTS

 

 

Page

PART I

FINANCIAL INFORMATION

 
     

Item 1

Financial Statements

 
     
 

1)

Consolidated condensed balance sheets at September 30, 2020 and December 31, 2019 (unaudited)

1

 

2)

Consolidated condensed statements of comprehensive income/(loss) for the three and nine months ended September 30, 2020 and 2019 (unaudited)

2

 

3)

Consolidated condensed statements of changes in stockholders’ equity and comprehensive income/(loss) for the period ended September 30, 2020 and 2019 (unaudited)

3

 

4)

Consolidated condensed statements of cash flows for the nine months ended September 30, 2020 and 2019 (unaudited)

4

 

5)

Notes to consolidated condensed financial statements (unaudited)

5

     

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

     

Item 3

Quantitative and Qualitative Disclosures About Market Risk

32

     

Item 4

Controls and Procedures

33

     

PART II

OTHER INFORMATION

 

     

Item 1

Legal Proceedings

34

     

Item 1A

Risk Factors

34

     

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

34

     

Item 3

Defaults Upon Senior Securities

34

     

Item 4

Mine Safety Disclosures

34

     

Item 5

Other Information

34

     

Item 6

Exhibits

34

     
 

Exhibit 31.1

 
 

Exhibit 31.2

 
  Exhibit 32  
 

Exhibit 101

 
     

SIGNATURES

35

 

 

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

 

 

 

 

 

Universal Biosensors, Inc.

 

Item 1

Financial Statements

 

Consolidated Condensed Balance Sheets (Unaudited)

 

   

September 30,

   

December 31,

 
   

2020

   

2019

 
   

A$

   

A$

 

ASSETS

               
                 

Current assets:

               

Cash and cash equivalents

    23,049,940       30,229,530  

Inventories, net

    2,033,509       1,078,064  

Accounts receivable

    173,089       116,626  

Prepayments

    297,227       135,764  

Restricted cash

    2,009,808       2,055,473  

Other current assets

    5,189,224       3,457,438  

Total current assets

    32,752,797       37,072,895  

Non-current assets:

               

Property, plant and equipment

    29,216,344       29,021,868  

Less accumulated depreciation

    (24,846,295 )     (24,271,802 )

Property, plant and equipment - net

    4,370,049       4,750,066  

Intangible assets

    16,371,996       16,371,996  

Less amortization of intangible assets

    (1,672,167 )     (443,819 )

Intangible assets - net

    14,699,829       15,928,177  

Right-of-use asset

    4,167,413       0  

Restricted cash

    3,334,712       4,907,904  

Total non-current assets

    26,572,003       25,586,147  

Total assets

    59,324,800       62,659,042  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               
                 

Current liabilities:

               

Accounts payable

    319,418       615,377  

Accrued expenses

    1,010,723       1,015,251  

Contingent consideration

    2,110,298       2,141,022  

Other liabilities

    2,882,108       2,924,069  

Deferred revenue

    3,178,198       2,682,404  

Lease liability

    516,252       0  

Employee entitlements liabilities

    802,569       782,414  

Total current liabilities

    10,819,566       10,160,537  

Non-current liabilities:

               

Asset retirement obligations

    2,696,100       2,600,000  

Long-term loan - unsecured

    41,960       0  

Employee entitlements liabilities

    18,570       32,443  

Deferred income tax liability

    3,050,837       3,050,837  

Lease liability

    3,725,953       0  

Deferred revenue

    0       1,421,680  

Total non-current liabilities

    9,533,420       7,104,960  

Total liabilities

    20,352,986       17,265,497  
                 

Commitments and contingencies

    0       0  
                 

Stockholders’ equity:

               

Preferred stock, US$0.01 par value. Authorized 1,000,000 shares; issued and outstanding nil at September 30, 2020 (nil at December 31, 2019)

               

Common stock, US$0.0001 par value. Authorized 300,000,000 shares; issued and outstanding 177,571,854 shares at September 30, 2020 (177,571,854 at December 31, 2019)

    17,757       17,757  

Additional paid-in capital

    93,570,034       93,396,802  

Accumulated deficit

    (47,679,272 )     (42,832,987 )

Current year loss

    (6,624,474 )     (4,846,285 )

Accumulated other comprehensive loss

    (312,231 )     (341,742 )

Total stockholders’ equity

    38,971,814       45,393,545  

Total liabilities and stockholders’ equity

    59,324,800       62,659,042  

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

1

 

 

Universal Biosensors, Inc.

 

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

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2020

   

2019

   

2020

   

2019

 
   

A$

   

A$

   

A$

   

A$

 

Revenue

                               

Revenue from products

    188,595       1,311,924       1,018,454       3,606,286  

Revenue from services

    223,288       101,233       456,875       1,784,228  

Total revenue

    411,883       1,413,157       1,475,329       5,390,514  

Operating costs & expenses

                               

Cost of goods sold

    156,728       726,530       901,359       1,996,189  

Cost of services

    199,522       96,157       648,666       545,937  

Total cost of goods sold & services

    356,250       822,687       1,550,025       2,542,126  

Contribution from products & services

    55,633       590,470       (74,696 )     2,848,388  

Other operating costs & expenses

                               

Product support

    4,653       12,574       12,316       41,956  

Depreciation and amortization

    547,995       182,284       1,685,551       605,513  

Research and development

    1,157,194       1,175,165       3,784,259       4,312,185  

General and administrative

    1,275,599       1,599,851       4,497,676       5,810,226  

Total operating costs & expenses

    2,985,441       2,969,874       9,979,802       10,769,880  

Loss from operations

    (2,929,808 )     (2,379,404 )     (10,054,498 )     (7,921,492 )

Other income/(expense)

                               

Interest income

    39,584       223,054       260,990       695,208  

Financing costs

    (38,700 )     0       (116,100 )     0  

Research and development tax incentive income

    493,297       437,516       1,679,558       1,764,463  

Exchange gain/(loss)

    (89,978 )     874,253       (13,630 )     1,124,075  

Other

    424,233       38,016       1,619,206       30,994  

Total other income

    828,436       1,572,839       3,430,024       3,614,740  

Net loss before tax

    (2,101,372 )     (806,565 )     (6,624,474 )     (4,306,752 )

Income tax benefit/(expense)

    0       0       0       0  

Net loss

    (2,101,372 )     (806,565 )     (6,624,474 )     (4,306,752 )
                                 

Earnings per share

                               

Basic net loss per share

    (0.01 )     (0.00 )     (0.04 )     (0.02 )

Average weighted number of shares - basic

    177,571,854       177,546,854       177,571,854       177,455,083  

Diluted net loss per share

    (0.01 )     (0.00 )     (0.04 )     (0.02 )

Average weighted number of shares - diluted

    177,571,854       177,546,854       177,571,854       177,455,083  
                                 

Other comprehensive gain/(loss), net of tax:

                               

Foreign currency translation reserve

    8,250       (6,774 )     29,511       (21,426 )

Reclassification for gain/(loss) realized in net income

    0       0       0       0  

Other comprehensive income/(loss)

    8,250       (6,774 )     29,511       (21,426 )

Comprehensive loss

    (2,093,122 )     (813,339 )     (6,594,963 )     (4,328,178 )

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

2

 

 

Universal Biosensors, Inc.

 

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

 

                   

Additional

           

Other

   

Total

 
    Ordinary shares     Paid-in    

Accumulated

    Comprehensive     Stockholders'  
   

Shares

   

Amount

    Capital     Deficit     Income/(Loss)     Equity  
           

A$

   

A$

   

A$

   

A$

   

A$

 

Balances at January 1, 2020

    177,571,854       17,757       93,396,802       (47,679,272 )     (341,742 )     45,393,545  

Net loss

    0       0       0       (6,624,474 )     0       (6,624,474 )

Other comprehensive income

    0       0       0       0       29,511       29,511  

Stock option expense

    0       0       173,232       0       0       173,232  

Balances at September 30, 2020

    177,571,854       17,757       93,570,034       (54,303,746 )     (312,231 )     38,971,814  
                                                 

Balances at July 1, 2020

    177,571,854       17,757       93,515,034       (52,202,374 )     (320,481 )     41,009,936  

Net loss

    0       0       0       (2,101,372 )     0       (2,101,372 )

Other comprehensive income

    0       0       0       0       8,250       8,250  

Stock option expense

    0       0       55,000       0       0       55,000  

Balances at September 30, 2020

    177,571,854       17,757       93,570,034       (54,303,746 )     (312,231 )     38,971,814  
                                                 

Balances at January 1, 2019

    177,243,520       17,724       93,815,185       (42,832,987 )     (326,171 )     50,673,751  

Net loss

    0       0       0       (4,306,752 )     0       (4,306,752 )

Exercise of stock options issued to employees

    303,334       31       3,369       0       0       3,400  

Other comprehensive loss

    0       0       0       0       (21,426 )     (21,426 )

Stock option income

    0       0       (422,434 )     0       0       (422,434 )

Balances at September 30, 2019

    177,546,854       17,755       93,396,120       (47,139,739 )     (347,597 )     45,926,539  
                                                 

Balances at July 1, 2019

    177,546,854       17,755       93,377,674       (46,333,174 )     (340,823 )     46,721,432  

Net loss

    0       0       0       (806,565 )     0       (806,565 )

Other comprehensive loss

    0       0       0       0       (6,774 )     (6,774 )

Stock option expense

    0       0       18,446       0       0       18,446  

Balances at September 30, 2019

    177,546,854       17,755       93,396,120       (47,139,739 )     (347,597 )     45,926,539  

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

3

 

 

Universal Biosensors, Inc.

 

Consolidated Condensed Statements of Cash Flows (Unaudited)

 

   

Nine Months Ended September 30,

 
   

2020

   

2019

 
   

A$

   

A$

 

Cash flows from operating activities:

               
Net Loss      (6,624,474 )     (4,306,752 )

Adjustments to reconcile net loss to net cash provided by/(used in) operating activities:

               

Depreciation and amortization

    1,842,693       871,342  

Share based payments expense/(income)

    173,232       (422,434 )

(Gain)/loss on fixed assets disposal

    (45 )     9,386  

Unrealized foreign exchange gains

    (42,182 )     (2,825,545 )

Change in assets and liabilities:

               

Inventory

    (955,446 )     (144,414 )

Accounts receivable

    (56,463 )     49,244,598  

Prepayment and other assets

    (1,893,250 )     (1,297,373 )

Income tax payable

    0       (4,352,564 )

Deferred revenue

    (925,886 )     (5,820,320 )

Employee entitlements

    6,281       (374,550 )

Accounts payable and accrued expenses

    (147,465 )     (461,530 )

Net cash provided by/(used in) operating activities

    (8,623,005 )     30,119,844  

Cash flows from investing activities:

               

Proceeds from sale of property, plant and equipment

    45       16,496  

Purchases of property, plant and equipment

    (258,413 )     (94,769 )

Acquisition of assets

    0       (10,169,456 )

Net cash used in investing activities

    (258,368 )     (10,247,729 )

Cash flows from financing activities:

               

Proceeds from borrowings

    43,644       0  

Proceeds from stock options exercised

    0       3,400  

Net cash provided by financing activities

    43,644       3,400  

Net increase/(decrease) in cash, cash equivalents and restricted cash

    (8,837,729 )     19,875,515  

Cash, cash equivalents and restricted cash at beginning of period

    37,192,907       12,133,378  

Effect of exchange rate fluctuations on the balances of cash held in foreign currencies

    39,282       2,813,629  

Cash, cash equivalents and restricted cash at end of period

    28,394,460       34,822,522  

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

4

 

Universal Biosensors, Inc.


Notes to Consolidated Condensed Financial Statements (Unaudited)

 

 

Organization of the Company

 

We are a specialist biosensors company focused on the development, manufacture and commercialization of a range of point-of-use devices for measuring different analytes across different industries. In addition, we own, manage and operate a hemostasis laboratory.

 

Key aspects of our strategy for increasing shareholder value include:

 

executing on our business activities, including commercializing our existing product portfolio, undertaking research and development activities, manufacturing products and providing development and support services including providing laboratory services;

 

extending and demonstrating the broader application of our technology and seeking to enter into collaborative, strategic or distribution arrangements with industry participants with respect to specific tests or specific fields; and

 

identifying and pursuing related opportunities for growth.

 

Our plan of operations over the remainder of the fiscal year ending December 2020 is to:

 

finalise the development of our Free Sulphur wine testing product;

 

seek to enter into collaborative, strategic or distribution arrangements with industry participants with respect to the development and commercialization of our products;

 

manufacture products;

 

undertake research and development work;

 

provide the necessary post-market support for our customers and partners;

 

provide laboratory services for our customers and partners;

 

develop new applications for our technology platform in markets with significant commercial potential; and

 

identify, investigate and evaluate merger & acquisition opportunities.

 

 

Basis of Presentation

 

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, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. The accompanying unaudited consolidated condensed financial statements should be read in conjunction with the financial statements and footnotes thereto as of and for the year ended December 31, 2019, included in the Annual Report on Form 10-K of Universal Biosensors, Inc. filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 26, 2020 (the “Annual Report”).

 

The year-end consolidated condensed balance sheets data as at December 31, 2019 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.

 

 

Certain Uncertainties

 

The Company’s consolidated condensed financial statements have been prepared assuming the Company will continue as a going concern. We rely largely on our existing cash and cash equivalents balance 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.

 

The Company is monitoring the potential impact of the novel coronavirus (COVID-19), if any, on the carrying value of certain assets. To date, as a direct result of COVID-19, the HRL operations were temporarily shut-down on March 24, 2020. HRL’s operations recommenced on May 25, 2020 and the temporary shut-down had a negative impact on HRL’s revenue and our ability to produce Xprecia StrideTM strips during this period. HRL collects blood samples from donors located at hospital clinics and community blood collection sites. These blood samples are used for calibration and testing services. Xprecia StrideTM strips produced by UBI are required to be calibrated so that all products agree with an international standard. The calibration services are performed by HRL. The extent to which these events may impact the Company’s business moving forward will depend on future developments, which are highly uncertain and cannot be predicted at this time. The Company will continue to assess the financial impact.

 

5

 

Universal Biosensors, Inc.


Notes to Consolidated Condensed Financial Statements (Unaudited)

 

 

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 recognition of revenue, initial recognition of intangible assets, carrying value of intangible assets and their useful lives, carrying amount of property, plant and equipment, carrying value of inventory, income tax expense, deferred income taxes, asset retirement obligations, liabilities related to employee benefits, lease obligations and research and development tax incentive income. Actual results could differ from those estimates.

 

Cash, Cash Equivalents and Restricted Cash

 

The Company considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents. For cash and cash equivalents, the carrying amount approximates fair value due to the short maturity of those instruments. The Company maintains cash and restricted cash, which includes performance guarantee issued in favor of a customer, tenant security deposits and credit card security deposits. As of September 30, 2020, the Company has not realized any losses in such cash accounts and believes it is not exposed to any significant risk of loss.

 

Short-Term Investments (Held-to-maturity)

 

Short-term investments constitute all highly liquid investments with term to maturity from three months to twelve months. The carrying amount of short-term investments is equivalent to their fair value.

 

Concentration of Credit Risk and Other Risks and Uncertainties

 

Cash and cash equivalents and accounts receivable consist of financial instruments that potentially subject the Company to concentration of credit risk to the extent of the amount recorded on the consolidated condensed balance sheets. The Company’s cash and cash equivalents are primarily invested with one of Australia’s largest banks. The Company is exposed to credit risk in the event of default by the banks holding the cash or cash equivalents to the extent of the amount recorded on the consolidated condensed balance sheets. The Company has not experienced any losses on its deposits of cash and cash equivalents. The Company has not identified any collectability issues with respect to receivables.

 

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.

 

6

 

Universal Biosensors, Inc.


Notes to Consolidated Condensed Financial Statements (Unaudited)

 

 

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).

 

Inventory

 

Inventories are stated at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and estimated costs necessary to dispose. Inventories are principally determined under the average cost method which approximates cost. Cost comprises direct materials, direct labour and an appropriate portion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Costs of purchased inventory are determined after deducting rebates and discounts.

 

   

Nine Months Ended

   

Year Ended

 
    September 30,     December 31,  
   

2020

   

2019

 
   

A$

   

A$

 

Raw materials

    920,617       411,233  

Work in progress

    1,058,862       213,080  

Finished goods

    54,030       453,751  
      2,033,509       1,078,064  

 

Receivables

 

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the best estimate of the amount of probable credit losses in the existing accounts receivable. The allowance is determined based on a review of individual accounts for collectability, generally focusing on those accounts that are past due. The expense to adjust the allowance for doubtful accounts, if any, is recorded within general and administrative expenses in the consolidated condensed statements of comprehensive income. Account balances are charged against the allowance when it is probable the receivable will not be recovered.

 

   

Nine Months Ended

   

Year Ended

 
    September 30,     December 31,  
   

2020

   

2019

 
   

A$

   

A$

 

Accounts receivable

    173,089       116,626  

Allowance for doubtful debts

    0       0  
      173,089       116,626  

 

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 that do not extend the life of the asset are charged to operations as incurred, include normal services, and do not include items of a capital nature.

 

7

 

Universal Biosensors, Inc.


Notes to Consolidated Condensed Financial Statements (Unaudited)

 

The Company received Commonwealth of Australia grant monies under grant agreements to support its development activities (refer to section on “Government grants”), 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.

 

Impairment of Long-Lived Assets

 

The Company reviews its capital assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. In performing the review, the Company estimates undiscounted cash flows from products under development that are covered by these patents and licenses. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than the carrying amount of the asset. If the evaluation indicates that the carrying value of an asset is not recoverable from its undiscounted cash flows, an impairment loss is measured by comparing the carrying value of the asset to its fair value, based on discounted cash flows. Impairment of long-lived-assets as at September 30, 2020 and December 31, 2019 were A$2,574,709.

 

Government Grants and Subsidies

 

From 2017 to 2019, the Company was 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. This grant was terminated by mutual consent on December 19, 2019. Plant and equipment is presented net of the government grant of A$360,818 for the year ended December 31, 2019 (2018: A$360,818). 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.

 

The Company also receives various COVID-19 related Government grants in return for compliance with conditions relating to the operating activities of the entity. The Government grants are recognized as other income when there is reasonable assurance that the entity will comply with the conditions attaching to them, and the grant will be received.

 

Other Liabilities

 

Other liabilities represent a marketing support payment due to one of our partners and is payable in US currency. The total amount of marketing support payment to be paid by the Company is US$2,048,602. These amounts will be paid once supporting documentation has been provided to the Company.

 

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.

 

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.

 

8

 

Universal Biosensors, Inc.


Notes to Consolidated Condensed Financial Statements (Unaudited)

 

Where it is more likely than not that some portion or all of the deferred tax assets will not be realized, the deferred tax assets are reduced by a valuation allowance. The valuation allowance is sufficient to reduce the deferred tax assets to the amount that is more likely than not to be realized.     

 

Pursuant to the new U.S. tax reform rules, UBI is subject to regulations addressing Global Intangible Low-Taxed Income ("GILTI") which was effective in 2018. The GILTI rules are new provisions of the U.S. tax code enacted as a part of tax reform legislation in the U.S. passed in December 2017.  Mechanically, the GILTI rule functions as a global minimum tax for all U.S. shareholders of controlled foreign corporations (“CFCs”) and applies broadly to certain income generated by a CFC. The Company can make an accounting policy election to either: (1) treat GILTI as a period cost if and when incurred; or (2) recognize deferred taxes for basis differences that are expected to reverse as GILTI in future years. The Company has elected to treat GILTI as a period cost.  

 

At December 31, 2019 the Company had A$15,055,938 (nil as at December 31, 2018) 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. A valuation allowance against these losses has been established, as realization of assets is not more likely than not in the foreseeable future. The Company also had A$3,374,776 (A$3,374,776 at December 31, 2018) of non-refundable R&D tax offset as at December 31, 2019. 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 U.S. tax losses available for carry forward against future earnings of nil as at December 31, 2019 and 2018. Pursuant to the U.S. Federal Tax Reform, the effective tax rate of UBI has been reduced from 34% to 21%. The deferred tax benefit based on this new rate for UBI is nil. HRL has Canadian tax losses available for carry forward against future earnings of CAD$385,235 and CAD$738,848 as at December 31, 2019 and 2018, respectively.

 

We are subject to income taxes in the United States, Canada and Australia. Tax returns up to and including the 2019 financial year has been filed in all these jurisdictions.

 

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.

 

ARO for the period ended September 30, 2020 and December 31, 2019 were A$2,696,100 and A$2,600,000, respectively.

 

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

 

Revenues, expenses and assets are recognized net of the amount of associated GST and HST, unless the GST and HST incurred is not recoverable from the taxation authority. In this case it is recognized as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST and HST receivable or payable. The net amount of GST and HST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the consolidated condensed balance sheets.

 

Revenue Recognition

 

Revenue from products and services

 

A.

Significant accounting policy

 

We recognize revenue from all sources based on the provisions of ASC 606 Revenue from Contracts with Customers.

 

9

 

Universal Biosensors, Inc.


Notes to Consolidated Condensed Financial Statements (Unaudited)

 

Revenue is measured based on a consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.

 

The modified retrospective method has been used in adopting the guidance of ASC 606. There has been no change in accounting principle and the financial statements have not been affected by the application of the guidance in ASC 606.

 

B.

Nature of goods and services

 

The following is a description of products and services from which the Company generates its revenue.

 

Products and services

Nature, timing of satisfaction of performance obligations, and significant payment terms

Point-of-care coagulation test devices

The Company recognizes revenue from sales of products at the time title of goods passes to the customer and the customer assumes the risks and rewards of ownership. The performance obligation is satisfied at a point in time when the products are shipped to the customer. The customer generally pays the Company within 60 days from receipt of invoice. The transaction price is fixed.

Coagulation testing services

These are services performed by HRL. Revenue is recognized when the testing services undertaken on behalf of the customer have been completed by HRL. The performance obligation is satisfied at a point in time when the tests are completed and the results are forwarded to the customer. The customer pays HRL generally within 30 days from receipt of invoice. The transaction price is fixed.

 

C.

Disaggregation of revenue

 

In the following table, revenue is disaggregated by major product and service line, and timing of revenue recognition.

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2020

   

2019

   

2020

   

2019

 
   

A$

   

A$

   

A$

   

A$

 

Major product/service lines

                               

Xprecia Stride™ test devices

    188,595       1,311,924       1,018,454       3,606,286  

Coagulation testing services

    223,288       101,233       456,875       916,412  

Contract research and development

    0       0       0       658,675  

Quarterly service fees

    0       0       0       164,577  

Other services

    0       0       0       44,564  
      411,883       1,413,157       1,475,329       5,390,514  
                                 

Timing of revenue recognition

                               

Products and services transferred at a point in time

    411,883       1,413,157       1,475,329       5,390,514  

Services transferred over time

    0       0       0       0  
      411,883       1,413,157       1,475,329       5,390,514  

 

10

 

Universal Biosensors, Inc.


Notes to Consolidated Condensed Financial Statements (Unaudited)

 

D.

Contract balances

 

The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers.

 

   

Nine Months Ended September 30,

 
   

2020

   

2019

 
   

A$

   

A$

 

Receivables

    173,089       964,693  

Contract assets

    0       0  

Contract liabilities:

               

- Current

    3,178,198       0  

- Non-current

    0       0  

 

Timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable represents amounts invoiced and revenue recognized prior to invoicing when we have satisfied our performance obligation and have the unconditional right to payment. A contract asset is an entity’s right to payment for goods and services already transferred to a customer but that right to payment is conditional on something other than the passage of time. The contract assets are transferred to the receivables when the rights become unconditional. The contract liabilities primarily relates to the Company’s obligation to transfer Xprecia Stride™ strips to Siemens for which the Company has received consideration from Siemens but the transfer has not yet been completed.

 

Significant changes in the contract assets and the contract liabilities balances during the period are as follows.

 

   

Nine Months Ended September 30,

 
   

2020

   

2019

 
   

A$

   

A$

 

Contract Assets

               

Opening balance

    0       0  

Closing balance

    0       0  

Increase/(decrease)

    0       0  

Contract Liabilities - Current

               

Opening balance

    2,682,404       2,356,583  

Closing balance

    3,178,198       0  

Increase/(decrease)

    495,794       (2,356,583 )

Contract Liabilities - Non-Current

               

Opening balance

    1,421,680       3,463,737  

Closing balance

    0       0  

Increase/(decrease)

    (1,421,680 )     (3,463,737 )

 

The opening balance of the contract liabilities as at September 30, 2019 relates to prepayment of milestones by Siemens pursuant to the Siemens Collaboration Agreement. A sum of A$658,675 was recognized as revenue in January 2019 as the Company met one of its milestones whilst the remainder of the milestones consideration previously received but deferred was repaid in September 2019 when the Siemens Collaboration Agreement was terminated.

 

Contract liabilities as at September 30, 2020 relates to an initial prepayment of US$4,000,000 on November 1, 2019 by Siemens towards future strip sales. The balance of the Siemens prepayment account as at September 30, 2020 is US$2,194,546 (A$3,178,198), reducing by US$639,324 (A$925,886) during the nine month period ended September 30, 2020 as the Company supplied strips to Siemens.

 

E.

Transaction price allocated to the remaining performance obligations

 

There was a prepayment of US$4,000,000 towards future strip sales by Siemens on November 1, 2019. US$639,324 has been recognized as revenue during the nine month period ended September 30, 2020 as the Company supplied strips to Siemens. The balance of the Siemens prepayment account as at September 30, 2020 is US$2,194,546 (A$3,178,198).

 

11

 

Universal Biosensors, Inc.


Notes to Consolidated Condensed Financial Statements (Unaudited)

 

Interest income

 

Interest income is recognized as it accrues, taking into account the effective yield 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, an entity which is an R&D entity involved in eligible R&D activities may claim research and development tax incentive income as follows:

 

 

(1)

as a 43.5% refundable tax offset if aggregate turnover (which generally means an entity’s total income that it derives in the ordinary course of carrying on a business, subject to certain exclusions) of the entity is less than A$20,000,000, or

 

 

(2)

as a 38.5% non-refundable tax offset if aggregate turnover of the entity is more than A$20,000,000.

 

In accordance with SEC Regulation S-X Article 5-03, the Company’s research and development tax incentive income has been recognized as non-operating income as it is not indicative of the core operating activities or revenue producing goals of the Company.

 

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

 

In the nine months ended September 30, 2020 there is reasonable assurance that the aggregate turnover of the Company for the year ending December 31, 2020 will be less than A$20,000,000 and accordingly A$1,679,558 has been recorded as a research and development tax incentive income for the nine months ended September 30, 2020. The Company will review its forecasted aggregate turnover on a quarterly basis to determine if the R&D tax offsets are refundable or captured as part of the current year income tax computation.

 

Other Income

 

Other income is recognized when there is reasonable assurance that the income will be received and the consideration can be reliably measured.

 

Other income is as follows for the relevant periods: 

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2020

   

2019

   

2020

   

2019

 
   

A$

   

A$

   

A$

   

A$

 

Insurance recovery

    0       0       600,000       0  

Federal and state government subsidies

    374,491       0       876,317       0  

Rental income

    49,600       25,000       141,734       25,000  

Other

    142       13,016       1,155       5,994  
      424,233       38,016       1,619,206       30,994  

 

Insurance recovery represents partial reimbursement of our legal costs which was incurred during mediation with Siemens. Federal and state government subsidies which primarily includes Australian job keeper payments and Canada Emergency Wage Subsidy, represent assistance provided by these authorities as a stimulus during COVID-19.

 

12

 

Universal Biosensors, Inc.


Notes to Consolidated Condensed Financial Statements (Unaudited)

 

Foreign Currency

 

Functional and reporting currency

 

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

 

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

 

Transactions and balances

 

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the consolidated condensed statements of comprehensive income.

 

The Company has recorded foreign currency transaction gains/(losses) of (A$89,978) and A$874,253 for the three months ended September, 2020 and 2019, and (A$13,630) and A$1,124,075 for the nine months ended September 30, 2020 and 2019, respectively.

 

The results and financial position of all the Group entities that have a functional currency different from the reporting currency are translated into the reporting currency as follows:

 

assets and liabilities for each balance sheet item reported are translated at the closing rate at the date of that balance sheet;

income and expenses for each income statement item reported are translated at average exchange rates (unless this is not a reasonable approximation of the effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

all resulting exchange differences are recognized as a separate component of equity.

 

On consolidation, exchange differences arising from the translation of any net investment in foreign entities are taken to the Accumulated Other Comprehensive Income.

 

Commitments and Contingencies

 

Liabilities for loss contingencies, arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. These were nil as at September 30, 2020 and December 31, 2019. Purchase commitments contracted for as at September 30, 2020 and December 31, 2019 were A$1,367,344 and A$220,569, respectively. Contingent consideration as at September 30, 2020 and December 31, 2019 were A$2,110,298 (equivalent to US$1,500,000) and A$2,141,022 (equivalent to US$1,500,000), respectively. Pursuant to the Siemens Acquisition, the Company has agreed to pay US$1,500,000 to Siemens within five days of Siemens achieving a pre-defined milestone. The Company has the discretion of advising Siemens when the milestone is to be achieved but from the date notification is sent by the Company, Siemens has 90 days to fulfill this milestone. Once the milestone is achieved, it will enable UBI to use Siemens proprietary reagent which will allow UBI to access markets in certain jurisdictions.

 

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.

 

13

 

Universal Biosensors, Inc.


Notes to Consolidated Condensed Financial Statements (Unaudited)

 

These prepaid or accrued expenses are based on estimates of the work performed under service agreements.

 

Leases

 

On January 1, 2020, the Company adopted the requirements of Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842)” (“ASU No. 2016-02”), using the modified retrospective method and used the effective date as the date of initial application. As a result of this adoption, the following accounting policies were implemented or changed.

 

At contract inception, the Company determines if the new contractual arrangement is a lease or contains a leasing arrangement. If a contract contains a lease, the Company evaluates whether it should be classified as an operating or a finance lease. Currently, all of the Company’s leases have been classified as operating leases. Upon modification of the contract, the Company will reassess to determine if a contract is or contains a leasing arrangement.

 

The Company records lease liabilities based on the future estimated cash payments discounted over the lease term, defined as the non-cancellable time period of the lease, together with all the following:

 

periods covered by an option to extend the lease if the Company is reasonably certain to exercise the extension option; and

 

periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise the termination option.

 

Leases may also include options to terminate the arrangement or options to purchase the underlying lease property. The Company does not separate lease and non-lease components of contracts. Lease components provide the Company with the right to use an identified asset, which consist of the Company’s real estate properties and office equipment. Non-lease components consist primarily of maintenance services.

 

As an implicit discount rate is not readily determinable in the Company’s lease agreements, the Company uses its estimated secured incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. For certain leases with original terms of 12 months or less, the Company recognizes lease expense as incurred and does not recognize any lease liabilities. Short-term and long-term portions of operating lease liabilities are classified as lease liabilities in the Company’s consolidated condensed balance sheets.

 

A right-of-use (“ROU”) asset is measured as the amount of the lease liability with adjustments, if applicable, for lease incentives, initial direct costs incurred by the Company, and lease prepayments made prior to or at lease commencement. ROU assets are classified as operating lease right-of-use assets, net of accumulated amortization, on the company’s condensed consolidated balance sheets. The Company evaluates the carrying value of ROU assets if there are indicators of potential impairment, and performs the analysis concurrent with the review of the recoverability of the related asset group. If the carrying value of the asset group is determined to not be fully recoverable and is in excess of its estimated fair value, the Company will record an impairment loss in its consolidated condensed statements of income and comprehensive income/(loss). The Company did not recognize an impairment loss during the nine months ended September 30, 2020.

 

Lease payments may be fixed or variable, however, only fixed payments or in-substance fixed payments are included in the Company’s lease liability calculation. Variable lease payments are recognized in operating expenses in the period in which the obligation for those payments are incurred.

 

As part of the adoption of ASU No. 2016-02, the Company elected the following practical expedients: 1) lease vs. non-lease components relating to the real estate asset class; 2) the short-term lease exemption; and 3) the package of practical expedients, which permits the Company to not reassess prior conclusions about lease identification, lease classification, and initial direct costs under the new standard. In addition, the Company elected not to adopt the practical expedient related to hindsight.

 

14

 

Universal Biosensors, Inc.


Notes to Consolidated Condensed Financial Statements (Unaudited)

 

The Company’s lease portfolio consists primarily of operating leases for office space and equipment and has remaining terms from 16 months up to three years, with contractual terms expiring from 2021 to 2023. Lease contracts may include one or more renewal options that allow the Company to extend the lease term, typically from three years per each renewal option. The exercise of lease options is generally at the discretion of the Company. None of the Company’s leases contain residual value guarantees, substantial restrictions, or covenants. All the leases are substantially within Australia.

 

Supplemental balance sheet information related to the Company’s leases was as follows:

 

   

Nine Months Ended

 
    September 30,  
   

2020

 
   

A$

 

Operating lease right-of-use assets:

       

Non-current

    4,167,413  

Operating lease liabilities:

       

Current

    516,252  

Non-current

    3,725,953  
         

Weighted average remaining lease terms (in years)

    7.2  

Weighted average discount rate

    6.0 %

 

The components of lease income/expense were as follows:

 

   

Nine Months Ended

 
    September 30,  
   

2020

 
   

A$

 

Fixed payment operating lease expense

    563,169  

Variable payment operating lease expense

    0  

Short-term lease expense

    75,716  

Sub-lease income

    141,734  

 

The sub-lease income was deemed an operating lease.

 

Supplemental cash flow information related to the Company’s leases was as follows:

 

   

Nine Months Ended

 
    September 30,  
   

2020

 
   

A$

 

Cash paid for amounts included in the measurement of liabilities

    0  

Operating cash flows from operating leases

    488,382  

ROU assets obtained in exchange for new operating lease liabilities

    0  

 

15

 

Universal Biosensors, Inc.


Notes to Consolidated Condensed Financial Statements (Unaudited)

 

Future lease payments are as follows:

 

   

As at September 30,

 
   

2020

 
   

A$

 

2020

    187,825  

2021

    768,731  

2022

    664,311  

2023

    669,331  

2024

    692,009  

Thereafter

    2,418,214  

Total future lease payments

    5,400,421  

Less: imputed interest

    1,158,216  

Total operating lease liabilities

    4,242,205  

Current

    516,252  

Non-current

    3,725,953  

 

As of September 30, 2020, the Company has not entered into any lease agreements that have not yet commenced.

 

Stock-based Compensation

 

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

 

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

 

(a)

Stock Option Plan

 

In 2004, the Company adopted an employee option plan (“Plan”). Options may be granted pursuant to the Plan to any person considered by the board to be employed by the Group on a permanent basis (whether full time, part time or on a long term casual basis). Each option gives the holder the right to subscribe for one share of common stock. The total number of options that may be issued under the Plan is such maximum amount permitted by law and the Listing Rules of the ASX. The exercise price and any exercise conditions are determined by the board at the time of grant of the options. Any exercise conditions must be satisfied before the options vest and become capable of exercise. The options lapse on such date determined by the board at the time of grant or earlier in accordance with the Plan. Options granted to date have had a term up to 10 years and generally vest in equal tranches over three years.

 

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. 

 

16

 

Universal Biosensors, Inc.


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 grants were:

 

   

Grant Date

 
   

Sep-20

   

Mar-20

   

Mar-20

   

Mar-20

 

Exercise Price (A$)

    0.30       0.20       0.25       0.30  

Share Price at Grant Date (A$)

    0.32       0.13       0.13       0.13  

Volatility

    62 %     61 %     61 %     61 %

Expected Life (years)

    5       4       5       5  

Risk Free Interest Rate

    0.45 %     0.44 %     0.50 %     0.50 %

Fair Value of Option

    0.11       0.03       0.03       0.02  

 

Stock option activity during the current period is as follows:

 

   

Number of shares

   

Weighted

average exercise

price
A$

 

Balance at December 31, 2019

    1,911,450       0.46  

Granted

    7,594,000       0.25  

Exercised

    0       0.00  

Lapsed

    (12,000 )     0.79  

Balance at September 30, 2020

    9,493,450       0.29  

 

The number of options exercisable as at September 30, 2020 and 2019 was 8,993,450 and 2,544,286, respectively. The total stock compensation income/(expense) recognized in the consolidated condensed statements of comprehensive income/(expense) was (A$55,000) and (A$18,446) for the three months ended September 30, 2020 and 2019, respectively and (A$177,232) and A$422,434 for the nine months ended September 30, 2020 and 2019, respectively.

 

As of September 30, 2020, there was nil unrecognized compensation expense.

 

The aggregate intrinsic value for all options outstanding as at September 30, 2020 and 2019 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 has in the past issued A$1,000 worth of restricted shares of common stock to employees of the Company 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.

 

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

 

   

Number of shares

   

Weighted

average issue

price
A$

 

Balance at December 31, 2019

    120,814       0.24  

Granted

    0       0.00  

Release of restricted shares

    (12,498 )     0.24  

Balance at September 30, 2020

    108,316       0.24  

 

17

 

Universal Biosensors, Inc.


Notes to Consolidated Condensed Financial Statements (Unaudited)

 

Employee Benefit Costs

 

The Company contributes 9.50% of each employee’s salary to standard defined contribution superannuation funds on behalf of all UBS employees. Superannuation is a compulsory savings program whereby employers are required to pay a portion of an employee’s remuneration to an approved superannuation fund that the employee is typically not able to access until they have reached the statutory retirement age. Whilst the Company has a third party default superannuation fund, it permits UBS employees to choose an approved and registered superannuation fund into which the contributions are paid. Contributions are charged to the consolidated condensed statements of comprehensive income as they become payable.

 

Registered Retirement Savings Plan and Deferred Sharing Profit Plan

 

The Company provides eligible HRL employees a retirement plan. 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 a Benefit Plan. In general, the Benefit Plan includes extended health care, dental care, basic life insurance, basic accidental death and dismemberment, and disability insurance.

 

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

 

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

 

Total Comprehensive Income/(Loss)

 

The Company follows ASC 220 – Comprehensive Income. Comprehensive income/(loss) is defined as the total change in shareholders’ equity during the period other than from transactions with shareholders, and for the Company, includes net income/(loss).

 

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

 

   

Before-Tax

Amount

   

Tax (Expense)/
Benefit

   

Net-of-Tax

Amount

 
   

A$

   

A$

   

A$

 

Nine Months Ended September 30, 2020

                       

Foreign currency translation reserve

    29,511       0       29,511  

Reclassification for gains realised in net income

    0       0       0  

Other comprehensive income

    29,511       0       29,511  
                         

Nine Months Ended September 30, 2019

                       

Foreign currency translation reserve

    21,426       0       21,426  

Reclassification for gains realised in net income

    0       0       0  

Other comprehensive loss

    21,426       0       21,426  

 

Business combinations 

 

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

 

18

 

Universal Biosensors, Inc.


Notes to Consolidated Condensed Financial Statements (Unaudited)


Recent Accounting Pronouncements            

 

(a)

Recent issued accounting standards not yet adopted

 

ASU No. 2019-12, “Income Taxes”

 

In December 2019, the FASB issued ASU No. 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU No. 2019-12 is intended to simplify various aspects related to accounting for income taxes, eliminates certain exceptions to the general principles in ASC Topic 740 related to intra-period tax allocation, simplifies when companies recognize deferred taxes in an interim period, and clarifies certain aspects of the current guidance to promote consistent application. This guidance is effective for public entities for fiscal years beginning after December 15, 2020, and for interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the potential effects of this guidance on its consolidated financial statements.

 

(b)

Recently adopted accounting pronouncements

 

ASU No.2016-02, “Leases”

 

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 and eliminates the requirement in current U.S. GAAP for an entity to use bright-line tests in determining lease classification. The standard also requires lessors to increase the transparency of their exposure to changes in value of their residual assets and how they manage that exposure.

 

The new guidance became effective for public business entities for annual periods beginning after December 15, 2018, and interim periods therein. Early adoption was permitted. The Company has deferred the adoption of this standard as is allowable for an Emerging Growth Company.

 

On January 1, 2020 the Company adopted the new accounting pronouncement ASU 2016-02. The adoption of ASU No. 2016-02 resulted in ROU asset and lease liability balances of A$4,486,745 on the Company’s consolidated condensed balance sheets as of January 1, 2020. The Company has updated its control framework for new internal controls and made changes to existing internal controls related to the new standard.

 

ASU No.2014-09, “Revenue from Contracts with Customers

 

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), which provides companies with a single revenue recognition model for recognizing revenue from contracts with customers. The core principle of the new standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. There are two permitted transition methods under the new standard, the full retrospective method or the modified retrospective method. The new standard is effective for annual reporting periods beginning after December 15, 2017. As an emerging growth Company, the Company has adopted this guidance effective from January 1, 2019 and it has not had a material impact on the Company’s consolidated financial statements.

 

UBI has selected the modified retrospective method where the effect of applying the standard is recognized at the date of initial application, without restating previous years.

 

19

 

Universal Biosensors, Inc.


Notes to Consolidated Condensed Financial Statements (Unaudited)

 

 

Related Party Transactions

 

Details of related party transactions material to the operations of the Group other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business, are set out below:

 

Mr. Coleman is a Non-Executive Chairman of the Company and Executive Chairman of Viburnum Funds Pty Ltd. Viburnum Funds Pty Ltd, as an investment manager for its associated funds, holds a beneficial interest and voting power over approximately 22% of our shares.

 

There were no other related party transactions as at September 30, 2020 other than as disclosed above.

 

 

Warrants

 

On December 19, 2013, UBI and its wholly owned subsidiary, UBS (together UBI and UBS, the “Transaction Parties”) entered into a credit agreement with Athyrium Opportunities Fund (A) LP (“Athyrium A”), as administrative agent (the “Administrative Agent”) and as a lender, and Athyrium Opportunities Fund (B) LP (“Athyrium B”) as a lender (Athyrium A and Athyrium B together with any other lenders party thereto from time to time, the “Lenders”) for a secured term loan of US$15,000,000, which was amended on January 30, 2015 and December 29, 2017 (“Credit Agreement”). The term loan was voluntary prepaid in November 2018 and a Deed of Release was executed in December 2018 releasing all the Transaction Parties securities and obligations under the term loan. Pursuant to the Credit Agreement, UBI issued to the Lenders warrants entitling the holder to purchase up to an aggregate total of 4,500,000 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.

 

The warrants issued in December 2013 had a grant fair value of US$815,655 and are included in equity. 

 

 

Borrowings

 

The long-term unsecured loan is a government guaranteed loan of CAD$40,000 to help eligible businesses with operating costs. This is among the business support measures introduced in the Canadian Federal Government’s COVID-19 Economic Response Plan, with the following terms:

 

the loan is interest free, and 25% (i.e. CDN$10,000) of the loan is eligible for loan forgiveness if 75% (i.e. CAD$30,000) has been fully repaid on or before December 31, 2022. It also has no principal repayments during this period;

if the loan is not repaid by December 31, 2022, it can be converted into a 3-year term loan, and will be charged an interest rate of 5%, payable monthly. It will still not incur any principal payment requirements until December 31, 2025; and

guaranteed by the Government of Canada.

 

20

 

Universal Biosensors, Inc.


Notes to Consolidated Condensed Financial Statements (Unaudited)

 

 

Restricted Cash

 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated condensed balance sheets that sum to the total of the same such amounts shown in the consolidated condensed statements of cash flows.

 

   

Nine Months Ended

   

Year Ended

 
    September 30,     December 31,  
   

2020

   

2019

 
   

A$

   

A$

 

Cash and cash equivalents

    23,049,940       30,229,530  

Restricted cash - current assets

    2,009,808       2,055,473  

Restricted cash - non-current assets

    3,334,712       4,907,904  
      28,394,460       37,192,907  

 

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

 

   

Nine Months Ended

   

Year Ended

 
    September 30,     December 31,  
   

2020

   

2019

 
   

A$

   

A$

 

Collateral for facilities (a) - current assets

    0       16,404  

Performance guarantee (b) - current assets

    2,009,808       2,039,069  

Collateral for facilities (c) - non-current assets

    320,000       320,000  

Performance guarantee (b) - non-current assets

    3,014,712       4,587,904  
      5,344,520       6,963,377  

 

 

(a)

Represents bank guarantee of CDN$15,000 as security deposit on HRL’s credit card. This facility is no longer required

 

(b)

Performance guarantee represents letter of credit issued in favour of Siemens pursuant to the 2019 Siemens Agreements. The performance guarantee was initially issued for US$5,000,000 and the same reduces in equal quarterly amounts over the 42 months with effect from September 18, 2019

 

(c)

Represents bank guarantee of A$250,000 for commercial lease of UBS’ premises and security deposit on Company’s credit cards of A$70,000

 

Interest earned on the restricted cash for the three months ended September 30, 2020 and 2019 were A$1,081 and A$1,653, respectively and A$42,334 and A$5,246 for the nine months ended September 30, 2020 and 2019, respectively.

 

 

Acquisition of Assets from Siemens

 

On September 18, 2019 we entered into certain definitive agreements with Siemens modifying our commercial relationship relating to coagulation products. As part of this arrangement, we agreed on a total consideration of US$13,000,000 of which US$11,000,000 was paid on September 23, 2019. The consideration paid relates primarily to the settlement of the prepaid milestones and acquisition of intangible assets. The transaction did not involve any liabilities being assumed and we have allocated the cost of the assets on the basis of their relative fair values.

 

(a)

Acquisition related costs

 

These were nil. Legal expense incurred during the period is mainly relating to the settlement of the dispute between the Company and Siemens rather than asset acquisition and as such have been expensed.

 

21

 

Universal Biosensors, Inc.


Notes to Consolidated Condensed Financial Statements (Unaudited)

 

(b)

Contingent consideration

 

Pursuant to the Siemens Acquisition, the Company has agreed to pay US$1,500,000 to Siemens within five days of Siemens achieving a pre-defined milestone. The Company has the discretion of advising Siemens when the deadline by which the milestone is to be achieved, and from the date notification is sent by the Company, Siemens has 90 days to fulfil this milestone. Once the milestone is achieved, it will enable UBI to use Siemens proprietary reagent which will allow UBI to access markets in certain jurisdictions. A further US$500,000 will be payable by January 1, 2026 if an intermediate product of the Siemens proprietary reagent is supplied by Siemens and if UBI chooses to use this intermediate product.

 

(c)

Identifiable assets acquired

 

Total identifiable assets acquired at the acquisition date are as follows:

 

   

A$

 

Intangible assets - distribution rights1

    12,013,658  

Inventory

    368,840  

Total identifiable assets acquired

    12,382,498  

Deferred income tax liability on intangible assets1

    4,358,338  
      16,740,836  

Less: Deferred income tax liability on intangible assets

    4,358,338  

Contingent consideration

    2,213,042  

Consideration paid in September 2019

    10,169,456  

 

1. Total intangible assets of A$16,371,996 recognized at inception in the balance sheet includes the effect of the deferred tax.

 

(d)

Measurement of fair values

 

The fair value of the distribution rights acquired has been based on the amount paid. Inventory has been valued at net realizable value.

 

 

Intangible Assets

 

The intangible assets, having finite useful lives, are amortized over their estimated useful lives. Finite life intangible assets are amortized over the shorter of their contractual or useful economic lives. The intangible assets comprise of distribution rights and are amortized on a straight-line basis over 10 years. The amortization expense of the intangible assets for the three months ended September 30, 2020 and 2019 were A$412,438 and A$32,896, respectively and A$1,228,348 and A$32,896 for the nine months ended September 30, 2020 and 2019, respectively.

 

   

Nine Months Ended

   

Year Ended

 
    September 30,     December 31,  
   

2020

   

2019

 
   

A$

   

A$

 

Intangible assets - gross

    16,371,996       16,371,996  

Less accumulated amortization

    (1,672,167 )     (443,819 )

Total intangible assets - net

    14,699,829       15,928,177  

 

Impairment of Intangible Assets

 

Intangible assets with an indefinite life are tested for impairment at least annually and when there is an indication of impairment.

 

22

 

 

 

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our results of operations and financial condition. You should read this analysis in conjunction with our audited consolidated financial statements and related footnotes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our most recent Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (“SEC”). This Form 10-Q contains, including this discussion and analysis, certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) which are intended to be covered by the safe harbors created by such acts. For this purpose, any statements that are not statements of historical fact may be deemed to be forward-looking statements, including statements relating to future events and our future financial performance. Those statements in this Form 10-Q containing the words “believes”, “anticipates”, “plans”, “expects”, “intends”, “may”, “assumes”, “illustration”, and similar expressions constitute forward-looking statements, although not all forward-looking statements contain such identifying words.

 

The forward-looking statements contained in this Form 10-Q are based on our current expectations, assumptions, estimates and projections about the Company and its businesses. All such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results to be materially different from those results expressed or implied by these forward-looking statements, including those set forth in this Quarterly Report on Form 10-Q.

 

Results of Operations

 

Analysis of Consolidated Revenue

 

Our total revenue decreased by 71% and 73% during the three and nine months ended September 30, 2020, compared to the same period in the previous financial year as a direct result of COVID-19 as explained further below.

 

Revenue from Products

 

The financial results of the Xprecia Stride™ test devices we sold during the respective periods are as follows:

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2020

   

2019

   

2020

   

2019

 
   

A$

   

A$

   

A$

   

A$

 

Revenue from products

    188,595       1,311,924       1,018,454       3,606,286  

Cost of goods sold

    (156,728 )     (726,530 )     (901,359 )     (1,996,189 )
      31,867       585,394       117,095       1,610,097  

Production contribution margin (%)

    17 %     45 %     11 %     45 %

 

The movement in revenues is primarily volume driven. Revenues decreased by 86% and 72%, respectively during the three and nine months ended September 30, 2020 compared to the same periods in the previous financial year as a result of COVID-19. PT-INR test strips produced by UBI are required to be calibrated so that all PT-INR products agree with an international standard. The calibration services, which is dependent on the blood samples received from donors, are performed by HRL. With the temporary closure of HRL due to COVID-19, the PT-INR strip calibration could not be carried out thus impacting the manufacture and supply of the strips. Whilst HRL recommenced its operations on May 25, 2020, the donor turnout to blood collection sites and clinics has been slow which is having a negative impact on the calibration services and the manufacture and supply of PT-INR strips.

 

Revenue from Services

 

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

 

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

 

23

 

 

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

 

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

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2020

   

2019

   

2020

   

2019

 
   

A$

   

A$

   

A$

   

A$

 

Revenue from services:

                               

Coagulation testing services

    223,288       101,233       456,875       916,412  

Contract research and development

    0       0       0       658,675  

Quarterly service fees

    0       0       0       164,577  

Other services

    0       0       0       44,564  
      223,288       101,233       456,875       1,784,228  

Cost of services

    (199,522 )     (96,157 )     (648,666 )     (545,937 )

Net margin

    23,766       5,076       (191,791 )     1,238,291  

 

Coagulation testing services – these services are performed by HRL. Typically, HRL collects blood samples from donors located at hospital clinics and community blood collection sites. These blood samples are used for calibration and testing services. There was a decline in coagulation testing services for the three month period ended September 30, 2019.. On a year to date basis, COVID-19 has impacted HRL as their operations, which are located at a hospital were shut-down temporarily for approximately two months since March 24, 2020. In addition, local government orders restricted normal business operations and access to the hospital and community collection sites during this temporary shut-down period. Since HRL’s recommencement, blood collection has been slow due to low turnout of donors to blood collection sites or clinics. The lack of sufficient appropriate donors will impact HRL’s revenue and the timing of when operations become normal is unknown at this point in time.

 

Contract research and development - a sum of A$658,675 was recognized as revenue in January 2019 as the Company met one of its milestones pursuant to the Siemens Collaboration Agreement.      

 

Quarterly service fees – whilst we no longer receive the quarterly service fees commencing from the 2019 financial year, this amount relates to an underpayment relating to prior years. This amount has subsequently been receipted by us.

 

EBITDA

 

EBITDA is earnings before interest, taxes, depreciation and amortization. EBITDA is a non-GAAP measurement. Management uses EBITDA because it believes that such measurements are widely accepted financial indicators used by investors and analysts to analyze and compare companies on the basis of operating performance and that these measurements may be used by investors to make informed investment decisions, including our ability to generate earnings sufficient to service our debt, and enhances our understanding of our financial performance and highlights operational trends. These measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States (GAAP). The most comparable GAAP measure is net earnings from continuing operations. Consolidated EBITDA should not be considered in isolation or as a substitution for analysis of our results as reported under GAAP.

 

EBITDA for the respective periods and a reconciliation of net loss to EBITDA is as follows:

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2020

   

2019

   

2020

   

2019

 
   

A$

   

A$

   

A$

   

A$

 

Net loss

    (2,101,372 )     (806,565 )     (6,624,474 )     (4,306,752 )

Interest income

    (39,584 )     (223,054 )     (260,990 )     (695,208 )

Depreciation - cost of goods sold & services

    45,526       84,814       157,142       265,829  

Depreciation and amortization - other operating costs & expenses

    547,995       182,284       1,685,551       605,513  

EBITDA

    (1,547,435 )     (762,521 )     (5,042,771 )     (4,130,618 )

 

24

 

The deteriorating EBITDA for all periods is primarily as a result of the increased losses as a direct result of COVID-19.

 

Product Support

 

Product support relates to post-market technical support provided by us for the Xprecia Stride™ test devices.

 

Depreciation and Amortization Expenses

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2020

   

2019

   

2020

   

2019

 
   

A$

   

A$

   

A$

   

A$

 

Depreciation:

                               

Charged to cost of goods sold & services

    45,526       84,814       157,142       265,829  

Charged to other operating costs & expenses

    135,557       149,388       457,203       572,617  
      181,083       234,202       614,345       838,446  

Amortization

    412,438       32,896       1,228,348       32,896  

Total depreciation and amortization

    593,521       267,098       1,842,693       871,342  
                                 

Depreciation - other operating costs & expenses

                               

Research and development

    109,342       116,175       369,496       462,829  

General and administrative

    26,215       33,128       87,707       109,526  

Product support

    0       85       0       262  
      135,557       149,388       457,203       572,617  

Amortization

    412,438       32,896       1,228,348       32,896  

Depreciation and amortization - other operating costs & expenses

    547,995       182,284       1,685,551       605,513  

 

Depreciation of fixed assets is based on a straight line basis over the useful life of property, plant and equipment. Depreciation is allocated to cost of goods sold and research and development based on output. The overall decline in depreciation for all periods is due to certain fixed assets being fully written off.

 

Amortization expense represents intangible assets amortized over their estimated useful lives. These intangible assets were acquired in September 2019 pursuant to the Siemens Acquisition.

 

Research and Development Expenses 

 

Research and development expenditure principally reflects the effort required in product development of the tests we are developing. Our primary focus currently is the research and development activities in the wine platform. Research and development expenditure decreased by 2% and 12%, respectively during the three and nine months ended September 30, 2020 compared to the same period in the previous financial year.

 

For the nine month period ended September 30, 2019, we were carrying out research and development activities in the coagulation platform pursuant to the Siemens Collaboration Agreement. Our product development focus is now on new biosensors testing platforms including for the wine industry. We are on track to launch our first new product during Q1 2021.

 

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

 

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

 

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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.

 

General and Administrative Expenses 

 

General and administrative expenses currently consist principally of salaries and related costs, including stock option expense, for personnel in executive, business development, finance, accounting, information technology and human resources functions. Other general and administrative expenses include repairs and maintenance, insurance, facility costs not otherwise included in research and development expenses, consultancy fees and professional fees for legal including legal services and maintenance fees incurred for patent applications, audit and accounting services. General and administrative expenses decreased by 20% and 23%, respectively for the three and nine months ended September 30, 2020 compared to the same period in the previous financial year.

 

The decrease was primarily due to legal and consultant fees incurred as part of contract negotiations supporting customer relationship management and partner development during the three and nine months ended September 30, 2019. This matter was resolved when we entered into certain definitive agreements with Siemens on September 18, 2019.

 

Interest Income

 

Interest income decreased by 82% and 62%, respectively during the three and nine months ended September 30, 2020 when compared to the same period in the previous financial year. The decrease in interest income is generally attributable to the lower amount of funds available for investment and lower interest rates.

 

Financing Costs

 

Disclosed in this account is accretion expense which reflects the increase in the carrying amount of an ARO.

 

Research and development tax incentive income

 

In the nine months ended September 30, 2020 there is reasonable assurance that the aggregate turnover of the Company for the year ending December 31, 2020 will be less than A$20,000,000 and accordingly A$493,297 and $1,679,558, respectively has been recorded as a research and development tax incentive income for the three and nine months ended September 30, 2020.

 

Research and development tax incentive income is generally in line with the level of research and development expenses.

 

Research and development tax incentive income for the 2019 financial year has not yet been received and as such is recorded in “Other current assets” in the consolidated balance sheets.

 

Exchange gain/(loss)

 

Foreign exchange gains and losses arise from the settlement of foreign currency transactions that are translated into the functional currency using the exchange rates prevailing at the dates of the transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies.

 

26

 

Other

 

Other income is as follows for the relevant periods:

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2020

   

2019

   

2020

   

2019

 
   

A$

   

A$

   

A$

   

A$

 

Insurance recovery

    0       0       600,000       0  

Federal and state government subsidies

    374,491       0       876,317       0  

Rental income

    49,600       25,000       141,734       25,000  

Other

    142       13,016       1,155       5,994  
      424,233       38,016       1,619,206       30,994  

 

Insurance recovery represents partial reimbursement of our legal costs which was incurred during mediation with Siemens. Federal and state government subsidies which primarily includes Australian job keeper payments and Canada Emergency Wage Subsidy, represent assistance provided by these authorities as a stimulus during COVID-19.

 

Certain Uncertainties

 

The Company is monitoring the potential impact of the novel coronavirus (COVID-19), if any, on the carrying value of certain assets. To date, as a direct result of COVID-19, the HRL operations were temporarily shut-down on March 24, 2020. HRL’s operations recommenced on May 25, 2020 and the temporary shut-down had a negative impact on HRL’s revenue and our ability to produce Xprecia StrideTM strips. HRL collects blood samples from donors located at hospital clinics and community blood collection sites. These blood samples are used for calibration and testing services. Xprecia StrideTM strips produced by UBI are required to be calibrated so that all products agree with an international standard. The calibration services are performed by HRL. Since HRL’s recommencement, the blood samples collected from donors have been low. The extent to which these events may impact the Company’s business moving forward will depend on future developments, which are highly uncertain and cannot be predicted at this time. The Company will continue to assess the financial impact.

 

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.

 

(a)

Revenue Recognition

 

Revenue is measured based on the consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.

 

(b)

Stock-Based Compensation

 

We account for stock-based employee compensation arrangements using the modified prospective method as prescribed in accordance with the provisions of ASC 718 – Compensation – Stock Compensation.

 

Each of the inputs to the Trinomial Lattice model is discussed below.

 

Share Price and Exercise Price at Valuation Date

 

With the exception of ZEPOs, the exercise price of the options granted has been determined using the closing price of our common stock trading in the form of CDIs on ASX at the time of grant of the options. The exercise price of ZEPOs is nil. The ASX is the only exchange upon which our securities are quoted.

 

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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.

 

(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$15,000,000 loan facility, we issued to the Lenders (Athyrium Opportunities Fund (A) LP and Athyrium Opportunities Fund (B) LP) warrants entitling the holder to purchase up to an aggregate total of 4,500,000 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.

 

Volatility

 

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

 

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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 reviews the aggregate turnover of the Company to determine if the research and development tax incentive income should be recorded and based on this information and other available information at the time estimates the refundable tax offset available to the Company. This estimate is also reviewed by external tax advisors on an annual basis.

 

(g)

Acquisition Accounting

 

Accounting for assets on acquisition requires an assessment of the existence, fair value and expected useful economic lives of separate intangible assets at the date of acquisition. The value attributed together with the assessment of useful economic lives determines future amortization charges.

 

Accounting for deferred contingent acquisition consideration is based on estimates of future performance of the acquired assets over the contractual period. If the future results of these assets differs from the forecast used for these calculations, there may be a material change in the value of these deferred liabilities which would be recorded in the consolidated statements of comprehensive income/(loss).

 

(h)

Carrying value of Intangible Assets

 

The Company assesses the carrying value of intangible assets annually, or whenever there is an indication of impairment. Identifying indicators or impairment requires judgments to be made as to the prospects and value drivers of the individual assets.

 

(i)

Lease Obligations

 

The Company assesses the term of the lease including whether the options for renewal will be taken up and the incremental borrowing rate.

 

29

 

Financial Condition, Liquidity and Capital Resources

 

Net Financial Assets

 

Our net financial assets position is shown below:

 

   

Nine Months Ended

   

Year Ended

 
    September 30,     December 31,  
   

2020

   

2019

 
   

A$

   

A$

 

Financial assets:

               

Cash and cash equivalents

    23,049,940       30,229,530  

Accounts receivables

    173,089       116,626  

Total financial assets

    23,223,029       30,346,156  

Debt:

               

Short and long term debt/loan

    41,960       0  

Total debt

    41,960       0  

Net financial assets

    23,181,069       30,346,156  

 

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

 

The decline in our net financial assets position is primarily a result of working capital maintenance.

 

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

 

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

 

We regularly review all our financial assets for impairment. There were no impairments recognized as at September 30, 2020 or for the year ended December 31, 2019.

 

Given the uncertainty in the rapidly changing market and economic conditions related to the COVID-19 outbreak, we will continue to evaluate the nature and extent of the impact to our business and financial position.

 

Derivative Instruments and Hedging Activities

 

In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider our own and counterparty credit risk.  At September 30, 2020 and December 31, 2019, 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).  

 

We had no derivatives or outstanding contracts in place through the period ended September 30, 2020 and for the year ended December 31, 2019.

 

30

 

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,     December 31,  
   

2020

   

2019

 
   

A$

   

A$

 

Cash and cash equivalents

    23,049,940       30,229,530  

Working capital

    21,933,231       26,912,358  

Ratio of current assets to current liabilities

 

3.03 : 1

   

3.65 : 1

 

Shareholders’ equity per common share

    0.22       0.26  

 

The movement in cash and cash equivalents and working capital during the above periods was primarily due to working capital maintenance.

 

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

 

Summary of Cash Flows

 

   

Nine Months Ended

   

Year Ended