Final Results

29 April 2014

Lifeline Scientific, Inc.

("Lifeline" or the "Company")

Results for the Twelve Months Ended 31 December 2013

Lifeline Scientific (AIM: LSIC, LSI), the transplantation technology company, announces results for the year ended 31 December 2013, a strong year of growth with revenues and operating profits ahead of previous market expectations.

Financial Highlights

• Transplantation products and services revenues up 11.1% US$32.4m (2012: US$29.1m)

§ LifePort®single-use consumable sales up 13.9% to US$18.4m (2012: US$16.1m)

§ North American revenues up 2% to US$24.3m (2012: US$23.8m)

§ Revenues outside of North America up 52% to US$8.0m (2012: US$5.3m) - with solid growth in Brazil and China

• Gross profit up 8.7% to US$19.9m (2012: US$18.3m)

• Operating profit increased to US$1.9m (2012:US$0.1m), or US$0.9m before non-recurring items*

• Net income increased to US$2.9m (2012:US$0.2m loss), or US$0.9m before non-recurring items†

• Cash of US$3.0m as of 31 December 2013 (as of 30 June 2013: US$3.0m)

*adjustment of US$1.0m favourable legal settlement

†adjustment for legal settlement and for release of US$1.0m deferred tax valuation allowance

Operational Highlights

• Strong geographical expansion outside of the US:

§ Sales to strategic Europe up 25% to US$4.9m (2012: US$3.9m)

§ A French national tender win

§ Product sales in Brazil up 51% to US$1.9m (2012: US$1.3m)

§ Sales to China reaching US$1.3m (2012: US$0.1m)

• Further clinical evidence published supports the clinical and economic benefits of LifePort Kidney Transporter

• New product innovations continue with further progress to the LifePort Liver Transporter

David Kravitz, Chief Executive Officer of Lifeline, said:

"The strong second half trading in 2013 has provided the business with solid momentum going into the new financial year. I am optimistic about the prospects of the business for 2014, both in terms of potential for delivering continued growth in operating profits and shareholder return, but also offering meaningful technology innovations in support of surgeons worldwide in their daily mission of providing life-saving transplants to patients with end-stage organ disease."

Upcoming events

Expected mailing date for the annual report: 23 May 2014. It will also be available on the Company website, www.lifeline-scientific.com.

Date of Annual General Meeting: 19 June 2014

About Lifeline Scientific Inc.

Lifeline Scientific, Inc. is a Chicago-based global medical technology company with regional offices in Brussels and Sao Paulo. The Company's focus is the development of innovative products that improve transplant outcomes and lower the overall costs of transplantation. Its lead product is the market-leading and clinically validated LifePort Kidney Transporter. LifePorts and novel solutions designed for preservation of other organs are in development, with LifePort Liver Transporter next in line for commercial launch. For more information please visit www.lifeline-scientific.com

About LifePort Kidney Transporter

Created with the challenges of organ recovery and transport in mind, LifePort Kidney Transporter is a proprietary medical device designed to provide improved kidney preservation, evaluation and transport prior to transplantation. Today, it is widely recognised as the world's leading machine preservation device for kidneys. Employed by surgeons in over 165 leading transplant centres in 27 countries worldwide, LifePorts have successfully preserved over 47,000 kidneys indicated for clinical transplant. For more information please visit www.organ-recovery.com

Lifeline Scientific, Inc. Shares

As a US Company listed on the London Stock Exchange's AIM exchange, Lifeline Scientific, Inc. trades under two lines of stock, AIM: LSIC (unrestricted shares), LSI (restricted shares). While affiliates of the Company are required to hold restricted (RegS) shares, all others may hold restricted or unrestricted shares. Unrestricted shares may be electronically traded through the CREST system. Both lines of stock have identical rights, preferences and privileges. Non-affiliates may transfer restricted shares to the unrestricted line after purchase through the Company's registrar. Total shares outstanding for the Company at this time are 19,446,720, with 12,973,680 shares in issue under the LSIC line and 6,473,040 shares in issue under the LSI line.

Chairman's Statement

I am delighted to report that 2013 has been another year of solid growth, with the positive momentum seen in the first half of the year continued into the second. As a result, we are reporting full year revenues ahead of previous expectations and operating profit well ahead of previous market expectations. We continue to be very well positioned in our home US market, and combined with good progress in key emerging markets, we expect to see strong demand for our products and services continue in 2014.

Full year revenues grew by nearly 10.2% to US$33.2m (2012: US$30.2m). Transplantation products and services revenues increased 11.1% to US$32.4m (2012: US$29.1m), with much of the growth driven by significant orders from Brazil and China for our flagship LifePort Kidney Transporter and related products in the second half.

Revenues from single-use consumables, which also includes flush and preservation solutions, increased by 6%. A key measure of our performance is the sale of our proprietary singleuse consumables for the LifePort Kidney Transporter. Sales of these higher margin products increased by 13.9% compared to last year tof US$18.4m (2012: US$16.1m). Sales of proprietary consumables associated with the LifePort Kidney Transporter now represent 56.7% of transplantation related revenues (2012: 55.3%).

Revenues from our more mature North American home market rose 2% to US$24.3m (2012: US$23.8m). Sales outside of this core market rose 52% to US$8.0m (2012: US$5.3m), with sales in Brazil and China more than doubling to US$3.18m (2012: US$1.4m).

Gross profit increased by 8.7% to US$19.9m (2012: US$18.3m) with a Gross margin of 59.8% in line with last year (2012: 60.6%) due in part to strong sales of the Company's LifePort Kidney Transporters of US$1.7m (2012: US $0.6m) and the resulting business mix.

Operating profit improved significantly to US$1.9m (2012: US$0.1m), due to sales growth, the result of a non-recurring legal settlement, and a reduction in research and development for the year. Operating profit adjusted for non-recurring items is US$0.9m (2012: US$0.1m). This adjustment is namely the recognition of a favourable US$1.0m legal settlement from a third party, further details of which are given below. Adjusted Pre-tax profit (Income before income taxes) increased to US$0.9m (2012: US$0.05m), with a reported Pre-tax profit of

US$1.9m. The Company will report Basic earnings per share of US$0.15 (2012: US$0.01 loss).

The cash position of the Company remains healthy, with cash balances as at 31 December 2013 of US$3.0m (30 June 2013: US$3.0m), reflecting investments in both working capital to support growth, and development costs associated with our LifePort Liver Transporter. Overall R&D spending reduced slightly to US$2.9m (2012: US$3.2m). Net cash used in operating activities came to US$0.4m (2012: US$1.5m), reflecting a large increase in receivables due following significant orders received at the end of the year, as well as an investment in inventory to support the strong order pipeline from China, Brazil, and the French tender win.

As outlined at the Half Year Results, the Company settled a dispute with a third party during the year. Under the settlement, the Company is owed US$1.0m, payable through April 2015. The Company has recognised the settlement amount as a reduction to selling, general, and administrative expenses in the consolidated statements of operations. As of 31 December 2013, the Company has received payments of US$391,301 related to this settlement.

Revenues for the period since the year end have been encouraging and are in line with our expectations for the first quarter. We have seen continued strong demand from our core markets in the US and Europe, and we remain confident about the future growth prospects in Brazil and China.

I would like to thank the Board and staff for their excellent work throughout the year and their valuable contribution to the strong performance of the business. We start 2014 well positioned to advance on the opportunities available to us and I look forward to reporting on the continued success of the Group over the coming year.

John Garcia

Chairman

Chief Executive Officer's review

Our 2013 performance reflects the continued success of extending our expertise within the North American transplant market to key growth territories abroad. Most significantly, in the second half of this year strong demand for our flagship LifePort Kidney Transporter and related products resulted in significant orders from Brazil and China. We also experienced strong growth in revenues from Europe throughout the year.

We are immensely grateful as a company that transplant professionals worldwide now have access to the LifePort Kidney Transporter; a product shown to improve transplant outcomes and help increase the number of kidneys available for transplantation.

At the end of the financial year we had an installed base of LifePorts at 160 transplant centres in 27 countries, with LifePort adopted for machine preservation in 19 new transplant programmes during the year.

Geographical expansion

We continue to achieve steady revenues from transplantation products within our core North American market. The region is presently the largest contributor to revenues, accounting for just over 75% of worldwide revenues.

Our long-term strategic initiative to invest in geographic expansion continues to pay off as the installed base of LifePorts increased in key growth territories, particularly in the EU, Brazil, and China, driving incremental sales of our proprietary LifePort Kidney Transporter consumables. With transporter sales worldwide nearly tripling in the period to US$1.7m (2012: US$0.6m) we expect to see additional benefits from the pull through of higher margin single use consumable items in 2014.

Strategic Europe/Rest of World (ROW)

Sales in Strategic Europe (ROW), which we define as sales from outside of the Americas and China, were very encouraging, having increased by nearly 25% to US$4.9m (2012: US$3.9m). During the period, CE mark certification renewal was secured for our LifePort Kidney Transporter family of single-use disposable products.

Among the largest markets in Europe for kidney transplants is France with a reported 2,687 renal transplant procedures from deceased donors performed in 2012. During 2013 the French transplant authorities concluded an extensive clinical, logistical and technical review of LifePort Kidney Transporter, as part of the French health ministry's competitive national tender for machine preservation products. Soon after calendar year end 2013, we were very pleased to announce our winning of the national tender to exclusively supply LifePort Kidney Transporters and related products to kidney transplant centres across 23 public hospitals in France. This is a significant contract in terms of our European expansion, and as mentioned in our Outlook, it provides an important contribution to our Company's growth in 2014.

Market access negotiations in Germany continued to advance with the aim of establishing contract terms and a harmonized national clinical protocol for Germany's formal evaluation and potential national implementation of LifePort reimbursement.

Brazil

Brazil represents a significant market opportunity for the Company, with an estimated 135 transplant programmes performing a reported 4,500 kidney transplants annually from deceased donors. The country also reports a rapidly growing trend of end-stage renal disease, with chronic dialysis or transplant as the only therapies. 

We continue to work closely with the Brazilian Government to develop a pragmatic solution to challenges associated with the importation of our products, chief among them being long cycle times from institutional order placement to successful importation and delivery. The solutions under consideration include a national purchase contract wherein the federal government would acquire LifePorts on behalf of Brazilian state or federal government hospitals. We will provide an update as talks progress during 2014.

In mid 2012 we received ANVISA regulatory approval for commercial sale of our full suite of products in Brazil. Revenues from LifePort Kidney Transporters and related consumables increased by 51% in 2013 to US$1.9m (2012: US$1.3m).

To date, over 600 LifePorted kidneys have been transplanted at eight leading transplant centres in Brazil. Excellent post-transplant results have been reported by clinicians and we expect this number to increase in 2014. We are also in process of securing ANVISA regulatory approval for our new LifePort 1.1 with embedded GPS/GPRS, among several other meaningful new features.

China

Over the last several years, China's national transplant system has been undergoing transformational improvements. This initiative is based upon an adaptation of North America's successful model for organ donation, procurement management, and algorithm-based donor organ allocation, and is fully backed by China's national health ministry. Based upon progress to date, in the coming years this region may become one of the largest national venues for the Company's products and services.

Today China reports having a network of over 165 licensed renal transplant centres with dozens more centres anticipated to be developed due to rising demand. Chinese health authorities have described a growing trend in end-stage renal disease, which in turn drives increased needs for kidney transplantation. In concert with the nation's comprehensive transplant system overhaul, the Company has made considerable investments in establishing key national distributor and transplant centre relationships. These efforts are showing promise as we achieved a significant uplift in revenues over the year to US$1.3m (2012: US$0.1m).

The full commercial launch of LifePort Kidney Transporter in China will be driven by the timing of Chinese regulatory approvals. Our products have been in the process of registration with China's FDA for the last two years and we remain optimistic these approvals will come in 2014. We are confident that positive results recently reported from the inaugural seven centre, 100 patient LifePort feasibility study, and subsequent successful follow-on single centre studies, will help accelerate the regulatory approval process.

Presently, LifePort Kidney Transporter is imported to China under a research protocol. This has been a successful interim measure, as seen by the sales uplift described above, and by encouraging outcomes data reported by clinicians at China Society of Transplantation congresses over the last few years. We are also very encouraged by recent public presentations and statements by Huang Jiefu, Head of the National Organ Transplantation Committee, and other surgeon leadership, regarding progress of the new national policy for deceased organ donation, which includes the recognition that machine preservation technologies have a considerable positive impact on the success of organ transplant procedures. This momentum suggests we may potentially see robust nationwide adoption of our products following Chinese regulatory approval and full commercial launch.

New Clinical Evidence

The body of scientific publications providing clinical and economic evidence in support of hypothermic machine preservation continued to grow over the year. New data was produced from the landmark European Machine Preservation Trial (MPT), an independent, multi-national, randomised, controlled trial comparing outcomes of LifePort machine preserved kidneys with the traditional method of static cold storage (ice-box preservation).

Study results of three year outcomes data from the MPT, demonstrated a significant long term benefit for organ survival following the use of LifePort in expanded criteria donor kidney ('ECD') transplantation. The study was published in the March, 2013 edition of Transplant International. Notably, the data showed that only 32.9% of ECD kidneys with Delayed Graft Function (DGF) survived if statically stored , compared with 68.7% of kidneys preserved on LifePort. DGF often occurs in ECD kidneys, and is known to adversely impact near and long term graft performance and survival rates.

In January 2014, the medical journal, Transplantation, published a retrospective analysis of the impact of machine preservation on close to 95,000 renal transplants in the USA between 2000 and 2011. The study, conducted by University of British Columbia transplant specialists, concluded that machine preservation leads to improved patient outcomes by reducing DGF over cold static storage.

New Product Innovations

Universal SealRing Cannula

Our new Universal SealRing Cannula with innovative ease-of-use features was successfully launched during the year and drew favourable reviews from transplant surgeons and organ procurement professionals. Initial observations suggest the new cannula allows a broader range of renal vascular access and LifePort connectivity which should enable more kidneys to be indicated for LifePort vs. the box of ice. This invention also uniquely enables LifePort use with living donor kidneys, a potential new market.

LifePort Liver Transporter

The development of our proprietary LifePort Liver Transporter has progressed in line with expectations. As highlighted above R&D costs reduced slightly in the year, reflecting the end of LifePort Liver Transporter's major R&D spend phase and the focus on pre-commercial launch market activities.

Our LifePort Liver Transporter commercial prototype received favourable reviews in its US debut at the American Transplant Congress in 2013. Data from initial clinical liver transplants using LifePort's early prototype and proprietary new solution at New York's Columbia Medical University were encouraging, suggesting that LifePort could provide unique clinical and cost benefits. Initially observed were improvements in patient outcomes, as well as a lowering of the overall cost of near-term post transplant care, compared to the status quo of ice box storage. These observations were based upon results from a cohort study of 42 clinical transplantation procedures, including 31 expanded criteria livers that had been rejected upon offer by other centres within the region.

The process of regulatory registration is well underway for both the US and EU. While timing for achieving regulatory clearances cannot be predicted, we continue to aim for commercial availability late in 2014.

Recently, we were gratified to receive initial interest for the LifePort Liver Transporter from key opinion leaders within the Chinese liver transplant surgical community. End-stage liver disease is a significant and growing problem in China. We are currently in discussions with our Chinese colleagues to explore ways in which the LifePort Liver Transporter might be clinically employed under humanitarian use or research protocols prior to full regulatory approval.

LifePort Rolling Transport Cover

Designed to add additional protection and mobility for LifePort logistics management, the new rolling transport cover also allows for user friendly storage of key documentation and other elements required to be stored during organ recovery and transport from the point of donation to recipient bedside. This innovation further supports LifePort's ability to travel as unattended cargo while fully operational.

Research Innovations

Recognising that innovation from independent investigators has always been an important part of transplant medicine, the Company sponsors a number of strategically selected academic research programmes aimed to advance the state of the art of organ, tissue, and cell preservation for transplantation. While not material to our overall budget, our sponsorship is most often provided through transfers of our products or support services in exchange for certain intellectual property rights. We are also party to several third party institutional grant funded research projects.

Our research focus follows published priorities of the major US and European clinical transplant societies in three main areas: Basic Science, Translational Science (including pre-clinical models designed to advance translation of validated mechanistic discoveries to clinical applications), and Clinical Science. Our most potentially promising and important research programmes include:

Basic Science

· Development and validation of perfusate derived biomarkers of renal and hepatic graft dysfunction

Translational Science

· Development and validation of surrogate markers for long-term outcomes in kidney and liver allografts

· Studies to determine the effects of ice-free cryopreservation on protective immunity in allogeneic tissue for transplantation

· Adherence monitoring to help define predictors of chronic rejection, cancer and infections after transplant, including epigenetic influences in determining transplant outcomes

· Development of patient point of care assays for remote monitoring and measurement of immunosuppressant drug levels and key biomarkers of patient health

Clinical Science

· Reducing post-transplant complications in renal and liver allografts

· Optimising organ utilisation by improving organ viability through machine perfusion based interventions in the pre-transplant period including ex vivo conditioning

· Improving the post-transplant patient experience and clinician support thereof, by addressing the challenges of therapy adherence

Solutions

We are a market leading provider of preservation solutions used in transplantation. With anticipated regulatory clearance for our SPS-1 UW preservation solution expected in China and EU in the second half of 2014, we look forward to continued growth from our solutions products in 2014.

Intellectual Property

During the period 50 new patents were issued covering LifePort organ preservation and related technology, along with our cell and tissue preservation innovations. The Company's IP portfolio now includes 59 US issued and 39 US pending patents, and 102 international issued and 113 international pending patent applications. The strategic planning and management of our intellectual property portfolio is a key initiative of the Company, aimed to strengthen its market leadership with IP as a competitive barrier to market entry.

Outlook

The strong second half trading in 2013 has provided the business with solid momentum going into the new financial year. Geographic expansion will remain a key initiative of the Company. Adoption of our LifePort products in Brazil and China has continued in the first quarter of the year and we expect that regulatory approval in China will drive further advancements in 2014.

Our confidence in delivering continued growth in 2014 has been strengthened by the award of a major national tender to supply LifePort Kidney Transporters and related products to 23 renal transplant programmes in France. This is the first national tender award in the EU for the Company and provides a solid platform for driving sales in one of Europe's largest national markets for kidney transplantations.

Supported by strategic inventory build during second half of 2013, we entered 2014 well prepared for continued sales growth.

Our pipeline of product introductions will also allow us to address new areas of clinical need and to provide technology that will bring additional benefits to both kidney and liver transplantation. Key milestones targeted for new and existing products include US and EU regulatory approvals for our LifePort Liver Transporter, EU regulatory renewal for SPS-1, and broad regulatory clearances in China.

I am optimistic about the prospects of our business for 2014, both in terms of potential for delivering continued growth in operating profits and shareholder return, and in offering meaningful technology innovations in support of surgeons worldwide in their daily mission to bring life-saving transplants to thousands of patients suffering from end-stage organ disease.

I would like to thank my colleagues for their constancy and hard work, as well as our shareholders and customers for their support over the course of 2013. We are encouraged by positive momentum starting the new year, and look forward to another solid performance in 2014 for Lifeline Scientific.

David Kravitz

Chief Executive Officer

Consolidated Balance Sheets

31 December 2013 and 2012

The accompanying footnotes are an integral part of the consolidated financial statements.

Consolidated Statements of Operations

Years Ended 31 December 2013 and 2012

The accompanying footnotes are an integral part of the consolidated financial statements.

Consolidated Statements of Comprehensive Income (Loss)

Years Ended 31 December 2013 and 2012

The accompanying footnotes are an integral part of the consolidated financial statements.

Consolidated Statements of Changes in Stockholders' Equity

Years Ended 31 December 2013 and 2012

The accompanying footnotes are an integral part of the consolidated financial statements.

Consolidated Statements of Cash Flows

Years Ended 31 December 2013 and 2012

The accompanying footnotes are an integral part of the consolidated financial statements.

Note 1 - Industry Operations

Lifeline Scientific, Inc. (the "Company") is a US corporation whose common shares trade publicly on the AIM Market on the London Stock Exchange (AIM:LSI.c and LSI.s). The Company is in the business of delivering, to targeted medical markets, a portfolio of related proprietary technologies, which include devices, solutions, and protocols designed to maximise the use and availability of organs, tissues, and cells. The Company serves the kidney transplant market today with its LifePort product line, and also sells solutions to service the broader organ transplant industry. All sales are generated from US manufacturing. A majority of the Company's sales are in North America and 98.02% of the Company's long-lived assets are within the US. A LifePort Liver product line is planned for a commercial launch during either the year ending 31 December 2014 or the year ending 31 December 2015, and other organ-related products are in development. The Company views itself as operating as one segment. 

Note 2 - Summary of Significant Accounting Policies

Principles of Consolidation

The Company was incorporated in the state of Delaware as Organ Recovery Systems, Inc. on 1 October 1998. On 20 December 2007, the Company changed its name to Lifeline Scientific, Inc. The Company is consolidated with the following subsidiaries:

ORS Europe, NV *

Cell and Tissue Systems, Inc. **

Organ Recovery Systems, Inc. *

ORS Representacoes do Brasil LTDA*

* A wholly-owned subsidiary

** 49.00% owned

Intercompany balances and transactions have been eliminated in consolidation.

The Consolidation Topic of accounting principles generally accepted in the US ("US GAAP") requires consolidation by the primary beneficiary where the variable interest entity does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties. The application of this guidance resulted in the consolidation of Cell and Tissue Systems, Inc. ("CTS"), which was created during the year ended 31 December 2005 and was deemed to be a variable interest entity. CTS was primarily formed to meet regulatory requirements in order to enhance its ability and capacity to apply for funding from available government sources. All grant revenue reported in the consolidated statements of operations is related to CTS, and this constitutes all of CTS' revenue. The Company contributed US$490 for the 49.00% ownership needed to form the variable interest entity. CTS has an accumulated deficit as of 31 December 2013 and 2012.

In accordance with the requirements of the accounting standard under US GAAP that establishes accounting and reporting standards for non-controlling interests in a subsidiary in consolidated financial statements, the Company classifies the non-controlling interest of CTS within the equity section of the consolidated balance sheets and separately reports the amounts attributable to controlling and non-controlling interests in the consolidated statements of operations for all periods presented.

Cash and Cash Equivalents

The Company considers all money market accounts and short-term investments with an original maturity of three months or less and US Treasury money markets to be cash equivalents. The majority of cash and cash equivalents as of 31 December 2013 and 2012 were held through a single financial institution, and the balances held at times exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.

Receivables

Receivables are carried at original invoice or closing statement amount less estimates made for doubtful receivables. Management of the Company determines the allowance for doubtful accounts by reviewing and identifying troubled accounts on a monthly basis and by using historical experience applied to an aging of accounts. In general, a receivable is considered to be past due if any portion of the receivable balance is outstanding for more than 90 days past its terms. The Company does not charge interest on past due receivables. Receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded when received.

Inventories

Inventories are valued at the lower of cost (first-in, first-out) or market.

Depreciation and Amortisation

The Company's policy is to depreciate or amortise the cost of property and equipment over the estimated useful lives of the assets using the straight-line method. The cost of leasehold improvements is amortised over the estimated useful lives, or the applicable lease term, if shorter.

Long-Lived Assets

Long-lived assets to be held are reviewed for events or changes in circumstances that indicate that their carrying value may not be recoverable. The Company periodically reviews the carrying value of long-lived assets to determine whether or not an impairment to such value has occurred. Management of the Company believes that no impairment of long-lived assets exists as of 31 December 2013 and 2012.

Intangibles

The cost of intangible assets are being amortised over the remaining lives of the assets as follows:

Professional and regulatory fees associated with obtaining the licenses that enable the Company to sell its products (i.e. certification marks) are capitalised and amortised over the shorter of the useful lives of the related licenses or twenty years. Legal fees associated with filings for patents that are pending are capitalised if management of the Company believes that it is probable that such patent applications will be successful. Patent costs are not amortised until the patent is obtained. During the year ended 31 December 2010, the Company signed an agreement that allows for the licensing of technology to support the Company's product development efforts. The agreement is being amortised over the remaining estimated life of the licensed technology, or ten years.

Goodwill

Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. In accordance with accounting for goodwill under US GAAP, goodwill is not amortised, but instead tested for impairment on an annual basis. The Company has applied Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2011-08, "Testing Goodwill for Impairment," in connection with the performance of the annual goodwill impairment test. Under ASU 2011-08, entities are provided with the option of first performing a qualitative assessment on none, some, or all of its reporting units to determine whether further quantitative impairment testing is necessary. An entity may also bypass the qualitative assessment for any reporting unit in any period and proceed directly to the quantitative impairment test. Goodwill must be tested on an annual basis or if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. During the years ended 31 December 2013 and 2012, the Company was not required to record any impairments to the carrying value of goodwill.

Deferred Rent

Minimum rent expense is recognised over the term of the lease. The Company recognises minimum rent starting when possession of the property is taken from the landlord. When a lease contains a predetermined fixed escalation of the minimum rent, rent expense is recognised on a straight-line basis. Any difference between the recognised rent expense and the amounts payable under the lease is reported as deferred rent in the consolidated balance sheets. The Company records include a tenant allowance on its facility lease in Itasca, Illinois, which is recorded as a component of deferred rent and amortised as a reduction to rent expense over the term of the lease. Future payments for common area maintenance, insurance, real estate taxes, and other occupancy costs to which the Company is obligated are excluded from minimum lease payments.

Fair Value of Financial Instruments

US GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. US GAAP describes three approaches to measuring the fair value of assets and liabilities: the market approach, the income approach, and the cost approach. Each approach includes multiple valuation techniques. US GAAP does not prescribe which valuation technique should be used when measuring fair value, but does establish a fair value hierarchy that prioritises the inputs used in applying the various techniques. Inputs broadly refer to the assumptions that market participants use to make pricing decisions, including assumptions about risk. Level 1 inputs are given the highest priority in the hierarchy while Level 3 inputs are given the lowest priority. Assets and liabilities carried at fair value are classified in one of the following three categories based on the nature of the inputs to the valuation technique used:

· Level 1 - Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

· Level 2 - Observable market-based inputs or unobservable inputs that are corroborated by market data.

· Level 3 - Unobservable inputs that are not corroborated by market data. These inputs reflect management of the Company's best estimate of fair value using its own assumptions about the assumptions a market participant would use in pricing the asset or liability.

The carrying values of cash and cash equivalents, accounts receivable, and accounts payable approximates their fair values because of the short-term nature of these instruments. The carrying value of long-term debt approximates its fair values as the stated interest rates approximate current market interest rates of long-term debt with similar terms.

Product Warranty

Estimated future costs applicable to products sold under warranty are charged to expense in the year of sale, and the related liability is classified as current and have been included in other accrued expenses. A summary of the account activity for the warranty accrual is as follows during the years ended 31 December 2013 and 2012.

Revenue Recognition

Product sales revenue is recognised upon shipment of product to the client. Service fee revenue is recognised when services are performed. Deferred and unbilled revenue is recognised in the consolidated balance sheets.

Grant revenue is recognised when earned. Grant revenues are deemed earned to the extent of the total allowable expenditures incurred, which are specified in the grant contract. In some cases, a portion of the grant revenue is paid at the time the grant is initiated. These advances are deferred and recognised using the proportional performance model. Unbilled services are at times recorded for revenue recognised to date and relate to amounts that are currently unbillable to the client pursuant to contractual terms.

The Company sells extended warranties on its LifePort product for a specific period of months. This revenue is deferred and recognised over the term of the warranties on a straight-line basis.

Shipping and Handling Costs

Shipping and handling costs billed to customers of US$178,778 and US$148,709 are netted with expense and have been included in cost of sales on the consolidated statements of operations during the years ended 31 December 2013 and 2012, respectively.

Income Taxes

Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of property and equipment, bad debts, intangibles, and accrued expenses for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. The carrying value of the Company's deferred tax assets is dependent upon its ability to generate sufficient taxable income in the future. The Company has established a valuation allowance against its net deferred tax assets to reflect the uncertainty of realising the deferred tax benefits, given past historical losses and a limited history of significant earnings. A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realised. The Company is subject to US federal, state, and local taxes as well as foreign taxes in Belgium and Brazil. During the year ended 31 December 2013, US$1,000,000 of the valuation allowance was reversed to reflect the likelihood of future taxable income, which will most likely result in the utilisation of a portion of the Company's net operating loss carryforwards.

The Company's consolidated financial statements provide for any related US tax liabilities on earnings of foreign subsidiaries that may be repatriated, aside from qualifying undistributed earnings of certain foreign subsidiaries that are intended to be indefinitely reinvested in operations outside of the US.

The Company accounts for unrecognised tax benefits in accordance with US GAAP, which prescribes a more likely than not threshold for consolidated financial statement presentation and measurement of a tax position taken or expected to be taken in a tax return. A tax position is recognised as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognised is the largest amount of tax benefit that is greater than 50.00% likely of being realised on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded.

Stock Options

In accordance with US GAAP, the Company accounts for the cost of employee services received in exchange for an award of equity instruments utilising the grant date fair value of the award. Stock-based awards that do not require future service (i.e., vested awards) are expensed immediately. The expense associated with stock-based employee awards that require future service are amortised over the relevant service period.

Management Estimates

The preparation of consolidated financial statements in conformity with US GAAP requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The estimates included by the Company in these consolidated financial statements relate to warranty reserves, the allowance for doubtful accounts, the useful lives of patents, the useful lives of depreciable property and equipment, and the valuation allowance for deferred tax assets.

Research and Development

Expenditures relating to the development of new products and procedures are expensed as incurred.

Foreign Currency Translation

The financial position and results of operations of the Company's foreign subsidiaries are measured using the subsidiary's local currency as the functional currency. Assets and liabilities of the foreign subsidiaries are translated to US dollars using exchange rates in effect as of the consolidated balance sheet dates. Income and expense items are translated at monthly average rates of exchange. The resultant translation gains or losses are included as part of the components of stockholders' equity designated as other comprehensive income (loss).

Subsequent Events

The Company has evaluated subsequent events through 4 April 2014, the date the consolidated financial statements were available to be issued. No reportable subsequent events occurred through 4 April 2014.

Contingencies

During the twelve months ended 31 December 2013, the Company settled a dispute with a third party. Under the settlement, the Company is owed US$1,000,000, payable through April 2015. The Company has recognised the settlement amount as a reduction to selling, general, and administrative expenses in the consolidated statements of operations. As of 31 December 2013, the Company has received payments of US$391,301 related to this matter and the third party is current with the settlement payment terms.

In addition to the aforementioned matter, from time to time, the Company may experience litigation arising in the ordinary course of business. These claims are evaluated for possible exposure by management of the Company and their legal counsel. The Company believes that the ultimate resolution of any such matters will not have a material adverse effect on its consolidated financial position.

Reclassification

Certain amounts as of 31 December 2012 and for the year then ended have been reclassified to conform to the presentation as of 31 December 2013 and for the year then ended. These reclassifications had no effect on net loss or stockholders' equity.

Note 3 - Concentrations

As of 31 December 2013, two vendors accounted for 27.06% and 12.95% of accounts payable, respectively. As of 31 December 2012, three vendors accounted for 17.25%, 15.28%, and 10.57% of accounts payable, respectively. During the year ended 31 December 2013, two vendors accounted for 12.73% and 12.31% of purchases. During the year ended 31 December 2012, one vendor accounted for 11.00% of purchases.

As of 31 December 2013, two customers accounted for 15.11% and 12.87% of accounts receivable, respectively.

The Company receives the majority of its grant revenue under several grant contracts from the National Institutes of Health. During the years ended 31 December 2013 and 2012, the Company earned US$761,902 and US$879,014, respectively. The receivable balances from the National Institutes of Health were US$44,705 and US$48,567 as of 31 December 2013 and 2012, respectively.

Note 4 - Inventories

Note 5 - Property and Equipment

During the years ended 31 December 2013 and 2012, the Company recognised depreciation expense of US$743,821 and US$569,661, respectively.

Note 6 - Intangibles

Intangible assets consist of the following:

During the years ended 31 December 2013 and 2012, the Company abandoned patents issued and patents pending with an original cost of US$95,897 and US$142,015, respectively.

During the years ended 31 December 2013 and 2012, the Company recognised amortisation expense of US$201,862 and US$87,079, respectively.

The following schedule by year represents future intangible amortisation, assuming certification mark fees and patent pending costs will be reclassified as issued and amortisation will begin at the midpoint of the following year:

Note 7 - Financing Agreements

During August 2009, the Company entered into a two-year working capital line of credit agreement with Silicon Valley Bank ("SVB") to support potential future cash needs of the Company. This line of credit agreement, and amendments executed in 2010 through 2013, currently provide for a revolving line of credit not to exceed an aggregate principal amount of US$3,000,000, limited to qualifying receivables as defined, and grants a security interest in and lien upon all of the assets of Lifeline Scientific, Inc. and Organ Recovery Systems, Inc. in favour of SVB. The maturity of the line of credit agreement is 21 September 2014. The outstanding principal under the revolving line of credit accrued interest at an annual rate of 1.25% above the prime rate (3.25% as of 31 December 2013). In addition, a US$750,000, 36 month term loan at a 5.50% unsecured or a 2.75% secured rate was made available to the Company. During the year ended 31 December 2012, the Company drew upon this term loan in the amount of US$525,000 (at a secured rate of 2.75%) to support the Company's growth plans. The financing agreements contain financial covenants which required the Company to maintain minimum adjusted quick ratio levels (as defined) at 31 December 2012 and a required minimum tangible net worth (as defined) at 31 December 2013. The Company was in compliance with its covenant as of 31 December 2013. As of 31 December 2013 and 2012, there were no amounts outstanding on the line of credit and the outstanding balance on the term loan was US$218,750 and US$393,750, respectively.

Note 8 - Long-Term Debt

Maturities on long-term debt other than capital leases are as follows as of 31 December 2013:

The following is a schedule by year of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of 31 December 2013:

Assets held under capital lease as of 31 December 2013 and 2012 had a cost of US$82,348 and US$136,651, respectively, and accumulated depreciation of US$10,964 and US$61,601, respectively.

Note 9 - Income Taxes

Income tax (benefit) expense consists of the following components for the years ended 31 December 2013 and 2012:

A reconciliation of income tax (benefit) expense, with amounts determined by applying the statutory US federal income tax rate to income before income taxes is as follows for the years ended 31 December 2013 and 2012:

The net deferred tax assets in the accompanying consolidated balance sheets include the following components as of 31 December 2013 and 2012:

The income tax (benefit) expense differs from the federal statutory tax rate generally as a result of changes in the valuation allowance, permanent differences such as meals and entertainment expenses, state income taxes, foreign income taxes, and the amending of a state income tax return during the year ended 31 December 2012. A valuation allowance has been provided to reduce the deferred tax assets to the amount that is more likely than not to be realised.

The Company has federal net operating loss carryforwards totalling US$57,712,000 as of 31 December 2013, which may be used to offset future taxable income. If not used, the carryforwards will expire in future years as follows:

As a result of changes in ownership at the IPO date, the Company estimates there will be future limitations on the utilisation of operating loss carryforwards pursuant to Internal Revenue Code Section 382. Any unused annual loss limitation carries forward to future year. The annual limitation on loss carryforwards that could be utilised is approximately US$5,600,000 through the year ended 31 December 2013 and US$2,600,000 after the year ended 31 December 2013. The cumulative unused loss limitation which carried into the year ended 31 December 2013 was approximately US$16,402,000.

The Company files tax returns in the US federal and various state jurisdictions, along with Belgium and Brazil foreign tax jurisdictions. The Company's tax years extending back to the year ended 31 December 2009 remain open to examination for both federal and state jurisdictions. The Company's policy is to recognise interest and penalties related to uncertain tax positions as a component of income tax expense. A summary of the activity related to unrecognised tax benefits is as follows during the years ended 31 December 2013 and 2012:

The Company does not expect the total amount of unrecognised tax benefits to significantly change during the next 12 months.

Cash payments for income taxes were US$106,000 and US$208,000 during the years ended 31 December 2013 and 2012, respectively.

Note 10 - Common Stock

In accordance with its third amended and restated certificate of incorporation dated 20 December 2007, the total number of shares the Company is authorised to issue is 30,000,000, all of which is designated as common stock with US$0.01 par value. Each share of common stock entitles the holder to one vote on each matter submitted to a vote of the stockholders of the Company. The holders of the common stock shall be entitled to receive dividends when, and if, declared by the Board of Directors of the Company.

Note 11 - Stock Options

In December 2007, the Company approved a Second Amended and Restated Stock Option and Restricted Stock Plan (the "2007 Plan"). As of 31 December 2013 and 2012, the 2007 Plan reserves 2,333,606 and 2,330,995 shares of common stock respectively for grant (or 12.00% of the issued and outstanding common stock). The 2007 Plan permits granting of awards of restricted stock. Options granted may include nonqualified options as well as incentive stock options. The 2007 Plan is currently administered by the Board of Directors of the Company.

The 2007 Plan gives broad power to the Board of Directors of the Company to administer and interpret the 2007 Plan, including the authority to select the individuals to be granted options and restricted stock, and to prescribe the particular form and conditions of each option or restricted stock granted. The 2007 Plan shall continue in effect for a term of 10 years unless terminated sooner under provisions of the 2007 Plan. It is the Company's policy to issue new stock certificates to satisfy stock option exercises.

During the years ended 31 December 2013 and 2012, the Company granted 219,000 and 38,000 nonqualified stock options, respectively, to employees and directors of the Company. The options were granted at the fair market value of the common stock on the date of the grant, have a 10-year contractual term, and vest over four years.

A summary of option activity under the 2007 Plan as of 31 December 2013 and 2012, and the changes during the years ended 31 December 2013 and 2012 is as follows:

A summary of the Company's nonvested options under the 2007 Plan as of 31 December 2013 and 2012 and changes during the years ended 31 December 2013 and 2012 is presented as follows:

The following is a summary of the Company's stock options outstanding and stock options exercisable under the 2007 Plan as of 31 December 2013:

The Company recognised compensation expense of US$281,248 and US$258,498 during the years ended 31 December 2013 and 2012, respectively. As of 31 December 2013, there was approximately US$530,686 of total unrecognised compensation cost related to nonvested share-based compensation arrangements granted under the 2007 Plan. That cost is expected to be recognised over a weighted-average period of 1.08 years.

30,000 options were exercised during the year ended 31 December 2013 at a weighted average price of £0.39. As a result of utilising a cashless exercise option, 21,761 shares were issued related to these options. No options were exercised during the year ended 31 December 2012.

Fair value was estimated as of the grant date based on a Black-Scholes option pricing model using the following weighted average assumptions during the years ended 31 December 2013 and 2012:

When estimating forfeitures, the Company considers historical terminations as well as anticipated retirements.

Note 12 - Operating Leases

The Company conducts its operations in facilities leased under a number of operating leases. Rent expense under these agreements amounted to US$492,444 and US$512,878 during the years ended 31 December 2013 and 2012, respectively.

The following is a schedule by year of future minimum lease payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of 31 December 2013:

Note 13 - Earnings per Share

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share include the dilutive effect of stock options and warrants, using the treasury stock method. The following table sets forth the computation of basic and diluted earnings per share for the years ended 31 December 2013 and 2012:

Diluted loss per share is the same as basic loss per share because the effects of potentially dilutive securities are anti-dilutive.

Note 14 - Employee Benefit Plan

The Company sponsors a limited employer matching 401(k) plan for all employees of the Company. The plan provides for contributions in such amounts as determined by the Board of Directors of the Company, and the employer match is discretionary. Contributions of US$86,573 and US$65,969 were made during the years ended 31 December 2013 and 2012, respectively.

Note 15 - Other Cash Flow Information

Cash payments of interest were US$95,841 and US$15,567 during the years ended 31 December 2013 and 2012, respectively.

During the year ended 31 December 2013, the Company acquired a vehicle and office equipment via leases considered to be capital leases. The capital lease obligation for these assets was US$77,558.

See Notes 9 and 11 for additional noncash transactions.

Note 16 - Board Remuneration

During the years ended 31 December 2013 and 2012, the Company's Board of Directors earned remuneration for their activities as directors. In addition, David Kravitz's remuneration reflects his role as Chief Executive Officer of the Company. Compensation amounts are as follows:

In addition, David Kravitz received benefits in the form of health and life insurance coverage during the years ended 31 December 2013 and 2012 of US$31,297 and US$32,960, respectively. Directors did not receive any pension contributions from the Company during the years ended 31 December 2013 and 2012.

Note 17 - Related Party Transactions

During the year ended 31 December 2010, the Company entered into a consulting agreement with a company in which Steven Mayer, a member of the Company's Board of Directors, is a director. Mr. Mayer performs the consulting services. Fees for services rendered under the consulting agreement were US$120,000 and US$72,000 and have been included in selling, general, and administrative expenses in the consolidated statements of operations during the years ended 31 December 2013 and 31 December 2012, respectively.

Additionally, during the years ended 31 December 2013 and 2012, the Company did business with a company in which David Kravitz and Steven Mayer are directors and have an ownership interest. Fees for research and development related products and services rendered were US$324,500 and US$173,000 during the years ended 31 December 2013 and 2012, respectively. As of 31 December 2013 and 2012, the Company had assets of US$402,500 and US$177,500, respectively, included in prepaid expenses, deposits, and other and property and equipment in the consolidated balance sheets for products to be placed in service and services expected to be rendered during the following year.