Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
IVD > SEC Filings for IVD > Form 10-Q on 18-Nov-2011All Recent SEC Filings

Show all filings for IVAX DIAGNOSTICS INC

Form 10-Q for IVAX DIAGNOSTICS INC


18-Nov-2011

Quarterly Report


Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the consolidated financial statements and the related notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2010 and the unaudited interim consolidated financial statements and the related notes to unaudited interim consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

We have made forward-looking statements, which are subject to risks and uncertainties, in this Quarterly Report on Form 10-Q. Forward-looking statements may be preceded by, followed by or otherwise include the words "may," "will," "believes," "expects," "anticipates," "intends," "plans," "estimates," "projects," "could," "would," "should," or similar expressions or statements that certain events or conditions may occur. Actual results, performance or achievements could differ materially from those contemplated, expressed or implied by these forward-looking statements. These forward-looking statements are based largely on our expectations and the beliefs and assumptions of our management and on the information currently available to it and are subject to a number of risks and uncertainties, including, but not limited to, the risks and uncertainties associated with:

ˇ our ability to continue as a going concern;

ˇ our ability to generate positive cash flow or otherwise improve our liquidity, whether from existing operations, strategic initiatives or possible future sources of liquidity, including, without limitation, from the Investment or the Line of Credit, issuing debt or equity securities, incurring indebtedness or curtailing or reducing our operations;

ˇ the remaining transactions contemplated by the Investment under the Stock Purchase Agreement may not be consummated on the contemplated terms, in the time frame anticipated, or at all;

ˇ the net proceeds of the Investment, whether or not the warrants are exercised, may not provide adequate cash resources to fund our operations or liquidity needs for the reasonably foreseeable future;

ˇ our ability to achieve or sustain profitability from our operations or otherwise secure funds to provide the basis for our long-term liquidity;

ˇ our broad discretion in our use of the net proceeds from the Investment;

ˇ the warrants may not be exercised, in whole or in part;

ˇ the decision to exercise the warrants will be made by ERBA based upon considerations it deems appropriate, which may include, among other things, the future market price of our common stock, which is subject to volatility and a number of other factors, many of which may be beyond our control, and, when making any such decision to exercise the warrants, ERBA's interests may conflict with our interests;

ˇ our ability to pay when due the principal and interest on our outstanding indebtedness under the Line of Credit;

ˇ our ability to operate our business under the restrictions imposed by the positive and negative covenants to which we are subject under the Loan Agreement in connection with the Line of Credit;

ˇ economic, competitive, political, governmental and other factors affecting us and our operations, markets and products;

ˇ the success of technological, strategic and business initiatives, including our automation strategy;

ˇ the ability of the MagoŽ 4S to perform as expected;

ˇ the impact of the commercial release of the MagoŽ 4S on the judgments and estimates we have made with respect to our financial condition, operating results and cash flows;

ˇ the impact on our financial condition and operating results of making or changing judgments and estimates as a result of future design changes to, or the development of improved instrument versions of, the MagoŽ 4 or MagoŽ 4S or as a result of future demand for the MagoŽ 4 or MagoŽ 4S;

ˇ the ability of the MagoŽ 4 or MagoŽ 4S to be a source of revenue growth for us;

ˇ our ability to receive financial benefits or achieve improved operating results as a result of the commercial release of the MagoŽ 4 or the MagoŽ 4S;

ˇ the ability of the MagoŽ 4 or MagoŽ 4S to be a factor in our growth;

ˇ the ability of the MagoŽ 4 or MagoŽ 4S to expand the menu of test kits we offer;

ˇ making derivations of and upgrades to the MagoŽ our primary platforms for marketing our kits;

ˇ our ability to successfully market the MagoŽ 4 or MagoŽ 4S;

ˇ our customers' integration of the MagoŽ 4 or MagoŽ 4S into their operations;

ˇ our ability to successfully market the DSX™ and DS2™ instrument systems from Dynex Technologies in conjunction with our test kits on a worldwide basis;

ˇ the success of our comprehensive review of our business plans and operations and the initiatives that we have implemented or may implement based on the results of such review;

ˇ our ability to improve our competitive position to the extent anticipated, or at all, as a result of our comprehensive review of our business plans and operations and the initiatives that we have implemented or may implement based on the results of such review;


ˇ our ability to expand the menu of test kits that we offer to include other complementary infectious disease or autoimmune testing sectors or otherwise;

ˇ the response of our current customer base to an expansion of our menu of test kits;

ˇ our ability to achieve organic growth;

ˇ our ability to identify or consummate acquisitions of businesses or products;

ˇ our ability to integrate acquired businesses or products;

ˇ our ability to enhance our position in laboratory automation;

ˇ our ability to expand our product offerings and/or market reach, including, without limitation, our ability to increase our presence in key countries in Europe, South America, Asia as well as other international markets, or become a leader in the diagnostics industry;

ˇ the impact the existing global economic conditions may have on our financial condition, operating results and cash flows;

ˇ the impact of healthcare regulatory reform;

ˇ constantly changing, and our compliance with, governmental regulation;

ˇ the impact of our adoption or implementation of new accounting statements and pronouncements on our financial condition and operating results;

ˇ our limited operating revenues and history of primarily operational losses;

ˇ our ability to collect our accounts receivable, particularly in Italy, and the impact of making or changing judgments and estimates regarding our allowances for doubtful accounts on our financial condition and operating results;

ˇ our ability to utilize our net operating losses, whether subject to limitations or not, and its impact on our financial condition and operating results;

ˇ the impact of any future limitations on our ability to utilize our net operating losses in the event of any future change in control or similar transaction;

ˇ the impact of making or changing judgments and estimates regarding our deferred tax liabilities and our valuation allowances and reserves against our deferred tax assets on our financial condition and operating results;

ˇ the impact of making or changing judgments and estimates regarding our goodwill, including the remaining goodwill recorded at ImmunoVision, and other intangible assets, such as our hepatitis technology product license, on our financial condition and operating results;

ˇ our ability to achieve cost advantages from our own manufacture of instrument systems, reagents and test kits;

ˇ our ability to grow beyond the autoimmune and infectious disease markets and to expand into additional diagnostic test sectors;

ˇ our ability to obtain product technology from the Italian diagnostics company that would enable us to manufacture our own hepatitis products;

ˇ our ability to introduce and market our own hepatitis products in the European Union when expected, or at all, including the potential that any further delays may require us to record an additional impairment charge with respect to the value of our hepatitis technology product license or pay all or a portion of our accrued payables relating to the product license;

ˇ our ability to internally manufacture our own hepatitis products and raw materials for these products and to become competitive in markets outside of the United States;

ˇ our ability to derive revenue from our manufacture and sale of our own hepatitis products;

ˇ the impact of the anticipated timing of the commercial launch of our own hepatitis products on the judgments and estimates we have made with respect to our financial condition, operating results and cash flows;

ˇ our production capacity at our facility in Miami, Florida;

ˇ our ability to successfully improve our facilities and upgrade or replace our equipment and information systems in the timeframe and utilizing the amount of funds anticipated or at all;

ˇ our dependence on agreements with IVAX Corporation, third party distributors and key personnel;

ˇ consolidation of our customers affecting our operations, markets and products;

ˇ reimbursement policies of governmental and private third parties affecting our operations, markets and products;

ˇ price constraints imposed by our customers and governmental and private third parties;

ˇ our ability to increase the volume of our reagent production to meet increased demand;

ˇ protecting our intellectual property;

ˇ political and economic instability and foreign currency fluctuation affecting our foreign operations;

ˇ the effects of utilizing cash to assist Delta Biologicals, S.R.L., our wholly-owned subsidiary in Italy, in maintaining its compliance with capital requirements established by Italian law;

ˇ the holding of a significant portion our cash and cash equivalents at a single brokerage firm, including risks relating to the bankruptcy or insolvency of such brokerage firm;

ˇ litigation regarding products, distribution rights, intellectual property rights, product liability and labor and employment matters;


ˇ voting control of our common stock by ERBA;

ˇ conflicts of interest with ERBA and its affiliates, including Suresh Vazirani and/or Kishore "Kris" Dudani, and with our officers, employees and other directors; and

ˇ other factors discussed elsewhere in this Quarterly Report on Form 10-Q.

See the section entitled "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2010, as supplemented by Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, and as supplemented by Part II, Item 1A of this Quarterly Report on Form 10-Q, for further discussion of certain risks and uncertainties that could materially and adversely affect our business, operating results or financial condition. Many of these factors are beyond our control.

MAJORITY STOCKHOLDERS

On September 1, 2010, ERBA Diagnostics Mannheim GmbH, an in vitro diagnostics company headquartered in Germany ("ERBA"), the parent company of which is Transasia Bio-Medicals Ltd. ("Transasia"), purchased all of the approximately 72.4% of the outstanding shares of our common stock owned by the prior group of our controlling stockholders for an aggregate purchase price of approximately $15,000,000, or $0.75 per share (the "Share Acquisition"). As a result of the Share Acquisition and the consummation of the initial transactions contemplated by the Investment, as defined above, including ERBA's purchase from us, and our issuance to ERBA, of 6,666,667 shares of our common stock, ERBA now beneficially owns, directly or indirectly, approximately 77.6% of the outstanding shares of the Company's common stock.

RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2011 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 2010

OVERVIEW

Net loss totaled $3,021,000 for the nine months ended September 30, 2011 compared to net loss of $3,446,000 for the nine months ended September 30, 2010. Operating loss was $3,166,000 in the 2011 period compared to operating loss of $3,250,000 for the 2010 period. The reduction in net loss in the 2011 period compared to the 2010 period resulted primarily from a credit for income taxes, discussed further below. The decrease in operating loss in the 2011 period compared to the 2010 period resulted primarily from reductions in operating expenses, partially offset by decreases in revenue. Net revenues decreased by $433,000 to $12,569,000 in the 2011 period from $13,002,000 in the 2010 period, consisting of a decrease in net revenues from domestic operations of $472,000, from $9,035,000 in the 2010 period to $8,563,000 in the 2011 period, and an increase in net revenues from European operations of $39,000, including the effect of exchange rate fluctuations of the United States dollar relative to the Euro, from $3,967,000 in the 2010 period to $4,006,000 in the 2011 period.

Gross profit decreased by $393,000 to $6,561,000 in the 2011 period from $6,954,000 in the 2010 period, primarily as the result of the abovementioned decline in net revenues. Gross profit as a percentage of net revenues decreased to 52.2% for the 2011 period from 53.5% for the 2010 period, principally as a result of lower margins at our European subsidiary.

Operating expenses decreased by $478,000 to $9,726,000 in the 2011 period from $10,204,000 in the 2010 period, as a result of a decrease in general and administrative expenses of $1,062,000, an increase in selling and marketing expense of $399,000 and an increase in research and development expenses of $185,000.

NET REVENUES AND GROSS PROFIT

                                                                      Period over Period
 Nine months ended September 30,       2011             2010         Increase (Decrease)

 Net Revenues:
 Domestic                          $  8,563,000     $  9,035,000     $           (472,000 )
 European                             4,006,000        3,967,000                   39,000
 Total                               12,569,000       13,002,000                 (433,000 )

 Cost of Sales                        6,008,000        6,048,000                  (40,000 )

 Gross Profit                      $  6,561,000     $  6,954,000     $           (393,000 )
 % of Total Net Revenues               52.2%            53.5%


Total net revenues in the nine months ended September 30, 2011 decreased by $433,000, or 3.3%, from the nine months ended September 30, 2010. This decrease was composed of a decrease of $472,000 in net revenues from domestic operations and an increase of $39,000 in net revenues from European operations. The impact on European revenues of fluctuation of the United States dollar relative to the Euro was an increase of approximately $275,000. As measured in Euros, net revenues from European operations in the 2011 period decreased by 6.9% compared to the 2010 period. The decrease in net revenues from European operations was primarily due to reagent volume declines in Italy as well as volume declines in other international markets. Net revenues from domestic operations in the 2011 period decreased by 5.2% compared to the 2010 period. The decrease in net revenue from domestic operations was primarily due to declines in volumes of antigen and reagent sales.

Gross profit in the 2011 period decreased by $393,000, or 5.7%, from the 2010 period. The decrease in gross profit was primarily attributable to the decline in net revenues. The decrease in gross profit as a percentage of net revenues to 52.2% in the 2011 period from 53.5% in the 2010 period resulted mainly from lower margins at our European subsidiary.

OPERATING EXPENSES

                                                    % of                        % of      Period over Period
Nine months ended September 30,      2011         Revenue        2010         Revenue     Increase (Decrease)

Selling                           $ 4,054,000        32.3%   $  3,655,000        28.1%   $             399,000

General and Administrative          4,275,000        34.0%      5,337,000        41.1%              (1,062,000 )

Research and Development            1,397,000        11.1%      1,212,000        9.3%                  185,000

Total Operating Expenses          $ 9,726,000        77.4%   $ 10,204,000        78.5%   $            (478,000 )

The increase of $399,000 in selling expenses during the 2011 period compared to the 2010 period was primarily due to salaries for newly hired sales personnel and marketing expenses related to the launch of new products and trade shows.

The decrease of $1,062,000 in general and administrative expenses during the 2011 period compared to the 2010 period was primarily due to severance costs included in the 2010 period and a decrease in the number of executive officers in the 2011 period, as well as other reductions in spending for general and administrative expenses.

The increase of $185,000 in research and development expenses was due principally to the increase in new product development activities in the current year, including additional staff allocated to research and development activities.

LOSS FROM OPERATIONS

Loss from operations totaled $3,166,000 in the 2011 period as compared to loss from operations of $3,250,000 in the 2010 period. Loss from operations in the 2011 period was composed of a $1,428,000 loss from domestic operations and a $1,737,000 loss from European operations. Loss from operations in the 2010 period was composed of a $1,977,000 loss from domestic operations and a $1,273,000 loss from European operations. Domestic operations include corporate expenditures, including costs required to maintain our status as a public company.

OTHER EXPENSE, NET

Other expense, net totaled $176,000 during the 2011 period and other expense, net totaled $112,000 during the 2010 period. Amounts included in other expense, net in the 2011 and 2010 periods were primarily net realized and unrealized foreign currency losses from transactions and balances which were denominated in currencies other than the functional currency.

INCOME TAX PROVISION

We recorded recurring income tax provisions of $87,000 for the 2011 period and $83,000 for the 2010 period. The current portion of our tax provisions in both the 2011 and 2010 periods relates to Italian local income taxes based upon applicable statutory rates effective in Italy, while the deferred tax provision in these same periods relates to domestic tax deductible goodwill. No current tax benefit was recorded during the 2011 and 2010 periods on our losses because we had a full valuation allowance against the net deferred income tax assets.


During the 2011 period, our wholly-owned subsidiary in Italy - Delta Biologicals, S.R.L. - eliminated the balance of its intercompany loan of approximately $1,900,000 due to us, as a result of converting the loan to capital (equity). We had accrued for a potential withholding tax that would have been due upon payment of the interest on the loan. With the conversion of the balance to equity, approximately $400,000 of withholding tax liability was relieved during the 2011 period, as the accrued interest will not be paid and therefore no withholding tax should be accrued. This reversal of the tax liability was recorded in the 2011 period as a one-time credit to income tax expense in the accompanying consolidated financial statements.

NET LOSS

We generated a net loss of $3,021,000 in the 2011 period as compared to a net loss of $3,445,000 in the 2010 period. Our basic and diluted loss per common share was $0.10 in the 2011 period as compared to a basic and diluted loss per common share of $0.12 in the 2010 period. The net loss for both periods resulted primarily from the various factors discussed above.

THREE MONTHS ENDED SEPTEMBER 30, 2011 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2010

OVERVIEW

Net loss totaled $1,234,000 for the three months ended September 30, 2011 compared to net loss of $1,177,000 for the three months ended September 30, 2010. Operating loss was $997,000 in the 2011 period compared to operating loss of $1,124,000 for the 2010 period. The reduction in operating loss in the 2011 period compared to the 2010 period resulted primarily from reductions in operating expenses, partially offset by reduction in net revenue. Net loss increased due to an unrealized exchange loss on balances held in a non-dollar currency. Net revenues increased by $107,000 to $4,060,000 in the 2011 period from $3,953,000 in the 2010 period, consisting of a decrease in net revenues from domestic operations of $165,000, from $2,895,000 in the 2010 period to $2,730,000 in the 2011 period, and an increase in net revenues from European operations of $272,000, including the effect of exchange rate fluctuations of the United States dollar relative to the Euro, from $1,058,000 in the 2010 period to $1,330,000 in the 2011 period.

Gross profit decreased by $45,000 to $2,086,000 in the 2011 period from $2,131,000 in the 2010 period. Gross profit as a percentage of net revenues decreased to 51.4% for the 2011 period from 53.9% for the 2010 period, principally as a result of higher sales of instruments by our European operations, which have much lower margins than reagent sales.

Operating expenses decreased by $172,000 to $3,083,000 in the 2011 period from $3,255,000 in the 2010 period. Comparing the 2011 period to the 2010 period, general and administrative expenses decreased by $444,000, selling expenses increased by $222,000 and research and development expenses increased by $50,000.

NET REVENUES AND GROSS PROFIT

                                                                     Period over Period
 Three months ended September 30,      2011            2010         Increase (Decrease)

 Net Revenues:
 Domestic                           $ 2,730,000     $ 2,895,000     $           (165,000 )
 European                             1,330,000       1,058,000                  272,000
 Total                                4,060,000       3,953,000                  107,000

 Cost of Sales                        1,974,000       1,822,000                  152,000

 Gross Profit                       $ 2,086,000     $ 2,131,000     $            (45,000 )
 % of Total Net Revenues                51.4%           53.9%

Total net revenues in the three months ended September 30, 2011 increased by $107,000, or 2.7%, from the three months ended September 30, 2010. This increase was composed of an increase of $272,000 in net revenues from European operations, partially offset by a decrease of $165,000 in net revenues from domestic operations. The impact on European revenues of fluctuation of the United States dollar relative to the Euro was an increase of $118,000. As measured in Euros, net revenues from European operations in the 2011 period increased by 11% compared to the 2010 period. The increase in net revenues from European operations was due to higher instrument sales, net of declines in reagent sales. Net revenues from domestic operations in the 2011 period decreased by 5.7% compared to the 2010 period. The decrease in net revenue from domestic operations was primarily due to declines in volumes of reagent sales.


Gross profit in the 2011 period decreased by $45,000, or 2.1%, from the 2010 period. The decrease in gross profit as a percentage of net revenues to 51.4% in the 2011 period from 53.9% in the 2010 period resulted mainly from instrument sales by our European subsidiary, which have a much lower gross margin percentage.

OPERATING EXPENSES

                                                     % of                       % of      Period over Period
Three months ended September 30,      2011         Revenue       2010         Revenue     Increase (Decrease)

Selling                            $ 1,320,000        32.5%   $ 1,098,000        27.8%   $             222,000

General and Administrative           1,351,000        33.3%     1,795,000        45.4%                (444,000 )

Research and Development               412,000        10.1%       362,000        9.1%                   50,000

Total Operating Expenses           $ 3,083,000        75.9%   $ 3,255,000        82.3%   $            (172,000 )

The increase of $222,000 in selling expenses during the 2011 period compared to the 2010 period was primarily due to salaries for newly hired sales personnel.

The decrease of $444,000 in general and administrative expenses during the 2011 period compared to the 2010 period was primarily due to severance costs included in the 2010 period and a decrease in the number of executive officers in the 2011 period, as well as other reductions in spending for general and administrative expenses.

The increase of $50,000 in research and development expenses was due principally to the increase in new product development activities in the current year, including additional staff allocated to research and development activities.

LOSS FROM OPERATIONS

Loss from operations totaled $997,000 in the 2011 period as compared to loss from operations of $1,124,000 in the 2010 period. Loss from operations in the 2011 period was composed of a $365,000 loss from domestic operations and a $632,000 loss from European operations. Loss from operations in the 2010 period was composed of a $895,000 loss from domestic operations and a $229,000 loss from European operations. Domestic operations include corporate expenditures, including costs required to maintain our status as a public company.

OTHER EXPENSE, NET

Other expense, net totaled $218,000 during the 2011 period and other expense, net totaled $28,000 during the 2010 period. Amounts included in other expense, net in the 2011 and 2010 periods were primarily net unrealized foreign currency losses from cash balances which were denominated in currencies other than the functional currency.

INCOME TAX PROVISION

We recorded recurring income tax provisions of $29,000 for the 2011 period and $28,000 for the 2010 period. The current portion of our tax provisions in both the 2011 and 2010 periods relates to Italian local income taxes based upon applicable statutory rates effective in Italy, while the deferred tax provision in these same periods relates to domestic tax deductible goodwill. No current tax benefit was recorded during the 2011 and 2010 periods on our losses because we had a full valuation allowance against the net deferred income tax assets.

NET LOSS

We generated a net loss of $1,234,000 in the 2011 period as compared to a net loss of $1,177,000 in the 2010 period. Our basic and diluted loss per common share was $0.04 in the 2011 period as compared to a basic and diluted loss per common share of $0.04 in the 2010 period. The net loss for both periods resulted primarily from the various factors discussed above.


LIQUIDITY AND CAPITAL RESOURCES

While our consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared assuming that we will continue as a going concern, substantial doubt has arisen about our ability to continue as a going concern. . . .

  Add IVD to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for IVD - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.