UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
Commission File Number 1-14798
IVAX DIAGNOSTICS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 11-3500746 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
2140 North Miami Avenue, Miami, Florida 33127
(Address of principal executive offices) (Zip Code)
(305) 324-2300
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
27,025,829 shares of Common Stock, $ .01 par value, outstanding as of May 5, 2005.
INDEX
PART I - FINANCIAL INFORMATION
IVAX DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| March 31, 2005 |
December 31, 2004 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 1,611,760 | $ | 7,492,885 | ||||
| Marketable securities |
10,350,000 | 4,650,000 | ||||||
| Accounts receivable, net of allowances for doubtful accounts of $1,276,138 in 2005 and $3,080,952 in 2004 |
9,736,818 | 7,739,548 | ||||||
| Inventories, net |
4,930,531 | 5,143,611 | ||||||
| Other current assets |
974,114 | 2,203,473 | ||||||
| Total current assets |
27,603,223 | 27,229,517 | ||||||
| Property, plant and equipment, net |
2,169,511 | 2,258,818 | ||||||
| Equipment on lease |
621,276 | 719,277 | ||||||
| Product license |
1,307,717 | — | ||||||
| Goodwill, net |
6,664,040 | 6,632,986 | ||||||
| Other assets |
62,219 | 73,627 | ||||||
| Total assets |
$ | 38,427,986 | $ | 36,914,225 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 985,732 | $ | 1,207,042 | ||||
| Accrued license payable |
1,030,000 | — | ||||||
| Accrued expenses and other current liabilities |
3,222,064 | 3,029,820 | ||||||
| Total current liabilities |
5,237,796 | 4,236,862 | ||||||
| Other long-term liabilities |
617,454 | 631,391 | ||||||
| Commitments and contingencies |
||||||||
| Shareholders’ equity: |
||||||||
| Common stock, $0.01 par value, authorized 50,000,000 shares, issued and outstanding 27,019,829 in 2005 and 2004 |
270,198 | 270,198 | ||||||
| Capital in excess of par value |
41,010,041 | 41,010,041 | ||||||
| Accumulated deficit |
(8,110,786 | ) | (8,948,844 | ) | ||||
| Accumulated other comprehensive loss |
(596,717 | ) | (285,423 | ) | ||||
| Total shareholders’ equity |
32,572,736 | 32,045,972 | ||||||
| Total liabilities and shareholders’ equity |
$ | 38,427,986 | $ | 36,914,225 | ||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets.
2
IVAX DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended March 31, |
2005 |
2004 |
||||||
| Net revenues |
$ | 5,382,611 | $ | 4,732,190 | ||||
| Cost of sales |
2,136,239 | 1,883,259 | ||||||
| Gross profit |
3,246,372 | 2,848,931 | ||||||
| Operating expenses: |
||||||||
| Selling |
1,513,457 | 1,399,865 | ||||||
| General and administrative |
1,152,100 | 1,085,551 | ||||||
| Research and development |
394,769 | 318,366 | ||||||
| Bad debt recovery |
(1,690,000 | ) | — | |||||
| Total operating expenses |
1,370,326 | 2,803,782 | ||||||
| Income from operations |
1,876,046 | 45,149 | ||||||
| Other income (expense): |
||||||||
| Interest income |
69,261 | 42,000 | ||||||
| Other expense, net |
(64,243 | ) | (49,948 | ) | ||||
| Total other income (expense), net |
5,018 | (7,948 | ) | |||||
| Income before income taxes |
1,881,064 | 37,201 | ||||||
| Provision for income taxes |
1,043,006 | 18,128 | ||||||
| Net income |
$ | 838,058 | $ | 19,073 | ||||
| Basic earnings per common share |
$ | 0.03 | $ | 0.00 | ||||
| Diluted earnings per common share |
$ | 0.03 | $ | 0.00 | ||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: |
||||||||
| Basic |
27,019,829 | 27,671,536 | ||||||
| Diluted |
27,955,340 | 28,463,602 | ||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
3
IVAX DIAGNOSTICS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended March 31, |
2005 |
2004 |
||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 838,058 | $ | 19,073 | ||||
| Adjustments to reconcile net income to net cash flows provided by operating activities: |
||||||||
| Depreciation and amortization |
230,761 | 303,396 | ||||||
| Bad debt recovery |
(1,690,000 | ) | — | |||||
| Provision for doubtful accounts receivable |
10,158 | 35,055 | ||||||
| Deferred income taxes |
1,020,143 | — | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(573,193 | ) | (136,611 | ) | ||||
| Inventories |
114,756 | 120,468 | ||||||
| Other current assets |
128,473 | 22,857 | ||||||
| Accounts payable and accrued expenses |
83,790 | 259,538 | ||||||
| Other long-term liabilities |
13,057 | 42,304 | ||||||
| Net cash flows provided by operating activities |
176,003 | 666,080 | ||||||
| Cash flows from investing activities: |
||||||||
| Capital expenditures |
(18,374 | ) | (77,320 | ) | ||||
| Purchases of marketable securities |
(8,500,000 | ) | — | |||||
| Sales of marketable securities |
2,800,000 | — | ||||||
| Acquisition of product license |
(277,717 | ) | — | |||||
| Acquisitions of equipment on lease |
(75,550 | ) | (71,463 | ) | ||||
| Net cash flows used in investing activities |
(6,071,641 | ) | (148,783 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Exercise of stock options |
— | 41,000 | ||||||
| Net cash flows provided by financing activities |
— | 41,000 | ||||||
| Effect of exchange rate changes on cash and cash equivalents |
14,513 | (24,741 | ) | |||||
| Net increase (decrease) in cash and cash equivalents |
(5,881,125 | ) | 533,556 | |||||
| Cash and cash equivalents at the beginning of the period |
7,492,885 | 2,864,839 | ||||||
| Cash and cash equivalents at the end of the period |
$ | 1,611,760 | $ | 3,398,395 | ||||
| Supplemental disclosures: |
||||||||
| Cash payment for interest |
$ | — | $ | — | ||||
| Cash payment for income taxes |
$ | — | $ | — | ||||
| Noncash investing activities: |
||||||||
| Acquisition of product license |
$ | 1,030,000 | $ | — | ||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
4
IVAX DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) GENERAL:
The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q and, therefore, do not include all information normally included in audited financial statements. However, in the opinion of management, all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the results of operations, financial position and cash flows have been made. The results of operations, financial position and cash flows for the three months ended March 31, 2005 are not necessarily indicative of the results of operations, financial position and cash flows which may be reported for the remainder of 2005. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes to consolidated financial statements included in the IVAX Diagnostics, Inc. (“IVAX Diagnostics,” “the Company,” “we,” “us,” “our”) Annual Report on Form 10-K for the year ended December 31, 2004. Certain prior period amounts presented in the consolidated financial statements have been reclassified to conform to the current period’s presentation. In the accompanying consolidated statements of cash flows for the three months ended March 31, 2004, the Company reclassified $12,600,000 from cash and cash equivalents to marketable securities as of March 31, 2004 and December 31, 2003.
On March 14, 2001, b2bstores.com Inc. (“b2bstores.com”), IVAX Corporation (“IVAX”) and IVAX Diagnostics, Inc., a wholly-owned subsidiary of IVAX at that date (the “pre-merger IVAX Diagnostics”), consummated a merger of the pre-merger IVAX Diagnostics into b2bstores.com pursuant to which all of the issued and outstanding shares of the pre-merger IVAX Diagnostics were converted into 20,000,000 shares of b2bstores.com stock and b2bstores.com’s name was changed to IVAX Diagnostics, Inc.
(2) STOCK-BASED COMPENSATION:
The Company’s pro forma net loss and pro forma weighted average fair value of options granted, with related assumptions, assuming the Company had adopted the fair value method of accounting for all stock-based compensation arrangements consistent with the provisions of Statement of Financial Accounting Standard (“SFAS”) No. 148, Accounting for Stock Based Compensation – Transition and Disclosure and SFAS No. 123, Stock-Based Compensation, using the Black-Scholes option pricing model, are indicated below:
| Three Months Ended March 31, |
2005 |
2004 |
||||||
| Net income as reported |
$ | 838,058 | $ | 19,073 | ||||
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards |
119,918 | 74,710 | ||||||
| Pro forma net income (loss) |
$ | 718,140 | $ | (55,637 | ) | |||
| Pro forma basic earnings per share |
$ | 0.03 | $ | (0.00 | ) | |||
| Pro forma diluted earnings per share |
$ | 0.03 | $ | (0.00 | ) | |||
| Pro forma weighted average fair value of options granted |
$ | — | $ | 5.03 | ||||
| Assumptions used in pricing model: |
||||||||
| Expected life (years) |
3.3 | 3.1 | ||||||
| Risk-free interest rate |
3.5 | % | 3.5 | % | ||||
| Expected volatility |
74 | % | 80 | % | ||||
| Dividend yield |
— | — | ||||||
5
(3) BAD DEBT RECOVERY:
On May 12, 2005, the Company received a payment of approximately 2,000,000 Euro from a governmental region in Italy in satisfaction of previously outstanding accounts receivable balances from hospitals located in the region. A significant portion of this payment related to accounts receivable against which the Company had previously established allowances. Since this collection of these receivables occurred prior to the filing of this Quarterly Report on Form 10-Q, and in order to recognize the impact of this collection of these receivables, the Company reduced its allowance for doubtful accounts to $1,276,138 in the accompanying consolidated balance sheet at March 31, 2005 and recognized a corresponding bad debt recovery of $1,690,000 in the accompanying consolidated statement of operations for the three months ended March 31, 2005.
(4) CASH EQUIVALENTS AND SHORT-TERM MARKETABLE SECURITIES:
The Company owns certain short-term investments in marketable debt securities with original maturities of three months or less that are classified as cash equivalents.
Substantially all cash and cash equivalents are presently held at one national securities brokerage firm. Accordingly, the Company is subject to credit risk if this brokerage firm is unable to repay the balance in the account or deliver the Company’s securities or if the brokerage firm should become bankrupt or otherwise insolvent. At March 31, 2005 and December 31, 2004, the Company owned short-term marketable securities totaling $10,350,000 and $4,650,000, respectively. It is the Company’s policy to invest in select money market instruments, municipal securities and corporate issuers. Short-term investments in marketable debt securities are auction rate securities with final maturities longer than one year, but with interest rates resetting every 28 or 35 days through an auction mechanism. These short-term marketable securities consist primarily of taxable municipal bonds and government agency securities. It is our intent to maintain a liquid portfolio to take advantage of investment opportunities; therefore, securities are deemed short-term, are classified as available for sale securities and are recorded at cost which approximates market value based on quoted market prices. Realized gains and losses from sales of marketable securities are based on the specific identification method. Realized gains and losses were not material during the three months ended March 31, 2005.
The contractual maturity dates of the Company’s investments in marketable debt securities at March 31, 2004 range from 2025 to 2043. The expected maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with and without prepayment penalties.
6
(5) INVENTORIES, NET:
Inventories, net consist of the following: