Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - ERBA Diagnostics, Inc.Financial_Report.xls
EX-31.2 - EXHIBIT 31.2 - ERBA Diagnostics, Inc.v314054_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - ERBA Diagnostics, Inc.v314054_ex31-1.htm
EX-32.2 - EXHIBIT 32.2 - ERBA Diagnostics, Inc.v314054_ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - ERBA Diagnostics, Inc.v314054_ex32-1.htm

 

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, 2012

 

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   (I.R.S. Employer
incorporation or organization)   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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x        No ¨

 

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

 

Large Accelerated Filer ¨ Accelerated Filer ¨
   
Non-Accelerated Filer ¨ (Do not check if a smaller reporting company) Smaller Reporting Company x

 

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

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

 

34,991,554 shares of Common Stock, $ .01 par value, outstanding as of May 18, 2012.

 

 
 

 

IVAX DIAGNOSTICS, INC.

 

INDEX

 

      PAGE NO.
       
PART I - FINANCIAL INFORMATION  
       
Item 1 - Financial Statements  
       
    Consolidated Balance Sheets as of March 31, 2012 (unaudited)
and December 31, 2011
2
       
    Consolidated Statements of Comprehensive Loss (unaudited)
for the three months ended March 31, 2012 and 2011
3
       
    Consolidated Statement of Changes in Shareholders’ Equity (unaudited)
for the three months ended March 31, 2012
4
       
    Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 2012 and 2011
5
       
    Condensed Notes to Consolidated Financial Statements (unaudited) 6
       
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations 15
       
Item 4 - Controls and Procedures 27
       
PART II - OTHER INFORMATION  
       
Item 1 - Legal Proceedings 28
       
Item 6 - Exhibits 28

 

 
 

 

PART I - FINANCIAL INFORMATION

 

Item 1 - Financial Statements

 

IVAX DIAGNOSTICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

   March 31,   December 31, 
   2012   2011 
   (Unaudited)     
         
ASSETS          
           
Current assets:          
Cash and cash equivalents  $3,511,167   $3,653,244 
Accounts receivable, net of allowances for doubtful accounts of $685,315 in 2012 and $716,599 in 2011   6,043,004    5,950,621 
Inventories, net   3,681,509    3,830,295 
Other current assets   397,332    231,992 
Total current assets   13,633,012    13,666,152 
           
Property, plant and equipment, net   1,384,684    1,456,940 
Equipment on lease, net   622,526    674,504 
Product license   282,936    282,936 
Goodwill   870,290    870,290 
Restricted deposits   118,527    127,859 
Other assets   123,752    128,203 
Total assets  $17,035,727   $17,206,884 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
           
Current liabilities:          
Accounts payable  $2,029,978   $2,345,838 
Capital lease obligation   81,493    79,186 
Accrued license payable   133,000    129,490 
Revolving line of credit   660,995    736,566 
Other accrued expenses   1,880,353    1,744,221 
           
Total current liabilities   4,785,819    5,035,301 
           
Other long-term liabilities:          
Capital lease obligation   -    21,287 
Deferred tax liabilities   444,549    428,676 
Other long-term liabilities   1,034,830    994,348 
Total other long-term liabilities   1,479,379    1,444,311 
           
Commitments and contingencies          
           
Shareholders’ equity:          
Common stock, $0.01 par value, authorized 100,000,000 shares, issued and outstanding 34,391,554 in 2012 and 2011   343,915    343,915 
Capital in excess of par value   46,035,037    46,035,037 
Accumulated deficit   (35,062,269)   (34,983,815)
Accumulated other comprehensive loss   (546,154)   (667,865)
Total shareholders’ equity   10,770,529    10,727,272 
Total liabilities and shareholders’ equity  $17,035,727   $17,206,884 

 

The accompanying Condensed Notes to Consolidated Financial Statements are an integral part of these financial statements

 

2
 

 

IVAX DIAGNOSTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

 

Three Months Ended March 31,  2012   2011 
         
Net revenues  $4,273,274   $4,134,357 
Cost of sales   2,150,936    2,019,142 
Gross profit   2,122,338    2,115,215 
           
Operating expenses:          
Selling   970,893    1,225,489 
General and administrative   1,075,387    1,347,001 
Research and development   195,544    550,235 
Total operating expenses   2,241,824    3,122,725 
           
Loss from operations   (119,486)   (1,007,510)
           
Other income (expense):          
Interest expense   (12,666)   (3,391)
Other income, net   81,366    19,192 
Total other income, net   68,700    15,801 
           
Loss before income taxes   (50,786)   (991,709)
           
Provision for income taxes   27,668    28,308 
           
Net loss   (78,454)   (1,020,017)
           
Other comprehensive income-foreign currency translation adjustments   121,711    224,482 
           
Comprehensive income (loss)  $(43,257)  $(795,535)
           
Net loss per share - basic and diluted  $(0.00)  $(0.04)
           
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:          
Basic   34,391,554    27,649,887 
Diluted   34,391,554    27,649,887 

 

The accompanying Condensed Notes to Consolidated Financial Statements are an integral part of these financial statements.

 

3
 

 

IVAX DIAGNOSTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

 

                   Accumulated     
           Additional       Other   Total 
   Common Stock   Paid-in   Accumulated   Comprehensive   Shareholders’ 
   Shares   Amount   Capital   Deficit   Loss   Equity 
                         
BALANCE, December 31, 2011   34,391,554   $343,915   $46,035,037   $(34,983,815)  $(667,865)  $10,727,272 
                               
Net loss   -    -    -    (78,454)   -    (78,454)
Other comprehensive loss    -    -    -    -    121,711    121,711 
                               
BALANCE, March 31, 2012
   34,391,554   $343,915   $46,035,037   $(35,062,269)  $(546,154)  $10,770,529 

 

The accompanying Condensed Notes to Consolidated Financial Statements are an integral part of these financial statements.

 

4
 

 

IVAX DIAGNOSTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

Three Months Ended March 31,  2012   2011 
         
Cash flows from operating activities:          
Net loss  $(78,454)  $(1,020,017)
Adjustments to reconcile net loss to net cash flows used in operating activities:          
Depreciation and amortization   192,990    192,597 
Net reduction in provision for doubtful accounts receivable   (48,209)   (29,632)
Provision for inventory obsolescence   -    52,124 
Amortization of other assets   17,667    - 
Deferred income taxes   15,873    15,873 
Changes in operating assets and liabilities:          
Accounts receivable   (44,174)   (483,834)
Inventories   148,786    (164,096)
Other current assets   (177,965)   (29,951)
Other assets   (591)   4 
Accounts payable and accrued expenses   (176,217)   608,898 
Other long-term liabilities   40,482    3,225 
Net cash flows used in operating activities   (109,812)   (854,809)
           
Cash flows from investing activities:          
Capital expenditures   (9,490)   (13,213)
Decrease in restricted deposits   9,332    68 
Acquisitions of equipment on lease   (43,243)   (29,716)
           
Net cash flows used in investing activities   (43,401)   (42,861)
           
Cash flows from financing activities:          
Capital lease payments   (18,980)   (17,360)
Payments under revolving line of credit, net   (75,571)   - 
Net cash flows used in financing activities   (94,551)   (17,360)
           
Effect of exchange rate changes on cash and cash equivalents   105,687    15,860 
Net decrease in cash and cash equivalents   (142,077)   (899,170)
Cash and cash equivalents at the beginning of the period   3,653,244    1,826,228 
Cash and cash equivalents at the end of the period  $3,511,167   $927,058 

 

The accompanying Condensed Notes to Consolidated Financial Statements are an integral part of these financial statements.

 

5
 

 

IVAX DIAGNOSTICS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(1) ORGANIZATION AND OPERATIONS:

 

The accompanying unaudited interim consolidated financial statements of IVAX Diagnostics, Inc. (the “Company,” “IVAX Diagnostics,” we,” “us” or “our”) 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 necessary to state fairly the results of operations, financial position, changes in stockholders’ equity and cash flows have been made. The results of operations, financial position, changes in stockholders’ equity and cash flows for the three months ended March 31, 2012 are not necessarily indicative of the results of operations, financial position, changes in stockholders’ equity and cash flows which may be reported for the remainder of 2012. The balance sheet as of December 31, 2011 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The accompanying unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes to consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

 

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 the Company’s common stock owned by the Debregeas-Kennedy Group for an aggregate purchase price of approximately $15,000,000, or $0.75 per share (the “Share Acquisition”). See also Note 14, Related Party Transactions, with respect to subsequent transactions with ERBA, including ERBA’s purchase from the Company, and the Company’s issuance to ERBA, of 6,666,667 shares of the Company’s common stock in the initial transactions contemplated by the Investment and ERBA’s exercise, in part, of the warrant, as further described below, for 600,000 shares of the Company’s common stock (the “Investment”). As a result of the Share Acquisition, the consummation of the initial transactions contemplated by the Investment and the exercise, in part, of the Warrant, ERBA now beneficially owns, directly or indirectly, approximately 78.0% of the outstanding shares of the Company’s common stock.

 

(2) LIQUIDITY:

 

The Company incurred a net loss of $78,454 during the three months ended March 31, 2012 and a net loss of $1,020,017 for the three months ended March 31, 2011 and used cash from operations of $109,812 and $854,809 for those respective periods.

 

The Company has taken or is in the process of evaluating or undertaking certain actions which, if successful, it believes will be sufficient to provide the Company with the ability to continue in existence.  The Company expects operating results to improve from the operating results achieved during 2011 and the three months ended March 31, 2012 and 2011, based principally upon increases in revenue as a result of the commercial launch of the Mago® 4S in the United States during 2011 and increases in the United States and international revenue from new channels of distribution.  The Company also expects operating results to improve as a result of certain initiatives it has adopted or is considering adopting in order to reduce expenses.

 

As discussed below in Note 14, Related Party Transactions, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) with ERBA, on April 8, 2011. The Company and ERBA modified the Stock Purchase Agreement such that the additional shares and warrants will only be issued on the date that is 60 days after the date on which a majority of the independent directors on the Company’s board of directors determines by vote or written consent that such additional transaction shall occur and causes notice thereof to be delivered to ERBA.

 

6
 

 

As discussed below in Note 15, Revolving Line of Credit, on June 10, 2011, Diamedix Corporation (“Diamedix”), a wholly-owned subsidiary of the Company, entered into a loan agreement (the “Loan Agreement”) with City National Bank of Florida, which provides for a secured, revolving credit facility of up to $975,000 (the “Line of Credit”).

 

As discussed below in Note 16, Subsequent Events, on April 16, 2012, ERBA exercised, in part, a warrant by paying an aggregate exercise price of $450,000 to the Company and, in connection therewith, the Company issued to ERBA 600,000 shares of the Company’s common stock.

 

(3) STOCK-BASED COMPENSATION:

 

Valuations are based upon highly subjective assumptions about the future, including stock price volatility and exercise patterns. The fair value of share-based payment awards was estimated using the Black-Scholes option pricing model. Expected volatilities are based on the historical volatility of the Company’s stock. The Company uses historical data to estimate option exercise and employee terminations. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

 

The Company has historically granted options under the Company’s option plans with an option exercise price equal to the closing market value of the stock on the date of the grant and with vesting, primarily for Company employees, ranging from all at once to equal annual amounts over a four year period, and, primarily for non-employee directors, immediately.

 

The following chart summarizes option activity as of March 31, 2012 and changes during the three months ended March 31, 2012 for outstanding and exercisable options granted by the Company:

 

       Weighted 
       Average 
   Number of   Exercise 
   Shares   Price 
         
Outstanding at December 31, 2011   1,020,870   $1.36 
Granted   -    - 
Expired   -    - 
Terminated   -    - 
Exercised   -    - 
Outstanding at March 31, 2012   1,020,870   $1.36 

 

There was no stock compensation expense for the three months ended March 31, 2012 or 2011.

 

(4) CASH EQUIVALENTS:

 

The Company considers certain short-term investments in marketable debt securities with original maturities of three months or less to be cash equivalents.

 

7
 

 

A significant portion of the Company’s cash and cash equivalents are presently held in money market accounts at one international 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. It is the Company’s current policy to invest in select money market instruments, United States Treasury investments, municipal and other governmental agency securities and corporate issuers.

 

(5) FAIR VALUE MEASUREMENT:

 

In June 2009, the Financial Accounting Standards Board (“FASB”) issued new accounting standards that establish the FASB Accounting Standards Codification (the “ASC”) as the official single source of authoritative GAAP and supersedes all previous accounting standards.

 

ASC Section 820, Fair Value Measurements and Disclosures, formerly Statement of Financial Accounting Standard (“SFAS”) No. 157, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The three levels of inputs used to measure fair value are as follows:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

 

All of the Company’s financial assets, which do not include cash on hand, as of March 31, 2012 and December 31, 2011, were Level 1 assets composed of money market funds with balances of $147,548 and $17,334, included as part of cash and cash equivalents in the accompanying balance sheet, respectively, and Level 3 assets composed of the product license discussed in Note 7, Product License. Financial instruments consist primarily of cash and cash equivalents, accounts receivable and accounts payable. At March 31, 2012 and December 31, 2011, the fair value of these instruments approximates the carrying amount of these items due to the short-term maturities of these instruments.

 

(6) INVENTORIES, NET:

 

Inventories, net consist of the following:

 

   March 31,   December 31, 
   2012   2011 
         
Raw materials  $850,512   $716,268 
Work-in-process   522,061    717,390 
Finished goods   2,308,936    2,396,637 
Total inventories, net  $3,681,509   $3,830,295 

 

8
 

 

(7) PRODUCT LICENSE:

 

In September 2004, the Company entered into a license agreement with an Italian diagnostics company to obtain a perpetual, worldwide, royalty-free license of product technology used by the Italian diagnostics company. This licensed hepatitis product technology is existing technology, which the Italian diagnostics company had developed and successfully commercialized to manufacture hepatitis products sold by them and for which it had already received “CE Marking” approval from the European Union. Through the acquisition of this existing technology in its current form, the Company expects to be able to derive revenue from the manufacture and sale of new hepatitis products. In exchange for the Italian diagnostics company’s assistance in transferring the know-how of the manufacturing technology, the Company agreed to pay a total of 1,000,000 Euro in the form of four milestone payments upon the Italian diagnostics company’s achievement of certain enumerated performance objectives related to the transfer of such existing technology. Three of the four milestone payments, totaling 900,000 Euro, were made in prior years. The remaining milestone payment of Euro 100,000, or equivalent to approximately $133,000, is included in accrued license payable in the accompanying consolidated balance sheet as of March 31, 2012. In October 2011, the Company received “CE Marking” granting approval for the remaining products covered under the license agreement and expects to begin to manufacture and market the products in 2012. Amortization of the product license will begin following the initial sale of the hepatitis products manufactured by the Company.

 

(8) LOSS PER SHARE:

 

Loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. All outstanding stock options and warrants are considered potential common stock. The dilutive effect, if any, of stock options and warrants is calculated using the treasury stock method.

 

Outstanding stock options (1,020,870 as of both March 31, 2012 and December 31, 2011) and warrants (6,666,667 exercisable as of December 31, 2011 and 13,333,333 not yet exercisable as of that date) have not been included in the calculation of loss per share because their impact would be anti-dilutive.

 

(9) INCOME TAXES:

 

The provision for income taxes consists of the following:

 

Three Months Ended March 31,  2012   2011 
Current:          
Domestic  $-   $- 
Foreign   11,795    12,435 
Deferred:          
Domestic   15,873    15,873 
Foreign   -    - 
           
Total provision for income taxes  $27,668   $28,308 

 

The Company is susceptible to large fluctuations in its effective tax rate and has thereby recognized tax expense on a discrete pro-rata basis for the three months ended March 31, 2012 and March 31, 2011. No current domestic tax provision was recorded during the three months ended March 31, 2012 or March 31, 2011 due to the increase in the valuation allowance to offset the benefit of domestic losses of approximately $52,000. The foreign current income tax provisions for the three months ended March 31, 2012 and 2011 were the result of Italian local income taxes based upon applicable statutory rates effective in Italy.

 

9
 

 

As of March 31, 2012 and December 31, 2011, the Company has established a full valuation allowance on both its domestic and foreign net deferred tax assets, which are primarily comprised of net operating loss carryforwards. Due to the cumulative net losses from the operations of both domestic and foreign operations, the Company had no net deferred tax asset as of March 31, 2012 or December 31, 2011. As of March 31, 2012 and December 31, 2011, the Company had net deferred tax liabilities relating to tax deductible goodwill of $444,549 and $428,676, respectively, and recorded corresponding deferred tax provisions of $15,873 during each of the three months ended March 31, 2012 and 2011. Subsequent revisions to the estimated net realizable value of the deferred tax asset or deferred tax liability could cause the provision for income taxes to vary significantly from period to period.

 

Domestic net operating losses generated by the Company total $18,802,000 as of December 31, 2011 and are subject to any applicable limitations as described below. The net operating losses included in the domestic net deferred tax asset will begin to expire in 2022. Under Section 382 of the Internal Revenue Code, the Company’s use of its net operating loss carryforwards will be limited in the future as a result of the September 1, 2010 acquisition by ERBA of the approximately 72.4% of the outstanding shares of the Company’s common stock previously owned by the Debregeas-Kennedy Group. As a result of that acquisition, the Company’s ability to utilize net operating loss carryforwards to offset any future taxable income is currently limited to approximately $825,000 per year, plus both any limitation unused since the acquisition and any unused net operating losses generated after the September 1, 2010 acquisition date. The amount of the annual limitation will be adjusted upwards for any recognized built-in gains on certain assets sold during the five year period commencing with the ownership change. The limitations of these net operating loss carryforwards did not impact the Company’s results for the three months ended March 31, 2012 or 2011.

 

United States income taxes have not been provided on undistributed earnings of foreign subsidiaries, as such earnings are being retained indefinitely by such subsidiaries for reinvestment.  The distribution of these earnings would first reduce the domestic valuation allowance before resulting in additional United States income taxes.

 

(10) CONCENTRATION OF CREDIT RISK:

 

The Company performs periodic credit evaluations of its customers' financial condition and provides allowances for doubtful accounts as required. The Company's accounts receivables are generated from sales made both domestically and abroad. As of March 31, 2012 and December 31, 2011, $4,059,000 and $4,203,000, respectively, of the Company's total net accounts receivable were due in Italy. Of the total net accounts receivable, approximately 35%, or $2,108,000, at March 31, 2012 and 36%, or $2,167,000, at December 31, 2011 were due from hospitals and laboratories controlled by the Italian government. The Company maintains allowances for doubtful accounts, particularly in Italy where payment cycles are longer than in the United States, for potential credit losses based on the age of the accounts receivable and the results of the Company’s periodic credit evaluations of its customers’ financial condition. Additionally, the Company periodically receives payments based upon negotiated agreements with governmental regions in Italy, acting on behalf of hospitals located in the region, in satisfaction of previously outstanding accounts receivable balances.

 

Recently, the Italian government has been experiencing severe fiscal and debt crises and a recession, including its increasingly uncertain ability to service its sovereign debt obligations, caused in part by the declining global markets and economic conditions. Accordingly, we are subject to certain economic, business and, in particular, credit risk if our customers located in Italy which are hospitals or laboratories controlled by the Italian government do not pay amounts owed to us, extend payment cycles even further or ask us to accept a lower payment amount than is owed to us. Our current allowances for doubtful accounts may not be adequate and we may be required to make additional allowances, which would adversely affect, and could materially adversely affect, our operating results in the period in which the determination or allowance is or was made. Any of these factors could materially and adversely affect our business, prospects, operating results, financial condition and cash flows in the near term.

 

10
 

 

(11) SEGMENT INFORMATION:

 

The Company’s management reviews financial information, allocates resources and manages its business by geographic region. The Domestic region, which includes corporate expenditures, contains the Company’s subsidiaries located in the United States. The European region contains the Company’s subsidiary located in Italy. The information provided is based on internal reports and was developed and utilized by management to track trends and changes in the results of the regions. The information, including the allocations of expense and overhead, was calculated based on a management approach and may not reflect the actual economic costs, contributions or results of operations of the regions as stand-alone businesses. If a different basis of presentation or allocation were utilized, the relative contributions of the regions might differ but the relative trends would, in management's view, likely not be materially impacted. The table below sets forth net revenues, loss from operations, total assets and goodwill by region.

 

Net Revenues by Region    
Three Months Ended March 31,  2012   2011 
         
Domestic          
External net revenues  $2,863,037   $2,744,628 
Intercompany revenues   134,935    118,754 
    2,997,972    2,863,382 
European          
External net revenues   1,410,237    1,389,729 
Intercompany revenues   19,917    69,883 
    1,430,154    1,459,612 
           
Eliminations   (154,852)   (188,637)
           
Consolidated net revenues  $4,273,274   $4,134,357 

 

Loss from Operations by Region        
Three Months Ended March 31,  2012   2011 
         
Domestic  $(153,548)  $(577,101)
European   34,062    (430,409)
Loss from operations  $(119,486)  $(1,007,510)

 

Total Assets by Region  March 31,   December 31, 
   2012   2011 
         
Domestic  $10,685,646   $7,929,836 
European   6,350,081    7,225,759 
Total assets  $17,035,727   $15,155,395 

 

Goodwill by Region   March 31,    December 31, 
   2012   2011 
         
Domestic  $870,290   $870,290 
European   -    - 
Total goodwill  $870,290   $870,290 

 

11
 

 

(12) COMMITMENTS AND CONTINGENCIES:

 

The Company is involved in various legal claims and actions and regulatory matters, and other notices and demand proceedings arising in the ordinary course of business. While it is not possible to predict or determine the outcome of these proceedings, in the opinion of management, based on a review with legal counsel, any losses resulting from such legal proceedings would not have a material adverse impact on the financial position, results of operations or cash flows of the Company.

 

(13) RECENTLY ISSUED ACCOUNTING STANDARDS:

 

In January 2010, the FASB issued additional disclosure requirements for fair value measurements. According to the guidance, the fair value hierarchy disclosures are further disaggregated by class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. In addition, significant transfers between Levels 1 and 2 of the fair value hierarchy are required to be disclosed. These additional requirements, which became effective January 1, 2010 for quarterly and annual reporting, did not have an impact on the Company’s consolidated financial results, as this guidance related only to additional disclosures. In addition, the guidance requires more detailed disclosures of the changes in Level 3 instruments. These changes were effective January 1, 2011 and did not have a material impact on the Company’s consolidated financial statements.

 

In October 2009, the FASB issued amended revenue recognition guidance for arrangements with multiple deliverables. The new guidance requires the use of management’s best estimate of selling price (BESP) for the deliverables in an arrangement when vendor specific objective evidence (VSOE), vendor objective evidence (VOE) or third party evidence (TPE) of the selling price is not available. In addition, excluding specific software revenue guidance, the residual method of allocating arrangement consideration is no longer permitted, and an entity is required to allocate arrangement consideration using the relative selling price method. This guidance was effective for all new or materially modified arrangements entered into on or after January 1, 2011, with earlier application permitted as of the beginning of any prior fiscal year. Full retrospective application of the new guidance is optional. The Company implemented the new guidance effective January 1, 2011. The provisions of this update did not have a material impact on the Company’s financial statements.

 

In October 2009, the FASB also issued guidance which amended the scope of existing software revenue recognition guidance. Tangible products containing software components and non-software components that function together to deliver the tangible product’s essential functionality is no longer within the scope of software revenue guidance and is accounted for based on other applicable revenue recognition guidance. In addition, the amendments exclude hardware components of a tangible product containing software components from the software revenue guidance. This guidance is effective for all new or materially modified arrangements entered into on or after January 1, 2011, with earlier application permitted as of the beginning of any prior fiscal year. Full retrospective application of the new guidance is optional. This guidance must be adopted in the same period that the Company adopts the amended accounting for arrangements with multiple deliverables described in the preceding paragraph. The Company implemented the new guidance effective January 1, 2011. These new requirements did not have a material impact on the Company’s consolidated financial statements.

 

In September 2011, the FASB issued the FASB Accounting Standards Update No. 2011-08 “Intangibles—Goodwill and Other: Testing Goodwill for Impairment” (“ASU 2011-08”). This guidance is to simplify how public and nonpublic entities test goodwill for impairment. The amendments permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. Under the amendments in this Update, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. The Company implemented the new guidance effective January 1, 2011. The provisions of this guidance did not have a material impact on the Company’s financial statements.

 

12
 

 

In December 2011, the FASB issued the FASB Accounting Standards Update No. 2011-12 “Comprehensive Income:  Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Guidance No. 2011-05” (“ASU 2011-12”). This guidance is a deferral of the effective date pertaining to reclassification adjustments out of accumulated other comprehensive income in ASU 2011-05. FASB is to going to reassess the costs and benefits of those provisions in ASU 2011-05 related to reclassifications out of accumulated other comprehensive income. Due to the time required to properly make such a reassessment and to evaluate alternative presentation formats, the FASB decided that it is necessary to reinstate the requirements for the presentation of reclassifications out of accumulated other comprehensive income that were in place before the issuance of ASU 2011-05. All other requirements in ASU 2011-05 are not affected by this guidance, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. The Company implemented the new guidance effective January 1, 2011. The provisions of this guidance did not have a material impact on the Company’s financial statements.

 

(14) RELATED PARTY TRANSACTIONS:

 

During the three months ended March 31, 2012 and 2011, ImmunoVision, Inc. (“ImmunoVision”), a wholly-owned subsidiary of the Company, paid $6,000 to John B. Harley, M.D., Ph.D., under that certain oral consulting agreement between Dr. Harley and ImmunoVision pursuant to which Dr. Harley is paid $2,000 per month in consideration for his provision of technical guidance and business assistance to ImmunoVision on an as-needed basis. Dr. Harley continues to serve on the Company’s Board of Directors.

 

Pursuant to a license agreement between the Company and Dr. Harley, he has granted an exclusive worldwide license to the Company for certain patents, rights and technology relating to monoclonal antibodies against autoimmune RNA proteins developed by him in exchange for specified royalty payments, including an annual minimum royalty of $10,000 for each licensed product utilized by the Company. During the three months ended March 31, 2012, the Company accrued a payment of $2,500 to Dr. Harley under such license.

 

The amounts paid to Dr. Harley were in addition to the amounts he received for his service as member of the Company’s Board of Directors and the committees of the Board of Directors on which he served.

 

During the three months ended March 31, 2012 and 2011, the Company sold products to Transasia and a subsidiary of ERBA for a total amount of Euro 236,000 and 148,000, respectively, equivalent to approximately $309,000 and $204,000, respectively.

 

In the fourth quarter of 2011, a subsidiary of the Company entered into a contract research and development agreement with ERBA, as amended, for a total of Euro 754,000, pursuant to which ERBA has agreed to pay the subsidiary a total amount of Euro 133,000, equivalent to approximately $186,000, during the fourth quarter of 2011 and an additional Euro 621,000 during 2012 for the results of certain research and development. For the three months ended March 31, 2012, contract research and development revenue under this agreement approximated Euro 112,000 ($147,000). The Company and its subsidiaries had net accounts receivable from ERBA and Transasia of $301,000 at March 31, 2012 and $387,000 at December 31, 2011 related to the above transactions.

 

13
 

 

The Company entered into the Stock Purchase Agreement with ERBA, on April 8, 2011, pursuant to which the Company has agreed to the Investment in which it would sell and issue to ERBA an aggregate of 20,000,000 shares of the Company’s common stock for an aggregate purchase price of $15,000,000, or $0.75 per share of the Company’s common stock, and warrants to purchase an additional 20,000,000 shares of the Company’s common stock.  The consummation of the Investment was subject to, among other things, the approval of holders of at least 66-2/3% of the issued and outstanding shares of the Company’s common stock (excluding any shares beneficially owned, directly or indirectly, by ERBA).  At the Company’s 2011 Annual Meeting of Stockholders held on June 10, 2011, the required approval of the Company’s stockholders was achieved.

 

On June 30, 2011, ERBA paid the Company $5,000,000 in order to consummate the initial transactions contemplated by the Investment (the “Initial Closing”). As a result, the Company issued to ERBA 6,666,667 shares of the Company’s common stock and, in connection with the consummation of the initial transactions contemplated by the Investment, a warrant to purchase 20,000,000 shares of the Company’s common stock (the “Warrant”). After giving effect to transaction costs of $399,700 relating to the Stock Purchase Agreement and the Investment, the Company received net proceeds of $4,600,300 at the consummation of the initial transactions contemplated by the Investment.  As previously reported, the Warrant has a five year term and an exercise price per share of the Company’s common stock of $0.75. The Warrant is exercisable only to the extent that shares of the Company’s common stock have been purchased under the Stock Purchase Agreement. As of March 31, 2011, the Warrant was exercisable for 6,666,667 shares of the Company’s common stock. As discussed below in Note 16, Subsequent Events, on April 16, 2012, ERBA exercised, in part, the Warrant by paying an aggregate exercise price of $450,000 to the Company and, in connection therewith, the Company issued to ERBA 600,000 shares of the Company’s common stock.

 

As previously reported, pursuant to the Stock Purchase Agreement, the Company also agreed to issue to ERBA an additional 6,666,667 shares of the Company’s common stock for an aggregate purchase price of $5,000,000, on or prior to the date which is six months after the Initial Closing (the “Second Closing”), as well as an additional 6,666,666 shares of the Company’s common stock for an aggregate purchase price of $5,000,000, on or prior to the date which is one year after the Initial Closing (the “Final Closing”). As also previously reported, on December 29, 2011, the Company and ERBA entered into an amendment to the Stock Purchase Agreement (the “Amendment”). Pursuant to the Amendment, the Stock Purchase Agreement has been amended to state that: (i) the Second Closing will take place, after the Initial Closing, on the date that is sixty (60) days after the date on which a majority of the independent directors on the Company’s Board of Directors determines by vote or written consent that the Second Closing shall occur and causes the Company to provide notice thereof to ERBA; and (ii) the Final Closing will take place, after the Initial Closing and after or simultaneously with the Second Closing, on the date that is sixty (60) days after the date on which a majority of the independent directors on the Company’s Board of Directors determines by vote or written consent that the Final Closing shall occur and causes the Company to provide notice thereof to ERBA. The Amendment was unanimously approved by the independent directors on the Company’s Board of Directors.

 

(15) REVOLVING LINE OF CREDIT:

 

On June 10, 2011, Diamedix entered into the Loan Agreement with City National Bank of Florida, which provides for a secured, revolving credit facility of up to $975,000 (the “Line of Credit”).  Amounts outstanding under the Line of Credit will accrue interest at an annual rate equal to the 30-day LIBOR plus 4.00%, and the loan will become due and payable on June 10, 2013, subject to acceleration upon the occurrence of certain specified events of default that the Company believes are customary for transactions of this type.  The interest rate will increase by two percentage points (2.00%) per annum if certain covenants contained in the Loan Agreement are not met.

 

14
 

 

Amounts outstanding under the Line of Credit are collateralized by all of the assets of Diamedix, including, without limitation, the Company’s corporate headquarters located in Miami, Florida.  In addition, the Company and its other wholly-owned domestic subsidiary – ImmunoVision, Inc. – have guaranteed the repayment of amounts drawn on the Line of Credit. 

 

The Loan Agreement also includes, among other things, the following financial covenants applicable to Diamedix:

 

·Minimum Tangible Net Worth (as defined therein) of not less than $1,000,000 as of December 3l of each year.

 

·Fixed Charge Coverage Ratio (as defined therein) of not less than 1.50 to 1.00 as of the last day of each fiscal quarter, as measured for compliance on a rolling four quarter basis.

 

·Maximum Funded Debt to EBITDA Ratio (as defined therein) of not less than 2.50 to 1.00 as of the last day of each fiscal quarter.

 

As of March 31, 2012 and December 31, 2011, the Company was in compliance with all of the above financial covenants. Closing costs and other transaction costs aggregating $101,000 were incurred in 2011 related to the Loan Agreement and the Line of Credit. These costs have been classified as debt issuance costs on the accompanying consolidated balance sheet and are being amortized over the 24-month term of the Line of Credit commencing in June 2011.

 

As of March 31, 2012 and December 31, 2011, $660,995 and $736,566, respectively, was outstanding under the Line of Credit and this amount and related debt issuance costs have been classified as current due to the terms of the related lockbox arrangement. As of March 31, 2012, the availability after giving effect to amounts outstanding on the Line of Credit was $314,005.

 

(16) SUBSEQUENT EVENT:

 

On April 16, 2012, ERBA exercised, in part, the Warrant (see Note 15) by paying an aggregate exercise price of $450,000 to the Company and, in connection therewith, the Company issued to ERBA 600,000 shares of the Company’s common stock. A total of 19,400,000 warrants remained unexercised at April 16, 2012.

 

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, 2011 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:

 

15
 

 

·our ability to continue as a going concern;
·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;
·the remaining transactions contemplated by the Investment under the stock purchase agreement, as amended, may not be consummated on the contemplated terms, in the time frame anticipated, or at all;
·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;
·our ability to achieve or sustain profitability from our operations or otherwise secure funds to provide the basis for our long-term liquidity;
·our broad discretion in our use of the net proceeds from the investment;
·the warrants may not be exercised, in whole or in part;
·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 are beyond our control, and, when making any such decision to exercise the warrants, ERBA’s interests may conflict with our interests;
·our ability to pay when due the principal and interest on our outstanding indebtedness under the line of credit;
·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;
·economic, competitive, political, governmental and other factors affecting us and our operations, markets and products;
·the success of technological, strategic and business initiatives, including our automation strategy;
·the ability of the Mago® 4S to perform as expected;
·the impact of the commercial release of the Mago® 4S on the judgments and estimates we have made with respect to our financial condition, operating results and cash flows;
·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 Mago® 4 or Mago® 4S or as a result of future demand for the Mago® 4 or Mago® 4S;
·the ability of the Mago® 4 or Mago® 4S to be a source of revenue growth for us;
·our ability to receive financial benefits or achieve improved operating results as a result of the commercial release of the Mago® 4 or the Mago® 4S;
·the ability of the Mago® 4 or Mago® 4S to be a factor in our growth;
·the ability of the Mago® 4 or Mago® 4S to expand the menu of test kits we offer;
·making derivations of and upgrades to the Mago® our primary platforms for marketing our kits;
·our ability to successfully market the Mago® 4 or Mago® 4S;
·our customers’ integration of the Mago® 4 or Mago® 4S into their operations;
·our ability to successfully market the DSX™ and DS2™ instrument systems from Dynex Technologies in conjunction with our test kits on a worldwide basis;
·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;

 

16
 

 

·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;
·our ability to expand the menu of test kits that we offer to include other complementary infectious disease or autoimmune testing sectors or otherwise;
·the response of our current customer base to an expansion of our menu of test kits;
·our ability to achieve organic growth;
·our ability to identify or consummate acquisitions of businesses or products;
·our ability to integrate acquired businesses or products;
·our ability to enhance our position in laboratory automation;
·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;
·the impact the existing global economic conditions may have on our financial condition, operating results and cash flows;
·the impact of healthcare regulatory reform;
·constantly changing, and our compliance with, governmental regulation;
·the impact of our adoption or implementation of new accounting statements and pronouncements on our financial condition and operating results;
·our limited operating revenues and history of primarily operational losses;
·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;
·our ability to utilize our net operating losses, whether subject to limitations or not, and its impact on our financial condition and operating results;
·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;
·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;
·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;
·our ability to achieve cost advantages from our own manufacture of instrument systems, reagents and test kits;
·our ability to grow beyond the autoimmune and infectious disease markets and to expand into additional diagnostic test sectors;
·our ability to obtain product technology from the Italian diagnostics company that would enable us to manufacture our own hepatitis products;
·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;
·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;
·our ability to derive revenue from our manufacture and sale of our own hepatitis products;
·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;
·our production capacity at our facility in Miami, Florida;

 

17
 

 

 

·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;
·our dependence on agreements with IVAX Corporation, third party distributors and key personnel;
·consolidation of our customers affecting our operations, markets and products;
·reimbursement policies of governmental and private third parties affecting our operations, markets and products;
·price constraints imposed by our customers and governmental and private third parties;
·our ability to increase the volume of our reagent production to meet increased demand;
·protecting our intellectual property;
·political and economic instability and foreign currency fluctuation affecting our foreign operations;
·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;
·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;
·litigation regarding products, distribution rights, intellectual property rights, product liability and labor and employment matters;
·voting control of our common stock by ERBA;
·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
·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, 2011 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, or ERBA, an in vitro diagnostics company headquartered in Germany, the parent company of which is Transasia Bio-Medicals Ltd., or Transasia, purchased all of the approximately 72.4% of the outstanding shares of our common stock then owned by the Debregeas-Kennedy Group for an aggregate purchase price of approximately $15,000,000, or $0.75 per share. As a result of this share acquisition, the consummation of the initial transactions contemplated by the investment made by ERBA, as further described below, including ERBA’s purchase from us, and our issuance to ERBA, of 6,666,667 shares of our common stock, and ERBA’s exercise, in part, of the warrant, as further described below, for 600,000 shares of our common stock, ERBA now beneficially owns, directly or indirectly, approximately 78.0% of the outstanding shares of our common stock.

 

RESULTS OF OPERATIONS

 

THREE MONTHS ENDED MARCH 31, 2012 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2011

 

OVERVIEW

 

Net loss totaled $78,000 for the three months ended March 31, 2012 compared to net loss of $1,020,000 for the three months ended March 31, 2011. Operating loss was $119,000 in the 2012 period compared to operating loss of $1,008,000 for the 2011 period. The decrease in both net loss and operating loss in the 2012 period compared to the 2011 period resulted primarily from decreases in operating expenses. Net revenues increased by $139,000 to $4,273,000 in the 2012 period from $4,134,000 in the 2011 period, consisting of an increase in net revenues from domestic operations of $119,000, from $2,744,000 in the 2011 period to $2,863,000 in the 2012 period, and an increase in net revenues from European operations of $20,000, including the effect of exchange rate fluctuations of the United States dollar relative to the Euro, from $1,390,000 in the 2011 period to $1,410,000 in the 2012 period. Gross profit increased by $7,000 to $2,122,000 in the 2012 period from $2,115,000 in the 2011 period, as the result of the higher revenue, offset by lower margin percentage. Gross profit as a percentage of net revenues decreased to 49.7% for the 2012 period from 51.2% for the 2011 period, principally as a result of an increase in the sale of instruments and increase in contract research revenue, which have a lower average margin than reagent sales.

 

18
 

 

Operating expenses decreased to $2,242,000 in the 2012 period from $3,123,000 in the 2011 period as a result of decreases in all three categories of operating expenses. Comparing the 2012 period to the 2011 period, selling expenses decreased by $255,000, general and administrative expenses decreased by $272,000 and research and development expenses decreased by $355,000.

 

NET REVENUES AND GROSS PROFIT

 

           Period over Period 
Three months ended March 31,  2012   2011   Increase (Decrease) 
Net Revenues:               
Domestic  $2,863,000   $2,744,000   $119,000 
European   1,410,000    1,390,000    20,000 
Total   4,273,000    4,134,000    139,000 
                
Cost of Sales   2,150,000    2,019,000    132,000 
                
Gross Profit  $2,122,000   $2,115,000   $7,000 
% of Total Net Revenue   49.7%   51.2%     

 

Total net revenues in the three months ended March 31, 2012 increased by $139,000, or 3.4%, from the three months ended March 31, 2011. This increase was composed of an increase of $119,000 in net revenues from domestic operations and an increase of $20,000 in net revenues from European operations. Exchange rate differences resulting from the strength or weakness of the United States dollar against the Euro resulted in a decrease of approximately $77,000 in net revenues in the 2012 period as compared to the 2011 period, as further discussed in “Currency Fluctuations” below. As measured in Euros, net revenues from European operations in the 2012 period increased by 1.4% compared to the 2011 period. The increase in net revenues from European operations was mainly due to increase in instrument and contract research and development revenue less the declines in reagent sales in both Italy and other international markets. Net revenues from domestic operations in the 2012 period increased by 4.3% compared to the 2011 period. The increase in net revenue from domestic operations was due to increases in volumes of reagent and instrument sales.

 

Gross profit in the 2012 period increased by $7,000, or 0.3%, from the 2011 period. The increase in gross profit was primarily attributable to the increase in net revenues. The decrease in gross profit as a percentage of net revenues to 49.7% in the 2012 period from 51.2% in the 2011 period resulted mainly from an increase in the sale of instruments and contract research and development, which have a lower average margins than reagent sales.

 

19
 

 

OPERATING EXPENSES

 

       % of       % of   Period over Period 
Three months ended March 31,  2012   Revenue   2011   Revenue   (Decrease) 
                          
Selling  $971,000    22.7%   $1,226,000    29.6%  $(255,000)
                          
General and Administrative   1,075,000    25.2%    1,347,000    32.6%   (272,000)
                          
Research and Development   196,000    4.6%   550,000    13.3%   (354,000)
                          
Total Operating Expenses  $2,242,000    52.5%  $3,123,000    75.5%  $(881,000)

 

Total operating expenses decreased to $2,242,000 in the 2012 period from $3,123,000 in the 2011 period as a result of decreases in all three categories of operating expenses.

 

The decrease of $255,000 in selling expenses during the 2012 period compared to the 2011 period was primarily due to open sales positions in the United States and, in Italy, reduction in workforce and lower commissions from lower sales in commissionable categories.

 

The decrease of $272,000 in general and administrative expenses during the 2012 period compared to the 2011 period was due principally to reduction in workforce in Italy, reduction in rent and related building expenses in Italy and reduction in provision for doubtful accounts in Italy.

 

The decrease in research and development expenses of $354,000 was due principally to reduction of research and development activities in the United States and funding of research and development in Italy, for which the relevant expenses are now included in cost of sales (see Note 14 to the financial statements).

 

LOSS FROM OPERATIONS

 

Loss from operations totaled $119,000 in the 2012 period as compared to loss from operations of $1,008,000 in the 2011 period, primarily due to reduction in operating expenses. Loss from operations in the 2012 period was composed of a $153,000 loss from domestic operations and a $34,000 income from European operations. Loss from operations in the 2011 period was composed of a $577,000 loss from domestic operations and a $431,000 loss from European operations. Domestic operations include corporate expenditures, including costs required to maintain our status as a public company.

 

OTHER INCOME, NET

 

Other income, net totaled $69,000 in the 2012 period as compared to $16,000 in the 2011 period. Amounts included in other income, net in the 2012 and 2011 periods were primarily net foreign currency gains, from deposits held in Euros and transactions of our Italian subsidiary which were denominated in currencies other than its functional currency.

 

INCOME TAX PROVISION

 

We recorded income tax provisions of $28,000 in both the 2012 and 2011 periods. The current tax provision of $12,000 for both periods relates to Italian local income taxes based upon applicable statutory rates effective in Italy. The deferred tax provision of $16,000 for both periods relates to domestic tax deductible goodwill. No current tax benefit was recorded during the two periods on our losses because we had a full valuation allowance against the net deferred income tax assets.

 

20
 

 

NET LOSS

 

We generated a net loss of $79,000 in the 2012 period as compared to a net loss of $1,020,000 in the 2011 period. Our basic and diluted loss per common share was $0.00 in 2012 as compared to a basic and diluted loss per common share of $0.04 in the 2011 period. The net loss for both periods resulted from the various factors discussed above.

 

LIQUIDITY AND CAPITAL RESOURCES

 

At March 31, 2012, our working capital was $8,847,000 compared to $8,631,000 at December 31, 2011. Cash and cash equivalents totaled $3,511,000 at March 31, 2012 and $3,653,000 at December 31, 2011.

 

Net cash flows of $110,000 were used in operating activities during the three months ended March 31, 2012 as compared to $855,000 that were used in operating activities during the three months ended March 31, 2011.

 

Cash used in operating activities of $110,000 during the 2012 period was the result of the net loss of $78,000 and changes in operating assets and liabilities of $(224,000), partially offset by non-cash items of $192,000. The non-cash items include depreciation and amortization, reduction in the provision for doubtful accounts receivable, amortization of other assets and deferred income taxes. Cash provided by changes in operating assets and liabilities was due to changes in accounts receivable, inventories, other current assets, accounts payable and accrued expenses and other long-term liabilities.

 

Cash used in operating activities of $855,000 during the 2011 period was the result of the net loss of $1,020,000 and changes in operating assets and liabilities of $66,000, partially offset by non-cash items of $231,000. The non-cash items include depreciation and amortization, a recovery for doubtful accounts receivable, a provision for inventory obsolescence and deferred income taxes.

 

Net cash of $43,000 was used in investing activities during the 2012 and 2011 periods. In both periods, the use was primarily for equipment on lease and capital expenditures.

 

Financing activities during the period consisted of capital lease payments during 2012 and 2011, as well as payments during 2012 to reduce outstanding borrowings under the revolving line of credit.

 

Liquidity is expected to be sufficient through the end of 2012 from the combination of the existing cash and cash equivalents at March 31, 2012, the exercise of warrants subsequent to March 31, 2012 and the investment that ERBA has agreed to make under the Stock Purchase Agreement, including the Warrant, as described throughout this Quarterly Report on Form 10-Q.

 

A significant portion of our cash and cash equivalents is presently held at one international securities brokerage firm. Accordingly, we are subject to credit risk if this brokerage firm is unable to repay the balance in the account or deliver our securities or if the brokerage firm should become bankrupt or otherwise insolvent. We invest in only select money market instruments, United States treasury investments, municipal and other governmental agency securities and corporate issuers.

 

Our product research and development expenditures were $1,451,000 during the year ended December 31, 2011 and $195,000 for the three months ended March 31, 2012. In the fourth quarter of 2011, a subsidiary of the Company entered into a contract research and development agreement with ERBA, as amended, for a total of Euro 754,000 ($1,003,000) in 2011 and 2012. A total of Euro 133,000 and Euro 54,000 was invoiced under the contract in the fourth quarter of 2011 and the first quarter of 2012, respectively. Actual expenditures will depend upon, among other things, the outcome of clinical testing of products under development, delays or changes in government required testing and approval procedures, technological and competitive developments, strategic marketing decisions and liquidity. There can be no assurance that these expenditures will result in the development of new products or product enhancements, that we will successfully complete products under development, that we will obtain regulatory approval or that any approved product will be produced in commercial quantities, at reasonable costs, and be successfully marketed.

 

21
 

 

In connection with our evaluation of our operating results, financial condition and cash position, and specifically considering our results of operations and cash utilization during 2011, we continue to implement measures expected to improve future cash flow. To this end, we expect operating results to continue to improve from the operating results achieved during 2011 based principally upon increases in revenue as a result of new channels of distribution in the United States and international markets.

 

We maintain allowances for doubtful accounts, particularly in Italy where payment cycles are longer than in the United States, for estimated losses resulting from the inability of our customers to make required or timely payments. Additionally, we periodically receive payments based upon negotiated agreements with governmental regions in Italy, acting on behalf of hospitals located in the region, in satisfaction of previously outstanding accounts receivable balances. We may anticipate collection of these amounts through a payment as described above, and, therefore, not provide an allowance for doubtful accounts for these amounts. If contemplated payments are not received, if existing agreements are not complied with or cancelled, or if we require additional allowances, then our operating results could be materially adversely affected during the period in which we make the determination to increase the allowance for doubtful accounts.

 

We cannot guarantee that we can generate net income, increase revenues, improve our cash flow or successfully obtain debt or equity financing on acceptable terms, or at all, and, if we cannot do so, then we may not be able to survive and any investment in our company may be lost. We are evaluating various forms of debt and equity financing arrangements.  Any such financing arrangements would likely impose positive and negative covenants on us, which could restrict various aspects of our business, operations and finances. In addition, any issuance of equity securities, or securities convertible into shares of our common stock, would be dilutive to our existing stockholders. For the long-term, we intend to utilize principally existing cash and cash equivalents, as well as internally generated funds, which are anticipated to be derived primarily from the sale of existing diagnostic and instrumentation products and diagnostic and instrumentation products currently under development as well as possible sources of debt and equity financings.  If we are not successful in improving our operating results and cash flows or if existing and possible future sources of liquidity described above are insufficient, then we may be required to curtail or reduce our operations.

 

CRITICAL ACCOUNTING POLICIES

 

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to product returns, allowance for doubtful accounts, inventories, intangible assets, stock compensation, income and other tax accruals, the realization of long-lived assets and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our assumptions and estimates may, however, prove to have been incorrect and our actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies and the judgments and estimates we make concerning their application have significant impact on our consolidated financial statements.

 

22
 

 

REVENUE RECOGNITION

 

A principal source of revenue is our "reagent rental" program in which customers make reagent kit purchase commitments with us that will usually last for a period of three to five years. In exchange, we typically include an instrument system, which remains our property (or, in the case of a lease financing arrangement, that of the financing company). We also include any required instrument service. Both the instrumentation and service are paid for by the customer through these reagent kit purchases over the life of the commitment. We recognize revenue from the reagent kit sales when title passes, which is generally at the time of shipment. Should actual reagent kit or instrument failure rates significantly increase, our future operating results could be negatively impacted by increased warranty obligations and service delivery costs.

 

During the year ended December 31, 2011, a subsidiary of the Company entered into a contract research and development agreement with the parent company, as amended. Expenses incurred pursuant to that contract are included in cost of sales as the related revenues are recorded from the achievement of milestones.

 

ALLOWANCE FOR DOUBTFUL ACCOUNTS

 

The Company grants credit without collateral to its customers based on the Company’s evaluation of a particular customer’s credit worthiness. In addition, allowances for doubtful accounts are maintained, particularly in Italy where payment cycles are longer than in the United States and in some instances may take in excess of a year to collect, for potential credit losses based on the age of the accounts receivable and the results of the Company’s periodic credit evaluations of its customers’ financial condition. We maintain allowances for doubtful accounts, particularly in Italy for the operations of our European subsidiary, for estimated losses based on historical loss percentages resulting from the inability of our customers to make required payments. In the first quarter of 2012, the Company re-evaluated the formula used to determine the allowance for doubtful accounts, resulting in a reduction in the allowance of $157,000.

 

INVENTORY

 

We regularly review inventory quantities on hand, which include components for current or future versions of products and instrumentation. If necessary, we record a provision for excess and obsolete inventory based primarily on our estimates of component obsolescence, product demand and production requirements, as well as based upon the status of a product within the regulatory approval process. In accordance with our inventory accounting policy, our inventory balance at March 31, 2012 included components for current or future versions of products and instrumentation.

 

Our inventory balance as of March 31, 2012 and December 31, 2011 included approximately $200,000 of inventory relating to our hepatitis product, substantially all of which has a shelf life exceeding five years, for which we obtained “CE Marking” approval in the European Union during 2011 and which we recently began marketing in certain markets. Inventory reserves were $391,000 and $419,000 as of March 31, 2012 and December 31, 2011, respectively.

 

GOODWILL AND OTHER INTANGIBLES

 

The determination as to whether a write-down of goodwill is necessary involves significant judgment based upon our short-term and long-term projections for the company. The assumptions supporting the estimated future cash flows of the reporting unit, including profit margins, long-term forecasts, discount rates and terminal growth rates, reflect our best estimates. All of our goodwill is currently recorded at ImmunoVision, one of our domestic subsidiaries. Although we consider our current market capitalization, we do not believe it to be an appropriate measure for the fair value of ImmunoVision, as ImmunoVision represents less than 10% of our net revenues and total assets, and we believe that it is more meaningful to compute fair value based primarily upon discounted cash flows. However, the continued decline in our market capitalization could also potentially require us to record additional impairment charges in future periods for the remaining $870,000 of goodwill at ImmunoVision.

 

23
 

 

Our product license is existing technology, obtained from an Italian diagnostics company that had developed and successfully commercialized this technology to manufacture hepatitis products sold by them and for which it had already received “CE Marking” approval from the European Union. Through the acquisition of this existing technology in its current form, we expect to be able to derive revenue from the manufacture and sale of new hepatitis products. In exchange for the Italian diagnostics company’s assistance in transferring the know-how of the manufacturing technology, we agreed to pay a total of 1,000,000 Euros in the form of four milestone payments upon the Italian diagnostics company’s achievement of certain enumerated performance objectives related to the transfer of such existing technology. We made the first three milestone payments upon the achievement of the enumerated performance objectives in prior years. We expect to make, or otherwise settle, the fourth and final milestone payment of $133,000 during 2012 as we have now received “CE Marking” approval from the European Union for our hepatitis products.

 

During the fourth quarter of 2008, we determined that the carrying amount of the product license was in excess of its fair value and recorded a non-cash impairment charge to operations totaling $560,000, reducing the carrying value of the product license to $683,000 as of December 31, 2008, from $1,243,000 as of December 31, 2007. During the fourth quarter of 2009, we determined that the carrying amount of the product license was in excess of its fair value and recorded a non-cash impairment charge to operations totaling $400,000, reducing the carrying value of the product license to $283,000 as of December 31, 2009. Fair value was determined based upon the income approach, which estimates fair value based upon future discounted cash flows. Based upon amended regulatory standards adopted by the applicable notifying body during the fourth quarter of 2009 to obtain “CE Marking” and additional requirements specified during 2010 by the applicable notifying body, we revised our assumptions supporting our computation of discounted cash flows to reflect the further delay in product launch and the possibility of a decrease in projected market share as a result of this delay, as well as to estimate the impact of the current global economic conditions. Based upon this methodology, estimated future cash flows generated by the technology granted by the product license was then calculated, reflecting our best estimate of fair value. While we obtained “CE Marking” during 2011, there remains a risk that we will not be able to market or manufacture our own hepatitis products. While we believe that we will be able to bring these hepatitis kits to market, if the progress of our efforts to begin marketing these kits is adversely impacted, then we may be required to record an additional impairment charge with respect to all or a portion of the remaining $283,000 intangible product license of the hepatitis technology asset.

 

STOCK-BASED COMPENSATION

 

Stock-based compensation expense for all stock-based compensation awards is based on the grant-date fair value estimate calculated in accordance with applicable accounting guidance. We recognize these compensation costs on a straight-line basis over the requisite service period of the award, which is generally the option vesting term of either immediately or in equal annual amounts over a four year period.

 

Valuations are based on highly subjective assumptions about the future, including stock price volatility and exercise patterns. The fair value of share-based payment awards was estimated using the Black-Scholes option pricing model. Expected volatilities are based on the historical volatility of our stock. We use historical data to estimate expected term, taking into account option exercise and employee terminations. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the expected life of the option is based on the United States Treasury yield curve in effect at the time of the grant.

 

24
 

 

INCOME TAXES

 

We have experienced net losses from our operations. In accordance with GAAP, we are required to record a valuation allowance against the deferred tax asset associated with these losses if it is "more likely than not" that we will not be able to utilize the net operating loss to offset future taxes. Due to the cumulative net losses from the operations of both our domestic and European operations, we have provided a full valuation allowance against our deferred tax assets as of March 31, 2012. Over time we may reach levels of profitability that could cause our management to conclude that it is more likely than not that we will realize all or a portion of our net operating loss carryforwards and other temporary differences. Upon reaching such a conclusion, and upon such time as we reverse the entire amount or a portion of the valuation allowance against the deferred tax asset, we would then provide for income taxes at a rate equal to our effective tax rate.

 

Under Section 382 of the Internal Revenue Code, our ability to use our net operating loss carryforwards will be limited in the future as a result of the September 1, 2010 acquisition by ERBA of the approximately 72.4% of the outstanding shares of our common stock previously owned by the Debregeas-Kennedy Group. As a result of that acquisition, our ability to utilize net operating loss carryforwards to offset future taxable income is currently limited to approximately $825,000 per year, plus both any limitation unused since the acquisition and any unused net operating losses generated after the September 1, 2010 acquisition date. The amount of the annual limitation will be adjusted upwards for any recognized built-in gains on certain assets sold during the five year period commencing with the September 1, 2010 ownership change, but may be further limited in the event of any future change in control or similar transaction. Our results for the three months ended March 31, 2012 and 2011 were not impacted by these limitations.

 

The critical accounting policies discussed above are not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP, with no need for management's judgment in their application. There are also areas in which management's judgment in selecting any available alternative would not produce a materially different result.

 

RECENTLY ISSUED ACCOUNTING STANDARDS

 

Refer to Note 13, Recently Issued Accounting Standards, to our consolidated financial statements included in this Quarterly Report on Form 10-Q regarding recently issued accounting standards applicable to us.

 

CURRENCY FLUCTUATIONS

 

For the three months ended March 31, 2012 and 2011, approximately 33% and 35%, respectively, of our net revenues were generated in currencies other than the United States dollar. We expect that this percentage may increase in the future as a result of our efforts to increase our international presence, particularly in key markets in Europe, Asia and South America. Fluctuations in the value of foreign currencies relative to the United States dollar affect our reported results of operations. If the United States dollar weakens relative to the foreign currency, then our earnings generated in the foreign currency will, in effect, increase when converted into United States dollars and vice versa. Exchange rate differences resulting from the strength or weakness of the United States dollar against the Euro resulted in a decrease of approximately $77,000 in net revenues in the 2012 period as compared to the 2011 period. Our European subsidiary incurs most of its revenue and expenses in Euro, which, to some extent, serves as a natural hedge and limits the net currency exposure.

 

25
 

 

During the three months ended March 31, 2012 and 2011, none of our subsidiaries were domiciled in a highly inflationary environment and the impact of inflation and changing prices on our net revenues and on our loss from continuing operations was not material.

 

Conducting an international business inherently involves a number of difficulties, risks, and uncertainties, such as export and trade restrictions, inconsistent and changing regulatory requirements, tariffs and other trade barriers, cultural issues, labor and employment laws, longer payment cycles, problems in collecting accounts receivable, political instability, local economic downturns, seasonal reductions in business activity in Europe during the traditional summer vacation months and potentially adverse tax consequences.

 

INCOME TAXES

 

We recorded income tax provisions of $28,000 in both the 2012 and 2011 periods. The current tax provision of $12,000 for both periods relates to Italian local income taxes based upon applicable statutory rates effective in Italy. The deferred tax provision of $16,000 for both periods relates to domestic tax deductible goodwill. No current tax benefit was recorded during the two periods on our losses because we had a full valuation allowance against the net deferred income tax assets.

 

As of March 31, 2012, we had no net domestic or foreign deferred tax asset, as a full valuation allowance has been established against deferred tax assets. As of March 31, 2012, we had net deferred tax liabilities of $444,549 relating to tax deductible goodwill at ImmunoVision, and we recorded a corresponding deferred tax provision of $16,000 during the three months ended March 31, 2012. Subsequent revisions to the estimated net realizable value of the deferred tax asset or deferred tax liability could cause our provision for income taxes to vary significantly from period to period. Upon such time as we reverse the entire valuation allowance against the deferred tax asset, we would then provide for income taxes at a rate equal to our effective tax rate.

 

Under Section 382 of the Internal Revenue Code, our ability to use our net operating loss carryforwards will be limited in the future as a result of the September 1, 2010 acquisition by ERBA of the approximately 72.4% of the outstanding shares of our common stock previously owned by the Debregeas-Kennedy Group. As a result of that acquisition, our ability to utilize net operating loss carryforwards to offset future taxable income is currently limited to approximately $825,000 per year, plus both any limitation unused since the acquisition and any unused net operating losses generated after the September 1, 2010 acquisition date. The amount of the annual limitation will be adjusted upwards for any recognized built-in gains on certain assets sold during the five year period commencing with the September 1, 2010 ownership change, but may be further limited in the event of any future change in control or similar transaction. Our results for the three months ended March 31, 2012 and 2011 were not impacted by these limitations.

 

RISK OF PRODUCT LIABILITY CLAIMS

 

Developing, manufacturing and marketing diagnostic test kits, reagents and instruments subject us to the risk of product liability claims. We believe that we continue to maintain an adequate amount of product liability insurance, but there can be no assurance that our insurance will cover all existing and future claims. There can be no assurance that claims arising under any pending or future product liability cases, whether or not covered by insurance, will not have a material adverse effect on our business, results of operations or financial condition. Our current products liability insurance is a “claims made” policy.

 

26
 

 

Item 4 – Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the first quarter of 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

27
 

 

PART II - OTHER INFORMATION

 

Item 1 - Legal Proceedings

 

We are involved in various legal claims and actions and regulatory matters, and other notices and demand proceedings arising in the ordinary course of business. While it is not possible to predict or determine the outcome of these proceedings, in the opinion of management, based on a review with legal counsel, any losses resulting from such legal proceedings would not have a material adverse impact on our financial position, results of operations or cash flows.

 

Item 6 - Exhibits

 

Exhibit    
Number   Description
     
31.1   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1   Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
32.2   Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
101.INS   XBRL Instance Document **
101.SCH   XBRL Taxonomy Extension Schema Document **
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document **
101.LAB   XBRL Taxonomy Extension Labels Linkbase Document **
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document **
101.DEF   XBRL Taxonomy Extension  Definition Linkbase Document **

 

 

*Pursuant to Item 601(b)(32) of Regulation S-K, this exhibit is furnished, rather than filed, with this Annual Report on Form 10-K.
**Pursuant to Rule 406T of SEC Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.

 

28
 

 

Signatures

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    IVAX Diagnostics, Inc.
     
Date:  May 21, 2012 By: /s/ Arthur R. Levine
    Arthur R. Levine,
    Chief Financial Officer

 

29
 

 

EXHIBIT INDEX

 

Exhibit    
Number   Description
     
31.1   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1   Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
32.2   Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
101.INS   XBRL Instance Document **
101.SCH   XBRL Taxonomy Extension Schema Document **
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document **
101.LAB   XBRL Taxonomy Extension Labels Linkbase Document **
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document **
101.DEF   XBRL Taxonomy Extension  Definition Linkbase Document **

 

 

*Pursuant to Item 601(b)(32) of Regulation S-K, this exhibit is furnished, rather than filed, with this Annual Report on Form 10-K.
**Pursuant to Rule 406T of SEC Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.

 

30