FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
Commission File Number 1-14798
IVAX DIAGNOSTICS, INC.
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
28,621,600 shares of Common Stock, $ .01 par value, outstanding as of
April 30, 2001.
IVAX DIAGNOSTICS, INC.
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INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
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Item 1 - Financial Statements
Consolidated Balance Sheets as of March 31, 2001
and December 31, 2000 2
Consolidated Statements of Operations
for the three months ended March 31, 2001 and 2000 3
Consolidated Statements of Cash Flows
for the three months ended March 31, 2001 and 2000 4
Notes to Consolidated Financial Statements 5
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 14
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 15
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
IVAX DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
March 31, December 31,
2001 2000
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 24,740 $ 1,263
Accounts receivable, net of allowances for doubtful
accounts of $2,083 in 2001 and $2,202 in 2000 4,002 4,577
Inventories 2,504 2,694
Other current assets 235 643
-------- --------
Total current assets 31,481 9,177
Property, plant and equipment, net 1,503 1,538
Goodwill, net 7,075 7,106
Equipment on lease 682 615
Other assets 795 224
Due from principal shareholder 183 --
-------- --------
Total assets $ 41,719 $ 18,660
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 498 $ 769
Accrued income taxes payable 311 37
Accrued expenses and other current liabilities 2,062 2,342
-------- --------
Total current liabilities 2,871 3,148
-------- --------
Due to principal shareholder -- 7,962
-------- --------
Other long-term liabilities 318 332
-------- --------
Commitments and contingencies (Note 9)
Shareholders' equity:
Common stock, $0.01 par value, authorized 50,000 shares,
issued and outstanding 28,622 shares in 2001 and 20,000 in 2000 286 200
Capital in excess of par value 44,127 11,258
Accumulated deficit (3,387) (2,088)
Accumulated other comprehensive loss (2,496) (2,152)
-------- --------
Total shareholders' equity 38,530 7,218
-------- --------
Total liabilities and shareholders' equity $ 41,719 $ 18,660
======== ========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these balance sheets.
2
IVAX DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31, 2001 2000
(In thousands, except per share data) -------- --------
Net revenues $ 3,287 $ 3,922
Cost of sales 1,401 1,672
-------- --------
Gross profit 1,886 2,250
-------- --------
Operating expenses:
Selling 767 651
General and administrative 1,853 397
Research and development 281 306
Goodwill amortization 64 64
-------- --------
Total operating expenses 2,965 1,418
-------- --------
Income (loss) from operations (1,079) 832
Other income (expense):
Interest income 79 33
Interest expense - related party (93) (170)
Other income, net 62 28
-------- --------
Total other income (expense), net 48 (109)
-------- --------
Income (loss) from continuing operations before income taxes (1,031) 723
Provision for income taxes 289 480
-------- --------
Net income (loss) $ (1,320) $ 243
======== ========
Basic and diluted earnings (loss) per common share $ (.05) $ .01
======== ========
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING: 28,622 20,000
======== ========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
3
IVAX DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31, 2001 2000
(In thousands) -------- --------
Cash flows from operating activities:
Net income (loss) $ (1,320) $ 243
Adjustments to reconcile net income (loss) to net cash
flows from operating activities:
Depreciation and amortization 247 269
Provision for losses on accounts receivable 12 13
Stock option compensation expense 1,041 --
Changes in operating assets and liabilities:
Accounts receivable 311 (1,040)
Inventories 101 131
Other current assets (196) (26)
Other assets (20) (1)
Accounts payable and accrued expenses (155) 1,076
Other long-term liabilities 9 14
-------- --------
Net cash flows from operating activities 30 679
-------- --------
Cash flows from investing activities:
Capital expenditures (49) (20)
Acquisitions of equipment on lease (180) (84)
-------- --------
Net cash flows used in investing activities (229) (104)
-------- --------
Cash flows from financing activities:
Proceeds from sale of common stock 22,255 --
Change in balance due to IVAX 1,794 318
-------- --------
Net cash flows from financing activities 24,049 318
-------- --------
Effect of exchange rate changes on cash and cash equivalents (373) (630)
-------- --------
Net increase in cash and cash equivalents 23,477 263
Cash and cash equivalents at the beginning of the year 1,263 4,218
-------- --------
Cash and cash equivalents at the end of the period $ 24,740 $ 4,481
======== ========
Supplemental disclosures:
Interest paid $ -- $ --
======== ========
Income tax payments (refunds) $ (44) $ 11
======== ========
Supplemental disclosure of non-cash activities:
Contribution to capital of balance due to IVAX $ 9,660 $ --
======== ========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
4
IVAX DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share data)
(1) GENERAL:
The accompanying unaudited interim consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission for reporting on Form 10-Q and, therefore, do not include all
information normally included in audited financial statements. However, in the
opinion of management, all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the results of operations, financial
position and cash flows have been made. The results of operations and cash flows
for the three months ended March 31, 2001 are not necessarily indicative of the
results of operations and cash flows which may be reported for the remainder of
2001. The interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes to
consolidated financial statements included in the IVAX Diagnostics, Inc. ("IVAX
Diagnostics" or "the Company") Form 8-K filed March 29, 2001 for the year ended
December 31, 2000.
(2) MERGER:
On March 14, 2001, b2bstores.com, Inc. ("b2bstores.com"), IVAX Corporation
("IVAX") and IVAX Diagnostics, a wholly-owned subsidiary of IVAX, consummated a
merger (the "Merger") of IVAX Diagnostics into b2bstores.com pursuant to which
all of the issued and outstanding shares of IVAX Diagnostics were converted into
20,000 shares of b2bstores.com stock and b2bstores.com's name was changed to
IVAX Diagnostics, Inc. As a result of the Merger, all non-qualified stock
options previously granted to employees of IVAX Diagnostics under the IVAX
Diagnostics, Inc. 1999 Stock Option Plan were converted into non-qualified stock
options to purchase 1,109 shares of the Company's common stock. As a result of
this conversion, in accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, the total non-cash compensation cost
was $2,378, of which $1,041 is reflected in general and administrative expense
in the accompanying statement of operations, while the remaining cost will be
expensed over the remaining vesting term of the options.
IVAX Diagnostics is engaged in the development, manufacture and marketing of
diagnostic test kits, reagents and instruments. Prior to the Merger,
b2bstores.com was formerly an internet business services company that was a
non-operating public shell on the date of the Merger. Net assets of
b2bstores.com on the date of Merger were $22,255, consisting primarily of cash
of $22,285. Additionally, as a condition of the Merger, intercompany
indebtedness of $9,660 existing between IVAX and IVAX Diagnostics was
contributed to capital. For accounting purposes, the Merger was accounted for as
a sale of stock for cash. Both companies' assets were carried forward at
historical cost. The historical financial statements prior to the acquisition
are those of the former IVAX Diagnostics with retroactive restatement of equity
and earnings per share. Following the Merger, IVAX' 20,000 shares of IVAX
Diagnostics represents approximately 70% of the issued and outstanding shares of
IVAX Diagnostics.
5
(3) INVENTORIES:
Inventories consist of the following:
March 31, December 31,
2001 2000
-------- -----------
Raw materials $ 1,196 $ 1,229
Work-in-process 339 309
Finished goods 969 1,156
------- -------
Total inventories $ 2,504 $ 2,694
======= =======
(4) CONCENTRATION OF CREDIT RISK:
IVAX Diagnostics performs periodic credit evaluations of its customers'
financial condition and provides allowances for doubtful accounts as required.
One customer accounted for 19.4% and 40.8% of the Company's net accounts
receivable as of March 31, 2001 and December 31, 2000, respectively. The same
customer accounted for 42.6% and 47.9% of the Company's net revenues for three
months ended March 31, 2001 and 2000, respectively. The customer and IVAX
Diagnostics entered into a contract in April 1999, pursuant to which the
customer agreed to purchase minimum levels of the Company's products during the
three-year period beginning May 1, 1999.
Twice during 2000, the Company's largest customer suspended its purchases of the
Company's products for several months while representatives of IVAX Diagnostics
and the customer resolved certain product issues. On January 10, 2001, shipments
to the Company's largest customer resumed. There can be no assurance that the
customer will make additional purchases at the anticipated levels or within the
anticipated time frame. The failure of the customer to do so would have a
material adverse effect on the Company's business, operating results and
financial condition.
(5) EARNINGS PER SHARE:
A reconciliation of the denominator of the basic and diluted earnings per share
computation for income from continuing operations is as follows:
Three Months Ended March 31, 2001 2000
------- -------
Basic and diluted weighted average shares outstanding 28,622 20,000
Not included in the calculation of diluted earnings per
share because their impact is antidilutive:
Stock options outstanding 2,775 1,109
(6) INCOME TAXES:
The provision for income taxes consists of the following:
Three Months Ended March 31, 2001 2000
------- -------
Current - Foreign $ 289 $ 480
======= =======
6
Through March 14, 2001, the Company reported its domestic income taxes as part
of a consolidated group with IVAX. Effective March 14, 2001, as a result of the
Merger described in Note 2, the Company will no longer be part of the
consolidated income tax returns of IVAX. For financial statement purposes, the
Company accounted for income taxes on a stand-alone basis as though the Company
had filed its own income tax returns. The Company's income tax provisions for
the three months ended March 31, 2001 and 2000 were different from the amount
computed on the loss before provision for income taxes at the statutory rate of
35% primarily due to $1,041 of non-deductible stock option compensation expense
in 2001 discussed in Note 2 and to the non-recognition of the benefits of
domestic taxable losses of $557 and $566, respectively, which were utilized by
IVAX.
As of March 31, 2001, the Company had no domestic deferred tax asset as domestic
net operating losses generated prior to the Merger were utilized by IVAX. The
foreign net deferred tax was $625 at March 31, 2001, and included in "Other
assets" in the accompanying consolidated balance sheet. Realization of the net
deferred tax asset is dependent upon generating sufficient future foreign
taxable income. Although realization is not assured, management believes it is
more likely than not that the net deferred tax asset will be realized.
(7) COMPREHENSIVE INCOME:
The components of IVAX Diagnostics' comprehensive loss are as follows:
Three Months Ended March 31, 2001 2000
------- -------
Net income (loss) $(1,320) $ 243
Foreign currency translation adjustments (343) (470)
------- -------
Comprehensive loss $(1,663) $ (227)
======= =======
(8) 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 IVAX Diagnostics' subsidiaries in the United
States. The Italian region contains subsidiaries located in Italy. The
information provided is based on internal reports and was developed and utilized
by management for the sole purpose of tracking 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 revenue, income from operations and assets by
region.
Domestic Italian Elimination Total
-------- -------- -------- --------
March 31, 2001:
External net sales $ 1,214 $ 2,073 $ -- $ 3,287
Intercompany sales 177 118 (295) --
-------- -------- -------- --------
Net revenues $ 1,391 $ 2,191 $ (295) $ 3,287
======== ======== ======== ========
Income (loss) from operations $ (1,577) $ 492 $ 6 $ (1,079)
======== ======== ======== ========
Long-lived assets $ 29,496 $ 12,264 $ (41) $ 41,719
======== ======== ======== ========
7
March 31, 2000:
External net sales $ 1,085 $ 2,837 $ -- $ 3,922
Intercompany sales 107 102 (209) --
-------- -------- -------- --------
Net revenues $ 1,192 $ 2,939 $ (209) $ 3,922
======== ======== ======== ========
Income (loss) from operations $ (366) $ 1,160 $ 38 $ 832
======== ======== ======== ========
Long-lived assets $ 6,278 $ 16,075 $ (40) $ 22,313
======== ======== ======== ========
(9) COMMITMENTS AND CONTINGENCIES:
On March 2, 2001, b2bstores.com received notice that a shareholder of
b2bstores.com filed a lawsuit against b2bstores.com and two of its directors.
The lawsuit alleges that b2bstores.com violated certain aspects of Section 14(a)
of the Securities Exchange Act of 1934, as amended, and that certain directors
breached their fiduciary duties in connection with the Merger. The suit seeks
the court's determination of declaratory relief as to whether (i) the proxy
statement materials sent to shareholders shall be considered null, void and
unenforceable, (ii) the Merger, if accomplished based on the use of the proxy
materials, should be set aside, and (iii) the termination fee of $1.0 million,
as defined in the merger agreement, shall be found void. The directors and
officers of IVAX Diagnostics deny the allegations and intend to vigorously
defend such claims, but the ultimate outcome of any such legal proceeding cannot
be determined.
Additionally, the Company is involved in various legal claims, regulatory
matters, trademark matters and other notices and demand proceedings arising in
the ordinary course of business. While it is not feasible 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
will not have a material adverse impact on the financial position, results of
operations or cash flows of the Company.
(10) RELATED-PARTY TRANSACTIONS:
Included in the accompanying consolidated balance sheets as due to (from)
principal shareholder are amounts due to (from) IVAX as follows:
March 31, December 31,
2001 2000
-------- -----------
Advances from IVAX, unsecured and interest bearing $ -- $ 4,145
Advances (to) from IVAX, unsecured and noninterest bearing (183) 3,817
------- -------
$ (183) $ 7,962
======= =======
IVAX charges interest, which is included in the accompanying statement of
operations, on the interest bearing advances at prime plus 1%, which ranged from
8.0% to 9.5 % from 2000 to 2001.
Prior to March 14, 2001, IVAX provided administration and funded health care
claims on behalf of the Company and charged the Company a fee reflective of the
cost of service. Additionally, IVAX provided certain legal, treasury, tax,
insurance, payroll and human resource services to the Company for which no fee
was charged to the Company. IVAX is continuing to provide certain services to
the Company under a cost-plus service agreement.
8
(11) RECENTLY ISSUED ACCOUNTING STANDARDS:
Effective January 1, 2001, IVAX Diagnostics adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS No. 137 and
138, which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. All derivatives, whether designated in
hedging relationships or not, are required to be recorded on the balance sheet
at fair value. If the derivative is designated as a fair value hedge, the
changes in the fair value of the derivative and of the hedged item attributable
to the hedged risk are recognized in earnings. If the derivative is designated
as a cash flow hedge, the effective portions of changes in the fair value of the
derivative are recorded in other comprehensive income and are recognized in the
income statement when the hedged item affects earnings. Ineffective portions of
changes in the fair value of cash flow hedges are recognized in earnings. The
adoption of SFAS No. 133, as amended, did not have a material impact on the
Company's financial position or results of operations as the Company had no
derivative financial instruments during the first quarter of 2001.
(12) QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
The following table provides IVAX Diagnostics' income statements for the second,
third and fourth quarters of 2000.
2nd Qtr 3rd Qtr 4th Qtr
------- ------- -------
Net revenues $ 2,718 $ 3,288 $ 1,865
Cost of sales 1,298 1,430 980
------- ------- -------
Gross profit 1,420 1,858 885
------- ------- -------
Operating expenses:
Selling 651 621 700
General and administrative 578 526 581
Research and development 350 312 323
Goodwill amortization 64 64 64
------- ------- -------
Total operating expenses 1,643 1,523 1,668
------- ------- -------
Income (loss) from operations (223) 335 (783)
Other income (expense):
Interest income 66 14 45
Interest expense (160) (102) (93)
Other income, net (21) (6) (119)
------- ------- -------
Total other expense, net (115) (94) (167)
------- ------- -------
Income (loss) from continuing operations before income taxes (338) 241 (950)
Provision for income taxes 187 372 491
------- ------- -------
Net loss $ (525) $ (131) $(1,441)
======= ======= =======
9
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 Form 8-K filed March 29, 2001 for the year
ended December 31, 2000 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. Except for
the historical matters contained herein, statements made in this report are
forward-looking and are made pursuant to the safe harbor provisions of the
Securities Litigation Reform Act of 1995. Such statements may include, but are
not limited to, projections of revenues, income and cash flows, the Company's
financing needs and plans for future operations. Investors are cautioned that
forward-looking statements involve risks and uncertainties including, but not
limited to, regulatory, economic, competitive, governmental and technological
factors affecting the Company's operations, markets, products, prices, and other
factors discussed elsewhere in this Report and the documents filed by the
Company with the Securities and Exchange Commission. These factors may cause the
Company's results to differ materially from the forward-looking statements made
on this Report or otherwise by or on behalf of the Company.
Results of Operations
Three Months Ended March 31, 2001 Compared To The Three Months Ended
March 31, 2000
Net Revenues and Gross Profit
Net revenue for the three months ended March 31, 2001 totaled $3.3 million, a
decrease of $.6 million, or 16.2%, from the $3.9 million reported in the prior
year comparable period. This decrease was comprised of a decrease of $.7 million
in net revenue from Italian operations partially offset by an increase of $.2
million in net revenue from domestic operations. Net revenue from Italian
operations totaled $2.2 million for the three months ended March 31, 2001,
compared to $2.9 million in the three months ended March 31, 2000. The $.7
million decrease was primarily attributable to decreased sales volume of
instrumentation products. Domestic operations generated net revenue of $1.4
million for the three months ended March 31, 2001, compared to $1.2 million for
the three months ended March 31, 2000. The $.2 million, or 16.7%, increase was
primarily due to volume increases in revenue from instrumentation placements.
Gross profit for the three months ended March 31, 2001 decreased $.4 million, or
16.2% to $1.9 million (57.4% of net revenue) from $2.3 million (57.4% of net
revenue) for the three months ended March 31, 2000. The decrease in gross profit
was primarily attributable to a decrease in sales of instrumentation products.
Operating Expenses
Selling expenses were $.8 million (23.3% of net revenue) for the three months
ended March 31, 2001 compared to $.7 million (16.6% of net revenue) for the
three months ended March 31, 2000. The increase was primarily due to the effect
of greater payroll costs related to increased instrument system placement
efforts. General and administrative expenses totaled $1.9 million (56.4% of net
revenue) in the three months ended March 31, 2001, an increase of $1.5 million,
from $.4 million (10.1% of net revenue) in the three months ended March 31,
2000. The increase was primarily the result of the recognition of $1.0 million
in stock option compensation expense from conversion of outstanding options
under the Company's 1999 Stock Option Plan to a fair value plan as a result of
the merger discussed below. The increase was also due to a partial reimbursement
of legal fees received from a settlement of patent litigation in 2000, as well
as an increase in legal fees incurred in 2001 associated with the completion of
the merger. Research and development expenses totaled $.3 million in the three
months ended March 31, 2001 and March 31,
10
2000, representing 8.5% and 7.8%, respectively, of net revenues. The future
level of research and development expenditures will depend on, among other
things, the outcome of ongoing testing of products under development, delays or
changes in government required testing and approval procedures, technological
and competitive developments, strategic marketing decisions and liquidity.
Other Income (Expense)
Interest income increased slightly to $.1 million in the three months ended
March 31, 2001, due to interest earned as a result of cash received in the
merger. Interest expense-related party amounted to $.1 million in the three
months ended March 31, 2001 and $.2 million in the three months ended March 31,
2000, a decrease of $.1 million. The related party interest was incurred on
intercompany advances from IVAX. As a result of the merger, intercompany
advances from IVAX have been contributed to capital.
Merger
On March 14, 2001, b2bstores.com, Inc. ("b2bstores.com"), IVAX Corporation
("IVAX") and IVAX Diagnostics, a wholly-owned subsidiary of IVAX, consummated a
merger (the "Merger") of IVAX Diagnostics into b2bstores.com pursuant to which
all of the issued and outstanding shares of IVAX Diagnostics were converted into
20 million shares of b2bstores.com stock and b2bstores.com's name was changed to
IVAX Diagnostics, Inc. As a result of the Merger, all non-qualified stock
options previously granted to employees of IVAX Diagnostics under the IVAX
Diagnostics, Inc. 1999 Stock Option Plan were converted into non-qualified stock
options to purchase 1.1 million shares of the Company's common stock. As a
result of this conversion, in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, the total non-cash
compensation cost was $2.4 million, of which $1.0 million is reflected in
general and administrative expense in the accompanying statement of operations,
while the remaining cost will be expensed over the remaining vesting term of the
options.
IVAX Diagnostics is engaged in the development, manufacture and marketing of
diagnostic test kits, reagents and instruments. Prior to the Merger,
b2bstores.com was formerly an internet business services company that was a
non-operating public shell on the date of the Merger. Net assets of
b2bstores.com on the date of Merger were $22.3 million, consisting primarily of
cash of $22.3 million. Additionally, as a condition of the Merger, intercompany
indebtedness of $9.7 million existing between IVAX and IVAX Diagnostics was
contributed to capital. For accounting purposes, the Merger was accounted for as
a sale of stock for cash. Both companies' assets were carried forward at
historical cost. The historical financial statements prior to the acquisition
are those of the former IVAX Diagnostics with retroactive restatement of equity
and earnings per share. Following the Merger, IVAX' 20,000 shares of IVAX
Diagnostics represents approximately 70% of the issued and outstanding shares of
IVAX Diagnostics.
Liquidity and Capital Resources
At March 31, 2001, IVAX Diagnostics' working capital was $28.6 million, compared
to $6.0 million at December 31, 2000. Cash and cash equivalents totaled $24.7
million at March 31, 2001, as compared to $1.3 million at December 31, 2000.
Cash flows from operating activities were approximately break even during the
first quarter of 2001, compared to $.7 million during the first quarter of 2000.
The decrease in cash provided by operating activities was primarily the result
of reduced net income and an increase in cash utilized to pay accounts payable
and accrued expenses, partially offset by an increase in cash received from
accounts receivable collections.
11
Net cash flows of $.2 million were used in investing activities during the first
quarter of 2001, as compared to $.1 million that was used during the same period
of the prior year.
Net cash flows of $24.0 million were provided by financing activities during the
first quarter of 2001, compared to $.3 million provided during the same period
of the prior year, primarily due to cash of $22.3 million that was included in
the net assets of b2bstores.com acquired in the Merger.
IVAX Diagnostics' product research and development expenditures are expected to
be approximately $1.3 million during 2001, although actual expenditures will
depend on, 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. In addition, IVAX Diagnostics expects to spend
approximately $.4 million in fiscal 2001 to improve and expand its equipment and
facilities.
IVAX Diagnostics' principal source of short term liquidity is existing cash and
cash equivalents received as a result of the completion of the Merger which IVAX
Diagnostics believes will be sufficient to meet its operating needs and
anticipated capital expenditures over the short term. For the long term, IVAX
Diagnostics intends to utilize principally 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. There can be no assurance that IVAX Diagnostics will
successfully complete products under development, that IVAX Diagnostics will be
able to obtain regulatory approval for any such product, or that any approved
product will be produced in commercial quantities and at reasonable costs, and
be successfully marketed. IVAX Diagnostics may consider issuing debt or equity
securities in the future to fund potential acquisitions and growth. On March 14,
2001, the Company's Board of Directors approved a plan to repurchase up to 1
million shares of the Company's common stock. No shares were repurchased under
this plan, and on May 10, 2001, the plan was rescinded and is of no further
force or effect.
Currency Fluctuations
For the three months ended March 31, 2001 and 2000, approximately 29.1% and
26.5%, respectively, of IVAX Diagnostics' net revenues were attributable to
operations which principally generated revenues in currencies other than the
United States dollar. Fluctuations in the value of foreign currencies relative
to the United States dollar affect the reported results of operations for IVAX
Diagnostics. If the United States dollar weakens relative to the foreign
currency, the earnings generated in the foreign currency will, in effect,
increase when converted into United States dollars and vice versa. During the
first quarters of 2001 and 2000, none of IVAX Diagnostics' subsidiaries were
domiciled in highly inflationary environments. As a result of exchange rate
differences, net revenues decreased by approximately $.2 million for the three
months ended March 31, 2001, as compared to the same period of the prior year.
The effects of inflation on consolidated net revenues and operating income were
not significant.
Income Taxes
IVAX Diagnostics recognized tax provision of $.3 million and $.5 million for the
three months ended March 31, 2001 and 2000, respectively, which related to
foreign operations. Through March 14, 2001, the Company reported its domestic
income taxes as part of a consolidated group with IVAX. Effective March 14,
2001, as a result of the Merger, the Company will no longer be part of the
consolidated income tax returns of IVAX. For financial statement purposes, the
Company accounted for income taxes on a stand-
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alone basis as though the Company had filed its own income tax returns. The
Company's income tax provisions for the three months ended March 31, 2001 and
2000 were different from the amount computed on the loss before provision for
income taxes at the statutory rate of 35% primarily due to $1.0 million of
non-deductible stock option compensation expense in 2001 discussed above and to
the non-recognition of the benefits of domestic taxable losses of $557 and $566,
respectively, which were utilized by IVAX.
As of March 31, 2001, the Company had no domestic deferred tax asset as domestic
net operating losses generated prior to the Merger were utilized by IVAX. The
foreign net deferred tax was $.6 million at March 31, 2001. Realization of the
net deferred tax asset is dependent upon generating sufficient future foreign
taxable income. Although realization is not assured, management believes it is
more likely than not that the net deferred tax asset will be realized.
Management's estimates of future taxable income are subject to revision due to,
among other things, regulatory and competitive factors affecting the industries
in the markets in which IVAX Diagnostics operates.
Risk of Product Liability Claims
Developing, manufacturing and marketing diagnostic test kits, reagents and
instruments subject IVAX Diagnostics to the risk of product liability claims.
IVAX Diagnostics believes that it continues to maintain an adequate amount of
product liability insurance, but there can be no assurance that its 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 IVAX
Diagnostics' business, results of operations or financial condition. IVAX
Diagnostics' current products liability insurance is a "claims made" policy.
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Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss that may impact the consolidated
financial position, results of operations or cash flows of IVAX Diagnostics.
IVAX Diagnostics, in the normal course of doing business, is exposed to the
risks associated with foreign currency exchange rates and changes in interest
rates.
Foreign Currency Exchange Rate Risk - IVAX Diagnostics is exposed to exchange
rate risk when its Italian subsidiary enters into transactions denominated in
currencies other than its functional currency
Interest Rate Risk - IVAX Diagnostics does not have debt obligations. IVAX
Diagnostics believes that its exposure to market risk relating to interest rate
risk is not material.
Commodity Price Risk - IVAX Diagnostics does not believe it is subject to any
material risk associated with commodity prices.
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PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
On March 2, 2001, b2bstores.com received notice that a shareholder of
b2bstores.com filed a lawsuit against b2bstores.com and two of its directors.
The lawsuit alleges that b2bstores.com violated certain aspects of Section 14(a)
of the Securities Exchange Act of 1934, as amended, and that certain directors
breached their fiduciary duties in connection with the Merger. The suit seeks
the court's determination of declaratory relief as to whether (i) the proxy
statement materials sent to shareholders shall be considered null, void and
unenforceable, (ii) the Merger, if accomplished based on the use of the proxy
materials, should be set aside, and (iii) the termination fee of $1.0 million,
as defined in the merger agreement, shall be found void. The directors and
officers of IVAX Diagnostics deny the allegations and intend to vigorously
defend such claims, but the ultimate outcome of any such legal proceeding cannot
be determined.
Additionally, the Company is involved in various legal claims, regulatory
matters, trademark matters and other notices and demand proceedings arising in
the ordinary course of business. While it is not feasible 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
will not have a material adverse impact on the financial position, results of
operations or cash flows of the Company.
Item 6 - Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
On March 29, 2001, IVAX Diagnostics f/k/a b2bstores.com filed a report
dated March 14, 2001, under Item 1 - Change of Control and Item 2 -
Acquisition or Disposition of Assets on Form 8-K reporting the Merger of
IVAX Diagnostics and b2bstores.com.
On April 9, 2001, IVAX Diagnostics filed a report dated April 2, 2001
under Item 4 - Change in Independent Certified Public Accountant
reporting that it had engaged Arthur Andersen LLP as its independent
certified public accountant.
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Signatures
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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 14, 2001 By: /s/ Mark Deutsch
-----------------------
Mark Deutsch
Vice President-Finance
Chief Financial Officer
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