| IVAX DIAGNOSTICS INC ITEM 1A RISK FACTORS You should carefully consider the risks described below |
| These and other risks could materially and adversely affect our business, operating results or financial condition |
| The risks described below are not the only risks we face |
| Additional risks not presently known to us or other factors that we do not presently perceive to present significant risks to us at this time may also impair our operations |
| You should also refer to the other information contained or incorporated by reference in this Annual Report on Form 10-K The future success of our business depends on our development, manufacture and marketing of new products |
| Our future success is largely dependent upon our ability to develop, manufacture and market commercially successful new scientific instruments and assays |
| Delays in the development, manufacture or marketing of new products will impact our operating results and financial condition |
| Each of the steps in the development, manufacture and marketing of our products, as well as the process taken as a whole, involves significant periods of time and expense |
| There can be no assurance that: • any of our products presently under development, if and when fully developed and tested, will perform as expected, • we will obtain necessary regulatory approvals in a timely manner, if at all, or • we can successfully and profitably produce and market any of our products |
| 6 ______________________________________________________________________ Any of the above factors may materially and adversely affect our business, prospects, operating results or financial condition |
| Our strategic initiatives, including our automation strategy, our development and commercial release of our new proprietary instrument system and the expansion of our test kit menu, may not be successful |
| Our test kits are designed to be performed either manually or in an automated format |
| We also design and manufacture our laboratory instruments to perform tests in a fully-automated mode |
| In furtherance of our automation strategy, we have developed a new proprietary instrument system, named the PARSEC^™ System |
| While deliveries of the PARSEC^™ System to customer laboratories abroad have already begun, we intend to seek 510(k) clearance from the FDA for the PARSEC^™ System in the United States |
| Accordingly, commercial deliveries of the PARSEC^™ System in the United States will await regulatory clearance of the 510(k) |
| Furthermore, there can be no assurance that our international activities associated with the PARSEC^™ System will not be impacted by the delay in the full commercial launch of the PARSEC^™ System in the United States |
| We expect that the PARSEC™ System will become our primary product and will position us to target new product markets for growth beyond the niche market for autoimmune and infectious disease immunoassay products in which we currently compete |
| However, the development and marketing of new or enhanced products is a complex and uncertain process |
| Accordingly, we cannot be certain that: • the PARSEC^™ System will be available when or perform as expected, • the PARSEC^™ System will become our primary product, • the PARSEC^™ System will enable us to expand the menu of test kits we offer, • we will be successful in the marketing of the PARSEC^™ System, or • customers will integrate the PARSEC^™ System into their operations as readily as expected |
| Additionally, in an effort to expand the test kit menu we offer, in September 2004, we entered into a license agreement with an Italian diagnostics company that allows us access to its technology for manufacturing certain hepatitis products |
| We expect this agreement to enable us to become competitive in markets outside of the United States by providing us with technology that, over time, would allow us to internally manufacture many of our own hepatitis products with the “CE Marking,” as well as internally manufacture our own raw materials for those hepatitis products |
| However, there remains a risk that we will not be able to obtain product technology that would enable us to manufacture hepatitis products or, if we obtain such product technology, that we will not be able to manufacture hepatitis products or obtain regulatory approval for these products |
| Any of the above factors may materially and adversely affect our business, prospects, operating results or financial condition |
| Our future success depends on the development of new markets |
| Our success depends, in large part, on the introduction and acceptance by hospitals, clinics and laboratories of our new diagnostic products and our ability to broaden sales of our existing products to current and new customers |
| In order to penetrate the market more effectively, we will need to expand our sales and marketing activities by, among other things: • increasing our sales force, • expanding our promotional activities, 7 ______________________________________________________________________ • developing additional third party strategic distributorships, and • participating in trade shows |
| There is no assurance that these or other activities or programs will be successful |
| The failure of such activities or programs could have a material adverse effect on our business, prospects, operating results or financial condition |
| Our own manufacture of scientific instruments, reagents and test kits may not provide us with anticipated cost savings or competitive advantages |
| We have sought to differentiate ourselves from our competitors through our proprietary instrument systems |
| While some of our competitors offer proprietary instruments, other competitors use third-parties to manufacture these instruments for them |
| We manufacture our Mago^® Plus and Aptus^® instruments, as well as our new proprietary PARSEC^™ System, at Delta, our wholly-owned subsidiary in Italy |
| Additionally, our wholly-owned subsidiary, ImmunoVision, produces certain autoimmune reagents and our wholly-owned subsidiary, Diamedix, produces diagnostic test kits |
| There can be no assurance that we will realize cost savings or competitive advantages from our own production of scientific instruments, reagents or test kits |
| Our research and development expenditures may not result in commercially successful products |
| We devote substantial resources to research and development to update and improve our existing products, as well as to develop new products and technologies |
| During 2005, we spent approximately dlra1dtta8 million on our research and development efforts |
| We may in the future increase the amounts we spend on research and development depending upon, among other things: • the outcome of clinical testing of products under development, • delays or changes in government required testing or approval procedures, • technological and competitive developments, • strategic marketing decisions, and • liquidity |
| As a result, our research and development expenditures may adversely impact our earnings in the short term |
| Additionally, there is no assurance that: • our research and development expenditures will result in the development of new products or product enhancements, • we will successfully complete products currently under development, • we will obtain regulatory approval, or • any approved product will be produced in commercial quantities, at reasonable costs, and be successfully marketed |
| The markets for our products are highly competitive and subject to rapid technological change |
| The markets for our products are highly competitive and are characterized by continual and rapid technological developments that have resulted, and will likely continue to result, in substantial improvements in product function and performance |
| Our success will depend, in part, on our ability to anticipate changes in technology and industry requirements and to respond to technological developments on a timely basis either internally or through strategic alliances |
| Several companies have developed, or are developing, scientific 8 ______________________________________________________________________ instruments and assays that compete or will compete directly with products marketed by us |
| Many existing and potential competitors have substantially greater financial, marketing, research, and technological resources, as well as established reputations for success in developing, manufacturing, selling and servicing products than us |
| Competitors that are more vertically integrated than us may have more flexibility to compete effectively on price |
| We expect that existing and new competitors will continue to introduce products or services that are, directly or indirectly, competitive with those sold by us |
| Such competitors may succeed in developing products that are more functional or less costly than those sold by us and may be more successful in marketing such products |
| These and other changes and innovations in the rapidly changing medical technology market may negatively affect the sales of the products we market |
| There can be no assurance that we will be able to compete successfully in this market or that technology developments by our competitors will not render our products or technologies obsolete |
| If we fail to effectively compete or adapt to changing technology, it could have a material adverse effect on our business, prospects, operating results or financial condition |
| Our success depends on key personnel, the loss of whom could disrupt our business |
| Our business is dependent on the active participation of our principal executive officers |
| The loss of the services of any of these individuals could adversely affect our business and future prospects |
| In addition, our success is dependent on our ability to retain and attract additional qualified management, scientists, engineers, developers, and regulatory and other personnel |
| Competition for such talent is intense and there can be no assurance that we will be able to attract and retain such personnel |
| Our business is dependent on third-party distributors |
| Although our direct sales force consummates the majority of our sales, we also engage third-party distributors to sell our products |
| In Italy, our products are sold directly through Delta’s independent sales force and sales representatives, most of whom work exclusively for Delta |
| There is no assurance that third-party distributors or independent sales personnel will achieve acceptable levels of sales or that, if any of our existing arrangements expire or terminate, we will be able to replace any distributors or sales personnel on terms advantageous to us, or at all |
| Further, there is no assurance that we will be able to expand our distribution network by adding additional distributors or sales personnel |
| If third-party distributors or independent sales personnel cease to promote our products, or if we are unable to make acceptable arrangements with distributors or sales personnel in other markets, our business, prospects, operating results or financial condition could be materially adversely affected |
| We depend on our proprietary rights and cannot be certain of their confidentiality and protection |
| Our success depends, in large part, on our ability to protect our current and future technologies and products and to defend our intellectual property rights |
| We have filed several patent applications related to the new innovative features in the PARSEC^™ System |
| However, we cannot be sure that we will receive patents for any of these patent applications or that any patents that we receive will provide competitive advantages for the PARSEC^™ System |
| We also cannot be sure that competitors will not challenge, invalidate or void the application of these patents |
| In addition, patent rights may not prevent our competitors from developing, using or selling products that are similar or functionally equivalent to our products |
| The technology associated with the design and manufacture of the Mago^® Plus and Aptus^® instruments is not protected by patent registrations or license restrictions |
| There can be no assurance that our competitors will not gain access to our trade secrets and proprietary and confidential technologies, or that they will not independently develop similar or competing trade secrets and technologies |
| If others develop competing instruments or other products, then this could erode our competitive advantage and materially harm our business |
| We also rely on trade secrets, unpatented proprietary know-how and continuing technological innovation |
| We use confidentiality agreements with licensees, suppliers, employees and consultants to protect our trade 9 ______________________________________________________________________ secrets, unpatented proprietary know-how and continuing technological innovation |
| There can be no assurance that these parties will not breach their agreements with us |
| We also cannot be certain that we will have adequate remedies for any breach |
| Disputes may arise concerning the ownership of intellectual property or the applicability of confidentiality agreements |
| Furthermore, we cannot be sure that our trade secrets and proprietary technology will not otherwise become known or that our competitors will not independently develop similar or competing trade secrets and proprietary technology |
| We also cannot be sure, if we do not receive patents for products arising from research, that we will be able to maintain the confidentiality of information relating to our products |
| Third parties may claim that we infringe their proprietary rights, which may prevent us from manufacturing and selling some of our products or result in claims for substantial damages |
| Technology-based companies are often very litigious and are often subject to unforeseen litigation |
| Therefore, although our business philosophy is to respect intellectual property rights, we face the risk of adverse claims and litigation alleging infringement of intellectual property rights belonging to others |
| These claims could result in costly litigation and could divert management’s and technical personnel’s attention from other matters |
| The outcome of any claim is difficult to predict because of the uncertainties inherent in litigation |
| In addition, regardless of the merits of any infringement claims, these claims could cause us to lose our right to develop our discoveries or commercialize our products in certain markets or could require us to pay monetary damages or royalties to license proprietary rights from third parties |
| Furthermore, we cannot be certain that we would be able to obtain these licenses on terms we believe to be acceptable |
| As a result, an adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could have a material and adverse effect on our business, prospects, operating results or financial condition |
| The trend towards consolidation in the diagnostics industry may adversely affect us |
| The diagnostics industry has experienced considerable consolidation through mergers and acquisitions in the past several years |
| This consolidation trend may result in the remaining companies having greater financial resources and technological capabilities, thereby intensifying competition in the industry, which could have a material adverse effect on our business |
| Consolidation of our customers or the formation of group purchasing organizations could result in increased pricing pressure that could adversely affect our operating results |
| The health care industry has undergone significant consolidation resulting in increased purchasing leverage for customers and consequently increased pricing pressures on our business |
| Additionally, some of our customers have become affiliated with group purchasing organizations |
| Group purchasing organizations typically offer members price discounts on laboratory supplies and equipment if they purchase a bundled group of one supplier’s products, which results in a reduction in the number of manufacturers selected to supply products to the group purchasing organization and increases the group purchasing organization’s ability to influence its members’ buying decisions |
| Further consolidation among customers or their continued affiliation with group purchasing organizations may result in significant pricing pressures and correspondingly reduce the gross margins of our business or may cause our customers to reduce their purchases of our products thereby adversely affecting our business, prospects, operating results or financial condition |
| Additionally, in Italy, and most other countries in Western Europe, our products are sold predominantly to public hospital laboratories, which are managed by government structures either directly or indirectly |
| In most cases, our products are sold through tenders for multiple year periods |
| Due to the efforts exercised by many governments to contain healthcare costs, there has been a constant effort to consolidate laboratory units and, consequently, the bid process continues to become even more competitive |
| The containment of healthcare costs, 10 ______________________________________________________________________ consolidation of laboratory units or increase in the competitiveness of the bid process could adversely affect our business, prospects, operating results or financial condition |
| Reimbursement policies of third parties could affect the pricing and demand for our products |
| Our profitability may be materially adversely affected by changes in reimbursement policies of governmental and private third party payors |
| The products we market are purchased principally by healthcare providers that typically bill third party payors such as governmental programs (eg, Medicare and Medicaid), private insurance plans and managed care plans, for healthcare services provided to their patients |
| Governmental reimbursement policies are subject to rapid and significant changes in the United States, at both the federal and state levels, and in other countries |
| Private third party payors are increasingly negotiating the prices charged for medical products and services |
| There can be no assurance that healthcare providers will not respond to such pressures by substituting competitors’ products for our products |
| A third party payor may deny reimbursement if it determines that a device was not used in accordance with cost-effective treatment methods, was experimental, or for other reasons |
| There can be no assurance that our products will qualify for reimbursement by governmental programs in accordance with guidelines established by the Centers for Medicare and Medicaid Services, by state government payors, or by commercial insurance carriers, or that reimbursement will be available in other countries |
| Cost containment measures and health care reform proposals could affect our ability to sell our products |
| Various legislative proposals, including proposals relating to the cost containment of healthcare products and the reimbursement policies of governmental and private third party payors, could materially impact the pricing and sale of our products |
| Reimbursement policies may not include our products |
| Even if reimbursement policies of third parties grant reimbursement status for a product, we cannot be sure that these reimbursement policies will remain in effect |
| Limits on reimbursement could reduce the demand for our products |
| The unavailability or inadequacy of third party reimbursement for our products could reduce or possibly eliminate demand for our products |
| We are unable to predict whether governmental authorities will enact additional legislation or regulation which will affect third party coverage and reimbursement that reduces demand for our products |
| Compliance with governmental regulation is critical to our business |
| The products we sell are subject to extensive regulation by numerous governmental and regulatory authorities in the United States, principally the FDA, and other countries |
| Such regulation includes the regulation of the testing, approval, manufacturing, labeling, marketing and sale of diagnostic devices |
| Failure to comply with these governmental regulations can result in fines, unanticipated compliance expenditures, interruptions of production and criminal prosecution |
| The process of obtaining regulatory approval is rigorous, time consuming and costly |
| There is no assurance that necessary approvals will be attained on a timely basis, if at all, or at the anticipated cost |
| In addition, product approvals can be withdrawn if we fail to comply with regulatory standards or if unforeseen problems occur following initial marketing |
| In addition, as a general matter, foreign regulatory requirements for medical devices are becoming increasingly stringent |
| “CE Marking” must be obtained for all medical devices commercially distributed in the European Union, even though the products may have received FDA clearance |
| In order to be commercially distributed throughout the European Union, certain of our products must bear the “CE Marking |
| ” All of the products that we currently sell throughout the European Union are in conformity with the applicable “CE” regulations under the In Vitro Diagnostics Directive |
| However, if in the future we lose the authorization to use 11 ______________________________________________________________________ the “CE Marking,” we may not be able to sell our products in the European Union, which could have a material adverse effect on our business, prospects, operating results and financial condition |
| The evolving and complex nature of regulatory requirements, the broad authority and discretion of regulatory authorities and the extremely high level of regulatory oversight result in a continuing possibility that we may be adversely affected by regulatory actions despite our efforts to maintain compliance with regulatory requirements |
| Delays in obtaining, or the inability to obtain, necessary domestic or foreign regulatory approvals, failures to comply with applicable regulatory requirements or extensive changes in regulation could have a material adverse effect on our business, prospects, operating results or financial condition |
| We are subject to a number of regulatory and contractual restrictions governing our relations with our employees in Italy |
| Our employment relations in Italy are governed by numerous regulatory and contractual requirements, including, among other things, national collective labor agreements and individual employer labor agreements |
| These arrangements address a number of specific issues affecting our working conditions, including, without limitation, hiring, work time, wages and benefits, and termination of employment |
| We must make significant payments in order to comply with these requirements |
| The cost of complying with these requirements may materially adversely affect our business, prospects, operating results or financial condition |
| Our products could fail to perform according to specification, or prove to be unreliable, which could damage our customer relationships and industry reputation and result in lawsuits and loss of sales |
| Our customers require demanding specifications for product performance and reliability |
| Because the products we market are complex and often use state-of-the-art components, processes and techniques, undetected errors and design flaws may occur |
| Product defects result in higher product service, warranty and replacement costs and may cause serious damage to our customer relationships and industry reputation, all of which will negatively impact our sales and business |
| We may be subject to lawsuits if any of the products we market fails to operate properly or causes any ailment to be undiagnosed or misdiagnosed |
| We may be exposed to product liability claims and there can be no assurance of adequate insurance |
| Like all diagnostics companies, the testing, manufacturing and marketing of our products may expose us to product liability and other claims resulting from their use |
| If any such claims against us are successful, we may be required to make significant compensation payments and suffer the associated adverse publicity |
| Even unsuccessful claims could result in the expenditure of funds in litigation and the diversion of management time and resources |
| We believe that we maintain an adequate amount of product liability insurance, but there can be no assurance that our insurance will cover all existing and future claims or that we will be able to maintain existing coverage or obtain additional coverage at reasonable rates |
| If a claim is not covered or if our coverage is insufficient, we may incur significant liability payments that would have a material adverse effect on our business, operating results or financial condition |
| Damages to or disruptions at our facilities could adversely impact our ability to effectively operate our business |
| A portion of our facilities, as well as our corporate headquarters and other critical business functions, are located in Miami, Florida—an area subject to hurricane casualty risk |
| Although we have certain limited protection afforded by insurance, our business and earnings could be materially adversely affected in the event of a major windstorm |
| 12 ______________________________________________________________________ We have limited operating revenue and a history of primarily operational losses |
| For the year ended December 31, 2005, we recorded net revenues of dlra19dtta8 million and net loss of dlra0dtta5 million |
| For the year ended December 31, 2004, we recorded net revenues of dlra18dtta9 million and net income of dlra0dtta2 million |
| For the year ended December 31, 2003, we recorded net revenues of dlra17dtta7 million and net loss of dlra0dtta7 million |
| Our principal source of short-term liquidity is, and during the past three years has been, existing cash and cash equivalents and marketable securities received as a result of cash received from the completion of the merger between b2bstores |
| com and the pre-merger IVAX Diagnostics, which we believe will be sufficient to meet our operating needs and anticipated capital expenditures over the next twelve months |
| For the long term, we intend to utilize principally existing cash and cash equivalents and marketable securities, as well as internally generated funds, which we anticipate will be derived primarily from our operations |
| There is, however, no assurance that existing cash and cash equivalents and marketable securities will satisfy all of our cash requirements and fund any losses from operations |
| Furthermore, there can be no assurance that we will be able to operate on a profitable basis or internally generate funds from our operations |
| If existing cash and cash equivalents and marketable securities are insufficient to finance operations of if we are unable to operate on a profitable basis or internally generate funds from our operations, then we may be required to issue securities or incur indebtedness to finance our operations or curtail or reduce our operations |
| If we fail to collect our accounts receivable, our operating results could be materially adversely affected |
| We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments |
| As of December 31, 2005 and 2004, our accounts receivable were dlra7dtta7 million and dlra10dtta8 million, respectively, and our allowance for doubtful accounts was dlra1dtta0 million and dlra3dtta1 million |
| As of December 31, 2005 and 2004, dlra5dtta3 million and dlra8dtta6 million, respectively, of our accounts receivable were due in Italy, and dlra0dtta7 million and dlra2dtta7 million, respectively, of our allowance for doubtful accounts related to Italian accounts receivable |
| Approximately 90prca of Delta’s customers in Italy are government owned hospitals and the remaining 10prca are private laboratories |
| As of December 31, 2005 and 2004, 57dtta0prca and 64dtta8prca, respectively, of our net accounts receivable were due from hospitals and laboratories controlled by the Italian government |
| Accordingly, we are subject to credit risk if the Italian government does not, or is not able to, pay amounts owed to us |
| In many instances, our receivables in Italy, while currently due and payable, take in excess of a year to collect and, although untimely, most customers have historically paid the amounts they owe |
| Nevertheless, there is no assurance that we will collect the outstanding accounts receivable or that the allowance for doubtful accounts will be adequate |
| The failure to collect outstanding receivables, whether relating to Italy, the United States or elsewhere, could have a material adverse effect on our business, prospects, operating results or financial condition |
| If the financial condition of our customers was to deteriorate, resulting in an impairment of their ability to make payments, then we may be required to make additional allowances, which would adversely affect our operating results in the period in which the determination or allowance is or was made |
| Political and economic instability and foreign currency fluctuations may adversely affect the revenues generated by our foreign operations |
| For the years ended December 31, 2005, 2004 and 2003, Delta represented 34dtta7prca, 36dtta0prca and 33dtta8prca, respectively, of our net revenues |
| 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, 13 ______________________________________________________________________ • 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 |
| For the years ended December 31, 2005, 2004 and 2003, 34dtta7prca, 36dtta0prca and 33dtta8prca of our net revenue, respectively, were generated in currencies other than the United States dollar |
| Fluctuations in the value of foreign currencies relative to the United States dollar affect our operating results |
| For instance, if the United States dollar strengthens relative to foreign currency, then our earnings generated in foreign currency will, in effect, decrease when converted into United States dollars, which could have a material and adverse effect on our operating results |
| We do not use financial derivatives to hedge exchange rate fluctuations |
| We may not be able to use inventories of parts and products purchased or made before receiving final regulatory clearance or beginning full commercial marketing |
| From time to time, we purchase or make significant quantities of parts and products prior to the date on which we receive final regulatory clearance or begin our full commercial marketing |
| The production of pre-launch inventories for our products involves the risks, among others, that the parts and products may not be approved for commercial marketing by the applicable regulatory authorities on a timely basis, if at all, or that we may not be able to find alternative uses for such inventory |
| If any of these events were to occur or the launch of the products is significantly postponed, then we may be required to reassess the net realizable value of the related inventory and could, in such case, incur a charge to write down the value of such inventory, which would adversely affect our operating results in the period in which the determination or charge is or was made |
| There are inherent uncertainties involved in estimates, judgments and assumptions used in the preparation of financial statements in accordance with United States GAAP Any changes in estimates, judgments and assumptions used could have a material adverse effect on our business, financial position and operating results |
| The consolidated financial statements included in the periodic reports we file with the Securities and Exchange Commission are prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP The preparation of financial statements in accordance with GAAP involves making estimates, judgments and assumptions that affect reported amounts of assets (including intangible assets), liabilities and related reserves, revenues, expenses and income |
| This includes estimates, judgments and assumptions for assessing the recoverability of our goodwill and other intangible assets, pursuant to Statement of Financial Accounting Standards (SFAS) Nodtta 142, Goodwill and Other Intangible Assets, and SFAS Nodtta 144, Accounting for the Impairment or Disposal of Long-Lived Assets |
| If any estimates, judgments or assumptions change in the future, we may be required to record additional expenses or impairment charges |
| Any resulting expense or impairment loss would be recorded as a charge against our earnings and could have a material adverse impact on our financial condition and operating results |
| Estimates, judgments and assumptions are inherently subject to change in the future, and any such changes could result in corresponding changes to the amounts of assets (including goodwill and other intangible assets), liabilities, revenues, expenses and income |
| Any such changes could have a material adverse effect on our financial position and operating results |
| 14 ______________________________________________________________________ On an on-going basis, we evaluate our estimates, including, among others, those relating to: • product returns, • allowances for doubtful accounts, • inventories and related reserves, • intangible assets, • income and other tax accruals, • deferred tax asset valuation allowances, • discounts and allowances, • warranty obligations, 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 |
| While we believe the assumptions and estimates we make are reasonable, any changes to our assumptions or estimates, or any actual results which differ from our assumptions or estimates, could have a material adverse effect on our financial position and operating results |
| Our potential acquisitions may reduce our earnings, be difficult for us to combine into our operations or require us to obtain additional financing |
| In the ordinary course of our business, we evaluate potential business acquisition opportunities that we anticipate will provide new product and market opportunities, benefit from and maximize our existing assets and add critical mass |
| We often incur significant expenses in connection with our evaluation of potential business acquisition opportunities |
| However, we may not be successful in finding or consummating any acquisitions, and any acquisitions we make may expose us to additional risks and may have a material adverse effect on our operating results |
| Any acquisitions we make may fail to accomplish our strategic objectives, may not be successfully combined with our operations or may not perform as expected |
| In addition, although we generally seek acquisitions that we believe will be accretive to our per share earnings, based on current acquisition prices in the industry, our acquisitions could initially reduce our earnings and add significant intangible assets and related amortization charges |
| Our acquisition strategy may require us to obtain debt or equity financing, resulting in increased leverage or increased debt obligations, as compared to equity, and the dilution of our stockholders’ ownership of us |
| We may not be able to finance acquisitions on terms satisfactory to us |
| The impact of new accounting principles could have a material adverse effect on our operating results or financial condition |
| We currently account for stock options granted to employees under Accounting Principles Board Opinion Nodtta 25, Accounting for Stock Issued to Employees |
| Under this standard, no compensation cost is recorded for stock options granted to employees at fair market value on the date of grant |
| On December 16, 2004, the Financial Accounting Standards Board issued SFAS Nodtta 123 (revised 2004), Share-Based Payments, which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services |
| This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions |
| This Statement requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based upon their fair values |
| We cannot predict the impact, which may be material, of our adoption of this Statement primarily because 15 ______________________________________________________________________ the impact will depend on levels of share-based payments in the future |
| Compensation expense will be required to be recorded for vesting of pre-2006 unvested options and future awards of share-based payments |
| This Statement and other new accounting principles adopted in the future may have a material adverse effect on our financial condition or operating results |
| We will be exposed to risks relating to evaluations of internal control over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002 |
| We anticipate spending a substantial amount of management time and resources to comply with changing laws, rules, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, regulations promulgated by the Securities and Exchange Commission and rules promulgated by the American Stock Exchange |
| Under the current rules and regulations of the Securities and Exchange Commission, we are currently not required to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 until we file our Annual Report on Form 10-K for our fiscal year ending December 31, 2007, so long as we continue to meet the definition of a non-accelerated filer |
| In our Annual Report on Form 10-K for the year ending December 31, 2007, management will be required to provide an assessment as to the effectiveness of our internal control over financial reporting and our independent registered public accounting firm will be required to attest as to management’s assessment and to the effectiveness of internal control over financial reporting |
| The assessment and attestation processes required by Section 404 are relatively new and neither companies nor auditing firms have significant experience in testing or complying with these requirements |
| Accordingly, we may encounter problems or delays in completing our obligations and receiving an unqualified report on our internal control over financial reporting by our independent registered public accounting firm |
| While we believe that we will be able to timely meet our obligations under Section 404 and that management will be able to certify as to the effectiveness of our internal controls, there is no assurance that we will do so |
| The price of our common stock may be adverse affected if: • we are unable to timely comply with Section 404, • management is unable to certify as to the effectiveness of our internal controls, or • our independent registered public accounting firm is unable to attest to that certification |
| Even if we timely meet the certification and attestation requirements of Section 404, it is possible that our independent registered public accounting firm will advise us that they have identified significant deficiencies and/or material weaknesses, which may also adversely affect the price of our common stock |
| Substantially all of our cash and cash equivalents and marketable securities are held at a single brokerage firm |
| Substantially all of our cash and cash equivalents and short-term marketable securities are presently held at one national 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 |
| Any of the above events could have a material and adverse effect on our business and financial condition |
| Teva, indirectly through its wholly-owned IVAX subsidiary, controls our company |
| Teva, indirectly through its wholly-owned IVAX subsidiary, owns approximately 72dtta4prca of the issued and outstanding shares of our common stock |
| Under our certificate of incorporation, on issues for which our stockholders are eligible to vote, the affirmative vote of a majority of the shares represented at a meeting in person or by proxy, and entitled to vote, is required to approve an action |
| Consequently, Teva can unilaterally approve actions that require stockholder approval and elect directors acceptable to it based on its share ownership |
| 16 ______________________________________________________________________ We may have conflicts of interest with Teva |
| Conflicts of interest may arise between Teva and us in a number of areas relating to past matters with IVAX and ongoing matters with Teva, including, without limitation, labor, tax, employee benefits, indemnification, intellectual property, employee retention and recruiting, major business combinations, Teva’s sale or distribution of all or any portion of its ownership interest in us, the nature, quality and pricing of the administrative services Teva provides or IVAX has provided to us, and business opportunities that might be attractive to both Teva and us |
| Teva may decide to compete with us in the future, which would create an additional conflict of interest |
| Three of the former executive officers of IVAX, certain of whom are now employees of Teva, are members of our board of directors |
| For as long as Teva controls us, Teva will be able to require us to agree to amend any agreements we have with IVAX or will have with Teva, even if those amendments are less favorable to us than the current terms of any such agreement |
| We cannot guarantee that any conflicts that may arise will be resolved in a matter that is favorable to us |
| Additionally, even if we do resolve such conflicts, the resolutions may be less favorable to us than it would be if we were dealing with an unaffiliated third party |
| Many of our directors have, and certain of our officers and employees may have, a substantial amount of their personal financial portfolios in Teva ADRs |
| Potential conflicts of interests may arise if those directors or officers are faced with decisions that could have different implications for Teva and us |
| Additionally, our financial results will be included in Teva’s consolidated financial statements for so long as Teva continues to own at least 50prca of our common stock |
| Our directors who may hold positions with Teva, and who may also be holders of Teva ADRs, may therefore consider not only the short-term and long-term impact of financial and operating decisions on us, but also the impact of these decisions on Teva’s consolidated financial results and stockholders |
| In some instances, these decisions could be disadvantageous to us and advantageous to Teva |
| In 2001, we entered into a use of name license agreement with IVAX whereby IVAX granted us a non-exclusive, royalty free license to use the name “IVAX” IVAX may terminate this license at any time upon 90 days written notice |
| There can be no assurance that IVAX will not terminate this license agreement |
| Upon termination of the agreement, we are required to take all steps reasonably necessary to change our name as soon as practicable |
| The termination of this agreement could have a material adverse effect on our business, prospects, operating results or financial condition |
| Our stock has a limited trading volume and a number of internal and external factors have caused, and may continue to cause, the market price of our stock to be volatile |
| Our common stock has only been listed and traded on the American Stock Exchange since March 15, 2001 |
| As a result of Teva, through its wholly-owned IVAX subsidiary, owning approximately 72dtta4prca of the issued and outstanding shares of our common stock, we have a limited non-affiliate market capitalization |
| As a result, our common stock has a limited trading volume, which makes it more difficult for our stockholders to sell their shares |
| Additionally, the market prices for securities of companies engaged in the healthcare field, including us, have been volatile |
| Many factors, including many over which we have no control, may have a significant impact on the future market price of our common stock, including, without limitation: • announcements by us and our competitors of technological innovations, new commercial products or significant contracts or business acquisitions, • period-to-period changes in our financial results, 17 ______________________________________________________________________ • market acceptance of existing or new products, • the financial results of, and announcements made by and actions taken by, Teva, and • changes in general conditions in the economy, financial markets or healthcare industry |
| The issuance of preferred stock or additional shares of common stock could adversely affect the rights of the holders of shares of our common stock |
| Our board of directors is authorized to issue up to 5cmam000cmam000 shares of preferred stock without any further action on the part of our stockholders |
| Currently, we have no shares of preferred stock outstanding |
| In the event that we issue preferred stock in the future that has preference over the common stock with respect to payment of dividends or upon our liquidation, dissolution or winding up, the rights of holders of shares of our common stock may be adversely affected |
| In addition, the ability of our board of directors to issue shares of preferred stock without any further action on the part of our stockholders may impede a takeover of us and may prevent a transaction that is favorable to our stockholders |
| Cautionary Statement Concerning Forward-Looking Statements We have made forward-looking statements, which are subject to risks and uncertainties, in this Annual Report on Form 10-K These statements are based on the beliefs and assumptions of our management and on the information currently available to it |
| 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: • 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 and our development and commercial release of our new proprietary instrument system, named the PARSEC^™ System; • our ability to receive regulatory approval for the PARSEC^™ System; • the impact of the delay in the full commercial launch of the PARSEC^™ System in the United States on our international activities associated with the PARSEC^™ System; • the ability of the PARSEC^™ System to be available when or perform as expected; • the ability of the PARSEC^™ System to be a factor in our growth; • the ability of the PARSEC^™ System to expand the menu of test kits we offer; • making the PARSEC^™ System our primary product; • our ability to market the PARSEC^™ System; • our customers’ integration of the PARSEC^™ System into their operations; • constantly changing, and our compliance with, governmental regulation, including “European Conformity” marking on our products sold throughout the European Union; • our ability to update to ISO 13485:2003; 18 ______________________________________________________________________ • our adoption or implementation of new accounting statements and pronouncements; • our limited operating revenues and history of primarily operational losses; • our ability to collect our accounts receivable and to make or change judgments and estimates regarding our allowances for doubtful accounts; • our ability to utilize our deferred tax assets and to make or change judgments and estimates regarding our valuation allowances and reserves against our deferred tax assets; • 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 internally manufacture our own hepatitis products and raw materials for these products, to obtain regulatory approval for these products and to become competitive in markets outside of the United States; • our agreements with IVAX, 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 consummate potential acquisitions of businesses or products; • our ability to integrate acquired businesses or products; • our ability to sell the current location of our Miami facility and to acquire a new location to which to relocate it; • protecting our intellectual property; • political and economic instability and foreign currency fluctuation affecting our foreign operations; • the holding of substantially all of our cash and cash equivalents and marketable securities 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 and product liability; • voting control of our common stock by Teva; • conflicts of interest with Teva, IVAX and with our officers, directors and employees; and • other factors discussed elsewhere in this Annual Report on Form 10-K Many of these factors are beyond our control |