Business context and reporting period
The supplied filing is Bovie Medical Corporation’s Form 10-K for the fiscal year ended December 31, 2012, filed April 1, 2013. It is not an Apyx Medical Corp. filing, despite the request metadata. Bovie developed, manufactured and marketed electrosurgical devices, cauteries and related medical products. The filing includes unaudited fourth-quarter results.
Financial results and liquidity
Amounts below are in U.S. dollars; annual financial statement amounts are in millions unless stated otherwise.
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $27.671 million | $25.411 million |
| Gross profit / margin | $11.333 million / 41.0% | $10.731 million / 42.2% |
| Operating income (loss) | $1.046 million | $(18,000) |
| Net income | $617,000 | $109,000 |
| Diluted EPS | $0.03 | $0.01 |
| Cash from operations | $165,000 | $1.897 million |
| Cash and equivalents at year-end | $4.162 million | $4.880 million |
Fourth-quarter 2012 revenue was $6.827 million, gross profit $2.787 million and net income $285,000, versus $6.158 million, $2.647 million and a net loss of $875,000, respectively, in fourth-quarter 2011. Diluted EPS was $0.02 versus $(0.05).
Working capital was $14.049 million, compared with $14.095 million. Year-end bonds payable totaled approximately $3.419 million; the bonds bear fixed interest of 5.6% and balloon in November 2018. The $6 million revolving facility had no borrowings, with approximately $4 million available under the borrowing base; a separate equipment line had approximately $1 million available. The company reported compliance with credit covenants. Cash fell $718,000 during 2012. Investing activities used $753,000 and financing activities used $130,000.
Material changes versus the prior comparable period
- Annual revenue rose 8.9%. Cautery sales increased 11.9%, electrosurgical sales 4.7%, and other sales 31.7%. Domestic sales grew 13.7%, while international sales declined 8.7%; international sales were 17.7% of revenue, down from 21.0%.
- Gross profit dollars increased 5.6%, but gross margin fell 1.2 percentage points, principally because of greater sales of lower-margin third-party medical lighting and higher labor and material costs.
- Operating income improved from near breakeven to $1.046 million, and net income rose to $617,000. The 2011 comparison included a $750,000 Salient settlement gain and approximately $1.591 million of legal-settlement expense, making that year’s reported earnings unusually affected by legal items.
- Operating cash flow declined to $165,000 from $1.897 million. Receivables rose to $2.874 million from $2.216 million; inventory declined to $7.984 million from $8.178 million.
Outlook, risks and unusual items
- Management expected 2013 research and development spending to remain similar to 2012’s $1.329 million. It anticipated that cash on hand and operating cash flows would meet operating commitments for the next year, while noting that J-Plasma development and marketing could pressure profitability and cash flow over the next 12–24 months. No specific revenue or earnings guidance was provided.
- Management reported approximately $1.6 million invested in J-Plasma through year-end 2012, with no assurance of commercial success. A German company’s potentially related patent creates intellectual-property risk. Seal-N-Cut’s development had been delayed; Bovie planned to resubmit its 510(k) application in 2013. The Aaron 1450-RF also faced unresolved FDA review issues; ICON VS had received 510(k) clearance.
- The medical-device excise tax effective in 2013 was expected by management to reduce results and cash flows by approximately $300,000–$500,000 annually.
- Major litigation remained unresolved. Livneh-related plaintiffs sought more than $10 million, with no loss range estimated by the company. A stockholder derivative action also had no estimated loss range. In the Keen action, the company disclosed a potential loss range of zero to approximately $600,000, plus indeterminate attorneys’ fees; summary-judgment motions were pending as of the filing.
- Customer concentration is significant: the ten largest customers accounted for 66.3% of 2012 revenue; National Distribution & Contracting Inc. represented 12.4%. The company also identified dependence on distributors, OEM customers and certain suppliers as risks.
- The auditor gave an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor stated it was not engaged to audit internal control.
Important facts for investors to verify
- Confirm the issuer identity: the supplied document names Bovie Medical Corporation, not Apyx Medical Corp.
- Review the audited statements and notes for the operating-cash-flow decline, receivables, inventory and debt maturities.
- Track the outcome and financial consequences of the Livneh, derivative and Keen litigation, including any settlement, award or legal costs.
- Verify regulatory progress and commercial adoption for J-Plasma, Seal-N-Cut and Aaron 1450-RF, and assess the related intellectual-property dispute.
- Assess whether customer and distributor concentration, lower gross margin, and the medical-device excise tax affect subsequent results.