Bovie Medical Corporation (now Apyx Medical Corp.) — Q1 2015 Form 10-Q
Business context and period: The filing covers the three months ended March 31, 2015, compared with Q1 2014. Bovie developed, manufactured, and marketed electrosurgical and related medical products, including J-Plasma, which was in early commercialization. Amounts below are in U.S. dollars; financial statement amounts are in thousands unless stated otherwise.
Financial performance and position
| Metric | Q1 2015 / March 31, 2015 | Comparable period / December 31, 2014 |
|---|---|---|
| Sales | $6.128 million | $6.482 million in Q1 2014; down 5.5% |
| Gross profit and margin | $2.674 million; 43.6% | $2.756 million; 42.5% in Q1 2014 |
| Operating income (loss) | $(2.272) million | $58,000 in Q1 2014 |
| Net income (loss) | $(876,000) | $(9.607) million in Q1 2014 |
| Common shareholder result and EPS | $12.858 million attributable to common shareholders; basic EPS $0.69, diluted EPS $0.57 | $(9.811) million; basic and diluted EPS $(0.55) in Q1 2014 |
| Operating cash flow | $(1.791) million | $(1.049) million in Q1 2014 |
| Cash and cash equivalents | $15.396 million | $5.733 million at December 31, 2014 |
| Working capital | Approximately $21.0 million | Approximately $9.4 million lower at December 31, 2014 |
| Mortgage debt | $3.352 million total, including $239,000 current | $3.412 million total at December 31, 2014 |
Net income attributable to common shareholders included a $13.956 million deemed dividend arising from the exchange of Series A preferred shares and warrants for Series B preferred stock. It is not operating profit or cash earnings. The reported net loss also benefited from a $1.444 million non-cash gain on derivative liabilities; Q1 2014 included a $9.599 million non-cash loss on those liabilities.
Changes versus Q1 2014
- Sales fell 5.5%. Core-category sales increased 1.7% to $5.525 million, while OEM sales fell 68.6% to $320,000. J-Plasma sales rose to $283,000 from $31,000.
- International sales declined 18.0% to $903,000; domestic sales decreased 2.9% to $5.225 million.
- Gross margin improved 1.1 percentage points to 43.6%, but operating results shifted from $58,000 income to a $2.272 million loss.
- Operating expenses increased substantially: salaries and related costs rose 115.2% to $1.952 million, and SG&A rose 84.6% to $2.217 million. The company cited investment in J-Plasma and core sales staff, marketing, and other expenses.
- Cash increased largely due to financing: the company raised approximately $11.5 million net from a public offering and reported $177,000 from option and warrant exercises. It issued 5,218,749 common shares at $2.50 per share in total.
Outlook, risks, and unusual items
- Management provided no specific revenue or earnings guidance. It said substantial J-Plasma development and marketing investment could adversely affect near-term profitability and cash flow, particularly over the next 12–24 months. It reported approximately $1.3 million of J-Plasma investment in Q1 and $6.8 million cumulatively, and cautioned that commercial success is not assured.
- The mortgage bears interest at LIBOR plus 3.5% (3.681% at quarter-end), is secured by the Clearwater facility and accounts receivable, and has an $839,000 certificate of deposit pledged as collateral. A minimum-liquidity covenant requires $750,000.
- Customer concentration increased: the ten largest customers represented 65.6% of revenue, versus 58.7% a year earlier. McKesson, NDC, and Medline represented 18.9%, 13.8%, and 11.0% of Q1 sales, respectively.
- Management cited currency strength, lower oil prices affecting some government-funded healthcare markets, and political and civil unrest as pressures on international sales. The company also relies on key distributors, OEM customers, and some sole-source suppliers.
- Series B preferred stock issued in the exchange is convertible into approximately 7.176 million common shares, creating potential dilution. Derivative liabilities were valued using Level 3 inputs and valuation assumptions, including volatility.
- The filing describes ordinary-course litigation but identifies no specific matter believed to have a material adverse effect. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Investor facts to verify
- Separate the $876,000 net loss and $2.272 million operating loss from the $12.858 million common-shareholder income, which reflects the $13.956 million deemed dividend.
- Track whether J-Plasma sales growth can offset commercialization spending and the increase in operating expenses.
- Review cash burn, offering proceeds, and liquidity after accounting for restricted cash and the mortgage covenant.
- Assess potential dilution from Series B preferred conversion, outstanding options and warrants, and future equity financing needs.
- Monitor customer concentration, OEM project timing, and supplier and international-market exposures.