Bovie Medical Corporation (now identified in the request as Apyx Medical Corp.) — FY 2011 Form 10-K
Entity and period: The filing is for Bovie Medical Corporation, for the fiscal year ended December 31, 2011. It includes unaudited fourth-quarter results. The supplied filing does not identify Apyx Medical Corp.; verify the issuer and any corporate-name or successor relationship before relying on this summary.
Business context
Bovie developed, manufactured, and marketed electrosurgical generators and disposables, cauteries, medical lighting, nerve locators, and related products. It primarily sold through distributors and OEM/private-label relationships; international sales were about 21% of revenue. Its largest product category was electrosurgery.
Financial performance
Amounts below are in U.S. dollars; annual financial statement amounts are in millions unless otherwise stated.
- Revenue: $25.411 million, up 4.9% from $24.230 million in 2010. Electrosurgical sales rose 5.9% to $16.896 million; cautery sales declined 1.8% to $6.268 million; other sales increased 18.8% to $2.247 million.
- Profit and margins: Gross profit was $10.731 million, up 7.4%; gross margin improved to 42.2% from 41.2%. Operating loss was $18,000, compared with a $2.752 million operating loss in 2010. Net income was $109,000, or $0.01 per diluted share, versus a $1.535 million net loss, or $0.09 per share, in 2010.
- Fourth quarter: Revenue was $6.158 million and gross profit was $2.646 million. Net loss was $875,000, or $0.05 per diluted share; the filing attributes the quarterly loss mainly to the Livneh legal settlement.
- Cash flow: Operating activities provided $1.897 million, compared with $526,000 used in 2010. Investing activities used $542,000; financing activities used $302,000. Cash increased by $1.053 million to $4.880 million at year-end.
- Liquidity and debt: Working capital was $14.095 million. Total liabilities were $6.123 million. Approximately $3.5 million of industrial revenue bonds were outstanding, refinanced in 2011 at a fixed 5.6% rate, with a November 2018 balloon. The $6 million revolving facility had no balance; reported borrowing-base availability was about $3.0 million, plus up to $1.0 million under an equipment facility. The company reported covenant compliance.
Changes and unusual items
- Revenue recovered from the 10.1% decline in 2010. Generator demand and sales of coated electrodes and third-party medical lighting supported 2011 growth; discontinued OEM disposable sales and lower cautery sales partly offset the increase.
- A March 2011 Salient/Medtronic settlement generated a $750,000 payment but required Bovie to exit the saline-enhanced RF device business worldwide through February 2015 and barred sales of certain inventory. Bovie also gave notice that its Medtronic generator manufacturing agreement would end; final deliveries were expected in 2012.
- The Livneh settlement, agreed in February 2012 after being structured in December 2011, produced approximately $1.591 million of 2011 settlement expense. This included about $737,000 for transferred intellectual property, $194,000 for related inventory and molds, and other accrued items. Terms also include payments, royalties, an exclusive China license for Seal-N-Cut, and a security interest in Bovie’s Seal-N-Cut rights.
- The 2010 comparison included a $1.286 million intangible-asset impairment. In 2011, a $287,000 net gain from changes in fair value of liabilities and the $750,000 settlement gain affected reported results.
Outlook, risks, and contingencies
- No quantified revenue or earnings guidance is provided. Management expected 2012 R&D spending to remain around the 2011 level and interest expense to be similar to 2011. It said cash and expected operating cash flows should cover commitments for the following year.
- J-Plasma’s generator had FDA clearance, and the J-Plasma handpiece received 510(k) clearance in February 2012. The Aaron 1450 submission had unresolved FDA issues; the company planned further testing and a new submission. Management anticipated resubmitting Seal-N-Cut for clearance during 2012, after product-development delays.
- Key risks include regulatory and commercialization delays, competition, reliance on distributors, OEMs and suppliers, customer concentration, patent disputes, product liability, and production concentration at the Clearwater, Florida facility. The company stated that Arthrex represented about 5% of 2011 revenue, down from 11% in 2010; its ten largest customers accounted for about 65.5% of 2011 revenue.
- A shareholder derivative action remained unresolved, with no estimable loss range. A former general counsel’s employment lawsuit was disclosed with a possible loss range of zero to approximately $600,000, plus indeterminate attorney fees; no loss was accrued. The filing also cautions that the 2013 U.S. medical-device excise tax is 2.3% on domestic sales; management expected to pass it through and did not anticipate a material impact.
- Management concluded disclosure controls and internal control over financial reporting were effective at year-end. The independent auditor gave an unqualified opinion on the financial statements and stated it was not engaged to audit internal control effectiveness.
Important facts for investors to verify
- Confirm the issuer identity and relationship between Bovie Medical Corporation and Apyx Medical Corp., and confirm that the relevant period is FY 2011 rather than a standalone Q4 filing.
- Review the audited statements and notes for the $1.591 million Livneh settlement charge, payment schedule, intellectual-property transfers, royalties, and security interest.
- Check subsequent filings for outcomes of the derivative and former-general-counsel litigation, and for any additional settlement or legal costs.
- Track FDA and commercial progress for J-Plasma, Aaron 1450, and Seal-N-Cut, including the effects of development delays and the Salient/Medtronic restriction.
- Assess cash conversion, inventory levels, customer/OEM concentration, borrowing availability and covenants, and the effect of the Medtronic contract ending.