Add
BVX to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| BVX > SEC Filings for BVX > Form 10-Q on 14-Aug-2012 | All Recent SEC Filings |
14-Aug-2012
Quarterly Report
Cautionary Notes Regarding "Forward-Looking" Statements
This report contains statements that we believe to be "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange act of 1934, as amended. Forward-looking statements give our current expectations or forecasts of future events. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," "project," or "continue," or similar words or the negative thereof. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Any or all of our forward-looking statements in this report and in any public statements we make could be materially different from actual results. They can be affected by assumptions we might make or by known or unknown risks or uncertainties. Consequently, we cannot guarantee any forward-looking statements. Investors are cautioned not to place undue reliance on any forward-looking statements. Investors should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. The following factors and those discussed in ITEM 1A, Risk Factors, included in our Annual Report on Form 10-K for the year ended December 31, 2011, may affect the achievement of forward-looking statements:
? general economic and political conditions, such as political instability, credit market uncertainty, the rate of economic growth or decline in our principal geographic or product markets or fluctuations in exchange rates; continued deterioration in or stabilization of the global economy;
? changes in general economic and industry conditions in markets in which we participate, such as:
? deterioration in or destabilization of the global economy;
? the strength of product demand and the markets we serve;
? the intensity of competition, including that from foreign competitors;
? pricing pressures;
? the financial condition of our customers;
? market acceptance of new product introductions and enhancements;
? the introduction of new products and enhancements by competitors;
? our ability to maintain and expand relationships with large customers;
? our ability to source raw material commodities from our suppliers without interruption and at reasonable prices; and
? our ability to source components from third parties, in particular from foreign manufacturers, without interruption and at reasonable prices;
? our ability to access capital markets and obtain anticipated financing under favorable terms;
? our ability to identify, complete and integrate acquisitions successfully and to realize expected synergies on our anticipated timetable;
? changes in our business strategies, including acquisition, divestiture and restructuring activities;
? changes in operating factors, such as continued improvement in manufacturing activities, the achievement of related efficiencies and inventory risks due to shifts in market demand;
? our ability to generate savings from our cost reduction actions;
? unanticipated developments that could occur with respect to contingencies such as litigation, intellectual property matters, product liability exposures and environmental matters; and
? our ability to accurately evaluate the effects of contingent liabilities.
The foregoing factors are not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that would impact our business. We assume no obligation, and disclaim any duty, to update the forward-looking statements in this report. Past performance is no guaranty of future results.
Executive Level Overview
We are a medical device company engaged in the manufacturing and marketing of electrosurgical devices. Our medical products include a wide range of devices including electrosurgical generators and accessories, cauteries, medical lighting, nerve locators and other products.
We internally divide our operations into three product lines. Electrosurgical products, battery-operated cauteries and other products. The electrosurgical line sells electrosurgical products which include desiccators, generators, electrodes, electrosurgical pencils and various ancillary disposable products. These products are used in surgery for the cutting and coagulation of tissue. Battery-operated cauteries are used for precise hemostasis (to stop bleeding) in ophthalmology and in other fields. Our other revenues are derived from nerve locators, disposable and reusable penlights, medical lighting, Medical Illumination (MII) Lighting, laparoscopic instruments, license fees, development fees and other miscellaneous income.
Most of our products currently are marketed through medical distributors, which distribute to more than 6,000 hospitals, and to doctors and other health-care facilities. New distributors are contacted through responses to our advertising in international and domestic medical journals and domestic or international trade shows. International sales represented approximately 18.5% of total revenues for the first six months of 2012, as compared with approximately 24.2% for the first six months of 2011. Our products are sold in more than 150 countries mainly through local dealers which are coordinated by sales and marketing personnel at the Clearwater, Florida facility. In addition, for the launch of our new surgical suite / J-Plasma product lines, we have established the use of a network of approximately 50 commission-based independent direct sales contractors to market these products. Our business is generally not seasonal in nature.
Results of Operations - Three and Six Months Ended June 30, 2012 Compared to
Three and Six Months Ended June 30, 2011
Sales
Sales by Product Line
(in thousands) Three months ended June 30, Percent Six months ended June 30, Percent
2012 2011 change 2012 2011 change
Electrosurgical $ 4,940 $ 4,709 4.9% $ 9,269 $ 8,916 4.0%
Cauteries 1,698 1,658 2.4% 3,303 3,143 5.1%
Other 802 474 69.2% 1,601 936 71.0%
Total $ 7,440 $ 6,841 8.8% $ 14,173 $ 12,995 9.1%
Sales by Domestic and
International (in thousands) Three months ended June 30, Percent Six months ended June 30, Percent
2012 2011 change 2012 2011 change
Domestic $ 5,935 $ 5,027 18.1% $ 11,558 $ 9,810 17.8%
International 1,505 1,814 (17.0)% 2,615 3,185 (17.9)%
Total $ 7,440 $ 6,841 8.8% $ 14,173 $ 12,995 9.1%
|
During the three months ended June 30, 2012, we experienced increases in demand along all three of our product line categories. The largest dollar sales increases occurred in our other products category and were related to sales of our new distribution products released last year, medical lighting systems and laproscopic instruments, amounting to increases of approximately $253,000 and $18,000 respectively, along with additional increases in various other products including engineering consulting services of approximately $57,000 for the three months ended June 30, 2012 compared to the same period in 2011. The 4.9% sales increase experienced in our electrosurgical category during the three months ended June 30, 2012 compared to the same period in 2011, was mainly attributable to increased demand for our OEM domestic electrosurgical generators amounting to approximately $133,000 along with an approximate increase of $98,000 in coated electrode product sales. Lastly, demand for our cauteries to domestic customers increased by 2.4% or approximately $40,000 for the three months ended June 30, 2012 when compared to the same period in 2011.
Sales during the six months ended June 30, 2012 increased approximately $1.2 million or 9.1% compared to the same period in 2011. Similar to our experience in the second quarter, our largest dollar sales increase of approximately $665,000 was in our "other products" category. This increase was also related to the continued sales trend of our new medical lighting systems and laproscopic instruments, amounting to increases of approximately $488,000 and $35,000 respectively. Some additional contributing factors to these increases were in various other products as well as engineering consulting services which combined approximated $142,000 for the six months ended June 30, 2012 as compared to the same period in 2011. Stronger demand for our OEM domestic electrosurgical generators continued through the six months ended June 30, 2012 and resulted in a 4.0% sales increase in our electrosurgical category, or approximately $353,000 when compared to the same period in 2011. Another consistent trend for the six months ended June 30, 2012 was the increased demand for our cauteries to domestic customers of approximately $160,000 or 5.1% when compared to the same period in 2011.
Our ten largest customers accounted for approximately 68% of net revenues for the six months ended June 30, 2012 and 67% for the same period in 2011. At June 30, 2012 and 2011, our ten largest trade receivables accounted for approximately 69% and 66% of our net receivables, respectively. During the first six months of 2012 one of our customers accounted for 15% of total sales and another customer accounted for 11% of total sales. No customer accounted for greater than 10% of our sales for the same period ending June 30, 2011.
Gross Profit
Three months ended Six months ended
(in thousands) June 30, Percent of sales June 30, Percent of sales
Percent Percent
2012 2011 2012 2011 change 2012 2011 2012 2011 change
Cost of sales $ 4,584 $ 3,796 61.6 % 55.5 % 20.7 % $ 8,521 $ 7,517 60.1 % 57.8 % 13.3 %
Gross profit $ 2,856 $ 3,045 38.4 % 44.5 % (6.2) % $ 5,652 $ 5,478 39.9 % 42.2 % 3.2 %
|
Although we experienced increased overall sales, our gross profit decreased by approximately $188,000, or 6.2% for the three months ended June 30, 2012 as compared to the same period in 2011. This decrease is mainly the combined result of significantly higher sales of lower profit margin OEM generators during the period, lower sales of our higher profit margin generators during the period, and a 70% cost of sales attributable to the additional medical lighting systems sales which were not sold during the same period in 2011. These medical lighting systems have a higher cost since they are manufactured by a third party and we mainly utilize and sell them through our existing distribution channel. In addition, we experienced an increase in labor and related costs which amounted to approximately $155,000 during the three months ended June 30, 2012 as compared to the same period in 2011.
However, our gross profit for the six months ended June 30, 2012 increased by approximately $175,000, or 3.2%, as compared to the same period in 2011. We had less of a concentration of lower margin OEM generators and medical lighting systems during our six month period ended June 30, 2012 as a proportion of total sales compared to the quarter, which equated to an overall increase. Gross margin for the six months ended June 30, 2012 as a percentage of sales decreased by 2.3% from the combined result of significantly higher sales of lower profit margin OEM generators during the period, lower sales of our higher profit margin generators sold through distribution during the period, and a 70% cost of sales attributable to the additional medical lighting systems sales which were not sold during the same period in 2011.
Other Gain
Salient/Medtronic Settlement
During the six months ended June 30, 2011, we entered into a settlement agreement related to the legal action with Salient Surgical Technologies, Inc. and Medtronic, Inc. The settlement called for us and related parties to immediately exit and not enter into the monopolar and bipolar saline-enhanced RF device business (including SEER TM) worldwide through February 2015. In exchange, Salient made a one-time payment to us of $750,000.
Research and Development Expense
Three months ended Six months ended
(in thousands) June 30, Percent of sales June 30, Percent of sales
Percent Percent
2012 2011 2012 2011 change 2012 2011 2012 2011 change
R & D Expense $ 349 $ 289 4.7 % 4.2 % 20.8 % $ 647 $ 635 4.6 % 4.9 % 1.9 %
|
We experienced an increase in research and development costs approximating $60,000 or 20.8% in the three months ended June 30, 2012 as compared to the same period in 2011, which were directly related to completing and advancing the J-Plasma product line as it entered its final marketing phase.
During the six months ended June 30, 2012, we experienced a 1.9% increase in research and development costs, or approximately $12,000, also mainly related to completing and advancing the J-Plasma product line as it entered its final marketing phase, when compared to the same period in 2011.
Professional Services
Three months ended Six months ended
(in thousands) June 30, Percent of sales June 30, Percent of sales
Percent Percent
2012 2011 2012 2011 change 2012 2011 2012 2011 change
Professional services $ 358 $ 273 4.8 % 4.0 % 31.2 % $ 653 $ 617 4.6 % 4.7 % 5.8 %
|
We experienced an increase of approximately $85,000 in our professional services costs during the three months ended June 30, 2012 when compared to the same period in 2011. The main area of increase was in legal fees where we experienced an approximate increase of $95,000 primarily attributable to litigation expenses. This increase was offset by one-time professional costs we experienced during the three month period in 2011, which were absent during the same three month period ended June 30, 2012, and were related to our IRS audit along with a decrease in professional fees due to the return of stock options in a legal settlement.
Our professional services costs for the six months ended June 30, 2012 increased by approximately $36,000 mainly due to increased legal fees related to existing lawsuits when compared to the same six month period in 2011.
Salaries
Three months ended Six months ended
(in thousands) June 30, Percent of sales September 30, Percent of sales
Percent Percent
2012 2011 2012 2011 change 2012 2011 2012 2011 change
SG & A costs
Salaries & related
cost $ 788 $ 800 10.6 % 11.7 % (1.5) % $ 1,570 $ 1,606 11.1 % 12.4 % (2.2) %
|
Our salaries expense decreased slightly by approximately $12,000 during the three months ended June 30, 2012 as compared to the same period in 2011, which was the net change from the approximate $45,000 decrease in salaries and related costs primarily due to the vacancy in our internal legal counsel position, a $27,000 increase from the new international sales marketing position, and a $6,000 increase in employee procurement costs.
We experienced a 2.2% decrease in salaries and related costs, or approximately $35,000, during the six months ending June 30, 2012 as compared to the same period in 2011 for similar reasons previously mentioned and experienced during the quarter. These were approximate amounts of a $91,000 decrease in an in-house legal position, $18,000 decrease in indirect administration costs, a $66,000 increase in an international sales position, and an $8,000 increase in employee procurement costs.
Selling, General & Administrative Expenses
Three months ended Six months ended
(in thousands) June 30, Percent of sales September 30, Percent of sales
Percent Percent
2012 2011 2012 2011 change 2012 2011 2012 2011 change
SG & A costs $ 1,121 $ 1,134 15.1 % 16.6 % (1.1) % $ 2,146 $ 2,235 15.1 % 17.2 % (4.0) %
|
Our selling, general and administrative costs decreased by approximately $13,000, or 1.1% for the three months ended June 30, 2012 as compared to the same period in 2011. This overall decrease was the net result of the following approximate offsetting amounts:
· a $34,000 decrease in bank fees, building maintenance, utilities and other various overhead related costs;
· increases in computers and software, rental fees, loss on disposition of assets, general insurance, and various other overhead related costs amounting to approximately $18,000;
· a $38,000 decrease in regulatory costs related to the support of our distribution and new product sales;
· a $10,000 decrease in amortization costs related to the Meg product line which was written-off last year;
· a $71,000 decrease in miscellaneous cost related to the 2011 one time legal settlement which was absent for the same period 2012;
· a $96,000 increase in selling and marketing costs which includes trade shows, sales travel both international and domestic, and advertising; and
· a $26,000 increase in commission expense due to increased distribution sales;
For the six months ending June 30, 2012 we experienced a decrease of approximately $89,000, or 4.0% in selling, general and administrative costs as compared to the same period in 2011. This overall decrease was the net result of the following approximate offsetting amounts:
· a $164,000 decrease in bank fees, general insurance from a premium reduction, royalty expense, building maintenance utilities and other various overhead related costs;
· a $51,000 decrease in regulatory costs related to the support of our distribution and new product sales;
· a $15,000 decrease in amortization costs related to the Meg product line which was written-off last year;
· a $60,000 decrease in miscellaneous cost related to the 2011 one time legal settlement which was absent for the same period 2012;
· increases in computers and software, rental fees, loss on disposition of assets, stock exchange and shareholder related costs, and various other overhead related costs amounting to approximately $33,000;
· a $144,000 increase in selling and marketing costs related to our existing products along with our new J-Plasma line of products, which includes trade shows, sales travel both international and domestic, and advertising; and
· a $24,000 increase in commission expense due to increased distribution sales;
Other Income
Three months ended Six months ended
June 30, Percent of sales Percent June 30, Percent of sales Percent
2012 2011 2012 2011 change 2012 2011 2012 2011 change
Interest income
(expense), net $ (58 ) $ (46 ) (0.8 )% (0.7 )% 26.3 % $ (116 ) $ (98 ) (0.8 )% (0.8 )% 18.5 %
Change in fair
value of
liabilities $ 44 $ 107 0.6 % 1.6 % (58.9 )% $ 27 $ 248 0.2 % 1.9 % (89.1 )%
|
Net interest expense increased by approximately $12,000 or 26.3% in the three months ended June 30, 2012 as compared to the same period in 2011 mainly due to slightly higher interest rates due to refinancing of the industrial revenue bonds in late 2011.
For the six-month period ended June 30, 2012 as compared to the same period in 2011, net interest expense increased by $18,000, mainly due to slightly higher interest rates due to refinancing of the industrial revenue bonds in late 2011.
The change in fair value of liabilities was related to the warrants associated with our equity issuance in April 2010. The derivative warrant liability was valued at approximately $105,000 at December 31, 2011 and was valued at approximately $78,000 on June 30, 2012 resulting in a year-to-date gain of approximately $27,000.
Income Taxes
Three months ended Six months ended
(in thousands) June 30, Percent of sales Percent June 30, Percent of sales Percent
2012 2011 2012 2011 change 2012 2011 2012 2011 change
Income before
income taxes $ 226 $ 610 3.0 % 8.9 % (62.9 )% $ 547 $ 1,285 3.9 % 9.9 % (57.4 )%
Benefit
(provision) for
taxes $ (74 ) $ (181 ) (1.0 )% (2.6 )% (59.2 )% $ (208 ) $ (364 ) (1.5 )% (2.8 )% (42.9 )%
Effective tax rate 32.7 % 29.7 % 38.0 % 28.3 %
|
While we are subject to U.S. federal income tax as well as income tax of certain state jurisdictions, during the three and six months ended June 30, 2012, our current provisions were zero because the net effect of our permanent and temporary differences resulted in recognizing a loss for tax purposes. At June 30, 2012, we have remaining net operating loss carryforwards and other net deferred income tax assets of approximately $3.0 million to reduce future taxable income. Our effective tax rate of 38.0% for the six months ended June 30, 2012 was less than the statuatory tax rates primarily because we recognized certain gains from fair value adjustments for financial statement purposes that are not expected to reverse (i.e. permanent differences).
Net Income
Three months ended Six months ended
(in thousands) June 30, Percent of sales Percent September 30, Percent of sales Percent
|
Product Development
We have developed most of our products and product improvements internally. Funds for this development have come primarily from our internal cash flow and equity issuances. We maintain close working relationships with physicians and medical personnel in hospitals and universities who assist in product research and development. New and improved products play a critical role in our sales growth. We continue to emphasize the development of proprietary products and product improvements to complement and expand our existing product lines. We have a centralized research and development focus in Florida for new product development and product improvements. Our research, development and engineering units at the manufacturing locations maintain relationships with distribution locations and customers to provide an understanding of changes in the market and product needs. During 2012, we continued to invest in expanding our J-Plasma product line and technology, ICON VS™ and the accompanying vessel sealing technology, and Aaron™ 1450. We intend to pay the ongoing costs for this development from operating cash flows.
At this time, we do not contemplate any material purchase or acquisition of assets during the next twelve months that our ordinary cash flow and/or credit line would be unable to sustain.
Reliance on Collaborative, Manufacturing and Selling Arrangements
We depend on certain contractual OEM customers for product development. In these situations, we plan to manufacture the products developed. The customer has no legal obligation, however, to purchase the developed products. If the collaborative customer fails to give us purchase orders for the product after . . .
|
|