Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
BVX > SEC Filings for BVX > Form 10-K on 31-Mar-2014All Recent SEC Filings

Show all filings for BOVIE MEDICAL CORP

Form 10-K for BOVIE MEDICAL CORP


31-Mar-2014

Annual Report


ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis in conjunction with our financial statements and related notes contained elsewhere in this report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors discussed in this report and those discussed in other documents we file with the SEC. In light of these risks, uncertainties and assumptions, readers are cautioned not to place undue reliance on such forward-looking statements. These forward-looking statements represent beliefs and assumptions on as of the date of this report. While we may elect to update forward-looking statements and at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change.

Executive Level Overview

We are a medical device company engaged in 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, 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, doctors offices, and other healthcare 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 17% of total revenues in 2013, 18% in 2012 and 21% in 2011. Our products are sold in more than 150 countries through local dealers which are coordinated by sales and marketing personnel at the Clearwater, Florida facility. As mentioned previously for the launch of our new surgical suite 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. While international sales of the company have declined, we did see substantial growth in Latin America, as well as improvement in the Middle East and Africa. The company was negatively impacted in Europe, where financial upheaval in the region gave downward pressure combined with some product being withdrawn from the market due to regulatory testing and requirements. The company has received approval for compliant, new and improved 200 and 300 watt generators. This will fill a portion of the lost product opportunity.

We strongly encourage investors to visit our website: www.boviemedical.com to view the most current news and to review our filings with the Securities and Exchange Commission.

Results of Operations -

Sales

                                         2013 vs. 2012                       2012 vs. 2011
Sales by Product Line (in                               Percent                             Percent
thousands)                       2013          2012     change       2012          2011     change
Electrosurgical               $  13,174     $  17,697   (25.6%)   $  17,697     $  16,896    4.7%
Cauteries                         6,972         7,014   (0.1%)        7,014         6,268    11.9%
Other                             3,514         2,960    18.7%        2,960         2,247    31.7%

Total                         $  23,660     $  27,671   (14.5%)   $  27,671     $  25,411    8.9%

Sales by Domestic and
International (in
thousands)
Domestic                      $  19,521     $  22,704   (14.0%)   $  22,704     $  19,972    13.7%
International                     4,139         4,967   (16.7%)       4,967         5,439   (8.7%)

Total                         $  23,660     $  27,671   (14.5%)   $  27,671     $  25,411    8.9%


Overall sales decreased by 14.5% or approximately $4.0 million for the period ended December 31, 2013 when compared with the same period in 2012. The decrease in sales was mainly attributable to a reduction in generator sales of approximately $4.9 million to two major OEM customers, which resulted from the contracts ending. In addition, cautery sales decreased slightly or approximately $42,000 in 2013. These decreases were partially offset by an increase of approximately $296,000 in the sale of electrodes, an increase of approximately $548,000 in our medical lighting sales, an increase of approximately $42,000 in the sale of J-Plasma products and a net increase in other sales of approximately $66,000 mainly the result of contractor development services.

Overall sales increased by 8.9% or approximately $2.3 million for the period ended December 31, 2012 when compared with the same period in 2011. In 2012, we continued to experience an upward trend in our sales in all three areas of our business. The largest dollar increase of approximately $746,000 was in our cautery product line, which we attribute to us gaining market share due to a reduction in competitors in the marketplace. The next largest dollar increase was in our electrosurgical product line consisting of a $736,000 increase in electrosurgery generators sold primarily to a major OEM customer and approximately $65,000 increased sales of electrodes. We also increased our sales of third party medical lighting products by approximately $593,000 and various other products by approximately $120,000.

Our ten largest customers accounted for approximately 60.9%, 66.3%, and 64.6% of net revenues for 2013, 2012, and 2011 respectively. In 2013, National Distribution & Contracting Inc. accounted for 13.1%, PSS World Medical accounted for 10.9% and McKesson Medical Surgical accounted for 10.3% of our sales. In 2012, National Distribution & Contracting Inc. accounted for 12.4% of our sales, while in 2011, no one customer accounted for over 10% of our sales.

Gross Profit

                                                            Years ended December 31,
                                                                      Percent                 Percent
                                                                      change                  change
(in thousands)                               2013          2012      13'vs 12'     2011      12'vs 11'
Cost of sales                              $  14,462     $  16,338    (11.5%)    $  14,680     11.3%
Cost of sales as a percentage of revenue        61.1 %        59.0 %                  57.8 %

Gross profit                               $   9,198     $  11,333    (18.8%)    $  10,731     5.6%
Gross profit as a percentage of revenue         38.8 %        41.0 %  (2.2%)          42.2 %  (1.2%)

Our gross profit margin as a percentage of sales decreased by 18.8% or approximately $2.1 million during the year ended December 31, 2013 compared with the same period in 2012. This decrease was mainly attributed to the above mentioned decrease in overall sales, along with a 2.6% increase in labor costs as a percentage of sales, and a 1.6% increase in manufactured overhead as a percentage of sales. These increases were offset by a 2% decrease in material costs as a percentage of sales.

Our gross profit margin on a dollar basis increased by 5.6% or approximately $603,000 during the year ended December 31, 2012 compared with the same period in 2011 as a result of the increased sales mentioned above. However, our gross profit as a percentage of sales decreased by approximately 1.2%. This decrease in gross profit percent was due to the product mix that was sold, specifically with the increased sales of our lower margin third party medical lighting sales. Additional contributing factors to the lower gross profit percentage were an 0.8% increase in labor costs as a percentage of sales from salary increases, increased medical insurance costs and increased overtime required to meet the increase in sales coupled with slight increases in material costs related to our other products sold. These increases were partially offset by a 0.1% decrease in manufactured overhead cost.

We do not anticipate any material impact to our gross profit, material costs, or other costs as a result of the effect of inflation or any material impact of changing prices on net revenue.

Other Gain (Loss)

Salient/Medtronic Settlement

On March 3, 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™ and BOSS™) worldwide through February 2015. In exchange, Salient made a
one-time payment to us of $750,000.

Research and development

                                                         Year ended December 31,
                                                                   Percent
                                                                   change                Percent
                                                                    13'vs                 change
(in thousands)                             2013          2012        12'       2011      12'vs11'
Research and Development expense         $   1,260     $   1,329   (5.2%)    $   1,197    11.0%
R&D expense as a percentage of revenue         5.3 %         4.8 %                 4.7 %


Our expenditures for R & D related activities decreased by 5.2% or approximately $69,000 for the year ended December 31, 2013 compared with the same period in 2012. The decrease was mainly caused by a reduction of labor and material costs of approximately $68,000 and $37,000 respectively. These decreases were partially offset by an increase of approximately $36,000 in R & D consulting costs.

Our expenditures for R & D related activities increased by 11.0% or approximately $132,000 for the year ended December 31, 2012 compared with the same period in 2011. A large portion of this increase was related to various consulting fees of approximately $72,000, of which $42,000 was incurred for the preliminary development and design phase for a product related to a potential OEM customer and the remaining $30,000 was incurred to expand the plasma product line and other new products. Additional expenditures to support the continued development of the J-Plasma product line included adding a new engineering position which increased costs by approximately $51,000 and increased material and lab costs of approximately $9,000.

Professional services

                                                         Year ended December 31,
                                                                  Percent                 Percent
                                                                  change                  change
(in thousands)                           2013          2012      13'vs 12'     2011      12'vs 11'
Professional services expense          $   1,835     $   1,439     27.5%     $   1,250     15.1%
Professional services as a
percentage of revenue                        7.8 %         5.2 %                   4.9 %

Professional services costs increased 27.5% or approximately $396,000 for the year ended December 31, 2013 compared with the same period in 2012. Legal fees, incurred in connection with litigation, increased over the prior year by approximately $321,000 and are the main reason for the increase in professional costs. We also had an approximate increase of $75,000 related to stock based compensation costs due to the immediate vesting of options for the independent Board members that resigned as part of the equity raise in December 2013.

Professional services costs increased 15.1% or approximately $189,000 for the year ended December 31, 2012 compared with the same period in 2011. Legal fees, incurred in connection with current litigation, increased over the prior year by approximately $215,000 and are the main reason for the increase in professional costs. We also had an approximate increase of $25,000 related to stock based compensation costs. These increases were offset by a reduction in tax consulting fees due to the closing of our IRS audit in early 2011 of approximately $51,000.

Salaries and related costs

                                                        Year ended December 31,
                                                                                         Percent
                                                                  Percent                change
                                                                  change                  12'vs
(in thousands)                           2013          2012      13'vs 12'     2011        11'
Salaries and related expenses          $   3,235     $   3,178     1.8%      $   3,114    2.1%
Salaries & related expenses as a
percentage of revenue                       13.7 %        11.5 %                  12.3 %


During 2013 we experienced a net increase of approximately 1.8% in salary and related costs, or approximately $57,000 when compared with the prior year. The increase was primarily the result of the additional salary related to our new CEO who started in December 2013.

During 2012 we experienced a net increase of approximately 2.1% in salary and related costs, or approximately $64,000 when compared with the prior year. In an effort to expand our sales both for our plasma line products domestically and our distribution products in domestic and international markets, our sales and marketing salaries and related costs increased by approximately $181,000. However, our salaries and related costs related to our in-house legal decreased by approximately $117,000.

Selling, general and administrative expenses

                                                             Year ended December 31,
                                                                      Percent                  Percent
                                                                       change                  change
(in thousands)                               2013          2012      13' vs 12'     2011      12' vs11'
SG&A expense                              $    4,894     $   4,341     12.7%      $   4,347    (0.1%)
SG&A expense as a percentage of revenue         20.7 %        15.7 %                   17.1 %
Legal awards and settlements               $   1,640     $      --                $   1,591

Selling, general and administrative costs increased by 12.7% or approximately $552,000 for the period ended December 31, 2013 compared with the same period in 2012. One of the main reasons for the increase in cost was the 2.3% excise tax related to the Affordable Care Act instituted in the year 2013 which amounted to approximately $384,000. In addition, we had an increase in other marketing, shows and travel costs of approximately $266,000 related to our new J-Plasma line of products, an increase in general insurance of approximately $127,000, and an increase related to computers, data security, and other internal infrastructure of approximately $56,000. However, we experienced decreases in commissions, stockholder expense, advertising, amortization, rent expense, building maintenance, utilities, and other various overhead related costs all of which amounted to an offsetting decrease of approximately $205,000. In addition, although we had increased selling and marketing costs related to J-Plasma mentioned above, we experienced decreases in travel and marketing costs related to our distribution product lines of approximately $77,000.

Selling, general and administrative costs in dollars remained relatively the same, however they decreased as a percentage of sales by approximately 1.4% for the period ended December 31, 2012 compared with the same period in 2011. We experienced some substantial decreases in our bank fees, obsolete inventory provisions, building maintenance and utilities, and other various overhead related costs coupled with a gain on disposition of assets all of which amounted to a decrease of approximately $219,000. Additional decreases in our selling, general and administrative costs included a $45,000 decrease in regulatory costs related to both our existing as well as our new products, a $58,000 decrease in amortization costs related to the Meg product line which was written off last year, and a $46,000 decrease in costs related to the 2011 one time legal settlement which was absent for the same period 2012.

In line with our efforts to expand sales, we increased selling and marketing costs over the prior period by approximately $129,000, which included trade shows costs, sales force travel both for international and domestic markets, and increased advertising for both our existing distribution products and our new J-Plasma line of products. Our increased sales in 2012 versus 2011 also translated into an increase of approximately $75,000 in commission expense. We also experience increases in our selling, general and administrative costs for computer and software upgrades, rental fees, general insurance from increasing our coverage limits, shareholder and stock exchange costs, and various other overhead related costs which all amounted to approximately $160,000.

Legal Awards and Settlements

In connection with the litigation previously disclosed in a filed 10Q pending in the United States District Court for the Middle District of Florida between the Company and Leonard Keen, the Company's former Vice President and General Counsel, on August 8, 2013, following a jury trial, the jury returned a verdict in favor of Mr. Keen awarding him $622,500 in severance. In addition, the jury determined that Mr. Keen's previously issued 110,000 stock options should be reinstated and accelerated, and that the Company must indemnify Mr. Keen for any damages or costs he suffered in his capacity as an employee of Bovie pursuant to the terms of Mr. Keen's prior employment agreement with the Company. Subsequent to the trial, the Court awarded Mr. Keen $241,310 in attorneys' fees. These amounts have been paid.


Amounts related to the verdict of this case and subsequent attorney's fee award were accrued and expensed in 2013, and amounted to approximately $1.1 million.

A previously disclosed settlement, on November 21, 2013, we along with, Andrew Makrides and Moshe Cintronowitz entered into a Settlement Agreement and Mutual General Release (the "Settlement Agreement") with Steven Livneh, Henvil Corporation, Ltd., and Lican Developments, Ltd. (collectively, "Livneh") in settlement of the previously disclosed action pending in the United States District Court, Middle District of Tampa, Docket No. 12-cv-1498 (the "Litigation"). With few exceptions, the terms of the Agreement replace and supercede the terms of the Confidential Settlement Agreement and Mutual General Release entered into as of December 28, 2011, which was the subject of prior disclosures and formed the basis of the Litigation.

Pursuant to the terms of the Settlement Agreement, we agreed to pay Livneh a total of $400,000 in six separate installments beginning on December 10, 2013 and concluding on May 15, 2014.

We also agreed to (i) make certain upgrades to the ICON VS generator previously sold to Livneh, (ii) sell Livneh three (3) additional ICON VS generators designated as "not for human use", subject to certain terms and conditions,
(iii) complete the testing and validation of the ICON VS generator within six months, (iv) sell Livneh up to 150 additional ICON VS generators for use on humans, subject to certain terms and conditions, and (v) to provide Livneh with various information relating to the ICON VS generator. Upon execution of the Settlement Agreement, we delivered to Livneh various documentation relating to the ICON VS generator and a set of sub-assemblies relating thereto. We also executed a separate agreement with Livneh to provide support regarding the ICON VS generator for a period of one year after execution of the Agreement.

We granted Livneh an exclusive, transferable, irrevocable license to make, have made, use, market, and sell the Seal-N-Cut device in the People's Republic of China ("PRC") and a non-exclusive, transferable, and irrevocable license to make, have made, use, market, and sell Seal-N-Cut anywhere other than PRC. We and Livneh each agreed to pay the other a royalty equal to 3% on their Net Sales (as defined in the Settlement agreement) of Seal-N-Cut. Upon execution of the Settlement Agreement, we transferred to Livneh (i) three (3) Seal-N-Cut hand pieces, (ii) two final assembly test fixtures not utilized by the Company, (iii) a PK generator and footswitch, (iv) miscellaneous parts and materials, (v) various documents relating to Seal-N-Cut, and (vi) our rights to certain Seal-N-Cut molds.

The parties also exchanged mutual general releases and discontinued the Litigation. The Settlement Agreement also provides that in the event of any dispute between the parties concerning the Settlement Agreement, no party would be entitled to recover lost profits, lost sales, business interruption damages, lost business opportunity damages, lost tax credits, lost benefit-of-the-bargain damages, consequential damages, incidental damages, special damages, punitive damages, or exemplary damages. Amounts related to this settlement were accrued and expensed in 2013, and amounted to approximately $500,000.

The total financial impact of the award and settlement agreement to our consolidated financial statements for the year ended December 31, 2013 was approximately $1.6 million.

Other Income

                                                            Year ended December 31,
                                                                    Percent                     Percent
                                                                     change                     change
(in thousands)                           2013           2012       13'vs 12'        2011       12'vs 11'
Interest income                        $       7      $       7       0.0%        $      12     (42.0%)
Interest expense                       $    (244 )    $    (239 )    0.02%        $    (249 )   (4.0%)
Issuance cost                          $    (664 )            -        -                  -        -
Fees associated with refinance         $    (543 )            -        -                  -        -
Total other income (expense)           $  (1,444 )    $    (232 )    521.0%       $    (237 )   (2.0%)
Other income (expense) as a                 (6.1 %)        (0.8 %)                     (0.9 %)
percentage of revenue
Change in fair value of derivative     $    (842 )    $      20                   $     287
liabilities, net                                                   (4137.7%)                    (93.0%)
Other gain as a percentage of sales         (3.5 %)         0.1 %                       1.1 %

Interest Expense

Net interest expense increase by approximately $1.2 million or 507.1% the year ended December 31, 2013 as compared with the same period in 2012. The increase was mainly cause by the recognizing of the issuance costs of approximately $664,000 related to the warrants issued as part of the Great Point Partners equity financing mentioned below. In addition, as a result the high probability of refinancing our PNC debt, we accrued for the required amount of approximately $422,000, as of December 31, 2013, to pay off an embedded swap interest rate collar position and the accrued refinancing charges of approximately $121,000 for our previous refinancing. This interest rate collar was the result of our previous refinancing of the industrial revenue bonds on October 31, 2011 with PNC Bank.

Net interest expense decreased by approximately $5,000 or 2.0% for the year ended December 31, 2012 as compared with the same period in 2011 primarily due to principal reductions during 2012 of our Industrial Revenue Bonds associated with the acquisition of our Clearwater, Florida facility.

Net interest expense increased by approximately $14,000 or 6.3% for the year ended December 31, 2011 as compared with the same period in 2010 primarily due to the refinancing of the Industrial Revenue Bonds in late 2011.


Change in Fair Value of Derivative Liabilities

On December 13, 2013, we entered into a securities purchase agreement pursuant to which we issued 3,500,000 shares of our newly designated Series A 6% Convertible Preferred Stock with a stated value of $2.00 per share and 5,250,000 warrants to purchase our common stock, at an exercise price of $2.387 per share. We also issued 525,000 warrants to the placement agent. At December 13, 2013, the investor and placement agent warrants were valued at $4,383,750 and $438,375, respectively. The warrants are accounted for as derivative financial instruments at fair value and are re-valued each period. At December 31, 2013, the investor and placement agent warrants were valued at $4,599,000 and $459,900, respectively, and we recognized an aggregate loss related to their change in value of $236,775.

In 2010, we issued warrants to investors and to our placement agent in connection with an equity offering. The warrants issued to the investors contain anti-dilution protection in the event we issue securities at a price lower than the exercise price of the warrants. As a result of the issuance of our Series A 6% Convertible Preferred Stock on December 13, 2013, the exercise price of the investor warrants issued in 2010 was reduced from $6.00 per share to $2.00 per share and the number of warrants was increased proportionately. The 2010 investor and placement agent warrants, which are accounted for as derivative financial instruments at fair value, were valued at $690,000 and $85,000 at December 31, 2013 and December 31, 2012, respectively, and we recognized a net loss for the year ended December 31, 2013 of $605,000, of which $613,000 was related to the reduction in the exercise price of the investor warrants. For the year ended December 31, 2012, we recognized a gain of $20,000 related to the change in value of these warrants.

Income Taxes

The provision for income tax was a benefit of approximately $1.617 million vs. a charge of approximately $217,000 in 2012. The effective tax rate for 2013 was 27.3% vs. 25.9% for 2012.

Liquidity and Capital Resources

Our working capital at December 31, 2013 was approximately $17.0 million compared with $14.3 million at December 31, 2012. Accounts receivable days sales outstanding were 33 days and 38 days at December 31, 2013 and 2012, respectively. The number of days worth of sales in inventory, which is the total inventory available for production divided by the 12-month average cost of materials, increased 79 days to 297 days equating to an inventory turn ratio of 1.26 at December 31, 2013 from 218 days and an inventory turn ratio of 1.43 at . . .

  Add BVX to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for BVX - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.