U.S. Securities and Exchange Commission
Washington D.C. 20549
Form 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from ______to_______.
Commission file number 0-12183
BOVIE MEDICAL CORPORATION
(f/k/a AN-CON GENETICS, INC.)
(Exact name of small business issuer as
specified in its charter)
Delaware 11-2644611
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
734 Walt Whitman Rd., Melville, New York 11747
(Address of principal executive offices)
(516) 421-5452
(Issuer's telephone number)
AN-CON GENETICS, INC.
(Former name, former address and former fiscal year,
if changes since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section of 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [ X ] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12,13 or 15(d) of the Exchange Act
after the distribution of securities under a plan confirmed by court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the
issuers's class of common equity, as of the latest
practicable date: 14,629,693 Common Shares.
2,000,000 Preferred Shares.
BOVIE MEDICAL CORPORATION
FORM 10-QSB
QUARTERLY REPORT
SEPTEMBER 30, 1998
<PAGE>
BOVIE MEDICAL CORPORATION
INDEX TO FORM 10-QSB
Part I. Financial Information......................
Item 1: Consolidated Financial
Statements:.............................
Consolidated Balance Sheet
September 30, 1998......................
Consolidated Statements of
Operations for the Nine
Months Ended September 30,
1998 and 1997...........................
Consolidated Statements of
Cash Flows for the Nine
Months Ended September 30,
1998 and 1997...........................
Notes to Financial Statements............
Item 2: Management's Discussion and
Analysis of Financial
Conditions and
Results of Operations....................
Part II. Other Information..........................
Item 1: Legal Proceedings.........................
Item 2: Changes in Securities.....................
Item 3: Defaults Upon Senior Securities...........
Item 4: Submission of Matters to
Vote of Security Holders.................
Item 5: Exhibits and Reports on
Form 8-K.................................
PART I. FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
BOVIE MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
Assets
Current assets:
Cash $ 390,616
Trade accounts receivable 1,092,367
Inventories 2,005,397
Prepaid expenses 71,356
Deferred tax asset 175,010
Other receivables 28,112
Total current assets 3,762,858
Property and equipment, net 3,400,546
Other assets:
Trade name 1,838,189
License and manufacturing rights 1,773,334
Goodwill, net 8,710
Patent rights, net 234,349
Deposits 129,765
3,984,347
$ 11,147,751
The accompanying notes are an integral part of the financial statements.
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30,1998
(CONTINUED)
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 615,746
Accrued expense 151,168
Notes payable - current portion 543,649
Due to shareholders 126,683
Total current liabilities 1,437,246
Long-term debt, net 31,716
Stockholders' equity:
Preferred stock par value
$.001; 10,000,000
shares authorized,
issued and outstanding
2,000,000 shares on
September 30, 1998 2,000
Common stock par value
$.001; 40,000,000
shares authorized,
issued and outstanding
14,629,693 shares on
September 30, 1998 14,630
Additional paid in capital 21,068,542
Accumulated deficit (11,406,383)
Total stockholders' equity 9,678,789
$ 11,147,751
The accompanying notes are an integral part of the
financial statements.
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997
Sales $ 6,102,459 $ 5,518,558
Cost of sales 3,624,681 3,095,287
Gross Profit 2,477,778 2,423,271
Operating expenses:
Research and development 195,591 60,290
Professional services 378,978 262,645
Salaries and related
costs 1,137,936 1,055,795
Selling, general and
administrative 1,235,714 811,183
2,948,219 2,189,913
Gain (Loss) from
operations ( 470,441) 233,358
Other income (expense):
Interest ( 89,308) ( 59,468)
Miscellaneous 13,101 18,140
( 76,207) ( 41,328)
Income (loss) ( 546,648) 192,030
Provision for income tax -- ( 65,290)
Realized benefit of loss
carryforward -- 65,290
Net income (loss) $( 546,648) $ 192,030
Earnings (Loss) per share ( .05) .02
Weighted average number
of shares outstanding 11,156,359 8,199,508
The accompanying notes are an integral part of the
financial statements.
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997
Cash Flows from operating
activities
Net income (loss) $(546,648) $ 262,631
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Depreciation and amortization 534,934 234,828
Common stock for services 118,499 7,000
Waiver of bonus payments to
officers -- ( 70,600)
Changes in current assets
and liabilities:
Increase in receivables (300,542) ( 19,623)
(Increase) decrease in
inventories 70,429 (114,776)
Increase in prepaid expenses ( 3,426) ( 22,027)
Increase (decrease) in
accounts payable 216,656 (310,907)
(Decrease) in accrued expense ( 84,622) (131,363)
Decrease in other receivables 29,151 ( 11,678)
Total adjustments 581,079 (439,146)
The accompanying notes are an integral part of the financial
statements.
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(CONTINUED)
1998 1997
Net cash provided by (used in)
operating activities 34,431 (176,515)
Cash flows from investing
activities
Increase in fixed assets (255,855) (192,241)
Increase in intangibles ( 21,529) ( 13,780)
Increase in deposits (122,615) ( 10)
Net cash used in investing
activities (399,999) (206,031)
Cash flows from financing
activities
Decrease in obligations under
capital lease -- ( 4,600)
(Decrease) increase in
notes payable 29,202 ( 4,360)
(Decrease) increase in
long term debt (303,504) 328,520
Common shares issued for cash 982,240 2,538
Exercise of stock options -- 64,000
Net cash provided by
financing activities 707,938 386,098
Net increase in cash and
cash equivalents 342,370 3,552
Cash and cash equivalents,
beginning of period 48,246 120,904
Cash and cash equivalents,
end of period $ 390,616 $ 124,456
The accompanying notes are an integral part of the
financial statements.
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(CONTINUED)
Cash paid during the nine months ended September 30:
1998 1997
Interest $ 63,352 $ 56,510
Income Taxes -0- -0-
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
During the period ended September 30, 1998 the Company
issued 276,667 restricted shares for an officer's bonus and
consulting fees valued at $.40 per share for an aggregate
of $110,668.
The Company also issued 19,578 shares, valued at $.40 per
share, to satisfy part of its obligation to the shareholders
of Xenetics Biomedical, Inc. for the purchase of OmniFix for
a total of $7,831.
On February 9, 1998 the Company issued 5,000,000 shares to
purchase the outstanding shares of BSD Beta Development
Corp. (BSD). The company valued this transaction at $.98
per share. (See Note 3 to the financial statements).
On May 8, 1998 the Company purchased the "Bovie" Tradename,
which it now uses as the Company's name, for $1,877,299 and
Bovie inventory of materials and work in progress for
$1,122,701 by giving the seller, Maxxim Medical, a
convertible note for $3,000,000 which was converted to
common shares on September 8, 1998. Interest due on the
note of $38,516 was forgiven and a credit of $25,275
against future purchases was issued to Maxxim. (see note 4)
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(CONTINUED)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
1- In February of 1997, 10 year notes came due and the
Company offered each bond holder 2,200 shares of common
stock for each $1,000 bond and accrued interest of $550.
Nineteen bondholders accepted the offer and forty-three
bondholders received cash for their bonds and accrued
interest. The total amount of principal and accrued
interest of the converted bonds was $19,000 and $10,450
respectively. The balance of the bondholders have not
redeemed their bonds or accepted the share offer.
2- The Company issued 10,000 shares of common stock in
exchange for $4,572 of accounts payable.
3- The Company issued 100,000 shares of common stock and
cancelled 200,000 warrants that were issued in conjunction
with a private placement of the Company's securities.
4- The Company exchanged its rights to the Borascope
Technology and related equipment and inventories for notes
receivable in the amount of $49,525. The costs of the
rights (net of amortization), equipment, and inventories
were $31,735, $7,000, and $10,790, respectively.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include the accounts
of Bovie Medical Corporation formerly known as An-con
Genetics, Inc., and its wholly owned subsidiary Aaron
Medical Industries, Inc. In the opinion of management,
the interim financial statements reflect all adjustments,
consisting of only normal recurring items, which are
necessary for a fair presentation of the results for the
interim periods presented.
The results for interim periods are not necessarily
indicative of results for the full year. These financial
statements should be read in conjunction with the
significant accounting policies and the other notes to the
financial statements included in the Corporation's 1997
Annual Report to the SEC on Form 10-KSB-A2.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in the Preparation of Financial Statements
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Fair Values of Financial Instruments
Cash and cash equivalents. Holdings of highly liquid
investments with maturities of three months or less when
purchased are considered to be cash equivalents. The
carrying amount reported in the balance sheet for cash and
cash equivalents approximates its fair value.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Values of Financial Instruments(Continued)
Accounts receivable and accounts payable. The carrying
amount of accounts receivable and accounts payable on the
balance sheet approximates fair value.
Short term and long term debt. The carrying amount of the
bonds and notes payable, and amounts due to shareholders
approximates fair value.
Inventories
Inventories are stated at the lower of cost or market.
Cost is determined principally on the average cost method.
Inventories at September 30, 1998 were as follows:
Raw materials $ 1,490,204
Work in process 182,344
Finished goods 332,849
Total $ 2,005,397
Long-Lived Assets
Long-lived assets consist of property plant and equipment,
intangible assets.
Property, plant and equipment are recorded at cost less
depreciation and amortization. Depreciation and
amortization are accounted for on the straight-line method
based on estimated useful lives. The amortization of
leasehold improvements is based on the shorter of the
lease term or the life of the improvement. Betterment and
large renewals which extend the life of the asset are
capitalized whereas maintenance and repairs and small
renewals are expensed as incurred. The estimated useful
lives are: machinery and equipment, 5-15 years; buildings,
30 years; and leasehold improvements 10-20 years.
Intangible assets consist of patent rights and goodwill.
Goodwill represents the excess of the cost of assets of the
acquired companies over the values assigned to net tangible
assets. These intangibles are being amortized by the
straight-line method over a 5 to 20 year period.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Long-Lived Assets(continued)
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards (SFAS) No.121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. In accordance with SFAS No.121,
the Company reviews long-lived assets for impairment
whenever events or changes in business circumstances occur
that indicate that the carrying amount of the assets may not
be recovered.
The Company assesses the recoverability of long-lived
assets held and to be used based on undiscounted cash flows
and measures the impairment, if any, using discounted cash
flows. Adoption of SFAS No.121 did not have a material
impact on the Company's consolidated financial position,
operating results or cash flows.
Revenue Recognition and Product Warranty
Revenue from sales of products is generally recognized upon
shipment to customers. The Company warrants its products
for one year. The estimated future costs of warranties are
not material.
Income is recognized in the financial statements (and the
customer billed) when products are shipped from stock. Net
sales are arrived at by deducting discounts and freight from
gross sales.
Environmental Remediation
The Company accrues environmental remediation costs if it is
probable that an asset has been impaired or a liability
incurred at the financial statement date and the amount can
be reasonably estimated. Environmental compliance costs are
expensed as incurred. Certain environmental costs are
capitalized based on estimates and depreciated over their
useful lives.
Earnings Per Common and Common Equivalent Share
In February 1997, the Financial Accounting Standards Board
issued SFAS 128. "Earnings Per Share." SFAS 128
establishes new standards for computing and presenting
earnings per share ("EPS").
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Specifically, SFAS 128 replaces the previously required
presentation of primary EPS with a presentation of basis
EPS, requires dual presentation of basic and diluted EPS on
the face of the income statement for all entities with
complex capital structures, and requires a reconciliation of
the numerator and denominator of the basic EPS computation
to the financial statements issued for periods ending after
December 15, 1997. In 1997, the Company adopted SFAS 128.
Research and Development Costs
Only the development costs that are purchased from another
enterprise and have alternative future use are capitalized
and are amortized over five years.
Income Taxes
The Company and its wholly-owned subsidiary file a
consolidated federal income tax return.
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the
period that includes the enactment date.
Nonmonetary Transaction
The accounting for non-monetary assets is based on the fair
values of the assets involved. Cost of a non-monetary asset
acquired in exchange for another non-monetary asset is
recorded at the fair value of the asset surrendered to
obtain it. The difference in the costs of the assets
exchanged is recognized as a gain or loss. The fair value
of the asset received is used to measure the cost, if it is
more clearly evident than the fair value of asset
surrendered.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based Compensation
The Company has adopted Accounting Principles Board Opinion
25 for its accounting for stock based compensation. Under
this policy:
1. Compensation costs are recognized as an expense over the
period of employment attributable to the employee stock
options.
2. Shares issued in accordance with a plan for past or
future services of an employee are allocated between the
expired costs and future costs. Future costs are charged to
the periods in which the services are performed. The
proforma amounts of the difference between compensation cost
included in net income and related cost measured by the fair
value based method, including tax effects, are disclosed.
New Accounting Standards
In September 1997, the Financial Accounting Standards Board
issued SFAS 130, "Reporting Comprehensive Income". SFAS 130
establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses,
gains, and losses) in a full set of general purpose
financial statements. Specifically, SFAS 130 requires that
all items that meet the definition of components of
comprehensive income be reported in a financial statement
for the period in which they are recognized. However, SFAS
130 does not specify when to recognize or how to measure the
items that make up comprehensive income. SFAS 130 is
effective for fiscal years beginning after December 15,
1997, and early application is permitted.
Management believes the application of SFAS 130 will not
have a material effect on the Company's future financial
statements.
NOTE 3. ACQUISITION OF BSD BETA DEVELOPMENT CORP.
On February 9, 1998 the Company exchanged 5,000,000 of its
shares valued at $4,900,000, or $.98 per share, for all
outstanding common and preferred
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 3. ACQUISITION OF BSD BETA DEVELOPMENT CORP.
(CONTINUED)
shares of BSD Development Beta Corporation (BSD), a
development stage enterprise, and a subscription note
receivable of $750,000.
The acquisition has been accounted for as a purchase, and
accordingly, the total purchase price has been allocated to
the acquired assets at their estimated fair values in
accordance with the provisions of Accounting Principles
Board Opinion No. 16. At the time of acquisition, BSD did
not have any liabilities and had not yet commenced its
operating activities.
$1,900,000 of the purchase price represents license and
manufacturing rights and will be amortized over its
estimated life of 10 years.
A summary of the BSD acquisition cost and the allocation of
the purchase price to the assets acquired is as follows:
Total acquisition cost:
Market value of
An-Con shares issued $4,900,000
Subscription note
receivable paid 0
$4,900,000
Allocated as follows:
Cash $ 1,000,000
Equipment 2,000,000
License and manufacturing
rights 1,900,000
$ 4,900,000
According to the acquisition agreement, the Company held
2,250,000 of the shares issued in escrow. These shares were
released upon collection of the $750,000 subscription note
receivable in August of 1998.
Also, as a part of the agreement, the Company had pledged to
issue 2,000,000 preferred shares to the seller of BSD and
reacquire 2,000,000 common shares initially issued. The
Company delivered the preferred shares in a timely manner.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 4. PURCHASE OF BOVIE TRADENAME
Purchase of "Bovie"
On May 8, 1998 the Company entered into an agreement with
Maxxim Medical, Inc. (Maxxim) to purchase all rights, title
and interest of Maxxim's electrosurgical product line
associated with the name "Bovie". The Company had issued a
secured convertible promissory note for $3,000,000 to
Maxxim. The note converted into 3,000,000 common shares of
the Company when an amendment to the Certificate of
Incorporation was filed in the State of Delaware. The
amendment increased the number of authorized shares and made
possible the issuance of 3,000,000 additional shares. The
term of the note was ten years and it bore interest at the
rate of 1% in excess of the prime lending rate. Interest
due on the note of $38,516 was forgiven and a credit of
$25,275 against future purchases was issued to Maxxim.
The allocation of the purchase price to the assets acquired
is as follows:
Inventory and
equipment fixtures $ 1,272,701
Tradename 1,727,299
Total assets $ 3,000,000
<PAGE>
BOVIE MEDICAL CORPORATION
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-looking Statements
This Report on Form 10-QSB contains forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including statements regarding the
Company's expectations, hopes, intentions, beliefs or
strategies regarding the future. Such forward-looking
statements include, but are not limited to, the Company's
anticipated expense levels for research and development, and
selling general and administrative; anticipated capital
expenditures; and expectations regarding inventory balances,
liquidity and adequacy of cash resources under the sub-
headings "Results of Operations" and "Liquidity and Capital
Resources". Actual results could differ materially from
those projected in any forward-looking statements for the
reasons detailed below and in other sections of this Report
on Form 10-QSB.
All forward-looking statements included in this Form 10-QSB
are based on information available to the Company on the
date of this Report. The Company assumes no obligation to
update the forward-looking statements. Investors should
also consult the risks factors listed from time to time in
the Company's Reports on Form 10-KSB and Annual Report to
Stockholders.
Results of Operations
The results of operations over the nine months ended
September 30, 1998 show reduced profitability, as compared
to the first nine months of 1997. The Company's sales
revenues increased by 10%, from $5,518,558 to $6,102,459.
Gross profit percentage of 41% was down from 44% for the
same period in 1997. Gross profit increased from $2,423,271
to $2,477,778. Increased sales revenues were mainly
attributable to sales of Bovie products to Maxxim
($407,539). For the first nine months of 1998 and 1997
cauteries accounted for 44% and 41% of sales respectively.
Operating salaries and related expenses increased by 8%,
from $1,055,795 to $1,137,936 in the nine months ended
September 30, 1998 as compared to the same period in 1997.
<PAGE>
BOVIE MEDICAL CORPORATION
PART I. FINANCIAL INFORMATION(CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Results of Operations(Continued)
Research and development costs increased by 224% from
$60,290 to $195,591 from the nine months ended September 30,
1997 to 1998, respectively. This was principally
attributable to depreciation expense on the Company's
reactors used to develop new products.
Expenses for professional services increased by 40% to
$378,978 in the nine months ended September 30, 1998, as
compared to $262,245 in the same period of the previous
year. The main reason for this increase was consulting and
legal fees associated with the settlement of various
transactions and the installation of computer software.
Selling, General and Administrative expenses increased by
52%. These expenses were $1,235,714 in the nine month
period ended September 30, 1998 as compared to $811,183 for
the nine months ended September 30, 1997.
Interest expense increased from $59,468 in the nine months
ended September 30, 1997 to $89,308 in 1998. The $29,840
(50%) increase in interest expense was mainly attributable
to the Company's three million dollar note to Maxxim for the
purchase of the Bovie tradename and inventory which was
retired on September 8, 1998.
Additional amortization of intangible assets for the first
nine months of 1998 on the Bovie and BSD transactions
amounted to $165,776 which is reflected as an increase in
Selling, General, and Administrative expenses.
The operating loss was $470,441 for the first nine months of
1998 as compared to an operating income $233,358 in the same
period in 1997 shows a decrease in income of $703,799.
The Company had a net loss of $546,648 for the nine months
ended September 30, 1998 as compared to net income of
$192,030 in 1997 for the same period. The reasons for the
decrease of $703,799 (302%) in operating income and $738,678
(385%)in net income include: a $244,100 reduction in gross
profit attributable to the low margin on Bovie product
sales; an increase in professional fees of $116,333
attributable to the MegaDyne Lawsuit and the BSD and Maxxim
transactions, an additional $126,848 in depreciation on the
<PAGE>
BOVIE MEDICAL CORPORATION
PART I. FINANCIAL INFORMATION(CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Results of Operations(Continued)
reactors purchased in the BSD transaction; $76,667 in one
time consulting fees; $29,840 increase in interest expense
on bank loans and new notes; and a $40,000 bonus to an
officer.
During the first nine months of 1998, international sales of
the Aaron Medical product lines declined by 15%. These sales
were $1,106,249, 18% of total sales in 1998 as compared to
$1,297,454, 24% of total sales in 1997. The reason for the
decline was that the Company had not yet received its ISO9000
certification. As of June 14,1998, all medical devices sold
in the European Community are required to be CE Marked.
The Company received its ISO9000 CE mark in the
late third quarter of 1998 and is actively promoting its
international sales.
Financial Condition
As of September 30, 1998, the amount of cash was $390,616 as
compared to $48,246 at December 31, 1997. Cash provided by
operating activities was $34,431 in the first nine months of
1998 as compared to ($176,515) cash used by operations in
1997. Net working capital of the company on September 30,
1998 was $2,325,612 as compared to $1,008,545 on December
31, 1997.
Investing activities utilized $399,999 in cash during the
first nine months of 1998, compared to $206,031 in the first
nine months of 1997. In 1998, the Company continued its
policy of investing in property, plant and equipment needed
for future business requirements, including manufacturing
capacity.
The Company's ten largest customers accounted for
approximately 52% of net revenues for the first nine months
of 1998. At September 30, 1998, the same ten customers
accounted for approximately 36% of outstanding accounts
receivable.
<PAGE>
BOVIE MEDICAL CORPORATION
PART I. FINANCIAL INFORMATION(CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Financial Condition(Continued)
Cash flows from financing provided $707,939 and $386,098 in
the first nine months of 1998 and 1997, respectively. The
most significant financing activities in the nine months
ended September 30, 1998 was the receipt of $750,000 related
to the purchase of BSD. The long term debt decreased by $303,504
in the first nine months of 1998 as compared to an increase
of $328,520 in 1997.
The Company believes that it has the financial resources
needed to meet business requirements in the foreseeable
future, including capital expenditures for the expansion of
its manufacturing site, working capital requirements, and
product development programs, which includes its recent
acquisition and transition of the Bovie product line
manufacturing assets to its facility in St. Petersburg,
Florida.
Outlook
The Company believes that the world market for medical
devices has significant growth potential. The Company's
major business segments are single-use and reusable battery
operated medical devices and electrosurgical equipment,
including accessories. The Company also has a minor
presence in the flexible industrial lighting market with an
adaptation of its flexible medical light.
The single-use and reusable battery operated medical device
product line includes cauteries, medical lights, nerve
locators and opthalmic products. The Company presently has
a substantial portion of the U.S. market for these products
and does not expect substantial sales growth domestically.
The Company currently markets reusable versions of these
products in most major international markets. Future sales
growth in this product line is dependent upon new product
introductions and continued penetration of international
markets.
<PAGE>
BOVIE MEDICAL CORPORATION
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company anticipates the growth it has experienced in its
electrosurgical product line to continue. The
electrosurgical product line includes the Bovie generators
and accessories, the Aaron 800 and Aaron 1200 generators,
electrosurgical pencils, uncoated electrodes, and the
company's newly introduced Dylyn coated electrodes, the
Bovie Slick Tip . The Bovie Slick Tip was introduced at
the American College of Surgeons Show in Orlando, Florida in
October 1998.
The Slick Tip line is a replacement for Resistick , the
Company's first coated electrode line. The Company agreed
to stop selling the Resistick product line in the first
quarter of 1998 as part of the settlement of the MegaDyne
lawsuit. The Company does not expect significant sales of
the Slick Tip line in 1998 due to its late 1998
introduction.
Liquidity and Future Plans
The Company's primary focus is the acquisition of new
product technologies, the improvement of existing
technologies and the expansion of its manufacturing
capabilities. The Company is currently evaluating products
for development through its manufacturing and licensing
agreement with Advanced Refractory Technologies, Inc., and
improving and updating the Bovie product line technology, and also
exploring the possibility of expanding its manufacturing facility.
In order to ensure the manufacture of quality products and
maintain the ability to sell in Europe, the Company has
implemented an ISO9000/EN46001quality system.
The Company's one year $400,000 line of credit with a local
commercial bank was renewed on April 30, 1998. The Company
also has a three year $150,000 loan for capital
improvements. Interest on these loans is to be paid at 1%
over prime. Balances on these loans were $0 and $70,561 as
of September 30, 1998, respectively.
Bovie believes that it has the product mix, facilities,
personnel, and competitive and financial resources for
continued business success, but future revenues, costs,
margins, product mix and profits are all subject to the
influence of a number of factors, as discussed above.
<PAGE>
BOVIE MEDICAL CORPORATION
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Form 10-KSB for the year ended December 31, 1997. Part
I, Item 3.
ITEM 2. CHANGES IN SECURITIES
At a special meeting of the shareholders of the Company,
held on September 8, 1998, the shareholders approved the
following amendments to the certificate of Incorporation of
the Company:
1. To increase the authorized capitalization from 15,000,000
shares of common stock to 50,000,000 shares of common stock
and establishing the par value of $.001 per share for each
share of common stock issuable.
2. To authorize the Company to issue a maximum of ten
million shares of preferred stock with a par value of $.001
per share.
3. To change the name of the Company to "Bovie Medical
Corporation".
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
In February of 1997, the 10 year notes came due and the
Company offered each bond holder 2,200 shares of common
stock for their $1,000 bond and accrued interest of $550.
Nineteen bondholders accepted the offer and forty-three
bondholders received cash for their bonds and accrued
interest. The balance of the bondholders owning $20,000
principal amount plus accrued interest, have not redeemed
their bonds or accepted the shares offered.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Reference is made to item 2. In addition, shareholders of
the Company notified the Company's 1998 Non-Statutory Stock
Purchase and Option Plan.
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
A) Exhibits
28 None
<PAGE>
SIGNATURES:
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
BOVIE MEDICAL CORPORATION
(Registrant)
Date: _________________
_________________________
Andrew Makrides, President
7
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