U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number 0-12183
December 31,1998
BOVIE MEDICAL CORPORATION
Formerly known as
AN-CON GENETICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2644611
(State or other jurisdiction (IRS Employer Identification No.)
734 Walt Whitman Road, Melville, NY 11747
(Address of principal executive offices)
Issuer's telephone number (516) 421-5452
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 Par Value
(Title of class)
Indicate by check mark whether the registrant (I) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act of 1934 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[ ] Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-KSB any amendment to this Form 10-KSB. [ X ]
Issuer's revenues for its most recent fiscal year were $8,441,846.
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of March 26,1999 was approximately $10,655,106.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:14,709,695 and Preferred Shares
2,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
There are no documents incorporated by reference.
<PAGE>
Bovie Medical Corporation
1998 Form 10-KSB Annual Report
Table of Contents
Part I
Item 1.Description of Business
Item 2.Properties
Item 3.Legal Proceedings
Item 4.Submission of Matters to a Vote of
Security Holders
Part II
Item 5.Markets and Market Prices
Item 6.Management's Discussion and Analysis
Item 7.Financial Statements
(See Financial Section)
Item 8.Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure
Part III
Item 9.Directors, Executive Officers,
Promoters and Control Persons
Item 10.Remuneration
Item 11.Security Ownership of Certain
Beneficial Owners and Management
of Bovie Medical Corporation
Item 12.Certain Relationships and
Related Transactions
Item 13.Exhibits and Reports on Form 8-k
<PAGE>
Bovie Medical Corporation
Item 1. Description of Business.
Background
Bovie Medical Corporation, formerly known as An-Con Genetics, Inc.("the
Company") was incorporated in 1982, under the laws of the State of Delaware and
has its principal executive office at 734 Walt Whitman Road, Melville, New York
11747.
Currently, the Company is actively engaged in the business of manufacturing and
marketing medical products and developing related technologies. Aaron Medical
Industries, Inc. ("Aaron"), a 100% owned subsidiary of the Company, a St.
Petersburg, Florida based Corporation, is engaged in the manufacturing and
distributing of medical products. Although, Aaron's largest current product line
is battery operated cauteries, the Company has shifted its focus to the
manufacture and marketing of electrosurgical generators and electrosurgical
disposables. This new focus is evident in the development of the Aaron 800 and
1200 electrosurgical generators (see below).
The Company also manufactures a variety of specialty lighting instruments for
use in ophthalmology, general surgery, hip replacement surgery, and for the
placement of endotracheal tubes. An industrial version of this light is
distributed through a large automotive tool distributor, and various retail
outlets and stores.
The Company manufactures and markets its products both under private label and
the Bovie/Aaron label to distributors worldwide. Additionally, Bovie/Aaron has
many original equipment manufacturing (OEM) agreements. These OEM arrangements
combined with private label and the Bovie/Aaron label allow the Company to gain
greater market share for the distribution of its products.
Bovie Medical Corporation is a non-operating company while Aaron as a 100%
owned subsidiary which presently accounts for 100% of operations.
Company Products
Battery Operated Cauteries
Battery operated cauteries constitute the Company's largest product line.
Cauteries were originally designed for precise hemostasis (to stop bleeding) in
ophthalmology. The current use of cauteries has been substantially expanded to
include sculpting woven grafts in bypass surgery, vasectomies, evacuation of
subungual hematoma (smashed fingernail) and for arresting bleeding in many types
of surgery. Battery operated cauteries are primarily a sterile one-time use
product. The Company manufactures more types of cauteries than any other company
in the world, including but not limited to, a line of replaceable battery and
tip cauteries, which are popular in overseas markets.
<PAGE>
Electrosurgical Products
The Company continues to expand its line of electrosurgical products.
Electrosurgical products include electrodes, electrosurgical pencils, and
various ancillary disposable products. These products are used in surgery for
the cutting and coagulation of tissues and constitute the Company's second
largest product line and are compatible with all major manufacturers'
electrosurgical generator products.
Aaron 1200
The Company has developed a 120 watt, full-featured electrosurgical
generator for outpatient surgical procedures. It is used in a
variety of specialties including dermatology, gynecology, and
plastic surgery.
Aaron 800
The Aaron 800 is a low powered office based generator designed
primarily for dermatology. The unit is a 30 watt high frequency
desiccator used mainly in doctors offices for removing small skin
lesions and growths. This unit was designed with sufficient
technology to permit the manufacture of more powerful office based
generators without requiring time-consuming expense of redesign.
Electrosurgical Coated Electrodes
The Company is developing a coated electrosurgical blade as per
its agreement with Advanced Refractory Technologies, Inc. (ART),
the manufacturer and developer of Dylyn a new coating
technology; Development activities for the process and production
are ongoing. The Company relies on ART for successful development
of the production process. Performance by ART is essential for
production and marketing to commence.
The Company discontinued its Resistick line of reduced stick
electrodes used in electrosurgery. The reduced stick electrode
market is dominated by MegaDyne Medical Products, Inc. The
discontinuance of Resistick sales is a result of the settlement
by Aaron with MegaDyne in a suit against Aaron for patent
infringement. See legal proceedings and notes to the financial
statement.
Battery Operated Medical and Industrial Lights
The Company manufactures a variety of specialty lighting instruments for use in
Ophthalmology as well as patented specialty lighting instruments for general
surgery, hip replacement surgery and for the placement of endotracheal tubes in
emergency and pro-surgery procedures. These lighting instruments have also been
adapted for commercial and industrial use and are sold to automotive mechanics
through Companies such as Snap-On Tools, MAC and Matco.
Nerve Locator Stimulator
The Company manufactures three different nerve locator stimulators primarily
used for identifying motor nerves in hand and facial reconstructive surgery.
<PAGE>
These instruments are self-contained, battery operated units, used for single
surgical procedures.
Manufacturing, Marketing and Distribution
The Company manufactures the majority of its products on its premises in St.
Petersburg, Florida. Labor intensive sub-assemblies and labor intensive products
may be out-sourced to the Company's specification. The Company markets its
products through national trade journal advertising, direct mail, distributor
sales representatives and trade shows, under both the Bovie/Aaron name and
private label. Major distributors include Allegiance, Bergen Brunswig Medical,
Burrows, McKesson, General Medical, Owens & Minor, and Physician Sales &
Service.
Competition
The medical device industry is highly competitive. Many Competitors in this
industry are well established, do a substantial amount of business, and have
greater financial resources and facilities than the Company.
Main competitors are Conmed in the electrosurgery market and Xomed in the
battery operated cautery market. Management believes that, based upon recent
developments, the Company has the ability to aggressively compete in these
markets.
Regulation
Many medical products are subject to guidelines, regulations and testing
requirements by federal and state authorities including the Food and Drug
Administration ("the FDA"). In the United States, the FDA imposes standards,
which may affect the clinical testing, manufacture and marketing of certain
products. Compliance with the standards and requirements involving product
safety, efficacy and labeling may prove to be very expensive and time consuming.
No assurance can be given that the regulatory authorities will render the
requisite approval of the marketing of some of the products that the Company
plans to market. Other countries usually impose regulatory requirements
concerning the development, testing, marketing and manufacture of certain
products, which influence the overseas sales potential of these products.
Patents and Trademarks
The Company owns a total of fourteen patents. No assurance can be given that
competitors will not infringe the Company's patent rights or otherwise create
similar or non infringing competing products that are technically patentable in
there own right. (See competition)
Liability Insurance
Management believes that general and product liability exposures are adequately
covered by insurance.
<PAGE>
Research and Development
The approximate amount expended by the Company on research and development of
its products during the years 1998 and 1997, totaled $183,173 and $96,738
respectively. The Company has not incurred any direct costs relating to
environmental regulations or requirements.
Employees
Presently the Company has a total of approximately 90 employees. These consist
of 5 executives, 6 administrative, 5 sales, and 74 technical or factory
employees.
SIGNIFICANT SUBSIDIARY - AARON MEDICAL INDUSTRIES, INC.
Aaron Medical Industries, Inc., is a Florida Corporation with offices and
manufacturing facilities in St. Petersburg, Florida. It is principally engaged
in the business of manufacturing and marketing medical products. Aaron
manufactures and sells its products under its own label to distributors
worldwide.
Item 2. Properties.
The Company has executive office space at 734 Walt Whitman Road, Melville, NY
and its St. Petersburg, Florida facility. The Company leases the executive
offices in NY for $1,226 per month and the lease expires in the year 2000.
As part of the purchase of its St. Petersburg, Florida (manufacturing facility),
the Company caused the seller to acknowledge that it had previously conducted
assessments to document environmental conditions existing on the property, the
results of which, are set forth in a June 23, 1994 Contamination Assessment
Report (CAR) and a January 27, 1995 Contamination Assessment Addendum (CARA).
The Florida Department of Environmental Protection (FDEP) stated in a letter,
dated March 31, 1995, that based on their review of the CARA, the CAR could not
be approved and that additional work was needed to be performed.
In February of 1998, the environmental engineering firm Geo-Ambient conducted a
second addendum to the CAR, (CAR Addendum II) to complete the additional work
requested by the FDEP. Based on the results of CAR Addendum II, Geo-Ambient
recommended to the FDEP that a "no further action" status be granted for the
site. However, as of the date here of the FDEP has not yet issued a Site
Completion Rehabilitation Order (SCRO).
Based on the "no further action" finding by Geo-Ambient and the anticipated
issuance of an SCRO by the FDEP management of the Company has estimated the
present value of the cost of environmental work to be zero.
At the request of the FDEP, GEO-Ambient conducted an additional water test in
July of 1998 and found the results to be consistent with previous tests.
The nature and extent of the environmental work, if any is to be required, has
not yet been determined by the FDEP. Therefore, no work has been completed by
the seller.
<PAGE>
Recent Acquisition of Technology
On February 9, 1998 the Company entered into a series of contemporaneous
agreements ("Contemporaneous") and transactions involving two non- affiliated
companies, Advanced Refractory Technologies, Inc. ("ART") a privately held New
York corporation engaged in research and development of a certain patented
nanocomposite technology for the coating of products ("DYLYN" Technology"), and
BSD Development Beta Corporation (BSD), a privately held company organized under
Delaware Law. As a result of the aforesaid transactions, the registrant acquired
certain job-coating equipment valued at $672,460 and consisting of two DYLYN
deposition reactors inclusive of components and two electro-blade surgical
mounting fixtures (the "Equipment") for coating electrosurgical blades and other
specified medical devices utilizing the DYLYN Technology. The aforesaid, in
addition to the acquisition by the Company of the Equipment, resulted in the
acquisition by it of an exclusive 10-year license to use the DYLYN Technology to
jobcoat specified medical products together with a manufacturing arrangement
with ART whereby ART will operate and maintain the equipment for the use of the
DYLYN Technology under the License Agreement at ARTs location in Buffalo, New
York. The Company acquired all of the outstanding securities of BSD which is now
a wholly owned subsidiary of registrant.
The license is an exclusive 10-year license to use the DYLYN technology to
job-coat specified medical products for marketing anywhere in the world. It
provides essentially for payment of a royalty to ART based upon net revenues
derived by the registrant directly or indirectly from the sale of products or
fees from sub-licensees utilizing the DYLYN Technology. The exclusivity of the
license is contingent upon ART receiving minimum job-coating fees of $200,000 in
the first contract year and increasing by $100,000 per year for each succeeding
contract year up to a minimum of $500,000 in the fourth contract year and each
succeeding year thereafter.
The 10-year license is renewable for an additional 10-year period upon notice
prior to 180 days of expiration, plus the payment by the registrant of $2
million in cash or in shares of common stock of registrant having a fair market
value aggregating $2 million.
The license may be terminated by ART in the event of (a) registrant's failure to
pay any fee due, (b) breach or default by registrant of any material term of the
License Agreement or other related agreements between ART, BSD and or
registrant; (c) breach or default of the Manufacturing Agreement; (d) registrant
files a petition in bankruptcy or for an arrangement under any federal or state
bankruptcy laws or is adjudicated insolvent; or (e) a petition is filed
proposing adjudication of registrant as bankruptcy or insolvent, and such
petition is not dismissed within 90 days after filing thereof.
<PAGE>
Manufacturing Agreement
Pursuant to the Contemporaneous Agreements, the Company was assigned a
Manufacturing Agreement dated February 9, 1998, which provides that ART will
job-coat products pursuant to the registrant's specifications for a fee based
upon its base cost as defined plus a percentage thereof, unless otherwise
agreed. The manufacturing Agreement which is for a term of 5- years and
renewable for an additional 5-years at the option of the registrant also
provides for minimum annual job-coating fees which are to be offset against fees
payable by the registrant to maintain exclusivity under the License Agreement.
Maintenance of exclusivity of the License will satisfy and obviate the minimum
annual job-coating fees payable under the Manufacturing Agreement.
Exchange of Shares-BSD
Pursuant to the Contemporaneous Agreements, the Company issued 2,000,000
preferred shares of its stock to ART and acquired all of the outstanding shares
of common stock of BSD and an 8% convertible Debenture of BSD in the principal
amount of $750,000(which was paid to the Company) in exchange for 3,000,000
shares of common stock of the company. Upon completion of such transactions, the
Company issued a total of 5,000,000 preferred and common shares and owned all of
the outstanding securities of BSD which had licensing and manufacturing rights
to operate the Equipment (which rights have been assigned to the Company.)
Future Obligation of the Company
Among other things the Preferred Stock issued to ART is convertible into
2,000,000 shares of common stock of Bovie Medical Corporation and shall have
certain preferences on liquidation and anti-dilution aspects. In the event Bovie
Medical Corporation should issue any shares of any series or class of its
preferred stock having substantially the same rights and preferences as the
Preferred Stock without the prior consent of ART (which shall not be
unreasonably withheld), then Bovie Medical Corporation is to issue and deliver
to ART, without payment of any additional consideration by ART, an additional
number of shares of An-Con's common stock having an aggregate fair market value
equal to $500,000.
Exchange of Shares-Maxxim
On May 8, 1998, the Company entered into and consummated a strategic alliance
agreement with Maxxim Medical, Inc., ("Maxxim"), a Delaware corporation the
shares of which are listed on the New York Stock Exchange, which agreement
provided for the acquisition by the Company of the trademark "Bovie," a supply,
license and distributorship arrangement concerning electrosurgical devices and
the acquisition of Maxxim's electrosurgical generator product line in exchange
for 3,000,000 shares of common stock of the Company. More specifically, the
agreement provides for (a) an irrevocable royalty-free sub-license to Maxxim to
use the "Bovie" name on any electrosurgical products marketed by Maxxim; (b) a
2- year exclusive distributorship in Maxxim to resell the Bovie electrosurgical
generator product line anywhere in the world, and (c) a non-exclusive right to
sell the Company products anywhere in the world.
<PAGE>
The distributorship arrangement provides for anticipated cooperation between
Maxxim and An-Con, with respect to research and development of new products and
Maxxim's option to become the exclusive distributor thereof. Maxxim also agreed
to certain minimum purchase orders for the Bovie generator product line, the
Aaron 1200 generators and other An-Con products and accessories aggregating
$3,000,000 during the initial 5-year term of the agreement, subject to quality
control and An-Con's ability to meet commercially reasonable purchase orders of
Maxxim. Kenneth Davidson, the chairman of the Board of Maxxim, has been
appointed a member of the Board of Directors of An-Con.
As consideration for the foregoing, the Company agreed to exchange 3,000,000
shares of common stock for the Bovie Electrosurgical Generator line, the "Bovie"
trademark and trade name, and entered into agreements for the aforementioned
supply, license, and distributorship arrangement involving Maxxim's commitments
to purchase the Company's current and future products. Due to the Company's
exhaustion of its authorized shares, in lieu of common stock, the Company had
issued a secured convertible promissory note to Maxxim in the principal amount
of $3,000,000 due on May 7, 2008, bearing interest at the rate of 1% above the
prime lending rate in effect at Nations Banc Montgomery Securities LLC, which
was retired when the Company's shareholders authorized an increase in the
authorized capitalization of the Company and the Company issued Maxxim 3 million
shares in September 1998.
Item 3. Legal Proceedings
In February 1998 the Company settled its patent infringement lawsuit with
MegaDyne by payment of $150,000 and a pledge not to sell coated blades in the
electrosurgical market for six months.
Item 4.Submission of Matters to a Vote of Security Holders
On September 8, 1998, a special meeting of shareholders was held to approve:
1. An increase in the authorized capitalization of the Company from a total of
15,000,000 shares having a par value $.015 per share to 50,000,000 shares having
a par value of $.001 per share.
2. To create a class of blank preferred stock consisting of 10,000,000 shares
having a par value of $.001 per share.
3. To change the name of the Corporation to "Bovie Medical Corporation."
4. To ratify the Company's 1998 Non-statutory Stock Purchase and Option Plan.
All proposals were approved by a majority of the votes cast at the meeting at
which a quorum was present in person or by proxy. As a result of certain
contractual obligations management filed an amendment to the Company's
certificate of Incorporation increasing the authorized capitalization to 40
million shares of common stock $.001 par value instead of 50 million shares of
common stock authorized by the shareholders.
On December 16,1998, an annual meeting of shareholders was held to approve the
election of directors and appoint the Company's auditors. All proposals were
approved by a majority of the votes cast at the meeting at which a quorum was
present in person or by proxy.
<PAGE>
PART II
Item 5.
Markets and Market Prices
Bovie's common stock is traded in the over-the-counter market on the National
Association of Securities Dealers, Inc. Bulletin Board ("NASD Bulletin Board").
The table shows the reported high and low bid prices for the common stock during
each quarter of the last eight quarters as reported by the NASD Bulletin Board
(symbol "Bovie"). These prices do not represent actual transactions and do not
include retail markups, markdowns or commissions.
1998 High Low
1st Quarter 2 1/8 5/8
2nd Quarter 1 13/16 1 1/8
3rd Quarter 1 1/4 27/32
4th Quarter 15/16 17/32
1997 High Low
1st Quarter 1 5/16 1
2nd Quarter 1 1/8 11/16
3rd Quarter 2 1/32 9/16
4th Quarter 13/16 9/16
On March 26, 1999, the Closing bid for Bovie's Common Stock as reported by the
NASD Bulletin Board was $.635 per share. As of March 26, 1999, the total number
of shareholders of the Company's Common Stock was approximately 1,000 exclusive
of shareholders whose shares are held in the name of their broker or stock
depositories or the escrow agent holding shares for the benefit of Bovie Medical
Corporation shareholders which are estimated to be 1,000 additional
shareholders.
Item 6. Management's Discussion and Analysis.
Results of Operations
Bovie's net revenues for 1998 were approximately $8.4 million as compared to
$7.3 million for 1997. The increase in sales of $1,070,565 (15%) was the net
result of $358,574 increase in revenues from sale of cauteries and the balance
of the increase was mostly attributable to contract sales to Maxxim as part of
purchase of the Bovie trade name. The sales for medical products represented
approximately 90% of total sales in 1998 as compared to approximately 87% in
1997. This was due to a decrease in non-medical lighting products of $120,057
which is directly attributable to one customer decreasing purchases from the
Company.
<PAGE>
The Cost of goods sold increased by $1,135,267 (27%) from $4,138,774 in 1997 to
$5,274,041 in 1998. Consequently, the percentage of gross profit from sales
decreased from 44% in 1997 to 38% in 1998. The difference in cost of sales and
gross profits were principally due to the gross loss on sales to Maxxim, as per
the agreement dated May 8,1998, and the decrease in the profit margin on sale of
Pen Lights.
During 1998 and 1997, the Company's family of cauteries accounted for 41% and
43% of sales, respectively, and 35% and 39% of cost of goods sold, respectively.
Research and development expenses increased from $96,738 to $183,173, from 1997
to 1998. The Company continued to invest in the development of ECU
(electrosurgical coagulation) devices, and other Company products which is
evidenced by acquisition costs in 1998 of $29,290. Research and development
costs are made up of materials costs, engineering costs, depreciation of
reactors, and payroll.
Research and development costs of the Company have increased in 1998 mostly by
the depreciation expense on the reactors that the Company purchased from BSD.
The Company is developing DYLYN coated products with these reactors. Assuming
successful development, when the products are marketed and the reactors are used
for manufacturing, depreciation will be charged to cost of goods. The Company
estimated the lives of the reactors to be 10 years.
The increase in interest expense of 18% amounting to $16,147 was mainly
attributable to the Company's contract to purchase the Bovie name. The Company
had to pay interest on the note issued as a part of the acquisition price, until
shareholders authorized the issuance of additional shares to retire the
acquisition note.
The need for borrowing has decreased because of the receipt of one million
dollars in connection with the BSD transaction. The availability of these funds
is expected to lower the interest expense in 1999.
The Company's effective income tax rate would have been 35% except that the
Company has loss carryforward. Because of a net loss, the Companies operating
loss carryforward increased in 1998.
General and administrative expenses of the Company increased by $273,268 (18%)
from $1.5 million in 1997 to $1.8 million in 1998. This was mainly attributable
to the increase in amortization of intangible assets acquired from BSD and
Maxxim of $377,598.
Salaries and related expenses increased by 25% from $1.3 million in 1997 to $1.6
million in 1998. The increase in salaries were in part because of hiring
additional engineering and quality control and technical personnel to produce
Bovie generators.
Cost of professional services increased by 85% from $298,156 in 1997 to $556,352
in 1998. Additional professional fees were mostly related to the consulting and
legal costs of acquiring new technologies and products.
<PAGE>
The increase in operating expenses resulted in a decrease of $998,156 in
operating income and $1,026,637 decrease in net income, from 1997 to 1998. Loss
from operations was $920,162 in 1998 as compared to an operating income of
$77,994 in 1997.
Loss from operations as a percentage of sales was 11% in 1998 and a gain of 1.1%
in 1997. Net loss of the Company in 1998 was $998,046 as compared to net income
of $28,591 in 1997.
Total other costs as a percentage of sales were 48% in 1998 as compared to 43%
in 1997.
Total other costs mostly increased due to the BSD and Maxxim transactions. For
1999 the Company believes total other costs should not be significantly higher
than they were in 1998.
The Company sells its products through distributors both in the international
market and in the USA. The distributors are contacted through response to
company advertising in international medical journals or at domestic or
international trade shows.
During 1998, international sales of the Company's product lines decreased by a
total of $260,590 (15%). In 1998, these sales were $1.5 million (18% of total
sales) as compared to $1.8 million (24% of total sales) in 1997. The decrease in
international sales volume was mainly attributable to the Company not having its
European Community Certification (CE Mark which permits medical devices to be
sold in the European Common Market until the middle of 1998.
In the fourth quarter of 1998, the Company made agreements with various sales
representatives to develop markets for its new products and maintain customer
relations. The representatives receive on average approximately 5% of the sales
in their market areas.
An adequate supply of raw materials is available from both domestic and
international suppliers. The relationship between the Company and its suppliers
is generally limited to individual purchase order agreements, supplemented by
contractual arrangements with key vendors to ensure availability of certain
products. The Company has developed multiple sources of supply where possible.
New product development and improvements to the Company's facility required by
regulatory agencies in 1998 amounted to approximately $21,400. These
expenditures were funded primarily through internal cash flow and bank
financing. In order to provide additional working capital, the Company secured a
$400,000 credit facility with a local commercial bank in the first quarter of
1997 and a $150,000 three year note to purchase fixed assets with interest at 1%
over prime. The credit facility is expected to be renewed in May 1999.
<PAGE>
Discontinued Operations
As part of a lawsuit settlement with a competitor of the Company, the Company
agreed to discontinue sales of its coated blade products. Sales and gross
profits from this product for 1997 and 1998 were $370,677 and $31,000
respectively, and $203,131 and $26,500, respectively. The company is developing
a new line of coated blade products, that the Company believes is proprietary.
Delays in perfecting the manufacturing process has caused a delay in the Company
bringing this product to market. The continuation of these delays could
adversely affect the future profitability and cash flows of the project and
could impair the carrying value of the related assets.
Financial Condition As of December 31,
1998, cash totaled $278,673 as compared to $48,246 at December 31, 1997. Cash
used by operating activities was $98,793 in 1997 compared to $14,010 in 1998.
Net working capital of the Company was $1,674,297 and $557,237 on December 31,
1998 and 1997, respectively.
The amount of cash used in investing activities was $257,733 in 1997, compared
to $443,835 in 1998. The Company continued to invest in property, plant and
equipment needed for future business requirements, including manufacturing
capacity.
The net cash inflow from financing was $688,272 in 1998 as compared to $283,868
in 1997. The most significant items of financing activity in 1998 were the
reduction of notes payable of $338,738 and the receipt of $982,756 from the
exchange of the Company's common stock.
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.
The Company's ten largest customers accounted for approximately 49% of net
revenues for 1998 as compared to 51% in 1997. At December 31, 1998, the same ten
customers accounted for approximately 65% of outstanding accounts receivables as
compared to 47% in 1997.
Outlook
The statements contained in this Outlook are based on current expectations.
These statements are forward looking, and actual results may differ materially.
The Company believes that the world market for disposable medical products, such
as the Company's battery-operated cauteries, has significant growth potential
because these type of products have not been affordable or effectively marketed
outside the U.S. Because of these factors, the Company has designed certain
disposable products to be reusable. The Company presently has a significant
portion of the U.S. cautery market and does not expect a dramatic growth in
sales of cautery - related products domestically.
The Company has focused on expanding its line of electrosurgical products.
Electrosurgical products sold by the Company are the standard stainless steel
electrodes, the Aaron 800 and 1200 high frequency desiccators.
<PAGE>
From 1997 to 1998, the Company's electrosurgical sales increased by more than
59% from $1,377,029 to $2,188,683. This increase was attributable to the
transaction with Maxxim. Maxxim sold to the Company work in process and raw
materials inventory for the Bovie line of generators. The Company agreed to
finish the products and sell them back to Maxxim. The agreement increased sales
by $592,000, in 1998. The additional increases in sales were attributable to
sales of the Aaron 1200 device. In 1998 Resistick sales ceased due to the
settlement of the Company lawsuit with MegaDyne. Except for the possible
introduction of new electrosurgical products the Company does not expect
electrosurgical sales to increase significantly in 1999. The Company through its
private label capability sees unique opportunities in the domestic market as its
competitors do not private label. The electrosurgical product market is a larger
market than the Company has normally sold into and is dominated by two main
competitors, ValleyLab and Conmed. The combined markets for these products
exceed $100 million annually. Electrosurgical product sales moved from fifth
place to second in total Company sales by product line in 1997 and have remained
in second place.
<PAGE>
Non-Medical Products
In 1998, the Company had sales of $.8 million of its flexible lighting products
used primarily in the automotive and locksmith industries. Approximately $.6
million was sold to one customer.
Reliance on Collaborative, manufacturing and Selling Arrangements
The Company is dependent on certain contractual partners, for manufacturing and
product development. Should a collaborative partner fail to develop and
manufacture products, the Company's future business and value of related assets
could be negatively affected. No assurance can be given that a collaborative
partner may give sufficient high priority to the Company's products. In
addition, disagreements or disputes may arise between the Company and its
contractual partners which could adversely affect production of its products.
Liquidity and Future Plans
The Company has recently changed its direction from acquiring ownership interest
in companies to acquiring new product technology and expanding manufacturing
capabilities through Aaron. The Aaron 800, Aaron 1200, and the Dylyn technology
and manufacturing agreement are prime examples of this new direction. Other
products and technologies are being evaluated for future development.
In order to resume strong international sales growth and maintain its ability to
sell in Europe, management has implemented and been certified as ISO9001/EN46001
quality system complaint and has been granted its CE mark (International Quality
control.)
The Company has obtained a line of credit with a local commercial bank for
$400,000 and a $150,000 loan for capital improvements. Interest on these loans
is to be paid at 1% over prime. As of December 31, 1998, the Company had paid
off the line of credit and had a balance of $58,060 on its term loan which is
amortized at a rate of $4,167 per month.
The Company's future results of operations and the other forward-looking
statements contained here in particular the statements regarding growth in the
medical products industry, capital spending, research and development, and
marketing and general and administrative expenses, involve a number of risks and
uncertainties. In addition to the factors discussed above, among the other
factors that could cause actual results to differ materially, are the following:
business conditions and the general economy; competitive factors such as rival
manufacturers' availability of products at reasonable prices; risk of nonpayment
of accounts receivable; risks associated with foreign operations; and litigation
involving intellectual property and consumer issues.
The management of Bovie Medical Corporation believes that it has the product
mix, facilities, personnel, and competitive and financial resources for 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.
YEAR 2000
The Company is reviewing its exposure to year 2000 computer-related risks as
well as trying to review those of its suppliers and customers, to evaluate any
potential impact on January 1, 2000 and beyond. We believe that all internal
systems will be compliant or at least have no material adverse effect on its
ability to operate on or after January 1,2000. No significant program revisions
have been identified which would result in significant cost in future periods.
The Company anticipates, but cannot assure, that should a problem arise, it will
be able to take necessary steps to minimize the impact with minimal or no
material adverse effect on the results of the Company or its customers. The cost
of this effort thus far has been immaterial and has been included in operating
expenses.
Item 7. Financial Statements.
(See Attached)
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There are no disagreements with or changes in accountants.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons
The Company's Executive Officers and directors are as follows:
Name Position Director since
Andrew Makrides Chairman of the December,1982
Board, President,
CEO and Director
J. Robert Saron President of August, 1994
Aaron
And Director
George Kromer Director October 1995
Alfred V. Greco Director April, 1998
Kenneth W. Davidson Director July, 1998
Keith Blakely Director December, 1998
Delton Cunningham Secretary,
Treasurer
Vice President/
CFO
Moshe Citronowicz Executive Vice
President
Chief Operating
Officer
Andrew Makrides, Esq. age 57, Chairman of the Board and President, member of the
Board of Directors, received a Bachelor of Arts degree in Psychology from
Hofstra University and a JD Degree from Brooklyn Law School. He is a member of
the Bar of the State of New York and practiced law from 1968 until joining Bovie
Medical Corporation as Executive Vice President and director, in 1982. Mr.
Makrides became President of the Company in 1985 and the CEO in December 1998
and has served as such to date.
J. Robert Saron, age 46, Director, holds a Bachelors degree in Social and
Behavioral Science from the University of South Florida. From 1988 to present
Mr. Saron has served as a director of Aaron Medical Industries, Inc. (formerly
Suncoast Medical Manufacturing, Inc.). Mr. Saron served as CEO and chairman of
the Board of the Company from 1994 to December 1998. Mr. Saron is presently the
President of Aaron and member of the Board of Directors of the Company.
<PAGE>
Alfred V. Greco, Esq. age 63, Director, is President of Alfred V. Greco, P.C.,
and has been counsel to the Company since its inception. Mr. Greco is a member
of the Bar of the State of New York and has been engaged in the practice of law
for the past 35 years in the City of New York. The main focus of Mr. Greco's
experience for the past 30 years has been in the area of corporate and
securities law during which he has represented a large number of public
companies, securities brokerage firms, executives and registered representative
and has developed a broad range of experience in administrative, regulatory and
legal aspects of public companies. Mr. Greco graduated from Fordham University
School of Law with a Doctor of Law degree, in June 1960. He was admitted to the
New York State Bar in March 1961.
Delton N. Cunningham, age 34, Vice President and Chief Financial Officer holds a
Bachelor of Science in Accounting from the University of Florida. He is a
Certified Public Accountant and is a member of the American Institute of
Certified Public Accountants and the Florida Institute of Certified Public
Accountants. Mr. Cunningham began his career with the Miami office of Arthur
Anderson, LLP. In June of 1991 Mr. Cunningham joined Aaron Medical
Industries, Inc., as the Company's Chief Financial Officer. In June of 1992 Mr.
Cunningham became Vice President of Aaron Medical Industries, Inc. and in April
of 1993, he was elected Corporate Secretary of Aaron by the Board of Directors.
George W. Kromer, Jr., age 56, filled a vacancy on the Board of Directors and
became a director on October 1, 1995. Mr. Kromer is a Senior Financial
Correspondent for "Today's Investor" and is utilized as a consultant by a number
of companies whose shares are listed on the American Stock Exchange and
Over-the-Counter Exchange. Bovie Medical Corporation has also retained Mr.
Kromer on a month-to-month basis as a consultant in addition to his capacity as
a director. He has been writing for financial publications since 1980. He
received a Master's Degree in 1976 from Long Island University in Health
Administration. He was engaged as a Senior Hospital Care Investigator for the
City of New York Health & Hospital Corporation from 1966 to 1986. He also holds
a Bachelor of Science Degree from Long Island University's Brooklyn Campus and
an Associate in Applied Science Degree from New York City Community College,
Brooklyn, New York.
Moshe Citronowicz , age 46, is a graduate of the University of Be'er Sheva,
Be'er Sheva, Israel, with a Bachelor of Science degree in electrical
engineering. He has also received certificates from Worcester Polytech, Lowell
University and the American Management Association for completion of seminars in
MRP, master scheduling, purchasing SPC, JIT, accounting and plant management.
Since coming to the United States in 1978, Mr. Citronowicz has worked in a
variety of manufacturing and high tech industries. In October 1993, Mr.
Citronowicz joined the Company as Vice President of Operations. He is
responsible for all areas of manufacturing, purchasing, product re-design, as
well as new product design. In September 1997, Mr. Citronowicz was appointed by
the board of directors to the position Executive Vice President and Chief
Operating Officer.
<PAGE>
Kenneth W. Davidson, age 51, is a chairman and Chief Executive Officer of Maxxim
Medical, Inc., a Delaware Corporation the shares of which are listed on the New
York Stock Exchange. Mr. Davidson has been a director of Maxxim since 1986.
Prior to that he was the Corporate Director of Business Development at
Intermedics Incorporated, which is principally a manufacturer of implantable
medical devices such as pacemakers.
Keith Blakely, age 45, is a founder, officer, principal shareholder, and
director of ART for the past fifteen years. He is also Chairman of the External
Advisory Board for the Center for Advanced Ceramic Technology at Alfred
University, a Director of the Clarkson University Center for Advanced Materials
and Processes, and the Vice-chairman of the Board of the Western New York
Technology Development Center. Prior to his association with ART, Mr. Blakely
served in various management, production, quality, and engineering positions at
the Carborundum Company.
<PAGE>
REMUNERATION
Item 10. The following table sets forth the compensation paid to the executive
officers of the registrant for the three years ended December 31, 1998:
Summary Compensation Table
Annual Compensation
Name and
Principal
Position Year Salary Bonus(a) Other(b)
Andrew Makrides
President, CEO
Chairman of 1998 $ 99,478 1,918 9,809
the Board 1997 103,382 1,784 9,598
1996 90,000 8,400 9,700
J. Robert Saron
President of
Aaron Medical 1998 144,559 2,814 9,809
and Director 1997 155,865 2,460 9,352
1996 143,000 42,600 8,100
Moshe Citronowicz
Executive 1998 112,463 22,891 9,809
Vice President- 1997 107,044 1,921 9,352
Chief Operating 1996 104,600 11,200 8,100
Officer
Delton Cunningham 1998 86,023 1,631 9,809
Secretary, 1997 90,325 1,516 9,262
Treasurer, 1996 86,000 8,400 7,400
Vice President/
CFO
(a) In 1997, the officers waived their right to 1996 bonuses and the bonuses
which were contributed to the capital of the Company. (b) Other compensation
consists of medical insurance and auto.
<PAGE>
REMUNERATION (continued)
Item 10. The following table sets forth the compensation paid to the executive
officers of the registrant for the three years ended December 31, 1998:
Summary Compensation Table
Long Term compensation
Underlying
Name and
Principal Stock Options/
Position Year Awards(#) SARS(#) Pay-outs
Andrew Makrides
President,
CEO Chairman of 1998 -- -- --
the Board 1997 -- -- --
1996 70,000 -- --
J. Robert Saron
President of
Aaron Medical 1998 -- -- --
and Director 1997 -- -- --
1996 90,000 -- --
Moshe Citronowicz
Executive
Vice President
Chief 1998 -- -- --
Operating 1997 -- -- --
Officer 1996 25,000 -- --
Delton Cunningham
Secretary,
Treasurer, 1998 -- -- --
Vice President, 1997 -- -- --
CFO 1996 55,000 -- --
(a) In 1997, the officers waived their right to 1996 bonuses and the bonuses
which were contributed to the capital of the Company.
(b) Other compensation consists of medical insurance and auto.
<PAGE>
Option Grants and Exercise
The following table summarizes (i)option grants to the Named Executive Officers
during the year ended December 31, 1998 and (ii) the value of the options held
by the named Executive Officers at December 31, 1998.
Option Grants in the Last Fiscal Year
Individual Grants
Number of Percent of
Securities Total Options
Underlying Granted to Exercise or
Options Employees in Base Price Per Expiration
Name Granted Fiscal Year Share Date
Andrew Makrides 150,000 19% $0.75 12/31/08
J. Robert Saron 150,000 19% $0.75 12/31/08
Moshe Citronowicz 150,000 19% $0.75 12/31/08
Delton Cunningham 150,000 19% $0.75 12/31/08
The options were granted on January 14, 1998 under Bovie Medical Corporation
Incentive and Stock option Plan.
The following table sets forth information with respect to the exercises of
stock options by the Named Executive Officers during the year ended December 31,
1998 and unexercised options held by the Named Executive Officers on December
31, 1998.
Aggregated Option Exercises in Last
Fiscal Year and Fiscal Year End Option Values
Value of
Number of Unexercised
Unexercised In-The-Money
Options Options at
Shares At Fiscal Year Fiscal
Acquired Value End (#) Year
Name on Exercise(#) Realized Exercisable End (a)
Andrew Makrides - - 220,000 -
J. Robert Saron - - 240,000 -
Moshe Citronowicz - - 175,000 -
Delton Cunningham - - 205,000 -
___________________
(a) The exercise price of the options were higher than the closing sale price
for the Common Stock. The sales price as reported on NASDAQ National Market on
December 31, 1998 was $0.5625.
<PAGE>
Outside Directors are compensated in their capacities as Board members through
option grants. The Company's Board of Directors presently consists of J. Robert
Saron, Andrew Makrides, Chairman CEO, and President, Kenneth Davidson, Keith
Blakey, George W. Kromer, Jr. and Alfred V.Greco. Mr. Kromer has been retained
on a month-to-month basis pursuant to verbal agreement as a financial and public
relations consultant by Bovie Medical Corporation for the past year at an
average monthly fee of $1,000. Mr. Greco is an officer and director of Alfred v.
Greco PC, Counsel to the corporation which earned legal fees from the Company of
$182,953 during 1998. He also received 75,000 ten year options to purchase the
Company's Stock at $.75. These options were authorized but not issued as of
December 31, 1998.
In 1998 George Kromer was awarded 100,000 stock options, for ten years to
purchase Bovie Medical Corporation stock at $.75 per share.
There have been no changes in the pricing of any options previously or currently
awarded.
On January 1, 1998, the Company renegotiated contracts with its officers, for
periods of one to five years. The following schedule shows all contracts and
terms with officers of the company.
BOVIE MEDICAL CORPORATION
OFFICERS CONTRACTS
DECEMBER 31, 1998
<TABLE>
<S> <C> <C> <C> <C>
Officers Contract Expiration Contractual Auto
Date Date Base Pay Allowance
Delton
Cunningham 1/1/98 12/31/2000 $ 78,872 $6,310
Moshe
Citronowicz 1/1/98 12/31/2002 99,905 6,310
Andrew
Makrides 1/1/98 12/31/2002 92,773 6,310
J. Robert
Saron 1/1/98 12/31/2002 136,123 6,310
</TABLE>
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management of
Bovie. The following table sets forth certain information as of December 31,
1998, with respect to the beneficial ownership of the Company's common stock by
all persons known by the Company to be the beneficial owners of more than 5% of
its outstanding shares, by directors who own common stock and by all officers
and directors as a group.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Number of Nature Percentage
Name and Address Title Shares of of
Of Class Ownership Ownership(i)
Shares(i)
Advanced Refractory
Technologies, Inc. Preferred 2,000,000 Beneficial 10.7%
699 Hertel Ave.
Buffalo, NY 14207
Eric Rainer Bashford
Charitable Trust Common 1,125,000 Beneficial 6.02%
2689 Strang Blvd
Yorktown Heights,
NY 10598
Norman Fuchs, Individual
Retirement Account Common 1,125,000 Beneficial 6.02%
5 Flagpole Lane
East Setauket,
NY 11209
Maxxim Medical, Inc. Common 3,000,000 Beneficial 16.1%
10300 49th St. North
Clearwater, FL 33762
Directors
Andrew Makrides Common 538,000(ii) Beneficial 2.8%
734 Walt Whitman Road
Melville, NY 11746
George Kromer Common 135,000(iii) Beneficial .7%
P.O. Box 188
Farmingdale, NY
Alfred Greco Common 51,500(iv) Beneficial .3%
666 5th Ave.
New York, NY 10103
J.Robert Saron Common 673,805(v) Beneficial 3.6%
Ashley Drive
Seminole, FL
Keith Blakely -- (vi) -- 0
c/o Technologies,
Inc. 699 Hertel Ave.
Buffalo, NY 14207
Kenneth Davidson -- (Vii) -- 0
c/o 10300 49th St. North
Clearwater, FL 33762
Officers and Directors as a group 1,965,954 Includes 10.5%
975,000 shares
Reserved for
Option
</TABLE>
<PAGE>
(i) Based on 16,699,695 common and preferred shares and 1,980,500 options
outstanding to acquire shares. Officers and directors have 975,000 options to
acquire shares at December 31, 1998.
ii)Includes 220,000 shares owned by Mr. Makrides reserved pursuant to 10 year
options to purchase shares of the Company. His options range from $.75 for
150,000 to $1.15 for 50,000.
(iii) Constitute 135,000 shares reserved pursuant to 10 year options owned by
Mr. Kromer to purchase shares of the Company.
(iv) Does not include 75,000 shares reserved pursuant to 10 year options
exercisable at $.75 per share. Granted but not delivered until 1999. Represents
shares owned by Alfred V Greco PC.
(v) Includes 240,000 shares reserved pursuant to 10 year options exercisable at
$.75 per share owned by Mr. Saron.
(vi) Does not include 2 million shares of preferred stock of the Company
(convertible into 2 million shares of common stock) held by ART, of which Mr.
Blakely is an officer, director and major shareholder.
(vii) Does not include 3 million shares of common stock held by Maxxim Medical
Inc. of which Mr. Davidson is an officer, director and major shareholder.
Item 12. Certain Relationships and Related Transactions
Joseph Valenti
Valpex International Corporation ("Valpex"), a Company owned and operated by Mr.
Joseph Valenti, was a supplier of vacuum and Krypton bulbs and vinyl pouches to
Aaron for several years. In 1996, Mr. Valenti joined Bovie Medical Corporation
as a director. On May 10, 1996, Valpex and Aaron entered a three year agreement
that allows Aaron to purchase products directly from Valpex's manufacturers and
suppliers. In exchange, Aaron agreed to pay a commission to Valpex on purchases
from the agreed upon list of Valpex's suppliers. In 1998 and 1997, respectively,
the equivalent sales of Valpex to Aaron were $77,200 and $117,700, respectively.
Mr. Valenti resigned from the Board of Directors in August of 1998.
The related party transaction between the Company and Valpex International
Corporation were on terms that were no less favorable than could have been
obtained in an arms' length transaction with an unrelated third party. At the
time the Company entered into its agreement with Valpex International
Corporation the agreed upon pricing was substantially better than other pricing
available in the market.
In January 1998 the executive officers of the Company entered into new
employment agreements with the company. See executive compensation - officers
contracts.
<PAGE>
George Kromer, a director, also serves as a consultant to the Company with
average consulting compensation of approximately $1,000 per month. The aforesaid
transactions were on terms no less favorable to the Company than could have been
obtained in arms-length transactions with unrelated third parties.
Robert Speiser As of December 31, 1997, the Company had repaid $235,100 of a
principal amount previously owned to Mr. Robert Speiser a former officer
director and principal shareholder of the Company. The Company has accrued a
liability for $73,800 to Mr. Speiser, which was the balance of his loan to the
Company and accrued interest on that loan. Mr. Speiser is disputing this amount
because he feels he is due additional interest and back wages he estimated to be
an additional $80,000 and the Company is trying to settle Mr. Speiser's claim.
See "Certain Relationships and related Transactions". Presently there is no
lawsuit between the Company and Mr. Speiser.
Alfred V. Greco
A director is the CEO of Alfred V Greco PC, the company's council which received
$182,953 in legal fees. See "Security ownership" of certain beneficial owners
and management.
Norman Fuchs
During October 1998 the Company entered into a consulting agreement with ATH
Venture Inc. of which Norman Fuchs is an officer director and principal
shareholder. Mr. Fuchs through his Individual Retirement Account beneficially
owns 1,125,000 shares of the Company (6.02%) and pursuant to the consulting
agreement receives $5,000 per month from the Company.
Item 13. Exhibits and Reports on Form 8-k
No Form 8-k was filed in the fourth quarter of 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of St.
Petersburg, State of Florida, on April 14, 1999.
Bovie Medical Corporation
By: S/J. Andrew Makrides
Andrew Makrides
Chairman of the Board
President
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
Signature Title and Date
S/Andrew Makrides Chairman of the Board
Andrew Makrides Chief Executive Officer
President, Director
April 14, 1999
S/J. Robert Saron Director J. Robert Saron
April 14, 1999
S/George W. Kromer Director
George W. Kromer April 14, 1999
S/ Delton Cunningham Secretary, Treasurer
Delton Cunningham Principal Accounting Officer
April 14, 1999
S/Kenneth Davidson Director
Kenneth Davidson April 14, 1999
S/Alfred Greco Director
Alfred Greco April 14, 1999
S/Keith Blakely Director
Keith Blakely April 14, 1999
<PAGE>
PART II
ITEM 7. FINANCIAL STATEMENT
BOVIE MEDICAL CORPORATION
INDEX TO FINANCIAL STATEMENTS
Contents Page
Consolidated Balance Sheet
at December 31, 1998 19
Consolidated Statements of Operations for the
years ended December 31, 1998 and 1997 21
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1998 and 1997 23
Consolidated Statements of Cash Flows for the
years ended December 31, 1998 and 1997 25
Notes to Consolidated Financial Statements 28
Consent of Certified Public Accountant 49
Independent Auditors' Report 50
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
ASSETS
Current assets:
Cash $ 278,673
Trade accounts receivable, net 1,002,834
Inventories 1,476,548
Prepaid expenses 78,440
Deferred tax asset 175,010
Other Assets 23,051
Total current assets 3,034,556
Property and equipment, net 2,162,337
Other assets:
Repair parts 355,756
Trade name 1,791,257
License and manufacturing rights 2,955,984
Goodwill, net 4,120
Patent rights, net 226,054
Deposits 129,765
5,462,936
Total Assets $10,659,829
The accompanying notes are an integral part of the financial
statements.
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current liabilities:
Accounts payable $ 385,558
Accrued expenses 302,388
Notes payable - current portion 569,187
Due to shareholders 103,126
Total current liabilities 1,360,259
Long-term debt 11,226
Stockholders' equity:
Preferred Stock, par value $.001
10,000,000 shares authorized
2,000,000 issued and outstanding
On December 31, 1998 2,000
Common stock par value $.001;
40,000,000 shares authorized,
issued and outstanding 14,809,695
shares, on December 31, 1998 14,780
Additional paid in capital 21,199,945
Accumulated deficit (11,928,381)
Total stockholders' equity 9,288,344
Total liabilities and
stockholders' equity $ 10,659,829
The accompanying notes are an integral part of the financial
statements.
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
Sales $8,441,846 $7,371,281
Cost of sales 5,274,041 4,138,774
Gross Profit 3,167,805 3,232,507
Other costs:
Research and development 183,173 96,738
Professional services 552,352 298,156
Salaries and related costs 1,599,925 1,280,370
Selling, general and
administration 1,752,517 1,479,249
Total other costs 4,087,967 3,154,513
Income from operations ( 920,162) 77,994
Other income and (expense):
Interest income 4,163 4,005
Interest
expense ( 103,843) ( 87,696)
Miscellaneous 21,796 34,288
( 77,884) ( 49,403)
Income before income tax ( 998,046) 28,591
Income taxes:
Current -- ( 8,577)
Tax benefit -- 8,577
Net income (loss) $( 998,046) $ 28,591
The accompanying notes are an integral part of the financial
statements.
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(CONTINUED)
Earnings per share
1998 1997
Net income (loss):
Basic $ (.07) N/S
Diluted $ (.07) N/S
Weighted average number
of shares
outstanding 13,876,328 8,186,256
Weighted average number
of share assuming
conversion of securities 13,876,328 8,443,972
N/S - Not Significant
The accompanying notes are an integral part of the financial
statements.
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(Continued)
Common
Warrants number of Common Paid in
Outstanding shares stock Capital
Balance
January 1,
1997 $1,121,000 $8,110,648 $121,671 $12,921,356
Shares exchanged
for warrants (200,000) 100,000 1,500 ( 1,500)
Shares issued
to retire debts -- 51,800 637 33,761
Shares issued
for services -- 17,500 263 6,737
Warrants issued 143,000 -- -- --
Collection of subscriptions
receivable -- -- -- --
Employee
contribution
of Bonus -- -- -- 70,600
Net income -- -- -- --
Balance as of
December 31,
1997 $1,064,000 $8,279,948 $124,071 $13,030,962
The accompanying notes are an integral part of the financial
statements. (Continued on next page)
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(Continued)
Deficit Receivable Total
Balance
January 1,
1997 $(10,958,926) $(64,000) $2,020,109
Shares exchanged
for warrants -- -- --
Shares issued
to retire debts -- -- 34,398
Shares issued
for services -- -- 7,000
Warrants issued -- -- -
Collection of subscriptions
receivable -- 64,000 64,000
Employee
contribution
of Bonus -- - 70,600
Net income 28,591 - 28,591
Balance as of
December 31,
1997 $(10,930,335 $ -- $2,224,698
The accompanying notes are an integral part of the financial
statements. (Continued on next page)
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Preferred Common
Warrants number of Preferred number of
Outstanding shares Stock share
Balance
January 1,
1998 1,064,000 -- -- 8,279,948
Shares exchanged
for warrants
at $.75 ( 83,500) -- -- 83,500
Shares issued for
consulting
services at
$.40 per share -- -- -- 306,667
Shares issued
for employee bonus -- -- -- 100,000
at $.20 per share
Shares issued
for purchase of
patent right at $.40
per share -- -- -- 39,580
Shares issued for
purchase of equipment,
license, manufacturing
rights and cash at $.98
per share -- 2,000,000 2,000 2,900,000
Shares issued
for trade name
and inventory at
$1.00 per share -- -- -- 3,000,000
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(CONTINUED)
Preferred Common
Warrants number of Preferred number of
Outstanding shares Stock share
Receipt of cash on
subscriptions
receivable Aaron
officers -- -- -- --
Adjustment to
par value of
stock from $.015
to $.001 as
per stockholders
meeting -- -- -- --
Warrants issued
1998 1,000,000 -- -- --
Loss for 1998 -- -- -- --
Balance as of
December
31, 1998 $1,980,500 $2,000,000 $2,000 $14,709,695
The accompanying notes are an integral part of the financial
statements. (Continued on next page)
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(CONTINUED)
Common Paid-in
stock Capital Deficit Total
Balance January
1, 1998 $124,071 $13,030,962 (10,930,335) 2,224,698
Shares exchanged
for warrants
at $.75 84 62,157 -- 62,241
Shares issued
for consulting
services at
$.40 per share 307 122,360 -- 122,667
Shares issued
for employee
bonus at $.40
per share 100 19,900 -- 20,000
Shares issued
for purchase
of patent
rights at $.40
per share 40 16,229 -- 16,269
Shares issued
for purchase
of equipment,
license,
manufacturing
rights and
cash at $.98
per share 3,000 4,855,000 -- 4,860,000
Shares issued
for trade name
and inventory
at $1.00
per share 3,000 2,977,000 -- 2,980,000
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(CONTINUED)
Common Paid-in
stock Capital Deficit Total
Receipt of cash
on subscriptions
receivable
Aaron officers -- 515 -- 515
Adjustment to
par value of
stock from $.015
to $.001 as per
stockholders
meeting (115,822) 115,822 -- --
Warrants
issued 1998 -- -- -- --
--
Loss for 1998 -- -- ( 998,046) ( 998,046)
Balance as
of December
31,1996 $14,780 $21,199,945 $(11,928,381) $9,288,344
The accompanying notes are an integral part of the financial
statements. (Continued on next page)
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
Cash flows from operating
activities:
Net income (loss) $ (998,046) $ 28,591
Adjustments to reconcile
net income (loss) to net
cash provided by
operating activities:
Depreciation and amortization 787,088 311,138
Shares issued for services 162,667 7,000
Write down inventory of
repair parts 193,219 --
Change in assets and liabilities:
(Increase) decrease in
receivables ( 211,009) 64,565
(Increase) decrease in
prepaid expenses ( 10,510) ( 11,876)
Increase in inventories ( 24,697) (109,925)
Increase (decrease) in other
receivables 34,212 ( 7,738)
Increase (decrease) in
accounts payable ( 13,532) (388,126)
Increase in accrued
expense 66,598 7,578
Total adjustments 984,036 ( 127,384)
Net cash provided
(used in) operations $( 14,010) $( 98,793)
The accompanying notes are an integral part of the financial
statements.
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(Continued)
1998 1997
Net cash provided by (used in)
operating activities $( 14,010) $ ( 98,793)
Cash flows from investing activities:
Increase in fixed assets (301,220) (244,352)
Increase in security deposits ( 2,615) ( 10)
Acquisition of patent rights -- ( 13,371)
Purchase of Technology ( 20,000) --
Increase deposit on equipment (120,000) --
Net cash used in investing
activities (443,835) (257,733)
Cash flows from financing
activities
Receipt of common stock
subscription -- 64,000
Common shares issued 982,756 --
Loans from shareholders 3,972 2,736
Cost of issuing common stock -
Purchase of Aaron -- --
Increase in term borrowing 40,280 69,534
Payment of long term borrowing ( 28,734) (220,466)
Term loan -- 150,000
Repayment of term loan ( 50,006) ( 41,936)
Borrowing - line of credit -- 85,000
Repayment - line of credit (260,000) (225,000)
Net cash used in financing
activities 688,272 283,868
Net increase (decrease) in cash 230,427 (72,658)
The accompanying notes are an integral part of the financial
statements.
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(Continued)
1998 1997
Cash at beginning of year 48,246 120,904
Cash at end of year $ 278,673 $ 48,246
Cash paid during the twelve months ended December 31:
1998 1997
Interest $ 104,657 $ 71,651
Income Taxes -0- -0-
The accompanying notes are an integral part of these financial
statements.
<PAGE>
BOVIE MEDICAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND 1997
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
1. In February of 1998, the Company issued 5 million shares valued at $.98 per
share for two reactors, 1 million in cash and a license and manufacturing
agreement to coat medical products with a multi patented advanced coating
technology called Dylyn.
2. The Company issued 306,667 restricted shares valued at $.40 per share for
consulting services.
3. The Company issued 100,000 restricted shares valued at $.40 per share to an
officer of the Company in the form of a salary bonus.
4. The Company issued 39,580 restricted shares valued at $.40 for patent rights
on its OmniFix products.
5. The Company issued 3,000,000 shares valued at $1.00 per share for the trade
name "Bovie" and inventory of raw materials to produce electrosurgical
generators.
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
1. In February of 1997, 10 year convertible subordinated debentures of the
Company 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 amounts of principal and accrued interest on the
converted bonds were $19,000 and $10,826 respectively. The balance of the
bondholders have not redeemed their bonds or accepted the share offer.
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND 1997
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
2. The Company issued 10,000 shares of common stock in exchange
for $4,772 of accounts payable.
3. The Company issued 100,000 shares of common stock as a result
of the exercise of 200,000 warrants that were issued in
conjunction with a private placement of the Company's securities.
The Company accepted $70,600 from management as a contribution to capital for an
outstanding liability for bonuses earned in 1996.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. 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.
Consolidated Financial Statements
The consolidated financial statements include the accounts of Bovie Medical
Corporation and its wholly owned subsidiary Aaron Medical Industries, Inc.
Intercompany transaction accounts have been eliminated.
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 values.
The carrying amount of accounts receivable and accounts payable, bonds and notes
payable, and amounts due to shareholders, as presented in the balance sheet,
approximates fair value. Inventories
Inventories are stated at the lower of cost or market. Cost is determined
principally on the average actual cost method. Inventory at fiscal year-end was
as follows:
Raw materials $ 959,989
Work in process 254,832
Finished goods 260,727
Total $ 1,475,548
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventory that will be used to repair Bovie Generators was acquired by the
Company in its transaction with Maxxim. Estimates for the use of the repair raw
materials range from 5-7 years. The cost of this inventory was $548,975. Due to
the prolonged period necessary for disposition of these materials as per the
agreement and uncertainty regarding the utilization for repairs, the cost was
reduce by $193,219 to approximate pair market value.
Long-lived Assets
Long-lived and 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. Betterments and large renewals, which extend the life of the
asset, are capitalized whereas maintenance and repairs and small renewals are
expenses as incurred. The estimated useful lives are: machinery and equipment,
7-15 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-year period. 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 recover ability of long-lived assets held and to be used
based on undiscounted cash flows and measures the
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
expenses 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"). 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.
<PAGE>
BOVIE MEDICAL CORPORATION CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 carry-forwards. 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.
Non-monetary Transactions
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 CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. 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. Stocks issued in accordance with a plan for past or future services of an
employee is allocated between the expired costs and future costs. Future costs
are charged to the periods in which the services are performed. The pro forma
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 June 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.
In April 1998, the FASB issued SOP 98-5, "Reporting on the Costs of Start-up
Activities," which will become effective for the
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
for the Company in fiscal 2000. It requires costs of start-up activities and
organization costs to be expressed as incurred. The Company currently follows
this approach and such costs have been minimal in the past.
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Financial Reporting for Segments of Business Enterprise." SFAS 131 supersedes
the "industry segment" concept of SFAS 14 with a "management approach" concept
as the basis for identifying reportable segments. SFAS 131 is effective for
fiscal years beginning after December 15, 1997 and early application is
permitted. Management believes the application of SFAS 131 will not have a
material effect on the Company's future financial statements.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures About
Pensions and Other Post-retirement Benefits," which became effective for the
fiscal years beginning after December 15, 1997. The statement standardizes the
disclosure requirements for pension plans and other post retirement benefits. To
the extent practicable, the statement requires additional information on changes
in the benefit obligations and fair value of plan assets. The Company adopted
the SFAS 132. The adoption of SFAS No. 132 did not have material impact on the
Company's consolidated financial statements, the results of operations or the
notes thereto.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which becomes effective for the Company in
fiscal 2000. Historically the Company has not utilized such instruments or
engaged in such activities; therefore, the adoption of SFAS No. 133 will not
impact the Company's consolidated financial statements, the results of
operations or the notes thereto.
NOTE 2. DESCRIPTION OF BUSINESS
Bovie Medical Corporation, formally An-Con Genetics, Inc. ("the Company") was
incorporated in 1982, under the laws of the State
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. DESCRIPTION OF BUSINESS (CONTINUED)
of Delaware and has its principal executive office at 734 Walt Whitman Road,
Suite 207, Melville, New York 11747.
Currently, the Company is actively engaged in the business of manufacturing and
marketing medical products and developing related technologies.
Aaron Medical Industries, Inc.
On January 11, 1995 the Company acquired a 100% ownership interest in Aaron
Medical Industries, Inc. a St. Petersburg, Florida based Company engaged in the
manufacturing and distributing of medical products. Aaron's largest current
product line is battery operated cauteries. Cauteries were originally designed
for precise hemostatic in ophthalmology. Today they have a variety of uses
including sculpting woven grafts in bypass surgery, vasectomies, evacuation of
subungual hematoma (smashed fingernail) and for stopping bleeding in many types
of surgery. Aaron manufactures many types of cauteries. Aaron additionally
manufactures a variety of specialty lighting instruments for use in
ophthalmology, as well as a patented flexible lighting instrument for general
surgery, hip replacement surgery, and for the placement of endotracheal tubes.
An industrial version of this light is distributed through a large automotive
tool distributor, and various retail outlets and stores. Aaron Medical
Industries, Inc. manufactures and sells its products under the Bovie/Aaron label
worldwide and has private label arrangements.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. DESCRIPTION OF BUSINESS (CONTINUED)
ECU Technology
On December 15, 1995 the Company's subsidiary, Aaron, purchased design rights
for the technology to manufacture a 30 watt electrosurgical coagulation device
(ECU) The ECU was being made by a third party manufacturer. The Company had a
one year contract with the manufacturer to produce the unit at a fixed price
with a provision for a second year extension at an agreed upon price. The
Company has hired an electrical engineer to head up the project and has
relocated the production to the St. Petersburg facility.
The Company has developed a 120 watt electrosurgical coagulation device (ECU)
which it began marketing in 1998.
NOTE 3. TRADE ACCOUNTS RECEIVABLE
As of December 31, 1998 the trade accounts receivable were as follows:
Trade accounts receivable $ 1,066,498
Less: allow for doubtful accounts ( 60,437)
Trade accounts receivable, net $ 1,006,061
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
As of December 31, 1998 property, plant and equipment consisted of the
following:
Equipment $ 2,267,541
Building 637,485
Furniture & Fixtures 375,752
Leasehold Improvements 251,505
Molds 92,061
3,624,344
Less: Accumulated depreciation (1,462 ,048)
Net property, plant, and equipment $ 2,162,296
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Depreciation expenses for the years ended December 31, 1998 and 1997 were
$326,843 and $216,000, respectively.
NOTE 5. RENTAL AGREEMENTS
On May 6, 1997, an agreement was entered into with the landlord of 734 Walt
Whitman Rd., Melville, New York for a new lease on premises beginning May 6,
1997 and extending for three years to May 5, 2000. The annual rental is $14,722
payable $1,226.83 per month.
The following is a schedule of future minimum rental payments as of December 31,
1998:
Amount
1999 $ 14,722
2000 4,907
$ 19,629
Total consolidated rent expense for the Company was $21,342 in 1998 and $19,294
in 1997.
NOTE 6. DUE TO SHAREHOLDERS
A former Chief Executive Officer (CEO) and past President made cash loans to the
Company during the period October 12, 1990 to December 31, 1993 of $180,500. In
addition to these loans, the past CEO advanced his own cash of $76,100 in the
form of loans for product development, travel and other expenses. Interest on
these loans were at 9% to 12% and had been accrued from inception. His loan
balance at December 31, 1998 was $73,800. The Company has been negotiating to
settle this matter.
In response to the recission offer made by Bovie Medical Corporation to Aaron's
former shareholders, certain shareholders owning 46,800 shares have not
contacted the Company. The recession price owed to these shareholders, including
$10,538 of accrued interest is $29,325.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. INTANGIBLE ASSETS
Patent Infringement Lawsuit
On January 22, 1998, Aaron and MegaDyne Medical Products, Inc.(MMP), a Utah
Corporation, entered an agreement to settle an action that MMP had brought
against the Company, in the U.S. District court of Utah, for infringing a patent
for an electrosurgical product.
Aaron agreed to pay $150,000 for damages resulting from the patent infringement,
for a period, of six months not to manufacture or sell any electrosurgical
instrument that infringes the Patent, and to provide MMP with a list of
customers who had purchased the infringing product.
Additional costs associated with the settlement were legal fees of $92,038,
write down or inventory of $12,047 and estimated future sales refunds of $7,500.
Total costs charged as Selling, General and Administrative, were $261,585.
At December 31, 1998, the intangible assets consisted of the following:
Classification Amount
ECU Technology $ 330,216
Multifunction Cautery 59,400
Patent rights 87,769
Goodwill 188,000
License and
manufacturing agreement 3,247,540
Trade name 1,877,299
5,790,224
Less: Accumulated Amortization 812,785
$4,977,439
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. INTANGIBLE ASSETS (CONTINUED)
The Company acquired the License and manufacturing rights to coat its medical
products, using a new technology, and entered a product development and
manufacturing agreement, in February 1998(See the Supplemental Schedule of
non-cash transactions). The acquisition cost of the manufacturing rights was
$3,247,540. In accordance with the agreement, the seller is responsible for
perfecting the production technology. However, in 1998, certain delays were
experienced in the development of bulk production methods. Continuation of such
delays may impair the future cash flows from the product and the carrying value
of related assets.
The trade name Bovie was acquired for $1,877,299, on May 8, 1998(See the
Supplemental Schedule of non-cash transactions).
The cost of patents, trademarks, patent rights, technologies and copyrights
acquired are being amortized on the straight-line method over their remaining
lives, ranging from 2 to 20 years. Amortization expense charged to operations in
1998 and 1997 was $461,245 and $60,570, respectively.
NOTE 8. LONG-TERM DEBT
The long-term debt of the Company includes the mortgages, convertible debentures
and notes payable of the Company.
Bonds payable $ 20,000
Mortgage payable 441,325
Term loan 58,060
7% Note payable 15,369
9% Note payable 5,377
Other note payable 40,281
580,412
Less: Current portion 569,187
Long-term debt $ 11,225
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. LONG-TERM DEBT (CONTINUED)
Convertible Debenture
As of April 21, 1987, the Company had sold 1,711 convertible debenture units.
Each unit consisted of $1,000 subordinated debentures and 50 common stock
warrants.
As of December 31, 1998, 1,691 units of debentures had been converted into
common shares of Bovie Medical Corporation or have been redeemed. The remaining
number of outstanding debentures was 20 units.
In February of 1997, the 10-year notes of $78,000 and accrued interest of
$42,580 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 have not redeemed their bonds
or accepted the share offer.
Mortgage Payable 10% - Mortgage payable to former landlord for purchase of
property at 7100 30th Avenue North, St. Petersburg, Florida secured on June 26,
1995 for $500,000 payable in monthly installments of $5,673.06 inclusive of
interest until July 1,1998 when a balloon payment of $ 442,733 is due. Because
the environmental issue has not been remediated the mortgage is not due.
Notes Payable to a Commercial Bank
The notes payable is for a term loan of $150,000. The interest on the term loan
is the bank's prime rate plus 1%. The loan is repaid in equal monthly payments
plus accrued interest based on a three year amortization. The bank has a
security interest in inventory, accounts receivable and equipment of the Company
(the collaterals.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. LONG-TERM DEBT (CONTINUED)
Line of Credit - Commercial Bank
The advances under the line of credit are limited to the lesser of $400,000 or
65% of accounts receivable from non affiliated parties. The annual interest rate
on the loan is the bank's prime rate plus one percent. The line expires March
31, 1998. The bank has a security interest in inventory, accounts receivable and
equipment of the Company (the collateral).
7% Note Payable - This note was issued in connection with the purchase of a
probe scope technology payable $779.14 per month for 48 months self-liquidating
beginning November 1996 with the last payment due October, 2000.
9% Note Payable - This note was issued to finance the insurance premium. The
note is payable at $5,661.00 per month for 2 months.
Other notes payable - To a supplier for the purchase of a product line to
supplement electrosurgical products.
The following are maturities of long term debt for each of the next 5 years:
1999 569,187
2000 11,225
$ 580,412
NOTE 9. OPTIONS
As of December 31, 1998, outstanding options were as follows:
Number of Options Exercise
Currently Exercisable Price
200,000 $ 2.000
50,000 1.150
307,000 1.125
30,000 1.120
1,393,500 0.750
1,980,500 $ 0.950 (a)
(a) The amount of $0.950 represents the weighted average exercise price of the
outstanding options.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. OPTIONS (CONTINUED)
In 1996 the Company issued 921,000 10 year non-statutory stock options to
employees exercisable at from $.75 to $1.15 a share.
In 1997, the Company issued 100,000 shares of common stock in exchange for
200,000 options. Also, 143,000 warrants were issued to the Company's employees
as a part of the employee benefit plan (Note 16).
In 1998, the Company authorized 1,341,000 options under its 1998 services and
compensation plan and issued only 800,000. The Company issued 200,000 Options
for investment banking services. The exercise price of the options is two
dollars per share and they expire after two years from the date of issue. The
holders of 83,500 options exercised their rights and purchased equal number of
shares at $.75 per share.
The options became exercisable in 1997 and 1998 and expire at various dates
through December, 2007. At December 31, 1998, 1,980,500 shares of stock were
reserved for that purpose. 1,980,500 options are currently exercisable with a
weighted average life of approximately eight years.
The Company has adopted the disclosure-only provision of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
common stock option plans.
The Company used the Black-Scholes Model to determine the fair value of the
options with the following weighted average assumptions, zero dividend yield;
expected volatility of 50%; and risk free interest rate of 6% and expected life
of ten and two years for the 800,000 and 200,000 options issued in 1998,
respectively.
Had the compensation cost for the Company's two stock option issuances been
determined based on the fair value at the grant date for awards in 1996
consistent with the provisions of SFAS No.123, the Company's net earnings and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. OPTIONS (CONTINUED)
1998 1997
Net earnings (Loss) - as reported $( 998,146) $ 99,191
Net earnings (Loss) -pro forma (1,417,000) 65,151
Earnings (loss) per share (.07) .0352
Earnings (Loss) per share-pro forma (.10) .008
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions, zero dividend yield; expected volatility of .50%; risk-free
interest rate of 6%; and expected lives of 3 years.
NOTE 10. NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1998, the components of deferred tax assets were as follows
Deferred tax assets:
Inventories $ 82,550
Net operating loss carry-forwards 2,827,000
Patent rights, primarily due to
amortization 109,815
Total gross deferred tax assets 2,936,815
Less: Valuation allowance (2,936,815)
Net deferred tax assets - non-current $ --
The Company had NOLs of approximately $7,974,000 at December 31, 1998, primarily
because of the past operating losses associated with discontinued businesses.
These NOLs and corresponding estimated tax assets, computed at 35% tax rate,
expire as follows:
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year loss Expiration Loss Estimated
incurred Date Amount Tax Asset
1984 1999 $ 672,000 $ 235,000
1985 2000 764,000 267,000
1986 2001 301,000 105,000
1987 2002 730,000 255,000
1988 2003 757,000 265,000
1989 2004 374,000 131,000
1990 2005 382,000 134,000
1991 2006 246,000 86,000
1992 2007 1,004,000 352,000
1993 2008 465,000 163,000
1994 2009 1,197,000 419,000
1995 2010 637,000 223,000
1998 2013 548,000 192,000
Total $ 8,077,000 $ 2,827,000
Under the provisions of SFAS 109, NOLs represent temporary differences that
enter into calculation of deferred tax assets. Realization of deferred tax
assets associated with the NOL is dependent upon generating sufficient taxable
income prior to their expiration.
Management believes that there is a risk that certain of these NOLs may expire
unused and, accordingly, has established a valuation allowance against them.
Although realization is not assured for the remaining deferred tax assets, based
on the historical trend in sales and profitability, sales backlog, and budgeted
sales of the Company's wholly owned and consolidated subsidiary, Aaron Medical
Industries, Inc., management believes it is more likely than not they will be
realized through future taxable earnings. However, the net deferred tax assets
could be reduced in the near term if management's estimates of taxable income
during the carryforward period are significantly reduced.
The valuation allowance of $2,523,315, as of January 1, 1997 was increased by
$413,500 as a consequence of recognizing additional deferred tax assets, in
1998.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. NET OPERATING LOSS CARRYFORWARDS (CONTINUED)
Income before taxes and provisions for income tax expense (benefit) from
continuing operations at December 31,1997 were:
Current Federal income tax $ 6,262
Current State income tax 2,315
Total $ 8,577
The actual income tax expense attributable to earnings from continuing
operations for the year ended December 31, 1997 differed from the amounts
computed by applying the US Federal tax rate of 35% to pretax earnings from
continuing operations as a result of the tax benefit of operating loss
carryforwards of $8,577. In 1998, the Company had a net loss and its effective
and actual tax rates were zero.
NOTE 11. RETIREMENT PLANS
The Company and or its subsidiary provides a tax-qualified profit-sharing
retirement plan under Section 401k of the Internal Revenue Code. (the "Qualified
Plans") for the benefit of eligible employees with an accumulation of funds for
retirement on a tax-deferred basis and provides for annual discretionary
contribution to individual trust funds. All employees are eligible to
participate if they have one year of service to the Company. The employees may
make voluntary contribution to the plan up to 15% of their annual compensation.
The Company's contributions to the plan are discretionary but may not exceed 25%
of the first 4% of the annual compensation that an employee contributes to the
plan. Vesting is graded and depends on the years of service. After six years of
service the employees are 100% vested.
The Company has made a contribution during 1998 and 1997 of $23,607 and $10,557
respectively, for the benefit of its employees.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. RETIREMENT PLANS(CONTINUED)
The Company also maintains a group health and dental insurance plan. The
employees are eligible to participate in the plan after three months of
full-time service to the Company.
NOTE 12. RELATED PARTY TRANSACTIONS
During 1998, a company that was controlled by a board member that resigned in
1998 received commissions from the purchase of materials the Company used in the
production of certain of the Company's products. The value of these materials
sold to the Company for 1998 and 1997 was $77,153 and $117,700, respectively. In
May of 1996, the Company signed a termination agreement with the supplier of
these products, which allows the Company to purchase these products directly
from the manufacturer. In exchange, the Company will pay commissions to the
board member for a period of 3 years based on the amount of material purchased
from certain vendors.
Alfred V Greco
A director is the CEO of Alfred V Greco PC, the Company's council which received
$182,953 in legal fees. See Security ownership of certain beneficial owners and
management.
Norman Fuchs
During October 1998 the Company entered into a consulting agreement with ATH
Venture Inc. of which Norman Fuchs is an officer director and principal
shareholder. Mr. Fuchs through his Individual Retirement Account beneficially
owns 1,125,000 shares of the Company (6.02%) and pursuant to the consulting
agreement receives $5,000 per month from the Company.
George Kromer
A director, also serves as a consultant to the Company with average consulting
compensation of approximately $1,000 per month.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. PROPERTIES
The Company had moved its executive offices to the Aaron facility located at
7100 30th Avenue N., St. Petersburg, Florida 33710-2902, during the first
quarter of 1995.
The Company has additional executive office space at 734 Walt Whitman Road,
Melville, which it leases for $1,226.83 per month. The lease runs through the
year 2000.
As part of the purchase of 7100 30th Avenue North, St. Petersburg, Florida
(manufacturing facility) the seller acknowledged it had previously conducted
assessments to document environmental conditions existing on the property, the
results of which are set forth in a June 23, 1994 Contamination Assessment
Report (CAR) and a January 27, 1995 Contamination Assessment Addendum (CARA).
The Florida Department of Environmental Protection (FDEP) stated in a letter,
dated March 31, 1995, that based on their review of the CARA, the CAR could not
be approved and that additional work was needed to be performed.
In February of 1998, the environmental engineering firm Geo- Ambient conducted a
second addendum to the CAR, (CAR Addendum II) to complete the additional work
requested by the FDEP. Based on the results of CAR Addendum II, Geo-Ambient
recommended to the FDEP that a "no further action" status be granted for the
site. However, as of the date of filing the FDEP has not yet issued a Site
Completion Rehabilitation Order (SCRO).
The Company has received a report and recommendations on the results of the
water tests performed. As a result of previous sampling that showed that one
on-site monitoring well still had groundwater exceedances for vinyl chloride and
total xylene, the State Department of Environmental Protection has placed the
site on a "monitoring-only" plan. The plan includes 4 quarters of sampling,
concluding in May, 1999. The first quarter report was issued this past July.
Because the exceedances were very slight, the mortgagee has requested a "no
further action".
DEP disagreed, instead requiring the monitoring plan. At the end of the period,
DEP will likely approve a "no further action"
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. PROPERTIES (CONTINUED)
unless the well concentrations have not declined. In that case, DEP could ask
for further monitoring or some type of groundwater treatment. The SCRO is on
hold and the Company believes it will not be issued for more than a year pending
action on the above issue.
Based on the above paragraph and the "no further action" finding by Geo-Ambient
and the future issuance of an SCRO by the FDEP management of Bovie Medical
Corporation has estimated the present value of the cost of environmental work to
be zero.
NOTE 14. COMMITMENTS AND CONTINGENCIES
Environmental conditions -Purchase of Building
(See Note 13 - properties)
Leases
The Company leases administrative facilities under an operating lease that
expires in 2000. Rental expense was $21,342 in 1998 and $19,294 in 1997. Minimum
rental commitments under all non- cancelable leases with an initial term in
excess of one year are payable as follows: 1999 - $14,722; 2001 and beyond
$4,907. There was no commitment for construction or purchase of property, plant,
and equipment approximated at December 31, 1998.
Employment Agreements
The Company has employment agreements with seven key employees. These agreements
are for terms from 2-5 years and call for salaries of $51,000 to $136,000.
During 1997 officers waived their right to 1996 bonuses and allowed the board of
directors to determine future bonuses. These bonuses valued at $70,600 were
shown as a contribution to paid in capital.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Employee Benefit Plans
In 1996, the Company established stock option plans under which officers, key
employees and non-employee directors may be granted options to purchase shares
of the Company's authorized but unissued Common Stock. Under Employee Stock
Warrant Plans, the Company has warrants outstanding as of December 31, 1998 for
the purchase of 1,780,500 shares of restricted common stock at exercise prices
ranging from $.75 to $1.125.
Product Liability
The Company currently has product liability insurance which, it believes to be
adequate for its business. The Company's existing policy expires in May 1999.
Speiser
On December 29, 1992, Robert Speiser, the then, Chief Executive Officer of the
Company, obtained a confession of judgement in the Supreme Court, State of New
York, counties of Suffolk and Westchester for amounts due on loans to the
Company of $92,239 and $190,957 inclusive of interest at 12% to May 27, 1992 and
9% thereafter.
These loans represent amounts claimed by Mr. Speiser to have been expended on
behalf of the Company and funds loaned to the Company. As reported to the Board
of Directors, Mr. Speiser's actions were motivated solely to deter threatened
action by a landlord to file a judgement at that time of $41,700 in rental
arrears on the Melville, NY lease.
Mr. Speiser has indicated that he does not intend to enforce this judgement. On
March 29, 1993 and in subsequent letters of
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. COMMITMENTS AND CONTINGENCIES (CONTINUED)
instruction to the Sheriff of Suffolk County, Mr. Speiser requested that the
execution of the above-mentioned judgements be held in abeyance for a 60-day
period, until August 30, 1993.
On February 28, 1994, the executive order expired. As of December 31, 1998, the
Company had repaid $235,100 of the principal amount upon which the aforesaid
judgements were based. The Company has accrued a liability for $73,800 to Mr.
Speiser which was the balance of his loan to the Company and accrued interest on
that loan. Mr. Speiser is disputing this amount because he feels he is due
additional interest and back wages in the amount of $80,000. See "certain
Relationships and Related Transactions". Presently there is no lawsuit between
the Company and Mr. Speiser .The Company is pursuing a settlement of this
matter. Bank Line of Credit and Term Loan.
The bank line of credit and term loan require the Company
1. To maintain a current ratio of not less than 1.10 to one, senior debt to net
worth ratio of not more than 1.5 to one, and an interest coverage ratio of not
less than eight to one.
2. Not to expend more than $400,000 for acquisition of fixed assets, in the
course of the year.
3. To submit its audited financial statements, forms 10KSB, and 10Q's, and
accounts payable and receivable aging schedules.
4. Maintain its depository and cash management accounts with the bank.
5. Not to guarantee obligations of any other person or encumber its assets with
any mortgage, security deed, or lien other than security interests required by
the bank loan agreement.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. COMMITMENTS AND CONTINGENCIES (CONTINUED)
6. Not to default in any material contract with third parties.
NOTE 15. EARNING PER SHARE
In 1998, the Company sustained an $.07 loss per share. Because of the Company's
loss, the convertible shares and warrants had anti-dillutive effect and were not
used to compute any diluted loss per share.
For the Year Ended 1997, the earnings per share were as follows:
Income Share Per Share
Basic Earning Per Share
Income before $ 28,591 8,186,256 N/S
Effect of Dillutive securities
Convertible shares of Xenetics
Biomedical, Inc. and Automated
Diagnostics, Inc. 153,333
Wats 104,383
Diluted Earnings per Share
Income before items assuming
conversion of Securities $ 28,591 8,443,972 N/S
Warrants to purchase 387,000 shares of common stock at $1.125 during 1997 were
not included in the computation of diluted earnings per share because warrants'
exercise prices were greater than the average price of common shares in 1997.
N/S - Not Significant
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. PURCHASE OF ASSETS FOR SHARES
Acquisition of BSD Development Beta Corporation
On February 9, 1998, the Company exchanged 3,000,000 shares of its common stock
and 2,000,000 shares it preferred stock for all preferred and common shares of
BSD Development Beta Corporation (BSD). As a part of the agreement with the
sellers, the Company acquired through BSD $1 million cash, a licensing and
manufacturing agreement and certain equipment valued at $672,460. The equipment
will be used for coating electrosurgical blades and other medical devices using
DYLYN technology under a management agreement with Advance Refractory
Technologies (ART), the seller of the equipment which has agreed to operate and
maintain the equipment. To date development of the production methods needed to
produce a commercially viable blade has been hampered by technical difficulties.
The company is monitoring the process and believes ART will produce a
commercially viable blade in the future.
As a part of the agreement with ART, the Company obtained an exclusive ten-year
renewable license to use the DYLYN Technology for coating specified medical
products.
Maxxim Medical, Inc. Asset Acquisition, Supply and License Agreement
On May 8, 1998, the company entered into and consummated a strategic alliance
agreement with Maxxim Medical, Inc., (Maxxim), a Delaware corporation the shares
of which are listed on the New York Stock Exchange. The agreement provided for
the acquisition, by the Company, of the trade name and the trademark Bovie, a
supply, license and distributorship arrangement concerning electrosurgical
devices and the acquisition of Maxxim's electrosurgical generator product line
in exchange for 3,000,000 shares of common stock of The Company. More
specifically, the agreement provides for (a) and irrevocable royalty-free
sub-license to Maxxim to use the Bovie name; (b) a 2-year exclusive
distributorship in Maxxim to resell the Bovie electrosurgical generator product
line anywhere in the world,
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. PURCHASE OF ASSETS FOR SHARES (CONTINUED)
and (c) a non-exclusive right to sell An-con products anywhere in the world. The
distributorship arrangement provides for anticipated cooperation between Maxxim
and the Company with respect to research and development of new products and
Maxxim's option to become the exclusive distributor thereof. Maxxim also agreed
to certain minimum purchase orders for the Bovie generator product line, the
Aaron 1200 generators and other An-con products and accessories aggregating
$3,000,000 during the initial 5-year term of the agreement, subject to quality
control and the Company's ability to meet commercially reasonable purchase
orders of Maxxim. Kenneth Davidson, the chairman of the Board of Maxxim, has
been elected a member of the Board of Directors of the Company.
As consideration for the foregoing, the Company agreed to exchange 3,000,000
shares of common stock for the Bovie Electrosurgical Generator line, the Bovie
trademark and trade name, and entered into agreements for the aforementioned
supply, license, and distributorship arrangement involving Maxxim's commitments
to purchase the Company a current and future products. Due to the Company's lack
of sufficient authorized shares, in lieu of common stock, the Company had issued
a secured convertible promissory note to Maxxim in the principal amount of
$3,000,000 which was retired when the shareholders authorized the required
shares and the Company delivered them to Maxxim.
NOTE 17. INDUSTRY SEGMENT REPORTING
The Company's principal markets are the United States, Europe, and Latin
America, with the U.S. and Europe being the largest markets based on revenues.
The Company's major products include cauteries, Bend-A-lights, nerve locators,
reusable pen lights and electrodes. Cauteries, disposable and replaceable,
account for 41% and 42% of Company's sales for 1998 and 1997, respectively.
One significant customer accounted for 7% and 9% of revenues in 1998 and 1997,
respectively. In 1998 that customer accounted for $.6 million of non-medical
sales which is 71% of that segments sales. The Company's ten largest customers
accounted
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. INDUSTRY SEGMENT REPORTING (CONTINUED)
for approximately 49% of net revenues for 1998. At December 31, 1998, the same
ten customers accounted for approximately 65% of outstanding accounts
receivable.
Summary information by geographic area and significant industry segment for
years ended December 31,1998 and 1997 were as follows:
Operating Gain Identifiable
Sales (Loss) Assets
1998 - (in thousands)
Geographic Area
United States $ 6,921 $ ( 259) $ 7,018
Europe 1,520 ( 81) 145
$ 8,441 $ ( 340) $ 7,163
Segment
Medical Products $ 7,599 $ ( 302) $ 6,447
Non-medical products 842 ( 38) 716
$ 8,441 $ ( 340) $ 7,163
1997-(in thousands)
Geographic Area
United States $ 5,980 $ 384 $ 3,803
Europe 1,406 86 96
Latin America 100 10 --
$ 7,486 $ 480 $ 3,899
Segment
Medical Products $ 6,181 $ 451 $ 3,236
Non-medical products 1,305 29 663
$ 7,486 $ 480 $ 3,899
1998 1997
Assets and liabilities
outside the U.S.A.
Total assets $ 102 $ 96
Total liabilities -0- -0-
Net property, plant
and equipment -0- -0-
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. INDUSTRY SEGMENT REPORTING (CONTINUED)
The Company had no assets (other than certain trade receivables) or liabilities
outside the United States, in the two years ended December 31, 1998.
During 1998, a portion of the Company's consolidated net sales and consolidated
loss from operations was derived from foreign operations. Foreign operations are
subject to certain risks inherent in conducting business abroad, including price
and exchange controls, limitations on foreign participation in local
enterprises, possible nationalization or expropriation, potential default on the
payment of government obligations with attendant impact on private enterprise,
political instability and health care regulation and other restrictive
governmental actions. Changes in the relative value of currencies take place
from time to time and could adversely affected the Company's results of
operations and financial condition. The future effects of these fluctuations on
the operations of the Company's and its subsidiaries are not predictable.
<PAGE>
CONSENT OF CERTIFIED PUBLIC ACCOUNTANT
We consent to the incorporation by reference in this Annual Report on Form
10-KSB of Bovie Medical Corporation of our report dated March 31, 1999, included
in the Annual Report to Stockholders of Bovie Medical Corporation
Bloom and Company
Hempstead, New York
March 31, 1999
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Shareholders of
Bovie Medical Corporation
We have audited the accompanying consolidated balance sheet of Bovie Medical
Corporation and subsidiary as of December 31, 1998 and the related consolidated
statements of operations and shareholders' equity, and cash flows for the years
ended December 31, 1998 and 1997. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all
material respects, the financial position of Bovie Medical Corporation and
subsidiary as of December 31, 1998 and the results of their operations, and
their cash flows for the years ended December 31, 1998 and 1997 in conformity
with generally accepted accounting principles.
BLOOM AND COMPANY
Hempstead, New York
March 31, 1999
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<PERIOD-START> JAN-01-1998
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