U.S. Securities and Exchange Commission
Washington D.C. 20549
Form 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from to
Commission file number 0-12183
BOVIE MEDICAL CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 11-2644611
(State or other jurisdiction
(IRS Employer
of incorporation or organization)
Identification No.)
734 Walt Whitman Rd., Melville, New York 11747
(Address of principal executive offices)
(516) 421-5452
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuers's class of
common stock, as of the latest practicable date: 14,738,755.
<PAGE>
BOVIE MEDICAL CORPORATION.
FORM 10-QSB
QUARTERLY REPORT
JUNE 30, 1999
<PAGE>
BOVIE MEDICAL CORPORATION
INDEX TO FORM 10-QSB
Contents Page
Part I. Financial Information
Item 1: Consolidated Financial Statements
Consolidated Balance Sheet - June 30,1999
Consolidated Statements of Operations for the
six Months Ended June 30, 1999 and 1998
Consolidated Statements of Operations for the
Quarter Ended April 1, 1999 through
June 30, 1999
Consolidated Statements of Cash Flows for the
six Months Ended June 30, 1999 and 1998
Notes to Financial Statements
Item 2: Management's Discussion and
Analysis of Financial Conditions and Results of Operations
Part II. Other Information
Item 1: Legal Proceedings
Item 2: Changes in Securities
Item 3: Defaults Upon Senior Securities
Item 4: Submission of Matters to Vote of Security Holders
Item 5: Exhibits and Reports on Form 8-K
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
BOVIE MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
Assets
Current assets:
Cash $ 518,769
Trade accounts receivable 1,059,300
Inventories 1,462,397
Prepaid expenses 104,404
Deferred tax asset 175,010
Other receivables 142,176
-------
Total current assets 3,462,056
Property and equipment, net 2,121,958
Other assets:
Repair parts 354,417
Trade name 1,744,325
License and manufacturing rights 2,854,608
Patent rights, net 200,767
Deposits 4,765
-----
5,158,882
---------
$ 10,742,896
------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEET
JUNE 30,1999
(CONTINUED)
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 378,701
Accrued expense 314,661
Notes payable - current portion 540,566
Due to shareholders 104,252
-------
Total current liabilities 1,338,180
Long-term debt, net 3,071
Stockholders' equity:
Preferred stock, per value $.001
10,000,000 shares authorized
2,000,000 issued and outstanding
on June 30, 1999 2,000
Common stock par value $.001; 40,000,000
shares authorized, issued and outstanding
14,738,755 shares on June 30, 1999 14,809
Additional paid in capital 21,207,762
Accumulated deficit (11,822,926)
-----------
Total stockholders' equity 9,401,645
---------
Total liabilities and
stockholders' equity $ 10,742,896
------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
BOVIE MEDICAL CORPORATION.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 and 1998
1999 1998
Sales $ 4,648,944 $ 3,949,455
Cost of sales 2,683,297 2,249,221
--------- ---------
Gross profit 1,965,647 1,700,234
Costs and expenses:
Research and development 118,443 87,296
Professional services 190,878 279,144
Salaries and related costs 662,906 757,959
Selling, general and
administrative 862,407 659,901
------- -------
1,834,634 1,784,300
--------- ---------
Gain (Loss) from operations 131,013 ( 84,066)
Other income (expense):
Interest income 6,091 --
Interest expense ( 35,176) ( 98,820)
Miscellaneous 3,530 11,662
----- ------
( 25,555) ( 87,158)
------ ------
Income (loss) 105,458 ( 171,224)
------- -------
Provision for income tax 36,910 --
Realized benefit of loss carryforward ( 36,910) --
Net income (loss) $ 105,458 $( 171,224)
--------- --------
Earnings (Loss) per share:
Net income (loss):
Basic .01 $ ( .02)
Diluted .01 $ ( .02)
Weighted average number of shares
outstanding 14,738,755 10,914,601
Weighted average number of shares
adjusted for dillutive securities 16,738,755 10,914,601
The accompanying notes are an integral part of the financial statements.
<PAGE>
BOVIE MEDICAL CORPORATION.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTER ENDED APRIL 1, 1999 THROUGH JUNE 30, 1999
1999 1998
Sales $ 2,401,880 $ 2,177,421
Cost of sales 1,342,756 1,241,499
--------- ---------
Gross profit 1,059,124 935,922
Costs and expenses:
Research and development 67,985 40,996
Professional services 109,296 135,710
Salaries and related costs 313,911 365,448
Selling, general and
administrative 455,381 333,546
------- -------
946,573 875,700
------- -------
Gain (Loss) from operations 112,551 60,222
Other income (expense):
Interest income 6,091 --
Interest expense ( 22,229) ( 72,189)
Miscellaneous 0 11,627
- ------
( 16,138) ( 60,562)
------- -------
Income (loss) before
extraordinary items 96,413 ( 340)
Provision for income tax 33,744 --
Realized benefit of loss carryforward ( 33,744) --
------ ------
Net income (loss) $ 96,413 $( 340)
---------- ---
Earnings (Loss) per share:
Net income (loss):
Basic .01 --
Diluted .01 --
Weighted average number of shares
outstanding 14,738,755 13,629,693
Weighted average number of shares
adjusted for dillutive securities 16,738,755 13,629,693
The accompanying notes are an integral part of the financial statements.
<PAGE>
BOVIE MEDICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 105,458 $ (171,224)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 356,670 331,683
Common stock issued for interest 7,846 110,668
Changes in current assets and liabilities:
Decrease (Increase) in receivables ( 56,466) (205,425)
Decrease (Increase) in inventories 15,490 19,567
Decrease in prepaid expenses ( 25,964) ( 12,772)
(Increase) in accounts payable ( 6,857) 119,601
Increase (Decrease) in accrued expense ( 46,601) ( 91,767)
Decrease in other assets 5,875 20,639
----- ------
Total adjustments 249,993 292,194
------- -------
Net cash provided by (used in)
operating activities 355,451 120,970
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in fixed assets ( 63,279) ( 206,807)
Decrease (Increase) in patents ( 15,300) ( 8,388)
Decrease in deposits -- 2,245
Net cash used in investing activities ( 78,579) ( 212,950)
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in obligations under capital lease -- --
(Decrease) increase in notes payable ( 36,776) ( 23,751)
Common shares issued for cash -- 170,000
Exercise of stock options -- 62,240
Net cash provided by financing activities ( 36,776) 208,489
------ -------
Net increase (decrease) in cash and
cash equivalents 240,096 116,509
Cash and cash equivalents, beginning of period 278,673 48,246
------- ------
Cash and cash equivalents, end of period $ 518,769 $ 164,755
---------- ---------
The accompanying notes are an integral part of the financial statements.
<PAGE>
BOVIE MEDICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Cash paid during the six months ended June 30:
1999 1998
Interest paid $ 28,488 $ 61,320
Income Taxes -0- -0-
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998:
1999
During the six months ended June 30, 1999, the Company issued 29,060 restricted
shares to the Krauss Organization in order to be in compliance with the terms of
its purchase agreement for the building it now owns and occupies. The Company
valued the shares at 40% of market value or $7,846 because of the restriction on
its immediate sale.
A reactor that the Company had purchased was not delivered by April 30, 1999 as
per agreement, the Company requested its deposit of $125,000 to be returned and
canceled the order. The reactor would have been used for coating electrosurgical
blades or other medical products pursuant to the Company's license for the Dylyn
process. Presently the electrosurgical blade coating project is on hold and a
determination of the future of the project has yet to be made.
1998
During the period ended June 30, 1998, the Company issued 276,667 restricted
shares for an officers' bonus and consulting fees valued at $.40 per share for
an aggregate of $110,667.
The Company also issued 19,578 shares valued at $.40 per share to satisfy part
of its obligation to former Shareholders of a subsidiary valued at $7,831.
On February 9, 1998, the Company issued 5,000,000 shares, valued at $.98 per
share to purchase the outstanding shares of BSD Beta Development Corp. (BSD).
this included certain reactors, a license to use Dylyn, a manufacturing
agreement with Advanced Refractory Technologies, Inc. and $1,000,000 in cash.
On May 8, 1998, the Company purchased the "Bovie" Tradename for $1,877,299 and
Bovie inventory of materials and work in progress for $1,122,701 by giving the
seller, Maxxim Medical, a convertible note for $3,000,000. This note was
converted into 3,000,000 common shares in September 1998.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of Bovie Medical
Corporation and its wholly owned subsidiary Aaron Medical Industries, Inc. In
the opinion of management, the interim financial statements reflect all
adjustments, consisting of only normal recurring items, which are necessary for
a fair presentation of the results for the interim periods presented.
The results for interim periods are not necessarily indicative of results for
the full year. These financial statements should be read in conjunction with the
significant accounting policies and the other notes to the financial statements
included in the Corporation's 1998 Annual Report to the SEC on Form 10-KSB.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in the Preparation of Financial Statements
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Fair Values of Financial Instruments
Cash and cash equivalents. Holdings of highly liquid investments with maturities
of three months or less when purchased are considered to be cash equivalents.
The carrying amount reported in the balance sheet for cash and cash equivalents
approximates its fair values.
Accounts receivable and accounts payable. The carrying amount of accounts
receivable and accounts payable on the balance sheet approximates fair value.
Short term and long term debt. The carrying amount of the bonds and notes
payable, and amounts due to shareholders approximates fair value.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
principally on the average cost method. Inventories at June 30, 1999 were as
follows:
Raw materials $ 878,088
Work in process 297,335
Finished goods 286,974
-------
Total $ 1,462,397
-----------
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Long-Lived Assets
Long-lived assets consist of property, plant and equipment, intangible assets.
Property, plant and equipment are recorded at cost less depreciation and
amortization. Depreciation and amortization are accounted for on the straight-
line method based on estimated useful lives. The amortization of leasehold
improvements is based on the shorter of the lease term or the life of the
improvement. Betterment and large renewals which extend the life of the asset
are capitalized whereas maintenance and repairs and small renewals are 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 to 20 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 recoverability of long-lived assets held and to be used
based on undiscounted cash flows and measures the impairment, if any, using
discounted cash flows. Adoption of SFAS No.121 did not have a material impact on
the Company's consolidated financial position, operating results or cash flows.
Revenue Recognition and Product Warranty
Revenue from sales of products is generally recognized upon shipment to
customers. The Company warrants its products for one year. The estimated future
costs of warranties are not material.
Income is recognized in the financial statements (and the customer billed) when
products are shipped from stock. Net sales are arrived at by deducting discounts
and freight from gross sales.
Environmental Remediation
The Company accrues environmental remediation costs if it is probable that an
asset has been impaired or a liability incurred at the financial statement date
and the amount can be reasonably estimated. Environmental compliance costs are
expensed as incurred. Certain environmental costs are capitalized based on
estimates and depreciated over their useful lives.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 amortized over five years.
Income Taxes
The Company and its wholly-owned subsidiary file a consolidated federal income
tax return.
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Nonmonetary 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.
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.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based Compensation (Continued)
2. Shares issued in accordance with a plan for past or future services of an
employee are allocated between the expired costs and future costs. Future costs
are charged to the periods in which the services are performed. The 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 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.
<PAGE>
BOVIE MEDICAL CORPORATION
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-looking Statements
This Report on Form 10-QSB contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including statements regarding the company's
expectations, hopes, intentions, beliefs or strategies regarding the future.
Such forward-looking statements include, but are not limited to, the Company's
anticipated expense levels for research and development, and selling general and
administrative; anticipated capital expenditures; and expectations regarding
inventory balances, liquidity and adequacy of cash resources under the
sub-headings "Results of Operations" and "Liquidity and Capital Resources".
Actual results could differ materially from those projected in any
forward-looking statements for the reasons detailed below and in other sections
of this Report on Form 10-QSB.
All forward-looking statements included in this Form 10-QSB are based on
information available to the Company on the date of this Report. The Company
assumes no obligation to update the forward-looking statements. Investors should
also consult the risks factors listed from time to time in the Company's Reports
on Form 10-K and Annual Report to Stockholders.
Results of Operations
The results of operations over the six months ended June 30, 1999 show increased
sales and profitability, as compared to the first six months of 1998. The
Company's sales revenues increased by 18%, from $3,949,455 to $4,648,944. Gross
profit percentage of 42% was down from 43% for the same period in 1998. Gross
profit increased from $1,700,234 to $1,965,647. Increased sales revenues were
mainly attributable to sales of Bovie generators (product line purchased) and
increased sales of cauteries. For the first half of 1999 and 1998, cauteries
accounted for 41% and 46% of sales, respectively.
Operating salaries and related expenses decreased by 13%, from $757,959 to
$662,906, in the six months ended June 30, 1999 as compared to the same period
in 1998. The decrease in salaries was largely attributable to the fact that no
bonuses were given out in 1999 as compared to 1998.
Research and development costs increased by 36% from $87,296 to $118,443 for the
six months June 30, 1998 to the six months ending June 30,1999. The increase is
attributable to additional engineering payroll for product development.
Expenses for professional services decreased by 32% to $190,878 in the six
months ended June 30, 1999, as compared to $279,144 in the same period of the
previous year. The main reason for this decrease was professional fees
associated with the settlement of various transactions in 1998 only.
Selling, General and Administrative expenses increased by $202,506 (30%). These
expenses were $862,407 in the six month period ended June 30, 1999 as compared
to $659,901 for the six months ended June 30, 1998. The increase was mainly
attributable to the amortization of the cost of the ART manufacturing license
and the Bovie Name Purchase.
<PAGE>
BOVIE MEDICAL CORPORATION
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (CONTINUED)
Results of Operations (continued)
Interest expense decreased from $98,820 in the six months ended June 30, 1998 to
$35,176 in 1999. The $63,644 (64%) decrease in interest expense was mainly
attributable to the decrease in interest on the Company's line of credit and
term loan which began at the end of the first quarter of 1998 and the delivery
of Bovie shares to Maxxim to pay off a $3,000,000, 8% note. The term loan
principal is low and the line of credit was hardly used in the first six months
of 1999.
The operating gain was $131,013 in the first six months of 1999 as compared to
an operating loss of $84,066 in the same period of 1998.
The Company had a net gain of $105,458 for the six months ended June 30, 1999 as
compared to net loss of $171,224 in 1998 for the same period. The reasons for
the increase of $215,079 in the operating income and $276,682 in net income
include: $197,517 increase in gross profit; and the decrease in one-time
professional fees attributable to the BSD/ART license and equipment purchase.
The Company sells its products through distributors both in the international
market and in the USA. Distributors are contacted through response to company
advertising in international medical journals or at domestic or international
trade shows. The main focus for export sales has been Western Europe.
The Company has distributors in all major markets there. The Company intends to
continue marketing its products, targeting different regions of the world, while
returning to major markets for increased market exposure and to introduce new
products.
During the first six months of 1999, international sales of the Aaron Medical
product line declined by 10%. These sales were $768,235 which represented 17% of
total sales, while in 1998 total international sales were $858,024 and 22% of
total sales. The Company expects sales to increase because it received its
ISO9000 certification in the 3rd quarter of 1998.
Financial Condition
As of June 30, 1999, the Company's cash totaled $518,769 as compared to $164,755
at June 30, 1998. Cash provided by operating activities was $355,451 in the
first half of 1999 as compared to $120,970 cash used in operations in 1998. Net
working capital of the Company on June 30, 1999 was $2,123,876 as compared to
$1,812,443 in 1998.
Investing activities utilized $78,579 in cash during the first six months of
1999, compared to $212,950 in the first six months of 1998. In 1999, the Company
continued its policy of investing in property, plant and equipment needed for
future business requirements, including manufacturing capacity.
The Company's ten largest customers accounted for approximately 59% of net
revenues for the first six months of 1999. At June 30, 1999, the same ten
customers accounted for approximately 65% of outstanding accounts receivable.
<PAGE>
BOVIE MEDICAL CORPORATION
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Financial Condition
Cash flows from financing used $36,776 and provided $208,489 in the first six
months of 1999 and 1998, respectively. The most significant financing activity
in the six months ended June 30, 1998 was the receipt of $250,000 from the
purchase of BSD. The amounts of the term and the line of credit loan repaid were
$25,002 and $100,000, in the first half of 1999, respectively.
The Company believes that it has the financial resources needed to meet business
requirements in the foreseeable future, including capital expenditures for the
expansion of its manufacturing site, working capital requirements, and product
development programs which includes its 1998 acquisition and transition of the
Bovie product line manufacturing operation to its facility in St. Petersburg,
Florida.
Outlook
The Company, believes that the world market for disposal medical products, such
as the Company's battery-operated cauteries, has significant growth potential
since these types of products have not heretofore 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 unless an OEM
arrangement can be obtained with a co-leader in this market.
The Company, has focused on expanding its line of electrosurgical products.
Electrosurgical products sold by the Company are the standard stainless steel
electrodes and the Aaron 800 and 1200 high frequency desiccators. The Aaron 1200
was introduced in 1998 as well as the aquired Bovie product line of generators
and accessories.
To replace the Company's line of coated reduced stick electrodes, the Company
entered into a licensing and manufacturing agreement with Advanced Refractory
Technologies (ART), Inc. to manufacture a coated electrode utilizing ART's
patented DYLYN trademark coating process. This process could also be used for
other biomedical applications. To date, ART has not produced a commercially
viable coated electrode and the project is on hold.
Aaron, through its private label capacity, sees unique opportunities in the
domestic market as its competitors do not private label. The electrosurgical
product line is a larger market than the company has normally sold into and is
dominated by two main competitors, Valley Lab and Conmed. Electrosurgical
product sales moved from fifth place to second in total Company sales by product
line in 1997 and has remained in that position.
Liquidity and Future Plans
Since the acquisition of Aaron Medical Industries, Inc., the Company has
partially changed its direction from acquiring ownership interest in companies
to acquiring new product technology and expanding manufacturing capabilities
through Aaron. The Aaron 800 and 1200 desiccators are an example of this new
direction. Other products and technologies are being evaluated for future
development by the Company.
<PAGE>
BOVIE MEDICAL CORPORATION
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Future Plans
In order to continue its strong international sales growth and maintain its
ability to sell in Europe, management has implemented an ISO9000/EN46001 quality
system and was certified and had received its CE mark (International Quality
control) in 1998. The Company had obtained a one year line of credit with a
local commercial bank for $400,000 and a three year $150,000 loan for capital
improvements. Interest on these loans is to be paid at 1% over prime. Balances
on these loans was $-0- and $33,058 as of June 30, 1999, respectively.
Bovie Medical Corporation believes that it has the product mix, facilities,
personnel, and competitive and financial resources for continued business
success, but future revenues, costs, margins, product mix and profits are all
subject to the influence of a number of factors, as discussed above.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Form 10-KSB for the year ended December 31, 1998. Part I, Item 3.
ITEM 2. CHANGES IN SECURITIES
There have been no changes in the instruments defining the rights evidenced by
any class of registered securities.
There have been no dividends declared.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
In February of 1997, the 10 year notes came due and the Company offered each
bond holder 2,200 shares of common stock for their $1,000 bond and accrued
interest of $550. Nineteen bondholders accepted the offer and forty-three
bondholders received cash for their bonds and accrued interest. The balance of
the bondholders have not redeemed their bonds or accepted the shares offered.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
There has not been a meeting of shareholders and therefore, no matters have been
submitted to a vote of security holders.
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
A) Exhibits
28 None
<PAGE>
SIGNATURES:
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Bovie Medical Corporation.
(Registrant)
Date: _________________
s/Andrew Makrides
- -----------------
Chief Executive Officer - Andrew Makrides
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