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 September 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
SEPTEMBER 30, 1999
<PAGE>
BOVIE MEDICAL CORPORATION
INDEX TO FORM 10-QSB
Contents Page
Part I. Financial Information 1
Item I: Consolidated Financial Statements: 1
Consolidated Balance Sheet - September 30, 1999 2
Consolidated Statements of Operations for the
Nine Months Ended September 30, 1999 and 1998 3
Consolidated Statements of Operations for the
Quarter July 1, 1999 through September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998 5
Notes to Financial Statements 7
Item 2: Management's Discussion and
Analysis of Financial Conditions and Results of Operations 11
Part II. Other Information:
Item 1: Legal Proceedings 14
Item 2: Changes in Securities 14
Item 3: Defaults Upon Senior Securities 14
Item 4: Submission of Matters to Vote of Security Holders 14
Item 5: Exhibits and Reports on Form 8-K 15
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
BOVIE MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
Assets
Current assets:
Cash $ 956,404
Trade accounts receivable 1,009,551
Inventories 1,512,707
Prepaid expenses 85,677
Deferred tax asset 175,010
Other receivables 25,639
---------
Total current assets 3,764,988
Property and equipment, net 1,515,180
Other assets:
Repair parts 353,972
Trade name 1,720,858
Value of Impaired License and
manufacturing rights 1,250,000
Patent rights, net 188,172
Deposits 4,765
---------
3,517,767
---------
$ 8,797,935
=========
The accompanying notes are an integral part of the financial statements.
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEET
SEPTEMBER 31,1999
(CONTINUED)
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 373,224
Accrued expense 276,515
Notes payable - current portion 510,188
Due to shareholders 126,621
---------
Total current liabilities 1,286,548
Long-term debt, net - 0 -
Stockholders' equity:
Preferred Stock, per value $.001
10,000,000 shares authorized
2,000,000 issued and outstanding
on September 30, 1999 2,000
Common stock par value $.001; 40,000,000
shares authorized, issued and outstanding
14,738,755 shares on September 30, 1999 14,809
Additional paid in capital 21,207,762
Accumulated deficit (13,713,184)
-----------
Total stockholders' equity 7,511,387
-----------
$ 8,797,935
===========
The accompanying notes are an integral part of the financial statements.
<PAGE>
BOVIE MEDICAL CORPORATION.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 and 1998
1999 1998
Sales $ 7,186,430 $ 6,102,459
Cost of sales 3,884,580 3,624,681
--------- ---------
Gross profit 3,301,850 2,477,778
Costs and expenses:
Research and development 149,750 195,591
Professional services 260,416 378,978
Salaries and related costs 1,046,523 1,137,936
Selling, general and administrative 1,429,848 1,235,714
Impairment Loss (See Note 3) 2,170,518 0
--------- ---------
5,057,055 2,948,219
--------- ---------
Loss from operations (1,755,205) (470,441)
Other income (expense):
Interest income 11,742 --
Interest expense (43,436) (89,308)
Miscellaneous 2,099 13,101
---------- -------
( 29,595) (76,207)
----------- --------
Income (loss) before extraordinary items (1,784,800) (546,648)
Provision for income tax 0 0
Realized benefit of loss carryforward 0 0
----------- ----------
Net income (loss) $ (1,784,800) $ (546,648)
=========== ===========
Earnings (Loss) per share
Net income (loss):
Basic $ (.12) $ (.05)
=== ===
Diluted (.11) (.05)
=== ===
Weighted average number of
shares outstanding 14,738,755 11,156,359
========== ==========
Weighted average number of
shares adjusted for
dilutive securities 16,738,755 12,823,026
========== ==========
The accompanying notes are an integral part of the financial statements.
<PAGE>
BOVIE MEDICAL CORPORATION.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTER JULY 1, 1999 THROUGH SEPTEMBER 30, 1999
1999 1998
Sales $ 2,537,486 $ 2,153,004
Cost of sales 1,201,283 1,375,460
--------- ---------
Gross profit 1,336,203 777,544
Costs and expenses:
Research and development 31,307 108,295
Professional services 69,538 99,834
Salaries and related costs 383,617 379,977
Selling, general and administrative 567,441 575,813
Impairment loss (See Note 3) 2,170,518 0
--------- ---------
3,222,421 1,163,919
--------- ---------
Loss from operations (1,886,218) ( 386,375)
Other income (expense):
Interest income 5,651 --
Interest expense ( 8,260) 9,512
Miscellaneous ( 1,431) 1,439
---------- ---------
( 4,040) 10,951
---------- ---------
Income (loss) before extraordinary items (1,890,258) (375,424)
Provision for income tax 0 0
Realized benefit of loss carryforward 0 0
---------- ---------
Net income (loss) $ (1,890,258) $ ( 375,424)
=========== ==========
Earnings (Loss) per share
Net income (loss):
Basic (.13) (.03)
=== ===
Diluted (.11) (.03)
=== ===
Weighted average number of
shares outstanding 14,738,755 12,629,695
========== ==========
Weighted average number of
shares adjusted for securities 16,738,755 14,629,695
========== ==========
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 THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
1999 1998
Cash Flows from operating activities
Net income (loss) $ (1,784,803) $ (546,648)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 529,987 534,934
Common stock issued for interest/services 7,846 118,499
Impairment loss 2,170,518 --
Changes in current assets and liabilities:
Decrease (Increase) in receivables ( 6,717) (300,542)
Decrease (Increase) in inventories (34,375) 70,429
Decrease in prepaid expenses ( 7,237) (3,426)
Decrease(Increase) in accounts payable (22,334) 216,656
Increase (decrease) in accrued expense (25,873) (84,622)
(Increase)Decrease in other assets ( 2,588) 29,151
Decrease in deposits 25,000 --
(increase) decrease due to shareholder 73,495 --
---------- ---------
Total adjustments 2,707,722 581,079
---------- ---------
Net cash provided by (used in)
operating activities 922,919 34,431
Cash flows from investing activities
(Increase) in fixed assets ( 91,964) ( 255,855)
Decrease (Increase) in patents ( 22,999) ( 21,529)
(Increase)decrease in product development ( 10,000) ( 122,615)
----------- -----------
Net cash used in investing activities ( 124,963) ( 399,999)
--------- ----------
Cash flows from financing activities
(Decrease)increase in long term debt -- ( 303,504)
(Decrease) increase in notes payable ( 70,225) 29,202
Common shares issued for cash -- 982,240
Increase(Decrease) due to shareholders ( 50,000) --
---------- -----------
Net cash provided by financing activities ( 120,225) 707,938
--------- -----------
Net increase (decrease) in cash and
cash equivalents 677,731 342,370
Cash and cash equivalents, beginning of
period 278,673 48,246
--------- ----------
Cash and cash equivalents, end of period $ 956,404 $ 390,616
========= ==========
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 NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Cash paid during the nine months ended September 30:
1999 1998
Interest paid 42,710 63,352
Income Taxes - 0 - - 0 -
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
1999
During the nine months ended September 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 was to be utilized for coating electrosurgical
blades or other medical products pursuant to the Company's license for the Dylyn
process. The electrosurgical blade coating project has been terminated and the
Company has entered into a conditional agreement with Advanced Refractory
Technology, Inc. for ART to exchange the two million shares of the Company they
hold for the license, manufacturing rights and equipment the Company holds. 1998
During the period ended September 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 maturity
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 September 30, 1999 were
as follows:
Raw materials $ 940,708
Work in process 260,150
Finished goods 311,849
---------
Total $ 1,512,707
=========
The Company is holding repair parts for Bovie manufactured generators to be used
over the next 5-7 years in the amount of $353,972.
<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, and 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
expenses 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 are amortized over five years.
Income Taxes
The Company and its wholly-owned subsidiary file a consolidated federal income
tax return.
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Nonmonetary 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.
NOTE 3. IMPAIRMENT LOSS
In the third quarter of 1999, the Company determined that Advanced Refractory
Technologies, Inc. (ART) could not deliver commercially viable DYLYN (TM) coated
Electrodes. As a result, on October 1, 1999 the parties entered into an
agreement subject to certain conditions providing for the return, by ART of two
million convertible preferred shares of the Company, in exchange, for the return
to ART, of the license, manufacturing rights and equipment relating to the DYLYN
(TM) Technology. The Company had capitalized the license, manufacturing rights
and equipment at the appraised value of $3,900,000. Depreciation and
amortization taken on the assets was $619,482 through September 30, 1999. The
Company determined the value of the shares it will receive back to be $.62 1/2
per share, or $1,250,000, based on the market price of the Company's shares. In
the third quarter of 1999, the Company is charging its profit and loss statement
$2,170,518 for the impairment. If the conditions inherent in the ART repurchase
agreement are not met, then the Company may have to restate the loss upward.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT 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 risk 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 exclusive of an impairment loss of $2,170,518 over the
nine months ended September 30, 1999 shows increased sales and profitability, as
compared to the first nine months of 1998. The Company's sales revenues
increased by 18%, from $6,102,459 to $7,186,430. Gross profit percentage of 46%
was up from 41% for the same period in 1998. Gross profit increased from
$2,477,778 to $3,301,850. Increased sales revenues were mainly attributable to
sales of the Company's generators and increased sales of cauteries. For the
first nine months of 1999 and 1998 cauteries accounted for 41% and 44% of sales,
respectively.
Operating salaries and related expenses decreased by 8%, from $1,137,936 to
$1,046,523, in the nine months ended September 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 23% from $195,541 to $149,750 for
the nine months September 30, 1998 to the nine months ending September 30, 1999.
The decrease is mainly attributable to the expenses related to the termination
of the blade coating project.
Expenses for professional services decreased by 31% to $260,416 in the nine
months ended September 30, 1999, as compared to $378,978 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 $194,134. These
expenses were $1,429,848 in the nine month period ended September 30, 1999 as
compared to $1,235,714 for the nine months ended September 30, 1998. The
increase was mainly attributable to the amortization of the cost of the ART
manufacturing license and the Bovie Name Purchase. Amortization and depreciation
on the ART manufacturing and license agreement has ceased in the third quarter
because of its termination.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Results of Operations (continued)
Interest expense decreased from $89,308 in the nine months ended September 30,
1998 to $43,436 in the same period in 1999. The $45,872 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
which was accomplished in the third quarter of 1998. The term loan principal
balance was $20,557 and the line of credit principal balance was zero at
September 30, 1999.
The operating gain, exclusive of an impairment charge of $2,170,518, was
$385,718 for the nine months ended September 30, 1999 as compared to a net loss
of $546,648 in 1998 for the same period. The reasons for the increase in net
income of $932,366 was an increase in sales and gross profit and a decrease in
one-time professional fees attributable to the BSD/ART transactions.
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 nine months of 1999, international sales of the Aaron Medical
product line increased by 29%. These sales were $1,425,626, which represented
20% of total sales, while in 1998 total international sales were $1,106,249 and
which represented 18% of total sales. The Company believes European sales are
increasing because it received its ISO 9000 certification in the 3rd quarter of
1998. To bolster this trend the Company has recently hired a salesman with
international experience.
Financial Condition
As of September 30, 1999, the Company's cash totaled $956,404 as compared to
$278,673 at December 31, 1998. Cash provided by operating activities was
$922,919 in the first nine months of 1999 as compared to $34,431 provided in the
same period in 1998. Net working capital of the Company on September 30, 1999
was $2,418,440 as compared to $1,674,297 on December 31, 1998.
Investing activities utilized $124,963 in cash during the first nine months of
1999, compared to $399,999 in the first nine 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 57% of net
revenues for the first nine months of 1999. At September 30, 1999, the same ten
customers accounted for approximately 51% of outstanding accounts receivable.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Financial Condition
Cash flows from financing used $120,225 and provided $707,938 in the first nine
months of 1999 and 1998, respectively. The most significant financing activities
in the nine months ended September 30, 1998 was the receipt of $1,000,000 from
the purchase of BSD. The amounts of the term and the line of credit loan repaid
were $37,500 and $100,000, in the first nine months 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
because these types of products have not been affordable or effectively marketed
outside the U.S. Because of these factors, the Company has heretofore 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, the Bovie generator line, and the Aaron 800 and 1200 high frequency
desiccators. The Aaron 1200 was introduced in 1998 as well as the 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) to manufacture a coated electrode utilizing ART's patented
DYLYN(TM) process which also included its use for other biomedical applications.
To date, ART has not produced a commercially viable coated electrode and the
entire project has been terminated. (See Note 3 to the Financial Statements)
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, ValleyLab 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
concentrated its efforts on acquiring new product technology and expanding
manufacturing capabilities. The Aaron 800 and Aaron 1200 dessicators are an
example of this new direction. Other products and technologies are being
evaluated for future development by the Company.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT 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 has been certified and 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 $600,000 subject to certain restrictions and a
three-year $150,000 credit facility for capital improvements. Interest on these
loans is to be paid at 1% over prime. Balances on those loans were $-0- and
$20,557 as of September 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 or 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.
Accrued interest as of September 30, 1999 was $13,783.
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.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
A) Exhibits
B) None
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: ______________
- -----------------------------
Chief Executive Officer - Andrew Makrides
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