U.S. SECURITIES AND 53EXCHANGE 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 31,1999
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 $9,597,472.
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 24, 2000 was approximately $13,935,141.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:13,935,141.
DOCUMENTS INCORPORATED BY REFERENCE
There are no documents incorporated by reference.
<PAGE>
Bovie Medical Corporation
1999 Form 10-KSB Annual Report
Table of Contents
Part I Page
Item 1. Description of Business................................1
Item 2. Properties.............................................4
Item 3. Legal Proceedings......................................7
Item 4. Submission of Matters to a Vote of
Security Holders.......................................7
Part II
Item 5. Markets and Market Prices..............................8
Item 6. Management's Discussion and Analysis...................8
Item 7. Financial Statements (See Financial Section)
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................12
Part III
Item 9. Directors, Executive Officers, Promoters
and Control Persons...................................13
Item 10. Remuneration..........................................15
Item 11. Security Ownership of Certain Beneficial Owners
and Management of Bovie Medical Corporation...........18
Item 12. Certain Relationships and Related Transactions........19
Item 13. Exhibits and Reports on Form 8-k......................20
<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.
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 based in St. Petersburg, Florida is
engaged in the marketing and distributing of medical products. Although the
Company'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 Aaron 1200 electrosurgical
generators together with the development of higher powered 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 commercially through various retail outlets and stores.
Bovie 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 with other medical device
manufacturers. 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.
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.
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 watts, 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 watts 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.
New Generators
The Company is completing development of higher powered generators
to be introduced during the year 2000.
<PAGE>
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.
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 its general and product liability exposures are
adequately covered by insurance.
Research and Development
The approximate amount expended by the Company on research and development of
its products during the years 1999 and 1998, totaled $379,832 and $183,173
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.
<PAGE>
SIGNIFICANT SUBSIDIARY - AARON MEDICAL INDUSTRIES, INC.
Aaron Medical Industries, Inc., is a Florida Corporation with offices in St.
Petersburg, Florida. It is principally engaged in the business of marketing and
distributing medical products. Aaron sells products under its own label to
distributors worldwide.
Recent Developments
In 1998, the Company reported the acquisition of a license for the manufacture
and sale of a new "Dylyn" technology (a nanocomposite technology for the coating
of products) from Advanced Refractory Technologies, Inc., a non-affiliated
Buffalo based privately held company ("ART"), for 2,000,000 shares of
convertible preferred stock of the Company. After a series of production runs,
management made a determination that the use of the DYLYN technology did not
result in commercially viable electrodes, the Company's primary choice of
products to be coated. As a result the Company reacquired the 2,000,000 shares
of convertible preferred stock in exchange for the equipment, licensing and
manufacturing rights which were originally acquired by the Company from ART.
In a related development, the Company entered into an agreement in December,
1999, whereby the Company agreed to repurchase 2,000,000 shares from a major
shareholder group which had originally acquired its shares in connection with
the ART transaction in 1998. Simultaneously with the execution of such
agreement, the Company repurchased 1,118,421 shares of common stock at a price
of $.38 per share and expects to purchase the balance of the shares over a 21
month period. As of December 31, 1999, the aforesaid transaction with ART and
the shareholder group resulted in a reduction of the Company's outstanding
shares on a fully diluted basis from 17.16 million shares to 14.04 million
shares.
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
October of 1999 and found the results to be consistent with previous tests.
Additional testing has been recommended.
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>
Item 3. Legal Proceedings
There are no material legal proceedings pending against the Company.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to securities holders during the year ended
December 31, 1999.
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.
1999 High Low
1st Quarter $ 1.0625 $ .4375
2nd Quarter .6350 .3750
3rd Quarter .5500 .3438
4th Quarter 1.1250 .4100
1998 High Low
1st Quarter $ 2.1250 $ .6250
2nd Quarter 1.8125 1.1250
3rd Quarter 1.2500 .8438
4th Quarter .9375 .5313
On March 24, 2000, the Closing bid for Bovie's Common Stock as reported by the
NASD Bulletin Board was $1.00 per share. As of March 24, 2000, the total number
of shareholders of the Company's Common Stock was approximately 2,000, of which
1,000 are 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 and the balance are shareholders who keep their
shares registered in their own name.
Item 6. Management's Discussion and Analysis.
Results of Operations
Bovie's net revenues for 1999 were approximately $9.6 million as compared to
$8.4 million for 1998. The increase in sales of $1.15 million (14%) was the net
result of an increase in revenues from the sale of cauteries and electrosurgical
products. The sales for medical products represented approximately 89% of total
sales in 1999 as compared to approximately 90% in 1998.
The Cost of goods sold decreased by $364,465 (7%) from $5,274,041 in 1998 to
$4,909,576 in 1999. Consequently, the percentage of gross profit from sales
increased from 38% in 1998 to 48% in 1999. The difference in cost of sales and
gross profit were principally due to the gross loss on contract sales of
electrosurgical products in 1998, and the increase in the gross profit margin on
the sale of cauteries in 1999. The negative gross profit on sales of products
acquired from Bovie/Maxxim in 1998 was attributable to the contract price of the
components from Bovie/Maxxim and the resulting manufacturing and sale back to
Maxxim of these products. This accounted for a difference of $300,000 in gross
margin between 1998 and 1999. This was 57% of the increase in gross profit
between 1998 and 1999. The remaining difference is mostly attributable to a 5%
increase in gross profit on cautery sales which were the result of better
pricing to certain customers and lower cost on certain components purchased from
offshore.
<PAGE>
During 1999 and 1998, the Company's family of cauteries accounted for 42% and
41% of sales, respectively, and 36% and 35% of cost of goods sold, respectively.
Research and development expenses increased from $183,173 to $379,832, from 1998
to 1999. The Company continued to invest in the development of ECU
(electrosurgical coagulation) devices, and other Company products which is
evidenced by engineering costs increasing from $59,675 in 1998 to $281,114 in
1999. Research and development costs are made up of material costs, engineering
costs, and payroll.
Research and development costs of the Company had increased in 1998 mostly by
the depreciation expense on the reactors that the Company purchased from BSD.
The Company was developing DYLYN coated products with these reactors. During
1999 the Company discontinued this development program and sold the reactors
back to ART. In 1999, no depreciation was taken on the reactors.
The decrease in interest expense of 41% amounting to $42,820 was mainly
attributable to the Company's retirement of its debt to Maxxim and the cash
received in the BSD transaction.
The Company's effective income tax rate would have been 35% except that the
Company had a loss for the year. Because of the net loss, the Company operating
loss carryforward increased in 1999 by $2,183,839.
General and administrative expenses of the Company decreased by $299,399 (17%)
from $1.75 million in 1998 to $1.5 million in 1999. This was mainly attributable
to the decrease in amortization of intangible assets acquired from BSD of
$290,224.
<PAGE>
Salaries and related costs increased by 8% from $1.6 million in 1998 to $1.7
million in 1999. The increase in salaries were in part because of hiring
additional administrative personal, quality control personnel and technical
personnel that were needed to produce electrosurgical products.
Cost of professional services decreased by 8% from $552,352 in 1998 to $508,117
in 1999. Professional fees were mostly related to the consulting, auditing and
legal costs. During 1999, the Company evaluated its Dylyn Coated Blade
Technology and decided not to pursue the project. An agreement was entered into
with ART, the Company that supplied the reactors and the technology for the
project, to sell back to ART the reactors and the technology. The Company
incurred a non-recurring loss of $2,718,985 on the transaction.
The increase in operating expenses, which included the non-recurring loss,
resulted in a decrease of $1,227,868 in operating income and $1,085,793 decrease
in net income, from 1998 to 1999. Loss from operations was $2,148,030 in 1999 as
compared to an operating loss of $920,162 in 1998. Net loss of the Company in
1999 was $2,183,839 as compared to net loss of $998,046 in 1998.
Total other costs as a percentage of sales were 71% in 1999 as compared to 48%
in 1998. These costs mostly increased due to the loss associated with the sale
of the Dylyn Technology. For 2000 the Company believes total other costs should
not be significantly higher than they were in 1999, except for the non-recurring
loss.
The Company sells its products through distributors both in the international
market and in the USA. New distributors are contacted through response to
Company advertising in international medical journals or at domestic or
international trade shows.
During 1999, international sales of the Company's product lines increased by a
total of $312,219 (21%). In 1999, these sales were $1.8 million (19% of total
sales) as compared to $1.5 million (18% of total sales) in 1998. The increase in
international sales volume was mainly attributable to the Company obtained its
European Community Certification (CE Mark which permits medical devices to be
sold in the European Common Market), in mid 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 an average commission of approximately 2%
of 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 $125,782. These
expenditures were funded primarily through internal cash flow and bank
financing. In order to provide additional working capital, the Company secured a
$550,000 credit facility with a local commercial bank in the first quarter of
1997. The credit facility was renewed and raised to $600,000 for one year in
September 1999.
Financial Condition
As of December 31, 1999, cash totaled $415,074 as compared to $270,672 at
December 31, 1998. Cash provided by operating activities was $530,724 in 1999
compared to $14,010 in 1998. Net working capital of the Company was $2,365,530
and $1,674,297 on December 31, 1999 and 1998, respectively.
The amount of cash used in investing activities was $126,728 in 1999, 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 an out
flow of $267,595 in 1999. The most significant item of financing activity in
1999 was from the repurchase of 1,118,421 Company common shares for $425,000
from a major shareholder group that acquired its shares in connection with the
ART transaction in 1998.
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 59% of net
revenues for 1999 as compared to 49% in 1998. At December 31, 1999, the same ten
customers accounted for approximately 55% of outstanding accounts receivables as
compared to 65% in 1998.
<PAGE>
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 include the standard stainless
steel electrodes, the Aaron 800 and Aaron 1200 high frequency desiccators and
the Bovie line of products acquired in 1998.
From 1998 to 1999, the Company's electrosurgical sales increased by more than
24% from $2,188,683 to $2,720,718. 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 certain 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. Except for the possible introduction of new
electrosurgical products the Company does not expect electrosurgical sales to
increase significantly in 2000. 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.
Non-Medical Products
In 1999, the Company had sales of $1 million of its flexible lighting products
used primarily in the automotive and locksmith industries. Approximately $.8
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 developing and acquiring new product technology and expanding
manufacturing capabilities through Aaron. The Aaron 800 and Aaron 1200, 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 compliant and has been granted its CE mark (International Quality
control.)
The Company has obtained a line of credit with a local commercial bank for
$600,000. Interest on the loan is to be paid at 1% over prime. As of December
31, 1999, the Company had $100,000 outstanding on the line of credit and had a
balance of $8,055 on its term loan which is amortized at a rate of $4,167 per
month. Due to the Company's loss in 1999 the Company is not in technical
compliance with the banks financial covenants.
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.
<PAGE>
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.
Article 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 Greco Director April, 1998
Kenneth W. Davidson Director July, 1998
Keith Blakely* Director December, 1998
Nancy Keller Chief Financial
Officer
Moshe Citronowicz Executive Vice
President
Chief Operating
Officer
- ------------------
*In October, 1999 Keith Blakely resigned as a director of the corporation.
Management has no present plans to fill the resulting vacancy on the Board of
Directors.
Andrew Makrides, Esq. age 58, 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 47, 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 64, Director, is the principal of Alfred V. Greco,
PLLC, 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.
Nancy B. Keller, age 51, Chief Financial Officer Controller holds a Bachelor of
Business Administration degree from the University of Georgia. She is a
Certified Public Accountant of the State of Florida She had worked 17 years for
a large pharmaceutical company where she was a plant controller coordinating all
plant financial activities.
George W. Kromer, Jr., age 59, 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 47, 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 redesign, 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.
Kenneth W. Davidson, age 52, 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.
<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, 1999:
>
Summary Compensation Table
Annual Compensation Long Term compensation
<TABLE>
<CAPTION>
Securities
Underlying
Name and Restricted Stock
Principal (a) (b) Stock Option
Position Year Salary Bonus Other Awards(#) SARS(#) Pay-outs
- -------- ---- ------ ----- ------ -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Andrew Makrides
President, CEO
Chairman of 1999 $ 116,312 2,198 9,263 -- -- --
the Board 1998 99,478 1,918 9,809 -- -- --
1997 103,382 1,784 9,598 -- -- --
J. Robert Saron
President of Aaron 1999 $ 166,181 3,245 14,409 -- -- --
Medical and 1998 144,559 2,814 9,809 -- -- --
Director 1997 155,865 2,460 9,352 -- -- --
Moshe Citronowicz
Executive 1999 $ 116,193 2,439 14,564 -- -- --
Vice President- 1998 112,463 22,891 9,809 100,000 -- --
Chief Operating 1997 107,044 1,921 9,352 -- -- --
Officer
Nancy Keller 1999 $ 38,060 1,444 4,165 -- -- --
Chief Financial
Officer
</TABLE>
(b) Other compensation consists of medical insurance and auto. Option Grants and
Exercise
The following table summarizes (i) option grants to the Named Executive Officers
during the year ended December 31, 1999 and (ii) the value of the options held
by the named Executive Officers at December 31, 1999.
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.
<TABLE>
<CAPTION>
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)
- ---- -------------- -------- ----------- -------
<S> <C> <C> <C> <C>
Andrew Makrides -- -- 220,000 $ 55,000
J. Robert Saron -- -- 240,000 $ 60,000
Moshe Citronowicz -- -- 175,000 $ 43,750
- -------------------
</TABLE>
<PAGE>
(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, 1999 was $1.00.
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, George W.
Kromer, Jr. and Alfred 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 $1,300. Mr. Greco is an officer and director of Alfred V Greco PLLC,
Counsel to the corporation which earned legal fees from the Company of $93,606
during 1999. He also received 75,000 ten year options to purchase the Company's
Stock at $.75 in 1998.
In 1998 George Kromer was awarded a ten year stock option to acquire 100,000
shares of 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.
In February 2000, the Company extended contract with certain of its officers,
for two years. The following schedule shows all contracts and terms with
officers of the company.
<TABLE>
Bovie Medical Corporation
Officers' Contracts
December 31, 1999
Contract Expiration Contractual Auto
Date Date(1) Base Pay Allowance
<S> <C> <C> <C> <C>
Andrew Makrides 01/01/98 12/31/2004 $ 92,773 $ 6,310
J. Robert Saron 01/01/98 12/31/2004 136,123 6,310
Moshe Citronowicz 01/01/98 12/31/2004 99,905 6,310
(1) Includes two year extension
</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, 1999, 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>
Number of Nature Percentage
Name and Title Shares of of
Address of Class Ownership Ownership(i)
- ------- -------- --------- ------------
Shares(i)
<S> <C> <C> <C> <C>
Maxxim Medical Inc. Common 3,000,000 Beneficial 18.5%
10300 49th St. North
Clearwater, FL 33762
Directors
Andrew Makrides Common 537,000(ii) Beneficial 3.3%
734 Walt Whitman Road
Melville, NY 11746
George Kromer Common 205,000(iii) Beneficial 1.2%
P.O. Box 188
Farmingville, NY 11738
Alfred Greco Common 266,500(iv) Beneficial 1.6%
666 5th Ave.
New York, NY 10103
J. Robert Saron Common 673,805 (v) Beneficial 4.1%
Ashley Drive
Seminole, FL
Kenneth Davidson -- (vii)
c/o Maxxim
10300 49th St. North
Clearwater, FL 33762
Officers and Directors
as a group 2,017,89(a) 12.3%
</TABLE>
<PAGE>
(a) Includes 995,000 shares reserved for options
(i) Based on common shares of 14,045,334 and 2,145,500 options outstanding to
acquire shares. Officers and directors have 995,000 options to acquire shares at
December 31, 1999.
(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 170,000 shares reserved pursuant to 10 year options owned by
Mr. Kromer to purchase shares of the Company.
(iv) Include 150,000 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, former professional corporation of which Mr. Greco was
principal.
(v) Includes 240,000 shares reserved pursuant to 10 year options exercisable at
$.75 per share owned by Mr. Saron.
(vi) 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
George Kromer, a director, also serves as a consultant to the Company with
average consulting compensation of approximately $1,300 per month.
Former CEO and President
As of December 31, 1997, the Company had repaid $235,100 of a principal amount
previously owned to a former officer director and a shareholder of the Company.
In October, 1999, the Company settled its dispute with this former officer for
alleged sums claimed to be due him for interest consulting fees incurred during
his affiliation with the Company. The claim was settled in the amount of
$150,000, payable $50,000 upon execution of the agreement and $100,000 over 20
months at $5,000 per month.
See "Certain Relationships and related Transactions". Presently there is no
lawsuit between the Company and a former officer.
Alfred V Greco
A director is the principal of Alfred V Greco PLLC, the Company's counsel which
received $93,606 in legal fees during 1999. See "Security Ownership of Certain
Beneficial Owners and Management.
Item 13. Exhibits and Reports on Form 8-k
No Form 8-k was filed in the fourth quarter of 1999.
<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, 2000.
Bovie Medical Corporation
By: S/ 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.
<TABLE>
<CAPTION>
<S> <C>
Signatures Title and Date
S/Andrew Makrides Chairman of Board
Andrew Makrides Chief Executive Officer
President, Director
April 14, 2000
S/J. Robert Saron Director
- -------------------------------------
J. Robert Saron April 14, 2000
S/George W. Kromer Director
- -------------------------------------
George W. Kromer April 14, 2000
S/Nancy Keller Chief Financial Officer
- -------------------------------------
Nancy Keller April 14, 2000
Director
- -------------------------------------
Kenneth Davidson April 14, 2000
S/Alfred Greco Director
- -------------------------------------
Alfred Greco April 14, 2000
</TABLE>
<PAGE>
PART II
ITEM 7. FINANCIAL STATEMENT
BOVIE MEDICAL CORPORATION
INDEX TO FINANCIAL STATEMENTS
Contents Page
Consolidated Balance Sheet at December 31, 1999
Consolidated Statements of Operations for the
years ended December 31, 1999 and 1998
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1999 and 1998
Consolidated Statements of Cash Flows for the
years ended December 31, 1999 and 1998
Notes to Consolidated Financial Statements
Consent of Certified Public Accountant
Independent Auditors' Report
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
ASSETS
<TABLE>
<CAPTION>
Current assets:
<S> <C>
Cash $ 415,074
Trade accounts receivable, net 1,210,048
Inventories 1,677,779
Prepaid expenses 86,445
Deferred tax asset 175,010
Other Assets 131,143
---------
Total current assets 3,695,499
Property and equipment, net 1,434,569
Other assets:
Repair parts 322,311
Trade name 1,697,392
Patent rights, net 189,283
Deposits 4,765
----------
2,213,751
----------
Total Assets $ 7,343,819
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
<TABLE>
<CAPTION>
Current liabilities:
<S> <C>
Accounts payable $ 402,254
Accrued expenses 264,146
Notes payable 562,591
Due to shareholders 100,979
---------
Total current liabilities 1,329,970
Stockholders' equity:
Preferred stock 10,000,000
authorized, 0 outstanding 0
Common stock par value $.001;
40,000,000 shares authorized,
issued and outstanding 14,045,334
shares, on December 31, 1999 14,115
Additional paid in capital 20,111,957
Accumulated deficit (14,112,223)
----------
Total stockholders' equity 6,013,849
----------
Total liabilities and
stockholders' equity $ 7,343,819
=========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
1999 1998
<S> <C> <C>
Sales $ 9,597,472 $8,441,846
Cost of sales 4,909,576 5,272,041
--------- ---------
Gross Profit 4,687,896 3,167,805
Other costs:
Research and development 379,832 183,173
Professional services 508,117 552,352
Salaries and related costs 1,720,795 1,599,925
Selling, general and
administration 1,453,118 1,752,517
Write down of fixed assets 55,079 --
Loss on sale of license
and reactors 2,718,985 --
--------- ----------
Total other costs 6,835,926 4,087,967
--------- ----------
Income from operations (2,148,030) (920,162)
--------- ----------
Other income and (expense):
Interest income 21,964 4,163
Interest expense (61,023) ( 103,843)
Miscellaneous 3,247 21,796
------ ---------
(35,812) ( 77,884)
------ ---------
Net loss $(2,183,842) ( 998,046)
=========== ==========
</TABLE>
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(CONTINUED)
<TABLE>
<S> <C> <C>
1999 1998
---- ----
Net loss per share $ (.13) $(.07)
Weighted average number
of common shares
outstanding 16,787,000 13,876,328
========== ==========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Warrants Preferred Common Paid-in
Outstanding shares Stock share stock Capital Deficit Total
----------- ------ ----- ----- ----- ------- ------- -----
Balance January 1, 1998 1,064,000 -- -- 8,279,948 $124,071 $13,030,962 (10,930,335) 2,224,698
Shares exchanged for
warrants at $.75 ( 83,500) -- -- 83,500 84 62,157 -- 62,241
Shares issued for consulting
services at $.40 per share -- -- -- 306,667 307 122,360 -- 122,667
Shares issued for employee
bonus at $.40 per share -- -- -- 100,000 100 19,900 -- 20,000
Shares issued for purchase
of patent rights at $.40
per share -- -- -- 39,580 40 16,229 -- 16,269
Shares issued for purchase
of equipment, license,
manufacturing rights and
cash at $.98 per share -- 2,000,000 2,000 2,900,000 3,000 4,855,000 -- 4,860,000
Shares issued for trade name
and inventory at $1.00 per share -- -- -- 3,000,000 3,000 2,977,000 -- 2,980,000
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 1,000,000 -- -- -- -- -- -- --
Loss for 1998 -- -- -- -- -- -- ( 998,046) ( 998,046)
--------- -------- ----- ---------- ------- --------- --------- ---------
Balance as of December
31,1998 1,980,500 2,000,000 $2,000 14,709,695 $ 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)
</TABLE>
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Continued)
<TABLE>
<CAPTION>
Warrants Preferred Common Paid-in
Outstanding shares Stock share stock Capital Deficit Total
----------- ------ ----- ----- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance
January 1,
1999 1,980,500 2,000,000 $2,000 14,709,695 $14,780 $21,199,945 $(11,928,381) $9,288,344
Common shares
issued for cash
at $.40 per share -- -- -- 425,000 425 169,575 -- 170,000
Preferred shares
purchased from ART
valued at $.425 per
share and retired -- (2,000,000) (2,000) -- -- (848,000) -- (850,000)
Common share issued
as rent valued at
$.24 per share -- -- -- 29,060 29 6,945 -- 6,974
Common shares purchased
from share holder from
cash at $.38 per share
and retired -- -- -- (1,118,421) (1,118) (423,882) -- (425,000)
Subscription receivable
paid for in cash -- -- -- -- -- 7,374 -- 7,374
Warrants Issue 165,000 -- -- -- -- -- -- --
Loss for period -- -- -- -- -- -- (2,183,842) (2,183,842)
------- -------- -------- ----------- ------ ------- ----------- -----------
Balance as of
December 31, 1999 2,145,500 -- -- 14,045,334 $14,116 20,111,957 (14,112,223) $6,013,850
========= ======== ========= ========== ====== ========== ========== =========
</TABLE>
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, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $(2,183,842) $ (998,046)
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Depreciation and amortization 321,172 787,088
Shares issued for rent 6,974 162,667
Write down inventory of repair
parts 33,445 193,219
Loss on write down of fixed assets 55,079 --
Loss on sale of license and reactors 2,718,985 --
Change in assets and liabilities:
Trade receivables (207,214) ( 211,009)
Prepaid expenses (8,005) ( 10,510)
Inventories (201,231) ( 24,697)
Other receivables 16,908 34,212
Accounts payable 16,696 ( 13,532)
Accrued expenses ( 38,243) 66,598
-------- ---------
Total adjustments 2,714,566 ( 984,036)
--------- --------
Net cash provided
(used in) operations $( 530,724) $( 14,010)
========= ========
</TABLE>
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, 1999 AND 1998
(Continued)
<TABLE>
1999 1998
---- ----
<S> <C> <C>
Net cash used in operating activities $ (530,724) $ ( 14,010)
Cash flows from investing activities:
Increase in fixed assets (126,728) (301,220)
Increase in security deposits -- ( 2,615)
Purchase of Technology -- ( 20,000)
Increase deposit on equipment -- (120,000)
---------- --------
Net cash used in investing
activities (126,728) (443,835)
Cash flows from financing activities
Common shares issued 177,374 982,756
Loans from shareholders (2,147) 3,976
Repurchase and retirement of common stock (425,000) --
Increase in term borrowing -- 40,280
Reduction of notes payable (117,822) ( 28,734)
Repayment of term loan -- ( 50,006)
Repayment - line of credit -- (260,000)
Borrowing - line of credit 100,000 --
--------- ---------
Net cash provided by (used in)
financing activities (267,595) 688,272
------- -------
Net increase in cash 136,401 230,427
Cash at beginning of year 278,673 48,246
------- ------
Cash at end of year $ 415,074 $ 278,673
========= =========
Cash paid during the twelve months ended December 31:
1999 1998
---- ----
Interest $ 60,751 $ 104,657
Income Taxes -0- -0-
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
BOVIE MEDICAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
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 spare parts and work in progress to
produce electrosurgical generators.
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999
1. During 1999 it was determined that a deposit of $125,000 to purchase a new
reactor from ART would have to be reclassified as other assets because the
due date for delivery of the reactor had passed and a request to the vendor
for return of the deposit was made.
2. During 1999 the license, manufacturing rights and equipment for the
Dylyn process to coat purchased from ART in 1998 was sold back to ART for
2 million shares of the Company held by ART. As a result of this
transaction the Company took a loss of $2,718,985 on the sale of the
technology.
3. During 1999 the Company evaluated machinery and equipment and determined
certain items no longer had future cash flows. The majority of these items were
fully depreciated. The net carrying cost write down was $55,079.
<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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Consolidated Financial Statements
The accompanying 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 in consolidation.
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 amount of federally insured cash deposits was
$100,000 as of December 31, 1999.
The carrying amount of trade accounts receivable, accounts payable, prepaid and
accrued expenses, bonds and notes payable, and amounts due to shareholders, as
presented in the balance sheet, approximates fair value.
Inventories and Repair Parts
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 $ 1,059,421
Work in process 319,035
Finished goods 299,322
---------
Total $ 1,677,778
=========
Repair Parts. The Company acquired the inventory of repair parts in conjunction
with the purchase of the Bovie Line of Generators and Bovie Trade name, on May
8, 1998. Although, the production of Bovie generators has been discontinued, the
Company has maintained the inventory to service the previously sold generators.
The useful life of repair parts is estimated to be five to seven years and the
Company has set up an allowance for excess and obsolete parts.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
As of December 31, 1999, the inventory of parts was as follows:
Raw materials $ 542,530
Allowance for excess or obsolete parts (220,219)
-------
$ 322,311
========
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. 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 the 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 recovery ability 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.
Advertising Costs
All advertising costs are expensed as incurred. The amount of advertising costs
were $67,120 and $93,700 for 1999 and 1998 respectively.
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings Per Common and Common Equivalent Share
In February 1997, the Financial Accounting Standards Board issued the Statement
of Financial Accounting Standards 128(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 basic EPS. It 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.
In 1999, the Company had a net loss, the outstanding options were antidilutive
and were not included in computing the net loss per share.
Research and Development Costs
The Company is continually conducting research and development activities
utilizing a team approach that involves its engineering, manufacturing, and
marketing resources. Although, the Company has developed a number of its own
products, most of its research and development efforts have historically been
directed towards product improvement and enhancement of previously developed or
acquired products. Research and development expenses are charged to operations.
Only the development costs that are purchased from another enterprise and have
alternative future use are capitalized and are amortized over estimated useful
life of the asset, generally 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.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 the asset surrendered.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued the Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). SFAS No. 123 allows a company to adopt a new fair
value based method of accounting for its stock based compensation plans, or to
continue to follow the intrinsic method of accounting prescribed by the
Accounting Principles Board (APB) Opinion No. 25 "Accounting for Stock to
Employees".
The Company has elected to continue to follow APB 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 are allocated between the expired costs and future costs. Future costs
are charged to the periods in which the services are performed.
If the Company had adopted SFAS No. 123, the Company's net income and earnings
per years ended December 31, 1999 and 1998 would have been impacted as discussed
in Note 9.
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. The components of
comprehensive income refer to (revenues, expenses, gains, and losses that are
excluded from net income under current accounting standards, including foreign
currency translation items, and minimum pension liability adjustments. SFAS 130
requires that all items recognized under accounting standards as components of
comprehensive income be displayed in equal prominence with other financial
statements; the total of other comprehensive income for a period is required to
be transferred to a component of equity that is separately displayed in a
statement of financial position at the end of the accounting period. SFAS 130 is
effective for both interim and annual periods beginning after December 15, 1997.
In 1998, the Company adopted SFAS 130.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 expensed, 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. In 1998, the Company adopted
SFAS 131. The Company does not believe the adoption of SFAS No. 131 will have a
material affect on its consolidated 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 a 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 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
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. DESCRIPTION OF BUSINESS (CONTINUED)
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.
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.
During 1999, the Company has been developing other electrosurgical products
which will be marketed in the future.
Asset Acquisition
In May 1998, the Company acquired certain assets and liabilities associated with
the Bovie brand of electrosurgical products from Maxxim Medical, Inc. for
3,000,000 shares of the Company's common stock. Included in this purchase was
the "Bovie" Tradename which the Company now uses as its name. The purchased
assets consisted of intangibles and inventory of component and repair parts. The
assets were recorded at fair market value.
NOTE 3. TRADE ACCOUNTS RECEIVABLE
As of December 31, 1999 the trade accounts receivable were as follows:
Trade accounts receivable $ 1,267,695
Less: allowance for doubtful accounts ( 57,647)
---------
Trade accounts receivable, net $ 1,210,048
=========
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
As of December 31, 1999 property, plant and equipment consisted of the
following:
Equipment $ 443,293
Building 637,485
Furniture & Fixtures 330,177
Leasehold Improvements 271,013
Molds 288,128
---------
1,970,096
Less: Accumulated depreciation 535,527
---------
Net property, plant, and equipment $ 1,434,569
=========
Depreciation expenses for the years ended December 31, 1999 and 1998 were
$185,426 and $326,843, 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 beginning May 6, 1997 and
extending for three years to May 5, 2000. The annual rental is $14,722 payable
at $1,226.83 per month.
The following is a schedule of future minimum rental payments as of December 31,
1999:
Year Amount
---- ------
2000 $ 4,907
Total consolidated rent expense for the Company was $25,584 in 1999 and $21,342
in 1998.
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 in the amount 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. In October 1999, this dispute
was settled for $150,000 which included consulting fee, the Company had disputed
to be paid $50,000 down and $5,000 per month for 20 months. The balance due the
former officer on December 31, 1999 was $82,198.
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 amount due to these shareholders, including $11,665
of accrued interest, is $30,452.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. INTANGIBLE ASSETS
At December 31, 1999, the intangible assets consisted of the following:
Classification Amount
ECU Technology $ 370,601
Multifunction Cautery 59,400
Patent rights 87,769
Goodwill 188,000
Trade name 1,877,299
---------
2,583,069
Less: Accumulated Amortization 696,394
---------
$ 1,886,675
==========
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
1999 and 1998 was $171,021 and $461,245, respectively.
NOTE 8. LONG-TERM DEBT
The long-term debt of the Company includes a mortgage, convertible debentures
and notes payable.
Bonds payable $ 20,000
Mortgage payable 420,024
Term loan 8,055
7% Note payable 7,547
9% Note payable 6,965
Line of credit- bank 100,000
-------
Convertible Debentures $ 562,591
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, 1999, 1,691 units of debentures have been converted into
common shares of Bovie Medical Corporation or have been redeemed. The remaining
number of outstanding debentures was 20 units.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. LONG-TERM DEBT (CONTINUED)
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 was issued to the former landlord for the purchase of the
property located at 7100 30th Avenue North, St. Petersburg, Florida was 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 was
due. Because an environmental (See Note 13, Properties) issue has not been
remediated, the mortgage is not due.
Notes Payable to a Commercial Bank
There exists a note payable a for a term loan which was originally $150,000. The
interest on the term loan is the bank's prime rate plus 1 percent. The loan is
repaid in equal monthly payments plus accrued interest based on a three-year
amortization schedule. 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 at $779.14 per month for 48 months and
self-liquidating beginning November 1996 with the last payment due October,
2000.
9% Note Payable - This note was issued to finance insurance premiums. The note
is payable at $6,965.00 per month for 1 month.
Line of Credit - Commercial Bank
Advances under the line of credit are limited to the lesser of $600,000 or 60%
of net accounts receivable from non-affiliated parties. Availability was
$440,302 net of $100,000 already advanced. The annual interest rate on the loan
is the bank's prime rate plus one percent. The line expires September 23, 2000.
The bank has a security interest in inventory, accounts receivable and equipment
of the Company (the collateral). The balance due the bank on the credit line at
December 31, 1999 was $100,000.
The following are maturities of long term debt for each of the next 5 years:
2000 $ 562,591
=======
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. OPTIONS
As of December 31, 1999, 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
1,558,500 0.750
--------- -----
2,145,500 $ 0.940 (a)
========= =====
(a) The amount of $0.940 represents the weighted average exercise price of the
outstanding options.
In 1996, the Company issued 921,000 10 years non-statutory stock options to
employees exercisable at $.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 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 at
$2.00 per share for investment banking services that expire two years from the
date of issuance. In the fourth quarter of 1999, the Company authorized the
issuance of 165,000 options from its 1998 plan, of which 145,000 were to
non-executive employees.
The options became exercisable in 1997 and 1998 and will expire at various dates
through December 2007. At December 31, 1999, 2,145,500 shares of stock were
reserved for that purpose. Options are currently exercisable with a weighted
average life of approximately seven years.
The Company has adopted the "disclosure-only" provision of the 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.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. OPTIONS(Continued)
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:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net earnings (Loss) - as reported) $ (2,183,839) $ ( 998,146)
Net earnings (Loss) - pro forma (2,241,174) (1,417,000)
Loss per share (.130) (.070)
Loss per share-pro forma (.134) (.100)
</TABLE>
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 6.34%; and expected lives of 3 years.
NOTE 10. NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1999, the components of deferred tax assets were as follows
<TABLE>
<CAPTION>
Deferred tax assets: 1999 1998
---- ----
<S> <C> <C>
Accounts receivable $ 57,647 $ --
Inventories 289,457 82,550
Net operating loss carry-forwards 3,356,344 2,827,000
Patent rights, primarily due to
amortization 131,034 109,815
--------- ---------
Total gross deferred tax assets 3,834,482 3,019,365
Less: Valuation allowance 3,659,472 2,844,355
--------- ---------
Net deferred tax assets - current $ 175,010 $ 175,010
========= =========
</TABLE>
The Company had NOLs of approximately $9,588,839 at December 31, 1999, 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
NOTE 10. NET OPERATING LOSS CARRYFORWARDS (CONTINUED)
<TABLE>
<CAPTION>
Year loss Expiration Loss Estimated
incurred Date Amount Tax Asset
<S> <C> <C> <C>
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 2018 548,000 192,000
1999 2019 2,183,839 764,344
--------- ---------
Total $ 9,588,839 $ 3,356,344
========= =========
</TABLE>
Under the provisions of SFAS 109, NOLs represent temporary differences that
enter into the 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 $3,019,365 as of January 1, 1999 was increased by
$815,117 as a consequence of recognizing additional deferred tax assets, in
1999. The Company believes that it is more likely than not that the benefit of
these additional assets may not be realized in the future.
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.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. RETIREMENT PLANS (CONTINUED)
All employees are eligible to participate if they have one year of service in
theCompany. 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 1999 and 1998 of $46,763 and $23,607
respectively, for the benefit of its employees.
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 in the Company.
NOTE 12. RELATED PARTY TRANSACTIONS
Alfred V. Greco:
A director is the CEO of Alfred V. Greco, PC, the Company's council which
received $93,606 in legal fees. See "Security ownership" of certain beneficial
owners and management.
George Kromer:
A director also serves as a consultant to the Company with average consulting
compensation of approximately $1,300 per month.
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).
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. PROPERTIES (CONTINUED)
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 ground water excedes 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.
DEP disagreed, instead requiring the monitoring plan. At the end of the period,
DEP will likely approve a "no further action" unless the well concentrations
have not declined. In that case, DEP could ask for further monitoring or some
type of ground water 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.
In a letter dated November 22, 1999 written by Ambient Technologies Inc. that
states based on the ground water quality monitoring data obtained and existing
site conditions, ATI recommends that a "no further action" status be granted for
the site. If such is not granted, ATI recommends the ground water monitoring
plan be extended for a minimum of two additional quarters to continue to further
assess natural attenuation of ground water quality.
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 $25,584 in 1999 and $21,342 in 1998. Minimum
rental commitments under all non-cancelable leases with an initial term in
excess of one year are payable as follows: 2000 and beyond $4,907. There was no
commitment for construction or purchase of property, plant, and equipment
approximated at December 31, 1999.
Employment Agreements
The Company has employment agreements with five key employees. These agreements
are for terms up to 5 years and call for salaries of up to $136,000.
During 1997, officers waived their right to 1996 bonuses and allowed the board
of directors to determine future bonuses. These bonuses are valued at $70,600
and 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, 1999 for
the purchase of 1,945,500 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 2000.
Bank Line of Credit and Term Loan
The financial covenants of the bank are:
1) Total Liabilities to Tangible Net Worth Ratio. The Company shall, at
all times, maintain a ratio of Total Liabilities, including
subordinated debt, divided by Tangible Net Worth of not more than
0.75 to 1.00. For purposes of this computation, "Total Liabilities"
shall mean all liabilities, including capitalized leases and all
reserves for deferred taxes and other deferred sums appearing on the
liabilities side of a balance sheet, in accordance with generally
accepted accounting principles applied on a consistent basis.
"Tangible Net Worth" shall mean total assets minus total liabilities.
For purposes of this computation, the aggregate amount of any
intangible assets of the Company including, without limitation,
goodwill, franchises, licenses, patents, trademarks, trade names,
copyrights, service marks, and brand names, shall be subtracted from
total assets, and total liabilities shall include subordinated debt.
2) Capital Expenditures. The Company shall not, during any fiscal year,
expend on gross fixed assets (including gross leases to be
capitalized under generally accepted accounting principles and
leasehold improvements) an amount exceeding Four Hundred Thousand
Dollars and No Cents ($400,000) in the aggregate.
3) Dividends. The Company shall not, during any fiscal year, declare or
pay dividends in an amount in excess of twenty-five percent (25%) of
its net income. Said amount may be paid only after providing for the
prior satisfaction of all accrued taxes and debt service. In no event
shall the Company declare or pay a dividend if there shall exist a
default or a condition which, upon the giving of notice or lapse of
time or both, would become a default under the Loan Documents.
4) EBITDA to Interest Ratio. The Company shall, at all times, maintain
an EBITDA to Interest Ratio of not less than 3.50 to 1.00. "EBITDA to
Interest Ratio" shall mean the sum of earnings before interest,
taxes, depreciation and amortization divided by interest expense.
Because of the loss for 1999, the Company is not in technical compliance with
the bank's financial covenants relating to item number four above.
NOTE 15. EARNING PER SHARE
In 1999, the Company sustained a $.13 loss per share. Because of the Company's
loss, the convertible debt and warrants had an anti-dillutive effect and were
not used to compute any diluted loss per share.
NOTE 16. PURCHASE OF ASSETS FOR SHARES
In 1998, the Company reported the acquisition of a license for the manufacture
and sale of a new "Dylyn" technology (a nanocomposite technology for the coating
of products) from Advanced Refractory Technologies, Inc., a non-affiliated
Buffalo based privately held company ("ART"), for 2,000,000 shares of
convertible preferred stock of the Company. After a series of production runs,
management made a determination that the use of the Dylyn technology did not
result in commercially viable electrodes, the Company's primary choice of
products to be coated. As a result the Company reacquired the 2,000,000 shares
of convertible preferred stock in exchange for the equipment, licensing and
manufacturing rights which were originally acquired by the Company from ART.
In a related development, the Company entered into an agreement in December,
1999, whereby the Company agreed to repurchase 2,000,000 shares from a major
shareholder group which had originally acquired its shares in connection with
the ART transaction in 1998. Simultaneously with the execution of such
agreement, the Company repurchased 1,118,421 shares of common stock at a price
of $.38 per share and expects to purchase the balance of the shares over a 21
month period. As of December 31, 1999, the aforesaid transaction with ART and
the shareholder group resulted in a reduction of the Company's outstanding
shares on a fully diluted basis from 17.16 million shares to 14.04 million
shares.
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) 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, 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 the
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's 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.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. INDUSTRY SEGMENT REPORTING
Disclosures about Reportable Segments - Types of products and services.
Bovie has two reportable segments: medical and non-medical products. The medical
products segment produces battery operated cauteries, electrosurgical products,
and a variety of specialty lighting instruments for surgical use. The non
surgical segment produces and sells lighting instruments for commercial use.
Measurement of Segment profit or loss and segment assets
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Bovie evaluates performance based on
profit or loss from operations before income taxes not including nonrecurring
gains and losses and foreign exchange gains and losses. There were no
intersegment sales and transfers in 1999 and 1998.
Factors Management used to Identify the Enterprise's Reportable Segments
Bovie's reportable segments are strategic business units that offer different
products and services. They are managed separately because each business
requires different technology and marketing strategies.
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, electrosurgical, Bend-A-lights,
nerve locators, reusable penlights and electrodes. Cauteries, disposable and
replaceable, account for 42% and 41% of Company's sales for 1999 and 1998,
respectively.
One significant customer accounted for 8% and 7% of revenues in 1999 and 1998,
respectively. In 1999, that customer accounted for $.77 million of non-medical
sales, which is 75% of that segments sales. The Company's ten largest customers
accounted for approximately 59% of net revenues for 1999. At December 31, 1999,
the same ten customers accounted for approximately 55% of outstanding accounts
receivable.
Summary information by geographic area and significant industry segment for
years ended December 31,1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Additional Information
Operating Gain Identifiable Interest Interest
Sales (Loss) Assets Income Expense Depreciation
<S> <C> <C> <C> <C> <C> <C>
1999 - (in thousands)
Geographic Area
Domestic $ 7,765 $ 426 $ 3,604 -- -- --
International 1,832 199 91 -- -- --
----- --- -----
$ 9,597 $ 625 (1) $ 3,695 -- -- --
======= ====== == ========
Segment
Medical Products $ 8,566 $ 790 $ 3,299 $ 20 $ 54 $ 165
Non-medical Products 1,031 (165) 396 2 7 20
----- --- ----- -- -- ---
$ 9,597 $ 625 (1) $ 3,695 22 61 185
===== === ===== == == ===
1998 - (in thousands)
Geographic Area
Domestic $ 6,921 $ ( 259) $ 7,018 -- -- --
International 1,520 ( 81) 145 -- -- --
----- ---- -----
$ 8,441 ( 340) $ 7,163 -- -- --
======= ===== =======
Segment
Medical Products $ 7,599 $ ( 302) $ 6,447 4 94 293
Non-medical products 842 ( 38) 716 - 10 33
----- ---- ----- -- --- ---
$ 8,441 $ ( 340) $ 7,163 $ 4 $ 104 $ 326
===== ==== ===== == === ===
</TABLE>
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. INDUSTRY SEGMENT REPORTING
1999 1998
---- ----
Assets and liabilities outside the U.S.A.
Total assets $ 91 $ 102
Total liabilities -0- -0-
Net property, plant
and equipment -0- -0-
(1) Does not include Non-recurring loss and other income or expense.
The Company had no assets (other than certain trade receivables) or liabilities
outside the United States, in the two years ended December 31, 1999.
During 1999, 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 regulations and other restrictive
governmental actions. Changes in the relative value of currencies take place
from time to time and could adversely affect the Company's results of operations
and financial condition. The future effects of these fluctuations on the
operations of the Company 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, 2000, included
in the Annual Report to Stockholders of Bovie Medical Corporation.
Bloom and Company
Hempstead, New York
March 31, 2000
<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 as of December 31, 1999 and the related consolidated statements of
operations, and stockholders' equity, and cash flows for the years ended
December 31, 1999 and 1998. 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 as of
December 31, 1999 and the results of its operations, and cash flows for the
years ended December 31, 1999 and 1998 in conformity with generally accepted
accounting principles.
BLOOM AND COMPANY
Hempstead, New York
March 31, 2000
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 415,074
<SECURITIES> 0
<RECEIVABLES> 1,210,048
<ALLOWANCES> 0
<INVENTORY> 1,677,779
<CURRENT-ASSETS> 3,695,499
<PP&E> 1,970,096
<DEPRECIATION> 535,527
<TOTAL-ASSETS> 7,343,819
<CURRENT-LIABILITIES> 1,329,969
<BONDS> 0
0
0
<COMMON> 14,115
<OTHER-SE> 5,999,734
<TOTAL-LIABILITY-AND-EQUITY> 7,343,819
<SALES> 9,597,472
<TOTAL-REVENUES> 9,597,472
<CGS> 4,909,576
<TOTAL-COSTS> 6,835,896
<OTHER-EXPENSES> 3,247
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,023
<INCOME-PRETAX> (2,183,842)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,183,842)
<EPS-BASIC> (.13)
<EPS-DILUTED> 0
</TABLE>
