U.S. Securities and Exchange Commission
Washington D.C. 20549
Form 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from to
-
Commission file number 0-12183
--------------
BOVIE MEDICAL CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 11-2644611
-- -------------------
(State or other jurisdiction (IRS Employer of incorporation
or organization) Identification No.)
734 Walt Whitman Rd., Melville, New York 11747
(Address of principal executive offices)
(631) 421-5452
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. 1. Yes [ X ] No [ ] 2. Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date October 15, 2000: 13,785,334.
<PAGE>
BOVIE MEDICAL CORPORATION.
FORM 10-QSB
QUARTERLY REPORT
SEPTEMBER 30, 2000
<PAGE>
BOVIE MEDICAL CORPORATION
INDEX TO FORM 10-QSB
Contents
Part I. Financial Information
Item 1: Consolidated Financial Statements:
Consolidated Balance Sheet - September 30, 2000
Consolidated Statements of Operations for the
nine Months Ended September 30, 2000 and 1999
Consolidated Statements of Operations for the
three Months Ended September 30, 2000 and 1999
Consolidated Statements of Cash Flows for the
nine Months Ended September 30, 2000 and 1999
Notes to Financial Statements
Item 2: Management's Discussion and Analysis of Financial Conditions and Results
of Operations
Part II. Other Information
Item 1: Legal Proceedings
Item 2: Changes in Securities
Item 3: Defaults Upon Senior Securities
Item 4: Submission of Matters to Vote of Security Holders
Item 5: Exhibits and Reports on Form 8-K
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
BOVIE MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
(UNAUDITED)
Assets
<TABLE>
<S> <C>
Current assets:
Cash $ 436,898
Trade accounts receivable 1,285,578
Inventories 1,872,664
Prepaid expenses 97,234
Deferred tax asset 175,010
Other receivables 113,645
----------
Total current assets 3,981,029
----------
Property and equipment, net 1,538,934
Other assets:
Repair parts 310,420
Trade name 1,626,993
Patent rights, net 261,781
Deposits 30,345
-----------
2,229,539
-----------
$ 7,749,502
</TABLE>
===========
The accompanying notes are an integral part of the financial
statements.
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
(UNAUDITED)
(CONTINUED)
Liabilities and Stockholders' Equity
<TABLE>
<S> <C>
Current liabilities:
Accounts payable $ 383,882
Accrued expense 292,641
Notes payable - current portion 606,723
Due to shareholders 70,913
----------
Total current liabilities 1,354,159
----------
Stockholders' equity:
Preferred Stock, par value $.001
10,000,000 shares authorized
0 issued and outstanding
on September 30, 2000 --
Common stock par value $.001; 40,000,000
shares authorized, issued and outstanding
13,785,334 shares on September 30, 2000 13,855
Additional paid in capital 20,028,071
Accumulated deficit (13,646,583)
-----------
Total stockholders' equity 6,395,343
-----------
Total liabilities and stockholders' equity $ 7,749,502
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
BOVIE MEDICAL CORPORATION.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<S> <C> <C>
2000 1999
Sales $ 7,095,316 $ 7,186,430
Cost of sales 3,836,607 3,884,580
----------- ----------
Gross profit 3,258,709 3,301,850
----------- ----------
Costs and expenses:
Research and development 354,401 149,750
Professional services 323,429 260,416
Salaries and related costs 1,159,989 1,046,523
Selling, general and administrative 944,712 1,429,848
Impairment Loss -- 2,170,518
----------- ----------
2,782,531 5,057,055
----------- ----------
Gain (Loss) from operations 476,178 (1,755,205)
Other income (expense):
Interest income 24,927 11,742
Interest expense ( 51,223) ( 43,436)
Miscellaneous 15,758 2,099
---------- ----------
( 10,538) ( 29,595)
----------- ----------
Income (loss) 465,640 (1,784,800)
Provision for income tax ( 162,974) ( --)
Realized benefit of loss carryforward 162,974 --
----------- ----------
Net income (loss) $ 465,640 $ (1,784,800)
=========== ==========
Earnings per share
Basic $ .03 $(.16)
=== ===
Diluted $ .03 $(.14)
=== ===
Weighted average number of shares outstanding 13,945,060 11,156,359
========== ==========
Weighted average number of shares adjusted for
dilutive securities 16,073,220 12,823,026
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
BOVIE MEDICAL CORPORATION.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<S> <C> <C>
2000 1999
Sales $ 2,490,351 $ 2,537,486
Cost of sales 1,346,782 1,201,283
--------- ----------
Gross profit 1,143,569 1,336,203
--------- ----------
Costs and expenses:
Research and development 155,567 31,307
Professional services 103,088 69,538
Salaries and related costs 399,604 383,617
Selling, general and administrative 325,001 567,441
Impairment loss -- 2,170,518
--------- ---------
983,260 3,222,421
--------- ---------
Gain (Loss) from operations 160,309 (1,886,218)
Other income (expense):
Interest income 6,527 5,651
Interest expense ( 17,227) ( 8,260)
Miscellaneous 51 ( 1,431)
-------- --------
( 10,649) ( 4,040)
-------- --------
Income (loss) before extraordinary items 149,660 (1,890,258)
Provision for income tax ( 52,381) ( --)
Realized benefit of loss carryforward 52,381 --
--------- ----------
Net income $ 149,660 $(1,890,258)
========= ==========
Earnings per share
Basic $ .01 $(.13)
==== =====
Diluted $ .01 $(.12)
==== =====
Weighted average number of shares outstanding 13,827,834 14,738,755
========== ==========
Weighted average number of shares adjusted for
dilutive securities 15,940,834 16,738,755
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
BOVIE MEDICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<S> <C> <C>
2000 1999
---- ----
Cash flows from operating activities
Net income (loss) $ 465,640 $(1,784,800)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 248,192 529,984
Common stock issued for interest -- 7,846
Impairment loss 2,170,518
Changes in current assets and liabilities:
Decrease (Increase) in receivables ( 75,530) ( 6,717)
Decrease (Increase) in inventories ( 182,994) ( 34,375)
Increase in prepaid expenses ( 10,789) ( 7,237)
Increase (Decrease) in accounts payable ( 18,372) ( 22,334)
Increase (Decrease) in accrued expense 28,495 ( 25,873)
Decrease in other assets 17,498 ( 2,588)
Decrease in deposits -- 25,000
Decrease in due to shareholders -- 73,495
--------- ---------
Total adjustments 6,500 2,707,719
--------- ---------
Net cash provided by (used in) operating
activities 472,140 922,919
--------- ---------
Cash flows from investing activities
Increase in fixed assets ( 230,185) ( 91,964)
Decrease (Increase) in patents ( 124,471) ( 22,999)
Decrease (Increase) in deposits ( 25,580) --
Increase in product development -- ( 10,000)
--------- --------
Net cash used in investing activities ( 380,236) ( 124,963)
--------- --------
Cash flows from financing activities
Decrease in notes payable ( 529,433) --
Increase (Decrease) in notes payable 573,565 ( 70,225)
Common shares purchased for cash ( 114,000) --
Exercise of stock options 30,000 --
Decrease in loans from shareholders ( 30,066) ( 50,000)
Decrease in subscription receivable ( 146) --
---------- ---------
Net cash provided by financing activities ( 70,080) ( 120,225)
---------- ---------
Net increase (decrease) in cash and cash
equivalents 21,824 677,731
Cash and cash equivalents, beginning of
period 415,074 278,673
--------- --------
Cash and cash equivalents, end of period $ 436,898 $ 956,404
========= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
BOVIE MEDICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Cash paid during the nine months ended September 30:
2000 1999
---- ----
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<S> <C> <C>
Interest paid $ 48,750 $ 38,520
Income Taxes - 0 - - 0 -
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
There were no non-cash activities for the first nine months of the year 2000.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999.
1999
During the nine months ended September 30, 1999, the Company issued 29,060
restricted shares to the Krauss Organization in order to be in compliance with
the terms of its purchase agreement for the building it now owns and occupies.
The Company valued the shares at 40% of market value or $7,846 because of the
restriction on its immediate sale.
A reactor that the Company had purchased was not delivered by April 30,
1999 as per agreement, the Company requested its deposit of $125,000 to be
returned and canceled the order. The reactor was to be utilized for coating
electrosurgical blades or other medical products pursuant to the Company's
license for the Dylyn process. The electrosurgical blade coating project has
been terminated.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of Bovie Medical
Corporation and its wholly owned subsidiary Aaron Medical Industries, Inc. and
Bovie Medical Europe GMGH (a sales subsidiary 100% owned and formed on September
7, 2000). In the opinion of management, the interim financial statements reflect
all adjustments, consisting of only normal recurring items, which is necessary
for a fair presentation of the results for the interim periods presented.
The results for interim periods are not necessarily indicative of results
for the full year. These financial statements should be read in conjunction with
the significant accounting policies and the other notes to the financial
statements included in the Corporation's 1999 Annual Report to the SEC on Form
10-KSB.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in the Preparation of Financial Statements
The preparation of consolidated financial statements, in conformity with
generally accepted accounting principles, requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Fair Values of financial instruments
Cash and cash equivalents. Holdings of highly liquid investments with
maturity of three months or less, when purchased, are considered to be cash
equivalents. The carrying amount reported in the balance sheet for cash and cash
equivalents approximates its fair values.
Accounts receivable and accounts payable. The carrying amount of accounts
receivable and accounts payable on the balance sheet approximates fair value.
Short term and long term debt. The carrying amount of the bonds and notes
payable and amounts due to shareholders approximates fair value.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
principally on the average cost method. Inventories at September 30, 2000 were
as follows:
<TABLE>
<S> <C>
Raw materials $ 1,185,847
Work in process 464,586
Finished goods 222,231
----------
Total $ 1,872,664
=========
</TABLE>
Included in the Inventory for September 30, 2000 is $151,813 of factory
overhead or 8% of total inventories. The Company has on hand Inventory of spare
parts for the original Bovie line of generators which it believes can be used
over the next seven years valued at $310,420.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Long-Lived Assets
Long-lived and assets consist of property, plant and equipment, and
intangible assets.
Property, plant and equipment are recorded at cost less depreciation and
amortization. Depreciation and amortization are accounted for on the
straight-line method based on estimated useful lives. The amortization of
leasehold improvements is based on the shorter of the lease term or the life of
the improvement. Betterment and large renewals, which extend the life of the
asset, are capitalized whereas maintenance and repairs and small renewals are
expensed, as incurred. The estimated useful lives are: machinery and equipment,
7-15 years; buildings, 30 years; and leasehold improvements; 10-20 years.
Intangible assets consist of patent rights and goodwill. Goodwill
represents the excess of the cost of assets of the acquired companies over the
values assigned to net tangible assets. These intangibles are being amortized by
the straight-line method over a 5 to 20 year period.
Effective January 1, 1996, the Company adopted 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 recoverability of long-lived assets held, and to
be used, based on undiscounted cash flows and measures the impairment, if any,
using discounted cash flows. Adoption of SFAS No.121 did not have a material
impact on the Company's consolidated financial position, operating results or
cash flows.
Revenue Recognition and Product Warranty
Revenue from sales of products is generally recognized upon shipment to
customers. The Company warrants its products for one year. The estimated future
costs of warranties are not material.
Income is recognized in the financial statements (and the customer billed)
when products are shipped from stock. Net sales are arrived at by deducting
discounts and freight from gross sales.
Environmental Remediation
The Company accrues environmental remediation costs if it is probable that
an asset has been impaired or a liability incurred at the financial statement
date and the amount can be reasonably estimated. Environmental compliance costs
are expenses, as incurred. Certain environmental costs are capitalized based on
estimates and depreciated over their useful lives.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings Per Common and Common Equivalent Share
In February 1997, the Financial Accounting Standards Board issued SFAS 128.
"Earnings Per Share." SFAS 128 establishes new standards for computing and
presenting earnings per share ("EPS"). Specifically, SFAS 128 replaces the
previously required presentation of primary EPS with a presentation of basic
EPS, requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures, and requires
a reconciliation of the numerator and denominator of the basic EPS computation
to the financial statements issued for periods ending after December 15, 1997.
In 1997, the Company adopted SFAS 128.
Research and Development Costs
Only the development costs that are purchased from another enterprise and
have alternative future use are capitalized and amortized over five years.
Income Taxes
The Company and its wholly-owned subsidiaries file a consolidated federal
income tax return.
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Nonmonetary Transactions
The accounting for non-monetary assets is based on the fair values of the
assets involved. Cost of a non-monetary asset acquired in exchange for another
non-monetary asset is recorded at the fair value of the asset surrendered to
obtain it. The difference in the costs of the assets exchanged is recognized as
a gain or loss. The fair value of the asset received is used to measure the
cost, if it is more clearly evident than the fair value of asset surrendered.
Stock-Based Compensation
The Company has adopted Accounting Principles Board Opinion 25 for its
accounting for stock based compensation. Under this policy:
1. Compensation costs are recognized as an expense over the period of employment
attributable to the employee stock options.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based Compensation (Continued)
2. Shares issued in accordance with a plan for past or future services of an
employee are allocated between the expired costs and future costs. Future costs
are charged to the periods in which the services are performed. The pro forma
amounts of the difference between compensation cost included in net income and
related cost measured by the fair value based method, including tax effects, are
disclosed.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income". SFAS 130 establishes standards for reporting
and display of comprehensive income and its components (revenues, expenses,
gains, and losses) in a full set of general purpose financial statements.
Specifically, SFAS 130 requires that all items that meet the definition of
components of comprehensive income be reported in a financial statement for the
period in which they are recognized. However, SFAS 130 does not specify when to
recognize or how to measure the items that make up comprehensive income. SFAS
130 is effective for fiscal years beginning after December 15, 1997, and early
application is permitted.
Management believes the application of SFAS 130 will not have a material
effect on the Company's future financial statements.
In April 1998, the FASB issued SOP 98-5, "Reporting on the Costs of
Start-up Activities," which will become effective for the Company in fiscal
2000. It requires costs of start-up activities and organization costs to be
expressed, as incurred. The Company currently follows this approach and such
costs have been minimal in the past.
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Financial Reporting for Segments of Business Enterprise." SFAS 131 supersedes
the "industry segment" concept of SFAS 14 with a "management approach" concept
as the basis for identifying reportable segments. SFAS 131 is effective for
fiscal years beginning after December 15, 1997 and early application is
permitted. Management believes the application of SFAS 131 will not have a
material effect on the Company's future financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AS COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1999
Results of Operations
The results of operations over the nine months ended September 30, 2000 show
decreased sales of $91,114 and increased profitability, as compared to the first
nine months of 1999. The Company's sales revenues decreased by 1%, from
$7,186,430 to $7,095,316. Gross profit percentage of 45.9% remained unchanged
for the same period in 1999. Gross profit decreased from $3,301,850 to
$3,258,709. Decreased gross profit was mainly attributable to decreased sales of
electrosurgical products and a decrease in the gross profit attributable to
those sales. For the first nine months of 2000 and 1999, cauteries accounted for
44% and 41% of sales, respectively.
Operating salaries and related expenses increased by 11%, from $1,046,523
to $1,159,989, in the nine months ended September 30, 2000 as compared to the
same period in 1999. A significant area of increase was in quality control
personnel.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Results of Operations (Continued)
Research and development costs increased by 137% from $149,750 to $354,401
from the nine months ended September 30, 1999 to the nine months ending
September 30, 2000. The increase was mainly attributable to engineering costs on
the new generator models being developed.
Expenses for professional services increased by 24% to $323,429 in the nine
months ended September 30, 2000, as compared to $260,416 in the same period of
the previous year. The main reason for this increase was professional fees
associated with public relations.
Selling, General and Administrative expenses decreased by $485,136 or 34%.
These expenses were $1,429,848 in the nine month period ended September 30, 1999
as compared to $944,712 for the nine months ended September 30, 2000. The
decrease was mainly due to a decrease in amortization expense of $242,065
attributed to the cost of the ART manufacturing license, which was sold
effective December 30, 1999.
Interest expense increased from $43,436 in the nine months ended September
30, 1999 to $51,223 in 2000. The $7,787 (18%) increase in interest expense was
mainly attributable to the increase in interest in the Company's line of credit.
The term loan to the Company's commercial bank was paid off in the first quarter
of 2000.
The operating gain was $476,178 in the first nine months of 2000 as
compared to an operating loss of $1,755,205 in the same period in 1999, an
increase of $2,231,383. the difference was mostly attributeable to a one-time
impairment loss of $2,170,518 on the value of the Dylyn Technology License which
was sold in the fourth quarter of 1999.
The Company had a net gain of $465,640 for the nine months ended September 30,
2000 as compared to net loss of $1,784,800 in 1999 for the same period. The main
reason for the increase of $2,250,440 in the income was the Dylyn Technology
impairment deduction taken in 1999, as mentioned above.
The Company sells its products mostly through distributors and independent
representatives that service the distributors, both in the international market
and in the USA. Distributors are contacted through response to company
advertising in international medical journals or at domestic or international
trade shows. The main focus for export sales has been Western Europe.
The Company has distributors in all major markets in Europe. The Company
intends to continue marketing its products internationally while concentrating
on major markets for increased market exposure and the introduction of new
products. The Company has set up a sales office in Western Europe to promote the
sale of electrosurgical devices.
During the first nine months of 2000, international sales of the Aaron
Medical product line decreased. These sales were $1,235,561, which represented
17% of total sales, while in 1999 total international sales were $1,425,626,
which represented 20% of total sales. The Company expects sales to increase
since it received its ISO 9000 certification in the 3rd quarter of 1998 and has
recently setup a sales office in Germany to help promote this end.
<PAGE>
BOVIE MEDICAL CORPORATION
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Financial Condition
As of September 30, 2000, the amount of cash was $436,898 as compared to
$956,404 at September 30, 1999. Cash provided by operating activities was
$472,140 in the first nine months of 2000 as compared to $922,919 provided by
operations in the first nine months of 1999. Net working capital of the Company
on September 30, 2000 was $2,626,870 as compared to $2,478,440 in 1999.
Investing activities utilized $380,236 in cash during the first nine months
of 2000, compared to $124,963 in the first nine months of 1999. In 2000, the
Company continued its policy of investing in property, plant and equipment
needed for future business requirements, including manufacturing capacity.
Cash flows from financing activity provided $573,565 and used $529,433 in
the first nine months of 2000. In 1999 cash flows form financing activities used
$120,225. The most significant financing activities in the nine months ended
September 30, 2000 was the purchase of Company shares from a former major
shareholder ($114,000) and net borrowing of $50,000 on the Company credit line.
The Company's ten largest customers accounted for approximately 60% of net
sales for the first nine months of 2000. At September 30, 2000, the same ten
customers accounted for approximately 73% of outstanding accounts receivable.
On October 11, 2000 The Department of Environment Protection released the
former owner of the Companys' building at 7100 34th Ave N, St. Petersburg, FL
"from any further obligation to conduct site rehabilitation." Based on this
release the mortgage held by the former owner, of $400,000, is now due and
payable. The company has contacted its commercial bank and is arranging
financing to pay off this mortgage. If necessary the Company has enough funds
available to pay off the mortgage in full.
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.
Outlook
The Company believes that the world market for disposable medical and
electrosurgical products, such as the Company's battery-operated cauteries and
electrosurgical generators, have significant growth potential. The Company
presently has a significant portion of the U.S. cautery market and does not
expect a dramatic growth in sales of cautery-related products domestically
unless an OEM arrangement can be obtained with a co-leader in this market.
The Company has focused on expanding its line of electrosurgical products
both domestically and abroad. Electrosurgical products sold by the Company
include standard stainless steel electrodes, and the Bovie/Aaron 800, 900, 1200
and 2100 high frequency desiccators. The Bovie/Aaron 2100 has been recently
introduced.
Bovie, through its private label capacity, sees unique opportunities in the
domestic market as most of its competitors do not private label. Electrosurgery
provides the largest market opportunity for the Company and is dominated by two
main competitors, VallyeLab and Conmed. Electrosurgical product sales moved from
fifth to second place in total Company sales by product line in 1997 and has
remained in that position. The Company believes that in the next two years
electrosurgical products will be the dominant product line.
<PAGE>
BOVIE MEDICAL CORPORATION
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Liquidity and Future Plans
The Companies main focus is the electrosurgical market, indicated by the
development of several new generators. Other electrosurgical products and
technologies are being developed by the Company through the use of its own
engineering staff and by outsourcing engineering development.
The Company has recently entered into a co-equal joint venture with a
European technology development company to manufacture and market worldwide,
J-Plasma, a new-patented plasma technology that could significantly improve
current surgical procedures. J-Plasma will initially be utilized in the areas of
plastic surgery and dermatology, management anticipates that there are other
possible surgical uses, including cancer, neuro, cardiovascular and gynecologic
and endoscopic procedures.
The device produces a stable thin focused beam of ionized gas that can be
controlled in a wide range of temperatures and intensities, providing the
surgeon with precision, minimal invasiveness and an absence of conductive
currents during surgery.
The joint venture is developing its first commercial prototypes for uses in
dermatology and plastic surgery and upon their completion, the Company intends
to file appropriate applications with the Food and Drug Administration (FDA) for
these uses. Applications in other areas of surgery require further testing and
will be subject to FDA approvals.
Bovie's management believes J-Plasma is potentially an important advance to
traditional surgical operations and will be cost effective and complementary to
Bovie's electrosurgical product line.
As part of the partnership agreement, the Company is presently committed to
funding $200,000 to the joint venture for research and development.
In order to strive for international sales growth through its ability to
sell in Europe, management has implemented an ISO 9000/EN46001 quality system
and is certified and has received its CE mark (International Quality Control) in
1998. The Company had obtained a one-year line of credit with a local commercial
bank for $600,000 and a three-year $150,000 loan for capital improvements.
Interest on these loans is to be paid at 1% over prime. Balances on these loans
were $ 150,000 on the credit line and $-0- on the term loan as of September 30,
2000, respectively.
Bovie Medical Corporation believes that it has the product mix, facilities,
personnel, and competitive and financial resources for continued business
success, but future revenues, costs, margins, product mix and profits are all
subject to the influence of a number of factors, as discussed above.
<PAGE>
BOVIE MEDICAL CORPORATION
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Forward-looking Statements
This Report on Form 10-QSB contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including statements regarding the Company's
expectations, hopes, intentions, beliefs or strategies regarding the future.
Such forward-looking statements include, but are not limited to, the Company's
anticipated expense levels for research and development, and selling general and
administrative, anticipated capital expenditures, and expectations regarding
inventory balances, liquidity and adequacy of cash resources under the
sub-headings inventory balances, liquidity and adequacy of cash resources under
the sub-headings "Results of Operations" and "Liquidity and Capital Resources".
Actual results could differ materially form those projected in any
forward-looking statements for the reasons detailed below and in other sections
of this Report on Form 10-QSB.
All forward-looking statements included in this Form 10-QSB are based on
information available to the Company on the date of this Report. The Company
assumes no obligation to update the forward-looking statements. Investors should
also consult the risk factors listed from time to time in the Company's Reports
on Form 10-K and Annual Report to Stockholders.
<PAGE>
BOVIE MEDICAL CORPORATION
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
THREE MONTHS ENDED SEPTEMBER 30, 2000 AS COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1999
Results of Operations
The results of operations over the three months ended September 30, 2000
show decreased sales of $47,135 and increased profitability, as compared to the
same three months of 1999. The Company's sales revenues decreased by 2%, from
$2,537,486 to $2,490,351. Gross profit percentage for the three month ended
September 30, 2000 was 45.9% as compared to 47% for the same period in 1999.
Gross profit decreased from $1,336,203 to $1,143,569. Decreased gross profit was
mainly attributable to decreased sales of electrosurgical products and a
decrease in the gross profit attributeable to those sales. For the three months
ended September 30, 2000 and 1999, cauteries accounted for 45% and 42% of sales,
respectively.
Operating salaries and related expenses increased by 4%, from $383,617 to
$399,604, in the three months ended September 30, 2000 as compared to the same
period in 1999. A significant area of increase was in quality control personnel.
Research and development costs increased by 397% from $31,307 to $155,567
from the three months ended September 30, 1999 to the three months ending
September 30, 2000. The increase was mainly attributable to engineering costs on
the new generator models being developed.
Expenses for professional services increased by 48% to $103,088 in the
three months ended September 30, 2000, as compared to $69,538 in the same period
of the previous year. The main reason for this increase was professional fees
associated with public relations.
Selling, General and Administrative expenses decreased by $242,440 or 43%.
These expenses were $567,441 in the three month period ended September 30, 1999
as compared to $325,001 for the three months ended September 30, 2000. The
decrease was mainly due to a decrease in amortization expense of $80,688
attributed to the cost of the ART manufacturing license, which was sold
effective December 30, 1999.
Interest expense increased from $8,260 in the three months ended September
30, 1999 to $17,227 in 2000. The $8,967 (109%) increase in interest expense was
mainly attributable to the increase in interest in the Company's line of credit.
The operating gain was $160,309 for the three months ended September 30,
2000 as compared to an operating loss of $1,886,218 in the same period in 1999,
an increase of $2,046,527, the difference was mostly attributeable to a one-time
impairment loss of $2,170,518 on the value of the Dylyn Technology License which
was sold in the fourth quarter of 1999.
The Company had a net gain of $149,660 for the three months ended September
30, 2000 as compared to net loss of $1,890,258 for the same period in 1999. The
main reason for the increase of $2,250,440 in the income was the Dylyn
Technology impairment as mentioned above.
<PAGE>
BOVIE MEDICAL CORPORATION
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has instituted an action for breach of contract against
Advanced Refractory Technologies, Inc. (ART) - (A former major shareholder) to
recover a deposit of $125,000.
Also see Form 10-KSB for the year ended December 31, 1999. Part I, Item 3.
ITEM 2. CHANGES IN SECURITIES
There have been no changes in the instruments defining the rights or rights
evidenced by any class of registered securities.
There have been no dividends declared.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
In February of 1997, the 10-year notes came due and the Company offered
each bond holder 2,200 shares of common stock for their $1,000 bond and accrued
interest of $550. Nineteen bondholders accepted the offer and forty-three
bondholders received cash for their bonds and accrued interest. The balance of
the bondholders have not redeemed their bonds or accepted the shares offered.
The amount of these outstanding bonds is $20,000 and accrued interest to
September 30, 2000 of $14,583.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
There has not been a meeting of shareholders and therefore, no matters have
been submitted to a vote of security holders.
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
A) Exhibits
28 None
<PAGE>
SIGNATURES:
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Bovie Medical Corporation.
(Registrant)
Date: November 15, 2000
/s/Andrew Makrides
-------------------------
Chief Executive Officer - Andrew Makrides,
