10QSB 1 0001.txt QUARTERLY FINANCIAL STATEMENTS 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. BOVIE MEDICAL CORPORATION. FORM 10-QSB QUARTERLY REPORT SEPTEMBER 30, 2000 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 PART I. FINANCIAL INFORMATION ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS BOVIE MEDICAL CORPORATION CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 2000 (UNAUDITED) Assets 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
=========== The accompanying notes are an integral part of the financial statements. BOVIE MEDICAL CORPORATION CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 2000 (UNAUDITED) (CONTINUED) Liabilities and Stockholders' Equity 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 ===========
The accompanying notes are an integral part of the financial statements. BOVIE MEDICAL CORPORATION. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED) 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 ========== ==========
The accompanying notes are an integral part of the financial statements. BOVIE MEDICAL CORPORATION. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED) 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 ========== ==========
The accompanying notes are an integral part of the financial statements. 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) 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 ========= ========
The accompanying notes are an integral part of the financial statements. 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 ---- ---- Interest paid $ 48,750 $ 38,520 Income Taxes - 0 - - 0 -
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. 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: Raw materials $ 1,185,847 Work in process 464,586 Finished goods 222,231 ---------- Total $ 1,872,664 =========
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. 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. 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. 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. 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. 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. 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. 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. 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. 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 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,