10KSB 1 0001.txt FINANCIAL STATEMENT U.S. SECURITIES AND EXCHANGE 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 31,2000 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 $9,935,886. 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 20, 2001 was approximately $9,129,344. State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:13,585,334. DOCUMENTS INCORPORATED BY REFERENCE There are no documents incorporated by reference. Bovie Medical Corporation 2000 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 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 900 high frequency desiccators (generators) and the Aaron 1200 electrosurgical generator. In addition, the Company has designed, developed and scheduled the release of two other electrosurgical generators; the Aaron 1250 and the Aaron 2100, during first two quarters of 2001. These two generators are designed for today's rapidly expanding surgi-center market. 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 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 generators, 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. Our accessory electrosurgical products are substantially compatible with all major manufacturers' electrosurgical generator products. All electrosurgical generators and accessories are marketed using the Bovie trademark, which is recognized internationally in electrosurgery. It is estimated that 80% of all surgical procedures performed worldwide are accomplished by electrosurgery, which includes surgical procedures in gynecology, urology, plastic surgery, general surgery and dermatology. Aaron 800 and Aaron 900 High Frequency Desiccators The Aaron 800 and Aaron 900 are low powered office based generators designed primarily for dermatology and plastic surgery. The units are 30 watt high frequency desiccators used mainly in doctors offices for removing small skin lesions and growths. Aaron 1200 The Company has developed a 120 watts, full-featured electrosurgical generator for outpatient surgical procedures. It was designed mainly for use in the doctors' office and is utilized in a variety of specialties including: dermatology, gynecology, and plastic surgery. Aaron 1250 The Company has developed and plans to release during the first quarter of 2001, a 120 watt multipurpose electrosurgical generator. The unit also features monopolar and bipolar functions with pad sensing. The product has received a positive response from the OEM community and is being produced in at least two private label formats in addition to the Bovie/Aaron label. Aaron 2100 The Company has developed and plans release during the second quarter of 2001, a 200 watt multipurpose electrosurgical generator, designed for the rapidly expanding surgi-center market in the United States. The unit features both monopolar and bipolar functions, has pad and tissue sensing plus nine blended cutting settings. This powerful unit has the capability to do practically any procedure performed today in the surgi-center or outpatient setting. New Generators In addition to the Aaron 2100 and 1250, the Company is continuing to develop and expand its range of electrosurgical generators. The Company has two generators currently in the design and development phase. The first new generator is expected to be released in the fourth quarter of 2001 and the second is expected to be ready for release during 2002. Jump Unipolar Low Temperature Focused Plasma Technology In February, 2000, the Company entered into a Joint Venture Agreement with a German corporation, Jump Agentur Fuer Elektrotechnik GMBH. Pursuant to the agreement, Bovie is to advance $200,000 to the partnership to cover costs of further research and development for the production of two commercial prototypes for dermatology and general surgery. It shall also make available its facilities in Florida for development, manufacturing and marketing of the products of the joint venture and will be responsible to expend it's best efforts to secure all necessary financing for the research, development and marketing of the products estimated to be an amount up to $1,500,000. The joint venture acquired an exclusive license to produce and market any surgical device utilizing this technology. As of December 31, 2000, Bovie had advanced $100,000 to the joint venture and expensed $21,924 in development costs. The technology utilizes a gas ionization process utilizing only one working electrode. 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. This electrosurgical device has been developed and patented in both Europe and the U.S., and is awaiting FDA submission and approval. The initial intended uses are in the areas of Dermatology and Plastic Surgery. Other contemplated uses for the technology are: cardiovascular, thoracic, gynecological and other surgeries. 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 a nerve locator stimulator primarily used for identifying motor nerves in hand and facial reconstructive surgery. This instrument is a self-contained, battery operated unit, 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, HBOC, IMCO, NDC (Abco, Cida and Starline), 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, Valley Lab (a division of Tyco), 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 2000 and 1999, totaled $513,020 and $379,832 respectively. The Company has not incurred any direct costs relating to environmental regulations or requirements. Employees Presently the Company has a total of approximately 109 employees. These consist of 5 executives, 10 administrative, 5 sales, and 89 technical support and factory employees. 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. PURCHASE COMPANY SHARES 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. To complete the purchase which ends November, 2001, the Company will expend approximately $150,000. 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 $1,350 per month and the lease expires in the year 2003. 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. On February 16, 2001, Meryman Environmental, Inc. conducted a ground water test and determined "the data continues to show an overall decrease in the mass contamination at the site." The Company is waiting for further comments on the report by the Florida Department of Health Pollutant Storage Tank Cleanup Program and the waste cleanup section FDEP Southwest District. 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. 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, 2000. 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 ("OTC 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 OTC Bulletin Board (symbol "Bovi"). 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 2000 High Low 1st Quarter $ 1.5000 $ .7500 2nd Quarter 1.0500 .6500 3rd Quarter 1.5000 .7000 4th Quarter 1.5000 .5500 On March 20, 2001, the Closing bid for Bovie's Common Stock as reported by the OTC Bulletin Board was $.656 per share. As of March 20, 2001, the total number of shareholders of the Company's Common Stock was approximately 2,000, of which approximately 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 $9.69 million as compared to $9.94 million for 2000. The increase in sales of $.25 million (2%) 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 2000 as compared to approximately 90% in 1999. The Cost of goods sold decreased by $12,069 (.025%) from $5,004,818 in 1999 to $4,992,749 in 2000. Consequently, the percentage of gross profit from sales increased from 48% in 1999 to 49% in 2000. The difference in cost of sales and gross profit were principally due to an increase in sales and decrease in cost of sales of the Company's family of cauteries. For years 2000 and 1999 cauteries accounted for 41% and 42% of sales, respectively, and 36% for both years of cost of goods sold. Research and development expenses increased from $379,832 to $513,020, from 1999 to 2000. The Company continued to invest in the development of electrosurgical devices, and other Company products which are evidenced by engineering costs increasing from $281,114 in 1999 to $346,753 in 2000. Research and development costs are made up of material, engineering, and payroll costs. The Company's effective federal income tax rate is 34%. As a result of the net gain, the Company's net operating loss tax benefits decreased in 2000 by $175,344, leaving a net operating loss carryover of $9.1 million. General and administrative expenses of the Company increased $250,324 or 17% from $1.45 million in 1999 to $1.7 million in 2000. This was mainly attributable to the increase in trade show and advertising expenses of $200,000 together with the costs associated with supporting additional personnel. Salaries and related costs increased by 6% from $1.7 million in 1999 to $1.8 million in 2000. The increase in salaries was due in part to the hiring of additional administrative, quality control and technical personnel needed primarily to produce electrosurgical products. Cost of professional services decreased by 25% from $508,117 in 1999 to $379,289 in 2000. Professional fees were primarily related to consulting, auditing and legal costs. During 1999, the Company evaluated its DYLYN (tm) 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, to sell back the reactors and the technology. The Company incurred a non-recurring loss of $2,718,985 on the transaction. The decrease in other expenses, included the non-recurring loss, resulted in a increase of $2,670,906 in operating income and $2,684,470 increase in net income, from 1999 to 2000. Loss from operations was $2,148,030 in 1999 as compared to an operating gain of $522,876 in 2000. Net loss of the Company in 1999 was $2,183,839 as compared to net gain in 2000 of $500,628. Total other costs as a percentage of sales were 71% in 1999 as compared to 44% in 2000. These costs primarily decreased due to the loss associated with the sale of the DYLYN (tm) Technology taken in 1999. For the year 2000, total other costs, excluding the DYLYN (tm) transaction, were not significantly higher than in 1999. The Company sells its products through distributors both overseas and in US markets. New distributors are contacted through response to Company advertising in international medical journals and/or at domestic or international trade shows. During 2000, international sales of the Company's product lines decreased by a total of $188,031 (10%). In 1999, these sales were $1.8 million (19% of total sales) as compared to $1.6 million (16% of total sales) in 2000. To enhance European sales, the Company has recently opened a sales office in Germany and will commence marketing its increased line of electrosurgical products in the Spring of 2001. 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. In 1999 and 2000, commissions paid were $177,658 and $176,425, respectively. 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. In order to provide additional working capital, the Company has secured a $600,000 credit facility with a local commercial bank. This facility is renewable annually. Financial Condition As of December 31, 2000, cash totaled $278,662 as compared to $415,074 at December 31, 1999. Cash provided by operating activities was $657,500 in 2000 compared to $530,724 in 1999. Net working capital of the Company was $2,506,882 and $2,365,530 on December 31, 2000 and 1999, respectively. The amount of cash used in investing activities was $126,728 in 1999, compared to $639,869 in 2000. The Company continued to invest in property, plant and equipment needed for future business requirements, including manufacturing capacity. The Company invested $200,000 in a joint venture involving a new unipolar low temperature plasma technology. The net cash used by financing activities was $154,043 in 2000 as compared to $267,595 in 1999. The most significant item of financing activity in 2000 resulted from the repurchase of 400,000 Company common shares for $152,000, 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 needed 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 58% in 2000. At December 31, 2000, the Company's ten largest trade receivables accounted for approximately 58% of outstanding trade receivables as compared to 55% in 1999. 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, have significant growth potential because these 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, Aaron 900, Aaron 1200, and Aaron 1250, and soon to be introduced, the Aaron 2100 high frequency generators. From 1999 to 2000, the Company's electrosurgical sales decreased by 9% from $2.7 million to $2.5 million. This decrease was mainly attributable to less than anticipated sales from Maxxim. With the introduction of new electrosurgical products, the Company expects electrosurgical sales to increase significantly in 2001. The Company through its private label capability anticipates opportunities in the domestic market as its competitors do not private label. The electrosurgical product market is larger than the Company's traditional market and is dominated by two main competitors, ValleyLab and Conmed. The combined markets for these products exceed $100 million annually. Non-Medical Products In 2000, the Company had sales of $1.1 million of its flexible lighting products, used primarily in the automotive and locksmith industries. Approximately $.9 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. The Company's new eletrosurgical generators are 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, 2000, the Company had $150,000 outstanding on the line of credit and had a balance of $-0- on its term loan. The Company believes it is in compliance with the bank's covenants at December 31, 2000. The Company's future results of operations and the other forward-looking statements contained herein particularly 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 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. 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 V. Greco Director April, 1998 Nancy Keller Chief Financial Officer Moshe Citronowicz Executive Vice President Chief Operating Officer ------------------ Andrew Makrides, Esq. age 59, 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 48, 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. Alfred V. Greco, Esq. age 65, 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 52, 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 60, became a director on October 1, 1995. Mr. Kromer was 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 48, 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. Pursuant to the agreement with Maxxim Medical, Inc. ("Maxxim"), Mr. Davidson was designated by Maxxim to serve as a director of Bovie Medical Corp. In October, 2000, Mr. Davidson resigned as a director of Maxxim. Pursuant to instructions from Maxxim that Mr. Davidson has ceased acting as a director of the Company, management has deemed that he has officially resigned as a director of Bovie. Maxxim has elected not to replace or redesignate a replacement for Mr. Davidson. 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, 2000: Summary Compensation Table Annual Compensation Long Term compensation
Securities Underlying Name and Restricted Stock Principal (a) (b) Stock Option Position Year Salary Bonus Other Awards(#) SARS(#) Pay-outs -------- ---- ------ ----- ------ -------- ------- -------- Andrew Makrides President, CEO Chairman of 2000 $ 123,764 2,388 7,235 -- -- -- the Board 1999 $ 116,312 2,198 9,263 -- -- -- 1998 99,478 1,918 9,809 -- -- -- J. Robert Saron President of Aaron Medical and 2000 $ 167,528 3,381 12,556 -- -- -- Director 1999 $ 166,181 3,245 14,409 -- -- -- 1998 144,559 2,814 9,809 -- -- -- Moshe Citronowicz Executive Vice President- 2000 $ 122,076 2,485 12,711 -- -- -- Chief Operating 1999 $ 116,193 2,439 14,564 -- -- -- Officer 1998 112,463 22,891 9,809 100,000 -- -- Nancy Keller 2000 $ 70,702 1,954 6,599 -- -- -- Chief Financial 1999 $ 38,060 1,444 4,165 -- -- -- Officer
(b) Other compensation consists of medical insurance and auto. Option Grants and Exercise The following table summarizes (i) there were no options granted to the Named Executive Officers during the year ended December 31, 2000 (ii) the in the money value of the options held by the named Executive Officers at December 31, 2000 was zero.
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) ---- -------------- -------- ----------- ------- Andrew Makrides -- -- -- 220,000 -- J. Robert Saron -- -- -- 240,000 -- Moshe Citronowicz -- -- -- 175,000 -- -------------------
(a) The exercise price of the options was higher than the closing sale price for the Common Stock. The sales price as reported on OTC Bulletin Board on December 31, 2000 was $.60. 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, 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 $1,500. Mr. Greco is an officer and director of Alfred V Greco PLLC, Counsel to the corporation which earned legal fees from the Company of $58,508 during 2000. There were no options granted to the members of the Board of Directors in the year 2000. There have been no changes in the pricing of any options previously or currently awarded. In February 2000, the Company extended employment contracts with certain of its officers, for two years. The following schedule shows all contracts and terms with officers of the company. Bovie Medical Corporation Officers' Contracts December 31, 2000 Contract Expiration Contractual Auto Date Date(1) Base Pay Allowance 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
Item 11. Security Ownership of Certain Beneficial Owners and Management of Bovie. The following table sets forth certain information as of December 31, 2000, 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.
Number of Nature Percentage Name and Title Shares of of Address of Class Ownership Ownership(i) ------- -------- --------- ------------ Shares(i) Maxxim Medical Inc. Common 3,000,000 Beneficial 19.0% 10300 49th St. North Clearwater, FL 33762 Directors Andrew Makrides Common 535,800(ii) Beneficial 3.4% 734 Walt Whitman Road Melville, NY 11746 George Kromer Common 205,000(iii) Beneficial 1.3% P.O. Box 188 Farmingville, NY 11738 Alfred Greco Common 201,500(iv) Beneficial 1.3% 666 5th Ave. New York, NY 10103 J. Robert Saron Common 673,805 (v) Beneficial 4.3% Ashley Drive Seminole, FL Moshe Citronowicz Common 349,591 (vi) Beneficial 2.2% 7100 30th Avenue N. St. Petersburg, FL 33710 Officers and Directors as a group 1,965,696(a) 12.5%
(a) Includes 990,000 shares reserved for options (i) Based on common shares of 13,685,334 and 2,105,500 options outstanding to acquire shares. Officers and directors have 990,000 options to acquire shares at December 31, 2000. (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 205,000 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) Includes 175,000 shares reserved pursuant to 10 year options exercisable at $.75 per share owned by Mr. Citronowicz. 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 $1,500 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 and 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. As of December 31, 2000, the Company owed the former chairman $24,721. See "Certain Relationships and Related Transactions". Presently there is no lawsuits between the Company and any former officer. Alfred V. Greco A director is the principal of Alfred V. Greco PLLC, the Company's counsel which received $58,508 in legal fees during 2000. 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 2000. 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 March 26, 2001. 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.
Signatures Title and Date S/Andrew Makrides Chairman of Board Andrew Makrides Chief Executive Officer President, Director March 26, 2001 S/J. Robert Saron Director ------------------------------------- J. Robert Saron March 26, 2001 S/George W. Kromer Director ------------------------------------- George W. Kromer March 26, 2001 S/Nancy Keller Chief Financial Officer ------------------------------------- Nancy Keller March 26, 2001 S/Alfred Greco Director ------------------------------------- Alfred Greco March 26, 2001
PART II ITEM 7. FINANCIAL STATEMENT BOVIE MEDICAL CORPORATION INDEX TO FINANCIAL STATEMENTS Contents Page Consolidated Balance Sheet at December 31, 2000 Consolidated Statements of Operations for the years ended December 31, 2000 and 1999 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000 and 1999 Consolidated Statements of Cash Flows for the years ended December 31, 2000 and 1999 Notes to Consolidated Financial Statements Consent of Certified Public Accountant Independent Auditors' Report BOVIE MEDICAL CORPORATION CONSOLIDATED BALANCE SHEET DECEMBER 31, 2000 ASSETS
Current assets: Cash $ 278,662 Trade accounts receivable, net 1,256,049 Inventories 1,994,564 Prepaid expenses 111,343 Deferred tax asset 175,010 Other Assets 111,179 --------- Total current assets 3,926,807 Property and equipment, net 1,552,179 Other assets: Repair parts 317,698 Trade name 1,603,527 Patent rights, net 277,644 Deposits 35,719 Investment Joint Venture 200,000 ---------- 2,434,588 ---------- Total Assets $ 7,913,574 ==========
The accompanying notes are an integral part of the financial statements. BOVIE MEDICAL CORPORATION CONSOLIDATED BALANCE SHEET DECEMBER 31, 2000 (Continued) LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities
Current liabilities: Accounts payable $ 439,144 Accrued expenses 350,425 Notes payable 572,931 Due to shareholders 57,425 Due to joint venture 100,000 --------- Total current liabilities 1,519,925 Stockholders' equity: Preferred stock 10,000,000 shares authorized, none outstanding -- Common stock par value $.001; 40,000,000 shares authorized, 13,685,334 shares issued and outstanding on December 31, 2000 13,756 Additional paid in capital 19,991,488 Accumulated deficit (13,611,595) ---------- Total stockholders' equity 6,393,649 ---------- Total liabilities and stockholders' equity $ 7,913,574 ========= The accompanying notes are an integral part of the financial statements.
BOVIE MEDICAL CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 2000 1999 Sales $ 9,935,886 $9,692,714 Cost of sales 4,992,749 5,004,818 --------- --------- Gross Profit 4,943,137 4,687,896 Other costs: Research and development 513,020 379,832 Professional services 379,289 508,117 Salaries and related costs 1,818,489 1,720,795 Selling, general and administration 1,702,442 1,453,118 Write down of fixed assets 7,021 55,079 Loss on sale of license and reactors -- 2,718,985 --------- ---------- Total other costs 4,420,261 6,835,926 --------- ---------- Income (loss) from operations 522,876 (2,148,030) --------- --------- Other income and (expense): Interest income 28,746 21,964 Interest expense (66,803) (61,023) Miscellaneous 15,809 3,247 -------- --------- (22,248) (35,812) -------- --------- 500,628 (2,183,842) Income tax expense (175,219) -- Income tax benefit 175,219 -- ------- --------- Net income (loss) $ 500,628 $ (2,183,842) ======= =========
BOVIE MEDICAL CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 (CONTINUED) 2000 1999 ---- ---- Net earnings (loss) per share $ .04 $(.07) ==== ===== Weighted average number of common shares outstanding 13,896,991 13,876,328 ========== ========== The accompanying notes are an integral part of the financial statements.
BOVIE MEDICAL CORPORATION CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
Warrants Preferred Common Paid-in Outstanding shares Stock share stock Capital Deficit Total ----------- ------ ----- ----- ----- ------- ------- ----- 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 shareholder 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 ========= ======== ========= ========== ====== ========== ========== ========= Balance as of January 1, 2000 2,145,500 -- -- 14,045,334 $14,116 20,111,957 (14,112,223) $6,013,850 Common shares issued for cash at $.75 per share ( 40,000) -- -- 40,000 40 29,960 -- $ 30,000 Subscription receivable paid in cash -- -- -- -- -- 1,171 -- $ 1,171 Common shares purchased from shareholder for cash at $.38 per share and retired -- -- -- (400,000) (400) (151,600) -- $ (152,000) Income for period -- -- -- -- -- -- 500,628 $ 500,628 --------- -------- -------- ---------- ------ ---------- ---------- --------- Balance as of December 31, 2000 $ 2,105,500 -- -- 13,685,334 $13,756 $19,991,488 $13,611,595 $6,393,649 ========= ======== ========= ========== ====== ========== ========== =========
The accompanying notes are an integral part of the financial statements. BOVIE MEDICAL CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999 ---- ---- Cash flows from operating activities: Net income (loss) $ 500,628 $(2,183,842) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 396,810 321,172 Shares issued for rent -- 6,974 Write down inventory of repair parts -- 33,445 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 ( 46,001) (207,214) Prepaid expenses ( 24,898) ( 8,005) Inventories (312,172) (201,231) Other receivables 19,964 16,908 Accounts payable 36,890 16,696 Accrued expenses 86,279 ( 38,243) -------- -------- Total adjustments 156,872 2,714,566 -------- --------- Net cash provided (used in) operations $ 657,500 $ 530,724 ======== =========
The accompanying notes are an integral part of the financial statements. BOVIE MEDICAL CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 (Continued) 2000 1999 ---- ---- Net cash provided by (used in) operating activities $ 657,500 $ 530,724 Cash flows from investing activities: Increase in fixed assets (256,081) (126,728) Increase in security deposits ( 30,954) -- Purchase of technology (252,834) -- Partnership contribution (100,000) -- --------- ---------- Net cash used in investing activities (639,869) (126,728) Cash flows from financing activities Common shares issued 30,000 177,374 Loans from shareholders ( 43,553) ( 2,147) Repurchase and retirement of common stock (152,000) (425,000) Reduction in subscription receivable 1,170 -- Reduction of notes payable ( 39,660) (117,822) Borrowing - line of credit 50,000 100,000 --------- --------- Net cash used in financing activities ( 154,043) ( 267,595) ---------- --------- Net increase in cash ( 136,412) 136,401 Cash at beginning of year 415,074 278,673 --------- --------- Cash at end of year $ 278,662 $ 415,074 ========= ========= Cash paid during the twelve months ended December 31: 2000 1999 ---- ---- Interest $64,500 $ 60,751 Income Taxes -0- -0- The accompanying notes are an integral part of these financial statements.
BOVIE MEDICAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FOR THE YEAR ENDED DECEMBER 31, 2000 AND 1999 SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2000 1. The Company agreed to fund the Jump joint venture for $200,000 of which it only funded $100,000 in 2000. 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 (tm) coating process 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. 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, 2000. 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 $ 1,269,110 Work in process 490,620 Finished goods 234,834 --------- Total $ 1,994,564 ========= 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. 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. BOVIE MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) As of December 31, 2000, the inventory of parts was as follows: Raw materials $ 537,917 Allowance for excess or obsolete parts (220,219) ------- $ 317,698 ======== 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. The Company now includes revenues from freight in gross sales and cost of freight in cost of goods sold. 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 $152,599 and $67,120 for 2000 and 1999 respectively. 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 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. 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. 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, formerly 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. 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. Bovie'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 many types of surgery. The Company manufactures many types of cauteries. BOVIE MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. DESCRIPTION OF BUSINESS (CONTINUED) Bovie 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. The Company 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 Company has developed a 120 watt electrosurgical coagulation device (ECU) which it began marketing the Aaron 1200 in 1998. During 2000, the Company expanded it's electrosurgical product line by adding the Aaron 1250. The Company now markets five multipurpose electrosurgical generators ranging in power from 30 watts to 200 watts. 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. Jump Unipolar Low Temperature Focused Plasma Technology In February, 2000, the Company entered into a joint venture agreement with a German corporation, Jump Agentur Fuer Elektrotechnik GMBH. Pursuant to the agreement, Bovie is to advance $200,000 to the partnership to cover costs of further research and development for the production of two commercial prototypes for dermatology and general surgery, and shall make available its facilities in Florida for development, manufacturing and marketing of the products of the joint venture. The Company is responsible to expend it's best efforts to secure all necessary financing for the research, development and marketing of the products estimated to be an amount up to $1,500,000. The joint venture acquired an exclusive license to produce and market any surgical device utilizing this technology. As of December 31, 2000, Bovie had advanced $100,000 to the joint venture and expensed $21,924 in development costs. The technology utilizes a gas ionization process utilizing only one working electrode. 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. This electrosurgical device has been developed and patented in both Europe and the U.S., and is awaiting FDA submission and approval. The initial intended uses are in the areas of Dermatology and Plastic Surgery. Other contemplated uses for the technology are cardiovascular, thoracic, gynecological and other surgeries. NOTE 3. TRADE ACCOUNTS RECEIVABLE As of December 31, 2000 the trade accounts receivable were as follows: Trade accounts receivable $ 1,313,675 Less: allowance for doubtful accounts ( 57,626) --------- Trade accounts receivable, net $ 1,256,049 ========= BOVIE MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4. PROPERTY, PLANT AND EQUIPMENT As of December 31, 2000 property, plant and equipment consisted of the following: Equipment $ 559,694 Building 637,485 Furniture & Fixtures 417,528 Leasehold Improvements 280,677 Molds 330,794 --------- 2,226,178 Less: Accumulated depreciation 673,999 --------- Net property, plant, and equipment $ 1,552,179 ========= Depreciation expenses for the years ended December 31, 2000 and 1999 were $172,903 and $185,426, respectively. NOTE 5. RENTAL AGREEMENTS 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 $1,350 per month and the lease expires in the year 2003. In May of 2000, the Company renewed the lease for three years at $16,194 per year. The following is a schedule of future minimum rental payments as of December 31, 2000: Year Amount ---- ------ 2001 $ 16,194 2002 16,194 2003 5,396 Total consolidated rent expense for the Company was $22,973 in 2000 and $25,584 in 1999. 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. In October 1999, this dispute was settled for $150,000 which included a consulting fee. The Company paid $50,000 down and $5,000 per month for 20 months. The balance due the former officer on December 31, 2000 was $24,721. 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 $13,918 of accrued interest, is $32,704. BOVIE MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7. INTANGIBLE ASSETS At December 31, 2000, the intangible assets consisted of the following: Classification Amount ECU Technology $ 529,571 Multifunction Cautery 59,400 Patent rights 87,769 Goodwill 188,000 Trade name 1,877,299 --------- 2,742,039 Less: Accumulated Amortization 860,868 --------- $ 1,881,171 ========== 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 2000 and 1999 was $164,474 and $171,021, respectively. NOTE 8. LONG-TERM DEBT The long-term debt of the Company includes a mortgage, debentures and notes payable. Bonds payable $ 20,000 Mortgage payable 394,422 Term loan 8,509 Line of credit- bank 150,000 ------- $ 572,931 ======= BOVIE MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8. LONG-TERM DEBT (CONTINUED) 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. 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 net of $150,000 already advanced. The annual interest rate on the loan is the bank's prime rate plus one percent. The line expires September 23, 2001. 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, 2000 was $150,000. BOVIE MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9. OPTIONS As of December 31, 2000, 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 1,518,500 0.750 --------- ----- 2,105,500 $ 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 143,000 warrants 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, 2000, 2,105,500 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. 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:
2000 1999 ---- ---- Net earnings (Loss) - as reported) $ 500,628 $ (2,183,839) Net earnings (Loss) - pro forma 500,628 (2,241,174) Gain(Loss) per share .04 (.130) Gain (Loss) per share-pro forma .04 (.134)
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:
Deferred tax assets: 2000 1999 ---- ---- Accounts receivable $ 57,647 $ 57,647 Inventories 289,457 289,457 Net operating loss carryforwards 3,181,000 3,356,344 Patent rights, primarily due to amortization 103,747 131,034 --------- --------- Total gross deferred tax assets 3,631,851 3,834,482 Less: Valuation allowance 3,456,841 3,659,472 --------- --------- Net deferred tax assets - current $ 175,010 $ 175,010 ========= =========
The Company had NOLs of approximately $9,088,000 at December 31, 2000. These NOLs and corresponding estimated tax assets, computed at a 35% tax rate, expire as follows: BOVIE MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10. NET OPERATING LOSS CARRYFORWARDS (CONTINUED)
Year loss Expiration Loss Estimated incurred Date Amount Tax Asset 1985 2000 263,000 92,000 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 2,184,000 764,000 --------- --------- Total $ 9,088,000 $ 3,181,000 ========= =========
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 likely they will not 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 $3,456,841 as of January 1, 2000 was decreased by $175,344 as a consequence of using part of the deferred tax assets in 2000. The Company believes it is likely 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. 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 the Company. 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 2000 and 1999 of $32,188 and $46,763 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 $58,508 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 $1,500 per month. NOTE 13. PROPERTIES 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). 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 exceedes 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. On February 16, 2000, Meryman Environmental, Inc. conducted a ground water test and determined "the data continues to show an overall decrease in the mass contamination at the site." The Company is waiting for a further determination by the Florida Department of Health Pollutant Storage Tank Cleanup Program and the waste cleanup section FDEP Southwest District. NOTE 14. COMMITMENTS AND CONTINGENCIES Environmental conditions -Purchase of Building (See Note 13 - properties) Leases (See Note 5 - Rental Agreements) There was no commitment for construction or purchase of property, plant, and equipment approximated at December 31, 2000. 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. 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, 2000 for the purchase of $2,105,000 shares of 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 2001. 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. The Company believes it is in compliance with the banks covenants at December 31, 2000. NOTE 15. EARNINGS PER SHARE In 2000, the Company sustained a $.04 gain per share. Because the Company's option exercise price for its warrants was higher than the market price of the shares on December 31, 2000, the warrants had an anti-dillutive effect and were not used to compute any diluted earnings per share. NOTE 16. REPURCHASE OF SHARES 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. To complete the purchase which ends November, 2001, the Company will expend approximately $150,000. 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 2000 and 1999. 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 41% and 42% of Company's sales for 2000 and 1999, respectively. One significant customer accounted for 8% of revenues in both 2000 and 1999, respectively. In 2000, that customer accounted for $.9 million of non-medical sales, which is 83% of that segments sales. The Company's ten largest customers accounted for approximately 53% of net revenues for 2000. At December 31, 2000, the ten customers receivables accounted for approximately 58% of outstanding accounts receivable. Summary information by geographic area and significant industry segment for years ended December 31, 2000 and 1999 were as follows:
Additional Information Operating Gain Identifiable Interest Interest Sales (Loss) Assets Income Expense Depreciation 1999 - (in thousands) Geographic Area Domestic $ 7,765 $ 426 $ 7,252 -- -- -- International 1,832 199 91 -- -- -- ----- --- ----- $ 9,597 $ 625 (1) $ 7,343 -- -- -- ======= ====== == ======== Segment Medical Products $ 8,566 $ 790 $ 6,947 $ 20 $ 54 $ 165 Non-medical Products 1,031 (165) 396 2 7 20 ----- --- ----- -- -- --- $ 9,597 $ 625 (1) $ 7,343 22 61 185 ===== === ===== == == === 2000 - (in thousands) Geographic Area Domestic $ 8,291 $ 340 $ 7,713 -- -- -- International 1,644 160 101 -- -- -- ----- ---- ----- $ 9,935 $ 500 $ 7,814 -- -- -- ====== ==== ===== Segment Medical Products $ 8,822 $ 630 $ 7,033 26 60 148 Non-medical products 1,113 ( 130) 781 3 7 25 ----- ---- ----- -- --- --- $ 9,935 $ 500 $ 7,814 $29 $ 67 $ 173 ===== ==== ===== == === ===
BOVIE MEDICAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17. INDUSTRY SEGMENT REPORTING 2000 1999 ---- ---- Assets and liabilities outside the U.S.A. Total assets $ 100 $ 91 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, 2000. During 2000, a portion of the Company's consolidated net sales and consolidated gain 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. 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 26, 2001, included in the Annual Report to Stockholders of Bovie Medical Corporation. Bloom and Company s/Bloom and Company Hempstead, New York March 26, 2001 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, 2000 and the related consolidated statements of operations, and stockholders' equity, and cash flows for the years ended December 31, 2000 and 1999. 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, 2000 and the results of its operations, and cash flows for the years ended December 31, 2000 and 1999 in conformity with generally accepted accounting principles. BLOOM AND COMPANY Hempstead, New York March 26, 2001