-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K9Zg2jhHfRAC3RADOgtHa9ZVhgpn/AsGMaHuKU6CITOcsQrmYCaQnpGKq1JE06VL G6Kqn63ZSLhZxeNZd85Axg== 0000719135-99-000015.txt : 19991122 0000719135-99-000015.hdr.sgml : 19991122 ACCESSION NUMBER: 0000719135-99-000015 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991119 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOVIE MEDICAL CORP CENTRAL INDEX KEY: 0000719135 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 112644611 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-12183 FILM NUMBER: 99761244 BUSINESS ADDRESS: STREET 1: 734 WALT WHITMAN ROAD CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 5164215452 MAIL ADDRESS: STREET 1: 734 WALT WHITMAN ROAD CITY: MELVILLE STATE: NY ZIP: 11747 FORMER COMPANY: FORMER CONFORMED NAME: AN CON GENETICS INC DATE OF NAME CHANGE: 19920703 10QSB 1 FINANCIAL STATEMENT U.S. Securities and Exchange Commission Washington D.C. 20549 Form 10-QSB (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from to Commission file number 0-12183 BOVIE MEDICAL CORPORATION (Exact name of small business issuer as specified in its charter) Delaware 11-2644611 (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 734 Walt Whitman Rd., Melville, New York 11747 (Address of principal executive offices) (516) 421-5452 (Issuer's telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuers's class of common stock, as of the latest practicable date: 14,738,755. BOVIE MEDICAL CORPORATION. FORM 10-QSB QUARTERLY REPORT SEPTEMBER 30, 1999 BOVIE MEDICAL CORPORATION INDEX TO FORM 10-QSB Contents Page Part I. Financial Information 1 Item I: Consolidated Financial Statements: 1 Consolidated Balance Sheet - September 30, 1999 2 Consolidated Statements of Operations for the Nine Months Ended September 30, 1999 and 1998 3 Consolidated Statements of Operations for the Quarter July 1, 1999 through September 30, 1999 and 1998 4 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1999 and 1998 5 Notes to Financial Statements 7 Item 2: Management's Discussion and Analysis of Financial Conditions and Results of Operations 11 Part II. Other Information: Item 1: Legal Proceedings 14 Item 2: Changes in Securities 14 Item 3: Defaults Upon Senior Securities 14 Item 4: Submission of Matters to Vote of Security Holders 14 Item 5: Exhibits and Reports on Form 8-K 15 PART I. FINANCIAL INFORMATION ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS BOVIE MEDICAL CORPORATION CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1999 Assets Current assets: Cash $ 956,404 Trade accounts receivable 1,009,551 Inventories 1,512,707 Prepaid expenses 85,677 Deferred tax asset 175,010 Other receivables 25,639 --------- Total current assets 3,764,988 Property and equipment, net 1,515,180 Other assets: Repair parts 353,972 Trade name 1,720,858 Value of Impaired License and manufacturing rights 1,250,000 Patent rights, net 188,172 Deposits 4,765 --------- 3,517,767 --------- $ 8,797,935 ========= The accompanying notes are an integral part of the financial statements. BOVIE MEDICAL CORPORATION CONSOLIDATED BALANCE SHEET SEPTEMBER 31,1999 (CONTINUED) Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 373,224 Accrued expense 276,515 Notes payable - current portion 510,188 Due to shareholders 126,621 --------- Total current liabilities 1,286,548 Long-term debt, net - 0 - Stockholders' equity: Preferred Stock, per value $.001 10,000,000 shares authorized 2,000,000 issued and outstanding on September 30, 1999 2,000 Common stock par value $.001; 40,000,000 shares authorized, issued and outstanding 14,738,755 shares on September 30, 1999 14,809 Additional paid in capital 21,207,762 Accumulated deficit (13,713,184) ----------- Total stockholders' equity 7,511,387 ----------- $ 8,797,935 =========== The accompanying notes are an integral part of the financial statements. BOVIE MEDICAL CORPORATION. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 and 1998 1999 1998 Sales $ 7,186,430 $ 6,102,459 Cost of sales 3,884,580 3,624,681 --------- --------- Gross profit 3,301,850 2,477,778 Costs and expenses: Research and development 149,750 195,591 Professional services 260,416 378,978 Salaries and related costs 1,046,523 1,137,936 Selling, general and administrative 1,429,848 1,235,714 Impairment Loss (See Note 3) 2,170,518 0 --------- --------- 5,057,055 2,948,219 --------- --------- Loss from operations (1,755,205) (470,441) Other income (expense): Interest income 11,742 -- Interest expense (43,436) (89,308) Miscellaneous 2,099 13,101 ---------- ------- ( 29,595) (76,207) ----------- -------- Income (loss) before extraordinary items (1,784,800) (546,648) Provision for income tax 0 0 Realized benefit of loss carryforward 0 0 ----------- ---------- Net income (loss) $ (1,784,800) $ (546,648) =========== =========== Earnings (Loss) per share Net income (loss): Basic $ (.12) $ (.05) === === Diluted (.11) (.05) === === Weighted average number of shares outstanding 14,738,755 11,156,359 ========== ========== Weighted average number of shares adjusted for dilutive securities 16,738,755 12,823,026 ========== ========== The accompanying notes are an integral part of the financial statements. BOVIE MEDICAL CORPORATION. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE QUARTER JULY 1, 1999 THROUGH SEPTEMBER 30, 1999 1999 1998 Sales $ 2,537,486 $ 2,153,004 Cost of sales 1,201,283 1,375,460 --------- --------- Gross profit 1,336,203 777,544 Costs and expenses: Research and development 31,307 108,295 Professional services 69,538 99,834 Salaries and related costs 383,617 379,977 Selling, general and administrative 567,441 575,813 Impairment loss (See Note 3) 2,170,518 0 --------- --------- 3,222,421 1,163,919 --------- --------- Loss from operations (1,886,218) ( 386,375) Other income (expense): Interest income 5,651 -- Interest expense ( 8,260) 9,512 Miscellaneous ( 1,431) 1,439 ---------- --------- ( 4,040) 10,951 ---------- --------- Income (loss) before extraordinary items (1,890,258) (375,424) Provision for income tax 0 0 Realized benefit of loss carryforward 0 0 ---------- --------- Net income (loss) $ (1,890,258) $ ( 375,424) =========== ========== Earnings (Loss) per share Net income (loss): Basic (.13) (.03) === === Diluted (.11) (.03) === === Weighted average number of shares outstanding 14,738,755 12,629,695 ========== ========== Weighted average number of shares adjusted for securities 16,738,755 14,629,695 ========== ========== The accompanying notes are an integral part of the financial statements. BOVIE MEDICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 1999 1998 Cash Flows from operating activities Net income (loss) $ (1,784,803) $ (546,648) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 529,987 534,934 Common stock issued for interest/services 7,846 118,499 Impairment loss 2,170,518 -- Changes in current assets and liabilities: Decrease (Increase) in receivables ( 6,717) (300,542) Decrease (Increase) in inventories (34,375) 70,429 Decrease in prepaid expenses ( 7,237) (3,426) Decrease(Increase) in accounts payable (22,334) 216,656 Increase (decrease) in accrued expense (25,873) (84,622) (Increase)Decrease in other assets ( 2,588) 29,151 Decrease in deposits 25,000 -- (increase) decrease due to shareholder 73,495 -- ---------- --------- Total adjustments 2,707,722 581,079 ---------- --------- Net cash provided by (used in) operating activities 922,919 34,431 Cash flows from investing activities (Increase) in fixed assets ( 91,964) ( 255,855) Decrease (Increase) in patents ( 22,999) ( 21,529) (Increase)decrease in product development ( 10,000) ( 122,615) ----------- ----------- Net cash used in investing activities ( 124,963) ( 399,999) --------- ---------- Cash flows from financing activities (Decrease)increase in long term debt -- ( 303,504) (Decrease) increase in notes payable ( 70,225) 29,202 Common shares issued for cash -- 982,240 Increase(Decrease) due to shareholders ( 50,000) -- ---------- ----------- Net cash provided by financing activities ( 120,225) 707,938 --------- ----------- Net increase (decrease) in cash and cash equivalents 677,731 342,370 Cash and cash equivalents, beginning of period 278,673 48,246 --------- ---------- Cash and cash equivalents, end of period $ 956,404 $ 390,616 ========= ========== The accompanying notes are an integral part of the financial statements. BOVIE MEDICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 Cash paid during the nine months ended September 30: 1999 1998 Interest paid 42,710 63,352 Income Taxes - 0 - - 0 - SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 1999 During the nine months ended September 30, 1999. the Company issued 29,060 restricted shares to the Krauss Organization in order to be in compliance with the terms of its purchase agreement for the building it now owns and occupies. The Company valued the shares at 40% of market value or $7,846 because of the restriction on its immediate sale. A reactor that the Company had purchased was not delivered by April 30, 1999 as per agreement, the Company requested its deposit of $125,000 to be returned and canceled the order. The reactor was to be utilized for coating electrosurgical blades or other medical products pursuant to the Company's license for the Dylyn process. The electrosurgical blade coating project has been terminated and the Company has entered into a conditional agreement with Advanced Refractory Technology, Inc. for ART to exchange the two million shares of the Company they hold for the license, manufacturing rights and equipment the Company holds. 1998 During the period ended September 30, 1998, the Company issued 276,667 restricted shares for an officers' bonus and consulting fees valued at $.40 per share for an aggregate of $110,667. The Company also issued 19,578 shares valued at $.40 per share to satisfy part of its obligation to former Shareholders of a subsidiary valued at $7,831. On February 9, 1998, the Company issued 5,000,000 shares, valued at $.98 per share to purchase the outstanding shares of BSD Beta Development Corp. (BSD). This included certain reactors, a license to use Dylyn, a manufacturing agreement with Advanced Refractory Technologies, Inc. and $1,000,000 in cash. On May 8, 1998, the Company purchased the "Bovie" Tradename for $1,877,299 and Bovie inventory of materials and work in progress for $1,122,701 by giving the seller, Maxxim Medical, a convertible note for $3,000,000. This note was converted into 3,000,000 common shares in September 1998. BOVIE MEDICAL CORPORATION NOTES TO FINANCIAL STATEMENTS NOTE 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements include the accounts of Bovie Medical Corporation and its wholly owned subsidiary Aaron Medical Industries, Inc. In the opinion of management, the interim financial statements reflect all adjustments, consisting of only normal recurring items, which are necessary for a fair presentation of the results for the interim periods presented. The results for interim periods are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the significant accounting policies and the other notes to the financial statements included in the Corporation's 1998 Annual Report to the SEC on Form 10-KSB. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES Use of Estimates in the Preparation of Financial Statements The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Fair Values of financial instruments Cash and cash equivalents. Holdings of highly liquid investments with maturity of three months or less when purchased are considered to be cash equivalents. The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair values. Accounts receivable and accounts payable. The carrying amount of accounts receivable and accounts payable on the balance sheet approximates fair value. Short term and long term debt. The carrying amount of the bonds and notes payable, and amounts due to shareholders approximates fair value. Inventories Inventories are stated at the lower of cost or market. Cost is determined principally on the average cost method. Inventories at September 30, 1999 were as follows: Raw materials $ 940,708 Work in process 260,150 Finished goods 311,849 --------- Total $ 1,512,707 ========= The Company is holding repair parts for Bovie manufactured generators to be used over the next 5-7 years in the amount of $353,972. BOVIE MEDICAL CORPORATION NOTES TO FINANCIAL STATEMENTS NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Long-Lived Assets Long-lived assets consist of property, plant and equipment, and intangible assets. Property, plant and equipment are recorded at cost less depreciation and amortization. Depreciation and amortization are accounted for on the straight-line method based on estimated useful lives. The amortization of leasehold improvements is based on the shorter of the lease term or the life of the improvement. Betterment and large renewals, which extend the life of the asset are capitalized whereas maintenance and repairs and small renewals are expenses as incurred. The estimated useful lives are: machinery and equipment, 7-15 years; buildings, 30 years; and leasehold improvements, 10-20 years. Intangible assets consist of patent rights and goodwill. Goodwill represents the excess of the cost of assets of the acquired companies over the values assigned to net tangible assets. These intangibles are being amortized by the straight-line method over a 5 to 20 year period. Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards (SFAS) No.121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. In accordance with SFAS No.121, the Company reviews long-lived assets for impairment whenever events or changes in business circumstances occur that indicate that the carrying amount of the assets may not be recovered. The Company assesses the recoverability of long-lived assets held and to be used based on undiscounted cash flows and measures the impairment, if any, using discounted cash flows. Adoption of SFAS No.121 did not have a material impact on the Company's consolidated financial position, operating results or cash flows. Revenue Recognition and Product Warranty Revenue from sales of products is generally recognized upon shipment to customers. The Company warrants its products for one year. The estimated future costs of warranties are not material. Income is recognized in the financial statements (and the customer billed) when products are shipped from stock. Net sales are arrived, at by deducting discounts and freight, from gross sales. Environmental Remediation The Company accrues environmental remediation costs if it is probable that an asset has been impaired or a liability incurred at the financial statement date and the amount can be reasonably estimated. Environmental compliance costs are expenses as incurred. Certain environmental costs are capitalized based on estimates and depreciated over their useful lives. BOVIE MEDICAL CORPORATION NOTES TO FINANCIAL STATEMENTS NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Earnings Per Common and Common Equivalent Share In February 1997, the Financial Accounting Standards Board issued SFAS 128. "Earnings Per Share." SFAS 128 establishes new standards for computing and presenting earnings per share ("EPS"). Specifically, SFAS 128 replaces the previously required presentation of primary EPS with a presentation of basis EPS, requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures, and requires a reconciliation of the numerator and denominator of the basic EPS computation to the financial statements issued for periods ending after December 15, 1997. In 1997, the Company adopted SFAS 128. Research and Development Costs Only the development costs that are purchased from another enterprise and have alternative future use are capitalized and are amortized over five years. Income Taxes The Company and its wholly-owned subsidiary file a consolidated federal income tax return. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Nonmonetary Transactions The accounting for non-monetary assets is based on the fair values of the assets involved. Cost of a non-monetary asset acquired in exchange for another non-monetary asset is recorded at the fair value of the asset surrendered to obtain it. The difference in the costs of the assets exchanged is recognized as a gain or loss. The fair value of the asset received is used to measure the cost, if it is more clearly evident than the fair value of asset surrendered. Stock-Based Compensation The Company has adopted Accounting Principles Board Opinion 25 for its accounting for stock based compensation. Under this policy: 1. Compensation costs are recognized as an expense over the period of employment attributable to the employee stock options. BOVIE MEDICAL CORPORATION NOTES TO FINANCIAL STATEMENTS NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Stock-Based Compensation (Continued) 2. Shares issued in accordance with a plan for past or future services of an employee are allocated between the expired costs and future costs. Future costs are charged to the periods in which the services are performed. The pro forma amounts of the difference between compensation cost included in net income and related cost measured by the fair value based method, including tax effects, are disclosed. New Accounting Standards In June 1997, the Financial Accounting Standards Board issued SFAS 130, "Reporting Comprehensive Income". SFAS 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general purpose financial statements. Specifically, SFAS 130 requires that all items that meet the definition of components of comprehensive income be reported in a financial statement for the period in which they are recognized. However, SFAS 130 does not specify when to recognize or how to measure the items that make up comprehensive income. SFAS 130 is effective for fiscal years beginning after December 15, 1997, and early application is permitted. Management believes the application of SFAS 130 will not have a material effect on the Company's future financial statements. In April 1998, the FASB issued SOP 98-5, "Reporting on the Costs of Start-up Activities," which will become effective for the Company in fiscal 2000. It requires costs of start-up activities and organization costs to be expressed as incurred. The Company currently follows this approach and such costs have been minimal in the past. In June 1997, the Financial Accounting Standards Board issued SFAS 131, "Financial Reporting for Segments of Business Enterprise." SFAS 131 supersedes the "industry segment" concept of SFAS 14 with a "management approach" concept as the basis for identifying reportable segments. SFAS 131 is effective for fiscal years beginning after December 15, 1997 and early application is permitted. Management believes the application of SFAS 131 will not have a material effect on the Company's future financial statements. NOTE 3. IMPAIRMENT LOSS In the third quarter of 1999, the Company determined that Advanced Refractory Technologies, Inc. (ART) could not deliver commercially viable DYLYN (TM) coated Electrodes. As a result, on October 1, 1999 the parties entered into an agreement subject to certain conditions providing for the return, by ART of two million convertible preferred shares of the Company, in exchange, for the return to ART, of the license, manufacturing rights and equipment relating to the DYLYN (TM) Technology. The Company had capitalized the license, manufacturing rights and equipment at the appraised value of $3,900,000. Depreciation and amortization taken on the assets was $619,482 through September 30, 1999. The Company determined the value of the shares it will receive back to be $.62 1/2 per share, or $1,250,000, based on the market price of the Company's shares. In the third quarter of 1999, the Company is charging its profit and loss statement $2,170,518 for the impairment. If the conditions inherent in the ART repurchase agreement are not met, then the Company may have to restate the loss upward. BOVIE MEDICAL CORPORATION NOTES TO FINANCIAL STATEMENTS PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-looking Statements This Report on Form 10-QSB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding the Company's expectations, hopes, intentions, beliefs or strategies regarding the future. Such forward-looking statements include, but are not limited to, the Company's anticipated expense levels for research and development, and selling general and administrative, anticipated capital expenditures, and expectations regarding inventory balances, liquidity and adequacy of cash resources under the sub-headings "Results of Operations" and "Liquidity and Capital Resources". Actual results could differ materially from those projected in any forward-looking statements for the reasons detailed below and in other sections of this Report on Form 10-QSB. All forward-looking statements included in this Form 10-QSB are based on information available to the Company on the date of this Report. The Company assumes no obligation to update the forward-looking statements. Investors should also consult the risk factors listed from time to time in the Company's Reports on Form 10-K and Annual Report to Stockholders. Results of Operations The results of operations exclusive of an impairment loss of $2,170,518 over the nine months ended September 30, 1999 shows increased sales and profitability, as compared to the first nine months of 1998. The Company's sales revenues increased by 18%, from $6,102,459 to $7,186,430. Gross profit percentage of 46% was up from 41% for the same period in 1998. Gross profit increased from $2,477,778 to $3,301,850. Increased sales revenues were mainly attributable to sales of the Company's generators and increased sales of cauteries. For the first nine months of 1999 and 1998 cauteries accounted for 41% and 44% of sales, respectively. Operating salaries and related expenses decreased by 8%, from $1,137,936 to $1,046,523, in the nine months ended September 30, 1999 as compared to the same period in 1998. The decrease in salaries was largely attributable to the fact that no bonuses were given out in 1999 as compared to 1998. Research and development costs increased by 23% from $195,541 to $149,750 for the nine months September 30, 1998 to the nine months ending September 30, 1999. The decrease is mainly attributable to the expenses related to the termination of the blade coating project. Expenses for professional services decreased by 31% to $260,416 in the nine months ended September 30, 1999, as compared to $378,978 in the same period of the previous year. The main reason for this decrease was professional fees associated with the settlement of various transactions in 1998 only. Selling, General and Administrative expenses increased by $194,134. These expenses were $1,429,848 in the nine month period ended September 30, 1999 as compared to $1,235,714 for the nine months ended September 30, 1998. The increase was mainly attributable to the amortization of the cost of the ART manufacturing license and the Bovie Name Purchase. Amortization and depreciation on the ART manufacturing and license agreement has ceased in the third quarter because of its termination. BOVIE MEDICAL CORPORATION NOTES TO FINANCIAL STATEMENTS PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Results of Operations (continued) Interest expense decreased from $89,308 in the nine months ended September 30, 1998 to $43,436 in the same period in 1999. The $45,872 decrease in interest expense was mainly attributable to the decrease in interest on the Company's line of credit and term loan which began at the end of the first quarter of 1998 and the delivery of Bovie shares to Maxxim to pay off a $3,000,000, 8% note which was accomplished in the third quarter of 1998. The term loan principal balance was $20,557 and the line of credit principal balance was zero at September 30, 1999. The operating gain, exclusive of an impairment charge of $2,170,518, was $385,718 for the nine months ended September 30, 1999 as compared to a net loss of $546,648 in 1998 for the same period. The reasons for the increase in net income of $932,366 was an increase in sales and gross profit and a decrease in one-time professional fees attributable to the BSD/ART transactions. The Company sells its products through distributors both in the international market and in the USA. Distributors are contacted through response to company advertising in international medical journals or at domestic or international trade shows. The main focus for export sales has been Western Europe. The Company has distributors in all major markets there. The Company intends to continue marketing its products, targeting different regions of the world, while returning to major markets for increased market exposure and to introduce new products. During the first nine months of 1999, international sales of the Aaron Medical product line increased by 29%. These sales were $1,425,626, which represented 20% of total sales, while in 1998 total international sales were $1,106,249 and which represented 18% of total sales. The Company believes European sales are increasing because it received its ISO 9000 certification in the 3rd quarter of 1998. To bolster this trend the Company has recently hired a salesman with international experience. Financial Condition As of September 30, 1999, the Company's cash totaled $956,404 as compared to $278,673 at December 31, 1998. Cash provided by operating activities was $922,919 in the first nine months of 1999 as compared to $34,431 provided in the same period in 1998. Net working capital of the Company on September 30, 1999 was $2,418,440 as compared to $1,674,297 on December 31, 1998. Investing activities utilized $124,963 in cash during the first nine months of 1999, compared to $399,999 in the first nine months of 1998. In 1999, the Company continued its policy of investing in property, plant and equipment needed for future business requirements, including manufacturing capacity. The Company's ten largest customers accounted for approximately 57% of net revenues for the first nine months of 1999. At September 30, 1999, the same ten customers accounted for approximately 51% of outstanding accounts receivable. BOVIE MEDICAL CORPORATION NOTES TO FINANCIAL STATEMENTS PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Financial Condition Cash flows from financing used $120,225 and provided $707,938 in the first nine months of 1999 and 1998, respectively. The most significant financing activities in the nine months ended September 30, 1998 was the receipt of $1,000,000 from the purchase of BSD. The amounts of the term and the line of credit loan repaid were $37,500 and $100,000, in the first nine months of 1999, respectively. The Company believes that it has the financial resources needed to meet business requirements in the foreseeable future, including capital expenditures for the expansion of its manufacturing site, working capital requirements, and product development programs, which includes its 1998 acquisition and transition of the Bovie product line manufacturing operation to its facility in St. Petersburg, Florida. Outlook The Company, believes that the world market for disposal medical products, such as the Company's battery-operated cauteries, has significant growth potential because these types of products have not been affordable or effectively marketed outside the U.S. Because of these factors, the Company has heretofore designed certain disposable products to be reusable. The Company presently has a significant portion of the U.S. cautery market and does not expect a dramatic growth in sales of cautery-related products domestically unless an OEM arrangement can be obtained with a co-leader in this market. The Company, has focused on expanding its line of electrosurgical products. Electrosurgical products sold by the Company are the standard stainless steel electrodes, the Bovie generator line, and the Aaron 800 and 1200 high frequency desiccators. The Aaron 1200 was introduced in 1998 as well as the Bovie product line of generators and accessories. To replace the Company's line of coated reduced stick electrodes, the Company entered into a licensing and manufacturing agreement with Advanced Refractory Technologies (ART) to manufacture a coated electrode utilizing ART's patented DYLYN(TM) process which also included its use for other biomedical applications. To date, ART has not produced a commercially viable coated electrode and the entire project has been terminated. (See Note 3 to the Financial Statements) Aaron, through its private label capacity, sees unique opportunities in the domestic market as its competitors do not private label. The electrosurgical product line is a larger market than the company has normally sold into and is dominated by two main competitors, ValleyLab and Conmed. Electrosurgical product sales moved from fifth place to second in total Company sales by product line in 1997 and has remained in that position. Liquidity and Future Plans Since the acquisition of Aaron Medical Industries, Inc. the Company has concentrated its efforts on acquiring new product technology and expanding manufacturing capabilities. The Aaron 800 and Aaron 1200 dessicators are an example of this new direction. Other products and technologies are being evaluated for future development by the Company. BOVIE MEDICAL CORPORATION NOTES TO FINANCIAL STATEMENTS PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Liquidity and Future Plans In order to continue its strong international sales growth and maintain its ability to sell in Europe, management has implemented an ISO9000/EN46001 quality system and has been certified and received its CE mark (International Quality Control) in 1998. The Company had obtained a one-year line of credit with a local commercial bank for $600,000 subject to certain restrictions and a three-year $150,000 credit facility for capital improvements. Interest on these loans is to be paid at 1% over prime. Balances on those loans were $-0- and $20,557 as of September 30, 1999, respectively. Bovie Medical Corporation believes that it has the product mix, facilities, personnel, and competitive and financial resources for continued business success, but future revenues, costs, margins, product mix and profits are all subject to the influence of a number of factors, as discussed above. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See Form 10-KSB for the year ended December 31, 1998. Part I, Item 3. ITEM 2. CHANGES IN SECURITIES There have been no changes in the instruments defining the rights or rights evidenced by any class of registered securities. There have been no dividends declared. ITEM 3. DEFAULTS UPON SENIOR SECURITIES In February of 1997, the 10 year notes came due and the Company offered each bond holder 2,200 shares of common stock for their $1,000 bond and accrued interest of $550. Nineteen bondholders accepted the offer and forty-three bondholders received cash for their bonds and accrued interest. The balance of the bondholders have not redeemed their bonds or accepted the shares offered. Accrued interest as of September 30, 1999 was $13,783. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS There has not been a meeting of shareholders and therefore, no matters have been submitted to a vote of security holders. BOVIE MEDICAL CORPORATION NOTES TO FINANCIAL STATEMENTS ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K A) Exhibits B) None SIGNATURES: In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Bovie Medical Corporation. (Registrant) Date: ______________ - ----------------------------- Chief Executive Officer - Andrew Makrides EX-27 2 FDS-I
5 (Replace this text with the legend) 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 956,404 0 1,009,551 0 1,512,707 3,764,988 3,043,848 1,528,668 8,797,935 1,268,548 0 2,000 0 14,809 7,494,578 8,797,935 7,186,430 7,186,430 3,884,580 8,358,905 0 0 43,436 0 0 0 0 0 0 (1,784,800) .12 .11
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