U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB/A
(Mark
One)
[X]
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the
fiscal year ended December 31, 2003
Commission
file number 0-12183
BOVIE
MEDICAL CORPORATION
(Exact
name of small business issuer as specified in its charter)
|
DelawareNo. |
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11-2644611 |
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(State
or other jurisdiction |
|
(IRSEmployerIdentification
No.) |
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of
incorporation or organization) |
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734
Walt Whitman Rd., Melville, New York 11747
(Address
of principal executive offices)
(631)
421-5452
(Issuer's
telephone number)
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 $16,177,722.
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 22, 2004, 2003 was approximately
$27,476,517.
State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date:13,464,528.
Company
Symbol-BVX Company SIC (Standard Industrial Code)-3841-98
DOCUMENTS
INCORPORATED BY REFERENCE
There are
no documents incorporated by reference.
Bovie
Medical Corporation
2003
Form 10-KSB Annual Report
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BOVIE
MEDICAL CORPORATION
Background
Bovie
Medical Corporation (“the Company” or “Bovie”) 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.
Bovie 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 marketing
the Company’s medical products. Previously our largest product line was battery
operated cauteries, we have now shifted our focus to the manufacture and
marketing of generators and electrosurgical disposables. This new focus on high
frequency generators is evident in the development of the Aaron 800 and Aaron
900 high frequency desiccators and, the Aaron 950- the first high frequency
desiccator with cut capability - the Aaron 1250 and the Aaron 2250, the latter
of which was introduced in 2003. The Aaron 1250 and Aaron 2250 are designed for
today’s rapidly expanding surgi-center market. Additionally, our new 200-watt
electrosurgical unit and our new 300-watt electrosurgical unit are marketed
under the Bovie name. Presently the standard being used in hospitals worldwide
is the 300-watt electrosurgical generator.
We also
manufacture a variety of specialty lighting instruments for use in
ophthalmology, general surgery, hip replacement surgery, and for the placement
of endotracheal tubes.
Our
company 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 our second 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 sterile one-time use products.
Bovie manufactures the broadest line of cauteries in the world, including but
not limited to, a line of replaceable battery and tip cauteries, which are
popular in overseas markets.
Electrosurgery
Products
Bovie
continues to expand its line of electrosurgery products. Electrosurgery products
include generators, electrodes, electrosurgery pencils, and various ancillary
disposable products. These products are used in surgery for the cutting and
coagulation of tissues and constitute our second largest product line. Our
accessories electrosurgery product are substantially compatible with all major
manufacturers’ electrosurgery generator products. With the exception of OEM
products, all of our electrosurgery 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 laparoscopic as
well as general surgery and surgical procedures in gynecology, urology, plastics
and dermatology.
Bovie/Aaron
800 and 900 High Frequency Desiccators
The Aaron
800 and Aaron 900 are low powered generators, designed primarily for dermatology
and plastic surgery in a physician’s office. The units are 30-watt high
frequency desiccators used mainly in doctors’ offices for removing small skin
lesions and growths.
Bovie/Aaron
950
Bovie has
developed the first high frequency desiccator with cut capacity for outpatient
surgical procedures. It was designed mainly for use in doctors’ offices and is
utilized in a variety of specialties including dermatology, gynecology, and
plastic surgery.
Bovie/Aaron
1250
We have
also developed a 120-watt multipurpose electrosurgery generator. The unit also
features monopolar and bipolar functions with pad sensing. The product is being
produced in at least two private label formats in addition to the Bovie/Aaron
label. This was our first electrosurgical product to generate revenues in excess
of $1,000,000.
Bovie/Aaron
2250
Given the
market interest in more powerful electrosurgical generators, we have developed a
200-watt multipurpose digital electrosurgery generator designed for the rapidly
expanding surgi-center market in the United States. This unit features both
monopolar and bipolar functions, has pad and tissue sensing, plus nine blended
cutting settings. This unit has the capability to do many procedures performed
today in the surgi-center or outpatient settings and was introduced in 2003.
New
Generators
In
addition to the Aaron 2250 and 1250, we are continuing to develop and expand our
range of electrosurgery generators. Bovie has recently completed the design and
development of two new generators, which have been cleared for marketing by the
FDA. The first new generator, the Bovie IDS300 was released for marketing in the
first quarter of 2003 and provides greater electrical power and advanced digital
technology. In addition, the Bovie IDS 200 was released in the second quarter of
2003.
While 200
watts is more than enough power to do most procedures in the operating room,
watts is considered the standard of care and believed to be what most hospitals
and surgi-centers will be purchasing. The Bovie IDS-300 has been designed based
on a digital feedback system. The unit has a tissue sensing capability 20 times
faster than the market leader. For the first time in electrosurgery, through
digital technology, we are able to measure tissue impedance in real time (5000
times a second). As the impedance varies, the power is adjusted to deliver a
consistent clinical effect.
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, wherein we have a 50%
interest in the equity and a 50% interest in the profits of the joint venture.
Pursuant to the agreement, Bovie advanced $200,000 to the partnership to cover
costs of further research toward the production of two commercial prototypes.
Bovie has made available its facilities in Florida for development,
manufacturing and marketing of the products of the joint venture and is
responsible to expend its 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.
Pursuant
to agreement, the joint venture acquired an exclusive license to produce and
market any surgical/medical devices utilizing this technology. In fiscal 2003,
Bovie made additional advances to the joint venture in the form of research and
development of prototypes expending $81,914 in development and engineering
costs.
This
technology utilizes a gas ionization process using 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.
The
device has been developed and patented in both Europe and the United States.
Bovie has constructed its first two pre-production prototypes for field testing
purposes as a prelude to eventual FDA submission and clearance for
manufacturing. The initial intended uses are in the areas of dermatology and
plastic surgery. Other contemplated surgical uses for the technology are
cardiovascular, thoracic, gynecological, trauma and other surgeries.
To date
there have been no revenues recorded by the joint venture.
Battery
Operated Medical Lights
Bovie
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 surgical procedures.
Nerve
Locator Stimulator
Bovie
also 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.
New
Products
In
October, 2003 we entered into an exclusive worldwide license agreement with
Emergency Medical Innovations, LLC., (EMI) a
non-affiliated company, to manufacture and market a disposable suture removal
device (patent pending). Subject to clearance by the FDA for marketing, it is
expected to reduce time for removing stitches in a doctor’s office, medical
clinic or emergency room. The device is designed to remove sutures with a
tension free cut to be utilized in various medical procedures on humans and
animals. Bovie is presently developing pre-production prototypes and subject to
FDA clearance for marketing, Bovie has targeted the last quarter of 2004 for
release and marketing to medical professionals. We did not expend any
development funds in 2003 and if and when the product has begun selling we will
pay a 5% royalty to EMI.
Manufacturing,
Marketing and Distribution
Bovie
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 our specification. We market our products through national trade
journal advertising, direct mail, distributor sales representatives and trade
shows, under the Bovie name, the Bovie/Aaron name and private label. Major
distributors include Allegiance (a Cardinal Company), IMCO, McKesson Medical
Surgical, Inc., 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 substantially greater amount of business, and have
greater financial resources and facilities than we do.
We
believe we rank third in the field of electrosurgical generator manufacturing
and we sell our products and compete with other manufactures in various ways. In
addition to advertising, attending trade shows and supporting our distribution
channels, we strive to enhance product quality improve, user friendliness and
expand product exposure. For example, in the area of high frequency
cauterization, our Aaron 900 is a more user friendly product than its main
competitor. Our unit contains power buttons on the handpiece to raise and lower
power for coagulation purposes. Our competitor’s unit requires that the
handpiece be unplugged, then a switch is activated, the handpiece re-plugged and
then power can be increased. We provide a one-step advantage versus four
steps.
We also
compete by private labeling our products for major distributors under their
label. This allows us to have our product in the marketplace and thereby compete
from two different approaches, our Aaron or Bovie label, and our customer
private label. Our private label customer distribute our products through their
internal sales force. Our main competitors do not private label their
products.
Lastly,
we only sell our product through distribution. Since we never sell direct to the
end user we are participating with our distribution partners, and never
competing with them. Many of the companies we compete with sell direct, thus
competing directly with distributors they sometimes use.
Main
competitors are Conmed, Valleylab (a division of Tyco), in the electrosurgery
market and Xomed in the battery operated cautery market.
Government
Regulation
United
States
The
Company’s products and research and development activities are subject to
regulation by the FDA and other regulatory bodies. FDA regulations govern, among
other things, the following activities:
| · |
Pre-market
clearance or approval. |
| · |
Advertising
and promotion. |
| · |
Product
tractability, and |
In the
United States, medical devices are classified on the basis of control deemed
necessary to reasonably ensure the safety and effectiveness of the device. Class
I devices are subject to general controls. These controls include registration
and listing, labeling, pre-market notification and adherence to the FDA Quality
System Regulation. Class II devices are subject to general and special controls.
Special controls include performance standards, post market surveillance,
patient registries and FDA guidelines. Class III devices are those which must
receive pre-market approval by the FDA to ensure their safety and effectiveness.
Currently, we only manufacture Class I and Class II devices.
Manufacturing
Manufacturing
and distribution of our products may be subject to continuing regulation by the
FDA. We will also be subject to routine inspections by the FDA to determine
compliance with the following:
| · |
Quality
System Regulations. |
| · |
Medical
device reporting regulations, and |
| · |
FDA
restrictions on promoting products for unapproved or off-label uses.
|
In
addition to regulations enforced by the FDA, we are also subject to regulations
under the Occupational Safety and Health Act, the Environmental Protection Act
and other federal, state and local regulations.
International
To market
products in the European Union and countries other than the United States, we
must obtain regulatory approval similar to that required by the FDA. All of our
medical devices are classified as Class III devices under the European Medical
Devices directive. Therefore, we were required to obtain a “CE Mark”
certification from a “Notified Body” in one of the member countries in the
European Union. CE Mark certification is an international symbol of adherence to
quality assurance standards and compliance with the applicable European Medical
Devices Directive.
Approval
by a Notified Body typically includes a detailed review of the following:
| · |
Description
of the device and its components, |
| · |
Safety
and performance of the device, |
| · |
Clinical
evaluations with respect to the device, |
| · |
Methods,
facilities and quality controls used to manufacture the device, and
|
| · |
Proposed
labeling for the device. |
Manufacturing
and distribution of a device is subject to continued inspection and regulation
by the Notified Body after CE Mark certification to ensure compliance with
quality control and reporting requirements.
Pre-market
notification clearance must be obtained for some Class I and most Class II
devices when the FDA does not require pre-market approval. A pre-market approval
application is required for most Class III devices. A pre-market approval
application must be supported by valid scientific evidence to demonstrate the
safety and effectiveness of the device. The pre-market approval application
typically includes:
| · |
Results
of bench and laboratory tests, animal studies, and clinical studies,
|
| · |
A
complete description of the device and its components,
|
| · |
A
detailed description of the methods, facilities and controls used to
manufacture the device, and |
The
approval process can be expensive, uncertain and lengthy. A number of devices
for which FDA approval has been sought by other companies have never been
approved for marketing. To date we have not experienced non-approval of any of
our devices heretofore submitted to the FDA.
We
obtained CE Mark certification to market our products in the European Union in
1999. In addition to CE Mark certification, each member country of the European
Union maintains the right to impose additional regulatory requirements.
Outside
of the European Union, regulations vary significantly from country to country.
The time required to obtain approval to market products may be longer or shorter
than that required in the United States or the European Union. Certain European
countries outside of the European Union do recognize and give effect to the CE
Mark certification. We are permitted to market and sell our products in those
countries.
Patents
and Trademarks
The
Company owns a total of twelve outstanding patents which are specific, as
opposed to general in nature and we do not believe our current patents have a
material effect on our operations. Although the useful lives of our existing
patents have substantially diminished, we can give no assurance that competitors
will not infringe the Company’s patent rights or otherwise create similar or
non-infringing competing products that are technically patentable in their own
right.
Liability
Insurance
The
manufacture and sale of medical products entail significant risk of product
liability claims. Bovie currently maintains product liability insurance with
combined coverage limits of $5 million on a claims made basis. There is no
assurance that this coverage will be adequate to protect us from any liabilities
we might incur in connection with the sale or testing of our products. In
addition, we may need increased product liability coverage as products are
commercialized. This insurance is expensive and in the future may not be
available on acceptable terms, if at all.
Research
and Development
The
approximate amount expended by the Company on research and development of its
products during the years 2003 and 2002, totaled $717,347 and $693,710
respectively. The Company has not incurred any direct costs relating to
environmental regulations or requirements.
Employees
Presently
Bovie has a total of approximately 129 employees. These consist of 5 executives,
10 administrative, 5 sales, and 109 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 our
medical products.
Bovie has
executive office space at 734 Walt Whitman Road, Melville, New York and its St.
Petersburg, Florida facility. Bovie leases the executive offices in New York for
$1,450 per month through the year 2006. Bovie owns its main facility in Florida
consisting of 28,000 square feet of office, warehousing and manufacturing space.
On August
20, 2003, Bovie signed an agreement to lease approximately 20,000 square feet of
space for sixty-two months commencing on September 1, 2003 and terminating on
October 31, 2008, with an option to renew for an additional five years. This
additional space provides Bovie with a total of 48,000 square feet of
manufacture warehousing and office space in Florida. The building leased is in
close proximity to our present manufacturing facility in St. Petersburg,
Florida. The base monthly rent is $8,750 commencing on November 1, 2003. The
base rent increases by 3% for each year of the lease, commencing on November 1,
2004. We are responsible for common area maintenance, insurance and real estate
taxes which have been established at $1,667 per month for the first year of the
term of the lease.
Bovie had
two additional leases covering a total of 71,000 sq feet. These leases expired
in October 2003 and March 2004 and were not renewed.
Bovie’s
wholly owned subsidiary, Aaron Medical Industries, Inc. (“Aaron”) is a named
defendant along with a physician and hospital in an action in the civil court,
State of Michigan. The plaintiff is seeking significant damages alleging among
other things, permanent injury and lifelong suffering due to the negligence of
the defendants. The complaint alleges that plaintiff’s damages resulted from
burns and injuries sustained when a physician used an Aaron manufactured cautery
in a surgical procedure upon plaintiff while plaintiff was in an oxygenated
environment. Aaron has denied any affiliation with the physician and the
hospital and any direct or indirect liability for the injuries sustained by
plaintiff. However, in the unlikely event of a jury finding of liability,
management believes its insurance coverage should adequately satisfy any such
potential judgment.
There
were no matters submitted to securities holders during the fourth quarter of the
year ended December 31, 2003.
Bovie’s
common stock has been traded on the American Stock Exchange since November 5,
2003. Prior to that it was traded in the over-the-counter market on the OTC
bulletin board. The table shows the reported high and low bid prices for the
common stock during each quarter of the last eight respective quarters as
reported by the OTC Bulletin Board (symbol “BOVI”) and the American Stock
Exchange (symbol “BVX”). These prices do not represent actual transactions and
do not include retail markups, markdowns or commissions.
|
2003 |
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High |
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Low |
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| |
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1st
Quarter |
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$
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1.02
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$
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.72
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2nd
Quarter |
|
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1.45
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.85
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3rd
Quarter |
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3.35
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1.35
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4th
Quarter |
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3.75 |
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2.95 |
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| |
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2002 |
|
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High |
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|
Low |
|
| |
|
|
|
|
|
|
|
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1st
Quarter |
|
$
|
.85
|
|
$
|
.56
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2nd
Quarter |
|
|
1.06
|
|
|
.70
|
|
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3rd
Quarter |
|
|
1.01
|
|
|
.74
|
|
|
4th
Quarter |
|
|
.75 |
|
|
.51 |
|
On March
22, 2004, the closing bid for Bovie’s Common Stock as reported by the American
Stock Exchange was $2.90 per share. As of March 22, 2004, the total number of
shareholders of the Bovie’s Common Stock was approximately 1,500, of which
approximately 700 are estimated to be 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.
Results
of Operations
Bovie’s
net revenues for 2003 were approximately $16.1 million as compared to $12.4
million for 2002. The increase in sales of $3.7 million (33%) was the net result
of an increase in revenues from the sale of electrosurgery products. OEM sales
in 2003 were $5,015,018 as compared to $891,588 in 2002, constituting an
increase of $4,123,430 or 462%. OEM sales are included as electrosurgical
product sales.
Sales of
cauteries decreased from $5,147,706 in 2002 to $5,004,198 in 2003, a decrease of
3%. We expect the sales of cauteries to grow in 2004, but not significantly.
Sales of cauteries are not included in electrosurgical product
sales.
Electrosurgical
products sales were 4.4 million for 2002 and $9.0 million for 2003. Sales for
one electrosurgical OEM customer went from under $50,0000 in 2002 to $3.6
million in 2003. The sales for medical products represented approximately 98%
and 94% of total sales in 2003 and 2002, respectively.
The cost
of goods sold increased by $1.9 million (26%) from $ 7.2 million in 2002 to $9.1
million in 2003. The percentage of gross profit from sales increased from 42% in
2002 to 44% in 2003. Bovie is increasing the volume of component manufacturing
being undertaken in Europe and the Far East in order to reduce costs. The
increase in cost of sales and gross profit were principally due to an increase
in sales and increase in cost of sales of our family of OEM electrosurgical
generators; however gross profits percentage remained the same for both years.
For the fiscal years 2003 and 2002, cauteries accounted for 30% and 41% of sales
and 26% and 34% of cost of goods sold, respectively. . Cost of goods sold for
cauteries was $2.4 million and $2.4 million in 2002 and 2003, respectively.
Gross profit for cauteries was $2.6 million or 52% in 2003 and $2.7 million or
52% in 2002. Cost of goods sold for electrosurgical generators and disposables,
was $5.2 million and $2.9 million for 2003 and 2002, respectively. Gross profit
for electrosurgical products was $3.6 million or 41% for 2003 and $1.5 million
or 35% for 2002. The increase in gross profit was mostly due to increased sales
of disposables in 2003.
Research
and development expenses increased by $23,637 (3%) from $693,710 to $717,347,
from 2002 to 2003. We continued to invest in the development of new
electrosurgery devices and specialty products for other companies (OEM).
Research and development costs are comprised of material, engineering, and
payroll costs. The development costs for the Joint Venture Jump Agentur of
$81,914 and $124,445 for 2003 and 2002, respectively, are shown as equity in net
loss of an unconsolidated affiliate.
Our
effective federal income tax rate is 36%. As a result of the net gain in the
past year, Bovie has reduced its projected net operating loss tax benefit asset.
The net operating loss carryover is now $8.3 million.
Our
general and administrative expenses increased $.4 million from $2.5 million in
2002 to $2.9 million in 2003. This was mainly attributable to increases of trade
show and advertising of $236,000, to introduce its new electrosurgical line of
products, costs for general liability insurance of $40,000, cost in membership
in the American Stock Exchange of approximately $70,000 and an increase in
manufacturers’ representative training of $30,000.
Salaries
and related costs increased by 9% from $2.1 million in 2002 to $2.3 million in
2003. The increase was due to additional personnel and annual salary increases.
Quality assurance payroll increased by $56,951 from $496,993 in 2002 to $553,944
in 2003, an increase of 11%. Marketing, customer service and sales payroll
increased from $609,556 in 2002 to $708,327 in 2003, or $98,771, an increase of
16%. Medical benefits increased from $41,223 in 2002 to $57,380 in 2003 an
increase of $16,157 or 39%.
Cost of
professional services increased by 22% from $321,598 in 2002 to $392,796 in
2003. Professional fees were primarily related to consulting, auditing and legal
costs. Audit fees totaled $101,308 in 2002 and $115,669 in 2003, an increase of
14%. Consulting services increased from $60,828 in 2002 to $101,115 in 2003. The
increase was due to documentation services and consulting on direct sales of
electrosurgical generators.
Gain from
operations was $663,458 in 2003 as compared to an operating loss of $473,895 in
2002. There was a net gain for the Company in 2003 of $681,317 as compared to a
net loss in 2002 of $514,765. The gain for 2003 was mostly attributable to the
increased sales associated with the development of the OEM private label line of
generators and accessories.
Total
other costs as a percentage of sales were 39% in 2003 as compared to 46% in
2002. Total costs increased mostly due to the costs associated with the increase
in selling, general and administrative expenses and salaries and related costs.
For the year 2003, total other costs were $6.4 million as compared to $5.7
million for 2002, a 12% increase.
We sell
our products through distributors both overseas and in US markets. New
distributors are contacted through responses to our advertising in international
and domestic medical journals and domestic or international trade shows.
During
2003, international sales of our product lines increased by $68,000 or (2.4%).
In 2003, these sales were $2.4 million (14% of total sales) as compared to $2.3
million (19% of total sales) in 2002. We closed our sales office in Germany and
are marketing our products in Europe from the U.S.A. through a network of
overseas distributors.
In the
fourth quarter of 1998, Bovie made agreements with various sales representatives
to develop markets for its new products and to maintain customer relations. The
representatives receive an average commission of approximately 2% of sales in
their market areas. In 2003 and 2002, commissions paid were $228,779 and
$272,539, respectively, a decrease of 16%.
An
adequate supply of raw materials is available from both domestic and
international suppliers. The relationship between Bovie and its suppliers is
generally limited to individual purchase order agreements, supplemented by
contractual arrangements with key vendors to ensure availability of certain
products. We have developed multiple sources of supply where possible.
In order
to provide additional working capital, the Company has secured a $1,500,000
credit facility with a local commercial bank. This facility is payable on
demand. For the year end December 31, 2003, the Company had zero funds drawn
down on this credit facility.
Financial
Condition
As of
December 31, 2003, cash totaled $306,137 as compared to $379,209 at December 31,
2002. Cash provided by operating activities was $915,313 in 2003 compared to
$254,178 in 2002. Net working capital of Bovie was $3,837,482 and $3,084,743 on
December 31, 2003 and 2002, respectively.
The
amount of cash used in investing activities was $654,841 in 2003, compared to
$247,167 in 2002. The increase in 2003 was attributed to our signing an
additional lease on 20,000 square feet of manufacturing and office one block
away from the facility we own in St. Petersburg, Florida. We continued to invest
in property, plant and equipment needed for anticipated future business
requirements, including manufacturing capacity. Our investment in fixed assets
increased in 2003 to $565,915 from $220,671 in 2002. The increase can be
attributed to setting up the new factory facility and office in St. Petersburg,
Florida. In the year 2001, 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 $302,200 in 2002. In 2003 net cash
provided by financing activities was $333,544. A significant item of financing
activity in 2003 resulted from the exercise of 350,000 stock options by
employees and former consultants for $251,000. In each of 2002 and 2003 Bovie
reduced its first mortgage by $31,668.
Our ten
largest customers accounted for approximately 66% of net revenues for 2003 as
compared to 63% in 2002. For both years December 31, 2003 and 2002, our ten
largest trade receivables accounted for approximately 63% of outstanding
receivables. In 2003 one customer accounted for 22% of total sales.
Product
Development
Most of
the Company’s products and product improvements have been developed internally.
Funds for this development have come from internal cash flow and the sale of
common stock upon the exercise of stock options. The Company maintains close
working relationships with physicians and medical personnel in hospitals and
universities who assist in product research and development. New and improved
products play a critical role in the Company’s sales growth. The Company
continues to place emphasis on the development of proprietary products and
product improvements to complement and expand its existing product lines. The
Company has a centralized research and development focus, with its one
manufacturing location responsible for new product development and product
improvements. Our research, development and engineering units at the
manufacturing location maintain relationships with distribution locations and
customers in order to provide an understanding of changes in the market and
product needs. During 2004 we intend to invest in the J Plasma Technology, the
Suture Removal Technology, the Gastrointerology device and the Cardio and
Urological Electrosurgical devices. The cost for this development will be paid
from the operating cash flows.
In the
next year we do not contemplate any material purchase or acquisition of assets
which our ordinary cash flow and or credit line would not be able to
sustain.
We
believe that Bovie has the financial resources needed to meet business
requirements in the foreseeable future, including capital expenditures needed
for the expansion of our manufacturing site, working capital requirements, and
product development programs, subject to Bovie maintaining compliance with our
credit facility.
Outlook
The
statements contained in this Outlook are based on current expectations. These
statements are forward looking and actual results may differ materially.
Bovie has
continued to expand its line of electrosurgery products which include the
standard stainless steel electrodes, the Bovie/Aaron 800, Bovie/Aaron 900,
Bovie/Aaron 950, Bovie/Aaron 1250, and the Bovie 2250 high frequency generators.
We have also developed and are currently marketing the Bovie IDS 300-Watt and
Bovie IDS 200-Watt digital generators under the Bovie sales division.
From 2002
to 2003, Bovie’s electrosurgery sales increased by 103% from $4.4 million to
$9.0 million. The increase was mainly attributable to OEM sales to other
electrosurgery medical companies. With the introduction of new electrosurgery
products, we expect electrosurgery sales to continue to increase in 2004.
Through our private label capability and our sales division we anticipate
continued opportunities in the domestic and foreign markets. The electrosurgery
product market is larger than our other traditional markets and is dominated by
two competitors, Valleylab and Conmed. The global market for electrosurgery
products exceeds $800 million annually.
Non-Medical
Products
In 2003,
our sales of flexible lighting products, used primarily in the automotive and
locksmith industries, totaled $375,250. One customer accounted for 80% of such
sales. We discontinued our non-medical product line by selling our inventory at
cost, and Licensing our customer list land manufacturing technology to our
largest customer in that field for $500,000 payable in equal installments over 5
years. We believe this sale will have no material impact on our continuing
operations or financial condition. The transaction is being accounted for as a
licensing agreement and in 2003 we received income of $57,750 from the
licensing.
Scientific
Advisory Board
On July
8, 2003, the Company announced the formation of a scientific advisory board to
assist in the advancement of new products and technologies. The advisory board
includes: Yuval Carmel, Ph. D., Peter M. Pardoll, MD and Mr. Gregory
Konesky.
Backgrounds
Dr. Yuval
Carmel is a senior research scientist at the University of Maryland. Dr. Carmel
has over 20 years of research and development experience in the areas of
advanced electrosurgical equipment for medical applications, physics of plasma,
applied physics, electromagnetics and electro-physics. He has published over 90
papers in scientific journals, is a holder of three patents and five pending
patents.
Dr. Peter
Pardoll is a Gastroenterologist and the president of Medical Education
Associates (MEA), a healthcare consulting group. Dr. Pardoll is a trustee of the
Board of the American College of Gastroenterology, past president of the Florida
Gastroenterology Society and current president of the National GI Political
Action Committee as well as a practicing physician at the Center for Digestive
Diseases in St. Petersburg, Florida.
Mr.
Gregory Konesky has been Bovie’s lead scientist in new product development for
J-Plasma, advanced plasma applicator design, plasma physical research and other
electrosurgical products. Mr. Konesky has published over 13 scientific papers,
holds one patent, with another pending. He has also presented at a variety of
scientific forums over the past several years as well as being a member of over
10 scientific societies.
The
Board’s term is for one year and the members will be compensated with stock
options and at their per diem rate, as required.
Reliance
on Collaborative, Manufacturing and Selling Arrangements
We are
dependent on certain contractual OEM customers for product development wherein
we are to provide the manufacturing of the product developed. However, the
customer has no legal obligation to purchase the developed products. Should the
collaborative customer fail to give us purchase orders for the product after
development, our future business and value of related assets could be negatively
affected. Furthermore, no assurance can be given that a collaborative customer
may give sufficient high priority to our products. In addition, disagreements or
disputes may arise between Bovie and its contractual customers which could
adversely affect production of our products. We also have similar informal
collaborative arrangements with two foreign suppliers except that we request the
development of certain items and components and we purchase them from the
foreign supplier pursuant to purchase orders. Our purchase orders are never for
more than one year and are supported by customer purchase orders from our
customers.
Liquidity
and Future Plans
Our focus
is to acquire, develop, and manufacture new product technologies and to expand
our manufacturing capabilities through current operating cash flows and bank
financing, if necessary.
In order
to increase international sales growth and maintain its ability to sell in
Europe, the Company has been certified as ISO9001/EN46001 quality system
compliant and has been granted its CE mark (International Quality control.)
In
December, we satisfied our first mortgage on the building that we own in St.
Petersburg, Florida and replaced it with a new first mortgage from our prime
lender in the amount of $475,000. The mortgage loan is to be repaid over 5 years
with a variable interest starting at the bank’s present base rate of 4.00%.
Bovie pays a principal payment of $2,639 plus interest each month. A balloon
payment of $316,660 is due in December 2006.
In May
2001, we changed commercial lenders and increased our credit line from $600,000
to $1,500,000. The interest rate on the line is variable and is presently at the
bank’s base rate, which is 4.00% per annum. The outstanding balance due on the
credit line on December 31, 2003 was zero.
Our
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, there are other factors that could
cause actual results to differ materially, such as business conditions and the
general economies; competitive factors including 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.
Our
management believes that Bovie has the product mix, facilities, personnel,
competitive edge, operating cash flows and financial resources for business
success in the immediate (1 year) future and distant future (after 1 year), but
future revenues, costs, margins, product mix and profits are all subject to the
influence of a number of factors, as discussed above.
Critical
Accounting Estimates
We have
adopted various accounting policies to prepare the consolidated financial
statements in accordance with accounting principles generally accepted (GAAP) in
the United States of America (U.S.). Our most significant accounting policies
are disclosed in Note 1 to the consolidated financial statements.
The
preparation of the consolidated financial statements, in conformity with U.S.
GAAP, requires us to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Our
estimates and assumptions, including those related to bad debts, inventories,
intangible assets, property, plant and equipment, minority investment, legal
proceedings, research and development, warranty obligations, product liability,
pension obligations, sales returns and discounts, and income taxes are updated
as appropriate, which in most cases is at least quarterly. We base our estimates
on historical experience, actuarial valuations, or various assumptions that are
believed to be reasonable under the circumstances and the results form the basis
for making judgments about the reported values of assets, liabilities, revenues
and expenses. Actual results may materially differ from these
estimates.
Estimates
are considered to be critical if they meet both of the following criteria: (1)
the estimate requires assumptions about material matters that are uncertain at
the time the accounting estimates are made, and (2) other materially different
estimates could have been reasonably made or material changes in the estimates
are reasonably likely to occur from period to period. Our critical accounting
estimates include the following:
Allowance
for doubtful accounts
The
Company maintains an allowance for doubtful accounts for estimated losses in the
collection of accounts receivable. The Company makes estimates regarding the
future ability of its customers to make required payments based on historical
credit experience and expected future trends. If actual customer financial
conditions are less favorable than projected by management, additional accounts
receivable write-offs may be necessary, which could unfavorably affect future
operating results.
Inventory
Reserves
The
Company maintains reserves for excess and obsolete inventory resulting from the
potential inability to sell its products at prices in excess of current carrying
costs. The markets in which the Company operates are highly competitive, with
new products and surgical procedures introduced on an ongoing basis. Such
marketplace changes may cause the Company’s products to become obsolete. The
Company makes estimates regarding the future recoverability of the costs of
these products and records a provision for excess and obsolete inventories based
on historical experience, expiration of sterilization dates and expected future
trends. If actual product life cycles, product demand or acceptance of new
product introductions are less favorable than projected by management,
additional inventory write-downs may be required, which could unfavorably affect
future operating results.
Income
Taxes
The
Company operates in multiple tax jurisdictions both inside and outside the
United States. Accordingly, management must determine the appropriate allocation
of income to each of these jurisdictions. Tax audits associated with the
allocation of this income and other complex issues may require an extended
period of time to resolve and may result in income tax adjustments if changes to
the income allocation are required between jurisdictions with different tax
rates. Because tax adjustments in certain jurisdictions can be significant, the
Company records accruals representing management’s best estimate of the probable
resolution of these matters. To the extent additional information becomes
available, such accruals are adjusted to reflect the revised estimated probable
outcome.
Other
Matters
The
Company distributes its products throughout the world. As a result, the
Company’s financial results could be significantly affected by factors such as
changes in foreign currency exchange rates or weak economic conditions in
foreign markets. The Company’s operating results are primarily exposed to
changes in exchange rate among the United States dollar and the European
currencies, in particular the euro and the British pound. When the United States
dollar weakens against foreign currencies, the dollar value of sales denominated
in foreign currencies increases. When the United States dollar strengthens, the
opposite situation occurs. The Company manufactures its products in the United
States, Pakistan, Bulgaria, China and incurs the costs to manufacture in US
dollars.
Item
7. Financial Statements.
(See
Attached)
There are
no disagreements with, or changes in, accountants.
Bovie’s
Executive Officers and directors are as follows:
|
Name |
Position
|
Director
Since |
|
Andrew
Makrides |
Chairman
of the Board, President, CEO |
December
1982 |
|
J.
Robert Saron |
President
of Aaron Medical Industries,Inc. and Director |
August
1994 |
|
George
Kromer |
Director |
October
1995 |
|
Alfred
V. Greco |
Director |
April
1998 |
|
Brian
Madden |
Director |
September
2003 |
|
Moshe
Citronowicz |
Executive
Vice President and Chief Operating Officer |
-- |
|
Charles
Peabody |
Chief
Financial Officer and Secretary |
-- |
Directors
serve for one-year terms and are elected at the annual shareholders
meeting.
Andrew
Makrides, Esq. age 62, 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 Juris Doctor 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. Mr. Makrides employment contract extends to
December 31, 2009.
J. Robert
Saron, age 51, Director, holds a Bachelor's 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 Medical Industries, Inc., which serves as the Company's marketing
subsidiary, and he is also a member of the Board of Directors of the Company.
Mr. Saron serves on two industry boards, the Health Industry Distributors
Association Education Foundation and the Healthcare Manufacturing Marketing
Council. Mr. Sarons employment contract extends to December 31,
2009.
Alfred V.
Greco, Esq. age 68, 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 representatives and has developed a
broad range of experience in administrative, regulatory and legal aspects of
public companies, their organization and operation. Mr. Greco graduated from
Fordham University School of Law with a Doctor of Law degree in June of 1960. He
was admitted to the New York State Bar in March, 1961.
George W.
Kromer, Jr., age 63, became a director on October 1, 1995. 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
business publications since 1980. In 1976, he received a Master’s Degree in
health administration from Long Island University. 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 51, 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. Mr. Citronowicz
employment contract extends to December 31, 2009.
Charles
Peabody, CPA, age 52, graduated from Babson College with a BSBA in accounting.
He is a Certified Public Accountant in the States of Florida and Vermont. During
the past twenty years, Mr. Peabody has had positions ranging from vice
president, finance and administration of an $11 million telecommunication
equipment manufacturer to the chief financial officer of an $18 million
commercial refrigeration glass door company. Mr. Peabody is a member of the
American and Florida Institutes of Certified Public Accountants.
Brian
Madden, Age 49, graduated from Iona College in 1976 with a Bachelor of Business
Administration degree. Mr. Madden is married with two children and is currently
the President of Liberty Title Agency. He has been a member of the boards of
various professional and civic organizations such as: Long Island Housing
Partnership, chairman of NYS Land Title Assoc-Agents Committee, Elwood School
Board, Good Samaritan Hospital Board of Governors, Long Island Childrens Museum
and various others. Mr. Madden presently sits on our audit committee and is
considered a financial expert.
On March
30, 2004 Bovie adopted an executive employee ethics code.
A copy of
the code of ethics will be provided without charge to any person upon request to
Bovie Medical 734 Walt Whitman Road, Melville, NY 11747, Attn: Andrew Makrides.
The
following table sets forth the compensation paid to the executive officers of
the registrant for the three years ended December 31, 2003:
|
Summary
Compensation Table |
| |
|
Long
Term Compensation |
| |
Annual
Compensation |
Awards |
|
Payouts |
|
|
(a) |
(b) |
(c) |
(d) |
(e) |
(f) |
(g) |
(h) |
(i) |
|
Name
Principal and
Position
|
Year
|
Salary($)
|
Bonus($)
|
Other
Annual Compensation-(a)($)
|
Restricted
Stock Award(s) (b)($)
|
Securities
Underlying Options/ SARs(#)
|
LTIP
Payouts ($) |
All
Other Compensation ($)
|
| |
|
|
|
|
|
|
|
|
|
Andrew
Makrides
President,
CEO
Chairman
of
the
Board |
2003 |
$158,406 |
2,967 |
9,942 |
-- |
110,000 |
-- |
-- |
|
2002 |
$141,835 |
2,760 |
9,581 |
-- |
-- |
-- |
-- |
|
2001 |
$146,446 |
2,567 |
12,352 |
-- |
155,000 |
-- |
-- |
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
J.
Robert Saron
Director
President
of Aaron
Medical
and
Director |
2003 |
$219,786 |
4,200 |
15,568 |
-- |
110,000 |
-- |
-- |
|
2002 |
$200,545 |
3,907 |
15,533 |
-- |
-- |
-- |
-- |
|
2001 |
$199,485 |
3,624 |
18,018 |
-- |
155,000 |
-- |
-- |
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Moshe
Citronowicz
Executive
Vice
President-
Chief
Operating
Officer |
2003 |
$158,637 |
3,086 |
14,345 |
-- |
110,000 |
-- |
-- |
|
2002 |
$147,370 |
2,871 |
15,688 |
-- |
-- |
-- |
-- |
|
2001 |
$149,697 |
2,671 |
17,205 |
-- |
155,000 |
-- |
-- |
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| (a) |
Other
compensation consists of medical insurance and auto.
|
| (b) |
There
were no awards given in 2001-2003. |
No
options were granted or issued to any executive officer or director during
fiscal year ending December 31, 2002. In 2003, a total of 585,000 options were
granted to executive officers and directors.
Stock
Options
The
following table contains information covering options to purchase shares of the
Company’s Common Stock granted to the Named Executives in 2003 pursuant to the
Company’s 2003 Stock Option Plan.
|
Name
of Officer |
Number
of
Shares
of
Common
Stock
Underlying
Options
Granted#(1) |
%
of Total
Options
Granted
to
Employees
in
2003 |
Exercise
Price
$
(sh) |
Expiration
Date |
Grant
Date
Present
Value
$
(2) |
|
Charles
Peabody |
35,000 |
|
3.25 |
09/29/13 |
65,257 |
| |
25,000 |
|
.70 |
01/21/13 |
10,040 |
|
Total |
60,000 |
2.99% |
|
|
75,297 |
| |
|
|
|
|
|
|
Moshe
Citronwiez |
25,000 |
|
3.25 |
09/29/13 |
46,613 |
| |
85,000 |
|
.70 |
01/21/13 |
34,134 |
|
Total |
110,000 |
6.14% |
|
|
80,747 |
| |
|
|
|
|
|
|
J.
Robert Saron |
25,000 |
|
3.25 |
09/29/13 |
46,613 |
| |
85,000 |
|
.70 |
01/21/13 |
34,134 |
|
Total |
110,000 |
6.14% |
|
|
80,747 |
| |
|
|
|
|
|
|
Andrew
Makrides |
25,000 |
|
3.25 |
09/29/13 |
46,613 |
| |
85,000 |
|
.70 |
01/21/13 |
34,134 |
|
Total |
110,000 |
6.14% |
|
|
80,747 |
Total
options granted (as adjusted) were 1,791,000 which represents 100% of the
options granted in 2003.
(1) Such
options were granted at 100% of fair market value on the date of grant and
become immediately exercisable as to the shares covered thereby.
(2) The
Grant Date Present Value has been calculated using the Black-Scholes option
pricing model and assumes a risk-free rate of return of 4.0%, an expected option
life of 10 years, no dividend yield and a stock volatility of 42%. No adjustment
was made for nontransferability or forfeitures. Such assumptions are based upon
historical experience and are not a forecast of future stock price performance
or volatility or of future dividend policy. Such information, which is presented
in accordance with the requirements of the Securities and Exchange Commission,
is not necessarily indicative of the actual value that such options will have to
the Named Executives, which will be dependent upon market prices for the Common
Stock.
Equity
Compensation Plan Information:
|
Plan
category |
Number
of Securities
to
be issued upon
exercise
of
outstanding
options, |
Weighted-average
exercise
price of
outstanding
options,
warrants
and rights |
Number
of securities
remaining
available
for
future issuance
under
equity
compensation
plans |
|
|
|
|
|
Equity
compensation Plans approved by Security holders
|
|
|
|
| |
|
|
|
3,988,800
|
$1.004
|
552,200
|
| |
|
|
|
|
Equity
compensation Plans not approved By security holders
|
|
|
|
| |
|
|
|
--
|
--
|
--
|
|
|
|
|
|
| |
|
|
|
|
Total
|
3,988,800
|
1.004
|
552,200
|
The
following table summarizes:
1. Total
options held at in the last fiscal year by officers and
directors.
2. The
fiscal year and the fiscal year end option values.
| |
|
Number
of |
|
Value
of |
|
| |
|
Unexercised |
|
Unexercised
|
|
| |
|
Options
|
|
Options
at |
|
| |
|
At
Fiscal Year |
|
Fiscal |
|
| |
|
End
(#) |
|
Year |
|
|
Name |
|
Exercisable |
|
End |
|
| |
|
|
|
|
|
Charles
Peabody |
|
$ |
85,000 |
|
$ |
117,250 |
|
Andrew
Makrides |
|
|
485,000
|
|
|
1,082,700 |
|
J.
Robert Saron |
|
|
505,000 |
|
|
1,145,350 |
|
Moshe
Citronowicz |
|
|
440,000 |
|
|
996,425 |
|
Alfred
Greco |
|
|
335,000 |
|
|
747,200 |
|
George
Kromer |
|
|
390,000 |
|
|
861,675 |
|
| |
|
|
|
|
|
|
|
|
Other |
|
|
1,658,800 |
|
|
3,266,194 |
|
| |
|
$ |
3,988,800 |
|
$ |
8,340,941 |
|
| |
|
|
|
|
|
|
|
Brian Madden was entitled to 25,000 options but had not received them
by year end and is not included above.
The price
of the stock was $3.07 per share on December 31, 2003. The options with exercise
price less than $3.25 were valued using Black-Scholes option pricing model at
approximately $.05 per share.
In 2003,
the Board of Directors adopted a resolution increasing the number of shares
covered by Bovie’s 2001 executive and employee stock purchase and option plan by
a total of one million two hundred thousand (1,200,000) shares of common stock
issuable upon exercise of options to be granted under the Plan. In 2003, the
Board of Directors granted the following options to Executive Officers and
Directors:
|
George
Kromer |
85,000 |
|
|
|
Alfred
Greco |
85,000 |
|
|
|
Moshe
Citronowicz |
110,000 |
|
|
|
Robert
Saron |
110,000 |
|
|
|
Andrew
Makrides |
110,000 |
|
|
|
Charles
Peabody |
60,000 |
|
|
|
Brian
Madden |
25,000 |
09/23/2003 |
Board
Member |
|
Total |
585,000 |
|
|
| |
|
|
|
Outside
Directors are compensated in their capacities as Board members through option
grants. Our Board of Directors presently consists of J. Robert Saron, Andrew
Makrides, Chairman CEO, and President, George W. Kromer, Jr., Alfred Greco and
Brian Madden. For the past years, pursuant to a written agreement, Mr. Kromer
has been retained by Bovie Medical Corporation as a business and public
relations consultant on a month-to-month basis at an average monthly fee of
$1,200. Mr. Greco is the managing director of Alfred V Greco PLLC, counsel to
Bovie, to which Bovie paid legal fees of $73,646 during 2003.
There
have been no changes in the pricing of any options previously or currently
awarded.
In
January 3, 2004, we extended employment contracts with certain of its officers
for two years. The following schedule shows all contracts and terms with
officers of Bovie.
|
Bovie
Medical Corporation |
|
|
December
31, 2003 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Contract |
|
Expiration |
|
Current |
|
Auto |
|
| |
|
Date |
|
Date(1) |
|
Base
Pay |
|
Allowance |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew
Makrides |
|
|
01/01/98 |
|
|
12/31/2009(1) |
|
$ |
167,683 |
|
$ |
6,310 |
|
J.
Robert Saron |
|
|
01/01/98 |
|
|
12/31/2009(1) |
|
|
230,296 |
|
|
6,310 |
|
Moshe
Citronowicz |
|
|
01/01/98 |
|
|
12/31/2009(1) |
|
|
158,637 |
|
|
6,310 |
|
| (1) |
Includes
total extensions for six years- Salaries increase annually pursuant to a
contract formula. In the event of a change in control, each officers’
contract contains an option for each respective officer to resign and
receive 3 years salary. |
The
following table sets forth certain information as of December 31, 2003, 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/or options to levy
common stock and by all officers and directors as a group.
| |
Number
of Shares
|
|
|
| |
Nature
of |
Percentage
of |
|
Name
and Address |
Title |
Owned
(i) |
Ownership |
Ownership(i) |
| |
|
|
|
|
|
Maxxim
Medical Inc.
10300
49th Street, North
Clearwater,
FL 33762 |
Common |
3,000,000 |
Beneficial |
17.2% |
| |
|
|
|
| |
|
|
|
| |
|
|
|
|
|
Directors
and Officers |
|
|
|
|
| |
|
|
|
|
|
Andrew
Makrides
734
Walt Whitman Road
Melville,
NY 11746 |
Common |
800,800(ii) |
Beneficial |
4.6% |
| |
|
|
|
| |
|
|
|
| |
|
|
|
|
|
George
Kromer
P.O.
Box 188
Farmingville,
NY 11738 |
Common |
390,000(iii) |
Beneficial |
2.2% |
| |
|
|
|
| |
|
|
|
| |
|
|
|
|
|
Alfred
V. Greco
666
Fifth Avenue
New
York, NY 10103 |
Common |
386,500(iv) |
Beneficial |
2.2% |
| |
|
|
|
| |
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
J.
Robert Saron
7100
30th Avenue North
St.
Petersburg, FL 33710 |
Common |
937,976(v) |
Beneficial |
5.3% |
| |
|
|
|
| |
|
|
|
| |
|
|
|
|
|
Moshe
Citronowicz
7100
30th Avenue North
St.
Petersburg, FL 33710 |
Common |
614,591
(vi) |
Beneficial |
3.5% |
| |
|
|
|
| |
|
|
|
| |
|
|
|
|
|
Brian
Madden
300
Garden City Plaza
Garden
City, NY 11530 |
Common |
|
--(vii) |
-(vii) |
| |
|
|
|
| |
|
|
|
|
|
Officers
and Directors as a group(7) |
|
3,189,867(viii) |
|
18.3% |
(i) Based
on 13,464,528 outstanding shares of Common Stock and 3,988,000 outstanding
options to acquire a like number of shares of Common Stock as of December 31,
2003, of which officers and directors owned a total of 2,240,000 options and
989,867 shares at December 31, 2003.
(ii)
Includes 485,000 shares reserved and underlying ten year options owned by Mr.
Makrides to purchase shares of Common Stock of the Company. Exercise prices for
his options range from $.50 for 155,000 shares to $3.25 for 25,000 shares.
(iii)
Includes shares reserved pursuant to 390,000 ten year options owned by Mr.
Kromer to purchase shares of the Company. Exercise prices for his options range
from $.50 for 100,000 shares to $3.25 for 25,000 shares.
(iv)
Includes 335,000 shares reserved pursuant to 10 year options exercisable at
prices varying between $.50 per share for 100,000 shares up to $3.25 per share
for 25,000 shares. Mr. Greco’s wife presently owns 51,500 shares.
(v)
Includes 505,000 shares reserved pursuant to 10 year options owned by Mr. Saron,
exercisable at prices ranging from $.50 per share for 75,000 shares, and $3.25
per share for 25,000 shares.
(vi)
Includes 440,000 shares reserved pursuant to 10 year options owned by Mr.
Citronowicz exercisable at prices ranging from $.50 for 75,000 shares to $3.25
for 25,000.
(vii) In
2003 Mr. Madden was awarded 25,000 options to purchase Common Stock at a price
of $3,25 per share.
(viii)
Includes 2,240,000 shares reserved for outstanding options owned by all
Executive Officers and directors as a group. The last date options can be
exercised is September 29, 2013.
In 2003,
the Board of Directors granted options to the executive officers and directors
of Bovie as set forth in the table below:
| |
|
Number
of |
|
Name |
Title |
Options |
| |
|
|
|
Andrew
Makrides |
President,
Director |
110,000 |
|
Moshe
Citronowicz |
Vice
President, COO |
110,000 |
|
Charles
Peabody |
Secretary,
Chief Financial Officer |
60,000 |
|
George
Kromer |
Director |
85,000 |
|
Brian
Madden |
Director |
25,000 |
|
Alfred
V. Greco |
Director |
85,000 |
|
J.
Robert Saron |
Vice
President, Sales, Director |
110,000 |
The above
executive officers and directors received grants of options in 2003 for which
they inadvertently neglected to timely file appropriate Form 4s reflecting the
option grants.
In 2003,
the Executive Officers and directors were awarded a total of 400,000 and 185,000
options to purchase the Company's Common Stock at exercise prices of $.70 and
$3.25 per share under the Company's 2003 Executive and Employee Stock Option
Plan. See Remuneration
A
director, Alfred V. Greco Esq. is the principal of Alfred Greco PLLC, the
Company's counsel. Alfred V. Greco PLLC received $73,646 and $59,303 in legal
fees for the years 2003 and 2002, respectively. See “Security Ownership of
Certain Beneficial Owners and Management.”
A
director, George Kromer also serves as a consultant to the Company with
consulting compensation of $16,615 and $17,586 for 2003 and 2002, respectively.
Two
relatives of the chief operating officer of the Company are employed by the
Company. Yechiel Tsitrinovich, an engineering consultant received compensation
for 2003 and 2002 of $46,978 and $77,150 respectively. The other relative, Arik
Zoran, is an employee of the Company in charge of the engineering department. He
has a two year contract providing for a salary of $90,000 per year plus living
expenses and benefits. For 2003 he was paid $144,434 which includes living
expenses and benefits. The Company is attempting at this time to secure a
permanent work visa for Mr. Zoran.
No Form
8-K was filed in the fourth quarter of 2003.
(a)
Evaluation of disclosure controls and procedures
For
purposes of rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934
("Exchange Act") the term "disclosure controls and procedures" refers to the
controls and other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files
under the Exchange Act is recorded, processed, summarized and reported within
required time periods. Within 90 days prior to the date of this report
("Evaluation Date"), Bovie carried out an evaluation under the supervision and
with the participation of Bovie’s Chief Executive Officer and its Chief
Financial Officer of the effectiveness of the design and operation of its
disclosure controls and procedures. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that, as of
December 31, 2003, such controls and procedures were effective at ensuring that
required information will be disclosed on a timely basis in our periodic reports
filed under and pursuant to the Exchange Act.
(b)
Changes in internal controls
There
were no significant changes to our internal controls or in other factors that
could significantly affect our internal controls subsequent to the Evaluation
Date.
The
following table sets forth the aggregate fees billed to us for fiscal years
ended December 31, 2003 and 2002 by Bloom & Co., LLP, our
auditors:
| |
|
|
| |
2003 |
2002 |
| |
|
|
|
Audit
Fees (1) |
$
110,669 |
$
96,308 |
| |
|
|
|
Non-Audit
Fees: |
|
|
|
Audit
Related Fees(2) |
--
|
|
|
Tax
Fees(3) |
5,000 |
5,000 |
|
All
other Fees(4) |
-- |
-- |
| |
|
|
|
Total
Fees paid to Auditor |
$
115,669 |
$
101,308 |
(1) Audit
fees consist of fees billed for professional services rendered for the audit of
Bovie’s annual financial statements and review of the interim consolidated
financial statements and review of the interim consolidated financial statements
included in quarterly reports and services that are normally provided by Bloom
& Co., LLP in connection with statutory and regulatory filings or
engagements.
(2)
Audit-Related fees consist of fees billed for assurance and related services
that are reasonably related to the performance of the audit or review of Bovie’s
consolidated financial statements and are not reported under “Audit
Fees”.
(3) Tax
fees consist of fees billed for professional services rendered for tax
compliance, tax advice and tax planning (domestic and international). These
services include assistance regarding federal, state and international tax
compliance, acquisitions and international tax planning.
(4) All
other fees consist of fees for products and services other than the services
reported above.
In the
past the Board of Directors had considered the role of Bloom & Co., LLP in
providing certain tax services to Bovie and had concluded that such services
were compatible with Bloom & Co., LLP’s independence as our auditors. In
addition, since the effective date of the SEC rules stating that an auditor is
not independent of an audit client if the services it provides to the client are
not appropriately approved (which was previously done by the Board of
Directors). Now the Audit Committee will pre-approve all audit and permissible
non-audit services provided by the independent auditors.
The Audit
Committee has adopted a policy for the pre-approval of services provided by the
independent auditors, pursuant to which it may pre-approve any service
consistent with applicable law, rules and regulations. Under the policy, the
Audit Committee may also delegate authority to pre-approve certain specified
audit or permissible non-audit services to one or more of its members, including
the Chairman. A member to whom pre-approval authority has been delegated must
report its pre-approval decisions, if any, to the Audit Committee at its next
meeting, and any such pre-approvals must specify clearly in writing the services
and fees approved. Unless the Audit Committee determines otherwise, the term for
any service pre-approved by a member to whom pre-approval authority has been
delegated is twelve months.
Prior to
September 29, 2003 the audit committee consisted of the board of directors. On
September 29, 2003 the board of directors appointed Brian Madden, George Kromer
(both independent directors) and Andrew Makrides as audit committee members. Mr.
Madden is considered audit committee financial expert because of his education
(BBA), background as executive officer of a financial firm and his experience as
treasurer of several organizations and his membership on a number boards of
directors (see bio in Item 9).
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 February 14, 2005.
| |
Bovie
Medical Corporation |
| |
|
| |
|
| |
By:
/s/ Andrew Makrides |
| |
Andrew
Makrides |
| |
President |
| |
Chairman
of the Board |
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 amended and on the dates indicated.
|
Signatures |
Title
and Date |
| |
|
|
/s/Andrew
Makrides
Andrew
Makrides |
Chairman
of Board
Chief
Executive Officer
President,
Director
February
14, 2005 |
|
| |
| |
| |
|
|
/s/J.
Robert Saron
J.
Robert Saron |
Director
February
14, 2005 |
| |
|
|
/s/George
W. Kromer
George
W. Kromer |
Director
February
14, 2005 |
| |
|
|
/s/Charles
Peabody
Charles
Peabody |
Chief
Financial Officer
February
14, 2005 |
| |
|
|
/s/Alfred
V. Greco
Alfred
V. Greco |
Director
February
14, 2005 |
| |
|
|
/s/Brian
Madden
Brian
Madden |
Director
February
14, 2005 |
PART
II
BOVIE
MEDICAL CORPORATION
|
BLOOM
& CO., LLP 50 CLINTON STREET. HEMPSTEAD. NEW YORK 11550:
|
.TEL
516 - 486-5900 |
|
CERTIFIED
PUBLIC ACCOUNTANTS |
FAX
: 516 - 486-5476 |
| |
|
|
STEVEN
BLOOM, CPA
FREDERICK
PAUKER, CPA
SIROUSSE
TABRIZTCHI, Ph.D. CPA |
MEMBER
OF
AMERICAN
INSTITUTE OF
CERTIFIED
PUBLIC ACCOUNTANTS |
To the
Board of Directors
and
Shareholders of
Bovie
Medical Corporation
We have
audited the accompanying consolidated balance sheets of Bovie Medical
Corporation as of December 31, 2003 and 2002, and the related consolidated
statements of operations, stockholders’ equity, and cash flows for the years
then ended. These 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 standards of the Public Company
Accounting Oversight Board (United States). These 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 consolidated financial position of Bovie Medical
Corporation as of December 31, 2003 and 2002, and the consolidated results of
its operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
As
discussed in the Note 1 the Company restated the statements of operations and
cash flows for the year ended December 31, 2003.
BLOOM
& CO., LLP
Hempstead,
New York
March 25,
2004, except for the notes 1-6, 11, and 14-16
As to
which the date is February 1, 2005
BOVIE
MEDICAL CORPORATION
DECEMBER
31, 2003 AND 2002
ASSETS
| |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
Current
assets: |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Cash |
|
$ |
306,137 |
|
$ |
379,209 |
|
|
Trade
accounts receivable, net |
|
|
1,708,181 |
|
|
1,350,487 |
|
|
Inventories |
|
|
2,451,149 |
|
|
2,357,505 |
|
|
Prepaid
expenses |
|
|
390,025 |
|
|
164,264 |
|
|
Deferred
tax asset |
|
|
386,200 |
|
|
386,200 |
|
Other
Assets |
|
|
-- |
|
|
45,044 |
|
| |
|
|
|
|
|
|
|
|
Total
current assets |
|
|
5,241,692 |
|
|
4,682,709 |
|
| |
|
|
|
|
|
|
|
|
Property
and equipment, net |
|
|
1,900,015 |
|
|
1,559,080 |
|
| |
|
|
|
|
|
|
|
|
Other
assets: |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Repair
parts |
|
|
228,226 |
|
|
281,746 |
|
|
Trade
name |
|
|
1,509,662 |
|
|
1,509,662 |
|
|
Patent
rights, net |
|
|
144,967 |
|
|
258,214 |
|
|
Deposits |
|
|
9,470 |
|
|
9,470 |
|
Investment
Joint Venture |
|
|
200,000 |
|
|
200,000 |
|
| |
|
|
|
|
|
|
|
| |
|
|
2,092,325 |
|
|
2,259,092 |
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Total
Assets |
|
$ |
9,234,032 |
|
$ |
8,500,881 |
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the financial
statements. |
|
|
|
|
|
|
|
BOVIE
MEDICAL CORPORATION
CONSOLIDATED
BALANCE SHEET
DECEMBER
31, 2003 AND 2002
(Continued)
LIABILITIES
AND STOCKHOLDERS' EQUITY
LIABILITIES
| |
|
2003 |
|
2002 |
|
Current
liabilities: |
|
|
|
|
|
| |
|
|
|
|
|
|
|
Accounts
payable |
|
$ |
679,792 |
|
$ |
478,668 |
|
Accrued
expenses |
|
|
577,075 |
|
|
396,949 |
|
Customers
deposits |
|
|
112,000 |
|
|
128,000 |
|
Notes
payable |
|
|
-- |
|
|
525,467 |
|
Due
to shareholders |
|
|
-- |
|
|
37,214 |
|
|
Current
maturities of long term debt |
|
|
35,343 |
|
|
31,668 |
|
| |
|
|
|
|
|
|
|
Total
current liabilities |
|
|
1,404,210 |
|
|
1,597,966 |
|
| |
|
|
|
|
|
|
|
Notes
Payable-Non current |
|
|
379,995 |
|
|
411,664 |
|
| |
|
|
|
|
|
|
|
Stockholders'
equity: |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Preferred
stock 10,000,000 shares
authorized,
none outstanding |
|
|
|
|
|
-- |
|
| |
|
|
|
|
|
|
|
Common
stock par value $.001;
40,000,000
shares authorized,
13,464,528
and 13,256,103
issued
and outstanding
on
December 31, 2003 and
December
31, 2002 respectively, |
|
|
16,641 |
|
|
13,274 |
|
Additional
paid in capital |
|
|
20,093,936 |
|
|
19,820,044 |
|
|
Accumulated
deficit |
|
|
(12,660,750 |
) |
|
(13,342,067 |
) |
| |
|
|
|
|
|
|
|
|
Total
stockholders' equity |
|
|
7,449,827 |
|
|
6,491,251 |
|
| |
|
|
|
|
|
|
|
|
Total
liabilities and
stockholders'
equity |
|
$ |
9,234,032 |
|
$ |
8,500,881 |
|
| |
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the financial
statements. |
|
|
|
|
|
|
|
BOVIE
MEDICAL CORPORATION
FOR
THE YEARS ENDED DECEMBER 31, 2003 AND 2002
| |
|
|
|
|
|
| |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
|
Sales |
|
$ |
16,117,722 |
|
$ |
12,446,571 |
|
|
Cost
of sales |
|
|
9,050,240 |
|
|
7,190,295 |
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Gross
Profit |
|
|
7,067,482 |
|
|
5,256,276 |
|
| |
|
|
|
|
|
|
|
Other
costs: |
|
|
|
|
|
|
|
Research
and development |
|
|
717,347
|
|
|
693,710 |
|
Professional
services |
|
|
392,796 |
|
|
321,598
|
|
Salaries
and related costs |
|
|
2,275,488 |
|
|
2,093,642 |
|
Selling,
general and |
|
|
|
|
|
|
|
administration |
|
|
2,936,479 |
|
|
2,496,776 |
|
Equity
in net loss of |
|
|
|
|
|
|
|
|
unconsolidated
affiliate |
|
|
81,914
|
|
|
124,445 |
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Total
other costs |
|
|
6,404,024 |
|
|
5,730,171 |
|
| |
|
|
|
|
|
|
|
Income(loss)from
operations |
|
|
663,458 |
|
|
(473,895 |
) |
| |
|
|
|
|
|
|
|
Other
income and (expense): |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Interest
income |
|
|
2,980 |
|
|
5,206 |
|
Interest
expense |
|
|
(34,060 |
) |
|
(48,451 |
) |
|
Miscellaneous/other
income |
|
|
-- |
|
|
2,375 |
|
| |
|
|
|
|
|
|
|
| |
|
|
(31,080 |
) |
|
(40,870 |
) |
| |
|
|
|
|
|
|
|
| |
|
|
632,378 |
|
|
(514,765 |
) |
| |
|
|
|
|
|
|
|
Income
tax expense |
|
|
(228,000 |
) |
|
-- |
|
|
Income
tax benefit |
|
|
228,000 |
|
|
-- |
|
Net
income from |
|
|
|
|
|
|
|
|
continuing
operations |
|
$ |
632,378 |
|
$ |
(514,765 |
) |
| |
|
|
|
|
|
|
|
Discontinued
Operations |
|
|
|
|
|
|
|
Gain
from |
|
|
|
|
|
|
|
Operations
of |
|
|
|
|
|
|
|
discontinued
component |
|
|
|
|
|
|
|
(loss
on disposal -0-) |
|
$ |
48,939 |
|
$ |
-- |
|
Income
tax |
|
|
18,000 |
|
|
|
|
|
Income
tax benefit |
|
|
(18,000 |
) |
|
-- |
|
| |
|
|
|
|
|
|
|
|
Gain
on discontinued operations |
|
|
48,939 |
|
|
-- |
|
| |
|
|
|
|
|
|
|
|
Net
income |
|
$ |
681,317 |
|
$ |
(514,765 |
) |
The
accompanying notes are an integral part of the financial
statements. |
|
|
|
|
|
|
|
BOVIE
MEDICAL CORPORATION
CONSOLIDATED
STATEMENT OF OPERATIONS
FOR
THE YEARS ENDED DECEMBER 31, 2003 AND 2002
(CONTINUED)
| |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
|
Basic
earnings (Loss) per common share |
|
$ |
.05 |
|
$ |
(.04 |
) |
| |
|
|
|
|
|
|
|
|
Diluted
earnings (Loss) per common share |
|
|
.05 |
|
|
N/A |
|
| |
|
|
|
|
|
|
|
Weighted
average number |
|
|
|
|
|
|
|
|
of
common shares outstanding |
|
|
13,188,353 |
|
|
13,204,755 |
|
| |
|
|
|
|
|
|
|
Incremental
items |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Stock
options |
|
|
1,647,097 |
|
|
N/A |
|
| |
|
|
|
|
|
|
|
Diluted
weighted average |
|
|
|
|
|
|
|
|
common
shares outstanding |
|
|
14,835,450 |
|
|
N/A |
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the financial
statements. |
|
|
|
|
|
|
|
BOVIE
MEDICAL CORPORATION
FOR
THE YEARS ENDED DECEMBER 31, 2003 AND 2002
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options |
|
Preferred |
|
Common |
|
Paid- |
|
|
|
|
|
| |
|
Outstanding |
|
Shares |
|
Value |
|
Shares |
|
Value |
|
in
Capital |
|
Deficit |
|
Total |
|
|
Balance
as of
January
1, 2002 |
|
|
2,909,000 |
|
|
-- |
|
|
-- |
|
|
13,256,103 |
|
$ |
13,274 |
|
$ |
19,814,334 |
|
$ |
(12,827,302 |
) |
$ |
7,000,306 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
receivable |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
5,710 |
|
|
-- |
|
|
5,710 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
for Period |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
(
514,765 |
) |
|
(514,765 |
) |
|
Balance
as of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2002 |
|
|
2,909,000 |
|
|
-- |
|
|
-- |
|
|
13,256,103 |
|
|
13,274 |
|
$ |
19,820,044 |
|
$ |
(13,342,067 |
) |
$ |
6,491,251 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
Receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,131 |
|
|
|
|
|
6,131 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancel
shares on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recission
offer |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
(142,575 |
) |
|
(143 |
) |
|
18,931 |
|
|
-- |
|
|
18,788 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
options for cash |
|
|
(350,000 |
) |
|
|
|
|
|
|
|
350,000 |
|
|
3,500 |
|
|
247,500 |
|
|
-- |
|
|
251,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
cancelled or forfeited |
|
|
(361,200 |
) |
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
granted |
|
|
1,791,000 |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for promotion |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
1,000 |
|
|
10 |
|
|
1,330 |
|
|
-- |
|
|
1,340 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
for period |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
681,317 |
|
|
681,317 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2003 |
|
|
3,988,800 |
|
|
-- |
|
|
-- |
|
|
13,464,528 |
|
$ |
16,641 |
|
$ |
20,093,936 |
|
$ |
(12,660,750 |
) |
$ |
7,449,827 |
|
|
The
accompanying notes are an integral part of the financial
statements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.
BOVIE
MEDICAL CORPORATION
FOR
THE YEARS ENDED DECEMBER 31, 2003 AND 2002
| |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
Cash
flows from operating activities: |
|
|
|
|
|
| |
|
|
|
|
|
|
|
Net
income(loss) |
|
$ |
681,317 |
|
$ |
(514,765 |
) |
Adjustments
to reconcile |
|
|
|
|
|
|
|
net
income to net cash provided |
|
|
|
|
|
|
|
by
operating activities: |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Depreciation
and amortization |
|
|
314,682 |
|
|
274,876 |
|
Cancel
recission liability |
|
|
18,788 |
|
|
|
|
Promotion
cost paid with shares |
|
|
1,340 |
|
|
|
|
Write
down of inventories and parts |
|
|
193,981 |
|
|
367,551 |
|
Write
down development cost |
|
|
112,471 |
|
|
-- |
|
| |
|
|
|
|
|
|
|
Change
in assets and liabilities: |
|
|
|
|
|
|
|
Trade
receivables |
|
|
(357,694 |
) |
|
(149,554 |
) |
Prepaid
expenses |
|
|
(225,761 |
) |
|
(
36,219 |
) |
Inventories
and parts |
|
|
(234,105 |
) |
|
(286,703 |
) |
Other
receivables |
|
|
45,044 |
|
|
(
44,265 |
) |
Accounts
payable |
|
|
201,124 |
|
|
105,293 |
|
|
Accrued
expenses |
|
|
164,126 |
|
|
29,608 |
|
| |
|
|
|
|
|
|
|
|
Total
adjustments |
|
|
233,996 |
|
|
260,587 |
|
| |
|
|
|
|
|
|
|
|
Net
cash provided by operations |
|
$ |
915,313 |
|
$ |
254,178 |
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
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, 2003 AND 2002
(Continued)
| |
|
2003 |
|
2002 |
|
Net
cash provided by |
|
|
|
|
|
|
|
operating
activities |
|
$ |
915,313 |
|
$ |
(254,178 |
) |
| |
|
|
|
|
|
|
|
Cash
flows from investing activities: |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
(Increase)
in fixed assets |
|
|
(565,915 |
) |
|
(
220,671 |
) |
Decrease(Increase)in
security deposits |
|
|
-- |
|
|
(
1,346 |
) |
|
Purchase
of technology |
|
|
(88,926 |
) |
|
(25,150 |
) |
| |
|
|
|
|
|
|
|
Net
cash (used in) investing activities |
|
|
(654,841 |
) |
|
(
247,167 |
) |
| |
|
|
|
|
|
|
|
Cash
flows from financing activities; |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Loans
from shareholders |
|
|
(
37,215 |
) |
|
-- |
|
Sale
of common stock |
|
|
251,000 |
|
|
-- |
|
Reduction
in subscription receivable |
|
|
6,131 |
|
|
5,710 |
|
Pay
off mortgage |
|
|
(
31,668 |
) |
|
(
31,668 |
) |
Bonds
payable |
|
|
(
20,000 |
) |
|
-- |
|
|
Short
term notes |
|
|
(501,792 |
) |
|
328,158 |
|
| |
|
|
|
|
|
|
|
|
Net
cash (used in) financing activities |
|
|
(333,544 |
) |
|
302,200 |
|
| |
|
|
|
|
|
|
|
Net
increase(decrease) in cash |
|
|
(
73,072 |
) |
|
(199,145 |
) |
|
Cash
at beginning of year |
|
|
379,209 |
|
|
578,354 |
|
| |
|
|
|
|
|
|
|
|
Cash
at end of year |
|
$ |
306,137 |
|
$ |
379,209 |
|
| |
|
|
|
|
|
|
|
Cash
paid during the twelve months ended December 31: |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
2003 |
|
|
2002 |
|
| |
|
|
|
|
|
|
|
Interest |
|
$ |
34,060 |
|
$ |
47,530 |
|
| |
|
|
|
|
|
|
|
Income
Taxes |
|
|
-- |
|
|
-- |
|
| |
|
|
|
|
|
|
|
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, 2003 AND 2002
SUPPLEMENTAL
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
FOR
THE TWELVE MONTHS ENDED DECEMBER 31, 2003 AND 2002:
During
2003 the Company gave as a promotion, 1,000 shares of common stock valued at
$1,340 to a vendor.
There
were no non-cash investing or financing activities in 2002.
BOVIE
MEDICAL CORPORATION
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.
The
equity method of accounting is used when the Company has a 20% to 50% interest
in other companies. Under the equity method, original investments are recorded
at cost and adjusted by the company's share of undistributed earnings or losses
of these companies.
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, 2003.
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.
Accounts
Receivable
Accounts
for which no payments have been received for three consecutive months are
considered delinquent and a reserve is setup for them. Customary collection
efforts are initiated and an allowance for uncollectible accounts is set up and
the related expense is charged to operations. We give sales volume
discounts.
BOVIE
MEDICAL CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventories
and Repair Parts
Inventories
are stated at the lower of cost or market. Cost is determined principally on the
average actual cost method. Finished goods and work-in-process inventories
include material, labor, and overhead costs. Factory overhead costs are
allocated to inventory manufactured in-house based upon cost of materials. Bovie
monitors usage reports to determine if the carrying value of any items should be
adjusted due to lack of demand for the item. Bovie adjusts down the inventory
for estimated obsolescence or unmarketable inventory equal to difference between
the cost of inventory and the estimated market value based upon assumptions
about future demand and market conditions. If actual market conditions are less
favorable than those projected by management, additional inventory write-down
may be required.
Inventory
at December 31, 2003 and 2002 was as follows:
| |
|
2003 |
|
2002 |
|
Raw
materials (net of reserves) |
|
$ |
1,332,742 |
|
$ |
1,180,758 |
|
Work
in process |
|
|
616,837 |
|
|
524,322 |
|
|
Finished
goods |
|
|
501,570 |
|
|
652,425 |
|
| |
|
|
|
|
|
|
|
|
Total |
|
$ |
2,451,149 |
|
$ |
2,357,505 |
|
Reserves
for obsolescence of raw materials were $784,992 and $644,530 at December 31,
2003 and 2002, respectively. There were no reserves for finished goods or work
in progress.
Obsolete
raw material inventory charged to operations was $352,295 and $331,869 for 2003
and 2002, respectively.
Repair
Parts. We 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.
Bovie 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.
As of
December 31, 2003 and 2002 the inventory of parts were as follows:
| |
|
2003 |
|
2002 |
|
Raw
materials |
|
$ |
317,614 |
|
$ |
498,136 |
|
|
Allowance
for excess or obsolete parts |
|
|
(89,388 |
) |
|
(216,390 |
) |
| |
|
$ |
228,226 |
|
$ |
281,746 |
|
BOVIE
MEDICAL CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Notes
Payable
The
Company accounts for all note liabilities that are due and payable in one year
as short term notes for example: Its line of credit with a commercial bank and
its insurance premium financing arrangement.
Long-lived
Assets
Property,
plant and equipment- These assets 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.
Impairment
of Long-Lived Assets
Bovie
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 recoverable. Bovie 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.
Goodwill
and Other Intangible Assets
Intangible
assets- These assets consist of patent rights and trade name. The patent rights
are being amortized by the straight-line method over a 5-year period. The trade
name qualifies as an indefinite-lived intangible asset and is not subject to
amortization. Trade name is tested for impairment annually, or more frequently
if the events or changes in circumstances indicate that the asset may have been
impaired. In the event of impairment of any intangible asset, the excess of the
carrying amount over the fair value is recognized as impairment loss. The
impairment losses are not restored in future. We assess the recovery ability of
goodwill and other intangible assets based on independent appraisal and or
undiscounted cash flows that measures the impairment, if any, using discounted
cash flows.
BOVIE
MEDICAL CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue
Recognition and Product Warranty
Revenue
from sales of all of our products is recognized upon shipment to customers. We
warrant our products for one year. The estimated future costs of warranties are
not material. Revenue is recognized in the financial statements (and the
customer is billed) when products are shipped from stock. We include revenues
from freight in gross sales and cost of freight in cost of goods sold.
Allowances for estimated uncollectible accounts, discounts, returns, and
allowances are provided as a reduction to sales when sales are recorded. The
exception is the case of bad debt expense which is charged to selling general
and administrative.
Advertising
Costs
All
advertising costs are expensed, as incurred. The amounts of advertising costs
were $529,711 and $359,875 for 2003 and 2002, respectively.
Net
Loss and Earnings Per Common share
Basic
loss per share is computed by dividing loss available to common stockholders by
the weighted-average number of common shares outstanding for the period. The
assumed exercise of outstanding stock options have been excluded from the
calculations of loss per share as their effect is antidilutive, in 2002 and have
been included in 2003.
Basic
earnings per share ("EPS") is computed based on the weighted average number of
common shares outstanding for the period. Diluted EPS gives effect to all
dilutive potential shares outstanding (i.e., options and warrants) during the
period.
Basic
earnings per share and diluted earnings per share for discontinued operations in
2003 were both nil.
Research
and Development Costs
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.
BOVIE
MEDICAL CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research
and Development Costs for Others
We will
only develope electrosurgical products for others that use our product as the
base for their instrument. Our development agreements provide that the customer
must pay the costs for the development as it progresses and further provide that
any future purchases of the developed product must be purchased from us. We
assume no contractual risk and operate as the customer’s original equipment
manufacturer. Our agreements calls for no minimum order, but the customer may
not manufacture or purchase this product from any other
manufacturer.
For
research and development activities that are partially or completely funded by
other parties and the obligation is incurred solely to perform contractual
services all expenses are charged to cost of sales.
Income
Taxes
Bovie 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.
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
The
Company had adopted SFAS 123 and has adopted the amendments to SFAS 123
disclosure provisions required under SFAS 148. Bovie will continue to account
for stock-based compensation utilizing the intrinsic value method pursuant to
Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued
to Employees. Under this policy:
BOVIE
MEDICAL CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based
Compensation (Continued)
1.
Compensation costs are recognized as an expense over the period of employment
attributable to any 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.
In
December 2002, the FASB issued Statement No. 148, Accounting for Stock-Based
compensation - Transition and Disclosure - an amendment of FASB Statement No.
123. Statement No. 148 amends Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair-value based method of accounting for stock-based employee
compensation. In addition, Statement No. 148 amends the disclosure requirements
of Statement No. 123 to require disclosure in interim financial statements
regarding the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. Bovie does not intend to adopt a
fair-value based method of accounting for stock-based employee compensation
until a final standard is issued by the FASB that addresses concerns related to
the applicability of current option pricing models to non-exchange traded
employee stock option plans. SFAS 148 also amends the disclosure requirements of
SFAS 123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. SFAS 148 is effective for
financial statements for annual periods ending after December 15, 2002 and
interim periods beginning after December 31, 2002.
Bovie has
adopted the amendments to SFAS 123 disclosure provisions required under SFAS 148
but will continue to use intrinsic value method under APB 25 to account for
stock-based compensation. As such, the adoption of this statement has not had a
significant impact on Bovie’s financial position, results of operations or cash
flows.
Pursuant
to the disclosure requirements of SFAS 148, the Company provides an expanded
reconciliation for all periods presented in Note 9.
New
Accounting Standards
Recently
Issued Accounting Standards:
In July
2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142,
Goodwill and Intangible Assets . SFAS 141 requires all business combinations
initiated after June 30, 2001 to be accounted for using the purchase method and
establishes specific criteria for the recognition of acquired intangible assets
apart from goodwill. Under SFAS 142, goodwill and indefinite-lived intangible
assets are no longer subject to amortization over their estimated useful
life.
BOVIE
MEDICAL CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New
Accounting Standards(Continued)
Rather,
these assets are subject to, at least, an annual assessment for impairment by
applying a fair-value-based test. Bovie adopted SFAS 141 effective July 1, 2001
and SFAS 142 effective January 1, 2002.
The
adoption of SFAS 141 and SFAS 142 eliminated the annual amortization of trade
name of $1,877,299. The reduction in annual amortization expense was $93,865.
In June
2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations.
This statement requires entities to record the cost of any legal obligation for
the retirement of tangible long-lived assets in the period in which it is
incurred. SFAS 143 is effective for fiscal years beginning after June 15, 2002.
Bovie adopted the standard effective January 1, 2003. The adoption of SFAS 143
did not have a material effect on the financial position, results of operations
or cash flows of Bovie.
In August
2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. Bovie adopted SFAS 144 effective
January 1, 2002. The adoption of SFAS 144 did not have a material effect on the
financial position, results of operations or cash flows of Bovie.
In July
2002, the FASB issued Statement No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. Statement No. 146 addresses the timing of
recognition and the related measurement of the costs of one-time termination
benefits. Under SFAS 146, liabilities for costs associated with a plan to
dispose of an asset or to exit a business activity must be recognized in the
period in which the costs are incurred. Statement No. 146 is effective for exit
activities initiated after December 31, 2002, with early application allowed.
Bovie adopted SFAS 146 effective January 1, 2002. The adoption of SFAS 146 did
not have a material effect on the financial position, results of operations or
cash flows of Bovie.
In
November 2002, the FASB issued FASB Interpretation (FIN) No. 45, Guarantor s
Accounting and Disclosure Requirements for Guarantees, including Indirect
Guarantees of Indebtedness of Others. This interpretation addresses the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees. It also clarifies
(for guarantees issued after January 1, 2003) that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligations undertaken in issuing the guarantee. At December 31, 2002, Bovie
did not have any significant guarantees.
BOVIE
MEDICAL CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New
Accounting Standards (Continued)
Bovie
adopted the disclosure requirements of FIN 45 for the year ended December 31,
2002, and the recognition provisions effective January 1, 2003.
Effective
for both interim and annual periods beginning after December 15, 1997, the
Company adopted SFAS 130 in 1998.
In
November 2002, the EITF finalized its consensus on EITF Issue 00-21, “Revenue
Arrangements with Multiple Deliverables”, which provides guidance on the method
of revenue recognition for sales arrangements that include the delivery of more
than one product or service. EITF 00-21 is effective prospectively for
arrangements entered into in fiscal periods beginning after June 15, 2003. Under
EITF 00-21, revenue must be allocated to all deliverables regardless of whether
an individual element is incidental or perfunctory. The adoption of EITF 00-21
did not have a material impact on the Company’s results of operations or
financial position.
In
January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”),
“Consolidation of Variable Interest Entities.” FIN 46 clarifies the application
of Accounting Research Bulletin No. 51, “Consolidated Financial
Statements,” to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 applies immediately to
variable interest entities (“VIE’s”) created after January 31, 2003, and to
VIE’s in which an enterprise obtains an interest after that date. On
October 9, 2003 the FASB issued FASB Staff Position No. FIN 46-6
“Effective Date of FASB Interpretation No.46 Consolidation
of Variable Interest Entities,” which
defers the implementation date for public entities that hold an interest in a
variable interest entity or potential variable interest entity from the first
fiscal year or interim period beginning after June 15, 2003 to the end of
the first interim or annual period ending after December 15, 2003. This
deferral applies only if 1) the variable interest entity was created before
February 1, 2003 and 2) the public entity has not issued financial
statements reporting that variable interest entity in accordance with FIN 46,
other than disclosures required by paragraph 26 of FIN 46. The adoption of FIN
46 did not have a material impact on the Company’s financial position, liquidity
or results of operations.
In
May 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on
Derivative Instruments and Hedging Activities.” This Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under FASB
Statement No. 133, “Accounting for Derivative Instruments and Hedging
Activities.” SFAS No. 149 is effective for contracts entered into or
modified after June 30, 2003, and for hedging relationships designated
after June 30, 2003. The adoption of SFAS No. 149 did not materially
impact the Company’s financial position or results of operations.
BOVIE
MEDICAL CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In
May 2003, the FASB issued SFAS No. 150, “Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.” The
statement requires that an issuer classify financial instruments that are within
its scope as a liability. Many of those instruments were classified as equity
under previous guidance. SFAS No. 150 is effective for all financial
instruments entered into or modified after May 31, 2003. Otherwise, it is
effective on July 1, 2003 except for mandatorily redeemable non-ontrolling
(minority) interest which, on October 29, 2003, the FASB decided to
defer indefinitely. The adoption of SFAS No. 150 did not materially impact
the Company’s financial position or results of operations
In
December 2003, the SEC issued Staff Accounting Bulletin (“SAB”) No. 104,
“Revenue Recognition,” which supercedes SAB No. 101, “Revenue Recognition in
Financial Statements.” SAB No. 104 rescinds accounting guidance in SAB No. 101
related to multiple element arrangements, which was previously superceded by
EITF 00-21 (see above). The adoption of SAB No. 104 did not have a material
impact on the Company’s results of operations or financial position.
Restatement
of Financial Statements
The
Company has reclassified the term loan and line of credit payments and included
them under cash flows from financing activities in the statement of cash
flows for the year ended December 31, 2003. Also, the Company restated the
statement of operations for the year ended December 31, 2003, and accounted for
the sale of the non-medical product line as a discontinued
operation.
NOTE
2. DESCRIPTION OF BUSINESS
Background
Bovie
Medical Corporation (“Bovie”) was incorporated as An-Con Genetics, Inc. 1982,
under the laws of the State of Delaware and has its principal executive office
at 734 Walt Whitman Road, Melville, New York 11747.
Bovie 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 marketing
our medical products. Previously Bovies largest product line was
battery-operated cauteries, we have shifted our focus to the manufacture and
marketing of generators and electrosurgical disposables. This new focus on high
frequency generators is evident in the development of the Aaron 800 and Aaron
900 high frequency desiccators, the Aaron 950- the first high frequency
desiccator with cut capability, the Aaron 1250 and the Aaron 2250. The Aaron
1250 and Aaron 2250 are designed for today’s rapidly expanding surgi-center
market. Additionally, our new 200-watt electrosurgical unit and our new 300-watt
electrosurgical unit are being marketed under the Bovie name.
Bovie
also manufactures a variety of specialty lighting instruments for use in
ophthalmology, general surgery, hip replacement surgery, and for the placement
of endotracheal tubes.
BOVIE
MEDICAL CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2. DESCRIPTION OF BUSINESS(CONTINUED)
Background
(Continued)
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 allows us to gain greater market share for the distribution of
its products.
Joint
Venture Agreement
In
February 2000, Bovie entered into a Joint Venture Agreement with a German
corporation, Jump Agentur Fuer Elektrotechnik GMBH. Pursuant to the agreement,
Bovie advanced $200,000 to the partnership to cover costs of further research
toward the production of two commercial prototypes for our contribution we
received a 50% equity interest and 50% interest in the profits. Bovie has made
available its facilities in Florida for development, manufacturing and marketing
of the products of the joint venture and is responsible to expend its 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.
Pursuant
to agreement, the joint venture acquired an exclusive license to produce and
market any surgical/medical devices utilizing this technology. In fiscal, 2003
and 2002, Bovie made additional advances to the joint venture in the form of
research and development of prototypes expending $81,914 and $124,445 in
development costs and engineering costs, respectively.
The
device has been developed and patented in both Europe and the United States.
Bovie has constructed two pre-production prototypes for field testing purposes
as a prelude to eventual submission to the FDA for clearance to manufacture. The
initial intended uses are in the areas of dermatology and plastic surgery. Other
contemplated surgical uses for the technology are cardiovascular, thoracic,
gynecological, trauma and other surgeries.
Bovie has
charged these costs to operations as equity in net loss of unconsolidated
affiliate. To date the joint venture has no revenues and is not considered by us
to be a significant subsidiary.
BOVIE
MEDICAL CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3. TRADE ACCOUNTS RECEIVABLE
As of
December 31, 2003 and 2002 the trade accounts receivable were as follows:
| |
|
2003 |
|
2002 |
|
Trade
accounts receivable |
|
$ |
1,917,694 |
|
$ |
1,498,512 |
|
Less:
allowance for doubtful accounts |
|
|
(
116,952 |
) |
|
(
36,000 |
) |
|
allowance
for discounts |
|
|
(92,561 |
) |
|
(112,025 |
) |
| |
|
|
|
|
|
|
|
|
Trade
accounts receivable, net |
|
$ |
1,708,181 |
|
$ |
1,350,487 |
|
Bad debt
expense charged to operations was $56,614 in 2003 and $44,460 in
2002.
At
December 31, 2003 trade accounts receivable were pledged as collateral in
connection with bank loans.
NOTE
4. PROPERTY, PLANT AND EQUIPMENT
As of
December 31, 2003 and 2002 property, plant and equipment consisted of the
following:
| |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
Equipment |
|
$ |
714,222 |
|
$ |
772,239 |
|
|
Building
|
|
|
637,485 |
|
|
637,485
|
|
|
Furniture
and Fixtures |
|
|
903,711 |
|
|
515,788
|
|
|
Leasehold
Improvements |
|
|
531,694 |
|
|
310,514
|
|
|
Molds
|
|
|
398,589 |
|
|
383,760
|
|
| |
|
|
3,185,701 |
|
|
2,619,786
|
|
|
Less:accumulated
depreciation |
|
|
(1,285,686 |
) |
|
(1,060,706 |
) |
| |
|
|
|
|
|
|
|
|
Net
property, plant, and equipment |
|
$ |
1,900,015
|
|
$ |
1,559,080
|
|
| |
|
|
|
|
|
|
|
Depreciation
expenses for the years ended December 31, 2003 and 2002 were $226,762 and
$209,157, respectively.
BOVIE
MEDICAL CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4. PROPERTY, PLANT AND EQUIPMENT (Continued)
Property
and Rental Agreements
The
following is a schedule of future minimum rental payments as of December 31,
2003 and for the next five years.
|
2004 |
|
$ |
148,780 |
|
|
2005 |
|
|
145,974 |
|
|
2006 |
|
|
141,952 |
|
|
2007 |
|
|
135,308 |
|
|
2008 |
|
|
115,150 |
|
| |
|
$ |
687,167 |
|
Total
consolidated rent expense for the Company was $59,095 in 2003 and $54,926 in
2002.
NOTE
5. DUE TO SHAREHOLDERS
In
response to the registered recission offer made in 1996 by Bovie Medical
Corporation to Aaron's former shareholders, certain shareholders owning 46,800
shares had not contacted us. The amount due to these shareholders, including
$18,787 of accrued interest, is $37,214. In 2003 we investigated and found that
the shareholders that we believed did not receive their shares had actually
received them.
NOTE
6. INTANGIBLE ASSETS
At
December 31, 2003 intangible assets consisted of the following:
|
Goodwill
acquired: |
|
2003 |
|
|
Trade
name (life indefinite) |
$ |
|
1,509,662 |
|
| |
|
|
|
|
|
Other
intangibles at December 31: |
|
|
|
|
| |
|
|
2003 |
|
|
Developed
technology (5 yr life) |
$ |
|
278,763 |
|
Less:
Accumulated amortization |
|
|
(133,796 |
) |
|
Net
carrying amount |
|
|
144,967 |
|
The cost
of patents, trademarks, patent rights, technologies and copyrights acquired are
being amortized on the straight-line method over their remaining lives.
Amortization expense charged to operations in 2003 and 2002 was $151,529 and
$81,628, respectively. Fully amortized intangibles that were deleted during 2003
amounted to $94,877 and had a book value of -0-.
BOVIE
MEDICAL CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7. LONG-TERM DEBT AND LINE OF CREDIT
The
long-term debt of the Company at December 31, 2003 and 2002 includes a mortgage
and notes payable.
| |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
Bonds
payable |
|
$ |
-- |
|
$ |
20,000 |
|
|
Mortgage
payable |
|
|
411,664 |
|
|
475,000
|
|
|
Term
loan |
|
|
3,675 |
|
|
27,309
|
|
Line
of credit- bank |
|
|
--
|
|
|
150,000
|
|
| |
|
|
|
|
|
|
|
| |
|
$ |
415,339 |
|
$ |
672,309
|
|
Mortgage
Payable
In 2001,
Bovie paid off its existing mortgage on its premises at 7100 30th Avenue
North, St. Petersburg, Florida, and replaced it with a new first mortgage of
$475,000, from its commercial lender. The interest Bovie pays on the mortgage is
variable at the banks base rate which is 4.00%, presently. Bovie makes principal
payments of $2,639 per month plus interest. The mortgage has a balloon payment
of $320,562 due in November of 2006.
The
scheduled principal payments for the next five years are as follows:
|
Year |
|
Amount |
|
| |
|
|
|
|
2004 |
|
$ |
31,668 |
|
|
2005 |
|
|
31,668
|
|
| |
|
|
348,328 |
|
| |
|
|
|
|
| |
|
$ |
411,664 |
|
Line
of Credit - Commercial Bank
Advances
under the new line of credit secured in May of 2001 are limited to the lesser of
$1,500,000 or 80% of net accounts receivable from non-affiliated parties.
Availability was $1,500,000 on December 31, 2003. The annual interest rate on
the loan is variable and is based on the bank's base rate. The line has no
expiration date and is due on demand by the bank. 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, 2003
was zero.
BOVIE
MEDICAL CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8. OPTIONS
Stock-Based
Compensation
The
Company has an employee incentive compensation plan (the “Plan”) pursuant to
which the Company’s board of directors may grant stock options to officers and
key employees. Pursuant to an amendment approved by the Company’s shareholders
during 2003, stock options to purchase up to an additional 1,200,000 shares of
common stock may be granted under the Plan. Stock options are granted with an
exercise price equal to the stock’s fair market value at the date of grant. All
stock options have a ten year term and vest and become exercisable immediately
on the date of the grant. During 2003, a total of 1,090,000 options were granted
at prices of $.70 and $3.25 per share of the 1,200,000 authorized and there were
110,000 additional shares available for grant under the Plan.
Stock-option
activity during the periods indicated was as follow:
| |
|
|
|
Weighted |
|
| |
|
|
|
average |
|
| |
|
Number
of |
|
exercise |
|
| |
|
shares |
|
price |
|
| |
|
|
|
|
|
Balance
January 01, 2002 |
|
|
2,909,000 |
|
|
.703 |
|
| |
|
|
|
|
|
|
|
|
No
activity in 2002 |
|
|
|
|
|
-- |
|
| |
|
|
|
|
|
|
|
Balance
December 31, 2003 |
|
|
2,909,000 |
|
|
.703 |
|
| |
|
|
|
|
|
|
|
Exercised |
|
|
(350,000) |
|
|
.71 |
|
Cancelled
& forfeited |
|
|
(361,200) |
|
|
.86 |
|
|
Granted |
|
|
1,791,000 |
|
|
1.40 |
|
| |
|
|
|
|
|
|
|
|
Balance
December 31, 2003 |
|
|
3,988,800 |
|
|
1.004 |
|
Stock
options consisted of the following at December 31, 2003:
|
Number
of Options
Currently
Exercisable |
Weighted
Average
Remaining
Estimated Life |
Exercise
Price |
|
470,000 |
10.0 |
3.25 |
|
95,000 |
10.0 |
1.30 |
|
138,000 |
3.0 |
1.25 |
|
50,000 |
3.0 |
1.15 |
|
60,000 |
3.0 |
1.15 |
|
1,480,000 |
4.5 |
.75 |
|
500,000 |
10.0 |
.70 |
|
1,195,800 |
7.4 |
.50 |
|
3,988,800 |
6.8 |
$
1.00 (a) |
| |
|
|
BOVIE
MEDICAL CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8. OPTIONS
(a) The
amount of $1.00 represents the weighted average exercise price of the
outstanding options.
At
December 31, 2002 and 2003, the number of options exercisable was 2,909,000 and
3,988,000, respectively, and the weighted-average exercise prices of those
options were $.70 and $1.00, respectively.
During
the year 2003 Bovie cancelled 361,000 options issued prior to December 31, 2002
at various exercise prices ranging from $.50 to $1.125 per share (the “cancelled
options”). The cancelled options were not replaced. In addition, we issued
1,791,000 options during the year at exercise prices from $.70 to $3.25. The
options issued in 2003 did not affect the fiscal year 2003 statement of
operations as the market value for Bovie’s common stock was the same as the
exercise price on the day granted. Had the compensation cost for Bovie’s two
stock option issuances been determined based on the fair value at the grant date
for awards in 2003 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:
| |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
Net
earnings(Loss) - as reported) |
|
$ |
681,317 |
|
$ |
(514,765 |
) |
Net
earnings(Loss) - pro forma |
|
|
(317,420 |
) |
|
(514,765 |
) |
Gain(Loss)
per share |
|
$ |
.05 |
|
$ |
(.04 |
) |
Gain(Loss)
per share-pro forma |
|
|
(.02 |
) |
|
(.04 |
) |
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
9. TAXES AND NET OPERATING LOSS CARRYFORWARDS
As of
December 31, 2003, the components of deferred tax assets were as follows:
Deferred
tax assets:
| |
|
|
|
|
|
| |
|
2003 |
|
2002 |
|
| |
|
|
|
|
|
|
|
|
Accounts
receivable |
|
$ |
53,300 |
|
$ |
36,000 |
|
|
Inventories |
|
|
874,380 |
|
|
680,399
|
|
|
Net
operating loss carry forwards |
|
|
2,922,000 |
|
|
3,160,000
|
|
|
Patent
rights, primarily due to |
|
|
|
|
|
|
|
|
amortization |
|
|
(73,633 |
) |
|
120,295
|
|
| |
|
|
|
|
|
|
|
|
Total
gross deferred tax assets |
|
|
3,776,047
|
|
|
3,996,694
|
|
Less:
Valuation allowance |
|
|
3,389,847 |
|
|
3,610,494 |
|
|
Net
deferred tax assets - current |
|
$ |
386,200 |
|
$ |
386,200 |
|
BOVIE
MEDICAL CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
9. TAXES AND NET OPERATING LOSS CARRYFORWARDS (continued)
Bovie had
net operating losses (NOLs) of approximately $8,346,000 at December 31, 2003.
These NOLs and corresponding estimated tax assets, computed at a 34% tax rate,
expire as follows:
|
Year
loss |
Expiration |
Loss |
Estimated |
|
Incurred |
Date |
Amount |
Tax
Asset |
| |
|
|
|
|
1987 |
2007 |
$37,000 |
$13,000
|
|
1988 |
2008 |
757,000 |
265,000
|
|
1989 |
2009 |
374,000 |
131,000
|
|
1990 |
2010 |
382,000 |
134,000
|
|
1991 |
2011 |
246,000 |
86,000
|
|
1992 |
2012 |
1,004,000 |
352,000
|
|
1993 |
2013 |
465,000 |
163,000
|
|
1994 |
2014 |
1,197,000 |
419,000
|
|
1995 |
2015 |
637,000 |
223,000
|
|
1998 |
2018 |
548,000 |
192,000
|
|
1999 |
2019 |
2,184,000 |
764,000
|
|
2002 |
2022 |
515,000 |
180,000 |
| |
|
|
|
|
Total |
|
$
8,346,000 |
$
2,922,000 |
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 Bovie’s wholly owned and consolidated subsidiary, Aaron Medical Industries,
Inc., management believes it is likely that they may not be totally realized
through future taxable earnings. In addition, 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 $3,610,494 as of December 31, 2002 was decreased by
$220,647. The change in valuation allowance was a consequence of decreasing tax
assets of $238,000 and reserving for additional allowances for accounts
receivable and inventory loss of $211,281, and patent
amortization of $(46,662). The Company believes it is possible that the benefit
of these additional assets may not be realized in the future. A reconciliation
of the Federal statutory tax rate to Bovie’s effective tax rate is as follows:
|
Tax
at statutory rate |
|
|
34.0 |
% |
|
State
income taxes, net of U.S. federal benefit |
|
|
2.4 |
% |
|
Tax
benefit of loss carry forward |
|
|
(36.2 |
)% |
| |
|
|
|
|
|
Effective
tax rate |
|
|
-0- |
% |
BOVIE
MEDICAL CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10. RETIREMENT PLANS
Bovie
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.
All
employees are eligible to participate if they have one year of service in Bovie.
The employees may make voluntary contributions to the plan of up to 15% of their
annual compensation. Bovie’s contributions to the plan are discretionary but may
not exceed 50% of the first 4% of an employees annual compensation if he
contributes 4% or more to the plan. Vesting is graded and depends on the years
of service. After six years of service, the employees are 100% vested.
Bovie has
made a contribution during 2003 and 2002 of $48,967 and $44,053 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.
NOTE
11. RELATED PARTY TRANSACTIONS
Professional
Services and Employment Agreements
A
director, Alfred V. Greco Esq. is the principal of Alfred Greco PLLC, Bovie’s
counsel. The legal fees paid to Alfred Greco PLLC were $73,646 and $59,303 for
the years 2003 and 2002, respectively.
A
director, George W. Kromer, Jr. also serves as a consultant to us. The
consulting fees to Mr. Kromer were $16,615 and $17,586 for 2003 and 2002,
respectively.
Two
employees of the Engineering Department of Bovie are related to the chief
operating officer. Yechiel Tsitrinovich served as an engineering consultant and
was paid fees of $46,978 and $77,150, for 2003 and 2002 respectively. Bovie
entered into a two-year contract with Mr. Arik Zoran for him to assume
supervision of the engineering department, for a salary of $90,000 per year plus
living expenses and benefits. Bovie agreed to secure a permanent work visa for
Mr. Zoran.
Subscription
Receivable- Officer/Director
In March
of 2000 an officer of the Company purchased 68,000 shares of the Companys common
stock at $.38 per share. The officer is paying off the purchase over 5 years at
6% interest. The purchase price was $25,715, which was the market price for the
stock on the date of purchase.
Employment
Agreement
Bovie has
employment agreements with eight key employees. These agreements are for terms
extending to December 31, 2009 and call for base salaries of up to $136,000.
Employee
Benefit Plans
In 1996,
1998, 2001 and 2003, Bovie established stock option plans under which officers,
key employees and non-employee directors may be granted options to purchase
shares of Bovie's authorized, but unissued, Common Stock. Under its existing
Employee Stock Option Plans, the Company has Options outstanding as of December
31, 2003 for employees to purchase 3,988,800 shares of common stock at exercise
prices ranging from $.50 to $3.25.
BOVIE
MEDICAL CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
12. COMMITMENTS AND CONTINGENCIES
Legal
Proceedings
Bovie’s
wholly owned subsidiary, Aaron Medical Industries, Inc. (“Aaron”) is a named
defendant along with a physician and hospital in an action in the civil court,
State of Michigan.
The
plaintiff is seeking significant damages alleging among other things, permanent
injury and lifelong suffering due to the negligence of the defendants. The
complaint alleges that plaintiff’s damages resulted from burns and injuries
sustained when a physician used an Aaron manufactured cautery in a surgical
procedure upon plaintiff while plaintiff was in an oxygenated
environment.
Aaron has denied any affiliation with the physician and the hospital and any
direct or indirect liability for the injuries sustained by plaintiff. However,
in the unlikely event of a jury finding of liability, management believes its
insurance coverage should adequately satisfy any such potential judgment.
Product
Liability
Bovie
currently has product liability insurance which it believes to be adequate for
its business. The Company's existing policy expires in December 31, 2004.
Bank
Line of Credit and Term Loan
The
financial covenants of the bank are:
Maximum
Liability to Net Worth Ratio: On a consolidated basis, Bovie shall maintain a
Maximum Liability to Tangible Net Worth Ratio of 1.00: 1.00 defined as liability
(total liabilities, including any subordinated debt) divided by Adjusted
Tangible Net Worth.
Minimum
Adjusted Tangible Net Worth: Bovie shall maintain Minimum Tangible Adjusted Net
Worth of $4,000,000 at all times, defined as total net worth minus intangibles
and related party receivables.
Minimum
Fixed Charge Coverage: Bovie shall maintain a Minimum Fixed Charge Coverage of
2:00:1:00 measured at Bovie’s fiscal year end, defined as (After tax income +
depreciation + amortization + lease expense + interest expense) divided by
(lease expense + interest expense + current maturities of long term debt). We
believe we are in compliance with all the bank’s covenants.
BOVIE
MEDICAL CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
13. EARNINGS PER SHARE
In 2003,
the Basic gain per share of Bovie was $.05 per share. The diluted weighted
average common shares outstanding at December 31, 2003 was 14,835,450 and
diluted earnings per share was $.05. The assumed exercise of outstanding stock
options have been excluded from the calculations for 2002 of loss per share as
their effect is antidilutive. Earnings per share for basicf and diluted
associated with discontinued operations were both nil.
NOTE
14. INDUSTRY SEGMENT REPORTING
Disclosures
about Reportable Segments - Types of products and
services.
Bovie had
two reportable segments: medical and non-medical products. The medical products
segment produces battery operated cauteries, electrosurgery products, and a
variety of specialty lighting instruments for surgical use. The nonsurgical
segment product lighting instruments for commercial use. Sales for the
non-medical product line have decreased in the past few years and Bovie has sold
that product line to its largest customer in that segment.
Sale
of Product Line
In 2003,
our sales of flexible lighting products, used primarily in the automotive and
locksmith industries, totaled $375,250. One customer accounted for 80% of such
sales. We discontinued this non-medical product line by selling our inventory at
cost, customer list and manufacturing technology to that largest customer. The
customer will also pay us a license fee of $500,000 payable in equal
installments over 5 years. We believe this discontinuance will have no material
impact on our continuing operations or financial condition.
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 non-recurring
gains and losses and foreign exchange gains and losses. There were no
intersegment sales and transfers in 2003 and 2002.
Bovie now
operates in one reportable segment, Medical Products. We sold our non-medical
products division in the beginning of 2003.
Bovie’s
principal markets are the United States, Europe, and Latin America, with the
U.S. and Europe being the largest markets based on revenues. Bovie's major
products include cauteries, electrosurgery generators, nerve locators, reusable
penlights and electrodes. Cauteries, disposable and replaceable, account for 30%
and 41% of Company's sales for 2003 and 2002, respectively.
BOVIE
MEDICAL CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14. INDUSTRY SEGMENT REPORTING(CONTINUED)
In 2003,
one significant customer accounted for 22% of total sales.
Bovie’s
ten largest customers accounted for approximately 66% of net revenues for 2003
and 63% of revenue in 2002.
At
December 31, 2003 and 2002, receivables from Bovie’s 10 largest customers
accounted for approximately 62% and 63% of outstanding accounts receivable,
respectively.
Summary
information by geographic area and segments for years ended December 31, 2003
and 2002 were as follows:
| |
Medical |
Non-Medical |
|
|
|
Products |
Products |
Total |
|
(in
thousands) |
|
|
|
| |
|
|
|
|
Year
ended December 31, 2003 |
|
|
|
|
Net
sales |
16,117 |
(3) |
16,117 |
|
Interest
income |
3 |
-- |
3 |
|
Interest
expense |
34 |
-- |
34 |
|
Depreciation
& Amortization |
315 |
-- |
315 |
|
Income
taxes |
228 |
-- |
228 |
|
Segment
net earnings (loss) |
633
(2) |
-- |
633 |
|
Total
Assets |
9,176
(1) |
58 |
9,234(1) |
|
Capital
expenditures |
655 |
-- |
655 |
|
Gain
on sale of segment |
-- |
48 |
48 |
| |
|
|
|
|
Year
ended December 31, 2002 |
|
|
|
| |
|
|
|
|
Net
sales |
11,477 |
736 |
12,213 |
|
Interest
income |
2 |
3 |
5 |
|
Interest
expense |
41 |
7 |
48 |
|
Depreciation
& amortization |
264 |
11 |
275 |
|
Income
taxes |
-- |
-- |
-- |
|
Segment
net earnings (loss) |
(484)(2) |
(31) |
(515) |
|
Total
assets |
8,368
(1) |
133 |
8,501(1) |
|
Capital
expenditures |
246 |
-- |
246 |
BOVIE
MEDICAL CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Information
by geographic area is as follows:
| |
|
Net
Sales |
|
Long
Lived Assets |
|
Year
ended December 31, 2003 |
|
|
|
|
|
|
|
|
United
States |
|
$ |
13,915 |
|
$ |
1,900 |
|
|
Europe |
|
|
1,238 |
|
|
-- |
|
|
South
America |
|
|
279 |
|
|
-- |
|
Other |
|
|
529 |
|
|
-- |
|
| |
|
|
|
|
|
|
|
Total |
|
$ |
16,118 |
|
$ |
1,900 |
|
| |
|
|
|
|
|
|
|
|
Year
ended December 31, 2002 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
United
States |
|
$ |
9,878 |
|
$ |
1,559 |
|
|
Europe |
|
|
1,214 |
|
|
-- |
|
|
Asia |
|
|
350 |
|
|
-- |
|
|
South
America |
|
|
280 |
|
|
-- |
|
Other |
|
|
491 |
|
|
-- |
|
|
Total |
|
$ |
12,213 |
|
$ |
1,559 |
|
| |
|
|
|
|
|
|
|
(1)
Included is a 200,000 investment in the equity of an unconsolidated affiliate at
December 31, 2003 and December 31, 2002.
(2) Loss
in the net income of an investee accounted for by the equity method was $81,914
and $124,445 for 2003 and 2002, respectively.
(3) Sales
for non-medical products products for 2003 were $375,000.
Assets
and liabilities outside the U.S.A.
| |
|
2002 |
|
2003 |
|
|
Total
assets |
|
$ |
190 |
|
$ |
187 |
|
|
Total
liabilities |
|
|
-0-
|
|
|
-0-
|
|
|
Net
property, plant |
|
|
|
|
|
|
|
|
and
equipment |
|
|
-0- |
|
|
-0-
|
|
Bovie had
no assets (other than certain trade receivables and molds) outside the United
States, in the years ended December 31, 2003 and 2002.
BOVIE
MEDICAL CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
During
2003 and 2002, a portion of Bovie’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 Bovie’s results of operations and
financial condition. The future effects of these fluctuations on the operations
of Bovie and its subsidiaries are not predictable.
NOTE
15. RESEARCH AND DEVELOPMENT PERFORMED FOR OTHERS
Bovie has
entered into several manufacturing and development agreements to produce
electrosurgical products for medical equipment companies. The agreements are
considered Original Equipment Manufacturing (OEM) contracts that call for: (1)
Bovie to develop specific use devices and components (2) the customer is not
committed to a certain dollar amount of purchases and (3) Bovie to charge what
it believes will be its costs for the development of the product. If the
customer rejects or terminates the contract then it forfeits the development
payments it has incurred. The customer must fulfill its agreement if Bovie
delivers its working prototypes timely. Bovie has an arrangement with a customer
whereby the customer will receive a credit for it's reimbursement of research
and development cost of $112,000 at December 31, 2003. We do not recognize the
arrangement because we believe that the liability shown will be eventually
off-set when the customer takes a credit aginst its purchases from
us.
At
December 31, 2003, Bovie had contracts to produce $1,700,000 of products being
developed. The following is research and development revenue and costs related
to specific contracts, for 2003 and 2002:
Contracted
Development Payments Received:
| |
|
2003 |
|
2002 |
|
Amounts:
|
|
|
|
|
|
|
Forfeited |
|
$ |
-- |
|
$ |
177,800 |
|
|
For
Work in Progress |
|
|
304,461
|
|
|
183,815 |
|
|
Total |
|
|
304,461 |
|
|
361,615 |
|
Customer
Deposits |
|
|
-- |
|
|
128,000 |
|
|
Revenues
included in Gross Sales |
|
$ |
304,461 |
|
$ |
233,615 |
|
|
Cost
of Research and Development contracts |
|
|
|
|
|
|
|
|
included
in gross profit |
|
$ |
304,461 |
|
$ |
233,615
|
|
NOTE
16. REARCH AND DEVELOPMENT COSTS CAPITALIZED
During
the years 2003 and 2002 we had capitalized development costs, performed by third
parties for our line of electrosurgical generators of $88,926 and $25,150,
respectively.
|
|
Articles
of Incorporation |
| |
|
|
|
By-laws |
| |
|
|
|
Common
Stock Certificate |
| |
|
|
|
Subsidiary
of Registrant |
| |
|
|
|
Consent
of Bloom & Co., LLP |
| |
|
|
|
Certification
pursuant to Section 302 of Sarbanes-Oxley Act of 2002. |
| |
|
|
|
Certification
pursuant to Section 302 of Sarbanes-Oxley Act of 2002. |
| |
|
|
|
Certification
pursuant to Section 906 of Sarbanes-Oxley Act of 2002. |
| |
|
|
|
Certification
pursuant to Section 906 of Sarbanes-Oxley Act of 2002. |
| |
|