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COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS
 6 Months Ended
Jun. 30, 2013
Commitments Contingencies And Concentrations  
NOTE 10. COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS

We are obligated under various operating leases for our facilities and certain equipment, most notably a lease for a manufacturing and warehouse facility in St. Petersburg, Florida that requires monthly payments of approximately $13,000 and expires on October 31, 2013. The following is a schedule of approximate future minimum lease payments under operating leases having remaining terms in excess of one year as of June 30, 2013 for the calendar years ended December 31, 2013 and 2014. (in thousands):

 

2013   $ 100  
2014     12  
         
Total   $ 112  

 

Rent expense approximated $86,000 and $89,000 for the six month periods ending June 30, 2013 and 2012 respectively.

 

We have a manufacturing agreement with our Bulgarian supplier which provides for certain contingent payments on our part if we terminate our arrangement prior to July 1, 2014. The table below reflects our approximate contingent liability for the calendar years ended December 31, 2013, and 2014 (in thousands):

 

2013    $ 64  
2014     73  
         
Total   $ 137  

 

Other future contractual obligations for agreements with initial terms greater than one year and agreements to purchase materials in the normal course of business are summarized as follows (in thousands):

 

Description Years Ending December 31,  
  2013   2014   2015   2016   2017   2018  
                                                 
Employment agreements   $ 483     $ 846     $ 786     $ -     $ -     $ -  
Purchase commitments     2,165       858       -       -       -       -  
Consulting contracts     36       72       -       -       -       -  
Mortgage note payable     3,351       -       -       -       -       -  
Total   $ 6,035     $ 1,776     $ 786     $ -     $ -     $ -  

 

Livneh/Lican Development Settlement Agreement and Related Litigation

 

In July 2012, Steven Livneh and two of his related entities, Henvil Corp. Ltd. and Lican Development Ltd., commenced a new action against us, Andrew Makrides, and Moshe Citronowicz, in the United States District Court for the Middle District of Florida (Tampa Division). The complaint asserts, among other things, that (i) the defendants breached their obligations to the plaintiffs under a Settlement Agreement dated February 22, 2012, and effective as of December 28, 2011, the terms of which have been disclosed in our previous filings, by allegedly failing to take certain actions that facilitated the plaintiffs’ marketing and sale of the Seal-N-Cut products in the People’s Republic of China (“PRC”), (ii) that defendants tortiously interfered with plaintiffs’ business relationships and expectations in PRC allegedly by, among other things, refusing to provide plaintiffs with an ICON VS generator and (iii) plaintiffs allegedly suffered damages as a result of defendants’ breaches and misrepresentations. The complaint seeks, among other things, the following: (i) compensatory damages in excess of $10 million, (ii) an order directing Bovie to provide plaintiffs with an ICON VS generator, (iii) an assignment to plaintiffs of all patents identified in the Settlement Agreement, and (iv) rescission of the Settlement Agreement. We believe the allegations to be frivolous and without merit, and we intend to defend the action vigorously. Plaintiffs filed a motion for summary judgment. Our opposition to this motion is due August 30, 2013.

  

The outcome of this matter is uncertain, no range of potential loss can be estimated and accordingly no effect has been given to any loss that may result from the resolution of this matter in the accompanying consolidated financial statements.

 

Stockholder Derivative Action

 

As previously reported, in September 2011, we were served in a purported stockholder derivative action that was filed in the United States District Court for the Middle District of Florida against the Company and certain of its present and former officers and directors. The complaint asserts, among other things, breach of fiduciary duties and bad faith in relation to the management of our business. The complaint seeks, among other things, unspecified compensatory damages and various forms of equitable relief. The allegations in the derivative action appear to be based largely on the January 10, 2011 Livneh counterclaim described above.

 

On March 29, 2012, plaintiffs amended their complaint to remove one of the plaintiffs and replace it with another. The amended complaint asserts essentially the same allegations as the original filing. We believe the allegations to be frivolous and without merit and we intend to defend the action vigorously. We are investigating whether there is a collusive connection between the derivative action and the previously settled lawsuit with Livneh. In May 2012, we, together with the individual defendants filed a motion to dismiss the plaintiff’s complaint based, in part, upon the plaintiff’s failure to make demand upon the board as required by applicable law. The motion was denied and the parties are proceeding with discovery. The outcome of this matter is uncertain, no range of potential loss can be estimated and accordingly no effect has given to any loss that may result from the resolution of this matter in the accompanying consolidated financial statements.

 

Keen Action

 

In connection with the previously disclosed litigation pending in the United States District Court for the Middle District of Florida between the Company and Leonard Keen, the Company’s former Vice President and General Counsel, on August 8, 2013, following a jury trial, the jury returned a verdict in favor of Mr. Keen awarding him $622,500 in severance. In addition, the jury determined that, Mr. Keen’s previously issued 110,000 stock options should be reinstated and accelerated, and that the Company must indemnify Mr. Keen for any damages or costs he suffered in his capacity as an employee of Bovie pursuant to the terms of Mr. Keen’s prior employment agreement with the Company. Lastly, Mr. Keen was awarded attorney’s fees in an amount to be determined by the Court. The Company is presently reviewing its options as they pertain to the verdict.

 

Because the verdict was received prior to the issuance of this report on Form 10-Q, we have accrued a charge of approximately $1.041 million as of June 30, 2013.

 

Because of the accrued liability we booked in the quarter related to Keen action noted above, we are no longer in compliance with the financial covenants with PNC Bank. We are currently working to resolve the non-compliance with PNC Bank. According to our most recent borrowing base calculation, we had approximately $3.5 million total availability under the $4 million credit line, under which we currently have a zero balance. Based upon the non-compliance mentioned above, we will be unable to draw down on the line until we get the matter resolved with the PNC. We anticipate a resolution prior to the end of the next quarter. (see Note 12).

  

Concentrations

 

During the six months ended June 30, 2013 and 2012, we reported sales aggregating approximately $11.7 million of which approximately $4.0 million were to three customers that sales individually represented in excess of 10% of our total sales. At June 30, 2013, approximately 35.5% of our net accounts receivable was due from these three customers.

 

For the six months ended June 30, 2013 and 2012 revenue was derived from the following:

 

Description  

June 30,

2013

    

June 30,

2012

  
             
Domestic     81.2%       81.5%  
Foreign     18.8%       18.5%