10QSB 1 sept02.htm SEPTEMBER 30, 2002

U.S. Securities and Exchange Commission

Washington D.C. 20549

FORM 10-QSB

(Mark One)

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13

OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)

OF THE EXCHANGE ACT

For the Transition Period from

Commission file number 0-12183

BOVIE MEDICAL CORPORATION

(Exact name of small business issuer as specified in its charter)

Delaware                                                                                                                  No. 11-2644611

(State or other jurisdiction of incorporation or organization)                                                                                                    (IRS— Employer Identification No.)

734 Walt Whitman Rd., Melville, New York 11747

(Address of principal executive offices)

(631) 421-5452

(Issuer's telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. yes [ X ] No [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's class of common stock, as of the latest practicable date: 13,204,755.

BOVIE MEDICAL CORPORATION
INDEX TO FORM 10-QSB

Contents                                                                  Page

Part I.   Financial Information.................................................

        Item 1:       Consolidated Financial Statements:........................

             Consolidated Balance Sheet - September 30, 2002
                and December 31, 2001...........................................
             Consolidated Statements of Operations for the
               Nine Months Ended September 30, 2002 and 2001....................
             Consolidated Statements of Operations for the
               Three Months Ended September 30, 2002 and 2001...................
             Consolidated Statements of Cash Flows for the
               Nine Months Ended September 30, 2002 and 2001....................

              Notes to Financial Statements ....................................

        Item 2: Management's Discussion and
               Analysis of Financial Conditions and Results of Operations.......

Part II.   Other
Information.....................................................................

 Item 1:  Legal
Proceedings.....................................................................

 Item 2:  Changes in Securities.................................................

 Item 3:  Defaults Upon Senior Securities.......................................

 Item 4:  Submission of Matters to Vote of Security Holders.....................

 Item 5:  Exhibits and Reports on Form 8-K......................................

INDEPENDENT AUDITORS' REPORT

Board of Directors
Bovie Medical Corp.
Melville, New York

We have reviewed the accompanying balance sheet of Bovie Medical Corp., as of June 30, 2002, and the related consolidated condensed statements of operations, and cash flows for the nine months ended September 30, 2002 and 2001. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America.

Bloom & Co., LLP.
Hempstead, New York
November 11, 2002

PART I. FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS

BOVIE MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2002 AND DECEMBER 31, 2001

                                     Assets

                                      (Unaudited)                  (Audited)
                                     September 30, 2002       December 31, 2001
                                     ------------------------------------------

Current assets:

Cash                                    $    461,782            $    578,354
Trade accounts receivable                  1,380,947               1,200,933
Inventories                                2,598,470               2,419,827
Prepaid expenses                             150,330                 128,045
Deferred tax asset                           386,200                 386,200
Other receivables                                  -                     779
                                     ---------------           -------------

Total current assets                       4,977,729               4,714,138

Property and equipment, net                1,496,977               1,531,658

Other assets:

Repair parts                                 290,713                 300,272
Trade name                                 1,509,662               1,509,662
Patent rights, net                           280,308                 314,691
Deposits                                       8,125                   8,124
Investment - Joint Venture                   200,000                 200,000
                                           ---------               ---------

                                           2,288,808               2,332,749
                                           ---------               ---------

                                        $  8,763,514            $  8,578,545
                                           =========               =========



The accompanying notes are an integral part of the financial statements.
1

BOVIE MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
(CONTINUED)


                      Liabilities and Stockholders' Equity

                                          (Unaudited)              (Audited)
                                       September 30, 2002     December 31, 2001
                                       ------------------     -----------------
Current liabilities:

Accounts payable                         $     444,823           $    373,375
Accrued expense                                489,904                499,850
Notes payable - current portion                542,182                228,977
Due to shareholders                             36,651                 32,705
                                           -----------            -----------

     Total current liabilities               1,513,560              1,134,907

Long Term Liabilities                          419,587                443,332

Stockholders' equity:

Preferred Stock, par value $.001
 10,000,000 shares authorized
 0 issued and outstanding                          --                     --
 on September 30, 2002 and 2001

Common stock par value $.001;
 40,000,000 shares authorized,
 issued and outstanding 13,204,755
 shares and 13,204,755 shares
 on September 30, 2002 and December 31,
 2001 respectively                             13,274                   13,274
Additional paid in capital                 19,818,550               19,814,334
Accumulated deficit                       (13,001,457)             (12,827,302)
                                           ----------               ----------

    Total stockholders' equity              6,830,367                7,000,306
                                          -----------               ----------

     Total liabilities and stockholders'
          equity                      $     8,763,514           $    8,578,545
                                         ============              ===========

The accompanying notes are an integral part of the financial statements.
2

BOVIE MEDICAL CORPORATION.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)

                                                    2002                2001
                                                    ----                ----

Sales                                          $ 9,277,461        $ 8,335,585
Cost of sales                                    5,169,427          4,576,278
                                                 ---------          ---------

Gross profit                                     4,108,034          3,759,307(1)

Costs and expenses:
Research and development                           770,610            327,371
Professional services                              247,935            226,989
Salaries and related costs                       1,452,838          1,297,396
Selling, general and administrative              1,776,872          1,361,317
                                                ----------          ---------

                                                 4,248,255          3,213,073(1)
                                                ----------          ----------

Gain (Loss) from operations                    (   140,221)           546,234

Other income (expense):
Interest                                       (    33,933)      (     45,486)
Miscellaneous                                           --                 --
                                                ----------         ----------

                                               (    33,933)      (     45,486)
                                                ----------         ----------

Income (loss)                                   (  174,154)           500,748

Provision for income tax                                --       (    175,262)
Realized benefit of loss carryforward                   --            175,262
                                                 ----------        ----------

Net income (loss)                             $  ( 174,154)      $    500,748
                                                 ==========         =========

Earnings per share

Net income (loss):
      Basic                                      ( .01)                 .04
      Diluted                                    ( .01)                 .03

Weighted average number of shares
 outstanding                                   13,204,755           13,559,501
Weighted average number of shares
  adjusted for dilutive securities             14,406,255           14,759,501

(1)  Certain  accounts  have been  reclassified  to  conform  to  current  years
presentation.


The accompanying notes are an integral part of the financial statements.
3

BOVIE MEDICAL CORPORATION.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)

                                                            Quarter
                                             -----------------------------------
                                                     2002              2001
                                                     ----              ----

Sales                                            $ 3,045,994      $ 2,780,407
Cost of sales                                      1,481,062        1,181,240
                                                   ---------       -----------

Gross profit                                       1,564,932        1,599,167(1)

Costs and expenses:
Research and development                             268,532          116,681
Professional services                                 59,882           70,064
Salaries and related costs                           804,616          663,400
Selling, general and administrative                  484,498          414,028
                                                  ----------        ----------

                                                   1,617,528        1,264,173(1)
                                                  ----------        ---------

Gain (Loss) from operations                      (    52,596)         334,994

Other income (expense):
Interest                                         (    11,953)    (     22,686)
Miscellaneous                                             --               --
                                                  -----------     -----------

                                                 (    11,953)    (     22,686)
                                                  ----------      -----------

Income (loss)                                    (    64,549)         312,308

Provision for income tax                                  --      (   109,308)
Realized benefit of loss carryforward                     --          109,308
                                                   ---------       ----------

Net income                                     $  (   64,549)    $    312,308
                                                   =========       ==========

Earnings per share

Net income (loss):
      Basic                                            NIL               .02
      Diluted                                          NIL               .02

Weighted average number of shares outstanding      13,204,755       13,435,334
Weighted average number of shares adjusted for
  dilutive securities                              14,406,255       14,635,334

(1) Certain accounts have been reclassified to conform to current years
presentation.


The accompanying notes are an integral part of the financial statements.
4

BOVIE MEDICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)

                                                       2002             2001
                                                       ----             ----
Cash flows from operating activities
Net income (loss)                                 $ ( 174,155)     $   500,748
Adjustments to reconcile net income
  to net cash provided by (used in)
  operating activities:
Depreciation and amortization                         204,274          424,431

Changes in current assets and liabilities:
Receivables                                          (180,014)          73,904
Inventories and repair parts                         (178,643)        (414,886)
Prepaid expenses                                    (  22,285)       (  54,540)
Accounts payable                                       71,448           10,036
Accrued expense                                    (    9,946)        ( 30,930)
Other assets                                           10,338       (      400)
Obligations to shareholders                             3,946               --
                                                   ----------      -----------

Net cash provided (applied) by
 operating activities                                (275,037)         508,363
                                                   -----------     -----------

Cash flows from investing activities

Increase in fixed assets                           (  109,911)       (  99,988)
Increase in patents                                (   25,300)       ( 270,438)
Increase in deposits                                       --        (  11,622)
Decrease in due to joint venture                           --         (100,000)
                                                    ---------        ---------

Net cash used in investing activities              (  135,211)       ( 482,048)
                                                    ---------        ---------

Cash flows from financing activities
Borrowing - line of credit/Insurance
  Premium Financing                                   410,651               --
(Decrease) in obligations to shareholders                  --       (   24,720)
(Decrease) in notes payable                         ( 121,191)       ( 206,522)
Common shares purchased                                    --        ( 114,000)
Increase in notes payable                                  --          438,783
Subscription Receivable                                 4,216            3,967
                                                  -----------      -----------

Net cash used in financing activities                 293,676           97,508
                                                  -----------      -----------

Net increase (decrease) in
 cash and cash equivalents                           (116,572)         123,823

Cash and cash equivalents, beginning of period        578,354          278,662
                                                     --------         --------

Cash and cash equivalents, end of period          $   461,782       $  402,485
                                                    =========         ========

The accompanying notes are an integral part of the financial statements.
5

BOVIE MEDICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001


Cash paid during the nine months ended September 30:

                                              2002                   2001
                                              ----                   ----

Interest paid                               $ 32,910               $ 44,721
Income Taxes                                  - 0 -                  - 0 -

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001

There were no non-cash investing and financing activities in the first nine months of the year 2002 or 2001.

6

BOVIE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS

PART I. FINANCIAL INFORMATION (CONTINUED)

NOTE 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements include the accounts of Bovie Medical Corporation and its wholly owned subsidiary Aaron Medical Industries, Inc. In the opinion of management, the interim financial statements reflect all adjustments, consisting of only normal recurring items, which are necessary for a fair presentation of the results for the interim periods presented.

The results for interim periods are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the significant accounting policies and the other notes to the financial statements included in the Corporation’s 1998 Annual Report to the SEC on Form 10-KSB.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Fair Values of Financial Instruments

Cash and cash equivalents. Holdings of highly liquid investments with maturity of three months or less, when purchased, are considered to be cash equivalents. The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair values.

Accounts receivable and accounts payable. The carrying amount of accounts receivable and accounts payable on the balance sheet approximates fair value.

Short term and long term debt. The carrying amount of the bonds and notes payable and amounts due to shareholders approximates fair value.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined principally on the average cost method. Inventories at September 30, 2002 and December 31, 2001 were as follows: 


                                   September 30, 2002       December 31, 2001
                                   ------------------        -----------------

    Raw materials                        $1,083,697            $1,222,349
    Work in process                         944,361               614,342
    Finished goods                          570,412               583,136
                                          ---------             ---------

           Total                         $2,598,470            $2,419,827
                                          =========             =========
7

BOVIE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS

PART I. FINANCIAL INFORMATION (CONTINUED)

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)

Repair Parts. The Company acquired the inventory of repair parts in conjunction with the purchase of the Bovie line of generators and Bovie trade name, on May 8, 1998. The Company has maintained the inventory to service the previously sold generators. The useful life of repair parts is estimated to be five to seven years and the Company has set up an allowance for excess and obsolete parts. 

     As of September 30, 2002, the inventory of parts was as follows:

      Raw materials                                        $ 561,233
      Allowance for excess or obsolete parts                (270,520)
                                                             -------

                                                           $ 290,713
                                                             =======

Long-Lived Assets

Long-lived and assets consist of property, plant and equipment, and intangible assets.

Property, plant and equipment are recorded at cost less depreciation and amortization. Depreciation and amortization are accounted for on the straight-line method based on estimated useful lives. The amortization of leasehold improvements is based on the shorter of the lease term or the life of the improvement. Betterment and large renewals, which extend the life of the asset, are capitalized whereas maintenance and repairs and small renewals are expenses, as incurred. The estimated useful lives are: machinery and equipment, 7-15 years; buildings, 30 years; and leasehold improvements; 10-20 years.

Effective January 1, 1996, the Company adopted the Statement of Financial Accounting Standards (SFAS) No.121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. In accordance with SFAS No.121, the Company reviews long-lived assets for impairment whenever events or changes in business circumstances occur that indicate that the carrying amount of the assets may not be recovered.

The Company assesses the recoverability of long-lived assets held, and to be used, based on undiscounted cash flows and measures the impairment, if any, using discounted cash flows. Adoption of SFAS No.121 did not have a material impact on the Company’s consolidated financial position, operating results or cash flows.

Intangible assets consist of patent rights and goodwill. Goodwill represents the excess of the cost of assets of the acquired companies over the values assigned to net tangible assets.

Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, Business Combinations, and Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. Statement No. 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method of accounting. Under Statement No. 142, goodwill will no longer be subject to amortization over its estimated useful life. Rather, goodwill will be subject to at least an annual assessment for impairment by applying a fair-value-based test. In addition, Statement No. 142 requires separate recognition for certain acquired intangible assets that will continue to be amortized over their useful lives.

8

BOVIE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS

PART I. FINANCIAL INFORMATION (CONTINUED)

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue Recognition and Product Warranty

Revenue from sales of products is generally recognized upon shipment to customers. The Company warrants its products for one year. The estimated future costs of warranties are not material. However, a special reserve has been set up for future delivery of certain disposables based on a promotion which ended in April of 2002.

Income is recognized in the financial statements (and the customer billed) when products are shipped from stock. Net sales are arrived at by deducting discounts from and adding freight out to gross sales.

Environmental Remediation

The Company accrues environmental remediation costs if it is probable that an asset has been impaired or a liability incurred at the financial statement date and the amount can be reasonably estimated. Environmental compliance costs are expenses, as incurred. Certain environmental costs are capitalized based on estimates and depreciated over their useful lives.

Earnings Per Common and Common Equivalent Share

In February 1997, the Financial Accounting Standards Board issued SFAS 128. “Earnings Per Share.” SFAS 128 establishes new standards for computing and presenting earnings per share (“EPS”). Specifically, SFAS 128 replaces the previously required presentation of primary EPS with a presentation of basic EPS, requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures, and requires a reconciliation of the numerator and denominator of the basic EPS computation to the financial statements issued for periods ending after December 15, 1997. In 1997, the Company adopted SFAS 128.

Research and Development Costs

Only the development costs that are purchased from another enterprise and have alternative future use are capitalized and amortized over five years.

Income Taxes

The Company and its wholly-owned 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.

9

BOVIE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS

PART I. FINANCIAL INFORMATION (CONTINUED)

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)

Non-monetary Transactions

The accounting for non-monetary assets is based on the fair values of the assets involved. Cost of a non-monetary asset acquired in exchange for another non-monetary asset is recorded at the fair value of the asset surrendered to obtain it. The difference in the costs of the assets exchanged is recognized as a gain or loss. The fair value of the asset received is used to measure the cost, if it is more clearly evident than the fair value of asset surrendered.

Stock-Based Compensation

The Company has adopted Accounting Principles Board Opinion 25 for its accounting for stock based compensation. Under this policy:

1. Compensation costs are recognized as an expense over the period of employment attributable to the employee stock options.

2. Shares issued in accordance with a plan for past or future services of an employee are allocated between the expired costs and future costs. Future costs are charged to the periods in which the services are performed. The pro forma amounts of the difference between compensation cost included in net income, and related cost, measured by the fair value based method including tax effects, are disclosed.

New Accounting Standards

In June 1997, the Financial Accounting Standards Board issued SFAS 130, “Reporting Comprehensive Income”. SFAS 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general purpose financial statements. Specifically, SFAS 130 requires that all items that meet the definition of components of comprehensive income be reported in a financial statement for the period in which they are recognized. However, SFAS 130 does not specify when to recognize or how to measure the items that make up comprehensive income.

Management believes the application of SFAS 130 has not had a material effect on the Company’s financial statements.

In April 1998, the FASB issued SOP 98-5, “Reporting on the Costs of Start-up Activities,” which became effective for the Company in fiscal 2000. It requires costs of start-up activities and organization costs to be expressed, as incurred. The Company currently follows this approach and such costs have been minimal in the past.

In June 1997, the Financial Accounting Standards Board issued SFAS 131, “Financial Reporting for Segments of Business Enterprise.” SFAS 131 supersedes the “industry segment” concept of SFAS 14 with a “management approach” concept as the basis for identifying reportable segments.

10

BOVIE MEDICAL CORPORATION

PART I. FINANCIAL INFORMATION (CONTINUED)

New Accounting Standards (continued)

Management believes the application of SFAS 131 has not had a material effect on the Company’s financial statements.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002,

Results of Operations

The results of operations over the nine months ended September 30, 2002 show increased sales and decreased profitability, as compared to the first nine months of 2001. As part of operating revenues, for the first nine months of 2002, a one-time development fee of $177,500 was included which was not considered in determining the gross profit percentage for 2002. The Company’s sales revenues increased by 11%, from $8,335,585 to $9,277,461. Gross profit percentage of 44% was one point less than for the same period in 2001. The Company projects the gross profit percentage to decline as electrosurgical sales grow and other sales remain relatively constant because margins on electrosurgical products are less than other product margins. Gross profit increased from $3,759,307 to $4,108,034 which was mainly attributable to increased sales of cauteries and electrosurgical devices. For the first nine months of 2002 and 2001, cauteries accounted for 41% and 42% of sales, respectively. For the same periods, electrosurgical devices accounted for 35% and 30% of sales, respectively.

Operating salaries and related expenses increase from $1,297,396 to $1,452,838 in the nine months ended September 30, 2002 as compared to the same period in 2001.

Research and development costs increased by 135% from $327,371 to $770,810 for the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001. The increase was mainly attributable to engineering costs of new generator models being developed and the cost of the continued development of the J Plasma device.

Expenses for professional services increased by 9% to $247,935 in the nine months ended September 30, 2002, as compared to $ 226,989 in the same period of the previous year. The main reason for this increase was professional fees associated with standard legal matters, audit fees for the year 2001 and consulting services.

Selling, General and Administrative expenses increased by $415,555 (31%). These expenses were $1,776,872 in the nine month period ended September 30, 2001 as compared to $1,361,317 for the nine months ended September 30, 2002. The Company had significant increases in the following areas: advertising, sales commissions, show fees and costs, rent, repairs to buildings, regulatory, quality control and the write down of obsolete inventory. The previous items accounted for total increases of $515,219 which were offset by decreases in European operations and the amortization of goodwill associated with the purchase of the Bovie name from Maxxim in 1998 of $111,532.

Interest expense decreased from $45,486 in the nine months ended September 30, 2001 to $33,933 in 2002. The majority of the interest the Company pays is on its building mortgage and its line of credit.

The operating loss was $140,221 for the first nine months of 2002 as compared to an operating gain of $546,234 in the same period in 2001.

11

BOVIE MEDICAL CORPORATION

PART I. FINANCIAL INFORMATION (CONTINUED)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Results of Operations (continued)

The Company had a net loss of $174,154 for the nine months ended September 30, 2002 as compared to net gain of $500,748 in 2001, for the same period. The main reason for the decrease in income of $674,902 for the first nine months of 2002, from the first nine months of 2001 was an increase in selling, general and administrative expenses of $415,555 and an increase in research and development costs of $443,239. These were offset by an increase in gross profit of $348,727.

The Company sells its products mostly through distributors and independent representatives who service the distributors, both in the international market and in the USA. Distributors are contacted through response to company advertising in international medical journals or at domestic or international trade shows. The main focus for export sales has been Western Europe.

The Company has distributors in all major markets in Europe. The Company intends to continue marketing its products internationally, concentrating on major markets for increased market exposure and the introduction of new products.

During the first nine months of 2002, international sales increased by 24%. Sales in 2001 were $1,435,057, which represented 17% of total sales, while in 2002 total international sales were $1,782,300 which represented 19% of total sales. The Company expects international sales to continue to increase.

Financial Condition

As of September 30, 2002, we had $461,782 in cash as compared to $402,485 at September 30, 2001. Cash applied to operating activities was $275,037 in the first nine months of 2002 as compared to $508,363 provided by operations in 2001. Net working capital of the Company on September 30, 2002 was $3,464,169 as compared to $2,853,445 on September 30, 2001.

Investing activities utilized $135,211 in cash during the first nine months of 2002, compared to $482,048 in the first nine months of 2001. In 2002, the Company continued its policy of investing in property, plant and equipment needed for future business requirements, including manufacturing capacity.

The Company’s ten largest customers accounted for approximately 62% of net revenues for the first nine months of 2002. At September 30, 2002, the ten largest customer receivables accounted for approximately 66% of outstanding accounts receivable.

The amount of cash provided by financing activity was $293,676 and $97,508, in the first nine months of 2002 and 2001, respectively. The most significant financing activity in the nine months ended September 30, 2002 was borrowing $250,000 additional funds on the Company credit line, and financing the Company’s insurance premium for $160,651.

12

BOVIE MEDICAL CORPORATION

PART I. FINANCIAL INFORMATION (CONTINUED)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Financial Condition (continued)

The Company believes that it has the financial resources needed to meet business requirements in the foreseeable future, including capital expenditures for the expansion of its manufacturing site, working capital requirements, and product development programs.

Outlook

The statements contained in this Outlook are based on current expectations. These statements are forward looking, and actual results may differ materially.

The Company believes that the world market for disposable medical products, such as the Company’s battery-operated cauteries and our electrosurgical line of products have growth potential worldwide. We have developed a digital 300 watt generator, the IDS 300 model. A 510k application for permission to market the product has been submitted to the Food and Drug Administration.

The Company continues to expand its line of electrosurgical products. Electrosurgical products sold by the Company include standard stainless steel electrodes, Bovie/Aaron 800, 900, 950, 1200, 1250, and the 2100 high frequency generators.

From the first nine months of 2001 to the first nine months of 2002, the Company’s electrosurgical sales increased by 28% from $2,520,373 to $3,233,043. This increase was mainly attributable to contract purchasers and a one time promotion. With the introduction of new electrosurgical products, the Company expects electrosurgical sales to increase significantly in 2003. The Company, through its private label capability, anticipates new opportunities in the domestic market. The electrosurgical product market is larger than the Company’s traditional market and is dominated by two main competitors, ValleyLab and Conmed. The Company believes combined markets for these products exceeds $100 million worldwide, annually.

Reliance on Collaborative, Manufacturing and Selling Arrangements

The Company is dependent on certain contractual partners for manufacturing and product development. Should a collaborative partner fail to develop and manufacture products., the Company’s future business and value of related assets could be negatively affected. Accordingly, no assurance can be given that a collaborative partner may give sufficient high priority to the Company’s products. In addition, disagreements or disputes may arise between the Company and its contractual partners which could adversely affect production of its products.

13

BOVIE MEDICAL CORPORATION

PART I. FINANCIAL INFORMATION (CONTINUED)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Liquidity and Future Plans

The Company continues its efforts to develop and acquire new product technology and expanding manufacturing capabilities. Continued emphasis on new product development in electrosurgery, together with new technology evaluation, illustrates our shift in direction.

In order to resume strong international sales growth and maintain its ability to sell in Europe, management has implemented and been certified as ISO9001/EN46001 quality system compliant and has been granted its CE mark (International Quality control).

The Company has a line of credit with a local commercial bank for $1,500,000. Interest on the loan is paid at the bank’s base rate. As of September 30, 2002, the Company had $400,000 outstanding on its line of credit.

The Company’s future results of operations and the other forward-looking statements contained herein particularly the statements regarding growth in the medical products industry, capital spending, research and development, and marketing and general and administrative expenses, involve a number of risks and uncertainties. In addition to the factors discussed above, other factors that could cause actual results to differ materially, are the following: business conditions and the general economy; competitive factors such as rival manufacturers’ availability of products at reasonable prices; risk of nonpayment of accounts receivable; risks associated with foreign operations; and litigation involving intellectual property and consumer issues.

The management of Bovie Medical Corporation believes that it has the product mix, facilities, personnel, and competitive and financial resources for business success, but future revenues, costs, margins, product mix and profits are all subject to the influence of a number of factors, as discussed above.

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002

Results of Operations

The results of operations over the three months ended September 30, 2002 show increased sales and decreased profitability, as compared to the same period of 2001. The Company’s sales revenues increased by 10%, from $2,780,407 to $3,045,994. Gross profit percentage for three months ended September 30, 2002 was 51% as compared to 58% for the same period in 2001. Gross profit decreased from $1,599,167 to $1,564,932. Decreased gross profit was mainly attributable to increased sales of electrosurgical devices which carry a lower profit margin.

Operating salaries and related expenses increased by 21% from $663,400 to $804,616, in the three months ended September 30, 2002 as compared to the same period in 2001.

Research and development costs increased by 130% from $116,681 to $268,532 for the three months ending September 30, 2002 as compared to the three months ending September 30, 2001. The increase was mainly attributable to engineering costs on new generator models being developed and the cost of the continued development of the J Plasma device.

14

BOVIE MEDICAL CORPORATION

PART I. FINANCIAL INFORMATION (CONTINUED)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Expenses for professional services decreased by 15% to $59,882 in the three months ended September 30, 2002, as compared to $70,064 in the same period of the previous year for professional fees associated with standard legal matters, quarterly review fees and consulting services.

Selling, General and Administrative expenses increased by $70,470, 17%. These expenses were $414,028 in the three month period ended September 30, 2001 as compared to $484,498 for the three months ended September 30, 2002. The Company had significant increases in the following areas: advertising, sales commissions, show fees and costs, rent, repairs to buildings, regulatory testing and the write down of obsolete inventory.

Interest expense decreased from $22,686 in the three months ended September 30, 2001 to $11,953 for the same period in 2002. The majority of the interest the Company pays is on its building mortgage and its line of credit.

The operating income was $ 334,994 in the three months ending September 30, 2001 as compared to an operating loss of $52,596 in the same period in 2002.

DISCLOSURE CONTROLS AND PROCEDURES

The Securities and Exchange Commission (the “SEC”) has adopted new rules, Rule 13a-15 and Rule 15d-15, which require the Company to, among other things, conduct, under the supervision of the Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures within 90 days of the filing date of any quarterly or annual report. An evaluation of the Company’s disclosure controls and procedures (as defined in Section 13(a)-14(c) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) was carried out by us and with participation of several other members of our senior management within the 90-day period preceding the filing date of this quarterly report.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the rules promulgated by of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

We have concluded that our disclosure controls and procedures as currently in effect are effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is: (i) accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules.

We did not make any significant changes in, nor take any material corrective actions regarding, our internal controls or other factors that could significantly affect these controls subsequent to the date of our most recent evaluation.

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BOVIE MEDICAL CORPORATION

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Form 10-KSB for the year ended December 31, 2001, Part I, Item 3.

ITEM 2. CHANGES IN SECURITIES

There have been no changes in the instruments defining the rights evidenced by any class of registered securities.

There have been no dividends declared.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

In February of 1997, the 10-year notes came due and the Company offered each bond holder 2,200 shares of common stock for their $1,000 bond and accrued interest of $550. Nineteen bondholders accepted the offer and forty-three bondholders received cash for their bonds and accrued interest. The balance of the bondholders ($20,000), have not redeemed their bonds or accepted the shares offered.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

An annual meeting of shareholders was held on April 24, 2002, at which time the Company’s board of directors were re-elected, the Company’s auditors were appointed and the Company’s 2001 Employee Stock Option Plan was approved.

ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K

A) Exhibits
28 None

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BOVIE MEDICAL CORPORATION

SIGNATURES:

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Bovie Medical Corporation.
(Registrant)

Date: November 11, 2002

/s/Andrew Makrides

Chief Executive Officer - Andrew Makrides,

/s/Charles Peabody

Chief Financial Officer - Charles Peabody,

17

CONSENT OF CERTIFIED PUBLIC ACCOUNTANT

We consent to the incorporation in this Quarterly Report on Form 10-QSB of Bovie Medical Corporation of our report dated May 14, 2002.

Bloom & Co., LLP
s/Bloom and Company
Hempstead, New York
May 14, 2002

CERTIFICATION

I, Andrew Makrides, the Registrant's Chief Executive Officer, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Bovie Medical Corporation;

        2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

        3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

        4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

        5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

        6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 11, 2002

/s/Andrew Makrides

Chief Executive Officer - Andrew Makrides,