# U.S. SECURITIES AND EXCHANGE COMMISSION

# Washington, D.C. 20549

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# FORM 10-KSB

# (Mark One)

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# [X]  ANNUAL REPORT UNDER SECTION 13 OR
15(d) OF THESECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31,
2001

Commission file number 0-12183

# BOVIE MEDICAL CORPORATION

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

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Delaware      
             
             
             
             
             
             
             
         No. 11-2644611

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

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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 $11,484,334.

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 01, 2002 was approximately $5,992,202.

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:13,204,755.

Company Symbol-BOVI  Company SIC (Standard Industrial Code) 3841-98

# DOCUMENTS
INCORPORATED BY REFERENCE

There are no documents incorporated by reference.

# Bovie Medical Corporation
                         2001 Form 10-KSB Annual Report

# Table of Contents

`Part I                                                             Page

Item 1.      Description of Business...............................

Item 2.      Properties............................................

Item 3.      Legal Proceedings.....................................

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

Part II

Item 5.      Markets and Market Prices.............................

Item 6.      Management's Discussion and Analysis..................

Item 7.      Financial Statements   (See Financial Section)

Item 8.      Changes in and Disagreements with Accountants
             on Accounting and Financial Disclosure................

Part III

Item 9.      Directors, Executive Officers, Promoters
             and Control Persons...................................

Item 10.     Remuneration..........................................

Item 11.     Security Ownership of Certain Beneficial Owners
             and Management of Bovie Medical Corporation...........

Item 12.     Certain Relationships and Related Transactions........

Item 13.     Exhibits and Reports on Form 8-k......................`

## BOVIE MEDICAL CORPORATION

## Part I

## Item 1.
Description of Business.

## Background

Bovie Medical Corporation
(the Company) was incorporated in 1982, under the laws of the State
of Delaware and has its principal executive office at 734 Walt Whitman Road,
Melville, New York 11747.

The Company is actively engaged in the business of  manufacturing  and marketing
medical products and developing related technologies.  Aaron Medical Industries,
Inc.  ("Aaron"),  a 100% owned  subsidiary based in St.  Petersburg,  Florida is
engaged in marketing the Companys medical products. Although the Companys largest current product
line is battery operated cauteries, the Company has shifted its focus to the
manufacture and marketing of generators and electrosurgery disposables. This new
focus is evident in the development of the Aaron 800, Aaron 900, Aaron 1200,
Aaron 1250 and Aaron 2100, high frequency desiccators (generators). The Aaron
1250 and Aaron 2100 are designed for todays rapidly expanding surgi-center
market. Additionally, each of the above generators will also be marketed under
the Bovie name.

The Company also
manufactures a variety of specialty lighting instruments for use in
ophthalmology, general surgery, hip replacement surgery, and for the placement
of endotracheal tubes. An industrial version of this light is distributed
commercially through various retail outlets and stores.

Bovie manufactures and
markets its products both under private label and the Bovie/Aaron label to
distributors worldwide. Additionally, Bovie/Aaron has original equipment
manufacturing (OEM) agreements with other medical device manufacturers. These
OEM arrangements combined with private label and the Bovie/Aaron label allow the
Company to gain greater market share for the distribution of its products.

## Company
Products

## Battery Operated
Cauteries

Battery operated cauteries
constitute the Companys largest product line. Cauteries were originally
designed for precise hemostasis (to stop bleeding) in ophthalmology. The current
use of cauteries has been substantially expanded to include sculpting woven
grafts in bypass surgery, vasectomies, evacuation of subungual hematoma (smashed
fingernail) and for arresting bleeding in many types of surgery. Battery
operated cauteries are primarily a sterile one-time use product. The Company
manufactures more types of cauteries than any other company in the world,
including but not limited to, a line of replaceable battery and tip cauteries,
which are popular in overseas markets.

## Electrosurgery
Products

The Company 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 the Companys second largest product line. Our
accessory electrosurgery products are substantially compatible with all major
manufacturers electrosurgery generator products. All 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 surgical procedures in gynecology, urology, plastic surgery,
general surgery and dermatology.

## Bovie/Aaron
800 and 900 High Frequency Desiccators

The Aaron 800 and Aaron 900
are low powered office based generators designed primarily for dermatology and
plastic surgery. The units are 30 watt high frequency desiccators used mainly in
doctors offices for removing small skin lesions and growths.

## Bovie/Aaron
1200

The Company has developed a
120 watt, full-featured electrosurgery generator 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

The Company has developed,
a 120 watt multipurpose electrosurgery generator. The unit also features
monopolar and bipolar functions with pad sensing. The product has received a
positive response from the OEM community and is being produced in at least two
private label formats in addition to the Bovie/Aaron label.

## Bovie/Aaron
2100

The Company has developed,
a 200 watt multipurpose electrosurgery generator, designed for the rapidly
expanding surgi-center market in the United States. The unit features both
monopolar and bipolar functions, has pad and tissue sensing plus nine blended
cutting settings. This powerful unit has the capability to do practically any
procedure performed today in the surgi-center or outpatient setting.

## New Generators

In addition to the Aaron
2100 and 1250, the Company is continuing to develop and expand its range of
electrosurgery generators. The Company has two generators currently in the
design and development phase. The first new generator is expected to be released
in the third quarter of 2002 and the second is expected to be ready for release
near the end of 2002.

## Jump Unipolar
Low Temperature Focused Plasma Technology

In February, 2000, the Company entered into a Joint Venture Agreement with a German corporation, Jump
Agentur Fuer Elektrotechnik GMBH. Pursuant to the agreement, Bovie advanced
$200,000 to the partnership to cover costs of further European research toward
the production of two commercial prototypes. Bovie has made available its
facilities in Florida available 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.

The joint venture acquired
an exclusive license to produce and market any surgical device utilizing this
technology. As of December 31, 2001, Bovie had advanced $200,000 to the joint
venture and expensed $24,924 in development costs plus engineerings costs
estimated at $45,000.

The technology utilizes a
gas ionization process utilizing only one working electrode. The device produces
a stable thin focused beam of ionized gas that can be controlled in a wide range
of temperatures and intensities, providing the surgeon with precision, minimal
invasiveness and an absence of conductive currents during surgery.

The device has been
developed and patented in both Europe and the U.S. Bovie is currently building
its first prototypes for eventual FDA submission and approval. The initial
intended uses are in the areas of Dermatology and Plastic Surgery. Other
contemplated uses for the technology are: cardiovascular, thoracic,
gynecological, trauma and other surgeries.

## Battery
Operated Medical and Industrial Lights

The Company manufactures a variety of specialty lighting instruments for use in ophthalmology as well as
patented specialty lighting instruments for general surgery, hip replacement
surgery and for the placement of endotracheal tubes in emergency and pro-surgery
procedures. These lighting instruments have also been adapted for commercial and
industrial use and are sold to automotive mechanics through companies such as
Snap-On Tools, MAC and Matco.

## Nerve Locator
Stimulator

The Company manufactures a
nerve locator stimulator primarily used for identifying motor nerves in hand and
facial reconstructive surgery. This instrument is a self-contained, battery
operated unit, used for single surgical procedures.

## Manufacturing,
Marketing and Distribution

The Company
manufactures  the majority of its  products on its  premises in St.  Petersburg,
Florida.  Labor intensive  sub-assemblies  and labor  intensive  products may be
out-sourced  to the Company's  specification.  The Company  markets its products
through  national  trade journal  advertising,  direct mail,  distributor  sales
representatives  and trade shows,  under both the  Bovie/Aaron  name and private
label. Major distributors include Allegiance,  Bergen Brunswig Medical, Burrows,
McKesson,  HBOC,  IMCO, NDC (Abco,  Cida and Starline),  Owens &  Minor, and
Physician Sales & Service.

## Competition

The medical device industry
is highly competitive. Many competitors in this industry are well established,
do a substantial amount of business, and have greater financial resources and
facilities than the Company.

Main competitors are
Conmed, Valley Lab (a division of Tyco), in the electrosurgery market and Xomed
in the battery operated cautery market. Management believes that, based upon
recent developments, the Company has the ability to aggressively compete in
these markets.

## 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:

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.

## 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:

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 the Company medical
devises 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:

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 many Class I and most Class III devices when the
FDA has not called for 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:

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.

In July of 1998, we
received ISO 9001 and EN 46001 qualification of our products, a principal step
in the CE Mark certification process. 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
fourteen patents. No assurance can be given that competitors will not infringe
the Companys patent rights or otherwise create similar or non-infringing
competing products that are technically patentable in there own right. (See
competition)

## Liability
Insurance

The manufacture and sale of
medical products entail significant risk of product liability claims. The
Company currently maintains product liability insurance with combined coverage
limits of 5 million on a claim made basis. There is no assurance that this
coverage will be adequate to protect the Company from any liabilities it might
incur in connection with the sale or testing of its products. In addition, the
Company 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 2001 and 2000, totaled $463,133 and $513,020, respectively. The Company
has not incurred any direct costs relating to environmental regulations or
requirements.

## Employees

Presently the Company has a
total of approximately 108 employees. These consist of 5 executives, 10
administrative, 6 sales, and 87 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 Company medical  products.

## Purchase
Company Shares

The Company entered into an
agreement in December, 1999, whereby the Company agreed to repurchase 2,000,000
shares from a major shareholder group which had originally acquired its shares
in connection with the ART transaction in 1998. The purchase was completed in
November 2001.

## Item 2.
Properties.

The Company has executive
office space at 734 Walt Whitman Road, Melville, New York and its St.
Petersburg, Florida facility. The Company leases the executive offices in New
York for $1,350 per month and the lease expires in the year 2003.

As part of the purchase of
its St. Petersburg, Florida (manufacturing facility), the Company caused the
seller to acknowledge that it had previously conducted assessments to document
environmental conditions existing on the property, the results of which, are set
forth in a June 23, 1994 Contamination Assessment Report (CAR) and a January 27,
1995 Contamination Assessment Addendum (CARA). The Florida Department of
Environmental Protection (FDEP) stated in a letter, dated March 31, 1995, that
based on their review of the CARA, the CAR could not be approved and that
additional work was needed to be performed.

In February of 1998, the
environmental engineering firm Geo-Ambient conducted a second addendum to the
CAR, (CAR Addendum II) to complete the additional work requested by the FDEP.
Based on the results of CAR Addendum II, Geo-Ambient recommended to the FDEP
that a no further action status be granted for the site.

Based on the no
further action finding by Geo-Ambient and the anticipated issuance of an
SCRO by the FDEP, management of the Company had estimated the present value of
the cost of environmental work to be zero.

On February 16, 2001,
Meryman Environmental, Inc. conducted a ground water test and determined
the data continues to show an overall decrease in the mass contamination
at the site.

At the end of 2001 the
remediation was complete and the seller was released and his mortgage paid off.

## Item 3. Legal
Proceedings

There are no material legal
proceedings pending against the Company that the Company believes could have an
adverse effect on the Companys financial condition.

## Item 4.   Submission of Matters to a Vote of Security Holders

There were no matters
submitted to securities holders during the year ended December 31, 2001.

## PART II

## Item 5.
Markets and Market Prices

Bovies common stock
is traded in the over-the-counter market on the National Association of
Securities Dealers, Inc. Bulletin Board (OTC Bulletin Board). The
table shows the reported high and low bid prices for the common stock during
each quarter of the last eight quarters as reported by the OTC Bulletin Board
(symbol Bovi). These prices do not represent actual transactions and
do not include retail markups, markdowns or commissions.

`2001                               High            Low
               ----                               ----            ---

           1st Quarter                         $   .79         $  .68

           2nd Quarter                             .71            .45

           3rd Quarter                             .70            .51

           4th Quarter                             .82            .51


              2000
              ----

           1st Quarter                           $1.50           $.75

           2nd Quarter                            1.05            .65

           3rd Quarter                            1.50            .70

           4th Quarter                            1.50            .55`

On February 28, 2002, the
Closing bid for Bovies Common Stock as reported by the OTC Bulletin Board
was $.64 per share. As of February 28, 2002, the total number of shareholders of
the Companys Common Stock was approximately 1,500, of which approximately
700 are shareholders whose shares are held in the name of their broker or stock
depositories or the escrow agent holding shares for the benefit of Bovie Medical
Corporation shareholders and the balance are shareholders who keep their shares
registered in their own name.

## Item 6.   Management's Discussion and Analysis.

## Results of
Operations

Bovies net revenues
for 2001 were approximately $11.48 million as compared to $9.93 million for
2000. The increase in sales of $ 1.55 million (18%) was the net result of an
increase in revenues from the sale of cauteries and electrosurgery products. The
sales for medical products represented approximately 89% of total sales in 2001
and 2000.

The cost of goods sold
increased by $731,672 (15%) from $4,992,749 in 2000 to $5,724,421 in 2001. The
percentage of gross profit from sales increased from 49% in 2000 to 51% in 2001.
Increased margins are partly attributable to certain component manufacturing
being undertaken in Europe and the Far East. The difference in cost of sales and
gross profit were principally due to an increase in sales and decrease in cost
of sales of the Companys family of cauteries. For both years 2001 and 2000
cauteries accounted for 42% of sales, and 36% of cost of goods sold.

Research and development
expenses decreased by $49,887 (10%) from $513,020 to $463,133, from 2000 to
2001. The Company continued to invest in the development of electrosurgery
devices and other Company products. Research and development costs are made up
of material, engineering, and payroll costs.

The Company's  effective  federal income tax rate is 35%. As a result of the net
gain in the past two years, the Company has increased its projected net operating loss tax benefit asset by
$236,557. The net operating loss carryover is $8.02 million.

General and administrative
expenses of the Company increased $507,135 or 30% from $1.7 million in 2000 to
$2.2 million in 2001. This was mainly attributable to: 1. An increase in trade
show and advertising expenses of $135,000, 2. An increase of $71,800 in the cost
of discontinued European operations, 3. An increase in cost of general liability
insurance of $64,430 and, 4. A write down of obsolete inventory of $108,000.

Salaries and related costs
increased by 20% from $1.8 million in 2000 to $2.2 million in 2001. The increase
in salaries was due in part to the hiring of additional administrative, quality
control and technical personnel and the overtime needed primarily to produce
electrosurgery products.

Cost of professional
services decreased by 16% from $379,289 in 2000 to $320,480 in 2001.
Professional fees were primarily related to consulting, auditing and legal
costs.

Gain from operations was
$583,580 in 2001 as compared to an operating gain of $522,876 in 2000. Net gain
of the Company in 2001 was $784,293 as compared to net gain in 2000 of $583,580,
an increase of 56%.

Total other costs as a
percentage of sales were 44% in 2001 as compared to 45% in 2000. These costs
primarily increased due to the costs associated with the increased sales and
development of the electrosurgery line of products. For the year 2001, total
other costs were $5,176,333 as compared to $4,420,261 for 2000, a 17% increase.

The Company sells its
products through distributors both overseas and in US markets. New distributors
are contacted through responses to Company advertising in international and
domestic medical journals and domestic or international trade shows.

During 2001, international
sales of the Companys product lines increased by a total of $372,000
(23%). In 2000, these sales were $1.6 million (16% of total sales) as compared
to $2.0 million (17% of total sales) in 2001. The Company recently closed it
sales office in Germany and will market European operations from the U.S.A.

In the fourth quarter of
1998, the Company made agreements with various sales representatives to develop
markets for its new products and maintain customer relations. The
representatives receive an average commission of approximately 2% of sales in
their market areas. In 2001 and 2000, commissions paid were $220,109 and
$176,425, respectively, an increase of 25%.

An adequate supply of raw
materials is available from both domestic and international suppliers. The
relationship between the Company and its suppliers is generally limited to
individual purchase order agreements, supplemented by contractual arrangements
with key vendors to ensure availability of certain products. The Company has
developed multiple sources of supply where possible.

In order to provide  additional  working  capital,  the  Company  has  secured a
$1,500,000  credit  facility  with a  local  commercial  bank.  This  facility  is payable on demand by the bank.

## Financial
Condition

As of December 31, 2001,
cash totaled $578,354 as compared to $278,662 at December 31, 2000. Cash
provided by operating activities was $940,777 in 2001 compared to $657,500 in
2000. Net working capital of the Company was $2,924,709 and $2,506,882 on
December 31, 2001 and 2000, respectively.

The amount of cash used in
investing activities was $639,869 in 2000, compared to $519,308 in 2001. The
Company continued to invest in property, plant and equipment needed for future
business requirements, including manufacturing capacity. In the year 2000, the
Company invested $200,000 in a joint venture involving a new unipolar low
temperature plasma technology.

The net cash used by
financing activities was $154,043 in 2000 as compared to $121,777 in 2001. The
most significant item of financing activity in 2000 resulted from the
re-purchase of 400,000 shares of the Companys common stock for $152,000,
from a major shareholder group that acquired it in connection with the ART
transaction in 1998. The most significant activity in 2001 was the refinancing
of the Companys line of credit which was raised from $600,000 to
$1,500,000 and the refinancing of the Companys first mortgage on its St.
Petersburg facility from $372,652 to $475,000.

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

The Companys ten
largest customers accounted for approximately 59% of net revenues for 2001 as
compared to 58% in 2000. At December 31, 2001, the Companys ten largest
trade receivables accounted for approximately 63% of outstanding trade
receivables as compared to 58% in 2000.

## 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, including the Companys
battery-operated cauteries, have growth potential since these products have not
been affordable or effectively marketed outside the U.S. Due to these factors,
the Company has designed certain disposable products to be reusable. The Company
presently has a significant portion of the U.S. cautery market and expects
moderate growth in sales of cautery-related products to continue.

The Company has focused on  expanding  its line of  electrosurgery  products.
Electrosurgery  products  sold by the Company  include the  standard  stainless
steel electrodes, the Bovie Aaron 800, Bovie Aaron 900, Bovie Aaron 1200, Bovie Aaron 1250, and the Bovie
Aaron 2100 high frequency generators. Pursuant to perceived market demands, the
Company is developing a higher wattage generator and other specialty
electrosurgery devices.

From 2000 to 2001, the
Companys electrosurgery sales increased by 40% from $2.5 million to $3.5
million. The increase was mainly attributable to private label sales to other
electrosurgery manufacturers. With the introduction of new electrosurgery
products, the Company expects electrosurgery sales to continue to increase in
2002. The Company, through its private label capability, anticipates continued
opportunities in the domestic market. The electrosurgery product market is
larger than the Companys other traditional markets and is dominated by two
competitors, ValleyLab and Conmed. The global market for electrosurery products
exceeds $300 million annually.

## Non-Medical
Products

In 2001, the Company sales
of its flexible lighting products, used primarily in the automotive and
locksmith industries, totaled $885,000. One customer accounted for $650,000 of
such sales.

## Reliance on
Collaborative, Manufacturing and Selling Arrangements

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

## Liquidity and
Future Plans

The Companys focus is
to acquire, develop, and manufacture new product technologies and to expand its
manufacturing capabilities.

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, the Company satisfied
its first mortgage on the building it owns in St. Petersburg, Florida and
replaced it with a new first mortgage from its 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 banks present base rate of 4.75%. The Company pays a
principal payment of $2,639.00 plus interest each month. A balloon payment of
$316,660 is due in December, 2006.

In May, 2001, the Company
changed commercial lenders and increased its 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 4.75% per annum. The outstanding balance on the
credit line on December 31, 2001 was $150,000. The Company believes it is in
compliance with the banks covenants at December 31, 2001.

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.

## Item 7.
Financial Statements.

## Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There are no disagreements
with, or changes in, accountants.

## Part III

## Item 9.
Directors, Executive Officers, Promoters and Control Persons

The Companys
Executive Officers and directors are as follows:

`Name                    Position                Director Since
   ----                    --------                --------------

Andrew Makrides         Chairman of the             December,1982
                        Board, President,
                        CEO and Director

J. Robert Saron         President of Aaron
                        Medical Industries, Inc.    August, 1994
                        and Director

George Kromer           Director                    October 1995

Alfred V. Greco         Director                    April, 1998

Nancy Keller            Chief Financial Officer     Resigned in 2001


Moshe Citronowicz       Executive Vice President
                        Chief Operating Officer

Charles Peabody         Chief Financial Officer
                        Secretary`

Andrew Makrides, Esq. age 60, 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.

J.  Robert  Saron,  age 49,  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.

Alfred V. Greco,
Esq. age 66,  Director,  is the principal of Alfred V. Greco,
PLLC,  and has been counsel to the Company since its  inception.  Mr. Greco is a
member of the Bar of the State of New York and has been  engaged in the practice
of law for the  past 35 years in the  City of New  York.  The main  focus of Mr.
Greco's  experience  for the past 30 years has been in the area of corporate and
securities  law  during  which  he has  represented  a large  number  of  public
companies,  securities brokerage firms, executives and registered representative
and has developed a broad range of experience in administrative,  regulatory and
legal aspects of public companies. Mr.Greco graduated from the 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
61, 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 49,
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.

Charles Peabody, CPA, age
48, 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 a $18 million commercial refrigeration glass door
company. Mr. Peabody is a member of the American and Florida Institutes of
Certified Public Accountants.

Pursuant to the agreement
with Maxxim Medical, Inc. (Maxxim), Kenneth Davidson (a former
officer of Maxxim) was designated by Maxxim to serve as a director of Bovie
Medical Corp. In October, 2000, Mr. Davidson resigned as a director of Maxxim.
Pursuant to instructions from Maxxim that Mr. Davidson has ceased acting as a
director of the Company, management has deemed that he has officially resigned
as a director of Bovie. Maxxim has elected not to replace or redesignate a
replacement for Mr. Davidson.

## Item 10.
Remuneration

The following table sets
forth the compensation paid to the executive officers of the registrant for the
three years ended December 31, 2001:

`Summary Compensation Table

                          Annual Compensation          Long Term Compensation
                          -------------------          ----------------------

                                                             Securities
                                                             Underlying
 Name and                                        Restricted     Stock
 Principal                        (a)      (b)    Stock       Option
 Position        Year    Salary    Bonus    Other  Awards(#)   SARS(#)  Pay-outs
 --------        ----    ------    -----    -----  ---------   -------  --------

Andrew Makrides  2001   $146,446   2,567   12,352      --    155,000          --
the Board        2000   $123,764   2,388    7,235      --         --          --
President, CEO   1999   $116,312   2,198    9,263      --         --          --
Chairman of
the Board

J.Robert Saron   2001   $199,485    --  3,62418,018    --    155,000          --
Director         2000   $167,528    --  3,38112,556    --         --          --
President of     1999   $166,181    --  3,24514,409    --         --          --
Aaron Medical
and Director

Moshe Citronowicz
Executive
Vice President-  2001   $149,697    2,671   17,205     --    155,000          --
Chief Operating  2000   $122,076    2,485   12,711     --         --          --
Officer          1999   $116,193    2,439   14,564     --         --          --

Manfred Sablowski
Vice President
Sales &
Marketing        2001   $105,361      407    2,360     --     25,000          --

Richard Kozloff
Quality Control
Officer          2001    $106,096   1,955    7,124     --     35,000          --

(b) Other compensation consists of medical insurance and auto.`

The following two tables  summarize:  1. The options granted in the last fiscal year and 2. the aggregated option exercises in the last
fiscal year and the fiscal year end option values.

`Option/SAR Grants in Last Fiscal Year

                              Individual Grants
--------------------------------------------------------------------------------
(a)                     (b)              (c)              (d)              (e)

                     Number of        % of Total
                    Securities       Options/SARs
                    Underlying        Granted to       Exercise
                      Option/         Employees in      or Base       Expiration
Name                    SARs          Fiscal Year      Price($/Sh)        Date
--------------------------------------------------------------------------------



Andrew Makrides       155,000             13.67           $ .50   April 24, 2011

Moshe Citronowicz     155,000             13.67             .50   April 24, 2011

Robert Saron          155,000             13.67             .50   April 24, 2011

Manfred Sablowski      25,000              2.20             .50   April 24, 2011

Richard Kozloff        35,000              3.09             .50   April 24, 2011

Total Issued        1,134,000              100%`

`Aggregated Option Exercises in Last
                  Fiscal Year and Fiscal Year End Option Values

                                                                         Value
                                                                          of
                                                        Number of    Unexercised
                                                      Unexercised   In-The-Money
                                                       Options at     Options at
                   Shares                   Options    Fiscal Year       Fiscal
                  Acquired on   Value       Received     End(#)           Year
Name              Exercise(#)  Realized       2001     Exercisable       End(a)
----             ------------  --------    ---------   ------------  -----------

Andrew Makrides     --            --        155,000        375,000       27,900
J. Robert Saron     --            --        155,000        395,000       27,900
Moshe Citronowicz   --            --        155,000        330,000       27,900
Manfred Sablowski   --            --         25,000         25,000        4,500
Richard Kozloff     --            --         35,000        100,000        6,500`

(a) As of December 31,
2001, the exercise prices of the options which were issued in 2001 were lower
than the closing sale prices on that day for the common stock by $.18 per share.
The bid price as reported on OTC Bulletin Board on December 31, 2001 was $.68.

Outside  Directors are compensated in their  capacities as Board members through
option grants. The Company's Board of Directors  presently consists of J. Robert
Saron, Andrew Makrides,  Chairman CEO, and President,  George W. Kromer, Jr. and
Alfred Greco. 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 an
officer and director of Alfred V Greco PLLC, counsel to the corporation which
earned legal fees from the Company of $90,136 during 2001. In the year 2001,
Messrs. Kromer and Greco were each granted 100,000 options as members of the
Board of Directors.

There have been no changes
in the pricing of any options previously or currently awarded.

In February 2002, the
Company extended employment contracts with certain of its officers for three
years. The following schedule shows all contracts and terms with officers of the
Company.

`Bovie Medical Corporation
                               Officers' Contracts
                                December 31, 2001

                        Contract     Expiration    Contractual      Auto
                          Date         Date(1)       Base Pay     Allowance
                          ----         -------       --------     ---------

Andrew Makrides         01/01/98     12/31/2007      $  92,773      $ 6,310
J. Robert Saron         01/01/98     12/31/2007        136,123        6,310
Moshe Citronowicz       01/01/98     12/31/2007         99,905        6,310`

(1)      Includes a two year and a three year extension- Salaries increase annually pursuant to a contract formula.

Item 11.  Security Ownership of Certain Beneficial Owners and Management of Bovie

The following table sets forth certain information as of December 31, 2001, 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       Nature       Percentage
Name and                             Shares           of            of
Address                 Title       Owned (i)       Ownership     Ownership(i)
-------                 -----       ---------       ---------     ------------


Maxxim Medical Inc.    Common      3,000,000      Beneficial        18.1%
 10300 49th St. North
 Clearwater, FL 33762

Directors and Officers
----------------------

Andrew Makrides        Common        690,800(ii)  Beneficial         4.2%
 734 Walt Whitman Road
 Melville, NY 11746

George Kromer          Common        305,000(iii) Beneficial         1.8%
 P.O. Box 188
 Farmingville, NY 11738

Alfred Greco           Common        301,500(iv)  Beneficial         1.8%
 666 5th Ave.
 New York, NY 10103

J. Robert Saron        Common        827,976 (v)   Beneficial        5.0%
 Ashley Drive
 Seminole, FL

Moshe Citronowicz      Common        504,591 (vi)  Beneficial        3.0%
 7100 30th Avenue N.
 St. Petersburg, FL 33710

Officers and Directors
as a group                           2,629,867(vii)                  16.0%`

(i)      Based on common shares of 13,204,755 and 3,239,500 options outstanding to acquire shares. Officers and directors have
         1,655,000 options to acquire shares at December 31, 2001.

(ii)  Includes 375,000 shares owned by Mr. Makrides  reserved pursuant to 10 year options to  purchase  shares of the  Company.  His
         options  range from $.50 for 155,000 to $1.15 for 50,000.

(iii)    Constitute  305,000 shares  reserved  pursuant to 10 year options owned by Mr. Kromer to purchase  shares of the Company.  His
         options range from $.50 for 100,000 shares to $1.125 for 105,000 shares.

(iv)  Include 250,000 shares reserved pursuant to 10 year options  exercisable up to $.75 per share.

(v)      Includes 395,000 shares reserved pursuant to 10 year options exercisable between $1.125 and $0.50 per share for 155,000
         shares.

(vi)  Includes 330,000 shares reserved pursuant to 10 year options exercisable at $.75 per share owned by Mr. Citronowicz.

(vii) Includes 1,655,000 shares reserved for options.

Item 12.   Certain Relationships and Related Transactions

In October,  1999, the Company  settled its dispute with this former officer for
alleged sums claimed to be due him for interest  and  consulting  fees  incurred
during his affiliation with Robert Speiser, the Company.  The claim was settled in the amount of $150,000, payable  $50,000 upon
execution of the agreement and $100,000 over 20 months at $5,000 per month. As of December 31, 2001, the Company had satisfied its
debt to the former officer.

See "Certain  Relationships  and Related  Transactions".  Presently there are no lawsuits between the Company and any former officer.

Alfred V. Greco a director and the principal of Alfred V. Greco PLLC, the Company's counsel.  Mr. Greco's company received  $90,136
in legal fees during 2001. See "Security  Ownership of Certain Beneficial Owners and Management.

George  Kromer,  a director,  also serves as a  consultant  to the Company  with
average consulting compensation of approximately $1,200 per month.

Item 13.   Exhibits and Reports on Form 8-k

No Form 8-k was filed in the fourth quarter of 2001.

## SIGNATURES

Pursuant  to the  requirements  of the  Section  13 or 15(d)  of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto duly  authorized,  in the City of St.
Petersburg, State of Florida on March 15, 2002.

`Bovie Medical Corporation



                                         By: S/ Andrew Makrides
                                         ----------------------
                                         Andrew Makrides
                                         Chairman of the Board
                                         President`

Pursuant to the  requirements  of the Securities and Exchange Act of 1934,  this
report has been signed by the following  persons on behalf of the  Registrant in
the capacities and on the dates indicated.

`Signatures                                   Title and Date

s/Andrew Makrides                                     Chairman of Board
-----------------------------------------------------
Andrew Makrides                                       Chief Executive Officer
                                                      President, Director
                                                      March 15, 2002

S/J. Robert Saron                                     Director
-----------------------------------------------------
J. Robert Saron                                       March 15, 2002



S/George W. Kromer                                    Director
-----------------------------------------------------
George W. Kromer                                      March 15, 2002



s/Charles Peabody                                     Chief Financial Officer
-----------------------------------------------------
Charles Peabody                                       March 15, 2002



s/Alfred Greco                                        Director
-----------------------------------------------------
Alfred Greco                                          March 15, 2002`

## PART II

## ITEM 7.
FINANCIAL STATEMENTS

## BOVIE MEDICAL
CORPORATION INDEX TO FINANCIAL STATEMENTS

`Contents                                          Page
       --------                                          ----

Independent Auditors' Report                              F2

Consolidated Balance Sheet at
 December 31, 2001 and 2000                               F3

Consolidated Statements of Operations for the
 years ended December 31, 2001 and 2000                   F5

Consolidated Statements of Shareholders' Equity
 for the years ended December 31, 2001 and 2000           F7

Consolidated Statements of Cash Flows for the
 years ended December 31, 2001 and 2000                   F8

Notes to Consolidated Financial Statements                F11

Consent of Certified Public Accountant                    F32`

# Bloom & Co., LLP.
50 Clinton Street, Suite 502
Hempstead, NY 11550 516 486-5900

# INDEPENDENT AUDITORS
REPORT

# 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, 2001 and 2000, 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 auditing standards generally accepted in the United States of
America. 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, 2001 and 2000, 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.

# BOVIE MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2001 and 2000

# ASSETS

`2001               2000
                                               ----               ----
Current assets:

Cash                                       $  578,354        $  278,662
Trade accounts receivable, net              1,200,933         1,256,049
Inventories                                 2,419,827         1,994,564
Prepaid expenses                              128,045           111,343
Deferred tax asset                            386,200           175,010
Other Assets                                      779           111,179
                                            ---------         ---------

Total current assets                        4,714,138         3,926,807

Property and equipment, net                 1,531,658         1,552,179

Other assets:

Repair parts                                  300,272           317,698
Trade name                                  1,509,662         1,603,527
Patent rights, net                            314,691           277,644
Deposits                                        8,124            35,719
Investment Joint Venture                      200,000           200,000
                                            ---------         ---------

                                            2,332,749         2,434,588
                                            ---------        ----------

   Total Assets                           $ 8,578,545       $ 7,913,574
                                            =========         =========`

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

# BOVIE MEDICAL CORPORATION
                           CONSOLIDATED BALANCE SHEET
                           DECEMBER 31, 2001 and 2000
                                   (Continued)

# LIABILITIES AND STOCKHOLDERS' EQUITY

# Liabilities

`2001              2000
                                             ----              ----
Current liabilities:

Accounts payable                         $  373,375        $  439,144
Accrued expenses                            499,850           350,425
Notes payable                               672,309           572,931
Due to shareholders                          32,705            57,425
Due to joint venture                             --           100,000
                                          ---------         ---------

Total current liabilities                 1,578,239         1,519,925


Stockholders' equity:


Preferred stock 10,000,000 shares
authorized, none outstanding                   --                --

Common stock par value $.001;
  40,000,000 shares authorized,
  13,204,755 and 13,685,334,
  issued and outstanding on
  December 1, 2001 and
  December 31, 2000 respectively,            13,274            13,756
  Additional paid in capital             19,814,334        19,991,488
  Accumulated deficit                   (12,827,302)      (13,611,595)
                                         ----------        ----------

Total stockholders' equity                7,000,306         6,393,649
                                         ----------        ----------


Total liabilities and
  stockholders' equity                 $  8,578,545      $  7,913,574
                                         ==========        ==========`

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

# BOVIE MEDICAL CORPORATION
                      CONSOLIDATED STATEMENT OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

`2001              2000
                                            ----              ----

Sales                                  $ 11,484,334       $ 9,935,886
Cost of sales                             5,724,421         4,992,749
                                         ----------         ---------

Gross Profit                              5,759,913         4,943,137

Other costs:
Research and development                    463,133           513,020
Professional services                       320,480           379,289
Salaries and related costs                2,183,143         1,818,489
Selling, general and
 administration                           2,209,577         1,702,442
Write down of fixed assets                       --             7,021
                                          ---------         ---------

Total other costs                         5,176,333         4,420,261
                                          ---------         ---------

Income (loss) from operations               583,580           522,876
                                          ---------         ---------

Other income and (expense):

Interest income                              10,109            28,746
Interest expense                           ( 70,693)         ( 66,803)
Miscellaneous                                50,107            15,809
                                            -------            ------

                                           ( 10,477)         ( 22,248)
                                             ------            ------

                                            573,103           500,628

Income tax expense                         (200,586)         (175,219)
Income tax benefit                          411,776           175,219
                                            -------           -------

Net income (loss)                        $  784,293        $  500,628
                                            =======           =======`

# BOVIE MEDICAL CORPORATION
                      CONSOLIDATED STATEMENT OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
                                   (CONTINUED)

`2001              2000
                                              ----              ----

   Net earnings per share                   $  .06            $  .04
                                              ====              ====

   Weighted average number
     of common shares outstanding       13,445,045         13,896,991
                                        ==========         ==========`

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

# BOVIE MEDICAL CORPORATION
                  CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

`Warrants          Preferred              Common
                          Outstanding     Shares    Stock      Shares      Stock
                          -----------     ------    -----      ------      -----

Balance as of
 January 1, 2000            2,145,500       --        --    14,045,334   $14,116

Common shares issued for
 cash at $ .75 per share   (   40,000)      --        --        40,000        40

Subscription receivable
 paid in cash                      --       --        --          --          --

Common shares purchased
 from shareholder for cash
 at $.38 per share and
 retired                           --       --        --      (400,000)    (400)

Income for period                  --       --        --          --         --
                              -------     ----       ---       -------    ------

Balance as of
 December 31, 2000          2,105,500       --        --    13,685,334    13,756

Warrants issued             1,134,000

Warrants forfeited         (  330,500)

Common shares purchased
 from shareholder for
 cash at $.38 per share
 and retired                                                 ( 480,579)    (481)

Subscription receivable
 paid in cash

Income for period                  --       --        --             --       --
                            ---------      ---       ---    -----------   ------

Balance as of
 December 31, 2001          2,909,000      --        --     13,204,755   $13,275
                            =========     ===       ===     ==========    ======`

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

# BOVIE MEDICAL CORPORATION
                  CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

`Paid-in
                              Capital             Deficit            Total
                              -------             -------            -----

Balance as of
January 1, 2000             20,111,957        (14,112,223)       $ 6,013,850

Common shares
 issued for cash
 at $.75 per share              29,960                 --             30,000

Subscription
 receivable
 paid in cash                    1,171                 --              1,171

Common shares
 purchased from
 shareholder for
 cash at $.38 per
 share and retired            (151,600)                --           (152,000)

Income for period                   --            500,628            500,628
                            ----------         ----------          ---------

Balance as of
 December 31, 2000          19,991,488        (13,611,595)         6,393,649

Warrants issued

Warrants forfeited

Common Shares
 Purchased from
 shareholder for
 cash at $.38 per
 share and retired          ( 182,518)                --           (182,999)

Subscription receivable
 paid on Cash                   5,365                 --              5,365


Income for period                  --            784,293            784,293
                            ---------         ----------          ---------

Balance as of
December 31, 2001          19,814,335        (12,827,302)         7,000,308
                           ==========         ==========          =========`

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, 2001 AND 2000

`2001           2000
                                                   ----           ----

Cash flows from operating activities:

Net income                                   $  784,293      $  500,628

Adjustments  to reconcile  net income
to net cash  provided by operating
activities:

Depreciation and amortization                   524,242         396,810
Tax benefit of loss carryforward               (211,190)
Change in assets and liabilities:
Trade receivables                                55,116        ( 46,001)
Prepaid expenses                              (  16,702)       ( 24,898)
Inventories                                   ( 407,837)       (312,172)
Other receivables                               110,400          19,964
Accounts payable                              (  65,769)         36,890
Accrued expenses                                149,425          86,279
Short Term Notes                                 18,799              --
                                               --------         -------


Total adjustments                               156,484         156,872
                                               --------         -------

Net cash provided
 operations                                  $  940,777       $ 657,500
                                               ========         =======

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, 2001 AND 2000
                                   (Continued)

`2001             2000
                                                 ----             ----

Net cash provided by
 operating activities                       $ 940,777          $ 657,500
Cash flows from investing activities:

Increase in fixed assets                    ( 172,940)          (256,081)
Decrease in security deposits                  27,595           ( 30,954)
Purchase of technology                      ( 273,963)          (252,834)
Partnership contribution                    ( 100,000)          (100,000)
                                              -------            -------

Net cash (used in) investing
 activities                                 ( 519,308)          (639,869)

Cash flows from financing activities;

Common shares issued                               --             30,000
Loans from shareholders                      ( 24,720)          ( 43,553)
Repurchase and retirement of common stock   ( 183,000)          (152,000)
Reduction in subscription receivable            5,365              1,170
Pay off mortgage                            ( 394,422)          ( 39,660)
Borrowing - line of credit                         --             50,000
Mortgage payable                              475,000                 --
                                             --------            -------
Net cash (used in)
 financing activities                       ( 121,777)          (154,043)
                                             --------            -------

Net increase in cash                          299,692           (136,412)

Cash at beginning of year                     278,662            415,074
                                             --------            -------

Cash at end of year                         $ 578,354          $ 278,662
                                             ========            =======


Cash paid during the twelve months ended December 31:

                                              2001                 2000
                                              ----                 ----

Interest                                    $ 69,421            $ 64,500
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, 2001 AND 2000

## SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

## FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 2000

1. The Company  agreed to fund the Jump/Bovie joint  venture for  $200,000 of which it
   funded $100,000 in 2000.

## FOR THE TWELVE
MONTHS ENDED DECEMBER 31, 2001

There were no non-cash
investing on financing activities in 2001.

## BOVIE MEDICAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 1.
SIGNIFICANT ACCOUNTING POLICIES

## Use of Estimates in the Preparation of Financial Statements

The preparation of
consolidated financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

## Consolidated
Financial Statements

The accompanying
consolidated financial statements include the accounts of Bovie Medical
Corporation and its wholly owned subsidiary Aaron Medical Industries, Inc.
Intercompany transaction accounts have been eliminated in consolidation.

## Fair Values of
Financial Instruments

Cash and cash equivalents. Holdings
of highly liquid investments with maturities of three months or less, when
purchased, are considered to be cash equivalents. The carrying amount reported
in the balance sheet for cash and cash equivalents approximates its fair values.
The amount of federally insured cash deposits was $100,000 as of December 31,
2001.

The carrying amount of
trade accounts receivable, accounts payable, prepaid and accrued expenses, bonds
and notes payable, and amounts due to shareholders, as presented in the balance
sheet, approximates fair value.

## Inventories
and Repair Parts

Inventories.  Inventories  are  stated at the lower of cost or  market.  Cost is
determined  principally on the average  actual cost method.  Inventory at fiscal
year-end  was as follows:

`Raw materials              $1,222,349
               Work in process               614,342
               Finished goods                583,136
                                           ---------

                   Total                  $2,419,827
                                           =========`

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

## BOVIE MEDICAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 1.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

As of December 31, 2001, the inventory of parts was as follows:

`Raw materials                                         $ 520,491
       Allowance for excess or obsolete parts                 (220,219)
                                                               -------

                                                             $ 300,272
                                                               =======`

## Long-lived
Assets

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

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

Intangible assets consist
of patent rights and goodwill. Goodwill represents the excess of the cost of
assets of the acquired companies over the values assigned to net tangible
assets. These intangibles are being amortized by the straight-line method over a
5-year period. Effective January 1, 1996, the Company adopted the Statement of
Financial Accounting Standards (SFAS) No.121, Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
Of. In accordance with SFAS No.121, the Company reviews long-lived assets
for impairment whenever events or changes in business circumstances occur that
indicate that the carrying amount of the assets may not be recovered. The
Company assesses the recovery ability of long-lived assets held, and to be used,
based on undiscounted cash flows and measures the impairment, if any, using
discounted cash flows. Adoption of SFAS No.121 did not have a material impact on
the Companys consolidated financial position, operating results or cash
flows.

## Revenue
Recognition and Product Warranty

Revenue from sales of
products is generally recognized upon shipment to customers. The Company
warrants its products for one year. The estimated future costs of warranties are
not material. Income is recognized in the financial statements (and the customer
billed) when products are shipped from stock. The Company now includes revenues
from freight in gross sales and cost of freight in cost of goods sold.

## BOVIE MEDICAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

## Environmental
Remediation

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

## Advertising
Costs

All advertising costs are
expensed, as incurred. The amount of advertising costs were $213,263 and
$152,599 for 2001 and 2000, respectively.

## Earnings Per
Common and Common Equivalent Share

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

In 1999, the Company had a
net loss. The outstanding options were antidilutive and were not included in
computing the net loss per share.

## Research and
Development Costs

The Company is continually
conducting research and development activities utilizing a team approach that
involves its engineering, manufacturing, and marketing resources. Although the
Company has developed a number of its own products, most of its research and
development efforts have historically been directed towards product improvement
and enhancement of previously developed or acquired products. Research and
development expenses are charged to operations. Only the development costs that
are purchased from another enterprise and have alternative future use are
capitalized and are amortized over estimated useful life of the asset, generally
five years.

## Income Taxes

The Company and its
wholly-owned subsidiary file a consolidated federal income tax return.

Income taxes are accounted
for under the asset and liability method. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or

## BOVIE MEDICAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 1.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

In October 1995, the
Financial Accounting Standards Board issued the Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123). SFAS No. 123 allows a company to adopt a new fair
value based method of accounting for its stock based compensation plans, or to
continue to follow the intrinsic method of accounting prescribed by the
Accounting Principles Board (APB) Opinion No. 25 Accounting for Stock to
Employees.

The Company has elected to
continue to follow APB Opinion 25 for its accounting for stock based
compensation. Under this policy:

2. Stocks issued in
accordance with a plan for past or future services of an employee are allocated
between the expired costs and future costs. Future costs are charged to the
periods in which the services are performed.

If the Company had adopted
SFAS No. 123, the Companys net income and earnings per years ended
December 31, 2001 and 2000 would have been impacted as discussed in Note 9.

## New Accounting
Standards

In June 1997, the Financial
Accounting Standards Board issued SFAS 130, Reporting Comprehensive
Income. SFAS 130 establishes standards for reporting and display of
comprehensive income and its components. The components of comprehensive income
refer to (revenues, expenses, gains, and losses that are excluded from net
income under current accounting standards, including foreign currency
translation items, and minimum pension liability adjustments. SFAS 130 requires
that all items recognized under accounting standards as components of
comprehensive income be displayed in equal prominence with other financial
statements; the total of other comprehensive income for a period is required to
be transferred to a component of equity that is separately displayed in a
statement of financial position at the end of the accounting period. SFAS 130 is

## BOVIE MEDICAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 1.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

effective for both interim
and annual periods beginning after December 15, 1997. In 1998, the Company
adopted SFAS 130.

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

In June 1997, the Financial
Accounting Standards Board issued SFAS 131, Financial Reporting for
Segments of Business Enterprise. SFAS 131 supersedes the industry
segment concept of SFAS 14 with a management approach concept
as the basis for identifying reportable segments. SFAS 131 is effective for
fiscal years beginning after December 15, 1997. In 1998, the Company adopted
SFAS 131. The Company does not believe the adoption of SFAS No. 131 will have a
material affect on its consolidated financial statements.

In February 1998, FASB
issued SFAS No. 132, Employers Disclosures About Pensions and Other
Post-retirement Benefits which became effective for the fiscal years
beginning after December 15, 1997. The statement standardizes the disclosure
requirements for pension plans and other post retirement benefits. To the extent
practicable, the statement requires additional information on changes in the
benefit obligations and fair value of plan assets. The Company adopted the SFAS
132. The adoption of SFAS No. 132 did not have a material impact on the
Companys consolidated financial statements, the results of operations, or
the notes thereto.

In June 1998, FASB issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities which became effective for the Company in fiscal 2000.
Historically, the Company has not utilized such instruments or engaged in such
activities; therefore, the adoption of SFAS No. 133 will not impact the
Companys consolidated financial statements, the results of operations, or
the notes thereto.

## NOTE 2.
DESCRIPTION OF BUSINESS

Bovie Medical
Corporation(the Company) was incorporated in 1982, under the laws of
the State of Delaware and has its principal executive office at 734 Walt Whitman
Road, Melville, New York 11747.

The Company is actively
engaged in the business of manufacturing and marketing medical products and
developing related technologies. Aaron Medical Industries, Inc.
(Aaron), a 100% owned subsidiary based in St. Petersburg, Florida is
engaged in the marketing and distributing of medical products. Although the
Companys largest current product line is battery operated cauteries, the
Company has shifted its focus to the manufacture and marketing of electrosurgery
generators and electrosurgery disposables. This new focus is

## BOVIE MEDICAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 2.  DESCRIPTION OF BUSINESS(Continued)

evident in the development
of the Aaron 800, Aaron 900, Aaron 1200, Aaron 1250 and Aaron 2100, high
frequency desiccators (generators). The Aaron 1250 and Aaron 2100 are designed
for todays rapidly expanding surgi-center market.

The Company also
manufactures a variety of specialty lighting instruments for use in
ophthalmology, general surgery, hip replacement surgery, and for the placement
of endotracheal tubes. An industrial version of this light is distributed
commercially through various retail outlets and stores.

Bovie manufactures and
markets its products both under private label and the Bovie/Aaron label to
distributors worldwide. Additionally, Bovie/Aaron has original equipment
manufacturing (OEM) agreements with other medical device manufacturers. These
OEM arrangements, combined with private label and the Bovie/Aaron label, allow
the Company to gain greater market share for the distribution of its products.

## Company
Products

## Battery Operated
Cauteries

Battery operated cauteries
constitute the Companys largest product line. Cauteries were originally
designed for precise hemostasis (to stop bleeding) in ophthalmology. The current
use of cauteries has been substantially expanded to include sculpting woven
grafts in bypass surgery, vasectomies, evacuation of subungual hematoma (smashed
fingernail) and for arresting bleeding in many types of surgery. Battery
operated cauteries are primarily a sterile one-time use product. The Company
manufactures more types of cauteries than any other company in the world,
including but not limited to, a line of replaceable battery and tip cauteries,
which are popular in overseas markets.

## BOVIE MEDICAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 2.  DESCRIPTION OF BUSINESS(Continued)

## Electrosurgery
Products

The Company 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 the Companys second largest product line. Our
accessory electrosurgery products are substantially compatible with all major
manufacturers electrosurgery generator products. All 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 surgical procedures in gynecology, urology, plastic surgery,
general surgery and dermatology.

## Bovie/Aaron
800 and 900 High Frequency Desiccators

The Aaron 800 and Aaron 900
are low powered office based generators designed primarily for dermatology and
plastic surgery. The units are 30 watt high frequency desiccators used mainly in
doctors offices for removing small skin lesions and growths.

## Bovie/Aaron
1200

The Company has developed a
120 watt, full-featured electrosurgery generator 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

The Company has developed a
120 watt multipurpose electrosurgery generator. The unit also features monopolar
and bipolar functions with pad sensing. The product has received a positive
response from the OEM community and is being produced in at least two private
label formats in addition to the Bovie/Aaron label.

## Aaron 2100

The Company has developed,
a 200 watt multipurpose electrosurgery generator, designed for the rapidly
expanding surgi-center market in the United States. The unit features both
monopolar and bipolar functions, has pad and tissue sensing plus nine blended
cutting settings. This powerful unit has the capability to do practically any
procedure performed today in the surgi-center or outpatient setting.

## New Generators

In addition to the Aaron
2100 and 1250, the Company is continuing to develop and expand its range of
electrosurgery generators. The Company has two generators currently in the
design and development phase. The first new

## BOVIE MEDICAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 2.  DESCRIPTION OF BUSINESS(Continued)

## New
Generators(Continued)

generator is expected to be
released in the third quarter of 2002 and the second is expected to be ready for
release near the end of 2002.

## Jump Unipolar
Low Temperature Focused Plasma Technology

>In February, 2000, the
Company entered into a Joint Venture Agreement with a German corporation, Jump
Agentur Fuer Elektrotechnik GMBH. Pursuant to the agreement, Bovie has advanced
$200,000 to the partnership to cover costs of further European research the
production of two commercial prototypes. Bovie has made its facilities in
Florida available for development, manufacturing and marketing of the products
of the joint venture and is responsible to expend its best efforts to
secure all necessary financing for the research, development and marketing of
the products estimated to be an amount up to $1,500,000.

The joint venture acquired
an exclusive license to produce and market any surgical device utilizing this
technology. As of December 31, 2001, Bovie had advanced $200,000 to the joint
venture and expensed $24,924 in development costs plus engineering costs
estimated at $45,000.

The technology incorporates
a gas ionization process utilizing only one working electrode. The device
produces a stable thin focused beam of ionized gas that can be controlled in a
wide range of temperatures and intensities, providing the surgeon with
precision, minimal invasiveness, and an absence of conductive currents during
surgery.

The device has been
developed and patented in both Europe and the U.S. Bovie is currently building
its first prototypes for eventual FDA submission and approval. The initial
intended uses are in the areas of dermatology and plastic surgery. Other
contemplated uses for the technology are: cardiovascular, thoracic,
gynecological, trauma and other surgeries.

## Battery
Operated Medical and Industrial Lights

>The Company manufactures a
variety of specialty lighting instruments for use in ophthalmology as well as
patented specialty lighting instruments for general surgery, hip replacement
surgery and for the placement of endotracheal tubes in emergency and pro-surgery
procedures. These lighting instruments have also been adapted for commercial and
industrial use and are sold to automotive mechanics through Companies such as
Snap-On Tools, MAC and Matco.

## Nerve Locator
Stimulator

The Company manufactures a
nerve locator stimulator primarily used for identifying motor nerves in hand and
facial reconstructive surgery. This instrument is a self-contained, battery
operated unit, used for single surgical procedures.

## BOVIE MEDICAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 2.  DESCRIPTION OF BUSINESS(Continued)

## Manufacturing,
Marketing and Distribution

Burrows, McKesson, HBOC,
IMCO, NDC (Abco, Cida and Starline), Owens & Minor, and Physician Sales
& Service.

## NOTE 3. TRADE
ACCOUNTS RECEIVABLE

`Trade accounts receivable                              $ 1,277,882
      Less: allowance for doubtful accounts                       76,949
                                                               ---------

      Trade accounts receivable, net                         $ 1,200,933
                                                               =========`

## NOTE 4.  PROPERTY, PLANT AND EQUIPMENT

`Equipment                                            $  667,353
        Building                                                637,485
        Furniture & Fixtures                                439,850
        Leasehold Improvements                                  302,865
        Molds                                                   351,562
                                                              ---------
                                                              2,399,115
        Less: accumulated depreciation                          867,460
                                                              ---------

        Net property, plant, and equipment                   $1,531,658
                                                              =========`

## NOTE 5. RENTAL AGREEMENTS

## BOVIE MEDICAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 5.  RENTAL AGREEMENTS (CONTINUED)

`Year                       Amount
                                ----                       ------

                                2002                     $ 55,212
                                2003                       37,696`

Total consolidated rent
expense for the Company was $36,306 in 2001 and $22,973 in 2000.

## NOTE 6. DUE TO
SHAREHOLDERS

A former Chief Executive
Officer (CEO) and past President made cash loans to the Company during the
period October 12, 1990 to December 31, 1993 in the amount of $180,500. In
addition to these loans, the past CEO advanced his own cash of $76,100 in the
form of loans for product development, travel and other expenses. Interest on
these loans were at 9% to 12% and had been accrued from inception. In October
1999, this dispute was settled for $150,000 which included a consulting fee. The
Company paid $50,000 down and $5,000 per month for 20 months. During 2001, the
Company satisfied its obligation to its former officer.

In response to the
recission offer made by Bovie Medical Corporation to Aarons former
shareholders, certain shareholders owning 46,800 shares have not contacted the
Company. The amount due to these shareholders, including $13,918 of accrued
interest, is $32,705.

## NOTE 7.
INTANGIBLE ASSETS

`Classification                                   Amount
      --------------                                   ------
      Electrosurgery Technology                     $  803,534
      Multifunction Cautery                             59,400
      Patent rights                                     87,769
      Goodwill                                         188,000
      Trade name                                     1,877,299
                                                     ---------
                                                     3,016,002
      Less: Accumulated Amortization                 1,191,649
                                                     ---------

                                                    $1,824,353
                                                     =========`

## BOVIE MEDICAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 7.  INTANGIBLE ASSETS (CONTINUED)

The cost of patents,
trademarks, patent rights, technologies and copyrights acquired are being
amortized on the straight-line method over their remaining lives, ranging from 2
to 20 years. Amortization expense charged to operations in 2001 and 2000 was
$151,529 and $164,474, respectively.

## NOTE 8.
LONG-TERM DEBT

`Bonds payable                              $  20,000
         Mortgage payable                             475,000
         Term loan                                     27,309
         Line of credit- bank                         150,000
                                                      -------

                                                    $ 672,309
                                                      =======`

## Mortgage
Payable

Mortgage payable at 10% was
issued to the former landlord for the purchase of the property located at 7100
30th Avenue North, St. Petersburg, Florida was secured on June 26, 1995 for
$500,000 payable in monthly installments of $5,673.06, inclusive of interest,
until July 1,1998 when a balloon payment of $ $442,733 was due. In December
2001, the Company refinanced the mortgage due to Krause with a first mortgage on
its property at 7100 30th Avenue North St. Petersburg. The Company
cleared the environmental problem with the property and was able to replace and
refinance the Krause mortgage with a new first mortgage of $475,000 from its
commercial lender. The interest the Company pays on the mortgage is variable at
the banks base rate which is 4.75% at presently. The Company makes principal
payments of $2,639 per month plus interest. The mortgage has a balloon payment
of $320,562 due in November of 2006.

## 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 net of
$150,000 already advanced. 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, 2001 was $150,000.

## NOTE 9. OPTIONS

As of December 31, 2001,
outstanding options were as follows:

## BOVIE MEDICAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 9. OPTIONS (CONTINUED)

`Number of Options                         Exercise
      Currently Exercisable                         Price

             50,000                                  1.150
            307,000                                  1.125
             30,000                                  1.120
          1,388,000                                  0.750
          1,134,000                                  0.500
          ---------                                  -----

          2,909,000                                $  .703 (a)
          =========                                  =====`

(a) The amount of $.70 represents the weighted average exercise price of the
outstanding options.

In 1996, the Company set aside
1,200,000 common shares for employee stock options and issued 921,000
non-statutory stock options to employees exercisable at $.75 to $1.15 per share.

In 1997, as part of the
1996 plan, the Company issued 143,000 options to employees under of the employee
benefit plan exercisable at $.75 to $1.15 per share.

As per the Companys
1998 services and compensation plan, we set aside 1,200,000 common shares for
employee stock options and issued 800,000 options. In the fourth quarter of
1999, the Company authorized the issuance of 165,000 options from its 1998 plan,
of which 145,000 were to non-executive employees.

In 2001, 330,500 1996 stock
options expired and were canceled, 577,500 5 year options previously granted
under the 1996 plan were replaced by additional 5 year options which effectively
extended the original terms an additional 5 years.

In 2001, the Company set
aside 1,200,000 shares of common stock and granted 1,134,000 options to
employees to purchase that stock at $.50 per share. The bid price of Bovie
shares was $.50 per share on the date of the grant.

All outstanding exercisable
stock options expire at various dates through December, 2011. At December 31,
2001, a total of 2,909,000 shares of common stock have been reserved for
issuance. Options are currently exercisable with a weighted average life of
approximately seven years.

The Company has adopted the
disclosure-only provision of the Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation. Accordingly, no compensation cost has been recognized for
the common stock option plans.

## BOVIE MEDICAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 9. OPTIONS (CONTINUED)

The Company used the
Black-Scholes Model to determine the fair value of the options with the
following weighted average assumptions, zero dividend yield; expected volatility
of 50%; and risk free interest rate of 6% and expected average life of seven for
the 2,909,000 options issued in 1998 and 2001, respectively.

Had the compensation cost
for the Companys two stock option issuances been determined based on the
fair value at the grant date for awards in 1996 consistent with the provisions
of SFAS No.123, the Companys net earnings and earnings per share would
have been reduced to the pro forma amounts indicated below:

`2001                  2000
                                                  ----                  ----

Net earnings - as reported)                    $ 784,293             $ 500,628
Net earnings  - pro forma                        684,391               500,628
Gain(Loss) per share                             .06                      .04
Gain (Loss) per share-pro forma                  .05                      .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 10. NET
OPERATING LOSS CARRYFORWARDS

As of December 31, 2001, the
components of deferred tax assets were as follows:

`Deferred tax assets:                           2001             2000
                                                       ----             ----


        Accounts receivable                              76,949     $   57,647
        Inventories                                     390,458        289,457
        Net operating loss carryforwards              2,980,000      3,181,000
        Patent rights, primarily due to
         amortization                                   124,747        103,747
                                                      ---------      ---------

        Total gross deferred tax assets               3,572,154      3,631,851

        Less: Valuation allowance                     3,185,954      3,456,841
                                                      ---------      ---------

        Net deferred tax assets - current           $   386,200     $  175,010
                                                      =========      =========`

## BOVIE MEDICAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 10.  NET OPERATING LOSS CARRYFORWARDS (CONTINUED)

The  Company  had net  operation  losses  (NOLs) of  approximately  $8,024,000  at  December  31,  2001.  These NOLs and  corresponding
estimated tax assets, computed at a 35% tax rate, expire as follows:

`Year loss          Expiration           Loss         Estimated
        Incurred              Date             Amount        Tax Asset
        --------              ----             ------        ---------

         1987                 2007            718,000          251,000
         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
                                          -----------        ---------

          Total                          $  8,512,000       $2,980,000
                                          ===========        =========`

Under the provisions of SFAS 109, NOLs  represent  temporary  differences  that
enter into the  calculation of deferred tax assets.  Realization of deferred tax
assets associated with the NOL is dependent upon generating  sufficient  taxable
income prior to their expiration.

Management  believes  that there is a risk that certain of these NOLs may expire
unused and,  accordingly,  has established a valuation  allowance  against them.
Although realization is not assured for the remaining deferred tax assets, based
on the historical trend in sales and profitability,  sales backlog, and budgeted
sales of the Company's wholly owned and consolidated  subsidiary,  Aaron Medical
Industries,  Inc.,  management  believes it is likely that they may not be totally realized through future taxable  earnings.  However,
the net deferred tax assets could be reduced in the near term if  management's  estimates  of taxable  income  during the  carryforward
period are significantly reduced.

The valuation  allowance of $3,456,841  as of December 31, 2000 was  decreased by $270,887.
The change in valuation allowance was a consequence of using $201,000 of tax loss carryforward, recognizing additional tax assets of
$211,200 and reserving for additional allowances for accounts receivable and inventory loss of $120,303, and patent amortization of $21,000.  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 the Company's effective tax rate is as follows:

## BOVIE MEDICAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 10.  NET OPERATING LOSS CARRYFORWARDS (CONTINUED)

`Tax at statutory rate                                                34%
State income taxes, net of U.S. federal benefit                     2.4%
Tax benefit of loss carryforward                                  (36.2%)
                                                                   -----

Effective tax rate                                                  -0-%
                                                                   -----`

## NOTE 11.  RETIREMENT PLANS

The  Company  and/or  its  subsidiary  provides a  tax-qualified  profit-sharing
retirement plan under section 401k of the Internal  Revenue Code the ("Qualified
Plans") for the benefit of eligible  employees with an accumulation of funds for
retirement  on a  tax-deferred  basis  and  provides  for  annual  discretionary
contribution to individual trust funds.

All  employees are eligible to  participate  if they have one year of service in
the Company.  The employees  may make  voluntary  contributions  to the plan of up to 15% of their annual  compensation.  The Company'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.

The Company has made a contribution during 2001 and 2000 of $47,776 and $32,188
respectively,  for the benefit of its  employees.  The Company also maintains a group health and dental  insurance  plan. The employees
are eligible to  participate  in the plan  after  three  months  of full-time service in the Company.

## NOTE 12. RELATED PARTY TRANSACTIONS

A director,  Alfred V. Greco Esq. is the principal of Alfred Greco Pllc, the Company's  counsel.  Mr. Greco's Company  received $90,136
in legal fees. See "Security  ownership" of certain  beneficial
owners and management.

A director,  George Kromer also serves as a consultant to the Company with an average consulting  compensation of approximately  $1,200
per month.

## NOTE 13.  PROPERTIES

As part of the  purchase  of 7100 30th Avenue  North,  St.  Petersburg,  Florida
(manufacturing  facility),  the seller  acknowledged  it had  previously  conducted  assessments to document  environmental  conditions
existing on the property.  The results of the assessment review are set forth in a June 23, 1994 Contamination  Assessment Report (CAR)
and a January 27, 1995  Contamination  Assessment  Addendum (CARA).  The Florida  Department of Environmental  Protection (FDEP) stated
in a letter,  dated March 31, 1995,  that based on their review of the CARA,  the CAR could not be approved  and that  additional  work
was needed to be performed.

## BOVIE MEDICAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 13. PROPERTIES (CONTINUED)

In February of 1998, the environmental  engineering firm Geo-Ambient conducted a
second  addendum to the CAR, (CAR Addendum II) to complete the  additional  work
requested  by the FDEP.  Based on the results of CAR  Addendum  II,  Geo-Ambient
recommended  to the FDEP that a "no  further  action"  status be granted for the
site.

A letter dated  November 22, 1999 and written by Ambient  Technologies  Inc.  ("ATI) that states that based on the ground water quality
monitoring data obtained and existing site conditions, ATI recommends that a "no further action" status be granted for the site.

On February  16,  2000,  Meryman  Environmental,  Inc.  conducted a ground  water test and  determined  "the data  continues to show an
overall  decrease  in the mass contamination  at the site." In the Fourth Quarter of 2001, the site was declared remediated and the Krause Mortgage was paid off.

## NOTE 14.  COMMITMENTS AND CONTINGENCIES

There was no commitment for construction or purchase of property, plant, and equipment approximated at December 31, 2001.

The Company has employment agreements with four key employees.  These agreements
are for terms extending to December 31, 2007 and call for base salaries of up to $136,000.

In  1996,  1998 and  2001,  the  Company  established  stock  option  plans  under  which  officers,  key  employees  and  non-employee
directors  may be granted  options to purchase  shares of the Company's  authorized,  but  unissued,  Common Stock.  Under its existing
Employee Stock Option Plans,  the Company has Options  outstanding as of December 31, 2001 for employees to purchase  2,909,000  shares
of common stock at exercise prices ranging from $.50 to $1.15.

## BOVIE MEDICAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 14.  COMMITMENTS AND CONTINGENCIES (CONTINUED)

## Product Liability

The Company currently has product  liability  insurance which it believes to be
adequate for its business. The Company's existing policy expires in May, 2002.

Bank Line of Credit and Term Loan

The financial covenants of the bank are:

A.Maximum  Liability to Net Worth Ratio:  On a consolidated  basis,  the Company 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.

B.Minimum Adjusted  Tangible Net Worth:  The Company shall maintain a Minimum  Tangible  Adjusted Net Worth of $4,000,000 at all
times, defined as total net worth minus intangibles and related party receivables.

C.Minimum Fixed Charge Coverage:  The Company  shall  maintain a Minimum  Fixed Charge  Coverage of 2:00:1:00  measured at the
           Company'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).

The Company believes it is in compliance with the bank's covenants at December 31, 2001.

## NOTE 15.  EARNINGS PER SHARE

In 2001, the Company  sustained a $.06 gain per share.  Because the Company's  average option exercise price for its options was higher
than the market  price of the shares on December  31, 2001,  the options had an  anti-dilutive  effect and were not used to compute any
diluted earnings per share.

## NOTE 16. REPURCHASE OF SHARES

The Company  entered into an agreement  in December,  1999,  whereby the Company
agreed  to  repurchase  2,000,000  shares  over  time from a major  shareholder  group  which had  originally  acquired  its  shares in
connection with the ART transaction in 1998.  The Company completed the repurchase in November of 2001.

## BOVIE MEDICAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 17. INDUSTRY SEGMENT REPORTING

Bovie has 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 non-
surgical segment produces and sells lighting instruments for commercial use.

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 2001 and 2000.

Bovie's  reportable  segments are strategic  business units that offer different
products  and  services.  They are  managed  separately  because  each  business
requires different technology and marketing strategies.

The  Company's  principal  markets  are the  United  States,  Europe,  and Latin
America,  with the U.S. and Europe being the largest  markets based on revenues.
The Company's major products include  cauteries,  electrosurgery  generators,  Bend-A-lights,  nerve locators,  reusable  penlights and
electrodes.  Cauteries,  disposable and replaceable,  account  for 41% and 42% of  Company's  sales  for 2001 and  2000, respectively.

In 2001, one significant customer accounted for 10.6% of total sales.  This customer accounted for 34% of electrosurgery sales.
Another  significant  customer  accounted  for 6% and 8% of  revenues  in 2001 and  2000.  In 2000,  that  customer  accounted  for $.9
million of non-medical  sales,  which is 83% of that segments sales.  In 2001, that customer  accounted for $.65 million in sales which
was 73% of that segments sales.

The Company's ten largest customers accounted for  approximately 53% of net revenues for 2000  and 59% of revenue in 2001.

## BOVIE MEDICAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 17. INDUSTRY SEGMENT REPORTING (CONTINUED)

At December 31, 2000 and 2001, receivable from the Companys' 10 largest customers accounted for  approximately  58% and 63% of
outstanding accounts receivable, respectively.

Summary  information by geographic  area and  significant  industry  segments for
years ended December 31, 2001 and 2000 were as follows:

`Additional Information
                     Operating     Gain   Identifiable    Int.    Int.
                       Sales      (Loss)     Assets      Income   Exp.   Deprec.
                      -----      ------     ------      ------   ---   ---------

2001 - (in thousands)
Geographic Area
Domestic               $ 9,467     $ 436     $ 8,468         8      57     181
International            2,017       137         110         2      13      40
                        ------      ----       -----         -      --     ---

                      $ 11,484     $ 573     $ 8,578        10      70     221
                        ======      ====       =====        ==      ==     ===

Segment
Medical Products      $ 10,599     $ 738     $ 8,182       $ 9    $ 63   $ 208
Non-medical Products       885      (165)        396         1       7      13
                        ------       ---       -----        --      --     ---

                      $ 11,484     $ 573     $ 8,578        10      70     221
                        ======       ===       =====        ==      ==     ===

2000 - (in thousands)
Geographic Area
Domestic               $ 8,291     $ 340     $ 7,713        24      56     144
International            1,644       160         101         9      11      29
                       -------       ---     -------        --      --     ---

                       $ 9,935     $ 500     $ 7,814        33      67     173
                         =====       ===       =====        ==      ==     ===

Segment
Medical Products       $ 8,822     $ 630     $ 7,033        26      60     148
Non-medical products     1,113      (130)        781         3       7      25
                         -----       ---     -------        --      --     ---

                       $ 9,935     $ 500     $ 7,814      $ 29    $ 67   $ 173
                         =====       ===       =====        ==      ==     ===`

## BOVIE MEDICAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 17.
INDUSTRY SEGMENT REPORTING

`2001              2000
                                                 ----              ----

Assets and liabilities outside the U.S.A.
 Total assets                                   $ 110             $ 100
Total liabilities                                 -0-               -0-
Net property, plant
 and equipment                                    -0-               -0-`

The Company had no assets (other than certain trade  receivables) or liabilities
outside the United States, in the two years ended December 31, 2001.

During 2001, a portion of the Company's  consolidated net sales and consolidated
gain from operations was derived from foreign operations. Foreign operations are
subject to certain risks inherent in conducting business abroad, including price
and  exchange   controls,   limitations  on  foreign   participation   in  local
enterprises, possible nationalization or expropriation, potential default on the
payment of government  obligations with attendant impact on private  enterprise,
political   instability  and  health  care  regulations  and  other  restrictive
governmental  actions.  Changes in the relative  value of currencies  take place
from time to time and could adversely affect the Company's results of operations
and  financial  condition.  The  future  effects  of these  fluctuations  on the
operations of the Company and its subsidiaries are not predictable.

## CONSENT OF CERTIFIED PUBLIC ACCOUNTANT

We consent to the  incorporation  by  reference  in this  Annual  Report on Form
10-KSB of Bovie Medical Corporation of our report dated March 13, 2002, included
in the Annual Report to Stockholders of Bovie Medical Corporation.