UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2018

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 0-12183

BOVIE MEDICAL CORPORATION

(Exact name of registrant as specified in its charter)



Delaware		11-2644611
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

5115 Ulmerton Road, Clearwater, FL 33760

(Address of principal executive offices, zip code)

(727) 384-2323

(Registrant’s telephone number)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes: ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):



Large accelerated filer	o		Accelerated filer	o
Non-accelerated filer	oý	~~(Do not check if a smaller reporting company)~~	Smaller reporting company	ý
			Emerging growth company	o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.				o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes: o No ý

As of ~~July 25,~~October 29, 2018, 33,203,517 shares of the registrant’s $0.001 par value common stock were outstanding.

Table of Contents

BOVIE MEDICAL CORPORATION

INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the quarterly period ended ~~June~~September 30, 2018

(Unaudited)



		Page
Part I.	Financial Information	2

Item 1.	Financial Statements	2
	Consolidated Balance Sheets at ~~June~~September 30, 2018 and December 31, 2017	2
	Consolidated Statements of Operations for the three and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017	3
	Consolidated Statement of Changes in Stockholders’ Equity for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017	4
	Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017	5
	Notes to Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1416
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2325
Item 4.	Controls and Procedures	2325

Part II.	Other Information	2426

Item 1.	Legal Proceedings	2426
Item 1A.	Risk Factors	2426
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2426
Item 3.	Defaults Upon Senior Securities	2426
Item 4.	Mine Safety Disclosures	2426
Item 5.	Other Information	2426
Item 6.	Exhibits	2527
	Signatures	2628

Table of Contents

BOVIE MEDICAL CORPORATION

PART I. Financial Information

ITEM 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data, Unaudited)


	June 30, 2018			December 31, 2017			September 30, 2018		December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	7,875		$	9,949		$	40,663	$	9,949
Restricted cash	660			719			—		719
Trade accounts receivable, net of allowance of $180 and $204	5,592			4,857
Short term investments							55,480		—
Trade accounts receivable, net of allowance of $311 and $204							4,080		4,857
Inventories, net	7,533			6,526			6,037		4,274
Prepaid expenses and other current assets	568			496			627		433
Current assets of discontinued operations							—		2,315
Total current assets	22,228			22,547			106,887		22,547
Property and equipment, net	6,314			6,408			5,842		6,033
Brand name and trademark	1,510			1,510
Purchased technology and license rights, net	235			179			32		67
Goodwill	185			185			185		185
Deposits	115			92			46		92
Other assets	67			67			122		67
Non-current assets of discontinued operations							—		1,997
Total assets	$	30,654		$	30,988		$	113,114	$	30,988

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,745		$	1,583		$	2,348	$	1,583
Accrued severance and related	439			1,242			95		1,242
Accrued payroll	394			447			163		447
Current portion of mortgage note payable	239			239			—		239
Accrued and other liabilities	2,420			2,462
Accrued taxes and other liabilities							19,066		214
Current liabilities of discontinued operations							—		2,248
Total current liabilities	6,237			5,973			21,672		5,973
Mortgage note payable, net of current portion	2,335			2,455			—		2,455
Note payable	140			140			140		140
Deferred tax liability	368			368			—		368
Derivative liabilities	—			20			—		20
Total liabilities	$	9,080		$	8,956		$	21,812	$	8,956
STOCKHOLDERS’ EQUITY
Common stock, $0.001 par value; 75,000,000 shares authorized; 33,055,131 issued and 32,912,556 outstanding as of June 30, 2018 and 75,000,000 shares authorized; 33,021,170 issued and 32,878,091 outstanding as of December 31, 2017, respectively	33			33
Common stock, $0.001 par value; 75,000,000 shares authorized; 33,763,019 issued and 33,620,444 outstanding as of September 30, 2018 and 75,000,000 shares authorized; 33,021,170 issued and 32,878,091 outstanding as of December 31, 2017, respectively							33		33
Additional paid-in capital	51,244			50,495			51,798		50,495
Accumulated deficit	(29,703		)	(28,496		)
Retained earnings (accumulated deficit)							39,471		(28,496		)
Total stockholders’ equity	21,574			22,032			91,302		22,032
Total liabilities and stockholders’ equity	$	30,654		$	30,988		$	113,114	$	30,988

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

Table of Contents

BOVIE MEDICAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data, Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2018			2017			2018			2017
Sales	$	11,475		$	9,799		$	21,391		$	18,188		$	3,672		$	2,651		$	10,760		$	6,576
Cost of sales	5,198			4,757			10,124			8,920			1,151			738			3,490			2,314
Gross profit	6,277			5,042			11,267			9,268			2,521			1,913			7,270			4,262
Other costs and expenses:
Research and development	816			696			1,378			1,405			613			487			1,890			1,600
Professional services	681			480			1,187			870			628			421			1,815			1,291
Salaries and related costs	2,118			2,243			4,234			4,703			2,119			1,826			5,734			6,016
Selling, general and administrative	2,929			2,929			5,599			5,333			1,957			2,012			6,280			6,003
Total other costs and expenses	6,544			6,348			12,398			12,311			5,317			4,746			15,719			14,910
Loss from operations	(267		)	(1,306		)	(1,131		)	(3,043		)	(2,796		)	(2,833		)	(8,449		)	(10,648		)
Interest expense, net	(38		)	(36		)	(72		)	(67		)
Interest income (expense), net													105			(36		)	33			(103		)
Other losses													(155		)	—			(155		)	—
Change in fair value of derivative liabilities	46			38			20			126			—			(69		)	20			57
Total other income (expense), net	8			2			(52		)	59
Loss before income taxes	(259		)	(1,304		)	(1,183		)	(2,984		)
Income tax expense	13			4			24			9
Net loss	$	(272	)	$	(1,308	)	$	(1,207	)	$	(2,993	)
Total other expense, net													(50		)	(105		)	(102		)	(46		)
Loss from continuing operations before income taxes													(2,846		)	(2,938		)	(8,551		)	(10,694		)
Income tax (benefit) expense													(2,408		)	6			(2,384		)	15
Net loss from continuing operations													$	(438	)	$	(2,944	)	$	(6,167	)	$	(10,709	)
Income from discontinued operations, net of tax													540			1,699			5,062			6,471
Gain on sale of the Core Business, net of tax													69,072			—			69,072			—
Total income from discontinued operations, net of tax													69,612			1,699			74,134			6,471
Net income (loss)													$	69,174		$	(1,245	)	$	67,967		$	(4,238	)

Loss per share
Loss per share from continuing operations
Basic													$	(0.01	)	$	(0.09	)	$	(0.19	)	$	(0.35	)
Diluted													$	(0.01	)	$	(0.09	)	$	(0.19	)	$	(0.35	)

Income per share from discontinued operations
Basic													2.09			0.05			2.25			0.21
Diluted													1.99			0.05			2.19			0.21

Income (loss) per share
Basic	$	(0.01	)	$	(0.04	)	$	(0.04	)	$	(0.10	)	$	2.08		$	(0.04	)	$	2.06		$	(0.14	)
Diluted	$	(0.01	)	$	(0.04	)	$	(0.04	)	$	(0.10	)	$	1.98		$	(0.04	)	$	2.00		$	(0.14	)

Weighted average number of shares outstanding - basic	32,890			30,860			32,884			30,860			33,275			31,078			33,014			30,932
Weighted average number of shares outstanding - dilutive	32,890			30,860			32,884			30,860			34,934			31,078			33,952			30,932

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

Table of Contents

BOVIE MEDICAL CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands, Unaudited)


	Preferred Stock			Common Stock													Preferred Stock					Common Stock
	Shares	Par Value		Shares		Par Value		Additional Paid-In Capital			Accumulated Deficit			Total			Shares		Par Value			Shares		Par Value		Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)			Total
Balance December 31, 2016	976	$	1	30,860		$	31	$	49,625		$	(23,434	)	$	26,223		976		$	1		30,860		$	31	$	49,625		$	(23,434	)	$	26,223
Options exercised																	—		—			21		—		275			—			275
Conversion of Series B convertible preferred to common stock																	(976	)	(1		)	1,951		2		(1		)	—			—
Stock based compensation	—	—		—		—		341			—			341			—		—			—		—		532			—			532
Stock swap to acquire options and warrants																	—		—			—		—		(275		)	—			(275		)
Net loss	—	—		—		—		—			(2,993		)	(2,993		)	—		—			—		—		—			(4,238		)	(4,238		)
Balance June 30, 2017	976	$	1	30,860		$	31	$	49,966		$	(26,427	)	$	23,571
Balance September 30, 2017																	—		$	—		32,832		$	33	$	50,156		$	(27,672	)	$	22,517

Balance December 31, 2017	—	$	—	32,878		$	33	$	50,495		$	(28,496	)	$	22,032		—		$	—		32,878		$	33	$	50,495		$	(28,496	)	$	22,032
Options exercised	—	—		37		—		83			—			83			—		—			1,278		—		3,103			—			3,103
Warrants exercised	—	—		40		—		95			—			95			—		—			40		—		95			—			95
Stock based compensation	—	—		—		—		749			—			749			—		—			—		—		1,238			—			1,238
Stock swap to acquire options and warrants	—	—		(42	)	—		(178		)	—			(178		)
Net loss	—	—		—		—		—			(1,207		)	(1,207		)
Balance June 30, 2018	—	$	—	32,913		$	33	$	51,244		$	(29,703	)	$	21,574
Stock exercise to acquire options and warrants																	—		—			(576	)	—		(3,133		)	—			(3,133		)
Net income																	—		—			—		—		—			67,967			67,967
Balance September 30, 2018																	—		$	—		33,620		$	33	$	51,798		$	39,471		$	91,302

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

Table of Contents

BOVIE MEDICAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, Unaudited)


	Six Months Ended June 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Cash flows from operating activities
Net loss	$	(1,207	)	$	(2,993	)
Adjustments to reconcile net loss to net cash used in operating activities:
Net income (loss)							$	67,967		$	(4,238	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Gain on sale of the Core Business, net of tax							(69,072		)	—
Depreciation and amortization	371			356			429			527
Provision for inventory obsolescence	(52		)	83
(Loss) gain on disposal of property and equipment, net	(1		)	2
Gain on disposal of property and equipment, net							—			3
Stock based compensation	749			341			1,238			532
Change in fair value of derivative liabilities	(20		)	(126		)	(20		)	(57		)
Unrealized gain on short term investments							(47		)	—
Provision for allowance for doubtful accounts	82			159			123			128
Changes in current assets and liabilities:
Benefit of deferred taxes							(368		)	—
Changes in current assets and liabilities, net of effect of disposition:
Trade receivables	(817		)	(355		)	654			528
Prepaid expenses	(72		)	(125		)	(188		)	(221		)
Inventories	(955		)	(1,507		)	(1,706		)	(1,177		)
Deposits and other assets	(23		)	(72		)	(9		)	9
Accounts payable	1,162			471			765			(219		)
Accrued and other liabilities	(898		)	(128		)	(2,601		)	(250		)
Net cash used in operating activities	(1,681		)	(3,894		)	(2,835		)	(4,435		)
Cash flows from investing activities
Purchases of technology, property and equipment	(332		)	(151		)
Net cash used in investing activities	(332		)	(151		)
Purchases of property and equipment							(203		)	(431		)
Proceeds from the disposition of Core business							91,095			—
Purchases of marketable securities							(55,433		)	—
Net cash from investing activities							35,459			(431		)
Cash flows from financing activities
Proceeds from stock options/warrants exercised							65			—
Repayment of mortgage note payable	(120		)	(119		)	(2,694		)	(179		)
Net cash used in financing activities	(120		)	(119		)	(2,629		)	(179		)
Net change in cash, cash equivalents and restricted cash	(2,133		)	(4,164		)	29,995			(5,045		)
Cash, cash equivalents and restricted cash, beginning of period	10,668			15,235			10,668			15,235
Cash, cash equivalents and restricted cash, end of period	$	8,535		$	11,071		$	40,663		$	10,190

Cash paid for:
Interest paid	$	72		$	67
Interest (income) expense, net							$	(33	)	$	103

Non cash investing activities:
Cashless exercise of stock options/warrants							3,133			275

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

Table of Contents

BOVIE MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. BASIS OF PRESENTATION

Unless the context otherwise indicates, the terms “we,” “our,” “us,” “Bovie,” and similar terms refer to Bovie Medical Corporation and its consolidated subsidiaries.

We reclassified the financial results of the Core business to discontinued operations and from segment results for all periods presented.

The accompanying unaudited consolidated financial statements have been prepared based upon SEC rules that permit reduced disclosure for interim periods. For a more complete discussion of significant accounting policies and certain other information, please refer to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017. These financial statements reflect all adjustments that are necessary for a fair presentation of results of operations and financial condition for the interim periods shown, including normal recurring accruals and other items. The results for the interim periods are not necessarily indicative of results for the full year.

NOTE 2. DISPOSITION OF THE CORE BUSINESS

On ~~July 9,~~August 30, 2018, we ~~entered into~~closed on a previously disclosed definitive asset purchase agreement with Specialty Surgical Instrumentation Inc., a Tennessee Corporation and wholly-owned subsidiary of Symmetry Surgical Inc. (“Symmetry”), pursuant to which the Company ~~will divest~~divested and ~~sell~~sold the ~~Core~~Company's electrosurgical "Core" business segment and related intellectual property, including the Bovie^® brand and trademarks, to Symmetry for gross proceeds of $97 million in cash. ~~The~~

In connection with the asset purchase agreement, ~~was approved by~~we entered into a previously disclosed Electro Surgical Disposables and Accessories, Cauteries and Other Products Supply Agreement with Symmetry for a four-year term, whereby we will manufacture certain Core products and sell them to Symmetry at agreed upon prices. Any revenue, costs and expenses resulting from this agreement are netted and reported in our Consolidated Statements of Operations as Other gains or losses.

Additionally, in connection with the ~~Company’s Board~~asset purchase agreement, we entered into a previously disclosed Manufacture and Supply Agreement with Symmetry for a ten-year term, whereby we will manufacture certain products and sell them to Symmetry at agreed upon prices. Revenue, costs and expenses resulting from this agreement are reported in our Consolidated Statements as income or loss from operations of ~~Directors and is subject to customary closing conditions, including approval by~~our OEM reporting segment.

Table of Contents

BOVIE MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

We concluded that the ~~Company’s stockholders, and expiration or termination~~divestiture of the ~~applicable waiting period under~~Core business met the ~~Hart-Scott-Rodino Antitrust Improvements Act~~criteria for discontinued operations set forth in ASC No. 205, Presentation of ~~1976.~~Financial Statements. The ~~Company is retaining~~table below summarizes the cash consideration and ~~will continue to operate its Advanced Energy and OEM businesses, its facilities in Clearwater, FL and Sofia, Bulgaria, and certain intellectual property related to specialty generators.~~the carrying values of disposed assets at the disposition date of August 30, 2018 included as part of discontinued operations:



(In thousands)
Gross consideration from the sale of the Core Business	$	97,000
Closing and transaction costs	5,905
Net proceeds from sale of the Core Business before taxes	$	91,095

Book value of the Core Business
Current assets:
Inventories, net	2,195
Prepaid expenses and other current assets	57
Total current assets	2,252
Property and equipment, net of depreciation	375
Brand name and trademark	1,510
Purchased technology and license rights, net of depreciation	112
Total non-current assets	1,997
Total assets	$	4,249

Current liabilities:
Accrued inventory liability	2,305
Total current liabilities	2,305
Total book value of the Core Business	$	6,554

Net gain on sale of the Core Business before taxes	84,541
Income tax expense	15,469
Net gain on sale of the Core Business after income taxes	$	69,072

NOTE 2.3. INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined on a first in, first out basis. Finished goods and work-in-process inventories include material, labor and overhead costs. Factory overhead costs are allocated to inventory manufactured in-house based upon labor hours.

Inventories consisted of the following:


(In thousands)	June 30, 2018			December 31, 2017			September 30, 2018			December 31, 2017
Raw materials	$	6,093		$	5,163		$	5,032		$	5,163
Finished goods	3,301			3,276			1,998			1,024
Gross inventories	9,394			8,439			7,030			6,187
Less: reserve for obsolescence	(1,861		)	(1,913		)	(993		)	(1,913		)
Net inventories	$	7,533		$	6,526
Net inventories of continuing operations							6,037			4,274
Finished goods of discontinued operations							—			2,252
Net inventories of continuing and discontinued operations							$	6,037		$	6,526

Table of Contents

BOVIE MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

NOTE 3.4. INTANGIBLE ASSETS

Intangible assets consisted of the following:


(In thousands)	June 30, 2018			December 31, 2017			September 30, 2018			December 31, 2017
Brand name and trademark (life indefinite)	$	1,510		$	1,510
Brand name and trademark (life indefinite) of discontinued operations							$	—		$	1,510

Purchased technology (5-17 year lives)	$	1,623		$	1,513		$	1,447		$	1,401
Purchased technology (5-17 year lives) of discontinued operations, net							—			112
Less: accumulated amortization	(1,388		)	(1,334		)	(1,415		)	(1,334		)
Purchased technology, net	$	235		$	179		$	32		$	179

Goodwill	$	185		$	185		$	185		$	185

~~Table of Contents~~

~~BOVIE MEDICAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Unaudited)~~

The Bovie brand name and trademarks were included in the definitive asset purchase agreement with Specialty Surgical Instrumentation Inc., as previously disclosed.

With respect to our trademark and brand name, we continue to market products, release new products and product extensions and maintain and promote these trademarks and brand name in the marketplace through legal registration and such methods as advertising, medical education and trade shows. Based on our annual impairment testing performed, these trademarks and brand names will generate cash flow for an indefinite period of time. Therefore, we believe our trademarks and brand name intangible assets are not impaired. Goodwill results from our acquisition of Bovie Bulgaria, EOOD.

Amortization of purchased technology was $27,000 and ~~$54,000~~$81,000 for the three and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, respectively. Amortization expense is classified within selling, general and administration expenses in the consolidated statements of operations.

Table of Contents

BOVIE MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

NOTE 4.5. RECENT ACCOUNTING PRONOUNCEMENTS

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The purpose of this ASU is to reduce the cost and complexity of evaluating goodwill for impairment. It eliminates the need for entities to calculate the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Under this ASU, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying value exceeds the reporting unit’s fair value. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted, however we have chosen not to do so. The amendment is not expected to have a material impact on our financial condition or results of operations.

ASU No. 2016-18, Restricted Cash Flows provides guidance on the presentation of restricted cash and restricted cash equivalents, which are now included with cash and cash equivalents when reconciling the beginning and ending cash amounts shown on the statements of cash flows. Using the retrospective transition method required under the standard, the Company has adjusted the presentation of its Condensed Consolidated Statements of Cash Flows for all periods presented. The adoption of ASU No. 2016-18 did not have any other impact on the Company’s Consolidated Financial Statements.

The following table provides additional detail by financial statement line item of the ASU 2016-18 impact in our Consolidated Statement of Cash Flows for the ~~six~~nine months ended ~~June~~September 30, ~~2018 and~~ 2017:


(In thousands)	As Reported (Pre-Adoption)			ASU 2016-18 Impact		Reported (Post Adoption)			As Reported (Pre-Adoption)			ASU 2016-18 Impact		Reported (Post Adoption)
Six Months Ended June 30, 2018
Cash, cash equivalents and restricted cash, beginning of period	$	9,949		$	719	$	10,668

Six Months Ended June 30, 2017
Nine Months Ended September 30, 2017
Net change in cash, cash equivalents and restricted cash	$	(4,164	)	$	—	$	(4,164	)	$	(5,045	)	$	—	$	(5,045	)
Cash, cash equivalents and restricted cash, beginning of period	14,456			779		15,235			14,456			779		15,235
Cash, cash equivalents and restricted cash, end of period	$	10,292		$	779	$	11,071		$	9,411		$	779	$	10,190

ASU No. 2014-09 (ASC 606), Revenue from Contracts with Customers became effective for us beginning with the first quarter of 2018, and adopted the new accounting standard using the modified retrospective transition approach. The modified retrospective transition approach recognized any changes from the beginning of the year of initial application through retained earnings with no restatement of comparative periods. We record revenue under ASC 606 at a single point in time, when control is transferred to the customer, which is consistent with past practice. We will continue to apply our current business processes, policies, systems and controls to support recognition and disclosure under the new standard. Based on the results of the evaluation, we have determined that the adoption of the new standard presents no material impact on our consolidated financial statements. Application of the transition requirements of the new standard did not have a material impact on opening retained earnings. We have disaggregated revenue by segment and geography in Note 13 Geographic and Segment Information. Based on the current state of our business, management does not see a material reason to disaggregate further.

No other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material impact on our consolidated financial statements or disclosures.

Table of Contents

BOVIE MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

NOTE 5.6. EARNINGS PER SHARE

We compute basic earnings per share (“basic EPS”) by dividing the net income or loss by the weighted average number of common shares outstanding for the reporting period. Diluted earnings per share (“diluted EPS”) gives effect to all dilutive potential shares outstanding. The following table provides the computation of basic and diluted earnings per share.


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except per share data)	2018			2017			2018			2017			2018			2017			2018			2017
Numerator:
Net loss available to common shareholders	$	(272	)	$	(1,308	)	$	(1,207	)	$	(2,993	)
Effect of dilutive securities:
Derivative liability - warrants	—			—			—			—
Numerator for dilutive loss per common share	$	(272	)	$	(1,308	)	$	(1,207	)	$	(2,993	)
Net loss from continuing operations													$	(438	)	$	(2,944	)	$	(6,167	)	$	(10,709	)
Total income from discontinued operations, net of tax													69,612			1,699			74,134			6,471
Net income (loss)													$	69,174		$	(1,245	)	$	67,967		$	(4,238	)

Denominator:
Weighted average shares used to compute basic loss per common share	32,890			30,860			32,884			30,860
Weighted average shares used to compute basic income (loss)													33,275			31,078			33,014			30,932
Effect of dilutive securities:
Derivative liability - warrants	—			—			—			—
Denominator for dilutive loss per common share	32,890			30,860			32,884			30,860
Stock options													1,659			—			938			—
Denominator for dilutive income (loss) per share													34,934			31,078			33,952			30,932

Basic loss per common share	$	(0.01	)	$	(0.04	)	$	(0.04	)	$	(0.10	)
Diluted loss per common share	$	(0.01	)	$	(0.04	)	$	(0.04	)	$	(0.10	)
Loss per share from continuing operations
Basic													$	(0.01	)	$	(0.09	)	$	(0.19	)	$	(0.35	)
Diluted													$	(0.01	)	$	(0.09	)	$	(0.19	)	$	(0.35	)

Income per share from discontinued operations
Basic													$	2.09		$	0.05		$	2.25		$	0.21
Diluted													$	1.99		$	0.05		$	2.19		$	0.21

Income (loss) per share
Basic													$	2.08		$	(0.04	)	$	2.06		$	(0.14	)
Diluted													$	1.98		$	(0.04	)	$	2.00		$	(0.14	)

Anti-dilutive instruments excluded from diluted loss per common share:
Warrants	14			3			10			16			—			7			—			13
Options	1,061			500			821			805			—			373			—			771

810

Table of Contents

BOVIE MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

NOTE 6.7. STOCK-BASED COMPENSATION

Under our stock option plans, our board of directors may grant options to purchase common shares to our key employees, officers, directors and consultants. We account for stock options in accordance with FASB ASC Topic 718, Compensation - Stock Compensation, with option expense amortized over the vesting period based on the trinomial lattice option-pricing model fair value on the grant date, which includes a number of estimates that affect the amount of our expense. We expensed approximately ~~$377,000~~$489,000 and ~~$749,000~~$1,238,000 in stock-based compensation during the three and ~~six~~nine months ended ~~June~~September 30, 2018, respectively, as compared with ~~$182,000~~$191,000 and ~~$341,000~~$532,000 for the three and ~~six~~nine months ended ~~June~~September 30, 2017, respectively.

The status of our stock options and stock awards are summarized as follows:


	Number of options		Weighted average exercise price		Number of options		Weighted average exercise price
Outstanding at December 31, 2017	4,860,157		$	3.00	4,860,157		$	3.00
Granted	117,000		2.95		225,000		4.08
Exercised	(37,250	)	2.23		(1,277,615	)	2.43
Canceled and forfeited	(57,500	)	6.55		(225,841	)	5.62
Outstanding at June 30, 2018	4,882,407		$	2.94
Outstanding at September 30, 2018					3,581,701		$	3.08

Common shares required to be issued upon the exercise of stock options and warrants would be issued from our authorized and unissued shares. We calculated the fair value of issued options utilizing a trinomial lattice with an expected life calculated via the simplified method as we do not have sufficient history to determine actual expected life.


	2018 Grants					2018 Grants
Option value	$	1.46	-	$	1.96	$	1.46	-	$	3.07
Risk-free rate	1.9%					1.9%		-	2.5		%
Expected dividend yield	—					—
Expected volatility	68.8%					60.9%		-	68.8		%
Expected term (in years)	6					6

NOTE 7.8. INCOME TAXES

The Company’s income tax benefit from continuing operations was $2.4 million and $2.4 million with an effective tax rate of 82.9% and 26.4% for the three and nine months ended September 30, 2018, respectively, as compared to an expense ~~was $13,000~~of $6,000 and ~~$24,000~~$15,000 with an effective tax rate of 0.0% for the three and ~~six~~nine months ended ~~June~~September 30, 2017, respectively. The increase in the Company’s tax rate for the three and nine months ended September 30, 2018 as compared to ~~$4,000~~the three months and ~~$9,000 with an effective~~nine months ended September 30, 2017, is primarily due to the Company’s ability to offset the 2018 operating loss from continuing operations against the taxable income generated by the extraordinary gain recognized by the income and asset sale reflected in discontinued operations.

The Company recognized tax ~~rate~~expense of ~~0.0%~~$0.3 million and $1.2 million within net income from discontinued operations for the three and ~~six~~nine months ended ~~June~~September 30, ~~2017.~~2018, respectively. The ~~Company’s effective~~Company recognized tax ~~rate differs~~expense of $13.2 million and $15.5 million within the gain on sale of the Core Business for the three and nine months ended September 30, 2018, respectively.

Management expects the gain from the ~~statutory rate primarily due~~sale of the Core business segment to Symmetry will utilize substantially all of the ~~change in~~historical Federal net operating loss carryover of $24.7 million, state(s) net operating loss carryover of $21.2 million, and research and development credit carryover of $1.3 million. As a result, the valuation allowance on ~~the Company’s net~~these deferred tax assets ~~with~~was released during the third quarter of 2018 and the Company recorded a ~~finite life.~~tax benefit of $7.8 million from the release of the valuation allowance. The tax benefit of $7.8 million is netted against the tax expenses within net income from discontinued operations and within the gain from asset sales. Pursuant to guidance under ASC 740, for the nine months ended September 30, 2018, continuing operations includes a current benefit of $2.4 million, which reflects the Company’s ability to fully utilize the net operating loss expected to be generated from continuing operations in the 2018 tax year.

Table of Contents

BOVIE MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

As a result of historical losses, exclusive of discontinued operations, the Company recorded a valuation allowance on the net deferred tax asset with a finite life and does not anticipate recording an income tax benefit related to these deferred tax ~~assets.~~assets beyond the 2018 tax year. The Company will reassess the realization of deferred tax assets each reporting period and will be able to reduce the valuation allowance to the extent ~~that~~ the financial results of ~~these~~continuing operations improve and it becomes more likely than not that the deferred tax assets ~~are~~will be realizable. As Management expects the ~~gain from~~Company to continue to generate loss in the ~~sale of~~foreseeable future after 2018, the ~~Core business segment~~Company will continue to ~~Symmetry will utilize substantially all of the historical loss carryforwards and the~~record a valuation allowance on the remaining deferred tax ~~asset will be reversed during~~assets at the ~~third quarter~~end of ~~2018, when the transaction is approved by the Company’s stockholders.~~2018.

~~For the six months ended June 30, 2018, we do not believe we had any significant uncertain tax positions nor did we have any interest or penalties related to any significant uncertain tax positions.~~

The Company is subject to U.S. federal income tax, state income tax and Bulgarian income tax. Until the respective statutes of limitations expire (which may be as much as 20 years while we have unused Net Operating Losses), we are subject to income tax audits in the jurisdictions in which we operate.

~~Table of Contents~~

~~BOVIE MEDICAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Unaudited)~~

NOTE 8.9. COMMITMENTS ~~CONTINGENCIES~~ AND ~~CONCENTRATIONS~~CONTINGENCIES

Property and Rental Agreements

In March 2014, we signed a lease for offices located in Purchase, New York. WeIn December 2017, we decided to consolidate operations in the Purchase, NY office with the facility in Clearwater, Florida. Based on this, we determined the office in Purchase, NY was no longer necessary and decided to cease all activity at the location. ~~The remaining $119,000~~In August 2018 we negotiated a termination of the remainder of the lease, ~~was expensed in the fourth quarter of 2017 as part of severance and related expense. These remaining payments expensed in 2017 will be operational cash outflows in 2018 and 2019.~~releasing us from any future obligation.

In October 2015, pursuant to our acquisition of Bovie Bulgaria, we are obligated to pay a lease of ~~$6,006~~$5,980 per month, expiring in December 2021, for 18,745 square feet of office, research and manufacturing space in Sofia, Bulgaria.

The following is a schedule of approximate future minimum lease payments under operating leases as of ~~June~~September 30, 2018:


(In thousands)
2018 (remaining six months)	$	36
2018 (remaining three months)			$	18
2019	72		72
2020	72		72
2021	72		72
Total	$	252	$	234

On August 30, 2018, the Company paid the remaining mortgage balance of $2.5 million, releasing us from any and all obligations to the Bank of Tampa.

Litigation

The medical device industry is characterized by frequent claims and litigation, and we are and may become subject to various claims, lawsuits and proceedings in the ordinary course of our business, including claims by current or former employees, distributors and competitors, and with respect to our products and product liability claims, lawsuits and proceedings.

We are involved in a number of legal actions relating to the use of our J-Plasma technology. The outcomes of these legal actions are not within our complete control and may not be known for prolonged periods of time. In the opinion of management, the Company has meritorious defenses, and such claims are adequately covered by insurance, or are not expected, individually or in the aggregate, to result in a material, adverse effect on our financial condition. However, in the event that damages exceed the aggregate coverage limits of our policy or if our insurance carriers disclaim coverage, we believe it is possible that costs associated with these claims could have a material adverse impact on our consolidated earnings, financial position or cash flows.

Purchase Commitments

At ~~June~~September 30, 2018, we had purchase commitments for inventories totaling approximately $5.4 million, substantially all of which is expected to be purchased by the end of 2018.

~~Concentrations~~Our manufacturing services agreements requires Symmetry to provide us with a twelve-month rolling production forecast, of which four months are binding, non-cancelable orders, subject to certain termination rights.

~~Our ten largest customers accounted for approximately 36.7% and 29.2%~~

Table of trade receivables as of June 30, 2018 and 2017, respectively, and approximately 39.5% and 51.7% of net revenues for the six months ended June 30, 2018 and 2017, respectively. For the six months ended June 30, 2018, McKesson and National Distribution & Contracting Inc. accounted for 15.5% and 7.1% of sales, respectively, while for the same period in 2017, McKesson and National Distribution & Contracting Inc. accounted for 15.5% and 10.1% of sales, respectively.Contents

BOVIE MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

NOTE 9.10. RELATED PARTY TRANSACTIONS

Several relatives of Nikolay Shilev, Bovie Bulgaria’s Managing Director, are considered related parties. Teodora Shileva, Mr. Shilev’s spouse, is an employee of the Company working in the Accounting department. Antoaneta Dimitrova Shileva-Toromanova, Mr. Shilev’s sister, is the Manager of Production and Human Resources. Svetoslav Shilev, Mr. Shilev’s son, is an Engineer in the Quality Assurance department.

~~Table of Contents~~NOTE 11. FINANCIAL INSTRUMENTS

~~BOVIE MEDICAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~Cash, Cash Equivalents and Marketable Securities:

~~(Unaudited)~~



(In thousands)	Adjusted Cost		Unrealized Gains		Fair Value⁽³⁾		Cash and Cash Equivalents ⁽¹⁾		Short-term Marketable Securities
Cash	$	5,774			$	5,774	$	5,774

Level 1 ⁽²⁾
U.S. Treasury Securities, maturities less than three months	$	34,889			$	34,889	$	34,889
U.S. Treasury Securities, maturities greater than three months	$	55,433	$	47	$	55,480			$	55,480
Total	$	96,096	$	47	$	96,143	$	40,663	$	55,480

⁽¹⁾The company considers all highly liquid instruments with maturities of three months or less at the time of purchase to be cash equivalents.

⁽²⁾ The fair value of the debt securities consisting of U.S. Treasury bills is based on their quoted market prices. The fair value of these financial instruments are classified as Level 1 in the fair value hierarchy.

⁽³⁾ ASC 825-10 Financial Instruments, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. At the date of purchase, the Company elected the fair value option for all investments with maturities of three months or greater at the time of purchase.

NOTE ~~10.~~12. LONG TERM DEBT

On August 30, 2018, the ~~Lender released as collateral~~Company paid the remaining mortgage balance of $2.5 million, releasing us from any and all obligations to the ~~Loan, the Company’s working capital accounts in exchange for a negative covenant limited to $2,000,000~~Bank of ~~the aggregate indebtedness secured by these accounts.~~Tampa.

~~The obligations under the Loan are secured by a first mortgage and security interest in the Company’s Clearwater, Florida facility. In addition, the Company has pledged an interest in a certificate~~

Table of ~~deposit in the amount of $660,000 as additional collateral. The amount of the additional collateral required declines on a pro rata basis as principal is paid.~~Contents

BOVIE MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

~~Borrowings under the Loan bear interest at LIBOR plus 3.5%, with a fixed monthly principal payment of $19,956. The interest rate at June 30, 2018 was 5.501%.~~

The Loan documents contain customary financial covenants, including a covenant that the Company maintains a minimum liquidity, as defined, of $750,000. Should we desire to extend the Loan beyond July 20, 2019, we must maintain a Debt Service Coverage Ratio for each of the preceding four quarters of not less than 1.0 to 1.0.

~~Our future contractual obligations for agreements with initial terms greater than one year are as follows:~~

(In thousands) Long-term debt
2018 (remaining six months)
$ 120
2019 2,454
Total $ 2,574

NOTE ~~11.~~13. GEOGRAPHIC AND SEGMENT INFORMATION

Operating segments are aggregated into reportable segments only if they exhibit similar economic characteristics. In addition to similar economic characteristics, we also consider the following factors in determining the reportable segments: the nature of business activities, the management structure directly accountable to our chief operating decision maker for operating and administrative activities, availability of discrete financial information and information presented to the Board of Directors and investors.

Our reportable segments are disclosed as principally organized and managed as three operating segments: ~~Core,~~Advanced Energy, OEM and Advanced Energy. We adopted reportable segments to align with changes in how we manage our business, review operating performance and allocate resources as a result of the growth in Advanced Energy and the differing behavior of the Core and OEM product lines.Corporate & Other. The Corporate & Other category includes certain unallocated corporate ~~operational, research~~ and ~~development and marketing~~administrative costs which were not specifically attributed to any reportable segment. Net assets are shared, therefore, not allocated to the reportable segments. The OEM segment is primarily development and manufacturing contract and product driven, all related expenses are recorded as cost of sales, therefore no segment specific operating expenses are incurred.

~~Table of Contents~~

~~BOVIE MEDICAL CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Unaudited)~~

Summarized financial information with respect to reportable segments is as follows:

Three Months Ended June 30, 2018
(In thousands) Core Advanced Energy OEM Corporate (Other) Total
Sales $ 7,784
$ 3,113
$ 578
$ —
$ 11,475

Income (loss) from operations 2,666
(792 ) 302
(2,443 ) (267 )

Interest expense, net —
—
—
(38 ) (38 )
Change in fair value of derivative liabilities —
—
—
46
46
Income tax expense —
—
—
13
13
Depreciation and amortization —
—
—
172
172



	Three Months Ended September 30, 2018
(In thousands)	Advanced Energy			OEM		Corporate & Other			Total
Sales	$	2,985		$	687	$	—		$	3,672

(Loss) income from operations	(1,155		)	368		(2,009		)	(2,796		)

Interest income, net	—			—		105			105
Income tax benefit	—			—		(2,408		)	(2,408		)
Depreciation and amortization	—			—		58			58

Three Months Ended June 30, 2017
(In thousands) Core Advanced Energy OEM Corporate (Other) Total
Sales $ 7,488
$ 1,813
$ 498
$ —
$ 9,799

Income (loss) from operations ⁽¹⁾
2,559
(1,284 ) 205
(2,786 ) (1,306 )

Interest expense, net —
—
—
(36 ) (36 )
Change in fair value of derivative liabilities —
—
—
38
38
Income tax expense —
—
—
4
4
Depreciation and amortization —
—
—
178
178


	Six Months Ended June 30, 2018													Three Months Ended September 30, 2017
(In thousands)	Core		Advanced Energy			OEM		Corporate (Other)			Total			Advanced Energy			OEM		Corporate & Other			Total
Sales	$	14,303	$	5,742		$	1,346	$	—		$	21,391		$	2,126		$	525	$	—		$	2,651

Income (loss) from operations	4,522		(1,370		)	708		(4,991		)	(1,131		)
(Loss) income from operations														(718		)	323		(2,438		)	(2,833		)

Interest expense, net	—		—			—		(72		)	(72		)	—			—		(36		)	(36		)
Change in fair value of derivative liabilities	—		—			—		20			20			—			—		(69		)	(69		)
Income tax expense	—		—			—		24			24			—			—		6			6
Depreciation and amortization	—		—			—		371			371			—			—		171			171

1214

Table of Contents

BOVIE MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)


	Six Months Ended June 30, 2017													Nine Months Ended September 30, 2018
(In thousands)	Core		Advanced Energy			OEM		Corporate (Other)			Total			Advanced Energy			OEM		Corporate & Other			Total
Sales	$	14,263	$	2,420		$	1,505	$	—		$	18,188		$	8,727		$	2,033	$	—		$	10,760

Income (loss) from operations ⁽¹⁾	4,772		(3,103		)	708		(5,420		)	(3,043		)
(Loss) income from operations														(2,525		)	1,076		(7,000		)	(8,449		)

Interest expense, net	—		—			—		(67		)	(67		)
Interest income, net														—			—		33			33
Change in fair value of derivative liabilities	—		—			—		126			126			—			—		20			20
Income tax expense	—		—			—		9			9			—			—		(2,384		)	(2,384		)
Depreciation and amortization	—		—			—		356			356			—			—		429			429

~~(1)~~

During the first and second quarter of 2017, marketing expenses were presented as attributable only to the Corporate (Other) segment in the line Income (loss) from operations. It was subsequently determined that certain marketing expenses are attributable to specific segments. The disclosure of Income (loss) from operations was updated for the first and second quarter of 2017 to reflect marketing expense by segment.



	Nine Months Ended September 30, 2017
(In thousands)	Advanced Energy			OEM		Corporate & Other			Total
Sales	$	4,546		$	2,030	$	—		$	6,576

(Loss) income from operations	(3,821		)	1,031		(7,858		)	(10,648		)

Interest expense, net	—			—		(103		)	(103		)
Change in fair value of derivative liabilities	—			—		57			57
Income tax expense	—			—		15			15
Depreciation and amortization	—			—		527			527

International sales represented approximately ~~15.5%~~24.8% and ~~17.4%~~21.2% of total revenues for the three and ~~six~~nine months ended ~~June~~September 30, 2018, respectively, as compared with ~~11.1%~~16.6% and ~~13.7%~~11.5% of total revenues for the three and ~~six~~nine months ended ~~June~~September 30, ~~2017.~~2017, respectively. Substantially all of these sales are denominated in U.S. dollars. Revenue by geographic region, based on the “ship to” location on the invoice, are as follows:

Three Months Ended
June 30, Six Months Ended
June 30,
(In thousands) 2018 2017 2018 2017
Sales by Domestic and International
Domestic $ 9,700
$ 8,708
$ 17,673
$ 15,700
International 1,775
1,091
3,718
2,488
Total $ 11,475
$ 9,799
$ 21,391
$ 18,188

~~NOTE 12. SUBSEQUENT EVENTS~~

On July 9, 2018, we entered into a definitive agreement with Specialty Surgical Instrumentation Inc., a subsidiary of Symmetry Surgical Inc. (“Symmetry”), pursuant to which the Company will divest and sell the Core business segment, including the Bovie^® brand and trademarks to Symmetry for gross proceeds of $97 million in cash. The asset purchase agreement was approved by the Company’s Board of Directors and is subject to customary closing conditions, including approval by the Company’s stockholders, and expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The Company is retaining and will continue to operate its Advanced Energy and OEM businesses, its facilities in Clearwater, FL and Sofia, Bulgaria, and certain intellectual property related to specialty generators.

As of June 30, 2018, the Company concluded that the planned divestitures did not meet the criteria for assets held for sale – discontinued operations set forth in ASC No. 205–20, “Presentation of Financial Statements,” as stockholder approval is required prior to closing of the planned divestiture. The Company continues to classify these businesses in its continuing operations for all periods presented.



	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2018		2017		2018		2017
Sales by Domestic and International
Domestic	$	2,763	$	2,212	$	8,481	$	5,821
International	909		439		2,279		755
Total	$	3,672	$	2,651	$	10,760	$	6,576

1315

Table of Contents

BOVIE MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANAYLSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis in conjunction with our financial statements and related notes contained elsewhere in this report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors discussed in this report and those discussed in other documents we file with the SEC. In light of these risks, uncertainties and assumptions, readers are cautioned not to place undue reliance on such forward-looking statements. These forward-looking statements represent beliefs and assumptions as of the date of this report. While we may elect to update forward-looking statements and at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. Past performance does not guarantee future results.

Executive Level Overview

Bovie Medical Corporation (“Company”, “Bovie Medical”, “we”, “us”, or “our”) was incorporated in 1982, under the laws of the State of Delaware and has its principal executive office at 5115 Ulmerton Road, Clearwater, FL 33760.

We are ~~an energy-based~~a medical ~~device~~technology company ~~specializing in developing, manufacturing~~ and ~~marketing a range~~the developer of electrosurgical products and technologies, as well as related medical products used in doctor’s offices, surgery centers and hospitals worldwide. Our medical devices are marketed through Bovie’s own well-respected brands (BovieJ-Plasma^®~~, IDS™~~ (marketed and ~~DERM~~^TM~~) and on a private label basis to distributors throughout~~sold under the world. We also leverage our expertise in the design, development and manufacturing of electrosurgical equipment by producing equipment for large, well-known medical device manufacturers through original equipment manufacturing (OEM) agreements, as well as start-up companies with the need for our energy based designs.

~~We are also the developer of J-Plasma (rebranded as Renuvion~~^TMRenuvion™ Cosmetic Technology ~~for~~brand in the cosmetic surgery market), a patented plasma-based surgical product for cutting, coagulation and ablation of soft tissue. ~~J-Plasma/Renuvion system~~J-Plasma technology utilizes a helium ionization process to produce a stable, focused beam of plasma that provides surgeons with greater precision, and minimal invasiveness. The ~~new J-Plasma/Renuvion handpieces~~Company also leverages its expertise through original equipment manufacturing (OEM) agreements with ~~Cool-Coag™ technology deliver~~other medical device manufacturers.

On August 30, 2018, we closed on a previously disclosed definitive asset purchase agreement with Specialty Surgical Instrumentation Inc., a Tennessee Corporation and wholly-owned subsidiary of Symmetry Surgical Inc. (“Symmetry”), pursuant to which the ~~precision~~Company divested and sold the Company's electrosurgical "Core" business segment and related intellectual property, including the Bovie^® brand and trademarks, to Symmetry for gross proceeds of ~~helium plasma energy, the power~~$97 million in cash. The divestiture and sale of traditional monopolar coagulation and the efficiency of plasma beam coagulation - enabling thin-layer ablation and dissection and fast coagulation with a single instrument, minimizing instrument exchange and allowing a surgeonour Core business segment to Symmetry allows us to further focus on ~~their patient~~our strategic objective of commercializing our J-Plasma technology, including the Renuvion^TM brand in the cosmetic surgery market. The Company and ~~their procedures. With Cool-Coag technology,~~Symmetry also entered into a transition services agreement, a patent licensing agreement, a disposables supply agreement and a generator manufacturing and supply agreement, the ~~new J-Plasma/Renuvion handpieces can deliver three distinctly different energy modalities - further increasing~~latter of which will establish the ~~utility~~Company as an OEM-provider of generators to Symmetry for a period of at least 10 years.

In connection with the asset purchase agreement, we entered into a previously disclosed Electro Surgical Disposables and ~~versatility~~Accessories, Cauteries and Other Products Supply Agreement with Symmetry for up to a four-year term, whereby we will manufacture certain Core products and sell them to Symmetry at agreed upon prices. Any revenue, costs and expenses resulting from this agreement are netted and reported in our Consolidated Statements of Operations as Other gains or losses.

In connection with the ~~J-Plasma system. J-Plasma has been the subject~~asset purchase agreement, we entered into a previously disclosed Manufacture and Supply Agreement with Symmetry for a ten-year term, whereby we will manufacture certain products and sell them to Symmetry at agreed upon prices. Revenue, costs and expenses resulting from this agreement are reported in our Consolidated Statements as income or loss from operations of ~~ten white papers and has been cited therein for its clinical utility in gynecological and plastic surgery procedures.~~our OEM reporting segment.

During 2018, we ~~will continue~~continued our full scale commercialization efforts for ~~J-Plasma/~~Renuvion. We have a direct sales force of 19 field-based selling professionals and a network of 1411 independent ~~manufacturing representatives,~~sales agencies, resulting in a ~~total~~field sales ~~force~~team of ~~33.~~more than 40 representatives. This selling organization is focused on the use of ~~J-Plasma for surgical procedures.~~Renuvion in the cosmetic surgery market. In addition, we have invested in training programs and marketing-related activities to support accelerated adoption of ~~J-Plasma.~~Renuvion.

International sales represented approximately ~~15.5%~~24.8% and ~~17.4%~~21.2% of total revenues for the three and ~~six~~nine months ended ~~June~~September 30, 2018, respectively, as compared with ~~11.1%~~16.6% and ~~13.7%~~11.5% of total revenues for the three and ~~six~~nine months ended ~~June~~September 30, ~~2017. Management estimates our~~2017, respectively. Our products ~~have been~~are sold in ~~more than 150~~26 countries through local dealers coordinated by sales and marketing personnel at the Clearwater, Florida facility.

1416

Table of Contents

BOVIE MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANAYLSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Operating segments are aggregated into reportable segments only if they exhibit similar economic characteristics. In addition to similar economic characteristics, we also consider the following factors in determining the reportable segments: the nature of business activities, the management structure directly accountable to our chief operating decision maker for operating and administrative activities, and availability of discrete financial information and information presented to the Board of Directors and investors.

We reclassified the financial results of the Core business to discontinued operations and from segment results for all periods presented.

Our reportable segments are disclosed as principally organized and managed as three operating segments: ~~Core,~~Advanced Energy, OEM and ~~Advanced Energy. We adopted~~Corporate & Other. The Corporate & Other category includes certain unallocated corporate and administrative costs which were not specifically attributed to any reportable ~~segments~~segment. Net assets are shared, therefore, not allocated to ~~align with changes in how we manage our business, review operating performance and allocate resources as a result of~~ the ~~growth in Advanced Energy and the differing behavior of the Core and OEM product lines.~~

reportable segments. The OEM segment is primarily development and manufacturing contract and product ~~driven. Related~~driven, all related expenses are recorded as cost of sales, therefore no segment specific operating expenses are incurred.

The majority of our core products are marketed through medical distributors, which distribute to more than 6,000 hospitals, and to doctors and other healthcare facilities. New distributors are contacted through responses to our advertising in international and domestic medical journals and our presence at domestic and international trade shows.

We strongly encourage investors to visit our website: www.boviemedical.com to view the most current news and to review our filings with the Securities and Exchange Commission. Information on our website does not constitute a part of this Quarterly Report on Form 10-Q.

Results of Operations

Sales


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2018		2017		Change		2018		2017		Change		2018		2017		Change		2018		2017		Change
Sales by Reportable Segment
Core	$	7,784	$	7,488	4.0	%	$	14,303	$	14,263	0.3	%
Advanced Energy	3,113		1,813		71.7	%	5,742		2,420		137.3	%	2,985		2,126		40.4	%	8,727		4,546		92.0	%
OEM	578		498		16.1	%	1,346		1,505		(10.6	)%	687		525		30.9	%	2,033		2,030		0.1	%
Total	$	11,475	$	9,799	17.1	%	$	21,391	$	18,188	17.6	%	$	3,672	$	2,651	38.5	%	$	10,760	$	6,576	63.6	%

Sales by Domestic and International
Domestic	$	9,700	$	8,708	11.4	%	$	17,673	$	15,700	12.6	%	$	2,763	$	2,212	24.9	%	$	8,481	$	5,821	45.7	%
International	1,775		1,091		62.7	%	3,718		2,488		49.4	%	909		439		107.1	%	2,279		755		201.9	%
Total	$	11,475	$	9,799	17.1	%	$	21,391	$	18,188	17.6	%	$	3,672	$	2,651	38.5	%	$	10,760	$	6,576	63.6	%

Overall sales from continuing operations increased by ~~17.1%~~38.5% or approximately ~~$1.7~~$1.0 million for the three months ended ~~June~~September 30, 2018 when compared with the same period of 2017. ~~Sales of J-Plasma/Renuvion generators and handpieces were the primary driver of total revenue growth in the first quarter of 2018.~~ Advanced Energy segment sales were ~~$3.1~~approximately $3.0 million, an increase of ~~approximately 71.7%~~40.4% when compared to the same period of 2017 as a result of continued focus of our selling into the cosmetic surgery ~~market. Core segment~~market and sales which consists of our brand name electrosurgical devices and accessories, cauteries, penlights, lighting, colposcopes and other similar products, increased 4.0% or approximately $0.3 million for the three months ended June 30, 2018, when compared with 2017.growth in international markets. The OEM segment consists of proprietary products designed specifically for third party equipment manufacturers; revenue for this product line increased ~~16.1%~~30.9% or approximately ~~$0.1~~$0.2 million when compared to 2017.

Overall sales from continuing operations increased by 63.6% or approximately $4.2 million for the nine months ended September 30, 2018 when compared with the same period of 2017. Advanced Energy segment sales were approximately $8.7 million, an increase of approximately 92.0% when compared to the same period of 2017 as a result of continued focus of our selling into the cosmetic surgery market and sales growth in international markets. The OEM segment consists of proprietary products designed specifically for third party equipment manufacturers; revenue for this product line was approximately the same when compared to 2017.

1517

Table of Contents

BOVIE MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANAYLSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

~~Overall sales increased~~Gross Profit



	Three Months Ended September 30,								Nine Months Ended September 30,
(In thousands)	2018			2017			Change		2018			2017			Change
Cost of sales	$	1,151		$	738		56.0	%	$	3,490		$	2,314		50.8	%
Percentage of sales	31.3		%	27.8		%			32.4		%	35.2		%



Gross profit	$	2,521		$	1,913		31.8	%	$	7,270		$	4,262		70.6	%
Percentage of sales	68.7		%	72.2		%			67.6		%	64.8		%

Our gross margin decreased by ~~17.6% or approximately $3.2 million for~~3.5% during the ~~six~~three months ended ~~June~~September 30, 2018, when compared with the same period of 2017. Sales of J-Plasma/Renuvion generators and handpieces were the primary driver of total revenue growth in the first quarter of 2018. Advanced Energy segment sales were $5.7 million, an increase of approximately 137.3% when compared to the same period of 2017 as a result of continued focus of our selling into the cosmetic surgery market. Core segment sales, which consists of our brand name electrosurgical devices and accessories, cauteries, penlights, lighting, colposcopes and other similar products, increased 0.3% or approximately $0.0 million for the six months ended June 30, 2018, when compared with 2017. The decrease was driven by lower margins in Advanced Energy due to product mix and increased sales growth in international markets where we sell at lower margins through a network of distributors, offsetting higher domestic selling prices and manufacturing efficiencies. Additionally, margins decreased in the OEM segment ~~consists of proprietary products designed specifically for third party equipment manufacturers; revenue for this product line decreased 10.6% or approximately $0.2 million~~ when compared to 2017.

~~Gross Profit~~

Three Months Ended
June 30, Six Months Ended
June 30,
(In thousands) 2018 2017 Change 2018 2017 Change
Cost of sales $ 5,198
$ 4,757
9.3 % $ 10,124
$ 8,920
13.5 %
Percentage of sales 45.3 % 48.5 % 47.3 % 49.0 %

Gross profit $ 6,277
$ 5,042
24.5 % $ 11,267
$ 9,268
21.6 %
Percentage of sales 54.7 % 51.5 %

52.7 % 51.0 %

Our gross ~~profit~~margin increased by ~~24.5% or approximately $1.2 million~~2.8% during the ~~three~~nine months ended ~~June~~September 30, 2018, when compared to the same period of 2017. The ~~primary drivers of~~increase was driven by higher margins in the ~~increase were favorable manufacturing variances partially offset by lower margins in~~OEM segment when compared to 2017. Additionally, the Advanced Energy segment ~~attributable~~margins expanded due to ~~product mix.~~increases in pricing mix partially offset by increased sales growth in international markets where we sell at lower margins through a network of distributors.

~~Our gross profit increased by 21.6% or approximately $2.0 million during~~In conjunction with the ~~six months ended June 30, 2018 when compared~~previously disclosed divestment of our electrosurgical Core business segment we performed a review of our standard costs, including the composition of our overhead cost pools. As a result, we reclassified certain overhead costs related to ~~2017. Increased revenue~~quality and regulatory to Salaries and Related Costs, in the amount of $62,000. This change in estimate is necessary in order to better reflect the change in operations to our Advanced Energy segment was the primary contributor to the increase in gross profit. Partially offsetting these gains is the impact of unfavorable manufacturing variances in the Core segment for the six months ended June 30, 2018.

We have components and finished goods manufactured in China and imported to the United States. The Office of the United States Trade Representative (“USTR”) has imposed new tariffs on the import of a number of products into the United States from China. Management is currently assessing the potential impacts of the new duties on our products and intend to use our best efforts to mitigate the potential impacts and protect our competitive position in the marketplace.segment.

Other Costs and Expenses

Research and development


	Three Months Ended June 30,								Six Months Ended June 30,								Three Months Ended September 30,								Nine Months Ended September 30,
(In thousands)	2018			2017			Change		2018			2017			Change		2018			2017			Change		2018			2017			Change
Research and Development expense	$	816		$	696		17.2	%	$	1,378		$	1,405		(1.9	)%	$	613		$	487		25.9	%	$	1,890		$	1,600		18.1	%
Percentage of sales	7.1		%	7.1		%			6.4		%	7.7		%			16.7		%	18.4		%			17.6		%	24.3		%

Spending on Research and development ~~spend~~ increased ~~17.2%~~25.9% and 18.1% for the three and nine months ended ~~June~~September 30, 2018, respectively, primarily due to ~~more~~ focused spending on clinical studies and research projects related to the cosmetic surgery market.

~~Research~~Professional services



	Three Months Ended September 30,								Nine Months Ended September 30,
(In thousands)	2018			2017			Change		2018			2017			Change
Professional services expense	$	628		$	421		49.2	%	$	1,815		$	1,291		40.6	%
Percentage of sales	17.1		%	15.9		%			16.9		%	19.6		%

Professional services expense increased 49.2% and ~~development spend decreased 1.9%~~40.6% for the ~~six~~three and nine months ended ~~June~~September 30, 2018, ~~due~~respectively, versus comparable periods in 2017. The change was primarily attributable to ~~personnel reductions~~expense increases for training-related physician consulting and ~~discontinuation of Core business related contract design agreements partially offset by more focused spending on clinical studies~~honorariums for speaking engagements at professional conferences and ~~research projects related to cosmetic surgery market.~~trade events.

1618

Table of Contents

BOVIE MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANAYLSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

~~Professional services~~

Three Months Ended
June 30, Six Months Ended
June 30,
(In thousands) 2018 2017 Change 2018 2017 Change
Professional services expense $ 681
$ 480
41.9 % $ 1,187
$ 870
36.4 %
Percentage of sales 5.9 % 4.9 % 5.5 % 4.8 %

Professional services increased 41.9% and 36.4% for the three and six months ended June 30, 2018, respectively, versus comparable periods in 2017.The change was primarily attributable to increases in physician consulting and legalexpenses related to the Advanced Energy segment.

Salaries and related costs


	Six Months Ended June 30,								Six Months Ended June 30,								Three Months Ended September 30,								Nine Months Ended September 30,
(In thousands)	2018			2017			Change		2018			2017			Change		2018			2017			Change		2018			2017			Change
Salaries and related expenses	$	2,118		$	2,243		(5.6	)%	$	4,234		$	4,703		(10.0	)%	$	2,119		$	1,826		16.0	%	$	5,734		$	6,016		(4.7	)%
Percentage of sales	18.5		%	22.9		%			19.8		%	25.9		%			57.7		%	68.9		%			53.3		%	91.5		%

During the three ~~and six~~ months ended ~~June~~September 30, 2018, salaries and related expenses increased approximately 16.0%, compared to the prior year. The increase was primarily driven by additional sales-related support personnel compared to the comparable period of 2017.

During the nine months ended September 30, 2018, salaries and related expenses decreased approximately ~~5.6% and 10.0%~~4.7%, respectively, compared to the prior year. The decrease was primarily driven by a reduction in management and sales related personnel and

executive compensation ~~versus~~compared to the comparable period of 2017.

In conjunction with the previously disclosed divestment of our electrosurgical Core business segment we performed a review of our standard costs, including the composition of our overhead cost pools. As a result, we reclassified certain overhead costs related to quality and regulatory to Salaries and Related Costs, in the amount of approximately $62,000. This change in estimate is necessary in order to better reflect the change in operations to our Advanced Energy segment.

Selling, general and administrative expenses


	Three Months Ended June 30,								Six Months Ended June 30,								Three Months Ended September 30,								Nine Months Ended September 30,
(In thousands)	2018			2017			Change		2018			2017			Change		2018			2017			Change		2018			2017			Change
SG&A Expense	$	2,929		$	2,929		—	%	$	5,599		$	5,333		5.0	%	$	1,957		$	2,012		(2.7	)%	$	6,280		$	6,003		4.6	%
Percentage of sales	25.5		%	29.9		%			26.2		%	29.3		%			53.3		%	75.9		%			58.4		%	91.3		%

Selling, general and administrative expense ~~was flat~~decreased by 2.7% for the three months ended ~~June~~September 30, 2018 when compared to 2017. AThe decrease was primarily driven by sales commissions and reductions in ~~travel and entertainment, general insurance and timing differences in marketing,~~sample expense, offset by increases from ~~consulting in the Advanced Energy segment~~general insurance and ~~sales commissions.~~marketing.

Selling, general and administrative expense increased by ~~5.0%~~4.6% or approximately $0.3 million for the ~~six~~nine months ended ~~June~~September 30, 2018 when compared to 2017. The increase was driven by consulting in the Advanced Energy segment, ~~and~~ sales commissions, ~~partially~~bank service charges and technology upgrades, slightly offset by reductions in ~~travel and entertainment, general insurance and timing differences in marketing.~~

sample expense.

1719

Table of Contents

BOVIE MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANAYLSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Other Income (Expense), net


	Three Months Ended June 30,								Six Months Ended June 30,								Three Months Ended September 30,								Nine Months Ended September 30,
(In thousands)	2018			2017			Change		2018			2017			Change		2018			2017			Change		2018			2017			Change
Interest expense, net	$	(38	)	$	(36	)	5.6	%	$	(72	)	$	(67	)	7.5	%
Interest income (expense), net																	$	105		$	(36	)	(391.7	)%	$	33		$	(103	)	(132.0	)%
Percentage of sales	(0.3		)%	(0.4		)%			(0.3		)%	(0.4		)%			2.9		%	(1.4		)%			0.3		%	(1.6		)%
Change in fair value of derivative liabilities, net	$	46		$	38		21.1	%	$	20		$	126		(84.1	)%	$	—		$	(69	)	(100.0	)%	$	20		$	57		(64.9	)%
Percentage of sales	0.4		%	0.4		%			0.1		%	0.7		%			—		%	(2.6		)%			0.2		%	0.9		%

Interest ~~expense,~~income (expense), net

~~Total net~~Net interest ~~expense increased, due~~income resulted from realized and unrealized interest on cash, cash equivalents and short-term marketable securities, offset by interest paid on our mortgage to ~~a higher LIBOR rate for~~ the ~~three and six months ended June~~Bank of Tampa until extinguishment on August 30, ~~2018 as compared with the comparable periods in 2017.~~2018.

Change in fair value of liabilities, net

On December 13, 2013, we entered into a securities purchase agreement pursuant to which we issued 3,500,000 shares of our newly designated Series A 6% Convertible Preferred Stock with a stated value of $2.00 per share and 5,250,000 warrants to purchase our common stock, at an exercise price of $2.387 per share. We also issued 525,000 warrants to the placement agent ~~of which 40,000 have~~at a strike price of ~~$2.387 and remain outstanding as of June 30, 2018. The warrants are accounted for as derivative financial instruments at fair value and are re-valued each period.~~

$2.387. As of ~~June~~September 30, 2018, all remaining warrants were converted to common stock and for the ~~six~~nine months ended ~~June~~September 30, 2018 we recognized a net loss of $20,000.

Other losses, net

Other losses of $0.2 million for the three and nine months ended September 30, 2018 was in connection with the asset purchase agreement, we entered into a previously disclosed Electro Surgical Disposables and Accessories, Cauteries and Other Products Supply Agreement with Symmetry for a four-year term, whereby we will manufacture certain Core products and sell them to Symmetry at agreed upon prices. Any revenue, costs and expenses resulting from this agreement are netted and reported in our Consolidated Statements of Operations as Other gains or losses.

Income Taxes

Management expects the gain from the ~~statutory rate primarily due~~sale of the Core business segment to Symmetry will utilize substantially all of the ~~change in~~historical Federal net operating loss carryover of $24.7 million, state(s) net operating loss carryover of $21.2 million, and research and development credit carryover of $1.3 million. As a result, the valuation allowance on these deferred tax assets was released during the third quarter of 2018 and the Company recorded a tax benefit of $7.8 million from the release of the valuation allowance. The tax benefit of $7.8 million is netted against the tax expenses within net income from discontinued operations and within the gain from asset sales. Pursuant to guidance under ASC 740, for the nine months ended September 30, 2018, continuing operations includes a current benefit of $2.4 million, which reflects the Company’s ability to fully utilize the net operating loss expected to be generated from continuing operations in the 2018 tax year.

Table of Contents

BOVIE MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANAYLSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

As a result of historical losses, exclusive of discontinued operations, the Company recorded a valuation allowance on the net deferred tax ~~assets~~asset with a finite ~~life.~~life and does not anticipate recording an income tax benefit related to these deferred tax assets beyond the 2018 tax year. The Company will reassess the realization of deferred tax assets each reporting period and will be able to reduce the valuation allowance to the extent the financial results of continuing operations improve and it becomes more likely than not that the deferred tax assets will be realizable. As Management expects the Company to continue to generate loss in the foreseeable future after 2018, the Company will continue to record a valuation allowance on the remaining deferred tax assets at the end of 2018.

Product Development

We have developed most of our products and product improvements internally. Funds for this development have come primarily from our internal cash flow and equity issuances. We maintain close working relationships with physicians and medical personnel ~~in hospitals and universities~~ who assist in product research and development. New and improved products play a critical role in our sales growth. We continue to emphasize the development of proprietary products and product improvements to complement and expand our existing product lines. Our research and development team members are based in our Clearwater, Florida office and our facility in Sofia, Bulgaria.

Reliance on Collaborative, Manufacturing and Selling Arrangements

We manufacture the majority of our products on our premises in Clearwater, Florida and in Sofia, Bulgaria. Labor-intensive sub-assemblies and labor-intensive products may be out-sourced to our specification. Although we sell through distributors, we market our products through national trade journal advertising, direct mail, distributor sales representatives and trade shows, under the Bovie name and private label. Major distributors include Cardinal Health, Independent Medical Co-Op Inc. (IMCO), McKesson Medical Surgical, Inc., Medline, National Distribution and Contracting Inc. (NDC) and Owens & Minor. If any of these distributor relationships are terminated or not replaced, our revenue from the territories served by these distributors could be adversely affected.

~~Table of Contents~~

~~BOVIE MEDICAL CORPORATION~~

~~MANAGEMENT'S DISCUSSION AND ANAYLSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued~~

We ~~are~~ also ~~dependent on~~perform development services for OEM customers who have no legal obligation to purchase products from us. Should such customers fail to give us purchase orders for the product after development, our future business and value of related assets could be negatively affected. Furthermore, no assurance can be given that such customers will give sufficient high priority to our products. ~~Finally, disagreements or disputes may arise between us and our customers, which could adversely affect production and sales~~Additionally, we will function as an OEM-provider of ~~our products.~~generators to Symmetry for a period of at least 10 years.

We also have collaborative arrangements with ~~three~~two key foreign suppliers ~~under which we request the development~~ of certain items and components and we purchase them pursuant to purchase orders. Our purchase order commitments are never more than one year in duration and are supported by our sales forecasts. The majority of our raw materials are purchased from sole-source suppliers. While we believe we could ultimately procure other sources for these components, should we experience any significant disruptions in this key supply chain, there are no assurances that we could do so in a timely manner which could render us unable to meet the demands of our customers, resulting in a material and adverse effect on our business and operating results.

Liquidity and Capital Resources

Our working capital at ~~June~~September 30, 2018 was approximately ~~$16.0~~$85.2 million compared with $16.6 million at December 31, ~~2017.~~2017, primarily driven by the gain from the disposition of the Core business. Accounts receivable days sales outstanding were 4241 days and 48 days at ~~June~~September 30, 2018 and 2017, respectively. The number of days sales in inventory, which is the total inventory available for production divided by the 12-month average cost of materials, ~~decreased 22~~increased 6 days to ~~157~~185 days equating to an inventory turn ratio of ~~2.10~~2.23 at ~~June~~September 30, 2018 from 179 days and an inventory turn ratio of 2.00 at ~~June 30, 2017. The lower number of days sales in inventory is mainly due to an increase in sales against flat inventory balances compared to June~~September 30, 2017.

For the ~~six~~nine months ended ~~June~~September 30, 2018, net cash used in operating activities was approximately ~~$1.7~~$2.8 million compared with net cash used by operating activities of approximately ~~$3.9~~$4.4 million for the same period in 2017. ~~The net cash used in operating activities was attributed to~~Net income of $68.0 million, non-cash inflows of $1.2 million, ~~of net loss,~~ accounts receivable of ~~$0.8 million and increases of inventory of $1.0 million, partially offset by non-cash inflows of $1.0~~$0.7 million and changes in working capital of $0.3 million, were offset by the gain on the sale of the Core business of $69.1 million and increases of inventory of $1.7 million.

Net cash ~~used in~~from investing activities was attributed to proceeds from the disposition of the Core business of $91.1 million, partially offset by purchases of marketable securities of $55.4 million and property and equipment for approximately ~~$332,000~~$0.2 million during the ~~six~~nine months ended ~~June~~September 30, 2018, compared to ~~$151,000~~approximately $0.4 million cash used for purchases of property and equipment for the same period in 2017.

Cash used in financing activities of approximately ~~$120,000~~$2.6 million was attributed to the extinguishment of the mortgage note payable of $2.7 million, partially offset by proceeds from the exercise of options of $0.1 million during the ~~six~~nine months ended ~~June~~September 30, 2018, compared to cash used in financing activities for the repayment of the mortgage note payable of approximately ~~$119,000~~$179,000 for the same period in 2017.

Table of Contents

BOVIE MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANAYLSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

On June 28, 2016, the Company entered into a transaction with Bank of Tampa, a Florida banking corporation (“Lender”), wherein Lender amended the terms of a mortgage loan (“the Loan”) originally executed on March 20, 2014 with a principal amount of $3,592,000. The Initial Maturity Date of the Loan was extended to July 20, 2019 from March 19, 2017, and the Extended Maturity Date was amended to July 20, 2024 from March 20, 2022. ~~In addition,~~On August 30, 2018, the ~~Lender released as collateral~~Company paid off the remaining mortgage balance of $2.5 million, releasing us from any and all obligations to the ~~Loan, the Company’s working capital accounts in exchange for a negative covenant limited to $2,000,000~~Bank of ~~the aggregate indebtedness secured by these accounts.~~

The obligations under the Loan are secured by a first mortgage and security interest in the Company’s Clearwater, Florida facility. In addition, the Company has pledged an interest in a certificate of deposit in the amount of $660,000 as additional collateral. The amount of the additional collateral required declines on a pro rata basis as principal is paid.

~~Borrowings under the Loan bear interest at LIBOR plus 3.5%, with a fixed monthly principal payment of $19,956. The interest rate at June 30, 2018 was 5.501%.~~

The Loan documents contain customary financial covenants, including a covenant that the Company maintains a minimum liquidity of $750,000. Should we desire to extend the Loan beyond July 20, 2019, we must maintain a Debt Service Coverage Ratio for each of the preceding four quarters of not less than 1.0 to 1.0.

~~Table of Contents~~

~~BOVIE MEDICAL CORPORATION~~

~~MANAGEMENT'S DISCUSSION AND ANAYLSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued~~

~~Approximate future expected principal and interest payments under the Loan agreement are as follows as of June 30, 2018:~~

(In thousands)
2018 (remaining six months)
$ 128
2019 2,536
Total $ 2,664
Tampa.

At ~~June~~September 30, 2018, we had purchase commitments for inventories totaling approximately $5.4 million, substantially all of which is expected to be purchased by the end of 2018.

Our manufacturing services agreements requires Symmetry to provide us with a twelve-month rolling production forecast, of which four months are binding, non-cancelable orders, subject to certain termination rights.

Table of Contents

BOVIE MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANAYLSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Critical Accounting Estimates

In preparing the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), we have adopted various accounting policies. Our most significant accounting policies are disclosed in Note 2 to the consolidated financial statements included in our report on Form 10-K for the year ended December 31, 2017, filed on March 13, 2018.

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Our estimates and assumptions, including those related to inventories, intangible assets, property, plant and equipment, legal proceedings, research and development, warranty obligations, product liability, fair valued liabilities, sales returns and discounts, stock based compensation and income taxes are updated as appropriate, which in most cases is at least quarterly. We base our estimates on historical experience, or various assumptions that are believed to be reasonable under the circumstances and the results form the basis for making judgments about the reported values of assets, liabilities, revenues and expenses. Actual results may materially differ from these estimates.

Estimates are considered to be critical if they meet both of the following criteria: (1) the estimate requires assumptions about material matters that are uncertain at the time the accounting estimates are made and (2) other materially different estimates could have been reasonably made or material changes in the estimates are reasonably likely to occur from period to period. Our critical accounting estimates include the following:

Inventory reserves

We maintain a reserve for excess and obsolete inventory resulting from the potential inability to sell our products at prices in excess of current carrying costs. The markets in which we operate are highly competitive, with new products and surgical procedures introduced on an ongoing basis. Such marketplace changes may cause our products to become obsolete. We make estimates regarding the future recoverability of the costs of these products and record a provision for excess and obsolete inventories based on historical experience and expected future trends. If actual product life cycles, product demand or acceptance of new product introductions are less favorable than projected by management, additional inventory write-downs may be required, which would unfavorably affect future operating results.

Long-lived assets

We review long-lived assets which are held and used, including property and equipment and intangible assets, for impairment whenever changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Such evaluations compare the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset over its expected useful life and are significantly impacted by estimates of future prices and volumes for our products, capital needs, economic trends and other factors that are inherently difficult to forecast. If the asset is considered to be impaired, we record an impairment charge equal to the amount by which the carrying value of the asset exceeds its fair value determined by either a quoted market price, if any, or a value determined by utilizing a discounted cash flow technique.

~~Table of Contents~~

~~BOVIE MEDICAL CORPORATION~~

~~MANAGEMENT'S DISCUSSION AND ANAYLSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued~~

Stock-based Compensation

Under our stock option plan, options to purchase common shares of the Company may be granted to key employees, officers and directors of the Company by the Board of Directors. The Company accounts for stock options in accordance with FASB ASC Topic 718-10, Compensation-Stock Compensation, with compensation expense amortized over the vesting period based on the trinomial lattice option-pricing model fair value on the grant date, which includes a number of estimates that affect the amount of our expense.

Table of Contents

BOVIE MEDICAL CORPORATION

MANAGEMENT'S DISCUSSION AND ANAYLSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Litigation Contingencies

Income Taxes

The provision for income taxes includes federal, foreign, state and local income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using enacted marginal tax rates. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Deferred income tax expenses or credits are based on the changes in the asset or liability from period to period.

~~We have~~Management expects the gain from the sale of the Core business segment to Symmetry will utilize substantially all of the historical Federal net operating loss ~~and tax credit carry forwards available in certain jurisdictions to reduce future taxable income. Future tax benefits for~~carryover of $24.7 million, state(s) net operating loss carryover of $21.2 million, and research and development credit carryover of $1.3 million. As a result, the valuation allowance on these deferred tax ~~credit carry forwards are recognized~~assets was released during the third quarter of 2018 and the Company recorded a tax benefit of $7.8 million from the release of the valuation allowance. The tax benefit of $7.8 million is netted against the tax expenses within net income from discontinued operations and within the gain from asset sales. Pursuant to guidance under ASC 740, for the ~~extent that~~nine months ended September 30, 2018, continuing operations includes a current benefit of $2.4 million, which reflects the Company’s ability to fully utilize the net operating loss expected to be generated from continuing operations in the 2018 tax year.

As a result of historical losses, exclusive of discontinued operations, the Company recorded a valuation allowance on the net deferred tax asset with a finite life and does not anticipate recording an income tax benefit related to these deferred tax assets beyond the 2018 tax year. The Company will reassess the realization of ~~these benefits is considered more likely than not. This determination is based on the expectation that related operations will be sufficiently profitable or various~~deferred tax ~~business~~assets each reporting period and ~~other planning strategies will enable us to utilize the operating loss and tax credit carry forwards. We cannot be assured that we~~ will be able to ~~realize these future tax benefits or that future~~reduce the valuation ~~allowances will not be required. To~~allowance to the extent ~~that available evidence raises sufficient doubt about~~ the ~~realization~~financial results of ~~a deferred income tax asset, a valuation allowance is established.~~

~~It is our policy to provide for uncertain tax positions~~continuing operations improve and ~~the related interest and penalties based upon management’s assessment of whether a tax benefit is~~it becomes more likely than not ~~to be sustained upon examination by tax authorities. To the extent~~ that the ~~probable~~deferred tax ~~outcome of these uncertain tax positions changes, such changes in estimate~~assets will ~~impact~~be realizable. As Management expects the ~~income tax provision~~Company to continue to generate loss in the ~~period in which such determination is made. At June 30,~~foreseeable future after 2018, ~~we believe we have appropriately accounted for any unrecognized~~the Company will continue to record a valuation allowance on the remaining deferred tax ~~positions. To~~assets at the ~~extent we prevail in matters for which a liability for an unrecognized tax benefit is established or we are required to pay amounts in excess~~end of ~~the liability, our effective tax rate in a given financial statement period may be affected.~~2018.

Since inception, we have been subject to tax by both federal and state taxing authorities. Until the respective statutes of limitations expire, ~~(which may be as much as 20 years while we have unused Net Operating Losses),~~ we are subject to income tax audits in the jurisdictions in which we operate.

Inflation

Inflation has not materially impacted the operations of our Company.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements at this time.

~~Table of Contents~~

~~BOVIE MEDICAL CORPORATION~~

~~MANAGEMENT'S DISCUSSION AND ANAYLSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued~~

Recent Accounting Pronouncements

See Note 4 of the Notes to Consolidated Financial Statements.

2224

Table of Contents

BOVIE MEDICAL CORPORATION

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

For our disclosures about market risk, please see Part II, Item 7A., “Quantitative and Qualitative Disclosures about Market Risk,” in our Annual Report on Form 10-K for the year ended December 31, 2017. We believe there have been no material changes to the information provided therein.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have carried out an evaluation, under the supervision of and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), as of ~~June~~September 30, 2018. Based upon that evaluation, our CEO and CFO concluded that, as of the end of that period, our disclosure controls and procedures are effective in providing reasonable assurance that (a) the information required to be disclosed by us in the reports that we filed or submitted under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13(a)-15(f) and 15(d)-15(f)) during the ~~six~~nine months ended ~~June~~September 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

2325

Table of Contents

BOVIE MEDICAL CORPORATION

PART II. Other Information

ITEM 1. Legal Proceedings

ITEM 1A. Risk factors

~~There have been no material changes to the risk factors previously disclosed in our Form 10-K for the year ended December 31, 2017, in response to Item 1A to Part 1 of Form 10-K.~~Not Applicable.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not Applicable.

ITEM 5. Other Information

None.

2426

Table of Contents

BOVIE MEDICAL CORPORATION

ITEM 6. Exhibits



2.1		Asset Purchase Agreement, dated as of July 9, 2018, by and between Bovie Medical Corporation and Specialty Surgical Instrumentation Inc. (Incorporated by reference to the Registrant’s Current Report on Form 8-K file on July 9, 2018)
3.1		Articles of Incorporation of the Registrant (Incorporated by reference to the Registrant’s report on Form 10-K/A filed on March 31, 2011)
3.2		By laws of the Registrant (Incorporated by reference to the Registrant’s report on Form 10-K/A filed on March 31, 2011)
3.3		Certificate of Amendment of the Certificate of Incorporation of the Registrant (Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed on November 3, 2017).
3.4		Certificate of Elimination (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on May 3, 2018)
10.1		J. Robert Saron Separation Agreement and General Release, dated August 30, 2018 (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on August 30, 2018)
31.1*		Certification pursuant to Section 302 of Sarbanes-Oxley Act of 202
31.2*		Certification pursuant to Section 302 of Sarbanes-Oxley Act of 202
32.1*		Certification pursuant to Section 906 of Sarbanes-Oxley Act of 202
32.2*		Certification pursuant to Section 906 of Sarbanes-Oxley Act of 202
101.INS**		XBRL Instance Document
101.SCH**		XBRL Taxonomy Extension Schema Document
101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**		XBRL Taxonomy Extension Label Linkbase Document
101.PRE**		XBRL Taxonomy Extension Label Presentation Document

* Filed herewith.

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended and otherwise is not subject to liability under these sections.

2527

Table of Contents

BOVIE MEDICAL CORPORATION

SIGNATURES

Pursuant to the requirements 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.



	Bovie Medical Corporation

Date: ~~August 1,~~November 2, 2018	By:	/s/ Charles D. Goodwin II
		Charles D. Goodwin II
		President, Chief Executive Officer and Director
		(Principal Executive Officer)

Date: ~~August 1,~~November 2, 2018	By:	/s/ Jay D. Ewers
		Jay D. Ewers
		Chief Financial Officer,
		Treasurer and Secretary
		(Principal Financial Officer)

2628



(In thousands)	Long-term debt
2018 (remaining six months)	$	120
2019	2,454
Total	$	2,574



	Three Months Ended June 30, 2018
(In thousands)	Core		Advanced Energy			OEM		Corporate (Other)			Total
Sales	$	7,784	$	3,113		$	578	$	—		$	11,475

Income (loss) from operations	2,666		(792		)	302		(2,443		)	(267		)

Interest expense, net	—		—			—		(38		)	(38		)
Change in fair value of derivative liabilities	—		—			—		46			46
Income tax expense	—		—			—		13			13
Depreciation and amortization	—		—			—		172			172



	Three Months Ended June 30, 2017
(In thousands)	Core		Advanced Energy			OEM		Corporate (Other)			Total
Sales	$	7,488	$	1,813		$	498	$	—		$	9,799

Income (loss) from operations ⁽¹⁾	2,559		(1,284		)	205		(2,786		)	(1,306		)

Interest expense, net	—		—			—		(36		)	(36		)
Change in fair value of derivative liabilities	—		—			—		38			38
Income tax expense	—		—			—		4			4
Depreciation and amortization	—		—			—		178			178