U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

Form 10-KSB


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


For the fiscal year ended    Commission file number 0-12183
December 31,1998


BOVIE MEDICAL CORPORATION
Formerly known as
AN-CON GENETICS, INC.
(Exact name of registrant as specified in its charter)

          Delaware                                      11-2644611      
(State or other jurisdiction                 (IRS Employer Identification No.)
734 Walt Whitman Road, Melville, NY 11747
(Address of principal executive offices)

Issuer's telephone number (516) 421-5452

Securities registered under Section 12(b) of the Exchange Act:

None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $.001 Par Value
(Title of class)

Indicate by check mark whether the registrant (I) filed all reports  required to
be filed by Section 13 or 15(d) of the  Exchange  Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days.  Yes [X] No[ ] Check if there is no  disclosure  of  delinquent  filers in
response to Item 405 of  Regulation  S-B is not  contained in this form,  and no
disclosure  will  be  contained,  to the  best  of  registrant's  knowledge,  in
definitive proxy or information statements incorporated by reference in Part III

of this Form 10-KSB any amendment to this Form 10-KSB. [ X ]

Issuer's revenues for its most recent fiscal year were $8,441,846.

The aggregate market value of the voting stock held by  non-affiliates  computed
by  reference  to the price at which the stock was sold,  or the average bid and
asked prices of such stock, as of March 26,1999 was  approximately  $10,655,106.
State the number of shares outstanding of each of the issuer's classes of common
equity,  as of the  latest  practicable  date:14,709,695  and  Preferred  Shares
2,000,000.

DOCUMENTS  INCORPORATED  BY  REFERENCE

There are no documents incorporated by reference.
<PAGE>


Bovie Medical Corporation
1998 Form 10-KSB Annual Report


Table of Contents


Part I
                                                     
Item 1.Description of Business                          

Item 2.Properties                                       

Item 3.Legal Proceedings                                

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


Part II

Item 5.Markets and Market Prices                        

Item 6.Management's Discussion and Analysis             

Item 7.Financial Statements
        (See Financial Section)                        

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


Part III

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

Item 10.Remuneration                                   

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

Item 12.Certain Relationships and
         Related Transactions                          

Item 13.Exhibits and Reports on Form 8-k               

<PAGE>

Bovie Medical Corporation


Item 1.   Description of Business.


Background

Bovie  Medical  Corporation,   formerly  known  as  An-Con  Genetics,  Inc.("the
Company") was  incorporated in 1982, under the laws of the State of Delaware and
has its principal executive office at 734 Walt Whitman Road, Melville,  New York
11747. 

Currently,  the Company is actively engaged in the business of manufacturing and
marketing medical products and developing  related  technologies.  Aaron Medical
Industries,  Inc.  ("Aaron"),  a 100% owned  subsidiary  of the  Company,  a St.
Petersburg,  Florida  based  Corporation,  is engaged in the  manufacturing  and
distributing of medical products. Although, Aaron's largest current product line
is  battery  operated  cauteries,  the  Company  has  shifted  its  focus to the
manufacture  and marketing of  electrosurgical  generators  and  electrosurgical
disposables.  This new focus is evident in the  development of the Aaron 800 and
1200 electrosurgical generators (see below).

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

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

Bovie  Medical   Corporation  is  a non-operating  company while Aaron as a 100%
owned  subsidiary  which  presently accounts for 100% of operations.  

Company Products  

Battery Operated  Cauteries

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

Electrosurgical Products


The  Company  continues  to  expand  its  line  of   electrosurgical   products.
Electrosurgical  products  include  electrodes,   electrosurgical  pencils,  and
various ancillary  disposable  products.  These products are used in surgery for
the cutting and  coagulation  of tissues and  constitute  the  Company's  second
largest  product  line  and  are  compatible   with  all  major   manufacturers'
electrosurgical generator products.

         Aaron 1200

         The Company has developed a 120 watt, full-featured electrosurgical
         generator for outpatient surgical procedures.  It is used in a
         variety of specialties including dermatology, gynecology, and
         plastic surgery.

         Aaron 800

         The Aaron 800 is a low powered office based generator  designed
         primarily for dermatology.  The unit is a 30 watt  high frequency
         desiccator used mainly in doctors offices  for removing small skin
         lesions and growths.  This unit was  designed with sufficient
         technology to permit the manufacture of more powerful office based
         generators without requiring time-consuming expense of redesign.

         Electrosurgical Coated Electrodes

         The Company is developing a coated electrosurgical blade as per
         its agreement with Advanced Refractory Technologies, Inc. (ART),
         the manufacturer and developer of Dylyn a new coating
         technology;  Development activities for the process and production
         are ongoing.  The Company relies on ART for successful development
         of the production process.  Performance by ART is essential for
         production and marketing to commence.

         The Company discontinued its Resistick line of reduced stick
         electrodes used in electrosurgery.  The reduced stick electrode
         market is dominated by MegaDyne Medical Products, Inc.  The
         discontinuance of Resistick sales is a result of the settlement
         by Aaron with MegaDyne in a suit against Aaron for patent
         infringement.  See legal proceedings and notes to the financial
         statement.


Battery Operated Medical and Industrial Lights

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

Nerve Locator Stimulator

The Company  manufactures  three different nerve locator  stimulators  primarily
used for  identifying  motor nerves in hand and facial  reconstructive  surgery.
<PAGE>

These  instruments are  self-contained,  battery operated units, used for single
surgical  procedures.  

Manufacturing,  Marketing  and  Distribution  

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

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

Main  competitors  are  Conmed  in the  electrosurgery  market  and Xomed in the
battery  operated  cautery market.  Management  believes that, based upon recent
developments,  the  Company  has the  ability to  aggressively  compete in these
markets.

Regulation

Many  medical  products  are  subject to  guidelines,  regulations  and  testing
requirements  by  federal  and  state  authorities  including  the Food and Drug
Administration  ("the FDA").  In the United States,  the FDA imposes  standards,
which may affect the  clinical  testing,  manufacture  and  marketing of certain
products.  Compliance  with the standards  and  requirements  involving  product
safety, efficacy and labeling may prove to be very expensive and time consuming.
No  assurance  can be given  that the  regulatory  authorities  will  render the
requisite  approval of the  marketing of some of the  products  that the Company
plans  to  market.  Other  countries  usually  impose  regulatory   requirements
concerning  the  development,  testing,  marketing  and  manufacture  of certain
products,  which  influence  the overseas  sales  potential  of these  products.

Patents  and  Trademarks 

The Company owns a total of fourteen  patents.  No  assurance  can be given that
competitors  will not infringe the Company's  patent rights or otherwise  create
similar or non infringing competing products that are technically  patentable in
there own right. (See competition)

Liability Insurance 

Management  believes that general and product liability exposures are adequately
covered by insurance. 
<PAGE>

Research and Development 

The  approximate  amount  expended by the Company on research and development of
its  products  during  the years 1998 and 1997,  totaled  $183,173  and  $96,738
respectively.  The  Company  has not  incurred  any  direct  costs  relating  to
environmental regulations or requirements.

Employees

Presently the Company has a total of approximately  90 employees.  These consist
of 5  executives,  6  administrative,  5  sales,  and 74  technical  or  factory
employees. 

SIGNIFICANT SUBSIDIARY - AARON MEDICAL INDUSTRIES, INC. 

Aaron  Medical  Industries,  Inc.,  is a Florida  Corporation  with  offices and
manufacturing  facilities in St. Petersburg,  Florida. It is principally engaged
in  the  business  of  manufacturing  and  marketing  medical  products.   Aaron
manufactures  and  sells  its  products  under  its own  label  to  distributors
worldwide.  

Item 2. Properties.  

The Company has executive  office space at 734 Walt Whitman Road,  Melville,  NY
and its St.  Petersburg,  Florida  facility.  The Company  leases the  executive
offices in NY for $1,226  per month and the lease  expires in the year 2000.  

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

In February of 1998, the environmental  engineering firm Geo-Ambient conducted a
second  addendum to the CAR, (CAR Addendum II) to complete the  additional  work
requested  by the FDEP.  Based on the results of CAR  Addendum  II,  Geo-Ambient
recommended  to the FDEP that a "no  further  action"  status be granted for the
site.  However,  as of the  date  here of the  FDEP  has not yet  issued  a Site
Completion Rehabilitation Order (SCRO).

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

At the request of the FDEP,  GEO-Ambient  conducted an additional  water test in
July of 1998 and found the results to be consistent with previous tests.

The nature and extent of the environmental  work, if any is to be required,  has
not yet been  determined by the FDEP.  Therefore,  no work has been completed by
the seller.
<PAGE>

Recent  Acquisition of Technology

On  February  9,  1998 the  Company  entered  into a series  of  contemporaneous
agreements  ("Contemporaneous")  and transactions  involving two non- affiliated
companies,  Advanced Refractory Technologies,  Inc. ("ART") a privately held New
York  corporation  engaged in research  and  development  of a certain  patented
nanocomposite technology for the coating of products ("DYLYN" Technology"),  and
BSD Development Beta Corporation (BSD), a privately held company organized under
Delaware Law. As a result of the aforesaid transactions, the registrant acquired
certain  job-coating  equipment  valued at $672,460 and  consisting of two DYLYN
deposition  reactors  inclusive of  components  and two  electro-blade  surgical
mounting fixtures (the "Equipment") for coating electrosurgical blades and other
specified  medical devices  utilizing the DYLYN  Technology.  The aforesaid,  in
addition to the  acquisition  by the Company of the  Equipment,  resulted in the
acquisition by it of an exclusive 10-year license to use the DYLYN Technology to
jobcoat  specified  medical products  together with a manufacturing  arrangement
with ART whereby ART will operate and maintain the  equipment for the use of the
DYLYN  Technology under the License  Agreement at ARTs location in Buffalo,  New
York. The Company acquired all of the outstanding securities of BSD which is now
a wholly owned subsidiary of registrant.

The  license is an  exclusive  10-year  license to use the DYLYN  technology  to
job-coat  specified  medical  products for marketing  anywhere in the world.  It
provides  essentially  for  payment of a royalty to ART based upon net  revenues
derived by the  registrant  directly or indirectly  from the sale of products or
fees from sub-licensees  utilizing the DYLYN Technology.  The exclusivity of the
license is contingent upon ART receiving minimum job-coating fees of $200,000 in
the first contract year and increasing by $100,000 per year for each  succeeding
contract  year up to a minimum of $500,000 in the fourth  contract year and each
succeeding year thereafter.

The 10-year  license is renewable for an additional  10-year  period upon notice
prior to 180  days of  expiration,  plus the  payment  by the  registrant  of $2
million in cash or in shares of common stock of registrant  having a fair market
value aggregating $2 million.

The license may be terminated by ART in the event of (a) registrant's failure to
pay any fee due, (b) breach or default by registrant of any material term of the
License  Agreement  or  other  related   agreements  between  ART,  BSD  and  or
registrant; (c) breach or default of the Manufacturing Agreement; (d) registrant
files a petition in bankruptcy or for an arrangement  under any federal or state
bankruptcy  laws  or is  adjudicated  insolvent;  or  (e) a  petition  is  filed
proposing  adjudication  of registrant  as  bankruptcy  or  insolvent,  and such
petition is not dismissed within 90 days after filing thereof.
<PAGE>

Manufacturing Agreement

Pursuant  to  the  Contemporaneous   Agreements,  the  Company  was  assigned  a
Manufacturing  Agreement  dated  February 9, 1998,  which provides that ART will
job-coat  products pursuant to the registrant's  specifications  for a fee based
upon its base  cost as  defined  plus a  percentage  thereof,  unless  otherwise
agreed.  The  manufacturing  Agreement  which  is for a  term  of 5-  years  and
renewable  for an  additional  5-years  at the  option  of the  registrant  also
provides for minimum annual job-coating fees which are to be offset against fees
payable by the registrant to maintain  exclusivity under the License  Agreement.
Maintenance  of  exclusivity of the License will satisfy and obviate the minimum
annual job-coating fees payable under the Manufacturing Agreement.


Exchange of Shares-BSD 

Pursuant  to  the  Contemporaneous  Agreements,  the  Company  issued  2,000,000
preferred shares of its stock to ART and acquired all of the outstanding  shares
of common stock of BSD and an 8%  convertible  Debenture of BSD in the principal
amount of  $750,000(which  was paid to the  Company) in exchange  for  3,000,000
shares of common stock of the company. Upon completion of such transactions, the
Company issued a total of 5,000,000 preferred and common shares and owned all of
the outstanding  securities of BSD which had licensing and manufacturing  rights
to operate the Equipment (which rights have been assigned to the Company.)

Future  Obligation of the Company 

Among  other  things  the  Preferred  Stock  issued to ART is  convertible  into
2,000,000  shares of common stock of Bovie  Medical  Corporation  and shall have
certain preferences on liquidation and anti-dilution aspects. In the event Bovie
Medical  Corporation  should  issue  any  shares  of any  series or class of its
preferred  stock having  substantially  the same rights and  preferences  as the
Preferred   Stock  without  the  prior  consent  of  ART  (which  shall  not  be
unreasonably  withheld),  then Bovie Medical Corporation is to issue and deliver
to ART,  without payment of any additional  consideration  by ART, an additional
number of shares of An-Con's  common stock having an aggregate fair market value
equal to $500,000.

Exchange of Shares-Maxxim

On May 8, 1998, the Company  entered into and  consummated a strategic  alliance
agreement with Maxxim  Medical,  Inc.,  ("Maxxim"),  a Delaware  corporation the
shares  of which are  listed on the New York  Stock  Exchange,  which  agreement
provided for the acquisition by the Company of the trademark  "Bovie," a supply,
license and distributorship  arrangement concerning  electrosurgical devices and
the acquisition of Maxxim's  electrosurgical  generator product line in exchange
for  3,000,000  shares of common stock of the Company.  More  specifically,  the
agreement provides for (a) an irrevocable  royalty-free sub-license to Maxxim to
use the "Bovie" name on any  electrosurgical  products marketed by Maxxim; (b) a
2- year exclusive  distributorship in Maxxim to resell the Bovie electrosurgical
generator  product line anywhere in the world, and (c) a non-exclusive  right to
sell the Company products anywhere in the world. 
<PAGE>

The  distributorship  arrangement  provides for anticipated  cooperation between
Maxxim and An-Con,  with respect to research and development of new products and
Maxxim's option to become the exclusive distributor thereof.  Maxxim also agreed
to certain minimum  purchase  orders for the Bovie  generator  product line, the
Aaron 1200  generators  and other An-Con  products and  accessories  aggregating
$3,000,000  during the initial 5-year term of the agreement,  subject to quality
control and An-Con's ability to meet commercially  reasonable purchase orders of
Maxxim.  Kenneth  Davidson,  the  chairman  of the  Board  of  Maxxim,  has been
appointed a member of the Board of Directors of An-Con.

As  consideration  for the foregoing,  the Company agreed to exchange  3,000,000
shares of common stock for the Bovie Electrosurgical Generator line, the "Bovie"
trademark and trade name,  and entered into  agreements  for the  aforementioned
supply, license, and distributorship  arrangement involving Maxxim's commitments
to purchase the  Company's  current and future  products.  Due to the  Company's
exhaustion of its authorized  shares,  in lieu of common stock,  the Company had
issued a secured  convertible  promissory note to Maxxim in the principal amount
of $3,000,000 due on May 7, 2008,  bearing  interest at the rate of 1% above the
prime lending rate in effect at Nations Banc  Montgomery  Securities  LLC, which
was  retired  when the  Company's  shareholders  authorized  an  increase in the
authorized capitalization of the Company and the Company issued Maxxim 3 million
shares in September 1998.

Item 3. Legal Proceedings

In  February  1998 the  Company  settled its patent  infringement  lawsuit  with
MegaDyne  by payment of $150,000  and a pledge not to sell coated  blades in the
electrosurgical market for six months.

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

On September 8, 1998, a special meeting of shareholders was held to approve:

1. An increase in the authorized  capitalization  of the Company from a total of
15,000,000 shares having a par value $.015 per share to 50,000,000 shares having
a par value of $.001 per share.

2. To create a class of blank  preferred stock  consisting of 10,000,000  shares
having a par value of $.001 per share.

3. To change the name of the Corporation to "Bovie Medical Corporation."

4. To ratify the Company's 1998 Non-statutory Stock Purchase and Option Plan.

All  proposals  were  approved by a majority of the votes cast at the meeting at
which a quorum  was  present  in  person or by  proxy.  As a result  of  certain
contractual   obligations   management  filed  an  amendment  to  the  Company's
certificate of  Incorporation  increasing the  authorized  capitalization  to 40
million  shares of common stock $.001 par value instead of 50 million  shares of
common stock authorized by the shareholders.

On December  16,1998,  an annual meeting of shareholders was held to approve the
election of directors and appoint the  Company's  auditors.  All proposals  were
approved  by a majority  of the votes cast at the  meeting at which a quorum was
present in person or by proxy.

<PAGE>

PART II


Item 5.

Markets and Market Prices

Bovie's  common stock is traded in the  over-the-counter  market on the National
Association of Securities Dealers,  Inc. Bulletin Board ("NASD Bulletin Board").
The table shows the reported high and low bid prices for the common stock during
each quarter of the last eight  quarters as reported by the NASD Bulletin  Board
(symbol "Bovie").  These prices do not represent actual  transactions and do not
include retail markups, markdowns or commissions.
      
           1998                      High          Low

         1st Quarter                 2 1/8         5/8

         2nd Quarter                 1 13/16       1 1/8

         3rd Quarter                 1 1/4         27/32

         4th Quarter                 15/16         17/32


             1997                     High         Low

         1st Quarter                 1 5/16        1

         2nd Quarter                 1 1/8         11/16

         3rd Quarter                 2 1/32        9/16

         4th Quarter                 13/16         9/16


On March 26, 1999,  the Closing bid for Bovie's  Common Stock as reported by the
NASD Bulletin Board was $.635 per share.  As of March 26, 1999, the total number
of shareholders of the Company's Common Stock was approximately  1,000 exclusive
of  shareholders  whose  shares  are held in the name of their  broker  or stock
depositories or the escrow agent holding shares for the benefit of Bovie Medical
Corporation   shareholders   which  are   estimated   to  be  1,000   additional
shareholders.  

Item  6.  Management's  Discussion  and  Analysis.   

Results of  Operations

Bovie's net  revenues  for 1998 were  approximately  $8.4 million as compared to
$7.3  million for 1997.  The increase in sales of  $1,070,565  (15%) was the net
result of $358,574  increase in revenues  from sale of cauteries and the balance
of the increase was mostly  attributable  to contract sales to Maxxim as part of
purchase  of the Bovie trade name.  The sales for medical  products  represented
approximately  90% of total sales in 1998 as compared  to  approximately  87% in
1997.  This was due to a decrease in non-medical  lighting  products of $120,057
which is directly  attributable  to one customer  decreasing  purchases from the
Company. 

<PAGE>

The Cost of goods sold increased by $1,135,267  (27%) from $4,138,774 in 1997 to
$5,274,041  in 1998.  Consequently,  the  percentage  of gross profit from sales
decreased  from 44% in 1997 to 38% in 1998.  The difference in cost of sales and
gross profits were principally due to the gross loss on sales to Maxxim,  as per
the agreement dated May 8,1998, and the decrease in the profit margin on sale of
Pen Lights.

During 1998 and 1997,  the Company's  family of cauteries  accounted for 41% and
43% of sales, respectively, and 35% and 39% of cost of goods sold, respectively.

Research and development expenses increased from $96,738 to $183,173,  from 1997
to  1998.   The  Company   continued  to  invest  in  the   development  of  ECU
(electrosurgical  coagulation)  devices,  and other  Company  products  which is
evidenced by  acquisition  costs in 1998 of $29,290.  Research  and  development
costs  are  made up of  materials  costs,  engineering  costs,  depreciation  of
reactors,  and  payroll.

Research and  development  costs of the Company have increased in 1998 mostly by
the  depreciation  expense on the reactors that the Company  purchased from BSD.
The Company is developing  DYLYN coated products with these  reactors.  Assuming
successful development, when the products are marketed and the reactors are used
for  manufacturing,  depreciation  will be charged to cost of goods. The Company
estimated the lives of the reactors to be 10 years.

The  increase  in  interest  expense  of 18%  amounting  to  $16,147  was mainly
attributable  to the Company's  contract to purchase the Bovie name. The Company
had to pay interest on the note issued as a part of the acquisition price, until
shareholders  authorized  the  issuance  of  additional  shares  to  retire  the
acquisition  note. 

The need for  borrowing  has  decreased  because of the  receipt of one  million
dollars in connection with the BSD transaction.  The availability of these funds
is expected to lower the interest expense in 1999.

The  Company's  effective  income tax rate  would have been 35% except  that the
Company has loss  carryforward.  Because of a net loss, the Companies  operating
loss carryforward increased in 1998. 

General and  administrative  expenses of the Company increased by $273,268 (18%)
from $1.5 million in 1997 to $1.8 million in 1998. This was mainly  attributable
to the increase in  amortization  of  intangible  assets  acquired  from BSD and
Maxxim of $377,598.

Salaries and related expenses increased by 25% from $1.3 million in 1997 to $1.6
million  in 1998.  The  increase  in  salaries  were in part  because  of hiring
additional  engineering and quality  control and technical  personnel to produce
Bovie generators.

Cost of professional services increased by 85% from $298,156 in 1997 to $556,352
in 1998. Additional  professional fees were mostly related to the consulting and
legal costs of acquiring new technologies and products.
<PAGE>

The  increase  in  operating  expenses  resulted  in a decrease  of  $998,156 in
operating income and $1,026,637  decrease in net income, from 1997 to 1998. Loss
from  operations  was  $920,162 in 1998 as compared  to an  operating  income of
$77,994 in 1997.

Loss from operations as a percentage of sales was 11% in 1998 and a gain of 1.1%
in 1997.  Net loss of the Company in 1998 was $998,046 as compared to net income
of $28,591 in 1997.

Total other costs as a  percentage  of sales were 48% in 1998 as compared to 43%
in 1997.

Total other costs mostly increased due to the BSD and Maxxim  transactions.  For
1999 the Company believes total other costs should not be  significantly  higher
than they were in 1998.

The Company sells its products through  distributors  both in the  international
market and in the USA.  The  distributors  are  contacted  through  response  to
company  advertising  in  international  medical  journals  or  at  domestic  or
international trade shows.

During 1998,  international  sales of the Company's product lines decreased by a
total of $260,590  (15%).  In 1998,  these sales were $1.5 million (18% of total
sales) as compared to $1.8 million (24% of total sales) in 1997. The decrease in
international sales volume was mainly attributable to the Company not having its
European  Community  Certification (CE Mark which permits medical devices to be
sold in the  European  Common  Market until the middle of 1998.  

In the fourth  quarter of 1998, the Company made  agreements  with various sales
representatives  to develop  markets for its new products and maintain  customer
relations.  The representatives receive on average approximately 5% of the sales
in their market areas.

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

New product  development and improvements to the Company's  facility required by
regulatory   agencies  in  1998  amounted  to   approximately   $21,400.   These
expenditures   were  funded  primarily  through  internal  cash  flow  and  bank
financing. In order to provide additional working capital, the Company secured a
$400,000  credit  facility with a local  commercial bank in the first quarter of
1997 and a $150,000 three year note to purchase fixed assets with interest at 1%
over  prime.  The  credit  facility  is  expected  to be  renewed  in May  1999.

<PAGE>

Discontinued Operations

As part of a lawsuit  settlement  with a competitor of the Company,  the Company
agreed  to  discontinue  sales of its  coated  blade  products.  Sales and gross
profits  from  this  product  for  1997  and  1998  were  $370,677  and  $31,000
respectively,  and $203,131 and $26,500, respectively. The company is developing
a new line of coated blade products, that the Company believes is proprietary.

Delays in perfecting the manufacturing process has caused a delay in the Company
bringing  this  product  to  market.  The  continuation  of these  delays  could
adversely  affect the future  profitability  and cash flows of the  project  and
could impair the carrying value of the related assets.

Financial  Condition As of December 31,

1998,  cash totaled  $278,673 as compared to $48,246 at December 31, 1997.  Cash
used by operating  activities  was $98,793 in 1997  compared to $14,010 in 1998.
Net working  capital of the Company was  $1,674,297 and $557,237 on December 31,
1998 and 1997, respectively.

The amount of cash used in investing  activities was $257,733 in 1997,  compared
to $443,835 in 1998.  The Company  continued  to invest in  property,  plant and
equipment  needed  for future  business  requirements,  including  manufacturing
capacity.

The net cash inflow from  financing was $688,272 in 1998 as compared to $283,868
in 1997.  The most  significant  items of  financing  activity  in 1998 were the
reduction  of notes  payable of $338,738  and the  receipt of $982,756  from the
exchange of the Company's common stock.

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

The  Company's ten largest  customers  accounted  for  approximately  49% of net
revenues for 1998 as compared to 51% in 1997. At December 31, 1998, the same ten
customers accounted for approximately 65% of outstanding accounts receivables as
compared to 47% in 1997.

Outlook  

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

The Company believes that the world market for disposable medical products, such
as the Company's  battery-operated  cauteries,  has significant growth potential
because these type of products have not been affordable or effectively  marketed
outside the U.S.  Because of these  factors,  the Company has  designed  certain
disposable  products to be reusable.  The Company  presently  has a  significant
portion of the U.S.  cautery  market  and does not  expect a dramatic  growth in
sales of cautery - related products domestically.

The Company  has  focused on  expanding  its line of  electrosurgical  products.
Electrosurgical  products sold by the Company are the standard  stainless  steel
electrodes, the Aaron 800 and 1200 high frequency desiccators.
<PAGE>


From 1997 to 1998, the Company's  electrosurgical  sales  increased by more than
59% from  $1,377,029  to  $2,188,683.  This  increase  was  attributable  to the
transaction  with  Maxxim.  Maxxim sold to the  Company  work in process and raw
materials  inventory  for the Bovie line of  generators.  The Company  agreed to
finish the products and sell them back to Maxxim. The agreement  increased sales
by $592,000,  in 1998. The additional  increases in sales were  attributable  to
sales of the Aaron  1200  device.  In 1998  Resistick  sales  ceased  due to the
settlement  of the  Company  lawsuit  with  MegaDyne.  Except  for the  possible
introduction  of new  electrosurgical  products  the  Company  does  not  expect
electrosurgical sales to increase significantly in 1999. The Company through its
private label capability sees unique opportunities in the domestic market as its
competitors do not private label. The electrosurgical product market is a larger
market than the  Company has  normally  sold into and is  dominated  by two main
competitors,  ValleyLab  and Conmed.  The  combined  markets for these  products
exceed $100 million  annually.  Electrosurgical  product  sales moved from fifth
place to second in total Company sales by product line in 1997 and have remained
in second place.
<PAGE>

Non-Medical Products 

In 1998, the Company had sales of $.8 million of its flexible  lighting products
used  primarily in the automotive and locksmith  industries.  Approximately  $.6
million was sold to one customer.

Reliance on Collaborative, manufacturing and Selling Arrangements

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

Liquidity and Future Plans 

The Company has recently changed its direction from acquiring ownership interest
in companies to acquiring new product  technology  and  expanding  manufacturing
capabilities  through Aaron. The Aaron 800, Aaron 1200, and the Dylyn technology
and  manufacturing  agreement are prime  examples of this new  direction.  Other
products and technologies are being evaluated for future development.

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

The  Company  has  obtained a line of credit  with a local  commercial  bank for
$400,000 and a $150,000 loan for capital  improvements.  Interest on these loans
is to be paid at 1% over prime.  As of December 31,  1998,  the Company had paid
off the line of credit  and had a balance  of  $58,060 on its term loan which is
amortized at a rate of $4,167 per month.

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


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

YEAR 2000

The Company is  reviewing  its exposure to year 2000  computer-related  risks as
well as trying to review those of its suppliers and  customers,  to evaluate any
potential  impact on January 1, 2000 and beyond.  We believe  that all  internal
systems  will be compliant  or at least have no material  adverse  effect on its
ability to operate on or after January 1,2000. No significant  program revisions
have been identified  which would result in significant  cost in future periods.
The Company anticipates, but cannot assure, that should a problem arise, it will
be able to take  necessary  steps to  minimize  the  impact  with  minimal or no
material adverse effect on the results of the Company or its customers. The cost
of this effort thus far has been  immaterial  and has been included in operating
expenses.


Item 7.   Financial Statements.
(See Attached)


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

There are no disagreements with or changes in accountants.


<PAGE>








PART III


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

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

   Name                 Position           Director since

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

J. Robert Saron         President of       August, 1994
                        Aaron
                        And Director
George Kromer           Director           October 1995

Alfred V. Greco         Director           April, 1998

Kenneth W. Davidson     Director           July, 1998

Keith Blakely           Director           December, 1998

Delton Cunningham       Secretary,                           
                        Treasurer
                        Vice President/
                        CFO

Moshe Citronowicz       Executive Vice
                        President
                        Chief Operating
                        Officer


Andrew Makrides, Esq. age 57, Chairman of the Board and President, member of the
Board of  Directors,  received  a Bachelor  of Arts  degree in  Psychology  from
Hofstra  University and a JD Degree from Brooklyn Law School.  He is a member of
the Bar of the State of New York and practiced law from 1968 until joining Bovie
Medical  Corporation  as Executive  Vice  President and director,  in 1982.  Mr.
Makrides  became  President of the Company in 1985 and the CEO in December  1998
and has served as such to date.

J.  Robert  Saron,  age 46,  Director,  holds a  Bachelors  degree in Social and
Behavioral  Science from the University of South  Florida.  From 1988 to present
Mr. Saron has served as a director of Aaron Medical  Industries,  Inc. (formerly
Suncoast Medical  Manufacturing,  Inc.). Mr. Saron served as CEO and chairman of
the Board of the Company from 1994 to December  1998. Mr. Saron is presently the
President of Aaron and member of the Board of Directors of the Company.
<PAGE>

Alfred V. Greco, Esq. age 63, Director,  is President of Alfred V. Greco,  P.C.,
and has been counsel to the Company since its  inception.  Mr. Greco is a member
of the Bar of the State of New York and has been  engaged in the practice of law
for the past 35 years in the City of New  York.  The main  focus of Mr.  Greco's
experience  for the  past  30  years  has  been in the  area  of  corporate  and
securities  law  during  which  he has  represented  a large  number  of  public
companies,  securities brokerage firms, executives and registered representative
and has developed a broad range of experience in administrative,  regulatory and
legal aspects of public companies.  Mr. Greco graduated from Fordham  University
School of Law with a Doctor of Law degree,  in June 1960. He was admitted to the
New York State Bar in March 1961.


Delton N. Cunningham, age 34, Vice President and Chief Financial Officer holds a
Bachelor  of Science in  Accounting  from the  University  of  Florida.  He is a
Certified  Public  Accountant  and is a  member  of the  American  Institute  of
Certified  Public  Accountants  and the Florida  Institute of  Certified  Public
Accountants.  Mr.  Cunningham  began his career with the Miami  office of Arthur
Anderson, LLP.  In June of  1991  Mr.  Cunningham  joined  Aaron  Medical
Industries,  Inc., as the Company's Chief Financial Officer. In June of 1992 Mr.
Cunningham became Vice President of Aaron Medical Industries,  Inc. and in April
of 1993, he was elected Corporate  Secretary of Aaron by the Board of Directors.

George W. Kromer,  Jr., age 56,  filled a vacancy on the Board of Directors  and
became a  director  on  October  1,  1995.  Mr.  Kromer  is a  Senior  Financial
Correspondent for "Today's Investor" and is utilized as a consultant by a number
of  companies  whose  shares  are  listed on the  American  Stock  Exchange  and
Over-the-Counter  Exchange.  Bovie  Medical  Corporation  has also  retained Mr.
Kromer on a month-to-month  basis as a consultant in addition to his capacity as
a  director.  He has been  writing for  financial  publications  since 1980.  He
received  a  Master's  Degree  in 1976  from Long  Island  University  in Health
Administration.  He was engaged as a Senior Hospital Care  Investigator  for the
City of New York Health & Hospital  Corporation from 1966 to 1986. He also holds
a Bachelor of Science Degree from Long Island  University's  Brooklyn Campus and
an Associate in Applied  Science  Degree from New York City  Community  College,
Brooklyn, New York.

Moshe  Citronowicz  , age 46, is a graduate of the  University  of Be'er  Sheva,
Be'er  Sheva,   Israel,   with  a  Bachelor  of  Science  degree  in  electrical
engineering.  He has also received certificates from Worcester Polytech,  Lowell
University and the American Management Association for completion of seminars in
MRP, master  scheduling,  purchasing SPC, JIT,  accounting and plant management.
Since  coming to the  United  States in 1978,  Mr.  Citronowicz  has worked in a
variety  of  manufacturing  and high  tech  industries.  In  October  1993,  Mr.
Citronowicz  joined  the  Company  as  Vice  President  of  Operations.   He  is
responsible for all areas of manufacturing,  purchasing,  product re-design,  as
well as new product design. In September 1997, Mr.  Citronowicz was appointed by
the board of  directors  to the  position  Executive  Vice  President  and Chief
Operating  Officer. 
<PAGE>

Kenneth W. Davidson, age 51, is a chairman and Chief Executive Officer of Maxxim
Medical,  Inc., a Delaware Corporation the shares of which are listed on the New
York Stock  Exchange.  Mr.  Davidson  has been a director of Maxxim  since 1986.
Prior  to  that  he was  the  Corporate  Director  of  Business  Development  at
Intermedics  Incorporated,  which is principally a  manufacturer  of implantable
medical devices such as pacemakers.

Keith  Blakely,  age 45,  is a  founder,  officer,  principal  shareholder,  and
director of ART for the past fifteen years.  He is also Chairman of the External
Advisory  Board  for the  Center  for  Advanced  Ceramic  Technology  at  Alfred
University,  a Director of the Clarkson University Center for Advanced Materials
and  Processes,  and the  Vice-chairman  of the  Board of the  Western  New York
Technology  Development  Center.  Prior to his association with ART, Mr. Blakely
served in various management,  production, quality, and engineering positions at
the Carborundum Company.

<PAGE>





REMUNERATION

Item 10. The following table sets forth the  compensation  paid to the executive
officers of the registrant for the three years ended December 31, 1998:


                           Summary Compensation Table
          
                               Annual Compensation

Name and
Principal                                     
Position             Year       Salary        Bonus(a)     Other(b)

Andrew Makrides
 President, CEO 
 Chairman of         1998      $ 99,478        1,918         9,809
 the Board           1997       103,382        1,784         9,598
                     1996        90,000        8,400         9,700
J. Robert Saron
 President of
 Aaron Medical       1998       144,559        2,814         9,809
 and Director        1997       155,865        2,460         9,352
                     1996       143,000       42,600         8,100

Moshe Citronowicz
 Executive           1998       112,463       22,891         9,809
 Vice President-     1997       107,044        1,921         9,352
 Chief Operating     1996       104,600       11,200         8,100
 Officer

Delton Cunningham    1998        86,023        1,631         9,809 
 Secretary,          1997        90,325        1,516         9,262
 Treasurer,          1996        86,000        8,400         7,400
 Vice President/
 CFO

(a) In 1997,  the  officers  waived  their right to 1996 bonuses and the bonuses
which were  contributed  to the capital of the Company.  (b) Other  compensation
consists of medical insurance and auto.

<PAGE>

REMUNERATION (continued)

Item 10. The following table sets forth the  compensation  paid to the executive
officers of the registrant for the three years ended December 31, 1998:


                           Summary Compensation Table

                             Long Term compensation

                                   Underlying
Name and                     
Principal                   Stock        Options/
Position        Year      Awards(#)    SARS(#)  Pay-outs

Andrew Makrides
 President, 
 CEO Chairman of    1998         --        --      --
 the Board          1997         --        --      --
                    1996      70,000       --      --

J. Robert Saron 
 President of
 Aaron Medical      1998         --        --      --
 and Director       1997         --        --      --
                    1996     90,000        --      --

Moshe Citronowicz
 Executive
 Vice President
 Chief              1998         --        --      -- 
 Operating          1997         --        --      --
 Officer            1996     25,000        --      --

Delton Cunningham
 Secretary,
 Treasurer,         1998         --        --       --
 Vice President,    1997         --        --       -- 
 CFO                1996     55,000        --       --

(a) In 1997,  the  officers  waived  their right to 1996 bonuses and the bonuses
which were  contributed  to the capital of the Company.  

(b) Other  compensation consists of medical insurance and auto.
<PAGE>


Option Grants and Exercise

The following table summarizes  (i)option grants to the Named Executive Officers
during the year ended  December  31, 1998 and (ii) the value of the options held
by the named Executive Officers at December 31, 1998.

                   Option Grants in the Last Fiscal Year
                               Individual Grants

                     Number of     Percent of
                     Securities   Total Options
                    Underlying     Granted to      Exercise or
                      Options     Employees in   Base Price Per   Expiration
Name                  Granted      Fiscal Year        Share           Date


Andrew Makrides       150,000           19%           $0.75          12/31/08
J. Robert Saron       150,000           19%           $0.75          12/31/08
Moshe Citronowicz     150,000           19%           $0.75          12/31/08
Delton Cunningham     150,000           19%           $0.75          12/31/08

The options were granted on January 14, 1998 under Bovie Medical Corporation

Incentive and Stock option Plan.



The  following  table sets forth  information  with respect to the  exercises of
stock options by the Named Executive Officers during the year ended December 31,
1998 and unexercised  options held by the Named  Executive  Officers on December
31, 1998.

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

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


Andrew Makrides          -             -           220,000            -
J. Robert Saron          -             -           240,000            -
Moshe Citronowicz        -             -           175,000            -
Delton Cunningham        -             -           205,000            -


___________________

(a) The  exercise  price of the options  were higher than the closing sale price
for the Common Stock.  The sales price as reported on NASDAQ  National Market on
December 31, 1998 was $0.5625.
<PAGE>

Outside  Directors are compensated in their  capacities as Board members through
option grants. The Company's Board of Directors  presently consists of J. Robert
Saron,  Andrew Makrides,  Chairman CEO, and President,  Kenneth Davidson,  Keith
Blakey,  George W. Kromer, Jr. and Alfred V.Greco.  Mr. Kromer has been retained
on a month-to-month basis pursuant to verbal agreement as a financial and public
relations  consultant  by Bovie  Medical  Corporation  for the  past  year at an
average monthly fee of $1,000. Mr. Greco is an officer and director of Alfred v.
Greco PC, Counsel to the corporation which earned legal fees from the Company of
$182,953  during 1998. He also received  75,000 ten year options to purchase the
Company's  Stock at $.75.  These  options were  authorized  but not issued as of
December 31, 1998.

In 1998  George  Kromer was  awarded  100,000  stock  options,  for ten years to
purchase Bovie Medical Corporation stock at $.75 per share.

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

On January 1, 1998, the Company  renegotiated  contracts with its officers,  for
periods of one to five years.  The  following  schedule  shows all contracts and
terms with officers of the company.


                           BOVIE MEDICAL CORPORATION
                               OFFICERS CONTRACTS
                               DECEMBER 31, 1998
<TABLE>

<S>            <C>         <C>       <C>       <C>    
Officers     Contract Expiration Contractual  Auto    
               Date      Date      Base Pay  Allowance           

Delton
Cunningham   1/1/98    12/31/2000 $ 78,872    $6,310 

Moshe
 Citronowicz 1/1/98    12/31/2002   99,905     6,310  

Andrew
 Makrides    1/1/98    12/31/2002   92,773     6,310  

J. Robert
 Saron       1/1/98    12/31/2002  136,123     6,310  

</TABLE>
<PAGE>


Item 11.  Security  Ownership of Certain  Beneficial  Owners and  Management  of
Bovie.  The following  table sets forth certain  information  as of December 31,
1998, with respect to the beneficial  ownership of the Company's common stock by
all persons known by the Company to be the beneficial  owners of more than 5% of
its  outstanding  shares,  by directors who own common stock and by all officers
and directors as a group.

<TABLE>
<CAPTION>
<S>                          <C>             <C>          <C>           <C>    
                                          Number of       Nature    Percentage
Name and Address           Title          Shares            of         of
                                         Of Class        Ownership  Ownership(i)
                                          Shares(i)

Advanced  Refractory
 Technologies, Inc.         Preferred    2,000,000       Beneficial       10.7%
 699 Hertel Ave.
 Buffalo, NY 14207

Eric Rainer Bashford
 Charitable Trust           Common       1,125,000       Beneficial       6.02%
 2689 Strang Blvd
 Yorktown Heights,
 NY 10598

Norman Fuchs, Individual
 Retirement Account         Common       1,125,000       Beneficial       6.02%
 5 Flagpole Lane
 East Setauket,
 NY 11209

Maxxim Medical, Inc.        Common       3,000,000       Beneficial       16.1%
 10300 49th St. North
 Clearwater, FL 33762

Directors
Andrew Makrides             Common         538,000(ii)   Beneficial        2.8%
 734 Walt Whitman Road
 Melville, NY 11746

George Kromer               Common         135,000(iii)  Beneficial         .7%
 P.O. Box 188
 Farmingdale, NY

Alfred Greco                Common          51,500(iv)   Beneficial         .3%  
 666 5th Ave.
 New York, NY 10103

J.Robert Saron              Common          673,805(v)    Beneficial        3.6%   
Ashley Drive
 Seminole, FL

Keith Blakely                   --             (vi)              --            0
 c/o Technologies,
 Inc. 699 Hertel Ave.

Buffalo, NY 14207
Kenneth Davidson               --             (Vii)              --            0
 c/o 10300 49th St. North
 Clearwater, FL 33762

Officers and Directors  as a group        1,965,954       Includes        10.5%
                                                          975,000 shares
                                                          Reserved for
                                                          Option


</TABLE>
<PAGE>
(i) Based on  16,699,695  common  and  preferred  shares and  1,980,500  options
outstanding to acquire  shares.  Officers and directors have 975,000  options to
acquire  shares at December 31, 1998.

ii)Includes  220,000 shares owned by Mr. Makrides  reserved  pursuant to 10 year
options to  purchase  shares of the  Company.  His  options  range from $.75 for
150,000 to $1.15 for 50,000.

(iii)  Constitute  135,000 shares reserved  pursuant to 10 year options owned by
Mr. Kromer to purchase shares of the Company.

(iv)  Does not  include  75,000  shares  reserved  pursuant  to 10 year  options
exercisable at $.75 per share. Granted but not delivered until 1999.  Represents
shares owned by Alfred V Greco PC.

(v) Includes 240,000 shares reserved pursuant to 10 year options  exercisable at
$.75 per share owned by Mr. Saron.

(vi) Does not  include  2  million  shares  of  preferred  stock of the  Company
(convertible  into 2 million  shares of common  stock) held by ART, of which Mr.
Blakely is an officer, director and major shareholder.

(vii) Does not include 3 million  shares of common stock held by Maxxim  Medical
Inc. of which Mr. Davidson is an officer, director and major shareholder.

Item 12. Certain Relationships and Related Transactions

Joseph Valenti

Valpex International Corporation ("Valpex"), a Company owned and operated by Mr.
Joseph Valenti,  was a supplier of vacuum and Krypton bulbs and vinyl pouches to
Aaron for several years.  In 1996, Mr. Valenti joined Bovie Medical  Corporation
as a director.  On May 10, 1996, Valpex and Aaron entered a three year agreement
that allows Aaron to purchase products directly from Valpex's  manufacturers and
suppliers. In exchange,  Aaron agreed to pay a commission to Valpex on purchases
from the agreed upon list of Valpex's suppliers. In 1998 and 1997, respectively,
the equivalent sales of Valpex to Aaron were $77,200 and $117,700, respectively.
Mr. Valenti  resigned from the Board of Directors in August of 1998.

The related  party  transaction  between  the  Company and Valpex  International
Corporation  were on terms  that were no less  favorable  than  could  have been
obtained in an arms' length  transaction  with an unrelated  third party. At the
time  the  Company   entered  into  its  agreement  with  Valpex   International
Corporation the agreed upon pricing was substantially  better than other pricing
available in the market.

In  January  1998  the  executive  officers  of the  Company  entered  into  new
employment  agreements with the company.  See executive  compensation - officers
contracts.
<PAGE>
George  Kromer,  a director,  also serves as a  consultant  to the Company  with
average consulting compensation of approximately $1,000 per month. The aforesaid
transactions were on terms no less favorable to the Company than could have been
obtained in  arms-length  transactions  with  unrelated  third  parties.  

Robert  Speiser As of December  31, 1997,  the Company had repaid  $235,100 of a
principal  amount  previously  owned to Mr.  Robert  Speiser  a  former  officer
director and  principal  shareholder  of the Company.  The Company has accrued a
liability for $73,800 to Mr.  Speiser,  which was the balance of his loan to the
Company and accrued  interest on that loan. Mr. Speiser is disputing this amount
because he feels he is due additional interest and back wages he estimated to be
an additional $80,000 and the Company is trying to settle Mr. Speiser's claim.

See "Certain  Relationships  and related  Transactions".  Presently  there is no
lawsuit between the Company and Mr. Speiser.

Alfred V. Greco

A director is the CEO of Alfred V Greco PC, the company's council which received
$182,953 in legal fees. See "Security  ownership" of certain  beneficial  owners
and management.

Norman Fuchs

During  October 1998 the Company  entered into a consulting  agreement  with ATH
Venture  Inc.  of  which  Norman  Fuchs is an  officer  director  and  principal
shareholder.  Mr. Fuchs through his Individual  Retirement Account  beneficially
owns  1,125,000  shares of the Company  (6.02%) and  pursuant to the  consulting
agreement receives $5,000 per month from the Company.

Item 13.   Exhibits and Reports on Form 8-k

No Form 8-k was filed in the fourth quarter of 1998.

<PAGE>


SIGNATURES

Pursuant  to the  requirements  of the  Section  13 or 15(d)  of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto duly  authorized,  in the City of St.
Petersburg, State of Florida, on April 14, 1999.


                                         Bovie Medical Corporation
                              
                                         By: S/J. Andrew Makrides
                                         Andrew Makrides
                                         Chairman of the Board
                                         President




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

Signature                           Title and Date

S/Andrew Makrides                   Chairman of the Board
Andrew Makrides                     Chief Executive Officer
                                    President, Director
                                    April 14, 1999

S/J. Robert Saron                   Director J. Robert Saron
                                    April 14, 1999

S/George W. Kromer                  Director
George W. Kromer                    April 14, 1999


S/ Delton Cunningham                Secretary, Treasurer
Delton Cunningham                   Principal Accounting Officer
                                    April 14, 1999


S/Kenneth Davidson                  Director
Kenneth Davidson                    April 14, 1999


S/Alfred Greco                      Director
Alfred Greco                        April 14, 1999


S/Keith Blakely                     Director
Keith Blakely                       April 14, 1999

<PAGE>


PART II

ITEM 7.  FINANCIAL STATEMENT




BOVIE MEDICAL CORPORATION
INDEX TO FINANCIAL STATEMENTS



       Contents                                          Page



Consolidated Balance Sheet
 at December 31, 1998                                     19

Consolidated Statements of Operations for the
 years ended December 31, 1998 and 1997                   21

Consolidated Statements of Shareholders' Equity
 for the years ended December 31, 1998 and 1997           23

Consolidated Statements of Cash Flows for the
 years ended December 31, 1998 and 1997                   25

Notes to Consolidated Financial Statements                28

Consent of Certified Public Accountant                    49

Independent Auditors' Report                              50

<PAGE>

BOVIE MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998


                           ASSETS

Current assets:

  Cash                                   $   278,673
  Trade accounts receivable, net           1,002,834
  Inventories                              1,476,548
  Prepaid expenses                            78,440
  Deferred tax asset                         175,010
  Other Assets                                23,051

     Total current assets                  3,034,556

  Property and equipment, net              2,162,337

  Other assets:
  Repair parts                               355,756
  Trade name                               1,791,257
  License and manufacturing rights         2,955,984
  Goodwill, net                                4,120
  Patent rights, net                         226,054
  Deposits                                   129,765

                                           5,462,936

     Total Assets                        $10,659,829

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


<PAGE>


BOVIE MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(Continued)


LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities

Current liabilities:

 Accounts payable                      $   385,558
 Accrued expenses                          302,388
 Notes payable - current portion           569,187
 Due to shareholders                       103,126

     Total current liabilities           1,360,259

 Long-term debt                             11,226


Stockholders' equity:

Preferred Stock, par value $.001
 10,000,000 shares authorized
 2,000,000 issued and outstanding
 On December 31, 1998                        2,000

Common stock par value $.001;
 40,000,000 shares authorized,
 issued and outstanding 14,809,695
 shares, on December 31, 1998               14,780
Additional paid in capital              21,199,945
Accumulated deficit                    (11,928,381)

    Total stockholders' equity           9,288,344

    Total liabilities and
   stockholders' equity               $ 10,659,829


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

<PAGE>


BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

                              1998                  1997

Sales                      $8,441,846           $7,371,281
Cost of sales               5,274,041            4,138,774
  
Gross Profit                3,167,805            3,232,507
Other costs:
Research and development      183,173               96,738
Professional services         552,352              298,156
Salaries and related costs  1,599,925            1,280,370
Selling, general and
 administration             1,752,517            1,479,249

Total other costs           4,087,967            3,154,513
Income from operations      ( 920,162)              77,994

Other income and (expense):

Interest income                 4,163                4,005
Interest
expense                     ( 103,843)           (  87,696)
Miscellaneous                  21,796               34,288

                            (  77,884)           (  49,403)

Income before income tax    ( 998,046)              28,591
Income taxes:
    Current                        --            (   8,577)    
Tax benefit                        --                8,577

Net income (loss)          $( 998,046)          $   28,591

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

BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(CONTINUED)



  Earnings per share
                                 1998             1997

Net income (loss):

   Basic                      $ (.07)             N/S
   Diluted                    $ (.07)             N/S

Weighted average number
 of shares
 outstanding                13,876,328        8,186,256
 

Weighted average number
 of share assuming
 conversion of securities   13,876,328        8,443,972


N/S - Not Significant


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



<PAGE>


BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(Continued)


                                      Common
                     Warrants        number of     Common       Paid in
                    Outstanding       shares        stock       Capital
Balance
January 1,
 1997               $1,121,000       $8,110,648    $121,671    $12,921,356

Shares exchanged
 for warrants         (200,000)         100,000       1,500      (   1,500)


Shares issued
 to retire debts            --           51,800         637         33,761


Shares issued
 for services               --           17,500         263          6,737


Warrants issued        143,000               --          --            --


Collection of  subscriptions
 receivable                 --               --          --            --


Employee
 contribution
 of Bonus                   --               --          --         70,600


Net income                  --               --          --            --
Balance as of
December 31,
1997                $1,064,000       $8,279,948     $124,071   $13,030,962


The accompanying notes are an integral part of the financial
statements.  (Continued on next page)
<PAGE>



BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(Continued)

                        Deficit    Receivable     Total
Balance
January 1,
 1997               $(10,958,926)  $(64,000)   $2,020,109

Shares exchanged
 for warrants                 --         --            --

Shares issued
 to retire debts              --         --        34,398

Shares issued
 for services                 --         --         7,000

Warrants issued               --         --            -

Collection of  subscriptions
 receivable                   --     64,000        64,000

Employee
 contribution
 of Bonus                     --         -         70,600

Net income                28,591         -         28,591

Balance as of
December 31,
1997                $(10,930,335  $      --    $2,224,698

The accompanying notes are an integral part of the financial
statements.  (Continued on next page)

<PAGE>

BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY

FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
                             Preferred              Common
                Warrants     number of  Preferred  number of
               Outstanding     shares     Stock      share
Balance
 January 1,
 1998            1,064,000        --       --     8,279,948

Shares exchanged
 for warrants
 at $.75          ( 83,500)       --       --        83,500

Shares issued for
 consulting
 services at
 $.40 per share         --        --       --       306,667

Shares issued
 for employee bonus     --        --       --       100,000
 at $.20 per share

Shares issued
 for purchase of
 patent right at $.40
 per share              --        --       --        39,580

Shares issued for
 purchase of equipment,
 license, manufacturing
 rights and cash at $.98
 per share              -- 2,000,000    2,000     2,900,000

Shares issued
for trade name
 and inventory at
 $1.00 per share       --         --       --     3,000,000

<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(CONTINUED)
                             Preferred               Common
                   Warrants    number of  Preferred  number of
               Outstanding     shares     Stock       share

Receipt of cash on
 subscriptions
 receivable Aaron
 officers               --        --       --            --

Adjustment to
 par value of
 stock from $.015
 to $.001 as
 per stockholders
 meeting                --        --       --            --

Warrants issued
 1998            1,000,000        --       --            --

Loss for 1998           --        --       --            --

Balance as of
 December
 31, 1998       $1,980,500 $2,000,000  $2,000   $14,709,695

The accompanying notes are an integral part of the financial
 statements. (Continued on next page)
<PAGE>

BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(CONTINUED)

                 Common    Paid-in
                 stock     Capital     Deficit      Total
Balance January
 1, 1998       $124,071 $13,030,962  (10,930,335)  2,224,698

Shares exchanged
 for warrants
 at $.75             84     62,157           --       62,241

Shares issued
 for consulting
 services at
 $.40 per share     307    122,360           --      122,667

Shares issued
 for employee
 bonus at $.40
 per share          100     19,900           --       20,000

Shares issued
 for purchase
 of patent
 rights at $.40
 per share           40     16,229           --       16,269

Shares issued
 for purchase
 of equipment,
 license,
 manufacturing
 rights and
 cash at $.98
 per share        3,000  4,855,000          --     4,860,000

Shares issued
 for trade name
 and inventory
 at $1.00
 per share        3,000  2,977,000          --     2,980,000
<PAGE>
BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(CONTINUED)

                   Common    Paid-in
                   stock     Capital     Deficit       Total

Receipt of cash
 on subscriptions
 receivable
 Aaron officers      --        515           --          515

Adjustment to
 par value of
 stock from $.015
 to $.001 as per
 stockholders
 meeting       (115,822)   115,822           --           --

Warrants
 issued 1998         --         --           --           --
      --
Loss for 1998        --          --  (  998,046)  (  998,046)

Balance as
 of December
 31,1996        $14,780 $21,199,945 $(11,928,381) $9,288,344

The accompanying notes are an integral part of the financial
statements. (Continued on next page)

<PAGE>

BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997


                                   1998            1997

Cash flows from operating
activities:

Net income (loss)             $ (998,046)       $  28,591
Adjustments to reconcile
 net income (loss) to net
 cash provided by
 operating activities:

Depreciation and amortization    787,088          311,138
Shares issued for services       162,667            7,000
Write down inventory of 
 repair parts                    193,219               --

Change in assets and liabilities:

(Increase) decrease in
  receivables                  ( 211,009)          64,565
(Increase) decrease in
  prepaid expenses             (  10,510)        ( 11,876)
Increase in inventories        (  24,697)        (109,925)
Increase (decrease) in other
 receivables                      34,212         (  7,738)
Increase (decrease) in
 accounts payable              (  13,532)        (388,126)
Increase in accrued
 expense                          66,598            7,578
Total adjustments                984,036        ( 127,384)

Net cash provided
 (used in) operations         $(  14,010)      $(  98,793)

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

<PAGE>

BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(Continued)

                                   1998             1997
Net cash provided by (used in)
 operating activities           $( 14,010)      $ ( 98,793)

Cash flows from investing activities:

Increase in fixed assets         (301,220)        (244,352)
Increase in security deposits    (  2,615)        (     10)
Acquisition of patent rights           --         ( 13,371)
Purchase of Technology           ( 20,000)              --
Increase deposit on equipment    (120,000)              --

Net cash used in investing
 activities                      (443,835)        (257,733)
Cash flows from financing 
 activities

Receipt of common stock
 subscription                          --           64,000
Common shares issued              982,756               --
Loans from shareholders             3,972            2,736
Cost of issuing common stock -
 Purchase of Aaron                     --               --
Increase in term borrowing         40,280           69,534
Payment of long term borrowing   ( 28,734)        (220,466)
Term loan                              --          150,000
Repayment of term loan           ( 50,006)        ( 41,936)
Borrowing - line of credit             --           85,000
Repayment - line of credit       (260,000)        (225,000)

Net cash used in financing
 activities                       688,272          283,868

Net increase (decrease) in cash   230,427          (72,658)

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

BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(Continued)
                                   1998           1997

Cash at beginning of year         48,246         120,904

Cash at end of year            $ 278,673        $ 48,246


Cash paid during the twelve months ended December 31:

                                   1998           1997

         Interest              $ 104,657       $ 71,651
         Income Taxes              -0-            -0-

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

<PAGE>

BOVIE MEDICAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND 1997


SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:



FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998

1. In February of 1998,  the Company  issued 5 million shares valued at $.98 per
share for two  reactors,  1  million  in cash and a  license  and  manufacturing
agreement  to coat  medical  products  with a multi  patented  advanced  coating
technology called Dylyn.

2. The Company  issued  306,667  restricted  shares valued at $.40 per share for
consulting services.

3. The Company issued 100,000  restricted  shares valued at $.40 per share to an
officer of the Company in the form of a salary bonus.

4. The Company issued 39,580  restricted shares valued at $.40 for patent rights
on its OmniFix products.

5. The Company issued  3,000,000  shares valued at $1.00 per share for the trade
name  "Bovie"  and  inventory  of  raw  materials  to  produce   electrosurgical
generators.

FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997

1. In February  of 1997,  10 year  convertible  subordinated  debentures  of the
Company came due and the Company offered each bond holder 2,200 shares of common
stock for each $1,000 bond and accrued  interest of $550.  Nineteen  bondholders
accepted the offer and forty-three bondholders received cash for their bonds and
accrued  interest.  The total amounts of principal  and accrued  interest on the
converted  bonds were  $19,000  and  $10,826  respectively.  The  balance of the
bondholders have not redeemed their bonds or accepted the share offer.
<PAGE>

CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND 1997

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:

FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997

2.  The Company issued 10,000 shares of common stock in exchange
for $4,772 of accounts payable.

3.  The Company issued 100,000 shares of common stock as a result
of the exercise of  200,000 warrants that were issued in
conjunction with a private placement of the Company's securities.

The Company accepted $70,600 from management as a contribution to capital for an
outstanding liability for bonuses earned in 1996.
<PAGE>

BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates in the Preparation of Financial Statements

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

Consolidated Financial Statements

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

Fair Values of Financial Instruments

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

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

Inventories  are  stated  at the  lower of cost or  market.  Cost is  determined
principally on the average actual cost method.  Inventory at fiscal year-end was
as follows:
             Raw materials              $   959,989
             Work in process                254,832             
             Finished goods                 260,727

             Total                      $ 1,475,548


<PAGE>

BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Inventory  that will be used to repair  Bovie  Generators  was  acquired  by the
Company in its transaction with Maxxim.  Estimates for the use of the repair raw
materials range from 5-7 years. The cost of this inventory was $548,975.  Due to
the prolonged  period  necessary for  disposition of these  materials as per the
agreement and uncertainty  regarding the  utilization for repairs,  the cost was
reduce by $193,219 to approximate pair market value.
Long-lived Assets

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

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

Intangible assets consist of patent rights and goodwill. Goodwill represents the
excess of the cost of assets of the acquired  companies over the values assigned
to net tangible assets.  These  intangibles are being amortized by the straight-
line method over a 5-year period. Effective January 1, 1996, the Company adopted
Statement of Financial  Accounting  Standards (SFAS) No.121,  Accounting for the
Impairment of Long-lived  Assets and for Long-lived Assets to be disposed of. In
accordance  with  SFAS  No.121,   the  Company  reviews  long-lived  assets  for
impairment  whenever  events or changes  in  business  circumstances  occur that
indicate  that the  carrying  amount of the  assets  may not be  recovered.  The
Company  assesses the recover  ability of long-lived  assets held and to be used
based on undiscounted cash flows and measures the 
<PAGE>

BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

impairment, if any, using discounted cash flows. Adoption of SFAS No.121 did not
have  a  material  impact  on the  Company's  consolidated  financial  position,
operating results or cash flows.

Revenue Recognition and Product Warranty

Revenue  from  sales of  products  is  generally  recognized  upon  shipment  to
customers.  The Company warrants its products for one year. The estimated future
costs of  warranties  are not  material.  Income is  recognized in the financial
statements (and the customer  billed) when products are shipped from stock.  Net
sales are arrived at, by deducting discounts and freight from gross sales.

Environmental Remediation

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

Earnings Per Common and Common Equivalent Share

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

<PAGE>
BOVIE MEDICAL CORPORATION CONSOLIDATED 
NOTES TO FINANCIAL STATEMENTS


NOTE 1.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In 1997, the Company adopted SFAS 128.

Research and Development Costs

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

The Company and its wholly-owned  subsidiary file a consolidated  federal income
tax return. Income taxes are accounted for under the asset and liability method.
Deferred  tax  assets  and   liabilities  are  recognized  for  the  future  tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases and operating loss and tax credit carry-forwards.  Deferred tax assets and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
recovered  or settled.  The effect on deferred tax assets and  liabilities  of a
change in tax rates is  recognized  in income in the period  that  includes  the
enactment date.

Non-monetary Transactions

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

BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Stock-Based Compensation

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

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

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

New Accounting Standards

In June  1997,  the  Financial  Accounting  Standards  Board  issued  SFAS  130,
"Reporting  Comprehensive  Income". SFAS 130 establishes standards for reporting
and display of  comprehensive  income and its  components  (revenues,  expenses,
gains,  and  losses)  in a full set of  general  purpose  financial  statements.
Specifically,  SFAS 130  requires  that all items  that meet the  definition  of
components of comprehensive  income be reported in a financial statement for the
period in which they are recognized.  However, SFAS 130 does not specify when to
recognize or how to measure the items that make-up  comprehensive  income.  SFAS
130 is effective for fiscal years  beginning  after December 15, 1997, and early
application is permitted.  Management  believes the application of SFAS 130 will
not have a material  effect on the Company's  future  financial  statements. 

In April  1998,  the FASB issued SOP 98-5,  "Reporting  on the Costs of Start-up
Activities," which will become effective for the

<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

for the Company in fiscal 2000.  It requires  costs of start-up  activities  and
organization  costs to be expressed as incurred.  The Company  currently follows
this approach and such costs have been minimal in the past.

In June  1997,  the  Financial  Accounting  Standards  Board  issued  SFAS  131,
"Financial  Reporting for Segments of Business  Enterprise." SFAS 131 supersedes
the "industry  segment" concept of SFAS 14 with a "management  approach" concept
as the basis for  identifying  reportable  segments.  SFAS 131 is effective  for
fiscal  years  beginning  after  December  15,  1997 and  early  application  is
permitted.  Management  believes  the  application  of SFAS  131 will not have a
material effect on the Company's future financial statements.

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

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

NOTE 2.  DESCRIPTION OF BUSINESS

Bovie Medical  Corporation,  formally An-Con Genetics,  Inc. ("the Company") was
incorporated in 1982, under the laws of the State
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2.  DESCRIPTION OF BUSINESS (CONTINUED)

of Delaware and has its  principal  executive  office at 734 Walt Whitman  Road,
Suite 207, Melville, New York 11747.

Currently,  the Company is actively engaged in the business of manufacturing and
marketing medical products and developing related technologies.

Aaron Medical Industries, Inc.

On January  11,  1995 the Company  acquired a 100%  ownership  interest in Aaron
Medical Industries, Inc. a St. Petersburg,  Florida based Company engaged in the
manufacturing  and  distributing  of medical  products.  Aaron's largest current
product line is battery operated  cauteries.  Cauteries were originally designed
for  precise  hemostatic  in  ophthalmology.  Today  they have a variety of uses
including sculpting woven grafts in bypass surgery,  vasectomies,  evacuation of
subungual hematoma (smashed  fingernail) and for stopping bleeding in many types
of surgery.  Aaron  manufactures  many types of  cauteries.  Aaron  additionally
manufactures   a  variety  of  specialty   lighting   instruments   for  use  in
ophthalmology,  as well as a patented flexible  lighting  instrument for general
surgery,  hip replacement  surgery, and for the placement of endotracheal tubes.
An industrial  version of this light is distributed  through a large  automotive
tool  distributor,   and  various  retail  outlets  and  stores.  Aaron  Medical
Industries, Inc. manufactures and sells its products under the Bovie/Aaron label
worldwide and has private label arrangements.
<PAGE>

BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2.  DESCRIPTION OF BUSINESS (CONTINUED)

ECU Technology

On December 15, 1995 the Company's  subsidiary,  Aaron,  purchased design rights
for the technology to manufacture a 30 watt  electrosurgical  coagulation device
(ECU) The ECU was being made by a third  party  manufacturer.  The Company had a
one year  contract  with the  manufacturer  to produce the unit at a fixed price
with a provision  for a second  year  extension  at an agreed  upon  price.  The
Company  has  hired  an  electrical  engineer  to  head up the  project  and has
relocated the production to the St. Petersburg facility.

The Company has developed a 120 watt  electrosurgical  coagulation  device (ECU)
which it began marketing in 1998.

NOTE 3.  TRADE ACCOUNTS RECEIVABLE

As of December 31, 1998 the trade accounts receivable were as follows:

    Trade accounts receivable                 $ 1,066,498
    Less: allow for doubtful accounts           (  60,437)
    Trade accounts receivable, net            $ 1,006,061

NOTE 4.  PROPERTY, PLANT AND EQUIPMENT

As of  December  31,  1998  property,  plant  and  equipment  consisted  of  the
following:

    Equipment                                 $ 2,267,541
    Building                                      637,485
    Furniture & Fixtures                          375,752
    Leasehold Improvements                        251,505
    Molds                                          92,061
                                                3,624,344
    Less: Accumulated depreciation            (1,462 ,048)

    Net property, plant, and equipment        $ 2,162,296
<PAGE>

BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4.  PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

Depreciation  expenses  for the  years  ended  December  31,  1998 and 1997 were
$326,843 and $216,000, respectively.

NOTE 5. RENTAL AGREEMENTS

On May 6, 1997,  an  agreement  was entered  into with the  landlord of 734 Walt
Whitman Rd.,  Melville,  New York for a new lease on premises  beginning  May 6,
1997 and extending for three years to May 5, 2000.  The annual rental is $14,722
payable $1,226.83 per month.
The following is a schedule of future minimum rental payments as of December 31,
1998:

            Amount 
 
            1999                        $ 14,722
            2000                           4,907

                                        $ 19,629

Total  consolidated rent expense for the Company was $21,342 in 1998 and $19,294
in 1997.

NOTE 6.  DUE TO SHAREHOLDERS

A former Chief Executive Officer (CEO) and past President made cash loans to the
Company during the period October 12, 1990 to December 31, 1993 of $180,500.  In
addition to these  loans,  the past CEO  advanced his own cash of $76,100 in the
form of loans for product  development,  travel and other expenses.  Interest on
these  loans were at 9% to 12% and had been  accrued  from  inception.  His loan
balance at December 31, 1998 was $73,800.  The Company has been  negotiating  to
settle this matter.

In response to the recission offer made by Bovie Medical  Corporation to Aaron's
former  shareholders,   certain  shareholders  owning  46,800  shares  have  not
contacted the Company. The recession price owed to these shareholders, including
$10,538 of accrued interest is $29,325.
<PAGE>

BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7.  INTANGIBLE ASSETS

Patent Infringement Lawsuit

On January 22, 1998,  Aaron and MegaDyne  Medical  Products,  Inc.(MMP),  a Utah
Corporation,  entered  an  agreement  to settle an action  that MMP had  brought
against the Company, in the U.S. District court of Utah, for infringing a patent
for an electrosurgical product.

Aaron agreed to pay $150,000 for damages resulting from the patent infringement,
for a period,  of six  months  not to  manufacture  or sell any  electrosurgical
instrument  that  infringes  the  Patent,  and to  provide  MMP  with a list  of
customers who had purchased the infringing product.

Additional  costs  associated  with the  settlement  were legal fees of $92,038,
write down or inventory of $12,047 and estimated future sales refunds of $7,500.
Total costs charged as Selling, General and Administrative, were $261,585.

At December 31, 1998, the intangible assets consisted of the following:

      Classification                    Amount

      ECU Technology                  $ 330,216
      Multifunction Cautery              59,400
      Patent rights                      87,769
      Goodwill                          188,000
      License and        
       manufacturing agreement        3,247,540

      Trade name                      1,877,299

                                      5,790,224
      Less: Accumulated Amortization    812,785
                                       
                                     $4,977,439
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7.  INTANGIBLE ASSETS (CONTINUED)


The Company  acquired the License and  manufacturing  rights to coat its medical
products,  using  a new  technology,  and  entered  a  product  development  and
manufacturing  agreement,  in February  1998(See  the  Supplemental  Schedule of
non-cash  transactions).  The acquisition cost of the  manufacturing  rights was
$3,247,540.  In accordance  with the agreement,  the seller is  responsible  for
perfecting  the production  technology.  However,  in 1998,  certain delays were
experienced in the development of bulk production methods.  Continuation of such
delays may impair the future cash flows from the product and the carrying  value
of related assets.

The trade  name  Bovie was  acquired  for  $1,877,299,  on May 8,  1998(See  the
Supplemental Schedule of non-cash transactions).

The cost of patents,  trademarks,  patent  rights,  technologies  and copyrights
acquired are being  amortized on the  straight-line  method over their remaining
lives, ranging from 2 to 20 years. Amortization expense charged to operations in
1998 and 1997 was $461,245 and $60,570, respectively.

NOTE 8. LONG-TERM DEBT

The long-term debt of the Company includes the mortgages, convertible debentures
and notes payable of the Company.

         Bonds payable                          $   20,000
         Mortgage payable                          441,325
         Term loan                                  58,060
         7% Note payable                            15,369
         9% Note payable                             5,377
         Other note payable                         40,281

                                                   580,412

         Less: Current portion                     569,187

         Long-term debt                         $   11,225



<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8. LONG-TERM DEBT (CONTINUED)

Convertible Debenture

As of April 21, 1987, the Company had sold 1,711  convertible  debenture  units.
Each  unit  consisted  of $1,000  subordinated  debentures  and 50 common  stock
warrants.

As of December 31,  1998,  1,691 units of  debentures  had been  converted  into
common shares of Bovie Medical Corporation or have been redeemed.  The remaining
number of outstanding debentures was 20 units.

In February  of 1997,  the  10-year  notes of $78,000  and  accrued  interest of
$42,580 came due and the Company offered each bond holder 2,200 shares of common
stock for their $1,000 bond and accrued interest of $550.  Nineteen  bondholders
accepted the offer and forty-three bondholders received cash for their bonds and
accrued  interest.  The balance of the bondholders have not redeemed their bonds
or accepted the share offer. 

Mortgage  Payable  10% - Mortgage  payable to former  landlord  for  purchase of
property at 7100 30th Avenue North, St. Petersburg,  Florida secured on June 26,
1995 for $500,000  payable in monthly  installments  of  $5,673.06  inclusive of
interest until July 1,1998 when a balloon  payment of $ 442,733 is due.  Because
the environmental issue has not been remediated the mortgage is not due.

Notes Payable to a Commercial Bank

The notes payable is for a term loan of $150,000.  The interest on the term loan
is the bank's prime rate plus 1%. The loan is repaid in equal  monthly  payments
plus  accrued  interest  based  on a three  year  amortization.  The  bank has a
security interest in inventory, accounts receivable and equipment of the Company
(the collaterals.

<PAGE>

BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8. LONG-TERM DEBT (CONTINUED)

Line of Credit - Commercial Bank

The  advances  under the line of credit are limited to the lesser of $400,000 or
65% of accounts receivable from non affiliated parties. The annual interest rate
on the loan is the bank's  prime rate plus one percent.  The line expires  March
31, 1998. The bank has a security interest in inventory, accounts receivable and
equipment of the Company (the collateral).

7% Note  Payable - This note was issued in  connection  with the  purchase  of a
probe scope technology payable $779.14 per month for 48 months  self-liquidating
beginning November 1996 with the last payment due October, 2000.

9% Note  Payable - This note was issued to finance the  insurance  premium.  The
note is payable at $5,661.00 per month for 2 months.

Other  notes  payable - To a  supplier  for the  purchase  of a product  line to
supplement electrosurgical products.

The  following  are  maturities  of long term debt for each of the next 5 years:
               
               1999             569,187
               2000              11,225

                              $ 580,412

NOTE 9. OPTIONS

As of December 31, 1998, outstanding options were as follows:

         Number of Options                        Exercise
      Currently Exercisable                         Price
        
            200,000                               $ 2.000
             50,000                                 1.150
            307,000                                 1.125
             30,000                                 1.120
          1,393,500                                 0.750
          1,980,500                               $ 0.950 (a)

(a) The amount of $0.950  represents the weighted  average exercise price of the
outstanding options.

<PAGE>

BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9. OPTIONS (CONTINUED)

In 1996 the  Company  issued  921,000  10 year  non-statutory  stock  options to
employees exercisable at from $.75 to $1.15 a share.

In 1997,  the Company  issued  100,000  shares of common  stock in exchange  for
200,000 options.  Also, 143,000 warrants were issued to the Company's  employees
as a part of the employee benefit plan (Note 16).

In 1998, the Company  authorized  1,341,000  options under its 1998 services and
compensation  plan and issued only 800,000.  The Company issued 200,000  Options
for  investment  banking  services.  The  exercise  price of the  options is two
dollars  per share and they expire  after two years from the date of issue.  The
holders of 83,500 options  exercised  their rights and purchased equal number of
shares at $.75 per share.

The  options  became  exercisable  in 1997 and 1998 and expire at various  dates
through  December,  2007. At December 31, 1998,  1,980,500  shares of stock were
reserved for that purpose.  1,980,500  options are currently  exercisable with a
weighted average life of approximately eight years.

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

The Company  used the  Black-Scholes  Model to  determine  the fair value of the
options with the following  weighted average  assumptions,  zero dividend yield;
expected  volatility of 50%; and risk free interest rate of 6% and expected life
of ten and two  years  for the  800,000  and  200,000  options  issued  in 1998,
respectively.

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

BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9. OPTIONS (CONTINUED)
                                         1998              1997

Net earnings (Loss) - as reported  $(  998,146)         $ 99,191
Net earnings (Loss) -pro forma      (1,417,000)           65,151
Earnings (loss) per share                 (.07)            .0352
Earnings (Loss) per share-pro forma       (.10)             .008

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option  pricing  model  with  the  following   weighted  average
assumptions,  zero  dividend  yield;  expected  volatility  of  .50%;  risk-free
interest rate of 6%; and expected lives of 3 years.

NOTE 10.  NET OPERATING LOSS CARRYFORWARDS

As of December 31, 1998, the components of deferred tax assets were as follows

        Deferred tax assets:

        Inventories                             $    82,550
        Net operating loss carry-forwards         2,827,000
        Patent rights, primarily due to
         amortization                               109,815

        Total gross deferred tax assets           2,936,815

        Less: Valuation allowance                (2,936,815)
        Net deferred tax assets - non-current    $      --

The Company had NOLs of approximately $7,974,000 at December 31, 1998, primarily
because of the past operating losses  associated with  discontinued  businesses.
These NOLs and  corresponding  estimated  tax assets,  computed at 35% tax rate,
expire as follows:

<PAGE>

BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 Year loss     Expiration      Loss      Estimated
 incurred         Date        Amount     Tax Asset

   1984           1999    $  672,000   $   235,000
   1985           2000       764,000       267,000
   1986           2001       301,000       105,000
   1987           2002       730,000       255,000
   1988           2003       757,000       265,000
   1989           2004       374,000       131,000
   1990           2005       382,000       134,000
   1991           2006       246,000        86,000
   1992           2007     1,004,000       352,000
   1993           2008       465,000       163,000
   1994           2009     1,197,000       419,000
   1995           2010       637,000       223,000
   1998           2013       548,000       192,000

    Total                $ 8,077,000   $ 2,827,000

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

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

The valuation  allowance of  $2,523,315,  as of January 1, 1997 was increased by
$413,500 as a consequence  of  recognizing  additional  deferred tax assets,  in
1998.

<PAGE>

BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 10.  NET OPERATING LOSS CARRYFORWARDS (CONTINUED)

Income  before  taxes and  provisions  for income  tax  expense  (benefit)  from
continuing operations at December 31,1997 were:

        Current Federal income tax           $ 6,262
        Current State income tax               2,315

        Total                                $ 8,577

The  actual  income  tax  expense   attributable  to  earnings  from  continuing
operations  for the year ended  December  31,  1997  differed  from the  amounts
computed by  applying  the US Federal  tax rate of 35% to pretax  earnings  from
continuing  operations  as a  result  of  the  tax  benefit  of  operating  loss
carryforwards  of $8,577.  In 1998, the Company had a net loss and its effective
and actual tax rates were zero.

NOTE 11.  RETIREMENT PLANS

The  Company  and or its  subsidiary  provides  a  tax-qualified  profit-sharing
retirement plan under Section 401k of the Internal Revenue Code. (the "Qualified
Plans") for the benefit of eligible  employees with an accumulation of funds for
retirement  on a  tax-deferred  basis  and  provides  for  annual  discretionary
contribution  to  individual   trust  funds.   All  employees  are  eligible  to
participate  if they have one year of service to the Company.  The employees may
make voluntary  contribution to the plan up to 15% of their annual compensation.
The Company's contributions to the plan are discretionary but may not exceed 25%
of the first 4% of the annual  compensation that an employee  contributes to the
plan. Vesting is graded and depends on the years of service.  After six years of
service the employees are 100% vested.

The Company has made a contribution  during 1998 and 1997 of $23,607 and $10,557
respectively, for the benefit of its employees.

<PAGE>

BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11. RETIREMENT PLANS(CONTINUED)

The  Company  also  maintains  a group  health and dental  insurance  plan.  The
employees  are  eligible  to  participate  in the plan  after  three  months  of
full-time service to the Company.

NOTE 12. RELATED PARTY TRANSACTIONS

During 1998, a company that was  controlled  by a board member that  resigned in
1998 received commissions from the purchase of materials the Company used in the
production of certain of the Company's  products.  The value of these  materials
sold to the Company for 1998 and 1997 was $77,153 and $117,700, respectively. In
May of 1996,  the Company  signed a termination  agreement  with the supplier of
these  products,  which allows the Company to purchase these  products  directly
from the  manufacturer.  In exchange,  the Company will pay  commissions  to the
board  member for a period of 3 years based on the amount of material  purchased
from certain vendors.

Alfred V Greco

A director is the CEO of Alfred V Greco PC, the Company's council which received
$182,953 in legal fees. See Security  ownership of certain beneficial owners and
management.

Norman Fuchs

During  October 1998 the Company  entered into a consulting  agreement  with ATH
Venture  Inc.  of  which  Norman  Fuchs is an  officer  director  and  principal
shareholder.  Mr. Fuchs through his Individual  Retirement Account  beneficially
owns  1,125,000  shares of the Company  (6.02%) and  pursuant to the  consulting
agreement receives $5,000 per month from the Company.

George Kromer

A director,  also serves as a consultant to the Company with average  consulting
compensation of approximately $1,000 per month.

<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 13.  PROPERTIES

The Company had moved its  executive  offices to the Aaron  facility  located at
7100 30th  Avenue  N.,  St.  Petersburg,  Florida  33710-2902,  during the first
quarter of 1995.

The Company has  additional  executive  office space at 734 Walt  Whitman  Road,
Melville,  which it leases for $1,226.83  per month.  The lease runs through the
year 2000.

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

In February of 1998, the environmental engineering firm Geo- Ambient conducted a
second  addendum to the CAR, (CAR Addendum II) to complete the  additional  work
requested  by the FDEP.  Based on the results of CAR  Addendum  II,  Geo-Ambient
recommended  to the FDEP that a "no  further  action"  status be granted for the
site.  However,  as of the date of  filing  the  FDEP has not yet  issued a Site
Completion Rehabilitation Order (SCRO).

The  Company  has  received a report and  recommendations  on the results of the
water tests  performed.  As a result of previous  sampling  that showed that one
on-site monitoring well still had groundwater exceedances for vinyl chloride and
total xylene,  the State Department of  Environmental  Protection has placed the
site on a  "monitoring-only"  plan.  The plan  includes 4 quarters of  sampling,
concluding in May,  1999.  The first  quarter  report was issued this past July.
Because the  exceedances  were very slight,  the  mortgagee  has requested a "no
further action".

DEP disagreed,  instead requiring the monitoring plan. At the end of the period,
DEP will likely approve a "no further action"

<PAGE>

BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13. PROPERTIES (CONTINUED)

unless the well  concentrations  have not declined.  In that case, DEP could ask
for further  monitoring or some type of  groundwater  treatment.  The SCRO is on
hold and the Company believes it will not be issued for more than a year pending
action on the above issue.

Based on the above  paragraph and the "no further action" finding by Geo-Ambient
and the  future  issuance  of an SCRO by the FDEP  management  of Bovie  Medical
Corporation has estimated the present value of the cost of environmental work to
be zero.

NOTE 14.  COMMITMENTS AND CONTINGENCIES

Environmental conditions -Purchase of Building
(See Note 13 - properties)

Leases

The Company  leases  administrative  facilities  under an  operating  lease that
expires in 2000. Rental expense was $21,342 in 1998 and $19,294 in 1997. Minimum
rental  commitments  under all non-  cancelable  leases with an initial  term in
excess of one year are  payable  as  follows:  1999 -  $14,722;  2001 and beyond
$4,907. There was no commitment for construction or purchase of property, plant,
and equipment approximated at December 31, 1998.

Employment Agreements

The Company has employment agreements with seven key employees. These agreements
are for terms from 2-5 years and call for salaries of $51,000 to $136,000.
During 1997 officers waived their right to 1996 bonuses and allowed the board of
directors to determine  future  bonuses.  These  bonuses  valued at $70,600 were
shown as a contribution to paid in capital.
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14.  COMMITMENTS AND CONTINGENCIES (CONTINUED)

Employee Benefit Plans

In 1996, the Company  established  stock option plans under which officers,  key
employees and  non-employee  directors may be granted options to purchase shares
of the Company's  authorized  but unissued  Common Stock.  Under  Employee Stock
Warrant Plans, the Company has warrants  outstanding as of December 31, 1998 for
the purchase of 1,780,500  shares of restricted  common stock at exercise prices
ranging from $.75 to $1.125.

Product Liability

The Company currently has product  liability  insurance which, it believes to be
adequate for its business. The Company's existing policy expires in May 1999.

Speiser

On December 29, 1992,  Robert Speiser,  the then, Chief Executive Officer of the
Company,  obtained a confession of judgement in the Supreme Court,  State of New
York,  counties  of Suffolk  and  Westchester  for  amounts  due on loans to the
Company of $92,239 and $190,957 inclusive of interest at 12% to May 27, 1992 and
9% thereafter.

These loans  represent  amounts  claimed by Mr. Speiser to have been expended on
behalf of the Company and funds loaned to the Company.  As reported to the Board
of Directors,  Mr.  Speiser's  actions were motivated solely to deter threatened
action by a  landlord  to file a  judgement  at that time of  $41,700  in rental
arrears on the Melville, NY lease.

Mr. Speiser has indicated that he does not intend to enforce this judgement.  On
March 29, 1993 and in subsequent letters of

<PAGE>

BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 14.  COMMITMENTS AND CONTINGENCIES (CONTINUED)

instruction to the Sheriff of Suffolk  County,  Mr.  Speiser  requested that the
execution  of the  above-mentioned  judgements  be held in abeyance for a 60-day
period,  until  August 30,  1993.

On February 28, 1994, the executive order expired.  As of December 31, 1998, the
Company had repaid  $235,100 of the  principal  amount upon which the  aforesaid
judgements  were based.  The Company has accrued a liability  for $73,800 to Mr.
Speiser which was the balance of his loan to the Company and accrued interest on
that loan.  Mr.  Speiser is  disputing  this  amount  because he feels he is due
additional  interest  and back  wages in the  amount of  $80,000.  See  "certain
Relationships and Related  Transactions".  Presently there is no lawsuit between
the Company  and Mr.  Speiser  .The  Company is  pursuing a  settlement  of this
matter. Bank Line of Credit and Term Loan.

The bank line of credit and term loan require the Company

1. To maintain a current ratio of not less than 1.10 to one,  senior debt to net
worth ratio of not more than 1.5 to one, and an interest  coverage  ratio of not
less than eight to one.

2. Not to expend more than  $400,000 for  acquisition  of fixed  assets,  in the
course of the year.

3. To submit its audited  financial  statements,  forms  10KSB,  and 10Q's,  and
accounts payable and receivable aging schedules.

4. Maintain its depository and cash management accounts with the bank.

5. Not to guarantee  obligations of any other person or encumber its assets with
any mortgage,  security deed, or lien other than security  interests required by
the bank loan agreement. 
<PAGE>

BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14.  COMMITMENTS AND CONTINGENCIES (CONTINUED)

6.  Not to default in any material contract with third parties.


NOTE 15.  EARNING PER SHARE

In 1998, the Company sustained an $.07 loss per share.  Because of the Company's
loss, the convertible shares and warrants had anti-dillutive effect and were not
used to compute any diluted loss per share.

For the Year Ended 1997, the earnings per share were as follows:
                               Income       Share      Per Share
Basic Earning Per Share
 Income before                $ 28,591    8,186,256     N/S

Effect of Dillutive securities
 Convertible shares of Xenetics
 Biomedical, Inc. and Automated
 Diagnostics, Inc.                         153,333
Wats                                       104,383

Diluted Earnings per Share
Income before items assuming 
conversion of  Securities     $ 28,591    8,443,972     N/S

Warrants to purchase  387,000  shares of common stock at $1.125 during 1997 were
not included in the computation of diluted earnings per share because  warrants'
exercise prices were greater than the average price of common shares in 1997.

          
N/S - Not Significant


<PAGE>

BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16. PURCHASE OF ASSETS FOR SHARES

Acquisition of BSD Development Beta Corporation

On February 9, 1998, the Company exchanged  3,000,000 shares of its common stock
and 2,000,000  shares it preferred  stock for all preferred and common shares of
BSD  Development  Beta  Corporation  (BSD).  As a part of the agreement with the
sellers,  the Company  acquired  through BSD $1 million  cash,  a licensing  and
manufacturing  agreement and certain equipment valued at $672,460. The equipment
will be used for coating  electrosurgical blades and other medical devices using
DYLYN   technology  under  a  management   agreement  with  Advance   Refractory
Technologies  (ART), the seller of the equipment which has agreed to operate and
maintain the equipment.  To date development of the production methods needed to
produce a commercially viable blade has been hampered by technical difficulties.
The  company  is  monitoring  the  process  and  believes  ART  will  produce  a
commercially viable blade in the future.

As a part of the agreement with ART, the Company obtained an exclusive  ten-year
renewable  license to use the DYLYN  Technology  for coating  specified  medical
products.

Maxxim Medical, Inc. Asset Acquisition, Supply and License Agreement 

On May 8, 1998, the company  entered into and  consummated a strategic  alliance
agreement with Maxxim Medical, Inc., (Maxxim), a Delaware corporation the shares
of which are listed on the New York Stock Exchange.  The agreement  provided for
the  acquisition,  by the Company,  of the trade name and the trademark Bovie, a
supply,  license  and  distributorship  arrangement  concerning  electrosurgical
devices and the acquisition of Maxxim's  electrosurgical  generator product line
in  exchange  for  3,000,000  shares  of  common  stock  of  The  Company.  More
specifically,  the  agreement  provides  for  (a) and  irrevocable  royalty-free
sub-license  to  Maxxim  to  use  the  Bovie  name;   (b)  a  2-year   exclusive
distributorship in Maxxim to resell the Bovie electrosurgical  generator product
line anywhere in the world,
<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16. PURCHASE OF ASSETS FOR SHARES (CONTINUED)

and (c) a non-exclusive right to sell An-con products anywhere in the world. The
distributorship  arrangement provides for anticipated cooperation between Maxxim
and the Company  with respect to research  and  development  of new products and
Maxxim's option to become the exclusive distributor thereof.  Maxxim also agreed
to certain minimum  purchase  orders for the Bovie  generator  product line, the
Aaron 1200  generators  and other An-con  products and  accessories  aggregating
$3,000,000  during the initial 5-year term of the agreement,  subject to quality
control  and the  Company's  ability to meet  commercially  reasonable  purchase
orders of Maxxim.  Kenneth  Davidson,  the chairman of the Board of Maxxim,  has
been elected a member of the Board of Directors of the Company.

As  consideration  for the foregoing,  the Company agreed to exchange  3,000,000
shares of common stock for the Bovie  Electrosurgical  Generator line, the Bovie
trademark and trade name,  and entered into  agreements  for the  aforementioned
supply, license, and distributorship  arrangement involving Maxxim's commitments
to purchase the Company a current and future products. Due to the Company's lack
of sufficient authorized shares, in lieu of common stock, the Company had issued
a secured  convertible  promissory  note to Maxxim  in the  principal  amount of
$3,000,000  which was retired  when the  shareholders  authorized  the  required
shares and the Company delivered them to Maxxim.

NOTE 17. INDUSTRY SEGMENT REPORTING

The  Company's  principal  markets  are the  United  States,  Europe,  and Latin
America,  with the U.S. and Europe being the largest  markets based on revenues.
The Company's major products include cauteries,  Bend-A-lights,  nerve locators,
reusable  pen lights and  electrodes.  Cauteries,  disposable  and  replaceable,
account for 41% and 42% of Company's sales for 1998 and 1997, respectively.

One significant  customer  accounted for 7% and 9% of revenues in 1998 and 1997,
respectively.  In 1998 that customer  accounted  for $.6 million of  non-medical
sales which is 71% of that segments sales.  The Company's ten largest  customers
accounted

<PAGE>

BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17. INDUSTRY SEGMENT REPORTING (CONTINUED)

for  approximately  49% of net revenues for 1998. At December 31, 1998, the same
ten  customers   accounted  for  approximately   65%  of  outstanding   accounts
receivable.

Summary  information by geographic  area and  significant  industry  segment for
years ended December 31,1998 and 1997 were as follows:

                      Operating        Gain       Identifiable
                        Sales         (Loss)         Assets

1998 - (in thousands)
Geographic Area
United States          $ 6,921       $ ( 259)       $ 7,018
Europe                   1,520         (  81)           145
                       $ 8,441       $ ( 340)       $ 7,163

Segment
Medical Products       $ 7,599       $ ( 302)       $ 6,447
Non-medical products       842         (  38)           716
                       $ 8,441       $ ( 340)       $ 7,163

1997-(in thousands)
Geographic Area
 United States         $ 5,980       $   384        $ 3,803
Europe                   1,406            86             96
Latin America              100            10             --
                       $ 7,486        $  480        $ 3,899

Segment
Medical Products       $ 6,181        $  451        $ 3,236
Non-medical products     1,305            29            663
                       $ 7,486        $  480        $ 3,899

      
                              1998             1997
Assets and liabilities
outside the U.S.A.    

Total assets                 $ 102           $  96
Total liabilities              -0-              -0-

Net property, plant
 and equipment                 -0-              -0-

<PAGE>
BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 17. INDUSTRY SEGMENT REPORTING (CONTINUED)


The Company had no assets (other than certain trade  receivables) or liabilities
outside the United States, in the two years ended December 31, 1998.

During 1998, a portion of the Company's  consolidated net sales and consolidated
loss from operations was derived from foreign operations. Foreign operations are
subject to certain risks inherent in conducting business abroad, including price
and  exchange   controls,   limitations  on  foreign   participation   in  local
enterprises, possible nationalization or expropriation, potential default on the
payment of government  obligations with attendant impact on private  enterprise,
political   instability  and  health  care  regulation  and  other   restrictive
governmental  actions.  Changes in the relative  value of currencies  take place
from  time to time  and  could  adversely  affected  the  Company's  results  of
operations and financial condition.  The future effects of these fluctuations on
the operations of the Company's and its subsidiaries are not predictable.








<PAGE>








CONSENT OF CERTIFIED PUBLIC ACCOUNTANT


We consent to the  incorporation  by  reference  in this  Annual  Report on Form
10-KSB of Bovie Medical Corporation of our report dated March 31, 1999, included
in the Annual Report to Stockholders of Bovie Medical Corporation



Bloom and Company



Hempstead, New York
March 31, 1999

<PAGE>

INDEPENDENT AUDITORS' REPORT


To the Board of Directors
and Shareholders of
Bovie Medical Corporation

We have audited the  accompanying  consolidated  balance  sheet of Bovie Medical
Corporation and subsidiary as of December 31, 1998 and the related  consolidated
statements of operations and shareholders'  equity, and cash flows for the years
ended December 31, 1998 and 1997. These  consolidated  financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial  statements based on our audits.  We conducted our
audits in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements.  An audit also includes  assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.  We believe that our
audits provide a reasonable basis for our opinion.

In our opinion the financial statements referred to above present fairly, in all
material  respects,  the  financial  position of Bovie Medical  Corporation  and
subsidiary  as of December  31, 1998 and the  results of their  operations,  and
their cash flows for the years ended  December  31, 1998 and 1997 in  conformity
with generally accepted accounting principles.

BLOOM AND COMPANY




Hempstead, New York
March 31, 1999