# U.S. SECURITIES AND EXCHANGE COMMISSION

# Washington, D.C. 20549

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# FORM 10-KSB

# (Mark One)

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

For the fiscal year ended December 31,
2003

Commission file number 0-12183

# BOVIE MEDICAL CORPORATION

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

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Delaware      
             
             
             
             
             
             
             
         No. 11-2644611

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

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734  Walt  Whitman  Rd.,  Melville,   New  York
11747

(Address of principal executive offices)

(631) 421-5452

(Issuer's telephone number)

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

None

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

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

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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 $16,550,722.

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 22, 2004 was approximately $27,476,517.

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:13,464,528.

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

# DOCUMENTS INCORPORATED BY REFERENCE

# Bovie Medical Corporation

# 2002 Form 10-KSB Annual Report

# Table of Contents

`Part I
Page

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

Item 2.    Description of Property..............................................

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

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

Part II

Item 5.    Markets for Common Equity and Related Stockholders Matter...........

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.   Executive Compensation...............................................

Item 11.   Security Ownership of Certain Beneficial Owners
                 and Management and Related Stockholders Matters................

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

Item 13.   Exhibits and Reports on Form 8-K.....................................

Item 14.   Controls and Procedures..............................................

Item 15.   Principal Accountant Fees and Services...............................`

# BOVIE MEDICAL CORPORATION

## Part I

## Item 1. Description of Business.

## Background

Bovie Medical Corporation
(the Company or Bovie) 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.

Bovie is actively engaged
in the business of manufacturing and marketing medical products and developing
related technologies. Aaron Medical Industries, Inc. (Aaron), a 100%
owned subsidiary based in St. Petersburg, Florida is engaged in marketing the
Companys medical products. Previously our largest product line was battery
operated cauteries, we have now shifted our focus to the manufacture and
marketing of generators and electrosurgical disposables. This new focus on high
frequency generators is evident in the development of the Aaron 800 and Aaron
900 high frequency desiccators and, the Aaron 950- the first high frequency
desiccator with cut capability  The Aaron 1250 and the Aaron 2250, the
latter of which was introduced in 2003. The Aaron 1250 and Aaron 2250 are
designed for todays rapidly expanding surgi-center market. Additionally,
our new 200-watt electrosurgical unit and our new 300-watt electrosurgical unit
are marketed under the Bovie name. Presently the standard being used in
hospitals worldwide is the 300-watt electrosurgical generator.

We also manufacture a
variety of specialty lighting instruments for use in ophthalmology, general
surgery, hip replacement surgery, and for the placement of endotracheal tubes.

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

## Company
Products

## Battery Operated
Cauteries

Battery operated cauteries
constitute our second 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 sterile one-time use products. Bovie
manufactures the broadest line of cauteries in the world, including but not
limited to, a line of replaceable battery and tip cauteries, which are popular
in overseas markets.

## Electrosurgery
Products

Bovie continues to expand
its line of electrosurgery products. Electrosurgery products include generators,
electrodes, electrosurgery pencils, and various ancillary disposable products.
These products are used in surgery for the cutting and coagulation of tissues
and constitute our second largest product line. Our accessories electrosurgery
product  are substantially compatible with all major manufacturers
electrosurgery generator products. With the exception of OEM products, all of
our electrosurgery generators and accessories are marketed using the Bovie
trademark, which is recognized internationally in electrosurgery. It is
estimated that 80% of all surgical procedures performed worldwide are
accomplished by electrosurgery, which includes laparoscopic as well as general
surgery and surgical procedures in gynecology, urology, plastics and
dermatology.

## Bovie/Aaron
800 and 900 High Frequency Desiccators

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

## Bovie/Aaron 950

Bovie has developed the
first high frequency desiccator with cut capacity for outpatient surgical
procedures. It was designed mainly for use in doctors offices and is
utilized in a variety of specialties including dermatology, gynecology, and
plastic surgery.

## Bovie/Aaron
1250

We have also developed a
120-watt multipurpose electrosurgery generator. The unit also features monopolar
and bipolar functions with pad sensing. The product is being produced in at
least two private label formats in addition to the Bovie/Aaron label. This was
our first electrosurgical product to generate revenues in excess of $1,000,000.

## Bovie/Aaron
2250

Given the market interest
in more powerful electrosurgical generators, we have developed a 200-watt
multipurpose digital electrosurgery generator designed for the rapidly expanding
surgi-center market in the United States. This unit features both monopolar and
bipolar functions, has pad and tissue sensing, plus nine blended cutting
settings. This unit has the capability to do many procedures performed today in
the surgi-center or outpatient settings and was introduced in 2003.

## New Generators

In addition to the Aaron
2250 and 1250, we are continuing to develop and expand our range of
electrosurgery generators. Bovie has recently completed the design and
development of two new generators, which have been cleared for marketing by the
FDA. The first new generator, the Bovie IDS300 was released for marketing in the
first quarter of 2003 and provides greater electrical power and advanced digital
technology. In addition, the Bovie IDS 200 was released in the second quarter of
2003.

While 200 watts is more
than enough power to do most procedures in the operating room, three hundred
watts is considered the standard of care and believed to be what most hospitals
and surgi-centers will be purchasing. The Bovie IDS-300 has been designed based
on a digital feedback system. The unit has a tissue sensing capability 20 times
faster than the market leader. For the first time in electrosurgery, through
digital technology, we are able to measure tissue impedance in real time (5000
times a second). As the impedance varies, the power is adjusted to deliver a
consistent clinical effect.

## Jump Unipolar
Low Temperature Focused Plasma Technology

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

Pursuant to agreement, the
joint venture acquired an exclusive license to produce and market any
surgical/medical devices utilizing this technology. In fiscal, 2003, Bovie made
additional advances to the joint venture in the form of research and development
of prototypes expending $81,914 in development and engineering costs.

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

The device has been
developed and patented in both Europe and the United States. Bovie has
constructed its first two pre-production prototypes for field testing purposes
as a prelude to eventual FDA submission and clearance for manufacturing. The
initial intended uses are in the areas of dermatology and plastic surgery. Other
contemplated surgical uses for the technology are cardiovascular, thoracic,
gynecological, trauma and other surgeries.

## Battery
Operated Medical Lights

Bovie 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 surgical
procedures.

## Nerve Locator
Stimulator

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

## New Products

In October, 2003 we entered
into an exclusive worldwide license agreement with Emergency Medical
Innovations, LLC.,a non-affiliated company, to manufacture and market a
disposable suture removal device (patent pending). Subject to clearance by the
FDA for marketing, it is expected to reduce time for removing stitches in a
doctors office, medical clinic or emergency room. The device is designed
to remove sutures with a tension free cut to be utilized in various medical
procedures on humans and animals. Bovie is presently developing pre-production
prototypes and subject to FDA clearance for marketing, Bovie has targeted the
last quarter of 2004 for release and marketing to medical professionals.

## Manufacturing,
Marketing and Distribution

Bovie 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 our
s specification. We market our products through national trade
journal advertising, direct mail, distributor sales representatives and trade
shows, under the Bovie name, the Bovie/Aaron name and private label. Major
distributors include Allegiance (a Cardinal Company), IMCO, McKesson Medical
Surgical, Inc., NDC (Abco, Cida and Starline), Owens & Minor, and Physician
Sales & Service.

## Competition

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

Main competitors are
Conmed, Valleylab (a division of Tyco), in the electrosurgery market and Xomed
in the battery operated cautery market.

## Government
Regulation

The Companys products
and research and development activities are subject to regulation by the FDA and
other regulatory bodies. FDA regulations govern, among other things, the
following activities:

`o        Product development.
o        Product testing.
o        Product labeling.
o        Product storage.
o        Pre-market clearance or approval.
o        Advertising and promotion.
o        Product tractability, and
o        Product indications.`

In the United States,
medical devices are classified on the basis of control deemed necessary to
reasonably ensure the safety and effectiveness of the device. Class I devices
are subject to general controls. These controls include registration and
listing, labeling, pre-market notification and adherence to the FDA Quality
System Regulation. Class II devices are subject to general and special controls.
Special controls include performance standards, post market surveillance,
patient registries and FDA guidelines. Class III devices are those which must
receive pre-market approval by the FDA to ensure their safety and effectiveness.
Currently, we only manufacture Class I and Class II devices.

## Manufacturing

Manufacturing and
distribution of our products may be subject to continuing regulation by the FDA.
We will also be subject to routine inspections by the FDA to determine
compliance with the following:

`o Quality System Regulations.
o Medical device reporting regulations, and
o FDA restrictions on promoting products for unapproved or off-label uses.`

In addition to regulations
enforced by the FDA, we are also subject to regulations under the Occupational
Safety and Health Act, the Environmental Protection Act and other federal, state
and local regulations.

## International

To market products in the
European Union and countries other than the United States, we must obtain
regulatory approval similar to that required by the FDA. All of our medical
devices are classified as Class III devices under the European Medical Devices
directive. Therefore, we were required to obtain a CE Mark
certification from a Notified Body in one of the member countries in
the European Union. CE Mark certification is an international symbol of
adherence to quality assurance standards and compliance with the applicable
European Medical Devices Directive.

Approval by a Notified Body
typically includes a detailed review of the following:

`o  Description of the device and its components,
o  Safety and performance of the device,
o  Clinical evaluations with respect to the device,
o  Methods, facilities and quality controls used to manufacture the device, and
o  Proposed labeling for the device.`

Manufacturing and
distribution of a device is subject to continued inspection and regulation by
the Notified Body after CE Mark certification to ensure compliance with quality
control and reporting requirements.

Pre-market notification
clearance must be obtained for some Class I and most Class II devices when the
FDA does not require pre-market approval. A pre-market approval application is
required for most Class III devices. A pre-market approval application must be
supported by valid scientific evidence to demonstrate the safety and
effectiveness of the device. The pre-market approval application typically
includes:

`o Results of bench and laboratory tests, animal studies, and clinical studies,
o A complete description of the device and its components,
o A detailed description of the methods, facilities and controls used to
  manufacture the device, and
o Proposed labeling.`

The approval process can be
expensive, uncertain and lengthy. A number of devices for which FDA approval has
been sought by other companies have never been approved for marketing. To date
we have not experienced non-approval of any of our devices heretofore submitted
to the FDA.

We obtained CE Mark
certification to market our products in the European Union in 1999. In addition
to CE Mark certification, each member country of the European Union maintains
the right to impose additional regulatory requirements.

Outside of the European
Union, regulations vary significantly from country to country. The time required
to obtain approval to market products may be longer or shorter than that
required in the United States or the European Union. Certain European countries
outside of the European Union do recognize and give effect to the CE Mark
certification. We are permitted to market and sell our products in those
countries.

## Patents and
Trademarks

The Company owns a total of
twelve outstanding 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 their own
right.



## Liability
Insurance

The manufacture and sale of
medical products entail significant risk of product liability claims. Bovie
currently maintains product liability insurance with combined coverage limits of
$5 million on a claims made basis. There is no assurance that this coverage will
be adequate to protect us from any liabilities we might incur in connection with
the sale or testing of our products. In addition, We may need increased product
liability coverage as products are commercialized. This insurance is expensive
and in the future may not be available on acceptable terms, if at all.

## Research and
Development

The approximate amount
expended by the Company on research and development of its products during the
years 2003 and 2002, totaled $717,347 and $693,710 respectively. The Company has
not incurred any direct costs relating to environmental regulations or
requirements.

## Employees

Presently Bovie has a total
of approximately 129 employees. These consist of 5 executives, 10
administrative, 5 sales, and 109 technical support and factory employees.

## Significant
Subsidiary - Aaron Medical Industries, Inc.

Aaron Medical Industries, Inc., is a Florida Corporation with offices in St. Petersburg, Florida. It is principally engaged in the
business of marketing our medical products.

## Item 2. Properties.

Bovie has executive office
space at 734 Walt Whitman Road, Melville, New York and its St. Petersburg,
Florida facility. Bovie leases the executive offices in New York for $1,450 per
month through the year 2006. Bovie owns its main facility in Florida consisting
of 28,000 square feet of office, warehousing and manufacturing space.

On August 20, 2003, Bovie
signed an agreement to lease approximately 20,000 square feet of space for
sixty-two months commencing on September 1, 2003 and terminating on October 31,
2008, with an option to renew for an additional five years. This additional
space provides Bovie with a total of 48,000 square feet of manufacture
warehousing and office space in Florida. The building leased is in close
proximity to our present manufacturing facility in St. Petersburg, Florida. The
base monthly rent is $8,750 commencing on November 1, 2003. The base rent
increase by 3% for each year of the lease, commencing on November 1, 2004. We
are responsible for common area maintenance, insurance and real estates, which
have been established at $1,667 per month for the first year of the term of the
lease.

Bovie had two additional
leases covering a total of 71,000 sq feet. These leases expired in October 2003
and March 2004, were not renewed.

## Item 3. Legal
Proceedings

Bovies wholly owned subsidiary,
Aaron Medical Industries, Inc. (Aaron) is a named defendant along
with a physician and hospital in an action in the civil court, State of
Michigan. The plaintiff is seeking significant damages alleging among other
things, permanent injury and lifelong suffering due to the negligence of the
defendants. The complaint alleges that plaintiffs damages resulted from
burns and injuries sustained when a physician used an Aaron manufactured cautery
in a surgical procedure upon plaintiff while plaintiff was in an oxygenated
environment. Aaron has denied any affiliation with the physician and the
hospital and any direct or indirect liability for the injuries sustained by
plaintiff. However, in the unlikely event of a jury finding of liability,
management believes its insurance coverage should adequately satisfy any such
potential judgment.

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

There were no matters
submitted to securities holders during the fourth quarter of the year ended
December 31, 2003.

## PART II

## Item 5.
Markets and Market Prices

Bovies common stock
has been traded on the American Stock Exchange since November 5, 2003. Prior to that
it was traded in the over-the-counter market on the OTC bulletin board. The
table shows the reported high and low bid prices for the common stock during
each quarter of the last eight respective quarters as reported by the OTC
Bulletin Board (symbol "BOVI") and the American Stock Exchange (symbol
BVX). These prices do not represent actual transactions and do not include
retail markups, markdowns or commissions.

`2003                    High                  Low

         1st Quarter                  $1.02                $.72
         2nd Quarter                   1.45                 .85
         3rd Quarter                   3.35                1.35
         4th Quarter                   3.75                2.95

              2002                    High                  Low

         1st Quarter                  $.85                 $.56
         2nd Quarter                  1.06                  .70
         3rd Quarter                  1.01                  .74
         4th Quarter                   .75                  .51`

On March 22, 2004, the
closing bid for Bovies Common Stock as reported by the American Stock
Exchange was $2.90 per share. As of March 22, 2004, the total number of
shareholders of the Bovies Common Stock was approximately 1,500, of which
approximately 700 are estimated to be shareholders whose shares are held in the
name of their broker or stock depositories or the escrow agent holding shares
for the benefit of Bovie Medical Corporation shareholders and the balance are
shareholders who keep their shares registered in their own name.

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

## Results of
Operations

Bovies net revenues
for 2003 were approximately $16.55 million as compared to $12.44 million for
2002. The increase in sales of $4.1 million (33%) was the net result of an
increase in revenues from the sale of electrosurgery products. The sales for
medical products represented approximately 98% and 94% of total sales in 2003
and 2002, respectively.

The cost of goods sold
increased by $2.2 million ( 31%) from $ 7.2 million in 2002 to $9.4 million in
2003. The percentage of gross profit from sales increased from 42% in 2002 to
43% in 2003. Margins remained constant. Bovie is increasing the volume of
manufacturing being undertaken in Europe and the Far East in order to reduce
costs. The difference in cost of sales and gross profit were principally due to
an increase in sales and increase in cost of sales of our family of OEM
electrosurgical generators. For both years 2003 and 2002 cauteries accounted for
30% and 41% of sales and 26% and 34% of cost of goods sold, respectively. Sales
of electrosurgical generator products increased and sales of cauteries remained
constant for the two years ending December 31, 2003.

Research and development
expenses increased by $23,637(3%) from $693,710 to $717,347, from 2002 to 2003.
We continued to invest in the development of new electrosurgery devices and
specialty products for other companies (OEM). Research and development costs are
comprised of material, engineering, and payroll costs. The development costs for
the Joint Venture Jump Agentur of $81,914 and $124,445 for 2003 and 2002,
respectively, are shown as equity in net loss of unconsolidated affiliate.

Our effective federal
income tax rate is 34%. As a result of the net gain in the past year, Bovie has
reduced its projected net operating loss tax benefit asset. The net operating
loss carryover is now $8.3 million.

Our general and
administrative expenses increased $.4 million from $2.5 million in 2002 to $2.9
million in 2003. This was mainly attributable to increases of trade show and
advertising of $236,000, to introduce its new electrosurgical line of products,
costs for general liability insurance of $40,000, cost in membership in the
American Stock Exchange of approximately $70,000 and an increase in
manufacturers representative training of $30,000.

Salaries and related costs
increased by 9% from $2.1 million in 2002 to $2.3 million in 2003. The increase
was due to additional personnel and annual salary increases.

Cost of professional
services increased by 30% from $321,598 in 2002 to $392,796 in 2003. Professional
fees were primarily related to consulting, auditing and legal costs. Audit fees
totaled $101,308 in 2002 and $115,669 in 2003, an increase of 14%.

Gain from operations was
$712,397 in 2003 as compared to an operating loss of $473,895 in 2002. There was
a gain for the Company in 2003 of $681,317 as compared to a net loss in 2002 of
$514,765. The gain for 2003 was mostly attributable to the increased sales
associated with the development of the OEM private label line of generators and
accessories.

Total other costs as a
percentage of sales were 39% in 2003 as compared to 46% in 2002. Total costs
increased mostly due to the costs associated with the increase in selling
general and administrative expenses and salaries and related costs. For the year
2003, total other costs were $6.4 million as compared to $5.7 million for 2002,
a 12% increase.

We sell our products
through distributors both overseas and in US markets. New distributors are
contacted through responses to our advertising in international and domestic
medical journals and domestic or international trade shows.

During 2003, international
sales of our product lines increased by $68,000 or (2.4%). In 2003, these sales
were $2.4 million (14% of total sales) as compared to $2.3 million (19% of total
sales) in 2002. We closed our sales office in Germany and are marketing our
products in Europe from the U.S.A. through a network of overseas distributors.

In the fourth quarter of
1998, Bovie made agreements with various sales representatives to develop
markets for its new products and to maintain customer relations. The
representatives receive an average commission of approximately 2% of sales in
their market areas. In 2003 and 2002, commissions paid were $228,779 and
$272,539, respectively, a decrease of 16%.

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

In order to provide
additional working capital, the Company has secured a $1,500,000 credit facility
with a local commercial bank. This facility is payable on demand. For the year
end December 31, 2003 the Company had zero funds drawn down on this credit
facility.

## Financial
Condition

As of December 31, 2003,
cash totaled $306,137 as compared to $379,209 at December 31, 2002. Cash
provided by operating activities was $413,521 in 2003 compared to $73,980 in
2002. Net working capital of Bovie was $3,837,482 and $3,084,743 on December 31,
2003 and 2002, respectively.

The amount of cash used in
investing activities was $247,167 in 2002, compared to $654,841 in 2003. We
continued to invest in property, plant and equipment needed for anticipated future business
requirements, including manufacturing capacity. In the year 2001, the Company
invested $200,000 in a joint venture involving a new unipolar low temperature
plasma technology.

The net cash used by
financing activities was $25,958 in 2002. In 2003 net cash provided by financing
activities was $168,248. A significant item of financing activity in 2003
resulted from the exercise of 350,000 stock options by employees and former
consultants for $251,000. In both 2002 and 2003 Bovie reduced its first mortgage by $31,668.

Our ten largest customers
accounted for approximately 66% of net revenues for 2003 as compared to 63% in
2002. For both years December 31, 2003 and 2002, our ten largest trade
receivables accounted for approximately 63% of outstanding receivables. In 2003
one customer accounted for 22% of total sales.

We believe that Bovie has
the financial resources needed to meet business requirements in the foreseeable
future, including capital expenditures needed for the expansion of our
manufacturing site, working capital requirements, and product development
programs, subject to Bovie maintaining compliance with our credit facility.

## Outlook

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

Bovie has continued to
expand its line of electrosurgery products which include the standard stainless
steel electrodes, the Bovie/Aaron 800, Bovie/Aaron 900, Bovie/Aaron 950,
Bovie/Aaron 1250, and the Bovie 2250 high frequency generators. We have also
developed and are currently marketing the Bovie IDS 300-Watt and Bovie IDS
200-Watt digital generators under the Bovie sales division.

From 2002 to 2003,
Bovies electrosurgery sales increased by 103% from $4.4 million to $9.0
million. The increase was mainly attributable to OEM sales to other
electrosurgery medical companies. With the introduction of new electrosurgery
products, We expect electrosurgery sales to continue to increase in 2004.
Through our private label capability and our sales division we anticipate
continued opportunities in the domestic and foreign markets. The electrosurgery
product market is larger than our other traditional markets and is dominated by
two competitors, Valleylab and Conmed. The global market for electrosurgery
products exceeds $800 million annually.

## Non-Medical
Products

In 2003, our sales of
flexible lighting products, used primarily in the automotive and locksmith
industries, totaled $375,250. One customer accounted for 80% of such sales. We
discontinued our non-medical product line by selling our inventory, customer
list and manufacturing technology to our largest customer in that field for $500,000
payable in equal installments over 5 years.

## Scientific Advisory Board

On July 8, 2003, the Company announced the formation of a scientific advisory board to assist in the advancement of new products and
technologies.  The advisory board includes: Yuval Carmel, Ph. D., Peter M. Pardoll, MD and Mr. Gregory Konesty.

## Backgrounds

Dr.  Yuval  Carmel is a senior  research  scientist  at the  University  of  Maryland.  Dr.  Carmel has over 20 years of  research  and
development  experience  in the areas of advanced  electrosurgical  equipment  for  medical  applications,  physics of plasma,  applied
physics,  electromagnetics and  electro-physics.  He has published over 90 papers in scientific journals, a holder of three patents and
five pending patents.

Dr. Peter Pardoll is a  Gastroenterologist  and the president of Medical  Education  Associates  (MEA), a healthcare  consulting group.
Dr.  Pardoll is a trustee of the Board of the American  College of  Gastroenterology,  past  president of the Florida  Gastroenterology
Society and current  president  of the  National GI Political  Action  Committee  as well as a  practicing  physician at the Center for
Digestive Diseases in St. Petersburg, Florida.

Mr. Gregory  Konesky has been Bovie's lead scientist in new product  development  for J-Plasma,  advanced  plasma  applicator  design,
plasma physical research and other  electrosurgical  products.  Mr. Konesky has published over 13 scientific papers,  holds one patent,
with another  pending.  He has also  presented at a variety of scientific  forums over the past several years as well as being a member
of over 10 scientific societies.

The Boards term is
for one year and the members will be compensated with stock options and at their
per diem rate, as required.

## Reliance on Collaborative, Manufacturing and Selling Arrangements

Bovie is dependent on
certain contractual partners for manufacturing and product development. Should a
collaborative partner fail to meet its contractual obligation to us, our future
business and value of related assets could be negatively affected. Furthermore,
no assurance can be given that a collaborative partner may give sufficient high
priority to our products. In addition, disagreements or disputes may arise
between Bovie and its contractual partners which could adversely affect
production of its products.

## Liquidity and
Future Plans

Our focus is to acquire,
develop, and manufacture new product technologies and to expand our
manufacturing capabilities.

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

In December, We satisfied
our first mortgage on the building that we own in St. Petersburg, Florida and
replaced it with a new first mortgage from our prime lender in the amount of
$475,000. The mortgage loan is to be repaid over 5 years with a variable
interest starting at the banks present base rate of 4.00%. Bovie pays a
principal payment of $2,639 plus interest each month. A balloon payment of
$316,660 is due in December 2006.

In May 2001, we changed
commercial lenders and increased our credit line from $600,000 to $1,500,000.
The interest rate on the line is variable and is presently at the banks
base rate, which is 4.00% per annum. The outstanding balance due on the credit
line on December 31, 2003 was zero.

Our future results of
operations and the other forward-looking statements contained herein,
particularly the statements regarding growth in the medical products industry,
capital spending, research and development, and marketing and general and
administrative expenses, involve a number of risks and uncertainties. In
addition to the factors discussed above, there are other factors that could
cause actual results to differ materially, such as business conditions and the
general economies; competitive factors including 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.

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

## Item 7.Financial Statements.

(See Attached)

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

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

## Part III

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

Bovies Executive
Officers and directors are as follows:

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

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

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

George Kromer          Director                                  October 1995

Alfred V.  Greco       Director                                  April 1998

Brian Madden           Director                                  September 2003

Moshe Citronowicz      Executive Vice President                  --
                       Chief Operating Officer

Charles  Peabody       Chief Financial Officer and Secretary     --`

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

J. Robert Saron, age 51,  Director,  holds a Bachelor's  degree in Social and Behavioral  Science from the University of South Florida.
From 1988 to present Mr. Saron has served as a director of Aaron Medical  Industries,  Inc. (formerly  Suncoast Medical  Manufacturing,
Inc.).  Mr.  Saron  served as CEO and chairman of the Board of the Company  from 1994 to December  1998.  Mr.  Saron is  presently  the
President of Aaron Medical Industries,  Inc., which serves as the Company's marketing subsidiary,  and he is also a member of the Board
of  Directors  of the  Company.  Mr.  Saron serves on two industry  boards,  the Health  Industry  Distributors  Association  Education
Foundation and the Healthcare Manufacturing Marketing Council.

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

George W. Kromer, Jr., age
63, became a director on October 1, 1995. Bovie Medical Corporation has also
retained Mr. Kromer on a month-to-month basis as a consultant in addition to his
capacity as a director. He has been writing for business publications since
1980. In 1976, he received a Masters Degree in health administration from
Long Island University. He was engaged as a Senior Hospital Care Investigator
for the City of New York Health & Hospital Corporation from 1966 to 1986. He
also holds a Bachelor of Science Degree from Long Island Universitys
Brooklyn Campus and an Associate in Applied Science Degree from New York City
Community College, Brooklyn, New York.

Moshe Citronowicz, age 51,
is a graduate of the University of Beer Sheva, Beer Sheva, Israel,
with a Bachelor of Science Degree in electrical engineering. He has also
received certificates from Worcester Polytech, Lowell University and the
American Management Association for completion of seminars in MRP, master
scheduling, purchasing SPC, JIT, accounting and plant management. Since coming
to the United States in 1978, Mr. Citronowicz has worked in a variety of
manufacturing and high tech industries. In October 1993, Mr. Citronowicz joined
the Company as Vice President of Operations. He is responsible for all areas of
manufacturing, purchasing, product redesign, as well as new product design. In
September 1997, Mr. Citronowicz was appointed by the Board of Directors to the
position Executive Vice President and Chief Operating Officer.

Charles Peabody, CPA, age
52, graduated from Babson College with a BSBA in accounting. He is a Certified
Public Accountant in the States of Florida and Vermont. During the past twenty
years, Mr. Peabody has had positions ranging from vice president, finance and
administration of an $11 million telecommunication equipment manufacturer to the
chief financial officer of a $18 million commercial refrigeration glass door
company. Mr. Peabody is a member of the American and Florida Institutes of
Certified Public Accountants.

On March 30, 2004 the Company adopted an executive employee code of ethics.

## Item 10. Remuneration

The following table sets
forth the compensation paid to the executive officers of the registrant for the
three years ended December 31, 2003:

`Summary Compensation Table

                               Annual Compensation

Name and
Principal
Position                  Year        Salary         Bonus        Other

 Andrew Makrides           2003     $158,406         2,967        9,942
 the Board                 2002     $141,835         2,760        9,581
 President, CEO            2001     $146,446         2,567       12,352
 Chairman of
 the Board

J. Robert Saron            2003     $219,786         4,200       15,568
 Director                  2002     $200,545         3,907       15,533
 President of  Aaron       2001     $199,485         3,624       18,018
 Medical and
 Director

Moshe Citronowicz
 Executive
 Vice President-           2003     $158,637         3,086       14,345
 Chief Operating           2002     $147,370         2,871       15,688
 Officer                   2001     $149,697         2,671       17,205

Manfred Sablowski
 Vice President            2003     $109,958         2,075        4,823
 Sales and                 2002     $107,218         2,075        9,435
 Marketing                 2001     $105,361           407        2,360

Richard Kozloff            2003      110,710         2,125        6,917
 Vice President            2002     $105,251         2,024        9,223
Quality Control            2001     $106,096         1,955        7,124


                           Summary Compensation Table

                             Long Term Compresation
                             ----------------------

                                                 Securities
                                                 Underlying
Name and                                         Restricted       Stock
Principal                                          Stock          Option
Position                   Year      Awards(#)     SARS(#)       Pay-outs

 Andrew Makrides           2003         --        110,000            --
 the Board                 2002         --           --              --
 President, CEO            2001         --        155,000            --
 Chairman of
 the Board

J. Robert Saron            2003         --        110,000            --
 Director                  2002         --           --              --
 President of  Aaron       2001         --        155,000            --
 Medical and
 Director

Moshe Citronowicz
 Executive
 Vice President-           2003         --        110,000            --
 Chief Operating           2002         --           --              --
 Officer                   2001         --        155,000            --

Manfred Sablowski
 Vice President            2003         --           --              --
 Sales and                 2002         --           --              --
 Marketing                 2001         --         25,000            --

Richard Kozloff            2003         --         25,000            --
 Vice President            2002         --           --              --
Quality Control            2001         --         35,000            --


(a)      Other compensation consists of medical insurance and auto.
(b)      There were no awards given in 2001-2003.
(c)      Mr. Sablowski left the Company on February 13, 2004.`

No options were granted or
issued to any executive officer or director during fiscal year ending December
31, 2002. In 2003 585,000 options were granted to executive officers.

`Equity Compensation Plan Information:

Plan category     Number of Securities   Weighted-average    Number of securitie
                  to be issued upon     exercise price of    remaining available
                  exercise of           outstanding options, for future issuance
                  outstanding options,  warrants and rights  under equity
                                                             compensation plans

Equity compensation
Plans approved by
Security holders      3,988,800               $1.004             552,200

Equity compensation
Plans not approved
By security holders          --                   --                  --
                      ---------               ------           ---------

Total                 3,988,800               1.004              552,200
                      =========               ======           =========`

The following table
summarizes: 1. The options granted in the last fiscal year and 2. The aggregated
option exercises in the last fiscal year and the fiscal year end option values.

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

                                                   Number of          Value of
                                                  Unexercised        Unexercised
                     Share                          Options          Options at
                    Acquired                     At Fiscal Year         Fiscal
                       On          Value            End (#)              Year
Name                Exercise (#)   Realized       Exercisable             End

Charles Peabody         --            --               85,000     $    117,250
Andrew Makrides         --            --              485,000        1,082,700
J. Robert Saron         --            --              505,000        1,145,350
Moshe Citronowicz       --            --              440,000          996,425
Alfred Greco            --            --              335,000          747,200
George Kromer           --            --              390,000          861,675
Other                   --            --            1,748,800        3,390,341
                      ----          ----            ---------        ---------
                        --            --            3,988,800      $ 8,340,941
                      ====          ====            =========        =========`

The Price of the stock was
$3.07 per share on December 31, 2003. The options with exercise price less than
$3.25 were valued using Black-Scholes option pricing model at approximately $.05
per share.

In 2003, the Board of
Directors adopted a resolution increasing the number of shares covered by
Bovies 2001 executive and employee stock purchase and option plan by a
total of one million two hundred thousand (1,200,000) shares of common stock
issuable upon exercise of options to be granted under the Plan. In 2003, the
Board of Directors granted the following options to Executive Officers and
Directors:

`George Kromer                                      85,000
              Alfred Greco                                       85,000
              Moshe Citronowicz                                 110,000
              Robert Saron                                      110,000
              Andrew Makrides                                   110,000
              Charles Peabody                                    60,000
              Brian Madden                                       25,000
                                                              ---------
                      Total                                     585,000
                                                              =========`

Outside  Directors are  compensated  in their  capacities as Board members  through  option  grants.  Our Board of Directors  presently
consists of J. Robert  Saron,  Andrew  Makrides,  Chairman CEO, and  President,  George W. Kromer,  Jr., Alfred Greco and Brian Madden.  For the past
years,  pursuant to a written agreement,  Mr. Kromer has been retained by Bovie Medical  Corporation as a business and public relations
consultant on a month-to-month  basis at an average monthly fee of $1,200.  Mr. Greco is the managing  director of Alfred V Greco PLLC,
counsel to Bovie, to which Bovie paid legal fees of $73,646 during 2003.

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

In January 3, 2004, we
extended employment contracts with certain of its officers for two years. The
following schedule shows all contracts and terms with officers of Bovie.

`Bovie Medical Corporation
                                December 31, 2003


                       Contract       Expiration        Current        Auto
                         Date          Date(1)         Base Pay      Allowance

Andrew Makrides         01/01/98     12/31/2009(1)     $167,683       $ 6,310
J. Robert Saron         01/01/98     12/31/2009(1)      230,296         6,310
Moshe Citronowicz       01/01/98     12/31/2009(1)      158,637         6,310



(1)  Includes  total extensions for six years- Salaries  increase
annually  pursuant to a contract  formula.  In the event of a change in control,
each officers contract contains an option for each respective  officer to resign
and receive 3 years salary.`

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

The following table sets
forth certain information as of December 31, 2003, with respect to the
beneficial ownership of the Companys common stock by all persons known by
the Company to be the beneficial owners of more than 5% of its outstanding
shares, by directors who own common stock and/or options to levy common stock
and by all officers and directors as a group.

`Number of Shares                     Percentage
                                                    Nature of          of
  Name and Address          Title     Owned (i)     Ownership      Ownership(i)

Maxxim Medical Inc.         Common    3,000,000     Beneficial         17.2%
10300 49th Street, North
Clearwater, FL  33762

Directors and Officers

Andrew Makrides             Common    800,800(ii)   Beneficial          4.6%
734 Walt Whitman Road
Melville, NY  11746

George Kromer               Common    390,000(iii)  Beneficial          2.2%
P.O. Box 188
Farmingville, NY  11738

Alfred V. Greco             Common    386,500(iv)   Beneficial          2.2%
666 Fifth Avenue
New York, NY  10103

J. Robert Saron             Common    937,976(v)    Beneficial          5.3%
7100 30th Avenue North
St. Petersburg, FL  33710

Moshe Citronowicz           Common    614,591(vi)   Beneficial          3.5%
7100 30th Avenue North
St. Petersburg, FL  33710

Officers and Directors as a group     3,254,867(vii)                   18.6%`

(i)  Based on  13,464,528  outstanding  shares  of  Common  Stock  and  3,988,000  outstanding  options  to  acquire  a like  number of
shares of Common  Stock as of December 31,  2003,  of which  officers  and  directors  owned a total of  2,265,000  options and 989,867
shares at December 31, 2003.

(ii) Includes  485,000  shares  reserved and underlying  ten year options owned by Mr.  Makrides to purchase  shares of Common Stock of
the Company.  Exercise prices for his options range from $.50 for 155,000 shares to $3.25 for 25,000 shares.

(iii) Includes  shares reserved  pursuant to 390,000 ten year options owned by Mr. Kromer to purchase  shares of the Company.  Exercise
prices for his options range from $.50 for 100,000 shares to $3.25 for 25,000 shares.

(iv) Includes  335,000 shares  reserved  pursuant to 10 year options  exercisable at prices varying  between $.50 per share for 100,000
shares up to $3.25 per share for 25,000 shares.  Mr. Greco's wife presently owns 51,500 shares.

(v) Includes  505,000  shares  reserved  pursuant to 10 year options owned by Mr. Saron,  exercisable  at prices  ranging from $.50 per
share for 75,000 shares, and $3.25 per share for 25,000 shares.

(vi) Includes  440,000 shares  reserved  pursuant to 10 year options owned by Mr.  Citronowicz  exercisable at prices ranging from $.50
for 75,000 shares to $3.25 for 25,000.

(vii) Includes  2,265,000  shares reserved for outstanding  options owned by all Executive  Officers and directors as a group. The last
date options can be exercised is September 29, 2013.

## Item 12.
Certain Relationships and Related Transactions

In 2003,  the Executive  Officers and directors were awarded a total of 400,000 and 185,000  options to purchases the Company's  Common
Stock at  exercise  prices of $.70 and $3.25 per share  under the  Company's  2003  Executive  and  Employee  Stock  Option  Plan.  See
Remuneration

A director,  Alfred V. Greco Esq. is the principal of Alfred Greco PLLC, the Company's  counsel.  Mr. Greco's firm received $73,646 and
$59,303 in legal fees for the years 2003 and 2002, respectively. See "Security Ownership of Certain Beneficial Owners and Management."

A director, George Kromer
also serves as a consultant to the Company with consulting compensation of
$16,615 and $17,586 for 2003 and 2002, respectively.

Two relatives of the chief
operating officer of the Company are employed by the Company. Yechiel
Tsitrinovich, an engineering consultant received compensation for 2003 and 2002
of $46,978 and $77,150 respectively. The other relative, Arik Zoran, is an
employee of the Company in charge of the engineering department. He has a two
year contract providing for a salary of $90,000 per year plus living expenses
and benefits. For 2003 he was paid 144,434 which includes living expenses and
benefits. The Company is attempting at this time to secure a permanent work visa
for Mr. Zoran.

## Item 13. Exhibits and Reports on Form 8-K

No Form 8-K was filed in the fourth quarter of 2003.

## Item 14. Disclosure Controls And Procedures

For purposes of rule 13a-14
and 15d-14 of the Securities Exchange Act of 1934 ("Exchange Act") the
term "disclosure controls and procedures" refers to the controls and
other procedures of a company that are designed to ensure that information
required to be disclosed by a company in the reports that it files under the
Exchange Act is recorded, processed, summarized and reported within required
time periods. Within 90 days prior to the date of this report ("Evaluation
Date"), Bovie carried out an evaluation under the supervision and with the
participation of Bovies Chief Executive Officer and its Chief Financial
Officer of the effectiveness of the design and operation of its disclosure
controls and procedures. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer have concluded that, as of the Evaluation Date, such
controls and procedures were effective at ensuring that required information
will be disclosed on a timely basis in our periodic reports filed under and
pursuant to the Exchange Act.

(b) Changes in internal controls

There were no significant
changes to our internal controls or in other factors that could significantly
affect our internal controls subsequent to the Evaluation Date.

## Item 15.Principal Accountant Fees And Services

The following table sets
forth the aggregate fees billed to us for fiscal years ended December 31, 2003
and 2002 by Bloom & Co., LLP, our auditors:

`2003              2002
                                                 ----              ----

   Audit Fees (1)                         $    110,669       $    96,308
   Non-Audit Fees:

   Audit Related Fees(2)                            --                --
   Tax Fees(3)                                   5,000             5,000
   All other Fees(4)                                --                --
                                              --------          --------
       Total Fees paid to Auditor          $   115,669       $   101,308
                                              ========          ========`

(1) Audit fees consist of fees billed for  professional  services  rendered for the audit of Bovie's  annual  financial  statements and
review of the interim  consolidated  financial  statements  included in
quarterly  reports and services that are normally  provided by Bloom & Co., LLP in connection with statutory and regulatory  filings or
engagements.

(2)  Audit-Related  fees consist of fees billed for assurance and related  services that are reasonably  related to the  performance of
the audit or review of Bovie's consolidated financial statements and are not reported under "Audit Fees".

(3) Tax fees consist of fees billed for professional  services rendered for tax compliance,  tax advice and tax planning  (domestic and
international).  These services  include  assistance  regarding  federal,  state and  international  tax compliance,  acquisitions  and
international tax planning.

(4) All other fees consist of fees for products and services other than the services reported above.
In the past the board of directors had considered the role of Bloom & Co., LLP in providing certain tax services to
Bovie and had concluded that such services were compatible with Bloom & Co.,
LLPs independence as our auditors. In addition, since the effective date
of the SEC rules stating that an auditor is not independent of an audit client
if the services it provides to the client are not appropriately approved (which
was previously done by the Board of Directors). Now the Audit Committee will
  pre-approve all audit and permissible non-audit services provided by
the independent auditors.

The Audit Committee has
adopted a policy for the pre-approval of services provided by the independent
auditors, pursuant to which it may pre-approve any service consistent with
applicable law, rules and regulations. Under the policy, the Audit Committee may
also delegate authority to pre-approve certain specified audit or permissible
non-audit services to one or more of its members, including the Chairman. A
member to whom pre-approval authority has been delegated must report its
pre-approval decisions, if any, to the Audit Committee at its next meeting, and
any such pre-approvals must specify clearly in writing the services and fees
approved. Unless the Audit Committee determines otherwise, the term for any
service pre-approved by a member to whom pre-approval authority has been
delegated is twelve months.

## SIGNATURES

Pursuant to the
requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of St. Petersburg, State of
Florida on March 30, 2004.

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

`Signatures                                           Title and Date

/s/Andrew Makrides                                   Chairman of Board
Andrew Makrides                                      Chief Executive Officer
                                                     President, Director
                                                     March 30, 2004

/s/J. Robert Saron                                   Director
J. Robert Saron                                      March 30, 2004

/s/George W. Kromer                                  Director
George W. Kromer                                     March 30, 2004

/s/Charles Peabody                                   Chief Financial Officer
Charles Peabody                                      March 30, 2004

/s/Alfred V. Greco                                   Director
Alfred V. Greco                                      March 30, 2004

/s/Brian Madden                                      Director
Brian Madden                                         March 30, 2004`

## PART II

# ITEM 7.
FINANCIAL STATEMENTS

# BOVIE
MEDICAL CORPORATION INDEX

# TO FINANCIAL
STATEMENTS

`Contents

Independent Auditors' Report

Consolidated Balance Sheet at December 31, 2003 and 2002........................

Consolidated Statements of Operations for the years
   ended December 31, 2003 and 2002.............................................

Consolidated Statements of Shareholders' Equity for the years
  ended December 31, 2003 and 2002..............................................

Consolidated Statements of Cash Flows for the years
  ended December 31, 2003 and 2002..............................................

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

Consent of Certified Public Accountant..........................................`

## Bloom & Co., LLP
50 Clinton Street, Suite 502
Hempstead, NY 11550

# INDEPENDENT AUDITORS' REPORT

To the Board of Directors
and Shareholders of
Bovie Medical Corporation

We have audited the
accompanying consolidated balance sheets of Bovie Medical Corporation as of
December 31, 2003 and 2002, and the related consolidated statements of
operations, stockholders equity, and cash flows for the years then ended.
These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in
accordance with auditing standards ` accepted in the United States of America.
These standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Bovie Medical Corporation as of December
31, 2003 and 2002, and the consolidated results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.

BLOOM & CO., LLP
Hempstead, New York
March 30, 2004

# BOVIE MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2003 AND 2002

# ASSETS

`2003               2002
                                               ----               ----
Current assets:

Cash                                      $    306,137       $   379,209
Trade accounts receivable, net               1,708,181         1,350,487
Inventories                                  2,451,149         2,357,505
Prepaid expenses                               390,025           164,264
Deferred tax asset                             386,200           386,200
Other Assets                                        --            45,044
                                             ---------         ---------

Total current assets                         5,241,692         4,682,709

Property and equipment, net                  1,900,015         1,559,080

Other assets:

Repair parts                                   228,226           281,746
Trade name                                   1,509,662         1,509,662
Patent rights, net                             144,967           258,214
Deposits                                         9,470             9,470
Investment Joint Venture                       200,000           200,000
                                             ---------         ---------
                                             2,092,325         2,259,092
                                             ---------         ---------

Total Assets                             $   9,234,032    $    8,500,881
                                             =========         =========`

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

# BOVIE MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2003 AND 2002
(Continued)

# LIABILITIES AND STOCKHOLDERS' EQUITY

# LIABILITIES

`2003               2002
                                               ----              ----
Current liabilities:

Accounts payable                           $  679,792         $ 478,668
Accrued expenses                              577,075           396,949
Customers deposits                            112,000           128,000
Notes payable                                      --           525,467
Due to shareholders                                --            37,214
Current maturities of long term debt           35,343            31,668
                                            ---------         ---------
Total current liabilities                   1,404,210         1,597,966

Notes Payable-Non current                     379,995           411,664
Stockholders' equity:

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

Common stock par value $.001;
40,000,000 shares authorized,
13,464,528 and 13,256,103 issued
and outstanding on December 31, 2003
and December 31, 2002 respectively,           16,641             13,274

Additional paid in capital                20,093,936         19,820,044
Accumulated deficit                      (12,660,750)       (13,342,067)
                                          ----------         ----------

Total stockholders' equity                 7,449,827          6,491,251
                                           ---------          ---------
Total liabilities and
  stockholders' equity                $    9,234,032      $   8,500,881
                                           =========          =========

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

# BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

`2003                2002
                                             ----                ----

Sales                                    $16,550,722        $12,446,571
Cost of sales                              9,434,301          7,190,295
                                         -----------         ----------

Gross Profit                               7,116,421          5,256,276

Other costs:
Research and development                     717,347            693,710
Professional services                        392,796            321,598
Salaries and related costs                 2,275,488          2,093,642
Selling, general and
 administration                            2,936,479          2,496,776
Equity in net loss of
 unconsolidated affiliate                     81,914            124,445
                                          ----------          ---------

Total other costs                          6,404,024          5,730,171
                                          ----------          ---------

Income(loss)from operations                  712,397          ( 473,895)

Other income and (expense):

Interest income                                2,980              5,206
Interest expense                          (   34,060)         (  48,451)
Miscellaneous/other income                        --              2,375
                                           ---------           --------
                                          (   31,080)         (  40,870)
                                           ---------           --------

                                             681,317           (514,765)

Income tax expense                         ( 246,000)                --
Income tax benefit                           246,000                 --                                           ---------           --------

Net income (loss)                         $  681,317       $  ( 514,765)
                                           =========           ========`

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

# BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

# (CONTINUED)

`2003              2002
                                                  ----              ----

Basic earnings (Loss) per common share           $ .05            $  (.04)
                                                  ====               ====

Diluted earnings (Loss) per common share           .05                N/A
                                                  ====               ====

Weighted average number
  of common shares outstanding                 13,188,353        13,204,755
                                               ==========        ==========
Incremental items

Stock options                                   1,647,097                --
                                               ----------       -----------
Diluted weighted average
  common shares outstanding                    14,835,450             N/A
                                               ==========             ===`

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

# BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

`Options              Preferred
                                      Outstanding      Shares        Value
                                      -----------      ------        -----

Balance as of
January 1, 2002                         2,909,000         --         --

Subscription receivable
 paid in cash                                  --         --         --

Loss for Period                                --         --         --

Balance as of
December 31, 2002                       2,909,000           --       --

Subscription Receivable

Cancel shares on
Recission offer                                --         --         --

Exercise options for cash                (350,000)

Options cancelled or forfeited           (361,200)        --         --

Options granted                         1,791,000         --         --

Shares issued for promotion                    --         --         --

Income for period                              --         --         --

December 31, 2003                       3,988,800         --         --



                                            Common               Paid-in
                                     Shares        Value         Capital
                                     ------        ------        -------
Balance as of
January 1, 2002                     13,256,103    $13,274     $19,814,334

Subscription receivable
 paid in cash                               --         --           5,710

Loss for Period                             --         --              --
                                   -----------     ------     -----------
Balance as of
December 31, 2002                   13,256,103     13,274     $19,820,044

Subscription Receivable                                             6,131

Cancel shares on
Recission offer                       (142,575)      (143)         18,931

Exercise options for cash              350,000      3,500         247,500

Options cancelled or forfeited              --         --              --

Options granted                             --         --              --

Shares issued for promotion              1,000         10           1,330

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

December 31, 2003                   13,464,528    $16,641     $20,093,936
                                    ==========     ======      ==========



                                               Deficit            Total
                                               -------           -------
Balance as of
January 1, 2002                              $(12,827,302)     $7,000,306

Subscription receivable
 paid in cash                                          --           5,710

Loss for Period                             (     514,765)       (514,765)
                                             ------------       ---------
Balance as of
December 31, 2002                            $(13,342,067)     $6,491,251

Subscription Receivable                                             6,131

Cancel shares on
Recission offer                                        --          18,788

Exercise options for cash                              --         251,000

Options cancelled or forfeited                         --              --

Options granted                                        --              --

Shares issued for promotion                            --           1,340

Income for period                                 681,317         681,317
                                               ----------       ---------

December 31, 2003                            $(12,660,750)     $7,449,827
                                              ===========      ==========

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

# BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

`2003               2002
                                                ----               ----
Cash flows from operating activities:

Net income(loss)                           $   681,317        $  (514,765)
Adjustments to reconcile
net income to net cash provided
by operating activities:

Depreciation and amortization                  314,682            274,876
Cancel recission liability                      18,788                 --
Promotion cost paid with shares                  1,340                 --
Write down of inventories and parts            193,981            367,551
Write down development cost                    112,471                 --

Change in assets and liabilities:
Trade receivables                             (357,694)          (149,554)
Prepaid expenses                              (225,761)          ( 36,219)
Inventories and parts                         (234,105)          (286,703)
Other receivables                               45,044           ( 44,265)
Accounts payable                               201,124            105,293
Accrued expenses                               164,126             29,608
Short Term Notes                              (501,792)           328,158
                                              --------           --------


Total adjustments                             (267,796)           588,745
                                              --------           --------

Net cash provided by  operations          $    413,521       $     73,980
                                              ========           ========`

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

# BOVIE MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
(Continued)

`2003              2002
                                                   ----              ----
Net cash provided by
 operating activities                          $  413,521        $   73,980

Cash flows from investing
activities:

(Increase) in fixed assets                       (565,915)        ( 220,671)
Decrease(Increase)in security deposits                 --         (   1,346)
Purchase of technology                           ( 88,926)        (  25,150)
                                                ---------         ---------
Net cash (used in) investing  activities         (654,841)        ( 247,167)

Cash flows from financing activities;

Loans from shareholders                          ( 37,215)               --
Sale of common stock                              251,000                --
Reduction in subscription receivable                6,131             5,710
Pay off mortgage                                 ( 31,668)         ( 31,668)
Bonds payable                                    ( 20,000)               --
                                                ---------         ---------

Net cash (used in) financing activities           168,248          ( 25,958)

Net increase(decrease) in cash                   ( 73,072)         (199,145)
Cash at beginning of year                         379,209           578,354
                                                ---------         ---------
Cash at end of year                            $  306,137         $ 379,209
                                                =========         =========

Cash paid during the twelve months ended December 31:

                                                    2003             2002
                                                    ----             ----

Interest                                        $  34,060         $ 47,530

 Income Taxes                                          --               --

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

# BOVIE MEDICAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE YEAR ENDED DECEMBER 31, 2003 AND 2002

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

## FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2003 AND 2002:

During 2003 the Company
gave as a promotion, 1,000 shares of common stock valued at $1,340 to a vendor.

There were no non-cash
investing or financing activities in 2002.

# BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 1.
SIGNIFICANT ACCOUNTING POLICIES

## Use of Estimates in the Preparation of Financial Statements

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

## Consolidated
Financial Statements

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

The equity method of
accounting is used when the Company has a 20% to 50% interest in other
companies. Under the equity method, original investments are recorded at cost
and adjusted by the company's share of undistributed earnings or losses of these
companies.

## Fair Values of
Financial Instruments

Cash and cash equivalents. Holdings
of highly liquid investments with maturities of three months or less, when
purchased, are considered to be cash equivalents. The carrying amount reported
in the balance sheet for cash and cash equivalents approximates its fair values.
The amount of federally insured cash deposits was $100,000 as of December 31,
2003.

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

## Accounts Receivable

Accounts for which no
payments have been received for three consecutive months are considered
delinquent. Customary collection efforts are initiated and an allowance for
uncollectible accounts is set up and the related expense is charged to
operations.

## Inventories
and Repair Parts

Inventories are stated at
the lower of cost or market. Cost is determined principally on the average
actual cost method. Finished goods and work-in-process inventories include
material, labor, and overhead costs. Factory overhead costs are allocated to
inventory manufactured in-house based upon cost of materials. Bovie monitors
usage reports to

# BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

## Inventories and Repair Parts (Continued)

determine if the carrying
value of any items should be adjusted due to lack of demand for the item. Bovie
adjusts down the inventory for estimated obsolescence or unmarketable inventory
equal to difference between the cost of inventory and the estimated market value
based upon assumptions about future demand and market conditions. If actual
market conditions are less favorable than those projected by management,
additional inventory write-down may be required.

Inventory at December 31,
2003 and 2002 was as follows:

`2003              2002
                                             ----              ----
  Raw materials                         $  1,332,742     $  1,180,758
  Work in process                            616,837          524,322
  Finished goods                             501,570          652,425
                                           ---------        ---------
      Total                             $  2,451,149     $  2,357,505
                                           =========        =========`

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

As of December 31, 2003 and
2002 the inventory of parts were as follows:

`2003             2002
                                              ----             ----

Raw materials                              $  317,614       $  498,136
Allowance for excess or obsolete parts      (  89,388)       ( 216,390)
                                             --------         --------
                                           $  228,226        $ 281,746
                                             ========         ========`

## Long-lived Assets (Continued)

Property, plant and
equipment- These assets 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.

# BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

## Long-lived Assets (Continued)

Intangible assets- These
assets consist of patent rights and trade name. The patent rights are being
amortized by the straight-line method over a 5-year period. The trade name
qualifies as an indefinite-lived intangible asset and is not subject to
amortization. Trade name is tested for impairment annually, or more frequently
if the events or changes in circumstances indicate that the asset may have been
impaired. In the event of impairment of any intangible asset, the excess of the
carrying amount over the fair value is recognized as impairment loss. The
impairment losses are not restored in future.

Impairment of Long-Lived
Assets. Bovie 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 recoverable. Bovie assesses the recovery ability of
long-lived assets held, and to be used, based on undiscounted cash flows and
measures the impairment, if any, using discounted cash flows.

## Revenue Recognition and Product Warranty

Revenue from sales of
products is generally recognized upon shipment to customers. Bovie 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. Bovie now includes revenues from
freight in gross sales and cost of freight in cost of goods sold. Allowances for
estimated uncollectible accounts, discounts, returns, and allowances are
provided when sales are recorded.

## Advertising
Costs

All advertising costs are
expensed, as incurred. The amounts of advertising costs were $529,711 and
$359,875 for 2003 and 2002, respectively.

## Net Loss and
Earnings Per Common share

Basic loss per share is
computed by dividing loss available to common stockholders by the
weighted-average number of common shares outstanding for the period. The assumed
exercise of outstanding stock options have been excluded from the calculations
of loss per share as their effect is antidilutive. In 2002 and have been
included in 2003.

Basic earnings per share
("EPS") is computed based on the weighted average number of common
shares outstanding for the period. Diluted EPS gives effect to all dilutive
potential shares outstanding (i.e., options and warrants) during the period.

# BOVIE
MEDICAL CORPORATION

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 1.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

## Research and
Development Costs

Research and development expenses
are charged to operations. Only the development costs that are purchased from
another enterprise and have alternative future use are capitalized and are
amortized over estimated useful life of the asset, generally five years.

For research and
development activities that are partially or completely funded by other parties
and the obligation is incurred solely to perform contractual services all
expenses are charged to cost of sales.

## Income Taxes

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

## Non-monetary
Transactions

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

## Stock-Based
Compensation

The Company had adopted SFAS
123 and has adopted the amendments to SFAS 123 disclosure provisions required
under SFAS 148. Bovie will continue to account for stock-based compensation
utilizing the intrinsic value method pursuant to Accounting Principles Board
Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees. Under this
policy:

# BOVIE
MEDICAL CORPORATION

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 1.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

## Stock-Based
Compensation (Continued)

1.  Compensation  costs are  recognized as an expense over the period of employment  attributable  to any employee  stock  options.  2.
Stocks issued in accordance with a plan for past or future  services of an employee are allocated  between the expired costs and future
costs. Future costs are charged to the periods in which the services are performed.

In December 2002, the FASB
issued Statement No. 148, Accounting for Stock-Based compensation - Transition
and Disclosure - an amendment of FASB Statement No. 123. Statement No. 148
amends Statement No. 123, Accounting for Stock-Based Compensation, to provide
alternative methods of transition for a voluntary change to the fair-value based
method of accounting for stock-based employee compensation. In addition,
Statement No. 148 amends the disclosure requirements of Statement No. 123 to
require disclosure in interim financial statements regarding the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. Bovie does not intend to adopt a fair-value based
method of accounting for stock-based employee compensation until a final
standard is issued by the FASB that addresses concerns related to the
applicability of current option pricing models to non-exchange traded employee
stock option plans SFAS 148 also amends the disclosure requirements of SFAS 123
to require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. SFAS 148 is effective for
financial statements for annual periods ending after December 15, 2002 and
interim periods beginning after December 31, 2002.

Bovie has adopted the
amendments to SFAS 123 disclosure provisions required under SFAS 148 but will
continue to use intrinsic value method under APB 25 to account for stock-based
compensation. As such, the adoption of this statement has not had a significant
impact on Bovies financial position, results of operations or cash flows.

Pursuant to the disclosure
requirements of SFAS 148, the Company provides an expanded reconciliation for
all periods presented in Note 9.

## New Accounting Standards

## Recently Issued Accounting Standards:

In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No.
142, Goodwill and Intangible Assets . SFAS 141 requires all business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method and establishes specific criteria for the recognition of acquired intangible assets apart from goodwill.
Under SFAS 142, goodwill and indefinite-lived intangible assets are no longer
subject to amortization over their estimated

# BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

## New Accounting Standards(Continued)

useful life. Rather, these assets
are subject to, at least, an annual assessment for impairment by applying a
fair-value-based test. Bovie adopted SFAS 141 effective July 1, 2001 and SFAS
142 effective January 1, 2002.

The adoption of SFAS 141
and SFAS 142 eliminated the annual amortization of trade name of $1,877,299. The
reduction in annual amortization expense was $93,865.

In June 2001, the FASB
issued SFAS No. 143, Accounting for Asset Retirement Obligations. This statement
requires entities to record the cost of any legal obligation for the retirement
of tangible long-lived assets in the period in which it is incurred. SFAS 143 is
effective for fiscal years beginning after June 15, 2002. Bovie adopted the
standard effective January 1, 2003. The adoption of SFAS 143 did not have a
material effect on the financial position, results of operations or cash flows
of Bovie.

In August 2001, the FASB
issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. SFAS 144 addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. Bovie adopted SFAS 144 effective January 1,
2002. The adoption of SFAS 144 did not have a material effect on the financial
position, results of operations or cash flows of Bovie.

In July 2002, the FASB
issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal
Activities. Statement No. 146 addresses the timing of recognition and the
related measurement of the costs of one-time termination benefits. Under SFAS
146, liabilities for costs associated with a plan to dispose of an asset or to
exit a business activity must be recognized in the period in which the costs are
incurred Statement No. 146 is effective for exit activities initiated after
December 31, 2002, with early application allowed. Bovie adopted SFAS 146
effective January 1, 2002. The adoption of SFAS 146 did not have a material
effect on the financial position, results of operations or cash flows of Bovie.

In November 2002, the FASB
issued FASB Interpretation (FIN) No. 45, Guarantor s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. This interpretation addresses the disclosures to be made by a guarantor
in its interim and annual financial statements about its obligations under
certain guarantees. It also clarifies (for guarantees issued after January 1,
2003) that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligations undertaken in
issuing the guarantee. At December 31, 2002, Bovie did not have any significant
guarantees.

# BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

## New Accounting Standards (Continued)

Bovie adopted the disclosure requirements of FIN 45 for the year ended December 31, 2002, and the
recognition provisions effective January 1, 2003.

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

In November 2002, the EITF
finalized its consensus on EITF Issue 00-21, Revenue Arrangements with
Multiple Deliverables,  which provides guidance on the method of revenue
recognition for sales arrangements that include the delivery of more than one
product or service. EITF 00-21 is effective prospectively for arrangements
entered into in fiscal periods beginning after June 15, 2003. Under EITF 00-21,
revenue must be allocated to all deliverables regardless of whether an
individual element is incidental or perfunctory. The adoption of EITF 00-21 did
not have a material impact on the Companys results of operations or
financial position.

In January 2003, the FASB issued FASB Interpretation
No. 46 (FIN 46), Consolidation of Variable Interest
Entities. FIN 46 clarifies the application of Accounting Research Bulletin
No. 51, Consolidated Financial Statements, to certain entities
in which equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. FIN 46 applies immediately to variable interest entities
(VIEs) created after January 31, 2003, and to VIEs
in which an enterprise obtains an interest after that date. On October 9,
2003 the FASB issued FASB Staff Position No. FIN 46-6 Effective Date
of FASB Interpretation No.46 Consolidation of Variable Interest
Entities, which defers the implementation date for public entities
that hold an interest in a variable interest entity or potential variable
interest entity from the first fiscal year or interim period beginning after
June 15, 2003 to the end of the first interim or annual period ending after
December 15, 2003. This deferral applies only if 1) the variable interest
entity was created before February 1, 2003 and 2) the public entity has not
issued financial statements reporting that variable interest entity in
accordance with FIN 46, other than disclosures required by paragraph 26 of FIN
46. The adoption of FIN 46 did not have a material impact on the Companys
financial position, liquidity or results of operations.

In May 2003, the
FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities. This Statement amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS
No. 149 is effective for contracts entered into or modified after
June 30, 2003, and for hedging relationships designated after June 30,
2003. The adoption of SFAS No. 149 did not materially impact the Company's financial position or results of operations.

# BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 1.SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In May 2003, the FASB
issued SFAS No. 150, Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity. The statement
requires that an issuer classify financial instruments that are within its scope
as a liability. Many of those instruments were classified as equity under
previous guidance. SFAS No. 150 is effective for all financial instruments
entered into or modified after May 31, 2003. Otherwise, it is effective on
July 1, 2003 except for mandatorily redeemable non controlling
(minority) interest which, on October 29, 2003, the FASB decided to
defer indefinitely. The adoption of SFAS No. 150 did not materially impact
the Companys financial position or results of operations

In December 2003, the SEC
issued Staff Accounting Bulletin (SAB) No. 104, Revenue
Recognition, which supercedes SAB No. 101, Revenue Recognition in
Financial Statements. SAB No. 104 rescinds accounting guidance in SAB No.
101 related to multiple element arrangements, which was previously superceded by
EITF 00-21 (see above). The adoption of SAB No. 104 did not have a material
impact on the Companys results of operations or financial position.

## NOTE 2. DESCRIPTION OF BUSINESS

## Background

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

Bovie is actively engaged
in the business of manufacturing and marketing medical products and developing
related technologies. Aaron Medical Industries, Inc. ("Aaron"), a 100%
owned subsidiary based in St. Petersburg, Florida is engaged in marketing our
 s medical products. Previously Boviess largest product
line was battery-operated cauteries, we have has shifted our focus to the
manufacture and marketing of generators and electrosurgical disposables. This
new focus on high frequency generators is evident in the development of the
Aaron 800 and Aaron 900 high frequency desiccators, the Aaron 950- the first
high frequency desiccator with cut capability, the Aaron 1250 and the Aaron
2250. The Aaron 1250 and Aaron 2250 are designed for todays rapidly
expanding surgi-center market. Additionally, our new 200-watt electrosurgical
unit and our new 300-watt electrosurgical unit being marketed under the Bovie
name.

Bovie also manufactures a
variety of specialty lighting instruments for use in ophthalmology, general
surgery, hip replacement surgery, and for the placement of endotracheal tubes.

# BOVIE
MEDICAL CORPORATION

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 2.
DESCRIPTION OF BUSINESS(CONTINUED)

## Background
(Continued)

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

## Joint Venture
Agreement

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

Pursuant to agreement, the
joint venture acquired an exclusive license to produce and market any
surgical/medical devices utilizing this technology. In fiscal, 2003 and 2002,
Bovie made additional advances to the joint venture in the form of research and
development of prototypes expending $81,914 and $124,445 in development costs
and engineering costs, respectively.

The device has been
developed and patented in both Europe and the United States. Bovie has
constructed two pre-production prototypes for field testing purposes as a
prelude to eventual submission to the FDA for clearance to manufacture. The
initial intended uses are in the areas of dermatology and plastic surgery. Other
contemplated surgical uses for the technology are cardiovascular, thoracic,
gynecological, trauma and other surgeries.

Bovie has charged these
costs to operations as equity in net loss of unconsolidated affiliate.

# BOVIE MEDICAL CORPORATION

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 3. TRADE ACCOUNTS RECEIVABLE

As of December 31, 2003 and
2002 the trade accounts receivable were as follows:

`2003              2002
                                                 ----              ----

 Trade accounts receivable                  $  1,917,694       $ 1,498,512
 Less: allowance for doubtful accounts       (   116,952)      (    36,000)
       allowance for discounts               (    92,561)      (   112,025)
                                              ----------        ----------

 Trade accounts receivable, net              $ 1,708,181       $ 1,350,487
                                              ==========        ==========`

At December 31, 2003 trade
accounts receivable were pledged as collateral in connection with bank loans.

## NOTE 4.
PROPERTY, PLANT AND EQUIPMENT

As of December 31, 2003 and
2002 property, plant and equipment consisted of the following:

`2003             2002
                                                  ----             ----

        Equipment                            $   714,222      $   772,239
        Building                                 637,485          637,485
        Furniture and Fixtures                   903,711          515,788
        Leasehold Improvements                   531,694          310,514
        Molds                                    398,589          383,760
                                               ---------       ----------
                                               3,185,701        2,619,786

        Less: accumulated depreciation        (1,285,686)      (1,060,706)
                                               ---------        ---------

        Net property, plant, and equipment   $ 1,900,015      $ 1,559,080
                                               =========        =========`

Depreciation expenses for
the years ended December 31, 2003 and 2002 were $226,762 and $209,157,
respectively.

# BOVIE MEDICAL CORPORATION

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 4. PROPERTY, PLANT AND EQUIPMENT (Continued)

## Property and Rental Agreements

The following is a schedule
of future minimum rental payments as of December 31, 2003 and for the next five
years.

`Amount
                                        ------

                2004                   148,780
                2005                   145,974
                2006                   141,952
                2007                   135,308
                2008                   115,150
                                       -------

                                       687,167
                                       =======`

Total consolidated rent
expense for the Company was $59,095 in 2003 and $54,926 in 2002.

## NOTE 5. DUE TO
SHAREHOLDERS

In response to the
recission offer made by Bovie Medical Corporation to Aaron's former
shareholders, certain shareholders owning 46,800 shares had not contacted us.
The amount due to these shareholders, including $18,787 of accrued interest, is
$37,214. In 2003 we investigated and found that the shareholders that we
believed did not receive their shares had actually received them.

## NOTE 6.
INTANGIBLE ASSETS

At December 31, 2003 and
2002 intangible assets consisted of the following:

`Amount
                                                 2003              2002

      Classification
      Electrosurgery Technology            $    609,925       $    659,197
      Multifunction Cautery                          --             59,377
      Patent rights                              71,500             87,000
      Goodwill                                  339,404            359,405
      Trade name                              1,877,299          1,877,299
                                             ----------         ----------

                                              2,898,128          3,042,278
      Less: Accumulated Amortization         (1,243,499)        (1,274,402)
                                             ----------         ----------

            Total                          $  1,654,629       $  1,767,876
                                             ==========         ==========`

# BOVIE
MEDICAL CORPORATION

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 6.
INTANGIBLE ASSETS (Continued)

The cost of patents,
trademarks, patent rights, technologies and copyrights acquired are being
amortized on the straight-line method over their remaining lives, ranging from 2
to 20 years. Amortization expense charged to operations in 2003 and 2002 was
$151,529 and $81,628, respectively. Fully amortized intangibles written off
during 2003 amounted to $94,877.

## NOTE 7.
LONG-TERM DEBT AND LINE OF CREDIT

The long-term debt of the
Company at December 31, 2003 and 2002 includes a mortgage and notes payable.

`2003               2002

         Bonds payable                     $      --            $  20,000
         Mortgage payable                    411,664              475,000
         Term loan                             3,675               27,309
         Line of credit- bank                     --              150,000
                                            --------             --------

                                           $ 415,339            $ 672,309
                                            ========             ========`

## Mortgage
Payable

In 2001, Bovie paid off its
existing mortgage on its premises at 7100 30th Avenue North, St.
Petersburg, Florida, and replaced it with a new first mortgage of $475,000, from
its commercial lender. The interest Bovie pays on the mortgage is variable at
the banks base rate which is 4.00%, presently. Bovie makes principal payments of
$2,639 per month plus interest. The mortgage has a balloon payment of $320,562
due in November of 2006.

The scheduled principal
payments for the next five years are as follows:

`Year                         Amount

                           2004                        $31,668
                           2005                         31,668
                           2006                        348,328
                                                       -------
                                                      $411,664
                                                       =======`

# BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

# NOTE 7. LONG-TERM DEBT AND LINE OF CREDIT(Continued)

## Line of Credit - Commercial Bank

Advances under the new line
of credit secured in May of 2001 are limited to the lesser of $1,500,000 or 80%
of net accounts receivable from non-affiliated parties. Availability on December 31, 2003 was
$1,500,000 already advanced. The annual interest rate on the loan is variable
and is based on the bank's base rate. The line has no expiration date and is due
on demand by the bank. The bank has a security interest in inventory, accounts
receivable and equipment of the Company (the collateral). The balance due the
bank on the credit line at December 31, 2003 was zero.

## NOTE 8. OPTIONS

## Stock-Based
Compensation

The Company has an employee
incentive compensation plan (the Plan) pursuant to which the
Companys board of directors may grant stock options to officers and key
employees. Pursuant to an amendment approved by the Companys shareholders
during 2003, stock options to purchase up to an additional 1,200,000 shares of
common stock may be granted under the Plan. Stock options are granted with an
exercise price equal to the stocks fair market value at the date of grant.
All stock options have a ten year term and vest and become exercisable
immediately on the date of the grant. During 2003, a total of 1,090,000 options
were granted at prices between $.70 and $3.25 of the 1,200,000 authorized and
there were 110,000 additional shares available for grant under the Plan.

Stock-option activity during the periods indicated was as follow:

`Weighted Average
                                    Number of               exercise
                                     shares                   price

Balance January 01, 2002           2,909,000                  .703

No activity in 2002                       --                    --
                                   ---------                  ----
Balance December 31, 2003          2,909,000                  .703

Exercised                           (350,000)                 .71
Cancelled & forfeited           (361,200)                 .86
Granted                            1,791,800                 1.40
                                   ---------                 ----

Balance December 31, 2003          3,988,800                 1.004
                                   =========                 =====`

# BOVIE MEDICAL CORPORATION

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 8.OPTIONS(Continued)

Stock options consisted of
the following at December 31, 2003:

`Number of Options                Weighted Average                Exercise
   Currently Exercisable           Remaining Estimated Life             Price

          470,000                           10.0                       3.25
           95,000                           10.0                       1.30
          138,000                            3.0                       1.25
           50,000                            3.0                       1.15
           60,000                            3.0                       1.15
        1,480,000                            4.5                        .75
          500,000                           10.0                        .70
        1,195,300                            7.4                        .50
       ----------                           ----                       ----

        3,988,800                            6.8                     $ 1.00 (a)
       ==========                           ====                       ====

(a) The amount of $1.00  represents the weighted  average  exercise price of the
outstanding options.`

At December 31, 2002 and
2003, the number of options exercisable was 2,909,000 and 3,988,000,
respectively, and the weighted-average exercise prices of those options were
$.70 and $1.00, respectively.

During the year 2003 Bovie
cancelled 361,000 options issued prior to December 31, 2002 at various exercise
prices ranging from $.50 to $1.125 per share (the cancelled
options). The cancelled options were not replaced. In addition, we issued
1,791,000 options during the year at exercise prices from $.70 to $3.25. The options
issued in 2003 did not affect the fiscal year 2003 statement of operations as
the market value for Bovies common stock was the same as the exercise
price on the day granted.  Had the compensation cost for Bovies two stock option issuances been determined based on the fair
value at the grant date for awards in 2003 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:

`2003               2002
                                              ------             ------

Net earnings(Loss) - as reported)           $ 681,317          $ (514,765)
Net earnings(Loss) - pro forma               (317,420)           (514,765)
Gain(Loss) per share                            .05                (.04)
Gain(Loss) per share-pro forma                 (.02)               (.04)`

# BOVIE
MEDICAL CORPORATION

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 8. OPTIONS(Continued)

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average assumptions, zero dividend yield; expected
volatility of .50%; risk-free interest rate of 6.34%; and expected lives of 3
years.

## NOTE 9. TAXES AND NET OPERATING LOSS CARRYFORWARDS

As of December 31, 2003, the components of deferred tax assets were as follows:

`Deferred tax assets:                           2003               2002
                                                -----               ----

    Accounts receivable                          53,300             36,000
    Inventories                                 874,380            680,399
    Net operating loss carry forwards         2,922,000          3,160,000
    Patent rights, primarily due to
     amortization                         (      73,633)           120,295
                                             ----------          ---------

    Total gross deferred tax assets           3,776,047          3,996,694
    Less: Valuation allowance                 3,389,847          3,610,494
                                             ----------          ---------

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

Bovie had net operating
losses (NOLs) of approximately $8,346,000 at December 31, 2003. These NOLs and
corresponding estimated tax assets, computed at a 34% tax rate, expire as
follows:

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

       1987                  2007                37,000                13,000
       1988                  2008               757,000               265,000
       1989                  2009               374,000               131,000
       1990                  2010               382,000               134,000
       1991                  2011               246,000                86,000
       1992                  2012             1,004,000               352,000
       1993                  2013               465,000               163,000
       1994                  2014             1,197,000               419,000
       1995                  2015               637,000               223,000
       1998                  2018               548,000               192,000
       1999                  2019             2,184,000               764,000
       2002                  2022               515,000               180,000
                                             ----------            ----------

                            Total          $  8,346,000           $ 2,922,000
                                             ==========            ==========`

# BOVIE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 9. TAXES AND NET OPERATING LOSS CARRYFORWARDS(Continued)

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

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

The valuation allowance of
$3,610,494 as of December 31, 2002 was decreased by $220,647. The change in
valuation allowance was a consequence of decreasing tax assets of $238,000 and
reserving for additional allowances for accounts receivable and inventory loss
of $211,281, and patent amortization of $(46,662). The Company believes it is
possible that the benefit of these additional assets may not be realized in the
future. A reconciliation of the Federal statutory tax rate to Bovies
effective tax rate is as follows:

`Tax at statutory rate                                          34.0%
  State income taxes, net of U.S. federal benefit                 2.4%
  Tax benefit of loss carry forward                             (36.2%)

  Effective tax rate                                             -0-%`

## NOTE 10. RETIREMENT PLANS

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

All employees are eligible
to participate if they have one year of service in Bovie. The employees may make
voluntary contributions to the plan of up to 15% of their annual compensation.
Bovies contributions to the plan are discretionary but may not exceed 50%
of the first 4% of an employees annual compensation if he contributes 4% or more
to the plan. Vesting is graded and depends on the years of service. After six
years of service, the employees are 100% vested.

# BOVIE MEDICAL CORPORATION

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 10. RETIREMENT PLANS(Continued)

Bovie has made a
contribution during 2003 and 2002 of $48,967 and $44,053 respectively, for the
benefit of its employees. The Company also maintains a group health and dental
insurance plan. The employees are eligible to participate in the plan after
three months of full-time service.

## NOTE 11. RELATED PARTY TRANSACTIONS

## Professional Services and Employment Agreements

A director,  Alfred V. Greco Esq. is the principal of Alfred Greco PLLC, is Bovie's  counsel.  The legal fees paid to Alfred Greco PLLC
were $73,646 and $59,303 for the years 2003 and 2002, respectively.

A director,  George W. Kromer,  Jr. also serves as a consultant to us. The  consulting  fees to Mr. Kromer were $16,615 and $17,586 for
2003 and 2002, respectively.

Two employees of the
Engineering Department of Bovie are related to the chief operating officer.
Yechiel Tsitrinovich served as an engineering consultant and was paid fees of
$46,978 and $77,150, for 2003 and 2002 respectively. Bovie entered into a
two-year contract with Mr. Arik Zoran for him to assume supervision of the
engineering department, for a salary of $90,000 per year plus living expenses
and benefits. Bovie agreed to secure a permanent work visa for Mr. Zoran.

## Employment
Agreement

Bovie has employment
agreements with eight key employees. These agreements are for terms extending to
December 31, 2009 and call for base salaries of up to $136,000.

## Employee Benefit Plans

In 1996, 1998, 2001 and
2003, Bovie established stock option plans under which officers, key employees
and non-employee directors may be granted options to purchase shares of Bovie's
authorized, but unissued, Common Stock. Under its existing Employee Stock Option
Plans, the Company has Options outstanding as of December 31, 2003 for employees
to purchase 3,988,800 shares of common stock at exercise prices ranging from
$.50 to $3.25.

# BOVIE
MEDICAL CORPORATION

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 12.
COMMITMENTS AND CONTINGENCIES

## Legal
Proceedings

Bovies wholly owned
subsidiary, Aaron Medical Industries, Inc. (Aaron) is a named
defendant along with a physician and hospital in an action in the civil court,
State of Michigan. The plaintiff is seeking significant damages alleging among
other things, permanent injury and lifelong suffering due to the negligence of
the defendants. The complaint alleges that plaintiffs damages resulted
from burns and injuries sustained when a physician used an Aaron manufactured
cautery in a surgical procedure upon plaintiff while plaintiff was in an
oxygenated environment. Aaron has denied any affiliation with the physician and
the hospital and any direct or indirect liability for the injuries sustained by
plaintiff. However, in the unlikely event of a jury finding of liability,
management believes its insurance coverage should adequately satisfy any such
potential judgment.

## Product
Liability

Bovie currently has product
liability insurance which it believes to be adequate for its business. The
Company's existing policy expires in December 31, 2004.

## Bank Line of
Credit and Term Loan

The financial covenants of
the bank are:

Maximum Liability to Net
Worth Ratio: On a consolidated basis, Bovie shall maintain a Maximum Liability
to Tangible Net Worth Ratio of 1.00: 1.00 defined as liability (total
liabilities, including any subordinated debt) divided by Adjusted Tangible Net
Worth.

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

Minimum Fixed Charge
Coverage: Bovie shall maintain a Minimum Fixed Charge Coverage of 2:00:1:00
measured at Bovies fiscal year end, defined as (After tax income +
depreciation + amortization + lease expense + interest expense) divided by
(lease expense + interest expense + current maturities of long term debt).
We believe we are in compliance with all the Banks covenants.

## NOTE 13.
EARNINGS PER SHARE

In 2003, the Basic gain per
share of Bovie was $.05 per share. The diluted weighted average common shares
outstanding at December 31, 2003 was 14,835,450 and diluted earnings per share
was $.05. The assumed exercise of outstanding stock options have been excluded
from the calculations for 2002 of loss per share as their effect is
antidilutive.

# BOVIE
MEDICAL CORPORATION

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 14.
INDUSTRY SEGMENT REPORTING

## Disclosures
about Reportable Segments - Types of products and services.

Bovie had two reportable
segments: medical and non-medical products. The medical products segment
produces battery operated cauteries, electrosurgery products, and a variety of
specialty lighting instruments for surgical use. The nonsurgical segment produced lighting instruments for commercial use. Sales for the non-medical product line
have decreased in the past few years and Bovie has sold that product line to its
largest customer in that segment.

## Measurement of
segment profit or loss and segment assets

The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies. Bovie evaluates performance based on profit or loss from
operations before income taxes not including non-recurring gains and losses and
foreign exchange gains and losses. There were no intersegment sales and
transfers in 2003 and 2002.

Bovie now operates in one
reportable segment, Medical Products, we sold our non-medical products division
in the beginning of 2003.

Bovies principal
markets are the United States, Europe, and Latin America, with the U.S. and
Europe being the largest markets based on revenues. Bovie's major products
include cauteries, electrosurgery generators, nerve locators, reusable penlights
and electrodes. Cauteries, disposable and replaceable, account for 30% and 41%
of Company's sales for 2003 and 2002, respectively.

In 2003, one significant
customer accounted for 22% of total sales.

Bovies ten largest customers
accounted for approximately 66% of net revenues for 2003 and 63% of revenue in
2002.

At December 31, 2003 and
2002, receivables from Bovies 10 largest customers accounted for
approximately 62% and 63% of outstanding accounts receivable, respectively.

# BOVIE
MEDICAL CORPORATION

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 14.
INDUSTRY SEGMENT REPORTING(CONTINUED)

Summary information by
geographic area and segments for years ended December 31, 2003 and 2002 were as
follows:

`Operating        Gain        Identifiable
                               Sales         (Loss)         Assets
                             ---------       ------       ------------
2003 -
(in thousands)
Geographic Area
Domestic                     $  14,147       $ 579          $ 9,047
International                    2,403         102              187
                              --------        ----           ------

                              $ 16,550       $ 681          $ 9,234
                              ========       =====           ======
Segment
Medical
 Products                     $ 16,175       $ 681           $9,176
Non-medical
 Products                          375          --               58
                               -------       -----           ------

                              $ 16,550       $ 681          $ 9,234
                               =======       =====           ======

2002-(in thousands)
Geographic Area
Domestic                      $  9,878      $ (416)         $ 8,311
International                    2,335       (  99)             190
                                ------       ------          ------

                               $12,213      $ (515)         $ 8,501
                               =======      ======          =======
Segment
Medical Products              $ 11,477      $ (484)         $ 8,368
Non-medical
 Products                          736      (   31)             133
                               -------       -----           ------

                              $ 12,213     $ ( 515)         $ 8,501
                               =======       =====           ======


                                       Additional Information
                               Interest       Interest
                               Income         Expense       Deprec.
                              ---------       --------      -------
2003 -
(in thousands)
Geographic Area
Domestic                         $ 3               34          226
International                     --               --           --
                                 ---              ---         ----

                                   3               34          226
                                 ===              ===         ====
Segment
Medical
 Products                       $  3             $ 34        $ 226
Non-medical
 Products                         --               --           --
                                ----             ----         ----

                                $  3             $ 34        $ 226
                                ====             ====        =====

2002-(in thousands)
Geographic Area
Domestic                           5                38         193
International                      -                 -          --
                                 ---               ---         ---

                                   5                48         193
                                 ===              ====        ====

Segment
Medical
 Products                         2                41          182
Non-medical
 Products                         3                 7           11
                                 --               ---          ---

                                  5                48          193
                                 ==               ===          ===`

# BOVIE MEDICAL CORPORATION

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 14. INDUSTRY SEGMENT REPORTING(CONTINUED)

Assets and liabilities
outside the U.S.A.

`2002                     2003
                                        ----                     ----

Total assets                           $ 190                     $ 187
Total liabilities                         -0-                      -0-
Net property, plant
 and equipment                            -0-                      -0-`

Bovie had no assets (other
than certain trade receivables and molds) outside the United States, in the
years ended December 31, 2003 and 2002.

During 2003 and 2002, a
portion of Bovies consolidated net sales and consolidated gain from
operations was derived from foreign operations. Foreign operations are subject
to certain risks inherent in conducting business abroad, including price and
exchange controls, limitations on foreign participation in local enterprises,
possible nationalization or expropriation, potential default on the payment of
government obligations with attendant impact on private enterprise, political
instability and health care regulations and other restrictive governmental
actions. Changes in the relative value of currencies take place from time to
time and could adversely affect Bovies results of operations and financial
condition. The future effects of these fluctuations on the operations of Bovie
and its subsidiaries are not predictable.

## NOTE 15.
RESEARCH AND DEVELOPMENT PERFORMED FOR OTHERS

Bovie has entered into
several manufacturing and development agreements to produce electrosurgical
products for medical equipment companies. The agreements are considered Original
Equipment Manufacturing (OEM) contracts that call for: (1) Bovie to develop
specific use devices and components (2) the customer to commit to a certain
dollar amount of purchases and (3) Bovie to charge what it believes will be its
costs for the development of the product. If the customer rejects or terminates
the contract then it forfeits the development payments it has incurred. The
customer must fulfill its agreement if Bovie delivers its working prototypes
timely. Bovie has an arrangement with a customer whereby the customer will
receive a credit for it's reimbursement of research and development cost of
$112,000 at December 31, 2003.

# BOVIE
MEDICAL CORPORATION

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 15.
RESEARCH AND DEVELOPMENT PERFORMED FOR OTHERS (CONTINUED)

At December 31, 2003, Bovie
had contracts to produce $1,700,000 of products being developed. The following
is research and development revenue and costs related to specific contracts, for
2003 and 2002:

`Contracted Development Payments Received:
                                                     2003                2002
Amounts:                                            ------              ------

 Forfeited                                      $       --          $  177,800
 For Work in Progress                               304,461            183,815

               Total                                304,461            361,615

 Customer  Deposits                                      --            128,000
                                                   --------          ---------
 Revenues included in Gross Sales                 $ 304,461          $ 233,615
                                                   ========          =========
 Cost of Research and Development contracts
  included in gross profit                        $ 304,461          $ 233,615
                                                   ========          =========`