================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 1O-Q

                                   (Mark One)

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

                  For the quarterly period ended APRIL 3, 1999

                                       OR

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

               For the transition period from ________ to ________

                        Commission file number 000-21517

                          XOMED SURGICAL PRODUCTS, INC.
              ----------------------------------------------------
             (Exact name of registrant as specified in its charter)

          DELAWARE                                          06-1393528
-------------------------------                        -------------------
(State or other jurisdiction of                         (I.R.S. Employer
 incorporation or organization)                        Identification No.)

                            6743 SOUTHPOINT DRIVE N.
                           JACKSONVILLE, FL 32216-0980
                     ---------------------------------------
                    (Address of principal executive offices)

                                 (904) 296-9600
              -----------------------------------------------------
              (Registrant's telephone number, including area code)

                                 NOT APPLICABLE
          --------------------------------------------------------------
         (Former name, former address and former fiscal year, if changed
                               since last report)

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.

Common stock, $.01 par value - 12,260,904 shares as of April 22, 1999

================================================================================

<PAGE>
<TABLE>
<CAPTION>
                 XOMED SURGICAL PRODUCTS, INC. AND SUBSIDIARIES

                                      INDEX

                                                                           PAGE NUMBER
                                                                           -----------

PART I. FINANCIAL INFORMATION

<S>        <C>                                                             <C>
Item 1.    Condensed Consolidated Financial Statements (Unaudited)

           Condensed Consolidated Balance Sheets
               April 3, 1999 and December 31, 1998.........................     2

           Condensed Consolidated Statements of Income
               Three Months Ended April 3, 1999 and March 28, 1998.........     3

           Condensed Consolidated Statements of Cash Flows
                  Three Months Ended April 3, 1999 and March 28, 1998......     4

           Notes To Condensed Consolidated Financial Statements
               April 3, 1999...............................................     5

Item 2.    Management's Discussion and Analysis of Financial
               Condition and Results of Operations.........................     8

Item 3     Qualitative and Quantitative Disclosures about Market Risk......    11


PART II. OTHER INFORMATION

Item 1.    Legal Proceedings...............................................    12

Item 6.    Exhibits and Reports on Form 8-K................................    12

SIGNATURES                                                                     12
</TABLE>

                                       1
<PAGE>
<TABLE>
<CAPTION>

                 XOMED SURGICAL PRODUCTS, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)

                                                                               APRIL 3,    DECEMBER 31,
                                                                                 1999          1998
                                                                             -----------   ------------
<S>                                                                          <C>            <C>      
ASSETS                                                                       (unaudited)
Current assets:
     Cash and cash equivalents .........................................     $   6,435      $   4,256
     Accounts receivable, less allowance ...............................        20,241         18,516
     Other receivables .................................................           301            287
     Inventories .......................................................        21,264         22,368
     Prepaid expenses and other assets .................................         1,387          1,299
                                                                             ---------      ---------
Total current assets ...................................................        49,628         46,726

Investment securities ..................................................         9,204         16,584
Notes receivable from officers .........................................           826            826
Property, plant and equipment, net .....................................        23,543         21,769
Cost in excess of net assets acquired, net .............................        48,176         49,488
Other assets ...........................................................         4,432          4,293
Deferred income taxes ..................................................         2,310          2,310
                                                                             ---------      ---------
Total assets ...........................................................     $ 138,119      $ 141,996
                                                                             =========      =========
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
     Accounts payable ..................................................     $   5,578      $   5,325
     Accrued expenses ..................................................         7,118          4,923
     Accrued payroll and commissions ...................................         2,347          2,989
     Accrued restructuring costs .......................................           874            955
                                                                             ---------      ---------
Total current liabilities ..............................................        15,917         14,192

Deferred credits .......................................................           299            500
Long-term debt .........................................................         5,739         13,062
Shareholders' equity :
     Preferred stock, $1.00 par value, 1,000,000 shares authorized,
       -0- shares issued and outstanding ...............................          --             --
     Common stock, voting, $.01 par value; 30,000,000 shares authorized,
       12,257,792 shares issued and outstanding ........................            82             81
     Retained earnings .................................................         6,178          3,621
     Additional paid-in capital ........................................       111,499        110,831
     Cumulative translation adjustments ................................        (1,581)          (122)
     Unearned compensation .............................................          (141)          (169)
     Unrealized gain on securities .....................................           127           --
                                                                             ---------      ---------
Total shareholders' equity .............................................       116,164        114,242
                                                                             ---------      ---------
Total liabilities and shareholders' equity .............................     $ 138,119      $ 141,996
                                                                             =========      =========
</TABLE>

Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.

See notes to condensed consolidated financial statements.

                                       2
<PAGE>
<TABLE>
<CAPTION>

                 XOMED SURGICAL PRODUCTS, INC. AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                                 THREE MONTHS ENDED
                                                             ------------------------
                                                             APRIL 3,        MARCH 28,
                                                               1999            1998
                                                             -------         --------
<S>                                                          <C>             <C>    
Sales, net .............................................     $27,608         $20,682
Cost of sales ..........................................      10,780           8,063
                                                             -------         -------

Gross margin ...........................................      16,828          12,619
Operating expenses:
     Selling, general and administrative ...............      10,788           8,085
     Research and development ..........................       1,393           1,170
     Amortization of intangibles .......................         685             584
                                                             -------         -------

Total operating expense ................................      12,866           9,839
                                                             -------         -------

Operating income .......................................       3,962           2,780

Interest and dividend income, net .....................           34              30
Other income, net ......................................          89              40
                                                             -------         -------

Income before income tax expense .......................       4,085           2,850
Income tax expense .....................................       1,528           1,125
                                                             -------         -------

Net income .............................................     $ 2,557         $ 1,725
                                                             =======         =======
Per share:
Net income - basic .....................................     $  0.21         $  0.16
                                                             =======         =======

Net income - diluted ...................................     $  0.20         $  0.15
                                                             =======         =======

Weighted average common shares outstanding  - basic ....      12,159          11,012
                                                             =======         =======

Weighted average common shares outstanding - diluted....      12,981          11,448
                                                             =======         =======
</TABLE>

See notes to condensed consolidated financial statements

                                       3
<PAGE>
<TABLE>
<CAPTION>
                 XOMED SURGICAL PRODUCTS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                             (DOLLARS IN THOUSANDS)

                                                         THREE MONTHS ENDED
                                                        -------------------
                                                        APRIL 3,   MARCH 28,
                                                          1999       1998
                                                        -------    --------
<S>                                                     <C>         <C>    
OPERATING ACTIVITIES
Net cash provided by operating activities ..........    $ 4,080     $ 2,769

INVESTING ACTIVITIES
Purchases of property and equipment ................     (2,415)       (659)
Sale of investment securities ......................      7,523        --
                                                        -------     -------
Net cash provided by (used in) investing activities       5,108        (659)

FINANCING ACTIVITIES
Payments on revolving line of credit ...............     (7,323)       --
Exercise of stock options ..........................        669          67
                                                        -------     -------
Net cash provided by (used in) financing activities      (6,654)         67

Effect of exchange rate on cash and cash equivalents       (355)       --
                                                        -------     -------

Net increase in cash and cash equivalents ..........      2,179       2,177

Cash and cash equivalents at beginning of period ...      4,256       1,712
                                                        -------     -------
Cash and cash equivalents at end of period .........    $ 6,435     $ 3,889
                                                        =======     =======

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
    Interest .......................................    $   213     $    11
                                                        =======     =======
    Income taxes ...................................    $   193     $   437
                                                        =======     =======
</TABLE>

See notes to condensed consolidated financial statements.

                                       4
<PAGE>

                 XOMED SURGICAL PRODUCTS, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                      (in thousands, except per share data)

NOTE A - BASIS OF PRESENTATION

     The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X and should be read in conjunction with the audited
financial statements for the years ended December 31, 1998, 1997, and 1996 of
Xomed Surgical Products, Inc. (the Company) in the Company's 1998 Annual Report
on Form 10-K. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended April 3, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999.

NOTE B - INVENTORIES

The components of inventory consist of the following:

                                            APRIL 3,    DECEMBER 31,
                                              1999          1998
                                            -------     -----------

          Finished goods ................   $12,876       $12,693
          Work in process ...............     2,064         2,525
          Raw materials and packaging ...     6,324         7,150
                                            -------       -------
                                            $21,264       $22,368
                                            =======       =======

NOTE C - INVESTMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS

     Investments consist substantially of marketable preferred stocks that are
designated as available for sale. Accordingly, the securities are marked to
market and the unrealized gains and losses are included, net of taxes, as a
separate component of shareholders' equity. The investments consist of the
following:

         AVAILABLE FOR SALE                  COST          MARKET
         ------------------                 -------       -------
         Preferred Stock..............      $ 9,000       $ 8,446
         Other........................          758           758
                                            -------       -------
                                            $ 9,758       $ 9,204
                                            =======       =======

     In order to manage the interest rate risk on the preferred stock, the
Company has entered into derivative financial instruments with off-balance sheet
risk. The Company enters into short sales of futures contracts on US Treasury
Bonds in order to hedge the effect of interest rate risk on its preferred stock
portfolio. The futures contracts are designated at inception as a hedge of the
interest rate risk on the preferred stock and are monitored to determine if it
remains an effective hedge. The effectiveness of the futures contract as a hedge
is based on changes in its market value being highly inversely correlated with
changes in the market value of the underlying hedged item. The Company defers
any realized or unrealized gains or losses on the futures contract as a separate
component of shareholders equity until the hedged items (preferred stock) are
sold at which time the gain or loss is recorded in the statement of income. In
the event that it is determined that a hedge is ineffective, including if and
when the hedged transactions no longer exist, the Company recognizes in income
the change in market value of the instrument beginning on the date it was no
longer an effective hedge. As of April 3, 1999, the Company has deferred
realized and unrealized gains on its hedged investment portfolio of $194 before
income taxes. Realized gains included in the Condensed Consolidated Statement of
Income for the three months ended April 3,1999 were $94.

                                       5
<PAGE>

NOTE D - EARNINGS PER SHARE

     The following table sets forth the computation of shares for purposes of
the earnings per share calculation:

                                                             APRIL 3,  MARCH 28,
                                                               1999       1998
                                                             -------   --------

     Weighted average shares outstanding ...............     12,159     11,012
     Net effect of dilutive stock options - based on the
        treasury stock method ..........................        822        436
                                                             ------     ------
     Totals ............................................     12,981     11,448
                                                             ======     ======

NOTE E - COMPREHENSIVE INCOME

     Comprehensive income (loss) is comprised of two components: net income and
other comprehensive income. Other comprehensive income refers to revenues,
expenses, gains and losses that under generally accepted accounting principles
are recorded as an element of shareholders' equity and are excluded from net
income. The Company's other comprehensive income is comprised of foreign
currency translation adjustments from certain subsidiaries and unrealized gains
on investment securities. Comprehensive income for the three months ended April
3, 1999 and March 28, 1998, respectively, is insignificant and therefore is not
disclosed in the balance sheet as a separate component of shareholders' equity.
The components of comprehensive income (loss) are listed below:

                                                     THREE MONTHS ENDED
                                                    --------------------
                                                    APRIL 3,    MARCH 28,
                                                      1999        1998
                                                    -------     --------
     Net income ................................    $ 2,557     $ 1,725
     Foreign currency translation adjustment....     (1,475)        (54)
     Unrealized gain on investment securities...        143        --
                                                    -------     -------
     Comprehensive income ......................    $ 1,225     $ 1,671
                                                    =======     =======

The foreign currency translation adjustment for the three months ended April 3,
1999 is related primarily to the weakening of the French Franc subsequent to the
purchase of Micro-France.

NOTE F - ACCRUED RESTRUCTURING COSTS

     At December 31, 1998, the Company had accrued restructuring costs of $955
related to: (1) $580 for the transfer of certain production operations from its
Merocel facility in Mystic, Connecticut to its main facility in Jacksonville,
Florida, (2) $261 for the closure of its direct selling site in Paris, France in
conjunction with the acquisition of Micro-France and (3) $114 for the
termination of two supplier agreements. The accrual was for severance pay, lease
termination fees, asset disposals and other costs related to these activities.
For the three months ended April 3, 1999, the Company paid $81 toward the
accrued restructuring costs as shown in the following table:
<TABLE>
<CAPTION>
                                                    DECEMBER 31,               APRIL 3,
     ACCRUED RESTRUCTURING COSTS                       1998       PAYMENTS       1999
     ---------------------------                      -----       --------       -----
<S>                                                   <C>          <C>           <C>  
     Severance Pay...............................     $ 569        $  (28)       $ 541
     Lease Termination...........................       104            --          104
     Asset Disposals.............................       146            --          146
     Other Costs.................................       136           (53)          83
                                                      -----        -------       -----
    Totals......................................      $ 955        $  (81)       $ 874
                                                      =====        ======        =====
</TABLE>

NOTE G - SEGMENT INFORMATION

         The Company manufactures and distributes medical devices and supplies
for use by ENT physicians. The Company has a dedicated Vice President of Sales
and Vice President of Marketing devoted solely to its U.S. core ENT market. The
Company also offers a line of products for ophthalmic surgeons, which segment is
the sole focus of another Vice President. These two markets represent segments
identified for evaluating profitability and asset

                                       6
<PAGE>

NOTE G - SEGMENT INFORMATION (CONTINUED)

allocation. The "other" category is comprised principally of orthopaedic sales.
Sales of ophthalmic products internationally are not as material proportionately
as they are in the U.S. Also, the President of Xomed International, Inc. is
directly responsible for all sales outside the U.S. International is the third
segment identified and measured.

No other segments or operations are material to consolidated sales or assets.

     DISCLOSURES FOR PURPOSES OF SEGMENTAL REPORTING. Sales are recorded in the
geographical segment when and where products are delivered to the end user.
Related cost of sales reflects only economic costs (i.e., no intersegment
profit). Segment assets are reported based on specific identification where
possible, or if not, based on an allocation as a percentage of sales. Goodwill
is not allocated among the different segments.
<TABLE>
<CAPTION>
                                           THREE MONTHS ENDED APRIL 3, 1999
                                ------------------------------------------------------
                                       DEPRECIATION  SEGMENT     SEGMENT    CAPITAL
      SEGMENT                   SALES    EXPENSE     PROFIT      ASSETS   EXPENDITURES
      -------                  ------- ------------  -------     -------  ------------
<S>                            <C>         <C>      <C>        <C>          <C>   
      Domestic:
        Core ENT .........     $15,814     $524     $6,101     $ 96,742     $2,114
        Ophthalmic .......       2,364       28        266       10,125        120
        Other ............         307        6        113          921         55
                               -------     ----     ------     --------     ------
     Total ...............      18,485      558      6,480      107,788      2,289
     International .......       9,123       81      2,012       30,331        126
                               -------     ----     ------     --------     ------
     Consolidated ........     $27,608     $639     $8,492     $138,119     $2,415
                               =======     ====     ======     ========     ======
</TABLE>

<TABLE>
<CAPTION>

                                         THREE MONTHS ENDED MARCH 28, 1998
                                ------------------------------------------------------
                                       DEPRECIATION  SEGMENT     SEGMENT    CAPITAL
      SEGMENT                   SALES    EXPENSE     PROFIT      ASSETS   EXPENDITURES
      -------                  ------- ------------  -------     -------  ------------
<S>                            <C>         <C>      <C>        <C>          <C>   
     Domestic:
        Core ENT .........     $12,190     $461     $4,261     $ 74,956     $  587
        Ophthalmic .......       2,156       20        670        9,935         31
        Other ............         309       19        120        1,215          3
                               -------     ----     ------     --------     ------
     Total ...............      14,655      500      5,051       86,106        621
     International........       6,027       93      1,400       12,667         19
                               -------     ----     ------     --------     ------
     Consolidated ........     $20,682     $593     $6,451     $ 98,773     $  640
                               =======     ====     ======     ========     ======
</TABLE>


Reconciliation of segment profit to income before tax:

                                                       THREE MONTHS ENDED
                                                    -----------------------
                                                    APRIL 3,       MARCH 28,
                                                      1999           1998
                                                    --------       ---------
     Indirect operating expenses:
       General and administrative..............     $ 2,452        $ 1,917
       Amortization of intangibles.............         685            584
       Research and development................       1,393          1,170
                                                    -------        -------
     Total indirect expenses...................       4,530          3,671
                                                    -------        -------
     Income from operations....................       3,962          2,780
     Interest and dividend income, net.........          34             30
     Other income, net.........................          89             40
                                                    -------        -------
     Income before income taxes................     $ 4,085        $ 2,850
                                                   ========        =======

                                       7
<PAGE>

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

       THIS FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM
THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED
NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK
ONLY AS OF THE DATE HEREOF. THE COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO
PUBLICLY RELEASE ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT
EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS.

RESULTS OF OPERATIONS

         SALES BY MARKET. The Company derives sales from various markets within
the ENT industry. Sinus and rhinology, head and neck and otology are the three
core markets in which the Company operates. In addition to products for these
markets, the Company has other product offerings, including lines of ophthalmic,
orthopaedic and other products. The following table summarizes the Company's
worldwide product line sales and sales by geographic area during the periods
indicated.

    PRODUCT LINE                                   THREE MONTHS ENDED
                                            -------------------------------
                                             APRIL 3, 1999   MARCH 28, 1998
                                             -------------   --------------
    Sinus & Rhinology...................       $12,425         $ 8,481
    Head & Neck.........................         5,755           4,552
    Otology.............................         4,604           4,132
                                               -------         -------
      Total Core ENT Business..........         22,784          17,165
   Ophthalmic & Other..................          4,824           3,517
                                               -------         ------- 
      Total Company....................        $27,608         $20,682
                                               =======         =======

    GEOGRAPHIC                                     THREE MONTHS ENDED
                                            -------------------------------
                                            APRIL 3, 1999    MARCH 28, 1998
                                            -------------    --------------
Domestic............................            $18,485         $14,655
International.......................              9,123           6,027
                                              ---------       ---------
   Total Company....................            $27,608         $20,682
                                                =======         =======

         NET SALES. Net sales increased 33.5% to $27.6 million in the first
three months of 1999 from $20.7 million in the comparable period of 1998. The
first quarter of 1999 included $2.2 million in net sales related to
Micro-France, which was acquired on December 30, 1998. Also, due to a change in
the Company's quarterly fiscal calendar, there were 64 selling days in the first
three months of 1999 as compared to 60 selling days for the comparable period of
1998. In the core business of sinus and rhinology, head and neck and otology,
sales increased 32.7% over the prior comparable period. Domestic core ENT sales
increased by 29.7% to $15.8 million for the three-months ended April 3, 1999
over the comparable period in 1998. During the quarter, the Company completed
its full domestic launch of the new LandmarX(TM) image guided surgery system,
which is used primarily in conjunction with endoscopic sinus surgery. This new
product launch, combined with continued strength in the Company's flagship XPS
2000 StraightShot(R) power resection system and its NIM-2(R) XL nerve integrity
monitoring system helped drive the Company's domestic performance. In addition,
sales in the relatively mature domestic otology market increased 18.1% to $3.2
million for the first three months of 1999 as compared to $2.7 million for the
comparable period in 1998, and domestic ophthalmic sales increased 9.6% to $2.4
million from $2.2 million. International core ENT sales increased by 40.1% to
$7.0 million for the three-month period as compared to the same period in 1998.
In addition to the sales of Micro-France, the Company realized strong growth in
most major markets, especially the Asia/Pacific region (excluding Japan) where
sales increased by more than 50% for the first three months of 1999 as compared
to the comparable period in 1998. The increase in core business sales was
primarily the result of strong growth in the Company's XPS product line, where
sales grew more than 85% versus the prior year's first quarter.

         COST OF SALES AND GROSS MARGIN. Cost of sales increased 33.7% to $10.8
million in the first three months of 1999 from $8.1 million in the first three
months of 1998. Cost of sales as percent of sales was 39.0% for both periods.

                                       8
<PAGE>

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 33.4% or $2.7 million in the first three
months of 1999 from the comparable period in 1998. The increase in expenses from
1998 to 1999 was partially caused by marketing expenses related to the new
LandmarX(TM) image guided surgery system, transition of some ophthalmic sales
from distributors to an internal sales force, integration expenses related to
the acquisition of Micro-France, and variable expenses related to sales. As a
percent of sales, selling, general and administrative expenses were 39.1% for
the first three months of 1999 and 1998.

         RESEARCH AND DEVELOPMENT. Research and development expenses increased
19.1% to $1.4 million in the first three months of 1999 from $1.2 million in the
comparable period of 1998, and decreased as a percent of sales to 5.0% from 5.7%
during the same respective periods. This decrease, as a percent of sales, is
primarily due to increased sales related to Micro-France and the LandmarX(TM)
image guided surgery system without associated research and development
expenses.

         AMORTIZATION OF INTANGIBLES. Amortization of intangibles increased
17.3% to $685,000 for the first three months of 1999 from $584,000 in the
comparable period of 1998. The increase in amortization is primarily related to
goodwill of $9.0 million recognized from the purchase of Micro-France at
December 30, 1998, which is being amortized over a 25-year period.

         INTEREST AND OTHER. Net interest and dividend income in the first
quarter of 1999 was $34,000 as compared to $30,000 in the comparable quarter of
1998. Interest and dividend income has decreased from the level seen in the
third and fourth quarter of 1998 due to the purchase of Micro-France. Net other
income was $89,000 for the first three months of 1999 compared to $40,000 for
the comparable period of 1998. The difference is primarily related to a $94,000
increase in the market value of the Company's investment portfolio, offset
somewhat by foreign currency exchange costs.

         INCOME TAXES. The Company's effective tax rate was 37.4% for the first
three months of 1999 and 39.5% for the prior comparable period. The decrease in
the effective tax rate is primarily due to the dividend-received exclusion on
dividend income.

LIQUIDITY AND CAPITAL RESOURCES

         The Company entered into an Amended and Restated Credit Agreement with
its bank in May 1997 under which it may borrow through a revolving credit
facility (the "line of credit") up to $25 million to be used for working capital
needs and potential acquisitions. At April 3, 1999, $22.5 million was available
under the line of credit.

         During the three months ended April 3, 1999, operating activities
provided cash of $4.1 million as compared to $2.8 million in the comparable
period of 1998. In the first three months of 1999, cash provided by inventory,
accounts receivable, other assets and accounts payable was approximately
$622,000 compared to $100,000 in the comparable period of 1998. Increases in
accounts receivable due to growth in sales and other assets were offset by
increases in accounts payable and accrued expenses.

         Cash provided by investing activities was $5.1 million in the first
three months of 1999 as compared to cash used in investing activities of $0.7
million in the prior comparable period. Cash of $7.5 million was provided by the
sale of investment securities in 1999, which was used to pay-down debt. Capital
expenditures were $2.4 million and $0.7 million in the first three months of
1999 and 1998, respectively. Cash used to purchase capital assets is expected to
increase as the Company expects to spend approximately $5.6 million in 1999 on
its headquarters expansion in Jacksonville, Florida in addition to its capital
equipment requirements.

         Cash used in financing activities was $6.7 million in the first three
months of 1999 as compared to $67,000 provided in the comparable period of 1998.
In 1999, the Company used the proceeds from the sale of investment securities to
pay $7.3 million outstanding under the line of credit. $669,000 was provided by
the exercise of stock options in the first three months of 1999 as compared to
$67,000 in the comparable period of 1998.

         Based on the Company's ability to generate cash flow from operations
and with the availability of borrowing under its line of credit, the Company
believes it will be able to finance its working capital and expansion needs for
at least the next 24 months.

                                       9
<PAGE>

FINANCIAL INSTRUMENTS AND MARKET RISK MANAGEMENT

         The Company is exposed to interest rate risk stemming from its
preferred stock portfolio. The Company has entered into short sales of US
Treasury Bond futures in order to hedge the effect of the interest rate risk on
its preferred stock portfolio. See Item 3. Qualitative and Quantitative
Disclosures about Market Risk.

NEW ACCOUNTING PRONOUNCEMENTS

         In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS
No. 133), which is required to be adopted for fiscal years beginning after June
15, 1999, although earlier application is permitted as of the beginning of any
fiscal quarter. This statement will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
Company is in the process of determining what effect the adoption of SFAS No.
133 will have on the Company's results of operations, cash flows or financial
position.

YEAR 2000

         The Company has undertaken an internal assessment of its operations,
including its information systems, financial systems and its manufacturing
processes, in order to determine the extent to which the Company may be
adversely affected by Year 2000 issues. The Company's focus on this issue is to
avoid any adverse effect on business operations and ensure that transactions
with customers, suppliers, and financial institutions are fully supported. This
internal assessment is approximately 90% complete, and the Company expects to
finish the assessment process by June 1999. The Company plans to devote the
necessary resources to resolve any significant Year 2000 issues in a timely
manner. To date, the Company has performed limited testing of systems, and may
conduct further testing and/or an external audit following the conclusion of its
assessment. Only internal time and costs have been incurred related to
investigating and testing related to the Year 2000 issue. These costs are
immaterial to date. Present estimates for further expenditures of both employee
time and expenses to address Year 2000 issues are between $50,000 and $100,000,
respectively.

         The Company has surveyed its significant suppliers, customers and other
third parties to determine their Year 2000 readiness and, to date, has received
responses from approximately 60% of those surveyed, a majority of whom have
certified they are compliant. The Company has conferred with significant
customers to assure that various systems used for data and information exchanges
between them will be compatible following December 31, 1999. The Company has
also initiated a formal program to advise customers, distributors and suppliers
of the Year 2000 issue; however, the Company believes it has no material
exposure to contingencies related to the Year 2000 issue for the products it has
sold.

         Based on its assessments to date, the Company believes it will not
experience any material disruption as a result of Year 2000 issues in internal
manufacturing processes, information processing or interface with key customers,
or with processing orders and billing. Possible Year 2000 worst case scenarios
include the interruption of significant parts of the Company's business as a
result of critical information systems failure or the failure of suppliers,
distributors or customers. Any such interruption may have a material adverse
impact on future results. Since their possibility cannot be eliminated, the
Company is incorporating Year 2000 concerns into its contingency plans for
dealing with catastrophic events. Although the Company expects its remediation
efforts will be completed on a timely basis, failure to do so could have a
material adverse effect on the Company's systems and results of operations which
could lead to an inability to process customer orders, ship products, bill
customers and collect payments. While the Company has taken the steps outlined
above, there can be no certainty that the systems and products of other
companies on which the Company relies will not have a material adverse effect on
the Company's operations.

         In addition, if certain third party service providers, such as those
supplying electricity, water or telephone service, experience difficulties
resulting in disruption of service to the Company, a shutdown of the Company's
facilities could occur for the duration of the disruption. At present, the
Company has not developed contingency plans 

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but intends to develop such plans in fiscal year 1999. Based on existing
information, the Company believes the anticipated spending to become Year 2000
compliant will not have a material adverse effect on the Company's financial
condition, cash flows or results of operations. Nevertheless, there can be no
assurance that Year 2000 issues will not have a material adverse effect on the
Company's business, results of operation and financial condition.

ITEM 3.  QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN CURRENCY

         A portion of the Company's operations consists of sales and
manufacturing activities in foreign markets. The Company manufactures its
products in the United States and sells them outside the U.S. through a
combination of international distributors and five wholly-owned subsidiaries.
The Company also manufactures hand held instruments at its subsidiary,
Micro-France. Sales from the U.S. operations to the third party distributors are
in U.S. dollars and sales to the wholly-owned subsidiaries are in their local
currencies.

         The Company uses short-term forward exchange contracts on its foreign
currency receivables due from its subsidiaries. Hypothetically, if exchange
rates were to change by 10% as compared to the U.S. Dollar, the effect on the
Company's receivables from its foreign subsidiaries would be materially offset
by the Company's hedge.

         The Company also translates the earnings and balance sheets of its
foreign subsidiaries from their functional-local currency into U.S. dollars at
the end of each month. As of the beginning of 1999, the result of a uniform 10%
strengthening in the value of the U.S. Dollar relative to the currencies in
which the Company's foreign subsidiaries operate would have affected income from
operations by approximately $60,000 for the quarter ending April 3, 1999. This
calculation assumes that each exchange rate would change in the same direction
relative to the U.S. Dollar. In addition, the Company's sensitivity analysis of
the effects of changes in foreign currency exchange rates does not consider a
potential change in sales levels or local currency prices. The effect of
translation of the balance sheets of the foreign subsidiaries does not affect
income, but is recorded as a component of shareholders' equity. The cumulative
translation adjustment recorded in shareholders equity increased from $122,000
at December 31, 1998 to $1,581,000 at April 3, 1999 due to the weakening of the
Euro and the increased significance in assets held in France due to the
Company's acquisition of MicroFrance on December 31, 1998.

INTEREST RATE EXPOSURE

         The Company is exposed to interest rate risk stemming from its
preferred stock portfolio. The Company has entered into short sales of U.S.
Treasury Bond futures ("derivatives") in order to hedge the effects of interest
rates on these investments. The Company believes that the value of the U.S.
Treasury Bond futures correlates inversely to the value of the preferred stocks
upon changes in interest rates. Accordingly, the Company's objective is to
offset any gain or loss on the exposed investments with gains or losses from the
derivatives. The Company does not use the derivatives for trading or speculative
purposes. Additionally, by adopting this strategy the Company is exposed to the
possibility that the gains and losses realized on the derivatives will not
correlate inversely with the gains and losses on the investments.

         As of April 3, 1999, the Company holds positions in short sales of U.S.
Treasury Bonds ("Bonds") with a notional amount of $6.5 million based on a price
of $120.97. Upon closing out the short sale contracts, the Company could
experience gains and losses depending on the price of the Bonds. Assuming a
hypothetical increase or decrease of 10%, the price range of $108.88 to $133.07
would result in a potential gain of $650,000 or a potential loss of $650,000.
However, these ranges reflect the effect of interest rates on the hedge strategy
and not the exposed risk. Over the past ten years, investments in preferred
stocks at the Company's level would typically react inversely to the amounts
noted above and materially offset the gains or losses noted above.

         Based on the Company's current program of liquidating these investments
over the next several months, the Company's belief that market conditions for
these investments are improving, and the valuation reserves established in prior
periods, the Company does not anticipate incurring material future losses on its
investment portfolio. Based on the uncertainty of market conditions, however,
there can be no assurance that material future losses will be avoided.

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PART II.  OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS.

          The Company is currently involved in certain legal proceedings
          incidental to the normal conduct of its business. The Company does not
          believe that any liabilities relating to the legal proceedings to
          which it is a party are likely to be, individually or in the
          aggregate, material to its consolidated financial position or results
          of operations.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

     (a)  The following exhibits are included herein:

          EXHIBIT NO.    DESCRIPTION

          10.1           Employment Agreement dated as of March 22, 1999 between
                         the Company and Thomas E. Timbie

          10.2           Employment Agreement dated as of March 22, 1999 between
                         the Company and R. Glen Coleman

          10.3           Employment Agreement dated as of March 22, 1999 between
                         the Company and Fred B. Dinger, III

          27             Financial Data Schedule

    (b)  The Company filed a report on Form 8-K dated January 13, 1999,
         containing the Company's news release related to the acquisition of
         Micro-France on December 30, 1998.

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on the dates indicated.

                                   XOMED SURGICAL PRODUCTS, INC.                
                                   (Registrant)

Date    MAY 14, 1999               /s/ JAMES T. TREACE                          
                                   ---------------------------------------------
                                   James T. Treace, Chairman, President
                                   and Chief Executive Officer 
                                   (duly authorized officer)


Date    MAY 14, 1999               /s/ THOMAS E. TIMBIE                         
                                   ---------------------------------------------
                                   Thomas E. Timbie, Vice President and
                                   Chief Financial Officer 
                                   (principal financial officer)

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