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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

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. 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K.  o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

The aggregate market value of common stock held by nonaffiliates of the registrant based on the sale trade price of the common stock as reported on The Nasdaq Stock Market on March 21, 2003, was approximately $88.5 million.  For purposes of this computation, all officers, directors and 5% beneficial owners of the registrant are deemed to be affiliates.  Such determination should not be deemed an admission that such officers, directors or 5% beneficial owners are, in fact, affiliates of the registrant. 

At March 21, 2003, there were outstanding 42,056,607 shares of the registrant’s common stock, $.001 par value per share. 

Documents incorporated by reference: Portions of the Registrant’s proxy statement relating to the 2003 Annual Meeting of Shareholders are incorporated into Part III of this Form 10-K.

          Note:  The discussions in this Form 10-K contain forward-looking statements that involve risks and uncertainties.  The actual results of Microtek Medical Holdings, Inc. and subsidiaries (the “Company”) could differ significantly from those set forth herein.  Factors that could cause or contribute to such differences include, but are not limited to, those discussed in “Business”, particularly “Business - Risk Factors”, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as those discussed elsewhere in this Form 10-K.  Statements contained in this Form 10-K that are not historical facts are forward-looking statements that are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995.  A number of important factors could cause the Company’s actual results for 2003 and beyond to differ materially from those expressed or implied in any forward- looking statements made by, or on behalf of, the Company.  These factors include, without limitation, those listed in “Business - Risk Factors” in this Form 10-K.

PART I.

ITEM 1.   BUSINESS

General

          Microtek Medical Holdings, Inc. (the “Company”) currently has two primary operating units. The Company conducts substantially all of its operations through Microtek Medical, Inc. (“Microtek”), a Company subsidiary. OREX Technologies International (“OTI”), a division of the Company, focuses on the commercialization of the Company’s disposal technologies.

          Microtek, a market leading healthcare company within its area of focus, manufactures and sells infection control products, fluid control products and safety products to healthcare professionals for use in environments such as operating rooms and ambulatory surgical centers.  Microtek’s core product line consists of a large variety of disposable equipment and specialty patient drapes.  Microtek has established a broad distribution system through multiple channels including distributors, directly through its own sales force, original equipment manufacturers, and private label customers.  Additionally, Microtek has a strong presence in the custom procedural tray business.

          OTI seeks to develop and commercialize contamination control materials and products coupled with engineered systems for the treatment and disposal of those materials and products using proprietary technology and know-how. While OTI has in the past sought to develop and commercialize such products for healthcare applications, OTI currently focuses primarily on seeking to commercialize its degradable OREX^TM products and technology for disposing of such products in the nuclear power generating industry.

Business Strategy

          The Company intends to improve its operating results through the following strategies:

          Increased Focus on Infection Control Businesses.  The Company seeks to increase sales and earnings from its infection control business by completing strategic acquisitions, enhancing marketing and distribution efforts both domestically and internationally, introducing new products, increasing direct sales representation, employing tele-sales agents for added sales coverage, and capitalizing on low-cost manufacturing opportunities in the Dominican Republic and China.

          Commercializing OREX Degradables.  The Company seeks to commercialize its OREX Degradable products by improving the product to better satisfy customer needs and provide added value.  The Company seeks to achieve these goals through offering materials with superior product performance and contamination control characteristics, while reducing material costs on a life cycle basis from materials purchasing through disposal, and accomplishing the foregoing in an ecologically beneficial way.  Through OTI, the Company currently focuses primarily on the nuclear power industry in seeking to commercialize its OREX Degradable products.  There can be no assurance that OREX Degradables will achieve or maintain substantial acceptance in their target markets. See “Risk Factors – History of Net Losses” and “-OREX Commercialization Risks”.

          Reduction of Costs.  The Company has implemented a program to reduce its costs and thereby increase its net income through manufacturing, corporate overhead and OTI’s operating expense reductions.

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Products and Markets

          Infection Control Products

          Consistent with its niche market strategy, Microtek is actively engaged in the development of new products and the refinement of its existing products to respond to the needs of its customers and the changing technology of the medical products industry.  Many of the Company’s product innovations have been generated from requests by the Company’s customers, equipment companies and health care professionals for products to be custom designed to address specified problems in the operating room environment.  The Company also monitors trends in the health care industry and performs market research in order to evaluate new product ideas. No assurance can be given that any new product will be successfully developed or that any newly developed product will achieve or sustain market acceptance.

          Microtek’s products consist primarily of the following:

          Equipment Drapes.  Microtek’s line of equipment drapes consists of more than 1,500 specially designed drapes for use in draping operating room equipment during surgical procedures.  This equipment includes, for example, microscopes, ultrasound probes, endoscopic video cameras, x-ray cassettes, imaging equipment, lasers and handles attached to surgical lights.  In addition to reducing the risk of cross-infection, these products increase operating room efficiency by reducing the need to sterilize equipment between procedures.  These disposable sterile products are generally made from plastic film containing features designed for the operating room environment, such as low glare and anti-static features.

          Patient Drapes.  Microtek manufactures and sells both non-woven and plastic patient drapes. Microtek’s non-woven patient drapes are limited to specialty patient drapes with various enhancements, such as fluid collection pouches, incise and unique procedure-specific designs. For example, angiography drapes are specially designed patient drapes used in angiography procedures.  Microtek acquired its line of angiography drapes as a result of the acquisition by Microtek from Deka Medical, Inc. (“Deka”) of substantially all of the assets of Deka.

          Safety Products.  Microtek manufactures and sells a leading line of encapsulation products for the management of potentially infectious and hazardous waste. The primary components of this product line, called Isosorb and LTS-Plus, are super-absorbent powder which convert potentially infectious liquid waste to a solid form. These products are typically added to a suction canister or other fluid collection device in which fluids are collected during surgery or in wound drainage after surgery to solidify such fluids, thereby facilitating handling, transportation and disposal. Isosorb solidifies liquid waste without any germicidal component, and LTS-Plus, which is registered with the Environmental Protection Administration (EPA) as a medical waste treatment product. This registration adds the extra benefit to the end-user of being able to dispose of LTS-Plus treated waste directly in a landfill, where local regulation permits. See “-Government Regulation”.

          Other Products.  Other products manufactured and sold by Microtek include its Venodyne pneumatic pumps and disposable compression sleeves used in reducing deep vein thrombosis, decanters used for sterile transfer of fluids, specially designed disposable pouches or fluid-control products which are attached to patient drapes to collect fluids, wound evacuation products, and kits to facilitate cleanup of operating rooms after use called CleanOp products.

          Equipment and patient drapes generated 58.7 percent of the Company’s revenues in 2002 as compared to 64.1 percent in 2001 and 56.4 percent in 2000. Venodyne product revenues represented 6.0 percent, 6.2 percent and 10.2 percent of the Company’s revenues in 2002, 2001 and 2000, respectively. Safety product revenues were 7.2 percent, 9.6 percent and 14.1 percent of the Company’s revenues in 2002, 2001 and 2000, respectively. International sales by Microtek during 2002, 2001 and 2000 were $11.8 million, $9.9 million and $5.7 million, respectively.

          OREX Degradables

          OREX Degradables are a combination of materials and products that provide protection to people and the environment while providing cost effective solutions to the problems associated with solid waste reduction and disposal.  These materials and products may include woven and nonwoven fabrics, resin, film, hard plastics and extruded products. OREX Degradables perform like traditional disposable and reusable products; however, unlike traditional products, OREX Degradables can be degraded or dissolved in hot water in a specially designed OREX Processor after use for disposal through the municipal sewer system or other specialty engineered treatment and

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disposal systems. See “Risk Factors – History of Net Losses”, “- OREX Commercialization Risks”, “- OREX Manufacturing and Supply Risks” and “- OTI Regulatory Risks”.

          Due to a number of factors including the Company’s program to reduce its costs, the Company is currently focused through its OTI division in commercializing its OREX Degradable products and processing technology primarily in nuclear power markets. OTI’s nuclear products consist of protective clothing products such as coveralls, hoods and booties, and are marketed in two forms.  One form is designed for single use and the other form may be laundered for a limited number of repeat uses. These products are used in the nuclear power industry to help protect people from radioactive contamination, primarily in connection with periodic maintenance and re-fueling of nuclear power systems. As a part of such use, the products may become contaminated.  As a result, such products are required to be treated after use as low-level radioactive materials and thereby become subject to regulations addressing the manner in which they are processed and disposed.  During 2001, OTI acquired a processing system called MICROBasix which may be used to process OREX products.  The MICROBasix processing system substantially reduces the volume of OREX products, separates radioactive contaminants and facilitates the disposal of processed by-product material. While the Company has received favorable responses from large nuclear power facilities using the Company’s products, nuclear industry revenues in 2002 amounted to less than one percent of the Company’s consolidated net revenues.

          During 2001, OTI entered into a service, marketing and processing alliance with Eastern Technologies, Inc. (ETI), a small, privately held enterprise providing protective clothing and laundering services to the nuclear power industry. Under this relationship, ETI’s Alabama facility has become the site for a centralized MICROBasix processor facility. ETI has agreed to pay OTI a percentage of the price charged by ETI to its customers for processing services.  Subject to certain conditions, ETI maintains exclusive rights to process the OREX materials in the United States and Canada through December 31, 2004.  Under a License and Supply Agreement between OTI and ETI, ETI serves as a nonexclusive distributor of single use OREX products to the nuclear power industry and serves as the exclusive co-marketer with OTI of OREX Launderables^TM through December 31, 2004. Under the License and Supply Agreement, ETI has agreed to pay OTI a fixed price for the supply of the single use and launderable OREX products and a royalty on the launderable products equal to a percentage of the single use fees charged by ETI for the supply of launderable products its customers.

          Prior to 2001, the Company was focusing on delivering OREX Degradables to the healthcare industry. In 1999, the Company granted to Allegiance Healthcare Corporation an exclusive worldwide license to manufacture, use and sell products made with the Company’s proprietary degradable materials for use in healthcare applications. During 2001, the Company and Allegiance Healthcare mutually agreed to discontinue commercialization efforts in the healthcare market. If at any time until April 11, 2003, OTI determines that a change in circumstances makes it advisable to reintroduce degradable products to the healthcare marketplace, the Company has agreed to offer Allegiance Healthcare the opportunity to enter into a new agreement with the Company on terms at least as favorable as those contained in the Company’s previous license to Allegiance Healthcare. See “Risk Factors – Reduced OREX Market Potential”.

          OTI engages in the strategy of relying upon third parties for selling, marketing and manufacturing its OREX Degradables line of products. See “- Marketing and Distribution”, “- Manufacturing and Supplies”, “Risk Factors – History of Net Losses”, “-OREX Commercialization Risks” and “-OREX Manufacturing and Supply Risks”.

Marketing and Distribution

          Substantially all of the Company’s sales in 2002 were made to the healthcare market.

          As of December 31, 2002, the Company’s marketing and sales force consisted of 47 sales representatives, 35 of whom are employed by the Company and 12 of whom are independent representatives; nine field sales managers; two home office sales managers; 13 marketing managers and 21 persons in customer support.  This marketing and sales force represents the Company’s infection control products and does not market or sell the Company’s OREX products and services.

          The Company is dependent upon a few large distributors for the distribution of its products. Because distribution of medical products is heavily dependent upon large distributors, the Company anticipates that it will remain dependent upon these distributors and others for the distribution of its products.  If the efforts of the Company’s distributors prove unsuccessful, or if such distributors abandon or limit their distribution of the Company’s products, the Company’s sales may be materially adversely affected.  See “Risk Factors - Reliance Upon Distributors”.

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          The Company’s top three customers accounted for approximately 30 percent of the Company’s total revenues during 2002. Of these customers, Cardinal Healthcare accounted for approximately 15.1 percent of the Company’s total sales during 2002.

          The Company sells its infection control products domestically through two channels or customer categories:  hospital branded and contract manufacturing (commonly referred to as OEM). The Company sells its products bearing the Microtek brand directly to hospitals and through large distributors. The Company also sells its branded and non-branded products to custom procedure tray companies.  Additionally, the Company’s non-branded products are sold to equipment manufacturers for which Microtek manufactures equipment drapes.

          The Company’s total international sales during 2002, 2001 and 2000 were $11.8 million, $9.9 million and $5.7 million, respectively.  Outside the United States, the Company markets its products principally through a network of approximately 193 different dealers and distributors. As of December 31, 2002, the Company also had seven sales representatives operating in international markets, and maintains an office and warehouse distribution center near Manchester, England.

Manufacturing and Supplies

          The Company manufactures its infection control products at its facilities in Columbus, Mississippi; Tyler, Texas; Athens, Texas and the Dominican Republic. The Company’s facility in Columbus, Mississippi also serves as a distribution center for certain of the Company’s products.  The Company also utilizes a facility in Jacksonville, Florida as a distribution point for the receipt and shipment of product and for light manufacturing and maintains a distribution facility near Manchester, England.  Through the Company’s relationship with Global Resources, Inc., the Company uses contract manufacturers in China for certain of its infection control products when advantageous.

          OREX is manufactured from a family of organic polymers that dissolve or disperse in hot water and degrade in the wastewater system or in custom designed OREX processing equipment. Woven and nonwoven products are manufactured using PVA-based polymer chemistry.  PVA is a safe material used widely in a variety of consumer products such as eye drops, cosmetics and cold capsules.  The Company has more recently begun to develop and commercialize the use of a second generation polymer system known as its Novel Degradable Polymer or NDP-system.  This system is currently being developed for the manufacture of OREX Degradables film, composites of film with nonwoven fabric, and extruded, thermoformed or injection molded solid plastic items. This NDP family of polymers disperses and then degrades in a processing step which is initiated by the action of hot water at an elevated pH.  The Company currently obtains its PVA raw materials from various foreign suppliers.  Risks exist in obtaining the quality and quantity of PVA at a price that will allow the Company to be competitive with manufacturers of conventional disposable and reusable products.  Prevailing prices of PVA have adversely affected the Company’s manufacturing costs for its OREX products. See “Risk Factors – Manufacturing and Supply Risks”.

          In 1998, the Company sold 4.5 million pounds of excess PVA fiber at a price of $.45 per pound under an agreement pursuant to which the Company agreed to repurchase 2.6 million pounds of such fiber (either as fiber or converted goods) over a four year period which expired in August, 2002 at a cost of $.80 per pound of fiber. The Company fulfilled its obligations under this agreement in 2002.

          The Company has developed and begun sourcing OREX materials using the hydroentangled method of nonwoven roll-good material manufacturing. Through these roll-good material development and manufacturing efforts, the Company seeks to reduce the cost of producing OREX non-woven products while simultaneously improving the quality of these products.  The Company currently relies exclusively on domestic and foreign independent manufacturers to supply OREX products to the Company’s customers. Through its relationship with Global Resources, Inc., the Company uses contractors in China to manufacture spunlaced OREX fabric and to convert roll goods into finished products for sale by the Company. The Company’s requirements (which to date have been modest) for OREX film products are currently being supplied by contract manufacturers. See “Risk Factors – OREX Manufacturing and Supply Risks”.

Order Backlog

          At December 31, 2002, the Company’s order backlog totaled approximately $960,000 compared to approximately $1.2 million (in each case net of any cancellations) at December 31, 2001.  All backlog orders at December 31, 2002 are expected to be filled during the first quarter of 2003.  Microtek typically sells its products

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pursuant to written purchase orders which generally may be canceled without penalty prior to shipment of the product.  Accordingly, the Company does not believe that the level of backlog orders at any date is material or indicative of future results.

Technology and Intellectual Property

          The Company seeks to protect its technology by, among other means, obtaining patents and filing patent applications for technology and products that it considers important to its business. The Company also relies upon trade secrets, technical know-how, innovation and market penetration to develop and maintain its competitive position.

          The Company holds numerous patents issued by the United States Patent and Trademark Office relating to several aspects of its OREX line of products, including several patents concerning methods of manufacture, methods of use, and methods of disposal, and patents covering several of the OREX products themselves. Specifically, the Company currently holds: (1) U.S. Patent No. 5,661,217, issued in 1997, covering a method of forming molded packaging and utensils from OREX materials and methods of forming OREX brand films into a packaging, drape, cover, overwrap, gown, head cover, face mask, shoe cover, CSR wrap, tape, underpad or diaper; (2) U.S. Patent 5,871,679, issued in February, 1999, covering methods for producing OREX Degradables that are configured into thermoplastic films and fabrics; (3) U.S. Patent No. 6,048,410, issued in 2000, covering a method of disposing PVA garments, linens, drapes and towels; (4) U.S. Patent No. 5,181,967, issued in 1993 and successfully reissued (RE 36399) in 1999, covering a method of disposing particular OREX materials utensils such as procedure trays, laboratory ware, and patient care items; (5) U.S. Patent No. 5,985,443, issued in November, 1999, covering the methods of disposing a mop head; (6) U.S. Patent No. 5,885,907, issued in March, 1999, covering particular OREX materials configured into a towel, sponge, or gauze; (7) U.S. Patent 5,650,219, issued in 1997, covering methods of disposing particular OREX materials configured into garments, linens, drapes, and towels; (8) U.S. Patent No. 5,207,837, issued in 1993 and successfully reexamined (B1 5,207,837) by the U.S. Patent Office in 1996, covering methods of disposing OREX materials that are configured into a drape, towel, cover, overwrap, gown, head cover, face mask, shoe covering, sponge, dressing, tape, underpad, diaper, wash cloth, sheet, pillow cover, or napkin; (9) U.S. Patent No. 5,181,966, issued in 1993 and successfully reexamined (B1 5,181,966) in 1996, covering methods of disposing OREX materials configured into packaging materials; (10) U.S. Patent No. 5,268,222, issued in 1993, covering composite fabrics made with an OREX materials; (11) U.S. Patent No. 5,620,786, issued in 1997, covering particular OREX materials that are configured into towels, sponges or gauze; (12) U.S. Patent Nos. 5,470,653 and 5,707,731, issued in 1995 and 1998, respectively, covering disposable mop heads made from OREX materials; (13) U.S. Patent No. 5,891,812, issued in April, 1999, covering liquid absorbable non-permeable fabrics and methods of making, using and disposing; (14) U.S. Patent No. 5,972,039, issued in October, 1999, covering methods for enhancing the absorbency and feel of a fabric and the resulting fabric; (15) U.S. Patent No. 6,110,293, issued in August, 2000, describing a method of absorbing and reclaiming hydrocarbons with OREX materials and fabrics; and (16) U.S. Patent No. 6,420,284, issued in July, 2002, covering saturated PVA wipes.

          The Company also holds several U.S. Patents relating to various other technologies, including its Sharps Management System (SMS) line of infectious waste containment systems, aldehyde treatment system (Aldex), fixer/developer treatment system (Chemgon), its LTS line of closure delivery systems, including unique absorbent compositions (ISOSORB®) for use therein, and its novel degradable polymer work.

          The Company’s current U.S. patent holdings will expire between the years 2007 and 2020. The Company also typically files for foreign counterpart patents on those technologies that the Company considers to be material to its business. The Company currently has about 20 applications that are pending before the U.S. Patent and Trademark Office which relate to OREX® brand products, methods of making the products, and uses for the products. The Company also has about 30 foreign counterpart applications in patent offices around the world.

          The Company is not aware of any facts at this time that would indicate that patents sought by these applications would not be issued; however, no assurances can be provided that patents will be issued from these applications. Additionally, no assurance can be given that the various components of the Company's technology protection arrangements utilized by the Company to protect its technologies, including its patents, will be successful in preventing others from making products competitive with those offered by the Company, including OREX. See "Risk Factors - Risks Affecting Protection of Technologies".         

           The Company has registered as trademarks with the U.S. Patent and Trademark Office "ISOLYSER®", "LTS®", "SMS®", "Enviroguard®", "ALDE-X®", "CLEARLENS®", "NO-SPILL®", "ISOSORB®", "CHEMGON®", and "MICROBASIX®". The Company has filed U.S. applications to register various marks it uses in its business seeking to commercialize its OREX products and services in the nuclear power generating industry. Trademark registrations for "ISOLYSER®", "OREX®" and "LTS®", have also been granted in various foreign countries. Microtek maintains registrations of various trademarks that the Company believes are recognized within its principal markets.

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Competition

          The markets in which the Company competes are characterized by competition on the basis of quality, price, product design and function, environmental impact, distribution arrangements, service, customer relationship, and convenience. Many of the Company’s competitors have significantly greater resources than the Company. See “Risk Factors  - Competition” and “-Low Barriers to Entry for Competitive Products”.

          Competition for the Company’s safety products includes conventional methods of handling and disposing of medical waste. Contract waste handlers are competitors which charge premium rates to remove potentially infectious and hazardous waste and transport it to an incineration or autoclaving site. Many hospitals utilize their own incinerators to dispose of this waste. In addition, systems are available that hospitals can purchase for grinding and chemically disinfecting medical waste at a central location. The Company is aware of a variety of absorber products that are directly competitive with the Company’s Isosorb and LTS-Plus products.

          Although the Company is not aware of any products currently available in the market place which provide the same disposal and degradable benefits as OREX Degradables, these products compete with traditional disposable and reusable products currently marketed and sold by many companies.  These competitors have in many instances followed strategies of aggressively marketing products competitive with OREX Degradables to buying groups resulting in increasing cost pressures.  These factors have adversely affected the Company’s ability to adjust its prices for its OREX products to take into account disposal cost savings provided by these products, and have adversely affected the Company’s ability to successfully penetrate potential markets.  See “Risk Factors – OREX Commercialization Risks” and “- Competition”.

Government Regulation

          The Company is subject to a number of federal, state and local regulatory requirements which govern the marketing of the Company’s products and the use, treatment and disposal of these products utilized in the patient care process. In addition, various foreign countries in which the Company’s products are currently being distributed or may be distributed in the future impose regulatory requirements.  See “Risk Factors – Microtek Regulatory Risks” and “–OTI Regulatory Risks”.

          The Company’s traditional medical products (including, for example, equipment drapes) and SMS products are regulated by the FDA under medical device provisions of the Federal Food, Drug and Cosmetic Act (the “FDCA”). FDA regulations classify medical devices into one of three classes, each involving an increasing degree of regulatory control from Class I through Class III products.  Medical devices in these categories are subject to regulations which require, among other things, pre-market notifications or approvals, and adherence to good manufacturing practices, labeling, record-keeping and registration requirements. Patient care devices which the Company currently markets are classified as Class I or Class II devices subject to existing 510(k) clearances which the Company believes satisfy FDA pre-market notification requirements.  There can be no assurances as to when, or if, other such
510(k) clearances necessary for the Company to market products developed by it in the future will be issued by the FDA.  The FDA inspects medical device manufacturers and distributors, and has broad authority to order recalls of medical devices, issue stop sale orders, seize non-complying medical devices, enjoin violations, impose civil and criminal penalties and criminally prosecute violators.

          The FDA also requires healthcare companies to satisfy record-keeping requirements and the quality system regulation (QSR) which require that manufacturers have a quality system for the design and production of medical devices intended for commercial distribution in the United States.  Failure to comply with applicable regulatory

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requirements, which may be ambiguous or unclear, can result in fines, civil and criminal penalties, stop sale orders, loss or denial of approvals and recalls or seizures of products.

          Countries in the European Union require that products being sold within their jurisdictions obtain a CE mark and be manufactured in compliance with certain requirements.  The Company has CE mark approval to sell its safety and most of its medical device products in Europe.  One of the conditions to obtaining CE mark status involves the qualification of the Company’s manufacturing plants and corporate offices under certain certification processes. All of the Company’s manufacturing plants and corporate offices have obtained such certifications, except the domestic manufacturing facilities acquired from Deka do not hold such certifications.  To maintain CE mark approval, the Company has to satisfy continuing obligations including annual inspections by European notified bodies as well as satisfy record keeping and other quality assurance requirements.  The notified bodies have the authority to stop the Company’s use of the CE mark if the Company fails to meet these standards.  While the Company believes that its operations at these facilities are in compliance with requirements to maintain CE mark status, no assurances are provided that such certifications will be maintained or that other foreign regulatory requirements will not adversely affect the Company’s marketing efforts in foreign jurisdictions.

          Under the Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”), any product which claims to kill microorganisms through chemical action must be registered with the EPA.  Any product that makes a claim that it kills microorganisms exclusively via a physical or mechanical means is regulated as a physical “device” under FIFRA.  Pesticide devices do not require EPA registration, but are subject to some requirements, including labeling and record keeping. FIFRA affects primarily the Company’s fluid encapsulation and infectious waste treatment products including LTS-Plus, treatment for encapsulation and disinfection of suction canister waste, and SMS. LTS-Plus is registered with the EPA as a chemical device and SMS is registered as a physical device under FIFRA. LTS-Plus replaced the Company’s fluid encapsulation product LTS in April 2001. In 1998, the EPA announced its position that FIFRA required that products, such as LTS, which hold state approvals related to anti-microbial efficacy, such as state approval for landfill of LTS-treated waste, impliedly make claims about killing microorganisms which necessitate registration under FIFRA. LTS was not registered with the EPA.  Since 1998 the Company has marketed LTS in a manner in which the Company believed complied with FIFRA by not making claims in product labeling or marketing that LTS treats or disinfects medical waste or kills microorganisms. The Company discontinued the sale of LTS in April 2001 when it was replaced with LTS-Plus. See “Risk Factors – Microtek Regulatory Risks” and “- Reliance Upon Distributors”.

          State and local regulations of the Company’s products and services are highly variable. Individual state registration of LTS-Plus is required for just over half of the states in the United States as a condition to landfill of treated suction canisters. The rules for disinfecting infectious waste are being revised on a National Standard.  The outcome of the National Standard will play a very important part in the life of LTS-Plus. In 1997, as a result of a review of an existing approval in California for the landfilling in California of waste treated by LTS, California authorities revoked such approval and have also not given approval for the use of LTS-Plus.  While LTS offers benefits unrelated to landfilling, such action has adversely affected the Company’s ability to sell LTS-Plus.  The Company is continuing the process of obtaining from the various states approval to landfill waste treated by LTS- Plus, and has obtained such approval from several states not including California.  No assurances can be provided that the prior regulatory actions or pending regulatory reviews will not continue to have an adverse effect upon the sales of the Company’s sanitizing liquid absorbent products. See “Risk Factors - Microtek Regulatory Risks”.

          Some methods for disposal of OREX Degradables use sewer services. State and local sewage treatment plants regulate the sewer discharge, such as dissolved OREX Degradables, from commercial facilities to the extent that such discharges may interfere with the proper functioning of sewage treatment plants. Based on product testing and available research the Company believes that OREX Degradables manufactured from PVA will not interfere with the proper functioning of sewage treatment plants. The Company has obtained from state and local authorities over 100 written and verbal non-binding concurrences with the Company’s conclusions and continues to pursue additional non-binding concurrences. While the process of obtaining such concurrences is time consuming and expensive due to the significant number of such authorities and the educational and testing processes involved, the Company does not believe that regulations governing sewage and waste water discharges will prevent the use of OREX Degradables.  While the Company is undertaking evaluation of OREX Degradables manufactured from polymers other than PVA, no assurances can be provided that such non-PVA based OREX Degradables will not interfere with the proper functioning of sewage treatment plants. 

          As the Company seeks to introduce its OREX products to industries other than healthcare, the Company will be required to satisfy any applicable regulatory requirements within such industries for the disposal of contaminated

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OREX products.  The processing of OREX materials contaminated with nuclear outfall is classified as hazardous which creates significant engineering challenges. During 2001 the Company acquired the MICROBasix processor and related technology to address the engineering challenges associated with the disposal of OREX materials contaminated with nuclear outfall.  The operation of such processor and the disposal of residual by-products resulting from such operation are subject to governmental regulation.  The Company relies upon the party (namely, ETI) with which it has contracted to process OREX in order to comply with such governmental regulations. As the Company and ETI begin processing of OREX on a commercial scale, additional challenges may arise as a part of the Company’s efforts to commercialize these products and technologies.

          Regulators at the federal, state and local level have imposed, are currently considering and are expected to continue to impose regulations on medical and other waste. No prediction can be made of the potential effect of any such future regulations, and there can be no assurance that future legislation or regulations will not increase the costs of the Company’s products or prohibit the sale or use of the Company’s products, in either event having an adverse effect on the Company’s business.

Employees

          As of December 31, 2002, the Company employed 1,288 full-time employees, four part-time employees and 12 people as independent contractors.  Of these, 92 were employed in marketing, sales and customer support, 995 in manufacturing, 19 in research and development, and 198 in administrative positions. The Company believes its relationship with its employees is good.

Insurance

          The Company maintains commercial general liability insurance which provides coverage with respect to product liability claims.  The manufacture and sale of the Company’s products entail an inherent risk of liability. The Company believes that its insurance is adequate in amount and coverage.  There can be no assurance that any future claims will not exceed applicable insurance coverage. Furthermore, no assurance can be given that such liability insurance will be available at a reasonable cost or that the Company will be able to maintain adequate levels of liability insurance in the future. In the event that claims in excess of these coverage amounts are incurred, they could have a material adverse effect on the financial condition or results of operations of the Company.

Environmental Matters

          The Company is not a party to any material environmental regulation proceedings alleging that the Company has unlawfully discharged materials into the environment.  The Company does not anticipate the need for any material capital expenditures for environmental control facilities during the next 18 to 24 months.

Available Information

          The Company’s Internet address is www.microtekmed.com.  The Company makes available free of charge, through its web site, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended, as soon as practicable after the Company electronically files such materials with or furnishes such materials to, the Securities and Exchange Commission. Information contained on the web site is not part of this report.

Risk Factors

          Risks Affecting Microtek and OTI.

          History of Net Losses. While the Company reported net income for the years ended December 31, 2002, 2001 and 1999, the Company has a history of operating at a net loss.  For the year ended December 31, 2000 and for each of the five years ended December 31, 1998, the Company incurred net losses.  The Company attributes such operating performance in significant part to a failed strategy to commercialize its OREX Degradables products.  The Company has significantly changed its business strategies, including a substantial reduction of its emphasis on its OREX Degradables business.  Past operating failures may adversely the impact of the valuation of the Company’s common stock and the Company’s ability to successfully implement its other business strategies.

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          Reliance Upon Microtek.  Of the Company’s $86.7 million in net revenues for the year ended December 31, 2002, $83.3 million or 96.1 percent were comprised of Microtek’s net revenues. OTI contributed $3.3 million of the Company’s 2002 net revenues.  Of such amount, $1.4 million represented the non-cash amortization of deferred licensing revenues resulting from the 1999 license and supply agreement which the Company entered into with Allegiance Healthcare to market OREX Degradables products in healthcare markets.  These non-cash revenues ceased to accrue after the fourth quarter of 2002, and the Company has ceased its business operations to commercialize OREX Degradables products in healthcare markets.

          Competition.  There are many companies engaged in the development, manufacturing and marketing of products and technologies that are competitive with the Company’s products and technologies.  Many such competitors are large companies with significantly greater financial resources than the Company.  The Company seeks to sell its OREX Degradables products to the nuclear power industry, and the Company has virtually no presence in such industry at this time.  Therefore, the Company will be required to displace sales of competitive products in this industry to gain market presence.  There can be no assurance that the Company’s competitors will not substantially increase the resources devoted to the development, manufacturing and marketing of products competitive with the Company’s products. The successful implementation of such strategy by one or more of the Company’s competitors could have a material adverse effect on the Company.             

          Product Liability.  The manufacture and sale of the Company’s products entails an inherent risk of liability. Product liability claims may be asserted against the Company in the event that the use of the Company’s products or processing systems are alleged to have resulted in injury or other adverse events, and such claims may involve large amounts of alleged damages and significant defense costs. Although the Company currently maintains product liability insurance providing coverage for such claims, there can be no assurance that the liability limits or the scope of the Company’s insurance policy will be adequate to protect against such potential claims.  In addition, the Company’s insurance policies must be renewed annually. While the Company has been able to obtain product liability insurance in the past, such insurance varies in cost, is difficult to obtain and may not be available on commercially reasonable terms in the future, if it is available at all. A successful claim against the Company in excess of its available insurance coverage could have a material adverse effect on the Company. In addition, the Company’s business reputation could be adversely affected by product liability claims, regardless of their merit or eventual outcome. See “Business - Insurance”.

          Stock Price Volatility.  The market prices for securities of companies with a very small market capitalization such as the Company can be highly volatile.  Various factors, includingfactors that are not related to our operating performance, may cause significant volume and price fluctuations in the market, which may limit an investor’s liquidity in the Company’s common stock and could result in a loss in the value of such investment.

          Dependence on Key Personnel.  The Company believes that its ability to succeed will depend to a significant extent upon the continued services of a limited number of key personnel, and the ability of the Company to attract and retain key personnel.  The Company has only three executive officers, and the loss of the Company’s President or any others of its officers could have a material adverse effect on the Company.  The Company may not be able to attract and retain a suitable replacement for any of such positions. The Company does not maintain key man life insurance on any of its executive officers other than a $1.5 million policy on Mr. Lee, the Company’s President and Chief Executive Officer. 

          Anti-takeover Provisions.  On December 19, 1996, the Company’s Board of Directors adopted a shareholder protection rights agreement (the “Rights Agreement”).  Under the Rights Agreement, a dividend of one right (“Right”) to purchase a fraction of a share of a newly created class of preferred stock was declared for each share of common stock outstanding at the close of business on December 31, 1996.  The Rights, which expire on December 31, 2006, may be exercised only if certain conditions are met, such as the acquisition (or the announcement of a tender offer, the consummation of which would result in the acquisition) of beneficial ownership of 15% or more of the common stock (“15% Acquisition”) of the Company by a person or affiliated group.  The Rights, if exercised, would cause substantial dilution to a person or group of persons that attempts to acquire the Company without the prior approval of the Board of Directors.  The Board of Directors may cause the Company to redeem the rights for nominal consideration, subject to certain exceptions.  The Rights Agreement may discourage or make more difficult any attempt by a person or a group of persons to obtain control of the Company.

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          Risks Affecting Microtek.

          Low Barriers to Entry for Competitive Products.  Most of the Company’s infection control products are not protected by patents, and some of such infection control products that are protected by patents are subject to competition from products which may be manufactured or used in a way which does not infringe upon the Company’s patents.  In addition, other barriers to entry, such as manufacturing processes and regulatory approvals, may not prevent the introduction of products competitive with the Company’s infection control products.  The introduction of competitive products or other competitive marketing strategies, including competitive marketing from companies outside the United States through the internet, could force the Company to lower it prices for its products or otherwise adversely affect the Company’s operating results.

          Potential Erosion of Profit Margins.  During 2002, Microtek’s gross margin declined from 39.3 percent in 2001 to 38.7 percent in 2002 in part due to relatively higher international revenues and CleanOp product revenues which have slightly lower margins than other domestic branded products.  In addition, Microtek does not have a significant number of new products which it plans to introduce at relatively higher profit margins. For these and other reasons, Microtek is subject to the risks that it may experience declining profit margins in the future.

          Risks of Completing Acquisitions. Part of Microtek’s growth strategy involves completing strategic acquisitions. The Company’s ability to complete strategic acquisitions is subject to a number of variables outside the control of the Company including the Company’s ability to find attractive and complementary acquisition opportunities at an attractive cost which the Company can afford or can finance on acceptable terms. Failure to successfully complete strategic acquisitions on favorable terms may adversely affect the Company’s growth rate.

          Small Sales and Marketing Force.  At December 31, 2002, the Company’s marketing and sales force consisted of 80 individuals including 46 people in sales and 34 people in marketing.  Additionally, the Company has 12 independent contractors involved in its sales and marketing efforts.  Other companies with which the Company competes have substantially larger sales forces and greater brand awareness, placing the Company at a competitive disadvantage. For example, the Company may not be able to reach certain potential customers due to the Company’s inability to have its products included within certain group purchasing organizations’ lists of approved products.

          Reliance upon Distributors.  The Company has historically relied on large distributors for the sale of its branded products in healthcare markets.  Hospitals purchase most of their products from a few large distributors.  Of these distributors, Cardinal Healthcare accounted for approximately 15.1 percent of the Company’s total sales during 2002.  If the efforts of the Company’s distributors prove unsuccessful, or if such distributors abandon or limit their distribution of the Company’s products, the Company’s sales may be materially adversely affected.

          Maxxim Medical, Inc. accounted for $5.7 million or 6.6% of the Company’s total net revenues in 2002. Maxxim Medical filed a petition in bankruptcy on February 11, 2003 and seeks to reorganize its business operations under protection of the U.S. Bankruptcy Code. At the time of filing such petition, Maxxim Medical owed the Company approximately $850,000 which Maxxim Medical cannot pay to the Company without obtaining Bankruptcy Court approval. The Company and Maxxim Medical are currently in negotiations to obtain payment of amounts due to the Company at the time of filing the bankruptcy petition and to establish arrangements for the Company to continue to sell products to Maxxim Medical. The Company may be required to increase its reserve for doubtful accounts for failure to collect pre-petition debts owed by Maxxim Medical to the Company and the proposed reorganization of Maxxim Medical and bankruptcy may adversely affect the Company’s net revenues.

          Microtek Regulatory Risks. The development, manufacture and marketing of the Company’s products are subject to extensive government regulation in the United States by federal, state and local agencies including the EPA and the FDA and state and local sewage treatment plants. Similar regulatory agencies exist in other countries with a wide variety of regulatory review processes and procedures, concerning which the Company relies to a substantial extent on the experience and expertise of local product dealers, distributors or agents to ensure compliance with foreign regulatory requirements. The process of obtaining and maintaining FDA and any other required regulatory clearances or approvals of the Company’s products is lengthy, expensive and uncertain, and regulatory authorities may delay or prevent product introductions or require additional tests prior to introduction.  The FDA also requires healthcare companies to satisfy the quality system regulation.  Failure to comply with applicable regulatory requirements, which may be ambiguous or unclear, can result in fines, civil and criminal penalties, stop sale orders, loss or denial of approvals and recalls or seizures of products. There can be no assurance that changes in existing regulations or the adoption of new regulations will not occur, which could prevent the Company from obtaining approval for (or delay the approval of) various products or could affect market demand for the Company’s products. 

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          Developments regarding the Company’s LTS products have had and could continue to have a material adverse effect upon the Company’s operating results.  In November, 1997, the State of California revoked its approval for direct landfill disposal (without sterilization) of LTS-treated waste within such state. In February, 1998, the EPA announced a new policy that FIFRA requires that products, such as LTS, which hold state approvals related to anti-microbial efficacy, such as state approvals for landfill of LTS-treated waste, impliedly make claims about killing microorganisms which would require that LTS be registered under FIFRA.  LTS has not been registered under FIFRA and, based in part on meetings by the Company with the EPA, the Company continues to sell LTS without such registration.  The Company now is marketing LTS without relying upon any state approvals for direct landfill disposal. In 2000, the Company obtained registration under FIFRA by the EPA of a new version of LTS called LTS Plus.  The Company must still seek numerous state and local registrations of LTS Plus to allow such product to be landfilled in such places.

          Risks of Obsolescence.  Many companies are engaged in the development of products and technologies to address the need for safe and cost-effective prevention of infection in healthcare markets.  There can be no assurance that superior products or technologies will not be developed or that alternative approaches will not prove superior to the Company’s infection control products. For example, some companies are attempting to develop technologies to sterilize equipment maintained in the operating room which would compete directly with the Company’s equipment drapes.  Any such developments would have a material adverse effect on the Company’s operations and profitability.

          Risks affecting the OREX Products and Services.

          Reduced OREX Market Potential.  During 2001, the Company and Allegiance jointly agreed to cease further efforts to market the OREX Degradables products to the healthcare industry.  Accordingly, the Company is not making any sales of OREX products to the healthcare industry, nor is the Company seeking to commercialize such products in such industry.  The Company currently believes that it will have to reduce its costs to manufacture OREX Degradables products or the healthcare industry will have to increase the price it is willing to pay for the Company’s OREX Degradables products (such as might occur in the event of an increase in the cost to dispose of potentially infectious healthcare products which might be replaced by OREX Degradables) in order to re-introduce the OREX Degradables products to the healthcare marketplace.  If the Company elects to reenter the healthcare market prior to the expiration in April 2003 of the Company’s exclusive license to Allegiance of OREX Degradables products for use in healthcare markets, the Company will be required to first offer such opportunity to Allegiance on terms at least as favorable to Allegiance as those contained in the Company’s prior license and supply agreement with Allegiance.

          OREX Commercialization Risks.  The Company currently focuses primarily on the nuclear power industry in its efforts to commercialize it OREX Degradables products and services.  Sales of the Company’s products and services to the nuclear industry during 2002 approximated $822,000.  Accordingly, the Company has only very limited experience in the nuclear industry, and there is no assurance that the nuclear industry will purchase the Company’s products and services.  Among the risks the Company encounters in seeking to commercialize its products in the nuclear industry are the following:

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          The Company has not been successful to date in its efforts to obtain substantial acceptance of its OREX Degradables products in their target markets.  There can be no assurance that the Company’s products will achieve or maintain substantial acceptance in their target markets.  In addition to market acceptance, various factors, including delays in improvements to products and new product development and commercialization, delays in expansion of manufacturing capability, new product introductions by competitors, price, competition, delays in regulatory clearances and delays in expansion of sales and distribution channels could materially adversely affect the Company’s operations and profitability.

          OREX Manufacturing and Supply Risks. To relieve itself of the overhead burden associated with owning its own manufacturing facilities, the Company sold its former OREX manufacturing facilities and now depends entirely upon third parties to manufacture its OREX Degradables products. If the Company is not able to obtain its products from its manufacturers, if such products do not comply with the specifications or if the prices at which the Company purchases its products are not competitive with traditional products, the Company’s sales and profits will suffer. 

          The cost for OREX raw materials has been high relative to raw materials used in competitive products such as cotton, polyester and nylon. The Company obtains its raw materials from various sources but risks exist in obtaining the quality and quantity of PVA at a price that will allow the Company to be competitive with manufacturers of conventional disposable and reusable products. The prices for these raw materials have affected the ability of the Company to be price competitive with conventional disposable and reusable products, both reducing sales and adversely affecting profits.

          The Company does not have significant experience obtaining large, commercial quantities of OREX Degradables products to meet its obligations, and the Company’s third party manufacturers have not regularly manufactured these products in the quantities required for commercial sales.  The Company might have difficulties in receiving adequate quantities of products, receiving such products on schedule and having such products conform with its requirements. The Company does not maintain contracts with its suppliers for its OREX Degradables products.  To

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the extent the Company does not hold a contract for the supply of its products, the Company may be at a greater risk in obtaining its products and controlling its costs for products. 

          Production in China and elsewhere outside the United States exposes the Company to risks related to currency fluctuations, political instability and other risks inherent in manufacturing in foreign countries.  Certain textiles and similar products for material (including certain OREX Degradables woven products) imported from China to the United States are subject to import quotas which restrict total volume of such items available for import by the Company, creating risks of limited availability and increased costs for certain OREX Degradables woven products.

          The Company has from time to time experienced delays in manufacturing certain OREX Degradables products.  The Company has also from time to time encountered dissatisfaction with certain quality or performance characteristics of its products.  These delays and quality or performance issues have resulted in the loss of customers.  There can be no assurance that future delays or quality concerns will not occur or that past customer relations on these products will not adversely affect future customer relations and operating results.

          The Company is continually in the process of making improvements to its technologies and systems for manufacturing its OREX Degradables products, while simultaneously marketing and supplying various of these products.  From time to time, the Company has invested in inventory of certain OREX Degradables products which subsequently have been rendered obsolete by improvements in manufacturing technologies and systems.  There can be no assurances that possible future improvements in manufacturing processes or products, or abandonment or reduction of selling efforts, will not render other inventories of product obsolete, thereby adversely affecting the Company’s financial condition and operating results.

          The production of the Company’s products is based in part upon technology that the Company believes to be proprietary. The Company has provided this technology to contract manufacturers, on a confidential basis and subject to use restrictions, to enable them to manufacture products for the Company. There can be no assurance that such manufacturers or other recipients of such information will abide by any confidentiality or use restrictions.

          Risks Affecting Protection of Technologies.  The Company’s success will depend in part on its ability to protect its technologies.  The Company relies on a combination of trade secret law, proprietary know-how, non-disclosure and other contractual provisions and patents to protect its technologies.  Failure to adequately protect its patents and other proprietary technologies, including particularly the Company’s intellectual property concerning its OREX Degradables, could have a material adverse effect on the Company and its operations.  The Company holds various issued patents and has various patent applications pending relative to its OREX Degradables products. See “Business – Technology and Intellectual Property.”

          Although management believes that the Company’s patents and patent applications provide or will provide adequate protection, there can be no assurance that any of the Company’s patents will prove to be valid and enforceable, that any patent will provide adequate protection for the technology, process or product it is intended to cover or that any patents will be issued as a result of pending or future applications.  Failure to obtain the patents pursuant to the Company’s patent applications could have a material adverse effect on the Company and its operations.  It is also possible that competitors will be able to develop materials, processes or products, including other methods of disposing of contaminated waste, outside the patent protection the Company has or may obtain, or that such competitors may circumvent, or successfully challenge the validity of, patents issued to the Company.  Although there is a statutory presumption of a patent’s validity, the issuance of a patent is not conclusive as to its validity or as to the enforceable scope of the claims of the patent.  In the event that another party infringes the Company’s patent or trade secret rights, the enforcement of such right is generally at the option of the Company and can be a lengthy and costly process, with no guarantee of success.  Further, no assurance can be given that the Company’s other protection strategies such as confidentiality agreements will be effective in protecting the Company’s technologies.  Due to such factors, no assurance can be given that the various components of the Company’s technology protection arrangements utilized by the Company, including its patents, will be successful in preventing other companies from making products competitive with those offered by the Company, including OREX Degradables.

          Although to date no claims have been brought against the Company alleging that its technology or products infringe upon the intellectual property rights of others, there can be no assurance that such claims will not be brought against the Company in the future, or that any such claims will not be successful.  If such a claim were successful, the Company’s business could be materially adversely affected.  In addition to any potential monetary liability for damages, the Company could be required to obtain a license in order to continue to manufacture or market the product or products in question or could be enjoined from making or selling such product or products if such a license were not

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made available on acceptable terms.  If the Company becomes involved in such litigation, it may require significant Company resources, which may materially adversely affect the Company.  See “Business – Technology and Intellectual Property”.

          Risks of Technological Obsolescence.  Many companies are engaged in the development of products and technologies to address the need for safe and cost-effective disposal of potentially infectious and hazardous waste. There can be no assurance that superior disposal technologies will not be developed or that alternative approaches will not prove superior to the Company’s products. The Company’s products could be rendered obsolete by such developments, which would have a material adverse effect on the Company’s operations and profitability.

          OTI Regulatory Risks.  Introduction of the Company’s OREX Degradables products into non-healthcare industries will require compliance with additional regulatory requirements.  While the Company seeks to engage the services of companies having expertise in engineering systems to comply with these regulatory requirements, the Company or its independent contractors may not be able to develop satisfactory solutions to regulatory requirements at an acceptable cost.  The Company currently relies upon ETI, its independent contractor holding exclusive OREX processing rights in the U.S. and Canadian, to comply with applicable regulations affecting such industry.  Until the Company commences commercial sales of products, the Company may not be able to anticipate all requirements to successfully commercialize OREX Degradables in these other industries.  Accordingly, no assurances can be provided that OREX Degradables will be an attractive product to non-healthcare industries.

          The Company leases from a local economic development authority a 13,000 square foot administrative building located in Columbus, Mississippi under a lease which expires December 31, 2007.  The Company maintains approximately 10,800 square feet of office, research and development and warehouse space located in Norcross, Georgia under a sub-lease agreement which expires January 30, 2005.

          The Company conducts its equipment drape and fluid control manufacturing business from three locations.  In Columbus, Mississippi, the Company owns an 80,000 square foot manufacturing building and leases a 40,000 square foot warehouse facility under a lease that expires June 30, 2007.  The Company leases five manufacturing facilities totaling 123,500 square feet located in the Dominican Republic under a lease which expires on October 1, 2010, with two renewal options for four years each.  The Company leases a 37,700 square foot facility in Tyler, Texas where it manufactures equipment drapes and materials for other drape converters under a lease which expires July 31, 2012.  The Company leases a 7,500 square foot manufacturing facility in Athens, Texas where it manufactures equipment drapes under a lease that expires on March 31, 2005.

          The Company also leases approximately 69,000 square feet of warehouse and distribution space in Jacksonville, Florida under a lease expiring April 1, 2004. The Company uses this facility for distribution of finished products, distribution of materials to the Company’s Dominican Republic facility and light manufacturing.

          Through a subsidiary, the Company leases approximately 9,000 square feet of space near Manchester, England, approximately 7,000 of which is used for warehouse space and 2,000 of which is used for office space.

          The Company believes that its present facilities are adequate for its current requirements.

          From time to time the Company is involved in litigation and legal proceedings in the ordinary course of business. Such litigation and legal proceedings have not resulted in any material losses to date, and the Company does not believe that the outcome of any existing lawsuits will have a material adverse effect on its business.

          There were no submissions of matters to a vote of the Company’s shareholders during the three months ended December 31, 2002.

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PART II

          The common stock is traded and quoted on The Nasdaq Stock Market under the symbol “MTMD”. The following table shows the quarterly range of high and low sales prices of the common stock during the periods indicated since December 31, 2000.

          On March 21, 2003, the closing sales price for the common stock as reported by The Nasdaq Stock Market was $2.26 per share.

          As of March 21, 2003, the Company had approximately 1,350 shareholders of record.

          The following table provides information as of December 31, 2002 with respect to shares of the Company’s common stock that may be issued under existing equity compensation plans:

Equity Compensation Plan Information

          The Company has never declared or paid any cash dividends on its common stock. The Company currently intends to retain any future earnings to finance the growth and development of its business and therefore does not anticipate paying any cash dividends in the foreseeable future.  Moreover, the Company’s credit facility prohibits the Company from declaring or paying cash dividends without the prior written consent of its lenders. See

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“Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources”.  Accordingly, the Company does not intend to pay cash dividends in the foreseeable future.

          The following table sets forth summary historical financial data for each of the five years in the period ended December 31, 2002.  Effective November 29, 2002, the Company acquired the surgical drape product line of Gyrus ENT.  During the first quarter of 2001, the Company acquired the drape and CleanOp product lines of Deka Medical and acquired the MICROBasix processor equipment and related technology.  In October, 2000, Microtek acquired the urology drape product line of Lingeman Medical Products, Inc.  During 1999, the Company disposed of its former corporate headquarters, substantially all of the assets of its MedSurg Industries, Inc. subsidiary and all of its capital stock in its White Knight Healthcare, Inc. subsidiary, and during 1998 the Company disposed of its Arden and Charlotte, North Carolina and Abbeville, South Carolina manufacturing facilities, its industrial and Struble & Moffitt divisions of its White Knight subsidiary, and substantially all of the net assets of its SafeWaste subsidiary.  The summary historical financial data should be read in conjunction with the historical consolidated financial statements of the Company and the related notes thereto, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial data appearing elsewhere in this Form 10-K. The summary historical financial data for each of the five years in the period ended December 31, 2002 has been derived from the Company’s audited consolidated financial statements.

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