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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD ________TO________
COMMISSION FILE NO. 0-13251
MEDICAL ACTION INDUSTRIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-2421849
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
800 PRIME PLACE, HAUPPAUGE, NEW YORK 11788
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (631) 231-4600
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK,
$.001 PAR VALUE
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
- -
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 [X].
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED IN RULE 12B-2 OF THE ACT). YES X NO
- -
THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S COMMON STOCK HELD BY
NONAFFILIATES OF THE REGISTRANT AS OF JUNE 20, 2003 WAS APPROXIMATELY
$144,500,000. AS OF JUNE 17, 2003, REGISTRANT HAD OUTSTANDING APPROXIMATELY
9,950,542 SHARES OF COMMON STOCK.
PARTS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED BY REFERENCE TO PARTS I, II,
III AND IV OF THIS FORM 10-K REPORT: (1) PROXY STATEMENT FOR REGISTRANT'S 2003
ANNUAL MEETING OF STOCKHOLDERS AND (2) REGISTRANT'S ANNUAL REPORT TO
STOCKHOLDERS FOR THE FISCAL YEAR ENDED MARCH 31, 2003.
===============================================================================
PART I
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
- -----------------------------------------------
THIS REPORT INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALL STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACT ARE "FORWARD-LOOKING STATEMENTS" FOR PURPOSES OF
THESE PROVISIONS, INCLUDING ANY PROJECTIONS OF EARNINGS, REVENUES OR OTHER
FINANCIAL ITEMS, ANY STATEMENTS OF THE PLANS AND OBJECTIVES OF MANAGEMENT FOR
FUTURE OPERATIONS, ANY STATEMENTS CONCERNING PROPOSED NEW PRODUCTS OR SERVICES,
ANY STATEMENTS REGARDING FUTURE ECONOMIC CONDITIONS OR PERFORMANCE, AND ANY
STATEMENTS OF ASSUMPTIONS UNDERLYING ANY OF THE FOREGOING. ALL FORWARD-LOOKING
STATEMENTS INCLUDED IN THIS DOCUMENT ARE MADE AS OF THE DATE HEREOF AND ARE
BASED ON INFORMATION AVAILABLE TO THE COMPANY AS OF SUCH DATE. THE COMPANY
ASSUMES NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENT. IN SOME CASES,
FORWARD LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF TERMINOLOGY SUCH AS
"MAY," "WILL," "EXPECTS," "PLANS," "ANTICIPATES," "INTENDS" OR "BELIEVES,"
"ESTIMATES," "POTENTIAL," OR "CONTINUE," OR THE NEGATIVE THEREOF OR OTHER
COMPARABLE TERMINOLOGY. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS
REFLECTED IN THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE REASONABLE,
THERE CAN BE NO ASSURANCE THAT SUCH EXPECTATIONS OR ANY OF THE FORWARD-LOOKING
STATEMENTS WILL PROVE TO BE CORRECT, AND ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE PROJECTED TO ASSUMED IN THE FORWARD-LOOKING STATEMENTS. FUTURE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, AS WELL AS ANY FORWARD-LOOKING
STATEMENTS ARE SUBJECT TO INHERENT RISKS AND UNCERTAINTIES, BUT ARE NOT LIMITED
TO, THE EFFECT OF ECONOMIC AND BUSINESS CONDITIONS, THE IMPACT OF CONSOLIDATION
THROUGHOUT THE HEALTHCARE SUPPLY CHAIN, THE IMPACT OF HEALTHCARE REFORM, PRICE
AND PRODUCT CAPABILITIES, OPPORTUNITIES FOR ACQUISITIONS, THE COMPANY'S ABILITY
TO EFFECTIVELY INTEGRATE ACQUIRED COMPANIES, THE ABILITY TO OBTAIN ADDITIONAL
FINANCING TO EXPAND THE COMPANY'S BUSINESS, THE ABILITY TO SUCCESSFULLY COMPETE
WITH THE COMPANY'S COMPETITORS THAT HAVE GREATER FINANCIAL RESOURCES, THE
AVAILABILITY AND POSSIBLE INCREASES IN RAW MATERIAL PRICES, INCLUDING RESIN USED
IN THE MANUFACTURE OF COLLECTION SYSTEMS, THE IMPACT OF CURRENT OR PENDING
LEGISLATION AND REGULATION. ALL SUBSEQUENT FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THESE CAUTIONARY STATEMENTS.
ITEM ONE - BUSINESS
HEADQUARTERED IN HAUPPAUGE, NEW YORK, MEDICAL ACTION INDUSTRIES INC.
DEVELOPS, MANUFACTURES, MARKETS AND SUPPLIES A VARIETY OF DISPOSABLE MEDICAL
PRODUCTS. THE COMPANY'S PRODUCTS ARE MARKETED PRIMARILY TO ACUTE CARE FACILITIES
IN DOMESTIC AND CERTAIN INTERNATIONAL MARKETS, AND IN RECENT YEARS HAS EXPANDED
ITS END-USER MARKETS TO INCLUDE PHYSICIAN, DENTAL AND VETERINARY OFFICES,
OUT-PATIENT
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SURGERY CENTERS AND LONG-TERM CARE FACILITIES. MEDICAL ACTION IS A LEADING
MANUFACTURER AND SUPPLIER OF COLLECTION SYSTEMS FOR THE CONTAINMENT OF MEDICAL
WASTE, MINOR PROCEDURE KITS AND TRAYS, STERILE OPERATING ROOM TOWELS AND STERILE
LAPAROTOMY SPONGES. THE COMPANY'S PRODUCTS ARE MARKETED BY ITS DIRECT SALES
PERSONNEL, EXTENSIVE NETWORK OF DISTRIBUTORS AND MANUFACTURERS' REPRESENTATIVES.
MEDICAL ACTION HAS ENTERED INTO PREFERRED VENDOR AGREEMENTS WITH NATIONAL
DISTRIBUTORS, AS WELL AS SOLE SOURCE AND/OR COMMITTED CONTRACTS WITH GROUP
PURCHASING ALLIANCES. THE COMPANY ALSO MANUFACTURES ITS PRODUCTS UNDER PRIVATE
LABEL PROGRAMS TO OTHER DISTRIBUTORS AND MEDICAL SUPPLIERS. MEDICAL ACTION'S
MANUFACTURING, PACKAGING AND WAREHOUSING ACTIVITIES ARE CONDUCTED IN ITS ARDEN,
NORTH CAROLINA AND CLARKSBURG, WEST VIRGINIA FACILITIES.
THE COMPANY'S STRATEGY IS TO FOCUS ITS RESOURCES ON ENTERING NEW
MARKETS FOR ITS EXISTING PRODUCT LINES, INCLUDING ALTERNATE CARE, PHYSICIAN,
VETERINARY AND DENTAL MARKETS; ACCELERATE THE INTERNAL DEVELOPMENT OF NEW
PRODUCTS FOR ITS EXISTING MARKETS AND PURSUIT OF ACQUISITIONS WHICH INCLUDE
PRODUCTS THAT COMPLEMENT EXISTING PRODUCT LINES FOR UTILIZATION OF THE COMPANY'S
EXTENSIVE SALES AND DISTRIBUTION CHANNELS; THE INTRODUCTION OF ITS PRODUCTS INTO
THE INTERNATIONAL MARKETPLACE; AND TO INCREASE PRODUCTIVITY BY MAXIMIZING THE
UTILIZATION OF ITS EXISTING FACILITIES.
DURING THE PAST SEVERAL YEARS, THE COMPANY HAS ENGAGED IN AN ACTIVE
ACQUISITION PROGRAM COMPLETING NINE TRANSACTIONS SINCE 1994. THESE TRANSACTIONS
INCLUDE:
O IN AUGUST 1994, THE COMPANY ACQUIRED THE DISPOSABLE SURGICAL PRODUCTS
BUSINESS OF QUANTECH, INC. THE ACQUIRED PRODUCTS INCLUDE A PROPRIETARY
SURGICAL LIGHT HANDLE COVER, UNIQUELY DESIGNED AND PATENTED, WHICH IS
USED AS A STERILE BARRIER ON SURGICAL LIGHT HANDLES IN THE OPERATING
ROOM. THE ACQUIRED LINE ALSO PRODUCES AND MARKETS NEEDLE COUNTERS,
INSTRUMENT POUCHES, MAGNETIC INSTRUMENT DRAPES, AND RELATED PRODUCTS
USED PRIMARILY IN THE OPERATING ROOM ENVIRONMENT.
O IN JANUARY 1996, THE COMPANY ACQUIRED CERTAIN ASSETS RELATING TO THE
STERILIZATION PACKAGING, MONITORING AND CONTAMINATION CONTROL PRODUCTS
BUSINESS OF LAWSON MARDON MEDICAL PRODUCTS, INC. ("LAWSON MARDON"). THE
PRIMARY PRODUCTS ACQUIRED FROM LAWSON MARDON INCLUDE STERILITY
PACKAGING, A LINE OF STERILIZATION INDICATORS AND INTEGRATORS AND SUCH
ANCILLARY PRODUCTS AS INFECTIOUS WASTE BAGS, LABORATORY SPECIMEN BAGS
AND STERILITY MAINTENANCE COVERS. THESE PRODUCTS ARE USED IN HOSPITAL
CENTRAL SUPPLY, OPERATING ROOMS AND IN PHYSICIANS' OFFICES.
O IN OCTOBER 1997, THE COMPANY ACQUIRED SUBSTANTIALLY ALL OF THE ASSETS
RELATING TO THE SPECIALTY PACKAGING BUSINESS OF DAYHILL CORPORATION
("DAYHILL"). THE ACQUIRED PRODUCTS PRINCIPALLY CONSISTED OF COLLECTION
SYSTEMS FOR THE CONTAINMENT AND TRANSPORT OF BIOHAZARDOUS WASTE,
INCLUDING
3
BIOHAZARD BAGS, AUTOCLAVE BAGS, LABORATORY TRANSPORT BAGS, ZIP LOCK
BAGS AND SPONGE COUNTING BAGS.
O IN JANUARY 1998, THE COMPANY ACQUIRED THE SPONGE COUNTER PRODUCT LINES
OF SAGE PRODUCTS, INC., WHICH INCLUDED A UNIQUELY DESIGNED AND PATENTED
SURGICAL SPONGE COUNTING SYSTEM, SAFE-T-COUNT(TM), AS WELL AS A
COUNTING SYSTEM KNOWN AS POCKET COUNT(TM).
O IN MARCH 1999, THE COMPANY ACQUIRED THE MEDICAL PRODUCTS DIVISION OF
ACME UNITED CORPORATION ("ACME HEALTHCARE"). ACME HEALTHCARE, ONE OF
THE FIRST COMPANIES TO DESIGN AND SELL DISPOSABLE INSTRUMENT KITS AND
TRAYS, IS PRINCIPALLY COMPRISED OF THREE PRODUCT CATEGORIES - (I) KIT
AND TRAY PRODUCTS, INCLUDING SUTURE REMOVAL TRAYS, I.V. START KITS, AND
CENTRAL LINE TRAYS; (II) NET, PADDING, WOUND CARE AND ANTISEPTIC
PRODUCTS, INCLUDING ACU-DYNE(R), AN ANTI-MICROBIAL SOLUTION OF POVIDONE
IODINE WHICH COMES IN VARIOUS PACKAGES AND APPLICATORS, AND A LINE OF
PROPRIETARY TUBEGAUZE(R) ELASTIC NETTING USED IN DRESSING RETENTION;
AND (III) INSTRUMENT PACKS, WHICH INCLUDE A BROAD LINE OF STERILE
INSTRUMENTS, SUCH AS HEMOSTATS, SCALPELS, FORCEPS AND NEEDLE HOLDERS.
O IN NOVEMBER 2001, THE COMPANY ACQUIRED THE BUSINESS RELATED TO STERILE
KITS FOR THE INSERTION OF INTRAVENOUS CATHETERS ("I.V. START KITS") AND
STERILE PROCEDURE TRAYS CONTAINING COMPONENTS NECESSARY FOR THE
MAINTENANCE OF LARGE CATHETERS INSERTED INTO THE CHEST CAVITY ("CENTRAL
LINE DRESSING TRAYS") FROM MEDI-FLEX HOSPITAL PRODUCTS, INC.
O IN JUNE 2002, THE COMPANY ACQUIRED THE SPECIALTY PACKAGING AND
COLLECTION SYSTEMS FOR THE CONTAINMENT OF INFECTIOUS WASTE AND
STERILIZATION PRODUCTS BUSINESS OF MD INDUSTRIES. THE ACQUIRED PRODUCTS
PRINCIPALLY CONSISTED OF STERILIZATION PACKAGING, AND COLLECTION
SYSTEMS INCLUDING LAUNDRY AND LINEN COLLECTION BAGS, ZIP LOCK CLOSURE
BAGS, PATIENT BELONGING BAGS, EQUIPMENT DUST COVERS, WATER SOLUBLE
LAUNDRY BAGS, CHEMOTHERAPY WASTE COLLECTION BAGS AND BIOHAZARD SAFETY
AND COLLECTION BAGS.
O IN OCTOBER 2002, THE COMPANY ACQUIRED THE BIOSAFETY DIVISION OF MAXXIM
MEDICAL, INC., WHICH CONSISTED OF A LINE OF SHARPS CONTAINMENT SYSTEMS
PRIMARILY FOR THE ALTERNATE CARE MARKET AND A LINE OF COLLECTION
SYSTEMS FOR THE CONTAINMENT OF INFECTIOUS WASTE INCLUDING LAUNDRY AND
LINEN COLLECTION BAGS, ZIP LOCK CLOSURE BAGS, PATIENT BELONGING BAGS,
EQUIPMENT DUST COVERS, WATER SOLUBLE LAUNDRY BAGS, CHEMOTHERAPY WASTE
COLLECTION BAGS AND BIOHAZARD SAFETY AND COLLECTION BAGS.
4
THE COMPANY'S PRODUCTS ARE DIVIDED INTO FOUR (4) CATEGORIES:
o COLLECTION SYSTEMS FOR THE CONTAINMENT OF MEDICAL WASTE
o MINOR PROCEDURE KITS AND TRAYS
o OPERATING ROOM DISPOSABLES AND STERILIZATION PRODUCTS
o DRESSINGS AND SURGICAL SPONGES
WITHIN EACH OF THESE CATEGORIES ARE MULTIPLE PRODUCT LINES THAT HAVE
EITHER BEEN INTERNALLY DEVELOPED OR ACQUIRED BY ACQUISITION, AS SET FORTH BELOW:
COLLECTION SYSTEMS FOR THE CONTAINMENT OF MEDICAL WASTE
- -------------------------------------------------------
O BIOHAZARDOUS WASTE COLLECTION BAGS O LABORATORY SPECIMEN TRANSPORT BAGS
O AUTOCLAVABLE BAGS O PATIENT BELONGINGS BAGS
O NON-INFECTIOUS MEDICAL WASTE BAGS O SHARPS CONTAINMENT SYSTEMS
O CHEMOTHERAPY WASTE COLLECTION BAGS O EQUIPMENT DUST COVERS
O LAUNDRY AND LINEN COLLECTION BAGS O ZIP CLOSURE BAGS
MINOR PROCEDURE KITS AND TRAYS
- ------------------------------
O I.V. START KITS O LACERATION TRAYS
O CENTRAL LINE DRESSING TRAYS O INSTRUMENTS AND INSTRUMENT TRAYS
o SUTURE REMOVAL TRAYS O INCISION & DRAINAGE TRAYS
O GENERAL PURPOSE INSTRUMENT TRAYS O WOUND DRESSING CHANGE TRAYS
O VENIPUNCTURE TRAYS O SHARP DEBRIDEMENT TRAYS
OPERATING ROOM DISPOSABLES AND STERILIZATION PRODUCTS
- -----------------------------------------------------
O ABSORBENT OPERATING ROOM TOWELS O STERILIZATION POUCHES
O SURGICAL MARKING PENS O STERILIZATION INDICATORS
O MAGNETIC DRAPES O STERILIZATION INTEGRATORS
O NEEDLE COUNTERS O BOWIE DICK TEST PACKS
O LIGHT SHIELDS O STERILITY MAINTENANCE COVERS
O CONVENIENCE KITS O SEALERS AND CUTTERS
O PATIENT AIDS O INSTRUMENT PROTECTION
DRESSINGS AND SURGICAL SPONGES
- ------------------------------
O BURN DRESSINGS O GAUZE SPONGES
O DISPOSABLE LAPAROTOMY SPONGES O SPONGE COUNTING SYSTEM
O SPECIALTY SPONGES O CONFORMING BANDAGE ROLLS
O SOF KRIMP(R) BANDAGE ROLLS O SEPRONET(R)
O TUBEGAUZ(R) ELASTIC NET
5
THE FOLLOWING PARAGRAPHS CONTAIN A BRIEF DESCRIPTION OF, AND PROVIDE
OTHER INFORMATION REGARDING, MEDICAL ACTION'S KEY PRODUCTS:
COLLECTION SYSTEMS FOR THE CONTAINMENT OF MEDICAL WASTE
BIOHAZARDOUS WASTE COLLECTION AND AUTOCLAVE BAGS - VARIOUS STATE AND
FEDERAL REGULATIONS REQUIRE THAT INFECTIOUS MEDICAL WASTE BE COLLECTED, STORED,
TRANSPORTED AND DISPOSED OF IN SPECIALLY DESIGNED AND SPECIFICALLY LABELED
CONTAINERS. THE COMPANY'S INFECTIOUS WASTE COLLECTION BAGS, KNOWN AS BIOHAZARD
BAGS OR "RED BAGS", ARE CONSTRUCTED FROM HIGH QUALITY RESINS WITH REINFORCED
SEALS FOR PUNCTURE RESISTANCE TO REDUCE THE RISK OF LEAKAGE. THE BAGS COME IN A
VARIETY OF SIZES, AND ARE RED, AND ARE CLEARLY LABELED WITH THE INTERNATIONAL
BIOHAZARD SYMBOL. AUTOCLAVE BAGS ARE DESIGNED TO SURVIVE THE HEAT GENERATED IN A
STEAM AUTOCLAVE AND ARE USED TO CONTAIN INFECTIOUS WASTE THROUGH STEAM
STERILIZATION AND DISPOSAL.
NON-INFECTIOUS MEDICAL WASTE COLLECTION BAGS - NON-INFECTIOUS MEDICAL
WASTE AND TRASH MUST BE COLLECTED, STORED, TRANSPORTED AND DISPOSED OF IN A
SEPARATE WASTE STREAM FROM POTENTIALLY INFECTIOUS OR BIOHAZARDOUS WASTE. THE
COMPANY'S NON-INFECTIOUS MEDICAL WASTE BAGS COME IN A VARIETY OF SIZES,
MATERIALS, MIL THICKNESSES AND SEAL CONFIGURATIONS TO ISOLATE THE RANGE OF
NON-INFECTIOUS MEDICAL WASTE GENERATED AT HEALTHCARE PROVIDER SITES FROM
COLLECTION TO DISPOSAL.
CHEMOTHERAPY WASTE COLLECTION BAGS AND SHARPS CONTAINERS - WASTE
CONTAMINATED WITH CHEMOTHERAPEUTIC AGENTS MUST BE DISPOSED OF IN A SEPARATE
WASTE STREAM FROM NORMAL INFECTIOUS AND NON-INFECTIOUS MEDICAL WASTE DUE TO THE
TOXIC NATURE OF MANY OF THESE AGENTS. THE COMPANY'S CHEMOTHERAPY WASTE
COLLECTION BAGS AND SHARPS CONTAINERS ARE MADE OF SPECIAL RESINS FOR THE
COLLECTION AND CONTAINMENT OF CHEMO WASTE THROUGH DISPOSAL.
LAUNDRY AND LINEN COLLECTION SYSTEMS AND DISPOSABLE BAGS - INFECTIOUS
AND NON-INFECTIOUS REUSABLE LAUNDRY AND LINEN MUST BE COLLECTED IN SPECIFICALLY
DESIGNED AND CLEARLY LABELED RECEPTACLES AND BE SEGREGATED FROM THE INFECTIOUS
AND NON-INFECTIOUS MEDICAL WASTE STREAMS. THE COMPANY OFFERS LAUNDRY AND LINEN
COLLECTION SYSTEMS CONSISTING OF HAMPER STYLE RECEPTACLES AND DISPOSABLE LAUNDRY
AND LINEN RECEPTACLE BAGS FOR THE COLLECTION, STORAGE AND TRANSPORTATION OF
INFECTIOUS AND NON-INFECTIOUS LAUNDRY AND LINEN.
LABORATORY SPECIMEN TRANSPORT BAGS - USED TO COLLECT, TRANSPORT AND
CONTAIN TISSUE SAMPLES AND OTHER PATIENT SPECIMENS OBTAINED FROM EXAMINATIONS,
DIAGNOSTIC, OR SURGICAL PROCEDURES. THE BAGS FEATURE A SPECIMEN COMPARTMENT AND
DOCUMENTATION POUCH TO INSURE THAT SPECIMENS AND PAPERWORK DO NOT BECOME
SEPARATED DURING TRANSPORT.
6
PATIENT BELONGING BAGS - USED TO COLLECT, CONTAIN AND TRANSPORT PATIENT
BELONGINGS FROM ADMISSION TO DISCHARGE. THE BAGS COME IN A VARIETY OF SIZES, AND
THICKNESSES, AND UTILIZE A COMBINATION OF HANDLE, DRAWSTRING CLOSURE, AND ZIP
CLOSURE DESIGNS. THESE BAGS ARE OFTEN CUSTOMIZED WITH HOSPITAL OR HEALTHCARE
FACILITY LOGOS AND DESIGNS.
SHARPS CONTAINMENT SYSTEMS - VARIOUS STATE AND FEDERAL REGULATIONS
REQUIRE THAT CERTAIN INFECTIOUS MEDICAL WASTE, SUCH AS NEEDLES AND BLADES, BE
COLLECTED, CONTAINED, TRANSPORTED AND DISPOSED OF IN RIGID CONTAINERS. THE
COMPANY'S SHARPS CONTAINERS COME IN VARIETY OF SIZES AND CONFIGURATIONS AND ARE
CONSTRUCTED FROM HIGH QUALITY RESINS PROTECTING THE PUBLIC AND HEALTHCARE
WORKERS FROM ACCIDENTAL STICK INJURIES AND POTENTIAL TRANSMISSION OF PATHOGENS
IN BLOOD AND BODY FLUIDS. THESE CONTAINERS ARE DESIGNED TO BE PUNCTURE RESISTANT
AND TO HAVE TORTUROUS PATH MEANS OF EGRESS ONCE A CONTAMINATED DEVICE IS PLACED
INSIDE.
EQUIPMENT DUST COVERS - ARE USED TO FOR THE PROTECTION OF HOSPITAL
EQUIPMENT WHICH IS NON-STERILE. THEY PROVIDE A DUST AND DIRT BARRIER FOR
EQUIPMENT THAT IS STORED BETWEEN PROCEDURES.
MINOR PROCEDURE KITS AND TRAYS
THE COMPANY OFFERS KITS AND TRAYS WHICH ARE USED FOR A WIDE VARIETY OF
MINOR SURGICAL AND MEDICAL PROCEDURES. KIT COMPONENTS ARE DETERMINED BY THE
PROCEDURAL REQUIREMENTS AND MAY BE CUSTOMIZED TO ACCOMMODATE INDIVIDUAL HOSPITAL
PROTOCOLS AND PREFERENCES. PROCEDURAL APPLICATIONS AND TYPICAL COMPONENTS FOR
THE COMPANY'S LARGER KITS SEGMENTS ARE AS FOLLOWS:
I.V. START KITS - ONE OF THE MOST COMMON MEDICAL PROCEDURES IS
INTRAVENOUS ADMINISTRATION OF FLUIDS AND MEDICATIONS USUALLY DONE THROUGH AN
I.V. CATHETER OR NEEDLE WHICH IS INSERTED INTO A PERIPHERAL VEIN. SINCE
INFECTION AT THE SITE OF THE CATHETER INSERTION CAN BECOME SYSTEMIC AND
POTENTIALLY SERIOUS. I.V. START KITS ARE USED TO INSURE SPEED AND EFFICIENCY OF
CATHETER INSERTION WHILE PROMOTING SOUND CLINICAL PROTOCOL. TYPICAL COMPONENTS
INCLUDE A TOURNIQUET, ANTISEPTIC AMPULE OR SWAB, GAUZE, ALCOHOL PREP PADS AND A
DRESSING. THE COMPANY'S I.V. START KITS ARE MARKETED UNDER THE ACTASEPT(TM)AND
CEPTI-SEAL(R)BRANDS.
CENTRAL LINE DRESSING TRAYS - CENTRAL LINE DRESSING TRAYS ARE USED TO
PROVIDE FOR CLEANSING AND DRESSING PLACEMENT AT THE SITE OF A CENTRAL VENOUS
CATHETER (CVC) WHICH IS TYPICALLY PLACED IN A VEIN IN THE PATIENT'S CHEST AREA
AND IS USED FOR THE RAPID INFUSION OF FLUIDS AND MEDICATIONS. SINCE INFECTION AT
THE SITE OF CATHETER INSERTION CAN BECOME SYSTEMIC AND REPRESENTS A POTENTIALLY
SERIOUS MEDICAL COMPLICATION CENTRAL LINE DRESSING KITS FACILITATE FAST AND
INEFFICIENT DRESSING CHANGES WHILE ALLOWING THE CLINICIAN TO MAINTAIN STERILE
TECHNIQUE. TYPICAL COMPONENTS INCLUDE AN ANTISEPTIC AMPULE OR SWABS, GLOVES,
7
GAUZE TAPE AND A TRANSPARENT DRESSING. THE COMPANY'S CENTRAL LINE DRESSING TRAYS
ARE MARKETED UNDER THE ACTASEPT(TM) AND CEPTI-SEAL(R) BRANDS.
SUTURE REMOVAL TRAYS - POST PROCEDURAL SUTURE REMOVAL IS A MEDICAL
PROCEDURE COMMONLY PERFORMED IN PHYSICIANS' OFFICES, OUTPATIENT SETTINGS, AND
HOSPITAL EMERGENCY ROOMS AMONG OTHER ACUTE AND ALTERNATE CARE SETTINGS. THE
PROCEDURE REQUIRES PRECISE INSTRUMENTS FOR GRASPING AND CUTTING FINE SUTURES.
TYPICAL SUTURE REMOVAL TRAY COMPONENTS INCLUDE LITTAUER SCISSORS, ALCOHOL PREP
PADS, METAL OR PLASTIC FORCEPS AND THE COMPANY'S PROPRIETARY ACU-DYNE(TM)
POVIDONE IODINE ANTI-MICROBIAL SOLUTION.
LACERATION TRAYS - LACERATION TRAYS ARE USED TO FACILITATE CLOSURE OF
LACERATIONS AND OTHER DEEP WOUNDS. USE IS PRIMARILY CONCENTRATED IN HOSPITAL
EMERGENCY ROOMS ALTHOUGH THEY ARE SOLD IN BOTH ACUTE AND ALTERNATE CARE SETTINGS
WHEREVER EMERGENT CARE IS PROVIDED. TYPICAL COMPONENTS ARE HIGH QUALITY
DISPOSABLE INSTRUMENTS INCLUDING NEEDLE DRIVERS, FORCEPS, SCISSORS AND
HEMOSTATS, AS WELL AS DRAPES FOR CREATION OF A STERILE FIELD, GAUZE AND SYRINGES
AND NEEDLES FOR ADMINISTRATION OF A LOCAL ANESTHETIC.
INSTRUMENTS AND INSTRUMENT TRAYS - THE COMPANY OFFERS A BROAD ARRAY OF
HIGH QUALITY DISPOSABLE NEEDLE HOLDERS, HEMOSTATS, VARIOUS PROCEDURAL SCISSORS,
SCALPELS AND FORCEPS. THESE INSTRUMENTS ARE AVAILABLE IN STAINLESS STEEL, BENT
WIRE, AND PLASTIC VERSIONS. THEY CAN BE PURCHASED IN BULK, PACKAGED STERILE AS
INDIVIDUAL INSTRUMENTS, OR COMBINED IN CUSTOM STERILE INSTRUMENT TRAYS.
OPERATING ROOM DISPOSABLES AND STERILIZATION PRODUCTS
ABSORBENT OPERATING ROOM TOWELS - THE COMPANY'S LINE OF COTTON
ABSORBENT OPERATING ROOM TOWELS ARE USED DURING SURGERY FOR DRYING HANDS, ROLLED
UP FOR PROPPING INSTRUMENTS, ON BACK TABLES AND MAYO STANDS FOR ABSORBING
FLUIDS, AROUND THE INCISION SITE FOR ABSORBING BLOOD AND TO ALLOW THE SURGEON TO
CLIP TUBING AND INSTRUMENTS CLOSE TO THE SURGICAL SITE DURING THE SURGICAL
PROCEDURE. OPERATING ROOM TOWELS ARE SOLD IN STERILE PACKAGING FOR SINGLE
(DISPOSABLE) USE AND AS A NON-STERILE COMPONENT TO BE USED WITH OTHER HEALTH
CARE COMPANIES' PRODUCTS, PRIMARILY SURGICAL PRE-PACKAGED PROCEDURE TRAYS. FOR
THE FISCAL YEARS ENDED MARCH 31, 2003, 2002, AND 2001, OPERATING ROOM TOWELS
ACCOUNTED FOR 20%, 29%, AND 29%, RESPECTIVELY, OF THE COMPANY'S NET SALES.
SURGICAL MARKING PENS - USED FOR MARKING THE PATIENT SKIN PRIOR TO
MAKING A SURGICAL INCISION. SPECIFICALLY DESIGNED SO THAT THE PEN BARREL FITS
COMFORTABLY IN THE SURGEON'S HAND AND IS MADE WITH GENTIAN VIOLET COLOR INK. ALL
PEN BARRELS ARE EMBOSSED WITH A 5 CM. RULER AND MAY ALSO INCLUDE A 15 CM. COATED
RULER AND BLANK LABELS.
8
NEEDLE COUNTERS - RED PLASTIC BOXES MANUFACTURED FROM MEDICAL GRADE
MATERIALS DESIGNED TO RESIST BREAKAGE AND PUNCTURES. THEY ARE PRODUCED WITH A
VARIETY OF DESIGNS, INCLUDING SURGICAL GRADE MAGNETS IN ORDER TO FACILITATE
SHARPS DISPOSAL, FOAM BLOCKS AND FOAM STRIPS WITH VARYING COUNT CAPACITY AND
DESIGNS.
DISPOSABLE SURGICAL LIGHT HANDLE COVERS - LIGHT SHIELDS(TM) - A
PATENTED DESIGN ASSURES A SECURE FIT AND ACTS AS A STERILE BARRIER ON SURGICAL
LIGHT HANDLES IN THE OPERATING ROOM. LIGHT SHIELDS(TM) ARE MANUFACTURED OF A
HEAVY GAUGE FLEXIBLE PLASTIC FOR THE OPTIMUM ASSURANCE OF A STERILE BARRIER.
CONVENIENCE KITS - THE COMPANY OFFERS ITS CUSTOMERS THE ABILITY TO
PURCHASE MULTIPLE PRODUCTS PACKAGED WITH ITS NEEDLE COUNTERS. THE COMPANY HAS
THE FLEXIBILITY TO PACKAGE MANY DIFFERENT KITS TO INDIVIDUALIZE A HOSPITAL'S
REQUIREMENTS.
STERILIZATION POUCHES - USED TO HOUSE INSTRUMENTS DURING THE
STERILIZATION PROCESS AND MAINTAIN STERILITY OF THE INSTRUMENT UNTIL IT IS
NEEDED. THE POUCHES ARE PRIMARILY USED IN HOSPITAL CENTRAL SUPPLY, OPERATING
ROOMS AND IN PHYSICIANS' AND DENTISTS' OFFICES AS WELL AS IN ANY ENVIRONMENT
WHERE STERILE INSTRUMENTS ARE NEEDED. THERE ARE THREE DIFFERENT STYLES OF
POUCHES AVAILABLE - SELF SEAL, HEAT SEAL AND ROLLS. THE SELF SEAL IS ALREADY
SEALED ON THREE SIDES AND INCLUDES A PEEL BACK ADHESIVE STRIP ON THE BOTTOM OF
THE PACKAGE, WHICH WHEN FOLDED OVER WILL SEAL THE PACKAGE. THE SECOND TYPE IS
HEAT SEAL, WHICH IS ALSO SEALED ON THREE SIDES BUT NEEDS A HEAT SEALER TO SEAL
THE FOURTH SIDE. THE COMPANY ALSO MARKETS A ROLL PRODUCT, WHERE THE USER CAN
PULL AS LONG A POUCH AS NEEDED AND THEN SEAL EACH END OF THE POUCH.
STERILIZATION MONITORING PRODUCTS - THESE ARE PRINTED PAPER AND
CHEMICAL DEVICES USED TO MEASURE CERTAIN NECESSARY PARAMETERS WITHIN A
STERILIZATION CYCLE. PREDOMINATE USERS INCLUDE THE HOSPITAL OPERATING ROOM WHICH
OFTEN HOUSES STEAM STERILIZATION UNITS FOR UNANTICIPATED NEEDS WHILE CASES ARE
IN PROGRESS, AND THE CENTRAL STERILE DEPARTMENT WHICH CLEANS, PACKAGES AND
STERILIZES THE BULK OF REUSABLE SURGICAL SUPPLIES.
INDICATORS: MEASURES THE PRESENCE OF ETO OR STEAM AND TEMPERATURE
INTEGRATORS: A NEW TECHNOLOGY THAT GIVES A BETTER ASSURANCE THAN TRADITIONAL INDICATORS THAT
THE PROPER PARAMETERS OF STERILIZATION WERE FULFILLED, INCLUDING TIME, TEMPERATURE
AND MOISTURE.
BOWIE DICK
TEST PACK: TESTS FOR RESIDUAL AIR LEFT IN AN AUTOCLAVE FROM AIR LEAKS, INSUFFICIENT VACUUM OR
POOR STEAM QUALITY.
9
PRIOR TO STERILIZATION INDICATORS AND INTEGRATORS ARE PLACED INSIDE OF THE
PACKAGED PRODUCTS AND STERILIZATION POUCHES WHICH ARE THEN DISTRIBUTED AND USED
THROUGHOUT THE HOSPITAL, CLINIC OR PHYSICIAN OFFICE ENVIRONMENT.
PATIENT AIDS
CRUTCHES - LIGHTWEIGHT ALUMINUM ADJUSTABLE PATIENT CRUTCHES COMPLETE
WITH TIPS AND PADS. PUSH-BUTTON ADJUSTABLE FOOT PIECE FOR FAST, PRECISE
MEASURING AND FITTING. WE OFFER A FULL RANGE OF SIZES - CHILD, YOUTH, ADULT, AND
TALL ADULT. USED TO ASSIST MOBILITY IN THE EVENT OF A LEG, FOOT, OR ANKLE
INJURY.
WALKERS - LIGHTWEIGHT, HIGH STRENGTH ALUMINUM PATIENT WALKERS.
CONTOURED PVC HANDGRIPS FOR COMFORT AND RUBBER TIPS FOR TRACTION. THEY ARE
AVAILABLE IN A 1-BUTTON AND 2-BUTTON VERSION THAT FACILITATES FOLDING OF THE
WALKERS FOR EASY STORAGE AND TRANSPORT. USED TO ASSIST PATIENT MOBILITY FOR BOTH
THE SHORT AND LONG TERM.
CANES - LIGHTWEIGHT, HIGH STRENGTH ALUMINUM PATIENT CANES THAT ARE
FULLY HEIGHT ADJUSTABLE FROM 30" TO 39" IN 1" INCREMENTS. PVC HANDGRIP FOR
COMFORT AND NON-SLIP RUBBER TIP FOR STABILITY. USED TO ASSIST PATIENT MOBILITY
FOR BOTH THE SHORT AND LONG TERM.
DRESSINGS AND SURGICAL SPONGES
BURN DRESSINGS - THE COMPANY PROVIDES DRY BURN DRESSINGS AND
NON-ADHERENT GAUZE BURN DRESSINGS. THE DRY BURN DRESSINGS ARE COMPOSED OF
MULTIPLE LAYERS OF FOLDED GAUZE THAT ARE TYPICALLY CUSTOMIZED FOR INDIVIDUAL
HOSPITALS AS TO SIZE, WEAVE, FOLDS, AND STITCHING. THE NON-ADHERENT DRESSINGS
REDUCE STICKING AND SKIN REMOVAL DURING DRESSING CHANGES, THEREBY ALLEVIATING
TRAUMA AND PAIN TO THE WOUND SITE. THE COMPANY MARKETS CERTAIN NON-ADHERENT BURN
DRESSINGS UNDER THE ACTIGAUZ(TM) BRAND WHICH HAS A PATENTED BREAK AWAY FEATURE
OF THE NON-ADHERENT LAYER WHICH IMPROVES PATIENT COMFORT AND PERMITS
VISUALIZATION AND CLEANSING OF BURN AND GRAFT SITES WHILE MINIMIZING TRAUMA FROM
DRESSING REMOVAL.
DISPOSABLE LAPAROTOMY SPONGES - LAPAROTOMY SPONGES ARE DESIGNED
PRIMARILY FOR USE DURING SURGICAL PROCEDURES IN HOSPITALS AND HEALTH FACILITIES.
THEY ARE SINGLE USE (DISPOSABLE) AND MADE OF GAUZE AND SOLD IN VARYING SIZES AND
UTILIZED FOR A MULTITUDE OF PURPOSES. LAPAROTOMY SPONGES COVER EXPOSED INTERNAL
ORGANS, ISOLATING THEM FROM THE PART OF THE BODY BEING OPERATED UPON. THEY ALSO
ABSORB BLOOD AND ACT AS BUFFER BETWEEN MEDICAL INSTRUMENTS AND THE SKIN, THEREBY
REDUCING TRAUMA TO THE SKIN TISSUE CAUSED BY THE MEDICAL INSTRUMENT. LAPARATOMY
SPONGES ARE SOLD IN STERILE PACKAGING OR AS A NON-STERILE COMPONENT TO BE USED
WITH OTHER HEALTH CARE COMPANIES' PRODUCTS, PRIMARILY SURGICAL PRE-PACKAGED
PROCEDURE TRAYS. THE COMPANY'S LAPAROTOMY SPONGES CONTAIN AN X-RAY DETECTABLE
ELEMENT AND LOOP HANDLE IN ORDER TO FACILITATE EASY COUNTING AND IDENTIFICATION
IN THE OPERATING ROOM. FOR THE FISCAL YEARS ENDED MARCH 31, 2003, 2002, AND
2001, LAPAROTOMY SPONGES ACCOUNTED FOR 15%, 23%,
10
AND 27% RESPECTIVELY, OF THE COMPANY'S TOTAL SALES.
SPECIALTY SURGICAL SPONGES - THE COMPANY'S LINE OF SPECIALTY SURGICAL
SPONGES IS AN EXTENSION TO ITS LAPAROTOMY SPONGE PRODUCT LINE. THEY ARE SINGLE
USE (DISPOSABLE) AND MADE OF GAUZE AND SOLD IN VARYING SIZES AND SHAPES. THE
DESIGN OF THESE SPONGES IS TAILORED TO SPECIFIC SURGICAL APPLICATIONS FOR WHICH
A STANDARD LAPAROTOMY SPONGE IS SUB-OPTIMAL. THERE ARE TWO CLASSIFICATIONS OF
SPECIALTY SURGICAL SPONGES:
A) SPECIALTY SPONGES FOR OPEN SURGICAL PROCEDURES - INCLUDING
PEANUT, KITTNER, AND CHERRY DISSECTING SPONGES, USED FOR BLUNT
TISSUE DISSECTION AND FLUID ABSORPTION, TONSIL SPONGES WITH
ABDOMINAL TAPE STRINGS FOR EASY RETRIEVAL FROM NARROW BODY
CAVITIES, STICK SPONGES USED FOR SURGICAL PREPPING AND FLUID
ABSORPTION IN DEEPER BODY CAVITIES, AND EYE SPEARS FOR
ABSORPTION DURING EYE SURGERY.
(B) ENDOSCOPIC SPECIALTY SPONGES - INCLUDING KITTNER, CHERRY, AND
BULLET STYLE DISSECTING SPONGES. ENDOSCOPIC SPECIALTY SPONGES
ARE SMALL SPONGES AFFIXED TO LONG FIBERGLASS RODS AND ARE
DESIGNED FOR PERFORMING BLUNT TISSUE DISSECTION, FLUID
ABSORPTION, AND ANATOMICAL MANIPULATION THROUGH THE NARROW
OPERATING CANNULAE USED IN MINIMALLY INVASIVE ENDOSCOPIC
SURGERY.
GAUZE SPONGES - GAUZE SPONGES ARE USED IN THE OPERATING ROOM AS WELL AS
THROUGHOUT THE HOSPITAL. THEY ARE ALSO USED EXTENSIVELY THROUGHOUT THE ALTERNATE
CARE MARKET, INCLUDING PHYSICIANS' OFFICES, HEALTH CLINICS, AND DENTISTS'
OFFICES AND IN VETERINARY PRACTICES. THE COMPANY ALSO INTRODUCED GAUZE FLUFFS,
WHICH ARE PRE-FOLDED GAUZE SPONGES USED FOR COMPRESSION AND ABSORPTION OF BLOOD
AND OTHER FLUIDS.
SPONGE COUNTING SYSTEM - THE COMPANY'S LINE OF SPONGE COUNTER BAGS IS
DESIGNED TO FACILITATE AND IMPROVE THE POST-PROCEDURAL COUNTING OF SURGICAL
SPONGES. PERI-OPERATIVE NURSING PROTOCOL CALLS FOR A SYSTEMATIC COUNT OF USED
AND UNUSED SPONGES AND INSTRUMENTS PRE AND POST SURGICALLY TO INSURE THAT
FOREIGN BODIES ARE NOT LEFT IN THE BODY CAVITY. THE COMPANY'S POCKET COUNT(TM)
AND PATENTED SAFE-T-COUNT(TM) ARE CLEAR FACED OPAQUE BACKED PLASTIC BAGS WITH UP
TO 10 SPONGE COMPARTMENTS. THE COMPARTMENTS ACT AS FLUID RECEPTACLES WHILE
PROVIDING VISUALIZATION OF USED SPONGES FOR FAST AND ACCURATE POST SURGICAL
COUNTING.
NET, PADDING AND WOUND CARE - INCLUDES PROPRIETARY TUBEGAUZ(R) PREMIUM
BRAND AND SEPRO(R) VALUE BRAND ELASTIC NETS, WHICH ARE TUBULAR BANDAGES USED FOR
DRESSING RETENTION. THIS CATEGORY ALSO INCLUDES TUBEGAUZ(R) BRAND TUBULAR GAUZE,
WHICH IS USED TO BANDAGE FINGERS, TOES, HANDS, OR OTHER AREAS THAT REQUIRE
WRAPPING TO BODILY CONTOURS. PADDING PRODUCTS ARE USED AS A PROTECTIVE
CUSHIONING MATERIAL FOR SENSITIVE AREAS, AND ARE SOLD IN STYLES THAT OFFER
UNIQUE CHARACTERISTICS SUCH AS
11
BEING MOLD-RESISTANT, WATER-REPELLANT OR DESIGNS FOR IMPROVED AIR CIRCULATION.
PATENTS AND TRADEMARKS
- ----------------------
THE COMPANY ACTIVELY PURSUES A POLICY OF SEEKING PATENT PROTECTION,
BOTH IN THE UNITED STATES AND ABROAD, FOR ITS PROPRIETARY TECHNOLOGY. THERE CAN
BE NO ASSURANCE THAT THE COMPANY'S PATENTS WILL NOT BE VIOLATED OR THAT ANY
ISSUED PATENTS WILL PROVIDE PROTECTION THAT HAS COMMERCIAL SIGNIFICANCE.
LITIGATION MAY BE NECESSARY TO PROTECT THE COMPANY'S PATENT POSITION. SUCH
LITIGATION MAY BE COSTLY AND TIME-CONSUMING, AND THERE CAN BE NO ASSURANCE THAT
THE COMPANY WILL BE SUCCESSFUL IN SUCH LITIGATION. SINCE NO SINGLE PATENT COVERS
PRODUCT LINES THAT CONSTITUTE 5% OR MORE OF ANY SALES OF THE COMPANY FOR FISCAL
2003, THE COMPANY DOES NOT BELIEVE THAT ANY VIOLATION OF ANY PATENTS OWNED BY
THE COMPANY WOULD HAVE A MATERIAL ADVERSE EFFECT ON IT OR ITS BUSINESS
PROSPECTS.
THE COMPANY OWNS SEVERAL PATENTS AND TRADEMARKS. WHILE IT CONSIDERS
THAT IN THE AGGREGATE THE PATENTS AND TRADEMARKS ARE IMPORTANT IN THE OPERATION
OF ITS BUSINESS, IT DOES NOT CONSIDER THAT ANY OF THEM, OR ANY GROUP OF THEM,
ARE OF SUCH IMPORTANCE THAT TERMINATION WOULD MATERIALLY AFFECT ITS BUSINESS.
ALTHOUGH THERE IS NO ASSURANCE THAT OTHER COMPANIES WILL NOT BE
SUCCESSFUL IN DEVELOPING SIMILAR PRODUCTS WITHOUT VIOLATING THE RIGHTS OF THE
COMPANY, MANAGEMENT DOES NOT BELIEVE THAT THE INVALIDATION OF ANY PATENTS OWNED
BY THE COMPANY WOULD HAVE A MATERIAL ADVERSE EFFECT ON IT OR ITS BUSINESS
PROSPECTS. WHILE THE PROTECTION OF PATENTS IS IMPORTANT TO THE COMPANY'S
BUSINESS, MANAGEMENT DOES NOT BELIEVE ANY ONE PATENT IS ESSENTIAL TO THE SUCCESS
OF THE COMPANY.
THE COMPANY ALSO RELIES ON TRADE SECRETS AND PRODUCT ADVANCEMENT TO
MAINTAIN ITS COMPETITIVE POSITION. THERE CAN BE NO ASSURANCE THAT THE COMPANY
WILL PREVENT THE UNAUTHORIZED DISCLOSURE OR USE OF ITS TRADE SECRETS AND
KNOW-HOW OR THAT OTHERS MAY NOT INDEPENDENTLY DEVELOP SIMILAR TRADE SECRETS OR
KNOW-HOW OR OBTAIN ACCESS TO THE COMPANY'S TRADE SECRETS, KNOW-HOW OR
PROPRIETARY TECHNOLOGY.
GROUP PURCHASING AGREEMENTS
- ---------------------------
HOSPITAL CHAINS AND LARGE BUYING GROUPS HAVE PLAYED, AND ARE EXPECTED
TO CONTINUE TO PLAY, AN INCREASINGLY SIGNIFICANT ROLE IN THE PURCHASE OF MEDICAL
DEVICES. IN 2002, GROUP PURCHASING ORGANIZATION ("GPO") PURCHASING ACCOUNTED FOR
APPROXIMATELY $28 BILLION OF SALES IN THE MEDICAL PRODUCTS INDUSTRY. IN RECENT
YEARS, THESE GROUPS HAVE SOUGHT TO NARROW THEIR LIST OF SUPPLIERS. BY ACTING AS
A SUPPLIER TO A GPO THE COMPANY CAN OPERATE ITS SALES FORCE MUCH MORE
EFFICIENTLY. AS A RESULT, THE COMPANY'S SALES FORCE CONTINUES TO CALL ON
FACILITIES ASSOCIATED WITH THESE BUYING GROUPS IN ORDER TO IMPROVE COMPLIANCE
WITH THESE GROUP PURCHASING AGREEMENTS AND IMPROVE MARKET SHARE. THESE
AGREEMENTS, WHICH
12
TYPICALLY HAVE NO MINIMUM PURCHASE REQUIREMENTS, CAN BE TERMINATED ON NINETY
(90) DAYS ADVANCE NOTICE. THE TERMINATION OR NON-RENEWAL OF ANY OF THE
AGREEMENTS COULD HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY'S BUSINESS.
COMPETITION
- -----------
THE MARKETS IN THE COMPANY'S PRODUCT LINES ARE HIGHLY COMPETITIVE. IN
GENERAL, THE COMPANY'S PRODUCTS COMPETE WITH THE PRODUCTS OF NUMEROUS MAJOR
COMPANIES IN THE BUSINESS OF DEVELOPING, MANUFACTURING, DISTRIBUTING AND
MARKETING MEDICAL PRODUCTS. SOME OF THESE COMPETITORS HAVE GREATER FINANCIAL OR
OTHER RESOURCES THAN THE COMPANY. THE COMPANY BELIEVES THAT THE PRINCIPAL
COMPETITIVE FACTORS IN EACH OF ITS MARKETS ARE (I) PRODUCT DESIGN, DEVELOPMENT
AND IMPROVEMENT, (II) CUSTOMER SUPPORT; (III) BRAND LOYALTY; AND (IV) PRICE. THE
COMPANY EMPHASIZES OVERALL VALUE THROUGH A COMBINATION OF COMPETITIVE PRICING,
PRODUCT QUALITY AND CUSTOMER SERVICE.
THE COMPETITORS DIFFER BASED UPON THE PRODUCTS BEING SOLD. IN THE SALE
OF STERILE LAPAROTOMY SPONGES, WHERE ALLEGIANCE HEALTHCARE CORPORATION, A
SUBSIDIARY OF CARDINAL HEALTH, INC., THE KENDALL COMPANY, A SUBSIDIARY OF TYCO
INDUSTRIES, INC. AND MEDLINE INDUSTRIES, INC. ARE COMPETITORS, MEDICAL ACTION'S
SALES REPRESENT A SIGNIFICANT SHARE OF THE DOMESTIC MARKET. THE COMPANY'S
PRIMARY COMPETITORS IN THE SALE OF STERILE OPERATING ROOM TOWELS, IN WHICH THE
COMPANY IS ALSO A LEADING SUPPLIER IN THE DOMESTIC MARKET, ARE ALLEGIANCE
HEALTHCARE CORPORATION, A SUBSIDIARY OF CARDINAL HEALTH, INC., MEDLINE
INDUSTRIES, INC. AND DEROYAL, INC. MANAGEMENT BELIEVES THAT THE BREADTH OF ITS
LINE OF COLLECTION SYSTEMS FOR THE CONTAINMENT OF MEDICAL WASTE IS THE MOST
COMPLETE IN THE INDUSTRY, WHERE IT COMPETES WITH ALLEGIANCE HEALTHCARE
CORPORATION, A SUBSIDIARY OF CARDINAL HEALTH, INC., DONOVAN, INC. AND HERITAGE
BAG COMPANY. IN THE SALE OF MINOR PROCEDURE KITS AND TRAYS WHERE THE COMPANY HAS
A SIGNIFICANT MARKET SHARE, THE COMPANY'S PRIMARY COMPETITORS INCLUDE ALLEGIANCE
HEALTHCARE, A SUBSIDIARY OF CARDINAL HEALTH, INC., BECTON DICKSON AND THE
KENDALL COMPANY, A SUBSIDIARY OF TYCO INDUSTRIES, INC. IN THE SALE OF MEDICAL
POUCHES TO THE HOSPITAL MARKET, WHERE THE COMPANY IS ONE OF THE LEADING
SUPPLIERS, THE COMPANY'S PRIMARY COMPETITORS INCLUDE ALLEGIANCE HEALTHCARE, A
SUBSIDIARY OF CARDINAL HEALTH, INC. IN THE SALE OF OPERATING ROOM DISPOSABLES,
WHERE THE COMPANY'S PORTION OF THE MARKET IS RELATIVELY INSIGNIFICANT, THE
COMPANY'S PRIMARY COMPETITOR IS DEVON INDUSTRIES, INC., A SUBSIDIARY OF TYCO
INDUSTRIES, INC.
HEALTHCARE REFORM
- -----------------
IN RECENT YEARS, SEVERAL COMPREHENSIVE HEALTHCARE REFORM PROPOSALS WERE
INTRODUCED IN THE U.S. CONGRESS. THE INTENT OF THE PROPOSALS WAS, GENERALLY, TO
EXPAND HEALTHCARE COVERAGE FOR THE UNINSURED AND REDUCE THE GROWTH OF TOTAL
HEALTHCARE EXPENDITURES. WHILE NONE OF THE PROPOSALS WERE ADOPTED, HEALTHCARE
REFORM MAY AGAIN, BE ADDRESSED BY THE CURRENT U.S. CONGRESS. WHILE THE COMPANY
CANNOT PREDICT WHETHER ANY HEALTHCARE REFORM LEGISLATION WILL BE APPROVED OR
WHAT
13
EFFECT, IF ANY, THAT SUCH HEALTHCARE REFORM LEGISLATION WILL HAVE ON THE COMPANY
OR ITS OPERATIONS, THE COMPANY BELIEVES THAT BASED ON THE INTENT OF SUCH
PROPOSALS, HEALTHCARE LEGISLATION MAY HAVE SOME BENEFICIAL EFFECTS ON ITS
BUSINESS BY INCREASING THE AVAILABILITY OF HEALTHCARE.
REGULATION
- ----------
AS A MANUFACTURER OF MEDICAL DEVICES, THE COMPANY IS SUBJECT TO
REGULATION BY, AMONG OTHER GOVERNMENTAL ENTITIES, THE U.S. FOOD AND DRUG
ADMINISTRATION ("FDA") AND THE CORRESPONDING AGENCIES OF THE STATES AND FOREIGN
COUNTRIES IN WHICH THE COMPANY SELLS ITS PRODUCTS. THESE REGULATIONS GOVERN THE
INTRODUCTION OF NEW MEDICAL DEVICES, THE OBSERVANCE OF CERTAIN STANDARDS WITH
RESPECT TO THE MANUFACTURE, TESTING AND LABELING OF SUCH DEVICES, THE
MAINTENANCE OF CERTAIN RECORDS, THE TRACKING OF DEVICES AND OTHER MATTERS. ALL
MEDICAL DEVICES ARE REQUIRED TO BE REGISTERED WITH THE FDA. THE COMPANY MUST
UPDATE ITS ESTABLISHMENT AND LISTING INFORMATION ON AN ANNUAL BASIS.
PURSUANT TO THE FOOD, DRUG AND COSMETIC ACT ("FDC ACT"), MEDICAL
DEVICES INTENDED FOR HUMAN USE ARE CLASSIFIED INTO THREE CATEGORIES, CLASSES I,
II AND III, ON THE BASIS OF THE CONTROLS DEEMED NECESSARY BY THE FDA TO
REASONABLY ASSURE THEIR SAFETY AND EFFECTIVENESS. CLASS I DEVICES ARE SUBJECT TO
GENERAL CONTROLS (FOR EXAMPLE, LABELING, PREMARKET NOTIFICATION AND ADHERENCE TO
GOOD MANUFACTURING PRACTICE REGULATIONS) AND CLASS II DEVICES ARE SUBJECT TO
GENERAL AND SPECIAL CONTROLS (FOR EXAMPLE, PERFORMANCE STANDARDS, POST-MARKET
SURVEILLANCE, PATIENT REGISTRIES AND FDA GUIDELINES). GENERALLY, CLASS III
DEVICES ARE THOSE WHICH MUST RECEIVE PREMARKET APPROVAL ("PMA") FROM THE FDA TO
ENSURE THEIR SAFETY AND EFFECTIVENESS (FOR EXAMPLE, LIFE-SUSTAINING,
LIFE-SUPPORTING AND IMPLANTABLE DEVICES, OR NEW DEVICES WHICH HAVE NOT BEEN
FOUND SUBSTANTIALLY EQUIVALENT TO LEGALLY MARKETED DEVICES. CLASS I DEVICES,
UNLESS EXEMPT, AND CLASS II DEVICES REQUIRE PREMARKET NOTIFICATION CLEARANCE
PURSUANT TO SECTION 510(K) OF THE FDC ACT. CLASS III DEVICES ARE REQUIRED TO
HAVE A PMA. A 510(K) PREMARKET NOTIFICATION CLEARANCE INDICATES THAT THE FDA
AGREES WITH AN APPLICANT'S DETERMINATION THAT THE PRODUCT FOR WHICH CLEARANCE
HAS BEEN SOUGHT IS SUBSTANTIALLY EQUIVALENT TO ANOTHER MEDICAL DEVICE THAT HAS
BEEN PREVIOUSLY MARKETED. TO DATE, ALL OF THE COMPANY'S PRODUCTS HAVE RECEIVED
510(K) CLEARANCES OR ARE EXEMPT FROM THE 510(K) CLEARANCE PROCESS.
IN ADDITION TO REQUIRING CLEARANCE OR APPROVAL FOR NEW PRODUCTS, THE
FDA MAY REQUIRE CLEARANCE OR APPROVAL PRIOR TO MARKETING PRODUCTS THAT ARE
MODIFICATIONS OF EXISTING PRODUCTS. THE FDC ACT PROVIDES THAT NEW 510(K)
CLEARANCES ARE REQUIRED WHEN, AMONG OTHER THINGS, THERE IS A MAJOR CHANGE OR
MODIFICATION IN THE INTENDED USE OF THE DEVICE OR A CHANGE OR MODIFICATION TO A
LEGALLY MARKETED DEVICE THAT COULD SIGNIFICANTLY AFFECT ITS SAFETY OR
EFFECTIVENESS. A MANUFACTURER IS EXPECTED TO MAKE THE INITIAL DETERMINATION AS
TO WHETHER A PROPOSED CHANGE TO A CLEARED DEVICE OR TO ITS INTENDED USE IS OF A
KIND THAT WOULD NECESSITATE THE FILING OF A NEW 510(K) NOTIFICATION.
14
THE COMPANY IS ALSO REQUIRED TO REGISTER WITH THE FDA AS A DEVICE
MANUFACTURER AND TO COMPLY WITH THE FDA'S GOOD MANUFACTURING PRACTICES UNDER THE
QUALITY SYSTEM REGULATIONS ("GMP/QSR"). THESE REGULATIONS REQUIRE THAT THE
COMPANY MANUFACTURE ITS PRODUCTS AND MAINTAIN ITS RECORDS IN A PRESCRIBED MANNER
WITH RESPECT TO MANUFACTURING, TESTING AND CONTROL ACTIVITIES. THE COMPANY'S
MANUFACTURING, QUALITY CONTROL AND QUALITY ASSURANCE PROCEDURES AND DOCUMENTS
ARE INSPECTED AND EVALUATED PERIODICALLY BY THE FDA.
THE EUROPEAN UNION HAS PROMULGATED RULES, UNDER THE MEDICAL DEVICES
DIRECTIVE, OR MDD, WHICH REQUIRE MEDICAL DEVICES TO BEAR THE "CE MARK". THE CE
MARK IS AN INTERNATIONAL SYMBOL OF ADHERENCE TO QUALITY ASSURANCE STANDARDS. THE
COMPANY RECEIVED ISO9001/EN46001 CERTIFICATION FOR ITS ARDEN, NORTH CAROLINA
MANUFACTURING FACILITY AND HAS INSTITUTED ALL THE SYSTEMS NECESSARY TO MEET THE
MEDICAL DEVICE DIRECTIVE, THUS ACQUIRING THE ABILITY TO AFFIX THE CE MARK TO
CERTAIN PRODUCTS.
SALES, MARKETING AND CUSTOMERS
- ------------------------------
THE COMPANY'S PRODUCTS ARE PRESENTLY MARKETED AND SOLD PRIMARILY TO
ACUTE CARE FACILITIES THROUGHOUT THE UNITED STATES THROUGH A NETWORK OF DIRECT
SALES PERSONNEL AND MANUFACTURERS' REPRESENTATIVES. IN ADDITION, THE COMPANY HAS
EXPANDED ITS TARGET MARKETS TO INCLUDE PHYSICIAN, DENTAL AND VETERINARY OFFICES,
OUT-PATIENT SURGERY CENTERS AND LONG-TERM CARE FACILITIES.
THE COMPANY'S SALES REPRESENTATIVES TYPICALLY ATTEMPT TO ESTABLISH AND
MAINTAIN DIRECT CONTACT WITH MEDICAL PROFESSIONALS THAT DIRECTLY UTILIZE THE
COMPANY'S PRODUCTS. AS MEDICAL PRODUCT PURCHASES ARE TYPICALLY MADE ON A
CENTRALIZED BASIS BY HOSPITAL PURCHASING DEPARTMENTS, AND INCREASINGLY BY
HEALTHCARE NETWORKS, SALES REPRESENTATIVES MUST ALSO MAINTAIN RELATIONSHIPS WITH
PURCHASING DEPARTMENT PERSONNEL. THE COMPANY HAS APPROXIMATELY 35 DIRECT SALES
PERSONNEL AND 3 MANUFACTURERS' REPRESENTATIVES THROUGHOUT THE UNITED STATES
ENGAGED IN THE SALES AND MARKETING OF THE COMPANY'S PRODUCTS.
SALES ARE PRIMARILY MADE TO INDEPENDENT DISTRIBUTORS, WHO MAINTAIN
SUFFICIENT INVENTORY TO SERVICE CUSTOMER REQUIREMENTS. THE COMPANY'S
DISTRIBUTION NETWORK IS COMPRISED OF HOSPITAL DISTRIBUTORS, ALTERNATE CARE
DISTRIBUTORS, PHYSICIAN DISTRIBUTORS, VETERINARY DISTRIBUTORS, DENTAL
DISTRIBUTORS AND INDUSTRIAL SAFETY DISTRIBUTORS COVERING THE ENTIRE UNITED
STATES AND CERTAIN INTERNATIONAL MARKETPLACES. THE COMPANY'S PRODUCTS ARE
TYPICALLY PURCHASED PURSUANT TO PURCHASE ORDERS OR SUPPLY AGREEMENTS IN WHICH
THE PURCHASER SPECIFIES WHETHER SUCH PRODUCTS ARE TO BE SUPPLIED THROUGH A
DISTRIBUTOR OR DIRECTLY BY THE COMPANY.
MANAGEMENT BELIEVES THAT THE CONTINUING PRESSURE TO UTILIZE LOW-COST,
DISPOSABLE MEDICAL PRODUCTS HAS SIGNIFICANTLY EXPANDED THE USE OF CUSTOM
PROCEDURE TRAYS, WHICH CONTAIN THE NECESSARY ITEMS DESIGNED FOR USE IN SPECIFIC
PROCEDURES BY SURGICAL TEAMS. MANY OF THE CUSTOM TRAY SUPPLIERS ARE VERTICALLY
15
INTEGRATING THE PACKAGING PROCESS BY BUYING BULK, NON-STERILE OPERATING ROOM
TOWELS, LAPAROTOMY SPONGES AND OTHER PRODUCTS MANUFACTURED BY THE COMPANY TO
PLACE IN THESE CUSTOM TRAYS. THE TRAYS ARE THEN STERILIZED, SAVING VALUABLE
NURSING TIME AND THE COSTS ASSOCIATED WITH INDIVIDUAL PRODUCT PACKAGING.
THE COMPANY RECORDS SALES UPON THE SHIPMENT OF INVENTORY TO THE
DISTRIBUTOR, AT WHICH TIME TITLE PASSES TO THE DISTRIBUTOR. PRICING TO ITS
ULTIMATE CUSTOMER UNDER THESE SUPPLY AGREEMENTS IS USUALLY ESTABLISHED FOR THE
CONTRACT PERIOD, WHICH WILL TYPICALLY BE FROM ONE TO THREE YEARS. THE COMPANY
VIEWS ITS ULTIMATE CUSTOMERS AS THE MEDICAL PROFESSIONALS WHO USE ITS PRODUCTS,
RATHER THAN THE DISTRIBUTORS.
NO INDIVIDUAL CUSTOMER OR AFFILIATED GROUP OF CUSTOMER ACCOUNTS
ACCOUNTED FOR MORE THAN 10% OF THE COMPANY'S NET SALES IN ANY OF THE PAST THREE
FISCAL YEARS. NEVERTHELESS, SALES TO OWENS & MINOR, INC., ALLEGIANCE HEALTHCARE
CORPORATION AND MCKESSON GENERAL MEDICAL, DIVERSIFIED DISTRIBUTION COMPANIES
(THE "DISTRIBUTORS") ACCOUNTED FOR APPROXIMATELY 34%, 20%, AND 11%,
RESPECTIVELY, FOR THE FISCAL YEAR ENDED MARCH 31, 2003, 33%, 28% AND 10%, OF NET
SALES, RESPECTIVELY, FOR THE FISCAL YEAR ENDED MARCH 31, 2002 AND 31%, 23% AND
12%, RESPECTIVELY FOR THE FISCAL YEAR ENDED MARCH 31, 2001. ALTHOUGH THE
DISTRIBUTORS MAY BE DEEMED IN A TECHNICAL SENSE TO BE MAJOR PURCHASERS OF THE
COMPANY'S PRODUCTS, THE DISTRIBUTORS TYPICALLY SERVE AS A DISTRIBUTOR UNDER A
PURCHASE ORDER OR SUPPLY AGREEMENT BETWEEN THE CUSTOMER AND THE COMPANY AND DOES
NOT PURCHASE FOR ITS OWN ACCOUNT. THE COMPANY, THEREFORE, DOES NOT BELIEVE IT IS
APPROPRIATE TO CATEGORIZE THE DISTRIBUTORS AS ACTUAL CUSTOMERS.
THE COMPANY BELIEVES IT HAS ESTABLISHED AN EFFICIENT SYSTEM FOR
MARKETING ITS PRODUCTS THROUGHOUT THE UNITED STATES, AND INTENDS TO UTILIZE
THESE EXISTING SALES METHODS AND CHANNELS TO MARKET NEW PRODUCTS AS THEY ARE
DEVELOPED OR ACQUIRED.
RESEARCH AND DEVELOPMENT
- ------------------------
THE COMPANY IS CONTINUALLY CONDUCTING RESEARCH AND DEVELOPING NEW
PRODUCTS UTILIZING A TEAM APPROACH THAT INVOLVES ITS ENGINEERING, MANUFACTURING
AND MARKETING RESOURCES. ALTHOUGH THE COMPANY HAS DEVELOPED A NUMBER OF ITS OWN
PRODUCTS, MOST OF ITS RESEARCH AND DEVELOPMENT EFFORTS HAVE HISTORICALLY BEEN
DIRECTED TOWARDS PRODUCT IMPROVEMENT AND ENHANCEMENTS OF PREVIOUSLY DEVELOPED OR
ACQUIRED PRODUCTS. PRODUCT DEVELOPMENT EXPENSES WERE $529,000, $453,000, AND
$457,000 FOR THE FISCAL YEARS ENDED MARCH 31, 2003, 2002, AND 2001,
RESPECTIVELY.
EMPLOYEES
- ---------
AS OF JUNE 1, 2003, THE COMPANY HAD 356 FULL-TIME EMPLOYEES WITH 282 IN
MANUFACTURING AND DISTRIBUTION, 45 IN MARKETING AND SALES, AND 29 IN
ADMINI-
16
STRATION. NONE OF THE COMPANY'S EMPLOYEES ARE REPRESENTED BY A LABOR
UNION. IN CONNECTION WITH THE COMPANY'S ACQUISITION IN OCTOBER 2002 OF THE
BIOSAFETY DIVISION OF MAXXIM MEDICAL, INC., THE EMPLOYEES IN THE CLARKSBURG,
WEST VIRGINIA FACILITY WERE REPRESENTED BY THE CHAUFFEURS, TEAMSTERS AND HELPERS
LOCAL UNION NO. 175 (THE "UNION"). IN DECEMBER 2002, THE EMPLOYEES OF
CLARKSBURG, WEST VIRGINIA VOTED TO DECERTIFY THE UNION OF ITS REPRESENTATION.
THE COMPANY BELIEVES THAT ITS EMPLOYEE RELATIONS ARE SATISFACTORY.
BACKLOG
- -------
THE COMPANY DOES NOT BELIEVE THAT ITS BACKLOG FIGURES ARE NECESSARILY
INDICATIVE OF ITS BUSINESS SINCE MOST HOSPITALS AND HEALTH RELATED FACILITIES
ORDER THEIR PRODUCTS ON A CONTINUOUS BASIS AND NOT PURSUANT TO ANY CONTRACTUAL
ARRANGEMENTS. SINCE TYPICAL SHIPMENT TIMES RANGE FROM TWO TO FIVE DAYS, THE
COMPANY MUST MAINTAIN SUFFICIENT INVENTORIES OF ALL PRODUCTS AT ALL TIMES.
RAW MATERIALS AND MANUFACTURING
- -------------------------------
THE PRINCIPAL RAW MATERIALS USED BY THE COMPANY ARE A FOUR-PLY MESH
GAUZE LAPAROTOMY SPONGE, COTTON HUCK TOWEL AND VARIOUS TYPES OF PLASTIC RESIN.
OTHER MATERIALS AND SUPPLIES USED BY THE COMPANY INCLUDE GAUZE, GAUZE SPONGES,
INJECTION MOLDED AND THERMOFORMED PLASTICS, MEDICAL INSTRUMENTS, FOAM, MEDICAL
GRADE MAGNETS AND A VARIETY OF PACKAGING MATERIAL. SEVERAL OF THESE RAW
MATERIALS ARE SUPPLIED FROM VENDORS OUTSIDE THE UNITED STATES.
MEDICAL ACTION'S VARIETY OF SUPPLIERS FOR RAW MATERIALS AND COMPONENTS
NECESSARY FOR THE MANUFACTURE OF ITS PRODUCTS, AS WELL AS ITS LONG TERM
RELATIONSHIPS WITH SUCH SUPPLIERS, HELP TO ENSURE THE STABILITY IN ITS
MANUFACTURING PROCESS. HISTORICALLY, MEDICAL ACTION HAS NOT BEEN MATERIALLY
AFFECTED BY INTERRUPTIONS WITH SUCH SUPPLIERS. HOWEVER, IF A SUPPLIER OF
SIGNIFICANT RAW MATERIALS, COMPONENT PARTS, FINISHED GOODS OR SERVICES WERE TO
TERMINATE ITS RELATIONSHIP WITH THE COMPANY, OR OTHERWISE CEASE SUPPLYING RAW
MATERIALS, COMPONENT PARTS, FINISHED GOODS OR SERVICES CONSISTENT WITH PAST
PRACTICES, THE COMPANY'S ABILITY TO MEET ITS OBLIGATIONS TO ITS CUSTOMERS MAY BE
DISRUPTED. A DISRUPTION WITH RESPECT TO NUMEROUS PRODUCTS, OR WITH RESPECT TO A
FEW SIGNIFICANT PRODUCTS, COULD HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY'S
BUSINESS AND FINANCIAL CONDITION.
THE COMPANY PRESENTLY PURCHASES ITS PRINCIPAL COTTON RAW MATERIALS
PRIMARILY FROM THE PEOPLES REPUBLIC OF CHINA AND TO A LESSER EXTENT, INDIA AND
IS CURRENTLY SOURCING INSTRUMENTS FROM PAKISTAN, A PORTION OF ITS THERMOFORM
PLASTICS FROM TAIWAN, PACKAGING MATERIAL FROM THE UNITED KINGDOM AND NEEDLE
COUNTERS FROM THE PEOPLE'S REPUBLIC OF CHINA. FROM TIME TO TIME, THE COMPANY HAS
PURCHASED CERTAIN OF THE RAW MATERIALS FROM A NUMBER OF OTHER COUNTRIES
INCLUDING MEXICO AND THE DOMINICAN REPUBLIC. SOME OF THE COMPANY'S PRODUCTS ARE
PURCHASED COMPONENTS OR IN FINAL FORM, WHICH ARE SHIPPED TO THE COMPANY'S
17
MANUFACTURING FACILITY IN ARDEN, NORTH CAROLINA, WHERE THEY ARE PACKAGED. THE
COMPANY'S OPERATING ROOM AND ACCESSORIES, MEDICAL POUCHES AND SMALL KITS AND
TRAYS ARE PREDOMINANTLY MANUFACTURED AND/OR ASSEMBLED IN THE COMPANY'S ARDEN,
NORTH CAROLINA MANUFACTURING FACILITY. THE COMPANY UTILIZES OUTSIDE CONTRACT
STERILIZATION FACILITIES FOR SOME OF ITS PRODUCTS.
IN THE COMPANY'S CLARKSBURG, WEST VIRGINIA FACILITY, WHERE THE COMPANY
MANUFACTURES ITS COLLECTION SYSTEMS FOR THE CONTAINMENT OF INFECTIOUS WASTE AND
SHARPS CONTAINERS, FOUR (4) TYPES OF PLASTIC RESIN ARE UTILIZED IN THE VARIOUS
PROCESSES; (I) LINEAR LOW DENSITY POLYETHYLENE; (II) HIGH DENSITY POLYETHYLENE;
(III) BLOW-MOLDING POLYPROPYLENE; AND (IV) FILM EXTRUSION POLYPROPYLENE.
IN THE MANUFACTURE OF COLLECTION SYSTEMS, RESIN IS EXTRUDED TO THE DIE
WHERE IT EMERGES IN A GELATINOUS STATE. THE EXTRUDER AND DIE ARE POSITIONED
UNDER A COOLING TOWER WHERE THE EMERGING PLASTIC IS PRESSED CLOSED AND AIR IS
BLOWN INTO IT CREATING A CYLINDRICAL COLUMN. THE COLUMN IS THEN PULLED UP THE
TOWER AND BACK DOWN OVER CONVEYING ROLLERS, AND IS THREADED THROUGH A PRINTER,
BAG MACHINE, TRIANGLE FOLDER, SEPARATOR AND AIR FOLDER INTO AN INDIVIDUALLY
FOLDED BAG. THE SHARPS CONTAINERS ARE PRODUCED BY BLOW-MOLDING THE PLASTIC INTO
AN OPEN MOLD, WHERE AIR IS THEN INTRODUCED INTO THE MOLD WHICH PRODUCES THE SAME
RESULTS AS IN INJECTION MOLDING.
AVAILABLE INFORMATION
- ---------------------
THE COMPANY FILES ANNUAL, QUARTERLY AND CURRENT REPORTS AND OTHER
INFORMATION WITH THE SEC. THESE MATERIALS CAN BE INSPECTED AND COPIED AT THE
SEC'S PUBLIC REFERENCE ROOM AT 450 FIFTH STREET, N.W., WASHINGTON, D.C. 20549.
COPIES OF THESE MATERIALS MAY ALSO BE OBTAINED BY MAIL AT PRESCRIBED RATES FROM
THE SEC'S PUBLIC REFERENCE ROOM AT THE ABOVE ADDRESS. INFORMATION ABOUT THE
PUBLIC REFERENCE ROOM CAN BE OBTAINED BY CALLING THE SEC AT 1-800- SEC-0330. THE
SEC ALSO MAINTAINS AN INTERNET SITE THAT CONTAINS REPORTS, PROXY AND INFORMATION
STATEMENTS, AND OTHER INFORMATION REGARDING ISSUERS THAT FILE ELECTRONICALLY
WITH THE SEC. THE ADDRESS OF THE SEC'S INTERNET SITE IS HTTP://WWW.SEC.GOV.
THE COMPANY MAKES AVAILABLE, FREE OF CHARGE, ON ITS INTERNET WEBSITE,
LOCATED AT HTTP://WWW.MEDICAL-ACTION.COM ITS MOST RECENT ANNUAL REPORT ON FORM
10-K, ITS MOST RECENT QUARTERLY REPORT ON FORM 10-Q, ANY CURRENT REPORTS ON FORM
8-K FILED SINCE THE COMPANY'S MOST RECENT ANNUAL REPORT ON FORM 10-K AND ANY
AMENDMENTS TO SUCH REPORTS AS SOON AS REASONABLY PRACTICABLE FOLLOWING THE
ELECTRONIC FILING OF SUCH REPORT WITH THE SEC. IN ADDITION, THE COMPANY PROVIDES
ELECTRONIC OR PAPER COPIES OF ITS FILINGS FREE OF CHARGE UPON REQUEST.
18
ITEM TWO - PROPERTIES
- ---------------------
THE COMPANY OWNS (I) A 205,000 SQUARE FOOT MANUFACTURING, WAREHOUSE AND
DISTRIBUTION FACILITY LOCATED ON APPROXIMATELY 32 ACRES IN ARDEN, NORTH
CAROLINA, (II) A 43,000 SQUARE FOOT MANUFACTURING, WAREHOUSE AND DISTRIBUTION
FACILITY LOCATED ON APPROXIMATELY 15 ACRES IN CLARKSBURG, WEST VIRGINIA AND
(III) A 12,000 SQUARE FOOT GENERAL OFFICE BUILDING ON APPROXIMATELY 1.4 ACRES IN
HAUPPAUGE, NEW YORK. MANAGEMENT BELIEVES THAT THE COMPANY'S FACILITIES ARE
ADEQUATE TO MEET ITS CURRENT NEEDS AND SHOULD CONTINUE TO BE ADEQUATE FOR THE
FORESEEABLE FUTURE. THE COMPANY PRESENTLY DOES NOT OCCUPY ANY OTHER FACILITIES.
SET FORTH BELOW IS A SUMMARY OF THE FACILITIES OWNED BY THE COMPANY.
LOCATION PRIMARY USE SQUARE FEET
-------- ----------- -----------
ARDEN, NORTH CAROLINA MANUFACTURING/WAREHOUSE/DISTRIBUTION 205,000 (A)
CLARKSBURG, WEST VIRGINIA MANUFACTURING/WAREHOUSE/DISTRIBUTION 43,000 (B)
HAUPPAUGE, NEW YORK EXECUTIVE OFFICES 12,000 (C)
- -------------------------
(A) THE PRINCIPAL MANUFACTURING, DISTRIBUTION AND WAREHOUSE FACILITY OF THE
COMPANY IS LOCATED ON PREMISES, WHICH THE COMPANY OWNS IN ARDEN, NORTH
CAROLINA. AN INDUSTRIAL REVENUE BOND IN THE AMOUNT OF $3,880,000 WAS
OUTSTANDING AS OF MARCH 31, 2003, WHICH WAS USED TO ACQUIRE AND
RENOVATE THE FACILITY AND ACQUIRED CERTAIN MANUFACTURING EQUIPMENT.
(B) THE CLARKSBURG, WEST VIRGINIA FACILITY WAS ACQUIRED BY THE COMPANY IN
OCTOBER 2002 AS PART OF ITS ACQUISITION OF THE BIOSAFETY DIVISION OF
MAXXIM MEDICAL, INC.
(C) THE HAUPPAUGE, NEW YORK CORPORATE OFFICES WERE ACQUIRED BY THE COMPANY
IN JULY 2000.
ITEM THREE - LEGAL PROCEEDINGS
- ------------------------------
THE COMPANY IS A PARTY TO SEVERAL LAWSUITS ARISING OUT OF THE CONDUCT
OF ITS BUSINESS IN THE ORDINARY COURSE. WHILE THE RESULTS OF SUCH LAWSUITS
CANNOT BE PREDICTED WITH CERTAINTY, MANAGEMENT DOES NOT EXPECT THAT THE ULTIMATE
LIABILITIES, IF ANY, WILL HAVE A MATERIAL ADVERSE EFFECT ON THE FINANCIAL
POSITION OR RESULTS OF OPERATIONS OF THE COMPANY.
ITEM FOUR - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ---------------------------------------------------------------
NO MATTERS WERE SUBMITTED TO A VOTE OF SECURITY HOLDERS DURING THE
FOURTH QUARTER OF THE FISCAL YEAR.
19
PART II
ITEM FIVE - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- -----------------------------------------------------------------------------
MATTERS
- -------
THE INFORMATION REQUIRED BY THIS ITEM IS SET FORTH IN REGISTRANT'S 2003
ANNUAL REPORT TO STOCKHOLDERS UNDER THE CAPTIONS "SELECTED FINANCIAL DATA" AND
"STOCK TRADING", WHICH INFORMATION IS HEREBY INCORPORATED HEREIN BY REFERENCE.
ITEM SIX - SELECTED FINANCIAL DATA
- ----------------------------------
THE INFORMATION REQUIRED BY THIS ITEM IS SET FORTH IN REGISTRANT'S 2003
ANNUAL REPORT TO STOCKHOLDERS CONTAINED UNDER THE CAPTION "SELECTED FINANCIAL
DATA", WHICH INFORMATION IS HEREBY INCORPORATED HEREIN BY REFERENCE.
ITEM SEVEN - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ----------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
THE INFORMATION REQUIRED BY THIS ITEM IS SET FORTH IN REGISTRANT'S 2003
ANNUAL REPORT TO STOCKHOLDERS CONTAINED UNDER THE CAPTION "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS", WHICH
INFORMATION IS HEREBY INCORPORATED HEREIN BY REFERENCE.
ITEM SEVEN (A) - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ---------------------------------------------------------------------------
THE INFORMATION REQUIRED BY THIS ITEM IS SET FORTH IN REGISTRANT'S 2003
ANNUAL REPORT TO STOCKHOLDERS CONTAINED UNDER THE CAPTION "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS", WHICH
INFORMATION IS HEREBY INCORPORATED HEREIN BY REFERENCE.
ITEM EIGHT - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------------------------------------------------------
THE INFORMATION REQUIRED BY THIS ITEM IS SET FORTH IN REGISTRANT'S 2003
ANNUAL REPORT TO STOCKHOLDERS UNDER THE CAPTIONS "REPORTS OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS", "BALANCE SHEETS", "STATEMENTS OF EARNINGS",
"STATEMENT OF SHAREHOLDERS' EQUITY", "STATEMENTS OF CASH FLOWS" AND "NOTES TO
FINANCIAL STATEMENTS", WHICH INFORMATION IS HEREBY INCORPORATED HEREIN BY
REFERENCE.
ITEM NINE - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ---------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
NONE.
20
PART III
ITEM TEN, ELEVEN, TWELVE, THIRTEEN AND FIFTEEN
- ----------------------------------------------
THESE ITEMS ARE INCORPORATED BY REFERENCE TO THE COMPANY'S DEFINITIVE
PROXY STATEMENT RELATING TO THE ANNUAL MEETING OF SHAREHOLDERS SCHEDULED FOR
AUGUST 14, 2003. THE DEFINITIVE PROXY STATEMENT WILL BE FILED WITH THE
COMMISSION NOT LATER THAN 120 DAYS AFTER MARCH 31, 2003, PURSUANT TO REGULATION
14A OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
ITEM FOURTEEN - CONTROLS AND PROCEDURES
- ---------------------------------------
(A) UNDER THE SUPERVISION AND WITH THE PARTICIPATION OF OUR MANAGEMENT,
INCLUDING OUR PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER, WE
CONDUCTED AN EVALUATION OF OUR DISCLOSURE CONTROLS AND PROCEDURES, AS SUCH TERM
IS DEFINED UNDER RULE 13A-14(C) PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED (THE "EXCHANGE ACT"), WITHIN 90 DAYS OF THE FILING DATE OF THIS
REPORT. BASED ON THIS EVALUATION, OUR PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL
FINANCIAL OFFICER CONCLUDED THAT OUR DISCLOSURE CONTROLS AND PROCEDURES ARE
EFFECTIVE IN ALERTING THEM ON A TIMELY BASIS TO MATERIAL INFORMATION RELATING TO
THE COMPANY REQUIRED TO BE INCLUDED IN OUR REPORTS FILED OR SUBMITTED UNDER THE
EXCHANGE ACT.
THERE HAVE BEEN NO SIGNIFICANT CHANGES (INCLUDING CORRECTIVE ACTIONS
WITH REGARD TO SIGNIFICANT DEFICIENCIES OR MATERIAL WEAKNESSES) IN OUR INTERNAL
CONTROLS OR IN OTHER FACTORS THAT COULD SIGNIFICANTLY AFFECT THESE CONTROLS
SUBSEQUENT TO THE DATE OF THE EVALUATION REFERENCED IN PARAGRAPH (A) ABOVE.
21
PART IV
ITEM SIXTEEN - EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
- ------------------------------------------------------------------------------
(A) (1) AND (2) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
--------------------------------------------------------------
THE FOLLOWING FINANCIAL STATEMENTS OF MEDICAL ACTION INDUSTRIES INC.,
INCLUDED IN ITS ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED MARCH 31, 2003,
ARE INCORPORATED BY REFERENCE IN ITEM 8:
BALANCE SHEETS AT MARCH 31, 2003 AND 2002
STATEMENTS OF EARNINGS FOR THE YEARS ENDED MARCH 31, 2003, 2002 AND
2001
STATEMENT OF SHAREHOLDERS EQUITY FOR THE YEARS ENDED MARCH 31, 2003,
2002 AND 2001
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MARCH 31, 2003, 2002
AND 2001
NOTES TO FINANCIAL STATEMENTS
THE FOLLOWING FINANCIAL STATEMENT SCHEDULE AND REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS OF MEDICAL ACTION INDUSTRIES INC. AND
SUBSIDIARY IS INCLUDED IN ITEM 14(d):
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
ALL OTHER SCHEDULES FOR WHICH PROVISION IS MADE IN THE APPLICABLE
ACCOUNTING REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION ARE
NOT REQUIRED UNDER THE RELATED INSTRUCTIONS OR ARE INAPPLICABLE AND
THEREFORE HAVE BEEN OMITTED.
(3) EXHIBITS:
--------
EXHIBIT NO.
2.1 AGREEMENT AND PLAN OF REORGANIZATION DATED AS OF AUGUST 12,
1994 AMONG REGISTRANT, QUANTECH ACQUISITION CORP. AND
QUANTECH, INC. (EXHIBIT 2.1 TO THE COMPANY'S ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED MARCH 31, 1995).
22
2.2 PURCHASE AGREEMENT DATED AS OF JANUARY 30, 1996 AMONG
REGISTRANT, SBW ACQUISITION CORP., LAWSON MARDON MEDICAL
PRODUCTS, INC. AND LAWSON MARDON MEDICAL PRODUCTS, A TRADING
DIVISION OF LAWSON MARDON PACKAGING UK LTD. (EXHIBIT 2 TO THE
COMPANY'S CURRENT REPORT ON FORM 8-K DATED FEBRUARY 6, 1996).
2.3 ASSET PURCHASE AGREEMENT DATED AS OF MARCH 9, 1999 BETWEEN
ACME UNITED CORPORATION AND REGISTRANT (EXHIBIT 2 TO THE
COMPANY'S CURRENT REPORT ON FORM 8-K DATED APRIL 1, 1999).
2.4 ASSET PURCHASE AGREEMENT DATED AS OF OCTOBER 3, 2001 BETWEEN
MEDI-FLEX HOSPITAL PRODUCTS, INC. AND REGISTRANT (EXHIBIT 2 TO
THE COMPANY'S CURRENT REPORT ON FORM 8-K DATED NOVEMBER 30,
2001).
2.5 ASSET PURCHASE AGREEMENT DATED AS OF MAY 9, 2002 BETWEEN MD
INDUSTRIES ACQUISITION LLC AND REGISTRANT (EXHIBIT 2 TO THE
COMPANY'S CURRENT REPORT ON FORM 8-K DATED JUNE 21, 2002).
2.6 ASSET PURCHASED AGREEMENT DATED AS OF AUGUST 30, 2002, BETWEEN
MAXXIM MEDICAL, INC. AND REGISTRANT (EXHIBIT 2 TO THE
COMPANY'S CURRENT REPORT ON FORM 8-K DATED OCTOBER 25, 2002.
3.1 CERTIFICATE OF INCORPORATION, AS AMENDED. (EXHIBIT 3.1 TO THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH
31, 2002)
3.2 BY-LAWS, AS AMENDED (EXHIBIT 3(B) TO THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH 31, 1988).
10.1 1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN (EXHIBIT 10.1 TO
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
MARCH 31, 1997).
10.2 RESTRICTED MANAGEMENT STOCK BONUS PLAN, AS AMENDED (EXHIBIT
10(B) TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED MARCH 31, 1988).
10.3 1989 NON-QUALIFIED STOCK OPTION PLAN, AS AMENDED. (EXHIBIT
10.3 TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED MARCH 31, 2002)
10.4 1994 STOCK INCENTIVE PLAN, AS AMENDED. (EXHIBIT 10.4 TO THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH
31, 2002.)
23
10.5 EMPLOYMENT AGREEMENT DATED AS OF FEBRUARY 1, 1993 BETWEEN THE
REGISTRANT AND PAUL D. MERINGOLO (EXHIBIT 10.4 TO THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH
31, 1993).
10.6 MODIFICATION AGREEMENT DATED AS OF FEBRUARY 5, 1996 BETWEEN
THE REGISTRANT AND PAUL D. MERINGOLO (EXHIBIT 10 TO THE
COMPANY'S CURRENT REPORT ON FORM 8-K DATED FEBRUARY 7, 1996).
10.7 MODIFICATION AGREEMENT DATED AS OF MAY 28, 1997 BETWEEN THE
REGISTRANT AND PAUL D. MERINGOLO (EXHIBIT 10.7 TO THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH
31, 1997).
10.8 MODIFICATION AGREEMENT DATED AS OF JULY 21, 1999 BETWEEN THE
REGISTRANT AND PAUL D. MERINGOLO (EXHIBIT 10 TO THE COMPANY'S
CURRENT REPORT ON FORM 8-K DATED JULY 30, 1999).
10.9 MODIFICATION AGREEMENT DATED AS OF MAY 31, 2000 BETWEEN THE
REGISTRANT AND PAUL D. MERINGOLO (EXHIBIT 10 TO THE COMPANY'S
CURRENT REPORT ON FORM 8-K DATED JUNE 5, 2000).
10.10 MODIFICATION AGREEMENT DATED AS OF JUNE 3, 2003 BETWEEN THE
REGISTRANT AND PAUL D. MERINGOLO (EXHIBIT 10 TO THE COMPANY'S
CURRENT REPORT ON FORM 8-K DATED JUNE 3, 2003).
10.11 REVOLVING CREDIT NOTE AND AGREEMENT BETWEEN THE REGISTRANT AND
A LENDING INSTITUTION DATED AS OF OCTOBER 21, 2002. (EXHIBIT
10 TO THE COMPANY'S CURRENT REPORT ON FORM 8-K DATED OCTOBER
25, 2002.
10.12 CHANGE IN CONTROL AGREEMENT DATED AS OF JUNE 1, 1995 BETWEEN
THE REGISTRANT AND CERTAIN EXECUTIVE OFFICERS (EXHIBIT 10.8 TO
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
MARCH 31, 1995).
23.1* CONSENT OF GRANT THORNTON LLP.
99.1* ADDITIONAL EXHIBIT - UNDERTAKINGS
99.2* CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
99.3* CERTIFICATION PURSUANT TO SECTION 302(A) OF THE SARBANES-OXLEY
ACT OF 2002
(B) REPORTS ON FORM 8-K:
-------------------
(I) AMENDMENT NO. 1 TO CURRENT REPORT ON FORM 8-K DATED JANUARY 6,
24
2003 RE: ITEM 7 - FINANCIAL STATEMENTS AND EXHIBITS
(C) EXHIBITS
--------
THE RESPONSE TO THIS PORTION OF ITEM 16 IS SUBMITTED AS A SEPARATE
SECTION OF THIS REPORT.
(D) FINANCIAL STATEMENT SCHEDULES
-----------------------------
THE RESPONSE TO THIS PORTION OF ITEM 16 IS SUBMITTED AS A SEPARATE
SECTION OF THIS REPORT.
- ----------------------
WITH THE EXCEPTION OF THE AFOREMENTIONED INFORMATION INCORPORATED BY
REFERENCE IN THIS ANNUAL REPORT ON FORM 10-K, THE COMPANY'S ANNUAL REPORT TO
STOCKHOLDERS FOR THE YEAR ENDED MARCH 31, 2003 IS NOT TO BE DEEMED "FILED" AS
PART OF THIS REPORT.
*FILED HEREWITH
25
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE COMPANY HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED ON THIS 17TH DAY OF
JUNE, 2003.
MEDICAL ACTION INDUSTRIES INC.
BY: /S/ PAUL D. MERINGOLO
--------------------------
PAUL D. MERINGOLO
CHIEF EXECUTIVE OFFICER AND PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW ON JUNE 17, 2003 BY THE FOLLOWING PERSONS IN
THE CAPACITIES INDICATED:
/S/ PAUL D. MERINGOLO CHIEF EXECUTIVE OFFICER, PRESIDENT
- ------------------------- AND DIRECTOR
PAUL D. MERINGOLO
/S/ RICHARD G. SATIN VICE PRESIDENT-OPERATIONS, GENERAL COUNSEL,
- ------------------------- CORPORATE SECRETARY AND DIRECTOR
RICHARD G. SATIN
/S/ BERNARD WENGROVER DIRECTOR
- ------------------------
BERNARD WENGROVER
/S/ PHILIP F. CORSO DIRECTOR
- ------------------------
PHILIP F. CORSO
/S/ THOMAS A. NICOSIA DIRECTOR
- ------------------------
THOMAS A. NICOSIA
26
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
STOCKHOLDERS AND BOARD OF DIRECTORS
MEDICAL ACTION INDUSTRIES INC.
IN CONNECTION WITH OUR AUDIT OF THE FINANCIAL STATEMENTS OF MEDICAL ACTION
INDUSTRIES INC. REFERRED TO IN OUR REPORT DATED MAY 20, 2003, WHICH IS INCLUDED
IN THE ANNUAL REPORT TO STOCKHOLDERS AND INCORPORATED BY REFERENCE IN PART II OF
THIS FORM, WE HAVE ALSO AUDITED SCHEDULE II FOR EACH OF THE THREE YEARS IN THE
PERIOD ENDED MARCH 31, 2003. IN OUR OPINION, THIS SCHEDULE, WHEN CONSIDERED IN
RELATION TO THE BASIC FINANCIAL STATEMENTS TAKEN AS A WHOLE, PRESENTS FAIRLY, IN
ALL MATERIAL RESPECTS, THE INFORMATION REQUIRED TO BE SET FORTH THEREIN.
GRANT THORNTON LLP
MELVILLE, NEW YORK
MAY 20, 2003
27
S-1
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
MEDICAL ACTION INDUSTRIES INC.
- ------------------------------------------------------------------------------------------
COL. A COL. B
- ------------------------------------------------------------------------------------------
ADDITIONS
---------
BALANCE AT
BEGINNING OF
DESCRIPTION PERIOD
- ------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31, 2003
DEDUCTED FROM ASSET ACCOUNTS:
ALLOWANCE FOR DOUBTFUL ACCOUNTS $233,998
RESERVE FOR SLOW MOVING AND OBSOLETE INVENTORY $213,186
TOTAL VALUATION AND QUALIFYING ACCOUNTS $447,184
YEAR ENDED MARCH 31, 2002
DEDUCTED FROM ASSET ACCOUNTS:
ALLOWANCE FOR DOUBTFUL ACCOUNTS $192,998
RESERVE FOR SLOW MOVING AND OBSOLETE INVENTORY $241,187
TOTAL VALUATION AND QUALIFYING ACCOUNTS $434,185
YEAR ENDED MARCH 31, 2001
DEDUCTED FROM ASSET ACCOUNTS:
ALLOWANCE FOR DOUBTFUL ACCOUNTS $156,998
RESERVE FOR SLOW MOVING AND OBSOLETE INVENTORY $134,717
TOTAL VALUATION AND QUALIFYING ACCOUNTS $291,715
- -----------------------------------------------------------------------------------------------------------------------------------
COL. A COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------------------------------------------------
ADDITIONS CHARGED CHARGED TO OTHER OTHER CHANGES -
TO COSTS AND ACCOUNTS - ADD(DEDUCT) BALANCE END OF
DESCRIPTION EXPENSES DESCRIBE DESCRIBE PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31, 2003
DEDUCTED FROM ASSET ACCOUNTS:
ALLOWANCE FOR DOUBTFUL ACCOUNTS $42,000 $275,998
RESERVE FOR SLOW MOVING AND OBSOLETE INVENTORY $399,570 612,756
TOTAL VALUATION AND QUALIFYING ACCOUNTS $441,570 - - $888,754
YEAR ENDED MARCH 31, 2002
DEDUCTED FROM ASSET ACCOUNTS:
ALLOWANCE FOR DOUBTFUL ACCOUNTS $41,000 $223,998
RESERVE FOR SLOW MOVING AND OBSOLETE INVENTORY ($28,001) $213,186
TOTAL VALUATION AND QUALIFYING ACCOUNTS $41,000 - ($28,001) $447,184
YEAR ENDED MARCH 31, 2001
DEDUCTED FROM ASSET ACCOUNTS:
ALLOWANCE FOR DOUBTFUL ACCOUNTS $36,000 $192,998
RESERVE FOR SLOW MOVING AND OBSOLETE INVENTORY $106,470 $241,187
TOTAL VALUATION AND QUALIFYING ACCOUNTS $142,470 - - $434,185
- -------------------
(1) DISPOSAL AND SALE OF SLOW MOVING AND OBSOLETE INVENTORY.
- --------------------------------------------------------------------------------
===============================================================================
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
FOR THE FISCAL YEAR ENDED MARCH 31, 2003
------------------
MEDICAL ACTION INDUSTRIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
EXHIBIT INDEX
================================================================================
EXHIBIT NO.
23 CONSENT OF GRANT THORNTON LLP.
99.1 ADDITIONAL EXHIBIT - UNDERTAKINGS
99.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
99.3 CERTIFICATION PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY
ACT OF 2002
2