MEDICAL ACTION INDUSTRIES INC - FORM 10-K/A

Attached files

file	filename
EX-23.1 - EXHIBIT 23.1 - MEDICAL ACTION INDUSTRIES INC	exh_231.htm
EX-23.2 - EXHIBIT 23.2 - MEDICAL ACTION INDUSTRIES INC	exh_232.htm
EX-32.1 - EXHIBIT 32.1 - MEDICAL ACTION INDUSTRIES INC	exh_321.htm
EX-31.2 - EXHIBIT 31.2 - MEDICAL ACTION INDUSTRIES INC	exh_312.htm
EX-31.1 - EXHIBIT 31.1 - MEDICAL ACTION INDUSTRIES INC	exh_311.htm
EXCEL - IDEA: XBRL DOCUMENT - MEDICAL ACTION INDUSTRIES INC	Financial_Report.xls

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

AMENDMENT NO. 2

(Mark one)

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

For the fiscal year ended March 31, 2014

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

For the transition period from to

Commission file number: 000-13251

MEDICAL ACTION INDUSTRIES INC.

(Exact name of registrant as specified in its charter)

Delaware		11-2421849
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

500 Expressway Drive South, Brentwood, New York		11717
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (631) 231-4600

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Common Stock ($0.001 par value)		The NASDAQ Global Select Stock Market

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

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 whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 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. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]	Accelerated filer [X]	Non-accelerated filer [ ]	Smaller reporting company [ ]
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

The aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant as of September 30, 2013, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $108,834,000, based on the $6.64 closing sale price of the Common Stock on such date. Shares of Common Stock held by each officer and director of the registrant and by each person who may otherwise be deemed to be an affiliate have been excluded.

As of June 13, 2014, 16,390,628 shares of the registrant’s Common Stock were outstanding.

EXPLANATORY NOTE

Our company is filing this Amendment No. 2 on Form 10-K/A (the “Amendment”) to our annual report on Form 10-K for the period ended March 31, 2014 (the “Form 10-K”), filed with the Securities and Exchange Commission on June 16, 2014 (the “Original Filing Date”), to amend the date of the Report of Grant Thornton LLP, Independent Registered Public Accounting Firm, to June 14, 2012, to amend the reference thereto in the Report of KPMG LLP, Independent Registered Public Accounting Firm, and to update Exhibits 23.1, 23.2 and 101 in connection therewith.

This Amendment speaks as of the Original Filing Date, does not reflect events that may have occurred subsequent to the Original Filing Date, and, except with respect to the date modifications discussed above, does not modify or update in any way disclosures made in the Form 10-K. No other changes have been made to the Form 10-K.

Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the certifications required pursuant to the rules promulgated under the Exchange Act, as adopted pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, which were included as exhibits to the Form 10-K, have been amended, restated and re-executed as of the date of this Amendment and are included as Exhibits 31.1, 31.2 and 32.1 hereto.

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Financial Statements and Schedule:

Report of KPMG LLP, Independent Registered Public Accounting Firm	3

Report of Grant Thornton LLP, Independent Registered Public Accounting Firm	4

Consolidated Balance Sheets at March 31, 2014 and 2013	5

Consolidated Statements of Operations for the Years Ended March 31, 2014, 2013 and 2012	6

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended March 31, 2014, 2013 and 2012	7

Consolidated Statements of Stockholders’ Equity for the Years Ended March 31, 2014, 2013 and 2012	8

Consolidated Statements of Cash Flows for the Years Ended March 31, 2014, 2013 and 2012	9

Notes to Consolidated Financial Statements	10

Schedule II – Valuation and Qualifying Accounts	33

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Medical Action Industries Inc.:

We have audited the accompanying consolidated balance sheets of Medical Action Industries Inc. and subsidiaries as of March 31, 2014 and 2013, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for the years then ended. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule listed in Item 15(a)(2). These consolidated financial statements and financial statement schedule are the responsibility of Medical Action Industries Inc.’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. The accompanying consolidated financial statements of Medical Action Industries Inc. and subsidiaries for the year ended March 31, 2012, were audited by other auditors whose report thereon dated June 14, 2012 expressed an unqualified opinion on those statements, before the effects of the adjustments that were applied to the consolidated financial statements for the year ended March 31, 2012 to present Medical Action Industries Inc.’s Patient Care business unit as discontinued operations as described in note 3 to the consolidated financial statements.

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

In our opinion, the 2014 and 2013 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Medical Action Industries Inc. and subsidiaries as of March 31, 2014 and 2013, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited the adjustments described in note 3 that were applied to the consolidated financial statements for the year ended March 31, 2012 to present Medical Action Industries Inc.’s Patient Care business unit as discontinued operations. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the consolidated financial statements of Medical Action Industries Inc. and subsidiaries for the year end March 31, 2012 other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the consolidated financial statements for the year ended March 31, 2012 taken as a whole.

We also have audited, in accordance with the standards of Public Company Accounting Oversight Board (United States), Medical Action Industries Inc. and subsidiaries’ internal control over financial reporting as of March 31, 2014, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated June 16, 2014 expressed an unqualified opinion on the effectiveness of Medical Action Industries Inc. and subsidiaries’ internal control over financial reporting.

/s/ KPMG LLP

Melville, New York

June 16, 2014

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Medical Action Industries Inc.

We have audited, before the effects of the adjustments to retrospectively apply the change in accounting described in Note 3, the accompanying consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows of Medical Action Industries Inc. (a Delaware corporation) and subsidiaries (the “Company”) for the year ended March 31, 2012 (the 2012 consolidated financial statements before the effects of the adjustments discussed in Note 3 are not presented herein). Our audit of the consolidated financial statements included the financial statement schedule listed in the index appearing under Item 15(a)(2) for the year ended March 31, 2012. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above, which are before the effects of the adjustments to retrospectively apply the change in accounting described in Note 3, of Medical Action Industries Inc. and subsidiaries present fairly, in all material respects, the results of their operations and their cash flows for the year ended March 31, 2012 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule for the year ended March 31, 2012, when considered in relation to the consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in accounting described in Note 3, and accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by other auditors.

/s/ Grant Thornton LLP

New York, New York

June 14, 2012

Medical Action Industries Inc.

Consolidated Balance Sheets

(In thousands, except per share data)

	March 31,
	2014			2013
Current Assets
Cash and cash equivalents	$	97		$	558
Accounts receivable, less allowance for doubtful accounts of $501 at March 31, 2014 and $793 at March 31, 2013		32,890			32,615
Inventories, net		32,718			53,014
Prepaid expenses		913			1,424
Deferred income taxes		1,201			1,410
Prepaid income taxes		409			1,022
Other current assets		2,649			2,295
Assets held for sale, current		61,113			-

Total Current Assets	$	131,990		$	92,338

Property, plant and equipment, net		26,161			44,960
Goodwill		19,144			30,021
Other intangible assets, net		23,737			36,586
Other assets, net		2,912			2,994

Total Assets	$	203,944		$	206,899

Current Liabilities
Accounts payable	$	16,456		$	13,523
Accrued expenses		21,924			25,106
Current portion of capital lease obligations		226			176
Current portion of long-term debt		40,112			1,370
Liabilities held for sale, current		4,200			-

Total Current Liabilities	$	82,918		$	40,175

Other long-term liabilities		1,012			595
Deferred income taxes		6,482			6,415
Capital lease obligations, less current portion		13,245			13,475
Long-term debt, less current portion		-			51,330

Total Liabilities	$	103,657		$	111,990

Stockholders’ Equity

Common stock 40,000 shares authorized, $.001 par value; issued and outstanding 16,391 shares at March 31, 2014 and March 31, 2013		16			16
Additional paid-in capital, net		36,556			35,492
Accumulated other comprehensive loss		(651	)		(773	)
Retained earnings		64,366			60,174

Total Stockholders’ Equity	$	100,287		$	94,909

Total Liabilities and Stockholders’ Equity	$	203,944		$	206,899

See accompanying notes to the consolidated financial statements.

Medical Action Industries Inc.

Consolidated Statement of Operations

(In thousands, except per share data)

	Fiscal Year Ended March 31,
	2014		2013			2012
Net sales	$	287,849	$	284,763		$	272,734
Cost of sales		232,833		233,866			228,609
Gross profit	$	55,016	$	50,897		$	44,125
Goodwill impairment charge		-		77,780			-
Selling, general and administrative expenses		48,744		48,155			41,188
Operating income (loss)	$	6,272	$	(75,038	)	$	2,937
Interest expense, net		4,003		4,767			4,571
Income (loss) from continuing operations before income taxes and extraordinary gain	$	2,269	$	(79,805	)	$	(1,634	)

Income tax expense (benefit)		1,162		(21,751	)		283
Income (loss) from continuing operations before extraordinary gain	$	1,107	$	(58,054	)	$	(1,917	)
Income from discontinued operations, net of income taxes		3,085		3,198			1,643
Extraordinary gain, net of income taxes		-		-			455


Net income (loss)	$	4,192	$	(54,856	)	$	181


Basic earnings (loss) per share :
Net income (loss) from continuing operations, before extraordinary gain	$	0.07	$	(3.54	)	$	(0.12	)
Net income from discontinued operations	$	0.19	$	0.19		$	0.10
Extraordinary gain, net of income taxes	$	-	$	-		$	0.03
Net income (loss)	$	0.26	$	(3.35	)	$	0.01

Weighted-average common shares outstanding (basic)		16,391		16,391			16,391

Diluted earnings (loss) per share :
Net income (loss) from continuing operations, before extraordinary gain	$	0.07	$	(3.54	)	$	(0.12	)
Net income from discontinued operations	$	0.18	$	0.19			0.10
Extraordinary gain, net of income taxes	$	-	$	-		$	0.03
Net income (loss)	$	0.25	$	(3.35	)	$	0.01

Weighted-average common shares outstanding (diluted)		16,466		16,391			16,391

See accompanying notes to the consolidated financial statements.

Medical Action Industries Inc.

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

	Fiscal Year Ended March 31,
	2014		2013			2012

Net income (loss)	$	4,192	$	(54,856	)	$	181
Other comprehensive income (loss), net of tax:
Pension and postretirement plans, unrecognized gain (loss)		122		(56	)		(280	)
Total other comprehensive income (loss), net of tax		122		(56	)		(280	)
Comprehensive income (loss)	$	4,314	$	(54,912	)	$	(99	)

See accompanying notes to the consolidated financial statements.

Medical Action Industries Inc.

Consolidated Statements of Stockholders' Equity

(In thousands)

	Common Stock
	Shares		Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Loss			Retained Earnings			Total Stockholders’ Equity
Balance at March 31, 2011		16,383	$	16	$	33,799	$	(437	)	$	114,849		$	148,227

Net income				-		-		-			181			181
Pension liability adjustment, net of income tax of ($125)				-		-		(280	)		-			(280	)
Exercise of stock options, net		8		-		20		-			-			20
Amortization of deferred compensation				-		20		-			-			20
Tax effect from vesting/cancellation of stock under restricted management stock bonus plan and the exercise of options				-		51		-			-			51
Stock-based compensation				-		588		-			-			588
Balance at March 31, 2012		16,391	$	16	$	34,478	$	(717	)	$	115,030		$	148,807

Net loss				-		-		-			(54,856	)		(54,856	)
Pension liability adjustment, net of income tax of ($20)				-		-		(56	)		-			(56	)
Amortization of deferred compensation				-		9		-			-			9
Stock-based compensation				-		1,005		-			-			1,005
Balance at March 31, 2013		16,391	$	16	$	35,492	$	(773	)	$	60,174		$	94,909

Net income				-		-		-			4,192			4,192
Pension liability adjustment, net of income tax of ($35)				-		-		122			-			122
Amortization of deferred compensation				-		20		-			-			20
Stock-based compensation				-		1,044		-			-			1,044
Balance at March 31, 2014		16,391	$	16	$	36,556	$	(651	)	$	64,366		$	100,287

See accompanying notes to the consolidated financial statements.

Medical Action Industries Inc.

Consolidated Statements of Cash Flows

(In thousands)

	Fiscal Year Ended March 31,
	2014			2013			2012
Cash flows from operating activities:
Net income (loss)	$	4,192		$	(54,856	)	$	181
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Extraordinary gain		-			-			(700	)
Depreciation		4,729			5,048			5,720
Amortization		4,160			3,942			4,289
Goodwill impairment charge		-			77,780			-
Provision for allowance for doubtful accounts		(292	)		15			72
Deferred income taxes		276			(21,306	)		2,419
Stock-based compensation		1,064			1,014			608
Excess tax benefit from stock-based compensation		-			-			(300	)
Gain on sale of property and equipment		(124	)		-			-
Tax benefit from vesting of stock under restricted management stock bonus plan and exercise of stock options		-			-			51
Changes in operating assets and liabilities:
Accounts receivable		16			(1,785	)		1,198
Inventories		1,927			811			827
Prepaid expenses and other current assets		159			(8	)		328
Prepaid income taxes		613			257			659
Other assets		3,871			(902	)		(1,185	)
Accounts payable		2,933			2,228			(5,774	)
Accrued expenses and other		(6,843	)		7,510			(4,380	)
Net cash provided by operating activities		16,681			19,748			4,013

Cash flows from investing activities:
Purchase price and related acquisition costs		-			-			125
Purchases of property, plant and equipment		(3,405	)		(1,472	)		(907	)
Proceeds from sale of property and equipment		168			4			3
Net cash used in investing activities		(3,237	)		(1,468	)		(779	)

Cash flows from financing activities:
Proceeds from revolving line of credit and long-term borrowings		232,328			90,150			105,867
Principal payments on revolving line of credit and long-term borrowings		(244,916	)		(113,120	)		(105,333	)
Principal payments on capital lease obligations		(180	)		(136	)		(95	)
Proceeds from exercise of employee stock options		-			-			20
Deferred financing costs		(1,137	)		-			-
Net cash provided by (used in) financing activities		(13,905	)		(23,106	)		459

Net increase (decrease) in cash and cash equivalents	$	(461	)	$	(4,826	)	$	3,693
Cash and cash equivalents at beginning of year		558			5,384			1,691
Cash and cash equivalents at end of year	$	97		$	558		$	5,384

Supplemental disclosures:
Interest paid		2,951			4,314			4,505
Income taxes paid (refunded)		1,559			855			(1,304	)

See accompanying notes to the consolidated financial statements.

Notes to Consolidated Financial Statements

Medical Action Industries Inc. • March 31, 2014

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

COMPANY BACKGROUND AND DESCRIPTION OF BUSINESS

Medical Action Industries Inc. (“Medical Action” or the “Company”) was incorporated under the laws of the State of New York on April 1, 1977, and re-incorporated under the laws of the State of Delaware on November 5, 1987. Headquartered in Brentwood, New York, Medical Action develops, manufactures, markets and supplies a variety of disposable medical products. The Company’s products are marketed primarily to acute care facilities throughout the United States and certain international markets, and in recent years the Company has expanded its end-user markets to include physician, dental and veterinary offices, outpatient surgery centers and long-term care facilities. Medical Action is a leading manufacturer and supplier of custom procedure trays, collection systems for the containment of medical waste, minor procedure kits and trays, disposable patient utensils, sterile operating room towels and sterile laparotomy sponges. The Company’s products are marketed by its direct sales personnel and an extensive network of health care distributors. Medical Action has entered into preferred vendor agreements with national and regional distributors, as well as sole and multi-source agreements with group purchasing organizations. The Company also offers original equipment manufacturer products under private label programs to supply chain partners and medical suppliers. Medical Action’s manufacturing, packaging and warehousing activities are conducted in its Arden, North Carolina and Toano, Virginia facilities. The Company’s procurement of certain products and raw materials from the People’s Republic of China is administered by its office in Shanghai, China. During fiscal 2014, we also conducted manufacturing, packaging and warehousing activities at our Clarksburg, West Virginia and Gallaway, Tennessee facilities. These facilities were part of the assets sold in the Patient Care business unit divestiture completed on June 2, 2014 (the "Transaction"), as disclosed in Footnote 3 – Discontinued Operations.

All dollar amounts presented in the notes to consolidated financial statements are presented in thousands, except share and per share data.

BUSINESS SEGMENTS AND OTHER FINANCIAL INFORMATION

We operate as one reportable segment which is the manufacture and supply of disposable medical products. During the fiscal years ended 2014, 2013 and 2012 international sales approximated 2% of our total net sales and the net book value of our long-lived assets held outside of the United States were immaterial at March 31, 2014 and 2013.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, such as valuation of inventories, allowance for doubtful accounts, valuation of deferred tax assets, goodwill and other intangible assets, provision for trade rebates, pension benefits and accrued expenses, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

CASH EQUIVALENTS

The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents.

ACCOUNTS RECEIVABLE, ALLOWANCE FOR DOUBTFUL ACCOUNTS AND CONCENTRATION OF CREDIT RISK

Accounts receivable are comprised principally of trade accounts receivable that arise primarily from the sale of goods on account and are stated at historical cost. The Company performs ongoing credit evaluations on its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by a review of their current credit information. The Company continuously monitors collections and payments from customers and a provision for estimated credit losses is maintained based upon its historical experience and on specific customer collection issues that have been identified. While such credit losses have historically been within the Company’s expectations and the provisions established, the Company cannot guarantee that the same credit loss rates will be experienced in the future. Concentration risk exists relative to the Company’s accounts receivable, net, as Owens & Minor, Inc. and Cardinal Health Inc., (the “Distributors”) accounted for approximately 60% and 64% of accounts receivable, respectively as of March 31, 2014 and 2013. While the accounts receivable related to these Distributors may be significant, the Company does not believe the credit risk to be significant given their consistent payment history.

TRADE REBATES

The Company provides rebates to distributors that sell to end-user customers at prices determined under a contract between the Company and the end-user customer or distributor. The Company deducts all rebates from sales and has a provision for allowances based on historical information for all rebates that have not yet been processed. The provision for trade rebates (which is included in accounts receivable) amounted to $14,331 and $14,807 at March 31, 2014 and 2013, respectively.

INVENTORIES, NET

Inventories are stated at the lower of cost or market net of reserve for excess, slow moving and obsolete inventory. Cost is determined by the first-in, first-out method.

PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Leases meeting the criteria for capitalization are recorded at the present value of future minimum lease payments. Maintenance and repairs are charged to operations as incurred and expenditures for major improvements are capitalized. The carrying amount and related accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts and any resulting gain or loss is reflected in operations in the year of disposal. Accelerated methods of depreciation are used for tax purposes.

A summary of property, plant and equipment, net, is as follows:

	March 31,
	2014		2013

Land and buildings	$	19,079	$	29,751
Property under capital lease		11,409		11,409
Machinery and equipment		8,520		36,326
Furniture and fixtures		3,161		3,351
Computer hardware and software		1,546		2,192
Total property, plant and equipment		43,715		83,029
Less accumulated depreciation and amortization		17,554		38,069
Property, plant and equipment, net	$	26,161	$	44,960

At March 31, 2014, the Company reclassed $17,431 ($41,629 of gross carrying amount, less accumulated depreciation of $24,198) to reflect the property, plant and equipment that are included in the assets held for sale related to the Transaction, as disclosed in Footnote 3 – Discontinued Operations.

Depreciation is calculated on the straight-line method over the estimated useful lives of the assets as follows:

Buildings (years)		40
Machinery and equipment (years)	5	-	20
Furniture and fixtures (years)	3	-	10
Computer hardware and software (years)	2	-	7

Leasehold improvements are depreciated over the shorter of the estimated useful life or the term of the lease.

Depreciation and amortization of property, plant and equipment amounted to $2,042, $2,259, and $2,890, for fiscal 2014, 2013, and 2012, respectively.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets consist of the excess of the purchase price over the fair value of net assets acquired (goodwill) and other intangible assets (principally customer relationships, trademarks and tradenames). Values assigned to the respective assets are determined in accordance with ASC 805, Business Combinations and ASC 350, Intangibles – Goodwill and Other.

Goodwill and intangible assets with indefinite useful lives are required to be tested for impairment at least annually or more frequently if an event occurs or circumstances change that could more likely than not reduce the fair value of a reporting unit below its carrying amount. Intangible assets with estimable useful lives are required to be amortized over their respective estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

The Company conducts its goodwill and intangible assets with indefinite lives as of December 31 of each year. The Company assesses the impairment of its goodwill by determining its fair value and comparing the fair value to its carrying value. For goodwill impairment testing purposes, the Company has determined that it operates under one reporting unit.

The Company’s annual step one impairment testing as of December 31, 2012 indicated that the fair value of the Company was estimated to be less than its related carrying value. The fair value of the Company was estimated using a discounted cash flow and guideline company model. As a result of the step one testing, management determined that the goodwill balance of the Company was impaired and step two testing was necessary.

Step two of the goodwill test consists of performing a hypothetical purchase price allocation, under which the estimated fair value of the Company is allocated to its tangible and intangible assets based on their estimated fair values, with any residual amount being assigned to goodwill. During the step two analysis, it was determined that book value approximated fair value for the components of working capital except for finished goods and work-in-process inventory which was determined based on estimated selling prices less distribution costs and profit and costs to complete manufacture. Owned real estate and buildings were valued using recently completed real estate appraisals. Other property, plant and equipment items were valued using current market value estimates. The intangible assets related to customer relationships were valued using a present value of debt-free cash flow model and the trade names were valued using the relief-from-royalty model.

The models used to determine the fair value of the Company in step one and the intangible assets in step two relied heavily on management’s assumptions. These assumptions, which are significant to the calculated fair values, are considered Level 3 inputs under the fair value hierarchy established by ASC 820 – Fair value measurement and disclosures , as they are unobservable. The assumptions in step one included a discount rate, revenue growth rates, tax rates and operating margins. In addition, the step two assumptions included customer attrition rates and royalty rates. The discount rate represents the expected return on capital. The discount rate was determined using a target structure of 15% debt and 85% equity. The Company used the 20-year U.S. Treasury bond yield to determine the risk-free rate in its weighted average cost of capital calculation. The projected growth rates and terminal growth rates are primarily driven by management’s estimate of future performance, giving consideration to historical performance and existing and anticipated economic and market conditions. Attrition assumptions used to value customer relationships are based on historical experience and management estimates based on historical financial information. To determine the royalty rates used to value trade names, the Company used industry benchmarks from licensing transactions. The assumption for tax rates are based on management’s estimates of blended federal and state income tax rates. Operating margin assumptions are based management’s estimate of future performance, giving consideration to historical performance and projected economic and competitive conditions.

During fiscal 2013 the preliminary impairment analysis conducted at December 31, 2012 concluded that $78,609 of goodwill was impaired, which was recorded in the Company’s condensed consolidated statement of operations for the nine months ended December 31, 2012. Due to the complexity of the analysis which involved completion of fair value analyses and the resolution of certain significant assumptions, management finalized this goodwill impairment charge in the fourth quarter of fiscal 2013 by reducing the initial goodwill impairment charge by $829 to $77,780. Previous and subsequent analyses of goodwill did not indicate an impairment, therefore the amounts of impairment incurred during the fiscal year ended March 31, 2013 represent the cumulative amount of goodwill impairment charges as of March 31, 2014.

Changes in the carrying amount of goodwill were as follows:

Balance, March 31, 2012	$	107,801
Goodwill impairment charge		(77,780	)
Balance, March 31, 2013	$	30,021
Amounts reclassified to assets held-for-sale		(10,877	)
Balance, March 31, 2014	$	19,144

The book values, accumulated amortization and original useful life by asset class of the Company’s other intangible assets as of March 31, 2014 and 2013 are as follows:

			March 31, 2014							March 31, 2013
	Weighted Average Remaining Amortization Period (Years)		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Trademarks/Tradenames not subject to amortization		na	$	569	$	-		$	569	$	1,266	$	-		$	1,266
Trademarks subject to amortization (5 years)		1.4		2,100		(1,505	)		595		2,100		(1,085	)		1,015
Customer Relationships (20 years)		16.4		27,500		(4,927	)		22,573		43,200		(8,927	)		34,273
Intellectual Property (7 Years)		na		-		-			-		400		(368	)		32
Total			$	30,169	$	(6,432	)	$	23,737	$	46,966	$	(10,380	)	$	36,586

At March 31, 2014, the Company reclassed $10,236 ($18,997 of gross carrying amount, less accumulated amortization of $8,761) to reflect the customer relationships and other intangible assets that are included in the assets held for sale related to the Transaction, as disclosed in Footnote 3 – Discontinued Operations.

The amortization expense for other intangible assets amounted to $1,795, $1,795, and $1,795 for fiscal 2014, 2013, and 2012, respectively. Estimated amortization expense related to these intangibles for the five succeeding fiscal years is as follows:

Fiscal Year	Amount
2015	$	1,795
2016		1,550
2017		1,375
2018		1,375
2019		1,375

The Company evaluates trademarks with indefinite lives annually to determine whether events or circumstances continue to support the indefinite useful life. No impairments of such assets were identified in fiscal 2014, 2013, and 2012. No trademarks were determined to have finite useful lives in any of the periods presented, with the exception of the trademarks acquired in the AVID acquisition, which have a useful life of 5 years.

ACCOUNTS PAYABLE

Cash overdrafts are included in accounts payable. Such cash book overdrafts amounted to $5,690 and $5,372 at March 31, 2014 and 2013, respectively. For cash flow disclosure purposes, the Company reports the cash book overdrafts as an operating activity as opposed to a financing activity.

DEFERRED FINANCING COSTS

The Company has incurred costs in obtaining financing. These costs of approximately $1,068 as of March 31, 2014 are included in other assets and are being amortized over the life of the related financing arrangements through fiscal 2019. Total accumulated amortization was approximately $240 and $882 at March 31, 2014 and 2013, respectively. In connection with the Company’s debt refinancing in May 2013 (see Footnote 8 – Long-Term Debt), the net balance of deferred financing costs associated with the Company’s prior debt was charged to operations during the twelve months ending March 31, 2014.

INCOME TAXES

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

We must also assess the likelihood that deferred tax assets will be realized and, based on this assessment establish a valuation allowance, if required. The determination of our valuation allowance involves assumptions, judgments, and estimates, including forecasted earnings, future taxable income, and the relative proportions of revenue and income before taxes in the various state and local jurisdictions in which we operate. To the extent we establish a valuation allowance or change the valuation allowance in a period, we reflect the change with a corresponding increase or decrease to our tax provision in our consolidated statement of operations.

We are also required to compute our current income tax expense in each federal, state, and local jurisdiction in which we operate. Our judgments, assumptions, and estimates relative to the current provision for income tax take into account current tax laws, our interpretation of current tax laws, and possible outcomes of current and future audits. Changes in tax laws or our interpretation of tax laws and the resolution of current and future tax audits could significantly impact the amounts provided for income taxes in our consolidated balance sheet and consolidated statement of operations.

In accordance with the provisions of ASC 740, Income Taxes, we recognize in our financial statements only those tax positions that meet the more-likely-than-not-recognition threshold. For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon settlement. For those tax positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit has been recognized in the consolidated financial statements. Interest and penalties associated with income tax matters are included in the provision for income taxes in our consolidated statements of operations. The provisions of ASC 740 did not have a material impact on our consolidated financial position.

CURRENCY

All of the Company’s sales and purchases were transacted in U.S. dollars.

STOCK-BASED COMPENSATION

The Company recorded stock-based compensation expense for the fair value of non-qualified stock options and restricted stock granted under its stock plans in accordance with the provisions of ASC 718, Stock Compensation.

EARNINGS (LOSS) PER SHARE INFORMATION

Basic earnings (loss) per share is based on the weighted average number of common shares outstanding without consideration of potential common stock. Diluted earnings (loss) per share is based on the weighted average number of common and potential common shares outstanding. The calculation takes into account the shares that may be issued upon exercise of stock options and restricted stock, reduced by the shares that may be repurchased with the funds received from the exercise, based on average prices during the year.

REVENUE RECOGNITION

Revenue from the sale of products is recognized when the Company meets all of the criteria specified in ASC 605, Revenue Recognition. These criteria include:

• Persuasive evidence of an arrangement exists,

• Delivery has occurred or services have been rendered,

• The seller’s price to the buyer is fixed or determinable and

• Collection of the resulting receivable is reasonably assured.

Customer purchase orders and/or sales agreements evidence the Company’s sales arrangements. These purchase orders and sales agreements specify both selling prices and quantities, which are the basis for recording sales revenue. Any deviation from this policy requires management review and approval. Trade terms are negotiated on a customer by customer basis and for the majority of the Company’s sales include that title and risk of loss pass from the Company to the customer when the Company ships products from its facilities, which is when revenue is recognized. In instances of shipments made on consignment, revenue is deferred until a customer indicates to the Company that it has used the Company’s products. The Company conducts ongoing credit evaluations of its customers and ships products only to customers that satisfy its credit evaluations. Products are shipped primarily to distributors at an agreed upon list price. Distributors then resell the products primarily to hospitals and depending on agreements between the Company, the distributors and the hospitals, the distributors may be entitled to a rebate. The Company deducts all rebates from sales and has a provision for allowances based on historical information for all rebates that have not yet been processed.

BUSINESS CONCENTRATIONS AND MAJOR CUSTOMERS

The Company manufactures and distributes disposable medical products principally to medical product distributors and hospitals located throughout the United States. The Company performs credit evaluations of its customers’ financial condition and does not require collateral. Receivables are generally due within 30 – 90 days. Credit losses relating to customers have historically been minimal and within management’s expectations.

Sales to Owens & Minor, Inc. and Cardinal Health Inc., (the “Distributors”) accounted for approximately 45% and 19% of net sales, respectively for fiscal 2014, 41% and 22% of net sales, respectively for fiscal 2013 and 44% and 22% of net sales, respectively for fiscal 2012. Although the Distributors may be deemed in a technical sense to be major purchasers of the Company’s products, they typically serve as a distributor between the end user and the Company and do not make significant purchases for their own account. The Company, therefore, does not believe it is appropriate to include the Distributors when evaluating customer concentrations.

A significant portion of the Company’s raw materials are purchased from China. All such purchases are transacted in U.S. dollars. The Company’s financial results, therefore, could be impacted by factors such as foreign currency exchange rates or weak economic conditions in foreign countries in the procurement of such raw materials should our suppliers increase prices to account for changes in foreign exchange rates.

FREIGHT AND DISTRIBUTION COSTS

Freight costs, which consist primarily of freight costs paid to third party carriers amounted to $6,323, $6,521 and $9,324 for fiscal 2014, 2013 and 2012, respectively, and are included in cost of sales. Distribution costs, which consist primarily of the salaries, warehousing and related expenses associated with the storing, packing and shipping costs of our products amounted to $3,249, $2,931 and $2,422 for fiscal 2014, 2013, and 2012, respectively, and are included in selling, general and administrative expenses.

PRODUCT DEVELOPMENT COSTS

Product development costs which are expensed as incurred were $1,171, $1,862, and $1,921 for fiscal 2014, 2013, and 2012, respectively, and are included as a component of selling, general and administrative expenses.

ADVERTISING COSTS

Advertising costs charged to expense, as incurred, were $6, $41, and $20, for fiscal 2014, 2013 and 2012, respectively.

FAIR VALUE MEASUREMENTS

We are required to record certain assets and liabilities at fair value and to make disclosures about the fair value of certain other assets and liabilities. Fair value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. In the absence of active markets for identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date.

Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. Preference is given to observable inputs. These two types of inputs create the following fair value hierarchy:

Level 1 – Quoted prices for identical instruments in active markets.

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 – Significant inputs to the valuation model are unobservable.

IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

PRESENTATION OF AN UNRECOGNIZED TAX BENEFIT WHEN A NET OPERATING LOSS CARRYFORWARD, A SIMILAR TAX LOSS, OR A TAX CREDIT CARRYFORWARD EXISTS

In July 2013, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-11 relating to income taxes (FASB ASC 740 – Income Taxes), which provides guidance on the presentation of unrecognized tax benefits. The intent is to better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. We are evaluating the impact that the adoption of this standard may have on our consolidated financial statements.

INDEFINITE-LIVED INTANGIBLE ASSETS IMPAIRMENT TESTING

In July 2012, the FASB issued ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment (“ASU 2012-02”), which amended the provisions of FASB ASC 350, Intangibles - Goodwill and Other. ASU 2012-02 permits an entity to make a qualitative assessment of whether it is more likely than not that an indefinite-lived intangible asset is less than its carrying amount before applying the second step of the impairment test. If an entity concludes that it is not more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, it would not be required to perform the second step of the impairment test for that indefinite-lived intangible asset. The new standard is effective for annual and interim indefinite-lived intangible assets impairment tests performed in fiscal years beginning after December 15, 2012, which for us was April 1, 2013. We adopted this amended guidance in the third quarter of fiscal 2014. The adoption of this guidance did not impact our financial position or results of operations.

2. BUSINESS ACQUISITIONS

On August 27, 2010, the Company completed its acquisition of AVID, a provider of custom procedure trays to the healthcare industry, in which the Company acquired the outstanding shares of common stock of AVID for $62,550. During fiscal 2012, the Company recorded $125 in final purchase price adjustments. The purpose of this acquisition is to expand our product line offering into custom procedure trays to augment our existing product classes and expand our market presence in clinical care areas of acute care facilities and surgery centers throughout the country.

3. DISCONTINUED OPERATIONS

On March 12, 2014, the Company entered into a purchase agreement with an affiliate of Inteplast Group, Ltd. for the sale of the Company’s wholly owned subsidiary, Medegen Medical Products, LLC, and certain other assets which comprised the Company’s Patient Care business unit (the “Transaction”). The Company retained the cash, accounts receivable and all liabilities associated with the business unit except for an environmental liability. On June 2, 2014, the Company completed the sale of its Patient Care business unit for gross proceeds of $78,628, subject to customary post-closing adjustments (see Footnote 15 – Subsequent Events).

As of March 31, 2014, the Company has classified the assets and liabilities subject to the purchase agreement as held for sale and presented the results of operations of the Patient Care business unit for fiscal years 2014, 2013 and 2012 as discontinued operations in the accompanying consolidated statements of operations.

The aggregate components of the assets and liabilities classified as held for sale, are as follows;

	March 31, 2014
Asset held for sale:
Inventories, net	$	18,369
Property, plant and equipment, net		17,431
Goodwill		10,877
Other intangible assets, net		10,236
Other assets, net		4,200
Total assets held for sale, current	$	61,113

Liabilities held for sale:
Other liabilities	$	4,200
Total liabilities held for sale, current	$	4,200

The following table summarizes the results of the Company’s discontinued operations;

	Fiscal Year-Ended March 31,
	2014		2013		2012
Net sales	$	145,882	$	156,830	$	164,588
Cost of sales		125,476		135,358		143,771
Selling, general and administrative expenses		15,584		16,122		18,185
Income from discontinued operations before income taxes		4,822		5,350		2,632
Income tax		1,737		2,152		989
Income from discontinued operations, net of income taxes	$	3,085	$	3,198		1,643

4. INVENTORIES, NET

Inventories, which are stated at the lower of cost (first-in, first-out) or market, consist of the following:

	March 31,
	2014		2013
Finished goods, net	$	15,582	$	30,531
Raw materials, net		10,367		17,766
Work in progress, net		6,769		4,717
Total, net	$	32,718	$	53,014

At March 31, 2014, the Company reclassed $18,369 ($19,156 of inventories, less provisions for slow moving, excess and obsolete inventory of $787) to reflect the inventories that are included in the assets held for sale related to the Transaction, as disclosed in Footnote 3 – Discontinued Operations.

On a continuing basis, inventory quantities on hand are reviewed and an analysis of the provision for slow moving, excess and obsolete inventory is performed based primarily on the Company’s sales history and anticipated future demand. Such provision for slow moving, excess and obsolete inventory approximated $953 and $1,091 at March 31, 2014 and 2013, respectively.

In fiscal 2013 we identified an overstatement of inventories at our West Virginia location that arose during the five year period ended March 31, 2012 and the nine months ended December 31, 2012. After consideration of both quantitative and qualitative factors, we determined the amounts were not material to any of those prior period financial statements or the fiscal 2013 consolidated results of operations and thus corrected the inventory balance in the fiscal year 2013 and the three months ended March 31, 2013. The adjustment resulted in a reduction of inventory of $829, with a corresponding increase in cost of sales in the consolidated statement of operations for the fiscal year ended March 31, 2013.

5. INCOME TAXES

Income tax expense related to continuing operations consists of the following:

	Fiscal Year Ended March 31,
	2014			2013			2012
Current:
Federal	$	1,064		$	(20,627	)	$	-
State		601			(1,124	)		-
Deferred		(503	)		-			283
	$	1,162		$	(21,751	)	$	283

The following table indicates the significant elements contributing to the difference between the statutory federal tax rate and the Company’s effective tax rate on income from continuing operations for fiscal years 2014, 2013, and 2012:

	Fiscal Year Ended March 31,
	2014			2013			2012
Tax at federal statutory rate		35.0	%		35.0	%		35.0	%
State taxes, net of federal benefit		17.7			1.7			(0.9	)
Net non-deductible expenses		(0.6	)		-			(5.1	)
Non-deductible goodwill impairment charge		-			(9.1	)		-
Increase in valuation allowance		(0.9	)		(0.3	)		(46.4	)
Effective tax rate		51.2	%		27.3	%		(17.4	)%

The components of deferred tax assets and deferred tax liabilities at March 31, 2014 and 2013 are as follows:

	March 31,
	2014			2013
Deferred tax assets:
Stock-based compensation	$	2,553		$	2,209
Inventory reserve		844			567
Allowance for doubtful accounts		250			333
Accrued expenses		440			720
Net state operating loss carryforwards of acquired company		1,288			1,037
Capital leases		5,483			5,396
		10,858			10,262
Valuation allowance		(1,017	)		(1,037	)
Total deferred tax assets	$	9,841		$	9,225

Deferred tax liabilities:
Goodwill	$	8,127		$	6,356
Depreciation and amortization		6,995			7,874
Total deferred tax liabilities	$	15,122		$	14,230
Net deferred tax liability	$	5,281		$	5,005

In assessing whether the deferred tax asset is realizable, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

The Company maintains a valuation allowance against certain state net operating loss carry forwards as the Company could not conclude that it will be able to utilize the state net operating loss carry forwards on a more-likely-than-not basis. During fiscal 2014, the Company decreased its valuation allowance by $20. As of March 31, 2014, the Company’s valuation allowance amounted to $1,017.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:

Balance at March 31, 2012	$	21
Additions based on tax positions taken in the current and prior years		526
Balance at March 31, 2013	$	547
Additions based on tax positions taken in the current and prior years		340
Balance at March 31, 2014	$	887

The Company records accrued interest and penalties related to income tax matters in the provision for income taxes in the accompanying consolidated statement of operations. The accrued gross interest and penalties were $125 as of March 31, 2014 and $48 as of March 31, 2013. In addition, the Company believes that the uncertain tax positions will not materially change within the next twelve months.

The Company is subject to taxation by the U.S. Government and various state and local jurisdictions. The Company’s U.S. federal tax return and most state jurisdictions remain open to examination for the fiscal year ended March 31, 2011 through March 31, 2014. During fiscal 2014, the Company concluded a New York State examination for the fiscal years ended March 31, 2011, 2010 and 2009 with an immaterial assessment. The Company is currently subject to income tax audits in New Jersey and Massachusetts, however, the examinations are preliminary.

6. ACCRUED EXPENSES

Accrued expenses consist of the following:

	March 31,
	2014		2013
Accrued accounts payable	$	6,219	$	7,488
Accrued bonuses		4,109		1,825
Employee compensation and benefits		3,025		3,022
Other accrued liabilities		2,291		1,887
Accrued distributor fees		2,011		3,608
Group purchasing organization fees		1,977		1,569
Freight and duty		901		1,270
Professional fees		767		1,178
Commissions		624		768
Book cash overdraft		-		2,491
Total accrued expenses	$	21,924	$	25,106

7. LEASES AND RELATED PARTY TRANSACTIONS

As part of the assets and liabilities acquired as a result of the AVID acquisition, the Company assumed a capital lease obligation for the AVID facility located in Toano, Virginia. The facility, which includes a 185,000 square foot manufacturing and warehouse building and approximately 12 acres of land, is owned by an affiliate of Micpar Realty, LLC (“Micpar”). AVID’s founder, former CEO and former principal stockholder, is a part owner of Micpar and subsequent to the acquisition of AVID was appointed to the Company’s board of directors. As of August 2012, he no longer served on the Company’s board of directors. As of March 31, 2014, the capital lease requires monthly payments of $129 with increases of 2% per annum. The lease contains provisions for an option to buy January 2015 and expires in March 2029. The effective rate on the capital lease obligation is 9.9%.

The gross and net book value of the assets under the capital lease are as follows:

	March 31,
	2014			2013
Capital lease, gross	$	11,409		$	11,409
Less: accumulated amortization		(2,200	)		(1,586	)
Capital lease, net	$	9,209		$	9,823

The amortization expense associated with the capital lease amounted to $614, of which $141 is included in cost of sales and the remaining $473 is recorded in selling, general and administrative expenses.

The Company also leases certain equipment, vehicles and office facilities under non-cancelable operating leases expiring in various years though fiscal 2020.

As of March 31, 2014, the Company was obligated under non-cancelable operating leases and capital leases for equipment, vehicles and office, warehousing and manufacturing facilities for minimum annual rental payments as follows:

Fiscal Year	Capital Lease			Operating Leases
2015	$	1,549		$	1,030
2016		1,580			791
2017		1,611			75
2018		1,643			63
2019		1,676			30
Thereafter		18,722			-
Total minimum lease payments	$	26,781			1,989
Less: Amounts representing interest		(13,310	)
Present value of minimum lease payments		13,471
Less: Current portion of capital lease obligations		(226	)
Long-term portion of capital lease obligations	$	13,245

Rental expense under operating leases amounted to $628, $579, and $488 during fiscal 2014, 2013, and 2012, respectively.

A current member of our board of directors is currently a minority shareholder of Custom Healthcare Systems (“CHS”), an assembler and packager of Class 1 medical products. CHS is a supplier to our AVID facility located in Toano, Virginia for small kits and trays. They also purchase sterile instruments from our facility located in Arden, North Carolina.

During the twelve months ended March 31, 2014 and 2013, the amounts sold to and purchased from CHS are as follows:

	March 31,
	2014		2013

Sold to CHS	$	1,074	$	964
Purchased from CHS		1,729		1,861

The following table represents the amounts due from and due to CHS:

	March 31,
	2014		2013

Due from CHS	$	330	$	265
Due to CHS		14		45

8. LONG-TERM DEBT

Long-term debt consists of the following:

	March 31,
	2014		2013
Revolving loans	$	29,976	$	4,700
Term loan		10,136		48,000
Total outstanding	$	40,112	$	52,700

Less: current portion		40,112		1,370
Total long-term debt	$	-	$	51,330

On May 17, 2013, the Company entered into a credit agreement (the “New Credit Agreement”), among the Company, as borrower and Wells Fargo Bank, National Association, as administrative agent and lender. The New Credit Agreement provides for a maximum borrowing capacity of $65,000 consisting of the following loans: (1) a $11,505 secured term loan (the “Term Loan”) fully drawn by the Company on May 17, 2013, (2) $5,000 in unsecured delayed draw term loans (collectively, the “Delayed Draw Term Loans”) and (3) up to $53,495 in revolving loans (collectively, the “Revolving Loans”), which may be reduced by the amount of any outstanding Delayed Draw Term Loans drawn by the Company. The proceeds from the New Credit Agreement were used to repay the Prior Credit Agreement (as described below). This repayment took place on June 2, 2014 commensurate with the completion of the divestiture of the Patient Care business unit. Consequently, the entire outstanding balance has been classified as current on our balance sheet as of March 31, 2014.

The Revolving Loans will be used to finance the working capital needs and general corporate purposes of the Company and for permitted acquisitions. The Term Loan and Revolving Loan mature on May 17, 2018. The commitments with respect to the Delayed Draw Term Loans terminate on May 17, 2015 and any Delayed Draw Term Loans drawn by the Company also mature on May 17, 2015. The Term Loan amortizes in consecutive monthly installments, each in the principal amount of $137, commencing June 1, 2013. Any Delayed Draw Term Loan drawn by the Company will amortize in consecutive monthly installments, each in the principal amount equal to the result of (1) the original principal amount of such Delayed Draw Term Loan divided by (2) the number of months remaining from the date the Delayed Draw Term Loan was drawn until May 17, 2015. Any undrawn commitments under the Delayed Draw Term Loans will be reduced by $208 on each calendar month, commencing June 1, 2013.

In the event the outstanding principal amount of the Term Loan exceeds the sum of (1) a specified percentage of the value of real property (calculated at least twice during the term of the New Credit Agreement) and (2) a specified percentage of the value of equipment (calculated at least once per calendar year), we will be required to prepay the excess. The Revolving Loans are subject to a borrowing base such that the total outstanding Revolving Loans may not exceed specified percentages of the value of eligible receivables and finished goods, raw materials, work-in-process and in-transit inventory, all calculated at least monthly. In the event the outstanding principal amount of Revolving Loans under the New Credit Agreement exceeds this borrowing base, the Company will be required to prepay the excess.

Term Loans outstanding under the New Credit Agreement bear interest at a rate per annum equal to, at the election of the Company, (1) LIBOR Rate (as defined in the New Credit Agreement) plus a margin ranging from 2.50% to 3.00%, depending on the Average Access Availability (as defined in the New Credit Agreement) at the time of calculation, or (2) Base Rate (as defined in the New Credit Agreement) plus a margin ranging from 1.50% to 2.00%, depending on the Average Access Availability at the time of calculation. Revolving Loans outstanding under the New Credit Agreement will bear interest at a rate per annum equal to, at the election of the Company, (i) LIBOR Rate plus a margin ranging from 2.00% to 2.50%, depending on the Average Access Availability at the time of calculation, or (ii) Base Rate plus a margin ranging from 1.00% to 1.50%, depending on the Average Access Availability at the time of calculation. Additionally, the Company is required to pay an unused line fee at a rate per annum ranging from 0.375% to 0.50% on the daily unused amount of the Revolving Loan commitments of the Lender during the period for which the payment is made, payable monthly in arrears. If drawn, Delayed Draw Term Loans outstanding under the New Credit Agreement will bear interest at a rate per annum equal to, at the election of the Company, (1) LIBOR Rate plus a margin ranging from 4.25% to 4.75%, depending on the Average Access Availability at the time of calculation, or (2) Base Rate plus a margin ranging from 3.25% to 3.75%, depending on the Average Access Availability at the time of calculation.

During fiscal 2014, the average interest rate on the Term Loan under the New Credit Agreement approximated 2.86% and the average interest rate on the Revolving Loans under the New Credit Agreement approximated 3.22%.

Borrowings under the New Credit Agreement are collateralized by substantially all the assets of, and are fully guaranteed by, the Company and its subsidiaries. The New Credit Agreement contains certain restrictive covenants, including, among others, covenants limiting our ability to incur indebtedness, grant liens, guarantee obligations, sell assets, make loans and investments, enter into merger and acquisition transactions, and declare or make dividends. The Company committed to certain post-closing conditions, including providing monthly financial statements, annual updates of financial projections, and the filing of a mortgage on the Company’s Brentwood, New York corporate headquarters. If the Company’s Excess Availability (as defined in the New Credit Agreement) falls below a specified amount, the Company will become subject to financial covenants relating to a minimum fixed charge coverage ratio of 1.00 to 1.00, measured on a month-end basis. If the Company draws a Delayed Draw Term Loan, the Company will be required to comply with a maximum leverage financial ratio covenant ranging from 3:00 to 1:00 to 3.25 to 1:00, measured on a month-end basis.

On June 2, 2014, the Company entered into the First Amendment to Credit Agreement and Guaranty and Security Agreement (the “Amendment”), among the Company, as borrower, and Wells Fargo Bank, National Association, as administrative agent and lender (the “Lender”).

The Amendment amended the terms of the New Credit Agreement that the Company entered into with the Lender on May 17, 2013, as follows: (a) the Lender’s maximum total loan commitments under the Credit Agreement were reduced from $65,000 to $55,000, (b) provided no Event of Default (as defined in the Credit Agreement) occurs and is continuing, the unused line fee (the “Unused Line Fee”) that the Company is required to pay the Lender, has been capped at 0.375% of the daily unused amount of the revolving loan commitments of the Lender during the period for which the payment is made, through and including December 31, 2014, and (c) solely for purposes of calculating the Unused Line Fee, the aggregate amount of the Lender’s revolving loan commitments was deemed to be the lesser of $30,000 and the actual aggregate amount of the Lender’s revolving loan commitments.

As a result of the Transaction, the Company repaid all amounts outstanding on both the Revolving and Term loans under the New Credit Agreement subsequent to year end and has recorded all amounts due related to the New Credit Agreement as current as of March 31, 2014.

The Company had unamortized financing costs of $1,068 and $879 in other assets, net as of March 31, 2014 and 2013, respectively. Of the amount at March 31, 2014, approximately $216 is related to the Term Loan and, as a result of the Transaction, will be charged to interest expense during the three months ending June 30, 2014. The remaining balance represents costs associated with the Revolving Loans and will be amortized over the remaining life of the New Credit Agreement using the straight-line interest method.

On June 7, 2012, the Company entered into the Second Amended and Restated Credit Agreement (the “Prior Credit Agreement”) with certain lenders and JPMorgan Chase Bank, N.A. acting as administrative agent for the lenders. The Prior Credit Agreement provided the Company with total borrowings of up to $76,000, consisting of (1) a secured term loan with a principal amount of $51,000 and (2) a secured revolving credit facility, which amounts may be borrowed, repaid and re-borrowed up to $25,000. Both the term loan and the revolving credit facility bore interest at LIBOR plus 4% under the terms of the Prior Credit Agreement. The average interest rate on the term loan under the Prior Credit Agreement approximated 6.25% during the fiscal year ended March 31, 2014, and the average interest rate on the revolving credit facility under the Prior Credit Agreement approximated 4.25% during the fiscal year ended March 31, 2014.

On May 17, 2013, a portion of the proceeds from the New Credit Agreement was used to repay all amounts owed under the Prior Credit Agreement. Upon such repayment, all obligations under the Prior Credit Agreement were satisfied and the agreement was terminated.

9. FAIR VALUE MEASUREMENTS

Due to their maturities and/or variable interest rates, certain financial instruments have fair values that approximate their carrying values. These instruments include cash and cash equivalents, accounts receivable, trade payables and our outstanding debt under the Company’s term loan and revolving credit facility. The book value and the fair value of the Company’s capital lease obligation amounted to $13,471 and $15,479, respectively as of March 31, 2014. The fair value was determined based on the Company’s current incremental borrowing rate and is considered a Level 3 input. As discussed in Note 1 – Organization and Summary of Significant Accounting Policies, Goodwill and Other Intangible Assets, Level 3 inputs were used in the fair value calculation related to the step-one impairment analysis as well as the fair value calculation of the Company’s property, plant and equipment, inventories, capital lease and other intangible assets in the step-two impairment analysis during the year ended March 31, 2013.

10. EARNINGS (LOSS) PER SHARE

The following is a reconciliation of the numerator and denominator of the basic and diluted net earnings (loss) per share computations for fiscal 2014, 2013, and 2012, respectively.

	March 31,
	2014		2013			2012
Numerator :
Income (loss) from continuing operations before extraordinary gain	$	1,107	$	(58,054	)	$	(1,917	)
Income (loss) from discontinued operations, net of income taxes (Footnote 3)		3,085		3,198			1,643
Extraordinary gain (net of tax expense) (Footnote 13)		-		-			455
Net income (loss) for basic and dilutive earnings per share	$	4,192	$	(54,856	)	$	181


Denominator :
Denominator for basic earnings per share - weighted average shares		16,391		16,391			16,391

Effect of dilutive securities:
Employee and director stock options		75		-			-
Denominator for diluted earnings per share - adjusted weighted average shares		16,466		16,391			16,391

Basic earnings (loss) per share :
Net income (loss) from continuing operations, before extraordinary gain	$	0.07	$	(3.54	)	$	(0.12	)
Net income from discontinued operations	$	0.19	$	0.19		$	0.10
Extraordinary gain, net of income taxes	$	-	$	-		$	0.03
Net income (loss)	$	0.26	$	(3.35	)	$	0.01

Diluted earnings (loss) per share :
Net income (loss) from continuing operations, before extraordinary gain	$	0.07	$	(3.54	)	$	(0.12	)
Net income from discontinued operations	$	0.18	$	0.19		$	0.10
Extraordinary gain, net of income taxes	$	-	$	-		$	0.03
Net income (loss)	$	0.25	$	(3.35	)	$	0.01

Excluded from the calculation of diluted earnings (loss) per share are options to purchase 1,429,472 shares in fiscal, 2014, 1,407,270 shares in fiscal 2013, and 1,329,240 shares in fiscal 2012, as their inclusion would have been anti-dilutive.

11. STOCKHOLDERS’ EQUITY AND STOCK PLANS

The Company accounts for its three stock-based compensation plans in accordance with the provisions of ASC 718, Stock Compensation. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the related award, and is recognized as an expense over the service period applicable to the grantee. The service period is the period of time that the grantee must provide services to the Company before the stock-based compensation is fully vested.

STOCK OPTIONS

The Company currently grants stock options under the 1989 Non-Qualified Stock Option Plan (the “Non-Qualified Option Plan”), the 1994 Stock Incentive Plan (the “Incentive Plan”) and the 1996 Non-Employee Director Stock Option Plan (the “Director Plan”). The Non-Qualified Option Plan was approved by the Company’s Board of Directors and stockholders and provides for the grant of stock options with an exercise price equal to the fair market price or at a value that is not less than 85% of the fair market value on the date of grant and are exercisable in three installments on the second, third and fourth anniversary of the date of grant. The Incentive Plan was adopted by the Company’s Board of Directors and stockholders and provides for the granting of incentive stock options, shares of restricted stock and non-qualified stock options to all officers and key employees of the Company and its affiliates at an exercise price that may not be less than the fair market value of a share of common stock at the time of grant. The Director Plan was approved by the stockholders in August 1996 and as amended, grants each non-employee director of the Company an option to purchase 7,500 shares of the Company’s common stock after each year of service. All options granted under the above plans expire from five to ten years from the date of grant unless the employment is terminated, in which event, subject to certain exceptions, the options terminate two months subsequent to date of termination.

RESTRICTED STOCK AWARDS

Grants of restricted stock are common stock awards granted to recipients with specified vesting provisions. The restricted stock issued vests based upon the recipients continued service over time (five-year vesting period). The Company estimates the fair value of restricted stock based on the Company’s closing stock price on the date of grant.

The following is a summary of the changes in restricted stock granted under the Incentive Plan for the fiscal years presented:

	Fiscal Year Ended March 31,
	2014					2013					2012
	Shares			Weighted Average Price		Shares			Weighted Average Price		Shares			Weighted Average Price

Beginning Balance		5,625		$	12.58		7,500		$	12.58		7,967		$	12.74
Granted		-			-		-			-		-			-
Vested		(1,875	)	$	12.58		(1,875	)	$	12.58		(467	)	$	15.31
Cancelled		-			-		-			-		-			-
Ending Balance		3,750		$	12.58		5,625		$	12.58		7,500		$	12.58

VALUATION ASSUMPTIONS FOR STOCK OPTION GRANTS

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes options pricing model. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. The expected term of the options is based on evaluations of historical and expected future employee exercise behavior. The risk-free rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the life of the grant. The expected volatility is based on the historical volatility of the Company’s stock. The following table summarizes the assumptions used to determine the fair value of options granted during the following periods:

	Fiscal Year Ended March, 31
	2014			2013			2012
Expected dividend yield		0.0	%		0.0	%		0.0	%
Expected volatility		63.02	%		63.34	%		64.44	%
Risk-free interest rate		1.04	%		1.64	%		2.36	%
Expected life (years)		5.37			5.33			5.33
Weighted average fair value of options granted	$	4.37		$	1.99		$	2.99

STOCK-BASED COMPENSATION EXPENSE

The Company recognized stock-based compensation expense (before deferred income tax benefits) for awards granted under the Company’s stock-based compensation plans in the following line items in the consolidated statements of operations for fiscal 2014, 2013, and 2012:

	2014		2013		2012

Cost of sales	$	4	$	16	$	11
Selling, general and administrative expenses		848		974		566
Stock-based compensation expense before income tax benefits	$	852	$	990	$	577

Information regarding the Company's stock option activity for fiscal 2012, 2013 and 2014 are summarized below:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
Options outstanding at March 31, 2011		1,328,937		$	12.62

Granted		30,000			5.24
Exercised		(7,500	)		2.67
Forfeited		(3,000	)		8.87
Options outstanding at March 31, 2012		1,348,437		$	12.44

Granted		327,500			3.58
Exercised		-			-
Forfeited		(196,937	)		10.00
Options outstanding at March 31, 2013		1,479,000		$	10.80

Granted		511,000			8.00
Exercised		-			-
Forfeited		(297,250	)		9.85
Options outstanding at March 31, 2014		1,692,750		$	10.12		6.2	$	982

Exercisable at March 31, 2014		945,500		$	12.18		4.3	$	346

Vested and expected to vest at March 31, 2014		1,606,829		$	10.27		6.0	$	928

The total fair value of shares vested during the fiscal year ended March 31, 2014 was $1,078. As of March 31, 2014, there was $3,083 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company’s plans, which is expected to be recognized over a weighted average period of 1.94 years.

Summarized information about stock options outstanding as of March 31, 2014 and 2013 is as follows:

			2014
			Outstanding						Exercisable
					Weighted Average		Weighted Average				Weighted Average
Range of Exercise Prices per Common Share			Options		Remaining Contractual Life (Years)		Exercise Price Per Common Share		Options		Exercise Price Per Common Share
$2.62	-	$10.97		1,022,500		8.0	$	7.38		357,750	$	8.12
$ 10.98	-	$ 19.36		573,550		3.4	$	13.06		491,050	$	13.26
$ 19.37	-	$ 23.27		96,700		3.1	$	21.72		96,700	$	21.72

$ 2.62	-	$ 23.27		1,692,750		6.2	$	10.12		945,500	$	12.18

			2013
			Outstanding						Exercisable
					Weighted Average		Weighted Average				Weighted Average
Range of Exercise Prices per Common Share			Options		Remaining Contractual Life (Years)		Exercise Price Per Common Share		Options		Exercise Price Per Common Share
$2.62	-	$10.97		724,250		6.9	$	7.04		328,937	$	8.57
$ 10.98	-	$ 19.36		640,550		4.5	$	13.11		495,800	$	13.46
$ 19.37	-	$ 23.27		114,200		4.2	$	21.72		114,200	$	21.72

$ 2.62	-	$ 23.27		1,479,000		5.6	$	10.80		938,937	$	12.75

The aggregate pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of fiscal 2014 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on March 31, 2014 was $982. This amount changes based on the fair market value of the Company’s stock. The total intrinsic value of options exercised for fiscal 2014, 2013, and 2012 to amounted to $0, $0, and $47, respectively.

The following is a summary of changes in non-vested stock options for the fiscal year ended March 31, 2014:

	Shares			Weighted Average Grant Date Fair Value
Non-vested shares at April 1, 2013		540,063		$	4.09
Granted		511,000			4.37
Forfeited		(90,000	)		3.11
Vested		(213,813	)		5.04
Non-vested shares at March 31, 2014		747,250		$	4.13

The options and restricted stock available for future issuance as of March 31, 2014 are shown below:

	1989 Non- Qualified Option Plan			1994 Stock Incentive Plan			1996 Non- Employee Stock Option Plan			Total
Authorized by Directors and Stockholders		3,975,000			3,525,000			750,000			8,250,000
Options previously exercised		(3,214,687	)		(2,025,187	)		(100,000	)		(5,339,874	)
Restricted stock previously granted		-			(93,750	)		-			(93,750	)
Options outstanding		(436,000	)		(1,051,750	)		(205,000	)		(1,692,750	)
Remaining for future issuance		324,313			354,313			445,000			1,123,626

12. RETIREMENT PLANS

401(k) PLAN

Effective January 1, 2010, the Company amended its 401(k) retirement plan to be subject to the provisions of a “Safe Harbor” 401(k) plan. Under the provisions of the Safe Harbor plan, any discretionary matching company contribution becomes 100% vested upon match. The plan provides for a discretionary match of up to 4% of an eligible employee’s compensation. Under the prior plan, adopted in April 1988, any remaining unvested company discretionary matching contributions are subject to a four year vesting schedule. The Company’s contributions under both the 1988 plan and the Safe Harbor plan amounted to $771 in fiscal 2014, $789 in fiscal 2013 and $690 in fiscal 2012.

DEFINED BENEFIT PLAN

The Company assumed a defined benefit pension plan (the “Plan”) with the Medegen Medical Products, LLC (“MMP”) acquisition. The Plan covers certain employees of MMP who are members of the Service Employees International Union. The benefit accruals for the Plan were frozen as of December 31, 1999. The Company’s funding policy is to make the minimum annual contributions required by applicable regulations. Such contributions are expected to amount to $125 during fiscal 2015.

The following table sets forth the Plan’s funded status and amount recognized in the Company’s financial statements as of and for the fiscal years ended March 31, 2014 and 2013:

	2014			2013
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	1,894		$	1,761
Interest cost		76			78
Actuarial (gain) loss		(34	)		111
Benefits paid		(58	)		(56	)
Benefit obligation at end of year		1,878			1,894
Change in plan assets:
Fair value of plan assets at beginning of year	$	1,143		$	1,029
Actual return on plan assets		58			66
Employer contributions		80			104
Benefits paid		(58	)		(56	)
Fair value of plan assets at end of year	$	1,223		$	1,143
Funded status at end of the year	$	(655	)	$	(751	)
Amounts recognized on the balance sheet consist of:
Current liabilities	$	(655	)	$	(751	)
Accumulated other comprehensive loss		651			773
Net amount recognized	$	(4	)	$	22

The following table presents the major categories of assets held by the plan, measured at fair value, as of March 31, 2014.

	Fair Value Measurements at Reporting Date Using
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	-	$	24	$	-	$	24
Debt securities		-		432		-		432
Equity securities		-		767		-		767
Totals	$	-	$	1,223	$	-	$	1,223

The following table presents the major categories of assets held by the plan, measured at fair value, as of March 31, 2013.

	Fair Value Measurements at Reporting Date Using
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	23	$	-	$	-	$	23
Debt securities		402		-		-		402
Equity securities		-		718		-		718
Totals	$	425	$	718	$	-	$	1,143

The net periodic pension cost for the years ended March 31, 2014, 2013 and 2012 were as follows:

	2014			2013			2012
Service cost - benefits earned during the period	$	-		$	-		$	-
Interest cost on projected benefit obligation		76			78			81
Expected investment income		(70	)		(64	)		(59	)
Net amortization and deferral		64			53			26
Net periodic pension cost	$	70		$	67		$	48

The following are weighted-average assumptions used to determine benefit obligations as of March 31, 2014 and 2013:

	2014			2013
Discount rate		4.25	%		4.07	%
Rate of compensation increase		0.00	%		0.00	%

The following are weighted-average assumptions used to determine net periodic benefit costs for the years ended March 31, 2014 and 2013:

	2014			2013
Discount rate		4.07	%		4.49	%
Expected long-term return on plan assets		6.00	%		6.00	%
Rate of compensation increase		0.00	%		0.00	%

The Company’s investment policy for the Plan’s assets is to balance risk and return through a diversified portfolio of marketable securities, including common and preferred stocks, convertible securities, government, municipal and corporate bonds, mutual and collective investment funds and short-term money market instruments. Maturities for fixed income securities are managed so that sufficient liquidity exists to meet near-term benefit-payment obligations. The expected rate of return on plan assets is based upon expectations of long-term average rates of return to be achieved by the underlying investment portfolios. In establishing this assumption, the Company considers historical and expected rates of return for the asset classes in which the Plan’s assets are invested, as well as current economic and capital market conditions.

Weighted-average asset allocation by asset category as of March 31, 2014 and 2013 were as follows:

	Target Range			2014			2013
Cash	0%	-	20%		2	%		2	%
Debt securities	10%	-	70%		63	%		63	%
Equity securities	30%	-	90%		35	%		35	%
Total					100	%		100	%

Benefits paid were $58 and $56 for fiscal 2014 and 2013, respectively. The Company estimates the following future benefit payments under the plan for the fiscal years ending March 31:

Fiscal Year	Amount
2015	$	60
2016		67
2017		71
2018		74
2019		77
2020 - 2023		527
	$	876

13. EXTRAORDINARY ITEMS

During fiscal 2012, the Company recorded an extraordinary gain of $455 (net of tax expense of $245) as a result of an insurance settlement relating to inventories damaged in fiscal 2011 as a result of weather−related water damage.

14. OTHER MATTERS

The Company is a party to a lawsuit arising out of the conduct of its ordinary course of business. A global settlement of claims has been approved by the court and management expects a settlement agreement to be executed by the plaintiffs. While execution of the settlement agreement by the plaintiffs cannot be predicted with certainty, the ultimate liability under such lawsuit is covered by the Company’s insurance and management does not expect that the court-approved amount of the settlement or any other ultimate liability, if any, arising out of such lawsuit, will have a material adverse effect on the financial position or results of operations of the Company.

The Company has entered into agreements with seven of its executive officers and a vice president, which provide certain benefits in the event of a change in control of the Company. A “change in control” of the Company is defined as, in general, the acquisition by any person of beneficial ownership of 20% or more of the voting stock of the Company, certain business combinations involving the Company or a change in a majority of the incumbent members of the Board of Directors, except for changes in the majority of such members approved by such members. If, within two years after a change in control, the Company or, in certain circumstances, the executive, terminates his employment, the executive is entitled to a severance payment equal to 2.99 times (1) such executive’s highest annual salary within the five-year period preceding termination plus (2) a bonus increment equal to the average of the two highest of the last five bonuses paid to such executive. In addition, the executive is entitled to the continuation of all employment benefits for a three-year period, the vesting of all stock options and certain other benefits. As of March 31, 2014, the estimated potential aggregate compensation payable to these seven executive officers and vice president under the Company’s compensation and benefit plans and arrangements in the event of termination of such executive’s employment following a change in control amounted to approximately $12,556.

The Company’s Tennessee facility, which is comprised of approximately 25 acres in a light industrial park located in Gallaway, Tennessee, was acquired by Medegen Medical Products, LLC in 1999 prior to the Company’s ownership of Medegen. In connection with an environmental due diligence evaluation of the facility prior to its acquisition by Medegen, consultants detected the presence of chlorinated solvents in groundwater beneath the manufacturing plant. The identified groundwater contamination is in the process of being remediated. At the time of our acquisition of Medegen, the prior owner of the facility agreed to retain responsibility for the remediation of the contamination and to fully indemnify our company for all costs associated with the environmental remediation as well as any claims that might arise, including third party claims. Under an agreement executed at the time of the sale, Vollrath Group, Inc. and its parent Windway Capital Corp. (collectively, “Indemnitor”) are required, on a quarterly basis, to provide documentation from independent parties confirming that Indemnitor has sufficient assets, in the form of unencumbered, unrestricted cash, marketable securities or unused and available borrowing capacity, as necessary to pay the most recently estimated costs of outstanding environmental remediation obligations. Now that full-scale remediation is underway at the site, Indemnitor is also required to provide Letters of Credit (“LC”) to secure its current and future obligations, including a $2,000 LC that is currently open and future LCs in the amount of $1,000 from December 7, 2014 through December 7, 2017. As of March 31, 2014, we have recorded an estimated liability of $4,200 to remediate the groundwater contamination and corresponding amount due from the Indemnitor. As part of the divestiture of the Patient Care business unit, the related asset and liabilities are reported as held for sale at March 31, 2014 (see Footnote 3 – Discontinued Operations).

15. SUBSEQUENT EVENTS

Sale of Medegen Medical Products, LLC

On June 2, 2014, the Company completed the sale to Medira Inc., a Delaware corporation and an affiliate of Inteplast Group, Ltd., of (i) 100% of the membership units of Medegen Medical Products, LLC, a Delaware limited liability company and a wholly-owned indirect subsidiary of the Company, and (ii) certain assets of the Company’s Patient Care business unit, including the containment business assets, collectively, for approximately $78,628 in cash, subject to customary post-closing adjustments.

The Company used approximately $40,000 of the net proceeds from the Transaction to repay the term loan and outstanding revolving loan obligations under the New Credit Agreement. The Company plans to use the remaining balance of approximately $38,628 for working capital to support future growth in the Company’s business.

Amended Credit Agreement

16. SUMMARY OF UNAUDITED QUARTERLY FINANCIAL DATA

Selected unaudited, quarterly financial data of the Company for the fiscal years ended March 31, 2014 and 2013 appear below.

	Fiscal 2014 Quarter Ended
	30-Jun		30-Sep		31-Dec		31-Mar

Net sales	$	71,526	$	71,320	$	72,521	$	72,482
Gross profit		13,384		13,271		13,896		14,465
Income after income taxes
Continuing operations		90		205		305		507
Discontinued operations		189		893		1,606		397
Net income	$	279	$	1,098	$	1,911	$	904

Basic earnings per common share:
Net income from continuing operations	$	0.01	$	0.02	$	0.02	$	0.03
Net income from discontinued operations	$	0.01	$	0.05	$	0.10	$	0.03
Total	$	0.02	$	0.07	$	0.12	$	0.06

Diluted earnings per common share:
Net income from continuing operations	$	0.01	$	0.02	$	0.02	$	0.03
Net income from discontinued operations	$	0.01	$	0.05	$	0.10	$	0.02
Total	$	0.02	$	0.07	$	0.12	$	0.05

	Fiscal 2013 Quarter Ended
	30-Jun			30-Sep			31-Dec			31-Mar

Net sales	$	70,177		$	72,393		$	72,824		$	69,369
Gross profit		12,214			12,366			13,558			12,759
Income (loss) after income taxes
Continuing operations		(387	)		(507	)		(56,536	)		(624	)
Discontinued operations		250			572			1,033			1,343
Net income (loss)	$	(137	)	$	65		$	(55,503	)	$	719

Basic earnings per common share:
Net income (loss) from continuing operations	$	(0.03	)	$	(0.03	)	$	(3.45	)	$	(0.04	)
Net income from discontinued operations	$	0.02		$	0.03		$	0.06		$	0.08
Total	$	(0.01	)	$	-		$	(3.39	)	$	0.04

Diluted earnings per common share:
Net income (loss) from continuing operations	$	(0.03	)	$	(0.03	)	$	(3.45	)	$	(0.04	)
Net income from discontinued operations	$	0.02		$	0.03		$	0.06		$	0.08
Total	$	(0.01	)	$	-		$	(3.39	)	$	0.04

Net income (loss) per common share is computed separately for each quarter. Therefore, the sum of such quarterly per share amounts may differ from the total for the years.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 29th day of September, 2014.

MEDICAL ACTION INDUSTRIES INC.

	By:	/s/ Paul D. Meringolo
		Paul D. Meringolo Chief Executive Officer (Principal Executive Officer and Duly Authorized Officer)

SCHEDULE II

MEDICAL ACTION INDUSTRIES INC.

Valuation and Qualifying Accounts

Fiscal Years Ended March 31, 2014, 2013 and 2012

Description	Balance at Beginning of Year		Gross Amount Charged to Cost and Expenses			Charged to Other Accounts			Other Charges/ (Deductions)			Balance at End of Year
Year Ended March 31, 2014
Allowance for doubtful accounts	$	793	$	(292	)	$	-		$	-		$	501
Reserve for slowing moving, excess and obsolete inventory		1,091		1,011			(786	)(c)		(363	)(b)		953
Valuation allowance on deferred tax assets		1,037		(20	)		-			-			1,017
	$	2,921	$	699		$	(786	)	$	(363	)	$	2,471

Year Ended March 31, 2013
Allowance for doubtful accounts	$	781	$	12		$	-		$	-		$	793
Reserve for slowing moving, excess and obsolete inventory		1,015		540			-			(464	)(b)		1,091
Valuation allowance on deferred tax assets		758		279			-			-			1,037
	$	2,554	$	831		$	-		$	(464	)	$	2,921

Year Ended March 31, 2012
Allowance for doubtful accounts	$	804	$	72		$	-		$	(95	)(a)	$	781
Reserve for slowing moving, excess and obsolete inventory		1,415		252			-			(652	)(b)		1,015
Valuation allowance on deferred tax assets		-		758			-			-			758
	$	2,219	$	1,082		$	-		$	(747	)	$	2,554

(a) Write off of uncollected accounts

(b) Disposal of slow moving and obsolete inventory

EXHIBIT INDEX

Exhibit No.		Description

2.1	*	Agreement and Plan of Merger, dated August 27, 2010, by and among Medical Action Industries Inc., MA Acquisition Inc., AVID Medical, Inc. and Michael Sahady as Stockholder Representative (Exhibit 2.1 to Medical Action Industries Inc.’s Current Report on Form 8-K filed on August 30, 2010, SEC File No. 000-13251)

2.2	*	Purchase Agreement, dated as of March 12, 2014, by and among Medical Action Industries Inc., as seller, Medira Inc., as buyer, and Inteplast Group, Ltd., solely for purposes of Sections 5.1(b) and 11.20 thereof (Exhibit 2.1 Medical Action Industries Inc.’s Current Report on Form 8-K filed on March 13, 2014, SEC File No. 000-13251)

3.1	*	Certificate of Incorporation (Exhibit 3.1 to Medical Action Industries Inc.’s Annual Report on Form 10-K for the year ended March 31, 2002, SEC File No. 000-13251)

3.2	*	Amended and Restated Bylaws (Exhibit 3.2 to Medical Action Industries Inc.’s Current Report on Form 8-K filed on November 7, 2011, SEC File No. 000-13251)

10.1	*	Credit Agreement, dated May 17, 2013, by and among Medical Action Industries Inc., the lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent (Exhibit 10.1 to Medical Action Industries Inc. Current Report on Form 8-K filed on May 22, 2013, SEC File No. 000-13251)

10.2	*	First Amendment to Credit Agreement and Guaranty and Security Agreement, dated June 2, 2014, by and among Medical Action Industries Inc., Wells Fargo Bank, National Association and the guarantors party thereto (Exhibit 10.1 to Medical Action Industries Inc. Current Report on Form 8-K filed on June 3, 2014, SEC File No. 000-13251)

10.3	*+	1996 Non-Employee Director Stock Option Plan, as amended (Exhibit 10.1 to Medical Action Industries Inc.’s Annual Report on Form 10-K for the year ended March 31, 2007, SEC File No. 000-13251)

10.4	*+	Form of Stock Option Award Agreement under the 1996 Non-Employee Director Stock Option Plan (Exhibit 10.4 to Medical Action Industries Inc.’s Annual Report on Form 10-K for the year ended March 31, 2013, SEC File No. 000-13251)

10.5	*+	1989 Non-Qualified Stock Option Plan, as amended (Exhibit 10.2 to Medical Action Industries Inc.’s Annual Report on Form 10-K for the year ended March 31, 2007, SEC File No. 000-13251)


10.6	*+	Form of Stock Option Award Agreement under the 1989 Non-Qualified Stock Option Plan (Exhibit 10.6 to Medical Action Industries Inc.’s Annual Report on Form 10-K for the year ended March 31, 2013, SEC File No. 000-13251)

10.7	*+	1994 Stock Incentive Plan, as amended (Exhibit 10.3 to Medical Action Industries Inc.’s Annual Report on Form 10-K for the year ended March 31, 2007, SEC File No. 000-13251)

10.8	*+	Form of Stock Option Award Agreement under the 1994 Stock Incentive Plan (Exhibit 10.8 to Medical Action Industries Inc.’s Annual Report on Form 10-K for the year ended March 31, 2013, SEC File No. 000-13251)

10.10	*+	Form of Amended and Restated Change in Control Agreement dated December 31, 2010 (Exhibit 10.1 to Medical Action Industries Inc.’s Current Report on Form 8-K filed on January 6, 2011, SEC File No. 000-13251)

10.11	*+	Medical Action Industries Inc. Summary of Non-Employee Director Compensation (as of June 2013) (Exhibit 10.13 to Medical Action Industries Inc.’s Annual Report on Form 10-K for the year ended March 31, 2013, SEC File No. 000-13251)

10.12	*+	Amendment to the Medical Action Industries Inc. Stock Option Plan for Non-Employee Directors dated August 13, 2009 (Exhibit A to Medical Action Industries, Inc.’s Definitive Proxy Statement on Schedule 14A filed June 19, 2009, SEC File No. 000-13251)

10.13	*+	Medical Action Industries Inc. Summary of Annual Performance Based Bonus Program (Exhibit 10.15 to Medical Action Industries Inc.’s Annual Report on Form 10-K for the year ended March 31, 2013, SEC File No. 000-13251)

10.14	*+	Separation Agreement, effective July 12, 2013, by and between Medical Action Industries Inc. and John Sheffield (Exhibit 10.1 to Medical Action Industries Inc.’s Current Report on 8-K filed on July 17, 2013 SEC File No. 000-13251)

10.15	*+	Offer Letter dated May 20, 2013 by and between Medical Action Industries Inc. and Paul Chapman (Exhibit 10.17 to Medical Action Industries Inc.’s Annual Report on Form 10-K for the year ended March 31, 2013, SEC File No. 000-13251)

10.16	*+	Summary of Compensation Letter dated June 14, 2012 by and between Medical Action Industries Inc. and Paul D. Meringolo (Exhibit 10.18 to Medical Action Industries Inc.’s Annual Report on Form 10-K for the year ended March 31, 2013, SEC File No. 000-13251)

10.17	*+	Summary of Compensation Letter dated June 14, 2012 by and between Medical Action Industries Inc. and John Sheffield (Exhibit 10.19 to Medical Action Industries Inc.’s Annual Report on Form 10-K for the year ended March 31, 2013, SEC File No. 000-13251)

10.18	*+	Transaction and Performance Bonus Agreement, dated March 3, 2014 by and between Medical Action Industries Inc. and Charles L. Kelly Jr.

10.19	*+	Summary of Compensation Letter dated June 14, 2012 by and between Medical Action Industries Inc. and Eric Liu (Exhibit 10.21 to Medical Action Industries Inc.’s Annual Report on Form 10-K for the year ended March 31, 2013, SEC File No. 000-13251)

10.20	*+	Summary of Compensation Letter dated June 14, 2012 by and between Medical Action Industries Inc. and Richard Setian (Exhibit 10.22 to Medical Action Industries Inc.’s Annual Report on Form 10-K for the year ended March 31, 2013, SEC File No. 000-13251)

10.21	*+	Promotion Letter dated July 1, 2013 by and between Medical Action Industries Inc. and Brian Baker (Exhibit 10.1 to Medical Action Industries Inc. Current Report on Form 8-K filed on July 2, 2013, SEC File No. 000-13251)

21.1	*	Subsidiaries of Medical Action Industries Inc.

23.1	**	Consent of KPMG LLP, Independent Registered Public Accounting Firm

23.2	**	Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm

31.1	**	Certification of Chief Executive Officer as required by Rule 13a – 14(a) of the Securities Exchange Act of 1934

31.2	**	Certification of Chief Financial Officer as required by Rule 13a – 14(a) of the Securities Exchange Act of 1934

32.1	***	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350

101.INS	**	XBRL Instance Document

101.SCH	**	XBRL Taxonomy Extension Schema Document

101.CAL	**	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	**	XBRL Taxonomy Definition Linkbase Document

101.LAB	**	XBRL Taxonomy Extension Label Linkbase Document

*	Previously filed

**	Filed herewith

***	Furnished herewith

+	Identifies management contracts and compensatory plans and arrangements

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