-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ubs5q7AdYiug9GGMQOxV6TsHcxRJYaPAWS2uVVgPM4cWHiSR+MnWavgokai1MfOi NWHLzge3gWB+3pF0LUmZHw== 0000889812-97-001430.txt : 19970626 0000889812-97-001430.hdr.sgml : 19970626 ACCESSION NUMBER: 0000889812-97-001430 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970625 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDICAL ACTION INDUSTRIES INC CENTRAL INDEX KEY: 0000748270 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 112421849 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13251 FILM NUMBER: 97629287 BUSINESS ADDRESS: STREET 1: 150 MOTOR PKWY CITY: HAUPPAUGE STATE: NY ZIP: 11788 BUSINESS PHONE: 5162314600 MAIL ADDRESS: STREET 2: 150 MOTOR PKWY CITY: HAUPPAUGE STATE: NY ZIP: 11788 10-K 1 ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1997 (FEE REQUIRED) OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD ____________ TO ____________ COMMISSION FILE NO. 0-13251 MEDICAL ACTION INDUSTRIES INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE (STATE OR OTHER JURISDICTION 11-2421849 OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) 150 MOTOR PARKWAY, HAUPPAUGE, NEW YORK 11788 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516)231-4600
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE ON TITLE OF CLASS WHICH REGISTERED NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, $.001 PAR VALUE INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ___ INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K [X]. THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S COMMON STOCK, $.001 PAR VALUE, HELD BY NONAFFILIATES OF THE REGISTRANT AS OF JUNE 5, 1997 WAS APPROXIMATELY $20,200,000 BASED ON THE CLOSING PRICE ON THAT DATE ON THE NASDAQ-NATIONAL MARKET SYSTEM. AS OF JUNE 5, 1997, REGISTRANT HAD OUTSTANDING 8,239,664 SHARES OF COMMON STOCK. PARTS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED BY REFERENCE TO PARTS I, II, III AND IV OF THIS FORM 10-K REPORT: (1) PROXY STATEMENT FOR REGISTRANT'S 1997 ANNUAL MEETING OF STOCKHOLDERS AND (2) REGISTRANT'S ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR ENDED MARCH 31, 1997. PART I ITEM ONE - BUSINESS MEDICAL ACTION INDUSTRIES INC. (THE 'COMPANY' OR 'MEDICAL ACTION') DEVELOPS, MANUFACTURES, MARKETS AND DISTRIBUTES A VARIETY OF DISPOSABLE SURGICAL RELATED PRODUCTS. MEDICAL ACTION IS A LEADING MANUFACTURER AND DISTRIBUTOR OF STERILE DISPOSABLE LAPAROTOMY SPONGES AND OPERATING ROOM TOWELS IN THE UNITED STATES. LAPAROTOMY SPONGES AND OPERATING ROOM TOWELS, THE COMPANY'S CORE BUSINESS, ARE PRODUCED FROM COTTON AND USED FOR A MULTITUDE OF PURPOSES DURING OPERATING ROOM PROCEDURES. TO COMPLIMENT THESE PRODUCTS, MEDICAL ACTION INTRODUCED A LINE OF GAUZE SPONGES, GAUZE FLUFFS, DRY BURN DRESSINGS AND NON-ADHERENT GAUZE DRESSINGS. GAUZE SPONGES AND/OR FLUFFS ARE USED IN ALL HEALTH CARE FACILITIES INCLUDING HOSPITALS, HEALTH MAINTENANCE ORGANIZATIONS, DENTAL FACILITIES AND VETERINARY CENTERS. GAUZE FLUFFS ARE PRE-FOLDED GAUZE SQUARES USED FOR COMPRESSION IN SOFT TISSUE SURGERY. DRY BURN DRESSINGS ARE COMPOSED OF MULTIPLE LAYERS OF FOLDED GAUZE THAT ARE TYPICALLY CUSTOMIZED FOR HOSPITALS AS TO SIZE, WEAVE, FOLDS, STITCHING AND PACKAGING. NON-ADHERENT DRESSINGS REDUCE STICKING AND SKIN REMOVAL DURING DRESSING CHANGES, THEREBY ALLEVIATING TRAUMA AND PAIN TO THE WOUND SITE. THE COMPANY INTRODUCED DURING FISCAL 1995 A LINE OF SPECIALTY SPONGES, INCLUDING EYE SPEARS, DISSECTING, STICK AND TONSIL SPONGES, ALL OF WHICH ARE USED IN A VARIETY OF SURGICAL PROCEDURES. IN AUGUST 1994, THE COMPANY ACQUIRED THE DISPOSABLE SURGICAL PRODUCTS BUSINESS OF QUANTECH, INC. IN CONSIDERATION OF THE ASSUMPTION OF SPECIFIED LIABILITIES AND THE ISSUANCE OF 453,000 UNREGISTERED SHARES OF MEDICAL ACTION COMMON STOCK. THE ACQUIRED QUANTECH PRODUCTS INCLUDE A PROPRIETARY SURGICAL LIGHT HANDLE COVER, UNIQUELY DESIGNED AND PATENTED, WHICH IS USED AS A STERILE BARRIER ON SURGICAL LIGHT HANDLES IN THE OPERATING ROOM. QUANTECH ALSO PRODUCES AND MARKETS NEEDLE COUNTERS, INSTRUMENT POUCHES, MAGNETIC INSTRUMENT DRAPES, AND RELATED PRODUCTS USED PRIMARILY IN THE OPERATING ROOM ENVIRONMENT. IN JANUARY 1996, THE COMPANY ACQUIRED CERTAIN ASSETS RELATING TO THE STERILIZATION PACKAGING, MONITORING AND CONTAMINATION CONTROL PRODUCTS BUSINESS OF LAWSON MARDON MEDICAL PRODUCTS, INC. ('LAWSON MARDON' OR 'SBW'). THE PURCHASE PRICE FOR THE ACQUIRED ASSETS CONSISTED OF $25,000 IN CASH (WHICH WAS PAID AT CLOSING) AND A PROMISSORY NOTE IN THE AMOUNT OF $855,793, WHICH WAS PAYABLE IN FOUR (4) EQUAL MONTHLY INSTALLMENTS COMMENCING ON MARCH 1, 1996, SUBJECT, HOWEVER, TO REDUCTION DEPENDING ON THE ACTUAL COLLECTIONS BY THE REGISTRANT OF THE PURCHASED ACCOUNTS RECEIVABLE. IN ADDITION, THE COMPANY AGREED TO PURCHASE APPROXIMATELY $527,000 OF SBW INVENTORY. THE PRIMARY PRODUCTS ACQUIRED FROM LAWSON MARDON INCLUDE STERILITY PACKAGING, A LINE OF STERILIZATION INDICATORS AND INTEGRATORS AND SUCH ANCILLARY PRODUCTS AS INFECTIOUS WASTE BAGS, LABORATORY SPECIMEN BAGS AND STERILITY MAINTENANCE COVERS. THESE PRODUCTS ARE USED IN HOSPITAL CENTRAL SUPPLY, OPERATING ROOMS AND IN PHYSICIANS' OFFICES. MANAGEMENT'S GROWTH STRATEGY IS TO FOCUS ITS RESOURCES ON ENTERING NEW MARKETS FOR ITS EXISTING PRODUCT LINES, INCLUDING ALTERNATE CARE, PHYSICIAN, VETERINARY AND DENTAL MARKETS; ACCELERATE THE INTERNAL DEVELOPMENT OF NEW PRODUCTS FOR ITS EXISTING MARKETS AND PURSUIT OF ACQUISITIONS WHICH INCLUDE PRODUCTS THAT COMPLEMENT EXISTING PRODUCT LINES FOR UTILIZATION OF THE COMPANY'S EXTENSIVE SALES AND DISTRIBUTION CHANNELS; THE INTRODUCTION OF ITS PRODUCTS INTO 2 THE INTERNATIONAL MARKETPLACE; AND TO INCREASE PRODUCTIVITY BY MAXIMIZING THE UTILIZATION OF ITS EXISTING FACILITIES. THROUGH ITS EXISTING DIRECT SALES FORCE, MANUFACTURERS' REPRESENTATIVES AND INTERNAL SALES DEPARTMENT, THE COMPANY'S PRODUCTS ARE SOLD THROUGHOUT THE UNITED STATES AND INTERNATIONALLY. THE COMPANY INTENDS TO UTILIZE THESE SALES CHANNELS TO EXPAND ITS PRODUCT LINES TO INCLUDE BOTH SURGICAL AND NON-SURGICAL PRODUCTS. THE PRODUCTS PRESENTLY MANUFACTURED AND/OR MARKETED BY THE COMPANY INCLUDE: DISPOSABLE LAPAROTOMY SPONGES - LAPAROTOMY SPONGES ARE DESIGNED PRIMARILY FOR USE DURING SURGICAL PROCEDURES IN HOSPITALS AND HEALTH FACILITIES. THEY ARE SINGLE USE (DISPOSABLE) AND MADE OF GAUZE AND SOLD IN VARYING SIZES AND UTILIZED FOR A MULTITUDE OF PURPOSES. LAPAROTOMY SPONGES COVER EXPOSED INTERNAL ORGANS, ISOLATING THEM FROM THE PART OF THE BODY BEING OPERATED UPON. THEY ALSO ABSORB BLOOD AND ACT AS A BUFFER BETWEEN MEDICAL INSTRUMENTS AND THE SKIN, THEREBY REDUCING TRAUMA TO SKIN TISSUE CAUSED BY THE MEDICAL INSTRUMENT. LAPAROTOMY SPONGES ARE SOLD IN STERILE PACKAGING OR AS A NON-STERILE COMPONENT TO BE USED WITH OTHER HEALTH CARE COMPANIES' PRODUCTS, PRIMARILY SURGICAL PRE-PACKAGED PROCEDURE TRAYS. THE COMPANY'S LAPAROTOMY SPONGES CONTAIN AN X-RAY DETECTABLE ELEMENT AND LOOP HANDLE IN ORDER TO FACILITATE EASY COUNTING AND IDENTIFICATION IN THE OPERATING ROOM. FOR THE FISCAL YEARS ENDED MARCH 31, 1997, 1996 AND 1995, LAPAROTOMY SPONGES ACCOUNTED FOR 41%, 48% AND 44%, RESPECTIVELY, OF THE COMPANY'S TOTAL SALES. ABSORBENT OPERATING ROOM TOWELS - IN JANUARY 1986, THE COMPANY INTRODUCED ACTI-SORB(TRADEMARK), A LINE OF COTTON ABSORBENT OPERATING ROOM TOWELS, WHICH ARE USED DURING SURGERY FOR DRYING HANDS, ROLLED UP FOR PROPPING INSTRUMENTS, ON BACK TABLES AND MAYO STANDS FOR ABSORBING FLUIDS, AROUND THE INCISION SITE FOR ABSORBING BLOOD AND TO ALLOW THE SURGEON TO CLIP TUBING AND INSTRUMENTS CLOSE TO THE SURGICAL SITE DURING THE SURGICAL PROCEDURE. OPERATING ROOM TOWELS ARE SOLD IN STERILE PACKAGING FOR SINGLE (DISPOSABLE) USE AND AS A NON-STERILE COMPONENT TO BE USED WITH OTHER HEALTH CARE COMPANIES' PRODUCTS, PRIMARILY SURGICAL PRE- PACKAGED PROCEDURE TRAYS. FOR THE FISCAL YEARS ENDED MARCH 31, 1997, 1996 AND 1995, OPERATING ROOM TOWELS ACCOUNTED FOR 29%, 32% AND 37%, RESPECTIVELY, OF THE COMPANY'S TOTAL SALES. GAUZE SPONGES - TO ROUND OUT ITS WOUND DRESSING LINE, THE COMPANY DEVELOPED A LINE OF GAUZE SPONGES AND GAUZE FLUFFS. THE COMPANY BELIEVES THAT ITS BRAND RECOGNITION IN THE LAPAROTOMY SPONGE FIELD WILL PAVE THE WAY FOR ITS ENTRANCE INTO THE GAUZE SPONGE MARKET. GAUZE SPONGES ARE USED IN THE OPERATING ROOM AS WELL AS THROUGHOUT THE HOSPITAL. THEY ARE ALSO USED EXTENSIVELY THROUGHOUT THE ALTERNATE CARE MARKET, INCLUDING PHYSICIANS' OFFICES, HEALTH CLINICS, DENTISTS' OFFICES AND IN VETERINARY PRACTICES. THE COMPANY ALSO INTRODUCED GAUZE FLUFFS WHICH ARE PRE-FOLDED GAUZE SPONGES USED FOR COMPRESSION IN SOFT TISSUE SURGERY. BURN DRESSINGS - AS AN EXTENSION OF ITS PRODUCT LINE, THE COMPANY INTRODUCED DRY BURN AND NON-ADHERENT GAUZE DRESSINGS. THE DRY BURN DRESSING IS COMPOSED OF MULTIPLE LAYERS OF FOLDED GAUZE THAT ARE TYPICALLY CUSTOMIZED FOR INDIVIDUAL HOSPITALS AS TO SIZE, WEAVE, FOLDS, AND STITCHING. THE NON-ADHERENT DRESSINGS REDUCE STICKING AND SKIN REMOVAL DURING DRESSING CHANGES, THEREBY ALLEVIATING TRAUMA AND PAIN TO THE WOUND SITE. 3 SPECIALTY SPONGES - IN FISCAL 1995, THE COMPANY INTRODUCED A LINE OF SPECIALTY SPONGES AS AN EXTENSION TO ITS LAPAROTOMY SPONGES. THE COMPANY'S SPECIALTY SPONGES ARE USED INVASIVELY IN A VARIETY OF SURGICAL PROCEDURES AND ARE MANUFACTURED FOR A MULTITUDE OF PURPOSES AND CLASSIFIED AS FOLLOWS: (A) DISSECTING SPONGES - PRIMARILY UTILIZED IN SURGICAL PROCEDURES TO SEPARATE TISSUE AS OPPOSED TO CUTTING, THEREBY REDUCING BLEEDING AND TRAUMA TO THE ORGAN. THE COMPANY'S DISSECTING SPONGES ARE PRODUCED IN THREE SPECIFIC TYPES OF SPONGES. (I) PEANUT SPONGE - A SMALL, FIRM GAUZE SPONGE FOR DISSECTING AND DELICATE SPONGING. THE PEANUT SPONGE IS CAREFULLY FOLDED TO ENCOMPASS AN X-RAY ELEMENT AND IS MANUFACTURED TO ALLOW THE SURGEON TO ADJUST FIRMNESS FOR SPECIFIC APPLICATION. (II) KITTNER DISSECTOR - A VERY FIRM, BLUNT DISSECTOR MADE OF RAVEL FREE ABDOMINAL TAPE, WHICH IS HAND STITCHED TO FIRMLY LOCK IN AN X-RAY ELEMENT AND TO ENSURE THE SPONGE INTEGRITY. (III) CHERRY DISSECTOR - A ROUND, SOFT DISSECTOR SPONGE CONSTRUCTED FROM COTTON FOR BLUNT DISSECTION. A SMALL HOLE FACILITATES EASY GRASPING WITH HEMOSTATIC FORCEPS. (B) TONSIL SPONGES - A ROUND, FIBER FILLED GAUZE CONSTRUCTED WITH A STRONG ABDOMINAL TAPE STRING SEWN INTO THE SPONGE TO ANCHOR THE SPONGE WHEN USED IN HARD TO RETRIEVE PLACES. (C) STICK SPONGES - A ROUND, FIBER FILLED GAUZE SPONGE USED FOR DEEP SPONGING OR PREPPING. (D) EYE SPEARS - A CELLULOSE FIBER TIP UTILIZED DURING EYE SURGERY, CONSTRUCTED WITH A MEMORY-FREE PLASTIC HANDLE IN ORDER TO BEND TO ANY ANGLE THE SURGEON DESIRES. THE EYE SPEAR ABSORBS 10 TIMES ITS WEIGHT IN FLUID. ENDOSCOPIC SPECIALTY SPONGES - AS AN EXTENSION OF ITS LINE OF SPECIALTY SPONGES, THE COMPANY IN FISCAL 1997 INTRODUCED ENDOSCOPIC SPECIALTY SPONGES. ENDOSCOPIC SPECIALTY SPONGES ARE USED IN LESS INVASIVE SURGICAL PROCEDURES. THE COMPANY'S ENDOSCOPIC SPECIALTY SPONGES, ALL OF WHICH ARE DISSECTING SPONGES, ARE MADE OF 100% COTTON AFFIXED TO A FIBERGLASS STICK AND CLASSIFIED AS FOLLOWS: (A) ENDOSCOPIC KITTNER - A VERY FIRM, BLUNT DISSECTING SPONGE MADE OF A RAVEL-FREE ABDOMINAL TAPE, WHICH IS HAND STITCHED TO LOCK IN AN X-RAY ELEMENT AND SECURELY AFFIXED TO A FIBERGLASS STICK WITH ORTHOPEDIC GLUE TO ENSURE THE SPONGE INTEGRITY. (B) ENDOSCOPIC CHERRY/BULLET - THE NAMES REFER TO THE SHAPE OF THE SPONGES. BOTH ARE SOFT, BLUNT DISSECTING SPONGES MADE OF SPUN COTTON, SECURELY AFFIXED TO A FIBERGLASS STICK WITH ORTHOPEDIC GLUE TO ENSURE THE SPONGE INTEGRITY. DISPOSABLE SURGICAL LIGHT HANDLE COVERS - LIGHT SHIELDS(TRADEMARK)--A PATENTED DESIGN ASSURES A SECURE FIT AND ACTS AS A STERILE BARRIER ON SURGICAL LIGHT HANDLES IN THE OPERATING ROOM. LIGHT SHIELDS(TRADEMARK) ARE MANUFACTURED OF A HEAVY GAUGE FLEXIBLE PLASTIC FOR THE OPTIMUM ASSURANCE OF A STERILE BARRIER. 4 NEEDLE COUNTERS - RED PLASTIC BOXES MANUFACTURED FROM MEDICAL GRADE MATERIALS DESIGNED TO RESIST BREAKAGE AND PUNCTURES. THEY ARE PRODUCED WITH A VARIETY OF DESIGNS, INCLUDING SURGICAL GRADE MAGNETS IN ORDER TO FACILITATE SHARPS DISPOSAL, FOAM BLOCKS WHICH ADHERE TO MOST SURFACES IN AN OPERATING ROOM ENVIRONMENT AND FOAM STRIPS WITH VARYING COUNT CAPACITY AND DESIGNS. SURGICAL MARKING PENS - SPECIFICALLY DESIGNED SO THAT THE PEN BARREL FITS COMFORTABLY IN THE SURGEON'S HAND AND IS MADE WITH GENTIAN VIOLET COLOR INK. ALL PEN BARRELS ARE EMBOSSED WITH A 5 CM. RULER AND MAY ALSO INCLUDE A 15 CM. COATED RULER AND BLANK LABELS. CONVENIENCE KITS - THE COMPANY OFFERS ITS CUSTOMERS THE ABILITY TO PURCHASE MULTIPLE PRODUCTS PACKAGED WITH ITS NEEDLE COUNTERS. THE COMPANY HAS THE FLEXIBILITY TO PACKAGE MANY DIFFERENT KITS TO INDIVIDUALIZE A HOSPITAL'S REQUIREMENTS. MEDICAL POUCHES - USED TO HOUSE INSTRUMENTS DURING THE STERILIZATION PROCESS AND MAINTAIN STERILITY OF THE INSTRUMENT UNTIL IT IS NEEDED. THE POUCHES ARE PRIMARILY USED IN HOSPITAL CENTRAL SUPPLY, OPERATING ROOMS AND IN PHYSICIANS' AND DENTISTS' OFFICES AS WELL AS IN ANY ENVIRONMENT WHERE STERILE INSTRUMENTS ARE NEEDED. THERE ARE THREE DIFFERENT STYLES OF POUCHES AVAILABLE--SELF SEAL, HEAT SEAL AND ROLLS. THE SELF SEAL IS ALREADY SEALED ON THREE SIDES AND INCLUDES A PEEL BACK ADHESIVE STRIP ON THE BOTTOM OF THE PACKAGE, WHICH WHEN FOLDED OVER WILL SEAL THE PACKAGE. THE SECOND TYPE IS HEAT SEAL, WHICH IS ALSO SEALED ON THREE SIDES BUT NEEDS A HEAT SEALER TO SEAL THE FOURTH SIDE. THE COMPANY ALSO MARKETS A ROLL PRODUCT, WHERE THE USER COULD PULL AS LONG A POUCH AS NEEDED. THIS REQUIRES BOTH ENDS TO BE SEALED. INFECTIOUS WASTE BAGS - USED TO COLLECT, STORE AND TRANSPORT BIOHAZARDOUS AND INFECTIOUS WASTE. THE BAGS COME IN A VARIETY OF SIZES, AND ARE RED WITH THE INTERNATIONAL BIOHAZARD SYMBOL CLEARLY MARKED ON THE BAG. THE BAGS ARE MADE OF HIGH QUALITY RESINS WITH REINFORCED SEALS FOR PUNCTURE RESISTANCE AND TO REDUCE THE RISK OF LEAKAGE. LABORATORY SPECIMEN TRANSPORT BAGS - USED TO COLLECT AND TRANSPORT LABORATORY SPECIMENS. THE BAG FEATURES A SEPARATE POUCH WHICH CAN BE USED FOR ACCOMPANYING PAPERWORK. THE POUCH HAS A SPECIAL SEAL THAT WILL ENSURE THAT THE PAPERWORK DOES NOT GET CONTAMINATED OR CONTAMINATE THE LAB SPECIMEN. STERILITY MAINTENANCE COVERS - USED TO COVER STERILE PRODUCTS AND PROTECT AGAINST DUST, MOISTURE OR ANY OTHER CONTAMINANTS THAT MAY RENDER THE PRODUCT NON-STERILE. THEY ARE USED TO PACKAGE, STORE, AND TRANSPORT WHILE MAINTAINING A DUST-FREE ENVIRONMENT FOR STERILE PACKS. STERILITY MAINTENANCE COVERS COME IN A VARIETY OF SIZES AND ARE SELF SEAL LIKE THE STERILIZATION POUCHES. STERILITY MAINTENANCE COVERS ARE CLEAR SO THAT YOU CAN VIEW THE CONTENTS, ARE STRONG FOR PROTECTION, AND TEAR IN A LINEAR FASHION FOR EASY ACCESS TO THE PRODUCT. SPONGE COUNTER BAGS - A COUNTING SYSTEM USED IN THE OPERATING ROOM TO COUNT LAPAROTOMY SPONGES AND GAUZE SPONGES AFTER USE. THEY ARE CLEAR FACED OPAQUE BACKED PLASTIC BAGS WITH FIVE LARGE POCKETS THAT EXTEND VERTICALLY DOWN. EACH POCKET IS TACKED IN THE CENTER CREATING TWO COMPARTMENTS. THE TACK CAN BE SEPARATED TO CREATE ONE LARGE POCKET. THE BAG CAN HOLD TEN GAUZE SPONGES. WHEN THE TACKS ARE SEPARATED, THE BAG WILL HOLD ONE LARGE LAPAROTOMY SPONGE IN EACH OF ITS FIVE POCKETS. THE BAG ACTS AS A FLUID RECEPTACLE AS WELL AS A VISUAL COUNT OF THE SPONGES. 5 TRADEMARKS AND PATENTS THE COMPANY OWNS NUMEROUS TRADEMARKS. WHILE IT CONSIDERS THAT IN THE AGGREGATE THE TRADEMARKS ARE IMPORTANT IN THE OPERATION OF ITS BUSINESS, IT DOES NOT CONSIDER THAT ANY OF ITS TRADEMARKS, OR ANY GROUP OF THEM, ARE OF SUCH IMPORTANCE THAT TERMINATION WOULD MATERIALLY AFFECT ITS BUSINESS. THE COMPANY HAS A UNITED STATES PATENT (NO. 4976299) FOR ITS SURGICAL LIGHT HANDLE COVER WHICH EXPIRES IN 2007. ALTHOUGH THERE IS NO ASSURANCE THAT OTHER COMPANIES WILL NOT BE SUCCESSFUL IN DEVELOPING SIMILAR PRODUCTS WITHOUT VIOLATING THE RIGHTS OF THE COMPANY, MANAGEMENT BELIEVES THAT THE LOSS OF THIS PATENT COULD ADVERSELY AFFECT THE COMPANY'S ABILITY TO MARKET THIS PRODUCT. COMPETITION THERE ARE MANY COMPANIES, BOTH PUBLIC AND PRIVATE, ENGAGED IN THE DEVELOPMENT AND MARKETING OF DISPOSABLE STERILE AND NON-STERILE SURGICAL SUPPLIES, INCLUDING LAPAROTOMY SPONGES. THE COMPANY IS SUBJECT TO VARIOUS LEVELS OF COMPETITION BASED UPON PERFORMANCE, QUALITY AND PRICING. THE COMPANY'S MAJOR COMPETITORS INCLUDE LARGE MANUFACTURERS, WHICH HAVE GREATER FINANCIAL RESOURCES THAN THE COMPANY. THE COMPETITORS DIFFER BASED UPON THE PRODUCTS BEING SOLD. IN THE SALE OF STERILE LAPAROTOMY SPONGES, WHERE KENDALL HEALTHCARE PRODUCTS COMPANY AND MEDLINE INDUSTRIES, INC. ARE MAJOR COMPETITORS, MEDICAL ACTION'S SALES REPRESENT A SIGNIFICANT SHARE OF THE DOMESTIC MARKET. IN MAY 1997, THE COMPANY ENTERED INTO A THREE-YEAR AGREEMENT WITH ALLEGIANCE HEALTHCARE CORPORATION FOR THE PURCHASE OF DISPOSABLE STERILE LAPAROTOMY SPONGES AND DISPOSABLE STERILE OPERATING ROOM TOWELS. THE COMPANY'S PRIMARY COMPETITORS IN THE SALE OF STERILE OPERATING ROOM TOWELS, IN WHICH THE COMPANY IS ALSO THE LEADING SUPPLIER IN THE DOMESTIC MARKET, ARE MEDLINE INDUSTRIES, INC. AND DEROYAL, INC. IN THE SALE OF MEDICAL POUCHES, WHERE THE COMPANY IS ONE OF THE LEADING SUPPLIERS, THE COMPANY'S PRIMARY COMPETITORS INCLUDE TOWER MEDICAL, AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF REXAM, PLC. IN THE SALE OF QUANTECH PRODUCTS, WHERE THE COMPANY'S PORTION OF THE MARKET IS RELATIVELY INSIGNIFICANT, THE COMPANY'S PRIMARY COMPETITOR IS DEVON INDUSTRIES, INC., A WHOLLY-OWNED SUBSIDIARY OF GRAPHIC CONTROLS CORPORATION. EFFECTS OF HEALTH CARE REFORM PROPOSED HEALTH CARE LEGISLATION, IF ENACTED, COULD CONTAIN PROVISIONS INTENDED TO REFORM THE AVAILABILITY, DELIVERY AND FINANCING OF HEALTH CARE IN THE UNITED STATES. SUCH PROPOSED LEGISLATIVE PACKAGES MANDATE UNIVERSAL COVERAGE FOR ALL LEGAL U.S. RESIDENTS AND CONTROL OVER HEALTH CARE COSTS. WHILE THE COMPANY CANNOT PREDICT WHETHER ANY HEALTH CARE REFORM LEGISLATION WILL BE APPROVED OR WHAT EFFECT, IF ANY, THAT SUCH HEALTH CARE REFORM LEGISLATION WILL HAVE ON THE COMPANY OR ITS OPERATIONS, THE COMPANY BELIEVES THAT BASED ON THE COMPANY'S UNDERSTANDING OF CURRENT PROPOSALS, HEALTH CARE LEGISLATION MAY HAVE SOME BENEFICIAL EFFECTS ON ITS BUSINESS BY INCREASING THE AVAILABILITY OF HEALTH CARE. 6 REGULATION THE MANUFACTURE AND MARKETING OF MEDICAL DEVICES ARE REGULATED UNDER THE 1976 MEDICAL DEVICE AMENDMENTS TO THE FEDERAL FOOD, DRUG AND COSMETIC ACT AS ADMINISTERED BY THE FOOD AND DRUG ADMINISTRATION ('FDA'). THE FDA CONSIDERS THE COMPANY'S CURRENT PRODUCTS TO BE MEDICAL DEVICES. THE FDA HAS THE AUTHORITY TO DETERMINE THE SAFETY AND EFFECTIVENESS OF ALL NEW MEDICAL DEVICES INTRODUCED INTO INTERSTATE COMMERCE AND TO GRANT APPROVAL TO APPLICATIONS TO MARKET SUCH PRODUCTS ON A NATIONAL BASIS. IF A NEW PRODUCT IS SUBSTANTIALLY EQUIVALENT (SUCH TERM BEING USED ON SAFETY AND INTENDED USE EQUIVALENCE RATHER THAN INDICATING A SIMILARITY IN TECHNOLOGY) TO APPROVED PRODUCTS THAT ARE COMMERCIALLY AVAILABLE, A '510(K)' PRE-MARKET NOTIFICATION TO THE FDA IS REQUIRED BEFORE THE PRODUCT MAY BE COMMERCIALLY MARKETED. THE FDA HAS NINETY (90) DAYS TO RESPOND TO A PRE-MARKET NOTIFICATION AND, AFTER SATISFACTION OF ALL FDA COMMENTS, THE COMPANY CAN MARKET THE PRODUCT IN THE UNITED STATES. ALL OF THE COMPANY'S PRODUCTS HAVE BEEN APPROVED TO MARKET UNDER 510(K) NOTIFICATIONS. THE COMPANY BELIEVES THAT ITS PROPOSED PRODUCTS ARE ALSO CONSIDERED MEDICAL DEVICES. HOWEVER, THERE CAN BE NO ASSURANCE THAT THE FDA WILL CHOOSE TO CHARACTERIZE FUTURE PRODUCTS AS MEDICAL DEVICES. ANY SUCH CHANGE IN FDA CHARACTERIZATION WOULD POTENTIALLY INVOLVE A MORE LENGTHY PROCEDURE, INCLUDING DETAILED LABORATORY, CLINICAL TESTING, AND SAMPLING ACTIVITIES. COMPLIANCE WITH CURRENT GOOD MANUFACTURING PRACTICES ('GMP') REGULATIONS IS NECESSARY TO RECEIVE FDA APPROVAL TO MARKET NEW PRODUCTS AND TO CONTINUE TO MARKET CURRENT PRODUCTS. THE COMPANY'S MANUFACTURING, QUALITY CONTROL AND QUALITY ASSURANCE PROCEDURES AND DOCUMENTATION ARE INSPECTED AND EVALUATED PERIODICALLY BY THE FDA. MARKETING AND DISTRIBUTION THE COMPANY'S PRODUCTS ARE PRESENTLY MARKETED AND SOLD THROUGHOUT THE UNITED STATES THROUGH A NETWORK OF DIRECT SALES PERSONNEL AND MANUFACTURERS' REPRESENTATIVES. THERE ARE APPROXIMATELY 16 MANUFACTURERS' REPRESENTATIVES AND 16 DIRECT SALES PERSONNEL THROUGHOUT THE UNITED STATES ENGAGED IN THE SALES AND MARKETING OF THE COMPANY'S PRODUCTS. SALES ARE PRIMARILY MADE TO DISTRIBUTORS, WHO MAINTAIN SUFFICIENT INVENTORY TO SERVICE CUSTOMER REQUIREMENTS. THE COMPANY'S DISTRIBUTION NETWORK IS COMPRISED OF HOSPITAL DISTRIBUTORS, ALTERNATE CARE DISTRIBUTORS, PHYSICIAN DISTRIBUTORS, VETERINARY DISTRIBUTORS, DENTAL DISTRIBUTORS AND INDUSTRIAL SAFETY DISTRIBUTORS COVERING THE ENTIRE UNITED STATES AND CANADIAN MARKETPLACE. MANAGEMENT BELIEVES THAT THE CONTINUING PRESSURE TO UTILIZE LOW-COST, DISPOSABLE MEDICAL PRODUCTS HAS SIGNIFICANTLY EXPANDED THE USE OF CUSTOM PROCEDURE TRAYS, WHICH CONTAIN THE NECESSARY ITEMS DESIGNED FOR USE IN SPECIFIC PROCEDURES BY SURGICAL TEAMS. MANY OF THE CUSTOM TRAY SUPPLIERS ARE VERTICALLY INTEGRATING THE PACKAGING PROCESS BY BUYING BULK, NON-STERILE OPERATING ROOM TOWELS, LAPAROTOMY SPONGES AND OTHER PRODUCTS MANUFACTURED BY THE COMPANY TO PLACE IN THESE CUSTOM TRAYS. THE TRAYS ARE THEN STERILIZED, SAVING VALUABLE NURSING TIME AND THE COSTS ASSOCIATED WITH INDIVIDUAL PRODUCT PACKAGING. IN ADDITION TO PRIVATE AND PUBLIC HOSPITALS AND HEALTH FACILITIES, CUSTOMERS FOR THE COMPANY'S PRODUCTS INCLUDE GROUP PURCHASING ORGANIZATIONS AND INVESTOR-OWNED HOSPITAL 7 CHAINS. WITH THE EMERGENCE OF THESE COOPERATIVE BUYING GROUPS AND CHAINS AS MAJOR PURCHASERS OF MEDICAL/SURGICAL PRODUCTS, A SIGNIFICANT PORTION OF THE COMPANY'S SALES ARE DEPENDENT UPON ITS ABILITY TO PROVIDE ITS PRODUCTS THROUGHOUT A WIDE GEOGRAPHICAL AREA AND TO SERVICE SUBSTANTIALLY ALL MEMBERS OF THE GROUP OR CHAIN. THE COMPANY'S PRESENT DISTRIBUTOR-ORIENTED MARKETING NETWORK HAS ENABLED IT TO BECOME A SELECTED SOURCE FOR MANY OF THE COOPERATIVE BUYING GROUPS AND CHAINS. FOR THE FISCAL YEAR ENDED MARCH 31, 1997, NO SINGLE CUSTOMER ACCOUNTED FOR MORE THAN 10% OF THE COMPANY'S NET SALES, EXCEPT FOR OWENS & MINOR, INC., ALLEGIANCE HEALTHCARE CORP. AND GENERAL MEDICAL CORPORATION, WHICH ACCOUNTED FOR APPROXIMATELY 23%, 18% AND 10%, RESPECTIVELY, OF TOTAL NET SALES. FOR THE FISCAL YEAR ENDED MARCH 31, 1996, OWENS AND MINOR, INC., ALLEGIANCE HEALTHCARE CORP. AND GENERAL MEDICAL CORPORATION, WHICH ACCOUNTED FOR 23%, 21% AND 10%, RESPECTIVELY, OF TOTAL NET SALES WERE THE ONLY CUSTOMERS THAT ACCOUNTED FOR MORE THAN 10% OF TOTAL NET SALES. THE COMPANY'S TEN LARGEST CUSTOMERS ACCOUNTED FOR APPROXIMATELY 81% OF ITS NET SALES IN FISCAL 1997. THE COMPANY BELIEVES IT HAS ESTABLISHED AN EFFICIENT SYSTEM FOR MARKETING ITS PRODUCTS THROUGHOUT THE UNITED STATES, AND INTENDS TO UTILIZE THESE EXISTING SALES METHODS AND CHANNELS TO MARKET NEW PRODUCTS AS THEY ARE DEVELOPED OR ACQUIRED. RESEARCH AND DEVELOPMENT PRODUCT DEVELOPMENT COSTS CHARGED TO INCOME WERE $315,000, $291,000 AND $211,000 FOR THE FISCAL YEARS ENDED MARCH 31, 1997, 1996 AND 1995, RESPECTIVELY. EMPLOYEES AS OF JUNE 1, 1997, THE COMPANY HAD 189 FULL-TIME EMPLOYEES WITH 142 IN MANUFACTURING AND DISTRIBUTION, 26 IN MARKETING AND SALES, AND 21 IN ADMINISTRATION. NONE OF THE COMPANY'S EMPLOYEES ARE REPRESENTED BY A LABOR UNION. THE COMPANY BELIEVES THAT ITS EMPLOYEE RELATIONS ARE SATISFACTORY. RAW MATERIALS THE PRINCIPAL RAW MATERIALS USED BY THE COMPANY ARE A FOUR-PLY MESH GAUZE LAPAROTOMY SPONGE AND COTTON HUCK TOWEL. OTHER MATERIALS AND SUPPLIES USED BY THE COMPANY INCLUDE GAUZE, GAUZE SPONGES, INJECTION MOLDED AND THERMOFORMED PLASTICS, FOAM, MEDICAL GRADE MAGNETS AND A VARIETY OF PACKAGING MATERIAL. THE COMPANY PRESENTLY PURCHASES ITS PRINCIPAL RAW MATERIALS PRIMARILY FROM THE PEOPLES REPUBLIC OF CHINA. THE COMPANY IS CURRENTLY EXPLORING ALTERNATE SOURCES OF SUPPLY FOR THOSE RAW MATERIALS. THE COMPANY'S OPERATING ROOM TOWELS HAVE BEEN CLASSIFIED AS A NON-MEDICAL DEVICE BY THE U.S. DEPARTMENT OF CUSTOMS, AND THEREFORE, ARE SUBJECT TO IMPORT QUOTA RESTRICTIONS WHICH COULD LIMIT THE COMPANY'S FUTURE ABILITY TO BRING THEM INTO THE COUNTRY. BACKLOG THE COMPANY DOES NOT BELIEVE THAT ITS BACKLOG FIGURES ARE NECESSARILY INDICATIVE OF ITS BUSINESS SINCE MOST HOSPITALS AND HEALTH RELATED FACILITIES ORDER THEIR PRODUCTS ON A CONTINUOUS BASIS AND NOT PURSUANT TO ANY CONTRACTUAL ARRANGEMENTS. SINCE TYPICAL SHIPMENT TIMES RANGE 8 FROM FIVE TO SEVEN DAYS, THE COMPANY MUST MAINTAIN SUFFICIENT INVENTORIES OF ALL PRODUCTS AT ALL TIMES. MANUFACTURING THE COMPANY CURRENTLY PURCHASES ITS LAPAROTOMY SPONGES, BURN DRESSINGS AND OPERATING ROOM TOWELS FROM THE PEOPLES REPUBLIC OF CHINA, INCLUDING TWO JOINT VENTURE FACILITIES. DURING THE PAST FEW YEARS, THE COMPANY ALSO PURCHASED CERTAIN OF THESE PRODUCTS, TO A LESSER EXTENT, FROM A NUMBER OF DIFFERENT COUNTRIES, INCLUDING MEXICO AND THE DOMINICAN REPUBLIC. THESE JOINT VENTURES WERE ENTERED INTO IN FISCAL 1990. PRIOR TO THE FORMATION OF THESE JOINT VENTURES, THE COMPANY PURCHASED ITS LAPAROTOMY SPONGES AND OPERATING ROOM TOWELS FROM THESE FACTORIES. THE JOINT VENTURE FACTORIES ARE LOCATED IN WU JIANG AND LIN HAI, WHICH ARE RURAL AREAS OF CHINA. AFTER THESE PRODUCTS ARE MANUFACTURED, THEY ARE SHIPPED TO THE COMPANY'S DOMESTIC MANUFACTURING FACILITIES LOCATED IN ASHEVILLE, NORTH CAROLINA, WHERE THEY ARE PACKAGED AND STERILIZED. UPON COMPLETION OF THE ACQUISITION OF THE DISPOSABLE SURGICAL PRODUCTS BUSINESS OF QUANTECH, INC. IN AUGUST 1994 AND STERILIZATION PACKAGING BUSINESS OF LAWSON MARDON MEDICAL PRODUCTS, INC. IN JANUARY 1996, THE OPERATIONS OF THE QUANTECH AND LAWSON MARDON PRODUCT LINES WERE TRANSFERRED TO THE COMPANY'S ASHEVILLE, NORTH CAROLINA FACILITIES. AS A RESULT OF OUR EFFORTS TO DEVELOP A NEW PROTOCOL FOR STERILIZATION OF CERTAIN OF ITS COTTON PRODUCTS, IN NOVEMBER 1993 THE COMPANY DEVELOPED A DECONTAMINATION CYCLE TO ITS STERILIZATION PROCESS. THIS DECONTAMINATION PROCESS, WHICH UTILIZES GAMMA RADIATION, IS CONDUCTED BY INDEPENDENT OUTSIDE CONTRACT FACILITIES PRIOR TO PACKAGING AND STERILIZATION IN ASHEVILLE, NORTH CAROLINA. THE COMPANY OWNS SUBSTANTIALLY ALL OF ITS MANUFACTURING AND ETHYLENE OXIDE STERILIZATION EQUIPMENT. 9 ITEM TWO - PROPERTIES THE COMPANY OCCUPIES APPROXIMATELY 98,351 SQUARE FEET OF MANUFACTURING, GENERAL OFFICE AND WAREHOUSE SPACE AT ITS FACILITIES IN NORTH CAROLINA AND NEW YORK UNDER REAL ESTATE LEASES EXPIRING THROUGH FISCAL 2001, WITH AGGREGATE MINIMUM ANNUAL RENTAL COMMITMENTS OF APPROXIMATELY $528,055. THE COMPANY ALSO OWNS A 52,000 SQUARE FOOT MANUFACTURING FACILITY IN ASHEVILLE, NORTH CAROLINA. THE COMPANY HAS ENTERED INTO AN AGREEMENT FOR THE PURCHASE OF A 205,000 SQUARE FOOT MANUFACTURING, WAREHOUSE AND DISTRIBUTION FACILITY LOCATED ON APPROXIMATELY 32 ACRES IN ARDEN, NORTH CAROLINA (THE 'ARDEN FACILITY'). IT IS PRESENTLY ANTICIPATED THAT THE TRANSACTION WILL CLOSE ON OR ABOUT JULY 10, 1997. THE COMPANY WILL CONSOLIDATE ITS THREE FACILITIES IN NORTH CAROLINA INTO THE ARDEN FACILITY. MANAGEMENT BELIEVES THAT THE COMPANY'S FACILITIES ARE ADEQUATE TO MEET ITS CURRENT NEEDS AND SHOULD CONTINUE TO BE ADEQUATE FOR THE FORESEEABLE FUTURE. SET FORTH BELOW IS A SUMMARY OF THE FACILITIES OWNED OR LEASED BY THE COMPANY.
LOCATION PRIMARY USE SQUARE FEET - --------------------------------- ----------------------- ----------- ASHEVILLE, NORTH CAROLINA MANUFACTURING 52,000 (A) FLETCHER, NORTH CAROLINA WAREHOUSE/DISTRIBUTION 70,000 (B) ASHEVILLE, NORTH CAROLINA MANUFACTURING/WAREHOUSE 17,000 (C) FARMINGDALE, NEW YORK WAREHOUSE 3,951 (D) HAUPPAUGE, NEW YORK EXECUTIVE OFFICES 7,400 (E)
- ------------------ (A) THE PRINCIPAL MANUFACTURING FACILITY OF THE COMPANY IS LOCATED ON PREMISES WHICH THE COMPANY OWNS IN ASHEVILLE, NORTH CAROLINA. A MORTGAGE IN THE AMOUNT OF APPROXIMATELY $848,831 WAS OUTSTANDING AS OF MARCH 31, 1997. THE COMPANY HAS ENTERED INTO AN AGREEMENT WITH AN UNAFFILIATED THIRD PARTY TO SELL THIS FACILITY. IT IS PRESENTLY ANTICIPATED THAT THE TRANSACTION WILL CLOSE ON OR ABOUT AUGUST 15, 1997. (B) THE LEASE MAY BE TERMINATED BY THE COMPANY OR THE LANDLORD ON NINE (9) MONTHS PRIOR WRITTEN NOTICE. THE COMPANY PROVIDED SUCH WRITTEN NOTICE TO THE LANDLORD ON MAY 1, 1997. THE CURRENT ANNUAL RENTAL IS $302,232. (C) PREMISES ARE LEASED THROUGH JANUARY 31, 1999 AT AN ANNUAL RENTAL OF $36,000. (D) PREMISES ARE LEASED THROUGH MARCH 31, 1997 AT AN ANNUAL RENTAL OF $21,732. (E) PREMISES ARE LEASED THROUGH FEBRUARY 28, 2001 AT A CURRENT ANNUAL RENTAL OF $168,091. ITEM THREE - LEGAL PROCEEDINGS THERE ARE NO MATERIAL PENDING LEGAL PROCEEDINGS TO WHICH THE COMPANY IS A PARTY OR TO WHICH ANY OF THEIR PROPERTY IS SUBJECT. ITEM FOUR - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NO MATTERS WERE SUBMITTED TO A VOTE OF SECURITY HOLDERS DURING THE FOURTH QUARTER OF THE FISCAL YEAR. 10 PART II ITEM FIVE - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS THE INFORMATION UNDER THE CAPTIONS 'SELECTED FINANCIAL DATA' AND 'STOCK TRADING' ON PAGE 1 AND THE INSIDE BACK COVER, RESPECTIVELY, OF THE COMPANY'S 1997 ANNUAL REPORT TO STOCKHOLDERS IS INCORPORATED HEREIN BY REFERENCE. ITEM SIX - SELECTED FINANCIAL DATA THE INFORMATION CONTAINED UNDER THE CAPTION 'SELECTED FINANCIAL DATA' ON PAGE 1 OF THE COMPANY'S 1997 ANNUAL REPORT TO STOCKHOLDERS IS INCORPORATED HEREIN BY REFERENCE. ITEM SEVEN - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE INFORMATION CONTAINED UNDER THE CAPTION 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS' ON PAGES 5 AND 6 OF THE COMPANY'S 1997 ANNUAL REPORT TO STOCKHOLDERS IS INCORPORATED HEREIN BY REFERENCE. ITEM EIGHT - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA THE FINANCIAL STATEMENTS OF THE COMPANY WHICH APPEAR ON PAGES 7 THROUGH 15 OF THE COMPANY'S 1997 ANNUAL REPORT TO STOCKHOLDERS, AND THE REPORT THEREON OF ERNST & YOUNG LLP DATED MAY 23, 1997, APPEARING ON PAGE 16 OF SUCH ANNUAL REPORT, ARE INCORPORATED HEREIN BY REFERENCE. ITEM NINE - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE NONE. PART III THE INFORMATION REQUIRED BY PART III IS INCORPORATED BY REFERENCE TO THE COMPANY'S DEFINITIVE PROXY STATEMENT IN CONNECTION WITH ITS ANNUAL MEETING OF STOCKHOLDERS SCHEDULED TO BE HELD IN AUGUST 1997, TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WITHIN 120 DAYS FOLLOWING THE END OF THE COMPANY'S FISCAL YEAR ENDED MARCH 31, 1997. 11 PART IV ITEM FOURTEEN - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) (1) AND (2) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES THE FOLLOWING FINANCIAL STATEMENTS OF MEDICAL ACTION INDUSTRIES INC., INCLUDED IN THE ANNUAL REPORT OF THE COMPANY TO ITS STOCKHOLDERS FOR THE YEAR ENDED MARCH 31, 1997, ARE INCORPORATED BY REFERENCE IN ITEM 8: BALANCE SHEETS AT MARCH 31, 1997 AND 1996 STATEMENTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995 STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995 NOTES TO FINANCIAL STATEMENTS THE FOLLOWING FINANCIAL STATEMENT SCHEDULE OF MEDICAL ACTION INDUSTRIES INC. AND SUBSIDIARY IS INCLUDED IN ITEM 14(D): II VALUATION AND QUALIFYING ACCOUNTS ALL OTHER SCHEDULES FOR WHICH PROVISION IS MADE IN THE APPLICABLE ACCOUNTING REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION ARE NOT REQUIRED UNDER THE RELATED INSTRUCTIONS OR ARE INAPPLICABLE AND THEREFORE HAVE BEEN OMITTED. (3) EXHIBITS:
EXHIBIT NO. 2.1 AGREEMENT AND PLAN OF REORGANIZATION DATED AS OF AUGUST 12, 1994 AMONG REGISTRANT, QUANTECH ACQUISITION CORP. AND QUANTECH, INC. (EXHIBIT 2.1 TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH 31, 1995). 2.2 PURCHASE AGREEMENT DATED AS OF JANUARY 30, 1996 AMONG REGISTRANT, SBW ACQUISITION CORP., LAWSON MARDON MEDICAL PRODUCTS, INC. AND LAWSON MARDON MEDICAL PRODUCTS, A TRADING DIVISION OF LAWSON MARDON PACKAGING UK LTD. (EXHIBIT 2 TO THE COMPANY'S CURRENT REPORT ON FORM 8-K DATED FEBRUARY 6, 1996). 3.1 CERTIFICATE OF INCORPORATION, AS AMENDED (EXHIBIT 3.2 TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH 31, 1994). 3.2 BY-LAWS, AS AMENDED (EXHIBIT 3(B) TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH 31, 1988). 10.1* 1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN.
12
EXHIBIT NO. 10.2 RESTRICTED MANAGEMENT STOCK BONUS PLAN, AS AMENDED (EXHIBIT 10(B) TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH 31, 1988). 10.3 1989 NON-QUALIFIED STOCK OPTION PLAN, AS AMENDED (EXHIBIT 10.4 TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH 31, 1990). 10.4 1994 STOCK INCENTIVE PLAN (EXHIBIT 10.4 TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH 31, 1996). 10.5 EMPLOYMENT AGREEMENT DATED AS OF FEBRUARY 1, 1993 BETWEEN THE REGISTRANT AND PAUL D. MERINGOLA (EXHIBIT 10.4 TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH 31, 1993). 10.6 MODIFICATION AGREEMENT DATED AS OF FEBRUARY 5, 1996 BETWEEN THE REGISTRANT AND PAUL D. MERINGOLA (EXHIBIT 10 TO THE COMPANY'S CURRENT REPORT ON FORM 8-K DATED FEBRUARY 7, 1996). 10.7* MODIFICATION AGREEMENT DATED AS OF MAY 28, 1997 BETWEEN THE REGISTRANT AND PAUL D. MERINGOLA. 10.8 JOINT VENTURE AGREEMENT BETWEEN THE REGISTRANT AND WUJIANG MEDICAL & HEALTH ARTICLES FACTORY DATED MARCH 29, 1989 (EXHIBIT 10(B) TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH 31, 1989). 10.9 THIRD AMENDED AND RESTATED REVOLVING CREDIT NOTE AND AGREEMENT BETWEEN THE REGISTRANT AND A LENDING INSTITUTION DATED AS OF OCTOBER 24, 1995 (EXHIBIT 10.8 TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH 31, 1996). 10.10 CHANGE IN CONTROL AGREEMENT DATED AS OF JUNE 1, 1995 BETWEEN THE REGISTRANT AND CERTAIN EXECUTIVE OFFICERS (EXHIBIT 10.8 TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH 31, 1995). 23* CONSENT OF ERNST & YOUNG LLP. 27* FINANCIAL DATA SCHEDULE 99* ADDITIONAL EXHIBIT--UNDERTAKINGS (B) REPORTS ON FORM 8-K: NONE. (C) EXHIBITS THE RESPONSE TO THIS PORTION OF ITEM 14 IS SUBMITTED AS A SEPARATE SECTION OF THIS REPORT. (D) FINANCIAL STATEMENT SCHEDULES THE RESPONSE TO THIS PORTION OF ITEM 14 IS SUBMITTED AS A SEPARATE SECTION OF THIS REPORT.
- ------------------------------------ WITH THE EXCEPTION OF THE AFOREMENTIONED INFORMATION INCORPORATED BY REFERENCE IN THIS ANNUAL REPORT ON FORM 10-K, THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED MARCH 31, 1997 IS NOT TO BE DEEMED 'FILED' AS PART OF THIS REPORT. *FILED HEREWITH 13 PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE COMPANY HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED ON THE 23RD DAY OF JUNE, 1997. MEDICAL ACTION INDUSTRIES INC. BY: S/ PAUL D. MERINGOLA ------------------------- PAUL D. MERINGOLA PRESIDENT PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW ON JUNE 23, 1997 BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED: S/ JOSEPH R. MERINGOLA CHAIRMAN OF THE BOARD - ---------------------------------- (CHIEF EXECUTIVE OFFICER) JOSEPH R. MERINGOLA S/ PAUL D. MERINGOLA PRESIDENT - ---------------------------------- (CHIEF OPERATING OFFICER) PAUL D. MERINGOLA AND DIRECTOR S/ RICHARD G. SATIN VICE PRESIDENT--OPERATIONS, GENERAL - ---------------------------------- COUNSEL, CORPORATE SECRETARY AND DIRECTOR RICHARD G. SATIN S/ BERNARD WENGROVER DIRECTOR - ---------------------------------- BERNARD WENGROVER S/ PHILIP F. CORSO DIRECTOR - ---------------------------------- DR. PHILIP F. CORSO S/ THOMAS A. NICOSIA DIRECTOR - ---------------------------------- DR. THOMAS A. NICOSIA 14 S-1 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS MEDICAL ACTION INDUSTRIES INC.
- ---------------------------------------------------------------------------------------------------------------------------------- COL. A COL. B COL. C COL. D COL. E - ---------------------------------------------------------------------------------------------------------------------------------- ADDITIONS - ---------------------------------------------------------------------------------------------------------------------------------- ADDITIONS CHARGED TO OTHER BALANCE AT CHARGED TO OTHER CHANGES- BALANCE BEGINNING COSTS AND ACCOUNTS- ADD (DEDUCT) END DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD - ---------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED MARCH 31, 1997 DEDUCTED FROM ASSET ACCOUNTS: ALLOWANCE FOR DOUBTFUL ACCOUNTS $110,953 $25,000 ($23,714)(1) $112,239 YEAR ENDED MARCH 31, 1996 DEDUCTED FROM ASSET ACCOUNTS: ALLOWANCE FOR DOUBTFUL ACCOUNTS 110,953 110,953 YEAR ENDED MARCH 31, 1995 DEDUCTED FROM ASSET ACCOUNTS: ALLOWANCE FOR DOUBTFUL ACCOUNTS 110,953 110,953
- ------------------ (1) UNCOLLECTIBLE ACCOUNTS WRITTEN OFF ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED March 31, 1997 ---------- MEDICAL ACTION INDUSTRIES INC. (Exact name of registrant as specified in its charter) EXHIBIT INDEX ================================================================================ Exhibit No. 10.1 1996 Non-Employee Director Stock Option Plan. 10.7 Modification Agreement dated as of May 28, 1997 between the Registrant and Paul D. Meringola. 23 Consent of Ernst & Young LLP. 27 Financial Data Schedule. 99 Additional Exhibit - Undertakings EX-10.1 2 1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN. 1996 MEDICAL ACTION INDUSTRIES INC. STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS 1. Purpose The purpose of the 1996 Medical Action Industries Inc. Non-Employee Directors Stock Option Plan (the "Plan") is to increase the proprietary and vested interest of the non-employee directors of Medical Action Industries Inc. (the "Company") in the growth and performance of the Company by granting such directors options to purchase shares of Common Stock, $.001 par value per share (the "Stock") of the Company. 2. Administration The Plan shall be administered by the Company's Board of Directors (the "Board"). Subject to the provisions of the Plan, the Board shall be authorized to interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the Plan and to make all other determinations necessary or advisable for the administration of the Plan; provided, however, that the Board shall have no discretion with respect to the selection of directors to receive options under the Plan, the number of shares of Stock subject to any such options, the purchase price thereunder or the timing of grants of options under the Plan. The determinations of the Board in the administration of the Plan, as described herein, shall be final and conclusive. The Secretary of the Company shall be authorized to implement the Plan in accordance with its terms and to take such actions of a ministerial nature as shall be necessary to effectuate the intent and purposes thereof. The validity, construction and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of New York. 3. Eligibility The class of individuals eligible for grants of options under the Plan shall be Eligible Directors, as defined below. Eligible Director shall mean a director of the Company who is not an employee of the Company or its subsidiaries and has not, within one year immediately preceding the determination of such director's eligibility, received any award under any plan of the Company or its subsidiaries that entitles the participants therein to acquire stock, stock options or stock appreciation rights of the Company or its subsidiaries (other than any other plan which participants' entitlements are governed by provisions meeting the requirements of Rule 16b-3(c)(2)(ii) promulgated under the Securities Exchange Act of 1934). Any holder of an option granted hereunder shall hereinafter be referred to as a "Participant". 10.1 4. Shares Subject to the Plan Subject to adjustment as provided in Section 7, an aggregate of 100,000 shares of Stock shall be available for issuance upon the exercise of options granted under the Plan. The shares of Stock deliverable upon the exercise of options may be made available from authorized but unissued share or shares reacquired by the Company, including shares purchased in the open market or in private transactions. If any option granted under the Plan shall terminate for any reason without having been exercised, the shares subject to, but not delivered under, such option shall be available for other options. 5. Grant, Terms and Conditions of Options Each individual who is an Eligible Director will be granted an option to purchase 2,500 shares of Stock as of the date of each Annual Stockholders Meeting following the effectiveness of the Plan at which such individual is elected or re-elected to the office of director. The options granted will be nonstatutory stock options not intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and shall have the following terms and conditions: (a) Price. The purchase price per share of Stock deliverable upon the exercise of each option shall be 100% of the Fair Market Value per share of the Stock on the date the option is granted. For purposes of determining Fair Market Value of a share of Common Stock on the date of grant, if the Common Stock (i) is then listed on any national securities exchange, the fair market value shall be the closing price per share of the Common Stock on such exchange at the close of the trading session on the date of grant, (ii) is then listed on NASDAQ (but not on any national securities exchange), the Fair Market Value shall be the closing price per share of the Common Stock on NASDAQ on the date of grant, or (iii) is then traded on the over-the-counter market (but not on a national securities exchange or NASDAQ), the Fair Market Value shall be the average of the closing bid and asked prices of the Common Stock as reported by the National Quotation Bureau, Inc. or other entity then publishing bid and asked prices for the Common Stock for the date of grant, or, if unavailable, then the last trading date on which bid and asked quotations were published immediately preceding the date of grant. (b) Payment. Options may be exercised only upon payment of the purchase price thereof in full. Such payment shall be made in cash or in Stock, which shall have a Fair Market Value (determined in accordance with the rules of paragraph (a) above), at least equal to the aggregate exercise price of the shares being purchased, or a combination of cash and Stock. (c) Exercisability and Term of Option. Options shall be exercisable in whole or in part at all times during the period beginning on the date of grant until terminated, as provided in paragraph (d) below. (d) Termination of Service as Eligible Director. (i) Except as provided in subparagraph (ii) of this paragraph (d), all outstanding options held by a Participant shall be automatically cancelled upon such Participant's termination of service as an Eligible Director. (ii) Upon termination of a Participant's service as an Eligible Director by reason of such Participant's voluntary mid-term resignation, declining to stand for reelection (whether as a result of the Company's mandatory retirement program or otherwise), becoming an employee of the Company or a subsidiary thereof or becoming disabled (as defined in the Company's pension plan), all outstanding options held by such Participant on the date of such termination shall expire five years from the date upon which the Participant ceases to be an Eligible Director. In the event of the death of a Participant (whether before or after termination of service as an Eligible Director), all outstanding options held by such Participant (and not previously cancelled or expired) on the date of such death shall be fully exercisable by the Participant's legal representative within one year after the date of death (without regard to the expiration date of the option specified in accordance with the preceding sentence). (e) Nontransferability of Options. No option shall be transferable by a Participant otherwise than by will or the laws of descent and distribution, and during the lifetime of the Participant to whom an option is granted it may be exercised only by the Participant or by the Participant's guardian or legal representative. Notwithstanding the above, options may be transferred pursuant to a qualified domestic relations order. (f) Listing and Registration. Each option shall be subject to the requirement that if at any time the Board shall determine, in its discretion, that the listing, registration or qualification of the Stock subject to such option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such option or the issue or purchase of shares thereunder, no such option may be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any condition not acceptable to the Board. (g) Option Agreement. Each option granted hereunder shall be evidenced by an agreement with the Company which shall contain the terms and provisions set forth herein and shall otherwise be consistent with the provisions of the Plan. 6. Adjustment of and Change in Stock In the event of a stock split, stock dividend, subdivision or combination of the Stock or other change in corporate structure affecting the Stock, the number of shares of Stock authorized by the Plan shall be increased or decreased proportionately, as the case may be, and the number of shares of Stock subject to any outstanding option shall be increased or decreased proportionately, as the case may be, with appropriate corresponding adjustment in the purchase price per share of Stock thereunder. 7. Mergers, Sales and Change of Control In the case of (i) any merger, consolidation or combination of the Company with or into another corporation (other than a merger, consolidation or combination in which the Company is the continuing corporation and which does not result in its outstanding Stock being converted into or exchanged for different securities, cash or other properly, or any combination thereof) or a sale of all or substantially all of the assets of the Company or (ii) a Change in Control (as defined below) of the Company, the holder of each option then outstanding immediately prior to such Change in Control shall (unless the Board determines otherwise) have the right to receive on the date or effective date of such event an amount equal to the excess of the Fair Market Value on such date of (a) the securities, cash or other property, or combination thereof, receivable upon such merger, consolidation or combination in respect of a share of Stock, in the cases covered by clause (i) above, or in the case of a sale of assets referred to in such clause (i), a share of Stock, or (b) the final tender offer price in the case of a tender offer resulting in a Change in Control or (c) the value of the Stock covered by the option as determined by the Board, in the case of Change in Control by reason of any other event, over the exercise price of such option multiplied by the number of shares of Stock subject to such option. Such amount will be payable fully in cash. Any determination by the Board made pursuant to this Section 7 will be made as to all outstanding options and shall be made (a) in cases covered by clause (i) above, prior to the occurrence of such event, (b) in the event of a tender or exchange offer, prior to the purchase of any Stock pursuant thereto by the offeror and (c) in the case of a Change in Control by reason of any other event, just prior to or as soon as practicable after such Change in Control. A "Change in Control shall be deemed to have occured if (a) any person, or any two or more persons acting as a group, and all affiliates of such person or persons, shall own beneficially 20% or more of the Stock outstanding, or (b) if following (i) a tender or exchange offer for voting securities of the Company (other than any such offer made by the Company), or (ii) a proxy contest for the election of directors of the Company, the persons who were directors of the Company immediately before the initiation of such event (or directors who were appointed by such directors) cease to constitute a majority of the Board of Directors of the Company upon the completion of such tender or exchange offer or proxy contest or within one year after such completion. 8. No Rights of Stockholders Neither a Participant nor a Participant's legal representative shall be, or have any of the rights and privileges of a shareholder of the Company in respect of any shares purchasable upon the exercise of any option, in whole or in part, unless and until certificates for such shares shall have been issued. 9. Plan Amendments The Plan may be amended by the Board, as it shall deem advisable or to conform to any change in any law or regulation applicable thereto; provided, that the Board may not, without the authorization and approval of shareholders: (i) increase the number of shares which may be purchased pursuant to options hereunder, either individually or in the aggregate, except as permitted by Section 8, (ii) change the requirements of Section 5(a) that option grants be priced at Fair Market Value, except as permitted by Section 6, (iii) modify in any respect the class of individuals who constitute Eligible Directors; or (iv) materially increase the benefits accruing to Participants hereunder. The provisions of Sections 3 and 5 may not be amended more than once every six months, other than to comport with changes in the Code, the Employee Retirement Income Security Act, or the rules under either such statute. 10. Effective Date and Duration of Plan The Plan shall become effective on the day after the Company's Annual Stockholders Meeting at which the Plan is approved by Stockholders. The Plan shall terminate on the day following the tenth Annual Stockholders Meeting at which Directors are elected succeeding the Annual Stockholders Meeting at which the Plan was approved by Stockholders, unless the Plan is extended or terminated at an earlier date by Stockholders. EX-10.7 3 MODIFICATION AGREEMENT MODIFICATION AGREEMENT MODIFICATION AGREEMENT made this 28th day of May, 1997, by and between MEDICAL ACTION INDUSTRIES INC., a Delaware corporation (hereinafter the "Company") and PAUL D. MERINGOLA (hereinafter the "Employee"). W I T N E S S E T H: WHEREAS, the Company and Employee entered into an Employment Agreement dated February 1, 1993 (hereinafter the "Employment Agreement"), as modified by Modification Agreement dated February 5, 1996 (the "Modification Agreement); and WHEREAS, the Company and Employee desire to amend said Employment Agreement. NOW, THEREFORE, the parties hereto agree as follows: 1. Paragraph "3" of the Employment Agreement is hereby deleted and in its place and stead shall be the following: "3. TERM. Subject to earlier termination on the terms and conditions hereinafter provided, the term of the Agreement shall be comprised of a period commencing on the date hereof and ending March 31, 2002." 2. Paragraph "5(i)" of the Employment Agreement is hereby deleted and in its place and stead shall be the following: 10.7 _"(i) The Company shall pay to Employee a salary at the rate of $195,000 per annum, payable in weekly installments, or in such other manner as shall be agreeable to the Company and Employee." 3. The aforesaid Employment Agreement in all other respects is hereby ratified and confirmed. IN WITNESS WHEREOF, the undersigned have executed this Modification Agreement as of the day and year first above written. MEDICAL ACTION INDUSTRIES INC. By: s/ Richard G. Satin ------------------------------- Richard G. Satin, Vice President s/ Paul D. Meringola ------------------------------- Paul D. Meringola, Employee EX-23 4 CONSENT OF ERNST & YOUNG LLP. EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Medical Action Industries Inc. of our report dated May 23, 1997, included in the 1997 Annual Report to Stockholders of Medical Action Industries Inc. Our audits also include the financial statement schedule of Medical Action Industries Inc. listed in item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the informaion set forth therein. We also consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-11046) pertaining to the Incentive Stock Option Plan and Restricted Management Stock Bonus Plan and Registration Statements (Form S-8 No. 33-41765, Form S-8 No. 33-66038 and Form S-8 No. 333-14993) pertaining to the Non-Qualified Stock Option Plan and the 1994 Stock Incentive Plan of Medical Action Industries Inc. of our report dated May 23, 1997, with respect to the financial statements incorporated herein by reference and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) of Medical Action Industries Inc. ERNST & YOUNG LLP Melville, New York June 24, 1997 EX-99 5 ADDITIONAL EXHIBIT - UNDERTAKINGS EXHIBIT 99 The following undertakings are incorporated into the Company's Registration Statements on Form 5-8 (Registration Nos. 33-11046, 33-41765, 33-66038 and 333-14993). (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement. (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any fact or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; Provided, however, that paragraphs (a)(l)(i) and (a)(l)(ii) do not apply if the regisration statement is on Form S-3 or Form S-8, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering thereof. (e) To move from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, when applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d)) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (i) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefor, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. EX-27 6 FINANCIAL DATA SCHEDULE
5 The schedule contains summary financial information extracted from [identify specific financial statement[s]] and is qualified in its entirety by reference to such financial statement[s]. 1,000 12-MOS MAR-31-1997 APR-01-1997 MAR-31-1997 275 0 6,177 112 11,035 17,859 8,320 4,297 24,994 7,631 0 8 0 0 13,410 24,994 46,000 46,000 36,327 43,703 0 0 655 1,642 671 971 0 0 0 971 .12 .11
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