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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
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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.
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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.
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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.
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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.
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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