MEDICAL ACTION INDUSTRIES INC - FORM 10-K/A

Attached files

file	filename
EX-23.1 - CONSENT OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM - MEDICAL ACTION INDUSTRIES INC	dex231.htm
EX-31.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER - MEDICAL ACTION INDUSTRIES INC	dex312.htm
EX-31.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER - MEDICAL ACTION INDUSTRIES INC	dex311.htm
EX-32.1 - CERTIFICATION OF CEO & CFO PURSUANT TO 18 U.S.C. SECTION 1350 - MEDICAL ACTION INDUSTRIES INC	dex321.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

AMENDMENT NO. 2

x	Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Fiscal Year ended March 31, 2010

¨	Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period to

Commission File No. 0-13251

MEDICAL ACTION INDUSTRIES INC.

(Exact name of registrant as specified in its charter)


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

500 Expressway Drive South, Brentwood, New York		11717
(Address of Principal Executive Office)		(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K x.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12-b of the Exchange Act. (Check one):

Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨

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

The aggregate market value of the registrant’s Common Stock held by nonaffiliates of the registrant as of September 30, 2009, the last business day of registrant’s most recently completed second quarter, was approximately $179,910,000. Shares of Common Stock held by each officer and director of the registrant and by each person who may be deemed to be an affiliate have been excluded.

As of June 2, 2010, 16,344,411 shares of the registrant’s Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for registrant’s 2010 Annual Meeting to be filed pursuant to Regulation 14A within 120 days following registrant’s fiscal year ended March 31, 2010, are incorporated by reference into Part III of this Report.

EXPLANATORY NOTE

This Amendment No. 2 to our Annual Report on Form 10-K for the fiscal year ended March 31, 2010, as originally filed on June 2, 2010 (the “Report”), is being filed in response to comments received by us from the Staff of the Securities and Exchange Commission (the “Staff”). This Amendment amends and replaces in its entirety Item 8, Financial Statements and Supplementary Data, to include currently signed and dated certifications, which were unintentionally not currently updated in our Amendment No. 1 to our Annual Report on Form 10-K in (a) Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, As Amended, (b) Exhibit 31.1 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, As Amended, and (c) Certification of Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes Oxley Act of 2002, 18 U.S.C. §1350.

Except to the extent expressly set forth herein, this Amendment speaks as of the original filing date of our Report and has not been updated to reflect events occurring subsequent to the original filing date other than those required to reflect the effects of the comments received by the Staff. Accordingly, this Amendment should be read in conjunction with our filings made with the Securities and Exchange Commission subsequent to the filing of the Report, including any amendments to those filings.

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


Consolidated Financial Statements and Schedule:

Consolidated Balance Sheets at March 31, 2010 and 2009			3

Consolidated Statements of Operations for the Years ended March 31, 2010, 2009 and 2008			4

Consolidated Statements of Shareholders’ Equity for the Years ended March 31, 2010, 2009 and 2008			5

Consolidated Statements of Cash Flows for the Years ended March 31, 2010, 2009 and 2008			6

Notes to Consolidated Financial Statements			7-30

Schedule II – Valuation and Qualifying Accounts			S-1

Medical Action Industries Inc.

Consolidated Balance Sheets

(In thousands, except share data)


	March 31, 2010			March 31, 2009
Current Assets
Cash and cash equivalents		5,641			3,459
Accounts receivable, less allowance for doubtful accounts of $659 at March 31, 2010 and $663 at March 31, 2009		18,294			21,459
Inventories, net		34,860			43,221
Prepaid expenses		1,109			906
Deferred income taxes		2,363			2,448
Prepaid income taxes		785			2,584
Other current assets		396			466

Total Current Assets		63,448			74,543

Property, plant and equipment, net		39,816			40,313
Goodwill		80,699			80,699
Other intangible assets, net		14,457			15,886
Other assets, net		2,376			3,725


Total Assets	$	200,796		$	215,166


Current Liabilities
Accounts payable	$	11,691		$	8,190
Accrued expenses		12,216			10,643
Current portion of capital lease obligations		—			39
Current portion of long-term debt		15,501			6,860

Total Current Liabilities		39,408			25,732

Deferred income taxes		15,932			14,282
Long-term debt, less current portion		2,734			53,147


Total Liabilities		58,074			93,161

Shareholders’ Equity

Common stock 40,000,000 shares authorized, $.001 par value; issued and outstanding 16,344,411 shares at March 31, 2010 and 16,028,161 shares at March 31, 2009		16			16
Additional paid-in capital		32,585			28,602
Accumulated other comprehensive loss		(374	)		(267	)
Retained earnings		110,495			93,654


Total Shareholders’ Equity		142,722			122,005


Total Liabilities and Shareholders’ Equity	$	200,796		$	215,166

The accompanying notes are an integral part of these statements.

Medical Action Industries Inc.

Consolidated Statements of Operations

(In thousands, except per share data)


	2010			2009			2008
Net sales	$	290,146		$	296,070		$	290,528
Cost of sales		221,242			245,135			226,076


Gross profit		68,904			50,935			64,452

Selling, general and administrative expenses		40,198			40,161			39,672
Interest expense		1,352			2,682			3,406
Interest income		(4	)		(4	)		(78	)


Income before income taxes		27,358			8,096			21,452
Income tax expense		10,517			3,141			8,227


Net income	$	16,841		$	4,955		$	13,225


Net income per share basic	$	1.04		$	0.31		$	0.83


Net income per share diluted	$	1.03		$	0.31		$	0.81

The accompanying notes are an integral part of these statements.

Medical Action Industries Inc.

Consolidated Statements of Shareholders’ Equity

(In thousands, except share data)


	Shares		Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Shareholders’ Equity
Balance at March 31, 2007		15,815,786	$	16	$	22,847		$	7		$	75,495		$	98,365


Exercise of stock options, net		204,875		—		1,193			—			—			1,193
Amortization of deferred compensation				—		102			—			—			102
Tax benefit from vesting of stock under restricted management stock bonus plan and exercise of options				—		1,383			—			—			1,383
Stock-based compensation				—		1,504			—			—			1,504
Adoption of uncertain tax position guidance (Note 4)				—		—			—			(21	)		(21	)
Interest rate swap				—		—			(49	)		—			(49	)
Pension liability adjustment				—		—			77			—			77
Net income				—		—			—			13,225			13,225

Balance at March 31, 2008		16,020,661	$	16	$	27,029		$	35		$	88,699		$	115,779


Exercise of stock options, net		7,500		—		87			—			—			87
Amortization of deferred compensation				—		173			—			—			173
Tax benefit from vesting of stock under restricted management stock bonus plan and exercise of options				—		52			—			—			52
Stock-based compensation				—		1,261			—			—			1,261
Interest rate swap				—		—			49			—			49
Pension liability adjustment				—		—			(351	)		—			(351	)
Net income				—		—			—			4,955			4,955

Balance at March 31, 2009		16,028,161	$	16	$	28,602		($	267	)	$	93,654		$	122,005


Exercise of stock options, net		316,250		—		2,849			—			—			2,849
Amortization of deferred compensation				—		111			—			—			111
Tax expense from vesting of stock under restricted management stock bonus plan and exercise of options				—		(358	)		—			—			(358	)
Stock-based compensation				—		1,381			—			—			1,381
Pension liability adjustment				—		—			(107	)		—			(107	)
Net income				—		—			—			16,841			16,841

Balance at March 31, 2010		16,344,411	$	16	$	32,585		($	374	)	$	110,495		$	142,722

The accompanying notes are an integral part of these statements.

Medical Action Industries Inc.

Consolidated Statements of Cash Flows

(In thousands)


	Fiscal Year Ended March 31,
	2010			2009			2008

Cash flows from operating activities :
Net income	$	16,841		$	4,955		$	13,225
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		4,563			4,188			3,906
Amortization		2,169			2,351			2,337
Provision for doubtful accounts		72			72			48
Deferred income taxes		1,584			4,258			3,752
Stock-based compensation		1,492			1,448			1,606
Excess tax liability from stock-based compensation		151			(481	)		(615	)
(Gain) loss on sale of property and equipment		(422	)		53			55
Tax (expense) benefit from exercise of warrants and options		(358	)		52			1,383
Changes in operating assets and liabilities:
Accounts receivable		3,093			2,508			(3,433	)
Inventories		8,361			(9,728	)		857
Prepaid expenses and other current assets		(133	)		(79	)		57
Prepaid income taxes		1,799			(922	)		(1,658	)
Other assets		(911	)		(103	)		(1,086	)
Accounts payable		3,501			(5,922	)		(2,411	)
Accrued expenses, payroll, payroll taxes and other		1,466			412			1,190


Net cash provided by operating activities	$	43,268		$	3,062		$	19,213


Cash flows from investing activities :
Purchase price and related acquisition costs		—			(1,043	)		(1,181	)
Purchases of property, plant and equipment		(4,202	)		(12,971	)		(5,097	)
Proceeds from sale of property and equipment		2,078			80			7


Net cash used in investing activities	($	2,124	)	($	13,934	)	($	6,271	)


Cash flows from financing activities :
Proceeds from revolving line of credit and long-term borrowings		12,850			79,334			36,397
Principal payments on revolving line of credit and long-term borrowings		(54,622	)		(67,077	)		(49,146	)
Principal payments on capital lease obligations		(39	)		(118	)		(109	)
Proceeds from exercise of employee stock options		2,849			88			1,193


Net cash (used in) provided by financing activities	($	38,962	)	$	12,227		($	11,665	)


Net increase in cash and cash equivalents		2,182			1,355			1,277
Cash and cash equivalents at beginning of year		3,459			2,104			827

Cash and cash equivalents at end of year	$	5,641		$	3,459		$	2,104


Supplemental disclosures:
Interest paid		1,358			2,693			3,594
Income taxes paid		7,341			234			5,572

The accompanying notes are an integral part of these statements.

Notes to Consolidated Financial Statements

Medical Action Industries Inc. • March 31, 2010

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

COMPANY BACKGROUND AND DESCRIPTION OF BUSINESS

Medical Action Industries Inc. (“Medical Action” or the “Company”) was incorporated under the laws of the State of New York on April 1, 1977, and re-incorporated under the laws of the State of Delaware on November 5, 1987. Headquartered in Brentwood, New York, Medical Action develops, manufactures, markets and supplies a variety of disposable medical products. The Company’s products are marketed primarily to acute care facilities in domestic and certain international markets, and in recent years has expanded its end-user markets to include physician, dental and veterinary offices, outpatient surgery centers and long-term care facilities. Medical Action is a leading manufacturer and supplier of collection systems for the containment of medical waste, minor procedure kits and trays, disposable patient utensils, sterile operating room towels and sterile laparotomy sponges. The Company’s products are marketed by its direct sales personnel and an extensive network of distributors. Medical Action has entered into preferred vendor agreements with national distributors, as well as sole source and/or committed contracts with group purchasing organizations. The Company also manufactures its products under private label programs to other distributors and medical suppliers. Medical Action’s manufacturing, packaging and warehousing activities are conducted in its Arden, North Carolina; Clarksburg, West Virginia and Gallaway, Tennessee facilities. The Company’s procurement of certain products and raw materials from the People’s Republic of China is administered by its office in Shanghai, China.

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

PRINCIPLES OF CONSOLIDATION

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

CASH EQUIVALENTS

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

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company performs ongoing credit evaluations on its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by a review of their current credit information. The Company continuously monitors collections and payments from customers and a provision for estimated credit losses is maintained based upon its historical experience and on specific customer collection issues that have been identified. While such credit losses have historically been within the Company’s expectations and the provisions established, the Company cannot guarantee that the same credit loss rates will be experienced in the future. Concentration risk exists relative to the

Company’s accounts receivable, as Owens & Minor, Inc. and Cardinal Health Inc., (the “Distributors”) accounted for approximately 38% and 26%, respectively as of March 31, 2010 and 35% and 27%, respectively as of March 31, 2009. While the accounts receivable related to these Distributors may be significant, the Company does not believe the credit risk to be significant given their consistent payment history.

TRADE REBATES

We provide rebates to distributors that sell to end-user customers at prices determined under a contract between the Company and the end-user customer or distributor. The Company deducts all rebates from sales and has a provision for allowances based on historical information for all rebates that have not yet been processed. The provision for trade rebates (which is included in accounts receivable) was $14,497 and $14,110 at March 31, 2010 and 2009, respectively.

INVENTORIES

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

PROPERTY, PLANT AND EQUIPMENT

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

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


	March 31,
	2010		2009

Land and buildings	$	27,546	$	25,163
Machinery and equipment		34,643		34,305
Furniture and fixtures		2,123		1,563

		64,312		61,031
Less accumulated depreciation and amortization		24,496		20,718

	$	39,816	$	40,313

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


Buildings		40 years
Machinery and equipment		5 - 20 years
Furniture and fixtures		3 - 10 years

Depreciation and amortization of property, plant and equipment amounted to $4,563, $4,188, and $3,906 for the fiscal years ended March 31, 2010, 2009 and 2008, respectively.

GOODWILL

Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations accounted for as purchases. Goodwill and certain other intangible assets having indefinite lives are not amortized to earnings, but instead are subject to periodic testing for impairment. Intangible assets determined to have definite lives are amortized over their remaining useful lives.

Our goodwill is tested for impairment on an annual basis at December 31^st. Application of the goodwill impairment test requires judgment. The fair value is estimated using a discounted cash flow methodology. This requires significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, the useful life over which cash flows will occur, and determination of our weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment. The implied fair value of goodwill is determined by allocating the fair value to all of the assets (recognized and unrecognized) and liabilities in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value of the goodwill.

The Company reviews for the impairment of long-lived assets and certain identifiable intangibles (including the excess of cost over fair value of net assets acquired and property and equipment) annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when the carrying amount of the assets exceeds its fair value. Based upon the testing performed, the Company has not identified any such impairment losses.

OTHER INTANGIBLE ASSETS

Other intangible assets, consisting of trademarks, customer relationships, group purchasing organization (“GPO”) contracts, non-competition agreements, software, intellectual property and a supply agreement are amortized according to their useful lives. The book values, accumulated amortization and original useful life by asset class as of March 31, 2010 and 2009 are as follows:


	March 31, 2010
	Gross Carrying Value		Accumulated Amortization		Total Net Book Value

Trademarks not subject to amortization	$	1,266	$	—	$	1,266
Customer Relationships (20 years)		15,700		3,020		12,680
GPO Contracts (4 Years)		2,200		1,892		308
Non-Competition Agreements (5-7 Years)		1,043		1,043		—
Software (1-3 Years)		400		400		—
Intellectual Property (7 Years)		400		197		203
Supply Agreement		29		29		—

	$	21,038	$	6,581	$	14,457


	March 31, 2009
	Gross Carying Value		Accumulated Amortization		Total Net Book Value

Trademarks not subject to amortization	$	1,266	$	—	$	1,266
Customer Relationships (20 years)		15,700		2,236		13,464
GPO Contracts (4 Years)		2,200		1,342		858
Non-Competition Agreements (5-7 Years)		1,043		1,043		—
Software (1-3 Years)		400		363		37
Intellectual Property (7 Years)		400		139		261
Supply Agreement		29		29		—

	$	21,038	$	5,152	$	15,886

Other intangible asset amortization expense amounted to $1,429, $1,538 and $1,668 for the fiscal years ended March 31, 2010, 2009 and 2008, respectively. Estimated amortization expense related to these intangibles for the five succeeding fiscal years is as follows:


Fiscal Year	Amount
2011	$	1,150
2012		842
2013		842
2014		817
2015		785

	$	4,436

The Company evaluates trademarks with indefinite lives annually to determine whether events or circumstances continue to support the indefinite useful life. No trademarks were determined to have finite useful lives in any of the periods presented.

DEFERRED FINANCING COSTS

We have incurred costs in obtaining financing. These costs of approximately $395 as of March 31, 2010 were capitalized in other assets and are being amortized over the life of the related financing arrangements through 2013. Total accumulated amortization was approximately $280 and $209 at March 31, 2010 and 2009, respectively.

INCOME TAXES

We account for income taxes in accordance with the guidance issued under Accounting Standards Codification (“ASC”) 740, “Income Taxes” with consideration for uncertain tax positions. We record a valuation allowance to reduce our deferred tax assets to the amount of future tax benefit that is more likely than not to be realized. As of March 31, 2010, no valuation allowance was necessary for the $2,363 deferred tax assets that existed on the Company’s books.

Since April 1, 2007, the Company accounted for uncertain tax positions in accordance with authoritative guidance issued under ASC 740, which addresses the determination of whether tax benefits claimed or expected to be claimed on tax returns should be recorded in the financial statements. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the future tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the future tax position will be sustained. The Company classifies interest and penalties associated with income taxes as a component of income tax expense (benefit) on the consolidated statements of operations.

We are subject to taxation in the U.S. and various state and local jurisdictions. The North Carolina state examination for the fiscal years ended March 31, 2008, 2007 and 2006 has been finalized with an immaterial assessment for each year. The Company is no longer subject to U.S. federal income tax examinations by the Internal Revenue Service and most state and local authorities for fiscal tax years ending prior to March 31, 2007. Certain state authorities may subject the Company to examination up to the period ending March 31, 2006. The Company does, however, have a prior year net operating loss as a result of a previous acquisition which will remain open for examination.

CURRENCY

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

STOCK-BASED COMPENSATION

We recorded stock-based compensation expense for the cost of non-qualified stock options granted under our stock plans in accordance with the provisions of ASC 718, Stock Compensation. Stock-based compensation expense recognized under the provisions of ASC 718 was $1,381 ($850 after tax) or $.05 per basic and diluted share for the year ended March 31, 2010, $1,261 ($780 after tax) or $.05 per basic and diluted share for the year ended March 31, 2009 and $1,504 ($935 after tax) or $.06 per basic and diluted share for the year ended March 31, 2008.

EARNINGS PER SHARE INFORMATION

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

based on average prices during the year. Excluded from the calculation of earnings per share are options to purchase 827,055 shares in fiscal 2010, 1,039,875 shares in fiscal 2009 and 248,700 shares in fiscal 2008, as their inclusion would have been anti-dilutive. Note 9 displays a table showing the computation of basic and diluted earnings per share.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss) consists of two components: net income and other accumulated comprehensive income (loss). Accumulated other comprehensive income (loss) refers to revenues, expenses, gains and losses that under generally accepted accounting principles are recorded as an element of shareholders’ equity but are excluded from net income. The Company’s accumulated other comprehensive income (loss) is comprised of an accrued benefit liability relating to the Company’s defined benefit pension plan and the fair value of an interest rate swap agreement.

INTEREST RATE SWAP AGREEMENT

We do not enter into financial instruments for trading or speculative purposes. The principal financial instrument used for cash flow hedging purposes is an interest rate swap. The effective portion of changes in the fair value of the interest rate swap are recorded in “Accumulated Other Comprehensive Income (Loss)”.

In April 2007, we entered into an interest rate swap agreement to manage our exposure to interest rate changes. The swap effectively converts a portion of our variable rate debt under the credit agreement to a fixed rate, without exchanging the notional principal amounts. As of March 31, 2010, we had no outstanding amounts subject to the interest rate swap agreement.

REVENUE RECOGNITION

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

•

Persuasive evidence of an arrangement exists;

•

Delivery has occurred or services have been rendered;

•

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

•

Collection of the resulting receivable is reasonably assured.

Customer purchase orders and or sales agreements evidence the Company’s sales arrangements. These purchase orders and sales agreements specify both selling prices and quantities, which are the basis for recording sales revenue. Any deviation from this policy requires management review and approval. Trade terms are negotiated on a customer by customer basis and for the majority of the Company’s sales include that title and risk of loss pass from the Company to the customer when the Company ships products from its facilities, which is when revenue is recognized. In instances of shipments made on consignment, revenue is deferred until a customer indicates to the Company that it has used the Company’s products. The Company conducts ongoing credit evaluations of its customers and ships products only to customers that satisfy its

credit evaluations. Products are shipped primarily to distributors at an agreed upon list price. Distributors then resell the products primarily to hospitals and depending on agreements between the Company, the distributors and the hospitals, the distributors may be entitled to a rebate. The Company deducts all rebates from sales and has a provision for allowances based on historical information for all rebates that have not yet been processed.

BUSINESS CONCENTRATIONS AND MAJOR CUSTOMERS

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

Sales to Owens & Minor, Inc. and Cardinal Health Inc., (the “Distributors”) accounted for approximately 40% and 26% of net sales, respectively for the fiscal year ended March 31, 2010, 38% and 22% of net sales, respectively, for the fiscal year ended March 31, 2009, and 37% and 21% of net sales, respectively, for the fiscal year ended March 31, 2008. Although the Distributors may be deemed in a technical sense to be major purchasers of the Company’s products, the Distributors typically serve as a distributor under a purchase order or supply agreement between the customer and the Company and do not purchase for their own accounts. The Company, therefore, does not believe it is appropriate to categorize the Distributors as actual customers.

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

FREIGHT AND DISTRIBUTION COSTS

Freight costs, which consist primarily of freight costs paid to third party carriers amounted to $15,219, $17,613 and $17,955 for the fiscal years ended March 31, 2010, 2009 and 2008, respectively, and are included in cost of sales. Distribution costs, which consist primarily of the salaries, warehousing and related expenses associated with the storing, picking and shipping costs of our products amounted to $7,477, $7,938 and $6,480 for the fiscal years ended March 31, 2010, 2009 and 2008, respectively, and are included in selling, general and administrative expenses.

PRODUCT DEVELOPMENT COSTS

Product development costs charged to expense were $1,209, $960 and $898 for the fiscal years ended March 31, 2010, 2009 and 2008, respectively.

USE OF ESTIMATES

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

FAIR VALUE MEASUREMENTS

We have adopted ASC 820, Fair Value Measurements in two steps; effective April 1, 2008, we adopted it for all financial instruments and non-financial instruments accounted for at fair value on a recurring basis and effective April 1, 2009, for all non-financial instruments accounted for at fair value on a non-recurring basis.

For financial assets and liabilities fair valued on a recurring basis, fair value is the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date.

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

•

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

•

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

•

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

IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

BUSINESS COMBINATIONS

On April 1, 2009, we adopted the provisions of ASC 805, Business Combinations, relating to business combinations, including assets acquired and liabilities assumed arising from contingencies. This pronouncement established principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree as well as provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. In addition, this pronouncement eliminates the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement criteria and require an acquirer to develop a systematic and rational basis for subsequently measuring and accounting for acquired contingencies depending on their nature. Our adoption of this pronouncement did not impact our consolidated financial statements in any material respect, but will have an impact on the manner in which we account for future acquisitions.

NON-CONTROLLING INTERESTS IN CONSOLIDATED FINANCIAL STATEMENTS

On April 1, 2009, we adopted to the provisions of ASC 810, Non-Controlling Interests in Consolidated Financial Statements. ASC 810 establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. The adoption of ASC 810 did not have a material impact on our consolidated financial position, results of operations and cash flows.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

On April 1, 2009, we adopted the provisions of ASC 815, Disclosures about Derivative Instruments and Hedging. ASC 815 requires enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for, their effect on an entity’s financial position, financial performance and cash flows. As of March 31, 2010, the Company was not engaged in any derivative or hedging activities that are required to be disclosed under the provisions of ASC 815.

FAIR VALUE MEASUREMENTS

On April 1, 2009, we adopted certain provisions of ASC 820, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value under accounting principles generally accepted in the United States of America and expands disclosures about fair value measurements. On April 1, 2009, we adopted the remaining provisions of ASC 820 as it relates to nonfinancial assets and liabilities that are not recognized or disclosed at fair value on a recurring basis. The adoption of this standard as it related to certain non-financial assets and liabilities did not impact our consolidated financial statements in any material respect.

REVENUE ARRANGEMENTS WITH MULTIPLE DELIVERABLES

In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2009-13 which will update ASC 605, Revenue Recognition, and changes the accounting for certain revenue arrangements. The new standard sets forth requirements that must be met for an entity to recognize revenue from the sale of a delivered item that is part of a multiple-element arrangement when other items have not yet been delivered and requires the allocation of arrangement consideration to each deliverable to be based on the relative selling price. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in the fiscal years beginning on or after June 15, 2010, which for us is April 1, 2011. We are currently evaluating the impact this new standard will have on our financial statements.

2. INVENTORIES

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


	March 31,
	2010		2009
Finished Goods, net	$	20,613	$	17,605
Work in Progress, net		1,161		1,004
Raw Materials		13,086		24,612

Total, net	$	34,860	$	43,221

On a continuing basis, inventory quantities on hand are reviewed and an analysis of the provision for excess and obsolete inventory is performed based primarily on the Company’s sales history and anticipated future demand. Such provision for excess and obsolete inventory approximated $1,540 and $1,502 at March 31, 2010 and 2009, respectively.

3. ASSETS HELD FOR SALE

During fiscal 2009, the Company completed the renovation of its’ new corporate headquarters located in Brentwood, NY and relocated all corporate functions to the new facility. As a result of this relocation, the Company committed to a plan to sell its’ executive office building located in Hauppauge, NY. In accordance with ASC 360, Impairment or Disposal of Long-Lived Assets, the Company classified all land, building, building improvements and any remaining furniture and fixtures associated with the executive office building as “Assets held for sale” on its consolidated balance sheet as of March 31, 2009 as a component of “Other assets, net”. In accordance with ASC 360, the net assets held for sale were recorded at their net carrying value.

The major components of the assets held for sale were as follows:


	March 31,
	2009

Land	$	263
Building		968
Building Improvements		198
Furniture and Fixtures		27


Total Assets Held for Sale	$	1,456

On March 12, 2010, the Company sold all of the remaining assets, which consisted of land, building, building improvements and furniture and fixtures, associated with the executive office building located in Hauppauge, NY. The proceeds from the sale were $2,066 and the resulting $546 gain on the sale was net of a $93 selling commission recorded as other income in the “selling, general and administrative” section of the fiscal 2010 consolidated statement of operations.

4. INCOME TAXES

Income tax expense consists of the following:


	Fiscal Year Ended March 31,
	2010		2009			2008
Current:
Federal	$	7,673	($	507	)	$	4,662
State		1,109		267			953
Deferred		1,735		3,381			2,612

	$	10,517	$	3,141		$	8,227

The following table indicates the significant elements contributing to the difference between the statutory federal tax rate and the Company’s effective tax rate for fiscal years 2010, 2009 and 2008:


	Fiscal Year Ended March 31,
	2010			2009			2008
Statutory rate		35.0	%		34.0	%		35.0	%
State taxes		3.5			4.8			3.4
Net deductible expenses		(0.1	)		—			(0.1	)

Effective tax rate		38.4	%		38.8	%		38.3	%

The components of deferred tax assets and deferred tax liabilities at March 31, 2010 and 2009 are as follows:


	Fiscal Year Ended March 31,
	2010		2009
Deferred tax assets :
Stock-based compensation	$	1,549	$	1,641
Inventory valuation allowance		531		534
Allowance for doubtful accounts		249		256
Accrued vacation		34		17

Total deferred tax assets	$	2,363	$	2,448

Deferred tax liabilities :
Depreciation and amortization	$	15,932	$	14,282

We account for income taxes in accordance with the guidance issued under ASC 740, “Income Taxes” with consideration for uncertain tax positions. We record a valuation allowance to reduce our deferred tax assets to the amount of future tax benefit that is more likely than not to be realized. As of March 31, 2010, no valuation allowance was necessary for the $2,363 deferred tax assets that existed on the Company’s books. As of March 31, 2010, the total net deferred tax liability was $13,569.

5. ACCRUED EXPENSES

Accrued expenses consist of the following:


	March 31,
	2010		2009
Employee compensation and benefits	$	5,620	$	2,626
Accrued accounts payable		2,094		1,726
Commissions		1,575		1,464
Other accrued liabilities		1,552		3,651
Accrued distributor fees		1,375		1,148
Accrued restructuring		—		28

Total accrued expenses	$	12,216	$	10,643

6. LEASES

The Company leases certain equipment, vehicles and office facilities under non-cancelable operating leases expiring in various years though fiscal 2015.

As of March 31, 2010, the Company was obligated under non-cancelable operating leases for equipment, vehicles and office facilities for minimum annual rental payments for the five succeeding fiscal years as follows:


Fiscal Year	Amount
2011	$	999
2012		711
2013		347
2014		36
2015		7

Total minimum lease payments	$	2,100

Rental expense under operating leases were $379, $461 and $676, for the fiscal years ended March 31, 2010, 2009 and 2008, respectively.

7. LONG-TERM DEBT

Long-term debt consists of the following:


	March 31,
	2010		2009
Revolving credit agreement (a)	$	—	$	17,537
Term Loan (a)		16,875		40,750
Industrial Revenue Bond (b)		1,360		1,720

	$	18,235	$	60,007
Less : current portion		15,501		6,860

Total long-term debt	$	2,734	$	53,147

(a) On October 17, 2006, the Company entered into a credit agreement with certain lenders and a bank acting as administration agent for the lenders (the “Credit Agreement”). The Credit Agreement, as amended, provides for borrowing of $85,000 and is divided into two types of borrowing facilities, (i) a term loan with a principal amount of $65,000 and (ii) revolving credit loans, which amounts may be borrowed, repaid and re-borrowed up to $20,000.

The term loan has remaining quarterly payments of: $3,250 for each installment date from June 30, 2010 through March 31, 2011, and the remaining principal amount outstanding is due on June 30, 2011. The Credit Agreement, as amended, may require the Company to make an additional term loan payment during the first quarter of fiscal 2011. The additional term loan payment of “50% of Excess Cash Flow”, as defined, requires the Company to repay the term loan in an amount equal to 50% of Excess Cash Flow, less amounts equal to any voluntary principal balance prepayments made by the Company during fiscal 2010 provided that these amounts do not exceed the differential between cash and cash equivalents as of March 31, 2010 and $3,500. Such voluntary principal balance prepayments amounted to $17,375 during the twelve months ended March 31, 2010.

Both the term loan and revolving credit loans bear interest at the “alternate base rate” plus the “applicable margin” or at the Company’s option the “LIBOR rate” plus the applicable margin. The alternate base rate shall mean a rate per annum equal to the greater of (a) the Prime rate or (b) the Base CD rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus ¹/2 of 1%. Applicable margin shall mean with respect to an adjusted LIBOR loan a range of 75 basis points to 150 basis points. With respect to an alternate base rate loan, the applicable margin shall range from 0 basis

points to 50 basis points. Effective September 30, 2008, applicable margin shall mean with respect to an adjusted LIBOR loan a range of 200 basis points to 300 basis points. With respect to an alternate base rate loan, the applicable margin shall range from 25 basis points to 125 basis points. The rates for both LIBOR and alternate base rate loans are established quarterly based upon certain agreed upon financial ratios. During fiscal 2010, the average interest rates on the term and revolving credit loans approximated 2.65% and 3.14%, respectively. Borrowings under this agreement are collateralized by all the assets of the Company, and the agreement contains certain restrictive covenants, which, among other matters, impose limitations with respect to the incurrence of liens, guarantees, merger, acquisitions, capital expenditures, specified sales of assets and prohibits the payment of dividends. The Company is also required to maintain various financial ratios which will be measured quarterly. As of March 31, 2010, the Company was in compliance with all such covenants and financial ratios and had $20,000 available for borrowing under its revolving credit agreement.

(b) On July 9, 1997, the Company acquired approximately 32 acres of land located in Arden, North Carolina and an existing 205,000 square foot building located thereon (the “Arden Facility”). The purchase price for the Arden Facility was $2,900, which was paid at closing. The acquisition of the Arden Facility was financed with the proceeds from the issuance and sale by The Buncombe County Industrial Facilities and Pollution Control Financing Authority of its $5,500 Industrial Development Revenue Bonds (Medical Action Industries Inc. Project), Series 1997 (the “Bonds”). Interest on the Bonds is payable on the first business day of each January, April, July and October commencing October 1997 and ending July 2013. Principal payments are due and payable in 60 consecutive quarterly installments of $90 commencing October 1, 1998 and ending July 1, 2013 with a final maturity payment of $190. The Bonds bear interest at a variable rate, determined weekly. The interest rate on the Bonds at March 31, 2010 was .50% per annum. In connection with the issuance of the Bonds, the Company entered into a Letter of Credit and Reimbursement Agreement dated as of July 1, 1997 with a bank for approximately $5,800 (the “Reimbursement Agreement”) to support principal and interest payments of the Bonds and requires payment of an annual fee of .85% of the remaining balance. The Company also entered into a Remarketing Agreement, pursuant to which the Remarketing Agent will use its best efforts to arrange for a sale in the secondary market of such Bonds. The Remarketing Agreement provides for the payment of an annual fee of .125% of the remaining balance. As of March 31, 1998, the Company had used all of the $5,500 proceeds from the Bonds for the purchase and rehabilitation of the Arden Facility and for the acquisition of machinery and equipment.

Maturities of long-term debt for the next five fiscal years are as follows:


Fiscal Year	Amount
2011	$	15,501
2012		2,094
2013		360
2014		280
2015		—

Total	$	18,235

The Company has unamortized deferred financing costs of $115 and $155 included in other assets, net at March 31,

2010 and 2009, respectively. These costs related to the Company’s term loan and revolving credit agreement. These costs are being amortized each year in the amount of approximately $72 in fiscal year 2011, $42 in fiscal year 2012 and $1 in fiscal year 2013.

8. FAIR VALUE MEASUREMENTS

We adopted ASC 820, Fair Value Measurements in two steps; effective April 1, 2008, we adopted it for all financial instruments and non-financial instruments accounted for at fair value on a recurring basis and effective April 1, 2009, for all non-financial instruments accounted for at fair value on a non-recurring basis. This guidance establishes a new framework for measuring fair value and expands related disclosures. Broadly, the framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. It also establishes a three-level valuation hierarchy based upon observable and non-observable inputs.

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of March 31, 2010 and 2009:


	Fair Value Measurements at March 31, 2010
	Carrying Value		Level 1		Level 2		Level 3
Liabilities:
Revolving credit agreement		—		—		—		—
Term loan		1,734		1,734		—		—

	Fair Value Measurements at March 31, 2009
	Carrying Value		Level 1		Level 2		Level 3
Liabilities:
Revolving credit agreement		17,537		17,537		—		—
Term loan		34,250		34,250		—		—

9. EARNINGS PER SHARE

The following is a reconciliation of the numerator and denominator of the basic and diluted net earnings per share computations for the fiscal years ended March 31, 2010, 2009 and 2008, respectively.


	March 31,
	2010		2009		2008
NUMERATOR :
Net income for basic and dilutive earnings per share	$	16,841	$	4,955	$	13,225

DENOMINATOR :
Denominator for basic earnings per share - weighted average shares		16,132,161		16,025,369		15,951,924
Effect of dilutive securities:
Employee and director stock options		142,615		133,331		380,462

Denominator for diluted earnings per share - adjusted weighted average shares		16,274,775		16,158,700		16,332,386


Net income per share basic	$	1.04	$	0.31	$	0.83


Net income per share diluted	$	1.03	$	0.31	$	0.81

10. SHAREHOLDERS’ EQUITY AND STOCK PLANS

We account for our three stock-based compensation plans in accordance with the provisions of ASC 718, Stock Compensation. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the grants, and is recognized as an expense over the service period applicable to the grantee. The service period is the period of time that the grantee must provide services to the Company before the stock-based compensation is fully vested. Stock-based compensation expense for the non-vested portion of awards granted prior to the effective date is being recognized over the remaining service period using the fair-value based compensation cost estimated under the provisions of ASC 718.

STOCK OPTIONS

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

RESTRICTED STOCK AWARDS

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

The following is a summary of the changes in restricted stock granted under the 1994 Stock Incentive Plan for the fiscal years presented:


	Fiscal Year Ended March 31,
	2010					2009					2008
	Shares			Weighted Average Price		Shares			Weighted Average Price		Shares			Weighted Average Price
Beginning Balance		27,186		$	14.87		39,374		$	14.42		48,750		$	14.86
Granted		—			—		—			—		—			—
Vested		(7,031	)	$	14.90		(12,188	)	$	14.87		(9,376	)	$	16.72
Cancelled		(12,656	)	$	14.81		—			—		—			—

Ending Balance		7,499		$	14.92		27,186		$	14.87		39,374		$	14.42

VALUATION ASSUMPTIONS

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


	March 31,
	2010			2009			2008
Expected dividend yield		0	%		0	%		0	%
Expected volatility		56.43	%		35.65	%		34.60	%
Risk-free interest rate		3.54	%		3.91	%		4.70	%
Expected life (years)		5.33			5.33			5.33

STOCK-BASED COMPENSATION EXPENSE

The Company recognized stock-based compensation expense (before deferred income tax benefits) for awards granted under the Company’s stock option plans in the following line items in the consolidated statement of operations for the fiscal years ended March 31, 2010, 2009 and 2008:


	2010		2009		2008
Cost of sales	$	180	$	271	$	284
Selling, general and administrative expenses		1,312		1,177		1,322

Stock-based compensation expense before income tax benefits	$	1,492	$	1,448	$	1,606

Net income from operations and net income was impacted by $918, $886 and $991 in stock-based compensation expense or $.06, $.05 and $.06 per diluted share for the fiscal years ended March 31, 2010, 2009 and 2008, respectively.

Information regarding the Company’s stock options activity for the fiscal years ended is summarized below:


	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
Options outstanding at April 1, 2007		1,418,562		$	23.05
Granted		282,200			21.41
Exercised		(204,875	)		5.88
Forfeited		(105,825	)		17.95

Options outstanding at March 31, 2008		1,390,062		$	12.52

Granted		264,000			15.99
Exercised		(7,500	)		11.67
Forfeited		(131,500	)		15.88

Options outstanding at March 31, 2009		1,515,062		$	12.85

Granted		343,000			10.80
Exercised		(316,250	)		9.01
Forfeited		(222,250	)		14.93

Options outstanding at March 31, 2010		1,319,562		$	12.88		6.4	$	1,796


Exercisable at March 31, 2010		794,487		$	12.30		4.9	$	1,293

The total fair value of shares vested during the fiscal year ended March 31, 2010 was $1,297. As of March 31, 2010, there was $3,291 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company’s plans and is expected to be recognized over a weighted average period of 1.54 years.

Summarized information about stock options outstanding as of March 31, 2010 and 2009 is as follows:


	2010
	Outstanding						Exercisable
Range of Exercise Prices per Common Share	Options		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price per Common Share		Options		Weighted Average Exercise Price per Common Share
$ 1.39 – $ 10.39		258,437		3.0	$	7.78		231,187	$	7.48
$ 10.40 – $ 19.39		899,725		7.2		12.77		477,600		12.95
$ 19.40 – $ 23.27		161,400		7.2		21.66		85,700		21.68

$ 1.39 – $ 23.27		1,319,562		6.4	$	12.88		794,487	$	12.30



	2009
	Outstanding						Exercisable
Range of Exercise Prices per Common Share	Options		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price per Common Share		Options		Weighted Average Exercise Price per Common Share
$ 1.39 – $ 10.39		442,187		3.3	$	7.27		439,187	$	7.25
$ 10.40 – $ 19.39		862,175		7.0		13.55		561,900		12.19
$ 19.40 – $ 23.27		210,700		8.1		21.69		60,175		21.74

$ 1.39 – $ 23.27		1,515,062		6.1	$	12.85		1,061,262	$	10.69

The aggregate pre-tax intrinsic value (the difference between the company’s closing stock price on the last trading day of fiscal 2010 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on March 31, 2010 was $1,293. This amount changes based on the fair market value of the Company’s stock. The total intrinsic value of options exercised for the years ended March 31, 2010, 2009 and 2008 were $1,739, $13 and $3,482, respectively.

The following is a summary of changes in non-vested stock options for the fiscal year ended March 31, 2010:


	Shares			Weighted Average Grant Date Fair Value
Non-vested shares at April 1, 2009		453,800		$	7.05
Granted		343,000			5.74
Forfeited		(86,126	)		6.63
Vested		(187,100	)		6.93

Non-vested shares at March 31, 2010		523,574		$	6.27

The options and bonus shares available for future issuance as of March 31, 2010 are shown below:


	Non-Qualified Option Plan			1994 Stock Incentive Plan			1996 Directors Stock Option			Total
Authorized by Directors and Stockholders		3,975,000			3,525,000			750,000			8,250,000
Options previously exercised		(3,169,187	)		(2,017,437	)		(100,000	)		(5,286,624	)
Bonus shares previously granted		—			(93,750	)		—			(93,750	)
Options outstanding		(515,875	)		(731,188	)		(72,500	)		(1,319,563	)

Remaining for future issuance		289,938			682,625			577,500			1,550,063

11. RETIREMENT PLANS

401(k) PLAN

Effective January 1, 2010, the Company amended its 401(k) retirement plan to be subject to the provisions of a “Safe Harbor” 401(k) plan. Under the provisions of the Safe Harbor plan, any discretionary matching company contribution becomes 100% vested upon match. The plan provides for a discretionary match of up to 4% of an eligible employee’s compensation. Under the prior plan, adopted in April 1988, any remaining unvested company discretionary matching contributions are subject to a four (4) year vesting schedule. The Company’s contributions, under both the 1988 plan and the Safe Harbor plan, amounted to $365 in fiscal 2010, $533 in fiscal 2009 and $582 in fiscal 2008.

DEFINED BENEFIT PLAN

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

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


	2010			2009
Actuarial present value of benefit obligations:
Vested benefit obligation	$	(1,014	)	$	(1,014	)

Accumulated benefit obligation		(1,314	)		(1,031	)

Projected benefit obligation	$	(1,314	)	$	(1,031	)
Plan assets at fair value as of measurement date		792			642


Projected benefit obligation in excess of plan assets	$	(148	)	$	(122	)
Unrecognized actuarial loss		(374	)		(267	)

Accrued pension costs	$	(522	)	$	(389	)


Amount recognized in consolidated balance sheet:
Accrued pension costs	$	(522	)	$	(389	)
Accrued benefit liability		(374	)		(267	)

Minimum pension liability adjustment included in accumulated other comprehensive income (loss):
Net amount recognized		(374	)		(267	)

	$	(522	)	$	(389	)

Weighted-average actuarial assumptions used to calculate net periodic pension cost, fiscal year-end liabilities and funding status as of March 31, 2010 (measurement date) were as follows:


	2010			2009
Rate of future benefit increases		none assumed			none assumed
Discount rate		6.14	%		7.48	%
Expected rate of return on plan assets		6.00	%		6.00	%

The net periodic pension cost was as follows:


	2010			2009
Service cost - benefits earned during the period	$	—		$	—
Interest cost on projected benefit obligation		76			61
Loss on assets		(38	)		(78	)
Net amortization and deferral		12			—

Net periodic pension cost	$	50		$	(17	)

Weighted-average asset allocation by asset category as of March 31, 2010 and 2009 were as follows:


	Target Range		2010		2009
Equity securities		30%-90%		35%		81%
Debt securities		10%-70%		63%		17%
Cash		0%-20%		2%		2%

Total				100%		100%

Benefits paid were approximately $38 and $34 for the fiscal years ended March 31, 2010 and 2009, respectively. The Company estimates the following future benefit payments under the plan for the fiscal years ending March 31:


Fiscal Year	Amount
2011	$	42
2012		41
2013		43
2014		44
2015		45

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

12. OTHER MATTERS

The Company is a party to a lawsuit arising out of the conduct of its ordinary course of business. While the results of such lawsuit cannot be predicted with certainty, management does not expect that the ultimate liabilities, if any, will have a material adverse effect on the financial position or results of operations of the Company.

The Company operates in one industry, disposable medical products.

The Company’s international sales were $8,319, $9,096 and $8,888 for the fiscal years ended March 31, 2010, 2009 and 2008, respectively. The majority of these sales were to customers based in North America.

The Company has entered into agreements with three of its executive officers and a vice president, which provide certain benefits in the event of a change in control of the Company. A “change in control” of the Company is defined as, in general, the acquisition by any person of beneficial ownership of 20% or more of the voting stock of the Company, certain business combinations involving the Company or a change in a majority of the incumbent members of the Board of Directors, except for changes in the majority of such members approved by such members. If, within two years after a change in control, the Company or, in certain circumstances, the executive, terminates his employment, the executive is entitled to a severance payment equal to three times (i) such executive’s highest annual salary within the five-year period preceding termination plus (ii) a bonus increment equal to the average of the two highest of the last five bonuses paid to such

executive. In addition, the executive is entitled to the continuation of all employment benefits for a three-year period, the vesting of all stock options and certain other benefits, including payment of an amount sufficient to offset any “excess parachute payment” excise tax payable by the executive pursuant to the provisions of the Internal Revenue Code of any comparable provision of state law. As of March 31, 2010, the estimated potential aggregate compensation payable to these three executive officers and vice president under the Company’s compensation and benefit plans and arrangements in the event of termination of such executive’s employment following a change in control amounted to approximately $7,325.

The Medegen Tennessee facility is comprised of approximately 25 acres in a light industrial park, located in Gallaway, TN and was acquired by Medegen in 1998. As part of its due diligence activities prior to the acquisition of the facility by Medegen, consultants found chlorinated solvents in the groundwater adjacent to the manufacturing plant. The identified groundwater contamination is in the process of being remediated.

The prior owner of the facility (“Indemnitor”) retained responsibility for the remediation of the contamination, and Medegen is fully indemnified for all costs associated with the environmental remediation as well as any claims that may arise, including third party claims. As security for the indemnification obligations, Indemnitor is required, on a quarterly basis, to provide proof of cash balances, marketable securities or available, unused lines of credit equal to the expected cost of all future remediation activities plus $500. Now that full-scale remediation has begun, Indemnitor will be required to provide Letters of Credit (“LC”) to secure their future obligations beginning with a $3,000 LC in December 2009, dropping to $2,000 in December 2011 and reducing to $1,000 from December 2014 through December 2017. The LC amounts approximate the expected remaining remediation costs at each point in time. No assurance can be given that the Indemnitor will have the financial resources to complete the environmental remediation and/or defend any claims that may arise, that recommended cleanup levels will be achieved over the long term, or that further remedial activities will not be required.

13. SUMMARY OF QUARTERLY FINANCIAL DATA

Selected unaudited, quarterly financial data of the Company for the fiscal years ended March 31, 2010 and 2009 appear below.


	Quarter Ended
	June 30		September 30		December 31		March 31
2010
Net Sales	$	70,687	$	75,060	$	73,176	$	71,223
Gross Profit		16,922		17,229		17,215		17,538
Net income		3,650		3,987		4,010		5,194
Net income per common share
Basic	$	0.23	$	0.25	$	0.25	$	0.32

Diluted	$	0.23	$	0.25	$	0.25	$	0.32


	Quarter Ended
	June 30		September 30		December 31		March 31
2009
Net Sales	$	77,395	$	73,824	$	71,995	$	72,856
Gross Profit		15,050		11,272		10,083		14,530
Net income		2,546		480		157		1,772
Net income per common share
Basic	$	0.16	$	0.03	$	0.01	$	0.11

Diluted	$	0.16	$	0.03	$	0.01	$	0.11

14. SUBSEQUENT EVENTS

Subsequent to March 31, 2010, inventories at the Company’s off site storage facility in Tennessee were damaged as a result of flooding. At this time the Company is assessing the damages. While no specific dollar amount can be determined at this point it is estimated that of the approximately $2,400 in inventory located at the off site storage facility as of the date of the flood, approximately $1,000-$1,500 is damaged. However, the Company believes a portion of these damages will be recovered under its insurance policy.

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A – CONTROLS AND PROCEDURES

The Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Act) as of March 31, 2010. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2010, the Company’s disclosure controls and procedures were (i) designed to ensure that material information relating to the Company, is made known to the Company’s Chief Executive Officer and Chief Financial Officer, particularly during the period in which this report was being prepared and (ii) effective, in that they provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended March 31, 2010 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. See Management’s Annual Report on Internal Control Over Financial Reporting on page 33.

The Company’s independent registered public accounting firm has also issued a report on the Company’s internal control over financial reporting. This report appears on page 34.

ITEM 9B – OTHER INFORMATION

None.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Medical Action Industries Inc.

We have audited the accompanying consolidated balance sheets of Medical Action Industries Inc. (a Delaware corporation) and subsidiaries as of March 31, 2010 and 2009, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended March 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Medical Action Industries Inc. and subsidiaries as of March 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2010 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 of the notes to the consolidated financial statements, the Company adopted new accounting guidance related to the accounting for uncertainty in income taxes effective April 1, 2007.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Medical Action Industries Inc. and subsidiaries’ internal control over financial reporting as of March 31, 2010, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated June 2, 2010 expressed an unqualified opinion thereon.

/s/ GRANT THORNTON LLP

New York, New York

June 2, 2010

Management’s Annual Report on Internal Control Over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15(d)-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s Chief Executive Officer and Chief Financial Officer and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets of the Company;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2010. In making this assessment, the Company’s management used the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on our evaluation, the Company’s management has concluded that, as of March 31, 2010, our internal control over financial reporting is effective.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Grant Thornton LLP, an independent registered public accounting firm, has issued their report on the Company’s internal control over financial reporting as of June 2, 2010.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Medical Action Industries Inc.

We have audited Medical Action Industries Inc. (a Delaware Corporation) and subsidiaries’ internal control over financial reporting as of March 31, 2010, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Medical Action Industries Inc. and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on Medical Action Industries Inc. and subsidiaries’ internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, Medical Action Industries Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of March 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Medical Action Industries Inc. and subsidiaries as of March 31, 2010 and 2009, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended March 31, 2010, and our report dated June 2, 2010 expressed an unqualified opinion on those consolidated financial statements and includes an explanatory paragraph relating to the Company’s adoption of new accounting guidance related to the accounting for uncertainty in income taxes effective April 1, 2007.

/s/ GRANT THORNTON LLP

New York, New York

June 2, 2010

PART IV

ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) (1) The following financial statements are included in Item 8 of this report:


Consolidated Balance Sheets at March 31, 2010 and 2009		3

Consolidated Statements of Operations for the Years ended March 31, 2010, 2009 and 2008		4

Consolidated Statements of Shareholders’ Equity for the Years ended March 31, 2010, 2009 and 2008		5

Consolidated Statements of Cash Flows for the Years ended March 31, 2010, 2009 and 2008		6

Notes to Consolidated Financial Statements		7-30

(a) (2) The following Supplemental Schedule is included in this report:


Schedule II – Valuation and Qualifying Accounts		S-1

All other schedules are omitted because they are not required, not applicable or the information is included in the financial statements or notes thereto.

(a) (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).

2.3		Asset Purchase Agreement dated as of March 9, 1999 between Acme United Corporation and Registrant (Exhibit 2 to the Company’s Current Report on Form 8-K dated April 1, 1999).

2.4		Asset Purchase Agreement dated as of October 3, 2001 between Medi-Flex Hospital Products, Inc. and Registrant (Exhibit 2 to the Company’s Current Report on Form 8-K dated November 30, 2001).

2.5		Asset Purchase Agreement dated as of May 9, 2002 between MD Industries Acquisition LLC and Registrant (Exhibit 2 to the Company’s current report on Form 8-K dated June 21, 2002).

2.6		Asset Purchase Agreement dated as of August 30, 2002, between Maxxim Medical, Inc. and Registrant (Exhibit 2 to the Company’s current report on Form 8-K dated October 25, 2002.

2.7		Membership Interest Purchase Agreement dated as of October 17, 2006 among Registrant, Medegen Holdings, LLC; Medegen Medical Products, LLC; Medegen Newco, LLC; and MAI Acquisition Corp. (Exhibit 2 to the Company’s Current Report on Form 8-K dated October 18, 2006).

3.1		Certificate of Incorporation, as amended. (Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2002)

3.2		By-Laws, as amended (Exhibit 3(b) to the Company’s Annual Report on Form 10-K for the year ended March 31, 1988).



10.1⁺		1996 Non-Employee Director Stock Option Plan, as amended (Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2007)

10.2⁺		1989 Non-Qualified Stock Option Plan, as amended (Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2007)

10.3⁺		1994 Stock Incentive Plan, as amended (Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2007)

10.4⁺		Employment Agreement dated as of February 1, 1993 between the Registrant and Paul D. Meringolo (Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the year ended March 31, 1993).

10.5		Modification Agreement dated as of June 3, 2003 between the Registrant and Paul D. Meringolo (Exhibit 10 to the Company’s current report on Form 8-K dated June 3, 2003).

10.6		Letter Agreement dated as of April 13, 2007 between Registrant and Paul D. Meringolo (Exhibit 10 to the Company’s current report on Form 8-K dated April 13, 2007).

10.7⁺		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).

13.1		Annual Report to Stockholders for the year ended March 31, 2010

23.1^*		Consent of Registered Independent Public Accounting Firm

31.1^*		Certification of Principal Executive Officer of Medical Action Industries Inc., as required by Rule 13a – 14(a) of the Securities Exchange Act of 1934.

31.2^*		Certification of Principal Financial Officer of Medical Action Industries Inc., as required by Rule 13a – 14(a) of the Securities Exchange Act of 1934.

32.1^*#		Certification of Chief Executive Officer and Chief Financial Officer of Medical Action Industries Inc., pursuant to 18 U.S.C. §1350.

99.1		Additional Exhibit – Undertakings

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, 2010 is not to be deemed “filed” as part of this report.

*	Filed herewith

+	Identifies management contracts and compensatory plans and arrangements

#	Not considered to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of that section

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 17th day of December, 2010.


MEDICAL ACTION INDUSTRIES INC.

By:		/s/ Paul D. Meringolo
		Paul D. Meringolo
		Chairman of the Board
		Chief Executive Officer and President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on December 17, 2010 by the following persons in the capacities indicated:


/s/ Paul D. Meringolo				Chairman of the Board
Paul D. Meringolo				Chief Executive Officer, President

REPORT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM ON SCHEDULE

Board of Directors and Shareholders

Medical Action Industries Inc.

We have audited in accordance with the standards of the Public Company Accounting Oversight Board (United States) the consolidated financial statements of Medical Action Industries Inc. and subsidiaries (the “Company”) referred to in our report dated June 2, 2010, which is included in the annual report to security holders and included in Item 8 of this Form 10-K. Our report on the consolidated financial statements includes an explanatory paragraph relating to the Company’s adoption of new accounting guidance related to the accounting for uncertainty in income taxes effective April 1, 2007. Our audits of the basic financial statements included the financial statement scheduled listed in the index appearing under Item 15(a)(2), which is the responsibility of the Company’s management. In our opinion, this financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ GRANT THORNTON LLP

New York, New York

June 2, 2010

SCHEDULE II

MEDICAL ACTION INDUSTRIES, INC

Valuation and Qualifying Accounts

Fiscal Years Ended March 31, 2010, 2009 and 2008


Description	Balance at Beginning of Year		Gross Amount Charged to Costs and Expenses		Charged to Other Accounts		Other Charges / (Deductions)					Balance at End of Year

Year Ended March 31, 2010
Allowance for doubtful accounts	$	663	$	72	$	—	$	(76	)	^(a	⁾	$	659
Reserve for slow moving and obsolete inventory		1,502		510		—		(472	)	^(b	⁾		1,540

	$	2,165	$	582	$	—	$	(548	)			$	2,199

Year Ended March 31, 2009
Allowance for doubtful accounts	$	585	$	72	$	—	$	6				$	663
Reserve for slow moving and obsolete inventory		891		1,069		—		(458	)	^(b	⁾		1,502

	$	1,476	$	1,141	$	—	$	(452	)			$	2,165

Year Ended March 31, 2008
Allowance for doubtful accounts	$	537	$	86	$	—	$	(38	)	^(a	⁾	$	585
Reserve for slow moving and obsolete inventory		664		402		—		(175	)	^(b	⁾		891

	$	1,201	$	488	$	—	$	(213	)			$	1,476

(a)	Write off of uncollected accounts

(b)	Disposal of slow moving and obsolete inventory

S-1

MEDICAL ACTION INDUSTRIES INC - FORM 10-K/A - December 17, 2010

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