<PAGE>   1

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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                 ---------------

                                    FORM 10-K

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

                FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                       OR

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

               FOR THE TRANSITION PERIOD FROM _______ TO _________

                        COMMISSION FILE NUMBER 000-24025

                         HORIZON MEDICAL PRODUCTS, INC.
             (Exact name of registrant as specified in its charter)

                 GEORGIA                              58-1882343
     (State or other jurisdiction of               (I.R.S. Employer
      incorporation or organization)              Identification No.)

                                 ONE HORIZON WAY
                                  P.O. BOX 627
                            MANCHESTER, GEORGIA 31816
          (Address of principal executive offices, including zip code)

                                 (706) 846-3126
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:  COMMON STOCK,
$.001 PAR VALUE

Securities registered pursuant to Section 12(g) of the Act:  NONE.

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. [ ]

The aggregate market value of the voting stock held by non-affiliates of the
Registrant was $11,681,892 on March 15, 2000, based on the closing sale price
of such stock on The American Stock Exchange. The number of shares outstanding
of the Registrant's Common Stock, $.001 par value, as of March 15, 2000 was
13,366,278.

                       DOCUMENTS INCORPORATED BY REFERENCE

         The information required by Part III is incorporated by reference from
the proxy statement of the Company for the 2000 Annual Meeting of Shareholders
to be filed with the Commission pursuant to Regulation 14A not later than 120
days after the end of the fiscal year covered by this report.

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                                TABLE OF CONTENTS
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                                                                                                     PAGE NO.
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   <S>                                                                                               <C>
   PART I

          1.        Business......................................................................        1
          2.        Properties....................................................................       11
          3.        Legal Proceedings.............................................................       11
          4.        Submission of Matters to a Vote of Security Holders...........................       12

   PART II

          5.        Market for the Registrant's Common Stock and Related
                    Security Holder Matters.......................................................       12
          6.        Selected Financial Data.......................................................       13
          7.        Management's Discussion and Analysis of Financial Condition
                    and Results of Operations.....................................................       14
         7A.        Quantitative and Qualitative Disclosures About Market Risk....................       28
          8.        Financial Statements and Supplementary Data...................................       28
          9.        Changes in and Disagreements with Accountants on Accounting
                    and Financial Disclosure......................................................       28

   PART III

         10.        Directors and Executive Officers of the Registrant............................       28
         11.        Executive Compensation........................................................       29
         12.        Security Ownership of Certain Beneficial Owners and
                    Management....................................................................       29
         13.        Certain Relationships and Related Transactions................................       29

   PART IV

         14.        Exhibits, Financial Statement Schedules and Reports on Form 8-K...............       30

   SIGNATURES.....................................................................................       35
</TABLE>



<PAGE>   3

                                     PART I

ITEM 1.  BUSINESS

        Horizon Medical Products, Inc. (including its subsidiaries, the
"Company"), headquartered in Manchester, Georgia, is a specialty medical device
company focused on manufacturing and marketing vascular access products. The
Company's oncology product lines include implantable ports, tunneled central
venous catheters, and stem cell transplant catheters used primarily in cancer
treatment protocols. The Company has a complete line of acute and chronic
dialysis catheters and immediate access hemodialysis grafts used for kidney
failure patients and a specialty line of embolectomy balloon catheters, carotid
balloon shunts and occlusion balloon products used to maintain the vascular
system. In addition, the Company distributes certain specialty devices used
primarily in general and emergency surgery, radiology, anesthesiology,
respiratory therapy, and blood filtration and critical care settings.

        The Company was incorporated and began its operations in February 1990
as a distributor of medical devices and began to distribute vascular access
devices in 1990. In November 1992, the Company entered into a collaborative
effort with a leading heart valve manufacturer to design and develop a new line
of vascular access ports for the Company. This new line of ports, the
Triumph-1(R) line, was introduced in September 1994. The Company continues to
market the Triumph-1(R) line of vascular access ports. Since 1996, certain
models in the Triumph-1(R) line have been manufactured for the Company by ACT
Medical. In May 1995, the Company began to distribute the NeoStar Medical(R)
line of hemodialysis catheters. In March 1996, the Company began construction of
a 20,000 square foot manufacturing, distribution and administrative facility in
Manchester, Georgia. The Company began manufacturing the NeoStar Medical(R)
product line at this facility in October 1996 and expanded this facility in 1998
to approximately 45,000 square feet. In July 1997, the Company acquired the port
business of Strato(R)/Infusaid(TM). The primary product lines obtained in the
Strato(R)/Infusaid(TM) acquisition included the LifePort(R) and Infuse-a-Port(R)
vascular access ports, and the Infuse-a-Cath(R) line of catheters. In 1998, the
Company made additional product acquisitions and acquired the CVS AND Stepic
medical device distribution businesses. See "-- 1998 Acquisitions" below.
Distribution of non-Company medical devices through Stepic and CVS currently
comprises approximately 54.1% of the Company's revenue.

DISTRIBUTION AGREEMENTS

        PERMA-SEAL DIALYSIS ACCESS GRAFT. On December 11, 1998, the Company
entered into a multi-year distribution agreement with Possis Medical, Inc. for
the Perma-Seal Dialysis Access Graft. On February 14, 1999, the Company launched
the Perma-Seal Dialysis Access Graft and began marketing the product on a
worldwide basis. The Perma-Seal Graft is constructed of silicone elastomer and
polyester yarn and is designed for immediate access and is capable of allowing
the dialysis clinician to access the patient the same day as the graft is
implanted.

        OTHER DISTRIBUTION AGREEMENTS. On September 15, 1999, the Company
entered into a distribution agreement with Flanagan Instruments, Inc.,
principally covering the states of Louisiana, Mississippi, lower Alabama, and
western Florida. On September 30, 1999, the Company entered into a distribution
agreement with Kentec Medical, Inc., principally covering the states of
California, Nevada and Arizona. Each of these distribution agreements is for the
distribution of the full range of products manufactured by the Company.

1998 ACQUISITIONS

   VASCULAR ACCESS PRODUCTS

        Norfolk. On June 2, 1998, the Company consummated the acquisition of
certain assets used in the human vascular access business of Norfolk Medical
Products, Inc. ("Norfolk"). The assets included all of the assets used by
Norfolk in manufacturing its human port products line. With the acquisition of
Norfolk, the Company acquired several vascular products including the Vortex(TM)
port, the TitanPort(TM), the OmegaPort(R) and other port accessories. The
Company (i) paid Norfolk and its sole shareholder approximately $7.4 million in
cash, and (ii) paid approximately $1.86 million in cash into an escrow account,
of which $930,000 was released in December 1998. The remaining amount was
released during 1999.



<PAGE>   4

        IFM. On May 19, 1998, the Company acquired the vascular access port
product line of Ideas for Medicine, Inc. ("IFM"), a wholly owned subsidiary of
Cryolife, Inc., for approximately $100,000 in cash and a promissory note in the
amount of $482,110, which has been paid. On September 30, 1998, the Company
consummated the acquisition of certain medical device products, product lines
and assets used in the manufacture and sale of such medical devices by IFM. The
assets acquired included certain of the assets used by IFM to manufacture its
product line. In this transaction, the Company acquired several products
including embolectomy catheters, carotid shunts, occlusion catheters and
surgical instruments (the "Products"). The Company paid IFM $15,000,000 in cash.
In connection with the acquisition, the Company and IFM entered into a
manufacturing agreement (the "Manufacturing Agreement") pursuant to which, for a
four year term, IFM agreed to manufacture exclusively for the Company, and the
Company agreed to purchase from IFM a minimum of $6,000,000 per year of the
Products.

        On June 22, 1999, IFM notified the Company that the Company was in
breach of the Manufacturing Agreement. IFM notified the Company that the Company
was in violation of the payment provision contained in the Manufacturing
Agreement, which calls for the Company to pay amounts due to IFM within 45 days
of the date of each invoice. The total accounts payable due to IFM under the
Manufacturing Agreement at March 1, 2000 was approximately $660,000.
Additionally, IFM notified the Company that the Company was in violation of the
Manufacturing Agreement due to the nonpayment of interest related to such past
due accounts payable. In addition, IFM notified the Company that the Company was
in breach for failing to provide a production schedule at the end of the first
six months of the term of the Manufacturing Agreement and on a monthly basis
thereafter. Finally, IFM notified the Company that the Company was in breach for
the failure to provide packaging and labeling. The Company is currently in
default under the Manufacturing Agreement. As a result, IFM may terminate the
Manufacturing Agreement and may be entitled to receive an amount equal to (i)
the direct costs incurred by IFM for all purchase orders committed for raw
materials and components, (ii) the direct and indirect costs incurred by IFM for
six months after such termination for labor utilized in the manufacture of the
Products, and (iii) the fixed facility costs incurred by IFM in connection with
the manufacture of the Products for the remainder of the term of the
Manufacturing Agreement.

        The Company has continued to indicate to IFM that it will not be able to
meet the minimum purchase requirements outlined in the Manufacturing Agreement.
The Company is currently in negotiations with IFM to purchase the existing
inventory, fixed assets and leasehold improvements. The Company would assume
responsibility for the plant and manufacturing of the IFM product line. The
parties are currently operating under a verbal modification to the Manufacturing
Agreement. Should the Company be unable to revise the Manufacturing Agreement to
include acceptable terms or fail to continue to operate under the verbal
modification to the Manufacturing Agreement, then any liabilities incurred as a
result of the default could have a material adverse effect on the Company's
consolidated financial position and disrupt the Company's ability to obtain and
sell the Products.

   MEDICAL DEVICE DISTRIBUTION

        STEPIC AND CVS. Effective as of September 1, 1998, the Company
consummated the acquisition of certain assets used in the distribution and sale
of medical devices by Columbia Vital Systems, Inc. ("CVS"). The Company (i) paid
CVS $4 million in cash at closing, (ii) will pay $225,000 in September 2000 and
(iii) may pay up to an additional $3 million subject to the terms of the
purchase agreement, including the successful achievement of future sales
targets. Effective October 15, 1998, the Company consummated the acquisition of
the outstanding stock of Stepic Corporation ("Stepic"). The assets acquired
included primarily accounts receivable and inventory derived from and used in
the distribution of medical products. The Company paid Stepic's shareholders $8
million in cash at closing, paid $2.4 million in December 1999, is obligated to
pay an additional $4.8 million over a two year period (which is supported by
standby letters of credit), and paid $27,266 after closing pursuant to a working
capital adjustment. In addition, the Company agreed to pay up to an additional
$4.8 million under the terms of the stock purchase agreement upon the successful
achievement of certain specified future earnings targets by Stepic, of which
amount $2.05 million was earned during 1999 and is being paid, together with
interest, over a period from December 1999 through April 2000. The CVS and
Stepic acquisitions allowed the Company to form a medical device distribution
business currently with an aggregate of 22 sales representatives distributing
general and emergency surgery, radiology, anesthesiology, respiratory therapy,
blood filtration and critical care medical products, as well as products
manufactured and distributed by the Company.



                                       2
<PAGE>   5

DESCRIPTION OF BUSINESS BY INDUSTRY SEGMENT

Product Manufacturing

        The Company manufactures and/or markets vascular access products
including implantable ports, hemodialysis catheters, central venous catheters,
embolectomy catheters, hemodialysis access grafts, carotid shunts and
accessories used in vascular procedures. Vascular access ports are implantable
devices utilized for the central venous administration of a variety of medical
therapies and for blood sampling and diagnostic purposes. Central venous access
facilitates a more systemic delivery of treatment agents, while mitigating
certain of the harsh side effects of certain treatment protocols and eliminating
the need for repeated access to peripheral veins. Once implanted in the body, a
port can be utilized for up to approximately 2,000 accesses. The Company's
vascular access ports are used primarily in systemic or regional short- and
long-term cancer treatment protocols that require frequent infusions of highly
concentrated or toxic medications (such as chemotherapy agents, antibiotics or
analgesics) and frequent blood samplings. Port sales totaled $10 million, $16.8
million and $15.9 million for 1997, 1998 and 1999, respectively. Specialty
surgical product (IFM) sales totaled $2.1 million and $7.7 million for October
1 through December 31, 1998 and 1999, respectively.

        The Company's lines of vascular access ports consist of the following
families of products: (i) Triumph-1(R); (ii) LifePort(R); (iii)
Infuse-a-Port(R); (iv) Vortex(TM) port; (v) TitanPort(TM); and (vi)
OmegaPort(R).

        The Company produces and/or markets hemodialysis, apheresis and
embolectomy catheters. Hemodialysis catheters are used in the treatment of
patients suffering from renal failure who are required to undergo short-term
(acute) care or long-term (chronic) hemodialysis, a process involving the
removal of waste products from the blood by passing a patient's blood through a
dialysis machine. Stem cell apheresis is a protocol for treating certain forms
of mid- and late-stage cancers, particularly breast cancer. The typical
apheresis procedure involves the insertion of a catheter into a patient through
which (i) blood is withdrawn from the patient, cycled through an apheresis
machine in which stem cells (cells which perform a key role in the body's immune
system) are removed from the blood and the blood is reinfused into the body,
(ii) high doses of chemotherapy agents, as well as antibiotics and blood
products, are administered to the patient over extended periods of time, and
(iii) the previously removed stem cells are subsequently reintroduced into the
patient. Embolectomy catheters remove emboli from clotted hemodialysis grafts by
using a balloon and catheter system that helps prevent graft damage. The
Company's catheters are used primarily in hemodialysis and apheresis procedures.

        The Company's catheters include the following families of products: (i)
single and dual lumen hemodialysis catheters; (ii) Pheres-Flow(R) triple lumen
catheters; and (iii) Infuse-a-Cath(R) catheters. The Company expects that its
specialty hemodialysis and apheresis families of catheters will continue to
benefit from the unique Circle C(R) and Pheres-Flow(R) designs and the growth of
underlying markets.

        The Company maintains a sales and marketing organization for its
vascular access products of approximately 42 full-time employees and 9
independent specialty distributors employing over 75 sales representatives. The
Company's direct sales force focuses primarily on vascular and general surgeons
who implant vascular access devices and other physicians and clinicians who
utilize vascular access devices in the delivery of treatments. The Company's
marketing strategy emphasizes the importance of building relationships with
these medical professionals in order to provide such professionals with the
benefits of the Company's broad knowledge of vascular access products and
procedures and focused clinical support. These relationships also facilitate the
Company's ability to modify its product lines in response to new clinical
protocols and to meet its customers' changing needs. The Company also has a
network of 35 active distributors in Europe and 53 active international
distributors outside of Europe.

        Hospital chains and large buying groups have played, and are expected to
continue to play, an increasingly significant role in the purchase of medical
devices. In 1997, group purchasing organization ("GPO") purchasing accounted for
approximately $28 billion of sales in the medical products industry. In recent
years, these groups have sought to narrow their list of suppliers. By acting as
a supplier to a GPO the Company can operate its sales force much more
efficiently. As a result, the Company has increased its focus on marketing its
products to these buying groups. Simultaneously, the Company's direct sales
force continues to call on physicians associated with these buying groups in
order to improve compliance with these group purchasing agreements and improve
market share.



                                       3
<PAGE>   6

        As a result of such efforts, in March 1998 the Company entered into a
purchasing agreement with Premier Purchasing Partners, a national purchasing
group that includes over 1,800 owned, leased, managed and affiliated members.
Pursuant to the agreement, the Company is an approved vendor for the hospitals
participating in Premier's purchasing program. The agreement was amended in
March 1999 to extend the term of the agreement to February 28, 2004. The
Company's products approved for distribution under the agreement are vascular
access ports, port introducers and Huber needles. Premier is entitled to receive
an administrative fee of 2% on gross sales of the Company's products to its
members. In connection with the execution of the purchasing agreement, the
Company issued to Premier a warrant to purchase 500,000 shares of the Company's
stock for $14.50 per share which vests as and only if certain specific sales
goals in the warrant are met.

        On January 1, 1999, the Company amended its Consulting and Services
Agreement with Healthcare Alliance, Inc., an affiliate of one of the Company's
directors (the "Alliance Agreement"). The Alliance Agreement provides for (i)
the payment to Healthcare Alliance of an annual consulting fee of $36,000, (ii)
the payment to Healthcare Alliance of an annual performance incentive fee equal
to 5% of any annual sales increase achieved by the Company that results from
Healthcare Alliance's efforts and (iii) the grant of options to purchase up to
1% of the Company's outstanding common stock. The options will vest and become
exercisable by Healthcare Alliance only if it procures group purchasing
agreements with certain GPOs, and the Company achieves amounts of incremental
sales revenue under its agreement with the particular GPO (at an exercise price
of the closing stock price of the Company's common stock on the effective date
of the purchasing agreement). In addition, under the amended agreement, the
Company has granted an option to Healthcare Alliance for the purchase of 45,000
shares of common stock of the Company. Such options will become vested and
exercisable by Healthcare Alliance only if the Company achieves certain amounts
of incremental sales revenue under the Company's group purchasing agreement with
Premier Purchasing Partners, L. P. The exercise price for these options will be
the closing stock price of the Company's common stock on the day that the
options vest. The options are exercisable for a period of five years upon
vesting. The Alliance Agreement terminates on December 31, 2001. See Item 5.
"Market for the Registrant's Common Stock and Related Security Holder Matters --
Recent Sales of Unregistered Securities."

        The Company has also entered into group purchasing agreements with
AmeriNet, Inc., University Healthsystem Consortium; Health Services Corporation
of America; HealthTrust Purchasing Group, L.P.; and Promina Health System.

Product Distribution

        Through the operations the Company acquired in the CVS and Stepic
acquisitions, distribution of medical devices currently is the largest
revenue-generating segment of the Company's business. Subsequent to consummating
the Stepic acquisition, the Company consolidated the CVS operations into Stepic
to establish a centralized distribution operation. The Company distributes a
broad range of specialty medical products throughout the Midwest and Northeast
United States to hospitals and regional and hospital owned blood banks.

        The product applications for the devices the Company distributes include
general and emergency surgery, radiology, anesthesiology, respiratory therapy,
blood filtration and critical care. The Company currently sells more than 1,200
SKUs from ten major product lines and distributes to over 950 customers.

        Stepic has generated approximately 64% of its sales through distribution
of products of three major manufacturers: Arrow International, Ballard Medical,
and Pall Biomedical. Arrow sales totaled $3.2 million and $13.9 million for 1998
and 1999, respectively; Pall sales totaled $4 million and $8.4 million in 1998
and 1999, respectively; and Ballard sales totaled $2.1 million and $7.7 million
in 1998 and 1999, respectively. (1998 sales figures are for the period from
October 15, 1998 through December 31, 1998.) Stepic is the top distributor in
the country for each of these manufacturers. The Arrow products include
catheters and introducer kits that are used for vascular access in surgical
settings and for epidurals. The Ballard product line primarily consists of
low-tech products such as foam soap. The majority of Pall products that Stepic
distributes are blood filters used in surgical procedures. Of these three
manufacturers, only Pall has executed a distribution agreement with Stepic.
However, Stepic has distributed Arrow and Ballard products for 22 years and 14
years, respectively. While Stepic's supplier concentration is significant, the
Company believes that it has good relationships with each of its key suppliers,
as evidenced by the fact that Stepic has lost only one major product line in its
25-year history. See "Private Securities Litigation Reform Act of 1995 Safe
Harbor Compliance Statement for Forward Looking Statements -- Dependence on Key
Suppliers."



                                       4
<PAGE>   7

RESULTS BY INDUSTRY SEGMENT

        Information relating to the Company's industry segments, including
revenues, operating profit or loss and identifiable assets attributable to each
segment for fiscal year 1999 is presented in Note 16 of notes to consolidated
financial statements included herein and beginning on page F-31.

MANUFACTURING

        At its Manchester, Georgia facility, the Company manufactures its dual
lumen dialysis catheters, Pheres-Flow(R), Infuse-a-Cath(R), and other
miscellaneous catheters, dialysis accessories and all vascular access ports
except the Triumph-1(R)line.

        The Company's embolectomy and occlusion catheters, carotid shunts and
surgical instruments are produced at the IFM plant in Florida pursuant to a
manufacturing agreement. See "-- 1998 Acquisitions" above. All current models of
the Company's Triumph-1(R) port have been produced by ACT Medical pursuant to
two manufacturing agreements. One of the agreements expired December 31, 1999,
and the Company will continue to have ACT Medical produce the products covered
by such agreement on a purchase order basis or will produce such products at its
Manchester facility.

        The Company has received certification as an ISO 9001 medical device
manufacturer for its Manchester facility. The Company also has obtained the
right to affix CE (Conformite Europeene) marking to its product lines
manufactured at its Manchester facility. CE marking is a European symbol of
conformance to strict product manufacturing and quality system standards. The CE
marking is also affixed to the Company's products manufactured at the IFM plant
and at ACT Medical.

        While the Company believes it has a good relationship with each third
party that manufactures the Company's products, there can be no assurance that
such relationships will not deteriorate in the future. Deterioration in these
manufacturing relationships could cause the Company to experience interruptions
in its manufacturing and delivery processes and have a material adverse impact
on the Company's business, financial condition and results of operations.
Furthermore, when the manufacturing arrangements with these third parties
expire, the Company will have to make other manufacturing arrangements or
manufacture products at Company facilities. The failure to effectively plan for
the expiration of these agreements could also result in interruption of the
manufacturing and delivery processes for these products and have a material
adverse impact on the Company's business, financial condition and results of
operations. Should the Company be unable to revise the Manufacturing Agreement
with IFM to include acceptable terms or fail to continue to operate under the
verbal modification to the Manufacturing Agreement, then any liabilities
incurred as a result of the default could have a material adverse effect on the
Company's consolidated financial position and disrupt the Company's ability to
obtain and sell the Products.

GOVERNMENT REGULATION

        As a manufacturer and distributor of medical devices, the Company is
subject to regulation by, among other governmental entities, the U.S. Food and
Drug Administration (the "FDA") and the corresponding agencies of the states and
foreign countries in which the Company sells its products. These regulations
govern the introduction of new medical devices, the observance of certain
standards with respect to the manufacture, testing and labeling of such devices,
the maintenance of certain records, the tracking of devices, and other matters.
These regulations may have a material impact on the Company. Recently, the FDA
has pursued a more rigorous enforcement program to ensure that regulated
businesses, like the Company's, comply with applicable laws and regulations. The
Company believes that it is in substantial compliance with such governmental
regulations.

        All medical device manufacturing establishments are required to be
registered with FDA. Similarly, all categories of medical devices marketed by a
company in the United States are required to be listed. The Company must update
its establishment and listing information on an annual basis. FDA can take
regulatory action against a company that does not provide or update its
registration and listing information.



                                       5
<PAGE>   8

        Pursuant to the Food, Drug and Cosmetic Act ("FDC Act"), medical devices
intended for human use are classified into three categories, Classes I, II and
III, on the basis of the controls deemed necessary by the FDA to reasonably
assure their safety and effectiveness. Class I devices are subject to general
controls (for example, labeling, premarket notification and adherence to good
manufacturing practice regulations) and Class II devices are subject to general
and special controls (for example, performance standards, postmarket
surveillance, patient registries, and FDA guidelines). Generally, Class III
devices are those which must receive premarket approval ("PMA") from the FDA to
ensure their safety and effectiveness (for example, life-sustaining,
life-supporting and implantable devices, or new devices which have not been
found substantially equivalent to legally marketed devices).

        Class I devices, unless exempt, and Class II devices require premarket
notification clearance pursuant to Section 510(k) of the FDC Act. Class III
devices are required to have a PMA. Obtaining a PMA can take up to several years
or more and involve preclinical studies and clinical testing. In contrast, the
process of obtaining a 510(k) clearance typically requires the submission of
substantially less data and generally involves a shorter review period, although
obtaining a 510(k) clearance may involve the submission of a substantial volume
of data, including clinical data, and may require a substantial review period. A
510(k) premarket notification clearance indicates that the FDA agrees with an
applicant's determination that the product for which clearance has been sought
is substantially equivalent to another medical device that has been previously
marketed but does not indicate that the product is safe and effective. A PMA
indicates that the FDA has approved as safe and effective a product to be
marketed for the uses described in the approved labeling.

        In addition to requiring clearance or approval for new products, the FDA
may require clearance or approval prior to marketing products that are
modifications of existing products. The FDC Act provides that new 510(k)
clearances are required when, among other things, there is a major change or
modification in the intended use of the device or a change or modification to a
legally marketed device that could significantly affect its safety or
effectiveness. A manufacturer is expected to make the initial determination as
to whether a proposed change to a cleared device or to its intended use is of a
kind that would necessitate the filing of a new 510(k) notification. The Company
has made certain modifications to its cleared devices for which it has
determined that new 510(k) clearances are not required. The Company submitted
and obtained 510(k) approval for the peripheral placement of a MicroPort 2
version of the Vortex port. There can be no assurance, however, that the FDA
would concur with the Company's conclusion that a particular change does not
necessitate a new 510(k) application. If the FDA were to investigate and
disagree with the Company's determinations and conclude that one or more
implemented changes requires a new 510(k), the FDA could take regulatory actions
such as issuance of a warning letter or requiring that the Company cease
marketing modified devices until new 510(k) notifications are cleared.

        In order to conduct clinical trials of an uncleared or unapproved
device, companies generally are required to comply with Investigational Device
Exemptions regulations ("IDE regulations"). For significant risk devices, the
IDE regulations require FDA approval before clinical study may begin. Devices
subject to the IDE regulations are subject to various restrictions imposed by
the FDA. In its approval letter for significant risk device IDE studies, the
agency may limit the number of patients that may be treated with the device
and/or the number of institutions at which the device may be used. Patients must
give informed consent to be treated with an investigational device. The
institutional review board of each institution where a study is being conducted
must also approve the clinical study. The device may not be advertised or
otherwise promoted. Unexpected adverse experiences must be reported to the FDA.
The company sponsoring the investigation must ensure that the investigation is
being conducted in accordance with the IDE regulations.

        To date, the Company's products have received FDA marketing clearances
only through the 510(k) process. Certain future product applications, however,
could require approval through the PMA process. The Possis Graft, which the
Company exclusively distributes, received FDA approval through the PMA process.
In addition, future products may require approval of an IDE. There can be no
assurance that all necessary 510(k) clearances or PMA or IDE approvals will be
granted on a timely basis or at all. The FDA review process may delay the
Company's product introductions in the future. It is possible that delays in
receipt of or failure to receive any necessary clearance or approval could have
a material adverse effect on the Company.



                                       6
<PAGE>   9

        The Company is also required to register with the FDA as a device
manufacturer and to comply with the FDA's Good Manufacturing Practices under the
Quality System Regulations ("GMP/QSR"). These regulations require that the
Company manufacture its products and maintain its records in a prescribed manner
with respect to manufacturing, testing and control activities. Further, the
Company is required to comply with FDA requirements for labeling and promotion
of its products. For example, the FDA prohibits cleared or approved devices from
being marketed or promoted for uncleared or unapproved uses. The medical device
reporting regulation requires that the Company provide information to the FDA
whenever there is evidence to reasonably suggest that one of its devices may
have caused or contributed to a death or serious injury, or that there has
occurred a malfunction that would be likely to cause or contribute to a death or
serious injury if the malfunction were to recur.

        Medical device manufacturers and distributors are generally subject to
periodic inspections by the FDA. If the FDA determines that a company is not in
compliance with applicable laws and regulations, it can, among other things,
issue a warning letter apprising the company of violative conduct, detain or
seize products, issue a recall, enjoin future violations and assess civil and
criminal penalties against the company, its officers or its employees. In
addition, clearances or approvals could be withdrawn in appropriate
circumstances. Failure to comply with regulatory requirements or any adverse
regulatory action could have a material adverse effect on the Company's
business, financial condition and results of operations.

         Subsequent to an FDA inspection in 1996, the Company received a warning
letter from the FDA Atlanta District Office alleging, among other things, its
failure to report to the FDA certain malfunctions and adverse events that may be
associated with its devices as required by the agency's MDR regulations.

        In response to this warning letter, the Company revised its MDR
procedure and submitted it with other corrective actions for review by the FDA.
The FDA responded that the corrective actions described by the Company appeared
to adequately address the agency's concerns. At the conclusion of a follow-up
inspection in 1997, the Company was advised of various inspectional observations
including its alleged failure to submit MDRs on 19 reportable events. The
Company responded to the inspectional observations in writing and at a meeting
with the FDA at the Atlanta District Office at which the interpretation of the
MDR regulations was discussed. The District submitted the question of the
interpretation of the regulations to FDA headquarters in Washington, D.C. On
March 10, 1998, the Company received a warning letter from the Atlanta District
Office reasserting its interpretation of the MDR regulations and alleging the
Company's failure to report 15 reportable events and violation of two current
GMP requirements. The Company responded to the warning letter pledging to submit
all substantive reports until it secures exemptions from the agency on the
submission of certain classes of reports and describing corrective action taken
on the alleged current GMP violations. The FDA conducted a subsequent inspection
between August 24 and September 15, 1998 which resulted in an FDA-483
(inspectional observations). The Company responded on October 15, 1998 to the
FDA-483, and the FDA replied that the Company's response appeared to address the
concerns raised during the inspection. In addition, on November 20, 1998, the
Company sent the FDA follow-up documentation on the FDA-483 response. Again, on
January 19, 1999, the FDA responded that the documentation appeared to address
the concerns raised in the inspection. The FDA audited the Company on September
9, 1999 and no FDA-483 was issued. On December 22, 1999 the FDA issued a letter
advising the Company that it currently had no outstanding regulatory issues
pending. The Company believes that it has implemented corrective actions that
achieve substantial compliance with FDA requirements, but there can be no
assurance that an FDA enforcement action will not ensue at a future time or will
not materially adversely affect the Company's business, results of operations
and financial condition.

     The Company initiated a voluntary product recall of its dialysis and
central venous catheter kit product lines on September 1, 1999. All affected
customers and FDA were notified of the recall. The recall was initiated because
of small pinholes in the pouch in which the product is packaged. The recall
affected all kits manufactured since August 1994. Although approximately 140,000
ports were shipped during this time frame, product returns through December 31,
1999 were approximately 15,300 units. Because of the nature of the pinholes,
risk to the patient is expected to be minimal. No product complaints have been
registered to date for either pinholes or infection of the implant site that
could be attributed to the package being contaminated. The Company has revised
the process that generated the pinholes and is currently producing these product
lines for commercial distribution.



                                       7
<PAGE>   10

        Medical device laws and regulations are also in effect in many of the
countries in which the Company does business outside the United States. These
range from comprehensive device approval requirements for some or all of the
Company's medical device products to simple requests for product data or
certifications. The number and scope of these requirements are increasing.
Medical device laws and regulations are also in effect in many of the states in
which the Company does business. State and foreign medical device laws and
regulations may have a material impact on the Company. In addition,
international sales of certain medical devices manufactured in the United States
but not approved by the FDA for distribution in the United States are subject to
FDA export requirements, which require the Company to obtain documentation from
the medical device regulatory authority of such country stating that the sale of
the device is not in violation of that country's medical device laws. This
documentation is then submitted to the FDA with a request for a permit for
export to that country.

        Federal, state and foreign laws and regulations regarding the
manufacture, sale and distribution of medical devices are subject to future
changes. For example, Congress recently enacted the Food and Drug Administration
Modernization Act of 1997, which included several significant amendments to the
prior law governing medical devices. Additionally, the FDA has recently made
significant changes to its GMP regulations and may make changes to other
regulations as well. The Company cannot predict what impact, if any, such
changes might have on its business; however, such changes could have a material
impact on the Company and its business, financial condition and results of
operations.

ANTI-KICKBACK STATUTE

        Pursuant to 42 U.S.C. Section 1320a-7b(b) (the "Anti-Kickback Statute"),
the knowing and willful offer or receipt of any remuneration, directly or
indirectly, in cash or in kind, in exchange for or which is intended to induce
the purchase, lease or order of any good, facility, item or service for which
payment may be made in whole or in part under a federal healthcare program,
including Medicare and Medicaid, is prohibited. A violation of the Anti-Kickback
Statute is a felony, punishable by fine, imprisonment or exclusion from the
Medicare and Medicaid or other applicable federal healthcare programs. The
Anti-Kickback Statute has been interpreted broadly by courts and administrative
bodies. Certain regulations promulgated under the Anti-Kickback Statute (i.e.,
42 C.F.R. Section 1001.952(j)) provide that prohibited remuneration under the
Anti-Kickback Statute does not include any payment by a vendor of goods to a
group purchasing organization, as defined in the regulations, if certain
standards are met. The Company believes that the group purchasing organizations
with which it has purchasing agreements comply in all material respects with
such standards.

HEALTHCARE REFORM

        In recent years, several comprehensive healthcare reform proposals were
introduced in the United States Congress. The intent of the proposals was,
generally, to expand healthcare coverage for the uninsured and reduce the growth
of total healthcare expenditures. While none of the proposals were adopted,
healthcare reform may again be addressed by the current United States Congress.
Certain states have made significant changes to their Medicaid programs and have
adopted various measures to expand coverage and limit costs.

        Implementation of government healthcare reform and other efforts to
control costs may limit the price of, or the level at which reimbursement is
provided for, the Company's products. In addition, healthcare reform may
accelerate the growing trend toward involvement by hospital administrators,
purchasing managers and buying groups in purchasing decisions. This trend would
likely include increased emphasis on the cost-effectiveness of any treatment
regimen. These changes may also cause the marketplace in general to place
increased emphasis on the utilization of minimally invasive surgical procedures
and the delivery of more cost-effective medical therapies. Regardless of which
additional reform proposals, if any, are ultimately adopted, the trend toward
cost controls and the requirements of more efficient utilization of medical
therapies and procedures will continue and accelerate. The Company is unable at
this time to predict whether any such additional healthcare initiatives will be
enacted, the final form such reforms will take or when such reforms would be
implemented.

        The Company's products are purchased principally by hospitals, hospital
networks and hospital buying groups. During the past several years, the major
third-party payors of hospital services (Medicare, Medicaid, private healthcare
indemnity insurance and managed care plans) have substantially revised their
payment methodologies to contain healthcare costs. These cost pressures are
leading to increased emphasis on the price and cost-effectiveness



                                       8
<PAGE>   11

of any treatment regimen and medical device. In addition, third-party payors,
such as governmental programs, private indemnity insurance and managed care
plans which are billed by hospitals for such healthcare services, are
increasingly negotiating the prices charged for medical products and services
and may deny reimbursement if they determine that a device was not used in
accordance with cost-effective treatment methods as determined by the payor, was
experimental or was used for an unapproved application. There can be no
assurance that in the future, hospital purchasing decisions or third party
reimbursement levels will not adversely affect the profitability of the
Company's products.

INSURANCE

        The Company maintains insurance in such amounts and against such risks
as it deems prudent, although no assurance can be given that such insurance will
be sufficient under all circumstances to protect the Company against significant
claims for damages. The occurrence of a significant event not fully insured
against could materially and adversely affect the Company's business, financial
condition and results of operations. Moreover, no assurance can be given that
the Company will be able to maintain adequate insurance in the future at
commercially reasonable rates or on acceptable terms.

PATENTS, TRADEMARKS, LICENSES AND PROPRIETARY RIGHTS

        The Company believes that patents and other proprietary rights are
important to its business. The Company also relies upon trade secrets,
"know-how," continuing technological innovations and licensing opportunities to
develop and maintain its competitive position.

        The Company currently owns numerous United States patents and patent
applications, as well as numerous foreign patents and patent applications, which
relate to aspects of the technology used in certain of the Company's products,
including the LifePort(R) family of vascular access ports, the Vortex(TM)
vascular access ports, the Infuse-a-Cath(R) family of central venous catheters
and the Bayonet locking system used in the LifePort(R) and in the Vortex Port
families of products. The Company also is a party to several license agreements
with third parties pursuant to which it has obtained, for varying terms, the
right to make, use and/or sell products that are covered under such license
agreements in consideration for royalty payments. Many of the Company's major
products, including its Circle C(R) acute and chronic catheters, its
Infuse-a-Cath(R) catheters, carotid shunt, and cholangiogram catheters are
subject to such license agreements. There can be no assurance that the Company
or its licensors have or will develop or obtain additional rights to products or
processes that are patentable, that patents will issue from any of the pending
patent applications filed by the Company or that claims allowed will be
sufficient to protect any technology that is licensed to the Company. In
addition, no assurances can be given that any patents issued or licensed to the
Company or other licensing arrangements will not be challenged, invalidated,
infringed or circumvented or that the rights granted thereunder will provide
competitive advantages for the Company's business or products. In such event the
business, results of operations and financial condition of the Company could be
materially adversely effected.

        There has been substantial litigation regarding patent and other
intellectual property rights in the medical devices industry. Although the
Company has not been a party to any material litigation to enforce intellectual
property rights held by the Company, or a party to any material litigation
seeking to enforce rights alleged to be held by others, future litigation may be
necessary to protect patents, trade secrets or "know-how" owned by the Company
or to defend the Company against claimed infringement of the rights of others
and to determine the scope and validity of the proprietary rights of the Company
and others. The validity and breadth of claims covered in medical technology
patents involve complex legal and factual questions. Any such litigation could
result in substantial cost to and diversion of effort by the Company. Adverse
determinations in any such litigation could subject the Company to significant
liabilities to third parties, could require the Company to seek licenses from
third parties and could prevent the Company from manufacturing, selling or using
certain of its products, any of which could have a material adverse effect on
the business, results of operations and financial condition of the Company.
Accordingly, the Company may, in the future, be subject to legal actions
involving patent and other intellectual property claims.



                                       9
<PAGE>   12

         The Company relies upon trade secrets and proprietary technology for
protection of its confidential and proprietary information. There can be no
assurance that others will not independently develop substantially equivalent
proprietary information or techniques or that third parties will not otherwise
gain access to the Company's trade secrets or disclose such technology.

         The Company also relies upon trademarks and trade names for the
development and protection of brand loyalty and associated goodwill in
connection with its products. The Company's policy is to protect its trademarks,
trade names and associated goodwill by, among other methods, filing United
States and foreign trademark applications relating to its products and business.
The Company owns numerous United States and foreign trademark registrations and
applications. The Company also relies upon trademarks and trade names for which
it does not have pending trademark applications or existing registrations, but
in which the Company has substantial trademark rights. The Company's registered
and unregistered trademark rights relate to the majority of the Company's
products, including the Circle C(R), Infuse-a-Port(R), Triumph-1(R),
Infuse-a-Cath(R), LifePort(R), Pheres-Flow(R), Vortex(TM), Pruitt-Inhara(R) and
Reddick product lines. There can be no assurance that any registered or
unregistered trademarks or trade names of the Company will not be challenged,
canceled, infringed or circumvented, or be declared generic, or be declared
infringing on other third-party marks, or provide any competitive advantage to
the Company.

ENVIRONMENTAL COMPLIANCE

         The Company is subject to various federal, state and local laws and
regulations relating to the protection of the environment. In the course of its
business, the Company is involved in the handling, storage and disposal of
materials which are classified as hazardous. The Company believes that its
operations comply in all material respects with applicable environmental laws
and regulations. While the Company continues to make capital and operational
expenditures for protection of the environment, it does not anticipate that
those expenditures will have a material adverse effect on its business,
financial condition and results of operations.

RAW MATERIALS

         The Company has arrangements with various suppliers to provide it with
the quantity of component parts necessary to assemble its products. Almost all
of the components and materials used in its assembly process are available from
a number of different suppliers, although certain components are purchased from
a limited number of sources. While the Company believes that there are
alternative and satisfactory sources for its components, a sudden disruption in
supply from one of the Company's existing suppliers could adversely affect the
Company's ability to deliver its products in a timely manner and could adversely
affect the Company's results of operations.

BACKLOG

         Delivery lead times for the Company's products are very short at times
and, consequently, the Company routinely maintains an immaterial amount of order
backlog which is generally filled within 60 days of the order date. Management
currently believes that its backlog is not a reliable indicator of future
financial or operating performance.

RESEARCH AND PRODUCT DEVELOPMENT

         From time to time the Company engages in limited research and
development activities. The principal focus of the Company's research and
development effort has been to identify and analyze the needs of vascular
surgeons, physicians and clinicians, and to develop products that address these
needs. The Company views proposals from physicians and other healthcare
professionals as an important source of potential research and development
projects. The Company believes that those end-users are often in the best
position to conceive of new products and to recommend ways to improve the
performance of existing products. Many of the Company's product improvements
have resulted from collaborative efforts with physicians and other healthcare
professionals or other medical device manufacturers.

         Research and development expenses accounted for $7,000 in 1997 (0.04%
of net sales), $412,000 in 1998 (1.1% of net sales), and the Company did not
incur material research and development expenses during 1999. The 1997 and 1998
amounts


                                       10
<PAGE>   13

were used primarily to improve existing products and implement new technology to
produce these products. A portion of the 1998 amount resulted from unexpected
research and development expenses relating to products sold in the Asian
marketplace.

COMPETITION

         The markets for the Company's product lines are highly competitive. The
Company faces substantial competition from a number of other manufacturers and
suppliers of vascular access ports, dialysis and apheresis catheters and related
ancillary products, including companies with more extensive research and
manufacturing capabilities and greater technical, financial and other resources.
In response to increased concerns about the rising costs of healthcare, United
States hospitals and physicians are placing increasing emphasis on
cost-effectiveness in the selection of products to perform medical procedures.
The Company believes that its products compete primarily on the basis of: (i)
product design, development and improvement; (ii) customer support; (iii) brand
loyalty; and (iv) price. The Company's competitors in the vascular access
products business include Bard Access Systems, a division of C.R. Bard, Inc.,
and Sims, a division of Smith Industries. In each of the product lines
represented by the Company's distribution business, the Company competes against
manufacturers selling directly to customers. Such manufacturers include Baxter
International Inc. and Abbott Laboratories.

EMPLOYEES

         At December 31, 1999, the Company had approximately 192 full-time
employees.

ITEM 2.  PROPERTIES

         The Company's principal executive and administrative offices and
manufacturing and development center is located in Manchester, Georgia in a
45,000 square foot facility. The Company leases the Manchester facility and the
10.5 acre lot on which it is located from the Development Authority of the City
of Manchester (the "Manchester Development Authority") pursuant to two operating
leases which expire in 2010 (collectively, the "Manchester Leases") and under
which the Company pays monthly lease payments of approximately $9,500 in the
aggregate. The Company has an option to extend each of the Manchester Leases for
an additional five-year term and an option to purchase the facility and/or the
adjacent lot containing approximately nine acres. While the Company considers
the Manchester facility to be in good condition and adequate to meet the present
and foreseeable needs of the Company, a significant increase in demand or
production could render the Manchester facility inadequate.

         The Company owns a 6,400 square foot office condominium located in
Atlanta, Georgia (the "Atlanta Office") which the Company utilizes for
administrative offices.

         The Company occupies approximately 5,000 square feet of office space
and approximately 13,000 square feet of warehouse space in Long Island City, New
York for use in Stepic's distribution operation and warehousing of products
pursuant to a Transition Services Agreement. While the Company considers this
space to be in good condition and adequate to meet the present and foreseeable
needs of the Company, a significant increase in demand or inventory could render
the facilities inadequate.

ITEM 3.  LEGAL PROCEEDINGS

         On October 30, 1998 and December 7, 1998, shareholder suits were filed
against the Company, Marshall B. Hunt, William E. Peterson, Jr., Roy C. Mallady,
Charles E. Adair, and Mark A. Jewett. An amended consolidated complaint, filed
on March 8, 1999, added as a defendant Cordova Capital Partners LP -- Enhanced
Appreciation, one of the Company's institutional investors. The two lead
plaintiffs were Daniel E. Herlihy and Thomas L. O'Hara, Jr., and the other named
plaintiff was Jack Edery. The amended consolidated complaint was filed in the
U.S. District Court for the Northern District of Georgia (Atlanta Division) and
sought class certification and rescissory and/or


                                       11
<PAGE>   14

compensatory damages as well as expenses of litigation. The complaint alleged
that the prospectus and registration statement used by the Company in connection
with the April 1998 initial public offering of the Company's common stock
contained material omissions and misstatements. On October 21, 1999, the United
States District Court for the Northern District of Georgia (Atlanta Division)
dismissed the consolidated shareholder class action lawsuits. In dismissing the
suits, the Court held that the plaintiffs failed to state an actionable claim of
material misrepresentation under the federal securities laws. The Court found
that the risks of which the plaintiffs complained, those associated with the
Company's transition of certain manufacturing operations to its Manchester,
Georgia facility, were specifically disclosed by the prospectus. The Court also
rejected plaintiffs' claim that the prospectus described certain unfavorable
events as mere risks, when in fact those events had already occurred. The Court
held that the prospectus contained ample and meaningful cautionary language
specifically directed to the substance of the alleged misstatements. The
plaintiffs subsequently filed an appeal with the United States Court of Appeals
for the Eleventh Circuit. At the plantiffs' request, the Court of Appeals
dismissed the appeal on December 13, 1999, formally concluding the case.

         The Company also is a party from time to time to other actions arising
in the ordinary course of business which it deems immaterial. Although the
Company believes that it has defenses to the claims of liability or for damages
in the actions against it, there can be no assurance that additional lawsuits
will not be filed against the Company or its subsidiaries. Further, there can be
no assurance that the lawsuits will not have a disruptive effect upon the
operations of the business, that the defense of the lawsuits will not consume
the time and attention of the senior management of the Company and its
subsidiaries, or that the resolution of the lawsuits will not have a material
adverse effect on the operating results and financial condition of the Company.
The Company intends to vigorously defend or pursue each of the lawsuits.

         The Company maintains insurance in such amounts and against such risks
as it deems prudent, although no assurance can be given that such insurance will
be sufficient under all circumstances to protect the Company against significant
claims for damages. The occurrence of a significant event not fully insured
against could materially and adversely affect the Company's business, financial
condition and results of operations. Moreover, no assurance can be given that
the Company will be able to maintain adequate insurance in the future at
commercially reasonable rates or on acceptable terms.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         There were no matters submitted to shareholders of the Company for a
vote in the Fourth Quarter of 1999.


                                     PART II

ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS

         The Company's Common Stock trades on The American Stock Exchange under
the symbol "HMP." Prior to November 9, 1999, the Company's Common Stock traded
on The NASDAQ Stock Market(R) under the symbol "HMPS." The following table sets
forth the high and low sales price of the Common Stock as reported on the NASDAQ
National Market System or The American Stock Exchange, as the case may be, for
the periods indicated.

<TABLE>
<CAPTION>
    CALENDAR YEAR 1998                                         HIGH     LOW
    ------------------                                         ----     ---

    <S>                                                        <C>     <C>
    Second Quarter (April 15 through June 30).............     17.13   9.00
    Third Quarter ........................................     13.38   5.38
    Fourth Quarter .......................................      5.75   1.75
</TABLE>


<TABLE>
<CAPTION>
    CALENDAR YEAR 1999                                          HIGH    LOW
    ------------------                                         ----     ---
    <S>                                                        <C>     <C>
    First Quarter ........................................      8.88   4.25
    Second Quarter .......................................      8.38   5.75
    Third Quarter ........................................      6.50   2.44
    Fourth Quarter .......................................      5.50   2.00
</TABLE>


                                       12
<PAGE>   15

         As of March 15, 2000, there were 65 record holders of the Company's
Common Stock. On March 15, 2000, the last reported sales price of the Common
Stock on The American Stock Exchange was $3.00 per share.

         The Company has not paid or declared any cash dividends on its capital
stock since its inception. The Company currently intends to retain all future
earnings for use in the expansion and operation of its business. Accordingly,
the Company does not anticipate paying cash dividends on its common stock in the
foreseeable future. The payment of any future dividends will be at the
discretion of the Company's Board of Directors and will depend upon, among other
things, future earnings, operations, capital requirements, the general financial
condition of the Company, contractual restrictions and general business
conditions. The Company's credit agreement with its lenders currently prohibits
the payment of dividends on the Company's capital stock.

RECENT SALES OF UNREGISTERED SECURITIES

         On January 1, 1999, the Company amended its consulting and services
agreement with Healthcare Alliance, Inc., an affiliate of Robert J. Simmons, a
director of the Company. The Company granted Healthcare Alliance (i) an option
to purchase up to 1% of the Company's common stock if the Company achieves
certain amounts of incentive sales with certain group purchasing organizations,
and (ii) options to purchase 45,000 shares of common stock if the Company
achieves certain amounts of incremental sales revenue under the Company's group
purchasing agreement with Premier Purchasing Partners, L. P. A principal of
Healthcare Alliance is a director of the Company and thus this issuance to
Healthcare Alliance was made pursuant to the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended (the "Section
4(2) Exemption").

         In April 1998 Cordova Ventures, L.P. -- Enhanced Appreciation
("Cordova") exercised certain anti-dilution rights relating to a warrant (and
the shares issued pursuant thereto) to purchase 15,550 shares of the Company's
Class A Common Stock for $.001 per share, for a nominal purchase price. Cordova
is an accredited investor, and thus this issuance to Cordova was made pursuant
to the Section 4(2) Exemption.

         On July 15, 1997, the Company issued to Banc of America Commercial
Finance Corporation, formerly known as NationsCredit Commercial Corporation
("Banc of America"), a warrant to purchase 765,000 shares of Common Stock.
Concurrently with the consummation of the Offering on April 20, 1998, the
Company issued to Banc of America 765,000 shares of Common Stock upon exercise
of warrants to purchase such stock for an aggregate amount of $765. Banc of
America is an accredited investor, and thus this issuance to Banc of America was
made in reliance on the Section 4(2) Exemption.

         On March 20, 1998, the Company issued to Premier Purchasing Partners,
L.P. a warrant to purchase up to 500,000 shares of Common Stock, subject to
certain vesting requirements. The Company granted the warrant to Premier in
partial consideration for Premier executing a purchasing agreement with the
Company. See Item 1. "Business -- Description of Business by Industry Segment."
The right to purchase shares of common stock under the warrant vests annually in
increments of 100,000 shares only upon the achievement of certain specified
minimum annual sales and/or minimum cumulative sales of the Company's products
to participating Premier shareholders. Premier is an accredited investor, and
thus this issuance to Premier was made in reliance on the Section 4(2)
Exemption.

         All of the foregoing issuances were conducted without an underwriter or
placement agent.

ITEM 6.  SELECTED FINANCIAL DATA

         The following selected financial data of the Company as of and for each
of the five years ended December 31, 1999 are derived from, and are qualified by
reference to the consolidated financial statements, including the notes thereto,
of the Company. The selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto of the
Company included elsewhere in this Form 10-K.


                                       13
<PAGE>   16



<TABLE>
<CAPTION>
                                                                              YEARS ENDED DECEMBER 31,
                                                       ----------------------------------------------------------------
                                                         1995         1996         1997           1998           1999
                                                       -------      -------      --------      ---------      ---------
                                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)

<S>                                                    <C>          <C>          <C>           <C>            <C>
STATEMENT OF OPERATIONS DATA:
Net sales ........................................     $ 5,003      $ 7,052      $ 15,798      $  39,399      $  75,371
Cost of goods sold ...............................       2,227        2,997         6,273         19,933         48,011
                                                       -------      -------      --------      ---------      ---------

Gross profit .....................................       2,776        4,055         9,525         19,466         27,360
Selling, general and administrative expenses .....       2,921        4,560         6,476         13,597         20,147
                                                       -------      -------      --------      ---------      ---------

Operating income (loss) ..........................        (145)        (505)        3,049          5,869          7,213
Interest expense, net ............................        (242)        (733)       (3,971)        (3,103)        (4,140)
Accretion of value of put warrant repurchase
  obligation(1) ..................................          --           --        (8,000)            --             --
Other income .....................................          --           54            70             46             99
                                                       -------      -------      --------      ---------      ---------

Income (loss) before income taxes and
  extraordinary items ............................        (387)      (1,184)       (8,852)         2,812          3,172
Income tax benefit (expense) .....................           7           --          (320)        (1,781)        (1,507)
Effect of conversion to C corporation status .....          (7)          --            --             --             --
Extraordinary gain on early extinguishment of
  put feature(1) .................................          --           --            --          1,100             --
Extraordinary losses on early
 extinguishments of debt .........................         (70)          --            --            (83)            --
                                                       -------      -------      --------      ---------      ---------

Net income (loss) ................................     $  (457)     $(1,184      $ (9,172)     $   2,048      $   1,665
                                                       =======      =======      ========      =========      =========

Net income (loss) per share before
 extraordinary items-- basic and diluted .........     $  (.04)     $  (.13)     $   (.97)     $     .08      $     .12
Net income (loss) per share -- basic and
  diluted ........................................     $  (.05)     $  (.13)     $   (.97)     $     .17      $     .12
Weighted average common shares
  outstanding -- basic ...........................       9,144        9,419         9,419         12,187         13,366
Weighted average common shares
  outstanding-- diluted ..........................       9,144        9,419         9,419         12,412         13,373
BALANCE SHEET DATA (end of year):
Cash and cash equivalents ........................     $   394      $   218      $  2,894      $   6,232      $   1,991
Working capital ..................................       1,500        1,018         6,842         28,767         29,927
Total assets .....................................       6,894        6,176        31,577        104,637        102,397

Long-term debt, net of current maturities ........       4,907        5,053        23,971         47,074         44,999
Total shareholders' (deficit) equity .............      (1,024)      (1,916)      (11,150)        41,431         43,069
</TABLE>

----------
(1) See Note 9 to the Company's consolidated financial statements for a
discussion of these items.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

         The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and the related Notes thereto appearing
elsewhere herein.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

         Certain statements made in this report, and other written or oral
statements made by or on behalf of the Company, may constitute "forward-looking
statements" within the meaning of the federal securities laws. Statements
regarding future events and developments and the Company's future performance,
as well as management's expectations, beliefs, plans, estimates or projections
relating to the future, are forward-looking statements within the meaning of
these laws. All forward-looking statements are subject to certain risks and
uncertainties that could cause actual events to differ materially from those
projected. Such risks and uncertainties include, among others, the Company's
limited manufacturing experience, the inability to efficiently manufacture
different products and to integrate newly acquired products with existing
products, the possible failure to successfully commence the manufacturing of new
products, the possible failure to maintain or increase production volumes of new
or existing products in a timely or cost-effective manner, the possible failure
to maintain compliance with applicable licensing or regulatory requirements, the
inability to successfully integrate acquired operations and products or to
realize anticipated synergies and economies of scale from acquired operations,
the


                                       14
<PAGE>   17
dependence on patents, trademarks, licenses and proprietary rights, the
Company's potential exposure to product liability, the possible inadequacy of
the Company's cash flow from operations and cash available from external
financing, the inability to introduce new products, the Company's reliance on a
few large customers, the Company's dependence on key personnel, the fact that
the Company is subject to control by certain shareholders, the Company's
ability to address Year 2000 problems, pricing pressure related to healthcare
reform and managed care and other healthcare provider organizations, the
possible failure to comply with applicable federal, state or foreign laws or
regulations, limitations on third-party reimbursement, the highly competitive
and fragmented nature of the medical devices industry, deterioration in general
economic conditions and the Company's ability to pay its indebtedness.
Management believes that these forward-looking statements are reasonable;
however, you should not place undue reliance on such statements. These
statements are based on current expectations and speak only as of the date of
such statements. The Company undertakes no obligation to publicly update or
revise any forward-looking statement, whether as a result of future events, new
information or otherwise. Additional information concerning the risk and
uncertainties listed above, and other factors that you may wish to consider, is
contained below in this Item under the sections entitled "Year 2000 Disclosure"
and "Risk Factors."

BACKGROUND

         The Company is a specialty medical device company focused on
manufacturing and/or marketing vascular products. The Company's oncology
product lines include implantable vascular ports, tunneled catheters and stem
cell transplant catheters used primarily in cancer treatment protocols. The
Company has a complete line of acute and chronic dialysis catheters and
immediate access hemodialysis grafts used for kidney failure patients, as well
as balloon technology products for embolectomy catheters and carotid shunts
used for endarterectomy procedures. In addition, the Company distributes
certain specialty devices used primarily in general and emergency surgery,
radiology, anesthesiology, respiratory therapy, blood filtration and critical
care settings. The Company was incorporated and began its operations in
February 1990 as a distributor of medical devices and began to distribute
vascular access devices in 1990. In November 1992, the Company entered into a
collaborative effort with a leading heart valve manufacturer to design and
develop a new line of vascular access ports for the Company. This new line of
ports, the Triumph-1(R) line, was introduced in September 1994. The Company
continues to market the Triumph-1(R) line of vascular access ports. In May
1995, the Company began to distribute the NeoStar Medical(R) line of
hemodialysis catheters. In March 1996, the Company began construction of a
20,000 square foot manufacturing, distribution and administrative facility in
Manchester, Georgia. The Company began manufacturing the NeoStar Medical(R)
product line at this facility in October 1996 and expanded this facility in
1998 to approximately 45,000 square feet. In July 1997, the Company acquired
the port business of Strato(R)/Infusaid(TM). The primary product lines obtained
in the Strato(R)/Infusaid(TM) acquisition included the LifePort(R) and
Infuse-a-Port(R) vascular access ports, and the Infuse-a-Cath(R) line of
catheters. In 1998, the Company made additional product acquisitions and
acquired the CVS and Stepic medical device distribution businesses. See Item 1.
"Business -- 1998 Acquisitions" above. Distribution of non-Company medical
devices through Stepic and CVS currently comprises approximately 54.1% of the
Company's revenue.


                                      15
<PAGE>   18

RESULTS OF OPERATIONS

         The following table sets forth for the periods indicated certain items
contained in the Company's consolidated statements of operations expressed as a
percentage of net sales:

<TABLE>
<CAPTION>
                                                                             YEARS ENDED DECEMBER 31,
                                                                    -----------------------------------------
                                                                     1997              1998            1999
                                                                    -------          -------          -------
<S>                                                                 <C>              <C>              <C>
Net sales ..................................................          100.0%           100.0%           100.0%
Cost of goods sold .........................................           39.7             50.6             63.7
                                                                    -------          -------          -------
Gross profit ...............................................           60.3             49.4             36.3
Selling, general and administrative expense ................           41.0             34.5             26.7
                                                                    -------          -------          -------
  Operating income (loss) ..................................           19.3             14.9              9.6
Other income (expense)
  Interest expense, net ....................................          (25.1)            (7.9)            (5.5)
  Accretion of value of put warrant repurchase
     obligation ............................................          (50.6)              --               --
  Other income .............................................            0.4              0.1              0.1
                                                                    -------          -------          -------
Income (loss) before income taxes and extraordinary
  item .....................................................          (56.0)             7.1              4.2
Income tax expense .........................................           (2.0)            (4.5)            (2.0)
Extraordinary gain on early extinguishment of put
  feature ..................................................             --              2.8               --
Extraordinary loss on early extinguishment of debt .........             --             (0.2)              --
                                                                    -------          -------          -------
Net income (loss) ..........................................          (58.0)%            5.2%             2.2%
                                                                    =======          =======          =======
</TABLE>

   Year Ended December 31, 1999 compared to Year Ended December 31, 1998

         Net Sales. Net sales increased 91.4% to $75.4 million in 1999 from
$39.4 million in 1998. Approximately $39.5 million of this increase is
attributable to owning Stepic, CVS and IFM for a full year in 1999. The
increase was also attributable to the introduction of the Perma Seal Dialysis
Graft, which the Company began marketing in February 1999 and which represented
approximately $1.5 million in revenue in 1999. The 1999 net sales on a segment
basis resulted in net sales of $32.7 million from the manufacturing segment and
$45.9 million from the distribution segment before intersegment eliminations.
The 1998 net sales on a segment basis resulted in net sales of $27.6 million
from the manufacturing segment and $12.0 million from the distribution segment
before intersegment eliminations.

         Gross Profit. Gross profit increased 40.5% to $27.4 million in 1999,
from $19.5 million in 1998. Gross margin decreased to 36.3% in 1999, from 49.4%
in 1998. The decrease in gross margin is primarily the result of owning Stepic
and CVS, the distribution segment, a full year in 1999, which produces a
significantly lower gross margin than the manufacturing segment. The decrease
is also due to 1999 sales to Group Purchasing Organizations ("GPOs"), resulting
in reduced sales prices. The 1999 gross profit on a segment basis is gross
profit of $17.6 million or 53.8% from the manufacturing segment and $9.9
million or 21.6% from the distribution segment, before intersegment
eliminations. The 1998 gross profit on a segment basis resulted in gross profit
of $16.4 million or 59.3% from the manufacturing segment and $3.1 million or
25.8% from the distribution segment before intersegment eliminations.

         Selling, General and Administrative Expenses. Selling, general and
administrative expenses (SG&A) increased $6.5 million or 48.1% to $20.1 million
in 1999 from $13.6 million in 1998. The increase was mostly attributable to
owning Stepic and CVS a full year in 1999, which represented $4.6 million of
the increase. In addition, the increase was due to higher amortization expense
from owning Norfolk and IFM a full year in 1999 as well as higher salaries
expense, marketing expenses, and GPO administrative fees in 1999. SG&A expenses
decreased as a percentage of net sales to 26.7% in 1999 from 34.5% in 1998 due
to revenue growth in 1999.

         Interest Expense. Interest expense, net of interest income, increased
approximately $1.0 million or 33.4% from $3.1 million in 1998 to $4.1 million
in 1999. Excluding the effects of the accelerated amortization of debt issue
costs and debt discount related to the Banc of America debt and warrant in 1998
of $1.4 million (more fully discussed in Note 9 to the Company's consolidated
financial statements included elsewhere in this Form 10-K),


                                      16
<PAGE>   19

interest expense increased approximately $2.4 million in 1999. The increase is
due to higher debt outstanding during all of 1999 of approximately $51 million
versus 1998 debt outstanding of approximately $28 million during 3.5 months of
1998 and approximately $50 million, resulting from the 1998 acquisitions, which
was outstanding only a short time during 1998.

         Accretion of Value of Put Warrant Repurchase Obligation. This item
represented a one-time charge of $8 million in 1997 as a result of the
estimated increase in the original $3 million value assigned to the Banc of
America Warrant, which included a put feature. The put feature was rescinded by
Banc of America in January 1998 which resulted in an extraordinary gain of $1.1
million and a reclassification of $9.9 million from a put warrant repurchase
obligation liability to additional paid-in capital. This transaction is more
fully described in Note 9 to the Company's consolidated financial statements
contained elsewhere in this Form 10-K.

         Extraordinary Items. During 1998, the Company incurred extraordinary
net losses of approximately $83,000, net of applicable income tax benefit of
approximately $53,300, associated with the early extinguishment of certain
debt, which the Company repaid using proceeds from the IPO. In addition, as
discussed previously, the Company recorded an extraordinary gain of $1.1
million in 1998 due to the rescission of a put feature associated with the Banc
of America Warrant that was issued in 1997. These transactions are more fully
described in Notes 6 and 9 to the Company's consolidated financial statements
contained elsewhere in this Form 10-K. There were no extraordinary items in
1999.

         Income Taxes. Income tax expense decreased approximately $274,000 or
15.4% from an approximate $1.8 million in 1998 to approximately $1.5 million in
1999. The decrease in expense is attributable to non-tax deductible interest
expense in 1998.

   Year Ended December 31, 1998 compared to Year Ended December 31, 1997

         Net Sales. Net sales increased 149.4% to $39.4 million in 1998 from
$15.8 million in 1997. Approximately $21.8 million of this increase is
attributable to the 1998 acquisitions of Norfolk, IFM, CVS and Stepic ("the
1998 Acquisitions") and the effect of owning Strato for a full year in 1998
versus five and a half months in 1997. If the Company's sales were compared on
a "same store" basis, i.e., excluding the sales increase resulting from the
1998 Acquisitions and owning Strato a full year in 1998, sales revenue
increased approximately $1.83 million or 12%. This increase, which is
attributable primarily to increased volume in hemodialysis and triple lumen
catheter sales, is largely due to an expanded sales force. The 1998 net sales
on a segment basis resulted in net sales of $27.6 million from the
manufacturing segment and $12 million from the distribution segment before
intersegment eliminations. There were no distribution segment sales in 1997.

         Gross Profit. Gross profit increased 104.4% to $19.5 million in 1998,
from $9.5 million in 1997. Gross margin decreased to 49.4% in 1998 from 60.3%
in 1997. The decrease in gross margin is primarily the result of the
acquisition of CVS and Stepic, the distribution segment of the business, which
produces a significantly lower profit margin on products manufactured by
companies other than Horizon. Excluding the 1998 acquisitions and the five and
a half month effect of the Strato acquisition, gross profit on a "same store"
basis increased from 60.3% or $9.5 million in 1997 to 63.1% or $11.1 million in
1998. This increase is primarily attributable to improved production
efficiencies at the Manchester facility. The increase is also due to increased
sales and the effect of increased volume of higher margin catheter products as
part of the overall sales mix. The 1998 gross margin on a segment basis
resulted in gross profit of $16.4 million or 59.3% from the manufacturing
segment and $3.1 million or 25.8% from the distribution segment before
intersegment eliminations.

         Selling, General and Administrative Expenses. Selling, general and
administrative expenses (S,G & A) increased $7.1 million or 110% to $13.6
million in 1998 from $6.5 million in 1997. Approximately $3.6 million of this
increase is due to the expenses incurred in operating the businesses acquired
in the 1998 Acquisitions and the additional five and a half months of owning
Strato. On a "same store" basis, SG&A costs increased $3.5 million. The
increase was partly attributable to a consultant fee of $657,000 paid in
relation to the Premier agreement, which was the fair market value of stock
issued to Premier pursuant to the agreement. Additionally, the increase is due
to increased research and development fees and increased compensation expenses
associated with the expansion


                                      17
<PAGE>   20

of the sales force and the development of an adequate infrastructure to manage
the rapid growth through acquisitions. SG&A expenses decreased as a percentage
of net sales to 34.5% in 1998 from 41.0% in 1997 due to substantial revenue
growth in 1998.

         Interest Expense. Interest expense, net of interest income, decreased
approximately $868,000 or 22% from $4 million in 1997 to $3.1 million in 1998.
Excluding the effects of the accelerated amortization of debt issue costs and
debt discount related to the Banc of America debt and warrant (more fully
discussed in Note 9 to the Company's consolidated financial statements included
elsewhere in this Form 10-K), interest expense decreased approximately $133,000
in 1998. The accelerated amortization was approximately $1.4 million in 1998
compared to $2.3 million in 1997. The decrease is due primarily to the improved
cash position of the Company for much of 1998 as a result of the Initial Public
Offering (the "IPO") proceeds. See also "-- Liquidity and Capital Resources"
below.

         Accretion of Value of Put Warrant Repurchase Obligation. This item
represented a charge of $8 million in 1997 as a result of the estimated
increase in the original $3 million value assigned to the Banc of America
Warrant, which included a put feature. The put feature was rescinded by Banc of
America in January 1998 which resulted in an extraordinary gain of $1.1 million
and a reclassification of $9.9 million from a put warrant repurchase obligation
liability to additional paid-in capital. This transaction is more fully
described in Note 9 to the Company's consolidated financial statements
contained elsewhere in this Form 10-K.

         Extraordinary Items. During 1998, the Company incurred extraordinary
net losses of approximately $83,000, net of applicable income tax benefit of
approximately $53,300, associated with the early extinguishment of certain
debt, which the Company repaid using proceeds from the IPO. In addition, as
discussed previously, the Company recorded an extraordinary gain of $1.1
million in 1998 due to the rescission of a put feature associated with the Banc
of America Warrant that was issued in 1997. These transactions are more fully
described in Notes 6 and 9 to the Company's consolidated financial statements
contained elsewhere in this Form 10-K.

         Income Taxes. Income tax expense increased approximately $1.5 million
or 457% from an approximate $320,000 in 1997 to approximately $1.8 million in
1998. The increase in expense is attributable to increased pre-tax income and
the full year impact of the non-deductible goodwill amortization expense
related to the Strato acquisition. It should be noted that the 1997 expense was
also lower due to the utilization of net operating loss carryforwards for which
there previously had been a full valuation allowance. These carryforwards were
fully utilized in 1997.


                                      18
<PAGE>   21
QUARTERLY RESULTS

    The following table sets forth quarterly statement of operations data for
1998 and 1999. This quarterly information is unaudited but has been prepared on
a basis consistent with the Company's audited financial statements presented
elsewhere herein and, in the Company's opinion, includes all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the information for the quarters presented. The operating
results for any quarter are not necessarily indicative of results for any
future period.

The Company restated its interim condensed consolidated financial statements for
the three and six months ended June 30, 1999 and the three and nine months ended
September 30, 1999. The restatement was necessary due to errors in inventory
valuation and recognition of cost of goods sold discovered during the fourth
quarter relating to previous periods. The adjustment resulted in the following
changes shown on the table below for the three months ended June 30 and
September 30, 1999.

<TABLE>
<CAPTION>
                                                                                         THREE MONTHS ENDED
                                                                    -----------------------------------------------------------
                                                                    MARCH 31,        JUNE 30,      SEPTEMBER 30,   DECEMBER 31,
                                                                      1998            1998             1998           1998
                                                                    ---------       ---------      -------------   ------------
                                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
       <S>                                                          <C>             <C>            <C>             <C>
       Net sales .............................................      $   6,709       $   6,859       $   8,064       $  17,767
       Costs of good sold ....................................          2,534           2,500           3,485          11,414
                                                                    ---------       ---------       ---------       ---------
       Gross profit ..........................................          4,175           4,359           4,579           6,353
       Selling, general and administrative expenses ..........          2,963           2,439           3,244           4,951
                                                                    ---------       ---------       ---------       ---------
       Operating income ......................................          1,212           1,920           1,335           1,402
       Interest expense, net .................................         (1,942)           (299)            (30)           (832)
       Other income ..........................................             11              11              11              13
                                                                    ---------       ---------       ---------       ---------
       Income (loss) before income taxes and extraordinary
         item ................................................           (719)          1,632           1,316             583
       Income tax expense ....................................           (209)           (681)           (576)           (314)
                                                                    ---------       ---------       ---------       ---------
       Income (loss) before extraordinary items ..............           (928)            951             740             269
       Extraordinary gain on early extinguishment of put
         feature .............................................          1,100              --              --              --
       Extraordinary losses on early extinguishments of
         debt, net of income tax benefit of $53,330 ..........             --             (83)             --              --
                                                                    ---------       ---------       ---------       ---------
       Net income ............................................      $     172       $     868       $     740       $     269
                                                                    =========       =========       =========       =========
       Net income (loss) per share before extraordinary
         item -- basic and diluted ...........................      $    (.10)      $     .08       $     .06       $     .02
                                                                    =========       =========       =========       =========
       Net income per share-- basic and diluted ..............      $     .02       $     .07       $     .06       $     .02
                                                                    =========       =========       =========       =========
</TABLE>

<TABLE>
<CAPTION>
                                                                                    THREE MONTHS ENDED
                                                    -------------------------------------------------------------------------------
                                                     MARCH 31,             JUNE 30,              SEPTEMBER 30,         DECEMBER 31,
                                                       1999                  1999                    1999                  1999
                                                    -----------    ------------------------  ------------------------  ------------
                                                                   AS REPORTED  AS RESTATED  AS REPORTED  AS RESTATED
                                                                   -----------  -----------  -----------  -----------

                                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
   <S>                                              <C>            <C>          <C>          <C>          <C>          <C>
   Net sales ......................................   19,441        18,878        18,878        18,842        18,841       18,210
   Costs of good sold .............................   12,056        11,476        11,727        11,489        11,937       12,290
                                                     -------       -------       -------       -------       -------      -------
   Gross profit ...................................    7,385         7,402         7,151         7,353         6,904        5,920
   Selling, general and administrative expenses ...    4,843         4,850         4,850         5,401         5,401        5,054
                                                     -------       -------       -------       -------       -------      -------
   Operating income ...............................    2,542         2,552         2,301         1,952         1,503          866
                                                     -------       -------       -------       -------       -------      -------
   Interest expense, net ..........................     (912)       (1,044)       (1,044)       (1,057)       (1,057)      (1,127)
   Other income ...................................       12            43            43            16            16           28
                                                     -------       -------       -------       -------       -------      -------
   Income (loss) before income taxes ..............    1,642         1,551         1,300           911           462         (233)
   Income tax expense .............................     (703)         (665)         (557)         (430)         (218)         (28)
                                                     -------       -------       -------       -------       -------      -------
   Net income .....................................      939           886           743           481           244         (261)
                                                     =======       =======       =======       =======       =======      =======
   Net income per share - basic and diluted .......     0.07          0.07          0.06          0.04          0.02        (0.02)
                                                     =======       =======       =======       =======       =======      =======
</TABLE>


LIQUIDITY AND CAPITAL RESOURCES

    The Company's principal capital requirements are to fund working capital
requirements, capital expenditures for its existing facility and to fund new
business acquisitions. Historically, the Company has used cash generated by
operations, bank financing, and, in 1998, proceeds from its public equity
offering to fund its capital requirements. Additionally, the Company requires
capital to finance accounts receivable and inventory. The Company's working
capital requirements vary from period to period depending on its production
volume, the timing of shipments and the payment terms offered to its customers.

    Net cash provided by (used in) operations was approximately ($2.4 million)
in 1999, as compared with approximately $2.7 million and ($733,370) in 1997 and
1998, respectively. The decrease in cash from operations during 1999 was
primarily the result of an increase in accounts receivable and inventory levels
as well as the


                                      19
<PAGE>   22

reduction of accounts payable and income taxes payable. The Company granted
extended payment terms to several of its larger distributors in 1999, which in
conjunction with increased sales volume, contributed to the increase in
accounts receivable.

     Net cash used in investing activities was approximately $1.9 million during
1999, as compared with approximately $20.4 million and $38.1 million in 1997 and
1998, respectively. Substantially all of the investing activities in 1999 were
for additional cash paid for acquisitions and for capital expenditures. Cash
paid for acquisitions was approximately $19.5 million and $36.1 million during
1997 and 1998, respectively.

    The Company has established a capital expenditure budget in 2000 of
approximately $1.2 million, primarily for leasehold improvements and
manufacturing and office equipment.

    Net cash provided by financing activities was $26,779 in 1999, as compared
with approximately $20.4 million and $42.2 million in 1997 and 1998,
respectively. Financing activities in 1999 include $2,906,000 provided by
additional borrowings under the Company's credit facility to fund operations
and approximately $2,879,221 used for principal payments on long-term debt. In
1998, the proceeds from the Company's initial public offering were used to
repay the Company's existing debt of approximately $25 million that was
outstanding, purchase the Company's office in Atlanta, Georgia, and fund the
acquisition of Norfolk. In 1997, the borrowings of $23.5 million were used to
fund business expansion through the acquisition of Strato, to retire
approximately $1.7 million of existing debt and to purchase warrants issued in
connection with a previous debt agreement for a price of $400,000.

    As previously noted, the Company's previous credit facility and certain
other indebtedness were repaid during 1998 with proceeds from the IPO as was
required by the respective agreements. On May 26, 1998, the Company entered into
a $50 million amended and restated credit facility (the "New Credit Facility")
with Banc of America to be used for working capital purposes and to fund future
acquisitions. The New Credit Facility bears interest at a rate to be selected by
the Company from certain options defined in the agreement. At December 31, 1999,
the Company's interest rate was 9.5152%, compared with 8.1701% at December 31,
1998. Portions of the amounts outstanding under the New Credit Facility are
payable in 16 quarterly installments beginning October 1, 2000 in amounts
representing 6.25% of the principal amounts outstanding on the payment due
dates. The remaining portion is due on the date of the expiration of the New
Credit Facility, which is July 1, 2004. The total balance outstanding under the
New Credit Facility was approximately $45.0 million and no funds were available
for borrowing under the New Credit Facility at December 31, 1999. In addition,
the Company had outstanding standby letters of credit at December 31, 1999 of
approximately $4.8 million, which collateralize the Company's obligations to
third parties in connection with its 1998 acquisitions. The Company's New Credit
Facility contains certain restrictive covenants that require a minimum net worth
and EBITDA as well as specific ratios such as total debt service coverage,
leverage, interest coverage and debt to capitalization. The covenants also place
limitations on capital expenditures, other borrowings, operating lease
arrangements, and affiliate transactions. The Company is in compliance with or
has received appropriate waivers of these covenants as of the date of this
filing. The New Credit Facility is described more fully in Note 6 of the
consolidated financial statements of the Company included elsewhere in this Form
10-K. The Company and Banc of America amended the New Credit Facility on March
31, 1999 and March 29, 2000, to adjust certain of the financial ratio covenants
and increase the interest rate.

    The Company is currently negotiating with various lenders to refinance the
existing senior indebtedness and to provide new subordinate debt or equity
investment, which, together with its cash flows from operations, the Company
believes will be sufficient to satisfy its future working capital and capital
expenditure requirements.

IMPACT OF INFLATION AND FOREIGN CURRENCY EXCHANGE FLUCTUATIONS

    The results of the Company's operations for the periods discussed have not
been significantly affected by inflation or foreign currency fluctuations. The
New Credit Facility costs result primarily from interest and principal and are
not affected by inflation. Further, although the Company often sells products
on a fixed cost basis, the average time between the receipt of any order and
delivery is generally only a few days. While the Company has not historically
been adversely affected by increases in the cost of raw materials and
components, several GPO agreements to which the Company is a party limit the
Company's ability to raise prices. Thus, future increases in the cost of raw
materials and components could adversely affect the Company's business,
financial condition and results


                                      20
<PAGE>   23

of operations. This could change in situations in which the Company is
producing against a substantial backlog and may not be able to pass on higher
costs to customers. In addition, interest on a portion of the Company's debt is
variable (approximately $11.1 million is subject to an interest rate cap) and
therefore may increase with inflation.

    The Company makes all sales of foreign customers in U.S. dollars. Thus,
notwithstanding fluctuation of foreign currency exchange rates, the Company's
profit margin for any purchase order is not subject to change due to exchange
rate fluctuations after the time the order is placed.

YEAR 2000 DISCLOSURE

    The Company previously recognized the material nature of the business
issues surrounding computer processing of dates into and beyond the Year 2000
and began taking corrective action. The Company's efforts included replacing
and testing four basic aspects of its business operations: internal information
technology ("IT") systems, including sales order processing, contract
management, financial systems and service management; internal non-IT systems,
including office equipment and test equipment products; building
infrastructure, including heating and cooling systems, security systems, water,
gas and electric; and material third-party relationships. Management believes
the Company has completed all of the activities within its control to ensure
that the Company's systems are Year 2000 compliant, and the Company has
experienced no interruptions to normal operations due to the start of the Year
2000.

    The Company's Year 2000 readiness costs were not material and were incurred
and recorded as normal operating costs. The Company funded these costs through
funds generated from operations and such costs were generally not incremental
to existing IT budgets; internal resources were re-deployed and timetables for
implementation of replacement systems were accelerated. The Company does not
currently expect to apply any further funds to address Year 2000 issues.

    As of March 29, 2000, the Company has not experienced any material
disruptions of its internal computer systems or software applications, and has
not experienced any problems with the computer systems or software applications
of its third party venders, suppliers or service providers. The Company will
continue to monitor these third parties to determine the impact, if any, on the
business of the Company and the actions the Company must take, if any, in the
event of non-compliance by any of these third parties. Based upon the Company's
assessment of compliance by third parties, there appears to be no material
business risk posed by any such noncompliance. Moreover, the Company generally
believes that the vendors that supply products to the Company for resale are
responsible for the products' Year 2000 functionality.

    Although the Company's Year 2000 rollover did not present any material
business disruption, there are some remaining Year 2000-related risks,
including risks due to the fact that the Year 2000 is a leap year. These risks
include potential product supply issues and other non-operational issues.
Management believes that appropriate action has been taken to address these
remaining Year 2000 issues and contingency plans are in place to minimize the
financial impact to the Company. Management, however, cannot be certain that
Year 2000 issues will not have a material adverse impact on the Company, since
the evaluation process is not yet complete and it is early in the Year 2000.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires all derivatives to be
measured at fair value and recognized as either assets or liabilities on the
balance sheet. Changes in such fair value are required to be recognized
immediately in net income (loss) to the extent the derivatives are not effective
as hedges. In September 1999, the Financial Standards Board issued SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133, an amendment to delay the effective
date of SFAS No. 133 to fiscal years beginning after June 15, 2000. The Company
does not expect the adoption of SFAS No. 133 as amended by SFAS No. 137 to have
a material impact on the consolidated financial statements.


                                      21
<PAGE>   24

RISK FACTORS

   Limited Manufacturing Experience

    The Company's success will depend in part on its ability to manufacture its
products in compliance with international and domestic standards such as ISO
9001, the FDA's Good Manufacturing Practices ("GMP") regulations and other
applicable licensing and regulatory requirements in sufficient quantities and
on a timely basis, while maintaining product quality and acceptable
manufacturing costs. The Company has historically outsourced the manufacturing
of most of its product lines to third parties while remaining responsible for
that work. In the fourth quarter of 1996, the Company transitioned the
manufacturing of its Circle C(R) and Pheres-Flow(TM) specialty catheter product
lines into its manufacturing facility in Manchester, Georgia. During 1998, the
Company transitioned the manufacturing of its LifePort(TM), Infuse-a-Port(R)
and Infuse-a-Cath(R) product lines to the Manchester facility from a facility
in Norwood, Massachusetts. During 1999, the Company transitioned the
manufacturing of the Vortex(TM), TitanPort(TM) and OmegaPort(R) product lines
to the Manchester facility from Norfolk Medical. The Company has undergone and
expects to continue to undergo regular GMP inspections in connection with the
manufacture of its products at the Company's facilities. The Company's success
will depend, among other things, on its ability to efficiently manufacture
different products and to integrate newly acquired products with existing
products. The Company's failure to successfully commence the manufacturing of
new products, to maintain or increase production volumes of new or existing
products in a timely or cost-effective manner or to maintain compliance with
ISO 9001, the CE Mark requirements, GMP regulations or other applicable
licensing or regulatory requirements could have a material adverse effect on
the Company's business, results of operations and financial condition. The
Company has limited experience in managing the manufacturing process for the
IFM product line. If the Company should assume or acquire manufacturing
responsibility for that product line, the Company's success will depend on,
among other things, successfully acquiring current plant management and
successfully producing the IFM product line.


   Management of Growth; Risks Associated with Acquisitions

    The rapid growth experienced by the Company to date has placed, and could
continue to place, significant demands on the Company's management, operational
and financial resources. From time to time, the Company may pursue additional
strategic acquisitions of complementary businesses, products or technologies as
a means of expanding its existing product lines and distribution channels. As
the medical devices industry continues to consolidate, the Company expects to
face increasing competition from other companies for available acquisition
opportunities. There can be no assurance that suitable acquisition candidates
will be available, that financing for such acquisitions will be obtainable on
terms acceptable to the Company or that such acquisitions will be successfully
completed. Acquisitions entail numerous risks, including (i) the potential
inability to successfully integrate acquired operations and products or to
realize anticipated synergies, economies of scale or other value, (ii)
diversion of management's attention, (iii) responsibility for undiscovered or
contingent liabilities and (iv) loss of key employees of acquired operations.
The relocation of manufacturing operations for acquired product lines to the
Company's manufacturing facility in Manchester, Georgia may also result in
interruptions in production and back orders. No assurance can be given that the
Company will not incur problems in integrating any future acquisition and there
can be no assurance that any future acquisition will increase the Company's
profitability. Further, the Company's results of operations in fiscal quarters
immediately following a material acquisition may be materially adversely
affected while the Company integrates the acquired business into its existing
operations. Any such problems could have a material adverse effect on the
Company's business, results of operations and financial condition. In addition,
future acquisitions by the Company may result in dilutive issuances of equity
securities, the incurrence of additional debt, large one-time charges and the
creation of goodwill or other intangible assets that could result in
significant amortization expense.

    Manufacturing Relationships

    While the Company believes it has a good relationship with each third party
that manufactures the Company's products, there can be no assurance that such
relationships will not deteriorate in the future. Deterioration in these
manufacturing relationships could cause the Company to experience interruptions
in its manufacturing and delivery processes and have a material adverse impact
on the Company's business, financial condition and results of operations.
Furthermore, when the manufacturing arrangements with these third parties
expire, the Company will


                                      22
<PAGE>   25

have to make other manufacturing arrangements or manufacture products at
Company facilities. The failure to effectively plan for the expiration of these
agreements could also result in interruption of the manufacturing and delivery
processes for these products and have a material adverse impact on the
Company's business, financial condition and results of operations.

     The Company is in default under its Manufacturing Agreement with IFM. See
Item 1. "Business - 1998 Acquisitions" above. Should the Company be unable to
revise the Manufacturing Agreement to include acceptable terms or fail to
continue to operate under the verbal modification to the Manufacturing
Agreement, then any liabilities incurred as a result of the default could have a
material adverse effect on the Company's consolidated financial position and
disrupt the Company's ability to obtain and sell the Products.

   Dependence on Patents, Trademarks, Licenses and Proprietary Rights

    The Company believes that its competitive position and success has
depended, in part, on and will continue to depend on the ability of the Company
and its licensors to obtain patent protection for its products, to defend
patents once obtained, to preserve its trade secrets and to operate without
infringing upon patents and proprietary rights held by third parties, both in
the United States and in foreign countries. The Company's policy is to protect
its proprietary position by, among other methods, filing United States and
foreign patent applications relating to technology, inventions and improvements
that are important to the development of its business. The Company owns
numerous United States and foreign patents and United States and foreign patent
applications. The Company also is a party to license agreements with third
parties pursuant to which it has obtained, for varying terms, the right to
make, use and/or sell products that are covered under such license agreement in
consideration for royalty payments. Many of the Company's major products are
subject to such license agreements. There can be no assurance that the Company
or its licensors have or will develop or obtain additional rights to products
or processes that are patentable, that patents will issue from any of the
pending patent applications filed by the Company or that claims allowed will be
sufficient to protect any technology that is licensed to the Company. In
addition, no assurances can be given that any patents issued or licensed to the
Company or other licensing arrangements will not be challenged, invalidated,
infringed or circumvented or that the rights granted thereunder will provide
competitive advantages for the Company's business or products. In such event
the business, results of operations and financial condition of the Company
could be materially adversely affected.

    A number of medical device companies, physicians and others have filed
patent applications or received patents to technologies that are similar to
technologies owned or licensed by the Company. There can be no assurance that
the Company is aware of all patents or patent applications that may materially
affect the Company's ability to make, use or sell its products. United States
patent applications are confidential while pending in the United States Patent
and Trademark Office ("PTO"), and patent applications filed in foreign
countries are often first published six or more months after filing. Any
conflicts resulting from third-party patent applications and patents could
significantly reduce the coverage of the patents owned or licensed by the
Company and limit the ability of the Company or its licensors to obtain
meaningful patent protection. If patents are issued to other companies that
contain competitive or conflicting claims, the Company may be required to
obtain licenses to those patents or to develop or obtain alternative
technology. There can be no assurance that the Company would not be delayed or
prevented from pursuing the development or commercialization of its products,
which could have a material adverse effect on the Company.

    There has been substantial litigation regarding patent and other
intellectual property rights in the medical devices industry. Although the
Company has not been a party to any material litigation to enforce any
intellectual property rights held by the Company, or a party to any material
litigation seeking to enforce any rights alleged to be held by others, future
litigation may be necessary to protect patents, trade secrets, copyrights or
"know-how" owned by the Company or to defend the Company against claimed
infringement of the rights of others and to determine the scope and validity of
the proprietary rights of the Company and others. The validity and breadth of
claims covered in medical technology patents involve complex legal and factual
questions for which important legal principles are unresolved. Any such
litigation could result in substantial cost to and diversion of effort by the
Company. Adverse determinations in any such litigation could subject the
Company to significant liabilities to third parties, could require the Company
to seek licenses from third parties and could prevent the Company from
manufacturing, selling or using certain of its products, any of which could
have a material adverse effect on the Company's business, results of operations
and financial condition.


                                      23
<PAGE>   26

    The Company also relies on trade secrets and proprietary technology that it
seeks to protect, in part, through confidentiality agreements with employees,
consultants and other parties. There can be no assurance that these agreements
will not be breached, that the Company will have adequate remedies for any
breach, that others will not independently develop substantially equivalent
proprietary information or that third parties will not otherwise gain access to
the Company's trade secrets.

    The Company also relies upon trademarks and trade names for the development
and protection of brand loyalty and associated goodwill in connection with its
products. The Company's policy is to protect its trademarks, trade names and
associated goodwill by, among other methods, filing United States and foreign
trademark applications relating to its products and business. The Company owns
numerous United States and foreign trademark registrations and applications.
The Company also relies upon trademarks and trade names for which it does not
have pending trademark applications or existing registrations, but in which the
Company has substantial trademark rights. The Company's registered and
unregistered trademark rights relate to the majority of the Company's products.
There can be no assurance that any registered or unregistered trademarks or
trade names of the Company will not be challenged, canceled, infringed,
circumvented, or be declared generic or infringing of other third-party marks
or provide any competitive advantage to the Company.

   Potential Product Liability

     Because its products are intended to be used in healthcare settings on
patients who are physiologically unstable and may be seriously or critically
ill, the Company's business exposes it to potential product liability risks
which are inherent in the medical devices industry. In addition, many of the
medical devices manufactured and sold by the Company are designed to be
implanted in the human body for extended periods of time. Component failures,
manufacturing flaws, design defects or inadequate disclosure of product-related
risks with respect to these or other products manufactured or sold by the
Company could result in injury to, or death of, a patient. The occurrence of
such a problem could result in product liability claims and/or a recall of,
safety alert relating to, or other FDA or private civil action affecting one or
more of the Company's products or responsible officials. The Company maintains
product liability insurance coverage in amounts that it deems sufficient for its
business. There can be no assurance, however, that such coverage will be
available with respect to or sufficient to satisfy all claims made against the
Company or that the Company will be able to obtain insurance in the future at
satisfactory rates or in adequate amounts. Product liability claims or product
recalls in the future, regardless of their ultimate outcome, could result in
costly litigation and could have a material adverse effect on the Company's
business, results of operations and financial condition. In September 1999, the
Company initiated a voluntary product recall of its dialysis and central venous
catheter kit product lines due to small pinholes in the product packaging.
Although the recall covers products manufactured since 1994, product returns
through December 31, 1999 were approximately 15,300 units. No product complaints
have been received to date for either pinholes in the packaging or infection of
the implant site that could be attributed to the packaging being contaminated.
The product recall will remain open with FDA until the reconciliation to
shipments has been completed and a recall termination request has been approved.

   Future Capital Requirements

    There can be no assurance that the Company's cash flow from operations and
cash available from external financing will be sufficient to meet the Company's
future cash flow needs, in which case the Company would need to obtain
additional financing. The Company currently has no availability of funds under
the New Credit Facility. Any additional financing could involve issuances of
debt or issuances of equity securities which would be dilutive to the Company's
stockholders, and any debt facilities could contain covenants that may affect
the Company's operations, including its ability to make future acquisitions.
Adequate additional funds, whether from the financial markets or from other
sources, may not be available on a timely basis, on terms acceptable to the
Company or at all. Insufficient funds may cause the Company difficulty in
financing its accounts receivables and inventory and may result in delay or
abandonment of some or all of the Company's product acquisition, licensing,
marketing or research and development programs or opportunities, which could
have a material adverse effect on the Company's business, results of operations
and financial condition.


                                      24
<PAGE>   27

   New Product Introductions

    Although the vascular access product industry has not experienced rapid
technological change historically, as the Company's existing products become
more mature, the importance of developing or acquiring, manufacturing and
introducing new products that address the needs of its customers will increase.
The development or acquisition of any such products will entail considerable
time and expense, including acquisition costs, research and development costs,
and the time and expense required to obtain necessary regulatory approvals,
which approvals are not assured, and any of which could adversely affect the
business, results of operations or financial condition of the Company. There
can be no assurance that such development activities will yield products that
can be commercialized profitably or that any product acquisition can be
consummated on commercially reasonable terms or at all. To date, substantially
all of the Company's products have been developed in conjunction with third
parties or acquired as a result of acquisitions consummated by the Company. The
inability of the Company to develop or acquire new products to supplement the
Company's existing product lines could have an adverse impact on the Company's
ability to fully implement its business strategy and further develop its
operation.

   Customer Concentration

    The Company's net sales to its three largest customers accounted for 14%,
7% and 7% of total sales during 1997, 1998 and 1999, respectively. The loss of,
or significant curtailments of purchases by, any of the Company's significant
customers could have a material adverse effect on the Company's business,
results of operations and financial condition.

   Dependence on Key Suppliers

    The Company purchases raw materials and components for use in manufacturing
its products from many different suppliers. There can be no assurance that the
Company will be able to maintain its existing supplier relationships or secure
additional suppliers as needed. In addition, Stepic has generated 64% of its
sales through distribution of products of three major manufacturers. See Item
1. "Business -- Description of Business by Industry Segment -- Product
Distribution." The loss of a major supplier, the deterioration of the Company's
relationship with a major supplier, changes by a major supplier in the
specifications of the components used in the Company's products, or the failure
of the Company to establish good relationships with major new suppliers could
have a material adverse effect on the Company's business, results of operations
and financial condition.

   Dependence on Key Personnel

    The Company's success is substantially dependent on the performance,
contributions and expertise of its executive officers and key employees. The
Company's success to date has been significantly dependent on the contributions
of Marshall B. Hunt, its Chairman and Chief Executive Officer, and William E.
Peterson, Jr., its President, each of whom is party to an employment agreement
with the Company and on each of whom the Company maintains key man life
insurance in the amount of $1 million. The Company is wholly dependent on
certain key employees to manage its distribution business. The Company is also
dependent on its ability to attract, retain and motivate additional personnel.
The loss of the services of any of its executive officers or other key employees
or the Company's inability to attract, retain or motivate the necessary
personnel could have a material adverse effect on the Company's business,
results of operations and financial condition.

   Control by Certain Shareholders

    Marshall B. Hunt, William E. Peterson, Jr., and Roy C. Mallady, Jr.
collectively own more than 50% of the Company's outstanding common stock. These
shareholders, if they were to act together, would have the power to elect all
of the members of the Company's Board of Directors, amend the Amended and
Restated Articles of Incorporation of the Company (the "Articles") and the
Amended and Restated Bylaws of the Company (the "Bylaws") and effect or
preclude fundamental corporate transactions involving the Company, including
the acceptance or rejection of proposals relating to a merger of the Company or
the acquisition of the Company by another entity. Accordingly, these
shareholders are able to exert significant influence over the Company,
including the ability to control decisions on matters on which shareholders are
entitled to vote.


                                      25
<PAGE>   28

   Year 2000 Issues

    The year 2000 could result in challenges related to the Company's computer
software, accounting records and relationships with suppliers and customers.
Management of the Company is monitoring possible year 2000 issues and is seeking
to avoid any problems. As of March 29, 2000 the Company has not incurred
material year 2000 issues which remain unresolved nor has the Company incurred
material costs with respect to assessing and remediating year 2000 problems.
However, there can be no assurance that the Company has identified all year 2000
problems in its computer systems or those of its customers, vendors or resellers
in advance of their occurrence or that the Company will be able to successfully
remedy any problems that are discovered. The expenses of the Company's efforts
to identify and address such problems, or the expenses or liabilities to which
the Company may become subject as a result of such problems, could have a
material adverse effect on the Company's business, financial condition and
results of operations. The revenue stream and financial stability of existing
customers may be adversely impacted by year 2000 problems, which could cause
fluctuations in the Company's revenue. In addition, failure of the Company to
identify and remedy year 2000 problems could put the Company at a competitive
disadvantage relative to companies that have corrected such problems.

   Healthcare Reform/Pricing Pressure

    The healthcare industry in the United States continues to experience
change. In recent years, several healthcare reform proposals have been
formulated by members of Congress. In addition, state legislatures periodically
consider healthcare reform proposals. Federal, state and local government
representatives will, in all likelihood, continue to review and assess
alternative healthcare delivery systems and payment methodologies, and ongoing
public debate of these issues can be expected. Cost containment initiatives,
market pressures and proposed changes in applicable laws and regulations may
have a dramatic effect on pricing or potential demand for medical devices, the
relative costs associated with doing business and the amount of reimbursement
by both government and third-party payors to persons providing medical
services. In particular, the healthcare industry is experiencing market-driven
reforms from forces within the industry that are exerting pressure on
healthcare companies to reduce healthcare costs. Managed care and other
healthcare provider organizations have grown substantially in terms of the
percentage of the population in the United States that receives medical
benefits through such organizations and in terms of the influence and control
that they are able to exert over an increasingly large portion of the
healthcare industry. Managed care organizations are continuing to consolidate
and grow, increasing the ability of these organizations to influence the
practices and pricing involved in the purchase of medical devices, including
certain of the products sold by the Company, which is expected to exert
downward pressure on product margins. Both short- and long-term cost
containment pressures, as well as the possibility of continued regulatory
reform, may have an adverse impact on the Company's business, results of
operations and financial condition.

   Government Regulation

    The Company's products and operations are subject to extensive regulation
by numerous governmental authorities, including, but not limited to, the FDA
and state and foreign governmental authorities. In particular, the Company must
obtain specific clearance or approval from the FDA before it can market new
products or certain modified products in the United States. The FDA administers
the FDC Act. Under the FDC Act, medical devices must receive FDA clearance
through the Section 510(k) notification process ("510(k)") or the more lengthy
PMA process before they can be sold in the United States. To obtain 510(k)
marketing clearance, a company must show that a new product is "substantially
equivalent" to a product already legally marketed and which does not require a
PMA. Therefore, it is not always necessary to prove the safety and
effectiveness of the new product in order to obtain 510(k) clearance for such
product. To obtain a PMA, a company must submit extensive data, including
clinical trial data, to prove the safety, effectiveness and clinical utility of
its products. FDA regulations also require companies to adhere to certain
GMP's, which include testing, quality control, storage, and documentation
procedures. Compliance with applicable regulatory requirements is monitored
through periodic site inspections by the FDA. The process of obtaining such
clearances or approvals can be time-consuming and expensive, and there can be
no assurance that all clearances or approvals sought by the Company will be
granted or that FDA review will not involve delays adversely affecting the
marketing and sale of the Company's products. In addition, the Company is
required to comply with FDA requirements for labeling and promotion of its
products. The Federal Trade Commission also regulates most device advertising.


                                      26
<PAGE>   29

    In addition, international regulatory bodies often establish varying
regulations governing product testing and licensing standards, manufacturing
compliance (e.g., compliance with ISO 9001 standards), packaging requirements,
labeling requirements, import restrictions, tariff regulations, duties and tax
requirements and pricing and reimbursement levels. The inability or failure of
the Company to comply with the varying regulations or the imposition of new
regulations could restrict the Company's ability to sell its products
internationally and thereby adversely affect the Company's business, results of
operations and financial condition.

    Failure to comply with applicable federal, state or foreign laws or
regulations could subject the Company to enforcement actions, including, but
not limited to, product seizures, injunctions, recalls, suspensions or
withdrawal of clearances or approvals, civil penalties and criminal
prosecutions against the Company or its responsible officials, any one or more
of which could have a material adverse effect on the Company's business,
results of operations and financial condition. Federal, state and foreign laws
and regulations regarding the manufacture and sale of medical devices are
subject to future changes, as are administrative interpretations of regulatory
agencies. No assurance can be given that such changes will not have a material
adverse effect on the Company's business, results of operations and financial
condition. From time to time, the Company has received Section FD-483 and
Warning Letters from the FDA regarding the Company's compliance with FDA
regulations. The Company has worked with the FDA to resolve these issues. There
can be no assurance the Company will not receive additional FD-483s or Warning
Letters in the future or that it will be able to reach an acceptable resolution
of the issues raised in such letters.

   Limitations on Third-Party Reimbursement

    In the United States, the Company's products are purchased primarily by
hospitals and medical clinics, which then bill various third-party payors, such
as Medicare, Medicaid and other government programs and private insurance
plans, for the healthcare services provided to patients. Government agencies,
private insurers and other payors determine whether to provide coverage for a
particular procedure and reimburse hospitals for medical treatment at a fixed
rate based on the diagnosis-related group ("DRG") established by the United
States Health Care Financing Administration ("HCFA"). The fixed rate of
reimbursement is based on the procedure performed and is unrelated to the
specific devices used in that procedure. If a procedure is not covered by a
DRG, payors may deny reimbursement. In addition, third-party payors may deny
reimbursement if they determine that the device used in a treatment was
unnecessary, inappropriate or not cost-effective, experimental or used for a
non-approved indication. Reimbursement of procedures implanting the Company's
vascular access ports and catheter products is currently covered under a DRG.
There can be no assurance that reimbursement for such implantation will
continue to be available, or that future reimbursement policies of third-party
payors will not adversely affect the Company's ability to sell its products on
a profitable basis. Failure by hospitals and other users of the Company's
products to obtain reimbursement from third-party payors, or changes in
government and private third-party payors' policies toward reimbursement for
procedures employing the Company's products, would have a material adverse
effect on the Company's business, results of operations and financial
condition.

   Competition

    The medical devices industry is highly competitive and fragmented. The
Company currently competes with many companies in the development,
manufacturing and marketing of vascular access ports, dialysis and apheresis
catheters and related ancillary products and in the distribution of medical
devices. Some of these competitors have substantially greater capital
resources, management resources, research and development staffs, sales and
marketing organizations and experience in the medical devices industry than the
Company. These competitors may succeed in marketing their products more
effectively, pricing their products more competitively, or developing
technologies and products that are more effective than those sold or produced
by the Company or that would render some products offered by the Company
noncompetitive.

   Factors Inhibiting Takeover

    Certain provisions of the Articles and Bylaws may delay or prevent a
takeover attempt that a shareholder might consider in its best interest. Among
other things, these provisions establish certain advance notice procedures for
shareholder proposals to be considered at shareholders' meetings, provide for
the classification of the Board of Directors, provide that only the Board of
Directors or shareholders owning 70% or more of the outstanding Common Stock
may call special meetings of the shareholders and establish supermajority
voting requirements with


                                      27
<PAGE>   30

respect to the amendment of certain provisions of the Articles and Bylaws. In
addition, the Board of Directors can authorize and issue shares of Preferred
Stock, no par value (the "Preferred Stock"), issuable in one or more series,
with voting or conversion rights that could adversely affect the voting or
other rights of holders of the Common Stock. The terms of the Preferred Stock
that might be issued could potentially prohibit the Company's consummation of
any merger, reorganization, sale of all or substantially all of its assets,
liquidation or other extraordinary corporate transaction without the approval
of the holders of the outstanding shares of such stock. Furthermore, certain
provisions of the Georgia Business Corporation Code may have the effect of
delaying or preventing a change in control of the Company.

   Deterioration in General Economic Conditions

    The sales of the products manufactured and distributed by the Company may
be adversely impacted by a deterioration in the general economic conditions in
the markets in which the Company's products are sold. Likewise, a deterioration
in general economic conditions could cause the Company's customers and/or third
party payors to choose cheaper methods of treatment not utilizing the Company's
products. A decline in the Company's sales attributable to these factors could
have a material adverse effect on the Company's business, results of operations
and financial condition.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    Like other companies, the Company is exposed to market risks relating to
fluctuations in interest rates. The Company's objective of financial risk
management is to minimize the negative impact of interest rate fluctuations on
the Company's earnings and cash flows.

    To manage this risk, the Company has entered into an interest rate cap
agreement ("the Cap Agreement") with NationsBank, a major financial
institution, to minimize the risk of credit loss. The Company uses this Cap
Agreement to reduce risk by essentially creating offsetting market exposures.
The Cap Agreement is not held for trading purposes.

    At December 31, 1999, the Company had approximately $45.0 million
outstanding under its New Credit Facility, which expires in July 2004. Amounts
outstanding under the New Credit Facility of approximately $11.1 million were
subject to the Cap Agreement, which expires in October 2002. The fair value of
the Cap Agreement, as determined by NationsBank, was $23 as of December 31,
1999. The Cap Agreement settles quarterly and the cap rate is 8.8%.

    For more information on the Cap Agreement, see Notes 1 and 6 to the
Company's consolidated financial statements.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    The Company's Consolidated Financial Statements are listed under Item 14(a)
and appear beginning at page F-1.

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

    Not applicable.


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information with respect to directors and executive officers of the Company is
incorporated herein by reference to the information under the captions
"Directors Standing for Election," "Directors Continuing in Office," and
"Executive Officers and Key Employees" in the Company's Proxy Statement for the
2000 Annual Meeting of Shareholders. Information with respect to compliance with
Section 16(a) of the Securities Exchange Act of 1934 is incorporated by
reference to the information under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's Proxy Statement for the 2000
Annual Meeting of Stockholders.


                                      28
<PAGE>   31

ITEM 11.  EXECUTIVE COMPENSATION

     Information with respect to executive compensation is incorporated herein
by reference to the information under the captions "How are Directors
Compensated?," "Executive Compensation Summary Table," "Employment Agreements,"
"Compensation Committee Interlocks and Insider Participation," "Option Grants
for Fiscal 1999" and "Option Exercises and Values for Fiscal 1999" in the
Company's Proxy Statement for the 2000 Annual Meeting of Shareholders.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information with respect to security ownership of certain beneficial owners
and management is incorporated herein by reference to the tabulation under the
caption "Stock Ownership" in the Company's Proxy Statement for the 2000 Annual
Meeting of Shareholders.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information with respect to certain relationships and related transactions
is incorporated herein by reference to the information under the caption
"Certain Relationships and Related Transactions" in the Company's Proxy
Statement for the 2000 Annual Meeting of Shareholders.



                                      29
<PAGE>   32

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A)  FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS

         1.  FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                           PAGE
                                                                                           ----
         <S> <C>                                                                           <C>
             Consolidated Financial Statements
                  Report of Independent Accountants.....................................   F-1
                  Consolidated Balance Sheets as of December 31, 1998 and 1999..........   F-2
                  Consolidated Statements of Operations for the Years Ended
                      December 31, 1997, 1998 and 1999..................................   F-3
                  Consolidated Statements of Shareholders' Equity
                       for the Years Ended December 31, 1997, 1998, and 1999............   F-4
                  Consolidated Statements of Cash Flows for the Years Ended
                      December 31, 1997, 1998, and 1999.................................   F-5
                  Notes to Consolidated Financial Statements............................   F-6

         2.  FINANCIAL STATEMENT SCHEDULES

             Report of Independent Accountants on Financial Statement Schedule..........  F-34
             Schedule II -- Valuation and Qualifying Accounts...........................  F-35

         3.  EXHIBITS

             Included as exhibits are the items listed on the Exhibit Index below.
</TABLE>


<TABLE>
<CAPTION>

             EXHIBIT
             NUMBER                        DESCRIPTION OF EXHIBITS
             ------                        -----------------------
             <S>       <C>    <C>
               3.1     --     Amended and Restated Articles of Incorporation of
                              the Company, filed as Exhibit 3.1 to the
                              Registrant's Form S-1 dated April 14, 1998
                              (SEC File No. 333-46349) and
                              incorporated herein by reference.

               3.2     --     Amended and Restated Bylaws of the Company,
                              filed as Exhibit 3.2 to the Registrant's Form S-1
                              dated April 14, 1998 (SEC File No. 333-46349) and
                              incorporated herein by reference.

               4.1     --     See Articles II, III, VII and IX of the
                              Amended and Restated Articles of Incorporation
                              filed as Exhibit 3.1 and Articles I, VII, VIII
                              and IX of the Amended and Restated Bylaws filed
                              as Exhibit 3.2, filed as Exhibit 4.1 to the
                              Registrant's Form S-1 dated April 14, 1998 (SEC
                              File No. 333-46349) and incorporated herein by
                              reference.

               4.2     --     Specimen Common Stock Certificate, filed as
                              Exhibit 4.2 to the Registrant's Form S-1 dated
                              April 14, 1998 (SEC File No. 333-46349) and
                              incorporated herein by reference.

               4.3     --     Rights Agreement dated April 9, 1998 by and
                              between the Company and Tapir Investments
                              (Bahamas) Ltd., filed as Exhibit 4.3 to the
                              Registrant's Form 10-K dated March 31, 1999 (SEC
                              File No. 000-24025) and incorporated herein by
                              reference.
</TABLE>


                                      30
<PAGE>   33


<TABLE>

              <S>      <C>    <C>
              10.1     --     Promissory Note dated September 28, 1995 made
                              by Marshall B. Hunt to the order of the Company
                              in the principal amount of $77,612.43, as amended
                              by Amendment to Promissory Note dated September
                              28, 1996, filed as Exhibit 10.1 to the
                              Registrant's Form S-1 dated April 14, 1998 (SEC
                              File No. 333-46349) and incorporated herein by
                              reference.

              10.2     --     Promissory Note dated September 28, 1995 made
                              by William E. Peterson, Jr. to the order of the
                              Company in the principal amount of $77,612.43, as
                              amended by Amendment to Promissory Note dated
                              September 28, 1996, filed as Exhibit 10.2 to the
                              Registrant's Form S-1 dated April 14, 1998 (SEC
                              File No. 333-46349) and incorporated herein by
                              reference.

              10.3     --     Promissory Note dated September 28, 1995 made
                              by Roy C. Mallady, Jr. to the order of the
                              Company in the principal amount of $77,612.43, as
                              amended by Amendment to Promissory Note dated
                              September 28, 1996, filed as Exhibit 10.3 to the
                              Registrant's Form S-1 dated April 14, 1998 (SEC
                              File No. 333-46349) and incorporated herein by
                              reference.

              10.4     --     Promissory Note dated October 12, 1995 made by
                              Marshall B. Hunt to the order of the Company in
                              the principal amount of $35,000.00, as amended by
                              Amendment to Promissory Note dated October 12,
                              1996, filed as Exhibit 10.4 to the Registrant's
                              Form S-1 dated April 14, 1998 (SEC File No.
                              333-46349) and incorporated herein by reference.

              10.5     --     Promissory Note dated October 12, 1995 made by
                              William E. Peterson, Jr. to the order of the
                              Company in the principal amount of $35,000.00, as
                              amended by Amendment to Promissory Note dated
                              October 12, 1996, filed as Exhibit 10.5 to the
                              Registrant's Form S-1 dated April 14, 1998 (SEC
                              File No. 333-46349) and incorporated herein by
                              reference.

              10.6     --     Promissory note dated October 12, 1995 made by
                              Roy C. Mallady, Jr. to the order of the Company
                              in the principal amount of $35,000.00, as amended
                              by Amendment to Promissory Note dated October 12,
                              1996, filed as Exhibit 10.6 to the Registrant's
                              Form S-1 dated April 14, 1998 (SEC File No.
                              333-46349) and incorporated herein by reference.

              10.7     --     Amended and Restated Credit Agreement dated as of
                              May 26, 1998 among the Company, the Lenders
                              referred to therein and Banc of America Commercial
                              Corporation, as Agent, filed as Exhibit 10.1 to
                              the Registrant's Form 10-Q dated May 29, 1998 (SEC
                              File No. 000-24025) and incorporated herein by
                              reference.

              10.8     --     Second Amendment to Amended and Restated
                              Credit Agreement and Waiver dated as of March 31,
                              1999 among the Company, the Lenders referred to
                              therein and Banc of America Commercial
                              Corporation, as Agent, filed as Exhibit 10.1 to
                              the Registrant's Form 10-Q dated May 14, 1999
                              (SEC File No. 000-24025) and incorporated herein
                              by reference.

              10.9     --     Lease Agreement dated as of July 1, 1996
                              between The Development Authority of the City of
                              Manchester and the Company, filed as Exhibit 10.9
                              to the Registrant's Form S-1 dated April 14, 1998
                              (SEC File No. 333-46349) and incorporated herein
                              by reference.

              10.10    --     Amendment to Lease Agreement dated November 2, 1999
                              between The Development Authority of the City
                              of Manchester and the Company.

              10.11    --     Lease Agreement dated as of August 29, 1997
                              between The Development Authority of the City of
                              Manchester and the Company, filed as Exhibit
                              10.10 to the Registrant's Form S-1 dated April
                              14, 1998 (SEC File No. 333-46349) and
                              incorporated herein by reference.
</TABLE>


                                      31
<PAGE>   34

<TABLE>

             <S>      <C>     <C>
             10.12    --      1998 Stock Incentive Plan, filed as Exhibit
                              10.11 to the Registrant's Form S-1 dated April
                              14, 1998 (SEC File No. 333-46349) and
                              incorporated herein by reference.

             10.13    --      Stock Purchase Agreement dated June 20, 1997
                              among the Company, Pfizer, Inc., Arrow
                              International, Inc. and Strato(R)/Infusaid(TM)
                              Inc., as amended by Amendment to Purchase
                              Agreement, dated June 20, 1997, filed as Exhibit
                              10.14 to the Registrant's Form S-1 dated April
                              14, 1998 (SEC File No. 333-46349) and
                              incorporated herein by reference.

             10.14    --      Agreement dated January 13, 1995 between the
                              Company and ACT Medical, Inc., filed as Exhibit
                              10.21 to the Registrant's Form S-1 dated April 14,
                              1998 (SEC File No. 333-46349) and incorporated
                              herein by reference.

             10.15    --      Horizon Plastic Ports: Term Sheet dated March
                              18, 1997, filed as Exhibit 10.22 to the
                              Registrant's Form S-1 dated April 14, 1998 (SEC
                              File No. 333-46349) and incorporated herein by
                              reference.

             10.16    --      Letter Agreement to Supply Agreement between
                              CarboMedics, Inc. and the Company, dated February
                              17, 1993, as amended, Development Agreement, dated
                              February 17, 1993, by and between CarboMedics,
                              Inc. and the Company, as amended, and Equity
                              Agreement, dated as of February 17, 1993, by and
                              between CarboMedics, Inc. and the Company, as
                              amended, filed as Exhibit 10.23 to the
                              Registrant's Form S-1 dated April 14, 1998 (SEC
                              File No. 333-46349) and incorporated herein by
                              reference.

             10.17    --      Agreement dated May 8, 1997 between the
                              Company and Robert Cohen, filed as Exhibit 10.24
                              to the Registrant's Form S-1 dated April 14, 1998
                              (SEC File No. 333-46349) and incorporated herein
                              by reference.

             10.18    --      Consulting and Services Agreement dated
                              February 1, 1996 between the Company and
                              Healthcare Alliance, Inc. as amended, filed as
                              Exhibit 10.25 to the Registrant's Form S-1 dated
                              April 14, 1998 (SEC File No. 333-46349) and
                              incorporated herein by reference.

             10.19    --      Second Amended License Agreement dated January
                              1, 1995 between Dr. Sakharam D. Mahurkar and
                              NeoStar Medical(R) Technologies, filed as Exhibit
                              10.26 to the Registrant's Form S-1 dated April
                              14, 1998 (SEC File No. 333-46349) and
                              incorporated herein by reference.

             10.20    --      License Agreement dated July 1995 between Dr.
                              Sakharam D. Mahurkar and Strato(R)/Infusaid(TM)
                              Inc., filed as Exhibit 10.27 to the Registrant's
                              Form S-1 dated April 14, 1998 (SEC File No.
                              333-46349) and incorporated herein by reference.

             10.21    --      Additional License Agreement dated January 1,
                              1997 between Dr. Sakharam D. Mahurkar and the
                              Company, filed as Exhibit 10.28 to the
                              Registrant's Form S-1 dated April 14, 1998 (SEC
                              File No. 333-46349) and incorporated herein by
                              reference.

             10.22    --      Atlanta Office Purchase Agreement, filed as
                              Exhibit 10.29 to the Registrant's Form S-1 dated
                              April 14, 1998 (SEC File No. 333-46349) and
                              incorporated herein by reference.

             10.23    --      Employment Agreement, dated as of April 3,
                              1998, between Marshall B. Hunt and the Company,
                              filed as Exhibit 10.30 to the Registrant's Form
                              S-1 dated April 14, 1998 (SEC File No. 333-46349)
                              and incorporated herein by reference.

             10.24    --      Amendment, dated as of June 29, 1999, to the
                              Employment Agreement, dated as of April 3, 1998,
                              by and between the Company and Marshall B. Hunt,
                              filed as Exhibit 10.2 to the Registrant's Form
                              10-Q dated August 16, 1999 (SEC File No.
                              000-24025) and incorporated herein by reference.
</TABLE>


                                      32
<PAGE>   35


<TABLE>

             <S>      <C>     <C>
             10.25    --      Employment Agreement, dated as of April 3, 1998,
                              between William E. Peterson, Jr. and the Company,
                              filed as Exhibit 10.31 to the Registrant's Form
                              S-1 dated April 14, 1998 (SEC File No. 333-46349)
                              and incorporated herein by reference.

             10.26    --      Amendment, dated as of June 29, 1999, to the
                              Employment Agreement, dated as of April 3, 1998,
                              by and between the Company and William E.
                              Peterson, Jr., filed as Exhibit 10.3 to the
                              Registrant's Form 10-Q dated August 16, 1999 (SEC
                              File No. 000-24025) and incorporated herein by
                              reference.

             10.27    --      Premier Warrant, filed as Exhibit 10.32 to the
                              Registrant's Form S-1 dated April 14, 1998 (SEC
                              File No. 333-46349) and incorporated herein by
                              reference.

             10.28    --      Premier Group Purchasing Agreement, filed as
                              Exhibit 10.33 to the Registrant's Form S-1 dated
                              April 14, 1998 (SEC File No. 333-46349) and
                              incorporated herein by reference.

             10.29    --      Amendment Number 1 to Premier Group Purchase
                              Agreement dated March 1, 1999, filed as Exhibit
                              10.25 to the Registrant's Form 10-K dated March
                              31, 1999 (SEC File No. 000-24025) and incorporated
                              herein by reference.

             10.30    --      Asset Purchase Agreement, by and among the
                              Company and Norfolk Medical Products, Inc. and
                              Michael J. Dalton dated June 2, 1998, filed as
                              Exhibit 2 to the Registrant's Form 8-K dated June
                              16, 1998 (SEC File No. 000-24025) and
                              incorporated herein by reference.

             10.31    --      Asset Purchase Agreement, by and among the
                              Company, Columbia Vital Systems, Inc., William C.
                              Huck and R. Gregory Huck dated September 21,
                              1998, filed as Exhibit 2 to the Registrant's Form
                              8-K dated October 5, 1998 (SEC File No.
                              000-24025) and incorporated herein by reference.

             10.32    --      Asset Purchase Agreement, by and between Ideas
                              for Medicine, Inc. and the Company, dated
                              September 30, 1998, filed as Exhibit 2 to the
                              Registrant's Form 8-K dated October 14, 1998 (SEC
                              File No. 000-24025) and incorporated herein by
                              reference. Pursuant to Item 601(b) of Regulation
                              S-K, the Company has omitted certain Schedules
                              and Exhibits to the Asset Purchase Agreement (all
                              of which are listed therein) from this Exhibit.

             10.33    --      Stock Purchase Agreement, by and among the
                              Company, Steven Picheny, Howard Fuchs, Christine
                              Selby and Stepic Corporation, effective October
                              15, 1998, filed as Exhibit 2 to the Registrant's
                              Form 8-K dated October 30, 1998 (SEC File No.
                              000-24025) and incorporated herein by reference.
                              Pursuant to Item 601(b) of Regulation S-K, the
                              Company has omitted certain Schedules and
                              Exhibits to the Stock Purchase Agreement(all of
                              which are listed therein) from this Exhibit.

             10.34    --      Amendment One dated December 15, 1999 to the
                              Stock Purchase Agreement, by and among the
                              Company, Steven Picheny, Howard Fuchs, Christine
                              Selby and Stepic Corporation.

             10.35    --      Manufacturing Agreement dated as of September
                              30, 1998 by and between the Company and Ideas for
                              Medicine, Inc., filed as Exhibit 10.30 to the
                              Registrant's Form 10-K dated March 31, 1999 (SEC
                              File No. 000-24025) and incorporated herein by
                              reference.

             10.36    --      Consulting and Services Agreement dated
                              January 1, 1999 by and between the Company and
                              Healthcare Alliance, Inc., filed as Exhibit 10.31
                              to the Registrant's Form 10-K dated March 31,
                              1999 (SEC File No. 000-24025) and incorporated
                              herein by reference.
</TABLE>


                                      33
<PAGE>   36

<TABLE>

            <S>       <C>     <C>
            10.37     --      Employment Agreement, dated as of May 12,
                              1999, between Walter J. Fritschner and the
                              Company, filed as Exhibit 10.1 to the
                              Registrant's Form 10-Q dated August 16, 1999 (SEC
                              File No. 000-24025) and incorporated herein by
                              reference.

             10.38    --      Severance and Bonus Agreement dated November
                              12, 1999 between the Company and Michael A.
                              Crouch, filed as Exhibit 10.1 to the Registrant's
                              Form 10-Q dated November 15, 1999 (SEC File No.
                              000-24025) and incorporated herein by reference.

             10.39    --      Severance and Bonus Agreement dated November
                              12, 1999 between the Company and Frank D.
                              DeBartola, filed as Exhibit 10.2 to the
                              Registrant's Form 10-Q dated November 15, 1999
                              (SEC File No. 000-24025) and incorporated herein
                              by reference.

             10.40    --      Severance and Bonus Agreement dated November
                              12, 1999 between the Company and L. Bruce Maloy,
                              filed as Exhibit 10.3 to the Registrant's Form
                              10-Q dated November 15, 1999 (SEC File No.
                              000-24025) and incorporated herein by reference.

             10.41    --      Severance and Bonus Agreement dated November
                              12, 1999 between the Company and Robert Singer,
                              filed as Exhibit 10.4 to the Registrant's Form
                              10-Q dated November 15, 1999 (SEC File No.
                              000-24025) and incorporated herein by reference.

             10.42    --      Employment Agreement dated as of December 15,
                              1999 between Robert M. Dodge and the Company.

             10.43   --       Lease Agreement dated August 17, 1998 between
                              HP Aviation, Inc. and the Company

             10.44   --       Agreement dated December 22, 1998 between Marshall
                              B. Hunt and William E. Peterson, Jr. and the Company

             21.1     --      Subsidiaries of the Company, filed as Exhibit 27.1
                              to the Registrant's Form 10-K dated March 31, 1999
                              (SEC File No. 000-24025) and incorporated herein
                              by reference.

             27.1     --      Financial Data Schedule (for SEC filing purposes only)
</TABLE>


(b)      REPORTS ON FORM 8-K

     The Company did not file any reports on Form 8-K during the quarter ended
December 31, 1999.


                                      34
<PAGE>   37


                                   SIGNATURE

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on March
29, 1999.

                                                 HORIZON MEDICAL PRODUCTS, INC.

                                                 By:     /s/ MARSHALL B. HUNT
                                                    ---------------------------
                                                          Marshall B. Hunt
                                                       Chief Executive Officer


    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                   SIGNATURE                                         TITLE                              DATE
                   ---------                                         -----                              ----

   <S>                                         <C>                                                <C>
              /s/ MARSHALL B. HUNT             Chairman, Chief Executive Officer                  March 29, 2000
   ----------------------------------------       and Director (Principal Executive Officer)
                Marshall B. Hunt


        /s/ WILLIAM E. PETERSON, JR.           President and Director                             March 29, 2000
   ----------------------------------------
            William E. Peterson, Jr.


                /s/ ROBERT M. DODGE            Chief Financial Officer (Principal Financial       March 29, 2000
   ----------------------------------------         and Principal Accounting Officer)
                Robert M. Dodge


                 /s/ ROBERT COHEN              Director                                           March 29, 2000
   ----------------------------------------
                  Robert Cohen


                  /s/ LYNN R. DETLOR           Director                                           March 29, 2000
   ----------------------------------------
                 Lynn R. Detlor


            /s/ ROBERT J. SIMMONS              Director                                           March 29, 2000
   ----------------------------------------
               Robert J. Simmons


             /s/ A. GORDON TUNSTALL            Director                                           March 29, 2000
   ----------------------------------------
               A. Gordon Tunstall
</TABLE>


                                       35

<PAGE>   38


                       REPORT OF INDEPENDENT ACCOUNTANTS


To the Shareholders
Horizon Medical Products, Inc. and Subsidiaries

In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of operations, shareholders' equity, and cash flows
present fairly, in all material respects, the consolidated financial position
of Horizon Medical Products, Inc. and subsidiaries (the "Company") at December
31, 1998 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. 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 of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.





Birmingham, Alabama                            /s/  PricewaterhouseCoopers, LLP

February 28, 2000, except for Note 6
  as to which the date is March 29, 2000


                                      F-1
<PAGE>   39


HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999

<TABLE>
<CAPTION>
                                                                                         1998                  1999
                                                                                    -------------         -------------

<S>                                                                                 <C>                   <C>
                                    ASSETS
Current assets:
    Cash and cash equivalents                                                       $   6,232,215         $   1,991,427
    Accounts receivable - trade (net of allowance for doubtful accounts of
      $685,512 and $1,031,751 in 1998 and 1999, respectively)                          16,925,487            18,091,455
    Inventories                                                                        19,358,423            19,647,250
    Prepaid expenses and other current assets                                           1,636,779             1,262,611
    Income tax receivable                                                                                       953,055
    Deferred taxes                                                                        582,346             1,246,439
                                                                                    -------------         -------------
           Total current assets                                                        44,735,250            43,192,237
Property and equipment, net                                                             4,043,200             3,683,446
Intangible assets, net                                                                 55,494,414            55,259,193
Deferred taxes                                                                            116,970
Other assets                                                                              247,279               262,596
                                                                                    -------------         -------------

           Total assets                                                             $ 104,637,113         $ 102,397,472
                                                                                    =============         =============

                       LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Accounts payable - trade                                                        $   9,775,420         $   5,861,935
    Accrued salaries and commissions                                                      257,341               203,415
    Accrued royalties                                                                     127,375               172,073
    Accrued interest                                                                      318,476               450,560
    Other accrued expenses                                                              1,413,216               820,227
    Income taxes payable                                                                1,343,473
    Current portion of long-term debt                                                   2,733,138             5,757,196
                                                                                    -------------         -------------
           Total current liabilities                                                   15,968,439            13,265,406
Long-term debt, net of current portion                                                 47,073,716            44,998,709
Other liabilities                                                                         164,152               157,282
Deferred taxes                                                                                                  907,079
                                                                                    -------------         -------------
           Total liabilities                                                           63,206,307            59,328,476
                                                                                    -------------         -------------
Commitments and contingent liabilities (Notes 9, 12, 13, and 15)
Shareholders' equity:
Preferred stock, no par value; 5,000,000 shares authorized, none
    issued and outstanding in 1998 and 1999
Common stock, $.001 par value per share; 50,000,000 shares authorized, 13,366,278
    shares issued and outstanding in 1998 and 1999                                         13,366                13,366
Additional paid-in capital                                                             51,826,125            51,826,125
Shareholders' notes receivable                                                           (425,553)             (452,581)
Accumulated deficit                                                                    (9,983,132)           (8,317,914)
                                                                                    -------------         -------------
           Total shareholders' equity                                                  41,430,806            43,068,996
                                                                                    -------------         -------------

           Total liabilities and shareholders' equity                               $ 104,637,113         $ 102,397,472
                                                                                    =============         =============
</TABLE>

             The accompanying notes are an integral part of these
                      consolidated financial statements.


                                      F-2
<PAGE>   40


HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999


<TABLE>
<CAPTION>
                                                                    1997                1998                  1999
                                                               -------------        -------------        -------------

<S>                                                            <C>                  <C>                  <C>
Net sales                                                      $  15,798,123        $  39,399,361        $  75,370,657
Cost of goods sold                                                 6,273,418           19,932,953           48,010,817
                                                               -------------        -------------        -------------
        Gross profit                                               9,524,705           19,466,408           27,359,840
Selling, general and administrative expenses                       6,475,827           13,597,097           20,146,901
                                                               -------------        -------------        -------------
        Operating income                                           3,048,878            5,869,311            7,212,939
                                                               -------------        -------------        -------------
Other income (expense):
    Interest expense                                              (3,970,734)          (3,103,222)          (4,140,134)
    Accretion of value of put warrant repurchase
      obligation (Note 9)                                         (8,000,000)
    Other income                                                      69,727               46,262               99,038
                                                               -------------        -------------        -------------
                                                                 (11,901,007)          (3,056,960)          (4,041,096)
                                                               -------------        -------------        -------------
        Income (loss) before income taxes and
           extraordinary items                                    (8,852,129)           2,812,351            3,171,843
Provision for income taxes                                           319,831            1,780,649            1,506,625
                                                               -------------        -------------        -------------
        Income (loss)  before extraordinary items                 (9,171,960)           1,031,702            1,665,218
Extraordinary gain on early extinguishment of
    put feature (Note 9)                                                                1,100,000
Extraordinary losses on early extinguishments of
    debt, net of income tax benefit of $53,330
    (Notes 6 and 13)                                                                      (83,414)
                                                               -------------        -------------        -------------

        Net income (loss)                                      $  (9,171,960)       $   2,048,288        $   1,665,218
                                                               =============        =============        =============

Net income (loss) per share before extraordinary
    items - basic and diluted                                  $        (.97)       $         .08        $         .12
                                                               =============        =============        =============

Net income (loss) per share - basic and diluted                $        (.97)       $         .17        $         .12
                                                               =============        =============        =============

Weighted average common shares outstanding-basic                   9,419,450           12,187,070           13,366,278
                                                               =============        =============        =============

Weighted average common shares outstanding-diluted                 9,419,450           12,412,394           13,372,571
                                                               =============        =============        =============
</TABLE>

             The accompanying notes are an integral part of these
                      consolidated financial statements.


                                      F-3
<PAGE>   41


HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999


<TABLE>
<CAPTION>
                                             Number              Additional    Shareholders'
                                               of        Common    Paid-In        Notes         Accumulated
                                             Shares      Stock     Capital      Receivable        Deficit           Total
                                           ----------    -----    ---------    ------------     ------------     ------------

<S>                                        <C>         <C>      <C>            <C>              <C>              <C>
Balance, December 31, 1996                    101,919  $   102  $   915,088    $   (371,497)    $ (2,459,460)    $ (1,915,767)
Net increase in shareholders' notes
    receivable                                                                      (27,028)                          (27,028)
Repurchase of stock warrants (Note 6)                                                               (400,000)        (400,000)
Contributed services (Note 12)                                      365,000                                           365,000
Net loss                                                                                          (9,171,960)      (9,171,960)
Issuance of shares to effect a stock split
    (Note 8)                                9,317,531    9,317      (9,317)
                                           ----------  -------  -----------    ------------     ------------     ------------

Balance December 31, 1997                   9,419,450    9,419    1,270,771        (398,525)     (12,031,420)     (11,149,755)
Issuance of common stock                    3,120,950    3,121   39,907,591                                        39,910,712
Net increase in shareholders' notes
    receivable                                                                      (27,028)                         (27,028)
Contributed services (Note 12)                                       91,250                                            91,250
Consulting services (Note 12)                  45,328       45      657,211                                           657,256
Exercise of warrants (Note 9)                 780,550      781         (698)                                               83
Extinguishment of put feature (Note 9)                            9,900,000                                         9,900,000
Net income                                                                                         2,048,288        2,048,288
                                           ----------  -------  -----------    ------------     ------------     ------------

Balance, December 31, 1998                 13,366,278   13,366   51,826,125        (425,553)      (9,983,132)      41,430,806
Net increase in shareholders' notes
    receivable                                                                      (27,028)                          (27,028)
Net income                                                                                         1,665,218        1,665,218
                                           ----------  -------  -----------    ------------     ------------     ------------
Balance, December 31, 1999                 13,366,278  $13,366  $51,826,125    $   (452,581)    $ (8,317,914)    $ 43,068,996
                                           ==========  =======  ===========    ============     ============     ============
</TABLE>

             The accompanying notes are an integral part of these
                      consolidated financial statements.


                                     F-4
<PAGE>   42


HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999


<TABLE>
<CAPTION>
                                                                              1997                  1998                  1999
                                                                         -------------         -------------         -------------
<S>                                                                      <C>                   <C>                   <C>
Cash flows from operating activities:
    Net income (loss)                                                    $  (9,171,960)        $   2,048,288         $   1,665,218
Adjustments to reconcile net income (loss) to net cash provided
    by (used in) operating activities:
      Loss on disposal of fixed assets                                                                                       4,750
      Extraordinary losses on early extinguishments of debt                                          136,744
      Extraordinary gain on early extinguishment of put feature                                  (1,100,000)
      Depreciation                                                             199,450               487,674               766,063
      Amortization                                                           1,009,180             1,787,964             2,907,011
      Amortization of discount                                               2,160,153             1,266,319
      Accretion of value of put warrant repurchase obligation                8,000,000
      Deferred income taxes, net change                                        (90,299)              200,330               359,956
      Non-cash officer compensation                                            365,000                91,250
      Non-cash consulting expense                                                                    657,256
      Non-cash increase in notes receivable - shareholders                     (27,028)              (27,028)              (27,028)
      (Increase) decrease in operating assets, net:
        Accounts receivable - trade                                           (947,075)           (4,436,228)           (1,165,968)
        Inventories                                                            183,557            (4,718,470)             (440,172)
        Prepaid expenses and other assets                                     (205,585)            1,221,005               474,344
        Income tax receivable                                                                                             (953,055)
      Increase (decrease) in operating liabilities:
        Accounts payable - trade                                               858,734             5,201,530            (3,913,485)
        Income taxes payable                                                   409,726               933,747            (1,343,473)
        Accrued expenses and other liabilities                                 (49,569)           (4,483,751)             (748,230)
                                                                         -------------         -------------         -------------
           Net cash provided by (used in) operating activities               2,694,284              (733,370)           (2,414,069)
                                                                         -------------         -------------         -------------
Cash flows from investing activities:
    Capital expenditures                                                      (899,563)           (1,845,561)             (369,339)
    Change in other nonoperating assets, net                                                        (120,666)              (84,159)
    Payment for acquisitions, net of cash acquired                         (19,500,000)          (36,120,798)           (1,400,000)
                                                                         -------------         -------------         -------------
           Net cash used in investing activities                           (20,399,563)          (38,087,025)           (1,853,498)
                                                                         -------------         -------------         -------------
Cash flows from financing activities:
    Debt issue costs                                                          (674,750)             (293,916)
    Cash overdraft                                                             (31,637)
    Proceeds from issuance of long-term debt                                23,500,000            41,812,039             2,906,000
    Principal payments on long-term debt                                    (2,012,163)          (27,305,465)           (2,879,221)
    Payment of acquired debt                                                                     (10,000,000)
    Payment of non-compete and consulting agreements                                              (1,964,767)
    Proceeds from issuance of common stock                                                        39,910,712
    Proceeds from exercise of warrants                                                                    83
    Payment for warrants                                                      (400,000)
                                                                         -------------         -------------         -------------
           Net cash provided by financing activities                        20,381,450            42,158,686                26,779
                                                                         -------------         -------------         -------------

           Net increase (decrease) in cash and cash equivalents              2,676,171             3,338,291            (4,240,788)
Cash and cash equivalents, beginning of year                                   217,753             2,893,924             6,232,215
                                                                         -------------         -------------         -------------

Cash and cash equivalents, end of year                                   $   2,893,924         $   6,232,215         $   1,991,427
                                                                         =============         =============         =============

Supplemental disclosure of cash flow information:
    Cash paid for interest                                               $   1,739,992         $   1,335,405         $   4,001,207
                                                                         =============         =============         =============

    Cash paid for taxes                                                                        $     587,019         $   3,536,799
                                                                                               =============         =============
</TABLE>

See Notes 14 and 15 for additional supplemental disclosures of cash flow
information.

             The accompanying notes are an integral part of these
                      consolidated financial statements.


                                      F-5
<PAGE>   43



HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999


1.       DESCRIPTION OF BUSINESS

         Horizon Medical Products, Inc. and subsidiaries (the "Company"),
         headquartered in Manchester, Georgia, is a specialty medical device
         company focused on manufacturing and marketing vascular access
         products and the distribution of specialty medical products. The
         Company manufactures, markets and distributes four product categories:
         (i) implantable vascular access ports, tunneled catheters and stem
         cell transplant catheters, which are used primarily in cancer
         treatment protocols for the infusion of highly concentrated toxic
         medications (such as chemotherapy agents, antibiotics or analgesics)
         and blood samplings; (ii) acute and chronic hemodialysis catheters,
         which are used primarily in treatments of patients suffering from
         renal failure; (iii) embolectomy catheters and carotid shunts,
         utilizing the Company's balloon technology for endarectomy procedures;
         and (iv) specialty devices used primarily in general and emergency
         surgery, radiology, anesthesiology, respiratory therapy, blood
         filtration and critical care.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         The following is a summary of significant accounting policies utilized
         in the consolidated financial statements which were prepared in
         accordance with generally accepted accounting principles.

         PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
         and notes thereto include the accounts of the Company and its
         wholly-owned subsidiaries. All significant intercompany balances and
         transactions have been eliminated.

         REVENUE RECOGNITION - Revenue from product sales is recognized upon
         shipment to customers. Provisions for discounts, rebates to customers,
         returns and other adjustments are provided for in the period the
         related sales are recorded.

         CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
         investments with an original maturity of three months or less at the
         time of purchase to be cash equivalents.

         INVENTORIES - Purchased finished goods are stated at the lower of cost
         or market using the specific identification method for determining
         cost. Raw materials, work in process, and manufactured ports and
         catheters are stated at the lower of average cost or market using the
         first-in, first-out method for determining costs.

         PROPERTY AND EQUIPMENT - Property and equipment are carried at cost,
         less accumulated depreciation. Expenditures for repairs and
         maintenance are charged to expense as incurred; betterments that
         materially prolong the lives of the assets are capitalized. The cost
         of assets retired or otherwise disposed of and the related accumulated
         depreciation are removed from the accounts, and the related gain or
         loss on such dispositions is recognized currently. Depreciation is
         calculated using the straight-line method or double declining balance
         method over the estimated useful lives of the property and equipment.
         The lives of the assets range from five to seven years for equipment,
         five to ten years for improvements, and primarily 31.5


                                      F-6
<PAGE>   44


HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999


         years for buildings. Property and equipment acquired under capital
         lease agreements are carried at cost, less accumulated depreciation.
         These assets are depreciated in a manner consistent with the Company's
         depreciation policy for purchased assets.

         INTANGIBLE ASSETS - Goodwill, the excess of purchase price over the
         fair value of net assets acquired in purchase transactions, is being
         amortized on a straight-line basis over periods ranging from 15 to 30
         years. Amounts paid or accrued for non-compete and consulting
         agreements are amortized using the straight-line method over the term
         of the agreements. Patents are amortized on a straight-line basis over
         the remaining lives of the related patents at the date of acquisition,
         which range from 12 to 15 years. Debt issuance costs are amortized
         using the straight-line method, which approximates the effective
         interest method, over the estimated term of the related debt issues.

         LONG-LIVED ASSETS - The Company evaluates long-lived assets and
         certain identifiable intangibles held and used by an entity for
         impairment whenever events or changes in circumstances indicate that
         the carrying amount of an asset may not be recoverable. This
         evaluation is based on undiscounted future projected cash flows of the
         asset or asset group. If an impairment exists, the amount of such
         impairment is calculated based on the estimated fair value of the
         assets. Fair value is generally determined by discounting future
         projected cash flows of the asset or asset group under review.

         In accordance with Accounting Principles Board Opinion ("APB") No. 17,
         Intangible Assets, the recoverability of goodwill not identified with
         assets subject to an impairment loss is reviewed for impairment, on an
         acquisition by acquisition basis, whenever events or changes in
         circumstances indicate that it may not be recoverable. If such an
         event occurred, the Company would prepare projections of future
         discounted cash flows for the applicable acquisition. The Company
         believes this discounted cash flow approach approximates fair market
         value. There were no such losses recognized during the years ended
         December 31, 1997, 1998 and 1999.

         RESEARCH AND DEVELOPMENT - Research and development costs are charged
         to expense as incurred and were approximately $7,000, $412,000, and $0
         in 1997, 1998 and 1999, respectively.

         DERIVATIVE FINANCIAL INSTRUMENTS - The Company utilizes interest rate
         cap agreements to limit the impact of increases in interest rates on
         its floating rate debt. The differential is accrued as interest rates
         change and recognized over the life of the cap as adjustments to
         interest expense.

         INCOME TAXES - The Company accounts for income taxes under Statement
         of Financial Accounting Standards ("SFAS") No. 109, Accounting for
         Income Taxes, which requires recognition of deferred tax assets and
         liabilities for the expected future tax consequences of events that
         have been included in the consolidated financial statements or tax
         returns. Under this method, deferred tax assets and liabilities are
         determined based on the differences between the tax bases of assets
         and liabilities and their financial reporting amounts at each year
         end.



                                      F-7
<PAGE>   45


HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999


       The amounts recognized are based on enacted tax rates in effect in the
       years in which the differences are expected to reverse. The Company's
       deferred tax assets and liabilities relate primarily to differences in
       the book and tax bases of allowances for doubtful accounts, inventory
       and inventory reserves, property and equipment, and intangible assets.

       STOCK-BASED COMPENSATION - SFAS No. 123, Accounting for Stock-Based
       Compensation, encourages, but does not require, companies to record
       compensation cost for stock-based employee compensation plans at fair
       value. The Company has elected to account for its stock-based
       compensation plans using the intrinsic value method prescribed by APB
       No. 25, Accounting for Stock Issued to Employees. Under the provisions
       of APB No. 25, compensation cost for stock options issued to employees
       is measured as the excess, if any, of the quoted market price of the
       Company's common stock at the date of grant over the amount an employee
       must pay to acquire the stock. An award to employees which requires or
       can compel the Company to settle such award in cash (such as stock
       appreciation rights) is accounted for as a liability. The amount of the
       liability for such an award is measured each period based on the
       settlement value with changes in such value recorded as compensation
       cost over the service period.

       Stock based transactions with other than employees are measured at fair
       value and are reported as expense or an exchange of assets, as
       appropriate, under the provisions of SFAS No. 123.

       EARNINGS PER SHARE - The calculation of basic earnings per share only
       takes into consideration income (loss) available to common shareholders
       and the weighted average of shares outstanding during the period, while
       diluted earnings per share takes into effect the impact of all
       additional common shares that would have been outstanding if all
       potential common shares related to options, warrants, and convertible
       securities had been issued, as long as their effect is dilutive.

       USE OF ESTIMATES - The preparation of financial statements in conformity
       with generally accepted accounting principles requires management to
       make estimates and assumptions that affect the reported amounts of
       assets and liabilities and disclosure of contingent assets and
       liabilities at the date of the financial statements and the reported
       amounts of revenue and expenses during the reporting period. Actual
       results could differ from those estimates.

       RECLASSIFICATIONS - Certain reclassifications have been made to previous
       years' consolidated financial statements to make them comparable to the
       current year presentation. These reclassifications had no impact on
       previously reported net (loss) income or shareholders' equity.

       RECENTLY ISSUED ACCOUNTING STANDARDS - In June 1998, the Financial
       Accounting Standards Board ("FASB") issued SFAS No. 133, Accounting for
       Derivative Instruments and Hedging Activities. SFAS No. 133 requires all
       derivatives to be measured at fair value and recognized as either assets
       or liabilities on the balance sheet. Changes in such fair value are
       required to be recognized immediately in net income to the extent the
       derivatives are not effective as hedges. In September 1999, the FASB
       issued SFAS No. 137, Accounting for Derivative Instruments and Hedging
       Activities -


                                      F-8
<PAGE>   46


HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999


       Deferral of the Effective Date of FASB Statement No. 133, an amendment
       to delay the effective date of SFAS No. 133 to fiscal years beginning
       after June 15, 2000. The Company does not expect the adoption of SFAS
       No. 133 as amended by SFAS No. 137 to have a material impact on the
       consolidated financial statements.

3.     INVENTORIES

       A summary of inventories at December 31 is as follows:


<TABLE>
<CAPTION>
                                                                                        1998                  1999
                                                                                    -------------         -------------

       <S>                                                                          <C>                   <C>
       Raw materials                                                                $   5,336,210         $   5,551,390
       Work in process                                                                  1,984,133             3,943,563
       Finished goods                                                                  12,797,898            11,260,057
                                                                                    -------------         -------------
                                                                                       20,118,241            20,755,010
       Less inventory reserves                                                            759,818             1,107,760
                                                                                    -------------         -------------

                                                                                    $  19,358,423         $  19,647,250
                                                                                    =============         =============
       </TABLE>


4.     PROPERTY AND EQUIPMENT

       A summary of property and equipment at December 31 is as follows:

<TABLE>
<CAPTION>
                                                                                        1998                   1999
                                                                                    -------------         -------------

        <S>                                                                         <C>                   <C>
        Building and improvements                                                   $   1,965,874         $   2,088,198
        Office equipment                                                                1,781,841             1,661,225
        Plant equipment                                                                 1,101,991             1,433,536
        Transportation equipment                                                           75,305               145,287
                                                                                    -------------         -------------
                                                                                        4,925,011             5,328,246
        Less accumulated depreciation                                                     881,811             1,644,800
                                                                                    -------------         -------------

                                                                                    $   4,043,200         $   3,683,446
                                                                                    =============         =============
        </TABLE>


       As of December 31, 1998 and 1999, the Company had capitalized computer
       software costs of approximately $133,500 and $149,000, respectively.
       Depreciation expense associated with capitalized costs was approximately
       $1,000, $26,700 and $55,000 in 1997, 1998 and 1999, respectively.

                                      F-9
<PAGE>   47
HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999


5.   INTANGIBLE ASSETS

     A summary of intangible assets at December 31 is as follows:

<TABLE>
<CAPTION>

                                                   1998                1999

         <S>                                   <C>                 <C>
         Goodwill                              $47,168,853         $49,590,643
         Patents                                 8,284,656           8,284,656
         Non-compete and consulting agreements   1,850,592           2,100,592
         Debt issuance costs                       297,917             297,917
         Other                                     449,286             449,286
                                               -----------         -----------
                                                58,051,304          60,723,094
         Less accumulated amortization           2,556,890           5,463,901
                                               -----------         -----------
                                               $55,494,414         $55,259,193
                                               ===========         ===========
</TABLE>



     The expected amortization charges related to these intangibles are as
follows:

<TABLE>
<CAPTION>

                        <S>                          <C>
                        2000                         $ 2,838,995
                        2001                           2,716,981
                        2002                           2,660,458
                        2003                           2,400,439
                        2004                           2,371,791
                        Thereafter                    42,270,529
                                                     -----------
                                                     $55,259,193
                                                     ===========
</TABLE>


6.   LONG-TERM DEBT

     In connection with the acquisition of Strato/Infusaid Inc. ("Strato")
     discussed in Note 15, the Company entered into a $26.5 million Credit
     Facility with Banc of America Commercial Finance Corporation, formerly
     known as NationsCredit Commercial Corporation, ("Banc of America"), on July
     15, 1997 (the "Credit Facility"). In addition to the acquisition of Strato,
     the Company used proceeds from the Credit Facility to retire existing debt
     and to purchase the warrants issued in connection with a previous debt
     agreement (the "Sirrom Note") from Sirrom thereby terminating all of
     Sirrom's rights under the warrants. This purchase resulted in a direct
     charge to the Company's accumulated deficit. Banc of America also
     effectively purchased the $1,500,000 Sirrom Note from Sirrom. The Sirrom
     Note bore interest at the rate of 13.75% per annum and was to mature
     September 25, 2000.

     In conjunction with the financing, the Company issued a warrant to Banc of
     America to acquire shares of non-voting Class B common stock of the
     Company, which then represented 15% of the outstanding common shares of the
     Company. The number of shares subject to such warrant was to be reduced as
     follows: (1) to 7.5% of the outstanding common shares of the Company on a
     fully diluted basis in the event the Company completed an initial public


                                      F-10
<PAGE>   48


HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999


     offering for its shares prior to January 1, 1999 (where the net proceeds to
     the Company were in excess of $25 million) or achieved minimum earnings
     before interest, taxes, depreciation, and amortization ("EBITDA") of not
     less than $10 million for its 1998 fiscal year. The warrant, which included
     a put feature (see Note 9), was exercisable at $.0l per share pursuant to
     the warrant agreement and was to expire on July 15, 2007.

     In April 1998, all amounts outstanding under the Company's Credit Facility
     and the Sirrom Note were paid off with the proceeds from the Company's
     initial public offering ("IPO") of its common stock (see Note 8). As a
     result, the Company recorded an extraordinary loss on the early
     extinguishment of debt of $15,711, net of income tax benefit of $10,045.
     Banc of America exercised its warrants immediately prior to the IPO and
     sold the related shares in the offering as well.

     The Company entered into a new $50 million amended and restated credit
     facility (the "New Credit Facility") with Banc of America on May 26, 1998
     to be used for working capital purposes (the "Working Capital Loans") and
     to fund future acquisitions (the "Acquisition Loans"). The New Credit
     Facility provides a sublimit of $10 million as it relates to the Working
     Capital Loans. The Working Capital Loans and the Acquisition Loans are
     collectively referred to herein as the Revolving Credit Loans. The
     availability of funds under the Acquisition Loans terminates on May 26,
     2000, and the New Credit Facility expires on July 1, 2004. In addition, the
     Company had outstanding standby letters of credit of $7,682,110 and
     $4,800,000 at December 31, 1998 and 1999, respectively. These letters of
     credit, which have terms through January 2002, collateralize the Company's
     obligations to third parties in connection with acquisitions.

     Amounts outstanding under the Acquisition Loans are payable in 16 quarterly
     installments beginning October 1, 2000 in amounts representing 6.25% of the
     principal amounts outstanding on the payment due dates. Amounts outstanding
     under the Working Capital Loans are due on July 1, 2004. As of December 31,
     1998 and 1999, $5,000,000 and $5,500,000, respectively, were outstanding
     under the Working Capital Loans and $37,037,039 and $39,476,264,
     respectively, were outstanding under the Acquisition Loans.

     Subject to certain limitations, amounts outstanding under the Revolving
     Credit Loans may be prepaid at the Company's option. Further, amounts
     outstanding under the Revolving Credit Loans are mandatorily prepayable
     annually in an amount equal to 50% of the Excess Cash Flow for such year,
     as defined in the agreement, beginning with fiscal year December 31, 2000,
     as well as upon the occurrence of certain other events as defined in the
     Agreement.

     Through June 30, 1999, the New Credit Facility bore interest, at the option
     of the Company, at the Index Rate, as defined in the agreement, plus 3.25%;
     adjusted LIBOR, as defined in the agreement, plus 3.25%; or Bank of
     America, N.A.'s prime rate plus .5%. At December 31, 1998, the Company's
     interest rate was based on the Index Rate with a resulting interest rate of
     8.1701%. Effective July 1, 1999, the New Credit Facility bears interest, at
     the option of the Company, at the Index Rate plus an applicable margin
     ranging from 3.50% to 4.00%; adjusted LIBOR plus an applicable margin
     ranging from 3.50% to 4.00%; or Bank of America, N.A.'s


                                      F-11
<PAGE>   49


HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999


     prime rate plus an applicable margin ranging from 0.75% to 1.25%. The
     applicable margin applied is based on the Company's leverage ratio, as
     defined in the agreement. At December 31, 1999, the Company's interest rate
     was based on the Index Rate with a resulting rate of 9.5152%.

     The Company has entered into an interest rate cap agreement with Banc of
     America. The Company utilizes the interest rate cap agreement to limit the
     impact of increases in interest rates on its floating rate debt. The
     interest rate cap agreement entitles the Company to receive from Banc of
     America the amounts, if any, by which the floating rate, as defined in the
     agreement, exceeds the strike rates (or cap rates) stated in the agreement.
     At December 31, 1998 and 1999, the Company had an interest rate cap with a
     notional amount of $13,312,500 and $11,062,500, respectively. Under this
     agreement, the interest rate on the notional amount is capped at 8.8%. The
     agreement matures in October 2002. The Company has received no payments
     from Banc of America under the agreement during 1998 and 1999.

     The New Credit Facility calls for an unused commitment fee payable
     quarterly, in arrears, at a rate of .375%, as well as a letter of credit
     fee payable quarterly, in arrears, at a rate of 2%. Both fees are based on
     a defined calculation in the agreement. In addition, the New Credit
     Facility requires an administrative fee in the amount of $30,000 to be paid
     annually.

     The Company's New Credit Facility contains certain restrictive covenants
     that require minimum net worth and EBITDA thresholds as well as specific
     ratios such as total debt service coverage, leverage, interest coverage and
     debt to capitalization. The covenants also place limitations on capital
     expenditures, other borrowings, operating lease arrangements, and affiliate
     transactions. The Company is in compliance with or has received appropriate
     waivers of these covenants.

         On March 29, 2000, the New Credit Facility was amended to adjust
     certain of the financial ratio covenants and increase the Company's
     interest rate one-half of one-percent.

     The Company's obligations under the New Credit Facility are collateralized
     by liens on substantially all of the Company's assets, including inventory,
     accounts receivable and general intangibles as well as a pledge of the
     stock of the Company's subsidiaries. The Company's obligations under the
     New Credit Facility are also guaranteed individually by each of the
     Company's subsidiaries (the "Guarantees"). The obligations of such
     subsidiaries under the Guarantees are collateralized by liens on
     substantially all of their respective assets, including inventory, accounts
     receivable and general intangibles.


                                      F-12
<PAGE>   50


HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999


     At December 31, long-term debt consists of the following:

<TABLE>
<CAPTION>

                                                                                             1998            1999
       <S>                                                                                <C>            <C>
       New Credit Facility, including acquisition obligations supported by
           letters of credit                                                              $49,237,039    $49,776,264

       Note payable for the purchase of IFM requiring monthly payments of
           approximately $26,780 through November 1999, including interest at 9%              302,034

       Obligation for the purchase of CVS, due in September 2000                              225,000        225,000

       Notes payable for the additional Stepic purchase payment, bearing
           interest at a fixed rate of 11%, interest and principal payable
           through April 2000                                                                                633,464

       Note payable, bearing interest at a fixed rate of 7.9%, interest and principal
           payable monthly through May 2000                                                     5,514          1,433

       Note payable, bearing interest at a fixed rate of 8.25%, interest and principal
           payable monthly through June 2004                                                                  27,947

       Note payable, bearing interest at a fixed rate of 0.90%, interest and principal
           payable monthly through January 2003                                                               19,464

       Miscellaneous capital lease obligations for office equipment, requiring monthly
           payments ranging from $133 to $2,729, bearing interest at rates
           from 7.65% to 9.25%, and maturing at various dates through 2004
           These obligations are collateralized by equipment with a net book value of
           approximately $89,000 and $110,000 at December 31, 1998 and 1999,
           respectively                                                                        37,267         72,333
                                                                                          -----------    -----------
                                                                                           49,806,854     50,755,905
       Less current portion                                                                 2,733,138      5,757,196
                                                                                          -----------    -----------
                                                                                          $47,073,716    $44,998,709
                                                                                          ===========    ===========
</TABLE>


     Future maturities of long-term debt are as follows:

<TABLE>
<CAPTION>

                 <S>                                   <C>
                 2000                                  $ 5,757,196
                 2001                                   14,497,814
                 2002                                   11,708,654
                 2003                                   11,379,155
                 2004                                    7,413,086
                                                       -----------
                                                       $50,755,905
                                                       ===========
</TABLE>


                                      F-13
<PAGE>   51

HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999


7.   INCOME TAXES

     The components of the provision (benefit) for incomes taxes consist of the
following:

<TABLE>
<CAPTION>

                                                    1997           1998             1999
<S>                                              <C>            <C>             <C>
Current:
    Federal                                      $ 681,209      $1,301,484      $  732,556
    State                                          102,237         278,835         251,427
                                                 ---------      ----------      ----------
                                                   783,446       1,580,319         983,983
Deferred tax (benefit) expense                     (90,299)        200,330         522,642
                                                 ---------      ----------      ----------
                                                   693,147       1,780,649       1,506,625
Change in valuation allowance                     (373,316)
                                                 ---------      ----------      ----------
Provision for income taxes before
    extraordinary items                            319,831       1,780,649       1,506,625
Income tax benefit of extraordinary items                          (53,330)
                                                 ---------      ----------      ----------

      Total                                      $ 319,831      $1,727,319      $1,506,625
                                                 =========      ==========      ==========
</TABLE>


     Deferred tax assets and liabilities at December 31, 1998 and 1999 are
comprised of the following:

<TABLE>
<CAPTION>

                                                            1998              1999

     <S>                                                 <C>              <C>
     Deferred tax assets:
         Allowance for doubtful accounts and returns     $ 225,129        $  433,748
         Inventory and inventory reserve                   357,217           812,691
         Intangible assets                                 289,934
                                                         ---------        ----------
             Total gross deferred tax assets               872,280         1,246,439

     Deferred tax liabilities:
         Intangible assets                                                  (798,008)
         Property and equipment                           (172,964)         (109,071)
                                                         ---------        ----------
             Net deferred tax asset                      $ 699,316        $  339,360
                                                         =========        ==========
</TABLE>

     No valuation allowance has been recorded against the deferred tax assets at
     December 31, 1998 and 1999 as the Company believes that it is more likely
     than not that all of the net deferred tax assets will be realized through
     carrybacks to years in which it paid tax or through future taxable income.


                                      F-14
<PAGE>   52


HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999


     The provision for income taxes differs from the amount which would be
     computed by applying the federal statutory rate of 34% to income (loss)
     before income taxes and extraordinary items as indicated below:


<TABLE>
<CAPTION>
                                                                                        1997            1998         1999

     <S>                                                                            <C>             <C>           <C>
     Income tax provision (benefit) at statutory federal income
           tax rate                                                                 $(3,009,724)    $  956,199    $1,078,426
     Increase (decrease) resulting from:
         Non-deductible meals and entertainment expense                                  28,698         39,282        38,110
         State income taxes                                                              64,353        208,052       253,952
         Non-deductible interest and accretion of put warrant
           repurchase obligation                                                      3,343,333        396,667
         Non-deductible amortization of goodwill                                         59,985        136,309       136,137
         Non-deductible officer compensation                                            124,100         31,025
         Change in valuation allowance                                                 (373,316)
         Other, net                                                                      82,402         13,115
                                                                                    -----------     ----------    ----------
             Provision for income taxes before extraordinary items                  $   319,831     $1,780,649    $1,506,625
                                                                                    ===========     ==========    ==========
</TABLE>


8.   COMMON AND PREFERRED STOCK

     The Company sold 3,120,950 shares of common stock for $14.50 per share in
     April 1998 in connection with the IPO of its common stock. In anticipation
     of the IPO, the Company's Board of Directors increased the number of
     authorized common shares to 50,000,000. In addition, immediately prior to
     the IPO, the Company effected an approximate 92.42-for-one stock split. The
     par value of the common stock remained unchanged. All share and per share
     amounts herein reflect the stock split.

     The Company has 5,000,000 shares of preferred stock authorized for
     issuance. The preferences, powers, and rights of the preferred stock are to
     be determined by the Company's Board of Directors. None of these shares is
     issued and outstanding.


9.   COMMON STOCK WARRANTS

     As discussed in Note 6, in connection with the Credit Facility, the Company
     issued a warrant to Banc of America to acquire shares of non-voting Class B
     common stock, representing 15% of outstanding shares. This percentage
     reduced to 7.5% under certain conditions including completion of an initial
     public offering by the Company prior to January 1, 1999, whereby the net
     proceeds were in excess of $25 million. The warrant also contained a put
     feature that allowed the holder to put the warrant to the Company for cash
     at an amount calculated as the greater of several financial tests and at
     dates which varied as to actions of the Company, the earliest of which was
     repayment of the associated debt or July 15, 2001. Further, the related
     warrant contained antidilution provisions. Banc of America exercised all of
     its warrants immediately prior to the IPO and sold the related shares in
     the offering. As a result, there are no remaining outstanding warrants with
     Banc of America.


                                      F-15
<PAGE>   53


HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999


     The Company recorded the estimated value of the warrant with the put
     feature on July 15, 1997 of $3,000,000 as a discount to the related debt
     and as a put warrant repurchase obligation. Subsequent to issuance of the
     warrant, the Company's operations and other factors indicated that an
     initial public offering of stock could be pursued, and the Company began
     intense efforts to accomplish such an offering. The Company and its
     prospective underwriters anticipated a public offering in April 1998. A
     portion of the proceeds were to be used to pay off the Credit Facility as
     required by the credit agreement upon successful completion of an initial
     public offering. Additionally, the integration of Strato, medical device
     market trends, and potential access to the public capital markets led
     management to believe the estimated value of the put warrants had
     increased. Therefore, the value assigned to such put warrant was recorded
     at $11,000,000 at December 31, 1997. The change in value from the date of
     issue of $8,000,000 was recorded as non-cash expense for the accretion of
     value of put warrant repurchase obligation in the accompanying consolidated
     statement of operations for the year ended December 31, 1997. Additionally,
     due to the expected date of debt repayment of April 1998, the debt discount
     established at issue date and the associated debt issue costs were
     amortized over a nine month period beginning July 15, 1997. This
     amortization resulted in charges to interest expense of approximately
     $2,300,000 and $1,447,000 in 1997 and 1998, respectively, resulting in an
     effective rate of interest on the underlying debt of approximately 31%
     (exclusive of the $8,000,000 put warrant charges).

     Effective January 29, 1998, Banc of America and the Company amended the
     warrant agreement such that Banc of America's right to put the warrant to
     the Company for cash was rescinded. This rescission constituted a
     forgiveness of the put obligation estimated at $1,100,000 which was
     recorded as an extraordinary gain at the date of rescission, and the net
     recorded value of the warrant of $9,900,000 was reclassed to additional
     paid-in capital.

     In connection with the Premier Purchasing Partners, L.P. ("Premier")
     Agreement discussed in Note 12, the Company entered into a related warrant
     agreement during 1998 with Premier (the "Warrant Agreement") pursuant to
     which the Company has granted Premier a warrant to acquire up to 500,000
     shares of the Company's common stock for $14.50 per share. Shares of common
     stock issuable under such warrant will vest annually in increments of
     100,000 only upon the achievement of certain specified minimum annual sales
     (the "Minimum Annual Sales Targets") and/or minimum cumulative sales (the
     "Cumulative Sales Targets") of the Company's products to participating
     Premier hospitals. The vesting of the warrant will automatically accelerate
     in any given year in the event that both the Minimum Annual Sales Targets
     and Cumulative Sales Targets with respect to such year are achieved. The
     right to purchase shares of the Company's common stock under the Warrant
     Agreement vesting at the end of the first year of the Warrant Agreement
     (June 30, 1999) if earned, will become exercisable on the third anniversary
     of such date. Rights vesting in subsequent years will become exercisable
     one year after their respective vesting dates. All unexercised warrants
     will expire on the fifth anniversary of their respective vesting dates. No
     warrants were earned during the first year of the Warrant Agreement, and
     none of these warrants are vested or exercisable as of December 31, 1999.
     The Company will record the estimated fair value of the warrant and related
     expense as the warrant is earned, as previously discussed, in accordance
     with SFAS No. 123.


                                      F-16
<PAGE>   54


HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999


10.  STOCK-BASED COMPENSATION

     Pursuant to the Company's 1995 Stock Appreciation Rights ("SAR") Plan, the
     Company granted SARs to eligible employees and eligible sales
     representatives based on their achievement of certain performance targets.
     Upon consummation of the Company's IPO, 99,600 SARs were outstanding. At
     that time, (i) all outstanding SARs were canceled, (ii) options to purchase
     shares of the Company's common stock (the "SAR Conversion Options") were
     granted to holders of SARs who were employed by the Company, and (iii) cash
     compensation equal to one dollar was due to be paid for each SAR held by
     persons who were no longer employed by the Company upon the Company's IPO
     as defined in the SAR Plan. In connection with the IPO, 84,100 SAR
     Conversion Options were granted and none of the remaining 15,500 units were
     eligible for payment. The SAR Conversion Options will become exercisable in
     increments of 25% per year over four years beginning one year from the date
     of issue at an exercise price of $14.50.

     Transactions under the SAR Plan are summarized as follows for the years
     ended December 31:

<TABLE>
<CAPTION>
                                                1997           1998

        <S>                                  <C>            <C>
        Outstanding, beginning of year       $ 40,900       $ 99,600
            Granted (at $1.00 per unit)        64,200
            Canceled                           (5,500)       (99,600)
                                             --------       --------
                                             $ 99,600       $     --
                                             ========       ========
</TABLE>


     The cumulative expense recorded by the Company with respect to the SAR Plan
     through December 31, 1997 was approximately $35,000.

     In conjunction with the Company's IPO, options for 144,100 shares of common
     stock, including the 84,100 SAR Conversion Options, were granted at $14.50
     per share. The options generally become exercisable over periods ranging
     from three to four years, except for 10,000 options granted that vested
     immediately, and expire ten years from the grant date.

     During 1998, the Company's Board of Directors approved the Stock Incentive
     Plan for key employees and outside directors (the "Incentive Plan") which
     provides for the grant of incentive stock options, restricted stock, stock
     appreciation rights, or a combination thereof, as determined by the
     Compensation Committee of the Board of Directors. Only non-incentive stock
     options may be granted to outside directors under the Incentive Plan. Under
     the Incentive Plan, 500,000 shares of the Company's common stock have been
     reserved for issuance. Options under the Incentive Plan provide for the
     purchase of the Company's common stock at not less than the fair market
     value on the date the option is granted.


                                      F-17
<PAGE>   55


HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999


     Transactions under the Incentive Plan are summarized as follows:

<TABLE>
<CAPTION>

                                                                                           WEIGHTED
                                                                        RANGE OF           AVERAGE
                                                       NUMBER OF        EXERCISE           EXERCISE
                                                        OPTIONS          PRICES             PRICE
                                                        -------          ------             -----
       <S>                                             <C>            <C>    <C>          <C>
       Options outstanding, January 1, 1998
           Granted                                      196,700       $1.875-$15.50        $ 13.80
           Canceled                                     (11,850)      $1.875-$14.625       $  9.97
                                                        -------

       Options outstanding, December 31, 1998           184,850       $1.875-$15.50        $ 14.04
           Granted                                      269,275       $2.688-$7.00         $  4.808
           Canceled                                     (92,850)      $1.875-$14.625       $  6.33
                                                        -------

       Options outstanding, December 31, 1999           361,275       $1.875-$15.50        $  9.14
                                                        =======
</TABLE>

     The weighted average fair value of options granted during 1998 and 1999 was
     $12.38 and $3.63, respectively.

     The following table summarizes information about options outstanding at
     December 31, 1999.

<TABLE>
<CAPTION>

                                 OPTIONS OUTSTANDING
        ---------------------------------------------------------------------
                                               WEIGHTED
                                                AVERAGE
                                               REMAINING
        EXERCISE            NUMBER            CONTRACTUAL           NUMBER
         PRICE           OUTSTANDING             LIFE             EXERCISABLE
        --------         -----------          -----------         -----------

        <S>              <C>                  <C>                 <C>
         $14.500            143,575               8.67              46,727
         $15.500             10,000               8.67               3,333
         $14.625              5,000               8.67               1,250
         $13.750             10,100               8.58               2,525
          $9.250              5,000               8.33               1,250
          $1.875              4,000               8.17               1,000
          $7.000             30,000               9.04
          $7.375              5,000               9.07
          $6.250             15,600               9.14
          $4.063             22,500               9.67
          $4.500             25,500               9.82               5,000
          $3.375             30,000               9.92
          $2.750              5,000               9.96
          $2.688             50,000               9.97
                            -------                                -------
                            361,275                                 61,085
                            =======                                =======
</TABLE>


                                      F-18
<PAGE>   56

HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999


     The Company applies APB No. 25 and related interpretations in accounting
     for awards under its Incentive Plan. Accordingly, no compensation expense
     has been recognized for its Incentive Plan. Had compensation expense for
     the Company's Incentive Plan been determined based on the fair value at the
     grant dates for awards under the Incentive Plan consistent with the method
     of SFAS No. 123, the Company's net income and earnings per share would have
     been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>


                                                       1998            1999
<S>                                                 <C>             <C>
       Net income:
           As reported                              $2,048,288      $1,665,218
           Pro forma                                $1,798,423      $1,235,470

       Net income per share - basic and diluted:
           As reported                              $     0.17      $     0.12
           Pro forma                                $     0.15      $     0.09
</TABLE>


     The pro forma amounts reflected above are not representative of the effects
     on reported net income in future years because, in general, the options
     granted have different vesting periods and additional awards may be made
     each year.

     The Company elected to use the Black-Scholes pricing model to calculate the
     fair values of the options awarded, which are included in the pro forma
     results above. The following weighted average assumptions were used to
     derive the fair values:

<TABLE>
<CAPTION>
                                            1998                1999

       <S>                                <C>                 <C>
       Dividend yield                        0.0%               0.0%
       Expected life (years)                   7                  7
       Expected volatility                114.00%             97.10%
       Risk free interest rate              5.54%              5.15%
</TABLE>


                                      F-19
<PAGE>   57
HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
--------------------------------------------------------------------------------



11.   EARNINGS (LOSS) PER SHARE

       A summary of the calculation of basic and diluted earnings per share
       ("EPS") for the years ended December 31, 1997, 1998, and 1999 is as
       follows:

<TABLE>
<CAPTION>
                                                      FOR THE YEAR ENDED DECEMBER 31, 1997
                                            ----------------------------------------------------
                                                NET LOSS             SHARES           PER SHARE
                                               (NUMERATOR)        (DENOMINATOR)         AMOUNT
                                            ---------------     ---------------      -----------
<S>                                         <C>                 <C>                  <C>
EPS - basic and diluted                     $   (9,171,960)         9,419,450        $     (0.97)
                                            ===============     ===============      ===========
</TABLE>


<TABLE>
<CAPTION>
                                                      FOR THE YEAR ENDED DECEMBER 31, 1998
                                            ----------------------------------------------------
                                               NET INCOME            SHARES           PER SHARE
                                               (NUMERATOR)        (DENOMINATOR)         AMOUNT
                                            ---------------     ---------------      -----------
<S>                                         <C>                 <C>                  <C>
EPS - basic                                 $    2,048,288           12,187,070      $      0.17
Effect of dilutive common shares:
    Stock options                                                       225,241
    Warrants                                                                 83
                                            ---------------     ---------------      -----------

      EPS diluted                           $    2,048,288           12,412,394      $      0.17
                                            ==============      ===============      ===========
</TABLE>


<TABLE>
<CAPTION>
                                                      FOR THE YEAR ENDED DECEMBER 31, 1999
                                            ----------------------------------------------------
                                               NET INCOME            SHARES           PER SHARE
                                               (NUMERATOR)        (DENOMINATOR)         AMOUNT
                                            --------------      ---------------      -----------
<S>                                         <C>                 <C>                  <C>
EPS - basic                                 $    1,665,218         13,366,278        $      0.12
Effect of dilutive common shares:
    Stock options                                                       6,293
                                            --------------      -------------        -----------

      EPS diluted                           $    1,665,218         13,372,571        $      0.12
                                            ==============      =============        ===========
</TABLE>


       The EPS impact of the extraordinary items for the year ended December
       31, 1998 was approximately $.09.

       The number of stock options assumed to have been bought back by the
       Company for computational purposes has been calculated by dividing gross
       proceeds from all weighted average stock options outstanding during the
       period, as if exercised, by the average common share market price during
       the period. The average common share market price used in the above
       calculation was $7.94 and $5.09 for the years ended December 31, 1998 and
       1999, respectively.

       Stock options to purchase shares of common stock at prices greater than
       the average market price of the common shares during that period are
       considered antidilutive. During the years ended December 31, 1998 and
       1999, respectively, there were 180,350 options expiring in 2008 with
       exercise prices ranging from $9.25 to $15.50 and 228,275 options expiring
       in 2008 and 2009 with exercise prices ranging from $5.75 to $15.50,
       outstanding but were not included in the

                                      F-20
<PAGE>   58


HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
--------------------------------------------------------------------------------

       computation of diluted EPS because the exercise price of the options was
       greater than the average market price of the common shares in the
       respective fiscal year. There were no options outstanding for the year
       ended December 31, 1997.

       The Company had warrants to purchase common stock outstanding in 1997.
       Warrants outstanding at December 31, 1997 (see Notes 6 and 9) were
       convertible to an estimated 765,000 shares (335,762 on a weighted average
       basis). Additionally, if included in the diluted EPS calculation,
       $8,000,000 would have been added to the numerator as expenses recorded in
       1997 associated with the warrants. These calculations would also result
       in an antidilutive effect and, therefore, are excluded. Also as of
       December 31, 1997, a shareholder (Cordova) had antidilutive rights which
       called for a constant 1.99% ownership. Both the warrants (as discussed in
       Note 9) and Cordova's antidilution rights that were outstanding at
       December 31, 1997 were terminated in connection with the Company's IPO.

12.  RELATED-PARTY TRANSACTIONS

       The Company and Cardiac Medical, Inc. ("CMI") were related parties due to
       common stock ownership by certain officers and shareholders. The Company
       and CMI shared office space and certain administrative employees. The
       Company recorded expenses of $50,000 during 1997 related to these shared
       services. During 1998, the Company purchased from CMI the portion of the
       shared office space owned by CMI, as well as certain furnishings and
       equipment for approximately $584,000. CMI previously guaranteed the
       Sirrom Note; however, on July 15, 1997, in connection with the Credit
       Facility, Banc of America effectively purchased the Sirrom Note, and
       CMI's guarantee with respect thereto was terminated.

       The development of the Company's Manchester, Georgia facility was
       financed with approximately $705,000 in proceeds of an industrial
       development revenue bond issued by the Manchester Development Authority
       for the benefit of the Company. In connection with, and as a condition to
       such bond financing, the Company entered into an operating lease with the
       Manchester Development Authority. All payments due on the bonds have been
       and continue to be guaranteed, jointly and severally, by CMI and the
       former majority shareholders of the Company.

       The Company has unsecured loans to the former majority shareholders in
       the form of notes receivable in the amount of $337,837, plus accrued
       interest receivable of $87,716 and $114,744 at December 31, 1998 and
       1999, respectively. The notes require annual payments of interest at 8%
       beginning on September 28, 1997 and are due September 2000 through
       October 2000. The Company recognized interest income of $27,028 during
       each of the three years in the period ending December 31, 1999 related to
       the notes. The notes and related accrued interest are recorded as
       contra-equity in the consolidated balance sheets.

       Prior to April 1998, the CEO and the President of the Company did not
       draw a salary or other form of compensation from the Company. Estimated
       fair value compensation for 1997 and for the period January 1998 through
       March 1998 of $365,000 and $91,250, respectively, has been



                                      F-21
<PAGE>   59

HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
--------------------------------------------------------------------------------



       recorded in the consolidated financial statements of the Company
       with a corresponding credit to additional paid-in capital.

       The CEO and President of the Company each own a 50% interest in the
       capital stock of HP Aviation, Inc., an entity that provides the use of an
       airplane to the Company. During 1998 and 1999, the Company paid HP
       Aviation, Inc. approximately $38,900 and $104,100, respectively, for use
       of the airplane. In addition, the CEO and President of the Company each
       own a 50% interest in real estate property that is used by the Company
       for various management related functions. During 1998 and 1999, the
       Company paid these officers approximately $17,300 and $18,850,
       respectively, for use of the real estate property.

       On January 1, 1999, the Company amended its Consulting and Services
       Agreement with Healthcare Alliance (the "Alliance Agreement"), an
       affiliate of one of the Company's directors. The Alliance Agreement
       provides for (i) the payment to Healthcare Alliance of an annual
       consulting fee of $36,000; (ii) the payment to Healthcare Alliance of an
       annual performance incentive fee equal to 5% of any annual sales increase
       achieved by the Company that results from Healthcare Alliance's efforts;
       and (iii) the grant of options to purchase up to 1% of the Company's
       outstanding common stock, which will vest and become exercisable by
       Healthcare Alliance only if it procures group purchasing agreements with
       certain Group Purchasing Organizations ("GPOs") and the Company achieves
       certain levels of incremental sales revenue under its agreement with the
       particular GPO. Any options granted under provision (iii) will have an
       exercise price equal to the closing stock price of the Company's common
       stock on the effective date of the purchasing agreement. The Company
       incurred expense of $36,000 related to the annual consulting fee under
       the Alliance Agreement during each of the three years in the period ended
       December 31, 1999. In addition, the Company incurred incentive fees of
       approximately $45,300 during 1999 based on incremental annual sales
       achieved by the Company resulting from Healthcare Alliance's efforts.
       There were no incentive fee amounts paid during the years ended December
       31, 1997 or 1998, nor were there any grants of Company stock options
       during the years ended December 31, 1997, 1998, or 1999 related to
       provision (iii) of the Alliance Agreement.

       In addition, under the amended agreement, the Company has granted an
       option to Healthcare Alliance for the purchase of 45,000 shares of common
       stock of the Company. Such options will become vested and exercisable by
       Healthcare Alliance only if the Company achieves certain amounts of
       incremental sales revenue under the Company's group purchasing agreement
       with Premier Purchasing Partners, L P., (the "Premier Agreement" - see
       below). The exercise price for these shares shall be the closing stock
       price of the Company's common stock on the day that the options vest. The
       options are exercisable for a period of five years upon vesting. None of
       the 45,000 options have vested as of December 31, 1999. The Alliance
       Agreement terminates on December 31, 2001. During 1998, the Company
       issued 45,328 shares of the Company's common stock to Healthcare Alliance
       in connection with the signing of the Premier Agreement. The Company
       recognized consulting expense of approximately $657,300 related to this
       transaction based on the fair value of the Company's stock of $14.50 per
       share at the time of issuance.


                                      F-22


<PAGE>   60

HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
--------------------------------------------------------------------------------



       As discussed above and in Note 9, in 1998, the Company entered into an
       agreement with Premier, in which a warrant to purchase up to 500,000
       shares of common stock was granted, subject to certain vesting
       requirements. One of the Company's board members served as president of
       Premier until December 1999.

       On May 8, 1997, the Company entered into an agreement (the "Agreement")
       with a director of the Company (the "Director") in which the Director was
       to provide acquisition consulting and related services to the Company.
       The Director receives a fee (the "General Consulting Fee") equal to 2.5%
       of the acquisition purchase price (i) payable by the Company with respect
       to a company acquired by the Company or (ii) payable to the Company or
       its shareholders in the event the Company is acquired. Such General
       Consulting Fee was conditioned upon, and was not payable until, there had
       occurred an initial public offering of the Company's capital stock or
       substantially all of the Company's business or outstanding shares of
       capital stock was acquired. Such General Consulting Fee was payable, at
       the Director's option, (i) in shares of the Company's common stock after
       an initial public offering; (ii) by the Company's issuance to the
       Director of warrants or options to purchase, at a nominal exercise price,
       that number of shares of common stock (valued at the IPO) which equaled
       the General Consulting Fee; (iii) in shares of an acquiring company, in
       the event the Company was acquired; or (iv) in cash. The Agreement also
       provided for payment to the Director for his services in connection with
       the Strato acquisition of $375,000 (the "Consulting Fee"). The Consulting
       Fee was payable upon the initial public offering at the option of the
       Director, in shares of the Company's stock or warrants or options to
       purchase, at a nominal exercise price, that number of shares of the
       common stock (valued at the initial public offering price) which equaled
       $375,000. The Agreement also provides for payment of $250,000 (the
       "Second Consulting Fee") to the Director for services provided in
       connection with a second strategic venture. The Second Consulting Fee is
       payable upon the completion of the second strategic venture and is
       payable in warrants or options to purchase, at a nominal exercise price,
       that number of shares of the Company's stock (valued at the initial
       public offering price) which equals $250,000. As of December 31, 1997,
       1998, and 1999, no amounts have been earned by the Director relating to
       the Second Consulting Fee. Both the Consulting Fee and the Second
       Consulting Fee are to be in lieu of, and not in addition to, the General
       Consulting Fee.

       An affiliate of one of the Directors of the Company provided consulting
       services to the Company in 1997, 1998, and 1999, which were expensed in
       the amounts of approximately $235,700, $40,600, and $77,300,
       respectively.

13. COMMITMENTS AND CONTINGENT LIABILITIES

       Non-compete and consulting agreements related to the 1995 acquisition of
       Neostar Medical Technologies, Inc. ("Neostar") were paid in full during
       1998 with proceeds from the Company's IPO. The total amount required to
       be paid was $1,876,078 per the terms of the non-compete and consulting
       agreements. The Company recorded an extraordinary loss on the early
       extinguishment of debt of $67,703, net of income tax benefit of $43,285
       due to this repayment.

                                      F-23


<PAGE>   61

HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
--------------------------------------------------------------------------------



       The Company leases its facility and certain equipment under operating
       lease agreements expiring in various years through 2010. Rent expense
       under various operating leases was approximately $85,000, $180,000, and
       $217,000 during the years ended December 31, 1997, 1998 and 1999,
       respectively. Approximate minimum future rental payments under
       noncancellable operating leases having remaining terms in excess of one
       year are as follows:

<TABLE>
<CAPTION>
               <S>                               <C>
               2000                                  185,600
               2001                                  154,600
               2002                                  152,000
               2003                                  128,300
               2004                                  115,400
               Thereafter                            520,200
                                                 -----------

                                                 $ 1,256,100
                                                 ===========
</TABLE>


       The Company is subject to legal proceedings and claims which arise in the
       ordinary course of its business. In the opinion of management, the amount
       of ultimate liability with respect to these actions will not materially
       affect the consolidated financial position, results of operations, or
       cash flows of the Company.

       The Company is subject to numerous federal, state and local environmental
       laws and regulations. Management believes that the Company is in material
       compliance with such laws and regulations and that potential
       environmental liabilities, if any, are not material to the consolidated
       financial statements.

       In September 1999, the Company identified a breach in the primary sterile
       barrier of a dialysis catheter kit. Further inspection revealed the
       breach was inherent in the packaging design, and the Company initiated a
       voluntary product recall. The Food and Drug Administration has approved
       the packaging rework procedures for the recalled kits, and product
       manufacturing resumed with a modified package design. Management believes
       the majority of the affected product has been returned. Expense
       associated with the recall was approximately $148,000 during 1999.

       The Company is party to license agreements with an individual (the
       "Licensor") for the right to manufacture and sell dual lumen fistula
       needles, dual lumen over-the-needle catheters, dual lumen chronic and
       acute catheters, and other products covered by the Licensor's patents or
       derived from the Licensor's confidential information. Payments under the
       agreement vary, depending upon the purchaser, and range from 9% to 15% of
       the Company's net sales of such licensed products. Such payments shall
       continue until the expiration date of each corresponding licensed patent
       right covering each product under the agreements. Payments under these
       license agreements totaled approximately $249,000, $439,000, and $448,000
       in 1997, 1998, and 1999, respectively.

       On March 18, 1997, the Company entered into an agreement with a vascular
       access port manufacturer (the "Manufacturer") to allow for the eventual
       transfer of the manufacturing



                                      F-24


<PAGE>   62

HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
--------------------------------------------------------------------------------



       process of certain port models to the Company. The agreement requires
       the Company to purchase a minimum of 3,500 ports each year through
       2002. To the extent that purchases exceed 4,000 in one contract year,
       such excess purchases may be applied to the following year's minimum
       commitment. As of December 31, 1999, the Company had made excess port
       purchases of approximately 7,900 units that were available to be
       applied to future years' purchase commitments. As of December 31, 1999,
       the Company has satisfied all criteria in the agreement to take over
       the manufacture of the ports with the payment of a royalty to the
       Manufacturer. Any royalty payments would be paid quarterly and will be
       calculated as forty percent of the difference between the Company's
       cost to manufacture the port and the Company's sales price, as defined
       in the agreement, for each port sold by the Company. The percentage
       used to calculate the royalty payments will decrease to 25% after the
       first year of manufacture by the Company. When the Company takes over
       manufacturing, the Company is required to buy the Manufacturer's
       inventory of related parts and finished ports at the Manufacturer's
       cost, including the Manufacturer's standard overhead charges.

       On June 27, 1997, the Company entered into a distribution agreement with
       an overseas distributor (the "Distributor") granting the Distributor
       exclusive distribution rights for one of the Company's hemodialysis
       catheter products in certain foreign territories. Under the agreement,
       the Distributor has agreed to purchase, and the Company has agreed to
       sell, a minimum number of units each year through May 2000. The agreement
       also contains a renewal clause allowing the Company to extend the
       agreement for an additional two years. The minimum commitments under the
       extended term would be subject to negotiation three months prior to the
       renewal date. In the event the Company and the Distributor cannot come to
       an agreement on the minimum commitments, the minimum commitments will be
       set at 105% of the commitment levels in year three for the first renewal
       year and 105% of the commitment level in the first renewal year for the
       second renewal year. As of December 31, 1999, neither company was in
       compliance with the distribution agreement. However, management does not
       believe there is any exposure as a result of these violations and is
       currently negotiating new terms with the distributor.

       In connection with the 1998 acquisition of IFM discussed in Note 15, the
       Company assumed certain license agreements (the "IFM Licensors") for the
       right to manufacture and sell certain medical instruments covered by the
       IFM Licensors' patents or derived from the IFM Licensors' confidential
       information. Payments under these agreements vary, depending on the
       individual products produced, and range from 1% to 5% of the Company's
       net sales of such licensed products. Such payments shall continue until
       the expiration of a fixed 20-year term or the expiration date of each
       corresponding licensed patent covering each product under the agreements.
       Payments under the license agreements totaled approximately $106,000 in
       1999. The Company made no payments under these license agreements during
       1998.

       Additionally, the Company has entered into a long-term manufacturing
       agreement (the "Manufacturing Agreement") with the seller of IFM (the
       "Seller"). The Manufacturing Agreement provides for the Seller to supply,
       and the Company to purchase, certain minimum levels of the Seller's
       products for a term of four years. The Manufacturing Agreement requires
       that the annual sales of the products to the Company shall equal at least
       $6,000,000 during


                                      F-25


<PAGE>   63

HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
--------------------------------------------------------------------------------



       each 12-month period under this Manufacturing Agreement. The
       Manufacturing Agreement is cancelable at the option of the Seller if the
       Company fails to meet the quotas required under the Manufacturing
       Agreement.

       On June 22, 1999, IFM notified the Company that the Company was in breach
       of the Manufacturing Agreement. IFM notified the Company that the Company
       was in violation of the payment provision contained in the Manufacturing
       Agreement, which calls for the Company to pay amounts due to IFM within
       45 days of the date of each invoice. The total accounts payable due to
       IFM under the Manufacturing Agreement at December 31, 1999 was
       approximately $1,101,500. Additionally, IFM notified the Company that the
       Company was in violation of the Manufacturing Agreement due to the
       nonpayment of interest related to such past due accounts payable. In
       addition, IFM notified the Company that the Company was in breach for
       failing to provide a production schedule at the end of the first six
       month term of the Manufacturing Agreement and on a monthly basis
       thereafter. Finally, IFM notified the Company that the Company was in
       breach for the failure to provide packaging and labeling. The Company is
       in default under the Manufacturing Agreement. As a result, IFM may
       terminate the Manufacturing Agreement and may be entitled to receive an
       amount equal to (i) the direct costs incurred by IFM for all purchase
       orders committed for raw materials and components, (ii) the direct and
       indirect costs incurred by IFM for six months after such termination for
       labor utilized in the manufacture of the products, and (iii) the fixed
       facility costs incurred by IFM in connection with the manufacture of the
       products for the remainder of the term of the Manufacturing Agreement.

       The Company has continued to indicate to IFM that it will not be able to
       meet the minimum purchase requirements outlined in the Manufacturing
       Agreement. The Company is currently in negotiations with IFM to purchase
       the existing inventory, fixed assets, and leasehold improvements. The
       Company would assume responsibility for the plan and manufacturing of the
       IFM product line. The parties are currently operating under a verbal
       modification to the Manufacturing Agreement. Should the Company be unable
       to revise the Manufacturing Agreement to include acceptable terms or fail
       to continue to operate under the verbal modification to the Manufacturing
       Agreement, then any liabilities incurred as a result of the default could
       have a material adverse effect on the Company's consolidated financial
       position and disrupt the Company's ability to obtain and sell the related
       products.

       On December 11, 1998, the Company entered into a long-term distribution
       agreement (the "Distribution Agreement") with a medical devices
       manufacturer. The Distribution Agreement provides for the distributor to
       supply, and the Company to purchase, certain minimum levels of vascular
       grafts for an initial term of three years. The Distribution Agreement may
       be automatically extended up to two additional years upon the achievement
       of annual minimum purchase targets as defined in the Distribution
       Agreement. The Distribution Agreement requires the Company to purchase a
       minimum of 4,500 units, 6,300 units and 8,800 units in the first 3 years,
       respectively, following December 11, 1998. The Distribution Agreement is
       cancelable at the option of the distributor if the Company fails to meet
       the quotas required under the Distribution Agreement.


                                      F-26


<PAGE>   64

HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
--------------------------------------------------------------------------------



       The Company has entered into various distribution agreements under which
       the Company has guaranteed certain gross margin percentages to the
       distributors. As a result of these guarantees, the Company has accrued
       approximately $287,000 as of December 31, 1999 related to amounts to be
       rebated to the various distributors.

       The Company is party to numerous agreements which contain provisions
       regarding change in control, as defined by the agreements, or the
       acquisition of the Company by a third party. These provisions could
       result in additional payments being required by the Company should
       these events occur.

14.    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

       The following represent noncash activities for the years ended
December 31:


<TABLE>
<CAPTION>

                                                                      1997            1998                1999
<S>                                                               <C>              <C>                <C>
Short-term debt issued for certain prepaid insurance
    coverage                                                      $  161,719                          $  115,493
Increase to goodwill related to purchase price
    allocation                                                                     $   351,104        $  286,797
Note issued for purchase of transportation
    equipment                                                     $   11,641                          $   54,955
Increase to property and equipment and accounts
    payable                                                       $  101,460
Issuance of non-compete agreement                                                                     $  250,000
Note issued for capital lease of office equipment                                                     $   67,765
Note issued for additional Stepic purchase payment                                                    $  650,834
Discount recorded on credit facility                              $3,000,000
Increase to additional paid-in capital for:
    Contributed services                                          $  365,000       $    91,250
    Consulting services                                                            $   657,256
    Extinguishment of put feature of warrant                                       $ 9,900,000
Change in value of put warrant                                    $8,000,000       $(1,100,000)
Increase in notes receivable - shareholders                       $   27,028       $    27,028        $   27,028
</TABLE>


                                      F-27
<PAGE>   65

HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
--------------------------------------------------------------------------------



15.   ACQUISITIONS

       On July 15, 1997, the Company acquired the vascular access products (the
       "Port Business") of Strato located in Norwood, Massachusetts, for a
       purchase price of $19,500,000. The Company has accounted for the
       acquisition under the purchase method of accounting. The estimated fair
       values of assets acquired and liabilities assumed in the Strato
       acquisition are as follows:

<TABLE>
<CAPTION>

<S>                                                <C>
Accounts receivable, net                          $  1,813,863
Inventories                                          4,434,204
Other current assets                                   101,775
Property and equipment                                 758,356
Intangibles and other assets                        13,183,033
Deferred income tax asset                              734,082
Accounts payable and accrued expenses               (1,525,313)
                                                  ------------

    Purchase price                                $ 19,500,000
                                                  ============
</TABLE>


       On May 19, 1998, the Company completed the purchase of certain assets
       used in the manufacture and sale of the port product line of Ideas for
       Medicine, Inc. (the "IFM Port Line"), a wholly-owned subsidiary of
       CryoLife, Inc., for $100,000 in cash and a note payable in the amount of
       $482,110 (which is supported by a standby letter of credit) that was paid
       in November 1999. The acquisition has been accounted for under the
       purchase method of accounting and, accordingly, the purchase price has
       been allocated to the net assets of IFM based on their estimated fair
       values at the date of acquisition. Operating results of IFM since May 19,
       1998 are included in the Company's consolidated financial statements.

       On June 2, 1998, the Company completed the purchase of certain assets
       used in the human vascular access business of Norfolk Medical Products,
       Inc. ("Norfolk") for $9,300,000. The acquisition has been accounted for
       under the purchase method of accounting and, accordingly, the purchase
       price has been allocated to the net assets of Norfolk based on their
       estimated fair values at the date of acquisition. Operating results of
       Norfolk since June 2, 1998 are included in the Company's consolidated
       financial statements.

       Effective September 1, 1998, the Company completed the purchase of the
       net assets of Columbia Vital Systems, Inc. ("CVS") for $4 million in cash
       and a payable for $225,000 due in September 2000. In addition, the
       purchase agreement provides for an increase in the purchase price of up
       to $4 million if CVS meets certain criteria over a two year period. Any
       additional payments made will be accounted for as additional costs of
       acquired assets and amortized over the remaining life of the assets. As
       of December 31, 1999, none of these criteria have been met. The
       acquisition has been accounted for under the purchase method of
       accounting and, accordingly, the purchase price has been allocated to the
       net assets of CVS based upon their estimated fair values at the date of
       acquisition. Operating results of CVS since September 1, 1998 are
       included in the Company's consolidated financial statements.



                                      F-28

<PAGE>   66

HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
--------------------------------------------------------------------------------



       On September 30, 1998, the Company purchased assets, equipment and
       certain product lines (other than ports) from IFM, a wholly-owned
       subsidiary of CryoLife, Inc., for $15 million in cash. The acquisition
       has been accounted for under the purchase method of accounting and,
       accordingly, the purchase price has been allocated to the net assets of
       IFM based on their estimated fair values at the date of acquisition.
       Operating results of IFM since September 30, 1998 are included in the
       Company's consolidated financial statements. In connection with the
       acquisition, the Company and IFM entered into a Manufacturing Agreement
       pursuant to which IFM agreed to manufacture various purchased products
       for the Company (see Note 13).

       Effective October 15, 1998, the Company completed the purchase of the
       outstanding stock of Stepic Corporation ("Stepic") for $8 million in cash
       and contingent payments of up to $12 million over a three year period
       based upon the successful achievement of certain specified future
       earnings targets by Stepic. The Company determined that $7.2 million of
       this contingent payment was probable of payment and recorded this amount
       at the acquisition date. Any additional amounts earned will be accounted
       for as additional costs of acquired assets and amortized over the
       remaining life of the assets.

       During the twelve months ended December 31, 1999, the Company recorded
       additional purchase price of approximately $2.1 million, representing the
       Company's additional earned contingent payment for the first anniversary
       year ended October 31, 1999 discussed above. The contingent payment was
       due December 15, 1999 and $1.4 million was paid on that date by the
       Company with general company funds. The Company issued notes
       payable for the remaining balance to the previous stockholders of Stepic
       of approximately $651,000 to be paid through April 2000. At
       December 31, 1998 and 1999, $7.2 million and $4.8 million, respectively,
       of the contingent payments were supported by standby letters of credit
       (see Note 6). The schedule below has been adjusted to include the
       additional $2.1 million purchase price for the Stepic acquisition. The
       acquisition has been accounted for under the purchase method of
       accounting and, accordingly, the purchase price has been allocated to the
       net assets of Stepic based upon their estimated fair values at the date
       of acquisition.


                                      F-29

<PAGE>   67

HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
--------------------------------------------------------------------------------



       The estimated fair values of assets acquired and liabilities assumed in
       each of the 1998 acquisitions are as follows:

<TABLE>
<CAPTION>

                                        IFM PORT
                                          LINE         NORFOLK           CVS             IFM            STEPIC
                                     -----------     -----------     ----------      ----------      ------------
    <S>                              <C>             <C>             <C>             <C>             <C>
    Cash                                                                                             $   279,202
    Accounts receivable, net                                                                           8,878,486
    Inventories                      $  26,146       $  714,075      $1,658,025      $   825,253       6,361,697
    Other current assets                                                                               2,211,269
    Deferred income taxes                                45,200
    Property and equipment                               91,000           5,000           19,024         228,781
    Intangibles                        703,478        8,872,112       2,659,349       14,234,320      16,292,168
    Other assets                                                                                           4,000
    Accounts payable                                                                                  (2,847,495)
    Accrued expenses                  (147,514)        (422,387)        (97,374)         (78,597)     (4,157,274)
    Long-term debt                                                                                   (10,000,000)
                                   -----------       ----------      -----------     -----------     -----------

        Purchase price               $ 582,110       $9,300,000      $4,225,000      $15,000,000     $17,250,834
                                   ===========       ==========      ==========      ===========     ===========
</TABLE>



       The following unaudited pro forma summary for the year ended December 31,
       1998 combines the results of the Company with the acquisitions of
       Norfolk, IFM, CVS, and Stepic as if the acquisitions had occurred at the
       beginning of 1998. Certain adjustments, including interest expense on the
       acquisition debt, amortization of intangible assets, and income tax
       effects, have been made to reflect the impact of the purchase
       transactions. These pro forma results have been prepared for comparative
       purposes only and do not purport to be indicative of what would have
       occurred had the acquisitions been made at the beginning of 1998, or of
       results which may occur in the future.

<TABLE>
<CAPTION>
                                                                              PRO FORMA
                                                                                 1998
                                                                             (UNAUDITED)
                                                                            IN THOUSANDS,
                                                                           EXCEPT PER SHARE
                                                                           ----------------
      <S>                                                                  <C>
      Sales                                                                    $  82,753
      Net income before extraordinary items                                    $     667
      Net income                                                               $   1,684
      Net income per share before extraordinary items                          $     .05
      Net income per share - basic and diluted                                 $     .14
</TABLE>

       Pro forma earnings per share-basic for the year ended December 31, 1998
       is calculated by dividing pro forma net income by the basic weighted
       average shares outstanding of 12,187,070. Pro forma earnings per
       share-diluted for the year ended December 31, 1998 is calculated by
       dividing pro forma net income by the diluted weighted average shares
       outstanding of 12,412,394.


                                      F-30

<PAGE>   68

HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
--------------------------------------------------------------------------------



16.  SEGMENT INFORMATION AND MAJOR CUSTOMERS

       As of December 31, 1999, the Company operates two reportable segments,
       manufacturing and distribution. The manufacturing segment includes
       products manufactured by the Company, as well as products manufactured by
       third parties on behalf of the Company through manufacturing and supply
       agreements. Prior to the acquisitions of CVS and Stepic in 1998
       (discussed in Note 15), the Company only operated the manufacturing
       segment. Thus, segment information for 1997 is not included in the tables
       below.

       The accounting policies of the segments are the same as those described
       in the "Summary of Significant Accounting Policies" (see Note 1) to the
       extent that such policies affect the reported segment information. The
       Company evaluates the performance of its segments based on gross profit;
       therefore, selling, general, and administrative costs, as well as
       research and development, interest income/expense, and provision for
       income taxes, are reported on an entity-wide basis only.

       The table below presents information about the reported sales (which
       include intersegment revenues), gross profit (which include intersegment
       gross profit) and identifiable assets of the Company's segments as of and
       for the years ended December 31, 1998 and 1999.

<TABLE>
<CAPTION>

                                       1998                                            1999
                      -------------------------------------------------------------------------------------------
                                       GROSS         IDENTIFIABLE                       GROSS        IDENTIFIABLE
                         SALES         PROFIT           ASSETS           SALES          PROFIT          ASSETS
                      ------------   ------------- ---------------- -------------- --------------- --------------
<S>                   <C>            <C>              <C>            <C>              <C>            <C>
Manufacturing         $ 27,584,756   $ 16,359,469     $ 65,360,263   $ 32,660,880     $17,568,526    $ 63,964,482
Distribution            12,020,468      3,156,939       40,049,107     45,883,836       9,888,249      37,922,265
                      ------------   ------------     ------------   ------------     -----------    ------------

                      $ 39,605,224   $ 19,516,408     $105,409,370   $ 78,544,716     $27,456,775    $101,886,747
                      ============   ============     ============   ============     ===========    ============
</TABLE>


       A reconciliation of total segment sales to total consolidated sales and
       of total segment gross profit to total consolidated gross profit of the
       Company for the years ended December 31, 1998 and 1999 is as follows:


<TABLE>
<CAPTION>

                                                             1998              1999
<S>                                                     <C>                <C>
Total segment sales                                     $  39,605,224      $  78,544,716
Elimination of intersegment sales                            (205,863)        (3,174,059)
                                                        -------------      -------------

    Consolidated sales                                  $  39,399,361      $  75,370,657
                                                        =============      =============
</TABLE>


<TABLE>
<CAPTION>

                                                             1998                1999
<S>                                                     <C>                <C>
Total segment gross profit                              $  19,516,408      $  27,456,775
Elimination of intersegment gross profit                      (50,000)           (96,935)
                                                        -------------      -------------

    Consolidated gross profit                           $  19,466,408      $  27,359,840
                                                        =============      =============
</TABLE>


                                      F-31


<PAGE>   69


HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
--------------------------------------------------------------------------------



      A reconciliation of total segment assets to total consolidated assets
      of the Company as of December 31, 1998 and 1999 is as follows:


<TABLE>
<CAPTION>

                                                                 1998             1999
      <S>                                                   <C>               <C>
      Total segment assets                                  $ 105,409,370     $101,886,747
      Elimination of intersegment receivables                  (1,471,573)        (735,714)
      Assets not allocated to segments                            699,316        1,246,439
                                                            -------------     ------------

        Consolidated assets                                 $ 104,637,113     $102,397,472
                                                            =============     ============
</TABLE>



      The Company's operations are located in the United States. Thus, all of
      the Company's assets are located domestically. Sales information by
      geographic area for the years ended December 31, 1998 and 1999 is as
      follows:

<TABLE>
<CAPTION>
                                                1997             1998                1999
      <S>                                  <C>               <C>                 <C>
      United States                        $ 13,144,972      $ 35,665,412        $ 71,103,033
      Foreign                                 2,653,151         3,733,949           4,267,624
                                           ------------      ------------        ------------

      Consolidated net sales               $ 15,798,123      $ 39,399,361        $ 75,370,657
                                           ============      ============        ============
</TABLE>


      No single country outside of the United States is significant to the
      Company's consolidated revenues. Sales to the Company's three largest
      customers amounted to approximately 14%, 7%, and 7% of total sales during
      the years ended December 31, 1997, 1998, and 1999, respectively. At
      December 31, 1998 and 1999, 17%, and 16%, respectively, of the accounts
      receivable balance consisted of amounts due from the Company's three
      largest customers.

17.   FINANCIAL INSTRUMENTS

      Financial instruments consisted of the following:


<TABLE>
<CAPTION>

                                                       DECEMBER 31, 1998                DECEMBER 31, 1999
                                                 -------------------------------  ------------------------------
                                                   CARRYING           FAIR           CARRYING          FAIR
                                                    AMOUNT            VALUE           AMOUNT           VALUE
                                                 --------------   --------------  ---------------  -------------
    <S>                                            <C>              <C>              <C>             <C>
    Accounts receivable - trade, net               $16,925,487      $16,925,487      $18,091,455     $18,091,455
    Accounts payable - trade                       $ 9,775,420      $ 9,775,420      $ 5,861,935     $ 5,861,935
    Interest rate cap agreement                                     $       151                      $        23
    Long-term debt                                 $49,806,854      $49,806,854      $50,755,914     $50,755,914
    Off-balance sheet financial instruments:
      Letters of credit                            $ 7,682,110      $ 7,682,110      $ 4,800,000     $ 4,800,000
</TABLE>


                                      F-32

<PAGE>   70

HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
--------------------------------------------------------------------------------



       The carrying amounts reported in the consolidated balance sheets for cash
       and cash equivalents, accounts receivable, and accounts payable
       approximate fair value because of the immediate or short-term maturity of
       these financial instruments. The carrying amount reported for the long-
       term debt approximates fair value because primarily all of the underlying
       instruments are at variable interest rates which reprice frequently. The
       fair value of the interest rate cap agreement is estimated based on
       valuations received from Bank of America. The standby letters of credit
       reflect fair value as a condition of their underlying purpose and are
       subject to fees competitively determined in the marketplace. The fair
       value of these standby letters of credit approximates contract values.

18.    DEFINED CONTRIBUTION BENEFIT PLAN

       The Company maintains a 401(k) profit sharing plan (the "Plan")
       that covers essentially all of the Company's employees. Employees are
       eligible to participate in the Plan after completing one year of service
       and attaining the age of 21. Participants in the Plan can contribute up
       to 15% of their annual salary during the plan year. The Company's
       contributions to the Plan, which are based principally on a percentage of
       the participant's annual base salary, are discretionary and determined on
       an annual basis by the Board of Directors. The Company made no
       contributions to the Plan during the years ended December 31, 1997, 1998
       and 1999.





                                      F-33


<PAGE>   71


                      REPORT OF INDEPENDENT ACCOUNTANTS ON
                          FINANCIAL STATEMENT SCHEDULE


To the Shareholders
Horizon Medical Products, Inc. and Subsidiaries


Our audits of the consolidated financial statements referred to in our report
dated February 28, 2000, except for Note 6 as to which the date is March 29,
2000 appearing in this Annual Report on Form 10-K of Horizon Medical Products,
Inc. and subsidiaries also included an audit of the financial statement
schedule listed in Item 14 of this Form 10-K. In our opinion, this financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.



/s/ PricewaterhouseCoopers LLP

Birmingham, Alabama
February 28, 2000


                                     F-34
<PAGE>   72


                                                                     SCHEDULE II

HORIZON MEDICAL PRODUCTS, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999


<TABLE>
<CAPTION>
                                                                    ADDITIONS
                                                             ----------------------
                                                 BEGINNING   CHARGED TO   COSTS AND                 ENDING
                                                  BALANCE     EXPENSES     OTHER(1)   DEDUCTIONS    BALANCE
                                                 ---------   ----------   ---------   ----------   ----------
<S>                                              <C>         <C>          <C>         <C>          <C>
Year ended December 31, 1997;
  Allowance for returns and doubtful accounts     $  6,997     $ 58,018    $453,322     $210,098   $  308,239
  Inventory Reserve                               $      0     $125,000    $350,051     $225,118   $  249,933

Year ended December 31, 1998;
  Allowance for returns and doubtful accounts     $308,239     $475,926    $150,000     $248,653   $  685,512
  Inventory Reserve                               $249,933     $367,919    $351,104     $209,138   $  759,818

Year ended December 31, 1999;
  Allowance for returns and doubtful accounts     $685,512     $585,496        -        $239,257   $1,031,751
  Inventory Reserve                               $759,818     $467,942        -        $120,000   $1,107,760
</TABLE>
(1) Other consists of allowances and reserves acquired through
    acquisitions.

                                      F-35