**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


**FORM
      10-Q**





**QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15 (d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**











For
                Quarter Ended
            March
                31, 2007
            Commission
                File No.0-24866








MICROTEK
      MEDICAL HOLDINGS, INC.


(Exact
      name of Registrant as specified in its charter)








Georgia
            58-1746149(State
                or other jurisdiction of
            (IRS
                Employerincorporation
                or organization)
            Identification
                No.)





13000
      DEERFIELD PARKWAY, SUITE 300


ALPHARETTA,
      GA 30004


(Address
      of principal executive offices)





(678)
      896-4400


(Registrant's
      telephone number, including area code)











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
      at least the past 90 days. Yes
x No o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. 
 Large
                  accelerated filero
              Accelerated
                  filerx
              Non-accelerated
                  filer o


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





Indicate
      the number of shares outstanding of each of the issuer's classes of common
      equity, as of the latest practicable date.





Class
            Outstanding
                at May 4, 2007Common
                Stock, $.001 par value
            43,450,022














**INDEX**





**PART
                I:**
            **FINANCIAL
                INFORMATION**Item
                1.
            Financial
                Statements:Unaudited
                Condensed Consolidated Balance Sheets as of March 31, 2007 and December
                31, 2006Unaudited
                Condensed Consolidated Statements of Operations and Comprehensive
                Income
                for the Three Months ended March 31, 2007 and March 31, 2006Unaudited
                Condensed Consolidated Statements of Cash Flows for the Three Months
                ended
                March 31, 2007 and March 31, 2006Notes
                to Unaudited Condensed Consolidated Financial
                StatementsItem
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                OperationsItem
                3.
            Quantitative
                and Qualitative Disclosures About Market RiskItem
                4.
            Controls
                and Procedures**PART
                II:**
            **OTHER
                INFORMATION**Item
                1.
            Legal
                ProceedingsItem
                1A.
            Risk
                FactorsItem
                2.
            Unregistered
                Sales of Equity Securities and Use of ProceedsItem
                3.
            Defaults
                Upon Senior SecuritiesItem
                4.
            Submission
                of Matters to a Vote of Security HoldersItem
                5.
            Other
                InformationItem
                6.
            Exhibits

















2





**PART
      I**


**FINANCIAL
      INFORMATION**


**Item
      1. Financial Statements**





**MICROTEK
                MEDICAL HOLDINGS, INC.**Unaudited
                Condensed Consolidated Balance Sheets(in
                thousands)**Assets**
            
            **March
                31, 2007**
            
            **December
                31, 2006**Current
                assets:Cash
                and cash equivalents
            
            $
            15,273
            
            $
            17,059Accounts
                receivable, net of allowances of $1,812
              and
                $1,626, respectively
            
            
            20,050
            
            
            18,182Other
                receivables
            
            
            1,417
            
            
            1,540Inventories
            
            
            37,736
            
            
            35,654Deferred
                income taxes
            
            
            3,765
            
            
            3,368Prepaid
                expenses and other current assets
            
            
            1,781
            
            
            2,003Total
                current assets
            
            
            80,022
            
            
            77,806Property
                and equipment
            
            
            32,660
            
            
            32,189Less
                accumulated depreciation
            
            
            (24,690
            )
            
            (24,181
            )Property
                and equipment, net
            
            
            7,970
            
            
            8,008Goodwill
            
            
            34,815
            
            
            34,803Other
                intangible assets, net
            
            
            12,831
            
            
            12,204Deferred
                income taxes
            
            
            14,991
            
            
            16,192Other
                assets
            
            
            6,976
            
            
            7,153Total
                assets
            
            $
            157,605
            
            $
            156,166**Liabilities
                and Shareholders’ Equity**Current
                liabilities:Accounts
                payable
            
            $
            10,848
            
            $
            11,735Accrued
                expenses
            
            
            5,365
            
            
            6,672Income
                taxes payable
            
            
            446
            
            
            353Current
                portion of long-term debt
            
            
            163
            
            
            173Total
                current liabilities
            
            
            16,822
            
            
            18,933Long-term
                debt, excluding current portion
            
            
            1,904
            
            
            721Deferred
                income taxes
            
            
            639
            
            
            769Other
                long-term liabilities, excluding current portion
            
            
            3,397
            
            
            3,507Total
                liabilities
            
            
            22,762
            
            
            23,930Shareholders’
                equity:Common
                stock
            
            
            46
            
            
            45Additional
                paid-in capital
            
            
            219,642
            
            
            218,759Accumulated
                deficit
            
            
            (79,773
            )
            
            (81,859
            )Accumulated
                other comprehensive income, net
              of
                income taxes of ($188) and ($178), respectively
            
            
            893
            
            
            733140,808
            
            
            137,678Treasury
                shares, at cost
            
            
            (5,965
            )
            
            (5,442
            )Total
                shareholders’ equity
            
            
            134,843
            
            
            132,236Total
                liabilities and shareholders’ equity
            
            $
            157,605
            
            $
            156,166




See
        notes
        to unaudited condensed consolidated financial statements.


3




**MICROTEK
                  MEDICAL HOLDINGS, INC.****Unaudited
                  Condensed Consolidated Statements of Operations and Comprehensive
                  Income****(in
                  thousands)**
 
 **Three
                  months ended****March
                  31, 2007**
              
              **March
                  31, 2006**Net
                  revenues
              
              $
              37,176
              
              $
              33,683Cost
                  of goods sold
              
              
              21,684
              
              
              20,045Gross
                  profit
              
              
              15,492
              
              
              13,638Operating
                  expenses:Selling,
                  general and administrative
              
              
              12,117
              
              
              9,957Research
                  and development
              
              
              392
              
              
              144Amortization
                  of intangibles
              
              
              307
              
              
              214Total
                  operating expenses
              
              
              12,816
              
              
              10,315Income
                  from operations
              
              
              2,676
              
              
              3,323Interest
                  income
              
              
              111
              
              
              94Interest
                  expense
              
              
              (16
              )
              
              (11
              )Equity
                  in earnings of investee
              
              
              32
              
              
              33Foreign
                  currency exchange gain
              
              
              95
              
              
              -Income
                  before income taxes
              
              
              2,898
              
              
              3,439Income
                  tax expense
              
              
              812
              
              
              1,189Net
                  income
              
              $
              2,086
              
              $
              2,250Other
                  comprehensive income:Foreign
                  currency translation gain, net of income taxes of ($7) and ($21),
                  respectively
              
              
              157
              
              
              359Unrealized
                  gain on available for sale securities, netof
                  income taxes of ($3) and ($4), respectively
              
              
              3
              
              
              6Comprehensive
                  income
              
              $
              2,246
              
              $
              2,615Net
                  income per common share - Basic and Diluted
              
              $
              0.05
              
              $
              0.05Weighted
                  average number of common shares outstanding:Basic
              
              
              43,398
              
              
              43,672Diluted
              
              
              44,699
              
              
              44,649
 
 See
                  notes to unaudited condensed consolidated financial statements.


4





**MICROTEK
                MEDICAL HOLDINGS, INC.**Unaudited
                Condensed Consolidated Statements of Cash Flows(in
                thousands)**Three
                months ended**
            
            **Three
                months ended****March,
                31 2007**
            
            **March
                31, 2006**Cash
                flows from operating activities:Net
                income
            
            $
            2,086
            
            $
            2,250Adjustments
                to reconcile net income to net cash provided byoperating
                activities:Depreciation
            
            
            504
            
            
            518Amortization
                of intangibles
            
            
            307
            
            
            214Provision
                for doubtful accounts
            
            
            194
            
            
            146Deferred
                income taxes
            
            
            665
            
            
            1,009Equity
                in earnings of investee
            
            
            (32
            )
            
            (33
            )Changes
                in operating assets and liabilities, net ofacquisitions
            
            
            (1,933
            )
            
            249**Net
                cash provided by operating activities**
            
            
            **1,791**
            
            
            **4,353**Cash
                flows from investing activities:Purchase
                of and deposits for property and equipment
            
            
            (448
            )
            
            (470
            )Acquisition
                of Samco, net of cash acquired
            
            
            -
            
            
            (2,071
            )Acquisition
                of Europlak, net of cash acquired
            
            
            (96
            )
            
            -Acquisition
                of Eurobiopsy, net of cash acquired
            
            
            (106
            )
            
            -**Net
                cash used in investing activities**
            
            
            **(650**
            **)**
            
            **(2,541**
            **)**Cash
                flows from financing activities:Borrowings
                under line of credit agreement
            
            
            30,774
            
            
            30,154Repayments
                under line of credit agreement
            
            
            (29,567
            )
            
            (31,385
            )Changes
                in bank overdraft
            
            
            (4,235
            )
            
            (981
            )Repayments
                under notes payable
            
            
            (44
            )
            
            (123
            )Proceeds
                from exercise of stock options
            
            
            411
            
            
            30Repurchase
                of treasury stock
            
            
            (523
            )
            
            -Proceeds
                from issuance of common stock
            
            
            473
            
            
            343**Net
                cash used in financing activities**
            
            
            **(2,711**
            **)**
            
            **(1,962**
            **)**Effect
                of exchange rate changes on cash
            
            
            (216
            )
            
            126Net
                decrease in cash and cash equivalents
            
            
            (1,786
            )
            
            (24
            )Cash
                and cash equivalents at beginning of period
            
            
            17,059
            
            
            14,765**Cash
                and cash equivalents at end of period**
            
            **$**
            **15,273**
            
            **$**
            **14,741**




See
        notes
        to unaudited condensed consolidated financial statements.





5


**MICROTEK
      MEDICAL HOLDINGS, INC.**


**Notes
      to Unaudited Condensed Consolidated Financial Statements**








**1.** **NATURE
      OF BUSINESS AND BASIS OF PRESENTATION**





Microtek
      Medical Holdings, Inc. and subsidiaries (the “Company”) manufactures and
      supplies innovative product solutions for patient care, occupational safety
      and
      management of infectious and hazardous waste for the healthcare market, which
      represents one business segment. The Company markets its products to hospitals
      and other end users through a broad distribution system consisting of multiple
      channels including distributors, directly through its own sales force, original
      equipment manufacturers, and private label customers. The Company also markets
      certain of its products through custom procedure tray companies.





The
      Company’s revenues are generated through two operating units, Microtek Medical,
      Inc. (“Microtek”), a subsidiary of the Company, and OREX Technologies
      International (“OTI”), an operating division. Microtek is the core business of
      the Company. As described in Note 7 to these unaudited condensed consolidated
      financial statements, in September 2004, the Company entered into an agreement
      which grants to Eastern Technologies, Inc. a worldwide exclusive license to
      manufacture, use and sell the Company’s OREX materials and processing technology
      in the nuclear industry and homeland security industry, and for certain other
      industrial applications. Subject to the terms and conditions of this licensing
      agreement, OTI no longer sells OREX products to the nuclear power industry.





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





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with Rule 10-01 of Regulation S-X for interim financial
      statements required to be filed with the Securities and Exchange Commission
      and
      do not include all information and footnotes required by generally accepted
      accounting principles for complete financial statements. In
      the
      opinion of management, the information furnished reflects all adjustments
      (consisting only of normal recurring adjustments) necessary for a fair
      presentation of the financial position, results of operations and cash flows
      for
      the interim periods presented. Results for the interim periods are not
      necessarily indicative of results to be expected for the full year. The
      unaudited condensed consolidated financial statements herein should be read
      in
      conjunction with the consolidated financial statements and notes thereto
      contained in the Company's Annual Report on Form 10-K for the year ended
      December 31, 2006 (the “Annual Report”).




**2.**  **CRITICAL
        ACCOUNTING POLICIES AND ESTIMATES**


The
      Company's discussion of results of operations and financial condition relies
      on
      its consolidated financial statements that are prepared based on certain
      critical accounting policies that require management to make judgments and
      estimates that are subject to varying degrees of uncertainty. The
      Company believes that investors need to be aware of these policies and how
      they
      impact its financial statements as a whole, as well as its related discussion
      and analysis presented herein. While the Company believes that these accounting
      policies are based on sound measurement criteria, actual future events can
      and
      often do result in outcomes that can be materially different from these
      estimates or forecasts. The accounting policies and related risks described
      in
      the Company's Annual Report on Form 10-K for the year ended December 31, 2006
      are those that depend most heavily on these judgments and estimates. During
      the
      three months ended March 31, 2007, there have been no material changes to any
      of
      the Company’s critical accounting policies.




**3.**  **NEWLY
      ISSUED ACCOUNTING STANDARDS**





In
      June
      2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
      No. 48, *Accounting
      for Uncertainty in Income Taxes - An interpretation of FASB Statement No. 109* (“FIN
      48”) which clarifies the accounting and disclosure requirements for uncertainty
      in tax positions, as defined. The Company’s adoption of the provisions of FIN 48
      on January 1, 2007 had no impact on the Company’s consolidated financial
      statements. The Company examined its tax positions for all open tax years
      through December 31, 2006 and the full benefit of each tax position has been
      recognized in the financial statements in accordance with FIN 48. On any future
      tax positions, the Company intends to record interest and penalties, if any,
      as
      a component of interest expense and general and administrative expenses,
      respectively. The Company’s tax years are open for U.S. Federal purposes from
      2003 through 2006. Certain U.S. state tax years remain open for 2002 and 2006
      filings. International statutes vary widely and the open years range from 2004
      through 2006. Taxing authorities have the ability to review prior tax years
      to
      the extent of net operating loss and tax credit carryforwards to open tax
      years.





6


In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
      No. 158, *Employer’s
      Accounting for Defined Benefit Pension and Other Postretirement Plans - an
      amendment of FASB Statements No. 87, 88, 106, and 132(R)* (“SFAS
      No. 158”). SFAS No. 158 requires companies to recognize the funded status of
      defined benefit pension and other postretirement plans as a net asset or
      liability in its statement of financial position and to recognize changes in
      that funded status in the year in which the changes occur through comprehensive
      income to the extent that those changes are not included in the net periodic
      cost. The funded status of a defined benefit pension plan is measured as the
      difference between the fair value of plan assets and the projected benefit
      obligation under the plan. Additionally, SFAS No. 158 requires companies to
      measure the funded status of a plan as of the company’s fiscal year-end, with
      limited exceptions, and expands financial statement disclosures. The Company
      adopted all requirements of SFAS No. 158 with respect to its international
      defined benefit pension plan on December 31, 2006, except for the funded status
      measurement date requirement which will be adopted on December 31, 2008, as
      allowed under SFAS No. 158.





In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurement* (“SFAS
      No. 157”). SFAS No. 157 defines fair value, establishes a framework for the
      measurement of fair value, and enhances disclosures about fair value
      measurements but does not require any new fair value measures. SFAS No. 157
      is
      effective for fair value measures already required or permitted by other
      standards for fiscal years beginning after November 15, 2007. The Company is
      required to adopt SFAS No. 157 on January 1, 2008. SFAS No. 157 is required
      to
      be applied prospectively, except for certain financial instruments. Any
      transition adjustment will be recognized as an adjustment to opening retained
      earnings in the year of adoption. The Company is currently evaluating the impact
      of adopting SFAS No. 157 on its consolidated results of operations and financial
      position.





On
      February 15, 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities — Including an
      Amendment of FASB Statement No. 115* (“SFAS
      No. 159”). SFAS No. 159 permits an entity to irrevocably elect to report
      selected financial assets and liabilities at fair value, with subsequent changes
      in fair value reported in earnings. The election may be applied on an
      instrument-by-instrument basis. SFAS No. 159 also establishes additional
      presentation and disclosure requirements for items measured using the fair
      value
      option. SFAS No. 159 is effective for all financial statements issued for fiscal
      years beginning after November 15, 2007. The Company is currently
      evaluating the impact of adopting SFAS No. 159 on its consolidated results
      of
      operations and financial position.





**4.**  **STOCK-BASED
      COMPENSATION**




The
      Company follows the provisions of SFAS No. 123(R), *Share-Based
      Payment,* and
      related interpretations (collectively, “SFAS No. 123(R)”) to account for
      stock-based compensation. SFAS No. 123(R) supersedes Accounting Principles
      Board
      (“APB”) Opinion No. 25, *Accounting
      for Stock Issued to Employees* , ** and
      revises guidance in SFAS No. 123, *Accounting
      for Stock-Based Compensation* .
      SFAS
      No. 123(R) establishes accounting requirements for share-based compensation
      to
      employees and carries forward prior guidance on accounting for awards to
      non-employees. Specifically, SFAS No. 123(R) requires that compensation expense
      be recognized in the financial statements for share-based awards based on the
      grant date fair value of those awards. SFAS No. 123(R) also requires the
      benefits of tax deductions in excess of recognized compensation expense to
      be
      reported as a financing cash flow activity, rather than as an operating cash
      flow activity as previously required.





Pursuant
      to SFAS No. 123(R), the Company recognizes stock-based compensation expense
      based on the grant-date fair value of its share-based awards granted subsequent
      to December 31, 2005 that are expected to vest. Compensation expense is
      recognized on a straight-line basis over the requisite service period, which
      is
      generally commensurate with the vesting term. Compensation expense is recognized
      immediately for share-based awards that are fully vested on the date of the
      grant. During the three months ended March 31, 2007 and 2006, there were no
      stock option grants issued and no compensation expense recognized in the
      Company’s financial statements related to share-based awards. For the three
      months ended March 31, 2007 and 2006, the Company did not record any excess
      tax
      benefits generated from stock option exercises because of the Company’s
      significant net operating loss carryforwards for Federal income tax purposes.





7


The
      Company uses the Black-Scholes option pricing model to determine the fair value
      of the Company’s share-based awards under SFAS No. 123 (R), which is the same
      valuation technique previously used for pro forma disclosures under SFAS No.
      123. The Black-Scholes option valuation model was developed for use in
      estimating the fair value of traded options which have no vesting restrictions
      and are fully transferable. In addition, option valuation models require the
      input of highly subjective assumptions including the expected stock price
      volatility. Because the Company’s employee stock options have characteristics
      significantly different from those of traded options, and because changes in
      the
      subjective input assumptions can materially affect the fair value estimate,
      in
      management’s opinion, the existing models do not necessarily provide a reliable
      single measure of the fair value of its employee stock options.





Pursuant
      to the Company’s Credit Agreement (see Note 11), the Company is not permitted to
      pay any dividends and does not anticipate paying any cash dividends in the
      foreseeable future. Therefore, an expected dividend yield of zero is assumed
      for
      purposes of the Company’s Black Scholes calculations. Pre-vesting forfeiture
      rates are estimated based on the Company’s historical experience and
      expectations about future forfeitures.  Expected
      price volatility is determined using a weighted average of daily historical
      volatility of the Company’s stock price over the corresponding expected option
      life. The average risk-free interest rate is determined using the Federal
      Reserve nominal rates in effect as of the date of grant for U.S. Treasury
      zero-coupon bonds with maturities similar to those of the expected term of
      the
      share-based award being valued. The expected term of stock options is determined
      using historical data.





***Stock-Based
      Employee Compensation Plans*** .
      At
      March 31, 2007, the Company has two stock-based employee compensation plans:
      the
      1992 Stock Option Plan (the “1992 Plan”) and the 1999 Stock Option Plan (the
“1999 Plan”).





The
      1992
      Plan was adopted on April 28, 1992 and, as amended, authorized the issuance
      of
      up to 4,800,000 shares of common stock to certain employees, consultants and
      directors of the Company under incentive and/or nonqualified options and/or
      alternate rights. An alternate right is defined as the right to receive an
      amount of cash or shares of stock having an aggregate market value equal to
      the
      appreciation in the market value of a stated number of shares of the Company’s
      common stock from the alternate right grant date to the exercise date. Options
      and/or rights under the 1992 Plan were granted through April 27, 2002 at
      prices not less than 100 percent of the market value at the date of grant.
      Options and/or rights become exercisable based upon a vesting schedule
      determined by the 1992 Plan Committee and become fully exercisable upon a change
      in control, as defined. Options expire not more than ten years from the date
      of
      grant and alternate rights expire at the discretion of the 1992 Plan Committee.
      At March 31, 2007, currently exercisable options for 745,337 shares were
      outstanding under the 1992 Plan. There were no alternate rights issued under
      the
      1992 Plan. The expiration of the 1992 Plan on April 27, 2002 does not affect
      options currently outstanding.





The
      1999
      Plan was approved by the shareholders on May 27, 1999, and as amended on May
      19,
      2004, authorizes the issuance of up to 5,345,000 shares of common stock to
      certain employees, consultants and directors of the Company under incentive
      and/or nonqualified options, stock appreciation rights (“SARs”) and other stock
      awards (collectively, “Stock Awards”). Stock Awards under the 1999 Plan may be
      granted at prices not less than 100 percent of the market value at the date
      of
      grant. Options and/or SARs become exercisable based upon a vesting schedule
      determined by the 1999 Plan Committee and become fully exercisable upon a change
      in control, as defined. Options expire not more than ten years from the date
      of
      grant and SARs and other stock awards expire at the discretion of the 1999
      Plan
      Committee. The 1999 Plan is unlimited in duration. At March 31, 2007, currently
      exercisable options for 3,037,500 shares were outstanding under the 1999 Plan.





At
      March
      31, 2007, there were 1,607,100 shares available for future grants under the
      Company’s stock option plans.




8


A
      summary
      of option activity during the three months ended March 31, 2007 is as follows:





**Shares**
            
            **Weighted
                Average**
              **Exercise
                Price**Outstanding
                and Exercisable - December 31, 2006
            
            
            3,990,806
            
            $
            2.97Granted
            
            
            -
            
            
            -Exercised
            
            
            (171,969
            )
            
            2.38Canceled
            
            
            (36,000
            )
            
            4.69Outstanding
                and Exercisable - March 31, 2007
            
            
            3,782,837
            
            $
            2.98





The
      following table summarizes information pertaining to options outstanding and
      exercisable at March 31, 2007:





**Range
                of**
              **Exercise**
              **Prices**
            **Number**
              **Outstanding
                and Exercisable**
            **Average**
              **Remaining**
              **Contractual**
              **Life
                (Years)**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**$0.72
                - $1.50
            400,011
            4.0
            
            $
                1.35$1.66
                - $2.28
            1,272,581
            4.3
            
            1.96$2.35
                - $3.59
            546,745
            4.9
            
            2.96$3.60
                - $3.99
            784,000
            7.1
            
            3.72$4.00
                - $5.02
            779,500
            6.6
            
            4.773,782,837
            5.4
            
            $
                2.98





The
      aggregate intrinsic value of options outstanding and exercisable was
      approximately $10.9 million at March 31, 2007. There were 171,969 options and
      35,000 options exercised during the three months ended March 31, 2007 and 2006,
      respectively. The total intrinsic value of options exercised during the three
      months ended March 31, 2007 and 2006 was approximately $351,000 and $92,000,
      respectively, as determined as of the date of exercise. Cash received from
      option exercises during the three months ended March 31, 2007 and 2006 totaled
      approximately $411,000 and $30,000, respectively.





***Employee
      Stock Purchase Plan*** .
      In
      March 1999, the Company adopted an Employee Stock Purchase Plan (the “1999
      ESPP”) which authorizes the issuance of up to 700,000 shares of common stock.
      Under the 1999 ESPP, eligible employees may contribute up to ten percent of
      their compensation toward the purchase of common stock at each year-end. The
      employee purchase price is derived from a formula based on fair market value
      of
      the Company’s common stock. Compensation cost associated with the rights granted
      under the 1999 ESPP is estimated based on fair market value. At March 31, 2007
      and December 31, 2006, there were 104,633 shares available for future issuance
      under the 1999 ESPP.




**5.**  **STOCK
      REPURCHASE PROGRAM**




In
      August
      2006, the Board of Directors amended the Company’s existing stock repurchase
      program to authorize the repurchase of an aggregate of 4.0 million shares over
      an indefinite period, including approximately 1.7 million shares previously
      repurchased under the program. During the three months ended March 31, 2007,
      the
      Company repurchased 119,100 shares under this program for approximately
      $523,000, at an average repurchase price of approximately $4.39 per share.
      There
      were no shares repurchased under this program during the three months ended
      March 31, 2006. As of March 31, 2007, the Company had repurchased approximately
      2.1 million shares for an aggregate repurchase price of approximately $5.5
      million.




9


**6.**  **ACQUISITIONS**




Each
      of
      the following described acquisitions was accounted for as a business combination
      in accordance with SFAS No. 141, *Business
      Combinations* .
      Accordingly, the results of operations related to the acquired assets have
      been
      included in the accompanying consolidated financial statements from their
      respective acquisition date.





Effective
      March 1, 2006, Microtek acquired KMMS Holdings, Ltd. and its European
      manufacturing and distribution operations (collectively, “Samco”) for
      approximately $2.3 million in cash, including acquisition costs. The purchase
      price allocation was finalized during the quarter ended March 31, 2007, and
      based on estimated fair values, is as follows (in thousands):





Purchase
                consideration in cash
            
            
            
            
            $
            2,256Allocated
                to:Accounts
                receivable
            
            $
            347Inventories
            
            
            787Property
                and equipment
            
            
            273Identifiable
                intangible assets
            
            
            739Accounts
                payable and other accrued liabilities
            
            
            (628
            )Total
                allocation
            
            
            
            
            
            1,518Goodwill
            
            
            
            
            $
            738





Identifiable
      intangible assets related to the Samco acquisition include customer lists of
      approximately $429,000 (useful life of approximately nine years), a non-compete
      agreement of $155,000 (useful life of five years), trade name of $52,000 (useful
      life of 15 years) and other intangible assets of approximately $103,000 (useful
      life of five years).





Effective
      July 1, 2006, Microtek acquired substantially all of the assets of Ceres
      Medical, LLC (Ceres Medical), a marketer of a small line of products sold
      primarily to cardiology and interventional radiology specialties. Based on
      estimated fair values, the purchase price of approximately $492,000 in cash,
      including certain acquisition costs, has been preliminarily allocated to the
      assets acquired and liabilities assumed as follows (in thousands):





Purchase
                consideration in cash
            
            
            
            
            $
            492Allocated
                to:Accounts
                receivable
            
            $
            46Inventories
            
            
            46Property
                and equipment
            
            
            6Identifiable
                intangible assets
            
            
            176Accounts
                payable and other accrued liabilities
            
            
            (47
            )Total
                allocation
            
            
            
            
            
            227Goodwill
            
            
            
            
            $
            265





Identifiable
      intangible assets related to the Ceres Medical acquisition include customer
      lists of $72,000 (useful life of five years) and a non-compete agreement for
      $104,000 (useful life of five years). The terms of the related purchase
      agreement also provide for additional cash consideration up to $550,000 if
      future contribution margins from the acquired product line exceed certain
      levels, as defined in the agreement, through 2011. The additional consideration
      will be recorded when it is determinable that the payment of such amounts is
      probable and is expected to result in additional goodwill.





Microtek
      acquired all of the stock of Europlak, a surgeon-owned marketer of minimally
      invasive surgical products and devices primarily in urology, gastroenterology
      and related surgical specialties, and all of the stock of Eurobiopsy, a company
      focused on the design, development, manufacture and commercialization of a
      line
      of endoscope biopsy forceps, on October 2, 2006 and December 15, 2006,
      respectively. Both of these companies are located in France and currently
      generate substantially all of their revenues from French customers. The combined
      purchase price of approximately $7.0 million in cash, including certain
      acquisition costs, is expected to be allocated to the assets acquired and
      liabilities assumed, primarily accounts receivable, inventories, identifiable
      intangibles, accounts payable, other accrued liabilities and notes payable,
      based on the respective estimated fair values of those assets and liabilities,
      with the excess allocated to goodwill. The terms of the Europlak agreement
      also
      provide for additional cash consideration up to approximately $12.4 million
      through 2021 if certain revenue hurdles, as defined in the agreement, are
      achieved. The additional consideration will be recorded when it is determinable
      that the payment of such amounts is probable and is expected to result in
      additional goodwill.





10


The
      Company is currently evaluating the fair value of the assets acquired in the
      Ceres Medical, Europlak and Eurobiopsy acquisitions, principally other
      identifiable intangible assets and goodwill. The preliminary allocations of
      the
      total purchase price for each of these acquisitions are subject to revision
      in
      2007 based on the final determination of these fair values.





The
      following unaudited pro forma financial information for the three months ended
      March 31, 2007 and 2006 reflect the Company’s results of operations as if these
      acquisitions had been completed on January 1, 2006 (in thousands, except per
      share data):





**Three
                months ended March 31****2007**
            
            **2006**Net
                revenues
            
            $
            37,176
            
            $
            36,099Net
                income
            
            $
            2,086
            
            $
            2,386Net
                income per share - basic and diluted
            
            $
            0.05
            
            $
            0.05





The
      pro
      forma financial information above is based on estimates and assumptions which
      management believes are reasonable. However, the pro forma results are not
      necessarily indicative of the operating results that would have occurred if
      the
      Ceres Medical, Europlak and Eurobiopsy acquisitions had been consummated as
      of
      the dates indicated, nor are they necessarily indicative of future operating
      results.





**7.**  **LICENSE
      AGREEMENT**





In
      September 2004, the Company entered into an agreement (the “License Agreement”)
      which grants to Eastern Technologies, Inc. (“ETI”) a worldwide exclusive license
      to manufacture, use and sell the Company’s OREX materials and processing
      technology in the nuclear industry and homeland security industry, and for
      certain other industrial applications. Under the terms of the License Agreement,
      the Company will receive license royalties equal to $75,000 per quarter for
      the
      first three years of the agreement. Thereafter and generally until the
      expiration of the underlying patents related to the products or services
      generating the subject royalties, the Company will receive license royalties
      equal to the greater of: (i) generally 5% of net sales, as defined in the
      agreement, or (ii) $300,000 per year. The royalty rate is subject to downward
      adjustment in certain events with respect to net sales of certain products.
      The
      Company also entered into an exclusive three-year supply agreement (the “Supply
      Agreement”) under which the Company agreed to provide certain sourcing and
      supply chain management services to ETI, and ETI agreed to purchase a total
      of
      approximately $4.8 million of inventory over the term of the Supply Agreement.
      For these services, the Company will receive management fees totaling $2.7
      million, $600,000 of which was received at the signing of the Supply Agreement
      and the remainder of which are payable in quarterly installments of $175,000
      beginning December 31, 2004 and continuing until September 30, 2007. The cash
      payment of $600,000 was recorded as deferred revenue (included in accrued
      expenses, a current liability) upon receipt. This amount, together with all
      future management fees collected from ETI, was recognized into income ratably
      over the term of the Supply Agreement as nuclear finished goods inventories
      on
      hand were sold to ETI. At March, 31, 2007, the nuclear finished goods
      inventories were fully depleted, and the Company had fulfilled all of its
      responsibilities to ETI under the Supply Agreement. At March 31, 2007 and
      December 31, 2006, amounts recognized into income exceeded cash receipts from
      ETI by approximately $350,000 and $294,000, respectively, which amounts were
      recorded in the accompanying
      unaudited condensed consolidated balance sheet in
      prepaid expenses and other current assets.





11


**8.**  **SALE
      OF INVENTORIES TO RELATED PARTY**





In
      September 2004, the Company entered into an agreement with Global Resources
      International, Inc. (“GRI”), a related party as described in Note 9 below, for
      the sale of certain of its raw material inventories used in the manufacture
      of
      finished goods for sale to the nuclear industry. At closing, the Company
      received cash proceeds of $200,000 and a promissory note in the amount of $1.051
      million. The promissory note, including interest at 5%, was repaid ratably
      as
      the raw material inventories purchased by GRI in the transaction were consumed
      by GRI. The final note payment was received in August 2006. The total gain
      on
      the sale of these raw material inventories approximated $467,000. Of this total
      gain, approximately $91,000, an amount commensurate with the Company’s relative
      ownership interest in GRI, was deferred and recognized into income as the raw
      material inventories purchased by GRI in the transaction were sold by GRI.
      All
      of the deferred gain on this transaction was fully recognized into income during
      the third quarter of 2006.





**9.**  **INVESTMENT
      IN AFFILIATED COMPANY**





In
      May
      2000, the Company and certain of its affiliates and employees organized GRI.
      From its manufacturing facilities located in China, GRI provides certain
      material sourcing and manufacturing of various Microtek’s products where such
      supply arrangements are advantageous to Microtek based on favorable pricing
      and
      other considerations. The Company and a non-executive member of the Company’s
      management own 19.5 percent and 30 percent, respectively, of GRI. Accordingly,
      the Company accounts for its investment in GRI under the equity method. The
      Company’s investment in GRI was approximately $783,000 and $751,000 at March 31,
      2007 and December 31, 2006, respectively. During the three months ended March
      31, 2007 and 2006, the Company recorded income of $32,000 and $33,000,
      respectively, related to this investment.





**10.** **INVENTORIES**





Inventories
      are stated at the lower of cost or market. The first-in first-out (“FIFO”)
      valuation method is used to determine the cost of inventories. Cost includes
      material, labor and manufacturing overhead for manufactured and assembled goods
      and materials only for goods purchased for resale. Inventories are summarized
      by
      major classification at March 31, 2007 and December 31, 2006 as follows (in
      thousands):





**March
                31, 2007**
            
            **December
                31, 2006**Raw
                materials
            
            $
            14,995
            
            $
            13,317Work-in-progress
            
            
            1,890
            
            
            1,397Finished
                goods
            
            
            20,851
            
            
            20,940Total
                inventories
            
            $
            37,736
            
            $
            35,654





**11.**  **LONG-TERM
      DEBT**





*The
      Credit Agreement.* The
      Company maintains a credit agreement with a Bank (the “Credit Agreement”). As
      amended to date, the Credit Agreement provides for a $23.5 million revolving
      credit facility, which matures on June 30, 2008. Borrowing availability under
      the revolving credit facility is based on the lesser of (i) a percentage of
      eligible accounts receivable and inventory or (ii) $23.5 million, less any
      outstanding letters of credit issued under the Credit Agreement. Revolving
      credit borrowings bear interest at a floating rate approximating the Bank’s
      prime rate plus an interest margin (8.5% at March 31, 2007). Borrowing
      availability under the revolving facility at March 31, 2007 and December 31,
      2006 totaled $17.5 million and $17.4 million, respectively. Outstanding
      borrowings under the revolving credit facility totaled $1.2 million at March
      31,
      2007. There were no outstanding borrowings under the revolving credit facility
      as of December 31, 2006. Borrowings under the Credit Agreement are
      collateralized by the Company’s accounts receivable, inventory, equipment, the
      Company’s stock of its subsidiaries and certain of the Company’s plants and
      offices.





12


The
      Credit Agreement contains certain restrictive covenants, including the
      maintenance of certain financial ratios, and places limitations on acquisitions,
      dispositions, capital expenditures and additional indebtedness. In addition,
      the
      Company is not permitted to pay any dividends. At
      March
      31, 2007 and December 31, 2006, the Company was in compliance with its financial
      covenants under the Credit Agreement.





The
      Credit Agreement provides for the issuance of up to $1.0 million in letters
      of
      credit. There were no outstanding letters of credit at March 31, 2007 or
      December 31, 2006. The Credit Agreement also provides for a fee of 0.3% per
      annum on the unused commitment, an annual collateral monitoring fee of $35,000
      and an outstanding letter of credit fee of 2.0% per annum.





*Other
      Long-Term Debt.* The
      Company is obligated under a long-term lease arrangement which totaled $15,000
      and $19,000 at March 31, 2007 and December 31, 2006, respectively. In addition,
      as a result of the Company’s Europlak and Eurobiopsy acquisitions in October and
      December 2006, respectively, the Company assumed two notes payable to banks
      with
      amounts outstanding at March 31, 2007 of approximately $817,000 and $28,000,
      respectively, and $836,000 and $39,000, respectively, at December 31, 2006.
      The
      first of these notes payable bears interest at 4.25 percent and is payable
      in
      monthly installments of principal and interest through March 2013. The second
      note payable arrangement bears interest at a floating rate (approximately 5.1
      percent at March 31, 2007) and matures in November 2007.





The
      carrying value of long-term debt at March 31, 2007 and December 31, 2006
      approximates fair value based on interest rates that are believed to be
      available to the Company for debt with similar prepayment provisions provided
      for in the existing debt agreements.





**12.** **EARNINGS
      PER SHARE**




Earnings
      per share is calculated in accordance with SFAS No. 128, *Earnings
      Per Share* ,
      which
      requires dual presentation of basic and diluted earnings per share on the face
      of the income statement for entities with complex capital structures. Basic
      per
      share income is computed using the weighted average number of common shares
      outstanding for the period. Diluted per share income is computed including
      the
      dilutive effect of all contingently issuable shares. Dilutive potential common shares are calculated
      in
      accordance with the treasury stock method, which assumes that proceeds from
      the
      exercise of all options are used to repurchase common shares at market value.
      The number of shares remaining after the exercise proceeds are exhausted
      represents the potentially dilutive effect of the options. The following table
      reflects the weighted average number of shares used to calculate basic and
      diluted earnings per share for the periods presented (in
      thousands):





**Three
                months ended**
              **March
                31,****2007**
            
            **2006**Basic
                Shares
            
            
            43,398
            
            
            43,672Dilutive
                Shares (due to stock options)
            
            
            1,301
            
            
            977Diluted
                Shares
            
            
            44,699
            
            
            44,649





For
      the
      three months ended March 31, 2007, options to purchase 690,500 shares were
      not
      included in the computation of diluted net income per share because the exercise
      price of the options was greater than the average market price of the common
      shares, and therefore, the effect would be antidilutive. For the three months
      ended March 31, 2006, there were 1,859,000 antidilutive shares.





**13.** **GEOGRAPHIC
          CONCENTRATIONS**




A
      significant portion of the Company’s products are manufactured at its facilities
      in the Dominican Republic, Mexico, the Netherlands, Malta, France or at GRI’s
      facilities in China. Included in the Company’s consolidated balance sheet at
      March 31, 2007 and December 31, 2006 are the net assets of the Company’s sales,
      manufacturing and distribution facilities located in the United Kingdom and
      the
      Dominican Republic which totaled $19.9 million and $17.5 million, respectively.
      Additionally, at March 31, 2007 and December 31, 2006, the net assets of the
      Company’s sales, manufacturing and distribution operations in the Netherlands,
      Malta, Germany and France totaled $29.8 million and $28.4 million, respectively.
      The Company’s Dominican Republic and Mexico facilities are engaged in
      manufacturing operations only and do not sell products to external customers.




13


Total
      international sales by the Company were $10.6 million for the three months
      ended
      March 31, 2007, and $8.8 million for the three months ended March 31, 2006.




The
      Company’s operations are subject to various political, economic and other risks
      and uncertainties inherent in the countries in which the Company operates.
      Among
      other risks, the Company’s operations are subject to the risks of restrictions
      on transfer of funds; export duties, quotas, and embargoes; domestic and
      international customs and tariffs; changing taxation policies; foreign exchange
      restrictions; and political conditions and governmental
      regulations.




**14.** **COMMITMENTS
      AND CONTINGENCIES**





The
      Company is involved in routine litigation and proceedings in the ordinary course
      of business. Management believes that pending litigation matters will not have
      a
      material adverse effect on the Company’s consolidated financial position or
      results of operations.





**Item
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations**





**General**





The
      Company conducts substantially all of its operations through its subsidiary,
      Microtek Medical, Inc. (“Microtek”). OREX Technologies International (“OTI”), a
      division of the Company, was previously focused on the commercialization of
      the
      Company's OREX degradable products and disposal technologies to the nuclear
      power generating industry until this business was licensed to a third party
      in
      September 2004.





Microtek,
      a market leading healthcare company within its area of focus, manufactures
      and
      sells infection control products, fluid control products, safety products and
      other surgical products to healthcare professionals for use in environments
      such
      as operating rooms and ambulatory surgical centers. Traditionally a category
      leader in disposable equipment drapes, specialty patient drapes and fluid
      control drapes, Microtek offers a diverse product line which has been designed
      to improve patient care and to address risk reduction and cross contamination
      concerns for virtually every medical specialty in a healthcare facility, from
      interventional radiology, cardiology and angiography to orthopedics, neurology,
      OB/GYN, urology and other clinical environments. Additionally, Microtek is
      also
      a prominent contract manufacturer for some of the most technologically advanced
      healthcare equipment companies in the world.





Microtek
      has established a broad product selling system through multiple channels
      including distributors, directly through its own sales force, original equipment
      manufacturers, and private label customers. Additionally, Microtek has a strong
      presence as a branded component supplier to custom procedure tray companies.





Through
      its acquisition of certain businesses of International Medical Products, B.V.
      and affiliates (collectively, “IMP”) on May 28, 2004, Microtek added to its
      operations the development, manufacture, marketing and distribution in Europe
      of
      high quality dip-molded medical devices (primarily ultrasound probe covers),
      other equipment covers, cardiac thoracic drain systems, gynecological devices
      and wound care products. Microtek’s acquisition in March 2006 of the European
      manufacturing and distribution operations of Samco added additional European
      manufacturing capacity, primarily in Malta, and an expanded sales presence
      in
      Germany. In July 2006, Microtek acquired substantially all of the assets of
      Ceres Medical, a marketer of a small line of products sold primarily to
      cardiology and interventional radiology specialties within the U.S. In October
      2006, Microtek acquired all of the stock of Europlak, a marketer of minimally
      invasive surgical products and devices primarily to urology, gastroenterology
      and related surgical specialties. In December 2006, Microtek acquired all of
      the
      stock of Eurobiopsy, a company focused on the design, development, manufacture
      and commercialization of a line of endoscope biopsy forceps.





14


In
      September 2004, the Company entered into an agreement (the “License Agreement”)
      with Eastern Technologies, Inc. (“ETI”) which grants to ETI a worldwide
      exclusive license to manufacture, use and sell the Company’s OREX materials and
      processing technology in the nuclear industry and the homeland security industry
      and for certain other industrial applications. Concurrent with the signing
      of
      the License Agreement, the Company also entered into an exclusive three-year
      supply agreement (the “Supply Agreement”) under which the Company has agreed to
      provide certain sourcing and supply chain management services and to sell a
      total of approximately $4.8 million of inventory to ETI over the term of the
      Supply Agreement. The Company’s responsibilities to ETI under the Supply
      Agreement were fulfilled during the first quarter of 2007. Except for activities
      under the License Agreement, the Company is not actively engaged in any business
      development efforts associated with the Company’s OREX products and processing
      technologies.





The
      Company provides healthcare professionals with innovative product solutions
      that
      encompass a high level of patient care and prevention of cross infection. The
      Company intends to maintain this business by continually improving its existing
      capabilities and simultaneously developing and acquiring new business
      opportunities while maintaining its customer focus and providing the highest
      levels of customer support. The Company seeks to increase sales and earnings
      from its infection control business by completing strategic acquisitions,
      enhancing marketing and distribution efforts both domestically and
      internationally, introducing new products, increasing direct sales
      representation, employing tele-sales agents for added sales coverage, and
      capitalizing on low-cost manufacturing opportunities in the Dominican Republic,
      Malta and China.





**Results
      of Operations**





The
      following tables set forth certain unaudited income statement data, including
      amounts expressed as a percentage of net revenues, for the three months ended
      March 31, 2007 and 2006 (in thousands):





**Three
                months ended**
              **March
                31, 2007**
            
            **Three
                months ended**
              **March
                31, 2006****Amount
                ($)**
            
            **%
                of Net Revenues**
            
            **Amount
                ($)**
            
            **%
                of Net Revenues**Net
                revenues
            
            $
            37,176
            
            
            100.0
            %
            $
            33,683
            
            
            100.0
            %Gross
                profit
            
            
            15,492
            
            
            41.7
            %
            
            13,638
            
            
            40.5
            %Operating
                expenses
            
            
            12,816
            
            
            34.5
            %
            
            10,315
            
            
            30.6
            %Income
                from operations
            
            
            2,676
            
            
            7.2
            %
            
            3,323
            
            
            9.9
            %Net
                income
            
            
            2,086
            
            
            5.6
            %
            
            2,250
            
            
            6.7
            %





**Three
      Months Ended March 31, 2007 Compared to Three Months Ended March 31,
      2006**





**Net
      Revenues.** Consolidated net revenues for the three months ended March 31, 2007 (the “2007
      Quarter”) of $37.2 million increased by approximately $3.5 million, or 10.4
      percent, over consolidated net revenues of $33.7 million reported for the three
      months ended March 31, 2006 (the “2006 Quarter”).





For
      the
      2007 Quarter, Microtek’s net revenues totaled $36.6 million, an increase of $3.2
      million, or 9.4 percent, over net revenues of $33.4 million reported in the
      2006
      Quarter.





The
      following tables depict Microtek’s domestic and international revenues and the
      relative percentage of each to Microtek’s total revenues for the 2007 Quarter
      and 2006 Quarter (in millions):





**Three
                months ended**
              **March
                31, 2007**
            
            **Three
                months ended**
              **March
                31, 2006********Amount**
            
            ******%
                of Total**
            
            ******Amount**
            
            ******%
                of Total**Domestic
            
            $
            26.0
            
            
            71.2
            %
            $
            24.6
            
            
            73.7
            %International
            
            
            10.6
            
            
            28.8
            %
            
            8.8
            
            
            26.3
            %Total
            
            $
            36.6
            
            
            100.0
            %
            $
            33.4
            
            
            100.0
            %





15


Microtek’s
      domestic revenues are generated through two primary channels or customer
      categories: domestic branded and contract manufacturing (commonly referred
      to as
      OEM). Domestic branded revenues were 68.6 percent and OEM revenues were 31.4
      percent of total domestic revenues in the 2007 Quarter, as compared to 64.6
      percent and 35.4 percent, respectively, in the 2006 Quarter. Included in the
      Company’s OEM revenues are sales of products to “non-branded” or private label
      customers.





Domestic
      branded revenues in the 2007 Quarter increased by $1.9 million, or 12.2 percent,
      as compared to the 2006 Quarter. This increase is primarily the result of a
      $1.0
      million, or 11.7 percent, increase in specialty product revenues (which includes
      Microtek’s CleanOp product sales and its specialty procedure patient drapes) and
      an increase of approximately $700 thousand, or 9.9 percent, in the Company’s
      core equipment draping revenues in the 2007 Quarter. Additionally, the Company’s
      surgical product offerings in orthopedics and cardiology (primarily as a result
      of the Ceres acquisition) increased by approximately $200 thousand. For the
      2007
      Quarter, OEM revenues decreased by $544 thousand, or 6.2 percent, primarily
      as a
      result of lower contract manufacturing and woundcare revenues, as compared
      to
      the 2006 Quarter. OEM revenues can be volatile as they are heavily dependent
      on
      the buying patterns of the Company’s OEM partners. Overall, Microtek’s total
      domestic revenues in the 2007 Quarter increased by approximately $1.4 million,
      or 5.7 percent, from the 2006 Quarter.





Microtek’s
      international net revenues for the 2007 Quarter increased by approximately $1.8
      million, or 20.1 percent, over the 2006 Quarter, primarily as a result of
      approximately $1.6 million in increased revenues attributable to the March
      2006
      acquisition of Samco and the acquisition of Europlak and Eurobiopsy in October
      2006 and December 2006, respectively, and an increase in revenues of
      approximately $200 thousand in the Company’s businesses based in the United
      Kingdom, the Netherlands and the rest of the world.





OTI’s
      net
      revenues, consisting primarily of sales of finished goods inventories to ETI
      and
      royalties under the license agreement of $75 thousand per quarter, totaled
      $626
      thousand and $287 thousand in the 2007 Quarter and 2006 Quarter, respectively.
      As of March 31, 2007, the Company’s OTI finished goods inventories have been
      fully depleted. Pursuant to the Company’s September 2004 licensing agreement
      with ETI, the Company expects that OTI division revenues in the second and
      third
      quarter of 2007 will consist of license royalties totaling $75 thousand per
      quarter, and thereafter will include license royalties equal to the greater
      of:
      (i) generally 5% of ETI’s net sales, as defined in the agreement, or (ii)
      $300,000 per year.





**Gross
      Margin.** The
      Company’s gross profit was $15.5 million, or 41.7 percent of net revenues, in
      the 2007 Quarter, as compared to $13.6 million, or 40.5 percent of net revenues,
      for the 2006 Quarter. The Company attributes the improvement in its gross
      margins in the 2007 Quarter to leverage from additional sales volume, favorable
      changes in the Company’s sales mix, particularly the increase in the Company’s
      higher margin domestic branded revenues, contribution from certain higher margin
      international product lines acquired in 2006 and recent manufacturing cost
      initiatives.




**Operating
      Expenses.** Operating expenses for the 2007 Quarter of $12.8 million represented 34.5
      percent of net revenues, as compared to operating expenses of $10.3 million,
      or
      30.6 percent of net revenues, in the 2006 Quarter.





Selling,
      general and administrative (“SG&A”) expenses in the 2007 Quarter were $12.1
      million, as compared to $10.0 million in the 2006 Quarter. As a percentage
      of
      net revenues, the Company’s SG&A expenses were 32.6 percent in the 2007
      Quarter and 29.6 percent in the 2006 Quarter.





For
      the
      2007 Quarter, domestic SG&A expenses increased $1.1 million as a result of a
      $470 thousand increase in sales and marketing expenses (primarily salaries
      and
      benefits, direct hiring and training expenses for new sales personnel, sales
      fees and travel and related expenses), a $151 thousand increase in distribution
      expenses (primarily variable distribution freight) and a $440 thousand increase
      in general and administrative expenses (primarily general and administrative
      salaries and benefits and professional fees).





For
      the
      2007 Quarter, SG&A expenses of the Company’s Netherlands, Malta, Germany and
      France operations increased approximately $1.1 million, primarily as a result
      of
      approximately $812 thousand in SG&A expenses related to Europlak and
      Eurobiopsy businesses which were acquired in October 2006 and December 2006,
      respectively, approximately $229 thousand in incremental SG&A expenses
      related to the Samco acquisition which was completed in March 2006, and
      additional investments in the Company’s sales, marketing and administrative
      infrastructure in the Netherlands.





16


Research
      and development expenses of $392 thousand for the 2007 Quarter increased from
      $144 thousand in the 2006 Quarter primarily as a result of the Company’s
      research and development activities related to the Europlak and Eurobiopsy
      businesses acquired in the fourth quarter of 2006 and to Microtek’s ongoing
      research and development efforts which center on new product development, as
      well as product enhancements and product line extensions.





Amortization
      of intangibles in the 2007 Quarter and 2006 Quarter was $307 thousand and $214
      thousand, respectively. The increase in amortization expense is associated
      primarily with intangibles acquired in the Samco, Ceres Medical, Europlak and
      Eurobiopsy transactions completed in 2006.





**Income
      from Operations.** Income
      from operations for the 2007 Quarter was $2.7 million, or 7.2 percent of net
      revenues, versus $3.3 million, or 9.9 percent of net revenues, in the 2006
      Quarter.





**Interest
      Expense and Interest Income.** Interest
      expense for the 2007 Quarter of $16 thousand increased from $11 thousand in
      the
      2006 Quarter as a result of higher average borrowings under the Company’s Credit
      Agreement. Interest income of $111 thousand in the 2007 Quarter increased from
      $94 thousand in the 2006 Quarter primarily as a result of higher interest rates
      applicable to the Company’s cash and cash equivalents and higher average cash
      and cash equivalent balances.





**Other
      Income/Expense, Net.** Other
      income and expense include the Company’s equity in earnings of its investee,
      GRI, and foreign currency exchange gains and losses resulting from the
      translation of certain intercompany transactions of the Company’s Netherlands
      subsidiaries which are denominated in a currency other than the functional
      currency of those subsidiaries. The Company recorded foreign currency exchange
      gains of approximately $95 thousand in the 2007 Quarter. There were no such
      foreign currency exchange gains or losses recorded in the 2006 Quarter. In
      the
      2007 Quarter and the 2006 Quarter, the Company’s equity in earnings of its
      investee, GRI, were $32 thousand and $33 thousand, respectively.





**Income
      Taxes.** The
      Company’s provision for income taxes in the 2007 Quarter and 2006 Quarter
      reflects income tax expense of $812 thousand and $1.2 million, respectively,
      consisting of current and deferred Federal, state and foreign income tax
      expense. The Company’s effective tax rate declined during the 2007 Quarter to
      approximately 28 percent of the Company’s income before income taxes as a result
      of changes in mix of the Company’s earnings and losses in foreign tax
      jurisdictions when compared to the 2006 Quarter.





**Net
      Income.** The
      resulting net income for the 2007 Quarter and 2006 Quarter was $2.1 million,
      or
      $0.05 per diluted share, and $2.3 million, or $0.05 per diluted share,
      respectively.





**Liquidity
      and Capital Resources**





As
      of
      March 31, 2007 and December 31, 2006, the Company’s cash and cash equivalents
      totaled $15.3 million and $17.1 million, respectively. The Company’s cash flow
      activity in the 2007 Quarter and 2006 Quarter was as follows (in
      thousands):





**Three
                months ended**
              **March
                31****2007**
            
            **2006**Cash
                provided by operating activities
            
            $
            1,791
            
            $
            4,353Cash
                used in investing activities
            
            
            (650
            )
            
            (2,541
            )Cash
                used in financing activities
            
            
            (2,711
            )
            
            (1,962
            )





The
      Company’s principal sources of liquidity have been net cash from operating
      activities and borrowings under the Company’s Credit Agreement. The Company’s
      liquidity requirements arise primarily from the funding of the Company’s working
      capital needs, obligations incurred in connection with acquisitions of
      businesses and capital investment in property and equipment.





During
      the 2007 Quarter, the Company’s operating activities generated cash of
      approximately $1.8 million as a result of net income from operations, net of
      deferred income taxes, depreciation and amortization, of $3.6 million and a
      $3.4
      million increase in accounts payable, offset by other working capital management
      requirements, including an increase in receivables and inventory of $1.5 million
      and $2.0 million, respectively, an increase in other current and long term
      assets of $400 thousand, and a decrease in accrued expenses and other
      liabilities of $1.3 million (principally a decrease in accrued compensation
      of
      $1.1 million). The Company’s receivables and inventory have increased as a
      result of the Company’s expanding operations and, with respect to inventories,
      the impact of certain purchasing strategies to ensure a continuous supply of
      certain inventory items as the Company seeks to transfer additional
      manufacturing processes offshore to the Dominican Republic and to China.





17


During
      the 2006 Quarter, the Company’s operating activities generated cash of
      approximately $4.4 million and consisted primarily of net income from
      operations, net of deferred income taxes, depreciation and amortization, of
      $4.0
      million, a $963 thousand decrease in accounts receivable, a decrease in other
      current and long-term assets of $361 thousand, an increase in accounts payable
      of $2.3 million, and an increase in accrued liabilities of $562 thousand.
      Offsetting these sources of cash in the 2006 Quarter was an increase in
      inventories of $3.6 million and a decrease in other liabilities of $207
      thousand.





Cash
      used
      in investing activities in the 2007 Quarter totaled $650 thousand as a result
      of
      additional cash consideration of $96 thousand and $106 thousand paid with
      respect to the Europlak and Eurobiopsy acquisitions, respectively, and purchases
      of capital property and equipment of $448 thousand. Investing activities in
      the
      2006 Quarter of $2.5 million included cash consideration of approximately $2.1
      million for the Samco acquisition and purchases of capital property and
      equipment of $470 thousand.




During
      the 2007 Quarter, financing activities used approximately $2.7 million in cash.
      Financing cash outflows in the 2007 Quarter included a decrease in the Company’s
      bank overdraft of approximately $4.2 million, repayments of long-term debt
      obligations of $44 thousand, and repurchases of treasury stock of $523 thousand.
      Financing cash inflows included borrowing under the Company’s Credit Agreement
      of $1.2 million and proceeds from the exercise of stock options and other stock
      issuances of $884 thousand. Cash used in financing activities for the 2006
      Quarter of $2.0 million included net repayments of borrowings under the
      Company’s Credit Agreement of $1.2 million, repayments of other long-term debt
      agreements of $123 thousand and a decrease in the Company’s bank overdraft of
      approximately $981 thousand, offset by $373 thousand from the exercise of stock
      options and other stock issuances.





The
      Company maintains a $23.5 million credit agreement (as amended to date, the
      “Credit Agreement”) with the JP Morgan Chase Bank (the “Bank”), consisting of a
      revolving credit facility maturing on June 30, 2008. Borrowing availability
      under the revolving credit facility is based on the lesser of (i) a percentage
      of eligible accounts receivable and inventories or (ii) $23.5 million, less
      any
      outstanding letters of credit issued under the Credit Agreement. Outstanding
      borrowings under the revolving credit facility totaled $1.2 million at March
      31,
      2007. There were no outstanding borrowings under the revolving credit facility
      at December 31, 2006. As of March 31, 2007, the Company had total borrowing
      availability under the revolving facility of $17.5 million. As of May 4, 2007,
      the Company had a total borrowing availability of approximately $18.4 million
      and outstanding borrowings under the facility of $1.2 million. Revolving credit
      borrowings bear interest at a floating rate approximating the Bank’s prime rate
      plus an interest margin (8.5% at May 4, 2007). At March 31, 2007, the Company
      was in compliance with its financial covenants under the Credit
      Agreement.





Based
      on
      its current business plan, the Company expects that cash and cash equivalents
      on
      hand, the Company’s credit facility, as amended, and funds budgeted to be
      generated from operations will be adequate to meet its liquidity and capital
      requirements for the next year. However, currently unforeseen future
      developments, potential acquisitions and increased working capital requirements
      may require additional debt financing or issuance of common stock in 2007 and
      subsequent years.





**Off-Balance
      Sheet Arrangements**





The
      Company does not have any off-balance sheets arrangements that have or are
      reasonably likely to have a current or future effect on the Company’s financial
      condition, changes in financial condition, revenues or expenses, results of
      operations, liquidity, capital expenditures or capital resources that are
      material to investors.





**Inflation**





Inflation
      has not had a material effect on the Company’s operations in the past. Recently,
      rising petroleum prices have increased the Company’s costs of raw materials and
      distribution expenses included in the Company’s selling, general and
      administrative expenses. The Company has not yet passed these increased costs
      to
      its customers by increasing prices and may not be able to do so due to
      competitive pricing pressures. The Company seeks to offset these increased
      costs
      in part through cost savings measures in other areas.





18


**Recent
      Accounting Pronouncements**





**Accounting
      for Uncertainty in Income Taxes.** In June
      2006, the FASB issued Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes - An interpretation of FASB Statement No.
      109* (“FIN
      48”) which clarifies the accounting and disclosure requirements for uncertainty
      in tax positions, as defined. The Company’s adoption of the provisions of FIN 48
      on January 1, 2007 had no impact on the Company’s consolidated financial
      statements. The Company examined its tax positions for all open tax years
      through December 31, 2006 and the full benefit of each tax position has been
      recognized in the financial statements in accordance with FIN 48. On any future
      tax positions, the Company intends to record interest and penalties, if any,
      as
      a component of interest expense and general and administrative expenses,
      respectively. The Company’s tax years are open for U.S. Federal purposes from
      2003 through 2006. Certain U.S. state tax years remain open for 2002 and 2006
      filings. International statutes vary widely and the open years range from 2003
      through 2006. Taxing authorities have the ability to review prior tax years
      to
      the extent of net operating loss and tax credit carryforwards to open tax
      years.





**Employer’s
      Accounting for Defined Benefit Pension and Other Postretirement Plans.** In
      September 2006, the FASB issued SFAS No. 158, *Employer’s Accounting for Defined Benefit Pension and Other Postretirement
      Plans- an amendment of FASB Statements No. 87, 88, 106, and 132(R)* (“SFAS
      No. 158”). SFAS No. 158 requires companies to recognize the funded status of
      defined benefit pension and other postretirement plans as a net asset or
      liability in its statement of financial position and to recognize changes in
      that funded status in the year in which the changes occur through comprehensive
      income to the extent that those changes are not included in the net periodic
      cost. The funded status of a defined benefit pension plan is measured as the
      difference between the fair value of plan assets and the projected benefit
      obligation under the plan. Additionally, SFAS No. 158 requires companies to
      measure the funded status of a plan as of the company’s fiscal year-end, with
      limited exceptions, and expands financial statement disclosures. The Company
      adopted all requirements of SFAS No. 158 with respect to its international
      defined benefit pension plan as of December 31, 2006, except for the funded
      status measurement date requirement which will be adopted on December 31, 2008,
      as allowed under SFAS No. 158.




**Fair
      Value Measurement.** In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurement* (“SFAS
      No. 157”). SFAS No. 157 defines fair value, establishes a framework for the
      measurement of fair value, and enhances disclosures about fair value
      measurements but does not require any new fair value measures. SFAS No. 157
      is
      effective for fair value measure already required or permitted by other
      standards for fiscal years beginning after November 15, 2007. The Company is
      required to adopt SFAS No. 157 on January 1, 2008. SFAS No. 157 is required
      to
      be applied prospectively, except for certain financial instruments. Any
      transition adjustment will be recognized as an adjustment to opening retained
      earnings in the year of adoption. The Company is currently evaluating the impact
      of adopting SFAS No. 157 on its consolidated results of operations and financial
      position.





**Fair
      Value Option for Financial Assets and Financial Liabilities.** On
      February 15, 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities — Including an
      Amendment of FASB Statement No. 115* (“SFAS
      No. 159”). SFAS No. 159 permits an entity to irrevocably elect to report
      selected financial assets and liabilities at fair value, with subsequent changes
      in fair value reported in earnings. The election may be applied on an
      instrument-by-instrument basis. SFAS No. 159 also establishes additional
      presentation and disclosure requirements for items measured using the fair
      value
      option. SFAS No. 159 is effective for all financial statements issued for fiscal
      years beginning after November 15, 2007. The Company is currently
      evaluating the impact of adopting SFAS No. 159 on its consolidated results
      of
      operations and financial position.





**Forward
      Looking Statements**





Statements
      made in this Quarterly Report include forward-looking statements made under
      the
      provisions of the Private Securities Litigation Reform Act of 1995 including,
      but not limited to, the effect of newly issued accounting standards on the
      Company’s consolidated financial statements described in the notes to the
      unaudited condensed consolidated financial statements; the Company’s ability to
      grow its business by continually improving its existing capabilities and
      simultaneously developing and acquiring new business opportunities while
      maintaining its customer focus and providing the highest levels of customer
      support; the Company’s ability to increase sales and earnings from its infection
      control business by completing strategic acquisitions, enhancing marketing
      and
      distribution efforts both domestically and internationally, introducing new
      products, increasing direct sales representation, employing tele-sales agents
      for added sales coverage, and capitalizing on low-cost manufacturing
      opportunities in the Dominican Republic, Malta and China; the Company’s
      expectation about the composition and amount of revenues to be received by
      the
      Company’s OTI division; and the Company’s current expectation that cash and cash
      equivalents on hand, the Company’s existing credit facility and funds budgeted
      to be generated from operations will be adequate to meet its liquidity and
      capital requirements for the next year *.*





19


The
      Company’s actual results could differ materially from such forward-looking
      statements and such results will be affected by risks described in the Company’s
      Annual Report on Form 10-K for the year ended December 31, 2006, filed with
      the
      Securities and Exchange Commission. These risks include, without limitation,
      the
      following: low barriers to entry for competitive products could cause the
      Company to reduce the prices for its products or lose customers; large
      purchasers of the Company’s products regularly negotiate for reductions in
      prices for the Company’s products, which may reduce the Company’s profits;
      because a few distributors control much of the delivery of hospital supplies
      to
      hospitals, the Company relies significantly on these distributors in connection
      with the sale of the Company’s branded products; the Company’s relatively small
      sales and marketing force may place the Company at a competitive disadvantage
      to
      its competition; the Company’s contract manufacturing division relies upon a
      small number of customers, the loss of any of which could have a material
      adverse impact on the Company; the inability of the Company to complete
      acquisitions of businesses at an attractive cost could adversely affect the
      Company’s growth; if the Company is successful in acquiring businesses, the
      failure to successfully integrate those businesses could adversely affect the
      Company; the Company’s growing international operations subject the Company’s
      operating results to numerous additional risks; markets in which the Company
      competes are highly competitive, which may adversely affect the Company’s growth
      and operating results; the Company’s products are subject to extensive
      governmental regulations, compliance or non-compliance with which could
      adversely affect the Company; the Company’s strategies to protect its
      proprietary assets may be ineffective, allowing increased competition with
      the
      Company; fluctuations in the value of the dollar against foreign currencies
      have
      in the past and may in the future adversely affect the Company’s operating
      results; and the Company’s expenses for raw materials and product distribution
      are adversely affected by increases in the price for petroleum *.* The
      Company does not undertake to update its forward-looking statements to reflect
      future events or circumstances.





**Item
      3. Quantitative and Qualitative Disclosures about Market
      Risk**





The
      Company's operating results and cash flows are subject to fluctuations from
      changes in foreign currency exchange rates and interest rates.





The
      financial position and results of operations of the Company’s foreign
      subsidiaries in the United Kingdom, the Netherlands, Malta, Germany and France
      are measured using the foreign subsidiary’s local currency as the functional
      currency. Revenues and expenses of such subsidiaries are translated into U.S.
      dollars at average exchange rates prevailing during the period. Assets and
      liabilities are translated at the rates of exchange on the balance sheet date.
      The resulting translation gain and loss adjustments are recorded directly as
      a
      separate component of shareholders’ equity. Foreign currency translation
      adjustments, net of applicable taxes, resulted in gains of $157 thousand and
      $359 thousand for the three months ended March 31, 2007 and 2006, respectively.





Transaction
      gains and losses that arise from exchange rate fluctuations on transactions
      denominated in a currency other than the subsidiary’s functional currency are
      included in the results of operations as incurred. Included in the Company’s
      results of operations for three months ended March 31, 2007 were foreign
      currency exchange gains of approximately $95 thousand resulting from the
      translation of certain intercompany transactions of the Netherlands subsidiaries
      which are denominated in a currency other than the functional currency of those
      subsidiaries. There were no such foreign currency exchange gains or losses
      recorded for the three months ended March 31, 2006.





Currency
      translations and transactions that are billed and paid in foreign currencies
      could be adversely affected in the future by the relationship of the U.S. dollar
      and the functional currencies of the Company’s foreign subsidiaries with foreign
      currencies.





The
      Company is also subject to fluctuations in the value of the Dominican peso
      relative to the U.S. dollar. As the value of the Dominican peso increases with
      respect to the U.S. dollar, the costs of the Company’s inventory increase
      because the Company manufactures a material portion of its inventory at its
      facilities located in the Dominican Republic. The appreciation of the Dominican
      peso relative to the U.S. dollar in the future could adversely affect the
      Company’s operating results.





20


The
      Company’s cash and cash equivalents are short-term, highly liquid investments
      with original maturities of three months or less. As a result of the short-term
      nature of the Company’s cash and cash equivalents, a change of market interest
      rates does not materially impact interest income accruing on these investments
      or, consequently, the Company’s operating results or cash flow. The Company's
      greatest sensitivity with respect to the general level of U.S. interest rates
      relates to the effect that changes in those rates have on the Company's interest
      expense. At March 31, 2007, the Company had long-term debt totaling $1.2 million
      that bears interest at a floating rate approximating the Prime Rate. An increase
      or decrease in the Company's average interest rate of ten percent would have
      had
      an immaterial impact on the Company’s recorded interest expense during the three
      months ended March 31, 2007.





The
      Company does not use derivative instruments for trading purposes or to hedge
      its
      market risks, and the use of such instruments would be subject to strict
      approvals by the Company’s senior officers. Therefore, the Company’s exposure
      related to such derivative instruments is not expected to be material to the
      Company’s financial position, results of operations or cash flows.





**Item
      4. Controls and Procedures**





|(a)**** | *Evaluation
              of disclosure controls and procedures.*Under
              the supervision and with the participation of the Company’s management,
              including the Company’s President and Chief Executive Officer and its
              Chief Financial Officer, the Company carried out an evaluation (the
              “Evaluation”) of the effectiveness of the Company’s “disclosure controls
              and procedures” (as defined in the Securities Exchange Act of 1934 Rules
              13a-15(e) and 15d-15(e)). Based upon the Evaluation, the Company’s
              President and Chief Executive Officer and its Chief Financial Officer
              have
              concluded that the Company’s disclosure controls and procedures are
              effective at the reasonable assurance level as of the end of the quarter
              for which this report is being filed to ensure that (i) information
              required to be disclosed by the Company in reports that it files or
              submits under the Securities Exchange Act of 1934 is recorded, processed,
              summarized and reported within the time periods specified in the SEC’s
              rules and forms and (ii) such information is accumulated and communicated
              to the Company’s management, including the Company’s President and Chief
              Executive Officer and its Chief Financial Officer, as appropriate,
              to
              allow timely decisions regarding required
              disclosure.
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




The
      Company is committed to a continuing process of identifying, evaluating and
      implementing improvements to the effectiveness of the Company’s disclosure and
      internal controls and procedures. The Company’s management, including its
      President and Chief Executive Officer and its Chief Financial Officer, does
      not
      expect that the Company’s controls and procedures will prevent all errors. A
      control system, no matter how well conceived and operated, can provide only
      reasonable, not absolute, assurance that the objectives of the control system
      are met. Because of the inherent limitations in all control systems, no
      evaluation of controls can provide absolute assurance that all control issues
      within the Company have been detected. These inherent limitations include the
      realities that judgments in decision-making can be faulty and that breakdowns
      can occur because of a simple error or mistake. Additionally, controls can
      be
      circumvented by the individual acts of some persons, by collusion of two or
      more
      people, or by management override of the control. The design of any system
      of
      controls is also based in part upon certain assumptions about the likelihood
      of
      future events, and there can be no assurance that any design will succeed in
      achieving its stated goals under all potential future conditions. Over time,
      controls may become inadequate because of changes in conditions, or the degree
      of compliance with the policies or procedures may deteriorate. Because of the
      inherent limitations in any control system, misstatements due to error or
      violations of law may occur and not be detected. The Company has, however,
      designed its disclosure controls and procedures to provide, and believes that
      such controls and procedures do provide, reasonable assurance that information
      required to be disclosed by the Company in reports that it files or submits
      under the Securities Exchange Act of 1934 is recorded, processed, summarized
      and
      reported within the time periods specified in the SEC’s rules and forms. The
      disclosure in this paragraph about inherent limitations of control systems
      does
      not modify the conclusions set forth in the immediately preceding paragraph
      of
      the Company’s President and Chief Executive Officer and its Chief Financial
      Officer concerning the effectiveness of the Company’s disclosure controls and
      procedures.





21


|(b) | *Changes
              in internal controls.*There
              have not been any changes in the Company’s internal controls over
              financial reporting identified in connection with the Evaluation that
              occurred during the Company’s last quarter that has materially affected
              or, to the knowledge of management, is reasonably likely to materially
              affect the Company’s internal controls.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




**PART
      II**


**OTHER
      INFORMATION**





**Item
      1. Legal Proceedings**





Not
      applicable.





**Item
      1A. Risk Factors**





See
      the
      risk factors described in the Company’s Annual Report on Form 10-K for the year
      ended December 31, 2006.





**Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds**





During
      the quarter for which this report is filed, there were no material modifications
      in the instruments defining the rights of shareholders. During the quarter
      for
      which this report is filed, none of the rights evidenced by the shares of the
      Company's common stock were materially limited or qualified by the issuance
      or
      modification of any other class of securities.





**Purchases
      of Equity Securities by the Issuer and Affiliated
      Purchasers**





In
      February 2000, the Board of Directors authorized the repurchase of up to five
      percent (5%) of the Company’s outstanding common stock from time to time in open
      market or private transactions. As amended to date, the Company’s share
      repurchase program authorizes the repurchase of up to an aggregate of 4,000,000
      shares over an indefinite period. As of March 31, 2007, the Company had
      repurchased 2,103,355 shares for an aggregate repurchase price of $5.5 million,
      at an average repurchase price of approximately $2.63 per share. The following
      table summarizes the Company’s share repurchases during the Company’s first
      quarter of 2007:





Period
            
            Total
                Number of Shares Purchased
            
            Average
                Price Paid per Share
            
            Total
                Number of Shares Purchased as Part of Publicly Announced Repurchase
                Plans
            
            Maximum
                Number of Shares that May Yet Be Purchased Under the Repurchase
                PlansJanuary
                1 to 31, 2007
            
            
            -
            
            $
            -
            
            
            -
            
            
            2,015,745February
                1 to 28, 2007
            
            
            -
            
            $
            -
            
            
            -
            
            
            2,015,745March
                1 to 31, 2007
            
            
            119,100
            
            $
            4.39
            
            
            119,100
            
            
            1,896,645Total
            
            
            119,100
            
            $
            4.39
            
            
            119,100
            
            
            1,896,645







**Item
      3. Default Upon Senior Securities**





Not
      applicable.





**Item
      4. Submission of Matters to a Vote of Security Holders**





None.





**Item
      5. Other Information**





Not
      applicable.





22


**Item
      6. Exhibits**




Exhibit
                  No.
              Description3.1(1)
              Articles
                  of Incorporation of Isolyser Company, Inc.3.3(2)
              Amended
                  and Restated Bylaws of Microtek Medical Holdings, Inc.4.1(3)
              Specimen
                  Certificate of Common Stock4.2(4)
              First
                  Amended and Restated Shareholder Protection Rights Agreement dated
                  as of
                  December 20, 2006 between Microtek Medical Holdings, Inc. and
                  Computershare Investor Services, LLC10.1(5)
              Adjustments
                  to Compensation for Named Executive Officers Effective April 1,
                  200731.1
              Certification
                  of Chief Executive Officer31.2
              Certification
                  of Chief Financial Officer32.1
              Certification
                  pursuant to Section 906 of the Sarbanes-Oxley Act of
                  200232.2
              Certification
                  pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002


|(1) | Incorporated
              by reference to Exhibit 3.1 of the Company's Annual Report on Form
              10-K
              for the year ended December 31, 2004.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) | Incorporated
              by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K
              dated May 18, 2006.
|--- | ------------------------------------------------------------------------------------------------------------------------------------




|(3) | Incorporated
              by reference to Exhibit 4.1 of the Company’s Quarterly Report on Form 10-Q
              for the quarter ended June 30, 2006.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------




|(4) | Incorporated
              by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K
              dated December 20, 2006.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------




|(5) | Incorporated
              by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K
              dated March 8, 2007.
|--- | --------------------------------------------------------------------------------------------------------------------------------------




23


**SIGNATURES**




Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      caused this quarterly report on Form 10-Q to be signed on its behalf by the
      undersigned thereunto duly authorized on May 10, 2007.








MICROTEK
                MEDICAL HOLDINGS, INC.By:/s/
                Dan R. LeeDan
                R. LeeChairman,
                President and Chief Executive Officer(principal
                executive officer)By:/s/
                Roger G. WilsonRoger
                G. WilsonChief
                Financial Officer(principal
                financial officer)











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