# SECURITIES AND
EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-Q

# QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15 (d) 
OF THE SECURITIES
EXCHANGE ACT OF 1934

|For Quarter Ended September 30, 2003 | 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 
 incorporation or organization) | (IRS Employer
Identification No.)

512 LEHMBERG
ROADCOLUMBUS, MISSISSIPPI 39702 
(Address of principal executive offices)

(662) 327-1863
(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.

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 November 7, 2003
|----------------------------- | -------------------------------
|                              |                                
|Common Stock, $.001 par value | 42,454,547                     

---

# INDEX

|PART I: | FINANCIAL INFORMATION
|------- | ---------------------

|Item 1. | Financial Statements
|------- | --------------------

| | Unaudited
Condensed Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002
| | ----------------------------------------------------------------------------------------------

| | Unaudited
Condensed Consolidated Statements of Operations and Comprehensive Income for the Three
Months ended September               30, 2003 and September 30, 2002 and for the Nine
Months ended September 30, 2003 and September 30, 2002
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Unaudited
Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30,
2003 and September 30,               2002
| | -------------------------------------------------------------------------------------------------------------------------------------------

| | Notes
to Unaudited Condensed Consolidated Financial Statements
| | --------------------------------------------------------------

|Item 2. | Management's Discussion and Analysis of Financial Condition and Results of
Operations
|------- | -------------------------------------------------------------------------------------

|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

|Item 4. | Controls and Procedures
|------- | -----------------------

|PART II: | OTHER
INFORMATION
|-------- | -----------------

|Item 1. | Legal
Proceedings
|------- | -----------------

|Item 2. | Changes
in Securities and Use of Proceeds
|------- | -----------------------------------------

|Item 3. | Defaults
Upon Senior Securities
|------- | -------------------------------

|Item 4. | Submission
of Matters to a Vote of Securityholders
|------- | --------------------------------------------------

|Item 5. | Other
Information
|------- | -----------------

|Item 6. | Exhibits
and Reports on Form 8-K
|------- | --------------------------------

-2-

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# PART I 
FINANCIAL INFORMATION

# Item 1. Financial
Statements

MICROTEK MEDICAL
HOLDINGS, INC.Unaudited Condensed
Consolidated Balance Sheets(in thousands)

|Assets                                     | September 30, 2003 | December 31, 2002
|------------------------------------------ | ------------------ | -----------------
|Current assets:                            |                    |                  
|Cash and cash equivalents                  |                    |                  
|Accounts receivable, net                   |                    |                  
|Other receivables                          |                    |                  
|Inventories                                |                    |                  
|Prepaid expenses and other assets          |                    |                  
|                                           |                    |                  
|Total current assets                       |                    |                  
|                                           |                    |                  
|Property and equipment                     |                    |                  
|Less accumulated depreciation              |                    |                  
|                                           |                    |                  
|Property and equipment, net                |                    |                  
|                                           |                    |                  
|Intangible assets, net                     |                    |                  
|Deferred income taxes                      |                    |                  
|Other assets                               |                    |                  
|                                           |                    |                  
|Total assets                               |                    |                  
|                                           |                    |                  
|Liabilities and Shareholders' Equity       |                    |                  
|Current liabilities:                       |                    |                  
|Accounts payable                           |                    |                  
|Accrued expenses                           |                    |                  
|Current portion of long-term debt          |                    |                  
|                                           |                    |                  
|Total current liabilities                  |                    |                  
|                                           |                    |                  
|Long-term debt, net of current portion     |                    |                  
|Other long-term liabilities                |                    |                  
|                                           |                    |                  
|Total liabilities                          |                    |                  
|                                           |                    |                  
|Shareholders' equity:                      |                    |                  
|Common stock                               |                    |                  
|Additional paid-in capital                 |                    |                  
|Accumulated deficit                        |                    |                  
|Accumulated other comprehensive loss, net  |                    |                  
|                                           |                    |                  
|                                           |                    |                  
|Treasury shares, at cost                   |                    |                  
|                                           |                    |                  
|Total shareholders' equity                 |                    |                  
|                                           |                    |                  
|Total liabilities and shareholders' equity |                    |                  
|                                           |                    |                  

See notes to unaudited condensed
consolidated financial statements.

-3-

---

MICROTEK MEDICAL
HOLDINGS, INC.Unaudited Condensed
Consolidated Statements of Operations and Comprehensive Income(in thousands, except
per share data)

|                                    | Three months
ended | Three months
ended | Nine months
ended | Nine months
ended
|----------------------------------- | ------------------ | ------------------ | ----------------- | -----------------
|
|Net sales                           |                    |                    | $                 | 24,342           
|Licensing revenues                  |                    |                    |                   | --               
|                                    |                    |                    |                   |                  
|Net revenues                        |                    |                    |                   | 24,342           
|Cost of goods sold                  |                    |                    |                   | 14,555           
|                                    |                    |                    |                   |                  
|Gross profit                        |                    |                    |                   | 9,787            
|Operating expenses:                 |                    |                   
|Selling, general and administrative |                    |                    |                   | 7,843            
|Research and development            |                    |                    |                   | 235              
|Amortization of intangibles         |                    |                    |                   | 102              
|                                    |                    |                    |                   |                  
|Total operating expenses            |                    |                    |                   | 8,180            
|                                    |                    |                    |                   |                  
|Income from operations              |                    |                    |                   | 1,607            
|                                    |                    |                    |                   |                  
|Interest income                     |                    |                    |                   | 17               
|Interest expense                    |                    |                    |                   | (57              
|Equity in earnings of investee      |                    |                    |                   | 56               
|Other income                        |                    |                    |                   | 982              
|                                    |                    |                    |                   |                  
|Income before income taxes          |                    |                    |                   | 2,605            
|                                    |                    |                    |                   |                  
|Income tax (benefit) expense        |                    |                    |                   | (2,336           
|                                    |                    |                    |                   |                  
|Net income                          |                    |                    | $                 | 4,941            
|                                    |                    |                    |                   |                  
|Other comprehensive income (loss):  |                    |                   
|Foreign currency translation        |                    |                   
|gain, net                           |                    |                    |                   | 17               
|Unrealized gain (loss) on available |                    |                   
|for sale securities, net            |                    |                    |                   | (52              
|                                    |                    |                    |                   |                  
|Comprehensive income                |                    |                    | $                 | 4,906            
|                                    |                    |                    |                   |                  
|Net income per common share -       |                    |                   
|Basic                               |                    |                    | $                 | 0.12             
|                                    |                    |                    |                   |                  
|Diluted                             |                    |                    | $                 | 0.11             
|                                    |                    |                    |                   |                  
|Basic weighted average number of    |                    |                   
|common shares outstanding           |                    |                    |                   | 42,154           
|                                    |                    |                    |                   |                  
|Diluted weighted average number of  |                    |                   
|common shares outstanding           |                    |                    |                   | 43,451           
|                                    |                    |                    |                   |                  

See notes to unaudited condensed
consolidated financial statements.

-4-

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MICROTEK MEDICAL
HOLDINGS, INC.Unaudited Condensed
Consolidated Statements of Cash Flows(in thousands)

|                                                            | Nine months ended
September 30, 2003 | Nine months ended
September 30, 2002
|----------------------------------------------------------- | ------------------------------------ | ------------------------------------
|Cash flows from operating activities:                       |                                      |                                     
|Net income                                                  |                                      |                                     
|                                                            |                                      |                                     
|Adjustments to reconcile net income to net cash provided by |                                      |                                     
|operating activities:                                       |                                      |                                     
|Depreciation                                                |                                      |                                     
|Amortization of intangibles                                 |                                      |                                     
|Provision for doubtful accounts                             |                                      |                                     
|Deferred income taxes                                       |                                      |                                     
|Licensing revenues                                          |                                      |                                     
|Gain on sale of product line                                |                                      |                                     
|Other                                                       |                                      |                                     
|Changes in operating assets and liabilities                 |                                      |                                     
|                                                            |                                      |                                     
|Net cash provided by operating activities                   |                                      |                                     
|                                                            |                                      |                                     
|Cash flows from investing activities:                       |                                      |                                     
|Purchase of and deposits for property and equipment         |                                      |                                     
|Proceeds from sale of product line                          |                                      |                                     
|                                                            |                                      |                                     
|Net cash used in investing activities                       |                                      |                                     
|                                                            |                                      |                                     
|Cash flows from financing activities:                       |                                      |                                     
|Net repayments under credit agreements                      |                                      |                                     
|Changes in bank overdraft                                   |                                      |                                     
|Repayments under notes payable                              |                                      |                                     
|Proceeds from exercise of stock options                     |                                      |                                     
|Repurchase of treasury stock                                |                                      |                                     
|Proceeds from issuance of common stock                      |                                      |                                     
|                                                            |                                      |                                     
|Net cash used in financing activities                       |                                      |                                     
|                                                            |                                      |                                     
|Effect of exchange rate changes on cash                     |                                      |                                     
|                                                            |                                      |                                     
|Net decrease in cash and cash equivalents                   |                                      |                                     
|Cash and cash equivalents at beginning of period            |                                      |                                     
|                                                            |                                      |                                     
|Cash and cash equivalents at end of period                  |                                      |                                     
|                                                            |                                      |                                     
|Supplemental disclosures of noncash investing and           |                                      |                                     
|financing activities:                                       |                                      |                                     
|Note receivable from sale of product line                   |                                      |                                     
|                                                            |                                      |                                     
|Capital lease liability for purchase of equipment           |                                      |                                     
|                                                            |                                      |                                     
|Common stock issuance pursuant to patent issuance           |                                      |                                     
|                                                            |                                      |                                     

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) develop, manufacture,
and market proprietary and other products and services for patient care, occupational
safety and management of potentially infectious and hazardous waste primarily for the
domestic 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. OTI has recently
commercialized its patented technology in the nuclear 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 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, 2002 (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 are those that depend most heavily on these judgments and estimates. During
the nine months ended September 30, 2003, there have been no material changes to any of
the Companys critical accounting policies.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | NEWLY
ISSUED ACCOUNTING STANDARDS
|-- | ---------------------------------

| | In
May 2003, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS 150 established
standards for how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that any financial instrument
that is within the scope of SFAS 150 be classified as a liability. The Company adopted
and applied the provisions of SFAS 150 to financial instruments entered into or modified
after May 31, 2003, and otherwise adopted SFAS 150 on July 1, 2003. The adoption of SFAS
150 did not have a material impact on the Companys consolidated financial position
or results of operation.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-6-

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|4. | 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
September 30, 2003 and December 31, 2002 as follows (in thousands):
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                  | September 30, 2003 | December 31, 2002
|----------------- | ------------------ | -----------------
|Raw materials     |                    |                  
|Work-in-progress  |                    |                  
|Finished goods    |                    |                  
|                  |                    |                  
|Total inventories |                    |                  
|                  |                    |                  

| | At
September 30, 2003 and December 31, 2002, the OTI inventories approximated $4.2 million
and $2.2 million, respectively. Included in OTI inventories at September 30, 2003 and
December 31, 2002 were finished goods of $2.8 million and $431 thousand, respectively,
and raw materials of $1.4 million and $1.7 million, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | PATENT
ISSUANCE COSTS
|-- | ---------------------

| | On
February 16, 2001, the Company acquired the assets of MICROBasix LLC for approximately
$675 thousand in cash and the issuance of 250 thousand shares of the Companys
common stock having a market value of approximately $265 thousand. The purchase agreement
also provided for contingent cash payments and share issuances upon the issuance of a
United States Patent covering the technologies, products and services providing disposal
and volume reduction of low-level radioactive waste for the nuclear industry. On
September 23, 2003, U.S. Patent No. 6,623,643 was issued covering the process for
treatment of waste streams containing water-soluble polymers, specifically in the nuclear
industry. Accordingly, the Company made the required cash payments totaling $200 thousand
and issued an additional 250 thousand shares of the Companys common stock having a
market value on the patent issuance date of approximately $900 thousand. These additional
patent costs of approximately $1.1 million are being amortized over the expected patent
life of approximately 16 years.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | ACQUISITIONS
AND DISPOSITIONS
|-- | -----------------------------

| | Effective
November 29, 2002, Microtek acquired the surgical drape product line of Gyrus ENT, LLC.
This acquisition was accounted for under the purchase method, and accordingly, the
results of operations related to the acquired assets have been included in the
accompanying consolidated financial statements from the date of acquisition. The
preliminary allocation of the total estimated purchase price of approximately $4.2
million in cash, as adjusted through September 30, 2003 and subject to adjustment in 2003
until finalized, resulted in approximately $3.5 million of goodwill as follows (in
thousands):
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       |  | 
|-------------------------------------- |  | 
|Total estimated purchase consideration |  | 
|Allocated to:                          |  | 
|Inventory                              |  | 
|Property and equipment                 |  | 
|                                       |  | 
|Total allocation                       |  | 
|                                       |  | 
|Goodwill                               |  | 
|                                       |  | 

-7-

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| | Effective
September 26, 2003, Microtek sold substantially all of its assets related to the
manufacture and sale of three of its safety products for a total consideration of
approximately $1.3 million, consisting of $400 thousand in cash and a note receivable for
approximately $903 thousand. The note receivable bears interest at seven percent and is
payable in 36 monthly installments of principal and interest of approximately $9 thousand
beginning in December 2003, a scheduled payment of approximately $103 thousand in
February 2004 and a final balloon payment representing all remaining principal and
accrued interest on December 15, 2006. In conjunction with the sale, the Company recorded
a gain of approximately $982 thousand. The cash proceeds from the sale were used to repay
outstanding borrowings on the Companys Credit Agreement.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7. | INVESTMENT
IN AVAILABLE FOR SALE SECURITIES
|-- | -------------------------------------------

| | In
February 2000, the Company paid $249 thousand for approximately a 7.5% interest in
Consolidated Ecoprogress Technology, Inc., a Canadian technology marketing company
focused on developing and selling biodegradable and disposable absorbent products such as
diapers, feminine hygiene, adult incontinence and other products. This investment is
classified in accordance with SFAS 115, Accounting for Certain Investments in Debt and
Equity Securities,as available for sale securities and is stated at fair value.
Unrealized gains and losses in the investments fair market value are recorded as a
separate component of shareholders equity, and unrealized losses that are other
than temporary are recognized in net income. During the quarter ended September 30, 2002,
the Company recognized an impairment loss of $55 thousand related to an
other-than-temporary decline in the value of this investment. There were no such
impairment losses recognized during the nine months ended September 30, 2003. The fair
value of this investment as of September 30, 2003 and December 31, 2002 was approximately
$43 thousand and $89 thousand, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8. | 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 $17.5 million
revolving credit facility, which matures on June 30, 2006. Borrowing availability under
the revolving credit facility is based on the lesser of (i) a percentage of eligible
accounts receivable and inventory or (ii) $17.5 million, less any outstanding letters of
credit issued under the Credit Agreement. Revolving credit borrowings bear interest, at
the Companys option, at either a floating rate approximating the Banks prime
rate plus an interest margin (4.5% at September 30, 2003) or LIBOR plus an interest
margin (2.69% at September 30, 2003). Borrowing availability under the revolving facility
at September 30, 2003 and December 31, 2002 was $13.6 million and $14.7 million,
respectively. There were outstanding borrowings under the revolving credit facility of
$3.8 million at September 30, 2003 and $7.1 million at December 31, 2002. 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Credit Agreement contains certain restrictive covenants, including the maintenance of
certain financial ratios, earnings before interest, taxes, depreciation and amortization (EBITDA)
and net worth, and places limitations on acquisitions, dispositions, capital expenditures
and additional indebtedness. In addition, the Company is not permitted to pay any
dividends. At September 30, 2003 and December 31, 2002, the Company was in compliance
with all of 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 September 30, 2003 or December 31, 2002.
The Credit Agreement also provides for a fee of 0.375% 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-8-

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| | Other
Long-Term Debt.On October 19, 2000, the Company acquired certain assets and assumed
certain liabilities of Lingeman Medical Products, Inc. In conjunction with this
acquisition, the Company issued a promissory note in the amount of $675 thousand, payable
in three equal annual installments and bearing interest at the Prime Rate, as adjusted at
the beginning of each calendar quarter (4.0% at July 1, 2003). The promissory note is
subordinated to the Credit Agreement. The final installment under the promissory note of
$225 thousand is payable in October 2003. At September 30, 2003, the Company is also
obligated under a long-term capital lease for approximately $504 thousand. This
obligation bears interest at approximately 5.5% and matures in August 2006.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
carrying value of long-term debt at September 30, 2003 and December 31, 2002 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9. | EARNINGS
PER SHARE
|-- | ------------------

| | Earnings
per share is calculated in accordance SFAS 128, Earnings Per Share, which requires
dual presentation of basic and diluted earnings per share on the face of the income
statement for all 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
September 30, | Nine months ended
September 30,
|-------------------------------------- | -------------------------------- | -------------------------------
|
|Basic Shares                           |                                  |                                
|Dilutive Shares (due to stock options) |                                  |                                
|                                       |                                  |                                
|Diluted Shares                         |                                  |                                
|                                       |                                  |                                

| | For
the three months and nine months ended September 30, 2003, options to purchase
approximately 446 thousand and 867 thousand shares, respectively, 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. Antidilutive shares for the three months and nine months ended
September 30, 2002 were 1.6 million and 760 thousand, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10. | STOCK-BASED
COMPENSATION PLANS
|--- | ------------------------------

| | The
Company accounts for its stock-based employee compensation plans under the recognition
and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. Accordingly, no stock-based employee
compensation cost is reflected in net income, as all options granted under the Companys
stock option plans had an exercise price equal to the market value of the underlying
common stock on the date of the grant.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-9-

---

| | Pro
forma information regarding interim net income and earnings per share is required by SFAS
148, Accounting for Stock-BasedCompensation  Transition and Disclosure,
an amendment of FASB Statement No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method. The fair value for
these options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumptions:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        | Three months ended
September 30, | Nine months ended
September 30,
|----------------------- | -------------------------------- | -------------------------------
|
|Dividend yield          |                                  | 0.0                            
|Expected volatility     |                                  | 48.1                           
|Risk free interest rate |                                  | 4.5                            
|Forfeiture rate         |                                  | 0.0                            
|Expected life, in years |                                  | 10.0                           

| | 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following table illustrates the effect on net income and net income per share as if the
Company had applied the fair value recognition provisions of SFAS 123, Accounting for
Stock-Based Compensation, to its stock-based employee compensation plans (in
thousands, except per share data).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                        | Three months ended
September 30, | Nine months ended
September 30,
|--------------------------------------- | -------------------------------- | -------------------------------
|
|Net income, as reported                 |                                  |                                
|Deduct:  Total stock-based employee     |                                  |                                
|compensation expense determined under   |                                  |                                
|fair value based method for all awards, |                                  |                                
|net of related tax effects              |                                  |                                
|                                        |                                  |                                
|Pro forma net income                    |                                  |                                
|                                        |                                  |                                
|Net income per share:                   |                                  |                                
|Basic - as reported                     |                                  |                                
|                                        |                                  |                                
|Diluted - as reported                   |                                  |                                
|                                        |                                  |                                
|Basic - pro forma                       |                                  |                                
|                                        |                                  |                                
|Diluted - pro forma                     |                                  |                                
|                                        |                                  |                                

|11. | STOCK
REPURCHASE PROGRAM
|--- | ------------------------

| | In
2002, the Board of Directors amended the Companys existing stock repurchase program
to authorize the repurchase of an aggregate of 2.0 million shares through December 31,
2003. A total of 50 thousand shares and 255 thousand shares were repurchased under this
program during the three months ended September 30, 2003 and the nine months ended
September 30, 2003, respectively. As of September 30, 2003, the Company had repurchased
approximately 1.3 million shares for an aggregate repurchase price of approximately $2.6
million.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-10-

---

|12. | 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

Net revenues for the three months
ended September 30, 2003 (the 2003 Quarter) were $24.3 million, an increase of
$2.2 million or 9.8 percent from the $22.2 million of net revenues reported for the three
months ended September 30, 2002 (the 2002 Quarter). Net revenues for the nine
months ended September 30, 2003 (the 2003 Period) were $72.2 million, an
increase of $7.7 million or 11.9 percent over the $64.5 million in net revenues reported
for the nine months ended September 30, 2002 (the 2002 Period). Excluding
licensing revenues associated with the amortization of the $10.5 million payment by
Allegiance allocated to the Companys Supply and License Agreement with Allegiance,
net revenues in the 2002 Quarter and 2002 Period were $21.8 million and $63.4 million,
respectively. There were no license revenues recorded in the 2003 Quarter or 2003 Period.

For the 2003 Quarter, Microteks
net revenues totaled $23.0 million, an increase of $1.8 million or 8.4 percent over
Microteks net revenues of $21.2 million in the 2002 Quarter. Microteks net
revenues for the 2003 Period increased by $5.4 million to $67.9 million from $62.5 million
in the 2002 Period. The following tables depict Microteks domestic and international
revenues and the relative percentage of each to Microteks total revenues for the
2003 Quarter and 2002 Quarter and for the 2003 Period and the 2002 Period:

|              | Three months ended
September 30, 2003 | Three months ended
September 30, 2002
|------------- | ------------------------------------- | -------------------------------------
|
|Domestic      |                                       |                                      
|International |                                       |                                      
|              |                                       |                                      
|Total         |                                       |                                      
|              |                                       |                                      

|              | Nine months ended
September 30, 2003 | Nine months ended
September 30, 2002
|------------- | ------------------------------------ | ------------------------------------
|
|Domestic      |                                      |                                     
|International |                                      |                                     
|              |                                      |                                     
|Total         |                                      |                                     
|              |                                      |                                     

Microteks domestic revenues are
generated through two primary channels or customer categories: branded hospital and
contract manufacturing (commonly referred to as OEM). Included in the Companys OEM
revenues are sales of products to custom procedure tray companies and other
non-branded or private label customers. Microteks domestic revenues in
the 2003 Quarter increased by $1.9 million due to an increase of $900 thousand, or 9.1
percent, in Microteks branded hospital revenues and an increase of $1 million, or
13.0 percent, in Microteks OEM revenues. Branded hospital revenue growth in the 2003
Quarter over the 2002 Quarter was demonstrated in Microteks domestic equipment and
patient drape business (an increase of $327 thousand or 5.5 percent) and in its CleanOp
product line (an increase of $615 thousand or 40.5 percent). Microteks international
net revenues were $3.3 million for the 2003 Quarter, a decline of $100 thousand from the
2002 Quarter.

-11-

---

On a year-to-date basis,
Microteks domestic revenues in the 2003 Period increased by $4.2 million due to an
increase of $3.3 million, or 11.3 percent, in Microteks branded hospital revenues
and an increase of $920 thousand in Microteks OEM revenues. Branded hospital net
revenues increased in the 2003 Period due primarily to a $2.2 million increase in revenues
from the CleanOp product line and to growth of 9.0 percent in Microteks domestic
equipment and patient drape revenues. These increases in branded hospital net revenues
were offset by a decrease of $568 thousand in safety products revenues in the 2003 Period.
Microteks international revenues for the 2003 Period were $10.4 million, or $1.2
million more than the $9.2 million reported for the 2002 Period.

OTIs net revenues were $1.3
million in the 2003 Quarter versus $951 thousand in the 2002 Quarter. OTIs net
revenues were $4.3 million in the 2003 Period as compared to $2.0 million in the 2002
Period. Licensing revenues in the 2002 Quarter and 2002 Period were $357 thousand and $1.1
million, respectively. There were no licensing revenues recorded in the 2003 Quarter and
2003 Period. Included in OTIs net revenues for the 2003 Quarter and 2003 Period were
revenues related to its nuclear operations of $835 thousand and $3.0 million,
respectively, as compared to revenues from nuclear operations of $356 thousand and $470
thousand in the 2002 Quarter and 2002 Period, respectively. The growth of OTIs
nuclear revenues is attributable to growing nuclear industry usage and acceptance of the
OREX products. The balance of OTIs net revenues is attributable to sales of certain
of the OREX raw materials inventory and amounted to $504 thousand in the 2003 Quarter and
$1.3 million in the 2003 Period as compared to $239 thousand and $427 thousand, in the
2002 Quarter and 2002 Period, respectively.

Gross profit margins in the 2003
Quarter and 2003 Period were 40.2 percent and 39.3 percent, respectively, compared to
gross profit margins of 38.7 percent recorded in the 2002 Quarter and 39.7 percent
recorded in the 2002 Period. The 2002 Quarter and 2002 Period benefited from the
amortization of deferred licensing revenues of $357 thousand and $1.1 million,
respectively, which had no associated costs. Excluding the impact of the deferred
licensing revenues in 2002, the Companys gross profit margins in the 2002 Quarter
and 2002 Period were 37.7 percent and 38.7 percent, respectively, approximately 2.5
percentage points and one-half of a percentage point lower than the actual gross profit
margins for the 2003 Quarter and 2003 Period, respectively. The gross profit margin
improvements in 2003 are attributable to cost reductions and efficiency and utilization
improvements.

Operating expenses in the 2003
Quarter were 33.6 percent of net revenues versus 30.9 percent of net revenues in the 2002
Quarter. For the 2003 Period, operating expenses were 32.7 percent of net revenues as
compared to 33.6 percent of net revenues for the 2002 Period. Selling, general and
administrative expenses were $7.8 million or 32.2 percent of net revenues in the 2003
Quarter, versus $6.6 million or 29.7 percent of net revenues in the 2002 Quarter. For the
2003 Period, selling, general and administrative expenses were $22.6 million or 31.3
percent of net revenues, as compared to $20.5 million or 31.8 percent of net revenues in
the 2002 Period. The increases in the absolute dollar amount of selling, general and
administrative expenses in the 2003 Quarter and 2003 Period are attributable to the
Companys additional investment in branded sales and marketing and higher
distribution and other variable selling costs.

Research and development expenses in
the 2003 Quarter and 2003 Period were $235 thousand and $713 thousand, respectively, as
compared to $155 thousand and $572 thousand in the 2002 Quarter and 2002 Period,
respectively. OTIs research and development expenses, substantially all of which are
related to the nuclear industry, decreased by $64 thousand and $286 thousand in the 2003
Quarter and 2003 Period, respectively, as compared to the 2002 Quarter and 2002 Period.
Offsetting these decreases was an increase in Microteks research and development
expenses of $144 thousand and $427 thousand in the 2003 Quarter and 2003 Period,
respectively, related to an expanded product development program which includes numerous
product enhancements and new product introductions planned for 2003 and 2004.

Amortization of intangibles in the
2003 Quarter and 2003 Period was $102 thousand and $327 thousand, respectively, and was
consistent with amortization expense recorded in the 2002 Quarter and 2002 Period.

-12-

---

Income from operations for the 2003
Quarter and 2003 Period was $1.6 million and $4.8 million, respectively, versus $1.7
million in the 2002 Quarter and $4.2 million in the 2002 Period. For the 2003 Quarter,
Microteks income from operations of $1.7 million was consistent with income from
operations recorded in the 2002 Quarter. For the 2003 Period, Microteks income from
operations was $4.8 million, approximately $100 thousand more than the income from
operations recorded in the 2002 Period. The Companys OTI division reported an
operating loss of $54 thousand in the 2003 Quarter versus operating income of $32 thousand
for the 2002 Quarter. OTIs operating loss in the 2003 Period was $60 thousand, an
87.6 percent improvement over the operating loss of $485 thousand recorded in the 2002
Period.

During the 2003 Quarter, the Company
recorded a gain of approximately $982 thousand related to the sale of substantially all of
the assets related to the manufacture and sale of certain of its non-strategic safety
products. The sale price totaled approximately $1.3 million, consisting of $400,000 in
cash and a note receivable for approximately $903 thousand.

Interest expense, net of interest
income, was $40 thousand and $134 thousand in the 2003 Quarter and 2003 Period,
respectively, as compared to $113 thousand and $408 thousand in the 2002 Quarter and 2002
Period, respectively. The decreases in net interest expense in the 2003 Quarter and 2003
Period as compared to the 2002 Quarter and 2002 Period are attributable to lower average
borrowings under the Companys revolving credit facility and declining interest rates
during the 2003 Quarter and 2003 Period and was slightly offset by lower interest income
on cash and cash equivalents due to lower average interest rates.

The Companys provision for
income taxes in the 2003 Quarter and 2003 Period reflects a net income tax benefit of
approximately $2.3 million and $4.7 million, respectively. During the 2003 Quarter, the
Company recorded an income tax benefit of approximately $2.4 million related to the
decrease in the Companys valuation allowance with respect to certain of its deferred
tax assets, bringing the total income tax benefit related to the decrease in the
Companys deferred tax asset valuation allowance for the 2003 Period to approximately
$4.9 million. The income tax benefit portion of the provision for income taxes in the 2003
Quarter and 2003 Period amounted to approximately $0.05 and $0.11 per diluted share,
respectively. Offsetting these income tax benefits was the Companys state and
foreign income tax provision for the 2003 Quarter and 2003 Period of approximately $30
thousand and $220 thousand, respectively. The Companys provision for income taxes in
the 2002 Quarter and 2002 Period consisted entirely of state and foreign income taxes of
approximately $135 thousand and $285 thousand, respectively.

The resulting net income for the 2003
Quarter was $4.9 million, or $0.12 per basic share and $0.11 per diluted share, bringing
the Companys net income for the 2003 Period to $10.3 million, or $0.25 per basic
share and $0.24 per diluted share. The Companys earnings for the 2003 Quarter and
the 2003 Period represent increases of approximately $3.5 million and $6.7 million over
the net income reported for the 2002 Quarter and the 2002 Period, respectively.

# Liquidity and Capital
Resources

As of September 30, 2003 and December
31, 2002, the Companys cash and cash equivalents totaled $9.8 million.

During the 2003 Period, the
Companys operating activities provided cash of $4.2 million as compared to $6.2
million in the 2002 Period. The decrease in cash provided by operating activities in the
2003 Period is attributable to increases in the Companys accounts receivable and
inventory balances resulting from higher net revenues and working capital expansion
related to the successful commercialization of OTIs nuclear business and
Microteks expanding operations. Cash used in investing activities in the 2003 Period
consisted of the purchase of property and equipment of $1.7 million offset by cash
proceeds from the safety product line sale of $400 thousand as compared to purchases of
property and equipment totaling $1.3 million in the 2002 Period. During the 2003 Period,
cash used in financing activities was $3.0 million. Net repayments under the
Companys Credit Agreement in the 2003 Period were $3.3 million, and repayments of
other long-term debt agreements in the 2003 Period totaled $31 thousand. During the 2003
Period, the Company received $424 thousand in proceeds from the exercise of stock options,
generated $395 thousand from the issuance of stock and purchased 255 thousand shares of
stock for $667 thousand. During the 2002 Period, cash used in financing activities was
$5.5 million and consisted primarily of net repayments under the Companys Credit
Agreement of $5.5 million, and repayments of $429 thousand under other long-term debt
agreements. During the 2002 Period, the Company received $487 thousand in proceeds from
the exercise of stock options, generated $454 thousand from the issuance of stock and
purchased 335 thousand shares of stock for $647 thousand.

-13-

---

The Company maintains a $17.5 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, 2006. Borrowing availability under the revolving credit facility is based on the
lesser of (i) a percentage of eligible accounts receivable and inventories or (ii) $17.5
million, less any outstanding letters of credit issued under the Credit Agreement.
Outstanding borrowings under the revolving credit facility were $3.8 million and $7.1
million at September 30, 2003 and December 31, 2002, respectively. As of September 30,
2003, the Company had additional borrowing availability under the revolving facility of
$9.7 million. As of November 7, 2003, the Companys total borrowing availability
under the revolving facility was $14.2 million, of which the Company had borrowed $3.3
million. Revolving credit borrowings bear interest, at the Companys option, at
either a floating rate approximating the Banks prime rate plus an interest margin
(4.5% at November 7, 2003) or LIBOR plus an interest margin (2.69% at November 7, 2003).
At September 30, 2003, the Company was in compliance with its financial covenants under
the Credit Agreement.

Based on its current business plan,
the Company expects that cash equivalents and short term investments 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. The Companys liquidity is not dependent upon the use of off-balance sheet
financing arrangements. Currently unforeseen future developments and increased working
capital requirements may require additional debt financing or issuance of common stock in
2003 and subsequent years.

# 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 ability of the
Company to meet its liquidity and capital requirements. 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 including, without
limitation, those described under Risk Factors -History of Net Losses,
-Reliance upon Microtek, -Competition, -Product
Liability, -Stock Price Volatility, -Dependence on Key
Personnel, -Anti-takeover Provisions, -Low Barriers to Entry for
Competitive Products, -Potential Erosion of Profit Margins, -Risks
of Completing Acquisitions, -Small Sales and Marketing Force,
-Reliance upon Distributors, -Microtek Regulatory Risks,
-Risks of Obsolescence, -Reduced OREX Market Potential,
-OREX Commercialization Risks, -OREX Manufacturing and Supply
Risks, -Risks Affecting Protection of Technologies, -Risks of
Technological Obsolescence and -OTI Regulatory Risks. We do not
undertake to update our forward-looking statements to reflect future events or
circumstances.

# Item 3. Quantitative and
Qualitative Disclosures about Market Risk

The Companys greatest
sensitivity with respect to market risk is to changes in the general level of U.S.
interest rates and its effect upon the Companys interest expense. At September 30,
2003, the Company had $4.1 million of long-term or short-term debt bearing interest at
floating rates. Because these rates are variable, a 1% increase in interest rates would
have resulted in additional interest expense of approximately $13 thousand and $49
thousand for the three months and nine months ended September 30, 2003, respectively, and
a 1% reduction in interest rates would have resulted in reduced interest expense of
approximately $13 thousand and $49 thousand for the three months and nine months ended
September 30, 2003.

-14-

---

# 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 provided                     reasonable assurance as of the end
of the quarter for which this report is being                     filed that (i)
information required to be disclosed in the Companys                     reports
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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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 2. Changes in
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.

On September 23, 2003, the Company
issued 200,000 shares of the Companys common stock to an accredited investor as
deferred, contingent purchase price in connection with the acquisition of certain assets
of MICROBasix LLC under a transaction originally completed on February 16, 2001. Exemption
from the registration provisions of the Securities Act for this transaction was claimed
under Section 4(2) of the Securities Act and the rules and regulations promulgated
thereunder on the basis that such transaction did not involve any public offering, the
purchaser was sophisticated with access to the kind of information registration would
provide and that the purchaser acquired such securities without a view to distribution
thereof.

-15-

---

# Item 3. Default Upon
Senior Securities

Not applicable.

# Item 4. Submission of
Matters to a Vote of Securityholders

None.

# Item 5. Other Information

None.

# Item 6. Exhibits and
Reports on Form 8-K

|(a) | Exhibits:
|--- | ---------

|Exhibit No. | Description                                                                 
|----------- | ----------------------------------------------------------------------------
|3.1(1)      | Articles of Incorporation of Isolyser Company, Inc.                         
|3.2(2)      | Articles of Amendment to Articles of Incorporation of Isolyser Company, Inc.
|3.3(3)      | Amended and Restated Bylaws of Isolyser Company, Inc.                       
|4.1(1)      | Specimen Certificate of Common Stock                                        
|31.1        | Certification of Chief Executive Officer                                    
|31.2        | Certification of Chief Financial Officer                                    
|32.1        | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002     
|32.2        | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002     

_________________

(1)    
          Incorporated by reference to the Companys Registration Statement on Form
          S-1 (File No. 33-83474).

(2)    
          Incorporated by reference to Exhibit 3.2 of the Companys Annual Report on
          Form 10-K for the year ended December 31, 1996.

(3)    
          Incorporated by reference to Exhibit 3.1 to the Companys Current Report on
          Form 8-K filed April 23, 2002.

-16-

---

|(b) | Reports
on Form 8-K
|--- | -------------------

| | On
July 2, 2003, the registrant furnished a Current Report on Form 8-K dated July 2, 2003
pursuant to Item 9 (including Item 12 information) announcing the Companys
anticipated net revenues for the quarter and six-month period ended June 30, 2003.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
August 5, 2003, the registrant furnished a Current Report on Form 8-K dated August 5,
2003 pursuant to Item 9 (including Item 12 information) announcing the Companys
results of operations for the quarter ended June 30, 2003.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-17-

---

# 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 November
11, 2003.

| | MICROTEK MEDICAL HOLDINGS, INC.                                                       
| | --------------------------------------------------------------------------------------
| |                                                                                       
| | By: /s/ Dan R. Lee                                                                    
| | Dan R. Lee
Chairman, President & Chief Executive Officer
(principal executive officer)
| |                                                                                       
| | By: /s/ Roger G. Wilson                                                               
| | Roger G. Wilson
Chief Financial Officer
(principal financial officer)                 

-18-