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 THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006

COMMISSION FILE NUMBER 0-13251

MEDICAL ACTION INDUSTRIES INC.

(Exact name of Registrant as specified in its charter)

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

800 Prime Place, Hauppauge, New York 11788

(Address of Principal Executive Offices)

Registrant’s telephone number, including area code:

(631) 231-4600

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 and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 126-b of the Exchange Act).    Yes  x    No  ¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 10,542,232 shares of common stock as of November 3, 2006.

Form 10-Q

CONTENTS

		Page No.
PART I -	FINANCIAL INFORMATION
Item 1.	Condensed Financial Statements
	Balance Sheets at September 30, 2006 (Unaudited) and March 31, 2006	3-4
	Statements of Earnings for the Three Months ended September 30, 2006 and 2005 (Unaudited)	5
	Statements of Earnings for the Six Months ended September 30, 2006 and 2005 (Unaudited)	6
	Statements of Cash Flows for the Six Months ended September 30, 2006 and 2005 (Unaudited)	7
	Notes to Financial Statements (Unaudited)	8-15
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16-25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25
Item 4.	Controls and Procedures	26
PART II -	OTHER INFORMATION

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Item 1.

MEDICAL ACTION INDUSTRIES INC.

Balance Sheets

(dollars in thousands)

ASSETS

	September 30, 2006		March 31, 2006
	(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents	$	18,681	$	16,068
Accounts receivable, less allowance for doubtful accounts of $405 at September 30, 2006 and $369 at March 31, 2006		13,059		11,045
Inventories, net		20,164		18,836
Prepaid expenses		1,289		735
Deferred income taxes		568		279
Prepaid income taxes		—		26
Other current assets		289		220
TOTAL CURRENT ASSETS:		54,050		47,209
Property, plant and equipment, net		12,092		12,303
Goodwill		37,270		37,085
Trademarks		666		666
Other intangible assets, net		1,541		1,675
Other assets, net		1,501		1,453
TOTAL ASSETS:	$	107,120	$	100,391

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

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Item 1.

MEDICAL ACTION INDUSTRIES INC.

Balance Sheets

(dollars in thousands)

LIABILITIES AND SHAREHOLDERS’ EQUITY

	September 30, 2006		March 31, 2006
	(Unaudited)
CURRENT LIABILITIES:
Accounts payable	$	5,725	$	6,135
Accrued expenses, payroll and payroll taxes		3,285		3,284
Accrued income taxes		597		—
Current portion of long-term debt		360		360
TOTAL CURRENT LIABILITIES:		9,967		9,779
Deferred income taxes		5,029		5,029
Long-term debt, less current portion		2,260		2,440
TOTAL LIABILITIES:		17,256		17,248
COMMITMENTS
SHAREHOLDERS’ EQUITY:
Common stock 15,000,000 shares authorized, $.001 par value; issued and outstanding 10,540,482 shares at September 30, 2006 and 10,523,576 shares at March 31, 2006		11		11
Additional paid-in capital, net		21,734		20,607
Retained earnings		68,119		62,525
TOTAL SHAREHOLDERS’ EQUITY:		89,864		83,143
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY:	$	107,120	$	100,391

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

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Item 1.

MEDICAL ACTION INDUSTRIES INC.

Statements of Earnings

(dollars in thousands except per share data)

(Unaudited)

	Three Months Ended September 30,
	2006			2005
Net sales	$	42,173		$	37,595
Cost of sales		31,480			27,778
Gross profit		10,693			9,817
Selling, general and administrative expenses		6,065			5,097
Interest expense		6			10
Interest income		(180	)		(18	)
Income before income taxes		4,802			4,728
Income tax expense		1,829			1,764
Net income	$	2,973		$	2,964
Net income per share basic	$	.28		$	.28
Net income per share diluted	$	.28		$	.28

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

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Item 1.

MEDICAL ACTION INDUSTRIES INC.

Statements of Earnings

(dollars in thousands except per share data)

(Unaudited)

	Six Months Ended September 30,
	2006			2005
Net sales	$	81,204		$	73,571
Cost of sales		60,877			54,764
Gross profit		20,327			18,807
Selling, general and administrative expenses		11,625			10,129
Interest expense		12			38
Interest income		(333	)		(20	)
Income before income taxes		9,023			8,660
Income tax expense		3,429			3,211
Net income	$	5,594		$	5,449
Net income per share basic	$	.53		$	.53
Net income per share diluted	$	.52		$	.52

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

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Item 1.

MEDICAL ACTION INDUSTRIES INC.

Statements of Cash Flows

(dollars in thousands)

(Unaudited)

	Six Months Ended September 30,
	2006			2005
OPERATING ACTIVITIES
Net income	$	5,594		$	5,449
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		780			803
Amortization		164			224
Provision for doubtful accounts		36			36
Stock-based compensation		822			—
Excess tax benefit from stock-based compensation		(289	)		—
Tax benefit from exercise of options		30			533
Changes in operating assets and liabilities:
Accounts receivable		(2,050	)		(1,417	)
Inventories		(1,328	)		1,082
Prepaid expense and other current assets		(623	)		(182	)
Other assets		(78	)		(387	)
Accounts payable		(410	)		(724	)
Income taxes payable		623			724
Accrued expenses, payroll and payroll taxes		1			(813	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		3,272			5,328
INVESTING ACTIVITIES
Purchase price and related acquisition costs		(185	)		—
Purchase of property, plant and equipment		(569	)		(420	)
Repayment of loans to officers		126			—
NET CASH USED IN INVESTING ACTIVITIES		(628	)		(420	)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and long term borrowings		—			11,875
Principal payments on revolving line of credit and long term debt		(180	)		(12,055	)
Proceeds from exercise of employee stock options		149			1,547
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		(31	)		1,367
Increase in cash		2,613			6,275
Cash at beginning of year		16,068			549
Cash at end of period	$	18,681		$	6,824
Supplemental Disclosures:
Interest paid	$	61		$	78
Income taxes paid	$	3,099		$	1,952

The accompanying notes are an integral part of these financial statements

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Item 1.

MEDICAL ACTION INDUSTRIES INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 1. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q for quarterly reports under section 13 or 15(d) of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended September 30, 2006 are not necessarily indicative of the results that may be expected for the year ended March 31, 2007. For further information, refer to the financial statements and footnotes thereto included in the Company’s annual report for the year ended March 31, 2006.

STOCK COMPENSATION

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”). SFAS No. 123(R) requires that stock-based employee compensation be recorded as a charge to earnings. SFAS 123(R) is effective for interim and annual financial statements for years beginning after December 15, 2005 and will apply to all outstanding and unvested share-based payments at the time of adoption. Accordingly, we have adopted SFAS 123(R) commencing April 1, 2006 using a modified prospective application, as permitted by SFAS 123(R). Accordingly, prior period amounts have not been restated. Under this application, we are required to record compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption.

Prior to the adoption of SFAS No. 123(R), we applied Accounting Principles Board Opinions (“APB”) No. 25 and related interpretations to account for our stock plans resulting in the intrinsic value to value the stock. Under APB 25, we were not required to recognize compensation expense for the cost of stock options. In accordance with the adoption of SFAS 123(R), we recorded stock-based compensation expense for the cost of non-qualified stock options granted under our stock plans. Stock-based compensation expense recognized under the provisions of SFAS 123(R) were $493,000 ($305,000 after tax) and $822,000 ($509,000 after tax) or $.03 and $.05 per basic and diluted share for the three and six months ended September 30, 2006, respectively.

Note 2. STOCK-BASED COMPENSATION PLANS

During fiscal 1990, the Company’s Board of Directors and stockholders approved a Non-Qualified Stock Option Plan (the “Non-Qualified Option Plan”). The Non-Qualified Option

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Item 1.

Note 2. (continued)

Plan, as amended, authorizes the granting to employees of the Company options to purchase an aggregate of 2,650,000 shares of the Company’s common stock. The options are granted with an exercise price equal to the fair market price or at a value that is not less than 85% of the fair market value on the date of grant. The options are exercisable in two equal installments on the first and second anniversary of the date of grant. Options expire from five to ten years from the date of grant unless the employment is terminated, in which event, subject to certain exceptions, the options terminate two months subsequent to date of termination.

In 1994, the Company’s Board of Directors and stockholders approved the 1994 Stock Incentive Plan (the “Incentive Plan”), which, as amended, covers 2,350,000 shares of the Company’s common stock. The Incentive Plan, which expires in 2015, permits the granting of incentive stock options, shares of restricted stock and non-qualified stock options. All officers and key employees of the Company and its affiliates are eligible to participate in the Incentive Plan. The Incentive Plan is administered by the Compensation Committee of the Board of Directors, which determines the persons to whom, and the time at which, awards will be granted. In addition, the Compensation Committee decides the type of awards to be granted and all other related terms and conditions of the awards. The per share exercise price of any option may not be less than the fair market value of a share of common stock at the time of grant. No incentive options have been issued under this plan.

The following is a summary of the changes in restricted stock granted under the 1994 Stock Incentive Plan for the six months ended September 30, 2006:

	Shares	Weighted Average Grant Price
Outstanding at April 1, 2006	25,000	$	22.30
Granted	7,500	$	22.28
Outstanding at September 30, 2006	32,500	$	22.29

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

The Company’s 1996 Non-Employee Director Stock Option Plan (the “Director Plan”) was approved by the stockholders in August 1996 and, as amended, covers 500,000 shares of the Company’s common stock. Under the terms of the Director Plan, which expires in 2015, each non-employee director of the Company will be granted each year an option to purchase 2,500 shares of the Company’s common stock with an exercise price equal to the fair market price of common stock at the time of grant.

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Item 1.

Note 2. (continued)

Effective April 1, 2006, we adopted SFAS No. 123R, “Share-Based Payment,” which prescribes the accounting for equity instruments exchanged for employee and director services. Under SFAS No. 123R, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the grant, and is recognized as an expense over the service period applicable to the grantee. The service period is the period of time that the grantee must provide services to us before the stock-based compensation is fully vested. In March 2005, the SEC issued Staff Accounting Bulletin (“SAB”) No. 107, “Share-Based Payment,” relating to SFAS No. 123R. We have followed the SEC’s guidance in SAB No. 107 in our adoption of SFAS No. 123R.

We adopted SFAS No. 123R using the modified prospective transition method. Under this transition method, the financial statement amounts for the periods before fiscal 2007 have not been restated to reflect the fair value method of expensing the stock-based compensation. The compensation expense recognized on or after April 1, 2006 includes the compensation cost based on the grant-date fair value estimated in accordance with: (a) SFAS No. 123 for all stock-based compensation that was granted prior to, but vested on or after April 1, 2006; and (b) SFAS No. 123R for all stock-based compensation that was granted on or after April 1, 2006.

The following is a summary of the changes in outstanding options for the six months ended September 30, 2006:

	Shares	Weighted average exercise price		Weighted average contract life (years)	Aggregate intrinsic value
Outstanding at April 1, 2006	859,656	$	13.64		$	8,894,000
Granted	128,500	$	22.27		$	0
Exercised	9,406	$	15.81		$	80,000
Forfeited	16,750	$	18.19		$	0
Expired	22,500	$	9.79		$	0
Outstanding at September 30, 2006	939,500	$	14.81	7.2	$	11,345,000
Options exercisable at September 30, 2006	391,750	$	9.91	5.4	$	6,650,000

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Item 1.

Note 2. (continued)

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes options pricing model. The following weighted average assumptions were used for grants in the six months ended September 30, 2006: expected volatility of 35.0%; a risk-free interest rate of 4.9%; and an expected life of 5.3 years. The expected term of the options is based on evaluations of historical and expected future employee exercise behavior. The risk-free rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the life of the grant. The expected volatility is based on the historical volatility of the Company’s stock.

The weighted average fair value of options granted was $8.97 and $9.06 for the three and six months ended September 30, 2006, respectively. As of September 30, 2006, there was $2,534,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Company’s plans; that cost is expected to be recognized over a period of three years.

Prior to April 1, 2006, we accounted for stock-based compensation to employees and directors in accordance with the intrinsic value method under APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Under the intrinsic value method, no compensation expense was recognized in our financial statements for the stock-based compensation, because the stock-based compensation that we granted was non-qualified stock options and all of the stock options granted had exercise prices equivalent to the fair market value of our common stock on the grant date. We also followed the disclosure requirements of SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended, “Accounting for Stock-Based Compensation-Transition and Disclosure”.

Pro forma information required under SFAS No. 123 for periods prior to fiscal 2007 as if the Company had applied the fair value recognition provisions of SFAS No. 123, to options granted under the Company’s equity incentive plans, was as follows:

	Three Months Ended September 30, 2005 (dollars in thousands except per share data)		Six Months Ended September 30, 2005 (dollars in thousands except per share data)
Net income – as reported	$	2,964	$	5,449
Deduct: Total stock-based employee compensation expense determined under fair value based method from all awards, net of related tax effects		217		359
Net income – pro forma	$	2,747	$	5,090
Earnings per share as reported:
Basic	$	.28	$	.53
Diluted	$	.28	$	.52
Earnings per share – pro forma:
Basic	$	.26	$	.49
Diluted	$	.26	$	.49

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Item 1.

Note 3. INVENTORIES

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

	September 30, 2006		March 31, 2006
	(Unaudited)
	(dollars in thousands)
Finished Goods	$	14,594	$	13,121
Work in Process		127		—
Raw Materials		5,443		5,715
Total, net	$	20,164	$	18,836

On an ongoing basis, inventory quantities on hand are reviewed and an analysis of the provision for excess and obsolete inventory is performed based primarily on the Company’s estimated sales forecast of product demand, which is based on sales history and anticipated future demand. Such provision for excess and obsolete inventory approximated $316,000 and $174,000 at September 30, 2006 and March 31, 2006, respectively.

Note 4. NET INCOME PER SHARE

Basic earnings per share is based on the weighted average number of common shares outstanding without consideration of potential common shares. Diluted earnings per share is based on the weighted average number of common and potential common shares outstanding. The calculation takes into account the shares that may be issued upon exercise of stock options, reduced by the shares that may be repurchased with the funds received from the exercise, based on the average prices during the periods. Excluded from the calculation of earnings per share are options to purchase 204,000 shares for the three and six months ended September 30, 2005, as their inclusion would not have been dilutive. The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended September 30, 2006 and for the three and six months ended September 30, 2005.

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Item 1.

Note 4. (continued)

	Three Months Ended September 30,				Six Months Ended September 30,
	2006		2005		2006		2005
	(dollars in thousands except per share data)
Numerator:
Net income for basic and dilutive earnings per share	$	2,973	$	2,964	$	5,594	$	5,449
Denominator:
Denominator for basic earnings per share - weighted average shares		10,522,501		10,435,228		10,520,407		10,375,322
Effect of dilutive securities:
Employee and director stock options		184,627		141,290		179,941		160,338
Warrants		—		—		—		403
Dilutive potential common shares		184,627		141,290		179,941		160,741
Denominator for diluted earnings per share - adjusted weighted average
Shares		10,707,128		10,576,518		10,700,348		10,536,063
Basic earnings per share	$	.28	$	.28	$	.53	$	.53
Diluted earnings per share	$	.28	$	.28	$	.52	$	.52

Note 5. SHAREHOLDER’S EQUITY

For the three and six months ended September 30, 2006, 4,250 and 9,406 stock options were exercised by employees of the Company in accordance with the Company’s 1994 Stock Incentive Plan. The exercise price of the options exercised ranged from $16.31 per share to $17.22 per share for the three months ended September 30, 2006 and $12.75 per share to $17.22 per share for the six months ended September 30, 2006.

The net cash proceeds from these exercises were $72,000 and $149,000 for the three and six months ended September 30, 2006, respectively.

For the three and six months ended September 30, 2005, 96,500 and 164,375 stock options were exercised by employees of the Company in accordance with the Company’s 1989 Non-Qualified Stock Option Plan and the 1994 Stock Incentive Plan, respectively. The exercise price of the options exercised ranged from $3.00 per share to $13.97 per share for the three months ended September 30, 2005 and $2.88 per share to $13.97 per share for the six months ended September 30, 2005.

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Item 1.

Note 5. (continued)

The net cash proceeds from these exercises were $1,028,000 and $1,547,000 for the three and six months ended September 30, 2005, respectively.

Note 6. SUBSEQUENT EVENTS

On October 17, 2006, the Company entered into a credit agreement with certain lenders and a bank acting as administration agent for the lenders (the “Credit Agreement”). The Credit Agreement provides for borrowing of $75,000,000 and is divided into two types of borrowing facilities, (i) a term loan with a principal amount of $65,000,000 which is payable in twenty consecutive equal quarterly installments which will commence on March 31, 2007, and (ii) revolving credit loans, which amounts may be borrowed, repaid and reborrowed up to $10,000,000.

Both the term loan and revolving credit loans bear interest at the “alternate base rate” plus the applicable margin or at the Company’s option the “LIBOR rate” plus the “applicable margin.” The alternate base rate shall mean a rate per annum equal to the greater of (a) the Prime rate or (b) the Base CD rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus  ¹/2 of 1%. “Applicable margin” shall mean with respect to an adjusted LIBOR loan a range of 75 basis points to 150 basis points. With respect to an alternate base rate loan, the applicable margin shall range from 0 basis points to 50 basis points. The rates for both LIBOR and alternate base rate loans are established quarterly based upon agreed upon financial ratios. Borrowings under this agreement are collateralized by all the assets of the Company, and the agreement contains certain restrictive covenants, which, among other matters, impose limitations with respect to the incurrence of liens, guarantees, merger, acquisitions, capital expenditures, specified sales of assets and prohibits the payment of dividends. The Company is also required to maintain various financial ratios which will be measured quarterly.

The Company has entered into an agreement to purchase a building in the Hauppauge, NY area for $4,000,000 to function as its corporate headquarters. The Company plans on financing the purchase price with its revolving credit loans and cash provided by operations.

On October 17, 2006, the Company acquired through one of its subsidiaries, the stock of Medegen Medical Products, LLC (“MMP”). MMP is engaged in the business of high speed injection molding manufacturing, specializing in disposable products in the health care market. The aggregate purchase price for the acquisition was approximately $80,000,000 in cash. There are no contingencies associated with this purchase and $7,000,000 of the purchase price is held in escrow as security for the indemnification obligations in favor of the Company. In order to effectuate the transaction, the Company acquired from Medegen Holdings, LLC: (a) the entire equity interest in MMP; and (b) all of the Colorado fixed assets used by MMP in connection with their business. The Colorado fixed assets consist primarily of machinery, equipment and leasehold improvements. The Company utilized cash on hand and the funds available under its credit agreement in order to satisfy the purchase price. During the three months ended September 30, 2006, $185,000 of associated acquisition costs were incurred, which is included in goodwill.

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Item 1.

Note 7. IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 151, “Inventory Costs” (“SFAS 151”). SFAS 151 amends the guidance in Chapter 4 of Accounting Research Bulletin No. 43, “Inventory Pricing” to clarify the accounting for amounts of idle facility expense, freight, handling costs and wasted material. SFAS 151 requires that these types of items be recognized as current period charges as they occur. The provisions of SFAS 151 are effective for inventory costs incurred during fiscal years beginning after September 15, 2005. The adoption of this new pronouncement did not have a material impact on the Company’s financial position, results of operations or cash flow.

In December 2004, the FASB issued SFAS No. 123(R), “Accounting for Stock-Based Compensation” (“SFAS 123(R)”). SFAS 123(R) establishes standards for the accounting of transactions in which an entity exchanges its equity instruments for goods or services. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123(R) requires that the fair value of such equity instruments be recognized as expense in the historical financial statements as services are performed. See footnote 1 for the impact on the Company’s financial position and results of operations.

In July 2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes,” which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 is not expected to have a material impact on the Company’s financial position, results of operations or cash flow.

In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108 (“SAB 108”). Due to diversity in practice among registrants, SAB 108 expresses SEC staff views regarding the process by which misstatements in financial statements are evaluated for purposes of determining whether financial statement restatement is necessary. SAB 108 is effective for fiscal years ending after November 15, 2006, and early application is encouraged. The Company does not believe SAB 108 will have a material impact on its financial position or results from operations.

Note 8. OTHER MATTERS

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

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Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statement

This report on Form 10-Q contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include plans and objectives of management for future operations, including plans and objectives relating to the future economic performance and financial results of the Company. The forward-looking statements relate to (i) the expansion of the Company’s market share, (ii) the Company’s growth into new markets, (iii) the development of new products and product lines to appeal to the needs of the Company’s customers, (iv) the retention of the Company’s earnings for use in the operation and expansion of the Company’s business and (v) the ability of the Company to avoid information technology system failures which could disrupt the Company’s ability to function in the normal course of business by potentially causing delays or cancellation of customer orders, impeding the manufacture or shipment of products, or resulting in the unintentional disclosure of customer or Company information.

Important factors and risks that could cause actual results to differ materially from those referred to in the forward-looking statements include, but are not limited to, the effect of economic and market conditions, the impact of the consolidation throughout the healthcare supply chain, the impact of healthcare reform, opportunities for acquisitions and the Company’s ability to effectively integrate acquired companies, the ability of the Company to maintain its gross profit margins, the ability to obtain additional financing to expand the Company’s business, the failure of the Company to successfully compete with the Company’s competitors that have greater financial resources, the loss of key management personnel or the inability of the Company to attract and retain qualified personnel, the impact of current or pending legislation and regulation, as well as the risks described from time to time in the Company’s filings with the Securities and Exchange Commission, which include this report on Form 10-Q and the Company’s annual report on Form 10-K for the year ended March 31, 2006.

The forward-looking statements are based on current expectations and involve a number of known and unknown risks and uncertainties that could cause the actual results, performance and/or achievements of the Company to differ materially from any future results, performance or achievements, express or implied, by the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, and that in light of the significant uncertainties inherent in forward-looking statements, the inclusion of such statements should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved.

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Item 2.

Three Months ended September 30, 2006 compared to Three Months ended September 30, 2005

Overview

The following table sets forth certain operational data for the periods indicated:

	Three months ended September 30,
	2006		2005
	(dollars in thousands)
Net sales	$	42,173	$	37,595
Gross profit	$	10,693	$	9,817
Selling, general and administrative expenses	$	6,065	$	5,097
Income before income taxes	$	4,802	$	4,728
Net income	$	2,973	$	2,964

The following table sets forth certain operational data as a percentage of net sales for the periods indicated:

	Three months ended September 30,
	2006		2005
Net sales	100.0	%	100.0	%
Gross profit	25.4	%	26.1	%
Selling, general and administrative expenses	14.4	%	13.6	%
Income before income taxes	11.4	%	12.6	%
Net income	7.0	%	7.9	%

The Company’s revenue increased by $4,578,000 or 12% to $42,173,000 and its net income increased by $9,000 or less than 1% to $2,973,000 for the quarter ended September 30, 2006 over the quarter ended September 30, 2005.

The Company has entered into agreements with nearly every major group purchasing organization. These agreements, which expire at various times over the next several years, can be terminated typically on ninety (90) day advance notice and do not contain minimum purchase requirements. The Company, to date, has been able to achieve significant compliance to their respective member hospitals. The termination of any of these agreements may result in the significant loss of business. In some cases, as these agreements are renewed, the average selling prices could be materially lower.

Containment systems for medical waste represents approximately 27% of the Company’s revenue. The primary raw material utilized in the manufacture of this product line is plastic resin. During fiscal 2006, world events continued to cause the cost of plastic resin to increase and be extremely volatile. The Company anticipates this may continue throughout fiscal 2007 and into fiscal 2008. In the past, the Company has been able, from time to time, to increase selling prices for certain of these products to recover a portion of the increased cost. However, the Company is unable to give any assurance that it will be able to pass along future cost increases to its customers, if necessary.

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Item 2.

Gross margin dollars increased primarily due to increased sales volume from greater domestic market penetration primarily of its minor procedure kits and trays product line and its containment systems for medical waste product line. Gross margin as a percentage of sales decreased primarily due to increased raw material costs.

Results of Operations

The following table sets forth the major sales variance components for the quarter ended September 30, 2006 versus September 30, 2005:

(dollars in thousands)
Three months ended September 30, 2005 net sales	$	37,595
New products		857
Volume of existing products		2,912
Price/sales mix, net		809
Three months ended September 30, 2006 net sales	$	42,173

Net sales for the three months ended September 30, 2006 increased $4,578,000 or 12% to $42,173,000 from $37,595,000 for the three months ended September 30, 2005. The increase in net sales of $4,578,000 was primarily attributed to a $537,000 or 5% increase in net sales of containment systems for medical waste and a $2,144,000 or 20% increase in net sales of minor procedure kits and trays. Laparotomy sponge sales dollars decreased $98,000 or 3%. Net sales of operating room towels increased $426,000 or 7%. The increase in net sales was primarily attributed to $857,000 of net sales of new products, an increase of $2,912,000 due to increased sales volume of existing products and an increase of $809,000 due to higher average selling prices and change in sales mix on existing products.

Net sales of containment systems for medical waste and minor procedure kits and trays increased primarily due to greater domestic market penetration. Unit sales of minor procedure kits and trays increased 16% and average selling prices increased 4%. Unit sales of containment systems for medical waste increased 3% and average selling prices increased approximately 2%. Unit sales of operating room towels increased 8% and average selling prices decreased 1%. Unit sales of laparotomy sponges decreased 2% and average selling prices decreased 1%. Management believes that the decrease in average selling prices of operating room towels and laparotomy sponges was primarily due to increased competition in the domestic market, which it believes will continue throughout fiscal 2007. Management believes that the increase in net selling prices in containment systems was as a result of increased selling prices for certain of these products to recover a portion of increased resin costs.

Gross profit for the three months ended September 30, 2006 increased 9% to $10,693,000 from $9,817,000 for the three months ended September 30, 2005. Gross profit as a percentage of net sales for the three months ended September 30, 2006 decreased slightly to 25.4% from 26.1% for the three months ended September 30, 2005. Gross margin dollars increased primarily due to

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Item 2.

increased sales volume from greater domestic market penetration primarily of its minor procedure kits and trays product line and its containment systems for medical waste product line. Gross margin as a percentage of sales decreased primarily due to increased material costs, and to a lesser extent the Company’s implementation of SFAS No. 123(R) (Accounting for Stock Based Compensation).

The following table sets forth sales, cost of sales and selling, general and administrative expense data for the periods indicated:

	Three months ended September 30,
	2006			2005
	(dollars in thousands)
Net sales	$	42,173		$	37,595
Cost of sales	$	31,480		$	27,778
Gross profit	$	10,693		$	9,817
Gross profit percentage		25.4	%		26.1	%
Selling, general and administrative expenses	$	6,065		$	5,097
As a percentage of net sales		14.4	%		13.6	%

Selling, general and administrative expenses for the three months ended September 30, 2006 increased 19% to $6,065,000 from $5,097,000 for the three months ended September 30, 2005. As a percentage of net sales, selling, general and administrative expenses increased to 14.4% for the three months ended September 30, 2006 from 13.6% for the three months ended September 30, 2005. Selling, general and administrative expenses increased primarily due to increased compensation and related expenses of $604,000 incurred as a result of the Company’s current and anticipated future growth. Approximately $285,000 of the compensation and related expenses are attributable to the Company’s implementation of SFAS No. 123(R) (Accounting for Stock Based Compensation).

Interest expense for the three months ended September 30, 2006 decreased 40% to $6,000 from $10,000 for the three months ended September 30, 2005. Interest income for the three months ended September 30, 2006 increased $162,000 to $180,000 from $18,000 for the three months ended September 30, 2005. The decrease in interest expense and increase in interest income was attributable to a net decrease in the average principal loan balances outstanding and an increase in the average cash and cash equivalents balance during the quarter ended September 30, 2006 as compared to the quarter ended September 30, 2005. Interest income also increased to a lesser extent due to increased interest rates. The decrease in loan balances and increase in cash and cash equivalents was primarily attributable to net cash provided by operating activities.

Net income for the three months ended September 30, 2006 increased to $2,973,000 from $2,964,000 for the three months ended September 30, 2005. The increase in net income is attributable to the aforementioned increase in net sales, gross profit, interest income and a decrease in interest expense, which were partially offset by an increase in selling, general and administrative expenses.

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Item 2.

Six Months ended September 30, 2006 compared to Six Months ended September 30, 2005

Overview

The following table sets forth certain operational data for the periods indicated:

	Six months ended September 30,
	2006		2005
	(dollars in thousands)
Net sales	$	81,204	$	73,571
Gross profit	$	20,327	$	18,807
Selling, general and administrative expenses	$	11,625	$	10,129
Income before income taxes	$	9,023	$	8,660
Net income	$	5,594	$	5,449

The following table sets forth certain operational data as a percentage of net sales for the periods indicated:

	Six months ended September 30,
	2006		2005
Net sales	100.0	%	100.0	%
Gross profit	25.0	%	25.6	%
Selling, general and administrative expenses	14.3	%	13.8	%
Income before income taxes	11.1	%	11.8	%
Net income	6.9	%	7.4	%

The Company’s revenue increased by $7,633,000 or 10% to $81,204,000 and its net income increased by $145,000 or 3% to $5,594,000 for the six months ended September 30, 2006 over the six months ended September 30, 2005.

The Company has entered into agreements with nearly every major group purchasing organization. These agreements, which expire at various times over the next several years, can be terminated typically on ninety (90) day advance notice and do not contain minimum purchase requirements. The Company, to date, has been able to achieve significant compliance to their respective member hospitals. The termination of any of these agreements may result in the significant loss of business. In some cases, as these agreements are renewed, the average selling prices could be materially lower.

Containment systems for medical waste represents approximately 28% of the Company’s revenue. The primary raw material utilized in the manufacture of this product line is plastic resin. During fiscal 2006, world events continued to cause the cost of plastic resin to increase and be extremely volatile. The Company anticipates this may continue throughout fiscal 2007 and into fiscal 2008. In the past, the Company has been able, from time to time, to increase selling prices for certain of these products to recover a portion of the increased cost. However, the Company is unable to give any assurance that it will be able to pass along future cost increases to its customers, if necessary.

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Item 2.

Gross margin dollars increased primarily due to increased sales volume from greater domestic market penetration primarily of its minor procedure kits and trays product line and its containment systems for medical waste product line. Gross margin as a percentage of sales decreased primarily due to increased material costs.

Results of Operations

The following table sets forth the major sales variance components for the six months ended September 30, 2006 versus September 30, 2005:

(dollars in thousands)
Three months ended September 30, 2005 net sales	$	73,571
New products		1,105
Volume of existing products		5,556
Price/sales mix, net		972
Three months ended September 30, 2006 net sales	$	81,204

Net sales for the six months ended September 30, 2006 increased $7,633,000 or 10% to $81,204,000 from $73,571,000 for the six months ended September 30, 2005. The increase in net sales of $7,633,000 was primarily attributed to a $1,889,000 or 9% increase in net sales of containment systems for medical waste and a $3,771,000 or 18% increase in net sales of minor procedure kits and trays. Laparotomy sponge sales dollars decreased $321,000 or 5%. Net sales of operating room towels increased $886,000 or 7%. The increase in net sales was primarily attributed to $1,105,000 of net sales of new products, an increase of $5,556,000 due to increased sales volume of existing products and an increase of $972,000 due to higher average selling prices and change in sales mix on existing products.

Net sales of containment systems for medical waste and minor procedure kits and trays increased primarily due to greater domestic market penetration. Unit sales of minor procedure kits and trays increased 16% and average selling prices increased 3%. Unit sales of containment systems for medical waste increased 7% and average selling prices increased approximately 2%. Unit sales of operating room towels increased 10% and average selling prices decreased 2%. Unit sales of laparotomy sponges decreased 2% and average selling prices decreased 2%. Management believes that the decrease in average selling prices of operating room towels and laparotomy sponges was primarily due to increased competition in the domestic market, which it believes will continue throughout fiscal 2007. Management believes that the increase in net selling prices in containment systems was as a result of increased selling prices for certain of these products to recover a portion of increased resin costs.

Gross profit for the six months ended September 30, 2006 increased 8% to $20,327,000 from $18,807,000 for the six months ended September 30, 2005. Gross profit as a percentage of net sales for the six months ended September 30, 2006 decreased slightly to 25.0% from 25.6% for the six months ended September 30, 2005. Gross margin dollars increased primarily due to increased sales

- 21 -

Item 2.

volume from greater domestic market penetration primarily of its minor procedure kits and trays product line and its containment systems for medical waste product line. Gross margin as a percentage of sales decreased primarily due to increased raw material costs, and to a lesser extent the Company’s implementation of SFAS No. 123(R) (Accounting for Stock Based Compensation).

The following table sets forth sales, cost of sales and selling, general and administrative expense data for the periods indicated:

	Six months ended September 30,
	2006			2005
	(dollars in thousands)
Net sales	$	81,204		$	73,571
Cost of sales	$	60,877		$	54,764
Gross profit	$	20,327		$	18,807
Gross profit percentage		25.0	%		25.6	%
Selling, general and administrative expenses	$	11,625		$	10,129
As a percentage of net sales		14.3	%		13.8	%

Selling, general and administrative expenses for the six months ended September 30, 2006 increased 15% to $11,625,000 from $10,129,000 for the six months ended September 30, 2005. As a percentage of net sales, selling, general and administrative expenses increased to 14.3% for the six months ended September 30, 2006 from 13.8% for the six months ended September 30, 2005. Selling, general and administrative expenses increased primarily due to increased compensation and related expenses of $1,215,000 incurred as a result of the Company’s current and anticipated future growth. Approximately $532,000 of the compensation and related expenses are attributable to the Company’s implementation of SFAS No. 123(R) (Accounting for Stock Based Compensation).

Interest expense for the six months ended September 30, 2006 decreased 68% to $12,000 from $38,000 for the six months ended September 30, 2005. Interest income for the six months ended September 30, 2006 increased $313,000 to $333,000 from $20,000 for the six months ended September 30, 2005. The decrease in interest expense and increase in interest income was attributable to a net decrease in the average principal loan balances outstanding and an increase in the average cash and cash equivalents balance during the six months ended September 30, 2006 as compared to the six months ended September 30, 2005. Interest income also increased to a lesser extent due to increased interest rates. The decrease in loan balances and increase in cash and cash equivalents was primarily attributable to net cash provided by operating activities.

Net income for the six months ended September 30, 2006 increased to $5,594,000 from $5,449,000 for the six months ended September 30, 2005. The increase in net income is attributable to the aforementioned increase in net sales, gross profit, interest income and a decrease in interest expense, which were partially offset by an increase in selling, general and administrative expenses.

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Item 2.

Liquidity and Capital Resources

The following table sets forth certain liquidity and capital resources data for the periods indicated:

	September 30, 2006		March 31, 2006
	(Unaudited)
	(dollars in thousands)
Cash and cash equivalents	$	18,681	$	16,068
Accounts Receivable, net	$	13,059	$	11,045
Days Sales Outstanding		26.7		26.9
Inventories, net	$	20,164	$	18,836
Inventory Turnover		6.6		5.9
Current Assets	$	54,050	$	47,209
Working Capital	$	44,083	$	37,430
Current Ratio		5.4		4.8
Total Borrowings	$	2,620	$	2,800
Shareholder’s Equity	$	89,864	$	83,143
Debt to Equity Ratio		0.03		0.03

The Company had working capital of $44,083,000 with a current ratio of 5.4 to 1 at September 30, 2006 as compared to working capital of $37,430,000 with a current ratio of 4.8 to 1 at March 31, 2006. Total borrowings outstanding were $2,620,000 with a debt to equity ratio of .03 to 1 at September 30, 2006 as compared to $2,800,000 with a debt to equity ratio of .03 to 1 at March 31, 2006. The increase in cash at September 30, 2006 was primarily attributable to net cash provided by operating activities of $3,272,000.

The Company has financed its operations primarily through cash flow from operations. At September 30, 2006, the Company had a cash balance of $18,681,000 compared to $16,068,000 at March 31, 2006.

The Company’s operating activities provided cash of $3,272,000 for the six months ended September 30, 2006 as compared to $5,328,000 provided for the six months ended September 30, 2005. Net cash provided during the six months ended September 30, 2006 consisted primarily of net income from operations, depreciation and amortization, stock-based compensation and an increase in income taxes payable. This was partially offset by increases in accounts receivable, inventories and prepaid expenses and other current assets and decreases in accounts payable. The increase in accounts receivable at September 30, 2006 was due to a higher concentration of sales at the end of the quarter when compared to the quarter ended March 31, 2006. The increase in inventories was due to increased stocking requirements necessary to support increased sales volume and due to purchasing strategies.

Investing activities used net cash of $628,000 and $420,000 for the six months ended September 30, 2006 and September 30, 2005, respectively. The principal activity during the six months ended September 30, 2006 was purchases of property and equipment totaling $569,000, and purchase price and related acquisition cots of $185,000, which was partially offset by the repayment of loans to officers in the amount of $126,000.

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Item 2.

Financing activities used cash of $31,000 for the six months ended September 30, 2006 compared to $1,367,000 provided for the six months ended September 30, 2005. Financing activities consisted primarily of principal payments on outstanding debt in the amount of $180,000, which was partially offset by proceeds from the exercise of employee stock options in the amount of $149,000.

As of March 31, 2005, the Company has entered into a material commitment to purchase and implement an enterprise resource planning system. As of September 30, 2006 the Company has incurred $1,307,000 in costs related to this project which is included in other assets. Approximately $138,000 of these costs were incurred during the six months ended September 30, 2006. It is anticipated that the total cost of the project will be approximately $2,200,000 and will be completed sometime during the third quarter of fiscal 2007.

On October 26, 2005 the Company amended its credit agreement with certain lenders and a bank acting as administration agent for the lenders (the “Credit Agreement”). The Credit Agreement provides for borrowing on revolving credit loans, with amounts that may be borrowed, repaid and reborrowed up to $10,000,000. The revolving credit agreement expires on October 25, 2006. The revolving credit loans shall bear interest from inception on the unpaid principal at the applicable interest rate. There are no outstanding borrowings on the credit agreement at September 30, 2006.

On October 17, 2006, the Company entered into a credit agreement with certain lenders and a bank acting as administration agent for the lenders (the “Credit Agreement”). The Credit Agreement provides for borrowing of $75,000,000 and is divided into two types of borrowing facilities, (i) a term loan with a principal amount of $65,000,000 which is payable in twenty consecutive equal quarterly installments which will commence on March 31, 2007, and (ii) revolving credit loans, which amounts may be borrowed, repaid and reborrowed up to $10,000,000.

Both the term loan and revolving credit loans bear interest at the “alternate base rate” plus the applicable margin or at the Company’s option the “LIBOR rate” plus the “applicable margin.” The alternate base rate shall mean a rate per annum equal to the greater of (a) the Prime rate or (b) the Base CD rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus  ¹/2 of 1%. “Applicable margin” shall mean with respect to an adjusted LIBOR loan a range of 75 basis points to 150 basis points. With respect to an alternate base rate loan, the applicable margin shall range from 0 basis points to 50 basis points. The rates for both LIBOR and alternate base rate loans are established quarterly based upon agreed upon financial ratios. Borrowings under this agreement are collateralized by all the assets of the Company, and the agreement contains certain restrictive covenants, which, among other matters, impose limitations with respect to the incurrence of liens, guarantees, merger, acquisitions, capital expenditures, specified sales of assets and prohibits the payment of dividends. The Company is also required to maintain various financial ratios which will be measured quarterly.

The Company has entered into an agreement to purchase a building in the Hauppauge, NY area for $4,000,000 to function as its corporate headquarters. The Company plans on financing the purchase price with its revolving credit loans and cash provided by operations.

On October 17, 2006, the Company acquired through one of its subsidiaries, the business of Medegen Medical Products, LLC (“MMP”). MMP is engaged in the business of high speed injection molding manufacturing, specializing in disposable products in the health care market. The

- 24 -

Item 2.

aggregate purchase price for the acquisition was approximately $80,000,000 in cash. There are no contingencies associated with this purchase and $7,000,000 of the purchase price is held in escrow as security for the indemnification obligations in favor of the Company. In order to effectuate the transaction, the Company acquired from Medegen Holdings, LLC: (a) the entire equity interest in MMP; and (b) all of the Colorado fixed assets used by MMP in connection with their business. The Colorado fixed assets consist primarily of machinery, equipment and leasehold improvements. The Company utilized cash on hand and the funds available under its credit agreement in order to satisfy the purchase price. During the three months ended September 30, 2006, $185,000 of associated acquisition costs were incurred.

The Company believes that the anticipated future cash flow from operations, coupled with its cash on hand and available funds under its revolving credit agreement, will be sufficient to meet working capital requirements.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to interest rate change market risk with respect to its credit facility with a financial institution which is priced based on the alternate base rate of interest plus a spread of up to  ³/4%, or at LIBOR rate plus a spread of up to 3  ¹/4 %. The spread over the alternate base rate and LIBOR rates is determined based upon the Company’s performance with regard to agreed-upon financial ratios. The Company decides at its sole discretion as to whether borrowings will be at the alternate base rate or LIBOR. At September 30, 2006, there was no outstanding balance under the credit facility. Changes in the alternate base rates or LIBOR rates during fiscal 2007 will have a positive or negative effect on the Company’s interest expense.

In addition, the Company is exposed to interest rate change market risk with respect to the proceeds received from the issuance and sale by the Buncombe County Industrial and Pollution Control Financing Authority Industrial Development Revenue Bonds. At September 30, 2006, $2,620,000 was outstanding for these Bonds. The Bonds bear interest at a variable rate determined weekly. During the six months ended September 30, 2006, the average interest rate on the Bonds approximated 3.7%. Each 1% fluctuation in interest rates will increase or decrease the interest expense on the Bonds by approximately $26,000 on an annualized basis.

A significant portion of the Company’s raw materials are purchased from China. All such purchases are transacted in U.S. dollars. The Company’s financial results, therefore, could be impacted by factors such as changes in foreign currency, exchange rates or weak economic conditions in foreign countries in the procurement of such raw materials. To date, sales of the Company’s products outside the United States have not been significant.

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Item 4.

Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and our Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As indicated in the certifications in Exhibit 32.1 and 32.2 of this report, our Chief Executive Officer and our Principal Financial Officer, with the assistance of other members of our management, have evaluated our 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 of our disclosure controls and procedures required by Securities Exchange Act Rules 13a-15(b) or 15d-15(b), our Chief Executive Officer and Principal Financial Officer have concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective for the purpose of ensuring that material information required to be in this quarterly report is made known to them by others on a timely basis.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Change to Internal Control over Financial Reporting

We are involved in ongoing evaluations of internal controls. In anticipation of the filing of this Form 10-Q, our Chief Executive Officer and Principal Financial Officer, with the assistance of other members of our management, reviewed our internal controls and have determined, based on such review, that there have been no changes in internal control over financial reporting during the quarter ended September 30, 2006 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

- 26 -

MEDICAL ACTION INDUSTRIES INC.

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings
	There are no material legal proceedings against the Company or in which any of its property is subject.
Item 2.	Changes in Securities
	None
Item 3.	Defaults upon Senior Securities
	None
Item 4.	Submission of Matters to a Vote of Security Holders
	A.     The Registrant held its Annual Meeting of Stockholders on August 17, 2006.
	B.     Two Directors were elected at the Annual Meeting to serve until the Annual Meeting of Stockholders in 2009. The names of the Directors and votes cast in favor of their election and votes withheld are as follows:
	Name                                         Votes for                      Votes Withheld
	Richard G. Satin                       9,156,671                           340,119
	Henry A. Berling                      9,156,671                            340,119
	And, a nominee to serve in Class II until the Annual Meeting of Stockholders in 2007:
	Kenneth R. Newsome               9,156,671                           340,119
	C.     The stockholders also approved a proposal to amend Article “4” of the Certificate of Incorporation to increase the number of authorized common shares of the Company from 15,000,000 to 40,000,000; 8,607,852 shares voted in favor of the proposal, 880,247 shares voted against and 8,689 shares abstaining from voting.
	D.     The stockholders also approved a proposal to amend the Company’s 1994 Stock Incentive Plan to: (a) extend the termination date of the Incentive Plan from August 10, 2009 to December 31, 2015; and (b) increase the number of shares issuable thereunder from 1,850,000 to 2,350,000; 7,098,245 shares voted in favor of the proposal, 746,245 shares voted against and 15,143 shares abstaining from voting.

- 27 -

	E.     The stockholders also approved a proposal to amend the Company’s 1989 Non-Qualified Stock Option Plan to: (a) extend the termination date of the Option Plan from October 24, 2009 to December 31, 2015; and (b) increase the number of shares issuable thereunder from 2,150,000 to 2,650,000; 7,052,320 shares voted in favor of the proposal, 781,532 shares voted against and 25,781 shares abstaining from voting.
	F.      The stockholders also approved a proposal to amend the Company’s 1996 Non-Employee Directors Stock Option Plan to: (a) extend the termination date of the Directors Plan from August 17, 2006 to December 31, 2015; and (b) increase the number of shares issuable thereunder from 100,000 to 500,000; 7,337,250 shares voted in favor of the proposal, 495,941 shares voted against and 23,865 shares abstaining from voting.
	G.     The stockholders also approved a proposal to ratify the appointment of Grant Thornton LLP as independent certified public accountants of the Company for the fiscal year ended March 31, 2007; 9,309,406 shares voted in favor of the proposal, 179,139 shares voted against and 8,244 shares abstaining from voting.
Item 5.	Other Information
	None
Item 6.	Exhibits and Reports on Form 8-K
	(a)    Exhibits
	31.1 and 31.2 – Certifications pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
	32.1 and 32.2 – Certifications pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	(b)    Reports on Form 8-K
	(i)     Current Report on Form 8-K dated August 2, 2006, covering Item 7.01 – Results of Operations and Financial Condition and Item 9.01 – Financial Statements and Exhibits

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

- 28 -

	MEDICAL ACTION INDUSTRIES INC.
Dated: October 31, 2006	By:	/s/ Richard G. Satin
		Richard G. Satin
		Principal Financial Officer Vice President of Operations and General Counsel

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