Edgar Filing: MERIDIAN MEDICAL TECHNOLOGIES INC

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

FORM 10-K
(MARK ONE)

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

For the fiscal year ended JULY 31, 2001
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ___________.
Commission File Number 0-5958
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MERIDIAN MEDICAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 52-0898764
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)

10240 OLD COLUMBIA ROAD, COLUMBIA, MARYLAND 21046
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(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: 410-309-6830
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g)
of the Act: COMMON STOCK, $.10 PAR VALUE

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K any amendment
to this Form 10-K. [ ]

As of September 28, 2001, the aggregate market value of voting stock
held by non-affiliates of the Registrant, based on the average of the high and
low sales prices of such stock reported by the National Association of
Securities Dealers, Inc. on such date, was approximately $60.8 million.

There were 3,197,088 shares of Registrant's common stock outstanding as
of September 28, 2001.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Meridian Medical Technologies, Inc. definitive Proxy Statement
for the Annual Meeting of Shareholders for the fiscal year ended July 31, 2001
are incorporated by reference into Part III of this Form 10-K.

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Page 1 of 51

TABLE OF CONTENTS

PAGE
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PART I

ITEM 1. BUSINESS

General 4

Products and Services 5

Pharmaceutical Systems 5

Cardiopulmonary Systems 9

Competition 11

Backlog 11

Patents, Trademarks, and Licenses 11

Product Liability Insurance 12

Sources and Availability of Raw Materials 12

Government Regulation 12

Employees 14

ITEM 2. PROPERTIES 14

ITEM 3. LEGAL PROCEEDINGS 14

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 15

EXECUTIVE OFFICERS AND CERTAIN SIGNIFICANT EMPLOYEES
OF THE REGISTRANT (UNNUMBERED ITEM) 15

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS 17

ITEM 6. SELECTED FINANCIAL DATA 18

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 19

TABLE OF CONTENTS

PAGE
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 23

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 24

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 44

PART III

ITEMS 10. THROUGH 13.

(Incorporated by reference from the definitive Proxy Statement for the
Annual Meeting of Shareholders for the fiscal year ended July 31, 2001,
which will be filed with the Securities and Exchange Commission not
later than 120 days after the end of that fiscal year)

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND
REPORTS ON FORM 8-K 44

SIGNATURES 47

EXHIBIT INDEX 48

FORWARD LOOKING STATEMENTS

This report and other written and oral statements made by the Company may
contain forward-looking statements within the meaning of the Private Securities
Litigation Reform Act with respect to financial performance and other financial
and business matters. Forward-looking statements are typically identified by
future or conditional verbs or similar expressions regarding events that have
yet to occur. These forward-looking statements are based on the Company's
current expectations and are subject to numerous assumptions, risks and
uncertainties. The following factors, among others, could cause actual results
to differ materially from forward-looking statements or historical performance:
political, economic and competitive conditions; capital availability or costs;
fluctuations in demand for the Company's products; government procurement timing
and policies; technological challenges associated with the development and
manufacture of the Company's products; commercial acceptance of the Company's
products; delays, costs and uncertainties associated with clinical testing and
government approvals required to market new drugs and medical devices;
availability and quality of raw materials; success and timing of efficiency,
cost reduction and quality enhancement programs; regulatory and contract
compliance; relationships with significant customers; adequacy of product
liability insurance; ability to obtain, timing and success of marketing
representatives and strategic alliances; and adequacy of intellectual property
protection. Meridian assumes no duty to update forward-looking statements.

PART I

ITEM 1. BUSINESS

GENERAL

Meridian Medical Technologies, Inc. (referred to in this report as the
"Company", "MMT" or "Meridian") is a medical technology company operating in two
segments: Pharmaceutical Systems and Cardiopulmonary Systems.

Pharmaceutical Systems - The Pharmaceutical Systems segment consists of the
Commercial and Government businesses, both of which utilize the Company's
auto-injector technology. The principal source of Commercial revenue currently
is the EpiPen(R) family of auto-injectors, which are prescribed for severe
allergic reactions and other causes of anaphylaxis. Government revenues are
principally generated from auto-injector products and services marketed to the
U.S. Department of Defense ("DoD"), and other federal, state, local, and foreign
governments. Marketing efforts from this unit focus on maintaining the
Industrial Base Maintenance Contract with the U.S. Department of Defense, as
well as expanding Homeland Defense and international market applications.

Cardiopulmonary Systems - The Cardiopulmonary Systems segment utilizes the
Company's electrocardiology and telemedicine technologies. Telemedicine sales
currently are the principal source of revenue. In fiscal 2000, the Company
introduced its PRIME ECG(TM) electrocardiac mapping system in certain countries
outside the United States after several years of development. An application was
submitted to the FDA in fiscal 2001 for clearance to market PRIME in the U.S.
Management believes that PRIME ECG(TM) has the potential to become the standard
ECG system of the future and to generate significant revenues and profits for
the Company.

PRODUCTS AND SERVICES

Revenues from MMT's two segments and gross profit for the five years ended July
31, 2001 are as follows (in thousands):

Year Ended July 31,
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2001 2000 1999 1998 1997
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Pharmaceutical Systems
Commercial $ 33,839 $ 27,036 $ 14,405 $ 22,414 $ 20,079
Government 21,425 26,070 24,485 21,165 17,825
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55,264 53,106 38,890 43,579 37,904

Cardiopulmonary Systems 2,826 1,501 1,840 1,089 2,761
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Total Revenues 58,090 54,607 40,730 44,668 40,655

Gross Profit 24,305 22,016 12,710 17,577 15,044
Gross Profit % 41.8% 40.3% 31.2% 39.4% 37.0%

PHARMACEUTICAL SYSTEMS

The Company pioneered the development of auto-injectors for the
self-administration of injectable drugs. An auto-injector is a prefilled,
pen-like device that allows a patient to automatically inject a precise drug
dosage quickly, safely, and reliably. Meridian manufactures a family of
spring-loaded, needle based auto-injectors. These auto-injectors are a
convenient, disposable, one-time use drug delivery system designed to improve
the medical and economic value of many drug therapies. The product is well
suited for the administration of certain drugs and is currently marketed with
epinephrine for the treatment of allergic reactions, lidocaine for the treatment
of cardiac arrhythmias, morphine for the management of pain, diazepam for the
treatment of seizures, and antidotes for the treatment of nerve agent exposure.
The auto-injector offers a common delivery system platform that can be used for
both commercial and government new product needs. It is anticipated that the
Company's initial new product range will be based on its auto-injector delivery
systems but it is anticipated that over time will expand to include other drug
delivery product technologies. MMT also supplies customized drug delivery system
design, pharmaceutical research and development and FDA current Good
Manufacturing Practice (cGMP)-approved sterile product manufacturing to
pharmaceutical and biotechnology companies.

Commercial

MMT currently manufactures the EpiPen and other commercial auto-injectors,
provides contract research and development, and performs pharmaceutical
manufacturing for some of the leading pharmaceutical and biotechnology
companies.

a. EpiPen

The EpiPen auto-injector currently accounts for a majority of the Company's
commercial sales. The EpiPen is prescribed to patients at risk of anaphylaxis
resulting from severe allergic reactions to insect stings or bites, foods, drugs
and other allergens, as well as idiopathic or exercise induced anaphylaxis. It
is generally estimated that over five million people in the U.S. are at risk of
developing moderate to severe anaphylaxis due to allergic reactions to insect
stings and various foods. EpiPen is available in two dosage strengths, and
permits the immediate self-injection of epinephrine, the drug of choice for
emergency treatment of such conditions. The EpiPen was the Company's first major
commercial auto-injector, and demand for the EpiPen continues to be strong due
to increased awareness of the health risks associated with allergic reactions,
particularly those associated with food. The Company owns the New Drug
Application ("NDA") for EpiPen and markets the product through a supply
agreement with Dey L.P. ("Dey"), an associate of Merck KgaA, Darmstadt, Germany.
The supply agreement has a ten-year term, expiring December 31, 2010. Within the
agreement, the Company grants to Dey the exclusive right and license to market,
distribute, and sell the EpiPen worldwide. Currently, approximately 24% of the
unit sales are for ultimate international sales.

b. Contract Research and Development

The Company provides research and development services on a contract basis to a
number of different pharmaceutical and biotechnology companies, including the
following:

Genetech,
Sumitomo,
Human Genome Sciences,
Elan, and
AstraZeneca.

Development programs include feasibility and stability studies as well as the
manufacturing of clinical trial materials in the Company's pilot plant. If
feasibility and stability studies are successful and all regulatory approvals
are received, the Company anticipates licensing fees and contracts in future
years to manufacture these products. Revenue from customer-funded research and
development activities was $3.1 million, $1.5 million and $1.8 million during
fiscal years 2001, 2000 and 1999, respectively.

The Company has sterile parenteral pharmaceutical manufacturing and packaging
capabilities for a broad range of sterile injectable dosage forms which includes
vials, cartridges, pre-filled syringes, and auto-injectors. Further, the
Pharmaceutical Systems business provides fully validated formulation and aseptic
filling services and regulatory and clinical trial assistance for pharmaceutical
and biotechnology companies not currently possessing such capabilities or
requiring outside support. The Company currently manufactures product for
Schering-Plough, and previously did so for Mylan Laboratories.

c. Specialty Pharmaceutical Initiative

The Company will continue to explore additional pharmaceutical products as it
expands its commercial business into Specialty Pharmaceuticals. The Company's
initial focus will be on products that require emergency administration and
where the patient or caregiver will benefit by administration with an
auto-injector. Initially focused on central nervous system (CNS) drugs, the
Company intends to build the required sales and marketing infrastructure to
support the initial product launch of an auto-injector product. The product is
presently undergoing clinical trials and, subject to receipt of FDA approval,
direct sales are targeted to commence late in fiscal 2002. The Company intends
to pursue follow on products utilizing its auto-injector technology, as well as
through externally acquired products and technology.

Government

The Government Systems business unit supplies auto-injector-based antidotes and
emergency medicine products to military and civilian organizations worldwide,
with revenues from the United States and 20 allied countries over the last three
years. MMT's major Government Systems customer continues to be the DoD. Through
a combination of the Industrial Base Maintenance Contract (described below) and
new product development contracts, MMT expects to maintain a strong and stable
business relationship with the DoD.

MMT plans to capitalize on the auto-injector delivery systems developed for
government applications by expanding Government Systems revenue and providing
new drug delivery technology for application in its commercial business unit.
The Company continues to advance its multichambered auto-injector ("MA"), which
provides a two-chamber technology for the enhanced absorption of two
incompatible drug compounds from the same injection site. The multichambered
technology was developed for the DoD, and the DoD retains ownership of the NDA,
which is currently awaiting FDA approval. The Company retains the right to
produce and market the product subject to FDA approval.

Currently fielded products for the U.S. include: the AtroPen, containing
atropine and the ComboPen, containing pralidoxime, both used as nerve agent
antidotes; an auto-injector containing morphine for pain management; and a
ComboPen containing diazepam for seizure management. These auto-injectors are
intended for use primarily by military personnel but are also now available for
use by first responders as a part of Homeland Defense programs.

a. U.S. Department of Defense

The Company has been the supplier of auto-injectors to the DoD for many years.
DoD procurements of auto-injectors are restricted to qualified producers and the
FDA must approve all products. The Company is currently the only FDA-approved
and the only qualified producer for any DoD military auto-injectors.

The Company's auto-injectors are classified as critical "war stopper" items by
the DoD and have been the subject of an Industrial Base Maintenance Contract
between the Company and the DoD since 1992 (the "IBMC"). This contract is part
of a program by the DoD to ensure adequate supplies of critical items in the
event of armed conflict.

This innovative contract calls for production of auto-injectors filled with
nerve agent antidotes, the retention by the Company of key personnel and
facilities to assure expertise for manufacturing auto-injectors containing nerve
agent antidotes, the management of the U.S. Army's Shelf Life Extension Program,
and the pre-stocking of critical components to enhance readiness and
mobilization capability. A surge capability provision allows for the coverage of
defense mobilization requirements in the event of rapid military deployment.
During fiscal 1999, MMT concluded negotiations with the DoD for its third IBMC
beginning August 1, 1999. This contract includes renewal options for two
additional years through July 31, 2002. The DoD renewed the option for the third
year of the contract in fiscal 2001. Revenues under this contract have ranged
from $15 to $21 million over each of the last three years and are expected to
exceed $14 million per year under the current contract. Subject to successful
negotiations, the Company anticipates renewing the contract with the DoD for
another three years beginning August 1, 2002.

b. International

The Company will continue its strategy of seeking to expand its international
military sales into new markets worldwide as a principal supplier of critical
life saving antidotes for chemical warfare defense. The foreign government
customer base includes many allied countries in Europe, the Middle East and the
Far East. International government sales for fiscal 2001, 2000 and 1999 were
$5.0 million, $7.8 million and $2.5 million, respectively.

The product range for the international community includes the same type of
auto-injectors and antidote formulations as used by the U.S. community; however,
it also includes a number of variations to address the formulation specific
requests of client countries.

c. Homeland Defense

The Company provides its nerve agent antidote auto-injector products to a
growing number of state agencies and local communities for homeland defense
against chemical agent terrorist attacks, particularly for populations in high
risk areas. At the request of several government agencies, state and local
experts have formed the Metropolitan Medical Response System (MMRS), which
includes training and equipping emergency teams as initial, on-site responders.
This concept has a goal to develop MMRS in the 120 most populous metropolitan
areas in the U.S. The Company believes that this is essentially an untapped
market with significant growth potential, and that enhanced awareness of the
Company and its products, and the heightened threat of terrorism, will result in
increased revenue in the future.

d. Research and Development

The Company has signed a feasibility contract with a major European country to
develop the MA incorporating its antidote formulation. The second phase of this
program is currently being negotiated which could result in a full scale
development effort that, if successful, could lead to product registration in
Europe as early as FY2003. This product registration would allow the Company to
sell this product to major NATO countries.

With the renewed interest by a number of NATO countries in the nerve agent
antidote HI-6, Meridian's technology group has begun work to develop a
specialized auto-injector that could be used to administer this antidote. HI-6
has only a short shelf-life when in solution which necessitates an auto-injector
that contains individual chambers separating the drug and the diluent. Prior
efforts by others have resulted in auto-injectors that are cumbersome, difficult
to manufacture, and expensive. Meridian has developed an injector that meets the
performance requirements expected while being easier to make, less bulky and
easy to use. Negotiations are underway to seek multi-national funding to
commercialize this innovative auto-injector.

CARDIOPULMONARY SYSTEMS

The Company's Cardiopulmonary Systems unit is focused on the development and
sale of non-invasive cardiopulmonary diagnostic products. In addition to a line
of telemedicine products, the Company has completed the development phase of its
innovative PRIME ECG(TM) electrocardiac mapping system and has introduced it in
certain countries outside the United States. A 510(k) application has been
submitted to the FDA for clearance to market the product in the U.S. The Company
anticipates FDA clearance of the 510(k) application will be received in fiscal
2002.

a. PRIME ECG(TM) Electrocardiac Mapping System

The PRIME ECG(TM) system is a unique electrocardiac mapping system developed in
collaboration with university and medical school researchers. This system offers
the potential to significantly improve the diagnosis and treatment of heart
disease, which affects over 13 million people in the U.S. alone.

The PRIME ECG(TM) system consists of a patented 80-lead disposable electrode
vest, 80-channel recording module, computer assisted analysis software and a
full color multi-dimensional graphic display. The system initially has been
introduced for the early detection of acute myocardial infarction ("AMI") or
heart attack. Multi-center clinical tests conducted in the U.S. and Europe
conclude that the PRIME ECG(TM) system can allow earlier and more accurate
diagnosis of AMI for significantly more patients than the standard 12-lead ECG.
Further, the Company believes that the PRIME ECG(TM) system displays results in
a manner that can allow the clinician to identify the nature of the infarct,
which can be utilized in determining the most effective course of treatment.

Without early and accurate diagnosis of AMI, potentially life-saving treatment
of AMI victims may be delayed. For non-AMI chest pain patients, unnecessary
tests and hospital admissions to rule-out AMI are estimated to cost health care
systems and individuals billions of dollars each year. The Company anticipates
that the clinical and economic benefits of this new system can create the
opportunity for the Cardiopulmonary Systems business to become a prominent
participant in the electrocardiography market in future years.

The Company expects the PRIME ECG(TM) system will be used initially by the
emergency room physician who needs faster and more accurate diagnosis for more
than 20 million chest pain patients worldwide each year. The Company is pursuing
additional applications where this technology may enhance detection and/or
treatment of heart conditions known to affect the electrophysiology of the
heart. Potential applications include the ability to detect changes in
reperfusion of the coronary arteries as evidenced by the imaging of the effects
of myocardial ischemia. This may prevent potentially life threatening and costly
emergencies. The Company is unaware of a non-invasive alternative means to
detect this condition. Other potential applications including arrhythmia
management are being investigated. The Company estimates that the market size
for these potential additional uses of PRIME ECG(TM) is substantial, with the
total combined markets for diagnosis of AMI and other applications exceeding $6
billion.

The use of the PRIME ECG(TM) system requires purchase of a disposable electrode
array or vest. This patented, simple to use device is expected to provide a
recurring source of revenue to the Company, which anticipates that it will be
the sole manufacturer. The Company projects that the disposable electrode vest
design can be modified to meet a range of applications, allowing lower cost and
greater convenience in potential future applications.

The PRIME ECG(TM) system received the CE Mark from European authorities during
fiscal 1999. To date, the Company has signed representation agreements with
companies to market PRIME ECG(TM) in Italy, Austria, Denmark, Spain, Portugal
and Australia. The Company sells PRIME ECG(TM) directly in the United Kingdom
and Germany, and is actively negotiating with additional candidates to service
other major European markets. Initial shipment of the product was made in fiscal
2000 and additional orders

have been shipped in fiscal 2001. The multi-center clinical study was completed
in fiscal 2001, and an application was submitted to the Food and Drug
Administration for clearance to market PRIME in the United States on July 31,
2001. The Company expects to receive FDA clearance before the end of fiscal
2002.

The Company plans to market PRIME ECG(TM) in the U.S. directly through a focused
sales force. As such the Company will be developing the necessary infrastructure
in its next fiscal year. The Company will also enhance its European distributor
base with the addition of direct representation in major markets, as this
approach has shown to be most effective to date. Additionally, to enhance the
absorption of PRIME ECG(TM) into practical use, the Company plans to provide
selected medical institutions loaner units for an evaluation period, in and out
of an emergency room environment. The medical institution will have
complimentary use of a loaner unit for a specified period of time, while
purchasing the disposable electrode vests. Upon expiration of the loaner period,
the Company plans to negotiate the sale of the loaner unit to the institution.

b. Telemedicine Products

The Company is a leader in the development of devices that measure and transmit
diagnostic information by telephone. This product suite allows a patient's
condition to be monitored while at home, which can reduce expensive office
visits, allow for earlier diagnosis and minimize emergency room and hospital
admissions. Meridian's CB-12/12 CardioBeeper(R) electronic heart monitor,
introduced this year, transmits a standard 12-lead electrocardiogram ("ECG") by
telephone. The CardioPocket(TM) provides unprecedented convenience by
incorporating a miniaturized single-lead version into a wallet. The CardioPocket
was awarded a Millennium Product Award for innovation and creativity in the U.K.
from the Design Council of Britain, and has already been purchased by nearly
30,000 users since its introduction in 1999. In 2001, the Company completed
development of, and placed in its product line, a new blood pressure device and
Tele-Pulse Oximeter, which measures oxygen in the blood.

The telemedicine product line is sold by Shahal Medical Services, Ltd.
("Shahal"), which has exclusive worldwide marketing rights. Shahal, based in
Israel, is a home healthcare monitoring company serving more than 60,000
subscribers. Shahal has entered a joint venture with Philips Medical Systems in
fiscal 2001 to market cardiology telemedicine products and services in targeted
markets in Europe.

c. Research & Development

The Company invested $790,000 in Cardiopulmonary Systems research & development
in fiscal 2001. The majority of this expenditure was dedicated to the PRIME
ECG(TM) system and included design of dedicated hardware and software systems,
as well as the funding of certain university research projects selected for
their potential to lead to new and improved applications.

The Company intends to continue to invest in PRIME ECG(TM), projecting overall
increased expenditures in fiscal 2002. These development investments include
algorithm enhancement to further improve heart attack detection, software
development to provide new applications such as reperfusion, hardware
development to reduce costs, and graphics enhancements to further improve ease
of interpretation, in addition to increased sales and marketing expenditures.

COMPETITION

In the commercial auto-injector market, the Company competes directly with
companies that manufacture drug injection devices, whether such devices are
automatic like the Company's products or non-automatic, variable dose pen-like
injection devices, reloadable injection devices and disposable needle-free
injection systems. The Company is the leading manufacturer of automatic
injectors in the world. The Company expects competition to intensify.

Meridian is the sole supplier of auto-injectors to the U.S. Government for
military use. The Company has very limited competition in foreign military
markets.

The Company's pharmaceutical manufacturing and packaging services operate in an
intensely competitive field that is presently dominated by larger pharmaceutical
companies. There are numerous other disposable, prefilled syringe systems
presently available which can be less expensive than those offered by the
Company. A small group of independent companies and a few pharmaceutical
companies offer contract syringe filling services similar to those that the
Company offers.

The Cardiopulmonary business operates in a highly competitive sector of the
healthcare industry. Meridian's telemedicine products compete against the
products of numerous other companies. The PRIME ECG(TM) product will compete
with existing diagnostic equipment and testing procedures such as blood markers
for detection of AMI, and potentially with products and technologies currently
under development that may be brought to market, such as enhanced 12-lead
ECG(TM) algorithms, invasive cardiac mapping and improved cardiac stress
testing.

BACKLOG

As of July 31, 2001, the backlog of orders was approximately $18.3 million, of
which $7.3 million related to production and delivery of commercial products and
services, and $11.0 million related to military products and the IBMC contract.
This compares with commercial product sales backlog of $5.2 million and a
military backlog of $11.8 million, for a total of $17.0 million at July 31,
2000.

PATENTS, TRADEMARKS, AND LICENSES

The Company considers its proprietary technology to be important in the
development, marketing and manufacture of its products and seeks to protect its
technology through a combination of patents and confidentiality agreements with
its employees and others. Patents covering important features of the Company's
current principal auto-injector products have expired. This lack of patent
protection could permit others to design products that may have an adverse
effect on the Company's revenues and results of operations. MMT is currently
developing a new generation of auto-injector products for which a number of
patents have been granted to the Company. Over the last few years, the Company
was granted U.S. patent protection for several of its new auto-injector drug
delivery systems, designed for fast and reliable patient self-administration of
the expanding range of new pharmaceutical and biotechnology products that
require injection. Some of these patents cover the MA. The MA patents cover
various components running through 2010. In addition, the Company holds several
patents and licenses on the PRIME ECG(TM) electrocardiac mapping system,
including the patent on the PRIME ECG(TM) disposable electrode vest. Most of the
other patents are licensed from the Northern Ireland Bioengineering Center at
the University of Ulster in Northern Ireland for a minimum remaining term of 17
years.

The Company intends to file for additional protection for its new auto-injector
and cardiopulmonary products currently under development. The new auto-injector
products are expected to replace or supplement the Company's existing line of
auto-injectors over time.

Certain copyrights, trademarks and trade names referred to in this report are
the property of their respective owners.

PRODUCT LIABILITY INSURANCE

The Company maintains product liability coverage for its products aggregating
$30 million. Although the Company's management is of the opinion that, with
respect to amounts, types and risks insured, the insurance coverage is adequate
for the business conducted by the Company, there can be no assurance that such
insurance will provide sufficient coverage against any or all pending or
potential product liability claims.

SOURCES AND AVAILABILITY OF RAW MATERIALS

The Company purchases, in the ordinary course of business, necessary raw
materials, components and supplies essential to the Company's operations from
numerous suppliers in the U.S. and overseas. Several of the ingredients used in
the antidote formulations are unique and require highly specialized synthesis
facilities, consequently, limited amounts of these ingredients are available
from time to time. Auto-injector components also require specialized tooling and
by commercial manufacturing standards are considered low volume production.
Cardiopulmonary product component availability is subject to worldwide demand
within the electronics industry. Component requirements frequently compete with
high volume, high demand vendor manufacturing time. The Company monitors these
situations carefully to seek to provide a continued supply of both raw materials
and components. The Company procures inventory principally when supported by
customer purchase orders.

GOVERNMENT REGULATION

The business of the Company is highly regulated by governmental entities,
including the FDA and corresponding agencies of states and foreign countries.
The summary below does not purport to be complete and is qualified in its
entirety by reference to the complete text of the statutes and regulations cited
herein.

As a manufacturer of auto-injectors, cardiopulmonary products, vials and
pre-filled syringes, the Company's products are subject to regulation by the FDA
under the Federal Food, Drug and Cosmetic Act (the "Act"). All of the Company's
auto-injectors are "new drugs" and may be marketed only with the FDA's approval
of an NDA or a supplement to an existing NDA. The Company currently holds
approved NDAs or licenses to approved NDAs for each of its existing
auto-injector products. The use of the Company's existing auto-injectors to
administer another FDA approved drug generally would require the filing of a
NDA, supplement to an existing NDA or an Abbreviated New Drug Application
("ANDA"). In addition, the introduction of the Company's new generation
auto-injectors will require FDA approvals based on data demonstrating the
safety, effectiveness, and/or bioequivalence of the drug delivered by these
auto-injectors. There is no assurance that the NDAs will be processed in a
timely manner or that FDA ultimately will approve such NDAs.

The Company's prefilled syringe systems are also regulated as drugs; however,
the requisite FDA approval is held by the supplier of the drug that the Company
fills into the syringe. To the extent the Company's auto-injector and syringe
systems are expected to be used to administer new drugs under development, FDA
approval to market such drugs first must be received by the pharmaceutical
manufacturer. Obtaining the requisite FDA approval is a time consuming and
costly process through which the manufacturer must demonstrate the safety and
effectiveness of a new drug product. Once acquired, this approval is specific to
company and manufacturing sites.

The Company's Cardiopulmonary Systems Products must have FDA Registration for
U.S. sales and already has CE Marking for European sales.

In connection with its manufacturing operations, the Company must comply with
cGMP regulations, and its manufacturing facilities are subject to periodic
inspections. The Company's St. Louis facility has undergone multiple routine
inspections by the United States and various foreign countries.

Suppliers of bulk drugs for filling into the Company's drug delivery systems, as
well as subcontractors that manufacture components for the Company's medical
devices, also are subject to FDA regulation and inspection. The Company has only
limited control over these other companies' compliance with FDA regulations.
Failure of these companies to comply with FDA requirements could adversely
affect the Company's ability to procure component parts, market finished
products and may cause the Company's products made with non-compliant components
to be adulterated or misbranded in violation of the Act, subjecting the products
to a variety of FDA administrative and judicial actions.

The FDA is empowered with broad enforcement powers. The FDA may initiate
proceedings to withdraw its approval for marketing of the Company's product
should it find that the drugs are not manufactured in compliance with cGMP
regulations, that they are no longer proven to be safe and effective or that
they are not truthfully labeled. Noncompliance with cGMP regulations also can
justify nonpayment of an existing government procurement contract and, until the
deficiencies are corrected to FDA's satisfaction, can result in a nonsuitability
determination, precluding the award of future procurement contracts.

For any of the Company's auto-injectors and syringe systems, noncompliance with
FDA regulations could result in civil seizure of the drugs, an injunction
against the continued distribution of the drugs or criminal sanctions against
the Company. The Company's medical devices also are subject to seizure by the
FDA through administrative or judicial proceedings. In addition, the FDA may
impose financial penalties for most violations of law and may order that
defective devices be recalled, repaired or replaced or that purchasers be
refunded the cost of the device.

Certain states have instituted needle protection standards. Presently, to the
best of the Company's knowledge, the Company's products are not covered by these
standards. The applicability of these needle protection standards in the future
could require the Company to change its product design and production methods.

The Company also is subject to regulation by other federal and state agencies
under various statues, regulations and ordinances, including export control
laws, environmental laws, occupational health and safety laws, labor laws and
laws regulating the manufacture and sale of narcotics.

The Company's supply contracts with the DoD are subject to post-award audit and
potential price redetermination. From time to time, the DoD makes claims for
pricing adjustments with respect to completed contracts. At present, no claims
are pending.

All U.S. Government contracts provide that they may be terminated for the
convenience of the Government as well as for default. Upon termination for
convenience of cost reimbursement type contracts, the Company would be entitled
to reimbursement of allowable costs plus a portion of the fixed or target fee
related to work accomplished. Upon termination for convenience of fixed-price
contracts, the Company normally would be entitled to receive the contract price
for items which have been delivered under the contract, as well as reimbursement
for allowable costs for undelivered items, plus an allowance for profit thereon
or adjustment for loss if completion of performance would have resulted in a
loss. The Company anticipates no such contract terminations.

EMPLOYEES

As of August 31, 2001, the Company employed a total of 339 employees: 264
employees work at the Company's plant and warehouse facilities in St. Louis,
Missouri; 45 employees work at the facility in Belfast, Northern Ireland, and 30
employees work at the Company's corporate headquarters in Columbia, Maryland
(see "Properties"). Effective March 1, 1999, the Company entered into a
three-year agreement with the Teamsters Local Union No. 688 ("Teamsters"). Since
1979, Teamsters have been the exclusive agent for all production and maintenance
employees of the Company at its St. Louis facility. Approximately 143 employees
are covered by this collective bargaining agreement.

ITEM 2. PROPERTIES

The Company's corporate headquarters are located in an 11,000 square foot
facility in Columbia, Maryland. The facility is leased through 2001, at which
point the Company plans on extending the lease for three additional years. The
corporate headquarters facility houses the corporate administration, human
resources, finance, commercial business development, government programs, and
the product design and development functions. Meridian had entered into a
ten-year lease expiring in 2002 on a 17,000 square foot facility in Rockville,
Maryland, which previously served as the Company's headquarters. The Rockville,
Maryland facility has been sub-leased to a third party through its expiration.

The Company's primary R&D and pharmaceutical operations are located in St.
Louis, Missouri. These facilities are used primarily for formulation, stability
testing, aseptic filling, assembly and final packaging of the Company's
auto-injectors, vials and pre-filled syringes. The St. Louis manufacturing
facilities consist of eight separate buildings occupying over 100,000 square
feet.

The Company has a 28,000 square foot facility in Belfast, Northern Ireland which
is designed to develop and produce innovative technology products for its
Cardiopulmonary Systems Group, including the PRIME ECG(TM) system, and supply
auto-injectors for the Government Systems Group for sale to international
markets. The Company is leasing the facility under a lease expiring in 2014.

The Company has a 4,200 square foot facility in Rochester, Kent in the United
Kingdom previously used for aseptic assembly and packaging of auto-injector
product under contracts with foreign countries. This facility was also used as a
sales and marketing office to promote the Company's commercial and military
products in Europe and the Middle East. The facility is leased pursuant to a
lease that expires in 2010, and the Company has sub-leased the facility to a
third party through 2003.

ITEM 3. LEGAL PROCEEDINGS

Lawsuits and claims are filed from time to time against the Company and its
subsidiaries in the ordinary course of business. Management of the Company,
after reviewing developments to date with legal counsel, is of the opinion that
the outcome of such matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.

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

There were no matters submitted by the Company during the fourth quarter of
fiscal 2001 to a vote of security holders, through the solicitation of proxies
or otherwise.

EXECUTIVE OFFICERS AND CERTAIN SIGNIFICANT EMPLOYEES OF THE REGISTRANT

The following table lists, as of September 28, 2001, the names and ages of all
executive officers and other significant employees of the Company, and their
positions and offices held with the Company:

NAME AGE PRESENT POSITIONS WITH THE COMPANY
---- --- ---------------------------------

James H. Miller* 63 Chairman, President and Chief Executive Officer
Gerald L. Wannarka* 62 Senior Vice President and Chief Technology Officer
Robert J. Kilgore* 51 Senior Vice President and General Manager, Pharmaceutical Systems
Dennis P. O'Brien* 43 Vice President, Finance and Chief Financial Officer
Peter A. Garbis* 60 Vice President, Organization Development
Jamil F. LaHam 53 General Manager, Cardiopulmonary Systems
J. Donald Ferry, Jr. 47 General Manager, Manufacturing, St. Louis Operations
Thomas Handel 33 Vice President, Sales

* Executive Officer

MR. MILLER joined the Company as President in June 1989, was elected Chief
Executive Officer in June 1990 and was elected Chairman of the Board in April
1996. Prior to joining the Company, Mr. Miller served as Executive Vice
President of Beecham Laboratories from February 1987 to May 1989, responsible
for the Pharmaceutical and Animal Health Divisions. Prior to joining Beecham,
Mr. Miller spent ten years with Frank J. Corbet Inc. (healthcare advertising
agency) as Executive Vice President and fourteen years in marketing management
with Abbott Laboratories.

DR. WANNARKA joined Meridian in December 1997 as Vice President, Technology and
Government Systems and was promoted to Senior Vice President in September 1998.
He then was promoted to Chief Technology Officer in May 2001. Dr. Wannarka is a
former US Army Medical Service Corps Officer retiring in 1992 at the rank of
Colonel. While on active duty, Dr. Wannarka had responsibilities in research,
research management and FDA regulatory affairs, and served in positions of
gradually increasing responsibility such as: Project Manager, Pharmaceutical
Systems, Deputy Director, USA Medical Research Institute of Chemical Defense,
and Director, Clinical Investigation Program, US Army Health Services Command.
Since retiring from the military, he has held positions as Vice President,
Research and Development, for DPT Laboratories and Coloplast Corporation. He has
conducted research with therapeutics for high-hazard virus infections, medical
chemical defense, topical therapeutics and drug delivery to include
auto-injectors, transdermal, inhalation, sustained release oral and parenteral
systems.

MR. KILGORE joined Meridian in April 2000 as Senior Vice President, General
Manager Pharmaceutical Systems. From January 1997 to March 2000, Mr. Kilgore was
Director of Marketing and Business Development for Becton Dickinson
Pharmaceutical Systems. There he was also responsible for worldwide licensing
activities including sales and marketing activities associated with Becton
Dickinson Advanced Injection Systems, which focused on new delivery technology
for the delivery of parenteral pharmaceuticals. Prior to his position at Becton
Dickinson, Mr. Kilgore was Director of Business Development at Reed & Carnrick
Pharmaceuticals where he negotiated several major strategic alliances with
multi-national pharmaceutical companies and has held marketing management
positions with Schering Plough and Winthrop Pharmaceuticals.

MR. O'BRIEN joined Meridian in March 1999 as Vice President, Finance and Chief
Financial Officer. Prior to joining Meridian, he was Vice President of Finance
and Chief Financial Officer of Ogden Environmental & Energy Services Co., Inc.
from 1996 to February 1999. Previous positions held by Mr. O'Brien include Vice
President of Finance/Chief Financial Officer positions of After Six, Ltd. and
Tate Global Corporation from 1990 through 1996. Prior to joining Tate, Mr.
O'Brien was with Flow Laboratories, Inc., a biomedical products supply company,
and KPMG Peat Marwick. Mr. O'Brien is a Certified Public Accountant and a
Certified Management Accountant.

MR. GARBIS joined Meridian in May 1996 as Executive Director, Organization
Development and was promoted to Vice President in April 1998. Prior to joining
Meridian, Mr. Garbis was Director of Human Resources at Lamb Associates, a
high-tech engineering consulting firm, from 1993 to 1996. Prior to this, he was
Director of Human Resources at Solarex Corp., a division of Amoco/Enron, from
1981 to 1993. Other experience in the field of human resources and
organizational management has been with such major companies as Lockheed Martin,
ITT Telecommunications, and Nuclear-Chicago, a division of G.D. Searle.

MR. LAHAM joined Meridian in June 1997 as Director of Sales for the
Cardiopulmonary Systems group. He was appointed to the position of General
Manager in November 1997. He has had extensive U.S. and international experience
in marketing and sales with such companies as Nicolet Instruments, BOC
Healthcare, and Johnson & Johnson. Prior to joining Meridian, Mr. LaHam was
General Manager of US Operations for a start-up group within Pfizer.

MR. FERRY joined Meridian in May 1994 as Senior Manager, Sterile Product
Manufacturing and was promoted to Director in 1996, and Executive Director
Manufacturing in April 1997. He became General Manager, St. Louis Operations in
March 1998. Mr. Ferry has fifteen years experience in the parenteral drug
delivery industry with Taylor Pharmacal Co. in various operations positions.
Prior to joining Meridian, he had senior management responsibilities in
operations at Pharmacia/Adria-SP, Inc.

MR. HANDEL was previously employed with Meridian from 1991 to 1998 holding the
following positions: Manager, Quality Compliance, Senior Manager, Sterile
Production, Senior Manager, Technical Marketing, and Executive Director,
Business Development. Mr. Handel was with Akorn, Inc. from 1998 to 2001 before
recently rejoining Meridian in May, 2001 as Vice President, Sales. He has
extensive experience in numerous aspects of the parenteral pharmaceutical
industry, as well as a blend of business, technical and managerial skills. His
technical and managerial background encompasses a variety of fields such as
chemistry, microbiology, physical quality control, auditing, aseptic
manufacturing, project management and business development.

PART II

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

The Company's common stock is traded on the over-the-counter market and is
quoted in the NASDAQ National Market System under the symbol MTEC.

The following table shows the high and low sales price of the Company's common
stock for each fiscal quarter during the two year period ended July 31, 2001, as
reported on the NASDAQ National Market System.

2001 2000
---- ----
Quarter High Low High Low
---- --- ---- ---

First $ 19.313 $ 10.250 $ 6.750 $ 4.375
Second 14.125 9.500 7.000 4.250
Third 13.375 8.875 9.625 4.625
Fourth 16.000 11.500 13.000 5.750

The Board of Directors has not declared any dividends on the Company's common
stock since its organization. As of September 1, 2001, there were approximately
1,200 holders of the Company's common stock known to the Company.

ITEM 6. SELECTED FINANCIAL DATA

Meridian Medical Technologies, Inc.

Fiscal Year Ended July 31
-----------------------------------------------------------------------
(in thousands, except per share data) 2001 2000 1999 1998 1997
--------------------------------------------------------------------------------------------------------------------

OPERATIONS:
Net sales $ 58,090 $ 54,607 $ 40,730 $ 44,668 $ 40,665
Gross profit 24,305 22,016 12,710 17,577 15,044
Operating income (loss) 8,782 7,349 1,287 3,067 (1,699)
Other expense, net (2,821) (3,536) (3,027) (2,629) (2,395)

Income (loss) before income tax, minority
interest, and extraordinary loss 5,961 3,813 (1,740) 438 (4,094)
Provision for income taxes 3,099 1,514 - 343 45
Minority interest in consolidated subsidiary - - - - 266
Income (loss) before extraordinary loss 2,862 2,299 (1,740) 95 (4,405)
Extraordinary loss on debt refinancing - - - (494) -
-----------------------------------------------------------------------
Net income (loss) $ 2,862 $ 2,299 $ (1,740) $ (399) $ (4,405)

Basic income(loss) per share $ 0.93 $ 0.77 $ (0.58) $ (0.13) $ (2.16)
Diluted income(loss) per share $ 0.81 $ 0.70 $ (0.58) $ (0.12) $ (2.16)

Weighted average shares:
Basic 3,064 2,996 2,993 2,971 2,040
Diluted 3,549 3,276 2,993 3,328 2,040

EBITDA (1) $ 12,602 $ 10,913 $ 5,103 $ 6,861 $ 1,615
EBITDA margin 21.7% 20.0% 12.5% 15.4% 4.0%

FINANCIAL POSITION:
Current assets $ 18,613 $ 18,809 $ 20,233 $ 18,296 $ 16,031
Working capital 11,699 7,586 4,373 6,046 844
Fixed assets, net 16,464 15,795 15,826 16,389 15,778
Total assets 43,498 44,685 47,751 46,847 44,082
Long-term debt 15,813 16,823 17,639 18,850 13,921
Shareholders' equity 17,746 14,091 11,738 13,338 12,293

(1) EBITDA represents operating income plus other income and depreciation and
amortization. EBITDA is not a measure of performance or financial condition
under generally accepted accounting principles, but is presented to provide
additional information related to operating results. EBITDA should not be
considered in isolation or as a substitute for other measures of financial
performance or liquidity under generally accepted accounting principles. While
EBITDA is frequently used as a measure of operations and the ability to meet
debt service requirements, it is not necessarily comparable to other similarly
titled captions of other companies due to potential inconsistencies in the
method of calculation.

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

Results of Operations

Revenues and operating income by segment for the years ended July 31 are as
follows:

2001 2000 1999
---- ---- ----

Revenues:
Pharmaceutical systems $ 55,264 $ 53,106 $ 38,890
Cardiopulmonary systems 2,826 1,501 1,840
-------------- -------------- --------------
Total revenues $ 58,090 $ 54,607 $ 40,730
============== ============== ==============

Operating income (loss):
Pharmaceutical systems $ 11,652 $ 10,064 $ 2,125
Cardiopulmonary systems (2,870) (2,715) (838)
--------------- --------------- ---------------
Total operating income $ 8,782 $ 7,349 $ 1,287
============== ============== ==============

Operating income (loss) %:
Pharmaceutical systems 21.1% 19.0% 5.5%
Cardiopulmonary systems (101.6%) (180.9%) (45.5%)
Total operating income (loss) % 15.1% 13.5% 3.2%

2001 compared with 2000

MMT's net income after taxes for the year ended July 31, 2001 was $2,862,000, or
$0.81 per share, on revenues of $58.1 million compared to fiscal 2000 net income
of $2,299,000, or $0.70 per share, on revenues of $54.6 million, reflecting a
6.4% increase in revenues. Gross margins increased to 41.8% in 2001 compared to
40.3% in 2000, due to higher volumes, a more favorable product mix, and the
Company's focus on manufacturing efficiencies. Operating expenses increased by
5.8% from 2000 to 2001, but improved as a percentage of net sales. Operating
income and EBITDA were $8.8 and $12.6 million, respectively, in 2001, up from
$7.3 and $10.9 million in 2000 due to improved overall operational efficiency.

Within Pharmaceutical Systems, Commercial sales were $33.8 million in 2001,
25.2% higher than 2000 resulting primarily from increasing demand for the EpiPen
and the introduction of the EpiPen 2-Pak(TM). Government sales were $21.4
million, 17.8% lower than 2000 as sales to foreign governments decreased due to
the timing of orders. Cardiopulmonary Systems sales were $2.8 million in 2001,
88.3% higher than 2000 reflecting higher telemedicine sales.

Operating costs were $15.5 million in 2001, an increase of $856,000 from 2000.
In addition to expanding investment in the PRIME marketing infrastructure, the
Company incurred expenses related to its initial efforts in developing a
specialty pharmaceutical business unit. The Company expensed $2.8 million, $2.9
million and $1.2 million on research and development activities in fiscal 2001,
2000, and 1999, respectively, excluding costs associated with customer-funded
projects. The Company expects research and development expenditures in fiscal
2002 to be significantly higher than the fiscal 2001 level, as efforts in this
area accelerate.

Non-operating expenses in 2001 were $2.8 million, 20% lower than in 2000. The
lower level in 2001 is a result of decreased interest expense, which was
realized through a combination of lower debt balances and lower interest rates.
During the year, bank debt was reduced by $2.7 million, while the Company held
$2.2 million of cash at July 31, 2001. The income tax provision was $3.1 million
in 2001, reflecting a 52% effective rate, and $1.5 million in 2000, reflecting a
40% effective rate. The tax provision incorporates estimated benefits from
utilization of operating loss carryforwards, offset by permanent

book to tax differences and losses from foreign subsidiaries. The Company takes
no consolidated tax benefit from the foreign losses, which for the year
approximate $2.0 million. U.S. pre-tax income, taxed at the statutory rate after
permanent and temporary differences, is higher than the consolidated pre-tax
income, which inflates the effective rate. The impact of the foreign loss
increases the effective tax rate for fiscal 2001 from 39% to 52%. The increase
in the effective rate from the prior year reflects the lower levels of net
operating loss carryforwards to offset taxable income.

Line of Business Discussion

The Pharmaceutical Systems segment consists of Commercial Systems and Government
Systems. Commercial Systems operations include sales of Meridian's highly
recognized EpiPen product, used in the emergency treatment of allergic reactions
to insect stings or bites, foods, drugs and other allergens, as well as
idiopathic or exercise induced anaphylaxis.

Within the Pharmaceutical Systems segment, Commercial Systems sales were $33.8
million in 2001, 25% higher than in 2000 due to increased revenue from the
EpiPen product, and increased R&D services. The level of demand of EpiPen has
surpassed any previous period, and is expected to continue growing. In March
2001, the Company launched the EpiPen 2-Pak, a new product packaging, where two
EpiPen units and one EpiPen trainer are sold in one package. The initial sales
of the 2-Pak were primarily to stock the product with retailers, and it is not
clear at this time what long term impact the EpiPen 2-Pak will have on overall
unit demand. EpiPen 2-Pak sales accounted for approximately 14% of the total
$29.9 million of EpiPen revenues for the year.

Contract Research and Development revenue was $3.1 million in fiscal 2001,
106.7% higher than fiscal 2000. This business unit is expected to generate
revenues in fiscal 2002 comparable to 2001.

The Company is moving forward on its establishment of a business unit to market
branded specialty pharmaceuticals. The Company anticipates revenue growth from
alliances that introduce new products in auto-injectors and other delivery
devices. Current new therapies under development or in negotiations include
anti-seizure drugs and other CNS agents frequently prescribed by neurologists.
This business unit will maintain the sales, marketing and distribution of the
future products, rather than selling through a distributor.

Within Government Systems, the Company has a long-standing relationship with the
DoD, and also markets its products to foreign governments and state and local
governments for domestic preparedness. Government Systems revenues fell 17.8% in
2001 compared to the prior year, to $21.4 million. The decrease reflects the
cyclical nature of procurements, which are tied to the needs of U.S. and allied
military customers. The Company maintains a core business relationship with the
DoD through its industrial base maintenance contract, which was successfully
renegotiated in 1999. The DoD exercised the third year option of the contract in
fiscal 2001. The contract calls for the retention by the Company of key
personnel and facilities to assure expertise for manufacturing auto-injectors
containing nerve agent antidotes, the management of the U.S. Army's Shelf Life
Extension Program, the pre-stocking of critical components to enhance readiness
and mobilization capability, and new product orders. This IBMC contributed 73.7%
of the total Government Systems revenue in fiscal 2001, and is expected to
generate at least $14 million in revenues in fiscal 2002. For purposes of
complying with terms of a contract, the Company discloses that for the year
ended July 31, 2001, sales of diazepam auto-injectors to customers other than
the U.S. DoD totaled 64,635 units.

The Company maintains a Homeland Defense business unit within Government
Systems. Revenues within the Homeland Defense unit were $639,000 in 2001, 87%
higher than the previous year. The Company provides nerve agent antidote
auto-injector products to federal, state and local agencies, as well as foreign
governments, through this unit. These products are utilized to treat the effects
of chemical nerve agent exposure. The Company believes that this market will
continue to grow in response to the growing threat of terrorism and the
increased preparedness focus, at the state and federal level, in

response to the recent terrorist attacks in the U.S.

Cardiopulmonary Systems consists of the telemedicine line of business, as well
as the Company's PRIME ECG(TM) advanced electrocardiac mapping system. The PRIME
ECG(TM) system, which includes propriety software, offers the potential to
significantly improve the non-invasive diagnosis and treatment of heart disease.
The multi-center clinical study was completed in fiscal 2001, and an application
was submitted to the Food and Drug Administration for clearance to market PRIME
in the United States on July 31, 2001. The Company expects to receive FDA
clearance before the end of fiscal 2002.

Cardiopulmonary Systems product revenues in 2001 were $2.8 million, an increase
from 2000 revenues of $1.5 million. The increase was due to increased
telemedicine orders to support our customer, Shahal, and its newly announced
joint venture with Philips Medical. This joint venture was formed to establish
telemedicine monitoring services throughout Europe.

2000 compared with 1999

MMT's net income after taxes for the year ended July 31, 2000 was $2,299,000, or
$0.70 per share, on revenues of $54.6 million compared to a fiscal 1999 net loss
of $1,740,000, or ($0.58) per share, on revenues of $40.7 million, reflecting a
34% increase in revenues. Gross margins increased to 40% in 2000 compared to 31%
in 1999, when revenues and margins were negatively impacted by supplying free
units of EpiPen as a result of the 1998 EpiPen recall. Operating expenses
increased by 28.4% from 1999 to 2000, but decreased overall as a percentage of
net sales. This reflects the cost reduction efforts in place in 1999 versus the
investment in research and development and a marketing infrastructure in 2000.
Operating income and EBITDA were $7.3 million and $10.9 million, respectively,
in 2000, up from $1.3 million and $5.1 million in 1999 due to improved
operations and the absence of recall obligations.

Commercial Systems sales were $27.0 million in 2000, 88% higher than 1999
resulting from increasing demand for the EpiPen and the absence of recall
obligations. Government Systems sales were $26.1 million, 6.5% higher than 1999
as sales to foreign governments increased. Cardiopulmonary Systems sales were
$1.5 million in 2000, 18% lower than 1999 reflecting lower telemedicine sales.

Gross margins were 40% of sales in 2000 compared to 31% in 1999. The increased
gross margins from 1999 to 2000 resulted primarily from higher production volume
to support increased customer orders, and the recall obligations in 1999. The
Company shipped 771,000 free units of EpiPen in fiscal 1999, both for actual
units returned and to reimburse the distributor for cash costs. While the direct
cost of these free units was fully reserved, the lost revenue from those units
depressed gross margins in that year

Operating costs were $14.7 million in 2000, an increase of $3.2 million from
1999. The Company initiated cost reduction programs in 1999 to compensate for
the lower margins, while in 2000, it was able to invest in the Company's growth.
Research and development and selling, general and administrative expenses both
increased as product development efforts increased and a marketing
infrastructure was enhanced to support corporate long-term goals.

Non-operating expenses in 2000 were $3.5 million, 17% higher than in 1999. The
higher level in 2000 is a result of decreased grant income from Northern
Ireland. The income tax provision was $1.5 million in 2000 and $0 in 1999,
reflecting a 40% effective rate in 2000. The rate is a result of the Company's
utilization of net operating loss carryforwards, offset by permanent book to tax
differences as a result of the amortization of intangibles.

Line of Business Discussion

Within the Pharmaceutical Systems segment, Commercial Systems sales were $27.0
million in 2000, 88% higher than in 1999 due to increased revenue from the
EpiPen product. In 1999, free units of EpiPen were supplied to satisfy
obligations from the May 8, 1998 product recall as discussed above. It is
estimated

that the delivery of EpiPen units to reimburse recall cash costs depressed 1999
revenues by $3.2 million.

Government Systems revenues increased by 6.5% in 2000 over the prior year to
$26.1 million. The increase resulted from higher sales to foreign governments,
reflecting an expanding international market for the Company's products.

Cardiopulmonary Systems product revenues in 2000 were $1.5 million, a decrease
from 1999 sales of $1.8 million. The decrease was due to a fluctuation in
telemedicine orders.

Liquidity and Capital Resources

The Company generated $7.0 million of cash from operations in 2001. Positive
cash flows from operations consisted primarily of net income, non-cash expenses
for depreciation and amortization, and decreases in inventory and accounts
receivable, which were partially offset by a decrease in accounts payable and
other accrued liabilities. Investing activities used $2.8 million of cash in
fiscal 2001 primarily for capital additions and capitalized software costs.
Financing activities used $2.2 million primarily for the paydown of debt, offset
by proceeds for issuance of common stock for option and warrant exercises.

Working capital at July 31, 2001 was $11.7 million, up from $7.6 million at July
31, 2000. The increase is primarily attributable to higher cash balances, lower
accounts payable and other accrued liabilities, and lower note payable to bank.
At July 31, 2001, accounts receivable were $6.8 million, representing 40
days-sales-outstanding, and inventories were $6.8 million reflecting a turn-over
rate of 4.6 times per year. Borrowings under the working capital lines were
$71,000, leaving $6.6 million available credit at July 31, 2001.

Recent Accounting Standards

In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations" and No. 142,
"Goodwill and Other Intangible Assets." Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer be amortized
but will be subject to annual impairment tests in accordance with the new
standards. The Company will adopt the new standards effective August 1, 2001,
and anticipates that all amortization of goodwill (excess of cost over net
assets acquired) as a charge to earnings will be eliminated. Amortization
expense of $1.1 million relating to excess of cost over net assets acquired was
recorded during the year ended July 31, 2001. The impact of this change on
fiscal 2001 results would have been $0.30 per diluted weighted average share.

Inflation

In the view of management, the low levels of inflation in recent years and
changing prices have had no significant effect on the Company's financial
condition and results of operations. Generally, the Company is able to mitigate
the effects of inflation on operating costs and expenses through price increases
and productivity gains.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's earnings are affected by fluctuations in the value of the U.S.
dollar, as compared to foreign currencies, as a result of transactions in
foreign markets. At July 31, 2001, the result of a uniform 10% strengthening in
the value of the dollar relative to the currencies in which the Company's
transactions are denominated would have resulted in an increase in net income of
approximately $205,000 for the year ended July 31, 2001. This calculation
assumes that each exchange rate would change in the same direction relative to
the U.S. dollar. In addition to the direct effects of changes in exchange rates,
which are a changed dollar value of the resulting sales, changes in exchange
rates also affect the volume of sales or the foreign currency sales price as
competitors' services become more or less attractive. The Company's sensitivity
analysis of the effects of changes in foreign currency exchange rates does not
factor in a potential change in sales levels or local currency prices.

While the Company is exposed to changes in interest rates as a result of its
outstanding debt, the Company does not currently utilize any derivative
financial instruments related to its interest rate exposure. Total short-term
and long-term debt outstanding at July 31, 2001 was $17.1 million, consisting of
$2.6 million in variable rate borrowing and $14.5 million in fixed rate
borrowing. At this level of variable rate borrowing, a hypothetical 10% increase
in interest rates would have decreased pre-tax earnings by approximately $18,000
for the year ended July 31, 2001. At July 31, 2001, the fair value of the
Company's fixed rate debt outstanding was estimated at $15.0 million. A
hypothetical 10% change in interest rates would not result in a material change
in the fair value of the Company's fixed rate debt.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

MERIDIAN MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

July 31,
Assets 2001 2000
------ ---- ----

Current assets:
Cash and cash equivalents $ 2,167 $ 79
Restricted cash 291 285
Receivables, less allowances of $68
and $524, respectively 6,834 7,229
Inventories 6,787 8,061
Deferred income taxes 1,829 1,937
Other current assets 705 1,218
---------- ----------
Total current assets 18,613 18,809
---------- ----------

Property, plant and equipment 26,091 23,261
Less - Accumulated depreciation 9,627 7,466
---------- ----------
Net property, plant and equipment 16,464 15,795
---------- ----------

Deferred financing fees 490 691
Capitalized software costs 1,331 1,429
Excess of cost over net assets acquired, net 5,266 6,402
Other intangible assets, net 1,334 1,559
---------- ----------
Total assets $ 43,498 $ 44,685
========== ==========

Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable and other accrued liabilities $ 5,518 $ 8,062
Note payable to bank 71 1,743
Customer deposits 75 392
Current portion of long-term debt 1,250 1,026
---------- ----------
Total current liabilities 6,914 11,223
---------- ----------

Long-term debt - notes payable, net of discount 15,813 16,823
Deferred income taxes 1,775 1,765
Other non-current liabilities 1,250 783
Commitments and contingencies (Note 9) - -
---------- ----------
Total liabilities 25,752 30,594
---------- ----------

Shareholders' equity:
Common stock (voting and non-voting)-
Par value $.10 per share; 18,000,000 shares
authorized; 3,197,088 and 3,001,962 shares issued 320 300
Additional capital 33,156 32,345
Accumulated other comprehensive income --cumulative
translation adjustment (227) (154)
Accumulated deficit (15,290) (18,152)
Unearned stock option compensation - (35)
Treasury stock, 30,176 shares at cost (213) (213)
----------- -----------
Total shareholders' equity 17,746 14,091
---------- ----------

Total liabilities and shareholders' equity $ 43,498 $ 44,685
========== ==========

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

MERIDIAN MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

Year Ended July 31,
2001 2000 1999
---- ---- ----

Net sales $ 58,090 $ 54,607 $ 40,730
Cost of sales (exclusive of depreciation shown
separately below) 33,785 32,591 28,020
------------ ------------- -------------
Gross profit 24,305 22,016 12,710

Selling, general, and administrative expenses 9,184 8,174 6,245
Research and development expenses 2,751 2,853 1,248
Depreciation and amortization 3,588 3,640 3,476
Product recall expense - - 454
------------ ------------- -------------
15,523 14,667 11,423
------------ ------------- -------------

Operating income 8,782 7,349 1,287

Other (expense) income:
Interest expense (2,735) (3,301) (3,367)
Other (expense) income (86) (235) 340
------------- -------------- -------------
(2,821) (3,536) (3,027)
------------- -------------- --------------

Income (loss) before income taxes 5,961 3,813 (1,740)

Provision for income taxes 3,099 1,514 -
------------ ------------- -------------

Net income (loss) $ 2,862 $ 2,299 $ (1,740)
============ ============= =============

Net income (loss) per weighted average share,
basic $ 0.93 $ 0.77 $ (0.58)
============ ============= =============
Net income (loss) per weighted average share,
diluted $ 0.81 $ 0.70 $ (0.58)
============ ============= =============

Weighted average shares, basic 3,064 2,996 2,993
Weighted average shares, diluted 3,549 3,276 2,993

The accompanying notes are an integral part of these
consolidated financial statements.
26
MERIDIAN MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Year Ended July 31,
2001 2000 1999
---- ---- ----

OPERATING ACTIVITIES:
Net income (loss) $ 2,862 $ 2,299 $ (1,740)
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating
activities:
Depreciation and amortization 3,588 3,640 3,476
Amortization of unearned stock compensation 35 35 35
Amortization of capitalized software costs 317 159 -
Amortization of notes payable discount and
deferred financing fees 371 369 246
Non-cash charge to modify warrant terms - - 75
Deferred income taxes 118 - (280)
Changes in assets and liabilities
Receivables 395 2,328 (2,912)
Inventories 1,457 (1,172) 1,723
Other current assets 513 99 (636)
Accounts payable and other accrued
liabilities (2,613) 958 (261)
Other (43) (184) 149
------------- -------------- -------------
Net cash provided by (used for) operating
activities 7,000 8,531 (125)

INVESTING ACTIVITIES
Purchase of fixed assets (2,525) (1,747) (1,493)
Increase in restricted cash (6) (7) (7)
Capitalized software costs (219) - (1,043)
------------- ------------- --------------
Net cash used for investing activities (2,750) (1,754) (2,543)

FINANCING ACTIVITIES
Net (payment) proceeds from line of credit (1,672) (5,574) 3,329
Payment on long-term debt (1,026) (1,440) (717)
Payment of financing fees - (70) (30)
Proceeds from issuance of common stock 536 159 29
------------ ------------- -------------
Net cash (used for) provided by financing
activities (2,162) (6,925) 2,611
------------- -------------- -------------
Net increase (decrease) in cash 2,088 (148) (57)
Cash and cash equivalents at beginning of period 79 227 284
------------ ------------- -------------
Cash and cash equivalents at end of period $ 2,167 $ 79 $ 227
========== =========== ===========

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

MERIDIAN MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)

Cumulative
Common Additional Accumulated Translation Treasury
Stock Capital Deficit Adjustment Stock
---------------------------------------------------------------------

Balance at July 31, 1998 $ 299 $ 32,083 $ (18,711) $ (15) $ (213)
Issuance of common stock from the exercise
of stock options and warrants - 29 - - -
Modification of warrant terms - 75 - - -
Amortization of stock option compensation - - - - -
Foreign currency translation - - - 1 -
Net loss - - (1,740) - -
Total comprehensive loss
---------------------------------------------------------------------
Balance at July 31, 1999 299 32,187 (20,451) (14) (213)
Issuance of common stock from the exercise
of stock options and warrants 1 158 - - -
Amortization of stock option compensation - - - - -
Foreign currency translation - - - (140) -
Net income - - 2,299 - -
Total comprehensive income
---------------------------------------------------------------------

Balance at July 31, 2000 300 32,345 (18,152) (154) (213)
Issuance of common stock from the exercise
of stock options and warrants 20 516 - - -
Tax benefit from exercise of stock options
and warrants - 295 - - -
Amortization of stock option compensation - - - - -
Foreign currency translation - - - (73) -
Net income - - 2,862 - -

Total comprehensive income
---------------------------------------------------------------------
Balance at July 31, 2001 $ 320 $ 33,156 $ (15,290) $ (227) $ (213)
=====================================================================

Unearned
Stock Option Shareholders'
Compensation Equity
-------------------------------

Balance at July 31, 1998 $ (105) $ 13,338
Issuance of common stock from the exercise
of stock options and warrants - 29
Modification of warrant terms - 75
Amortization of stock option compensation 35 35
Foreign currency translation - 1
Net loss - (1,740)
-----------------
Total comprehensive loss (1,739)
-------------------------------

Balance at July 31, 1999 (70) 11,738
Issuance of common stock from the exercise
of stock options and warrants - 159
Amortization of stock option compensation 35 35
Foreign currency translation - (140)
Net income - 2,299
-----------------
Total comprehensive income 2,159
-------------------------------

Balance at July 31, 2000 (35) 14,091
Issuance of common stock from the exercise
of stock options and warrants - 536
Tax benefit from exercise of stock options
and warrants - 295
Amortization of stock option compensation 35 35
Foreign currency translation - (73)
Net income - 2,862
-----------------
Total comprehensive income 2,789
-------------------------------

Balance at July 31, 2001 $ - $ 17,746
===============================

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

ITEM 8. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MERIDIAN MEDICAL TECHNOLOGIES, INC.

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Meridian Medical Technologies, Inc. ("Company") is a technology-based health
care company that designs, develops and produces a broad range of automatic
injectors, prefilled syringes, cardiopulmonary diagnostic and monitoring
products, and other innovative health care devices. The Company also supplies
customized drug delivery system design, pharmaceutical research and development
and FDA cGMP-approved sterile product manufacturing to pharmaceutical and
biotechnology companies.

PRINCIPLES OF CONSOLIDATION

All intercompany balances and transactions have been eliminated in
consolidation.

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

The Company considers all investments with a maturity of three months or less on
their acquisition date to be cash equivalents. Restricted cash consists of cash
pledged as collateral on an outstanding letter of credit supporting the working
capital line of credit at the Company's Belfast subsidiary.

INVENTORIES

Inventories relating to commercial and military products are stated at the lower
of cost (first-in, first-out) or market.

FIXED ASSETS

Fixed assets are stated at cost. The Company computes depreciation and
amortization under straight-line and accelerated methods using the following
estimated useful lives:

Furniture and equipment 2 to 15 years
Capital leases and leasehold improvements 4 to 31.5 years

The Company uses either the units of production method or the straight-line
method over a 10-year life (whichever period is shorter) to depreciate
production molds and tooling over their estimated production life cycle.

INTANGIBLE ASSETS

Intangible assets consist of the following (in thousands):

July 31,
2001 2000
---- ----

Excess of cost over net assets acquired $ 11,362 $ 11,362
Patents and licenses 2,451 2,418
Other 794 794
------------- -------------
14,607 14,574
Less: accumulated amortization (8,007) (6,613)
-------------- --------------
$ 6,600 $ 7,961
============= =============

Excess of cost over net assets acquired and other intangible assets are
amortized over 10 years. Legal costs incurred in connection with patent
applications and costs of acquiring patents and licenses are capitalized and
amortized on a straight-line basis over the shorter of the patent life (not to
exceed seventeen years) or the period of expected benefit.

ACCOUNTING STANDARDS NOT YET ADOPTED

IMPAIRMENT OF LONG-LIVED ASSETS

The Company reviews its long-lived assets to determine whether an event or
change in circumstances indicates that the carrying amount of the asset may not
be recoverable. For long-lived assets to be held and used, the Company bases its
evaluation on such impairment indicators as the nature of the assets, the future
economic benefit of the assets, any historical or future profitability
measurements, as well as other external market conditions or factors that may be
present. If such impairment indicators are present or other factors exist that
indicate that the carrying amount of the asset may not be recoverable, the
Company determines whether an impairment has occurred through the use of an
undiscounted cash flows analysis of assets at the lowest level for which
identifiable cash flows exist. If impairment has occurred, the Company
recognizes a loss for the difference between the carrying amount and the
estimated value of the asset. The fair value of the asset is measured using
discounted cash flow analysis or other valuation techniques. No impairment
expense was recognized for the years ended July 31, 2001, 2000 or 1999.

REVENUE RECOGNITION

Sales of medical products are recorded when shipments are made to customers.
Shipping terms are FOB shipping point. Revenues from the DoD industrial base
maintenance contract are recorded ratably throughout the contract term, with the
exception of revenue from product sales, which are recorded upon acceptance by
the customer, and revenue from the component prestocking program. Under the
component prestocking program, the customer purchases raw material inventory
from the Company. Upon receipt and inspection of raw materials from suppliers,
title passes to the customer, at which point the Company invoices the customer
and records revenue. Revenues from research and development arrangements are
recognized in the period related work has been substantially completed.
30

FOREIGN CURRENCY

Assets and liabilities of foreign operations are translated at the exchange rate
in effect at the balance sheet date. Revenue and expense accounts are translated
using a weighted average of exchange rates in effect during the year. Cumulative
translation adjustments are shown in the accompanying consolidated balance
sheets as a separate component of shareholders' equity. The aggregate exchange
gain (loss) included in determining net income was $40,000, $40,000, and
($62,000) for the years ended July 31, 2001, 2000, and 1999, respectively.

RESEARCH AND DEVELOPMENT

Research and development expenses are charged to operations in the period
incurred. Customer funded R&D projects generated $3.1 million, $1.5 million, and
$1.8 million of revenues for the years ended July 31, 2001, 2000, and 1999,
respectively. Costs associated with these projects are reported as costs of
goods sold in the same period that revenue is recognized.

INCOME TAXES

The Company accounts for income taxes using the asset and liability method that
requires the recognition of deferred tax assets and liabilities for expected
future tax consequences of temporary differences between carrying amounts and
the tax basis of assets and liabilities. A valuation allowance reduces deferred
tax assets when it is more likely than not that some portion or all of the
deferred tax assets will not be realized.

VALUE OF FINANCIAL INSTRUMENTS

Other than described below, the Company considers the recorded value of its
financial assets and liabilities, which consist primarily of cash, accounts
receivable, accounts payable and other accrued liabilities to approximate the
fair value of the respective assets and liabilities at July 31, 2001 and 2000.
Management believes the principal balance of its long-term debt, which is
$687,000 and $927,000 higher than the carrying value at July 31, 2001 and 2000,
respectively, is a better estimate of the fair value of that liability. The debt
is carried net of unamortized discount.

USE OF ESTIMATES AND ASSUMPTIONS

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

NET INCOME (LOSS) PER COMMON SHARE

The following table sets forth the computation of basic and diluted earnings per
share (in thousands):

Year Ended July 31,
2001 2000 1999
---- ---- ----

NUMERATOR:
----------
Net income (loss) $ 2,862 $ 2,299 $ (1,740)
======= ======= =========

DENOMINATOR:
------------
Denominator for basic earnings per share - weighted average
shares outstanding 3,064 2,996 2,993
Dilutive effect of stock options and warrants 485 280 -
------- ------- --------
Denominator for diluted earnings per share 3,549 3,276 2,993
======= ======= ========

RECLASSIFICATION

Certain reclassifications have been made to prior year financial statements in
order to conform with the current year presentation.

2. INVENTORIES

Inventories as of July 31, 2001 and 2000 consist of the following (in
thousands):

2001 2000
---- ----

Components and subassemblies $ 4,750 $ 4,673
Work in process 2,378 3,250
Finished goods 497 884
------------ ------------
7,625 8,807
Less: inventory valuation allowance (838) (746)
------------- -------------
$ 6,787 $ 8,061
============ ============

3. FIXED ASSETS

Fixed assets as of July 31, 2001 and 2000 consist of the following (in
thousands):

2001 2000
---- ----

Furniture and equipment $ 18,613 $ 15,957
Leasehold improvements 5,378 4,852
Construction in progress 2,100 2,452
----------- ------------
26,091 23,261
Less: accumulated depreciation (9,627) (7,466)
------------ -------------
$ 16,464 $ 15,795
=========== ============

Depreciation expense was $2.2 million, $2.2 million, and $2.1 million for the
years ended July 31, 2001, 2000 and 1999, respectively.

4. CAPITALIZED SOFTWARE COSTS

During fiscal 2001, the Company capitalized $219,000 of software development
costs related to software enhancements to the PRIME ECG(TM) Electrocardiac
Mapping System. The Company had also capitalized $1,588,000 of similar costs
during fiscal 1999 and prior. The Company accounts for these development costs
in accordance with SFAS 86, "Accounting for the Costs of Computer Software to Be
Sold, Leased, or Otherwise Marketed." The Company began amortizing the costs
that were capitalized in fiscal 1999 and prior during the third quarter of
fiscal 2000, the time the product was available for general release to
customers. The capitalized costs are amortized on a product by product basis
based on the greater of the ratio of current sales to estimated total sales or a
straight-line basis over the remaining estimated economic life of the product,
not exceeding five years. During the years ended July 31, 2001 and 2000, the
Company recognized $317,000 and $159,000 of amortization expense, respectively,
which is included in cost of sales. Amortization of costs capitalized during
fiscal 2001 will begin when the product enhancements are available for general
release. The Company periodically evaluates the capitalized software costs for
recoverability against anticipated future revenues, and writes down or writes
off a portion of the capitalized costs if recoverability is in question.

5. DEBT

SENIOR SUBORDINATED NOTES

In April 1998, the Company entered into a note agreement with Nomura Holding
America, Inc. for $15 million of senior subordinated notes, at a 12% fixed rate
of interest, due April 2005. The Company issued a warrant to Nomura to purchase
204,770 shares of the Company's common stock in conjunction with the
transaction. $930,000 of the proceeds was allocated to the value of the warrant;
accordingly, the note is carried net of the related unamortized discount. The
Company is amortizing the discount over the term of the debt. This resulted in
charges against operations of $132,800 in fiscal 2001, 2000 and 1999. Subsequent
to this transaction, the Company modified the terms of the warrant issued to
Nomura, lowering the per share exercise price from $11.988 to $4.625. The
Company recorded additional interest expense of $75,000 in fiscal 1999 relating
to the modification of terms.

Among other things, the Company is required to maintain certain financial
covenants and is restricted from paying cash dividends.

LINES OF CREDIT

The Company has an agreement with International Nederlanden (U.S.) Capital
Corporation ("ING") for an $6.5 million line of credit and a $5 million
long-term loan.

The ING line of credit accrues interest at either the greater of the prime rate
plus 1.25% (8.00% at July 31, 2001) or the federal funds rate plus 1.75%; or the
eurodollar loan rate plus 3.25%. The ING line is secured by certain accounts
receivable and inventory. The outstanding borrowing on the Company's ING line of
credit was $0 and $1.7 million at July 31, 2001 and 2000, respectively. The
Company pays a commitment fee to ING of .5% on the average unused portion of the
line of credit. The interest rate on outstanding borrowings was 10.75% at July
31, 2000.

An additional line of credit exists for the Company's operation in Northern
Ireland. The line of credit is for GBP 145,000 and is secured by an irrevocable
standby Letter of Credit. The line of credit matures annually each December and
bears interest on outstanding borrowings at the bank's published rate of 7.25%
at July 31, 2001. The outstanding borrowing on this line of credit was $71,000
and $93,000 at July 31, 2001 and 2000, respectively.

LONG-TERM DEBT (ING)

The term loan with ING accrues interest at either the Eurodollar loan rate plus
3.5% or the greater of the prime rate plus 1.5% (8.25% at July 31, 2001) or the
federal funds rate plus 2.00%. The loan is repayable in quarterly principal
payments of $250,000 until March 2002, at which point payments increase to
$500,000 per quarter. The loan matures on March 31, 2003. The outstanding
balance was $2,750,000 and $3,750,000 at July 31, 2001 and 2000, respectively.

Warrants were issued to ING in the financing described above. The Company
allocated $2,072,900 of the note proceeds to the warrants based on the relative
fair value of the warrants and the note at the agreement date. Accordingly, the
note is carried at a discount from its maturity value. $811,000 of the remaining
unamortized discount ($494,000 after the tax benefit of $317,000) was written
off as an extraordinary loss on extinguishment of debt in April 1998. The
Company is amortizing the remaining discount over the term of the debt. This
resulted in charges against operations of $108,000 in fiscal 2001, 2000 and
1999. Among other things, the Company is required to maintain certain financial
covenants and is restricted from paying cash dividends.

Maturities of all long term-debt are as follows (in thousands):

2002 $ 1,250
2003 1,500
2004 -
2005 15,000
2006 -
Thereafter -
----------
Subtotal 17,750
Discounts on term loans (687)
-----------
Total debt per balance sheet $ 17,063
==========

Interest paid for the years ended July 31, 2001, 2000 and 1999 was $2,408,000,
$2,958,000 and $2,882,000, respectively.

6. SHAREHOLDERS' EQUITY

STOCK OPTIONS

The Company has adopted three Stock Option Plans ("the Plans") which reserve
500,000 shares of common stock for granting of options through 2001, 500,000
shares of common stock for granting of awards through 2007, and 500,000 shares
of common stock for granting of awards through 2010. While two of the Plans
provide for issuance of non-qualified stock options, incentive stock options,
stock appreciation rights, incentive shares and restricted stock, the Plan
expiring in 2010 provides only for the issuance of non-qualified stock options,
incentive stock options and restricted stock. The Company also has assumed stock
options granted by predecessor companies.

Options granted to employees, officers and directors pursuant to the Company's
stock option plans generally have been exercisable in varying amounts in
cumulative annual installments up to ten years from the date of grant. The
exercise price on all options granted during years ended July 31, 2001, 2000 and
1999 was equivalent to or greater than the market value of the Company's stock
on the date of grant. The Company recognized $35,000 of expense in each of
fiscal 2001, 2000, and 1999 as a result of options issued in prior years with
exercise prices less than fair market value at the date of grant.

Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," recommends a fair value based methodology of
accounting for all stock option plans. Under SFAS No. 123, companies may account
for stock options under Accounting Principles Board
34

Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations and provide pro forma disclosure of net income, as if the fair
value based method of accounting defined in SFAS No. 123 had been applied. The
Company has elected to follow APB 25 and related Interpretations in accounting
for its employee stock options and provide pro forma fair value disclosure under
SFAS 123.

For SFAS 123, the fair value of options was estimated at the date of grant using
a Black-Scholes option pricing model with the following weighted-average
assumptions for 2001, 2000 and 1999: risk-free interest rate of 5.0%, 5.0%, and
6.5%, respectively; no dividends; a volatility factor of the expected market
price of the Company's common stock of .55, .55, and .49, respectively; and a
weighted-average expected life of the options of approximately seven years. The
weighted average fair value of options granted during 2001, 2000 and 1999 was
$7.77, $4.36, and $4.89, respectively.

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.

For the purpose of pro forma disclosures, the estimated fair value of the stock
options is amortized to expense over the options' vesting periods. The Company's
pro forma net income (loss) and net income (loss) per share calculated using the
provisions of FAS 123 were as follows (in thousands except per share data):

Year Ended July 31,
2001 2000 1999
---- ---- ----

Net income (loss) $ 2,862 $ 2,299 $ (1,740)
Pro forma FAS 123 expense (589) (394) (284)
------------ ------------- ------------
Pro forma net income (loss) $ 2,273 $ 1,905 $ (2,024)
=========== ============ ============
Weighted average shares outstanding 3,064 2,996 2,993
Pro forma net income (loss) per share $ 0.74 $ 0.64 $ (0.68)

The following table summarizes stock option activity and stock options
exercisable for the years ended July 31, 2001, 2000 and 1999.

2001 Weighted Average 2000 Weighted Average
---- Exercise price ---- Exercise price
-------------- --------------

Number of shares
Options outstanding at beginning
of year 1,009,834 $ 6.54 795,435 $ 6.81

Granted during the year 184,000 13.46 281,326 6.20

Exercised during the year (25,913) 7.08 (7,032) 9.13
Expired or terminated (25,973) 12.00 (59,895) 8.02
----------- --------- ----------- ---------

Options outstanding at end of year 1,141,948 $ 7.52 1,009,834 $ 6.54
========== ========= ========== =========

Options exercisable at end of year 646,502 $ 6.20 519,334 $ 6.18
========== ========= ========== =========

1999 Weighted Average
---- Exercise price
--------------

Number of shares
Options outstanding at beginning
of year 645,100 $ 6.83

Granted during the year 203,685 7.07

Exercised during the year (4,067) 7.49
Expired or terminated (49,283) 8.11
--------- ----------

Options outstanding at end of year 795,435 $ 6.81
======== ==========

Options exercisable at end of year 473,800 $ 6.04
======== ==========

The price range of options outstanding is as follows:

2001 2000 1999
---- ---- ----

Less than $1.00 148,512 148,512 148,512
$1.00 to $5.00 66,950 66,950 56,950
$5.01 to $9.00 574,736 586,059 353,960
$9.01 to $13.00 172,050 143,613 171,313
$13.01 to $20.00 179,700 64,700 64,700
------------- -------------- --------------
1,141,948 1,009,834 795,435
============= ============== ==============

The average contractual life of the Company's options is approximately 6-10
years.

COMMON STOCK WARRANTS

Outstanding warrants to acquire the Company's common stock as of July 31, 2001
and 2000 are as follows:

2001 2000
---- ----

Exercise price:
Less than $1.00 - 83,579
$1.00 -$10.99 204,770 381,968
@$11.00 377,417 512,645
-------------- ---------------
582,187 978,192
============== ===============

Warrants to purchase 286,505 shares of common stock expire during calendar year
2001, warrants to purchase 204,770 shares of common stock expire in 2005, and
warrants to purchase 90,912 shares of common stock expire in 2006.

7. INCOME TAXES

The provision for federal, state, and foreign income taxes consist of the
following (in thousands):

Year Ended July 31,
2001 2000 1999
---- ---- ----

Current:
Federal $ 2,686 $ 2,357 $ (230)
State 651 447 (50)
Foreign 6 185 -
NOL utilization (362) (1,475) -
------------ ------------ ----------
2,981 1,514 (280)

Deferred:
Federal and state 118 - 280
Other - - -
----------- ----------- ----------
118 - 280
----------- ----------- ----------
$ 3,099 $ 1,514 $ -
=========== =========== ==========

The following is a reconciliation of the provision for income taxes to the
provision calculated at the statutory rate (in thousands):

Year Ended July 31,
2001 2000 1999
---- ---- ----

Provision for income taxes at federal statutory rate $ 2,027 $ 1,296 $ (592)
State taxes, net of federal income tax benefit 496 261 (122)
Non-deductible costs 440 483 474
Changes in valuation allowance 76 (920) 172
Foreign taxes 82 321 -
Other (22) 73 68
---------- ---------- ----------
$ 3,099 $ 1,514 $ -
========= ========== ==========

The Company paid income taxes of $3,791,200, $126,400, and $761,700 for the
years ended July 31, 2001, 2000, and 1999, respectively.

The Company provides deferred income taxes for temporary differences between the
book basis of assets and liabilities for financial reporting purposes and the
basis of assets and liabilities for tax return purposes. Deferred tax assets and
liabilities were as follows at July 31, 2001 and 2000 (in thousands):

July 31,
2001 2000
---- ----

Foreign net operating loss carryforwards $ 2,068 $ 1,456
U.S. net operating loss and tax credits carryforward 425 787
Inventory valuation 326 244
Uniform inventory capitalization 280 421
Postretirement benefits 325 305
Vacation expense 153 163
Other 320 553
Valuation allowance (2,068) (1,992)
------------ ------------

Deferred tax asset $ 1,829 $ 1,937
=========== ===========

Depreciation $ (1,667) $ (1,648)
Patent costs (108) (117)
------------ ------------

Deferred tax liability $ (1,775) $ (1,765)
============ ============

At July 31, 2001, the Company has net operating losses (NOLs) available for
future use to offset U.S. income of approximately $1.1 million. These NOLs begin
to expire in 2005. At July 31, 2001, the Company's foreign subsidiaries have
NOLs to offset their future income of approximately $6.9 million, which have no
expiration date.

Realization of net deferred tax assets at the balance sheet date is dependent
upon future earnings. Based on historical net operating losses and uncertain
future earnings, a valuation allowance to offset net deferred tax assets related
to all foreign NOL's has been recorded at July 31, 2001.

For financial statement reporting purposes, income before income taxes includes
the following components:

Year Ended July 31,
2001 2000 1999
---- ---- ----

U.S. $ 8,003 $ 5,321 $ (1,116)
Foreign (2,042) (1,508) (624)
------------ ------------ -----------
$ 5,961 $ 3,813 $ (1,740)
=========== =========== ===========

8. EMPLOYEE RETIREMENT PLANS

PENSION AND SAVINGS PLANS

The Company maintains a profit sharing thrift plan covering all full-time
employees. Annual contributions under the plan may be made up to 6.6% of the
base annual salary of all plan participants not covered by a collective
bargaining agreement. Plan benefit allocations are based on the participants'
annual compensation. The Company made no contributions in fiscal 2001, 2000, or
1999. As part of this profit sharing thrift plan, eligible employees may elect
to contribute up to 12% of their base salary to the plan. The Company matches a
portion of the contributions by employees not covered by a collective bargaining
agreement. The Company match amounted to $207,700, $156,700, and $153,600 in
fiscal years 2001, 2000, and 1999, respectively.
38

The Company also made payments to a pension plan for its full-time employees in
St. Louis, Missouri covered by a collective bargaining agreement. Contributions
to this plan resulted in expense of $150,100, $125,600, and $103,400 in fiscal
years 2001, 2000, and 1999, respectively.

OTHER POSTRETIREMENT BENEFITS

The Company sponsors a postretirement benefit plan (the "Plan") to provide
certain medical and life insurance benefits to retirees, their spouses and
dependents. The Plan is contributory for medical benefits based on the retiree's
years of service and is noncontributory for life insurance benefits. The Company
funds its obligations under the Plan as incurred.

The following table sets forth the Plan's funded status (in thousands):

2001 2000
---- ----

Benefit obligation at the beginning of the year $ 710 $ 991
Service cost 23 20
Interest cost 57 54
Actuarial loss/(gain) 127 (319)
Benefits paid (60) (36)
----------- -----------
Benefit obligation at the end of the year 857 710

Unrecognized prior service cost (15) (24)
Unrecognized net gain 527 680
Unrecognized transition obligation (538) (583)
----------- -----------

Accrued benefit costs $ 831 $ 783
========== ==========

The Company recognized net periodic postretirement expense of $108,000, $98,100
and $111,000 for the years ended July 31, 2001, 2000 and 1999, respectively, as
follows (in thousands):

2001 2000 1999
---- ---- ----

Service cost-benefits attributed to service
during periods $ 23 $ 20 $ 34
Interest cost on accumulated postretirement
benefit obligation 57 54 71
Amortization of prior service 9 9 9
Amortization of net gain (26) (30) (48)
Amortization of transition obligation 45 45 45
---------- ---------- ----------
Net periodic postretirement benefit cost $ 108 $ 98 $ 111
========== ========== ==========

For measurement purposes, an 8.0% annual rate of increase in cost of health care
was assumed for fiscal 2001; the rate was assumed to decrease gradually to 5% by
2007 and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. To illustrate,
increasing assumed health care cost by 1% in each year would increase the
accumulated postretirement benefit obligation as of July 31, 2001 by $136,200
and the aggregate of the service and interest cost component of net periodic
postretirement benefit cost by $15,000 for the year ended July 31, 2001. The
weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% and 7.5% for 2001 and 2000,
respectively.

9. COMMITMENTS AND CONTINGENCIES

LEASES

The Company has various commitments under operating leases through 2014 relating
to computer hardware and software, its pharmaceutical manufacturing facility and
warehouses in St. Louis, Missouri, its facility in the United Kingdom, a
facility in Belfast, Northern Ireland, and administrative offices in Columbia,
Maryland and St. Louis, Missouri.

Future minimum rentals as of July 31, 2001 under noncancellable leases are as
follows (in thousands):

Operating Sublease
Year Ending July 31, Leases Revenue
-------------------- ------ -------

2002 $ 1,221 $ 207
2003 926 29
2004 930 2
2005 729 -
2006 521 -
Thereafter 2,721 -
---------- ----------
$ 7,048 $ 238
========== ==========

The Company incurred net rental expense of $1,401,000, $1,282,500, and
$1,066,200 in 2001, 2000 and 1999, respectively. Included within net rental
expense is sublease rental income of $386,700, $350,400, and $342,500 in 2001,
2000, and 1999, respectively.

SALE/LEASEBACK OF FORMER HEADQUARTERS BUILDING

In connection with the December 1988 sale of the Company's former headquarters
building in Bethesda, Maryland, the Company's obligations under the Leasehold
Deed of Trust ("Ground Lease") were assigned to and assumed by the purchaser of
the building. The Company remains contingently liable under the Ground Lease.
The annual commitment under the Ground Lease aggregated $166,400 in 2001
(adjusted for increases in the Consumer Price Index) and extends until the year
2042.

LITIGATION

GOVERNMENT CONTRACT REVENUE

The Company's supply contracts with the DoD are subject to post-award audit and
potential price redetermination. In the opinion of management, adjustments, if
any, on completed contracts would not have a material adverse effect on the
Company's consolidated financial position or results of operations.

EMPLOYEE CONTRACTS

The Company has an agreement with a key employee which provides for certain
benefits should the employee be terminated within the term of the agreement for
other than specified reasons. This agreement renews for three-year periods
unless timely notice of non-renewal is given. Additionally, all stock options
held by the employee become immediately exercisable and any restrictions on
transfer of the Company's stock held by the employee shall lapse. The Company
also has agreements with certain key employees which provide for certain
benefits should the employees be terminated within a two year period subsequent
to a change of control (as defined by the agreements) for other than specified
reasons. Benefits to be provided under all of the above agreements include
continued life, disability, accident and health insurance coverage for a period
of two years and a severance payment up to 100-200% of the employee's annual
base compensation. The maximum contingent liability under these agreements at
July 31, 2001 is $1,707,100.

PURCHASES WITH EXTENDED PAYMENT TERMS

In October 2000, the Company purchased inventory, equipment, and a patent with
extended payment terms. Pursuant to the terms of the purchase agreement,
payments are made semi-annually through May 2003 in amounts ranging from
$100,000 to $200,000. Aggregate payments to be made under this agreement total
$800,000. The Company has recorded the inventory, equipment, and patent
acquired, as well as, the related liability at net present value assuming an
incremental borrowing rate of 9.0%.

10. SEGMENT INFORMATION

The Company operates in two industry segments: pharmaceutical systems and
cardiopulmonary systems. Both segments include the design, development,
manufacture and sale of medical products and related services, with a major
focus on safe and convenient participation by the patient. The cardiopulmonary
business unit operates in Northern Ireland with most of its revenue generated
overseas. Revenues, operating income, and long-lived asset additions by segment
for the years ended July 31, 2001, 2000 and 1999 and total assets at July 31,
2001, 2000 and 1999 are as follows:

2001 2000 1999
---- ---- ----

Revenues:
Pharmaceutical systems $ 55,264 $ 53,106 $ 38,890
Cardiopulmonary systems 2,826 1,501 1,840
----------- ----------- -----------
Total revenues 58,090 54,607 40,730

Operating income (loss):
Pharmaceutical systems $ 11,652 $ 10,064 $ 2,125
Cardiopulmonary systems (2,870) (2,715) (838)
------------ ------------ ------------
Total operating income 8,782 7,349 1,287

Long-lived asset additions
Pharmaceutical systems $ 2,797 $ 1,747 $ 840
Cardiopulmonary systems 287 - 1,696
----------- ----------- -----------
Total long-lived asset additions 3,084 1,747 2,536

Total assets
Pharmaceutical systems $ 38,767 $ 40,018 $ 42,667
Cardiopulmonary systems 4,731 4,667 5,084
----------- ----------- -----------
Total assets 43,498 44,685 47,751

11. SIGNIFICANT CUSTOMERS & FOREIGN OPERATIONS

Financial information relating to major customers and export sales follows (in
thousands):

2001 2000 1999
---- ---- ----

Sales to major U.S. customers:
U.S. Department of Defense $ 15,793 $ 17,904 $ 20,698
Dey L.P. 29,861 23,918 11,449
Other 4,617 3,459 4,270
----------- ----------- -----------
Total 50,271 45,281 36,417

Export sales:
Contract sales to the Governments of
foreign countries 4,993 7,825 2,474
Other 2,826 1,501 1,839
----------- ----------- -----------
Total export sales 7,819 9,326 4,313
----------- ----------- -----------
Total net sales $ 58,090 $ 54,607 $ 40,730
=========== =========== ===========

The Company extends credit to domestic customers and generally requires a letter
of credit for export sales.

At July 31, 2001 and 2000, the Company had 67% and 62%, respectively, of its
accounts receivable from two customers, Dey and the U.S. government. Dey's
affiliate is a shareholder of the Company.

The Company operates subsidiaries in the U.K which represent 5.1% and 5.9% of
the Company's sales for the years ended July 31, 2001 and 2000, respectively,
and 9.9% and 9.5% of the Company's total assets at July 31, 2001 and 2000,
respectively. Long-lived assets located in the U.K. were 7.8% and 8.0% of the
Company's total long-lived assets at July 31, 2001 and 2000, respectively.

12. PRODUCT EXCHANGE/RECALL

On May 8, 1998, the Company announced a voluntary Class I recall of 47 lots of
its EpiPen and EpiPen Jr. auto-injectors (approximately 1,000,000 units) because
some may not have provided effective doses of medication. The cost of the recall
was $3.2 million and was included in 1998 and 1999 results.

The Company had $1.6 million, $3.2 million and $1.3 million of EpiPen shipments
during fiscal 2000, 1999 and 1998, respectively, to satisfy cash costs incurred
by the distributor for the 1998 EpiPen recall and the 1997 EpiEZPen voluntary
exchange program.
42

13. QUARTERLY OPERATING RESULTS (UNAUDITED)

(in thousands, except per share data)

Quarter Ended
-------------------------------------------------------------------------

Fiscal Year 2001 Oct. 31, 2000 Jan. 31, 2001 Apr. 30, 2001 Jul. 31, 2001
---------------- ------------- ------------- ------------- -------------

Net sales $ 12,986 $ 14,021 $ 14,774 $ 16,309
Cost of sales 7,848 8,084 8,649 9,204
------------ ----------- ------------ -----------
Gross profit 5,138 5,937 6,125 7,105

Operating expenses 3,621 4,197 4,003 3,702
------------ ----------- ------------ -----------

Operating income 1,517 1,740 2,122 3,403
Other expense, net (702) (755) (652) (712)
------------- ------------ ------------- ------------

Income before income taxes 815 985 1,470 2,691
Provision for income taxes 390 500 706 1,503
------------ ----------- ------------ -----------

Net income $ 425 $ 485 $ 764 $ 1,188
============ =========== ============ ===========
Basic net income per share $ 0.14 $ 0.16 $ 0.25 $ 0.38
============ =========== ============ ===========
Diluted net income per share $ 0.12 $ 0.14 $ 0.22 $ 0.33
============ =========== ============ ===========

Fiscal Year 2000 Oct. 31, 1999 Jan. 31, 2000 Apr. 30, 2000 Jul. 31, 2000
---------------- ------------- ------------- ------------- -------------

Net sales $ 11,755 $ 12,066 $ 14,068 $ 16,718
Cost of sales 7,067 7,296 8,607 9,621
------------ ----------- ------------ -----------
Gross profit 4,688 4,770 5,461 7,097

Operating expenses 3,206 3,609 3,548 4,304
------------ ----------- ------------ -----------

Operating income 1,482 1,161 1,913 2,793
Other expense, net (901) (822) (906) (907)
------------- ------------ ------------- ------------

Income before income taxes 581 339 1,007 1,886
Provision for income taxes 227 132 316 839
------------ ----------- ------------ -----------

Net income $ 354 $ 207 $ 691 $ 1,047
============ =========== ============ ===========
Basic net income per share $ 0.12 $ 0.07 $ 0.23 $ 0.35
============ =========== ============ ===========
Diluted net income per share $ 0.11 $ 0.06 $ 0.21 $ 0.31
============ =========== ============ ===========

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
Meridian Medical Technologies, Inc.

We have audited the accompanying consolidated balance sheets of Meridian Medical
Technologies, Inc. and subsidiaries as of July 31, 2001 and 2000 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended July 31, 2001. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Meridian Medical Technologies, Inc. and subsidiaries at July 31, 2001 and 2000,
and the results of their operations and their cash flows for each of the three
years in the period ended July 31, 2001, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

/s/ Ernst & Young LLP

McLean, VA
September 10, 2001

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

Not applicable.

PART III

ITEMS 10 THROUGH 13.

Information required by Part III (Items 10 through 13) of this Form 10-K is
incorporated by reference to the Company's definitive Proxy Statement for the
Annual Meeting of Shareholders for the fiscal year ended July 31, 2001, which
will be filed with the Securities and Exchange Commission not later than 120
days after the end of the fiscal year to which this report relates.

PART IV

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

(a) The following documents are included under Item 8 in this report:

1. Financial Statements:

Consolidated Balance Sheets at July 31, 2001 and 2000.

Consolidated Statements of Operations for the years ended July
31, 2001, 2000, and 1999.

Consolidated Statements of Shareholders' Equity for the years
ended July 31, 2001, 2000, and 1999.

Consolidated Statements of Cash Flows for the years ended July
31, 2001, 2000, and 1999.

Notes to Consolidated Financial Statements.

Report of Independent Auditors.

The above-listed financial statements are included in Item 8 to
this Form 10-K.

2. Financial Statement Schedule:

The following financial statement schedule immediately precedes
the signatures to this report:

Schedule II - Valuation and Qualifying Accounts.

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

3. The exhibits listed on the Exhibit Index on pages 48-51 of this Form
10-K are filed herewith or are incorporated herein by reference.

(b) Reports on Form 8-K:

No reports on Form 8-K were filed during the quarter ended July
31, 2001.

SCHEDULE II

MERIDIAN MEDICAL TECHNOLOGIES, INC.
VALUATION AND QUALIFYING ACCOUNTS

Additions
Balance at Additions Charged to
Beginning of Charged to Costs and Write-off Balance at End
Period other Accounts Expenses Deductions of Period

For the year ended July 31, 2001
--------------------------------
Allowance for doubtful accounts $ 523,700 $ - $ 134,400 $ 590,200 $ 67,900
Inventory reserves $ 745,500 $ - $ 1,285,900 $ 1,193,700 $ 837,700
Restructuring reserves $ 78,700 $ - $ - $ 58,200 $ 20,500
============ ============= ============ ============= ============

For the year ended July 31, 2000
--------------------------------
Allowance for doubtful accounts $ 466,500 $ - $ 57,200 $ - $ 523,700
Inventory reserves $ 438,000 $ - $ 1,145,300 $ 837,800 $ 745,500
Restructuring reserves $ 134,300 $ - $ - $ 55,600 $ 78,700
============ ============= ============ ============= ============

For the year ended July 31, 1999
--------------------------------
Allowance for doubtful accounts $ 324,800 $ - $ 141,700 $ - $ 466,500
Inventory reserves $ 458,900 $ - $ 1,258,600 $ 1,279,500 $ 438,000
Restructuring reserves $ 121,800 $ - $ 80,000 $ 67,500 $ 134,300
============ ============= ============ ============= ============

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.
MERIDIAN MEDICAL TECHNOLOGIES, INC.
-----------------------------------
(Registrant)

By /S/JAMES H. MILLER
------------------
James H. Miller
Chairman of the Board
President & CEO

Dated: October 2, 2001

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

/S/ JAMES H. MILLER Chairman of the Board October 2, 2001
-------------------- President and Director
James H. Miller (Principal Executive Officer)

/S/ DENNIS P. O'BRIEN Vice President of Finance October 2, 2001
---------------------- (Principal Financial and
Dennis P. O'Brien Accounting Officer)

* Director October 2, 2001
-------------------------------
Thomas L. Anderson

* Director October 2, 2001
-------------------------------
Bruce M. Dresner

* Director October 2, 2001
-------------------------------
Robert G. Foster

* Director October 2, 2001
-------------------------------
David L. Lougee

* - By: /S/ JAMES H. MILLER October 2, 2001
---------------------
James H. Miller
---------------
Attorney-in-fact
----------------

EXHIBIT INDEX

Exhibit No. Description of Exhibit
----------- ----------------------

3.1 The Company's Bylaws (as amended). Incorporated by reference to
Exhibit 3.1 to the Company's Annual Report on Form 10-K for the
year ended July 31, 1997 (File No. 0-5958).

3.2 First Amended and Restated Certificate of Incorporation and
certification of the amendment of first amended and restated
Certificate of Incorporation. Incorporated by reference to
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the
year ended July 31, 1997 (File No. 0-5958).

4.1 Forms of warrants assumed and issued by the Company in connection
with the merger with Brunswick. Incorporated by reference to
Exhibit 4.1 to the Company's Form 8-K dated December 5, 1996
(File No. 0-5958).

10.1 Indenture of Lease, dated January 1, 1982, between Survival
Technology, Inc. and Abraham M. Morrison. Incorporated by
reference to Exhibit 10.1 to the Company's Annual Report on Form
10-K for the year ended July 31, 1988 (File No. 0-5958).

10.2 Lease Agreement dated August 26, 1991 between Pru Beta 2 and the
Company. Incorporated by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the year ended July 31,
1991 (File No. 0-5958).

10.3 Agreement dated June 23, 1981 between Survival Technology, Inc.
and American Home Products Corporation. Incorporated by reference
to Exhibit 10.12 to the Company's Annual Report on Form 10-K for
the year ended July 31, 1988 (File No. 0-5958).

10.4 License Agreement dated April 20, 1982 between Survival
Technology, Inc. and American Home Products Corporation.
Incorporated by reference to Exhibit 10.12.1 to the Company's
Annual Report on Form 10-K for the year ended July 31, 1988 (File
No. 0-5958).

10.5 Letter Agreement dated as of January 31, 1990 between Center
Laboratories, a division of EM Industries, Inc. and the Company.
Incorporated by reference to Exhibit 10.10.1 to the Company's
Annual Report on Form 10-K for the year ended July 31, 1990 (File
No. 0-5958).

10.6 Agreement by and between Survival Technology, Inc. and EM
Industries, Inc., dated as of October 21, 1996. Incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended October 31, 1999 (File No.
0-5958).

10.7 Contract SP0200-99-D-0007 dated July 30, 1999 between the U.S.
Government (Defense Personnel Support Center) and the Company.
Incorporated by reference to Exhibit 10.33 to the Company's
Annual Report on Form 10-K for the year ended July 31, 1999 (File
No. 0-5958).

10.8 Supply Agreement dated as of January 1, 2001 between Meridian
Medical Technologies, Inc. and Dey, L.P. Incorporated by
reference to Exhibit 10.41 to the Company's Quarterly Report on
Form 10-Q for the quarter ended April 30, 2001 (File No. 0-5958).
(Portions of this Exhibit have been omitted pursuant to a
Confidential Treatment

Request, which the Company has filed separately with the
Securities and Exchange Commission.)

10.9 Credit Agreement, dated as of April 15, 1996, among Brunswick, as
the Borrower, Various Lenders and Internationale Nederlanden
(U.S.) Capital Corporation as the Agent for the Lenders.
Incorporated by reference to Exhibit 1 to the Schedule 13D filed
by ING (U.S.) Investment Corporation dated December 2, 1996 (File
No. 5-35771).

10.10 First Amendment to Credit Agreement, dated as October 25, 1996,
between Brunswick and Internationale Nederlanden (U.S.) Capital
Corporation. Incorporated by reference to Exhibit 4 to the
Schedule 13D filed by ING (U.S.) Investment Corporation dated
December 2, 1996 (File No. 5-35771).

10.11 Second Amendment to Credit Agreement, date September 2, 1997
between Meridian Medical Technologies, Inc. and Internationale
Nederlanden (U.S.) Capital Corporation. Incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended
July 31, 1997 (File No. 0-5958).

10.12 Fifth Amendment to the Credit Agreement dated October 15, 1998.
Incorporated by reference to Exhibit 10.32 to the Company's
Annual Report on Form 10-K for the year ended July 31, 1998 (File
No. 0-5958).

10.13 Sixth Amendment to the Credit Agreement dated November 6, 1998
between the Company and Internationale Nederlanden (U.S.) Capital
Corporation. Incorporated by reference to Exhibit 10.35 to the
Company's Annual Report on Form 10-K for the year ended July 31,
1999 (File No. 0-5958).

10.14 Seventh Amendment to the Credit Agreement dated October 29, 1999
between the Company and ING (U.S.) Capital Corporation.
Incorporated by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended October 31,
1999 (File No. 0-5958).

10.15 Assumption Agreement to the Credit Agreement, dated as of
November 20, 1996, between Meridian Medical Technologies, Inc.
and Internationale Nederlanden (U.S.) Capital Corporation.
Incorporated by reference to Exhibit 6 to the Schedule 13D filed
by ING (U.S.) Investment Corporation dated December 2, 1996 (File
No. 5-35771).

10.16 Warrant Purchase Agreement, dated as of April 15, 1996, between
Brunswick and Internationale Nederlanden (U.S.) Capital
Corporation. Incorporated by reference to Exhibit 2 to the
Schedule 13D filed by ING (U.S.) Investment Corporation dated
December 2, 1996 (File No. 5-35771).

10.17 First Amendment to Warrant Purchase Agreement, dated as of
October 25, 1996, between Brunswick and Internationale
Nederlanden (U.S.) Capital Corporation. Incorporated by reference
to Exhibit 5 to the Schedule 13D filed by ING (U.S.) Investment
Corporation dated December 2, 1996 (File No. 5-35771).

10.18 Assumption Agreement to the Warrant Purchase Agreement, dated as
of November 20, 1996, between Meridian Medical Technologies, Inc.
and Internationale Nederlanden (U.S.) Capital Corporation.
Incorporated by reference to Exhibit 7 to the Schedule 13D filed
by ING (U.S.) Investment Corporation dated December 2, 1996 (File
No. 5-35771).

10.19 Warrant Certificate for 90,912 Warrants of Meridian Medical
Technologies, Inc. - Certificate No. 1. Incorporated by reference
to Exhibit 10 to the Schedule 13D filed by

ING (U.S.) Investment Corporation dated December 2, 1996 (File
No. 5-35771).

10.20 Warrant Certificate for 83,579 Warrants of Meridian Medical
Technologies, Inc. - Certificate No. 1. Incorporated by reference
to Exhibit 11 to the Schedule 13D filed by ING (U.S.) Investment
Corporation dated December 2, 1996 (File No. 5-35771).

10.21 Warrant Agreement dated as of April 30, 1998. Incorporated by
reference to Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the quarter ended April 30, 1998 (File No. 0-5958).

10.22 Note and Warrant Purchase Agreement dated as of April 30, 1998.
Incorporated by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q for the quarter ended April 30,
1998 (File No. 0-5958).

10.23 First Amendment to the Note and Warrant Purchase Agreement dated
October 15, 1998. Incorporated by reference to Exhibit 10.31 to
the Company's Annual Report on Form 10-K for the year ended July
31, 1998 (File No. 0-5958).

10.24 $10,000,000 Term Note of Meridian Medical Technologies, Inc.
dated November 20, 1996. Incorporated by reference to Exhibit 8
to the Schedule 13D filed by ING (U.S.) Investment Corporation
dated December 2, 1996 (File No. 5-35771).

10.25 $15,000,000 Revolving Note of Meridian Medical Technologies, Inc.
dated November 20, 1996. Incorporated by reference to Exhibit 9
to the Schedule 13D filed by ING (U.S.) Investment Corporation
dated December 2, 1996 (File No. 5-35771).

10.26 Form of Registration Rights Agreement with former Brunswick
stockholders. Incorporated by reference to Exhibit 10.13 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
October 31, 1996. (File No. 0-5958).

10.27 Registration Rights Agreement, dated as of April 15, 1996,
between Brunswick and Internationale Nederlanden (U.S.) Capital
Corporation. Incorporated by reference to Exhibit 3 to the
Schedule 13D filed by ING (U.S.) Investment Corporation dated
December 2, 1996 (File No. 5-35771).

10.28 Registration Rights Agreement dated as of April 30, 1998.
Incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended April 30,
1998 (File No. 0-5958).

10.28 Waiver and Amendment Agreement dated June 14, 1999 between the
Company and Nomura Holding America Inc. Incorporated by reference
to Exhibit 10.36 to the Company's Annual Report on Form 10-K for
the year ended July 31, 1999 (File No. 0-5958).

10.30 Waiver and Amendment Agreement dated October 29, 1999 between the
Company and Nomura Holding America Inc. Incorporated by reference
to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended October 31, 1999 (File No. 0-5958).

10.31 Survival Technology, Inc. 1986 Stock Option Plan (as amended).
Incorporated by reference to Exhibit 4.2 to Registration
Statement No. 33-46981 on Form S-8.*

10.32 Meridian Medical Technologies, Inc. 2000 Stock Incentive Plan.
Incorporated by reference to Exhibit 4 to Registration Statement
No. 333-54780 on Form S-8.*

10.33 Form of Change of Control Agreement between the Company and Dr.
Gerald L. Wannarka and Mr. Peter A. Garbis dated October 26,
1998, and between the Company and Mr. Dennis P. O'Brien dated
March 8, 1999. Incorporated by reference to Exhibit 10.34 to the
Company's Form 10-K for the year ended July 31, 1999 (File No.
0-5958).*

10.34 Form of Change of Control Agreement between the Company and Mr.
Robert J. Kilgore dated April 1, 2000. Incorporated by reference
to Exhibit 10.40 to the Company's Annual Report on Form 10-K for
the year ended July 31, 2000 (File No. 0-5958).*

10.35 Employment agreement with James H. Miller, dated November 20,
1996. Incorporated by reference to Exhibit 10.12 to the Company's
Quarterly Report on Form 10-Q for the quarter ended October 31,
1996 (File No. 0-5958).*

22 A list of the Company's subsidiaries is not provided because
they, considered in the aggregate as a single subsidiary, would
not constitute a significant subsidiary as of the end of the year
covered by this report.

23.1 Consent of Independent Auditors. Filed herewith.

24 Power of Attorney of the Company's Directors. Filed herewith.

* Management contract, compensatory plan or arrangement.