SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
COMMISSION FILE NUMBER 0-13251
MEDICAL ACTION INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-2421849
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 Motor Parkway, Hauppauge, New York 11788
(Address of Principal executive offices)
Registrant's telephone number, including area code:
(516)231-4600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes / / No /X/
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. 8,002,289 shares of
common stock as of July 31, 1995.
Form 10-Q
CONTENTS
PART I - FINANCIAL INFORMATION
Consolidated Balance Sheets at June 30, 1995 (Unaudited) and March 31,
1995
Consolidated Statements of Operations for the Three Months ended June
30, 1995 and 1994 (Unaudited)
Consolidated Statements of Cash Flows for the Three Months ended June
30, 1995 and 1994 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Management's Discussion and Analysis of Results of Operations and
Financial Condition
PART II - OTHER INFORMATION
2
MEDICAL ACTION INDUSTRIES INC.
Consolidated Balance Sheets
(dollars in thousands)
ASSETS
June 30, March 31
1995 1995
----------- --------
(Unaudited)
CURRENT ASSETS:
Cash $ 68 $ 545
Accounts Receivable, less allowance for
doubtful accounts of $111 at
June 30, 1994 and March 31, 1994 6,276 6,041
Inventories (Note 2) 10,818 9,204
Prepaid expenses 310 332
Other current assets 258 260
------- -------
TOTAL CURRENT ASSETS $17,730 $16,382
Property and equipment at cost, less
accumulated depreciation of $3,738
at June 30, 1995 and $3,631 at
March 31, 1995 4,134 4,344
OTHER ASSETS:
Investment in Joint Venture 645 666
Other Receivables, less current portion 269 321
Goodwill, net of accumulated amortization
of $118 on June 30, 1995 and
$85 at March 31, 1995 (Note 3) 2,462 2,482
Other assets 105 133
------- -------
TOTAL ASSETS $25,345 $24,329
======= =======
The accompanying notes are an integral part of these financial statements.
3
MEDICAL ACTION INDUSTRIES INC.
Consolidated Balance Sheets
(dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, March 31,
1995 1995
----------- ---------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 836 $ 1,434
Accrued expenses, payroll and payroll taxes 528 353
Accrued income taxes 91 10
Current portion of capital lease obligations 10 10
Notes payable to bank 2,996 2,997
Current portion of long-term debt 544 573
------- -------
TOTAL CURRENT LIABILITIES $ 5,005 $ 5,377
Deferred Income Taxes 414 414
Capital lease obligations, less
current portion 24 26
Long-term debt, less current portion 8,539 $ 7,302
------- -------
TOTAL LIABILITIES $13,982 $13,119
SHAREHOLDERS' EQUITY:
Common stock 15,000,000 shares authorized,
$.001 par value; issued and outstanding
8,002,289 shares at June 30, 1995
and 8,002,289 shares at March 31, 1995 8 8
Additional paid-in capital, net of
deferred compensation of $503 at
June 30, 1995 and $532
at March 31, 1995 7,681 7,652
Retained earnings 3,674 3,549
------- -------
TOTAL SHAREHOLDERS' EQUITY 11,363 11,209
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $25,345 $24,329
======= =======
The accompanying notes are an integral part of these financial statements.
4
MEDICAL ACTION INDUSTRIES INC.
Consolidated Statements of Operations
(dollars in thousands except per share data)
Three Months Ended
June 30,
1995 1994
----------- -----------
(Unaudited) (Unaudited)
Net Sales $9,441 $7,960
Cost of Sales 7,468 6,437
------ ------
Gross Profit $1,973 $1,523
Selling, general and administrative
expenses (Note 3) 1,491 1,404
Interest expense 239 114
Other Expense 21 --
------ ------
Income before income taxes 222 5
Income taxes 97 2
------ ------
Net income $ 125 $ 3
====== ======
Net Income per share (Note 4) $ .02 $ .00
====== ======
The accompanying notes are an integral part of these financial statements.
5
MEDICAL ACTION INDUSTRIES INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
(dollars in thousands)
Three Months Ended
June 30,
1995 1994
----------- -----------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES
Net income $ 125 $ 3
Adjustments to reconcile net income
to net cash used in
operating activities:
Loss from sale of property
and equipment 21 --
Depreciation and amortization 198 158
Deferred compensation 29 15
Changes in operating assets and liabilities:
Accounts receivable (235) (284)
Inventories (1,614) (649)
Prepaid expenses, other current
assets and other receivables 76 (191)
Other assets 28 28
Accounts payable (611) (510)
Income taxes payable 81 --
Accrued expenses
and other liabilities 175 (83)
------- -------
NET CASH USED IN OPERATING ACTIVITIES (1,727) (1,513)
INVESTING ACTIVITIES
Purchase of property and equipment (12) (4)
Proceeds from sale of property
and equipment 57 --
------- -------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 45 (4)
FINANCING ACTIVITIES
Proceeds from revolving line of
credit and long-term borrowings 1,381 1,693
Principal payments on revolving line of
credit, long-term debt, and capital
lease obligations (176) (138)
Purchase of treasury stock -- (150)
Decrease in due from officer -- 150
------- -------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 1,205 1,555
------- -------
(DECREASE) INCREASE IN CASH (477) 38
Cash at beginning of year 545 496
------- -------
Cash at end of period $ 68 $ 534
======= =======
The accompanying notes are an integral part of these financial statements.
6
MEDICAL ACTION INDUSTRIES INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q for quarterly
reports under section 13 or 15(d) of the Securities Exchange Act of 1934.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended June 30, 1995 are not
necessarily indicative of the results that may be expected for the year ended
March 31, 1996. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report for the
year ended March 31, 1995.
Note 2. INVENTORIES
Inventories, which are stated at the lower of cost (first-in, first-out) or
market, consist of the following:
June 30, March 31,
1995 1995
----------- ---------
(Unaudited)
(in thousands of dollars)
Finished Goods $ 3,666 $3,548
Work in Process 148 0
Raw Materials 7,004 5,656
------- ------
Total $10,818 $9,204
Note 3. ACQUISITION
On August 12, 1994, the Company acquired substantially all of the assets and
certain liabilities of QuanTech, Inc. ("QuanTech"). QuanTech's business
consisted of the manufacture and distribution of disposable surgical supplies
and a patented light handle cover used primarily in operating rooms of hospitals
and out-patient surgical centers. The purchase price consisted of the issuance
of 453,408 unregistered shares of the Company's common stock in addition to the
assumption of $1,927,690 of the fair value of net liabilities assumed in excess
of assets acquired. Further, if QuanTech's operations achieve certain gross
profit levels, as defined in the agremeent, during any consecutive 12 month
period through July 1996 the purchase price would be adjusted by the
issuance of up to another 250,000 shares of the Company's common stock. The
acquisition has been accounted for as a purchase and
7
the operations of QuanTech have been included in the Company's Statement of
Operations since the acquisition date. The aggregate of the purchase price and
the net liabilities assumed totalling $2,580,595 is being amortized over twenty
(20) years ($118,277 as of June 30, 1995).
Consolidated pro forma results of operations of the Company for the three months
ended June 30, 1994, as if the QuanTech acquisition had taken place on April 1,
1994, appears below. The pro forma results of operations are not necessarily
indicative of the actual results of operations that would have occurred had the
acquisition been made at the beginning of the period noted, or of results which
may occur in the future.
Pro Forma
Three Months Ended
June 30, 1994
------------------
Revenues $8,658,986
Income Before
Income Taxes 43,892
Income Tax 17,187
Net Income $ 31,205
==========
Net Income Per Share $ --
==========
Weighted Average Number
of Common Shares
Outstanding 8,181,251
Note 4. NET INCOME PER SHARE
The weighted average number of shares used in computing net income per share was
8,098,043 for the three months ended June 30, 1995 and 7,727,843 for the three
months ended June 30, 1994, after considering the dilutive effect of the
Company's outstanding options which are considered common stock equivalents.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Three months ended June 30, 1995 compared to three months ended
June 30, 1994
Net sales for the three months ended June 30, 1995 increased 19% to $9,441,000
from $7,960,000 for the three months ended June 30, 1994. The increase in net
sales was attributable to approximately $792,000 of sales generated from the
Company's QuanTech product line as well as sales growth in each of the Company's
primary product lines, with the most significant increase coming from the
domestic sale of sterile laparotomy sponges. Net sales of sterile laparotomy
sponges increased approximately $719,000, or 23%, from the comparable period in
fiscal 1995.
The Company presently obtains substantially all of its raw materials for
operating room towels from China. These operating room towels are designated as
a textile, for which an export visa is required. These export visas, together
with a world-wide cotton shortage, has continued to adversely impact the
availability and pricing of operating room towels. In anticipation that these
conditions will continue during the current fiscal year, the Company has
accelerated its procurement of operating room towels from China and, to a lesser
extent, secured operating room towels from sources outside of China. Management
presently anticipates that it will be able to meet the Company's requirements of
operating room towels for fiscal 1996.
Gross profit for the three months ended June 30, 1995 increased 30% to
$1,973,000 from $1,523,000 for the three months ended June 30, 1994. Gross
profit as a percentage of net sales for the period ended June 30, 1995 increased
to 21% of net sales from 19% of net sales for the period ended June 30, 1994.
The increase in gross profit dollars and percentage was primarily attributable
to the increase in net sales, improved efficiencies at the Company's
manufacturing facilities in North Carolina and increased selling prices of
operating room towels, which have been partially off-set by increases in the
cost of raw materials from China. The Company believes that these cost increases
will continue to adversely effect the Company's gross profits until such time
that it can gain commensurate selling price increases or such costs are reduced.
Selling, general and administrative expenses for the three months ended June 30,
1995 increased 6% to $1,491,000 from $1,404,000 for the three months ended June
30, 1994. The increase in selling, general and administrative expenses is
directly attributable to the increase in net sales. As a percentage of net
sales, selling, general and administrative expenses decreased to 15.8% for the
three months ended June 30, 1995 from 17.6% for the three months ended June 30,
1994 due to management's efforts to control expenses and reduce administrative
expenses.
9
Interest expense for the three months ended June 30, 1995 increased 110% to
$239,000 from $114,000 for the three months ended June 30, 1994. The increase in
interest expense was attributable to an increase in the prime lending rate in
addition to an increase in the average principal loan balances outstanding
during the three months ended June 30, 1995 as compared to the three months
ended June 30, 1994. This increase in principal loan balances was primarily
attributable to the aforementioned acquisition of QuanTech, Inc. and higher
inventory levels of operating room towels.
Net income for the three months ended June 30, 1995 increased to $125,000 from
$3,000 for the three months ended June 30, 1994. The increase in net income is
attributable to the aforementioned increase in net sales and gross profits which
were partially off-set by an increase in selling, general and administrative
expenses, interest expense and a $21,000 loss on sale of property and equipment.
Liquidity and Capital Resources
Current assets have increased $1,348,000 to $17,730,000 at June 30, 1995 from
$16,382,000 at March 31, 1995. The increase was primarily attributable to a
$235,000 increase in accounts receivable and a $1,624,000 increase in inventory.
The Company had working capital of $12,725,000 with a current ratio of 3.54 at
June 30, 1995 as compared to working capital of $11,005,000 with a current ratio
of 3.05 on March 31, 1995. Total bank borrowings outstanding were $12,079,000
with a debt to equity ratio of 1.06 at June 30, 1995 as compared to $10,872,000
with a debt to equity ratio of .77 at March 31, 1995. The increase in total
borrowings outstanding and the decline in the Company's cash balance at June 30,
1995 are primarily attributable to borrowings required to support the increased
levels of inventory necessary to meet the Company's requirements of operating
room towels for Fiscal 1996.
The Company believes that the anticipated future cash flow from operations,
coupled with its cash on hand and available funds under its revolving credit
agreements, will be sufficient to meet working capital requirements. Management
anticipates that operating room towels will be subjected to import quota
limitations in calendar 1995 and expects that, similar to calendar 1994, this
limitation may be implemented as early as September 1995.
10
MEDICAL ACTION INDUSTRIES INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings against the Company or in which
any of this property is subject.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
Note
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDICAL ACTION INDUSTRIES INC.
Date: August 2, 1995 By: s/Richard G. Satin
---------------- --------------------------------
Richard G. Satin, Vice President
(Principal Accounting Officer)
11