SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
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.)
800 Prime Place, Hauppauge, New York 11788
(Address of Principal Executive Offices)
Registrant's telephone number, including area code:
(631) 231-4600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
------ ------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. 9,317,672 shares of
common stock as of September 30, 2001.
FORM 10-Q
CONTENTS
PAGE
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NO.
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PART I - FINANCIAL INFORMATION
ITEM 1. Condensed Financial Statements
Balance Sheets at September 30, 2001 (Unaudited) and March 31, 2001 3-4
Statements of Earnings for the Three Months ended September 30, 2001 and 2000
(Unaudited) 5
Statements of Earnings for the Six Months ended September 30, 2001 and 2000
(Unaudited) 6
Statements of Cash Flows for the Six Months ended September 30, 2001 and 2000
(Unaudited) 7
Notes to Financial Statements (Unaudited) 8-11
ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 12-15
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 15
PART II - OTHER INFORMATION 16
-----------------
2
MEDICAL ACTION INDUSTRIES INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
SEPTEMBER 30, MARCH 31,
2001 2001
----------- --------
(UNAUDITED)
CURRENT ASSETS:
Cash $ 221 $ 639
Accounts receivable less allowance for doubtful accounts of $214 at September
30, 2001 and $193 at March 31, 2001 10,607 8,606
Inventories 11,276 12,547
Prepaid expenses 392 284
Deferred income taxes 211 211
Other current assets 105 56
------ -------
TOTAL CURRENT ASSETS: 22,182 22,343
Property, plant and equipment, net 9,453 9,617
Due from officers 382 383
Goodwill 6,773 6,773
Trademarks 402 402
Other assets 236 286
------ ------
TOTAL ASSETS: $40,058 $39,804
======= =======
The accompanying notes are an integral part of these
financial statements.
MEDICAL ACTION INDUSTRIES INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
LIABILITIES AND SHAREHOLDERS' EQUITY
SEPTEMBER 30, MARCH 31,
2001 2001
-------- -------
(UNAUDITED)
CURRENT LIABILITIES:
Accounts payable $ 2,544 $ 2,109
Accrued expenses, payroll and payroll taxes 1,720 1,788
Accrued income taxes 312 316
Current portion of capital lease obligations 26 83
Current portion on long-term debt 1,110 1,360
------- -------
TOTAL CURRENT LIABILITIES: 5,712 5,656
Deferred income taxes 600 600
Capital lease obligations, less current portion 2 2
Long-term debt, less current portion 4,955 7,625
------- --------
TOTAL LIABILITIES: 11,269 13,883
SHAREHOLDERS' EQUITY:
Common stock 15,000,000 shares authorized, $.001 par value; issued and
outstanding 9,249,422 shares at September 30, 2001 and 9,155,115 shares at
March 31, 2001 9 9
Additional paid-in capital, net 9,371 9,436
Retained earnings 19,409 16,476
------ ------
TOTAL SHAREHOLDERS' EQUITY: 28,789 25,921
------ ------
COMMITMENTS
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY: $40,058 $39,804
======= =======
The accompanying notes are an integral part of these
financial statements.
4
MEDICAL ACTION INDUSTRIES INC.
STATEMENT OF EARNINGS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
2001 2000
------ ------
Net sales $20,855 $19,083
Cost of sales 14,305 13,577
------- ------
Gross profit 6,550 5,506
Selling, general and administrative expenses 3,924 3,542
Interest expense 55 161
Interest income (21) -
------- ------
Income before income taxes 2,592 1,803
Income tax expense 1,002 752
------- ------
Net income $1,590 $1,051
====== ======
Net income per share basic $ .17 $ .11
====== ======
Net income per share diluted $ .16 $ .11
====== ======
The accompanying notes are an integral part of these
financial statements.
5
MEDICAL ACTION INDUSTRIES INC.
STATEMENT OF EARNINGS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
Six Months Ended
September 30,
2001 2000
------ ------
Net sales $40,944 $37,891
Cost of sales 28,377 27,196
------- ------
Gross profit 12,567 10,695
Selling, general and administrative expenses 7,679 6,930
Interest expense 139 318
Interest income (39) -
------ ------
Income before income taxes 4,788 3,447
Income tax expense 1,856 1,393
------ ------
Net income $ 2,932 $ 2,054
======= =======
Net income per share basic $ .32 $ .22
======= =======
Net income per share diluted $ .29 $ .21
======= =======
The accompanying notes are an integral part of these
financial statements.
6
MEDICAL ACTION INDUSTRIES INC.
STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
SEPTEMBER 30,
2001 2000
---- ----
OPERATING ACTIVITIES
Net Income $ 2,932 $ 2,054
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 509 689
Provision for doubtful accounts 21 18
Deferred compensation 24 18
Changes in operating assets and liabilities:
Accounts receivable (2,022) (748)
Inventories 1,271 508
Prepaid expense and other current assets (157) (160)
Other assets 7 53
Accounts payable 435 (1,067)
Income taxes payable 852 304
Accrued expenses, payroll and payroll taxes (68) 567
------------- --------------
Net cash provided by operating activities 3,804 2,236
------------- --------------
INVESTING ACTIVITIES
Principal payment received for loans to officers 1 -
Purchase of property, plant and equipment (302) (1,601)
------------- --------------
Net cash used in investing activities (301) (1,601)
------------- --------------
FINANCING ACTIVITIES
Proceeds from revolving line of credit and long term borrowings 775 1,955
Principal payments on revolving line of credit, long term debt, and
capital lease obligations (3,752) (3,141)
Repurchases of Company Common Stock (1,333) -
Proceeds from exercise of employee stock options 389 85
------------- --------------
Net cash used in financing activities (3,921) (1,101)
------------- --------------
Decrease in cash (418) (466)
Cash at beginning of year 639 602
------------- --------------
Cash at end of period $ 221 $ 136
=============== ==============
The accompanying notes are an integral part of these financial statements
7
MEDICAL ACTION INDUSTRIES INC. AND SUBSIDIARY
---------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(UNAUDITED)
Note 1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
("US GAAP") for interim financial information and with the instructions to Form
10-Q for quarterly reports under section 13 or 15(d) of the Securities Exchange
Act of 1934. Accordingly, they do not include all of the information and
footnotes required by US GAAP for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the six (6) month period ended September 30, 2001 are not
necessarily indicative of the results that may be expected for the year ended
March 31, 2002. For further information, refer to the financial statements and
footnotes thereto included in the Company's annual report for the year ended
March 31, 2001.
Note 2. INVENTORIES
Inventories, which are stated at the lower of cost (first-in, first-out) or
market, consist of the following:
September 30, March 31,
2001 2001
--------- ---------
(unaudited)
(in thousands of dollars)
Finished Goods $6,428 $5,671
Work in Process 71 -
Raw Materials 4,777 6,876
-------- -------
Total $ 11,276 $ 12,547
======== ========
NOTE 3. NET INCOME PER SHARE
Basic earnings per share is based on the weighted average number of common
shares outstanding without consideration of potential common stock. Diluted
earnings per share is based on the weighted average number of common and
potential common shares outstanding. The calculation takes into account the
shares that may be issued upon exercise of stock options, reduced by the shares
that may be repurchased with the funds received from the exercise, based on the
average prices during the periods. Excluded from the calculation of earnings per
share are options and warrants to purchase 80,000 shares for the three months
ended September 30, 2000, as their inclusion would not have been dilutive. The
following table sets forth the computation of basic and diluted earnings per
share for the three and six months ended September 30, 2001 and for the three
and six months ended September 30, 2000.
8
MEDICAL ACTION INDUSTRIES INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3. (continued)
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
---- ---- ---- ----
(dollars in thousands except
per share data)
NUMERATOR:
- ---------
Net income for basic and
dilutive earnings per share $1,590 $1,051 $ 2,932 $2,054
====== ====== ======= ======
DENOMINATOR:
- -----------
Denominator for basic earnings
per share - weighted average shares 9,136,994 9,232,511 9,121,523 9,220,995
--------- --------- --------- ---------
Effect of dilutive securities
Employee and director stock options 1,011,166 370,668 861,119 351,228
Warrants 45,942 17,809 52,957 14,430
------ ------ ------ ------
Dilutive potential common shares 1,057,108 388,477 914,076 365,658
--------- ------- ------- -------
Denominator for diluted earnings per
share - adjusted weighted average
shares 10,194,102 9,620,988 10,035,599 9,586,653
========== ========= ========== =========
Basic earnings per share $.17 $.11 $.32 $.22
==== ==== ==== ====
Diluted earnings per share $.16 $.11 $.29 $.21
==== ==== ==== ====
NOTE 4. STOCKHOLDERS' EQUITY
For the three and six months ended September 30, 2001, 116,500 and 247,750 stock
options were exercised by employees of the Company in accordance with the
Company's 1989 Non-Qualified Stock Option Plan and 1994 Stock Incentive Plan,
respectively. The exercise price of the options exercised ranged from $1.69 per
share to $3.94 per share, the net cash proceeds from these exercises were
$289,000 for the three months ended September 30, 2001 and $389,000 for the six
months ended September 30, 2001.
On April 6, 2001, the Company made a loan to an officer, which totaled $126,000.
The loan, which involves the purchase of the Company's common stock bears
interest at 7% and is due on May 1, 2006. The loan has been deducted from
Shareholders' equity.
9
Pursuant to an Employment Agreement, the Board of Directors approved the
issuance of a five-year warrant to purchase 35,000 shares of the Company's
common stock to a former principal stockholder of Dayhill Corporation, at $3.94
per share, the market value on the date of grant. In June 2001, the warrant was
exercised through the cashless exercise provision in the agreement, pursuant to
which 17,321 shares of the Company's common stock were issued.
Pursuant to an acquisition, the Board of Directors approved the issuance of a
ten-year warrant to purchase 50,000 shares of the Company's common stock to Acme
United Corporation, at $2.84 per share, the market value on the date of grant.
In August 2001, the warrant was exercised through the cashless exercise
provision in the agreement, pursuant to which, 38,258 shares of the Company's
common stock were issued.
As consideration for services received, the Board of Directors approved the
issuance of a five-year warrant to purchase 50,000 shares of the Company's
common stock, at $3.47 per share, the market value on the date of the grant.
During the quarter ended September 30, 2001, 10,500 shares of the warrant were
exercised through the cashless exercise provision in the agreement, pursuant to
which, 7,364 shares of the Company's common stock were issued.
For the three months ended June 30, 2001, the Company repurchased and retired
211,300 shares of the Company's common stock at an average price of $6.31 per
share, bringing the cumulative total to 350,100 shares at an average price of
$5.39 per share. No shares were repurchased and retired for the three months
ended September 30, 2001.
NOTE 5. ACCOUNTING FOR BUSINESS COMBINATIONS, INTANGIBLE ASSETS AND
GOODWILL
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets". The new standards require that all business combinations initiated
after June 30, 2001 must be accounted for under the purchase method. In
addition, all intangible assets acquired that are obtained through contractual
or legal right, or are capable of being separately sold, transferred, licensed,
rented or exchanged shall be recognized as an asset apart from goodwill.
Goodwill and intangibles with indefinite lives will no longer be subject to
amortization, but will be subject to at least an annual assessment for
impairment by applying a fair value based test.
The Company has adopted as of April 1, 2001, the provisions of SFAS Nos. 141 and
142. Therefore, annual and quarterly amortization of goodwill and trademarks of
$452,000 and $114,000 are no longer recognized. The Company has performed a
transitional fair value based impairment test and has determined that no
impairment of goodwill or trademarks exist as of September 30, 2001.
The following table presents a reconciliation of net income and
earnings-per-share amounts, as reported in the financial statements, to those
amounts adjusted for goodwill and intangible asset amortization determined in
accordance with the provisions of SFAS No. 142.
NOTE 5. (continued)
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
2001 2001 2000 2001
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA
Reported net income $1,590 $1,051 $2,932 $2,054
Add back: goodwill amortization 0 108 0 215
Add back: trademarks amortization 0 6 0 12
Income tax effect 0 (44) 0 (88)
----------- ------------ ------------ -----------
Adjusted net income $1,590 $1,121 $2,932 $2,193
=========== ============ ============ ===========
BASIC EARNINGS PER SHARE:
Reported net income $.17 $.11 $.32 $.22
Goodwill amortization .00 .01 .00 .02
Trademarks amortization .00 .00 .00 .00
Income tax effect .00 .00 .00 (.01)
----------- ------------ ------------ -----------
Adjusted net income $.17 $.12 $.32 $.24
=========== ============ ============ ============
DILUTED EARNINGS PER SHARE:
Reported net income $.16 $.11 $.29 $.21
Goodwill amortization .00 .01 .00 .02
Trademarks amortization .00 .00 .00 .00
Income tax effect .00 .00 .00 (.01)
----------- ------------ ----------- -----------
Adjusted net income $.14 $.12 $.29 $.23
=========== ============ ============ ============
NOTE 6. SUBSEQUENT EVENT
On October 4, 2001, the Company has agreed, in principle, to acquire: (i)
sterile kits for the insertion of intravenous catheters ("I.V. Start Kits"); and
(ii) sterile procedure trays containing components necessary for the maintenance
of large catheters inserted into the chest cavity ("Central-Line Dressing
Trays") from Medi-Flex Hospital Products, Inc. of Overland Park, Kansas. The
products being acquired accounted for approximately $8,300,000 of the seller's
net revenue for the year ended December 31, 2000. The purchase price, which
includes the purchase of inventory, certain fixed assets and a trademark is
approximately $11,250,000. The transaction is expected to close approximately
sixty (60) days after the agreement date. It is expected that the purchase
price will be financed by the Company through borrowings on our existing credit
facility.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FORWARD-LOOKING STATEMENT
- -------------------------
This report on Form 10-Q contains forward-looking statements as defined by the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
include plans and objectives of management for future operations, including
plans and objectives relating to the future economic performance and financial
results of the Company. The forward-looking statements relate to (i) the
expansion of the Company's market share, (ii) the Company's growth into new
markets, (iii) the development of new products and product lines to appeal to
the needs of the Company's customers, (iv) the procurement of export visas for
raw materials for operating room towels from China, which may impact the
availability and pricing of operating room towels, and (v) the retention of the
Company's earnings for use in the operation and expansion of the Company's
business.
Important factors and risks that could cause actual results to differ materially
from those referred to in the forward-looking statements include, but are not
limited to, the effect of economic and market conditions, the impact of the
consolidation throughout the healthcare supply chain, the impact of healthcare
reform, opportunities for acquisitions and the Company's ability to effectively
integrate acquired companies, the ability of the Company to maintain its gross
profit margins, the ability to obtain additional financing to expand the
Company's business, the failure of the Company to successfully compete with the
Company's competitors that have greater financial resources, the loss of key
management personnel or the inability of the Company to attract and retain
qualified personnel, the availability and possible increases in raw material
prices for operating room towels, the impact of current or pending legislation
and regulation, as well as the risks described from time to time in the
Company's filings with the Securities and Exchange Commission, which include
this report on Form 10-Q and the Company's annual report on Form 10-K for the
year ended March 31, 2001.
The forward-looking statements are based on current expectations and involve a
number of known and unknown risks and uncertainties that could cause the actual
results, performance and/or achievements of the Company to differ materially
from any future results, performance or achievements, express or implied, by the
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, and that in light of the significant
uncertainties inherent in forward-looking statements, the inclusion of such
statements should not be regarded as a representation by the Company or any
other person that the objectives or plans of the Company will be achieved.
RESULTS OF OPERATIONS
- ---------------------
SIX MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO SIX MONTHS ENDED
SEPTEMBER 30, 2000
- ----------------------------------------------------------------
Net sales for the six months ended September 30, 2001 increased 8% to
$40,944,000 from $37,891,000 for the six months ended September 30, 2000. The
increase in net sales was primarily attributable to a $764,000, or 58% increase
in net sales of the collection systems/biohazardous bags, a $1,674,000 or 15%
increase in net sales of operating room towels and a $455,000 or 4% increase in
net sales of laparotomy sponges. Management believes that the increase in net
sales of the collection systems/biohazardous bags, operating room towel and
laparotomy sponge product lines was primarily due to greater domestic market
penetration.
12
Gross profit for the six months ended September 30, 2001 increased 18% to
$12,567,000 from $10,695,000 for the six months ended September 30, 2000. Gross
profits as a percentage of net sales for the six months ended September 30, 2001
increased to 31% of net sales from 28% of net sales for the six months ended
September 30, 2000. The increase in gross profit dollars and gross profit
percentage was primarily attributable to the increase in net sales and increased
manufacturing efficiencies at the Company's manufacturing facility in North
Carolina.
Selling, general and administrative expenses for the six months ended September
30, 2001 increased 11% to $7,679,000 from $6,930,000 for the six months ended
September 30, 2000. As a percentage of net sales, selling, general and
administrative expenses increased to 19% for the six months ended September 30,
2001 from 18% for the six months ended September 30, 2000. The increase in
selling, general and administrative expense dollars and as a percentage of sales
was primarily attributable to increased selling expenses associated with
achieving higher sales. The increased selling expenses more than offset the
$227,000 of goodwill and trademarks amortization no longer recognized, as the
Company, effective April 1, 2001, has adopted the provisions of SFAS No.'s 141
and 142. The increase in selling expenses consisted primarily of increased
commissions and salaries.
Interest expense for the six months ended September 30, 2001 decreased 56% to
$139,000 from $318,000 for the six months ended September 30, 2000. The decrease
in interest expense was attributable to a decrease in the average principal loan
balances during the six months ended September 30, 2001, as compared to the six
months ended September 30, 2000. The decrease in principal loan balances
outstanding was primarily attributable to net cash provided from operating
activities from October 1, 2000 through September 30, 2001.
Net income for the six months ended September 30, 2001 increased to $2,932,000
from $2,054,000 for the six months ended September 30, 2000. The increase in net
income is attributable to the aforementioned increase in net sales, gross
profit, and a decrease in interest expense, which were partially offset by an
increase in selling, general and administrative expenses.
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2000
Net sales for the three months ended September 30, 2001 increased 9% to
$20,855,000 from $19,083,000 for the three months ended September 30, 2000. The
increase in net sales was primarily attributable to a $358,000 or 49% increase
in net sales of the Acme product line; a $198,000 or 37% increase in the net
sales of the collection systems/biohazardous bags and a $1,347,000 or 26%
increase in net sales of operating room towels. Management believes that the
increase in net sales of the collection systems/biohazardous bags and operating
room towel product lines was primarily due to greater domestic market
penetration.
Gross profit for the three months ended September 30, 2001 increased 19% to
$6,550,000 from $5,506,000 for the three months ended September 30, 2001. Gross
profit as a percentage of net sales for the three months ended September 30,
2001 increased to 31% of net sales from 29% of net sales for the three months
ended September 30, 2000. The increase in gross profit dollars and gross profit
percentage was primarily attributable to the increase in net sales and increased
manufacturing efficiencies at the Company's manufacturing facility in North
Carolina.
13
Selling, general and administrative expenses for the three months ended
September 30, 2001 increased 11% to $3,924,000 from $3,542,000 for the three
months ended September 30, 2000. As a percentage of net sales, selling, general
and administrative expenses were 19% for the three months ended September 30,
2001 and for the three months ended September 30, 2000. The increase in selling,
general and administrative expense dollars was primarily attributable to
increased selling expenses associated with achieving higher sales. The increased
selling expenses more than offset the $114,000 of goodwill and trademarks
amortization no longer recognized, as the Company, effective April 1, 2001, has
adopted the provisions of SFAS No.'s 141 and 142. The increase in selling
expenses consisted primarily of increased commissions and salaries.
Interest expense for the three months ended September 30, 2001 decreased 66% to
$55,000 from $161,000 for the three months ended September 30, 2000. The
decrease in interest expense was attributable to a decrease in the average
principal loan balances and interest rates during the quarter ended September
30, 2001, as compared to the quarter ended September 30, 2000. The decrease in
principal loan balances outstanding was primarily attributable to net cash
provided from operating activities from October 1, 2000 through September 30,
2001.
Net income for the three months ended September 30, 2001 increased to $1,590,000
from $1,051,000 for the three months ended September 30, 2000. The increase in
net income is attributable to the aforementioned increase in net sales and gross
profit and decrease in interest expense, which were partially offset by an
increase in selling, general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company had working capital of $16,470,000 with a current ratio of 3.9 at
September 30, 2001 as compared to working capital of $16,687,000 with a current
ratio of 4.0 at March 31, 2001. Total borrowings outstanding, including
Industrial Revenue Bonds of $4,420,000, were $6,065,000 with a debt to equity
ratio of .21 at September 30, 2001 as compared to $8,985,000 with a debt to
equity ratio of .35 at March 31, 2001. The decrease in total borrowings
outstanding at September 30, 2001 was primarily attributable to net cash
provided by operating activities.
The Company has financed its operations primarily through cash flow from
operations and borrowings from its existing credit facilities. At September 30,
2001, the Company had a cash balance of $221,000 compared to $639,000 at March
31, 2001.
The Company's operating activities provided cash of $3,804,000 for the six
months ended September 30, 2001 as compared to $2,236,000 provided for the six
months ended September 30, 2000. Net cash provided for the six months ended
September 30, 2001 consisted primarily of net income from operations, decreases
in inventories, depreciation, amortization, increases in income taxes payable
and accounts payable. These sources of cash more than offset the increase in
accounts receivable associated with increased sales, increases in prepaid
expenses and other current assets and decreases in accrued expenses.
Investing activities used net cash of $301,000 and $1,601,000 for the six months
ended September 30, 2001 and September 30, 2000, respectively. The principal
uses for the six months ended September 30, 2001 were purchases of property and
equipment.
14
Financing activities used cash of $3,921,000 for the six months ended September
30, 2001 compared to $1,101,000 used for the six months ended September 30,
2000. The cash used in financing activities along with the decrease in the cash
balance was used for net principal payments on its existing credit facilities
and capital lease obligations of $2,977,000 and the repurchase of the Company's
common stock of $1,333,000.
On October 4, 2001, the Company has agreed, in principle, to acquire: (i)
sterile kits for the insertion of intravenous catheters ("I.V. Start Kits"); and
(ii) sterile procedure trays containing components necessary for the maintenance
of large catheters inserted into the chest cavity ("Central-Line Dressing
Trays") from Medi-Flex Hospital Products, Inc. of Overland Park, Kansas. The
products being acquired accounted for approximately $8,300,000 of the seller's
net revenue for the year ended December 31, 2000. The purchase price, which
includes the purchase of inventory, certain fixed assets and a trademark is
approximately $11,250,000. The transaction is expected to close approximately
sixty (60) days after the agreement date. It is expected that the purchase
price will be financed by the Company through borrowings on our existing credit
facility.
At September 30, 2001, the Company had no material commitments for capital
expenditures.
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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ----------------------------------------------------------
The Company is exposed to interest rate change market risk with respect to its
credit facility with a financial institution which is priced based on the prime
rate of interest plus a spread of up to 1/4%, LIBOR rate plus a spread of up to
2 1/2%, or at 1 1/4% over the prevailing bankers' acceptance rate. The spread
over prime and LIBOR rates is determined based upon the Company's performance
with regard to agreed upon financial ratios. The Company decides at its sole
discretion as to whether borrowings will be at prime, LIBOR or bankers'
acceptance rates. At September 30, 2001, $1,645,000 was outstanding under the
credit facility. Changes in the prime rate, LIBOR rates or bankers' acceptance
rates during fiscal 2002 will have a positive or negative effect on the
Company's interest expense. Each 1% fluctuation in the interest rate will
increase or decrease interest expense for the Company by approximately $16,000
on an annualized basis.
In addition, the Company is exposed to interest rate change market risk with
respect to the proceeds received from the issuance and sale by the Buncombe
County Industrial and Pollution Control Financing Authority Industrial
Development Revenue Bonds. At September 30, 2001, $4,420,000 was outstanding for
these Bonds. The Bonds bear interest at a variable rate determined weekly.
During the six months ended September 30, 2001, the interest rate on the Bonds
approximated 3.0%. Each 1% fluctuation in interest rates will increase or
decrease interest expense on the Bonds by approximately $44,000 on an annualized
basis.
A significant portion of the Company's raw materials is purchased from China and
to a lesser extent from India. All such purchases are transacted in U.S.
dollars. The Company's financial results, therefore, could be impacted by
factors such as changes in foreign currency, exchange rates or weak economic
conditions in foreign countries in the procurement of such raw materials. To
date, sales of the Company's products outside the United States have not been
significant.
15
MEDICAL ACTION INDUSTRIES INC.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
There are no material legal proceedings against the Company or in
which any of its property is subject.
ITEM 2. Changes in Securities
None
ITEM 3. Defaults upon Senior Securities
None
ITEM 4 Submission of Matters to a Vote of Security Holders
A. The Registrant held its Annual Meeting of Stockholders on
August 15, 2001.
B. Two Directors were elected at the Annual Meeting to serve
until the Annual Meeting of Stockholders in 2004. The
names of the Directors and votes cast in favor of their
election and shares withheld are as follows:
Name Votes for Votes Withheld
---- --------- --------------
Bernard Wengrover 7,567,948 442,693
Paul D. Meringolo 7,567,948 442,693
C. The stockholders also approved amendments to the Company's
1994 Stock Incentive Plan to (a) extend the termination date
of the Incentive Plan to August 10, 2009; and (b) increase
the number of shares issuable thereunder to 1,350,000;
3,842,484 shares voted in favor of the amendments, 794,308
shares voted against and 40,118 shares abstained from
voting.
D. The stockholders also approved a proposal to ratify the
appointment of Grant Thornton LLP as independent certified
public accountants of the Company for the fiscal year ended
March 31, 2002; 7,976,243 shares voted in favor of the
proposal, 10,129 shares voted against and 24,269 shares
abstained from voting.
ITEM 5. Other Information
None
ITEM 6. (a) Exhibits and Reports on Form 8-K
None
(b) Reports on Form 8-K
None
16
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.
Dated: November 9, 2001 By: /s/ Richard G. Satin
---------------- --------------------
Richard G. Satin, Vice President
(Principal Accounting Officer)