<PAGE>
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, 1996
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. 8,202,289 shares of
common stock as of July 24, 1996.
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Form 10-Q
CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1996 (Unaudited)
and March 31, 1996
Consolidated Statements of Operations for the Three
Months ended June 30, 1996 and 1995 (Unaudited)
Consolidated Statements of Cash Flows for the Three Months
ended June 30, 1996 and 1995 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
PART II - OTHER INFORMATION
2
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MEDICAL ACTION INDUSTRIES INC.
Consolidated Balance Sheets
(dollars in thousands)
ASSETS
June 30, March 31
1996 1996
-------- --------
(Unaudited)
CURRENT ASSETS:
Cash $ 274 $ 504
Accounts Receivable, less allowance for
doubtful accounts of $111 at
June 30, 1996 and March 31, 1996 5,722 6,011
Inventories (Note 2) 9,630 10,579
Prepaid expenses 381 278
Other current assets 247 330
-------- --------
TOTAL CURRENT ASSETS $ 16,254 $ 17,702
Property and equipment at cost, less
accumulated depreciation of $4,083
at June 30, 1996 and $3,971 at
March 31, 1996 3,710 3,634
OTHER ASSETS:
Investment in Joint Venture 560 581
Due from Officer 59 --
Goodwill, net of accumulated amortization
of $251 on June 30, 1996 and
$217 at March 31, 1996 (Note 3) 2,418 2,452
Other assets 21 21
-------- --------
TOTAL ASSETS $ 23,022 $ 24,390
======== ========
The accompanying notes are an integral part of these financial statements.
3
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MEDICAL ACTION INDUSTRIES INC.
Consolidated Balance Sheets
(dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, March 31,
1996 1996
------- -------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 1,297 $ 1,393
Accrued expenses, payroll and payroll taxes 942 724
Accrued income taxes 93 128
Current portion of capital lease obligations 29 21
Notes payable to bank 3,999 3,993
Other note payable 0 642
Current portion of long-term debt 416 466
------- -------
TOTAL CURRENT LIABILITIES $ 6,776 $ 7,367
Deferred Income Taxes 362 362
Capital lease obligations, less
current portion 111 77
Long-term debt, less current portion 3,322 $ 4,311
------- -------
TOTAL LIABILITIES $10,571 $12,117
SHAREHOLDERS' EQUITY:
Common stock 15,000,000 shares authorized,
$.001 par value; issued and outstanding
8,202,289 shares at June 30, 1996
and 8,199,789 shares at March 31, 1996 8 8
Additional paid-in capital, net of
deferred compensation of $381 at
June 30, 1996 and $417
at March 31, 1996 8,044 8,005
Retained earnings 4,399 4,260
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TOTAL SHAREHOLDERS' EQUITY 12,451 12,273
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $23,022 $24,390
======= =======
The accompanying notes are an integral part of these financial statements.
4
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MEDICAL ACTION INDUSTRIES INC.
Consolidated Statements of Operations
(dollars in thousands except per share data)
Three Months Ended
June 30,
1996 1995
------- -------
(Unaudited) (Unaudited)
Net Sales $10,872 $ 9,441
Cost of Sales 8,610 7,468
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Gross Profit $ 2,262 $ 1,973
Selling, general and administrative
expenses (Note 3) 1,868 1,491
Interest expense 149 239
Other Expense 0 21
------- -------
Income before income taxes 245 222
Income taxes 106 97
------- -------
Net income $ 139 $ 125
======= =======
Net Income per share (Note 4) $ .02 $ .02
======= =======
The accompanying notes are an integral part of these financial statements.
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MEDICAL ACTION INDUSTRIES INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
(dollars in thousands)
Three Months Ended
June 30,
1996 1995
------- -------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES
Net income $ 139 $ 125
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Loss from sale of property
and equipment -- 21
Depreciation and amortization 172 198
Deferred compensation 36 29
Changes in operating assets and liabilities:
Accounts receivable 289 (235)
Inventories 949 (1,614)
Prepaid expenses, other current
assets and other receivables (20) 76
Other assets -- 28
Accounts payable (96) (611)
Income taxes payable (35) 81
Accrued expenses, payroll
and payroll taxes 218 175
------- -------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,652 (1,727)
INVESTING ACTIVITIES
Purchase of property and equipment (193) (12)
Proceeds from sale of property
and equipment -- (57)
Loan to Officer (59) --
------- -------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (252) 45
FINANCING ACTIVITIES
Proceeds from revolving line of
credit and long-term borrowings 89 1,381
Principal payments on revolving line of
credit, long-term debt, other note payable
and capital lease obligations (1,722) (176)
Proceeds from exercise of
employee stock options 3 --
------- -------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (1,630) 1,205
------- -------
DECREASE IN CASH (230) (477)
Cash at beginning of year 504 545
------- -------
Cash at end of period $ 274 $ 68
======= =======
The accompanying notes are an integral part of these financial statements.
6
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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, 1996 are not
necessarily indicative of the results that may be expected for the year ended
March 31, 1997. 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, 1996.
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,
1996 1996
------- -------
(Unaudited)
(in thousands of dollars)
Finished Goods $ 3,965 $ 3,974
Work in Process 63 0
Raw Materials 5,602 6,605
------- -------
Total $ 9,630 $10,579
Note 3. ACQUISITION
On January 30, 1996, the Company acquired certain assets of the sterilization
packaging, monitoring and contamination control products business of Lawson
Mardon Medical Products, Inc. ("SBW"). The purchase price for the acquired
assets consisted of $25,000 in cash and a promissory note in the amount of
$855,793. In addition, the Company acquired approximately $527,000 of SBW
inventory on a consignment basis and is required to purchase substantially all
remaining unsold inventory by August, 1996. The acquisition has been accounted
for as a purchase and the operations of SBW have been included in the Company's
Statement of Operations since the acquisition date. The excess of the purchase
price and related expenses over the net assets acquired amounted to $75,871 and
is being amortized over ten (10) years ($3,161 as of June 30, 1996).
7
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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 $1,941,000 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 agreement, 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. Management does not believe that
such additional shares will be issued. The acquisition has been accounted for
as a purchase and 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 totaling $2,594,000 is being
amortized over twenty (20) years ($248,581 as of June 30, 1996).
Note 4. NET INCOME PER SHARE
The weighted average number of shares used in computing net income per share
was 8,391,720 for the three months ended June 30, 1996 and 8,134,172 for the
three months ended June 30, 1995, after considering the dilutive effect of the
Company's outstanding options which are considered common stock equivalents.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Three months ended June 30, 1996 compared to three months ended
June 30, 1995
Net sales for the three months ended June 30, 1996 increased 15% to $10,872,000
from $9,441,000 for the three months ended June 30, 1995. The increase in net
sales was primarily attributable to approximately $1,492,000 of net sales of
products acquired from Lawson Mardon Medical Products, Inc. in January 1996,
and an increase in the sales of the Company's QuanTech product line of
approximately $114,000, or 14% over the comparable quarter in the prior year.
These increases were partially offset by a decrease in the sale of gauze
sponges of approximately $111,000 and a decrease in the sale of sterile
laparotomy sponges of approximately $74,000.
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 could
adversely impact the availability and pricing of operating room towels. In the
event that these quota restrictions reduce the availability of operating room
towels, the Company will accelerate its procurement of operating room towels
from China and, to a lesser extent, secure 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 1997.
Gross profit for the three months ended June 30, 1996 increased 15% to
$2,262,000 from $1,973,000 for the three months ended June 30, 1995. Gross
profit as a percentage of net sales for the period ended June 30, 1996 remained
at 21% of net sales compared to the period ended June 30, 1995. The increase in
gross profit dollars was primarily attributable to the increase in net sales.
Selling, general and administrative expenses for the three months ended June
30, 1996 increased 25% to $1,868,000 from $1,491,000 for the three months ended
June 30, 1995. As a percentage of net sales, selling, general and
administrative expenses increased to 17.2% for the three months ended June 30,
1996 from 15.8% for the three months ended June 30, 1995. The increase in
selling, general and administrative expense dollars and as a percentage of
sales was primarily attributable to increased sales, increased expenses
associated with recent acquisitions and an increase in our sales and marketing
infrastructure costs which management anticipates will facilitate future
growth.
9
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Interest expense for the three months ended June 30, 1996 decreased 38% to
$149,000 from $239,000 for the three months ended June 30, 1995. The decrease
in interest expense was primarily attributable to a decrease in the average
principal loan balances outstanding during the three months ended June 30, 1996
as compared to the three months ended June 30, 1995. This decrease in principal
loan balances was primarily attributable to increased profits from operations
over the last fifteen months and significantly lower inventory levels.
Net income for the three months ended June 30, 1996 increased to $139,000 from
$125,000 for the three months ended June 30, 1995. The increase in net income
is attributable to the aforementioned increase in net sales and gross profits,
coupled with a decrease in interest expense, which were partially off-set by an
increase in selling, general and administrative expenses.
Liquidity and Capital Resources
The Company had working capital of $9,478,000 with a current ratio of 2.40 at
June 30, 1996 as compared to working capital of $10,334,000 with a current
ratio of 2.40 on March 31, 1996. Total bank borrowings outstanding were
$7,737,000 with a debt to equity ratio of .62 at June 30, 1996 as compared to
$8,769,000 with a debt to equity ratio of .71 at March 31, 1996. The decrease
in total borrowings outstanding at June 30, 1996 was primarily attributable to
reductions in inventories due to improved inventory management and increased
cash flow from operations.
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.
10
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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: July 24, 1996 By: s/ Richard G. Satin
---------------- --------------------------------
Richard G. Satin, Vice President
(Principal Accounting Officer)
11
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<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
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<RECEIVABLES> 5,833
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<OTHER-SE> 12,443
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