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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8 - K/A
AMENDMENT TO APPLICATION OR REPORT
Filed pursuant to Section 12, 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
MEDICAL ACTION INDUSTRIES INC.
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(Exact name of registrant as specified in charter)
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its April 1, 1999 Current Report on
Form 8-K as set forth in the pages attached hereto:
Item 7 - Financial statements and Exhibits
(a) Financial statements of business acquired
(b) Pro Forma Combined Balance Sheets at March 31, 1998 (Medical
Action Industries Inc.) and December 31, 1998 (Acquired
Business)
(c) Exhibits
(1) Consent of Ernst & Young LLP
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDICAL ACTION INDUSTRIES INC.
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(Registrant)
Date: May 28, 1999 By: /s/ Richard G. Satin
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Richard G. Satin
(Principal Accounting Officer)
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Unaudited Pro Forma Financial Data
The following unaudited pro forma balance sheet combines the financial
position of Medical Action Industries Inc. (the "Company") as of March 31, 1998
and the net assets acquired of the medical business of Acme United Corporation
as of December 31, 1998 as if the Company had acquired the net assets on
March 31, 1998. A pro forma statement of operations has not been presented as
certain historical operating results of the medical business of Acme United
Corporation is not available.
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Medical Action Industries Inc.
Pro Forma Balance Sheets
March 31, 1998
(unaudited)
<TABLE>
<CAPTION>
Medical Action Medical Business of Pro Forma
Industries Inc. Acme United Corp. Pro Forma Combined
Description March 31, 1998 December 31, 1998 Adjustments March 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash $ 275,316 $ $ 275,316
Accounts receivable less allowance --
for doubtful accounts 6,420,108 6,420,108
Inventories 13,577,197 2,658,000 Note 1 (474,054) 15,761,143
Prepaid Expenses 359,870 359,870
Other current Assets 82,999 82,999
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Total current assets 20,715,490 2,658,000 (474,054) 22,899,436
Property and equipment, net 7,879,663 241,000 Note 2 92,250 8,215,913
Investment in Joint Ventures 409,135 409,135
Due from Officers 256,288 256,288
Intangibles 2,410,557 Note 3 5,955,771 8,366,328
Patents -- 1,000 Note 3 (1,000) --
Other Assets 133,311 133,311
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Total Assets $31,804,444 $ 2,900,000 $ 5,575,967 $40,280,411
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Liabilities and Shareholders' Equity
Current liabilities
Accounts Payable $ 1,441,248 1,441,248
Accrued expenses, payroll and payroll
taxes 959,038 959,038
Accrued income taxes 24,013 24,013
Current portion of capital lease
obligations 140,338 140,338
Notes payable to bank 6,982,501 6,982,501
Other note payable -- Note 4 $ 1,000,000 1,000,000
Current portion of long-term debt 180,000 180,000
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Total current liabilities 9,727,138 -- 1,000,000 10,727,138
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Deferred income taxes 355,200 355,200
Capital lease obligations, less current
portion 382,900 382,900
Long-term debt, less current portion 5,760,000 Note 5 7,402,467 13,162,467
Shareholders' equity:
Common stock 8,401 8,401
Additional paid in capital 8,655,630 2,900,000 Note 6 (2,826,500) 8,729,130
Retained earnings 6,915,175 6,915,175
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Total Shareholders' equity 15,579,206 2,900,000 (2,826,500) 15,652,706
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Total liabilities and shareholders' equity $31,804,444 2,900,000 $ 5,575,967 $40,280,411
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</TABLE>
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Medical Action Industries Inc.
Notes to Pro Forma Balance Sheet
March 31, 1998
(unaudited)
1. Reflects actual inventories acquired.
2. Adjustment of fixed assets acquired to estimated fair market value on
date of acquisition.
3. To record the value of intangible assets acquired consisting primarily
of trademarks and the excess cost of net assets acquired.
4. In connection with the acquisition, the Company withheld $1,000,000 of
the purchase price, subject to adjustment as defined in a transition
plan. Such amount is expected to be paid in installments through June
15, 1999.
5. To reflect the cash purchase price which was financed by additional
long term borrowings under the Company's credit facility.
6. Reflects elimination of the excess net assets over liabilities acquired
and records the estimated fair value of a warrant to purchase 50,000
shares of the Company's common stock at an exercise price of $2.94 per
share.
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Report of Ernst & Young LLP, Independent Auditors
Board of Directors
Acme United Corporation
We have audited the accompanying statement of inventories, equipment and patents
of the Medical Business of Acme United Corporation (the "Company") as of
December 31, 1998, and the statement of net sales, and direct costs and expenses
for the year then ended. These statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the statements. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the statements referred to above present fairly, in all material
respects, the inventories, equipment and patents of the Medical Business of Acme
United Corporation at December 31, 1998, and its net sales, and direct costs and
expenses for the year then ended, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
February 5, 1999
Hartford, Connecticut
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The Medical Business of Acme United Corporation
Statement of Inventories, Equipment and Patents
December 31, 1998
Inventories:
Finished goods $1,258,000
Work in process 315,000
Raw materials and supplies 1,085,000
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2,658,000
Equipment, less accumulation depreciation of $545,000 241,000
Patents 1,000
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$2,900,000
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See accompanying notes.
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The Medical Business of Acme United Corporation
Statement of Net Sales, and Direct Costs and Expenses
Year ended December 31, 1998
Net sales $10,090,000
Direct costs and expenses:
Cost of goods sold 7,240,000
Selling, general and administrative 2,547,000
Research and development 64,000
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9,851,000
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Net sales in excess of direct cost and expenses $ 239,000
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See accompanying notes.
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The Medical Business of Acme United Corporation
Notes to Financial Statements
December 31, 1998
1. Basis of Presentation
Acme United Corporation ("Acme") is in negotiations to sell certain assets and
the related business of its medical business ("Medical Business") to Medical
Action Industries Inc. ("MAI"). The Medical Business consists of production and
distribution of metal disposable medical scissors, instruments and sterile
procedure trays. Medical products are produced at Acme's Goldsboro, North
Carolina plant which also produces other non-medical products for Acme that are
unrelated to the Medical Business. The Goldsboro facility also serves as a
warehouse and distribution center for both Acme's medical products and
non-medical products. Additionally, disposable medical instruments and scissors
are produced at Acme's Fremont, North Carolina plant which also manufactures
non-medical products.
The Medical Business is not a legal entity and the assets and liabilities
associated with the Medical Business are components of a larger business. As a
result, while separate financial information is maintained for the Medical
Business inventory, accounts receivable, sales, and direct expenses, no separate
asset, liability and expense accounts are maintained for the Medical Business or
the other business of Acme. Accordingly, the information included in the
accompanying statements has been obtained from Acme's consolidated financial
records. The accompanying financial statements present the inventories,
equipment and patents of the Medical Business expected to be sold to MAI as of
December 31, 1998 and the net sales, and direct costs and expenses of the
Medical Business for the year then ended. This information is not intended to be
a complete presentation of the assets and liabilities, and expenses of the
Medical Business.
The accompanying financial statements were prepared for inclusion in the current
report on Form 8-K of MAI and do not purport to reflect the assets and
liabilities or results of operations that would have resulted if the Medical
Business had operated as an unaffiliated independent company.
Certain direct expenses incurred by Acme on behalf of the Medical Business as
well as certain Goldsboro and Fremont plant costs have been allocated to the
Medical Business (discussed in Note 2) on various bases which, in the opinion of
management, are reasonable. However, these allocated expenses and costs are not
necessarily indicative of expenses and costs that would have been incurred had
the Medical Business been operating as a separate company.
In connection with the contemplated sale of the Medical Business to MAI, Acme
and MAI expect to enter into a transition services agreement (the "Transition
Services Agreement"). Under the Transition Services Agreement, Acme will provide
certain services to MAI to facilitate the transfer of the Medical Business to
it. The Transition Services Agreement will cover various services including
those related to manufacturing, supply chain, sales, marketing, and accounting.
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The Medical Business of Acme United Corporation
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies
Management Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in them and the accompanying disclosures. Although
these estimates are based on management's best knowledge of current events and
actions Acme may undertake in the future, actual results ultimately may differ
from the estimates.
Revenue Recognition
Sales are recorded at the time products are shipped. Net sales reflect units
shipped at selling list price less direct deductions therefrom, including
discounts and allowances, outbound freight, and returns. Customers are located
throughout the United States.
Inventory Valuation
Inventories are stated at the lower of average cost (first in, first out method)
or market.
Equipment
Equipment is stated at cost, less accumulated depreciation. Depreciation is
calculated using the straight line method over the estimated useful lives of the
equipment, primarily 3 to 15 years.
Cost of Goods Sold
Cost of goods sold includes allocations of costs to the Medical Business
activities, including warehousing, shipping, utilities, insurance, quality
control, and employee costs. These plant costs are allocated between the Medical
Business and other non-medical products that are produced at the Goldsboro and
Fremont plants based primarily on standard costs of goods sold, number of
employees, usage, and square footage. In the opinion of management, these
allocations were made on a reasonable basis. However, cost of goods sold is not
necessarily indicative of the costs which might have been incurred had the
Medical Business been operating as a separate company.
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The Medical Business of Acme United Corporation
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Selling, General and Administrative
Certain selling, general and administrative expenses not otherwise specifically
identifiable with the Medical Business are allocated based on estimates of time
and effort spent, number of employees, and sales volume. Such allocated expenses
primarily include public affairs/investor relations, finance and accounting,
human resources, information systems, selling and other administrative
activities. In the opinion of management, these allocations of direct expenses
were made on a reasonable basis. However, such expenses are not necessarily
indicative of the level of expenses which might have been incurred had the
Medical Business been operating as a separate company.
Research and Development
Research and development costs are expensed as incurred.
3. Security
The assets in the accompanying statement of inventories, equipment and patents
are pledged as collateral for Acme's bank debt. A release from the bank is
required for their sale.
4. Contingencies
Acme is involved in certain legal proceedings related to its business operations
including the Medical Business. Based upon the advice of its counsel and product
liability insurance carrier, management believes the outcome of litigation that
relates to the Medical Business will not have a material effect on the Medical
Business' operating results.
5. Leases
As referred to above Acme leases the Goldsboro facility under a long-term
operating lease which expires October 31, 2000. Rent expense under this lease
for 1998 has been allocated to the Medical Business based on utilized square
footage.
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The Medical Business of Acme United Corporation
Notes to Financial Statements (continued)
6. Costs and Expenses
Costs and expenses for the year ended December 31, 1998 include:
Depreciation $ 234,000
Rent expense under long-term operating leases 174,000
7. Year 2000 (Unaudited)
Acme has substantially assessed the impact of Year 2000 on its computer and
other systems, including those applicable to the Medical Business. Acme has
developed a plan and is currently in the process of making the necessary
modifications to achieve substantial compliance within the next year. Acme does
not expect the costs relating thereto to have a material effect on future
operating results or cash flow.
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EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-11046) pertaining to the 1984 Incentive Stock Option Plan and
Registricted Management Stock Bonus Plan of Medical Action Industries Inc., the
Registration Statements (Form S-8 Nos. 33-41765, 33-66038, 333-14993 and
333-65585) pertaining to the 1989 Non-Qualified Stock Option Plan and the 1994
Stock Incentive Plan of Medical Action Industries Inc., and the Registration
Statement (Form S-8 No. 333-35015) pertaining to the 1996 Non-Employee Driector
Stock Option Plan of Medical Action Industries Inc. of our report dated February
5, 1999, with respect to the statement of inventories, equipment and patents of
the Medical Business of Acme United Corporation as of December 31, 1998 and its
statement of net sales, and direct costs and expenses for the year then ended
included in the Current Report on Form 8-K/A of Medical Action Industries Inc.
dated May 28, 1999, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Hartford, Connecticut
May 28, 1999
