<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] 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 0-4123
------
MOYCO TECHNOLOGIES, INC.
---------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Pennsylvania 23-1697233
------------ ----------
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
200 Commerce Drive, Montgomeryville, PA 18936
- ----------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (215) 855-4300
-------------
Indicate by check X 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
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at March 31, 1997
- -------------------------- -------------------------------
Common Stock, $.005 par value 4,138,340
Preferred Stock, $.005 par value 0
Page 1
<PAGE>
MOYCO TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
Part I - Financial Information
Item 1. Consolidated Financial Statements.
<S> <C> <C>
Consolidated Balance Sheets -
March 31, 1997 and June 30, 1996--------------------------------------------- 3
Consolidated Statements of Operations and
Retained Earnings
Three Months Ended March 31, 1997 and 1996----------------------------------- 5
Nine Months Ended March 31, 1997 and 1996------------------------------------ 6
Consolidated Statements of Cash Flows -
Nine Months Ended March 31, 1997 and 1996------------------------------------ 7
Notes to Consolidated Financial Statements-------------------------------------------- 8
Item 2. Management's Discussion and Analysis-------------------------------------------------- 13
Part II - Other Information
Signatures --------------------------------------------------------------------------- 17
</TABLE>
REMARKS:
The consolidated financial statements of Moyco Technologies, Inc. and its
subsidiaries (the "Company" or "Registrant") included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. In the opinion of the Company, the accompanying
statements reflect all adjustments necessary to present fairly the financial
position, results of operations and cash flows for those periods indicated, and
contain adequate disclosure to make the information presented not misleading.
Such adjustments are of a normal, recurring nature unless otherwise disclosed in
the notes to consolidated financial statements. It is suggested that these
consolidated condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's latest annual
report on Form 10-K.
Results of operations for any three-month period are not necessarily indicative
of the results of operations for a full year.
Page 2
<PAGE>
Part I - Financial Information
Item 1. Consolidated Financial Statements.
MOYCO TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,1997
ASSETS (Substantially pledged) ( Unaudited ) June 30, 1996
------------- -------------
Current Assets
<S> <C> <C>
Cash and Cash Equivalents $1,197,477 $ 1,402,088
Accounts receivable, net of doubtful account
allowances of $121,129 at March 31, 1997
and $78,990 at June 30, 1996 1,658,937 1,600,764
Note Receivable-Trade - 11,519
Other Receivable - 8,215
Inventories 4,261,452 3,283,779
Deferred Taxes 68,856 68,856
Prepaid Taxes 54,816 117,644
Prepaid expenses 61,848 24,218
---------- -----------
Total Current Assets 7,303,386 6,517,083
---------- -----------
Property, Plant and Equipment
Land 602,433 452,433
Buildings and improvements 4,568,270 4,386,877
Automotive equipment 48,511 48,511
Machinery and equipment 5,542,555 4,822,188
Furniture and fixtures 589,461 534,068
---------- -----------
11,351,230 10,244,077
Less: Accumulated Depreciation ( 4,900,467) ( 4,350,226)
---------- -----------
Net Property, Plant and Equipment 6,450,763 5,893,851
----------- -----------
Other Assets 1,140,927 133,080
----------- -----------
TOTAL ASSETS $14,895,076 $12,544,014
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
Page 3
<PAGE>
MOYCO TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1997
LIABILITIES AND SHAREHOLDERS' EQUITY ( Unaudited ) June 30, 1996
-------------- -------------
Current Liabilities
<S> <C> <C>
Current maturities of long-term debt $ 1,201,890 $ 895,408
Accounts payable 584,858 381,372
Accrued expenses:
Payroll 183,647 205,092
Interest - 33,750
Other 200,453 284,086
----------- -----------
Total Current Liabilities 2,170,848 1,799,708
Long-term debt, net of current maturities 6,077,520 5,616,112
Accrued Liabilities - Long-Term 450,000 -
Deferred income taxes 361,726 152,704
----------- -----------
Total Liabilities 9,060,094 7,568,524
----------- -----------
Shareholders' Equity
Preferred stock, $.005 par value - -
Authorized 2,500,000 shares,
None issued
Common stock, $.005 par value 24,159 23,083
Authorized 15,000,000 shares
Issued 4,732,215 shares
Additional paid-in capital 3,933,112 3,118,239
Retained Earnings 2,008,564 1,955,121
Less: Treasury stock 593,875 and 591,875 shares at
March 31, 1997 and at June 30, 1996,
respectively, at cost ( 130,853) ( 120,953)
----------- -----------
Total Shareholders' Equity 5,834,982 4,975,490
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $14,895,076 $12,544,014
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
Page 4
<PAGE>
MOYCO TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31
-----------------------
1997 1996
-----------------------
<S> <C> <C>
Net Sales $3,260,066 $2,879,413
Cost of Sales 2,053,774 1,754,900
---------- ----------
Gross Profit 1,206,292 1,124,513
Operating Expenses 1,328,393 857,974
---------- ----------
(Loss) Income from Operations ( 122,101) 266,539
---------- ----------
Other Income (Expenses)
Interest Expense ( 105,269) ( 129,628)
Other Income (Expense) 37,999 9,098
---------- ----------
Total Other Income (Expense) ( 67,270) ( 120,530)
---------- ----------
(Loss) Income Before Provision for Income Taxes and
Extraordinary Item ( 189,371) 146,009
---------- ----------
Provision for Income Taxes ( 47,079) ( 76,410)
---------- ----------
Income Before Extraordinary Item ( 142,292) 222,419
Extraordinary Item - Settlement of
Lawsuit (less applicable income taxes of $151,271) - 206,388
---------- ----------
Net Income ( 142,292) 428,807
Retained Earnings, beginning of period 2,150,856 1,456,210
---------- ----------
Retained Earnings, end of period $2,008,564 $1,885,017
========== ==========
Earnings per Share ($ 0.04) $ 0.11
========== ==========
Weighted Average Number of Common Shares 4,144,519 4,020,415
========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
Page 5
<PAGE>
MOYCO TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
NINE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31
-----------------------
1997 1996
-----------------------
<S> <C> <C>
Net Sales $10,256,774 $8,770,917
Cost of Sales 6,291,433 5,194,228
----------- ----------
Gross Profit 3,965,341 3,576,689
Operating Expenses 3,525,910 2,577,372
----------- ----------
Income from Operations 439,431 999,317
----------- ----------
Other Income (Expenses)
Interest Expense ( 432,326) ( 505,665)
Other Income 73,868 77,511
----------- ----------
Total Other Income (Expense) ( 358,458) ( 428,154)
----------- ----------
Income Before Provision for Income Taxes and 80,973 571,163
----------- ----------
Extraordinary Item
Provision for Income Taxes 27,530 102,516
----------- ----------
Income Before Extraordinary Item 53,443 468,647
Extraordinary Item - Settlement of
Lawsuit (less applicable income taxes
of $151,271) - 206,388
----------- ----------
Net Income 53,443 675,035
Retained Earnings, beginning of period 1,955,121 1,209,982
----------- ----------
Retained Earnings, end of period $ 2,008,564 $1,885,017
=========== ==========
Earnings per Share $ 0.01 $ 0.17
=========== ==========
Weighted Average Number of Common Shares 4,140,748 4,020,415
=========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
Page 6
<PAGE>
MOYCO TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31
-----------------------
1997 1996
-----------------------
<S> <C> <C>
Net Cash provided by operating activities ($ 83,080) $1,021,569
Cash flows from investing activities
(Expenditures for) Retirements of property,
plant and equipment ( 210,457) ( 413,671)
---------- ----------
Net Cash (used in) investing activities ( 210,457) ( 413,671)
---------- ----------
Cash flows from financing activities
Reduction of long-term debt obligations ( 1,022,417) ( 791,283)
Proceeds from exercise of options 1,103 -
Purchase of Treasury Stock ( 9,900) -
New borrowings of long-term debt 1,120,140 365,000
---------- ----------
Net Cash Provided by financing activities 88,926 ( 426,283)
---------- ----------
Net Increase (Decrease) in cash ( 204,611) 181,615
Cash and cash equivalents, beginning of period 1,402,088 1,097,323
---------- -----------
Cash and cash equivalents, end of period $1,197,477 $ 1,278,938
========== ===========
Cash paid during the period for interest $ 432,326 $ -
========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
-------------------------------------------------------------------
Refinance long-term debt $ 88,199 $ -
========== ===========
Equipment sold for retirement of debt $ 18,399 $ -
========== ===========
Merger accounted for under the purchase method:
Step-up in basis of assets to fair value $ 492,579 $ -
Goodwill 874,966 -
Stock Issued ( 639,631) -
Liabilities assumed or created ( 727,914) -
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
Page 7
<PAGE>
MOYCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
Note 1: Summary of Significant Accounting Policies
NATURE OF BUSINESS
The Company manufacturers professional dental waxes, supplies,
instruments, mirrors, endodontic materials and equipment,
medicaments, precision abrasives, commercial abrasives, CMP
materials, and is a repacker of other disposable products for
commercial and industrial use and sells to both domestic and
international customers.
PRINCIPLES OF ACCOUNTING
The balance sheet as of March 31, 1997 and the related
statements of operations and retained earnings, and cash flows
for the nine months ended March 31, 1997 and 1996 are
unaudited in the opinion of management, all adjustments
necessary for a fair presentation of such financial statements
have been included. Such adjustments consisted only of normal
recurring items. Interim results are not necessarily
indicative of results for the full year.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Moyco Technologies, Inc. and its wholly owned subsidiaries.
All intercompany accounts and transactions have been
eliminated in consolidation.
The assets and liabilities of Thompson Dental Manufacturing
Co., Inc. have been consolidated with the Company as of August
8, 1996 (purchase date).
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect certain reported
amounts and disclosures. Actual results may differ from those
estimates.
VALUATION OF INVENTORIES
Inventories are stated at the lower of cost or market. Costs
of raw materials and cartons are determined by the first-in,
first-out method. Labor and overhead included in
work-in-process and finished goods are determined at average
cost. Ending inventories at interims are estimated by the
gross profit method.
Page 8
<PAGE>
MOYCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Depreciation is
computed by the straight-line method over the assets expected
useful lives as follows:
Buildings and Improvements 10-25 Years
Machinery, Equipment, Furniture
and Fixtures 5-10 Years
Automotive Equipment 3 Years
PATENTS AND TRADEMARKS
The costs of patents and trademarks are capitalized and
amortized to operations over their estimated useful lives or
statutory lives, whichever is shorter. Amortization is
computed by the straight-line method.
MORTGAGE COSTS
Mortgage costs are being amortized over the terms of the
related mortgages.
INCOME TAXES
The Company currently accounts for income taxes in accordance
with the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
RECLASSIFICATIONS
Certain accounts in the prior-year financial statements have
been reclassified for comparative purposes to conform with the
presentation in the current-year consolidated financial
statements.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as
incurred.
EARNINGS PER COMMON SHARE
Earnings per common share have been computed by dividing
earnings for each period by the weighted average number of
common shares outstanding during each period.
ADVERTISING COSTS
Advertising costs are charged to expense as incurred.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following notes summarize the major methods and
assumptions used in estimating the fair values of financial
instruments.
Page 9
<PAGE>
MOYCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents
The carrying amount approximates fair value due to the
relatively short period to maturity of these instruments.
LONG-TERM DEBT
The fair value of the Company's long-term debt is estimated
based on the quoted market prices for the same or similar
issues or on the current prices for the same or similar issues
or on the current rates offered to the Company for debt of the
same remaining maturities.
The following table presents the carrying amounts and
estimated fair values of the Company's financial instruments:
<TABLE>
<CAPTION>
March 31, 1997 June 30, 1996
----------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and Cash
Equivalents $1,197,477 $1,197,477 $1,402,088 $1,402,088
Accounts
Receivable 1,658,937 1,658,937 1,600,764 1,600,764
Accounts Payable
and Accrued
Expenses 968,958 968,958 904,300 904,300
Long-Term Debt
including
current portion 7,279,410 6,865,809 6,511,520 6,080,263
----------------------------------------------------------------
Note 2: Inventories
The components of inventories are as follows:
March 31, June 30,
1997 1996
---------- ----------
Raw materials $ 897,888 $ 761,072
Work-in-process 1,330,502 873,884
Finished goods 1,811,140 1,450,411
Cartons 221,922 198,412
---------- ----------
$4,261,452 $3,283,779
========== ==========
</TABLE>
Page 10
<PAGE>
MOYCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Note 3: Long-Term Debt
Long-term debt is summarized as follows:
March 31, June 30,
1997 1996
------- -------
Mortgages Payable
Banks
Mortgage payable in monthly installments of $6,150, including
interest at .85% of prime (not to exceed 15% or be below
8.5%), which matures in August 2001.
Rate at March 31, 1997 was 8.5%. $ 270,294 $ 306,827
Mortgage payable in monthly installments of $5,053 including
interest at 8.75% for five years and at prime plus 1% for the
remaining term through maturity December
1, 2009. 465,666 479,696
Mortgage payable in monthly installments of $14,950 including
interest at 9.25% for five years and at prime plus 1% for the
remaining term through maturity
May 1, 2010. 1,366,710 1,403,848
Mortgages Payable
Municipal Authorities
Mortgage payable in 180 monthly installments
of $1,952, including interest at 2% which
matures April 1, 2010. 264,850 278,314
Mortgage payable in 180 monthly installments
of $6,371, including interest at 2% which
matures July 1, 2010. 889,194 932,735
Other
Auto loan payable in forty-eight monthly
installments of $838 plus interest at 7.75%. 10,970 18,764
Commercial term note payable in monthly installments of
$30,000 plus interest at prime rate plus 1/2% beginning August
1, 1995 which matures August 1, 2000. 1,200,000 1,470,000
Note payable in monthly installments of $2,333 plus interest
at 8.65% beginning November 1, 1995 which matures
November 1, 2000. 100,339 121,336
Note payable in quarterly interest-only
payments through 1996. Thereafter, twenty
equal quarterly payments including principal
and interest at prime. (interest rate not
to exceed 10% or be below 8%). Subordinated
to prime lender. 1,425,000 1,500,000
</TABLE>
Page 11
<PAGE>
MOYCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Note 3: Long-Term Debt (Continued)
March 31, June 30,
1997 1996
---------- ----------
Credit line payable due on demand.
Interest rate at prime. $ 200,000 $ -
Note payable to bank, due August 2002, interest at 8.25%,
interest only payable monthly through August 1997. Monthly
payments of $15,297, including interest,
are due thereafter through August 2002. 750,000 -
Mortgage payable due December 2011, interest at prime plus
1.5% payable $2,543 monthly, including interest; secured
by land and building. 239,261 -
Capital lease obligation, due October 2001, interest at 10%,
payable $2,209 monthly, including interest, through October
2001;
secured by equipment. 97,126 -
---------- ----------
7,279,410 6,511,520
Less: Current Maturities ( 1,201,890) ( 895,408)
---------- ----------
$6,077,520 $5,616,112
========== ==========
As of March 31, 1997 long-term debt matures as follows:
1998 $1,201,890
1999 1,070,220
2000 1,097,437
2001 876,622
2002 643,013
Thereafter 2,390,228
----------
$7,279,410
==========
Substantially all of the Company's assets are pledged as
collateral for long-term debt.
</TABLE>
Page 12
<PAGE>
Item 2. Management's Discussion and Analysis
MOYCO TECHNOLOGIES, INC.
MANAGEMENT'S ANALYSIS AND DISCUSSION OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
FOR THE
THREE MONTHS ENDED MARCH 31, 1997
Results of Operations
Comparison of recent quarter (03/31/97) and immediate preceding Quarter
(12/31/96):
Net Sales decreased by $490,949 and is primarily attributable to
decreased sales in our dental division.
The decrease of $278,017 in gross profit is correlated to the decrease
in volume. The procedure for computing inventories by department is the
gross profit method using the previous fiscal years actual gross profit
percentage, unless management is aware of a significant adjustment
required in the quarter, continues as the standard procedure in
computing interim quarterly accounting.
Inventories slightly increased as a result of increased purchases of
raw materials for production of materials used in chemical mechanical
planarization (CMP).
Operating expenses increased $28,991 as a result of strategic
investment costs related to the Ultralap Abrasives Division production
and marketing of slurries used in high-tech applications including CMP
(Chemical Mechanical Planarization). These slurries will primarily be
used in manufacturing the next generation of semiconductor chips. In
addition, significant legal fees and related costs for the government
investigation concerning the prior manufacture and deliveries of foot
powder were incurred during the recent quarter.
The decrease in net income is related to the operating expenses as
referred to above along with the decrease in unit sales of both
divisions.
Working capital is sufficient for current operating needs, however, the
need for additional sales levels will put further stress on working
capital needs. Also, professional fees and regulatory penalties will
place additional stress on working capital. Inflationary pressures have
significantly less bearing on current profitability than the continued
need for additional sales.
Page 13
<PAGE>
MOYCO TECHNOLOGIES, INC.
MANAGEMENT'S ANALYSIS AND DISCUSSION OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
FOR THE
NINE MONTHS ENDED MARCH 31, 1997
Comparison of recent Quarter (3/31/97) and Equivalent Quarter in Prior
Year (3/31/96):
Net sales increased by $380,653 primarily as a result of the sales
generated by the Thompson Dental Manufacturing Co. Inc. subsidiary.
The increase in gross profit of $81,779 is correlated to the increase
in volume. The procedure for computing inventories by department by the
gross profit method, using the previous fiscal years actual gross
profit percentage, unless management is aware of a significant
adjustment required in the quarter, continues as the standard procedure
in computing interim quarterly accounting.
Operating expenses increased $470,419 as a result of increased
strategic investment costs related to the Ultralap Division CMP
(chemical mechanical planarization) slurry project and legal fees and
related costs associated with the government investigation concerning
the prior manufacture and deliveries of foot powder.
In addition, for the same quarter in the prior year, earnings reflected
an extraordinary income item of $206,388 net of applicable taxes.
Working capital is sufficient for current operating needs, however the
need for additional sales levels is critical. Also, continuing
professional fees, associated costs and regulatory penalties could
place additional stress on working capital.
Page 14
<PAGE>
MOYCO TECHNOLOGIES, INC.
MANAGEMENT'S ANALYSIS AND DISCUSSION OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
FOR THE
NINE MONTHS ENDED MARCH 31, 1997
Comparison of Recent Year to Date (3/31/97) and Equivalent Period in
Prior Year (3/31/96):
Net sales increased by $1,485,857. The increase was in both our
abrasive and dental segments. Costs of sales increased by about 2% as a
result of the continuing restructure program for Thompson Dental. The
procedure for computing interim inventories by department by the gross
profit method, using the previous fiscal years actual gross profit
percentage, unless management is aware of a significant adjustment
required in the period, continues as the standard procedure in
computing interim accounting.
Operating expenses increased $948,538 and is related to costs
associated with the Thompson Dental merger, legal fees and related
costs associated with the government investigation concerning the prior
manufacture and deliveries of foot powder, and product development
especially relate to CMP abrasive slurries used for the development of
the next generation of semiconductor chips. In addition, the prior
year, earnings reflected an extraordinary income item of $206,388 net
of applicable taxes.
The decrease of net profit of $621,592 is directly related to the
increase in operating expense as set forth above.
Increased sales are a constant requirement for growth. We continue to
seek acquisitions as well as new products to expand our critical mass.
We are also pursuing various strategic alliance possibilities. In our
high tech development as well as the dental industry, there are many
companies with substantially greater resources. In addition, emerging
as well as existing technologies are subject to rapid change which can
create large variation in sales in any given period. Some of our new
products are being tested and we continue to receive favorable
operating results. Rapid growth will require the need for additional
funds and alternative means of financing the potential growth are being
investigated. While working capital is sufficient for current operating
needs, the need for additional sales levels will put further stress on
working capital requirements. Professional fees, associated costs, and
regulatory penalties will place additional stress on working capital.
Page 15
<PAGE>
MOYCO TECHNOLOGIES, INC.
MANAGEMENT'S ANALYSIS AND DISCUSSION OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
FOR THE
THREE MONTHS ENDED MARCH 31, 1997
Liquidity and Capital Resources
It is anticipated that pressures on earnings will continue. The
continuing need to increase sales to offset costs is a reality. The
Company is committed to the Ultralap CMP (chemical mechanical
planarization) slurry project which will require additional funds. In
addition, professional fees, associated costs and regulatory penalties
will effect profits. The addition of capital improvement projects of
plant facilities and equipment, along with the financial commitments
will require sales growth and earnings to repay the additional debt
service. This quarter ends twenty-five straight quarters of
profitability. Changes in high tech products sold by our abrasives
division are subject to swings which directly effect net sales and
profits.
Litigation:
Subsequent to the quarter, Moyco has plead guilty to a two count
information charging it with distributing adulterated drugs and mail
fraud. The plea is related to the previously announced investigation
spanning almost two years concerning the prior manufacture and testing
of foot powder. The fine range set forth in the Plea Agreement under
the sentencing guidelines is from $175,000 to $700,000 to be determined
by the assigned judge at a sentencing hearing which will be scheduled
for the Summer of 1997. The fine will be based on various factors. In
addition, the possibility of further civil restitution remains.
Appropriate pay-outs are anticipated to allow Moyco to continue
operations and pursue growth opportunities. The product involved in
this case, foot powder, is no longer manufactured by Moyco and was
never a part of its core business. The facility where the foot powder
was manufactured was closed and donated to charity.
Cabot Corporation filed a complaint for patent infringement against
Moyco which alleges that a CMP slurry manufactured by Moyco infringes
U.S. patent 5,527,423 owned by Cabot. The complaint was filed in the
United States District Court for the Northern District of California.
In response, Moyco has filed a Motion to Remove that case to the United
States District Court for the Eastern District of Pennsylvania based on
jurisdiction and venue issues. Moyco has also filed a Civil Action for
a Declaratory Judgment against Cabot. The law suit alleges, among other
things, that a Cabot patent on a chemical mechanical polishing slurry
is invalid and that Cabot improperly interfered with contractual
relationships between Moyco and third parties. If successful with the
Motion to Remove, all issues will be consolidated into one case. It is
anticipated that legal fees and associated costs related to this
litigation will be substantial and will effect profits.
Page 16
<PAGE>
MOYCO TECHNOLOGIES, INC.
MANAGEMENT'S ANALYSIS AND DISCUSSION OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
FOR THE
THREE MONTHS ENDED MARCH 31, 1997
There were no other material legal issues during the quarter.
Subsequent Events:
Moyco has retained Brown Brothers, Harriman & Co. for the
purposes of reviewing its capital structure and various strategic
opportunities.
Page 17
<PAGE>
Part II - Other Information
MOYCO TECHNOLOGIES, INC.
SIGNATURES
Pursuant to the requirements of Section 13 and 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.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report is signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
MOYCO TECHNOLOGIES, INC.
(Registrant)
Date MAY 13, 1997 By /s/ Marvin S. Sternberg
----------------------- -----------------------
Marvin E. Sternberg
President and Chief Executive Officer
Chairman of the Board
Date MAY 13, 1997 By /s/ William G. Woodhead
----------------------- -----------------------
William G. Woodhead
Secretary/Treasurer and Director
Page 18
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