<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
Commission File No. 0-4123
------
MOYCO TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1697233
------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
200 Commerce Drive
Montgomeryville, Pennsylvania 18936
---------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including (215) 855-4300
---------------------------------------- -----------------------------------
area code:
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 (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 Registrant's classes of
Common stock as of September 30, 2000: 5,034,392 shares of Common stock, par
value $.005 per share.
<PAGE>
MOYCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
------------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,380,051 $ 2,231,514
Certificates of deposit - 96,623
Accounts receivable, net of reserves of
$480,402 and $480,402 2,723,757 2,298,121
Note receivable, current portion 131,844 131,844
Other receivables 55,522 52,349
Inventories 4,841,894 4,776,207
Deferred income taxes 537,864 537,864
Prepaid expenses 79,072 59,748
------------ ------------
Total current assets 10,750,004 10,184,270
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land 602,433 602,433
Buildings and improvements 4,643,585 4,643,585
Machinery and equipment 6,945,966 6,770,241
Furniture and fixtures 691,755 687,465
Automotive equipment 139,630 139,630
Construction in progress 1,021 -
------------ ------------
13,024,390 12,843,354
Less- Accumulated depreciation and amortization (7,505,389) (7,344,954)
------------ ------------
Net property, plant and equipment 5,519,001 5,498,400
------------ ------------
OTHER ASSETS:
Goodwill, less accumulated amortization of
$130,627 and $ 122,750 341,993 349,870
Note receivable, non-current portion 514,140 551,734
Other 139,744 124,781
------------ ------------
Total other assets 995,877 1,026,385
------------ ------------
$ 17,264,882 $ 16,709,055
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
2
<PAGE>
MOYCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
------------ ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 1,500,000 $ 1,250,000
Current portion of capital lease obligations 104,612 106,955
Current portion of long-term debt 773,244 757,878
Accounts payable 1,199,110 1,361,315
Income taxes payable 327,570 46,066
Accrued expenses 695,823 694,672
------------ ------------
Total current liabilities 4,600,359 4,216,886
------------ ------------
CAPITAL LEASE OBLIGATIONS 301,489 328,378
------------ ------------
LONG-TERM DEBT 5,222,124 5,400,064
------------ ------------
DEFERRED INCOME TAXES 320,232 320,232
------------ ------------
OTHER LONG-TERM LIABILITIES 74,464 175,714
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.005 par value, 2,500,000
shares authorized, none issued and outstanding - -
Common stock, $.005 par value, 15,000,000
shares authorized, 5,761,352 shares
issued and outstanding 28,807 28,807
Additional paid-in capital 5,864,185 5,864,185
Retained earnings 1,003,670 525,237
Less- Treasury stock- 726,960
shares, at cost (150,448) (150,448)
------------ ------------
Total shareholders' equity 6,746,214 6,267,781
------------ ------------
$ 17,264,882 $ 16,709,055
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
MOYCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the
Three Months Ended
September 30
-----------------------------
2000 1999
----------- ------------
NET SALES $ 5,634,745 $ 4,102,961
COST OF GOODS SOLD 3,560,408 2,309,420
----------- ------------
Gross profit 2,074,337 1,793,541
OPERATING EXPENSES:
Sales and marketing 478,256 589,515
Research and development 3,758 1,892
General and administrative 836,315 889,065
----------- ------------
Income from operations 756,008 313,069
INTEREST EXPENSE, net (94,765) (113,982)
OTHER INCOME, net 33,270 134,599
----------- ------------
Income before taxes 694,513 333,686
INCOME TAX EXPENSE (216,080) (130,138)
----------- ------------
NET INCOME $ 478,433 $ 203,548
=========== ============
BASIC EARNINGS PER COMMON SHARE $ 0.10 $ 0.04
=========== ============
SHARES USED IN COMPUTING BASIC
EARNINGS PER COMMON SHARE 5,034,392 4,999,142
=========== ============
DILUTED EARNINGS PER COMMON SHARE $ 0.09 $ 0.04
=========== ============
SHARES USED IN COMPUTING DILUTED
EARNINGS PER COMMON SHARE 5,042,107 4,999,142
=========== ============
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
MOYCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the
Three Months Ended
September 30,
-------------------------------
2000 1999
---------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 478,433 $ 203,548
Adjustments to reconcile net income to net cash
used in operating activities-
Depreciation and amortization 191,943 200,560
Deferred income taxes - 27,512
(Increase) decrease in-
Accounts receivable (425,636) (5,069)
Note receivable 37,594 -
Other receivables (3,173) (84,101)
Income tax receivable - 1,760
Inventories (65,687) (20,188)
Prepaid taxes and expenses (19,324) (58,817)
Other assets (38,594) (33,157)
(Decrease) increase in-
Accounts payable (162,205) (1,029,687)
Income taxes payable 281,504 88,273
Other accrued expenses (100,099) 334,445
---------- -----------
Net cash provided by/(used in) operating activities 174,756 (374,921)
---------- -----------
INVESTING ACTIVITIES:
Redemption of certificate of deposit 96,623 -
Purchases of and deposits on property, plant and equipment (181,036) (69,462)
---------- -----------
Net cash used in investment activities (84,413) (69,462)
---------- -----------
FINANCING ACTIVITIES:
Net borrowings under lines of credit 250,000 800,000
Payments on capital lease obligations (29,232) (50,697)
Payments of long-term debt (162,574) (198,400)
---------- -----------
Net cash provided by financing activities 58,194 550,903
---------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 148,537 $ 106,520
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,231,514 1,752,468
---------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD 2,380,051 1,858,988
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
MOYCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
1. THE COMPANY:
Moyco Technologies, Inc. and subsidiaries (the "Company") operates in two
business segments: Dental Supplies and Precision Abrasives. The Dental Supplies
segment involves the manufacturing, marketing and distributing of dental
supplies, such as waxes, abrasives, medicaments, dental mirrors, endodontic
(root canal) instruments, materials and equipment, sundry dental items, hand
instruments, sterilization items, as well as the repacking and distributing of
other dental products for the professional dental market primarily in the United
States with additional sales in Canada, Mexico, South America, Europe and Asia.
The Precision Abrasives segment involves the manufacturing of commercial coated
abrasives, precision submicron coated abrasives, slurries (wet abrasives) and
polishing agents. These products are used for various applications and
industries, including but not limited to, fiber optics, lapidary, nail files,
dentistry, plastics and woods, semiconductor manufacturing and other high-tech
manufacturing procedures which require extremely fine abrasive films and/or
slurries to achieve consistently uniform polishing results. The Precision
Abrasives segment sells primarily in the United States with additional sales in
Canada, Mexico, Europe and Asia.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Quarterly Financial Information and Results of Operations
The unaudited financial statements have been prepared by the Company, 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
omitted pursuant to such SEC rules and regulations; nevertheless, the Company
believes that the disclosures are adequate to make the information presented not
misleading. These Consolidated Financial Statements should be read in
conjunction with the Consolidated Financial Statements and the notes included in
the Company's latest annual report on Form 10-K. Results of operations and cash
flows for the three month period ended September 30, 2000 are not necessarily
indicative of the results that may be expected for the full year.
Inventories
Inventories are valued at the lower of cost, determined on the first-in,
first-out method, or market. Ending inventories at interim periods are estimated
using the gross profit method.
Revenue Recognition
The Company recognizes revenue upon the shipment of its products.
6
<PAGE>
3. EARNINGS PER COMMON SHARE:
The Company has provided basic and diluted earnings per Common share pursuant to
SFAS No. 128, "Earnings per Share". SFAS No. 128 requires dual presentation of
basic and diluted earnings per share for complex capital structures on the face
of the statements of operations. According to SFAS No. 128, basic earnings per
share is calculated by dividing net income available to Common shareholders by
the weighted average number of Common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution from the exercise or
conversion of securities into Common stock, such as stock options.
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per Common share computations:
<TABLE>
<CAPTION>
For the Three Months Ended September 30
----------------------------------------------------------------------------------
2000 1999
-------------------------------------- -----------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per
Common share
Net income $ 478,433 5,034,392 $ 0.10 $ 203,548 4,999,142 $ 0.04
========= ==========
Effect of dilutive securities
Stock options - 7,715 - -
---------- --------- ---------- ---------
Diluted earnings per
Common share
Net income and
assumed
conversions $ 478,021 5,042,107 $ 0.09 $ 203,548 4,999,142 $ 0.04
========== ========= ========= ========== ========= ==========
</TABLE>
Options to purchase 14,684 and 27,649 shares of Common stock with an average
exercise price per share of $2.80 were outstanding during the three months ended
September 30, 2000 and 1999, respectively, but were not included in the
computation of diluted earnings per Common share because the exercise price of
the options was greater than the average market price of the Common shares
during the period. The options outstanding as of September 30, 2000 expire at
various times through December 2006.
4. LINE OF CREDIT:
The Company has a line of credit with a bank under which it may borrow up to
$3,000,000 through December 31, 2000. The Company believes that it will be able
to renew this arrangement as necessary, under similar borrowing terms. There
were $1,500,000 of borrowings outstanding at September 30, 2000. Borrowings
under the line bear interest at prime (9.50% at September 30, 2000) and are
secured by all assets of the Company. In addition, the Company has an additional
line of credit with the same bank under which it may borrow up to $500,000 to
finance legal fees and related expenses. During the fiscal year ended June 30,
2000, the Company borrowed the maximum amount available under the additional
line of credit and has included these amounts in long-term debt on the
accompanying consolidated balance sheet based upon the scheduled repayment
terms. The lines of credit are subject to certain financial and non-financial
covenants, which include, among others, a ratio of EBITDA to fixed charges, as
defined, and a minimum level of tangible net worth.
7
<PAGE>
5. COMMITMENTS AND CONTINGENCIES:
Dentsply Litigation
On April 22, 1998, the Company was served with a complaint in the United States
Court for the Middle District of Pennsylvania by Dentsply claiming infringement
of a Dentsply patent by the Company's manufacturing process to fabricate nickel
titanium endodontic (root canal) instruments. By amendment, a claim for
infringement of a second related patent was later added. The Company retained
counsel to vigorously defend against the Dentsply complaint, which management
believes to have been without basis. The Company asserted defenses which
management believes to have been meritorious. In addition, the Company filed
counterclaims alleging, among other things, that Dentsply was infringing upon
three Company patents, violating the Sherman Antitrust Act and the Lanham Act,
and interfering with the Company's business relationships.
Subsequent to the quarter ended September 30, 2000, the two parties reached a
settlement of their respective claims, and entered into two license agreements.
Dentsply licensed from Moyco three United States and related foreign patents
covering inventions related to endodontic instrument tips. Moyco licensed from
Dentsply four United States patents covering various inventions related to
nickel titanium endodontic instruments. The parties have agreed to release each
other from all claims pending in the U.S. District Court for the Middle District
of Pennsylvania. Royalties earned and/or paid under those agreements will be
based on sales of licensed products beginning January 1, 2001.
The Company is currently engaged in discussions to finalize fees and expenses
incurred in the Dentsply litigation. As of this date, no final determination can
be made, although as of September 30, 2000 the Company has accrued for what it
believes to be its liability for such fees and expenses.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Consolidated Financial Condition
and Results of Operations
Safe Harbor for Forward-Looking Statements
From time to time, the Company may publish statements which are not historical
fact, but are forward-looking statements relating to such matters as anticipated
financial performance, business prospects, technological developments, new
products, research and development activities, status of litigation and similar
matters. The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements.
These forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from historical and
anticipated results or other expectations expressed in the Company's
forward-looking statements. Such forward-looking statements may be identified by
the use of certain forward-looking terminology such as, "may," "will," "expect,"
"anticipate," "intend," "plan," "project," "estimate," "believe," "goal," or
"continue," or comparable terminology that involves risks or uncertainties.
Actual future results and trends may differ materially from historical results
or those anticipated depending on a variety of factors, including, but not
limited to (i) competition within the Company's industries; (ii) changes in the
economics of dentistry, including consolidation, reduced growth in expenditures
by private dental insurance plans, and the effects of healthcare reform, which
may affect future per capita expenditures for dental services and the ability of
dentists to invest in or obtain reimbursement for the use of dental products;
(iii) the effect of economic conditions; (iv) supply risks, including shortages
and increases in the costs of key raw materials; and (v) dependence on the
services of the Company's executive officers, and other key operations and
technical personnel.
Overview
The Company recorded net income of $478,433 and $203,548 for the three months
ended September 30, 2000 and 1999, respectively. The improved operating results
were due primarily to the increased level of sales.
9
<PAGE>
Summary
The following unaudited table sets forth for the periods indicated the Company's
key financial information by segment.
<TABLE>
<CAPTION>
For the Three Months
Ended September 30
--------------------
2000 1999
------------ ------------
<S> <C> <C>
Net sales:
Dental Supplies $ 3,223,297 $ 2,675,288
Precision Abrasives 2,411,448 1,427,673
------------ ------------
$ 5,634,745 $4,102,961
============ ==========
Gross profit:
Dental Supplies $ 1,478,912 $ 1,396,537
Precision Abrasives 595,425 397,004
------------ ------------
$ 2,074,337 $ 1,793,541
============ ============
Operating income (loss):
Dental Supplies $ 597,819 $ 321,106
Precision Abrasives 158,189 (8,037)
------------- -------------
$ 756,008 $ 313,069
============= =============
</TABLE>
10
<PAGE>
Results of Operations
Three Months Ended September 30, 2000 Compared to Three Months Ended
September 30, 1999
Net sales for the three months ended September 30, 2000 increased $1,531,784
from the three months ended September 30, 1999. Net sales in the Dental Supplies
segment increased $548,009 primarily due to increased sales of the Company's
propriety and patented endodontic (root canal) instruments. Net sales in the
Precision Abrasives segment increased $983,775 from the prior year quarter
primarily as a result of sales of higher priced abrasive films for fiber-optic
polishing applications, which were fully rolled-out as a product line in the
prior fiscal year.
Gross profit for the three months ended September 30, 2000 increased $280,796
from the three months ended September 30, 1999. Gross profit in the Dental
Supplies segment increased $82,375 from $1,396,537 (52.2% of Dental Supplies net
sales) for the three months ended September 30, 1999 to $1,478,912 (45.8% of
Dental Supplies net sales) for the three months ended September 30, 2000. Gross
profit in the Precision Abrasives segment increased from $397,004 (27.8% of
Precision Abrasives net sales) for the three months ended September 30, 1999 to
$595,425 (24.6% of Precision Abrasives net sales) for the three months ended
September 30, 2000. As the Company continues to primarily use the gross profit
method to estimate ending inventories at interim periods, changes in gross
profit as a percentage of net sales are due to changes in the product mix
offered by the Company.
Sales and marketing expenses decreased $111,259 from $589,515 (14.3% of net
sales) for the three months ended September 30, 1999 to $478,256 (8.4% of net
sales) for the three months ended September 30, 2000 primarily as a result of
decreased advertising charges and other cost containment measures. General and
administrative expenses decreased $52,750 from $889,065 (21.6% of net sales) for
the three months ended September 30, 1999 to $ 836,315 (14.8% of net sales) for
the three months ended September 30, 2000 due to reduced legal expenses in
regard to the Dentsply litigation, which was settled subsequent to the quarter
ended September 30, 2000. (See discussion of legal proceedings in Footnote No. 5
to the Consolidated Financial Statements of this Form 10-QSB.)
Research and development expenses and interest income remained relatively
constant between periods.
Although the Company maintained lower levels of borrowing than in the same
period of the prior year, net interest expense increased, due to a rise in the
interest rate on the primary line of credit between the two periods. The
interest rate on the Company's primary line of credit was 9.50% and 8.25% at
September 30, 2000 and 1999, respectively.
In April 1999, certain coating equipment, utilized in the manufacture of
abrasive materials in the Precision Abrasives segment, was damaged at the
Company's Montgomeryville facility. As a result, the Company received proceeds
under its insurance coverage of $200,000 during the three months ended June 30,
1999, $135,000 during the three months ended September 30, 1999, and $180,000
during the three months ended March 31, 2000, which was used to replace a
portion of the damaged equipment and resolve a business interruption claim.
Liquidity and Capital Resources
Historically, the Company's primary source of liquidity has been cash flow from
operations. These funds, combined with borrowings under lines of credit and
long-term debt agreements with both banks and municipal authorities, have
provided the liquidity to finance the Company's capital expenditures.
Substantially all of the Company's assets are pledged as collateral for its
long-term borrowings.
Expenditures for property, plant and equipment totaled $181,036 for the three
months ended September 30, 2000 and $69,462 for the three months ended September
30, 1999.
11
<PAGE>
For the three months ended September 30, 2000 and 1999, the Company made
payments on long-term debt of $162,574 and $198,400 respectively.
The Company has a commitment for a $3,000,000 line of credit with a bank which
expires on December 31, 2000. The Company is negotiating with the bank to renew
this arrangement, and believes that it will be able to do so under similar
borrowing terms. The line of credit bears interest at the bank's prime rate
(9.50% at September 30, 2000) and is secured by substantially all of the
Company's assets. During the three months ended September 30, 2000, the Company
borrowed $250,000 under this line of credit.
The Company expects to spend approximately $1,500,000 in fiscal 2000 on capital
expenditures, primarily for precision abrasive and dental instrument
manufacturing equipment. In addition, the Company is obligated to pay $246,064
over two years relating to the 1997 settlement of the foot powder matter, as
disclosed in the Company's annual financial statements for the year ended June
30, 2000. The Company anticipates that sufficient cash will be generated from
operations to fund these payments and expenditures and, to the extent they are
not, they will be funded using the Company's credit facilities.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Dentsply Litigation
On April 22, 1998, the Company was served with a complaint in the United
States Court for the Middle District of Pennsylvania by Dentsply claiming
infringement of a Dentsply patent by the Company's manufacturing process
to fabricate nickel titanium endodontic (root canal) instruments. By
amendment, a claim for infringement of a second related patent was later
added. The Company retained counsel to vigorously defend against the
Dentsply complaint, which management believes to have been without basis.
The Company asserted defenses which management believes to have been
meritorious. In addition, the Company filed counterclaims alleging, among
other things, that Dentsply was infringing upon three Company patents,
violating the Sherman Antitrust Act and the Lanham Act, and interfering
with the Company's business relationships.
Subsequent to the quarter ended September 30, 2000, the two parties
reached a settlement of their respective claims, and entered into two
license agreements. Dentsply licensed from Moyco three United States and
related foreign patents covering inventions related to endodontic
instrument tips. Moyco licensed from Dentsply four United States patents
covering various inventions related to nickel titanium endodontic
instruments. The parties have agreed to release each other from all claims
pending in the U.S. District Court for the Middle District of
Pennsylvania. Royalties earned and/or paid under those agreements will be
based on sales of licensed products beginning January 1, 2001.
The Company is currently engaged in discussions to finalize fees and
expenses incurred in the Dentsply litigation. As of this date, no final
determination can be made, although as of September 30, 2000 the Company
has accrued for what it believes to be its liability for such fees and
expenses.
ITEM 6. Exhibits and Reports on Form 8-K
(a) The following is a list of exhibits filed as part of the Form 10-Q.
27.0 Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for information
only, and not filed.
(b) Reports on Form 8-K: No reports on Form 8-K were filed by the
registrant during the quarter ended September 30, 2000.
13
<PAGE>
SIGNATURES
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.
MOYCO TECHNOLOGIES, INC.
Dated: November 22, 2000 BY: /s/ Marvin E. Sternberg
--------------------------------------------
Marvin E. Sternberg
Chairman of the Board, President
and Chief Executive Officer (Principal
Executive Officer) and Director
Dated: November 22, 2000 BY: /s/ William G. Woodhead
--------------------------------------------
William G. Woodhead
Secretary/Treasurer, Principal Financial
Officer and Principal Accounting Officer
and Director
14
