<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2000
Commission File No. 0-4123
MOYCO TECHNOLOGIES, INC.
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(Exact name of Registrant as specified in its charter)
Pennsylvania 23-1697233
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
200 Commerce Drive
Montgomeryville, Pennsylvania 18936
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 855-4300
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.005 per share
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(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value, based on the closing price of such stock as reported
by NASDAQ, of the voting stock (Common stock) held by non-affiliates of the
Registrant as of September 9, 2000 was $4,121,792.
For purposes of making this calculation only, the Registrant has defined
affiliates as including all directors, executive officers and beneficial owners
of more than 10% of the Common stock of the Registrant.
As of September 9, 2000, the number of shares outstanding of the Registrant's
Common stock was 5,034,392.
<PAGE>
PART I
ITEM 1. BUSINESS.
Moyco Technologies, Inc. and subsidiaries was incorporated in 1968 under the
laws of the Commonwealth of Pennsylvania. As used herein, the term "Moyco" or
the "Company," includes Moyco Technologies, Inc. and subsidiaries unless the
context otherwise indicates.
General
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 sale to the professional dental
market. 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 works closely with customers to develop specific products to
meet each customer's unique finishing requirements.
In August 1996, the Company acquired all of the outstanding Common stock of
Thompson Dental Mfg. Co. ("Thompson"), a manufacturer of dental hand instruments
and related products. Thompson's business activities since the date of
acquisition have been included in the Company's Dental Supplies segment.
Business Segments
Financial information relating to Moyco's two business segments and operations,
both domestically and internationally, is provided in Note 9 of Notes to
Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.
Dental Supplies
Moyco, through its Dental Supplies segment, is engaged in 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 repackaging and distributing of other dental products for sale to the
professional dental market.
The Dental Supplies segment sells products under the "Moyco Union Broach" and
"Thompson" trade names. The Moyco Union Broach product line includes various
patented and/or proprietary products under well-known trade names including, but
not limited to, FLEX-R Files, LIGHTNING Strips, ONYX-R Files, MASTERSOL, and
BEAUTY PINK wax. The Thompson product line offers the professional dental market
various proprietary products such as TACTILE TONE hand instruments and the
RE-BAG reusable sterilization pouch.
<PAGE>
All products are generally sold through salaried salespersons to dental supply
wholesalers and distributors serving the professional dental market in the
United States and overseas, as well as to a limited number of end users. During
the years ended June 30, 2000 and 1999, one Dental Supplies segment customer
accounted for 12.4% and 11.9%, respectively, of the Company's total net sales.
Sales in the Dental Supplies segment to overseas customers were 8.7%, 12.1% and
17.5% of total net sales for the years ended June 30, 2000, 1999 and 1998,
respectively. See Note 9 of Notes to Consolidated Financial Statements.
Sales of the Company's endodontic (root canal) instruments accounted for 36.8%,
25.6% and 24.0% of the Company's total net sales for the years ended June 30,
2000, 1999 and 1998, respectively. Certain of these instruments are subject to
litigation with DENTSPLY International Inc. ("Dentsply"). (See discussion of
legal proceedings in Part I, Item 3 of this Form 10-K).
While the sales growth of the U.S. dental supplies business has been slower than
other industries during the past five years, endodontic (root canal) instrument,
material and equipment sales are increasing at a higher rate due to the aging of
the U.S. population, expansion of dental services offered by general dentists,
and the attractive economics of endodontics. With regard to Moyco's patented
line of nickel titanium endodontic instruments, after the dentist is properly
trained, use of these items will usually significantly reduce patient "chair
time" and potential complications which occur during traditional root canal
therapy. The Dental Supplies segment's strength, endodontic instruments, should
provide various opportunities for growth. Nevertheless, with regard to all of
the other product lines manufactured by the Dental Supplies segment and
endodontic instrument business in certain international territories, the Company
continues to experience price sensitivity of its customer base which only allows
for nominal product price increases.
During the fiscal year, Moyco introduced various innovative and proprietary
endodontic (root canal) products which are expected to compliment popular Moyco
Union Broach products and to fully integrate the endodontic product line. These
products, such as POW-R .06 coronal shapers, SLIDE file lubricant, Sprint TCM
Motor and the MARK V apex locator, will allow Moyco to market complete
endodontic systems to dental professionals through seminars sponsored by Moyco
and its network of authorized distributors. To further expand its endodontic
product offering, Moyco, through its Thompson product line, also manufactured
and marketed several new endodontic hand instruments featuring proprietary
color-coded tactile tone grips to reduce hand stress. Research and development
focusing on endodontic products continues.
Precision Abrasives
Moyco, through its Precision Abrasives segment, is engaged in the manufacture of
commercial abrasive materials under the name "Flex-I-Grit" and the production of
extremely fine sub-micron and namometer abrasive films and slurries under the
trademark "Ultralap." Moyco also manufactures slurries (wet abrasives) for
various fine finishing procedures. The Company's abrasives are often
manufactured to the specifications of customers for various unique fine
polishing requirements.
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Moyco's abrasive films are manufactured for more than twenty different
applications and, therefore, are made in numerous varieties which take into
account many factors such as (i) type of grit (i.e., aluminum oxide, diamond,
cerium, etc.), (ii) grit size, (iii) grit consistency, (iv) color, (v) type of
backing or substrate, (vi) finished product delivery type (i.e., rolls, disks,
sheets, strips, etc.) and (vii) customer requirements. The Company sells its
precision abrasive products to the following markets: semiconductor and other
high-tech manufacturing, fiber optics, dentistry, lapping gem, toy and hobby,
imaging, automotive parts, finger nail, ceramic roll and other markets which
require fine polishing, lapping and finishing films and/or slurries.
Moyco's abrasives made for the toy and hobby industry ("Flexi-I-Grit") are sold
by a master distributor and other repackers through the use of private label
arrangements, while the "Ultralap" products are sold by the Company's salesmen
either directly to end users or to distributors. Sales in the Precision
Abrasives segment to overseas customers were 12.2%, 7.9% and 4.9% of total net
sales for the years ended June 30, 2000, 1999 and 1998, respectively. See Note 9
of Notes to Consolidated Financial Statements.
Backlog
There is a backlog of orders in the aggregate of $1,711,948 as of June 30, 2000.
There had been a backlog of orders in the aggregate of $2,076,024 as of June 30,
1999. Approximately 27.3% and 75.9% of the backlog at June 30, 2000 and 1999,
respectively, relates to the Precision Abrasives segment.
Sources and Availability of Supplies
The Company procures its raw materials and supplies from various sources and
does not expect to have any difficulty in procurement during the coming year or
the foreseeable future.
Patents, Trademarks and Licenses
The Company's ability to compete effectively with other companies depends, in
part, on its ability to protect and maintain the proprietary nature of its
technology. The Company owns 9 United States patents, 1 Japanese patent and a
number of issued foreign patents and pending patent applications for its
products. The Company plans to continue to patent inventions which may provide
commercial benefit. Currently, the Company has two patent applications pending
for a new endodontic instrument design and manufacturing process. In addition,
the Company is reviewing the possibility of filing several new applications
related to both its dental and abrasives technologies. The Company treats its
design and technical data as confidential, and relies on nondisclosure
safeguards, such as confidentiality agreements, laws protecting trade secrets
and agreements to protect proprietary information. The Company has incurred
substantial costs in enforcing its patents against infringement by others and
defending itself against similar claims of others. Although the Company has been
successful to date in disputes involving the validity and enforceability of its
patents and in defending itself against claims by others of patent infringement,
there can be no assurance that the Company will continue to be successful in
such matters in the future or that the Company's patents or other proprietary
rights, even if
<PAGE>
continuing to be held valid, will be broad enough in scope to enable the Company
to prevent third parties from producing products using similar technologies or
processes. The Company also has registered various trademarks which have
assisted the Company in building brand identity and loyalty.
Research and Development
The Company engages in research activities directed toward the development of
new products relating to current product lines and the improvement of existing
products. Spending for research and development totaled $43,842, $37,857 and
$986,690, for the years ended June 30, 2000, 1999 and 1998, respectively.
Competition
All of the lines of business in which the Company is presently engaged are
highly competitive. There are numerous other manufacturers, many of which are
larger and have greater financial resources and more sales representatives than
the Company. The Company's material competitors in its Precision Abrasives
segment are: Minnesota Mining and Manufacturing Company, Nippon Mining Company
and Norton Corporation. The Company's material competitors in its Dental
Supplies segment are: Dentsply, Sybron International Corporation, Premier
Dental, Hu-Friedy, Coltene Whaledent, American Eagle, Nordent and Miltex.
Employees
As of June 30, 2000, the Company employs 169 persons, of whom 129 are involved
in manufacturing products for the Precision Abrasives and Dental Supplies
segments, and 40 are engaged in administration, sales, engineering, supervision
and clerical work. The Company has had no work stoppages and considers its
relationship with its employees to be good.
Regulatory Matters
The manufacture, packaging, labeling, advertising, promotion, distribution and
sale of the Company's products are subject to regulation by numerous national
and local governmental agencies in the United States and other countries. In the
United States, the Food and Drug Administration (FDA) regulates the Company's
Dental Supplies line under the Food, Drug, and Cosmetic Act ("FDC Act") and
regulations promulgated thereunder. Advertising and other forms of promotion and
methods of marketing of the Company's products are subject to regulation by the
Federal Trade Commission ("FTC") under the Federal Trade Commission Act ("FTC
Act").
Other
The Company believes it produces no significant discharges of waste or
pollutants into the environment, and there are no significant effects on the
Company in complying with current Federal, state and local environmental laws
and regulations.
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ITEM 2. PROPERTIES.
The Company is the owner of three buildings. The Montgomeryville, Pennsylvania,
facility is a one-story, cinder block building containing approximately 40,125
square feet, of which 14,250 square feet are used for manufacturing; 19,875
square feet for warehousing and 6,000 square feet for offices. This facility is
primarily used for the manufacture of precision abrasives. The York,
Pennsylvania, facility is 68,995 square feet, of which approximately 45,807
square feet are used for manufacturing; 16,542 for warehousing and 6,646 for
offices. The Missoula, Montana, facility is 9,600 square feet, of which
approximately 7,800 square feet are used for manufacturing and warehousing and
1,800 square feet for offices. The York, Pennsylvania, and Missoula, Montana,
facilities are used by the Company's Dental Supplies segment. There are
mortgages on all of the Company's properties. Moyco's facilities are suitable
for their respective uses and are, in general, adequate for Moyco's present
needs. If the Company requires additional capacity, the facility in York has
additional space available for warehousing, manufacturing and office personnel.
The building, which may be expanded up to 160,000 square feet, is zoned for
expansion and was built with two removable walls.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
As of the date of this Form 10-K, other than the litigation filed against the
Company by Dentsply (which is described below), the Company was not involved in
any material legal proceedings, other than ordinary litigation incidental to the
business and, specifically, was not involved in any material environmental
litigation or governmental 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 International, Inc.
(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 believed to be without basis. The Company
asserted defenses which management believed meritorious. In addition, the
Company filed counterclaims alleging, among other things, that Dentsply is
infringing three Company patents, violating the Sherman Antitrust Act and the
Lanham Act, and interfering with the Company's business relationships.
Subsequent to the fiscal year ended June 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 June 30, 2000 the Company has accrued for what it
believes to be its liability for such fees and expenses.
Foot Powder Settlement
During calender year 1997, the Company settled a Government investigation of
Itch-Away Foot Powder which the Company manfactured and sold pursuant to
contracts with the United States Defense Department. The Compay entered into a
civil settlement of the matter agreeing to pay the Government a total of
$505,000, without interest. These payments are secured by an irrevocable letter
of credit obtained by the Company from a bank. The Company made the first
payment of $100,000 in August 1997, the second payment of $101,250 in August
1998, the third payment of $101,250 in August 1999, the fourth payment of
$101,250 in August 2000, and will make one similar payment in August 2001. In
connection with this matter, the Company was fined $350,000, which is payable in
five annual installments commencing in January 1998. The Company has paid the
first, second and third installments. Interest is payable at 5.42% per year and
is due with the final payment.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
Since October 20, 1998, Moyco's Common stock has been traded on the NASDAQ
SmallCap Market. Between January 26, 1996, and October 19, 1998, the Company's
Common stock was traded on the NASDAQ National Market, and prior to that time
was traded in the over-the-counter market between dealers in securities.
The following table sets forth the high and low sales prices per share (adjusted
to give retroactive effect to the respective 10% stock dividends issued on
September 30, 1998 and November 24, 1999) for each quarter during fiscal year
2000 and 1999 based on NASDAQ SmallCap and National Market Composite
Transactions.
High Low
---- ---
First quarter ended September 30, 1999 $1.78 $1.13
Second quarter ended December 31, 1999 1.75 0.88
Third quarter ended March 31, 2000 8.00 1.00
Fourth quarter ended June 30, 2000 4.06 1.50
High Low
---- ---
First quarter ended September 30, 1998 $3.85 $2.90
Second quarter ended December 31, 1998 2.20 1.10
Third quarter ended March 31, 1999 1.52 1.13
Fourth quarter ended June 30, 1999 1.83 1.10
The number of shareholders of record at June 30, 2000 was 698, which excludes
shareholders whose shares are held in nominee or "street" name by brokers.
The Company has never paid cash dividends on its common stock. The Company's
anticipated capital requirements are such that it intends to follow a policy of
retaining earnings in order to finance the development of its business.
In September 1998, the Company declared a 10% stock dividend to shareholders of
record as of September 18, 1998. The new shares were distributed to shareholders
on September 30, 1998. A total of $1,123,926, representing the fair market value
(based on the quoted market price) of the additional shares issued were charged
to retained earnings, with $2,366 and $1,121,560 credited to Common Stock and
additional paid-in capital, respectively, effective June 30, 1998. All earnings
(loss) per Common share data, shares used in computing earnings (loss) per
Common share and all share and option balances and prices were restated to give
retroactive effect to the 10% stock dividend.
In October 1999, the Company declared a 10% stock dividend to shareholders of
record as of November 3, 1999. The new shares were distributed to shareholders
on November 24, 1999. A total of $680,271, representing the fair market value
(based on the quoted market price) of the additional shares issued were charged
to retained earnings, with $2,603 and $677,668 credited to Common stock and
additional paid-in capital, respectively, effective on the date such dividend
was declared. All earnings (loss) per Common share data, shares used in
computing earnings (loss) per Common share and all share and option balances and
prices were restated to give retroactive effect to the 10% stock dividend.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
Selected consolidated statement of operations data:
<TABLE>
<CAPTION>
For the Year Ended June 30
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2000 1999 1998 1997(3) 1996
---- ---- ---- ------- ----
<S> <C> <C> <C> <C> <C>
NET SALES $17,676,513 $15,062,944 $15,337,641 $13,982,927 $11,914,303
COST OF GOODS SOLD 10,555,090 8,796,706 8,559,554 8,581,493 7,293,200
---------- --------- --------- --------- ---------
Gross profit 7,121,423 6,266,238 6,778,087 5,401,434 4,621,103
OPERATING EXPENSES(1) 5,591,850 6,656,528 6,756,281 6,296,883 3,268,965
--------- --------- --------- --------- ---------
Income (loss) from
operations 1,529,573 (390,290) 21,806 (895,449) 1,352,138
INTEREST (EXPENSE) AND OTHER
INCOME, net (2) (188,349) (279,972) 1,362,333 (492,783) (420,605)
INCOME TAX BENEFIT (EXPENSE) (583,816) 234,461 (322,810) 379,604 (186,394)
-------- ------- -------- ------- --------
NET INCOME (LOSS) $757,408 $(435,801) $1,061,329 $(1,008,628) $745,139
======== ========= ========== ============ ========
BASIC EARNINGS (LOSS) PER COMMON
SHARE(4) $0.15 $(0.09) $0.21 $(0.20) $0.15
===== ====== ===== ======= =====
DILUTED EARNINGS (LOSS) PER COMMON
SHARE(4) $0.15 $(0.09) $0.21 $(0.20) $0.15
===== ====== ===== ======= =====
</TABLE>
(1) In fiscal 1998, the Company made a one-time payment of $775,000 relating to
certain research and development fees. See Note 3 of Notes to Consolidated
Financial Statements.
(2) On December 31, 1997, the Company sold its chemical mechanical
planarization ("CMP") assets and CMP business product line for the
electronics industry and related intellectual property to EKC Technology,
Inc. ("EKC"), a subsidiary of ChemFirst Inc. for $2,450,000 in cash, as
well as a deferred payment by EKC contingent on sales of CMP products
during the period through June 30, 2000, and varying royalties based on
sales of CMP products through 2004. This transaction resulted in a pre-tax
gain of $1,660,483 for the Company in fiscal 1998. See Note 14 of Notes to
Consolidated Financial Statements.
Also on December 31, 1997, the Company sold certain particle dispersion
technology to Nanophase Technologies Corporation ("Nanophase") for $223,000
in cash, resulting in a one-time pre-tax gain of $223,000.
<PAGE>
(3) On August 8, 1996, the Company acquired all of the outstanding Common stock
of Thompson, a manufacturer of dental hand instruments and related
products. The acquisition was accounted for as a purchase business
combination. See Note 2 of Notes to Consolidated Financial Statements.
(4) As adjusted to give retroactive effect to the respective 10% stock
dividends issued on September 30, 1998 and November 24, 1999. See Note 3 of
Notes to Consolidated Financial Statements.
Selected consolidated balance sheet data:
<TABLE>
<CAPTION>
June 30
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2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital $5,967,384 $5,159,438 $5,575,453 $3,729,300 $4,717,373
========== ========== ========== ========== ==========
Total assets $16,709,055 $16,205,774 $15,739,912 $15,044,732 $12,544,014
=========== =========== =========== =========== ===========
Capital lease obligations,
excluding current portion $328,378 $292,976 $152,533 $-- $--
======== ======== ======== === ===
Long-term debt, excluding current
portion $5,400,064 $5,436,092 $5,793,718 $5,255,263 $5,616,112
========== ========== ========== ========== ==========
Shareholders' equity $6,267,781 $5,427,118 $5,879,969 $4,820,565 $4,975,488
========== ========== ========== ========== ==========
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 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 and similar matters. The Private
Securities Litigation Reform Act of 1995 provides 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,"
"should," "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; (v)
dependence on the services of the Company's executive officers, and other key
operations and technical personnel; (vi) legal proceedings (See discussion of
legal proceedings in Part I, Item 3 of this Form 10-K.); and (vii) the effects
of the casualty loss at one of the Company's manufacturing facilities (See
discussion of casualty loss below).
Overview
Over the past five years, Moyco increased sales from $11.9 million to $17.7
million. This growth is the result of many factors including acquisitions,
strategic alliances and the introduction of new products.
The Company recorded net income of $757,408 for fiscal 2000 primarily due to
increased demand for fiber optic polishing films. This net income was achieved
despite a decrease in net revenues from international customers in the Dental
Supplies segment and incurred expenses for the on-going introduction of a new
sales, marketing and growth strategy in the Precision Abrasives segment. The
Precision Abrasives segment has targeted four applications and markets to
generate additional revenues for its precision lapping films and slurries. The
growth strategy is to target specific opportunities related to the finishing and
polishing of computer heads, ceramic rolls and automotive parts. As a result of
continued growth of fiber optic technologies for the home and workplace, sales
of fiber optic polishing films are expected to exceed current levels in the
immediate future. The Company will continue to invest in product development in
order to serve this growing market.
<PAGE>
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.
In January, 2000, an officer of the Company transferred 181,500 shares of the
Company's common stock in payment of certain legal fees owing to the Company's
counsel in the Dentsply litigation, which has been incurred and recorded by the
Company in the prior fiscal year. The Company issued its promissory note in the
principal amount of $257,000, the stipulated value of the shares transferred by
the officer. The note is payable in full on December 31, 2002. Interest at the
annual rate of 10% is payable on December 31 of each year, but the Company may
elect to defer payment of interest and add it to the principal amount due.
In June, 2000, the Company issued 30,000 shares of restricted common stock
valued at approximately $78,750 on date of issuance, to a consulting firm for
professional services to review and evaluate strategic alternatives, including
but not limited to mergers, acquisitions, and spin-off of business segments, and
thereafter implement a plan to increase shareholder value. The Company believes
that the value of the services to be rendered by the consultant to be
equivalent to the value of the shares on the date of issuance.
Summary
The following table sets forth for the periods indicated the Company's key
financial information by segment.
For the Year Ended June 30
---------------------------------------------
2000 1999 1998
---- ---- ----
Net sales:
Dental Supplies $11,025,916 $10,319,202 $10,915,768
Precision Abrasives 6,650,597 4,743,742 4,421,873
--------- --------- ---------
$17,676,513 $15,062,944 $15,337,641
=========== =========== ===========
Gross profit:
Dental Supplies $5,241,989 $5,058,017 $5,336,168
Precision Abrasives 1,879,434 1,208,221 1,441,919
--------- --------- ---------
$7,121,423 $6,266,238 $6,778,087
========= ========== ==========
Operating income (loss):
Dental Supplies $1,202,237 $140,814 $1,365,562
Precision Abrasives 327,336 (531,104) (1,343,756)
------- --------- -----------
$1,529,573 $(390,290) $21,806
========= ========== =======
<PAGE>
Results of Operations
Year Ended June 30, 2000 Compared to Year Ended June 30, 1999
Net sales in fiscal 2000 totaled $17,676,513, an increase of $2,613,569 from
fiscal 1999 sales of $15,062,944. Net sales in the Dental Supplies segment
increased $706,714 primarily due to an increase in the sales of the Company's
proprietary and patented endodontic (root canal) instruments. Net sales in the
Precision Abrasives segment increased $1,906,855 primarily resulting from the
full rollout in fiscal 2000 of new proprietary abrasive films for fiber-optic
polishing applications. These films were first introduced in the prior fiscal
year. In addition, the Company secured several new customers for this product
line.
Gross profit increased $855,185 from fiscal 1999. As a result of the increased
sales, the gross profit in the Dental Supplies segment increased $183,972 from
$5,058,017 (49.0% of Dental Supplies net sales) in fiscal 1999 to $5,241,989
(47.5% of Dental Supplies net sales) in fiscal 2000. Materials cost increases
accounted for the reduction in gross profit as a percentage of sales. The gross
profit in the Precision Abrasives segment increased $671,213 from $1,208,221
(25.5% of Precision Abrasives net sales) in fiscal 1999 to $1,879,434 (28.3% of
Precision Abrasives net sales) in fiscal 2000. Gross profit as a percentage of
net sales in the Dental Supplies segment remained relatively constant between
periods. The improvement in gross profit percentage for the Precision Abrasives
segment is attributable to improved product mix and the casualty loss suffered
in fiscal 1999, which had caused production interruptions and the use of less
efficient manufacturing processes during the period subsequent to the loss.
Operating expenses decreased $1,064,678 from $6,656,528 (44.2% of net sales) in
fiscal 1999 to $5,591,850 (31.6% of net sales) in fiscal 2000. Sales and
marketing expenses decreased $804,639 from $2,808,676 (18.6% of net sales) in
fiscal 1999 to $2,004,037 (11.3% of net sales) in fiscal 2000 primarily as a
result of cost containment measures. General and administrative expenses
decreased $266,024 from $3,809,995 (25.3% of net sales) in fiscal 1999 to
$3,543,971 (20.0% of net sales) in fiscal 2000 due to a lower level of legal
fees incurred in defending the Dentsply litigation. The Company settled the
Dentsply litigation subsequent to the close of fiscal 2000. (See discussion of
legal proceedings in Part I, Item 3 of this Form 10-K).
Interest expense decreased largely due to the full year effect of the debt
renegotiation that the Company accomplished in late fiscal 1999. Interest income
remained relatively constant between periods. The increase in income tax expense
is attributable to the higher level of profitablility.
<PAGE>
Year Ended June 30, 1999 Compared to Year Ended June 30, 1998
Net sales in fiscal 1999 totaled $15,062,944, a decrease of $274,697 from fiscal
1998 sales of $15,337,641. Net sales in the Dental Supplies segment decreased
$596,566, primarily due to a decrease in international sales offset by an
increase in the sales of the Company's proprietary and patented endodontic (root
canal) instruments. Net sales in the Precision Abrasives segment increased
$321,869 primarily as a result of the introduction of newly developed higher
priced abrasive films for fiber-optic polishing applications.
Gross profit decreased $511,849 from fiscal 1998. As a result of the decreased
sales, the gross profit in the Dental Supplies segment decreased $278,151 from
$5,336,168 (48.9% of Dental Supplies net sales) in fiscal 1998 to $5,058,017
(49.0% of Dental Supplies net sales) in fiscal 1999. The gross profit in the
Precision Abrasives segment decreased $233,698 from $1,441,919 (32.6% of
Precision Abrasives net sales) in fiscal 1998 to $1,208,221 (25.5% of Precision
Abrasives net sales) in fiscal 1999. Gross profit as a percentage of net sales
in the Dental Supplies segment remained relatively constant between periods. The
decrease in gross profit percentage for the Precision Abrasives segment is
attributable to the casualty loss experienced at the Company's Montgomeryville
facility which caused production interruptions and the use of less efficient
manufacturing processes during the period subsequent to the loss.
Operating expenses decreased $99,753 from $6,756,281 (44.1% of net sales) in
fiscal 1998 to $6,656,528 (44.2% of net sales) in fiscal 1999. This decrease was
a result of a $948,833 decrease in research and development expenses as a result
of costs incurred in fiscal 1998 in connection with certain research and
development fees paid to Nanophase, as well as the investment of funds during
the same period to refine the Company's CMP slurry products. Sales and marketing
expenses increased $93,297 from $2,715,379 (17.7% of net sales) in fiscal 1998
to $2,808,676 (18.6% of net sales) in fiscal 1999 primarily as a result of
additional cooperative advertising and education seminars sponsored by the
Company offset by lower sales commissions. General and administrative expenses
increased $755,783 from $3,054,212 (19.9% of net sales) in fiscal 1998 to
$3,809,995 (25.3% of net sales) in fiscal 1999 due to higher legal and
professional fees in connection with the Dentsply litigation.
Interest expense decreased due to a decrease in the average interest rate on the
Company's outstanding debt obligations (from the renegotiation of the rates on
certain mortgages and long-term debt in fiscal 1999) and as a result of lower
average outstanding borrowings on the Company's line of credit. Interest income
remained relatively constant between periods. Other income increased $149,139
due to the receipt of $200,000 in casualty insurance proceeds to replace
equipment damaged as a result of the aforementioned casualty loss at the
Montgomeryville facility.
In fiscal 1998, the Company sold its CMP assets and CMP business product line
for the electronics industry and related intellectual property to EKC, a
subsidiary of ChemFirst Inc. for $2,450,000 in cash, as well as a deferred
payment by EKC contingent on sales of CMP products during the period through
June 30, 2000, and varying royalties based on sales of CMP products through
2004. The additional deferred payment expected to be received for the period
through June 30, 2000 is not significant. This transaction resulted in a pre-tax
gain of $1,660,483 for the Company in fiscal 1998.
Also in fiscal 1998, the Company sold certain particle dispersion technology to
Nanophase for $223,000 in cash, resulting in a one-time pre-tax gain of
$223,000.
<PAGE>
Liquidity and Capital Resources
Historically, the Company's primary source of liquidity has been cash flow from
operations. These funds, combined with borrowings under long-term debt
obligations with both banks and municipal authorities, have provided the
liquidity to finance the Company's capital expenditures and continued
operations. Substantially all of the Company's assets are pledged as collateral
for its long-term debt.
Net cash of $732,998 and ($51,215) was provided by/(used in) operations during
fiscal 2000 and 1999, respectively. Net cash of $1,567,970 was used in
operations in fiscal 1998. In fiscal 2000, the decreasing use of cash between
periods was driven by improved profitability, as offset by increases in
inventory levels and payments to vendors. The decreased cash used in operations
between fiscal 1999 and 1998 was a result of the timing of receivable
collections from customers, changes in the level of inventory maintained by the
Company and payments to vendors offset by an increasing loss from operations and
the timing of payments to taxing authorities.
Working capital at June 30, 2000 and 1999, totaled $5,967,384 and $5,159,438,
respectively. The Company's current ratio at June 30, 2000 and 1999, was 2.3:1
and 2.1:1, respectively.
Expenditures for property, plant and equipment totaled $213,012 in fiscal 2000,
$291,838 in fiscal 1999 and $439,833 in fiscal 1998. The Company received
proceeds of $2,673,000 related to the sale of its CMP assets, the CMP business
product line for the electronics industry and related intellectual property, and
certain particle dispersion technology during fiscal 1998.
Proceeds received from long-term debt were $257,000, $975,000 and $4,260,000 for
fiscal 2000, 1999 and 1998, respectively, which includes proceeds of $750,000
related to a refinancing of a portion of its line of credit with long-term debt
with a bank during fiscal 1999. For fiscal 2000, 1999 and 1998, the Company made
payments on long-term debt and capital lease obligations of $755,817, $1,734,887
and $3,651,897, respectively, which includes payments of $975,000 and $2,562,921
related to refinancing of certain long-term debt during fiscal 1999 and 1998,
respectively.
In June 2000, the Company issued 30,000 shares of restricted common stock,
valued at approximately $78,750 on date of issuance, to a consulting firm for
professional services to review and evaluate strategic alternatives, including
but not limited to mergers, acquisitions, and spin-off of business segments, and
thereafter implement a plan to increase shareholder value.
The Company has a commitment for a $3,000,000 line of credit with a bank which
will expire on December 31, 2000, subject to renewal. Management believes it
will be able to renew the line of credit under similar terms and conditions. The
line of credit bears interest at the prime rate and is secured by substantially
all of the Company's assets. During fiscal 2000, the Company had net borrowings
of $550,000 under this line of credit. In addition, the Company has an
additional convertible line of credit with the same bank to finance legal fees
and related expenses under which it may borrow up to $500,000. Payments are due
in monthly installments based upon the outstanding amount with the final payment
due September 2003. Borrowings under the convertible line of credit bear
interest at prime. During fiscal year 2000, the Company borrowed the maximum
amount available under the convertible line of credit.
<PAGE>
The Company expects to spend approximately $1,500,000 in fiscal 2001 on capital
expenditures, primarily for abrasive and dental instrument manufacturing
equipment. In addition, the Company is obligated to pay $346,314 over two years
relating to the settlement of the foot powder matter. 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.
The Company is constantly evaluating its capital structure and considering
opportunities for strategic alliances, mergers, acquisitions, secondary
offerings, private placements or other transactions. The Company continually
evaluates and considers possible acquisition and/or merger opportunities. Among
other items, the Company would consider the following factors in determining
whether or not to pursue an acquisition or alliance including: (i) synergy with
the Company's current lines of business products, (ii) growth potential, (iii)
return on investment and (iv) technologies. However, at this time, none of the
above opportunities are planned or in process.
The Company believes that inflation has not, and will not, have a material
impact on the Company's financial condition and results of operations.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," SFAS No. 133, as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133 an amendment of FASB Statement No.
133," which must be adopted by the Company in the year ending June 30, 2001,
provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. As the Company does not
currently hold derivative instruments or engage in hedging activities, the
adoption of this pronouncement is expected to have no impact on the Company's
financial position or results of operations.
Section 16 (a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities ("Reporting Persons") to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Reporting persons are required by Rule 16a-3(e) of the Securities and Exchange
commission to furnish the Company with copies of all Section 16(a) forms they
file with the Commission.
Based solely on review of the copies of such forms furnished to the Company
during and with respect to the year ended June 30, 2000, the Company believes
that during the year then ended all Section 16(a) filings applicable to these
Reporting Persons were timely filed.
<PAGE>
Risk Factors
The statements contained in this Form 10-K that are not historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding the expectations, beliefs, intentions or strategies
regarding the future. Additionally, from time to time, the Company or its
representatives have made or may make forward-looking statements, orally or in
writing. Such forward-looking statements may be included in, but are not limited
to, press releases, oral statements made with the approval of an authorized
executive officer or in various filings made by the Company with the Securities
and Exchange Commission. These forward-looking statements reflect the Company's
views as of the date they are made with respect to future events and financial
performance and are, generally, but not exclusively, identified by the use of
such terms as "may," "will," "should," "expect," "anticipate," "intend," "plan,"
"project," "estimate," "believe," "goal," or "continue," or comparable
terminology that involves risks or uncertainties. However, these forward-looking
statements are subject to many uncertainties and risks which could cause the
actual results of the Company to differ materially from any future results
expressed or implied by such statements. Additionally, the Company does not
undertake any obligation to update any forward-looking statements.
The risk factors identified in the cautionary statements below could cause
actual results to differ materially from those suggested in these
forward-looking statements. Also, the Company may, from time to time, set forth
additional risk factors on Forms 10-Q and 8-K. However, the risk factors listed
below or in future reports of the Company are not exhaustive. New risk factors
emerge from time to time, and it is not possible for management to predict all
of such risk factors, nor can it assess the impact of all of such risk factors
on the Company's business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements. Accordingly, forward-looking statements should
not be relied upon as a prediction of actual results. The cautionary statements
below are being made pursuant to the "safe-harbor" provisions of the Private
Securities Litigation Reform Act of 1995 (the "Act"). The Company intends that
all forward-looking statements made, in whatever form, be considered subject to
the Act.
<PAGE>
Changes in the U.S. Dental Health Care System. There has been substantial debate
in the political arena related to prospective changes in the U.S. health care
system. In addition, developments in both the public and the private sector may
significantly affect the financing and delivery of dental health care in the
United States, including the expansion of managed care programs, large dental
practices, franchises, purchasing groups and industry consolidation. Cost
containment has been a major element of these developments. There can be no
assurance that such changes in the financing and delivery of dental health care
will not continue to affect dental capital equipment and supplies procurement
patterns or dictate which procedures will be covered by applicable insurance or
government funded or subsidized programs. The Company also cannot predict the
extent or impact of future legislation or regulations.
Competition. The Company faces substantial competition from other manufacturers.
Competitive pressure could result in price competition or the introduction of
new products by the Company's competitors, which could have an adverse impact on
the Company's revenues and results of operations. In addition, the Company is
engaged in industries characterized by extensive research efforts. Advances in
products and other discoveries or developments could render some of the
Company's products obsolete. Some of the companies with which the Company
competes or may compete in the future have or may have more extensive research,
marketing and manufacturing capabilities and significantly greater financial,
technical and personnel resources than the Company and may be better positioned
to continue to improve their technology in order to compete in evolving
industries.
Governmental Regulation. Government regulation in the U.S. and other countries
is a significant factor in the development, manufacturing and marketing of many
of the Company's products and in the Company's on-going research and development
activities. Specifically, dental devices are subject to United States Food and
Drug Administration ("FDA") approval or clearance before they can be utilized
for clinical studies or sold commercially. The process for obtaining the
necessary approvals and compliance with applicable regulations can be costly and
time consuming. There can be no assurance that regulatory review will not
involve delays or other actions adversely affecting the marketing and sales of
the Company's products. There is no assurance the Company will continue to be
able to obtain required government approvals or successfully comply with such
regulations in a timely and cost-effective manner, if at all, and failure to do
so may have an adverse effect on the Company's financial condition and results
of operation. Further, there can be no assurances that more stringent regulatory
requirements and/or safety and quality standards will not be issued in the
future with an adverse effect on the Company's business. Although the Company
believes that it is in compliance with all applicable regulations of the FDA,
current regulations depend heavily on administrative interpretation and there
can be no assurance that future interpretations made by the FDA or other
regulatory bodies, with possible retroactive effect, will not adversely affect
the Company.
The Company's products are similarly subject to foreign regulating bodies.
Typically, foreign bodies readily allow the Company's products to be traded
within their jurisdictions, based on the fact that the Company's products are
regulated by the FDA. However, there can be no assurance that such foreign
bodies will not impose different, additional requirements that may materially
hamper the Company's ability to compete in overseas markets. The Company has
received CE (Conformite European) certification for its major dental product
lines for European distribution and is constantly evaluating regulatory
requirements in various territories throughout the world to ensure compliance
with same.
<PAGE>
Patents and Proprietary Technologies. The Company's ability to compete
effectively with other companies depends, in part, on its ability to protect and
maintain the proprietary nature of its technology. The Company owns 9 United
States patents, 1 Japanese patent and a number of issued foreign patents and
pending patent applications for its products. The Company plans to continue to
patent inventions which may provide commercial benefit. Currently, the Company
has one patent application pending for a new endodontic instrument design. In
addition, the Company is reviewing the possibility of filing several new
applications related to both its dental and abrasives technologies. The Company
treats its design and technical data as confidential, and relies on
nondisclosure safeguards, such as confidentiality agreements, laws protecting
trade secrets and agreements to protect proprietary information. The Company has
incurred substantial costs in enforcing its patents against infringement by
others and defending itself against similar claims of others. Although the
Company has been successful to date in disputes involving the validity and
enforceability of its patents and in defending itself against claims by others
of patent infringement, there can be no assurance that the Company will continue
to be successful in such matters in the future or that the Company's patents or
other proprietary rights, even if continuing to be held valid, will be broad
enough in scope to enable the Company to prevent third parties from producing
products using similar technologies or processes. The Company recently resolved
patent litigation. See Part I, Item 3.
Product Development. The Company is actively engaged in identifying market needs
and in developing products to satisfy those unmet needs. Such products are not
necessarily in the Company's current business segments. The Company attempts to
validate the existence of such unmet needs as well as the potential revenues,
costs and profits involved in satisfying such needs. There is a material risk
that the Company's competitors may satisfy those needs with more effective or
less expensive products. There is also a material risk that the Company's
estimates of the economic potential from such unmet needs may be incomplete or
inaccurate, or that the products which the Company develops to meet such needs
will be introduced on a timely basis or effective clinically or economically to
gain market acceptance.
Change in Marketing Approach. With regard to the Dental Supplies segment, the
Company plans to fund and/or sponsor various educational programs including, but
not limited to seminars, lectures and demonstrations by industry opinion
leaders. While trade shows, dealer product presentations, advertising and other
traditional marketing strategies will continue, the Company is shifting its
marketing emphasis to professional endorsement of products. The Company believes
that this method of marketing will create greater demand for technique sensitive
products. With regard to the Precision Abrasives segment, the Company plans to
focus on higher margin products. Although the Company believes that this
transition will have a long-term positive financial impact, no assurance can be
given that the actions taken will provide the intended results, or that the
Company will not experience short-term disruptions or an adverse impact of
operations during the transition to this new marketing approach.
Recent Accounting Pronouncements. In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133, as amended by SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 an
amendment of FASB Statement No. 133," which must be adopted by the Company in
the year ending June 30, 2001, provides a comprehensive and consistent standard
for the recognition and measurement of derivatives and hedging activities. As
the Company does not currently hold derivative instruments or engage in hedging
activities, the adoption of this pronouncement is expected to have no impact on
the Company's financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") 101, Revenue Recognition in Financial Statements, which
provides guidance related to revenue recognition based on interpretations and
practices followed by the SEC. SAB 101 was effective the first fiscal quarter of
fiscal years beginning after December 15, 1999 and requires companies to report
any changes in revenue recognition as a cumulative change in accounting
principle at the time of implementation in accordance with Accounting Principles
Board Opinion 20, "Accounting Changes". In March 2000, the SEC issued SAB 101A,
"Amendment: Revenue Recognition in Financial Statements," which delays
implementation of SAB 101. The Company is currently in the process of evaluating
the impact, if any, SAB 101 will have on its financial position or results of
operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest charged on certain of the Company's debt instruments is based on the
lender's prime rate, and is subject to market fluctuation.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Consolidated Financial Statements:
Page
----
Reports of Independent Public Accountants 22
Consolidated Balance Sheets - June 30, 2000 and 1999 24
Consolidated Statements of Operations - For the Years Ended
June 30, 2000, 1999 and 1998 26
Consolidated Statements of Shareholders' Equity - For the Years
Ended June 30, 2000, 1999 and 1998 27
Consolidated Statements of Cash Flows - For the Years Ended
June 30, 2000, 1999 and 1998 28
Notes to Consolidated Financial Statements 29
Schedule II - Valuation and Qualifying Accounts (included
in Part IV of this Form 10-K) 54
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the Consolidated
Financial Statements or notes thereto.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Moyco Technologies, Inc. and subsidiaries
Montgomeryville, PA
We have audited the accompanying consolidated balance sheet of Moyco
Technologies, Inc. and subsidiaries as of June 30, 2000, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year then ended. We have also audited the schedule listed in the
accompanying index for the year ended June 30, 2000. These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Moyco Technologies,
Inc. and subsidiaries at June 30, 2000, and the results of its operations and
its cash flows for the year ended June 30, 2000 in conformity with generally
accepted accounting principles.
Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.
/s/ BDO Seidman, LLP
Philadelphia, Pennsylvania
October 13, 2000
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Moyco Technologies, Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheet of Moyco
Technologies, Inc. (a Pennsylvania corporation) and subsidiaries as of June 30,
1999, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the two years in the period ended June 30,
1999. These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as assessing the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects the financial position of Moyco Technologies, Inc. and
subsidiaries as of June 30, 1999 and the results of their operations and their
cash flows for each of the two years in the period ended June 30, 1999, in
conformity with accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic fiancial
statements taken as a whole. The schedule listed in the Index to Financial
Statements is presented for the purposes of complying with the Securities and
Exchange Commission's rules and regulations and is not a part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements, and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
Philadelphia, Pennsylvania
September 16, 1999
<PAGE>
MOYCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30
-------
ASSETS 2000 1999
------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $2,231,514 $1,752,468
Marketable securities 96,623 -
Accounts receivable, net of reserves of $480,402 and $401,323 2,298,121 2,458,855
Inventories 4,776,207 4,373,256
Note receivable, current portion 131,844 206,107
Other receivables 52,349 212,928
Income tax receivable - 155,872
Deferred income taxes 537,864 475,687
Prepaid expenses 59,748 31,056
------ ------
Total current assets 10,184,270 9,666,229
---------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land 602,433 602,433
Buildings and improvements 4,643,585 4,624,245
Machinery and equipment 6,770,241 6,431,093
Furniture and fixtures 687,465 683,941
Automotive equipment 139,630 139,630
------- -------
12,843,354 12,481,342
Less- Accumulated depreciation and amortization (7,344,954) (6,656,644)
---------- ----------
Net property, plant and equipment 5,498,400 5,824,698
--------- ---------
OTHER ASSETS:
Goodwill, less accumulated amortization of $122,750 and $91,242 349,870 381,378
Note receivable, non-current portion 551,734 -
Other 124,781 333,469
------- -------
Total other assets 1,026,385 714,847
--------- -------
$16,709,055 $16,205,774
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
MOYCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
June 30
-------
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999
------------------------------------ ---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Line of credit $1,250,000 $1,200,000
Current portion of long-term debt 757,878 614,553
Current portion of capital lease obligations 106,955 99,471
Accounts payable 1,361,315 1,968,921
Income taxes payable 46,066 --
Accrued expenses 694,672 623,846
------- -------
Total current liabilities 4,216,886 4,506,791
--------- ---------
CAPITAL LEASE OBLIGATIONS 328,378 292,976
------- -------
LONG-TERM DEBT 5,400,064 5,436,092
--------- ---------
DEFERRED INCOME TAXES 320,232 225,797
------- -------
OTHER LONG-TERM LIABILITIES 175,714 317,000
------- -------
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 and 5,205,547 shares issued 28,807 26,028
Additional paid-in capital 5,864,185 5,103,443
Retained earnings 525,237 448,095
Less- Treasury stock of 726,960 and 660,873
shares at cost (150,448) (150,448)
-------- ---------
Total shareholders' equity 6,267,781 5,427,118
-------------------------- --------- ---------
$16,709,055 $16,205,774
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
MOYCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended June 30
--------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
NET SALES $17,676,513 $15,062,944 $15,337,641
COST OF GOODS SOLD 10,555,090 8,796,706 8,559,554
---------- --------- ---------
Gross profit 7,121,423 6,266,238 6,778,087
OPERATING EXPENSES:
Sales and marketing 2,004,037 2,808,676 2,715,379
Research and development 43,842 37,857 986,690
General and administrative 3,543,971 3,809,995 3,054,212
--------- --------- ---------
Income (loss) from operations 1,529,573 (390,290) 21,806
INTEREST EXPENSE, net (457,568) (522,104) (614,143)
GAIN ON SALE OF CMP BUSINESS -- -- 1,660,483
GAIN ON SALE OF PARTICLE DISPERSION TECHNOLOGY -- -- 223,000
OTHER INCOME, net 269,219 242,132 92,993
------- ------- ------
Income (loss) before income taxes 1,341,224 (670,262) 1,384,139
INCOME TAX (EXPENSE) BENEFIT (583,816) 234,461 (322,810)
-------- ------- ---------
NET INCOME (LOSS) $757,408 $(435,801) $1,061,329
======== ========== =========
BASIC EARNINGS (LOSS) PER COMMON SHARE $0.15 $(0.09) $0.21
===== ======= ====
SHARES USED IN COMPUTING BASIC EARNINGS (LOSS) PER COMMON SHARE 5,034,392 5,001,262 5,007,367
========= ========= =========
DILUTED EARNINGS (LOSS) PER COMMON SHARE $0.15 $(0.09) $0.21
===== ======= =====
SHARES USED IN COMPUTING DILUTED EARNINGS (LOSS) PER COMMON SHARE 5,042,107 5,001,262 5,019,153
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
MOYCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
------------ Paid-In Retained --------------
Shares Amount Capital Earnings Shares Amount Total
------ ------ ------- -------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1997 4,732,215 $23,661 $3,981,584 $946,493 593,875 $(131,173) $4,820,565
Purchase of common stock for treasury -- -- -- -- 600 (2,225) (2,225)
Exercise of common stock options 100 1 299 -- -- -- 300
10% common stock dividend 473,232 2,366 1,121,560 (1,123,926) 59,448 -- --
Net income -- -- -- 1,061,329 -- -- 1,061,329
-- -- -- --------- -- -- ---------
------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998 5,205,547 26,028 5,103,443 883,896 653,923 (133,398) 5,879,969
Purchase of common stock for treasury -- -- -- -- 6,950 (17,050) (17,050)
Net loss -- -- -- (435,801) -- -- (435,801)
-- -- -- --------- -- -- ---------
------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1999 5,205,547 26,028 5,103,443 448,095 660,873 (150,448) 5,427,118
Exercise of common stock options 5,250 26 4,474 -- -- -- 4,500
Issuance of common stock for services 30,000 150 78,600 -- -- -- 78,750
10% common stock dividend 520,555 2,603 677,668 (680,266) 66,087 -- --
Net income -- -- -- 757,408 -- -- 757,408
-- -- -- ------- -- -- -------
------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2000 5,761,352 $28,807 $5,864,185 $525,237 726,960 $(150,448) $6,267,781
========= ======= ========== ======== ======= ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
MOYCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended June 30
--------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $757,408 $(435,801) $1,061,329
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities-
Provision for accounts receivable reserves 79,079 186,662 47,290
Depreciation and amortization 719,823 829,736 834,805
Gain on sale of CMP business -- -- (1,660,483)
Gain on sale of particle dispersion technology -- -- (223,000)
Gain on disposition of property and equipment -- -- (72,000)
Issuance of common stock for services 78,750 -- --
Deferred income taxes 32,258 (133,591) (28,148)
(Increase) decrease in-
Accounts receivable 81,655 (367,979) (603,650)
Note receivable (477,471) 21,000 --
Other receivables 160,579 (141,397) (71,531)
Income tax receivable 155,872 (155,872) --
Inventories (402,951) (38,082) (683,033)
Prepaid taxes and expenses (28,692) 10,970 95,424
Other assets 208,688 47,540 (36,212)
Increase (decrease) in-
Accounts payable (607,606) 645,751 (29,399)
Income taxes payable 46,066 (245,326) 245,326
Other accrued expenses (70,460) (274,826) (444,688)
-------- --------- ---------
Net cash provided by (used in) operating activities 732,998 (51,215) (1,567,970)
------- -------- -----------
INVESTING ACTIVITIES:
Purchases of and deposits on property, plant and equipment (213,012) (291,838) (439,833)
Purchases of marketable securities (96,623) -- (185,904)
Maturities of marketable securities -- 185,904 --
Proceeds from sale of CMP business -- -- 2,450,000
Proceeds from sale of particle dispersion technology -- -- 223,000
Proceeds from disposition of property and equipment -- -- 72,000
--- -- ------
Net cash provided by (used in) investing activities (309,635) (105,934) 2,119,263
-------- --------- ---------
FINANCING ACTIVITIES:
Net borrowings (repayments) under line of credit 550,000 1,200,000 (1,125,000)
Proceeds from long-term debt 257,000 975,000 4,260,000
Payments of capital lease obligations (106,114) (100,238) (35,946)
Payments of long-term debt (649,703) (1,634,649) (3,615,951)
Proceeds from exercise of stock options 4,500 -- 300
Purchase of common stock for treasury -- (17,050) (2,225)
-- -------- -------
Net cash provided by (used in) financing activities 55,683 423,063 (518,822)
------- ------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 479,046 265,914 32,471
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,752,468 1,486,554 1,454,083
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $2,231,514 $1,752,468 $1,486,554
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $530,986 $586,224 $488,688
======== ======== ========
Income taxes paid $430,383 $510,000 $--
======== ======== ===
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
MOYCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
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. ACQUISITION:
In August 1996, the Company acquired all of the outstanding Common stock of
Thompson Dental Mfg. Co. ("Thompson"), a manufacturer of dental hand instruments
and related products, for 115,000 shares of the Company's Common stock and an
additional $450,000 cash "earn-out" payable to the selling shareholders over
seven years, contingent upon Thompson meeting certain sales targets. The
acquisition was accounted for under the purchase method of accounting. The fixed
portion of the purchase price of $911,154 includes $862,500 for the 115,000
shares issued and $48,654 for transaction costs. The $450,000 contingent portion
of the purchase price, if any, will be recorded when earned. The purchase price
was allocated to identifiable assets and liabilities based on their estimated
fair values. The $472,620 excess of the purchase price over the fair value of
the net assets acquired was allocated to goodwill and is being amortized on a
straight-line basis over 15 years.
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
all of its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
<PAGE>
Management's Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Statements of Cash Flows
For the purpose of determining cash flows, the Company considers all highly
liquid investment instruments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents consist of certificates
of deposit and investments in money market accounts. Interest income earned on
the investment of cash was $88,507, $56,427 and $60,812 for the years ended June
30, 2000, 1999 and 1998, respectively. The Company incurred $149,000, $268,210
and $224,475 of capital lease obligations during the years ended June 30, 2000,
1999 and 1998, respectively. During the year ended June 30, 1999, the Company
and a customer agreed to convert $227,107 in accounts receivable into a note
receivable due in the year ending June 30, 2000. During the year ended June 30,
2000, the Company and the customer amended the original note and agreed to
convert an additional $449,593 in accounts receivable into a new note
receivable. The amended note receivable is due in monthly installments of
$18,797 including interest calculated at 15%, through the year ending June 30,
2003.
Marketable Securities
Investments in marketable securities are categorized as either trading,
available-for-sale or held-to-maturity. On June 30, 2000, marketable securities
consisted of certificates of deposit with contractual maturities of less than
one year which the Company plans to hold to maturity. The certificates of
deposit are stated at amortized cost.
Inventories
Inventories are valued at the lower of cost, determined on the first-in,
first-out method, or market.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Significant additions or
improvements are capitalized, while repairs and maintenance are charged to
expense as incurred. Depreciation and amortization expense is provided on a
straight-line basis over the estimated useful lives of the assets as follows:
Buildings and improvements 10-25 years
Machinery and equipment 5-10 years
Furniture and fixtures 5-10 years
Automotive equipment 3 years
Interest expense related to and incurred during the construction period of
buildings is capitalized as part of the cost of such assets and depreciated over
the estimated useful life of the building. Depreciation and amortization expense
related to property, plant and equipment including depreciation and amortization
expense on equipment under capital leases (see Note 11) was $671,135, $771,050
and $794,539, for the years ended June 30, 2000, 1999 and 1998, respectively.
<PAGE>
Goodwill
Goodwill represents the excess of the purchase price of the Thompson acquisition
over the estimated fair value of the net assets acquired. Goodwill is being
amortized on a straight-line basis over 15 years. Amortization expense was
$31,508 for the each of the three years in the periods ended June 30, 2000, 1999
and 1998.
Long-Lived Assets
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," the Company records impairment losses on long-lived assets used
in operations whenever events or circumstances indicate that the carrying amount
of an asset may not be recoverable. An impairment is recognized to the extent
that the sum of undiscounted estimated future cash flows expected to result from
use of the assets is less than the carrying value. As of June 30, 2000,
management has evaluated the Company's asset base, under the guidelines
established by SFAS No. 121, and believes that no impairment has occurred.
Fair Value of Financial Instruments
For certain of the Company's financial instruments, including accounts
receivable, notes receivable, marketable securities, accounts payable and
accrued expenses, management believes that the carrying amounts approximate fair
value due to their short maturities. The carrying amount and estimated fair
value of debt, at June 30, 2000 is $6,157,942 and $5,407,950, respectively, and
$6,050,645 and $5,314,196, respectively, at June 30, 1999
Revenue Recognition
The Company recognizes revenue upon the shipment of its products.
<PAGE>
Research and Development
Research and development costs are charged to expense as incurred. During the
year ended June 30, 1998, the Company made a one-time payment of $775,000
relating to certain research and development fees. This payment was included in
research and development expense in the accompanying consolidated statement of
operations for the year ended June 30, 1998.
Advertising Costs
Advertising costs are charged to expense as incurred. The amounts charged to
sales and marketing expense in the accompanying consolidated statements of
operations for the years ended June 30, 2000, 1999 and 1998, were $207,467,
$336,831 and $321,027, respectively.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, the liability method is used
for income taxes. Under this method, deferred tax assets or liabilities are
determined based on the differences between the financial reporting and tax
basis of assets and liabilities and are measured using enacted tax rates and the
laws that are expected to be in effect when the differences reverse.
Earnings (Loss) per Common Share
The Company has provided basic and diluted earnings (loss) per Common share
pursuant to SFAS No. 128, "Earnings per Share." SFAS No. 128 requires dual
presentation of basic and diluted earnings (loss) per share for complex capital
structures on the face of the statements of operations. According to SFAS No.
128, basic earnings (loss) per share is calculated by dividing net income (loss)
available to Common shareholders by the weighted average number of Common shares
outstanding for the period. Diluted earnings (loss) 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 (loss) per Common share computations. All share, per
share, options to purchase shares, and option exercise prices per share have
been adjusted to give retroactive effect to the respective 10% stock dividends
issued on September 30, 1998 and November 24, 1999, (see below):
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended June 30,
2000
----
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- ------
<S> <C> <C> <C>
Basic earnings per Common share
Net income $757,408 5,034,392 $0.15
Effect of dilutive securities
Stock options -- 7,715
Diluted loss per Common share
Net loss and assumed conversions $757,408 5,042,107 $0.15
======== ========= =====
For the Year Ended June 30,
1999
----
Loss Shares Per Share
(Numerator) (Denominator) Amount
Basic loss per Common share
Net loss $(435,801) 5,001,262 $(0.09)
Effect of dilutive securities
Stock options -- --
Diluted loss per Common share
Net loss and assumed conversions $(435,801) 5,001,262 $(0.09)
========== ========= ======
For the Year Ended June 30,
1998
----
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- ------
Basic earnings per Common share
Net income $1,061,329 5,007,367 $0.21
Effect of dilutive securities
Stock options -- 11,786
Diluted earnings per Common share
Net income and assumed conversions $1,061,329 5,019,153 $0.21
========== ========= =====
</TABLE>
Options to purchase 27,649 shares of Common stock with an average exercise price
per share of $2.80 were outstanding during the year ended June 30, 1999, but
were not included in the computation of diluted loss per Common share because
the Company had a net loss for the year and all outstanding options would have
been anti-dilutive. The options, which expire at various times through December
2006, were still outstanding as of June 30, 2000. Options to purchase 5,415 and
5,957 shares of Common stock with an average exercise price per share of $5.37
and $4.83 were outstanding during the years ended June 30, 1998 and 2000,
respectively, but were not included in the computation of diluted earnings per
Common share because the options' exercise prices were greater than the average
market price of the Common shares during the period.
<PAGE>
Stock Dividend
In September 1998, the Company, prior to the filing of its annual report on Form
10-K for the fiscal year ended June 30, 1998, declared a 10% stock dividend to
shareholders of record as of September 18, 1998. The new shares were distributed
to shareholders on September 30, 1998. Amounts equal to the fair market value
(based on the quoted market price) of the additional shares issued were charged
to retained earnings and credited to common stock and additional paid-in capital
effective June 30, 1998. Earnings (loss) per common share, shares used in
computing earnings (loss) per common share and option balances and prices were
restated to give retroactive effect to the 10% dividend.
In October 1999, the Company declared a 10% stock dividend to shareholders of
record as of November 3, 1999. The new shares were distributed to shareholders
on November 24, 1999. A total of $680,271, representing the fair market value
(based on the quoted market price) of the additional shares issued was charged
to retained earnings, with $2,603 and $677,668 credited to Common stock and
additional paid-in capital, respectively, effective on the date such dividend
was declared.
Recent Accounting Pronouncements
Effective with the year ended June 30, 1999, the Company was subject to the
provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting and display of comprehensive income in a
full set of general-purpose financial statements. Comprehensive income is
defined as the total of net income (loss) and all other non-owner changes in
equity. For the years ended June 30, 2000, 1999 and 1998 the Company's
comprehensive income consists only of net income (loss), therefore, there have
been no changes in the display of the Company's consolidated financial
statements.
Effective with the year ended June 30, 2000, the Company was subject to the
provisions of the American Institute of Certified Public Accountants' Statement
of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." This statement requires that certain
costs related to the development or purchase of internal-use software be
capitalized and amortized over the estimated useful life of the software. The
statement also requires that costs related to the preliminary project stage and
post implementation/operations stage in an internal-use computer software
development project be expensed as incurred. As the Company's existing policy
already met the guidelines of SOP 98-1, the adoption of this pronouncement had
no impact on the Company's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as
amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133 - an
amendment of FASB Statement No. 133," which must be adopted by the Company in
the year ending June 30, 2001, provides a comprehensive and consistent standard
for the recognition and measurement of derivatives and hedging activities. As
the Company does not currently hold derivative instruments or engage in hedging
activities, the adoption of this pronouncement is expected to have no impact on
the Company's financial position or results of operations.
<PAGE>
4. INVENTORIES:
June 30
-------
2000 1999
---- ----
Raw materials and supplies $1,186,992 $1,194,084
Work-in-process 1,814,802 1,928,753
Finished goods 1,774,413 1,250,419
---------- ----------
$4,776,207 $4,373,256
========== ==========
5. ACCRUED EXPENSES:
June 30
-------
2000 1999
---- ----
Compensation and related benefits $439,985 $303,234
Other 254,687 320,612
-------- --------
$694,672 $623,846
======== ========
6. LINES 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, subject to renewal. Borrowings under the
line bear interest at the bank's prime rate (9.50% at June 30, 2000) and are
secured by all assets of the Company. The highest levels of borrowings during
the years ended June 30, 2000, 1999, and 1998 were $1,500,000, $1,800,000 and
$850,000, respectively. Interest expense on borrowings on the line of credit was
$122,500, $89,595 and $151,134 for the years ended June 30, 2000, 1999 and 1998,
respectively, at weighted average interest rates of 8.6%, 8.0% and 8.5%,
respectively. In addition, the Company has an additional convertible line of
credit with the same bank under which it could borrow up to $500,000 to finance
legal fees and related expenses. During the twelve months ended June 30, 2000,
the Company borrowed the maximum amount available under the convertible line of
credit and has included these amounts, net of repayments 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 level of tangible net worth.
Thompson Dental Manufacturing Co., Inc., a subsidiary of the Company, is a
guarantor and surety of borrowings under these credit facilities.
<PAGE>
LONG-TERM DEBT:
<TABLE>
<CAPTION>
June 30
-------
2000 1999
---- ----
<S> <C> <C>
Note payable to bank in monthly installments of $31,667, plus interest at prime
minus .05%, through April 1, 2003. (Interest rate not to exceed 8.45% or be
below 8.20%). Rate at June 30, 2000 was 8.45%. $1,736,006 $2,084,339
Mortgage payable to bank in monthly installments of $10,230, plus interest at
LIBOR plus 1.63%, through August 2008. (Interest rate not to exceed 7.29% or
be below 7.04%). Rate at June 30, 2000 was 7.29%. 1,227,332 1,262,853
Note payable to bank in monthly installments of $3,305, plus interest at LIBOR
plus 2.24%, through November 2003. (Interest rate not to exceed
7.54% or be below 7.27%.) Rate at June 30, 2000 was 7.54%. 915,980 954,012
Mortgage payable to municipal authority in monthly installments of $6,371,
including interest at 2.00%, through July 1, 2010. 687,051 744,182
Convertible line of credit payable to bank in monthly installments of principal
and interest, based on outstanding balance, through August 2004.
At June 30, 2000, the monthly payment was $11,709, and interest rate was 9.50%. 425,000 -
Mortgage payable to bank in monthly installments of $925, plus interest at LIBOR
plus 1.63%, through August 2008. (Interest rate not to exceed 7.29% or be
below 7.04%). Rate at June 30, 2000 was 7.29% 417,789 427,599
Note payable to officer with annual interest payments payable at a 10% rate,
and principal due in full in December, 2002. 257,000 -
Mortgage payable to bank in monthly installments of $2,543, including interest
at prime plus 0.75%, through December 1, 2011. Rate at June 30, 2000 was 10.25%. 207,383 218,646
Mortgage payable to municipal authority in monthly installments of $1,952,
including interest at 2.00%, through April 1, 2010. 202,393 220,038
Mortgage payable to bank in monthly installments of $5,179, plus interest at a
floating interest rate through August 2001. (Interest rate not to exceed 5.85%
or be below 5.69%.) Rate at June 30, 2000 was 5.85%. 82,008 138,976
------ -------
6,157,942 6,050,645
Less- Current portion (757,878) (614,553)
-------- ---------
$5,400,064 $5,436,092
========== ==========
</TABLE>
Interest expense on the Company's long-term debt was $436,878, $435,522 and
$542,366 for the years ended June 30, 2000, 1999 and 1998, respectively. During
the year ended June 30, 1999, the Company renegotiated certain of its mortgages
and loans to secure longer terms and lower interest rates.
<PAGE>
Substantially all of the Company's assets are pledged as collateral for the
long-term debt. In addition, a mortgage payable to a municipal authority is
collateralized by a standby letter of credit in the amount of $150,000 and the
two mortgages payable to municipal authorities are subordinate to certain other
debt obligations in the aggregate amount of approximately $4,900,000. The
Company's long-term debt payable to commercial banks is subject to the same
covenants as the lines of credit (see Note 6).
As of June 30, 2000, long-term debt matures as follows:
2001 $ 757,878
2002 767,940
2003 1,476,508
2004 1,003,990
2005 165,070
Thereafter 1,986,556
---------
$6,157,942
==========
8. EMPLOYEE BENEFIT PLANS:
Profit Sharing Plan
The Company has a noncontributory profit sharing plan for employees who have
completed one full year of service and have attained the age of 21. The Company,
at the discretion of the Board of Directors, may make contributions to the plan.
The contributions cannot exceed the maximum amount which will constitute an
allowable deduction for federal income tax purposes and are based on the
Company's profitability and shall be paid from the Company's net income or
retained earnings.
A participating employee's full account becomes payable to the employee's
designated beneficiary upon normal retirement, upon retirement at any age due to
disability, or upon death. In the event employment is terminated before normal
retirement, a portion of the Company's contribution is forfeited unless the
employee has at least seven full years of service.
The Company did not make any contributions during the years ended June 30, 2000,
1999 and 1998.
Employee Savings Plan
The tax deferred employee savings and protection plan under Section 401(k) of
the Internal Revenue Code is available for all eligible employees. This plan
allows an employee to contribute between 3.0% and 10.0% of compensation to the
plan and these contributions are not subject to current federal income taxes.
The Company matches 50% of the employee's contributions, to a maximum of 3.0% of
the employee's earnings, subject to the deferral limit under the Internal
Revenue Code. Participants are at all times fully vested in their contributions
and the Company contributions become vested at various percentages based on
years of service with 20% vested after three years and 20% for each year
thereafter.
The Company's matching contributions for the years ended June 30, 2000, 1999 and
1998 were $89,587, $84,972 and $80,863, respectively.
<PAGE>
9. BUSINESS SEGMENTS:
The Company operates in two business segments: Dental Supplies and Precision
Abrasives. The reportable segments have been identified as they have separate
management teams and infrastructures. See Note 1 for a description of the
Company's business segments.
The accounting policies of the reportable segments are the same as those
described in Note 3. The Company evaluates the performance of its operating
segments based on operating income (loss). Intersegment sales and transfers are
not significant and all property is located in the United States.
Financial information for each business segment as of June 30, 2000, 1999 and
1998 and for the years then ended is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net sales:
Domestic customers-
Dental Supplies $9,490,207 $8,492,460 $8,237,237
Precision Abrasives 4,489,053 3,554,137 3,676,026
International customers-
Dental Supplies 1,535,709 1,826,742 2,678,531
Precision Abrasives 2,161,544 1,189,605 745,847
----------- ----------- -----------
$17,676,513 $15,062,944 $15,337,641
=========== =========== ===========
Gross profit:
Dental Supplies $5,241,989 $5,058,017 $5,336,168
Precision Abrasives 1,879,434 1,208,221 1,441,919
----------- ----------- -----------
$7,121,423 $6,266,238 $6,778,087
=========== =========== ===========
Operating income (loss):
Dental Supplies $1,202,237 $140,814 $1,365,562
Precision Abrasives 327,336 (531,104) (1,343,756)
----------- ----------- -----------
$1,529,573 $(390,290) $21,806
=========== =========== ===========
Total assets:
Dental Supplies $8,505,061 $9,663,696 $9,705,348
Precision Abrasives 4,754,654 4,175,463 4,196,755
Corporate 3,449,340 2,366,615 1,837,809
----------- ----------- -----------
$16,709,055 $16,205,774 $15,739,912
=========== =========== ===========
Depreciation and amortization:
Dental Supplies $386,106 $567,844 $558,164
Precision Abrasives 333,717 261,892 276,641
----------- ----------- -----------
$719,823 $829,736 $834,805
=========== =========== ===========
Capital expenditures:
Dental Supplies $94,783 $195,821 $368,137
Precision Abrasives 118,229 96,017 71,696
----------- ----------- -----------
$213,012 $291,838 $439,833
=========== =========== ===========
</TABLE>
<PAGE>
10. INCOME TAXES:
For the Year Ended June 30
----------------------------
2000 1999 1998
---- ---- ----
Current:
Federal $511,808 $(101,690) $426,372
State 39,748 820 (75,414)
-------- --------- --------
551,556 (100,870) 350,958
-------- --------- --------
Deferred:
Federal 28,578 (169,017) (109,747)
State 3,680 35,426 81,599
-------- --------- --------
32,258 (133,591) (28,148)
-------- --------- --------
$583,814 $(234,461) $322,810
======== ========= ========
A reconciliation of the U.S. Federal Income Tax rate to the effective income tax
rate is as follows:
For the Year Ended June 30
----------------------------
2000 1999 1998
---- ---- ----
Federal taxes 34.0% (34.0)% 34.0%
State taxes 5.0 5.4 0.4
Lower tax rate attributable to foreign
sales corporation -- -- (5.2)
Other 4.5 (6.4) (5.9)
---- ----- -----
43.5% (35.0)% 23.3%
==== ===== =====
Deferred income tax assets and liabilities are classified as current and
noncurrent based on the financial reporting classification of the related assets
and liabilities which gave rise to the temporary difference. Significant
components of the deferred income tax assets and liabilities are as follows:
June 30
------------------
2000 1999
---- ----
Deferred income tax assets:
Net operating loss carryforwards $125,688 $187,583
Accounts receivable and inventory reserves not
currently deductible 527,395 317,903
Litigation reserves 82,215 123,810
Other accruals not currently deductible 23,603 199,762
-------- --------
758,901 829,058
Deferred income tax liabilities:
Depreciation and amortization (316,726) (287,503)
-------- --------
442,175 541,555
Valuation allowance (224,543) (291,665)
-------- --------
Net deferred income tax assets $217,632 $249,890
======== ========
<PAGE>
The deferred income tax asset valuation allowance is attributed to certain state
deferred tax assets. Management believes sufficient uncertainty exists regarding
the realizability of these items that a valuation allowance is required. The
valuation allowance decreased $47,095 during the year ended June 30, 2000, due
principally to the decrease in deferred income tax assets during the year ended
June 30, 2000. The net operating loss carryforwards begin to expire in 2008.
11. COMMITMENTS AND CONTINGENCIES:
ITEM 3. LEGAL PROCEEDINGS.
Other than the litigation filed against the Company by Dentsply (which is
described below), the Company was not involved in any material legal
proceedings, other than ordinary litigation incidental to the business and,
specifically, was not involved in any material environmental litigation or
governmental 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 be without basis. The Company asserted defenses which management
believes meritorious. In addition, the Company filed counterclaims alleging,
among other things, that Dentsply is infringing three Company patents, violating
the Sherman Antitrust Act and the Lanham Act, and interfering with the Company's
business relationships.
Subsequent to the fiscal year ended June 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 June 30, 2000 the Company has accrued for what it
believes to be its liability for such fees and expenses.
Foot Powder Settlement
During calendar year 1997, the Company settled a Government investigation of
Itch-Away Foot Powder which the Company manufactured and sold pursuant to
contracts with the United States Defense Department. The Company entered into a
civil settlement of the matter agreeing to pay the Government a total of
$505,000, without interest. These payments are secured by an irrevocable letter
of credit obtained by the Company from a bank. The Company made the first
payment of $100,000 in August 1997, the second payment of $101,250 in August
1998, the third payment of $101,250 in August 1999, the fourth payment of
$101,250 in August 2000, and will make one similar payment in August 2001. In
connection with this matter, the Company was fined $350,000, which is payable in
five annual installments commencing in January 1998. The Company has paid the
first, second and third installments. Interest is payable at 5.42% per year and
is due with the final year's payment.
<PAGE>
Capital Leases
The Company has entered into capital leases for property and equipment which
expire at various dates through December 2006. Property and equipment acquired
under capital leases at a cost of $641,685 and $492,685, less accumulated
amortization of $215,537 and $103,377, are included in property and equipment in
the accompanying balance sheets as of June 30, 2000 and 1999, respectively.
Interest rates on these capital leases range from 5.1% to 11.1%. Future minimum
lease payments under capital leases as of June 30, 2000, are as follows:
2001 $133,617
2002 93,613
2003 64,555
2004 64,555
2005 64,555
Thereafter 90,663
--------
Total minimum lease payments 511,558
Less - amount representing interest (76,225)
--------
Present value of minimum capital
lease payments $435,333
========
Royalties
The Company has entered into a number of license agreements with third parties.
Generally, the agreements require the Company to pay a royalty on sales of
certain products that are derived under these licensing agreements. The royalty
expense is accrued in the same period in which the revenues incorporating the
technology are recognized. Royalty expense for the years ended June 30, 2000,
1999 and 1998 was $167,041, $228,601and $222,687, respectively.
12. STOCK OPTIONS:
The Company has an incentive stock option plan that provides for the awarding of
options for the purchase of up to 242,000 shares of Common stock (as adjusted
for the respective 10% stock dividends issued on September 30, 1998 and November
24, 1999 (see Note 3). Under the plan, options are granted at a price not less
than the fair market value at the grant date and become exercisable upon such
date. Employee options expire 10 years after the grant date and directors'
options expire five years after the grant date. Of the total options authorized
for issuance, 141,903 shares have been granted, 123,619 shares have been
exercised, and 1,936 shares have been cancelled. As of June 30, 2000, 100,097
options are available for future grants.
<PAGE>
The following summarizes information relative to the stock option plan:
<TABLE>
<CAPTION>
Weighted
Exercise Average
Price Exercise Price Aggregate
Options (per share) (per share) Proceeds
------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Balance as of June 30, 1997 22,950 $0.75 - 6.50 $3.39 $77,762
Granted -- -- -- --
Exercised (100) 3.00 3.00 (300)
Effect of 10% stock dividend on
options 2,285 -- -- --
------ ------------ ----- -------
Balance as of June 30, 1998 25,135 0.68 - 5.91 3.08 77,462
Granted -- -- -- --
Exercised -- -- -- --
------ ------------ ----- -------
Balance as of June 30, 1999 25,135 0.68 - 5.91 3.08 77,462
Granted -- -- -- --
Exercised (5,250) 0.85 0.85 (4,500)
Effect of 10% stock dividend on
options 2,513 -- -- --
------ ------------ ----- -------
Balance as of June 30, 2000 22,398 $0.61 - 5.32 $3.25 $72,962
====== ============ ===== =======
</TABLE>
The expiration dates for outstanding options at June 30, 2000 range from
December 2003 to December 2006, with a weighted average remaining contractual
life of 3.6 years.
The following table summarizes information about the stock option plan as of
June 30, 2000 based upon the different ranges in exercise prices of the
outstanding options and adjusted for the respective 10% stock dividends issued
on September 30, 1998 and November 24, 1999(see Note 3):
<TABLE>
<CAPTION>
Weighted
Range of Options Average Weighted
Exercise Outstanding Remaining Average
Prices and Contractual Life Exercise Price
(per share) Exercisable (years) (per share)
----------- ----------- ---------------- --------------
<S> <C> <C> <C> <C>
$0.68 800 3.5 $0.68
2.73 13,763 6.0 2.73
4.77 - 5.91 7,835 7.3 5.55
------
22,398
======
</TABLE>
<PAGE>
The Company accounts for its options under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," under which no compensation
cost has been recognized. In 1995, the Financial Accounting Standards Board
issued SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123
establishes a fair value based method of accounting for stock-based compensation
plans. SFAS No. 123 requires that an employer's financial statements include
certain disclosures about stock-based employee compensation arrangements
regardless of the method used to account for the plan. Had the Company
recognized compensation cost for its stock options consistent with the
provisions of SFAS No. 123, the Company's pro forma net income (loss) and pro
forma earnings (loss) per Common share would have been as follows:
<TABLE>
<CAPTION>
For the Year Ended June 30
------------------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net Income (Loss):
As reported $757,408 $(435,801) $1,061,329
======== ========= ==========
Pro forma $757,408 $(435,801) $1,061,329
======== ========= ==========
Basic Earnings (Loss) per
Common share:
As reported $0.15 $(0.09) $0.21
===== ====== =====
Pro forma $0.15 $(0.09) $0.21
===== ====== =====
Diluted Earnings (loss) per Common share:
As reported $0.15 $(0.09) $0.21
===== ====== =====
Pro forma $0.15 $(0.09) $0.21
===== ====== =====
</TABLE>
There were no options granted during the years ended June 30, 2000, 1999 and
1998.
13. CUSTOMER INFORMATION:
The Company's customer base in the Dental Supplies segment consists principally
of distributors in the professional dental supply market. The Company's customer
base in the Precision Abrasives segment consists principally of large companies
in the high-technology industry. During the years ended June 30, 2000, 1999 and
1998, one customer in the Dental Supplies segment accounted for 12.4%, 11.9% and
11.1%, respectively, of the Company's total net sales.
<PAGE>
As of June 30, 2000, the Company had accounts receivable from one foreign
customer in the amount of $197,403. In addition, the Company had a note
receivable from the same customer with an outstanding balance of $683,578. The
note is scheduled to be repaid in monthly installments through the year ending
June 30, 2003. As of June 30, 2000, no other customer represented more than 10%
of outstanding receivables.
14. GAIN ON SALE OF CMP BUSINESS AND PARTICLE DISPERSION TECHNOLOGY
On December 31, 1997, the Company sold its chemical mechanical planarization
("CMP") assets and CMP business product line for the electronics industry and
related intellectual property to EKC Technology, Inc. ("EKC"), a subsidiary of
ChemFirst Inc. for $2,450,000 in cash, as well as a deferred payment by EKC
contingent on sales of CMP products during the period through June 30, 2000, and
varying royalties based on sales of CMP products through 2004. The additional
deferred payment expected to be received for the period through June 30, 2000 is
not significant. This transaction resulted in a pre-tax gain of $1,660,483 for
the Company. In connection with the sale, EKC agreed that during 1999 it would
purchase a portion of the Company's raw material inventory that was on hand at
December 31, 1997 for $250,000. As of June 30, 2000, EKC has purchased $125,000
of this inventory.
Also on December 31, 1997, the Company sold certain particle dispersion
technology to Nanophase Technologies Corporation ("Nanophase") for $223,000 in
cash, resulting in a one-time pre-tax gain of $223,000.
15. OTHER INCOME, NET:
<TABLE>
<CAPTION>
For the Year Ended June 30
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Proceeds from casualty insurance $315,000 $200,000 $ --
Gain on disposition of property and equipment -- -- 72,000
Other income -- 65,690 20,993
Other expense (45,781) (23,558) --
-------- -------- -------
$269,219 $242,132 $92,993
======== ======== =======
</TABLE>
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 $315,000 and $200,000, respectively in the years
ended June 30, 2000 and 1999, which was used to replace a portion of the damaged
equipment and resolve a business interruption claim.
16. RELATED PARTY TRANSACTION
In January 2000, an officer of the Company transferred 181,500 shares of the
Company's common stock in payment of certain legal fees owing to the Company's
counsel in the Dentsply litigation, which has been incurred and recorded by the
Company in the prior fiscal year. The Company issued its promissory note in the
principal amount of $257,000, the stipulated value of the shares transferred by
the officer. The note is payable in full on December 31, 2002. Interest at the
annual rate of 10% is payable on December 31 of each year, but the Company may
elect to defer payment of interest and add it to the principal amount due.
17. SHARES ISSSUED TO CONSULTANTS
In June 2000, the Company issued 30,000 shares of restricted common stock,
valued at approximately $78,750 on date of issuance, to a consulting firm for
professional services to review and evaluate strategic alternatives, including
but not limited to mergers, acquisitions, and spin-off of business segments, and
thereafter implement a plan to increase shareholder value.
<PAGE>
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Change in Registrant's Certifying Accountant
As per the Form 8-K that the Company filed with the SEC on March 31, 2000, the
Company terminated its appointment of Arthur Andersen LLP as its independent
accountants, and engaged BDO Seidman LLP as its new independent accountants.
Disagreements with Accountants on Accounting and Financial Disclosures.
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(1) Executive Officers of the Company:
(a) The names, ages and positions with the Company of all of the executive
officers of the Company, are as follows:
<TABLE>
<CAPTION>
Name Age Position with the Registrant
---- --- ----------------------------
<S> <C> <C>
Marvin E. Sternberg* 66 Chairman of the Board, President and Chief
Executive Officer
Joseph S. Sternberg* 37 Vice President and General Counsel
Mark E. Sternberg* 33 Administrative Vice President
William Woodhead 63 Secretary/Treasurer
</TABLE>
*Marvin E. Sternberg is Joseph S. Sternberg and Mark E. Sternberg's father.
(b) The executive officers hold their respective offices until the first
meeting of newly elected directors following the next annual meeting of the
Company and the election of successor officers unless otherwise terminated
by the Board of Directors.
(c) The following is a brief account of the business experience of the
executive officers of the Registrant:
Mr. Marvin E. Sternberg joined Moyco in March of 1974, as a management
consultant and was elected President of Moyco on August 9, 1974. From 1965
to 1973, Mr. Sternberg was Trustee and Operating Officer for the Robinson
Trust, Philadelphia, Pennsylvania. From 1965 to present, Mr. Sternberg has
been a partner and/or director in a number of other companies in the
Philadelphia, Pennsylvania area including the Pennsylvania Business Bank,
the RBB Fund, a family of Mutual Funds, and Cellucap Manufacturing Company,
a producer of disposable headwear and garments. Mr. Sternberg has been a
member of the Company's Board of Directors since 1974.
Mr. Joseph S. Sternberg joined the Company on October 14, 1991, at which
time he was named Vice President and General Counsel. Prior to that time he
was engaged in the private practice of law. Mr. Sternberg is on the Board
of Directors of the American Lung Association of Southeastern Pennsylvania.
Mr. Mark E. Sternberg joined Moyco on August 15, 1991, at which time he was
named Administrative Vice President.
Mr. William Woodhead joined Moyco on January 7, 1985 as Controller. He was
elected Secretary/Treasurer on December 18, 1985. Mr. Woodhead has been a
member of the Company's Board of Directors since 1985.
<PAGE>
(2) Directors of the Company:
(a) The following table sets forth the name of each director of the Company
and all offices presently held by him. The term of each director will
expire on such date as the Annual Meeting of Shareholders is held and his
successor is duly elected and qualified.
<TABLE>
<CAPTION>
Name Age Other Position with Registrant
---- --- ------------------------------
<S> <C> <C>
Marvin E. Sternberg 66 Chairman of the Board, President
and Chief Executive Officer
Irvin Paul 70 None
Marvin Cravetz 63 None
William Woodhead 63 Secretary/Treasurer
</TABLE>
Dr. Irvin Paul, DDS, has engaged in the practice of Dentistry, with
offices in Upper Darby, Pennsylvania, for more than thirty years. Dr.
Paul has been a member of Company's Board of Directors since 1974.
Dr. Marvin Cravetz, DDS, was engaged in the practice of Dentistry,
with offices in Hatboro, Pennsylvania, for more than twenty years. Dr.
Cravetz has been a member of the Company's Board of Directors since
1974.
The experience of the other directors is reported under Section 1 of
ITEM 10 -- Executive Officers of the Company.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The following table shows for fiscal years ended June 30, 2000, 1999 and 1998,
the cash compensation, as well as certain other compensation paid to the named
executive officers and certain other employees:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Securities Long-
Other Under- Term
Annual Restricted lying Incentive All
Name and Principal Compen- Stock Options/ Plan Other
Position Year Salary Bonus sation Award(s) SARs Payouts Compensation
------------------ ---- ------ ----- ------ -------- ---- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Marvin E. Sternberg 2000 $306,075 $-- $-- $-- $-- $-- $2,998
Chairman of the Board, 1999 289,450 -- -- -- -- -- 3,614
President and CEO 1998 265,000 -- -- -- -- -- 3,750
Clarence F. Bartron 2000 157,077 -- -- -- -- -- 1,656
Vice President 1999 136,182 -- -- -- -- -- 1,645
Ultralap Division 1998 128,528 -- -- -- -- -- 1,769
Joseph S. Sternberg 2000 116,130 -- -- -- -- -- 2,915
Vice President and 1999 115,040 -- -- -- -- -- 2,876
General Counsel 1998 103,175 -- -- -- -- -- 2,804
Mark E. Sternberg 2000 116,130 -- -- -- -- -- 2,915
Administrative Vice 1999 110,400 -- -- -- -- -- 2,760
President 1998 101,775 -- -- -- -- -- 2,769
Jerome Lipkin 2000 126,905 -- -- -- -- -- 2,914
Operations Manager 1999 124,020 -- -- -- -- -- 3,100
1998 113,300 -- -- -- -- -- 3,007
William Woodhead 2000 102,797 -- -- -- -- -- 2,319
Secretary/ 1999 96,150 5,000 -- -- -- -- 2,400
Treasurer 1998 90,000 -- -- -- -- -- 2,345
</TABLE>
STOCK OPTIONS
The following table shows stock options exercised and fiscal year-end values for
the named executive officers under the Company's stock option plan. The plan
does not permit the grant of stock appreciation rights ("SARs"). There have been
no stock options granted in the current fiscal year to the named executive
officers.
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
<TABLE>
<CAPTION>
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options/SARs
Shares Options/SARs At Fiscal Year End
Acquired on Value at Fiscal Year End Exercisable(2)/
Name Exercise(1)(3) Realized(2) Exercisable(3) Unexercisable
---- -------------- ----------- ------------------ ------------------
<S> <C> <C> <C> <C>
Marvin E. Sternberg -- $-- -- $--/--
Clarence F. Bartron -- -- 1,513 --/--
Joseph S. Sternberg -- -- -- --/--
Mark E. Sternberg -- -- -- --/--
Jerome Lipkin -- -- -- --/--
William Woodhead -- -- -- --/--
</TABLE>
(1) Upon exercise of an option, the optionee must pay the exercise price in
cash.
(2) Represents the difference between the fair market value of the common stock
underlying the option and the exercise price at exercise, or fiscal year-end,
respectively.
(3) As adjusted for the respective 10% stock dividends issued on September 30,
1998 and November 24, 1999. See Note 3 of Notes to Consolidated Financial
Statements.
DIRECTORS COMPENSATION
Each non-employee director is entitled to receive options to purchase 1,000
shares of the Company's Common stock for each meeting attended. The exercise
price of these options are equal to the fair market value of the Company's
Common stock on the date of grant. All directors who are also employees do not
receive any compensation for serving as directors.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) The following table sets forth information as of June 30, 2000 with respect
to any person who is known to the Registrant to be the beneficial owner of more
than 5% of any class of Registrant's voting securities:
<TABLE>
<CAPTION>
Shares Percentage
Beneficially of
Title of Class Name and Address Owned Class
-------------- ---------------- ----- -----
<S> <C> <C> <C>
Common stock Marvin E. Sternberg 2,954,741(1) 58.7%
728 Canterbury Lane
Villanova, PA 19085
</TABLE>
(1)Of these shares 2,732,611 shares are held by Marvin E. Sternberg, legally and
beneficially in his own name; 222,130 shares by Susan Sternberg, wife of
said Marvin E. Sternberg, legally and beneficially in her own name.
(b) The following table sets forth information as of June 30, 2000 as to each
class of equity securities of the Registrant beneficially owned, directly or
indirectly, by all directors and officers of the Registrant, as a group:
<TABLE>
<CAPTION>
Shares Percentage
Beneficially of
Title of Class Beneficial Owner Owned (1) Class
-------------- ---------------- --------- -----
<S> <C> <C> <C>
Common stock Marvin E. Sternberg 2,954,741 58.7%
Common stock Irvin Paul -- --
Common stock Marvin Cravetz 39,600 0.8
Common stock William Woodhead 12,000 0.2
Common stock Joseph S. Sternberg 200,582 4.0
Common stock Mark E. Sternberg 178,753 3.6
---------
Common stock All Officers and Directors
(6 in number) 3,385,675 67.3%
========= =====
</TABLE>
(1) Refer to Footnote (1) of the previous table.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
No director or officer had any material interest, direct or indirect, in any
business transaction of the Company during the period July 1, 1998 through June
30, 2000, or in any such proposed transaction, except as disclosed in Footnote
16.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
Financial Statements: The following is a list of the Consolidated Financial
Statements of the Company and Supplementary data filed as part of Item 8
hereof:
Reports of Independent Public Accountants
Consolidated Balance Sheets--June 30, 2000 and 1999
Consolidated Statements of Operations -- For the Years Ended June 30,
2000, 1999 and 1998
Consolidated Statements of Shareholders' Equity -- For the Years Ended
June 30, 2000, 1999 and 1998
Consolidated Statements of Cash Flows -- For the Years Ended June 30, 2000,
1999 and 1998
Notes to Consolidated Financial Statements
Financial Statement Schedules: Included in Part IV of this report.
For the Years Ended June 30, 2000, 1999 and 1998
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the
Consolidated Financial Statements or notes thereto.
Exhibits:
23.1 Consent of Arthur Andersen LLP
27.0 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only, and not filed.
Reports On Form 8-K:
Form 8-K regarding termination of Arthur Andersen, LLP as independent
accountants filed April 7, 2000 and 8K/A filed April 17, 2000, regarding
appointment of BDO Seidman, LLP as independent accountants.
Arthur Andersen LLP, independent public accountants, has been the principal
accountant for Moyco Technologies, Inc. (the "Registrant") since June 23,
1997. On March 31, 2000, the Company determined to terminate Arthur Andersen
LLP's appointment as principal accountants of the Registrant and to engage BDO
Seidman, LLP as the Registrant's independent accountants. The Registrant made
this decision in order to keep accounting expenses in line with the
Registrant's budget requirements. The decision to engage BDO Seidman, LLP
and to terminate Arthur Andersen LLP was recommended to and approved by the
Audit Committee of the Registrant's Board of Directors.
In connection with the audits of the two fiscal years ended June 30, 1999
and the unaudited interim periods through the date of this filing, there were
no disagreements with Arthur Andersen LLP on any matter of accounting
principles or practices, financial statement disclosures, or auditing scope
or procedures, which disagreements if not resolved to their satisfaction would
have caused them to make reference in connection with their opinion to the
subject matter of the disagreements.
The audit reports of Arthur Andersen LLP on the consolidated financial
statements of the Registrant for each of the years in the two-year period ended
June 30, 1999, did not contain any adverse opinion or disclaimer of opinion, nor
were they qualified or modified as to uncertainty, audit scope, or accounting
principles.
During the two fiscal years ended June 30, 1999 and the unaudited interim
periods through the date of this filing, there were no "reportable events"
as defined by Item 304(a)(l)(v)(A) through (D) of Regulation 8-K
promulgated by the Securities and Exchange Commission under the Securities
Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended.
<PAGE>
MOYCO TECHNOLOGIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
---------
Balance at Charged Charged Balance at
Beginning to to Other End of
of Period Expense Accounts Deductions(1) Period
---------- ------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Accounts receivable
reserves:
June 30, 2000 $401,323 $79,079 $-- $-- $480,402
======== ======= === === ========
June 30, 1999 $267,741 $186,662 $-- $53,080 $401,323
======== ======== === ======= ========
June 30, 1998 $251,330 $47,290 $-- $30,879 $267,741
======== ======= === ======= ========
</TABLE>
(1) Represents accounts written off against the reserve.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities 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 7, 2000 BY: /s/ Marvin E. Sternberg
---------------- ---------------------------
Marvin E. Sternberg
Chairman of the Board, President
and Chief Executive Officer
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 date indicated.
/s/ Marvin E. Sternberg Dated: November 7, 2000
----------------------- ------ ----------------
Marvin E. Sternberg
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer) and Director
/s/ William Woodhead Dated: November 7, 2000
-------------------- ------ ----------------
William Woodhead
Secretary/Treasurer, Principal Financial
Officer and Principal Accounting Officer
and Director
/s/ Marvin Cravetz, DDS Dated: November 7, 2000
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Marvin Cravetz, DDS
Director
