SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ________________
Commission File Number: 001-10382
VALLEY FORGE SCIENTIFIC CORP.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2131580
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
136 Green Tree Road, Oaks, Pennsylvania 19456
(Address of principal executive offices and zip code)
Telephone: (610) 666-7500
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 _____
At August 9, 1996 there were 8,229,384 shares outstanding of the
Registrant's no par value Common Stock.
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VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY
Balance Sheets
______________________________________________________________________________
<S> <C> <C>
June 30, September 30,
1996 1995
________________ ______________
(Unaudited) (Audited)
ASSETS
Current Assets:
Cash and cash equivalents $ 298,882 $ 515,234
Accounts receivable - trade (net) 688,615 705,012
Inventory 1,861,028 1,448,365
Prepaid items and other current assets 88,081 60,244
Recoverable income taxes 16,631 170,371
Current portion of deferred income tax benefit 140,097 153,188
_________ _________
Total Current Assets 3,093,334 3,052,414
Property, Plant and Equipment 296,834 324,296
Intangible Assets, net of accumulated amortization 945,211 998,370
Deferred Income Tax Benefit, net of current portion 414 414
Other Assets 4,372 4,372
__________ ___________
Total Assets $4,340,165 $4,379,866
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes payable $ 70,000 $ 180,678
Accounts payable and accrued expenses 175,767 75,445
Income taxes payable - -
__________ __________
Total Current Liabilities 245,767 256,123
___________ __________
Total Liabilities 245,767 256,123
___________ __________
Commitments and Contingencies
Stockholders' Equity:
Preferred stock - -
Common stock (no par, 10,000,000 shares
authorized, 8,229,384 shares issued and
outstanding at June 30, 1996 and
September 30, 1995) 4,051,698 4,051,698
Retained earnings 42,700 72,045
___________ __________
Total Stockholders' Equity 4,094,398 4,123,743
___________ ___________
Total Liabilities and Stockholders' Equity $4,340,165 $4,379,866
========== =========
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<TABLE>
VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY
Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
1996 1995 1996 1995
______________________ ______________________
<S> <C> <C> <C> <C>
Net Sales $ 1,038,991 $ 830,381 $ 2,426,954 $ 2,122,704
Cost of Sales 505,583 408,317 1,196,329 984,482
__________ _________ __________ __________
Gross Profit 533,408 422,064 1,230,625 1,138,222
__________ _________ __________ __________
Other Costs:
Selling, general and administrative 370,747 370,404 1,115,675 997,545
Research and development 27,935 18,778 74,413 66,935
Amortization 22,555 22,542 67,666 67,814
__________ _________ __________ ________
Total Other Costs 421,237 411,724 1,257,754 1,132,294
__________ _________ __________ ________
Income (loss) from Operations 112,171 10,340 (27,129) 5,928
Other Income:
Interest income 2,603 2,329 10,786 8,963
__________ __________ __________ ________
Income (loss) before income taxes 114,774 12,669 (16,343) 14,891
Provision for (Benefit of) income taxes 41,351 5,447 13,002 6,402
__________ __________ ___________ ________
Net income (Loss) $ 73,423 $ 7,222 $ (29,345) $ 8,489
========= ========= ========== ======
Primary earnings (loss) per share
of common stock $ .01 $ .00 $ (.01) $ .00
========= ========= ========== ======
Fully diluted earnings (loss) per share $ .01 $ .00 $ (.01) $ .00
========= ========= ========== ======
Primary common shares outstanding 8,276,035 8,350,723 8,255,631 8,313,376
Fully diluted common shares
outstanding 8,304,024 8,373,479 8,255,631 8,362,400
</TABLE>
<TABLE>
VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY
Statements of Cash Flows
For the Nine Months Ended June 30,
1996 1995
<S> <C> <C>
________ _________
Cash Flows from Operating Activities:
Net income (loss) $(29,345) $ 8,489
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 106,524 102,642
Changes in assets and liabilities, net of
effect from:
Decrease in accounts receivable 16,397 204,422
Increase in inventory (412,663) (190,564)
Decrease in deferred income tax benefit 13,091 3,125
Increase (decrease) in accounts payable and
accrued expenses 100,322 (30,604)
Decrease in income taxes payable - (86,099)
Increase (decrease) in prepaid items and other
current assets 125,903 (127,221)
___________ _________
Net cash used in operating activities (79,771) (115,810)
___________ _________
Cash Flows from Investing Activities:
Increase in intangible assets -
license agreements, patents, trademarks, goodwill (14,508) (1,134)
Purchase of property, plant and equipment (11,395) (36,750)
____________ ________
Net cash used in investing activities (25,903) (37,884)
____________ _________
Cash Flows from Financing Activities:
Purchase of treasury stock - (20,542)
Increase in notes payable 4,322 -
Principal payments on notes payable (115,000) (47,188)
____________ _________
Net cash used in financing activities (110,678) (67,730)
____________ __________
Net Decrease in Cash and Cash Equivalents (216,352) (221,424)
Cash and Cash Equivalents, beginning of period 515,234 660,010
___________ __________
Cash and Cash Equivalents, end of period $ 298,882 $ 438,586
=========== =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Income taxes $ - $ 145,269
============ ==========
Interest $ - $ -
============= ===========
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[FN]
Notes to Financial Statements
June 30, 1996 and 1995
<F1>
1. Valley Forge Scientific Corp. ("VFSC") is engaged in the business of
developing, manufacturing and selling medical devices and products.
On August 18, 1994, VFSC formed a wholly-owned subsidiary, Diversified
Electronics Company, Inc. ("DEC"), a Pennsylvania corporation, in order
to continue the operations of Diversified Electronic Corporation, a company
which was merged with and into VFSC on August 31, 1994. Collectively, VFSC
and DEC are referred to herein as the "Company".
<F2>
2. In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the
financial position as of June 30, 1996 and the statements of operations for
the three and nine months ended June 30, 1996 and 1995 and the statements of
cash flows for the nine months ended June 30, 1996 and 1995.
The statements of operations for the three and nine months ended
June 30, 1996 and 1995 are not necessarily indicative of results for the
full year.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, these financial statements should be
read in conjunction with the financial statements and accompanying notes
included in the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995.
<F3>
3. Earnings per share are based on the weighted average number of common
shares outstanding including common stock equivalents.
VALLEY FORGE SCIENTIFIC CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Results of Operations for the Three and Nine Months Ended June 30, 1996
Compared to Three and Nine Months Ended June 30, 1995.
Sales of $1,038,991 and $2,426,954 for the three and nine months ended June
30, 1996 were 25% and 14% greater, respectively, than sales of $830,381 and
$2,122,704 for the three and nine months ended June 30, 1995. The sales gains
reflect increased shipments of the Company's surgical generators, including
initial delivery of the newest bipolar system designed specifically for use
in conjunction with magnetic resonance imaging equipment. During the fourth
quarter, the Company will begin shipments of three new bipolar systems, which
include units for the neurosurgical and gastrointestinal markets.
Gross profit increased by 26% and 8% to $533,408 and $1,230,625,
respectively, for the three and nine months ended June 30, 1996. The Company's
gross profit margin was 51% for both the three and nine months ended June 30,
1996 as compared to 51% and 54% for the corresponding periods in the prior
year.
Selling, general and administrative expenses for the three months ended
June 30, 1996 were
approximately the same as for the three months ended June 30, 1995 and selling
and general administrative expenses for the nine months ended June 30, 1996 of
$1,115,675 represented an increase of 11% from the corresponding period in
1995. Selling, general and administrative expenses for the nine months ended
June 30, 1996 were impacted by costs related to the assimilation of Diversified
Electronic Corporation as a result of the August 1994 merger into the Company.
Research and development expenses of $27,935 and $74,413 for the three and nine
months ended June 30, 1996 represented an increase of 48% and 11%,
respectively,
from the corresponding periods in 1995.
The Company had income from operations of $112,171 for the three months
ended June 30, 1996 as compared to income from operations of $10,340 for the
three months ended June 30, 1995. For the nine months ended June 30, 1996, the
Company had a loss from operations of $27,129 as compared to income from
operations of $5,928 in 1995. The Company's provision for income taxes was
$41,351 and $13,002, respectively, for the three and nine months ended June 30,
1996, as compared to provision for income taxes of $5,447 and $6,402,
respectively, for the three and nine months ended June 30, 1995.
As a result of the foregoing, the Company had net income of $73,423 for the
three months ended June 30, 1996 and a net loss of $29,345 for the nine months
ended June 30, 1996, as compared to net income of $7,222 and $8,489,
respectively, for the three and nine months ended June 30, 1995. The Company
had primary and fully diluted earnings per share of $.01 for the three months
ended June 30, 1996 as compared to $.00 for the corresponding period in 1995,
and a primary and fully diluted loss per share of $.01 for the nine months
ended June 30, 1996 as compared to earnings per share of $.00 for
the corresponding period in 1995.
Liquidity and Capital Resources
The primary measures of the Company's liquidity are cash balances
(including short-term
investments), accounts receivable and inventory balances, as well as its
borrowing ability. During the nine months ended June 30, 1996, the Company's
working capital increased by $51,276 to $2,847,567.
The Company used $79,771 in operating activities for the first nine months
of fiscal 1996 principally from an increase in inventory of $412,663 less the
Company's net loss as adjusted for the depreciation and amortization of
$77,179, an increase in prepaid items of $125,903, and an increase in accounts
payable and accrued expenses of $100,322. The increase in the Company's
inventory for the first nine months of fiscal 1996 was primarily due to an
increase in materials and parts to support orders and anticipated orders for
the Company's bipolar generators in fiscal 1996.
Investing activities for the first nine months of fiscal 1996 used a total
of $25,903 for the purchase of equipment and increase in tangible assets.
Financing activities for the first six months of fiscal 1996 used $110,678
principally as a result of payment of $115,000 under a note issued to
Bernard H. Shuman in connection with the merger of Diversified Electronics
Corporation. As a result of the foregoing, cash decreased by $216,352 in
the first nine months of fiscal 1996, leaving a balance of $298,882 in the
Company's cash and cash equivalents at June 30, 1996.
On March 1, 1996, the Company and Bernard H. Shuman, a director of the
Company, modified the payment terms of a note originally issued in connection
with the Company's merger with Diversified Electronic Corporation in August
1994, and which was due on March 1, 1996. Pursuant to the modification, the
Company paid Mr. Shuman $100,000 to reduce the principal balance for the note
on March 1, 1996, $15,000 in April, 1996 and agreed to pay the remaining
$70,000 on August 1, 1996. On August 1, 1996, the $70,000 was paid to Mr.
Shuman and the note was canceled.
The Company has no long-term debt. The Company believes it has available
all funds needed for operations, research and development and capital
expenditures as they may arise in the future. However, should it be
necessary, the Company believes it could borrow adequate funds at
competitive rates and terms.
VALLEY FORGE SCIENTIFIC CORP.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holding
(a) The Company's Annual Meeting for Shareholders was held on May 8,
1996.
(b) The following directors were elected for a one year term until their
successors are duly
elected and qualified:
Jerry L. Malis
Thomas J. Gilloway
Leonard I. Malis
Bruce L. Murray
Bernard H. Shuman
(c) The only matter voted upon at the Annual Meeting was the election of
directors. The
following is a summary of the vote tabulation: Jerry L. Malis, For:
7,539,887 (91.6%),
Withheld: 53,520, Abstentions: 0; Thomas J. Gilloway, For 7,540,287
(91.6%), Withheld:
53,120, Abstentions: 0; Leonard I. Malis, For: 7,540,287 (91.6%),
Withheld: 53,120,
Abstentions: 0; Bruce A. Murray, For: 7,540,607 (91.6%), Withheld:
52,800, Abstentions:
0; Bernard H. Shuman, For: 7,540,287 (91.6%), Withheld: 53,120,
Abstentions: 0.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the quarter
ended
June 30, 1996.
VALLEY FORGE SCIENTIFIC CORP.
SIGNATURES
Pursuant to the requirements 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.
VALLEY FORGE SCIENTIFIC CORP.
Date: August 12, 1996 By: /s/ Jerry L. Malis
Jerry L. Malis, President
(principal financial officer)
Date: August 12, 1996 By: /s/ Thomas J. Gilloway
Thomas J. Gilloway
Executive Vice President
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<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted
from the Company's Form 10-Q for the quarter ended
June 30, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000836429
<NAME> VALLEY FORGE SCIENTIFIC CORP.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUN-30-1996
<CASH> 298,882
<SECURITIES> 0
<RECEIVABLES> 688,615
<ALLOWANCES> 0
<INVENTORY> 1,861,028
<CURRENT-ASSETS> 3,093,334
<PP&E> 296,834
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,340,165
<CURRENT-LIABILITIES> 245,767
<BONDS> 0
<COMMON> 4,051,698
0
0
<OTHER-SE> 42,700
<TOTAL-LIABILITY-AND-EQUITY> 4,340,165
<SALES> 2,426,954
<TOTAL-REVENUES> 2,426,954
<CGS> 1,196,329
<TOTAL-COSTS> 1,257,754
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (16,343)
<INCOME-TAX> 13,002
<INCOME-CONTINUING> (29,345)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,345)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
