SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 May 8, 1996 there were 8,229,384 shares outstanding of the Registrant's no
par
value Common Stock.
VALLEY FORGE SCIENTIFIC CORP.
INDEX TO FORM 10-Q
March 31, 1996
Page
Number
Part I - Financial Information
Item 1. Financial Statements:
Balance Sheets - March 31, 1996 and September 30, 1995. 1
Statements of Operations for the three and six months
ended March 31, 1996 and March 31, 1995. 2
Statements of Cash Flows for the three and six months
ended March 31, 1996 and March 31, 1995. 3
Notes to Financial Statements. 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 5
Part II - Other Information 7
VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY
Balance Sheets
March 31, September 30,
1996 1995
__________ ______________
(Unaudited) (Audited)
ASSETS
Current Assets:
Cash and cash equivalents $ 176,051 $ 515,234
Accounts receivable - trade (net) 738,178 705,012
Inventory 1,684,501 1,448,365
Prepaid items and other current assets 97,643 60,244
Recoverable income taxes 170,371 170,371
Current portion of deferred income
tax benefit 175,255 153,188
__________
_____________
Total Current Assets 3,041,999 3,052,414
Property, Plant and Equipment 306,690 324,296
Intangible Assets, net of accumulated
amortization 953,259 998,370
Deferred Income Tax Benefit, net of
current portion 414 414
Other Assets 4,372 4,372
____________
______________
Total Assets $4,306,734 $4,379,866
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes payable $ 85,000 $ 180,678
Accounts payable and accrued expenses 200,758 75,445
Income taxes payable - -
__________ ____________
Total Current Liabilities 285,758 256,123
__________ ____________
Total Liabilities 285,758 256,123
__________ ____________
Commitments and Contingencies
Stockholders' Equity:
Preferred stock - -
Common stock (no par, 10,000,000 shares
authorized, 8,229,384 shares issued and
outstanding at March 31, 1996 and
September 30, 1995) 4,051,698 4,051,698
Retained earnings (deficit) (30,722) 72,045
__________ __________
Total Stockholders' Equity 4,020,976 4,123,743
__________ __________
Total Liabilities and Stockholders'
Equity $4,306,734 $4,379,866
========== ==========
VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY
Statements of Operations
(Unaudited)
Three Months Ended
March 31,
1996 1995
Net Sales $ 719,575 $1,006,173
Cost of Sales 347,351 439,192
_________ __________
Gross Profit 372,224 566,981
_________ __________
Other Costs:
Selling, general and
administrative 384,670 305,175
Research and development 26,385 28,683
Amortization 22,555 22,730
________ ________
Total Other Costs 433,610 356,588
________ ________
Income (loss) from Operations (61,386) 210,393
Other Income:
Interest income 3,856 2,415
_________ _________
Income (loss) before income taxes (57,530) 212,808
Provision for (Benefit of)
income taxes (6,746) 87,141
__________ ___________
Net income (Loss) $ (50,784) $ 125,667
=========== ==============
Primary earnings (loss) per share
of common stock $ (.01) $ .02
============ ==============
Fully diluted earnings
(loss) per share $ (.01) $ .02
============ ==============
Primary common shares
outstanding 8,240,576 8,270,333
Fully diluted common shares
outstanding 8,251,594 8,310,135
VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY
Statements of Operations
(Unaudited)
Six Months Ended
March 31,
1996 1995
Net Sales $ 1,387,963 $ 1,292,323
Cost of Sales 690,746 576,165
___________ ____________
Gross Profit 697,217 716,158
___________ ____________
Other Costs:
Selling, general and
administrative 744,927 627,141
Research and development 46,478 48,157
Amortization 45,111 45,272
____________ ___________
Total Other Costs 836,516 720,570
____________ ___________
Income (loss) from Operations (139,299) (4,412)
Other Income:
Interest income 8,183 6,634
____________ ___________
Income (loss) before income taxes (131,116) 2,222
Provision for (Benefit of) income
taxes (28,349) 955
_____________ ___________
Net income (Loss) $ (102,767) $ 1,267
============= ===========
Primary earnings (loss) per share
of common stock $ (.01) $ .00
============= ===========
Fully diluted earnings (loss)
per share $ (.01) $ .00
============= ===========
Primary common shares outstanding 8,255,631 8,208,112
Fully diluted common shares
outstanding 8,255,631 8,208,112
VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY
Statements of Cash Flows
For the Six Months Ended March 31,
1996 1995
Cash Flows from Operating Activities:
Net income (loss) $(102,767) $ 1,267
Adjustments to reconcile net
income (loss) to net
cash provided by operating activities:
Depreciation and amortization 71,085 73,543
Changes in assets and liabilities,
net of effect from:
Decrease (increase) in accounts
receivable (33,166) 333,291
Increase in inventory (236,136) (228,176)
Increase in deferred income tax
benefit (22,067) (28,883)
Increase (decrease) in accounts
payable and accrued expenses 125,313 (12,630)
Decrease in income taxes payable - (86,099)
Increase in prepaid items and other
current assets (37,399) (117,012)
_________ _________
Net cash used in operating activities (235,137) (64,699)
_________ __________
Cash Flows from Investing Activities:
Purchase of property, plant and equipment (8,368) (22,939)
_________ __________
Net cash used in investing activities (8,368) (22,939)
_________ __________
Cash Flows from Financing Activities:
Purchase of treasury stock - (20,542)
Increase in notes payable 4,322 -
Principal payments on notes payable (100,000) (47,188)
__________ ___________
Net cash used in financing activities (95,678) (67,730)
__________ ___________
Net Decrease in Cash and Cash Equivalents (339,183) (155,368)
Cash and Cash Equivalents, beginning
of period 515,234 660,010
__________ ____________
Cash and Cash Equivalents, end of period $ 176,051 $ 504,642
========== ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Income taxes $ - $ 145,269
======= ========
Interest $ - $ -
======= ========
VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY
Notes to Financial Statements
March 31, 1996 and 1995
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".
2. In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the
financial position as of March 31, 1996 and the statements of
operations for the three and six months ended March 31, 1996
and 1995 and the statements of cash flows for the six
months ended March 31, 1996 and 1995.
The statements of operations for the three and six months ended March 31,
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.
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 Six Months Ended March 31, 1996
Compared to the Three and Six Months Ended March 31, 1995.
Sales of $1,387,963 for the six months ended March 31, 1996 were 7% greater
than sales of $1,292,323 for the six months ended March 31, 1995, while sales of
$719,575 for the three months ended March 31, 1996 were 28% less than sales of
$1,006,173 for the three months ended March 31, 1995.
Sales to Johnson & Johnson Professional, Inc. ("J&J") were at lower levels
in
1996 due to hospital budget constraints, which are anticipated to be relieved
commencing
in the third quarter of 1996, and the introduction of two new generators
developed by
the Company for J&J. Subsequent to the end of the second quarter of 1996, J&J
commenced marketing of the Company's new bipolar generator for neurosurgery
under
the name "Synergy Malis Bipolar Coagulator."
In March 1996, the Company commenced selling its VFS 200 bipolar
electrosurgical system for use in magnetic imaging therapy. Magnetic imaging
therapy
involves using magnetic resonance imaging equipment in conjunction with an
operative
procedure, generally a tumor biopsy. To the Company's knowledge, the Company's
VFS 200, with its unique circuitry, is the only electrosurgical system which
can be used
in the same room with MRI equipment.
Also in March 1996, the Company modified its distribution agreement for the
CPR mask system with CDX Corporation from an exclusive distribution agreement to
a nonexclusive distribution agreement. The Company is now prepared to market
the
CPR Mask System directly with other customers and distributors.
Gross profit was $372,224 and $697,217 for the three and six months ended
March 31, 1996 as compared to gross profit of $566,981 and $716,158 for the
corresponding periods in 1995. The Company's gross profit margin was 52% and
50%
for the three and six months March 31, 1996 as compared to 56% and 55% for the
corresponding periods in the prior year.
Selling, general and administrative expenses for the three and six months
ended
March 31, 1996 were $384,670 and $744,927, respectively, representing a 25% and
29% increase from the amounts for the corresponding periods in 1995. Selling,
general
and administrative expenses 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 were $26,385 and $46,478 for the
three
and six months ended March 31, 1996 as compared to $28,683 and $48,157 for the
corresponding periods in 1995.
In March 1996, the Company received FDA permission to market its new line
of bipolar cutting loops, which are to be used in conjunction with the
Company's bipolar
generators for use in neurosurgery, gynecology, urology and general and
laparascopic
surgery.
The Company had a loss from operations for $61,386 and $139,299 for the
three
and six months ended March 31, 1996 as compared to income from operations of
$210,393 for the three months ended March 31, 1995 and a loss from operations of
$4,412 from the six months ended March 31 ,1995. The Company's income tax
(benefit) was ($6,746) and ($28,349), respectively, for the three and six
months ended
March 31, 1996, as compared to provision for income taxes of $87,141 and $955,
respectively, for the three and six months ended March 31, 1995.
As a result of the foregoing, net loss was $50,784 and $102,767 for the
three
and six months ended March 31, 1996, as compared to net income of $125,667 and
$1,267 for the three and six months ended March 31, 1995. Primary and fully
diluted
loss per share was $.01 for the three and six months ended March 31, 1996, as
compared to an earnings per share of $.02 and $.00 for the three and six months
ended
March 31, 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
it
borrowing ability. During the six months ended March 31, 1996, the Company's
working capital decreased by $40,050 to $2,756,241.
The Company used $235,137 in operating activities for the first six months
of
fiscal 1995 principally from the Company's net loss as adjusted for the
depreciation and
amortization of $71,085, an increase in inventory of $236,136, an increase in
prepaid
items of $37,399, and a decrease in accounts receivable of $33,166, less an
increase in
accounts payable and accrued expenses of $125,313. The increase in the
Company's
inventory for the first six 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 six months of fiscal 1996 used a total
of $8,368
for the purchase of equipment. Financing activities for the first six months
of fiscal
1996 used $95,678 principally as a result of the Company's payment of $100,000
principal paid under a note issued in connection with the merger with
Diversified
Electronics Corporation. As a result of the foregoing, cash decreased by
$339,183 in
the first six months of fiscal 1996, leaving a balance of $176,051 in the
Company's cash
and cash equivalents at March 31, 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 of the Note, and agreed to pay
the
remaining $85,000 on August 1, 1996.
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 a competitive rates and terms.
VALLEY FORGE SCIENTIFIC CORP.
PART II. OTHER INFORMATION
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
March 31,
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: May 14, 1996 By: /s/ Jerry L. Malis
Jerry L. Malis, President
(principal financial officer)
Date: May 14, 1996 By: /s/ Thomas J. Gilloway
Thomas J. Gilloway
Executive Vice President
[ARTICLE] 5
[LEGEND]
This Schedule contains summary financial information extracted
from the Company's Form 10-Q for the quarter ended March
31, 1995 and is qualified in its entirety by reference
to such financial statements.
[/LEGEND]
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] SEP-30-1995
[PERIOD-END] MAR-30-1996
[CASH] 176,051
[SECURITIES] 0
[RECEIVABLES] 738,178
[ALLOWANCES] 0
[INVENTORY] 1,684,501
[CURRENT-ASSETS] 3,041,999
[PP&E] 306,690
[DEPRECIATION] 0
[TOTAL-ASSETS] 4,306,734
[CURRENT-LIABILITIES] 285,758
[BONDS] 0
[COMMON] 4,051,698
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] (30,722)
[TOTAL-LIABILITY-AND-EQUITY] 4,306,734
[SALES] 1,387,963
[TOTAL-REVENUES] 1,387,963
[CGS] 690,746
[TOTAL-COSTS] 836,516
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] (131,116)
[INCOME-TAX] (28,349)
[INCOME-CONTINUING] (102,767)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (102,767)
[EPS-PRIMARY] (.01)
[EPS-DILUTED] (.01)
</TABLE>
