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 December 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 February 11, 1997 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
December 31, September 30,
1996 1996
_____________ _______________
(Unaudited) (Audited)
ASSETS
______________
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Current Assets:
Cash and cash equivalents $ 315,196 $ 162,761
Accounts receivable - trade (net) 495,367 871,648
Inventory 1,710,276 1,687,797
Prepaid items and other current assets 101,917 87,258
Recoverable income taxes 97,100 12,889
Current portion of deferred income tax benefit 209,583 165,149
_________ _________
Total Current Assets 2,929,439 2,987,502
Property, Plant and Equipment, net 293,571 303,414
Intangible Assets, net of accumulated amortization 900,101 922,670
Other Assets 4,872 4,372
_________ _________
Total Assets $4,127,983 $4,217,958
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 270,182 $ 164,595
Income taxes payable - -
_______ _______
Total Current Liabilities 270,182 164,595
Deferred Income Taxes Payable 4,736 4,736
_______ _______
Total Liabilities 274,918 169,331
_______ _______
Commitments and Contingencies
Stockholders' Equity:
Preferred stock - -
Common stock (no par, 10,000,000 shares
authorized, 8,229,384 shares issued and
outstanding at December 31, 1996 and
September 30, 1996) 4,051,698 4,051,698
Retained earnings (198,633) (3,071)
_________ _________
Total Stockholders' Equity 3,853,065 4,048,627
_________ _________
Total Liabilities and Stockholders' Equity $4,127,983 $4,217,958
========= =========
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VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY
Statements of Operations
For the Three Months Ended December 31,
(Unaudited)
1996 1995
_______ _______
<S> <C> <C>
Net Sales $ 470,686 $ 668,388
Cost of Sales 310,131 343,395
_______ _______
Gross Profit 160,555 324,993
_______ _______
Other Costs:
Selling, general and administrative 376,083 360,257
Research and development 85,500 20,093
Amortization 22,569 22,556
________ _______
Total Other Costs 484,152 402,906
________ _______
Income (loss) from Operations (323,597) (77,913)
Other Income:
Interest income 688 4,327
________ ________
Income (loss) Before Income Taxes (322,909) (73,586)
Provision for (Benefit of) Income Taxes (127,347) (21,603)
_______ _______
Net Income (Loss) $(195,562) $ (51,983)
======= =======
Earnings (Loss) per Share:
Primary earnings (loss) per share of common stock $ (.02) $ (.01)
======== =======
Fully diluted earnings (loss) per share $ (.02) $ (.01)
======== ========
Primary common shares outstanding 8,277,054 8,312,648
Fully diluted common shares outstanding 8,277,054 8,312,648
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VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY
Statements of Cash Flows
For the Three Months Ended December 31,
(unaudited)
1996 1995
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Cash Flows from Operating Activities:
Net income (loss) $(195,562) $ (51,983)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 35,962 35,523
Changes in assets and liabilities, net of
effect from:
Decrease in accounts receivable 376,281 9,531
Decrease (increase) in inventory (22,479) 8,125
Increase in recoverable income taxes (84,211) -
Increase in deferred income tax benefit (44,434) (21,603)
Increase in accounts payable and
accrued expenses 105,587 107,016
Increase in other assets (500) -
Increase in prepaid items and other current
assets (14,659) (54,597)
_______ _______
Net cash provided by operating activities 155,985 32,012
_______ _______
Cash Flows from Investing Activities:
Purchase of property, plant and equipment (3,550) (6,628)
________ ________
Net cash used in investing activities (3,550) (6,628)
________ ________
Cash Flows from Financing Activities:
Increase in notes payable - 2,564
________ ________
Net cash provided by financing activities - 2,564
________ ________
Net Increase in Cash and Cash Equivalents 152,435 27,948
Cash and Cash Equivalents, beginning of period 162,761 515,234
_______ _______
Cash and Cash Equivalents, end of period $ 315,196 $ 543,182
======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Income taxes $ 1,300 $ 25,000
======= =======
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VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY
Notes to Financial Statements
December 31, 1996
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. The September 30, 1996 balance sheet date was derived from audited
financial statements but does not include all disclosures required by
generally accepted accounting principles. In the opinion
of management, the accompanying unaudited financial statements contain
all adjustments necessary to present fairly the financial position as
of December 31, 1996 and the statements of operations
for the three months ended December 31, 1996 and 1995 and the
statements of cash flows for the three months ended December 31, 1996
and 1995.
The statements of operations for the three months ended December 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, 1996.
3. Earnings per share are based on the weighted average number of common
shares outstanding including common stock equivalents.
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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 Months Ended December 31,
1996 Compared to the Three Months Ended December 31, 1995.
Sales of $470,686 for the three months ended December 31, 1996
were 29.5% less than sales in the corresponding period in 1995. The sales
decrease in the December 1996 quarter reflected lower sales to Johnson &
Johnson Professional, Inc. ("J&J"), the Company's principal customer, due to
the rescheduling of the production of generators to include a greater mix of the
Company's new generators for sale in domestic and international markets.
The gross profit of $160,555 for the three months ended December
31, 1996 was 34% of sales for the three months ended December 31, 1996, as
compared to gross profit of $324,993, which was 48% of sales for the three
months ended December 31, 1995. The decrease in gross profit reflects lower
sales volume by the Company and its subsidiaries and reduced sales of
generators.
Selling, general and administrative expenses for the three months
ended December 31, 1996 increased by 4.4% from the amounts for the
corresponding period in 1995 and research and development expenses
increased by 325% to $85,500. This increase reflects the development of new
neurosurgical electronic instrumentation and a new coagulator for endoscopic
procedures.
The Company had a loss from operations of $323,597 for the three
months ended December 31, 1996, as compared to a loss from operations of
$77,913 for the corresponding period in 1995. The Company's benefit of
income taxes was $127,347 for the three months ended December 31 1996,
as compared to $21,603 for the three months ended December 31, 1995.
As a result of the foregoing, net loss was $195,562 for the three
months ended December 31, 1996, as compared to net loss of $51,893 for the
three months ended December 31, 1995. Primary and fully diluted loss per
share was $(.02) for the three months ended December 31, 1996 and $(.01) for
the three months ended December 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 its borrowing ability. During the three months ended
December 31, 1996, the Company's working capital decreased by $163,650
to $2,659,257.
The Company provided $155,985 from operating activities for the
first three months of fiscal 1996 principally from a decrease in accounts
receivable of $376,281 and an increase in accounts payable and accrued
expenses of $105,587, less the Company's net loss (as adjusted for
depreciation and amortization) of $159,600, and an increase in recoverable
income taxes of $84,211, an increase in inventory of $22,476 and an increase
in deferred income tax benefit of $44,434.
Investing activities for the first three months of fiscal 1997 used a
total of $3,550 for the purchase of equipment. As a result of the foregoing,
cash increased by $152,435 in the first three months of fiscal 1997, leaving a
balance of $315,196 in the Company's cash and cash equivalents at December
31, 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 at
competitive rates and terms.
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VALLEY FORGE SCIENTIFIC CORP.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holding
None.
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 December 31, 1996.
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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: February 13, 1997 By: /s/ Jerry L. Malis
Jerry L. Malis, President
(principal financial officer)
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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
December 31, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1996
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 315,196 162,761
<SECURITIES> 0 0
<RECEIVABLES> 495,367 871,468
<ALLOWANCES> 0 0
<INVENTORY> 1,710,276 1,687,797
<CURRENT-ASSETS> 2,929,439 2,987,502
<PP&E> 293,571 303,414
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 4,127,983 4,217,958
<CURRENT-LIABILITIES> 270,182 164,595
<BONDS> 0 0
0 0
0 0
<COMMON> 4,051,698 4,051,698
<OTHER-SE> (198,633) (3,071)
<TOTAL-LIABILITY-AND-EQUITY> 4,127,983 4,217,958
<SALES> 470,686 668,388
<TOTAL-REVENUES> 470,686 668,388
<CGS> 310,131 343,395
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (322,909) (73,586)
<INCOME-TAX> (127,347) (21,603)
<INCOME-CONTINUING> (195,562) (51,983)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (195,562) (51,983)
<EPS-PRIMARY> (.02) (.01)
<EPS-DILUTED> (.02) (.01)
</TABLE>
