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, 1999
[ ] 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 9, 2000 there were 8,217,309 shares outstanding of the
Registrant's no par value Common Stock.
<PAGE>
VALLEY FORGE SCIENTIFIC CORP.
INDEX TO FORM 10-Q
December 31, 1999
Page
PART I - FINANCIAL INFORMATION Number
ITEM 1. FINANCIAL STATEMENTS:
Balance Sheets - December 31, 1999 and September 30, 1999. 1
Statements of Operations for the three months
ended December 31, 1999 and December 31, 1998. 2
Statements of Cash Flows for the three months
ended December 31, 1999 and December 31, 1998. 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 9
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VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARIES
BALANCE SHEETS
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December 31, September 30,
1999 1999
------------ -------------
ASSETS (Unaudited) (Audited)
Current Assets:
Cash and cash equivalents $ 712,576 $1,158,462
Accounts receivable 1,001,258 540,456
Inventory 1,198,794 1,170,509
Prepaid items and other current assets 154,349 98,932
Current portion of deferred income tax benefit 176,435 193,035
------------ ----------
Total Current Assets 3,243,412 3,161,394
Property, Plant and Equipment, Net 196,849 205,443
Intangible Assets, Net 642,645 662,794
Other Assets 4,812 4,812
----------- ----------
$4,087,718 $4,034,443
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 213,004 $ 166,618
------------ -----------
Total Current Liabilities 213,004 166,618
Deferred Income Taxes Payable 16,885 16,885
------------ -----------
Total Liabilities 229,889 183,503
------------ -----------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock - -
Common stock (no par, 20,000,000 shares
authorized, shares issued and outstanding
at December 31, 1999 - 8,213,309 and
at September 30, 1999 - 8,217,309) 3,992,313 4,006,825
Retained earnings (deficit) (134,484) (155,885)
--------- ---------
3,857,829 3,850,940
--------- ---------
$4,087,718 $4,034,443
========== ==========
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VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARIES
STATEMENT OF OPERATIONS
(UNAUDITED)
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For the Three Months Ended
December 31,
1999 1998
---- ----
Net Sales $1,107,613 $952,452
Cost of Sales 580,894 497,886
---------- --------
Gross Profit 526,719 454,566
---------- --------
Other Costs:
Selling, general and administrative 412,023 369,648
Research and development 67,132 78,331
Amortization 20,148 22,920
---------- -------
Total Other Costs 499,303 470,899
---------- -------
Income (Loss) from Operations 27,416 (16,333)
Other Income:
Interest income 10,585 9,694
---------- -------
Income (Loss) before Income Taxes 38,001 (6,639)
Provision for (Benefit of) Income Taxes 16,600 (229)
---------- -------
Net Income (Loss) $ 21,401 $ (6,410)
========== =======
Earnings (Loss) per Share:
Basic earnings (loss) per common share $ .00 $ (.00)
Diluted earnings (loss) per common ========== =======
share $ .00 $ (.00)
========== =======
Basic common shares outstanding 8,216,570 8,229,384
Diluted common shares outstanding 8,367,739 8,229,384 VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARIES
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VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
(UNAUDITED)
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For the Three Months Ended
December 31,
1999 1998
---- ----
Cash Flows from Operating Activities:
Net income (loss) $ 21,401 $ (6,410)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 28,743 31,623
Changes in assets and liabilities, net of
effect from:
(Increase) decrease in accounts receivable (460,802) 206,366
(Increase) decrease in inventory (28,285) 54,961
(Increase) decrease in deferred income tax
tax benefit 16,600 (9,706)
(Increase) decrease in prepaid items and
other current assets (55,417) (64,144)
Increase (decrease) in accounts payable
and accrued expenses 46,386 1,624
Increase (decrease) in income taxes payable - 9,021
Increase (decrease) in deferred income taxes - 455
-------- -------
Net cash provided by (used in) operating
activities (431,374) 223,790
-------- -------
Cash Flows from Investing Activities:
Purchase of property, plant and equipment - (12,576)
-------- -------
Net cash used in investing activities - (12,576)
-------- -------
Cash Flows from Financing Activities:
Repurchase of common stock (14,512) -
-------- -------
Net cash used in financing activities (14,512) -
-------- -------
Net Increase in Cash and Cash Equivalents (445,886) 211,214
Cash and Cash Equivalents - beginning of period 1,158,462 873,757
--------- ---------
Cash and Cash Equivalents - end of period $ 712,576 $1,084,971
========= =========
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VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1
Valley Forge Scientific Corp. ("VFSC") is engaged in the business of
developing, manufacturing and selling medical devices and products. The
accompanying financial statements consolidate the accounts of the parent
company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
NOTE 2
The September 30, 1999 balance sheet data 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, 1999 and the statements of
operations for the three months ended December 31, 1999 and 1998 and the
statements of cash flows for the three months ended December 31, 1999
and 1998.
The statements of operations for the three months ended December 31, 1999
and 1998 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, 1999.
NOTE 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, 1999 Compared to the Three Months Ended December 31, 1998.
Sales of $1,107,613 for the three months ended December 31,
1999 were 16 % greater than sales of $952,452 for the three months
ended December 31, 1998. Codman & Shurtleff, Inc. ("Codman"), our
principal customer, accounted for 91% of sales for the three months
ended December 31, 1999.
In the latter part of the first quarter of 2000, we began
shipping the first units, of a 500 unit order, of the Bident
Bipolar Oral Surgical System and associated procedure specific
instruments to our worldwide distributor, the Bident International,
L.L.C. division of the Garfield Refinery Company. The remainder of
the 500 unit order is to be shipped as the units are produced to
satisfy Bident International's customer's needs.
For the three months ended December 31, 1999, bipolar
electrosurgical systems and irrigation systems accounted for 73% of
our sales, disposable cord/tubing sets and bipolar cords accounted
for 25% of our sales and disposable instrumentation accounted for 3%
of our sales. For the three months ended December 31, 1998, bipolar
electrosurgical systems and irrigation systems accounted for 61% of
our sales, disposable cord/tubing sets and bipolar cords accounted
for 35% of our sales and disposable instrumentation accounted for 4%
of our sales. Sales of disposable instrumentation did not increase
at anticipated rates in the quarter ended December 31, 1999 due to
the Company and Codman not agreeing to an extension of their
existing distribution agreement until November 1999 and design
changes in the Bident Bipolar Oral Surgical System, which delayed
sales of bipolar dental instruments.
Gross profit was $526,719, or 48% of sales, for the three
months ended December 31, 1999, as compared to gross profit of
$454,566, or 48% of sales, for the three months ended December 31,
1998.
Selling, general and administrative expenses increased by 11%
to $412,023 for the three months ended December 31, 1999 from
$369,648 for the three months ended December 31, 1998.
Research and development expenses decreased by 14% to $67,132
for the three months, ended December 31, 1999. Although research and
development expenses decreased as a whole, the research and
development expenses for new instrumentation increased. We developed
six new disposable neurosurgical instruments, four new disposable
dental instruments as well as new disposable instrumentation for use
in the fields of laparoscopic surgery, ENT (ear, nose and throat),
plastic and reconstructive surgery and maxillofacial surgery.
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<PAGE 6>
We had income from operations of $27,416 for the three months
ended December 31, 1999 as compared to a loss from operations of
$16,333 for the three months ended December 31, 1998. We had
interest income of $10,585 for the three months ended December 31,
1999, as compared to $9,694 for the three months ended December 31,
1998. The provision for income taxes was $16,600 for the three
months ended December 31, 1999 as compared to a benefit of income
taxes of $229 for the three months ended December 31, 1998.
As a result of the foregoing, we had net income of $21,401
for the three months ended December 31, 1999 as compared to a net
loss of $6,410 for the three months ended December 31, 1998. Income
per basic and diluted common share was $.00 for the three months
ended December 31, 1999 as compared to a loss per basic and diluted
share of $.00 for the three months ended December 31, 1998.
Liquidity and Capital Resources
The primary measures of our liquidity are cash balances
(including short-term investments), accounts receivable and
inventory balances, as well as our borrowing ability. During the
three months ended December 31, 1999, our working capital increased
by $35,632 to $3,030,408.
We used $431,374 in operating activities for the first three
months of fiscal 2000 principally from an increase of $460,802 in
accounts receivable, an increase in inventory of $28,285, and an
increase in prepaid items and other current assets of $55,417, offset
by an increase in accounts payable and accrued expenses of $46,386
and the Company's net income, as adjusted for noncash items. The
increase in accounts receivable was due to normal market conditions.
During the three months ended December 31, 1999, we used
$14,512 for the repurchase of 4,000 shares of our common stock
pursuant to a stock repurchase program we announced on May 13, 1999.
All 4,000 shares are in the process of being retired. Cash
decreased by $445,886 in the first three months of fiscal 2000,
resulting in a balance of $712,576 in our cash and cash equivalents
at December 31, 1999.
For the three months ended December 31, 1998, we provided
$223,790 from operating activities and used $12,576 for the purchase
of property and equipment.
We have no long-term debt. We believe that we have available
all funds needed for operations, research and development and
capital expenditures as they may arise in the future. However,
should it be necessary, we believe we could borrow adequate funds at
competitive rates and terms.
YEAR 2000 COMPLIANCE
As has been widely reported, many computer systems process
dates based on two digits for the year of a transaction and are
unable to process dates in the Year 2000 and beyond. The Company
primarily uses licensed software products in its operations with a
significant portion of processes and transactions centralized in one
particular software package. The Company has completed an upgrade
of this software package for Year 2000 compliance. Other systems
have been assessed, and have been replaced or modified to make the
necessary modifications to be Year 2000 compliant.
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<PAGE 7>
The Company is continuing its process of formal communication
with its significant suppliers, customers and service providers to
quantity the effects of their noncompliance. Any Year 2000
compliance problems with either the Company, its suppliers, its
service providers or its customers could result in a material
adverse effect on the Company's financial condition and operating
results. There can be no assurance that further assessment of the
Company's suppliers, data processing systems and customers will
address all issues of Year 2000 compliance.
FORWARD LOOKING STATEMENTS
The information provided in this report may contain "forward
looking" statements or statements which arguably imply or suggest
certain things about our future. Statements which express that
Valley Forge Scientific Corp. ("Valley Forge") "believes",
"anticipates", "expects", or "plans to" as well as other statements
which are not historical fact, are forward looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995.
These forward looking statements include, but are not limited to
statements about: (1) any competitive advantage we may have as a
result of our installed base of electrosurgical generators in the
field of neurosurgery; (2) our belief that our products exceed
industry standards or favorably compete with other companies' new
technological advancements; and (3) the anticipated success of
certain recently introduced products and disposable instrumentation
or products and disposable instrumentation scheduled to be released
in the near future for use in neurosurgery, other surgical
disciplines, and the dental market. These statements are based on
assumptions that we believe are reasonable, but a number of factors
could cause our actual results to differ materially from those
expressed or implied by these statements. The Company does not
intend to update these forward looking statements. Investors are
advised to review the "Additional Cautionary Statements" section
below for more information about risks that could affect the
financial results of Valley Forge.
ADDITIONAL CAUTIONARY STATEMENTS
Competition and Risk of Obsolescence from Technological Advances
The markets in which Valley Forge's products compete are
characterized by continuing technical innovation and increasing
competition. Some surgical procedures which utilize or could
utilize our products could potentially be replaced or reduced in
importance by alternative medical procedures or new drugs which may
adversely affect our business.
Product Acceptance and New Products
Valley Forge's growth depends in part on the acceptance of
our products in the marketplace, the market penetration achieved by
the companies which we have contracted with, and rely on, to
distribute our products, and our ability to introduce new and
innovative products that meet the needs of medical professionals.
There can be no assurance that we will be able to continue to
introduce new and innovative products or that the products Valley
Forge introduces, or has introduced,
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<PAGE 8>
will be widely accepted by the marketplace, or that companies which
Valley Forge has contracted to distribute our products will continue
to achieve market penetration in the field of neurosurgery and achieve
market penetration in the surgical disciplines and markets outside of
neurosurgery. Our failure to continue to introduce new products or gain
wide spread acceptance of our products would adversely affect our operations.
Government Regulation
The process of obtaining and maintaining required regulatory
approvals is lengthy, expensive and uncertain. Although we have not
experienced any substantial regulatory delays to date, there is no
assurance that delays will not occur in the future, which could have
a significant adverse effect on our ability to introduce new
products on a timely basis. Regulatory agencies periodically
inspect Valley Forge's manufacturing facilities to ascertain
compliance with "good manufacturing practices" and can subject
approved products to additional testing and surveillance programs.
Failure to comply with applicable regulatory requirements can,
among other things, result in fines, suspensions of regulatory
approvals, product recalls, operating restrictions and criminal
penalties. While we believe that we are currently in compliance, if
we fail to comply with regulatory requirements, it could have an
adverse effect on the our results of operations and financial
condition.
Uncertainties within the Health Care Markets
Political, economic and regulatory influences are subjecting
the health care industry in the United States to rapid, continuing
and fundamental change. Although Congress has not passed
comprehensive health care reform legislation to date, it is believed
that Congress, state legislatures and the private sector will
continue to review and assess alternative health care delivery and
payment systems. Responding to increased costs and to pressure from
the government and from insurance companies to reduce patient
charges, health care providers have demanded, and in many cases
received, reduced prices on medical devices and instrumentation.
These customers are expected to continue to demand lower prices in
the future. Valley Forge cannot predict what impact the adoption of
any federal or state health care reform measures, private sector
reform or market forces may have on our business. However, pricing
pressure is expected to continue to adversely affect profit margins.
Product Liability Risk
Valley Forge's products involve a risk of product liability.
Although we maintain product liability insurance at coverage levels
which we believe are adequate, there is no assurance that, if we
were to incur substantial liability for product liability claims,
insurance would provide adequate coverage against such liability.
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<PAGE 9>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
(A) EXHIBITS
None
(B) CURRENT REPORTS OF FORM 8-K
None
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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 11, 2000 By: /s/ Jerry L. Malis
-------------------------
Jerry L. Malis, President
(principal financial officer)
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<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted
from the Company's Form 10-Q for the quarter ended
December 31, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 712,576
<SECURITIES> 0
<RECEIVABLES> 1,001,528
<ALLOWANCES> 0
<INVENTORY> 1,198,794
<CURRENT-ASSETS> 3,243,412
<PP&E> 196,849
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,087,718
<CURRENT-LIABILITIES> 213,004
<BONDS> 0
0
0
<COMMON> 3,992,313
<OTHER-SE> (134,484)
<TOTAL-LIABILITY-AND-EQUITY> 4,087,718
<SALES> 1,107,613
<TOTAL-REVENUES> 0
<CGS> 580,894
<TOTAL-COSTS> 499,303
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 38,001
<INCOME-TAX> 16,600
<INCOME-CONTINUING> 21,401
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,401
<EPS-BASIC> .00
<EPS-DILUTED> .00
</TABLE>
