SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. [FEE REQUIRED]
For the fiscal year ended September 30, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. [FEE REQUIRED]
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
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
Common Stock, no par value Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
or 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. X
The aggregate market value of voting stock held by non-affiliates of the
registrant, computed by reference to the closing bid and ask prices as
reported by the NASDAQ system on December 17, 1996 as $11,787,055.
At December 17, 1996 there were 8,229,384 shares of the Registrant's Common
Stock outstanding.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and executive officers of the Company are as follows:
Director
Name Age Position(s) Since
_______________________________________________________________________
Jerry L. Malis 64 Chairman of the
Board and President 1980
Thomas J. Gilloway 59 Executive Vice President,
Secretary, Treasurer
and Director 1984
Leonard I. Malis 77 Director 1989
Bruce A. Murray 60 Director 1992
Bernard H. Shuman 72 Vice President and Director 1994
Jerry L. Malis has served as President or Vice-President and a Director
of the Company since its inception in March 1980. As of June 30, 1989,
Mr. Malis was elected as Chairman of the Board of the Company. He has
published over fifty articles in the biological science, electronics and
engineering fields, and has been issued twelve United States patents.
Mr. Malis coordinates and supervises the development, engineering and
manufacturing of the Company's products and is in charge of the daily business
operations of the Company. He devotes substantially all his business time to
the business of the Company.
Thomas J. Gilloway has been Executive Vice President and a Director of
the Company since December 1984, and as of June 30, 1989 was appointed
Secretary and Treasurer of the Company. From the Company's inception in
March 1980 to December 21, 1984, Mr. Gilloway served in capacities as a
Vice-President and Treasurer. Mr. Gilloway received his undergraduate
degree from LaSalle University in 1959 and his graduate degree from
Temple University in 1963. Prior to his involvement with the Company,
Mr. Gilloway was employed in a marketing capacity for Scott Paper Company,
C.R. Bard, Inc., and CheckPoint Systems as Director of Marketing. He is
involved with marketing, regulatory and contract administration matters
for the Company and devotes substantially all his business time to the
business of the Company.
Leonard I. Malis, M.D., a consultant to the Company since its inception in
March 1980, has been a director since June 30, 1989. Dr. Malis was
Professor and Chairman of the Department of Neurosurgery at Mount Sinai
School of Medicine, New York, New York, from 1971 until 1993, and is
currently Professor Emeritus at Mount Sinai School of Medicine. Dr. Malis has
been issued five United States patents and has designed and trademarked over
one hundred instruments. He has published over one hundred articles in medical
journals and reviews and is the author of ten chapters in textbooks on
neurosurgery.
Bruce A. Murray has been a director of the Company since October 14, 1992.
He is Executive Vice President, Chief Operating Officer and Director of Erbtec
Engineering, Inc., a designer and manufacturer of high power RF devices; a
Managing Member of The Change Management Group, LLC, a management consulting
company; and a Principal of Adair & Murray Associates, Inc., a management
consulting company. From 1991 to May 1993, he was a senior consultant with
the management consulting firm of Rath and Strong. From 1984 to August 1991,
Mr. Murray held positions within the Pfizer Hospital Products Group, as
Director of Engineering-Surgical Products, Corporate Vice President - Research
and Development, and Senior Vice President and Business Manager - Surgical
Products. He has also held senior management positions with Valleylab, Inc.,
Picker Corporation Electronics Division, Ball Brothers Research Corporation
and IIT Research Institute. Mr. Murray received both his B.S. in Engineering
and his M.B.A. from the Illinois Institute of Technology, and is an adjunct
instructor in business strategies at the University of Colorado.
Bernard H. Shuman has been a director and Vice President of the Company
since September 1, 1994. Mr. Shuman is currently Vice President-Technology.
Prior to September 1, 1994, Mr. Shuman served as President and director of
Diversified Electronic Corporation ("Diversified"), a specialty electronics
manufacturer which merged into the Company on August 31, 1994.
Jerry L. Malis and Dr. Leonard I. Malis are brothers. The Company's
executive officers are elected annually by the Company's directors and
shall continue to serve until their successors are elected and qualified.
Item 11. EXECUTIVE COMPENSATION.
The following table sets forth the compensation paid by the Company to its
executive officers for the three fiscal years ended September 30, 1996.
SUMMARY COMPENSATION TABLE
Number of Shares of
Common Stock
Name and Underlying
Principal Position Fiscal Year Salary (1) Options Granted
_______________________________________________________________________________
Jerry L. Malis, 1996 $ 163,592 ---
President 1995 163,592 50,000
1994 146,628 ---
Thomas J. Gilloway, 1996 $139,634 ---
Executive Vice President 1995 139,634 50,000
1994 124,848 ---
Bernard H. Shuman 1996 $105,000 25,000
Vice President-Technology
(1) Non-cash compensation did not exceed the lesser of $50,000 or 10% of the
cash compensation for the named individual.
STOCK OPTIONS GRANTED IN 1996 FISCAL YEAR
Number of Shares
of Common Stock Percent of Total
Underlying Options Granted to Exercise Expiration
Name Options Granted Employees Price Date
Bernard H. Shuman 25,000 57% $2.31 July 26, 2001
Effective July 1, 1994, the Company entered into employment agreements
with Jerry L. Malis, President, and Thomas J. Gilloway, Executive Vice President
for a term of 63 months. The agreements provide for annual base salaries to
Mr. Malis and Mr. Gilloway of $148,720 and $126,940, respectively, in 1994,
with annual base salary increases of 10% commencing on October 1, 1994. For
the year ended September 30, 1996, Messrs. Malis and Gilloway waived their
right to the 10% increase of base salary for that year. The agreements also
provide that Messrs. Malis and Gilloway may each receive such other cash and
stock bonuses as may be determined from time to time by the Board of Directors.
The employment agreements may be terminated for cause. In addition, the
agreements provide that in the event of a change of control (as defined in the
Securities Exchange Act of 1934) of the Company, the employee may terminate his
employment for "good reason" and shall be entitled to receive a payment equal
to the lesser of (i) 2.99 times the employee's average annual compensation
(including bonuses, if any) during the three years preceding the date of
termination; or (ii) the compensation payable for the remaining term of the
agreement. The term "good reason" includes the assignment to the employee
of duties inconsistent with the employee's then position, a relocation of the
Company's office more than 30 miles from the Company's present offices, a
failure of the Company to continue in effect any benefit or compensation plan,
depriving the employee of any fringe benefit, or the failure of any successor
entity to assume the employment agreement.
On August 31, 1994, the Company entered into an employment agreement with
Bernard H. Shuman, Vice President-Technology, for a term of 59 months. The
agreement provides for an annual salary to Mr. Shuman of $50,000 for the
period from September 1, 1994 to July 31, 1995, and a salary of $105,000
for each twelve month period thereafter. The agreement provides that Mr.
Shuman may receive additional compensation and benefits as may be
determined from time to time by the Board of Directors. The agreement
provides for certain death and disability benefits. The employment
agreement may be terminated for cause.
Directors' Compensation
Directors of the Company do not receive any compensation for their services
as members of the Board of Directors, but Directors who are not officers of the
Company are entitled to reimbursement for expenses incurred in connection with
their attendance at meetings and are entitled to participate in the Company's
Stock Option Plan.
401(k) Plan and Profit-Sharing Plan
Effective January 1, 1990, the Company adopted a 401(k) Plan and Profit
Sharing Plan that covers full-time employees who have attained age 21 and have
completed at least one year of service with the Company. Under the 401(k) Plan,
an employee may contribute an amount up to 25% of his compensation to the 401(k)
Plan on a pre-tax basis not to exceed $9,240 per year (adjusted for cost of
living increases). Amounts contributed to the 401(k) Plan are non-forfeitable.
Under the Profit Sharing Plan, a participant in the plan participates in
the Company's contributions to the Plan as of December 31 in any year,
with allocations to individual accounts based on annual compensation. An
employee does not fully vest an interest in the plan until completion of three
years of employment. The Board of Directors determines the Company's
contributions to the plan on a discretionary basis. The Company has not made
any contributions to date.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The following table sets forth as of January 16, 1996, certain information
with respect to the beneficial ownership of Common Stock, by each person
known to the Company to own beneficially 5% or more of the outstanding
Common Stock, by each director and nominee, and by all officers and
directors as a group.
Amount of
Name and Address of Beneficial Percentage
Beneficial Owners (1) Ownership Owned
Jerry L. Malis (2)(3) 1,282,276 15.3%
Thomas J. Gilloway(2)(3) 1,001,375 12.0%
Dr. Leonard I. Malis(2) 895,575 10.9%
Bernard H. Shuman(2)(4) 136,467 1.7%
Bruce A. Murray(2)(5) 9,500 *
All officers and directors
as a group (5 persons) 3,325,193 38.8%
* less than 1%
(1) Except as indicated in the footnotes to this table, the persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them.
(2) The mailing address of Messrs. Malis, Gilloway, Shuman and Murray and
Dr. Malis, directors of the Company, is 136 Green Tree Road, Oaks,
Pennsylvania 19456.
(3) Includes 50,000 shares of Common Stock which may be purchased by each of
Jerry L. Malis and Thomas J. Gilloway through the exercise of stock
options issued pursuant to the Company's Non-Qualified Stock Option Plan
at a per share exercise price of $1.56; 50,000 shares of Common Stock
which may be purchased by each of Jerry L. Malis and Thomas J. Gilloway
through the exercise of stock options at a per share exercise price of
$3.625; and 50,000 shares of Common Stock which may be purchased by each
of Jerry L. Malis and Thomas J. Gilloway through the exercise of stock
options at a per share exercise price of $2.375.
(4) Includes 25,000 shares of Common Stock which may be purchase by Mr. Shuman
through the exercise of stock options issued pursuant to the Company's
Non-Qualified Stock Option Plan at a per share exercise price of $2.31.
The record owner of 111,467 shares of Common Stock is The Bernard H.
Shuman Living Trust, a trust in which Mr. Shuman is designated as the sole
trustee and for which he possesses the power to vote the shares.
(5) Includes 5,000 shares of Common Stock which may be purchased by Mr. Murray
through the exercise of stock options issued pursuant to the Company's
Non-Qualified Stock Option Plan at a per share exercise price of $3.625;
1,000 shares of Common Stock which may be purchased at a per share exercise
price of $4.25; 1,000 shares of Common Stock which may be purchased at a
per share exercise price of $2.50 per share; and 2,500 shares of Common
Stock which may be purchased at a per share exercise price of $2.31.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Since the late 1960's, Dr. Leonard I. Malis, a director of the Company, on
an individual basis, has been a party to royalty arrangements with Johnson
& Johnson Professional, Inc. ("J&J"), formerly known as Codman & Shurtleff,
Inc., a principal customer of the Company. Dr. Malis has developed and
in the future may develop passive hand instruments for J&J with no pecuniary
benefits to the Company.
The Company has entered into a five year lease commencing on July 1, 1995
for approximately 4,200 square feet of office and warehouse space at a base
monthly rent of $4,362 with GMM Associates, a Pennsylvania general partnership,
whose partners are Jerry L. Malis, Thomas J. Gilloway and Leonard I. Malis,
principal shareholders, directors and/or officers of the Company. The related
expense for this lease for the year ended September 30, 1996 was $51,565. The
Company believes the rental payments reflect fair rental value for the space.
For fiscal 1996, the Company paid legal fees in the amount of $70,962
to Hale & Schenkman, a law firm in which the son-in-law of Jerry L. Malis is a
partner.
On August 31, 1994, the Company acquired Diversified Electronic
Corporation, a Pennsylvania corporation, ("Diversified") pursuant to an
Agreement and Plan of Merger ("Merger Agreement"), in which the Company was
the surviving corporation. Pursuant to the Merger Agreement, the Company issued
to Bernard H. Shuman, the President and sole shareholder of Diversified, the
following consideration: (i) cash in the amount of $161,500; (ii) a noninterest
bearing note in the amount of $185,000 payable on March 1, 1996; (iii) a
noninterest bearing note in the amount of $47,188, payable upon the collection
of certain accounts receivable of Diversified; and (iv) 139,334 shares of
unregistered common stock of the Company. The note for $47,188 was paid and
canceled in October 1994. Pursuant to an agreement between Mr. Shuman and the
Company, the $185,000 noninterest bearing note due on March 1, 1996 was paid
as follows: $100,000 on March 1, 1996; $15,000 in April 1996 and $70,000 on
August 1, 1996. On August 1, 1996, the note was canceled.
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on this 27th
day of January, 1997.
VALLEY FORGE SCIENTIFIC CORP.
By: /s/ Jerry L. Malis
Jerry L. Malis, President