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, 1997
[ ] 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 11, 1997 there were 8,229,384 shares outstanding of the Registrant's
no par value Common Stock.
VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARIES
Balance Sheets
March 31, September 30,
1997 1996
(Unaudited) (Audited)
ASSETS
Current Assets:
Cash and cash equivalents $ 140,886 $ 162,761
Accounts receivable - trade (net) 902,437 871,648
Inventory 1,614,024 1,687,797
Prepaid items and other current assets 93,554 87,258
Recoverable income taxes 31,173 12,889
Current portion of deferred income tax benefit 211,003 165,149
--------- ---------
Total Current Assets 2,993,077 2,987,502
Property, Plant and Equipment, net of
Accumulated Depreciation 285,126 303,414
Intangible Assets, net of Accumulated Amortization 877,545 922,670
Other Assets 4,872 4,372
--------- ---------
Total Assets $4,160,620 $4,217,958
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses 237,832 164,595
Income taxes payable - -
--------- ---------
Total Current Liabilities 237,832 164,595
--------- ---------
Deferred Income Taxes Payable 4,736 4,736
--------- ---------
Total Liabilities 242,568 169,331
--------- ---------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock - -
Common stock (no par, 10,000,000 shares
authorized, 8,229,384 shares issued and
outstanding at March 31, 1997 and
September 30, 1996) 4,051,698 4,051,698
Retained earnings (deficit) (133,646) (3,071)
--------- ---------
Total Stockholders' Equity 3,918,052 4,048,627
--------- ---------
Total Liabilities and Stockholders' Equity $4,160,620 $4,217,958
========= =========
VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARIES
Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
Net Sales $1,204,683 $ 719,575 $1,675,369 $1,387,963
Cost of Sales 579,034 347,351 889,165 690,746
--------- --------- --------- ---------
Gross Profit 625,649 372,224 786,204 697,217
_________ _________ _________ ________
Other Costs:
Selling, general and
administrative 415,675 384,670 791,758 744,927
Research and
development 74,604 26,385 160,104 46,478
Amortization 22,556 22,555 45,125 45,111
--------- --------- --------- ---------
Total Other Costs 512,835 433,610 996,987 836,516
_________ _________ _________ _________
Income (Loss) from
Operations 112,814 (61,386) (210,783) (139,299)
Other Income:
Interest income 922 3,856 1,610 8,183
--------- --------- --------- ---------
Income (Loss) before
Income Taxes 113,736 (57,530) (209,173) (131,116)
Provision for (Benefit of)
Income Taxes 48,749 (6,746) (78,598) (28,349)
--------- --------- --------- ---------
Net Income (Loss) $ 64,987 $ (50,784) $ (130,575) $ (102,767)
========= ========= ========= =========
Earnings (Loss) Per Share:
Primary earnings (loss)
per share of common
stock $ .01 $ (.01) $ (.02) $ (.01)
========= ========= ========= =========
Fully diluted earnings
(loss) per share $ .01 $ (.01) $ (.02) $ (.01)
========= ========= ========= =========
Primary common shares
outstanding 8,307,284 8,240,576 8,294,778 8,255,631
Fully diluted common
shares outstanding 8,307,284 8,251,594 8,294,778 8,255,631
VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARIES
Statements of Cash Flows
For the Six Months Ended March 31,
1997 1996
Cash Flows from Operating Activities:
Net income (loss) $(130,575) $(102,767)
Adjustments to reconcile net income (loss) to
net cash used in by operating activities:
Depreciation and amortization 71,993 71,085
Changes in assets and liabilities, net of
effect from:
Increase in accounts receivable (30,789) (33,166)
Decrease (increase) in inventory 73,773 (236,136)
Increase in recoverable income taxes (18,284) -
Increase in deferred income tax benefit (45,854) (22,067)
Increase in accounts payable and accrued
expenses 73,237 125,313
Increase in prepaid items and other
current assets (6,796) (37,399)
-------- --------
Net cash used in operating activities (13,295) (235,137)
-------- --------
Cash Flows from Investing Activities:
Purchase of property, plant and equipment (8,580) (8,368)
-------- --------
Net cash used in investing activities (8,580) (8,368)
-------- --------
Cash Flows from Financing Activities:
Increase in notes payable - 4,322
Principal payments on notes payable - (100,000)
-------- --------
Net cash used in financing activities - (95,678)
-------- --------
Net Decrease in Cash and Cash Equivalents (21,875) (339,183)
Cash and Cash Equivalents, beginning of period 162,761 515,234
-------- --------
Cash and Cash Equivalents, end of period $ 140,886 $ 176,051
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Income taxes $ - $ -
======== ========
Interest $ - $ -
======== ========
VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARIES
Notes to Financial Statements
March 31, 1997 and 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
March 31, 1997 and the statements of operations for the three
and six months ended March 31, 1997 and 1996 and the statements of cash
flows for the six months ended March 31, 1997 and 1996.
The statements of operations for the three and six months ended
March 31, 1997 and 1996 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.
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, 1997
Compared to the Three and Six Months Ended March 31, 1996.
Sales of $1,204,683 for the three months ended March 31, 1997 were
67% greater than sales of $719,575 for the three months ended March 31, 1996,
while sales of $1,675,369 for the six months ended March 31, 1997 were 21%
greater than sales of $1,387,963 for the six months ended March 31, 1996.
Sales to Johnson & Johnson Professional, Inc. ("J&J") were at higher levels
in the second quarter of 1997 as a result of increased worldwide marketing by
J&J and sales of new generators developed by the Company.
Gross profit was $625,649 and $786,204 for the three and six months
ended March 31, 1997 as compared to gross profit of $372,224 and $697,217 for
the corresponding periods in 1996. The Company's gross profit margin was 52%
and 47%, respectively, for the three and six months ended March 31, 1997 as
compared to 52% and 50% for the corresponding periods in the prior year.
Selling, general and administrative expenses for the three and six
months ended March 31, 1997 increased by 8% and 6%, respectively, from the
corresponding periods in 1996.
Research and development expenses continued to rise in the second
quarter of 1997. Research and development expenses increased by 183% to
$74,604 for the three months ended March 31, 1997 and by 244% to $160,104 for
the first six months of fiscal 1997. The increase in research and development
expenses reflects the development and refinement of generators and
instrumentation in preparation for introduction into markets in addition to
the Company's base neurosurgery market.
The Company had income from operations of $112,814 for the three months
ended March 31, 1997 and a loss from operations of $210,783 for the six
months ended March 31, 1997, as compared to a loss from operations of $61,386
and $139,299, respectively, for the corresponding periods in 1996. The
Company made a provision for income taxes of $48,749 for the three months
ended March 31,1997 and received a benefit of income taxes of $78,598 for the
six months ended March 31, 1997 as compared to receiving a benefit of income
taxes of $6,746 and $28,349, respectively, for the corresponding periods in
1996.
As a result of the foregoing, the Company had net income of $64,987, or
$.01 per share, for the three months ended March 31, 1997, and a net loss of
$130,575, or $.02 per share, for the six months ended March 31, 1997, as
compared to a net loss of $50,784, or $.01 per share, and $102,767, or $.01
per share, for the corresponding periods in 1996.
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 six months ended March 31, 1997,
the Company's working capital decreased by $67,662 to $2,755,245, however,
for the second quarter of 1997, the Company's working capital increased by
$96,028.
The Company used $13,295 in operating activities for the first six
months of fiscal 1997 principally from the Company's net loss as adjusted for
the depreciation and amortization of $58,582, and an increase in accounts
receivable of $30,789, less a decrease in inventory of $73,773. The decrease
in the Company's inventory for the first six months of fiscal 1997 reflects the
Company's increased sales for the second quarter of 1997. Investing activities
for the first six months of fiscal 1997 used a total of $8,580 for the purchase
of equipment.
As a result of the foregoing, cash decreased by $21,875 in the first
six months of fiscal 1997, leaving a balance of $140,886 in the Company's cash
and cash equivalents at March 31, 1997. The Company's retained deficit
increased to $133,646 at March 31, 1997 from $3,071 at September 30, 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.
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, 1997.
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 11, 1997 By: /s/ Jerry L. Malis
Jerry L. Malis, President
(principal financial officer)
Date: May 11, 1997 By: /s/ Thomas J. Gilloway
Thomas J. Gilloway
Executive Vice President