-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GEBvrr+v/C+IkbU+72HIwTyQyAT0zKxsp+PuSojwbR57AAFU8M0m3CWV44qlNv64 mAqorbw49A5wW36dbkYRgg== 0000836429-97-000010.txt : 19971230 0000836429-97-000010.hdr.sgml : 19971230 ACCESSION NUMBER: 0000836429-97-000010 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971229 SROS: BSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VALLEY FORGE SCIENTIFIC CORP CENTRAL INDEX KEY: 0000836429 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 232131580 STATE OF INCORPORATION: PA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10382 FILM NUMBER: 97744811 BUSINESS ADDRESS: STREET 1: 136 GREENTREE RD STE 100 CITY: OAKS STATE: PA ZIP: 19456 BUSINESS PHONE: 6106667500 MAIL ADDRESS: STREET 1: 136 GREEN TREE ROAD STREET 2: STE 100 CITY: OAKS STATE: PA ZIP: 19456 10-K 1 1 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended September 30, 1997. 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 of 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 16, 1997 as $17,714,332. At December 16, 1997 there were 8,229,384 shares of the Registrant's Common Stock outstanding. 2 DOCUMENTS INCORPORATED BY REFERENCE As stated in Part III of this annual report on Form 10-K, portions of the following documents are incorporated herein by reference: Definitive Proxy Statement for the Annual Meeting of Stockholders of the Registrant, or an Amendment to this Annual Report on Form 10-K, to be filed within 120 days after the end of the fiscal year covered by this Annual ReporT on Form 10-K. - 2 - 3 PART I Item 1. BUSINESS Nature of Business Valley Forge Scientific Corp. and its subsidiaries (collectively referred to as the "Company") is principally engaged in the development and manufacture of medical devices and other health care products. The Company is a leading manufacturer of bipolar electrosurgical products. Through its new generation of products, the Company is broadening the market for its products from neurosurgery and other microsurgery disciplines into other surgical fields. The Company sells its products to or through national and international distributors, which include affiliates of major health care corporations. The Company was incorporated in the Commonwealth of Pennsylvania on March 27, 1980. The Company's principal products consist of bipolar electrosurgical systems and related products and accessories. These bipolar electrosurgical systems are based on patented circuitry and allow a surgeon to coagulate blood vessels and/or cut tissue. Bipolar coagulation and cutting are conducted through the use of a surgical hand-held instrument, which is connected via a bipolar cord to the solid state microprocessor controlled generator. In bipolar electrosurgery, the current flow occurs at the tips of a bipolar instrument. This is quite different from conventional monopolar electrosurgical systems, in which the current passes from an active pen electrode through the patient to a grounding pad which acts as a dispersive electrode. The Company's bipolar electrosurgical systems enable a surgeon to bloodlessly cut, core and divide tissue without the use of a grounding pad and its inherent safety hazards. To provide irrigation for the bipolar electrosurgical systems, the Company also manufactures and sells the MALIS* Irrigation System. The irrigation system provides controlled irrigation for bipolar cutting and coagulation in a wet surgical field. The disposable MALIS* bipolar cord/irrigation tubing set ("C/T Set"), which is manufactured and sold by the Company, is used to connect a surgical hand-held instrument to both the irrigation module and the bipolar electrosurgical generator. The Company has developed bipolar instruments which are to be used with the Company's bipolar electrosurgical generators for hospital and office procedures in the fields of neurosurgery, gynecology, urology, arthroscopy, laparoscopy and plastic surgery. The bipolar instruments are connected to the bipolar electrosurgical generator through a C/T Set or a bipolar cord. The Company also manufactures and sells a disposable cardiopulmonary resuscitation (CPR) mask system, surgical magnifying loupes, a microsurgical stool and titanium surgical mesh. Of the Company's sales of $3,977,965 in fiscal 1997,approximately 92% were made to Johnson & Johnson Professional, Inc. ("J & J"), formerly known as Codman & Shurtleff, Inc., as compared to 89% and 76% in fiscal 1996 and 1995, respectively. The bipolar electrosurgical systems and the irrigation system accounted for approximately 76% of the Company's sales in fiscal 1997 and approximately 54% and 69% of the sales in fiscal 1996 and 1995, respectively. Sales of C/T Sets amounted to approximately 21% of the Company's sales in fiscal 1997 and approximately 35% and 28% in 1995 and 1994, respectively. - 3 - 4 Developments During the second quarter of 1997, the Company's MALIS* CMC- III-IEC received the CE Mark from the British Standards Institution. The CE Market allows the MALIS* CMC- III-IEC to be marketed throughout the European Community group of nations. The MALIS* CMC-III-IEC also received IEC 601-2-2 approval for marketing in Eastern and Western Europe, Australia, China and the Pacific Rim. In the third quarter of fiscal 1997, the Company modified its supply and distribution agreement with Boston Scientific Corporation and extended the term from March 1997 until March 2002. In the fourth quarter of 1997, the Company entered into anexclusive, five-year worldwide supply and distribution agreement with BEI Medical Systems Company, Inc. ("BEI"). Under the agreement, BEI has agreed to distribute new bipolar electrosurgical systems and instruments developed by the Company for use in gynecology and gynecological laparoscopic surgery. The systems are designed to be used in a variety of surgical applications related to the cervix and uterus, providing the physician and patient with an alternative to hysterectomy and offering a triage of medical applications for the cervix. Products The Company's business constitutes a single business segment. Bipolar Electrosurgical Systems MALIS* CMC-III High Power Bipolar Cutting/Coagulation System. This third generation system was first introduced into the neurosurgery market by J & J in October 1991 and is marketed by J&J under an existing distribution agreement. The MALIS* CMC-III High Power Cutting/Coagulation System provides high power in the cutting mode and allows the surgeon to cut through any tissue. MALIS* CMC-III -IEC Bipolar Cutting/Coagulation System. This system incorporates the same features as the MALIS* CMC-III, with certain modifications in order to meet the current standards for marketing the unit worldwide. The unit has received IEC-601 certification and bears the international "CE" mark. MALIS* Bipolar Synergy System. A 50 watt coagulator for neurosurgical use with updated coagulation technology. This system is marketed by J&J under an existing distribution agreement. Bipolar Endoscopic Coagulator. These generators are used as a coagulators in endoscopic procedures, and are the subject of an existing distribution agreement with Boston Scientific Corporation. The products are marketed by the Microvasive division of Boston Scientific Corporation under its "Symmetry Endo-Bipolar Generator" and "MINI-SYMM" trade names. Padgett Bipolar Cutter/Coagulator for Plastic/Reconstructive Surgery. This generator has been developed for use by plastic surgeons to minimize blood loss and post-operative scarring of tissue. This generator is being marketed by Padgett Instruments, Inc. pursuant to an existing distribution agreement. Bi-Safe-I Cutter/Coagulator for Office Gynecological Procedures. This generator meets the need for the bipolar modality in the physician's office and offers significant cost and time savings over other available equipment. This generator is being marketed by BEI pursuant to an existing supply and distribution agreement. - 4 - 5 VFS 200 Bipolar System. This system is now being marketed under the MALIS* CMC- III- IEC trade name by J&J. The system is used in magnetic imaging therapy, which uses magnetic resonance imaging equipment in conjunction with operative procedures, generally a tumor biopsy. To the Company's knowledge, the VFS 200, with its unique circuitry, is the only electrosurgical system which can be used in the same room with MRI equipment. Instrumentation Bipolar Electrosurgical Pen. The pen is a hand-held single-use instrument designed to be used with any of the Company's bipolar cutting generators. This product is in production and being prepared for delivery pursuant to existing distribution agreements. Bipolar Myoma Coagulation Electrodes for Laparoscopic use. The bipolar myoma coagulation electrodes are single-use instruments to be used in conjunction with the Bi-Safe I and Bi-Safe-II Systems for gynecological procedures. This product is in production and being prepared for delivery to BEI pursuant to an existing supply and distribution agreement. Bipolar Cutting Loop Electrodes. The bipolar loop electrodes are single use instruments with modifications of the alloy to provide faster and cleaner cutting. The loop electrodes are in production and being prepared for delivery pursuant to existing distribution agreements. The loop electrodes are to be used in conjunction with the Company's Bipolar Cutting/Coagulation Systems. Bipolar Coagulation Ball Electrodes. The bipolar ball electrodes are single use instruments to be used for coagulation in conjunction with the Company's bipolar cutting/coagulation systems in various surgical disciplines. The Company has recently received United States Food and Drug Administration ( FDA") clearance to market this instrument. MALIS* Irrigation System The MALIS* Irrigation System is principally used in conjunction with the Company's bipolar electrosurgical systems to provide controlled irrigation for bipolar coagulation and cutting in a wet surgical field. The system consists of an impulse pumped electrical generator which pumps and regulates the flow of liquid through irrigation tubing, including, the disposable MALIS* C/T Set, which is manufactured and sold by the Company. The irrigation system may also be used as a stand-alone unit. Other Products MALIS* Bipolar Cord/Irrigation Tubing Set. A disposable coextruded bipolar forceps cord combined with an irrigation tubing set which simultaneously delivers electrical current and irrigation fluid to a surgical hand-held instrument. A new C/T Set is used for each surgical procedure. The C/T Set is used in conjunction with the Company's bipolar electrosurgical systems and the irrigation system. * A registered trademark of Dr. Leonard I. Malis. - 5 - 6 CPR Mask System. This is a single-use disposable cardiopulmonary resuscitation (CPR) mask system. In 1996, the Company was granted a United States patent on the mask system. The Company is currently marketing and selling the mask and is also negotiating a licensing agreement with a third party for the manufacture and marketing of the mask system. Titanium Surgical Mesh. Interwoven titanium used in neurosurgery for the repair of skull and spinal column defects. Surgical Magnifying Loupes. The loupes enable the surgeon to magnify the surgical field. The product's multi-lens design provides correction of spherical and color aberrations and maximum depth of field. The loupes are presently available at powers of 2.5x, 3.25x and 4.0x magnification. The loupes are sold under the MALIS* and NEUROPTIC trademarks. Surgical Stool. A battery operated electrically controlled stool which allows the surgeon to adjust his seating position up or down as the microscope is raised or lowered throughout the surgical procedure. The product has been designed for surgeons in all disciplines who operate with a microscope. The surgical stool is sold under the MALIS* and SCOPEMATE trademarks. New Products to be Introduced into the Market The Company has developed several new bipolar generators, which are based on the technology employed in the MALIS* High Power Bipolar Cutting and Coagulation System, as well as a bipolar accessory products which are to be used in conjunction with these new generators. These products are designed to be sold in the neurosurgery, orthopedic, laparoscopic, urology, gynecology and plastic surgery fields. Bi-Safe-II High Power Bipolar Cutter/Coagulator for OB/GYN Procedures. The Company has developed a unique high power bipolar cutter/coagulator for use in OB/GYN hospital procedures. This generator has features which are unique and are designed to reduce the time required for surgical procedures. The Company has received FDA permission to market the generator. This generator will be marketed by BEI through an existing supply and distribution agreement. VFS 300 High Power Bipolar Cutter/Coagulator. This unit has a technology which enables the physician to cut tissue and/or coagulate blood vessels while the electrodes are totally submerged in electrically conducted fluids, such as saline. The Company has received FDA permission to market this system and intends to market the system for use in arthroscopy and other surgical disciplines. Bipolar Cord Set. A single use bipolar cord set which provides electrical current, without irrigation, from the Company's bipolar generators to the Company's single use bipolar instruments. Manufacturing and Supplies For over 14 years, prior to August 31, 1994, the manufacturing, assembly and packaging of the Company's electrosurgical products were subcontracted to Diversified Electronic Corporation ("Diversified"), a specialty electronics manufacturer, which provided contract manufacturing and research and development to an established base of customers. On August 31, 1994, the Company vertically integrated the manufacturing,assembly and packaging of its electrosurgical generators by acquiring Diversified. Since August 31, 1994, Diversified Electronics Company, Inc. ("DEC"), a wholly owned subsidiary of the Company, has conducted the - 6 - 7 operations of Diversified. In 1997, DEC concentrated its manufacturing efforts almost exclusively on the Company's products. The Company currently contracts the manufacturing ofits bipolar C/T Set, bipolar instrumentation and CPR Mask System with third parties. Each product is currently manufactured by a single contract manufacturer. The Company and its contract manufacturers purchase product components from mutiple sources. The Company's manufacturing process is subject to the regulatory requirements of the Federal Good Manufacturing Practice Regulations as promulgated by the FDA. The Company conducts quality assurance audits throughout the entire manufacturing process to ensure that all medical products comply with the applicable government regulations. Marketing and Sales The Company sells almost all of its products to or through national or international distributors which include affiliates of major health care corporations. In May 1991, the Company entered into a new distribution agreement with J & J, under which J & J is granted the exclusive right to sell the Company's bipolar electrosurgical systems, irrigation system, C/T Sets, titanium surgical mesh and other products developed by the Company in the field of neurosurgery through December 31, 1998. Under the terms of the distribution agreement, J & J is required to purchase no less than $1,100,000 in 1994 and subsequent years. For the 1997, 1996 and 1995 fiscal years, the Company had sales to J & J of $3,659,557, $3,055,531 and $2,042,990, respectively. Orders are generally filled on a current basis in each calendar year. Approximately 92% of the Company's sales were derived from sales to J & J in fiscal 1997 and approximately 89% and 76% of sales were made to J & J in fiscal 1996 and 1995, respectively. Under the terms of a development agreement with J & J, the Company has agreed to pay J & J through December 31, 1998 a royalty of 2-1/2% of the net sales of the high power bipolar electrosurgical system and 2% of the net sales of the C/T Sets outside of the field of neurosurgery. In the third quarter of fiscal 1997, the Company modified its supply and distribution agreement with Boston Scientific Corporation and extended the term from March 1997 to March 2002. The agreement covers the exclusive sale of bipolar electrosurgical coagulators developed by the Company for use in the fields of gastroenterology and endoscopy for hospital, outpatient clinic and office based procedures involving flexible endoscopy. Under the agreement, Boston Scientific Corporation has agreed to purchase the "Symmetry Endo-Bipolar Generator" and, upon regulatory approval in Japan and Europe, the new MINI-SYMMTM generator for worldwide distribution. In the first quarter of 1995, the Company entered into a distribution agreement with Padgett Instruments, Inc. for a bipolar coagulation and cutting system to be sold in the plastic and reconstructive surgery market. The Company has orders for generators and accessory products under this agreement. In the fourth quarter of 1997, the Company entered into an exclusive, five-year worldwide supply and distribution agreement with BEI Medical Systems Company, Inc. ("BEI"). Under the agreement, BEI has agreed to distribute the Bi-Safe I and Bi-Safe II bipolar electrosurgical systems and the Company's single use bipolar instruments for use in gynecology and gynecological laparoscopic surgery in hospitals, outpatient clinics and physician offices. BEI plans to market the system in the United States through their internal sales force, its U.S. distribution network and direct market catalogue and overseas through a network of overseas distributors that - 8 - 8 specialize in OB/GYN products. Initial shipments of generators and certain disposable instruments under this agreement are planned to occur in December 1997 or January 1998. While the Company's products are sold in foreign markets by J & J, the Company is not aware of the amount of products which are sold in those markets. Prior to sales in certain foreign markets, the Company will need to comply with applicable foreign government regulations. The Company currently markets the surgical magnifying loupes and the surgical stool through independent distributors. The Company's business is not affected to any material extent by seasonal factors. Competition The unique circuitry and patented waveform of the Company's bipolar electrosurgical systems are distinguished from bipolar electrosurgical systems sold by other entities. In the neurosurgery market, the Company believes that it is the principal manufacturer of bipolar electrosurgical systems. In other medical areas, the Company's products will compete with monopolar electrosurgical systems, as well as products based on other technologies, such as laser devices. The Company believes that its bipolar electrosurgical products offer enhanced capabilities and safety advantages as compared to monopolar electrosurgical systems and laser devices. The principal manufacturers of monopolar electrosurgical systems (currently the standard electrosurgical device used in the general surgery fields) are Valleylab, an affiliate of Pfizer, Inc., and Birtcher Medical Systems, Inc. An ultrasound device is sold by Valleylab and laser devices are sold by companies such as Surgical Laser Technology. A number of major medical product suppliers, including U.S. Surgical Corp., Ethicon, Inc. (a subsidiary of Johnson & Johnson), and Bard Endoscopic (a division of C.R. Bard) are selling or preparing to sell laparoscopic or endoscopic instruments for use with monopolar electrosurgical systems or other modalities. Certain of the laser surgical devices currently marketed by such firms as Surgical Laser Technology and Laserscope are also being used for general surgery. While there are currently several manufacturers of CPR masks, the Company believes that its CPR Mask made of silicone, which folds into a pocket portable size, yet deploys instantly for emergency use, offers advantages over other products. Research and Development For the 1997, 1996, and 1995 fiscal years, the Company expended $307,071, $87,536 and $125,775, respectively, for research and development. The Company anticipates that it will continue to incur research and development costs in connection with development of products. In the past, the Company's research and development was conducted internally as well as subcontracted to third parties. As a result of the acquisition of Diversified, the Company anticipates that its future research and development will be conducted internally. Clinical testing of the products is conducted by physicians, including, Dr. Leonard I. Malis, a principal shareholder and director of the Company. In the 1998 fiscal year, the Company anticipates that it will fund all its research and development with current assets and revenues from operations. - 8 - 9 Government Regulation The marketing and sale of the Company's products is governed by the Federal Food, Drug and Cosmetic Act (the "Act") administered by the FDA, as well as varying degrees of regulation by a number of foreign governmental agencies. The Act requires certain clearances from the FDA before medical devices can be marketed. All medical devices introduced into the market since 1976, which include substantially all of the Company's products, are required by the FDA as a condition of sale and marketing to secure either a 510(k) premarket notification clearance or an approved Premarket Approval application ("PMA"). A 510(k) premarket notification clearance indicates FDA agreement with an applicant's determination that the product for which clearance has been sought is substantially equivalent to another medical device that was on the market prior to 1976 or that has received 510(k) premarketing notification clearance. In general, the process of obtaining a 510(k) clearance typically takes several months and involves the submission of limited clinical data and supporting information while the PMA process typically will last more than a year and requires the submission of significant quantities of clinical data and manufacturing information. To comply with the FDA regulations, the Company incurs substantial costs relating to laboratory and clinical testing of new and existing products and the preparation and filing of documents in formats required by the FDA. From time to time, the Company may also encounter delays in bringing new or existing devices to market as a result of being required by the FDA and foreign governmental authorities to conduct and document additional investigations of product safety and effectiveness. The Company believes that it is in material compliance with regulations promulgated by the FDA and foreign governmental authorities, and that such compliance has been and is anticipated to be without adverse effect on its business. Patents and Trademarks The Company owns two principal United States patents for bipolar electrosurgery, one relating to the circuitry employed by the Company's bipolar electrosurgical systems and the other relating to two products under development. The patent for circuitry, which was first granted in 1986 and subsequently expanded upon in June 1994, covers 92 claims and is an important aspect of the Company's bipolar electrosurgical systems. In November 1995, the Company was granted a United States patent for its CPR mask system. The Company's practice and experience is to apply for patents which are important to the development or sale of a product. In October 1997, the Company was notified by the United States Patent and Trademark Office that its patent application for the bipolar cutting loop electrodes has been allowed and will issue in due course. Dr. Leonard Malis has entered into an agreement with the Company to license the "MALIS" trademark to the Company, at no cost to the Company, to the extent the name has not been licensed to Johnson & Johnson. The Company has also registered or is in this process of registering other trademarks. Employees At September 30, 1997, the Company and its subsidiaries had 33 full-time employees, including executive officers. The Company from time to time retains part-time employees, engineering consultants, scientists and other consultants. All full-time employees participate in the Company's health benefit plan. - 9 - 10 None of the Company's employees are represented by a union or covered by a collective bargaining agreement. The Company considers its relationship with its employees to be satisfactory. Item 2. PROPERTIES. The Company currently leases approximately 4,200 square feet of office and warehouse space at a base monthly rent of $4,362 (with increases based on increases in the consumer price index) in an office building in Oaks, Pennsylvania, approximately 12 miles northwest of Philadelphia, Pennsylvania. The current lease is for a term of five years ending on June 30, 2000. On August 31, 1994, the Company acquired a building with approximately 15,000 square feet of manufacturing and warehouse space in Philadelphia, Pennsylvania. Item 3. LEGAL PROCEEDINGS. As of September 30, 1997, there are no material pending legal proceedings to which the Company is a party or to which any of its property is the subject. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of the shareholders during the fourth quarter of fiscal year 1997. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is quoted on the Boston Stock Exchange under the symbol VLF, and traded in the over-the-counter market, and is included in the National Association of Securities Dealers Automated Quotation (NASDAQ) System - Small Cap Issues under the symbol VLFG. The table below sets forth the range of high and low closing bid quotations per share of Common Stock as reported on the NASDAQ System. Quotations represent prices between dealers and do not necessarily represent actual transactions. None of the prices shown reflect retail mark-ups, mark-downs, or commissions. COMMON STOCK High-Bid Low-Bid Fiscal 1996: First Quarter............................... $4 $2 Second Quarter.............................. 2 5/8 1 17/16 Third Quarter................................ 3 1 13/16 Fourth Quarter.............................. 3 5/16 1 7/8 Fiscal 1997: First Quarter .............................. $3 3/8 $2 Second Quarter............................... 3 5/8 2 1/16 Third Quarter................................ 5 1/16 2 1/8 Fourth Quarter............................... 5 1/16 3-1/8 At December 16, 1997, the Company had 119 shareholders of record. The Company believes that there are in excess of 1,000 beneficial shareholders of its Common Stock. The Company has not paid any dividends to date, nor does it expect to do so in the foreseeable future. - 10 - 11
Item 6. SELECTED FINANCIAL DATA Statement of Operations Data: 1997 1996 1995 1994(1) 1993 _________________ _____ _____ _____ _______ _____ Net Sales $3,977,965 $3,424,589 $2,688,427 $3,587,379 $2,401,651 Income (loss) from Operations 19,701 (96,285) (368,415) 694,159 249,003 Net Income (loss) $6,533 $(75,116) ($215,574) $547,615 $234,160 ======= ======== ========== ======== ======== Primary Earnings (loss) per share $.00 $(.01) $(.03) $.07 $.03 ==== ====== ====== ==== ==== Fully Diluted Earnings (loss) per share $.00 $(.01) $(.03) $.07 $.03 ===== ====== ====== ==== ==== Balance Sheet Data: At September 30, 1997 1996 1995 1994 1993 __________________ ____ ____ ____ ____ ____ Current Assets $3,139,256 $2,987,502 $3,052,414 $3,429,443 $3,007,457 Total Assets 4,254,070 4,217,958 4,379,866 4,884,525 3,754,205 Current Liabilities 187,817 164,595 256,123 353,891 220,629 Long Term Liabilities 11,093 4,736 0 170,775 0 Retained Earnings (deficit) 3,462 (3,071) 72,045 287,619 (259,996) Stockholders' Equity 4,055,160 4,048,627 4,123,743 4,359,859 3,553,576
(1) On August 31, 1994, the Company acquired Diversified Electronic Corporation pursuant to an Agreement and Plan of Merger. After September 1, 1994, the operations of Diversified Electronic Corporation were conducted by the Company's Diversified Electronics Company, Inc., wholly owned subsidiary. The results of operations of Diversified Electronics Company, Inc. from September 1, 1994 are included in the results of operations of the Company. - 11 - 12 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations 1997 and 1996 Fiscal Year Compared Sales of $3,977,965 for 1997 were 16% greater than sales for 1996. The sales increase primarily resulted from increased sales to Johnson & Johnson Professional, Inc. ("J&J"), the Company's principal customer with whom the Company has an existing distribution agreement. In 1997, J&J accounted for 92% of the Company's sales, as compared to 89% and 76% of the sales in 1996 and 1995, respectively. The sales gains reflect increased shipments of the Company's bipolar generators, including the two newest neurosurgical generators. During 1997, the Company's wholly-owned subsidiary Diversified Electronics Company, Inc. ("DEC") concentrated its manufacturing efforts almost exclusively on the Company's products. In 1998, the Company anticipates this trend to continue as the Company newest generators for use in the fields of gynecology, plastic and reconstructive surgery and orthopedic surgery enter production. Approximately 76% of the Company's 1997 sales related to sales of the bipolar electrosurgical and irrigation systems as compared to approximately 54% and 69% of the sales in fiscal 1996 and 1995, respectively. Sales of C/T Sets in 1997 accounted for approximately 21% of the Company's sales in 1997 and approximately 35% and 28% in 1996 and 1995, respectively. The Company's gross profit margin was 51% for 1997 as compared to gross profit margin of 46% and 47% for 1996 and 1995, respectively. Selling, general and administrative expenses increased by 7% in 1997 as compared to the amounts for 1996. Selling, general and administrative expenses were impacted by higher sales levels. Research and development expenses increased by 251% to $307,071 in 1997. The Company's research and development included the further development and refinement of generators and instrumentation in preparation for their introduction into the gynecology market and other markets. In the fourth quarter of 1997, the Company entered into an exclusive, five-year worldwide supply and distribution agreement with BEI Medical Systems Company, Inc. ("BEI"). Under the agreement, BEI has agreed to distribute the Bi-Safe I and Bi-Safe II bipolar electrosurgical systems and the Company's single-use bipolar instruments for use in gynecology and gynecological laparoscopic surgery in hospitals, outpatient clinics and physician offices. The Company plans to commence initial shipments of generators and certain disposable instruments under the supply and distribution agreement with BEI in December 1997 or January 1998. In addition, in the second quarter of fiscal 1998, the Company plans to commence shipments of other disposable instruments for use in the fields of neurosurgery, gynecology and plastic and reconstructive surgery. The Company had income from operations of $19,701 for 1997 as compared to a loss from operations of $96,285 for 1996. The Company had income before taxes of $28,768 in 1997 as compared to a loss before taxes of $88,095 in 1996. The Company made a provision for income taxes of $22,235 in 1997 as compared to a tax benefit of $12,979 in 1996. As a result of the foregoing, the Company had a net income of $6,533 in 1997 as compared to a net loss of $75,116 for 1996. Primary and fully diluted earnings per share was $.00 for 1997 compared to loss per share of $.01 for 1996. - 12 - 13 1996 and 1995 Fiscal Year Compared Sales of $3,424,589 for 1996 were 27% greater than sales for 1995. The sales increase primarily resulted from increased sales to J&J. In 1996, J&J accounted for 89% of the Company's sales, as compared to 76% and 90% of the sales in 1995 and 1994, respectively. The sales gains reflect increased shipments of the Company's surgical generators. Approximately 54% of the Company's 1996 sales related to sales of the bipolar electrosurgical and irrigation systems as compared to approximately 6 69% and 67% of the sales in fiscal 1995 and 1994, respectively. Sales of C/T Sets in 1996 accounted for approximately 35% of the Company's sales in 1996 and approximately 28% and 27% in 1995 and 1994, respectively. DEC accounted for approximately 8% of the Company's sales in 1996 as compared to 11% in 1995. The Company's gross profit margin was 46% for 1996 as compared to gross profit margin of 47% and 55% for 1995 and 1994, respectively. Selling, general and administrative expenses increased by 7% in 1996 as compared to the amounts for 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. Research and development expenses decreased by 30% to $87,536 in 1996, reflecting the completion of development of new generators in 1995. 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 agreement. The Company also commenced marketing the CPR mask system directly with other customers and distributors. The Company had a loss from operations of $96,285 for 1996 which was 74% less than the loss from operations of $368,415 for 1995. The Company had a loss before taxes of $88,095 in 1996 as compared to a loss before taxes of $363,965 in 1995. The Company's tax benefit was $12,979 in 1996 as compared to $148,391 in 1995. As a result of the foregoing, the Company had a net loss of $75,116 in 1996 as compared to a net loss of $215,574 for 1995. Primary and fully diluted loss per share was $.01 for 1996 compared to loss per share of $.03 for 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 1997, the Company's working capital increased by $128,532 to $2,951,439. For the 1997 fiscal year, the Company provided net cash of $494,496 from operating activities , which primarily reflected a decrease in inventory of $277,270 and the Company's net income from operations as adjusted for noncash charges relating to depreciation and amortization of $146,628. The increase in accounts receivable and decrease in inventory was primarily due to higher sales levels. - 13 - 14 Investing activities for 1997 used $24,353 for an increase in intangible assets of $10,296 and for the purchase of equipment in the amount of $14,057. Cash increased by $470,143 in 1997 leaving a balance of $632,904 in the Company's cash and cash equivalents at September 30, 1997. For the 1996 fiscal year, the Company used net cash of $126,102 in operating activities which reflected an increase in accounts receivable and inventory and prepaid items of $166,636, $239,432 and $27,014 respectively, less the net loss from operations as adjusted for noncash charges relating to depreciation and amortization of $67,159, a decrease in recoverable income taxes of $157,482 and an increase of accounts payable of $89,150. The increase in inventory and accounts receivable was primarily due to higher sales levels. Investing activities for 1996 used $45,693 for an increase in intangible assets of $14,508 and for the purchase of equipment in the amount of $31,185. Financing activities used $180,678 for the payment of a note payable originally issued in connection with the merger of Diversified Electronic Corporation into the Company. Cash decreased by $352,473 in 1996 leaving a balance of $162,761 in the Company's cash and cash equivalents at September 30, 1996. On March 1, 1996, the Company and Bernard H. Shuman, a director and Vice President- Technology of the Company, modified the payments terms of a note originally issued to Mr. Shuman 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 for the note on March 1, 1996, $15,000 in April, 1996 and $70,000 on August 1, 1996. On August 1, 1996, the note was canceled. The Company has a line of credit of $1,000,000 with CoreStates Bank which calls for interest to be charged at the bank's national commercial rate. The credit accommodation is unsecured and requires the Company to have a tangible net worth of no less than $3,000,000. At September 30, 1997, there was no outstanding balance on this line. At September 30, 1997, the Company' had no 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. Acquisition of Diversified On August 31, 1994, the Company acquired Diversified Electronic Corporation ("Diversified"), a company wholly owned by Bernard H. Shuman, pursuant to a Merger Agreement, in which the Company was the surviving corporation. After the merger, Diversified Electronics Company, Inc., a wholly owned subsidiary of the Company, conducted the operations of Diversified. In the Merger Agreement, the Company issued 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 which was paid upon the collection of certain accounts receivable of Diversified; and (iv) 139,334 shares of unregistered commonstock of the Company. The cash portion of the consideration was funded with the Company's available cash on hand. The assets of Diversified consisted primarily of equipment, fixtures, inventory, and intellectual property. Prior to the merger, Diversified Electronics Company, Inc., a wholly owned subsidiary of the Company, acquired the real property and building, which constituted Diversified's manufacturing facility, for $95,000 in cash. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not Applicable. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. A. Quarterly Results of Operations. Not applicable. B. Financial Statements and Financial Statement Schedules. See Index to Financial Statements and Financial Statement Schedules on page F-1 herein. Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. - 14 - 15 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information concerning directors and officers called for by Item 10 of Form 10-K will be set forth either: (i) in the Company's Definitive Proxy Statement for its Annual Meeting of Stockholders, or (ii) in an amendment to this Annual Report on Form 10-K, which in either case will be filed within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is incorporated herein by reference. Item 11. EXECUTIVE COMPENSATION. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information called for by Items 11, 12 and 13 of Form 10-K will be set forth either: (i) in the Company's Definitive Proxy Statement for its Annual Meeting of Stockholders, or (ii) in an amendment to this Annual Report on Form 10-K, which in either case will be filed within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is incorporated herein by reference. - 15 - 16 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. a. and d. Financial Statements and Financial Statement Schedules. See Index to Financial Statements and Financial Statement Schedules on Page F-1, herein. b. Reports on Form 8-K. None. c. Exhibits The following is a list of exhibits filed as part of this annual report on Form 10-K. Where so indicated by footnote, exhibits which were previously filed are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing isindicated in parentheses. (2) Agreement and Plan of Merger. (a) Agreement and Plan of Merger between Valley Forge Scientific Corp. and Diversified Electronic Corporation dated August 31, 1994. (4) (3) Articles of Incorporation and By-Laws. (a) Articles of Incorporation, as amended - (1) (Exhibit 3(a)). (b) By-Laws of the Company, as amended - (1) (Exhibit 3(b)). (4) Instruments defining the Rights of Security Holders, including Indentures. (a) Form of Common Stock Certificate - (1) (Exhibit 4(a)). (10) Material Contracts. (a) Non-Qualified Employee Stock Option Plan - (1) (Exhibit 10(a)). (b) Assignment of Know-How Agreement, dated June 30,1989 - (1) (Exhibit 10(g)). (c) Assignment of Patents - Bipolar Electrosurgical Systems, June 30, 1989 - (1) (Exhibit 10(h)). (d) Assignment of Patents - Binocular Magnification System, June 30, 1989 -(1) (Exhibit 10(i)). (e) Assignment of Malis trade name, dated June 30, 1989 - (1) (Exhibit 10(j)). (f) 401(k) and Profit-Sharing Plan - (2) (Exhibit 10(x)). - 16 - 17 (g) Distribution Agreement between Codman & Shurtleff, Inc. and the Company (3)(Exhibit 10(b)). (h) Amended and Restated Registration Rights Agreement, dated April 3, 1991 - (3)(Exhibit 10(g)). (i) Promissory Note from Jerry L. Malis to the Company. (6) (Exhibit 10(k)) (j) Promissory Note from the Company to Bernard H. Shuman. (6) (Exhibit 10(l)) (k) Employment Agreement Jerry L. Malis. (6) (Exhibit 10(m)) (l) Employment Agreement Thomas J. Gilloway. (6) (Exhibit 10(n)) (m) Employment Agreement Bernard H. Shuman. (6) (Exhibit 10(o)) (n) Registration Rights Agreement between the Company and Bernard H. Shuman (6) (Exhibit 10(p)) (o) Commercial Lease Agreement between GMM Associates and the Company dated July 1, 1995 (7) (Exhibit 10(p)) (21) Subsidiaries of Registrant Subsidiaries of Valley Forge Scientific Corp. (27) Financial Data Schedule Financial Data Schedule (1) Previously filed with the Registration Statement of the Company on Form S-18, Registration No. 33-31008-NY, and incorporated herein by reference. (2) Previously filed with the Registration Statement of the Company on Form S-18, Registration No. 33-35668-NY, and incorporated herein by reference. (3) Previously filed with the Registration Statement of the Company on Form S-1, Registration No. 33-40545, and incorporated herein by reference. (4) Previously filed with the Company's Form 8-K dated August 31, 1994, and incorporated herein by reference. (5) Previously filed with the Company's Form 10-K for the year ended September 30, 1993, and incorporated herein by reference. (6) Previously filed with the Company's Form 10-K for the year ended September 30, 1994, and incorporated herein by reference. (7) Previously filed with the Company's Form 10-K for the year ended September 30, 1995, and incorporated herein by reference. - 17 - 18 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 22nd day of December, 1997. VALLEY FORGE SCIENTIFIC CORP. By: /s/ Jerry L. Malis Jerry L. Malis, President Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Jerry L. Malis Chairman of the Board, December 22, 1997 Jerry L. Malis President (chief executive officer and principal financial and accounting officer) /s/ Thomas J. Gilloway Executive Vice President, December 22, 1997 Thomas J. Gilloway Secretary, Treasurer, Director /s/ Leonard I. Malis Director Leonard I. Malis December 22, 1997 /s/ Bruce A. Murray Director December 22, 1997 Bruce A. Murray /s/ Bernard H. Shuman Vice President -Technology, Bernard H. Shuman Director December 22, 1997 /s/ Robert H. Dick Director December 22, 1997 Robert H. Dick - 18 - F-1 VALLEY FORGE SCIENTIFIC CORP. Index to Financial Statements and Financial Statement Schedules Independent Auditor's Report F-2 Balance Sheets - September 30, 1997 and 1996 F-3 Statements of Operations - Years Ended September 30, 1997, 1996 F-4 and 1995 Statements of Stockholders' Equity - Years ended September 30, 1997 F-5 1996 and 1995 Statements of Cash Flows - Years ended September 30, 1997, 1996 and 1995 F-6 Notes to Financial Statements F-7 ___________________ All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. F-1 F-2 INDEPENDENT AUDITOR'S REPORT The Board of Directors and Stockholders Valley Forge Scientific Corp. and Subsidiaries Oaks, Pennsylvania We have audited the accompanying consolidated balance sheets of Valley Forge Scientific Corp. and Subsidiaries as of September 30, 1997 and 1996 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended September 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Valley Forge Scientific Corp. and Subsidiaries as of September 30, 1997 and 1996, and the results of operations and cash flows for each of the three years in the period ended September 30, 1997, in conformity with generally accepted accounting principles. SAMUEL KLEIN AND COMPANY Newark, New Jersey December 1, 1997 F-2 F-3 VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARIES BALANCE SHEETS September 30, ASSETS 1997 1996 Current Assets: ---- ---- Cash and cash equivalents $ 632,904 $ 162,761 Accounts receivable, net 856,900 871,648 Inventory 1,410,527 1,687,797 Prepaid items and other current assets 91,393 87,258 Recoverable income taxes 8,352 12,889 Current portion of deferred income tax benefit 139,180 165,149 --------- --------- Total Current Assets 3,139,256 2,987,502 Property, Plant and Equipment, net 267,612 303,414 Intangible Assets, net 842,730 922,670 Other Assets 4,472 4,372 --------- --------- Total Assets $4,254,070 $4,217,958 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY ____________________________________ Current Liabilities: Accounts payable and accrued expenses $ 187,817 $ 164,595 ------- ------- Total Current Liabilities 187,817 164,595 Deferred Income Taxes Payable 11,093 4,736 ------- ------- Total Liabilities 198,910 169,331 ------- ------- Commitments and Contingencies Stockholders' Equity: Preferred stock - - Common stock (no par, 10,000,000 shares authorized, 8,229,384 shares issued and outstanding at September 30, 1997 and 1996) 4,051,698 4,051,698 Retained earnings (deficit) 3,462 (3,071) --------- --------- Total Stockholders' Equity 4,055,160 4,048,627 --------- --------- Total Liabilities and Stockholders' Equity $4,254,070 $4,217,958 ========= ========= The accompanying notes are an integral part of these financial statements. F-3
F-4 VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARIES STATEMENTS OF OPERATIONS For the Years Ended September 30, 1997 1996 1995 --------- --------- --------- Net Sales $3,977,965 $3,424,589 $2,688,427 Cost of Sales 1,951,342 1,840,130 1,431,466 --------- --------- --------- Gross Profit 2,026,623 1,584,459 1,256,961 --------- --------- --------- Other Costs: Selling, general and administrative 1,609,615 1,503,000 1,409,246 Research and development 307,071 87,536 125,775 Amortization 90,236 90,208 90,355 ---------- ---------- --------- Total Other Costs 2,006,922 1,680,744 1,625,376 ---------- ---------- --------- Income (Loss) from Operations 19,701 (96,285) (368,415) Other Income (Expense): Interest income (expense) 9,067 8,190 2,205 Gain on sale of equipment - - 2,245 ---------- ---------- ---------- Income (Loss) Before Income Taxes 28,768 (88,095) (363,965) Provision for (Benefit of) Income Taxes 22,235 (12,979) (148,391) --------- --------- --------- Net Income (Loss) $ 6,533 $ (75,116) $ (215,574) ========= ======== ========= Earnings (Loss) Per Share: Primary earnings (loss) per share of common stock $ .00 $ (.01) $ (.03) ========== ======== ========= Fully diluted earnings (loss) per share $ .00 $ (.01) $ (.03) ========== ========= ========= Primary common shares outstanding 8,293,667 8,269,203 8,318,675 Fully diluted common shares outstanding 8,320,840 8,308,428 8,318,675 The accompanying notes are an integral part of these financial statements. F-4
F-5 VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARIES STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 Common Stock No Par Value ----------------- Retained Total Number of Common Earnings Stockholders' Shares Stock Amount (Deficit) Equity ----------- -------------- ---------- ------------- Balances, October 1, 1994 8,239,384 $4,072,240 $287,619 $4,359,859 Retirement of Shares (10,000) (20,542) - (20,542) Net Loss for the Year Ended September 30, 1995 - - (215,574) (215,574) ----------- --------- ---------- ------------- Balances, September 30, 1995 8,229,384 4,051,698 72,045 4,123,743 Net Loss for the Year Ended September 30, 1996 - - (75,116) (75,116) ----------- --------- ---------- ------------ Balances, September 30, 1996 8,229,384 4,051,698 (3,071) 4,048,627 Net Income for the Year Ended September 30, 1997 - - 6,533 6,533 ----------- ---------- ---------- ------------ Balances, September 30, 1997 8,229,384 $4,051,698 $ 3,462 $4,055,160 =========== ========= ======== =========
The accompanying notes are an integral part of these financial statements. F-5 F-6 VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS For the Years Ended September 30, 1997 1996 1995 ----- ---- ---- Cash Flows from Operating Activities: Net income (loss) $ 6,533 $ (75,116) $ (215,574) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 140,095 142,275 143,202 Gain on disposition of assets - - (2,245) Changes in assets and liabilities, net of effect from: (Increase) decrease in accounts receivable 14,748 (166,636) 480,514 (Increase) decrease in inventory 277,270 (239,432) 43,340 (Increase) decrease in recoverable income taxes 4,537 157,482 (170,371) (Increase) decrease in deferred income tax benefit 25,969 (11,547) (88,004) (Increase) decrease in other assets (100) - 425 (Increase) decrease in prepaid items and other current assets (4,135) (27,014) (4,477) Increase (decrease) in accounts payable and accrued expenses 23,222 89,150 (145,159) Increase (decrease) in income taxes payable - - (86,099) Increase in deferred taxes payable 6,357 4,736 - ------- ------- -------- Net cash provided by (used in) operating activities 494,496 (126,102) (44,448) -------- ------- ------- Cash Flows from Investing Activities: Increase in intangible assets (10,296) (14,508) (945) Purchase of property, plant and equipment (14,057) (31,185) (45,556) Proceeds from sale of equipment - - 4,000 -------- -------- -------- Net cash used in investing activities (24,353) (45,693) (42,501) -------- -------- --------- Cash Flows from Financing Activities: Net reduction in notes payable - (180,678) (37,285) Purchase and retirement of common stock - - (20,542) ---------- ---------- --------- Net cash used in financing activities - (180,678) (57,827) ---------- ---------- --------- Net Increase (Decrease) in Cash and Cash Equivalents 470,143 (352,473) (144,776) Cash and Cash Equivalents, beginning of year 162,761 515,234 660,010 --------- --------- -------- Cash and Cash Equivalents, end of year $632,904 $ 162,761 $ 515,234 ======== ======== ======== Supplemental Disclosures of Cash Flow Information: Cash paid during the year for: Interest $ - $ 14,225 $ - ======= ======== ======= Income taxes $ 2,500 $ - $ 199,814 ======= ======== ======= The accompanying notes are an integral part of these financial statements. F-6 F-7 VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company Valley Forge Scientific Corp. ("VFSC") was incorporated on March 27, 1980 in the Commonwealth of Pennsylvania and 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. In January 1993, VFSC formed a wholly - owned subsidiary, Valley Consumer Products, Inc. ("VCP") to market specific product lines. During 1996, VCP commenced initial operations and began marketing the CPR mask system developed by VFSC. Collectively, VFSC, DEC and VCP are referred to herein as the "Company". Cash and Cash Equivalents The Company considers cash equivalents to be all highly liquid investments with original maturities of three months or less. Principals of Consolidation and Basis of Presentation 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. Revenue Recognition The Company currently sells its products to or through national or international distributors which include affiliates of major health care corporations. A significant part of the Company's sales are made pursuant to a distribution agreement in the field of neurosurgery effective through December 31, 1998. Revenues from sales are recorded on the accrual basis of accounting, when goods are shipped or when services are provided. Use of Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Inventory Inventory is stated at the lower of cost, determined by the moving average cost method, or market. Property, Plant and Equipment Property, plant and equipment are recorded at cost. Depreciation is computed by the straight-line method over the estimated useful lives of the assets, which vary from three to forty years. Leasehold improvements are being amortized over the related lease term or estimated useful lives, whichever is shorter. Upon retirement or other disposition of these assets, the cost and related accumulated depreciation are removed from the accounts and the resulting gains or losses are reflected in the results of operations. Routine maintenance and repairs are charged to expense as incurred. F-7 F-8 VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Intangible Assets Intangible assets, consisting of patents, licensing agreements, proprietary know-how, cost of acquisition and goodwill are amortized to operations under the straight-line method over their estimated useful lives or statutory lives, whichever is shorter. Goodwill representing the excess of the purchase price paid over the fair market value of net assets acquired is being amortized over 20 years. Acquisition costs have been capitalized and are being amortized over 5 years. Research and Development Costs associated with development of new products are charged to operations as incurred. Earnings per Share Primary earnings per common and common equivalent share are computed on the basis of the weighted average number of common shares outstanding during each year and include shares assumed issued on the exercise of all common stock equivalents, such as, dilutive stock options and warrants and the purchase of treasury stock with the proceeds at the average market price for the period. Fully diluted earnings per share assumes the exercise of all dilutive common stock equivalents and all other potentially dilutive securities and the purchase of treasury stock, at the higher of the market price at the end of the year or the average market price during the year. Income Taxes Tax provisions and credits are recorded at enacted tax rates for taxable items included in the consolidated statements of operations regardless of the period for which such items are reported for tax purposes. Deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when the determination can be made that it is more likely than not that some portion or all of the related tax asset will not be realized. Impairment of Long-Lived Assets Effective October 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS 121 requires that if facts and circumstances indicate that the cost of fixed assets or other assets may be impaired, an evaluation of recoverability would be performed by comparing the estimated future undiscounted pre-tax cash flows associated with the asset to the asset's carrying value to determine if a write-down to market value or discounted pre-tax cash flow value would be required. Accounting for Stock-Based Compensation Effective for the year ending September 30, 1997, the Company adopted the disclosure provisions of Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation." As permitted under SFAS 123, the Company has continued to apply accounting prescribed by Accounting Principle Board Opinion No. 25 ("APB 25"). Under APB 25, compensation expense is determined on the measurement date, that is, the first date on which both the number of shares the employee is entitled to receive and the exercise price, if any, are known. Compensation expense, if any, is the excess of the market price of the stock over the exercise price on the measurement date. F-8 F-9 VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Reclassifications Certain reclassifications have been made to the prior year balances to conform to the current year's presentation. 2. ACCOUNTS RECEIVABLE Accounts receivable are comprised of the following at September 30, 1997 1996 ---- ---- Accounts receivable $ 975,292 $1,105,255 Less: Allowance for doubtful accounts and contractual allowances 118,392 233,607 ------- ------- $ 856,900 $ 871,648 ======= ======= 3. INVENTORY Inventory consists of the following: September 30, 1997 1996 ---- ---- Finished goods $ 32,958 $ 34,279 Work-in-process 1,098,436 1,129,495 Materials and parts 279,133 524,023 --------- --------- 1,410,527 $ 1,687,797 ========= ========= 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following: September 30, 1997 1996 ---- ---- Land $ 11,953 $ 11,953 Building and improvements 86,917 81,332 Furniture and fixtures 16,669 15,369 Laboratory equipment 364,744 359,062 Office equipment 96,145 94,655 Leasehold improvements 9,413 9,413 -------- ------- 585,841 571,784 Less: Accumulated depreciation and amortization 318,229 268,370 -------- ------- $267,612 $303,414 ======== ======= Depreciation is reflected in both cost of sales and selling, general and administrative expenses. Total depreciation for the years ended September 30, 1997, 1996 and 1995 is $49,859, $52,067 and $53,036, respectively. F-9 F-10 VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. INTANGIBLE ASSETS Intangible assets consist of the following: September 30, 1997 1996 ---- ---- Patents/trademarks/licensing agreements $ 557,155 $546,859 Proprietary know-how 452,354 452,354 Acquisition costs 55,969 55,969 Excess of purchase price over net assets acquired in connection with the acquisition of Technical Medical Industries, Inc. 351,123 351,123 ------- ------- 1,416,601 1,406,305 Less: Accumulated amortization 573,871 483,635 ------- --------- $ 842,730 $ 922,670 ======= ========= 6. RELATED PARTY TRANSACTIONS On May 24, 1994, Jerry L. Malis, a principal shareholder, director and officer of the Company borrowed $17,500 from the Company. The note is payable on demand and is secured by 5,833 shares of common stock of the Company and has a stated rate of interest of 4.83%, the then current "applicable federal rate" as set forth under the Internal Revenue Code. On January 30, 1995, Jerry L. Malis borrowed an additional $5,320 from the Company. The balance of the note and loan including accrued interest is reflected in other current assets and as of September 30, 1997 and 1996 was $25,092 and $24,925, respectively. 7. NOTES PAYABLE In connection with the Company's 1994 acquisition of Diversified, the Company issued two promissory notes to the sole shareholder of Diversified Electronics Corporation who is a current officer, director and shareholder of the Company. On March 1, 1996, the Company modified the payment terms of the note. Pursuant to the modification, the Company paid $100,000 on March 1, 1996, $15,000 on April 11, 1996 and the remaining $70,000 on August 1, 1996. As of September 30, 1996 the loan was paid in full. The Company had a line of credit of $750,000 with Meridian Bank which called for interest to be charged equal to the bank's national commercial rate. The unsecured loan was payable on demand requiring monthly interest payments on the unpaid principal and reduction of the loan balance to zero for a minimum of thirty consecutive days during each twelve month period. In addition the loan covenant called for a minimum tangible net worth of no less than $3,000,000 during the term of the loan. On September 11, 1997, the Company amended the loan agreement to increase the line of credit to $1,000,000 based on all the same terms of the original agreement. At September 30, 1997 and 1996 there were no outstanding balances on this line. 8. COMMITMENTS AND CONTINGENCIES The Company is subject to litigation arising from the normal course of business. In management's opinion, any such contingencies are covered under its existing insurance policies or do not materially affect the Company's financial position. F-10 F-11 VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. COMMITMENTS AND CONTINGENCIES (Continued) The Company is subject to regulatory requirements throughout the world. In the normal course of business, these regulatory agencies may require companies in the medical industry to change their products or operating procedures, which could affect the Company. The Company regularly incurs expenses to comply with these regulations and may be required to incur additional expenses. Management is not able to estimate any additional expenditure outside the normal course of operations which will be incurred by the Company in future periods in order to comply with these regulations. Employment Agreements Effective July 1, 1994, the Company entered into employment agreements with Jerry L. Malis and Thomas J. Gilloway, for terms of 63 months. The agreements provided for annual base salaries to Mr. Malis and Mr. Gilloway of $148,720 and $126,940, respectively, with annual base salary increases at 10% commencing October 1, 1994. In addition the agreements provide that Messrs. Malis and Gilloway may each receive such other cash and stock bonuses and benefits as may be determined from time to time by the Board of Directors. For the year ended September 30, 1996, the officers waived their right to the 10% increase of base salary for that year. The base salaries for the years ended September 30, 1996 and 1995 were $163,592 for Jerry L. Malis and $139,634 for Thomas J. Gilloway. The base salaries for Jerry L. Malis and Thomas J. Gilloway for the year ended September 30, 1997 were $179,951 and $153,598, respectively. On August 31, 1994, pursuant to the merger agreement with Diversified, the Company entered into an employment agreement with Bernard H. Shuman, the former President of Diversified and a current Vice President of the Company, for a term of 59 months commencing September 1, 1994. The agreement provided for a salary of $50,000 per annum through July 31, 1995 and thereafter at $105,000 per annum through July 31, 1999. In addition, the agreement provided that Mr. Shuman may receive such other compensation and benefits as the Board of Directors of the Company may decide. The employment agreement may be terminated for cause. The base salary for Bernard H. Shuman for the years ended September 30, 1997, 1996 and 1995 was $105,000, $105,000 and $59,170, respectively. 401(k) Plan and Profit Sharing Plan The Company's 401(k) Plan and Profit Sharing Plan cover full-time employees who have attained the age of 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 the current Federal limitation of $9,500 per year (as adjusted for cost of living increase). Amounts contributed to the 401(k) Plan are nonforfeitable. 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 in the plan until completion of three years of employment. The Board of Directors determine the Company's contributions to the plan on a discretionary basis. The Company has not made any contributions to date. Stock Option Plan On July 6, 1988, the Company adopted a non-qualified employee stock option plan (the "Plan") pursuant to which 500,000 shares of Common Stock have been reserved for issuance to employees, officers, directors or consultants of the Company. Options granted pursuant to this plan will be non-transferrable and expire if not exercised after ten years or for such lesser term as approved by the board of directors. Options may be granted in such amounts and at such prices as determined by the Board of Directors, but the price per share shall not be less than the fair market value of the Company's Common Stock. On October 24, 1994, the Company granted to employees and a board member stock options to purchase 20,000 shares of common stock pursuant to the plan, at $2.50 per share (the closing bid price on the NASDAQ small-cap market on October 24, 1994). Options granted expire if not exercised after ten years, commencing October 24, 1994. F-11 F-12 VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. COMMITMENTS AND CONTINGENCIES (Continued) Stock Option Plan (continued) On December 22, 1994, the Company granted to each of Jerry L. Malis and Thomas J. Gilloway stock options to purchase 50,000 shares of Common Stock pursuant to the Plan at $2.375 per share (the closing bid price on the NASDAQ small-cap market on December 22, 1994). Options granted expire if not exercised after ten years, commencing December 22, 1994. On December 22, 1995, the Company granted to its employees stock options to purchase a total of 8,000 shares of Common Stock pursuant to the Plan at $2.13 per share (the closing bid price on the NASDAQ small-cap market on December 22, 1995). Options granted expire if not exercised after ten years, commencing December 22, 1995. On July 26, 1996, the Company granted to its employees stock options to purchase a total of 44,000 shares of Common Stock pursuant to the Plan at $2.31 per share (the closing bid price on the NASDAQ small-cap market on July 26, 1996). Options granted expire if not exercised after five years, commencing July 26, 1996. At September 30, 1997, no stock options have been exercised. As referred to in Note 1, the Company has adopted the disclosure provisions of SFAS 123, "Accounting for Stock Based Compensation." As permitted under this statement the Company retained its current method of accounting for stock compensation in accordance with APB 25. Following is a summary of the Company's non-qualified employee stock option plan: Weighted Exercise Average Price Exercise Shares Per Share Price ------- ---------- --------- Options outstanding at October 1, 1994 223,400 $1.56 - $5.13 $2.68 Granted 120,000 $2.37 - $2.50 2.40 Exercised - - - Surrendered, forfeited or expired - - - -------- -------------- ------- Options outstanding September 30, 1995 343,400 $1.56 - $5.13 2.58 Granted 52,000 $2.13 - $2.31 2.28 Exercised - - - Surrendered, forfeited or expired - - - --------- -------------- ------ Options outstanding at September 30, 1996 395,400 $1.56 - $5.13 2.54 Granted - - - Exercised - - - Surrendered, forfeited or expired (4,500) $2.31 - $2.50 2.39 --------- -------------- ------- Options outstanding at September 30, 1997 390,900 $1.56 - $5.13 $ 2.54 ======== ============ ===== F-12 F-13 VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. COMMITMENTS AND CONTINGENCIES (Continued) Stock Option Plan (continued) Pro forma information regarding net income and earnings per share is required by FASB 123, and has been determined as if the Company had accounted for the employee stock options under the fair value method of that statement. The fair value for these options granted during the respective years ending September 30, 1997 and 1996 was estimated at the date of implementation of FASB 123 using a Black-Scholes option pricing model with the following weighted average assumptions: Risk-Free interest (based on U.S. Government strip bonds on the date of grant with maturities approximating the expected option term) 5.47% to 6.61% Dividend yields 0% Volatility factors of the expected market price of the Company's Common Stock (based on historical data) 50.9% to 59.7% Expected life of options 5.5 years Fair values for future options are to be estimated at the date of grant. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options, and because changes in subjective input assumptions can materially affect the fair value estimated, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. In management's opinion existing stock option valuation models do not provide a reliable single measure of the fair value of employee stock options that have vesting provisions and are not transferable. In addition, option pricing models require the input of highly subjective assumptions, including expected stock price volatility. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. In accordance with FASB 123, only stock options granted during the years ended September 30, 1997 and 1996 have been included for the Company's pro forma information as follows: 1997 1996 ---- ---- Additional compensation expense, net of tax effect $ - $ (41,445) Pro forma net loss $ - $ (116,561) Pro forma loss per share: Primary $ - $ (.01) Fully diluted $ - $ (.01) The weighted average fair value of options granted during the years ended September 30, 1997 and 1996 were $ - and $1.34. (Continued) F-13 F-14 VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. COMMITMENTS AND CONTINGENCIES (Continued) Operating Leases The Company currently leases approximately 4,200 square feet of office and warehouse space in an office building in Oaks, Pennsylvania, from 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 lease is for a term of five years which commenced on July 1, 1995 and call for a base rent of $4,362 (with increases based on increases in the consumer price index) plus costs associated with real estate taxes, maintenance and utilities. The related expense for this lease for the years ended September 30, 1997, 1996 and 1995 was $52,937, $51,565 and $51,244, respectively. As of September 30, 1997 the Company was current on all rental obligations due the related party. The Company has also entered into leases for certain equipment under operating lease agreements with terms ranging between two and three years. A schedule of future minimum payments under operating leases is as follows: Year ending September 30, ------------------------ Related Other Party Operating ------- --------- 1998 $ 52,340 $23,371 1999 52,340 20,609 2000 39,255 10,234 2001 - - 2002 - - ------- -------- $143,935 $ 54,214 ======= ======== 9. MAJOR CUSTOMERS For the years ended September 30, 1997, 1996 and 1995, a significant part of the Company's revenues were derived from one major customer pursuant to distribution agreements under which the Company granted the exclusive right to sell its electrosurgical systems and other products developed by the Company in the field of neurosurgery through December 31, 1998. Revenues derived from this customer are as follows: Year ended September 30, 1997 $3,659,557 92% Year ended September 30, 1996 $3,055,531 89% Year ended September 30, 1995 $2,042,990 76% At September 30, 1997 and 1996, this customer accounted for approximately 80% and 76%, respectively, of the Company's accounts receivable while one other customer represented approximately 19% and 22%, respectively. F-14 F-15 VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 10. STOCKHOLDERS' EQUITY Common Stock The holders of Common Stock have no preemptive rights and the Common Stock has no redemption, sinking fund or conversion provisions. Each share of Common Stock is entitled to one vote on any matter submitted to the holders and to equal rights in the assets of the Company upon liquidation. All of the outstanding shares of Common Stock are fully paid and nonassessable. On October 14, 1992, the Board of Directors of the Company approved a stock repurchase plan whereby the Company may, from time to time, repurchase on the open market up to 100,000 shares of the Company's Common Stock. During the fiscal year ended September 30, 1995, the Company repurchased for retirement 10,000 shares at a price of $20,542 resulting in a total of 27,500 shares repurchased since the inception of the repurchase plan at an aggregate price of $99,924. Preferred Stock The Company is authorized to issue 487 shares of preferred stock, $1,000 par value. The holders of the preferred stock would have no voting rights or preemptive rights. Upon liquidation of the Company, a $1,000 per share liquidating dividend must be paid upon each issued and outstanding share of preferred stock before any liquidating dividend is paid on the Common Stock. As of September 30, 1997, there were no issued or outstanding preferred shares, and the Company has no intention to issue any preferred stock in the immediate future. 11. PROVISION FOR (BENEFIT OF) INCOME TAXES Provision for (benefit of) income taxes is as follows: For the Years Ended September 30, 1997 1996 1995 ---- ---- ---- Current: Federal $ (8,911) $ 1,736 $(67,196) State - - - -------- ------ -------- (8,911) 1,736 (67,196) -------- ------ -------- Deferred: Federal 27,104 (49,413) (39,198) State 4,042 11,304 (41,997) -------- ------- -------- 31,146 (38,109) (81,195) -------- ------ ------ Adjustment of deferred tax asset for state income tax rate changes and expired net operating loss carryforwards net of Federal tax effect - 23,394 - -------- ------ ------- - 23,394 - -------- ------ ------- $ 22,235 $ (12,979) $(148,391) ========= ======== ======== In accordance with FASB 109, tax credits arising from net operating losses, which previously were reported as extraordinary items, have now been restated as offsets against the provision (benefit) for income taxes. F-15 F-16 VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 11. PROVISION FOR (BENEFIT OF) INCOME TAXES (Continued) The Company's effective tax rate was 77.3%, (14.7)% and (40.8)% in 1997, 1996 and 1995, respectively. Reconciliation of income tax at the statutory rate to the Company's effective rate is as follows: For the Years Ended September 30, 1997 1996 1995 ---- ---- ---- Computed at the expected statutory rate 34.0% (15.0)% (34.0)% State taxes net of federal tax benefit 8.5 8.4 (7.6) Reduction in state tax rate resulting from utilization of tax loss carryforwards - (8.4) - Non-deductible expenses 24.5 9.3 2.9 Other 10.3 (9.0) (2.1) ---- ---- ----- 77.3% (14.7)% (40.8)% ==== ==== ==== Certain items of income and expense are recognized in different years for financial reporting and income tax purposes. Deferred income taxes are provided in recognition of these temporary differences. The items that give rise to the deferred income tax benefit are as follows: September 30, 1997 1996 Deferred Tax Asset: ---- ---- Difference in capitalization of inventory cost $ 73,463 $ 54,106 Difference in reporting bad debts 48,059 94,829 State of Pennsylvania net operating loss carryforward 22,603 21,159 ------ ------ Total deferred tax asset 144,125 170,094 Valuation allowance (4,945) (4,945) ------- ------- Net deferred tax asset $139,180 $165,149 ======= ======= Deferred Tax Liability: Difference in reporting depreciation $ 11,190 $ 4,736 ------- ------- Total Deferred Tax Liability $ 11,190 $ 4,736 ======= ======= The Company has net operating loss carryforwards of approximately $343,800 available to reduce future state taxable income of which $143,300 and $197,500 expire in the years ended September 30, 1998 and September 30, 2000, respectively. 12. CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company to concentration of credit risk consist principally of short-term cash investments and trade receivables. The Company maintains substantially all of its banking activities with one bank and cash balances throughout the year generally exceed the federally insured limit of $100,000. The Company invests overnight these cash balances which exceed $100,000 in U.S. Treasury Securities. At September 30, 1997 and 1996 the balances the company held in these securities was $477,000 and $119,000, respectively. Management believes that the risk associated with trade receivables, which are principally due from two customers, is adequately provided for in the allowance for doubtful accounts. F-16 VALLEY FORGE SCIENTIFIC CORP. REPORT ON FORM 10-K FOR YEAR ENDED SEPTEMBER 30, 1997 INDEX TO EXHIBITS* EXHIBIT NUMBER EXHIBIT NAME _____________________________________________________________________________ 21 Subsidiares of Valley Forge Scientific 27 Financial Data Schedule * Only the exhibits actually filed are listed. Exhibits incorporated by reference are set forth in the exhibit listing in Item 14 of the Report on Form 10-K.
EX-21 2 EXHIBIT 21 SUBSIDIARIES OF VALLEY FORGE SCIENTIFIC CORP. 1. Diversified Electronics Company, Inc., a Pennsylvania corporation. 2. Valley Consumer Products, Inc., a New Jersey corporation. EX-27 3
5 This Schedule contains summary financial information extracted from the Company's Form 10-K for the year ended September 30, 1997 and is qualified in its entirety by reference to such financial statements. YEAR SEP-30-1997 SEP-30-1997 632,904 0 856,900 0 1,410,527 3,139,256 267,612 0 4,254,070 187,817 0 0 0 4,051,698 3,462 4,254,070 3,977,965 3,977,965 2,163,840 1,794,424 0 0 0 28,768 22,235 6,533 0 0 0 6,533 .00 .00
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