ITEM 1. BUSINESS
General
There were no material changes in the nature of the business conducted by Moyco Technologies, Inc. during the fiscal year ended June 30, 1996. The Company manufacturers and sells commercial abrasive materials, dental materials and supplies and repacks and sells other disposable materials.
The Company's net sales, operating profit, and identifiable assets for each of the two aforementioned business segments is detailed in Note 5 and Item 6 to the consolidated financial statements.
Page 2 of 41
Business Segments
Commercial Abrasive Materials
The Registrant is engaged through its Ultralap Division in the manufacture and sale of commercial abrasive materials under the name "Flex-I-Grit." "Flex-I-Grit" is sold by a master distributor and other repackers to approximately 45 accounts, six of these accounted for 76% of total sales for this division.
The Registrant further is engaged through its Ultralap Division in the manufacture and sale of fine polishing agents and abrasives sold under the trade name "Ultralap." The "Ultralap" products are sold by in-house salesmen to approximately 470 customers, nine of these customers accounted for over 40% of the total sales of these products. During the last fiscal year, the sale of "Ultralap" products accounted for approximately 77% of the total sales of this division.
Dental Supplies
The Registrant through its dental division is engaged in the manufacture and sale of dental supplies such as waxes, abrasives, medicaments, dental mirrors, endodontic materials and equipment, sundry dental items as well as a repacker of other disposable materials. During the last fiscal year the sale of endodontic (root canal) instruments manufactured by the Registrant accounted for 36% of the total sales of the dental division.
All sales are made from existing inventory by six salaried salespersons to approximately 400 dental supply wholesalers and distributors in the United States and Overseas. During the last fiscal year foreign sales represented approximately 12% of the total sales of the dental division. Ten customers accounted for more than 60% of the total sales of this division.
Approximately 1% of the dental supply and repacking business of the Registrant was done with the United States Government for the fiscal year ended June 30, 1996.
Backlog
There is a backlog of orders in the aggregate of $1,992,092 as of June 30, 1996. There had been a backlog of $1,416,388 as of June 30, 1995. Approximately 27% of the backlog at June 30, 1996 was for dental supplies and materials.
Page 3 of 41
Sources and Availability of Supplies
The Company procures its raw materials and supplies from various sources and does not expect to have any difficulty in procurement during the coming year or during the foreseeable future.
It is intended that the Company will continue in its existing lines of dental supplies and commercial abrasive materials during the current fiscal year.
Research and Development
The Company engages in research activities and has two employees devoting part of their time to this activity. Such research as is conducted is directed toward the development of new products related to current product lines and the improvement and enhancement of existing products.
Competition
All of the lines of business in which the Registrant is presently engaged are highly competitive. There are numerous other manufacturers of dental supplies, polymer backed abrasives, other abrasives and repackers, many of which are larger and have greater financial reserves and more sales representatives.
Employees
The Registrant employs approximately 115 persons, of whom 82 are involved in manufacturing abrasives and other products of the Ultralap and Dental divisions, and 33 engaged in administration, sales, engineering, supervision and clerical work. The Registrant has had no work stoppages and considers its employee relations to be good.
Other
Moyco did not experience any curtailment of supplies of electricity, gas, oil or water during the fiscal year ended June 30, 1996 and does not expect any curtailment in the current fiscal year.
In as much as the Company believes it produces no significant discharges of waste or pollutants into the air, there are no significant effects on the Company in complying with current Federal, State and local environmental laws and regulations.
Moyco Technologies, Inc. as of June 30, 1996 was in compliance with the enactment of the Clean Air Act, effective August 1992.
Page 4 of 41
ITEM 2.
ITEM 2. PROPERTIES
The Registrant is the owner of two buildings. The Montgomeryville, Pennsylvania facility was a one-story cinder block building containing approximately 26,000 square feet of which approximately 13,000 square feet were used for manufacturing; 11,750 square feet for warehousing and distribution; and 1,250 square feet for offices. This facility is primarily used for the manufacture of precision coated abrasives for commercial and industrial use. During the prior year, the registrant expanded its Montgomeryville, Pennsylvania facility to 40,125 square feet of which 14,250 square feet are used for manufacturing; 19,875 square feet for warehousing and distribution; and 6,000 square feet for offices. The York, Pennsylvania facility is 68,995 square feet of which approximately 45,807 square feet are used for manufacturing; 16,542 for warehousing and 6,646 for offices. There are mortgages on both properties. Moyco's facilities are suitable for their respective uses and are in general, adequate for Moyco's present needs.
During the prior year the registrant donated the five story brick building in Philadelphia, Pennsylvania containing approximately 88,000 square feet of which approximately 59,928 square feet was used for manufacturing, 22,968 square feet for warehousing and distribution, and 5,104 square feet for offices to a qualified charity.
The Registrant leased 27,671 square feet of space in a building in Emigsville, Pennsylvania. Initial lease term began September 30, 1991 and ended March 31, 1992 at $5,283 per month. Renewal rate at the then prevailing market rate $6,646, per month. This facility was utilized in connection with the dental supply segment. The lease was terminated in December of 1994 when the registrant moved to its newly constructed building in York, Pennsylvania.
The registrant has completed two capital projects. 30% of the total $1,000,000 expansion of the Montgomeryville facility was financed over 15 years with the Pennsylvania Industrial Development Authority at an interest rate of 2%, 50% of the project cost was financed by the bank over 15 years at 8 3/4% for 5 years and a variable rate for 10 years thereafter and the remaining 20% by the registrant. The Montgomeryville project was completed in March of 1995. Construction of a new building in York, Pennsylvania to replace the leased facility was completed during December 1994. 37% of the total project cost of $2,700,000 was financed by the Pennsylvania Industrial Development Authority at 2%, 53% of the cost was financed by the bank at 9.25% for 5 years and at prime plus 1% thereafter, and the remaining 10% by the registrant.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
None, however there can be no certainty that the Company may not ultimately incur charges, whether for governmental proceedings and claims, products liability claims, environmental proceedings or other actions, in excess of presently established accruals. While such future charges could have a material adverse impact on the Company's net income in the quarterly period in which they are recorded, the Company believes that such additional charges, if any, will not have a material adverse effect on the consolidated financial position or annual results of operations of the Company. Also, refer to Recent Developments in Item 7, page 9 of 41.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
N O N E
Page 5 of 41
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
Price Range of Common Stock:
The following table shows the range of low and high prices for the common stock in the over-the-counter market for the quarterly periods indicated according to the Company's records. The quotations represent prices in the over-the-counter market between dealers in securities and do not include retail markup, markdown or commission and do not necessarily represent actual transactions. The common stock of the Company began trading in the Nasdaq National Market on January 26, 1996.
Low High
First quarter ended September 30, 1995 4.75 15.50
Second quarter ended December 31, 1995 7.50 13.50
Third quarter ended March 31, 1996 6.50 10.75
Fourth quarter ended June 30, 1996 5.50 12.00
First quarter ended September 30, 1994 1.00 1.00
Second quarter ended December 31, 1994 .94 .94
Third quarter ended March 31, 1995 .85 .85
Fourth quarter ended June 30, 1995 2.06 2.13
There were no dividends paid during the fiscal year ended June 30, 1996. The number of shareholders of record on June 30, 1996 was 859.
Page 6 of 41
ITEM 6.
ITEM 6. SELECTED STATEMENT OF CONSOLIDATED OPERATIONS AND BALANCE SHEET DATA
Selected statement of consolidated operations data:
Page 7 of 41
ITEM 6. SELECTED STATEMENT OF CONSOLIDATED OPERATIONS AND BALANCE SHEET DATA (Continued)
Selected statement of consolidated operations data:
Page 8 of 41
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Recent Developments:
The Company changed its corporate name from Moyco Industries, Inc. to Moyco Technologies, Inc. effective September 20, 1995. The amendment was filed with the Pennsylvania Department of State on December 21, 1995. The common stock of the Company began trading in the Nasdaq National Market on January 26, 1996. On February 1, 1996, the Company entered into a confidential agreement to resolve litigation involving three Moyco patents.
The Company purchased Thompson Dental Mfg. Co. ("Thompson Dental") effective August 8, 1996. Thompson Dental of Missoula, Montana is a leading manufacturer of dental hand instruments and related products. Thompson will operate as a wholly-owned subsidiary of Moyco. Proprietary products such as Thompson exclusive tactile tone scalers are synergistic with the Moyco Union Broach Dental Division products which include proprietary endodontic (root canal) instruments, waxes, dental abrasives along with general supplies and dental mirrors.
The Thompson Dental subsidiary will increase the annual revenues of Moyco Technologies, Inc. by approximately 25%. Tom Thompson, Jr. will remain President of Thompson Dental Company, Inc. a wholly-owned subsidiary of Moyco. Mr. Thompson will also have a seat on the Board of Directors of Thompson. The Company expects that this subsidiary, after all merger and integrating costs are absorbed, will produce profits for Moyco.
The merger Agreement provides that shareholders of Thompson Dental will exchange all shares of Thompson Dental for 115,000 shares of Moyco common stock. There are additional earn out provisions with fixed criteria.
Effective May 3, 1996, the Company incorporated a new corporation under the laws of the State of Delaware. This new corporation will operate as a wholly-owned subsidiary, which will maintain and manage Moyco's intellectual property, which includes the Moyco trade name and certain trademarks, service marks and patents.
It is expected that the consolidation of the patents and trademarks into a separate legal entity will produce both specific and general benefits to Moyco. The patents and trademarks are valuable assets of the Moyco group. By consolidating the patents and trademarks into a separate subsidiary, Moyco will be able to monitor more closely and efficiently the profits associated with the patents and trademarks.
The Company has retained legal counsel to represent it in a government investigation in which the government has asserted it has evidence of violations of law and/or regulations that may have been committed by certain officers and/or employees of the Company. Legal counsel has not yet completed its investigation of these matters and therefore cannot evaluate the likelihood of an unfavorable outcome to the Company.
Page 9 of 41
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Summary
The following table sets forth for the periods indicated (i) percentages which certain items reflected in the financial data bear to net sales of the Company and (ii) the percentage increase (decrease) of such items as compared to the indicated prior period:
Percentage Relationship Increase to Net Sales (Decrease) /-------------------/ /-----------------/
1996 1995 1994 1996-95 1995-94 Sales Dental and consumable supplies 62.92 62.29 64.39 1.31 14.6
Commercial abrasive materials 37.08 37.71 35.61 (1.40) 25.4 ------ ------ ------
100.00 100.00 100.00 .29 18.4
Cost of Sales 61.3 59.1 56.7 3.95 23.4 ------ ------ ------
Gross Profit 38.7 40.9 43.3 (5.01) 12.0
Operating Expenses 30.4 28.9 32.4 5.23 (5.9) ------ ------ ------
Income from operations 8.3 12.0 10.9 (29.80) 29.9
Net other (Expenses) ( 3.5 ) (3.4) (2.3) 3.89 74.8 ------ ------ ------
Income before provision for income taxes extraordinary items and cumulative effect of change in accounting principle 4.8 8.6 8.6
Provision for Income Taxes .3 4.0 4.1 ------ ------ -----
Income before extraordinary items and cumulative effect of change in accounting principle 4.5 4.6 4.5
Extraordinary Item 1.7
Cumulative effect of change in accounting principle - - .5 ------ ------ -----
Net Income 6.2 4.6 4.0 ====== ====== =====
Page 10 of 41
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations
Year Ended June 30, 1996 Compared to Year Ended June 30, 1995
Net sales increased $34,117. The increases in net sales is related to increased sales by the dental division. Gross profit decreased $243,289. The decline is due to the costs to move out of the Philadelphia facility and severance payments for the former Philadelphia facility employees.
Operating expenses increased $179,664 as a result of increased legal and professional fees related to investigations of potential company acquisitions.
Interest expense increased $124,066 as a result of having a full year of interest related to two capital projects completed in the prior fiscal year.
Extraordinary items contributed $204,289 of net income. This is the result of the settlement of a patent infringement suit.
Operating profit growth will be driven by new products, increased market demand (domestic and global) and economies of scale the Company is able to achieve based upon reaching a critical mass in sales volume. Sales and profit can be accelerated further by a synergistic acquisition and/or a strategic alliance which the Company is actively pursuing.
All of our lines of business are in highly competitive markets with others, domestically and internationally, having greater resources. The dental domestic market remains relatively flat as the economic pressures continues. Our abrasive division continues to enter new markets, however, our high tech products are subject to sale swings as a result of technological changes as well as purchasing practices by our customers. We are not aware of any conditions in the purchasing of raw material and/or labor markets that can effect the profitability of the Company. There is continued need for sales growth as a result of putting in line new facilities and equipment, inflationary costs, and general operating expense increases.
Page 11 of 41
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations
Year Ended June 30, 1995 Compared to Year Ended June 30, 1994
Net sales increased $1,848,843. The increase in net sales is related to increased pricing, and more directly to increased unit sales in both our abrasive and dental divisions.
Gross profit increased $518,935 and is directly related to the increased sales.
Operating expenses increased $191,851 as a result of the increase in operating activity, increase in costs, as well as increases caused by the closing of the Philadelphia facility and opening of the new facilities.
Interest expense increased $207,402 as a result of the increased long-term borrowings related to the two capital projects in fiscal year end June 30, 1995.
Operating profit growth will be driven by new products, increased market demand (domestic and global) and economies of scale the Company is able to achieve based upon reaching a critical mass in sales volume. Sales and profit can be accelerated further by a synergistic acquisition and/or a strategic alliance which the Company is actively pursuing.
All of our lines of business are in highly competitive markets with others, domestically and internationally, having greater resources. The dental domestic market remains relatively flat as the economic recession continues. Our abrasive division continues to enter new markets, however, our high tech products are subject to sale swings as a result of technological changes as well as purchasing practices by our customers. We are not aware of any conditions in the purchasing of raw material and/or labor markets that can effect the profitability of the Company. There is continued need for sales growth as a result of putting in line new facilities and equipment, inflationary costs, and general operating expense increases.
Page 12 of 41
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources
The Company uses a number of measures of liquidity for internal management purposes. These measures include working capital and activity ratios, all of which are set forth below:
Year Ended June 30 ------------------------------------------ 1996 1995 1994 ---------- ---------- ---------
Working capital, the ability to meet short-term obligations:
Working Capital $4,717,375 $4,589,745 $3,003,840
Working Capital Ratio 3.62:1 3.39:1 2.01:1
Activity ratios, which should be helpful in evaluating liquidity:
Calendar days to convert sales to cash 49 60 58
Inventory turnover 2.25 2.33 2.07
Inventory as a percent of working capital 69.6 70.1 93.8
Sales to working capital 2.53 2.59 3.34
The Company's working capital at June 30, 1996 was $4,717,375 compared to $4,589,745, in 1995 representing an increase in the amount of $127,630. The component differences are reflected in the statement of cash flows.
Current assets increased $4,572 and current liabilities decreased $123,058.
During the fiscal years 1993 and 1994 the primary use of funds was the acquisition of additional equipment and lease of additional facilities located in Emigsville, Pennsylvania. This facility produced dental supplies under the name Moyco/Union Broach. During 1994, capital projects were commenced in Montgomeryville and York, Pennsylvania requiring additional funds. These projects were completed in the fiscal year ended June 30, 1995.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Responsibility for Preparation of Financial Statements:
The management of Moyco Technologies, Inc. is responsible for the integrity and objectivity of the financial statements. The financial statements and related notes were prepared by the Company using generally accepted accounting principles which were considered appropriate for the circumstances and necessarily include amounts based upon our best estimates and judgment. Financial data found elsewhere in this Annual Report is consistent with these financial statements.
Page 13 of 41
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders Moyco Technologies, Inc.:
We have audited the consolidated balance sheets of Moyco Technologies, Inc. as of June 30, 1996 and 1995 and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years ended June 30, 1996. Our audits also included the consolidated financial statement schedule on page 40. These consolidated financial statements and consolidated financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated financial statement schedule 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 consolidated 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 used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Moyco Technologies, Inc. as of June 30, 1996 and 1995, and the results of its operations, and its cash flows for each of the three years in the period ended June 30, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.
Philadelphia, Pennsylvania August 28, 1996
Page 14 of 41
MOYCO TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30 ------------------------- 1996 1995 ----------- -----------
Current Assets Cash and Cash Equivalents $ 1,402,088 $ 1,097,323 Accounts receivable, net of allowance for doubtful accounts of $78,990 in 1996 and $78,990 in 1995 1,600,764 1,932,913 Note Receivable-trade 11,519 41,051 Other Receivable 8,215 198,000 Inventories 3,283,779 3,218,077 Deferred Tax 68,856 - Prepaid Taxes 117,644 - Prepaid expenses 24,218 25,147 ----------- -----------
Total Current Assets 6,517,083 6,512,511 ----------- -----------
Property, Plant and Equipment Land 452,433 452,433 Buildings and improvements 4,386,877 4,172,201 Automotive equipment 48,511 48,511 Machinery and equipment 4,822,188 4,586,844 Furniture and fixtures 534,068 503,450 ----------- -----------
10,244,077 9,763,439
Less: Accumulated Depreciation 4,350,226 3,771,798 ----------- -----------
Net Property, Plant and Equipment 5,893,851 5,991,641 ----------- -----------
Other Assets 133,080 479,513 ----------- -----------
TOTAL ASSETS $12,544,014 $12,983,665 =========== ===========
See accompanying notes to consolidated financial statements.
Page 15 of 41
MOYCO TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30 ------------------------- 1996 1995 ----------- -----------
Current Liabilities Current maturities of long-term debt $ 895,408 $ 526,954 Accounts payable 381,372 963,231 Accrued expenses: Payroll 205,092 194,556 Interest 33,750 33,750 Other 284,086 138,900 Profit Sharing -- 15,000 Income Tax -- 50,375 ----------- -----------
Total Current Liabilities 1,799,708 1,922,766 ----------- -----------
Long-term debt, net of current maturities 5,616,112 6,735,460
Net Deferred income taxes 152,704 174,864 ----------- -----------
Total Liabilities 7,568,524 8,833,090 ----------- -----------
Shareholders' Equity Preferred stock, $.005 par value Authorized 2,500,000 shares, None issued Common stock, $.005 par value 23,083 22,654 Authorized 15,000,000 shares Issued and outstanding shares - 4,616,640 in 1996 and 4,530,790 in 1995 Additional paid-in capital 3,118,239 3,038,892 Retained Earnings 1,955,121 1,209,982
Less: Treasury stock 591,875 shares in 1996 and 591,875 shares in 1995 at cost 120,953 120,953 ----------- -----------
Total Shareholders' Equity 4,975,490 4,150,575 ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $12,544,014 $12,983,665 =========== ===========
See accompanying notes to consolidated financial statements.
Page 16 of 41
MOYCO TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended June 30 --------------------------------------- 1996 1995 1994 ----------- ----------- -----------
Net Sales $11,914,303 $11,880,186 $10,031,343
Cost of Sales 7,299,860 7,022,454 5,692,546 ----------- ----------- -----------
Gross Profit 4,614,443 4,857,732 4,338,797
Operating Expenses 3,617,865 3,438,201 3,246,350 ----------- ----------- -----------
Income from operations 996,578 1,419,531 1,092,447 ----------- ----------- -----------
Other income (Expense) Interest Expense ( 559,240) ( 435,174) ( 227,772) Other Income (Expense) 138,635 126,623 42,750 Donation of Building - ( 96,322) - Casualty Loss - - ( 46,571) ----------- ----------- -----------
Net Other (Expenses) ( 420,605) ( 404,873) ( 231,593) ----------- ----------- -----------
Income before provision for income taxes, extraordinary item and cumulative effect of change in accounting principle 575,973 1,014,658 860,854 ----------- ----------- -----------
Provision for income taxes Current 126,139 442,925 388,359 Deferred ( 91,016) 35,419 20,479 ----------- ----------- -----------
35,123 478,344 408,838 ----------- ----------- -----------
Income before effect of extraordinary item, and change in accounting principle 540,850 536,314 452,016 Extraordinary Item - Settlement of Lawsuit (less applicable income taxes of $151,271) 204,289 - - Cumulative effect of change in accounting principle - - 60,168 ----------- ----------- -----------
Net Income $ 745,139 $ 536,314 $ 391,848 =========== =========== ===========
See accompanying notes to consolidated financial statements.
Page 17 of 41
MOYCO TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
See accompanying notes to consolidated financial statements.
Page 18 of 41
MOYCO TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY YEARS ENDED JUNE 30, 1996, 1995 AND 1994
See accompanying notes to consolidated financial statements.
Page 19 of 41
MOYCO TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
Interest paid in 1995 included capitalized interest of $70,225.
See accompanying notes to consolidated financial statements.
Page 20 of 41
MOYCO TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 AND 1995
Note 1: Summary of Significant Accounting Policies
Nature of Business
The Company (formerly Moyco Industries, Inc.) manufactures dental waxes, dental supplies, endodontic material and equipment, pharmaceuticals, precision abrasives, commercial abrasives, and is a repacker of other disposable products for commercial and industrial use and sells to both domestic and international customers.
Principles of Accounting
Principles of Consolidation
The consolidated financial statements include the accounts of Moyco Technologies, Inc. and its wholly owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results may differ from those estimates.
Valuation of Inventories
Inventories are stated at the lower of cost or market. Costs of raw materials and cartons are determined by the first-in, first-out method. Labor and overhead included in work-in-process and finished goods are determined at average cost.
Property, Equipment and Depreciation
Property and equipment are stated at cost. Depreciation is computed by the straight-line method over the assets expected useful lives as follows:
Buildings and Improvements 10-25 Years Machinery, Equipment, Furniture and Fixtures 5-10 Years Automotive Equipment 3 Years
Depreciation charged to expense for the years ended June 30, 1996, 1995, and 1994 was $635,428, $531,376, and $418,891, respectively.
Patents and Trademarks
The costs of patents and trademarks are capitalized and amortized to operations over their estimated useful lives or statutory lives, whichever is shorter. Amortization is computed by the straight-line method.
Page 21 of 41
MOYCO TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 AND 1995
Note 1: Summary of Significant Accounting Policies (Continued)
Mortgage Costs
Mortgage costs are being amortized over the terms of the related mortgages.
Income Taxes
The Company currently accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Prior to fiscal 1994, the Company accounted for income taxes in accordance with Accounting Principles Board Opinion No. 11. The cumulative effect of this change in accounting principle decreased net earnings for fiscal 1994 by $60,168 as discussed in Note 7.
Reclassifications
Certain accounts in the prior-year financial statements have been reclassified for comparative purposes to conform with the presentation in the current-year consolidated financial statements.
Research and Development
Research and development costs are charged to expense as incurred. The amounts charged for the years ended June 30, 1996, 1995, and 1994 were $6,661, $35,718, and $19,583, respectively.
Earnings Per Common Share
Earnings per common share have been computed by dividing earnings for each year by the weighted average number of common shares outstanding during each period.
Advertising Costs
Advertising costs are charged to expense as incurred. The amounts charged for the years ended June 30, 1996, 1995, and 1994 were $228,049, $251,984, and $243,748, respectively.
Fair Value of Financial Instruments
The following notes summarize the major methods and assumptions used in estimating the fair values of financial instruments:
Cash and Cash Equivalents
The carrying amount approximates fair value due to the relatively short period to maturity of these instruments.
Page 22 of 41
MOYCO TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 AND 1995
Note 1: Summary of Significant Accounting Policies (Continued)
Long-Term Debt
The fair value of the Company's long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities.
The following table presents the carrying amounts and estimated fair values of the Company's financial instruments as of June 30, 1996 and 1995:
1996 1995 -------------------------------------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value -------------------------------------------------------------- Cash and Cash Equivalents $1,402,088 1,402,088 $1,097,323 $1,097,323
Accounts Receivable 1,600,764 1,600,764 1,932,913 1,932,913
Accounts Payable and Accrued Expenses 904,300 904,300 1,395,812 1,392,812
Long-Term Debts including current portion 6,511,520 6,080,263 7,262,414 6,749,369 --------------------------------------------------------------
Note 2: Inventories
The components of inventories are as follows:
June 30 ------------------------ 1996 1995 ---------- ----------
Raw materials $ 761,072 $ 813,185 Work-in-process 873,884 755,992 Finished goods 1,450,411 1,477,032 Cartons 198,413 171,868 ---------- ---------- $3,283,780 $3,218,077 ========== ==========
Page 23 of 41
MOYCO TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 AND 1995
Note 3: Long-Term Debt
Long-term debt is summarized as follows:
Page 24 of 41
MOYCO TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 AND 1995
Note 3: Long-Term Debt (Continued)
Substantially all of the Company's assets are pledged as collateral for the long-term debt.
As of June 30, 1996 long-term debt matures as follows:
Twelve Months Ending June 30,
1997 $ 895,408 1998 906,765 1999 911,835 2000 926,771 2001 594,330 Thereafter 2,276,411 --------- $6,511,520 ==========
Note 4: Employee Benefit Plans
Profit Sharing Plan
The Company has a non-contributory profit sharing plan for its employees who have completed one full year of service and have attained the age of 21. The Company, at the discretion of the Board of Directors may make contributions to the plan. The contributions cannot exceed the maximum amount which will constitute an allowable deduction for federal income tax purposes and is based on the Company's profitability and shall be paid from the Company's net earnings and/or retained earnings.
A participating employee's full account becomes payable upon normal retirement, or upon retirement at any age due to disability, or upon death to the employee's designated beneficiary. In the event employment is terminated before normal retirement, a portion of the Company's contribution is forfeited unless the employee has at least seven full years of service.
The contribution expense for the years ended June 30, 1996, 1995 and 1994 was $0, $15,000 and $25,000, respectively.
Page 25 of 41
MOYCO TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 AND 1995
Note 4: Employee Benefit Plans (Continued)
Employee Savings Plan
The tax deferred employee savings and protection plan under Section 401(K) of the Internal Revenue Code for all eligible employees. This plan allows an employee to contribute between 3% and 10% of his salary, including overtime pay, bonus and commissions, to the plan and these contributions are not subject to current federal income taxes. The Company will contribute 50% of the employee's contributions, to a maximum of 3% of the employee's salary subject to the deferral limit (IRC Sec. 401 (a)(30)). Participants are at all times fully vested in their contributions and the Company contributions become vested to the participant at various percentages based on the employee's years of service with 20% vested after three years of service and 20% for each year thereafter.
The contribution expense for the years ended June 30, 1996, 1995 and 1994 was $64,509, $62,220 and $58,608, respectively.
Note 5: Business Segments
The Company operates within two business segments: dental supplies and precision abrasives. Through its dental supplies division the Company manufactures and sells dental supplies such as waxes, abrasives, medicaments, sundry dental items and endodontic materials and equipment. Through its precision abrasive division the Company manufactures and sells commercial abrasive materials and fine polishing agents.
Financial information concerning the operations in each of the Company's business segments for the years ended June 30, 1996, 1995 and 1994 is as follows:
Year Ended June 30 --------------------------------------- 1996 1995 1994 ----------- ----------- -----------
Sales Domestic and U.S. Government Customers Dental Supplies $ 6,662,894 $ 6,624,273 $ 5,817,816 Precision Abrasives 3,981,706 4,074,581 3,250,837 International customers Dental Supplies 833,918 775,495 641,272 Precision Abrasives 435,785 405,837 321,418 ----------- ----------- -----------
$11,914,303 $11,880,186 $10,031,343 =========== =========== ===========
Page 26 of 41
MOYCO TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 AND 1995
Note 5: Business Segments (Continued)
For the years ended June 30, 1996, 1995 and 1994 net sales to various agencies of the U.S. Government represented 1.6%, 1% and 1% respectively, of the Company's total net sales.
Page 27 of 41
MOYCO TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 AND 1995
Note 6: Quarterly Results (Unaudited)
The following tables summarize quarterly financial data for the fiscal year's ended June 30, 1996 and 1995:
* During the current year, the first three quarters' inventory computation was based on the prior year's gross profit percentages, which overall was 40.9%. The year end actual inventory valuation resulted in a 38.7% gross profit percentage. Therefore, fourth quarter results reflect the entire years percentage decrease. The gross profit percentage decrease was a result of increased costs due to expansion and construction of two facilities in the year ended June 30, 1996.
Page 28 of 41
MOYCO TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 AND 1995
Note 6: Quarterly Results (Unaudited) (Continued)
Page 29 of 41
MOYCO TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 AND 1995
Note 7: Income Taxes
The provision for income taxes consists of the following:
Deferred income taxes result from the tax effect of transactions which are recognized in different periods for financial and tax reporting purposes. Significant components of deferred income taxes and their related impact on deferred income tax expense are as follows:
A reconciliation of the U.S. Federal Income Tax rate to the effective income tax rate is as follows:
Effective July 1, 1993, the Company adopted Statement of Financial Accounting Standard No. 109, Accounting for Income Taxes. The cumulative effect of the change in accounting principle amounted to $60,168 and is included in determining net income for year ended June 30, 1994. Financial statements for prior years have not been restated.
Page 30 of 41
MOYCO TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 AND 1995
Note 8: Commitments and Contingencies
There are no material pending or contemplated legal proceedings against the Company or of which any of its property is subject.
Note 9: Shareholders' Equity
On December 17, 1986, the shareholders approved an increase in the authorized capital to 15,000,000 shares of common stock and 2,500,000 shares of preferred stock, each with a par value of $.005 per share, and authorized the shares of preferred stock to be issued in one or more classes, and in one or more series within a class, with such voting rights, designations, powers, preferences, qualifications, privileges, limitations, options, conversion rights, restrictions and other special rights as may be established from time to time by resolution of the board of directors of the Company at or prior to the time of issuance of shares of such class or series.
Note 10: Notes Payable, Bank
The Company had an unsecured line of credit with a Bank in the amount of $2,000,000 with interest of 1% above the bank's prevailing prime interest rate. There was $0 drawn upon the line of credit at June 30, 1996 and 1995.
Note 11: Letters of Credit - Bank
The Company had a letter of credit with a bank. $50,000 issued December 6, 1994 expiring December 6, 1997, whose beneficiary is the Montgomery County Industrial Authority. The Company had another letter of credit with a bank for $100,000 issued May 1, 1995 expiring May 2, 1996 whose beneficiary was the Pennsylvania Industrial Development Authority. The beneficiaries were both holders of mortgages on part of the Company's buildings. At June 30, 1995 and 1996 there were no funds drawn on these letters of credit.
Page 31 of 41
MOYCO TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 AND 1995
Note 12: Legal Proceedings
The Company had filed suit against two defendants in one action for patent infringement. This suit was settled in 1996 and has been treated as an extraordinary item.
Note 13: Subsequent Event
In August 1996, the Company purchased Thompson Dental Mfg. Co. of Missoula, Montana, a leading manufacturer of dental hand instruments and related products. Thompson Dental will operate as a wholly-operated subsidiary of Moyco.
Note 14: Stock Option
The Company adopted an incentive stock option plan on October 30, 1992. The plan provides that key employees and directors may be awarded options not to exceed 200,000 shares of the Company's stock. Under the plans, options are granted at a price not less than the fair market value at the grant date and generally become exercisable upon date of grant. In all cases, options expire ten years after grant. Of the total options authorized for issuance, 111,800 shares had been granted and 92,250 shares have been exercised.
The following summarizes the stock option transactions during the year ended June 30, 1996.
Outstanding Outstanding July 1, 1995 Granted Exercised Cancelled June 30, 1996 - --------------------------------------------------------------------------------
Shares under Option I 71,100 1,000 67,100 - 5,000
Option price $.75 $.75 $.75 - $.75
Shares under Option II 14,400 - 13,400 1,000 -
Option Price $1.00 - $1.00 $1.00 -
Shares under Option III - 17,300 5,350 - 11,950
Option Price - $3.00 $3.00 - $3.00
Shares available for future grant were 88,200 shares at June 30, 1996.
Page 32 of 41
MOYCO TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 AND 1995
Note 15: Concentration of Credit Risk
The Company had funds in three banks in excess of federally insured limits by $539,845 at June 30, 1996.
Note 16: Building Donation
In March 1995 the Company donated its Philadelphia building to a qualified charity. At the time of the donation the book value of the building was $96,323 which is reflected in these financial statements as donation expense as part of other expense. The fair market value of the building was appraised at $125,000 at the time of the donation.
Note 17: Capitalized Interest
The Company capitalized $70,225 of interest costs paid as part of their two construction projects completed during the year ended June 30, 1995.
Page 33 of 41
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND CONSOLIDATED FINANCIAL DISCLOSURE
NONE
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(1) Executive Officers of the Registrant:
(a) The names, ages and positions with the Registrant of all of the executive officers of the Registrant, none of whom are related by blood, marriage or adoption to each other, are as follows:
(b) The executive officers hold their respective offices until the first meeting of newly elected directors following the next annual meeting of the Company and the election of successor officer unless otherwise terminated by the Board of Directors.
Page 34 of 41
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
(c) The following is a brief account of the business experience of the executive officers of the Registrant:
Mr. Marvin E. Sternberg joined the Registrant in March of 1974, as a Management Consultant and was elected President of the Registrant on August 9, 1974. From 1965 to 1973, Mr. Sternberg was Trustee and Operating Officer for the Robinson Trust, Philadelphia, Pennsylvania. From 1965 to present, Mr. Sternberg has been a partner and/or director in a number of other companies in the Philadelphia, Pennsylvania and Fort Lauderdale, Florida areas.
Mr. Jerome Lipkin joined the Registrant on June 12, 1974 as assistant to the Vice-President. He was elected to Vice-President in charge of operations on March 20, 1978.
Mr. William Woodhead joined the Registrant on January 7, 1985 as Controller. He was elected Secretary/Treasurer on December 18, 1985.
(2) Directors of the Registrant:
(a) The following table sets forth the name of each director of the Registrant and all offices presently held by him. The term of each director will expire on such date as the Annual Meeting of Shareholders is held and his successor is duly elected and qualified.
Page 35 of 41
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
(2) Directors of the Registrant: (Continued)
(b) There are no family relationships between any director or executive officer of the Registrant.
Irvin Paul, D.D.S., has engaged in the practice of Dentistry, with offices in Upper Darby, Pennsylvania, for more than thirty years.
Marvin Cravetz, D.D.S., was engaged in the practice of Dentistry, with offices in Hatboro, Pennsylvania for more than twenty years.
The business experience of the other directors during the past six years is reported under Item 10(1) EXECUTIVE OFFICERS OF THE REGISTRANT.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table shows for fiscal years ending June 30, 1996, 1995 and 1994, the cash compensation as well as certain other compensation paid to the named executive officers:
SUMMARY COMPENSATION TABLE
Page 36 of 41
ITEM 11. EXECUTIVE COMPENSATION (Continued)
STOCK OPTIONS
The following table shows stock options exercised and fiscal year end values for the named exective officers under the Moyco Industries, Inc. stock option plan. The plan does not permit the grant of stock appreciation rights ("SARs"). There have been no stock options granted in the current fiscal year.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
(1) Upon exercise of an option, the optionee must pay the exercise price in cash. (2) Represents the difference between the fair market value of the common stock underlying the option and the exercise price at exercise, or fiscal year-end, respectively.
EMPLOYEE BENEFIT PLANS
The information under Note 4 "Employee Benefit Plans" of the consolidated financial statements appearing on page 25 of 41 the Form 10K is incorporated herein by reference. All officers and and employee directors participate in the programs on the same terms as other salaried employees.
DIRECTORS COMPENSATION
Directors do not receive any compensation for serving as directors.
Page 37 of 41
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) The following table sets forth information as of June 30, 1996 with respect to any person who is known to the Registrant to be the beneficial owner of more than 5% of any class of Registrant's voting securities:
Shares Percentage Beneficially of Title of Class Name and Address Owned Class -------------- ---------------- ------------ ----------
Common Stock Marvin E. Sternberg 2,897,815 (1) (2) 72.00% 937 Mt. Pleasant Rd. Bryn Mawr, PA 19010
(1) Of these shares 2,408,365 shares are held by Marvin E. Sternberg, legally and beneficially in his own name; 16,900 shares by Susan Sternberg, wife of said Marvin E. Sternberg, legally and beneficially in her own name; and 497,310 shares are held by said Susan Sternberg together with T. Allen Lipsky in trusts consisting of 165,770 shares each for the respective beneficial interests of Joseph S. Sternberg, Mark E. Sternberg and Janet L. Sternberg, children of said Marvin E. Sternberg and Susan Sternberg.
(2) None of Marvin E. Sternberg, Susan Sternberg or T. Allen Lipsky claim any beneficial interests in the shares herein described which are not reported here for his or her respective legal and beneficial interest.
(b) The following table sets forth information, as of June 30, 1995, as to each class of equity securities of the Registrant beneficially owned, directly or indirectly, by all directors and officers of the Registrant, as a group:
(1) Refer to Footnotes (1) and (2) of previous table.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No director or officer had any material interest, direct or indirect, in any business transaction of the Company during the period July 1, 1995 through June 30, 1996, or in any such proposed transaction.
Page 38 of 41
PART IV
ITEM 14.
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page No. -------- (a) 1. Financial statements
Included in Part II of this report
Report of independent certified public accountants 14 Consolidated Balance sheets at June 30, 1996 and 1995 15-16 Consolidated Statements of operations for the three years ended June 30, 1996 17-18 Consolidated Statements of changes in shareholders' equity for the three years ended June 30, 1996 19 Consolidated Statements of cash flows for the three years ended June 30, 1996 20 Notes to consolidated financial statements 21-33
2. Financial statement schedules
Included in Part IV of this report
For the three years ended June 30, 1996 Schedule II Valuation and qualifying accounts
All other schedules and notes specified under Regulation S-X are omitted because they are either not applicable, not required or the information called for therein appears in the financial statements or notes thereto.
3. Exhibits required to be filed by Item 601 Regulation S-K:
23 Consent of Heffler, Radetich & Saitta L.L.P.
27 Financial Data Schedule, which is submitted electronically to the Securities and Exchange Commission for information only, and not filed.
(b) Reports on Form 8-K - NONE.
Page 39 of 41
SCHEDULE II
MOYCO TECHNOLOGIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED JUNE 30, 1996
================================================================================
Column A Column B Column C Column D Column E -------- ---------- ----------- ----------- --------- Additions Balance Balance at Accounts at Beginning Charged to Written End of of Period Expense Off (1) Period --------- ---------- ------- ------
Allowance for doubtful receivables:
June 30, 1996 $78,990 $ - $ - $78,990 ======= ======== ======== =======
June 30, 1995 $58,990 $ 20,084 $ 84 $78,990 ======= ======== ======== =======
June 30, 1994 $70,351 $ - $ 11,361 $58,990 ======= ======== ======== =======
(1) Represents accounts written off against the reserve.
Page 40 of 41
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) 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.
MOYCO INDUSTRIES, INC.
BY: /s/ Marvin E. Sternberg -------------------------------------- Marvin E. Sternberg President and Chief Executive Officer Chairman of the Board
Dated: September 20, 1996 ----------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Marvin E. Sternberg President and Chief Executive Officer - --------------------------- Marvin E. Sternberg
Dated: September 20, 1996 --------------------------
/s/ Jerome Lipkin Vice President and Director - --------------------------- Executive Officer Jerome Lipkin
Dated: September 20, 1996 --------------------------
/s/ William Woodhead Secretary/Treasurer and - --------------------------- Director William Woodhead
Dated: September 20, 1996 --------------------------
Page 41 of 41
SCHEDULE 23
CONSENT
We consent to the incorporation by reference in the Annual Report (Form 10-K) of Moyco Technologies, Inc. of our report dated August 28, 1886, included in the 1996 Annual Report to Shareholders of Moyco Technologies, Inc.
Our audits also included the financial statement schedules of Moyco Technologies, Inc. listed in Item 14(a). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
/s/ Heffler, Radetich & Saitta L.L.P. ------------------------------------- Heffler, Radetich & Saitta L.L.P.
Philadelphia, PA September 20, 1996