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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ________________
Commission File Number: 001-10382
VALLEY FORGE SCIENTIFIC CORP.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2131580
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
136 Green Tree Road, Oaks, Pennsylvania 19456
(Address of principal executive offices and zip code)
Telephone: (610) 666-7500
Indicate by check mark [X] 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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
At May 7, 2004 there were 7,913,712 shares outstanding of the Registrant's no
par value Common Stock.
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VALLEY FORGE SCIENTIFIC CORP.
INDEX TO FORM 10-Q
March 31, 2004
Page
Number
------
Part I - Financial Information
Item 1. Financial Statements:
Balance Sheets - March 31, 2004 and September 30, 2003 1
Statements of Operations for the three and six months
ended March 31, 2004 and March 31, 2003 2
Statements of Cash Flows for the six months
ended March 31, 2004 and March 31, 2003 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10
Item 4. Controls and Procedures 20
Part II - Other Information 21
(i)
VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31, September 30,
ASSETS 2004 2003
- ------ ------------ ------------
(Unaudited) (Audited)
Current Assets:
Cash and cash equivalents $ 2,281,018 $ 2,305,556
Accounts receivable, net 648,976 376,915
Inventory 765,686 775,183
Prepaid items and other current assets 210,140 268,371
Deferred tax assets 64,626 51,431
------------ ------------
Total Current Assets 3,970,446 3,777,456
Property, Plant and Equipment, Net 151,494 156,697
Goodwill 153,616 153,616
Intangible Assets, Net 236,532 256,681
Other Assets 21,135 29,963
------------ ------------
Total Assets $ 4,533,223 $ 4,374,413
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable and accrued expenses $ 279,813 $ 216,457
Deferred revenue 17,250 --
------------ ------------
Total Current Liabilities 297,063 216,457
Deferred Tax Liability 17,596 19,950
------------ ------------
Total Liabilities 314,659 236,407
------------ ------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock -- --
Common stock (no par, 20,000,000 shares
authorized, shares issued and outstanding
at March 31, 2004 and at September 30,
2003 - 7,913,712) 3,528,530 3,528,530
Retained earnings 690,034 609,476
------------ ------------
4,218,564 4,138,006
------------ ------------
Total Liabilities and Stockholders' Equity $ 4,533,223 $ 4,374,413
============ ============
- --------------------
See accompanying notes.
-1-
VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended For the Six Months Ended
March 31, March 31,
--------------------------- ---------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net Sales $ 1,132,771 $ 1,289,136 $ 2,332,240 $ 2,309,078
Cost of Sales 511,864 623,403 1,067,168 1,156,990
------------ ------------ ------------ ------------
Gross Profit 620,907 665,733 1,265,072 1,152,088
------------ ------------ ------------ ------------
Other Costs:
Selling, general and administrative 470,208 489,747 868,545 816,050
Research and development 127,013 120,169 240,908 209,507
Amortization 10,074 10,075 20,149 20,150
------------ ------------ ------------ ------------
Total Other Costs 607,295 619,991 1,129,602 1,045,707
------------ ------------ ------------ ------------
Income from Operations 13,612 45,742 135,470 106,381
Other Income (Expense), Net 5,369 6,823 11,038 15,812
------------ ------------ ------------ ------------
Income before Income Taxes 18,981 52,565 146,508 122,193
Provision for Income Taxes 11,402 22,972 65,950 52,461
------------ ------------ ------------ ------------
Net Income $ 7,579 $ 29,593 $ 80,558 $ 69,732
============ ============ ============ ============
Earnings per Share:
Basic earnings per common share $ 0.00 $ 0.00 $ 0.01 $ 0.01
============ ============ ============ ============
Diluted earnings per common share $ 0.00 $ 0.00 $ 0.01 $ 0.01
============ ============ ============ ============
Basic common shares outstanding 7,913,712 7,976,926 7,913,712 7,995,604
Diluted common shares outstanding 7,977,448 7,992,841 7,971,722 8,018,553
- --------------------
See accompanying notes.
-2-
VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended
March 31,
----------------------------
2004 2003
------------ ------------
Cash Flows from Operating Activities:
Net income $ 80,558 $ 69,732
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 35,194 30,845
Interest accrued on loans and advances to
employees (1,167) (576)
Changes in assets and liabilities, net of effect from:
Increase in accounts receivable (272,061) (287,599)
Decrease in inventory 9,497 82,060
Decrease (increase) in deferred tax assets (13,195) 2,591
(Increase) decrease in prepaid items and other current assets 54,398 (90,002)
(Increase) decrease in other assets 8,828 (34,619)
Increase (decrease) in accounts payable and accrued
expenses and income taxes payable 63,356 (42,225)
Increase in deferred revenue 17,250 --
Increase (decrease) in deferred tax liability (2,354) 1,219
------------ ------------
Net cash used in operating activities (19,696) (268,574)
------------ ------------
Cash Flows from Investing Activities:
Purchase of property, plant and equipment (9,842) (13,161)
Proceeds from repayment of employee loans and advances 5,000 10,000
------------ ------------
Net cash used in investing activities (4,842) (3,161)
------------ ------------
Cash Flows from Financing Activities:
Repurchase of common stock -- (119,757)
------------ ------------
Net cash used in financing activities -- (119,757)
------------ ------------
Net Decrease in Cash and Cash
Equivalents (24,538) (391,492)
Cash and Cash Equivalents, beginning of period 2,305,556 2,543,898
------------ ------------
Cash and Cash Equivalents, end of period $ 2,281,018 $ 2,152,406
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ -- $ --
============ ============
Income taxes $ 2,000 $ 217,000
============ ============
- --------------------
See accompanying notes.
-3-
VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2004
1. DESCRIPTION OF BUSINESS
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. Collectively, VFSC and DEC are referred to herein as the "Company".
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
- -----------------------------------------------------
The accompanying financial statements consolidate the accounts of VFSC and its
wholly-owned subsidiary. All significant intercompany accounts and transactions
have been eliminated in consolidation. Certain amounts from prior years have
been reclassified to conform to the current year presentation.
The accompanying unaudited consolidated financial statements have been prepared
pursuant to rules and regulations of the Securities and Exchange Commission and,
therefore, do not include all information and footnote disclosures normally
included in audited financial statements. However, in the opinion of management,
all adjustments that are of a normal and recurring nature, necessary to present
fairly the results of operations, financial position and cash flows have been
made. It is suggested that these statements be read in conjunction with the
financial statements included in the Company's Annual Report on Form 10-K for
the year ended September 30, 2003.
The statements of operations for the three months and six months ended March 31,
2004 and 2003 are not necessarily indicative of results for the full year.
Earnings (Loss) per Share
- -------------------------
The Company computes earnings or loss per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding.
Diluted earnings per share reflects the potential dilution that could occur if
securities or other agreements to issue common stock were exercised or converted
into common stock. Diluted earnings per share is computed based upon the
weighted average number of common shares and dilutive common equivalent shares
outstanding, which include convertible debentures, stock options and warrants.
Recently Issued Accounting Standards
- ------------------------------------
In December, 2003, the Financial Accounting Standards Board ("FASB") issued a
revised Interpretation No. 46, "Consolidation of Variable Interest Entities - An
Interpretation of ARB No. 51, " which provides guidance on the identification of
and reporting for variable interest entities, including expanded criteria from
the original pronouncement, which was issued in January 2003, for consideration
in determining whether a variable interest entity should be consolidated.
Interpretation No. 46, as revised, is effective for the Company in the third
quarter of 2004. The Company does not expect adoption of Interpretation No. 46
to have a significant impact on its future results of operations or financial
condition.
-4-
VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2004
(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock-Based Compensation
- ------------------------
In December 2002, the FASB issued Statement of Financial Accounting Standards
(SFAS") No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure - an amendment of FASB Statement No. 123." SFAS No. 148 amends SFAS
No. 123, "Accounting for Stock-Based Compensation," to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. SFAS No. 148 is effective for the Company as of
January 1, 2003. The Company has not elected a voluntary change in accounting to
the fair value based method, and, accordingly, the adoption of SFAS No. 148 did
not have a significant impact on the Company's results of operations or
financial position.
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
SFAS 123 and 148, only stock options granted after September 30, 1995 have been
included for the Company's pro forma information as follows:
For the Three Months Ended For the Six Months Ended
March 31, March 31,
---------------------------- ---------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net income, as reported $ 7,579 $ 29,593 $ 80,558 $ 69,732
Less: Total compensation
expense determined
under fair value based
method, net of tax effect 45,142 21,900 45,142 35,126
------------ ------------ ------------ ------------
Pro Forma Net Income (Loss) $ (37,563) $ 7,693 $ 35,416 $ 34,606
============ ============ ============ ============
Pro Forma Income (Loss) per Share:
Basic $ 0.00 $ 0.00 $ 0.00 $ 0.00
Diluted $ 0.00 $ 0.00 $ 0.00 $ 0.00
- 5 -
VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2004
(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
- -------------------
The Company sells its products to U.S. based national and international
distributors and dealers which include an affiliate, Codman and Shurtleff, Inc.
("Codman"), of a major medical company. A significant part of the Company's
sales are made pursuant to a distribution agreement with Codman, the Company's
largest customer, which provides for exclusive distribution rights of specified
products in a defined medical field, within various territories, during the term
of this agreement. This distribution agreement includes a minimum purchase
obligation which is adjusted annually during the term of the agreement. It also
includes a price list for the specified products, which is fixed for a period of
time, after which these prices are subject to adjustment by the Company due to
changes in manufacturing cost or technological improvements to the products. In
November, 2003 this agreement was extended for three months to March 31, 2004,
with a minimum purchase obligation during this period of $1,000,000. In March,
2004 the agreement was further extended for three months through June 30, 2004,
with a minimum purchase obligation during that period of $1,000,000. All other
terms of the distribution agreement remain in full force and effect. Product
revenue is recognized when the product has been shipped which is when title and
risk of loss has been transferred to the customer.
During the three months ended March 31, 2004, Codman elected to pay the Company
$57,920, pursuant to the distribution agreement in lieu of purchasing
approximately $116,000 of product which would have been required to meet the
minimum purchase obligation under the agreement, as extended, for the period.
The Company received the payment on April 16, 2004. The amount received is
reflected in sales for the three and six months ended March 31, 2004. Had this
amount not been recorded, sales would have been $1,074,851 and $2,274,320, for
the three and six months ended March 31, 2004, respectively, and gross profit
would have been $562,987 (52% of sales) and $1,207,152 (53% of sales) for the
three and six months ended March 31, 2004, respectively.
3. SUPPLEMENTAL BALANCE SHEET INFORMATION
Accounts Receivable, Net
- ------------------------
March 31, September 30,
2004 2003
------------ ------------
Accounts receivable $ 663,607 $ 378,786
Less: Allowances 14,631 1,871
------------ ------------
$ 648,976 $ 376,915
============ ============
-6-
VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2004
(Continued)
3. SUPPLEMENTAL BALANCE SHEET INFORMATION (Continued)
Inventory
- ---------
March 31, September 30,
2004 2003
------------ ------------
Finished goods $ 42,115 $ 88,401
Work-in-process 278,080 316,600
Materials and parts 540,434 433,459
------------ ------------
860,629 838,460
Less: Allowance for slow moving
and obsolete inventory 94,943 63,277
------------ ------------
$ 765,686 $ 775,183
============ ============
Property, Plant and Equipment, Net
- ----------------------------------
Useful Life March 31, September 30,
(Years) 2004 2003
------------ ------------ ------------
Land - $ 11,953 $ 11,953
Buildings and improvements 15 - 39 94,832 94,832
Furniture and fixtures 5 - 7 17,953 17,953
Laboratory equipment 5 - 10 378,159 370,119
Office equipment 5 183,120 181,318
Leasehold improvements 3 - 5 9,413 9,413
------------ ------------
695,430 685,588
Less: Accumulated depreciation
and amortization 543,936 528,891
------------ ------------
$ 151,494 $ 156,697
============ ============
Goodwill and Intangible Assets
- ------------------------------
In accordance with SFAS 142, Goodwill has been reflected on the balance sheet
separate from other intangible assets which continue to be amortized. The
Company completed its annual impairment test during the current quarter, and no
impairment was identified. The Company completed its transitional impairment
test during the quarter ending March 31, 2002, indicating that goodwill was not
impaired. An additional annual test was performed during the second quarter
ending March 31, 2003 and no impairment adjustment was required.
-7-
VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2004
(Continued)
3. SUPPLEMENTAL BALANCE SHEET INFORMATION (Continued)
Goodwill and Intangible Assets (Continued)
- ------------------------------
Information regarding the Company's other intangible assets is as follows:
As of March 31, 2004 As of September 30, 2003
------------------------------------------ ------------------------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Net Amount Amortization Net
------------ ------------ ------------ ------------ ------------ ------------
Patents, trademarks,
licensing agreements $ 571,617 $ 498,437 $ 73,180 $ 571,617 $ 493,365 $ 78,252
Proprietary know-how 452,354 289,002 163,352 452,354 273,925 178,429
Acquisition costs 55,969 55,969 -- 55,969 55,969 --
------------ ------------ ------------ ------------ ------------ ------------
$ 1,079,940 $ 843,408 $ 236,532 $ 1,079,940 $ 823,259 $ 256,681
============ ============ ============ ============ ============ ============
Amortization expense of intangible assets was $10,075 for the three months ended
March 31, 2004 and 2003, respectively, and $20,149 for the six months ended
March 31, 2004 and 2003, respectively.
Annual amortization expense for intangible assets held as of March 31, 2004 is
estimated to be $40,300 for 2005, $40,300 for 2006, $40,300 for 2007, $39,900
for 2008 and $38,300 for 2009.
4. COMMITMENTS AND CONTINGENCIES
On September 19, 2002, the Company was served with a complaint that was filed in
the Superior Court of the State of Arizona, County of Maricopa, entitled Jeffrey
Turner and Cathryn Turner et al. v. Phoenix Children's Hospital, Inc., et al.,
(CV 2002-010791) in which the Company was named as one of the defendants. The
plaintiffs seek an unspecified amount of damages for alleged injuries sustained
in a surgery that took place in June 2000. The Company's product liability
insurance carrier is providing the Company's defense in this matter. This
insurance coverage has a $10,000 deductible that applies to attorney fees and
damages which have been provided for in other costs under selling, general and
administrative expense for the year ended September 30, 2002. In an answer that
was filed on November 26, 2002, the Company denied any liability. The Company
believes the claim is without merit and will vigorously defend itself in this
action.
-8-
VALLEY FORGE SCIENTIFIC CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2004
(Continued)
5. EARNINGS PER SHARE
For the Three Months Ended For the Six Months Ended
March 31, March 31,
--------------------------- ---------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Income available to common
shareholders $ 7,579 $ 29,593 $ 80,558 $ 69,732
============ ============ ============ ============
Weighted average common
shares outstanding - basic 7,913,712 7,976,926 7,913,712 7,995,604
Net effect of dilutive shares
issuable in connection with
stock plans 63,736 15,915 58,010 22,949
------------ ------------ ------------ ------------
Weighted average common shares
outstanding - diluted 7,977,448 7,992,841 7,971,722 8,018,553
============ ============ ============ ============
Earnings per share:
Basic $ 0.00 $ 0.00 $ 0.01 $ 0.01
Diluted $ 0.00 $ 0.00 $ 0.01 $ 0.01
Options to purchase 507,250 and 501,850 shares of common stock were outstanding
on March 31, 2004 and 2003, respectively, and 443,514 and 484,901 of these
shares were not included in the computation of diluted earnings per share for
the three months ended March 31, 2004 and 2003, and 449,240 and 485,935 of these
shares were not included in the computation of diluted earnings per share for
the six months ended March 31, 2004 and 2003, respectively, in accordance with
SFAS 128, as these potential shares are considered antidultive.
-9-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- AND RESULTS OF OPERATIONS
The following is a discussion and analysis of Valley Forge Scientific
Corp.'s financial condition and results of operations for the three and six
months ended March 31, 2004 and 2003. This section should be read in conjunction
with the financial statements and related notes in Item 1 of this report and
Valley Forge Scientific Corp.'s Annual Report on Form 10-K for the year ended
September 30, 2003, which has been filed with the Securities and Exchange
Commission. Unless the context requires otherwise, references to "we", "us",
"our", and "Valley Forge Scientific" refer to Valley Forge Scientific Corp.
Cautionary Note Regarding Forward Looking Statements
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains, in addition to historic information, "forward
looking" statements or statements which arguably imply or suggest certain things
about our future. Statements which express that we "believe", "anticipate",
"expect", or "plan to" as well as other statements which are not historical
fact, are forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward looking statements
include, but are not limited to statements about: any competitive advantage we
may have as a result of our installed base of electrosurgical generators in the
neurosurgery market; our belief that our products exceed industry standards or
favorably compete with other companies' new technological advancements; the
future success of our products and disposable instrumentation in the markets we
serve; our ability, along with the third parties with whom we contract, to
distribute and sell our products; and the continued acceptance of our products
in the neurosurgery market and the acceptance of our products outside of the
neurosurgery market. These statements are based on assumptions that we believe
are reasonable, but a number of factors could cause our actual results to differ
materially from those expressed or implied by these statements. We do not intend
to update these forward looking statements after the date of this report. You
are advised to review the "Additional Cautionary Statements" section below for
more information about risks and uncertainties that could affect the financial
results of Valley Forge Scientific.
Overview
We design, develop, manufacture and sell medical and dental devices.
Our core business is in our bipolar electrosurgical generators and related
instrumentation, based on our DualWave(TM) technology. Our bipolar systems allow
a surgeon or dentist to cut tissue in a manner that minimizes collateral damage
to surrounding healthy tissue and to coagulate blood vessels quickly, safely and
efficiently. By substantially reducing damage to surrounding healthy tissue, the
surgeon or dentist can work safely in close proximity with nerves, blood
vessels, bone and metal implants. Our bipolar systems are designed to replace
other surgical tools, such as monopolar electrosurgery systems, lasers and
conventional instruments, used in soft tissue surgery.
-10-
Our DualWave(TM) technology is applicable to many surgical markets. Our
bipolar systems are currently used to perform many types of neurosurgery, spine
surgery and dental surgery. We have had worldwide exclusive distribution
agreements with Codman & Shurtleff, Inc., a subsidiary of Johnson & Johnson,
Inc., to market our neurosurgery bipolar systems since 1983. During the first
quarter of fiscal 2004, the term for our distribution agreement with Codman &
Shurtleff, Inc. was extended from December 31, 2003 to March 31, 2004 to allow
the parties time to continue to discuss the terms of a new distribution
agreement. During the second quarter of fiscal 2004 that distribution agreement
was further extended to June 30, 2004.
Historically, we have derived a significant portion of our sales from
our neurosurgery bipolar system. Sales revenue from our Bident(R) Bipolar Tissue
Management System for dental applications commenced in the 2000 fiscal year. Our
current strategy is to increase sales of our Bident(R) Bipolar Tissue Management
System by selling it directly to an expanded base of national dental product
dealers, expand the offerings of products in the field of neurosurgery and
broaden the market for our products in other clinical and surgical markets that
have a need for our products. Our strategy also includes using our DualWave(TM)
technology and sales of our bipolar generators to drive sales of complementary
disposable hand-held instruments and products.
Critical Accounting Policies and Estimates
The following "Management's Discussion and Analysis of Financial
Condition and Results of Operations", as well as disclosures included elsewhere
in this Form 10-Q, are based upon our unaudited consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingencies. On an on-going basis, we evaluate the estimates used, including
those related to product returns, bad debts, inventory valuation, impairments of
tangible and intangible assets, income taxes, warranty obligations, other
accruals, contingencies and litigation. We base our estimates on historical
experience, current conditions and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources as well as identifying and
assessing our accounting treatment with respect to commitments and
contingencies. Actual results may differ from these estimates under different
assumptions or conditions. We believe the following critical accounting policies
involve more significant judgments and estimates used in the preparation of the
consolidated financial statements.
We maintain an allowance for doubtful accounts for estimated losses
resulting from the potential inability of our customers to make required
payments. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.
-11-
We provide for the estimated cost of product returns based upon
historical experience and any known conditions or circumstances. Our warranty
obligation is affected primarily by product that does not meet specifications
and performance requirements within the applicable warranty period and any
related costs of addressing such matters. Should actual incidences of product
not meeting specifications and performance requirements differ from our
estimates, revisions to the estimated warranty liability may be required.
We value inventory at the lower of cost or market and write down the
value of inventory for estimated obsolescence or unmarketable inventory. An
inventory reserve is maintained based upon historical data of actual inventory
written off and for known conditions and circumstances. Should actual product
marketability be affected by conditions that are different from those projected
by management, revisions to the estimated inventory reserve may be required.
Our deferred tax assets and liabilities are determined based on the
differences between the financial statement and tax based 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 at
the time that a determination can be made that it is more likely than not that a
portion or all of the related tax assets will not be realized.
In accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123") and SFAS No. 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure - An Amendment of FASB Statement No. 123" ("SFAS 148"), we have
elected to account for stock-based compensation plans in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), and related interpretations.
Results of Operations
Results of Operations for the Three and Six Months Ended March 31, 2004
compared to the Three and Six Months Ended March 31, 2003.
Summary
Sales of $1,132,771 for the three months ended March 31, 2004 were 12%
less than sales of $1,289,136 for the three months ended March 31, 2003, and
sales of $2,332,240 for the six months ended March 31, 2004 were slightly
greater than sales of $2,309,078 for the six months ended March 31, 2003. Net
income for the three months ended March 31, 2004 was $7,579 and net income for
the six months ended March 31, 2004 was $80,558, as compared to net income of
$29,593 and $69,732, respectively, for the comparable periods in fiscal 2003.
Revenues
Sales of $1,132,771 for the three months, and sales of $2,332,240 for
the six months, ended March 31, 2004 reflect an increase in sales volume of our
Bident(R) Bipolar Tissue Management System and a decrease in sales volume of our
neurosurgical products as compared to the comparable periods in fiscal 2003. For
-12-
the three months ended March 31, 2004, sales of our Bident(R) Bipolar Tissue
Management System accounted for $118,817, or 11% of our sales, as compared to
sales of $86,708, or 7% of our sales, for the three months ended March 31, 2003.
For the first six months of fiscal 2004, sales of our Bident(R) Bipolar Tissue
Management System accounted for $288,866, or 12% of our sales, as compared to
$86,708, or 4% of our sales for the comparable period in fiscal 2003.
Sales to Codman & Shurtleff, Inc. for the three months ended March 31,
2004 accounted for $975,012, or 86% of our sales, as compared to $1,180,525, or
92% of our sales, for the three months ended March 31, 2003. For the first six
months of fiscal 2004, sales to Codman & Shurtleff, Inc. were $2,000,977, or 86%
of our sales, as compared to sales of $2,192,525, or 95% of our sales for the
first six months of fiscal 2003. Included in the sales to Codman & Shurtleff,
Inc. is a payment of $57,920 that Codman & Shurtleff, Inc. made pursuant to a
distribution agreement, in lieu of making purchases of product of approximately
$116,000, to satisfy its minimum purchase obligations under the first three
month extension of our existing distribution agreement with Codman & Shurtleff,
Inc. The reduction in the sales to Codman & Shurtleff, Inc. was due to normal
quarterly fluctuations in sales.
In the second quarter of fiscal 2004, we entered into a second
extension of our distribution agreement with Codman & Shurtleff, Inc., in which
we extended the distribution agreement until June 30, 2004 in order to provide
more time to continue discussions on the terms of a new distribution agreement.
The second extension requires Codman & Shurtleff, Inc. to make minimum purchases
of $1,000,000 for the three months ended June 30, 2004 in accordance with the
terms of the distribution agreement.
In the second quarter of fiscal 2004, we saw a greater contribution
from the sales of our dental products as compared to sales in the second quarter
of fiscal 2003, and for the first six months of fiscal 2004, sales of our dental
products have already exceeded sales of dental products for the entire fiscal
2003. We anticipate that sales levels will fluctuate from quarter-to-quarter
based on the timing of orders we receive from distributors and direct sales. In
this regard, our sales of dental products for the second quarter of fiscal 2004
of $118,817 were less than sales of dental product for the first quarter of
fiscal 2004 of $170,049. We anticipate that the sales of disposable products
will increase as our installed base of generators increases and as the
generators that have been sold are in the market longer.
The table below sets forth the sales of our disposable products and the
sales of our generators, irrigator and accessory products for the three and six
months ended March 31, 2004 as compared to three and six months ended March 31,
2003. Sales of "Other" generator products in the table are sales to Stryker
Corporation pursuant to an existing development agreement.
-13-
Sales of Products
-----------------
For the Three For the Six
------------- -----------
Months Ended Months Ended
------------ ------------
-------------------------------------------------------------------------------------
March 31, March 31, March 31, March 31,
2004 2003 2004 2003
-------------------------------------------------------------------------------------
Generators, Irrigators
and Accessory Products
----------------------
-------------------------------------------------------------------------------------
Neurosurgery $ 441,235 $ 577,030 $1,048,626 $1,076,800
-------------------------------------------------------------------------------------
Dental 104,590 80,420 256,630 80,420
-------------------------------------------------------------------------------------
Other 15,000 15,000
---------- ---------- ---------- ----------
-------------------------------------------------------------------------------------
Total: $ 560,825 $ 657,450 $1,320,256 $1,157,220
-------------------------------------------------------------------------------------
Disposable Products
-------------------
-------------------------------------------------------------------------------------
Neurosurgery $ 433,139 $ 560,930 $ 804,724 $ 989,305
-------------------------------------------------------------------------------------
Dental 14,227 6,288 32,237 6,288
---------- ---------- ---------- ----------
-------------------------------------------------------------------------------------
Total: $ 447,366 $ 567,218 $ 836,961 $ 995,593
-------------------------------------------------------------------------------------
Cost of Product Sales
Cost of sales was $511,864, or 45% of sales, for the three months ended
March 31, 2004, and $1,067,168 or 46% of sales, for the six months ended March
31, 2004 as compared with $623,403, or 48% of sales, for the three months, and
$1,156,990, or 50% of sales, for the six months, ended March 31, 2003. Gross
margin was 55% and 54% for the three and six months ended March 31, 2004 as
compared to 52% and 50%, respectively, for the three and six months ended March
31, 2003.
The difference in gross margin as a percentage of sales is attributable
to the $57,920 payment by Codman & Shurtleff, Inc. in the second quarter of
fiscal 2004, an increase in sales of our dental products and changes in product
mix. We cannot be sure that gross margins will remain at current levels or show
improvement in the future due to the distribution channels used, product mix,
and fluctuation in manufacturing production levels and overhead costs as new
products are introduced. In addition, inefficiencies in manufacturing new
products and the distribution channels utilized to sell those products may
adversely impact gross margin.
Operating Expenses
Selling, general and administrative expenses were $470,208, or 42% of
sales, for the three months, and $868,545, or 37% of sales, for the six months
ended March 31, 2004, as compared to $489,747, or 38% of sales, for the three
months, and $816,050, or 35% of sales, for the six months, ended March 31, 2003.
Selling, general and administrative expenses reflect increased selling and
marketing expenses that we incurred in connection with implementing our sales
and marketing efforts for the direct marketing of our Bident(R) Bipolar Tissue
Management System to dental product distributors.
-14-
Research and development expenses for the three months ended March 31,
2004 were $127,013, or 11% of sales, and $240,908, or 10% of sales, for the six
months ended March 31, 2004. For the three and six months ended March 31, 2003,
research and development expenses were $120,169, or 9% of sales, and $209,507,
or 9% of sales, respectively. The increase in research and development expenses
were related to the development of our next generation neurosurgical generator
and instrumentation and other products.
We recently received 510(k) approval from the Food and Drug
Administration to market a new product which we have been developing for Stryker
Corporation pursuant to a development agreement. We are discussing the
distribution of that product with Stryker Corporation.
Other Income/Expense, net
Other income and expense, net, decreased slightly to $5,369 for the
three months ended March 31, 2004 as compared to $6,823 for the three months
ended March 31, 2003. At March 31, 2004, we had $2,281,018 in cash and cash
equivalents as compared to $2,152,406 at March 31, 2003.
Income Tax Provision
The provision for income taxes was $11,402 and $65,950, respectively,
for the three and six months ended March 31, 2004 as compared to a provision of
$22,972 and $52,461, respectively, for the three and six months ended March 31,
2003.
Net Income
As a result of the foregoing, our net income for the three months ended
March 31, 2004 was $7,579, as compared to net income of $29,593 for the three
months ended March 31, 2003 and our net income for the six months ended March
31, 2004 was $80,558 as compared to net income of $69,732 for the six months
ended March 31, 2003. Basic and diluted income per share was $.00 for both the
three months ended March 31, 2004 and March 31, 2003 and was $.01 for both the
six months ended March 31, 2004 and March 31, 2003. Due to our operating history
and numerous other factors, we cannot be sure that we can sustain profitability
or achieve revenue growth.
Liquidity and Capital Resources
At March 31, 2004, we had $3,673,383 in working capital compared to
$3,560,999 at September 30, 2003. The primary measures of our liquidity are
cash, cash equivalents, accounts receivable and inventory balances, as well as
our borrowing ability. The cash equivalents are highly liquid with original
maturities of ninety days or less.
Cash used for operating activities was $19,696 for the six months ended
March 31, 2004, as compared to cash used for operating activities of $268,574
for the six months ended March 31, 2003. The cash used for operating activities
for the six months ended March 31, 2004 was mainly attributable to an increase
in accounts receivable of $272,061 offset by our operating profit net of
adjustments for non-cash items of $114,585, a $63,356 increase in accounts
payable and accrued expenses and income taxes payable, a $54,398 decrease in
prepaid items and other current assets and a $17,250 increase in deferred
revenue.
-15-
During the first six months ended March 31, 2004, inventories decreased
by $9,497 to a total of $765,686 at March 31, 2004 compared to $775,183 at
September 30, 2003. At March 31, 2003, inventories were $800,772. The decrease
was primarily due to improved inventory management. Inventories were kept at
these levels primarily to support anticipated future sales activities. Inventory
levels for the first six months of fiscal 2004 were at 131 days of sales as
compared to 126 days of sales for the first six months of fiscal 2003.
In the first six months of fiscal 2004, accounts receivable net of
allowances increased by $272,061 to a total of $648,976 at March 31, 2004 as
compared to $376,915 at September 30, 2003. At March 31, 2003, our accounts
receivable net of allowances was $625,538. The increase in accounts receivable
in the first six months of 2004 was primarily due to timing of sales and an
increase in sales of our dental products. Accounts receivable for the first six
months of fiscal 2004 were at 51 days of sales as compared to 49 days of sales
for the first six months of fiscal 2003.
During the six months ended March 31, 2004, we purchased property,
plant and equipment of $9,842. Net property and equipment increased to $151,494
at March 31, 2004 as compared to $138,597 at March 31, 2003.
At March 31, 2004, we had cash and cash equivalents of $2,281,018. We
plan to finance our operating and capital needs principally with cash flows from
operations and existing balances of cash and cash equivalents, which we believe
will be sufficient to fund our operations in the near future. However, should it
be necessary, we believe we could borrow adequate funds at competitive rates and
terms. Our future liquidity and capital requirements will depend on numerous
factors, including the success in commercializing our existing products,
development and commercialization of products in other clinical markets, the
ability of our suppliers to continue to meet our demands at current prices, the
status of regulatory approvals and competition.
We have a line of credit of $1,000,000 with Wachovia Bank, N.A., which
calls for interest to be charged at the bank's national commercial rate. The
credit accommodation is unsecured and requires us to have a tangible net worth
of no less than $3,000,000. Our tangible net worth at March 31, 2004 was
$3,828,416. There was no outstanding balance on this line as of March 31, 2004.
Additional Cautionary Statements
We Face Intense Competition
- ---------------------------
The markets for our current and potential products are intensely
competitive. Some surgical procedures which utilize or could utilize our
products could potentially be replaced or reduced in importance by products sold
by other companies or alternative medical procedures or new drugs which could
render our products obsolete or uncompetitive in the markets which we sell, or
in the future may sell, our products.
-16-
We are Dependent Upon Sales of Our Neurosurgery System - Substantially All of
Our Business Comes From One Customer
- -----------------------------------------------------------------------------
Codman & Shurtleff, Inc., which sells our products in the neurosurgery
market, accounted for 86% of our sales in the first six months of fiscal 2004,
and 95% and 90% of our sales in fiscal 2003 and 2002, respectively. Any
cancellation, deferral or significant reduction in sales in the neurosurgery
market could seriously harm our business, financial condition and results of
operations. The term or our current distribution agreement with Codman &
Shurtleff, Inc. was recently extended from December 31, 2003 to March 31, 2004
and then from March 31, 2004 to June 30, 2004 to allow the parties time to
continue to discuss the terms of a new distribution agreement. Increased sales
in the neurosurgery market are dependent on the acceptance and use of our new
neurosurgical generator and disposable hand-held instruments in the marketplace.
Commercial Success of our Non-Neurosurgical Products is Uncertain
- -----------------------------------------------------------------
Our growth depends on the acceptance and use of our products in the
marketplace, the market penetration achieved by the companies that we utilize,
sell to, and rely on, to sell and distribute our products, and our ability to
introduce new and innovative products that meet the needs of medical
professionals. There can be no assurance that we will be able to continue to
introduce new and innovative products or that the products we introduce, or have
introduced, will be widely accepted, or continue to be accepted, in the
marketplace, or that we or the companies, which we may contract with to
distribute or sell our products, achieve market penetration. While we have
developed several applications for our DualWave(TM) technology outside of
neurosurgery and we believe that the products based on our technology offer
advantages over other products, we cannot assure you that these advantages will
be realized in the form of increased sales or profits.
We Have Limited Marketing and Sales Experience
- ----------------------------------------------
We currently have limited experience in marketing and selling our
products. To the extent that we have established or will enter into distribution
arrangements for the sale of our products, we are and will be dependent upon the
efforts of third parties. We have entered into a distribution agreement with
Codman & Shurtleff, Inc. to sell our products in the neurosurgery market and we
sell our Bident(R) Bipolar Tissue Management System through independent dental
product dealers. We cannot assure you that these distributors and dealers will
commit the necessary resources to effectively market and sell our neurosurgery
and dental product lines, or that they will be successful in selling our
products. To the extent our marketing and sales efforts are unsuccessful, our
business, financial condition, results of operations and future growth prospects
may be materially adversely affected.
Our Products are Extensively Regulated Which Could Delay Product Introduction or
Halt Sales
- --------------------------------------------------------------------------------
The process of obtaining and maintaining required regulatory approvals
is lengthy, expensive and uncertain. Although we have not experienced any
substantial regulatory delays to date, there is no assurance that delays will
not occur in the future, which could have a significant adverse effect on our
-17-
ability to introduce new products on a timely basis. Regulatory agencies
periodically inspect our manufacturing facilities to ascertain compliance with
"good manufacturing practices" and can subject approved products to additional
testing and surveillance programs. Failure to comply with applicable regulatory
requirements can, among other things, result in fines, suspensions of regulatory
approvals, product recalls, operating restrictions and criminal penalties. While
we believe that we are currently in compliance, if we fail to comply with
regulatory requirements, it could have an adverse effect on our results of
operations and financial condition.
We are Dependent on Key Suppliers
- ---------------------------------
For some of the components we use in our products we rely upon single
source suppliers or a single contract manufacturer. For example, we currently
subcontract the manufacturing of our disposable cord and tubing sets with a
single manufacturer. While we believe there are alternative sources available,
we would be required to qualify and validate a new supplier(s) or contractor(s),
which could lead to a disruption in our operations and ability to supply product
for a period of time.
We Face Uncertainty Over Reimbursement
- --------------------------------------
Failure by physicians, hospitals and other users of our products to
obtain sufficient reimbursement from health care payors for procedures in which
our products are used or adverse changes in governmental and private third-party
payors' policies toward reimbursement for such procedures would have a material
adverse effect on our business, financial condition, results of operations and
future growth prospects.
We May Be Unable to Effectively Protect Our Intellectual Property
- -----------------------------------------------------------------
Our ability to compete effectively depends in part on developing and
maintaining the proprietary aspects of our bipolar technology. We cannot assure
you that the patents we have obtained, or any patents we may obtain, will
provide any competitive advantages for our products, or that we will be able to
maintain a competitive advantage after our patents expire. We also cannot assure
you that those patents will not be successfully challenged, invalidated or
circumvented in the future. In addition, we cannot assure you that competitors,
many of which have substantial resources and have made substantial investments
in competing technologies, have not already applied for or obtained, or will not
seek to apply for and obtain, patents that will prevent, limit or interfere with
our ability to make, use and sell our products either in the United States or in
international markets. Patent applications are maintained in secrecy for a
period after filing. We may not be aware of all of the patents and patent
applications potentially adverse to our interests.
We May Become Subject to a Patent Litigation
- --------------------------------------------
The medical device industry has been characterized by extensive
litigation regarding patents and other intellectual property rights, and
companies in the medical device industry have employed intellectual property
litigation to gain a competitive advantage. We cannot assure you that we will
not become subject to patent infringement claims or litigation or interference
proceedings declared by the United States Patent and Trademark Office to
determine the priority of invention.
-18-
We May have Product Liability Claims
- ------------------------------------
Our products involve a risk of product liability claims. Although we
maintain product liability insurance at coverage levels, which we believe are
adequate, there is no assurance that, if we were to incur substantial liability
for product liability claims, insurance would provide adequate coverage against
such liability.
Our Operating Results May Fluctuate
- -----------------------------------
We have experienced operating losses at various times since our
inception. Our results of operations may fluctuate significantly from quarter to
quarter based on numerous factors including the following:
o the introduction of new product lines;
o the level of market acceptance of our products;
o achievement of research and development milestones;
o timing of the receipt of orders from, and product shipments
to, distributors and customers;
o timing of expenditures;
o changes in the distribution of our products;
o manufacturing or supply delays;
o the time needed to educate and train a distributor's sales
force;
o costs associated with product introduction;
o product returns; and
o receipt of necessary regulation approvals.
The Market Price of Our Stock May be Highly Volatile
- ----------------------------------------------------
During the fiscal year ended September 30, 2003 and the first six
months of fiscal 2004, our common stock has traded in a range of $1.05 and $2.16
per share. The market price of our common stock could continue to fluctuate
substantially due to a variety of factors, including:
o Our ability to successfully commercialize our products;
o The execution of new agreements and material changes in our
relationships with companies with whom we contract;
o Quarterly fluctuations in results of operations;
o Announcements regarding technological innovations or new
commercial products by us or our competitiors or the results
of regulatory approval filings;
o Market reaction to trends in sales, marketing and research and
development and reaction to acquisitions;
o Sales of common stock by existing stockholders; and
o Economic and political conditions.
-19-
Item 4. CONTROLS AND PROCEDURES
- -------
We maintain disclosure controls and procedures (as defined in
Securities Exchange Act 1934 Rules 13a-15(c)) that are designed to ensure that
the information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms, and that such
information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding disclosure. In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost benefit
relationship of possible controls and procedures.
As of the end of the quarter ended March 31, 2004, we carried out an
evaluation, under the supervision and with the participation of Valley Forge
Scientific's management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on the foregoing, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of the end of the period covered by this quarterly
report. There have been no significant changes in our internal controls or in
other factors that have materially affected, or are reasonably likely to affect,
our internal control over financial reporting.
-20-
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------
At the Annual Meeting of Stockholders held on March 10, 2004, the
following directors were elected for a one year term until their successors are
duly elected and qualified:
Number of Share Votes:
----------------------
FOR WITHHELD
--- --------
Jerry L. Malis: 6,478,354 136,850
Leonard I. Malis: 6,585,159 30,045
Bruce A. Murray: 6,585,159 30,045
Louis Uchitel: 6,585,159 30,045
Robert H. Dick: 6,585,159 30,045
Item 5. OTHER INFORMATION
- -------
We want to remind stockholders that a stockholder proposal submitted pursuant to
Rule 14a-8 under the Securities Exchange Act of 1934, as amended ("Rule 14a-8"),
for inclusion in our proxy statement and form of proxy for the 2005 Annual
Meeting of Stockholders must be received by us by September 30, 2004. Such a
proposal must also comply with the requirements as to form and substance
established by the Securities and Exchange Commission for such proposals. In
addition, a stockholder desiring to present a proposal, otherwise than pursuant
to Rule 14a-8, at the 2005 Annual Meeting must deliver written notice of the
proposal to us on or prior to December 14, 2004, or the persons named in proxies
solicited by the Board of Directors in connection with the Annual Meeting will
have discretionary authority to vote on the proposal.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
- -------
(a) Exhibits
The following is a list of the Exhibits filed as part of this
quarterly report on Form 10Q.
Exhibit Number Exhibit Name
-------------- ------------
10.1 Second Extension of Distribution
Agreement with Codman & Shurtleff,
Inc., dated March 3, 2004
31.1 Certification of the Chief Executive
Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
32.1 Certification of the Chief Executive
Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
-21-
(b) Current Reports on Form 8-K
On February 11, 2004, Valley Forge Scientific Corp. filed a
report on Form 8-K regarding a press release concerning first
quarter and operating results for fiscal 2004.
On March 10, 2004, Valley Forge Scientific Corp. filed a
report on Form 8-K regarding a press release concerning the
annual meeting of stockholders.
-22-
VALLEY FORGE SCIENTIFIC CORP.
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VALLEY FORGE SCIENTIFIC CORP.
Date: May 13, 2004 By: /s/ JERRY L. MALIS
----------------------------------
Jerry L. Malis, President and
Chief Executive Officer
(principal financial officer)
-23-
VALLEY FORGE SCIENTIFIC CORP.
For Fiscal Period Ended March 31, 2004
FORM 10-Q
EXHIBIT INDEX
Exhibit 10.1 Second Extension of Distribution Agreement with
Codman & Shurtleff, Inc. dated March 3, 2004
Exhibit 31.1 Certification of the Chief Executive Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1 Certification of the Chief Executive Officer Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
-24-