ITEM 1. BUSINESS.
Moyco Technologies, Inc. and subsidiaries was incorporated in 1968 under the laws of the Commonwealth of Pennsylvania. As used herein, the term "Moyco" or the "Company," includes Moyco Technologies, Inc. and subsidiaries unless the context otherwise indicates.
General
The Company operates in two business segments: Dental Supplies and Precision Abrasives. The Dental Supplies segment involves the manufacturing, marketing and distributing of dental supplies, such as waxes, abrasives, medicaments, dental mirrors, endodontic (root canal) instruments, materials and equipment, sundry dental items, hand instruments, sterilization items, as well as the repacking and distributing of other dental products for sale to the professional dental market. The Precision Abrasives segment involves the manufacturing of commercial coated abrasives, precision submicron coated abrasives, slurries (wet abrasives) and polishing agents. These products are used for various applications and industries, including but not limited to, fiber optics, lapidary, nail files, dentistry, plastics and woods, semiconductor manufacturing and other high-tech manufacturing procedures which require extremely fine abrasive films and/or slurries to achieve consistently uniform polishing results. The Precision Abrasives segment works closely with customers to develop specific products to meet each customer's unique finishing requirements.
In August 1996, the Company acquired all of the outstanding Common stock of Thompson Dental Mfg. Co. ("Thompson"), a manufacturer of dental hand instruments and related products. Thompson's business activities since the date of acquisition have been included in the Company's Dental Supplies segment.
Business Segments
Financial information relating to Moyco's two business segments and operations, both domestically and internationally, is provided in Note 9 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.
Dental Supplies
Moyco, through its Dental Supplies segment, is engaged in the manufacturing, marketing and distributing of dental supplies, such as waxes, abrasives, medicaments, dental mirrors, endodontic (root canal) instruments, materials and equipment, sundry dental items, hand instruments, sterilization items, as well as the repackaging and distributing of other dental products for sale to the professional dental market.
The Dental Supplies segment sells products under the "Moyco Union Broach" and "Thompson" trade names. The Moyco Union Broach product line includes various patented and/or proprietary products under well-known trade names including, but not limited to, FLEX-R Files, LIGHTNING Strips, ONYX-R Files, MASTERSOL, and BEAUTY PINK wax. The Thompson product line offers the professional dental market various proprietary products such as TACTILE TONE hand instruments and the RE-BAG reusable sterilization pouch.
All products are generally sold through salaried salespersons to dental supply wholesalers and distributors serving the professional dental market in the United States and overseas, as well as to a limited number of end users. During the years ended June 30, 2000 and 1999, one Dental Supplies segment customer accounted for 12.4% and 11.9%, respectively, of the Company's total net sales. Sales in the Dental Supplies segment to overseas customers were 8.7%, 12.1% and 17.5% of total net sales for the years ended June 30, 2000, 1999 and 1998, respectively. See Note 9 of Notes to Consolidated Financial Statements.
Sales of the Company's endodontic (root canal) instruments accounted for 36.8%, 25.6% and 24.0% of the Company's total net sales for the years ended June 30, 2000, 1999 and 1998, respectively. Certain of these instruments are subject to litigation with DENTSPLY International Inc. ("Dentsply"). (See discussion of legal proceedings in Part I, Item 3 of this Form 10-K).
While the sales growth of the U.S. dental supplies business has been slower than other industries during the past five years, endodontic (root canal) instrument, material and equipment sales are increasing at a higher rate due to the aging of the U.S. population, expansion of dental services offered by general dentists, and the attractive economics of endodontics. With regard to Moyco's patented line of nickel titanium endodontic instruments, after the dentist is properly trained, use of these items will usually significantly reduce patient "chair time" and potential complications which occur during traditional root canal therapy. The Dental Supplies segment's strength, endodontic instruments, should provide various opportunities for growth. Nevertheless, with regard to all of the other product lines manufactured by the Dental Supplies segment and endodontic instrument business in certain international territories, the Company continues to experience price sensitivity of its customer base which only allows for nominal product price increases.
During the fiscal year, Moyco introduced various innovative and proprietary endodontic (root canal) products which are expected to compliment popular Moyco Union Broach products and to fully integrate the endodontic product line. These products, such as POW-R .06 coronal shapers, SLIDE file lubricant, Sprint TCM Motor and the MARK V apex locator, will allow Moyco to market complete endodontic systems to dental professionals through seminars sponsored by Moyco and its network of authorized distributors. To further expand its endodontic product offering, Moyco, through its Thompson product line, also manufactured and marketed several new endodontic hand instruments featuring proprietary color-coded tactile tone grips to reduce hand stress. Research and development focusing on endodontic products continues.
Precision Abrasives
Moyco, through its Precision Abrasives segment, is engaged in the manufacture of commercial abrasive materials under the name "Flex-I-Grit" and the production of extremely fine sub-micron and namometer abrasive films and slurries under the trademark "Ultralap." Moyco also manufactures slurries (wet abrasives) for various fine finishing procedures. The Company's abrasives are often manufactured to the specifications of customers for various unique fine polishing requirements.
Moyco's abrasive films are manufactured for more than twenty different applications and, therefore, are made in numerous varieties which take into account many factors such as (i) type of grit (i.e., aluminum oxide, diamond, cerium, etc.), (ii) grit size, (iii) grit consistency, (iv) color, (v) type of backing or substrate, (vi) finished product delivery type (i.e., rolls, disks, sheets, strips, etc.) and (vii) customer requirements. The Company sells its precision abrasive products to the following markets: semiconductor and other high-tech manufacturing, fiber optics, dentistry, lapping gem, toy and hobby, imaging, automotive parts, finger nail, ceramic roll and other markets which require fine polishing, lapping and finishing films and/or slurries.
Moyco's abrasives made for the toy and hobby industry ("Flexi-I-Grit") are sold by a master distributor and other repackers through the use of private label arrangements, while the "Ultralap" products are sold by the Company's salesmen either directly to end users or to distributors. Sales in the Precision Abrasives segment to overseas customers were 12.2%, 7.9% and 4.9% of total net sales for the years ended June 30, 2000, 1999 and 1998, respectively. See Note 9 of Notes to Consolidated Financial Statements.
Backlog
There is a backlog of orders in the aggregate of $1,711,948 as of June 30, 2000. There had been a backlog of orders in the aggregate of $2,076,024 as of June 30, 1999. Approximately 27.3% and 75.9% of the backlog at June 30, 2000 and 1999, respectively, relates to the Precision Abrasives segment.
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 the foreseeable future.
Patents, Trademarks and Licenses
The Company's ability to compete effectively with other companies depends, in part, on its ability to protect and maintain the proprietary nature of its technology. The Company owns 9 United States patents, 1 Japanese patent and a number of issued foreign patents and pending patent applications for its products. The Company plans to continue to patent inventions which may provide commercial benefit. Currently, the Company has two patent applications pending for a new endodontic instrument design and manufacturing process. In addition, the Company is reviewing the possibility of filing several new applications related to both its dental and abrasives technologies. The Company treats its design and technical data as confidential, and relies on nondisclosure safeguards, such as confidentiality agreements, laws protecting trade secrets and agreements to protect proprietary information. The Company has incurred substantial costs in enforcing its patents against infringement by others and defending itself against similar claims of others. Although the Company has been successful to date in disputes involving the validity and enforceability of its patents and in defending itself against claims by others of patent infringement, there can be no assurance that the Company will continue to be successful in such matters in the future or that the Company's patents or other proprietary rights, even if
continuing to be held valid, will be broad enough in scope to enable the Company to prevent third parties from producing products using similar technologies or processes. The Company also has registered various trademarks which have assisted the Company in building brand identity and loyalty.
Research and Development
The Company engages in research activities directed toward the development of new products relating to current product lines and the improvement of existing products. Spending for research and development totaled $43,842, $37,857 and $986,690, for the years ended June 30, 2000, 1999 and 1998, respectively.
Competition
All of the lines of business in which the Company is presently engaged are highly competitive. There are numerous other manufacturers, many of which are larger and have greater financial resources and more sales representatives than the Company. The Company's material competitors in its Precision Abrasives segment are: Minnesota Mining and Manufacturing Company, Nippon Mining Company and Norton Corporation. The Company's material competitors in its Dental Supplies segment are: Dentsply, Sybron International Corporation, Premier Dental, Hu-Friedy, Coltene Whaledent, American Eagle, Nordent and Miltex.
Employees
As of June 30, 2000, the Company employs 169 persons, of whom 129 are involved in manufacturing products for the Precision Abrasives and Dental Supplies segments, and 40 are engaged in administration, sales, engineering, supervision and clerical work. The Company has had no work stoppages and considers its relationship with its employees to be good.
Regulatory Matters
The manufacture, packaging, labeling, advertising, promotion, distribution and sale of the Company's products are subject to regulation by numerous national and local governmental agencies in the United States and other countries. In the United States, the Food and Drug Administration (FDA) regulates the Company's Dental Supplies line under the Food, Drug, and Cosmetic Act ("FDC Act") and regulations promulgated thereunder. Advertising and other forms of promotion and methods of marketing of the Company's products are subject to regulation by the Federal Trade Commission ("FTC") under the Federal Trade Commission Act ("FTC Act").
Other
The Company believes it produces no significant discharges of waste or pollutants into the environment, and there are no significant effects on the Company in complying with current Federal, state and local environmental laws and regulations.
ITEM 2.
ITEM 2. PROPERTIES.
The Company is the owner of three buildings. The Montgomeryville, Pennsylvania, facility is a one-story, cinder block building containing approximately 40,125 square feet, of which 14,250 square feet are used for manufacturing; 19,875 square feet for warehousing and 6,000 square feet for offices. This facility is primarily used for the manufacture of precision abrasives. 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. The Missoula, Montana, facility is 9,600 square feet, of which approximately 7,800 square feet are used for manufacturing and warehousing and 1,800 square feet for offices. The York, Pennsylvania, and Missoula, Montana, facilities are used by the Company's Dental Supplies segment. There are mortgages on all of the Company's properties. Moyco's facilities are suitable for their respective uses and are, in general, adequate for Moyco's present needs. If the Company requires additional capacity, the facility in York has additional space available for warehousing, manufacturing and office personnel. The building, which may be expanded up to 160,000 square feet, is zoned for expansion and was built with two removable walls.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
As of the date of this Form 10-K, other than the litigation filed against the Company by Dentsply (which is described below), the Company was not involved in any material legal proceedings, other than ordinary litigation incidental to the business and, specifically, was not involved in any material environmental litigation or governmental proceedings.
Dentsply Litigation
On April 22, 1998, the Company was served with a complaint in the United States Court for the Middle District of Pennsylvania by Dentsply International, Inc. (Dentsply) claiming infringement of a Dentsply patent by the Company's manufacturing process to fabricate nickel titanium endodontic (root canal) instruments. By amendment, a claim for infringement of a second related patent was later added. The Company retained counsel to vigorously defend against the Dentsply complaint, which management believed to be without basis. The Company asserted defenses which management believed meritorious. In addition, the Company filed counterclaims alleging, among other things, that Dentsply is infringing three Company patents, violating the Sherman Antitrust Act and the Lanham Act, and interfering with the Company's business relationships.
Subsequent to the fiscal year ended June 30, 2000, the two parties reached a settlement of their respective claims, and entered into two license agreements. Dentsply licensed from Moyco three United States and related foreign patents covering inventions related to endodontic instrument tips. Moyco licensed from Dentsply four United States patents covering various inventions related to nickel titanium endodontic instruments. The parties have agreed to release each other from all claims pending in the U.S. District Court for the Middle District of Pennsylvania. Royalties earned and/or paid under those agreements will be based on sales of licensed products beginning January 1, 2001.
The Company is currently engaged in discussions to finalize fees and expenses incurred in the Dentsply litigation. As of this date, no final determination can be made, although as of June 30, 2000 the Company has accrued for what it believes to be its liability for such fees and expenses.
Foot Powder Settlement
During calender year 1997, the Company settled a Government investigation of Itch-Away Foot Powder which the Company manfactured and sold pursuant to contracts with the United States Defense Department. The Compay entered into a civil settlement of the matter agreeing to pay the Government a total of $505,000, without interest. These payments are secured by an irrevocable letter of credit obtained by the Company from a bank. The Company made the first payment of $100,000 in August 1997, the second payment of $101,250 in August 1998, the third payment of $101,250 in August 1999, the fourth payment of $101,250 in August 2000, and will make one similar payment in August 2001. In connection with this matter, the Company was fined $350,000, which is payable in five annual installments commencing in January 1998. The Company has paid the first, second and third installments. Interest is payable at 5.42% per year and is due with the final payment.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
Since October 20, 1998, Moyco's Common stock has been traded on the NASDAQ SmallCap Market. Between January 26, 1996, and October 19, 1998, the Company's Common stock was traded on the NASDAQ National Market, and prior to that time was traded in the over-the-counter market between dealers in securities.
The following table sets forth the high and low sales prices per share (adjusted to give retroactive effect to the respective 10% stock dividends issued on September 30, 1998 and November 24, 1999) for each quarter during fiscal year 2000 and 1999 based on NASDAQ SmallCap and National Market Composite Transactions.
High Low ---- --- First quarter ended September 30, 1999 $1.78 $1.13 Second quarter ended December 31, 1999 1.75 0.88 Third quarter ended March 31, 2000 8.00 1.00 Fourth quarter ended June 30, 2000 4.06 1.50
High Low ---- --- First quarter ended September 30, 1998 $3.85 $2.90 Second quarter ended December 31, 1998 2.20 1.10 Third quarter ended March 31, 1999 1.52 1.13 Fourth quarter ended June 30, 1999 1.83 1.10
The number of shareholders of record at June 30, 2000 was 698, which excludes shareholders whose shares are held in nominee or "street" name by brokers.
The Company has never paid cash dividends on its common stock. The Company's anticipated capital requirements are such that it intends to follow a policy of retaining earnings in order to finance the development of its business.
In September 1998, the Company declared a 10% stock dividend to shareholders of record as of September 18, 1998. The new shares were distributed to shareholders on September 30, 1998. A total of $1,123,926, representing the fair market value (based on the quoted market price) of the additional shares issued were charged to retained earnings, with $2,366 and $1,121,560 credited to Common Stock and additional paid-in capital, respectively, effective June 30, 1998. All earnings (loss) per Common share data, shares used in computing earnings (loss) per Common share and all share and option balances and prices were restated to give retroactive effect to the 10% stock dividend.
In October 1999, the Company declared a 10% stock dividend to shareholders of record as of November 3, 1999. The new shares were distributed to shareholders on November 24, 1999. A total of $680,271, representing the fair market value (based on the quoted market price) of the additional shares issued were charged to retained earnings, with $2,603 and $677,668 credited to Common stock and additional paid-in capital, respectively, effective on the date such dividend was declared. All earnings (loss) per Common share data, shares used in computing earnings (loss) per Common share and all share and option balances and prices were restated to give retroactive effect to the 10% stock dividend.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
Selected consolidated statement of operations data:
(1) In fiscal 1998, the Company made a one-time payment of $775,000 relating to certain research and development fees. See Note 3 of Notes to Consolidated Financial Statements.
(2) On December 31, 1997, the Company sold its chemical mechanical planarization ("CMP") assets and CMP business product line for the electronics industry and related intellectual property to EKC Technology, Inc. ("EKC"), a subsidiary of ChemFirst Inc. for $2,450,000 in cash, as well as a deferred payment by EKC contingent on sales of CMP products during the period through June 30, 2000, and varying royalties based on sales of CMP products through 2004. This transaction resulted in a pre-tax gain of $1,660,483 for the Company in fiscal 1998. See Note 14 of Notes to Consolidated Financial Statements.
Also on December 31, 1997, the Company sold certain particle dispersion technology to Nanophase Technologies Corporation ("Nanophase") for $223,000 in cash, resulting in a one-time pre-tax gain of $223,000.
(3) On August 8, 1996, the Company acquired all of the outstanding Common stock of Thompson, a manufacturer of dental hand instruments and related products. The acquisition was accounted for as a purchase business combination. See Note 2 of Notes to Consolidated Financial Statements.
(4) As adjusted to give retroactive effect to the respective 10% stock dividends issued on September 30, 1998 and November 24, 1999. See Note 3 of Notes to Consolidated Financial Statements.
Selected consolidated balance sheet data:
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Safe Harbor for Forward-Looking Statements
From time to time, the Company may publish statements which are not historical fact, but are forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. The Private Securities Litigation Reform Act of 1995 provides safe harbor for forward-looking statements.
These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical and anticipated results or other expectations expressed in the Company's forward-looking statements. Such forward-looking statements may be identified by the use of certain forward-looking terminology, such as, "may," "will," "should," "expect," "anticipate," "intend," "plan," "project," "estimate," "believe," "goal," or "continue," or comparable terminology that involves risks or uncertainties. Actual future results and trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to (i) competition within the Company's industries; (ii) changes in the economics of dentistry, including consolidation, reduced growth in expenditures by private dental insurance plans, and the effects of healthcare reform, which may affect future per capita expenditures for dental services and the ability of dentists to invest in or obtain reimbursement for the use of dental products; (iii) the effect of economic conditions; (iv) supply risks, including shortages and increases in the costs of key raw materials; (v) dependence on the services of the Company's executive officers, and other key operations and technical personnel; (vi) legal proceedings (See discussion of legal proceedings in Part I, Item 3 of this Form 10-K.); and (vii) the effects of the casualty loss at one of the Company's manufacturing facilities (See discussion of casualty loss below).
Overview
Over the past five years, Moyco increased sales from $11.9 million to $17.7 million. This growth is the result of many factors including acquisitions, strategic alliances and the introduction of new products.
The Company recorded net income of $757,408 for fiscal 2000 primarily due to increased demand for fiber optic polishing films. This net income was achieved despite a decrease in net revenues from international customers in the Dental Supplies segment and incurred expenses for the on-going introduction of a new sales, marketing and growth strategy in the Precision Abrasives segment. The Precision Abrasives segment has targeted four applications and markets to generate additional revenues for its precision lapping films and slurries. The growth strategy is to target specific opportunities related to the finishing and polishing of computer heads, ceramic rolls and automotive parts. As a result of continued growth of fiber optic technologies for the home and workplace, sales of fiber optic polishing films are expected to exceed current levels in the immediate future. The Company will continue to invest in product development in order to serve this growing market.
In April 1999, certain coating equipment, utilized in the manufacture of abrasive materials in the Precision Abrasives segment, was damaged at the Company's Montgomeryville facility. As a result, the Company received proceeds under its insurance coverage of $200,000 during the three months ended June 30, 1999, $135,000 during the three months ended September 30, 1999, and $180,000 during the three months ended March 31, 2000, which was used to replace a portion of the damaged equipment and resolve a business interruption claim.
In January, 2000, an officer of the Company transferred 181,500 shares of the Company's common stock in payment of certain legal fees owing to the Company's counsel in the Dentsply litigation, which has been incurred and recorded by the Company in the prior fiscal year. The Company issued its promissory note in the principal amount of $257,000, the stipulated value of the shares transferred by the officer. The note is payable in full on December 31, 2002. Interest at the annual rate of 10% is payable on December 31 of each year, but the Company may elect to defer payment of interest and add it to the principal amount due.
In June, 2000, the Company issued 30,000 shares of restricted common stock valued at approximately $78,750 on date of issuance, to a consulting firm for professional services to review and evaluate strategic alternatives, including but not limited to mergers, acquisitions, and spin-off of business segments, and thereafter implement a plan to increase shareholder value. The Company believes that the value of the services to be rendered by the consultant to be equivalent to the value of the shares on the date of issuance.
Summary
The following table sets forth for the periods indicated the Company's key financial information by segment.
For the Year Ended June 30 --------------------------------------------- 2000 1999 1998 ---- ---- ----
Net sales: Dental Supplies $11,025,916 $10,319,202 $10,915,768 Precision Abrasives 6,650,597 4,743,742 4,421,873 --------- --------- ---------
$17,676,513 $15,062,944 $15,337,641 =========== =========== ===========
Gross profit: Dental Supplies $5,241,989 $5,058,017 $5,336,168 Precision Abrasives 1,879,434 1,208,221 1,441,919 --------- --------- ---------
$7,121,423 $6,266,238 $6,778,087 ========= ========== ==========
Operating income (loss): Dental Supplies $1,202,237 $140,814 $1,365,562 Precision Abrasives 327,336 (531,104) (1,343,756) ------- --------- -----------
$1,529,573 $(390,290) $21,806 ========= ========== =======
Results of Operations
Year Ended June 30, 2000 Compared to Year Ended June 30, 1999
Net sales in fiscal 2000 totaled $17,676,513, an increase of $2,613,569 from fiscal 1999 sales of $15,062,944. Net sales in the Dental Supplies segment increased $706,714 primarily due to an increase in the sales of the Company's proprietary and patented endodontic (root canal) instruments. Net sales in the Precision Abrasives segment increased $1,906,855 primarily resulting from the full rollout in fiscal 2000 of new proprietary abrasive films for fiber-optic polishing applications. These films were first introduced in the prior fiscal year. In addition, the Company secured several new customers for this product line.
Gross profit increased $855,185 from fiscal 1999. As a result of the increased sales, the gross profit in the Dental Supplies segment increased $183,972 from $5,058,017 (49.0% of Dental Supplies net sales) in fiscal 1999 to $5,241,989 (47.5% of Dental Supplies net sales) in fiscal 2000. Materials cost increases accounted for the reduction in gross profit as a percentage of sales. The gross profit in the Precision Abrasives segment increased $671,213 from $1,208,221 (25.5% of Precision Abrasives net sales) in fiscal 1999 to $1,879,434 (28.3% of Precision Abrasives net sales) in fiscal 2000. Gross profit as a percentage of net sales in the Dental Supplies segment remained relatively constant between periods. The improvement in gross profit percentage for the Precision Abrasives segment is attributable to improved product mix and the casualty loss suffered in fiscal 1999, which had caused production interruptions and the use of less efficient manufacturing processes during the period subsequent to the loss.
Operating expenses decreased $1,064,678 from $6,656,528 (44.2% of net sales) in fiscal 1999 to $5,591,850 (31.6% of net sales) in fiscal 2000. Sales and marketing expenses decreased $804,639 from $2,808,676 (18.6% of net sales) in fiscal 1999 to $2,004,037 (11.3% of net sales) in fiscal 2000 primarily as a result of cost containment measures. General and administrative expenses decreased $266,024 from $3,809,995 (25.3% of net sales) in fiscal 1999 to $3,543,971 (20.0% of net sales) in fiscal 2000 due to a lower level of legal fees incurred in defending the Dentsply litigation. The Company settled the Dentsply litigation subsequent to the close of fiscal 2000. (See discussion of legal proceedings in Part I, Item 3 of this Form 10-K).
Interest expense decreased largely due to the full year effect of the debt renegotiation that the Company accomplished in late fiscal 1999. Interest income remained relatively constant between periods. The increase in income tax expense is attributable to the higher level of profitablility.
Year Ended June 30, 1999 Compared to Year Ended June 30, 1998
Net sales in fiscal 1999 totaled $15,062,944, a decrease of $274,697 from fiscal 1998 sales of $15,337,641. Net sales in the Dental Supplies segment decreased $596,566, primarily due to a decrease in international sales offset by an increase in the sales of the Company's proprietary and patented endodontic (root canal) instruments. Net sales in the Precision Abrasives segment increased $321,869 primarily as a result of the introduction of newly developed higher priced abrasive films for fiber-optic polishing applications.
Gross profit decreased $511,849 from fiscal 1998. As a result of the decreased sales, the gross profit in the Dental Supplies segment decreased $278,151 from $5,336,168 (48.9% of Dental Supplies net sales) in fiscal 1998 to $5,058,017 (49.0% of Dental Supplies net sales) in fiscal 1999. The gross profit in the Precision Abrasives segment decreased $233,698 from $1,441,919 (32.6% of Precision Abrasives net sales) in fiscal 1998 to $1,208,221 (25.5% of Precision Abrasives net sales) in fiscal 1999. Gross profit as a percentage of net sales in the Dental Supplies segment remained relatively constant between periods. The decrease in gross profit percentage for the Precision Abrasives segment is attributable to the casualty loss experienced at the Company's Montgomeryville facility which caused production interruptions and the use of less efficient manufacturing processes during the period subsequent to the loss.
Operating expenses decreased $99,753 from $6,756,281 (44.1% of net sales) in fiscal 1998 to $6,656,528 (44.2% of net sales) in fiscal 1999. This decrease was a result of a $948,833 decrease in research and development expenses as a result of costs incurred in fiscal 1998 in connection with certain research and development fees paid to Nanophase, as well as the investment of funds during the same period to refine the Company's CMP slurry products. Sales and marketing expenses increased $93,297 from $2,715,379 (17.7% of net sales) in fiscal 1998 to $2,808,676 (18.6% of net sales) in fiscal 1999 primarily as a result of additional cooperative advertising and education seminars sponsored by the Company offset by lower sales commissions. General and administrative expenses increased $755,783 from $3,054,212 (19.9% of net sales) in fiscal 1998 to $3,809,995 (25.3% of net sales) in fiscal 1999 due to higher legal and professional fees in connection with the Dentsply litigation.
Interest expense decreased due to a decrease in the average interest rate on the Company's outstanding debt obligations (from the renegotiation of the rates on certain mortgages and long-term debt in fiscal 1999) and as a result of lower average outstanding borrowings on the Company's line of credit. Interest income remained relatively constant between periods. Other income increased $149,139 due to the receipt of $200,000 in casualty insurance proceeds to replace equipment damaged as a result of the aforementioned casualty loss at the Montgomeryville facility.
In fiscal 1998, the Company sold its CMP assets and CMP business product line for the electronics industry and related intellectual property to EKC, a subsidiary of ChemFirst Inc. for $2,450,000 in cash, as well as a deferred payment by EKC contingent on sales of CMP products during the period through June 30, 2000, and varying royalties based on sales of CMP products through 2004. The additional deferred payment expected to be received for the period through June 30, 2000 is not significant. This transaction resulted in a pre-tax gain of $1,660,483 for the Company in fiscal 1998.
Also in fiscal 1998, the Company sold certain particle dispersion technology to Nanophase for $223,000 in cash, resulting in a one-time pre-tax gain of $223,000.
Liquidity and Capital Resources
Historically, the Company's primary source of liquidity has been cash flow from operations. These funds, combined with borrowings under long-term debt obligations with both banks and municipal authorities, have provided the liquidity to finance the Company's capital expenditures and continued operations. Substantially all of the Company's assets are pledged as collateral for its long-term debt.
Net cash of $732,998 and ($51,215) was provided by/(used in) operations during fiscal 2000 and 1999, respectively. Net cash of $1,567,970 was used in operations in fiscal 1998. In fiscal 2000, the decreasing use of cash between periods was driven by improved profitability, as offset by increases in inventory levels and payments to vendors. The decreased cash used in operations between fiscal 1999 and 1998 was a result of the timing of receivable collections from customers, changes in the level of inventory maintained by the Company and payments to vendors offset by an increasing loss from operations and the timing of payments to taxing authorities.
Working capital at June 30, 2000 and 1999, totaled $5,967,384 and $5,159,438, respectively. The Company's current ratio at June 30, 2000 and 1999, was 2.3:1 and 2.1:1, respectively.
Expenditures for property, plant and equipment totaled $213,012 in fiscal 2000, $291,838 in fiscal 1999 and $439,833 in fiscal 1998. The Company received proceeds of $2,673,000 related to the sale of its CMP assets, the CMP business product line for the electronics industry and related intellectual property, and certain particle dispersion technology during fiscal 1998.
Proceeds received from long-term debt were $257,000, $975,000 and $4,260,000 for fiscal 2000, 1999 and 1998, respectively, which includes proceeds of $750,000 related to a refinancing of a portion of its line of credit with long-term debt with a bank during fiscal 1999. For fiscal 2000, 1999 and 1998, the Company made payments on long-term debt and capital lease obligations of $755,817, $1,734,887 and $3,651,897, respectively, which includes payments of $975,000 and $2,562,921 related to refinancing of certain long-term debt during fiscal 1999 and 1998, respectively.
In June 2000, the Company issued 30,000 shares of restricted common stock, valued at approximately $78,750 on date of issuance, to a consulting firm for professional services to review and evaluate strategic alternatives, including but not limited to mergers, acquisitions, and spin-off of business segments, and thereafter implement a plan to increase shareholder value.
The Company has a commitment for a $3,000,000 line of credit with a bank which will expire on December 31, 2000, subject to renewal. Management believes it will be able to renew the line of credit under similar terms and conditions. The line of credit bears interest at the prime rate and is secured by substantially all of the Company's assets. During fiscal 2000, the Company had net borrowings of $550,000 under this line of credit. In addition, the Company has an additional convertible line of credit with the same bank to finance legal fees and related expenses under which it may borrow up to $500,000. Payments are due in monthly installments based upon the outstanding amount with the final payment due September 2003. Borrowings under the convertible line of credit bear interest at prime. During fiscal year 2000, the Company borrowed the maximum amount available under the convertible line of credit.
The Company expects to spend approximately $1,500,000 in fiscal 2001 on capital expenditures, primarily for abrasive and dental instrument manufacturing equipment. In addition, the Company is obligated to pay $346,314 over two years relating to the settlement of the foot powder matter. The Company anticipates that sufficient cash will be generated from operations to fund these payments and expenditures and, to the extent they are not, they will be funded using the Company's credit facilities.
The Company is constantly evaluating its capital structure and considering opportunities for strategic alliances, mergers, acquisitions, secondary offerings, private placements or other transactions. The Company continually evaluates and considers possible acquisition and/or merger opportunities. Among other items, the Company would consider the following factors in determining whether or not to pursue an acquisition or alliance including: (i) synergy with the Company's current lines of business products, (ii) growth potential, (iii) return on investment and (iv) technologies. However, at this time, none of the above opportunities are planned or in process.
The Company believes that inflation has not, and will not, have a material impact on the Company's financial condition and results of operations.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," SFAS No. 133, as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 an amendment of FASB Statement No. 133," which must be adopted by the Company in the year ending June 30, 2001, provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. As the Company does not currently hold derivative instruments or engage in hedging activities, the adoption of this pronouncement is expected to have no impact on the Company's financial position or results of operations.
Section 16 (a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities ("Reporting Persons") to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Reporting persons are required by Rule 16a-3(e) of the Securities and Exchange commission to furnish the Company with copies of all Section 16(a) forms they file with the Commission.
Based solely on review of the copies of such forms furnished to the Company during and with respect to the year ended June 30, 2000, the Company believes that during the year then ended all Section 16(a) filings applicable to these Reporting Persons were timely filed.
Risk Factors
The statements contained in this Form 10-K that are not historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding the expectations, beliefs, intentions or strategies regarding the future. Additionally, from time to time, the Company or its representatives have made or may make forward-looking statements, orally or in writing. Such forward-looking statements may be included in, but are not limited to, press releases, oral statements made with the approval of an authorized executive officer or in various filings made by the Company with the Securities and Exchange Commission. These forward-looking statements reflect the Company's views as of the date they are made with respect to future events and financial performance and are, generally, but not exclusively, identified by the use of such terms as "may," "will," "should," "expect," "anticipate," "intend," "plan," "project," "estimate," "believe," "goal," or "continue," or comparable terminology that involves risks or uncertainties. However, these forward-looking statements are subject to many uncertainties and risks which could cause the actual results of the Company to differ materially from any future results expressed or implied by such statements. Additionally, the Company does not undertake any obligation to update any forward-looking statements.
The risk factors identified in the cautionary statements below could cause actual results to differ materially from those suggested in these forward-looking statements. Also, the Company may, from time to time, set forth additional risk factors on Forms 10-Q and 8-K. However, the risk factors listed below or in future reports of the Company are not exhaustive. New risk factors emerge from time to time, and it is not possible for management to predict all of such risk factors, nor can it assess the impact of all of such risk factors on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. The cautionary statements below are being made pursuant to the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995 (the "Act"). The Company intends that all forward-looking statements made, in whatever form, be considered subject to the Act.
Changes in the U.S. Dental Health Care System. There has been substantial debate in the political arena related to prospective changes in the U.S. health care system. In addition, developments in both the public and the private sector may significantly affect the financing and delivery of dental health care in the United States, including the expansion of managed care programs, large dental practices, franchises, purchasing groups and industry consolidation. Cost containment has been a major element of these developments. There can be no assurance that such changes in the financing and delivery of dental health care will not continue to affect dental capital equipment and supplies procurement patterns or dictate which procedures will be covered by applicable insurance or government funded or subsidized programs. The Company also cannot predict the extent or impact of future legislation or regulations.
Competition. The Company faces substantial competition from other manufacturers. Competitive pressure could result in price competition or the introduction of new products by the Company's competitors, which could have an adverse impact on the Company's revenues and results of operations. In addition, the Company is engaged in industries characterized by extensive research efforts. Advances in products and other discoveries or developments could render some of the Company's products obsolete. Some of the companies with which the Company competes or may compete in the future have or may have more extensive research, marketing and manufacturing capabilities and significantly greater financial, technical and personnel resources than the Company and may be better positioned to continue to improve their technology in order to compete in evolving industries.
Governmental Regulation. Government regulation in the U.S. and other countries is a significant factor in the development, manufacturing and marketing of many of the Company's products and in the Company's on-going research and development activities. Specifically, dental devices are subject to United States Food and Drug Administration ("FDA") approval or clearance before they can be utilized for clinical studies or sold commercially. The process for obtaining the necessary approvals and compliance with applicable regulations can be costly and time consuming. There can be no assurance that regulatory review will not involve delays or other actions adversely affecting the marketing and sales of the Company's products. There is no assurance the Company will continue to be able to obtain required government approvals or successfully comply with such regulations in a timely and cost-effective manner, if at all, and failure to do so may have an adverse effect on the Company's financial condition and results of operation. Further, there can be no assurances that more stringent regulatory requirements and/or safety and quality standards will not be issued in the future with an adverse effect on the Company's business. Although the Company believes that it is in compliance with all applicable regulations of the FDA, current regulations depend heavily on administrative interpretation and there can be no assurance that future interpretations made by the FDA or other regulatory bodies, with possible retroactive effect, will not adversely affect the Company.
The Company's products are similarly subject to foreign regulating bodies. Typically, foreign bodies readily allow the Company's products to be traded within their jurisdictions, based on the fact that the Company's products are regulated by the FDA. However, there can be no assurance that such foreign bodies will not impose different, additional requirements that may materially hamper the Company's ability to compete in overseas markets. The Company has received CE (Conformite European) certification for its major dental product lines for European distribution and is constantly evaluating regulatory requirements in various territories throughout the world to ensure compliance with same.
Patents and Proprietary Technologies. The Company's ability to compete effectively with other companies depends, in part, on its ability to protect and maintain the proprietary nature of its technology. The Company owns 9 United States patents, 1 Japanese patent and a number of issued foreign patents and pending patent applications for its products. The Company plans to continue to patent inventions which may provide commercial benefit. Currently, the Company has one patent application pending for a new endodontic instrument design. In addition, the Company is reviewing the possibility of filing several new applications related to both its dental and abrasives technologies. The Company treats its design and technical data as confidential, and relies on nondisclosure safeguards, such as confidentiality agreements, laws protecting trade secrets and agreements to protect proprietary information. The Company has incurred substantial costs in enforcing its patents against infringement by others and defending itself against similar claims of others. Although the Company has been successful to date in disputes involving the validity and enforceability of its patents and in defending itself against claims by others of patent infringement, there can be no assurance that the Company will continue to be successful in such matters in the future or that the Company's patents or other proprietary rights, even if continuing to be held valid, will be broad enough in scope to enable the Company to prevent third parties from producing products using similar technologies or processes. The Company recently resolved patent litigation. See Part I, Item 3.
Product Development. The Company is actively engaged in identifying market needs and in developing products to satisfy those unmet needs. Such products are not necessarily in the Company's current business segments. The Company attempts to validate the existence of such unmet needs as well as the potential revenues, costs and profits involved in satisfying such needs. There is a material risk that the Company's competitors may satisfy those needs with more effective or less expensive products. There is also a material risk that the Company's estimates of the economic potential from such unmet needs may be incomplete or inaccurate, or that the products which the Company develops to meet such needs will be introduced on a timely basis or effective clinically or economically to gain market acceptance.
Change in Marketing Approach. With regard to the Dental Supplies segment, the Company plans to fund and/or sponsor various educational programs including, but not limited to seminars, lectures and demonstrations by industry opinion leaders. While trade shows, dealer product presentations, advertising and other traditional marketing strategies will continue, the Company is shifting its marketing emphasis to professional endorsement of products. The Company believes that this method of marketing will create greater demand for technique sensitive products. With regard to the Precision Abrasives segment, the Company plans to focus on higher margin products. Although the Company believes that this transition will have a long-term positive financial impact, no assurance can be given that the actions taken will provide the intended results, or that the Company will not experience short-term disruptions or an adverse impact of operations during the transition to this new marketing approach.
Recent Accounting Pronouncements. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 an amendment of FASB Statement No. 133," which must be adopted by the Company in the year ending June 30, 2001, provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. As the Company does not currently hold derivative instruments or engage in hedging activities, the adoption of this pronouncement is expected to have no impact on the Company's financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") 101, Revenue Recognition in Financial Statements, which provides guidance related to revenue recognition based on interpretations and practices followed by the SEC. SAB 101 was effective the first fiscal quarter of fiscal years beginning after December 15, 1999 and requires companies to report any changes in revenue recognition as a cumulative change in accounting principle at the time of implementation in accordance with Accounting Principles Board Opinion 20, "Accounting Changes". In March 2000, the SEC issued SAB 101A, "Amendment: Revenue Recognition in Financial Statements," which delays implementation of SAB 101. The Company is currently in the process of evaluating the impact, if any, SAB 101 will have on its financial position or results of operations.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest charged on certain of the Company's debt instruments is based on the lender's prime rate, and is subject to market fluctuation.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Consolidated Financial Statements: Page ----
Reports of Independent Public Accountants 22
Consolidated Balance Sheets - June 30, 2000 and 1999 24
Consolidated Statements of Operations - For the Years Ended June 30, 2000, 1999 and 1998 26
Consolidated Statements of Shareholders' Equity - For the Years Ended June 30, 2000, 1999 and 1998 27
Consolidated Statements of Cash Flows - For the Years Ended June 30, 2000, 1999 and 1998 28
Notes to Consolidated Financial Statements 29
Schedule II - Valuation and Qualifying Accounts (included in Part IV of this Form 10-K) 54
All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the Consolidated Financial Statements or notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors Moyco Technologies, Inc. and subsidiaries Montgomeryville, PA
We have audited the accompanying consolidated balance sheet of Moyco Technologies, Inc. and subsidiaries as of June 30, 2000, and the related consolidated statements of operations, shareholders' equity and cash flows for the year then ended. We have also audited the schedule listed in the accompanying index for the year ended June 30, 2000. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Moyco Technologies, Inc. and subsidiaries at June 30, 2000, and the results of its operations and its cash flows for the year ended June 30, 2000 in conformity with generally accepted accounting principles.
Also, in our opinion, the schedule presents fairly, in all material respects, the information set forth therein.
/s/ BDO Seidman, LLP
Philadelphia, Pennsylvania October 13, 2000
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Moyco Technologies, Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheet of Moyco Technologies, Inc. (a Pennsylvania corporation) and subsidiaries as of June 30, 1999, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the two years in the period ended June 30, 1999. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as assessing the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects the financial position of Moyco Technologies, Inc. and subsidiaries as of June 30, 1999 and the results of their operations and their cash flows for each of the two years in the period ended June 30, 1999, in conformity with accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic fiancial statements taken as a whole. The schedule listed in the Index to Financial Statements is presented for the purposes of complying with the Securities and Exchange Commission's rules and regulations and is not a part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements, and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Philadelphia, Pennsylvania September 16, 1999
MOYCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these consolidated financial statements.
MOYCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
The accompanying notes are an integral part of these consolidated financial statements.
MOYCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these consolidated financial statements.
MOYCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
The accompanying notes are an integral part of these consolidated financial statements.
MOYCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these consolidated financial statements.
MOYCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000
1. THE COMPANY:
Moyco Technologies, Inc. and subsidiaries (the "Company") operates in two business segments: Dental Supplies and Precision Abrasives. The Dental Supplies segment involves the manufacturing, marketing and distributing of dental supplies, such as waxes, abrasives, medicaments, dental mirrors, endodontic (root canal) instruments, materials and equipment, sundry dental items, hand instruments, sterilization items, as well as the repacking and distributing of other dental products for the professional dental market primarily in the United States with additional sales in Canada, Mexico, South America, Europe and Asia. The Precision Abrasives segment involves the manufacturing of commercial coated abrasives, precision submicron coated abrasives, slurries (wet abrasives) and polishing agents. These products are used for various applications and industries, including but not limited to, fiber optics, lapidary, nail files, dentistry, plastics and woods, semiconductor manufacturing and other high-tech manufacturing procedures which require extremely fine abrasive films and/or slurries to achieve consistently uniform polishing results. The Precision Abrasives segment sells primarily in the United States with additional sales, in Canada, Mexico, Europe and Asia.
2. ACQUISITION:
In August 1996, the Company acquired all of the outstanding Common stock of Thompson Dental Mfg. Co. ("Thompson"), a manufacturer of dental hand instruments and related products, for 115,000 shares of the Company's Common stock and an additional $450,000 cash "earn-out" payable to the selling shareholders over seven years, contingent upon Thompson meeting certain sales targets. The acquisition was accounted for under the purchase method of accounting. The fixed portion of the purchase price of $911,154 includes $862,500 for the 115,000 shares issued and $48,654 for transaction costs. The $450,000 contingent portion of the purchase price, if any, will be recorded when earned. The purchase price was allocated to identifiable assets and liabilities based on their estimated fair values. The $472,620 excess of the purchase price over the fair value of the net assets acquired was allocated to goodwill and is being amortized on a straight-line basis over 15 years.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Management's Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Statements of Cash Flows
For the purpose of determining cash flows, the Company considers all highly liquid investment instruments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents consist of certificates of deposit and investments in money market accounts. Interest income earned on the investment of cash was $88,507, $56,427 and $60,812 for the years ended June 30, 2000, 1999 and 1998, respectively. The Company incurred $149,000, $268,210 and $224,475 of capital lease obligations during the years ended June 30, 2000, 1999 and 1998, respectively. During the year ended June 30, 1999, the Company and a customer agreed to convert $227,107 in accounts receivable into a note receivable due in the year ending June 30, 2000. During the year ended June 30, 2000, the Company and the customer amended the original note and agreed to convert an additional $449,593 in accounts receivable into a new note receivable. The amended note receivable is due in monthly installments of $18,797 including interest calculated at 15%, through the year ending June 30, 2003.
Marketable Securities
Investments in marketable securities are categorized as either trading, available-for-sale or held-to-maturity. On June 30, 2000, marketable securities consisted of certificates of deposit with contractual maturities of less than one year which the Company plans to hold to maturity. The certificates of deposit are stated at amortized cost.
Inventories
Inventories are valued at the lower of cost, determined on the first-in, first-out method, or market.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Significant additions or improvements are capitalized, while repairs and maintenance are charged to expense as incurred. Depreciation and amortization expense is provided on a straight-line basis over the estimated useful lives of the assets as follows:
Buildings and improvements 10-25 years Machinery and equipment 5-10 years Furniture and fixtures 5-10 years Automotive equipment 3 years
Interest expense related to and incurred during the construction period of buildings is capitalized as part of the cost of such assets and depreciated over the estimated useful life of the building. Depreciation and amortization expense related to property, plant and equipment including depreciation and amortization expense on equipment under capital leases (see Note 11) was $671,135, $771,050 and $794,539, for the years ended June 30, 2000, 1999 and 1998, respectively.
Goodwill
Goodwill represents the excess of the purchase price of the Thompson acquisition over the estimated fair value of the net assets acquired. Goodwill is being amortized on a straight-line basis over 15 years. Amortization expense was $31,508 for the each of the three years in the periods ended June 30, 2000, 1999 and 1998.
Long-Lived Assets
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Company records impairment losses on long-lived assets used in operations whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment is recognized to the extent that the sum of undiscounted estimated future cash flows expected to result from use of the assets is less than the carrying value. As of June 30, 2000, management has evaluated the Company's asset base, under the guidelines established by SFAS No. 121, and believes that no impairment has occurred.
Fair Value of Financial Instruments
For certain of the Company's financial instruments, including accounts receivable, notes receivable, marketable securities, accounts payable and accrued expenses, management believes that the carrying amounts approximate fair value due to their short maturities. The carrying amount and estimated fair value of debt, at June 30, 2000 is $6,157,942 and $5,407,950, respectively, and $6,050,645 and $5,314,196, respectively, at June 30, 1999
Revenue Recognition
The Company recognizes revenue upon the shipment of its products.
Research and Development
Research and development costs are charged to expense as incurred. During the year ended June 30, 1998, the Company made a one-time payment of $775,000 relating to certain research and development fees. This payment was included in research and development expense in the accompanying consolidated statement of operations for the year ended June 30, 1998.
Advertising Costs
Advertising costs are charged to expense as incurred. The amounts charged to sales and marketing expense in the accompanying consolidated statements of operations for the years ended June 30, 2000, 1999 and 1998, were $207,467, $336,831 and $321,027, respectively.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, the liability method is used for income taxes. Under this method, deferred tax assets or liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and the laws that are expected to be in effect when the differences reverse.
Earnings (Loss) per Common Share
The Company has provided basic and diluted earnings (loss) per Common share pursuant to SFAS No. 128, "Earnings per Share." SFAS No. 128 requires dual presentation of basic and diluted earnings (loss) per share for complex capital structures on the face of the statements of operations. According to SFAS No. 128, basic earnings (loss) per share is calculated by dividing net income (loss) available to Common shareholders by the weighted average number of Common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution from the exercise or conversion of securities into Common stock, such as stock options.
The following is a reconciliation of the numerators and denominators of the basic and diluted earnings (loss) per Common share computations. All share, per share, options to purchase shares, and option exercise prices per share have been adjusted to give retroactive effect to the respective 10% stock dividends issued on September 30, 1998 and November 24, 1999, (see below):
Options to purchase 27,649 shares of Common stock with an average exercise price per share of $2.80 were outstanding during the year ended June 30, 1999, but were not included in the computation of diluted loss per Common share because the Company had a net loss for the year and all outstanding options would have been anti-dilutive. The options, which expire at various times through December 2006, were still outstanding as of June 30, 2000. Options to purchase 5,415 and 5,957 shares of Common stock with an average exercise price per share of $5.37 and $4.83 were outstanding during the years ended June 30, 1998 and 2000, respectively, but were not included in the computation of diluted earnings per Common share because the options' exercise prices were greater than the average market price of the Common shares during the period.
Stock Dividend
In September 1998, the Company, prior to the filing of its annual report on Form 10-K for the fiscal year ended June 30, 1998, declared a 10% stock dividend to shareholders of record as of September 18, 1998. The new shares were distributed to shareholders on September 30, 1998. Amounts equal to the fair market value (based on the quoted market price) of the additional shares issued were charged to retained earnings and credited to common stock and additional paid-in capital effective June 30, 1998. Earnings (loss) per common share, shares used in computing earnings (loss) per common share and option balances and prices were restated to give retroactive effect to the 10% dividend.
In October 1999, the Company declared a 10% stock dividend to shareholders of record as of November 3, 1999. The new shares were distributed to shareholders on November 24, 1999. A total of $680,271, representing the fair market value (based on the quoted market price) of the additional shares issued was charged to retained earnings, with $2,603 and $677,668 credited to Common stock and additional paid-in capital, respectively, effective on the date such dividend was declared.
Recent Accounting Pronouncements
Effective with the year ended June 30, 1999, the Company was subject to the provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and display of comprehensive income in a full set of general-purpose financial statements. Comprehensive income is defined as the total of net income (loss) and all other non-owner changes in equity. For the years ended June 30, 2000, 1999 and 1998 the Company's comprehensive income consists only of net income (loss), therefore, there have been no changes in the display of the Company's consolidated financial statements.
Effective with the year ended June 30, 2000, the Company was subject to the provisions of the American Institute of Certified Public Accountants' Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This statement requires that certain costs related to the development or purchase of internal-use software be capitalized and amortized over the estimated useful life of the software. The statement also requires that costs related to the preliminary project stage and post implementation/operations stage in an internal-use computer software development project be expensed as incurred. As the Company's existing policy already met the guidelines of SOP 98-1, the adoption of this pronouncement had no impact on the Company's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 - an amendment of FASB Statement No. 133," which must be adopted by the Company in the year ending June 30, 2001, provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. As the Company does not currently hold derivative instruments or engage in hedging activities, the adoption of this pronouncement is expected to have no impact on the Company's financial position or results of operations.
4. INVENTORIES:
June 30 ------- 2000 1999 ---- ----
Raw materials and supplies $1,186,992 $1,194,084 Work-in-process 1,814,802 1,928,753 Finished goods 1,774,413 1,250,419 ---------- ----------
$4,776,207 $4,373,256 ========== ========== 5. ACCRUED EXPENSES:
June 30 ------- 2000 1999 ---- ----
Compensation and related benefits $439,985 $303,234 Other 254,687 320,612 -------- -------- $694,672 $623,846 ======== ========
6. LINES OF CREDIT:
The Company has a line of credit with a bank under which it may borrow up to $3,000,000 through December 31, 2000, subject to renewal. Borrowings under the line bear interest at the bank's prime rate (9.50% at June 30, 2000) and are secured by all assets of the Company. The highest levels of borrowings during the years ended June 30, 2000, 1999, and 1998 were $1,500,000, $1,800,000 and $850,000, respectively. Interest expense on borrowings on the line of credit was $122,500, $89,595 and $151,134 for the years ended June 30, 2000, 1999 and 1998, respectively, at weighted average interest rates of 8.6%, 8.0% and 8.5%, respectively. In addition, the Company has an additional convertible line of credit with the same bank under which it could borrow up to $500,000 to finance legal fees and related expenses. During the twelve months ended June 30, 2000, the Company borrowed the maximum amount available under the convertible line of credit and has included these amounts, net of repayments in long-term debt on the accompanying consolidated balance sheet based upon the scheduled repayment terms. The lines of credit are subject to certain financial and non-financial covenants, which include, among others, a ratio of EBITDA to fixed charges, as defined, and a level of tangible net worth.
Thompson Dental Manufacturing Co., Inc., a subsidiary of the Company, is a guarantor and surety of borrowings under these credit facilities.
LONG-TERM DEBT:
Interest expense on the Company's long-term debt was $436,878, $435,522 and $542,366 for the years ended June 30, 2000, 1999 and 1998, respectively. During the year ended June 30, 1999, the Company renegotiated certain of its mortgages and loans to secure longer terms and lower interest rates.
Substantially all of the Company's assets are pledged as collateral for the long-term debt. In addition, a mortgage payable to a municipal authority is collateralized by a standby letter of credit in the amount of $150,000 and the two mortgages payable to municipal authorities are subordinate to certain other debt obligations in the aggregate amount of approximately $4,900,000. The Company's long-term debt payable to commercial banks is subject to the same covenants as the lines of credit (see Note 6).
As of June 30, 2000, long-term debt matures as follows:
2001 $ 757,878 2002 767,940 2003 1,476,508 2004 1,003,990 2005 165,070 Thereafter 1,986,556 ---------
$6,157,942 ========== 8. EMPLOYEE BENEFIT PLANS:
Profit Sharing Plan
The Company has a noncontributory profit sharing plan for 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 are based on the Company's profitability and shall be paid from the Company's net income or retained earnings.
A participating employee's full account becomes payable to the employee's designated beneficiary upon normal retirement, upon retirement at any age due to disability, or upon death. 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 Company did not make any contributions during the years ended June 30, 2000, 1999 and 1998.
Employee Savings Plan
The tax deferred employee savings and protection plan under Section 401(k) of the Internal Revenue Code is available for all eligible employees. This plan allows an employee to contribute between 3.0% and 10.0% of compensation to the plan and these contributions are not subject to current federal income taxes. The Company matches 50% of the employee's contributions, to a maximum of 3.0% of the employee's earnings, subject to the deferral limit under the Internal Revenue Code. Participants are at all times fully vested in their contributions and the Company contributions become vested at various percentages based on years of service with 20% vested after three years and 20% for each year thereafter.
The Company's matching contributions for the years ended June 30, 2000, 1999 and 1998 were $89,587, $84,972 and $80,863, respectively.
9. BUSINESS SEGMENTS:
The Company operates in two business segments: Dental Supplies and Precision Abrasives. The reportable segments have been identified as they have separate management teams and infrastructures. See Note 1 for a description of the Company's business segments.
The accounting policies of the reportable segments are the same as those described in Note 3. The Company evaluates the performance of its operating segments based on operating income (loss). Intersegment sales and transfers are not significant and all property is located in the United States.
Financial information for each business segment as of June 30, 2000, 1999 and 1998 and for the years then ended is as follows:
10. INCOME TAXES: For the Year Ended June 30 ---------------------------- 2000 1999 1998 ---- ---- ----
Current: Federal $511,808 $(101,690) $426,372 State 39,748 820 (75,414) -------- --------- -------- 551,556 (100,870) 350,958 -------- --------- --------
Deferred: Federal 28,578 (169,017) (109,747) State 3,680 35,426 81,599 -------- --------- -------- 32,258 (133,591) (28,148) -------- --------- -------- $583,814 $(234,461) $322,810 ======== ========= ========
A reconciliation of the U.S. Federal Income Tax rate to the effective income tax rate is as follows:
For the Year Ended June 30 ---------------------------- 2000 1999 1998 ---- ---- ----
Federal taxes 34.0% (34.0)% 34.0% State taxes 5.0 5.4 0.4 Lower tax rate attributable to foreign sales corporation -- -- (5.2) Other 4.5 (6.4) (5.9) ---- ----- ----- 43.5% (35.0)% 23.3% ==== ===== =====
Deferred income tax assets and liabilities are classified as current and noncurrent based on the financial reporting classification of the related assets and liabilities which gave rise to the temporary difference. Significant components of the deferred income tax assets and liabilities are as follows:
June 30 ------------------ 2000 1999 ---- ---- Deferred income tax assets: Net operating loss carryforwards $125,688 $187,583 Accounts receivable and inventory reserves not currently deductible 527,395 317,903 Litigation reserves 82,215 123,810 Other accruals not currently deductible 23,603 199,762 -------- -------- 758,901 829,058 Deferred income tax liabilities: Depreciation and amortization (316,726) (287,503) -------- -------- 442,175 541,555 Valuation allowance (224,543) (291,665) -------- -------- Net deferred income tax assets $217,632 $249,890 ======== ========
The deferred income tax asset valuation allowance is attributed to certain state deferred tax assets. Management believes sufficient uncertainty exists regarding the realizability of these items that a valuation allowance is required. The valuation allowance decreased $47,095 during the year ended June 30, 2000, due principally to the decrease in deferred income tax assets during the year ended June 30, 2000. The net operating loss carryforwards begin to expire in 2008.
11. COMMITMENTS AND CONTINGENCIES:
ITEM 3. LEGAL PROCEEDINGS.
Other than the litigation filed against the Company by Dentsply (which is described below), the Company was not involved in any material legal proceedings, other than ordinary litigation incidental to the business and, specifically, was not involved in any material environmental litigation or governmental proceedings.
Dentsply Litigation
On April 22, 1998, the Company was served with a complaint in the United States Court for the Middle District of Pennsylvania by Dentsply claiming infringement of a Dentsply patent by the Company's manufacturing process to fabricate nickel titanium endodontic (root canal) instruments. By amendment, a claim for infringement of a second related patent was later added. The Company retained counsel to vigorously defend against the Dentsply complaint, which management believes to be without basis. The Company asserted defenses which management believes meritorious. In addition, the Company filed counterclaims alleging, among other things, that Dentsply is infringing three Company patents, violating the Sherman Antitrust Act and the Lanham Act, and interfering with the Company's business relationships.
Subsequent to the fiscal year ended June 30, 2000, the two parties reached a settlement of their respective claims, and entered into two license agreements. Dentsply licensed from Moyco three United States and related foreign patents covering inventions related to endodontic instrument tips. Moyco licensed from Dentsply four United States patents covering various inventions related to nickel titanium endodontic instruments. The parties have agreed to release each other from all claims pending in the U.S. District Court for the Middle District of Pennsylvania. Royalties earned and/or paid under those agreements will be based on sales of licensed products beginning January 1, 2001.
The Company is currently engaged in discussions to finalize fees and expenses incurred in the Dentsply litigation. As of this date, no final determination can be made, although as of June 30, 2000 the Company has accrued for what it believes to be its liability for such fees and expenses.
Foot Powder Settlement
During calendar year 1997, the Company settled a Government investigation of Itch-Away Foot Powder which the Company manufactured and sold pursuant to contracts with the United States Defense Department. The Company entered into a civil settlement of the matter agreeing to pay the Government a total of $505,000, without interest. These payments are secured by an irrevocable letter of credit obtained by the Company from a bank. The Company made the first payment of $100,000 in August 1997, the second payment of $101,250 in August 1998, the third payment of $101,250 in August 1999, the fourth payment of $101,250 in August 2000, and will make one similar payment in August 2001. In connection with this matter, the Company was fined $350,000, which is payable in five annual installments commencing in January 1998. The Company has paid the first, second and third installments. Interest is payable at 5.42% per year and is due with the final year's payment.
Capital Leases
The Company has entered into capital leases for property and equipment which expire at various dates through December 2006. Property and equipment acquired under capital leases at a cost of $641,685 and $492,685, less accumulated amortization of $215,537 and $103,377, are included in property and equipment in the accompanying balance sheets as of June 30, 2000 and 1999, respectively. Interest rates on these capital leases range from 5.1% to 11.1%. Future minimum lease payments under capital leases as of June 30, 2000, are as follows:
2001 $133,617 2002 93,613 2003 64,555 2004 64,555 2005 64,555 Thereafter 90,663 -------- Total minimum lease payments 511,558 Less - amount representing interest (76,225) -------- Present value of minimum capital lease payments $435,333 ========
Royalties
The Company has entered into a number of license agreements with third parties. Generally, the agreements require the Company to pay a royalty on sales of certain products that are derived under these licensing agreements. The royalty expense is accrued in the same period in which the revenues incorporating the technology are recognized. Royalty expense for the years ended June 30, 2000, 1999 and 1998 was $167,041, $228,601and $222,687, respectively.
12. STOCK OPTIONS:
The Company has an incentive stock option plan that provides for the awarding of options for the purchase of up to 242,000 shares of Common stock (as adjusted for the respective 10% stock dividends issued on September 30, 1998 and November 24, 1999 (see Note 3). Under the plan, options are granted at a price not less than the fair market value at the grant date and become exercisable upon such date. Employee options expire 10 years after the grant date and directors' options expire five years after the grant date. Of the total options authorized for issuance, 141,903 shares have been granted, 123,619 shares have been exercised, and 1,936 shares have been cancelled. As of June 30, 2000, 100,097 options are available for future grants.
The following summarizes information relative to the stock option plan:
The expiration dates for outstanding options at June 30, 2000 range from December 2003 to December 2006, with a weighted average remaining contractual life of 3.6 years.
The following table summarizes information about the stock option plan as of June 30, 2000 based upon the different ranges in exercise prices of the outstanding options and adjusted for the respective 10% stock dividends issued on September 30, 1998 and November 24, 1999(see Note 3):
The Company accounts for its options under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," under which no compensation cost has been recognized. In 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 establishes a fair value based method of accounting for stock-based compensation plans. SFAS No. 123 requires that an employer's financial statements include certain disclosures about stock-based employee compensation arrangements regardless of the method used to account for the plan. Had the Company recognized compensation cost for its stock options consistent with the provisions of SFAS No. 123, the Company's pro forma net income (loss) and pro forma earnings (loss) per Common share would have been as follows:
There were no options granted during the years ended June 30, 2000, 1999 and 1998.
13. CUSTOMER INFORMATION:
The Company's customer base in the Dental Supplies segment consists principally of distributors in the professional dental supply market. The Company's customer base in the Precision Abrasives segment consists principally of large companies in the high-technology industry. During the years ended June 30, 2000, 1999 and 1998, one customer in the Dental Supplies segment accounted for 12.4%, 11.9% and 11.1%, respectively, of the Company's total net sales.
As of June 30, 2000, the Company had accounts receivable from one foreign customer in the amount of $197,403. In addition, the Company had a note receivable from the same customer with an outstanding balance of $683,578. The note is scheduled to be repaid in monthly installments through the year ending June 30, 2003. As of June 30, 2000, no other customer represented more than 10% of outstanding receivables.
14. GAIN ON SALE OF CMP BUSINESS AND PARTICLE DISPERSION TECHNOLOGY
On December 31, 1997, the Company sold its chemical mechanical planarization ("CMP") assets and CMP business product line for the electronics industry and related intellectual property to EKC Technology, Inc. ("EKC"), a subsidiary of ChemFirst Inc. for $2,450,000 in cash, as well as a deferred payment by EKC contingent on sales of CMP products during the period through June 30, 2000, and varying royalties based on sales of CMP products through 2004. The additional deferred payment expected to be received for the period through June 30, 2000 is not significant. This transaction resulted in a pre-tax gain of $1,660,483 for the Company. In connection with the sale, EKC agreed that during 1999 it would purchase a portion of the Company's raw material inventory that was on hand at December 31, 1997 for $250,000. As of June 30, 2000, EKC has purchased $125,000 of this inventory.
Also on December 31, 1997, the Company sold certain particle dispersion technology to Nanophase Technologies Corporation ("Nanophase") for $223,000 in cash, resulting in a one-time pre-tax gain of $223,000.
15. OTHER INCOME, NET:
In April, 1999, certain coating equipment, utilized in the manufacture of abrasive materials in the Precision Abrasives segment, was damaged at the Company's Montgomeryville facility. As a result, the Company received proceeds under its insurance coverage of $315,000 and $200,000, respectively in the years ended June 30, 2000 and 1999, which was used to replace a portion of the damaged equipment and resolve a business interruption claim.
16. RELATED PARTY TRANSACTION
In January 2000, an officer of the Company transferred 181,500 shares of the Company's common stock in payment of certain legal fees owing to the Company's counsel in the Dentsply litigation, which has been incurred and recorded by the Company in the prior fiscal year. The Company issued its promissory note in the principal amount of $257,000, the stipulated value of the shares transferred by the officer. The note is payable in full on December 31, 2002. Interest at the annual rate of 10% is payable on December 31 of each year, but the Company may elect to defer payment of interest and add it to the principal amount due.
17. SHARES ISSSUED TO CONSULTANTS
In June 2000, the Company issued 30,000 shares of restricted common stock, valued at approximately $78,750 on date of issuance, to a consulting firm for professional services to review and evaluate strategic alternatives, including but not limited to mergers, acquisitions, and spin-off of business segments, and thereafter implement a plan to increase shareholder value.
ITEM 9.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Change in Registrant's Certifying Accountant
As per the Form 8-K that the Company filed with the SEC on March 31, 2000, the Company terminated its appointment of Arthur Andersen LLP as its independent accountants, and engaged BDO Seidman LLP as its new independent accountants.
Disagreements with Accountants on Accounting and Financial Disclosures.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(1) Executive Officers of the Company:
(a) The names, ages and positions with the Company of all of the executive officers of the Company, are as follows:
*Marvin E. Sternberg is Joseph S. Sternberg and Mark E. Sternberg's father.
(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 officers unless otherwise terminated by the Board of Directors.
(c) The following is a brief account of the business experience of the executive officers of the Registrant:
Mr. Marvin E. Sternberg joined Moyco in March of 1974, as a management consultant and was elected President of Moyco 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 area including the Pennsylvania Business Bank, the RBB Fund, a family of Mutual Funds, and Cellucap Manufacturing Company, a producer of disposable headwear and garments. Mr. Sternberg has been a member of the Company's Board of Directors since 1974.
Mr. Joseph S. Sternberg joined the Company on October 14, 1991, at which time he was named Vice President and General Counsel. Prior to that time he was engaged in the private practice of law. Mr. Sternberg is on the Board of Directors of the American Lung Association of Southeastern Pennsylvania.
Mr. Mark E. Sternberg joined Moyco on August 15, 1991, at which time he was named Administrative Vice President.
Mr. William Woodhead joined Moyco on January 7, 1985 as Controller. He was elected Secretary/Treasurer on December 18, 1985. Mr. Woodhead has been a member of the Company's Board of Directors since 1985.
(2) Directors of the Company:
(a) The following table sets forth the name of each director of the Company 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.
Dr. Irvin Paul, DDS, has engaged in the practice of Dentistry, with offices in Upper Darby, Pennsylvania, for more than thirty years. Dr. Paul has been a member of Company's Board of Directors since 1974.
Dr. Marvin Cravetz, DDS, was engaged in the practice of Dentistry, with offices in Hatboro, Pennsylvania, for more than twenty years. Dr. Cravetz has been a member of the Company's Board of Directors since 1974.
The experience of the other directors is reported under Section 1 of ITEM 10 -- Executive Officers of the Company.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The following table shows for fiscal years ended June 30, 2000, 1999 and 1998, the cash compensation, as well as certain other compensation paid to the named executive officers and certain other employees:
SUMMARY COMPENSATION TABLE
STOCK OPTIONS
The following table shows stock options exercised and fiscal year-end values for the named executive officers under the Company's 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 to the named executive officers.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-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.
(3) As adjusted for the respective 10% stock dividends issued on September 30, 1998 and November 24, 1999. See Note 3 of Notes to Consolidated Financial Statements.
DIRECTORS COMPENSATION
Each non-employee director is entitled to receive options to purchase 1,000 shares of the Company's Common stock for each meeting attended. The exercise price of these options are equal to the fair market value of the Company's Common stock on the date of grant. All directors who are also employees do not receive any compensation for serving as directors.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) The following table sets forth information as of June 30, 2000 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:
(1)Of these shares 2,732,611 shares are held by Marvin E. Sternberg, legally and beneficially in his own name; 222,130 shares by Susan Sternberg, wife of said Marvin E. Sternberg, legally and beneficially in her own name.
(b) The following table sets forth information as of June 30, 2000 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 Footnote (1) of the 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, 1998 through June 30, 2000, or in any such proposed transaction, except as disclosed in Footnote 16.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
Financial Statements: The following is a list of the Consolidated Financial Statements of the Company and Supplementary data filed as part of Item 8 hereof:
Reports of Independent Public Accountants Consolidated Balance Sheets--June 30, 2000 and 1999 Consolidated Statements of Operations -- For the Years Ended June 30, 2000, 1999 and 1998 Consolidated Statements of Shareholders' Equity -- For the Years Ended June 30, 2000, 1999 and 1998 Consolidated Statements of Cash Flows -- For the Years Ended June 30, 2000, 1999 and 1998 Notes to Consolidated Financial Statements
Financial Statement Schedules: Included in Part IV of this report.
For the Years Ended June 30, 2000, 1999 and 1998 Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the Consolidated Financial Statements or notes thereto.
Exhibits:
23.1 Consent of Arthur Andersen LLP 27.0 Financial Data Schedule, which is submitted electronically to the Securities and Exchange Commission for information only, and not filed.
Reports On Form 8-K:
Form 8-K regarding termination of Arthur Andersen, LLP as independent accountants filed April 7, 2000 and 8K/A filed April 17, 2000, regarding appointment of BDO Seidman, LLP as independent accountants.
Arthur Andersen LLP, independent public accountants, has been the principal accountant for Moyco Technologies, Inc. (the "Registrant") since June 23, 1997. On March 31, 2000, the Company determined to terminate Arthur Andersen LLP's appointment as principal accountants of the Registrant and to engage BDO Seidman, LLP as the Registrant's independent accountants. The Registrant made this decision in order to keep accounting expenses in line with the Registrant's budget requirements. The decision to engage BDO Seidman, LLP and to terminate Arthur Andersen LLP was recommended to and approved by the Audit Committee of the Registrant's Board of Directors.
In connection with the audits of the two fiscal years ended June 30, 1999 and the unaudited interim periods through the date of this filing, there were no disagreements with Arthur Andersen LLP on any matter of accounting principles or practices, financial statement disclosures, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to make reference in connection with their opinion to the subject matter of the disagreements.
The audit reports of Arthur Andersen LLP on the consolidated financial statements of the Registrant for each of the years in the two-year period ended June 30, 1999, did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles.
During the two fiscal years ended June 30, 1999 and the unaudited interim periods through the date of this filing, there were no "reportable events" as defined by Item 304(a)(l)(v)(A) through (D) of Regulation 8-K promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended.
MOYCO TECHNOLOGIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED JUNE 30, 2000
(1) Represents accounts written off against the reserve.
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 TECHNOLOGIES, INC.
Dated: November 7, 2000 BY: /s/ Marvin E. Sternberg ---------------- ---------------------------
Marvin E. Sternberg Chairman of the Board, President and Chief Executive Officer
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 date indicated.
/s/ Marvin E. Sternberg Dated: November 7, 2000 - ----------------------- ------ ----------------
Marvin E. Sternberg Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) and Director
/s/ William Woodhead Dated: November 7, 2000 - -------------------- ------ ----------------
William Woodhead Secretary/Treasurer, Principal Financial Officer and Principal Accounting Officer and Director
/s/ Marvin Cravetz, DDS Dated: November 7, 2000 - ----------------------- ------ ----------------
Marvin Cravetz, DDS Director