SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the fiscal year ended September 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ____________________ to ________________
Commission File Number: 001-10382
VALLEY FORGE SCIENTIFIC CORP.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2131580
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
136 Green Tree Road, Oaks, Pennsylvania 19456
(Address of principal executive offices and zip code)
Telephone: (610) 666-7500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
------------------- -------------------
Common Stock, no par value Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes [_] No [X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant, computed by reference to the closing bid and ask prices as reported
by The Nasdaq Stock Market on December 16, 2004 was $7,509,116.
At December 16, 2004 there were 7,913,712 shares of the Registrant's Common
Stock outstanding.
PART III
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Item 10. DIRECTORS OF THE REGISTRANT.
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The directors of the Company are as follows:
Name Age Position(s)
---- --- -----------
Jerry L. Malis 72 Chairman of the Board, Chief Executive Officer
and President
Leonard I. Malis 85 Director
Bruce A. Murray 68 Director
Robert H. Dick 61 Director
Louis Uchitel 79 Director
Members of the Board of Directors are elected annually by the stockholders
of the Company.
BIOGRAPHICAL INFORMATION ON DIRECTORS AND EXECUTIVE OFFICERS
Jerry L. Malis, has served as Chief Executive Officer, President or
Vice-President and a Director of the Company since its inception in March 1980.
As of June 30, 1989, Mr. Malis was elected as Chairman of the Board of the
Company. He has published over fifty articles in the biological science,
electronics and engineering fields, and has been issued twelve United States
patents. Mr. Malis coordinates and supervises the development, engineering and
manufacturing of the Company's products and is in charge of the daily business
operations of the Company. He devotes substantially all his business time to the
business of the Company.
Leonard I. Malis, M.D., an advisor to the Company since its inception in
March 1980, has been a director since June 30, 1989. Dr. Malis was Professor and
Chairman of the Department of Neurosurgery at Mount Sinai School of Medicine,
New York, New York, from 1971 until 1993, and is currently Professor and
Chairman Emeritus of the Department of Neurosurgery. Dr. Malis designed and
built the first commercial bipolar coagulator in 1955, and his original units
were the standard in neurosurgery for many years. Dr. Malis has been issued five
United States patents and has designed and trademarked over one hundred
instruments. He has published over one hundred articles in medical journals and
reviews and is the author of a textbook on neurosurgery.
Bruce A. Murray, a member of the audit committee and chairman of the
compensation committee, has been a director of the Company since October 14,
1992. He was a Managing Member of The Change Management Group, LLC, a management
consulting company, and was a Principal of Adair & Murray Associates, Inc., a
management consulting company. Mr. Murray has held positions within the Pfizer
Hospital Products Group, as Director of Engineering-Surgical Products, Corporate
Vice President - Research and Development, and Senior Vice President and
Business Manager - Surgical Products. He has also held senior management
positions with Valleylab, Inc., Picker Corporation Electronics Division, Ball
Brothers Research Corporation and IIT Research Institute. Mr. Murray received
both his B.S. in Engineering and his M.B.A. from the Illinois Institute of
Technology.
Robert H. Dick, a member of the audit committee and the compensation
committee, has been a director of the Company since June 25, 1997. Mr. Dick has
served as President of R.H. Dick & Company since January 1998, which is an
investment banking and management consulting firm based in Ocala, Florida. From
1996 to 1998, Mr. Dick was a partner with Boles, Knop & Company, Inc., an
investment banking firm in Middleburg, Virginia. Prior to that Mr. Dick served
as interim President, Chief Executive Officer and Chief Financial Officer of
Biomagnetic Therapy Systems, Inc. (September 1995 - March 1996) and PharmX, Inc.
(May 1994 - April 1995). Both companies were clients of Boles, Knop & Company.
From 1982 until 1994, Mr. Dick served in various executive roles with Codman &
Shurtleff, Inc., a subsidiary of Johnson & Johnson and a manufacturer of
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surgical instruments, implants, equipment and other surgical products. Mr.
Dick's positions with Codman included Director, Vice-President - New Business
Development, Vice President - U.S. Sales and Marketing, and Vice President -
International. Mr. Dick retired from Johnson & Johnson in April 1994. From 1978
to 1982, Mr. Dick was President & Chief Executive Officer of Applied
Fiberoptics, Inc., a company designing, manufacturing and marketing fiberoptic
products for medical and defense applications, and surgical microscopes for
microsurgery. Mr. Dick also serves on the board of Span-America Medical Systems,
Inc., which designs and manufactures wound management products, and which has
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934.
Louis Uchitel, chairman of the audit committee and a member of the
compensation committee, has been a director of the Company since June 12, 2001.
He is a certified public accountant and the Secretary and Treasurer of Quaker
State Environmental Equipment, Inc., a lessor of solid waste equipment. Mr.
Uchitel was formerly the Executive Vice President and Chief Financial Officer of
Accurate Industries, Inc.
Jerry L. Malis and Dr. Leonard I. Malis are brothers.
AUDIT COMMITTEE FINANCIAL EXPERT
The Company has a standing Audit Committee comprised of three members:
Louis Uchitel, Bruce A. Murray and Robert H. Dick. The Board of Directors has
determined that it has an "audit committee financial expert" serving on its
Audit Committee as defined by Item 401(h) of Regulation S-K. The Company's audit
committee financial expert is Louis Uchitel. Mr. Uchitel is deemed to be
"independent" under applicable rules of Nasdaq Stock Market.
CODE OF ETHICS
Valley Forge Scientific Corp. has adopted a Code of Ethics and Business
Conduct applicable to its directors, officers (including its Chief Executive
Officer) and employees. A copy of the Code of Ethics and Business Conduct is
available on the Company's website at http://www.vlfg.com. The Company intends
to post on its website any amendments to, or waivers from, its Code of Ethics
promptly following any such amendment or waiver.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's directors and executive officers, and
persons who own more than 10% of a registered class of the Company's equity
securities, to file reports of ownership of, and transactions in, the Company's
securities with the Securities and Exchange Commission and the Nasdaq Stock
Market. Such directors, executive officers and 10% stockholder are also required
to furnish the Company with copies of all Section 16(a) forms they file.
Based solely upon a review of reports furnished to the Company, and on
written representations from certain reporting persons, the Company believes
that, with respect to the fiscal year ended September 30, 2004, each director,
executive officer and 10% stockholder of the Company's securities made timely
filings of all reports require by Section 16 of the Exchange Act.
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Item 11. EXECUTIVE COMPENSATION.
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SUMMARY COMPENSATION TABLE
Summary Compensation Table. The following table sets forth the aggregate
compensation paid by the Company with respect to the three fiscal years ended
September 30, 2004 to the Company's Chief Executive Officer.
Number of Shares
of Common Stock
Name and Underlying
Principal Position Fiscal Year Salary Bonus Options Granted
------------------ ----------- ------ ----- ---------------
Jerry L. Malis, 2004 $220,000 0 ---
Chief Executive Officer 2003 220,000 0 ---
and President 2002 199,000 $25,000 ---
Aggregate Fiscal Year End Option Values. The following table sets forth the
value on September 30, 2004 of unexercised options for the Chief Executive
Officer.
Number of Shares of Common Stock
Underlying Unexercised Aggregate Value of Unexercised
Name Options at September 30, 2004 Options at September 30, 2004
---- ----------------------------- ------------------------------
Jerry L. Malis (1) 100,000 $23,750
----------
(1) Mr. Malis' options consist of the following:
- 50,000 shares granted on December 22, 1994 with an exercise price of
$2.375 per share, which expired on December 22, 2004, all of which
were exercisable at September 30, 2004; and
- 50,000 shares granted on December 12, 2000 with an exercise price of
$1.125 per share and expiring December 12, 2010, all of which were
exercisable at September 30, 2004.
DIRECTORS' COMPENSATION
The Company's Directors, who are neither employees of the Company or an
immediate family member of an officer of the Company, are paid $750 for each
meeting of the Board of Directors and each meeting of a committee of the Board
of Directors that they attend. In addition, all Directors are entitled to
reimbursement for travel and lodging expenses incurred in connection with their
attendance at meetings.
Non-Employee Directors' Stock Option Plan. The Company has adopted the 2000
Non-Employee Directors' Stock Option Plan which provides that each Director of
the Company who is neither an employee of the Company or an immediate family
member of an officer of the Company, will be granted options to purchase 10,000
shares of the Company's common stock, no par value, ("Common Stock") each year
he is elected, appointed, or re-elected as a Board member. Each non-employee
Director of the Company who served in such position on December 12, 2000, the
effective date of this plan, received a grant of options as of that date. The
exercise price of options granted under this plan is equal to the fair market
value of the common stock on the date of grant. All options granted under this
plan vest upon issuance.
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Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
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The following table sets forth as of January 15, 2005 certain information
with respect to the beneficial ownership of the Company's Common Stock by (i)
each of the named executive officers and Directors, (ii) all executive officers
and Directors as a group, and (iii) each person known by the Company to
beneficially own more than 5% of the Company's Common Stock based on certain
filings made under Section 13 of the Exchange Act. All such information provided
by the stockholders who are not executive officers or Directors reflects their
beneficial ownership as of the dates specified in the footnotes to the table.
Amount of
Name and Address of Beneficial Percentage
Beneficial Owners (1) Ownership Owned
--------------------- --------- -----
(i) Executive Officers and Directors
Jerry L. Malis (2)(3) 1,182,276 14.8%
Dr. Leonard I. Malis (2)(6) 961,242 12.1%
Louis Uchitel (2) (7) 311,500 3.9%
Bruce A. Murray (2)(4) 54,000 *
Robert H. Dick (2)(5) 54,000 *
Marguerite Ritchie (8) 20,650 *
Michael Ritchie (9) 23,000 *
(ii) All Executive Officers and Directors
as a Group (7 persons) 2,606,668 32%
(iii) Certain Beneficial Owners
Russell U. Schenkman (10) 651,375 8.2%
Daniel Boyer, Ross L. Campbell,
W. Ward Carey, Phillip N. Hudson and
James I. Steele (11) 781,740 9.9%
----------
* less than 1%
(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them.
(2) The mailing address of Messrs. Malis, Murray, Dick, Uchitel and Dr. Malis,
directors of the Company, is 136 Green Tree Road, P.O. Box 1179, Oaks,
Pennsylvania 19456-1179.
(3) Includes 50,000 shares issuable to Mr. Malis subject to options exercisable
currently or within 60 days. Also includes 200,000 shares held in the Malis
Family, L.P., a limited partnership in which Jerry L. Malis is the general
partner and possesses voting and investment power.
(4) Represents 54,000 shares issuable to Mr. Murray subject to options
exercisable currently or within 60 days.
(5) Represents 54,000 shares issuable to Mr. Dick subject to options
exercisable currently or within 60 days.
(6) Includes 400,000 shares held in the Leonard and Ruth Malis Family, L.P., a
limited partnership in which Dr. Malis is a general partner and possesses
voting and investment power.
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(7) Includes 40,000 shares issuable to Mr. Uchitel subject to options
exercisable currently or within 60 days. Also includes: (i) 15,000 shares
owned by Mr. Uchitel's daughter, (ii) 10,500 shares owned by a trust for
Mr. Uchitel's granddaughter, and (iii) 31,000 shares owned by Mr. Uchitel's
daughter and son-in-law, for which Mr. Uchitel possesses shared investment
power.
(8) Includes 19,750 shares issuable to Ms. Ritchie, subject to options
exercisable currently or within 60 days.
(9) Represents 23,000 shares issuable to Mr. Ritchie subject to options
exercisable currently or within 60 days.
(10) Russell U. Schenkman is the sole trustee of the Frances W. Gilloway Marital
Trust and the Frances W. Gilloway Residue Trust (the "Trusts"), which are
the record owners of 601,375 shares of the Common Stock and options to
purchase 50,000 shares of Common Stock exercisable currently or within 60
days. The Trusts were created under the will of Thomas J. Gilloway to,
among other things, own certain shares of the Common Stock beneficially
owned by Mr. Gilloway. Mr. Schenkman in his capacity as trustee of the
Trusts possesses sole voting and investment power with respect to the
shares and therefore is deemed to beneficially own, under applicable
regulations of the Securities and Exchange Commission, the 651,375 shares
owned of record by the Trusts. Mr. Schenkman disclaims beneficial ownership
of all shares owned of record by the Trusts. The address of Mr. Schenkman
is 13 Roszel Road, Princeton, New Jersey 08540. Based on information set
forth in a Schedule 13G filed under the Exchange Act on January 16, 2002.
(11) These four persons have formed a stockholders' committee and have agreed to
operate as a "group" for purposes of Section 13(d) of the Exchange Act. The
beneficial ownership of each of these persons based on the information set
forth in a Schedule 13D filed under the Exchange Act on February 22, 2002
is set forth below. Daniel Boyer, whose address is c/o Boenning &
Scattergood, 601 High Street, Pottstown, PA 19464, beneficially owns
317,390 shares, including the following shares that he shares voting and
investment power: 74,390 shares owned by his wife, Ute Boyer; 75,650 shares
owned by his daughter, Kim Boyer; and 55,200 shares owned by his son, Alex
Boyer. Ross L. Campbell, whose address is 675 Lewis Lane, Ambler, PA 19002,
beneficially owns 158,100 shares, which includes 12,000 shares held by him
as co-trustee for which he shares voting and investment power and the
following shares for which he shares voting and dispositive power: 15,000
shares owned by his wife, Marcia W. Campbell; 6,000 shares owned by his
daughter, Jan Campbell; and 6,000 shares owned by his son Ross L. Campbell,
Jr. W. Ward Carey, whose address is 21 E. 66th Street, New York, NY 10021
beneficially owns 113,000 shares, which includes: 7,400 shares as to which
he shares voting and investment power with his wife, Patricia Carey; 6,000
shares as to which he shares voting and investment power with his son,
Alexander Carey; 16,700 shares as to which he shares voting and investment
power with his daughter, Daphne Carey; and 2,900 shares as to which he
shares voting and investment power with his daughter, Cynthia A. Carey.
Phillip N. Hudson, whose address is P.O. Box 160892, San Antonio, TX 78280,
beneficiary owns 140,600 shares. James I. Steele, whose address is 30982
Clubhouse Lane, Evergreen, CO 80439, beneficially owns 52,650 shares,
including the following shares that he shares voting and investment power:
10,850 shares owned by his mother, F. Irene Steele; and 4,000 shares owned
by his wife, Peggy Steele.
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EQUITY COMPENSATION PLAN INFORMATION
Number of shares of
common stock available
Number of shares of for future issuance under
common stock to be equity compensation
issued upon exercise of Weighted average plans at September 30,
outstanding options, exercise price of 2004 (excluding shares
warrants and rights at outstanding options reflected in the first
Plan Category September 30, 2004 warrants and rights column)
------------- ----------------------- ------------------- -------------------------
Equity compensation plans
approved by security holders 507,250 $2.01 201,500
Equity compensation plans not
approved by security holders 0 0 0
------- ------- -------
Total: 507,250 $2.01 201,500
======= ======= =======
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
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Since the late 1960's, Dr. Leonard I. Malis, one of the Company's
directors, on an individual basis has been a party to consulting and other
agreements with Codman & Shurtleff, Inc., the Company's principal customer.
Since 1983, Dr. Malis has been a party to an agreement with Codman & Shurtleff,
Inc. under which Dr. Malis receives royalty payments for the use of his Malis(R)
trademark on products sold by Codman & Shurtleff, Inc. to end users, including
products the Company sells to Codman & Shurtleff, Inc. Dr. Malis has developed
and in the future may develop passive hand instruments for Codman & Shurtleff,
Inc. with no pecuniary benefits to the Company. On October 22, 2004, the Company
entered into an option agreement with Dr. Malis, under which, the Company was
granted an option to acquire the Malis(R) trademark from Dr. Malis at any time
over a period of five years. The Company paid Dr. Malis $35,000 for the option
and is required to pay an annual fee before each anniversary of the option
agreement of $20,000 for each of the first two anniversaries and increasing to
$60,000 before the fourth anniversary in order to continue the option in effect
from year to year. In the event that the Company decides to exercise the option,
Dr. Malis will be paid $4,157,504, which includes interest, in twenty six equal
quarterly installments of $159,904, and which will be evidenced by a promissory
note secured by a security interest in the trademark and certain of the
Company's patents.
The Company has entered into a five year lease commencing on July 1, 2000
for approximately 4,200 square feet of office and warehouse space at a base
monthly rent of $4,643 with GMM Associates, a Pennsylvania general partnership.
Two of the partners of GMM Associates are Jerry L. Malis and Leonard I. Malis,
principal shareholders as well as directors of the Company. The related expense
for this lease for the year ended September 30, 2004 was $60,517. The Company
believes the rental payments reflect fair rental value for the space.
For the year ended September 30, 2004, the Company paid legal fees in the
amount of $90,060, plus out-of-pocket expenses, to a law firm in which a
son-in-law of Jerry L. Malis is a partner.
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For the 2002 and 2003 fiscal years and through May 2004, the Company
retained R. H. Dick & Company, Inc., an investment banking and business
consulting company owned by Robert H. Dick, one of the Company's directors, to
perform investment banking and business consulting services. For the years ended
2003 and 2002, the Company incurred consulting expenses from these services of
$10,000 and $10,000, respectively, and from October 1, 2003 to May 31, 2004, the
Company incurred consulting expenses of $7,500, excluding reimbursement of
out-of-pocket expenses.
Commencing in June 2004, the Company engaged Bruce A. Murray, a director of
the Company, to perform certain business consulting services. For the 2004
fiscal year, the fees for these services totaled $30,025, excluding
reimbursement of out-of-pocket expenses.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
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Audit Fees. During fiscal 2004 and 2003, the aggregate fees and expenses
billed for professional services rendered by Samuel Klein and Company for the
audit of the Company's annual financial statements and review of the Company's
quarterly financial statements totaled $95,568 and $81,950, respectively.
Audit - Related Fees. Samuel Klein and Company did not bill the Company for
any professional services during fiscal 2004 and 2003 that are reasonably
related to the performance of the audit or review of the Company's financial
statements and are not reported under the heading "Audit Fees", above.
Tax Fees. During fiscal 2004 and 2003, the aggregate fees and expenses
billed for professional services rendered by Samuel Klein and Company to the
Company for tax compliance, tax advice and tax planning totaled $5,744, and
$4,114, respectively.
All Other Fees. Samuel Klein and Company did not bill the Company for any
professional services during fiscal 2004 and 2003 other than those reported
under the heading "Audit Fees" and "Tax Fees", above.
The Company's Audit Committee's policy is to pre-approve all audit and
permissible non-audit services provided by the Company's independent auditors.
These services may include audit services, audit-related services, tax services
and other services. Pre-approval is generally provided for up to one year and
any pre-approval is detailed as to the particular service or category of
service. The independent auditor and management are required to periodically
report to the Audit Committee regarding the extent of services provided by the
independent auditor in accordance with this pre-approval.
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SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on this 25th day of
January, 2005.
VALLEY FORGE SCIENTIFIC CORP.
By: /s/ JERRY L. MALIS
--------------------------
Jerry L. Malis, President
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