FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1995
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 1-6107
SKLAR CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 44-0625447
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
889 S. Matlack Street, West Chester, Pennsylvania 19382
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (610) 430-3200
Check whether the issuer (l) 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 _____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes ________ No ________
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at January 11, 1995
(Common stock, $0.10 par value) 1,237,711
Transitional Small Business Disclosure Format (Check one): Yes ____ No __X__
<PAGE>
SKLAR CORPORATION
INDEX
Page No.
Part I Financial Information
Balance Sheet - December 31, 1995 .................................3
Statement of Income -
nine months ended December 31, 1995 and 1994 ..................4
Statement of Cash Flows -
nine months ended December 31, 1995 and 1994 ..................5
Notes to condensed financial statements ........................6 - 9
Management's Discussion and Analysis of Financial
Condition and Results of Operations .....................10 - 11
Part II Other Information
Item 1 Legal Proceedings .......................................11
Item 3 Defaults Upon Senior Securities .........................11
2
<PAGE>
SKLAR CORPORATION
BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
ASSETS 12/31/95
<S> <C>
CURRENT ASSETS:
Cash $ 14,486
Accounts Receivable 1,460,093
Inventories (Note 5) 2,819,925
Prepaid Expenses 33,676
-----------
TOTAL CURRENT ASSETS 4,328,180
EQUIPMENT AND IMPROVEMENTS (Note 6) 444,625
GOODWILL (Note 7) 865,756
OTHER ASSETS 349,472
-----------
TOTAL ASSETS $ 5,988,033
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash Overdraft $ 0
Short-term Bank Borrowings (Note 2) 1,419,000
Current Portion-Long-Term Debt 287,773
Current Portion-Capital Lease Obligation 19,854
Trade Accounts Payable 1,550,365
Accrued Expenses 131,596
Accrued Income Taxes 2,985
-----------
TOTAL CURRENT LIABILITIES 3,411,573
Long-term Debt (Note 3) 523,422
Long-term Capital Lease Obligation 0
Other Liabilities 122,549
-----------
TOTAL LIABILITIES 4,057,544
-----------
CONTINGENCIES
STOCKHOLDERS' EQUITY (Note 9):
Series A convertible preferred stock, par value
$.01 per share, authorized, 10,000,000 shares;
issued and outstanding 24,825 shares 248
Series A subordinate convertible preferred stock,
no par value, authorized 4,000 shares; issued
and outstanding -0- 0
Common stock, par value $.10 per share,
authorized, 1,500,000 shares; issued and
outstanding, 1,237,711 shares 123,771
Additional Paid-in Capital 2,106,482
Deficit (300,012)
-----------
1,930,489
-----------
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $ 5,988,033
===========
</TABLE>
See notes to financial statements
3
<PAGE>
SKLAR CORPORATION
STATEMENTS OF INCOME
AND DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
12/31/95 12/31/94
<S> <C> <C>
Revenues:
Net Sales (Note 10) $ 7,074,783 $ 4,485,386
Cost and Expenses:
Cost of Goods Sold 3,779,634 2,166,243
Selling, General and Administrative 3,008,564 2,098,972
Interest 233,680 166,264
----------- -----------
7,021,878 4,431,479
----------- -----------
Income before taxes 52,905 53,907
Provisions for Income Taxes
Currently Payable (Note 8) 10,000 11,700
----------- -----------
Net Income 42,905 42,207
----------- -----------
Preferred Dividend Requirement (Note 9) 232,734 232,734
----------- -----------
Loss Applicable to Common Shares $ (189,829) $ (190,527)
----------- -----------
Per Share Data:
Weighted Average Common Shares
Outstanding 1,237,711 1,237,711
----------- -----------
Loss Per Share (Note 11) $ (0.15) $ (0.15)
=========== ===========
</TABLE>
See notes to financial statements
4
<PAGE>
SKLAR CORPORATION
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
12/31/95 12/31/94
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 42,905 $ 42,207
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 521,766 212,126
Provision for losses on
accounts receivable 18,000 18,000
Change in operating assets and liabilities:
(Increase) in accounts receivable (305,795) (100,530)
(Increase) decrease in inventory 190,858 (1,021,368)
(Increase) decrease in prepaid expense (5,386) 5,622
Increase (decrease) in accounts payable (173,163) 329,602
Increase (decrease) in accrued expenses 35,482 (1,980)
(Decrease) in income taxes payable (4,656) (37,959)
----------- -----------
Total Adjustments 277,106 (596,487)
----------- -----------
Net cash provided by(used in)
operating activities 320,011 (554,280)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (116,534) (174,274)
Principal payments received on note receivable 0 60,000
Intangible Assets (135,974) (62,042)
----------- -----------
Net cash used in investing activities (252,508) (176,316)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line-of-credit 134,000 144,000
Net payments on capital lease (Note 12) (14,456) (13,707)
Net borrowings(payments) on long term debt (291,678) 563,788
----------- -----------
Net cash provided by(used in)
financing activities (172,134) 694,081
----------- -----------
NET (DECREASE) IN CASH (104,631) (36,515)
CASH BEGINNING OF PERIOD 119,117 (16,044)
----------- -----------
CASH END OF THE PERIOD $ 14,486 $ (52,559)
=========== ===========
</TABLE>
See notes to financial statements
5
<PAGE>
SKLAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 MANAGEMENT'S REPRESENTATION
In the opinion of Management, the unaudited financial statements contain all
adjustments necessary to present fairly the financial position as of December
31, 1995 and the results of operations and cash flows for the period then ended.
NOTE 2 SHORT-TERM BANK BORROWINGS
On November 18, 1994 the Company entered into an amended revolving line of
credit agreement for $2,200,000 collateralized by the sum of 80% of qualifying
accounts receivable plus 45% of inventories. Borrowings based on eligible
inventories have a fluctuating maximum allowable balance up to $800,000.
Qualifying accounts receivable and inventory used as a basis for the December
31, 1995 borrowing totaled $1,852,000. Unused available credit at December 31,
1995 was $433,000. The amount of available credit line is dependent upon the
balance of qualifying accounts receivable and inventory and is therefore subject
to change.
Borrowings from this line bear interest at the Bank's National Commercial Rate
(BNCR) plus 2.25% (two and one-quarter percent). At December 31, 1995 the BNCR
was 8.50%. The interest expense on short-term bank borrowings for 1995 and 1994
amounted to $123,770 and $90,531, respectively.
The terms of the borrowing agreement state that the Company may not, without
prior consent of the lender, declare or pay any dividends or incur additional
debt or obligations. The Company's President, Mr. Don Taylor, personally
guaranteed all obligations under this agreement secured by a lien on his
personal assets and his common and preferred shares of the Company's stock.
On May 20, 1994 the Company entered into agreements with Meridian Bank to
restructure then existing financing agreements. That amended line of credit had
a maximum principal amount of $1,600,000, replacing the former $2,000,000. The
rate of interest on this line was calculated at the BNCR plus 2.5%.
Simultaneously, the Company negotiated a three year term loan of $400,000 at the
same interest rate, of which principal of $11,111 and accrued interest will be
paid in 36 monthly installments commencing June 1, 1994 and due in full May 1,
1997.
NOTE 3 LONG-TERM DEBT
On November 18, 1994, coincident with the purchase of inventory from the Herwig
Division of the General Medical Corporation, the Company entered into an
additional short term borrowing agreement with Meridian Bank which, on December
28, 1994, was converted to a 60 month borrowing arrangement. The long-term
agreement with Meridian Bank, guaranteed by the United States Small Business
Administration (SBA), provided for the Company to borrow $700,000 with interest
at New York's Prime Rate plus 2.25% payable monthly. The principal is repayable
in monthly amounts beginning in March 1995. The first three monthly principal
payments were $50,000 and the remainder are $10,000 through December, 1999. This
loan is secured by the Herwig inventory and all of the Company's other tangible
and intangible assets.
6
<PAGE>
SKLAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 LONG-TERM DEBT, (continued)
Additional monthly principal payments are required if the outstanding principal
on the loan exceeds 50% of the Herwig inventory value, including replacement
inventory purchased in the ordinary course of business. The prime rate was 8.50%
at December 31, 1995.
On May 20, 1994 the Company negotiated a three year term loan of $400,000 with
Meridian Bank as described in Note 2 above as part of a general restructuring of
existing financing agreements.
The contract under which Dental Corporation of America (DCA) was acquired was
renegotiated in April 1992. The renegotiated contract, among other things,
changed the payment terms from three fixed $100,000 annual payments plus
interest and royalties based upon future sales to a fixed monthly payment of
$12,000 for one year commencing April 1, 1992 followed by a monthly payment of
$5,000 for six years commencing April 1, 1993. The gross payments and associated
liability under the new agreement are substantially the same as to those which
were recorded, including interest, upon the acquisition of DCA. Accordingly,
there has been no change to the financial statements in connection with this
renegotiation. The new agreement did however change the aggregate prospective
maturities.
NOTE 4 BUSINESS OPERATIONS
The Company imports and distributes under the Sklar, Misdom-Frank and other
trademarks hand-held, non-electronic instruments for the surgical, dental and
veterinary fields.
On November 18, 1994 the Company purchased the inventory of the Herwig Division
of the General Medical Corporation (GMC) for $871,922. In addition, and as part
of the purchase agreement, the Company entered into a marketing agreement
whereby the Company committed to supplying GMC with its medical instrument needs
for its customers for a fifty month term. GMC is under no obligation to buy any
items from the Company during the term of the agreement, but if items are
purchased by GMC the Company is obligated to make certain marketing incentive
payments.
NOTE 5 INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
NOTE 6 EQUIPMENT AND IMPROVEMENTS
Equipment and improvements are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided generally on the
straight-line method over the useful lives of the assets which are estimated to
be three to ten years for equipment and the shorter of the life of the lease or
the life of the asset for leasehold improvements.
7
<PAGE>
SKLAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 7 GOODWILL AND CATALOG DEVELOPMENT COSTS
Goodwill is amortized over twenty years, and catalog development costs are being
amortized over at various schedules ranging from 1 1/2 - 5 years for the nine
month period ended December 31, 1995. For the nine month period ended December
31, 1994 goodwill and catalog development costs were amortized over forty years
and 1 1/2 - 7 years, respectively.
NOTE 8 INCOME TAXES
Income taxes represent the State tax due. Federal income taxes payable are
offset by net operating loss carryforwards and goodwill is reduced accordingly
to reflect the utilization of the loss carryforwards. No tax loss carryforwards
exist to offset state income tax payable.
As a result of the merger of Medco Jewelry Corporation and Misdom-Frank
Corporation, management believes there may be federal net operating loss
carry-forwards available to Medco Jewelry Corporation at the date of merger that
have transferred to Sklar Corporation. Such loss carry-forwards and additional
post-merger operating losses totaling approximately $3,850,000, which expire in
1995 ($1,596,000), 1997 ($244,000), 1998 ($974,000), 1999 ($50,000), 2000
($14,000), 2001 ($461,000), and 2002 ($511,000), are available as deductions
from federal taxable income of future years.
NOTE 9 STOCKHOLDERS' EQUITY
As of December 31, 1995, of the 1,500,000 shares of Common Stock authorized,
1,237,711 are outstanding. Of the Series A Convertible Preferred Stock, 24,825
shares are authorized and outstanding.
The Series A Convertible Preferred Stock may be redeemed by the Company after
March 1, 1986 at a price of $100 per share and is entitled to a liquidation
preference of $100 per share plus cumulative dividends. Annual dividends of
$12.50 per share accrue cumulatively on the Series A Convertible Preferred Stock
commencing on July 1, 1984, payable on June 30 of each year commencing June 30,
1985. No dividends have been declared in any years through 1995.
NOTE 10 SALES
A sale is recorded when title to the product passes to the customer.
NOTE 11 NET LOSS PER SHARE
Net loss per share is computed by dividing the net loss applicable to common
shares by the weighted average number of shares of Common Stock outstanding
after giving effect to the ratably accrued preferred dividend. No effect has
been given to Common Stock equivalent shares as such would be anti-dilutive.
8
<PAGE>
SKLAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 12 CASH FLOW INFORMATION
For purposes of the statement of cash flows, the Company considers cash in bank
and on hand as cash equivalents.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid amounted to $234,540 in the nine months ended December 31, 1995,
and $137,448 in the nine months ended December 31, 1994.
Income taxes paid amounted to $14,479 in the nine months ended December 31,
1995, and $32,939 in the nine months ended December 31, 1994.
9
<PAGE>
SKLAR CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's results
of operations and financial condition. The discussion should be read in
conjunction with the financial statements and notes thereto appearing elsewhere
herein.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of net
sales for certain items in the Company's Statements of Income for each period:
Income and Expense Items as Percentage of
Net Sales for the Quarter ended December 31
1995 1994
Net Sales 100.0% 100.0%
Cost of Sales 53.4 50.5
Gross Profit 46.6 49.5
Selling, General and
Admin. Expenses 42.5 44.6
Income (Loss) Before
Interest & Taxes 4.1 4.9
Interest Expense 3.3 3.5
Income Before
Income Taxes 0.7 1.3
Net Income 0.6 1.2
SALES
For the nine month period ended December 31, 1995 compared to the nine month
period ended December 31, 1994, sales were up $2,589,397 or 57.7%. This increase
reflects the impact of the marketing agreement entered into with the Company's
major customer and the success of the Company's approach to build sales through
an emphasis on marketing and advertising.
COST OF SALES
Cost of sales as a percentage of sales increased 2.9% for the nine month period
December 31, 1995 compared to the nine month period ended December 31, 1994.
This increase reflects the higher cost of products as a result of a weakened US
dollar on foreign exchange rates and a diminishing profit margin as a percent of
sales due to increasing competitiveness in the health care industry. Management
expects the business to continue to show a lower profit margin as a percent of
sales in future periods.
10
<PAGE>
SKLAR CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, General and Administrative expenses for the nine month period ended
December 31, 1995 have increased $909,592 or 43.3% from the nine month period
ended December 31, 1994. The increase in these expenditures is a result of the
Company's commitment to an increased marketing and advertising effort and the
resulting increased personnel and advertising costs. Increased amortization
rates for goodwill and catalogs has also contributed to this higher amount. The
increased sales volume has also required certain of these increases. Management
expects to continue this level of expenditure in future periods.
INTEREST
Interest costs increased $67,416 or 40.5% for the nine month period ended
December 31, 1995 compared to the nine month period ended December 31, 1994 due
to increased borrowing levels. Borrowing increased primarily as a result of the
financing necessary to purchase the inventory of the Herwig Division of General
Medical Corporation and finance the resulting increased sales volume.
INCOME TAXES
Federal income tax expense is reduced in both periods by the available net
operating loss carryforwards. Income tax expense represents state income tax.
LIQUIDITY AND CAPITAL RESOURCES
The Company's $2,200,000 revolving line of credit with Meridian Bank is
considered adequate to meet the financing requirements of the Company in the
foreseeable future.
PART II - OTHER INFORMATION
ITEM 1 LEGAL MATTERS
(A) The Company has filed suit against the former principal of DCA for
violating terms of a non-compete agreement signed as part of a re-negotiated
settlement for the purchase of DCA. This suit will seek the return of all monies
paid to the former principal to date. This case is currently in the pleading and
discovery stage, therefore, no assessment of the outcome of the case has been
made by legal counsel.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
As reported in registrant's form 10-Q for the quarter ended December 31, 1985
and as further discussed in Note 9 to the financial statements, the registrant
did not declare a dividend on its cumulative Series A Convertible Preferred
Stock in any year through 1995.
11
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THE REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
SKLAR CORPORATION
DON TAYLOR
PRESIDENT
January 30, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000064500
<NAME> SKLAR CORPORATION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> DEC-31-1995
<CASH> 14,486
<SECURITIES> 0
<RECEIVABLES> 1,514,585
<ALLOWANCES> 54,492
<INVENTORY> 2,819,925
<CURRENT-ASSETS> 4,328,180
<PP&E> 843,163
<DEPRECIATION> 398,538
<TOTAL-ASSETS> 5,998,033
<CURRENT-LIABILITIES> 3,411,573
<BONDS> 523,422
<COMMON> 123,771
0
248
<OTHER-SE> 1,806,470
<TOTAL-LIABILITY-AND-EQUITY> 5,998,033
<SALES> 7,074,783
<TOTAL-REVENUES> 7,074,783
<CGS> 3,779,634
<TOTAL-COSTS> 6,788,198
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 233,680
<INCOME-PRETAX> 52,905
<INCOME-TAX> 10,000
<INCOME-CONTINUING> 42,905
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,905
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
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