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 June 30, 1996
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 August 13, 1996
(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 -
June 30, 1996 ------------------------------------------- 3
Statement of Income -
three months ended June 30, 1996 and 1995 --------------- 4
Statement of Cash Flows -
three months ended June 30, 1996 and 1995 --------------- 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
<PAGE>
SKLAR CORPORATION
BALANCE SHEET
(Unaudited)
ASSETS 6/30/95
CURRENT ASSETS:
Accounts Receivable $ 1,917,478
Inventories (Note 5) 4,258,166
Prepaid Expenses 37,676
-----------
TOTAL CURRENT ASSETS 6,213,320
EQUIPMENT AND IMPROVEMENTS (Note 6) 429,294
GOODWILL (Note 7) 2,125,529
OTHER ASSETS 311,942
-----------
TOTAL ASSETS $ 9,080,086
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash Overdraft $ 71,521
Short-term Bank Borrowings (Note 2) 2,776,044
Current Portion-Long-Term Debt 257,616
Current Portion-Capital Lease Obligation 9,341
Trade Accounts Payable 2,688,791
Accrued Expenses 200,981
Accrued Income Taxes 7,691
-----------
TOTAL CURRENT LIABILITIES 6,011,985
Long-term Debt (Note 3) 869,244
Other Liabilities 138,487
-----------
TOTAL LIABILITIES 7,019,715
-----------
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 (170,130)
-----------
2,060,371
-----------
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $ 9,080,086
===========
See notes to financial statements
<PAGE>
SKLAR CORPORATION
STATEMENTS OF INCOME
AND DEFICIT
(Unaudited)
For the Three Months Ended
6/30/96 6/30/95
Revenues:
Net Sales (Note 10) $ 3,066,529 $ 2,136,292
Cost and Expenses:
Cost of Goods Sold 1,719,038 1,162,951
Selling, General and Administrative 1,208,525 880,013
Interest 78,884 84,326
----------- -----------
3,006,447 2,127,290
----------- -----------
Income before taxes 60,083 9,002
Provisions for Income Taxes
Currently Payable (Note 8) 9,000 3,850
----------- -----------
Net Income 51,083 5,152
----------- -----------
Preferred Dividend Requirement (Note 9) 77,578 77,578
----------- -----------
Loss Applicable to Common Shares $ (26,495) $ (72,426)
----------- -----------
Per Share Data:
Weighted Average Common Shares
Outstanding 1,237,711 1,237,711
----------- -----------
Loss Per Share (Note 11) $ (0.02) $ (0.06)
=========== ===========
See notes to financial statements
<PAGE>
SKLAR CORPORATION
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
6/30/96 6/30/95
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 51,083 $ 5,152
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 123,677 99,551
Provision for losses on
accounts receivable 6,000 6,000
Change in operating assets and liabilities:
Increase in accounts receivable (513,459) (161,031)
Decrease in inventory 581,169 97,578
Increase in prepaid expense (15,041) (5,620)
Increase (decrease) in accounts payable 93,122 (162,667)
Increase in accrued expenses 96,080 42,707
Increase (decrease) in income taxes payable 4,706 (4,656)
----------- -----------
Total Adjustments 376,253 (88,138)
----------- -----------
Net cash provided by
(used in) operating activities 427,336 (82,986)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (12,677) (19,790)
Acquisition of inventory (1,999,347)
Intangible Assets (1,363,686) (74,021)
----------- -----------
Net cash used in investing activities (3,375,711) (93,811)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line-of-credit 181,044 210,000
Borrowing on credit line for acquisition 1,700,000
Seller notes for acquisition 706,405
Liabilities assumed in acquisition 900,386
Net payments on capital lease (Note 12) (5,348) (4,651)
Net payments on long term debt (734,502) (150,202)
----------- -----------
Net cash provided by
financing activities 2,747,985 55,147
----------- -----------
NET DECREASE IN CASH (200,390) (121,650)
CASH BEGINNING OF PERIOD 128,869 119,117
----------- -----------
CASH OVERDRAFT END OF THE PERIOD $ (71,521) $ (2,533)
=========== ===========
</TABLE>
See notes to financial statements
<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 June 30,
1996 and the results of operations and cash flows for the period then ended.
NOTE 2 SHORT-TERM BANK BORROWINGS
On June 4, 1996 the Company entered into an amended and restated loan and
security agreement for $3,750,000 collateralized by the sum of 80% of qualifying
accounts receivable plus 50% of inventories. Borrowings based on eligible
inventories may comprise up to 50% of the outstanding credit line amount.
Qualifying accounts receivable and inventory used as a basis for the June 30,
1996 borrowing totaled $3,314,000. Unused available credit at June 30, 1996 was
$511,000. 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 1.25% (one and one-quarter percent). At June 30, 1996 the BNCR was
8.25%. The interest expense on short-term bank borrowings for 1996 and 1995
amounted to $55,645 and $41,890, 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.
The loan agreement requires certain covenants to be meet by the Company. At June
30, 1996 the Company was in compliance with these covenants.
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.
<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 8.25%
at June 30, 1996.
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.
Effective May 31, 1996 the Company acquired certain assets and assumed
certain liabilities of Surgical Medical specialists, Inc. (SMS) valued at
$3,306,791. The purchase price is allocated $1,999,347 to inventory and
$1,307,444 to goodwill. The purchase is financed by $1,700,000 drawn against the
Company's amended credit line agreement with Meridian Bank, $900,386 assumption
of SMS liabilities and $706,405 of notes payable to the Seller.
The amended line of credit agreement with Meridian Bank establishes a new
line of credit amount at $3,750,000 which is available to the Company to the
extent collateral is available to support a borrowing amount. Collateral is
comprised of 80% of qualifying accounts receivable and 50% of inventory.
Accounts receivable must support at least 50% of the outstanding line of credit
after December 1, 1996. In addition the Company must meet certain working
capital, net worth and tangible net worth requirements at various times during
the term of the line of credit agreement which expires at June 30, 1997. The
$400,000 and $500,000 term loans payable to the Bank have been paid off by the
line of credit. The interest rate on the line of credit is BNCR plus 1.25%. The
Company is also required to provide for interest rate protection and will
consider entering into forward purchase contracts for some of its Deutsche Mark
obligations.
The liabilities assumed in this transaction are payable to vendors with
whom there either is an already existing relationship or where there is expected
to be a continuing relationship of that already established by SMS. These
liabilities are payable under various trade term arrangements which do not bear
interest.
<PAGE>
SKLAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 BUSINESS OPERATIONS, (continued)
The notes payable to the seller of $706,405 bearing interest at 9% are
payable in a lump sum amount of $200,000 on December 1, 1996 and then in
eighteen equal installments of $33,333 commencing June 1, 1997.
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.
NOTE 7 GOODWILL AND CATALOG DEVELOPMENT COSTS
Goodwill is amortized over twenty years, and catalog development costs are being
amortized at various schedules ranging from 1 1/2 - 5 years for the three month
period ended June 30, 1996 and 1995, except that catalog development costs
incurred after March 31, 1995 are expensed as incurred.
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 $2,254,000, which expire in
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.
<PAGE>
SKLAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 9 STOCKHOLDERS' EQUITY
As of June 30, 1996, 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 the years 1988 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.
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 $59,298 in the three months ended June 30, 1996, and
$86,397 in the three months ended June 30, 1995.
Income taxes paid amounted to $11,006 in the three months ended June 30, 1996,
and $6,779 in the three months ended June 30, 1995.
<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 June 30
1996 1995
Net Sales 100.0% 100.0%
Cost of Sales 56.1 54.4
Gross Profit 43.9 45.6
Selling, General and
Admin. Expenses 39.4 41.2
Income Before
Interest & Taxes 4.5 4.4
Interest Expense 2.6 4.0
Income Before
Income Taxes 1.9 0.4
Net Income 1.7 0.2
SALES
For the three month period ended June 30, 1996 compared to the three month
period ended June 30, 1995, sales were up $930,237 or 43.5%. This increase
reflects the additional business attained as a result of the purchase agreement
with SMS, the impact of the 1994 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 1.7% for the three month period
June 30, 1996 compared to the three month period ended June 30, 1995. This
increase reflects the higher cost of products as a result of 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.
<PAGE>
SKLAR CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, General and Administrative expenses for the three month period ended
June 30, 1996 have increased $328,512 or 37.3% from the three month period ended
June 30, 1995. The increase in these expenditures is a result of the general
increase in the Company required by the additional sales volume and the
Company's commitment to an increased marketing and advertising effort and the
resulting increased personnel and advertising costs. Management expects to
continue this level of expenditure in future periods.
INTEREST
Interest costs decreased $ 5,442 or 6.5% for the three month period ended June
30, 1996 compared to the three month period ended June 30, 1995 due to decreased
average borrowing levels and the decline in the interest rate. 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 the state income tax
payable.
LIQUIDITY AND CAPITAL RESOURCES
The Company's $3,750,000 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
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 moneys 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 on June 30, 1988 through 1996.
<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
/s/ DON TAYLOR
DON TAYLOR
PRESIDENT
August 14, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,975,392
<ALLOWANCES> 57,914
<INVENTORY> 4,258,166
<CURRENT-ASSETS> 6,213,320
<PP&E> 892,948
<DEPRECIATION> 463,653
<TOTAL-ASSETS> 9,080,086
<CURRENT-LIABILITIES> 6,011,985
<BONDS> 869,244
123,771
0
<COMMON> 248
<OTHER-SE> 1,936,352
<TOTAL-LIABILITY-AND-EQUITY> 9,080,086
<SALES> 3,066,529
<TOTAL-REVENUES> 3,066,529
<CGS> 1,719,038
<TOTAL-COSTS> 2,927,563
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,884
<INCOME-PRETAX> 60,083
<INCOME-TAX> 9,000
<INCOME-CONTINUING> 51,083
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,083
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
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