FORM 10-QSB/A NO. 1
UNITED STATES
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 three month period ended June 30, 1998
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 June 1, 1998
------------------------ -----------------------------
(Common stock, $0.10 par value) 744,423
Transitional Small Business Disclosure Format (Check one): Yes ________ No X
<PAGE>
SKLAR CORPORATION
INDEX
Page No.
Part I Financial Information
Balance Sheet -
June 30, 1998 ...........................................3
Statement of Income (Loss) -
three months ended June 30, 1998 and 1997 ...............4
Statement of Cash Flows -
three months ended June 30, 1998 and 1997 ...............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 .................................11-12
Item 3 Defaults Upon Senior Securities ......................12
Item 5 Other Information ....................................12
Item 6 Exhibits and Reports on form 8-K .....................12
<PAGE>
SKLAR CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS 6/30/98 3/31/98
(UNAUDITED)
CURRENT ASSETS:
Cash $48,153 $12,885
Accounts Receivable 2,033,149 2,547,506
Inventories (Note 5) 3,165,974 3,142,043
Prepaid Expenses 201,833 199,262
---------- ----------
TOTAL CURRENT ASSETS 5,449,109 5,901,696
EQUIPMENT AND IMPROVEMENTS (Note 6) 651,763 630,264
GOODWILL (Note 7) 892,845 879,830
OTHER ASSETS 202,438 106,636
---------- ----------
TOTAL ASSETS $7,196,155 $7,518,426
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash Overdraft $227,686 $294,816
Short-term Bank Borrowings (Note 2) 1,167,000 2,085,000
Current Portion-Long-Term Debt 179,709 218,094
Trade Accounts Payable 2,497,979 14,120
Accrued Expenses 135,827 2,100,424
Accrued Income Taxes 6,405 273,303
---------- ----------
TOTAL CURRENT LIABILITIES 4,214,606 4,985,757
Long-Term Debt (Note 3) 504,153 90,337
---------- ----------
TOTAL LIABILITIES 4,718,759 5,076,094
---------- ----------
CONTINGENCIES 0 0
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 248 248
Series A subordinate convertible preferred stock,
no par value, authorized 4,000 shares; issued
and outstanding -0- 0 0
Common stock, par value $.10 per share,
authorized, 1,500,000 shares; issued and
outstanding, 1,237,711 shares 123,771 123,771
Additional Paid-in Capital 2,106,482 2,106,482
Retained earnings 246,895 211,831
---------- ----------
2,477,396 2,442,332
---------- ----------
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $7,196,155 $7,518,426
========== ==========
</TABLE>
See notes to financial statements
3
<PAGE>
SKLAR CORPORATION
STATEMENTS OF INCOME (LOSS)
(Unaudited)
For the Three months Ended
6/30/98 6/30/97
Revenues:
Net Sales (Note 10) $3,233,462 $3,475,423
Cost and Expenses:
Cost of Goods Sold 1,839,840 1,969,464
Selling, General and Administrative 1,298,611 1,453,118
Interest 56,052 98,977
----------- -----------
3,194,503 3,521,559
----------- -----------
Income (Loss) before taxes 38,959 (46,136)
Provisions for Income Taxes
Currently Payable (Note 8) 3,896 0
----------- -----------
Net Income (Loss) 35,063 (46,136)
----------- -----------
Preferred Dividend Requirement (Note 9) 68,606 68,606
----------- -----------
Loss Applicable to Common Shares $(33,543) $(114,742)
----------- -----------
Per Share Data:
Weighted Average Common Shares
Outstanding 744,423 744,423
----------- -----------
Loss Per Share (Note 11) $(0.05) $(0.02)
=========== ===========
See notes to financial statements
4
<PAGE>
SKLAR CORPORATION
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(Unaudited)
<TABLE>
<CAPTION>
For the Three months Ended
6/30/98 6/30/97
<S> <C> <C>
Net Cash Provided (used) by Operating Activities 1,293,750 (127,206)
Net Cash Provided (Used) by Investing Activities (164,530) (129,573)
Net Cash Provided (Used) by Financing Activities (1,093,952) 254,481
----------- -----------
Net Decrease in Cash 35,268 (2,298)
Cash at Beginning of Period 12,885 7,506
----------- -----------
Cash at End of Period $48,153 $5,208
=========== ===========
</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 June 30,
1998 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, which reduced to $3,000,000 on March 31,
1997, and is 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, 1998 borrowing totaled
$4,896,950. Unused available credit at June 30, 1998 was $846,069 after
considering outstanding letters of credit totaling $28,113 and a $20% market
risk reserve on forward currency contracts totaling $300,760.
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, 1998 the BNCR was
8.5%. The interest expense on short-term bank borrowings for 1998 and 1997
amounted to $40,843 and $69,469, respectively.
The short-term borrowing facility requires the Company to comply with certain
restrictive covenants, including maintenance of various financial ratios. The
note is guaranteed by the Company's president including an assignment of his
company common and preferred stock.
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 a 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 prime rate was 8.50% at June 30,
1997. 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)
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. The Company has not made payments against this obligation since
September 1996, but continues to reflect the liability (See Item 1 (A), Legal
Matters under Part II, Other Information).
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) in a transaction valued
at $3,306,791. The purchase price was allocated $1,999,347 to inventory and
$1,307,444 to goodwill. The purchase was financed by $1,700,000 drawn against
the Company's amended credit line agreement with CoreStates Bank, $900,386
assumption of SMS vendor liabilities, subject to the agreement, and $706,405 of
notes payable to the seller. Subsequent to the acquisition it was determined
certain inventory may have been misrepresented or mislabeled and could not be
sold in the United States in accordance with regulations of the U.S. Customs and
Food and Drug Administration.
On January 20, 1998, a settlement agreement was negotiated which entailed a
significant restructuring of the original purchase. As part of the settlement
the seller forgave the aforementioned notes payable by the Company, made a
$150,000 payment to the Company and a $100,000 payment to a certain vendor
included in the original assumed liabilities. Additionally, the seller is
precluded from operating in any competitive fashion with the Company. In a
related settlement the Company negotiated the forgiveness of $134,301 of assumed
vendor liabilities related to the original purchase with a cash payment of
$30,000. The Company continues to pursue additional settlements related to the
assumed liabilities in the original purchase.
At March 31, 1998, the Company has recorded the settlement transaction as a
reduction of goodwill in the amount of $1,060,706. This represents the
negotiated reduction of liabilities and receipt of cash payment. Excess goodwill
amortization and accrued interest expense recorded in 1997 have been recorded as
other income in 1998, net of legal fees related to the settlement.
7
<PAGE>
SKLAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 BUSINESS OPERATIONS, (continued)
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 to supply GMC with its medical instrument needs.
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 fifteen or twenty years, and catalog development
costs are being amortized at various schedules ranging from 1 - 5 years for the
three month period ended June 30, 1998 and 1997.
NOTE 8 INCOME TAXES
Income taxes represent the State tax due. Federal income taxes payable are
offset by net operating loss carry-forwards and goodwill is reduced accordingly
to reflect the utilization of the loss carry-forwards. No tax loss
carry-forwards 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 $1,036,000, which expire in
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 June 30, 1998, of the 1,500,000 shares of Common Stock authorized, 744,423
are outstanding. Of the Series A Convertible Preferred Stock, 21,954 shares are
authorized and outstanding.
8
<PAGE>
SKLAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 1998.
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 $50,656 in the three months ended June 30, 1998, and
$76,897 in the three months ended June 30, 1997.
Income taxes paid amounted to $22,051 in the three months ended June 30, 1998,
and $0 in the three months ended June 30, 1997.
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 three months ended June 30
1998 1997
---- ----
Net Sales 100.0% 100.0%
Cost of Sales 56.9 56.7
Gross Profit 43.1 43.3
Selling, General and
Admin. Expenses 40.2 41.8
Income Before
Interest & Taxes 2.9 1.5
Interest Expense 1.7 2.8
Income Before
Income Taxes 1.2 0.0
Net Income (Loss) 1.1 (1.3)
SALES
For the three month period ended June 30, 1998 compared to the three month
period ended June 30, 1997, sales were down $241,961 or 7%. This decrease
reflects the competitive market pressures.
COST OF SALES
Cost of sales as a percentage of sales increased 0.2% for the three month period
ended June 30, 1998 compared to the three month period ended June 30, 1997. This
increase results primarily from the mix of products sold. As a result of
increasing competitiveness in the health care industry, management expects the
business to show in future periods lower than historical profit margin as a
percent of sales.
10
<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, 1998 have decreased $154,507 or 10.62% from the three month period
ended June 30, 1997. The decrease in these expenditures is a result of tighter
expense control and reduction in payroll expense.
INTEREST
Interest costs decreased $ 42,925 or 43.4% for the three month period ended June
30, 1998 compared to the three month period ended June 30, 1997 due due to a
reduction in the outstanding line of credit funded by inventory and accounts
receivable reductions.
INCOME TAXES
Federal income tax expense is reduced in both periods by the available net
operating loss carry-forwards. Income tax expense represents the state income
tax payable.
LIQUIDITY AND CAPITAL RESOURCES
The Company's revolving line of credit with CoreStates 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 filed suit in 1992 against the former principal of DCA for violating
the terms of a non-compete agreement signed as part of a re-negotiated
settlement for the purchase of DCA. The suit seeks the return of all monies paid
to the former principal. The case is currently under appeal to the Superior
Court of Pennsylvania and no assessment of the outcome of the case has been made
by counsel. Payments for DCA have been suspended since September 1996.
Settlement was reached prior to arbitration in the matter of the asset purchase
agreement with SMS. The settlement was to the satisfaction of the Company
although certain inventory has been written off as a result of its non-saleable
properties. Certain other inventory may be written off as well.
The Company filed suit in the Court of Common Pleas for Chester County,
Pennsylvania against an entity knows as "Endo-Surgical Systems, Inc." ("ENDO")
in February of 1998. Endo is controlled by the Company's former Controller. The
suit alleges misappropriation of trade secrets and conversion, tortious
interference with existing contractual relations, and tortious interference with
prospective economic advantage. Injunctive relief is sought in addition to
damages, costs, and fees. In December of 1997, the company also filed in the
court of Common Pleas for Chester County, a Writ of Summons against the former
controller, personally. The Company has since conducted a fact-finding effort. A
complaint was filed in May of 1998. The complaint alleges at this juncture,
among other things, that the former Controller has violated the standards of
conduct in the practice of public
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 LEGAL MATTERS, (continued)
accounting and engaged in misappropriation of trade secrets and conversion,
breach of fiduciary duties and confidential relationship, tortious interference
with existing contractual relationships, tortious interference with prospective
economic advantage, defamation and trade libel, breach of contract, and fraud
and misrepresentation. Injunctive relief, damages, costs and fees are sought.
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 1998.
ITEM 5 OTHER INFORMATION
The registrant filed Form 15 on June 30, 1998 to deregister its Common Shares
and Series A Convertible Preferred Stock.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(b) No reports on Form 8-K have been filed during the quarter for which this
report is filed.
12
<PAGE>
SIGNATURE
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/Michael Malinowski
MICHAEL MALINOWSKI
CHIEF FINANCIAL OFFICER
August 5, 1998
<TABLE> <S> <C>
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<CIK> 0000064500
<NAME> SKLAR CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1998
<CASH> 48,153
<SECURITIES> 0
<RECEIVABLES> 2,113,952
<ALLOWANCES> 80,803
<INVENTORY> 3,165,974
<CURRENT-ASSETS> 5,449,109
<PP&E> 1,389,755
<DEPRECIATION> 737,992
<TOTAL-ASSETS> 7,196,155
<CURRENT-LIABILITIES> 4,214,606
<BONDS> 0
0
248
<COMMON> 123,771
<OTHER-SE> 2,353,377
<TOTAL-LIABILITY-AND-EQUITY> 7,196,155
<SALES> 3,233,462
<TOTAL-REVENUES> 3,233,462
<CGS> 1,839,840
<TOTAL-COSTS> 3,138,451
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,052
<INCOME-PRETAX> 38,959
<INCOME-TAX> 3,896
<INCOME-CONTINUING> 35,063
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