FORM 10-QSB
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 nine month period ended December 31, 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 February 1, 1999
----------------------- ---------------------------------
(Common stock, $0.10 par value) 1,104,940
Transitional Small Business Disclosure Format (Check one): Yes ________ No X
<PAGE>
SKLAR CORPORATION
INDEX
Page No.
Part I Financial Information
Balance Sheet -
December 31, 1998 and March 31, 1998 3
Statement of Income (Loss) -
three and nine months ended December, 1998 and 1997 4
Statement of Cash Flows -
nine months ended December 31, 1998 and 1997 5
Notes to condensed financial statements 6 - 9
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 12
Part II Other Information
Item 1 Legal Proceedings 12
Item 3 Defaults Upon Senior Securities 12
Item 5 Other Information 12
Item 6 Exhibits and Reports on form 8-K 13
2
<PAGE>
SKLAR CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS 12/31/98 3/31/98
(UNAUDITED)
CURRENT ASSETS:
<S> <C> <C>
Cash $ 254,872 $ 12,885
Accounts Receivable 2,234,935 2,547,506
Inventories (Note 5) 3,309,024 3,142,043
Prepaid Expenses 275,561 199,262
---------- ----------
TOTAL CURRENT ASSETS 6,074,392 5,901,696
EQUIPMENT AND IMPROVEMENTS (Note 6) 619,933 630,264
GOODWILL (Note 7) 536,367 879,830
OTHER ASSETS 0 106,636
---------- ----------
TOTAL ASSETS $7,230,692 $7,518,426
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash Overdraft $ 12,648 $ 294,816
Short-term Bank Borrowings (Note 2) 1,098,000 2,085,000
Current Portion-Long-Term Debt and
Capital Lease Obligations 131,250 232,214
Trade Accounts Payable 2,963,990 2,100,424
Accrued Expenses 226,844 270,794
Accrued Income Taxes 25,002 2,509
---------- ----------
TOTAL CURRENT LIABILITIES 4,457,734 4,985,757
Long-term Debt and Capital Lease Payable 19,641 90,337
---------- ----------
TOTAL LIABILITIES 4,477,375 5,076,094
---------- ----------
CONTINGENCIES 0 0
STOCKHOLDERS' EQUITY (Note 9):
Series A convertible preferred stock, par value
$.01 per share, authorized, 35,000 shares;
24,825 issued and 22,078 shares outstanding 248 248
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; 1,297,952 issued,
1,104,940 and 754,940 outstanding at
12/31/98 and 3/31/98 respectively 129,795 123,771
Additional Paid-in Capital 2,159,958 2,106,482
Retained earnings 614,354 362,869
---------- ----------
2,904,355 2,593,370
---------- ----------
Less treasury stock 151,038 151,038
---------- ----------
TOTAL STOCKHOLDER'S EQUITY 2,753,317 2,442,332
---------- ----------
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $7,230,692 $7,518,426
========== ==========
</TABLE>
See notes to financial statements
3
<PAGE>
SKLAR CORPORATION
STATEMENTS OF INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
12/31/98 12/31/97 12/31/98 12/31/97
Revenues:
<S> <C> <C> <C> <C>
Net Sales (Note 10) $ 3,694,502 $ 3,402,914 $ 10,346,369 $ 10,306,783
Cost and Expenses:
Cost of Goods Sold 2,176,993 1,943,850 5,730,016 5,876,449
Selling, General & Admin 1,389,866 1,254,914 4,168,180 3,983,422
Interest 58,945 100,158 164,689 310,306
------------ ------------ ------------ ------------
3,625,804 3,298,922 10,062,885 10,170,177
------------ ------------ ------------ ------------
Income before taxes 68,698 103,992 283,484 136,606
Provision for Income Taxes
Currently Payable (Note 8) 3,104 10,400 32,000 13,661
------------ ------------ ------------ ------------
Net Income 65,594 93,592 251,484 122,945
------------ ------------ ------------ ------------
Preferred Dividend
Requirement (Note 9) 68,994 68,994 206,982 206,982
------------ ------------ ------------ ------------
Income (Loss) Applicable to
Common Shares (3,404) 24,598 44,502 (84,037)
------------ ------------ ------------ ------------
Per Share Data:
Weighted Average Common Shares
Outstanding
902,766 754,940 823,485 754,940
------------ ------------ ------------ ------------
Gain (Loss) Per Share $ 0.00 $ 0.03 $ 0.05 $ (0.11)
============ ============ ============ ============
(Note 11)
</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
12/31/98 12/31/97
<S> <C> <C>
Net Cash Provided (used) by Operating Activities 1,732,627 445,569
Net Cash Provided (Used) by Investing Activities (49,680) (179,979)
Net Cash Provided (Used) by Financing Activities (1,398,937) (179,081)
----------- -----------
Net Increase/(Decrease) in Cash 284,010 86,509
Cash at Beginning of Period 12,885 7,506
----------- -----------
Cash at End of Period $ 296,895 $ 94,015
=========== ===========
</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, 1998 and the results of operations and cash flows for the nine month period
then ended.
NOTE 2 SHORT-TERM BANK BORROWINGS
On December 4, 1998 the Company entered into a loan and security agreement for
$2,000,000, 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 December 31, 1998 borrowing totaled
$4,057,195. Unused available credit at December 31, 1998 was $647,505 after
considering outstanding letters of credit totaling $101,520.
Borrowings from this line bear interest at the Bank's Prime Rate. At December
31, 1998 the Prime Rate was 7.75%. The interest expense on short-term bank
borrowings for the nine months ended December 31, 1998 and 1997 amounted to
$114,590 and $203,445, respectively.
The full value of the note is guaranteed personally by the Company's Chief
Financial Officer.
NOTE 3 LONG-TERM DEBT
The original 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.
6
<PAGE>
SKLAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 BUSINESS OPERATIONS, continued
Effective May 31, 1996, the Company acquired certain assets and assumed certain
liabilities of Surgical Medical Specialists, Inc. (SMS) in a transaction
originally 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 then amended credit line agreement, $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.
During the fiscal year ended March 31, 1998, settlements were reached with the
seller and one of the vendors included in the original assumed liabilities. The
settlement transactions included a cash payment from the seller, cash payments
to a vendor by the seller and the company and a reduction of liabilities to the
seller and vendors. These transactions were accounted for by an offsetting
reduction of goodwill.
During the six months ended September 30, 1998, an agreement was reached with
another vendor included in the original assumed liabilities which encompasses a
cash payment of $120,000, in complete satisfaction of liabilities approximating
$470,000. The cash payment was made February XX, 1999. This agreement had been
recorded at September 30, 1998 as a reduction of goodwill.
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.
Prior to fiscal year 1996 costs incurred in creating, producing and distributing
new and existing catalogs were added to other assets and amortized at various
schedules ranging from 1-5 years. Subsequent to fiscal year 1995 catalog
development costs 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 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.
7
<PAGE>
SKLAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 INCOME TAXES, continued
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 December 31, 1998, of the 1,500,000 shares of Common Stock authorized,
1,104,940 were outstanding. Of the Series A Convertible Preferred Stock, 35,000
were authorized and 22,078 shares 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 1998.
NOTE 10 SALES
A sale is recorded when title to the product passes to the customer.
NOTE 11 NET INCOME/(LOSS) PER SHARE
Net income/(loss) per share is computed by dividing the net income/(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.
NOTE 13 SUBSEQUENT EVENT
The Company filed a preliminary proxy statement and a Schedule 13-E3 with the
Commission on January 14, 1999 for the purpose of effectuating a reverse split
of its common stock. If effected, it will allow the Company to cease to be a
reporting company under Section 12.
8
<PAGE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid amounted to $127,401 in the nine months ended December 31, 1998,
and $151,273 in the nine months ended December 31, 1997.
Income taxes paid amounted to $49,261 in the nine months ended December 31,
1998, and $30,895 in the nine months ended December 31, 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 nine months ended December 31
1998 1997
---- ----
Net Sales 100.0% 100.0%
Cost of Sales 55.4 57.0
Gross Profit 44.6 43.0
Selling, General and
Admin. Expenses 40.3 38.7
Income Before
Interest & Taxes 4.3 4.3
Interest Expense 1.6 3.0
Income Before
Income Taxes 2.7 1.3
Net Income 2.4 1.2
SALES
For the nine month period ended December 31, 1998 compared to the nine month
period ended December 31, 1997, sales increased $39,586 or .4%. This increase
reflects the effect of competitive market pressures.
COST OF SALES
Cost of sales as a percentage of sales decreased 1.6% for the nine month period
ended December 31, 1998 compared to the nine month period ended December 31,
1997. This decrease results primarily from the mix of products sold.
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, 1998 have increased $184,758 or 4.6% from the nine month period
ended December 31, 1997. 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. Management expects to
continue this level of expenditure in future periods.
INTEREST
Interest costs decreased $145,617 or 46.9% for the nine month period ended
December 31, 1998 compared to the nine month period ended December 31, 1997 due
to a reduction in the outstanding line of credit and term debt funded by
operations and inventory and accounts receivable reductions as well as increases
in trade accounts payable.
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 is considered adequate to meet the
financing requirements of the Company in the foreseeable future.
YEAR 2000 COMPLIANCE
The company has retained a consulting firm to assist the company in determining
any Year 2000 weaknesses and to aid the company in converting its information
systems from a mainframe/mini computer based system to a NT SQL compliant
database system. The company uses a management information system to process
orders, and to control the purchasing and distribution functions of the
company's business. Additionally the system provides information and reports
that management needs to monitor the operations and make informed decisions.
Management has done preliminary tests on the current application software and
underlying database and found it to be Year 2000 compliant. It is anticipated
that full conversion to new hardware, software and operating environment will be
completed by June of 1999, with the final testing to be completed by September
1999. Support software including Sales Management software, Accounting software,
EDI software and General Office software is the most current versions, all of
which were purchased and installed during 1997 through 1999. The company
believes these to be fully compliant. Testing of these products will occur in
the 3rd quarter of 1999.
The company's consulting firm will be communicating with key customers to
coordinate Year 2000 compliance with the EDI transmissions. The company's
products contain no electronic parts and therefore, no compliance issues exist.
11
<PAGE>
YEAR 2000 COMPLIANCE, continued
While no Year 2000 problems have been found to date, the possibility exists that
year 2000 software problems could exist in the company's systems and there are
no assurances that required modifications would be completed on time. The
failure to correct a YEAR 2000 problem could result in an interruption of
certain normal business activities and operations.
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,
Charles Wilson. 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 Wilson, 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 Wilson has violated the standards of conduct
in the practice of public 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, 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.
12
<PAGE>
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.
13
<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
February 19, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000064500
<NAME> SKLAR CORPORATION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 254,892
<SECURITIES> 0
<RECEIVABLES> 2,342,066
<ALLOWANCES> 107,131
<INVENTORY> 3,309,024
<CURRENT-ASSETS> 6,074,392
<PP&E> 1,437,600
<DEPRECIATION> 817,667
<TOTAL-ASSETS> 7,230,692
<CURRENT-LIABILITIES> 4,457,734
<BONDS> 0
0
248
<COMMON> 129,795
<OTHER-SE> 2,623,274
<TOTAL-LIABILITY-AND-EQUITY> 7,230,692
<SALES> 10,346,369
<TOTAL-REVENUES> 10,346,369
<CGS> 5,730,016
<TOTAL-COSTS> 9,898,196
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 164,689
<INCOME-PRETAX> 283,484
<INCOME-TAX> 32,000
<INCOME-CONTINUING> 251,484
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 251,484
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
