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 six month period ended September 30, 1999
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 November 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 -
September 30, 1999 (unaudited) and March 31, 1999 ..........3
Statement of Income (Loss) -
six months ended September, 1999 and 1998 (unaudited) ......4
Statement of Cash Flows -
six months ended September 30, 1999 and 1998 (unaudited) ...5
Notes to condensed financial statements .........................6 - 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................9 - 11
Part II Other Information
Item 1 Legal Proceedings .......................................11
Item 3 Defaults Upon Senior Securities .........................11
Item 5 Other Information .......................................11
Item 6 Exhibits and Reports on form 8-K ........................11
2
<PAGE>
SKLAR CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS 9/30/99 3/31/99
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 87,209 $ 63,344
Accounts Receivable 2,309,549 1,906,287
Inventories (Note 5) 3,114,313 3,341,331
Prepaid Expenses 374,852 272,652
---------- ----------
TOTAL CURRENT ASSETS 5,885,923 5,583,614
EQUIPMENT AND IMPROVEMENTS (Note 6) 650,731 670,708
GOODWILL (Note 7) 375,511 439,248
OTHER ASSETS 249,220 198,050
---------- ----------
TOTAL ASSETS $7,161,385 $6,891,620
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term Bank Borrowings (Note 2) $ 762,000 $ 938,000
Current Portion-Long-Term Debt and
Capital Lease Obligations 131,250 132,691
Trade Accounts Payable 2,127,826 2,157,953
Accrued Expenses 1,128,106 809,524
Accrued Income Taxes 24,658 7,658
---------- ----------
TOTAL CURRENT LIABILITIES 4,173,840 4,045,826
Long-term Debt and Capital Lease Payable 9,051 14,538
---------- ----------
TOTAL LIABILITIES 4,182,891 4,060,364
---------- ----------
CONTINGENCIES 0 0
STOCKHOLDERS' EQUITY (Note 9):
Series A preferred stock, par value
$.01 per share, authorized, 35,000 shares;
24,825 issued and 22,078 shares outstanding 248 248
Series A subordinated 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; 1,497,952
issued, 1,104,940 outstanding 149,795 149,795
Additional Paid-in Capital 2,165,958 2,165,958
Retained earnings 793,531 646,293
---------- ----------
3,109,532 2,962,294
---------- ----------
Less treasury stock 131,038 131,038
---------- ----------
TOTAL STOCKHOLDER'S EQUITY 2,978,494 2,831,256
---------- ----------
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $7,161,385 $6,891,620
========== ==========
</TABLE>
See notes to financial statements
3
<PAGE>
SKLAR CORPORATION
STATEMENTS OF INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended
-------------- --------------
9/30/99 9/30/98 9/30/99 9/30/98
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Net Sales (Note 10) $ 3,366,128 $ 3,418,405 $ 6,739,037 $ 6,651,867
Cost and Expenses:
Cost of Goods Sold 1,807,680 1,713,183 3,619,886 3,553,023
Selling, General & Admin 1,471,300 1,465,203 2,895,267 2,778,314
Interest 27,741 49,692 58,638 105,744
----------- ----------- ----------- -----------
3,306,721 3,228,078 6,573,791 6,437,081
----------- ----------- ----------- -----------
Income before taxes 59,407 190,327 165,246 214,786
Provision for Income Taxes
Currently Payable (Note 8) 6,000 25,000 18,008 28,896
----------- ----------- ----------- -----------
Net Income 53,407 165,327 147,238 185,890
----------- ----------- ----------- -----------
Preferred Dividend
Requirement (Note 9) 68,994 68,994 137,988 137,988
----------- ----------- ----------- -----------
Gain (Loss) Applicable to
Common Shares (15,587) 96,333 9,250 47,902
----------- ----------- ----------- -----------
Per Share Data:
Weighted Average Common Shares
Outstanding
1,104,940 804,940 1,104,940 783,629
----------- ----------- ----------- -----------
Basic and Diluted Earnings/ (Loss) $ (0.01) $ 0.12 $ 0.01 $ 0.06
=========== =========== =========== ===========
Per Share
(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 Six Months Ended
------------------------
9/30/99 9/30/98
------- -------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 327,080 $ 1,470,770
Net Cash Provided (Used) by Investing Activities (120,155) (81,693)
Net Cash Provided (Used) by Financing Activities (183,060) (1,330,052)
----------- -----------
Net Increase in Cash 23,865 59,025
Cash at Beginning of Period 63,344 12,885
----------- -----------
Cash at End of Period $ 87,209 $ 71,910
=========== ===========
</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 September
30, 1999 and the results of operations and cash flows for the six 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 September 30, 1999 borrowing totaled
$4,146,057. Unused available credit at September 30, 1999 was $1,071,636.
Borrowings from this line bear interest at the Bank's Prime Rate. At September
30, 1999 the Prime Rate was 8.25%. The interest expense on short-term bank
borrowings for the six months ended September 30, 1999 and 1998 amounted to
$38,874 and $75,243, respectively.
The full value of the loan 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, DCA, Dittmar 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 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 encompassed a
cash payment of $120,000, in complete satisfaction of liabilities approximating
$470,000. This agreement had been recorded at September 30, 1998 as a reduction
of goodwill.
During the quarter ended September 30, 1999, the Company acquired certain assets
of an entity which packages sets of surgical instruments and related supplies in
kit form for resale. The acquisition amount ($20,000) was assigned to inventory
and to other acquired assets. The processes associated with this acquisition
will replace the need to purchase a group of items previously purchased from
third parties, thus increasing profit margins for that product group
prospectively.
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
- -----------------
Goodwill is amortized over fifteen or twenty years.
NOTE 8 INCOME TAXES
- ---------------------
Income taxes represent the State income tax due. Federal income taxes payable
are offset by net operating 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 September 30, 1999, of the 1,500,000 shares of Common Stock authorized,
1,104,940 were outstanding. Of the Series A Preferred Stock, 35,000 were
authorized and 22,078 shares outstanding.
The Series A 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 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 1999.
The Company filed a preliminary proxy statement and a Schedule 13-E3 with the
Commission on January 14, 1999 for the purposed 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.
NOTE 10 SALES
- ---------------
Revenue, net of allowance for estimated returns, is recognized upon the shipment
of goods to the customer.
NOTE 11 NET EARNINGS/(LOSS) PER SHARE
- ---------------------------------------
Earnings/(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.
NOTE 12 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- -----------------------------------------------------------
Interest paid amounted to $44,953 in the six months ended September 30, 1999,
and $78,850 in the six months ended September 30, 1998.
Income taxes paid amounted to $31,000 in the six months ended September 30,
1999, and $22,051 in the six months ended September 30, 1998.
8
<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 six months ended September 30
- -----------------------------------------------
1999 1998
---- ----
Net Sales 100.0% 100.0%
Cost of Sales 53.7 53.4
Gross Profit 46.3 46.6
Selling, General and
Admin. Expenses 43.0 41.8
Income Before
Interest & Taxes 3.3 4.8
Interest Expense 0.9 1.6
Income Before
Income Taxes 2.4 3.2
Net Income 2.2 2.8
SALES
- -----
For the six month period ended September 30, 1999 compared to the six month
period ended September 30, 1998, sales increased $87,170 or 1.3%. Recent
acquisitions have contributed to the minor sales increase. Consequently,
comparable sales for the six month period ended September 30, 1999 and 1998 were
relatively constant.
COST OF SALES
- -------------
Cost of sales as a percentage of sales for the six month period ended September
30, 1999 and 1998 were relatively constant. Changing product mix would account
for the slight variation in margin reflected.
9
<PAGE>
SKLAR CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, General and Administrative expenses for the six month period ended
September 30, 1999 have increased $116,953 or 4.2% from the six month period
ended September 30, 1998. The Company has made a commitment to increased
marketing and advertising effort, which resulted in increased advertising costs.
The Company has also made a significant profit sharing commitment, thus
increasing employee benefits expense. Management expects to continue this level
of expenditure in future periods.
INTEREST
- --------
Interest costs decreased $47,106 or 44.6% for the six month period ended
September 30, 1999 compared to the six month period ended September 30, 1998 due
to a reduction in the outstanding line of credit and term debt funded by
operations and inventory reductions as well as increases in trade accounts
payable. In addition, the Company has experienced a 1.5% interest rate reduction
as the result of the new loan and security agreement that it entered into in
December, 1998.
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 primarily funds its operations by cash provided by operating
activities. During the six month period ended September 30, 1999, net income and
non cash expenses were the primary drivers behind cash provided by operations.
Additionally, the net increase in accounts receivable and inventory from March
31,1999, in the amount of $177,000 was more than offset by the interest in
accrued expenses of $319,000. That comparison provided $142,000 of the operating
cash flow.
In the comparative six month period a significant decline in accounts receivable
($307,000) and a significant increase in accounts payable ($517,000) combined
with the net income of $186,000 and non cash expenses to produce an operating
cash flow of $1,471,000.
Cash on hand, expected future cash flow from operating and amounts available
under the current bank facility are considered to be sufficient to meet the
company's liquidity needs 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.
Testing to date indicates that all critical systems will not be impacted by the
Year 2000. Support software, including Sales Management software, Accounting
software, EDI software, and General Office software, is the most current
10
<PAGE>
versions, all of which were purchased and installed during 1997 through 1999.
The Company believes these to be fully compliant. Testing of these products is
now occurring.
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.
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 negotiations are currently ongoing and a satisfactory outcome is
anticipated but the remaining liability is still recorded.
The Company filed suit in the Court of Common Pleas for Chester County,
Pennsylvania against an entity known 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 then conducted a fact-finding effort and, as
a result, a complaint was filed in May of 1998. The complaint alleges, among
other things, that the former Controller 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, and fraud and misrepresentation. Injunctive relief,
damages, costs and fees are sought but the aggregate amount is not considered
material. Defendants in both cases have filed counter claims and the litigation
is ongoing. In September, the scope of the lawsuit against Wilson was
substantially reduced. The company and Counsel believe that they will prevail on
all remaining issues. Due to the failure of the parties to arrive at a
settlement, the trial has been scheduled for December 6, 1999
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
- ----------------------------------------
As disclosed in Note 9 to the financial statements, the registrant did not
declare a dividend on its cumulative Series A Preferred Stock on June 30, 1988
through 1999.
ITEM 5 OTHER INFORMATION
- --------------------------
The Company filed a preliminary proxy statement and a Schedule 13-E3 with the
Commission on January 14, 1999 for the purposed 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. A special meeting of shareholders will be
held for the purpose of voting on the reverse split proposal. No date has yet
been set.
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.
11
<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
November 12, 1999
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000064500
<NAME> SKLAR CORPORATION
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> SEP-30-1999
<CASH> 87,209
<SECURITIES> 0
<RECEIVABLES> 2,412,615
<ALLOWANCES> 103,066
<INVENTORY> 3,114,313
<CURRENT-ASSETS> 5,885,923
<PP&E> 1,644,594
<DEPRECIATION> 993,863
<TOTAL-ASSETS> 7,161,385
<CURRENT-LIABILITIES> 4,173,840
<BONDS> 0
0
248
<COMMON> 149,795
<OTHER-SE> 2,828,451
<TOTAL-LIABILITY-AND-EQUITY> 7,161,385
<SALES> 6,739,037
<TOTAL-REVENUES> 6,739,037
<CGS> 3,619,886
<TOTAL-COSTS> 6,515,153
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,638
<INCOME-PRETAX> 165,246
<INCOME-TAX> 18,008
<INCOME-CONTINUING> 137,988
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 137,988
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
