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, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-6107
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SKLAR CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 44-0625447
--------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
889 S. Matlack Street, West Chester, Pennsylvania 19382
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (610) 430-3200
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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, 2000
--------------------------------- ---------------------------------
(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, 2000 (unaudited) and March 31, 2000 3
Statement of Income (Loss) -
six months ended September 30, 2000 and 1999 (unaudited) 4
Statement of Cash Flows -
six months ended September 30, 2000 and 1999 (unaudited) 5
Notes to condensed financial statements 6 - 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 10
Part II Other Information
Item 1 Legal Proceedings 11
Item 3 Defaults Upon Senior Securities 11
Item 5 Other Information 12
Item 6 Exhibits and Reports on form 8-K 12
2
<PAGE>
SKLAR CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS 9/30/00 3/31/00
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(UNAUDITED)
CURRENT ASSETS:
<S> <C> <C>
Cash $ 243,714 $ 203,707
Accounts Receivable 2,287,589 1,902,002
Inventories (Note 5) 3,206,411 3,534,506
Prepaid Expenses 387,608 246,361
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TOTAL CURRENT ASSETS 6,125,322 5,886,576
EQUIPMENT AND IMPROVEMENTS (Note 6) 564,797 656,690
GOODWILL (Note 7) 284,184 309,763
OTHER ASSETS 127,904 232,304
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TOTAL ASSETS $7,107,207 $7,085,333
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES:
Short-term Bank Borrowings (Note 2) $ 840,000 $ 790,000
Current Portion-Long-Term Debt and
Capital Lease Obligations 126,181 133,108
Trade Accounts Payable 1,747,689 1,869,951
Accrued Expenses 1,162,402 1,145,208
Accrued Income Taxes 11,658 7,658
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TOTAL CURRENT LIABILITIES 3,887,930 3,945,925
Long-term Debt and Capital Lease Payable 0 0
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TOTAL LIABILITIES 3,887,930 3,945,925
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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
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 1,034,314 954,445
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3,350,315 3,270,446
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Less treasury stock 131,038 131,038
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TOTAL STOCKHOLDERS' EQUITY 3,219,277 3,139,408
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $7,107,207 $7,085,333
========== ==========
</TABLE>
See notes to financial statements
3
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SKLAR CORPORATION
STATEMENTS OF INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
3 Months Ended 6 Months Ended
9/30/00 9/30/99 9/30/00 9/30/99
----------- ----------- ----------- -----------
Revenues:
Net Sales (Note 10) $ 3,443,484 $ 3,366,128 $ 6,550,862 $ 6,739,037
Cost and Expenses:
Cost of Goods Sold 1,619,428 1,807,680 3,212,532 3,619,886
Selling, General & Admin 1,693,200 1,471,300 3,189,413 2,895,267
Interest 33,842 27,741 61,048 58,638
----------- ----------- ----------- -----------
3,346,470 3,306,721 6,462,993 6,573,791
----------- ----------- ----------- -----------
Income before taxes 97,014 59,407 87,869 165,246
Provision for Income Taxes
Currently Payable (Note 8) 8,000 6,000 8,000 18,008
----------- ----------- ----------- -----------
Net Income 89,014 53,407 79,869 147,238
----------- ----------- ----------- -----------
Preferred Dividend
Requirement (Note 9) 68,994 68,994 137,988 137,988
----------- ----------- ----------- -----------
Income (Loss) Applicable
To Common Shares 20,020 (15,587) (58,119) 9,250
----------- ----------- ----------- -----------
Per Share Data:
Weighted Average Common Shares
Outstanding
1,104,940 1,104,940 1,104,940 1,104,940
----------- ----------- ----------- -----------
Basic and Diluted Earnings/ (Loss) $ 0.02 $ (0.01) $ (0.05) $ 0.01
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
-----------------------------
9/30/00 9/30/99
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<S> <C> <C>
Net Cash Provided by Operating Activities $ 50,694 $ 327,080
Net Cash Used by Investing Activities (53,627) (120,155)
Net Cash Provided (Used) by Financing Activities 42,940 (183,060)
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Net Increase in Cash 40,007 23,865
Cash at Beginning of Period 203,707 63,344
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Cash at End of Period $ 243,714 $ 87,209
========= =========
</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, 2000 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, 2000 borrowing totaled
$4,233,940. Unused available credit at September 30, 2000 was $1,049,412.
Borrowings from this line bear interest at the Bank's Prime Rate. At September
30, 2000 the Prime Rate was 9.5% The interest expense on short-term bank
borrowings for the six months ended September 30, 2000 and 1999 amounted to
$36,528 and $38,874, respectively.
The Company's Chief Financial Officer guarantees the full value of the loan
personally.
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, Sklar
Sterile and other trademarks, hand-held, non-electronic instruments and other
products for the surgical, dental and veterinary fields.
6
<PAGE>
SKLAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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.
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 $346,000 expire in tax year
2004 and are available as deductions from federal taxable income of future years
NOTE 9 STOCKHOLDERS' EQUITY
As of September 30, 2000, 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 2000.
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
7
<PAGE>
SKLAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 $36,278 in the six months ended September 30, 2000,
and $44,953 in the six months ended September 30, 1999.
Income taxes paid amounted to $21,400 in the six months ended September 30,
2000, and $31,000 in the six months ended September 30, 1999.
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<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
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2000 1999
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Net Sales 100.0% 100.0%
Cost of Sales 49.1 53.7
Gross Profit 50.9 46.3
Selling, General and
Admin. Expenses 48.7 43.0
Income Before
Interest & Taxes 2.2 3.3
Interest Expense 0.9 0.9
Income Before
Income Taxes 1.3 2.4
Net Income 1.2 2.2
SALES
For the six month period ended September 30, 2000 compared to the comparable
period ended September 30, 1999, sales decreased $188,175 or 2.8%. The decrease
in sales is the result of normal market conditions. Management considers this
decrease to be a short-term aberration.
COST OF SALES
Cost of sales as a percentage of sales for the six month period ended September
30, 2000 and 1999 decreased 4.6%. The variation in margin between the two
comparative periods is, in part, a function of the decreased cost of purchases
made in Deutsche Mark at the current favorable exchange rates. Any additional
variation would be the result of changing product mix.
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<PAGE>
SKLAR CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Despite a decrease in sales, the Company continued on its current marketing and
operations plan. Selling, General and Administrative expenses for the six month
period ended September 30, 2000 have increased $294,146 or 4.4% from the six
month period ended September 30, 1999. The Company continues to incur
significant costs associated with going private and the necessary SEC filings
that are required. With the exception of the SEC-related costs, management
expects to continue this level of expenditure in future periods.
INTEREST
Interest costs increased $2,410 or 4.1% for the six month period ended September
30, 2000 compared to the six month period ended September 30, 1999 due to an
increase in the outstanding line of credit and the borrowing rate.
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 estimated to be 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, 2000, reductions in
inventory and non-cash expenses along with an increase in the credit line more
than offset an increase in accounts receivable and prepaid expenses as well as a
decrease in accounts payable thus resulting in a $40,000 increase in cash.
In the comparative three month period, 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
Cash on hand, expected future cash flow from operations and amounts available
under the current bank facility are considered to be sufficient to meet the
company's liquidity needs in the foreseeable future.
10
<PAGE>
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. The remaining liability is still recorded but the accrual of
interest has been suspended since March 31, 1999.
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
(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. The case was tried and a verdict rendered
on September 13, 2000 in favor of Sklar. Specifically, Endo was held liable for
conversion of Sklar property. ENDO, its shareholders, officers and directors
were ordered to return all Sklar property and further the defendants were
enjoined from using catalogs, artwork or other property of the company. As to
interference with contractual relationships, a judgment was awarded in favor of
Sklar against ENDO, in the amount of $16,500. Additionally the Judge stated that
"Mr. Wilson intentionally created the impression that Sklar was in financial
difficulty .... (Wilson) must have known that his words would have a deleterious
effect on the relationship between Sklar and each alarmed vendor". Consequently
the judge enjoined the Defendant, officers and shareholders from making
representations to any third part as to Sklar's fiscal position or management.
ENDO's counterclaim against Sklar was completely dismissed. The court has
dismissed ENDO's post trial motions and the verdict was upheld.
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.
Defendant has filed a counter claim. On October 27th, Wilson filed for
protection under Chapter 7 of the Bankruptcy Code, placing the complaint under
the jurisdiction of the U.S. Bankruptcy Court. Sklar intends to vigorously
pursue its claim against Wilson.
A potential dispute has arisen concerning unexercised warrants from 1979. The
company believes these to be invalid and anticipates a favorable outcome.
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 2000.
11
<PAGE>
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.
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
November 16, 2000
13
