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, 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 February 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
<TABLE>
<CAPTION>
<S> <C>
Page No.
Part I Financial Information
Balance Sheet -
December 31, 1999 (unaudited) and March 31, 1999 ..........................3
Statement of Income (Loss) -
nine months ended December 31, 1999 and 1998 (unaudited) ..................4
Statement of Cash Flows -
nine months ended December 31, 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
</TABLE>
2
<PAGE>
SKLAR CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS 12/31/99 3/31/99
(UNAUDITED)
CURRENT ASSETS:
<S> <C> <C>
Cash $ 145,992 $ 63,344
Accounts Receivable 2,061,014 1,906,287
Inventories (Note 5) 3,354,223 3,341,331
Prepaid Expenses 222,606 272,652
---------- ----------
TOTAL CURRENT ASSETS 5,783,835 5,583,614
EQUIPMENT AND IMPROVEMENTS (Note 6) 664,619 670,708
GOODWILL (Note 7) 356,329 439,248
OTHER ASSETS 369,846 198,050
---------- ----------
TOTAL ASSETS $7,174,629 $6,891,620
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term Bank Borrowings (Note 2) $ 844,000 $ 938,000
Current Portion-Long-Term Debt and
Capital Lease Obligations 131,250 132,691
Trade Accounts Payable 2,254,478 2,157,953
Accrued Expenses 967,175 809,524
Accrued Income Taxes 9,500 7,658
---------- ----------
TOTAL CURRENT LIABILITIES 4,206,403 4,045,826
Long-term Debt and Capital Lease Payable 5,521 14,538
---------- ----------
TOTAL LIABILITIES 4,211,924 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
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 777,742 646,293
---------- ----------
3,093,743 2,962,294
---------- ----------
Less treasury stock 131,038 131,038
---------- ----------
TOTAL STOCKHOLDER'S EQUITY 2,962,705 2,831,256
---------- ----------
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $7,174,629 $6,891,620
========== ==========
</TABLE>
See notes to financial statements
3
<PAGE>
SKLAR CORPORATION
STATEMENTS OF INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
3 Months Ended 9 Months Ended
12/31/99 12/31/98 12/31/99 12/31/98
Revenues:
Net Sales (Note 10) $ 3,103,749 $ 3,529,798 $ 9,842,786 $ 10,181,666
Cost and Expenses:
Cost of Goods Sold 1,611,577 2,026,993 5,231,463 5,580,016
Selling, General & Admin 1,481,565 1,435,866 4,376,831 4,214,180
Interest 26,396 58,945 85,035 164,689
------------ ------------ ------------ ------------
3,119,538 3,521,804 9,693,329 9,958,885
------------ ------------ ------------ ------------
Income/(Loss) before taxes (15,789) 7,994 149,457 222,781
Provision for Income Taxes
Currently Payable (Note 8) 0 3,104 18,008 32,000
------------ ------------ ------------ ------------
Net Income (15,789) 4,890 131,449 190,781
------------ ------------ ------------ ------------
Preferred Dividend
Requirement (Note 9) 68,994 68,994 206,982 206,982
------------ ------------ ------------ ------------
Loss Applicable to
Common Shares (84,783) (64,104) (75,533) (16,201)
------------ ------------ ------------ ------------
Per Share Data:
Weighted Average Common Shares
Outstanding
1,104,940 902,766 1,104,940 823,485
------------ ------------ ------------ ------------
Basic and Diluted Loss Per Share $ (0.08) $ (0.07) $ (0.07) $ (0.02)
============ ============ ============ ============
(Note 11)
</TABLE>
See notes to financial statements
4
<PAGE>
SKLAR CORPORATION
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
For the Nine Months Ended
12/31/99 12/31/98
Net Cash Provided by Operating Activities $ 381,428 $ 1,732,627
Net Cash Provided (Used) by Investing Activities (194,189) (49,680)
Net Cash Provided (Used) by Financing Activities (104,591) (1,398,937)
----------- -----------
Net Increase in Cash 82,648 284,010
Cash at Beginning of Period 63,344 12,885
----------- -----------
Cash at End of Period $ 145,992 $ 296,895
=========== ===========
</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, 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 December 31, 1999 borrowing totaled
$3,967,653. Unused available credit at December 31, 1999 was $364,866 after
considering outstanding letters of credit totaling $53,093 and a 20% market risk
reserve on forward currency contracts totaling $159,396.
Borrowings from this line bear interest at the Bank's Prime Rate. At December
31, 1999 the Prime Rate was 8.5%. The interest expense on short-term bank
borrowings for the nine months ended December 31, 1999 and 1998 amounted to
$55,135 and $114,590, 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
2000 ($50,000), 2001 ($14,000), 2002 ($461,000), and 2004 ($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 $55,548 in the nine months ended December 31, 1999,
and $127,401 in the nine months ended December 31, 1998.
Income taxes paid amounted to $59,658 in the nine months ended December 31,
1999, and $49,261 in the nine months ended December 31, 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 nine months ended December 31
1999 1998
---- ----
Net Sales 100.0% 100.0%
Cost of Sales 53.1 54.8
Gross Profit 46.9 45.2
Selling, General and
Admin. Expenses 44.5 41.4
Income Before
Interest & Taxes 2.4 3.8
Interest Expense 0.9 1.6
Income Before
Income Taxes 1.5 2.2
Net Income 1.3 1.9
SALES
For the three month period ended December 31, 1999 compared to the comparable
period ended December 31, 1998, sales decreased $426,049 or 12.2%. The decrease
in sales is partially the result of a single large order attained during the
prior period which was not expected to recur during the current fiscal period.
For the nine month period ended December 31, 1999 compared to the comparable
period in 1998, sales decreased $338,880 or 3.3%. Management believes the
decrease in sales to be the result of diverting their attention to matters other
than sales. Management intends to refocus its efforts in the fourth quarter to
improve sales performance.
COST OF SALES
Cost of sales as a percentage of sales for the nine month period ended December
31, 1999 and 1998 decreased 1.7%. Changing product mix would account for the
variation in margin reflected.
9
<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 nine month
period ended December 31, 1999 have increased $162,651 or 3.9% from the nine
month period ended December 31, 1998. The Company has made a commitment to
increased marketing and advertising effort, which resulted in increased
advertising and personnel costs. In addition, the Company has made a significant
profit sharing commitment, thus increasing employee benefits expense. Also, the
Company has incurred 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 decreased $79,654 or 48.4% for the nine month period ended
December 31, 1999 compared to the nine month period ended December 31, 1998 due
to a reduction in the outstanding line of credit and term debt funded by
operations and 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 nine month period ended December 31, 1999, net income and
non-cash expenses were the primary drivers behind cash provided by operations.
Increases in accounts payable were offset by a net increase in prepaid and
accrued expenses. Additionally, increases in accounts receivable and inventory
reduced cash available by approximately $165,000.
In the comparative nine month period a significant decline in accounts
receivable ($312,000) and a significant increase in accounts payable
($1,120,000) combined with the net income of $266,000 and non cash expenses to
produce an operating cash flow of $1,732,000.
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 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 March 20, 2000.
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
February 22, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000064500
<NAME> SKLAR CORPORATION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> DEC-31-1999
<CASH> 145,992
<SECURITIES> 0
<RECEIVABLES> 2,163,436
<ALLOWANCES> 102,422
<INVENTORY> 3,354,223
<CURRENT-ASSETS> 5,783,835
<PP&E> 1,715,402
<DEPRECIATION> 1,050,783
<TOTAL-ASSETS> 7,174,629
<CURRENT-LIABILITIES> 4,206,403
<BONDS> 0
0
248
<COMMON> 149,795
<OTHER-SE> 2,812,662
<TOTAL-LIABILITY-AND-EQUITY> 7,174,629
<SALES> 9,842,786
<TOTAL-REVENUES> 9,842,786
<CGS> 5,231,463
<TOTAL-COSTS> 9,608,294
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85,035
<INCOME-PRETAX> 149,457
<INCOME-TAX> 18,008
<INCOME-CONTINUING> 131,449
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 131,449
<EPS-BASIC> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
