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 June 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
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(Exact name of registrant as specified in its charter)
Pennsylvania 44-0625447
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(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
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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 August 1, 2000
-------------------------------- ------------------------------
(Common stock, $0.10 par value) 1,104,940
Transitional Small Business Disclosure Format (Check one): Yes No X
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<PAGE>
SKLAR CORPORATION
INDEX
Page No.
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Part I Financial Information
Balance Sheet -
June 30, 2000 (unaudited) and March 31, 2000 3
Statement of Income (Loss) -
three months ended June 30, 2000 and 1999 (unaudited) 4
Statement of Cash Flows -
three months ended June 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 - 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 6/30/00 3/31/00
------ ---------- ----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 15,494 $ 203,707
Accounts Receivable 1,975,050 1,902,002
Inventories (Note 5) 3,416,577 3,534,506
Prepaid Expenses 379,302 246,361
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TOTAL CURRENT ASSETS 5,786,423 5,886,576
EQUIPMENT AND IMPROVEMENTS (Note 6) 615,918 656,690
GOODWILL (Note 7) 295,081 309,763
OTHER ASSETS 176,125 232,304
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TOTAL ASSETS $6,873,547 $7,085,333
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term Bank Borrowings (Note 2) $ 600,000 $ 790,000
Current Portion-Long-Term Debt and
Capital Lease Obligations 129,711 133,108
Trade Accounts Payable 1,836,418 1,869,951
Accrued Expenses 1,169,497 1,145,208
Accrued Income Taxes 7,658 7,658
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TOTAL CURRENT LIABILITIES 3,743,284 3,945,925
Long-term Debt and Capital Lease Payable 0 0
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TOTAL LIABILITIES 3,743,284 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 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 945,300 954,445
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3,261,301 3,270,446
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Less treasury stock 131,038 131,038
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TOTAL STOCKHOLDER'S EQUITY 3,130,263 3,139,408
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TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $6,873,547 $7,085,333
========== ==========
</TABLE>
See notes to financial statements
3
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SKLAR CORPORATION
STATEMENTS OF INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended
6/30/00 6/30/99
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<S> <C> <C>
Revenues:
Net Sales (Note 10) $ 3,107,378 $ 3,372,908
Cost and Expenses:
Cost of Goods Sold 1,593,104 1,812,206
Selling, General & Admin 1,496,213 1,423,966
Interest 27,206 30,898
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3,116,523 3,267,070
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Income (Loss) before taxes (9,145) 105,838
Provision for Income Taxes
Currently Payable (Note 8) 0 12,008
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Net Income (Loss) (9,145) 98,830
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Preferred Dividend
Requirement (Note 9) 68,994 68,994
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Income (Loss) Applicable to
Common Shares (78,139) 24,836
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Per Share Data:
Weighted Average Common Shares Outstanding
1,104,940 1,104,940
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Basic and Diluted Earnings/ (Loss) Per Share $ (0.07) $ 0.02
(Note 11) =========== ===========
</TABLE>
See notes to financial statements
4
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SKLAR CORPORATION
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
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6/30/00 6/30/99
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<S> <C> <C>
Net Cash Provided by Operating Activities $ 27,150 $ 137,825
Net Cash Provided (Used) by Investing Activities (21,833) (27,337)
Net Cash Provided (Used) by Financing Activities (193,530) 48,470
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Net Increase in Cash (188,213) 158,958
Cash at Beginning of Period 203,707 63,344
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Cash at End of Period $ 15,494 $ 222,302
========= =========
</TABLE>
See notes to financial statements
4
<PAGE>
SKLAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 MANAGEMENT'S REPRESENTATION
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In the opinion of Management, the unaudited financial statements contain all
adjustments necessary to present fairly the financial position as of June 30,
2000 and the results of operations and cash flows for the three 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 June 30, 2000 borrowing totaled
$3,954,578. Unused available credit at June 30, 2000 was $501,062.
Borrowings from this line bear interest at the Bank's Prime Rate. At December
31, 1999 the Prime Rate was 9.5% The interest expense on short-term bank
borrowings for the three months ended June 30, 2000 and 1999 amounted to $15,894
and $20,677, respectively.
The full value of the loan is guaranteed personally by the Company's Chief
Financial Officer.
NOTE 3 LONG-TERM DEBT
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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
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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
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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
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Goodwill is amortized over fifteen or twenty years.
NOTE 8 INCOME TAXES
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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
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As of June 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
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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 $19,044 in the three months ended June 30, 2000, and
$21,031 in the three months ended June 30, 1999.
Income taxes paid amounted to $10,700 in the three months ended June 30, 2000,
and $10,500 in the three months ended June 30, 1999.
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 three months ended June 30
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2000 1999
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Net Sales 100.0% 100.0%
Cost of Sales 51.3 53.7
Gross Profit 48.7 46.3
Selling, General and
Admin. Expenses 48.1 42.2
Income Before
Interest & Taxes 0.6 4.1
Interest Expense 0.9 0.9
Income (Loss) Before
Income Taxes (0.3) 3.2
Net Income (Loss) (0.3) 2.8
SALES
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For the three month period ended June 30, 2000 compared to the comparable period
ended June 30, 1999, sales decreased $265,530 or 7.9%. The decrease in sales is
the result of normal market conditions. Management considers this decrease to be
a short-term aberration.
COST OF SALES
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Cost of sales as a percentage of sales for the three-month period ended June 30,
2000 and 1999 decreased 2.4%. 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.
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 three
month period ended June 30, 2000 have increased $72,246 or 5.9% from the three
month period ended June 30, 2000. 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
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Interest costs decreased $3,692 or 11.9% for the three month period ended June
30, 2000 compared to the three month period ended June 30, 1999 due to a
significant reduction in the outstanding line of credit and term debt funded by
operations and cash on hand. The reduction in interest was partially offset by
rising interest rates which are tied to the Bank's Prime 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 payable.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company primarily funds its operations by cash provided by operating
activities. During the three month period ended June 30, 2000, reductions in
inventory and non-cash expenses were more than offset by an increase in prepaid
expenses which, along with a reduction in the credit line resulted in a decrease
in cash of $188,000.
In the comparative three month period, the Company increased the line of credit
which, when coupled with cash provided from operations, resulted in available
cash of $222,000.
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
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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 interest accrual 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. 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 court case has begun with the final trial date
scheduled for August of 2000. 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. Defendants in both cases have filed counter
claims and the litigation is ongoing. Trial date for this action is anticipated
to be the fall of the year 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 2000.
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
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(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
August 18, 2000
