UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  -------------

                               FORM 10-KSB/A No. 1

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
     ACT OF 1934

         For the fiscal year ended March 31, 1998

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

         For the transition period from ________ to _________

                           Commission File No. 1-6107

                                SKLAR CORPORATION
           (Name of Small Business Issuer as specified in its charter)



         Pennsylvania                                44-0625447
(State or other jurisdiction of                (I.R.S. employer identification
incorporation or organization)                  Number)



                            889 South Matlack Street
                             West Chester, PA 19382
               (Address of principal executive offices) (Zip code)



                                 (610) 430-3200
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

                                      None

Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.10 par value
                                (Title of class)

              Series A Convertible Preferred Stock, $.01 par value
                                (Title of class)

<PAGE>

         Check whether the issuer has (1) filed all reports required to be filed
by  Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or 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

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this form 10-KSB.
[ X ]

         Issuer's  revenues  for the  fiscal  year  ended  March  31,  1998 were
$13,766,868.

         The aggregate market value of common stock held by  non-affiliates  was
$60,810 as of June 1, 1998.

                        As of June 1,  1998  there  were  754,940  shares of the
issuer's Common Stock outstanding.

                                      -2-
<PAGE>
                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

ITEM                                                                                             PAGE

                                                           PART I

<S>      <C>                                                                                        <C>
1.       Business..................................................................................    4
2.       Properties................................................................................   13
3.       Legal Proceedings.........................................................................   13
4.       Submission of Matters to a Vote of
         Security Holders..........................................................................   14

                                                           PART II

5.       Market for the Registrant's Common
         Equity and Related Stockholder
         Matters...................................................................................   15
6.       Management's Discussion and Analysis
         of Financial Condition and Results
         of Operations.............................................................................   16
7.       Financial Statements......................................................................   19
8.       Changes in and Disagreements with
         Accountants on Accounting and Financial
         Disclosure................................................................................   20

                                                          PART III

9.       Directors and Executive Officers
         of the Registrant.........................................................................   20
10.      Executive Compensation....................................................................   21
11.      Security Ownership of Certain Beneficial
         Owners and Management.....................................................................   24
12.      Certain Relationships and Related
         Transactions..............................................................................   25
13.      Exhibits and Reports on Form 8-K..........................................................   27
         Signatures................................................................................   28
</TABLE>

                                      -3-
<PAGE>
PART I

Item 1.  Business

         The  Misdom-Frank  Corporation  ("MFI") was incorporated in 1938 in the
State of  Delaware  to  import  and  distribute  high  quality  German  surgical
instruments in the United States. The product line was subsequently broadened to
include dental and veterinary instruments. In 1983 MFI merged with Medco Jewelry
Corporation and the name of the company was changed to Medco Group  Incorporated
("Medco").  In 1984 the jewelry  operation was closed.  In 1985 Medco  purchased
substantially all of the assets (other than real estate) and certain liabilities
of the J. Sklar Manufacturing Co., Inc. ("Sklar"), a well-respected manufacturer
and distributor of surgical  instruments  that had been in continuous  operation
since  1892.   In  1986  the  entire   operation  was  moved  to  West  Chester,
Pennsylvania.  Medco was subsequently reincorporated in Pennsylvania in 1990 and
in 1993 changed its name to Sklar Corporation.

         The Company made the following acquisitions between 1986 and 1996.

          1.   Dental  Corporation  of  America  ("DCA")  Acquired  in  1990  to
               strengthen the Company's  strategic  position in the dental sales
               segment.

          2.   Simpson/Bayse  ("S/B") in 1993.  The  Company  purchased  certain
               assets of S/B to expand its  obstetrical and  gynecological  line
               and strengthen the Company's strategic position.

          3.   Herwig Division-General Medical Corporation ("GMC") in 1994. This
               purchase  included a  marketing  agreement  whereby  the  Company
               supplied GMC with the surgical  instrument needs of its customers
               for a fifty-month  term.  This  agreement has since been extended
               for an  additional  fifty  months.  The  purchase  and  marketing
               agreement opened GMC's supply chain to the Company, strengthening
               its  position in primary  and acute care  markets and serves as a
               model for other large vendor relationships.

          4.   Surgical  Marketing  Specialists,   Inc.  ("SMS")  in  1996.  The
               purchase  was an asset  purchase of certain  inventory,  customer

                                      -4-
<PAGE>
               lists, and rights.  The focus of the purchase was to (i) meet the
               needs  of the  Company's  customers  in a  consolidating  medical
               supply  environment  and (ii) acquire  product lines whose values
               could be  leveraged  with the Sklar brand name. A majority of the
               lines  acquired in the  purchase  carry a lower gross margin than
               the  Company's   other  lines.   Consequently   the  Company  has
               experienced a decline in total gross margin percentage.

         The company  currently  markets  products  through two  divisions.  The
surgical  instrument  division is made up of lines that are primarily  hand held
surgical  instruments,  products that are  complementary  such as the instrument
care and cleaning line, line extensions such as sterile  procedure kits, and new
low  cost/low  margin  disposables  such as scalpels  and blades.  The  surgical
instrument  division  accounts  for  95% of the  Company's  revenue.  Due to the
combination  of the Sklar brand name and the  Company's  relationships  with the
largest full line medical products distributors,  the company believes itself to
be  a  "supply  chain  manager"  rather  than  a  traditional  distributor.  The
orthodontics  division  accounts  for 5% of the  Company's  revenue as a "direct
seller" to a niche market of orthodontists.

Products

         The  surgical  instrument  division is made up of the  combined  Sklar,
Misdom-Frank,  S/B, and SMS product lines. The lines have been broadened so that
the Company also serves the dental and veterinary markets.  The Company strategy
is to  concentrate  on promoting  instruments of general use for which demand is
recurring  such as  scissors,  hemostats,  and needle  holders,  rather  than to
emphasize  instruments  of  special  use  for  which  significant  research  and
development  expenditures  are required to compete with  companies  with greater
financial  resources.  The major medical areas of  specialization  utilizing the
Company's  instruments are dermatology,  cardiology,  obstetrics and gynecology,
plastic  surgery,  neurology,  orthopedics,  ENT,  microsurgery,   laparoscopic,
central supply, and general surgery.

         Surgical instruments stocked by the Company are primarily  manufactured
in  Germany  and  Pakistan.  German  instruments  are  typically  considered  by
consumers to be of a higher quality and are primarily  used in operating  rooms.


                                       -5-
<PAGE>

Pakistani  products  are lower  priced and used in those  areas of the  hospital
where  disappearance  rates are high and the requirement for precision is lower;
and in sterile procedure kits.

         During the last year the company  has added over 10 new product  groups
to the line. These new groups include disposable  products  (curettes,  punches,
Laryngoscope  blades and other  products),  patient  care  products,  disposable
surgical  products,  Put-up kits,  Electrosurgery  instruments and Gynecological
sampling  instruments.  These new products were chosen to take advantage of, (i)
the consolidating medical supply environment, (ii) the shifting age demographics
of the general  population and, (iii) the  desirability  of disposable  products
that are safer for the  healthcare  worker,  and save  labor  energy for the end
user. The Company believes these new products,  if they gain market  acceptance,
will  increase  the  Company's  net sales.  As the sales from these new products
increase the Company  expects a decline in gross margin as  disposable  products
generally carry a lower percentage profit that non-disposable instruments. While
the company has  successfully  test marketed  several new  disposable  products,
there are no  assurances  that all of these  new  products  will  find  customer
acceptance due to potential  conflicts with existing  distributor  product lines
and existing group purchasing organization ("GPO") vendor contracts.

         The Company is also  exploring the  acquisition  of companies,  and the
acquisition or development of additional products in order to augment its lines.
Sklar will attempt to leverage the value and  marketability of acquired products
using the Sklar brand name, marketed through current distribution channels.

Markets

         The overriding trend in the healthcare  industry is the move to managed
care and its  resulting  emphasis on cost  reduction.  This  places  significant
pressure  on  pricing  as  well  as  product  utilization  and  has  caused  the
consolidation of distributors GPO's,  hospitals and other end users.  Healthcare
is more often being  provided in a variety of alternative  care centers  ranging
from  sub-acute  care to  freestanding  surgery  centers  to  doctors'  offices.
Management believes the Company is positioned to reach all of these markets. The
Company either has or is pursuing  contracts  and/or  agreements with the major,
full line, distributors to these markets.  Although the contracts and agreements


                                      -6-
<PAGE>

do not guarantee exclusivity, it has been the Company's experience that once its
products  are  accepted by the  distributor,  the products are sold ahead of the
competition.  The Company's  strategy is to leverage this effort through its own
inside and outside  sales force that  markets  directly to the end user to cause
pull  through  demand.  The  Company  has  recently  begun to pursue  and secure
contracts with GPO's.  However the Company's late entry to this market may place
it at a disadvantage when competing against  instrument  companies with existing
contracts.  Although  the company  has signed  local  contracts,  it has not yet
secured and successfully executed regional and national GPO contracts. Generally
hospitals belong to local, regional and national buying groups.  Sklar's risk is
that  although it has local  contracts,  the regional  and  national  purchasing
contracts often override these local agreements.

         The market for the  Company's  products  is also  affected by the aging
population.  The increasing  average age of the population  increases the use of
cardiology,  orthopedic,  laparoscopic  and neurology  products.  The Company is
attempting to strengthen  these product lines by the addition of new items while
maintaining a strong  presence in areas such as obstetrics  and  gynecology,  as
well as the introduction of disposable products.  The Company maintains and will
expand its  products  utilized in  minimally  invasive  surgery  which is both a
characteristic  of  preventive  care  and one of the key  elements  in  reducing
hospital length of stay (LOS).

         The Company  markets  its  products  through  the medical  distribution
network of large and small  dealers.  The Company's  products are  advertised in
trade  periodicals  and also exhibited at industry trade shows.  The Company has
approximately  2,000 active  accounts.  As a result of the  continuing  industry
consolidation  the  Company's  sales  are  concentrated  among  its few  largest
customers which account for approximately 50% of the Company's volume.

Sources of Supply

         Instruments

         Instruments are purchased from approximately 115 suppliers primarily in
Germany  and  Pakistan.  Purchases  from these  vendors are paid for in Deutsche
Marks and dollars respectively.  These instruments are produced to the Company's
exacting specifications,  generally under non-exclusive  arrangements.  Although


                                      -7-
<PAGE>

the Company and its competitors  primarily sell instruments  utilizing  standard
patterns  which are not  patented,  the Sklar  product lines include a number of
items of unique design with Sklar brand identity.

         Disposable and Other Products

         Disposable  products are purchased from approximately 20 vendors in the
United States and the world.  Payment for these items are made in U.S.  dollars.
These  products are not sourced from the  traditional  instrument  vendors.  The
disposable  products  carry the Sklar brand name and packaging  with an ordering
lead-time of up to six months.

         Instrument Inventory and Lead-Time

         Although the changing healthcare market has enabled the Company to make
less of its purchases in foreign  currency the  Company's  earnings can still be
affected by currency fluctuations. The substantial lead times between order date
and delivery date (ranging up to six months)  require that the Company  maintain
substantial  inventory levels to serve its customers'  needs. This is due to the
fact that high fill rates and quick delivery are key to maintaining  competitive
advantage.  The Company  believes that its  operations do not differ  materially
from other companies in the industry with respect to inventory carrying costs.

Competition

        The Company is faced with two distinct types of competitors.  One is the
"direct  selling"  company.  The other is the  "dealer  oriented"  company.  The
"direct selling"  companies are  manufacturers  that are typically  divisions of
large corporations having their own sales force who call on and sell directly to
the end-user,  primarily  hospitals.  The "dealer oriented" companies tend to be
smaller and with the  exception of the  Company,  privately  owned.  The "direct
selling"  companies  account for approximately 70% of the sales to end users but
the Company believes the market share held by "dealer  oriented"  companies such
as itself,  has been  stable in recent  years.  The  Company  believes  that the
"dealer oriented" companies control  approximately 30% of the instrument market.
The company  believes that there are  approximately  three  significant  "dealer
oriented" companies and six "direct sales" companies.



                                      -8-
<PAGE>

Competitive Strengths

         The Company  believes the  following  factors have been critical to its
success to date and will be  important  in  realizing  growth  potential  in the
future.

         Broad Product Offering

         The Company offers a broad range of products  consisting of over 10,000
unique  items  (SKU's) for use in a wide range of  procedures.  Within the broad
range of products are distinct "grades" of products. The Company's customers may
purchase the same device in a low cost  disposable  version,  the finest crafted
German  version,  or four  grades  and  prices in  between,  depending  upon the
application and the customer's budgetary requirements.

         Established Relationships With Distributors

         The Company either has contracts or agreements  with the major industry
distributors  or is pursuing  them.  These  agreements  provide  for  "preferred
status" or some form of "partnering" agreement, giving the Company access to the
distributors supply chain. Not only is this important in view of the pressure in
the healthcare industry to consolidate suppliers,  it is the method by which the
Company  will  seek  to  put  its  new  products  into  the  market.  The  large
distributors  have extensive sales forces allowing the Company to have access to
a  significantly  larger number of end users than would be possible  through its
own sales organization.

         Leveraged Sales Organization

         The Company employs more than thirty sales and marketing personnel.  It
develops specialty catalogs,  extensive promotions and sample programs in-house.
Active coordination of these programs through the distributor sales organization
to the end user,  leverages  Sklar's sales effort into a much larger presence in
the market



                                      -9-
<PAGE>

         Customer Service Focus

         The Company's sales and service operation provides customers with fast,
knowledgeable responses to their inquiries,  fast and accurate order turnaround,
and is Electronic Data Interchange ("EDI") capable.

         Sklar Brand Name

         The company  believes its Sklar brand name is well  recognized  and has
been highly  respected for over 106 years.  Although the Company  maintained the
lines it acquired through acquisitions for many years such as Herwig and Germain
Prime,  it is currently  reducing the number of SKU's in those lines to only the
products with the highest  demand with the plan of eventually  phasing the lines
out entirely. Additional lines that are completely different from the Sklar line
of hand-held  surgical  instruments,  such as  disposables,  sterile  kits,  and
syringes,  are being brought under the Sklar umbrella. The Company believes this
process to be effective in the  marketplace  and will  streamline  and lower the
costs of internal operations.

         The Leverage of the Sklar Brand Name and The Sales Organization Through
         New Products and Supply Chain Management.

         The company  believes its highly visible and well respected  Sklar name
will enable it to continue to create successful partnering agreements with major
distributors further enhancing its sales organization. To take full advantage of
the supply chain it has created,  the Company plans to  continuously  develop or
acquire new products that are branded Sklar and managed through the supply chain
to the end user.

         Patents and Trademarks

         The Company has no material  patents.  The Company has  registered  the
following  trademarks:  "Misdom-Frank",   "Merit",  "MIFCO",  "Ralks",  "Sklar",
"SklarCut",  "SklarHone",  "SklarKleen",  "Sklar  Polish",  "SklarLite",  "Sklar
Lube",  "Sklar  Soak",  and  "Sklar  Disinfectant".  The  recognition  of  these
trademarks is considered to have significant commercial value.

                                      -10-
<PAGE>

Government Regulation

         The Company's  products are medical  devices and as such are subject to
the  provisions  of the  Federal  Food,  Drug  and  Cosmetic  Act  ("FDCA")  and
implementing regulation.  Pursuant to the FDCA, the Food and Drug Administration
("FDA") regulates the manufacturing,  distribution,  labeling,  and promotion of
medical devices in the U.S. Additionally, various foreign countries in which the
Company's  products  are or  may be  distributed  impose  additional  regulatory
requirements.

         The FDCA provides that, unless exempted by regulation,  medical devices
may not be distributed in the U.S. unless they have been approved or cleared for
marketing by the FDA. The vast  majority of the  Company's  products are Class I
devices that have been exempted by  regulation  and do not require  approval.  A
very few products have been qualified for clearance to be marketed under section
510 (k). Under this section,  the Company requires the manufacturer to provide a
pre-market notification that it intends to begin marketing the product and shows
that the  product  is  substantially  equivalent  to  another  legally  marketed
product.

         The FDCA requires that all medical  device  distributors  register with
the FDA  annually.  Distributors  must also comply with  labeling  requirements,
Quality System  Regulations,  and good  manufacturing  practices  (GMP). The FDA
inspects medical device  distributors  and has authority to seize  non-complying
medical  devices,  to enjoin  and/or  impose  civil  penalties  on  distributors
marketing  non-complying  medical devices, to criminally  prosecute the violator
and to order recalls in certain  instances.  The Company  believes it is in full
compliance with all FDCA, GMP, and Quality System Regulations.

          Since a large percentage of its products are imported,  the Company is
also subject to regulation by the U.S. Customs Service, particularly relating to
"country of origin" markings. The Company believes it is in full compliance with
all regulations.

         To the extent they apply, the Company believes it is in compliance with
all regulatory requirements of OSHA, EPA, and others.


                                      -11-
<PAGE>


Orthodontic Instruments and Products

         Orthodontic  instruments and products provided 9.5%, 6.1% and 5% of the
Company's  revenue  for  the  years  ending  March  31,  1996,  1997,  and  1998
respectively.  Absolute sales of these products, which are 40% private label and
60%  non-proprietary,  have been flat or  declining  for several  years.  Dental
Corporation  of America  ("DCA")  serves a niche market of very small  customers
with a small average order size. DCA is a "direct  selling"  division  marketing
products through catalogs, promotions, and selling shows.

         DCA has  registered  the  following  trademarks.  "DCA  Athletic  Mouth
Protector", "DCA Ceramic", "DCA Disposable Toothbrush", "DCA Kleen", "DCA Lube",
"DCA Soak", "Traginate", and "Kno-Kurl Tracing Acetate".

         Management  has invested  minimal  capital and time in DCA. The Company
believes its  resources are better  invested in surgical  products and the Sklar
brand name and is looking to divest DCA so as to concentrate on the core medical
business.

Research and Development

         Generally  the Company is a  distribution  company and does not perform
research and development of new products.

Costs of Compliance to Environmental Regulations

         The Company incurs minimal costs associated with environmental laws and
regulations.

Employees

         The Company currently has approximately  sixty employees  including its
principal  executive  officers.  None of its employees are covered by collective
bargaining   agreements.   The  Company  believes  its  employee  relations  are
satisfactory.   The  Company  provides  a  401(k)  savings  plan  with  matching
contribution and profit savings features.



                                      -12-
<PAGE>

Year 2000 Issues

         Although Sklar does not have a written Year 2000 Compliance plan, there
are no current date related problems and Sklar  anticipates no future compliance
problems.  Sklar currently has five  information  systems (IS) in place,  all of
which the Company believes to be 2000 compliant.

         Sklar does not sell electronic products, therefore no compliance issues
exists in this area.  Although there have been no discussions with vendors,  the
hand made nature of surgical  instruments,  virtually  eliminates  any potential
problems with Year 2000 issues.

Item 2.  Properties

         The Company's  executive  offices,  warehouse,  and all  operations are
presently  located at 889 South  Matlack  Street,  West  Chester,  Pennsylvania,
19382. The building consists of approximately 10,000 square feet of office space
and 12,500  square feet of warehouse  space and is leased at an annual rental of
$232,800.  The current lease  expires  April 30, 1999.  The Company is currently
negotiating  with a related party,  J. B.  Associates,  to extend that term. The
Company is also  negotiating  with its bank,  relative to expanding  the current
facility.  The Company  believes its current  space will be  sufficient  for the
Company's  needs for six months.  An  additional  8,000  sq.ft.  of space may be
required  as the  sales  of  disposable  product  increase.  To the  extent  the
additional space is needed, the Company intends to utilize public warehousing or
lease a satellite warehouse.

Item 3.  Legal Proceedings

         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.


                                      -13-
<PAGE>

         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.  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 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 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.

Item 4.  Submissions of Matters to a Vote of Security Holders

         No matters  were  submitted  to a vote of the holders of the  Company's
Common Stock during the fourth quarter of the Company's  fiscal year ended March
31, 1998




                                      -14-
<PAGE>


                                     PART II

Item 5. Market for the  Registrant's  Common Stock and Related  Security  Holder
        Matters

         Except for limited or sporadic  transactions,  there is no  established
public trading market for the Common Stock of the Company.

         As of June 1, 1998 the  Company had 774 holders of record of its Common
Stock. The Company believes there are  approximately  1000 beneficial  owners of
the Company's Common Stock.

         The Company has not paid any dividends on its Common Stock and does not
foresee that it will pay dividends on its Common Stock in the near future. Under
the  terms  of the  Company's  bank  agreements,  the  Company  may  not pay any
dividends without the consent of the bank. Additionally,  under the terms of the
Company's  Series A Convertible  Preferred Stock issue, no dividends may be paid
on the Common  Stock  until full  cumulative  dividends  have been paid upon the
Preferred Stock. Under the terms of the Company's Series A Convertible Preferred
Stock, an annual  dividend of $12.50 per share accrues  cumulatively on June 30.
No dividends are payable unless declared by the Board of Directors.  On June 17,
1985 the Board of Directors  voted not to declare the first such dividend (which
would have been paid June 30, 1985). Due to operating cash requirements and bank
restrictions,  the Board of  Directors  has  continued  to  decline  to  declare
dividends in all subsequent years.

         Under the terms of the  Preferred  Stock,  if there  exists  cumulative
unpaid preferred  dividends,  the holders of the Series A Convertible  Preferred
Stock,  voting  separately  as a  class,  are  entitled  to  elect a  number  of
additional  directors  to the Board of Directors  of the Company  sufficient  to
cause such directors to be a majority of the Board.  Currently of the five Board
members four are holders of Preferred  Stock.  These Board members and Preferred
Stockholders  own or control  approximately  62.5% of the outstanding  preferred
stock.  See  Management's  Discussion  and Analysis of Financial  Condition  and
Results of Operations.



                                      -15-
<PAGE>

Item 6. Management's Discussion and Analysis of Financial Conditions and Results
        of Operations

         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.  This discussion should
be read in conjunction with the financial statements and notes thereto appearing
elsewhere herein.

         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 a Percentage of Net Sales

                                            Years Ended March 31

                                                      1998         1997

         Net Sales                                   100.0%       100.0%

         Cost of Sales                                55.5         57.0

         Gross Profit                                 44.5         43.0

         Selling, General & Admin. Expenses           40.0         38.7

         Other Expense                                 0.1          0.3

         Income Before Interest & Taxes                4.4          4.0

         Interest Expense                              2.3          2.5

         Income Before Income Taxes                    2.1          1.5

         Net Income                                    1.8          1.3



Results of Operations

1998 Compared to 1997:

         Net sales for 1998 decreased 3.9% from 1997. This decrease was a result
of several unrelated factors. During 1998 the Company was involved in litigation
concerning SMS and a former  controller,  which it believed diverted  management


                                      -16-
<PAGE>

and company  resources.  In the SMS  matter,  settlement  was  reached  prior to
arbitration. The settlement was satisfactory to the Company.  Additionally,  the
company lost a major bulk commodity Pakistan instrument customer during the past
year.
Management  believes these to be isolated  events with no impact on future sales
growth.

                  Cost of Sales,  as a percent of sales,  decreased  from 57% in
1997 to 55.5% in 1998.  This  decrease  reflects  a change in  product  mix sold
during the past year resulting  from the loss of a major bulk Pakistan  customer
which  purchased  high  volume,  low margin  items.  Additionally,  the  company
negotiated a reduction in incoming  freight  costs.  The company  experienced  a
benefit  from a  currency  gain  of  $103,169  and  $135,062  in 1998  and  1997
respectively.  Due to the increasing  competitive medical market pressures,  the
introduction  of  disposable  products and the  potential  for foreign  currency
exchange  rate  volatility,  the Company  expects  cost of sales as a percent of
sales to increase in future years.

                  Selling,  General and Administrative  Expenses for fiscal 1998
decreased $41,035 but increased from 38.7% to 40% as a percent of sales compared
to 1997. The dollar decrease resulted from tighter expense control, specifically
a renegotiation of the Company's long distance phone contract and a reduction in
warehouse supply costs.  This percent  increase  relative to sales resulted from
expenses  related to the  company's  development  of its  operational  and sales
infrastructure  which are  necessary  to implement  the new sales and  marketing
programs  during  fiscal 1999.  As part of this  preparation,  the company hired
additional  salesmen  during the year and  upgraded its computer and IS systems.
Management believes that these investments will result in increased future sales
and lower SG&A expenses  relative to sales.  Additionally,  the company incurred
significant  expenses related to the SMS litigation and the separate  litigation
against a former controller.  Settlement was reached prior to arbitration in the
SMS matter. The settlement was satisfactory to the Company.

Effects of Dollar Strength

         In 1998 and 1997 the Company purchased 40.7% and 41%, respectively,  of
its medical instrument products in Deutsche marks. Orders are placed in Deutsche


                                      -17-
<PAGE>

marks and payment is made within  three to six months after the order is placed.
The Company has engaged in forward  purchases  of foreign  currency.  During the
year ended March 31, 1998, the Company's  involvement  in this  activity,  which
generally equates to one to two months of anticipated purchase payment, provided
an effective hedge against the potential for increases in the cost of purchasing
German  Deutsche  Marks.  The effect on earnings during the year was immaterial.
During 1998 the Deutsche mark continued to weaken  against the dollar  resulting
in  a  $103,169  benefit  to  the  Company.  A  similar  effect  of  the  dollar
strengthening in fiscal 1997 resulted in a gain for the year of $135,062. Should
the  Deutsche  mark  increase in cost  relative to the dollar the Company  would
expect a  significant  decrease in earnings and a higher cost of goods until the
effect could, if possible,  be passed on to the customer as a price increase. In
today's  highly  competitive  medical  industry,  there is no guarantee that the
Company  would be able to pass on a price  increase;  therefore,  the  Company's
annual  earnings can be affected by the volatility in the value of the dollar to
the Deutsche mark.

Liquidity and Capital Resources

         The  Company  primarily  funds  its  operations  by  cash  provided  by
operating  activities.  The 1998 income level and  recurring  non-cash  expenses
resulted in increased working capital of $672,000 amounting to $916,000 at March
31,1998.   The  reduction  in  the  level  of  inventory  in  the  current  year
($1,062,000)   combined  with   operating  cash  flow  enabled  the  company  to
significantly  reduce its line of credit  balance  ($683,000),  and decrease its
trade accounts payable ($907,000).  The later reduction was also affected by the
favorable settlements negotiated with SMS related vendors.

         The  Company's  peak short term  borrowing  during 1998 occurred in the
earlier part of the year and was followed by a fairly steady decline in the last
eight months of the year. Available borrowing under the line of credit facility,
subject to adequate  collateralization,  amounted to $816,000 at March  31,1998.
Because there still  continues to be a redundancy of certain  inventory  product
groups and excess  stock  quantities  the  company  believes  it will be able to
further  reduce  inventory  during  1999  by  the  continuing  consolidation  of
inventory  acquired  from  acquisitions.  Due to the  anticipated  reduction  in
inventory,  the Company  believes its current credit  facility to be adequate to
provide any short-term  working capital needs, which are not funded by operating


                                      -18-
<PAGE>

cash flow. While  anticipated  future capital additions as well as required debt
service on the SBA loan will likely be funded exclusively from operations, there
are no assurances that this funding source will be adequate.

         Cash  flow  from  operations  in 1997 was only  slightly  less than the
current year but liquidity and working capital were  negatively  affected by the
financing of the SMS acquisition.  $1,700,000 of the line of credit facility was
used to fund the cash  portion of the  purchase.  Also,  increased  sales volume
resulting from the purchase increased  accounts  receivable and further strained
liquidity. $206,000 of availability existed under the line of credit facility at
March 31, 1997.

         The Company's peak short-term  borrowing,  pursuant to lines of credit,
was $ 2,942,000 in 1998 and $2,999,000 in 1997. At March 31, 1998, the Company's
outstanding  line of credit was $2,085,000,  leaving $816,000  available,  after
reduction  for  $66,000 in  stand-by  letters  of credit  and a 20% market  risk
reserve on forward currency contracts  totaling $165,000.  Any decrease in sales
and, or increase in inventory would have a dramatic  impact on the  availability
of the credit line and resulting impact on the Company's cash needs.  Cash flows
from operations,  together with amounts available under current bank facilities,
will be  sufficient  to meet the Company's  liquidity  needs in the  foreseeable
future.

         On June 4, 1996 the Company  entered into an amended and restated  loan
security  agreement for a $3,750,000  line of credit which reduced to $3,000,000
on  March  31,  1997,  and is  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 March 31,
1998 borrowing totaled $5,330,553.

                                      -19-
<PAGE>

Item 7.  Financial Statements

         See the  Financial  Statements  listed  in the  accompanying  Index  to
Financial  Statements  on Page F-1 herein.  Information  required  by  Schedules
called for under  Regulation  S-X is either not applicable or is included in the
Financial Statements or notes thereto.

Item  8.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosures

         Not Applicable.

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act

         The Directors and Executive Officers of the Company,  their ages, their
principal  occupations  during the past five years or more, and directorships of
each in public companies in addition to the Company are as follows:

         Don Taylor.  Mr. Taylor, age 52, was appointed to the Board in November
1988 and was elected President of the Company in January 1989. From 1986 to 1989
he was retained as a "turn around" consultant to the Company.  From 1969 to 1982
he owned and operated a chain of drug stores. Additionally, from 1981 until 1986
he owned a  consulting  firm  specializing  in the turn  around  of  financially
troubled companies. His experience includes operations, sales and marketing.

         Michael Malinowski.  Mr. Malinowski,  age 44 was appointed to the Board
in April,  1991, and has served as Executive Vice President since 1994 and Chief
Financial  Officer since 1998. He has been employed by the company since 1986 in
the  positions  of  General  Manager  and  Vice  President  of  Operations.  Mr.
Malinowski has a background in computer systems  management and operations.  His
responsibilities  as  Chief  Financial  Officer  include  the  oversight  of the
financial department and Information Systems

         George Kellam.  Mr. Kellam, age 58, was appointed to the Board in 1993.
Mr. Kellam has been the owner and President of G&M. Enterprises,  Inc, a company
which specializes in the advertising and promotional business, for twenty years.



                                      -20-
<PAGE>

         William R.  Knepshield.  Mr.  Knepshield,  age 63, was appointed to the
Board in 1991.  Mr.  Knepshield  has  twenty-one  years  experience as the Chief
Executive  of  several  publicly  held  companies   involved  with  the  medical
technology field and the inventions of innovative medical devices.  From 1989 to
1993 Mr.  Knepshield  was president and Chief  Executive  Officer of KMI, Inc. a
company  involved in the  development  and sale of  sophisticated  microsurgical
instruments for  opthalmology.  Currently Mr.  Knepshield is president and Chief
Executive  Officer of WBSK,  Inc. which has developed and owns numerous  patents
pertaining to needles and the protection of healthcare workers.

         Albert Wicks.  Mr.  Wicks,  age 49, was appointed to the Board in 1990.
Mr. Wicks has been the owner,  President and Chairman of C&S Medical  Supply,  a
company  specializing in the  distribution of medical  supplies to the physician
market,  for  fourteen  years.  Prior to founding C&S Medical  Supply,  he spent
thirteen  years in sales and  management  of  Foster  Medical,  a  company  that
specializes in sales of supplies to physicians.

Terms of Office

         Directors are elected at each Annual Meeting of Shareholders  and serve
for a term  of two  years.  Officers  serve  at the  pleasure  of the  Board  of
Directors.



Item 10. Executive and Director Compensation

Summary Compensation Table

         The following table sets forth the aggregate cash  compensation paid by
the Company  for the  fifty-two  weeks  ended March 31, 1998 to those  executive
officers  whose  salary  and bonus  exceeded  $100,000  and the Chief  Executive
Officer.




                                      -21-
<PAGE>




<TABLE>
<CAPTION>
                                                                      Long-Term Awards
                         Annual Compensation                            Compensation


Name and Principal                              Other Annual   Restricted  Securities    All Other
Position            Year     Salary      Bonus   Compensation    Stock     Underlying   Compensation
                                                     (1)        Awards      Options
<S>                  <C>    <C>        <C>        <C>               <C>        <C>        <C>
Don Taylor           1998   $163,765   $ 40,000   $ 12,540          0          0          0
President            1997   $170,170          0   $ 26,173          0          0          0
                     1996   $194,465          0   $  7,548          0          0          0



Michael Malinowski
Vice Pres.,
Chief Financial      1998   $103,931   $ 34,500   $ 10,281          0          0          0
Officer              1997   $125,364          0   $ 20,833          0          0          0
</TABLE>

(1)      For 1998, Mr. Taylor's and Mr.  Malinowski's Other Annual  Compensation
         includes $2,567 and $2,711 respectively for car allowance. Other Annual
         Compensation   is  also  comprised  of  the  Company's   matching  401K
         contributions  and the Company's  profit sharing  contribution.  Profit
         sharing  contributions  are  allocated  among all  participants  in the
         401(k) Plan. In 1997, Other Annual  Compensation  included amounts paid
         by the Company automobile allowances.




                                      -22-
<PAGE>

Stock Option Grants

         The Company  granted no stock options or stock  appreciation  rights in
the last fiscal year.
<TABLE>
<CAPTION>

                                             Aggregated Option Exercises in Last
                                            Fiscal Year and FY-End Option Values

                                                                                 # of Securities                       Value of
                                                                                 Underlying         Value of           unexercised
                                                                                 Unexercised        unexercised in-    in-the-money
                    Shares            Value       # of Securities Underlying     Options at FY-     the-money option   option at FY-
                    acquired on       Realized    Unexercised Options at FY-     End                at FY-End          End
Name                exercise (#)      ($)         End Exercisable                Unexercisable      Exercisable        Unexercisable
<S>                       <C>            <C>      <C>                             <C>                    <C>            <C>
Don Taylor                0              0        100,000 Common Shares                 0                     *1              0

                          0              0        4,000 Preferred Shares                0                     *2              0

Michael Malinowski        0              0        100,000 Common Shares                 0                     *3              0
</TABLE>



Director Compensation

         Directors  who are  officers or  employees  of the  company  receive no
additional  compensation  for  service  as  members  of the Board of  Directors.

--------------------------
1 Represents options granted to Mr. Taylor in 1993 under the Company's Incentive
Stock  Option  Plan.  The options  have an exercise  price of $.25 per share and
expire on December  31, 2002.  As there is  currently no trading  market for the
Company's Common Stock, the value of these options is unascertainable.


2  Represents  options to purchase  shares of Series A  subordinate  convertible
preferred  stock at $10.00  per share  granted  in 1988.  These  options  expire
December 31, 2002. The Company is unable to determine the value of these options
at FY-end.


3  Represents  options  granted to Mr.  Malinowski  in 1993 under the  Company's
Incentive  Stock  Option Plan.  The options  have an exercise  price of $.20 per
share and expire on December 31, 2002.  As there is currently no trading  market
for the Company's Common Stock, the value of these options is unascertainable.

                                      -23-
<PAGE>

Directors  who are  not  officers  or  employees  of the  Company  receive  such
compensation  for their services as the Board of Directors may from time to time
determine.  Non-employee  directors  receive  a fee of $500 for each  board  and
shareholder meeting attended.

         The Company does not have a standing audit,  nominating or compensation
committee.

Item 11. Security Ownership of Certain Beneficial Owners and Management

         The table  below  sets  forth  certain  information  as of June 1, 1998
regarding the beneficial ownership,  as defined in regulations of the Securities
and  Exchange  Commission,  of (i) each person who is known to the Company to be
the  beneficial  owner  of more  than 5% of any  class of the  Company's  voting
securities,  (ii) each  director of the  Company,  and (iii) all  directors  and
executive officers as a group. On June 1, 1998, there were 754,940 shares of the
Company's  Common Stock,  22,078 Shares of Series A Preferred Stock and 0 (zero)
shares of Series B subordinated  Preferred Stock  outstanding.  Unless otherwise
specified,  the named beneficial owner has sole voting and investment power. The
information in the table below was furnished by the persons listed.  "Beneficial
Ownership" as used herein has been  determined in accordance  with the rules and
regulations of the Securities and Exchange Commission and is not to be construed
as a representation  that any of such shares are in fact  beneficially  owned by
any person.







                                      -24-
<PAGE>

<TABLE>
<CAPTION>
Names and Address of            Title of Class      Amount and Nature of     Percentage of Class
Beneficial Owner                                    Beneficial Owner
<S>                           <C>                 <C>                           <C>
Don Taylor                      Preferred             10,575 (1)                  47.9
241Clonmell-Upland Rd.          Common               303,715 (2)                  40.2
West Grove, PA  19390


Michael Malinowski              Preferred              6,199                      28.1
613 Aberdeen Drive              Common               158,000 (2)                  20.9
Kennett Square, PA  19348

George Kellam                   Preferred                 20                     (Less than 1%)
1060 North State St.            Common                     0
Dover, DE  19901

William R. Knepshield           Preferred                 50                     (Less than 1%)
11 Roselawn Lane                Common                     0
Malvern, PA  19355

Albert Wicks                    Preferred                  0                     (Less than 1%)
1604 Dogwood Drive              Common                     0
West Lawn, PA  19607

All directors and officers as   Preferred             16,844                      76.3
a group                         Common               461,715                      61.2
</TABLE>
(1)  Includes 4,000 options to purchase  Series A Subordinated  Preferred  Stock
     currently exercisable.

(2)  Includes 100,000 options to purchase Common Stock currently exercisable

Item 12. Certain Relationships and Related Transactions

         The Company has entered into several transactions with affiliates.  The
Company believes that the terms of the transactions with affiliates are on terms
at least as  favorable  as could  have been  obtained  from  unaffiliated  third
parties.  The  Company  will  require  that  in the  future,  transactions  with
affiliates  will continue to be made on terms the Company  believes are at least
as favorable as those obtainable from unaffiliated third parties.

J.B. Associates

         The  Company  leases  the  space  in which  its  executive  office  and
warehouse  is located  from J.B.  Associates.  J.B.  Associates  is owned by Don
Taylor and William  Knepshield.  Mr.  Taylor is  President  and  director of the
Company and Mr.  Knepshield  is a director.  Rent expense for this  building was
$232,800  and  $196,800 in 1998 and 1997,  respectively.  Three  months rent are
prepaid in the amount of $58,200 at March 31, 1998.



                                      -25-
<PAGE>

Officer Advances

         The  Company  has  advanced  funds  from time to time to certain of its
officers and directors. As of March 31, 1998 the total amount due to the Company
from Don Taylor and Michael  Malinowski  for funds  advances  was  $238,556  and
$25,326 respectively.  In addition,  during 1998, the Company paid $4,500 to the
former wife of Mr. Taylor. The funds were advanced on a short-term basis and are
non-interest bearing. As of March 31, 1997, the amounts due the Company from Mr.
Taylor and Mr. Malinowski were $199,952 and $0 respectively.

T/S Instrument Co.

         The Company  purchases  medical  instruments and repair services from a
company  in  which  Don  Taylor,  the  Company's   President,   was  a  minority
shareholder.  Mr.  Taylor  receives a  percentage  of the gross  revenue of this
company  for a period  of time as  compensation  for the  sale of his  interest.
Purchases from this company amounted to $653,419 and $281,940 for 1998 and 1997,
respectively.  In addition,  the Company has a note receivable from this company
in the amount of $50,000 at March 31, 1998.




                                      -26-
<PAGE>

<TABLE>
<CAPTION>

Item 13. Exhibits and Reports on Form 8-K [Electronic Filing Exhibits]
<S>       <C>                                                                                       <C>
(a)      Exhibits

3(a)(1)  Restated Certificate of Incorporation of Registrant                                        (1)

3(a)(2)  Certificate of Amendment of Certificate of Incorporation of Registrant                     (2)

3(b)(1)  By-Laws of Registrant                                                                      (3)

3(b)(2)  Change name from Medco Group Incorporated to Sklar Corporation                             (4)

4(a)(1)  Form of Common Stock Certificates                                                           *

4(b)(2)  Form of Series A Preferred Stock Certificate                                                *

21        Subsidiaries of the Registrant                                                             *
</TABLE>

* Filed Herewith

   (b)   Reports on Form 8-K

                         None



(1)  Incorporated by reference from Registrant's  Annual Report on Form 10-K for
     the year ended March 26, 1983.

(2)  Incorporated by reference from Registrant's  Registration Statement on Form
     S-1, No. 2-90189.

(3)  Incorporated  by reference  from  Registrant's  Current  Report on Form 8-K
     dated November 29, 1984.

(4)  Incorporated  by reference  from  Registrant's  Current  Report on form 8-K
     dated December 12, 1993.



                                      -27-
<PAGE>



                                   SIGNATURES



Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the issuer has duly  caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                        Sklar Corporation, Inc.

                                        By: /s/ Don Taylor
                                            Don Taylor, President

                                        Date:  July 1, 1999

In accordance with the requirements of the Securities Exchange Act of 1934, this
report has been signed  below by the  following  persons on behalf of the issuer
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S>                                        <C>                                                 <C>
/s/ Don Taylor                              President and Director                               July 1, 1999
     Don Taylor

/s/ Michael Malinowski                      Executive Vice President, Chief Financial            July 1, 1999
     Michael Malinowski                     Officer and Director


/s/ George Kellam                           Director                                             July 1, 1999
     George Kellam

/s/ William R. Knepshield                   Director                                             July 1, 1999
     William R. Knepshield

/s/ Albert Wicks                            Director                                             July 1, 1999
     Albert Wicks

</TABLE>





                                      -28-
<PAGE>


                                                                              F1



                                SKLAR CORPORATION
                                 MARCH 31, 1998





<TABLE>
<CAPTION>
                                    CONTENTS
                                                                                                                        Page

<S>                                                                                                                <C>
Independent Auditors' Report                                                                                             F2


FINANCIAL STATEMENTS:

   Consolidated Balance Sheet as of March 31, 1998                                                                   F3 - 5

   Consolidated Statement of Income for the Years
      Ended March 31, 1998 and 1997                                                                                      F6

   Consolidated Statement of Stockholders' Equity for the
      Years Ended March 31, 1998 and 1997                                                                             F7- 9

   Consolidated Statement of Cash Flows for the Years
      Ended March 31, 1998 and 1997                                                                                     F10

   Notes to Consolidated Financial Statements                                                                       F11- 25


</TABLE>





<PAGE>
                                                                              F2


                          INDEPENDENT AUDITORS' REPORT


To the Stockholders
Sklar Corporation
West Chester, Pennsylvania

We have audited the accompanying consolidated balance sheet of Sklar Corporation
as of  March  31,  1998  and the  related  consolidated  statements  of  income,
stockholders' equity and cash flows for the years ended March 31, 1998 and 1997.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated  financial position of Sklar
Corporation as of March 31, 1998, and the consolidated results of its operations
and its cash flows for the years ended March 31,  1998 and 1997,  in  conformity
with generally accepted accounting principles.




                                        /S/ STOCKTON BATES & COMPANY, P.C.
                                            STOCKTON BATES & COMPANY, P.C.

Lancaster, Pennsylvania
June 11, 1998






<PAGE>
                                                                              F3


                                SKLAR CORPORATION

                           CONSOLIDATED BALANCE SHEET




<PAGE>

                                                                              F4


                                SKLAR CORPORATION
                           CONSOLIDATED BALANCE SHEET
                                 MARCH 31, 1998




                                     ASSETS


CURRENT ASSETS:
   Cash                                          $   12,885
   Accounts receivable                            2,547,506
   Inventories                                    3,142,043
   Prepaid expense                                  199,262
                                                 ----------

         Total current assets                     5,901,696
                                                 ----------






FIXED ASSETS, net                                   630,264







GOODWILL                                            879,830







OTHER ASSETS                                        106,636
                                                 ----------


TOTAL ASSETS                                     $7,518,426
                                                 ==========





               The accompanying notes are an integral part of the
                       consolidated financial statements.
<PAGE>
                                                                              F5

                                SKLAR CORPORATION
                           CONSOLIDATED BALANCE SHEET
                                 MARCH 31, 1998




                      LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

CURRENT LIABILITIES:
<S>                                                                                                       <C>
   Bank overdraft                                                                                         $         294,816
   Short-term borrowings                                                                                          2,085,000
   Current portion of long-term debt                                                                                218,094
   Current portion of capital lease obligation                                                                       14,120
   Accounts payable                                                                                               2,100,424
   Accrued expenses and taxes                                                                                       273,303
                                                                                                          -----------------

         Total current liabilities                                                                                4,985,757

LONG-TERM PORTION OF NOTES AND CAPITAL LEASE PAYABLE                                                                 90,337
                                                                                                          -----------------

         Total liabilities                                                                                        5,076,094

CONTINGENT LIABILITIES                                                                                                    0

STOCKHOLDERS' EQUITY:
   Series A preferred stock, par value $.01, per share, authorized
      35,000  shares,   24,825  issued  and  21,954  outstanding  248  Series  A
   subordinate preferred stock, no par value, authorized
      4,000 shares, issued and outstanding 0                                                                              0
   Common stock, par value $.10 share, authorized 1,500,000 shares,
      1,247,952 issued and 754,940 outstanding                                                                      124,795
   Additional paid-in capital                                                                                     2,105,458
   Retained earnings                                                                                                362,869
                                                                                                          -----------------

                                                                                                                  2,593,370
         Less treasury stock                                                                                        151,038

         Total stockholders' equity                                                                               2,442,332


TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                                $       7,518,426
                                                                                                          =================
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.

<PAGE>
                                                                              F6

                                SKLAR CORPORATION
                        CONSOLIDATED STATEMENT OF INCOME


<TABLE>
<CAPTION>
                                                                                            For the Years Ended
                                                                                                      March 31,
                                                                                -------------------------------------------
                                                                                       1998                       1997
                                                                                -----------------         -----------------
<S>                                                                             <C>                       <C>
NET SALES                                                                       $      13,766,868         $      14,325,963

   Cost of goods sold                                                                   7,640,866                 8,162,770
                                                                                -----------------         -----------------

GROSS PROFIT                                                                            6,126,002                 6,163,193

   Selling, general and administrative expenses                                         5,508,841                 5,549,876
                                                                                -----------------         -----------------


INCOME FROM OPERATIONS                                                                    617,161                   613,317


OTHER INCOME (EXPENSE):
   Other                                                                                  (31,931)                  (42,437)
   Interest expense                                                                      (309,452)                 (358,641)
   Settlement gain (See Note B)                                                            17,226                         -
                                                                                -----------------         -----------------

         Other expenses - net                                                            (324,157)                 (401,078)
                                                                                -----------------         -----------------


INCOME BEFORE TAXES                                                                       293,004                   212,239

   Provision for income taxes                                                              40,000                    32,200
                                                                                -----------------         -----------------


NET INCOME                                                                                253,004                   180,039

   Preferred dividend requirement                                                         275,975                   274,425
                                                                                -----------------         -----------------


LOSS APPLICABLE TO COMMON SHARES                                                $         (22,971)        $         (94,386)
                                                                                =================         =================


PER SHARE DATA:
   Weighted average common shares outstanding                                             744,423                   744,423

   Basic and diluted Loss per common share                                            $  (.03)                  $   (.13)
                                                                                       ======                   ========
</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.
<PAGE>

                                                                              F7






                                SKLAR CORPORATION

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY


<PAGE>
                                                                              F8

                                SKLAR CORPORATION
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                 MARCH 31, 1998



<TABLE>
<CAPTION>
                                                                    Series A                                  Additional
                                               Series A          Subordinated             Common               Paid-In
                                               Preferred           Preferred.              Stock                Capital
                                            ----------------    ------------------    ---------------     -----------------
<S>                                        <C>                 <C>                   <C>                 <C>
Balances, March 31, 1996                    $            248    $                0    $       124,795     $       2,105,458


Net income for the year
   ended March 31, 1997
                                            ----------------    ------------------    ---------------     -----------------


Balance, March 31, 1997                                  248                     0            124,795             2,105,458


Net income for the year
   ended March 31, 1998
                                            ----------------    ------------------    ---------------     -----------------


BALANCES, MARCH 31, 1998                    $            248    $                0    $       124,795     $       2,105,458
                                            ================    ==================    ===============     =================

</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.
<PAGE>
                                                                              F9

                                SKLAR CORPORATION
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                 MARCH 31, 1998



<TABLE>
<CAPTION>
       Retained                                                                          Total
       Earnings                                             Treasury                Stockholders'
       (Deficit)                    Total                    Stock                      Equity

<S>                        <C>                       <C>                        <C>
  $        (70,174)        $       2,160,327         $         (151,038)        $       2,009,289



           180,039                   180,039                                              180,039
  ----------------         -----------------         ------------------         -----------------


           109,865                 2,340,366                   (151,038)                2,189,328



           253,004                   253,004                                              253,004
  ----------------         -----------------         ------------------         -----------------


  $        362,869         $       2,593,370         $         (151,038)        $       2,442,332
  ================         =================         ==================         =================

</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.
<PAGE>
                                                                             F10

                                SKLAR CORPORATION
                      CONSOLIDATED STATEMENT OF CASH FLOWS

                 Increase(Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
                                                                                           For the Years Ended
                                                                                                     March 31,
                                                                                -------------------------------------------
                                                                                       1998                       1997
                                                                                -----------------         -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                             <C>                       <C>
   Net income                                                                   $         253,004         $         180,039
   Adjustments to reconcile net income to net cash provided
     by (used in) operating activities:
        Depreciation and amortization                                                     293,280                   463,102
        Provision for losses and returns on accounts receivable                            39,000                    54,000
        Loss on abandonment of assets                                                       -                         5,748
        Gross settlement gain                                                            (109,506)                    -
        Obsolescence reserve                                                               50,000                     -
        Write down of goodwill                                                             50,000                     -
        Change in operating assets and liabilities:
          Accounts receivable                                                            (118,971)               (1,111,516)
          Inventory                                                                     1,061,869                   585,423
          Prepaid expenses                                                                 39,049                  (215,676)
          Accounts payable                                                               (907,320)                  559,090
          Accrued expenses and taxes                                                       82,903                   121,179
                                                                                -----------------         -----------------

        Total adjustments                                                                 480,304                   461,350
                                                                                -----------------         -----------------

        Net cash provided by operating activities                                         733,308                   641,389
                                                                                -----------------         -----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures                                                                  (170,212)                 (236,823)
   (Acquisition) settlement of SMS                                                        150,000                (1,700,000)
   Intangible assets                                                                        -                       (54,083)
                                                                                -----------------         -----------------

        Net cash used in investing activities                                             (20,212)               (1,990,906)
                                                                                -----------------         -----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Cash overdraft                                                                          96,573                   198,243
   Net payment on line of credit                                                         (683,089)                 (410,734)
   Borrowing agreement on credit line for acquisition                                       -                     1,700,000
   Principal payments of long-term debt and capital lease                                (121,201)                 (259,355)
                                                                                -----------------         -----------------

        Net cash provided by (used in) financing activities                              (707,717)                1,228,154
                                                                                -----------------         -----------------

NET INCREASE (DECREASE) IN CASH                                                             5,379                  (121,363)

CASH, BEGINNING OF YEAR                                                                     7,506                   128,869
                                                                                -----------------         -----------------

CASH, END OF YEAR                                                               $          12,885         $           7,506
                                                                                =================         =================
</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.
<PAGE>
                                                                             F11

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998


Sklar Corporation is importer and distributor of hand-held surgical instruments,
chemicals for the care and cleaning of surgical instruments, and other items for
surgical,  dental  and  veterinary  use.  The  Company's  primary  market is for
hand-held,  non-electronic  instruments to the surgical, dental, orthodontic and
veterinary  fields.  The largest  dollar volume of  instruments is imported from
German sources and some from Pakistani sources. Other items are mostly purchased
from domestic sources. Customers are primarily hospital supply distributors, but
the Company also targets end users for its orthodontic products.

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES:

Financial Statements:

         The financial  statements  include those of Sklar Corporation and Sales
         and  Marketing  Specialists,  Inc.,  ("SMS") a wholly owned  subsidiary
         which serves as a service company  housing the Company's  outside sales
         force.

Inventories:

         Inventories  are  stated  at the  lower of cost or  market.  Costs  are
         computed based upon weighted average  purchase prices,  and are used as
         the  basis for  charging  cost of goods  sold for the  items  sold from
         inventory.  The company continually monitors inventory by product group
         and  on-hand   quantities   to  sales  level  to  determine   inventory
         impairment.  During 1998,  specific  inventory  items  determined to be
         without value or severely overstocked were written off in the amount of
         $391,609,  from an  allocation  of the  3/31/97  valuation  reserve  of
         $450,000.  In 1997,  the  Company  made an  accounting  change  wherein
         elements  of  overhead  were   eliminated   from  the  total  inventory
         valuation.  Note E to the March 31, 1997 financial statements discloses
         the dollar effect of this change in accounting.

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 and accelerated methods

<PAGE>
                                                                             F12

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998


A.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICES: (Continued)

Equipment and Improvements: (Continued)

         over the useful lives of the assets which are  estimated to be three to
         ten years for equipment and fifteen years for leasehold improvements.

Goodwill and Other Assets:

         Goodwill  and  other  assets  are  stated  at  cost  less   accumulated
         amortization.  Amortization is provided on a straight-line  basis.  The
         Company  continually  evaluates  the  carrying  amount of this asset by
         estimating the sum of expected future  undiscounted  cash flows related
         to specific acquisitions and comparing it to originally booked goodwill
         net of related accumulated amortization.

Cash Flow Information:

         For purposes of the statement of cash flows, the Company considers cash
         in bank and on hand as cash equivalents.

Advertising Costs:

         The Company policy is to expense advertising costs as incurred.

Loss Per Share:

         Loss per share is computed by dividing the net income, decreased by the
         amount  required  for payment of preferred  dividends,  by the weighted
         average  number of shares of common  stock  outstanding.  No effect has
         been  given  to  common  stock  equivalent  shares  as  such  would  be
         anti-dilutive.

Revenue Recognition:

         Revenue,  net of an allowance for estimated returns, is recognized upon
         the shipment of goods to customers.  The Company  records as additional
         revenue credits which are not applied to customers.

<PAGE>
                                                                             F13

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES: (Continued)

Foreign Currency Translation Gains and Losses:

         The  Company  recognizes  transaction  gains and  losses at the time of
         settlement of the foreign  currency  transaction.  The Company  records
         translation  adjustments  of the expected  foreign  currency cash flows
         based upon the respective period end exchange rate. Gains and losses on
         realized activity and the translation  adjustment for the expected cash
         flows are adjusted to income.

Estimates:

         The  preparation  of  the  financial   statements  in  conformity  with
         generally accepted  accounting  principles  requires management to make
         estimates and  assumptions  that affect  certain  reported  amounts and
         disclosures.  Accordingly,  actual  results  could  differ  from  those
         estimates.


B. ACQUISITION AND SETTLEMENT:

Effective May 31, 1996, the Company  acquired certain assets and assumed certain
liabilities of Surgical Medical Specialists,  Inc. (SMS) in a transaction 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  amended  credit line  agreement with  CoreStates  Bank,  $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.

On January 20, 1998, a settlement  agreement  was  negotiated  which  entailed a
significant  restructuring of the original  purchase.  As part of the settlement
the seller  forgave the  aforementioned  notes  payable by the  Company,  made a
$150,000 payment to the Company and a $100,000 payment to a certain vendor

<PAGE>
                                                                             F14

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998


B.  ACQUISITION AND SETTLEMENT: (Continued)

included  in the  original  assumed  liabilities.  Additionally,  the  seller is
precluded  from  operating in any  competitive  fashion  with the Company.  In a
related settlement the Company negotiated the forgiveness of $134,301 of assumed
vendor  liabilities  related to the  original  purchase  with a cash  payment of
$30,000.  The Company continues to pursue additional  settlements related to the
assumed liabilities in the original purchase.

At March 31,  1998,  the Company has recorded the  settlement  transaction  as a
reduction  of  goodwill  in  the  amount  of  $1,060,706.  This  represents  the
negotiated reduction of liabilities and receipt of cash payment. Excess goodwill
amortization and accrued interest expense recorded in 1997 have been recorded as
other income in 1998, net of legal fees related to the settlement.


C.  FINANCIAL INSTRUMENTS:

The Company's  financial  instruments subject to credit risk are primarily trade
accounts receivable and cash. Credit is granted to customers,  located primarily
in the  continental  United  States,  in the ordinary  course of  business.  The
Company  does not  require  collateral  or other  security  to support  customer
receivables.

At March 31, 1998, the Company had the following  concentrations of cash subject
to credit risk:

         Germany                                $ 12,825

The Company  maintains  cash  balances  at two  financial  institutions.  One is
located in the United States and the other in Germany. The account in the USA is
insured by the Federal Deposit Insurance Corporation up to $100,000. The account
in Germany is  uninsured.  While the Company  usually  maintains its balances at
levels below the insured  amounts,  there may be times,  in the normal course of
business,  when the  Company's  deposits  at an  Institution  exceed the insured
amount.

<PAGE>
                                                                             F15

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998


C. FINANCIAL INSTRUMENTS: (Continued)

Beginning in fiscal 1998, the Company  routinely  enters into forward  contracts
for German currency related to its inventory  purchasing activity when favorable
conditions  exist.  The  forward   contracts  are  financial   instruments  with
off-balance-sheet risk. Those instruments involve, to varying degrees,  elements
of market risk in excess of the amount  recognized in the Statement of Financial
Position.  The contract or notational  amounts of those instruments  reflect the
extent of  involvement  the  Company  has in  particular  classes  of  financial
instruments.  The Company does not anticipate any material adverse effect on its
financial position resulting from its involvement in these instruments.

During  the year  ended  March  31,  1998,  the  Company's  involvement  in this
activity,  which generally equates to one to two months of anticipated  purchase
payment,  provided an effective hedge against the potential for increases in the
cost of purchasing German Deutsche Marks. The effect on earnings during the year
was immaterial.

At March 31, 1998,  the Company had contracts  maturing in April and May of 1998
to purchase 300,000 Deutsche Marks.  Market movement creating  unfavorable terms
for the Company  related to the forward  contracts  would be addressed  with the
purchase of offsetting  contracts at a premium.  The Company  collateralized its
position in these contracts through its line of credit facility.

The estimated fair value of the Company's financial instruments, both on and off
balance sheet, are summarized as follows:
<TABLE>
<CAPTION>
                                                                                                 March 31, 1998
                                                                                       Carrying                 Estimated
                                                                                        Amount                  Fair Value
<S>                                                                             <C>                       <C>
                  Cash                                                          $          12,885         $          12,885
                  Long-term debt                                                $         277,130         $         288,843
                  Forward contracts                                             $               0         $           3,138
</TABLE>

<PAGE>
                                                                             F16

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998


D.  ACCOUNTS RECEIVABLE:

Accounts receivable consists of the following at March 31, 1998:
<TABLE>
<CAPTION>
<S>                                                                                                       <C>
                  Trade receivables                                                                       $       2,340,404

                  Other receivables (including a
                     related party receivable of $313,882)                                                          314,102
                                                                                                          -----------------
                                                                                                                  2,654,506
                  Allowance for doubtful accounts
                     and sales returns                                                                             (107,000)
                                                                                                          -----------------
                                                                                                          $       2,547,506
                                                                                                          =================
</TABLE>

The related party  receivable  at March 31, 1998 includes  $238,556 due from the
Company's president,  and $25,326 from the Company's chief financial officer. In
connection  with the  larger  receivable,  substantial  personal  assets  of the
president  are pledged as  collateral  for  Company  loans.  The  related  party
receivable also includes $50,000 due from a supplier/related party.

E. INVENTORIES:

Inventories consist of the following at March 31, 1998:
<TABLE>
<CAPTION>
<S>                                                                                                                 <C>

                  German sourced surgical instruments (including
                     customs and freight of $124,183)                                                     $       1,725,643

                  Surgical instruments and products not sourced
                     from Germany (including customs and freight of $58,234)                                      1,214,931

                  DCA products (including freight of $4,931)                                                        251,469
                                                                                                          -----------------

                                                                                                                  3,192,043

                  Less valuation allowance                                                                          (50,000)
                                                                                                          -----------------

                                                                                                          $       3,142,043
                                                                                                          =================
</TABLE>


<PAGE>
                                                                             F17

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998


F.  FIXED ASSETS:

Fixed assets at March 31, 1998 consist of:

<TABLE>
<CAPTION>
<S>                                                                                                       <C>
                  Leasehold improvements                                                                  $         314,313
                  Furniture and fixtures                                                                            109,952
                  Equipment, including assets held under capital lease of $87,336                                   802,507
                  Computer software                                                                                  96,545
                                                                                                          -----------------

                                                                                                                  1,323,317

                  Less accumulated depreciation and amortization                                                   (693,053)
                                                                                                          -----------------


                                                                                                          $         630,264
                                                                                                          =================


G.  GOODWILL AND OTHER ASSETS:

Other assets consists of the following:

                  Catalog development costs (net)                                                         $          71,519
                  Acquisition costs (net)                                                                            34,253
                  Patents (net)                                                                                         864
                                                                                                          -----------------


                                                                                                          $         106,636
                                                                                                          =================
</TABLE>


The following table summarizes the lives and  amortization  expense for goodwill
and other assets:
<TABLE>
<CAPTION>
                                                                                          Amortization Expense
                                              Life in Years                       1998                           1997
                                             --------------               -------------------             -----------------

<S>                                               <C>                     <C>                             <C>
         Goodwill                                 15-20                   $           131,975             $         138,163
         Catalog development costs                21/2-5                               58,622                       186,685
         Acquisition costs                          5                                  10,816                        16,428
         Patents                                   161/2                                 909                           909
                                                                          -------------------             ----------------


         Total                                                            $           202,322             $         342,185
                                                                          ===================             =================
</TABLE>
<PAGE>
                                                                             F18

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998



G.  GOODWILL AND OTHER ASSETS: (Continued)

Additions to other assets arise from the  acquisition of companies,  in the case
of goodwill, or related loans, in the case of acquisition costs. Prior to fiscal
year 1996  costs  incurred  in  creating,  producing  and  distributing  new and
existing  catalogs were added to other assets.  Reductions in intangible  assets
result  from  amortization  over  their  useful  or  prescribed  lives  or  from
adjustments  necessary to revalue  previously  recorded amounts.  In the quarter
ended March 31, 1998, the goodwill originally booked upon the acquisition of DCA
was reduced by $50,000 to reflect  the  decrease  in value  consistent  with the
declining sales volume and related cash flow in that division.

Subsequent  to fiscal  year 1995  catalog  development  costs  are  expensed  as
incurred  except,  beginning in 1997,  catalogs not  distributed  are treated as
prepaid expenses.  The dollar effect of the change relating to finished catalogs
amounted to $201,260 in 1997.

Advertising  expense,  including the amortization of catalog  development  costs
incurred  prior to 1996,  amounted  to  $240,564  and  $69,528 in 1998 and 1997,
respectively.

Goodwill may also be reduced by an amount equal to the amount of federal tax net
operating  loss  carryforwards  used to reduce the Company's  federal income tax
liability to the extent that the benefit amount computed exceeds normal goodwill
amortization.

H. SHORT-TERM BANK BORROWINGS:

The following table shows the Company's  short-term bank borrowings for the past
two fiscal years:
<TABLE>
<CAPTION>
                                                               Maximum                   Average              Weighted
                                            Interest             Amount                  Amount                Average
                       Balance                Rate            Outstanding             Outstanding               Interest
                        at End              at End                During                  During             Rate During
 March 31,            of Period           of Period           the Period (a)         the Period (b)         the Period (c)
-------------      --------------     ----------------      -----------------       ----------------      -----------------
<S> <C>            <C>                     <C>              <C>                     <C>                          <C>
    1998           $    2,085,000          9.75%            $       2,942,000       $      2,641,330             9.75%
    1997           $    2,768,000          9.75%            $       2,999,000       $      2,382,064             9.50%
</TABLE>

<PAGE>
                                                                             F18

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998


H.  SHORT-TERM BANK BORROWINGS:(Continued)

         (a)      Based on the maximum amount outstanding at any month-end.

         (b)      Average  amount  outstanding  during the period is computed by
                  dividing the total of month-end outstanding principal balances
                  by 12.

         (c)      Average  interest  rate for the year is  computed  by dividing
                  short-term  interest expense by average  aggregate  short-term
                  borrowings.

At March 31, 1998,  the  Company's  revolving  credit  facility of $3,000,000 is
available to the extent of collateral determined by the sum of 80% of qualifying
accounts receivable plus 50% of inventories  (capped at $2,000,000).  Qualifying
accounts  receivable  and  inventory  used as a basis  for the  March  31,  1998
borrowing  totaled  $5,330,553.  Unused  available  credit at March 31, 1998 was
$816,000 after considering  outstanding letters of credit totaling $66,000 and a
20% market risk reserve on forward currency contracts totaling $165,000.

Borrowings from this line bear interest at the bank's prime rate plus 1.25%. The
interest  expense on short-term  bank  borrowings  for 1998 and 1997 amounted to
$261,788 and $226,394, respectively.

The short-term  borrowing  facility  requires the Company to comply with certain
restrictive  covenants,  including  maintenance of various financial ratios. The
note is  guaranteed by the  Company's  president  including an assignment of his
Company common and preferred stock.

I.  LONG-TERM DEBT:
<TABLE>
<CAPTION>
<S>                                                                                                                 <C>
Long-term debt outstanding at March 31, 1998:
                  SBA loan, payable in monthly installments of $10,000
                  plus interest at prime plus 2.25% through July 1999                                     $         160,000

                  DCA note, held by seller                                                                          117,130
                                                                                                          -----------------

                                                                                                                    277,130
                  Less current portion                                                                              218,094
                                                                                                          -----------------

                  Long-term portion                                                                       $          59,036
                                                                                                          =================
</TABLE>


<PAGE>
                                                                             F20

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998



I.  LONG-TERM DEBT:(Continued)

The aggregate  maturities  for the next five years of all long-term  debt are as
follows at March 31, 1998:

            March 31, 1999                              $         218,094

            March 31, 2000                              $          59,036

            Thereafter                                  $               0

The DCA note represents the balance of a 1992 renegotiated contract.  Presently,
the Company  believes that the former owner of DCA has assisted and is assisting
another company to compete in a business  substantially  similar to the business
of Sklar.  Accordingly,  Sklar has filed legal action  against the former owner.
The Company has not made payments on this obligation since September 1996 and is
pursuing legal remedies to the alleged  infringement of the purchase  agreement.
The Company had paid all previous  payments due, under  protest,  upon advice of
counsel. In the opinion of management the outcome of this action will not have a
material impact on the Company.


J.  LEASE COMMITMENTS:

The  Company  leases  its office and  warehouse  location  on a net basis from a
related  party under an  operating  lease  expiring in 1999.  Additionally,  the
Company leases certain equipment,  including a vehicle,  under various operating
leases expiring in 1999 through 2002.

The Company  leases  computer  equipment  under a capital lease  included in the
equipment caption on the accompanying consolidated balance sheet.

The asset and  liability  are  recorded at the net present  value of the minimum
lease payments,  based on the interest rate approximating  9.5%, implicit in the
lease.  Amortization  of assets  acquired under the capital lease is included in
depreciation expense.


<PAGE>
                                                                             F21

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998


J.  LEASE COMMITMENTS: (Continued)

Future minimum annual rentals under all the aforementioned lease arrangements at
March 31, 1998 are as follows:
<TABLE>
<CAPTION>
                                                                                      Total
                                                                                   Noncancellable
                                                           Capital                   Operating                   Related
                                                            Lease                     Leases                      Party
<S>                                                  <C>                        <C>                       <C>
         1999                                        $           15,561         $         253,207         $         232,800
         2000                                                    15,561                    32,090                    19,400
         2001                                                    18,501                    12,356                     -
         2002                                                     -                         8,675                     -
         Later Years                                              -                         -                         -
                                                     ------------------         -----------------         -----------------

                                                                 49,623         $         306,328         $         252,200
                                                                                =================         =================
         Less amount representing
            interest                                              4,202

         Present value of capital
            lease obligation                                     45,441

            Less current portion                                 14,120
                                                     ------------------

         Long-term obligation                        $           31,301
                                                     ==================
</TABLE>

Total rent  expense for the years ended March 31, 1998 and 1997 was $259,252 and
$225,584, respectively.


K.  STOCKHOLDERS' EQUITY:

Preferred stock accrues cumulative  dividends at $12.50 per year.  Dividends are
payable each June 30, only if declared by the Board of  Directors.  Dividends in
arrears on preferred  stock were  $3,841,950 at March 31, 1998. No dividends may
be paid on the common  stock until  cumulative  dividends  have been paid on the
preferred stock. The preferred stock may be redeemed at the Company's option for
$100 per share,  and is entitled to a liquidation  preference of $100 per share,
$2,195,400 aggregate, plus cumulative dividends.


<PAGE>
                                                                             F22

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998


K.  STOCKHOLDERS' EQUITY: (Continued)

Treasury  stock is recorded  at cost.  The number of shares of stock held in the
treasury was as follows at March 31, 1998:

    Series A Convertible Preferred                                    2,871
    Common                                                          493,288

L.  STOCK OPTIONS:

The Company  granted no stock options or stock  appreciation  rights in the last
fiscal year.  During the fiscal year 1993 the Corporation  issued to Mr. Michael
Malinowski an option for 100,000 shares  exercisable at $.20 per share under the
above Stock Option Plan. The Board of Directors during the fiscal year beginning
April 1, 1993 also  granted an option for 100,000  shares of Common Stock to Mr.
Donald Taylor at an exercise price of $.25 per share. Both Mr.  Malinowski's and
Mr. Taylor's Options will expire on December 31, 2002. In 1988 the Board granted
Mr. Donald Taylor 4,000 options on a new class of  subordinated  preferred stock
at $10.00 per share.  Mr. Taylor has not exercised  these options as of the last
fiscal year

M.  EMPLOYEE BENEFIT PLANS:

The Company  maintains an employee  retirement  plan under which  employees  may
defer a portion of their annual  compensation  pursuant to Section 401(K) of the
Internal Revenue Code. The Company matches  employee  contributions up to 50% of
the first 6% of  eligible  compensation.  There is also a  discretionary  profit
sharing feature  incorporated into the plan.  Eligible  employees are those with
more  than one year of  service  and who work more  than  1,000  hours per year.
Company  contributions  to the plan  amounted to $65,823  and $60,609  including
discretionary  profit sharing  contributions  of $40,000 and $30,000 in 1998 and
1997, respectively.


<PAGE>

                                                                             F23

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998


N.  INCOME TAXES:

As a  result  of the  merger  of  Medco  Jewelry  Corporation  and  Misdom-Frank
Corporation,  management  believes  there may be federal  net  operating  losses
carryforwards  available to Medco Jewelry Corporation at the date of merger that
have transferred to Sklar  Corporation.  Such loss  carryforwards and additional
post-merger operating losses totaling approximately $1,036,000,  which expire in
tax years, 1999 ($50,000), 2000 ($14,000), 2001 ($461,000), and 2002 ($511,000),
are available as deductions  from federal  taxable  income of future years.  For
financial statement purposes,  the net operating loss carryforwards will be used
to reduce  goodwill  as the benefit is  realized.  There are no  operating  loss
carryforwards  for state tax  purposes.  In fiscal 1998 and 1997,  $350,000  and
$308,000, respectively, of the available federal net operating loss carryforward
was applied to reduce federal taxable income. As a result, no federal income tax
was paid by the  Company in these  years.  The  Company's  federal  tax  filings
through March 31, 1993 have been audited by the Internal Revenue Service.

The  Company  accounts  for its income  taxes under the  asset/liability  method
mandated by Financial  Accounting Standards Board Statement No. 109, "Accounting
for Income  Taxes".  Under  this  method a deferred  tax asset or  liability  is
recorded on the tax effects of temporary  differences  between the tax bases and
financial  reporting  amounts  of assets  and  liabilities.  Measurement  of the
deferred tax assets and liabilities is based on the effective tax rates when the
underlying  temporary   differences  occur.  These  temporary   differences  are
primarily due to the net operating loss  carryforwards  and the use of allowance
accounts for financial statement  purposes.  Deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>

                                                                                                       March 31,
                                                                                -------------------------------------------
                                                                                        1998                       1997
                                                                                -----------------         -----------------
<S>                                                                             <C>                       <C>
         Total deferred tax asset                                               $         407,183         $         703,695
         Less valuation allowance                                                         407,183                   703,695
                                                                                -----------------         -----------------
            Net deferred tax asset                                                              0                         0
         Total deferred tax liability                                                           0                         0
                                                                                -----------------         -----------------

            Total deferred tax asset                                            $               0         $               0
                                                                                =================         =================
</TABLE>

<PAGE>
                                                                             F24

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998



N.  INCOME TAXES: (Continued)

The net change in the valuation  allowance for the year ended March 31, 1998 and
1997 was a reduction of $296,512 and $80,879, respectively.

Permanent differences arise due to the amortization of goodwill,  which accounts
for  approximately  75% of the difference  between pre-tax  financial  statement
income and income for tax purposes.


O.  RELATED PARTY TRANSACTIONS:

The Company has the following transactions with related parties:

(a)           The  partners  in  J.B.  Associates,  the  owner  of  the  Company
              premises,  are  directors of Sklar  Corporation.  Rent expense for
              this  building  was  $232,800  and  $196,800  in  1998  and  1997,
              respectively.  Three  months  rent are  prepaid  in the  amount of
              $58,200 at March 31, 1998.

(b)           The Company has outstanding notes receivable from current officers
              and directors amounting to $263,882 at March 31, 1998.

(c)           The Company purchases medical instruments and repair services from
              a company in which the president had been a minority  shareholder.
              The  president  receives a percentage of the gross revenue of this
              company for a period of time as  compensation  for the sale of his
              interest.  Purchases  from this  company  amounted to $653,419 and
              $281,940 for 1998 and 1997,  respectively.  The Company has a note
              receivable from this company in the amount of $50,000 at March 31,
              1998.

(d)           During 1998, the Company paid $4,500 to the former wife of the
              president.


<PAGE>
                                                                             F25

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998



P.  SIGNIFICANT CUSTOMER INFORMATION:

Two customers of the Company provided significant sales volume in 1998 and 1997.
During  these  fiscal  years sales to one  customer  comprised  38.6% and 35.3%,
respectively,  of the Company's total sales.  The second customer  accounted for
12.9% and 13.1% of the respective years' total sales.


Q.  FOREIGN CURRENCY TRANSACTION AND TRANSLATION GAINS (LOSSES):

Gains and  (losses)  recognized  from  foreign  currency  activity  amounted  to
$103,169 and $135,062 in 1998 and 1997, respectively.


R.  SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:

A capital  lease  obligation  of $46,623 was incurred in 1998,  when the Company
entered into a lease for new computer equipment.


S.  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Interest paid amounted to $288,617 and $324,109 in 1998 and 1997, respectively.

Income   taxes  paid   amounted  to  $40,895  and  $11,236  in  1998  and  1997,
respectively.