FORM 10-KSB

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

(Mark One)

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

     For the fiscal year ended             March 31, 1997
                                  ---------------------------------

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

         For the transition period from _____________ to _____________

                          Commission file number 1-6107

                                SKLAR CORPORATION
                 (Name of small business issuer in its charter)

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

889 S. Matlack Street, West Chester, Pennsylvania               19382
(Address of principal executive offices)                      (Zip Code)

Issuer's telephone number           (610) 430-3200

Securities registered pursuant to Section 12(b) of the Exchange Act:
                                                  Name of each exchange
         Title of each class                      on which registered
              None                                         None

Securities registered pursuant to Section 12(g) of the Exchange Act:
                          Common Stock (par value $.10)
                                (Title of class)

             Series A Convertible Preferred Stock ($12.50 Cumulative
               Dividend; Preference Value $100.00; Par Value $.01)
                                (Title of class)

     Check whether the issuer (l) 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]


<PAGE>

     Issuer's revenues for the fiscal year ended March 31, 1997 were
$14,325,963.

     The aggregate market value of common stock held by non-affiliates amounted
to $ 61,197 as of June 30, 1997.

     As of June 30, 1997 there were 1,237,711 shares of the registrant's Common
Stock outstanding.

     Documents incorporated by reference:

     The following documents relate to the Exhibits set forth in the Index to
Exhibits appearing on page 42 as part of Item 14(c), Part IV hereof.

     Registrant's Current Report on Form 8-K dated November 11, 1982.

     Registrant's Current Report on Form 8-K dated November 29, 1984.

     Registrant's Current Report on Form 8-K dated December 19, 1985.

     Registrant's Registration Statement on Form S-1, No. 2-90189.

     Registrant's Annual Report on Form 10-K for the year ended March 26, 1983.

     Registrant's Quarterly Report on Form 10-Q for the quarter ended December
31, 1990.

     Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1993.

     Registrant's Current Report on Form 8-K dated December 13, 1993.

     Registrant's Quarterly Report on Form 10-QA-1 for the quarter ended
December 31, 1994.

     Registrant's Current Report on Form 8-K dated June 17, 1996

Transitional Small Business Disclosure Format:

Yes  _______            No  ___X___

                                     PART I

ITEM 1.  BUSINESS

     (a) On May 16, 1983, Misdom-Frank Corporation ("MFI"), an importer of
surgical, dental and veterinary instruments, merged (the "Merger") with Medco
Jewelry Corporation, a jewelry retailer, pursuant to which Misdom-Frank
stockholders received 77% of the shares of the combined companies outstanding
after the Merger. At the same time, Medco Jewelry Corporation changed its name
to Medco Group Incorporated. For further information on MFI and the Merger,
reference is made to the Company's Report on Form 8-K dated November 11, 1982.

                                      -2-

<PAGE>

     New management determined in 1986 after costs and corporate losses
exceeding one million dollars that the jewelry operation should be closed.
Accordingly, on March 1, 1986 and June 30, 1986, it closed its last two outlets.
That retail division was treated for financial statement purposes as a
discontinued operation at March 31, 1986, and a write-down of its assets to
estimated realizable value was recorded. For further information, reference
Registrant's Form 10-Q for the quarter ended December 31, 1990.

     (b) On December 19, 1985, the Company purchased substantially all of the
assets (other than real estate) and assumed disclosed liabilities of J. Sklar
Mfg. Co., Inc. ("Sklar"), a manufacturer and distributor of surgical
instruments. The assets consisted primarily of accounts receivable, inventories,
trademarks and trade names and machinery and equipment. The Company has
continued the Sklar line, maintaining its image as a premium grade line of
instruments. The purchase price for the assets, calculated as of the December
19, 1985 closing date, equaled one-half of Sklar's adjusted book value. A
settlement in November 1989 allowed for a reduction of approximately $420,000
off the purchase price and concluded the Sklar acquisition. The final accounting
of the transaction resulted in the Company paying for the approximate value of
acquired inventory, less $400,000, and collectible receivables, which resulted
in a purchase price of approximately $1,500,000.

     In December, 1986, the Company moved to West Chester, Pennsylvania. For
further information reference Registrant's Form 8-K dated December 19, 1985.

     (c) On December 30, 1990 the Company purchased all of the assets of Dental
Corporation of America (DCA), a distributor of orthodontic medical supplies. The
acquisition was completed with the use of internal funds, bank line borrowings,
the personal guarantee of Mr. Taylor, and term notes payable to the principal of
Dental Corporation of America. It is management's opinion that the acquisition
of Dental Corporation of America will strengthen the Company's strategic
position in the medical/dental distribution industry. In addition, because a
larger proportion of DCA's merchandise is purchased in $US, foreign currency
fluctuations will have less of an impact on the Company's operating results, to
the extent that sales of these items constitute a larger proportion of the total
sales of the Company. For further information reference Registrant's Form 10-Q
dated December 31, 1990 and the notes to financial statements annexed.

     (d) On July 29, 1993, and amended in February, 1994, the Company entered
into a marketing agreement with the gynecological instrument firm Simpson/Bayse
(S/B), whereby the Company is the exclusive representative of Simpson/Bayse in
certain markets. As part of the agreement, the Company took possession of
certain inventory for which the Company paid $60,000. The former President of
Simpson/Bayse remained in charge of the Company's distributor sales and had a
commission arrangement with the Company for sales to certain customers. In
addition, the former President of Simpson-Bayse agreed not to compete with the
Company in the sale of medical instruments. For further information reference
Registrant's Form 10-Q dated September 30, 1993 and the notes to financial
statements annexed.

                                      -3-

<PAGE>

     Effective June 9, 1995 the Company and the former President of
Simpson/Bayse terminated this agreement, and his role within the Company, to
pursue other business interests which do not appear to be in competition with
the Company. Management does not believe this event will have a significant
impact on the Simpson/Bayse business or the Company. The Company retains all
instrument rights, the Simpson/Bayse name and the exclusive instrument patterns
and processes.

     (e) On November 18,1994 the Company agreed to purchase the inventory and
$26,457 of fixed assets of the Herwig Division of General Medical Corporation
(GMC) for $898,379. The agreement also includes a marketing agreement whereby
the Company commits to supplying GMC with the medical instrument needs for its
customers for a fifty month term.

     (f) In December 1994 and March 1995 the Company made two purchases of
medical instrument inventory, for $60,000 and $227,000, respectively, which had
been sold by a former customer of the Company. The December purchase was made
directly from the President who acquired the inventory as an accommodation to
the Company. The March purchase was made from a company in which the President
is a minority shareholder. The inventory purchases were made to enable the
Company to enhance the product lines presented in its new hospital catalog.

     (g) Effective May 31, 1996, the Company purchased certain inventory,
customer lists and the rights to sell those customers from Surgical Medical
Specialists, Inc. (SMS) for a consideration of $3,306,791. The purchase price
includes non-compete agreements entered into by the officers and key employees
of SMS. This business is an importer of hand-held surgical instruments from
Germany and Pakistan. Because 75% of SMS sales were in Pakistan sourced products
which have a lower sales price and related gross margin in the marketplace, the
Company is experiencing a decline in gross margin percentage on overall Company
sales.

     The primary focus of the acquisition was to meet the needs of our customers
in a consolidating medical supply environment. The Company did not purchase the
operating SMS company, its employees, liabilities accounts receivable nor the
entirety of its inventory. The Company has permitted, by contract, the former
owner and several former employees to operate a non-competing sales organization
in several mid-Atlantic states. See also Item 3. Litigation and Notes to
Financial Statements.

Surgical Instruments
     Presently, the surgical instrument division consists of the combined
Herwig, Misdom-Frank, S/B, Sklar and SMS product lines. MFI was founded in 1938
to import and distribute high quality German surgical instruments in the United
States. Sklar was founded in 1892 as primarily a manufacturer of surgical

                                      -4-

<PAGE>

instruments and, through an acquisition in the 1930's, expanded into suction and
pressure apparatuses. The right to the Herwig name was acquired with the
acquisition of its inventory from GMC in November, 1994. Over the years the
product lines have been broadened so that the Company now serves the dental and
veterinary fields, and the sources of supply have been geographically
diversified.

     Instruments are purchased from approximately 115 suppliers. In fiscal 1996,
approximately 63% of purchases were made in foreign currency from suppliers in
Germany. The remaining purchases were made in US Dollars. In fiscal 1997
approximately 41% of product purchases for resale were made in foreign currency
from German suppliers. The purchase of SMS increased the potential for the
Company to sell lower priced Pakistani products.

     The Company markets instruments that are produced to its specifications by
a number of manufacturers, generally under non-exclusive arrangements. Although
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 and are made to exacting Sklar specifications.
Essentially all the instruments sold by the Company could be provided by more
than one supplier.

     The Company has no material patents. The Company has registered the
following trademarks: "MISDOM-FRANK", "MERIT", "MIFCO", "ECONO", "RALKS",
"SKLAR", "SKLARCUT", "SKLAR HONE", "SKLAR-KLEEN", "SKLAR POLISH", "SKLAR LITE",
"SKLAR LUBE", "SKLAR SOAK" and "SKLAR DISINFECTANT". The recognition factor of
these trademarks is considered to have commercial value.

     The market for surgical instruments consists primarily of hospitals,
individual physicians, and small clinics.

     Hospitals and other users of the Company's products can purchase directly
from manufacturers or from hospital supply dealers (see "Competition" below).
Although "direct marketing" companies (i.e., those manufacturers which have
their own sales force calling on the ultimate purchaser and also referred to
herein as "direct sales" or "direct selling" companies) account for over 50% of
sales to ultimate users of these products, management believes that the market
share held by "dealer-oriented" companies such as itself has been stable in
recent years.

     For a typical independent dealer, instrument sales may represent less than
5% of his total sales; as a result, the practice has developed of depending on
full-line suppliers of general instruments like Sklar to supply such dealers on
a rapid delivery basis. The Company believes that "dealer-oriented" companies
control approximately 30% of the instrument market.

                                      -5-

<PAGE>

     One direct sales company is believed to control approximately one-third of
the market. There are 4 significant dealer-oriented companies and eight direct
sales companies.

     The Company has chosen 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 specialized use for which
significant research and development expenditures are required to compete with
companies with greater financial resources than the Company.

     The Company's product lines comprises more than 9,000 different products
for use in a wide range of surgical procedures, including dental, orthodontic
and veterinary procedures.

     The Company markets its products through the medical distribution network.
The Company's products are advertised in trade periodicals and are also
exhibited at industry trade shows. The Company has approximatley 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 sales in 1997.

Orthodontic Instruments and Products

     DCA markets to very small customers with a small average order size. DCA
advertises in trade periodicals and sells approximately 60% non-proprietary
products and 40% private label products. The primary method for marketing and
distribution of DCA products is catalog sales. DCA has registered the following
trademarks: "DCA Athletic Mouth Protector", "DCA CERAMICS", "DCA DISPOSABLE
TOOTHBRUSH", "DCA KLEEN", "DCA LUBE", "DCA SOAK", "TRAGINATE" and "KNO-KURL
TRACING ACETATE".

Product Line Sales Contribution Summary

     The company has two product lines, surgical and orthodontic. Surgical
instruments and products are marketed through the Herwig, Sklar, MFI and
Simpson/Bayse names. Orthodontic instruments and products are marketed through
the DCA name. For each of the three years ended March 31, 1997, 1996 and 1995
the surgical and orthodontic product lines contributed the following percentages
of total net sales of the Company:

<TABLE>
<CAPTION>

                                                      1997       1996       1995
<S>                                                   <C>        <C>        <C>  
          Surgical instruments and products           93.9%      90.5%      85.2%
          Orthodontic instruments and products         6.1        9.5       14.8
                                                   -------    -------    -------
                                                     100%       100%       100%
                                                   =======    =======    =======
</TABLE>

                                      -6-

<PAGE>

                                     CURRENT

     In June 1996 the company executed a Purchase Agreement with Surgical
Marketing Specialists, Inc. (SMS) of Columbia, Maryland. The 1997 business
efforts of the Company were hampered by the events arising out of the
acquisition of SMS. The Company's purchase agreement with the former owner's of
the business acquired from Surgical Marketing Specialists, Inc. (SMS) provided
for disputes to be handled through arbitration. Certain products and inventory
acquired from SMS are no longer being offered for sale by Sklar due to a
government investigation and information supplied to us by the former principals
and their attorneys of Surgical Marketing Specialists, Inc. The principles of
the SMS business who entered into employment agreements with Sklar have been
terminated and certain other changes are being implemented within the Company as
a result of this situation which may result in Sklar posting significant
inventory write-offs as well as rendering the value of goodwill as zero. Notes
from the purchase assumed by the Sellers continue to be reflected as a
liability, but the $200,000 payment scheduled for December 1, 1996 has not been
paid. The management of the Company does not believe this will pose a threat to
the Company's ability to continue in business, but it does believe it will have
a significant impact on the benefit derived by the Company from the acquisition
of the Surgical Marketing Specialists, Inc. As a result of developments and
information learned since acquisition Sklar's management is of the opinion that
the principals and a relative defrauded Sklar, and accordingly, Sklar is seeking
punitive damages from those individuals as well as asking the panel of
arbitrators to cancel all moneys that Sklar owes to those principals, their
creditors and a firm which they continue to own and operate.

     The events which arose from the acquisition of SMS have significantly
diverted managements time and attention from Company operations which have
negatively impacted profits and expense control. Management believes that while
its attention was focused on the disclosure problems of the old SMS Company that
it lost a significant amount of the business and opportunity that it purchased.

SOURCE OF SUPPLY

Surgical Instruments

     As noted above, the majority of the surgical instrument products are
typically purchased from Germany and Pakistan. In fiscal 1997 and 1996 the value
of domestic purchases remained relatively high (approximately 48% and 34%,
respectively) reflecting the increasing diversification of the Company's
products. 1997's higher domestic purchase percent also was impacted by the SMS
acquisition. The Company expects the predominant amount of its purchases to be
made from Germany and Pakistan in future years. The substantial lead times
between the order date and delivery date (ranging from two weeks to six months)
require that the Company maintain substantial inventory levels to serve its

                                      -7-

<PAGE>

customers' needs. As noted under "Competition" below, one of the factors
involved in this competitive industry is the rapidity with which customers'
needs are satisfied. The Company finances its inventory through its bank credit
line, which, as of March 31, 1997 has an interest cost of 1.25% over prime rate
(see footnotes to financial statements - Section H). The company believes its
operations do not differ materially from other companies in the industry with
respect to inventory carrying costs.

     The Company's backlog of orders is not substantial due to the distribution
nature of the business.






Orthodontic Products

     Historically, virtually all of the Orthodontic products have been purchased
from domestic vendors. Lead times approximate two to eight weeks, depending on
the type of item and the manufacturer's production cycle. An effort is underway
to use imports purchased in $US, and therefore not impacted by currency
fluctuations, to source new products.

PRODUCT DEVELOPMENT

General

     The Company is a distribution business and accordingly does not perform
research for new products.

Surgical Instruments

     The Company's product lines consist of precision implements which generally
have a per unit cost to the end-user of less than $100.00. High volume products
(scissors, hemostats, etc.) average less than $50 per unit. As such, they are
considered supplies, though manufacturing quality is considered highly important
by the user. The line has changed very little in the past three decades due to
the low rate of product obsolescence in the industry. The catalogs published by
the Company for hospital and physician use include 9000 patterns.


                                      -8-


<PAGE>

Orthodontic Products

     Substantial changes have taken place in the orthodontic products field over
the last twenty years. However the development of new products has slowed in the
last five years. DCA is currently positioned as a supply, instrument and
infection-control product source. The Company is known nation-wide for its
unique mouth guard products and educational orthodontic literature. The Company
is expanding its line of orthodontic instruments, intending to offer a
competitive product line, and using the value of its name to develop the market
for these products.

COMPETITION

Surgical Instruments

     The industry in which Sklar competes has two generally distinct segments:
the "direct selling" companies which emphasize specialty products and the
"dealer-oriented" companies which primarily market instruments of general use.
The former are typically divisions of large public corporations, while the
latter are smaller and, with the exception of the Company, privately-owned
companies.

     The direct selling companies tend to emphasize selling to hospitals, which
are the primary market for the products of their research and development
activity. While these companies also offer a line of general purpose instruments
similar to the Company's, they are usually more expensive because of greater
overhead and selling expenses. On lower-priced items, this price differential
can be as great as 50%.

     Dealer-oriented companies such as Sklar sell their products exclusively to,
or through, dealers. Many dealers concentrate on selling to individual
physicians and small clinics for which competition is less and margins are
correspondingly higher. The larger dealers and dealer chains concentrate on
hospitals. Regardless of the mode of distribution, the Company believes the
marketplace for medical instruments will become increasingly competitive and
that will result in lower profit margins.

Orthodontic  Products

     The orthodontic industry is a niche market which DCA sells to by way of
catalogs and promotional mailings. Competition generally uses the same marketing
techniques. DCA believes that it is one of the smaller companies which supplies
orthodontists.


EMPLOYEES

     The Company currently has sixty-three full-time equivalent employees
(including principal executive officers). None of its employees are covered by
collective bargaining agreements. The Company believes its employee relations
are satisfactory.

                                      -9-

<PAGE>
ITEM 2.  PROPERTIES

         The Company's principal executive offices, warehouse and all operations
are presently located at 889 South Matlack Street, West Chester, Pennsylvania
19382. The lease for these premises provides for an annual rental of
approximately $232,800. Approximately half of of the Company's facilities are
used for office space and the remainder serves as the warehouse.


ITEM 3.  LITIGATION

     The Company has filed suit against the former principal of DCA for
violating terms of a non-compete agreement signed as part of a re-negotiated
settlement for the purchase of DCA. This suit will seek the return of all moneys
paid to the former principal to date. This case is currently under appeal to the
Superior Court of Pennsylvania and no assessment of the outcome of the case has
been made by legal counsel. Payments for DCA have been suspended since September
1996 pending the outcome of this case.

     The Company's purchase agreement with the former owner's of the business
acquired from Surgical Medical Specialists, Inc. (SMS) provided for disputes to
be handled through arbitration. Certain products and inventory acquired from SMS
are no longer being offered for sale by Sklar due to a government investigation
and information supplied to us by the former principals of Surgical Medical
Specialists, Inc. The principles of the SMS business who entered into employment
agreements with Sklar have been terminated and certain other changes are being
implemented within the Company as a result of this situation which may result in
Sklar posting significant inventory write-offs as well as rendering the value of
goodwill as zero.

     Notes from the purchase assumed by the Sellers continue to be reflected as
a liability, but the $200,000 payment scheduled for December 1, 1996 has not
been paid. The management of the Company does not believe this will pose a
threat to the Company's ability to continue in business, but it does believe it
will have a significant impact on the benefit derived by the Company from the
acquisition of the Surgical Marketing Specialists, Inc. As a result of
developments and information learned since acquisition Sklar's management is of
the opinion that the principals and a relative defrauded Sklar, and accordingly,
Sklar is seeking punitive damages from those individuals as well as asking the
panel of arbitrators to cancel all moneys that Sklar owes to those principals,
their creditors and a firm which they continue to own and operate.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

     The information called for by this item is not applicable to Sklar
Corporation.

                                      -10-
<PAGE>

                                     PART II

ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER 
          MATTERS

(a)      Principal Market and Stock Price

         Quarter Ended                   High Bid                  Low Bid
         June 30, 1995                      1/8                      1/8
         September 30, 1995                 1/8                      1/8
         December 31, 1995                  1/8                      1/8
         March 31, 1996                     1/8                      1/8
         June 30, 1996                      1/8                      1/8
         September 30, 1996                 1/8                      1/8
         December 31, 1996                  1/8                      1/8
         March 31, 1997                     1/8                      1/8

     Prior to being listed in the NASDAQ System, the Common Stock of the Company
was traded in the over-the-counter market, but there was not an active trading
market and accordingly quotations for, and transactions in, the Common Stock did
not qualify as an "established trading market" as such term is defined in
Securities and Exchange Commission regulations. Trading in the Common Stock is
extremely light. The high and low bid reflect the most recent prices paid for
the stock by Don Taylor, the Company's principal shareholder.

     The stock today is not listed on the NASDAQ System and current information,
if any, to the extent available must be obtained from "pink sheets".

(b)  Approximate Number of Common Stock Security Holders

     The Company had 794 accounts of record of its Common Stock as of March 31,
1997.

(c)  Dividends

     The Company has paid no dividends since 1975. 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 declined to declare dividends in subsequent years.

     Under the terms of the Preferred Stock, commencing March 1, 1986, if less
than $12.50 per share in dividends has been paid on the Series A Convertible
Preferred Stock over any preceding 18 month period, 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 shareholders own or control approximately 62% of the outstanding
preferred stock. See Management's Discussion and Analysis of Financial Condition
and Results of Operations.

                                      -11-
<PAGE>
                         ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                  Year Ended           Year Ended           Year Ended           Year Ended           Year Ended
                                March 31, 1997       March 31, 1996       March 31, 1995       March 31, 1994       March 31, 1993

<S>                              <C>                  <C>                  <C>                  <C>                  <C>         
Revenues                         $ 14,325,963         $  9,400,019         $  6,556,375         $  5,746,289         $  6,195,435
                                 ============         ============         ============         ============         ============


 Earnings from Operations        $    180,039         $    121,705         $     85,709         $     91,120         $     89,543
                                 ============         ============         ============         ============         ============

Loss per share of
  Common Stock (1)               $       (.11)        $       (.15)        $       (.18)        $       (.18)        $       (.18)
                                 ============         ============         ============         ============         ============


Selected Balance Sheet
Data at End of Period:

  Total Assets                   $  9,585,845         $  6,015,591         $  6,259,600         $  4,926,020         $  5,206,392
  Long-term Obligations               798,041              803,910              939,621              163,984              204,272
  Working Capital                     243,788            1,199,119              898,093               58,116             (117,221)
  Current Ratio                        1.04:1               1.37:1               1.26:1               1.02:1                .96:1
</TABLE>


(1)  The Company has not declared or paid dividends in this 5 year period.

                                      -12-
<PAGE>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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,
<TABLE>
<CAPTION>
                             1997          1996          1995          1994          1993
<S>                         <C>           <C>           <C>           <C>           <C>   
Net Sales                   100.0%        100.0%        100.0%        100.0%        100.0%
Cost of Sales                57.0          50.9          47.4          48.1          50.1
Gross Profit                 43.0          49.1          52.6          51.9          49.9
Selling, General &
  Admin. Expenses            38.7          44.3          47.0          46.4          43.3
Other Expense                 0.0           0.0           0.0           0.0           0.9
Income before
  Interest & Taxes            4.2           4.8           5.7           5.5           5.8
Interest Expense              2.8           3.2           4.1           3.7           4.1
Income Before
  Income Taxes                1.5           1.6           1.6           1.9           1.7
Net Income                    1.3           1.3           1.3           1.6           1.4
</TABLE>


Results of Operations

1997 Compared to 1996:

     Sales in fiscal 1997 are $4,925,944 higher than 1996. This increase is a
result of continued growth of market share and the acquisition of SMS. 50% of
the sales growth came from Sklar's two largest customers.

     Cost of Sales, as a percent of sales, increased from 50.9% in 1996 to 57%
in 1997. This increase reflects the increasingly competitive pricing in the
marketplace and changes in product mix. This change is also impacted by the
acquisition of SMS and its emphasis on lower margin products. In 1997 the
Company experienced a $135,062 benefit from currency fluctuation compared to a
$60,688 gain in 1996. Because of the increasingly competitive environment in the
medical supply marketplace and the possibility of less favorable foreign

                                      -13-

<PAGE>

currency exchange rates with the Deutsche Mark, the Company expects cost of
sales as a percent of sales to increase in future years.

     Selling, General and Administrative Expenses for fiscal 1997 increased
$1,381,795, but decreased from 44.3% to 38.7% as a percent of sales compared to
1996. This increased spending is primarily due to the Company's increasing its
emphasis on marketing efforts and the increased overhead costs resulting from
the SMS acquisition. The increased business volume also increased all variable
costs of operations. Additional employees in all facets of the business were
necessary to manage the increased business volume. As a result of this increased
manpower and focus on marketing, related costs have also increased. By hiring an
outside sales force the Company increased its staff to enable it to place
additional emphasis on attaining new business. Beginning in 1997, the Company
adopted the policy of recognizing publication costs of all catalogues as expense
when they are sent to customers. The Company's amortization rate for its
goodwill was increased in 1995 to lives equal to the lower of twenty years or
the remaining estimated useful life. The amortization rate for goodwill
recognized in the SMS acquisition is being amortized over fifteen years. Other
expenses in the administrative aspects of the business also increased as a
result of the increased business level. Any reduction in the purchase price of
SMS and the liability associated therewith will result in a corresponding
decrease in goodwill.


1996 Compared to 1995:

     Sales in fiscal 1996 were $2,843,644 higher than 1995. This increase was
primarily due to the increased business generated from the Company's marketing
agreement entered into with General Medical Corporation (GMC) in November, 1994.

     Cost of Sales, as a percent of sales, increased from 47.4% in 1995 to 50.9%
in 1996. This fluctuation resulted from increasingly competitive pricing in the
marketplace and changes in product mix. In 1996 the Company experienced a
$60,688 benefit from currency fluctuation compared to a $175,559 loss in 1995.

     Selling, General and Administrative Expenses for fiscal 1996 increased
$1,087,326, but decreased from 47.0% to 44.3% as a percent of sales compared to
1995. This increased spending was primarily due to the Company's increasing its
emphasis on sales and marketing efforts and the increased overhead costs due to
the marketing agreement with GMC. The increased business volume also increased
all variable costs of operations. Additional employees in all facets of the
business were necessary to manage the increased business volume. As a result of
this increased manpower and focus on sales and marketing, related costs also
increased. In addition the Company increased its staff to enable it to place
additional emphasis on attaining new business. Other expenses in the
administrative aspects of the business also increased as a result of the
increased business level.

                                      -14-

<PAGE>

1995 Compared to 1994:

     Sales in fiscal 1995 were $810,086 higher than 1994. This increase was
directly attributable to a general price increase and the increased sales
resulting from the marketing agreement entered into during this fiscal year. As
a result of this agreement sales to GMC grew to 20.4% of total sales.

     Cost of Sales, as a percent of sales, decreased from 48.1% in 1994 to 47.4%
in 1995. This decrease resulted from the general price increase and was
partially offset by the rise in value of the Deutsche mark.

     Selling, General and Administrative Expenses for fiscal 1995 increased
$413,513 and from 46.4% to 47.0% as a percent of sales compared to 1994. This
increase was primarily due to the Company's increasing its emphasis on marketing
efforts. As a result of this increased manpower and focus on marketing, related
costs increased. Amortization costs for catalogs and goodwill increased as a
result of changes taking place in the health care market place. The Company
believed the increasing competition may cause the Company to publish new
catalogs faster than had historically been required and as a result decreased
the estimated useful lives of existing catalogs. The Company's amortization rate
for its goodwill was increased to lives equal to the lower of twenty years or
the remaining estimated useful life. Other expenses in the administrative
aspects of the business increased as a result of the increased business level
primarily resulting from the Herwig transaction.


Effects of Dollar Weakness

     In 1997 and 1996 the Company purchased 41% and 63%, respectively, of its
medical instrument products in Deutsche marks. Orders are placed in Deutsche
marks and payment is made within three to six months after the order is placed.
The Company has not engaged in forward purchases of foreign currency, but has
chosen to buy according to its weekly needs as payable amounts become due.
During 1997 the Deutsche mark continued to weaken against the dollar resulting
in a $135,062 benefit to the Company. The effect of the dollar strengthening in
fiscal 1996 resulted in a gain for the year of $60,688. 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.

                                      -15-

<PAGE>

Liquidity and Capital Resources

     Working capital decreased in 1997 by $893,365 over 1996. This resulted
primarily from the increased debt level taken on to accomplish the SMS
acquisition. The increased sales level which resulted in increased accounts
receivable, an increase in inventory and a corresponding increase in trade
payables also had an impact on working capital. The acquisition was financed by
an increased bank line of credit with interest payable at the Bank's National
Commercial Rate (BNCR) plus 1.25%. The Company pays .25% per annum for its
unused line and has entered into a contract with the bank to provide for
interest rate protection on $2,000,000 through August of 1997. Total borrowings
under the line of credit initially could not exceed the lesser of $3,750,000 or
the Borrowing Base, which is the sum of 80% of qualified Accounts Receivable and
50% of qualifying inventory. Effective April 1, 1997 borrowing under the line of
credit is amended to be no greater than $3,000,000. The new agreement also
facilitates a $100,000 letter of credit, which is a sub-line of the line of
credit facility, and foreign currency contract purchases.

     Effective May 31, 1996, the Company purchased for $3,306,791 certain
inventory and assumed the rights to sell certain products from Surgical Medical
Specialists, Inc. $1,700,000 of the purchase was financed by the Company's line
of credit, $900,386 by an assumption of liabilities subject to the Agreement and
$706,405 by Seller financed notes payable over a thirty month term in varying
amounts commencing on December 1, 1996. As soon as management became aware of
disputes and alleged misrepresentation on the part of the Seller no further
amounts have been paid to the Seller or for the Seller in respect of the
liabilities recorded at the time of acquisition of SMS.

     The Company's peak short-term borrowing pursuant to lines of credit were 
$2,999,000 in 1997 and $1,625,000 in 1996. At March 31, 1997, the Company's
outstanding line of credit was $2,768,000, leaving $206,000 available, after
reduction for a $26,000 stand-by letter of credit and foreign exchange purchase,
assuming sales and operations remain at the current levels. 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 were adequate, in 1997, to finance the
Company's capital additions. Significant inventory purchases were made by the
Company during fiscal 1997 to maintain our customers' fill rates until the
Company became familiar with its new product lines. Some problems identified
with the inventory acquired from SMS impacted the Company's ability to decrease
inventory during 1997. The Company has identified slow moving inventory that it
acquired from SMS which has impacted the Company's ability to reduce inventory
during 1997. The contract provides the Company with indemnification against all
acquired inventory not sold within one year from the SMS acquisition of SMS. The
Company , in arbitration, will be seeking the return of money's already paid to
SMS due to this slow-moving inventory and other alleged misrepresentation ( See
Litigation, Item 3.)

     On January 31, 1996 the Company entered into amended agreements with
Corestates Bank restructuring the then existing financing agreements. The
amendments provided for a reduction in the line of credit to $1,600,000 and a
reduction in the interest rate on the line of credit to BNCR plus 1.25%. In
addition a $500,000 term loan was established with interest at the BNCR plus
2.25%, on which principal of $16,667 and accrued interest was scheduled to be
paid in 30 monthly installments commencing March 1, 1996 and due in full August
1, 1998.

     During fiscal 1995 the Company upgraded its computer capability to meet the
needs of its expanded business requirements. The new computer was leased for 2
years commencing November, 1994. Further improvements to the computer system are
identified as necessary for fiscal 1998. The present bank financing facility
expires on August 29, 1997 and will be renegotiated before that time. Management
believes the bank facilities will continue to be sufficient to meet the
Company's liquidity needs in the foreseeable future.

                                      -16-
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


Index to Consolidated Financial Statements 
and Supplementary Financial Data                                            Page



      Independent Auditors' Report ...........................................17

Financial Statements:

      Consolidated Balance Sheets as of March 31, 1997 and 1996...............18
      Consolidated Statements of Income
         for the years ended March 31, 1997, 1996 and 1995 ...................19
      Consolidated Statements of Stockholder's Equity ........................20
      Consolidated Statements of Cash Flows
         for the years ended March 31, 1997, 1996 and 1995 ...................21
      Notes to Consolidated Financial Statements ..........................22-37

                                      -17-


<PAGE>



                          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, 1997 and 1996 and the related consolidated
statements of income, stockholders' equity and cash flows for the years ended
March 31,1997,1996 and 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these 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 financial position of Sklar
Corporation as of March 31,1997 and 1996, and the consolidated results of its
operations and its cash flows for the years ended March 31,1997, 1996 and 1995,
in conformity with generally accepted accounting principles.





                                                  STOCKTON BATES & COMPANY, P.C.



Lancaster, Pennsylvania 
July 3, 1997

                                      -18-
<PAGE>



                                SKLAR CORPORATION

                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                             March 31
ASSETS                                                              1997                  1996
<S>                                                             <C>                   <C>        
CURRENT ASSETS:
     Cash (Note C)                                              $     7,506           $   128,869
     Accounts Receivable (Note D)                                 2,467,535             1,410,019
     Inventories (Note E)                                         4,128,912             2,839,988
     Prepaid Expenses                                               238,311                22,635
                                                                -----------           -----------
TOTAL CURRENT ASSETS                                              6,842,264             4,401,511

EQUIPMENT AND IMPROVEMENTS (Note F)                                 554,385               444,227
GOODWILL (Notes B, G and I)                                       2,012,213               842,931
OTHER ASSETS (Note G)                                               176,983               326,922
                                                                -----------           -----------
TOTAL ASSETS                                                    $ 9,585,845           $ 6,015,591
                                                                ===========           ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
     Cash Overdraft                                             $   198,243           $        --
     Short-term Bank Borrowings (Note H)                          2,768,088               895,000
     Current Portion-Long-Term Debt (Note J)                        178,094               489,534
     Current Portion-Capital Lease Obligation (Note N)                    0                14,689
     Trade Accounts Payable (Note K)                              3,217,304             1,687,602
     Accrued Expenses                                               209,322               104,901
     Accrued Income Taxes (Note I)                                   27,425                10,666
                                                                -----------           -----------
TOTAL CURRENT LIABILITIES                                         6,598,476             3,202,392
     Long-term Debt (Note H and J)                                  798,041               733,684
     Other Liabilities (Note K)                                           0                70,226
                                                                -----------           -----------
TOTAL LIABILITIES                                                 7,396,517             4,006,302
                                                                -----------           -----------

COMMITMENTS AND
     CONTINGENT LIABILITIES (Notes B, N and L)                            0                     0
STOCKHOLDERS' EQUITY (Notes B, L and M):
     Series A convertible preferred stock, par value
       $.01 per share, authorized, 35,000 shares;
       issued and outstanding 24,825 shares                             248                   248
     Series A subordinate convertible preferred stock,
       no par value, authorized 4,000 shares; issued
       and outstanding -0-                                                0                     0
     Common stock, par value $.10 per share,
        authorized, 1,500,000 shares; issued and
        outstanding, 1,237,711 shares                               123,771               123,771
     Additional Paid-in Capital                                   2,106,482             2,106,482
     Accumulated Deficit                                            (41,173)             (221,212)
                                                                -----------           -----------
TOTAL STOCKHOLDER'S EQUITY                                        2,189,328             2,009,289
                                                                -----------           -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY                        $ 9,585,845           $ 6,015,591
                                                                ===========           ===========
</TABLE>
                        See notes to financial statements

                                      -19-
<PAGE>

                                SKLAR CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                      For the Year Ended March 31
                                                            1997                  1996                    1995
<S>                                                    <C>                    <C>                    <C>         
Net Sales (Note P)                                     $ 14,325,963           $  9,400,019           $  6,556,375

  Cost of Goods Sold                                      8,162,770              4,784,355              3,105,027
                                                       ------------           ------------           ------------

Gross Profit                                              6,163,193              4,615,664              3,451,348

  Selling, General and Administrative Expense             5,549,876              4,168,081              3,080,755
                                                       ------------           ------------           ------------

Income from Operations                                      613,317                447,583                370,593

Other Income (Expenses):
  Other                                                      (5,748)                     0                  4,664
  Interest                                                 (395,331)              (302,698)              (268,548)
                                                       ------------           ------------           ------------
       Other Expenses - Net                                (401,079)              (302,698)              (263,884)
                                                       ------------           ------------           ------------

Income before Taxes                                         212,239                144,885                106,709

Provisions for Taxes Currently Payable
  State                                                     (32,200)               (23,180)               (21,000)
                                                       ------------           ------------           ------------

Net Income                                                  180,039                121,705                 85,709

Preferred Dividend Requirement (Note L)                     310,312                310,312                310,312
                                                       ------------           ------------           ------------

Loss Applicable to Common Shares                       $   (130,273)          $   (188,607)          $   (224,603)
                                                       ============           ============           ============


Per Share Data:
  Weighted Ave. Common Shares Outstanding                 1,237,711              1,237,711              1,237,711

  Loss Per Share                                       $       (.11)          $       (.15)          $       (.18)
                                                       ============           ============           ============
</TABLE>



                        See notes to financial statements

                                      -20-
<PAGE>

                                SKLAR CORPORATION

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                          Series A         Series A                     Additional
                                         Convertible     subordinated      Common         Paid-in       Accumulated
                                          Preferred       Conv. Prfd        Stock         Capital          Deficit        Total
<S>                                      <C>              <C>            <C>          <C>              <C>            <C>        
Balance, March 31, 1994                     $ 248            $  0         $ 123,771    $ 2,106,482      $ (428,626)    $ 1,801,875

Net Income for the fiscal year
ended March 31, 1995                                                                                        85,709          85,709
                                          -------         -------         ---------    -----------      ----------     -----------
Balance, March 31, 1995                       248               0           123,771      2,106,482        (342,917)      1,887,584

Net Income for the fiscal year
ended March 31, 1996                                                                                       121,705         121,705
                                          -------         -------         ---------    -----------      ----------     -----------
Balance, March 31, 1996                       248               0           123,771      2,106,482      $ (221,212)    $ 2,009,289

Net Income for the fiscal year
ended March 31, 1997                                                                                       180,039         180,039
                                          -------         -------         ---------    -----------      ----------     -----------
Balance, March 31, 1997                     $ 248            $  0         $ 123,771    $ 2,106,482        $(41,173)    $ 2,189,328
                                          =======         =======         =========    ===========      ==========     ===========
</TABLE>


                        See notes to financial statements

                                      -21-
<PAGE>

                                SKLAR CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
                                                                   For the Year Ended March 31
                                                               1997             1996             1995
<S>                                                       <C>              <C>              <C>        
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net Income                                           $   180,039      $   121,705      $    85,709
     Adjustments to reconcile net income to
       net cash provided by operating activities
         Depreciation and amortization                        463,102          468,673          433,429
         Provision for losses and returns
             on accounts receivable                            54,000           32,093           19,019
         Loss on abandonment of assets                          5,748
         Change in operating assets and liabilities:
              (Increase) in accounts receivable            (1,111,516)        (269,814)        (137,998)
              (Increase)Decrease in inventory                 585,423          170,795       (1,114,237)
              (Increase) Decrease in prepaid expenses        (215,676)           5,655           26,389
              Increase(Decrease) in accounts payable          559,090          (88,250)         732,896
              Increase in accrued expenses                    104,421            8,787            4,201
              Increase (Decrease)in income taxes               16,759            3,025          (31,359)
                                                          -----------      -----------      -----------
              Total Adjustments                               461,350          330,964          (67,660)
                                                          -----------      -----------      -----------

         Net cash provided by operations                      641,389          452,669           18,049
                                                          -----------      -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
         Capital expenditures                                (236,823)        (153,641)        (165,905)
         Acquisition of SMS                                (1,700,000)              --               --
         Intangible Assets                                    (54,083)               0         (248,180)
                                                          -----------      -----------      -----------
         Net cash used in investing activities             (1,990,906)        (153,641)        (414,085)
                                                          -----------      -----------      -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Cash overdraft                                           198,243
     Net borrowing (payments)
         on line-of-credit agreement                         (410,734)         110,000           39,000
     Borrowing on credit line for acquisition               1,700,000               --               --
     Principle payments on long-term debt
         and capital leases                                  (259,355)        (399,276)        (207,803)
     Proceeds from issuance of long-term debt                       0                0          700,000
                                                          -----------      -----------      -----------
              Net cash provided by (used in)
              financing activities                          1,228,154         (289,276)         531,197
                                                          -----------      -----------      -----------

NET INCREASE(DECREASE) IN CASH                               (121,363)           9,752          135,161
CASH BEGINNING OF YEAR                                        128,869          119,117          (16,044)
                                                          -----------      -----------      -----------

CASH END OF THE YEAR                                      $     7,506      $   128,869      $   119,117
                                                          ===========      ===========      ===========
</TABLE>

                        See notes to financial statements

                                      -22-
<PAGE>

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            YEAR ENDED MARCH 31, 1997

A.   Summary of Significant Accounting Policies,

Financial Statments:

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

Business operations:

     The Company is a distributor and contract manufacturer 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. Most of the instruments are
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.

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. In 1997 the
Company made an accounting change wherein elements of overhead were eliminated
from the total inventory valuation. Note E to the 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 over the useful lives of the assets which
are estimated to be three to ten years for equipment and the shorter of the life
of the lease or the life of the asset for leasehold improvements.

Goodwill and Other Assets:

     Goodwill and other assets are stated at cost less accumulated amortization.
Amortization is provided on a straight-line basis.

Loss per share:

     Loss per common 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.

                                      -23-

<PAGE>

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            YEAR ENDED MARCH 31, 1997
                                   (Continued)

A.   Summary of Significant Accounting Policies, (continued):

Revenue Recognition:

     Revenue is recognized upon the shipment of goods to customers. Returns of
goods are recorded as an adjustment to sales upon receipt.

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 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.   Acquisitions and Corporation Changes:

     On July 30, 1982, R-P Instruments, a corporation organized by Argosy
Capital Incorporated as a vehicle for acquisition, acquired all of the
outstanding common stock of Misdom-Frank Corporation. Subsequently, Misdom-Frank
Corporation was merged with R-P Instruments in a tax-free liquidation with the
surviving corporation known as Misdom-Frank Corporation. The purchase price of
$4,050,000 consisted of $3,500,000 cash and $550,000 long-term subordinated
notes.

     Because the transaction was treated as a purchase, the assets of
Misdom-Frank Corporation were adjusted to fair value at acquisition which
resulted in goodwill of approximately $78,000.

     On November 3, 1982, Medco Jewelry Corporation entered into a merger
agreement with Misdom-Frank Corporation and its parent, Argosy Capital
Incorporated. The proposed merger was approved by the shareholders of the
respective companies and became effective May 16, 1983, after approval by the
appropriate state authorities. The merger provided for the issuance of 660,000
shares of Medco Jewelry Corporation common stock for all of the outstanding
shares of Misdom-Frank Corporation.

                                      -24-
<PAGE>
                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            YEAR ENDED MARCH 31, 1997
                                   (Continued)

B.   Acquisitions and Corporation Changes, (continued):

     The transaction was accounted for as a purchase and resulted in Medco
Jewelry Corporation becoming a majority-owned subsidiary of Argosy Capital
Incorporated. As a result, the transaction was considered to be a reverse
acquisition with Misdom-Frank Corporation as the acquiring company. The
allocation of the acquisition cost to the net assets of Medco Jewelry
Corporation was based on estimated fair value of its assets at that date and
resulted in additional goodwill of approximately $466,000.

The net funds used in the acquisition are summarized as follows:

               Assets acquired:
               Net current assets                   $ 77,752
               Equipment and advances                 80,583
               Other assets                          597,091
                                                    --------
                                                     755,426
               Less:
               Net current assets acquired            77,752
                Long-term obligations                392,400

                                                     470,152

               Net funds used in acquisition        $285,274



     In December, 1985, the company acquired certain assets and certain
liabilities of J. Sklar Manufacturing Company. At the time of the purchase, net
assets acquired exceeded assumed liabilities and costs resulting in negative
goodwill.

     During the fiscal year ended March 31, 1987, it became apparent that the
assets acquired in the Sklar acquisition were overstated; and the Company filed
a RICO action against the former principal and their counsel. In July, 1987, the
Defendant offered to reduce the remaining obligations from the purchase to
$100,000 from $450,740. This proposed settlement was reflected in the financial
statements at March 31, 1988. As a result, long-term obligations were reduced by
$350,740; and negative goodwill of $363,810 was reduced to zero. These items
offset the write-down in current assets of $297,731 and in non-current assets of
$25,827. Additionally, $390,992 of expenses incurred during fiscal year ended
March 31, 1987 in connection with the litigation

                                      -25-
<PAGE>

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            YEAR ENDED MARCH 31, 1997
                                   (Continued)

B.   Acquisitions and Corporation Changes, (continued):

have been reclassified against the liabilities to reflect the true cost of the
acquisition. In November 1989 a settlement was reached whereby the remaining
obligation would be settled for $80,000. The change from the prior year was
booked as a reduction of other current liabilities and goodwill in the amount of
$20,000.

On December 31, 1990 the Company purchased all the assets of Dental Corporation
of America, a distributor of orthodontic medical supplies. The acquisition was
completed with the use of internal funds, bank line borrowings, and term notes
payable to the principal of Dental Corporation of America. The acquisition cost
is calculated as follows:

               Purchase price               $ 946,613
               Net book value of DCA         (328,332)
                                            ---------
               Goodwill                     $ 618,281
                                            =========

     The Company records as additional revenues credits which cannot be applied
to customer balances. $283,963 of these credits existed as part of the purchase
of Dental Corporation of America and were recorded as revenue in the year ended
March 31, 1991.

     On November 18, 1994 the Company purchased the inventory of the Herwig
Division of the General Medical Corporation (GMC) for $871,922. In addition, and
as part of the purchase agreement, the Company entered into a marketing
agreement whereby the Company committed to supplying GMC with its medical
instrument needs for its customers for a fifty month term. GMC is under no
obligation to buy any items from the Company during the term of the agreement,
but the Company is obligated to meet certain delivery requirements and make
certain marketing incentive payments if items are purchased by GMC.

     Effective May 31, 1996 the Company acquired certain assets and assumed
certain liabilities of Surgical Medical Specialists, Inc. (SMS) 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 liabilities, subject to the agreement, and $706,405 of notes
payable to the Seller. Subsequent to the acquisition it was determined certain
inventory may be misrepresented or mislabeled and could not be sold in the
United States in accordance with regulations of the US Customs and Food and Drug
Administration. Said inventory is currently in the possession of the US
Government and accordingly is no longer reflected as an asset of the Company,
but was offset against amounts payable to SMS. The Company is taking action
against the former owners of SMS to recoup the amount it believes it lost as a
result of these circumstances which had not been disclosed prior to the
acquisition. The Company intends to pursue its claims in arbitration and the
court system against the former owners and management of SMS. In addition to

                                      -26-
<PAGE>

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            YEAR ENDED MARCH 31, 1997
                                   (Continued)

B.   Acquisitions and Corporation Changes, (continued):

cancellation of remaining obligations to SMS the liabilities assumed from SMS
in the acquisition are subject to the Purchase Agreement with the Company which
provides an indemnification to SMS for these liabilities which indemnification,
in the opinion of management, is void due to the alleged misrepresentation of
the Seller. Thus, $706,000 of the liabilities assumed in the SMS acquisition
subject to the agreement, to the extent not paid, will be deducted from goodwill

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, 1997 the Company had the following concentrations of cash
subject to credit risk:

                Germany                       $7,506

     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.

     The estimated fair value of the Company's financial instruments, both on
and off balance sheet, are summarized as follows:

                                              March 31, 1997
                                        Carrying        Estimated
                                         Amounts        Fair Value
               Cash                     $  7,506        $  7,506
               Long-term debt           $976,135        $991,619
               Other liabilities        $ 61,971        $ 58,819

D.   Accounts Receivable:
<TABLE>
<CAPTION>
Accounts receivable consist of the following:                                               March 31
                                                                                    1997                1996
<S>                                                                              <C>                 <C>        
               Trade Receivables                                                 $ 2,337,642         $ 1,429,105
               Other Receivables (including a related party receivable of
                    $238,556 in 1997 and $12,768 in 1996)                            235,807              35,914
                                                                                 -----------         -----------
                                                                                   2,573,449           1,465,019
               Allowance for Doubtful Accounts and Sales Returns                    (105,914)            (55,000)
                                                                                 -----------         -----------
                                                                                 $ 2,467,535         $ 1,410,019
                                                                                 ===========         ===========
</TABLE>

                                      -27-

<PAGE>

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            YEAR ENDED MARCH 31, 1997
                                   (Continued)

D.   Accounts Receivable, (continued):

     The related party receivable at March 31, 1997 includes $199,562, net due
from the Company's President, Don Taylor. In conjunction with this amount
substantial personal assets of Mr. Taylor are pledged as collateral for Company
loans.


E.   Inventories:

<TABLE>
<CAPTION>
Inventories consist of the following:                                                             March 31
                                                                                          1997                 1996
<S>                                                                                    <C>                 <C>        
Sklar, Herwig, SMS and MFI Surgical Instruments from Germany (including customs
     and freight of $148,425
     and $154,033 in 1997 and 1996, respectively)                                      $ 2,194,353         $ 2,325,467
Sklar, Herwig, SMS and MFI Surgical Instruments not
     from Germany (including freight of $124,211 and
     $6,634 in 1997 and 1996, respectively)                                              2,210,273             397,075
DCA Products (including freight of $3,417
     and $4,113 in 1997 and 1996, respectively)                                            174,286             209,749
Inventory Overhead                                                                               0             232,697
                                                                                       -----------         -----------
                                                                                         4,578,912           3,164,988
Less Valuation Allowance                                                                  (450,000)           (325,000)
                                                                                       -----------         -----------
                                                                                       $ 4,128,912         $ 2,839,988
                                                                                       ===========         ===========
</TABLE>

     During 1997 the Company made a change in accounting and eliminated certain
elements of overhead as part of the total inventory valuation. Operating costs
included in inventory amounted to $232,697 at March 31, 1996. Inventory overhead
of $298,929 is excluded from inventory in 1997. Total operating costs incurred
relating to inventory during 1997, 1996 and 1995 amounted to $564,977, $378,175
and $360,999, respectively. The dollar effect of the change in the statement of
income amounts to $298,929 in 1997 and $1,287 and $80,656 in 1996 and 1995,
respectively.

F.   Equipment and Improvements:
<TABLE>
<CAPTION>
Equipment and improvements consist of the following:                                 March 31
                                                                             1997                1996
<S>                                                                      <C>                 <C>        
Furniture and Equipment (including assets acquired under
     capital leases of $40,713)                                          $   846,866         $   661,866
Leasehold Improvements                                                       259,617             218,405
                                                                         -----------         -----------
                                                                           1,106,483             880,271
Less Accumulated Depreciation and Amortization
     (including amounts applicable to assets acquired
     under capital leases of $20,357 in 1997 and $12,214 in 1996)           (552,098)           (436,044)
                                                                         -----------         -----------
                                                                         $   554,385         $   444,227
                                                                         ===========         ===========
</TABLE>

                                      -28-

<PAGE>

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            YEAR ENDED MARCH 31, 1997
                                   (Continued)

F.   Equipment and Improvements, (continued):

     Depreciation and amortization expense for equipment and improvements,
including assets acquired under capital leases, amounted to $120,917 in 1997,
$112,962 in 1996, and $94,233 in 1995.

G.   Goodwill and Other Assets:

Other assets consist of the following:
                                               March 31
                                         1997             1996
Catalog Development Costs (Net)        $130,142        $316,826
Acquisition Costs (Net)                  45,068           7,414
Patents (Net)                             1,773           2,682
                                       --------        --------
                                       $176,983        $326,922
                                       ========        ========

     The following table summarizes the lives and amortization expense for
goodwill and other assets:

<TABLE>
<CAPTION>
                                                                        Amortization Expense
                                            Life in Years         1997          1996          1995
<S>                                           <C>               <C>           <C>           <C>      
Goodwill                                        15-20             $ 138,163     $  65,526     $  62,000
Catalog Development Costs                     11/2 - 5              186,685       237,145       232,018
Acquisition Costs                                 5                  16,428        52,131        44,266
Patents                                        16 1/2                   909           909           912
                                                                  ---------     ---------     ---------
                 TOTAL                                             $342,185      $355,711      $339,196
                                                                  =========     =========     =========
</TABLE>

     Additions to Other Assets arise from the acquisition of companies or loans,
in the case of goodwill and acquisition costs, and from the costs incurred in
creating, producing and distributing new and existing catalogs in the case of
catalog development costs. Reductions in intangible assets result from
amortization of the assets over their useful or prescribed lives. For fiscal
years subsequent to March 31, 1995, Catalog Development Costs are expensed as
incurred, except beginning in 1997 finished catalogs not distributed are treated
as a prepaid expense. The dollar effect of the change relating to finished
catalogs amounted to $201,260 in 1997. Goodwill may be also reduced by an amount
equal to the amount of Federal tax net operating loss carry-forwards (NOLs) used
to reduce the Company's federal income tax liability to the extent that the
benefit amount computed exceeds normal goodwill amortization. Regardless of the
impact of the accounting policy for the use of NOLs, the amortization period for
goodwill has been reduced prospectively in light of the changes in the health
care industry to the lower of the remaining life or twenty years. The dollar
effect of the change in estimate relating to catalog development and goodwill
amortization was $76,988 for 1995.

                                      -29-
<PAGE>
                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            YEAR ENDED MARCH 31, 1997
                                   (Continued)

H.   Short-term Bank Borrowings:

     The following table shows the Company's short term bank borrowings for the
past three fiscal years:
<TABLE>
<CAPTION>
                                                          Maximum Amount        Average Amount
                                            Interest      Outstanding During    Outstanding During     Weighted Average
                           Balance          Rate at End   the                   the Period (B)         Interest Rate During
                           at End           of Period     Period (A)                                   the Period (C)
                           of Period
<S>                       <C>                <C>          <C>                   <C>                        <C> 
   March 31, 1997          $2,768,088         9.75%        $2,999,000            $2,382,064                 9.5%
   March 31, 1996            $895,000         9.50%        $1,625,000            $1,376,250                11.1%
   March 31, 1995          $1,285,000        11.25%        $1,646,000            $1,390,250                10.8%

<FN>
(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.
</FN>
</TABLE>

     At March 31, 1997 the Company's revolving line of credit of $3,750,000 is
available to the extent of collateral by the sum of 80% of qualifying accounts
receivable plus 50% of inventories. Qualifying accounts receivable and inventory
used as a basis for the March 31, 1997 borrowing totaled $5,564,273. Unused
available credit at March 31, 1997 was $620,000 after considering an outstanding
$26,000 standby letter of credit and foreign currency purchase. The maximum
revolving line of credit is reduced to $3,000,000 on April 1, 1997 and, as a
result, the unused available credit is reduced to $200,000.

     Borrowings from this line bear interest at the Bank's National Commercial
Rate (its prime rate) plus 1.25% (one and one-quarter percent) at March 31,
1997.

     At March 31, 1997 the Company had outstanding borrowings of $2,768,088 and
the Prime Rate was 8.50%. The interest expense on short-term bank borrowings for
1997, 1996, and 1995 amounted to $226,394, $152,117 and $152,178, respectively.

     The terms of the borrowing agreement state that the Company may not,
without prior consent of the lender, declare or pay any dividends or incur
additional debt or obligations. The Company's President, Mr. Don Taylor,
personally guaranteed all obligations under this agreement secured by a lien on
his personal assets and his common and preferred shares of the Company's stock.

I.   Income Taxes:

     As a result of the merger of Medco Jewelry Corporation and Misdom-Frank
Corporation, management believes there may be federal net operating loss
carry-forwards available to Medco Jewelry Corporation at the date of merger that
have transferred to Sklar Corporation. Such loss

                                      -30-

<PAGE>

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            YEAR ENDED MARCH 31, 1997
                                   (Continued)

I.   Income Taxes, (continued):

carry-forwards and additional post-merger operating losses totaling
approximately $1,946,000, which expire in tax years, 1998 ($910,000), 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 carry-forwards will be used to reduce
goodwill as the benefit is realized. There are no net operating loss
carry-forwards available for state tax purposes. In fiscal 1997, 1996, and 1995,
$308,000, $211,000, and $149,000 of the available federal net operating loss
carry-forward was applied to reduce the federal taxable income. As a result, no
federal income tax was paid by the Company in these years. The Company's federal
tax filings for all years 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, different depreciation
methods and the use of allowance accounts for financial statement purposes.

         Deferred tax assets and liabilities are as follows:
                                              March 31, 1997    March 31, 1996
          Total deferred tax asset               $615,574        $692,925
          Less valuation allowance                607,408         688,287
                                                 --------        --------
                   Net deferred tax asset           8,166           4,638

          Total deferred tax liability              8,166           4,638
                                                 --------        --------

          Total deferred tax asset               $      0        $      0
                                                 ========        ========

     The net change in the valuation allowance for the year ended March 31, 1997
and 1996 was a reduction of $80,879 and $465,440.

     Permanent differences arise due to the amortization of goodwill, which
accounts for approximately 98% of the difference between pre-tax financial
statement income and income for tax purposes.

J.   Long-term Debt:

     On May 20, 1994 the Company entered into agreements with Corestates Bank to
restructure its financing agreements. The line of credit established at that
date had a maximum principal amount of $1,600,000, replacing the former
$2,000,000. Simultaneously, the Company negotiated a three year term loan of
$400,000 to be repaid in 36 monthly installments of $11,111 plus interest

                                      -31-

<PAGE>

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            YEAR ENDED MARCH 31, 1997
                                   (Continued)

J.   Long-term Debt, (continued):

commencing June 1, 1994 and due in full May 1, 1997. These loans were secured by
the accounts receivable, inventory, and all tangible and intangible assets of
the Company, and personally guaranteed by Mr. Don Taylor, President of the
Company.

     On November 18, 1994, coincident with the purchase of inventory from the
Herwig Division of the General Medical Corporation, the Company entered into an
additional short term borrowing with Corestates Bank which, on December 28,
1994, was converted to a 60 month borrowing arrangement. The long-term agreement
with Corestates Bank, guaranteed by the United States Small Business
Administration (SBA), provided for the Company to borrow $700,000 with interest
at New York's Prime Rate plus 2.25% payable monthly. The principal is repayable
in monthly amounts beginning in March 1995. The first three monthly principal
payments were $50,000 and the remainder are $10,000 through December, 1999. This
loan is secured by the Herwig inventory and all of the Company's other tangible
and intangible assets. Additional monthly principal payments are required if the
outstanding principal on the loan exceeds 50% of the Herwig inventory value,
including replacement inventory purchased in the ordinary course of business.

     Effective January 31, 1996 the Company amended its line of credit with the
bank and entered into a $500,000 term loan to be repaid in 30 equal principal
installments of $16,668 plus interest at the BNCR plus 2.25%. These loans are
secured by the accounts receivable, inventory, and all tangible and intangible
assets of the Company, and personally guaranteed by Mr. Don Taylor, President of
the Company.

     The contract under which Dental Corporation of America (DCA) was acquired
was renegotiated in April 1992. The renegotiated contract, among other things,
changed the payment terms from three annual payments of $100,000 plus interest
and royalties based upon future sales, to a fixed monthly payment of $12,000 for
one year commencing April 1, 1992 followed by a monthly payment of $5,000 for
six years commencing April 1, 1993. The effective interest rate of this new
agreement is 20.1% The gross payments and associated liability under the new
agreement are substantially the same as those which were recorded, including
interest, upon the acquisition of DCA. Accordingly, there has been no change to
the financial statements in connection with this renegotiation. The new
agreement did, however, change the aggregate prospective maturities

     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.

                                      -32-
<PAGE>

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            YEAR ENDED MARCH 31, 1997
                                   (Continued)

J.   Long-term Debt, (continued):

     Legal counsel has indicated that if it is determined that the former owner
has committed the acts as stated by the Company (violation of the non-compete
clause of the renegotiated agreement), the Company may be entitled to relief
from all payments, past, present and remaining, otherwise due under the
agreement. This debt is uncollateralized, and is subordinate to the Company's
short-term bank borrowings.

     The amended line of credit agreement with Corestates Bank established a new
line of credit amount at $3,750,000, which reduces to $3,000,000 on April 1,
1997 and is available to the Company to the extent collateral is available to
support a borrowing amount. Collateral is comprised of 80% of qualifying
accounts receivable and 50% of inventory. Accounts receivable must support at
least 50% of the outstanding line of credit after December 1, 1996. In addition
the Company must meet certain working capital, net worth and tangible net worth
requirements at various times during the term of the line of credit agreement
which expires at June 30, 1997. The $400,000 and $500,000 term loans payable to
the Bank have been paid off by the line of credit. The interest rate on the line
of credit is BNCR plus 1.25%. The Company is also required to provide for
interest rate protection and will consider entering into forward purchase
contracts for some of its Deutsche mark obligations.
<TABLE>
<CAPTION>
Debt outstanding at March 31,                                       1997              1996
<S>                                                           <C>               <C>       
Corestates Bank, 36 month term loan, interest at
                  BNCR plus 2.5%                                                $  155,556
Corestates Bank, 30 month term loan, interest at
                  BNCR plus 2.25%                                                  483,333
Seller Notes from SMS acquisition, net of reduction(1)        $  579,005
SBA Loan, 60 month term loan, interest at
                  Prime Rate plus 2.25%                          280,000           450,000
DCA Note, interest at 20.1%                                      117,130           134,329
                                                              ----------        ----------
                                                              $  976,135        $1,223,218
Less Current Portion                                             178,094           489,534
                                                              ----------        ----------
Total Long-term Debt                                          $  798,041        $  733,684
                                                              ==========        ==========
</TABLE>

     The aggregate maturities for the next five years of all long-term debt are
as follows at March 31, 1997:

          For the Year ending March 31,        1998        $178,094
          For the Year ending March 31,        1999        $160,010
          For the Year ending March 31,        2000        $ 69,026
          For the Year ending March 31,        2001        $      0
          Other (1)                                        $579,005
                                                           $976,135

                                      -33-
<PAGE>

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            YEAR ENDED MARCH 31, 1997
                                   (Continued)

J.   Long-term Debt, (continued):

     (1) The notes payable to the Seller of $706,405 bearing interest at 9% call
for payment in a lump sum amount of $200,000 on December 1, 1996 and then in
eighteen equal installments of $33,333 commencing June 1, 1997. The amount and
timing of the Seller Notes from the SMS acquisition are the subject of pending
arbitration and accordingly there is no determination of the timing of any
amount due under theses notes. The balance of these notes has been reduced, for
financial statement presentation, by the estimated value of inventory now in the
possession of the Food and Drug Administration. Management believes these
liabilities will not be paid.

K.   Other Non-current Liabilities:

     This amount represents an amount due to a supplier. It will be repaid at a
rate equal to 5% of each current year's purchases until the amount is fully
paid. Based on fiscal 1996 and 1997 purchases, the obligation is expected to be
repaid at $67,000 per year. The current portion of this obligation is reflected
in Accounts Payable.

L.   Stockholders' Equity:

     On March 17, 1984, the Board of Directors of the Company resolved that
Series A Convertible Preferred Stock, $.01 par value, be authorized. During the
year ended March 31,1985, 25,000 units consisting of 1 share of Series A
Convertible Preferred Stock plus 8 shares of common stock were sold. Each share
of 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 $4,023,249 at March 31, 1997. 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 at $100 per share,
$2,482,500 aggregate, plus cumulative dividends.

M.   Stock Options

     In February 1983, the Corporation's Stockholders approved an Incentive
Stock Option Plan which provided for the granting of options to Officers and key
employees. The Plan covers 100,000 shares of Common Stock and is intended to
attract and retain qualified personnel and to provide incentive to individuals
who are deemed to be in a position to make a significant contribution to the
Corporation's operations. The exercise price of options granted under the Plan
is required to be market value on the date the option is granted. During the
fiscal year of the Corporation ended March 31, 1997, no options were granted and
none were exercised. As of March 31, 1997, no options under the Plan were
outstanding, and options covering all of such 100,000 shares were available for
future grant. In 1988 the Board granted Don Taylor 4,000 options on a new class
of subordinated preferred stock. Mr. Taylor has not exercised these options as
of March 31, 1997.

                                      -34-

<PAGE>

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            YEAR ENDED MARCH 31, 1997
                                   (Continued)

N.   Lease Commitments:

     In April 1992 the Company moved to a new location at 889 South Matlack
Street under a renewable four-year lease for office and warehouse space with J.
B. Associates, a related party described in Note O below. During fiscal 1996 the
lease with J.B. Associates was renegotiated and extended at a rate of $16,317
per month. Effective October 1, 1996 the Company took over additional available
space at its present address and the monthly rental payment increased to $19,400
per month. The Company also leases certain equipment under various agreements.
The Company pays no contingent rentals under these leases, nor do they contain
any purchase options or significant escalation clauses. Total rent expense for
the years ending March 31, 1997, 1996, and 1995 was $206,642, $228,857, and
$181,882, respectively.

     Minimum rental commitments under the non-cancelable operating leases are as
follows:

                                                                    RELATED
                                                      TOTAL          PARTY

          For the Year ending March 31, 1998        $241,178        $232,800
          For the Year ending March 31, 1999        $236,549        $232,800
          For the Year ending March 31, 2000        $ 77,600        $ 77,600
          For the Year ending March 31, 2001        $      0        $      0
          For the Year ending March 31, 2002        $      0        $      0
                                  Thereafter        $      0        $      0
                                                    --------        --------
                   TOTAL                            $555,327        $543,200
                                                    ========        ========

O.   Related Party Transactions:

     The Company has the following transactions with related parties:

(1) The partners in J.B. Associates are directors of Sklar Corporation. Rent
that has been paid for this building was $196,800 in 1997, $195,800 in 1996, and
$155,800 in 1995.

(2) The Company has outstanding notes receivable from current officers and
directors amounting to $199,952 at March 31, 1997 and $12,768 at March 31, 1996
as listed in Note C.

(3) The Company supplies instruments to two companies whose board of directors
include directors of Sklar. Sales to the customers amounted to $ 50,448 during
1997 and $38,078 and $35,012 during 1996 and 1995, respectively. The amounts due
from these companies at March 31, 1997 and 1996, included in trade receivables
is $11,923 and $7,544, respectively. Purchases from these companies amounted to
$238 during 1997 and $21,608 and $12,028, during 1996 and 1995, respectively.
The amount due to these vendors at March 31, 1997 and 1996, included in trade
accounts payable, is $0 and $245, respectively.

                                      -35-

<PAGE>

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            YEAR ENDED MARCH 31, 1997
                                   (Continued)

O.   Related Party Transactions, (continued):

(4) During 1995 the Company purchased for $287,000 the medical instrument
inventory of a former customer, for resale in the ordinary course of business.
$60,000 of this inventory was acquired from the President and $227,000 was
acquired from a company in which the President is a minority shareholder. The
inventory had been acquired on the Company's behalf and was acquired to enable
the Company to expand its product line into new surgical areas which are
included in the Company's new Hospital catalog. In 1997, 1996 and 1995 the
Company purchased $281,940, $228,694 and $5,472, respectively for repair and
other services, from a company in which the President has been a minority
shareholder. At March 31, 1997 the Company has advanced $ 82,187 to this
company.

(5) During 1997 the Company paid $61,500 to the former wife of the President.

P.   Significant Customer Information:

     Two customers of the Company provided significant sales volume in 1997,
1996 and 1995. During these fiscal years sales to one customer comprised 13.1%,
12.4% and 14.2%, respectively, of the Company's total sales. As a result of the
November 1994 marketing agreement with General Medical Corporation (see Note
B.), sales to them comprised 35.3%, 36.7% and 20.4% of the Company's 1997, 1996
and 1995 sales, respectively.

Q.   Employee Benefit Plans:

     The Company maintains a 401(k) savings-sharing plan for the benefit of its
employees. Payments under the contributory plan administered by an independent
trustee are made on a basis of percentage of the employees' contributions.
Eligible employees are those with more than one year of service to the Company
who work more than 1000 hours per year. Company contributions to the plan
amounted to $60,609 in 1997, $33,574 in 1996, and $18,882 in 1995. In addition
$45,000 was paid to the profit sharing aspect of the plan during 1997. Of this
amount $15,000 was recognized as an expense in 1996 and $30,000 in 1997.

R.   Advertising Costs:

     The Company policy is to expense advertising costs as incurred.

S.   Foreign Currency Transaction and Translation Gains (Losses):

     Gains and (losses) recognized from foreign currency activity amounted to
$135,062, $60,688, and $(175,588) in 1997, 1996 and 1995, respectively.

                                      -36-
<PAGE>

                                SKLAR CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            YEAR ENDED MARCH 31, 1997
                                   (Continued)

T.   Cash Flow Information:

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

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

     A capital lease obligation of $40,713 was incurred in 1995, when the
Company entered into a lease for new equipment.

     The Company refinanced $500,000 and $400,000 in 1996 and 1995 respectively
of its short term bank borrowings to long-term debt. The remaining balances of
these notes were absorbed into the credit line at June 4, 1996.

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

     Interest paid amounted to $ 324,109 in 1997, $297,364 in 1996, and $217,215
in 1995. 

     Income taxes paid amounted to $11,236 in 1997, $18,329 in 1996, and $33,400
in 1995.

                                      -37-
<PAGE>


ITEM 9.  DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     The information called for by this item is not applicable to the Company.


                                    PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

     The directors and officers of the Company are as follows:


     George Kellam. Mr. Kellam, age 57, has been the owner and President of
G.D.M. Industries for nineteen years. Mr. Kellam's company specializes in the
advertising and promotional business.

     William R. Knepshield. Mr. Knepshield, age 62, has twenty years experience
as the Chief Executive of several publicly held companies involved with the
medical technology field and the inventions of innovative medical devices.

     Michael Malinowski. Mr. Malinowski, age 43, was appointed to the Board in
April 1991. Mr. Malinowski joined the Company in 1986 with a background in
computer systems management and advertising. Mr. Malinowski's responsibilities
as Executive Vice President include the oversight of computer systems and the
development of catalogs for each of the Company's product lines.

     Don Taylor. Mr. Taylor, age 51, was appointed to the Board in November 1988
and was elected President 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.

     Albert Wicks. Mr. Wicks, age 49, has been the owner and President of C & S
Medical Supply for fourteen years. Mr. Wicks' company specializes in the
distribution of medical supplies to the physician market. Prior to founding his
own company, 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.

                                      -38-
<PAGE>



ITEM 11.  EXECUTIVE COMPENSATION


     The following table sets forth certain information concerning compensation
paid by the company for the fiscal year ended March 31, 1997, to each Executive
Officer of the Company whose aggregate cash and cash equivalent compensation
exceeded $100,000. During the years ended March 31, 1994, and 1995, no director
received any fee for serving as director or for committee participation.
Commencing in 1996 non-employee directors receive $500 per meeting attended.


<TABLE>
<CAPTION>
                                          Capacities in                                        Other
        Name of Individual or             Which Served                Cash                     Annual                  Fiscal
       Number of Persons in Group                                     Compensation             Compensation            Year
<S>                                     <C>                           <C>                        <C>                    <C> 
      Don Taylor                            President                 $170,170                   $26,173                1997
      Michael Malinowski                 Vice President               $125,364                   $20,833                1997
      Don Taylor                            President                 $194,465                   $7,548                 1996
      Don Taylor                            President                 $163,340                   $4,899                 1995
</TABLE>


Other Annual Compensation is comprised of the Company's matching 401K
contribution and the Company's profit sharing contribution. Profit sharing
contributions are allocated among all participants in the 401K Plan. In addition
in 1997 the Company purchased insurance and paid for certain automobile costs.

                                      -39-
<PAGE>



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth the number of shares owned by persons or
entities who are known by management to have beneficially owned on March 31,
1995 more than 5% of the voting stock of the company, the number of shares
beneficially owned on such date by each Director, and the number of shares owned
by all Directors and officers of the company as a group. Messrs. Knepshield,
Malinowski, Taylor and Wicks are presently Directors of the Company.

<TABLE>
<CAPTION>
Name and Address                     Title of Class             # of Shares          % of Class

<S>                                  <C>                          <C>                 <C> 
Michael Malinowski                    Preferred                      2,995               12.1
613 Aberdeen Drive                      Common                      40,256                3.3
Kennett Square, PA 19348

Don Taylor                            Preferred                     12,446               50.1
241 Upland  Road                        Common                     707,876               57.2
West Grove, PA 19390

George Kellam                         Preferred                         25                  *
1060 North State Street                 Common                           0                  *
Dover, DE 19901

William R. Knepshield                 Preferred                         50                  *
11 Roselawn Lane                        Common                           0                  *
Malvern, PA 19355

Albert Wicks                          Preferred                          0                  *
1604 Dogwood Drive                      Common                           0                  *
West Lawn, PA 19607

All Directors and Officers            Preferred                     15,516               62.5
as a Group                              Common                     748,132               60.4

* Less than 1%
</TABLE>

                                      -40-
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     See Item 1(a) for information as to the Merger. See Item 8, Note N as to
rent paid by the Company.

                                     PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  1.   Financial Statements and Schedules

          The financial statements and schedules listed in the accompanying
          Index to Financial Statements and Supplementary Financial Data on page
          18 are filed as part of this Annual Report. All other schedules are
          omitted because they are not applicable or the required information is
          shown in the financial statements or the notes thereto.

     2.   Exhibits

          The exhibits listed on the accompanying Index to Exhibits on pages 43,
          44 and 45 are filed as part of this Annual Report.

(b)  No reports on Form 8-K have been filed by the Registrant during the last
     quarter of the period covered by this report.

INDEX TO EXHIBITS

ITEM 14(c).

                                                                  Filed Herewith
Exhibits                                                             Page Number

2(a)(1)     Merger Agreement dated November 3, 1982 by and between
            the Registrant, Misdom-Frank Corporation and Argosy
            Capital Incorporated                                              **

2(a)(2)     Agreement of Purchase and Sale of Assets dated October
            31, 1985 between Sklar Purchasing Corporation, J. Sklar
            Mfg. Co., Inc., John Sklar, Alan Sklar, Burton J. Sklar,
            the Estate of Max H. Sklar, and the Residuary Trust
            u/w/o Max H. Sklar                                             *****

2(a)(3)     Agreement dated December 4, 1985 between Medco Group
            Incorporated, Sklar Purchasing Corporation and J. Sklar
            Mfg. Co., Inc.                                                 *****

2(a)(4)     Agreement to Purchase Assets of Dental Corporation of
            America                                                       ******

                                -41-

<PAGE>

2(a)(5)     Agreement to Purchase Assets of the Herwig Division of
            General Medical Corporation and for a continuing
            marketing relationship                                      ********

2(a)(6)     Agreement to Purchase Assets of Sales and Marketing
            Specialists, Inc.

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

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

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

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

            Subsidiaries of the Registrant                         Percentage of
 STATUS     Company Name and Address                                 Ownership

INACTIVE    Sklar Purchasing Corporation                               100%
            889 S. Matlack Street
            West Chester, PA 19382

INACTIVE    Sklar Surgical Instrument Corp.                            100%
            889 S. Matlack Street
            West Chester, PA 19382

INACTIVE    Ralks Ltd.                                                 100%
            889 S. Matlack Street
            West Chester, PA 19382

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

**          Incorporated by reference from Registrant's Current Report on Form
            8-K dated November 11, 1982.

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

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

*****       Incorporated by reference from Registrant's Current Report on Form
            8-K dated December 19, 1985.

******      Incorporated by reference from Registrant's Quarterly Report on Form
            10-Q for the quarter ended December 31, 1990.

*******     Incorporated by reference from Registrant's Current Report on Form
            8-K dated December 12, 1993.

********    Incorporated by reference from Registrant's Quarterly Report on Form
            10-Q for the quarter ended December 31, 1994.

                                      -42-
<PAGE>


                                   SIGNATURES

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

                                        SKLAR CORPORATION
                                        (Registrant)

Dated:   July 14, 1997                  By:  s\DON TAYLOR
      ------------------------             -------------------------------
                                             Don Taylor
                                             President and Director

Dated:   July 14, 1997                  By:  s\MICHAEL MALINOWSKI
      ------------------------             -------------------------------
                                             Michael Malinowski
                                             Chief Accounting Officer


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Dated:   July 14, 1997                  By:  s\DON TAYLOR
      ------------------------              -------------------------------
                                             Don Taylor
                                             President and Director

Dated:   July 14, 1997                  By:  s\MICHAEL MALINOWSKI
      ------------------------               ------------------------------
                                             Michael Malinowski
                                             Executive V. P. and Director

Dated:                                  By:
                                             ------------------------------
                                             Albert Wicks
                                             Director

Dated:   July 14, 1997                  By:  s\WILLIAM R. KNEPSHIELD
      ------------------------               ------------------------------
                                             William R. Knepshield
                                             Director

Dated:                                  By:
                                             ------------------------------
                                             George Kellam
                                             Director

                                      -43-