<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
COMMISSION FILE NO. 0-10552
---------------------
SCHERER HEALTHCARE, INC.
(Exact name of registrant as specified in its Charter)
DELAWARE 59-0688813
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2859 PACES FERRY ROAD, SUITE 300, ATLANTA, GEORGIA 30339
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code:
(770) 333-0066
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered (Title of Class) pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO .
------ -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Registrant's Common Stock held by
nonaffiliates of the Registrant on June 20, 1996 was $4,992,653. There were
4,291,486 Shares of Common Stock outstanding on June 20, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be
held August 22, 1996 are incorporated by reference into Parts I and III of this
report.
Page 1 of 54
Index of Exhibits appears on page 23
<PAGE>
SCHERER HEALTHCARE, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
Table of Contents
-----------------
Item Page
Number Number
- ------ ------
PART I
1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 12
4. Submission of Matters to a Vote of Security Holders . . . . . . . 13
4a. Executive Officers of the Registrant. . . . . . . . . . . . . . . 13
PART II
5. Market for Registrant's Common Equity and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6. Selected Financial Data.. . . . . . . . . . . . . . . . . . . . . 14
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . 15
8. Financial Statements and Supplementary Data . . . . . . . . . . . 19
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure. . . . . . . . . . . . . . . . . . . . . . . 19
PART III
10. Directors and Executive Officers of the Registrant. . . . . . . . 20
11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . 20
12. Security Ownership of Certain Beneficial Owners and Management. . 20
13. Certain Relationships and Related Transactions. . . . . . . . . . 20
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 21
SIGNATURES. . . . . . . . . . . . 22
INDEX OF EXHIBITS. . . . . . . . . . . .
<PAGE>
SCHERER HEALTHCARE, INC.
FORM 10-K
PART I
ITEM 1. BUSINESS
OVERVIEW
Scherer Healthcare, Inc. (the "Company") was incorporated under the laws of the
State of Delaware on December 18, 1981 as the successor to Aloe Creme
Laboratories, Inc., incorporated on February 7, 1953. The Company's Common
Stock is listed on The Nasdaq National Market under the symbol "SCHR".
The Company's strategy has focused on the manufacture, distribution, and sale of
specialized healthcare and industrial safety room products and services. At
March 31, 1996, the Company, through its subsidiaries and majority owned
partnerships, operated in the following business segments:
MEDICAL DEVICE AND SURGICAL/SAFETY DISPOSABLES SEGMENT:
(a) Marquest Medical Products, Inc., a Colorado corporation, is 51% owned
by the Company.
(b) Scherer Healthcare, Ltd., a Georgia limited partnership, doing
business as Protective Disposable Apparel (formerly doing
business as Custom Medical Products), is 65% owned by
the Company.
WASTE MANAGEMENT SERVICES SEGMENT:
(a) Bio Systems Partners, a Georgia partnership, is 60% owned by
the Company.
(b) Medical Waste Systems, Inc., a Delaware corporation, is 100% owned by
the Company.
CONSUMER HEALTHCARE PRODUCTS SEGMENT:
Scherer Laboratories Inc., a Texas corporation, is 100%
owned by the Company.
As used herein, the term "Company" includes Scherer Healthcare, Inc. and, where
appropriate, its subsidiaries and majority owned partnerships.
RECENT DEVELOPMENTS
SALE OF SCHERER HEALTHCARE, LTD. MEDICAL BUSINESS ASSETS. On October 3, 1995,
Scherer Healthcare, Ltd., a majority owned partnership of the Company which had
been doing business as Custom Medical Products, sold certain of its assets for
approximately $6,527,000. The assets sold were those used in connection with its
business of packing and distributing medical supplies for surgical procedures
and providing nonwoven medical drapes, gowns, and accessory items to hospitals
and other healthcare providers. Scherer Healthcare, Ltd. continues to operate
under the name Protective Disposable Apparel in the business of providing
nonwoven apparel for industrial uses. See "Medical Device and Surgical/Safety
Disposables Segment - Scherer Healthcare, Ltd.".
DISCONTINUED OPERATIONS OF BIOFOR, INC. Biofor, Inc., a majority owned
subsidiary of the Company which had been operating the Company's Pharmaceutical
Research and Development Segment, discontinued all of its operations in March
1996 upon the expiration of a third party research and development contract.
This is discussed further under "Discontinued Pharmaceutical Research and
Development Segment".
-3-
<PAGE>
FINANCIAL INFORMATION RELATING TO SEGMENT OPERATIONS. Set forth below is
certain financial information with respect to each of the Company's operating
segments.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
(in thousands)
<S> <C> <C> <C>
Net Sales:
Medical Device and Surgical/Safety Disposables Segment:
Marquest Medical Products, Inc. $ 22,443 $ 20,576 $ 22,466
Scherer Healthcare, Ltd. 7,555 11,203 8,091
Waste Management Services Segment 10,753 10,039 9,670
Consumer Healthcare, Ltd. 1,106 984 1,002
------------- ------------- -------------
Total $ 41,857 $ 42,802 $ 41,229
------------- ------------- -------------
------------- ------------- -------------
Operating Income (Loss) from Continuing Operations:
Medical Device and Surgical/Safety Disposables Segment:
Marquest Medical Products, Inc. $ 510 $ (2,696) $ (2,679)
Scherer Healthcare, Ltd. (335) (912) (421)
Waste Management Services Segment 924 790 502
Consumer Healthcare Products Segment 368 244 286
Corporate (a) (1,074) (3,054) (759)
------------- ------------- -------------
Total $ 393 $ (5,628) $ (3,071)
------------- ------------- -------------
------------- ------------- -------------
Identifiable Assets:
Medical Device and Surgical/Safety Disposables Segment:
Marquest Medical Products, Inc. $ 15,393 $ 13,992 $ 16,929
Scherer Healthcare, Ltd. 909 6,233 6,461
Waste Management Services Segment 9,370 9,524 9,173
Consumer Healthcare Products Segment 153 139 152
Corporate (b) 8,618 11,640 19,192
------------- ------------- -------------
Total $ 34,443 $ 41,528 $ 51,907
------------- ------------- -------------
------------- ------------- -------------
Depreciation Expense:
Medical Device and Surgical/Safety Disposables Segment
Marquest Medical Products, Inc. $ 1,046 $ 1,364 $ 1,668
Scherer Healthcare, Ltd. 74 128 104
Waste Management Services Segment 731 717 639
Consumer Healthcare Products Segment 1 1 10
Corporate 72 66 49
------------- ------------- -------------
Total $ 1,924 $ 2,276 $ 2,470
------------- ------------- -------------
------------- ------------- -------------
Capital Expenditures:
Medical Device and Surgical/Safety Disposables Segment
Marquest Medical Products, Inc. $ 66 $ 666 $ 1,650
Scherer Healthcare, Ltd. 47 268 1,027
Waste Management Services Segment 626 715 783
Consumer Healthcare Products Segment - - 9
Corporate - 15 65
------------- ------------- -------------
Total $ 739 $ 1,664 $ 3,534
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
(a) Amount includes a nonrecurring charge of $2,000,000 for fiscal year 1995
relating to the writedown of two waste incinerator investments.
(b) Amount includes net assets of discontinued operations of $589,000,
$897,000, and $3,805,000 for fiscal years 1996, 1995, and 1994,
respectively. See Note 4 to Notes to Consolidated Financial Statements
included elsewhere herein.
-4-
<PAGE>
MEDICAL DEVICE AND SURGICAL/SAFETY DISPOSABLES SEGMENT
Set forth below is information regarding the two companies that comprise this
segment.
MARQUEST MEDICAL PRODUCTS, INC.
OVERVIEW. Marquest Medical Products, Inc. ("Marquest") was incorporated in 1979
under the laws of the State of Colorado. During the first half of calendar year
1993, Scherer Healthcare, Inc. and Marquest structured several transactions
whereby the Company obtained a controlling interest in Marquest. Marquest has
been included in the Company's consolidated financial statements beginning with
the fiscal year ending March 31, 1994. Marquest's common stock is listed for
trading on The Nasdaq Small Cap Market under the symbol "MMPI".
PRODUCTS. Marquest manufactures and distributes four major groups of products
for use in the respiratory care, cardiopulmonary support and anesthesia markets.
The largest of these product groups is the Blood Collection Systems for
Diagnostic Testing group. This group includes a broad line of Marquest
disposable blood gas syringes. Most revenues in this group are from the sales
of proprietary-designed syringes, which are marketed under the trade names Gas-
Lyte and Quik-ABG.
Marquest's disposable blood gas syringes are used to collect blood for blood gas
analysis routinely performed in hospitals on patients suspected of having
metabolic, respiratory or other cardiopulmonary difficulties. The blood sample
collected is processed through a blood gas analyzer which is manufactured by
other companies. In order for the analysis to be meaningful, the collected
sample must remain as free from contamination as possible. Marquest syringes are
specifically designed to minimize contamination.
Marquest's second largest product group is the Aerosolized Medication Delivery
Systems group, consisting primarily of disposable nebulizers. Nebulizers
atomize medications for inhalation into the lungs. Marquest offers different
nebulizers to accommodate user preferences as well as the requirements for
different types of respiratory treatment. Nebulizers are marketed under the
trade names Acorn II-Registered Trademark- and Whisperjet. The Acorn II-
Registered Trademark- nebulizer is used as part of a circuit package sold under
the name "RespirGard II-Registered Trademark- Nebulizer System".
The RespirGard II-Registered Trademark- Nebulizer System is a device designed
for the administration of aerosolized pentamidine (NebuPent-Registered
Trademark-, a registered trademark of Fujisawa Pharmaceutical Company), a drug
used in the treatment of certain respiratory complications that result from the
AIDS virus (pneumocystis carinii pneumonia). RespirGard -Registered Trademark-
II is the only nebulizer system specifically recommended by Fujisawa and
referenced in their labeling and use instructions.
Heated Humidification Systems products comprise Marquest's third product group.
These systems consist of three subgroups - humidifiers, heated wire circuits and
humidification chambers. Heated Humidification Systems provide a flow of moist,
warm air to patients who are at risk from loss of body temperature and drying of
the lung linings. There are applications for this product group in both
respiratory care and anesthesia.
The fourth product group is the Anesthesia and Respiratory Breathing Systems
group, which includes numerous disposable products for use in respiratory care
and anesthesia. These products include standard respiratory and anesthesia
circuits, masks, filters, and hyperinflation systems, as well as other
accessories for use in either respiratory therapy or anesthesia administration
applications.
The circuits range from a simple hose connecting the patient to the anesthesia
machine in the operating room to more sophisticated circuits that allow
monitoring of gas temperature and flow into and out of the patient. Marquest's
disposable masks are designed to eliminate resterilization costs of conventional
reusable masks and represent further steps to reduce the possibility of cross-
contamination in operating rooms.
Marquest's filters are designed to filter particulates and bacteria from any air
or anesthesia line carrying gases to or from a patient. The filter market
continues to rapidly expand as healthcare providers have increased the emphasis
placed on infection control. Marquest's filters are marketed for use in
respiratory support, principally on ventilators, and anesthesia circuits.
These filters are marketed under the trade names RespirGard, HydroGard, OxyGard,
and SpiroGard.
-5-
<PAGE>
MARKETING AND DISTRIBUTION. Marquest markets its products domestically and
internationally through company sales personnel and independent distributors.
All of Marquest's current operations and assets are located in the United
States. The domestic (United States and Canada) and export sales for the last
three fiscal years are presented in the table below.
FY 1996 FY 1995 FY 1994
------- ------- -------
(In Thousands)
Net Sales:
United States and Canada $16,699 $16,023 $18,262
Export Sales $ 5,744 $ 4,553 $ 4,204
Marquest focuses substantial resources on marketing and sales. It emphasizes
in-service training for its clinical customers, distributor training and direct
marketing. In-service training educates customers about Marquest's products and
is supported by continuing efforts to introduce product design changes that
eliminate application difficulties, such as converting from liquid heparin to a
dried form to eliminate dilutional errors in blood gas analysis tests. Close
working relationships with medical personnel also have led to the development of
better and safer applications for Marquest's products, such as development of
the RespirGard II -Registered Trademark- nebulizer system circuit, which is used
in the treatment of AIDS-associated respiratory illnesses.
Marquest has identified and pursued opportunities to modify common medical
devices to improve and expand their applications. Marquest believes that
innovative product line expansion and clinical marketing have been and will
continue to be essential factors in gaining market acceptance for Marquest's
products.
Marquest distributes most of its manufactured products through a network of
respiratory or anesthesia distributors. This network includes hospital supply
distributors as well as over a thousand home healthcare product dealers who
distribute certain of Marquest's products to users in the home. There are some
direct sales to large hospitals or to hospitals in areas where Marquest has no
dealer support, to government agencies and to original equipment manufacturer
customers. Marquest's international sales and marketing efforts are managed
from the corporate offices in Englewood, Colorado. The European, Middle
Eastern, Asian and Pacific Rim territories are managed by independent field
sales representatives and specialty distributors. Mexican, Central American,
South American, and South African territories are managed using independent
specialty distributors. Marquest also participates in major international trade
shows annually.
Marquest has invested significant time and financial resources in the
development of its distributor network and views this network as a valuable
asset. However, Marquest does not believe that the loss of any single
distributor would have a material impact on Marquest's sales as it believes that
any distributor can be replaced within a reasonable period of time, and that in
the interim Marquest can sell its products directly to most of the customers
serviced by each distributor.
During Fiscal 1996, 1995 and 1994, Marquest had one distributor, Tri-Anim Health
Services, Inc. of Sylmar, California, that accounted for 19%, 19% and 18%,
respectively, of Marquest's sales.
PRODUCTION AND RAW MATERIALS. Marquest's manufacturing and assembly operations
consist primarily of the injection molding and extrusion of certain components
and the assembly and packaging of final products from both purchased and
internally-manufactured sources. All of Marquest's manufactured products are
disposable and are principally fabricated from molded resins.
Due to economies of scale in production, Marquest purchases certain standardized
components, including needles, syringe barrels, and other supplies from
qualified external sources. Marquest's material procurement consists of
multiple single source vendors, all of which are subject to qualification
criteria in accordance with Marquest's quality control procedures and policies.
While Marquest endeavors to avoid being dependent on a single source of supply
for any component or raw material by establishing qualified alternate suppliers,
in certain cases it is not economical to use more than one source. Marquest
emphasizes vendor certification and quality programs to ensure uninterrupted
supplies of raw materials and components.
-6-
<PAGE>
Historically, Marquest has not had a significant backlog of firm orders for its
products. With the exception of orders for future delivery or for specially
assembled products, most orders are shipped within one week of receipt and
Marquest maintains predetermined levels of finished goods inventories to ensure
timely delivery. Marquest had a backlog of orders to ship its products of
approximately $158,000 and $99,000 at March 30, 1996 and April 1, 1995,
respectively.
SEASONALITY. Historically, Marquest has experienced approximately 45% of its
net sales in the first and second quarters of its fiscal year and 55% in the
third and fourth quarters. Net sales are influenced by patterns in hospital
admissions and discharges.
COMPETITION. The markets for Marquest's products are highly competitive. There
are three major competitors in blood gas collection systems, four major
competitors in anesthesia, respiratory and nebulizer products, and two major
competitors in heated humidification products. Some of Marquest's competitors
have greater financial resources than Marquest.
PRODUCT DEVELOPMENT. Marquest's product development is guided by its marketing
and sales personnel. Through their daily contact with existing and potential
customers, marketing and sales personnel attempt to identify needs for new
products and improvements for existing products.
Many risks exist in new product development and there is no assurance that any
of the products currently under development by Marquest can be successfully
developed or, if introduced, will prove to be commercially successful products.
PATENTS, TRADEMARKS, LICENSES AND FRANCHISES. Marquest holds numerous patents
for its manufactured products. It also holds licenses from individuals to
manufacture a number of proprietary products. Marquest makes renewal filings on
patents and trademarks periodically in accordance with Federal regulations.
Patents, trademarks and licenses afford Marquest a measure of protection for its
proprietary products, and Marquest has taken a posture of defending to the
fullest extent possible the rights attendant to the patents, trademarks and
licenses. However, it has been Marquest's experience that patents offer limited
protection because the degree of specialization in its products is so extensive
that the patents on them can, in some cases, be circumvented.
REGULATION. Marquest and its products are subject to regulation by the Food and
Drug Administration ("FDA") and virtually all of Marquest's products are subject
to validation as required by Good Manufacturing Practices ("GMP") of the FDA.
The FDA engages in periodic inspections of Marquest's facilities, its products,
and its manufacturing processes. A May 1991 FDA inspection of Marquest noted
significant deviations from GMP. This report and a subsequent civil complaint
filed by the FDA culminated in a suspension of Marquest's United States
operations pursuant to a five-year Consent Decree effective October 1, 1991.
The suspension was lifted by the FDA on January 9, 1992 after Marquest
demonstrated substantial compliance with GMP.
During fiscal 1994, the FDA completed a routine inspection of Marquest for
compliance with GMP. The FDA's inspection report noted two deficiencies
which were addressed and corrected by Marquest. There were no FDA inspections
of Marquest in fiscal 1995.
The FDA conducted another inspection of Marquest's compliance with GMP in fiscal
1996. Marquest was issued an inspection report from the FDA with three
observations noted. Subsequent to March 31, 1996, the FDA again inspected
Marquest's operations and issued a report with six observations noted. Many of
the deficiencies noted in the FDA's reports refer to the lack of training
regarding assembly, testing and sampling. Marquest is taking corrective action
in response to the FDA's concerns and has submitted written documentation to the
FDA describing the employee retraining and other changes it has implemented.
The FDA is reviewing Marquest's submission and will verify the implementation of
the new procedures and other corrective actions taken by Marquest at another
inspection which will occur prior to mid-August 1996. Marquest cannot predict
the outcome of the FDA's inspection or whether or not the FDA will take any
additional actions with respect to these matters.
-7-
<PAGE>
TRANSACTIONS WITH THE COMPANY. During fiscal 1994, the Company and Marquest
completed a series of transactions designed to improve Marquest's liquidity and
cash flows. As part of these transactions, Marquest sold to the Company its
arterial blood gas ("ABG") product line, including related equipment, for
$4,500,000 in cash. The Company then leased the ABG line to Marquest in
exchange for a royalty equal to 3.25% of net ABG product line sales. Marquest
had the option to repurchase the ABG product line at any time on or prior to May
31, 1996 for $4,500,000 plus $22,500 for each month lapsed between the sale and
the repurchase. In May 1996, the Company and Marquest agreed to extend the
option period through June 15, 1999. In 1994, Marquest granted to the Company
warrants to purchase up to 6,580,000 shares of Marquest Common Stock at $.75 per
share as consideration for the original product line repurchase option.
The Company also participated in Marquest's exchange offer for approximately
$12,650,000 of defaulted Marquest Swiss Bonds. In connection with the exchange
offer, the Company issued 43,516 shares of the Company's 5% Convertible
Preferred Stock to the former holders of the Marquest Swiss Bonds. As
consideration for the Company's issuance of its Preferred Stock, Marquest issued
to the Company $4,352,000 aggregate principal amount of its 8% Convertible
Promissory Notes due March 1999. The 8% Notes were convertible into shares of
Marquest Common Stock. During fiscal 1995, the Company converted $2,500,000 of
the Marquest 8% Notes into 3,333,333 shares of Marquest Common Stock at a
conversion price of $.70 per share..
On March 28, 1996, the Company and Marquest entered into an agreement pursuant
to which the Company converted the remaining balance of $1,852,000 and the
associated accrued interest of $487,000 on the Marquest six-year 8% Notes into
3,340,245 shares of Marquest Common Stock at a conversion price of $.70 per
share. Additionally, the Company agreed to convert $376,000 in accrued but
unpaid management fees owed to the Company by Marquest into 537,614 shares of
Marquest Common Stock. As of March 31, 1996, the Company owned 51% of
Marquest's Common Stock. Marquest has a significant number of warrants, stock
options, and convertible notes that could be converted into Marquest Common
Stock. Depending upon the amount and timing of conversion of any of these
securities, the Company's ownership percentage in Marquest could vary from 42%
to 66%. Additionally, the Company has the right to appoint a majority of the
members of Marquest's Board of Directors.
RELATED PARTY TRANSACTIONS. In December 1995, Scherer Capital, L.L.C. ("Scherer
Cap"), an entity controlled by the majority stockholder of the Company, and
Marquest signed a short-term promissory note enabling Marquest to borrow a
maximum of $1,800,000, of which $1,100,000 was borrowed in December 1995. The
note was secured by Marquest's inventory and accounts receivable and was due
February 1996. Marquest repaid $400,000 of the borrowings in January 1996 and
the balance of $700,000 was refinanced under a Loan and Security Agreement (the
"Loan Agreement") signed by Marquest and Scherer Cap on March 28, 1996. The
Loan Agreement enables Marquest to borrow from Scherer Cap a maximum of
$1,500,000 at an interest rate of 12% over prime, adjusted quarterly. The rate
was 9.75% as of March 31, 1996. Any amounts borrowed under the Loan Agreement
are represented by Convertible Notes due April 1, 2001 (the "Scherer Cap Notes")
and are secured by Marquest's inventory, building, and equipment. Pursuant to
the Loan Agreement, which expires February 28, 2001, the Scherer Cap Notes are
convertible at the option of Scherer Cap into shares of Marquest's Common Stock
at a conversion price of $.70 per share. As of March 31, 1996, Marquest had
borrowed $700,000 under the Loan Agreement and the Scherer Cap Notes.
Additionally, on March 29, 1996 Scherer Cap purchased 2,061,856 shares of
Marquest Common Stock, representing approximately 15% of the shares outstanding,
for an aggregate purchase price of $1,000,000.
INTERNAL REVENUE SERVICE AUDITS. During fiscal 1994, Marquest received a
federal income tax refund of approximately $745,000 due to the carryback to
prior years of losses incurred during a temporary suspension of its operations.
Subsequently, the Internal Revenue Service ("IRS") conducted an audit of
Marquest and, in July 1994, determined that Marquest could not carryback the
losses and issued an assessment against Marquest for the return of the full
amount of the refund plus interest. In June 1995, Marquest negotiated a
repayment plan with the IRS whereby Marquest paid the IRS $400,000 in June 1995
and the remaining balance will be paid in equal monthly installments over a two-
year period. The IRS has placed a lien on Marquest's manufacturing facility in
Englewood, Colorado to secure payment of these taxes.
EMPLOYEES. At June 1, 1996, Marquest had approximately 291 employees.
Marquest's employees are not represented by a labor union, and Marquest
considers its employee relations to be good.
-8-
<PAGE>
SCHERER HEALTHCARE, LTD.
OVERVIEW. The Company owns a 65% interest in Scherer Healthcare, Ltd.
("Scherer, Ltd."), and, through a wholly owned subsidiary, is the sole general
partner. Scherer, Ltd. was formed in 1987 and had been doing business as Custom
Medical Products until October 1995. On October 3, 1995, Scherer, Ltd. sold
certain of its assets to Cordis Medical Products, Inc., ("Cordis Medical"), a
wholly owned subsidiary of Cordis Corporation ("Cordis") for approximately
$6,527,000. The assets sold to Cordis Medical were those used in connection
with Scherer, Ltd.'s business of packing and distributing medical supplies for
surgical procedures and providing nonwoven medical drapes, gowns and accessory
items to hospitals and other healthcare providers (the "Medical Business"). The
assets acquired by Cordis Medical consisted primarily of Scherer, Ltd.'s plant
and land located in Asheville, North Carolina, furniture and fixtures, machinery
and equipment, inventory, and other intangible property related to the Medical
Business. Cordis Medical also agreed to assume all accounts payable related to
the Medical Business and certain other specifically identified liabilities,
including the mortgage on Scherer, Ltd.'s Asheville facility.
Prior to the transaction with Cordis Medical, Scherer, Ltd. was the primary
supplier of disposable surgical trays for Cordis. Under a contract between
Scherer, Ltd. and Cordis, Scherer, Ltd. assembled the surgical disposable trays
under the Cordis private label and shipped the trays directly to Cordis'
hospital customers. In fiscal 1994, the first year of the Cordis relationship,
sales of surgical trays accounted for approximately 9% of Scherer, Ltd.'s total
sales and approximately 32% of fiscal 1995's total sales.
Scherer, Ltd. continues under the name Protective Disposable Apparel in the
business of providing nonwoven disposable industrial apparel and related
products to the industrial safety and environment controlled clean room and
scientific markets (the "Industrial Business"). Scherer, Ltd. continues to
operate in the Asheville, North Carolina area. Its line of disposable
industrial apparel and related products includes protective coveralls, frocks,
boot covers, and headware.
PRODUCTION AND RAW MATERIALS. Scherer, Ltd.'s products are made primarily of
nonwoven fabrics. Raw materials are readily available from multiple sources.
Scherer, Ltd.'s protective coveralls and frocks are manufactured by contracted
independent workshops located in Haiti and Mexico. The Company has located
several back-up facilities in the United States that could manufacture the
coveralls and frocks should the international manufacturing become impractical.
MARKETING AND DISTRIBUTION. Scherer, Ltd. markets its products domestically from
its administrative offices in Arden, North Carolina. Its primary market focus
is on environment controlled clean room, industrial safety, and scientific
distributors. These markets are serviced by its sales and marketing team
located in North Carolina and by a group of approximately fourteen independent
sales representatives.
Scherer, Ltd. had two distributors, Tetech, Inc. and VWR Scientific Products,
that accounted for 19% and 16%, respectively, of its total sales in fiscal 1996.
In addition to the manufacture and distribution of its protective coveralls and
frocks, Scherer, Ltd. acts as a master distributor for independent manufacturers
of certain protective apparel such as masks, gowns and shoe covers. Sales of
these products account for approximately 20% to 25% of Scherer, Ltd.'s total
sales.
COMPETITION. The market for Scherer, Ltd.'s products is very competitive and
includes numerous major manufacturers and distributors. Scherer, Ltd. emphasizes
innovative quality products that are generally offered at prices less than the
competition in its approach to market competition.
REGULATION. Some of Scherer, Ltd.'s products are regulated by the FDA. There
have been no direct inspections by the FDA in the last three years.
EMPLOYEES. Scherer, Ltd. has 5 employees.
-9-
<PAGE>
WASTE MANAGEMENT SERVICES SEGMENT
OVERVIEW. The Company operates its medical waste management services segment
through Bio Systems Partners and Medical Waste Systems, Inc. (collectively, "Bio
Systems"). The Company owns a 60% general partner interest in Biosystems
Partners, a Georgia partnership. Medical Waste Systems, Inc. is a Delaware
corporation and is wholly owned by the Company. Bio Systems assists hospitals,
clinics, doctors and other healthcare facilities with the control and disposal
of infectious medical waste, including sharp-edged waste such as scalpels,
syringes and needles.
Bio System provides services throughout the Northeastern United States, the Mid-
Atlantic states and the metropolitan Chicago market.
Bio Systems' sharp-edged medical waste management programs are designed to
reduce a medical facility's costs and risks associated with disposal of used
scalpels, needles, syringes, and other sharp-edged waste. Bio Systems
incorporates reusable containers in its systems, providing the medical facility
with a more environmentally friendly alternative to traditional disposable
plastic containers.
Bio Systems maintains a fleet of licensed trucks and trailers to transport
medical waste to its processing facility, where it is sterilized, pulverized and
made available for recycling or disposal via landfill or incineration. During
fiscal 1996, Bio Systems consolidated its operations by transferring the medical
waste processing operations at its facility located near Philadelphia,
Pennsylvania to its processing facility in Long Island, New York. The
Pennsylvania facility is used to assemble, manage and store its reusable medical
waste containers. Medical waste collected by Bio Systems in the metropolitan
Chicago area is processed under a contract with a third party.
MARKETING. Bio Systems markets its services through advertising in hospital
industry publications, direct mail and direct contact by Bio Systems' sales
personnel. Customers include hospitals, clinics, and physician offices.
Services to hospitals are typically provided under contracts of at least one
year. No single customer accounts for over 10% of Bio Systems' sales revenues.
Bio Systems operates 365 days a year. Its services are not seasonal or subject
to backlog.
COMPETITION. Bio Systems has three major competitors. Even though Bio Systems
faces significant competition in each of its market areas it believes it has a
strong competitive position because of its reusable sharps containers and
personalized services.
REGULATION. The waste management business is subject to a variety of federal,
state and local regulations concerning the collection, transportation,
processing, and disposal of medical and infectious waste. New regulations are
frequently promulgated, compliance with which could have a material adverse
effect on Bio Systems' business. Management is not aware of any pending
regulations that would have such a material adverse effect.
EMPLOYEES. Bio Systems has approximately 110 employees. Drivers, technicians
and processing personnel in New York and drivers and warehouse personnel in
Pennsylvania are covered by collective bargaining agreements representing
approximately 68% of Bio Systems employees. Bio Systems entered into a three-
year collective bargaining contract in June 1993 with the union for its New York
employees and a three-year contract in October 1993 with the union for its
Pennsylvania employees. In June 1996, the New York union employees ratified a
new three-year contract. Management considers its employee relations to be
good.
CONSUMER HEALTHCARE PRODUCTS SEGMENT
OVERVIEW. In 1981, the Company acquired Scherer Laboratories, Inc., ("Scherer
Labs"), a Texas corporation originally incorporated in 1903. Scherer Labs
markets brand name and generic over-the-counter ("OTC") drugs and one
prescription ("Rx") drug. The OTC products are principally products used for
treatment of colds and coughs, eye and ear irritations and insect bites.
Scherer Labs intends to discontinue the sale of its Rx product in fiscal 1997
due to an impractical increase in the cost to manufacture. Sales of the Rx
product were $12,000, $24,000 and $55,000 in fiscal 1996, 1995, and 1994,
respectively. Management does not believe that the loss of these sales will
have a material effect on the Company.
Scherer Labs carries an inventory sufficient to cover planned sales
requirements. Scherer Labs' return policy is consistent with the drug industry,
with annual returns during the last three years of less than 2.0% of total
annual sales.
-10-
<PAGE>
Scherer Labs' current line of OTC products are manufactured by third party
contractors using Scherer Labs' formulas. Scherer Labs employs one individual
in Dallas, Texas as the division's General Manager who administers all sales,
marketing, purchasing and relations with suppliers and contractors. Warehousing
and distribution services are performed on a contract basis with a public
warehouse. Two employees at the Company's corporate headquarters in Atlanta
perform all accounting and customer service functions including order
processing, accounts receivable, accounts payable and inventory control.
SEASONALITY. The sales of most of Scherer Labs' products are evenly distributed
throughout the year. The majority of three of Scherer Labs OTC products,
however, are purchased by consumers during the summer months. As a result of
this seasonal activity, 35% of Scherer Labs' sales occur during the first fiscal
quarter (April through June) of each fiscal year.
CUSTOMERS. Scherer Labs markets its products primarily to drug and food stores,
mass market retailers, drug wholesalers, and government agencies. The majority
of the sales are through retailers located in the Southwest region of the United
States with approximately 35% of sales to retail outlets located in other areas
of the country. Sales to Wal-Mart Stores in fiscal 1996 represented
approximately 45% of total sales. These sales were through McKesson Drug Co.,
Wal-Mart's primary wholesaler, and account for over 80% of McKesson's total
purchases from Scherer Labs. The loss of Wal-Mart would have a material adverse
effect on Scherer Labs' ability to continue to operate profitably.
COMPETITION. Scherer Labs' products are subject to competition from national,
regional, and store brands of similar or identical formulations. Emphasis is
placed on Scherer Labs' long history and product quality and pricing at or near
the pricing levels of generic products. Marketing activities focus on in-store
price specials and other promotional allowances.
REGULATION. Scherer Labs' products are regulated by the FDA. Licensing is
required by certain states where product sales occur. Licenses and
registrations are renewed annually. There have been no government inspections
of Scherer Labs in the last three years and there are no pending matters between
Scherer Labs and any federal or state regulatory agencies.
DISCONTINUED PHARMACEUTICAL RESEARCH AND DEVELOPMENT SEGMENT
Biofor, Inc. ("Biofor"), a majority owned subsidiary of the Company which had
been operating the Company's Pharmaceutical Research and Development Segment,
was engaged in research to identify and develop new drug compounds. Since its
inception on June 29, 1986, Biofor has expended over $20 million in cash funding
from the Company and affiliates of the Company. In July 1995, after attempts to
locate a purchaser for Biofor, Biofor ceased further drug design efforts and
concentrated solely on the Ono research contract discussed below. When the Ono
contract expired in March 1996, Biofor discontinued all operations and the
Company abandoned all operations of Biofor.
Prior to the discontinuance of its operations, Biofor focused its drug design
efforts on arthritis and osteoarthritis as well as the treatment for acute pain.
Biofor's lead compound, BF-389, is an anti-inflammatory analgesic which
preliminary Phase I clinical trials indicated was not sufficiently bioavailable
when administered orally in humans. Other delivery methods that would allow
oral administration of the compound were pursued by Biofor without success.
Since October 1990, Biofor and Ono Pharmaceutical Company, Ltd. ("Ono") had
entered into two Research and Collaboration Agreements pursuant to which they
jointly researched compounds. Biofor utilized its exclusive M-CADD "artificial
intelligence" software and its scientists experienced in using M-CADD while Ono
provided funding and clinical testing of any compounds discovered. The first
contract expired in fiscal 1994 and the second expired March 1996.
Substantially all of Biofor's revenues since 1990 were derived from these
contracts.
The remaining property and equipment of Biofor primarily consists of land, a
30,000 square foot building owned by Biofor, and computer and laboratory
equipment. The assets have been written down to their estimated net realizable
value and the Company recorded a provision of $50,000 for the estimated shutdown
costs.
The Company is currently seeking a purchaser for all the remaining assets of
Biofor.
-11-
<PAGE>
ITEM 2. PROPERTIES
The Company's major facilities follow:
MEDICAL DEVICE AND SURGICAL/SAFETY DISPOSABLES SEGMENT:
Marquest Medical Products, Inc.
Englewood, Colorado - 88,000 square foot facility owned by
Marquest which includes 58,000 square feet of manufacturing
and warehouse space and 30,000 square feet of administrative
offices.
Aurora, Colorado - 45,000 square foot leased warehouse.
Scherer Healthcare, Ltd.
Arden, North Carolina - 1,700 square feet of administrative
office space leased by Scherer Healthcare, Ltd.
Woodfin, North Carolina - 2,500 square foot leased warehouse
facility.
WASTE MANAGEMENT SERVICES SEGMENT:
Bio Systems Partners
Farmingdale, New York - 17,000 square foot facility leased by Bio
Systems Partners which includes 3,000 square feet of
administrative office space and 14,000 square feet of space
housing Bio Systems' medical waste processing operations.
Medical Waste Systems, Inc.
Warminster, Pennsylvania - 11,900 square foot facility leased by
Medical Waste Systems, Inc. which includes 1,900 square feet
of administrative office space and 10,000 square feet of
warehouse and storage space.
Haverhill, Massachusetts - 4,000 square foot transfer station
leased by Medical Waste Systems, Inc.
CONSUMER HEALTHCARE PRODUCTS SEGMENT:
Scherer Laboratories, Inc.
Plano, Texas - 300 square foot facility leased by Scherer Labs
and used as a sales office.
CORPORATE SEGMENT:
Scherer Healthcare, Inc.
Atlanta, Georgia - 10,100 square feet of leased office space
shared with Scherer Scientific, Ltd. and related entities.
See "Item 13. Certain Relationships and Related
Transactions."
Biofor, Inc.
Waverly, Pennsylvania - 30,000 square foot building owned by
Biofor.
The Company believes the facilities in all locations are adequate for the
current and anticipated future level of activities.
ITEM 3. LEGAL PROCEEDINGS
A products liability action was filed against Marquest in California in 1990
which was defended and settled during the trial by its insurance company,
Hartford Specialty Company. Under the insurance policy, Marquest may be
responsible for a $250,000 self insured retention plus the cost of defense.
Marquest has claimed that Hartford Specialty Company mishandled the lawsuit and
has declined to pay. Marquest was sued by Hartford Specialty Company in
District Court, Arapahoe County, Colorado in February 1994 alleging damages of
up to $540,000. Subsequent to March 31, 1996, Marquest entered into a
settlement agreement with Hartford Specialty Company pursuant to which Marquest
is required to pay the insurance company $170,000.
-12-
<PAGE>
The Company, through a subsidiary, owns a 60% interest in Bio Systems Partners
("BSP") which operates in the Company's Waste Management Services Segment.
Pursuant to summary judgment granted in a civil action filed in the United
States District Court for the Eastern District of New York in March 1994, the
Company's subsidiary is required to buyout the 40% equity interest of its
minority partner in BSP. Pursuant to the partnership agreement, the Company and
the minority partner performed separate appraisals of the minority interest.
The separate appraisals were not consistent, therefore, a third appraiser,
selected by the partners, has been retained to review each of the valuations and
determine the final valuation and purchase price.
The Company is a party to certain other legal proceedings, however, it does not
anticipate that any of such proceedings will have any material adverse affect on
its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to security holders for vote during the quarter
ended March 31, 1996.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
The names, ages at June 1, 1996, and positions with the Company of the executive
officers, including all positions and offices with the Company held by such
persons, are listed below. Unless otherwise stated, each executive officer has
held their position for at least the last five years. All officers are elected
for one year terms or until their respective successors are chosen. There are
no family relationships among the executive officers nor is there any agreement
or understanding between any officer and any other person pursuant to which the
officer was elected.
Name and Age Positions with the Company
------------ --------------------------
Robert P. Scherer, Jr., 63 Director of the Company since 1977; Chairman
of the Board of Directors and Chief Executive
Officer of the Company since February 1995.
Chairman of the Board, Director and Chief
Executive Officer of Marquest since February
1995. A Director, executive officer and
controlling stockholder of RPS Investments,
Inc. and affiliates since their respective
formation.
William J. Thompson, 62 President, Chief Operating Officer and
Director of the Company since August 1984.
President and Chief Operating Officer of
Marquest since February 1995 and Director
since 1993.
Amy M. Murphy, 29 Vice President of Corporate Operations and
Secretary of the Company since February 1995;
Executive Vice President and Secretary of RPS
Investments, Inc. and affiliates since
February 1995. Executive Assistant to the
President for CompuPharm, Inc. from November
1994 to February 1995; various positions with
RPS Investments, Inc. and affiliates from May
1992 to November 1994 and Assistant to the
Provost, University of Maine from 1987 to
1992.
Gary W. Ruffcorn, 34 Director of Finance and Accounting of the
Company since April 1995; Principal
Financial and Accounting Officer of the
Company since August 1995. Prior to joining
the Company, Mr. Ruffcorn held various
accounting positions with Ogden Projects,
Inc., including Assistant
Controller/Directorof Accounting, from March
1988 to March 1995.
-13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
COMMON STOCK
At March 31, 1996, there were approximately 2,105 shareholders of record of the
Company's Common Stock. The Company's Common Stock is traded on The Nasdaq
National Market under the symbol "SCHR". The following table sets forth the
high and low closing sale prices per share as reported by Nasdaq for the periods
indicated:
Fiscal Fiscal
1996 1995
------------------- ----------------
High Low High Low
------ ----- ------ -----
First Quarter $ 7 $ 5 $ 23 $ 18 1/2
Second Quarter 5 1/2 2 23 20
Third Quarter 5 2 1/2 23 20
Fourth Quarter 5 2 1/4 20 1/8 5
On June 20, 1996, the closing price of the Common Stock was $3 3/4:.
While there are no restrictions to prevent the payment of dividends, the Company
has not paid a cash dividend in its history and does not anticipate paying a
cash dividend in the near future.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data concerning the Company for and as of the
end of each of the years in the five year period ended March 31, 1996 are
derived from the financial statements of the Company. The selected financial
data is qualified in its entirety by the more detailed information and financial
statements, including the notes thereto, included elsewhere in this report. The
financial statements of the Company as of March 31, 1996 and 1995 and for each
of the years in the three year period ended March 31, 1996, and the report of
Arthur Andersen LLP thereon, are included elsewhere in this report.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)
YEAR ENDED MARCH 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . $41,857 $42,802 $41,229 $20,323 $20,205
Cost of goods sold . . . . . . . . . . . . . . . . . . $28,540 $32,009 $30,641 $14,303 $14,474
Selling, general and administrative expenses . . . . . $12,769 $14,281 $13,533 $6,102 $6,042
Research and development expenses. . . . . . . . . . . $155 $140 $126 - -
Nonrecurring charges . . . . . . . . . . . . . . . . . - $2,000 - - -
Other income (expense) . . . . . . . . . . . . . . . . $2,828 $(1,133) $218 $1,518 $281
Minority interest in net income (loss) . . . . . . . . $(5) $1,927 $1,992 $(17) $(146)
Income (loss) from continuing operations . . . . . . . $2,668 $(4,637) $157 $1,135 $(418)
Income (loss) from continuing operations per share . . $0.60 $ (1.09) $ 0.04 $ .29 $ (0.11)
Loss from discontinued operations. . . . . . . . . . . $(920) $(5,534) $(4,795) $(2,606) $(1,040)
Average shares outstanding . . . . . . . . . . . . . . 4,421 4,255 3,954 3,919 3,905
Total assets . . . . . . . . . . . . . . . . . . . . . $34,443 $41,528 $51,907 $29,950 $34,853
Total long-term liabilities. . . . . . . . . . . . . . $5,638 $5,316 $ 4,617 $511 $ 598
Stockholders' equity . . . . . . . . . . . . . . . . . $16,174 $14,486 $24,657 $20,708 $21,845
Cash dividends . . . . . . . . . . . . . . . . . . . . - - - - -
</TABLE>
-14-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company, through its subsidiaries and majority owned partnerships, operates
in several areas of the healthcare and industrial safety room industry. It
manufactures and distributes healthcare and industrial safety room specialty
products, provides disposal of certain medical waste, and markets certain over-
the-counter and generic drugs. See "Item 1. Business" for a more detailed
description and discussion of each of the Company's segments.
RESULTS OF OPERATIONS
NET SALES. The following table sets forth the net sales of each segment of the
Company's business for the last three fiscal years (in thousands):
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------------------------------------------
1996 1995 1994
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales:
Medical Device and
Surgical/Safety Disposables Segment
Marquest $22,443 53.6% $20,576 48.1% $22,466 54.5%
Scherer, Ltd. 7,555 18.0 11,203 26.2 8,091 19.6
Waste Management Services Segment 10,753 25.7 10,039 23.4 9,670 23.5
Consumer Healthcare Products Segment 1,106 2.7 984 2.3 1,002 2.4
--------- -------- --------- -------- --------- --------
Company Totals $41,857 100.0% $42,802 100.0% $41,229 100.0%
--------- -------- --------- -------- --------- --------
--------- -------- --------- -------- --------- --------
</TABLE>
FISCAL 1996 VS. FISCAL 1995 (NET SALES)
The Company's net sales decreased by 2% to $41,857,000 for fiscal 1996 from
$42,802,000 for fiscal 1995; however, fiscal 1995 includes twelve months of net
sales for the Medical Business, or $9,865,000, and fiscal 1996 includes only six
months of net sales for the Medical Business, or $5,344,000, which was sold in
October 1995.
Marquest's net sales increased 9% to $22,443,000 in fiscal 1996 from $20,576,000
in fiscal 1995. Marquest's sales for the first quarter of fiscal 1995 were low
due to a decline in sales to hospitals which Marquest believes was due primarily
to the uncertainties relating to proposed healthcare reform. Also, many of
Marquest's distributors purchased high levels of product during the fourth
quarter of fiscal 1994 which depressed Marquest's sales in the first quarter of
fiscal 1995. In fiscal 1996, Marquest implemented a network of independent
manufacturer's representatives which supplements its sales force.
Scherer, Ltd.'s net sales decreased 33% to $7,555,000 in fiscal 1996 from
$11,203,000 in fiscal 1995; however, fiscal 1995 includes twelve months of net
sales for the Medical Business, or $9,865,000, and fiscal 1996 includes only six
months of net sales for the Medical Business, or $5,344,000. Scherer, Ltd.'s
net sales for the Industrial Business increased 65% to $2,211,000 for fiscal
1996 from $1,338,000 in fiscal 1995. This increase in net sales is primarily
due to the introduction of two new fabric lines in late fiscal 1995.
Net sales in the Company's Waste Management Services Segment increased
approximately 7% to $10,753,000 in fiscal 1996 from $10,039,000 in fiscal 1995.
The increase in sales is due to the continuing acquisition of new medical waste
disposal contracts with hospitals.
Net sales for the Consumer Healthcare Products Segment increased 12% to
$1,106,000 for fiscal 1996 from $984,000 for fiscal 1995. This segment achieved
a record level of sales of certain over-the-counter products during the first
quarter of fiscal 1996. The sales growth can be attributed to an increase in
sales to a primary wholesaler to Wal-Mart.
-15-
<PAGE>
FISCAL 1995 VS. FISCAL 1994 (NET SALES)
Net sales in fiscal 1995 increased 4% to $42,802,000 from $41,229,000 in fiscal
1994.
Marquest's net sales declined 8% to $20,576,000 in fiscal 1995 from $22,466,000
in fiscal 1994. Net sales in fiscal 1994 were positively impacted due to
fulfillment of a backlog of orders from consolidation of a manufacturing plant
in Mexico and a distribution facility in Arizona to its headquarters in
Colorado. At the beginning of the second quarter of fiscal 1995, Marquest
implemented a territorial reorganization of its distributors, dropping certain
nonperforming distributors and expanding the territories of other distributors.
As anticipated, this resulted in a loss of sales as not all business to
customers of discontinued distributors was retained by Marquest.
Scherer, Ltd.'s net sales increased 38% to $11,203,000 in fiscal 1995 from
$8,091,000 in fiscal 1994 due primarily to entries into two new market segments
during the third quarter of fiscal 1994. The private label surgical tray
product for Cordis Corporation contributed $2,664,000 of the increase and the
disposable specialty apparel segment, which sells to safety and clean room
markets, contributed the rest of the increase.
Net sales increased approximately 4% at the Waste Management Segment due to the
continuing acquisition of new hospital contracts.
There were no significant changes in the net sales of other segments in fiscal
1995.
COSTS AND EXPENSES. The following table sets forth the percentage relationship
which the expense line items in the consolidated statement of operations bear to
total revenue:
Percentage of Revenue
Year Ended March 31,
---------------------------
1996 1995 1994
-------- ------- --------
Net Sales 100.0% 100.0% 100.0%
Costs and Expenses:
Cost of good sold 68.2 74.8 74.3
Selling, general, and administrative 30.5 33.4 32.8
Research and development 0.4 0.3 0.3
Nonrecurring charges - 4.7 -
-------- ------- --------
Operating income (loss) 0.9% (13.1)% (7.4)%
-------- ------- --------
-------- ------- --------
The following table sets forth the Company's operating margins by operating
segment and on a consolidated basis:
Year Ended March 31,
---------------------------
1996 1995 1994
-------- ------- --------
Medical Device and Surgical/Safety
Disposables Segment:
Marquest 2.3% (13.1)% (11.9)%
Scherer, Ltd. (4.4) (8.1) (5.2)%
Waste Management Services Segment 8.6 7.9 5.2
Consumer Healthcare Products Segment 33.3 24.8 28.5
Consolidated 0.9% (13.1)% (7.4)%
-16-
<PAGE>
FISCAL 1996 VS. FISCAL 1995 (COSTS AND EXPENSES)
The Company reported operating income of $393,000 in fiscal 1996 compared to an
operating loss of $5,628,000 in fiscal 1995. The fiscal 1995 operating loss
includes a nonrecurring charge of $2,000,000 for the writedown of two waste
incinerator investments.
Marquest reported operating income of $510,000 in fiscal 1996 compared to an
operating loss of $2,696,000 in fiscal 1995. This improvement is a result of
the increase in sales discussed above combined with an emphasis on cost
reduction. Marquest reduced manufacturing costs and administrative expenses by
reductions in personnel, improved operational efficiencies and increased
vertical integration of the manufacturing processes. Additionally, the increase
in the manufacturing volume helped improve overhead absorption.
Scherer, Ltd.'s operating loss decreased 63% to $335,000 in fiscal 1996 from
$912,000 in fiscal 1995. In fiscal 1995, Scherer, Ltd. experienced substantial
losses (approximately $700,000) under its surgical trays contract with Cordis.
Effective April 1, 1995, Scherer, Ltd. entered into a new agreement with Cordis
which required Cordis, among other things, to reimburse Scherer, Ltd. a monthly
shortfall amount ($52,000 per month for the period April to July 1995 and
$42,500 per month for the months of August and September 1995) to help offset
monthly losses incurred under the contract. The contract was terminated upon
the sale of the Medical Business to Cordis Medical in October 1995. Primarily
as a result of the new contract, the Medical Business reported operating income
of $164,000 in fiscal 1996 compared to an operating loss of $559,000 in fiscal
1995. The Industrial Business of Scherer, Ltd. increased its operating loss 41%
to $499,000 in fiscal 1996 from $353,000 in fiscal 1995. The Company is
reviewing the operating losses relating to the Industrial Business and is
evaluating the areas in which Scherer, Ltd. can reduce operating costs to
improve its margins. In late fiscal 1996, Scherer, Ltd., which is currently
operating under the name Protective Disposable Apparel, moved the manufacture of
its lab coats to a new workshop where Scherer, Ltd. was able to negotiate better
labor rates. Additionally, Scherer, Ltd. intends to redesign some of its
products in an attempt to reduce raw materials and may discontinue the sales of
some of its low margin products.
The Waste Management Services Segment increased its operating income 17% to
$924,000 in fiscal 1996 from $790,000 in fiscal 1995. The operating improvement
can be attributed to a decrease in insurance expense and a one-time sales tax
expense in fiscal 1995 pursuant to a three year assessment from a sales tax
audit. This segment has reported consistent increases in net sales but has
struggled to improve its operating margins because of pricing pressures in both
the hospital and physician markets.
Operating income improved 51% to $368,000 in fiscal 1996 from $244,000 in fiscal
1995 at the Company's Consumer Healthcare Products Segment. This increase can
be directly attributed to the increase in sales for this segment discussed
above.
FISCAL 1995 VS. FISCAL 1994 (COSTS AND EXPENSES)
The Company's operating loss increased to $5,628,000 in fiscal 1995 from an
operating loss of $3,071,000 in fiscal 1994. The fiscal 1995 operating loss
includes a nonrecurring charge of $2,000,000 for the writedown of two waste
incinerator investments.
Marquest's fiscal 1995 operating loss of $2,696,000 changed very little from
fiscal 1994's operating loss of $2,679,000 despite a $1,890,000 sales decrease
in fiscal 1995. This was primarily due to the previously discussed
consolidation of the manufacturing and distribution facilities, plus focused
emphasis on improvement programs developed to reduce cost while improving the
quality of Marquest's products and customer service.
At Scherer, Ltd., the increase in the operating loss for fiscal 1995 from
$421,000 in fiscal 1994 to $912,000 in fiscal 1995 was due principally to losses
relating to the Cordis surgical tray business.
The Waste Management Segment operating income improved by approximately $288,000
from $502,000 in fiscal 1994 to $790,000 in fiscal 1995. This is a particularly
positive result in light of the downward price pressure in both the hospital and
physician's markets, and is a direct result of a successful cost reduction
program initiated early in fiscal 1995.
The Company also had investment writedowns of $2,000,000 during fiscal 1995
relating to two waste incinerator investments at its waste incineration
subsidiaries and $537,000 for an unsuccessful attempt to acquire another
company.
-17-
<PAGE>
INCOME TAXES. The Company recorded an income tax provision of $548,000 in
fiscal 1996 and had tax benefits of $197,000 and $1,018,000 in fiscal years 1995
and 1994, respectively. Marquest recorded a tax provision of $697,000 in fiscal
1996 as a result of its settlement with the IRS with respect to tax issues
related to previous years. In fiscal 1996, the Company (excluding Marquest)
utilized tax loss carryforwards and reduced its valuation allowance accordingly.
Prior to fiscal 1996, the Company significantly increased its valuation
allowance against its deferred tax assets mainly related to the tax loss
carryforwards.
The Company's ability to generate taxable income from operations is dependent
upon various factors, many of which are beyond management's control.
Accordingly, there can be no assurance that the Company will generate future
taxable income. Therefore, the realization of the deferred tax assets will be
assessed periodically based upon the Company's current and anticipated results
of operations.
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY
CASH FLOWS FROM OPERATIONS.
The Company's (excluding Marquest) operating activities provided cash from
continuing operations of approximately $2,123,000 in fiscal 1996 compared to
approximately $350,000 in fiscal 1995. The improvement in operating cash flows
can primarily be attributed to the collection of the remaining Scherer, Ltd.
accounts receivable associated with the Medical Business and the overall
improvement of Scherer, Ltd.'s working capital management prior to the sale of
the Medical Business to Cordis Medical. Cordis paid all amounts owed
(approximately $560,000) to Scherer, Ltd. at the time of closing for services
provided under the contract to assemble surgical disposable trays.
Additionally, as part of the terms of the sale agreement, Scherer, Ltd. retained
all accounts receivable associated with the Medical Business, of which
approximately $800,000 was collected in the second half of fiscal 1996. During
fiscal 1994 and into the first half of fiscal 1995, Scherer, Ltd. made
significant inventory purchases in anticipation of projected sales increases
under the Cordis contract. The anticipated level of sales did not materialize
and an effort was made to reduce inventory levels in fiscal 1995 and continued
through the first half of fiscal 1996.
The Company's decision to discontinue the operations of Biofor should reduce
operating cash flow requirements in future periods. The net cash used by
Biofor's operations was approximately $1,564,000 and $2,105,000 for fiscal years
1996 and 1995, respectively.
CASH FLOWS FROM FINANCING AND INVESTING ACTIVITIES.
Prior to fiscal 1996, Scherer Scientific, Ltd., Scherer Cap, and RPS
Investments, Ltd., entities controlled by the majority stockholder of the
Company, made loans (the "Affiliate Loans") to the Company and its subsidiaries
the proceeds of which were used primarily for working capital and business
acquisitions. The Affiliate Loans are payable on demand and bear interest at
prime rate plus .5%. The Company used $4,800,000 of the net proceeds from the
sale of the Medical Business to Cordis Medical to repay a portion of the
Affiliate Loans. The Company and the affiliates intend to restructure the
remaining balance of the Affiliate Loans, approximately $2,286,000 at March 31,
1996, to include fixed payment terms, uniform interest rates, cross
collateralization and guarantees.
During the first quarter of fiscal 1996, the Company terminated its $3,200,000
line of credit with Trust Company Bank (now SunTrust Bank). This line was fully
collateralized by cash investments. The Company determined that the line
provided no net financial leverage and converted the collateral previously used
to secure the line of credit into operating cash. Available cash balances are
invested in repurchase agreements (principally U.S. Treasuries) daily.
During the third quarter of fiscal 1996, the Company and Scherer Cap had
discussed a line of credit arrangement that would have been available as an
additional capital resource. The discussions ended after it was decided the
line of credit wasn't necessary because the Company's cash flow is sufficient to
maintain its current operations.
-18-
<PAGE>
MARQUEST
With the exception of executive management, Marquest operates independent of the
Company.
Marquest's cash used for operating activities decreased to approximately $79,000
in fiscal 1996 from $994,000 in fiscal 1995. The improvement can be attributed
to the increase in sales during fiscal 1996 combined with the successful
implementation of cost reduction programs.
In December 1995, Marquest signed a promissory note with Scherer Cap, an entity
controlled by the majority stockholder of the Company, for maximum borrowings of
$1,800,000, of which $1,100,000 was borrowed in December 1995 primarily for
working capital purposes. Marquest repaid $400,000 of the borrowings in January
1996 and the balance of $700,000 was repaid in March 1996 from borrowings under
a Loan and Security Agreement (the "Loan Agreement") entered into by Marquest
and Scherer Cap. The Loan Agreement, which expires February 28, 2001, enables
Marquest to borrow a maximum of $1,500,000 at an interest rate of prime plus
1 1/2%. Any amounts borrowed under the Loan Agreement are represented by
Convertible Notes that are convertible into shares of Marquest Common Stock at
the option of Scherer Cap. As of March 31, 1996, Marquest had borrowed $700,000
under the Loan Agreement. Additionally, Scherer Cap invested $1,000,000 in
Marquest on March 29, 1996 through the purchase of 2,061,856 shares of Marquest
Common Stock.
Marquest is currently negotiating with a bank for a line of credit that would be
secured by its accounts receivable. The line of credit would be available
primarily for working capital needs. Marquest expects to complete negotiations
and secure the line of credit during the second quarter of fiscal 1997.
Planned capital investment for fiscal 1997 is approximately $1,000,000 for
facilities and process improvements which Marquest will fund through internally
generated funds and, if necessary, the $800,000 of available borrowings under
the Loan Agreement with Scherer Cap.
Marquest's management believes that it can fund its current operating levels and
meet its obligations during fiscal 1997 from cash on hand and from internally
generated funds. To the extent that fiscal 1997's operations do not meet
projected levels, Marquest's planned investment in capital expenditures for
fiscal 1997 will be reduced accordingly.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company are set forth on pages F-1 through F-21
of this report. The reporting of selected quarterly financial data specified by
Item 302 of Regulation S-K is not required for the Company.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
-19-
<PAGE>
PART III
Certain information required by Part III is omitted from this report but is
incorporated herein by reference to the Company's definitive Proxy Statement for
the 1996 Annual Meeting of Shareholders (the "Proxy Statement"). Such Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after March 31, 1996.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
In accordance with General Instruction G(3) of the Form 10-K, the information
relating to the directors of the Company, including directors who are executive
officers of the Company, is set forth under the caption "Election of Directors"
in the Proxy Statement and is incorporated herein by reference. Pursuant to
Instruction 3 of Item 401(b) of Regulation S-K and General Instruction G(3) of
Form 10-K, information relating to the executive officers of the Company is set
forth under the caption "Executive Officers of the Company" in Part I, Item 4A
of this report.
Compliance with Section 16(a) of the Securities Exchange Act of 1934: Section
16(a) of the Securities Exchange of 1934, as amended, and regulations of the
Securities and Exchange Commission thereunder require the Company's directors
and executive officers and any persons who own more than 10% of the Company's
Common Stock, as well as certain affiliates of such persons, to file reports
with the Securities and Exchange Commission and the National Association of
Securities Dealers, Inc. with respect to their ownership of the Company's Common
Stock. Directors, executive officers and persons owning more than 10% of the
Company's Common Stock are required by Securities and Exchange Commission
regulations to furnish the Company with copies of all Section 16(a) reports they
file. Based solely on its review of the copies of such reports received by it
and written representations that no other reports were required of those
persons, the Company believes that during fiscal 1996, all filing requirements
applicable to its directors and executive officers were complied within a timely
manner [except that Amy M. Murphy filed a late Form 3]. The Company is not
aware of any other persons other than directors and executive officers and their
affiliates who own more than 10% of the Company's Common Stock.
ITEM 11. EXECUTIVE COMPENSATION
In accordance with General Instruction G(3) of Form 10-K, the information
relating to executive compensation set forth under the caption "Compensation of
Executive Officers" in the Proxy Statement is incorporated herein by reference;
provided, such incorporation by reference shall not be deemed to include or
incorporate by reference the information referred to in Item 402 (a)(8) of
Regulation S-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
In accordance with General Instruction G(3) of Form 10-K, the information
relating to security ownership by certain persons set forth under the captions
"Principal Stockholders" and "Election of Directors" in the Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In accordance with General Instruction G(3) of Form 10-K, the information
relating to certain relationships and related transactions set forth under the
caption "Related Party Transactions" in the Proxy Statement is incorporated
herein by reference.
-20-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
(1) Financial Statements.
The financial statements of the Company and the related report of
independent accountants thereon are set forth immediately following the
Index to Financial Statements and Financial Statement Schedules which
appears on page F-1 of this report.
(2) Financial Statement Schedules.
Financial statement schedules begin on page S-1 of this report. All other
schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted
because such schedules are not required under the related instructions or
are not applicable or because the information required is included in the
consolidated financial statements or notes thereto.
(3) Exhibits.
The following exhibits are filed with or incorporated by reference in this
report. Where filing is made by incorporation by reference to a previously
filed registration statement or report, such registration statement or
report is identified in parenthesis. The Company will furnish any exhibit
upon request to Amy M. Murphy, Secretary, Scherer Healthcare, Inc., 2859
Paces Ferry Road, Suite 300, Atlanta, Georgia 30339. There is a charge of
$.50 per page to cover expenses for copying and mailing.
3.1 Articles of Incorporation of the Company, as amended (Exhibit 3.1
to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1994).
3.2 By-Laws of the Company (Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1994).
4 Certificate of Designation, Preferences and Rights of Preferred
Stock by Resolution of the Board of Directors Providing for an
Issue of 7,000 Shares of Preferred Stock Designated "Series A"
Cumulative Convertible Preferred Stock (Exhibit 4 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1994).
10.1 Property Lease between Bio Systems Partners and Flushing
Operating Corp. for 210 Sherwood Avenue, Farmingdale, New York,
and Addendum (Exhibit 10.2 to the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1994).
10.2 Property Lease between Med X Services of PA, Inc. and successors
and Mark Hankin and Hamnar Associates XVII for 380 Constance
Drive, Warminster, Pennsylvania, and Addendum (Exhibit 10.4 to
the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1994).
10.3 Asset Purchase Agreement dated October 3, 1995 among Cordis
Medical Products, Inc., Scherer Healthcare, Ltd. d/b/a Custom
Medical Products, ASH Enterprises, Inc., Out-Patient Products
Company, Inc., Scherer Healthcare, Inc. and Cordis Corporation
(Exhibit 2 to the Company's Current Report on Form 8-K dated
October 19, 1995).
10.4 Conversion Agreement dated March 28, 1996 by and between Marquest
Medical Products, Inc. and Scherer Healthcare, Inc.
(Exhibit 10 to the Company's Current Report on Form 8-K dated
April 17, 1996)
21 Subsidiaries of Registrant - filed herewith.
25 Powers of Attorney - filed herewith.
27 Financial Data Schedule (included only in EDGAR filing)
(b) REPORTS ON FORM 8-K.
No Current Reports on Form 8-K were filed by the Company during the quarter
ended March 31, 1996.
-21-
<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 on June 27, 1996.
SCHERER HEALTHCARE, INC.
By: /s/Robert P. Scherer, Jr.
-------------------------------------
Robert P. Scherer, Jr.
Chairman and Chief Executive 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 indicated on June 27, 1996.
Signature Title
- --------- -----
/s/Robert P. Scherer, Jr. Chairman of the Board, Director and
- ----------------------------------- Chief Executive Officer
Robert P. Scherer, Jr.
/s/William J. Thompson * President and Director
- -----------------------------------
William J. Thompson
/s/Gary W. Ruffcorn Director of Finance and Accounting
- ----------------------------------- (Principal Financial and Accounting
Gary W. Ruffcorn Officer)
/s/Stephen A. Lukas, Sr. * Director
- -----------------------------------
Stephen A. Lukas, Sr.
/s/Kenneth H. Robertson * Director
- -----------------------------------
Kenneth H. Robertson
*By:/s/Robert P. Scherer, Jr.
-------------------------
Robert P. Scherer, Jr.
as Attorney-in-Fact
-22-
<PAGE>
SCHERER HEALTHCARE, INC.
INDEX OF EXHIBITS
The following exhibits are filed with or incorporated by reference in this
report. Where such filing is made by incorporation by reference to a previously
filed registration statement or report, such registration statement or report is
identified in parentheses.
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- ----------- ------
<S> <C> <C>
3.1 Articles of Incorporation of the Company, as amended (Exhibit 3.1 to
the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1994).
3.2 By-Laws of the Company (Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1994).
4 Certificate of Designation, Preferences and Rights of Preferred Stock
by Resolution of the Board of Directors Providing for an Issue of
7,000 Shares of Preferred Stock Designated "Series A" Cumulative
Convertible Preferred Stock (Exhibit 4 to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1994).
10.1 Property Lease between Bio Systems Partners and Flushing Operating
Corp. for 210 Sherwood Avenue, Farmingdale, New York, and Addendum
(Exhibit 10.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1994).
10.2 Property Lease between Med X Services of PA, Inc. and successors and
Mark Hankin and Hamnar Associates XVII for 380 Constance Drive,
Warminster, Pennsylvania, and Addendum (Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1994).
10.3 Asset Purchase Agreement dated October 3, 1995 among Cordis Medical
Products, Inc., Scherer Healthcare, Ltd. d/b/a Custom Medical
Products, ASH Enterprises, Inc., Out-Patient Products Company, Inc.
Scherer Healthcare, Inc. and Cordis Corporation (Exhibit 2 to the
Company's Current Report on Form 8-K dated October 19, 1995).
10.4 Conversion Agreement dated March 28, 1996 by and between Marquest
Medical Products, Inc. and Scherer Healthcare, Inc. (Exhibit 10 to the
Company's Current Report on Form 8-K dated April 17, 1996)
21 Subsidiaries of Registrant - filed herewith.
25 Powers of Attorney - filed herewith.
27 Financial Data Schedule (included only in EDGAR filing)
</TABLE>
-23-
<PAGE>
SCHERER HEALTHCARE, INC.
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements and schedules of the Registrant
and its subsidiaries are submitted herewith in response to Item 8:
Report of Independent Public Accountants. . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets--March 31, 1996 and 1995. . . . . . . . . . F-3
Consolidated Statements of Operations--Years Ended
March 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Stockholders' Equity--Years
Ended March 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . F-7
Consolidated Statements of Cash Flows--
Years Ended March 31, 1996, 1995 and 1994 . . . . . . . . . . . . . F-8
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . F-9
The following financial statement schedules of the Registrant and its
subsidiaries are submitted herewith in response to Item 14(a)(2):
Schedule I--Condensed Financial Information of Registrant . . . . . . . S-1
Schedule II--Valuation and Qualifying Accounts. . . . . . . . . . . . . S-4
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of
Scherer Healthcare, Inc.
We have audited the accompanying consolidated balance sheets of SCHERER
HEALTHCARE, INC. (a Delaware Corporation) AND SUBSIDIARIES as of March 31, 1996
and 1995 and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended March 31,
1996. These financial statements and the schedules referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules 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 financial statements referred to above present fairly, in
all material respects, the financial position of Scherer Healthcare, Inc. and
subsidiaries as of March 31, 1996 and 1995 and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1996 in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 11 to the financial statements, the Company changed
its method of accounting for income taxes during 1994.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index of
financial statements and financial statement schedules are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly state, in all material
respects, the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
Arthur Andersen LLP
Atlanta, Georgia
June 7, 1996
F-2
<PAGE>
SCHERER HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,622,000 $ 1,273,000
Investment fund, at cost which approximates market - 3,232,000
Accounts receivable, less allowance for doubtful
accounts of $243,000 in 1996 and $228,000 in 1995 6,092,000 7,248,000
Current maturities of notes receivable 393,000 289,000
Inventories 3,936,000 5,644,000
Prepaid and other 331,000 435,000
----------- -----------
Total current assets 14,374,000 18,121,000
----------- -----------
PROPERTY AND EQUIPMENT 15,749,000 16,728,000
Less accumulated depreciation (5,146,000) (4,229,000)
----------- -----------
Net property and equipment 10,603,000 12,499,000
----------- -----------
OTHER ASSETS
Cost in excess of net assets of businesses
acquired, net 6,721,000 7,165,000
Other investments, at cost 651,000 650,000
Notes receivable, less current portion 506,000 1,038,000
Intangibles 365,000 829,000
Deferred income taxes 329,000 329,000
Other 305,000 -
Net assets of discontinued operations 589,000 897,000
----------- -----------
Total other assets 9,466,000 10,908,000
----------- -----------
TOTAL ASSETS $34,443,000 $41,528,000
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
SCHERER HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
(Continued)
MARCH 31, 1996 AND 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
----------- ----------
CURRENT LIABILITIES
Accounts payable $ 2,150,000 $ 3,663,000
Acrued expenses 5,002,000 4,897,000
Line of credit and current maturities of debt
obligations 981,000 3,423,000
Payables to affiliates 2,286,000 7,601,000
Other 49,000 58,000
Net liabilities of discontinued operations 33,000 888,000
----------- ----------
Total current liabilites 10,501,000 20,530,000
----------- ----------
LONG-TERM DEBT, net of current maturities 5,291,000 4,946,000
----------- ----------
OTHER LIABILITIES 347,000 370,000
----------- ----------
COMMITMENTS AND CONTINGENCIES
MINORITY INTERESTS IN SUBSIDIARY AND PARTNERSHIPS 2,130,000 1,196,000
----------- ----------
STOCKHOLDERS' EQUITY
Convertible preferred stock - $.01 par value,
2,000,000 shares authorized; 28,885 shares
issued and outstanding in 1996 and 35,006
in 1995 - -
Common stock - $.01 par value, 12,000,000
shares authorized; 4,669,928 issued in
1996 and 4,642,814 in 1995; 4,290,566 shares
outstanding in 1996 and 4,266,452 in 1995 47,000 46,000
Capital in excess of par value 22,316,000 22,317,000
Accumulated deficit (3,156,000) (4,904,000)
Less treasury stock, at cost (3,033,000) (2,973,000)
----------- ----------
Total stockholders' equity 16,174,000 14,486,000
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $34,443,000 $41,528,000
----------- ----------
----------- ----------
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
SCHERER HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31,
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES $41,857,000 $42,802,000 $41,229,000
----------- ----------- -----------
COSTS AND EXPENSES
Cost of goods sold 28,540,000 32,009,000 30,641,000
Selling, general, and administrative 12,769,000 14,281,000 13,533,000
Research and development 155,000 140,000 126,000
Nonrecurring charges - 2,000,000 -
----------- ----------- -----------
Total costs and expenses 41,464,000 48,430,000 44,300,000
----------- ----------- -----------
OPERATING INCOME (LOSS) 393,000 (5,628,000) (3,071,000)
OTHER INCOME (EXPENSE)
Interest income 266,000 696,000 1,185,000
Interest expense (1,128,000) (1,257,000) (1,178,000)
Gain on sale of assets 3,006,000 70,000 491,000
Other, net 684,000 (642,000) (280,000)
----------- ----------- -----------
Total other income (expense) 2,828,000 (1,133,000) 218,000
----------- ----------- -----------
Income (loss) from continuing operations before
minority interest, income taxes, extraordinary
item and change in accounting principle 3,221,000 (6,761,000) (2,853,000)
Minority interest in (income) loss (5,000) 1,927,000 1,992,000
----------- ----------- -----------
Income (loss) from continuing operations before
income taxes, extraordinary item and change
in accounting principle 3,216,000 (4,834,000) (861,000)
Benefit (provision) for income taxes (548,000) 197,000 1,018,000
----------- ----------- -----------
Income (loss) from continuing operations
before extraordinary item and change in
accounting principle 2,668,000 (4,637,000) 157,000
Loss from discontinued operations (920,000) (5,534,000) (4,795,000)
----------- ----------- -----------
Income (loss) before extraordinary item and
change in accounting principle 1,748,000 (10,171,000) (4,638,000)
Extraordinary item: gain from extinguishment
of debt - - 421,000
Change in accounting principle, benefit from
change in method of accounting for income taxes - - 254,000
----------- ----------- -----------
NET INCOME (LOSS) $ 1,748,000 $(10,171,000) $(3,963,000)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
SCHERER HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Continued)
For the years ended March 31,
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
INCOME (LOSS) PER COMMON SHARE
Income (loss) from continuing operations before
extraordinary item and change in accounting
principle $ 0.60 $ (1.09) $ 0.04
Loss from discontinued operations (0.20) (1.30) (1.21)
Extraordinary item - - 0.11
Change in accounting principle - - 0.06
----------- ----------- -----------
NET INCOME (LOSS) PER SHARE $ 0.40 $ (2.39) $ (1.00)
----------- ----------- -----------
----------- ----------- -----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,421,483 4,255,264 3,953,544
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
SCHERER HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three years ended March 31, 1996
<TABLE>
<CAPTION>
Retained
Earnings
Preferred Common Capital In (Accu- Treasury
Preferred Stock Common Stock Excess of mulated Treasury Stock
Shares Amount Shares Amount Par Value Deficit) Shares Cost
--------- --------- --------- --------- ----------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1993 - $ - 4,305,139 $ 43,000 $14,309,000 $ 9,230,000 371,362 $(2,873,000)
Shares issued in connection
with Marquest transaction 43,516 - - - 4,351,000 - - -
Net loss - - - - - (3,963,000) - -
Shares issued to purchase
minority interest in
Biofor of Georgia - - 300,000 3,000 3,657,000 - - -
--------- --------- --------- --------- ----------- ----------- -------- ------------
Balance at March 31, 1994 43,516 - 4,605,139 46,000 22,317,000 5,267,000 376,362 (2,973,000)
Conversion of preferred
shares to common shares (8,510) - 37,675 - - - - -
Net loss - - - - - (10,171,000) - -
--------- --------- --------- --------- ----------- ----------- -------- ------------
Balance at March 31, 1995 35,006 - 4,642,814 46,000 22,317,000 (4,904,000) 376,362 (2,973,000)
Conversion of preferred
shares to common shares (6,121) - 27,114 1,000 (1,000) - - -
Net income - - - - - 1,748,000 - -
Other - - - - - - 3,000 (60,000)
--------- --------- --------- --------- ----------- ----------- -------- ------------
Balance at March 31, 1996 28,885 $ - 4,669,928 $ 47,000 $22,316,000 $(3,156,000) 379,362 $(3,033,000)
--------- --------- --------- --------- ----------- ----------- -------- ------------
--------- --------- --------- --------- ----------- ----------- -------- ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE>
SCHERER HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 31,
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,748,000 $(10,171,000) $(3,963,000)
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:
Depreciation and amortization 2,228,000 2,658,000 3,240,000
Minority interest 46,000 (1,952,000) (1,992,000)
Deferred taxes - 121,000 391,000
Gain on sale of assets (3,006,000) (70,000) (491,000)
Extraordinary gain from early
extinguishment of debt - - (421,000)
Nonrecurring charges - 2,000,000 -
Loss from discontinued operations 920,000 5,534,000 4,795,000
Other noncash charges and credits, net 34,000 (267,000) 380,000
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable, net 1,063,000 48,000 (2,061,000)
Inventories (614,000) 816,000 (2,207,000)
Prepaid and other 101,000 188,000 189,000
Income taxes, net 14,000 825,000 132,000
Accounts payable and accrued expenses (464,000) (154,000) (815,000)
Other liabilities (25,000) (221,000) (463,000)
------------ ----------- -----------
Net cash provided by (used for) operating
activities of continuing operations 2,045,000 (645,000) (3,286,000)
------------ ----------- -----------
Net operating activities of discontinued
operations (1,564,000) (2,105,000) (2,616,000)
------------ ----------- -----------
Net cash provided by (used for) operating
activities 481,000 (2,750,000) (5,902,000)
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net (670,000) (1,773,000) (3,646,000)
Proceeds from sale of assets 5,147,000 245,000 692,000
Decrease (increase) in investments 3,232,000 (232,000) (542,000)
Decrease in notes receivable 467,000 764,000 1,983,000
Other investing activities, net 82,000 (45,000) 476,000
------------ ----------- -----------
Net cash provided by (used for)
investing activities 8,258,000 (1,041,000) (1,037,000)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments of) proceeds from
borrowings (2,657,000) (1,008,000) 2,466,000
Advances from (repayments to) affiliated
companies (5,321,000) 2,356,000 2,161,000
Proceeds from investment by affiliated
company 1,588,000 - -
Other financing activities, net - 169,000 (131,000)
------------ ----------- -----------
Net cash provided by (used for) financing
activities (6,390,000) 1,517,000 4,496,000
------------ ----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS 2,349,000 (2,274,000) (2,443,000)
CASH AND CASH EQUIVALENTS, beginning of year 1,273,000 3,547,000 5,990,000
------------ ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 3,622,000 $ 1,273,000 $ 3,547,000
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
<PAGE>
SCHERER HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995, AND 1994
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRINCIPLES OF
CONSOLIDATION
Basis of Presentation
The accompanying consolidated financial statements include the accounts of the
parent company, Scherer Healthcare, Inc. (the "Company" or "Scherer
Healthcare"), and its subsidiaries (see Exhibit 21 to Annual Report on Form 10-K
for the fiscal year ended March 31, 1996 for detailed listing). Marquest
Medical Products, Inc. ("Marquest"), a majority owned subsidiary of the Company,
has a 52- or 53-week fiscal year ending on the Saturday nearest to March 31.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Certain 1994 and 1995 amounts have been reclassified to conform with the 1996
presentation.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments such as cash, short-term
investments, trade receivables and payables and short-term debt approximated
their fair values based on the short-term maturities of these instruments.
Additionally, the carrying value of both long-term investments and long-term
debt approximated fair values.
INVENTORIES
Inventories are stated at the lower of net realizable value or cost using the
first-in, first-out ("FIFO") method.
1996 1995
------------ ----------
Finished products $ 1,884,000 $2,107,000
Work in progress 233,000 203,000
Containers, packaging, and raw material 1,819,000 3,334,000
----------- ----------
$ 3,936,000 $5,644,000
----------- ----------
----------- ----------
F-9
<PAGE>
PROPERTY AND EQUIPMENT
PROPERTY and equipment is stated at cost, and depreciation is computed
principally using the straight-line method over the estimated useful lives of
the assets as follows: furniture, fixtures and equipment--3-10 years and
buildings and leasehold improvements--5-50 years.
1996 1995
------------ -------------
Land $ 1,265,000 $ 1,387,000
Building and leasehold improvements 4,836,000 5,331,000
Furniture, fixtures, and equipment 9,648,000 10,010,000
------------ -------------
$15,749,000 $16,728,000
------------ -------------
------------ -------------
Depreciation expense for fiscal years 1996, 1995, and 1994 was $1,924,000,
$2,276,000, and $2,470,000, respectively.
MINORITY INTEREST
Minority interest primarily represents the equity interest in Marquest of
outside investors. Because of recent losses, there is no significant minority
interest liability related to other subsidiaries not wholly-owned by the
Company.
INCOME TAXES
As discussed in Note 11, during the first quarter of fiscal 1994, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." This statement requires that the Company
account for income taxes under the liability method.
REVENUE RECOGNITION
Sales are recorded by the Company when products are shipped to customers or
independent distributors. Sales for services provided are recorded when the
Company has completed the service.
Geographic net sales were as follows:
1996 1995 1994
----------- ----------- -----------
United States and Canada $36,113,000 $38,249,000 $37,025,000
Europe, Pacific Rim and Other 5,744,000 4,553,000 4,204,000
----------- ----------- -----------
Net Sales $41,857,000 $42,802,000 $41,229,000
----------- ----------- -----------
----------- ----------- -----------
Operating margins on export sales have been comparable to those associated with
domestic sales.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expenditures for the creation and application of new
products and processes are expensed as incurred.
INCOME (LOSS) PER COMMON SHARE
Income (loss) per common share is based upon the weighted average number of
common shares outstanding after giving effect for common stock equivalents
arising from the assumed conversion of the Company's Convertible Preferred Stock
into common stock. Stock options outstanding have no material effect upon the
calculation of earnings per share since their effect is antidilutive.
F-10
<PAGE>
NEW ACCOUNTING STANDARDS
In fiscal 1997, the Company will adopt SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
SFAS No. 121 requires that long-lived assets and associated intangibles be
written down to fair value whenever an impairment review indicates that the
carrying value cannot be recovered on an undiscounted cash flow basis. SFAS No.
121 also requires that a company no longer record depreciation expense on assets
held for sale. The Company expects that the adoption of SFAS No. 121 will not
have a material effect on its financial position or results of operations.
In fiscal 1997, the Company will adopt SFAS No. 123, "Accounting for Stock-Based
Compensation". This standard establishes a fair value method for accounting for
stock-based compensation plans either through recognition or disclosure. The
Company will adopt this standard through compliance with the disclosure
requirement set forth in SFAS No. 123. Adoption of the standard will have no
impact on the financial position or results of operations of the Company.
NOTE 2. ACQUISITION OF MARQUEST MEDICAL PRODUCTS, INC.
During the first quarter of fiscal 1994, Scherer Healthcare entered into
transactions to acquire Marquest and to provide it $4,500,000 in sale and
leaseback financing. Marquest is an international manufacturer and distributor
of specialty cardiopulmonary support, respiratory and anesthesia disposable
devices. Since the transactions were completed, Marquest has been included with
the Company in the consolidated financial statements due to the Company's
ability to control Marquest by virtue of common stock, warrants and convertible
debt held by the Company and the Company's control of the Board of Directors.
As part of the acquisition, Marquest restructured its $12,650,000 of defaulted
Swiss bonds. Approximately 96% of the outstanding amount of bonds was tendered
and accepted in the Swiss bond exchange offers. A combination of approximately
43,516 shares of Scherer Healthcare 5% Convertible Preferred Stock, $2,875,000
of Marquest six-year 8% notes, and Marquest warrants for 1,597,416 Common Shares
were issued to the former bondholders who accepted the exchange offers. In
exchange for its Preferred Stock, Scherer Healthcare received approximately
$4,352,000 of Marquest six-year 8% notes convertible into Marquest Common Stock.
The $4,500,000 purchase of one of Marquest's product lines by Scherer Healthcare
provides a license back to Marquest and a right of repurchase by Marquest. The
issuance of the Preferred Stock to Swiss bondholders resulted in goodwill of
approximately $4,255,000. Scherer Healthcare received warrants for 6,580,000
shares of Marquest Common Stock, exercisable at $.75 per share. At Scherer
Healthcare's option, either cash or Scherer Healthcare Common Stock can be used
in exercising the warrants. On May 23, 1994, the Company converted $2,500,000
of the $4,352,000 Marquest six-year 8% note into 3,333,333 shares of Marquest
Common Stock.
On March 28, 1996, the Company converted the remaining balance of $1,852,000 and
the associated accrued interest of $487,000 on the Marquest six-year 8% note
into 3,340,245 shares of Marquest Common Stock. Additionally, the Company
agreed to convert $376, 000 in accrued but unpaid management fees owed to the
Company by Marquest into 537,614 shares of Marquest Common Stock. As of March
31, 1996, the Company owns 51% of Marquest's outstanding Common Stock. Marquest
has outstanding a significant number of warrants, stock options, and convertible
notes that could be converted into Marquest Common Stock. Depending upon the
amount and timing of conversion of any of these securities, the Company's
ownership percentage in Marquest could vary from 42% to 66%.
F-11
<PAGE>
NOTE 3. SEGMENT INFORMATION
<TABLE>
<CAPTION>
Years Ended March 31
-------------------------------
(in thousands)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net Sales:
Medical Device and Surgical/Safety Disposables Segment:
Marquest Medical Products, Inc. $ 22,443 $ 20,576 $ 22,466
Scherer Healthcare, Ltd. 7,555 11,203 8,091
Waste Management Services Segment 10,753 10,039 9,670
Consumer Healthcare Products Segment 1,106 984 1,002
---------- --------- ---------
Total $ 41,857 $ 42,802 $ 41,229
---------- --------- ---------
---------- --------- ---------
Operating Income (Loss) from Continuing Operations:
Medical Device and Surgical/Safety Disposables Segment:
Marquest Medical Products, Inc. $ 510 $ (2,696) $ (2,679)
Scherer Healthcare, Ltd. (335) (912) (421)
Waste Management Services Segment 924 790 502
Consumer Healthcare Products Segment 368 244 286
Corporate (a) (1,074) (3,054) (759)
---------- --------- ---------
Total $ 393 $ (5,628) $ (3,071)
---------- --------- ---------
---------- --------- ---------
Identifiable Assets:
Medical Device and Surgical/Safety Disposables Segment:
Marquest Medical Products, Inc. $ 15,393 $ 13,992 $ 16,929
Scherer Healthcare, Ltd. 909 6,233 6,461
Waste Management Services Segment 9,370 9,524 9,173
Consumer Healthcare Products Segment 153 139 152
Corporate (b) 8,618 11,640 19,192
---------- --------- ---------
Total $ 34,443 $ 41,528 $ 51,907
---------- --------- ---------
---------- --------- ---------
Depreciation Expense:
Medical Device and Surgical/Safety Disposables Segment:
Marquest Medical Products, Inc. $ 1,046 $ 1,364 $ 1,668
Scherer Healthcare, Ltd. 74 128 104
Waste Management Services Segment 731 717 639
Consumer Healthcare Products Segment 1 1 10
Corporate 72 66 49
--------- --------- ---------
Total $ 1,924 $ 2,276 $ 2,470
---------- --------- ---------
---------- --------- ---------
Capital Expenditures:
Medical Device and Surgical/Safety Disposables Segment:
Marquest Medical Products, Inc. $ 66 $ 666 $ 1,650
Scherer Healthcare, Ltd. 47 268 1,027
Waste Management Services Segment 626 715 783
Consumer Healthcare Products Segment - - 9
Corporate - 15 65
--------- --------- ---------
Total $ 739 $ 1,664 $ 3,534
--------- --------- ---------
--------- --------- ---------
</TABLE>
(a) Amount includes a nonrecurring charge of $2,000,000 for fiscal year 1995
relating to the writedown of two waste incinerator investments.
(b) Amount includes net assets of discontinued operations of $589,000,
$897,000, and $3,805,000 for fiscal years 1996, 1995, and 1994,
respectively. See Note 4.
F-12
<PAGE>
MEDICAL DEVICE AND SURGICAL/SAFETY DISPOSABLES SEGMENT
MARQUEST MEDICAL PRODUCTS, INC.
See Note 2 for discussion on the acquisition of Marquest.
Marquest manufactures and distributes four major groups of products for use in
the respiratory care, cardiopulmonary support and anesthesia markets. The
largest of these product groups is the Blood Collection Systems for Diagnostic
Testing. This group includes a broad line of Marquest disposable blood gas
syringes. Most revenues in this group are from the sales of proprietary-
designed syringes, which are marketed under the trade names Gas-Lyte and Quik-
ABG.
All of Marquest's operations and assets are located in Englewood, Colorado.
Marquest markets its products domestically (United States and Canada) and
internationally. The international markets primarily include Europe, the
Pacific Rim, and Puerto Rico. Export sales accounted for 26%, 22%, and 19% of
Marquest's sales for fiscal 1996, 1995, and 1994, respectively. Marquest had
one independent distributor who accounted for 19%, 19% and 18% of its sales for
fiscal 1996, 1995, and 1994, respectively.
SCHERER HEALTHCARE, LTD
The Company, through a wholly owned subsidiary, is the general partner and 65%
owner of Scherer Healthcare, Ltd. ("Scherer, Ltd."), which had been doing
business as Custom Medical Products until October 1995. On October 3, 1995,
Scherer, Ltd. sold certain of its assets to Cordis Medical Products, Inc.
("Cordis Medical"), a wholly owned subsidiary of Cordis Corporation for
approximately $6,527,000. The assets sold to Cordis Medical were those used in
connection with Scherer, Ltd.'s business of packing and distributing medical
supplies for surgical procedures and providing nonwoven medical drapes, gowns
and accessory items to hospitals and other healthcare providers. See Note 5.
for further discussion on the sale of assets.
Scherer, Ltd. continues in the business of providing nonwoven disposable
industrial apparel and related products to the industrial safety and environment
controlled clean room and scientific markets under the name Protective
Disposable Apparel. Scherer, Ltd.'s operations and assets are located in the
Asheville, North Carolina area. Scherer, Ltd.'s line of disposable products,
which are sold domestically, includes protective coveralls, frocks, boot covers,
and headware.
WASTE MANAGEMENT SERVICES SEGMENT
The Company operates its medical waste management services segment through Bio
Systems Partners and Medical Waste Systems, Inc. (collectively, "Bio Systems").
The Company owns a 60% general partner interest in Bio Systems Partners and
Medical Waste Systems, Inc. is wholly owned by the Company. Bio Systems has
developed and implemented a system to manage and to dispose of certain
infectious waste from hospitals and medical facilities--primarily injectables
and other sharp-edged waste. Bio Systems operates in the metropolitan New York
City, Pennsylvania, New Jersey, and New England areas.
CONSUMER HEALTHCARE PRODUCTS SEGMENT
Scherer Laboratories, Inc. ("Scherer Labs"), a 100% owned subsidiary of the
Company markets brand name and generic over-the-counter ("OTC") drugs and one
prescription ("Rx") drug. The OTC products are principally products used for
treatment of colds and coughs, eye and ear irritations and insect bites.
Scherer Labs intends to discontinue the sale of its Rx product in fiscal 1997
due to an impractical increase in the cost to manufacture. Sales of the Rx
product were $12,000, $24,000, and $55,000 in fiscal 1996, 1995, and 1994,
respectively. The loss of these sales will not have a material effect on the
Company.
Scherer Labs markets its products primarily to drug and food stores, mass market
retailers, drug wholesalers, and government agencies. The majority of the sales
are through retailers in the Southwest region of the United States. Accounting
and customer service functions are provided by the Company at its corporate
headquarters in Atlanta, Georgia and sales, marketing, purchasing, and relations
with suppliers and contractors are performed in Dallas, Texas.
F-13
<PAGE>
NOTE 4. DISCONTINUED OPERATIONS
Biofor, Inc. ("Biofor"), a majority owned subsidiary of the Company which had
been operating the Company's Pharmaceutical Research and Development Segment,
was engaged in research to identify and develop new drug compounds. Biofor
utilized "artificial intelligence" computer technology (known as "MultiCASE")
which employed a system of rational drug design (known as M-CADD). This
technology was used for new drug compound development and for contracted
research and development.
Biofor focused its drug design efforts on at arthritis and osteoarthritis as
well as the treatment for acute pain. Biofor's lead compound, BF-389, is an
anti-inflammatory analgesic which preliminary Phase I clinical trials indicated
was not sufficiently bioavailable when administered orally in humans. Other
delivery methods that would allow oral administration of the compound were
pursued by Biofor without success.
Since October 1990, Biofor and Ono Pharmaceutical Company, Ltd. ("Ono") had
entered into two Research and Collaboration Agreements pursuant to which they
jointly researched compounds. Biofor provided the use of its exclusive M-CADD
software and its scientists experienced in using M-CADD while Ono provided
funding and clinical testing of any compounds discovered. The first contract
expired in fiscal 1994 and the second expired March 1996. Substantially all of
Biofor's revenues since 1990 were derived from these contracts.
Since its inception on June 29, 1986, Biofor has expended over $20 million in
cash funding from the Company and affiliates of the Company. In July 1995,
after attempts to locate a purchaser for Biofor, Biofor ceased further drug
design efforts and concentrated solely on the Ono research contract. When the
Ono contract expired in March 1996, Biofor discontinued all operations and the
Company abandoned all operations of Biofor.
The abandonment of the operations of Biofor has been accounted for as a
discontinued operation and, accordingly, its net assets (liabilities) have been
segregated from continuing operations in the accompanying consolidated balance
sheets. Biofor's operating results are also segregated and reported as
discontinued operations in the accompanying consolidated statements of
operations and cash flows.
The following results of operations are attributable to the discontinued
operations of Biofor:
<TABLE>
<CAPTION>
1996 1995 1994
-------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 772,000 $ 800,000 $ 1,062,000
-------------- ------------- -------------
Research and development expenditures 1,381,000 2,717,000 2,887,000
Nonrecurring charges - 2,874,000 2,488,000
Other costs and expenses 311,000 743,000 482,000
-------------- ------------- -------------
1,692,000 6,334,000 5,857,000
-------------- ------------- -------------
Loss from discontinued operations $ (920,000) $ (5,534,000) $ (4,795,000)
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
F-14
<PAGE>
The net assets and liabilities of the discontinued operations of Biofor at March
31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Current assets:
Notes receivable, current $ - $ 39,000
Prepaid expenses - 71,000
--------- ----------
Total current assets - 110,000
--------- ----------
Current liabilities:
Accounts payable and accrued expenses 33,000 226,000
Deferred contract revenues - 772,000
---------- ----------
Total current liabilities 33,000 998,000
---------- ----------
Net current liabilities $ 33,000 $ 888,000
---------- ----------
---------- ----------
Long-term assets:
Property and equipment, net $ 664,000 $ 938,000
---------- ----------
Total long-term assets 664,000 938,000
---------- ----------
Long-term liabilities:
Other liabilities 25,000 41,000
Estimated shutdown costs 50,000 -
---------- ----------
Total long-term liabilities 75,000 41,000
---------- ----------
Net long-term assets $ 589,000 $ 897,000
---------- ----------
---------- ----------
</TABLE>
The remaining property and equipment of Biofor primarily consists of land, a
30,000 square foot building owned by Biofor, and computer and laboratory
equipment. The assets have been written down to their estimated net realizable
value and the Company recorded a provision of $50,000 for the estimated shutdown
costs. Both of these amounts are included in the loss from discontinued
operations for fiscal 1996. No income taxes or interest expense were allocated
to the discontinued operations of Biofor for fiscal 1996, 1995, and 1994.
The Company is currently seeking a purchaser for all the remaining assets of
Biofor.
NOTE 5. SALE OF ASSETS
On October 3, 1995, the Company sold certain of the assets of Scherer, Ltd. to
Cordis Medical, a wholly-owned subsidiary of Cordis Corporation, for $6,527,000.
The assets sold were those used in connection with Scherer, Ltd.'s business of
packing and distributing medical supplies for surgical procedures and providing
nonwoven medical drapes, gowns and accessory items to hospitals and other
healthcare providers (the "Medical Business"). Additionally, Cordis Medical
agreed to assume all accounts payable related to the Medical Business and
certain other specifically identified liabilities, including the mortgage on
Scherer, Ltd.'s facility located in Asheville, North Carolina. Scherer, Ltd.
received net proceeds, before income taxes, of $4,922,000 and the Company
recorded a pretax gain of $2,781,000 in the third quarter of fiscal 1996.
Scherer, Ltd. continues in the business of providing nonwoven apparel for
industrial uses under the name Protective Disposable Apparel.
F-15
<PAGE>
NOTE 6. INTANGIBLES AND COSTS IN EXCESS OF NET ASSETS ACQUIRED
Intangibles are being amortized on a straight-line basis over periods ranging
from 5 - 40 years. Amortization expense amounted to $124,000, $152,000, and
$359,000 in fiscal years 1996, 1995, and 1994, respectively. Accumulated
amortization at March 31, 1996 and 1995 was $317,000 and $293,000, respectively.
The cost in excess of net assets acquired ("goodwill") is being amortized on a
straight-line basis over periods ranging from 5 - 30 years. Amortization
expense amounted to $380,000, $249,000, and $85,000 in fiscal years 1996, 1995,
and 1994, respectively. Accumulated amortization at March 31, 1996 and 1995 was
$1,175,000 and $779,000, respectively.
Subsequent to an acquisition, the Company periodically evaluates whether later
events and circumstances indicate that the remaining estimated useful life of
goodwill warrants revision. When factors indicate that goodwill should be
evaluated for possible impairment, the Company uses an estimate of undiscounted
net income over the remaining life of the goodwill in measuring whether the
goodwill is recoverable.
NOTE 7. BORROWINGS
The Company had a $3,200,000 line of credit arrangement with a bank which was
collateralized by $3,200,000 of investments. Borrowings under the line of
credit, which were $1,944,000 at March 31, 1995, had an interest rate of prime.
The Company terminated the line of credit in June 1995 by paying off its then
remaining balance of $2,989,000 with the investments that collateralized the
line.
Debt and obligations under capital leases at March 31, 1996 and 1995 consisted
of the following:
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Obligations under line of credit arrangement $ - $ 1,944,000
Swiss debt principal and accrued interest at 9% 397,000 813,000
Note payable to Scherer Capital, LLC due fiscal 2002, prime plus
1 2%, 9.75% at March 31, 1996 700,000 -
Note payable to bank, due through fiscal 2004; variable interest rate,
8.375% at March 31, 1996 975,000 1,234,000
Mortgage note payable due through fiscal 1999 at prime plus 1/2% - 466,000
Obligations under capital leases, due in varying installments through
fiscal 2002 1,290,000 935,000
Notes payable due fiscal 1996 at 18% - 220,000
Swiss notes payable due fiscal 1999 at 8% 2,896,000 2,677,000
Other long-term debt 14,000 80,000
----------- ------------
6,272,000 8,369,000
Less current maturities (981,000) (3,423,000)
----------- ------------
Long-term debt $ 5,291,000 $ 4,946,000
----------- ------------
----------- ------------
</TABLE>
The following is a summary of the future maturities of capital lease obligations
and notes payable:
Year ended March 31:
1997 $ 981,000
1998 544,000
1999 3,294,000
2000 734,000
2001 18,000
Thereafter 701,000
--------------
$ 6,272,000
--------------
--------------
Substantially all of the assets of Marquest (approximately $15,393,000) are
collateral on approximately $5,793,000 of the above noted debt obligations.
F-16
<PAGE>
NOTE 8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
Office space, warehouse facilities, certain computer systems, transportation
equipment, and office equipment are leased under noncancelable operating leases
expiring at various dates through 2003. Total rental expense included in the
consolidated statements of operations approximated $1,066,000, $1,110,000, and
$1,608,000 in the years ended March 31, 1996, 1995, and 1994, respectively.
The following is a summary of future minimum lease payments required under
operating leases having noncancelable lease terms in excess of one year:
Year ended March 31:
1997 $ 967,000
1998 911,000
1999 455,000
2000 273,000
2001 197,000
Thereafter 303,000
--------------
3,106,000
Minimum sublease income (331,000)
--------------
$ 2,775,000
--------------
--------------
LEGAL PROCEEDINGS
A products liability action was filed against Marquest in California in 1990
which was defended and settled during the trial by its insurance company. Under
the insurance policy, Marquest may be responsible for a $250,000 self insured
retention plus the cost of defense. Marquest has claimed that the insurance
company mishandled the lawsuit and has declined to pay. Marquest was sued by
the insurance company in District Court, Arapahoe County, Colorado in February
1994 alleging damages of up to $540,000. Subsequent to March 31, 1996, Marquest
entered into a settlement agreement with the insurance company pursuant to which
required Marquest to pay the insurance company $170,000.
The Company, through a subsidiary, owns a 60% interest in Bio Systems Partners
("BSP") which operates in the Company's Waste Management Services Segment.
Pursuant to summary judgment granted in a civil action filed in the United
States District Court for the Eastern District of New York in March 1994, the
Company's subsidiary is required to purchase 40% equity interest of its minority
partner in BSP. Pursuant to the partnership agreement, the Company's subsidiary
and the minority partner performed separate appraisals of the minority interest.
The separate appraisals were not consistent, therefore, a third appraiser,
selected by the partners, has been retained to review each of the valuations and
determine the final valuation and purchase price.
The Company is subject to other legal proceedings and claims that arise in the
ordinary course of business. Although the outcome of such proceedings and
claims cannot be determined with certainty, management is of the opinion that
their final outcome will not have a material adverse effect on the Company's
operations or financial position.
F-17
<PAGE>
NOTE 9. STOCKHOLDERS' EQUITY
STOCK OPTIONS
The Company has three stock option plans and a Long-Term Incentive Plan.
Options may be exercised at a rate ranging from 20 to 33 percent per year and
expire after eight years. At March 31, 1996, the maximum shares available under
these plans for future grants were 1,859,200. The price of options granted to
date has generally been at the fair market value of the shares on date of grant.
A summary of changes in outstanding options is as follows:
Weighted
Shares Average
Subject Price per
to Option Share
--------- ---------
Balance at March 31, 1993 209,800 $14.34
Options granted - -
Options exercised - -
Options canceled and expired (10,000) 19.69
--------- ---------
Balance at March 31, 1994 199,800 14.07
Options granted 241,000 10.34
Options exercised - -
Options canceled and expired - -
--------- ---------
Balance at March 31, 1995 440,800 12.03
Options granted - -
Options exercised - -
Options canceled and expired (311,000) 10.77
--------- ---------
Balance at March 31, 1996 129,800 $15.05
--------- ---------
--------- ---------
Options exercisable at March 31, 1996 102,800
---------
---------
CONVERTIBLE PREFERRED STOCK
As part of the Marquest acquisition in fiscal 1994, the Company issued 43,516
shares of its 5% Convertible Preferred Stock, $.01 par value (the "Preferred
Stock") to the former holders of Marquest's defaulted Swiss bonds (see Note 2).
The Company has 2,000,000 shares of the Preferred Stock authorized. Each share
of the Preferred Stock is convertible into approximately 4.43 shares of the
Company's Common Stock. At March 31, 1996, the Company had 28,885 shares of the
Preferred Stock outstanding.
NOTE 10. RETIREMENT PLAN
A contributory 401(k) salary reduction plan covers all nonunion employees, and
union employees in a few states, who are over 21 years of age and have been
employed at least one year. Prior to April 1, 1995, Company contributions were
200% of employee contributions. Effective April 1, 1995, the Company may make a
matching contribution not to exceed 6% of an employee's compensation. For
fiscal 1996, the Company made a matching contribution of 100% of employee
contributions up to the maximum of 6% of the employee compensation. Company
contributions were approximately $108,000, $201,000, and $178,000 for fiscal
years 1996, 1995, and 1994, respectively.
F-18
<PAGE>
NOTE 11. INCOME TAXES
During the first quarter of fiscal 1994, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
which required the use of the liability method of accounting for income taxes.
Deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities given the provisions of the enacted tax laws. The Company
determined that the cumulative adjustment due to the adoption of SFAS No. 109
was $254,000 in fiscal 1994 as a result of the recognition of net operating loss
carryforwards which were not allowed to be recognized as deferred tax assets
under the Company's prior method of accounting for income taxes using Accounting
Principles Board Opinion No. 11.
As of March 31 the Company's net deferred tax assets consisted of the following:
1996 1995
------------- -----------
Deferred tax assets:
Accrued expenses $ 867,000 $ 923,000
Partnership losses 604,000 819,000
Capital Losses 971,000 1,044,000
Net operating loss carryforwards 6,155,000 6,615,000
Other 462,000 838,000
------------- -------------
Total deferred tax assets 9,059,000 10,239,000
------------- -------------
Deferred tax liabilities:
Amortization of intangibles - (39,000)
Depreciation (278,000) (273,000)
------------- -------------
Total deferred tax liabilities (278,000) (312,000)
------------- -------------
Valuation allowance (8,452,000) (9,598,000)
------------- -------------
Net deferred tax assets $ 329,000 $ 329,000
------------- -------------
------------- -------------
A reconciliation of income tax provision (benefit) from continuing operations at
the Federal statutory rates to actual tax provision (benefit) from continuing
operations follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Computed statutory amount $ 1,095,000 $(2,299,000) $ (970,000)
Increase (decrease) in taxes resulting from:
State income taxes, net of federal income
tax benefit 129,000 (270,000) (114,000)
Minority interest in net (income) loss of
subsidiaries (7,000) (28,000) (14,000)
Amortization of goodwill 142,000 92,000 129,000
IRS settlement 697,000 - -
Net Federal and State tax refunds (150,000) (250,000) (311,000)
Net change in valuation allowance (1,494,000) 2,249,000 78,000
Other, net 136,000 309,000 184,000
------------- ------------ -------------
Provision (benefit) for income taxes $ 548,000 $ (197,000) $(1,018,000)
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
F-19
<PAGE>
Components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Current taxes:
Federal $ 612,000 $ (126,000) $ (887,000)
State (64,000) (192,000) 93,000
------------ ------------- ------------
548,000 (318,000) (794,000)
Deferred taxes - 121,000 (224,000)
------------ ------------- ------------
Provision (benefit) for income taxes $ 548,000 $ (197,000) $(1,018,000)
------------ ------------- ------------
------------ ------------- ------------
</TABLE>
At March 31, 1996, the Company, excluding Marquest, has regular tax loss
carryforwards of approximately $3,461,000 expiring in 2010. Marquest, which
files a separate consolidated tax return, has tax loss carryforwards of
approximately $13,000,000 which expire at varying dates through 2010 and are
limited as to their use. Marquest also has capital loss carryforwards of
approximately $2,600,000 which expire at varying dates through 1998. Due to the
transactions discussed in Note 2, the future benefits associated with the
utilization of Marquest's tax loss carryforwards may be substantially limited.
Capital losses can be utilized to the extent Marquest generates capital gains in
the future.
The Company has determined, based upon its recent earnings history, that asset
valuation allowances of $8,452,000 and $9,598,000 should be established against
its deferred tax assets as of March 31, 1996 and 1995.
During fiscal 1994, Marquest received a refund of federal income taxes of
approximately $745,000 due to the carryback to prior years of losses incurred
during the temporary suspension of operations by the FDA. The Internal Revenue
Service ("IRS") completed an audit, and in July 1994, determined that the losses
could not be carried back and issued an assessment to Marquest for the taxes
plus interest. In fiscal 1996, Marquest settled additional tax issues related
to audits by the IRS for fiscal years 1982-1988. Marquest recorded $697,000 of
additional taxes and interest. Marquest negotiated a repayment plan whereby
Marquest paid $400,000 in June 1995 and the remaining liability for taxes,
interest and penalties of approximately $970,000 at March 30, 1996 will be
repaid in monthly installments of $40,000. The IRS has placed a lien on
Marquest's facility in Englewood, Colorado to secure payment of the taxes.
NOTE 12. RELATED-PARTY TRANSACTIONS
At March 31, 1996 and 1995, the Company had payables to affiliates of
approximately $2,286,000 and $7,601,000, respectively due to Scherer Scientific,
Ltd. and Scherer Capital, L.L.C ("Scherer Cap"). These payables are due on
demand and bear interest at prime rate plus .5% (8.75% at March 31, 1996).
These entities are controlled by the majority stockholder of the Company.
In December 1995, Scherer Cap and Marquest signed a short-term promissory note
enabling Marquest to borrow a maximum of $1,800,000, of which $1,100,000 was
borrowed in December 1995. The note was secured by Marquest's inventory and
accounts receivable and was due February 1996. Marquest repaid $400,000 of the
borrowings in January 1996 and the balance of $700,000 was refinanced under a
Loan and Security Agreement (the "Loan Agreement") signed by Marquest and
Scherer Cap on March 28, 1996. The Loan Agreement enables Marquest to borrow a
maximum of $1,500,000 at an interest rate of 12% over prime, adjusted quarterly.
The rate was 9.75% as of March 31, 1996. Any amounts borrowed under the Loan
Agreement are represented by Convertible Notes due April 1, 2001 (the "Scherer
Cap Notes") and are secured by Marquest's inventory, building, and equipment.
Pursuant to the Loan Agreement, which expires February 28, 2001, the Scherer Cap
Notes are convertible at the option of Scherer Cap into shares of Marquest's
Common Stock at a conversion price of $.70 per share. As of March 31, 1996,
Marquest had borrowed $700,000 under the Loan Agreement and the Scherer Cap
Notes. Additionally, on March 29, 1996 Scherer Cap purchased 2,061,856 shares
of Marquest Common Stock for an aggregate purchase price of $1,000,000.
F-20
<PAGE>
During the first quarter of fiscal 1996 and prior periods, Scherer Scientific,
Ltd. provided to the Company and its subsidiaries administrative, accounting,
management oversight and payroll services (collectively, the "Administrative
Services"). Effective July 1, 1995, Scherer Scientific, Ltd. and the Company
terminated the Administrative Services arrangement and approximately 14
employees of Scherer Scientific, Ltd. became employees of the Company. As a
result, the Company currently provides its own administrative, accounting,
management and payroll services.
The Company was charged the following fees by the above affiliates:
1996 1995 1994
--------- ---------- ---------
Management fees $150,000 $ 610,000 $500,000
Accounting and other services - 78,000 113,000
Interest expense 539,000 544,000 252,000
--------- ---------- ---------
Total $689,000 $1,232,000 $865,000
--------- ---------- ---------
--------- ---------- ---------
Until March 1995, Scherer Labs utilized the inventory receiving, warehousing and
distribution, customer service, and invoicing services of an entity controlled
by certain former officers of the Company and 25% owned by the majority
shareholder of the Company. The fees charged for these services were $104,000
and $96,000 in fiscal 1995 and 1994, respectively.
During fiscal 1994, the Company acquired a 10% interest in Biofor from the
former President of Biofor in exchange for 165,000 shares of the Company's
Common Stock valued, at the time of the transaction, at approximately
$2,000,000. Additionally during fiscal 1994, the former President of Biofor
exercised his option from a previous transaction with the Company. The option
required the Company to purchase 5,000 shares of the Company's Common Stock from
the former President of Biofor for $20 per share.
<TABLE>
<CAPTION>
NOTE 13. SUPPLEMENTAL CASH FLOW INFORMATION
Years Ended March 31
------------------------------------------
1996 1995 1994
------------ ------------- -----------
<S> <C> <C> <C>
NONCASH INVESTING AND FINANCING
TRANSACTIONS:
Issuance of common stock for purchase of
minority interest in Biofor $ - $ - $ 3,660,000
------------ ------------- -----------
------------ ------------- -----------
Issuance of preferred stock in exchange for Note
Receivable from Marquest to the Company $ - $ - $ 4,352,000
------------ ------------- -----------
------------ ------------- -----------
Conversion of Notes from Marquest to Marquest
Common Stock $ 2,715,000 $ 2,500,000 $ -
------------ ------------- -----------
------------ ------------- -----------
Supplemental information:
Interest paid during the year $ 1,395,000 $ 935,000 $ 1,179,000
Income taxes paid (refunded) during the year 471,000 (1,149,000) (1,110,000)
</TABLE>
F-21
<PAGE>
SCHEDULE I
SCHERER HEALTHCARE, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
MARCH 31, 1996 AND 1995
ASSETS
1996 1995
------------- ------------
CURRENT ASSETS
Cash and cash equivalents $ 1,987,000 $ 711,000
Investments, at cost - 3,232,000
Accounts and notes receivable 3,389,000 4,690,000
Receivable from Marquest 43,000 683,000
Inventories 542,000 3,034,000
Other current assets 158,000 1,074,000
------------- ------------
Total current assets 6,119,000 13,424,000
------------- ------------
PROPERTY AND EQUIPMENT, net 3,548,000 4,827,000
------------- ------------
INVESTMENT IN MARQUEST 6,882,000 6,339,000
GOODWILL AND OTHER INTANGIBLES, net 2,926,000 3,557,000
OTHER ASSETS 2,380,000 2,016,000
------------- ------------
$ 21,855,000 $30,163,000
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,423,000 $ 2,269,000
Payable to affiliates 2,280,000 7,602,000
Line of credit and current maturities of
debt obligations 178,000 2,156,000
Other current liabilities 82,000 2,443,000
------------- ------------
Total current liabilities 4,963,000 14,470,000
------------- ------------
OTHER LIABILITIES 718,000 1,207,000
STOCKHOLDERS' EQUITY 16,174,000 14,486,000
------------- ------------
$ 21,855,000 $ 30,163,000
------------- ------------
------------- ------------
The notes to consolidated financial statements are an integral part of the
condensed balance sheets.
This schedule presents Scherer Healthcare, Inc. and subsidiaries consolidated
except for its Marquest subsidiary. Marquest's assets are restricted as to
their distribution to the Company.
S-1
<PAGE>
SCHEDULE I
SCHERER HEALTHCARE, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31,
1996 1995 1994
----------- ------------ -----------
NET SALES $ 19,413,000 $22,226,000 $18,763,000
----------- ------------ -----------
COSTS AND EXPENSES
Costs of goods sold 13,234,000 16,343,000 12,942,000
Selling, general and administrative 6,662,000 7,385,000 6,407,000
Nonrecurring charges - 2,000,000 -
----------- ------------ -----------
Total costs and expenses 19,896,000 25,728,000 19,349,000
OPERATING LOSS (483,000) (3,502,000) (586,000)
OTHER INCOME, net
Gain on sale of assets 2,781,000 - -
Other, net 265,000 67,000 1,155,000
----------- ------------ -----------
Total other income, net 3,046,000 67,000 1,155,000
----------- ------------ -----------
Income (loss) from continuing
operations before net loss from
unconsolidated subsidiary, income
taxes, and change in accounting
principle 2,563,000 (3,435,000) (569,000)
Net loss from unconsolidated subsidiary (45,000) (1,399,000) (1,009,000)
----------- ------------ -----------
Income (loss) from continuing oper-
ations before income taxes and
change in accounting principle 2,518,000 (4,834,000) (440,000)
Benefit for income taxes 150,000 197,000 1,018,000
----------- ------------ -----------
Income (loss) from continuing
operations before change in
accounting principle 2,668,000 (4,637,000) 578,000
Loss from discontinued operations (920,000) (5,534,000) (4,795,000)
----------- ------------ -----------
Income (loss) before change in
accounting principle 1,748,000 (10,171,000) (4,217,000)
Change in accounting principle,
benefit from change in method of
accounting for income taxes - - 254,000
----------- ------------ -----------
NET INCOME (LOSS) $ 1,748,000 $(10,171,000) $(3,963,000)
----------- ------------ -----------
----------- ------------ -----------
The notes to consolidated financial statements are an integral part of the
condensed statements of operations.
This schedule presents Scherer Healthcare, Inc. and subsidiaries consolidated
except for its Marquest subsidiary. Marquest's assets are restricted as to
their distribution to the Company.
S-2
<PAGE>
SCHEDULE I
SCHERER HEALTHCARE, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31,
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (income) loss $ 1,748,000 $(10,171,000) $(3,963,000)
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:
Depreciation and amortization 1,178,000 1,295,000 1,397,000
Nonrecurring charges - 2,000,000 -
Net loss from unconsolidated subsidiary 45,000 1,399,000 1,009,000
Gain on sale of assets (2,781,000) - -
Loss from discontinued operations 920,000 5,534,000 4,795,000
Other, net 139,000 (224,000) 31,000
Changes in operating assets and liabilities,
net 652,000 611,000 (2,881,000)
------------ ------------ -----------
Net cash provided by operating activities of
continuing operations 1,901,000 444,000 388,000
Net operating activities of discontinued
operations (1,564,000) (2,105,000) (2,616,000)
------------ ------------ -----------
Net cash provided by (used for) operating
activities 337,000 (1,661,000) (2,228,000)
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net (605,000) (1,107,000) (2,241,000)
Proceeds from sale of assets 4,922,000 - -
Investment in Marquest - (6,000) (4,531,000)
Decrease in notes receivable 648,000 389,000 1,400,000
Decrease (increase) in investments 3,232,000 (232,000) (542,000)
Other investing activities, net 82,000 - -
------------ ------------ -----------
Net cash provided by (used for) investing
activities 8,279,000 (956,000) (5,914,000)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments of) proceeds from borrowings (2,019,000) (913,000) 1,976,000
Advances from (repayments to) affiliates (5,321,000) 2,356,000 2,161,000
Purchase of treasury stock - - (100,000)
------------ ------------ -----------
Net cash provided by (used for) financing
activities (7,340,000) 1,443,000 4,037,000
------------ ------------ -----------
CHANGE IN CASH AND CASH EQUIVALENTS 1,276,000 (1,174,000) (4,105,000)
CASH AND CASH EQUIVALENTS, beginning of year 711,000 1,885,000 5,990,000
------------ ------------ -----------
CASH AND CASH EQUIVALENTS, end of year $ 1,987,000 $ 711,000 $ 1,885,000
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
The notes to consolidated financial statements are an integral part of the
condensed statements of cash flows.
This schedule presents Scherer Healthcare, Inc. and subsidiaries consolidated
except for its Marquest subsidiary. Marquest's assets are restricted as to
their distributions to the Company.
S-3
<PAGE>
SCHEDULE II
SCHERER HEALTHCARE, INC.
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Additions
----------------------
Col. A Col. B Col. C Col. D Col. E Col. F
- ----------------------------------------- --------- --------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance Charged to Charged Balance
Beginning Costs and to Other at End
Description of Year Expenses Accounts Deductions of Year
- ----------------------------------------- --------- --------- ---------- --------- --------
1996:
Allowance for doubtful accounts $ 228,000 $ 112,000 - $97,000(a) $243,000
--------- --------- ---------- --------- --------
--------- --------- ---------- --------- --------
1995:
Allowance for doubtful accounts $ 216,000 $ 86,000 - $74,000(a) $228,000
--------- --------- ---------- --------- --------
--------- --------- ---------- --------- --------
1994:
Allowance for doubtful accounts $ 94,000 $ 1,000 $178,000(b) $57,000(a) $216,000
--------- --------- ---------- --------- --------
--------- --------- ---------- --------- --------
</TABLE>
(a) Accounts written off net of recoveries.
(b) Purchase of Marquest
S-4
<PAGE>
EXHIBIT 21
<PAGE>
Exhibit 21. SUBSIDIARIES OF SCHERER HEALTHCARE, INC.
1. Medical Waste Systems, Inc. Subsidiary
DBA Bio Systems I.D.#22-2853378
380 Constance Drive
Warminster, Pennsylvania 18974
(215) 672-8888
2. ASH Enterprises, Inc. Subsidiary
2859 Paces Ferry Road, Suite 300 I.D.# 58-1728029
Atlanta, Georgia 30339
(770) 333-0066
3. Bio Systems Partners Majority Owned Partnership
DBA Bio Systems I.D.# 58-1822608
210 Sherwood Avenue
Farmingdale, New York 11735
(516) 756-9433
4. Biofor, Inc. Subsidiary
P.O. Box 629 I.D.# 58-2105818
Waverly, Pennsylvania 18471
(717) 586-1333
5. BioWaste Management Corp. Subsidiary
2859 Paces Ferry Road, Suite 300 I.D.# 11-2872389I.D.# 11-2872389
Atlanta, Georgia 30339
(770) 333-0066
6. BioWaste Systems, Inc. Subsidiary
2859 Paces Ferry Road, Suite 300 I.D.# 58-1803613
Atlanta, Georgia 30339
(770) 333-0066
7. Scherer Healthcare, Ltd. Majority Owned Partnership
DBA Protective Disposable Apparel I.D.# 58-1754206
15-B Glenn Bridge Road
Arden, North Carolina 28704
(704) 687-3533
8. Scherer Laboratories, Inc. Subsidiary
2859 Paces Ferry Road, Suite 300 I.D.# 75-0270890
Atlanta, Georgia 30339
(770) 333-0066
9. Marquest Medical Products, Inc. Majority Owned Subsidiary
11039 E. Lansing Circle I.D. # 84-0785259
Englewood, Colorado 80112
(303) 790-4835
<PAGE>
EXHIBIT 25
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Robert P. Scherer, Jr. and Amy M. Murphy, and each of them, his true
and lawful attorneys-in-fact and agents, with full power of substitution, for
him and in his name, place and stead, in any and all capacities, to sign the
Annual Report on Form 10-K of Scherer Healthcare, Inc. for the fiscal year ended
March 31, 1996, and any and all amendments thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission and the National Association of Securities
Dealers, Inc., granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite or necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his or her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
This 25th day of June, 1996.
/s/ William J. Thompson
--------------------------
William J. Thompson
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Robert P. Scherer, Jr. and Amy M. Murphy, and each of them, his true
and lawful attorneys-in-fact and agents, with full power of substitution, for
him and in his name, place and stead, in any and all capacities, to sign the
Annual Report on Form 10-K of Scherer Healthcare, Inc. for the fiscal year ended
March 31, 1996, and any and all amendments thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission and the National Association of Securities
Dealers, Inc., granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite or necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his or her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
This 27th day of June, 1996.
/s/ Stephen A. Lukas, Sr.
--------------------------
Stephen A. Lukas, Sr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Robert P. Scherer, Jr. and Amy M. Murphy, and each of them, his true
and lawful attorneys-in-fact and agents, with full power of substitution, for
him and in his name, place and stead, in any and all capacities, to sign the
Annual Report on Form 10-K of Scherer Healthcare, Inc. for the fiscal year ended
March 31, 1996, and any and all amendments thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission and the National Association of Securities
Dealers, Inc., granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite or necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his or her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
This 27th day of June, 1996.
/s/ Kenneth H. Robertson
-------------------------
Kenneth H. Robertson.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR ENDED
MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 3,622
<SECURITIES> 0
<RECEIVABLES> 6,728
<ALLOWANCES> (243)
<INVENTORY> 3,936
<CURRENT-ASSETS> 14,374
<PP&E> 15,749
<DEPRECIATION> (5,146)
<TOTAL-ASSETS> 34,443
<CURRENT-LIABILITIES> 10,501
<BONDS> 5,291
0
0
<COMMON> 47
<OTHER-SE> 16,127
<TOTAL-LIABILITY-AND-EQUITY> 34,443
<SALES> 41,857
<TOTAL-REVENUES> 41,857
<CGS> 28,540
<TOTAL-COSTS> 41,464
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,128
<INCOME-PRETAX> 3,216
<INCOME-TAX> 548
<INCOME-CONTINUING> 2,668
<DISCONTINUED> (920)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,748
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
