<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
COMMISSION FILE NO. 0-10552
__________________________
SCHERER HEALTHCARE, INC.
(Exact name of registrant as specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 59-0688813
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
</TABLE>
2859 PACES FERRY ROAD, SUITE 300, ATLANTA, GEORGIA 30339
(Address of principal executive offices, including Zip Code)
(770) 333-0066
(Registrant's telephone number, including area code)
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 the number of shares of each of the issuer's classes of Common Stock,
as of the latest practicable date:
<TABLE>
<S> <C>
CLASS OUTSTANDING AS OF OCTOBER 31, 1996
----------------------------- ----------------------------------
Common Stock, $0.01 par value 4,312,839
</TABLE>
<PAGE>
SCHERER HEALTHCARE, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER PART I. FINANCIAL INFORMATION NUMBER
- ------ ------
<S> <C> <C>
1 Financial Statements:
Condensed Consolidated Balance
Sheets as of September 30, 1996 and
March 31, 1996................................................... 3
Condensed Consolidated Statements
of Operations for the Three and Six Months
Ended September 30, 1996 and 1995................................ 5
Condensed Consolidated Statements
of Cash Flows for the Six Months
Ended September 30, 1996 and 1995................................ 6
Notes to Condensed Consolidated
Financial Statements............................................. 7
2 Management's Discussion and Analysis
of Financial Condition and Results
of Operations.................................................... 9
PART II. OTHER INFORMATION
4 Submission of Matters to a Vote of Security Holders.............. 13
6 Exhibits and Reports on Form 8-K................................. 13
SIGNATURES....................................................... 14
Index to Exhibits................................................ 15
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCHERER HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
September 30, 1996 March 31, 1996
------------------ --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,491,000 $ 3,622,000
Accounts receivable, less allowance for
doubtful accounts of $240,000 and
$243,000, respectively 6,144,000 6,092,000
Current maturities of notes receivable 272,000 393,000
Inventories 3,988,000 3,936,000
Prepaid and other 346,000 331,000
------------------ --------------
Total current assets 13,241,000 14,374,000
------------------ --------------
PROPERTY AND EQUIPMENT 16,435,000 15,749,000
Less accumulated depreciation (5,800,000) (5,146,000)
------------------ --------------
Net property and equipment 10,635,000 10,603,000
------------------ --------------
OTHER ASSETS
Cost in excess of net assets of
businesses acquired, net 6,591,000 6,721,000
Other investments, at cost 651,000 651,000
Notes receivable, less current portion 459,000 506,000
Intangibles 341,000 365,000
Deferred income taxes 329,000 329,000
Other 375,000 305,000
Net assets of discontinued operations 664,000 589,000
------------------ --------------
Total other assets 9,410,000 9,466,000
------------------ --------------
TOTAL ASSETS $33,286,000 $34,443,000
------------------ --------------
------------------ --------------
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
SCHERER HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, 1996 March 31, 1996
------------------ --------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 1,778,000 $ 2,150,000
Accrued expenses 4,452,000 5,002,000
Current maturities of debt obligations 1,015,000 981,000
Payable to affiliates 2,144,000 2,286,000
Other 39,000 49,000
Net liabilities of discontinued operations 28,000 33,000
------------------ --------------
Total current liabilities 9,456,000 10,501,000
------------------ --------------
LONG-TERM DEBT, net of current maturities 5,299,000 5,291,000
------------------ --------------
OTHER LIABILITIES 336,000 347,000
------------------ --------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTERESTS IN SUBSIDIARY
AND PARTNERSHIPS 1,955,000 2,130,000
------------------ --------------
STOCKHOLDERS' EQUITY
Convertible preferred stock - $.01 par
value, 2,000,000 shares authorized;
28,210 shares issued and outstanding
(28,885 at March 31, 1996) -- --
Common stock - $.01 par value,
12,000,000 shares authorized;
4,672,915 shares issued
(4,669,928 at March 31, 1996);
4,293,553 shares outstanding
(4,290,566 at March 31, 1996) 47,000 47,000
Capital in excess of par value 22,316,000 22,316,000
Accumulated deficit (3,090,000) (3,156,000)
Less treasury stock, at cost (3,033,000) (3,033,000)
------------------ --------------
Total stockholders' equity 16,240,000 16,174,000
------------------ --------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $33,286,000 $34,443,000
------------------ --------------
------------------ --------------
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
SCHERER HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
------------------------ -------------------------
1996 1995 1996 1995
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $9,418,000 $11,351,000 $18,477,000 $22,819,000
---------- ----------- ----------- -----------
COSTS AND EXPENSES
Cost of goods sold 6,249,000 8,012,000 12,407,000 15,749,000
Selling, general, and
administrative 2,883,000 3,293,000 5,815,000 6,779,000
Research and development 55,000 37,000 98,000 76,000
---------- ----------- ----------- -----------
Total costs and expenses 9,187,000 11,342,000 18,320,000 22,604,000
---------- ----------- ----------- -----------
OPERATING INCOME 231,000 9,000 157,000 215,000
---------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income 59,000 55,000 124,000 141,000
Interest expense (214,000) (326,000) (444,000) (682,000)
Gain on sale of assets -- -- -- 209,000
Other, net (10,000) -- 10,000 5,000
---------- ----------- ----------- -----------
Total other income (expense) (165,000) (271,000) (310,000) (327,000)
---------- ----------- ----------- -----------
Income (loss) from continuing
operations before minority
interest and income taxes 66,000 (262,000) (153,000) (112,000)
Minority interest in net loss
of subsidiary and partnerships 19,000 20,000 235,000 36,000
---------- ----------- ----------- -----------
Income (loss) from continuing
operations before income taxes 85,000 (242,000) 82,000 (76,000)
Provision for income taxes (6,000) (12,000) (17,000) (35,000)
---------- ----------- ----------- -----------
Income (loss) from continuing
operations 79,000 (254,000) 65,000 (111,000)
Loss from discontinued
operations -- (357,000) -- (683,000)
---------- ----------- ----------- -----------
NET INCOME (LOSS) $79,000 $ (611,000) $65,000 $ (794,000)
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
INCOME (LOSS) PER COMMON SHARE:
Income (loss) from continuing
operations $ .02 $ (.06) $ .02 $ (.03)
Loss from discontinued
operations -- (.08) -- (.16)
---------- ----------- ----------- -----------
NET INCOME (LOSS) PER COMMON
SHARE $ .02 $ (.14) $ .02 $ (.19)
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 4,418,525 4,272,406 4,418,525 4,269,445
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
SCHERER HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
September 30,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 65,000 $ (794,000)
Adjustments to reconcile net income (loss) to net
cash used for operating activities:
Depreciation and amortization 832,000 1,236,000
Minority interest (220,000) 4,000
Gain on sale of assets -- (209,000)
Loss from discontinued operations -- 683,000
Other noncash charges and credits, net 6,000 (25,000)
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable, net (78,000) 72,000
Inventories (52,000) 71,000
Prepaid and other (15,000) 75,000
Accounts payable and accrued expenses (921,000) (885,000)
Other liabilities (11,000) (14,000)
---------- ----------
Net cash provided by (used for) operating
activities of continuing operations (394,000) 214,000
---------- ----------
Net operating activities of discontinued operations (77,000) (975,000)
---------- ----------
Net cash used for operating activities (471,000) (761,000)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net (686,000) (263,000)
Proceeds from sale of assets -- 209,000
Decrease in notes receivable 167,000 301,000
Decrease in investments -- 3,270,000
Other investing activities, net (93,000) 238,000
---------- ----------
Net cash provided by (used for) investing activities (612,000) 3,755,000
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayment of) proceeds from borrowings 95,000 (2,131,000)
Net repayments to affiliated companies (143,000) (380,000)
---------- ----------
Net cash used for financing activities (48,000) (2,511,000)
---------- ----------
CHANGE IN CASH AND CASH EQUIVALENTS (1,131,000) 483,000
CASH AND CASH EQUIVALENTS, beginning of period 3,622,000 1,273,000
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $2,491,000 $1,756,000
---------- ----------
---------- ----------
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
SCHERER HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
The accompanying condensed consolidated financial statements of Scherer
Healthcare, Inc. and its subsidiaries (the "Company") include all adjustments
that, in the opinion of management, are necessary for a fair presentation of the
results for the period indicated. Quarterly results of operations are not
necessarily indicative of annual results. These statements should be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1996.
Certain fiscal 1996 amounts have been reclassified to conform with the fiscal
1997 presentation.
NOTE 2.
The components of inventory consist of the following:
<TABLE>
<CAPTION>
September 30, 1996 March 31, 1996
------------------ --------------
<S> <C> <C>
Finished products $1,708,000 $1,884,000
Work in progress 297,000 233,000
Containers, packaging, and
raw materials 1,983,000 1,819,000
------------------ --------------
$3,988,000 $3,936,000
------------------ --------------
------------------ --------------
</TABLE>
Inventories are stated at the lower of net realizable value or cost using the
first-in, first-out ("FIFO") method.
NOTE 3.
Debt and obligations under capital leases consist of the following:
<TABLE>
<CAPTION>
September 30, 1996 March 31, 1996
------------------ --------------
<S> <C> <C>
Swiss debt principal and accrued
interest at 9% $ 389,000 $ 397,000
Note payable to bank, due through
fiscal 2004; variable interest
rate, 8.125% at September 30, 1996 927,000 975,000
Note payable to Scherer Capital,
L.L.C. due fiscal 2002, prime plus
1-1/2%, 9.75% at September 30, 1996 700,000 700,000
Obligations under capital leases,
due in varying installments through
fiscal 2002 1,443,000 1,290,000
Swiss notes payable due fiscal 1999
at 8% 2,851,000 2,896,000
Other long-term debt 4,000 14,000
------------------ --------------
6,314,000 6,272,000
Less current maturities (1,015,000) (981,000)
------------------ --------------
Long-term debt $5,299,000 $5,291,000
------------------ --------------
------------------ --------------
</TABLE>
7
<PAGE>
NOTE 4.
At September 30, 1996 and March 31, 1996, the Company had payables to affiliates
of approximately $2,144,000 and $2,286,000, 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 September
30, 1996). These entities are controlled by the majority stockholder of the
Company.
In March 1996, Scherer Cap and Marquest Medical Products, Inc., a 51% owned
subsidiary of the Company ("Marquest"), entered into a Loan and Security
Agreement (the "Loan Agreement") to refinance the balance of $700,000 owed to
Scherer Cap by Marquest on a short-term promissory note. The Loan Agreement
enables Marquest to borrow a maximum of $1,500,000 at an interest rate of 1-1/2%
over prime, adjusted quarterly. The rate was 9.75% as of September 30, 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 September 30, 1996, Marquest had borrowed $700,000 under
the Loan Agreement and the Scherer Cap Notes. Additionally, in March 1996
Scherer Cap purchased 2,061,856 shares of Marquest Common Stock for an aggregate
purchase price of $1,000,000.
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") and facilities costs. Effective July 1, 1995, Scherer Scientific,
Ltd. and the Company terminated the Administrative Services arrangement and
certain 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.
NOTE 5.
On October 29, 1996, the Company sold substantially all of the assets of Scherer
Healthcare, Ltd. ("Scherer Ltd."), which is doing business as Protective
Disposable Apparel, to a subsidiary of Health-Pak, Inc. ("Health-Pak") for
approximately $254,000 plus the assumption by Health-Pak of $319,000 in accounts
payable. The assets acquired by Health-Pak are those used in connection with
Scherer Ltd.'s business of providing nonwoven apparel for industrial uses (the
"Industrial Business") and include accounts receivable, inventory and furniture
and fixtures. Additionally, Health-Pak agreed to assume certain accounts
payable related to the Industrial Business. The Company has not finalized the
effects of the transaction, but it expects to record a loss on the sale.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains, in addition to historical information,
forward-looking statements. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed below and in the Company's 1996 Annual Report on
Form 10-K.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the net sales and
operating income (loss) for each segment of the business of the Company and its
subsidiaries:
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
------------------------ -------------------------
1996 1995 1996 1995
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES:
Medical Device and
Surgical/Safety
Disposables Segment:
Marquest Medical Products,
Inc. $5,653,000 $ 5,193,000 $10,805,000 $10,477,000
Scherer Healthcare, Ltd. (a) 488,000 3,311,000 1,044,000 6,453,000
Waste Management Services
Segment 2,924,000 2,640,000 5,878,000 5,263,000
Consumer Healthcare
Products Segment 353,000 207,000 750,000 626,000
---------- ----------- ----------- -----------
Company Totals $9,418,000 $11,351,000 $18,477,000 $22,819,000
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
OPERATING INCOME (LOSS):
Medical Device and
Surgical/Safety
Disposables Segment:
Marquest Medical Products,
Inc. $ 179,000 $ 149,000 $ (60,000) $ 104,000
Scherer Healthcare, Ltd. (a) (103,000) (41,000) (204,000) 95,000
Waste Management Services
Segment 291,000 185,000 564,000 453,000
Consumer Healthcare
Products Segment 140,000 48,000 308,000 229,000
Corporate (276,000) (332,000) (451,000) (666,000)
---------- ----------- ----------- -----------
Company Totals $ 231,000 $ 9,000 $ 157,000 $ 215,000
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
(a) On October 3, 1995, Scherer Ltd., a majority owned partnership of the
Company which had been doing business as Custom Medical Products,
sold certain of its assets that were 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 health care providers
(the "Medical Business"). After the transaction, Scherer Ltd.
continued to operate in the business of providing nonwoven
apparel for industrial uses under the name Protective Disposable
Apparel. On October 29, 1996, the Company sold substantially all
of the remaining assets of Scherer Ltd. to a subsidiary of
Health-Pak. This is discussed further under "Medical Device and
Surgical/Safety Disposables Segment - Scherer Healthcare, Ltd.".
The Company's net sales decreased by 17% to $9,418,000 for the second quarter of
fiscal 1997 from $11,351,000 for the second quarter of fiscal 1996; however, the
second quarter of fiscal 1996 includes three months of net sales for the Medical
Business, or $2,818,000, which was sold in October 1995. The Company reported
operating income of $231,000 for the second quarter of fiscal 1997 compared to
operating income of $9,000 during the same period in fiscal 1996. The Company's
cost of sales decreased from 71% of net sales in the second quarter of fiscal
1996 to 66% in the second quarter of fiscal 1997. Selling, general, and
administrative expenses increased from 29% of net sales in the second quarter of
fiscal 1996 to 31% in the first quarter of fiscal 1997.
9
<PAGE>
For the first six months of fiscal 1997, the Company's net sales decreased 19%
to $18,477,000 from $22,819,000 during the first six months of fiscal 1996;
however, fiscal 1996 includes six months of net sales for the Medical Business,
or $5,344,000, which was sold in October 1995. The Company's operating income
decreased to $157,000 for the six months ended September 30, 1996 from $215,000
for the six months ended September 30, 1995. The Company's cost of sales
decreased from 69% of net sales for the six months ended September 30, 1995 to
67% of net sales for the six months ended September 30, 1996. Selling, general
and administrative expenses increased from 30% of net sales for the six months
ended September 30, 1995 to 31% for the six months ended September 30, 1996.
The results of operations of the Company are dependent upon the results of
operations of each of its subsidiaries and majority owned partnerships operating
in the Company's individual business segments. Set forth below is a discussion
of the results of operations of each of these segments.
MEDICAL DEVICE AND SURGICAL/SAFETY DISPOSABLES SEGMENT
MARQUEST MEDICAL PRODUCTS, INC. Net sales for Marquest, the Company's 51%
owned subsidiary, increased approximately 9% to $5,653,000 for the second
quarter of fiscal 1997 from $5,193,000 during the same period in fiscal 1996 and
Marquest's net sales increased 3% to $10,805,000 for the six months ended
September 30, 1996 from $10,477,000 for the six months ended September 30, 1995.
The increase in net sales can primarily be attributed to a new customer contract
signed in late fiscal 1996 which generated approximately $300,000 in net sales
for the six months ended September 30, 1996.
Primarily as a result of the increase in net sales, Marquest reported operating
income of $179,000 in the second quarter of fiscal 1997 compared to operating
income of $149,000 for the second quarter of fiscal 1996. Marquest's cost of
sales increased to 69% of net sales for the second quarter of fiscal 1997 from
68% of net sales during the second quarter of fiscal 1996 and its selling,
general, and administrative expenses decreased to 26% of net sales for the
second quarter of fiscal 1997 from 29% during the same period in fiscal 1996.
Marquest reported an operating loss of $60,000 for the six months ended
September 30, 1996 compared to operating income of $104,000 for the six months
ended September 30, 1995. Marquest's cost of sales increased to 71% of net
sales for the six months ended September 30, 1996 from 69% of net sales during
the same period in fiscal 1996. Selling, general and administrative expenses
decreased to 29% of net sales for the six months ended September 30, 1996 from
30% of net sales during the same period in fiscal 1996. The operating loss
during the six months ended September 30, 1996 is primarily attributable to an
increase in overtime expense due to the rework of certain products and an
increase in the manufacturing of inventory caused by an expansion to the level
of inventory, in each case during the first quarter of fiscal 1997.
SCHERER HEALTHCARE, LTD. On October 3, 1995, Scherer Ltd., a majority owned
partnership of the Company which had been doing business as Custom Medical
Products, sold certain assets to Cordis Medical Products, Inc. ("Cordis
Medical"), a wholly-owned subsidiary of Cordis Corporation ("Cordis"). The
assets acquired by Cordis Medical were those used in connection with Scherer
Ltd.'s business of packing and distributing medical supplies for surgical
procedures and providing nonwoven drapes, gowns and accessory items to hospitals
and other health care providers (the "Medical Business"). After the
transaction, Scherer Ltd. continued to operate in the business of providing
nonwoven apparel for industrial uses (the "Industrial Business") under the name
Protective Disposable Apparel.
Scherer Ltd.'s net sales for the second quarter of fiscal 1997 decreased 85% to
$488,000 from $3,311,000 during the second quarter of fiscal 1996; however, the
second quarter of fiscal 1996 includes three months of net sales for the Medical
Business, or $2,818,000, which was sold in October 1995. Scherer Ltd.'s net
sales for the Industrial Business were relatively flat during the second quarter
of fiscal 1997 at $488,000 compared to $493,000 during the same period in fiscal
1996.
Net sales for Scherer Ltd. decreased 84% to $1,044,000 for the six months ended
September 30, 1996 from $6,453,000 for the six months ended September 30, 1995;
however, the six months ended September 30, 1995 includes six months of net
sales for the Medical Business, or $5,344,000, which was sold on October 1995.
Net sales for the Industrial Business decreased approximately 6% to $1,044,000
for the six months ended September 30, 1996 compared to $1,109,000 for the same
period in fiscal 1996. The decrease in net sales for the Industrial Business is
primarily due to a substantial reduction in sales orders from one of Scherer
Ltd.'s significant distributors during the first quarter of fiscal 1997.
Scherer Ltd. reported an operating loss of $103,000 for the second quarter of
fiscal 1997 compared to an operating loss of $41,000 during the second quarter
of fiscal 1996. During the second quarter of fiscal 1996, the Medical Business
reported operating income of $34,000 primarily due to monthly shortfall payments
received from Cordis to help offset losses incurred
10
<PAGE>
under its surgical disposable trays contract with Cordis. For the second
quarter of fiscal 1997, Scherer Ltd.'s operating loss for the Industrial
Business increased to $103,000 from $75,000 during the second quarter of fiscal
1996 which can primarily be attributed to an increase in cost of materials which
was 65% of net sales for the second quarter of fiscal 1997 compared to 60% of
net sales during the second quarter of fiscal 1996.
Scherer Ltd. reported an operating loss of $204,000 for the six months ended
September 30, 1996 compared to operating income of $95,000 during the same
period in fiscal 1996. The Medical Business reported operating income of
$215,000 for the six months ended September 30, 1995 primarily due to monthly
shortfall payments ($295,000 in total for the six months) received from Cordis
to help offset losses incurred under its surgical disposable trays contract with
Cordis. The Industrial Business reported an operating loss of $204,000 for the
six months ended September 30, 1996 compared to an operating loss of $120,000
during the same period in fiscal 1996. The increase in the operating loss of
the Industrial Business is primarily due to the decrease in net sales discussed
above combined with the increase in cost of materials.
On October 29, 1996, Scherer Ltd. sold substantially all of its assets, all of
which were used in connection with the Industrial Business, to a subsidiary of
Health-Pak for approximately $254,000 plus the assumption by Health-Pak of
$319,000 in accounts payable. The assets acquired by Health-Pak include
accounts receivable, inventory and furniture and fixtures. In addition, Health-
Pak agreed to assume certain accounts payable related to the Industrial
Business. The transaction will decrease net sales (approximately $1,044,000 for
the six months ended September 30, 1996); however, it is not expected to have a
material adverse effect on operating margins or operating cash flows.
WASTE MANAGEMENT SERVICES SEGMENT
Net sales in the Company's Waste Management Services Segment increased
approximately 11% to $2,924,000 in the second quarter of fiscal 1997 from
$2,640,000 during the second quarter of fiscal 1996 and its net sales increased
approximately 12% to $5,878,000 for the six months ended September 30, 1996 from
$5,263,000 during the same period in fiscal 1996. The increase in sales is due
to the continuing acquisition of medical waste disposal contracts with
hospitals.
Operating income increased approximately 57% to $291,000 for the second quarter
of fiscal 1997 from $185,000 during the second quarter of fiscal 1996 and
increased approximately 25% to $564,000 for the six months ended September 30,
1996 from $453,000 during the same period in fiscal 1996. The increase in
operating income can primarily be attributed to a decrease in insurance expense
in fiscal 1997 combined with the increase in net sales.
CONSUMER HEALTHCARE PRODUCTS SEGMENT
Net sales for Scherer Laboratories, Inc. ("Scherer Labs"), which operates the
Company's Consumer Healthcare Products Segment, increased approximately 71% to
$353,000 during the second quarter of fiscal 1997 from $207,000 during the
second quarter of fiscal 1996 and its net sales increased approximately 20% to
$750,000 during the six months ended September 30, 1996 from $626,000 during the
same period in fiscal 1996. The increase in net sales can be attributed to the
acquisition of new customers and retail outlets during fiscal 1997. Primarily
due to timing of sales orders, Scherer Labs achieved a record level of sales on
certain of its over-the-counter products during the first quarter of fiscal 1996
which negatively impacted the level of sales for the same products during the
second quarter of fiscal 1996.
Operating income for Scherer Labs increased to $140,000 for the second quarter
of fiscal 1997 compared to $48,000 for the second quarter of fiscal 1996 and
increased to $308,000 for the six months ended September 30, 1996 from $229,000
for the same period in fiscal 1996. The increase in operating income is
primarily due to the increase in net sales discussed above.
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY
CASH FLOWS FROM OPERATIONS.
The Company's (excluding Marquest's) operating activities from continuing
operations provided cash during the first six months of fiscal 1997 of
approximately $564,000 compared to cash provided from operations during the same
period in fiscal 1996 of approximately $622,000. Scherer Ltd.'s operations used
cash of approximately $34,000 for the six months ended September 30, 1996
compared to its operations providing cash of approximately $108,000 during the
same period in fiscal 1996. For the six months ended September 30, 1995,
Scherer Ltd. had improved its collection of accounts receivable, primarily due
to the collection of amounts owed by Cordis prior to the sale of the Medical
Business, and reduced
11
<PAGE>
its level of inventory associated with the Medical Business. Scherer Labs,
which operates the Company's Consumer Healthcare Products Segment, improved its
cash provided from operations to $246,000 during the first six months of fiscal
1997 from approximately $173,000 during the first six months of fiscal 1996.
The improvement is primarily due to the timing of collection of its account
receivable.
Discontinuing the operations of Biofor has significantly improved the cash flow
of the Company. The net cash used by Biofor's operations during the first six
months of fiscal 1996 was approximately $975,000 compared to approximately
$77,000 during the first six months of fiscal 1997.
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%. In the third quarter of fiscal 1996, 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 $2,144,000 at September 30, 1996, to include fixed payment terms,
uniform interest rate, cross collateralization and guarantees. In the interim,
the Company is making payments against the remaining balance of the Affiliate
Loans.
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.
Management of the Company believes its current cash flow is sufficient to
maintain its current operations.
MARQUEST
CASH FLOWS FROM OPERATIONS.
Marquest's cash used from operations increased during the first six months of
fiscal 1997 to approximately $958,000 from approximately $408,000 during the
same period in fiscal 1996. The increase in cash used from Marquest's
operations is primarily due to the timing of collections of accounts receivable.
Additionally, Marquest paid $170,000 during the first quarter of fiscal 1997 to
settle a previously accrued for lawsuit with an insurance company.
CASH FLOWS FROM FINANCING AND INVESTING ACTIVITIES.
In March 1996, Marquest and Scherer Cap entered into a Loan and Security
Agreement (the "Loan Agreement") that enables Marquest to borrow a maximum of
$1,500,000 at an interest rate of prime plus 1-1/2%, adjusted quarterly. 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. As of September 30,
1996, Marquest had borrowed $700,000 under the Loan Agreement. Additionally,
Scherer Cap invested $1,000,000 in Marquest in March 1996 through the purchase
of 2,061,856 shares of Marquest Common Stock.
Subsequent to September 30, 1996, Marquest obtained a revolving line of credit
from Norwest Business Credit, Inc. ("Norwest") which expires February 28, 1999.
Any amounts borrowed against the line of credit will be secured by Marquest's
accounts receivable and will bear interest at 2.25% over Norwest's prime rate.
The maximum amount of the line of credit is 80% of the eligible accounts
receivable or $2,000,000, whichever is less.
Marquest's management believes that it can fund its current operating levels and
meet its obligations and planned capital investment for fiscal 1997 from cash on
hand, funds generated from operations, and from funds available through other
sources, including the Loan Agreement and the Norwest credit facility.
12
<PAGE>
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held August 22,
1996 for the purposes of electing the Board of Directors. The
following persons were elected to the Board of Directors:
For Withheld
--------- --------
Stephen Lukas, Sr. 3,293,303 8,959
Kenneth H. Robertson 3,293,339 8,923
Robert P. Scherer, Jr. 3,293,058 9,204
William J. Thompson 3,293,113 9,149
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K.
None
13
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
SCHERER HEALTHCARE, INC.
(Registrant)
Date: November 12, 1996 /s/ Robert P. Scherer, Jr.
----------------- --------------------------
Robert P. Scherer, Jr.
Chairman
Date: November 12, 1996 /s/ Gary W. Ruffcorn
----------------- ---------------------------
Gary W. Ruffcorn
Principal Accounting Officer
14
<PAGE>
SCHERER HEALTHCARE, INC.
INDEX OF EXHIBITS
The following exhibit is being filed with this report.
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------ ---------------------------------- ------
<S> <C> <C>
27 Financial Data Schedule 16
(included only in EDGAR filing)
</TABLE>
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S QUARTERLY REPORT TO STOCKHOLDERS FOR THE QUARTER ENDED SEPTEMBER 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,491
<SECURITIES> 0
<RECEIVABLES> 6,384
<ALLOWANCES> (240)
<INVENTORY> 3,988
<CURRENT-ASSETS> 13,241
<PP&E> 16,435
<DEPRECIATION> (5,800)
<TOTAL-ASSETS> 33,286
<CURRENT-LIABILITIES> 9,456
<BONDS> 5,299
0
0
<COMMON> 47
<OTHER-SE> 16,193
<TOTAL-LIABILITY-AND-EQUITY> 33,286
<SALES> 18,477
<TOTAL-REVENUES> 18,477
<CGS> 12,407
<TOTAL-COSTS> 18,320
<OTHER-EXPENSES> 10
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 444
<INCOME-PRETAX> 82
<INCOME-TAX> 17
<INCOME-CONTINUING> 65
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
