<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 JUNE 30, 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)
(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:
CLASS OUTSTANDING AS OF JULY 30, 1996
- ----------------------------------- ----------------------------------------
Common Stock, $0.01 par value 4,291,831
<PAGE>
SHERER HEALTHCARE, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996
TABLE OF CONTENTS
ITEM PAGE
NUMBER PART I. FINANCIAL INFORMATION NUMBER
- ------ ------
1 Financial Statements:
Condensed Consolidated Balance
Sheets as of June 30, 1996 and
March 31,1996. . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements
of Operations for the Three Months
Ended June 30, 1996 and 1995 . . . . . . . . . . . . . 5
Condensed Consolidated Statements
of Cash Flows for the Three Months
Ended June 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
6 Exhibits and Reports on Form 8-K . . . . . . . . . . . 13
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . 14
Index to Exhibits. . . . . . . . . . . . . . . . . . . 15
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCHERER HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
June 30, 1996 March 31, 1996
--------------- ---------------
CURRENT ASSETS
Cash and cash equivalents $ 2,777,000 $ 3,622,000
Accounts receivable, less allowance for
doubtful accounts of $260,000 and $243,000,
respectively 5,424,000 6,092,000
Current maturities of notes receivable 280,000 393,000
Inventories 4,182,000 3,936,000
Prepaid and other 341,000 331,000
--------------- ---------------
Total current assets 13,004,000 14,374,000
--------------- ---------------
PROPERTY AND EQUIPMENT 15,997,000 15,749,000
Less accumulated depreciation (5,432,000) (5,146,000)
--------------- ---------------
Net property and equipment 10,565,000 10,603,000
--------------- ---------------
OTHER ASSETS
Cost in excess of net assets of businesses
acquired, net 6,656,000 6,721,000
Other investments, at cost 651,000 651,000
Notes receivable, less current portion 472,000 506,000
Intangibles 369,000 365,000
Deferred income taxes 329,000 329,000
Other 375,000 305,000
Net assets of discontinued operations 619,000 589,000
--------------- ---------------
Total other assets 9,471,000 9,466,000
--------------- ---------------
TOTAL ASSETS $33,040,000 $34,443,000
--------------- ---------------
--------------- ---------------
See notes to condensed consolidated financial statements.
3
<PAGE>
SCHERER HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, 1996 March 31, 1996
--------------- ---------------
CURRENT LIABILITIES
Accounts payable $ 1,858,000 $ 2,150,000
Accrued expenses 4,266,000 5,002,000
Current maturities of debt obligations 971,000 981,000
Payable to affiliates 2,160,000 2,286,000
Other 42,000 49,000
Net liabilities of discontinued operations 20,000 33,000
--------------- ---------------
Total current liabilities 9,317,000 10,501,000
--------------- ---------------
LONG-TERM DEBT, net of current maturities 5,293,000 5,291,000
--------------- ---------------
OTHER LIABILITIES 341,000 347,000
--------------- ---------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTERESTS IN SUBSIDIARY
AND PARTNERSHIPS 1,929,000 2,130,000
--------------- ---------------
STOCKHOLDERS' EQUITY
Convertible preferred stock - $.01 par value,
2,000,000 shares authorized;
28,677 shares issued and outstanding
(28,885 at March 31, 1996) - -
Common stock - $.01 par value,
12,000,000 shares authorized;
4,670,848 shares issued
(4,669,928 at March 31, 1996);
4,291,486 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 (3,170,000) (3,156,000)
Less treasury stock, at cost (3,033,000) (3,033,000)
--------------- ---------------
Total stockholders' equity 16,160,000 16,174,000
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $33,040,000 $34,443,000
--------------- ---------------
--------------- ---------------
See notes to condensed consolidated financial statements.
4
<PAGE>
SCHERER HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended
June 30,
------------------------------
1996 1995
------------- -------------
NET SALES $ 9,059,000 $11,468,000
------------- -------------
COSTS AND EXPENSES
Cost of goods sold 6,158,000 7,737,000
Selling, general, and administrative 2,932,000 3,486,000
Research and development 43,000 39,000
------------- -------------
Total costs and expenses 9,133,000 11,262,000
------------- -------------
OPERATING INCOME (LOSS) (74,000) 206,000
------------- -------------
OTHER INCOME (EXPENSE)
Interest income 65,000 86,000
Interest expense (230,000) (356,000)
Gain on sale of assets - 209,000
Other, net 20,000 5,000
------------- -------------
Total other income (expense) (145,000) (56,000)
------------- -------------
Income (loss) from continuing operations before
minority interest and income taxes (219,000) 150,000
Minority interest in net loss of subsidiary and
partnerships 216,000 16,000
------------- -------------
Income (loss) from continuing operations before
income taxes (3,000) 166,000
Provision for income taxes (11,000) (23,000)
------------- -------------
Income (loss) from continuing operations (14,000) 143,000
Loss from discontinued operations - (326,000)
------------- -------------
NET LOSS $ (14,000) $ (183,000)
------------- -------------
------------- -------------
INCOME (LOSS) PER COMMON SHARE:
Income (loss) from continuing operations $ 0.00 $ 0.03
Loss from discontinued operations - (0.07)
------------- -------------
NET LOSS PER COMMON SHARE $ 0.00 $ (0.04)
------------- -------------
------------- -------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 4,290,745 4,266,452
------------- -------------
------------- -------------
See notes to condensed consolidated financial statements.
5
<PAGE>
SCHERER HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended
June 30,
------------------------------
1996 1995
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (14,000) (183,000)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 366,000 618,000
Minority interest (202,000) 25,000
Gain on sale of assets - (209,000)
Loss from discontinued operations - 326,000
Other noncash charges and credits, net (2,000) (9,000)
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable, net 651,000 380,000
Inventories (246,000) 136,000
Prepaid and other (10,000) 22,000
Accounts payable and accrued expenses (1,027,000) (1,171,000)
Other liabilities (5,000) (12,000)
------------ ------------
Net cash used for operating activities of
continuing operations (489,000) (77,000)
------------ ------------
Net operating activities of discontinued
operations (43,000) (585,000)
------------ ------------
Net cash used for operating activities (532,000) (662,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net (247,000) (118,000)
Proceeds from sale of assets - 209,000
Decrease in notes receivable 145,000 117,000
Decrease in investments - 3,176,000
Other investing activities, net (89,000) 360,000
------------ ------------
Net cash provided by (used for) investing
activities (191,000) 3,744,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayment of) proceeds from borrowings 5,000 (2,074,000)
Net repayments to affiliated companies (127,000) (28,000)
------------ ------------
Net cash used for financing activities (122,000) (2,102,000)
------------ ------------
CHANGE IN CASH AND CASH EQUIVALENTS (845,000) 980,000
CASH AND CASH EQUIVALENTS, beginning of period 3,622,000 1,273,000
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 2,777,000 $ 2,253,000
------------ ------------
------------ ------------
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:
June 30, 1996 March 31, 1996
------------- --------------
Finished products $ 1,824,000 $ 1,884,000
Work in progress 250,000 233,000
Containers, packaging, and raw materials 2,108,000 1,819,000
------------- --------------
$ 4,182,000 $ 3,936,000
------------- --------------
------------- --------------
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>
June 30, 1996 March 31, 1996
------------- --------------
<S> <C> <C>
Swiss debt principal and accrued interest at 9% $ 383,000 $ 397,000
Note payable to bank, due through fiscal 2004;
variable interest rate, 8.125% at June 30, 1996 949,000 975,000
Note payable to Scherer Capital, L.L.C. due fiscal
2002, prime plus 1 1/2%, 9.75% at June 30, 1996 700,000 700,000
Obligations under capital leases, due in varying
installments through fiscal 2002 1,314,000 1,290,000
Swiss notes payable due fiscal 1999 at 8% 2,896,000 2,896,000
Other long-term debt 22,000 14,000
------------- --------------
6,264,000 6,272,000
Less current maturities (971,000) (981,000)
------------- --------------
Long-term debt $ 5,293,000 $ 5,291,000
------------- --------------
------------- --------------
</TABLE>
7
<PAGE>
NOTE 4.
At June 30, 1996 and March 31, 1996, the Company had payables to affiliates of
approximately $2,160,000 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 June 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 June 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 June 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 August 6, 1996, Scherer Healthcare, Ltd. ("Scherer Ltd."), which is doing
business as Protective Disposable Apparel, and Health-Pak, Inc. ("Health-Pak")
signed a Letter of Intent which contemplates that Scherer Ltd. will sell
substantially all of its assets to Health-Pak on or before September 30, 1996.
The assets to be acquired by Health-Pak consist of accounts receivable,
inventory and furniture and fixtures (the "Assets"). The purchase price for the
Assets will be the book value of the inventory plus the accounts receivable less
the accounts payable as of September 30, 1996 or the date of closing. The
transaction is subject to a number of conditions, including negotiation and
execution of a definitive agreement and approval by the respective Boards of
Directors and Partners.
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:
Three months ended
June 30,
-----------------------------
1996 1995
------------- ------------
NET SALES:
Medical Device and Surgical/Safety
Disposables Segment:
Marquest Medical Products, Inc. $ 5,152,000 $ 5,284,000
Scherer Healthcare, Ltd. (a) 556,000 3,142,000
Waste Management Services Segment 2,954,00 2,623,000
Consumer Healthcare Products Segment 397,000 419,000
------------ ------------
Company Totals $ 9,059,000 $11,468,000
------------ ------------
------------ ------------
OPERATING INCOME (LOSS):
Medical Device and Surgical/Safety
Disposables Segment:
Marquest Medical Products, Inc. $ (239,000) $ (45,000)
Scherer Healthcare, Ltd. (a) (101,000) 136,000
Waste Management Services Segment 273,000 268,000
Consumer Healthcare Products Segment 168,000 180,000
Corporate (175,000) (333,000)
------------ ------------
Company Totals $ (74,000) $ 206,000
------------ ------------
------------ ------------
(a) On October 3, 1995, Scherer Healthcare, Ltd., a majority owned partnership
of the Company which had been doing business as Custom Medical Products
("Scherer Ltd."), 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").
Scherer Ltd. continues to operate in the business of providing nonwoven
apparel for industrial uses under the name Protective Disposable Apparel.
On August 6, 1996, Scherer Ltd. and Health-Pak, Inc. signed a Letter of
Intent which contemplates that Scherer Ltd. will sell substantially all of
its assets to Health-Pak, Inc. on or before September 30, 1996. This is
discussed further under "Medical Device and Surgical/Safety Disposables
Segment - Scherer Healthcare, Ltd.".
The Company's net sales decreased by 21% to $9,059,000 for the first quarter of
fiscal 1997 from $11,468,000 for the first quarter of fiscal 1996; however, the
first quarter of fiscal 1996 includes three months of net sales for the Medical
Business, or $2,526,000, which was sold in October 1995. The Company reported
an operating loss of $74,000 for the first quarter of fiscal 1997 compared to
operating income of $206,000 during the same period in fiscal 1996. The
Company's cost of sales increased from 67% of net sales in the first quarter of
fiscal 1996 to 68% in the first quarter of fiscal 1997. Selling, general, and
administrative expenses increased from 30% of net sales in the first quarter of
fiscal 1996 to 32% in the first quarter of fiscal 1997.
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.
9
<PAGE>
MEDICAL DEVICE AND SURGICAL/SAFETY DISPOSABLES SEGMENT
MARQUEST MEDICAL PRODUCTS, INC. Net sales of the Company's 51% owned
subsidiary, Marquest Medical Products, Inc. ("Marquest"), decreased
approximately 3% to $5,152,000 for the first quarter of fiscal 1997 from
$5,284,000 during the same period in fiscal 1996. The decrease can primarily be
attributed to the timing of sales orders from certain customers.
Marquest reported an operating loss of $239,000 in the first quarter of fiscal
1997 compared to an operating loss of $45,000 for the first quarter of fiscal
1996. Marquest's cost of sales increased to 73% of net sales for the first
quarter of fiscal 1997 from 70% of net sales during the first quarter of fiscal
1996 and its selling, general, and administrative expenses increased to 29% of
net sales for the first quarter of fiscal 1997 from 28% during the same period
in fiscal 1996. The increase in the operating loss is primarily due to the
decrease in net sales combined with an increase in cost of sales associated with
higher overtime expenses. The increase in overtime expense was in connection
with the rework of certain products and an increase in the manufacturing of
inventory caused by an expansion to the level of inventory during the first
quarter of fiscal 1997.
SCHERER HEALTHCARE, LTD. On October 3, 1995, Scherer Healthcare, Ltd., a
majority owned partnership of the Company which had been doing business as
Custom Medical Products ("Scherer Ltd."), 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"). Scherer Ltd. continues 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 first quarter of fiscal 1997 decreased 82% to
$556,000 from $3,142,000 during the first quarter of fiscal 1996; however, the
first quarter of fiscal 1996 includes three months of net sales for the Medical
Business, or $2,526,000, which was sold in October 1995. Scherer Ltd.'s net
sales for the Industrial Business during the first quarter of fiscal 1997
decreased 10% to $556,000 from $616,000 during the same period in fiscal 1996.
The decrease in net sales in the Industrial Business is a direct result of 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 $101,000 for the first quarter of
fiscal 1997 compared to operating income of $136,000 during the first quarter of
fiscal 1996. During the first quarter of fiscal 1996, the Medical Business
reported operating income of $181,000 primarily due to monthly shortfall
payments ($52,000 per month) received from Cordis to help offset losses incurred
under its surgical disposable trays contract with Cordis. For the first quarter
of fiscal 1997, Scherer Ltd.'s operating loss for the Industrial Business
increased to $101,000 from $45,000 during the first quarter of fiscal 1996 which
can primarily be attributed to the decrease in net sales discussed above.
On August 6, 1996, Scherer Healthcare, Ltd. ("Scherer Ltd."), which is doing
business as Protective Disposable Apparel, and Health-Pak, Inc. ("Health-Pak")
signed a Letter of Intent which contemplates that Scherer Ltd. will sell
substantially all of its assets to Health-Pak on or before September 30, 1996.
The assets to be acquired by Health-Pak consist of accounts receivable,
inventory and furniture and fixtures (the "Assets"). The purchase price for the
Assets will be the book value of the inventory plus the accounts receivable less
the accounts payable as of September 30, 1996 or the date of closing. The
transaction is subject to a number of conditions, including negotiation and
execution of a definitive agreement and approval by the respective Boards of
Directors and Partners.
WASTE MANAGEMENT SERVICES SEGMENT
Net sales in the Company's Waste Management Services Segment increased
approximately 13% to $2,954,000 in the first quarter of fiscal 1997 from
$2,623,000 during the first quarter of fiscal 1996. The increase in sales is
due to the continuing acquisition of medical waste disposal contracts with
hospitals.
Operating income increased approximately 2% to $273,000 for the first quarter of
fiscal 1997 from $268,000 during the first quarter of fiscal 1996. This
marginal increase in operating income, considering the significant increase in
net sales, was primarily caused by a rise in operating costs that could not be
offset due to pricing pressures in both the hospital and physician markets.
10
<PAGE>
CONSUMER HEALTHCARE PRODUCTS SEGMENT
Net sales for the Consumer Healthcare Products Segment decreased approximately
5% to $397,000 for the first quarter of fiscal 1997 from $419,000 during the
same period in fiscal 1996. This Segment achieved a record level of sales on
certain of its over-the-counter products during the first quarter of fiscal 1996
and could not sustain that same level of sales during the first quarter of
fiscal 1997. Operating income decreased approximately 7% to $168,000 for the
first quarter of fiscal 1997 from $180,000 during the first quarter of fiscal
1996. The decrease in operating income can be attributed to the decrease in net
sales discussed above.
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY
CASH FLOWS FROM OPERATIONS.
The Company's (excluding Marquest) operating activities from continuing
operations provided cash during the first quarter of fiscal 1997 of
approximately $120,000 compared with a use of cash during the same period in
fiscal 1996 of approximately $126,000. Scherer Ltd.'s cash used for operating
activities decreased from $127,000 during the first quarter of fiscal 1996 to
approximately $33,000 during the first quarter of fiscal 1997. The improvement
is primarily due to the sale of the Medical Business in October 1995. Scherer
Laboratories, Inc., which operates the Company's Consumer Healthcare Products
Segment, improved its cash provided from operations to $119,000 during the first
quarter of fiscal 1997 from approximately $5,000 during the first quarter of
fiscal 1996. The improvement is primarily due to the timing of collection of
its account receivable. Most of the sales for the first quarter of fiscal 1996
were in June 1995 and therefore collection of those receivables was during the
second quarter of fiscal 1996.
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
quarter of fiscal 1996 was approximately $585,000 compared to approximately
$43,000 during the first quarter of fiscal 1997.
CASH FLOWS FROM FINANCING AND INVESTING ACTIVITIES.
Prior to fiscal 1996, Scherer Scientific, Ltd., Scherer Capital L.L.C. ("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 $2,160,000 at June 30, 1996, to include fixed
payment terms, uniform interest rate, cross collateralization and guarantees.
In the interim, the Company is making monthly payments against the remaining
balance of the Affiliate Loans. The Company paid $121,000 to the affiliates
during the first quarter of fiscal 1997 toward the 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
Except executive management, Marquest operates independent of the Company.
CASH FLOWS FROM OPERATIONS.
Marquest's cash used from operations during the first quarter of fiscal 1997 was
approximately $609,000 compared to cash provided by operations of approximately
$49,000 during the first quarter of fiscal 1996. To improve service to its
customers, Marquest increased its inventory, primarily raw materials, by
$225,000 during the first quarter of fiscal 1997 compared with a reduction of
inventory of approximately $185,000 during the first quarter of fiscal 1996.
Additionally, Marquest paid $170,000 during the first quarter of fiscal 1997 to
settle a lawsuit with an insurance company.
11
<PAGE>
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 June 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 June 30, 1996, Marquest obtained a three-year revolving line of
credit commitment from Norwest Business Credit, Inc. ("Norwest"). 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. The line of credit is subject to executing
satisfactory loan documentation.
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. To the extent that fiscal 1997's
operations do not meet projected levels, Marquest will reduce its planned
investment in capital expenditures accordingly.
12
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K.
April 17, 1996 - regarding the conversion of the outstanding
principal balance and accrued interest on a Convertible Note
held by the Company into shares of Marquest Common Stock.
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: August 14, 1996 /s/ Robert P. Scherer, Jr.
--------------- --------------------------
Robert P. Scherer, Jr.
Chairman
Date: August 14, 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.
Exhibit Page
Number Description Number
- ------ ---------------------------------- ------
27 Financial Data Schedule 16
(included only in EDGAR filing)
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 JUNE 30,
1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,777
<SECURITIES> 0
<RECEIVABLES> 5,684
<ALLOWANCES> (260)
<INVENTORY> 4,182
<CURRENT-ASSETS> 13,004
<PP&E> 15,997
<DEPRECIATION> (5,432)
<TOTAL-ASSETS> 33,004
<CURRENT-LIABILITIES> 9,317
<BONDS> 5,293
0
0
<COMMON> 47
<OTHER-SE> 16,113
<TOTAL-LIABILITY-AND-EQUITY> 33,004
<SALES> 9,059
<TOTAL-REVENUES> 9,059
<CGS> 6,158
<TOTAL-COSTS> 9,133
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 230
<INCOME-PRETAX> (3)
<INCOME-TAX> 11
<INCOME-CONTINUING> (14)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14)
<EPS-PRIMARY> (.003)
<EPS-DILUTED> (.003)
</TABLE>
