<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 DECEMBER 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)
(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 JANUARY 31, 1997
- ------------------------------ -----------------------------------
Common Stock, $0.01 par value 4,313,878
<PAGE>
SCHERER HEALTHCARE, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
ITEM PAGE
NUMBER PART I. FINANCIAL INFORMATION NUMBER
- ------ ------
1 Financial Statements:
Condensed Consolidated Balance
Sheets as of December 31, 1996 and
March 31, 1996 . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements
of Operations for the Three and Nine Months
Ended December 31, 1996 and 1995 . . . . . . . . . . . . . 5
Condensed Consolidated Statements
of Cash Flows for the Nine Months
Ended December 31, 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
1 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 14
5 Other Information. . . . . . . . . . . . . . . . . . . . . 14
6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . 15
Index to Exhibits. . . . . . . . . . . . . . . . . . . . . 16
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCHERER HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
December 31, 1996 March 31, 1996
------------------ ---------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,848,000 $ 3,622,000
Accounts receivable, less allowance for doubtful
accounts of $210,000 and $243,000, respectively 5,515,000 6,092,000
Current maturities of notes receivable 255,000 393,000
Inventories 3,806,000 3,936,000
Prepaid and other 312,000 331,000
------------- -------------
Total current assets 12,736,000 14,374,000
------------- -------------
PROPERTY AND EQUIPMENT 16,653,000 15,749,000
Less accumulated depreciation (6,174,000) (5,146,000)
------------ -------------
Net property and equipment 10,479,000 10,603,000
------------ -------------
OTHER ASSETS
Cost in excess of net assets of business acquired, net 6,453,000 6,721,000
Other investments, at cost 651,000 651,000
Notes receivable, less current portion 405,000 506,000
Intangibles 343,000 365,000
Deferred income taxes 329,000 329,000
Other 290,000 305,000
Net assets of discontinued operations 695,000 589,000
------------ ------------
Total other assets 9,166,000 9,466,000
------------- ------------
TOTAL ASSETS $32,381,000 $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>
December 31, 1996 March 31, 1996
----------------- ---------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 1,829,000 $ 2,150,000
Accrued expenses 3,995,000 5,002,000
Current maturities of debt obligations 999,000 981,000
Payable to affiliates 2,145,000 2,286,000
Other 18,000 49,000
Net liabilities of discontinued operations 26,000 33,000
--------------- --------------
Total current liabilities 9,012,000 10,501,000
--------------- --------------
LONG-TERM DEBT, net of current maturities 5,142,000 5,291,000
--------------- --------------
OTHER LIABILITIES 330,000 347,000
--------------- --------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTERESTS IN SUBSIDIARY
AND PARTNERSHIPS 1,801,000 2,130,000
-------------- --------------
STOCKHOLDERS' EQUITY
Convertible preferred stock - $.01 par value,
2,000,000 shares authorized;
23,854 shares issued and outstanding
(28,885 at March 31, 1996) -- --
Common stock - $.01 par value,
12,000,000 shares authorized;
4,692,201 shares issued
(4,669,928 at March 31, 1996);
4,312,839 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 (3,234,000) (3,156,000)
Less treasury stock, at cost (3,033,000) (3,033,000)
------------ -----------
Total stockholders' equity 16,096,000 16,174,000
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $32,381,000 $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 Nine months ended
December 31, December 31,
--------------------------- -----------------------------
1996 1995 1996 1995
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 8,250,000 $ 9,267,000 $26,727,000 $32,086,000
---------- ---------- ---------- -----------
COSTS AND EXPENSES
Cost of goods sold 5,168,000 6,203,000 17,575,000 21,953,000
Selling, general, and administrative 2,924,000 3,016,000 8,739,000 9,795,000
Research and development 98,000 36,000 196,000 112,000
---------- ---------- ---------- -----------
Total costs and expenses 8,190,000 9,255,000 26,510,000 31,860,000
---------- ---------- ---------- -----------
OPERATING INCOME 60,000 12,000 217,000 226,000
---------- ---------- ---------- -----------
OTHER INCOME (EXPENSE)
Interest income 11,000 147,000 135,000 288,000
Interest expense (241,000) (276,000) (685,000) (957,000)
Gain (loss) on sale of assets (84,000) 2,806,000 (84,000) 3,023,000
Other, net (53,000) 49,000 (43,000) 45,000
---------- ---------- ---------- -----------
Total other income (expense) (367,000) 2,726,000 (677,000) 2,399,000
---------- ---------- ---------- -----------
Income (loss) from continuing operations
before minority interest and income taxes (307,000) 2,738,000 (460,000) 2,625,000
Minority interest in net loss of subsidiary and
partnerships 155,000 191,000 390,000 227,000
---------- ---------- ---------- -----------
Income (loss) from continuing operations
before income taxes (152,000) 2,929,000 (70,000) 2,852,000
Benefit (provision) for income taxes 9,000 (595,000) (8,000) (630,000)
---------- ---------- ---------- -----------
Income (loss) from continuing operations (143,000) 2,334,000 (78,000) 2,222,000
Loss from discontinued operations - (14,000) - (696,000)
---------- ---------- ---------- -----------
NET INCOME (LOSS) $ (143,000) $2,320,000 $ (78,000) $ 1,526,000
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
INCOME (LOSS) PER COMMON SHARE:
Income (loss) from continuing operations $ (.03) $ .54 $ (.02) $ .52
Loss from discontinued operations - - - (.16)
---------- ---------- ---------- -----------
NET INCOME (LOSS) PER COMMON
SHARE $ (.03) $ .54 $ (.02) $ .36
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 4,311,206 4,290,677 4,298,139 4,276,548
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
SCHERER HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
December 31,
-------------------------------
1996 1995
--------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (78,000) $1,526,000
Adjustments to reconcile net income (loss) to net cash used for
operating activities:
Depreciation and amortization 1,309,000 1,694,000
Minority interest (374,000) (186,000)
Loss (gain) on sale of assets 84,000 (3,023,000)
Loss from discontinued operations - 696,000
Other noncash charges and credits, net (8,000) (30,000)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net 274,000 1,427,000
Inventories (179,000) (320,000)
Prepaid and other 17,000 93,000
Accounts payable and accrued expenses (1,018,000) (767,000)
Other liabilities (16,000) (19,000)
------------ -----------
Net cash provided by operating activities of continuing
operations 11,000 1,091,000
------------ -----------
Net operating activities of discontinued operations (134,000) (1,218,000)
------------ -----------
Net cash used for operating activities (123,000) (127,000)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net (919,000) (407,000)
Proceeds from sale of assets 254,000 5,040,000
Decrease in notes receivable 238,000 584,000
Decrease in investments - 3,232,000
Other investing activities, net (44,000) 129,000
------------ -----------
Net cash provided by (used for) investing activities (471,000) 8,578,000
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayment of) proceeds from borrowings (39,000) (2,535,000)
Net repayments to affiliated companies (141,000) (4,221,000)
------------ -----------
Net cash used for financing activities (180,000) (6,756,000)
------------ -----------
CHANGE IN CASH AND CASH EQUIVALENTS (774,000) 1,695,000
CASH AND CASH EQUIVALENTS, beginning of period 3,622,000 1,273,000
------------ -----------
CASH AND CASH EQUIVALENTS, end of period $2,848,000 $2,968,000
------------ -----------
------------ -----------
</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>
December 31, 1996 March 31, 1996
------------------ ---------------
<S> <C> <C>
Finished products $1,185,000 $1,884,000
Work in progress 338,000 233,000
Containers, packaging, and raw materials 2,283,000 1,819,000
----------- ----------
$3,806,000 $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>
December 31, 1996 March 31, 1996
------------------ ---------------
<S> <C> <C>
Swiss debt principal and accrued interest at 9% $ 368,000 $397,000
Note payable to bank, due through fiscal 2004;
variable interest rate, 8.125% at December 31, 1996 905,000 975,000
Note payable to Scherer Capital Company, L.L.C.
due fiscal 2002, prime plus 1%, 9.75% at
December 31, 1996 700,000 700,000
Obligations under capital leases, due in varying
installments through fiscal 2002 1,315,000 1,290,000
Swiss notes payable due fiscal 1999 at 8% 2,851,000 2,896,000
Other long-term debt 2,000 14,000
---------------- ---------------
6,141,000 6,272,000
Less current maturities (999,000) (981,000)
---------------- ---------------
Long-term debt $5,142,000 $ 5,291,000
---------------- ---------------
---------------- ---------------
</TABLE>
7
<PAGE>
NOTE 4.
At December 31, 1996 and March 31, 1996, the Company had $2,145,000 and
$2,248,000, respectively, payable to Scherer Capital Company L.L.C. ("Scherer
Cap"), an affiliated company. The payable was due on demand and bore interest
at prime rate plus 1% (9.25% at December 31, 1996). Additionally, at March
31, 1996 the Company had $38,000 payable to another affiliate, Scherer
Scientific, Ltd. These entities are controlled by the majority stockholder of
the Company.
In January 1997, the Company and Scherer Cap restructured the balance of
$2,128,000 on the demand loan into a promissory note (the "Note") to be
repaid in monthly installments of principal and interest over a five year
term with a maturity date of December 1, 2001. The Note bears interest at
prime rate plus 1%, adjusted quarterly, and is collateralized by 2,432,251
shares of the Marquest Medical Products, Inc. ("Marquest") common stock owned
by the Company. The monthly payment is fixed at $44,437 except for the first
payment which will be $45,030 and the last payment which will be for the
amount of the unpaid principal balance plus any unpaid accrued interest as of
December 1, 2001.
In March 1996, Scherer Cap and Marquest, a 51% owned subsidiary of the
Company, 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% over prime, adjusted
quarterly. The rate was 9.75% as of December 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 Common Stock at a conversion price of
$.70 per share. As of December 31, 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 remaining
assets of its majority owned partnership, Scherer Healthcare, Ltd. ("Scherer
Ltd."), which was 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 were 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 recorded a loss from the
transaction of approximately $84,000 in the third quarter primarily due to
the write-off of the remaining book value of certain intangible assets.
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 Nine months ended
December 31, December 31,
---------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ------------- ---------
<S> <C> <C> <C> <C>
NET SALES:
Medical Device and Surgical/Safety
Disposables Segment:
Marquest Medical Products, Inc. $5,035,000 $5,739,000 $15,840,000 $16,216,000
Scherer Healthcare, Ltd. (a) 25,000 575,000 1,069,000 7,028,000
Waste Management Services Segment 2,954,000 2,720,000 8,832,000 7,983,000
Consumer Healthcare Products Segment 236,000 233,000 986,000 859,000
------------ ---------- ----------- ------------
Company Totals $8,250,000 $9,267,000 $26,727,000 $32,086,000
------------ ---------- ----------- ------------
------------ ---------- ----------- ------------
OPERATING INCOME (LOSS):
Medical Device and Surgical/Safety
Disposables Segment:
Marquest Medical Products, Inc. $ (57,000) $ 144,000 $ (117,000) $ 248,000
Scherer Healthcare, Ltd. (a) (126,000) (127,000) (330,000) (32,000)
Waste Management Services Segment 304,000 228,000 868,000 681,000
Consumer Healthcare Products Segment 61,000 75,000 369,000 304,000
Corporate (122,000) (308,000) (573,000) (975,000)
------------ ---------- ----------- ----------
Company Totals $ 60,000 $ 12,000 $ 217,000 $ 226,000
------------ ---------- ----------- ----------
------------ ---------- ----------- ------------
</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 (the "Industrial Business")
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, Inc. This is
discussed further under "Medical Device and Surgical/Safety
Disposables Segment - Scherer Healthcare, Ltd.".
The Company's net sales decreased by 11% to $8,250,000 for the third quarter
of fiscal 1997 from $9,267,000 for the third quarter of fiscal 1996; however,
the third quarter of fiscal 1996 includes three months of net sales for the
Industrial Business, or $575,000, which was sold in October 1996.
Accordingly, the third quarter of fiscal 1997 includes less than one month of
net sales for the Industrial Business, or $25,000. The Company reported
operating income of $60,000 for the third quarter of fiscal 1997 compared to
operating income of $12,000 during the same period in fiscal 1996. The
Company's cost of sales decreased from 67% of net sales in the third quarter
of fiscal 1996 to 63% in the third quarter of fiscal 1997. Selling, general,
and administrative expenses increased from 33% of net sales in the third
quarter of fiscal 1996 to 35% in the third quarter of fiscal 1997.
9
<PAGE>
For the first nine months of fiscal 1997, the Company's net sales decreased
17% to $26,727,000 from $32,086,000 during the first nine months of fiscal
1996; however, fiscal 1996 includes six months of net sales for the Medical
Business, or $5,344,000, which was sold on October 3, 1995. Additionally,
fiscal 1996 includes nine months of net sales for the Industrial Business, or
$1,684,000, and fiscal 1997 includes only six full months of net sales for
the Industrial Business, or $1,069,000. The Company's operating income
decreased to $217,000 for the nine months ended December 31, 1996 from
$226,000 for the nine months ended December 31, 1995. The Company's cost of
sales decreased from 68% of net sales for the nine months ended December 31,
1995 to 66% of net sales for the nine months ended December 31, 1996.
Selling, general and administrative expenses increased from 31% of net sales
for the nine months ended December 31, 1995 to 33% for the nine months ended
December 31, 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, decreased approximately 12% to $5,035,000 for the third
quarter of fiscal 1997 from $5,739,000 during the same period in fiscal 1996
and Marquest's net sales decreased 2% to $15,840,000 for the nine months
ended December 31, 1996 from $16,216,000 for the nine months ended December
31, 1995. The decrease in net sales is primarily due to a decrease in sales
of Marquest's medication delivery devices. Sales of these devices are down
approximately $750,000 in fiscal 1997 compared to fiscal 1996, the majority
of this decrease is attributable to one major customer who has not placed an
order in fiscal 1997. The decrease in sales of the medication delivery
devices was partially offset by an increase in sales of Marquest's arterial
blood gas products which increased approximately $220,000 in fiscal 1997
compared to fiscal 1996. This increase can be attributed to a long term
contract signed with a major customer in late fiscal 1996 for these products.
Additionally, as a result of Marquest's expanded European warehouse facility,
some of Marquest's foreign customers are changing their buying patterns by
placing more frequent smaller orders in contrast to placing sporadic large
orders.
Primarily as a result of the decrease in net sales, Marquest reported
an operating loss of $57,000 for the third quarter of fiscal 1997
compared to operating income of $144,000 for the third quarter of
fiscal 1996. Marquest's cost of sales decreased to 68% of net sales
for the third quarter of fiscal 1997 from 69% of net sales during the
third quarter of fiscal 1996 and its selling, general and
administrative expenses increased to 31% of net sales for the third
quarter of fiscal 1997 from 28% during the same period in fiscal
1996.
Marquest reported an operating loss of $117,000 for the nine months
ended December 31, 1996 compared to operating income of $248,000 for
the nine months ended December 31, 1995. Marquest's cost of sales
increased to 70% of net sales for the nine months ended December 31,
1996 from 69% of net sales during the same period in fiscal 1996.
Selling, general, and administrative expenses remained flat at 29% of
net sales for the nine months ended December 31, 1996 and 1995. The
operating loss for the nine months ended December 31, 1996 is a
result of the decrease in net sales combined with an increase in
overtime expense in the first quarter of fiscal 1997 due to the
rework of certain products and an increase in the manufacturing of
inventory in an effort to improve customer service support.
Additionally, Marquest provides heated humidification units to
hospitals at no charge in exchange for agreements by the hospitals to
purchase specified levels of disposable products from Marquest.
Marquest provided a significantly higher number of these units to
hospitals in fiscal 1997 compared to fiscal 1996.
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.
On October 29, 1996, Scherer Ltd. sold substantially all of its remaining
assets, all of which were used in connection with the Industrial Business, to
a subsidiary of Health-Pak, Inc. ("Health-Pak"). The assets acquired by
Health-Pak include accounts receivable, inventory and furniture and fixtures.
10
<PAGE>
Scherer Ltd.'s net sales for the third quarter of fiscal 1997 decreased 96%
to $25,000 from $575,000 during the third quarter of fiscal 1996; however,
the third quarter of fiscal 1996 includes three full months of net sales for
the Industrial Business while the third quarter of fiscal 1997 only includes
net sales through October 18, 1996 (the effective date of the transaction
regarding operations). Additionally, net sales for the third quarter of
fiscal 1997 reflect adjustments to prior period sales for returned products.
Net sales for Scherer Ltd. decreased 85% to $1,069,000 for the nine months
ended December 31, 1996 from $7,028,000 for the nine months ended December
31, 1995; however, the nine months ended December 31, 1995 included six
months of net sales for the Medical Business, or $5,344,000, which was sold
on October 3, 1995. Net sales for the Industrial Business decreased
approximately 37% to $1,069,000 for the nine months ended December 31, 1996
compared to $1,684,000 for the same period in fiscal 1996; however, fiscal
1996 includes nine months of net sales for the Industrial Business and fiscal
1997 includes only six full months of net sales.
Scherer Ltd. reported an operating loss of $126,000 for the third quarter of
fiscal 1997 compared to an operating loss of $127,000 during the third
quarter of fiscal 1996, of which $76,000 relates to the Industrial Business.
The increase in the operating loss of the Industrial Business can primarily
be attributed to the decrease in net sales combined with the write down of
inventory following a physical count taken for the Health-Pak transaction.
For the nine months ended December 31, 1996, Scherer Ltd. reported an
operating loss of $330,000 compared to an operating loss of $32,000 during
the same period in fiscal 1996. The Medical Business reported operating
income of $215,000 for the nine months ended December 31, 1995 primarily due
to monthly shortfall payments ($295,000 in total) received from Cordis to
help offset losses incurred under Scherer Ltd.'s surgical disposable trays
contract with Cordis. The Industrial Business reported an operating loss of
$330,000 for the nine months ended December 31, 1996 compared to an operating
loss of $247,000 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 combined with the inventory write down pursuant to the physical
count taken for the Health-Pak transaction in October 1996.
WASTE MANAGEMENT SERVICES SEGMENT
Net sales in the Company's Waste Management Services Segment increased
approximately 9% to $2,954,000 in the third quarter of fiscal 1997 from
$2,720,000 during the third quarter of fiscal 1996 and its net sales
increased approximately 11% to $8,832,000 for the nine months ended December
31, 1996 from $7,983,000 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 33% to $304,000 for the third
quarter of fiscal 1997 from $228,000 during the third quarter of fiscal 1996
and increased approximately 27% to $868,000 for the nine months ended
December 31, 1996 from $681,000 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 slightly to
$236,000 during the third quarter of fiscal 1997 from $233,000 during the
third quarter of fiscal 1996 and its net sales increased approximately 15% to
$986,000 during the nine months ended December 31, 1996 from $859,000 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.
Operating income for Scherer Labs decreased to $61,000 for the third quarter
of fiscal 1997 from $75,000 for the third quarter of fiscal 1996; however,
operating income increased to $369,000 for the nine months ended December 31,
1996 from $304,000 for the same period in fiscal 1996. The increase in
operating income is primarily due to the increase in net sales discussed
above.
11
<PAGE>
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 nine months of fiscal 1997 of
approximately $774,000 compared to cash provided from continuing operations
during the same period in fiscal 1996 of approximately $1,506,000. The
decrease in cash provided from continuing operations 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 in October 1995. Cordis paid all amounts owed to
Scherer Ltd. at the time of closing, approximately $560,000, for services
provided under the contract with Cordis 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 during the third quarter of fiscal
1996.
Scherer Labs, which operates the Company's Consumer Healthcare Products
Segment, improved its cash provided from operations to $307,000 during the
first nine months of fiscal 1997 from $215,000 during the same period in
fiscal 1996. The improvement is primarily due to the timing of collection of
its accounts receivable and the timing of payment of its accounts payable.
Discontinuing the operations of Biofor, Inc. ("Biofor") has significantly
improved the cash flow of the Company. The net cash used by Biofor's
operations during the first nine months of fiscal 1996 was approximately
$1,218,000 compared to approximately $134,000 during the first nine months of
fiscal 1997.
CASH FLOWS FROM FINANCING AND INVESTING ACTIVITIES.
Prior to fiscal 1996, Scherer Cap, an entity 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 were payable on demand
and bore interest at prime rate plus 1%. 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. In
January 1997, the Company and Scherer Cap restructured the balance of
$2,128,000 on the Affiliate Loans into a promissory note (the "Note") to be
repaid in monthly installments of principal and interest over a five year
term with a maturity date of December 1, 2001. The Note bears interest at
prime rate plus 1 %, adjusted quarterly, and is collateralized by 2,432,251
shares of the Marquest common stock owned by the Company. The monthly payment
is fixed at $44,437 except for the first payment which will be $45,030 and
the last payment which will be for the amount of the unpaid principal balance
plus any unpaid accrued interest as of December 1, 2001.
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 nine months
of fiscal 1997 to approximately $764,000 from approximately $416,000 during
the same period in fiscal 1996. The increase in cash used from Marquest's
operations is primarily due to the monthly installments to the Internal
Revenue Service ($360,000 in total over the nine months) as a result of the
settlement with respect to tax issues related to previous years.
Additionally, Marquest paid $170,000 during the first quarter of fiscal 1997
to settle a lawsuit with an insurance company.
12
<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 Common
Stock. As of December 31, 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.
In November 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. As of December 31,
1996, Marquest had not borrowed any funds against the line of credit. The
convenants for the line of credit provide that Marquest maintain a debt
service coverage ratio of 1:1 at the end of fiscal 1997, and the maximum net
loss cannot exceed $50,000 for fiscal 1997. No assurance can be given that
Marquest will satisfy the covenants for fiscal 1997.
Marquest's management believes that it can fund its current operating levels
and meet its obligations 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.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In a complaint filed in September 1996 in Japan, Marquest's
distributor of arterial blood gas products in Japan is alleged
to have infringed the patent of Terumo K.K., resulting in a
request for an injunction against the distributor from further
marketing and sale of Marquest's arterial blood gas samplers in
Japan. The complaint does not currently name Marquest.
Marquest is paying the cost to defend its distributor in the
litigation and has engaged counsel in Japan. Due to the
preliminary nature of this litigation, there can be no
assessment as to the potential impact on Marquest.
Item 5. OTHER INFORMATION
Marquest is subject to regulation by the Food and Drug
Administration ("FDA") regarding the manufacture and sale of its
products. On October 1, 1991, Marquest entered into a five year
Consent Decree with the FDA in which Marquest agreed to comply
with the FDA's Current Good Manufacturing Practices ("cGMP").
As of October 1, 1996, the Consent Decree expired.
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
14
<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: February 13, 1997 /s/ Robert P. Scherer, Jr.
----------------------------
Robert P. Scherer, Jr.
Chairman
Date: February 13, 1997 /s/ Gary W. Ruffcorn
----------------------------
Gary W. Ruffcorn
Principal Accounting Officer
15
<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 17
(included only in EDGAR filing)
16
<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 DECEMBER
31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,848
<SECURITIES> 0
<RECEIVABLES> 5,725
<ALLOWANCES> (210)
<INVENTORY> 3,806
<CURRENT-ASSETS> 12,736
<PP&E> 16,653
<DEPRECIATION> (6,174)
<TOTAL-ASSETS> 32,381
<CURRENT-LIABILITIES> 9,012
<BONDS> 5,142
0
0
<COMMON> 47
<OTHER-SE> 16,049
<TOTAL-LIABILITY-AND-EQUITY> 32,381
<SALES> 26,727
<TOTAL-REVENUES> 26,727
<CGS> 17,575
<TOTAL-COSTS> 26,510
<OTHER-EXPENSES> 43
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 685
<INCOME-PRETAX> (70)
<INCOME-TAX> 8
<INCOME-CONTINUING> (78)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (78)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
