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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended...June 30, 1996.....................
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from..............to................
Commission file number..0-12547...............................
Steritek, Inc.
(Exact name of registrant as specified in its charter)
New Jersey 22-2243703
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
121 Moonachie Avenue, Moonachie, NJ 07074
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 460-0500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
(Title of class)
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 [XX] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
<PAGE>
The aggregate market value of the voting stock held by non-
affiliates of the registrant as of September 1, 1996 was
approximately $422,832 (by reference to the average bid and asked
prices of such stock).
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13, or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
3,586,285 shares of Common Stock on September 1, 1996
DOCUMENTS INCORPORATED BY REFERENCE
None.
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STERITEK, INC.
INDEX
Pursuant to Regulation S-K showing
Location of Information Required by Items in Form 10-K
Page
Report Item and Heading Number
Part I
Item 1. Business........................................... X
Item 2. Properties......................................... X
Item 3. Legal Proceedings.................................. X
Item 4 . Submission of Matters to a Vote of Security
Holders............................................ X
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.................... X
Item 6. Selected Financial Data............................ X
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation....... X
Item 8. Financial Statements and Supplementary Data........ X
Item 9. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure............. X
Part III
Item 10. Directors and Executive Officers
of the Registrant.................................. X
Item 11. Executive Compensation............................. X
Item 12. Security Ownership of Certain
Beneficial Owners and Management................... X
Item 13. Certain Relationships and Related
Transactions....................................... X
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K................................ X
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<PAGE>
Part I
Item 1. Business.
Development of the Business of the Company
Steritek, Inc. (the "Company") is a New Jersey corporation with
its principal place of business at 121 Moonachie Avenue, Moonachie,
New Jersey 07074.
The principal business of the Company is Contract Packaging,
which involves contract packaging services and promotional
materials assembly for manufacturers of products in the pharmaceutical,
medical, personal health and beauty industries (collectively, "health
care"). The Company is also engaged in the communication, on behalf of
pharmaceutical companies and others, of medically-oriented information
to physicians through the Company's Physicians Fax Network. Until
October 6, 1995, the Company, through its BioMedical Services
business, was engaged in; (i) the distribution of its proprietary
intracranial pressure monitors, and (ii) manufacturing and supplying
products and accessories for electron microscope laboratories
(through its wholly owned subsidiary, Sterimed, Inc.). The Company
sold its BioMedical Services business on October 6, 1995. The Company's
strategy is to continue to enhance its core business of contract
packaging while developing its Physicians Fax Network.
Financial information about industry segments is contained in
Note 7 of the Notes to Consolidated Financial Statements. Note 7
sets forth, for the periods indicated, the amounts of revenue, operating
profit and identifiable assets attributable to the Company's business
segments.
Description of the Business
Contract Packaging
The Company's contract packaging services are its principal
business activity. The Company believes that the packaging of a
health care product is an integral part of its efficacy, safety and
consumer acceptance. Although many manufacturers of health care
products include packaging as part of the manufacturing process,
many of these same manufacturers utilize the services of independent
packaging companies in certain circumstances. For example, sample
distributions, special promotions and less established products are
typically characterized by lower production volumes and special
packaging needs. In addition, new product introductions and times
of peak demand may require special packaging needs and/or additional
packaging capacity. Also, certain manufacturers may not have the
necessary packaging equipment or expertise to package certain of
their products and may be unwilling to devote the capital resources
necessary to undertake packaging them. In these circumstances,
independent packager often offer an efficient, flexible and
economical alternative to in-house packaging.
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The Company provides a range of packaging services to its health
care customers. The Company packages health care products supplied
to it in bulk quantities by its customers in the form of finished
products such as feminine hygiene products, tablets, capsules,
powders, patches, ointments, lotions and liquids. The Company's
packaging services include pouch filling/sealing, blister and strip
packaging, form fill and seal, production of display units, shrink
wrapping, over wrapping, heat sealing, die cutting/laminating,
tamper evident packaging, ink jet labeling and bar coding. The
Company's major customers currently include Ciba-Geigy Corporation and
Johnson & Johnson, and it has regularly performed contract packaging
services for SmithKline Beecham, Carter Wallace and Conair.
The Company performs its packaging services at the direction of,
and according to the specifications of, its customer. The type of
package used typically depends on the nature of the product, its
unit volume and dosage and the manufacturing and marketing requirements
of the customer. Blister packaging consists of a plastic blister
affixed to a rigid or semi-rigid backing material, through which an
individual dose is expelled. Strip packaging is often used for products
that require extra protection from moisture, light and tampering and
generally consists of higher density materials produced in a
perforated strip of packages. Tamper-evident and child-resistant
features may take the form of blister, shrink-wrap, over-wrap or
other packaging.
After a health care product has been packaged by the Company, its
services often include inserting the products into folding cartons,
set-up boxes or other display units either produced by the Company
or supplied by the customer. The products are then either delivered
to the customer or into the customer's distribution system depending
upon the customer's instructions.
In general, health care packaging services are provided by the
Company to its customers on an "as-needed" basis, with customers
obtaining bids from several companies or selecting the Company
without a prior bidding process. Once selected by a manufacturer, the
Company typically performs packaging services for the manufacturer on a
purchase order by purchase order basis, and not pursuant to a long-
term contract. Each purchase order usually specifies a specific
quantity of product to be packaged in a particular manner and at a
specified price and time. The packaged product is usually returned
to the manufacturer for distribution and sale. The Company has no
assurance that a customer will continue to use its services after
a particular purchase order is filled. Continued use of the
Company's services is often dependent on a variety of factors, many of
which are outside of the control of the Company. These factors may
include, for example, the demand for the customer's product, the
customer's inventory levels, and the customer's use of internal or
alternative packaging capabilities. Thus, the Company's operating
results can vary significantly from period to period.
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The Company has also marketed a promotional/gift program for
certain community health centers and other health care providers
located in the United States. The gift packs, called "Healthy Care
Paks," include an assortment of high quality branded and private
labeled health care items. Brand name products are supplied to the
Company by major health care and over the counter companies as part
of their marketing efforts. Other, non-brand name, products are
purchased in bulk from manufacturers, repackaged utilizing the
Company's packaging capabilities, and labeled "Healthy Care Products."
The Company's Healthy Care Pak business was nominal for the fiscal
year ended June 30, 1996, and represented approximately $60,000 and
$104,000, or 1% and 2%, of its consolidated sales revenues for the
fiscal years ended June 30, 1995 and 1994, respectively. The
Company is no longer aggressively pursuing the Healthy Care Pak
business.
Contract packaging services represented approximately 96%, 86%
and 81% of the Company's consolidated sales revenues for the fiscal
years ended June 30, 1996, 1995, and 1994, respectively. See Note
7 of the Notes to Consolidated Financial Statements.
Physicians Fax Network
The Company, through its Physicians Fax Network, facilitates the
communication between certain health care companies, regulatory
agencies, and others, with physicians. Historically, this
communication has been accomplished by time consuming and costly
mailings. The Company, however, now offers such persons the
ability to send communications to physicians, at their offices during
off-peak hours, via electronic facsimile transmission ("fax"), instead
of the mail. This procedure provides immediate and cost effective
communication to physicians, and also provides the sender with
documentation that the communication was sent and received. The
Physicians Fax Network is able to broadcast documents to hundreds
of thousands of locations overnight. The Company believes that this
service is particularly useful for drug manufacturers to send new
drug, recall and other priority medical communications, as well as
to facilitate other agencies, such as the American Medical Association
("AMA"), communication with physicians.
The Company has compiled, and otherwise has access to, the fax
numbers, along with certain other data, of over 368,000 physicians
and 22,000 pharmacists. The compilation of the data was undertaken
pursuant to an arrangement between the Company and the AMA. The
Company intends to complete the compilation of fax numbers and to
continually update this list. The fax transmissions are executed
by the Company through selected service companies with whom the
Company has an arrangement.
The Company's Physician's Fax Network business, which was
launched in the fiscal year ending June 30, 1995, represented
approximately $243,438, or 4%, of its consolidated sales revenues
PAGE
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for such fiscal year and approximately $569,000, or 12%, of its
consolidated sales revenues for the fiscal year ended June 30,
1996.
The Company's BioMedical Services Business
Until October 6, 1995, the Company's BioMedical Services business
was comprised of two principal activities; (i) the distribution of
its proprietary intracranial pressure monitors, and (ii) manufacturing
and supplying products and accessories for electron microscope
laboratories (through its wholly owned subsidiary, Sterimed, Inc.).
On October 6, 1995, the Company sold substantially all of its
assets comprising its BioMedical Services business. Certain of the
Company's financial statements have been restated and operating results
of the discontinued operations are shown separately. See Note 1 of the
Notes to Consolidated Financial Statements. The BioMedical Services
activities are discussed more fully below.
The Company's BioMedical Services business segment represented
approximately 4%, 14% and 19% of its consolidated sales revenues
for the fiscal years ended June 30, 1996, 1995 and 1994, respectively.
See Note 7 of the Notes to Consolidated Financial Statements.
Intracranial Pressure Monitor Business. Until October 6,
1995, the Company distributed its proprietary intracranial pressure
("ICP") monitoring system. This system consists of a monitor unit
and related pneumatic disposable sensors. The ICP system is designed
to provide continuous monitoring of intracranial pressure trends, and
either display or record the results thereof. Intracranial pressure
is clinically significant in diagnosing and treating head trauma.
The Company's ICP business, which was nominal for the fiscal year ended
June 30, 1996, represented approximately $153,000 and $181,700, or
3% and 4%, of its consolidated sales revenues for the fiscal years
ended June 30, 1995 and 1994, respectively.
Electron Microscope Supplies and Accessories. Until October
6, 1995, the Company, through its wholly-owned subsidiary,
Sterimed, Inc., manufactured and supplied products and accessories
for electron microscope ("EMS") laboratories. The Company's EMS
business represented approximately $182,000, $696,000 and $607,500,
or 4%, 12% and 14%, of its consolidated sales revenues for the fiscal
years ended June 30, 1996, 1995 and 1994, respectively.
Quality Assurance
Assuring the quality of health care products and the packaging in
which they are sold is extremely important to the Company and its
customers. The Company stresses quality assurance in every aspect
of its operations through a "Quality Assurance Program" ("QAP"), which
involves every employee of the Company. QAP includes training for
all employees following the date of hire and semi-annually thereafter
in all aspects of the operations of the Company. The Company believes
PAGE
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that its QAP program is an essential component in providing the
quality assurance and service desired by its customers.
The Company's packaging facilities are inspected by the federal
Food and Drug Administration ("FDA") on a periodic basis as part of
the Company's routine regulatory compliance, and from time to time
in connection with the FDA approval process for new and amended drug
applications. In addition, the Company's facilities are inspected
periodically by the Company's customers as part of their quality
assurance process, with the frequency of each customer's
inspections varying, depending on the particular customer and
packaging service.
Marketing
The Company markets its contract packaging services primarily
through the development of relationships with managers within the
purchasing, manufacturing, quality assurance, marketing and package
development departments of health care product manufacturers.
These relationships are fostered and maintained by the Company's
management and sales force, as well as by one or more representatives
from the Company's manufacturing and quality assurance operations. The
Company's existing customers, as well as potential new customers,
are contacted on a regular basis by the Company's management and by its
sales force. The Company relies on advertising and direct mail, as
well as attendance at local and national trade shows, as part of
its marketing activities for its contract packaging services.
Customers
The Company's major customers of its contract packaging services
currently include Ciba-Geigy Corporation and Johnson & Johnson, and
it has regularly performed contract packaging services for SmithKline
Beecham, Carter Wallace, and Conair. Consistent with industry
practice, the Company's customers purchase services on an as-needed
basis, typically pursuant to purchase orders, rather than through
long-term contracts.
For the fiscal years ended June 30, 1996, 1995 and 1994, Ciba-
Geigy Corporation accounted for an aggregate of approximately 42%,
49% and 37%, respectively, and Johnson & Johnson accounted for an
aggregate of approximately 25%, 31% and 42%, respectively, of the
Company's sales from contract packaging services. The Company's
business with specific customers can vary significantly from year
to year.
No single customer accounts for more than ten percent of the
Company's business from the sale of its other products or services.
Competition
Competition in the health care packaging industry is intense.
The Company believes that competition for packaging services is
PAGE
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based primarily on quality, the variety of packaging services
available, customer service, responsiveness and price. The Company
competes with several companies that provide a broader range of
integrated packaging services, and a large number of companies that
provide one or a few types of packaging services. In addition, many
manufacturers perform some or all of their packaging at their own
facilities and, as a result, may be considered to be competitors of
the Company. The Company currently competes with companies that are
larger and have much greater resources than the Company.
In order to compete successfully, the Company believes an
independent packager must have expertise in the packaging services
required, satisfy the high quality standards of health care
manufacturers and the FDA, and respond to the diverse and changing
needs of the health care industry, all at competitive prices.
Government Regulation
The Company's health care packaging operations are required to
be, and the Company believes that such operations are, conducted
pursuant to the Current Good Manufacturing Practices standards of
the FDA. The Company is registered with the FDA as a pharmaceutical
packager and medical device manufacturer. The Company's facilities
undergo general FDA inspections every two years, the most recent of
which occurred in June 1996. In addition, the Company's facilities
are subject to limited inspections from time to time in connection
with the Company being named on a New Drug Application ("NDA") by
a pharmaceutical manufacturer as a potential independent packager.
These inspections review the Company's capacity to package the new
drug in question. Only those companies listed in an approved NDA
may provide packaging services with respect to the product. While
the Company does not conduct any independent analysis of the products
provided by its customers for packaging, rigorous controls are
maintained to account for product utilization.
If, for any reason, the Company were to fail to comply with
the requirements of the FDA, the Company could be subject to
administrative action ranging from written citations for minor
infractions to plant shutdowns in serious cases, which could have
a material adverse affect on the Company. The Company is also
subject to various rules and regulations administered by the Drug
Enforcement Administration Division of the United States Department
of Health and Human Services and other federal, state and local
agencies. The Company believes that it conducts its operations in
compliance in all material respects with all such rules and regulations.
The Company is subject to federal, state and local regulations
relating to the protection of the environment, but compliance with
these provisions has had no material effect upon the business or
financial position of the Company.
<PAGE>
Inventory and Raw Materials
The Company's inventory for contract packaging services consists
primarily of plastic, aluminum foil, paperboard and corrugated
cardboard shipping cartons, as well as work in progress utilizing
this inventory. The Company does not maintain any significant finished
goods inventory. The Company purchases its raw materials, supplies
and equipment from many different suppliers and is not dependent
upon any single supplier for its requirements.
Employees
As of September 1, 1996, the Company had 143 employees, of whom
12 were engaged in executive, sales, technical and administrative
functions, and 131 were engaged in production. None of the
employees at the Company's facilities are represented by a union.
The number of persons employed by the Company fluctuates depending upon
the volume of business. The Company considers its employee relations
to be generally satisfactory, and has not experienced any work stoppages
or labor shortages.
Item 2. Properties
The Company leases 62,000 square feet of space for use as a
packaging facility, corporate headquarters and sales and
administrative offices located at 121 Moonachie Avenue, Moonachie,
New Jersey 07074. In addition, the Company leases a 28,000 square
foot building located at 106 McLean Boulevard, Paterson, New Jersey
07514, which houses packaging operations. Until October 6, 1995, the
Company leased approximately 10,000 square feet of space in Williston,
Vermont for its electron microscope supply business.
The Company believes that its present facilities are well
maintained and in good operating condition, and that such
facilities are adequate for all of the Company's reasonably
foreseeable requirements.
Item 3. Legal Proceedings
The Company may, from time to time, become involved in various
legal proceedings incidental to its business, some of which may be
covered by insurance. The Company knows of no litigation, either
pending or threatened, which is likely to have a material adverse
effect on the Company's financial position. The Company has never
been subject to any product liability claims.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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<PAGE>
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The Company's Common Stock is traded in the "pink sheets" in the
over-the-counter market. The market for the Company's Common Stock
during the periods presented has been represented by low volume and
limited or sporadic quotes. Accordingly, a table presenting the
high and low bid and asked prices for the Company's Common Stock
(published by the National Quotation Service, Inc.) has not been
included.
There were 138 holders of record of the Company's Common Stock
as of September 1, 1996, which total does not include individual
participants in security listings.
The Company has not previously declared or paid any cash
dividends on its Common Stock. The Company currently anticipates
retaining any earnings for use in the operation and expansion of
its business. Therefore, it is unlikely that dividends will be
declared in the foreseeable future.
Item 6. Selected Financial Data.
SELECTED FINANCIAL DATA
The following table presents summary historical financial
data as of the dates and for the periods indicated. The information
in the summary has been derived in part from, and should be read in
conjunction with, the consolidated financial statements, related
notes and other financial information included elsewhere in this report.
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<TABLE>
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STERITEK, INC. & SUBSIDIARIES
SELECTED FINANCIAL DATA
============================================================================
<CAPTION>
=============================================================================
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
June 30, June 30, June 30, June 30, June 30,
1996(1) 1995 1994 1993 1992
=============================================================================
OPERATING DATA:
<S> <C> <C> <C> <C> <C>
Sales $4,714,542 $5,095,103 $3,443,986 $5,618,649 $5,988,859
Costs of Sales 2,731,128 2,654,980 2,161,694 2,936,406 3,070,855
Selling, general
and
administrative
expenses 2,392,864 1,975,165 2,095,596 1,984,263 1,659,860
Operating Income
(loss) (409,450) 464,958 (813,304) 697,980 1,258,144
Income (loss)
from
continuing
operations (523,882) 212,112 (1,037,968) 312,573 1,970,530
Income (loss)
from
discontinued
operations 45,344 (66,738) (2,169) 115,955 (75,150)
Net Income
(loss)(2) (478,538) 145,374 (1,040,137) 428,528 1,895,380
Net Income
(loss)
per share (.13) .04 (.29) .12 .53
BALANCE SHEET DATA:
Assets $2,309,256 $2,977,254 $2,940,774 $3,960,287 $3,367,408
Assets
transferred
under
<PAGE>
contractual
agreement 68,660 75,700 110,565 144,942 157,160
Net assets of
discontinued
operations 0 241,178 287,057 410,723 43,785
Current
Liabilities 666,964 862,899 1,097,977 835,685 1,162,834
Long-term debt
and capital
lease
obligations,
excluding
current
maturities 432,658 426,183 300,000 571,667 86,667
Shareholders'
Equity 1,209,634 1,688,172 1,542,798 2,552,935 2,117,907
Working Capital 405,324 435,939 327,135 1,000,603 1,121,674
- -----------------------------
</TABLE>
(1) On October 6, 1995, the Company sold all of the assets
used directly and exclusively in its ICP business and all
of its assets, subject to certain of its liabilities, in its
EMS business (i.e., the BioMedical Services business).
Operating results of the Biomedical Services business for
the period July 1, 1995 to October 6, 1995 are shown
separately in the income statement. The income statement
for the years ended June 30, 1995, 1994, 1993 and 1992 have
been restated and operating results of the discontinued
operations are also shown separately. See Note 1 of the
Notes to Consolidated Financial Statements.
(2) In July 1991, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income
Taxes." The effect of this change increased net income by
$862,000 ($.24 per share) for the fiscal year ended June 30,
1992. For the fiscal year ended June 30, 1994, the Company
adjusted the deferred tax asset, resulting in an increase in
net loss by $214,500 (($.06) per share). For the fiscal year
ended June 30, 1996, the Company adjusted the deferred tax
asset, resulting in an increase in net loss by $100,000
(($.03) per share). See Notes 9 and 11 of the Notes to
Consolidated Financial Statements.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
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The Management's Discussion and Analysis of Financial Condition
and Results of Operations set forth below is based upon the restated
income statement for the years ended June 30, 1995 and 1994 as a result
of the October 6, 1995 sale by the Company of its BioMedical Services
business. Operating results of the Biomedical Services business for
the period July 1, 1995 to October 6, 1995 are shown separately in the
income statement. See Note 1 to the Notes to Consolidated Financial
Statements.
Year Ended June 30, 1996 as Compared to the Year Ended June 30,
1995
Revenues for the year ended June 30, 1996 decreased to
$4,714,542 from $5,095,103 for the same period in 1995. Revenues
for the year ended June 30, 1996 include $4,145,242 from contract
packaging and $569,300 from the Physicians Fax Network. Revenues
for the year ended June 30, 1995 included $4,851,403 from contract
packaging and $243,700 from the Physicians Fax Network. The
decrease in contract packaging revenues is principally due to a
lower level of contract packaging activity. The Company has continued
to aggressively market its contract packaging business and its
Physicians Fax Network.
The Company's cost of sales represented 57.9% of sales
(or $2,731,128) for the year ended June 30, 1996, as compared to
52.1% of sales (or $2,654,980) for the year ended June 30, 1995. The
increase in cost of sales, as a percent of sales, is a result of the
change in the mix of the products packaged by the Company during the
respective periods.
Selling, general and administrative expenses ("SG&A")
for the year ended June 30, 1996 was $2,392,864 (or 50.7% of sales), as
compared to $1,975,165 (or 38.8% of sales) for the year ended June
30, 1995. The increase in SG&A is principally a result of the addition
of staff and increased sales efforts to market and sell the Company's
contract packaging services and Physicians Fax Network.
Operating loss for the year ended June 30, 1996 was $409,450
as compared to income of $464,958 (9% of sales) for the year ended
June 30, 1995. The decrease in operating income is principally
attributable to the increase in SG&A and the lower gross profit
margins in the contract packaging business.
On or about October 6, 1995, Sterimed, Inc. ("Sterimed"), a
wholly-owned subsidiary of the Company, entered into an Asset
Sale/Purchase Agreement with RAJ Communications, Ltd. ("RAJ"), John
Arnott and Rita Arnott. Pursuant to that agreement, Sterimed sold
to RAJ all of its assets, subject to certain of its liabilities, which
comprised the EMS business. The purchase price was $300,000, paid
in cash at closing. The gain on the disposal of Sterimed's business
was $39,998. See Note 1 of the Notes to Consolidated Financial
Statements.
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On or about October 6, 1995, the Company also entered
into a separate Asset Sale/Purchase Agreement with RAJ, John
Arnott and Rita Arnott. Pursuant to that agreement, the Company sold
to RAJ all of its assets used directly and exclusively in its ICP
business. The purchase price was $300,000, and is to be paid in
consecutive monthly installments (without interest) commencing
October 15, 1995, each in the amount of 10% of the gross receipts of
the RAJ ICP business until paid in full. The sole source of payment
of such purchase price is the gross receipts from the ICP business.
A note receivable has not
been recorded due to the uncertainty of its collectibility. The
Company has received only $5,000 in payments against such purchase
price as of June 30, 1996. See Note 1 of the Notes to Consolidated
Financial Statements.
In July 1991, the Company adopted Statement of Financial
Accounting Standards No. 109 ("FAS 109"), "Accounting for Income
Taxes." The adoption of FAS 109 changed the Company's method of
accounting for income taxes from the deferred method (Accounting
Principles Board Opinion 11) to an asset and liability approach.
In the fourth quarter of the fiscal year ended June 30, 1996, the
Company revised its estimate of the valuation allowance for income
taxes and recognized an adjustment amounting to $100,000 (($.03)
per share) to reduce the previously reported deferred tax asset.
See Notes 9 and 11 to the Notes to Consolidated Financial Statements.
There were no other material changes in the results of
operations in the Company's business.
Health care packaging services are typically provided
by the Company to its customers on an "as-needed" (purchase
order-by-purchase order) basis, and not pursuant to a long-term
contract. Because of the nature of the contract packaging business,
the Company's operating results can vary significantly from period
to period.
Year Ended June 30, 1995 as Compared to the Year Ended June 30,
1994
Revenues for the year ended June 30, 1995 increased to
$5,095,103 from $3,443,986 for the same period in 1994. Revenues
for the year ended June 30, 1995 included $4,851,403 from contract
packaging and $243,700 from the Physicians Fax Network. The
Company had no revenues from the Physicians Fax Network for the
fiscal year ended June 30, 1994. The increase in contract packaging
revenues is principally due to a higher level of contract packaging
activity.
The Company's cost of sales represented 52.1% of sales
(or $2,654,980) for the year ended June 30, 1995, as compared to 62.8%
of sales (or $2,161,694) for the year ended June 30, 1994. The
decrease in cost of sales, as a percent of sales, is a result of
PAGE
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the change in the mix of the products packaged by the Company during
the respective periods.
Selling, general and administrative expenses ("SG&A")
for the year ended June 30, 1995 was $1,975,165 (or 38.8% of sales),
as compared to $2,095,596 (or 60.8% of sales) for the year ended June
30, 1994. The decrease in SG&A as a percentage of sales is principally
due to the increase in sales revenues for the year ended June 30,
1995.
Operating income for the year ended June 30, 1995 was
$464,958 (or 9% of sales) as compared to a loss of $813,304 for
the year ended June 30, 1994. The increase in operating income is
principally attributable to the increase in the contract packaging
business and relative decrease in other costs and expenditures.
In July 1991, the Company adopted Statement of Financial
Accounting Standards No. 109 ("FAS 109"), "Accounting for Income
Taxes." The adoption of FAS 109 changed the Company's method of
accounting for income taxes from the deferred method (Accounting
Principles Board Opinion 11) to an asset and liability approach.
In the fourth quarter of the fiscal year ended June 30, 1994, the
Company revised its estimate of the valuation allowance for income
taxes and recognized an adjustment amounting to $214,500 ($.06 per
share) to reduce the previously reported deferred tax asset. See
Note 9 to the Notes to Consolidated Financial Statements.
Year Ended June 30, 1994 as Compared to the Year Ended June 30,
1993
Sales for the year ended June 30, 1994 decreased to
$3,443,986 from $5,618,649 for the same period in 1993. Revenues
for the year ended June 30, 1993 included approximately $3,400,000
from the packaging of Ciba-Geigy's smoking deterrent patch and
approximately $2,218,649 from other sources. For the year ended
June 30, 1994, the Company derived no revenues from packaging the
smoking deterrent patch, but increased its revenues from other sources
from $2,218,649 to $3,443,986.
The Company's cost of sales represented 62.8% of sales
(or $2,161,694) for the year ended June 30, 1994, as compared to 52.3%
of sales (or $2,936,406) for the year ended June 30, 1993. The
increase in cost of sales as a percentage of sales is due to a change
in the product mix, including a substantial reduction in the packaging
of the smoking deterrent patches.
Selling, general and administrative expenses ("SG&A")
for the year ended June 30, 1994 was 60.8% of sales (or $2,095,596), as
compared to 35.3% of sales (or $1,984,263) for the year ended June
30, 1993. The increase in SG&A in the amount of $111,333 is
principally attributable to the continued marketing and development
expenses associated with the Company's new marketing communication system
utilizing electronic facsimile transmission (the Physicians Fax
PAGE
<PAGE>
Network) and the continued marketing of the Healthy Care Pak.
Operating loss for the year ended June 30, 1994 was $813,304
as compared to operating income of $697,980 (12.4% of sales) for
the year ended June 30, 1993. The decrease in operating income is
principally attributable to the loss of Ciba-Geigy sales relating
to the smoking deterrent patch as well as the continued level of
expenditures in marketing and developing the Physician's Fax
Network and Healthy Care Pak without related sales revenues.
Liquidity and Capital Resources
The Company's working capital on June 30, 1996 was
$405,324. The Company's working capital on June 30, 1995, was
approximately $435,939. The principal changes in the components of
working capital are the reduction in the Company's accounts
receivable as a result of lower sales volume and the refinancing of
the current portion of long term debt as of June 30, 1995.
As of March 31, 1994, the Company executed its 7%
Subordinated Promissory Note, due March 31, 1996, in the amount of
$300,000. The Company paid this note in full on March 31, 1996,
with the proceeds of a loan from The Bank of New York (NJ). The Bank
of New York note bears interest at the bank's prime rate plus .5%
per year, and is payable in monthly increments of $5,000. Any unpaid
balance due is payable April 1, 2001.
On June 30, 1993, the Company borrowed $700,000 from a bank,
payable monthly until July 1, 1998, at prime plus 1/2%. This Note
is collateralized by substantially all of the assets of the Company
and is personally guaranteed by the president of the Company. At
June 30, 1994, the Company was not in compliance with certain covenants
pertaining to minimum working capital, net worth, quick ratio,
current ratio and debt service. These covenants were waived by the
bank as of June 30, 1995, for the remaining term of the loan. The
Company has continued to make its monthly payments to the bank in a
timely fashion.
The Company believes that funding for anticipated operations
and capital needs will come from existing working capital and
anticipated future operations.
Item 8. Financial Statements and Supplementary Data.
PAGE
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Steritek, Inc. and Subsidiary
1. Financial Statements
Independent Auditors' Report.........................
Consolidated Balance Sheets as of
June 30, 1996 and 1995..............................
Consolidated Statements of Operations
for the Years Ended June 30, 1996,
1995 and 1994 ......................................
Consolidated Statements of Shareholders'
Equity..............................................
Consolidated Statements of Cash Flows
for the Years Ended June 30, 1996, 1995 and
1994................................................
Notes to Consolidated Financial Statements...........
All schedules have been omitted since the required
information is not present or is not present in amounts
sufficient to require submission of the schedule, or
because the information required is included in the
Consolidated Financial Statements or the notes thereto.
<PAGE>
<PAGE>
STERITEK, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Steritek, Inc.
We have audited the consolidated balance sheets of Steritek, Inc.
and subsidiary as of June 30, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity and
cash flows for the years ended June 30, 1996, 1995 and 1994.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Steritek, Inc. and subsidiary as of June 30, 1996
and 1995, and the results of their operations and their cash
flows for the years ended June 30, 1996, 1995 and 1994 in
conformity with generally accepted accounting principles.
/s/ M. R. Weiser & Co. LLP
__________________________________
CERTIFIED PUBLIC ACCOUNTANTS
Iselin, NJ
August 22, 1996
PAGE
<PAGE>
<TABLE>
STERITEK, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
A S S E T S
(Substantially All Assets Pledged - Note 4)
<CAPTION>
June 30,
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 296,429 $ 263,662
Trade accounts receivable, less allowance
for doubtful accounts of $4,895 in
1996 and 1995 478,504 614,844
Inventories (Note 2) 107,108 134,377
Prepaid expenses and other assets 121,647 117,355
Deferred tax asset (Note 9) 68,600 168,600
---------- ----------
Total current assets 1,072,288 1,298,838
---------- ----------
Machinery and equipment (Note 3) 2,762,017 2,525,300
Less accumulated depreciation and
amortization 1,693,868 1,364,078
---------- ----------
1,068,149 1,161,222
---------- ----------
Physicians fax database, net (Note 1) 100,159 200,316
---------- ----------
Assets transferred under contractual
arrangement (Note 1) 68,660 75,700
---------- ----------
Net assets from discontinued segment (Note 1) 241,178
---------- ----------
Total assets $2,309,256 $2,977,254
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 276,522 $ 252,261
Accrued expenses 91,328 67,437
Current maturities of long-term debt
(Note 4) 200,000 440,000
Current maturities of capital lease
obligations (Note 5) 99,114 103,201
---------- ----------
Total current liabilities 666,964 862,899
---------- ----------
Long-term debt, less current maturities
(Note 4) 381,667 291,667
---------- ----------
Capital lease obligations, less current
maturities (Note 5) 50,991 134,516
---------- ----------
Commitments (Note 6)
Shareholders' equity:
Preferred stock, no par value, authorized
2,000,000 shares; none issued
Common stock, no par value, authorized
5,000,000 shares; issued and outstanding
3,586,285 shares at June 30, 1996 and 1995 640,844 640,844
Retained earnings 568,790 1,047,328
---------- ----------
Total shareholders' equity 1,209,634 1,688,172
---------- ----------
Total liabilities and shareholders'
equity $2,309,256 $2,977,254
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<TABLE>
STERITEK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Years Ended June 30,
-----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Sales $4,714,542 $5,095,103 $3,443,986
Cost of sales 2,731,128 2,654,980 2,161,694
---------- ---------- ----------
Gross profit 1,983,414 2,440,123 1,282,292
Selling, general and administrative
expenses 2,392,864 1,975,165 2,095,596
---------- ---------- ----------
Operating (loss) income (409,450) 464,958 (813,304)
Other income 42,089 9,852 52,332
Interest expense (56,521) (77,798) (62,496)
---------- ---------- ---------
(Loss) income from continuing
operations before provision for
income taxes (423,882) 397,012 (823,468)
---------- ---------- ---------
Provision for income taxes (Note 9):
Adjustment of deferred tax asset
due to change in the valuation
allowance 100,000 214,500
Provision for federal income taxes
- deferred 146,200
Provision for state income taxes
- deferred 38,700
---------- ---------- ----------
100,000 184,900 214,500
---------- ---------- ----------
(Loss) income from continuing
operations (523,882) 212,112 (1,037,968)
---------- ---------- ----------
Discontinued operations (Note 1):
Income (loss) from operations of
BioMedical Services
Segment disposed of on
October 6, 1995 5,346 (66,738) (2,169)
Gain on sale of Sterimed
on October 6, 1995 39,998
__________ __________ __________
45,344 (66,738) (2,169)
---------- ---------- ----------
Net (loss) income $(478,538) $145,374 (1,040,137)
========== ========== ==========
Weighted-average number of
common and common equivalent
shares outstanding 3,586,285 3,976,285 3,563,785
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<TABLE>
STERITEK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(CONTINUED)
<CAPTION>
Years Ended June 30,
-----------------------------
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
(Loss) earnings per share:
(Loss) income from continuing operations $(.14) $.05 $(.29)
Discontinued operations .01 (.01)
----- ---- -----
Net (loss) income per common and common
equivalent share $(.13) $.04 $(.29)
===== ==== =====
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<PAGE>
<TABLE>
STERITEK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Common Stock Retained
No Par Value Earnings
--------------------
Shares Amount (Deficit) Total
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Balance, June 30, 1993 3,556,285 $610,844 $1,942,091 $2,552,935
Shares issued in connection
with note payable (10,500
shares issued to a director) 30,000 30,000 30,000
Net loss for the year ended
June 30, 1994 (1,040,137) (1,040,137)
--------- -------- ---------- ----------
Balance, June 30, 1994 3,586,285 640,844 901,954 1,542,798
Net income for the year
ended June 30, 1995 145,374 145,374
--------- -------- ---------- ----------
Balance, June 30, 1995 3,586,285 640,844 1,047,328 1,688,172
Net loss for the year
ended June 30, 1996 (478,538) (478,538)
--------- -------- ---------- ----------
Balance, June 30, 1996 3,586,285 $640,844 $ 568,790 $1,209,634
========= ======== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
TABLE
<PAGE>
STERITEK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years Ended June 30,
----------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net (loss) income $ (478,538) $ 145,374 $(1,040,137)
Adjustments to reconcile net
(loss) income to net cash
provided by (used in)
operating activities:
Gain on sale of Sterimed (39,998)
Adjustment of deferred tax
asset due to change in
the valuation allowance 100,000 214,500
Deferred taxes 184,900
Depreciation and
amortization of machinery
and equipment 326,715 268,343 244,186
Amortization of patents
and excess of cost over
net assets of business
acquired 1,029 4,116 4,115
Amortization of physicians
fax database 100,158 100,159
Bad debt expense 19,511
Common shares issued in
exchange for professional
services rendered 30,000
Changes in operating assets
and liabilities:
Decrease (increase) in
trade accounts receivable 116,829 (210,243) (62,098)
Decrease (increase) in
inventories 27,269 31,734 (36,217)
Decrease in assets
transferred under
contractual arrangement 7,100 34,865 34,377
(Increase) decrease in
net assets of
discontinued segment (25,795) 32,263 100,008
(Increase) decrease in
prepaid expenses and
other assets (4,292) (18,797) 1,380
Increase (decrease) in
accounts payable and
accrued expenses 48,152 93,390 (251,860)
---------- ---------- ----------
<PAGE>
Net cash provided by (used in)
operating activities 198,140 666,104 (761,746)
---------- ---------- ----------
Cash flows from investing
activities:
Payments received on loan
receivable 3,784
Expenditures for purchase
of machinery and equipment (231,545) (602,501) (236,532)
Proceeds from sale of
discontinued business 300,000
---------- ---------- ---------
Net cash provided by
(used in) investing
activities 72,239 (602,501) (236,532)
---------- ---------- ---------
</TABLE>
(Continued)
PAGE
<PAGE>
<TABLE>
STERITEK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Concluded)
<CAPTION>
Years Ended June 30,
--------------------------------------
1996 1995 1994
--------- ---------- ---------
<S> <C> <C> <C>
Cash flows from financing
activities:
Principal payments on long-term
debt (450,000) (140,000) (128,333)
Principal payments on line of
credit (300,000)
Borrowings of long-term debt 300,000 300,000
Borrowings on line of credit 300,000
Borrowings on capital lease
obligations 283,150
Principal payments on capital
lease obligations (87,612) (45,433)
--------- --------- ---------
Net cash (used in) provided by
financing activities (237,612) (202,283) 471,667
--------- --------- --------
Net increase (decrease) in
cash and cash equivalents 32,767 (138,680) (526,611)
Cash and cash equivalents at
beginning of year 263,662 402,342 928,953
--------- --------- ----------
Cash and cash equivalents at
end of year $296,429 $ 263,662 $ 402,342
======== ========= =========
Supplemental disclosures of
cash flow information:
Interest paid $56,521 $ 79,578 $ 52,049
======= ========= =========
Income taxes paid $ 14,013
=========
<PAGE>
Supplemental schedule of
noncash investing and
financing activities:
Common shares issued in
exchange for professional
services $30,000
=======
Write-off of physicians
fax database $226,525
========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<PAGE>
STERITEK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The consolidated financial statements include the accounts of
Steritek, Inc. and its wholly-owned subsidiary, Sterimed (the
"Company"). All material intercompany balances and transactions
have been eliminated in consolidation.
Business Description:
Master-Pak, a division of Steritek, provides contract packaging
services and promotional materials assembly and distribution for
the pharmaceutical, medical, health and beauty industries.
Steritek, Inc. also engages in the research, development and sale
of biomedical devices for therapeutic, diagnostic and other
cardiovascular applications. Sterimed is a high tech manufacturer
and supplier of products and accessories for electron microscope
laboratories. Steritek, Inc. and Sterimed collectively comprise the
Biomedical Services Segment. The ICP business of Steritek, Inc. and
Sterimed were discontinued during October 1995.
Discontinued Segment:
On October 6, 1995, the Company sold to a director and employee
all of the assets used directly and exclusively in its Intracranial
Pressure Monitor (ICP) business and all of the assets, subject
to certain of the liabilities of Sterimed's electron microscope
business, collectively the BioMedical Services Segment. The
aggregate purchase price was $600,000, including $300,000 for
Sterimed's electron microscope business which was paid in cash
and $300,000 for the ICP business which was paid by a note
receivable. (See below.)
The gain on the sale of Sterimed's electron microscope
business was $39,998.
In connection with its disposal of the ICP business on
October 6, 1995, the Company received a non-interest
bearing note in the amount of $300,000. The note is to be
paid in consecutive monthly installments, in the amount of
10% of the future gross receipts of the ICP business, until
paid in full. A note receivable has not been recorded by the
Company due to the uncertainty of its collectibility, and
accordingly, the transaction has not been considered a sale for
accounting purposes and the gain on disposal of the ICP business
was not recognized. Further, the assets subject to the trans-
PAGE
<PAGE>
action have been segregated in the balance sheets under the
caption "assets transferred under contractual arrangement".
Operating results of the BioMedical Services Segment for the
period July 1, 1995 to October 6, 1995 are shown separately in
the accompanying statement of operations. The statements of
operations for the years ended June 30, 1995 and 1994 have been
restated and operating results of the discontinued operations
are also shown separately.
Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents:
For purposes of the statement of cash flows, the Company
considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
Financial instruments that potentially subject the Company
to concentrations of credit risk consist principally of cash
and cash equivalent accounts in financial institutions, which
from time to time, exceed the Federal depository insurance
coverage limit. Cash and cash equivalents exceeding federally
insured limits totaled $199,104 at June 30, 1996.
Inventories:
Inventories are valued at the lower of cost, determined by
the first-in, first-out method, or market.
Machinery and Equipment:
Machinery and equipment are carried at cost. Depreciation,
except for leasehold improvements, is computed using the
declining balance method until depreciation computed using
such method is less than depreciation computed using the
straight-line method. At such time, the straight-line method
is used for the remaining lives of the assets. Leasehold
improvements are amortized using the straight-line method
over the shorter of the life of the asset or the lease term.
When assets are retired or otherwise disposed of, the cost
and related accumulated depreciation are removed from the
accounts, and any resulting gain or loss is reflected in
income for the period. The cost of maintenance and repairs
PAGE
<PAGE>
is charged to income as incurred; significant renewals and
betterments are capitalized.
Accrued Vacation:
The Company's policy is to accrue vacation pay as earned.
Generally, vacation pay is vested and is payable as vacation
days are taken in the year subsequent to that in which it was
earned.
Physicians Fax Database:
The physicians fax database, a marketing communication
system utilizing electronic facsimile transmission, was
acquired effective June 30, 1993 at a cost of $527,000.
During the year ended June 30, 1994, the asset was reduced
by $226,525 due to poor performance in the delivery of the
originally agreed upon database. Amortization was not recorded
for the year ended June 30, 1994, as the database was not
operational, and accordingly, not placed in service as of
that date. During the year ended June 30, 1995, the database
was placed in service and $100,159 of amortization was
charged to operations. The useful life of the database is
three years. During the year ended June 30, 1996, $100,157
of amortization was charged to operations.
Income Taxes:
The Company uses the asset and liability method to calculate
deferred tax assets and liabilities. Deferred taxes are
recognized based on the differences between financial
reporting and income tax bases of assets and liabilities
using enacted tax rates.
Net Income (Loss) Per Share:
Net income per common and common equivalent share was
computed by dividing net income by the weighted-average number
of common shares and equivalents (stock options) outstanding
during the year ended June 30, 1995. Net loss per common and
common equivalent share was computed by dividing net loss by
the weighted average number of common shares outstanding during
the years ended June 30, 1996 and 1994.
Stock Based Compensation:
In October 1995, the FASB issued SFAS No. 123, "Accounting
for Stock-Based Compensation", which requires adoption of
the disclosure provisions no later than fiscal years beginning
after December 15, 1995 and adoption of the measurement and
recognition provisions for non-employee transactions no later
than after December 15, 1995. The new standard defines a
PAGE
<PAGE>
fair value method of accounting for the issuance of stock
options and other equity instruments. Under the fair value
method, compensation cost is measured at the grant date
based on the fair value of the award and is recognized over
the service period, which is usually the vesting period.
Pursuant to SFAS No. 123, the Company is not required to
adopt the fair value method of accounting for employee
stock-based transactions. The Company is permitted to
continue to account for such transactions under Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for
Stock Issued to Employees", but commencing during the first
quarter of fiscal 1997 will be required to disclose in a
note to the financial statements pro forma net income, and
per share amounts as if the Company had applied the new
method of accounting. The adoption of this new standard
is not expected to have a significant effect on the Company's
financial statements.
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of:
In 1995, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". SFAS No. 121 establishes new accounting standards for
measuring the impairment of long-lived assets. The adoption
of this new standard is not expected to have a significant
effect on the Company's financial statements.
2. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30,
----------------------------
1996 1995
--------- ------------
<S> <C> <C>
Finished goods $103,054 $127,227
Work in process 41,265
Raw materials 4,054 134,377
-------- --------
107,108 302,869
Less discontinued segment 168,492
-------- --------
$107,108 $134,377
======== ========
</TABLE>
PAGE
<PAGE>
3. MACHINERY AND EQUIPMENT:
<TABLE>
Machinery and equipment consist of the following:
<CAPTION>
June 30,
----------------------- Estimated
1996 1995 Useful Lives
---------- --------- -------------
<S> <C> <C> <C>
Machinery and equipment $2,371,252 $2,305,358 3 to 10 years
(includes $283,150 under
capital leases for 1996
and 1995)
Furniture and fixtures 87,701 73,615 5 years
Leasehold improvements 303,064 294,896 Lease Term
---------- ----------
2,762,017 2,673,869
Less discontinued segment 148,569
---------- ----------
$2,762,017 $2,525,300
========== ==========
</TABLE>
Depreciation and amortization of machinery and equipment
charged to operations was $326,715, $268,343 and $244,186
during the years ended June 30, 1996, 1995, and 1994,
respectively. Depreciation expense related to assets
under capital leases amounted to $42,916 and $19,301 for
the years ended June 30, 1996 and 1995, respectively.
4. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30,
--------------------
1996 1995
--------- --------
<S> <C> <C>
Subordinated note to a company dated
March 31, 1994 payable March 31, 1996
at 7% (2) $300,000
Note to a bank dated June 30, 1993
payable monthly until July 1, 1998 at
prime plus 1/2% (1) $291,667 431,667
Note to a bank dated March 29, 1996
payable monthly until April 1, 2001 at
prime plus 1/2%(3) 290,000
--------------------
<PAGE>
Total long-term debt 581,667 731,667
Less current maturities 200,000 440,000
-------- --------
$381,667 $291,667
======== ========
</TABLE>
(1) The note to the bank is collateralized by substantially
all of the assets of the Company and is personally
guaranteed by the president of the Company. The bank has
agreed to waive covenants for the balance of the term loan.
(2) The subordinated note was collateralized by certain equipment
of the Company.
(3) The note to the Bank is collateralized by substantially all
of the assets of the Company, personally guaranteed by the
president of the Company and contains no covenants.
Maturities of long-term debt at June 30, 1996 are as follows:
<TABLE>
<S> <C>
1997 $200,000
1998 200,000
1999 71,667
2000 60,000
2001 50,000
--------
$581,667
========
</TABLE>
5. CAPITAL LEASE OBLIGATIONS:
Capital lease obligations consist of the following at June
30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- ----------
<S> <C> <C>
Obligation under capital lease for machinery,
payable in monthly installments of $6,661,
non-interest bearing, until December 1997. $133,234 $199,844
Obligation under capital lease for machinery,
payable in monthly installments of $2,400,
including interest at 41.3%, until April 1996. 2,000 20,000
Obligation under capital lease for equipment,
payable in monthly installments of $402,
including interest at 9.903%, until January
2000. 14,871 17,873
-------------------
150,105 237,717
Less current maturities 99,114 103,201
-------------------
$ 50,991 $134,516
======== ========
</TABLE>
<PAGE>
Maturities of capital lease obligations at June 30, 1996 are
as follows:
<TABLE>
<S> <C>
1997 $99,114
1998 43,928
1999 4,339
2000 2,724
-------
$150,105
========
</TABLE>
6. LEASES:
The Company leases its operating and corporate facilities
under operating leases which expire in 1997 and 2004. In
addition, in October 1992, the Company began leasing a
warehouse facility on a month-to-month basis. Rent expense
amounted to $356,973, $314,553 and $333,778 for the years
ended June 30, 1996, 1995 and 1994, respectively. The rent
expense for discontinued operations was not material.
The future minimum rental commitments under these leases are
as follows:
<TABLE>
<CAPTION>
Years Ending
June 30, Amount
------------ ------
<S> <C>
1997 $ 336,471
1998 260,986
1999 267,224
2000 273,463
2001 279,701
Thereafter 882,776
----------
$2,300,621
==========
</TABLE>
7. SEGMENT INFORMATION:
The Company's operations are divided into two business
segments: research, development, manufacture and sale of
biomedical devices (including the manufacture and supply
of products and accessories for electron microscope
laboratories) and contract packaging. (See Note 1 for
disposal of Bio Medical Services Segment.)
A summary of information about the Company's operations by
business segments are as follows:
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended
June 30, 1996
-----------------------------------------
BioMedical
Services -
Discontinued Contract
October 6, 1995 Packaging Total
--------------- ---------- -----------
<S> <C> <C> <C>
Sales $193,797 $4,714,542 $4,908,339
Operating (loss) income 5,346 (409,450) (404,104)
Depreciation and amortization 1,029 326,715 327,744
Aggregate carrying amount of
identifiable assets 2,309,256 2,309,256
Additions to machinery and
equipment 231,545 231,545
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended
June 30, 1995
-----------------------------------------
BioMedical
Services -
Discontinued Contract
October 6, 1995 Packaging Total
--------------- ---------- ----------
<S> <C> <C> <C>
Sales $849,281 $5,095,103 $5,944,384
Operating (loss) income (66,738) 464,958 398,220
Depreciation and amortization 13,615 258,844 272,459
Aggregate carrying amount of
identifiable assets 316,878 2,660,376 2,977,254
Additions to machinery and
equipment 602,501 602,501
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended
June 30, 1994
----------------------------------------
BioMedical
Services -
Discontinued Contract
October 6, 1995 Packaging Total
--------------- ---------- ----------
<S> <C> <C> <C>
Sales $ 787,109 $3,443,986 $4,231,095
Operating loss (2,169) (813,304) (815,473)
Depreciation and amortization 21,001 227,300 248,301
Aggregate carrying amount of
identifiable assets 397,622 2,543,152 2,940,774
<PAGE>
Additions to machinery and
equipment 236,532 236,532
</TABLE>
Sales to the Company's major customers were as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Company A $1,963,146 $2,487,063 $1,266,998
Company B 1,194,589 1,597,847 1,451,808
</TABLE>
8. STOCK OPTIONS:
On June 24, 1992, the Company adopted a stock option plan
which authorizes the granting of either incentive or
nonqualified stock options to purchase up to 400,000 shares
of the Company's common stock to certain persons who perform
services for the Company. On November 9, 1993, the
authorized number of shares of common stock that may be
issued pursuant to the Company's stock option plan was
increased to 550,000 shares. On June 24, 1992, nonqualified
options to purchase 150,000 shares were issued to the
directors of the Company to compensate them for their
services. The nonqualified options had an exercise price of
$.50 per share, which is the Company's estimate of the
market value at that date. The options became exercisable on
December 24, 1992 and expire on June 24, 2002.
On December 16, 1992, nonqualified options to purchase
10,000 shares were issued to a director of the Company to
compensate him for his services. The nonqualified options
had an exercise price of $1.00 per share, which is the
Company's estimate of the market value at that date. The
options became exercisable on June 16, 1993 and expire on
December 16, 2002.
On August 19, 1993, nonqualified options to purchase 210,000
shares were issued to the directors of the Company to compensate
them for their services. The nonqualified options had an
exercise price of $1.50 per share, which is the Company's
estimate of the market value at that date. The options
became exercisable on February 19, 1994 and expire on
August 19, 2003.
On August 29, 1993, nonqualified options to purchase 20,000
shares were issued to an employee of the Company. The
nonqualified options had an exercise price of $1.50 per
share, which is the Company's estimate of the market value
at that date. The options became exercisable on February 29,
1994 and expire on August 29, 2003.
On October 26, 1995, nonqualified options to purchase 100,000
shares were issued to the directors of the Company to compensate
them for their services. The nonqualified options had an
exercise price of $.25 per share, which is the Company's
estimate of market value at that date. The options became
exercisable on April 26, 1995 and expire on October 26, 2005.
<PAGE>
Summarized information relating to the stock option plan:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Options outstanding
at beginning of year 390,000 390,000 160,000
Options granted 100,000 -0- 230,000
Options canceled 45,000 -0- -0-
------- ------- -------
Options outstanding at
end of year 445,000 390,000 390,000
======= ======= =======
Options exercisable at
end of year 445,000 390,000 390,000
======= ======= =======
Option prices per share:
Granted $.25 $1.50
==== =====
Canceled $1.00-$1.50
===========
Exercise price of
options outstanding
at end of year $.25-$1.50 $.50-$1.50 $.50-$1.50
========== ========== ==========
</TABLE>
9. INCOME TAXES:
The deferred tax asset was $353,500 at June 30, 1994 and was
comprised of the following components:
<TABLE>
<CAPTION>
Deferred Tax
Temporary Asset
Difference Tax Rate (Liability)
---------- -------- -----------
<S> <C> <C> <C>
Inventory $ (100,000) 43% $ (43,000)
Allowance for doubtful accounts 5,000 43% 2,150
Accumulated depreciation (13,000) 43% (5,590)
Benefit of remaining operating
loss carryforward 2,848,000 1,224,640
Less valuation allowance (1,918,000) 43% (824,700)
---------- -----------
$ 822,000 $ 353,500
========== ===========
</TABLE>
During the year ended June 30, 1994, the beginning-of-the-
year balance of the valuation allowance had been adjusted by
$214,500 due substantially to a change in circumstances
causing a change in judgment about the realizability of the
related deferred tax asset in future years. The tax rate of
43% at June 30, 1994 includes a 9% state income tax rate
because of the merger in 1994 of Steritek, Inc. and Master-
Pak Laboratories, Inc. for tax purposes.
The deferred tax asset is $168,600 at June 30, 1995 and is
comprised of the following components:
<TABLE>
<CAPTION>
Deferred Tax
Temporary Asset
Difference Tax Rate (Liability)
----------- -------- ------------
<S> <C> <C> <C>
Inventory $ (95,000) 43% $(40,850)
Allowance for doubtful accounts 5,000 43% 2,150
Accumulated depreciation (106,000) 43% (45,580)
Benefit of remaining operating
loss carryforward 2,235,070 43% 961,080
Less valuation allowance (1,646,070) 43% (708,200)
----------- ---------
$ 393,000 $ 168,600
=========== =========
</TABLE>
The deferred tax asset has been reduced by $184,900 and
corresponding Federal and State tax provisions have been
recorded for the year ended June 30, 1995.
The deferred tax asset is $68,600 at June 30, 1996, and is
comprised of the following components:
<TABLE>
<CAPTION>
Deferred Tax
Temporary Asset
Difference Tax Rate (Liability)
---------- -------- ------------
<S> <C> <C> <C>
Allowance for doubtful accounts $ 5,000 43% $ 2,150
Accumulated depreciation (201,000) 43% (86,430)
Benefit of remaining operating
loss carryforward 2,515,000 43% 1,081,450
Less valuation allowance (2,159,000) 43% (928,570)
----------- ----------
$ 160,000 $ 68,600
=========== ==========
</TABLE>
<PAGE>
During the year ended June 30, 1996, the beginning-of-the-
year balance of the valuation allowance had been adjusted by
$100,000 due substantially to a change in circumstances
causing a change in judgment about the realizability of the
related deferred tax asset in future years.
At June 30, 1996, the Company has available net operating
loss (NOL) carryforwards of approximately $2,515,000. These
NOL's expire at various dates from 1996 through 2006. At
June 30, 1996, the Company has investment tax credit
carryforwards of approximately $35,700 and research and
development (R & D) credits of approximately $85,500 which
are available in future years and expire from 1996 through
2001. The Tax Reform Act of 1986 (the Act) reduced the
amount of utilization of Investment Tax Credit carryforwards
allowed to 65% in 1988 and thereafter. R & D credit
carryforwards are unaffected by the Act.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The amounts included in the balance sheet at June 30, 1996
for cash and cash equivalents, trade accounts receivable,
accounts payable - trade and accrued expenses approximate
fair value because of the short-term nature of these
instruments. The carrying amount of long-term debt and
capital lease obligations approximate the estimated fair
value because they are at interest rates comparable to
instruments currently available to the Company for notes with
similar terms and remaining maturities.
11. FOURTH QUARTER ADJUSTMENTS (UNAUDITED):
In the fourth quarter of 1996, the Company revised its
accounting for the disposition of its Intracranial Pressure
Monitor (ICP) business and accordingly, an adjustment in the
amount of $236,099 ($.07 per share) was recognized to reduce
the previously reported gain on disposal.
The Company also revised its estimate of the valuation
allowance for income taxes and recognized an adjustment
amounting to $100,000 ($.03 per share) to reduce the
previously reported deferred tax asset.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
There were no disagreements with accountants on accounting
and financial disclosure within the Company's two most recent
fiscal years and all subsequent interim periods.
<PAGE>
<PAGE>
Part III
Item 10. Directors and Executive Officers
The following table sets forth certain information relating
to the directors, executive officers and certain significant
employees of the Company:
<TABLE>
Name Age Position
---- --- --------
<S> <C> <C>
Albert J. Wozniak................... 58 Chairman, Chief
Executive Officer,
President
Allan B. Levin, M.D................. 57 Director
Charles A. Pergola.................. 63 Director
Herbert W. Marache, Jr.............. 68 Director
James K. Wozniak.................... 34 Director, Vice
President and
Secretary
</TABLE>
Each Director holds office until the earlier of the election
of his successor at the next annual meeting of shareholders or
his resignation or removal. Officers are elected by, and serve
at the discretion of, the Board of Directors. There are
currently two vacancies on the Board of Directors.
Mr. Albert J. Wozniak has been Chairman of the Board, Chief
Executive Officer and President of the Company since December 26,
1986. Prior to December 26, 1986, Mr. Wozniak was the founder,
President and director of Master-Pak Laboratories, Inc. (since
1972) and Steritek, Inc. (since 1974). On or about December 26,
1986, Steritek, Inc. was merged into the Company and Master-Pak
Laboratories, Inc. became a subsidiary of the Company (on July 1,
1993, Master-Pak became a division of the Company). Both Master-
Pak Laboratories, Inc., and Steritek, Inc. were engaged in the
contract packaging business from inception. Albert J. Wozniak is
the father of James K. Wozniak.
Dr. Allan Levin, M.D., a director of the Company since 1987,
has been a neurosurgeon and Professor of Neurological Surgery at
the University of Wisconsin School of Medicine for more than five
years preceding May 1996. In May 1996, Dr. Levin retired from
the University of Wisconsin School of Medicine and has been an
independent consultant since then.
Mr. Herbert W. Marache, Jr., a director of the Company since
June 1992, served as Senior Vice President of Janney Montgomery
Scott, Inc., a brokerage firm, since March 19, 1988. Prior to
that time he served as a Vice President and director of Moseley
Securities. He is currently a director of Biosearch Medical
Products, Inc., a surgical device manufacturer; of American
<PAGE>
Centurion Life Insurance Company, a wholly owned subsidiary of
American Express Company; and of The Peak Technologies Group,
Inc., a distributor of bar code based data collection equipment
and systems and engaged in designing, assembling and distributing
mini-printers.
Mr. Charles A. Pergola, a director of the Company since
December 1992, served as President of the Beauty Care Group of
Revlon from July 1990 to December 1991, President of SmithKline
Beecham Consumer Brands from September 1989 to June 1990,
President of Beecham Products USA from September 1988 to
September 1989, and President of Norcliff Thayer, Beecham Group
from 1986 to 1988. Prior to 1986, Mr. Pergola held various
executive positions at Revlon and Norcliff Laboratories. Mr.
Pergola is also a director of W.F. Young Co. and AFPE Foundation.
Mr. James K. Wozniak, a director of the Company since 1991,
has been a Vice President of the Company since December 1991, and
Secretary since July 1992. From December 1987 to December 1991,
Mr. James Wozniak was Plant Manager and from December 1989, also
acted as Controller of the Company. James Wozniak is the son of
Albert J. Wozniak.
Item 11. Executive Compensation
Set forth below is disclosure of all plan and non-plan
compensation awarded to, earned by, or paid to the named
executive officer by any person for all services rendered in all
capacities to the Company and its subsidiaries, unless otherwise
specified.
<TABLE>
Summary Compensation Table
The table below sets forth information concerning
compensation paid to the named executive officer during the last
fiscal year.
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------------ --------
Other
Name and Annual Restrct All
Principal Fiscal Salary Bonus Comp. Stock Options LTIP Other
Position Year ($) ($) ($) Awrds (#) Payout Comp.
- --------- ------ ------ ----- ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Albert J. 1996 200,000 - - - 20,000 - -
Wozniak 1995 238,000 - - - - - -
Chairman, 1994 262,000 - - - 160,000 - -
CEO and
President
</TABLE>
<PAGE>
<TABLE>
Aggregate Options Exercised in Last Fiscal Year
and Fiscal Year-End Option Values
The table below sets forth information concerning exercises
of stock options by the named executive officers during the last
fiscal year and the fiscal year-end value of the named executive
officer's unexercised options.
<CAPTION>
Number of Value of
Unexercised Unexercised
Options at In-the-Money
FY-End Options at
Shares Value (#) FY-End ($)
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
---- ------------ --------- ------------- -------------
<S> <C> <C> <C> <C>
Albert J. - - 215,000/-0- $0/0
Wozniak
</TABLE>
Compensation of Directors
Directors are awarded options to purchase Common Stock of the
Company pursuant to the Stock Option Plan for their services as a
director. For the fiscal year ended June 30, 1994, each director
was awarded options to purchase 10,000 shares of Common Stock at
the fair market value on the date of grant for services as a
director. For the fiscal year ended June 30, 1996, each director
was awarded options to purchase 20,000 shares of Common Stock at
the fair market value on the date of grant for services as a
director. No options have been awarded since then. Under the
terms of the Stock Option Plan, the maximum amount of options
awarded to a director in a year, for his or her services as such,
cannot exceed options to purchase 35,000 shares of Common Stock.
Employment Contracts
No executive officer of the Company is a party to an
employment agreement, termination of employment or change in
control arrangement, or any other compensatory plan or
arrangement.
Stock Option Plan
The Steritek, Inc. Stock Option Plan (the "Plan"), authorizes
the granting of either Incentive Stock Options or Nonqualified
Stock Options to acquire in the aggregate up to 550,000 shares of
the Company's Common Stock. The shares available for issuance
will be increased or decreased according to any reclassification,
recapitalization, stock split, stock dividend or other such
subdivision or combination of the Company's Common Stock. The
following description of certain provisions of the Plan is
qualified in its entirety by reference to the Plan which is
available from the Company upon request.
Eligibility. Any person, including officers and directors,
employed by the Company or any parent or subsidiary of the
Company shall be eligible to receive Incentive Stock Options
<PAGE>
under the Plan. Approximately 143 persons are eligible to
receive Incentive Stock Options as of September 1, 1996. Any
employee who owns ten percent or more of the total combined
voting power of all classes of the Company's voting stock shall
be eligible to receive Incentive Stock Options only under certain
limited circumstances. Additionally, the Plan permits
Nonqualified Stock Options to be granted to directors,
consultants, independent contractors and agents as well as
employees. An indeterminate number of persons, including three
nonemployee directors, are eligible to receive Nonqualified Stock
Options as of September 1, 1996. Each director shall not,
however, be eligible to receive stock options to purchase more
than 35,000 shares of Common Stock per year, subject to such
further terms and conditions as are contained in the Plan. It is
the present intent of the Company to satisfy the regulations
promulgated under Rule 16(b) of the Securities Exchange Act of
1934, as amended, insofar as such rules relate to participation
in the Plan by directors who are disinterested administrators, as
such term is defined therein. In connection therewith, the
Company may request a No-Action Letter from the Division of
Corporate Finance of the Securities and Exchange Commission and,
consequently, may modify the terms under which directors
participate in the Plan. The Board of Directors of the Company
will determine who should be granted stock options under the
Plan.
Exercise Price of Options. Options granted pursuant to the
Plan must have an exercise price equal to the fair market value
of the Company's Common Stock at the time the option is granted,
except that in the case of an Incentive Stock Option the price
shall be at least 110 percent of the fair market value where the
option is granted to an employee who owns more than ten percent
of the total combined voting power of all classes of the
Company's voting stock. On September 1, 1996, the average bid
and asked prices of the Company's Common Stock, as reported by
the National Quotation Service, Inc., was approximately $.25 and
$.625, respectively. Under the terms of the Plan, the aggregate
fair market value of the stock with respect to which Incentive
Stock Options are exercisable for the first time by an individual
during any calendar year shall not exceed $100,000.
Terms. All options available to be granted under the Plan
must be granted by January 1, 2002. The Board of Directors will
determine the actual term of the options but no option will be
able to be exercised after the expiration of ten years from the
date of its grant. No Incentive Stock Option granted to an
employee who owns more than ten percent of the combined voting
power of all the outstanding classes of stock in the Company may
be exercised after five years from the date of grant.
The options granted pursuant to the Plan shall not be
transferable except by will or by the laws of descent and
distribution.
Exercise of Options. Incentive Stock Options granted to
employees under the Plan may be exercised only by the employee
<PAGE>
during his employment with the Company or for a period not
exceeding three months after voluntary termination, or for a
period not exceeding one year if the employee ceased employment
because of permanent and total disability within the meaning of
Section 105(d)(4) of the Internal Revenue Code of 1986, as
amended, but such options may be exercised by the employee's
estate, or by any person who acquired the right to exercise such
option by bequest or inheritance from the employee for a period
of twelve months from the date of the employee's death. If such
option shall by its terms sooner expire, such options shall not
be extended as a result of the employee's death. All options
granted pursuant to the Plan must be exercised within ten years
from the date of the grant. Incentive Stock Options granted to
an employee who is the beneficial owner of ten percent or more of
the total combined voting power of all classes of the Company's
stock, or of any parent or subsidiary, must exercise such options
within five years from the date such option is granted. Options
granted under the Plan need not be exercised in the order in
which they are granted. If employment is terminated for cause or
without consent of the employee, the options granted pursuant to
the Plan shall immediately terminate.
Tax Consequences Of Stock Options
Incentive Stock Options
Certain options granted under the Plan are intended to
qualify as incentive stock options ("Incentive Stock Option")
within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended ("Code"). Set forth below is a general summary
of certain of the principal Federal income tax consequences to
participants and the Company of Incentive Stock Options granted
under the Plan.
An employee to whom an Incentive Stock Option is granted
pursuant to the Plan will not recognize any compensation income
(for regular tax purposes), and the Company will not be entitled
to a compensation deduction, at the time an Incentive Stock
Option is granted or at the time an Incentive Stock Option is
exercised. However, in the year of exercise the amount by which
the fair market value of the Common Stock at the time of exercise
exceeds the option price will generally be included in the
optionee's computation of alternative minimum taxable income.
The amount included in income will be added to the optionee's
basis in the shares received for minimum tax computation
purposes. If the employee incurs the alternative minimum tax,
however, he or she should qualify for the credit for prior year
minimum tax liability in the first future year he or she has
regular tax liability.
In order to obtain Incentive Stock Option treatment for
Federal income tax purposes upon the subsequent sale (or other
disposition) by the optionee of the shares of Common Stock
received upon exercise of the option, the sale (or other
disposition) must not occur with two years from the date the
<PAGE>
option was granted nor within one year after the transfer of such
shares upon exercise of the option (the "ISO holding period
requirement"). If the ISO holding period requirements are
satisfied, on the subsequent sale (or other disposition) by the
optionee of the shares of Common Stock received upon the exercise
of an option, the optionee generally will recognize income from
the sale of a capital asset equal to the difference, if any,
between the proceeds realized from the sale (or other
disposition) and the amount paid as the exercise price of the
option. On the other hand, if the ISO holding period
requirements are not satisfied, on the subsequent sale (or other
disposition) by the optionee of the shares of Common Stock
received upon the exercise of the option ("Disqualifying
Disposition"), the optionee generally will recognize income
taxable as compensation, and the Company will be entitled to a
compensation deduction (provided certain withholding requirements
are met), in an amount equal to the lesser of (a) the difference,
if any, between the fair market value of the shares on the date
of exercise and the amount paid as the exercise price of the
option, or (b) the difference, if any, between the proceeds
realized from the sale or other disposition and the amount paid
as the exercise price of the option. Any additional gain
realized on a Disqualifying Disposition (in addition to the
compensation income referred to above) would generally give rise
to income from the sale of a capital asset and taxed accordingly.
The tax basis of the shares of Common Stock received by the
optionee will be equal to the amount paid as the exercise price
plus the amount, if any, includable in his or her gross income as
compensation in the event of a Disqualifying Disposition. The
holding period for the shares will commence on the date of
exercise of the Incentive Stock Option.
Nonqualified Stock Options
Certain options to purchase Common Stock issued under the
Plan may not be intended to qualify as Incentive Stock Options
within the meaning of Section 422 of the Code. As such, the
options are generally referred to as Nonqualified Stock Options.
Set forth below is a general summary of certain of the principal
Federal income tax consequences to participants and the Company
of Nonqualified Stock Options.
An individual to whom a Nonqualified Stock Option is granted
will generally not recognize any compensation income, and the
Company will not be entitled to a compensation deduction, at the
time the Nonqualified Stock Option is granted (even if the option
price is less than the fair market value of the Common Stock at
the time of the grant). In the year of exercise or, if later,
the year in which the six month period prescribed by Section
16(b) of the Securities Exchange Act of 1934 ("Section 16(b)"),
if applicable, expires, the optionee generally will recognize
income taxable as compensation and, provided the Company meets
the applicable withholding requirements, the Company will be
entitled to a compensation deduction, in an amount equal to the
difference (if any) between the fair market value of the shares
on the date of exercise (or, if applicable, the date any Section
16(b) restrictions expire) and the amount paid as the exercise
price of the option.
An optionee who is a director or officer of the Company
within the meaning of Section 16(b), or who is otherwise subject
to Section 16(b), will be required to defer the recognition of
<PAGE>
income on the purchase of shares pursuant to Nonqualified Stock
Options until the Section 16(b) restrictions expire. He or she
may consider electing to disregard the Section 16(b) restrictions
for tax purposes pursuant to Section 83(b) of the Code. Under
this election, the amount will be included in income in the year
of exercise (which may not be the year the Section 16(b)
restrictions lapse) and will be measured by the difference
between the option price and fair market value when the Section
16(b) restrictions lapse.
The tax basis of the shares of Common Stock received by the
optionee upon exercise will be equal to the amount paid as the
exercise price plus the amount, if any, includable in his or her
gross income as compensation. The holding period for the shares
will commence just after the exercise of the Nonqualified Stock
Option or, if applicable, just after the date the Section 16(b)
restrictions expire.
On the subsequent sale (or other disposition) by the optionee
of the shares of Common Stock received upon the exercise of the
option, any gain or loss realized on such sale or disposition
will generally give rise to gain or loss from the sale of a
capital asset and taxed accordingly.
<TABLE>
Stock Options Issued by the Company
The following table sets forth, as to certain executive
officers of the Company and as to all executive officers of the
Company as a group, the total number of options granted between
June 20, 1992, the date of adoption of the plan, and June 30,
1996 and the average exercise price of such options. No options
granted by the Company have been exercised as of September 1,
1996. Options to purchase 45,000 shares have been cancelled.
<CAPTION>
Options granted during period
----------------------------------
Name of individual Per share
or number in group Number of shares Exercise Price
- ------------------ ---------------- --------------
<S> <C> <C>
Albert J. Wozniak (1).......... 35,000 $ .50
Chairman, CEO and President 160,000 $1.50
20,000 $ .25
James K. Wozniak (2)........... 35,000 $ .50
Director, VP and Secretary 10,000 $1.50
20,000 $ .25
Non-Executive Director Group... 45,000 $ .50
10,000 $1.00
30,000 $1.50
60,000 $ .25
Employee Group................. 70,000 $ .50
20,000 $1.50
</TABLE>
- -----------------------
(1) Albert J. Wozniak is the only Executive Officer.
(2) James K. Wozniak is the only Non-Executive Officer.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and
Management
<TABLE>
The following table sets forth, as of September 1, 1996,
certain information with respect to the beneficial ownership of
the Common Stock of the Company as to each director and nominee
of the Company, each person known by the Company to own
beneficially more than 5% of its Common Stock, each executive
officer, and all directors and executive officers of the Company
as a group.
<CAPTION>
Shares
Beneficially Percent
Name and Address Owned(1) Owned
- ---------------- ------------- ------
<S> <C> <C>
Albert J. Wozniak................... 2,230,650(2) 58.46%
Steritek,Inc.
121 Moonachie Ave.
Moonachie, NJ 07074
Gerlach & Co....................... 356,639 9.94%
c/o Citibank N.A.
111 Wall Street
New York, NY 10043
Herbert W. Marache, Jr.............. 78,600(3) 1.62%
Janney, Montgomery, Scott
26 Broadway
New York, NY 10004
Allan B. Levin, M.D................. 129,350(3) 3.01%
Charles A. Pergola.................. 40,000(3) *
James K. Wozniak.................... 67,000(3) 1.30%
All directors and officers
as a group (5 persons)............ 2,545,600(4) 63.50%
</TABLE>
- ---------------------------
* - Represents less than 1%.
(1) Unless otherwise indicated, each named holder has, to the best
knowledge of the Company, sole voting and investment power with
respect to the shares.
(2) Includes 215,000 shares of Common Stock of the Company that
may be acquired within 60 days upon the exercise of options.
<PAGE>
(3) Includes 65,000 shares (except as to Mr. Pergola and Mr.
Marache, in which case such amount includes 40,000 shares) of
Common Stock of the Company that may be acquired within 60 days
upon the exercise of options.
(4) Includes 425,000 shares of Common Stock of the Company that
may be acquired by directors and officers within 60 days upon the
exercise of options.
Item 13. Certain Relationships and Related Transactions
On March 31, 1994, the Company borrowed $300,000 from the
Redemptorist Trust, which is affiliated with Gerlach & Co., for a
two year term at 7%. The note was collateralized by certain equipment
of the Company. In connection with that borrowing, the Company issued
15,000 shares of its common stock to The Redemptorist Trust, and
10,500 shares to Herbert W. Marache, Jr., a director of the
Company, and 4,500 shares to his son Herbert W. Marache, III.
On or about October 6, 1995, Sterimed, Inc. ("Sterimed"), a
wholly-owned subsidiary of Steritek, Inc. (the "Corporation"),
entered into an Asset Sale/Purchase Agreement with RAJ
Communications, Ltd. ("RAJ"), John Arnott and Rita Arnott.
Pursuant to that agreement, Sterimed sold to RAJ all of its
assets, subject to certain of its liabilities, which comprised
Sterimed's electron microscope supply business. More
specifically, the assets consisted of cash, accounts
receivable, machinery and equipment, motor vehicles, work in
process and raw materials, inventory, leasehold improvements,
patents and trademarks, goodwill, books and records, and the
name "Ladd Research" and any derivative thereof. The
purchase price was $300,000, paid at closing. The purchase
price, which was negotiated between the parties, approximated
Sterimed's book value for the assets.
On or about October 6, 1995, the Corporation entered into a
separate Asset Sale/Purchase Agreement with RAJ, John Arnott and
Rita Arnott. Pursuant to that agreement, the Corporation sold to RAJ
all of its assets used directly and exclusively in its Intracranial
Pressure Monitor ("ICP") business. More specifically, the assets
consisted of machinery and equipment, work in process and raw
materials, inventory, patents and trademarks, goodwill, books and
records, and the name "J7000 Intracranial Pressure Monitor". The
purchase price was $300,000, to be paid in consecutive monthly
installments, each in the amount of 10% of gross receipts of the
RAJ ICP business, until paid in full. The sole source of payment of
such purchase price is the gross receipts from the ICP business. The
purchase price was arrived at by negotiation between the parties.
John Arnott is the sole shareholder of RAJ. Rita Arnott is
John Arnott's wife. John Arnott was a director and employee of the
Corporation from 1990 through October 6, 1995. John Arnott is the
brother-in-law of, and Rita Arnott is the sister of, Albert J.
Wozniak. Albert J. Wozniak is a director and principal shareholder
of the Corporation.
PAGE
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) Financial Statements and Financial Statement Schedules
File As Part of the Report.
The response to part (a)(1) and (2) of Item 14 is submitted
as a separate section of this report under Item 8.
(a)(3) Exhibits.
2.1 Plan and Agreement of Merger By and Between Steritek, Inc.
and CardioSearch Inc.(1)
3.1 Restated Certificate of Incorporation of Registrant(1)
3.2 Amended and Restated By-Laws of Registrant(1)
4.1 First Mortgage Note and Common Stock Purchase Agreement(1)
10.1 Steritek, Inc. Stock Option Plan(1)
10.2 Lease of Premises at McLean Blvd at 9th Avenue, Paterson,
NJ(1)
10.3 Lease of Premises at Moonachie, New Jersey(1)
10.4 Agreement to Purchase Certain Assets of Ladd Research
Industries, Inc.(1)
10.5 Agreement with Wim Management Corporation and William L.
Wimberly(1)
10.6 Agreement with Kapular Marketing Research, Inc.(2)
10.7 Realty Lease Amendment No. 1
10.8 Amendment to Lease, Dated September 12, 1984
10.9 Purchase Order, dated January 13, 1995(3)
10.10 Rental/Purchase Agreement, dated April 20, 1995(3)
10.11 Lease Agreement, commencing March 28, 1995(3)
10.12 Commercial Note, dated June 30, 1993(3)
10.13 Commercial Note, dated June 30, 1993(3)
10.14 Security Agreement, including Guaranties and Waiver, dated
June 30, 1993(3)
10.15 Credit Agreement, dated June 30, 1993(3)
10.16 Waiver Ltr from Bank of New York, dtd September 27, 1995(3)
10.17 Asset Sale/Purchase Agreement with RAJ Communications, Ltd.,
dated October 6, 1995(4)
10.18 Asset Sale/Purchase Agreement with RAJ Communications, Ltd.,
dated October 6, 1995(4)
10.19 Commercial Note, entered into on or about March 29, 1996 and
Guaranty(5)
22 List of Subsidiaries of the Company*
25 Power of Attorney*
27 Financial Data Schedule
(1) - Incorporated by reference to the Registrant's Form 10 filed
November 4, 1992.
(2) - Incorporated by reference to the Registrant's Form 10-K filed
September 28, 1993.
(3) - Incorporated by reference to the Registrant's Form 10-K filed
September 28, 1995.
(4) - Incorporated by reference to the Registrant's Form 8-K filed
October 25, 1995.
(5) - Incorporated by reference to the Registrant's Form 10-Q filed
May 14, 1996.
(b) Reports on Form 8-K
None.
PAGE
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Steritek, Inc. has duly caused
this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Steritek, Inc.
By/s/ Albert J. Wozniak
----------------------------
Albert J. Wozniak, President
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on
behalf of Steritek, Inc. and in the capacities and on the date(s)
indicated.
Signatures Title Date
---------- ----- ----
/s/ Albert J. Wozniak Chairman of the Board, September 27, 1996
- -----------------------
Albert J. Wozniak President, CEO
/s/ Allan Levin Director September 26, 1996
- ----------------------
Allan Levin, M.D.
/s/ Charles A. Pergola Director September 25, 1996
- ------------------------
Charles A. Pergola
/s/ Herbert Marache, Jr. Director September 26, 1996
- ------------------------
Herbert W. Marache, Jr.
/s/ James K. Wozniak Vice President, Chief September 27, 1996
- ------------------------
James K. Wozniak Financial Officer and
Secretary (principal
financial and account-
ing officer), Director
<PAGE>
<PAGE>
STERITEK, INC.
EXHIBITS TO FORM 10-K
2.1 Plan and Agreement of Merger By and Between Steritek, Inc.
and CardioSearch Inc.(1)
3.1 Restated Certificate of Incorporation of Registrant(1)
3.2 Amended and Restated By-Laws of Registrant(1)
4.1 First Mortgage Note and Common Stock Purchase Agreement(1)
10.1 Steritek, Inc. Stock Option Plan(1)
10.2 Lease of Premises at McLean Blvd at 9th Avenue, Paterson,
NJ(1)
10.3 Lease of Premises at Moonachie, New Jersey(1)
10.4 Agreement to Purchase Certain Assets of Ladd Research
Industries, Inc.(1)
10.5 Agreement with Wim Management Corporation and William L.
Wimberly(1)
10.6 Agreement with Kapular Marketing Research, Inc.(2)
10.7 Realty Lease Amendment No. 1
10.8 Amendment to Lease, Dated September 12, 1984
10.9 Purchase Order, dated January 13, 1995(3)
10.10 Rental/Purchase Agreement, dated April 20, 1995(3)
10.11 Lease Agreement, commencing March 28, 1995(3)
10.12 Commercial Note, dated June 30, 1993(3)
10.13 Commercial Note, dated June 30, 1993(3)
10.14 Security Agreement, including Guaranties and Waiver, dated
June 30, 1993(3)
10.15 Credit Agreement, dated June 30, 1993(3)
10.16 Waiver Ltr from Bank of New York, dtd September 27, 1995(3)
10.17 Asset Sale/Purchase Agreement with RAJ Communications, Ltd.,
dated October 6, 1995(4)
10.18 Asset Sale/Purchase Agreement with RAJ Communications, Ltd.,
dated October 6, 1995(4)
10.19 Commercial Note, entered into on or about March 29, 1996 and
Guaranty(5)
22 List of Subsidiaries of the Company*
25 Power of Attorney*
27 Financial Data Schedule
(1) - Incorporated by reference to the Registrant's Form 10 filed
November 4, 1992.
(2) - Incorporated by reference to the Registrant's Form 10-K filed
September 28, 1993.
(3) - Incorporated by reference to the Registrant's Form 10-K filed
September 28, 1995.
(4) - Incorporated by reference to the Registrant's Form 8-K filed
October 25, 1995.
(5) - Incorporated by reference to the Registrant's Form 10-Q filed
May 14, 1996.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
STERITEK, INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS
INCLUDED IN ITS FORM 10-K FOR THE YEAR ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000720831
<NAME> STERITEK, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 296,429
<SECURITIES> 0
<RECEIVABLES> 478,504
<ALLOWANCES> 4,895
<INVENTORY> 107,108
<CURRENT-ASSETS> 1,072,288
<PP&E> 2,762,017
<DEPRECIATION> 1,693,868
<TOTAL-ASSETS> 2,309,256
<CURRENT-LIABILITIES> 666,964
<BONDS> 432,658
0
0
<COMMON> 640,844
<OTHER-SE> 568,790
<TOTAL-LIABILITY-AND-EQUITY> 2,309,526
<SALES> 4,714,542
<TOTAL-REVENUES> 4,714,542
<CGS> 2,731,128
<TOTAL-COSTS> 2,731,128
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,521
<INCOME-PRETAX> (423,882)
<INCOME-TAX> 0
<INCOME-CONTINUING> (523,882)
<DISCONTINUED> 45,334
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (478,538)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
