<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
COMMISSION FILE NO. 0-10552
----------------------------
SCHERER HEALTHCARE, INC.
(Exact name of registrant as specified in its Charter)
DELAWARE 59-0688813
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
120 INTERSTATE NORTH PARKWAY, S.E., SUITE 305, ATLANTA, GEORGIA 30339
(Address of principal executive offices, including Zip Code)
(770) 933-1800
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares of each of the issuer's classes of Common Stock,
as of the latest practicable date:
CLASS OUTSTANDING AS OF OCTOBER 28, 1998
----------------------------------- ---------------------------------------
Common Stock, $0.01 par value 4,333,124
<PAGE>
SCHERER HEALTHCARE, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
ITEM PAGE
NUMBER PART I. FINANCIAL INFORMATION NUMBER
1 Financial Statements:
Condensed Consolidated Balance
Sheets as of September 30, 1998 and
March 31, 1998................................................. 3
Condensed Consolidated Statements
of Operations for the Three and Six Months
Ended September 30, 1998 and 1997.............................. 5
Condensed Consolidated Statements
of Cash Flows for the Six Months
Ended September 30, 1998 and 1997 ............................. 6
Notes to Condensed Consolidated
Financial Statements........................................... 7
2 Management's Discussion and Analysis
of Financial Condition and Results
of Operations.................................................. 8
PART II. OTHER INFORMATION
1 Legal Proceedings.............................................. 12
4 Submission of Matters to a Vote of Security Holders............ 12
6 Exhibits and Reports on Form 8-K............................... 12
SIGNATURES..................................................... 13
Index to Exhibits.............................................. 14
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCHERER HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
September 30, 1998 March 31, 1998
------------------ --------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 7,697,000 $ 6,868,000
Accounts receivable, less allowance for doubtful
accounts of $198,000 and $189,000, respectively 3,328,000 2,796,000
Current maturities of notes receivable 201,000 191,000
Inventory 221,000 174,000
Prepaid and other 92,000 212,000
----------- -----------
Total current assets 11,539,000 10,241,000
----------- -----------
PROPERTY AND EQUIPMENT 7,712,000 7,157,000
Less accumulated depreciation (3,606,000) (3,099,000)
----------- -----------
Net property and equipment 4,106,000 4,058,000
----------- -----------
OTHER ASSETS
Cost in excess of net assets acquired, net 2,275,000 2,328,000
Investments, at market value 6,415,000 6,251,000
Other investments, at cost 650,000 650,000
Notes receivable, less current portion 71,000 174,000
Intangibles 1,423,000 1,410,000
Deferred income taxes 329,000 329,000
Other 158,000 163,000
Net assets of discontinued operations 277,000 188,000
----------- -----------
Total other assets 11,598,000 11,493,000
----------- -----------
TOTAL ASSETS $27,243,000 $25,792,000
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
SCHERER HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, 1998 March 31, 1998
------------------ --------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 983,000 $ 809,000
Accrued expenses 1,468,000 1,594,000
Current maturities of debt obligations 259,000 269,000
Income taxes payable 84,000 115,000
Other 78,000 78,000
----------- -----------
Total current liabilities 2,872,000 2,865,000
----------- -----------
LONG-TERM DEBT, net of current maturities 420,000 504,000
OTHER LIABILITIES 443,000 507,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Convertible preferred stock - $.01 par value,
2,000,000 shares authorized; - -
23,008 shares issued and outstanding at September 30, 1998
(23,152 at March 31, 1998)
Common stock - $.01 par value,
12,000,000 shares authorized;
4,712,399 shares issued at September 30, 1998
(4,695,121 at March 31, 1998);
4,333,037 shares outstanding at September 30, 1998
(4,315,759 at March 31, 1998) 47,000 47,000
Capital in excess of par value 22,394,000 22,366,000
Unrealized gain (loss) on investments 122,000 (48,000)
Retained earnings 3,978,000 2,584,000
Less treasury stock, at cost (3,033,000) (3,033,000)
----------- -----------
Total stockholders' equity 23,508,000 21,916,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $27,243,000 $25,792,000
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
SCHERER HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
--------------------------- ---------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $3,702,000 $3,411,000 $7,431,000 $6,916,000
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Cost of goods sold 2,104,000 2,012,000 4,206,000 3,971,000
Selling, general, and administrative 1,043,000 1,189,000 2,189,000 2,393,000
---------- ---------- ---------- ----------
Total costs and expenses 3,147,000 3,201,000 6,395,000 6,364,000
---------- ---------- ---------- ----------
OPERATING INCOME 555,000 210,000 1,036,000 552,000
OTHER INCOME (EXPENSE)
Interest income 177,000 126,000 350,000 180,000
Interest expense - (19,000) - (67,000)
Other, net 28,000 13,000 47,000 13,000
---------- ---------- ---------- ----------
Total other income (expense) 205,000 120,000 397,000 126,000
---------- ---------- ---------- ----------
Income from continuing operations 760,000 330,000 1,433,000 678,000
before income taxes
Provision (benefit) for income taxes 28,000 5,000 39,000 (5,000)
---------- ---------- ---------- ----------
Income from continuing operations 732,000 325,000 1,394,000 683,000
Income from discontinued operations, net of
income taxes of $137,000 - 4,500,000 - 4,572,000
---------- ---------- ---------- ----------
NET INCOME $ 732,000 $4,825,000 $1,394,000 $5,255,000
========== ========== ========== ==========
BASIC INCOME PER COMMON SHARE
Income from continuing operations $ 0.17 $ 0.08 $ 0.32 $ 0.16
Income from discontinued operations - 1.04 - 1.06
---------- ---------- ---------- ----------
Net Income $ 0.17 $ 1.12 $ 0.32 $ 1.22
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING - BASIC 4,332,487 4,314,223 4,325,534 4,314,223
========== ========== ========== ==========
DILUTED INCOME PER COMMON
SHARE
Income from continuing operations $ 0.16 $ 0.07 $ 0.31 $ 0.15
Income from discontinued operations - 1.00 - 1.02
---------- ---------- ---------- ----------
Net Income $ 0.16 $ 1.07 $ 0.31 $ 1.17
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING - DILUTED 4,547,654 4,524,941 4,563,379 4,477,717
========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
SCHERER HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
September 30,
---------------------------
1998 1997
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,394,000 $ 5,255,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 623,000 485,000
Income from discontinued operations - (4,572,000)
Other noncash charges and credits, net 8,000 2,000
Changes in operating assets and liabilities:
Accounts receivable (540,000) (399,000)
Inventories (47,000) (13,000)
Prepaid and other 120,000 (12,000)
Income taxes, net (31,000) 17,000
Accounts payable and accrued expenses 48,000 91,000
Other liabilities (64,000) 211,000
---------- -----------
Net cash provided by operating activities of continuing operations 1,511,000 1,065,000
Net operating activities of discontinued operations (89,000) 1,131,000
---------- -----------
Net cash provided by operating activities 1,422,000 2,196,000
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net (555,000) (426,000)
Net proceeds from disposal of segment, net of transaction costs - 10,273,000
Decrease in notes receivable 94,000 89,000
Other investing activities, net (66,000) (156,000)
Net investing activities of discontinued operations - 52,000
---------- -----------
Net cash (used for) provided by investing activities (527,000) 9,832,000
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayment of borrowings (94,000) (2,073,000)
Exercise of stock options 28,000 -
Net financing activities of discontinued operations - (96,000)
---------- -----------
Net cash used for financing activities (66,000) (2,169,000)
---------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS 829,000 9,859,000
CASH AND CASH EQUIVALENTS, beginning of period 6,868,000 3,237,000
---------- -----------
CASH AND CASH EQUIVALENTS, end of period $7,697,000 $13,096,000
========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
SCHERER HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
The accompanying unaudited condensed consolidated financial statements of
Scherer Healthcare, Inc. and its subsidiaries (the "Company") include all
adjustments that, in the opinion of management, are necessary for a fair
presentation of the results for the period indicated. Quarterly results of
operations are not necessarily indicative of annual results. These statements
should be read in conjunction with the consolidated financial statements and the
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1998.
Certain fiscal 1998 amounts have been reclassified to conform with the fiscal
1999 presentation.
NOTE 2.
The components of inventory at September 30, 1998 and March 31, 1998 consisted
of the following:
<TABLE>
<CAPTION>
September 30, 1998 March 31, 1998
------------------ --------------
<S> <C> <C>
Finished products $ 89,000 $ 41,000
Containers, packaging, and raw materials 178,000 179,000
LIFO reserve (46,000) (46,000)
-------- --------
Total $221,000 $174,000
======== ========
</TABLE>
Inventories are stated at the lower of net realizable value or cost using the
last-in, first-out ("LIFO") method.
NOTE 3.
Borrowings at September 30, 1998 and March 31, 1998 consisted of the following:
<TABLE>
<CAPTION>
September 30, 1998 March 31, 1998
------------------ --------------
<S> <C> <C>
Obligations under capital leases, due in varying
installments through fiscal 2003 $ 679,000 $ 773,000
Less current maturities (259,000) (269,000)
--------- ---------
Long-term debt $ 420,000 $ 504,000
========= =========
</TABLE>
NOTE 4.
The Company has investments in high-grade marketable securities composed
primarily of government and corporate fixed income securities. These marketable
securities are classified as available-for-sale and are being carried at fair
market value, based on quoted market prices. The net unrealized gains or losses
on these investments are reported as a separate component of shareholders'
equity.
The amortized cost and fair market value of the Company's marketable securities
are as follows:
<TABLE>
<CAPTION>
Net
Amortized unrealized Fair market
Cost gain (loss) value
---------- ----------- -----------
<S> <C> <C> <C>
SEPTEMBER 30, 1998
Municipal bonds $4,777,000 $115,000 $4,892,000
Corporate bonds 1,218,000 35,000 1,253,000
Preferred stocks 298,000 (28,000) 270,000
---------- -------- ----------
Total $6,293,000 $122,000 $6,415,000
========== ======== ==========
MARCH 31,1998
Municipal bonds $4,782,000 $(20,000) $4,762,000
Corporate bonds 1,219,000 (22,000) 1,197,000
Preferred stocks 298,000 (6,000) 292,000
---------- -------- ----------
Total $6,299,000 $(48,000) $6,251,000
========== ======== ==========
</TABLE>
The municipal bonds mature ranging from 3 years to 27 years and the corporate
bonds mature ranging from 11 years to 27 years.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Form 10-Q or documents incorporated by reference, contains, in addition to
historical information, "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, which represent the
Company's expectations or beliefs, including, but not limited to, statements
concerning sales of the Company's products or services and operating income. The
Company cautions that various factors, including, without limitation, the
factors discussed below and in the Company's 1998 Annual Report on Form 10-K as
well as general economic conditions and industry trends, a dependence upon
and/or loss of key vendors or customers, the loss of strategic product shipping
relationships, customer demand, product availability, competition (including
pricing and availability), concentrations of credit risks, distribution
efficiencies, capacity constraints and technological difficulties could cause
actual results or outcomes to differ materially from those expressed in any
forward-looking statements. New factors emerge from time to time, and it is not
possible for management to predict all of such factors.
RESULTS OF OPERATIONS
NET SALES AND OPERATING INCOME (LOSS).
The following table sets forth, for the periods indicated, the net sales and
operating income (loss) for each segment of the business of the Company and
its subsidiaries:
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
--------------------------- ---------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES:
Waste Management Services Segment $3,498,000 $3,083,000 $6,912,000 $6,162,000
Consumer Healthcare Products Segment 204,000 328,000 519,000 754,000
---------- ---------- ---------- ----------
Company Totals $3,702,000 $3,411,000 $7,431,000 $6,916,000
========== ========== ========== ==========
OPERATING INCOME (LOSS):
Waste Management Services Segment $ 626,000 $ 412,000 $1,139,000 $ 808,000
Consumer Healthcare Products Segment 43,000 133,000 156,000 338,000
Corporate (114,000) (335,000) (259,000) (594,000)
---------- ---------- ---------- ----------
Company Totals $ 555,000 $ 210,000 $1,036,000 $ 552,000
========== ========== ========== ==========
</TABLE>
The Company's net sales increased 9% to $3,702,000 for the second quarter of
fiscal 1999 from $3,411,000 for the second quarter of fiscal 1998. The Company's
operating income improved to $555,000 for the second quarter of fiscal 1999 from
$210,000 for the second quarter of fiscal 1998. The Company's cost of goods sold
decreased to 57% of net sales for the quarter ended September 30, 1998 from 59%
of net sales for the quarter ended September 30, 1997. Selling, general and
administrative expenses decreased to 28% of net sales for the second quarter of
fiscal 1999 from 35% for the second quarter of fiscal 1998.
The Company's net sales increased approximately 7% to $7,431,000 for the six
months ended September 30, 1998 from $6,916,000 for the six months ended
September 30, 1997. The Company's operating income increased 88% to $1,036,000
for the first six months of fiscal 1999 from $552,000 for the first six months
of fiscal 1998. Cost of goods sold were 57% of net sales for the six months
ended September 30, 1998, which was unchanged as compared to the six months
ended September 30, 1997. Selling, general and administrative expenses decreased
to 30% of net sales for the six months ended September 30, 1998 from 35% of net
sales for the six months ended September 30, 1997. The primary reasons for these
changes are discussed below.
The results of operations of the Company are dependent upon the results of
operations of each of its subsidiaries operating in the Company's individual
business segments. Set forth below is a discussion of the results of operations
of each of these segments.
8
<PAGE>
WASTE MANAGEMENT SERVICES SEGMENT
Net sales in the Company's Waste Management Services Segment, which operates
through Bio Systems Partners, Bio Waste Systems, Inc., and Medical Waste
Systems, Inc. (collectively, "Bio Systems"), increased 13% to $3,498,000 for the
second quarter of fiscal 1999 from $3,083,000 for the second quarter of fiscal
1998. Bio Systems' net sales increased 12% to $6,912,000 for the six months
ended September 30, 1998 from $6,162,000 during the same period in fiscal 1998.
As in the past few years, the sales growth is primarily due to securing new
hospital contracts for Bio Systems' core business of providing "sharps"
(including sharp-edged medical waste such as scalpels, syringes, and needles)
disposal services which utilize cost effective reusable containers. Due to cost
pressures, hospitals continue to be receptive to out-sourcing certain services
such as sharps management. Additionally, the recent industry trend toward the
formation of hospital networks has enhanced Bio Systems' sales and market share
growth. Market forces and competitive pricing pressures have affected Bio
Systems' ability to increase prices with existing hospital and physician
customers. These factors also impact the prices Bio Systems is able to charge
new and potential customers.
Bio Systems increased its operating income approximately 52% to $626,000 for the
quarter ended September 30, 1998 from $412,000 for the quarter ended September
30, 1997. Bio Systems' cost of goods sold decreased to 58% of net sales for the
second quarter of fiscal 1999 from 62% of net sales for the second quarter of
fiscal 1998. Selling, general, and administrative expenses decreased slightly to
24% of net sales for the quarter ended September 30, 1998 from 25% of net sales
during the same period in fiscal 1998. Starting in early fiscal 1998 and
continuing through the current period, Bio Systems has had substantial new
hospital account activity. Preparing new accounts for service requires, among
other things, installation of Bio Systems' reusable containers and sometimes
considerable operational follow-up which causes temporary increases in certain
costs and expenses. Primarily as a result of the increase in net sales, Bio
Systems has had better absorption of the costs and expenses associated with the
new account installations in fiscal 1999. Additionally, while increasing its
sales revenue, Bio Systems has been successful in controlling administrative
costs such as legal fees and business liability insurance.
Primarily due to the reasons discussed above, Bio Systems' operating income
increased 41% to $1,139,000 for the six months ended September 30, 1998 from
$808,000 for the six months ended September 30, 1997. Cost of goods sold
decreased to 58% of net sales for the six months ended September 30, 1998 from
60% for the same period in fiscal 1998 and selling, general and administrative
expenses decreased to 25% of net sales for the first six months of fiscal 1999
from 27% for the first six months of fiscal 1998.
CONSUMER HEALTHCARE PRODUCTS SEGMENT
Net sales for the Consumer Healthcare Products Segment, which operates through
Scherer Laboratories, Inc. ("Scherer Labs"), decreased approximately 38% to
$204,000 for the second quarter of fiscal 1999 from $328,000 during the same
period in fiscal 1998. Scherer Labs' net sales decreased 31% to $519,000 for the
six months ended September 30, 1998 from $754,000 for the six months ended
September 30, 1997. The decrease in Scherer Labs' net sales is due to the
following factors: (i) during the first quarter of fiscal 1999, Scherer Labs'
largest customer reduced its buying volume for Scherer Labs' two core products
which resulted in a significant decrease in sales orders for these products;
(ii) increased competition for Scherer Labs' largest volume product; and (iii)
as a result of industry consolidation, some of Scherer Labs' other customers
have either significantly decreased or discontinued their sales orders for
Scherer Labs' products. Although Scherer Labs has taken action to regain the
lost sales, there can be no assurance that Scherer Labs will be able to return
its sales volume to the level prior to the factors discussed above.
As a result of the decrease in net sales, Scherer Labs' operating income
decreased 68% to $43,000 for the second quarter of fiscal 1999 from $133,000
for the second quarter of fiscal 1998 and decreased 54% to $156,000 for the
six months ended September 30, 1998 from $338,000 for the six months ended
September 30, 1997.
9
<PAGE>
CORPORATE
The Company's operating expenses at the Corporate level decreased to $114,000
for the quarter ended September 30, 1998 from $335,000 for the quarter ended
September 30, 1997. For the six months ended September 30, 1998, operating
expenses at the Corporate level decreased to $259,000 from $594,000 for the
same period in fiscal 1998. Certain administrative, accounting, management
oversight and payroll services are performed by the Company's Corporate
office. The Corporate operating expenses include the salaries and wages of
the personnel who perform these functions, including the Company's executive
officers, rent expense, and professional accounting and legal fees. In
February 1998, the Company relocated its Corporate headquarters to another
location in Atlanta, Georgia and as a result reduced its rent expense by
$68,000 and $133,000 for the quarter and six months ended September 30, 1998,
respectively, as compared to the same periods in fiscal 1998. The Company
reduced its legal fees at the Corporate level by $76,000 and $135,000 for the
quarter and six months ended September 30, 1998, respectively, as compared to
the same periods ended September 30, 1997. In fiscal 1998 the Company
incurred legal fees associated with certain litigation that was settled in
the second quarter of fiscal 1998. Additionally, through a reduction in
personnel at the Company's Corporate office, the salaries and wages at the
Corporate level have decreased in fiscal 1999, as compared to fiscal 1998. It
is anticipated that these reductions will be offset in future periods in
light of the Company's plans to begin paying a salary to Robert P. Scherer,
Jr., the Company's Chairman of the Board, President and Chief Executive
Officer. Currently, the Company does not pay Mr. Scherer any salary or other
compensation for his services. The functions and responsibilities of the
personnel that left the Corporate office have either been absorbed by the
remaining Corporate office staff or have been out-sourced. The expenses
associated with the out-sourcing of certain professional functions has
partially offset the savings from the reduction of the Corporate office
staff. The Company does not allocate any revenues to the Corporate level.
OTHER INCOME (EXPENSE).
The Company's interest income increased to $177,000 for the second quarter of
fiscal 1999 from $126,000 for the second quarter of fiscal 1998 and increased
to $350,000 for the six months ended September 30, 1998 from $180,000 for the
six months ended September 30, 1997. The increases are a result of the
Company's investment, principally in marketable securities (see Note 4 to the
accompanying Notes to Condensed Consolidated Financial Statements included
elsewhere herein), of the net proceeds received by the Company from the sale
of Marquest Medical Products, Inc. ("Marquest") to Vital Signs, Inc. in July
1997.
The Company recorded interest expense of $19,000 during the second quarter of
fiscal 1998 and had no corresponding interest expense during the second quarter
of fiscal 1999 and recorded interest expense of $67,000 for the six months ended
September 30, 1997 with no corresponding interest expense for the same period in
fiscal 1999. In July 1997, the Company used a portion of the proceeds from the
sale of Marquest to repay in full the outstanding principal balance on a note
payable to the adult children of an affiliate of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents totaled $7,697,000 at September 30,
1998, an increase of $829,000 from March 31, 1998. Working capital increased to
$8,667,000 at September 30, 1998 from $7,376,000 at March 31, 1998. The
Company's long-term debt decreased to $420,000 at September 30, 1998 from
$504,000 at March 31, 1998. The primary reasons for these changes are discussed
below.
CASH FLOW FROM OPERATING ACTIVITIES.
The Company's cash provided by operating activities from continuing operations
totaled $1,511,000 for the first six months of fiscal 1999, as compared to
$1,065,000 for the first six months of fiscal 1998. Bio Systems' operations
provided cash of $733,000 for the first six months of fiscal 1999, up slightly
from $696,000 for the first six months of fiscal 1998. As a result of the
decrease in its net sales, Scherer Labs' cash provided from operating activities
decreased to $115,000 for the six months ended September 30, 1998 from $274,000
for the six months ended September 30, 1997. Primarily due to the reduction in
corporate operating expenses and timing of working capital items, the cash
provided by operations at the corporate level increased to $663,000 for the six
months ended September 30, 1998 from $95,000 for the same period in fiscal 1998.
10
<PAGE>
CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES.
The Company's investing activities used cash of $527,000 for the six months
ended September 30, 1998, as compared to the six months ended September 30, 1997
where the Company's investing activities provided cash of $9,832,000. The six
months ended September 30, 1997 include the net proceeds received by the Company
from the sale of Marquest to Vital Signs, Inc. in July 1997. The aggregate
proceeds received by the Company from the transaction, net of costs, was
$11,296,000 and the cash held by Marquest at the time of the transaction was
$1,023,000. Bio Systems made capital expenditures during the first six months of
fiscal 1999 of $550,000 primarily for equipment and containers as a result of
the growth in business. Bio Systems made capital expenditures of $407,000 during
the same period in fiscal 1998.
Cash used for financing activities decreased to $66,000 for the six months ended
September 30, 1998 from $2,169,000 for the six months ended September 30, 1997.
In July 1997, the Company used a portion of the proceeds from the sale of
Marquest to repay in full the principal balance of $1,867,000 on a note payable
to the adult children of an affiliate of the Company.
Management of the Company believes that its current cash on hand and its current
cash flow is sufficient to maintain its current operations. The Company
continues to evaluate its long-term options with regard to the use of its
remaining cash on hand.
YEAR 2000 ISSUES.
Like many other companies, the year 2000 computer issue creates risks for the
Company. If internal systems do not correctly recognize and process date
information beyond the year 1999, there could be an adverse impact on the
Company's operations. There are two other related issues which could also
lead to incorrect calculations or failures: (I) some systems' programming
assigns special meaning to certain dates, such as 9/9/99, and (ii) the fact
that the year 2000 is a leap year. The Company has developed a plan to modify
its information technology for the year 2000 and during the quarter ended
September 30, 1998 began replacing critical data processing systems at its
corporate headquarters as well as at Bio Systems. The third party vendors
that supplied the new hardware and software have informed the Company that
the new systems and software are year 2000 compliant. The Company currently
expects that its review of other systems will be substantially completed by
March 31, 1999 at a cost not material to the Company's business, financial
condition or results of operations. As of September 30, 1998, the Company
incurred approximately $35,000 in replacing and converting the Company's data
processing systems and it anticipates it will incur less than $50,000 in
future periods to complete the replacement and conversion process.
The Company believes that its most reasonably likely worst case year 2000
scenarios would relate to problems with the systems of third parties rather than
with the Company's internal systems or its products. It is clear that the
Company has the least ability to assess and remediate the year 2000 problems of
third parties and the Company believes the risks are greatest with
infrastructure (e.g. electricity supply, water and sewer service),
telecommunications, transportation supply chains and suppliers of materials.
Similarly, the failure of the Company's hospital and other healthcare provider
customers to be year 2000 compliant could have an adverse impact on the Company.
While the Company is taking steps that it believes to be reasonable and prudent
to assess the year 2000 readiness of third parties with whom the Company does
business, the failure of any of these third parties to correct a material year
2000 problem could result in an interruption in, or a failure of, certain normal
business activities or operations. Due to the general uncertainty inherent in
the year 2000 problem, resulting in part from the uncertainty of the year 2000
readiness of third party suppliers and customers, the Company is unable to
determine at this time whether the consequences of year 2000 failures will have
a material impact on the Company's results of operations, liquidity, or
financial condition. Readers are cautioned that forward-looking statements
contained in this year 2000 update should be read in conjunction with the
Company's disclosures regarding forward looking statements.
11
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On August 28, 1998, Amy M. Murphy, the former President of the
Company, filed a sex discrimination and retaliation charge against
the Company alleging a violation of Title VII of the Civil Rights Act
of 1964, as amended. Ms. Murphy filed the charge with the Atlanta,
Georgia office of the Equal Employment Opportunity Commission. On
September 9, 1998, Ms. Murphy amended this charge to identify the
Company and Robert P. Scherer, Jr., Chairman, President and
Chief Executive Officer of the Company, as her employers. Ms. Murphy's
charge is based on her allegation that Mr. Scherer engaged in
inappropriate behavior and retaliated against her during her
employment with the Company. Mr. Scherer denies Ms. Murphy's
allegations of inappropriate behavior and retaliation. The Company has
conducted an internal investigation of Ms. Murphy's charge and has
concluded that there has been no Title VII violation. Accordingly, the
Company intends to vigorously defend all claims brought by Ms. Murphy.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on September 16,
1998 for the purpose of electing Directors. The following persons were
elected to the Company's Board of Directors. The vote totals are set
forth opposite the name of each nominee for director.
<TABLE>
<CAPTION>
For Withheld
---------------- --------------
<S> <C> <C>
Stephen Lukas, Sr. 3,647,433 shares 4,513 shares
Kenneth H. Robertson 3,647,943 shares 4,003 shares
Robert P. Scherer, Jr. 3,520,330 shares 131,616 shares
William J. Thompson 3,647,377 shares 4,569 shares
</TABLE>
There were no broker non-votes with respect to the election of
directors.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCHERER HEALTHCARE, INC.
(Registrant)
Date: November 13, 1998 /s/ Robert P. Scherer, Jr.
--------------------------
Robert P. Scherer, Jr.
Chairman, Chief Executive Officer and President
Date: November 13, 1998 /s/ Gary W. Ruffcorn
--------------------
Gary W. Ruffcorn
Vice President and Chief Financial Officer
13
<PAGE>
SCHERER HEALTHCARE, INC.
INDEX OF EXHIBITS
The following exhibit is being filed with this report.
Exhibit Page
Number Description Number
- ------- ------------------------------------------------------ ------
27 Financial Data Schedule 15
(included only in EDGAR filing)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S QUARTERLY REPORT TO STOCKHOLDERS FOR THE QUARTER ENDED SEPTEMBER 30,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 7,699
<SECURITIES> 0
<RECEIVABLES> 3,526
<ALLOWANCES> (198)
<INVENTORY> 221
<CURRENT-ASSETS> 11,539
<PP&E> 7,712
<DEPRECIATION> (3,606)
<TOTAL-ASSETS> 27,243
<CURRENT-LIABILITIES> 2,872
<BONDS> 420
0
0
<COMMON> 47
<OTHER-SE> 23,461
<TOTAL-LIABILITY-AND-EQUITY> 27,243
<SALES> 7,431
<TOTAL-REVENUES> 7,431
<CGS> 4,206
<TOTAL-COSTS> 6,395
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,433
<INCOME-TAX> 39
<INCOME-CONTINUING> 1,394
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,394
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.31
</TABLE>
