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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1999
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)
Registrant's telephone number, including area code:
(770) 933-1800
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered (Title of Class) pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
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 .
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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. /X/
The aggregate market value of the Registrant's Common Stock held by
nonaffiliates of the Registrant on June 17, 1999 was $6,325,821. There were
4,336,234 Shares of Common Stock outstanding on June 17, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1999 Annual Meeting of
Shareholders are incorporated by reference into Parts I and III of this
report.
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SCHERER HEALTHCARE, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1999
TABLE OF CONTENTS
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Item Page
Number Number
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PART I
1. Business................................................................................. 3
2. Properties............................................................................... 9
3. Legal Proceedings........................................................................ 9
4. Submission of Matters to a Vote of Security Holders...................................... 10
4a. Executive Officers of the Registrant..................................................... 10
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters.................... 10
6. Selected Financial Data.................................................................. 11
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................................... 11
7a. Quantitative and Qualitative Disclosures About Market Risk............................... 16
8. Financial Statements and Supplementary Data.............................................. 16
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure............................................................................... 16
PART III
10. Directors and Executive Officers of the Registrant....................................... 17
11. Executive Compensation................................................................... 17
12. Security Ownership of Certain Beneficial Owners and Management........................... 17
13. Certain Relationships and Related Transactions........................................... 17
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................... 18
SIGNATURES........................................................................................ 19
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE.................................... F-1
INDEX OF EXHIBITS................................................................................. 42
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SCHERER HEALTHCARE, INC.
FORM 10-K
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report on Form 10-K
contains "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities and
Exchange Act of 1934, as amended, which represent the Company's expectations
or beliefs. When used in this report, the words "may," "could," "should,"
"would," "believe," "anticipate," "estimate," "expect," "intend," "plan" and
similar expressions are intended to identify forward-looking statements.
These statements by their nature involve substantial risks and uncertainties,
certain of which are beyond the Company's control. The Company cautions that
various factors, including the factors described in the Company's filings
with the Securities and Exchange Commission, as well as general economic
conditions, changes in applicable laws and regulations, industry trends, a
dependence upon and/or loss of key employees, 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 of the Company. Any forward-looking statement speaks only as of
the date of this report and the Company undertakes no obligation to update
any forward-looking statement or statements to reflect events or
circumstances after the date on which such statements is made or to reflect
the occurrence of an unanticipated event. New factors emerge from time to
time, and it is not possible for the Company to predict all of such factors.
Further, the Company cannot assess the impact of each such factor on its
business or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any
forward-looking statements.
PART I
ITEM 1. BUSINESS
OVERVIEW
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Scherer Healthcare, Inc. (the "Company") was incorporated under the laws of
the State of Delaware on December 18, 1981 as the successor to Aloe Creme
Laboratories, Inc., incorporated on February 7, 1953. The Company's Common
Stock is listed on The Nasdaq National Market under the symbol "SCHR".
The Company, through its subsidiaries, operates in two business segments. The
Company's Waste Management Services Segment assists hospitals, clinics,
doctors, and other health care facilities with the control and disposal of
sharp-edged medical waste such as scalpels, syringes, and needles. The
Consumer Healthcare Products Segment distributes brand name and generic
over-the-counter health care products. At March 31, 1999, the following
subsidiaries operated within the Company's two business segments:
WASTE MANAGEMENT SERVICES SEGMENT:
(a) Bio Systems Partners, a Georgia partnership, is 100% owned by the
Company.
(b) BioWaste Systems, Inc., a Georgia corporation, is 100% owned by the
Company
(c) Medical Waste Systems, Inc., a Delaware corporation, is 100% owned
by the Company.
CONSUMER HEALTHCARE PRODUCTS SEGMENT:
Scherer Laboratories Inc., a Texas corporation, is 100% owned by
the Company.
As used herein, the term "Company" includes Scherer Healthcare, Inc. and,
where appropriate, its subsidiaries.
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FINANCIAL INFORMATION RELATING TO SEGMENT OPERATIONS
Set forth below is certain financial information with respect to each of the
Company's operating segments.
<TABLE>
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Years Ended March 31,
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1999 1998 1997
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(In Thousands)
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Net Sales:
Waste Management Services Segment $ 14,123 $ 12,567 $ 11,836
Consumer Healthcare Products Segment 872 1,286 1,276
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Total $ 14,995 $ 13,853 $ 13,112
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Operating Income (Loss) from Continuing Operations:
Waste Management Services Segment $ 1,907 $ 1,603 $ 1,073
Consumer Healthcare Products Segment 215 543 467
Corporate (496) (1,112) (1,022)
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Total $ 1,626 $ 1,034 $ 518
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Identifiable Assets:
Waste Management Services Segment $ 11,821 $ 10,945 $ 9,589
Consumer Healthcare Products Segment 115 157 111
Corporate (a) 16,041 14,690 11,670
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Total $ 27,977 $ 25,792 $ 21,370
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Depreciation Expense:
Waste Management Services Segment $ 1,016 $ 886 $ 816
Consumer Healthcare Products Segment 2 1 1
Corporate 42 29 25
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Total $ 1,060 $ 916 $ 842
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Capital Expenditures:
Waste Management Services Segment $ 1,105 $ 1,228 $ 1,107
Consumer Healthcare Products Segment 4 -- 6
Corporate 24 113 5
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Total $ 1,133 $ 1,341 $ 1,118
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(a) Amount includes net assets of discontinued operations of $326,000,
$188,000, and $7,003,000 in fiscal years 1999, 1998, and 1997,
respectively.
The Company recorded interest income of $687,000, $521,000, and $160,000 in
fiscal years 1999, 1998, and 1997, respectively. Additionally, the Company
recorded interest expense of $52,000 and $195,000 in fiscal years 1998 and
1997, respectively. The Company records interest income and interest expense
at the Corporate level.
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WASTE MANAGEMENT SERVICES SEGMENT
OVERVIEW. The Company operates its Waste Management Services Segment through
Bio Systems Partners ("BSP"), BioWaste Systems, Inc., and Medical Waste
Systems, Inc. (collectively, "Bio Systems"). Prior to fiscal 1998, the
Company owned a 60% general partnership interest in BSP, a Georgia
partnership. In October 1997, the Company, through BioWaste Systems, Inc., a
wholly-owned Georgia corporation, purchased the minority partner's 40%
partnership interest in BSP for $1,100,000. Medical Waste Systems, Inc. is a
Delaware corporation and is wholly-owned by the Company.
SERVICES. Bio Systems assists hospitals, clinics, doctors, and other health
care facilities with the control and disposal of infectious medical waste,
principally sharp-edged medical waste, or "sharps", which includes needles,
scalpels, and syringes. Bio Systems provides its services in ten Northeastern
and Mid-Atlantic states plus the District of Columbia.
Because of the AIDS crisis and public perception regarding the transmission
of a number of diseases, safe packaging, transportation and disposal of
medical waste has for many years been mandated by federal, state and local
governmental regulatory agencies. Sharps medical waste poses a threat to
health care workers and the public because of its potential to transmit
disease. Consequently, health care facilities have worked to improve the
safety of their sharps waste management systems, however, many have found
that an in-house system may not be the most cost effective method for their
sharps disposal.
Bio Systems' sharps management programs are designed to reduce a medical
facility's costs and risks associated with sharps disposal. Bio Systems
incorporates reusable containers of various sizes and designs in its systems,
which are installed by Bio Systems' personnel at the locations within a
medical facility where sharps are discarded. These reusable containers
provide a medical facility with a cost effective and environmentally friendly
alternative to traditional disposable plastic containers. Bio Systems'
personnel collect and replace the containers at the point of use and then
transport the full containers to Bio Systems' processing facility where they
are emptied and decontaminated for reuse.
Bio Systems maintains a fleet of licensed trucks and trailers to transport
medical waste to its processing facility, where the waste is sterilized,
pulverized and made available for recycling or disposal via landfill or
incineration. During fiscal 1996, Bio Systems consolidated its operations by
transferring the medical waste processing operations at its facility located
near Philadelphia, Pennsylvania to its processing facility in Farmingdale,
New York. Bio Systems uses the Pennsylvania facility to assemble, manage and
store its reusable medical waste containers.
Bio Systems also provides medical waste management services designed for
medical clinics, physicians and other facilities that generate relatively
small quantities of regulated medical waste (small quantity generators). Bio
Systems provides these customers with both a reusable container for sharps
and a specially designed corrugated box for non-sharp regulated medical
waste. This service for small quantity generators includes pick-up, removal
and disposal of the medical waste.
SALES AND MARKETING. Bio Systems markets its services, which are not seasonal
and are not subject to backlog, via a direct sales force and through
advertising in hospital publications and direct mailings. Bio Systems
operates 365 days a year.
Bio Systems' management believes that the recent trend toward consolidation
of hospitals, medical clinics and physicians into managed health care
networks provides companies with existing medical facility contracts, such as
Bio Systems, an advantage in securing contracts with newly affiliated network
members.
CUSTOMERS. Bio Systems' customers include hospitals, nursing homes, medical
clinics, physicians and laboratories. Services to hospitals are typically
provided under contracts with a term of at least one year. As of March 31,
1999, Bio Systems had contracts with over 200 hospitals including agreements
with the Greater New York Hospital Association, New Jersey Hospital
Association, and seven of the largest hospital networks in the Northeast.
Additionally, Bio Systems provides medical services to over 3,500 small
quantity generators including medical clinics, laboratories, and physicians
offices.
No single customer accounts for over 10% of Bio Systems' net sales.
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COMPETITION. Bio Systems' principal competition comes from in-house
management of sharps wherein the hospital purchases disposable containers
from one of several manufacturers, uses hospital personnel to collect and
replace containers when full, and disposes of the containers and waste with
on-site equipment or through a third party medical waste hauler.
Additionally, Bio Systems has two direct competitors which offer similar
full-service programs.
With regard to its small quantity generator services, Bio Systems competes
with several national and local medical waste service providers.
Though Bio Systems faces significant competition in its market areas, it
believes it has a strong competitive position because of its reusable sharps
containers, specialized service infrastructure and strategically located
transfer and processing facilities.
REGULATION. The medical waste industry is subject to a variety of federal,
state and local regulations regarding its collection, transport, processing,
and disposal. Bio Systems has obtained licenses or authorizations from the
appropriate governmental regulatory agencies to operate its processing and
transfer facilities in Farmingdale, New York, Warminster, Pennsylvania, and
Haverhill, Massachusetts.
New regulations are frequently promulgated, compliance with which could have
a material adverse effect on Bio Systems' business. Management is not aware
of any pending regulations in Bio Systems' market areas that would have such
a material adverse effect.
EMPLOYEES. At March 31, 1999, Bio Systems had 134 employees. Drivers,
technicians and processing personnel in New York and drivers and warehouse
personnel in Pennsylvania are covered by collective bargaining agreements
representing approximately 69% of Bio Systems' employees. Bio Systems entered
into a three-year collective bargaining agreement in June 1996 with the union
for its New York employees and a three-year agreement in October 1996 with
the union for its Pennsylvania employees. In June 1999, the New York union
employees ratified a new three-year contract. New contract negotiations with
the union for the Pennsylvania employees, whose current agreement expires in
October 1999, have not commenced although management anticipates that
discussions will begin during the second quarter of fiscal 2000. In April
1999, Bio Systems received notice that approximately 10 employees at its
transfer facility in Haverhill, Massachusetts are now represented by a union.
Bio Systems has not begun discussions with the union regarding a collective
bargaining agreement covering the Massachusetts employees. Management
considers its employee relations to be good.
CONSUMER HEALTHCARE PRODUCTS SEGMENT
OVERVIEW. In 1981, the Company acquired Scherer Laboratories, Inc., ("Scherer
Labs"), a Texas corporation originally incorporated in 1903. Scherer Labs
markets brand name and generic over-the-counter drugs. These products are
primarily used for treatment of colds and coughs, eye and ear irritations and
insect bites. In early fiscal 1997, Scherer Labs discontinued the sale of its
one remaining prescription drug. The loss of these sales did not have a
material effect on the Company. Scherer Labs' products are manufactured by
third party contractors using Scherer Labs' formulas. Scherer Labs carries an
inventory sufficient to cover planned sales requirements. Scherer Labs'
return policy is consistent with the drug industry, with annual returns
during the last three years of less than 1.5% of total annual sales.
Scherer Labs shares office and warehouse space with the Company at the
Company's corporate headquarters in Atlanta, Georgia and has a sales and
marketing office located in Dallas, Texas. At March 31, 1999, Scherer Labs
had two employees. One employee, who works from the Dallas, Texas office,
administers all sales, marketing, and purchasing and handles relations with
customers, suppliers and contractors. The other employee, who works from the
Atlanta, Georgia facility, administers all customer service, warehouse and
distribution functions and also performs certain accounting functions
including order processing, accounts receivable, and inventory control. In
the second quarter of fiscal 1999, Scherer Labs began performing all
inventory and shipping functions internally from its Atlanta, Georgia
warehouse. Previously, these services were performed on a contract basis with
a public warehouse located in Dallas, Texas.
SEASONALITY. The sales of most of Scherer Labs' products are evenly
distributed throughout the year. However, the majority of three of Scherer
Labs' products are purchased by consumers during the summer months. As a
result of this seasonal activity, approximately 33% of Scherer Labs' sales
occur during the first fiscal quarter (April through June) of each fiscal
year.
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CUSTOMERS. Scherer Labs markets its products primarily to drug and food
stores, mass market retailers, drug wholesalers, and government agencies. The
majority of the sales are through retailers located in the Southwest region
of the United States with approximately 35% of sales to retail outlets
located in other areas of the country. Sales to Wal-Mart Stores, Inc.
represented approximately 37%, 53% and 55% of total sales in fiscal 1999,
1998 and 1997, respectively. These sales were through McKessonHBOC,
Wal-Mart's primary wholesaler, and account for over 80% of McKesson's total
purchases from Scherer Labs. The loss of Wal-Mart's business would have a
material adverse effect on Scherer Labs' ability to continue to operate
profitably. In fiscal 1999, sales to Albertsons, Inc. represented
approximately 13% of Scherer Labs' total sales. Prior to fiscal 1999, sales
to Albertsons did not account for more than 10% of Scherer Labs total sales.
COMPETITION. Scherer Labs' products are subject to competition from national,
regional, and store brands of similar or identical formulations. Emphasis is
placed on Scherer Labs' long history, product quality and pricing at or near
the pricing levels of generic products. Marketing activities focus on
in-store price specials and other promotional allowances.
REGULATION. Scherer Labs' products are regulated by the FDA. Also, licensing
and product registration is required by certain states where product sales
occur and are renewed annually. There have been no government inspections of
Scherer Labs in the last three years and there are no pending matters between
Scherer Labs and any federal, state or local governmental regulatory agency.
DISCONTINUED MEDICAL DEVICE AND SURGICAL/SAFETY DISPOSABLES SEGMENT
The operations of Marquest Medical Products, Inc. ("Marquest") and Scherer
Healthcare, Ltd. ("Scherer Ltd.") were included in the Company's Medical
Device and Surgical/Safety Disposables Segment. The assets and businesses of
Scherer Ltd., a limited partnership that was 65% owned by the Company, were
sold in two separate transactions in October 1995 and October 1996. In July
1997, the Company and Marquest, which was a majority owned subsidiary of the
Company, completed certain transactions with Vital Signs, Inc. ("VSI")
whereby Marquest became a wholly-owned subsidiary of VSI. Effective with the
sale of Marquest to VSI, the operations of the Medical Device and
Surgical/Safety Segment have been accounted for as a discontinued segment.
Set forth below is information regarding Marquest and Scherer Ltd. and the
transactions discussed above.
MARQUEST
In fiscal 1994, the Company and Marquest completed a series of transactions
whereby the Company obtained a controlling interest in Marquest, a
manufacturer and international distributor of specialty cardiopulmonary
support, respiratory and anesthesia disposable devices. Marquest utilized an
internal sales force and independent distributors to market its four major
product groups: blood collection systems for diagnostic testing, aerosolized
medication delivery systems, heated humidification systems, and anesthesia
and respiratory breathing systems.
As part of the transactions completed in fiscal 1994, the Company purchased
from Marquest certain assets associated with the manufacture and sale of
Marquest's arterial blood gas products (the "ABG Assets") for $4,500,000 in
cash and the Company then leased the ABG Assets back to Marquest in exchange
for a royalty equal to 3.25% of the net arterial blood gas product line
sales. In consideration for its agreement to enter into the sale and
leaseback of the ABG Assets, which included an option whereby Marquest could
repurchase the ABG Assets from the Company, the Company received warrants to
purchase 6,580,000 shares of Marquest common stock, exercisable at $0.75 per
share.
In fiscal 1994, the Company also participated with Marquest in an exchange
offer pursuant to which certain outstanding indebtedness of Marquest, which
was in default at the time of the exchange offer, was exchanged for new
Marquest notes, shares of the Company's preferred stock, and warrants to
purchase Marquest common stock. In consideration for the issuance of its
preferred stock as part of the exchange offer, the Company received a
$4,352,000 convertible note of Marquest, which was, at the option of the
Company, convertible into Marquest common stock (the "Marquest Note"). In May
1994, the Company converted $2,500,000 of the Marquest Note into 3,333,333
shares of Marquest common stock. In March 1996, the Company converted the
remaining balance of $1,852,000 on the Marquest Note plus the associated
accrued interest and accrued but unpaid management fees owed to the Company
by Marquest into 3,877,859 shares of Marquest common stock.
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In July 1997, VSI acquired Marquest upon the Merger of a wholly-owned
subsidiary of VSI with and into Marquest. At the effective time of the
Merger, all of the issued and outstanding shares of Marquest common stock
were converted into the right to receive $0.797 in cash per share and
Marquest became a wholly-owned subsidiary of VSI. As a result, the Company
received approximately $5,747,000 in cash in exchange for its 7,211,192
shares of Marquest common stock and approximately $309,000 in cash through
the exercise of warrants to purchase Marquest common stock and the conversion
of these shares into cash pursuant to the Merger. Additionally, VSI purchased
the ABG Assets from the Company and the Company entered into a covenant not
to compete with VSI in the manufacture and sale of arterial blood gas
products for a period of three years. VSI paid the Company an aggregate of
$5,860,000 in cash for the ABG Assets and the covenant not to compete.
SCHERER LTD.
The Company, through a wholly-owned subsidiary, owned a 65% interest in
Scherer Ltd. and was its sole general partner. Scherer Ltd., which was formed
in 1987, was engaged in the manufacture and distribution of three disposable
product lines: surgical drapes and gowns, surgical trays, and
industrial/clean room specialty apparel.
In October 1995, Scherer Ltd. sold certain of its assets to Cordis Medical
Products, Inc., a wholly owned subsidiary of Cordis Corporation, for
$6,527,000. The assets sold were those used in connection with Scherer Ltd.'s
business of packing and distributing medical supplies for surgical procedures
and providing nonwoven medical drapes, gowns and accessory items to hospitals
and other health care providers (the "Medical Business"). Additionally,
Cordis Medical agreed to assume all accounts payable related to the Medical
Business and certain other specifically identified liabilities, including the
mortgage on Scherer Ltd.'s facility located in Asheville, North Carolina.
Scherer Ltd. received net proceeds, before income taxes, of $4,922,000.
Scherer Ltd. continued in the business of providing nonwoven apparel for
industrial uses (the "Industrial Business") after the sale of the Medical
Business.
In October 1996, Scherer Ltd. sold substantially all of its remaining assets
to a subsidiary of Health-Pak, Inc. for approximately $254,000, plus the
assumption by Health-Pak of $319,000 in accounts payable. The assets acquired
by Health-Pak were those used in connection with Scherer Ltd.'s Industrial
Business and included accounts receivable, inventory and furniture and
fixtures. Additionally, Health-Pak agreed to assume certain accounts payable
and liabilities related to the Industrial Business.
The two transactions discussed above eliminated substantially all of the
assets of Scherer Ltd.; therefore, Scherer Ltd. was dissolved on December 2,
1996.
DISCONTINUED PHARMACEUTICAL RESEARCH AND DEVELOPMENT SEGMENT
Biofor, Inc. ("Biofor"), a majority owned subsidiary of the Company which had
been operating the Company's Pharmaceutical Research and Development Segment,
was engaged in research to identify and develop new drug compounds. In July
1995, after attempts by the Company to locate a purchaser for Biofor, Biofor
ceased further drug design efforts and concentrated solely on the compound
research contract it had with Ono Pharmaceutical Company, Ltd. ("Ono"). When
the Ono contract expired in March 1996, Biofor discontinued all operations
and the Company abandoned all operations of Biofor.
Prior to the discontinuance of its operations, Biofor focused its drug design
efforts on arthritis and osteoarthritis as well as the treatment for acute
pain. Biofor's lead compound, BF-389, was an anti-inflammatory analgesic
which preliminary Phase I clinical trials indicated was not sufficiently
bioavailable when administered orally in humans. Other delivery methods that
would allow oral administration of the compound were pursued by Biofor
without success.
The remaining property and equipment of Biofor primarily consists of land, a
30,000 square foot building owned by Biofor, and computer and laboratory
equipment. The Company intends to sell the remaining assets of Biofor, which
have been written down to their estimated net realistic value, but it
anticipates that it may take several years to sell all of the assets.
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ITEM 2. PROPERTIES
The Company's major facilities follow:
WASTE MANAGEMENT SERVICES SEGMENT:
Bio Systems Partners
Farmingdale, New York - 17,000 square foot facility leased by
Bio Systems Partners which includes 3,000 square feet of
administrative office space and 14,000 square feet of space
housing Bio Systems' medical waste processing operations.
Medical Waste Systems, Inc.
Warminster, Pennsylvania - 11,900 square foot facility leased by
Medical Waste Systems, Inc. which includes 1,900 square feet
of administrative office space and 10,000 square feet of
warehouse and storage space.
Haverhill, Massachusetts - 4,000 square foot transfer station
leased by Medical Waste Systems, Inc.
CONSUMER HEALTHCARE PRODUCTS SEGMENT:
Scherer Laboratories, Inc.
Plano, Texas - 300 square foot facility leased by Scherer Labs
and used as a sales office.
CORPORATE SEGMENT:
Scherer Healthcare, Inc.
Atlanta, Georgia - 2,100 square feet of leased office space.
Atlanta, Georgia - 5,300 square feet of leased office and
warehouse space. The warehouse space is used by Scherer
Laboratories, Inc.
Biofor, Inc.
Waverly, Pennsylvania - 30,000 square foot building owned by
Biofor.
The Company believes the facilities in all locations are adequate for the
current and anticipated future level of activities.
ITEM 3. LEGAL PROCEEDINGS
In a January 1989 merger transaction, a wholly-owned subsidiary of the
Company acquired Med X Services of Pennsylvania, Inc. ("Med X") whose
President and majority stockholder was Harry Kovar. Mr. Kovar continued to be
employed by Med X after the merger although a written employment agreement
between Mr. Kovar and Med X had not been executed. In July 1989, Mr. Kovar
was terminated from his employment with Med X. On December 15, 1989, Mr.
Kovar and his wife filed a complaint against the Company, Med X, and other
affiliated entities and persons in the Court of Common Pleas of Bucks County,
Pennsylvania. The complaint, as amended, filed by Mr. Kovar alleged, among
other charges, breach of an oral agreement by the Company to cause Med X to
employ Mr. Kovar on a long-term basis and breach by Med X of an alleged
employment contract between Mr. Kovar and Med X. On March 13, 1992, the
Company answered Mr. Kovar's complaint and filed a counterclaim against Mr.
Kovar for breach of warranties and representations, fraud, and violations of
Pennsylvania's Securities Act of 1972 in connection with the merger of the
Company's subsidiary and Med X. On June 9, 1997, all defendants in the case
filed motions for summary judgment. On January 23, 1998, the Court denied the
motion for summary judgment filed by the Company and Med X, but granted the
motion filed by the individual defendants. Between the date the complaint was
filed and the date of the orders on summary judgment, the case progressed
slowly, and at times was essentially dormant. Subsequent to the ruling on the
motions for summary judgment, settlement discussions began. Although
settlement discussions are ongoing, settlement of the case has not yet been
reached. If settlement is not achieved, the Company intends to vigorously
defend all of Mr. Kovar's remaining claims.
On August 28, 1998, Amy 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 ("EEOC"). On September 23,1998, 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. The Company has conducted an internal investigation of Ms.
Murphy's charge and has concluded that there has been no Title VII violation.
On December 22, 1998, the EEOC notified the Company that it has terminated
its investigation of Ms. Murphy's charge. On March 17, 1999, Ms. Murphy filed
a complaint in United States District Court, Northern District of Georgia,
Atlanta, Division, against the Company and Mr. Scherer alleging gender
discrimination, sexual harassment, and intentional infliction of emotional
distress. The Company and Mr. Scherer filed an answer denying Ms. Murphy's
allegations on April 23, 1999. The Company intends to vigorously defend all
claims brought by Ms. Murphy.
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The Company is a party to certain other legal proceedings, however, it does
not anticipate that any such proceedings will have any material adverse
effect on its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to security holders for vote during the
quarter ended March 31, 1999.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
The names, ages at June 1, 1999, and current positions of the Company's
executive officers are listed below in accordance with General Instruction
G(3) of Form 10-K and Instruction 3 of Item 401(b) of Regulation S-K. Unless
otherwise stated, each executive officer has held their position for at least
the last five years. All officers are elected for one year terms or until
their respective successors are chosen. There are no family relationships
among the executive officers nor is there any agreement or understanding
between any officer and any other person pursuant to which the officer was
elected.
NAME AND AGE POSITIONS WITH THE COMPANY
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Robert P. Scherer, Jr., 66 Director of the Company since 1977;
Chairman of the Board of Directors and
Chief Executive Officer of the Company
since February 1995; President of the
Company since May 1998. A Director,
executive officer and controlling
stockholder of RPS Investments, Inc. since
its formation.
Gary W. Ruffcorn, 37 Vice President, Chief Financial Officer,
and Assistant Secretary of the Company
since September 1997. Director of Finance
and Accounting of the Company from April
1995 to September 1997; Principal
Financial and Accounting Officer of the
Company from August 1995 to September
1997. Prior to joining the Company, Mr.
Ruffcorn held various accounting positions
with Ogden Projects, Inc., including
Assistant Controller/Director of
Accounting, from March 1988 to March 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
COMMON STOCK
At March 31, 1999, there were approximately 1,967 shareholders of record of
the Company's common stock. The Company's common stock is traded on The
Nasdaq National Market under the symbol "SCHR". The following table sets
forth the high and low closing sale prices per share as reported by Nasdaq
for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Fiscal
1999 1998
------------------ --------------------
High Low High Low
------- ------- -------- ----------
<S> <C> <C> <C> <C>
First Quarter $ 5.063 $ 3.250 $ 2.250 $ 1.500
Second Quarter 4.125 2.625 3.625 2.125
Third Quarter 5.000 2.500 4.125 3.000
Fourth Quarter 4.500 3.500 4.250 3.375
</TABLE>
On June 17, 1999, the closing price of the Common Stock was $3.625.
While there are no restrictions to prevent the payment of dividends, the
Company has not paid a cash dividend in its history. The current policy of
the Company's Board of Directors is to retain any available earnings for use
in the operations and expansion of the Company's business. Therefore, the
Company has no current intention to pay cash dividends on its Common Stock.
Any future determination to pay cash dividends will be at the discretion of
the Board of Directors and will depend upon the Company's earnings, capital
requirements, financial condition, the ability of the Company's subsidiaries
to pay cash dividends to the Company and any factors deemed relevant by the
Board of Directors.
-10-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data concerning the Company for and as of
the end of each of the years in the five year period ended March 31, 1999 are
derived from the audited consolidated financial statements of the Company.
The selected financial data is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, included
elsewhere in this report. The audited consolidated financial statements of
the Company as of March 31, 1999 and 1998 and for each of the years in the
three year period ended March 31, 1999, and the report of Arthur Andersen LLP
thereon, are included elsewhere in this report.
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales ................................................ $ 14,995 $ 13,853 $ 13,112 $ 11,858 $ 11,023
Cost of goods sold ....................................... $ 8,796 $ 8,008 $ 7,633 $ 6,716 $ 6,062
Selling, general and administrative expenses ............. $ 4,573 $ 4,811 $ 4,961 $ 4,906 $ 5,245
Nonrecurring charges ..................................... -- -- -- -- $ 2,000
Operating income (loss) .................................. $ 1,626 $ 1,034 $ 518 $ 236 $ (2,284)
Other income (expense), net .............................. $ 772 $ 491 $ (68) $ (200) $ (573)
Minority interest in net income .......................... -- -- -- -- $ (74)
Income (loss) from continuing operations ................. $ 2,321 $ 1,504 $ 446 $ 214 $ (2,793)
Income (loss) from continuing operations per share basic . $ 0.54 $ 0.35 $ 0.10 $ 0.05 $ (0.66)
Income (loss) from continuing operations per share diluted $ 0.51 $ 0.33 $ 0.10 $ 0.05 $ (0.66)
Gain (loss) from discontinued operations ................. -- $ 4,497 $ (707) $ 1,534 $ (7,378)
Net income (loss) ........................................ $ 2,321 $ 6,001 $ (261) $ 1,748 $(10,171)
Net income (loss) per share - basic ..................... $ 0.54 $ 1.39 $ (0.06) $ 0.41 $ (2.39)
Net income (loss) per share - diluted ................... $ 0.51 $ 1.32 $ (0.06) $ 0.40 $ (2.30)
Average shares outstanding - basic ....................... 4,330 4,314 4,302 4,277 4,254
Average shares outstanding - diluted ..................... 4,566 4,530 4,418 4,418 4,421
Total assets ............................................. $ 27,977 $ 25,792 $ 21,370 $ 21,298 $ 27,123
Total long-term liabilities .............................. $ 729 $ 1,011 $ 2,371 $ 648 $ 726
Stockholders' equity ..................................... $ 24,268 $ 21,916 $ 15,963 $ 16,174 $ 14,486
Cash dividends ........................................... -- -- -- -- --
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains, in addition to historical information,
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities and
Exchange Act of 1934, as amended, which represent the Company's expectations
or beliefs. When used in this report, the words "may," "could," "should,"
"would," "believe," "anticipate," "estimate," "expect," "intend," "plan" and
similar expressions are intended to identify forward-looking statements.
These statements by their nature involve substantial risks and uncertainties,
certain of which are beyond the Company's control. The Company cautions that
various factors, including the factors described in the Company's filings
with the Securities and Exchange Commission, as well as general economic
conditions, changes in applicable laws and regulations, industry trends, a
dependence upon and/or loss of key employees, 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 of the Company. Any forward-looking statement speaks only as of
the date of this report and the Company undertakes no obligation to update
any forward-looking statement or statements to reflect events or
circumstances after the date on which such statements is made or to reflect
the occurrence of an unanticipated event. New factors emerge from time to
time, and it is not possible for the Company to predict all of such factors.
Further, the Company cannot assess the impact of each such factor on its
business or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any
forward-looking statements.
-11-
<PAGE>
RESULTS OF OPERATIONS
NET SALES AND OPERATING INCOME (LOSS). The following table sets forth the net
sales and operating income (loss) for each segment of the Company's business for
the last three fiscal years:
<TABLE>
<CAPTION>
Years Ended March 31,
-------------------------------
1999 1998 1997
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
NET SALES:
Waste Management Services Segment $14,123 $12,567 $11,836
Consumer Healthcare Products Segment 872 1,286 1,276
------- ------- -------
Company Totals $14,995 $13,853 $13,112
------- ------- -------
------- ------- -------
OPERATING INCOME (LOSS):
Waste Management Services Segment $ 1,907 $ 1,603 $ 1,073
Consumer Healthcare Products Segment 215 543 467
Corporate (496) (1,112) (1,022)
------- ------- -------
Company Totals $ 1,626 $ 1,034 $ 518
------- ------- -------
------- ------- -------
</TABLE>
FISCAL 1999 VS. FISCAL 1998
The Company's net sales increased by 8% to $14,995,000 in fiscal 1999 from
$13,853,000 in fiscal 1998. The Company's operating income increased 57% to
$1,626,000 in fiscal 1999 from $1,034,000 in fiscal 1998. The Company's cost
of goods sold increased slightly to 59% of net sales in fiscal 1999 from 58%
of net sales in fiscal 1998. Selling, general and administrative expenses
decreased to 31% of net sales in fiscal 1999 from 35% of net sales in fiscal
1998.
The results of operations of the Company are dependent upon the results of
operations of each of its subsidiaries operating in the individual business
segments. Set forth below is a discussion of the results of operations of
each of these segments.
WASTE MANAGEMENT SERVICES SEGMENT
Net sales in the Company's Waste Management Services Segment, which operates
through Bio Systems, increased 12% to $14,123,000 in fiscal 1999 from
$12,567,000 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" (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 trend toward the formation of hospital networks and
Bio Systems' success in marketing its services to these 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' operating income increased 19% to $1,907,000 in fiscal 1999 from
$1,603,000 in fiscal 1998. Bio Systems' cost of goods sold were 60% of its
net sales in fiscal 1999, which was unchanged compared to fiscal 1998.
Selling, general and administrative expenses as a percentage of Bio Systems'
net sales were also unchanged at 27% in both fiscal 1999 and fiscal 1998.
Starting in early fiscal 1998 and continuing through fiscal 1999, Bio Systems
has had substantial new hospital 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. Additionally, Bio Systems'
operating payroll and transportation costs and expenses have increased due to
the addition of personnel and medical waste transportation vehicles needed to
service the new hospital accounts. 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 and service in fiscal 1999 compared to
prior years. In early fiscal 1999, Bio Systems was notified by the local
taxing authority for its New York processing facility that in previous years
it had been billed at an incorrect real estate tax rate. Because of this
billing error, it was determined that Bio Systems owed approximately $86,000
in real estate taxes which were to be paid over a one year period. Bio
Systems' bad debt expense increased approximately $53,000 to $114,000 in
fiscal 1999 compared with $61,000 in fiscal 1998 primarily due to the
bankruptcy of a hospital network in the fourth
-12-
<PAGE>
quarter of fiscal 1999. These increases were partially offset by a decrease
in certain administrative costs and expenses such as business liability
insurance.
CONSUMER HEALTHCARE PRODUCTS SEGMENT
Net sales for Scherer Labs, which operates in the Company's Consumer
Healthcare Products Segment, decreased 32% to $872,000 in fiscal 1999 from
$1,286,000 in fiscal 1998. The decrease in Scherer Labs' net sales is due
primarily 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 that continued throughout the year; (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 prior levels.
As a result of the decrease in net sales, Scherer Labs' operating income
decreased 60% to $215,000 in fiscal 1999 from $543,000 in fiscal 1998.
Additionally, as a result of the decrease in net sales, Scherer Labs' cost of
goods sold increased to 38% of its net sales in fiscal 1999 from 33% in
fiscal 1998 and its selling, general and administrative expenses increased to
37% of net sales in fiscal 1999 from 25% in fiscal 1998. Scherer Labs
slightly reduced its warehouse and distribution costs and expenses when it
began performing all of its inventory and shipping functions internally in
warehouse space leased in one of the Company's Atlanta, Georgia facilities.
Previously, these functions were performed on a contract basis with a public
warehouse in Dallas, Texas.
CORPORATE
The Company's operating expenses in the Corporate Segment decreased to
$496,000 in fiscal 1999 from $1,112,000 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 $228,000 in fiscal 1999, as compared to
fiscal 1998. The Company reduced its legal fees in the Corporate Segment by
$118,000 in fiscal 1999, as compared to fiscal 1998. In fiscal 1998, the
Company incurred significant 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, payroll expense
in the Corporate Segment has decreased in fiscal 1999, as compared to fiscal
1998. These payroll reductions will be offset in fiscal 2000 because as of
April 1, 1999, the Company began paying a salary to Robert P. Scherer, Jr.,
the Company's Chairman of the Board, President and Chief Executive Officer.
In fiscal 1999 and in prior years, the Company did 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 Segment.
FISCAL 1998 VS. FISCAL 1997
The Company's net sales increased by approximately 6% to $13,853,000 in
fiscal 1998 from $13,112,000 in fiscal 1997. The Company's operating income
increased to $1,034,000 in fiscal 1998 from $518,000 in fiscal 1997, an
increase of approximately 100%. The Company's cost of goods sold were 58% of
net sales in fiscal 1998, which was unchanged as compared to fiscal 1997.
Selling, general and administrative expenses decreased to 35% of net sales in
fiscal 1998 from 38% in fiscal 1997.
Set forth below is a discussion of the results of operations of each of the
Company's business segments for fiscal 1998 compared to fiscal 1997.
-13-
<PAGE>
WASTE MANAGEMENT SERVICES SEGMENT
Net sales for Bio Systems increased 6% to $12,567,000 in fiscal 1998 from
$11,836,000 in fiscal 1997. The sales growth is primarily due to securing new
hospital contracts for Bio Systems' core business of providing sharps
disposal services.
Bio Systems reported an increase in operating income of 49% to $1,603,000 in
fiscal 1998 from $1,073,000 in fiscal 1997. In fiscal 1998, Bio Systems' cost
of goods sold were 60% of its net sales, which was unchanged compared to
fiscal 1997. Selling, general, and administrative expenses decreased to 27%
of net sales in fiscal 1998 from 30% of net sales in fiscal 1997. The
decrease in selling, general, and administrative expenses is due to Bio
Systems' success in controlling its administrative costs and expenses, such
as business liability insurance, combined with a decrease in expenses
associated with the purchase of the minority partner's 40% partnership
interest in BSP in October 1997. Bio Systems capitalized certain costs,
primarily legal fees, associated with the purchase of the minority
partnership interest in fiscal 1998, while the costs incurred in fiscal 1997
associated with the transaction were charged to expense. Additionally, Bio
Systems reduced its bad debt expense in fiscal 1998, even though its net
sales increased, primarily due to the implementation of an aggressive
collection effort of its accounts receivable.
CONSUMER HEALTHCARE PRODUCTS SEGMENT
Net sales for Scherer Labs increased 1% to $1,286,000 in fiscal 1998 from
$1,276,000 in fiscal 1997. This slight increase is attributable to a price
increase on some of Scherer Labs' products in early fiscal 1998.
Scherer Labs' operating income improved 16% to $543,000 in fiscal 1998 from
$467,000 in fiscal 1997. In fiscal 1998, Scherer Labs' cost of goods sold
decreased to 33% of net sales from 37% of net sales in fiscal 1997. This
improvement can be attributed to a decrease in cost of materials because
Scherer Labs' shipped fewer product units in fiscal 1998 and recorded a
favorable inventory reserve adjustment. Selling, general, and administrative
expenses decreased slightly to 25% of net sales in fiscal 1998 from 26% of
net sales in fiscal 1997. This improvement is due to a decrease in certain
management consulting fees and expenses associated with Scherer Labs'
contracted warehouse and distribution facility.
CORPORATE
The Company recorded operating expenses in the Corporate Segment of
$1,112,000 and $1,022,000 in fiscal years 1998 and 1997, respectively. In
fiscal 1998, the Company recorded approximately $120,000 in legal fees
associated with litigation that was settled during the year. The Company does
not allocate any revenues to the Corporate Segment.
OTHER INCOME (EXPENSE). The Company recorded interest income of $687,000,
$521,000, and $160,000 in fiscal 1999, 1998, and 1997, respectively. The
significant increase in interest income in fiscal 1999 and 1998 is a result
of the investment, principally in marketable securities (see Note 3 of Notes
to Consolidated Financial Statements included elsewhere herein), of the net
proceeds received from the Marquest Transactions in July 1997.
The Company recorded interest expense of $52,000 and $195,000 in fiscal 1998
and 1997, respectively. The decrease in interest expense in fiscal 1998 is a
result of the repayment of the outstanding principal balance on a note
payable to the adult children of an affiliate of the Company in July 1997.
See Note 12 of Notes to Consolidated Financial Statements included elsewhere
herein. The Company used a portion of the proceeds from the Marquest
Transactions to repay in full the note payable.
INCOME TAXES. The Company recorded an income tax provision of $77,000,
$21,000 and $4,000 in fiscal 1999, 1998 and 1997, respectively. In fiscal
1999 and in prior years, the Company utilized tax loss carryforwards and
reduced its valuation allowance accordingly. Additionally, in fiscal 1999 and
in prior years, the Company significantly increased its valuation allowance
against its deferred tax assets mainly related to the tax loss carryforwards.
The Company's ability to generate taxable income from operations is dependent
upon various factors, many of which are beyond management's control.
Accordingly, there can be no assurance that the Company will generate future
taxable income. Therefore, the realization of the deferred tax assets will be
assessed periodically based upon the Company's current and anticipated
results of operations.
-14-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents totaled $5,433,000 at March 31, 1999,
a decrease of $1,435,000 from March 31, 1998; however, in March 1999, the
Company invested, using cash on hand, $2,671,000 in long-term high-grade
marketable securities. With the investment in marketable securities in March
1999, the balance, at fair market value, of the Company's long-term
investments was $8,914,000 at March 31, 1999, as compared to $6,251,000 at
March 31, 1998. As a result of the investment in marketable securities in
March 1999, the Company's working capital decreased to $6,763,000 at March
31, 1999 from $7,376,000 at March 31, 1998. The Company's long-term debt
decreased to $351,000 at March 31, 1999 from $504,000 at March 31, 1998. The
primary reasons for these changes are discussed below.
CASH FLOWS FROM OPERATING ACTIVITIES.
- -------------------------------------
The Company's cash provided by operating activities of continuing operations
totaled $2,695,000, $2,752,000 and $2,019,000 in fiscal 1999, 1998 and 1997,
respectively. Bio Systems' operations provided cash of $1,595,000, $2,051,000
and $1,281,000 in fiscal 1999, 1998 and 1997, respectively. The decrease in
cash provided from Bio Systems' operations in fiscal 1999 as compared to
fiscal 1998 is primarily due to the timing of collection of its accounts
receivable. In late fiscal 1998, Bio Systems implemented an aggressive
collection effort of its trade accounts receivable. Although this effort
resulted in an improvement in collection of its outstanding accounts
receivable, Bio Systems' management determined that the application of
pressure for more timely collection was jeopardizing its good relations with
its customers and Bio Systems could not continue to sustain the necessary
time and effort required of its personnel to maintain that level of
collections. Bio Systems' current amount of outstanding accounts receivable
and its average accounts receivable collection period are consistent with
those of the medical industry. The increase in cash provided by Bio Systems'
operations in fiscal 1998 as compared to fiscal 1997 is attributable to the
accounts receivable collection effort discussed above. As a result of the
decrease in its net sales, Scherer Labs' cash provided from operating
activities decreased to $188,000 for fiscal 1999 from $447,000 in fiscal 1998
and $415,000 in fiscal 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 $912,000 for fiscal 1999, as
compared to $254,000 and $323,000 for fiscal 1998 and 1997, respectively.
CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES.
- ---------------------------------------------------
The Company's investing activities used cash of $3,833,000 and $872,000 in
fiscal 1999 and 1997, respectively, as compared to fiscal 1998 where the
Company's investing activities provided cash of $1,721,000. Fiscal 1998
includes the net proceeds received by the Company from the sale of Marquest
to VSI 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. During the third quarter of
fiscal 1998, the Company invested $6,303,000 of the proceeds received from
the sale of Marquest in long-term high-grade marketable securities. In March
1999, the Company increased its investments in marketable securities by
$2,671,000 when it made an additional investment in fixed income government
bonds. The Company's marketable securities are composed of municipal bonds,
corporate bonds, and preferred stocks and mature over periods ranging from 2
years to 28 years. See Note 3 of the accompanying Notes to Condensed
Consolidated Financial Statements included elsewhere herein.
The Company, through a wholly-owned subsidiary, owned a 60% partnership
interest in BSP which operates in the Company's Waste Management Services
Segment. Pursuant to a summary judgment, the Company's subsidiary was
required to purchase the minority partner's 40% partnership interest in BSP
valued as of November 30, 1993. In early October 1997, the Company and the
minority partner were informed by an independent appraiser that the fair
market value of the 40% minority interest in BSP was $1,100,000 as of
November 30, 1993. Effective October 28, 1997, the Company's subsidiary
purchased, using cash on hand, the minority partner's 40% partnership
interest in BSP for a purchase price of $1,100,000 plus $114,000 in
associated costs and expenses and as a result, the Company, through its
subsidiary, now owns 100% of BSP.
As a result of the growth in business, Bio Systems made capital expenditures
for equipment and containers of $1,105,000, $1,228,000 and $1,107,000 in
fiscal 1999, 1998 and 1997, respectively.
Cash used for the Company's financing activities was $159,000, $1,924,000 and
$373,000 in fiscal 1999, 1998 and 1997, respectively. 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.
-15-
<PAGE>
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 is evaluating 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 fiscal 1999 began
replacing critical data processing systems at its corporate headquarters as
well as at Bio Systems. The Company completed its conversion to the new
equipment and software at its corporate headquarters in fiscal 1999 and Bio
Systems is currently converting its systems and expects to complete the
conversion in the second quarter of fiscal 2000. 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 the
second quarter of fiscal 2000 at a cost not material to the Company's
business, financial condition or results of operations. As of March 31, 1999,
the Company incurred approximately $65,000 in replacing and converting the
Company's data processing systems and it anticipates it will incur less than
$25,000 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company are set forth on pages F-3 through
F-21 of this report. The reporting of selected quarterly financial data
specified by Item 302 of Regulation S-K is not required for the Company.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
-16-
<PAGE>
PART III
Certain information required by Part III is omitted from this report but is
incorporated herein by reference to the Company's definitive Proxy Statement
for the 1999 Annual Meeting of Shareholders (the "Proxy Statement"). Such
Proxy Statement will be filed with the Securities and Exchange Commission not
later than 120 days after March 31, 1999.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
In accordance with General Instruction G(3) of the Form 10-K, the information
relating to the directors of the Company, including directors who are
executive officers of the Company, is set forth under the caption "Election
of Directors" in the Proxy Statement and is incorporated herein by reference.
Pursuant to Instruction 3 of Item 401(b) of Regulation S-K and General
Instruction G(3) of Form 10-K, information relating to the executive officers
of the Company is set forth under the caption "Executive Officers of the
Company" in Part I, Item 4A of this report. Compliance with Section 16(a) of
the Securities Exchange Act of 1934: Section 16(a) of the Securities Exchange
of 1934, as amended, and regulations of the Securities and Exchange
Commission thereunder require the Company's directors and executive officers
and any persons who own more than 10% of the Company's Common Stock, as well
as certain affiliates of such persons, to file reports with the Securities
and Exchange Commission and the National Association of Securities Dealers,
Inc. with respect to their ownership of the Company's Common Stock.
Directors, executive officers and persons owning more than 10% of the
Company's Common Stock are required by Securities and Exchange Commission
regulations to furnish the Company with copies of all Section 16(a) reports
they file. Based solely on its review of the copies of such reports received
by it and written representations that no other reports were required of
those persons, the Company believes that during fiscal 1999, all filing
requirements applicable to its directors and executive officers were complied
with in a timely manner. The Company is not aware of any other persons other
than directors and executive officers and their affiliates who own more than
10% of the Company's Common Stock.
ITEM 11. EXECUTIVE COMPENSATION
In accordance with General Instruction G(3) of Form 10-K, the information
relating to executive compensation set forth under the caption "Compensation
of Executive Officers" in the Proxy Statement is incorporated herein by
reference; provided, such incorporation by reference shall not be deemed to
include or incorporate by reference the information referred to in Item 402
(a)(8) of Regulation S-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
In accordance with General Instruction G(3) of Form 10-K, the information
relating to security ownership by certain persons set forth under the
captions "Principal Stockholders" and "Election of Directors" in the Proxy
Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In accordance with General Instruction G(3) of Form 10-K, the information
relating to certain relationships and related transactions set forth under
the caption "Related Party Transactions" in the Proxy Statement is
incorporated herein by reference.
-17-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS PART OF THIS REPORT:
(1) Financial Statements.
The financial statements of the Company and the related report of
independent accountants thereon are set forth immediately following the
Index of Financial Statements and Financial Statement Schedule which
appears on page F-1 of this report.
(2) Financial Statement Schedule.
The financial statement schedule is on page S-1 of this report. All
other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted
because such schedules are not required under the related instructions
or are not applicable or because the information required is included in
the consolidated financial statements or notes thereto.
(3) Exhibits.
The following exhibits are filed with or incorporated by reference in
this report. Where filing is made by incorporation by reference to a
previously filed registration statement or report, such registration
statement or report is identified in parenthesis. The Company will
furnish any exhibit upon request to Jeanne M. Fernandez, Secretary,
Scherer Healthcare, Inc., 120 Interstate North Parkway, S.E., Suite 305,
Atlanta, Georgia 30339. There is a charge of $.50 per page to cover
expenses for copying and mailing.
3.1 Articles of Incorporation of the Company, as amended (Exhibit
3.1 to the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1994).
3.2 By-Laws of the Company (Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1994).
4 Certificate of Designation, Preferences and Rights of
Preferred Stock by Resolution of the Board of Directors
Providing for an Issue of 7,000 Shares of Preferred Stock
Designated "Series A" Cumulative Convertible Preferred Stock
(Exhibit 4 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1994).
10.1 Property Lease between Bio Systems Partners and Flushing
Operating Corp. for 210 Sherwood Avenue, Farmingdale, New
York, and Addendum (Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1994).
10.2 Property Lease between Med X Services of PA, Inc. and
successors and Mark Hankin and Hamnar Associates XVII for 380
Constance Drive, Warminster, Pennsylvania, and Addendum
(Exhibit 10.4 to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1994).
10.3 Agreement and Plan of Merger dated March 14, 1997 by and among
Vital Signs, Inc., VSI Acquisition Corporation, and Marquest
Medical Products, Inc. (Exhibit 2.1 to the Company's Current
Report on Form 8-K dated March 21, 1997)
10.4 Scherer Healthcare Inducement Agreement dated March 14, 1997
by and between Scherer Healthcare, Inc., Vital Signs, Inc. and
Marquest Medical Products, Inc. (Exhibit 2.2 to the Company's
Current Report on Form 8-K dated March 21, 1997)
21 Subsidiaries of Registrant - filed herewith.
23 Consent of Arthur Andersen LLP - filed herewith
25 Power of Attorney - included on the signature page of this
Annual Report on Form 10-K
27 Financial Data Schedule (included only in EDGAR filing)
(B) REPORTS ON FORM 8-K.
The following Current Reports on Form 8-K were filed by the Company
during the quarter ended March 31, 1999:
None
-18-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on June 25, 1999.
SCHERER HEALTHCARE, INC.
By: /s/ROBERT P. SCHERER, JR.
--------------------------
Robert P. Scherer, Jr.
Chairman, Chief Executive Officer and President
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Robert P. Scherer, Jr. and Gary W. Ruffcorn, and each of them, his
true and lawful attorneys-in-fact and agents, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K of Scherer Healthcare,
Inc. for the fiscal year ended March 31, 1999, and any and all amendments
thereto, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission and the
National Association of Securities Dealers, Inc., granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary to be
done, as fully to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or their or his or her substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on June 25, 1999.
SIGNATURE TITLE
- --------- -----
/s/ROBERT P. SCHERER, JR. Chairman of the Board, Director,
- ------------------------- Chief Executive Officer, and President
Robert P. Scherer, Jr.
/s/GARY W. RUFFCORN Vice President and Chief Financial Officer
- -------------------------
Gary W. Ruffcorn
/s/STEPHEN LUKAS, SR. Director
- -------------------------
Stephen Lukas, Sr.
/s/KENNETH H. ROBERTSON Director
- -------------------------
Kenneth H. Robertson
/s/WILLIAM J. THOMPSON Director
- -------------------------
William J. Thompson
-19-
<PAGE>
SCHERER HEALTHCARE, INC.
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements and schedule of the
Registrant and its subsidiaries are submitted herewith in response to Item 8:
<TABLE>
<S> <C>
Report of Independent Public Accountants.............................F-2
Consolidated Balance Sheets--March 31, 1999 and 1998.................F-3
Consolidated Statements of Operations--Years Ended
March 31, 1999, 1998 and 1997....................................F-5
Consolidated Statements of Stockholders' Equity--Years
Ended March 31, 1999, 1998 and 1997..............................F-6
Consolidated Statements of Cash Flows--
Years Ended March 31, 1999, 1998 and 1997........................F-7
Notes to Consolidated Financial Statements...........................F-8
The following financial statement schedule of the Registrant and its
subsidiaries is submitted herewith in response to Item 14(a)(2):
Schedule II--Valuation and Qualifying Accounts.......................S-1
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of
Scherer Healthcare, Inc.
We have audited the accompanying consolidated balance sheets of SCHERER
HEALTHCARE, INC. (a Delaware corporation) AND SUBSIDIARIES as of March 31,
1999 and 1998 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended March 31, 1999. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the schedule 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 financial statements referred to above present fairly, in
all material respects, the financial position of Scherer Healthcare, Inc. and
subsidiaries as of March 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period
ended March 31, 1999 in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements and financial statement schedule is presented for
purposes of complying with the Securities and Exchange Commission's rules and
is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states, in all material
respects, the financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.
/s/Arthur Andersen LLP
Atlanta, Georgia
June 2, 1999
<PAGE>
SCHERER HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
As of March 31,
-------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,433,000 $ 6,868,000
Accounts receivable, less allowance for doubtful accounts of $293,000
and $189,000 as of March 31, 1999 and 1998, respectively 3,721,000 2,796,000
Current maturities of notes receivable 174,000 191,000
Inventories 200,000 174,000
Prepaid and other 215,000 212,000
-------------- --------------
Total current assets 9,743,000 10,241,000
-------------- --------------
PROPERTY AND EQUIPMENT 7,786,000 7,157,000
Less accumulated depreciation (3,674,000) (3,099,000)
-------------- --------------
Net property and equipment 4,112,000 4,058,000
-------------- --------------
OTHER ASSETS
Intangibles, net 1,484,000 1,410,000
Cost in excess of net assets acquired, net 2,222,000 2,328,000
Investments, at market value 8,914,000 6,251,000
Other investments, at cost 650,000 650,000
Notes receivable, less current portion - 174,000
Deferred income taxes 329,000 329,000
Other 197,000 163,000
Net assets of discontinued operations 326,000 188,000
-------------- --------------
Total other assets 14,122,000 11,493,000
-------------- --------------
TOTAL ASSETS $ 27,977,000 $ 25,792,000
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
SCHERER HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
As of March 31,
-----------------------------
1999 1998
------------- --------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 1,083,000 $ 809,000
Accrued expenses 1,499,000 1,594,000
Current maturities of debt obligations 235,000 269,000
Income taxes payable 85,000 115,000
Other 78,000 78,000
------------- --------------
Total current liabilities 2,980,000 2,865,000
------------- --------------
LONG-TERM DEBT, net of current maturities 351,000 504,000
------------- --------------
OTHER LIABILITIES 378,000 507,000
------------- --------------
COMMITMENTS AND CONTINGENCIES (see Note 7)
STOCKHOLDERS' EQUITY
Convertible preferred stock - $.01 par value, 2,000,000 shares
authorized; 22,775 and 23,152 shares issued and outstanding as of
March 31, 1999 and 1998, respectively - -
Commonstock - $.01 par value, 12,000,000 shares authorized; 4,713,641 and
4,695,121 shares issued as of March 31, 1999 and
1998, respectively
4,334,279 and 4,315,759 shares outstanding as of March 31, 1999
and 1998, respectively 47,000 47,000
Capital in excess of par value 22,349,000 22,318,000
Retained earnings 4,905,000 2,584,000
Less treasury stock, at cost (3,033,000) (3,033,000)
------------- --------------
Total stockholders' equity 24,268,000 21,916,000
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 27,977,000 $ 25,792,000
------------- --------------
------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
SCHERER HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended March 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES $ 14,995,000 $ 13,853,000 $ 13,112,000
------------ ------------ ------------
COSTS AND EXPENSES
Cost of goods sold 8,796,000 8,008,000 7,633,000
Selling, general and administrative 4,573,000 4,811,000 4,961,000
------------ ------------ ------------
Total costs and expenses 13,369,000 12,819,000 12,594,000
------------ ------------ ------------
OPERATING INCOME 1,626,000 1,034,000 518,000
OTHER INCOME (EXPENSE)
Interest income 687,000 521,000 160,000
Interest expense - (52,000) (195,000)
Other, net 85,000 22,000 (33,000)
------------ ------------ ------------
Total other income (expense) 772,000 491,000 (68,000)
------------ ------------ ------------
Income from continuing operations before income taxes 2,398,000 1,525,000 450,000
Provision for income taxes 77,000 21,000 4,000
------------ ------------ ------------
Income from continuing operations 2,321,000 1,504,000 446,000
Gain (loss) from discontinued operations, net of income taxes of
$137,000 and $2,000 in 1998 and 1997, respectively (Note 11) - 4,497,000 (707,000)
------------ ------------ ------------
NET INCOME (LOSS) $ 2,321,000 $ 6,001,000 $ (261,000)
------------ ------------ ------------
------------ ------------ ------------
BASIC INCOME (LOSS) PER COMMON SHARE
Income from continuing operations $ 0.54 $ 0.35 $ 0.10
Gain (loss) from discontinued operations - 1.04 (0.16)
------------ ------------ ------------
NET INCOME (LOSS) $ 0.54 $ 1.39 $ (0.06)
------------ ------------ ------------
------------ ------------ ------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC 4,329,568 4,314,264 4,302,016
------------ ------------ ------------
------------ ------------ ------------
DILUTED INCOME (LOSS) PER COMMON SHARE
Income from continuing operations $ 0.51 $ 0.33 $ 0.10
Gain (loss) from discontinued operations - 0.99 (0.16)
------------ ------------ ------------
NET INCOME (LOSS) $ 0.51 $ 1.32 $ (0.06)
------------ ------------ ------------
------------ ------------ ------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED 4,566,001 4,530,198 4,418,483
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
SCHERER HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three years ended March 31, 1999
<TABLE>
<CAPTION>
Retained
Preferred Common Capital In Earnings Treasury Total
Stock Stock Excess of (Accumulated Stock, At Stockholders'
Amount Amount Par Value Deficit) Cost Equity
---------- --------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996 $ - $ 47,000 $ 22,316,000 $ (3,156,000) $ (3,033,000) $ 16,174,000
Comprehensive income:
Net loss - - - (261,000) - (261,000)
---------- --------- ------------ ------------ ------------ -------------
Comprehensive income - - - (261,000) - (261,000)
---------- --------- ------------ ------------ ------------ -------------
Other - - 50,000 - - 50,000
---------- --------- ------------ ------------ ------------ -------------
Balance at March 31, 1997 - 47,000 22,366,000 (3,417,000) (3,033,000) 15,963,000
Comprehensive income:
Net income - - - 6,001,000 - 6,001,000
Unrealized loss on marketable
securities - - (48,000) - - (48,000)
---------- --------- ------------ ------------ ------------ -------------
Comprehensive income - - (48,000) 6,001,000 - 5,953,000
---------- --------- ------------ ------------ ------------ -------------
Balance at March 31, 1998 - 47,000 22,318,000 2,584,000 (3,033,000) 21,916,000
Comprehensive income:
Net income - - - 2,321,000 - 2,321,000
Unrealized gain on marketable
securities - - 3,000 - - 3,000
---------- --------- ------------ ------------ ------------ -------------
Comprehensive income - - 3,000 2,321,000 - 2,324,000
---------- --------- ------------ ------------ ------------ -------------
Exercise of stock options - - 28,000 - - 28,000
---------- --------- ------------ ------------ ------------ -------------
Balance at March 31, 1999 $ - $ 47,000 $ 22,349,000 $ 4,905,000 $ (3,033,000) $ 24,268,000
---------- --------- ------------ ------------ ------------ -------------
---------- --------- ------------ ------------ ------------ -------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
SCHERER HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended March 31,
----------------------------------------------
1999 1998 1997
------------ ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,321,000 $ 6,001,000 $ (261,000)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,290,000 1,113,000 1,041,000
Provision for doubtful accounts 104,000 11,000 91,000
(Gain) loss from discontinued - (4,497,000) 707,000
operations
Other noncash charges and credits, net 18,000 19,000 42,000
Changes in operating assets and liabilities:
Accounts receivable (1,029,000) (112,000) (8,000)
Inventories (26,000) (4,000) (37,000)
Prepaid and other (3,000) (77,000) 17,000
Income taxes, net (30,000) 43,000 21,000
Accounts payable and accrued expenses 179,000 (6,000) 428,000
Other liabilities (129,000) 261,000 (22,000)
------------ ----------- ------------
Net cash provided by operating activities of continuing
operations 2,695,000 2,752,000 2,019,000
Net operating activities of discontinued operations (138,000) 1,082,000 (1,159,000)
------------ ----------- ------------
Net cash provided by operating activities 2,557,000 3,834,000 860,000
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,133,000) (1,341,000) (1,118,000)
Net proceeds from disposal of segment, net of
transaction costs - 10,273,000 -
Purchase of long-term investments (2,671,000) (6,303,000) -
Purchase of minority interest in partnership - (1,214,000) -
Decrease in notes receivable 191,000 182,000 170,000
Other investing activities, net (220,000) 72,000 (78,000)
Net investing activities of discontinued operations - 52,000 154,000
------------ ----------- ------------
Net cash (used for) provided by investing activities (3,833,000) 1,721,000 (872,000)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments of) proceeds from borrowings (187,000) (1,828,000) 119,000
Proceeds from sale of common stock 28,000 - -
Repayments to affiliated companies - - (213,000)
Net financing activities of discontinued operations - (96,000) (279,000)
------------ ----------- ------------
Net cash used for financing activities (159,000) (1,924,000) (373,000)
------------ ----------- ------------
CHANGE IN CASH AND CASH EQUIVALENTS (1,435,000) 3,631,000 (385,000)
CASH AND CASH EQUIVALENTS, beginning of year 6,868,000 3,237,000 3,622,000
------------ ----------- ------------
CASH AND CASH EQUIVALENTS, end of year $ 5,433,000 $ 6,868,000 $ 3,237,000
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE>
SCHERER HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999, 1998, AND 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRINCIPLES OF
CONSOLIDATION
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the parent company, Scherer Healthcare, Inc. (the "Company" or "Scherer
Healthcare"), and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
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.
Certain fiscal 1997 and fiscal 1998 amounts have been reclassified to conform
with the fiscal 1999 presentation.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As of March 31, 1999 and 1998, the carrying value of financial instruments
such as cash, short-term investments, trade receivables and payables and
short-term debt approximated their fair values based on the short-term
maturities of these instruments. Additionally, the carrying value of both
long-term investments and long-term debt approximated fair values.
INVENTORIES
Inventories are stated at the lower of net realizable value or cost using the
last-in, first-out ("LIFO") method.
<TABLE>
<CAPTION>
As of March 31,
-------------------------
1999 1998
----------- ----------
<S> <C> <C>
Finished products $ 43,000 $ 41,000
Containers, packaging, and raw material 205,000 179,000
LIFO reserve (48,000) (46,000)
---------- ---------
Total $ 200,000 $ 174,000
---------- ---------
---------- ---------
</TABLE>
F-8
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, and depreciation is computed
principally using the straight-line method over the estimated useful lives of
the assets as follows: automobiles and trucks --5 years, leasehold
improvements --3-31 years, and furniture, fixtures, equipment and containers
- --3-10 years.
<TABLE>
<CAPTION>
As of March 31,
-------------------------
1999 1998
----------- ----------
<S> <C> <C>
Automobiles and trucks $ 1,516,000 $ 1,506,000
Leasehold improvements 951,000 929,000
Furniture, fixtures, equipment and
containers 5,319,000 4,722,000
------------ -----------
$ 7,786,000 $ 7,157,000
------------ -----------
------------ -----------
</TABLE>
Depreciation expense for fiscal years 1999, 1998, and 1997 was $1,060,000,
$916,000, and $842,000, respectively.
MARKETABLE SECURITIES
The Company determines the appropriate classification of its marketable
securities at the time of purchase and reevaluates such designation at each
balance sheet date. The Company's marketable securities are categorized as
available-for-sale securities, as defined by Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," and are carried at fair market value, with
unrealized holding gains and losses reported under capital in excess of par
value (see Note 3 and 8).
INCOME TAXES
The Company uses the liability method to account for income taxes (see
Note 10).
REVENUE RECOGNITION
Sales are recorded by the Company when products are shipped to customers or
independent distributors. Sales for services provided are recorded when the
Company has completed the service.
INCOME (LOSS) PER COMMON SHARE
The Company has adopted SFAS No. 128, "Earnings Per Share." Under SFAS No.
128, basic earnings per share is computed by dividing income available to
common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock.
The following is a reconciliation of the Company's basic weighted average
common shares outstanding to diluted weighted average common shares
outstanding for fiscal years 1999, 1998, and 1997.
<TABLE>
<CAPTION>
1999 1998 1997
------------ ---------- ---------
<S> <C> <C> <C>
Weighted average common shares
outstanding - basic 4,329,568 4,314,264 4,302,016
Dilutive potential common shares, weighted:
Conversion of preferred stock to
common stock 102,078 104,219 116,467
Dilutive stock options, net 134,355 111,715 -
------------ ---------- ----------
Weighted average common shares
outstanding - diluted 4,566,001 4,530,198 4,418,483
------------ ---------- ----------
------------ ---------- ----------
Anti-dilutive options not included 129,800 129,800 129,800
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
F-9
<PAGE>
NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes standards for reporting and disclosing information about
derivative instruments. The Company will adopt the new standard in the second
quarter of fiscal 2000. The adoption of SFAS No. 133 will not have a material
effect on the Company's financial position or results of operations.
NOTE 2. SEGMENT INFORMATION
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. SFAS No. 131 also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. The adoption of SFAS No. 131 did not have a material effect on the
Company's financial position or its results of operations.
<TABLE>
<CAPTION>
Years Ended March 31,
--------------------------------------------------
1999 1998 1997
--------------- --------------- ---------------
(In Thousands)
<S> <C> <C> <C>
Net Sales:
Waste Management Services Segment $ 14,123 $ 12,567 $ 11,836
Consumer Healthcare Products Segment 872 1,286 1,276
-------------- --------------- ---------------
Total $ 14,995 $ 13,853 $ 13,112
-------------- --------------- ---------------
-------------- --------------- ---------------
Operating Income (Loss) from Continuing Operations:
Waste Management Services Segment $ 1,907 $ 1,603 $ 1,073
Consumer Healthcare Products Segment 215 543 467
Corporate (496) (1,112) (1,022)
-------------- --------------- ---------------
Total $ 1,626 $ 1,034 $ 518
-------------- --------------- ---------------
-------------- --------------- ---------------
Identifiable Assets:
Waste Management Services Segment $ 11,821 $ 10,945 $ 9,589
Consumer Healthcare Products Segment 115 157 111
Corporate (a) 16,041 14,690 11,670
-------------- --------------- ---------------
Total $ 27,977 $ 25,792 $ 21,370
-------------- --------------- ---------------
-------------- --------------- ---------------
Depreciation Expense:
Waste Management Services Segment $ 1,016 $ 886 $ 816
Consumer Healthcare Products Segment 2 1 1
Corporate 42 29 25
-------------- --------------- ---------------
Total $ 1,060 $ 916 $ 842
-------------- --------------- ---------------
-------------- --------------- ---------------
Capital Expenditures:
Waste Management Services Segment $ 1,105 $ 1,228 $ 1,107
Consumer Healthcare Products Segment 4 - 6
Corporate 24 113 5
-------------- --------------- ---------------
Total $ 1,133 $ 1,341 $ 1,118
-------------- --------------- ---------------
-------------- --------------- ---------------
</TABLE>
(a) Amount includes net assets of discontinued operations of $326,000,
$188,000, and $7,003,000 for fiscal years 1999, 1998, and 1997,
respectively (see Note 11).
The Company recorded interest income of $687,000, $521,000, and $160,000 for
fiscal years 1999, 1998, and 1997, respectively. Additionally, the Company
recorded interest expense of $52,000 and $195,000 for fiscal years 1998 and
1997, respectively. The Company records interest income and interest expense
at the Corporate level.
F-10
<PAGE>
WASTE MANAGEMENT SERVICES SEGMENT
- ---------------------------------
The Company operates its medical waste management services segment through
its wholly-owned subsidiaries, Bio Systems Partners ("BSP"), BioWaste
Systems, Inc., and Medical Waste Systems, Inc. (collectively, "Bio Systems").
Prior to fiscal 1998, the Company owned a 60% general partnership interest in
BSP. In October 1997, the Company purchased the remaining 40% partnership
interest in BSP from the minority partner for $1,100,000 (see Note 4). Bio
Systems has developed and implemented a system to manage and to dispose of
certain infectious waste from hospitals and medical facilities--primarily
injectables and other sharp-edged waste. Bio Systems operates in ten
Northeastern and Mid-Atlantic States, plus the District of Columbia.
CONSUMER HEALTHCARE PRODUCTS SEGMENT
- ------------------------------------
Scherer Laboratories, Inc. ("Scherer Labs"), a 100% owned subsidiary of the
Company, markets brand name and generic over-the-counter ("OTC") drugs. The
OTC products are principally products used for treatment of colds and coughs,
eye and ear irritations and insect bites. In early fiscal 1997, Scherer Labs
discontinued the sale of its one prescription drug due to an impractical
increase in the cost to manufacture. The loss of these sales did not have a
material effect on the Company. In fiscal 1999, Scherer Labs had two
customers who accounted for 47% and 13%, respectively, of its net sales and
had one customer who accounted for 60% and 55% of its net sales in fiscal
1998 and 1997, respectively.
Scherer Labs markets its products primarily to drug and food stores, mass
market retailers, drug wholesalers, and government agencies. The majority of
the sales are through retailers in the southwest region of the United States.
Accounting, customer service and warehouse and distribution functions are
performed in Atlanta, Georgia, and sales, marketing, purchasing, and
relations with suppliers and contractors are performed in Dallas, Texas.
NOTE 3. MARKETABLE SECURITIES
The Company has investments in high-grade marketable securities composed
primarily of government and corporate fixed income bonds. The Company has
classified its marketable securities as available-for-sale securities as
defined by SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." These marketable securities are being carried at fair
market value, based on quoted market prices, and unrealized holding gains and
losses have been reported under capital in excess of par value.
The amortized cost and fair market value of the Company's marketable
securities are as follows:
<TABLE>
<CAPTION>
Net
Amortized unrealized Fair market
cost loss value
----------- ----------- ------------
<S> <C> <C> <C>
MARCH 31, 1999
--------------
Municipal bonds $ 7,444,000 $ (2,000) $ 7,442,000
Corporate bonds 1,217,000 (10,000) 1,207,000
Preferred stocks 298,000 (33,000) 265,000
----------- --------- -----------
Total $ 8,959,000 $ (45,000) $ 8,914,000
----------- --------- -----------
----------- --------- -----------
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 2 years to 28.6 years and the
corporate bonds mature ranging from 10 years to 25.7 years.
F-11
<PAGE>
NOTE 4. ACQUISITION OF MINORITY PARTNERSHIP INTEREST
The Company, through a wholly-owned subsidiary, owned a 60% partnership
interest in BSP which operates in the Company's Waste Management Services
Segment. Pursuant to a summary judgment, the Company's subsidiary was
required to purchase the minority partner's 40% partnership interest in BSP
valued as of November 30, 1993. After separate appraisals performed by the
partners were not consistent, a third independent appraiser was retained by
the partners to review each of the previous valuations and to determine the
purchase price for the minority interest. In early October 1997, the
independent appraiser informed the Company and the minority partner of its
determination that the fair market value of the 40% minority interest in BSP
was $1,100,000 as of November 30, 1993. Effective October 28, 1997, the
Company's subsidiary purchased the minority partner's 40% partnership
interest in BSP for a purchase price of $1,100,000. As a result, the Company,
through its subsidiary, now owns 100% of BSP.
The purchase price of $1,100,000 for the 40% partnership interest in BSP and
the associated transaction costs of $114,000 have been reported as
intangibles and are being amortized over 30 years.
NOTE 5. INTANGIBLES AND COSTS IN EXCESS OF NET ASSETS ACQUIRED
Intangibles are being amortized on a straight-line basis over periods ranging
from 5 to 30 years. Amortization expense amounted to $124,000, $90,000, and
$93,000 in fiscal years 1999, 1998, and 1997, respectively. Accumulated
amortization, net of write-offs, at March 31, 1999 and 1998 was $279,000 and
$199,000, respectively.
The cost in excess of net assets acquired ("goodwill") is being amortized on
a straight-line basis over a period of 30 years. Amortization expense
amounted to $106,000, $107,000, and $106,000 in fiscal years 1999, 1998, and
1997, respectively. Accumulated amortization at March 31, 1999 and 1998 was
$1,077,000 and $971,000, respectively.
Subsequent to an acquisition, the Company periodically evaluates whether
later events and circumstances indicate that the remaining estimated useful
life of goodwill warrants revision. When factors indicate that goodwill
should be evaluated for possible impairment, the Company uses an estimate of
undiscounted net income over the remaining life of the goodwill in measuring
whether the goodwill is recoverable. As of March 31, 1999, in the opinion of
the Company's management, no revision of goodwill is required.
NOTE 6. BORROWINGS
Debt and obligations under capital leases at March 31, 1999 and 1998
consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
Obligations under capital leases, due in varying installments through
fiscal 2003 $ 586,000 $ 773,000
Less current maturities (235,000) (269,000)
---------- -----------
Long-term debt $ 351,000 $ 504,000
---------- -----------
---------- -----------
</TABLE>
The following is a summary of the future maturities of the obligations:
<TABLE>
<S> <C>
Years ended March 31:
2000 $ 235,000
2001 196,000
2002 111,000
2003 44,000
2004 -
--------------
Total $ 586,000
--------------
--------------
</TABLE>
F-12
<PAGE>
NOTE 7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
Office space, warehouse facilities, transportation equipment, and office
equipment are leased under noncancelable operating leases expiring at various
dates through 2003. Total rental expense included in the consolidated
statements of operations was approximately $333,000, $557,000, and $580,000
for the years ended March 31, 1999, 1998, and 1997, respectively.
The following is a summary of future minimum lease payments required under
operating leases having noncancelable lease terms in excess of one year:
<TABLE>
<S> <C>
Years ended March 31:
2000 $ 416,000
2001 369,000
2002 256,000
2003 90,000
2004 -
-------------
Total $ 1,131,000
-------------
-------------
</TABLE>
LEGAL PROCEEDINGS
In a January 1989 merger transaction, a wholly-owned subsidiary of the
Company acquired Med X Services of Pennsylvania, Inc. ("Med X") whose
President and majority stockholder was Harry Kovar. Mr. Kovar continued to be
employed by Med X after the merger although a written employment agreement
between Mr. Kovar and Med X had not been executed. In July 1989, Mr. Kovar
was terminated from his employment with Med X. On December 15, 1989, Mr.
Kovar and his wife filed a complaint against the Company, Med X, and other
affiliated entities and persons in the Court of Common Pleas of Bucks County,
Pennsylvania. The complaint, as amended, filed by Mr. Kovar alleged, among
other charges, breach of an oral agreement by the Company to cause Med X to
employ Mr. Kovar on a long-term basis and breach by Med-X of an alleged
employment contract between Mr. Kovar and Med X. On March 13, 1992, the
company answered Mr. Kovar's complaint and filed a counterclaim against Mr.
Kovar for breach of warranties and representations, fraud, and violations of
Pennsylvania's Securities Act of 1972 in connection with the merger of the
Company's subsidiary and Med X. On June 9, 1997, all defendants in the case
filed motions for summary judgment. On January 23, 1998, the Court denied the
motion for summary judgment filed by the Company and Med X, but granted the
motion filed by the individual defendants. Between the date the complaint was
filed and the date of the orders on summary judgment, the case progressed
slowly, and at times was essentially dormant. Subsequent to the ruling on the
motions for summary judgment, settlement discussions began. Although
settlement discussions are ongoing, settlement of the case has not yet been
reached. If settlement is not achieved, the Company intends to vigorously
defend all of Mr. Kovar's remaining claims.
On August 28, 1998, Amy 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 ("EEOC"). On September 23, 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. The Company has conducted an internal investigation of Ms.
Murphy's charge and has concluded that there has been no Title VII violation.
On December 22, 1998, the EEOC notified the Company that it has terminated
its investigation of Ms. Murphy's charge. On March 17, 1999, Ms. Murphy filed
a complaint in United States District Court, Northern District of Georgia,
Atlanta, Division, against the Company and Mr. Scherer alleging gender
discrimination, sexual harassment, and intentional infliction of emotional
distress. The Company and Mr. Scherer filed an answer denying Ms. Murphy's
allegations on April 23, 1999. The Company intends to vigorously defend all
claims brought by Ms. Murphy.
The Company is subject to other legal proceedings and claims that arise in
the ordinary course of business. Although the outcome of such proceedings and
claims cannot be determined with certainty, management is of the opinion that
their final outcome will not have a material adverse effect on the Company's
consolidated operations or financial position.
F-13
<PAGE>
NOTE 8. STOCKHOLDERS' EQUITY
STOCK OPTIONS
The Company has stock options outstanding and exercisable under three stock
option plans and a long-term incentive plan. Options become exercisable at a
rate ranging from 20% to 100% per year from the date of grant and expire ten
years from the date of grant. The Company's 1994 Stock Incentive Plan (the
"1994 Plan") is the only Plan with stock option awards available for grant.
All prior plans have expired. At March 31, 1999, the maximum shares available
under the 1994 Plan for future grants was 730,000. The price of options
granted to date have been at the fair market value of the shares on date of
grant.
The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
under which no compensation cost is recognized for options granted with an
exercise price equal to the fair market value of the Company's common stock
at the grant date. If the Company had accounted for these plans in accordance
with SFAS No. 123 "Accounting for Stock-Based Compensation," which measures
compensation cost at the grant date based on the value of the award and is
recognized over the service (or vesting) period, the Company's pro forma net
income and earnings per share would have been reflected as follows:
<TABLE>
<CAPTION>
Years Ended March 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net Income
As reported $ 2,321,000 $ 6,001,000
Pro forma $ 2,215,000 $ 5,907,000
Basic earnings per share
As reported $0.54 $1.39
Pro forma $0.51 $1.37
Diluted earnings per share
As reported $0.51 $1.32
Pro forma $0.49 $1.30
</TABLE>
These pro forma amounts include amortized fair values attributable to options
granted after March 31, 1995 only, and therefore are not representative of
future pro forma amounts.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted
assumptions used for options granted in fiscal years 1999 and 1998,
respectively: dividend yield of 0%, expected volatility of 70%, risk-free
interest rates of return of 5.81% and 6.87%, expected option lives of 6 years
and 5.92 years.
F-14
<PAGE>
A summary of changes in outstanding options is as follows:
<TABLE>
<CAPTION>
Weighted
Shares Average
Subject Price per
to Option Share
--------- ---------
<S> <C> <C>
Balance at March 31, 1996 129,800 $ 15.05
Options granted - -
Options exercised - -
Options canceled and expired - -
--------- ---------
Balance at March 31, 1997 129,800 15.05
Options granted 280,000 1.69
Options exercised - -
Options canceled and expired - -
--------- ---------
Balance at March 31, 1998 409,800 5.92
Options granted 40,000 3.56
Options exercised (16,667) 1.69
Options canceled and expired (33,333) 1.69
--------- ---------
Balance at March 31, 1999 399,800 $ 6.21
--------- ---------
--------- ---------
Options exercisable at March 31, 1999 318,138
---------
---------
</TABLE>
Of the 399,800 options outstanding at March 31, 1999, 99,800 have exercise
prices ranging from $12.50 to $14.30, with a weighted average exercise price
of $13.09 and a weighted average remaining contractual life of two years. All
of these options are exercisable as of March 31, 1999. Additionally, 30,000
options have exercise prices ranging from $20.50 to $26.88, with a weighted
average exercise price of $21.56 and a weighted average remaining contractual
life of 4.7 years. Of these options, 25,000 are exercisable as of March 31,
1999 and 5,000 become exercisable in fiscal 2000. Of the remaining 270,000
options outstanding at March 31, 1999, 230,000 have an exercise price of
$1.69 and a weighted average remaining contractual life of 7.1 years and
40,000 have an exercise price of $3.56 and a remaining contractual life of
9.1 years. Of these options, 193,338 are exercisable as of March 31, 1999 and
76,662 become exercisable in fiscal 2000.
CONVERTIBLE PREFERRED STOCK
As part of the Marquest acquisition in fiscal 1994, the Company issued 43,516
shares of its 5% convertible preferred stock, $.01 par value (the "Preferred
Stock") to the former holders of Marquest's defaulted Swiss bonds (see Note
11). The Company has 2,000,000 shares of the Preferred Stock authorized. Each
share of the Preferred Stock is convertible into approximately 4.43 shares of
the Company's common stock. At March 31, 1999 and 1998, the Company had
22,775 and 23,152, respectively, shares of the Preferred Stock outstanding
which were convertible into approximately 100,817 and 102,724 respectively,
shares of the Company's common stock.
COMPREHENSIVE INCOME
In fiscal 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income". Comprehensive income is defined as the total of net income and all
other non-owner changes in stockholders' equity. The Company's comprehensive
income includes net income and unrealized gains and losses on certain
available-for-sale investments. In accordance with SFAS No. 130, the Company
expanded its reporting and display of comprehensive income and its components
in the consolidated statements of stockholders' equity. The adoption of SFAS
No. 130 had no effect on the Company's financial position, results of
operations or cash flows.
F-15
<PAGE>
NOTE 9. RETIREMENT PLAN
A contributory 401(k) salary reduction plan (the "401(k) Plan") covers all
nonunion employees, and union employees in a few states, who are 21 years of
age or older and have been employed at least one year. Prior to April 1,
1995, an eligible employee could elect to contribute up to 3% of their
compensation and the Company was required to make a matching contribution
equal to 200% of employee contributions for all 401(k) Plan participants
still employed on the last day of the Plan year. Effective April 1, 1995, an
eligible employee may elect to contribute from 2% up to 10% of their
compensation and the Company may make a matching contribution, at its
discretion, equal to a set percentage of employee contributions for all
401(k) Plan participants still employed on the last day of the 401(k) Plan
year. The amount of employee contributions to which the match percentage is
applied is limited to 6% of an employee's compensation. For fiscal 1999, the
Company made a matching contribution equal to 100% of employee contributions
up to the maximum of 6% of employee compensation. Company contributions were
approximately $118,000, $132,000, and $120,000 for fiscal years 1999, 1998,
and 1997, respectively.
NOTE 10. INCOME TAXES
As of March 31, 1999 and 1998, the Company's net deferred tax assets
consisted of the following:
<TABLE>
<CAPTION>
1999 1998
------------- --------------
<S> <C> <C>
Deferred tax assets:
Accrued expenses $ 347,000 $ 230,000
Partnership losses - 575,000
Net operating loss carryforwards 36,000 674,000
Depreciation 96,000 -
Other - 150,000
------------- --------------
Total deferred tax assets 479,000 1,629,000
------------- --------------
Deferred tax liabilities:
Depreciation - (284,000)
Other (47,000) -
------------- --------------
Total deferred tax liabilities (47,000) (284,000)
------------- --------------
Valuation allowance (103,000) (1,016,000)
------------- --------------
Net deferred tax assets $ 329,000 $ 329,000
------------- --------------
------------- --------------
</TABLE>
A reconciliation of the income tax provision from continuing operations at
the federal statutory rates to the actual tax provision from continuing
operations for fiscal years 1999, 1998, and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Computed statutory amount $ 815,000 $ 519,000 $ 153,000
Increase (decrease) in taxes resulting from:
State income taxes, net of federal income
tax benefit 96,000 61,000 18,000
Amortization of goodwill and intangibles 43,000 (133,000) 38,000
Net change in valuation allowance (913,000) (1,156,000) 81,000
Other, net 36,000 730,000 (286,000)
------------ ------------- -------------
Provision for income taxes $ 77,000 $ 21,000 $ 4,000
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
Components of the provision for income taxes for fiscal years 1999, 1998, and
1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------- -------------
<S> <C> <C> <C>
Current taxes:
Federal $ 28,000 $ 5,000 $ -
State 49,000 16,000 4,000
------------ ------------- -------------
Provision for income taxes $ 77,000 $ 21,000 $ 4,000
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
At March 31, 1999, the Company has regular tax loss carryforwards of
approximately $94,000 expiring in varying dates through 2011. The Company has
determined, based upon its recent earnings history, that asset valuation
allowances of $103,000 and $1,016,000 should be established against its
deferred tax assets as of March 31, 1999 and 1998, respectively.
F-16
<PAGE>
NOTE 11. DISCONTINUED OPERATIONS
MEDICAL DEVICE AND SURGICAL/SAFETY DISPOSABLES SEGMENT
The operations of Marquest Medical Products, Inc. ("Marquest"), a
manufacturer and international distributor of specialty cardiopulmonary
support, respiratory and anethesia disposable devices, and Scherer
Healthcare, Ltd. ("Scherer Ltd."), whose primary business was to manufacture
and distribute nonwoven medical drapes, gowns and accessory items to
hospitals and other health care providers, were included in the Company's
Medical Device and Surgical/Safety Disposables Segment. The assets and
businesses of Scherer Ltd., a limited partnership that was 65% owned by the
Company, were sold in two separate transactions in October 1995 and October
1996. In July 1997, the Company and Marquest, which was a majority owned
subsidiary of the Company, completed certain transactions with Vital Signs,
Inc. ("VSI") whereby Marquest became a wholly-owned subsidiary of VSI.
Effective with the sale of Marquest to VSI, the operations of the Medical
Device and Surgical/Safety Disposables Segment have been accounted for as a
discontinued segment, and accordingly, the operations of Marquest and Scherer
Ltd. have been segregated and reported as discontinued operations in the
accompanying consolidated financial statements.
The following results of operations are attributable to the discontinued
operations of the Medical Device and Surgical/Safety Disposables Segment for
fiscal years 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
Net Sales $ 6,623,000 $ 23,114,000
------------ ------------
<S> <C> <C>
Cost of goods sold 4,519,000 16,027,000
Selling, general, and administrative 2,106,000 6,587,000
Research and development expenditures 90,000 286,000
------------ ------------
Total costs and expenses 6,715,000 22,900,000
------------ ------------
Operating (loss) income (92,000) 214,000
Other expense, net (567,000) (819,000)
------------ ------------
Loss before minority interest and income
taxes (659,000) (605,000)
Minority interest in net loss of subsidiary and
partnership 339,000 359,000
------------ ------------
Loss before income taxes (320,000) (246,000)
Provision for income taxes - (2,000)
------------ ------------
Loss from discontinued operations $ (320,000) $ (248,000)
------------ ------------
------------ ------------
</TABLE>
The liabilities of the discontinued operations of the Medical Device and
Surgical/Safety Disposables Segment were $41,000 and $179,000 at March 31,
1999 and March 31, 1998, respectively. These liabilities consisted of
accounts payable and accrued expenses.
Set forth below is information regarding Marquest and Scherer Ltd. and the
transactions discussed above.
F-17
<PAGE>
MARQUEST
In fiscal 1994, the Company made an investment in Marquest by (i) purchasing
certain assets from Marquest associated with the manufacture and sale of
Marquest's arterial blood gas products (the "ABG Assets") for $4,500,000 in
cash and leasing and licensing these assets back to Marquest, and (ii)
participating with Marquest in an exchange offer pursuant to which certain
outstanding indebtedness of Marquest, which was in default at the time of the
exchange offer, was exchanged for new Marquest notes, shares of the Company's
Series A convertible preferred stock ("Preferred Stock"), and warrants to
purchase Marquest common stock. In consideration for the issuance of its
Preferred Stock as part of the exchange offer, the Company received a
$4,352,000 convertible note of Marquest which was, at the election of the
Company, convertible into Marquest common stock (the "Marquest Note"). In
consideration for its agreement to enter into the sale and leaseback of the
ABG Assets, which included an option whereby Marquest could repurchase the
ABG Assets from the Company, the Company received warrants to purchase
6,580,000 shares of Marquest common stock, exercisable at $0.75 per share.
Marquest had been included in the Company's consolidated financial statements
since the time of the above transactions due to the Company's ability to
control Marquest by virtue of common stock, warrants and convertible debt
held by the Company and the Company's control of Marquest's Board of
Directors.
In May 1994, the Company converted $2,500,000 of the Marquest Note into
3,333,333 shares of Marquest common stock. In March 1996, the Company
converted the remaining balance of $1,852,000 on the Marquest Note plus
associated accrued interest into 3,340,245 shares of Marquest common stock.
Additionally, the Company agreed to convert accrued but unpaid management
fees owed to the Company by Marquest into 537,614 shares of common stock.
After these conversions, the Company owned approximately 51% of Marquest's
outstanding common stock.
In July 1997, VSI acquired Marquest upon the merger of a wholly-owned
subsidiary of VSI with and into Marquest (the "Merger"). At the effective
time of the Merger, all of the issued and outstanding shares of Marquest
common stock were converted into the right to receive $0.797 in cash per
share and Marquest became a wholly-owned subsidiary of VSI. As a result, the
Company received approximately $5,747,000 in cash in exchange for its
7,211,192 shares of Marquest common stock and approximately $309,000 in cash
through the exercise of warrants to purchase Marquest common stock and the
conversion of these shares into cash pursuant to the Merger. Additionally,
VSI purchased the ABG Assets from the Company and the Company entered into a
covenant not to compete with VSI in the manufacture and sale of arterial
blood gas products for a period of three years. VSI paid the Company an
aggregate of $5,860,000 in cash for the ABG Assets and the covenant not to
compete. In fiscal 1998, the Company recorded an aggregate gain, net of
income taxes and transaction costs, of $4,892,000 from the Merger and the
sale of the ABG Assets. In fiscal 1999, the Company recorded an increase of
$94,000 to the aggregate net gain due the revision of certain estimated
accrued transaction costs. The Merger, the sale of the ABG Assets by the
Company to VSI, and the execution of the covenant not to compete are
collectively referred to as the "Marquest Transactions".
SCHERER LTD.
The Company, through a wholly-owned subsidiary, owned a 65% interest in
Scherer Ltd. and was its sole general partner. Scherer Ltd., which was formed
in 1987, was engaged in the manufacture and distribution of three disposable
product lines: surgical drapes and gowns, surgical trays, and
industrial/clean room specialty apparel.
In October 1995, Scherer Ltd. sold certain of its assets to Cordis Medical, a
wholly owned subsidiary of Cordis Corporation for $6,527,000. The assets sold
were those used in connection with Scherer Ltd.'s business of packing and
distributing medical supplies for surgical procedures and providing nonwoven
medical drapes, gowns and accessory items to hospitals and other health care
providers (the "Medical Business"). Additionally, Cordis Medical agreed to
assume all accounts payable related to the Medical Business and certain other
specifically identified liabilities, including the mortgage on Scherer Ltd.'s
facility located in Asheville, North Carolina. Scherer Ltd. continued in the
business of providing nonwoven apparel for industrial uses (the "Industrial
Business") after the sale of the Medical Business.
In October 1996, Scherer Ltd. sold substantially all of its remaining assets
to a subsidiary of Health-Pak, Inc. for approximately $254,000, plus the
assumption by Health-Pak of $319,000 in accounts payable. The assets acquired
by Health-Pak were those used in connection with Scherer Ltd.'s Industrial
Business and included accounts receivable, inventory and furniture and
fixtures. Additionally, Health-Pak agreed to assume certain accounts payable
and liabilities related to the Industrial Business. The Company recorded a
loss from the transaction of $84,000 in fiscal 1997 primarily due to the
write-off of the remaining book value of certain intangible assets.
F-18
<PAGE>
PHARMACEUTICAL RESEARCH AND DEVELOPMENT SEGMENT
Biofor, Inc. ("Biofor"), a majority owned subsidiary of the Company which had
been operating the Company's Pharmaceutical Research and Development Segment,
was engaged in research to identify and develop new drug compounds. Biofor
utilized "artificial intelligence" computer technology (known as "MultiCASE")
which employed a system of rational drug design (known as M-CADD). This
technology was used for new drug compound development and for contracted
research and development.
Biofor focused its drug design efforts on arthritis and osteoarthritis as
well as the treatment for acute pain. Biofor's lead compound, BF-389, was an
anti-inflammatory analgesic which preliminary Phase I clinical trials
indicated was not sufficiently bioavailable when administered orally in
humans. Other delivery methods that would allow oral administration of the
compound were pursued by Biofor without success.
In fiscal 1991, Biofor and Ono Pharmaceutical Company, Ltd. ("Ono") entered
into the first of two research and collaboration agreements pursuant to which
they jointly researched compounds. Biofor provided the use of its exclusive
M-CADD software and its scientists experienced in using M-CADD, while Ono
provided funding and clinical testing of any compounds discovered. The first
contract expired in fiscal 1994 and the second expired March 1996.
In July 1995, after attempts to locate a purchaser for Biofor, Biofor ceased
further drug design efforts and concentrated solely on the Ono research
contract. When the Ono contract expired in March 1996, Biofor discontinued
all operations and the Company abandoned all operations of Biofor.
The abandonment of the operations of Biofor has been accounted for as a
discontinued segment, and accordingly, the operations of Biofor have been
segregated and reported as discontinued operations in the accompanying
consolidated financial statements.
The following results of operations are attributable to the discontinued
operations of Biofor for fiscal years 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales $ - $ - $ -
-------------- -------------- -------------
Other costs and expenses - - 104,000
Write-down of assets to net realizable value 94,000 75,000 271,000
-------------- -------------- -------------
94,000 75,000 375,000
-------------- -------------- -------------
Loss from discontinued operations $ (94,000) $ (75,000) $ (375,000)
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
The net assets of the discontinued operations of Biofor at March 31, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Assets:
Property and equipment, net of disposal
costs (a) $ 411,000 $ 437,000
----------- -----------
Total assets 411,000 437,000
----------- -----------
Liabilities:
Accounts payable and accrued expenses 19,000 45,000
Other liabilities 25,000 25,000
----------- -----------
Total liabilities 44,000 70,000
----------- -----------
Net assets of Biofor $ 367,000 $ 367,000
----------- -----------
----------- -----------
</TABLE>
(a) The remaining property and equipment of Biofor consists of land, a
30,000 square foot building owned by Biofor, and computer and laboratory
equipment.
F-19
<PAGE>
The Company intends to sell the remaining assets of Biofor, but it now
anticipates that it may take several years (primarily to sell the building)
and accordingly, has recorded additional charges of $94,000, $75,000 and
$271,000 in fiscal 1999, 1998 and 1997, respectively, for the write-down of
Biofor's assets to their estimated net realizable value. No income taxes or
interest expense was allocated to the discontinued operations of Biofor for
the fiscal years 1999, 1998 and 1997.
CONSOLIDATED DISCONTINUED OPERATIONS
The following is a summary of the Company's consolidated net gain (loss) from
discontinued operations for fiscal years 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- ------------- -------------
<S> <C> <C> <C>
Loss from discontinued operations of the
Medical Device and Surgical/Safety
Disposables Segment $ - $ (320,000) $ (248,000)
Gain (loss) from disposal of Medical Device
and Surgical/Safety Disposables Segment 94,000 4,892,000 (84,000)
Loss from discontinued operations of Biofor (94,000) (75,000) (375,000)
-------------- ------------ -------------
Gain (loss) from discontinued operations $ - $ 4,497,000 $ (707,000)
-------------- ------------ -------------
-------------- ------------ -------------
</TABLE>
The following is a summary of the Company's consolidated net assets of
discontinued operations at March 31, 1999 and March 31, 1998:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Net liabilities of the Medical Device
and Surgical/Safety Disposables Segment $ (41,000) $ (179,000)
Net assets of Biofor 367,000 367,000
------------ -----------
Net assets of discontinued operations $ 326,000 $ 188,000
------------ -----------
------------ -----------
</TABLE>
NOTE 12. RELATED-PARTY TRANSACTIONS
Prior to fiscal 1997, Scherer Capital Company L.L.C. ("Scherer Cap") and
Scherer Scientific, Ltd. ("Scherer Sci"), entities controlled by the majority
stockholder of the Company, made loans (the "Affiliate Loans") to the Company
and its subsidiaries, the proceeds of which were used for working capital and
business and equipment acquisitions. The Affiliate Loans were payable on
demand and bore interest at prime rate plus 1%. In January 1997, the Company
and Scherer Cap restructured the balance of $2,128,000 on the Affiliate Loans
(the Company had repaid all amounts owed to Scherer Sci) into a promissory
note (the "Original Note") to be repaid in monthly installments of principal
and interest over a five-year term with a maturity date of December 1, 2001.
The Original Note was collateralized by shares of Marquest common stock owned
by the Company, had a fixed monthly payment and bore interest at prime rate
plus 1%, adjusted quarterly. In connection with the dissolution of Scherer
Cap in March 1997, the Original Note was amended (the "Amended Note") and
subsequently assigned to the four adult children, who are not affiliated with
the Company, of Robert P. Scherer, Jr. who is Chairman of the Board, Chief
Executive Officer and the majority stockholder of the Company. In exchange
for certain considerations, $50,000 of the principal balance was forgiven and
the interest rate was reduced to prime, adjusted quarterly, in the Amended
Note. The Company reported the $50,000 of debt forgiveness as an equity
transaction due to the common control at the time between the respective
parties. In fiscal 1997, the Company incurred an aggregate of $175,000 in
interest expense on the Affiliate Loans and the Original Note.
F-20
<PAGE>
In July 1997, the Company used a portion of the proceeds from the Marquest
Transactions (see Note 11) to pay in full the outstanding principal balance
of approximately $1,867,000 on the Amended Note. Accordingly, the Amended
Note was canceled and the shares of Marquest common stock pledged as
collateral under the Amended Note were released back to the Company.
Prior to fiscal 1997, Marquest borrowed $700,000 from Scherer Cap for working
capital purposes and Scherer Cap purchased 2,061,856 shares of Marquest
common stock for $1,000,000 in cash. The $700,000 that Marquest borrowed from
Scherer Cap was represented by a convertible note (the "Scherer Cap Note")
which was convertible into shares of Marquest common stock, at the option of
Scherer Cap, at a conversion rate of $0.70 per share. In connection with its
dissolution in March 1997, Scherer Cap assigned the Scherer Cap Note, and
transferred 1,546,392 shares of the Marquest common stock that it owned to
Mr. Scherer, Jr. The remaining 515,464 shares of Marquest common stock owned
by Scherer Cap were transferred into a voting trust for the benefit of Mr.
Scherer, Jr.'s adult children. In July 1997, Mr. Scherer, Jr. converted the
outstanding principal amount of $700,000 on the Scherer Cap Note into
1,000,000 shares of Marquest common stock and accordingly, the Scherer Cap
Note was canceled. In connection with the Marquest Transactions in July 1997,
the shares of Marquest common stock that Mr. Scherer, Jr. owned and the
515,464 shares of Marquest common stock held in the voting trust for the
benefit of his adult children were converted into cash pursuant to the terms
of the Merger.
In fiscal 1997, Scherer Sci charged the Company $70,000 in management fees
which represented an allocated portion of the salary of a certain executive
officer of the Company who was an employee of Scherer Sci and not the
Company. The executive officer provided the Company with administrative and
operations management. In connection with the dissolution of Scherer Sci in
March 1997, the executive officer became an employee of the Company.
NOTE 13. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Years Ended March 31,
-----------------------------------------------
1999 1998 1997
-------------- -------------- ------------
<S> <C> <C> <C>
NONCASH INVESTING AND FINANCING
TRANSACTIONS:
Restructure of demand loan from an affiliate into a
promissory note, net of debt forgiveness $ - $ - $ 2,078,000
-------------- -------------- ------------
-------------- -------------- ------------
Supplemental information:
Interest paid during the year $ - $ 52,000 $ 212,000
Income taxes paid (refunded) during the year 105,000 33,000 (30,000)
</TABLE>
F-21
<PAGE>
SCHEDULE II
SCHERER HEALTHCARE, INC.
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Additions
-----------------------
Col. A Col. B Col. C Col. D Col. E Col. F
- ------------------------------------------- ---------- ---------- ---------- ----------- --------
Balance Charged to Charged Balance
Beginning Costs and to Other at End
of Year Expenses Accounts Deductions of Year
Description
- ------------------------------------------- ---------- ---------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
1999:
Allowance for doubtful accounts $ 189,000 $ 130,000 $ - $ 26,000(a) $ 293,000
---------- --------- ----------- ------------ ---------
---------- --------- ----------- ------------ ---------
1998:
Allowance for doubtful accounts $ 171,000 $ 69,000 $ - $ 51,000(a) $ 189,000
---------- --------- ----------- ------------ ---------
---------- --------- ----------- ------------ ---------
1997:
Allowance for doubtful accounts $ 80,000 $ 93,000 $ - $ 2,000(a) $ 171,000
---------- --------- ----------- ------------ ---------
---------- --------- ----------- ------------ ---------
</TABLE>
(a) Accounts written off, net of recoveries.
S-1
<PAGE>
SCHERER HEALTHCARE, INC.
INDEX OF EXHIBITS
The following exhibits are filed with or incorporated by reference in this
report. Where such filing is made by incorporation by reference to a
previously filed registration statement or report, such registration
statement or report is identified in parentheses.
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- ----------- ------
<S> <C> <C>
3.1 Articles of Incorporation of the Company, as amended (Exhibit
3.1 to the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1994).
3.2 By-Laws of the Company (Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1994).
4 Certificate of Designation, Preferences and Rights of
Preferred Stock by Resolution of the Board of Directors
Providing for an Issue of 7,000 Shares of Preferred Stock
Designated "Series A" Cumulative Convertible Preferred Stock
(Exhibit 4 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1994).
10.1 Property Lease between Bio Systems Partners and Flushing
Operating Corp. for 210 Sherwood Avenue, Farmingdale, New
York, and Addendum (Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1994).
10.2 Property Lease between Med X Services of PA, Inc. and
successors and Mark Hankin and Hamnar Associates XVII for 380
Constance Drive, Warminster, Pennsylvania, and Addendum
(Exhibit 10.4 to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1994).
10.3 Agreement and Plan of Merger dated March 14, 1997 by and among
Vital Signs, Inc., VSI Acquisition Corporation, and Marquest
Medical Products, Inc. (Exhibit 2.1 to the Company's Current
Report on Form 8-K dated March 21, 1997)
10.4 Scherer Healthcare Inducement Agreement dated March 14, 1997 by
and between Scherer Healthcare, Inc., Vital Signs, Inc. and
Marquest Medical Products, Inc. (Exhibit 2.2 to the Company's
Current Report on Form 8-K dated March 21, 1997)
21 Subsidiaries of Registrant - filed herewith. 43
23 Consent of Arthur Andersen LLP - filed herewith 44
25 Power of Attorney - included on signature page of this Annual
Report on Form 10-K
27 Financial Data Schedule (included only in EDGAR filing)
</TABLE>
-42-
<PAGE>
Exhibit 21. SUBSIDIARIES OF SCHERER HEALTHCARE, INC.
<TABLE>
<S> <C> <C>
1. Medical Waste Systems, Inc. Subsidiary
DBA Bio Systems I.D.#22-2853378
380 Constance Drive
Warminster, Pennsylvania 18974
(770) 933-1800
2. ASH Enterprises, Inc. Subsidiary
120 Interstate North Parkway, S.E., Suite 305 I.D.# 58-1728029
Atlanta, Georgia 30339
(770) 933-1800
3. Bio Systems Partners Wholly Owned Partnership
DBA Bio Systems I.D.# 58-1822608
210 Sherwood Avenue
Farmingdale, New York 11735
(770) 933-1800
4. Biofor, Inc. Subsidiary
120 Interstate North Parkway, S.E., Suite 305 I.D.# 58-2105818
Atlanta, Georgia 30339
(770) 933-1800
5. BioWaste Management Corp. Subsidiary
120 Interstate North Parkway, S.E., Suite 305 I.D.# 11-2872389
Atlanta, Georgia 30339
(770) 933-1800
6. BioWaste Systems, Inc. Subsidiary
210 Sherwood Avenue I.D.# 58-1803613
Farmingdale, New York 11735
(770) 933-1800
7. Scherer Laboratories, Inc. Subsidiary
120 Interstate North Parkway, S.E., Suite 305 I.D.# 75-0270890
Atlanta, Georgia 30339
(770) 933-1800
</TABLE>
-43-
<PAGE>
Exhibit 23. CONSENT OF ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated June 2, 1999 included in this Form 10-K for the year ended
March 31, 1999, into the previously filed registration statement of Scherer
Healthcare, Inc. on Form S-8 (File No. 333-74877).
/s/Arthur Andersen LLP
Atlanta, Georgia
June 25, 1999
-44-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 5,433
<SECURITIES> 0
<RECEIVABLES> 4,014
<ALLOWANCES> (293)
<INVENTORY> 200
<CURRENT-ASSETS> 9,743
<PP&E> 7,786
<DEPRECIATION> (3,674)
<TOTAL-ASSETS> 27,977
<CURRENT-LIABILITIES> 2,980
<BONDS> 351
0
0
<COMMON> 47
<OTHER-SE> 24,221
<TOTAL-LIABILITY-AND-EQUITY> 27,977
<SALES> 14,995
<TOTAL-REVENUES> 14,995
<CGS> 8,796
<TOTAL-COSTS> 13,369
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,398
<INCOME-TAX> 77
<INCOME-CONTINUING> 2,321
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,321
<EPS-BASIC> 0.54
<EPS-DILUTED> 0.51
</TABLE>
