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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2000
COMMISSION FILE NO. 0-10552
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SCHERER HEALTHCARE, INC.
(Exact name of registrant as specified in its Charter)
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<S> <C>
DELAWARE 59-0688813
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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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 / /
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 15, 2000 was $6,549,686. There were
4,337,751 Shares of Common Stock outstanding on June 15, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2000 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, 2000
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......................................... 12
6. Selected Financial Data..................................... 12
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13
7a. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 18
8. Financial Statements and Supplementary Data................. 18
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 18
PART III
10. Directors and Executive Officers of the Registrant.......... 19
11. Executive Compensation...................................... 19
12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 19
13. Certain Relationships and Related Transactions.............. 19
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 20
SIGNATURES.................................................. 21
INDEX OF EXHIBITS...........................................
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SCHERER HEALTHCARE, INC.
FORM 10-K
PART I
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.
ITEM 1. BUSINESS
OVERVIEW
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, 2000, the following wholly-owned subsidiaries
operated within the Company's two business segments:
WASTE MANAGEMENT SERVICES SEGMENT:
(a) Bio Systems Partners, a Georgia partnership.
(b) BioWaste Systems, Inc., a Georgia corporation.
(c) Medical Waste Systems, Inc., a Delaware corporation.
CONSUMER HEALTHCARE PRODUCTS SEGMENT:
Scherer Laboratories Inc., a Texas corporation.
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.
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YEAR ENDED MARCH 31,
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2000 1999 1998
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(IN THOUSANDS)
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Net Sales:
Waste Management Services Segment......................... $15,435 $14,123 $12,567
Consumer Healthcare Products Segment...................... 1,353 872 1,286
------- ------- -------
Total................................................... $16,788 $14,995 $13,853
======= ======= =======
Operating Income (Loss) from Continuing Operations:
Waste Management Services Segment......................... $ 1,656 $ 1,907 $ 1,603
Consumer Healthcare Products Segment...................... 460 215 543
Corporate................................................. (698) (496) (1,112)
------- ------- -------
Total................................................... $ 1,418 $ 1,626 $ 1,034
======= ======= =======
Identifiable Assets:
Waste Management Services Segment......................... $12,707 $11,821 $10,945
Consumer Healthcare Products Segment...................... 228 115 157
Corporate (a)............................................. 15,778 16,041 14,690
------- ------- -------
Total................................................... $28,713 $27,977 $25,792
======= ======= =======
Depreciation Expense:
Waste Management Services Segment......................... $ 1,069 $ 1,016 $ 886
Consumer Healthcare Products Segment...................... 3 2 1
Corporate................................................. 45 42 29
------- ------- -------
Total................................................... $ 1,117 $ 1,060 $ 916
======= ======= =======
Capital Expenditures:
Waste Management Services Segment......................... $ 1,344 $ 1,105 $ 1,228
Consumer Healthcare Products Segment...................... 3 4 --
Corporate................................................. 28 24 113
------- ------- -------
Total................................................... $ 1,375 $ 1,133 $ 1,341
======= ======= =======
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(a) Amount includes net assets of discontinued operations of $399,000, $326,000,
and $188,000 in fiscal years 2000, 1999, and 1998, respectively.
The Company recorded interest income of $738,000, $687,000, and $521,000 for
fiscal years 2000, 1999, and 1998, respectively. Additionally, the Company
recorded interest expense of $52,000 in fiscal year 1998. The Company records
interest income and interest expense at the Corporate level.
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.
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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. Bio System's medical waste processing operations are located at
its processing facility in Farmingdale, New York. Bio Systems uses its facility
located near Philadelphia, Pennsylvania to assemble, manage and store its
reusable medical waste containers. Bio Systems also operates a transfer station
in Haverhill, Massachusetts.
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, 2000,
Bio Systems had contracts with 245 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.
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
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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, 2000, Bio Systems had 162 employees. Drivers,
technicians and processing personnel in New York and drivers and warehouse
personnel in Pennsylvania are covered by collective bargaining agreements
representing approximately 64% of Bio Systems' employees. Bio Systems entered
into a new three-year collective bargaining agreement in June 1999 with the
union for its New York employees and a new three-year agreement in October 1999
with the union for its Pennsylvania employees. In April 1999, Bio Systems
received notice that approximately 10 employees at its transfer facility in
Haverhill, Massachusetts are now represented by a union. A collective bargaining
agreement covering the Massachusetts employees has not been ratified.
Negotiations are continuing with the help of a mediator. 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. 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, 2000, Scherer Labs had
two full-time employees. One employee, who works from the Dallas, Texas office,
administers all sales, marketing, and purchasing. 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.
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.
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
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located in other areas of the country. Sales to Wal-Mart Stores, Inc.
represented approximately 50%, 37% and 60% of total sales in fiscal 2000, 1999
and 1998, respectively. These sales were through McKesson HBOC, Wal-Mart's
primary wholesaler, and account for over 80% of McKesson HBOC'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 total,
sales to McKessen HBOC represent approximately 68% of Scherer Labs' total sales.
In fiscal 2000 and 1999, sales to Albertsons, Inc. represented approximately 10%
and 13% of Scherer Labs' total sales, respectively. 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 U.S. Food and Drug
Administration. 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.") previously 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
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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.
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.
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.
RECENT TRANSACTIONS
On October 5, 1999, the Company made a cash investment of $2,000,000 in
Econometrics, Inc., a database marketing company based in Chicago, Illinois that
manages its own national consumer database of 180 million consumers and links
marketers to its national database through the Internet. The Company's
investment is in the form of a five-year convertible debenture, dated as of
September 30, 1999 (the "Debenture"), in the principal sum of $2,000,000, to be
repaid by Econometrics to the last registered holder of the Debenture on
September 1, 2004. Interest accrues on the unpaid principal balance of the
Debenture from September 30, 1999 at a rate of 8% per annum. Econometrics is not
required to make an interest payment until September 1, 2000, at which time all
accrued interest from September 30, 1999 through September 1, 2000 shall be
paid. Commencing on December 1, 2000, interest shall be paid quarterly until the
principal amount has been paid in full or the Debenture has been converted in
full into Econometrics' common stock. Until the Debenture is paid in full, the
Company has the right to convert up to the entire outstanding principal balance
of the Debenture, plus accrued interest thereon, into shares Econometrics'
common stock at a conversion price of $.4315 per share, subject to adjustment.
The conversion price was determined to provide the Company with 20%
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of the outstanding common stock of Econometrics as of September 30, 1999, on a
fully diluted basis. Additionally, as a result of the transaction, the Company
has two persons serving on the seven member Econometrics Board of Directors.
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.
This facility currently is not used.
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 by both parties. In July 1989,
Mr. Kovar was terminated from his employment with Med X. On December 18, 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 ("Kovar Complaint"). The Kovar Complaint, as amended four times by
Mr. Kovar, alleged, among other charges, breach of an oral agreement by
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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 Fourth Amended 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
September 26, 1992, the Company filed a complaint against Mr. Kovar, his wife,
and other persons in the court of Common Pleas of Buck County, Pennsylvania
("Scherer Compliant"). On November 15, 1993, the Court consolidated the Kovar
Complaint and the Scherer Compliant. On June 9, 1997, all defendants in the
Kovar Complaint 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 in the Kovar. Between the
date the Kovar Complaint was filed and the date of the orders on summary
judgment, the consolidated action progressed slowly, and at times was
essentially dormant. Subsequent to the ruling on the motions for summary
judgment, settlement discussions began. On October 26, 1999, the parties agreed
in principle to a settlement in which the Company would pay Mr. Kovar $325,000
in a lump sum cash payment. In December 1999, the Company, without admitting any
wrongdoing, finalized the terms of the settlement with Mr. Kovar and the lawsuit
was dismissed. The Company recorded $210,000 related to this settlement under
litigation expense in fiscal 2000. The balance of the expense related to the
amount of the settlement was accrued by the Company in prior periods.
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
conducted an internal investigation of Ms. Murphy's charge and concluded that
there has been no Title VII violation. On December 22, 1998, the EEOC notified
the Company that it had 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. On October 4, 1999, the
Company, without admitting any wrongdoing, settled the dispute with Ms. Murphy
for a cash payment of $140,000. The Company recorded $88,000 in expense related
to the settlement, including associated legal fees, under litigation expense in
fiscal 2000. The balance of the expenses related to this settlement were accrued
in prior periods. The Company also agreed to repurchase all of Ms. Murphy's
16,667 shares of common stock of the Company for $3.50 per share. Ms. Murphy
withdrew the lawsuit and retracted her allegations against the Company and
Mr. Scherer.
The Company is a party to certain other legal proceedings, however, it does
not anticipate that any such proceedings will have any material adverse effects
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, 2000.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
The names, ages at June 1, 2000, and current positions of the Company's
current executive officers and by each person who served as an officer at
December 31, 2000. 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
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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.
<TABLE>
<CAPTION>
NAME AND AGE POSITIONS WITH THE COMPANY
------------ ------------------------------------------------------------
<S> <C>
Robert P. Scherer, Jr., 67 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 Ruffcorn, 38 Former Vice President, Chief Financial Officer, and
Assistant Secretary of the company from September 1997 until
March 2000. 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.
</TABLE>
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
COMMON STOCK
At March 31, 2000, there were approximately 1,941 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 2000 FISCAL 1999
------------------- -------------------
HIGH LOW HIGH LOW
-------- -------- -------- --------
<S> <C> <C> <C> <C>
First Quarter............................... $4.250 $2.750 $5.063 $3.250
Second Quarter.............................. 4.375 2.875 4.125 2.625
Third Quarter............................... 3.625 2.375 5.000 2.500
Fourth Quarter.............................. 4.000 2.875 4.500 3.500
</TABLE>
On June 23, 2000, the closing price of the Common Stock was $3.438.
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.
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, 2000, 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, 2000 and 1999, and for each of the years in the three
year period ended March 31, 2000, and the report of Arthur Andersen LLP thereon,
are included elsewhere in this report.
12
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales....................................... $16,788 $14,995 $13,853 $13,112 $11,858
Cost of goods sold.............................. $10,249 $ 8,796 $ 8,008 $ 7,633 $ 6,716
Selling, general and administrative expenses.... $ 4,823 $ 4,406 $ 4,811 $ 4,961 $ 4,906
Litigation settlements.......................... $ 298 $ 167 -- -- --
Operating income................................ $ 1,418 $ 1,626 $ 1,034 $ 518 $ 236
Other income (expense), net..................... $ 830 $ 772 $ 491 $ (68) $ (200)
Income from continuing operations............... $ 2,248 $ 2,398 $ 1,525 $ 446 $ 214
Income from continuing operations per share
basic......................................... $ 0.47 $ 0.54 $ 0.35 $ 0.10 $ 0.05
Income from continuing operations per share
diluted....................................... $ 0.45 $ 0.51 $ 0.33 $ 0.10 $ 0.05
Gain (loss) from discontinued operations........ -- -- $ 4,497 $ (707) $ 1,534
Net income (loss)............................... $ 2,046 $ 2,321 $ 6,001 $ (261) $ 1,748
Net income (loss) per share--basic.............. $ 0.47 $ 0.54 $ 1.39 $ (0.06) $ 0.41
Net income (loss) per share--diluted............ $ 0.45 $ 0.51 $ 1.32 $ (0.06) $ 0.40
Average shares outstanding--basic............... 4,336 4,330 4,314 4,302 4,277
Average shares outstanding--diluted............. 4,548 4,566 4,530 4,418 4,418
Total assets.................................... $28,713 $27,977 $25,792 $21,370 $21,298
Total long-term liabilities..................... $ 438 $ 729 $ 1,011 $ 2,371 $ 648
Stockholders' equity............................ $25,363 $24,268 $21,916 $15,963 $16,174
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.
13
<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>
YEAR ENDED MARCH 31,
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
NET SALES:
Waste Management Services Segment................ $15,435 $14,123 $12,567
Consumer Healthcare Products Segment............. 1,353 872 1,286
------- ------- -------
Company Totals................................. $16,788 $14,995 $13,853
======= ======= =======
OPERATING INCOME (LOSS):
Waste Management Services Segment................ $ 1,656 $ 1,907 $ 1,603
Consumer Healthcare Products Segment............. 460 215 543
Corporate........................................ (698) (496) (1,112)
------- ------- -------
Company Totals................................. $ 1,418 $ 1,626 $ 1,034
======= ======= =======
</TABLE>
FISCAL 2000 VS. FISCAL 1999
The Company's net sales increased by 12% to $16,788,000 in fiscal 2000 from
$14,995,000 in fiscal 1999. The Company's operating income decreased 13% to
$1,418,000 in fiscal 2000 from $1,626,000 in fiscal 1999. The Company's cost of
goods sold increased to 61% of net sales in fiscal 2000 from 59% of net sales in
fiscal 1999. Selling, general and administrative expenses including litigation
settlements was unchanged at 31% of net sales, in both fiscal 2000 and fiscal
1999.
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 9% to $15,435,000 in fiscal 2000 from $14,123,000
in fiscal 1999. 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 decreased 13% to $1,656,000 in fiscal 2000
from $1,907,000 in fiscal 1999. Bio Systems' cost of goods sold increased to 63%
of its net sales in fiscal 2000, from 59% of net sales in fiscal 1999. Selling,
general and administrative expenses as a percentage of Bio Systems' net sales
was unchanged at 24% in both fiscal 2000 and fiscal 1999. Starting in early
fiscal 1998 and continuing through fiscal 2000, 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 with respect to those accounts. Additionally, Bio Systems'
operating payroll and transportation
14
<PAGE>
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 2000 compared to prior years.
CONSUMER HEALTHCARE PRODUCTS SEGMENT
Net sales for Scherer Labs, which operates in the Company's Consumer
Healthcare Products Segment, increased 55% to $1,353,000 in fiscal 2000 from
$872,000 in fiscal 1999. The increase in Scherer Labs' net sales is due
primarily to the following factors: (i) the general increase in the level of
business in fiscal year 2000 and (ii) a new contract with Wal-Mart. Through
McKesson, its primary distributor, Scherer Labs began selling the ERO ear wax
removal system to Wal-Mart in the first quarter of fiscal 2000. Sales of this
product to Wal-Mart during the year were approximately $490,000 or 36% of gross
sales for the year.
As a result of the increase in net sales, Scherer Labs' operating income
increased 114% to $460,000 in fiscal 2000 from $215,000 in fiscal 1999. Scherer
Labs' cost of goods sold increased slightly to 39% of its net sales in fiscal
2000 from 38% in fiscal 1999 and its selling, general and administrative
expenses decreased to 27% of net sales in fiscal 2000 from 37% in fiscal 1999.
CORPORATE
The Company's operating expenses at the corporate level increased to
$698,000 in fiscal 2000 from $496,000 in fiscal 1999. 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. Payroll expense at the Corporate level 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 Company also accrued
expenses of $88,000 in fiscal 2000 to settle a lawsuit that was pending at the
end of fiscal 1999.
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.
Set forth below is a discussion of the results of operations of each of the
Company's business segments for fiscal 1999 compared to fiscal 1998.
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
15
<PAGE>
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, which was unchanged compared to fiscal 1998. Selling, general and
administrative expenses as a percentage of Bio Systems' net sales were all
unchanged at 27% of net sales 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 additions 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 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 order for Scherer Labs' products. Although
Scherer Labs has taken action to regain the lost sales, there can by 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 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
16
<PAGE>
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, 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-sources. The expenses
associated with the out-sourcing of certain professional functions has partially
offset the savings from the reductions of the Corporate office staff. The
Company does not allocate any revenues to the Corporate Segment.
OTHER INCOME (EXPENSE). The Company recorded interest income of $738,000,
$687,000, and $521,000 in fiscal 2000, 1999, and 1998, respectively. The
significant increase in interest income in fiscal 2000 and 1999 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 in fiscal 1998 and did not
record any interest expense in fiscal 2000 or 1999. The decrease in interest
expense 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.
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 $202,000,
$77,000 and $21,000 in fiscal 2000, 1999 and 1998, respectively. In fiscal 2000
and in prior years, the Company utilized tax loss carryforwards and reduced its
valuation allowance accordingly. Additionally, in fiscal 2000 and in prior
years, the Company significantly increased its valuation allowance against its
deferred tax assets mainly related to the tax loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents totaled $1,689,000 at March 31,
2000, a decrease of $3,744,000 from March 31, 1999. In April 1999, the Company
invested $1,906,000 in long-term high-grade marketable securities resulting in a
reduction in cash equivalents. Additionally, in October 1999, the Company
invested $2,000,000 using cash on hand in Econometrics, Inc. (see Note 4 of
Notes to Consolidated Financial Statements included elsewhere herein). With the
investment in marketable securities in April 1999, the balance, at fair market
value, of the Company's long-term investments was $9,927,000 at March 31, 2000,
as compared to $8,914,000 at March 31, 1999. As a result of the investment in
marketable securities in April 1999 and the investment in Econometrics in
October 1999, the Company's working capital decreased to $4,056,000 at
March 31, 2000 from $6,763,000 at March 31, 1999. The Company's long-term debt
decreased to $288,000 at March 31, 2000 from $351,000 at March 31, 1999. The
primary reasons for these changes are discussed below.
CASH FLOWS FROM OPERATING ACTIVITIES.
The Company's cash provided by operating activities from continuing
operations totaled $2,054,000 for fiscal 2000, as compared to $2,695,000 for
fiscal 1999. Primarily due to the cash payment of $325,000 for the settlement of
a lawsuit, Bio Systems' cash provided from operating activities decreased to
$1,210,000 for fiscal 2000 from $1,595,000 for fiscal 1999. As a result of the
increase in its net sales, Scherer Labs' cash provided from operating activities
increased to $340,000 for fiscal 2000 from
17
<PAGE>
$188,000 for fiscal 1999. The cash provided by operations at the corporate level
increased to $916,000 for fiscal 2000 from $912,000 for the same period in
fiscal 1999.
CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES.
The Company's investing activities used cash of $5,632,000 and $3,833,000 in
fiscal 2000 and 1999, 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 April 1999, the Company increased
its investment in marketable securities by $1,906,000 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 29 years (see Note 3 of the Notes to
Consolidated Financial Statements included elsewhere herein). On October 5,
1999, the Company made a cash investment of $2,000,000 in Econometrics Inc. in
the form of a five-year convertible debenture (see Note 4 of Notes to
Consolidated Financial Statements included elsewhere within).
As a result of the growth in business, Bio Systems made capital expenditures
for equipment and containers of $1,344,000, $1,105,000, and $1,228,000 in fiscal
2000, 1999 and 1998, respectively.
Cash used for the Company's financing activities was $93,000, $159,000, and
$1,924,000 in fiscal 2000, 1999, and 1998, 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.
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 created risks for
the Company. If internal systems did not correctly recognize and process date
information beyond the year 1999, there could be an adverse impact on the
Company's operations. The Company completed its conversion to the new equipment
and software at its corporate headquarters in fiscal 1999 and Bio Systems
completed its 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. To date there have
been no year 2000 related problems with the computer systems.
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. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
18
<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 2000 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, 2000.
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
2000, 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.
19
<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 to
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(a) 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).
(b) Property Lease between Bio Systems Partners and Owners of 210 Sherwood
Avenue for 210 Sherwood Avenue, Farmingdale, New York (Exhibit 10 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999).
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).
21 Subsidiaries of Registrant--filed herewith.
27 Financial Data Schedule (included only in EDGAR filing)
99.1 Robert Scherer Inducement Agreement dated March 14, 1997 by Robert P.
Scherer, Jr. to Vital Signs, Inc. (Exhibit 99.2 to the Company's
Current Report on Form 8-K dated March 21, 1997)
(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, 2000:
None
20
<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 27, 2000.
<TABLE>
<S> <C> <C>
SCHERER HEALTHCARE, INC.
By: /s/ ROBERT P. SCHERER, JR.
-----------------------------------------
Robert P. Scherer, Jr.
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND
PRESIDENT
</TABLE>
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Robert P. Scherer, Jr. and Norman S. Marinoff, 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, 2000, 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 27, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
/s/ ROBERT P. SCHERER, JR. Chairman of the Board,
------------------------------------------- Director, Chief Executive
Robert P. Scherer, Jr. Officer, and President
/s/ NORMAN S. MARINOFF
------------------------------------------- Acting Chief Financial
Norman S. Marinoff Officer
/s/ STEPHEN LUKAS, SR.
------------------------------------------- Director
Stephen Lukas, Sr.
/s/ KENNETH H. ROBERTSON
------------------------------------------- Director
Kenneth H. Robertson
/s/ WILLIAM J. THOMPSON
------------------------------------------- Director
William J. Thompson
</TABLE>
21
<PAGE>
SCHERER HEALTHCARE, INC.
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, 2000 and 1999........ F-3
Consolidated Statements of Operations--Years Ended March 31,
2000, 1999 and 1998....................................... F-4
Consolidated Statements of Stockholders' Equity--Years Ended
March 31, 2000, 1999 and 1998............................. F-5
Consolidated Statements of Cash Flows--Years Ended March 31,
2000, 1999 and 1998....................................... F-6
Notes to Consolidated Financial Statements.................. F-7
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 Scherer Healthcare, Inc.
We have audited the accompanying consolidated balance sheets of SCHERER
HEALTHCARE, INC. (a Delaware corporation) AND SUBSIDIARIES as of March 31, 2000
and 1999 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended March 31,
2000. 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 auditing standards generally
accepted in the United States. 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, 2000 and 1999 and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
2000 in conformity with accounting principles generally accepted in the United
States.
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.
Arthur Andersen LLP
Atlanta, Georgia
June 2, 2000
F-2
<PAGE>
SCHERER HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF MARCH 31,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 1,689,000 $ 5,433,000
Accounts receivable, less allowance for doubtful accounts
of $257,000 in 2000 and $293,000 in 1999................ 4,442,000 3,613,000
Interest Receivable....................................... 248,000 108,000
Current maturities of notes receivable.................... -- 174,000
Inventories............................................... 374,000 200,000
Prepaid and other......................................... 215,000 215,000
----------- -----------
Total current assets.................................... 6,968,000 9,743,000
----------- -----------
PROPERTY AND EQUIPMENT...................................... 8,670,000 7,786,000
Less accumulated depreciation............................. (4,328,000) (3,674,000)
----------- -----------
Total property and equipment, net....................... 4,342,000 4,112,000
----------- -----------
OTHER ASSETS
Intangibles, net.......................................... 1,544,000 1,484,000
Cost in excess of net assets acquired, net................ 2,116,000 2,222,000
Investments, at market value.............................. 9,927,000 8,914,000
Other investments, at cost................................ 3,000,000 650,000
Deferred income taxes..................................... 119,000 329,000
Other..................................................... 265,000 197,000
Net assets of discontinued operations..................... 399,000 326,000
----------- -----------
Total other assets...................................... 17,370,000 14,122,000
----------- -----------
TOTAL ASSETS................................................ $28,680,000 $27,977,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $ 1,017,000 $ 1,083,000
Accrued expenses.......................................... 1,571,000 1,499,000
Current maturities of debt obligations.................... 263,000 235,000
Income taxes payable...................................... 1,000 85,000
Other..................................................... 27,000 78,000
----------- -----------
Total current liabilities............................... 2,879,000 2,980,000
----------- -----------
LONG-TERM DEBT, net of current maturities................... 288,000 351,000
OTHER LIABILITIES........................................... 150,000 378,000
COMMITMENTS AND CONTINGENCIES (see Note 8)
STOCKHOLDERS' EQUITY
Convertible preferred stock--$.01 par value, 2,000,000
shares authorized; 21,992 and 22,775 shares issued and
outstanding as of March 31, 2000 and 1999,
respectively............................................ -- --
Common stock--$.01 par value, 12,000,000 shares
authorized; 4,712,115 and 4,713,641 shares issued as of
March 31, 2000 and 1999, respectively; 4,337,163 and
4,334,279 shares outstanding as of March 31, 2000 and
1999, respectively...................................... 47,000 47,000
Capital in excess of par value............................ 21,456,000 22,349,000
Retained earnings......................................... 6,951,000 4,905,000
Less treasury stock, at cost.............................. (3,091,000) (3,033,000)
----------- -----------
Total stockholders' equity.............................. 25,363,000 24,268,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $28,680,000 $27,977,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
SCHERER HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES............................................. $16,788,000 $14,995,000 $13,853,000
----------- ----------- -----------
COSTS AND EXPENSES
Cost of goods sold.................................. 10,249,000 8,796,000 8,008,000
Selling, general and administrative................. 4,823,000 4,406,000 4,811,000
Litigation settlements (Note 8)..................... 298,000 167,000 --
----------- ----------- -----------
Total costs and expenses.......................... 15,370,000 13,369,000 12,819,000
----------- ----------- -----------
OPERATING INCOME...................................... 1,418,000 1,626,000 1,034,000
OTHER INCOME (EXPENSE)
Interest income..................................... 738,000 687,000 521,000
Interest expense.................................... -- -- (52,000)
Other, net.......................................... 92,000 85,000 22,000
----------- ----------- -----------
Total other income, net........................... 830,000 772,000 491,000
----------- ----------- -----------
Income from continuing operations before income
taxes............................................... 2,248,000 2,398,000 1,525,000
Provision for income taxes............................ 202,000 77,000 21,000
----------- ----------- -----------
Income from continuing operations..................... 2,046,000 2,321,000 1,504,000
Gain from discontinued operations, net of income taxes
of $137,000 in 1998 (Note 12)....................... -- -- 4,497,000
----------- ----------- -----------
NET INCOME............................................ $ 2,046,000 $ 2,321,000 $ 6,001,000
=========== =========== ===========
BASIC INCOME PER COMMON SHARE
Income from continuing operations................... $ 0.47 $ 0.54 $ 0.35
Gain from discontinued operations................... -- -- 1.04
----------- ----------- -----------
NET INCOME............................................ $ 0.47 $ 0.54 $ 1.39
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING--BASIC..... 4,336,383 4,329,568 4,314,264
=========== =========== ===========
DILUTED INCOME PER COMMON SHARE
Income from continuing operations................... $ 0.45 $ 0.51 $ 0.33
Gain from discontinued operations................... -- -- 0.99
=========== =========== ===========
NET INCOME............................................ $ 0.45 $ 0.51 $ 1.32
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING--DILUTED... 4,548,293 4,566,001 4,530,198
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
SCHERER HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
RETAINED
PREFERRED COMMON CAPITAL IN EARNINGS TREASURY TOTAL
STOCK STOCK EXCESS OF (ACCUMULATED STOCK, STOCKHOLDERS'
AMOUNT AMOUNT PAR VALUE DEFICIT) AT COST EQUITY
--------- -------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
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
Comprehensive income:
Net income..................... -- -- -- 2,046,000 -- 2,046,000
Unrealized (loss) on marketable
securities................... -- -- (893,000) -- -- (893,000)
-------- ------- ----------- ----------- ----------- -----------
Comprehensive income......... (893,000) 2,046,000 -- 1,153,000
Shares purchased............... -- -- -- -- (58,000) (58,000)
-------- ------- ----------- ----------- ----------- -----------
Balance at March 31, 2000...... $ -- $47,000 $21,456,000 $ 6,951,000 $(3,091,000) $25,363,000
======== ======= =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
SCHERER HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................. $ 2,046,000 $ 2,321,000 $ 6,001,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 1,382,000 1,290,000 1,113,000
Provision for doubtful accounts.................... (36,000) 104,000 11,000
Deferred Taxes..................................... 210,000 -- --
(Gain) loss from discontinued operations........... -- -- (4,497,000)
Other noncash charges and credits, net............. (16,000) 18,000 19,000
Changes in operating assets and liabilities:
Accounts receivable................................ (793,000) (921,000) (112,000)
Interest receivable................................ (140,000) (108,000) --
Inventories........................................ (174,000) (26,000) (4,000)
Prepaid and other current assets................... -- (3,000) (77,000)
Other assets....................................... (68,000) -- --
Income taxes, net.................................. (84,000) (30,000) 43,000
Accounts payable and accrued expenses.............. 6,000 179,000 (6,000)
Other liabilities.................................. (279,000) (129,000) 261,000
----------- ----------- -----------
Net cash provided by operating activities of
continuing operations.............................. 2,054,000 2,695,000 2,752,000
Net operating activities of discontinued
operations......................................... (73,000) (138,000) 1,082,000
----------- ----------- -----------
Net cash provided by operating activities.......... 1,981,000 2,557,000 3,834,000
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.................. (1,375,000) (1,133,000) (1,341,000)
Net proceeds from disposal of segment, net of
transaction costs.................................. -- -- 10,273,000
Purchase of long-term investments.................... (4,256,000) (2,671,000) (6,303,000)
Purchase of minority partnership interest............ -- -- (1,214,000)
Decrease in notes receivable......................... 174,000 191,000 182,000
Other investing activities, net...................... (175,000) (220,000) 72,000
Net investing activities of discontinued
operations......................................... -- -- 52,000
----------- ----------- -----------
Net cash (used for) provided by investing
activities....................................... (5,632,000) (3,833,000) 1,721,000
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments of) proceeds from borrowings......... (35,000) (187,000) (1,828,000)
Purchase of Treasury shares.......................... (58,000) -- --
Proceeds from sale of common stock................... -- 28,000 --
Net financing activities of discontinued
operations......................................... -- -- (96,000)
----------- ----------- -----------
Net cash used for financing activities............. (93,000) (159,000) (1,924,000)
----------- ----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS.................... (3,744,000) (1,435,000) 3,631,000
CASH AND CASH EQUIVALENTS, beginning of year........... 5,433,000 6,868,000 3,237,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year................. $ 1,689,000 $ 5,433,000 $ 6,868,000
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid during the year.......................... $ -- $ -- $ 52,000
Income taxes paid during the year...................... -- 105,000 33,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
SCHERER HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000, 1999, AND 1998
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 accounting
principles generally accepted in the United States 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 prior year amounts have been reclassified to conform with the
current year 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, 2000 and 1999, 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,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Finished products....................................... $ 68,000 $ 43,000
Containers, packaging, and raw material................. 355,000 205,000
LIFO reserve............................................ (49,000) (48,000)
-------- --------
Total................................................. $374,000 $200,000
======== ========
</TABLE>
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which addresses the accounting for
derivative instruments. SFAS No. 133 is effective for financial statements for
the Company's fiscal quarters beginning on January 1, 2001. The Company does not
expect SFAS No. 133 will have a significant effect on its current financial
reporting.
F-7
<PAGE>
SCHERER HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000, 1999, AND 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRINCIPLES OF
CONSOLIDATION (CONTINUED)
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,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
Automobiles and trucks............................... $1,713,000 $1,516,000
Leasehold improvements............................... 997,000 951,000
Furniture, fixtures, equipment and containers........ 5,960,000 5,319,000
---------- ----------
$8,670,000 $7,786,000
========== ==========
</TABLE>
Depreciation expense for fiscal years 2000, 1999, and 1998 was $1,117,000,
$1,060,000, and $916,000 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).
INCOME TAXES
The Company uses the liability method to account for income taxes (see
Note 11).
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 PER COMMON SHARE
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.
F-8
<PAGE>
SCHERER HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000, 1999, AND 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRINCIPLES OF
CONSOLIDATION (CONTINUED)
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 2000, 1999, and 1998.
<TABLE>
<CAPTION>
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Weighted average common shares outstanding--
basic..................................... 4,336,383 4,329,568 4,314,264
Dilutive potential common shares, weighted:
Conversion of preferred stock to common
stock................................... 98,287 102,078 104,219
Dilutive stock options, net................. 113,623 134,355 111,715
--------- --------- ---------
Weighted average common shares outstanding--
diluted................................... 4,548,293 4,566,001 4,530,198
========= ========= =========
Anti-dilutive options not included.......... 129,800 129,800 129,800
========= ========= =========
</TABLE>
NOTE 2. SEGMENT INFORMATION
In fiscal 1998, the Company 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 accounting policies of the business segments
F-9
<PAGE>
SCHERER HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000, 1999, AND 1998
NOTE 2. SEGMENT INFORMATION (CONTINUED)
are the same as those described in the summary of significant accounting
policies (Note 1). Summarized financial data by business segment as of and for
the years ending March 31, 2000, 1999, and 1998 are as follows.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net Sales:
Waste Management Services Segment.............. $15,435 $14,123 $12,567
Consumer Healthcare Products Segment........... 1,353 872 1,286
------- ------- -------
Total........................................ $16,788 $14,995 $13,853
======= ======= =======
Operating Income (Loss) from Continuing
Operations:
Waste Management Services Segment.............. $ 1,656 $ 1,907 $ 1,603
Consumer Healthcare Products Segment........... 460 215 543
Corporate...................................... (698) (496) (1,112)
------- ------- -------
Total........................................ $ 1,418 $ 1,626 $ 1,034
======= ======= =======
Identifiable Assets:
Waste Management Services Segment.............. $12,707 $11,821 $10,945
Consumer Healthcare Products Segment........... 228 115 157
Corporate (a).................................. 15,778 16,041 14,690
------- ------- -------
Total........................................ $28,713 $27,977 $25,792
======= ======= =======
Depreciation Expense:
Waste Management Services Segment.............. $ 1,069 $ 1,016 $ 886
Consumer Healthcare Products Segment........... 3 2 1
Corporate...................................... 45 42 29
------- ------- -------
Total........................................ $ 1,117 $ 1,060 $ 916
======= ======= =======
Capital Expenditures:
Waste Management Services Segment.............. $ 1,344 $ 1,105 $ 1,228
Consumer Healthcare Products Segment........... 3 4 --
Corporate...................................... 28 24 113
------- ------- -------
Total........................................ $ 1,375 $ 1,133 $ 1,341
======= ======= =======
</TABLE>
------------------------
(a) Amount includes net assets of discontinued operations of $399,000, $326,000,
and $188,000 for fiscal years 2000, 1999, and 1998, respectively (See
Note 12).
The Company recorded interest income of $738,000, $687,000, and $521,000 for
fiscal years 2000, 1999, and 1998, respectively. Additionally, the Company
recorded interest expense of $52,000 for fiscal year 1998. The Company records
interest income and interest expense at the Corporate level.
F-10
<PAGE>
SCHERER HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000, 1999, AND 1998
NOTE 2. SEGMENT INFORMATION (CONTINUED)
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 5). 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 fiscal 2000, Scherer Labs had two
customers who accounted for 68% and 10%, respectively, of its net sales. In
fiscal 1999, Scherer Labs had two customers who accounted for 37% and 13%,
respectively, of its net sales. In fiscal 1998, Scherer Labs had one customer
who accounted for 60% of its net sales.
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.
F-11
<PAGE>
SCHERER HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000, 1999, AND 1998
NOTE 3. MARKETABLE SECURITIES (CONTINUED)
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, 2000
Municipal bonds........................ $ 9,351,000 $(735,000) $8,616,000
Corporate bonds........................ 1,216,000 (129,000) 1,087,000
Preferred stocks....................... 298,000 (74,000) 224,000
----------- --------- ----------
Total................................ $10,865,000 $(938,000) $9,927,000
=========== ========= ==========
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
=========== ========= ==========
</TABLE>
The municipal bonds mature ranging from 1 year to 29.6 years and the
corporate bonds mature ranging from 9 years to 24.5 years.
NOTE 4. INVESTMENTS
On October 5, 1999, the Company made a cash investment of $2,000,000 in
Econometrics, Inc., a database marketing company based in Chicago, Illinois that
manages its own national consumer database of 180 million consumers and links
marketers to its national database through the Internet. The Company's
investment is in the form of a five-year convertible debenture, dated as of
September 30, 1999 (the "Debenture"), in the principal sum of $2,000,000, to be
repaid by Econometrics to the last registered holder of the Debenture on
September 1, 2004. Interest accrues on the unpaid principal balance of the
Debenture from September 30, 1999 at a rate of 8% per annum. Econometrics is not
required to make an interest payment until September 1, 2000, at which time all
accrued interest from September 30, 1999 through September 1, 2000 shall be
paid. Commencing on December 1, 2000, interest shall be paid quarterly until the
principal amount has been paid in full or the Debenture has been converted in
full into Econometrics' common stock. Until the Debenture is paid in full, the
Company has the right to convert up to the entire outstanding principal balance
of the Debenture, plus accrued interest thereon, into shares of Econometrics'
common stock at a conversion price of $.4315 per share, subject to adjustment.
The conversion price was determined to provide the Company with 20% of the
outstanding common stock of Econometrics as of September 30, 1999, on a fully
diluted basis. Additionally, as a result of the transaction, the Company has two
persons serving on the seven member Econometrics Board of Directors.
NOTE 5. 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
F-12
<PAGE>
SCHERER HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000, 1999, AND 1998
NOTE 5. ACQUISITION OF MINORITY PARTNERSHIP INTEREST (CONTINUED)
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 6. 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 $110,000, $124,000,
and $90,000 in fiscal years 2000, 1999, and 1998, respectively. Accumulated
amortization, net of write-offs, at March 31, 2000 and 1999 was $259,000 and
$279,000, 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 $155,000, $106,000, and $107,000 in fiscal years 2000, 1999, and 1998,
respectively. Accumulated amortization at March 31, 2000 and 1999 was $1,294,000
and $1,139,000, 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, 2000, in the opinion of the Company's
management, no revision of goodwill is required.
NOTE 7. BORROWINGS
Debt and obligations under capital leases at March 31, 2000 and 1999
consisted of the following:
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Obligations under capital leases, due in varying
installments through fiscal 2003.................... $ 551,000 $ 586,000
Less current maturities............................... (263,000) (235,000)
--------- ---------
Long-term debt........................................ $ 288,000 $ 351,000
========= =========
</TABLE>
F-13
<PAGE>
SCHERER HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000, 1999, AND 1998
NOTE 7. BORROWINGS (CONTINUED)
The following is a summary of the future maturities of the obligations:
<TABLE>
<S> <C>
Year ended March 31:
2001...................................................... $263,000
2002...................................................... 160,000
2003...................................................... 92,000
2004...................................................... 36,000
Thereafter................................................ --
--------
Total................................................... $551,000
========
</TABLE>
NOTE 8. 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 $329,000, $333,000, and $557,000 for the years
ended March 31, 2000, 1999, and 1998, 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>
Year ended March 31:
2001...................................................... $419,000
2002...................................................... 302,000
2003...................................................... 132,000
2004...................................................... 26,000
2005...................................................... 4,000
--------
Total................................................... $883,000
========
</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 by both parties. In July 1989,
Mr. Kovar was terminated from his employment with Med X. On December 18, 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 ("Kovar Complaint"). The Kovar Complaint, as amended four times 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 Fourth Amended Complaint and
filed a counterclaim against Mr. Kovar for
F-14
<PAGE>
SCHERER HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000, 1999, AND 1998
NOTE 8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 September 26, 1992, the Company filed a
complaint against Mr. Kovar, his wife, and other persons in the court of Common
Pleas of Buck County, Pennsylvania ("Scherer Compliant"). On November 15, 1993,
the Court consolidated the Kovar Complaint and the Scherer Compliant. On
June 9, 1997, all defendants in the Kovar Complaint 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 in the Kovar. Between the date the Kovar Complaint was filed and the
date of the orders on summary judgment, the consolidated action progressed
slowly, and at times was essentially dormant. Subsequent to the ruling on the
motions for summary judgment, settlement discussions began. On October 26, 1999,
counsel for the parties agreed to pay Mr. Kovar $325,000 in a lump sum cash
payment. In December 1999, the Company, without admitting any wrongdoing,
finalized the terms of the settlement with Mr. Kovar and the lawsuit was
dismissed. The Company recorded $210,000 related to this settlement under
litigation expense in the accompanying consolidated financial statements. The
balance of the expense related to the amount of the settlement was accrued by
the Company in prior periods.
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
conducted an internal investigation of Ms. Murphy's charge and concluded that
there has been no Title VII violation. On December 22, 1998, the EEOC notified
the Company that it had 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. On October 4, 1999, the
Company, without admitting any wrongdoing, settled the dispute with Ms. Murphy
for a cash payment of $140,000. The Company recorded $88,000 in expense related
to the settlement, including associated legal fees, under litigation expense in
the accompanying consolidated financial statements. The balance of the expenses
related to this settlement were accrued for in prior periods. The Company also
agreed to repurchase all of Ms. Murphy's 16,667 shares of Common Stock of the
Company for $3.50 per share. Ms. Murphy withdrew the lawsuit and retracted her
allegations against the Company and Mr. Scherer.
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-15
<PAGE>
SCHERER HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000, 1999, AND 1998
NOTE 9. 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, 2000, the maximum shares available under the
1994 Plan for future grants was 730,000. The exercise price of options granted
to date has been 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>
YEAR ENDED MARCH 31,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
Net Income
As reported........................................ $2,046,000 $2,321,000
Pro forma.......................................... $2,017,000 $2,215,000
Basic earnings per share
As reported........................................ $0.47 $0.54
Pro forma.......................................... $0.47 $0.51
Diluted earnings per share
As reported........................................ $0.45 $0.51
Pro forma.......................................... $0.44 $0.49
</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, respectively.
There were no options issued in fiscal year 2000.
F-16
<PAGE>
SCHERER HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000, 1999, AND 1998
NOTE 9. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of changes in outstanding options is as follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
SUBJECT TO PRICE PER
OPTION SHARE
---------- ---------
<S> <C> <C>
Balance at March 31, 1997................................ 129,800 15.05
Options granted........................................ 280,000 1.69
Options exercised...................................... -- --
Options cancelled 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 granted........................................ -- --
Options exercised...................................... -- --
Options canceled and expired........................... -- --
-------
Balance at March 31, 2000................................ 399,800 6.21
=======
Options exercisable at March 31, 2000.................... 399,800
=======
</TABLE>
Of the 399,800 options outstanding at March 31, 2000, 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 one year.
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 3.7 years. Of the remaining 270,000 options
outstanding at March 31, 2000, 230,000 have an exercise price of $1.69 and a
weighted average remaining contractual life of 6.1 years and 40,000 have an
exercise price of $3.56 and a remaining contractual life of 8.1 years. All of
these options are exercisable as of March 31, 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.
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, 2000 and 1999, the Company had 21,992 and
22,775, respectively, shares of the Preferred Stock outstanding which were
convertible into approximately 97,425 and 100,817, 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'
F-17
<PAGE>
SCHERER HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000, 1999, AND 1998
NOTE 9. STOCKHOLDERS' EQUITY (CONTINUED)
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.
NOTE 10. 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. 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 2000, 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
$155,000, $118,000, and $132,000 for fiscal years 2000, 1999, and 1998,
respectively.
NOTE 11. INCOME TAXES
As of March 31, 2000 and 1999, the Company's net deferred tax assets
consisted of the following:
<TABLE>
<CAPTION>
2000 1999
---------- -----------
<S> <C> <C>
Deferred tax assets:
Accrued expenses.................................. $ 287,000 $ 347,000
Net operating loss carryforwards.................. 850,000 1,298,000
Depreciation...................................... -- 96,000
Allowance for doubtful accounts................... 109,000 133,000
---------- -----------
Total deferred tax assets....................... 1,246,000 1,874,000
---------- -----------
Deferred tax liabilities:
Depreciation...................................... (34,000) --
Other............................................. (233,000) (180,000)
---------- -----------
Total deferred tax liabilities.................. (267,000) (180,000)
---------- -----------
Valuation allowance............................... (860,000) (1,365,000)
---------- -----------
Net deferred tax assets............................. $ 119,000 $ 329,000
========== ===========
</TABLE>
F-18
<PAGE>
SCHERER HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000, 1999, AND 1998
NOTE 11. INCOME TAXES (CONTINUED)
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 2000, 1999, and 1998 are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
--------- --------- -----------
<S> <C> <C> <C>
Computed statutory amount................. $ 742,000 $ 815,000 $ 519,000
Increase (decrease) in taxes resulting
from:
State income taxes, net of federal
income tax benefit.................... 87,000 96,000 61,000
Amortization of goodwill and
intangibles........................... 43,000 43,000 (133,000)
Net change in valuation allowance....... (505,000) (913,000) (1,156,000)
Other, net.............................. (165,000) 36,000 730,000
--------- --------- -----------
Provision for income taxes................ $ 202,000 $ 77,000 $ 21,000
========= ========= ===========
</TABLE>
Components of the provision for income taxes for fiscal years 2000, 1999,
and 1998 are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Current taxes:
Deferred tax.................................. $210,000 -- --
Federal....................................... 23,000 $28,000 $ 5,000
State......................................... (31,000) 49,000 16,000
-------- ------- -------
Provision for income taxes...................... $202,000 $77,000 $21,000
======== ======= =======
</TABLE>
The Company has determined, based upon its recent earnings history, that
asset valuation allowances of $860,000 and $1,365,000 should be established
against its deferred tax assets as of March 31, 2000 and 1999, respectively. At
March 31, 2000, the Company has tax loss carryforwards of approximately
$2,237,000 expiring in 2016 if not previously utilized.
NOTE 12. 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 anesthesia 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.
F-19
<PAGE>
SCHERER HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000, 1999, AND 1998
NOTE 12. DISCONTINUED OPERATIONS (CONTINUED)
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:
<TABLE>
<CAPTION>
1998
----------
<S> <C>
Net Sales................................................... $6,623,000
----------
Cost of goods sold.......................................... 4,519,000
Selling, general, and administrative........................ 2,106,000
Research and development expenditures....................... 90,000
----------
Total costs and expenses.................................. 6,715,000
----------
Operating (loss) income..................................... (92,000)
Other expense, net.......................................... (567,000)
----------
Loss before minority interest and income taxes.............. (659,000)
Minority interest in net loss of subsidiary and
partnership............................................... 339,000
----------
Loss before income taxes.................................... (320,000)
Provision for income taxes.................................. --
----------
Loss from discontinued operations........................... $ (320,000)
==========
</TABLE>
The liabilities of the discontinued operations of the Medical Device and
Surgical/Safety Disposables Segment were $34,000 and $41,000 at March 31, 2000
and March 31, 1999, respectively. These liabilities consisted of accounts
payable and accrued expenses.
Set forth below is information regarding Marquest and the transactions
discussed above.
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
F-20
<PAGE>
SCHERER HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000, 1999, AND 1998
NOTE 12. DISCONTINUED OPERATIONS (CONTINUED)
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".
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.
F-21
<PAGE>
SCHERER HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000, 1999, AND 1998
NOTE 12. DISCONTINUED OPERATIONS (CONTINUED)
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:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net sales............................................... $ -- $ --
-------- --------
Other costs and expenses................................ -- --
Write-down of assets to net realizable value............ 94,000 75,000
-------- --------
94,000 75,000
-------- --------
Loss from discontinued operations....................... $(94,000) $(75,000)
======== ========
</TABLE>
The net assets of the discontinued operations of Biofor at March 31, 2000
and 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Assets:
Property and equipment, net of disposal costs (a)..... $478,000 $411,000
-------- --------
Total assets........................................ 478,000 411,000
-------- --------
Liabilities:
Accounts payable and accrued expenses................. 20,000 19,000
Other liabilities..................................... 25,000 25,000
-------- --------
Total liabilities................................... 45,000 44,000
-------- --------
Net assets of Biofor.................................... $433,000 $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.
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 and $75,000 in fiscal
1999 and 1998, 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 2000,
1999, and 1998.
F-22
<PAGE>
SCHERER HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000, 1999, AND 1998
NOTE 12. DISCONTINUED OPERATIONS (CONTINUED)
CONSOLIDATED DISCONTINUED OPERATIONS
The following is a summary of the Company's consolidated net gain (loss)
from discontinued operations:
<TABLE>
<CAPTION>
1999 1998
-------- ----------
<S> <C> <C>
Loss from discontinued operations of the Medical Device
and Surgical/Safety Disposables Segment.............. $ -- $ (320,000)
Gain (loss) from disposal of Medical Device and
Surgical/ Safety Disposables Segment................. 94,000 4,892,000
Loss from discontinued operations of Biofor............ (94,000) (75,000)
-------- ----------
Gain (loss) from discontinued operations............... $ -- $4,497,000
======== ==========
</TABLE>
The following is a summary of the Company's consolidated net assets of
discontinued operations at March 31, 2000 and March 31, 1999:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Net liabilities of the Medical Device and
Surgical/Safety Disposables Segment................... $(34,000) $(41,000)
Net assets of Biofor.................................... 433,000 367,000
-------- --------
Net assets of discontinued operations................... $399,000 $326,000
======== ========
</TABLE>
NOTE 13. 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.
F-23
<PAGE>
SCHERER HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000, 1999, AND 1998
NOTE 13. RELATED-PARTY TRANSACTIONS (CONTINUED)
In July 1997, the Company used a portion of the proceeds from the Marquest
Transactions 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.
F-24
<PAGE>
SCHEDULE II
SCHERER HEALTHCARE, INC.
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
COL. A COL. B COL. C COL. D COL. E COL. F
---------------------------------------- --------- ---------- ---------- ---------- ----------
BALANCE CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR
---------------------------------------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
2000:
Allowance for doubtful accounts......... $293,000 $ 7,000 $ -- $43,000(a) $257,000
======== ======== ======== ======= ========
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
======== ======== ======== ======= ========
</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(a) 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).
(b) Property Lease between Bio Systems Partners and Owners of
210 Sherwood Avenue for 210 Sherwood Avenue, Farmingdale,
New York (Exhibit 10 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999).
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).
21 Subsidiaries of Registrant--filed herewith. 20
27 Financial Data Schedule (included only in EDGAR filing)
99.1 Robert Scherer Inducement Agreement dated March 14, 1997 by
Robert P. Scherer, Jr. to Vital Signs, Inc.
(Exhibit 99.2 to the Company's Current Report on Form 8-K
dated March 21, 1997)
</TABLE>
