-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P92DiNiDj/QnVYJWsZyrgGxCSXQeFDZG0KP0hJvoIW4VvsJj099GBH2293VgTd4K 4ES1IqzRr7cz7sbuVAdM/A== 0000792641-98-000017.txt : 19980921 0000792641-98-000017.hdr.sgml : 19980921 ACCESSION NUMBER: 0000792641-98-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980731 FILED AS OF DATE: 19980918 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIO REFERENCE LABORATORIES INC CENTRAL INDEX KEY: 0000792641 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEDICAL LABORATORIES [8071] IRS NUMBER: 222405059 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15266 FILM NUMBER: 98711219 BUSINESS ADDRESS: STREET 1: 481 EDWARD H ROSS DR CITY: ELMWOOD PARK STATE: NJ ZIP: 07407-3118 BUSINESS PHONE: 2017912186 MAIL ADDRESS: STREET 1: 481 EDWARD H ROSS DRIVE CITY: ELMWOOD PARK STATE: NJ ZIP: 07407-3118 FORMER COMPANY: FORMER CONFORMED NAME: MED MOBILE INC DATE OF NAME CHANGE: 19891115 10-Q 1 THIRD QUARTER 1998 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 (X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended July 31, 1998 ------------- AND ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- --------------- Commission File Number 0-15266 ------- BIO-REFERENCE LABORATORIES, INC. (Exact name of registrant as specified in its charter) NEW JERSEY 22-2405059 - ------------------------------- ---------------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 481 Edward H. Ross Drive, Elmwood Park, NJ 07407 - ------------------------------------------ --------------- (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (201) 791-2600 -------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the past 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 ----- ----- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities and Exchange Act of 1934 after the distribution of securities under a plan confirmed by a court. Yes No ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 7,212,910 ($.01 par value) at September 18, 1998. BIO-REFERENCE, LABORATORIES, INC. -------------------------------- FORM 10-Q --------- JULY 31, 1998 --------------- I N D E X --------- Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheet as of July 31, 1998 (unaudited) 1 Statements of Operations for the three months and nine months ended July 31, 1998 and July 31, 1997 (unaudited) 3 Statements of Cash Flows for the nine months ended July 31, 1998 and July 31, 1997 (unaudited) 4 Notes to financial statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION 13 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 13 BIO-REFERENCE LABORATORIES, INC. -------------------------------- BALANCE SHEETS -------------- ASSETS -------
July 31 October 31, --------- ----------- 1998 1997 ----------------------- (Unaudited) ---------- CURRENT ASSETS: - -------------- Cash $3,200,764 $2,161,825 Cash- Restricted 702,000 852,000 Accounts Receivable (Net) 19,772,696 13,737,881 Inventory 660,977 453,870 Other Current Assets 1,271,403 1,258,428 Certificates of Deposit- Restricted 3,601,250 3,601,250 -------------- ------------- TOTAL CURRENT ASSETS $29,209,090 $ 22,065,254 -------------------- -------------- ------------- PROPERTY, PLANT AND EQUIPMENT $4,692,332 $2,973,022 ----------------------------- LESS: Accumulated Depreciation 2,227,424 1,685,298 ---- -------------- ----------- TOTAL PROPERTY, --------------- PLANT AND EQUIPMENT - NET $2,464,908 $1,287,724 ------------------------- -------------- ------------- OTHER ASSETS: - ------------ Certificate of Deposit - Restricted $ 78,750 $ 78,750 Due from Related Party 192,518 214,118 Deposits 286,537 213,347 Goodwill (Net of Accumulated Amortization of $ 1,159,433 and $994,015, respectively) 5,765,197 1,406,570 Deferred Charges (Net of Accumulated Amortization of $2,294,499 and $1,891,970, respectively) 3,182,730 3,382,393 Other Assets 446,902 446,903 -------------- ------------- TOTAL OTHER ASSETS $9,952,634 $5,742,081 ------------------ -------------- ------------- TOTAL ASSETS $41,626,632 $29,095,059 ------------ =========== ===========
The Accompanying Notes are an Integral Part of These Financial Statements. BIO-REFERENCE LABORATORIES, INC. -------------------------------- -------------------------------- BALANCE SHEETS -------------- -------------- LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ -----------------------------------
July 31, October 31, -------- ----------- 1998 1997 ----------------------- (Unaudited) ----------- CURRENT LIABILITIES: - ------------------- Accounts Payable $ 4,518,334 $ 2,231,693 Salaries and Commissions Payable 1,164,805 1,065,339 Accrued Expenses 714,888 511,386 Current Portion of Long-Term Debt 2,306,621 864,266 Current Portion of Leases Payable 241,312 84,970 Subordinated Notes -- 1,339 Notes Payable 11,471,979 7,613,710 Taxes Payable 364,200 277,111 ------------ ------------- TOTAL CURRENT LIABILITIES $ 20,782,139 $12,649,814 ------------------------- ------------ ------------- LONG-TERM LIABILITIES: - --------------------- Long-Term Portion of Long-Term Debt 4,857,053 688,030 Long-Term Portion of Leases Payable 424,472 252,572 Deferred Interest (260,000) -- ------------ ------------- TOTAL LONG-TERM LIABILITIES $5,021,525 $920,602 --------------------------- ------------ ------------- SHAREHOLDERS' EQUITY: - -------------------- Preferred Stock $.10 Par Value; Authorized 1,062,589 shares, None Issued $ -- $ -- Senior Preferred Stock, $.10 Par Value; Authorized 604,078 shares, Issued and Outstanding 604,078 shares 60,408 60,408 Common Stock, $.01 Par Value; Authorized 18,333,333 shares, Issued and Outstanding 7,212,910 shares in July 31, 1998 and 7,169,376 shares in October 31, 1997 72,129 71,694 Additional Paid-In Capital 22,995,633 22,967,160 Accumulated [Deficit] (7,016,916) (7,231,568) ------------ ------------- Totals $16,111,254 $15,867,694 ------------ ------------- Deferred Compensation (288,286) (343,051) ------------ ------------- TOTAL SHAREHOLDERS' EQUITY $15,822,968 $15,524,643 -------------------------- ------------ ------------- TOTAL LIABILITIES AND --------------------- SHAREHOLDERS' EQUITY $41,626,632 $29,095,059 -------------------- =========== ===========
The Accompanying Notes are an Integral Part of These Financial Statements. BIO-REFERENCE LABORATORIES, INC. -------------------------------- STATEMENTS OF OPERATIONS ------------------------ [UNAUDITED] -----------
Three months ended ------------------ July 31, ------- 1 9 9 8 1 9 9 7 ------- ------- NET REVENUES: 13,638,812 $9,814,415 - ------------ ---------- ---------- COST OF SERVICES: Depreciation $ 226,634 $ 101,094 Employee Related Expenses 3,646,239 2,130,195 Reagents and Lab Supplies 1,670,113 1,118,741 Other Cost of Services 2,144,714 1,468,769 ---------- ---------- TOTAL COST OF SERVICES $7,687,700 $4,818,799 ---------------------- ---------- ---------- GROSS PROFIT ON REVENUES $5,951,112 $4,995,616 - ------------------------ General and Administrative Expenses: - ----------------------------------- Depreciation and Amortization $ 277,642 $ 184,459 Other General and Admin. Expenses 3,672,245 2,851,933 Bad Debt Expense 1,608,683 1,339,457 ---------- ---------- TOTAL GENERAL AND ADMIN. EXPENSES $5,558,570 $4,375,849 --------------------------------- ---------- ---------- OPERATING INCOME $ 392,542 $ 619,767 ---------------- OTHER (INCOME) EXPENSES: - ----------------------- Interest Expense $ 419,952 $ 275,715 Interest Income (83,766) (69,664) ---------- ---------- TOTAL OTHER EXPENSES - NET $ 336,186 $ 207,051 -------------------------- ---------- ---------- INCOME BEFORE TAX $ 56,356 $ 412,716 - ----------------- Provision for Income Taxes 3,694 45,849 ---------- ---------- NET INCOME $ 52,662 $ 366,867 - ---------- ========= ========= NET INCOME PER SHARE $ .01 $ .05 -------------------- ========= ========= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 6,943,448 7,115,280 --------------------------------------------- ========= ========= Nine months ended ----------------- July 31, ------- 1 9 9 8 1 9 9 7 ------- ------- NET REVENUES: $33,383,740 $29,064,409 - ------------ ----------- ----------- COST OF SERVICES: - ---------------- Depreciation $ 471,122 $ 286,370 Employee Related Expenses 8,233,478 6,467,929 Reagents and Lab Supplies 3,962,257 3,513,617 Other Cost of Services 5,049,851 4,180,300 ----------- ----------- TOTAL COST OF SERVICES $17,716,708 $14,448,216 ---------------------- ----------- ----------- GROSS PROFIT ON REVENUES $15,667,032 $14,616,193 - ------------------------ General and Administrative Expenses: - ----------------------------------- Depreciation and Amortization $ 638,952 549,235 Other General and Admin. Expenses 9,810,243 8,505,267 Bad Debt Expense 4,347,844 3,986,739 ----------- ----------- TOTAL GENERAL AND ADMIN. EXPENSES $14,797,039 $13,041,241 --------------------------------- ----------- ----------- OPERATING INCOME $ 869,993 $ 1,574,952 ---------------- OTHER (INCOME) EXPENSES: - ----------------------- Interest Expense $ 883,549 $ 834,145 Interest Income (273,619) (202,191) ----------- ----------- TOTAL OTHER EXPENSES - NET $ 609,930 $ 631,954 -------------------------- ----------- ----------- INCOME BEFORE TAX $ 260,063 $ 942,998 - ----------------- Provision for Income Taxes 45,411 52,632 ----------- ----------- NET INCOME $ 214,652 $ 890,366 - ---------- =========== =========== NET INCOME PER SHARE $ .03 $ .14 -------------------- =========== ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 6,943,448 6,571,947 --------------------------------------------- ========== ==========
The Accompanying Notes are an Integral Part of These Financial Statements. BIO-REFERENCE LABORATORIES, INC. -------------------------------- STATEMENTS OF CASH FLOWS ------------------------ [UNAUDITED] ----------
Nine months ended ----------------- July 31, -------- 1 9 9 8 1 9 9 7 ------- ------- OPERATING ACTIVITIES: - -------------------- Net Income $ 214,652 $ 890,366 Adjustments to Reconcile Net Income to Cash Provided by Operating Activities: Deferred Compensation 54,765 14,924 Depreciation and Amortization 1,110,073 835,854 Provision for Bad Debts 4,347,844 3,986,739 Change in Assets and Liabilities (Increase) Decrease in: Accounts Receivable (8,076,544) (5,919,412) Other Assets 34,432 (130,125) Prepaid Expenses and Other Current Assets 67,691 48,280 Deferred Charges and Goodwill -- (148,000) Increase (Decrease) in: Accounts Payable and Accrued Liabilities (588,940) 194,523 ------------ ----------- NET CASH - OPERATING ACTIVITIES $(2,836,027) $ (226,851) ------------------------------- INVESTING ACTIVITIES: - -------------------- Acquisition of Equipment and Leasehold Improvements (186,571) -- Acquisition of Medilabs, Inc. $(5,500,000) $ (181,568) (Increase) Decrease in Restricted Cash 150,000 -- ------------ ----------- NET CASH - INVESTING ACTIVITIES $(5,536,571) $ (181,568) ------------------------------- FINANCING ACTIVITIES: - -------------------- Proceeds from Exercise of Options 28,908 -- Payments of Long-Term Debt (795,073) (595,117) Long-Term Acquisition Debt 5,500,000 173,758 Payments of Capital Lease Obligations (117,640) (160,957) Payments of Subordinated Notes Payable (1,339) (113,500) Increase in Revolving Line of Credit 4,710,269 921,259 ------------ ----------- NET CASH - FINANCING ACTIVITIES $ 9,325,125 $ 225,443 ------------------------------- ------------ ----------- NET INCREASE (DECREASE) IN CASH $ 952,527 $ (182,976) ------------------------------- CASH AT BEGINNING OF PERIODS 2,161,825 1,401,474 ---------------------------- ------------ ----------- CASH AT END OF PERIODS $ 3,114,352 $1,218,498 ---------------------- =========== ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: - ------------------------------------------------- Cash paid during the period for: Interest $ 860,140 $ 572,908 Income Taxes $ 195,750 $ 48,501
The Accompanying Notes are an Integral Part of These Financial Statements. SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: - -------------------------------------------------------------------- In March, 1997, the Company incurred capital lease obligations (two) of $112,861 in connection with the acquisition of medical equipment. In May, 1997, the Company issued 815,000 shares of common stock ($313,725 of Deferred Compensation) and 35,200 non-employee stock options exercisable to purchase 35,200 shares of the Company's common stock at prices varying from $.71875 to $.790625 per share for employment and consulting agreements and director fees. On September 30, 1997, the Company entered into an agreement to sell certain customer lists, its "GenCare" trade name and rights under two GenCare contracts to another laboratory for $4,600,000 in cash and $1,400,000 payable in four equal installments every six months beginning April 1, 1998, provided however that certain target revenues are reached. If target revenues are not reached, amounts payable under the contract will be decreased up to a maximum of $700,000. The Company and certain of its officers entered into a non- competition agreement with the purchaser as part of this agreement. The Company recorded a non-recurring gain of $2,025,689 related to this sale. The $700,000 in contingent receivables were not included in the calculation of gain on this sale as of October 31, 1997. In August 1998, the Company was advised by the purchaser that the target revenues had been achieved. On April 9, 1998, the Company acquired the assets and certain liabilities of Medilabs, Inc. ("MLI") from LTC Service and Holdings, Inc. ("Holdings") and a wholly-owned subsidiary of Long-Term Care Services, Inc. ("LTC"). The acquisition will be effective April 9, 1998 for accounting purposes. The operations of Medilabs are included in the Company's results of operations commencing April 9, 1998. In connection with the acquisition of MLI, certain key employees signed employment agreements with the Company for an unspecified period which included a six month non-competition clause. In addition, LTC, Holdings, two affiliated corporations and an employee of LTC signed non- competition agreements. The purchase price was $5,500,000 consisting of cash payments of $4,000,000 delivered by BRLI at the closing (including $50,000 of payments for non- competition agreements with LTC, Holdings, two affiliated corporations and an employee of LTC and $200,000 of payments for access and use through April 8, 1999 of a laboratory hardware and software system of significant importance to the MLI business) and delivery by BRLI of its $1,500,000 promissory note payable without interest in three semi-annual installments commencing one year after the closing. In addition, BRLI paid an MLI obligation of $122,366 at the closing to an MLI affiliated entity for MLI's use through the closing date of a piece of analytical equipment which will continue to be used by MLI after the closing. The Stock Purchase Agreement also provides for a maximum of $1,500,000 in additional payments to be made by BRLI if certain revenues are realized by MLI after closing. Goodwill of $4,524,045 will be amortized over 20 years under the straight line method.
Assets Acquired and Liabilities Assumed ------------------------------ Cash in Banks $ 86,400 Accounts Receivable (Net) 4,306,100 Other Assets 393,800 Fixed Assets 1,465,300 --------- Accounts Payable (2,632,100) Accrued Expenses (629,700) Debt (452,927) Net Assets $ 2,536,873 ============
In July, 1998, the Company incurred a capital lease obligation of $67,406 in connection with the acquisition of computer equipment The Accompanying Notes are an Integral Part of These Consolidated Financial Statements. BIO-REFERENCE LABORATORIES, INC. -------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) [1] In the opinion of management, the accompanying unaudited condensed financial statements reflect all adjustments [consisting only of normal adjustments and recurring accruals] which are necessary to present a fair statement of the results for the interim periods presented. [2] The results of operations for the nine month period ended July 31, 1998 are not necessarily indicative of the results to be expected for the entire year. [3] The financial statements and notes thereto should be read in conjunction with the financial statements and notes for the year ended October 31, 1997 as filed with the Securities and Exchange Commission in the Company's Annual Report on Form 10-KSB. [4] Revenues are recognized at the time the services are performed. Revenues on the statement of operations is net of the following amounts for allowances and discounts.
Three Months Ended Nine Months Ended July 31, July 31 1998 1997 1998 1997 ---- ---- ---- ---- $17,287,159 $11,249,406 $39,894,563 $30,833,282
A number of proposals for legislation or regulation are under discussion which could have the effect of substantially reducing Medicare reimbursements for clinical laboratories. Depending upon the nature of regulatory action, if any, which is taken and the content of legislation, if any, which is adopted, the Company could experience a significant decrease in revenues from Medicare and Medicaid, which could have a material adverse effect on the Company. The Company is unable to predict, however, the extent to which such actions will be taken. [5] An allowance for contractual credits and uncollectible accounts is determined based upon a review of the reimbursement policies and subsequent collections for the different types of receivables. This allowance, which is net against accounts receivable was $13,870,519 at July 31, 1998 and $7,882,140 at July 31, 1997. [6] Inventory, consisting primarily of purchased clinical supplies, is valued at the lower of cost (first-in, first-out) or market. [7] Property and equipment are carried at cost. Depreciation is computed by the straight-line method over the estimated useful lives of the respective assets which range from 2 to 8 years. Leasehold improvements are amortized over the life of the lease, which is approximately five years. On sale or retirement, the asset cost and related accumulated depreciation or amortization are removed from the accounts, and any related gain or loss is reflected in income. Repairs and maintenance are charged to expense when incurred. [8] The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. [9] Cash equivalents are comprised of certain highly liquid investments with a maturity of three months or less when purchased. [10] The Company adopted SFAS 128, "Earnings per share" in these financial statements. Basic income per share is based on the weighted average number of shares of common stock outstanding during each period. Diluted income per share includes the effects of assumed exercise of outstanding options and warrants and the issuance of potential common shares, if dilutive. At July 31, 1998 and July 31, 1997 the potential issuance of common shares upon exercise of outstanding options and warrants was anti-dilutive. The effects of deferred compensation is included by applying the treasury stock method. [11] The Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," on November 1, 1996 for financial note disclosure purposes and continues to apply the intrinsic value method of Accounting Principles Board ["APB"] Opinion No. 25, "Accounting for Stock Issued to Employees," for financial reporting purposes. [12] The Company, at times, issues shares of common stock in payment for services rendered to the Company. The estimated fair value of the shares issued approximates the value of the services provided. [13] Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. [14] At October 31, 1997, the Company had a deferred tax asset of approximately $2,200,000 and a valuation allowance of approximately $1,942,000 related to the asset, a decrease of $1,658,000 since October 31, 1996. The deferred tax asset primarily relates to net operating loss carry forwards. [15] At July 31, 1998, the Company had $4,382,000 of restricted cash which represents collateral for three demand notes issued pursuant to bank loans. [16] At July 31, 1998, the Company had $6,973,871 in cash in excess of the federally insured limits, however $4,382,000 of this amount represents collateral for demand loans with the same banks. [17] In January, 1994, $3,352,000 was received for a demand note payable to Gotham Bank of New York. Interest is due at three percent above the bank's corporate savings account rate. The Company deposited a similar sum in a savings account with this bank as collateral for the loan. As of July 31, 1998, $2,650,000 was paid against the principal on this note. The Company has $702,000 in a savings account with this bank restricted as collateral for the loan. [18] In April 1998, the Company amended its revolving loan agreement with PNC Bank. The maximum amount of the credit line available to the Company is the lesser of (i) $14,000,000 or (ii) 50% of the Company's qualified accounts receivable [as defined in the agreement] plus 100% of the face amount of the certificates of deposit pledged as collateral for this loan minus the amount of any portion of the outstanding principal balance of the term loan which is deemed to be collateralized by the certificate of deposit. Interest on advances which are collateralized by certificates of deposit will be at 2% above the certificate of deposit interest rate. Interest on other advances will be at prime plus 1.25%. The credit line is collateralized by substantially all of the Company's assets [including $3,680,000 in certificates of deposit with PNC] and the assignment of a $4,000,000 life insurance policy on the president of the Company. The line of credit is available through March 1999 and may be extended for annual periods by mutual consents, thereafter. The terms of this agreement contain, among other provisions, requirements for maintaining defined levels of capital expenditures and net worth, various financial ratios and insurance coverage. As of October 31, 1997 and 1996, the Company was in compliance with the covenant provisions of this agreement. As of July 31, 1998, $11,471,978 was outstanding pursuant to this facility. [19] Management of the Company evaluates the period of amortization for its intangible assets to determine whether later events and circumstances warrant revised estimates of useful lives. On a quarterly basis, management evaluates whether the carrying value of these intangible assets has become impaired. This evaluation is done by comparing the carrying value of these intangible assets to the value of projected discounted net cash flow from related operations. Impairment is recognized if the carrying value of these intangible assets is greater than the projected discounted net cash flow from related operations. [20] In May, 1996, the Company acquired certain assets and rights of Advanced Medical Laboratory, Inc. ("AML") for a maximum amount of $612,000, of which $180,000 was paid at closing. The remaining maximum balance of $432,000 is payable over a three-year period. AML had revenues of approximately $900,000 in the twelve months preceding the acquisition. This acquisition was not significant to the Company. [21] On July 19, 1996, BRLI completed the purchase from SmithKline Beecham Clinical Laboratories, Inc. ("SBCL") of certain assets, rights and associated goodwill including the Customer List related to SBCL's operation of its Renal Dialysis Testing Business. The purchase price was $1,800,000 of which $1,200,000 was paid at the Closing. The $600,000 balance was payable in 24 consecutive monthly installments of $25,000 commencing January 1, 1997. Interest was imputed at the prime rate. At January 31, 1997, the outstanding debt balance was $551,373. At the Closing, SBCL agreed for a three-year period commencing no more than 120 days after the Closing, to cease performing renal dialysis clinical laboratory testing services for renal dialysis centers or other entities which provide diagnosis and/or treatment to dialysis patients. Funding for the $1,200,000 down payment made by BRLI at the Closing was provided pursuant to its term loan and credit line facilities with Midlantic Bank, N.A. The Company estimated that approximately $1,000,000 in annual revenues could be generated by this acquisition. (See Note 22) [22] On December 30, 1996, the Company commenced a lawsuit against SmithKline Beecham Clinical Laboratories ["SBCL"] alleging that SBCL materially and repeatedly breached its obligations and its representations and warranties made in the Asset Sale/Purchase Agreement and the Non-Competition Agreement between the parties and claimed unspecified amounts of compensatory and punitive damages and related costs. This lawsuit is in its initial stages and no assurances can be given at this time that it will be concluded in the Company's favor. As a result of its allegations against SBCL, the Company has not made any payments with respect to the $600,000 note payable issued in connection with the purchase. In the normal course of its business, the Company is exposed to a number of asserted and unasserted potential claims. In the opinion of management, the resolution of these matters will not have a material adverse affect on the Company's financial position or results of operations. [23] On September 30, 1997, the Company entered into an agreement to sell certain customer lists, its "GenCare" trade name and rights under two GenCare contracts to another laboratory for $4,600,000 in cash and $1,400,000 payable in four equal installments every six months beginning April 1, 1998, provided however that certain target revenues are reached. If target revenues are not reached amounts payable under the contract will be decreased up to a maximum of $700,000. The Company and certain of its officers entered into a non- competition agreement with the purchaser as part of this agreement. The Company recorded a non-recurring gain of $2,025,689 related to this sale. The $700,000 in contingent receivables were not included in the calculation of gain on this sale as of October 31, 1997. In August 1998, the Company was advised by the purchaser that the target revenues had been achieved. [24] On April 9, 1998, the Company acquired the assets and certain liabilities of Medilabs, Inc. ("MLI") from LTC Service and Holdings, Inc. ("Holdings") and a wholly-owned subsidiary of Long-Term Care Services, Inc. ("LTC"). The acquisition will be effective April 9, 1998 for accounting purposes. The operations of MLI will be included in the Company's results of operations commencing April 9, 1998. In connection with the acquisition of MLI, certain key MLI employees signed employment agreements with the Company for an unspecified period which included a six month non-competition clause. In addition, LTC, Holdings, two affiliated corporations and an employee of LTC signed non-competition agreements. The purchase price was $5,500,000 consisting of cash payments of $4,000,000 delivered by BRLI at the closing (including $50,000 of payments for non- competition agreements with LTC, Holdings, two affiliated corporations and an employee of LTC and $200,000 of payments for access and use through April 8, 1999 of a laboratory hardware and software system of significant importance to the MLI business) and delivery by BRLI of its $1,500,000 promissory note payable without interest in three semi-annual installments commencing one year after the closing. In addition, BRLI paid an MLI obligation of $122,366 at the closing to an MLI affiliated entity for MLI's use through the closing date of a piece of analytical equipment which will continue to be used by MLI after the closing. The Stock Purchase Agreement also provides for a maximum of $1,500,000 in additional payments to be made by BRLI if certain revenues are realized by MLI after closing. The unaudited pro-forma results of operations of the Company for the nine months ended July 31, 1998 and 1997 assumes the acquisition had occurred at the beginning of the periods.
Nine Months Ended Nine Months Ended July 31,1998 July 31, 1997 ------------- -------------- Net Revenue $ 40,810,645 $ 36,491,300 Net Income $ 604,800 $ 1,111,800 Net Income Per Common Share $.09 $.17
The pro-forma results reflect amortization of goodwill and other intangible assets. The unaudited pro-forma information is not necessarily indicative of the actual results of operations, had the transaction occurred at the beginning of the periods indicated, nor should it be used to project the Company's results of operations for any future dates or periods. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------ RESULTS OF OPERATIONS --------------------- COMPARISON OF THIRD QUARTER 1998 VS THIRD QUARTER 1997 -------------------------------------------------------- NET REVENUES: Net revenues for the three month period ended July 31, 1998 was $13,638,812 as compared to $9,814,415 for the three month period ended July 31, 1997; this represents a 39% increase in net revenues. During the three month period ended July 31, 1998, MLI had net revenues of approximately 26% of the Company's net revenues for the quarter. MLI provides routine laboratory services to physician offices, clinics, nursing homes and correctional institutions, associated with lower revenues per patient. On September 30, 1997, the Company completed the sale of certain assets of its GenCare Division ("GenCare") to an unrelated third party. GenCare provided largely cancer diagnostic testing services with relatively high revenues per patient. The number of patients serviced during the three month period ended July 31, 1998 was 300,901 which was 37% greater when compared to the prior fiscal year's three month period. MLI accounted for 35% of the patient count for the three month period ended July 31, 1998. Net revenue per patient during the three month period ended July 31, 1997 was $51.85 and net revenue per patient for the three month period ended July 31, 1998 was $45.13; a reduction of $6.72 or 13%. MLI's net revenue per patient was $33.13 for the three month period ended July 31, 1998. COST OF SALES: - ------------- Cost of Sales increased from $4,818,799 for the three month period ended July 31, 1997 to $7,687,700 for the three month period ended July 31, 1998, an increase of $2,868,901 (60%). This increase is a direct result of the MLI acquisition. MLI's direct operating costs were approximately $2,614,000 for the three month period ended July 31, 1998. The optimum consolidation of laboratory operations has not been completed and will impact the Company's cost structure for the remainder of the current fiscal year. GROSS PROFITS: - ------------- Gross profits on net revenues increased from $4,995,616 for the three month period ended July 31, 1997 to $5,951,112 for the three month period ended July 31,1998; an increase of $955,496 or 19%, attributable to the increase in revenues. Gross profit margins decreased from 51% for the three month period ended July 31, 1997 to 44% for the period ended July 31, 1998. This decrease in gross profit margins is attributed to the lower net revenue per patient, the increase in direct costs associated with MLI and duplication of services. GENERAL AND ADMINISTRATIVE EXPENSES: - ----------------------------------- General and administrative expenses for the three month period ending July 31, 1998 were $5,558,570 as compared to $4,375,849 for the quarter ended July 31, 1997, an increase of $1,182,721 or 27%. Most of this increase was due to the incurring of additional costs based upon the anticipated larger volume related to the MLI acquisition (approximately $822,000). In addition, bad debt increased by 37%, or approximately $414,000, over the prior comparable period and was caused by an increase in self-pay patients of Bio-Reference Laboratories due to legislation passed in New Jersey which prohibited physician billing for diagnostic laboratory services. Self pay patients have an historical higher bad debt rate. INTEREST EXPENSE: - ---------------- Interest expense increased from $275,715 during the three month period ending July 31, 1997 to $419,952 during the three month period ended July 31, 1998 and is due to the Company's increase in asset based borrowing and acquisition debt. INCOME (LOSS): - ------------- The Company had net income of $52,662 for the three months ended July 31, 1998 as compared to $366,867 for the three months ended April 30, 1997 a decrease of $314,305. Management believes that the decrease in net income was due to the incurring of additional costs based upon the anticipated larger volume related to the MLI acquisition, the incomplete consolidation of MLI operations, increase in bad debt expense and a decrease in net revenue per patient when compared to the corresponding period in the prior fiscal year. NINE MONTHS 1998 COMPARED TO NINE MONTHS 1997 --------------------------------------------- NET REVENUES: - ------------ Net Revenues for the nine month period ended July 31, 1998 were $33,383,740 as compared to $29,064,409 for the nine month period ended July 31, 1997; this represents a 15% increase in net revenues. On September 30, 1997, the Company completed the sale of certain assets of its GenCare Division ("GenCare") to an unrelated third party. Net revenues from its acquisition of MLI on April 9, 1998 through July 31, 1998 totaled approximately 13% of the Company's net revenues for the nine months ended July 31, 1998. GenCare provided largely cancer diagnostic testing services with relatively high revenues per patient. MLI provides routine laboratory services to physician offices, clinics, nursing homes and correctional institutions, associated with lower revenues per patient. The number of patients serviced during the nine month period ended July 31, 1998 was 684,836 which was 26% greater when compared to the prior fiscal year's nine month period. MLI accounted for 23% of the patient count for the period from its acquisition on April 9, 1998 through the period ended July 31, 1998. Net revenue per patient for the nine month period ended July 31, 1997 was $53.35 and net revenue per patient for the nine month period ended July 31, 1998 was $48.75, a decrease of $4.60 or 9%. MLI had a per patient revenue of $34.22 for the period from its acquisition on April 9, 1998 through July 31, 1998. COST OF SALES: - ------------- Cost of Sales increased from $14,448,216 for the nine month period ended July 31, 1997 to $17,716,708 for the nine month period ended July 31, 1998, an increase of $3,268,492 (23%). This increase is a direct result of the MLI acquisition. MLI's direct operating costs were approximately $3,292,000 from its acquisition on April 9, 1998 through the period ended July 31, 1998. The optimum consolidation of laboratory operations has not been completed and will impact the Company's cost structure for the remainder of the fiscal year. Gross profits on net revenues increased from $14,616,193 for the nine month period ended July 31, 1997 to $15,667,032 for the nine month period ended July 31, 1998; an increase of $1,050,539 (7%), attributable to the increase in reveneus. Gross profit margins decreased from 50% for the nine month period ended July 31, 1997 to 47% for the period ended July 31, 1998. This decrease in gross profit margins is attributed to the lower net revenue per patient, the increase in direct costs associated with MLI and duplication of services. GENERAL AND ADMINISTRATIVE EXPENSES: - ----------------------------------- General and administrative expenses for the nine month period ending July 31, 1998 were $14,797,039 as compared to $13,041,241 for the nine month period ending July 31, 1997, an increase of $1,755,798 or 13%. Most of this increase was due to the incurring of additional costs based upon the anticipated larger volume related to the MLI acquisition (approximately $1,016,000) and a one time expense of $75,000 for the settlement of a lawsuit. In addition, bad debt increased by 9%, or approximately $361,000 over the prior comparable period and was caused by an increase in self-pay patients of Bio-Reference Laboratories due to legislation passed in New Jersey which prohibited physician billing for diagnostic laboratory services. Self pay patients have an historical higher bad debt rate. INTEREST EXPENSE: - ---------------- Interest expense increased from $834,145 during the nine month period ending July 31, 1997 as compared to $883,549 during the nine month period ending July 31, 1998 and is the result of the Company's increase in asset based borrowing and acquisition debt. INCOME: - ------ The Company had net income of $214,652 for the nine months ended July 31, 1998 as compared to $890,366 for the nine months ended July 31, 1998. Management believes that the decrease in net income was due to the incurring of additional costs based upon the anticipated larger volume related to the MLI acquisition, the incomplete consolidation of MLI operations, a one time expense of $75,000 for the settlement of a lawsuit, increase in bad debt expense and a decrease in net revenue per patient when compared to the corresponding period in the prior fiscal year. LIQUIDITY AND CAPITAL RESOURCES: - ------------------------------- Working capital as of July 31, 1998 was $8,426,951 as compared to $9,415,440 at October 31, 1997 a decrease of $988,489. The Company increased its cash position by approximately $953,000 during the quarter ended July 31, 1998.The Company utilized $2,832,164 in cash for operating activities. The Company borrowed $4,710,269 in short-term debt, repaid $914,052 in existing debt and borrowed $5,500,000 to acquire Medilabs, Inc. The capital spending requirements for the Company during fiscal 1998 is expected not to exceed $600,000. To date, approximately $186,571 has been spent on capital improvements and $67,406 on a capital lease in connection with the acquisition of computer equipment. The Company had current liabilities of $20,782,139 at July 31, 1998. The three largest items in this category are notes payable of $11,471,979 accounts payable of $4,518,334 and current portion of long-term debt of $2,306,621. Containment of health-care costs, including reimbursement for clinical laboratory services, has been a focus of ongoing governmental activity. Omnibus budget reconciliation legislation, designed to "reconcile" existing laws with reductions and reimbursement required by enactment of a Congressional budget can adversely affect clinical laboratories by reducing Medicare reimbursement for laboratory services. In each of the omnibus budget reconciliation laws enacted in 1987, 1989 and 1990, Medicare reimbursement of clinical laboratories was reduced from previously authorized levels. None of the reductions enacted to date has had a material adverse effect on the Company. For many of the tests performed for Medicare beneficiaries or Medicaid recipients, laboratories are required to bill Medicare or Medicaid directly, and to accept Medicare or Medicaid reimbursement as payment in full. A number of proposals for legislation or regulation are under discussion which could have the effect of substantially reducing Medicare reimbursements to clinical laboratories. Depending upon the nature of regulatory action, if any, which is taken and the content of legislation, if any, which is adopted, the Company could experience a significant decrease in revenues from Medicare and Medicaid, which could have material adverse effect on the Company. The Company is unable to predict, however, the extent to which such actions will be taken. The Company intends to capitalize on the current trend of consolidation in the clinical laboratory industry through acquisitions of other laboratories in its geographical region with significant customer lists. Purchase prices to acquire other laboratories may involve cash, notes, Common Stock, and/or combinations thereof. The Company has a credit facility with PNC Bank, N.A. for $14,000,000. As of July 31, 1998, $11,471,978 of this facility has been utilized. In addition, the Company verbally renegotiated the convertible debt due to certain former owners of GenCare that were due and payable on January 4, 1997 in the amount of approximately $235,729. These notes were fully paid in November 1997. Cash on hand, equity financing and additional borrowing capabilities are expected to be sufficient to meet anticipated operating requirements, debt repayments and provide funds for capital expenditures, excluding acquisitions for the foreseeable future. Project 2000 - ------------ The Company is in the process of identifying those systems that require changes to accommodate the year 2000. It has identified four areas of concern. They are the laboratory's operations and billing systems, the general accounting systems and the two systems outside of its control; one being the payor systems and the other being the vendor systems. At the present time, it appears that the laboratory systems will require changes that translate into approximately $80,000 in costs. The general accounting systems (which are supplied by an outside vendor) will cost the Company approximately $25,000 to upgrade and are scheduled for conversion during the first quarter of the next fiscal year. The payor systems are being converted per instructions on the part of each payor (i.e. Medicare, Medicaid, insurance companies, etc.). For example, electronic claims filing for Medicare has been completed, while the Company has been told not to make any changes for New Jersey Medicaid until it is notified to do so. The final system of concern to the Company is its suppliers. Once its general accounting is converted to accommodate the year 2000, the Company is confident that it will accept the input of all vendor invoices. During May 1998, the General Accounting Office ("G.A.O.") warned the House Ways and Means Oversight Panel, "If progress is not made faster to assure correct and prompt claims processing and payment when the year 2000 dawns, the potential impact on the revenue and cash flow of pathologists, radiologists, laboratories, and other providers could be catastrophic, including improper denials and payments that are late or incorrect. HCFA has yet to determine the total number of providers likely to be affected." HCFA has begun developing business continuity and contingency plans and expects to release drafts soon. Still, GAO warns, the agency doesn't appear to have documented the severity of Y2K failures on its core business. Among options reportedly being considered in this regard is to give advance payments to providers in late 1999. Impact of Inflation - ------------------- To date, inflation has not had a material effect on the Company's operations. PART II Item 6 EXHIBITS AND REPORTS ON FORM 8-K - -------------------------------- The Company filed one report on Form 8-K/A during the quarter ended July 31, 1998, amending its report on Form 8-K for April 9, 1998 and containing pro-forma condensed combined financial statements reflecting the purchase of Medilabs, Inc. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BIO-REFERENCE LABORATORIES, INC. (Registrant) /S/ Marc D. Grodman - --------------------------- Marc D. Grodman, M.D. President /S/ Sam Singer - -------------- Sam Singer Chief Financial and Accounting Officer Date: September 18, 1998 EX-27 2
5 This Schedule contains summary financial information extracted from (a) the Balance Sheet and Statement of Operations filed as part of the Quarterly Report on Form 10-Q and is qualified in its entirety by reference to such (b) Report on Form 10-Q. 9-MOS OCT-31-1998 NOV-01-1997 JUL-31-1998 3,902,764 0 19,772,696 13,870,519 660,977 29,209,090 4,692,332 2,227,424 41,626,632 20,782,139 19,041,437 0 60,428 72,129 22,995,633 41,626,632 33,383,740 33,383,740 17,716,708 32,516,747 214,652 4,347,844 883,549 260,063 45,411 214,652 0 0 0 214,652 0 0
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