-----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, U7Gdu1Q5VgEJAsf3ZKBZLZs5ykHYihk1o3azGlygTSmPT9fCkr9BY+lYc2ZaBJtM 7srwBR8Ou5sM4947rm/ZTg== 0000913906-98-000067.txt : 19980608 0000913906-98-000067.hdr.sgml : 19980608 ACCESSION NUMBER: 0000913906-98-000067 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980409 ITEM INFORMATION: FILED AS OF DATE: 19980605 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: 8-K/A SEC ACT: SEC FILE NUMBER: 000-15266 FILM NUMBER: 98643138 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 8-K/A 1 8-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 --------- FORM 8-K/A Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report [Date of Earliest Event Reported]: April 9, 1998 Commission File Number 0-15266 BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY (Exact name of registrant as specified in its charter) New Jersey 22-2405059 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 481 Edward H. Ross Drive Elmwood Park, New Jersey 07407-3118 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (201) 791-2600 --------------------- Item 7. Financial Statements, Pro Forma Financial Information BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS [UNAUDITED] - ------------------------------------------------------------------------------ The following pro forma condensed combined balance sheet as of January 31, 1998, and the condensed combined statements of operations for the year ended October 31, 1997 and the three months ended January 31, 1998, give effect to the following: On April 9, 1998, Bio-Reference Laboratories, Inc. [the "Company"] acquired the assets and certain liabilities of Medilabs, Inc. ["MLI"] from LTC Services 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 and will be accounted for as a purchase. The operations of Medilabs will be 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. The pro forma information is based on the historical financial statements of the Company and Medilabs giving effect to the acquisition and the assumptions and adjustments in the accompanying notes to the pro forma combined financial statements. The pro forma condensed combined balance sheet assumes the acquisition was consummated on January 31, 1998. The pro forma condensed combined statements of operations give effect to this transaction as if it had occurred at the beginning of the earliest period presented. The pro forma condensed combined financial statements are based on the historical financial statements of the Company and Medilabs. These pro forma condensed combined financial statements may not be indicative of the results that actually would have occurred if the acquisition had taken place on the dates indicated. 1 BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY PRO FORMA ADJUSTMENTS - ------------------------------------------------------------------------------ [1] To reflect the Company's receipt of a $4,000,000 five year note payable in April of 1998 to be utilized for the acquisition of Medilabs, Inc. The note has interest at 2% over prime and interest is payable monthly. Interest expense of approximately $360,000 annually, or $90,000 quarterly, has been accrued on a proforma basis. [2] To record goodwill resulting from the acquisition of Medilabs, Inc.["MLI"]: Net Assets of Medilabs - 3/31/98 $(11,803,155) Adjustments: Accrued Expenses not Assumed 146,867 Due to Related Party not Assumed 17,167,532 Goodwill not Acquired (2,827,496) Effect of Change in Ownership (1,600,000) ----------- Net Assets Acquired 1,083,748 Purchase Price [Net of $300,000 Discount on Note] 5,200,000 ----------- Excess of Purchase Price over Net Assets Acquired 4,116,252 Less: Items Paid Pursuant to Acquisition Agreement Non-Compete Agreements (50,000) Use Agreement (200,000) ----------- Goodwill $ 3,866,252 [c] -------- =========== The purchase price of $5,500,000 was $4,000,000 in cash and $1,500,000 in a promissory note payable. The purchase price includes $50,000 for non-compete agreements and $200,000 for use of laboratory hardware and software system through April 1999. The note is payable in three semi-annual installments commencing one year after closing, without interest. The Company has discounted this note for financial reporting purposes to $1,200,000. Interest expense for the amortization of the $300,000 will be recorded [or $30,000 quarterly] over the life of the discounted note. [3] To reflect the payment of an MLI obligation of $122,366 paid at closing to an 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 closing. [4] To record amortization of goodwill and other acquired intangibles of approximately $206,000 annually, or $51,000 quarterly, on a straight line method over 20 years. 2 BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY - ------------------------------------------------------------------------------ PRO FORMA CONDENSED COMBINED BALANCE SHEET [UNAUDITED] - ------------------------------------------------------------------------------ Bio-Reference Laboratories, Inc.Medilabs, Inc. January 31, March 31, Pro Forma Pro Forma 1 9 9 8 1 9 9 8 Adjustments Combined Assets: Current Assets: Cash $ 2,187,800 $ 13,854 $ 4,000,000 [1] $ 2,079,288 (4,000,000)[2] (122,366)[3] Restricted Cash - Certificate of Deposit 852,000 5,786 -- 857,786 Accounts Receivable - Net 14,547,771 4,274,581 (1,600,000)[2] 17,222,352 Inventory 460,156 250,856 -- 711,012 Other Current Assets 1,541,480 56,843 -- 1,598,323 Certificates of Deposit - Restricted 3,601,250 -- -- 3,601,250 Total Current Assets 23,190,457 4,601,920 (1,722,366) 26,070,011 ----------- ----------- ----------- ----------- Property and Equipment - Net 1,296,673 1,482,771 -- 2,779,444 ----------- ----------- ----------- ----------- Other Assets: Deposits 190,634 86,022 -- 276,656 Goodwill 1,376,564 2,827,496 (2,827,496)[2] 5,242,816 3,866,252 [2] Intangible Asset - Net -- 197,478 250,000 [2] 447,478 Certificate of Deposit 78,750 -- -- 78,750 Deferred Charges 3,268,770 -- -- 3,268,770 Due from Related Party 214,118 -- -- 214,118 Other Assets 446,903 -- -- 446,903 ----------- ----------- ----------- ----------- Total Other Assets 5,575,739 3,110,996 1,288,756 9,975,491 ----------- ----------- ----------- ----------- Total Assets $30,062,869 $ 9,195,687 $ (433,610) $38,824,946 =========== =========== =========== =========== The Accompanying Notes are an Integral Part of Pro Forma These Financial Statements.
3 BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY - ------------------------------------------------------------------------------ PRO FORMA CONDENSED COMBINED BALANCE SHEET [UNAUDITED] - ------------------------------------------------------------------------------ Bio-Reference Laboratories, Inc.Medilabs, Inc. January 31, March 31, Pro Forma Pro Forma 1 9 9 8 1 9 9 8 Adjustments Combined Liabilities and Shareholder's Equity [Deficit]: Current Liabilities: Accounts Payable $ 2,194,885 $ 2,430,927 $ (122,366)[3] $ 4,503,446 Accrued Salaries and Commissions 705,026 329,283 -- 1,034,309 Accrued Expenses 752,867 594,674 (146,867)[2] 1,200,674 Current Maturities of Long- Term Debt 1,684,050 66,837 800,000 [1] 2,550,887 Capitalized Lease Obligation 86,506 182,629 -- 269,135 Due to Related Parties -- 17,167,532 (17,167,532)[2] -- Notes Payable 8,268,013 -- -- 8,268,013 ----------- ----------- ----------- ----------- Total Current Liabilities 13,691,347 20,771,882 (16,636,765) 17,826,464 ----------- ----------- ----------- ----------- Long-Term Liabilities: Long-Term Debt, Less Current Maturities 561,759 7,621 3,200,000 [1] 1,200,000 [2] 4,969,380 Capitalized Lease Obligations 229,601 219,339 -- 448,940 ----------- ----------- ----------- ----------- Total Long-Term Liabilities 791,360 226,960 4,400,000 5,418,320 ----------- ----------- ----------- ----------- Commitments and Contingencies -- -- -- -- ----------- ----------- ----------- ----------- Shareholder's Earnings [Deficit]: Preferred Stock 60,408 -- -- 60,408 Common Stock 71,694 1 (1)[2] 71,694 Additional Paid-in Capital 22,967,160 1,718,000 (1,718,000)[2] 22,967,160 Accumulated Earnings [Deficit](7,193,575) (13,521,156) 13,521,156 [2] (7,193,575) Deferred Compensation (325,525) -- -- (325,525) ----------- ----------- ----------- ----------- Total Shareholder's Equity [Deficit] 15,580,162 (11,803,155) 11,803,155 15,580,162 ----------- ----------- ----------- ----------- Total Liabilities and Shareholder's Equity [Deficit] $30,062,869 $ 9,195,687 $ (433,610) $38,824,946 =========== =========== =========== =========== The Accompanying Notes are an Integral Part of Pro Forma These Financial Statements.
4 BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY - ------------------------------------------------------------------------------ PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS [UNAUDITED] - ------------------------------------------------------------------------------ Bio-Reference Laboratories Medilabs Inc. Inc. Year ended Year ended October 31, December 31, Pro Forma Pro Forma 1 9 9 7 1 9 9 7 Adjustments Combined Net Revenues $38,660,184 $ 14,758,921 $ -- $53,419,105 ----------- ------------ ----------- ----------- Cost of Services: Depreciation 390,953 381,520 -- 772,473 Employee Related Expenses 8,595,078 4,486,991 -- 13,082,069 Reagents and Laboratory Supplies 4,777,325 2,422,892 -- 7,200,217 Other Cost of Services 5,575,918 2,669,923 -- 8,245,841 Writedown of Intangible Assets -- 6,487,515 -- 6,487,515 ----------- ------------ ----------- ----------- Total Cost of Services 19,339,274 16,448,841 -- 35,788,115 ----------- ------------ ----------- ----------- Gross Profit [Loss] 19,320,910 (1,689,920) -- 17,630,990 ----------- ------------ ----------- ----------- General and Administrative Expenses: Depreciation and Amortization 798,365 791,355 206,000[4] 1,795,720 Other General and Administrative Expenses 11,346,007 6,086,957 -- 17,432,964 Provision for Doubtful Accounts 5,291,507 -- -- 5,291,507 ---------- ------------ ----------- ----------- Total General and Administrative Expenses 17,435,879 6,878,312 206,000 24,520,191 ----------- ------------ ----------- ----------- Income [Loss] from Operations 1,885,031 (8,568,232) (206,000) (6,889,201) ----------- ------------ ----------- ----------- Non-Recurring Gain on Sale of Intangible Assets 2,025,689 -- -- 2,025,689 ----------- ------------ ----------- ----------- Other [Income] Expense: Interest Expense 1,124,432 1,480,590 120,000[2] 3,085,022 360,000[1] Interest Income (274,887) (1,043) -- (275,930) ----------- ------------ ----------- ----------- Total Other Expense - Net 849,545 1,479,547 480,000 2,809,092 ----------- ------------ ----------- ----------- Income [Loss] Before Income Taxes 3,061,175 (10,047,779) (686,000) (7,672,604) Provision for Income Tax Expense [Benefit] (138,740) -- -- (138,740) ----------- ------------ ---------- ----------- Net Income [Loss] $ 3,199,915 $(10,047,779) $ (686,000) $(7,533,864) =========== ============ ========== =========== Net Income Per Share $ .36 $ (.58) =========== =========== Number of Shares 12,757,946 12,757,946 =========== =========== The Accompanying Notes are an Integral Part of Pro Forma These Financial Statements.
5 BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARY - ------------------------------------------------------------------------------ PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS [UNAUDITED] - ------------------------------------------------------------------------------ Bio-Reference Laboratories, Medilabs, Inc. Inc. Three months Three months ended ended January 31, March 31, Pro Forma Pro Forma 1 9 9 8 1 9 9 8 Adjustments Combined Net Revenues $ 8,936,424 $ 3,702,935 $ -- $12,639,359 ----------- ----------- ------------ ----------- Cost of Services: Depreciation 103,245 64,711 -- 167,956 Employee Related Expenses 2,003,239 1,044,377 -- 3,047,616 Reagents and Laboratory Supplies 1,061,348 487,115 -- 1,548,463 Other Cost of Services 1,331,278 747,221 -- 2,078,499 ----------- ----------- ------------ ----------- Total Cost of Services 4,499,110 2,343,424 -- 6,842,534 ----------- ----------- ------------ ----------- Gross Profit 4,437,314 1,359,511 -- 5,796,825 ----------- ----------- ------------ ----------- General and Administrative Expenses: Depreciation and Amortization 154,567 109,384 51,000[4] 314,951 Other General and Administrative Expenses 2,866,135 1,267,791 -- 4,133,926 Bad Debt Expense 1,241,210 -- -- 1,241,210 ----------- ----------- ------------ ----------- Total General and Administrative Expenses 4,261,912 1,377,175 51,000 5,690,087 ----------- ----------- ------------ ----------- Income [Loss] from Operations 175,402 (17,664) (51,000) 106,738 ----------- ----------- ------------ ----------- Other [Income] Expense: Interest Expense 205,316 17,544 30,000[2] 342,860 90,000[1] Interest Income (78,624) (994) -- (79,618) ----------- ----------- ------------ ----------- Total Other Expense - Net 126,692 16,550 120,000 263,242 ----------- ----------- ------------ ----------- Income [Loss] Before Income Taxes 48,710 (34,214) (171,000) (156,504) Provision for Income Taxes 10,717 -- -- 10,717 ----------- ----------- ------------ ----------- Net Income [Loss] $ 37,993 $ (34,214)$ (171,000) $ (167,221) =========== =========== ============ =========== Net Income Per Share $ .01 $ (.02) =========== =========== Number of Shares 6,943,448 6,943,448 =========== =========== The Accompanying Notes are an Integral Part of Pro Forma These Financial Statements.
6 INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Stockholders of Medilabs, Inc. Valley Cottage, New York We have audited the accompanying balance sheet of Medilabs, Inc. as of December 31, 1997, and the related statements of operations, shareholders' deficit, and cash flows for each of the two years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Medilabs, Inc. as of December 31, 1997, and the results of their operations and cash flows for each of the two years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. MOORE STEPHENS, P. C. Certified Public Accountants. Cranford, New Jersey May 7, 1998 7 MEDILABS, INC. - ------------------------------------------------------------------------------ BALANCE SHEETS - ------------------------------------------------------------------------------ March 31, December 31, 1 9 9 8 1 9 9 7 [Unaudited] Assets: Current Assets: Cash $ 13,854 $ 9,501 Restricted Cash - Certificate of Deposit 5,786 5,724 Accounts Receivable - Net 4,274,581 4,168,034 Inventory 250,856 250,856 Prepaid Expenses 56,843 41,882 ---------- ----------- Total Current Assets 4,601,920 4,475,997 ---------- ----------- Property and Equipment: Automobiles and Fleet Vehicles 558,694 558,694 Medical Equipment 912,664 912,013 Leasehold Improvements 78,314 71,387 Furniture and Fixtures 922,094 920,295 Computer Equipment 215,577 208,565 Computer Software 592,172 558,551 ---------- ----------- Total - At Cost 3,279,515 3,229,505 Less: Accumulated Depreciation 1,796,744 1,638,696 ---------- ----------- Property and Equipment - Net 1,482,771 1,590,809 ---------- ----------- Other Assets: Deposits 86,022 86,022 Goodwill 2,827,496 2,827,496 Intangible Asset [Net] 197,478 213,526 ---------- ----------- Total Other Assets 3,110,996 3,127,044 ---------- ----------- Total Assets $9,195,687 $ 9,193,850 ========== =========== The Accompanying Notes are an Integral Part of These Financial Statements. 8 MEDILABS, INC. - ------------------------------------------------------------------------------ BALANCE SHEETS - ------------------------------------------------------------------------------ March 31, December 31, 1 9 9 8 1 9 9 7 [Unaudited] Liabilities and Shareholder's Deficit: Current Liabilities: Accounts Payable - Trade $ 2,417,869 $ 2,369,277 Accounts Payable - Cash Overdraft 13,058 183,836 Accrued Salaries and Commissions 329,283 282,414 Accrued Expenses 594,674 556,551 Current Maturities of Long-Term Debt 66,837 84,213 Capitalized Lease Obligation 182,629 190,207 Due to Related Parties 17,167,532 17,022,776 ------------ ----------- Total Current Liabilities 20,771,882 20,689,274 ------------ ----------- Long-Term Liabilities: Long-Term Debt, Less Current Maturities 7,621 17,782 Capitalized Lease Obligations 219,339 255,735 ------------ ----------- Total Long-Term Liabilities 226,960 273,517 ------------ ----------- Commitments and Contingencies -- -- ------------ ----------- Shareholder's Deficit: Common Stock, Par Value $.01 Per Share, Authorized 1,000 Shares; Issued and Outstanding 100 Shares 1 1 Additional Paid-in Capital 1,718,000 1,718,000 Accumulated Deficit (13,521,156) (13,486,942) ------------ ----------- Total Shareholder's Deficit (11,803,155) (11,768,941) ------------ ----------- Total Liabilities and Shareholder's Deficit $ 9,195,687 $ 9,193,850 ============ =========== The Accompanying Notes are an Integral Part of These Financial Statements. 9 MEDILABS, INC. - ------------------------------------------------------------------------------ STATEMENTS OF OPERATIONS - ------------------------------------------------------------------------------ Three months ended Years ended March 31, December 31, 1 9 9 8 1 9 9 7 1 9 9 7 1 9 9 6 ------- ------- ------- ------- [Unaudited] [Unaudited] Net Revenues $ 3,702,935 $3,609,480 $14,758,921 $14,361,829 ----------- ---------- ----------- ----------- Cost of Services: Depreciation 64,711 79,229 381,520 398,200 Employee Related Expenses 1,044,377 1,109,598 4,486,991 4,137,351 Reagents and Laboratory Supplies 487,115 692,361 2,422,892 2,764,536 Other Cost of Services 747,221 705,114 2,669,923 2,496,676 Writedown of Intangible Assets -- -- 6,487,515 -- --------- ---------- ---------- ----------- Total Cost of Services 2,343,424 2,586,302 16,448,841 9,796,763 ----------- ---------- ---------- ----------- Gross [Loss] Profit 1,359,511 1,023,178 (1,689,920) 4,565,066 ----------- ---------- ---------- ----------- General and Administrative Expenses: Depreciation 93,337 114,278 355,870 269,920 Amortization 16,047 123,895 435,485 372,041 Other General and Administrative Expenses 396,182 367,865 2,332,387 2,334,685 Salaries and Benefits 871,609 925,988 3,754,570 3,874,372 ----------- ---------- ---------- ----------- Total General and Administrative Expenses 1,377,175 1,532,026 6,878,312 6,851,018 ----------- ---------- ---------- ----------- Loss from Operations (17,664) (508,848) (8,568,232) (2,285,952) ----------- ---------- ---------- ----------- Other [Income] Expense: Interest Expense - Related Party -- -- 1,377,721 1,066,971 Interest Expense 17,544 27,780 102,869 111,136 Interest Income (994) (58) (1,043) (146) ----------- ---------- ---------- ----------- Total Other Expense - Net 16,550 27,722 1,479,547 1,177,961 ----------- ---------- ---------- ----------- Net Loss $ (34,214) $ (536,570) $(10,047,779) $(3,463,913) =========== ========== ============ ===========
The Accompanying Notes are an Integral Part of These Financial Statements. 10 MEDILABS, INC. - ------------------------------------------------------------------------------ STATEMENTS OF SHAREHOLDER'S DEFICIT - ------------------------------------------------------------------------------ Total Additional Accumulated Stockholder's Common Stock Paid-in Earnings Equity Shares Amount Capital [Deficit] [Deficit] Balance - December 31, 1995 100 $ 1 $1,718,000 $ 24,750 $ 1,742,751 -- -- -- -- -- Net [Loss] for the Year - - - (3,463,913) (3,463,913) ------- -------- ---------- ------------ ------------ Balance - December 31, 1996 100 1 1,718,000 (3,439,163) (1,721,162) Net [Loss] for the Year -- -- -- (10,047,779) (10,047,779) ------- -------- ---------- ------------ ------------ Balance - December 31, 1997 100 $ 1 $1,718,000 $(13,486,942) $(11,768,941) Net [Loss] for the Three Months ended March 31, 1998 [Unaudited] -- -- -- (34,214) (34,214) ------- -------- ---------- ------------ ------------ Balance - March 31, 1998 [Unaudited] 100 $ 1 $1,718,000 $ 13,521,156 $(11,803,155) ======= ======== ========== =========== ============
The Accompanying Notes are an Integral Part of These Financial Statements. 11 ]MEDILABS, INC. - ------------------------------------------------------------------------------ STATEMENTS OF CASH FLOWS - ------------------------------------------------------------------------------ Three months ended Years ended March 31, December 31, 1 9 9 8 1 9 9 7 1 9 9 7 1 9 9 6 ------- ------- ------- ------- [Unaudited] [Unaudited] Operating Activities: Net Loss $ (34,214) $ (536,570) $(10,047,779)$(3,463,913) ----------- ---------- ------------ ----------- Adjustments to Reconcile Net Loss to Net Cash [Used for] Operating Activities: Depreciation and Amortization 174,095 317,404 1,172,875 1,040,161 Gain on Sale of Assets (4,000) (6,000) (12,350) -- Writedown of Intangible Assets -- -- 6,487,515 -- Changes in Assets and Liabilities: [Increase] Decrease in: Accounts Receivable (106,547) (529,488) (1,415,275) (136,561) Prepaid Expenses (14,961) (24,447) 11,682 101,706 Inventory -- -- 10,514 98,102 Increase [Decrease] in: Accounts Payable 48,592 429,466 723,123 698,320 Accrued Salaries and Commissions 46,869 (12,124) (23,779) 117,586 Accrued Expenses 38,124 82,121 (435,599) 792,702 ----------- ---------- ----------- ----------- Total Adjustments 182,172 256,932 6,518,706 2,712,016 ----------- ---------- ----------- ----------- Net Cash - Operating Activities - Forward 147,958 (279,638) (3,529,073) (751,897) ----------- ---------- ------------ ----------- Investing Activities: Acquisition of Property and Equipment (50,010) (96,520) (249,355) (1,203,467) Proceeds from Sale of Property and Equipment 4,000 6,000 12,350 -- Acquisition of Business - Net of Cash Acquired -- -- -- (3,454,421) Changes in Certificate of Deposit - Restricted (62) (58) (242) (5,482) Reduction of Deposits -- -- 22,455 (94,500) Other -- -- (14,675) -- ----------- ---------- ---------- ---------- Net Cash - Investing Activities - Forward $ (46,072) $ (90,578) $ (229,467) $(4,757,870)
The Accompanying Notes are an Integral Part of These Financial Statements. 12 MEDILABS, INC. - ------------------------------------------------------------------------------ STATEMENTS OF CASH FLOWS - ------------------------------------------------------------------------------ Three months ended Years ended March 31, December 31, 1 9 9 8 1 9 9 7 1 9 9 7 1 9 9 6 ------- ------- ------- ------- [Unaudited] [Unaudited] Net Cash - Operating Activities - Forwarded $ 147,958 $ (279,638) $(3,529,073) $ (751,897) ----------- ---------- ----------- ----------- Net Cash - Investing Activities - Forwarded (46,072) (90,578) (229,467) (4,757,870) ----------- ---------- ---------- ----------- Financing Activities: Payments of Long-Term Debt (27,537) (28,092) (117,148) (99,198) Payments of Capital Lease Obligations (43,974) (37,337) (211,275) (144,900) Accounts Payable - Cash Overdraft (170,778) -- 183,836 -- Repayment of Note Payable - Vilardi -- (45,000) (60,000) (40,000) Loans Payable from Related Parties 144,756 465,790 3,838,862 6,096,884 Repayment of Note Payable - Ruocco -- -- -- (86,184) ----------- ---------- ---------- ----------- Net Cash - Financing Activities (97,533) 355,361 3,634,275 5,726,602 ----------- ---------- ---------- ----------- Net [Decrease] Increase in Cash 4,353 (14,855) (124,265) 216,835 Cash - Beginning of Years 9,501 133,766 133,766 (83,069) ----------- ---------- ---------- ----------- Cash - End of Years $ 13,854 $ 118,911 $ 9,501 $ 133,766 =========== ========== ========== =========== Supplemental Disclosures of Cash Flow Information: Cash paid during the years for: Interest $ 17,544 $ 27,780 $ 102,869 $ 111,136 Income Taxes $ 6,200 $ -- $ -- $ -- Supplemental Schedule of Non-Cash Investing and Financing Activities: In April 1997, the Company incurred a capital lease obligation totaling $98,050 in connection with the acquisition of medical equipment. In July 1996, the Company incurred a capital lease obligation of $370,000 in connection with the acquisition of medical equipment.
The Accompanying Notes are an Integral Part of These Financial Statements. 13 MEDILABS, INC. NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ [1] Organization and Business Medilabs, Inc. [the "Company"], a wholly-owned subsidiary of Long Term Care Services, Inc. was incorporated on March 18, 1994 to initially engage in the business of developing and marketing on-site medical screening examinations. The Company's emphasis has been in the clinical laboratory segment of its operations, principally servicing the greater New York metropolitan area. On April 9, 1998, the Company was sold to Bio-Reference Laboratories, Inc. [See Subsequent Event Note]. [2] Summary of Significant Accounting Policies Revenue Recognition - Revenues are recognized at the time the services are performed. Revenues on the statements of operations are as follows: Years ended December 31, 1 9 9 7 1 9 9 6 ------- ------- Gross Revenues $27,920,080 $25,047,299 ----------- ----------- Contractual Adjustments and Discounts: Medicare/Medicaid Portion 6,973,467 5,812,895 Other 6,187,692 4,872,575 ----------- ----------- Total Contractual Adjustments and Discounts 13,161,159 10,685,470 ----------- ----------- Net Revenues $14,758,921 $14,361,829 ------------ =========== =========== A number of proposals for legislation are under discussion which could substantially reduce Medicare and Medicaid reimbursements to clinical laboratories. Depending upon the nature of regulatory action, and the content of legislation, 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. Contractual Credits and Provision for Doubtful Accounts - An allowance for contractual credits is determined based upon a review of the reimbursement policies and subsequent collections for the different types of receivables. An allowance for doubtful accounts is determined based upon a percentage of total receivables. The aggregate allowance, which is shown net against accounts receivable, was $5,604,289 as of December 31, 1997. Inventory - Inventory is stated at the lower of cost [on a first-in, first-out basis] or market. Inventory consists primarily of clinical supplies. Deferred Income Taxes - 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 MEDILABS, INC. NOTES TO FINANCIAL STATEMENTS, Sheet #2 - ------------------------------------------------------------------------------ [2] Summary of Significant Accounting Policies [Continued] Impairment - Certain long-term assets of the Company including goodwill are reviewed at least annually as to whether their carrying value has become impaired, pursuant to guidance established in Statement of Financial Accounting Standards ["SFAS"] No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Management considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations [undiscounted and without interest charges]. If impairment is deemed to exist, the assets will be written down to fair value or projected discounted cash flows from related operations. Management also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives [See Note 3]. Property and Equipment - 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 15 years. Leasehold improvements are amortized over the life of the lease, which is approximately five years. The statements of operations reflect depreciation expense related to property and equipment of $737,390 and $668,120 for the years ended December 31, 1997 and 1996, respectively. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Goodwill - Goodwill represents the excess of the cost of company over the fair value of its net assets at the date the Company was acquired and is being amortized over 10-40 years. The statements of operations reflected amortization for the years ended December 31, 1997 and 1996 of $249,671 and $240,632, respectively. At December 31, 1997, the Company's management determined that the goodwill was impaired as a result of the subsequent sale of certain of the Company's assets and liabilities and resulting value therefore determined. Accordingly, the Company recorded a write-down in the amount of $3,608,394 to reflect the estimated value of $2,827,496 as derived from the subsequent sale of the business [See Note 13]. In addition, goodwill also included the excess of the cost of Long Island Laboratories Associates over the fair value of its net assets at the date of acquisition and was being amortized on the straight-line method over 6-40 years. The statements of operations reflected amortization expense related to goodwill for the years ended December 31, 1997 and 1996 of $121,622 and $86,050, respectively. Such amount was written off as of December 31, 1997 [See Note 3]. Intangible Assets - Intangible assets represents covenants not-to compete in the amount of $325,000 and are amortized using the straight-line method over 4.5-10 years. The statements of operations reflect amortization expense related to intangible assets of $64,192 and $45,359 for the years ended December 31, 1997 and 1996, respectively. Advertising Costs -Advertising costs are expensed when incurred. Advertising costs amounted to $36,660 and $59,864 for the years ended December 31, 1997 and 1996, respectively. Cash and Cash Equivalents - The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. The Company did not have any cash equivalents at December 31, 1997. 15 MEDILABS, INC. NOTES TO FINANCIAL STATEMENTS, Sheet #3 - ------------------------------------------------------------------------------ [3] Acquisition On February 1, 1996, the Company purchased certain assets of Long Island Laboratory Associates ["LILA"] for approximately $3,295,000 and assumed certain liabilities of approximately $385,000. Pro forma net patient revenues and net income for 1996 would not have been materially different from actual amounts if the acquisition of LILA had occurred on January 1, 1996. The Company's acquisition was accounted for using the purchase method of accounting, and the operations of the acquired laboratory was included in the Company's results of operations from the date of acquisition. The excess purchase price over fair value of net assets acquired for the acquisition has been recorded as goodwill and other identified intangibles, which was being amortized over the estimated lives ranging from 6 to 25 years. At December 31, 1997, the Company's management determined that goodwill was impaired. As a result, the Company wrote-off goodwill of $2,879,121. The Company wrote-off the assets after it determined that the amortization of the asset's balance over its remaining life could not be recovered through projected future discounted cash flows. [4] Long-Term Debt Long-term debt consists of various automobile loans with a credit group maturing through October 1999 with interest rates ranging from 8.9 to 11.75 percent, aggregate monthly payments of $10,890 and secured by automobiles. Maturities of long-term debt at December 31, 1997 in each of the next five years are as follows: 1998 $ 84,213 1999 17,782 2000 -- 2001 -- 2002 -- ----------- Total $ 101,995 ----- =========== [5] Income Taxes At December 31, 1997, the Company had net operating loss carryforwards of approximately $7,531,000 for federal income tax purposes, which expire in years 2009 through 2012. In addition, the Company had net operating losses for state purposes. The Company operates in several states, however, most of its business is conducted in the New Jersey and New York area. The following summarizes the operating loss carryforwards by year of expiration. At December 31, 1997, the Company has a deferred tax asset of approximately $3,012,000 and a valuation allowance of approximately $3,012,000 to the asset, an increase of $1,156,000 since December 31, 1996. The deferred tax asset primarily relates to net operating loss carryforwards. 16 MEDILABS, INC. NOTES TO FINANCIAL STATEMENTS, Sheet #4 - ------------------------------------------------------------------------------ [6] Capitalized Lease Obligations The Company leases various assets under capital leases expiring as follows: December 31, 1 9 9 7 ---------- Medical Equipment $ 903,736 Less: Accumulated Depreciation 354,680 --------- Net $ 549,056 --- ========= Depreciation expense on assets under capital leases was $198,359 for the year ended December 31, 1997. Aggregate future minimum rentals under capital leases are: Years ended December 31, 1998 $ 225,753 1999 129,373 2000 93,439 2001 56,557 2002 5,130 ---------- Total 510,252 Less: Interest 64,310 ---------- Present Value of Minimum Lease Payments $ 445,942 ========== Related Party Transactions - During the year ended December 31, 1997 and 1996, the Company was charged and advanced certain amounts by its parent company, Long Term Care Services, Inc. and Subsidiaries ["LTCS"] the following: Years ended December 31, 1 9 9 7 1 9 9 6 ------- ------- Insurance $ 228,731 $ (174,720) Advances 1,650,000 (2,333,900) Professional Fees 104,072 (21,147) Salaries 6,000 -- Other 1,991 1,351,912 ---------- ----------- Total Charged 1,990,794 (1,177,855) Less: Amount Reimbursed 106,083 467,806 ---------- ----------- Totals $ 1,884,711 $ (710,049) ------ =========== ========== In addition, certain advances from LTCS in the amount of $6,535,721 for the year ended December 31, 1997 and 1996 were interest bearing. Interest of approximately $1,370,000 was calculated on these advances at approximately 21%. All other advances were non-interest bearing. 17 MEDILABS, INC. NOTES TO FINANCIAL STATEMENTS, Sheet #5 - ------------------------------------------------------------------------------ [7] Commitments and Contingencies The Company leases various office and laboratory facilities and equipment under triple net operating leases expiring through November 2000. Several of these leases contain renewal options for three to five year periods. Total expense for property and equipment rental for the years ended December 31, 1997 and 1996 was $578,000 and $539,000, respectively. There were no contingent rental amounts due through December 31, 1997. Aggregate future minimum rental payments on noncancelable operating leases are as follows: Property Equipment December 31, 1998 $ 353,827 $ 7,920 1999 241,475 3,300 2000 47,097 -- 2001 -- -- 2002 -- -- Thereafter -- -- ---------- ----------- Totals $ 642,399 $ 11,220 ------ ========== =========== [8] Litigation In the normal course of 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 effect on the Company's financial position or results of operations. [9] Insurance The Company maintains professional liability insurance of $3,000,000 in the aggregate, with a per occurrence limit of $1,000,000. In addition, the Company maintains excess commercial insurance of $10,000,000 per occurrence. The Company believes, but cannot assure, that its insurance coverage is adequate for its current business needs. A determination of Company liability for uninsured or underinsured acts or omissions could have a material adverse affect on the Company's operations. [10] Concentrations of Credit Risk At December 31, 1997, the Company had approximately $132,493 in cash and certificates of deposit balances at financial institutions which were in excess of the federally insured limits. Credit risk with respect to accounts receivable is generally diversified due to the large number of patients comprising the client base. The Company does have significant receivable balances with government payors and various insurance carriers. Generally, the Company does not require collateral or other security to support customer receivables, however, the Company continually monitors and evaluates its client acceptance and collection procedures to minimize potential credit risks associated with its accounts receivable and establishes an allowance for uncollectible accounts and as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is not material to the financial statements. 18 MEDILABS, INC. NOTES TO FINANCIAL STATEMENTS, Sheet #6 - ------------------------------------------------------------------------------ [11] Employee Benefit Plan In 1995, the Company began sponsoring the Medilabs, Inc. 401(k) Profit-Sharing Plan. Employees become eligible for participation after attaining the age of eighteen, completing one year of service and maintaining a minimum of twenty hours per week. Participants may elect to contribute up to fourteen percent of their compensation, as defined in the Plan Adoption Agreement, to a maximum of $9,500 in 1997 and 1996 as adjusted for inflation. The Company may choose to make a matching contribution to the plan for each participant who has elected to make tax-deferred contributions for the plan year, at a percentage determined each year by the Company. For the years ended December 31, 1997 and 1996, the Company made matching contributions of $93,822 and $83,425, respectively, and charged those amounts to operations. If the Company elects to match participant contributions, the employer contribution will be fully vested after the fourth year of service. [12] Fair Value of Financial Instruments Effective December 31, 1995, the Company adopted Statement of Financial Accounting Standards No. 107, "Disclosure About Fair Value of Financial Instruments," which requires disclosing fair value to the extent practicable for financial instruments which are recognized or unrecognized in the balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement. The following table summarizes financial instruments by individual balance sheet classifications: December 31, 1997 Carrying Amount Fair Value --------------- ----------- Due to Related Parties $17,022,776 $17,022,776 Long-Term Debt $ 101,995 $ 101,995 Capitalized Lease Obligations $ 445,942 $ 445,942 [13] New Authoritative Accounting Pronouncements The Financial Accounting Standards Board ["FASB"] issued Statement of Financial Accounting Standards ["SFAS"] No. 130, "Reporting Comprehensive Income." SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. Earlier application is permitted. Reclassification of financial statements for earlier periods provided for comparative purposes is required. The Company is in the process of determining its preferred format. The adoption of SFAS No. 130 will have no impact on the Company's consolidated results of operations, financial position or cash flows. The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 changes how operating segments are reported in annual financial statements and requires the reporting of selected information about operating segments in interim financial reports issued to shareholders. SFAS No. 131 is effective for periods beginning after December 15, 1997, and comparative information for earlier years is to be restated. SFAS No. 131 need not be applied to interim financial statements in the initial year of its application. The Company is in the process of evaluating the disclosure requirements. The adoption of SFAS No. 131 will have no impact on the Company's consolidated results of operations, financial position or cash flows. 19 MEDILABS, INC. NOTES TO FINANCIAL STATEMENTS, Sheet #7 - ------------------------------------------------------------------------------ [14] Subsequent Event - Sale of Company On April 9, 1998, certain of the Company's assets and liabilities were purchased by Bio-Reference Laboratories, Inc. for gross proceeds of approximately $5.5 million subject to a final post closing adjustment as of such date. The Company has reevaluated and recorded writedowns on intangible assets as a result of this transaction as of December 31, 1997. [15] Unaudited Interim Statements The financial statements for the three months ended March 31, 1998 and 1997 is unaudited; however, in the opinion of management all adjustments [consisting solely of normal recurring adjustments] necessary in order to make the interim financial statements not misleading have been made. The results of the interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. . . . . . . . . . . 20 SIGNATURE - ------------------------------------------------------------------------------ Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly authorized and caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Bio-Reference Laboratories, Inc. (Registrant) Dated: June 5, 1998 By: /s/ Sam Singer -------------- Sam Singer Chief Financial and Accounting Officer 21 -----END PRIVACY-ENHANCED MESSAGE-----