<PAGE>
FORM 10-QSB
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, 1996
-------------
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: 6,094,259 ($.01 par value) at
September 11, 1996.
<PAGE>
BIO-REFERENCE, LABORATORIES, INC.
---------------------------------
FORM 10-QSB
-----------
JULY 31, 1996
I N D E X
---------
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of July 31, 1996 (unaudited) 1
Statements of Operations for the
three months and nine months ended July 31, 1996
and July 31, 1995(unaudited) 3
Statements of Cash Flows for the
nine months ended July 31, 1996 and July 31,
1995 (unaudited) 4
Notes to financial statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION 10
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 10
<PAGE>
<TABLE>
<CAPTION>
BIO-REFERENCE LABORATORIES, INC.
--------------------------------
BALANCE SHEET
-------------
As of July 31, 1996
-------------------
(Unaudited)
-----------
ASSETS
------
<S> <C>
CURRENT ASSETS:
- --------------
Cash $ 1,340,790
Cash - Restricted 852,000
Accounts Receivable (Net) 11,005,916
Inventory 449,952
Other Current Assets 441,738
Certificates of Deposit - Restricted 3,680,000
---------
TOTAL CURRENT ASSETS $17,770,396
--------------------
PROPERTY, PLANT AND EQUIPMENT $ 2,543,929
-----------------------------
LESS: Accumulated Depreciation 1,171,143
- ----
TOTAL PROPERTY,
--------------
PLANT AND EQUIPMENT - NET $ 1,372,786
-------------------------
OTHER ASSETS:
- ------------
Due from Related Party $ 239,318
Deposits 246,445
Goodwill (Net of Accumulated
Amortization of $999,787) 3,181,083
Deferred Charges (Net of Accumulated
Amortization of $1,316,979) 4,302,395
Other Assets 313,320
-----------
TOTAL OTHER ASSETS $ 8,282,561
------------------ -----------
TOTAL ASSETS $27,425,743
===========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
BIO-REFERENCE LABORATORIES, INC.
--------------------------------
BALANCE SHEET
-------------
As of July 31, 1996
-------------------
(Unaudited)
-----------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C>
CURRENT LIABILITIES:
Accounts Payable $ 2,154,165
Salaries and Commissions Payable 950,966
Accrued Expenses 400,405
Current Portion of Long-Term Debt 1,644,483
Current Portion of Leases Payable 197,280
Current Portion of Subordinated Notes 127,444
Note Payable 8,197,296
Taxes Payable 142,189
-----------
TOTAL CURRENT LIABILITIES $13,814,228
------------------------- -----------
LONG-TERM LIABILITIES:
- ---------------------
Long-Term Portion of Long-Term Debt $ 1,629,324
Long-Term Portion of Leases Payable 76,445
Long-Term Portion of Subordinated Notes 116,385
-----------
TOTAL LONG-TERM LIABILITIES $ 1,822,154
---------------------------
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 --
Common Stock, $.01 Par Value;
Authorized 18,333,333 shares,
Issued 6,300,280 shares (including
206,021 shares held in escrow) and
Outstanding 6,094,259 shares 61,179
Additional Paid-In Capital 22,428,757
Accumulated [Deficit] (10,696,200)
-----------
Totals $11,793,736
Deferred Compensation (4,375)
-----------
TOTAL SHAREHOLDERS' EQUITY $11,789,361
-------------------------- -----------
TOTAL LIABILITIES AND
---------------------
SHAREHOLDERS' EQUITY $27,425,743
-------------------- ===========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
BIO-REFERENCE LABORATORIES, INC.
--------------------------------
STATEMENTS OF OPERATIONS
------------------------
[UNAUDITED]
---------
Three months ended Nine months ended
------------------ -----------------
July 31, July 31,
------- -------
1 9 9 6 1 9 9 5 1 9 9 6 1 9 9 5
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET REVENUES: $8,928,529 $8,062,709 $25,912,800 $23,395,488
- ------------ ---------- ---------- ----------- -----------
COST OF SERVICES:
- ----------------
Depreciation $ 94,292 $ 84,956 $ 276,379 $ 243,710
Employee Related Expenses 2,154,055 1,825,548 6,386,869 5,342,009
Reagents and Lab Supplies 1,131,878 944,070 3,270,054 2,691,650
Other Cost of Services 1,239,405 1,043,450 3,536,421 2,817,299
---------- ---------- ----------- -----------
TOTAL COST OF SERVICES $4,619,630 $3,898,024 $13,469,723 $11,094,668
---------------------- ---------- ---------- ----------- -----------
GROSS PROFIT ON REVENUES $4,308,899 $4,164,685 $12,443,077 $12,300,820
- ------------------------
General and Administrative Expenses:
- -----------------------------------
Depreciation and Amortization $ 156,485 $ 174,388 $ 468,113 501,095
Other General and Admin. Expenses 2,642,664 2,536,516 8,002,847 7,512,454
Bad Debt Expense 1,032,021 1,017,793 3,161,054 2,946,104
---------- ---------- ---------- -----------
TOTAL GENERAL AND ADMIN. EXPENSES $3,831,170 $3,728,697 $11,632,014 $10,959,653
--------------------------------- ---------- ---------- ---------- -----------
OPERATING INCOME $ 477,729 $ 435,988 $ 811,063 $ 1,341,167
----------------
OTHER (INCOME) EXPENSES:
- -----------------------
Interest Expense $ 201,501 $ 178,424 $ 590,870 $ 440,621
Interest Income (69,890) (83,545) (221,248) (189,443)
---------- ---------- ---------- -----------
TOTAL OTHER EXPENSES - NET $ 131,611 $ 94,879 $ 369,622 $ 251,178
-------------------------- ---------- ---------- ---------- -----------
NET INCOME BEFORE TAX $ 346,118 $ 341,109 $ 441,441 $ 1,089,989
- ---------------------
Provision for Income Taxes -- -- 48,501 --
---------- ---------- ---------- -----------
NET INCOME BEFORE EXTRAORDINARY ITEM $ 346,118 $ 341,109 $ 392,940 $ 1,089,989
- ------------------------------------
Extraordinary Item - Expense related to
Dianon acquisition (65,700) -- (65,700) --
---------- ---------- ---------- -----------
NET INCOME AFTER EXTRAORDINARY ITEM $ 280,418 $ 341,109 $ 327,240 $ 1,089,989
- ----------------------------------- ========= =========== =========== ===========
NET INCOME PER SHARE BEFORE EXTRAORDINARY ITEM $ .06 $ .05 $ .06 $ .18
---------------------------------------------- ========= ========== =========== ==========
NET INCOME PER SHARE AFTER EXTRAORDINARY ITEM $ .05 $ .05 $ .05 $ .18
--------------------------------------------- ========= ========== =========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 6,094,259 6,068,848 6,093,205 5,990,791
--------------------------------------------- ========== ========== ========== ==========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
<PAGE>
<TABLE>
<CAPTION> BIO-REFERENCE LABORATORIES, INC.
--------------------------------
STATEMENTS OF CASH FLOWS
------------------------
[UNAUDITED]
---------
Nine months ended
-----------------
July 31,
1 9 9 6 1 9 9 5
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
- --------------------
Net Income $ 327,240 $ 1,089,989
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Deferred Compensation 13,125 43,260
Depreciation and Amortization 744,492 744,805
Provision for Bad Debts 3,161,054 2,946,104
Gain on Sale of Marketable Securities (9,274) --
Write-down of Impaired Assets 29,458 --
Amortized expenses related to
Dianon Acquisition 65,700 --
Change in Assets and Liabilities, net of
effects of acquisitions
(Increase) Decrease in:
Accounts Receivable (5,533,833) (4,811,833)
Other Assets (35,556) 28,392
Prepaid Expenses and Other Current Assets 48,355 (430,934)
Deferred Charges and Goodwill (2,167,606) (600,616)
Increase (Decrease) in:
Accounts Payable and Accrued Liabilities (87,589) 84,629
------------ -----------
NET CASH - OPERATING ACTIVITIES $(3,444,434) $ (906,204)
-------------------------------
INVESTING ACTIVITIES:
- --------------------
Acquisition of Equipment and
Leasehold Improvements $ (481,365) $ (326,779)
Cash overdraft assumed in
connection with acquisition (3,797) (479,335)
Investment in Certificate of Deposit 102,650 --
------------ -----------
NET CASH - INVESTING ACTIVITIES $ (382,512) $ (806,114)
-------------------------------
FINANCING ACTIVITIES:
- --------------------
Proceeds from Exercise of Warrants -- 18,150
Proceeds from Sales of Marketable Securities 501,893
Payments of Long-Term Debt (1,930,457) (2,097,313)
Increase in Long-Term Debt 1,945,148 453,077
Payments of Capital Lease Obligations (210,820) (190,511)
Payments of Subordinated Notes Payable (7,920) (37,039)
(Increase) Decrease in Restricted Cash 1,427,646 (1,962,168)
Increase in Revolving Line of Credit 2,806,000 4,914,766
------------ -----------
NET CASH - FINANCING ACTIVITIES $ 4,531,490 $ 1,098,962
------------------------------- ------------ -----------
NET INCREASE (DECREASE) IN CASH $ 704,544 $ (613,356)
-------------------------------
CASH AT BEGINNING OF PERIODS 636,246 1,395,973
---------------------------- ------------ -----------
CASH AT END OF PERIODS $ 1,340,790 $ 782,617
---------------------- =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
- -------------------------------------------------
Cash paid during the period for:
Interest $ 572,908 $ 348,517
Income Taxes $ 48,501 $ 49,882
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
<PAGE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
- --------------------------------------------------------------------
In December, 1994, the Company incurred capital lease obligations of $13,713 in
connection with the acquisition of office furniture and $12,130 in connection
with the acquisition of leasehold improvements.
In January, 1995, the Company incurred capital lease obligations of $58,668 in
connection with the acquisition of computerized imaging systems.
In January, 1995, the Company issued 444,585 shares of common stock for all of
the issued and outstanding common and preferred stock of GenCare Biomedical
Research Corporation ("GenCare"). An aggregate 133,333 shares are to be held
in escrow pending certain required collections from GenCare customers. The
fair market value of the 311,252 non-escrowed shares issued at the closing was
$1,634,073 on such date. In addition, the Company incurred capital lease
obligations of $32,266 in connection with the acquisition of 4 automobiles.
In February, 1995, $37,621 of a GenCare related trade accounts payable was
settled by conversion of the entire amount into a two year debt agreement.
In April, 1995, the Company issued 12,000 shares of common stock in payment of
a $25,500 fee to a public relations firm pursuant to a one year contract
(renewable annually).
In October, 1995, the Company incurred a capital lease obligation in connection
with the acquisition of medical equipment.
In December, 1995, the Company issued 4,745 shares of common stock in payment
of a $17,198.45 invoice due to a vendor.
The Accompanying Notes are an Integral part of these Financial Statements.
<PAGE>
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 in order to make the
interim financials not misleading.
[2] The results of operations for the nine month period ended July 31, 1996 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, 1995 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.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31
1996 1995 1996 1995
---- ---- ---- ----
<C> <C> <C> <C>
$8,340,479 $6,407,071 $23,469,329 $17,937,778
</TABLE>
[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 $4,280,085 at July 31, 1996
[6] Inventory, consisting primarily of purchased clinical supplies, is valued
at the lower of cost (first-in, first-out) or market.
[7] At July 31, 1996, the Company had $ 4,532,000 of restricted cash which
represents collateral for three demand notes issued pursuant to bank loans.
[8] At July 31, 1996, the Company had $5,466,540 in cash in excess of the
federally insured limits, however $4,532,000 of this amount represents
collateral for demand loans with the same banks.
[9] Effective November 1, 1993, the Company adopted FAS 109 "Accounting for
Income Taxes." The effect of the adoption is not material to the financial
statements. The Company elected not to restate prior financial statements.
The Company had net operating loss carryforwards at October 31, 1995 of
approximately $9,100,000 which begin to expire in 2002. As a result of these
carryforwards, the Company has a deferred tax asset of approximately $3,700,000
which has been offset by a valuation account of $3,700,000, resulting in a net
deferred asset of $-0-.
[10] 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,
1996, $2,500,000 was paid against the principal on this note. The Company has
$852,000 in a savings account with this bank restricted as collateral for the
loan.
[11] In November, 1994, the Company purchased a customer list and two leased
draw stations from a clinical laboratory. As consideration, the Company assumed
the seller's obligations under the leases and entered into an agreement to pay
up to $600,000 over a five and one-half year period based on cash collected on
customer list revenues. The minimum liability for these payments is $120,000,
of which $30,000 was paid at the closing. No goodwill was recognized on this
transaction. In addition, the Company entered into a five year employment
agreement with a senior marketing representative providing for an annual base
salary of $40,000 plus commissions based on sales.
[12] In January, 1995, the Company acquired GenCare Biomedical Research
Corporation ["GenCare'] in a business combination accounted for under the
purchase method of accounting. GenCare provides clinical testing services for
the detection, differentiation and staging of cancer, genetic and infectious
diseases. Their customers include hospitals, medical centers, reference
laboratories and large medical practices. All of the issued and outstanding
common and preferred stock of GenCare was acquired for an aggregate 444,585
shares of the Company's common stock [subject to possible increase in the event
of a future decrease in the market price of the common stock]. An aggregate
133,333 shares are to be held in escrow pending certain required collections
from GenCare customers. The fair market value of the 311,252 non-escrowed
shares issued at the closing was $1,634,073 on such date. The total cost of
the acquisition was $1,634,073 which exceeded the fair value of the net assets
of GenCare by $2,203,492. The excess is being amortized using the
straight-line method over 20 years. In addition, if the specified collection
levels are achieved, the 133,333 shares in escrow will be recorded as an
additional cost of the acquisition at the fair market value of the shares at
the time they are issued. In addition, the Company assumed a bank loan in the
amount of $293,333. This loan was fully paid in March, 1995. In February,
1995, $37,621 of a GenCare trade accounts payable was settled by conversion of
the entire amount into a two year debt agreement.
[13] In March, 1995, the Company consummated a $6,500,000 line of credit with
PNC Bank, N.A.- Asset Based Lending Department. The credit line is secured by
the Company's accounts receivable, is for a two-year term and may be extended
for annual periods by mutual consents, thereafter. In July, 1996, this line of
credit was increased to $9,000,000.
[14] In November, 1995, the Company acquired Oncodec Labs, Inc. All of the
issued and outstanding common stock of Oncodec Labs, Inc. was acquired for a
maximum of 40,000 shares of the Company's common stock. At the closing, the
stockholders of Oncodec Labs, Inc. received 10,000 shares and the additional
30,000 shares will be issued contingent upon receipts obtained through December
31, 1998. This acquisition was not significant to the Company.
[15] In November, 1995, the Company acquired Community Medical Laboratories
("CML"). All of the issued and outstanding common stock of CML was acquired
for an aggregate 72,688 shares of the Company's common stock. In addition,
certain CML noteholders delivered CML promissory notes totaling an aggregate
$399,958 in indebtedness including accrued interest through October 31, 1995 in
exchange for an aggregate $200,174 in principal amount of the Company's
debentures. The 72,688 shares of the Company's stock will be held in escrow
pending certain required collections from CML customers. In addition, the
Company entered into a five year employment agreement for an annual salary of
$60,000 contingent on revenue received from specified draw stations. This
acquisition was not significant to the Company.
[16] 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. In the quarter ended April 30, 1996, certain intangible assets
were deemed to be impaired. As a result, a charge of $29,458 was recorded for
the write-down of this asset.
[17] In April 1994, Town Clinical Laboratory, Ltd. ["TCL"], a clinical testing
laboratory with principal offices in Nassau County, New York, filed a complaint
in the New York State Supreme Court, Nassau County against the Company and its
principal executive officer. The complaint alleges unfair competition and
conspiracy between the Company, its principal executive officer and a former
TCL employee to destroy TCL's business. The complaint, which contains four
causes of action, requests that preliminary and permanent injunctions be issued
and further requests actual damages to be determined at trial plus punitive
damages in the amount of $2,000,000 in each of the four causes of action. The
Company and its principal executive officer have filed an answer denying the
material allegations of the complaint and requesting judgment dismissing TCL's
complaint. In accordance with the terms of a settlement which was reached in
December 1995, the Company will pay $30,000 to the former shareholders of TCL.
In August 1994, the Company and various of its officers and directors were
named as a defendant in an action commenced by a former employee in the
Superior Court of New Jersey. The complaint alleges that an employment
agreement between the Company and the former employee was breached, and demands
an unspecified amount of compensatory and punitive damages. The Company and
the other defendants have denied the material allegations and have filed a
counterclaim against the former employee based upon his alleged breach of the
employment agreement by his lack of performance thereunder. The Company
intends to vigorously defend its position in this action.
In the normal course of its business, the Company is exposed to a number of
other 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.
[18] 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 most recent fiscal year. This acquisition was not significant to the
Company.
[19] 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 is payable in 24
consecutive monthly installments of $25,000 commencing January 1, 1997. 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
downpayment made by BRLI at the Closing was provided pursuant to its term loan
and credit line facilities with Midlantic Bank, N.A. The Company estimates
that $3,600,000 in annual revenues could be generated by this acquisition.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
-------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
RESULTS OF OPERATIONS
---------------------
COMPARISON OF THIRD QUARTER 1995 VS THIRD QUARTER 1994
------------------------------------------------------
NET REVENUES:
- ------------
Net Revenues for the three month period ended July 31, 1996 were $8,928,529 as
compared to $8,062,709 for the prior period ended July 31, 1995; this
represents an 11% increase in net revenues. The number of patients processed
during the quarter ended July 31, 1996 increased 19% over the prior comparable
period. However, net revenue per patient decreased from $52.66 for the period
ended July 31, 1996 to $48.99 for the period ended July 31, 1996. This
represents a 7% reduction in reimbursement levels. The Company processed
182,245 patients during the quarter ended July 31, 1996 and estimates lost
revenues of approximately $668,800 due to the reduction of reimbursement levels
from the third quarter of 1995. Management cannot project if these decreases
will continue or if they do, at what rate. During the current quarter, the
Company acquired certain assets, rights and associated goodwill including the
Customer List related to SmithKline Beecham Clinical Laboratories, Inc.'s
(SBCL) Renal Dialysis Testing Business. While no revenues were generated by
this acquisition during this period and only minimal revenues are expected to
be realized in the final quarter of this year; Management believes, but cannot
assure, that approximately $900,000 in revenues can be generated on a
quarterly basis.
COST OF SERVICES:
- ----------------
Cost of services increased from $3,898,024 for the three month period ended
July 31, 1995 to $4,619,630 for comparable three month period ended July 31,
1996. This represents 19% increase in direct expenses. Employee related
expenses increased by 18%. Staff increased by 45 employees during this period.
Reagents and laboratory supplies increased 18% over the comparable period.
This cost component, as expected, increased in tandem with the number of
patients processed. Other costs of services increased 19% over the prior
comparable period. This component of direct costs increased primarily due to a
33% increase in pick-up and delivery expenses. Staff increased by 13 employees
along with an associated increase in the size of our fleet of pick-up vehicles.
Gross profits on net revenues increased from $4,164,285 for the period ended
July 31, 1995 to $4,308,899 for the three month period ended July 31, 1996; an
increase of 3%. The Company's gross profit margin decreased to 48% for the
three month period ended July 31, 1996 compared to 52% for the three month
period ended July 31, 1995. This decrease in gross profit margin resulted from
an increase in net revenues of 11%, which was impacted by a 7% reduction in
reimbursement levels, while direct costs increased by 19%.
GENERAL AND ADMINISTRATIVE EXPENSES:
- -----------------------------------
General and administrative expenses for the three month period ending July 31,
1996 were $3,896,870 as compared to $3,831,170 for the quarter ending July 31,
1996, an increase of $102,473 (3%). This increase is favorable in respect to
the 11% increase in net revenues.
INTEREST EXPENSE:
- ----------------
Interest expense increased from $178,424 during the three month period ending
July 31, 1995 to $201,501 for the three month period ending July 31, 1996 and
is due to the Company's increase in asset based borrowings and equipment leases.
INCOME:
- ------
The Company had net income before the extraordinary item of $346,118 for the
quarter ended July 31, 1996 as compared to $341,109 for the quarter ended July
31, 1995, an increase of $5,009. The Company took a one-time charge against
earnings of $65,700 for the expenses incurred in connection with the attempted
acquisition of Dianon Systems.
NINE MONTHS 1995 COMPARED TO NINE MONTHS 1994
NET REVENUES:
- ------------
Net revenues for the nine month period ended July 31, 1996 were $25,912,800 as
compared to $23,395,488 for the prior comparable period ended July 31, 1995;
this represents an 11% increase in net revenues. However, due to record
snowfalls in the New York metropolitan area and based on volume on non-weather
affected days; management estimates net revenues would have been $800,000
greater if the Northwest had not experienced such severe weather. The
laboratory's patient count for the nine month period ending July 31, 1996
increased by 19% over the same period in 1995. Net revenues per patient
decreased from $53.68 for the period ending July 31, 1995 to $49.96 for the
period ending July 31, 1996. This represents a 7% reduction in reimbursement
levels. The Company processed $518,629 patients during the period ended July
31, 1996 and estimates lost revenues of approximately $1,929,300 due to the
reduction of reimbursement levels. Management cannot project if these
decreases will continue, or if they do, at what rate. During the latter part
of the nine month period ended July 31, 1996, the Company acquired certain
assets, rights and associated goodwill including the Customer List related to
SBCL's Renal Dialysis Testing Business. While no revenues were generated by
this acquisition during this period and only minimal revenues will be felt
during the fourth quarter of this year; Management believes, but cannot assure,
that approximately $3,600,000 in revenues could be realized during the new
fiscal year.
COST OF SERVICES:
- ----------------
Cost of services increased from $11,094,668 for the nine month period ended
July 31, 1995 to $13,469,723 for the period ended July 31, 1996. This
represents a 21% increase in direct operating costs. Employee costs increased
20% and represents 44% of the overall increase in direct operating expenses.
During this period, direct staffing, increased by 45 employees. Reagents and
laboratory supplies increased by 21% over the prior comparable period and is in
line with the overall increase in the number of patients processed. Other cost
of services for the nine month period ended July 31, 1996 increased by 26% over
the comparable period ended July 31, 1995. This increase is attributable
primarily to two factors, (1) a 26% increase in pick-up and delivery expenses
and (2) a 31% increase in reference laboratory fees. The rate of increase in
reference laboratory fees is down from the first quarter (73%) and the second
quarter (43%).
Gross revenues increased from $12,300,820 for the nine month period ended July
31, 1995 to $12, 443,077 for the period ended July 31, 1996; an increase of
$142,257. The Company's gross profit margin decreased to 48% for the nine
month period ended July 31, 1996 compared to 53% for the period ended July 31,
1995. This decrease resulted from an increase in net revenues of 11%, which
was impacted by a 7% decrease in reimbursement levels, while direct expenses
increased by 21%. The Company believes this decrease resulted from the adverse
effect on revenues due to severe winter weather and a decrease in net revenues
per patient.
GENERAL AND ADMINISTRATIVE EXPENSES:
- -----------------------------------
General and administrative expenses for the nine month period ended July 31,
1996 were $11,697,714 as compared to $10,959,653 for the period ended July 31,
1995, an increase of $672,361 (6%). This increase is in line with the 11%
increase in net revenues.
INTEREST EXPENSE:
- ----------------
Interest expense increased from $440,621 during the nine month period ending
July 31, 1995 as compared to $590,870 during the nine month period ending July
31, 1996. This increase was caused by the Company's increase in asset based
borrowings and equipment leases.
INCOME:
- ------
The Company had net income before extraordinary itemof $1,089,989 for the nine
months ended July 31, 1995 as compared to $392,940 for the nine months ended
July 31, 1996, a decrease of $697,049. The company took a one-time charge
against earnings of $65,700 for the expenses incurred in connection with the
attempted acquisition of Dianon Systems. Management believes the relatively
small net income of $327,240 for the period ended July 31, 1996 was
attributable to the extreme winter weather and record snowfall that the
Northeast experienced during December, January and February
LIQUIDITY AND CAPITAL RESOURCES FOR THE NINE MONTHS ENDED JULY 31, 1995
-----------------------------------------------------------------------
Working capital as of July 31, 1996 was $3,957,168 as compared to $4,551,855 at
October 31, 1995 a decrease of $594,687 during the six month period.
The Company increased its cash position by approximately $705,000 during the
current quarter. The Company utilized $3,444,434 in cash for operating
activities. To offset this use of cash the Company raised $1,945,148 in long-
term debt, $2,806,000 in credit line borrowings and sold $501,893 in marketable
securities and repaid approximately $2,150,000 in existing debt.
The capital spending requirements for the Company during 1996 is expected not
to exceed $900,000. To date, approximately $481,365 has been spent on capital
improvements.
The Company had current liabilities of $13,814,228 at July 31, 1996. The three
largest items in this category are note payable of $8,197,296, accounts
payable of $2,154,165 and current portion of long-term debt of $1,644,483.
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. For example, the House Energy and Commerce Subcommittee
on Oversight and Investigation introduced legislation in 1987 and 1989 that
would require clinical laboratories to charge Medicare the lowest prices
charged to any client. In October 1990, the Office of the Inspector General
("OIG") of the Department of Health and Human Services ("HHS") proposed a so-
called "laboratory roll-in" reimbursement methodology, whereby physicians would
be reimbursed a flat fee per office visit for clinical laboratory testing,
thereby forcing clinical laboratories to bid to provide those services to
physicians. The administration's budget package for fiscal 1993 recommended
adoption of a proposal of the U.S. General Accounting Office issued in
connection with a study of clinical laboratory costs made in June 1991 calling
for a reduction in the Medicare national limitation amounts, from the current
level of 88% of the national median to 76% of the national median. The Health
Care Financing Administration ("HCFA") has announced that it is developing a
proposal to provide for reimbursement of clinical laboratories on a competitive
bid basis. In addition, a number of states, HHS and Medicare carriers
(insurance companies that administer Medicare) have imposed reductions and
other limitations on Medicare and Medicaid reimbursement for laboratory testing
and one state has imposed, and other states are considering, new taxes on
health care providers, including 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.
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 $9,000,000. As of July 31, 1996, $8,197,296 of this facility has been
utilized.
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.
IMPACT OF INFLATION:
- -------------------
To date, inflation has not had a material effect on the Company's operations
NEW AUTHORITATIVE PRONOUNCEMENTS:
- --------------------------------
The Financial Accounting Standards Board ["FASB"] issued 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," in March 1995 and
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," in May 1993.
SFAS No. 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS No. 121 is effective for financial
statements issued for fiscal years beginning after December 15, 1995. SFAS No.
114 establishes accounting standards for the impairment of certain loans. SFAS
No. 114 applies to financial statements for fiscal years beginning after
December 15, 1994. Adoption of SFAS No. 121 and SFAS No. 114 is not expected
to have a material impact on the Company's financial statements.
The FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," in
October 1995. SFAS No. 123 uses a fair value based method of accounting for
stock options and similar equity instruments as contrasted to the intrinsic
value based method of accounting prescribed by Accounting Principles Board
[APB] Opinion No. 25, "Accounting for Stock Issued to Employees." The Company
has not decided if it will adopt SFAS No. 123 or continue to apply APB Opinion
No. 25 for financing reporting purposes. SFAS No. 123 will have to be adopted
for financial note disclosure purposes in any event. The accounting
requirements of SFAS No. 123 are effective for transactions entered into in
fiscal years that begin after December 15, 1995; the disclosure requirements of
SFAS No. 123 are effective for financial statements for fiscal years beginning
after December 15, 1995.
In December 1994, the American Institute of Certified Public Accountants issued
Statement of Position [SOP] 94-6, "Disclosure of Certain Significant Risks and
Uncertainties," the provisions of which are effective for financial statements
issued for fiscal years ending after December 15, 1995. In general, SOP 94-6
requires disclosures about the nature of a company's operations and the use of
estimates in the preparation of financial statements. The Company does not
anticipate a significant expansion of its financial statement note disclosure
as a result of SOP 94-6.
<PAGE>
PART II
Item 6
EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------
No reports on Form 8-K have been filed during the quarter ended July 31, 1996.
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)
Marc D. Grodman
- -------------------------------
Marc D. Grodman, M.D.
President
Sam Singer
- -------------------------------
Sam Singer
Chief Financial and Accounting Officer
Date: September 12, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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-QSB and is qualified in its entirety by reference to such (b) Report.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 5,872,790
<SECURITIES> 0
<RECEIVABLES> 11,005,916
<ALLOWANCES> 4,280,085
<INVENTORY> 449,952
<CURRENT-ASSETS> 17,770,396
<PP&E> 2,543,929
<DEPRECIATION> 1,171,143
<TOTAL-ASSETS> 27,425,743
<CURRENT-LIABILITIES> 13,814,228
<BONDS> 11,988,657
0
0
<COMMON> 61,179
<OTHER-SE> 22,428,757
<TOTAL-LIABILITY-AND-EQUITY> 27,425,743
<SALES> 25,912,800
<TOTAL-REVENUES> 25,912,800
<CGS> 13,469,723
<TOTAL-COSTS> 25,101,737
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,161,054
<INTEREST-EXPENSE> 590,870
<INCOME-PRETAX> 441,441
<INCOME-TAX> 48,501
<INCOME-CONTINUING> 392,940
<DISCONTINUED> 0
<EXTRAORDINARY> 65,700
<CHANGES> 0
<NET-INCOME> 327,240
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
