SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended October 31, 1995
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from to
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Commission file number 0-15266
BIO-REFERENCE LABORATORIES, INC.
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(Exact name of small business issuer as specified in its charter)
New Jersey 22-2405059
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
481 Edward H. Ross Drive, Elmwood Park, New Jersey 07407
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code 201-791-2600
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which
Title of Class registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of the issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or in any
amendment to this Form 10-KSB.
[ ]
For the year ended October 31, 1995, the issuer's revenues were $31,521,118
On December 29, 1995, the aggregate market value of the voting stock of
Bio-Reference Laboratories, Inc. (consisting of Common Stock, $.01 par value)
held by non-affiliates of the Issuer was approximately $19,300,000 based upon
the last sales price for such Common Stock on said date in the over-the-counter
market as reported by the NASDAQ Small Cap System. On such date, there were
6,295,675 shares of Common Stock of the Issuer outstanding.
PART I
Item. 1 - Business
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Bio-Reference Laboratories, Inc. ("Bio-Reference" or the "Company") operates
a clinical laboratory located in northern New Jersey, principally servicing the
greater New York metropolitan area. Bio-Reference offers a comprehensive list
of chemical diagnostic tests including blood and urine analysis, blood
chemistry, hematology services, serology, radioimmuno analysis, toxicology
(including drug screening), pap smears, tissue pathology (biopsies) and other
tissue analyses. Bio-Reference holds the required Federal and state licenses
necessary to permit its operation of a clinical laboratory at its Elmwood Park,
New Jersey facility and to permit its servicing of its clients in Connecticut,
Florida, Louisiana, Maryland, New Jersey, New York, Pennsylvania, Texas and
Virginia. Bio-Reference markets its services directly to physicians, hospitals,
clinics, and other health facilities. The Company picks up test specimens
directly from the physician and test results are generally transmitted by
computerized telephone connections or courier. The Company intends to continue
to expand and develop its laboratory operations through acquisitions, on-going
marketing efforts and expansion of its specialty testing areas.
The United States market for clinical laboratory testing is estimated to
generate approximately $30 billion in annual revenues. Approximately one-half
of these revenues are accounted for by hospital laboratories and the balance by
independent commercial laboratories and tests performed by physicians in their
own offices and laboratories. The clinical laboratory market has been
undergoing significant consolidation in recent years due to the cost
efficiencies of large-scale, highly-automated testing and increasingly
stringent regulatory requirements. The Company is actively seeking to take
advantage of these trends by pursuing acquisitions which will provide revenues
to utilize more fully the Bio-Reference facility. The Company is also pursuing
growth through aggressive marketing to physicians whose patients are likely to
have good reimbursement and collectability profiles. Strategically, Bio-
Reference intends to continue to establish additional specialty areas to provide
esoteric testing services not generally provided by its competition, such as
fertility testing and cancer testing including tumor markers.
The Company was incorporated under the laws of the State of New Jersey
in December 1981 under the name "Med-Mobile, Inc." Its initial primary
business was to provide mobile medical examination services. The Company
discontinued this business in June 1989. Since February 1987, the Company's
primary business has been the operation of a clinical laboratory located in
northern New Jersey servicing the greater New York metropolitan area. The
Company expanded its laboratory services through the March 1988 acquisition of
Cytology and Pathology Associates, Inc., a clinical laboratory formerly located
in Englewood, New Jersey. The Company consolidated and relocated all of its
laboratory operations to its modern laboratory facility in Elmwood Park, New
Jersey and in June 1989, changed the name of the Company to Bio-Reference
Laboratories, Inc. (effective November 1989) and the name of the laboratory to
Bio-Reference Laboratories. Since 1990, the Company has expanded its
laboratory testing capabilities and its customer base through internal growth
as well as through the completion of a series of acquisitions of the businesses
of other testing laboratories. On January 4, 1995 (as of October 31, 1994),
the Company expanded its testing capabilities through the acquisition of
GenCare Biomedical Research Corporation ("GenCare") which operates a cancer
specialty testing laboratory in Mountainside, New Jersey.
The Company's executive offices and laboratory are located at 481 Edward
H. Ross Drive, Elmwood Park, New Jersey 07407. Its telephone number is (201)
791-2600.
Developments Since the Beginning of Fiscal 1995
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On January 4, 1995 (as of October 31, 1994), the Company acquired all of the
issued and outstanding capital stock of GenCare Biomedical Research Corporation
("GenCare") which operates a cancer specialty testing laboratory in
Mountainside, New Jersey, from unaffiliated third parties, 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). The
Company also acquired $234,760 in principal amount of outstanding GenCare notes
for $234,760 in principal amount of its 8% Convertible Debentures convertible
into shares of the Company's Common Stock at the rate of $5.25 of indebtedness
per share. An aggregate 133,333 of the 444,585 shares are being held in escrow
to be released provided certain specified levels of cash receipts are received
from GenCare customers for certain specified testing services performed during
the two-year period commencing December 1, 1994. GenCare offers state-of-the-
art DNA gene probe technology, flow cytometry and tumor markers used in the
diagnosis and evaluation of cancer patients and provides its services in New
York, New Jersey, Pennsylvania, Virginia, Maryland and Florida. GenCare
management represented that for its most recently completed fiscal year,
GenCare revenues approximated $2,600,000.
On March 28, 1995, the Company executed a Loan and Security Agreement (the
"Loan Agreement") with Midlantic Bank, N.A. (the "Bank") providing for a maximum
$6.5 million revolving line of credit (the "Credit Line"). The Credit Line was
obtained for working capital purposes and is secured by the bulk of the
Company's receivables. The Loan Agreement is for a two year term subject to
extension with the mutual consent of the parties. At any time during the term
of the Loan Agreement or any extension thereof, the Company, at its option, may
convert any outstanding indebtedness under the Credit Line into a term loan
payable in 36 equal monthly installments (the "Term Loan"). Interest on
advances made pursuant to the Credit Line (and any subsequent Term Loan) is
computed at a rate equal to 1 1/4% above the Bank's Prime Rate as in effect from
time to time (with a lower interest rate applying to advances made pursuant to a
certificate of deposit posted by the Company).
The Loan Agreement contains various affirmative and negative covenant
s made by the Company including a prohibition against certain sized acquisitions
by the Company and the payment by the Company of cash dividends. In addition,
the Company is required to maintain certain specified amounts of working capital
(not less than $1.5 million), of tangible net worth (not less than $4.3 million)
and of net worth (not less than $9.3 million at October 31, 1995, such required
amount increasing by 10% at each subsequent fiscal year end). Failure by the
Company to fulfill any such covenant would constitute a default under the Loan
Agreement.
On August 28, 1995, the Company announced its proposal to acquire Dianon
Systems, Inc. ("Dianon"), a publicly owned provider of specialized cancer
laboratory services headquartered in Stratford, Connecticut. The Company's
management was of the opinion that a combination of the two entities would
create one of the nation's largest laboratories focusing primarily on the
higher-reimbursement physician office market, and that a combination would
permit substantial cost savings and create opportunities for cross selling of
services, and would be in the best interests of the shareholders of both Bio-
Reference and Dianon. However, Dianon management rejected the Company's offer
and Dianon subsequently raised substantial additional financing from another
investor. The Company is continuing to explore its options with respect to this
potential acquisition.
On November 7, 1995 through its acquisition of Oncodec Labs, Inc. for an
aggregate 10,000 shares of its Common Stock (subject to possible increase to a
maximum aggregate 40,000 shares based on future receipts), the Company acquired
the exclusive worldwide right to a Quantitative Enriched PCR methodology for
detecting certain gene mutations, developed by the American Health Foundation
in Valhalla, New York. This methodology improves the ability to detect early
genetic changes which may lead to the development of various cancers.
CLINICAL LABORATORY OPERATIONS
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The Clinical Laboratory Industry
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The United States market for clinical laboratory testing is estimated at
approximately $30 billion in annual revenues, of which approximately 50%
results from tests performed by hospitals and the balance from tests performed
by independent commercial laboratories and tests performed by physicians in
their own office laboratories. Revenues in the clinical laboratory testing
market grew over the past decade at an annual rate of approximately 10% due,
the Company believes, to several factors, including: an increase in the number
and types of routine tests; the development of more sophisticated esoteric
tests, such as tests for AIDS, heart disease, elevated cholesterol levels,
infertility and prostate cancer; increased awareness among physicians of the
value of laboratory testing as a cost-effective means of prevention, early
detection of disease and monitoring of treatment; fear by physicians of
malpractice litigation; expanded substance abuse testing; the general aging of
the United States population; development of highly automated laboratory
testing equipment which has increased laboratory testing operating
efficiencies; and price increases for such services. The Company believes that
larger independent laboratories have been able to increase their share of the
overall clinical laboratory testing market by taking advantage of opportunities
for cost efficiencies afforded by large-scale automated testing operations, and
by acquisition of smaller laboratories which may not be in compliance with
current government licensing or safety standards and may not operate as
efficiently as the larger independent laboratories.
Recent regulatory developments are also expected by the Company to
contribute to the continuing consolidation of the industry. These developments
include regulations that deny Medicare reimbursement to so-called "shell
laboratories" that refer a substantial amount of their tests to other
laboratories and impose new quality assurance requirements on physician-office
laboratories. In addition, as of January 1, 1992, a physician is severely
restricted from referring Medicare-reimbursed testing to a laboratory in which
the physician has an economic interest. The Company believes that these
developments are likely to have a more significant impact on smaller
laboratories since most of the national and regional clinical laboratories,
including the Company, are already in compliance with such regulations.
As a result of the foregoing factors, the Company believes that most of
the physician-owned and small independent laboratories will cease to exist in
the next five to ten years and that the industry will be dominated by
medium-sized regional and large national laboratories who can best achieve cost
efficiencies through large-scale testing and can best comply with governmental
licensing, safety and other regulatory requirements. The Company intends to
capitalize on the trend of consolidation in the industry through acquisitions
of other laboratories in its geographical region with significant customer
lists.
History
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The Company was incorporated in December 1981 to provide mobile medical
examination services but discontinued that business in June 1989.
Bio-Reference commenced clinical laboratory operations in 1987 with the belief
that a strong business opportunity existed for a medium-sized clinical
laboratory that produced high quality test results in a timely manner to
practicing physicians. The current competition may be primarily categorized in
two groups: those businesses that are national in scope carrying out millions
of tests per month but impersonal in nature and those smaller laboratories that
attempt to compete in terms of quality and service but are limited in resources
and scope of capabilities. Consequently, management believed that there
existed a definite place for a medium-sized commercial laboratory in the
greater New York metropolitan area. Besides producing fast, accurate data, a
large regional facility could afford to employ sufficient senior staff
including laboratory scientists to act as client consultants - an enhancement
unavailable in small laboratories, and not readily available in the large
national commercial laboratories. In addition, the Company believed that by
complementing the regional facility with specialized areas of testing,
concentrating on esoteric tests, it could favorably compete with other
laboratories.
Although the Company did not realize income from operations from the
time it commenced clinical laboratory operations in 1987 until fiscal 1994, the
Company's net revenues have continually increased, notwithstanding the fact
that starting in 1991, the Company has become more selective in accepting
physician clients and patients. In fiscal 1994, the Company realized net
income from operations of $1,000,346 and in fiscal 1995, net income from
operations increased to $1,782,896. In March 1988, the Company acquired
Cytology and Pathology Associates, Inc., a small specialized clinical testing
laboratory located in Englewood, New Jersey and in June of that year
consolidated and relocated all of its laboratory operations into a 35,000 sq.
ft. space in Elmwood Park, New Jersey, approximately 10 miles from mid-town
Manhattan. The new location was carefully chosen to offer easy access to the
greater New York metropolitan area. This move allowed for further expansion of
the Company's esoteric service concept and afforded the Company an excellent
geographical location to expand into newer markets in southern New York State,
including Westchester, Rockland and Nassau Counties, southern and western New
Jersey and southern Connecticut.
With the completion of the relocation to Elmwood Park in 1988, the
Company proceeded to develop esoteric testing, while maintaining its routine
tests. It was found that by emphasizing the more difficult esoteric tests,
routine tests also increased, particularly profile testing in chemistry and
hematology. In 1991, the Company changed its emphasis to a sustained selective
growth, discontinuing the servicing of more than 5,000 patients per month from
accounts considered unprofitable and only taking on business that would yield
high reimbursement and collectability. The Company hopes to continue its growth
by aggressive marketing, entry into additional markets, primarily in the greater
New York metropolitan area through acquisitions and the development of
specialty niche markets to complement its routine business. Over the years,
the Company has expanded its specialty testing services to include anatomic
pathology (biopsies and pap smears), cellular immunology (principally geared to
the AIDS testing market), and male infertility.. See "Developments Since the
Beginning of Fiscal 1995" as to the Company's January 4, 1995 (as of October
31, 1994) acquisition of GenCare Biomedical Research Corporation and its
November 1, 1995 acquisition of the exclusive worldwide right to Enriched PCR
methodology.
The Company makes extensive use of direct mailings to physicians that
emphasize its specialized testing and personalized service. Targeted
physicians are principally those that frequently utilize laboratory services,
including obstetricians, internists, and primary care physicians. This direct
mailing technique is selective in nature, being targeted to concentrate on
profitable accounts.
Operations
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The efficiency of a medical laboratory depends on the quantity and
selection of tests performed and on its ability to automate the process. It is
axiomatic that the initial fixed costs of testing a small number of patients
are high. Such costs include the cost of maintaining highly sophisticated
equipment which is inefficient to operate if only a small number of patients are
tested, as well as the cost of a full support facility and marketing,
logistical, billing, and other administrative costs. As the patient volume
increases, automated tests become progressively less expensive, as the fixed
costs are already in place, making the laboratory more cost efficient.
Most medical laboratory tests can be divided into three principal
categories: those that are highly automated and computer driven, those that are
semi-automated requiring the use of sophisticated equipment, and those that are
subjective and basically manually determined. The Company considers itself a
highly automated and computer driven laboratory.
Bio-Reference is capable of performing highly sophisticated testing in
addition to high volume routine testing. Already established are a wide range
of tests in clinical chemistry, special chemistry, endocrinology, serology,
diagnostic immunology, microbiology, rheumatology, parasitology, cellular
immunology, radioimmunoassay, hematology, immunohematology, cytology, anatomic
pathology, and urinalysis. The Company's couriers pick up patient specimens
from physician offices, nursing homes and hospitals in the metropolitan New
York area and test results are generally delivered back to the physician within
24 hours. Additionally, the larger volume clients receive test results by way
of printers provided by the Company and placed directly in their offices,
thereby accelerating test reporting. The Company furnishes its physician
clients with periodic newsletters detailing advances in laboratory medicine,
new tests, clinical commentaries and laboratory interpretation of test results.
In addition, an annual Test Compendium is sent to all physician clients listing
all tests offered, normal ranges, correct collection of samples, patient
preparation, and up to date billing information. This, together with the
periodic clinical update newsletters, allows the Company to be in constant
contact with all of its physician clients.
The Company utilizes the services of seven full-time Client Service
Coordinators, all of whom are fully trained in medical and laboratory
terminology. This staff is used as an interface with physicians and nurses and
augments the client support provided by the Company's sales staff. Highly
abnormal and life threatening results are immediately telephoned to the
physician in order to provide speedy medical resolution of any patient problem.
The Scientific Director, Daytime Technical Manager, supervisors and medical
staff also are in frequent communication with clients and are available to
answer questions and provide support and consultation.
Sales and Marketing
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Management believes that the Company's laboratory, by virtue of its
geographic location and area of sales penetration, is well positioned to expand
into new areas. It is believed that a substantial market share can be achieved
in Westchester, Rockland and Nassau counties in New York, southern and western
New Jersey, and southern Connecticut. The Company presently employs 39 sales
and marketing personnel headed by a Vice President of Sales and Marketing with
more than 10 years of experience with one of the largest commercial medical
laboratories in the country, Smith-Kline Beecham Clinical Laboratories. The
sales and marketing department works closely with the Scientific Director in
planning new tests, pricing, and general client support. All sales and
marketing personnel operate in a dual capacity; both in selling and as client
support representatives. This ensures that all salespersons are intimately
involved with the client, not only in selling, but in servicing the account
that they sell. The Company feels that this is unique in the industry and is
extremely helpful in client retention, providing a strong link between the
physician and the Company's staff.
Quality Assurance
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The business of medical testing is essentially one of communication and
data transfer. In order to provide accurate and precise information to the
physician, it is essential to maintain a well structured and vigorous quality
assurance program. Bio-Reference holds the required Federal and state licenses
necessary to permit its operation of a clinical laboratory at its Elmwood Park,
New Jersey facility and to permit its servicing of its clients in Connecticut,
Florida, Louisiana, Maryland, New Jersey, New York, Pennsylvania, Texas and
Virginia. To fully maintain these licenses, the laboratory must submit to
vigorous sets of proficiency tests, or surveys, in all procedures which are
performed. Such proficiency tests or surveys may be performed as many as four
to five times a year, depending upon the procedure, and results in hundreds of
proficiency tests throughout the year. The Company is also subjected to
unannounced inspections by inspectors from some of the jurisdictions noted
above who review past records, operating manuals, quality assurance records and
safety regulations. In addition, Bio-Reference voluntarily enrolls in the
College of American Pathologists Proficiency program, which provides additional
proficiency surveys.
A Quality Assurance Committee, headed by a Quality Assurance Coordinator
and composed of supervisors from all departments, meets each month to assess and
evaluate the laboratory's quality. Based on the information received from the
committee, recommendations are made to correct conditions which have led to
errors. Management, department supervisors and members of the assurance
committee continually monitor the laboratory's quality. Depending on the test,
two or three sets of Quality Control materials are run in each analytical assay
to assure precision and accuracy. Patient population statistics are evaluated
each day. Highly abnormal samples are repeated to assure their accuracy.
It is the Company's position that all of these procedures are necessary,
not only in assuring a quality product, but also in maintaining Federal and
state licensing. The Company believes these high standards of quality are an
important factor in what management regards as an excellent rate of client
retention.
Revenue Recognition and Business Strategy
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Although the laboratory's clients are primarily physicians, it is
usually the
individual patient, his or her commercial insurance carrier, or a governmental
agency such as Medicare or Medicaid that pays the laboratory charges. These
third parties pay health care providers according to allowable costs or a
predetermined contractual rate rather than according to the provider's
established rates; the difference between what is paid and what is billed is
the contractual allowance. Therefore, the Company has adopted the practice of
reducing its revenues by these allowances or contractual adjustments.
All major accounts are reviewed monthly as to collectability by types of
payor and evaluated for effectiveness of collection procedures, and based upon
the review, corrective action is taken. Currently, the average reimbursement
per patient is higher than at any time in the Company's history. The following
table reflects the Company's breakdown of revenue by payor for the 12 months
ended October 31, 1993, 1994 and 1995.
<TABLE>
<CAPTION> Years Ended October 31,
-----------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Direct Patient Billing. . . . . . . . . . . . . 30% 33% 28%
Commercial Insurance. . . . . . . . . . . . . . 30% 23% 27%
Professional Billing. . . . . . . . . . . . . . 17% 18% 18%
Medicare. . . . . . . . . . . . . . . . . . . . 17% 20% 21%
Medicaid. . . . . . . . . . . . . . . . . . . . 6% 6% 6%
--- --- ---
100% 100% 100%
</TABLE>
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. Management plans to actively pursue such acquisitions to
the extent financing is available.
Competition
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The Company's competition derives primarily from other laboratories
located in the New York metropolitan area. On a national basis, approximately
30% of this market is made up of the three largest national laboratories
(Smith-Kline Beecham Clinical Laboratories, a Division of Smith-Kline Beecham
PLC, Laboratory Corporation of America, Inc. and Corning Clinical Laboratory, a
Division of Corning, Inc.). The Company is competing with these national
laboratories which have been in existence for a long period of time, have
products which are already established in the marketplace, have broader public
and industry recognition, have financial resources substantially greater than
the Company and have far more extensive facilities, larger sales forces and more
established customer and supplier relationships than those which now or in the
foreseeable future are, or will become, available to the Company. These
factors will place the Company at a competitive disadvantage. However, Bio-
Reference has certain capabilities similar to these national laboratories and
shares similar advantages with them over the smaller laboratories.
Bio-Reference and the major laboratories all have the capability of specialized
testing profiles, 24-hour turn-around time for most test results, computer
transmission into physician offices, and comprehensive courier pick-up and
delivery service in the greater New York metropolitan area.
Although the Company is significantly smaller than the national
laboratories and has modest financial resources, management believes it can
compete successfully because there are fewer layers of staff thus enabling
decisions to be made at a top management level more quickly and resulting in a
more responsive business atmosphere and customized service. The Company
believes its response to medical consultation is faster and more personalized
than in the national laboratories. At Bio-Reference, client service staff only
deal with simple non-technical problems and those that have medical or
scientific significance are referred directly to other senior scientists and
staff.
Government Regulation
- ---------------------
The Company's laboratory operations require licensure in each
jurisdiction in which the Company operates. Bio-Reference holds the required
Federal and state licenses necessary to permit its operation of a clinical
laboratory at its Elmwood Park, New Jersey facility and to permit its servicing
of its clients in those states where it presently operates. Laboratory
technicians and technologists must also qualify under state regulations to be
employed by the laboratory. All of these licensing and certification programs
set standards in areas such as quality control, record keeping and personnel
qualifications, including, in varying measures from state to state, educational
experience and licensure for various levels of personnel responsible for
testing. Compliance with these standards is by periodic inspections by the
appropriate Federal, state or local agency. In addition, licensing and
certification entail proficiency testing which involves actual testing of
specimens that have been specifically prepared by the regulatory authority or
designated agencies for testing by the laboratory. There can be no assurance
the laboratory will maintain all necessary licenses and in the event the
laboratory loses its license in a particular jurisdiction, it will be required
to cease all activities in such jurisdiction. There also cannot be any
assurance the Company will obtain the licenses required in a proposed
jurisdiction of operation.
The Company is also subject to Federal and state regulations governing
the transportation and disposal of medical waste including bodily fluids.
Federal regulations require licensure of interstate transporters of medical
waste. In New Jersey, the Company is subject to the Comprehensive Medical
Waste Management Act (the "CMWMA") which requires the Company to register as a
generator of special medical waste. The CMWMA mandates the sterilization of
certain medical waste and provides a tracking system to insure disposal in an
approved facility. All of the Company's medical waste is disposed of by a
licensed interstate hauler. The hauler provides a manifest of the disposition
of the waste products as well as a certificate of incineration which is
retained by the Company.
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. Although in the past, legislation has
been enacted which reduced the permitted Medicare reimbursement for clinical
laboratory services 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.
The Clinton Administration, Congress and various Federal agencies have
examined the rapid growth of Federal expenditures for clinical laboratory
services, and the use by the major clinical laboratories (including the
Company) of dual fee schedules ("client" fees charged to physicians, hospitals,
institutions and companies with whom a laboratory deals on a bulk basis and
which involve relatively low administrative costs, and "patient" fees charged
to individual patients and third party payors, including Medicare, who
generally require separate bills or claims for each patient encounter and which
involve relatively high administrative costs). The permitted Medicare
reimbursement rate for clinical laboratory services has been reduced by the
Federal government in a number of instances over the past several years to a
present level equal to 76% of the national median of laboratory charges. A
number of proposals for legislation or regulation are under discussion which
could have the effect of substantially reducing Medicare reimbursements to
clinical laboratories through reduction of the present allowable percentage or
through other means. In addition, the structure and nature of Medicare
reimbursement for laboratory services is also under discussion and management is
unable to predict the outcome of these discussions or its effect on the
Company. Depending upon the nature of congressional and/or 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.
Federal and state health care and related regulations are subject to
constant change. The Company cannot now predict what changes may be enacted
which may affect its business or the manner in which its business would be
affected by such changes. Two legislative changes have recently occurred which
portend significant changes in the clinical laboratory market. Two Omnibus
Budget Reconciliation Acts ("OBRA") have severely restricted physician referrals
of Medicare covered services to clinical laboratories in which the referring
physician or his immediate family has a financial relationship. The Clinical
Laboratory Improvement Amendments of 1988 ("CLIA-88") acted to strengthen
Federal control of medical laboratories by regulating stricter quality
assurance practices, licensing requirements and staff qualifications.
CLIA-88 extended Federal licensing requirements to all clinical
laboratories (regardless of the location, size or type of laboratory), including
those operated by physicians in their offices, based on the complexity of the
tests they perform. The legislation also substantially increased regulation of
cytology screening, most notably by requiring the Secretary of Health and Human
Services ("HHS") to implement regulations placing a limit on the number of
slides that a cytotechnologist may review in a twenty-four hour period.
CLIA-88 also established a more stringent proficiency testing program for
laboratories and increased the range and severity of sanctions for violating
Federal licensing requirements. A number of these provisions, including those
that imposed stricter cytology standards and increased proficiency testing,
have been implemented by regulations applicable only to laboratories subject to
Medicare certification under the Clinical Laboratory Improvement Act of 1967
("CLIA-67"). On February 28, 1992, HHS published three sets of regulations
implementing CLIA-88, including quality standards regulations establishing
Federal quality standards for all clinical laboratories; application and user
fee regulations applicable to most laboratories in the United States which
became effective on March 30 1993; and enforcement procedure regulations
applicable to laboratories that are found not to meet CLIA-88 requirements.
The quality standards regulations establish varying levels of regulatory
scrutiny depending upon the complexity of testing performed. Under these
regulations, a laboratory that performs only one or more of eight routine
"waived" tests may apply for a waiver from most requirements of CLIA-88. The
Company believes that most tests performed by physician office laboratories
will fall into either the "waived" or the "moderately complex" category. The
latter category applies to simple or automated tests and generally permits
existing personnel in physicians' offices to continue to perform testing under
the implementation of systems that insure the integrity and accurate reporting
of results, establishment of quality control systems, proficiency testing by
approved agencies, and biannual inspection. The quality standards and
enforcement procedure regulations became effective on September 1, 1992,
although certain personnel, quality control and proficiency testing
requirements will be phased-in over a number of years. The Company has
completed its preliminary CLIA inspection and management believes, but cannot
assure, that it will meet all criteria for CLIA certification.
Insurance
- ---------
The Company maintains professional liability insurance of $1,000,000 per
occurrence, $3,000,000 in the aggregate. The Company believes, but cannot
assure, that its insurance coverage is customary in the industry for
laboratories of its size and is adequate for its current business needs. A
determination of Company liability for uninsured or underinsured acts or
omissions would have a material adverse effect on the Company's operations.
Employees
- ---------
At December 31, 1995, the Company had 254 full-time employees and 114
part-time employees. This includes three executive officers, a Vice President
of Technical Operations, a Marketing Vice-President, one pathologist, two
part-time pathologists, 59 full-time and 24 part-time technicians (and/or
technologists), 91 full and part-time semi-technical employees, 39 full and
part-time marketing representatives, 80 full and part-time clerical employees,
and 67 full and part-time drivers. None of the company's employees are
represented by a labor union. The Company regards relations with its employees
as satisfactory.
Item 2 - Properties
----------
The Company's executive offices and laboratory facility occupy approximately
35,000 square feet of leased space in a one-story brick facility at 481 Edward
H. Ross Drive, Elmwood Park, New Jersey. The lease for the facility, which
expires in February 1999, provides for a monthly rental of $17,077. The
Company's testing equipment maintained at this facility is in good condition
and in working order. Management believes that this facility as presently
equipped has the capacity to generate up to approximately $40,000,000 in annual
revenues based on the type of testing now being performed by the Company. The
Company maintains fire, theft and liability insurance coverage for this
facility in what it believes are adequate amounts. The Company also leases 53
additional relatively small draw stations through the New York metropolitan
area to collect specimens from physician-referred patients for testing at its
Elmwood Park, New Jersey laboratory.
Item 3 - Legal Proceedings
-----------------
The Company is not presently a party to any legal proceedings which
management believes are of a material nature.
Item 4 - Submission of Matters to a Vote of Security holders
---------------------------------------------------
There were no matters submitted by the Company to a vote of its security
holders during the quarter ended October 31, 1995.
PART II
PRICE RANGE OF SECURITIES
-------------------------
Item 5. - Market for Common Stock and Related Shareholder Matters
-------------------------------------------------------
The Common Stock was traded on the National Association of Securities
Dealers
Automated Quotation ("NASDAQ") Small Cap System through July 13, 1992 after
which it was delisted from trading on NASDAQ due to the Company's failure to
maintain shareholder's equity of at least $1,000,000. Commencing July 14,
1992, the Common Stock was quoted in the over-the-counter market on the NASD
Electronic Bulletin Board. As a result of the Company's November 1993 public
offering, the Common Stock was readmitted for trading on the NASDAQ Small Cap
System under the symbol "BRLI" on November 24, 1993.
The following table sets forth the range of high and low bid prices for the
Common Stock for the periods indicated, as derived from reports furnished by
the NASDAQ. Such quotations represent prices between dealers, do not include
mark-ups, mark-downs or commissions and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
Fiscal Year Bid Prices
----------- ----------
1994 High Low
---- ---
<S> <C> <C>
First Quarter . . . . . $4.125 $3.125
Second Quarter. . . . . 3.50 3.50
Third Quarter . . . . . 4.125 3.50
Fourth Quarter. . . . . 5.625 3.75
1995
First Quarter . . . . . $6.125 $4.00
Second Quarter. . . . . 5.25 3.75
Third Quarter . . . . . 6.00 3.75
Fourth Quarter. . . . . 6.25 4.00
</TABLE>
At January 5, 1996, the closing sales price for the Common Stock on
NASDAQ was $4.625 per share.
At January 23, 1996 the number of record holders of the Common Stock was 653.
Such number of record owners was determined from the Company's shareholder
records and does not include beneficial owners whose shares are held in nominee
accounts with brokers, dealers, banks and clearing agencies.
Dividends
- ---------
The Company has not paid any dividends upon its Common Stock since its
inception and, by reason of its contemplated future financial requirements and
business plans, does not contemplate or anticipate paying any dividends upon
its Common Stock in the foreseeable future. The Company presently plans to
retain earnings, to the extent that there are any, to finance the development
and expansion of its business.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Results of Operations
- ---------------------
Fiscal Year 1995 Compared to Fiscal Year 1994
- ---------------------------------------------
NET REVENUES:
- ------------
Net revenues for the year ended October 31, 1995 were $31,521,118, an increase
of $8,575,184 or 37% over the comparable year. This increase was related in
part to the acquisition of GenCare Biomedical Research Corporation ("GenCare")
and the hiring of new marketing personnel. In addition, this increase was also
attributable to the marketing efforts of the Company's existing staff as well
as a price increase of 4% effected in November, 1994. Net revenues per patient
for the year ended October 31, 1995 was $52.98 an increase of 5% over the
comparable prior year.
COST OF SERVICES:
- ----------------
Gross Profit on net revenues was $16,485,084 or 52.3% in fiscal 1995 as
compared to a gross profit of $11,549,605 or 50.3% for the comparable prior
year. This represents an increase of 43% over the comparable prior year in
gross profits on net revenues as well as a 2% increase in gross profit margins.
This is due to a 37% increase in net revenues while the increase in cost of
services was 32%.
Cost of services increased from $11,396,329 for the year ended October 31, 1994
to $15,036,034 for the year ended October 31, 1995, an increase of $3,639,705
(32%). This represents a direct cost per patient increase of $6.12. This
increase was a direct result of the Company's continuing emphasis on increasing
its specialty work which entails a higher cost per test. Employee related
expenses increased $1,317,393 (23%), this was caused primarily by an increase
of eleven (11) technical employees and twenty (20) semi-technical employees.
Expenses related to reagents and laboratory supplies increased $1,000,821 (37%)
and increased proportional to the increase in net revenues. Other costs of
services increased $1,144,623 (43%) and was primarily caused by a 21% increase
in the costs associated with the pick-up and delivery of specimens and reports
and a 96% increase in reference laboratory fees mainly associated with the
GenCare acquisition.
GENERAL AND ADMINISTRATIVE EXPENSES:
- -----------------------------------
General and administrative expenses for the year ended October 31, 1995
increased $4,152,929 or 39% over the comparable prior year. Indirect expenses
as a percent of net revenues increased from 46% during fiscal year 1994 to 47%
during fiscal year 1995, a 1% increase. Bad debt expense increased $1,070,745
or 36% over the comparable prior year and is in line with the increase in net
revenues. Marketing expenses increased $1,303,087 during fiscal 1995 and was
caused by an increase in staff of twelve marketing representatives. In
addition, occupancy expenses increased $387,109 (12 new patient service
centers), data processing expenses increased $123,201, telephone expenses
increased $102,905, and advertising expenses increased $93,046 over the year
ended October 31, 1994. In addition, employee related expenses, other than
marketing, increased $545,360 (35%) and is in line with the increase in net
revenues of 37%.
INTEREST EXPENSE:
- ----------------
Interest expense increased from $449,758 for the year ended October 31, 1994 to
$605,405 for the year ended October 31, 1995, an increase of $155,647 (35%).
This increase was due to additional bank borrowings, capital lease arrangements
and to increases in short-term interest rates.
NET INCOME:
- ----------
The Company had a net income of $1,402,169 for the year ended October 31, 1995
as compared to $693,115 (excluding the extraordinary item) for the year ended
October 31, 1994. The Company has a minimal provision for income taxes for the
year ended October 31, 1995 and also expects a minimal provision for the year
ending October 31, 1996 in light of existing net operating loss carryforwards
for tax purposes.
Liquidity and Capital Resources
- -------------------------------
For the Fiscal Year Ended October 31, 1994
Working capital for the period ended October 31, 1994 was $3,603,803 as
compared to a deficit at October 31, 1993 of $5,987,450, an increase of
$9,591,253 during the twelve month period.
The Company increased its cash position by $5,847,973 ($4,452,000 represents
restricted cash) during the current twelve month period. The Company utilized
$ 1,535,300 in cash for operating activities. To offset this use of cash the
Company raised $8,614,425 in a public offering and repaid approximately $
5,311,700 in existing debt. The Company anticipates utilizing this for
acquisitions and/or working capital.
The capital spending requirements for the Company during 1995 is expected not
to exceed $500,000. During fiscal 1994, approximately $700,000 has been spent
on capital improvements. This includes approximately $488,100 in capital
leases of which approximately $206,000 was for the acquisition of new
transportation vehicles. Management believes that the average monthly savings
of ownership versus the rental of transportation vehicles approximates $12,000
per month (for 22 vehicles) or an annual savings of approximately $144,000.
The Company had current liabilities of $ 8,426,588 at October 31, 1994. The
three largest items in this category are current portion of long-term debt of
$4,686,802, accounts payable of $1,810,741 and accrued expenses of $1,343,665
The Company continues to pay its payables at 90 to 120 days. Management does
not intend to shorten this period. The Company is in arrears in certain lease
payments and other note obligations and may be deemed in "default" thereunder.
Such "defaults" in the aggregate are not material to the financial condition of
the Company. Although no equipment manufacturers or note holders have
instituted any action to repossess their equipment, management believes, but
cannot assure that this will not occur in the future. All tax liabilities
including penalties and interest have been accrued. At October 31, 1994, the
Company was in arrears in the amount of $106,488 in local withholding taxes,
which are being paid in accordance with installment agreements. The state
authorities can impose up to 100% penalties and place a lien on the Company's
assets to secure collection of these amounts.
The Company's emphasis is to target accounts which generate larger revenues per
request for laboratory services. This results in an increase in revenue per
patient. In order to maximize collections, the Company prefers to receive
payment at time of service. If this is not available, collections are
maximized by accurate billing as close to the date of service as possible with
frequent follow-up billings.
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. The
Clinton Administration, Congress and various Federal agencies have examined the
rapid growth of Federal expenditures for clinical laboratory services, and the
use by the major clinical laboratories (including the Company) of dual fee
schedules ("client" fees charged to physicians, hospitals, institutions and
companies with whom a laboratory deals on a bulk basis and which involve
relatively low administrative costs, and "patient" fees charged to individual
patients and third party payors, including Medicare, who generally require
separate bills or claims for each patient encountered and which involve
relatively high administrative costs). A number of proposals for legislation
or regulation are under discussion which could have the effect of substantially
reducing Medicare reimbursements to clinical laboratories. The
administration's budge 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 reduction in
the Medicare national limitation amounts, from the current level of 88% of the
national median to 76% of the national median. None of the reductions enacted
to date has had a material adverse effect on the Company. In addition, a
number of states, Department of Health and Human Services 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.
On January 13, 1994, pursuant to a Registration Statement on Form SB-2 (File
No. 33-68678) declared effective by the Securities and Exchange Commission on
November 23, 1993, the Company completed the sale of an aggregate 1,035,000
Units, each Unit consisting of three shares of Common Stock, three Class A
Redeemable Warrants and one Class B Redeemable Warrant in an underwritten
public offering on a "firm-commitment" basis through A.S. Goldmen & Co., Inc.
as Underwriter. The Units were sold at a sales price of $10.00 per Unit or
$10,350,000 in the aggregate. Each Class A Redeemable Warrant and each Class B
Redeemable Warrant entitles the holder to purchase one share of Common Stock at
an exercise price of $4.50 and $6.75 respectively for a 60-month period
commencing November 23, 1993. The Underwriter received an underwriting
commission and a non-accountable expense allowance equal to 13% of the gross
offering proceeds and also was issued Underwriter's warrants exercisable to
purchase 79,166 additional Units at $16.50 per Unit. The Company also retained
the Underwriter as a financial consultant for a two-year period at a monthly
consulting fee of $2,000.
The Company also registered the 446,677 Class A Redeemable Warrants and the
112,500 Class B Redeemable Warrants purchased by the investors in its December
1992 Bridge Financing and its March 1993 Private Placement and the underlying
shares in the Registration Statement so as to permit the public offer and sale
of such Warrants and shares.
The Company indicated in the Registration Statement that it intended to apply
the net proceeds of the offering to repay bank and credit line indebtedness
(approximately $3,400,000); to repay the Notes purchased in the March 1993
Private Placement (approximately $1,400,000); to repay certain payables and tax
arrearages (approximately $500,000); and to apply the balance to working
capital and as reserves for possible acquisitions. In January 1994, the
Company used a portion of the net offering proceeds to pay its outstanding
credit line indebtedness to Towers Financial Corporation by payment of
approximately $2,100,000 (after which the Towers credit line was terminated),
and paid the Notes issued in connection with the March 1993 Private Placement.
In addition, the Company applied a portion of the net offering proceeds to the
payment in full of its outstanding federal income tax liabilities and is
currently paying its tax arrearages to the States of New Jersey and New York in
accordance with installment agreements with those jurisdictions.
As a result of the November 1993 public offering, the Company's Common Stock
was readmitted for trading on the NASDAQ System under the symbol "BRLI."
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.
Cash on hand, cash flows from operations, 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.
For the Fiscal Year Ended October 31, 1995
Working capital for the year ended October 31, 1995 was $4,551,855 as compared
to $3,603,803 at October 31, 1994, an increase of $948,052 during the twelve
month year.
The Company had $6,698,542 in cash and certificates of deposits at October 31,
1995. However, $5,959,646 represents restricted items. The Company utilized
$769,560 in cash for operating activities. To offset this use of cash the
Company borrowed $5,391,296 pursuant to a revolving line of credit and repaid
approximately $5,959,646 in existing debt. The Company anticipates utilizing
this credit line for working capital.
The capital spending requirements for the Company during 1996 is expected not
to exceed $550,000. During fiscal 1995, approximately $660,000 was spent on
capital improvements.
The Company had current liabilities of $12,102,578 at October 31, 1995. The
three largest items in this category are note payable-bank of $5,391,296
current portion of long-term debt of $2,699,211 and accounts payable of
$2,091,890. The Company continues to pay its payables at 90 to 120 days.
Management does not intend to shorten this period. All tax liabilities
including penalties and interest have been accrued. At October 31, 1995, the
Company owed $16,415 in past due local withholding taxes, which are being paid
in accordance with an installment agreement. At December 31, 1995 this amount
was paid.
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
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.
Cash on hand, cash flows from operations, 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.
Item 7. - Financial Statements
--------------------
Financial Statements are annexed hereto
Item 8. - Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None
PART III
Item 9.- Directors, Executive Officers, Promoters and Control Persons:
------------------------------------------------------------
Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------
The following table sets forth certain information with respect to each of
the directors and executive officers of the Company.
Name Age Position
- ---- --- --------
Marc D. Grodman, M.D.. . . . 45 Chairman of the Board, President,
Chief Executive Officer
and Director
Howard Dubinett . . . . . . 45 Executive Vice President, Chief
Operating Officer and
Director
Sam Singer . . . . . . . . . 53 Vice President, Chief Financial
Officer, Chief
Accounting Officer and Director
Frank DeVito . . . . . . . . 55 Director
John Roglieri, M.D. . . . . 55 Director
Marc D. Grodman, M.D. founded the Company in December 1981 and has been its
Chairman of the Board, President Chief Executive Officer and a Director since
its formation. Dr. Grodman is an Assistant Professor of Clinical Medicine and
an Assistant Attending Physician at Columbia University College of physicians
and Surgeons and Assistant Attending at Presbyterian Hospital, New York City.
From 1980 to 1983, Dr. Grodman attended the Kennedy School of Government at
Harvard University and was a Clinical Fellow at Massachusetts General
hospital. From 1982 to 1984, he was a medical consultant to the Metal Trades
Department of the AFL-CIO. Dr. Grodman received a B.A. degree from the
University of Pennsylvania in 1983 and an M.D. degree from Columbia University
College of Physicians and Surgeons in 1988. Except for approximately 20 hours
per month spent as Assistant Professor of Clinical Medicine and Assistant
attending physician at Columbia University and Presbyterian Hospital and
rendering medical services to the Uniformed Firefighters Association of New
York City, Dr. Grodman devotes all of his business time to the affairs of the
Company as an officer and director of the Company.
Howard Dubinett has been the Executive Vice-President and Chief Operating
Officer of the Company since its formation. He became a Director of the
Company in April 1986. Prior to joining the Company, Mr. Dubinett was general
manager of Union Prescription Service, inc., a company which administered
prescription drug plans. Mr. Dubinett attended Rutgers University.
Sam Singer has been the Company's Vice President and Chief Financial Officer
since October 1987 and a Director since November 1989. He is responsible for
all financial activities of the Company. Prior to joining the Company, he was
Controller for Sycomm Systems Corporation, a data processing and management
consulting company, from 1981 to 1987. He received a B.A. degree from Strayer
College and an M.B.A. from Rutgers University.
Frank DeVito became a director of the Company in April 1986. Since 1970, Mr.
DeVito has been Vice President of the New Jersey State AFL-CIO and from 1960
until December 1985 was President of AFL-CIO United Food and Commercial
Workers, Local 1245. From 1981 through December 1985 Mr. DeVito was also
President of United Food and Commercial Workers District Council of
Metropolitan New York and Northern New Jersey, which is comprised of 35 local
unions with approximately 150,000 members.
John Roglieri, M.D. became a director of the Company in September 1995. He
is an Assistant Professor of Clinical Medicine at Columbia University's College
of Physicians and Surgeons and an Assistant Attending Physician at Presbyterian
Hospital, New York City. Dr. Roglieri received a B.S. degree in Chemical
Engineering and a B.A. degree in Applied Sciences from Lehigh University in
1960, an M.D. degree from Harvard medical School in 1966, and a Master's degree
from Columbia University School of Business in 1978. From 1969 till 1971, he
was a Senior Assistant Surgeon in the U.S. Public Health Service in
Washington. From 1971 till 1973 he was a Clinical and Research Fellow at the
Massachusetts General Hospital. From 1973 to 1975, he was Director of the
Robert Wood Johnson Clinical Scholars program at Columbia University. In 1975
he was appointed Vice-President Ambulatory Services at Presbyterian Hospital, a
position which he held until 1980. Since 1980, he has maintained a private
practice of internal medicine at Columbia-Presbyterian Medical Center. From
1988 till 1992, he was also Director of the Employee Health Service at
Presbyterian Hospital. Since 1992, he has been Corporate Medical Director of
NYLCare, a managed care subsidiary of New York Life. He is a member of advisory
boards to several pharmaceutical companies, a member of the Editorial Advisory
Board of the journal Managed Care and a biographee of Who's Who in America.
There are no family relationships between or among any directors or executive
officers of the Company. The Company's Certificate of Incorporation provides
for a staggered Board of Directors (the "Board") pursuant to which the Board is
divided into three classes of directors and the members of only one class or
one-third of the Board) are elected each year to serve a three-year term.
Officers are elected by and hold office at the discretion of the Board of
Directors.
Key Personnel and Consultants
- -----------------------------
The following key personnel and consultants make significant contributions to
the Company's operations.
Robert Rush, Ph.D (Age 55) has been employed by the Company since July 1993
as Vice President of Technical Operations. From 1989 to 1993, Dr. Rush was a
Technical Director for National Health Laboratories, Inc., a national clinical
laboratory. From 1988 to 1989 he was the Technical Director of Maryland
Medical Laboratory and from 1975 to 1988 he was the Technical Director of Smith-
Kline Beecham Clinical Laboratories, another national clinical testing
laboratory, in Atlanta, Georgia. Dr. Rush also worked for the Technicon
Instruments Corporation, a Tarrytown, New York manufacturer of laboratory
equipment, from 1969 to 1972, as a Section Head in Clinical Chemistry. Dr.
Rush is a registered Clinical Laboratory Director in the states of New Jersey,
New York and Connecticut. He is board certified by the American Board of
Clinical Chemistry. Dr. Rush received a B.A. degree in Chemistry from Hunter
College in 1962 and M.S. and Ph.D. degrees in Biochemistry in 1964 and 1966
from Pennsylvania State University.
William Knakal (Age 44) has been employed by the Company as Vice President of
Sales and Marketing since March 1990. He has over 15 years of experience in
the laboratory testing industry. Mr. Knakal has held various sales and sales
management positions at Smith-Kline Beecham Clinical Laboratories, where he
worked for 11 years. He started employment with Smith-Kline Beecham Clinical
Laboratories in 1978 and his last position (in 1989) was Director, National
Accounts. He received a B.S. degree in Biochemistry from Fordham University in
1974.
Benita Ponda, M.D. (Age 50) has been employed by the Company since February,
1994 as Medical Director. She is certified by the American Board of Pathology
in Clinical Pathology, Anatomical Pathology and special qualification in
Cytopathology. She holds New York State Department of Health Certificate of
Qualification for Laboratory Director. Dr. Ponda's professional appointments
include Chief of Cytopathology and Associate Pathologist at New York Methodist
Hospital, Brooklyn, New York (January 1992 to February, 1994); Associate
Pathologist at Flushing Hospital and Medical Center, Flushing, New York (1981
to 1991) and Director of Laboratory at St. Mary's Hospital for Children (1985 -
to date). She received M.B.B.S. degree (equivalent to M.D. in U.S.A.) from
Bombay University, Bombay, India in 1970.
Gary Solomon, M.D. (Age 43) has been a consultant to the Company since May
1990 and serves as Medical Director for Rheumatology Bio-Reference. His
medical training includes a Fellowship at the Division of Rheumatology, Albert
Einstein College of Medicine, and an Internship and Residency of Internal
Medicine at Mount Sinai Hospital. Dr. Solomon is certified by the American
Board of Internal Medicine, Rheumatology Subspecialty and holds New York State
licensure. His academic and hospital appointments include Associate Attending
Department of Rheumatic Diseases; and Director of the Arthritis Clinic; and
since 1984, Director of the Comprehensive Arthritis Service at the Hospital for
Joint Diseases Orthopaedic Institute. He is also an instructor at the
department of Medicine, Mount Sinai School of Medicine; and at Beth Israel
Hospital. He received a B.A. degree from the University of Michigan in 1972
and an M.D. from Mount Sinai School of Medicine in 1980. Dr. Solomon devotes
approximately 10% of his working time to the business of the Company.
Karl Klinges, M.D. (Age 64) has been a consultant to the Company since March
1988 and serves as Director for Cytology Bio-Reference. He is a Diplomate of
the American Board of Obstetrics and Gynecology and is certified by the
American Society of Cytology in Diagnostic Cytopathology of the Female Genital
Tract. He is an Associate Attending in Obstetrics and Gynecology
Cytopathologist, and faculty member of the Schools of Cytotechnology and Nursing
at St. Vincent's Hospital and Medical Center, New York City. He also holds the
rank of Assistant Clinical Professor of Obstetrics and Gynecology at New Jersey
College of Medicine and Dentistry. Dr. Klinges was founder and Co-Director of
Cytology and Pathology Associates, which was founded in 1965, and which the
Company acquired in March, 1988. He received a B.S. degree in 1952 from
Franklin & Marshall College and an M.D. degree in 1956 from Jefferson medical
College in Philadelphia and has held an Internship and Residencies at St.
Vincent's Hospital, New York City in Obstetrics and Gynecology, as well as in
Gynecologic Pathology and Cytology. Dr. Klinges devotes approximately 10% of
his working time to the business of the Company.
Compliance with Section 16(a) of the Exchange Act
- -------------------------------------------------
Based solely on a review of Forms 3 and 4 and any amendments thereto
furnished to the Company pursuant to Rule 16a-3(e) under the Securities
Exchange Act of 1934, or representations that no Forms 5 were required, the
Company believes that with respect to fiscal 1995, its officers, directors and
beneficial owners of more than 10% of its equity timely complied with all
applicable Section 16(a) filing requirements, with the exception of Howard
Dubinett who did not timely file his Form 4 for a sale in February 1995.
Item 10. - Executive Compensation
----------------------
The following table sets forth information concerning the compensation paid
or accrued by the Company during the year ended on October 31, 1995 to its
Chief Executive Officer and its other executive officers who were serving as
executive officers of the Company on October 31, 1995. During the period ended
October 31, 1995, the Company did not grant any restricted stock awards or have
any long-term incentive plan in effect. All of the Company's group life,
health, hospitalization or medical reimbursement plans, if any, do not
discriminate in scope, terms or operation, in favor of the executive officers
or directors of the Company and are generally available to all salaried
employees.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
Other
Year Annual
Name and Principal Position October 31, Salary Bonus sation
- --------------------------- ----------- ------ ----- ------
<S> <C> <C> <C> <C>
Marc D. Grodman M.D. 1995 $248,159 $75,000 $-0-
President and Chief 1994 $206,337 $-0- $-0-
Executive Officer 1993 $192,613 $-0- $-0-
Howard Dubinett
Executive Vice 1995 $144,024 $45,000 $-0-
President and Chief 1994 $126,870 $20,000 $-0-
Operating Officer 1993 $103,032 $20,000 $-0-
Sam Singer
Vice President and 1995 $144,024 $45,000 $-0-
Chief Financial and 1994 $125,624 $20,000 $-0-
Accounting Officer 1993 $103,032 $20,000 $-0-
</TABLE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE - CONTINUED
Long-Term
Compensation
-----------------------------------------
All
Restricted LTIP Other
Options Stock Pay- Compen
SARs(1) Awards outs sation
------- ---------- ---- ------
<S> <C> <C> <C> <C>
Marc D. Grodman M.D.. . . 1995 -0- -0- $-0- $-0-
President and Chief 1994 -0- -0- $-0- $-0-
Executive Officer 1993 -0- -0- $-0- $-0-
Howard Dubinett . . . . . 1995 -0- -0- $-0- $-0-
Executive Vice 1994 -0- -0- $-0- $-0-
President and Chief 1993 53,334 -0- $-0- $-0-
Operating Officer
Sam Singer. . . . . . . 1995 -0- -0- $-0- $-0-
Vice President and 1994 -0- -0- $-0- $-0-
Chief Financial and 1993 50,000 -0- $-0- $-0-
Accounting Officer
</TABLE>
See Item 12 herein as to the cancellation by Dr. Grodman on April 20, 1993 of
his pro-rata option contained in his employment contract and all other
outstanding options and warrants to purchase Common Stock held by Dr. Grodman,
his wife and an affiliated entity (the "Grodman Group") in consideration for the
issuance to the Grodman Group of Senior Preferred Stock.
Employment Agreement with Executive Officers
- --------------------------------------------
The Company signed an employment agreement effective January 1, 1991 with
Marc Grodman to serve as chief executive officer and President. The agreement
provides (i) for a term through October 31, 1997, (ii) a base salary of $165,000
per year with annual increases based upon the percentage increase in the
Consumer Price Index as well as increases at the discretion of the Board of
Directors; (iii) normal health and life insurance benefits as well as the right
of Dr. Grodman's heirs to one-half of the proceeds of $4,000,000 of "key-man"
life insurance on his life (although only a $2,000,000 policy is currently in
force of which the Company is the sole beneficiary); (iv) for the leasing of an
automobile for Dr. Grodman's use; (v) participation in fringe benefit, bonus,
pension, profit sharing, stock option and similar plans maintained for the
Company's employees; (vi) disability benefits, and (vii) certain termination
benefits and in the event of termination due to a Change in Control of the
Company, a severance payment equal to 2.99 times Dr. Grodman's average annual
compensation during the preceding five years. The agreement also granted Dr.
Grodman a pro-rata option exercisable to purchase additional shares of Common
Stock in the event of the sale or issuance by the Company of Common Stock or
securities exercisable to purchase or convertible into Common Stock, so as to
preserve his and his affiliates' percentage ownership in the Company. In April
1993, Dr. Grodman and his affiliates agreed to cancellation of the pro-rata
option and various options and warrants to purchase Common Stock in exchange for
the right to 604,078 shares of Senior Preferred Stock. See "Item 12" herein.
The Company signed an employment agreement with Howard Dubinett to serve as
Chief Operating Officer and Executive Vice President. The employment agreement
provides (i) a five year term commencing November 1, 1989 (extended to October
31, 1996); (ii) base salary of $90,000 per year subject to minimum 10% annual
increases; (iii) normal health and life insurance benefits; (iv) a minimum
bonus of $20,000 per year payable quarterly (partially waived in fiscal 1991
and fiscal 1992) and participation in the bonus pool of the Company to be
established by the Board of Directors; (v) eligibility to receive stock options
as determined by the Board of Directors; and (vi) a termination benefit equal
to three times his annual salary. Upon Mr. Dubinett's termination, the Company
would be required to relieve him of all guarantees of Company obligations.
The Company signed an employment agreement with Sam Singer to serve as Chief
Financial Officer. The agreement provides (i) a five year term commencing
November 1, 1989 (extended to October 31, 1996); (ii) a base salary of $90,000
per year subject to minimum 10% annual increases; (iii) normal health and life
insurance benefits; (iv) a minimum bonus of $20,000 per year payable quarterly
(partially waived in fiscal 1991 and fiscal 1992) and participation in the
bonus pool of the Company to be established by the Board of Directors (v)
eligibility to receive stock options as determined by the Board of Directors;
and (vi) a termination benefit equal to three times his annual salary. Upon
Mr. Singer's termination, the Company would be required to relive him of all
guarantees of Company obligations.
Employee Incentive Stock Option Plan
- ------------------------------------
In April, 1986, the Company adopted a 1986 Employee Stock Option Plan (the
"1986 Plan"). The 1986 Plan provides for the issuance of up to 3,667 shares of
the Company's Common Stock upon the exercise of options granted thereunder
which will be designated as options which qualify for incentive stock option
treatment ("ISO's") under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or options which do not so qualify ("Non-ISO's"). Unless
sooner terminated, the 1986 Plan will expire on April 1996 and options may be
granted at any time or from time to time through such date.
The 1986 Plan is administered by the Board or by a Stock Option Committee
designated by the Board. To date, no Stock Option committee has been
designated. The Board or the Stock Option committee, as the case may be, has
the discretion to determine the eligible employees to whom, and the times and
the price at which, options will be granted; whether such options shall be
ISO's or Non-ISOs; the periods during which each option will be granted; and
the number of shares subject to each option. The Board or Stock Option
Committee shall have full authority to interpret the 1986 Plan and to establish
and amend rules and regulations relating thereto.
Under the 1986 Plan, the exercise price of an option designated as an ISO
shall not be less than the fair market value of the common Stock on the date
the option is granted. However, in the event an option designated as an ISO is
granted to a 10% shareholder (as defined in the 1986 Plan) such exercise price
shall be at least 100% of such fair market value. The aggregate fair market
value of shares subject to an option designated as an ISO for which any
participant may be granted such an option in any calendar year, shall not
exceed $100,000.
Options may be granted under the 1986 Plan for such periods as may be
determined by the Board or the Stock Option Committee; provided however that no
option designated as an ISO granted under the Plan shall be exercisable over a
period in excess of 10 years, or in the case of a 10% shareholder, five years.
Options may be exercised in whole at any time or in part from time to time.
Options are not transferable except to the estate of an option holder.
In July 1989, the Board adopted the 1989 Employees Stock Option Plan (the
"1989 Plan") which was approved by shareholders in November 1989. The 1989
Plan provides for the grant of options to purchase up to 666,667 shares of
Common Stock. Under the terms of the 1989 Plan, options granted thereunder may
be designated as options which qualify for incentive stock option treatment
("ISOs") under Section 422 of the Code, or options which do not so qualify
("Non-ISOs").
The 1989 Plan also grants the Board or a Stock Option Committee designated by
the Board, the discretion to grant stock appreciation rights ("SARs") in
connection with, or independent of, any grant of options under the 1989 Plan.
SARs give the holder the right to receive from the Company upon exercise an
amount equal to the excess of the aggregate fair market value on the date of
exercise of the number of shares of Common Stock as to which SARs are being
exercised over the aggregate exercise price for those shares payable either in
cash or Common Stock in the discretion of the Board or the Stock Option
Committee.
The 1989 Plan is administered by the Board or by a Stock Option Committee
designated by the Board of Directors. The Board or the Stock Option Committee,
as the case may be, ha the discretion to determine the eligible employees to
whom, and the times and the price at which, option will be granted; whether
such options shall be ISOs or Non-ISOs; the periods during which option will be
exercisable; and the number of shares subject to each option. The Board or
Committee shall have full authority to interpret the 1989 Plan and to establish
and amend rules and regulations relating thereto.
Under the 1989 Plan, the exercise price of an option designated as an ISO
shall not be less than the fair market value of the Common Stock on the date
the option is granted. However, in the event an option designated as an ISO is
granted to a 10% shareholder (as defined in the 1989 Plan) such exercise price
shall be at least 110% of such fair market value. Exercise prices of Non-ISO
options may be less than such fair market value. The aggregate fair market
value of shares subject to options granted to a participant which are
designated as ISOs which become exercisable in any calendar year shall not
exceed $100,000.
The Board or the Stock Option Committee, as the case may be, may, in its sole
discretion, grant bonuses or authorize loans to or guarantee loans obtained by
an optionee to enable such optionee to pay upon exercise of an option.
See Note 9 to Notes to Financial Statements as to ISOs granted pursuant to
the 1986 Plan and the 1989 Plan.
No options were granted to or exercised by any of the Company's executive
officers in fiscal 1995. The following table sets forth certain information
concerning outstanding options held by the Company's executive officers at
October 31, 1995.
<TABLE>
<CAPTION>
1995 Fiscal Year-End Options
Value of Unexercised
Number of Unexercised ISOs In-the-Money ISO's at
Name at 1995 Fiscal Year End 10/31/95(1)
- ---- ----------------------- -----------
Exercisable Unexercisable
----------- -------------
<S> <C> <C> <C>
Howard Dubinett 153,334 -0- $459,585
Sam Singer 16,667 -0- $347,918
</TABLE>
[FN]
- -------------------
(1)Based on the difference between the last sales price for the Common Stock
on October 31, 1995 and the ISO exercise prices.
Item 11. - Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following table sets forth information as of December 29, 1995 with
respect to the ownership of Common Stock by (i) each person known by the
Company to be the beneficial owner of more than 5% of its outstanding Common
Stock, (ii) each director of the Company, (iii) each executive officer of the
Company, and (iv) all directors and executive officers as a group. The
percentages have been calculated on the basis of treating as outstanding for a
particular holder, all shares of Common Stock outstanding on said date owned by
such holders and all shares of Common Stock issuable to such holder in the
event of exercise or conversion of outstanding options, warrants and
convertible securities owned by such holder at said date which are exercisable
or convertible within 60 days of such date.
<TABLE>
<CAPTION>
Shares of
Name and Address of Common Stock Percentage
Beneficial Owner Beneficial Owned(1) Ownership
------------------- ---------------- ---------
<S> <C> <C>
Directors and Executive Officers*
Marc D. Grodman(2) 921,845 13.4%
Howard Dubinett(3) 186,001 2.9%
Sam Singer(4) 132,667 2.1%
Frank DeVito(5) 202 -
John Rogilieri (6) 21,667 -
Executive Officers and directors
as a group (four persons)
(2)(3)(4)(5) 1,262,382 17.5%
</TABLE>
- ---------------
*The address of all of the Company's directors and executive officers is c/o
the Company, 481 Edward H. Ross Drive, Elmwood Park, New Jersey 07407.
(1)Except otherwise noted, each holder named in the table has sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned.
(2)Includes 176,100 shares owned directly by Dr. Grodman and 549,678 shares
issuable upon conversion of Senior Preferred Stock. Also includes 141,667
shares owned directly and 54,400 shares issuable upon conversion of Senior
Preferred Stock held by Dr. Grodman's wife, Pam Grodman, and a Company
controlled by her. Dr. Grodman disclaims beneficial ownership of these
196,067 shares.
(3)Includes 21,667 shares owned directly, 11,000 shares issuable upon exercise
of warrants and 153,334 shares issuable upon exercise of options.
(4) Includes 11,000 shares owned directly, 5,000 shares issuable upon exercise
of warrants and 116,667 shares issuable upon exercise of options.
(5) Includes 202 shares owned directly.
(6) Includes 1,667 shares owned directly and 20,000 shares issuable upon
exercise of warrants.
Item 12. - Certain Relationships and Related Transactions
----------------------------------------------
In July 1989, the Company discontinued the operation of its Med-Mobile
Division. At such time, Dr. Grodman, as the Associated Physician, was indebted
to the Company in the amount of $235,354 in connection with the operation of
this division. Pursuant to an October 1, 1989 Settlement Agreement, Dr. Grodman
issued a $235,354 promissory note to the Company bearing interest at 10% per
annum and payable at the rate of $50,000 per annum in payment of this
indebtedness. On April 30, 1992, the Board of Directors amended this agreement,
in consideration for Dr. Grodman's personal guarantee of the $2,500,000
financing arrangement with Towers Financial Corporation ("Towers Financial"),
suspending all rental and interest charges for periods subsequent to November 1,
1991. No payments were received with respect to the note in fiscal years 1993
and 1994 and $10,400 at October 31, 1995, an aggregate $250,718 was outstanding
pursuant to the note.
Effective January 30, 1992, the Company completed an accounts receivable
financing with Towers Financial pursuant to which it obtained a $2,500,000
credit line secured by receivables. The Company was obligated to pay Towers
Financial a two percent per month financing fee on the Average Outstanding
Daily Balance borrowed under the line. Towers Financial was granted a security
interest in all of the Company's assets to secure the indebtedness and
repayment of the indebtedness to Towers Financial was personally guaranteed by
Dr. Grodman. Of the initial funds advanced by Towers Financial, approximately
$1,400,000 was applied to the payment of outstanding Federal and state tax
liabilities and an additional $500,000 was paid to reduce an outstanding secured
bank loan from KOP Bank to $1,000,000. In January 1994, the Company used a
portion of the net offering proceeds from its public offering completed in such
month, to pay its outstanding credit line indebtedness to Towers Financial by
payment of approximately $2,100,000 (after which the Towers Financial credit
line was terminated).
On April 20, 1993, in order to facilitate a proposed public offering, Dr.
Grodman canceled his pro-rata option contained in his employment contract and
all other outstanding options and warrants to purchase shares of Common Stock
held by Dr. Grodman, his wife and an affiliated entity (the "Grodman Group")
exercisable to purchase an aggregate 604,078 shares of Common Stock at prices
ranging from $1.4438 to $1.50 or an average price of $1.47 per share, in
consideration for the issuance to the Grodman Group of 604,078 shares of a new
class of senior preferred stock, $.10 par value per share ("Senior Preferred
Stock"). Each share of Senior Preferred Stock has the same voting rights (one
vote per share), dividend rights and liquidation rights as each share of Common
Stock and for a period of 10 years after issuance, is convertible into one share
of Common Stock upon payment of a conversion price of $1.50 per share. The
604,078 shares of Senior Preferred Stock were issued to the Grodman Group on
August 23, 1993.
The pro-rata option, granted to Dr. Grodman in 1991, allowed Dr. Grodman in
the event of the sale or issuance by the Company during the term of his
employment agreement of Common Stock or warrants or options exercisable to
purchase Common Stock or securities convertible into Common Stock, to purchase
such additional number of shares of Common Stock, which when added to the
shares of Common Stock beneficially owned by the "Grodman Group," would result
in such Group being the beneficial owner of the same percentage of the
outstanding Common Stock (computed on a fully diluted basis) immediately after
such sale or issuance, as they owned immediately prior thereto. The pro-rata
option exercise price was the lesser of (a) the total consideration paid and
payable to purchase the Common Stock comprising the "New issue," or (b) the
market price for the Common Stock at the time of such sale or issuance. The
Grodman Group was comprised of Dr. Grodman, his wife and any entity at least
50% beneficially owned by either or both of them.
Also on April 20, 1993, the Board of Directors voted to reduce the exercise
price of ISOs held by various employees and exercisable to purchase an
aggregate 499,367 shares of Common Stock at $2.625 per share to $1.50 per
share. Messrs. Dubinett and Singer were the owners of an aggregate 103,334 of
such ISOs.
In connection with the Company's November 1993 public offering, the
Underwriter required the Company to obtain "lock-up" letters from the holders
of certain of the Company's securities including certain principal shareholders
pursuant to which such individuals agreed not to sell or assign any of the
Company's securities prior to December 1, 1994 without the Company's prior
written consent. The "lock-up" agreement would lapse after December 1, 1993 if
the Company had not completed a public offering of its securities prior to said
date. In June 1993, the Company obtained "lock-up" letters from the bulk of
its warrantholders and large shareholders, including 43 of the 47 individuals
and entities which held warrants purchased in the Company's April 1990 private
placement exercisable to purchase an aggregate 182,150 shares of Common Stock at
an exercise price of $4.6875 per share. In order to induce such individuals
and entities to execute and deliver such "lock-up" letters, the Company
extended the warrant term until April 1, 1997, reduced the warrant exercise
price to $1.50 per share and issued identical modified warrants thereby
doubling the number of warrants owned by each consenting holder. Certain
executive officers and directors of the Company participated in the transaction
to the following extent:
<TABLE>
<CAPTION>
Additional
Name Warrants Received
---- -----------------
<S> <C>
Marc D. Grodman, M.D. 49,500(1)
Howard Dubinett 5,500
Sam Singer 2,500
</TABLE>
- ---------------
(1) Includes warrants issued to Dr. Grodman's wife, Pam Grodman, and a Company
controlled by her. All of these warrants were canceled in consideration for
the issuance to the Grodman Group of the Senior Preferred Stock.
Item 13.Exhibits, Financial Statement Schedules
---------------------------------------
and Reports on Form 8-K
-----------------------
1. Financial Statements
--------------------
The following financial statements of the Company are included in Part II,
Item 7 Page to Page
------------
Report of Independent Certified Public Accountants F-1
Balance Sheet - October 31, 1995 F-2 ... F3
Statement of Operations -
Years ended October 31, 1995 and 1994 F-4 ... F4
Statement of Shareholders' Equity [Deficit]
Years ended October 31, 1995 and 1994 F-5 ... F-5
Statement of Cash Flows -
Years ended October 31, 1995 and 1994 F-6 ... F-8
Notes to Financial Statements - F-9 ... F-23
2. Reports on Form 8-K
-------------------
During the Quarter ended October 31, 1995, the Company filed no reports on
Form 8-K.
3. Exhibits
--------
None SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
BIO-REFERENCE LABORATORIES, INC.
By:/S/ Marc D. Grodman
-------------------------------
Marc D. Grodman
Chairman of the Board, President,
Chief Executive Officer and Director
Dated: January 29, 1996
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/S/ Marc D. Grodman
- -------------------------------
Marc D. Grodman
Chairman of the Board, President,
Chief Executive Officer and Director
January 29, 1996
/S/ Howard Dubinett
- -------------------------------
Howard Dubinett
Executive Vice President,
Chief Operating Officer and Director
January 29, 1996
/S/ Sam Singer
- -------------------------------
Sam Singer
Vice President, Chief Financial Officer,
Chief Accounting Officer and Director
January 29, 1996
/S/ Frank DeVito
- -------------------------------
Frank DeVito
Director
January 29, 1996
/S/ John Roglieri
- -------------------------------
John Roglieri
Director
January 29, 1996
EXHIBIT INDEX
--------------
Incorporated by
Exhibit No. Item Reference to
- ----------- ---- ------------
3.1* Amended and Restated Certificate of Incorporation (A)
dated November 15, 1989
3.1.1* Amendment to Certificate of Incorporation dated (B)
October 4, 1993 (authorizing one-for-10 reverse stock split)
3.1.2* Amendment to Certificate of Incorporation dated
August 23, 1993 (creating Senior Preferred Stock) (C)
3.1.3* Amendment to Certificate of Incorporation dated
August 23, 1993 (authorizing one-for-three reverse stock
split) (C)
3.2* By-laws (D)
4.1* Form of Common Stock Certificate, $.01 par value (C)
4.2* Form of Warrant Agreement between the Company and (C)
American Stock Transfer & Trust Company as Warrant Agent
4.3* Form of Redeemable Warrant (attached to Exhibit 4.2) (C)
4.4* Form of Underwriter's Warrant Agreement (C)
4.5* Form of Underwriter's Warrant (attached to Exhibit 4.4) (C)
10.1* Lease Agreement for Elmwood Park, New Jersey Premises (E)
March 23, 1988
10.2* Employment Agreement between the Company and (F)
Marc Grodman M.D. dated as of January 1, 1991
10.3* Employment Agreement between the Company and (B)
Howard Dubinett dated as of November 1, 1989
10.4* Employment Agreement between the Company and (B)
Sam Singer dated as of November 1, 1989
10.5* Healthcare Purchase Contract between the (B)
Company and Towers Financial Corporation
dated as of January 29, 1992
10.6* Asset/Sale Purchase Agreement dated December 31, (G)
1991 between the Company and Pathology Services
of Long Island, Inc.
10.7* Asset/Sale Purchase Agreement dated December 31, (G)
1991 between the Company and North Shore
Diagnostic Associates
10.8* Consultation Agreement dated December 31, 1991 (G)
1991 between the Company and Advanced Healthcare
Resources, Inc.
10.9* Asset/Sale Purchase and Restrictive Covenant Agreement (B)
dated June 19, 1992 between the Company and
Andre Mencz d/b/a/ MMC Management Company
10.10* The Company's 1986 Stock Option Plan (D)
10.11* The Company's 1989 Stock Option Plan (B)
10.12* Form of Bridge Warrant (B)
10.13* Form of Bridge Note (B)
10.14* Acquisition Agreement made as of October 31, 1994 for the
acquisition by the Company of all of the outstanding capital
stock of GenCare (H)
10.15* Employment Agreement between the Company and Charles T.
Todd, Jr. dated January 4, 1995. (H)
- ------------
The exhibits designated above with an asterisk (*) have previously been filed
with the Commission and, pursuant to 17 C.F.R. Secs. 201.24 and 240.12b-32, are
incorporated by reference to the documents as indicated below.
(A) Incorporated by reference to exhibit filed with the Company's Registration
Statement on Form S-1 (File No. 33-31360).
(B) Incorporated by reference to exhibit filed with the Company's annual
report on Form 10KSB for the year ended October 31, 1992.
(C) Incorporated by reference to exhibit filed with the Company's Registration
Statement on Form SB-2 (File No. 33-68678).
(D) Incorporated by reference to exhibit filed with the Company's Registration
Statement on Form S-18 (File No. 33-5048-NY).
(E) Incorporated by reference to exhibit filed with the Company's Registration
Statement on Form S-1 (File No. 33-22721).
(F) Incorporated by reference to exhibit filed with the Company's annual
report on Form 10-K for the year ended October 31, 1990.
(G) Incorporated by reference to exhibit filed with the Company's report on
Form 8-K for December 31, 1991.
(H) Incorporated by reference to exhibit filed with the Company's current
report on Form 8-K for January 4, 1995.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Bio-Reference Laboratories, Inc.
Elmwood Park, New Jersey
We have audited the accompanying consolidated balance sheet of
Bio-Reference Laboratories, Inc. and its subsidiary as of October 31, 1995, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the two fiscal years in the period ended October 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Bio-Reference Laboratories, Inc. and its subsidiary as of October 31, 1995, and
the consolidated results of their operations and their cash flows for each of
the two fiscal years in the period ended October 31, 1995, in conformity with
generally accepted accounting principles.
MORTENSON AND ASSOCIATES, P. C.
Certified Public Accountants.
Cranford, New Jersey
January 2, 1996
<TABLE>
<CAPTION>
BIO-REFERENCE LABORATORIES, INC.
CONSOLIDATED BALANCE SHEET AS OF OCTOBER 31, 1995.
<S> <C>
Assets:
Current Assets:
Cash $ 636,246
Cash - Restricted 2,396,646
Accounts Receivable - Net 8,600,986
Inventory 455,308
Marketable Securities [22] 444,621
Certificate of Deposit 102,650
Certificates of Deposit - Restricted 3,563,000
Other Current Assets 454,976
--------
Total Current Assets 16,654,433
----------
Property and Equipment:
Automobiles 134,363
Medical Equipment and Vans 1,439,043
Leasehold Improvements 260,952
Furniture and Fixtures 321,087
-------
Total - At Cost 2,155,445
Less: Accumulated Depreciation 926,243
---------
Property and Equipment - Net 1,229,202
---------
Other:
Due from Related Party [6] 250,718
Deposits 275,650
Goodwill [Net of Accumulated
Amortization of $843,007] 2,915,720
Intangible Assets [Net of Accumulated
Amortization of $1,054,455] 2,616,065
Other Assets 259,170
-------
Total Other 6,317,323
---------
Total Assets $ 24,200,958
===========
</TABLE>
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
<TABLE>
<CAPTION>
BIO-REFERENCE LABORATORIES, INC.
CONSOLIDATED BALANCE SHEET AS OF OCTOBER 31, 1995.
<S> <C>
Liabilities and Shareholders' Equity:
Current Liabilities:
Accounts Payable $2,091,890
Accrued Salaries and Commissions 776,694
Accrued Expenses 520,430
Current Maturities of Long-Term Debt [4] 2,699,211
Note Payable - Bank [3] 5,391,296
Leases Payable - Short-Term Portion
[Net of Discount][12] 273,423
Current Maturities of Convertible
Subordinated Debt [5] 135,364
Taxes Payable [7] 214,270
-------
Total Current Liabilities 12,102,578
----------
Long-Term Liabilities:
Long-Term Debt Less Current
Maturities [4] 513,848
Leases Payable - Long-Term Portion
[Net of Discount] [12] 212,393
Convertible Subordinated Debt -
Long-Term Portion [5] 116,385
-------
Total Long-Term Liabilities 842,626
-------
Commitments and Contingencies [13] --
--
Shareholders' Equity: [8 and 10]
Preferred Stock, Par Value $.10 Per Share,
Authorized 1,062,589 Shares; None Issued --
Senior Preferred Stock, Par Value $.10
Per Share, Authorized, Issued and
Outstanding 604,078 Shares --
Common Stock, Par Value $.01 Per Share,
Authorized 18,333,334 Shares;
Issued 6,208,847 Shares; and
Outstanding 6,075,514 Shares
Additional Paid-in Capital 22,283,938
Accumulated [Deficit] (11,023,441)
-----------
Total 11,321,252
Deferred Compensation (17,500)
Less: Unrealized Loss on Securities
Available for Sale (47,998)
-------
Total Shareholders' Equity 11,255,754
----------
Total Liabilities and Shareholders'
Equity $ 24,200,958
==========
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
</TABLE>
<TABLE>
<CAPTION>
BIO-REFERENCE LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended
-----------
October 31,
-----------
1 9 9 5 1 9 9 4
------- -------
<S> <C> <C>
Net Revenues $31,521,118 $22,945,934
----------- -----------
Cost of Services:
Depreciation and Amortization 337,802 160,934
Employee Related Expenses 7,140,830 5,823,437
Reagents and Laboratory Supplies 3,723,867 2,723,046
Other Cost of Services 3,833,535 2,688,912
--------- ---------
Total Cost of Services 15,036,034 11,396,329
---------- ----------
Gross Profit on Revenues 16,485,084 11,549,605
---------- ----------
General and Administrative Expenses:
Depreciation and Amortization 621,929 441,677
Other General and Administrative Expenses 10,050,229 7,136,216
Payroll Tax Penalties -- 12,081
Bad Debt Expense 4,030,030 2,959,285
--------- ---------
Total General and Administrative Expenses 14,702,188 10,549,259
---------- ----------
Income from Operations 1,782,896 1,000,346
--------- ---------
Other [Income] Expense:
Interest Expense 605,405 449,758
Interest and Other Income (273,903) (142,527)
-------- --------
Total Other Expense - Net 331,502 307,231
------- -------
Income Before Income Tax and Extraordinary Item 1,451,394 693,115
Provision for Income Taxes [7] 49,225 --
------ --
Income Before Extraordinary Item 1,402,169 693,115
Extraordinary Item -
Gain on Extinguishment of Debt [14] -- 446,581
-- -------
Net Income $ 1,402,169 $ 1,139,696
========= =========
Income Per Share Before Extraordinary Item $ .23 $ .12
==== ====
Net Income Per Share [9] $ .23 $ .20
==== ====
Average Number of Shares Outstanding 6,010,964 5,295,321
========= =========
</TABLE>
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
<TABLE>
<CAPTION>
BIO-REFERENCE LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Additional
----------
Common Stock Paid-in Accumulated
------------ ------- -----------
Shares Amount Capital [Deficit]
------ ------ ------- --------
<S> <C> <C> <C> <C>
Balance - October 31, 1993 2,299,236 $22,992 $11,468,199 $(13,565,306)
Shares Issued in Connection
with Public Offering,
Net of $1,735,575 of Expenses 3,105,000 31,050 8,583,375 --
Shares Issued in
Settlement of Convertible Debt,
Net of $46,407 of Expenses 138,260 1,383 357,210 --
Shares Issued for Covenant
Not-to-Compete 200,000 2,000 278,000 --
Amortization of Deferred
Compensation -- -- -- --
Shares Canceled (2,334) (23) (6,977) --
Net Income for the Year -- -- -- 1,139,696
-- -- -- ---------
Balance - October 31, 1994 5,740,162 57,402 20,679,807 (12,425,610)
Shares Issued from
Exercise of Warrants 12,100 121 18,029 --
Shares Issued in Connection
with Acquisition 311,252 3,112 1,630,962 --
Shares Issued in Lieu of
Payment for Service 12,000 120 25,380 --
Expenses Associated with
Public Offering -- -- (70,240) --
Amortization of Deferred
Compensation -- -- -- --
Unrealized Loss on
Securities Available for
Sale -- -- -- --
Net Income for the Year -- -- -- 1,402,169
-- -- -- ---------
Balance - October 31, 1995 6,075,514 $60,755 $22,283,938 $(11,023,441)
========= ======= =========== =============
</TABLE>
<TABLE>
<CAPTION>
BIO-REFERENCE LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - CONTINUED
Unrealized Loss
---------------
on Securities Total
------------- ------
Deferred Available Stockholder's
-------- --------- -------------
Compensation for Sale Equity
------------ -------- ------
<S> <C> <C> <C>
Balance - October 31, 1993 $ (110,784) $ -- $(2,184,899)
Shares Issued in Connection
with Public Offering,
Net of $1,735,575 of Expenses -- -- 8,614,425
Shares Issued in Settlement
of Convertible Debt,
Net of $46,407 of Expenses -- -- 358,593
Shares Issued for Covenant
Not-to-Compete -- -- 280,000
Amortization of Deferred
Compensation 45,649 -- 45,649
Shares Canceled -- -- (7,000)
Net Income for the Year -- -- 1,139,696
-- -- ---------
Balance - October 31, 1994 (65,135) -- 8,246,464
Shares Issued from Exercise of
Warrants -- -- 18,150
Shares Issued in Connection
with Acquisition -- -- 1,634,074
Shares Issued in Lieu of
Payment for Service -- -- 25,500
Expenses Associated with
Public Offering -- -- (70,240)
Amortization of Deferred
Compensation 47,635 -- 47,635
Unrealized Loss on Securities
Available for Sale -- (47,998) (47,998)
Net Income for the Year -- -- 1,402,169
-- -- ---------
Balance - October 31, 1995 $(17,500) $(47,998) $11,255,754
========= ========= ===========
</TABLE>
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
<TABLE>
<CAPTION>
BIO-REFERENCE LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended
October 31,
1 9 9 5 1 9 9 4
------- -------
<S> <C> <C>
Operating Activities:
Net Income $ 1,402,169 $ 1,139,696
---------- ---------
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 959,731 602,611
Amortization of Deferred Compensation 47,635 45,649
Amortization of Deferred Interest -- 104,909
Amortization of Public Offering Fees -- 105,698
Expenses Related to Conversion of Debt to Equity -- (46,407)
Shares Issued for Services 25,500 --
Provision for Bad Debt 4,030,030 2,959,285
Forgiveness of Debt -- (446,581)
Other (9,285) --
Change in Assets and Liabilities
[Net of Effects from Acquisitions]:
[Increase] Decrease in:
Accounts Receivable (6,442,884) (4,284,292)
Other Assets (63,230) (205,936)
Inventory (141,940) (62,470)
Prepaid Expenses and Other Current Assets (271,111) (40,024)
Increase [Decrease] in:
Accounts Payable and Accrued Liabilities (299,189) (1,134,451)
Taxes Payable (6,986) --
------ --
Total Adjustments (2,171,729) 2,402,009
---------- ---------
Net Cash - Operating Activities - Forward (769,560) (1,262,313)
-------- ----------
Investing Activities:
Acquisition of Property and Equipment (424,180) (177,772)
Proceeds from Sale of Property and Equipment 45,961 --
Purchase of Marketable Securities (492,619) --
Purchase of Certificate of Deposit (3,665,650) --
Cash Acquired during Acquisition 42,338 --
Reduction of Deposits 22,649 --
Repayment of Related Party Receivable 10,400 --
Payment for Acquisition of Intangible Assets (290,081) (272,987)
-------- --------
Net Cash - Investing Activities - Forward (4,751,182) (450,759)
---------- --------
Financing Activities:
Proceeds from Long-Term Debt 394,756 4,352,000
Payments of Long-Term Debt (2,679,620) (2,723,149)
Payments of Capital Lease Obligations (297,642) (142,369)
Payments of Subordinated Notes Payable (51,039) (345,000)
[Decrease] in Cash Overdraft -- (93,725)
Increase [Decrease] in Revolving Line of Credit 5,391,296 (2,101,137)
Increase [Decrease] in Restricted Cash 2,055,354 (4,452,000)
Proceeds from Stock Offering -- 8,614,425
Proceeds from Exercise of Warrants 18,150 --
Expenses of Public Offering of Stock (70,240) --
------- --
Net Cash - Financing Activities - Forward $ 4,761,015 $ 3,109,045
</TABLE>
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
<TABLE>
<CAPTION>
BIO-REFERENCE LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended
October 31,
1 9 9 5 1 9 9 4
------- -------
<S> <C> <C>
Net Cash - Operating Activities - Forwarded $ (769,560) $(1,262,313)
--------- -----------
Net Cash - Investing Activities - Forwarded (4,751,182) (450,759)
---------- --------
Net Cash - Financing Activities - Forwarded 4,761,015 3,109,045
--------- ---------
Net [Decrease] Increase in Cash (759,727) 1,395,973
Cash - Beginning of Years 1,395,973 --
--------- --
Cash - End of Years $ 636,246 $ 1,395,973
======== ==========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 531,381 $ 799,215
Income Taxes $ 81,686 $ 5,086
</TABLE>
Supplemental Schedule of Non-Cash Investing and Financing Activities:
In January 1994, $45,000 of debt was converted into 15,480 shares of common
stock. In addition, $50,000 of trade accounts payable was converted into debt.
In February 1994, the Company incurred a capital lease obligation of $32,736 in
connection with the acquisition of medical equipment.
In March 1994, $300,000 of debt was converted into 102,780 shares of common
stock.
In March 1994, the Company purchased various equipment and a customer list from
a non-affiliated party. As consideration for the equipment and customer list,
the seller received $240,000 [including $14,400 of interest] of which $48,000
was paid at the closing and the remainder is to be paid over time based on the
amount collected from its customer list.
In April 1994, the Company issued 200,000 shares of its common stock as
consideration for a five year covenant not-to-compete related to an employment
agreement.
In June 1994, the Company incurred capital lease obligations of $206,142 in
connection with the acquisition of automobiles and in addition $100,000 of cash
was transferred to a restricted certificate of deposit account as collateral on
the lease.
In July 1994, the Company incurred a capital lease obligation of $267,490 in
connection with the acquisition of medical equipment.
In August 1994, 2,334 shares of common stock previously issued in relation to a
legal settlement were canceled as a result of a cash settlement.
In September 1994, $60,000 of debt was converted in to 20,000 shares of common
stock.
In November 1994, the Company purchased a customer list from a non-affiliated
party. As consideration for the customer list, the seller received $120,000 of
which $30,000 was paid at the closing and the remainder is to be paid over 5 1/2
years based on the cash collected from customer list revenues.
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 a capital lease obligation of $58,994 in
connection with the acquisition of a computer imaging system.
In January 1995, $44,119 of trade accounts payable was converted into debt.
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 shares to be issued immediately was $1,634,074 on
the date of closing. Additionally, in connection with this acquisition, the
Company assumed capital lease obligations of $31,793 for four automobiles.
In October 1995, the Company incurred a capital lease obligation of $54,117 in
connection with the acquisition of medical equipment.
BIO-REFERENCE LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[1] Organization and Business
Bio-Reference Laboratories, Inc. [the "Company"] was incorporated on December
21, 1981 to initially engage in the business of developing and marketing
on-site medical screening examinations. Since February 1987, its emphasis has
been the clinical laboratory segment of its operations. In June 1989, in
connection with the discontinuance of its mobile screening segment, the Company
changed its name to Bio-Reference Laboratories, Inc.
[2] Summary of Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiary [See Note 19D].
All significant intercompany accounts and transactions have been eliminated.
Revenue Recognition - Revenues are recognized at the time the services are
performed. Revenues on the statements of operations are net of the following
amounts for contractual adjustments and discounts:
<TABLE>
<CAPTION>
Years ended
October 31,
1 9 9 5 1 9 9 4
------- -------
<S> <C> <C>
Medicare/Medicaid Portion $15,560,866 $ 8,096,219
Other 9,015,042 6,096,397
----------- ---------
Totals $24,575,908 $14,192,616
------ =========== ===========
</TABLE>
Restricted Cash and Certificates of Deposit - At October 31, 1995, the Company
had $2,396,646 and $3,563,000 of restricted cash and certificates of deposit,
respectively, which represents collateral for two demand notes and a capital
lease on automobiles.
Contractual Credits and Bad Debts - 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 bad debts
is determined based upon a percentage of total receivables. The aggregate
allowance, which is shown net against accounts receivable, was $2,569,125 and
$1,224,806 as of October 31, 1995 and 1994, respectively.
Inventory - Inventory is stated at the lower of cost [on a first-in, first-out
basis] or market. Inventory consists primarily of clinical supplies.
Property and Equipment - Property and equipment, which consists of
automobiles, medical equipment, leasehold improvements and furniture and
fixtures, are carried at cost. Depreciation is computed by the straight-line
method over the estimated useful lives of the respective assets which range from
3 to 8 years. Leasehold improvements are amortized over the life of the lease,
which is approximately five years.
The statements of operations reflect depreciation and amortization expense
related to property and equipment of $368,478 and $198,123 for the years ended
October 31, 1995 and 1994, respectively.
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.
[2] Summary of Significant Accounting Policies [Continued]
Goodwill - Goodwill represents the excess of the cost of companies acquired
over the fair value of their net assets at dates of acquisition and is being
amortized on the straight-line method over 20 years. The statements of
operations reflect amortization expense related to goodwill for the years ended\
October 31, 1995 and 1994 of $187,936 and $98,904, respectively.
Management of the Company evaluates the period of goodwill amortization to
determine whether later events and circumstances warrant revised estimates of
useful lives. On a quarterly basis, management evaluates whether the carrying
value of goodwill has become impaired. This evaluation is done by comparing the
carrying value of goodwill to the value of projected discounted net cash flow
from related operations. Impairment is recognized if the carrying value of
goodwill is greater than the projected discounted net cash flow from related
operations.
Intangible Assets - Intangible assets primarily include customer lists and
covenants not-to-compete. These costs are being amortized over a 20 and 5 year
life, respectively, using the straight-line method. One covenant
not-to-compete has a 7-1/2 year life. Also included in intangible assets are
costs related to an employment agreement and costs related to acquisitions,
which are being amortized over the lives of the agreements which are from 2 to 5
years. The statements of operations reflect amortization expense related to
intangible assets of $403,317 and $305,584 for the years ended October 31, 1995
and 1994, respectively.
A summary is as follows:
<TABLE>
<CAPTION>
Accumulated Net of
----------- ------
Amortization Amortization
------------ ------------
October 31, October 31,
----------- -----------
Cost 1 9 9 5 1 9 9 5
---- ------- -------
<S> <C> <C> <C>
Customer Lists $1,810,980 $319,285 $1,491,695
Covenants Not-to-Compete 1,157,500 554,750 602,750
Employment Agreement 400,000 126,666 273,334
Costs Related to Acquisitions 282,733 46,938 235,795
Other 19,307 6,816 12,491
--------- -------- ----------
Totals $3,670,520 $1,054,455 $2,616,065
- ------ ========== ========== ==========
</TABLE>
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.
Debt Issuance Costs - Costs incurred in connection with the issuance of debt
are amortized on the straight-line method over the life of the debt, which
ranges from one to five years. The statements of operations reflect interest
expense related to debt issuance costs of $104,909 for the year ended October
31, 1994. As of October 31, 1994, debt issuance costs were fully amortized.
Cash and Cash Equivalents - Cash equivalents are comprised of certain highly
liquid investments with a maturity of three months or less when purchased.
Nonmonetary Stock Issuances - The Company 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.
[3] Note Payable - Bank
In March 1995, the Company consummated a revolving loan agreement with Midlantic
Bank, N.A. The maximum amount of the credit line available to the Company is
the lesser of (1) $6,500,000 or (2) 50% of the Company's qualified accounts
receivable [as defined in the agreement] plus the lesser of $3,500,000 or the
amount of the certificates of deposit pledged as collateral for this loan.
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 .25%. The credit line is secured by
substantially all of the Company's assets [including a $3,500,000 certificate of
deposit with Midlantic Bank] and the assignment of a $2,000,000 life insurance
policy on the president of the Company. The line of credit is available for a
period of two years 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,
1995, the Company was in compliance with the covenant provisions of this
agreement. As of October 31, 1995, the Company has utilized $5,391,296 of this
credit facility.
<TABLE>
<CAPTION>
[4] Long-Term Debt
October 31,
1 9 9 5
-------
<S> <C>
Advanced Healthcare Resources. Due December 31, 1994.
Interest imputed at 7.5%. $ 19,721
MMC Management Company. Due July 1, 1997.
Interest imputed at 8%. 256,518
Note to Gotham Bank of New York. Due on Demand.
Interest at 3% above corporate savings account rate.
Secured by savings account. 2,352,000
Note Payable to Hypertech Diagnostics, Inc. Payments dependent
on collections received from customer list. Interest at 8.11%. 154,128
Coulter Leasing Corp. Due August 1996, Interest at 12%. 19,103
Sclavo, Inc. Payments dependent on collections received from
customer list. Interest at 10%. 16,836
Note Payable to Midlantic Bank, N.A. Due October 1999.
Interest at prime plus .25%. 394,753
-------
Total 3,213,059
Less: Current Maturities 2,699,211
---------
Long-Term Debt $ 513,848
-------------- = =======
</TABLE>
Prime rate at October 31, 1995 was 8.75%.
The Company is in default on the balance due to Advanced Healthcare Resources.
Subsequent to October 31, 1995, the outstanding balance in default was reduced
to approximately $3,700.
On January 26, 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. As of October 31, 1995, $1,000,000 was paid against the
principal on this note. The Company has $2,396,646 in a savings account with
this bank restricted as collateral for the loan.
[4] Long-Term Debt [Continued]
In June 1995, the Company entered into an agreement to borrow up to $400,000 to
purchase equipment. During October 1995, the Company borrowed $394,756 under
this agreement. The loan, which bears interest at an annual rate of prime +
.25%, is due in monthly installments of $8,333 plus interest through October
1999. This note is secured in accordance with the provisions of the Company's
revolving loan agreement [See Note 3] with the same lender.
Maturities of long-term debt at October 31, 1995 in each of the next five years
are as follows:
<TABLE>
<S> <C>
1996 $2,699,211
1997 242,032
1998 138,532
1999 133,284
2000 --
--
Totals $3,213,059
- ------ ==========
</TABLE>
[5] Convertible Subordinated Debt
The following is a summary of the convertible subordinated debt as of October
31, 1995:
<TABLE>
<CAPTION>
Note
----
<S> <C>
5[A] $ 16,020
5[B] 235,729
---------
Total $251,749
========
</TABLE>
[A] During August and September of 1989, through a private offering, the
Company offered to sell $3,000,000 of 12% convertible subordinated promissory
notes. In connection with this offering, $451,000 was received. Additionally,
$485,000 of subordinated promissory notes, including a $10,000 note issued in
August 1989, in lieu of an interest payment to an investor, was converted for
$485,000 in principal amount of notes under this offering. The principal of
these notes, which may be converted into common stock at the rate of $15.00 per
share, are due five years from date of issue. Through October 31, 1995,
$846,000 of these notes have been converted to stock and $73,980 have been
repaid. The remaining balance due on these notes is currently in default.
[B] In January 1995, the Company issued two 8% convertible subordinated
debentures due January 1997 for $206,956 and $31,732 in connection with the
Company's acquisition of GenCare. During the year ended October 31, 1995,
$2,566 and $393 of these notes were repaid.
[6] Related Party Transactions
On October 1, 1989, a promissory note was received from Dr. Marc Grodman ["Dr.
Grodman"], president of the Company, in exchange for a receivable in the amount
of $235,354. Also, on October 1, 1989, this officer agreed to rent one mobile
van from the Company at an annual rental of $24,000. In consideration for a
personal guarantee for a $2,500,000 line of credit, as of November 1, 1991, the
Company stopped charging rent on the van and suspended interest on the note.
The Company also accepted $400 per week in principal payments on the note as of
November 1, 1992. As of October 31, 1995, $250,718 in outstanding principal,
interest and van rentals are due from the officer. Payments of $10,400 and $-0-
, respectively, were received on the note for the years ended October 31, 1995
and 1994.
[6] Related Party Transactions [Continued]
In April 1993, in order to facilitate a public offering contemplated by the
Company, Dr. Grodman agreed to cancel his pro-rata option contained in his
employment contract and to cancel other outstanding options and warrants to
purchase 604,078 shares of Common Stock at prices ranging from $1.45 to $1.50
per share, in consideration for the issuance of 604,078 shares of Senior
Preferred Stock. These shares of Senior Preferred Stock were issued in August
1993.
At October 31, 1995, $30,000 is included in accrued expenses for director fees
owed to a director.
The Company pays premiums on life insurance policies for its key officers which
are to be reimbursed by the officers if one or all leave the Company. In the
event of death, the benefit paid to the beneficiary is reduced by the amount of
premiums paid on behalf of the individual by the Company. At October 31, 1995,
$235,171 is included in other assets which represents the amount of premiums
paid to date.
[7] Income Taxes
The reconciliation of the provision for income taxes is as follows:
<TABLE>
<CAPTION>
October 31,
1 9 9 5 1 9 9 4
------- -------
<S> <C> <C>
U.S. Federal Statutory Rate 34.0% 34.0%
Utilization of Net Operating
Loss Carryforward (30.6%) (34.0%)
------- -------
Actual Rate 3.4% --%
----------- ==== ===
</TABLE>
Effective November 1, 1993, the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes". Under Statement No. 109, the asset and
liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. Prior to the adoption of Statement No. 109, income tax
expense was determined using the deferred method. Deferred tax expense was
based on items of income and expense that were reported in different years in
the financial statements and tax returns and were measured at the tax rate in
effect in the year the difference originated.
Temporary differences between financial reporting and tax bases of assets and
liabilities related to depreciation, vacation and sick pay accruals and
amortization of intangibles are immaterial.
As permitted by Statement No. 109, the Company has elected not to restate the
financial statements of any prior years. The change had no cumulative effect
on pretax income or net income for the year ended October 31, 1994.
At October 31, 1995, the Company had net operating loss carryforwards of
approximately $9,100,000 for income tax purposes. The carryforwards expire in
years from 2002 through 2008. Investment tax credit carryforwards of
approximately $32,161 are available to reduce future income taxes. These
credits expire from 1997 to 2003.
At October 31, 1995, the Company has a deferred tax asset of approximately
$3,700,000 and a valuation allowance of approximately $3,700,000 related to the
asset. The deferred tax asset primarily relates to net operating loss
carryforwards and investment tax credits.
[8] Capital Transactions
The Company is authorized to issue an aggregate 18,333,333 shares of common
stock, $.01 par value. Holders of these shares are entitled to one vote per
share on matters submitted for shareholder vote. Holders are also entitled to
receive ratably dividends, if declared. In the event of dissolution or
liquidation, holders are entitled to share ratably in all assets remaining
after payment of liabilities.
In April 1993, the Board of Directors of the Company authorized a new class of
Preferred Stock, called "Senior Preferred Stock" which has the same voting
rights [one vote per share], dividend rights and liquidation rights as each
share of common stock and for a period of ten years after issuance, shall be
convertible into one share of common stock upon payment of a conversion price
of $1.50 per share. In April 1993, in order to facilitate a public offering
contemplated by the Company, Dr. Grodman agreed to cancel his pro-rata option
contained in his employment contract and to cancel other outstanding options
and warrants to purchase 604,078 shares of Common Stock at prices ranging from
$1.45 to $1.50 per share, in consideration for the issuance of 604,078 shares
of Senior Preferred Stock. These shares of Senior Preferred Stock were issued
in August 1993.
On January 13, 1994, the Company completed the sale of an aggregate 1,035,000
Units, each Unit consisting of three shares of Common Stock, three Class A
Redeemable Warrants and one Class B Redeemable Warrant in an underwritten
public offering on a "firm-commitment" basis. Each Class A Redeemable Warrant
and each Class B Redeemable Warrant entitles the holder to purchase one share
of Common Stock at an exercise price of $4.50 and $6.75, respectively for a
60-month period commencing November 23, 1993. The Units were sold at a price
of $10.00 per Unit resulting in gross proceeds of $10,350,000 net of expenses
of the offering which were $1,735,575. The underwriter received an
underwriting commission and a non-accountable expense allowance equal to 13% of
the gross offering proceeds and was issued underwriter's Warrants exercisable
to purchase 79,166 additional Units at $16.50 per Unit. The Company has
retained the Underwriter as a financial consultant for a two-year period at a
monthly consulting fee of $2,000.
In January 1994, $45,000 of debt was converted into 15,480 shares of common
stock. Gross proceeds were net of expenses of $17,400.
In March 1994, $300,000 of debt was converted into 102,780 shares of common
stock. Gross proceeds were net of expenses of $29,007. In September 1994, an
additional $60,000 of debt was converted into 20,000 shares of common stock.
In April 1994, the Company issued 200,000 shares of common stock to an
individual in consideration for a covenant not-to-compete.
On November 17, 1994, an aggregate of 2,100 shares of the Company's $.01 par
value common stock was issued from a private placement warrant being exercised.
On January 1, 1995, the Company acquired GenCare Biomedical Research
Corporation ["GenCare"] in a business combination accounted for under the
purchase method of accounting. 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 shares to be issued immediately
was $1,634,074 on the date of the closing.
[8] Capital Transactions [Continued]
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 renewable
contract.
On July 27, 1995, an aggregate of 10,000 shares of the Company's $.01 par value
common stock was issued upon exercise of a private placement warrant.
[9] Income Per Share
Income per share is based on the weighted average number of shares of common
stock outstanding during each period. Outstanding stock options, warrants,
convertible debts and convertible preferred stock were not included in the
computation since they were anti-dilutive, thus a single presentation of income
per share is shown in the accompanying financial statements. The net income
used to calculate the income per share has been adjusted for deferred
compensation.
[10] Stock Options and Warrants
In April 1986, the shareholders approved and the Company adopted the 1986
Employee Stock Option Plan [1986 Plan] under which 3,667 shares of common stock
have been reserved for issuance to persons rendering services to the Company.
In November 1989, the shareholders approved and the Company adopted the 1989
Employee Stock Option Plan ["1989 Plan"] which provides for the granting of
666,667 shares of common stock.
Under the terms of its stock option plans, incentive stock options to purchase
shares of the Company's common stock are granted at a price not less than the
fair market value of the common stock at the date of grant. Non-incentive
stock options and warrants may be granted at fair market value or at a price
less than the fair market value with any related cost appropriately expensed.
To date, no non-incentive stock options have been granted at a price less than
fair market value. Options and warrants may be exercised within five years
from the date of grant. Following is a summary of transactions:
<TABLE>
<CAPTION>
Shares Under Options and Warrants
---------------------------------
Incentive Non-Incentive
Stock Stock Options
Options and Warrants
October 31, October 31,
1 9 9 5 1 9 9 5
------- -------
<S> <C> <C>
Outstanding - Beginning of Year 514,709 5,735,481
Granted During the Year 1,000 370,000
Canceled During the Year (33,668) (4,334)
Exercised During the Year -- (12,100)
-- -------
Outstanding and Eligible, End of
Year for Exercise Currently [at
Prices Ranging from $1.3125 to
$6.75 Per Share] 482,041 6,089,047
======= =========
</TABLE>
At October 31, 1995, there were 188,293 shares reserved for future grants under
the 1986 and 1989 plans. No stock appreciation rights have been granted.
[11] Employment Contracts and Consulting Agreements
The Company has entered into various employment contracts and consulting
agreements for periods ranging from one to six years. At October 31, 1995, the
aggregate minimum commitment under these contracts and agreements, excluding
bonuses and commissions, was approximately as follows:
<TABLE>
<CAPTION>
October 31,
- -----------
<S> <C>
1996 $ 727,000
1997 596,300
1998 211,250
1999 108,300
2000 and Thereafter 3,300
-----
Total $ 1,646,150
----- = =========
</TABLE>
Most of these agreements provide bonuses and commissions based on a percentage
of collected revenues ranging from 1% to 10% on accounts referred by or serviced
by the employee or consultant.
In addition to the above, five employment agreements are for indefinite periods
and provide for annual aggregate minimum commitments of $286,700.
During the year ended October 31, 1995, the Company issued warrants to purchase
200,000 shares of the Company's common stock at a price of $5.25 per share in
connection with these agreements.
[12] Leases Payable
The Company leases various assets under capital leases expiring in 2000 as
follows:
<TABLE>
<CAPTION>
October 31,
-----------
1 9 9 5
-------
<S> <C>
Medical Equipment $ 638,214
Automobiles 126,931
Furniture and Fixtures 11,565
Leasehold Improvements 12,130
------
Total 788,840
Less: Allowance for Amortization 280,302
-------
Total $ 508,538
----- = =======
</TABLE>
Depreciation and amortization expense was $170,601 and $84,420 for the years
ended October 31, 1995 and 1994, respectively.
Aggregate future minimum rentals under capital leases are:
<TABLE>
<CAPTION>
Years ended
-----------
October 31,
-----------
<S> <C>
1996 $ 316,477
1997 179,510
1998 21,649
1999 17,090
2000 12,651
Thereafter --
--
Total 547,377
Less: Interest 61,561
------
Present Value of Minimum Lease Payments $485,816
- --------------------------------------- ========
</TABLE>
[13] Commitments and Contingencies
The Company leases various office and laboratory facilities and equipment under
operating leases expiring from 1995 to 1999. Several of these leases contain
renewal options for three to five year periods.
Total expense for property and equipment rental for the years ended October 31,
1995 and 1994 was $1,640,360 and $1,310,879, respectively. There were no
contingent rental amounts due through October 31, 1995.
Aggregate future minimum rental payments on non-cancelable operating leases are
as follows:
<TABLE>
<CAPTION>
Property Equipment
-------- ---------
October 31,
-----------
<S> <C> <C>
1996 $ 696,787 $ 530,823
1997 480,767 517,279
1998 339,063 374,250
1999 113,375 204,575
2000 -- 38,516
Thereafter -- 6,075
-- -----
Totals $ 1,629,992 $ 1,671,518
------ ========== =========
</TABLE>
[14] Extraordinary Item
On January 17, 1994, the Bankruptcy Court approved a settlement with
Bio-Reference Laboratories in regard to a $2,500,000 line of credit the Company
had with Towers Financial Corporation. In regard to the settlement $446,581 in
principal and interest was forgiven.
[15] Litigation
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 alleged unfair competition and
conspiracy between the Company, its principal executive officer and a former
TCL employee to destroy TCL's business. The Company and its principal
executive officer filed an answer denying the material allegations of the
complaint and requested judgment dismissing TCL's complaint. In accordance with
the terms of the settlement, which was reached in December 1995, the Company
will pay $30,000 to the former shareholders of TCL. This amount has been
accrued as of October 31, 1995.
The Company and various of its officers and directors have been named as
defendants in two actions commenced by former employees. The complaints allege
breach of employment agreements between the Company and the former employees,
and demand unspecified amounts of compensatory and punitive damages. The
Company and the other defendants have denied the material allegations and have
filed counterclaims against the former employees. The Company intends to
vigorously defend its position in both actions.
The Company is currently under audit by the State of New Jersey in connection
with sales and use tax matters. While the outcome of this audit cannot be
determined at this time, the Company does not believe the outcome will have a
material adverse effect on the financial position or results of operations of
the Company.
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 effect on the
Company's financial position or results of operations.
[16] Insurance
The Company maintains professional liability insurance of $3,000,000 in the
aggregate, with a per occurrence limit of $1,000,000. 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 would have a material adverse affect on the
Company's operations.
[17] Delinquent Tax Liabilities
As of October 31, 1995, approximately $157,000 was accrued for late payroll tax
liabilities [including approximately $140,000 of penalties and interest] due to
New Jersey and New York. The Company is making weekly and monthly tax payments
toward its delinquent tax liabilities in accordance with state imposed deferred
payment agreements. Untimely payments can result in penalties up to 100% and
liens on Company assets.
[18] Concentrations of Credit Risk
At October 31, 1995, the Company had approximately $6,300,000 in cash balances
at financial institutions which were in excess of the federally insured limits.
Substantially all of this amount represents collateral for demand loans with the
same financial institutions.
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. In the event of nonperformance by these parties, the Company would
pursue the individual patients for collection and, accordingly, believes the
credit risk beyond recorded amounts to be limited. Additionally, the Company
continually monitors and evaluates its client acceptance and collection
procedures to minimize potential credit risks associated with its accounts
receivable.
[19] Acquisitions
[A] On June 19, 1992, the Company purchased certain furniture, fixtures,
machinery and equipment for clinical laboratory use and rights to a customer
list from Andre Mencz doing business as MMC Management Company ["MMC"] for an
aggregate consideration consisting of 100,000 shares of its unregistered Common
Stock, valued at $187,500, and an agreement to pay up to $750,000 solely out of
an agreed percentage of gross proceeds collected for clinical laboratory
services rendered by the Company during the five-year period commencing on the
purchase date from accounts enumerated in the customer list. The Company agreed
that if MMC sold all of the 100,000 shares of its Common Stock by December 1,
1995, it would guarantee MMC aggregate sales proceeds from such sale equal to
the lesser of $750,000 or an agreed percentage of the aggregate gross proceeds
actually collected for clinical laboratory services rendered by the Company
during the three-year period commencing on the purchase date from accounts
enumerated in the customer list. In addition, MMC agreed not to solicit or
service such accounts for any entity other than the Company for a seven and
one-half year period. MMC represented to the Company that such accounts were
producing collections at an annual rate of approximately $1,488,000 at the date
of purchase. At the same time, the Company entered into an approximately
five-year employment agreement with Mr. Mencz, employing him as Director of
Program Development and Senior Marketing Representative. His compensation
includes a base salary plus commissions. In addition, Mr. Mencz was granted a
five-year Incentive Stock Option exercisable to purchase 16,667 shares of the
Company's Common Stock at an exercise price of $1-7/8 per share. No goodwill
was recorded on this transaction.
[B] On March 17, 1994, the Company purchases various furniture, fixtures,
machinery, equipment and a customer list from Hypertech Diagnostics, Inc.
["Hypertech"]. As consideration, an agreement was made to pay up to $240,000
[including $14,400 of interest] of which $48,000 was paid at the closing and
the remainder will be paid over time based on the amount collected from its
customer list. No goodwill was recognized on the transaction.
[19] Acquisitions [Continued]
[C] In November 16, 1994, the Company purchased a customer list and two
leased draw stations from a clinical laboratory. As consideration, the Company
assumed the sellers obligations under the draw station 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 for an annual
base salary of $40,000 plus commissions based on sales.
[D] On January 4, 1995 [effective as of November 1, 1994], 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 shares to be issued immediately was $1,634,074 on the date
of the closing. The total cost of the acquisition was $1,634,074 which
exceeded the fair value of the net assets of GenCare by $2,119,213. The excess
is being amortized using the straight-line method over 20 years. In addition,
if the specific 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. As of October 31, 1995, no
additional shares have been issued.
The results of operations of this acquisition are included in the Company's
historical financial statements from November 1, 1994 onward. The following
summarized pro forma [unaudited] results of operations information gives effect
to the acquisition as if it had occurred on November 1, 1993.
<TABLE>
Fiscal Year Ended
-----------------
October 31, 1994
----------------
<S> <C>
Revenues $25,582,854
Net Income $ 697,656
Net Income per Common Share [1] $ .11
Average Number of Shares Outstanding 5,606,573
</TABLE>
[1]The net income [loss] used to calculate the income [loss] per share has been
adjusted for deferred compensation.
[20] Health Insurance Plan
The Company has a limited self-funded health insurance plan for its employees
under which the Company pays the initial $35,000 of covered medical expenses
per person per year. The Company has a contract with an insurance carrier for
any excess.
[21] Employee Benefit Plan
In June 1994, the Company began sponsoring the Bio-Reference Laboratories, Inc.
401(k) Profit-Sharing Plan. Employees become eligible for participation after
attaining the age of eighteen and completing one year of service. Participants
may elect to contribute up to ten percent of their compensation, as defined in
the Plan Adoption Agreement, to a maximum of $7,000 per year. 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 year ended October 31, 1995, the
Company elected not to make matching contributions to the plan. If the Company
elects to match participant contributions in the future, the employer
contribution will be fully vested after the fifth year of service.
[22] Marketable Securities
The Company adopted Statement of Financial Accounting Standards ["SFAS"] No.
115,"Accounting for Certain Investments in Debt and Equity Securities" at
November 1, 1994. In accordance with SFAS No. 115 prior years' financial
statements are not to be restated to reflect the change in accounting method.
There was no cumulative effect as a result of adopting SFAS No. 115 at November
1, 1994.
Management determines the appropriate classification of its investments in debt
and equity securities at the time of purchase and reevaluates such
determination at each balance sheet date. Debt or equity securities for which
the Company does not have the intent or ability to hold to maturity are
classified as available for sale. Securities available for sale are carried at
fair value, with any unrealized gains and losses, net of tax, reported in a
separate component of stockholders' equity until realized. At October 31,
1995, the Company had no investments that qualified as trading or held to
maturity.
Realized gains and losses on disposition are based on the net proceeds and the
adjusted book value of the securities sold using the specific identification
method. Unrealized gains and losses on investment securities available for sale
are based on the difference between book value and fair value of each
security. At October 31, 1995, such securities included an unrealized loss of
$47,998. This loss is shown as a reduction to stockholders' equity. Realized
gains and losses flow are included in the Company's results of operations.
There were no realized gains or losses during the year ended October 31, 1995.
The cost and the fair value of investment securities available for sale at
October 31, 1995 are as follows:
<TABLE>
<CAPTION>
Fair Value Cost Basis
---------- ----------
<S> <C> <C>
Marketable Securities $ 444,621 $ 492,619
======= =======
</TABLE>
[23] New Authoritative Accounting 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.
[23] New Authoritative Accounting Pronouncements [Continued]
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 financial 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.
[24] Subsequent Events
On November 7, 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, Oncodec Labs,
Inc. received 10,000 shares and the additional 30,000 shares will be issued
contingent upon receipts obtained through December 31, 1998.
On November 10, 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, CML
delivered CML notes totaling an aggregate $399,958 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.
These acquisitions were not significant to the Company.
<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 Annual Report on
Form 10-KSB and is qualified in its entirety by reference to such (b) Report on
Form 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<CASH> 3,032,892
<SECURITIES> 444,621
<RECEIVABLES> 8,600,986
<ALLOWANCES> 2,569,125
<INVENTORY> 455,308
<CURRENT-ASSETS> 16,654,433
<PP&E> 2,155,445
<DEPRECIATION> 926,243
<TOTAL-ASSETS> 24,200,958
<CURRENT-LIABILITIES> 12,102,578
<BONDS> 9,341,920
0
0
<COMMON> 60,755
<OTHER-SE> 22,283,938
<TOTAL-LIABILITY-AND-EQUITY> 24,200,958
<SALES> 31,521,118
<TOTAL-REVENUES> 31,521,118
<CGS> 15,036,034
<TOTAL-COSTS> 29,738,222
<OTHER-EXPENSES> 331,502
<LOSS-PROVISION> 4,030,030
<INTEREST-EXPENSE> 605,405
<INCOME-PRETAX> 1,402,169
<INCOME-TAX> 49,225
<INCOME-CONTINUING> 1,402,169
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,402,169
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
