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