COVER PAGE TO SCHEDULE 14A
SCHEDULE 14A INFORMATION
Proxy Statement Purusant to Section 14(a) of
the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Check the Appropriate box:
[X] Definitive Proxy Statement
BIO-REFERENCE LABORATORIES, INC.
--------------------------------
(Name of Registrant as Specified in its
Charter)
Payment of Filing Fee (Check the appropriate box:)
[X] No fee required
BIO-REFERENCE LABORATORIES, INC.
Revocable Proxy Solicited on Behalf of the Board of Directors
Annual Meeting of Stockholders - April 23, 1998
The undersigned, a stockholder of BIO-REFERENCE LABORATORIES,
INC.(the"Company") hereby appoints Marc D. Grodman and Howard Dubinett or
either ofthem, as proxy or proxies of the undersigned, with full power of
substitution,to vote, in the name, place and stead of the undersigned, with
all of the powerswhich the undersigned would possess if personally present, on
behalf of theundersigned, all the shares which the undersigned is entitled to
vote at theAnnual Meeting of the Stockholders of BIO-REFERENCE LABORATORIES,
INC. to be held at 9:00 A.M. (local time) on Thursday, April 23, 1998, at
The Sheraton Crossroads Hotel, Crossroads Corporate Center, Route 17 North,
Mahwah, New Jersey 07495-0001 and at any and all adjournments thereof. The
undersigned directs that this Proxy be voted as follows:
1) To elect two Class I directors, each to serve for a term
of three years and until his successor is elected and qualified (Proposal One).
FOR ( ) all nominees listed WITHHOLD AUTHORITY ( ) to vote for
below (except as marked to all nominees listed below
the contrary below)
Nominees: MARC D. GRODMAN, HOWARD DUBINETT
(Instructions: To withhold authority for an individual nominee, write that
nominee's name on the line provided.)
__________________________________________________________________________
2) In their discretion, on all other matters as shall properly come before the
meeting
AUTHORITY GRANTED ( ) AUTHORITY WITHHELD ( )
The Board of Directors recommends a vote FOR all of the foregoing.
UNLESS OTHERWISE SPECIFIED AS ABOVE PROVIDED, THIS PROXY WILL BE VOTED
"FOR" THE ELECTION OF DIRECTORS (PROPOSAL ONE) AS SET FORTH IN THE PROXY
STATEMENT. IN ADDITION, DISCRETIONARY AUTHORITY IS CONFERRED AS TO ALL OTHER
MATTERS THAT MAY COME BEFORE THE MEETING UNLESS SUCH AUTHORITY IS SPECIFICALLY
WITHHELD. Stockholders who are present at the meeting may withdraw their
Proxy and vote in person if they so desire.
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY. No postage is
required if returned in the enclosed envelope and mailed in the United States.
Receipt of the Notice of Annual Meeting of Stockholders, the accompanying Proxy
Statement of the Board of Directors and the Company's Annual Report for the
year ended October 31, 1997 is acknowledged.
Dated: April , 1998
------------------
_________________________________________________________
- ---------------------------------------------------------
(Signature of Stockholder)
Please sign exactly as name appears on this Proxy. If shares are
registered in more than one name, the signatures of all such persons are
required. A corporation should sign in its full corporate name by a duly
authorized officer, stating his title. Trustees, guardians, executors and
administrators should sign in their official capacity, giving their full title
as such. If a partnership, please sign in partnership name by authorized
person.
PLEASE SIGN AND RETURN THIS PROXY PROMPTLY
No postage is Required if Returned in the Enclosed Envelope and
Mailed in the United States
BIO-REFERENCE LABORATORIES, INC.
481 EDWARD H. ROSS DRIVE
ELMWOOD PARK, NEW JERSEY 07407
201-791-2600
_______________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
April 23, 1998
_______________
The annual meeting of stockholders of Bio-Reference Laboratories,
Inc. (the "Company") will be held at The Sheraton Crossroads Hotel,
Crossroads Corporate Center, Route 17 North, Mahwah, New Jersey 07495-0001, on
Thursday, April 23, 1998 at 9:00 A.M. local time, for the following purposes:
1. To elect two directors to the Company's Board
of Directors, each to serve for a term of three years and until his
successor is duly elected and qualified (Proposal One).
2. To transact such other business as may properly be
brought before the meeting or any adjournment thereof.
Pursuant to the provisions of the By-Laws, the Board of Directors
has fixed the close of business on March 27, 1998 as the record date for
determining the stockholders of the Company entitled to notice of, and to
vote at the meeting or any adjournment thereof.
Stockholders who do not expect to be present in person at the
meeting are urged to date and sign the enclosed proxy and promptly mail it in
the accompanying postage-paid envelope.
By Order of the Board of Directors
Marc D. Grodman
President
Dated: April 2, 1998
PLEASE COMPLETE AND PROMPTLY RETURN YOUR PROXY IN THE ENCLOSED
ENVELOPE. THIS WILL NOT PREVENT YOU FROM VOTING IN PERSON AT THE MEETING
BUT WILL, HOWEVER, HELP TO ASSURE A QUORUM AND AVOID ADDED PROXY
SOLICITATION COSTS.
BIO-REFERENCE LABORATORIES, INC.
481 EDWARD H. ROSS DRIVE
ELMWOOD PARK, NEW JERSEY 07407
201-791-2600
_______________
PROXY STATEMENT
_______________
Annual Meeting of Stockholders
April 23, 1998
_______________
This Proxy Statement of Bio-Reference Laboratories, Inc., a New
Jersey corporation (the "Company") is first being mailed to Stockholders on
or about April 2, 1998 in connection with the solicitation of proxies by
the Company's Board of Directors to be used at the Annual Meeting of
Stockholders of the Company to be held on Thursday, April 23, 1998 at 9:00 A.M.
(local time) at The Sheraton Crossroads Hotel, Crossroads Corporate Center,
Route 17 North, Mahwah, New Jersey 07495-0001. Accompanying this Proxy
Statement is a Notice of Annual Meeting of Stockholders, a form of Proxy
and a copy of the Company's 1997 Annual Report containing financial
statements and related data.
All proxies which are properly filled in, signed and returned to the
Company prior to or at the Meeting will be voted in accordance with the
instructions thereon. A proxy may be revoked by any stockholder giving the same
prior to the exercise thereof by: (a) written notice delivered to the Company's
principal offices prior to the commencement of the Meeting, (b) providing a
signed proxy bearing a later date, or (c) appearing in person and voting at the
Meeting. The Company intends to vote executed but unmarked proxies in favor of
Proposal One. Broker non-votes will be counted for purposes of determining a
quorum but otherwise will be considered not represented with regard to voting on
any matter with respect to which there is a broker non-vote. The Board has fixed
the close of business on March 27, 1988 as the record date for the determination
of stockholders who are entitled to notice of, and to vote at the meeting or any
adjournment thereof.
The expenses of preparing, assembling, printing and mailing the form
of proxy and the material used in solicitation of proxies will be borne by the
Company. In addition to the solicitation of proxies by use of the mails, the
Company may utilize the services of some of its officers and regular employees
(who will receive no additional compensation therefor) to solicit proxies
personally, and by telephone. The Company has requested banks, brokers and other
custodians, nominees and fiduciaries to forward copies of the proxy material to
their principals and to request authority for the execution of proxies and will
reimburse such persons for their services in doing so. The cost of such
additional solicitation incurred otherwise than by use of the mails is estimated
not to exceed $5,000.
Vote Required, Principal Stockholders
and Stockholdings of Management
The Board of Directors has fixed the close of business on March 27,
1998 as the record date for the determination of stockholders who are
entitled to notice of, and to vote at the meeting or any adjournment thereof.
At the record date, the Company had 7,169,376 shares of its Common Stock,
$.01 par value (the "Common Stock") outstanding, the holders of which are each
entitled to one vote per share. The presence in person or by proxy of at least a
majority of the outstanding Common Stock of the Company is necessary to
constitute a quorum at the meeting. Election of directors (Proposal One)
requires the affirmative vote of a majority of the votes cast by the holders
of Common Stock present in person or by proxy at the meeting.
Unless otherwise indicted, all share and per share information
contained in this Proxy Statement gives effect to the one-for-ten reverse
split of the outstanding Common Stock effective October 7, 1991 and the
one-for-three reverse stock split of the outstanding Common Stock effective
August 24, 1993. In addition, unless otherwise indicated, actual price
quations for the Common Stock in the over-the-counter market have been
adjusted throughout this Proxy Statement by multiplying the actual price
quotations for periods prior to October 7, 1991 by 30 and for periods
subsequent thereto and prior to August 24, 1993 by three. No assurances
can be given that the actual price quotations for the Common Stock during
such pre-split periods would have approximated such adjusted prices if the
one-for-10 and one-for-three reverse stock splits had been effectuated at
such times.
The following table sets forth information as of March 27, 1998 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>
Name and Address of Shares of
Beneficial Owner Common Stock Percentage
- ------------------- Beneficially Owned(1) Ownership
--------------------- ---------
Directors and
Executive Officers*
- ------------------
<S> <C> <C>
Marc D. Grodman(2) 1,521,845 18.9%
Howard Dubinett(3) 475,001 6.4%
Sam Singer(4) 377,667 5.2%
Frank DeVito(5) 10,202 --
John Roglieri(6) 35,001 --
Gary Lederman(7) 15,200 --
Executive Officers
and directors as a
group (six persons)
(2)(3)(4)(5)(6)(7) 2,434,916 28.6%
- ---------------
</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 as 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 476,100 shares owned directly by Dr. Grodman, 549,678 shares
issuable upon conversion of Senior Preferred Stock and 300,000 shares
issuable upon exercise of options. 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 261,667 shares owned directly, and 213,334 shares issuable
upon exercise of options.
(4) Includes 211,000 shares owned directly, and 166,667 shares issuable
upon exercise of options.
(5) Includes 202 shares owned directly and 10,000 shares issuable upon
exercise of warrants.
(6) Includes 1,667 shares owned directly and 33,334 shares issuable upon
exercise of warrants.
(7) Includes 15,200 shares issuable upon exercise of warrants.
ACTION TO BE TAKEN AT
THE MEETING
ELECTION OF DIRECTORS
(Proposal One)
The number of directors on the Company's Board of Directors is
currently fixed at six. The Company's Certificate of Incorporation divides
the Board of Directors into three classes. The members of each class of
directors serve for staggered three-year terms. The Board is comprised of
two Class I directors (Dr. Grodman and Mr. Dubinett), two Class II directors
(Mr. Singer and Mr. DeVito) and two Class III directors (Dr. Roglieri and
Mr. Lederman), whose terms expire upon the election and qualification of
their successors at the Annual Meeting of Stockholders in 1998, 1999 and
2000, respectively. At each Annual Meeting of Stockholders, directors will
be elected for a full term of three years.
Dr. Grodman and Mr. Dubinett (current Class I directors) are being
proposed for re-election at this 1998 Annual Meeting of Stockholders, each
to serve for a three-year term and until his successor is elected and qualifies.
The shares represented by proxies will be voted in favor of the election as
directors of Dr. Grodman and Mr. Dubinett who are the nominees of the Board of
Directors for election and authority to vote for their election as Class I
directors shall be deemed granted unless specifically withheld. Management has
no reason to believe that either or both of such nominees for the office of
director will not be available for election as a director. However, should
either or both of them become unwilling or unable to accept nomination for
election, it is intended that the individuals named in the enclosed proxy may
vote for the election of such other person or persons as Management may
recommend. The Company does not have a nominating committee. During the twelve
month period ended October 31, 1997, the Company's Board of Directors held a
total of two meetings.
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. 46 Chairman of the Board,
President, Chief Executive
Officer and Director
Howard Dubinett(a) 46 Executive Vice President,
Chief Operating Officer
and Director
Sam Singer 54 Vice President, Chief
Financial Officer, Chief
Accounting Officer and Director
Frank DeVito(b) 56 Director
John Roglieri, M.D.(b) 56 Director
Gary Lederman, Esq. 63 Director
____________
(a) Chairman of the Audit Committee.
(b) Member of the Audit Committee.
The Audit Committee confers with the Company's auditors
and reviews, evaluates and advises the Board of Directors concerning the
adequacy of the Company's accounting systems, its financial reporting practices,
the maintenance of its books and records and its internal controls. In addition,
the Audit Committee reviews the scope of the audit of the Company's financial
statements and the results thereof.
The Company does not have an Executive Committee. Officers are
elected by and hold office at the discretion of the Board of Directors.
The following is a brief account of the business experience of
each nominee for director of the Company.
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 at Columbia University College of Physicians and Surgeons and
Assistant Attending Physician at Presbyterian Hospital, New York City. From
1980 to 1983, Dr. Grodman attended the Kennedy School of Government at Harvard
University and was a Primary Care 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 1973 and an M.D. degree from Columbia University
College of Physicians and Surgeons in 1977. 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 working time to the business 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. Mr. Dubinett devotes all of his working time to the business of the
Company.
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. Mr. Singer devotes all of his
working time to the business of the Company.
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 was comprised of 35 local
unions with approximately 150,000 members. Since 1985, Mr. DeVito has also been
serving as the President of Benefit Plan Services of New Jersey, a medical
insurance consulting company.
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 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.
Gary Lederman, Esq. became a director of the Company in May 1997. He
received his B.A. from Brooklyn College in 1954 and his J.D. from NYU Law School
in 1957. He was manager of Locals 370, 491 and 662 of the U.F.C.W. International
Union from 1961 to 1985. He is retired from the unions and has been a lecturer
at Queensboro Community College in the field of insurance. Since 1995, he has
served as a member of an institutional review board for RTL, a pharmaceutical
drug testing laboratory.
There are no family relationships between or among any directors or
executive officers of the Company.
Compliance with Section 16 (a) of the Exchange Act
Based solely upon 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 1997, its officers, directors and
beneficial owners of more than 10% of its equity securities timely complied with
all applicable Section 16(a) filing requirements.
INFORMATION REGARDING EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
paid
or accrued by the Company during the year ended October 31, 1997 to its Chief
Executive Officer and its other executive officers who were serving as executive
officers of the Company on October 31, 1997. During the period ended October
31, 1997, the Company granted 740,000 restricted stock awards and had no 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 Ended Compen-
Principal Position October 31, Salary Bonus sation
- ------------------ ---------- ------ ----- -------
<S> <C> <C> <C> <C>
Marc D. Grodman MD 1997 $265,697 $90,000 $-0-
President and Chief 1996 $264,196 $95,000 $-0-
Executive Officer 1995 $264,159 $75,000 $-0-
Howard Dubinett 1997 $148,417 $43,000 $-0-
Executive Vice 1996 $154,188 $45,000 $-0-
President and Chief 1995 $144,024 $45,000 $-0-
Operating Officer
Sam Singer 1997 $147,455 $43,000 $-0-
Vice President and 1996 $153,326 $45,000 $-0-
Chief Financial and 1995 $144,024 $45,000 $-0-
Accounting Officer
Long-Term Compensation
----------------------
Year Restricted
Name and Ended Stock Options
Principal Position October 31, Awards(1) (SARs)
- ------------------ ---------- --------- -------
Marc D. Grodman MD 1997 300,000 300,000(2)
President and Chief 1996 -0- -0-
Executive Officer 1995 -0- -0-
Howard Dubinett 1997 240,000 213,334
Executive Vice 1996 -0- -0-
President and Chief 1995 -0- -0-
Operating Officer
Sam Singer 1997 200,000 116,667
Vice President and 1996 -0- -0-
Chief Financial and 1995 -0- -0-
Accounting Officer
All
Year LTIP Other
Name and Ended Pay- Compen-
Principal Position October 31, outs sation
- ------------------ ---------- ---- ------
Marc D. Grodman MD 1997 $-0- $-0-
President and Chief 1996 $-0- $-0-
Executive Officer 1995 $-0- $-0-
Howard Dubinett 1997 $-0- $-0-
Executive Vice 1996 $-0- $-0-
President and Chief 1995 $-0- $-0-
Operating Officer
Sam Singer 1997 $-0- $-0-
Vice President and 1996 $-0- $-0-
Chief Financial and 1995 $-0- $-0-
Accounting Officer
</TABLE>
_____________
(1) In connection with their acceptance of the terms of new employment
agreements, the Company's Board of Directors on May 13, 1997 authorized the
issuance to Dr. Grodman, Mr. Dubinett and Mr. Singer of 300,000, 240,000 and
200,000 shares of Common Stock respectively. The shares are forfeitable in part
in various amounts if the employee's employment is terminated "for cause" or at
his option "without good reason" prior to May 1, 2000. See "Employment
Agreements with Executive Officers" herein.
(2) Does not include 604,078 shares of Common Stock issuable upon
conversion of 604,078 shares of Senior Preferred Stock owned by Dr. Grodman, his
wife and a corporation controlled by her (collectively the "Grodman Group"). On
May 13, 1997 pursuant to a recapitalization, the previously outstanding Senior
Preferred Stock owned by the Grodman Group convertible into an aggregate 604,078
shares of Common Stock on or before April 20, 2003 at a conversion price of
$1.50 per share was retired in exchange for a new class of Senior Preferred
Stock convertible into an aggregate 604,078 shares of Common Stock on or before
May 1, 2007 at a conversion price of $.75 per share.
Employment Agreements with Executive Officers
On May 13, 1997, Dr. Grodman agreed to the terms of a new employment
agreement pursuant to which he will serve as president and chief executive
officer devoting at least 90% of his working time to the business of the
Company. The agreement provides (i) for a seven-year term commencing November 1,
1997; (ii) a minimum annual Base Compensation consisting of salary and bonus in
the aggregate amount of $395,000 subject to increases based on increases in the
Consumer Price Index as well as increases at the discretion of the board of
directors; (iii) typical health insurance coverage and an initial $2,000,000
face amount of "split dollar" life insurance insuring Dr. Grodman's life and
payable to his estate (excluding benefits required to be paid to the Company
pursuant to the split dollar plan) with $2,000,000 of additional coverage to be
applied for in the future; (iv) the leasing of an automobile for his use; (v)
participation in fringe benefit, bonus, pension, profit sharing, and similar
plans maintained for the Company's employees; (vi) disability benefits; (vii)
certain termination benefits; and (viii) 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.
In consideration for Dr. Grodman's acceptance of the terms of the
employment agreement, the Board of Directors authorized the issuance to Dr.
Grodman of (a) 300,000 shares of the Company's Common Stock, partially subject
to forfeiture, (b) five-year incentive stock options ("ISOs") exercisable to
purchase 100,000 shares of Common Stock at $.790625 per share, and (c) ten-year
non-qualified stock options ("NQOs") exercisable to purchase 200,000 shares of
Common Stock at $.71875 per share. The ISOs are only exercisable while Dr.
Grodman is employed by the Company. The NQOs expire if Dr. Grodman's employment
agreement is terminated by the Company "For Cause" or at his option, "Without
Good Reason." See "Employee Incentive Stock Option Plan."
The 300,000 shares of Common Stock issued to Dr. Grodman are
forfeitable in part on the following basis if his employment agreement is
terminated by the Company "For Cause" or at Dr. Grodman's option "Without Good
Reason."
<TABLE>
CAPTION
If Termination "For Cause"
or "Without Good Reason"
Occurs During the Following Number of Shares
Periods Forfeited
- --------------------------- ----------------
<S> <C>
May 1, 1997 through April 30, 1998 225,000 shs.
May 1, 1998 through April 30, 1999 150,000 shs
May 1, 1999 through April 30, 2000 75,000 shs.
</TABLE>
Also on May 13, 1997, Mr. Dubinett agreed to the terms of a new employment
agreement pursuant to which he will serve as executive vice president and chief
operating officer of the Company. The agreement provides (i) for a five and one-
half year term commencing May 1, 1997; (ii) a minimum annual Base Compensation
commencing November 1, 1997 consisting of salary and bonus in the aggregate
amount of $220,000 subject to increases based on increases in the Consumer Price
Index as well as increases at the discretion of the board of directors; (iii)
typical health insurance coverage and $500,000 face amount of "split dollar"
life insurance insuring Mr. Dubinett's life and payable to his estate (excluding
benefits required to be paid to the Company pursuant to the split dollar plan);
(iv) the leasing of an automobile for his use; (v) participation in fringe
benefit, bonus, pension, profit sharing, and similar plans maintained for the
Company's employees; (vi) disability benefits; (vii) certain termination
benefits; and (viii) in the event of termination due to a change in control of
the Company, a severance payment equal to 2.99 times Mr. Dubinett's average
annual compensation during the preceding five years.
In consideration for Mr. Dubinett's acceptance of the terms of the
employment agreement, the Board of Directors authorized the issuance to Mr.
Dubinett of (a) 240,000 shares of the Company's Common Stock, partially subject
to forfeiture and (b) ten-year ISOs exercisable to purchase 60,000 shares of
Common Stock at $.71875 per share. The ISOs are only exercisable while Mr.
Dubinett is employed by the Company.
The 240,000 shares of Common Stock issued to Mr. Dubinett are
forfeitable in part on the following basis if his employment agreement is
terminated by the Company "For Cause" or at Mr. Dubinett's option "Without Good
Reason."
<TABLE>
<CAPTION>
If Termination "For Cause"
or "Without Good Reason"
Occurs During the Following Number of Shares
Periods Forfeited
- --------------------------- ----------------
<S> <C>
May 1, 1997 through April 30, 1998 180,000 shs.
May 1, 1998 through April 30, 1999 120,000 shs
May 1, 1999 through April 30, 2000 60,000 shs.
</TABLE>
Also on May 13, 1997, Mr. Singer agreed to the terms of a new
employment agreement pursuant to which he will serve as vice president and
chief financial officer of the Company. The agreement provides (i) for a
five and one-half year term commencing May 1, 1997; (ii) a minimum annual Base
Compensation commencing November 1, 1997 consisting of salary and bonus in
the aggregate amount of $220,000 subject to increases based on increases in
the Consumer Price Index as well as increases at the discretion of the board
of directors; (iii) typical health insurance coverage and $400,000 face
amount of "split dollar" life insurance insuring Mr. Singer's life and
payable to his estate (excluding benefits required to be paid to the Company
pursuant to the split dollar plan); (iv) the leasing of an automobile for his
use; (v) participation in fringe benefit, bonus, pension, profit sharing, and
similar plans maintained for the Company's employees; (vi) disability
benefits; (vii) certain termination benefits; and (viii) in the event of
termination due to a change in control of the Company, a severance payment
equal to 2.99 times Mr. Singer's average annual compensation during the
preceding five years.
In consideration for Mr. Singer's acceptance of the terms of the employment
agreement, the Board of Directors authorized the issuance to Mr. Singer of (a)
200,000 shares of the Company's Common Stock, partially subject to forfeiture
and (b) ten-year ISOs exercisable to purchase 50,000 shares of Common Stock at
$.71875 per share. The ISOs are only exercisable while Mr. Singer is employed by
the Company.
The 200,000 shares of Common Stock issued to Mr. Singer are forfeitable in
part on the following basis if his employment agreement is terminated by the
Company "For Cause" or at Mr. Singer's option "Without Good Reason."
<TABLE>
<CAPTION>
If Termination "For Cause"
or "Without Good Reason"
Occurs During the Following Number of Shares
Periods Forfeited
- --------------------------- ----------------
<S> <C>
May 1, 1997 through April 30, 1998 150,000 shs.
May 1, 1998 through April 30, 1999 100,000 shs
May 1, 1999 through April 30, 2000 50,000 shs.
</TABLE>
Employee Incentive Stock Option Plan
In July 1989, the Company's Board of Directors 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 ("NQOs").
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, has 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 options 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.
As described above, on May 13, 1997, the Board of Directors granted five-
year ISOs under the Plan to Dr. Grodman, exercisable to purchase 100,000 shares
of the Company's Common Stock at an exercise price of $.790625 per share (equal
to 110% of the last sale price for the Common Stock on NASDAQ on May 12, 1997).
The board also granted ten-year ISOs under the Plan to Mr. Dubinett and Mr.
Singer exercisable to purchase 60,000 shares and 50,000 shares of Common Stock
respectively at an exercise price of $.71875 per share (equal to the last sale
price for the Common Stock on NASDAQ on May 12, 1997). In addition, the Board
granted ten-year NQOs to Dr. Grodman, exercisable to purchase 200,000 shares of
Common Stock at an exercise price of $.71875 per share.
At the same May 13, 1997 directors' meeting, in order to improve employee
morale, the Board canceled all other outstanding ISOs exercisable to purchase an
aggregate 448,710 shares of Common Stock at exercise prices ranging from $1.3434
to $3.00 per share, and granted new ten-year ISOs under the Plan to 23 employees
exercisable to purchase an aggregate 448,710 shares of Common Stock at an
exercise price of $.71875 per share. Included in this grant were ISOs issued to
Mr. Dubinett and Mr. Singer exercisable to purchase 153,334 shares and 116,667
shares respectively. (These ISOs replaced ISOs previously granted to said two
individuals to purchase 153,334 shares and 116,667 shares respectively at
exercise prices ranging from $1.3125 to $1.50 per share.)
Also on May 13, 1997, the Board of Directors granted five-year NQOs to 31
employees, exercisable to purchase an aggregate 136,100 shares of Common Stock
at $.71875 per share but only while the optionee was employed by the Company.
On May 13, 1997, the Board also issued five-year warrants to each of its
three outside directors, exercisable to purchase 10,000 shares (30,000 in the
aggregate) of Common Stock at an exercise price of $.71875 per share, but only
while serving as a director. At the same time, the Board reduced the exercise
price on warrants held by one outside director, John Roglieri, exercisable to
purchase 23,334 shares ranging from $3.00 per share to $3.75 per share to
$.71875 per share and issued five-year warrants to another outside director,
Gary Lederman, exercisable to purchase 5,200 shares at $.71875 per share.
The following table illustrates information concerning stock option grants
made during fiscal 1997 to each of the executive officers named in the "Summary
Compensation Table."
<TABLE>
<CAPTION>
Option Grants in Fiscal 1997
----------------------------
Number of Percent of
Shares Total Options
of Common Granted to
Stock Employees and
Underlying Consultants"
Name Options Granted in Fiscal Year
- ---- --------------- --------------
<S> <C> <C>
Marc D. Grodman 200,000 19.4
100,000 9.7
Howard Dubinett 213,334 20.7
Sam Singer 166,667 16.2
Exercise Expir-
Price ation
Name Per Share Date
- ---- --------- ----
Marc D. Grodman $.71875 5/12/07
$.790625 5/12/02
Howard Dubinett $.71875 5/12/07
Sam Singer $.71875 5/12/97
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation for
Option Term (1)
---------------
Name 5% 10%
- ---- -- ---
Marc D. Grodman $263,064 $369,600
$124,345 $177,613
Howard Dubinett $280,602 $394,241
Sam Singer $219,220 $308,000
</TABLE>
- ------------------------------------
(1) Assumes appreciation at the stated rates in the market price for the
Company's Common Stock. The option will have no value unless, and only to the
extent that the market price for the Company's Common Stock appreciates from the
grant date to the exercise date.
The following table sets forth certain information concerning unexercised
options for each of the executive officers named in the "Summary Compensation
Table." No options were exercised by any of such individuals in fiscal 1997.
<TABLE>
<CAPTION>
1997 Fiscal Year-End Option Values
----------------------------------
Number of Unexercised
Options
At 1997 Fiscal Year-End
-----------------------
Value of
Unexercised
In-The-Money
Name Exercisable Unexercisable Options at 10/30/97
- ---- ----------- ------------- -------------------
<S> <C> <C> <C>
Marc D. Grodman 200,000 -0- $175,000
100,000 -0- $ 80,313
Howard Dubinett 213,334 -0- $186,667
Sam Singer 166,667 -0- $145,835
</TABLE>
During fiscal 1997, the Company reduced (i.e. "repriced") the exercise
prices of certain options previously granted to Messrs. Dubinett and Singer. The
following table sets forth all such "repricings" of options granted to Dr.
Grodman, Mr. Dubinett and Mr. Singer during the preceding ten years.
<TABLE>
<CAPTION>
10-YEAR OPTION REPRICINGS
Number of
Securities
Underlying
Date of Repriced
Name and Position Repricing (#)
- ----------------- --------- -----------
<S> <C> <C>
Marc Grodman(1) 4/30/90 3,334
President and Chief
Executive Officer 11/25/91 3,334
10/30/92 3,334
11/25/91 50,000
10/30/92 50,000
Howard Dubinett 4/30/90 3,334
Executive Vice President
andChief Operating
Officer 11/25/91 3,334
4/20/93 3,334
11/25/91 50,000
4/20/93 50,000
5/13/97 50,000
5/13/97 100,000
Sam Singer 4/30/90 1,667
Vice President and
Chief Financial and 11/25/91 1,667
Accounting Officer
4/20/93 1,667
5/13/97 1,667
4/30 /90 1,667
11/25/91 1,667
4/20/93 1,667
5/13/97 1,667
11/25/91 46,666
4/20/93 46,666
5/13/97 46,666
5/13/97 66,667
Market Price Exercise
of Stock at Price at
Time of Time of
Repricing Repricing
Name and Position ($) ($)
- ----------------- --------- -----------
Marc Grodman(1) 3.75 49.50
President and Chief
Executive Officer 2.625 4.125
1.3125 2.8875
2.625 4.125
1.3125 2.8875
Howard Dubinett 3.75 45.00
Executive Vice President
and Chief Operating
Officer 2.625 3.75
1.50 2.625
2.625 3.75
1.50 2.625
.71875 1.50
.71875 1.3125
Sam Singer 3.75 67.50
Vice President and
Chief Financial and 2.625 3.75
Accounting Officer
1.50 2.625
.71875 1.50
3.75 67.50
2.625 3.75
1.50 2.625
.71875 1.50
3.75 3.75
2.625 2.625
.71875 1.50
.71875 1.3125
Length of
New Original Option
Exercise Term Remaining
Price at Date of
Name and Position ($) Repricing
- ----------------- ----- ---------
Marc Grodman(1) 4.125 6 years
President and Chief 7 months
Executive Officer 2.8875 5 years
1.4438 3 years
11 months
2.8875 8 years
9 months
1.4438 6 years
11 months
Howard Dubinett 3.75 6 years
Executive Vice President 7 months
and Chief Operating
Officer 2.625 5 years
1.50 3 years
8 months
2.625 8 years
9 months
1.50 7 years
4 months
.71875 3 years
3 months
.71875 5 years
5 months
Sam Singer 3.75 7 years
Vice President and 6 months
Chief Financial and 2.625 5 years
Accounting Officer 11 months
1.50 4 years
6 months
.71875 5 months
3.75 9 years
3 months
2.625 7 years
8 months
1.50 6 years
3 months
.71875 2 years
2 months
2.625 8 years
9 months
1.50 7 years
4 months
.71875 3 years
3 months
.71875 5 years
5 months
</TABLE>
_____________
(1) Pursuant to his 1991 employment agreement with the Company, Dr. Grodman
had been granted a "pro-rata" option exercisable 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 Dr. Grodman, his wife and an affiliated entity (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. At
October 31, 1992, the Grodman Group was the beneficial owner of approximately
19.6% of the outstanding Common Stock on a fully diluted basis.
On April 20, 1993, in order to facilitate an underwritten public offering
of the Company's securities, Dr. Grodman cancelled his pro-rata option and all
other outstanding options (including the above options exercisable to purchase
53,333 shares of Common Stock), and warrants to purchase shares of Common Stock
held by 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 had 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, was
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. See "Certain Relationships and Certain
Transactions" as to the recapitalization of the Senior Preferred Stock resulting
in an exchange for a new Senior Preferred Stock issued to the Grodman Group. The
new Senior Preferred Stock is convertible into an aggregate 604,078 shares of
Common Stock at a conversion price of $.75 per share.
Directors' Compensation
Directors who are not employees of the Company are also paid a $1,000 per
quarter director's fee.
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 Company's
$2,500,000 financing arrangement with Towers Financial Corporation, suspending
all rental and interest charges for periods subsequent to November 1, 1991. As
of October 31, 1997, $214,118 in outstanding principal, interest and van rentals
was due from Dr. Grodman.
On April 20, 1993, in order to facilitate the Company's 1993 proposed
public offering, Dr. Grodman canceled his pro rata option contained in his
employment agreement 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 had 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, was
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.
On May 13, 1997 pursuant to a recapitalization, the Senior Preferred
was retired in exchange for a new class of Senior Preferred Stock issued to
the Grodman Group. The new Senior Preferred Stock is convertible into an
aggregate 604,078 shares of Common Stock on or before May 1, 2007 at a
conversion price of $.75 per share and has the same voting rights (one vote
per share), dividend rights and liquidation rights as each share of Common
Stock.
Compensation Committee (Board of Directors) Interlocks
The Company does not have a compensation committee. Compensation decisions
regarding the executive officers of the Company are made by the members of the
Board of Directors acting as a whole including the three executive officers, Dr.
Grodman, Mr. Dubinett and Mr. Singer. No member of the Board votes with respect
to his own compensation. See "Certain Relationships and Certain Transactions" as
to certain transactions involving the Company and Dr. Grodman during the past
fiscal year.
BOARD OF DIRECTORS' REPORT ON COMPENSATION
The Board of Directors, including the Company's three executive officers,
are responsible for reviewing the compensation paid to the Company's executive
officers, provided that none of the Company's executive officers votes with
respect to his own compensation package.
The Board of Directors took into account the backgrounds, employment
histories, achievements and prior compensation of Dr. Grodman, Mr. Dubinett and
Mr. Singer, the benefits to be obtained by the Company from their employment in
light of the current state of the medical testing laboratory industry, the
Company's current status and its anticipated future development.
The Board took into account information relating to compensation of principal
officers of public and non-public corporations, both in the health field and
in general. As a result, the Board determined that the base compensation
provided by the employment packages for the three employees was generally
in line with packages for comparable positions with comparable companies and
that the upside potential in the packages was principally provided by the
Restricted Stock issued, subject to forfeiture, and the Stock Options granted
to each individual with benefits thereunder accruing to the individual only
to the extent he remains employed by the Company with respect to the
Restricted Stock and only to the extent the market price for the Common Stock
increases over the exercise price of the options, with respect to the options.
Board of Directors
Marc D. Grodman
Howard Dubinett
Sam Singer
Frank DeVito
John Roglieri
Gary Lederman
STOCK PRICE PERFORMANCE
Set forth below is a line graph comparing the yearly cumulative total
shareholder return on the Company's Common Stock for the five fiscal years
ended October 31, 1997 based on the market price of the Common Stock, with the
cumulative total return of companies in the S&P 500 Composite and of a peer
group of 17 publicly owned medical laboratories.
COMPARISON OF FIVE YEAR TOTAL RETURN
FOR BIO-REFERENCE LABORATORIES, INC.,
S&P 500 COMPOSITE AND
MEDICAL LABORATORY PEER GROUP
[CHART TO BE INSERTED]
The Medical Laboratory peer group consists of the following companies:
American Cytogenetics, Ameripath Inc, Dianon Systems Inc, Enzo Biochem Inc,
Impath Inc, Laboratory CP of Amer Holdgs, Medtox Scientific Inc, Meris
Laboratories Inc, Neuromedical Systems Inc, Nu-Tech Bio-Med Inc, Oncormed Inc,
Physicians Clinical Lab Inc, Quest Diagnostics Inc, Uniholding Corp, Unilab
Corp, Universal Std Healthcare Inc, Urocor Inc.
Auditors
The firm of Moore Stephens, P.C., certified public accountants, has been
selected by the Board of Directors to audit the accounts of the Company and its
subsidiaries for the current fiscal year ending October 31, 1998. Moore
Stephens, P.C. and its predecessor firm have served as the Company's auditors
since 1988. Representatives of such firm are not expected to be present at the
April 23, 1998 Annual Meeting of Stockholders.
Stockholder Proposals for 1998 Annual Meeting
Under current rules of the Securities and Exchange Commission, stockholders
wishing to submit proposals for inclusion in the Proxy Statement of the Board of
Directors for the 1998 Annual Meeting of Stockholders (expected to be held
during the first half of calendar 1999), must submit such proposals so as to be
received by the Company at 481 Edward H. Ross Drive, Elmwood Park, New Jersey
07407 on or before October 31, 1998.
OTHER MATTERS
Management does not know of any other matters which are likely to be
brought before the Meeting. However, in the event that any other matters
properly come before the Meeting, the persons named in the enclosed proxy will
vote said proxy in accordance with their judgment in said matters.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information may be inspected and copied at the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at Seven World
Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or part of
such materials can be obtained from the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C., 20549 at prescribed rates. Such material may also be accessed
electronically by means of the Commission's Web Site (http;//wwwsec.gov).
By Order of the Board of Directors
Marc D. Grodman
President
Elmwood Park, New Jersey
April 2, 1998
ANNUAL REPORT
For Fiscal Year Ended 1997
Professional Dedication
. . . and a Commitment to Quality
Bio-Reference Laboratories
Dear Shareholder,
Bio-Reference Laboratories continues to enjoy growth and profitability. Fiscal
1997 represented our fourth year of profitability and our sixth consecutive year
with a minimum 10% revenue growth. This year's record net income of $3,199,915
included the sale of certain assets of our GenCare Biomedical business unit,
however, before taking into account the non-recurring gain on this sale, the
Company posted net income of $1,174,226.
These results have been achieved during a period of rapid change within the
laboratory industry. Reimbursement rates have decreased over the previous few
years, managed care programs have dictated pricing arrangements to laboratories
that are disadvantageous to our industry. Our continued growth and profitability
is the result of responding to these changes, seeking out profitable business
areas and controlling expenses. It has validated our underlying strategy of
combining the efficiencies of a regional laboratory with specialty testing
niches.
The sale of the GenCare Biomedical division assets was not a deviation from our
stated business goal, but a reaction to the marketplace. If all conditions are
met, the Company will be paid approximately $6 million for an acquisition that
represented less than 8% of Fiscal Year 1997 revenues and cost the Company
473,145 shares of its common stock and approximately $235,000 in principal
amount of its debentures just two years ago. A newly defined business unit,
GenPath, will continue to provide pathology services in the urology,
gastroenterology and gynecological specialties, areas we believe have greater
growth potential and profitability than the testing segment we sold. Bio-
Reference will continue to seek opportunities that will maximize shareholder
value.
Despite our continued profitability, growth and the development of specialized
testing areas such as GenPath, Renal Reference (serving dialysis centers), and
Fertility Reference (serving the fertility market), Bio-Reference, as well as
all laboratories have a great challenge. Disadvantageous pricing and marketing
policies of insurers, managed care organizations and other providers have
relegated clinical laboratories to the bottom of the health care food chain,
with our services seen as a commodity defined by price not quality. By cutting
prices to gain market share, large national laboratories diminished the value
placed on our services by payors. The challenge today is how health care in the
United States can become more efficient while maintaining quality. As a Company,
we must find a significant niche in this model. In order for us to differentiate
ourselves in the provider marketplace, as well as the investor marketplace, the
key is not only the quality of our work, which is and should always be expected,
but new ways to understand the information we generate so as to become a
critical segment in the delivery of efficient, quality health care.
Clinical laboratories do more than provide tests; we collect and process
information, and in many cases, we maintain appropriate diagnosis codes, date of
encounter and other pertinent information which combined with other data can be
useful in addressing a multitude of issues, including reflecting back on the
efficacy of the provider, the treatment alternative, the medicine, etc. Since
the underlying thesis of a clinical laboratory is to process specimens from a
wide variety of patients, from multiple providers and payors, Bio-Reference
believes we need to be at the forefront in the organization of this data to
improve care. In the coming year, we will continue to seek revenue growth and
continued profitability. We will also continue to seek transactions that will
maximize shareholder value and will continue to be as vigilant in providing
quality services. We will also seek ways that we can enter the new information
marketplace to differentiate our services so as to be part of the solution and
not to allow the valuable services we perform to be reduced to a commodity. We
believe that the Company which addresses and provides insight into these larger
health care issues will be the one that will fully realize its potential.
Sincerely,
February, 1998
Elmwood Park, New Jersey
Marc Grodman, M.D.
Chairman of the Board
President and Chief
Executive Officer
Business
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 November 1, 1994), the Company expanded its testing
capabilities through the acquisition of GenCare Biomedical Research Corporation
("GenCare") which operated a cancer specialty testing laboratory in
Mountainside, New Jersey.
In November, 1995, the Company made two acquisitions. Through its acquisition of
Oncodec Laboratories, Inc., 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. In addition, the Company expanded its
market penetration into central New Jersey through its acquisition of Community
Medical Laboratories ("CML"). In May, 1996, the Company acquired certain assets
and rights of Advanced Medical Laboratories ("AML") which increased its presence
in eastern Long Island. The last acquisition of fiscal 1996 occurred in July,
1996. The Company purchased from SmithKline Beecham Clinical Laboratories, Inc.
("SBCL") certain assets and rights including the Customer List related to SBCL's
operation of its Renal Dialysis Testing Business. This acquisition will allow
the Company to expand its presence in this market.Although SBCL represented that
its renal dialysis business was realizing approximately $3,600,000 in annual net
revenues, the Company may realize only approximately $1,000,000 in annual net
revenues directly as a result of this acquisition. In December, 1996, the
Company commenced a lawsuit against SBCL alleging breach of contract and fraud.
On September 30, 1997, pursuant to an Agreement and Bill of Sale, the Company
sold certain assets of its GenCare Division to an unrelated third party, Impath,
Inc. At the time of sale, GenCare was providing oncology and hematology
laboratory services to hospitals, hematologists and oncologists in the New York
metropolitan area and in Florida. The assets sold included GenCare customer
lists, any Company rights to the "GenCare" Tradename, certain patient records
and rights under a Reagent Purchase and Equipment Rental Contract and under a
Laboratory Testing Service Agreement. The Company retained the rights to the
Tradename "GenPath."
In addition, the Company, certain of its officers and key employees agreed for a
30-month period not to compete with Impath with respect to certain defined areas
of the GenCare business. The Company is continuing to market tumor pathology
testing services under the name "GenPath" to urology, gastroenterology and
obstetric and gynecology physician clients. The GenCare business sold accounted
for less than 8% of the Company's annual net revenues for fiscal 1997.
The $6 million purchase price was determied in arms-length negotiations between
the parties based in part on GenCare's billings to Restricted Customers for
Restricted Tests (as defined in the Agreement and Bill of Sale) during the
three-month period ended June 30, 1997. The purchase price included a $4.6
million cash payment made at the closing with an additional $700,000 to $1.4
million payable in semi-annual installments over a two-year period subject to
certain conditions. The Company purchased GenCare in January 1995 for an
aggregate 473,145 shares of its common stock and approximately $235,000 in
principal amount of its debentures.
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.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Fiscal Year 1997 Compared to Fiscal Year 1996
NET REVENUES:
Net revenues for the twelve month period ended October 31, 1997 were $38,660,184
as compared to $35,125,878 for the prior comparable period ended October 31,
1996; this represents a 10% increase in net revenues. On September 30, 1997,
the Company completed the sale of certain assets of its GenCare Division
("GenCare") to an unrelated third party. During the eleven month period ending
September 30, 1997, net revenues related to GenCare was $2,116,523 or 5.5% of
the Company"s net revenues. The number of patients serviced for the twelve month
period ended October 31, 1997 was 728,321 which was an increase of 5% over the
same period in 1996. The number of patients processed by GenCare during this
same twelve month period was 21,268. Net revenue per patient including GenCare
was $53.08 for the period ending October 31, 1997 as compared to $50.46 an
increase of 5.2%. Net revenue per patient excluding GenCare was $51.68 or a 2.6%
decrease in per patient revenues for the current twelve month period. Management
can not project if these increases will continue, or if they do, at what rate.
However, management believes but cannot assure, that the fastest growing portion
of the GenCare assets were retained by the Company.
COST OF SERVICES:
Cost of services increased from $18,136,395 for the twelve month period ended
October 31, 1996 to $19,339,274 for the twelve month period ended October 31,
1997. This represents a 7% increase in direct operating costs and is in line
with the 10% increase in net revenues.
GROSS PROFITS:
Gross revenues increased from $16,989,483 or 48% of net revenues for the twelve
month period ended October 31, 1996 to $19,320,910 or 50% of net revenues for
the twelve month period ended October 31, 1997; an increase of 2%.
GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses for the twelve month period ended October
31, 1997 were $17,435,879 as compared to $15,793,247 for the twelve month period
ended October 31, 1996, an increase of $1,642,632 (10%). The reserve for bad
debt was increased by $1,005,700 in the period ended October 31, 1997, compared
to the period ended October 31, 1996. When the increase in reserve for bad debt
is factored out, General and Administrative Expenses would have increased by 4%.
This compares favorably to an increase in net revenues for the period of 10%.
INTEREST EXPENSE:
Interest expense increased from $840,811 during the twelve month period ending
October 31, 1996 to $1,084,347 during the twelve month period ending October 31,
1997. This increase was caused by the Company's increase in asset based
borrowings and equipment leases for the eleven months ending September 30, 1997.
On October 1, 1997, the Company utilized $3,500,000 of the cash payment received
upon closing the GenCare sale to reduce its credit line with PNC Bank..
NET INCOME:
The Company had net income of $3,199,915 for the twelve months ended October 31,
1997 as compared to $591,958 for the twelve months ended October 31, 1996.
Approximately three quarters of the increase in net income is attributable to
the non-recurring gain on the sale of certain assets of the Company's GenCare
Division ($2,025,689).
Liquidity and Capital Resources
For the Fiscal Year Ended October 31, 1997
Working capital as of October 31, 1997 was $9,415,440 as compared to $4,072,447
at October 31, 1996 an increase of $5,342,993 during the twelve month period.
The Company had $6,693,825 in cash and certificates of deposits at October 31,
1997. However, $4,532,000 represented restricted deposits. The Company
utilized $171,064 in cash for operating activities. To offset this use of cash
the Company raised $4,600,000 from the divestiture of its GenCare product line,
reduced its credit line borowing by $2,317,031 and repaid approximately
$1,190,733 in existing debt.
The capital spending requirements for the Company during 1998 is expected not to
exceed $600,000. During fiscal 1997, approximately $143,600 has been spent on
capital improvements and approximately $252,300 in capital leases.
The Company had current liabilities of $12,649,814 at October 31, 1997. The
three largest items in this category are notes payable of $7,613,710, accounts
payable of $2,231,693 and accrued salaries and commissions of $1,065,339
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 for
clinical laboratories. Depending upon the nature of regulatory action, if any,
which is taken and the content of legislation, if any, which is adopted, the
Company could experience a significant decrease in revenues from Medicare and
Medicaid, which could have a material adverse effect on the Company. The
Company is unable to predict, however, the extent to which such actions will be
taken.
The Company intends to capitalize on the current trend of consolidation in the
clinical laboratory industry through acquisitions of other laboratories in its
geographical region with significant customer lists. Purchase prices to acquire
other laboratories may involve cash, notes, Common Stock, and/or combinations
thereof. The Company has a credit facility with PNC Bank, N.A. for $10,000,000.
As of October 31, 1997, $6,761,710 of this facility was being utilized. In
addition, the Company had verbally renegotiated the convertible debt due to
certain former owners of GenCare that were due and payable on January 4, 1997 in
the amount of approximately $235,729. These notes were fully paid in November,
1997.
Cash on hand, equity financing and additional borrowing capabilities are
expected to be sufficient to meet anticipated operating requirements, debt
repayments and provide funds for capital expenditures, excluding acquisitions
for the foreseeable future.
For the Fiscal Year Ended October 31, 1996
Working capital as of October 31, 1996 was $4,072,447 as compared to $4,551,855
at October 31, 1995 a decrease of $479,408 during the twelve month period.
The Company had $5,933,474 in cash and certificates of deposits at October 31,
1996. However, $4,532,000 represented restricted deposits. The Company
utilized $1,895,465 in cash for operating activities. To offset this use of
cash the Company raised $1,180,000 in long-term debt, $3,687,448 in credit line
borrowings and repaid approximately $2,327,868 in existing debt. The capital
spending requirements for the Company during 1997 is expected not to exceed
$600,000. During fiscal 1996, approximately $660,000 has been spent on
capital improvements.
The Company had current liabilities of $14,594,347 at October 31, 1996. The
three largest items in this category are notes payable of $9,930,741, accounts
payable of $2,147,403 and current portion of long-term debt of $730,374.
Project 2000
The Company is in the process of identifying those systems that require changes
to accommodate the year 2000. It has identified four areas of concern. They are
the laboratory's operations and billing systems, the general accounting systems
and the two systems outside of its control; one being the payor systems and the
other being the vendor systems. At the present time, it appears that the
laboratory systems will require changes that translate into approximately
$50,000.00 in costs. The general accounting systems (which are supplied by an
outside vendor) will cost the Company less than $2,000.00 to convert and are
scheduled for conversion during the second quarter of the current fiscal year.
The payor systems are being converted per instructions on the part of each payor
(i.e. Medicare, Medicaid, insurance companies, etc.). For example, electronic
claims filing for Medicare has been completed, while the Company has been told
not to make any changes for New Jersey medicaid until it is notified to do so.
The final system of concern to the Company is its suppliers. Once its general
accounting is converted to accommodate the year 2000, the Company is confident
that it will accept the input of all vendor invoices.
Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains historical information as well as
forward-looking statements. Statements looking forward in time are included in
this Annual Report pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Such statements involve known and
unknown risks and uncertainties that may cuase the Company's actual results in
future periods to be materially different from any future performance suggested
herein.
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 No. 128, Earnings Per Share ("EPS"), and SFAS No. 129,
"Disclosure of Information about Capital Structure" in February 1997. SFAS No.
128 simplifies the earnings per share ("EPS") calculations required by
Accounting Principles Board ("APB") Opinion O. 15, and related interpretations,
by replacing the presentation of primary EPS with a presentation of basic EPS.
SFAS No. 128 requires dual presentation of basic and diluted EPS by entities
with complex capital structures. Basic EPS includes no dilution and is computed
by dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution of securities that could share in the earnings of an entity,
similar to the fully diluted EPS of APB Opinion No. 15. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted. When
adopted, SFAS No. 128 will require restatement of al prior-period EPS data
presented. Basic EPS will be based on average common shares outstanding and
diluted EPS will include the effects of potential common stock, such as, options
and warrants. The Company's basic EPS as calculated under SFAS No. 128 would
have been $.43 for the year ended October 31, 1997. The Company's diluted EPS as
calculated under SFAS No. 128 would have been $.40 for the year ended October
31, 1997.
SFAS No. 129 does not change any previous disclosure requirements, but rather
consolidates existing disclosure requirements for each of retrieval.
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 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.
Market for Common Stock and Related Shareholder Matters The Company's 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 OTC
Bulletin Board. As a result of the improvement in the Company's financial
condition based upon its 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
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
- -----------
1996 High Low
<S> <C> <C>
First Quarter $3.50 $2.75
Second Quarter 2.75 2.125
Third Quarter 2.8125 1.9375
Fourth Quarter 1.9375 1.4375
1997
First Quarter $1.4375 $ .90625
Second Quarter $1.09375 $ .8125
Third Quarter $1.625 $ .71875
Fourth Quarter $2.03125 $1.34375
</TABLE>
At January 14, 1997, the closing sales price for the Common Stock on NASDAQ was
$1.3125 per share.
At January 14, 1997 the number of record holders of the Common Stock was
approximately 650. 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. Furthermore, the Company's loan agreement with PNC
Bank prohibits the Company from paying dividends or making any distributions
with respect to any shares of its stock without the prior written consent of the
Bank.
Selected Financial Data
The selected consolidated financial data set forth below for the years ended
October 31, 1997, 1996, 1995, 1994 and 1993 were derived from the audited
consolidated financial statements of the Company. The data set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and related Notes appearing elsewhere.
<TABLE>
<CAPTION> [In thousands, except per
share data]
Years Ended
-----------
October 31,
-----------
1 9 9 7 1 9 9 6 1 9 9 5 19 9 4 1 9 9 3
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Operating Data:
Net Revenues $38,660 $35,126 $31,521 $22,946 $18,783
Cost of Services $19,339 $18,136 $15,036 $11,396 $10,469
Gross Profit $19,321 $16,989 $16,485 $11,550 $8,314
General and Administrative
Expenses $17,436 $15,793 $14,702 $10,550 $9,154
Income [Loss] from Operations $1,885 $1,196 $1,783 $1,000 $(840)
Non-Recurring Gain on Sale of
Intangible Assets $2,026 $ - $ - $ - $ -
Other Expenses - Net $850 $552 $332 $307 $1,474
Extraordinary Item- Gain on
Extinguishment of Debt $ - $ - $ - $447
Provision for Income Tax Expense
[Benefit] $(139) $52 $ $49 $ -
Net income [Loss] $3,200 $592 $1,402 $1,140 $(2,314)
Net [Loss] Income
Per Common Share $.36 $.10 $.23 $.23 $(1.07)
Cash Dividends Per Common Share $- $- $- $- $-
Balance Sheet Data:
Total Assets $29,095 $28,231 $24,201 $17,381 $9,105
Total Long-Term Liabilities $921 $1,533 $843 $708 $478
Total Liabilities $13,570 $16,128 $12,945 $9,134 $11,290
Working Capital [Deficit] $9,415 $4,072 $4,552 $3,604 $(5,987)
Stockholders' Equity [Deficit] $15,525 $12,103 $11,256 $8,246 (2,185)
</TABLE>
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 material adverse effect on the
Company. The Company is unable to predict, however, the extent to which such
actions will be taken.
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 sheets of Bio-Reference
Laboratories, Inc. and its subsidiary as of October 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three fiscal years in the period ended October 31, 1997.
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, 1997 and
1996, and the consolidated results of their operations and their cash flows for
each of the three fiscal years in the period ended October 31, 1997, in
conformity with generally accepted accounting principles.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
January 9, 1998
Bio-Reference Laboratories, Inc. and Subsidiary
Consolidated Balance Sheet
<TABLE>
<CAPTION>
October 31,
1 9 9 7 1 9 9 6
<S> <C> <C>
Assets:
Current Assets:
Cash and Cash Equivalents $ 2,161,825 $ 1,401,474
Cash - Restricted 852,000 852,000
Accounts Receivable - Net 13,737,881 12,019,761
Inventory 453,870 394,377
Certificates of Deposit - Restricted 3,601,250 3,556,250
Other Current Assets 1,000,428 442,932
Deferred Tax Asset 258,000 --
--------- ----------
Total Current Assets 22,065,254 18,666,794
---------- ----------
Property and Equipment:
Automobiles 57,656 57,656
Medical Equipment and Vans 2,146,896 1,806,082
Leasehold Improvements 370,283 350,557
Furniture and Fixtures 398,187 362,835
--------- ----------
Totals - At Cost 2,973,022 2,577,130
Less: Accumulated Depreciation 1,685,298 1,265,836
--------- ---------
Property and Equipment - Net 1,287,724 1,311,294
--------- ---------
Other:
Certificate of Deposit - Restricted 78,750 123,750
Due from Related Party [6] 214,118 234,918
Deposits 213,347 220,254
Goodwill [Net of Accumulated
Amortization of $994,015
and $1,052,038, Respectively] 1,406,570 3,168,403
Intangible Assets [Net of Accumulated
Amortization of $1,891,970
and $1,444,265, Respectively] 3,382,393 4,164,286
Other Assets 446,903 341,037
--------- ---------
Total Other 5,742,081 8,252,648
--------- ---------
Total Assets $29,095,059 $28,230,736
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
Bio-Reference Laboratories, Inc. and Subsidiary Consolidated Balance Sheet
<TABLE>
<CAPTION>
October 31,
1 9 9 7 1 9 9 6
<S> <C> <C>
Liabilities and Shareholders' Equity:
Current Liabilities:
Accounts Payable $ 2,231,693 $ 2,147,403
Accrued Salaries and Commissions 1,065,339 878,996
Accrued Expenses 511,386 327,876
Current Maturities of Long-Term Debt
[Net of Discount] [4] 864,266 730,374
Notes Payable - Banks [3] 7,613,710 9,930,741
Capitalized Lease Obligation -
Short-Term Portion [12] 84,970 202,147
Current Maturities of Convertible
Subordinated Debt [5] 1,339 235,729
Taxes Payable 277,111 141,081
--------- ----------
Total Current Liabilities 12,649,814 14,594,347
---------- ----------
Long-Term Liabilities:
Long-Term Debt Less Current
Maturities [4] 668,030 1,433,817
Capitalized Lease Obligations -
Long-Term Portion [12] 252,572 99,564
--------- ----------
Total Long-Term Liabilities 920,602 1,533,381
------- ---------
Commitments and
Contingencies [13] --
------------- -----------
Shareholders' Equity: [8 and 10]
Preferred Stock, Par Value $.10
Per Share, Authorized 1,062,589
Shares; None Issued -- --
Series A - Senior Preferred Stock,
Par Value $.10 Per Share,
Authorized, Issued and
Outstanding 604,078 Shares 60,408 60,408
Common Stock, Par Value $.01 Per Share,
Authorized 18,333,333 Shares; Issued
and Outstanding 7,169,376 and 6,300,280
Shares at October 31, 1997 and 1996,
Respectively 71,694 63,003
Additional Paid-in Capital 22,967,160 22,433,297
Accumulated [Deficit] (7,231,568) (10,431,483)
----------- -----------
Totals 15,867,694 12,125,225
Deferred Compensation (343,051) (22,217)
----------- ----------
Total Shareholders' Equity 15,524,643 12,103,008
---------- ----------
Total Liabilities and
Shareholders' Equity $ 29,095,059 $ 28,230,736
============= ============
</TABLE>
The Accompanying Notes are an Integral Part of These Consolidated
Financial
Statements.
Bio-Reference Laboratories, Inc. and Subsidiary Consolidated
Statements of
Operations
<TABLE>
<CAPTION>
Y e a r s e n d e d
O c t o b e r 3 1,
1 9 9 7 1 9 9 6 1 9 9 5
<S> <C> <C> <C>
Net Revenues $ 38,660,184 $ 35,125,878 $ 31,521,118
---------- ---------- ----------
Cost of Services:
Depreciation and Amortization 390,953 378,694 337,802
Employee Related Expenses 8,595,078 8,503,156 7,140,830
Reagents and Laboratory Supplies 4,777,325 4,430,381 3,723,867
Other Cost of Services 5,575,918 4,824,164 3,833,535
---------- ---------- ----------
Total Cost of Services 19,339,274 18,136,395 15,036,034
---------- ---------- ----------
Gross Profit 19,320,910 16,989,483 16,485,084
---------- ---------- ----------
General and Administrative Expenses:
Depreciation and Amortization 798,365 655,192 621,929
Other General and Administrative
Expenses 11,346,007 10,761,548 10,050,229
Provision for Doubtful Accounts 5,291,507 4,285,807 4,030,030
Expenses of Abandoned Acquisition -- 90,700 --
---------- ---------- ----------
Total General and Administrative
Expenses 17,435,879 15,793,247 14,702,188
---------- ---------- ---------
Income from Operations 1,885,031 1,196,236 1,782,896
---------- ---------- ----------
Non-Recurring Gain on Sale of
Intangible Assets [22] 2,025,689 - -
---------- ---------- ----------
Other [Income] Expense:
Interest and Other Expense 1,124,432 840,811 605,405
Interest Income (274,887) (288,395) (273,903)
---------- ---------- ----------
Total Other Expense - Net 849,545 552,416 331,502
---------- ---------- ----------
Income Before Income Taxes 3,061,175 643,820 1,451,394
Provision for Income Tax
Expense [Benefit] [7] (138,740) 51,862 49,225
---------- ---------- ----------
Net Income $ 3,199,915 $ 591,958 $ 1,402,169
=========== ============ ===========
Net Income Per Share [9] $ .36 $ .10 $ .23
=========== ============ ============
</TABLE>
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
Bio-Reference Laboratories, Inc. and SubsidiaryConsolidated Statements of
Shareholders' Equity
<TABLE>
<CAPTION>
Series A
Senior Preferred Stock
Shares Amount
<S> <C> <C>
Balance - October 31, 1994 $ 604,078 $60,408
Shares Issued from Exercise of Warrants -- --
Shares Issued in Connection with an
Acquisition -- --
Shares Issued in Lieu of Payment for Service -- --
Expenses Associated with Public Offering
Amortization of Deferred Compensation -- --
Unrealized Loss on Securities Available for
Sale -- --
Net Income for the Year -- --
---------- --------
Balance - October 31, 1995 604,078 60,408
Shares Issued in Connection with
an Acquisition -- --
Shares Issued in Connection with
an Acquisition [Including Shares
Remaining in Escrow] -- --
Shares Issued in Lieu of Payment
for Service -- --
Shares issued in Lieu of an Invoice
Payment -- --
Shares Issued in Connection with an
Acquisition Agreement [Including
Shares Remaining in Escrow] -- --
Options Issued for Deferred
Compensation -- --
Amortization of Deferred Compensation -- --
Unrealized Loss on Securities Available
for Sale -- --
Net Income for the Year -- --
---------- --------
Balance - October 31, 1996 -
Forward $ 604,078 $60,408
Balance - October 31, 1996 -
Forwarded 604,078 $60,408
Shares Issued for Deferred
Compensation -- --
Warrants Issued for Deferred
Compensation -- --
Shares Issued in Connection with an
Acquisition Agreement -- --
Shares Released from Escrow -- --
Amortization of Deferred Compensation -- --
Net Income for the Year -- --
----------- ---------
Balance - October 31, 1997 604,078 $ 60,408
=========== =========
Common Stock
Shares Amount
Balance - October 31, 1994 $ 5,740,162 $57,402
Shares Issued from Exercise
of Warrants 12,100 121
Shares Issued in Connection with an
Acquisition 311,252 3,112
Shares Issued in Lieu of Payment for
Service 12,000 120
Expenses Associated with Public
Offering -- --
Amortization of Deferred
Compensation -- --
Unrealized Loss on Securities
Available for Sale -- --
Net Income for the Year -- --
----------- --------
Balance - October 31, 1995 6,075,514 60,755
Shares Issued in Connection with
an Acquisition 10,000 100
Shares Issued in Connection with
an Acquisition [Including Shares
Remaining in Escrow] 72,688 727
Shares Issued in Lieu of Payment
for Service 4,000 40
Shares issued in Lieu of an
Invoice Payment 4,745 48
Shares Issued in Connection with an
Acquisition Agreement [Including
Shares Remaining in Escrow] 133,333 1,333
Options Issued for Deferred
Compensation -- --
Amortization of Deferred Compensation -- --
Unrealized Loss on Securities Available
for Sale -- --
Net Income for the Year -- --
----------- --------
Balance - October 31, 1996 -
Forward 6,300,280 $63,003
Balance - October 31, 1996 -
Forwarded 6,300,280 $63,003
Shares Issued for Deferred
Compensation 815,000 8,150
Warrants Issued for Deferred
Compensation -- --
Shares Issued in Connection with an
Acquisition Agreement 54,096 541
Shares Released from Escrow -- --
Amortization of Deferred Compensation -- --
Net Income for the Year -- --
----------- --------
Balance - October 31, 1997 7,169,376 $71,694
Additional
----------
Paid-in Accumulated Deferred
------- ----------- --------
Capital [Deficit] Compensation
------- --------- ------------
Balance - October 31, 1994 $ 20,619,399 $(12,425,610) $ (65,135)
Shares Issued from Exercise
of Warrants 18,029 -- --
Shares Issued in Connection with an
Acquisition 1,630,962 -- --
Shares Issued in Lieu of Payment for
Service 25,380 -- --
Expenses Associated with Public
Offering (70,240) -- --
Amortization of Deferred
Compensation -- -- 47,635
Unrealized Loss on Securities
Available for Sale -- -- --
Net Income for the Year -- 1,402,169 --
----------- ------------ ------------
Balance - October 31, 1995 22,223,530 (11,023,441) (17,500)
Shares Issued in Connection with
an Acquisition 23,900 -- --
Shares Issued in Connection with
an Acquisition [Including Shares
Remaining in Escrow] 94,208 -- --
Shares Issued in Lieu of Payment
for Service 9,560 -- --
Shares issued in Lieu of an
Invoice Payment 17,151 -- --
Shares Issued in Connection with an
Acquisition Agreement [Including
Shares Remaining in Escrow] 37,748 -- --
Options Issued for Deferred
Compensation 27,200 -- (27,200)
Amortization of Deferred
Compensation -- -- 22,483
Unrealized Loss on Securities Available
for Sale -- -- --
Net Income for the Year -- 591,958 --
----------- ------------ ----------
Balance - October 31, 1996 -
Forward $22,433,297 $(10,431,483) $ (22,217)
Balance - October 31, 1996 -
Forwarded $22,433,297 $(10,431,483) $ (22,217)
Shares Issued for Deferred
Compensation 337,919 -- --
Warrants Issued for Deferred
Compensation 13,423 -- (13,423)
Shares Issued in Connection with an
Acquisition Agreement 127,320 -- --
Shares Released from Escrow 55,201 -- --
Amortization of Deferred
Compensation -- -- 38,658
Net Income for the Year -- 3,199,915 --
----------- ------------ ------------
Balance - October 31, 1997 $22,967,160 $(7,231,568) $ (343,051)
Unrealized Loss
on Securities Total
Available Shareholders'
for Sale Equity
Balance - October 31, 1994 $ -- $ 8,246,464
Shares Issued from Exercise
of Warrants -- 18,150
Shares Issued in Connection with an
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
Unrealized Loss on Securities
Available for Sale (47,998) (47,998)
Net Income for the Year -- 1,402,169
----------- ------------
Balance - October 31, 1995 (47,998) 11,255,754
Shares Issued in Connection with
an Acquisition -- 24,000
Shares Issued in Connection with
an Acquisition [Including Shares
Remaining in Escrow] -- 94,935
Shares Issued in Lieu of Payment
for Service -- 9,600
Shares issued in Lieu of an
Invoice Payment -- 17,199
Shares Issued in Connection with an
Acquisition Agreement [Including
Shares Remaining in Escrow] -- 39,081
Options Issued for Deferred
Compensation -- --
Amortization of Deferred
Compensation -- 22,483
Unrealized Loss on Securities Available
for Sale 47,998 47,998
Net Income for the Year -- 591,958
----------- ------------
Balance - October 31, 1996 -
Forward $ -- $ 12,103,008
Balance - October 31, 1996 -
Forwarded $ -- $ 12,103,008
Shares Issued for Deferred
Compensation -- --
Warrants Issued for Deferred
Compensation -- --
Shares Issued in Connection with an
Acquisition Agreement -- 127,861
Shares Released from Escrow -- 55,201
Amortization of Deferred
Compensation -- 38,658
Net Income for the Year -- 3,199,915
----------- ----------
Balance - October 31, 1997 $ -- $ 15,524,643
=========== ============
</TABLE>
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
Bio-Reference Laboratories, Inc. and Subsidiary Consolidated Statements of
Cash Flows
<TABLE>
<CAPTION>
Y e a r s e n d e d
---------------------
O c t o b e r 3 1,
-------------------
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
<S> <C> <C> <C>
Operating Activities:
Net Income $ 3,199,915 $ 591,958 $ 1,402,169
----------- ------------- -----------
Adjustments to Reconcile Net
Income to Net Cash [Used for]
Operating Activities:
Depreciation and Amortization 1,189,318 1,033,886 959,731
Amortization of Deferred
Compensation 38,658 22,483 47,635
Expenses of Abandoned
Acquisition -- 90,700 --
Shares Issued for Services -- -- 25,500
Provision for Doubtful
Accounts 5,291,507 4,285,807 4,030,030
Other -- 20,242 (9,285)
Gain from Sale of Marketable
Securities -- (9,336) --
Gain on Sale of Assets -- (1,546) --
Nonrecurring Gain on Sale of
Intangible Assets (2,025,689) -- --
Deferred Income Taxes (258,000) -- --
Changes in Assets and Liabilities
[Net of Effects from Acquisitions]:
[Increase] Decrease in:
Accounts Receivable (7,509,627) (7,672,430) (6,442,884)
Other Assets (105,866) (81,868) (63,230)
Inventory (59,493) 60,931 (141,940)
Other Current Assets 142,504 12,046 (271,111)
Increase [Decrease] in:
Accounts Payable and Accrued
Expenses (210,861) (126,411) (299,189)
Taxes Payable 136,030 (121,927) (6,986)
----------- ------------- ------------
Total Adjustments (3,371,519) (2,487,423) (2,171,729)
----------- ------------ ------------
Net Cash - Operating
Activities - Forward (171,604) (1,895,465) (769,560)
---------- ---------- ------------
Investing Activities:
Acquisition of Property and
Equipment (143,613) (451,576) (424,180)
Proceeds from Sale of Property
and Equipment -- 29,652 45,961
Purchase of Marketable
Securities -- -- (492,619)
Proceed from Sale of Marketable
Securities -- 501,955 --
Purchase of Certificate of Deposit
- Restricted (3,680,000) (180,000) (3,665,650)
Maturities of Certificate of Deposit
- Restricted 3,680,000 165,650 --
Cash Acquired During
Acquisition -- -- 42,338
Cash Overdraft of Acquired
Company -- (3,797) --
Reduction of Deposits 6,907 63,146 22,649
Repayment of Related Party
Receivable 20,800 15,800 10,400
Payment for Acquisition of
Intangible Assets (44,375) (1,564,363) (290,081)
Proceeds from Sale of
Intangible Assets 4,600,000 -- --
---------- ------------ -----------
Net Cash - Investing Activities -
Forward $4,439,719 $ (1,423,533) $(4,751,182)
</TABLE>
Bio-Reference Laboratories, Inc. and Subsidiary Consolidated
Statements of Cash
Flows
<TABLE>
<CAPTION>
Y e a r s e n d e d
O c t o b e r 3 1,
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
<S> <C> <C> <C>
Net Cash - Operating Activities
- Forwarded $ (171,604) $ (1,895,465) $ (769,560)
Net Cash - Investing Activities
- Forwarded $4,439,719 (1,423,533) (4,751,182)
---------- ------------- -----------
Financing Activities:
Proceeds from Long-Term Debt -- 1,180,000 394,756
Payments of Long-Term Debt (739,895) (2,083,476) (2,679,620)
Payments of Capital Lease
Obligations (216,448) (236,472) (297,642)
Payments of Subordinated Notes
Payable (234,390) (7,920) (51,039)
[Decrease] Increase in Revolving
Line of Credit (2,317,031) 3,687,448 5,391,296
Increase in Restricted Cash -- 1,544,646 2,055,354
Proceeds from Exercise of
Warrants -- -- 18,150
Expenses of Public Offering
of Stock -- -- (70,240)
Net Cash - Financing
Activities (3,507,764) 4,084,226 4,761,015
Net Increase [Decrease] in Cash and
Cash Equivalents 760,351 765,228 (759,727)
Cash and Cash Equivalents -
Beginning of Years 1,401,474 636,246 1,395,973
Cash and Cash Equivalents -
End of Years $ 2,161,825 $ 1,401,474 $ 636,246
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 1,118,540 $ 815,521 $ 531,381
Income Taxes $ 44,136 $ 86,331 $ 81,686
</TABLE>
Supplemental Schedule of Non-Cash Investing and Financing Activities:
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 assumed capital lease obligations of $31,793 for
four automobiles in connection with an acquisition.
In October 1995, the Company incurred a capital lease obligation of $54,117 in
connection with the acquisition of medical equipment.
In April 1996, management wrote-off an intangible asset with a carrying value of
$197,986 and related debt in the amount of $168,528 in connection with an
impaired contract.
In April 1996, management wrote-off an intangible asset with a carrying value of
$90,700 in connection with an abandoned acquisition.
In October 1996, the Company incurred a capital lease obligation of $69,812 in
connection with the acquisition of medical equipment.
In Fiscal 1996, the Company issued debt in the amount of $108,000 in connection
with the acquisition of a customer list related to a 1994 agreement.
From March to July 1997, the Company incurred four capital leases obligations
totaling $252,279 in connection with the acquisition of various medical
equipment.
In fiscal 1997, the Company issued debt in the amount of $108,000 in connection
with the acquisition of a customer list related to a 1994 agreement.
[See Notes 8, 17 and 22 for additional non-cash transactions]
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
Bio-Reference Laboratories, Inc. and Subsidiary
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 in
the clinical laboratory segment of its operations, principally servicing the
greater New York metropolitan area.
[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 17B]. 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 as follows:
<TABLE>
<CAPTION>
Y e a r s e n d e d
O c t o b e r 3 1,
1 9 9 7 1 9 9 6 1 9 9 5
<S> <C> <C> <C>
Gross Revenues $ 80,462,096 $ 66,768,717 $ 56,097,026
Contractual Adjustments and
Discounts:
Medicare/Medicaid Portion 23,090,659 18,620,485 15,560,866
Other 18,711,253 13,022,354 9,015,042
Total Contractual Adjustments
and Discounts 41,801,912 31,642,839 24,575,908
Net Revenues $38,660,184 $ 35,125,878 $ 31,521,118
</TABLE>
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 $8,564,436, $5,357,096 and $2,569,125 as of October 31, 1997,
1996 and 1995, 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.
Stock Options Issued to Employees - The Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," on
November 1, 1996 for financial note disclosure purposes and continues to apply
the intrinsic value method of Accounting Principles Board ["APB"] Opinion No.
25, "Accounting for Stock Issued to Employees," for financial reporting
purposes.
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.
Reclassification - Certain fiscal 1996 and 1995 items have been reclassified to
conform to the current years presentation.
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
mpairment 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. As of October 31,
1997, management expects these assets to be fully recoverable.
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 $419,462, $404,248 and $368,478 for the years ended October 31,
1997, 1996 and 1995, 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.
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 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, 1997, 1996 and 1995 of $203,490, $209,211 and $187,936,
respectively.
Intangible Assets - Intangible assets are amortized using the straight-line
method. The statements of operations reflect amortization expense related to
intangible assets of $566,366, $420,427 and $403,317 for the years ended October
31, 1997, 1996 and 1995, respectively.
A summary is as follows:
<TABLE>
<CAPTION>
Accumulated Net of
Amortization Amortization
October 31, October 31,
Intangible Assets Life in Years Cost 1 9 9 7 1 9 9 7
- -------------- ------------- ---- ------- -------
<S> <C> <C> <C> <C>
Customer Lists 20 $ 3,065,042 $ 518,731 $ 2,546,311
Covenants Not-to-
Compete 5-7.5 1,420,206 958,738 461,468
Employment Agreement 5 400,000 286,666 113,334
Costs Related to
Acquisitions 2-17 236,178 120,579 115,599
Patent 17 144,375 5,882 138,493
Other 17-20 8,562 1,374 7,188
----------- ---------- -----------
Totals $ 5,274,363 $1,891,970 $ 3,382,393
=========== ========== ===========
Customer Lists 20 $3,377,042 $ 410,111 $2,966,931
Covenants
Not-to-Compete 5-20 1,420,206 720,250 699,956
Employment
Agreement 5 400,000 206,666 193,334
Costs Related
to Acquisitions 2-17 302,741 106,356 196,385
Patent 17 100,000 -- 100,000
Other 17-20 8,562 882 7,680
---------- ----------- ----------
Totals $5,608,551 $ 1,444,265 $4,164,286
========== =========== ==========
</TABLE>
Advertising Costs -Advertising costs are expensed when incurred. Advertising
costs amounted to $467,000, $344,000 and $256,000 for the years ended October
31, 1997, 1996 and 1995, respectively.
Cash and Cash Equivalents - Cash equivalents are comprised of certain highly
liquid investments with a maturity of three months or less when purchased. The
Company had $1,307,278 and $717,484 in cash equivalents at October 31, 1997 and
1996, respectively.
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 Payables - Banks
[A] In March 1997, the Company amended its revolving loan agreement with PNC
Bank. The maximum amount of the credit line available to the Company is the
lesser of (i) $10,000,000 or (ii) 50% of the Company's qualified accounts
receivable [as defined in the agreement] plus 100% of the face amount of the
certificates of deposit pledged as collateral for this loan minus the amount of
any portion of the outstanding principal balance of the term loan which is
deemed to be collateralized by the certificate of deposit. Interest on advances
which are collateralized by certificates of deposit will be at 2% above the
certificate of deposit interest rate. Interest on other advances will be at
prime plus 1.25%. The credit line is collateralized by substantially all of the
Company's assets [including $3,680,000 in certificates of deposit with PNC] and
the assignment of a $4,000,000 life insurance policy on the president of the
Company. The line of credit is available through March 1999 and may be extended
for annual periods by mutual consents, thereafter. The terms of this agreement
contain, among other provisions, requirements for maintaining defined levels of
capital expenditures and net worth, various financial ratios and insurance
coverage. As of October 31, 1997 and 1996, the Company was in compliance
with the covenant provisions of this agreement. As of October 31, 1996, the
Company had utilized all of this credit facility. As of October 31, 1997,
the Company utilized $6,761,710 of this credit facility.
[B] 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, 1997 and 1996, $2,500,000 was
paid against the principal on this note. The Company has $852,000 in a savings
account with this bank restricted as collateral for the loan.
Prime rate at October 31, 1997 and 1996 was $8.5% and 8.25%, respectively.
The weighted average interest rate on short-term borrowings outstanding as of
October 31, 1997 and 1996 was 8.64% and 8.7%, respectively.
[4] Long-Term Debt
<TABLE>
<CAPTION>
October 31,
1 9 9 7 1 9 9 6
<S> <C> <C>
[A] Note Payable to PNC Bank. Due October
1999. Interest at prime plus 1.25%. $ 194,761 $ 294,760
[B] Notes Payable to PNC Bank. Due July
2000. Interest at prime plus 1.75%
and certificate of deposit rate
plus 2%. 610,255 1,106,251
[C] Note Payable to SmithKline Beecham
Clinical Laboratories, Inc. Due
January 1, 1999. Interest imputed
at 8.25%. 551,373 551,373
[D] Various note payables to prior CML
owners. Due November 1998. Interest
ranging from 6% to 10.75%. 95,175 175,238
[E] Sclavo, Inc. Payments dependent on
collections received from customer list.
Interest at 10%. 80,732 36,569
----------- ------------
Totals 1,532,296 2,164,191
Less: Current Maturities 864,266 730,374
----------- ------------
Long-Term Debt $ 668,030 $ 1,433,817
=========== ============
</TABLE>
[A] 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 +
1.25%, is due in monthly installments of $8,333 plus interest through October
1999. This note is in accordance with the provisions of the Company's revolving
loan agreement [See Note 3A] with the same lender.
[B] In July 1996, the Company entered into an agreement to borrow $1,180,000.
The original principal balance of $1,000,000 was not collateralized and has an
interest rate of prime + 1.75%. The remaining original principal balance of
$180,000 is collateralized by a certificate of deposit and bears interest at the
certificate of deposit rate + 2%. This note is in accordance with the
provisions of the Company's revolving loan agreement [See Note 3A] with the same
lender.
[C] In July 1996, the Company purchased certain assets and rights from
SmithKline Beecham Clinical Laboratories, Inc. for a total purchase price of
$1,800,000. At the closing, $1,200,000 was paid in cash and the $600,000
remaining balance is due in 24 consecutive monthly installments of $25,000
commencing January 1, 1997. Interest was imputed at the prime rate [See Note
14].
[D] In connection with the acquisition of Community Medical Laboratories
["CML"], the Company assumed the promissory notes of prior CML noteholders by
issuing Company's debentures in the principal amount of $200,174.
Maturities of long-term debt at October 31, 1997 in each of the next five years
are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 864,266
1999 446,773
2000 221,257
2001 --
2002 --
-----------
Total $ 1,532,296
- ----- ===========
[5] Convertible Subordinated Debt
In January 1995, the Company issued two 8% convertible subordinated
debentures for $206,956 and $31,732 in connection with the Company's
acquisition of GenCare. As of October 31, 1997 and 1996, $237,349 and
$2,959, respectively, has been 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. As of October 31, 1997 and 1996,
$214,118 and $234,918 in outstanding principal and interest were due from the
officer.
The Company pays premiums on life insurance policies for three key officers.
In the event that any of these officers leave the Company, they are required
to pay the Company back for premiums paid on their policies. 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,
1997 and 1996, $446,903 and $336,037 is included in other assets which
represents the amount of premiums paid to date. At October 31, 1997 and
1996, cash surrender values on these policies were in excess of amounts
receivable.
[7] Income Taxes
The reconciliation of income tax from continuing operations computed at the
U.S. federal statutory tax rate to the Company's effective income tax rate
is as follows:
</TABLE>
<TABLE>
<CAPTION>
October 31,
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
<S> <C> <C> <C>
U.S. Federal Statutory Rate 34.0% 34.0% 34.0%
State and Local Income Taxes,
Net of U.S. Federal Income
Tax Benefit 10.0% 8.0% 8.0%
Other (7.5)% 3.1% --%
Utilization of Net Operating
Loss Carryforwards (41.0)% (37.0)% (38.6)%
------- ------- -------
Actual Rate (4.5)% 8.1% 3.4%
====== ==== ====
</TABLE>
The provision for income taxes shown in the consolidated statements of
operations consist of the following:
<TABLE>
<CAPTION>
October 31,
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
<S> <C> <C> <C>
Current:
Federal $ 79,947 $14,228 $28,029
State and Local 39,313 37,634 21,196
Deferred:
Federal (204,000) -- --
State and Local (54,000) -- --
--------- -------- -------
Total Provision for
Income Taxes $(138,740) $51,862 $49,225
========= ======= =======
</TABLE>
At October 31, 1997, the Company had net operating loss carryforwards of
approximately $5,150,000 for federal income tax purposes, which expire in years
2006 through 2009. 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:
<TABLE>
<CAPTION>
Federal New Jersey New York
Expiration Date Amount Amount Amount
- --------------- ------ ---------- --------
<S> <C> <C> <C>
1999 $ -- $ 400,000 $ --
2000 -- 2,400,000 --
2006 1,050,000 -- --
2007 1,300,000 -- --
2008 2,400,000 -- --
2009 400,000 -- 1,400,000
2010 -- -- 1,100,000
2011 -- -- 1,800,000
------------- ------------- ------------
Total $ 5,150,000 $ 2,800,000 $ 4,300,000
----- =========== =========== ===========
</TABLE>
Investment tax credit carryforwards of approximately $32,161 are available to
reduce future income taxes. These credits expire from 1998 to 2002.
At October 31, 1997, the Company has a deferred tax asset of approximately
$2,200,000 and a valuation allowance of approximately $1,942,000 related to the
asset, a decrease of $1,658,000 since October 31, 1996. The deferred tax asset
primarily relates to net operating loss carryforwards.
At October 31, 1996, the Company has a deferred tax asset of approximately
$3,600,000 and a valuation allowance of approximately $3,600,000 related to the
asset, a decrease of $100,000 since October 31, 1995. The deferred tax asset
primarily relates to net operating loss carryforwards.
[8] Capital Transactions
The Company is authorized to issue an aggregate of 1,666,667 shares of preferred
stock, $.10 par value. In April 1993, the Board of Directors of the Company
authorized the change of 604,078 shares from the preferred stock to 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 is
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 May 13, 1997, pursuant to a recapitalization, the Senior
Preferred Stock was retired in exchange for a new class of Series A Senior
Preferred Stock. The new Series A Senior Preferred Stock is convertible into an
aggregate 604,078 shares of common stock on or before May 1, 2007 at a
conversion price of $.75 per share and has the same voting rights [one vote per
share], dividend rights and liquidation as each share of common stock.
Holders of the Company's common stock are entitled to one vote per share on
matters submitted for shareholder vote. Holders are also entitled to receive
dividends ratably, if declared. In the event of dissolution or liquidation,
holders are entitled to share ratably in all assets remaining after payment of
liabilities.
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 being 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. During 1996, 42,413 shares held in escrow were
released when collection requirements were met. During 1997, the remaining
90,920 shares held in escrow were released and an additional 54,096 shares were
issued due to a decrease in the market price of the common stock [See Note 22].
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 common stock
was issued upon exercise of a private placement warrant.
On November 7, 1995, the Company acquired Oncodec Labs, Inc. in a business
combination accounted for under the purchase method of accounting. All of the
issued and outstanding common stock of Oncodec Labs, Inc. was acquired for a
maximum of 40,000 shares of the Company's common stock. At the closing, the
stockholders of Oncodec Labs, Inc. received 10,000 shares and the additional
30,000 shares will be issued contingent upon receipts obtained through December
31, 1998.
On November 10, 1995, the Company acquired Community Medical Laboratories
["CML"] in a business combination accounted for under the purchase method of
accounting. 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 $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. During
1997 and 1996, an aggregate 21,944 and 23,611 shares respectively were released
from escrow when collection requirements were met.
In November 1995, the Company issued 4,000 shares of common stock in payment of
a finders fee.
In December 1995, the Company issued 4,745 shares of common stock in lieu of
payment of an invoice for $17,199.
In May 1997, the Company issued 815,000 shares of common stock and warrants to
purchase 58,534 shares of the Company's common stock at a price of $.71875 in
connection with employment and consulting agreements and a two year extension on
a loan agreement [See Note 10]. Included in the 815,000 shares issued were
740,000 shares to three officers of the Company. The shares are forfeitable in
part in various amounts if the employee's employment is terminated "for cause"
or at his option "without good reason" prior to May 1, 2000.
[9] Income Per Share
Income per share is based on the weighted average number of shares of common
stock outstanding of 6,166,156 and 6,010,964 during fiscal 1996 and 1995,
respectively. Equity equivalents are assumed exercised or converted if
dilutive. For fiscal 1997, the modified treasury stock method was utilized.
Net income and number of shares used under the modified treasury stock method
were $4,592,860 and 12,757,946 shares, respectively, for fiscal 1997.
[10] Stock Options and Warrants
[A] Employment Incentive Stock Options - 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. These
stock options are exercisable up to ten years from the date of grant. At
October 31, 1997 and 1996, there were 12,624 and 188,290 shares reserved for
future grants under the 1986 and 1989 plans. No stock appreciation rights have
been granted. In May 1997, the Company's board of directors approved the
cancellation of all of outstanding employee stock options for new options at an
exercise price of $.71875 which reflects current fair market value. Following
is a summary of transactions:
<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise
Under Price
Options Per Share
<S> <C> <C>
Outstanding at October 31, 1994 514,709
Granted During the Year 1,000
Expired During the Year (33,665)
Exercised During the Year --
-------
Outstanding and Eligible
for Exercise
at October 31, 1995 482,044 $ .72
Granted During the Year -- --
Expired During the Year -- --
Exercised During the Year -- --
------- ---------------
Outstanding and Eligible
for Exercise
at October 31, 1996 482,044 $ .72
Granted During the Year 210,000 .76
Expired During the Year (34,334) .72
Exercised During the Year -- --
-------------- ----------------
Outstanding and Eligible
------------------------
for Exercise
------------
at October 31, 1997 657,710 $ .73
------------------- ============= ==============
</TABLE>
<TABLE>
<CAPTION>
Outstanding and Exercisable Options
Weighted
Average
Number of Remaining Weighted Average
Shares Under Contractual Exercise Price
Exercise Price Range Option Life Per Share
<S> <C> <C> <C>
$.71875 to $.790625 Per Share 657,710 10 Years $ .73
</TABLE>
The weighted average grant date fair value of options granted during the
year ended October 31, 1997 was $.2486 per share.
The Company accounts for these stock-based compensation awards to employees
under the intrinsic value method in accordance with Accounting Principles
Board Opinion No. 25 "Accounting for Stock Issued to Employees."
Total compensation cost recognized against income for stock-based employee
compensation awards was $-0- for the years ended October 31, 1997, 1996 and
1995.
[B] Non Incentive Stock Options and Warrants - Non-incentive stock options
and warrants may be granted to employees or non-employees at fair market
value or at a price less than fair market value of the common stock at the
date of grant. Included in the outstanding warrants are publicly-owned
warrants to purchase 5,015,841 shares of common stock sold in the Company's
1993 public offering. The following is a summary of transactions as of
October 31, 1997 and 1996:
<TABLE>
<CAPTION>
Weighted
Shares Under Average
Options Exercise Price
and Warrants Per Share
------------ ---------
<S> <C> <C>
Outstanding - October 31, 1994 5,735,481
Granted During the Year 370,000 $ 4.7
Canceled During the Year (4,334)
Exercised During the Year (12,100)
---------- --------
Outstanding and eligible for Exercise
at October 31, 1995 6,089,047 $ 4.65
Granted During the Year 40,000 3.00
Expired During the Year (106,667) 1.79
Exercised During the Year -- --
--------- --------
Outstanding and Eligible for Exercise
at October 31, 1996 6,022,380 $ 4.63
Granted During the Year 381,300 .72
Expired During the Year (584,871) 1.45
Exercised During the Year -- --
--------- --------
Outstanding and Eligible for Exercise
at October 31, 1997 5,818,809 $ 4.71
========= ========
</TABLE>
During the year ended October 31, 1996, 40,000 shares under warrants were
granted to two non-employees. The fair value of each warrant granted was
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions: a weighted average risk-free interest rate of 6.8%, a
weighted average expected life of 1 year based on Company expectations and the
required minimum two year holding period, and a weighted average expected
volatility of 50.75%. Dividends are not expected to be available to
shareholders during the expected life of the warrants. The fair value of these
warrants of $27,200 [$.68 per share] has been accounted for as deferred
compensation for the year ended October 31, 1996 and is being expensed over the
term of the agreement, 5 years. Total compensation expense recognized against
income for this deferred compensation was $5,440 and $4,983, respectively for
the years ended October 31, 1997 and 1996.
During the year ended October 31, 1997, 35,200 shares under warrants were
granted to three non-employees and 23,334 shares under warrants were canceled
for new warrants at a price of $.71875 which represents fair market value at the
time of grant. The fair value of each warrant granted was estimated on the date
of grant using the Black-Scholes option-pricing model with the following
assumptions: a weighted average risk-free interest rate of 6%, a weighted
average expected life of 1 year based on Company expectations and the required
minimum two year holding period, and a weighted average expected volatility of
84.09%. Dividends are not expected to be available to shareholders during the
expected life of the warrants.
The fair value of these options issued in May of 1997 of $13,423 [$.2486 per
share] has been accounted for as deferred compensation for the year ended
October 31, 1997 and is being expensed over the term of the agreements. Total
compensation expense recognized against income for this deferred compensation
was $2,254 for the year ended October 31, 1997.
During the year ended October 31, 1997, 346,100 shares under options were
granted to employees. The Company accounts for these options under the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25 "Accounting for Stock Issued to Employees."
Total compensation cost recognized against income for employee nonincentive
stock option and warrants was $-0- for the years ended October 31, 1997, 1996
and 1995.
<TABLE>
<CAPTION>
Outstanding and Exercisable Options and Warrants
Weighted
Number of Average
Shares Under Remaining Weighted Average
Options and Contractual Exercise Price
Exercise Price Range Warrants Life Per Share
- -------------------- -------- ---- ---------
<S> <C> <C> <C>
Warrants -$4.50 Per Share 3,789,175 1 Year $4.50
Warrants - $6.75 Per Share 1,226,666 $6.75
Options - $.71875 Per Share 404,634 7 Years $ .72
Options - $1.50 to $3.00
Per Share 23,334 3 Years $ 2.79
Options - $4.125 to $5.125
Per Share 375,000 1 Year $ 4.70
---------
5,818,809
=========
</TABLE>
These warrants and options have weighted average remaining contractual lives of
approximately two years. The weighted average grant date fair value of options
granted during the years ended October 31, 1997 and 1996 was $.2486 and $.68 per
share, respectively.
[A] and [B] Pro Forma - Had compensation cost been determined on the basis of
fair value pursuant to SFAS No. 123, for the 657,710 shares under employee
incentive stock options and 346,100 shares under employee nonincentive stock
options and warrants for the years ended October 31, 1997 and 1996, net income
and earnings per share would have been as follows:
<TABLE>
<CAPTION>
1 9 9 7 1 9 9 6
------- -------
<S> <C> <C>
Net Income:
As Reported $ 3,199,915 $ 591,958
=========== ==========
Pro Forma $ 2,950,000 $ 591,958
=========== ==========
Earnings Per Share:
As Reported $ .36 $ .10
=========== ==========
Pro Forma $ .34 $ .10
=========== ==========
</TABLE>
The fair value used in the pro forma data was estimated by using an option
pricing model which took into account as of the grant date, the exercise price
and the expected life of the option, the current price of the underlying stock
and its expected volatility, expected dividends on the stock and the risk-free
interest rate for the expected term of the option. The following is the average
of the data used for the following items.
<TABLE>
<CAPTION>
Risk-Free Expected Expected Expected
Interest Rate Expected Life Volatility Dividends
- ------------- ------------- ---------- ---------
<S> <C> <C> <C>
6% 1 Year 84.09% None
</TABLE>
[11] Employment Contracts and Consulting Agreements
The Company has entered into various employment contracts and consulting
agreements for periods ranging from one to seven years. At October 31, 1997,
the aggregate minimum commitment under these contracts and agreements, excluding
commissions, was approximately as follows:
<TABLE>
<CAPTION>
<S> <C>
October 31,
1998 $1,091,250
1999 1,013,333
2000 943,333
2001 880,000
2002 and Thereafter 1,649,000
----------
Total $5,576,916
- ----- ==========
</TABLE>
Some 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, two employment agreements which provide for annual
aggregate minimum commitments of $186,700 have no termination dates.
[12] Capitalized Lease Obligations
The Company leases various assets under capital leases expiring in 2002
as follows:
<TABLE>
<CAPTION>
October 31,
1 9 9 7 1 9 9 6
------- -------
<S> <C> <C>
Medical Equipment $ 654,479 $ 650,690
Furniture and Fixtures 11,565 11,565
Leasehold Improvements -- 12,130
Totals 666,044 674,385
Less: Accumulated
Depreciation 262,979 274,704
Net $ 403,065 $ 399,681
</TABLE>
Depreciation expense on assets under capital leases was $83,853, $106,191 and
$170,601 for the years ended October 31, 1997, 1996 and 1995, respectively.
Aggregate future minimum rentals under capital leases are:
<TABLE>
<CAPTION>
<S> <C>
Years ended
October 31,
1998 $ 120,442
1999 109,331
2000 104,888
2001 62,750
2002 22,681
Thereafter --
----------
Total 420,092
Less: Interest 82,550
----------
Present Value of Minimum
- ---------------------------
Lease Payments $ 337,542
- -------------- =========
</TABLE>
[13] Commitments and Contingencies
The Company leases various office and laboratory facilities and equipment under
operating leases expiring from 1997 to 2002. 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,
1997, 1996 and 1995 was $1,796,839, $1,850,085 and $1,640,360, respectively.
There were no contingent rental amounts due through October 31, 1997.
Aggregate future minimum rental payments on noncancelable operating leases are
as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Property Equipment
October 31,
1998 $ 499,734 $ 515,236
1999 137,280 420,854
2000 -- 294,417
2001 -- 149,229
2002 -- 19,120
Thereafter -- --
Totals $ 637,014 $1,398,856
============ ==========
</TABLE>
[14] 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.
On December 30, 1996, the Company commenced a lawsuit against SmithKline Beecham
Clinical Laboratories ["SBCL"] alleging that SBCL materially and repeatedly
breached its obligations and its representations and warranties made in the
Asset Agreement and the Non-Competition Agreement pursuant to which the Company
purchased certain assets from SBCL and claims unspecified amounts of
compensatory and punitive damages and related costs. This lawsuit is in its
initial stages and no assurances can be given at this time that it will be
concluded in the Company's favor. As a result of its allegations against SBCL,
the Company has not made any payments with respect to the $600,000 note payable
[See Notes 4C and 17F].
[15] 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 $2,000,000 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.
[16] Concentrations of Credit Risk
At October 31, 1997, the Company had approximately $6,320,000 in cash and
certificates of deposit balances at financial institutions which were in excess
of the federally insured limits. Approximately $4,532,000 of this amount
represents collateral for demand loans with the same financial institutions
[Seerestricted cash and certificates of deposit on consolidated balance sheet].
At October 31, 1996, the Company had approximately $5,300,000 in cash and
certificate of deposit 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.
[See restricted cash and certificates of deposit on consolidated
balance sheet].
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.
[17] Acquisitions
[A] On 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.
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.
[B] 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 [See Notes 8 and 22].
[C] On November 7, 1995, the Company acquired Oncodec Labs, Inc. in a business
combination accounted for under the purchase method of accounting. All of the
issued and outstanding common stock of Oncodec Labs, Inc. was acquired for a
maximum of 40,000 shares of the Company's common stock. At the closing, the
stockholders of Oncodec Labs, Inc. received 10,000 shares and the additional
30,000 shares will be issued contingent upon receipts obtained through December
31, 1998. During 1996, Oncodec Labs, Inc. was dissolved and is now part of the
operations of the Company.
[D] On November 10, 1995, the Company acquired Community Medical Laboratories
["CML"] in a business combination accounted for under the purchase method of
accounting. 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. During 1996, CML was dissolved and is now part of the operations of
the Company [See Note 8].
[E] In May 1996, the Company acquired certain assets and rights of Advanced
Medical Laboratory, Inc. ["AML"] for a maximum amount of $612,000 of which
$180,000 was paid at closing. The remaining maximum balance of $432,000 is
payable over a three year period solely out of cash collected on customer list
revenues.
[F] On July 19, 1996, the Company completed the purchase from SmithKline Beecham
Clinical Laboratories, Inc. ["SBCL"] of certain assets and rights, including the
Customer List related to SBCL's operation of its Renal Dialysis Testing
Business. The purchase price was $1,800,000 of which $1,200,000 was paid at the
closing. The $600,000 balance is payable in 24 consecutive monthly installments
of $25,000 commencing January 1, 1997. At the closing, SBCL agreed for a three
year period commencing no more than 120 days after the closing, to cease
performing renal dialysis clinical laboratory testing services for renal
dialysis centers or other entities which provide diagnosis and/or treatment to
dialysis patients. Funding for the $1,200,000 down payment made by the Company
at the closing was provided pursuant to its term loan and credit line facilities
with PNC Bank [formerly Midlantic Bank, N.A.] [See Note 14].
[18] Fair Value of Financial Instruments
For certain financial instruments, including cash and cash equivalents, trade
receivables, trade payables, and short-term debt, it was estimated that the
carrying amount approximated fair value for the majority of these items because
of their short maturities. The fair value of the Company's long-term debt is
estimated based on the quoted market prices for similar issues or by discounting
expected cash flows at the rates currently offered to the Company for debt of
the same remaining maturities.
<TABLE>
<CAPTION>
O c t o b e r 3 1,
1 9 9 7 1 9 9 6
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Log-Term Debt $668,030 $666,755 $1,433,817 $1,430,140
Capitalized
Lease
Obligations $252,572 $248,942 $ 99,564 $ 96,016
</TABLE>
Due to the non-interest bearing nature and unspecified payment terms, it was not
practicable to estimate the fair value of amounts due from related parties [See
also Note 6].
[19] 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.
[20] 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 $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 t
tax-deferred contributions for the plan year, at a percentage determined each
year by the Company. For the year ended October 31, 1997, 1996 and 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.
[21] Certificates of Deposit-Restricted
At October 31, 1997 and 1996, the Company had $852,000 of restricted cash and
$3,680,000 of restricted certificates of deposit, which represents collateral
for two demand notes and a long-term debt agreement [See Notes 3 and 4].
[22] Non-recurring Gain on Sale of Intangible Assets
On September 30, 1997, the Company entered into an agreement to sell certain
customer lists, its "GenCare" tradename and rights under two GenCare contracts
to another laboratory for $4,600,000 in cash and $1,400,000 payable in four
equal installments every six months beginning April 1, 1998, provided however
that certain target revenues are reached. If target revenues are not reached
amounts payable under the contract will be decreased up to a maximum of
$700,000. The Company and certain of its officers entered into a noncompetion
agreement with the purchaser as part of this agreement. The Company recorded a
non-recurring gain of $2,025,689 related to this sale. The $700,000 in
contingent receivables were not included in the calculation of gain on this sale
as of October 31, 1997.
[23] New Authoritative Accounting Pronouncements
The Financial Accounting Standards Board ["FASB"] issued Statement of Financial
Accounting Standards No. 128, Earnings Per Share ["EPS"], and SFAS No. 129,
"Disclosure of Information about Capital Structure" in February 1997. SFAS No.
128 simplifies the earnings per share ["EPS"] calculations required by
Accounting Principles Board ["APB"] Opinion No. 15, and related interpretations,
by replacing the presentation of primary EPS with a presentation of basic EPS.
SFAS No. 128 requires dual presentation of basic and diluted EPS by entities
with complex capital structures. Basic EPS includes no dilution and is computed
by dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution of securities that could share in the earnings of an entity,
similar to the fully diluted EPS of APB Opinion No. 15. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted. When
adopted, SFAS No. 128 will require restatement of all prior-period EPS data
presented. Basic EPS will be based on average common shares outstanding and
diluted EPS will include the effects of potential common stock, such as, options
and warrants. The Company's basic EPS as calculated under SFAS No. 128 would
have been $.43 for the year ended October 31, 1997. The Company's diluted EPS
as calculated under SFAS No. 128 would have been $.39 for the year ended October
31, 1997.
SFAS No. 129 does not change any previous disclosure requirements, but rather
consolidates existing disclosure requirements for ease of retrieval.
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.
Independent Auditor's Report
To the Board of Directors and Stockholders of
Bio-Reference Laboratories, Inc.
Elmwood Park, New Jersey
Our report on our audit of the basic financial statements of Bio-Reference
Laboratories, Inc. and its subsidiary appears on page F-1. That audit was
conducted for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplemental schedule II is presented for
purposes of complying with the Securities and Exchange Commissions Rules and
Regulations under the Securities Exchange Act of 1934 and is not otherwise a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic
financial statements, and in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
January 9, 1998
Bio-Reference Laboratories, Inc. and SubsidiarySchedule II -
Valuation and Qualifying Accounts For the Years Ended October 31, 1997, 1996
and 1995.
<TABLE>
<CAPTION>
Balance at Charged to Deductions Balance
Beginning Cost and To Valuation at End
of Period Expenses Accounts of Period
<S> <C> <C> <C> <C>
Year Ended October 31, 1997
Allowance for Doubtful
Accounts and Contractual
Credit $5,357,096 $47,593,419$(44,386,079) $8,564,436
========== =========== ============ ==========
Year Ended October 31, 1996
Allowance for Doubtful
Accounts and Contractual
Credits $2,569,125 $35,928,646 $(33,140,675)$5,357,096
========== =========== ============ ==========
Year Ended October 31, 1995
Allowance for Doubtful
Accounts and Contractual
Credits $1,224,806 $28,605,938 $(27,261,619)$2,569,125
========== =========== ============ ==========
</TABLE>
Officers
Marc D. Grodman, M.D.
Chairman of the Board, President
& Chief Executive Officer
Howard Dubinett
Executive Vice President
& Chief Operating Officer
Sam Singer
Secretary, Vice President
& Chief Financial Officer
Directors
Marc D. Grodman, M.D.
Howard Dubinett
Sam Singer
Frank DeVito
President of Benefit Plan Services
of New Jersey, a medical
insurance consulting company
John Roglieri, M.D.
Corporate Medical Director of
NYLCare, a managed care
subsidiary of New York Life
Gary Lederman, Esq.
Member of the Institutional
Review Board of RTL, a pharmaceutical
drug testing laboratory
Medical Scientific
and Supporting Staff
Azmy Awad, Ph.D.
Senior Vice President
Nick Cetani, BLD, MT (ASCP) CLS
Laboratory Manager
Edward C. Clayton
Managing Director
GenPath Bio-Reference Laboratory
Karl Klinges, M.D.
Director, Cytology/Pathology
Bio-Reference Laboratory
William Knakal
Vice President, Sales and Marketing
Bader Maria Pedemonte-Coira, M.D.
Medical Director
GenPath Bio-Reference Laboratory
Benita Ponda, M.D., D.A.B.A.P. & C.P.
Medical Director, Chief Pathologist
Robert L. Rush, Ph.D.
Vice President Technical Operations
Charles T. Todd, Jr.
Vice President, Special Testing
Legal Counsel
Tolins & Lowenfels
A Professional Corporation
12 East 49th Street
New York, New York 10017
Auditors
Moore Stephens, P.C.
340 North Avenue
Cranford, New Jersey 07016
Common Stock
NASDAQ Symbol "BRLI"
A copy of the Company's annual report on Form 10-K for the year
ended October
31, 1997 may be obtained by addressing a written request to
Bio-Reference Laboratories, Inc.
Stockholder Relations
481 Edward H. Ross Drive
Elmwood Park, NJ 07407
Commitment to Service. . . and the Responsiveness that Comes with
Focus and
Dedication
