FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the quarterly period ended January 31, 1998
----------------
AND
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission File Number 0-15266
-------
BIO-REFERENCE LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2405059
- ------------------------------- ----------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
481 Edward H. Ross Drive, Elmwood Park, NJ 07407
- ------------------------------------------ ---------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (201) 791-2600
---------------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 7,169,376 shares of Common Stock
($.01 par value) at March 13, 1998.
BIO-REFERENCE, LABORATORIES, INC.
---------------------------------
FORM 10-Q
---------
JANUARY 31, 1998
----------------
I N D E X
---------
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of January 31, 1998 (unaudited)
and October 31, 1997 1
Statements of Operations for the
three months ended January 31, 1998 and January 31,
1997 (unaudited) 3
Statements of Cash Flows for the
three months ended January 31, 1998 and January 31,
1997 (unaudited) 4
Notes to financial statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION 9
Item 6. Exhibits and Reports on Form 8-K
Signatures 10
BIO-REFERENCE LABORATORIES, INC.
--------------------------------
BALANCE SHEETS
--------------
ASSETS
------
<TABLE>
<CAPTION>
January 31, October 31,
1998 1997
------------ -------------
(Unaudited)
----------
<S> <C> <C>
CURRENT ASSETS:
- --------------
Cash $2,187,800 $2,161,825
Cash- Restricted 852,000 852,000
Accounts Receivable (Net) 14,547,771 13,737,881
Inventory 460,156 453,870
Other Current Assets 1,541,480 1,258,428
Certificates of Deposit- Restricted 3,601,250 3,601,250
-------- --------
TOTAL CURRENT ASSETS $23,190,457 $22,065,254
-------------------- -------- --------
PROPERTY, PLANT AND EQUIPMENT $3,091,779 $2,973,022
-----------------------------
LESS: Accumulated Depreciation 1,795,106 1,685,298
---- -------- --------
TOTAL PROPERTY,
----------------
PLANT AND EQUIPMENT - NET $1,296,673 $1,287,724
------------------------- -------- --------
OTHER ASSETS:
- ------------
Certificate of Deposit - Restricted $ 78,750 $ 78,750
Due from Related Party 214,118 214,118
Deposits 190,634 213,347
Goodwill (Net of Accumulated
Amortization of $1,024,021and $994,015,
respectively) 1,376,564 1,406,570
Deferred Charges (Net of Accumulated
Amortization of $2,009,967 and $1,891,970,
respectively) 3,268,770 3,382,393
Other Assets 446,903 446,903
-------- --------
TOTAL OTHER ASSETS $5,575,739 $5,742,081
------------------ -------- --------
TOTAL ASSETS $30,062,869 $29,095,059
------------ ======== ========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial
Statements.
BIO-REFERENCE LABORATORIES, INC.
--------------------------------
BALANCE SHEETS
--------------
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------
<TABLE>
<CAPTION>
January 31, October 31,
----------- -----------
1998 1997
------------ -------------
(Unaudited)
-----------
<S> <C> <C>
CURRENT LIABILITIES:
- -------------------
Accounts Payable $2,194,885 $2,231,693
Salaries and Commissions Payable 705,026 1,065,339
Accrued Expenses 471,913 511,386
Current Portion of Long-Term Debt 1,684,050 864,266
Current Portion of Leases Payable 86,506 84,970
Subordinated Notes -- 1,339
Notes Payable 8,268,013 7,613,710
Taxes Payable 280,954 277,111
-------- --------
TOTAL CURRENT LIABILITIES $13,691,347 $12,649,814
------------------------- -------- --------
LONG-TERM LIABILITIES:
- ---------------------
Long-Term Portion of Long-Term Debt 561,759 688,030
Long-Term Portion of Leases Payable 229,601 252,572
-------- --------
TOTAL LONG-TERM LIABILITIES $791,360 $920,602
--------------------------- -------- --------
SHAREHOLDERS' EQUITY:
- --------------------
Preferred Stock $.10 Par Value;
Authorized 1,062,589 shares,
None Issued $ -- $ --
Senior Preferred Stock, $.10 Par Value;
Authorized 604,078 shares,
Issued and Outstanding 604,078 shares 60,408 60,408
Common Stock, $.01 Par Value;
Authorized 18,333,333 shares,
Issued and Outstanding 7,169,376shares
in January 31, 1998 and 7,169,376 shares in
October 31, 1997 71,694 71,694
Additional Paid-In Capital 22,967,160 22,967,160
Accumulated [Deficit] (7,193,575) (7,231,568)
------- -------
Totals $15,905,687 $15,867,694
Deferred Compensation (325,525) (343,051)
------- -------
TOTAL SHAREHOLDERS' EQUITY $15,580,162 $15,524,643
-------------------------- -------- --------
TOTAL LIABILITIES AND
---------------------
SHAREHOLDERS' EQUITY $30,062,869 $29,095,059
------------------- ======== ========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial
Statements.
BIO-REFERENCE LABORATORIES, INC.
--------------------------------
STATEMENTS OF OPERATIONS
------------------------
[UNAUDITED]
---------
<TABLE>
<CAPTION>
Three months ended
------------------
January 31,
----------
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
NET REVENUES: $8,936,424 $9,275,144
- ------------ -------- --------
COST OF SERVICES:
- ----------------
Depreciation $103,245 $ 90,843
Employee Related Expenses 2,003,239 2,188,041
Reagents and Lab Supplies 1,061,348 1,199,051
Other Cost of Services 1,331,278 1,326,566
-------- --------
TOTAL COST OF SERVICES $4,499,110 $4,804,501
---------------------- -------- --------
GROSS PROFIT ON REVENUES $4,437,314 $4,470,643
- ------------------------
General and Administrative Expenses:
- -----------------------------------
Depreciation and Amortization $154,567 $182,043
Other General and Admin. Expenses 2,866,135 2,908,439
Bad Debt Expense 1,241,210 1,137,149
-------- --------
TOTAL GENERAL AND ADMIN. EXPENSES $4,261,912 $4,227,631
--------------------------------- -------- --------
OPERATING INCOME $175,402 $243,012
----------------
OTHER (INCOME) EXPENSES:
- -----------------------
Interest Expense $205,316 $277,399
Interest Income (78,624) (68,765)
-------- --------
TOTAL OTHER EXPENSES - NET $126,692 $208,634
-------------------------- -------- --------
INCOME BEFORE TAX $ 48,710 $ 34,378
- -----------------
Provision for Income Taxes $ 10,717 $ 7,643
-------- --------
NET INCOME $ 37,993 $ 26,735
-----------
NET INCOME PER SHARE: $ .01 $ --
--------------------- ======= ========
NUMBER OF SHARES: 6,943,448 6,162,283
- ----------------
</TABLE>
The Accompanying Notes are an Integral Part of These Financial
Statements.
BIO-REFERENCE LABORATORIES, INC.
--------------------------------
STATEMENTS OF CASH FLOWS
------------------------
[UNAUDITED]
---------
<TABLE>
<CAPTION>
Three months ended
------------------
January 31,
-----------
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income (Loss) $ 37,993 $ 26,735
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Deferred Compensation 17,526 1,389
Depreciation and Amortization 257,812 272,886
Provision for Bad Debts 1,241,210 1,137,149
Change in Assets and Liabilities
(Increase) Decrease in:
Accounts Receivable (2,051,100) (1,910,588)
Other Assets 22,713 2,805
Prepaid Expenses and Other
Current Assets (289,338) (139,826)
Deferred Charges and Goodwill (4,375) --
Increase (Decrease) in:
Accounts Payable and Accrued
Liabilities (432,751) 200,748
----------- ---------
NET CASH - OPERATING ACTIVITIES $(1,200,310) $ (408,702)
-------------------------------
INVESTING ACTIVITIES:
- --------------------
Acquisition of Equipment and
Leasehold Improvements $(118,757) $ (16,372)
FINANCING ACTIVITIES:
- --------------------
Payments of Long-Term Debt $(138,487) $(130,841)
Payments of Capital
Lease Obligations (21,435) (50,757)
Payments of Subordinated
Notes Payable (1,339) (2,000)
Increase in Revolving
Line of Credit 1,506,303 421,259
---------- ---------
NET CASH - FINANCING ACTIVITIES $1,345,042 $ 237,661
------------------------------- ---------- ---------
NET INCREASE (DECREASE) IN CASH $ 25,975 $(187,413)
-------------------------------
CASH AT BEGINNING OF PERIODS 2,161,825 1,401,474
---------------------------- ---------- ---------
CASH AT END OF PERIODS $2,187,800 $1,214,061
---------------------- ========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
- -------------------------------------------------
Cash paid during the period for:
Interest $ 204,048 $ 311,925
Income Taxes $ 192,150 $ 7,643
</TABLE>
The Accompanying Notes are an Integral Part of These Financial
Statements.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
- ----------------------------------------------------------
ACTIVITIES:
- ----------
In March, 1997, the Company incurred capital lease obligations (2) of
$112,861 in connection with the acquisition of medical equipment.
In May, 1997, the Company issued 815,000 shares of common stock ($313,725 of
Deferred Compensation) and 35,200 non-employee stock options exercisable to
purchase 35,200 shares of the Company's common stock at prices varying from
$.71875 to $.790625per share for employment and consulting agreements
and director fees.
On September 30, 1997, the Company entered into an agreement to sell certain
customer lists, its"GenCare" trade name 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 non-competition 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.
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
BIO-REFERENCE LABORATORIES, INC.
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
[1] In the opinion of management, the accompanying unaudited
condensed financial statements reflect all adjustments
[consisting only of normal adjustments and recurring
accruals] which are necessary to a fair statement of the
results for the interim periods presented.
[2] The results of operations for the three month period
ended January 31, 1998 are not necessarily indicative of the
results to be expected for the entire year.
[3] The financial statements and notes thereto should be
read in conjunction with the financial statements and notes
for the year ended October 31, 1997 as filed with the
Securities and Exchange Commission in the Company's Annual
Report on Form 10-K.
[4] Revenues are recognized at the time the services are
performed. Revenues on the statement of operations is net
of the following amounts for allowances and discounts.
<TABLE>
<CAPTION>
Three Months Ended
January 31
1998 1997
---- ----
<C> <C>
$10,200,640 $ 9,053,223
</TABLE>
A number of proposals for legislation or regulation are
under discussion which could have the effect of
substantially reducing Medicare reimbursements to 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.
[5] An allowance for contractual credits and uncollectible
accounts is determined based upon a review of the
reimbursement policies and subsequent collections for the
different types of receivables. This allowance, which is
net against accounts receivable was $6,124,003 at January
31, 1997 and $9,116,310 at January 31, 1998.
[6] Inventory, consisting primarily of purchased clinical
supplies, is valued at the lower of cost (first-in, first-
out) or market.
[7] 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 8 years. Leasehold improvements are
amortized over the life of the lease, which is approximately
five years. 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.
[8] 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.
[9] Cash equivalents are comprised of certain highly liquid
investments with a maturity of three months or less when
purchased.
[10] The Company adopted SFAS 128, 'Earnings per share' in
these financial statements. Basic income per share is based
on the weighted average number of shares of common stock
outstanding during each period. Diluted income per share
includes the effects of assumed exercise of outstanding
options and warrants and the issuance of potential common
shares, if dilutive. At January 31, 1998 and January 31,
1997 the potential issuance of common shares upon exercise
of outstanding options and warrants was anti-dilutive. The effects
of deferred compensation is included by applying the treasury
stock method.
[11] 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.
[12] The Company, at times, 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.
[13] Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and
tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future based on enacted
tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. Income
tax expense is the tax payable or refundable for the period
plus or minus the change during the period in deferred tax
assets and liabilities.
[14] 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.
[15] At January 31, 1998, the Company had $4,532,000 of
restricted cash which represents collateral for three demand
notes issued pursuant to bank loans.
[16] At January 31, 1998, the Company had $6,357,949 in cash
in excess of the federally insured limits, however
$4,532,000 of this amount represents collateral for demand
loans with the same banks.
[17] In January, 1994, $3,352,000 was received for a demand
note payable to Gotham Bank of New York. Interest is due at
three percent above the bank's corporate savings account
rate. The Company deposited a similar sum in a savings
account with this bank as collateral for the loan. As of
July 31, 1996, $2,500,000 was paid against the principal on
this note. The Company has $852,000 in a savings account
with this bank restricted as collateral for the loan.
[18] 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
January 31, 1998, $8,268,013 was outstanding pursuant to
this facility.
[19] Management of the Company evaluates the period of
amortization for its intangible assets to determine whether
later events and circumstances warrant revised estimates of
useful lives. On a quarterly basis, management evaluates
whether the carrying value of these intangible assets has
become impaired. This evaluation is done by comparing the
carrying value of these intangible assets to the value of
projected discounted net cash flow from related operations.
Impairment is recognized if the carrying value of these
intangible assets is greater than the projected discounted
net cash flow from related operations. In the quarter ended
April 30, 1996, certain intangible assets were deemed to be
impaired. As a result, a charge of $29,458 was recorded for
the write-down of these assets.
[20] In May, 1996, the Company acquired certain assets and
rights of Advanced Medical Laboratory, Inc. ('AML') for a
maximum amount of $612,000, of which $180,000 was paid at
closing. The remaining maximum balance of $432,000 is
payable over a three-year period. AML had revenues of
approximately $900,000 in the twelve months preceding the
acquisition. This acquisition was not significant to the
Company.
[21] On July 19, 1996, BRLI completed the purchase from
SmithKline Beecham Clinical Laboratories, Inc. ('SBCL') of
certain assets, rights and associated goodwill including the
Customer List related to SBCL's operation of its Renal
Dialysis Testing Business. The purchase price was
$1,800,000 of which $1,200,000 was paid at the Closing. The
$600,000 balance was payable in 24 consecutive monthly
installments of $25,000 commencing January 1, 1997.
Interest was imputed at the prime rate. At January 31,
1997, the Outstanding debt balance was $551,373. 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 BRLI at the Closing
was provided pursuant to its term loan and credit line
facilities with Midlantic Bank, N.A. The Company estimates
that approximately $1,000,000 in annual revenues could be
generated by this acquisition. (See Note 22)
[22] 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 Sale/Purchase Agreement and the Non-Competition
Agreement between the parties and claimed 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 issued in
connection with the purchase.
In the normal course of its 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 affect on the Company's
financial position or results of operations.
[23] On September 30, 1997, the Company entered into an
agreement to sell certain customer lists, its "GenCare"
trade name 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 non-competition 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.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
-------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
RESULTS OF OPERATIONS
---------------------
NET REVENUES:
- ------------
Net revenues for the three month period ended January 31,
1998 were $8,936,424, as compared to $9,275,144 for the
three month period ended January 31, 1997; this represents a
4% decrease 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
three month period ended January 31, 1997, net revenues
related to GenCare was approximately $579,730 or 6% of the
Company's net revenue. Therefore, the Company had a 3%
increase in net revenues when GenCare revenues are factored
out of the three month period ended January 31, 1997.
The number of patients serviced during the period ended
January 31, 1998 was 131,708 which was flat when compared to
the prior fiscal year's three month period. However, GenCare
had a patient count of 6,050 for the three month period
ended January 31, 1997. Therefore, the Company had an actual
increase of 4% in the number of patients processed during
the three month period ended January 31, 1998.
COST OF SALES:
- -------------
Cost of Services decreased from $4,804,501 for the three
month period ended January 31, 1997 to $4,499,110 for the
three month period ended January 31, 1998. This represents
a 6% decrease and is attributable to the GenCare
divestiture.
GROSS PROFITS:
- -------------
Gross profits on net revenues decreased from $4,470,643 for
the period ended January 31, 1997 to $4,437,314 for the
three month period ended January 31, 1998; a decrease of
$33,329 or less than 1%.
GENERAL AND ADMINISTRATIVE EXPENSES:
- -----------------------------------
General and administrative expenses for the three month
period ending January 31, 1998 were $4,261,912 as compared
to $4,227,631 for the quarter ending January 31, 1997, an
increase of $34,381 or less than 1%.
INTEREST EXPENSE:
- ----------------
Interest expense decreased from $277,399 during the three
month period ending January 31, 1997 to $205,316 during the
three month period ending January 31, 1998 and is due to the
Company's decrease in asset based borrowing.
INCOME (LOSS):
- -------------
The Company had net income of $37,993 for the three months
ended January 31, 1998 as compared to $26,735 for the three
months ended January 31, 1997. Management believes the net
income of $37,993 for the period ended January 31, 1997 was
attributable to cost savings due to the GenCare divestiture
and a reduction in interest expense.
LIQUIDITY AND CAPITAL RESOURCES:
- -------------------------------
Working capital as of January 31, 1998 was $9,509,827 as
compared to $9,415,440 at October 31, 1997 an increase of
$94,387.
The Company increased its cash position by approximately $
26,000 during the current quarter. The Company utilized
$1,200,310 in cash for operating activities. To offset this
use of cash the Company borrowed $1,345,042 in short-term
debt and repaid approximately $161,261 in existing debt.
The capital spending requirements for the Company during
fiscal 1998 is expected not to exceed $575,000. To date,
approximately $118,800 has been spent on capital
improvements.
The Company had current liabilities of $13,680,630 at
January 31, 1997. The three largest items in this category
are notes payable of $8,268,013, accounts payable of
$2,194,885 and current portion of long-term debt of
$1,684,050.
Containment of health-care costs, including reimbursement
for clinical laboratory services, has been a focus of
ongoing governmental activity. Omnibus budget
reconciliation legislation, designed to "reconcile" existing
laws with reductions and reimbursement required by enactment
of a Congressional budget can adversely affect clinical
laboratories by reducing Medicare reimbursement for
laboratory services. In each of the omnibus budget
reconciliation laws enacted in 1987, 1989 and 1990, Medicare
reimbursement of clinical laboratories was reduced from
previously authorized levels. None of the reductions
enacted to date has had a material adverse effect on the
Company. For many of the tests performed for Medicare
beneficiaries or Medicaid recipients, laboratories are
required to bill Medicare or Medicaid directly, and to
accept Medicare or Medicaid reimbursement as payment in
full.
A number of proposals for legislation or regulation are
under discussion which could have the effect of
substantially reducing Medicare reimbursements to clinical
laboratories. Depending upon the nature of regulatory
action, if any, which is taken and the content of
legislation, if any, which is adopted, the Company could
experience a significant decrease in revenues from Medicare
and Medicaid, which could have material adverse effect on
the Company. The Company is unable to predict, however, the
extent to which such actions will be taken.
The Company intends to capitalize on the current trend of
consolidation in the clinical laboratory industry through
acquisitions of other laboratories in its geographical
region with significant customer lists. Purchase prices to
acquire other laboratories may involve cash, notes, Common
Stock, and/or combinations thereof. The Company has a
credit facility with PNC Bank, N.A. for $10,000,000. As of
January 31, 1998, $8,268,013 was outstanding pursuant to
this facility. In addition, the Company 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.
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.
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 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 $.40 for the year ended October 31, 1997.
PART II
Item 6
EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------
No reports on Form 8-K have been filed during the quarter
ended January 31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
BIO-REFERENCE LABORATORIES, INC.
(Registrant)
/S/ Marc D. Grodman, M.D.
- -------------------------
Marc D. Grodman, M.D.
President
/S/ Sam Singer
- --------------
Sam Singer
Chief Financial and Accounting Officer
Date: March 19, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from (a) the
Balance Sheet and Statement of Operations filed as part of the Quarterly Report
on Form 10-Q and is qualified in its entirety by reference to such (b) Report on
Form 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 3,039,800
<SECURITIES> 0
<RECEIVABLES> 14,547,771
<ALLOWANCES> 9,116,310
<INVENTORY> 460,156
<CURRENT-ASSETS> 23,190,457
<PP&E> 3,091,779
<DEPRECIATION> 1,795,106
<TOTAL-ASSETS> 30,062,869
<CURRENT-LIABILITIES> 13,691,347
<BONDS> 10,829,929
0
60,408
<COMMON> 71,694
<OTHER-SE> 22,967,160
<TOTAL-LIABILITY-AND-EQUITY> 30,062,869
<SALES> 8,936,424
<TOTAL-REVENUES> 8,936,424
<CGS> 4,499,110
<TOTAL-COSTS> 8,761,022
<OTHER-EXPENSES> 126,692
<LOSS-PROVISION> 1,241,210
<INTEREST-EXPENSE> 205,316
<INCOME-PRETAX> 48,710
<INCOME-TAX> 10,717
<INCOME-CONTINUING> 37,993
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,993
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
