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 April 30, 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 ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Securities and Exchange Act of 1934
after the distribution of securities under a plan confirmed by a court.
Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 7,207,910 ($.01 par value) at June 8,
1998.
BIO-REFERENCE, LABORATORIES, INC.
---------------------------------
FORM 10-Q
---------
APRIL, 30 1996
--------------
I N D E X
---------
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of April 30, 1998 (unaudited)
and October 31, 1997 1
Statements of Operations for the
three months and six months ended April 30, 1998
and April 30, 1997 (unaudited) 3
Statements of Cash Flows for the
six months ended April 30, 1998 and April 30,
1997 (unaudited) 4
Notes to financial statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
BIO-REFERENCE LABORATORIES, INC.
---------------------------------
BALANCE SHEETS
--------------
ASSETS
------
<TABLE>
<CAPTION>
April 30, October 31,
----------- -----------
1998 1997
------------ -----------
(Unaudited)
-----------
<S> <C> <C>
CURRENT ASSETS:
- --------------
Cash $3,124,409 $2,161,825
Cash- Restricted 852,000 852,000
Accounts Receivable (Net) 18,078,572 13,737,881
Inventory 656,490 453,870
Other Current Assets 1,132,880 1,258,428
Certificates of Deposit- Restricted 3,601,250 3,601,250
-------- --------
TOTAL CURRENT ASSETS $27,445,601 $ 22,065,254
-------------------- -------- --------
PROPERTY, PLANT AND EQUIPMENT $4,611,849 $2,973,022
-----------------------------
LESS: Accumulated Depreciation 1,955,834 1,685,298
---- -------- --------
TOTAL PROPERTY,
----------------
PLANT AND EQUIPMT $2,656,015 $1,287,724
------------------------- -------- --------
OTHER ASSETS:
- ------------
Certificate of Deposit - Restricted $ 78,750 $ 78,750
Due from Related Party 197,918 214,118
Deposits 285,802 213,347
Goodwill (Net of Accumulated
Amortization of $ 1,072,877and
$994,015, respectively) 5,851,753 1,406,570
Deferred Charges (Net of Accumulated
Amortization of $2,148,369 and
$1,891,970, respectively) 3,300,631 3,382,393
Other Assets 446,903 446,903
------- --------
TOTAL OTHER ASSETS $10 161 757 $5,742,081
------------------ -------- --------
TOTAL ASSETS $40,263,373 $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>
April 30, October 31,
--------- -----------
1998 1997
----------- --------
(Unaudited)
----------
<S> <C> <C>
CURRENT LIABILITIES:
- -------------------
Accounts Payable $ 4,719,617 $ 2,231,693
Salaries and Commissions Payable 1,367,743 1,065,339
Accrued Expenses 748,603 511,386
Current Portion of Long-Term Debt 2,514,495 864,266
Current Portion of Leases Payable 254,506 84,970
Subordinated Notes -- 1,339
Notes Payable 9,332,921 7,613,710
Taxes Payable 287,721 277,111
-------- --------
TOTAL CURRENT LIABILITIES $19,225,606 $ 12,649,814
------------------------- -------- --------
LONG-TERM LIABILITIES:
- ---------------------
Long-Term Portion of Long-Term Debt 5,162,291 688,030
Long-Term Portion of Leases Payable 416,143 252,572
Deferred Interest (290,000) --
--------- ----------
TOTAL LONG-TERM LIABILITIES $5,288,434 $ 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 7,207,910shares
in April 30, 1998 and 7,169,376 shares in
October 31, 1997 72,079 71,694
Additional Paid-In Capital 22,992,089 22,967,160
Accumulated [Deficit] (7,069,578) (7,231,568)
--------- ---------
Totals $ 16,054,998 $15,867,694
-------- --------
Deferred Compensation (305,665) (343,051)
-------- -------
TOTAL SHAREHOLDERS' EQUITY $15,749,333 $15,524,643
-------------------------- -------- --------
TOTAL LIABILITIES AND
---------------------
SHAREHOLDERS' EQUITY $40,263,373 $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
April 30,
--------
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
NET REVENUES: $10,808,505 $9,974,850
- ------------ -------- ---------
COST OF SERVICES:
- ----------------
Depreciation $ 141,243 $ 94,433
Employee Related Expenses 2,584,001 2,149,693
Reagents and Lab Supplies 1,230,795 1,195,824
Other Cost of Services 1,573,859 1,384,966
---------- -----------
TOTAL COST OF SERVICES $ 5,529,898 $ 4,824,916
---------------------- ---------- -----------
GROSS PROFIT ON REVENUES $5,278,607 $ 5,149,934
- ------------------------
General and Administrative Expenses:
- -----------------------------------
Depreciation and Amortization $ 206,742 $ 182,733
Other General and Admin. Expenses 3,271,863 2,744,895
Bad Debt Expense 1,497,952 1,510,133
---------- ----------
TOTAL GENERAL AND ADMIN. EXPENSES $4,976,557 $4,437,761
--------------------------------- ---------- ----------
OPERATING INCOME $ 302,050 $ 712,173
- ----------------
OTHER (INCOME) EXPENSES:
Interest Expense $ 258,280 $ 281,031
Interest Income (111,228) (64,762
------- ----------
TOTAL OTHER EXPENSES - NET $ 147,052 $ 216,269
-------------------------- -------- ----------
INCOME BEFORE TAX $ 154,998 $ 495,904
- -----------------
Provision for Income Taxes 31,000 (860)
--------- ----------
NET INCOME $ 123,998 $ 496,764
- ---------- ======== ==========
NET INCOME PER SHARE $ .02 $ .08
- -------------------- ======== =========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 6,943,448 6,300,280
- --------------------------------------------- ========= =========
Six months ended
April 30
--------
1 9 9 8 1 9 9 7
------- -------
NET REVENUES: $19,744,928 $19,249,995
- ------------ ---------- ----------
COST OF SERVICES:
- ----------------
Depreciation $ 244,488 $ 185,276
Employee Related Expenses 4,587,239 4,337,734
Reagents and Lab Supplies 2,292,144 2,394,876
Other Cost of Services 2,905,137 2,711,532
---------- ---------
TOTAL COST OF SERVICES $ 10,029,008 $ 9,629,418
---------------------- ---------- ---------
GROSS PROFIT ON REVENUES $9,715,920 $9,620,577
- ------------------------ --------- ---------
General and Administrative Expenses:
- -----------------------------------
Depreciation and Amortization $ 361,309 $ 364,776
Other General and Admin. Expense 6,137,998 5,653,334
Bad Debt Expense 2,739,162 2,647,282
---------- ----------
TOTAL GENERAL AND ADMIN. EXPENSES $9,238,469 $8,665,392
--------------------------------- --------- ---------
OPERATING INCOME $ 477,451 $ 955,185
----------------
OTHER (INCOME) EXPENSES:
- -----------------------
Interest Expense $ 463,597 $ 558,430
Interest Income 189,853 (133,527)
------- --------
TOTAL OTHER EXPENSES - NET $ 273,744 $ 424,903
-------------------------- ------- -------
INCOME BEFORE TAX $ 203,707 $ 530,282
- -----------------
Provision for Income Taxes 41,717 6,783
------ -----
NET INCOME $ 161,990 $ 523,499
- ---------- ======= =======
NET INCOME PER SHARE $ .02 $ .08
- -------------------- ==== ====
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 6,943,448 6,300,280
- --------------------------------------------- ========= ==========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
BIO-REFERENCE LABORATORIES, INC.
--------------------------------
STATEMENTS OF CASH FLOWS
------------------------
[UNAUDITED]
----------
<TABLE>
<CAPTION>
Six months ended
----------------
April 30,
--------
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
- --------------------
Net Income $ 161,990 $ 523,499
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Deferred Compensation 37,386 2,777
Depreciation and Amortization 605,797 550,052
Provision for Bad Debts 2,739,162 2,647,282
Change in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable (4,773,738) (4,001,044)
Other Assets 29,767 33,059
Prepaid Expenses and Other Current Assets 210,701 44,080
Deferred Charges and Goodwill -- --
Increase (Decrease) in:
Accounts Payable and Accrued Liabilities (229,255) 488,974
------------ -----------
NET CASH - OPERATING ACTIVITIES $(1,218,190) $ 288,679
-------------------------------
INVESTING ACTIVITIES:
- --------------------
Acquisition of Equipment and
Leasehold Improvements $ (173,494) $ (90,368)
Acquisition of Medilabs, Inc $(5,500,000) $ --
------------ ----------
NET CASH - INVESTING ACTIVITIES $(5,673,494) $ (90,368)
-------------------------------
FINANCING ACTIVITIES:
- --------------------
Proceeds from Exercise of Options $ 25,314 $ --
Payments of Long-Term Debt (281,961) (473,297)
Long-Term Acquisition Debt 5,500,000 --
Payments of Capital Lease Obligati (45,369) (101,465)
Payments of Subordinated Notes Payable (1,339) (75,000)
Increase in Revolving Line of Credit 2,571,211 449,180
----------- -----------
NET CASH - FINANCING ACTIVITIES $ 7,767,856 $ (200,582)
------------------------------- ----------- -----------
NET INCREASE (DECREASE) IN CASH $ 876,172 $ (2,271)
------------------------------- ----------- ------------
CASH AT BEGINNING OF PERIODS 2,161,825 1,401,474
---------------------------- ----------- -----------
CASH AT END OF PERIODS $ 3,037,997 $ 1,399,203
---------------------- =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
- -------------------------------------------------
Cash paid during the period for:
Interest $ 434,116 $ 577,269
Income Taxes $ 192,150 $ 6,783
</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 (two) 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 $.790625 per 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.
On April 9, 1998, the Company acquired the assets and certain liabilities of
Medilabs, Inc. ("MLI") from LTC Service and Holdings, Inc. ("Holdings") and a
wholly-owned subsidiary of Long-Term Care Services, Inc. ("LTC"). The
acquisition will be effective April 9, 1998 for accounting purposes. The
operations of Medilabs are included in the Company's results of operations
commencing April 9, 1998. In connection with the acquisition of MLI, certain
key employees signed employment agreements with the Company for an unspecified
period which included a six month non-competition clause. In addition, LTC,
Holdings, two affiliated corporations and an employee of LTC signed non-
competition agreements.
The purchase price was $5,500,000 consisting of cash payments of $4,000,000
delivered by BRLI at the closing (including $50,000 of payments for non-
competition agreements with LTC, Holdings, two affiliated corporations and an
employee of LTC and $200,000 of payments for access and use through April 8,
1999 of a laboratory hardware and software system of significant importance
to the MLI business) and delivery by BRLI of its $1,500,000 promissory note
payable without interestin three semi-annual installments commencing one year
after the closing. In addition, BRLI paid an MLI obligation of $122,366 at
the closing to an MLI affiliated entity for MLI's use through the closing
date of a piece of analytical equipment which will continue to be used by
MLI after the closing. The Stock Purchase Agreement also provides for a
maximum of $1,500,000 in additional payments to be made by BRLI if certain
revenues are realized by MLI after closing. Goodwill of $4,524,045 will be
amortized over 20 years under the straight line method.
<TABLE>
<CAPTION>
Assets and Liabilities Assumed
------------------------------
<S> <C>
Cash in Banks $ 86,400
Accounts Receivable (Net) 4,306,100
Other Assets 393,800
Fixed Assets 1,465,300
---------
Accounts Payable (2,632,100)
Accrued Expenses (629,700)
Debt (452,927)
----------
Net Assets $ 2,536,873
============
</TABLE>
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 six month period ended April 30, 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 Six Months Ended
April 30 April 30
1998 1997 1998 1997
---- ---- ----- ----
<C> <C> <C> <C>
$12,406,505 $ 9,053,223 $22,607,404 $19,583,877
</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 $7,518,205 at April 30, 1997 and $14,212,816
at April 30, 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 April
30, 1998 and April 30,1997 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 had 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 April 30, 1998, the Company had $4,532,000 of restricted cash which
represents collateral for three demand notes issued pursuant to bank loans.
[16] At April 30, 1998, the Company had $7,024,481 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 April 1998, 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) $14,000,000 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 April 30, 1998, $9,332,921 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.
[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 estimated 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.
[24] On April 9, 1998, the Company acquired the assets and certain liabilities
of Medilabs, Inc. ("MLI") from LTC Service and Holdings, Inc. ("Holdings") and a
wholly-owned subsidiary of Long-Term Care Services, Inc. ("LTC"). The
acquisition will be effective April 9, 1998 for accounting purposes. The
operations of Medilabs will be included in the Company's results of operations
commencing April 9, 1998. In connection with the acquisition of MLI certain key
employees signed employment agreements with the Company for an unspecified
period which included a six month non-competition clause. In addition, LTC,
Holdings, two affiliated corporations and an employee of LTC signed non-
competition agreements.
The purchase price was $5,500,000 consisting of cash payments of $4,000,000
delivered by BRLI at the closing (including $50,000 of payments for non-
competition agreements with LTC, Holdings, two affiliated corporations and an
employee of LTC and $200,000 of payments for access and use through April 8,
1999 of a laboratory hardware and software system of significant importance
to the MLI business) and delivery by BRLI of its $1,500,000 promissory note
payable without interest in three semi-annual installments commencing one
year after the closing. In addition, BRLI paid an MLI obligation of $122,366
at the closing to an MLI affiliated entity for MLI's use through the closing
date of a piece of analytical equipment which will continue to be used by MLI
after the closing. The Stock Purchase Agreement also provides for a maximum
of $1,500,000 in additional payments to be made by BRLI if certain revenues
are realized by MLI after closing.
The unaudited pro-forma results of operations of the Company for the six
months ended April 30, 1998 and 1997 assumes the acquisition had occurred at
the beginning of the periods.
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
April 30, 1998 April 30, 1997
---------------- -----------------
<S> <C> <C>
Net Revenue $27,171,900 $26,676,900
Net Income $ 383,400 $ 744,900
Net Income Per Common Share $.06 $.12
</TABLE>
The pro-forma results reflect amortization of goodwill and other intangible
assets. The unaudited pro-forma infomration is not necessarirly indicative
of the actual results of operation had the transaction occurred at the
beginning of the periods indicated, nor should it be used to project the
Company's results of operations for any future dates or periods.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
RESULTS OF OPERATIONS
---------------------
COMPARISON OF SECOND QUARTER 1998 VS SECOND QUARTER 1997
--------------------------------------------------------
NET REVENUES:
- ------------
Net revenues for the three month period ended April 30, 1998 were $10,808,505 as
compared to $9,974,850 for the three month period ended April 30, 1997; this
represents an 8% 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 three month period ended April 30, 1997, net
revenues related to GenCare was approximately 7% of the Company's
net revenue. On April 9, 1998, the Company acquired Medilabs, Inc. ("MLI")
(See Note 24). During the period from its acquisitionon April 9, 1998 through
the period ended April 30, 1998, MLI had net revenes of approximately 9% of
the Company's net revenues for the quarter. Therefore, the Company's core
business increased 5% when both Gencare and MLI revenues are adjusted out of
both three month periods.
The number of patients serviced during the three month period ended April 30,
1998 was 212,079 which was 15% greater when compared to the prior fiscal year's
three month period. However, GenCare accounted for 4% of the patient count
for the three month period ended April 30, 1997 and MLI accounted for 12% of
the patient count for the period from its acquisition on April 9,
1998 through the period ended April 30, 1998. Therefore, the Company had an
actual increase of 6% in the number of patients processed during the three month
period ended April 30, 1998. Net revenue per patient, when caculated without
the effect of GenCare in 1997 and MLI in 1998, decreased in the period from
$52 in 1998 from $53 in the prior comparable quarter. Pro-Forma revenues for
the current quarter, if the MLI acquisition had occured prior to the start of
the period, would have been approximately $14 million.
COST OF SALES:
- -------------
Cost of Services increased from $4,824,916 for the three month period ended
April 30, 1997 to $5,529,898 for the three month period ended April 30, 1998, an
increase of $704,982 (15%) When the Company's direct costs are adjusted for the
effects of both GenCare and MLI, the increase in expenses for the Company's
core business was approximately $237,000 (5%).
GROSS PROFITS:
- -------------
Gross profits on net revenues increased from $5,149,934 for the period ended
April 30, 1997 to $ 5,278,607 the three month period ended April 30, 1998; an
increase of $128,673 or less than 3%. When the Company's gross profits are
adjusted to remove the effects of both GenCare and MLI, the increase
attributable to its core busines is approximately $318,000 (7%).
GENERAL AND ADMINISTRATIVE EXPENSES:
- -----------------------------------
General and administrative expenses for the three month period ended April 30,
1998 were $4,976,557 as compared to $4,437,761 for the quarter ended April 30,
1997, an increase of $538,796 or 12%. Most of the increase was due to the
incurring of additional costs based upon the anticipated larger volume
related to the MLI acquisition, increased marketing costs related to
replacing the volume lost with the GenCare divestiture and a one time expense
of $75,000 for the settlement of a lawsuit.
INTEREST EXPENSE:
- ----------------
Interest expense decreased from $281,031 during the three month period ended
April 30, 1997 to $258,280 during the three month period ended April 30, 1998
and is due to the Company's decrease in asset based borrowing. However, this
trend is not expected to continue due to the MLI acquisition.
INCOME (LOSS):
- -------------
The Company had net income of $123,998 for the three months ended April 30, 1998
as compared to $496,764 for the three months ended April 30, 1998, a decrease of
372,766. Management believes that the decrease in net income was due to the
incurring of additional costs based upon the anticipated larger volume
related to the MLI acquisition, increased marketing costs related to
replacing the volume lost with the GenCare divestiture, a one time expense of
$75,000 for the settlement of a lawsuit and a decrease in net revenue
per patient when compared to the corresponding period in the prior fiscal year.
SIX MONTHS 1998 COMPARED TO SIX MONTHS 1997
-------------------------------------------
NET REVENUES:
- ------------
Net Revenues for the six month period ended April 30, 1997 were $19,249,995 as
compared to $19,744,928 for the current six month period ended April 30, 1998;
this represents a 3% increase in net revenues. During the six month period
ended April 30, 1997, revenues related to GenCare totaled approximately
6% of the Company's net revenue. Therefore, the Company had a 10% increase in
net revenues when these revenues are factored out of the six month period
ended April 30, 1997. However, MLI's revenues from its acquisition on April 9,
1998 through April 30, 1998 totalled approximately 5% of the Company's net
revenues for the six months ended April 30, 1998. Therefore, the Company's core
business increased 4% when both GenCare and MLI revenues are adjusted out of
both six month periods.
The number of patients serviced during the six month period ended April 30,
1998 was 383,935 which was 8% greater when compared to the prior fiscal year's
six month period. However, GenCare accounted for 4% of the patient count
for the six month period ended April 30, 1997 and MLI accounted for 7% of the
patient count for the period from its acquisition on April 9, 1998 through
the period ended Arpil 30, 1998. Therefore, the Company had an actual
increase of 5% in the number of patients processed during the six month period
ended April 30, 1998. Net revenue per patient, when calculated without the
effect of GenCare in 1997 and MLI in 1998, decreased during the period ended
April 30, 1998 to $52 from $54 in the prior comparable period.
Pro-Forma revenues for the six month period ended April 30, 1998, if the MLI
acquisition had occured prior to the start of the period, would have been
approximately $27 million.
COST OF SALES:
- -------------
Cost of Services increased from $9,629,418 for the six month period ended April
30, 1997 to $10,029,008 for the six month period ended April 30, 1998. This
represents a 4% increase in direct operating costs and is in line with the 4%
increase in core business net revenue. When the effects of both GenCare and
MLI are factored out, the increase in the cost of sales attributable to the
Company's core business decreased to 2%.
Gross profits on net revenues increased from $9,620,577 for the six month period
ended April 30, 1997 to $9,715,920 for the six month period ended April 30,
1998; an increase of $ 95,343 (1%). When both GenCare and MLI are factored out
of both net revenue and cost of sales, the core business gross profits increased
to approximately $573,000 (6%).
GENERAL AND ADMINISTRATIVE EXPENSES:
- -----------------------------------
General and administrative expenses for the six month period ending April 30,
1998 were $9,238,469 as compared to $8,665,392 for the six months ending April
30, 1997, an increase of $573,077 or 7%. Most of this increase was due to the
incurring of additional costs based upon the anticipated larger volume
related to the MLI acuisition, increased marketing costs related to replacing
the volume lost with the GenCare divestiture and a one time expense of $75,000
for the settlement of a lawsuit.
INTEREST EXPENSE:
- ----------------
Interest expense decreased from $558,430 during the six month period ending
April 30, 1997 as compared to $463,597 during the six month period ending April
30, 1998 and is the result of the Company's decrease in asset based borrowing.
However, this trend is not expected to continue due to the MLI acquisition.
INCOME:
- ------
The Company had net income of $161,990 for the six months ended April 30, 1998
as compared to $523,499 for the six months ended April 30, 1998. Management
believes that the decrease in net income was due to the incurring of
additional costs based upon the anticipated larger volume related to the MLI
acquisition, increased marketing costs related to replacing the volume lost
with the GenCare divestiture, a one time expense of $75,000 for the
settlement of a lawsuit and a decrease in net revenue per patient when
compared to the corresponding period in the prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES:
- -------------------------------
Working capital as of April 30, 1998 was $8,219,995 as compared to $9,415,440 at
October 31, 1997 a decrease of $1,195,445.
The Company increased its cash position by approximately $876,000 during the
quarter ended April 30, 1998.The Company utilized $1,218,190 in cash for
operating activities. The Company borrowed $2,571,876 in short-term debt, repaid
$328,669 in existing debt and borrowed $5,500,000 to acquire Medilabs, Inc.
The capital spending requirements for the Company during fiscal 1998 is expected
not to exceed $1,075,000. To date, approximately $173,494 has been spent on
capital improvements.
The Company had current liabilities of $19,225,606 at April 30, 1998. The three
largest items in this category are notes payable of $9,332,921, accounts payable
of $4,719,617 and current portion of long-term debt of $2,514,495.
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
$14,000,000. As of April 30, 1998, $9,332,921 of this facility has been
utilized. 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
$80,000.00 in costs. The general accounting systems (which are supplied by an
outside vendor) will cost the Company less than $10,000 to convert and are
scheduled for conversion during the month of July 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. During May 1998, the
General Accounting Office ("G.A.O.") warned the House Ways and Means Oversight
Panel, "If progress is not made faster to assure correct and prompt claims
processing and payment when the year 2000 dawns, the potential impact on the
revenue and cash flow of pathologists, radiologists, laboratories, and other
providers could be catastrophic, including improper denials and payments that
are late or incorrect. HCFA has yet to determine the total number of providers
likely to be affected." HCFA has begun developing business continuity and
contingency plans and expects to release drafts soon. Still, GAO warns, the
agency doesn't appear to have documented the severity of Y2K failures on its
core business. Among options reportedly being considered in this regard is to
give advance payments to providers in late 1999.
Impact of Inflation
- -------------------
To date, inflation has not had a material effect on the Company's operations.
PART II - OTHER INFORMATION
Item 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ---------------------------------------------------
(a) The Company's Annual meeting of Stockholders was held on April
23, 1998.
(b) At the meeting, the following two individuals were elected by
the following vote to serve as Class I directors, each for a term of three
years and until his successor is duly elected and qualified.
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
Marc D. Grodman 6,158,150 24,226
Howard Dubinett 6,158,150 24,226
</TABLE>
(c) The other directors of the Company whose term continued
are as follows:
Sam Singer Class II director
Frank DeVito Class II director
John Roglieri Class III director
Gary Lederman Class III director
Item 6
EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------
The Company filed two current reports on Form 8-K during the quarter
ended April 30, 1998 as follows:
Date of Report Item
- -------------- ----
March 31, 1998 (5) Other Events - Describing the declaration by the Board
of Directors on March 31, 1998 of a dividend distribution
of one right for each outstanding share of Common Stock and
for each outstanding share of Series A Senior Preferred Stock
of the Company. Each right entitles the registered holder
to purchase from the Company, one one-ten-thousandth of a
Junior Preferred Share at a purchase price of $4.00.
Because the nature of each Junion Preferred Share's divided,
liquidationand voting rights, the value of the
one-ten-thousandth interest in a Junior Preferred Share
purchasable upon exercise of each right is intended to
approximate the value of one share of Common Stock.
April 9, 1998 (2) Acquisition or Disposition of Assets - Describing the
purchase by the Company of the outstanding stock of
Medilabs, Inc. ("MLI") for $5,500,000 with a possible
maximum of $1,500,000 in additional payments. (On June 5,
1998, the Company filed an amendment to this 8-K report
on Form 8-K/A containing pro forma condensed combined
financial statements reflecting the purchase of MLI.)
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
- -------------------
Marc D. Grodman, M.D.
President
/S/ Sam Singer
- --------------
Sam Singer
Chief Financial and Accounting Officer
Date: June 18, 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> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<CASH> 3,976,409
<SECURITIES> 0
<RECEIVABLES> 18,078,572
<ALLOWANCES> 14,212,816
<INVENTORY> 656,490
<CURRENT-ASSETS> 27,445,601
<PP&E> 4,611,849
<DEPRECIATION> 1,955,834
<TOTAL-ASSETS> 40,263,373
<CURRENT-LIABILITIES> 19,225,606
<BONDS> 17,390,356
0
0
<COMMON> 72,079
<OTHER-SE> 22,992,089
<TOTAL-LIABILITY-AND-EQUITY> 40,263,373
<SALES> 19,744,928
<TOTAL-REVENUES> 19,744,928
<CGS> 10,029,008
<TOTAL-COSTS> 19,267,477
<OTHER-EXPENSES> 273,744
<LOSS-PROVISION> 2,739,162
<INTEREST-EXPENSE> 463,597
<INCOME-PRETAX> 203,707
<INCOME-TAX> 41,717
<INCOME-CONTINUING> 161,990
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 161,990
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
