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 July 31, 1999
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: 7,212,910 shares of common stock
($.01 par value) at September 13, 1999.
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BIO-REFERENCE, LABORATORIES, INC.
FORM 10-Q
JULY 31, 1998
I N D E X
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of July 31, 1999 (unaudited) 1
and October 31, 1998
Statements of Operations for the
three months and nine months ended July 31, 1999
and July 31, 1998 (unaudited) 3
Statements of Cash Flows for the
nine months ended July 31, 1999 and July 31,
1998 (unaudited) 4
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 14
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BIO-REFERENCE LABORATORIES, INC.
BALANCE SHEETS
ASSETS
July 31 October 31,
1999 1998
---- ----
CURRENT ASSETS: (Unaudited)
Cash $ 2,156,527 $ 2,784,147
Cash- Restricted -- --
Accounts Receivable (Net) 18,845,744 20,749,696
Inventory 599,757 587,101
Other Current Assets 1,244,708 1,444,867
Certificates of Deposit- Restricted 146,250 3,646,250
------------ -----------
TOTAL CURRENT ASSETS $ 22,992,986 $29,212,061
-------------------- ---------- -----------
PROPERTY, PLANT AND EQUIPMENT $ 4,974,712 $ 4,243,464
-----------------------------
LESS: Accumulated Depreciation 2,800,105 2,022,928
---- --------- ---------
TOTAL PROPERTY,
PLANT AND EQUIPMENT - NET $ 2,174,607 $ 2,220,536
------------------------- --------- ---------
OTHER ASSETS:
Certificate of Deposit - Restricted $ 33,750 $ 33,750
Due from Related Party 154,718 187,118
Deposits 252,349 303,354
Goodwill (Net of Accumulated Amortization
of $ 1,514,409 and $1,159,433, respectively) 5,480,221 5,746,601
Deferred Charges (Net of Accumulated Amortization
of $2,208,794 and $2,294,499, respectively) 1,872,789 2,507,149
Other Assets 690,300 567,769
------- -------
TOTAL OTHER ASSETS $ 8,484,127 $ 567,769
------------------ --------- -------
TOTAL ASSETS $ 33,651,720 $ 9,345,741
------------ ========== =========
The Accompanying Notes are an Integral Part of These Financial Statements.
1
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BIO-REFERENCE LABORATORIES, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
July 31 October 31,
1999 1998
(Unaudited)
CURRENT LIABILITIES:
Accounts Payable $ 5,169,536 $ 4,379,961
Salaries and Commissions Payable 1,270,659 1,367,785
Accrued Expenses 548,852 625,814
Current Portion of Long-Term Debt 1,907,947 2,071,058
Current Portion of Leases Payable 254,696 229,232
Notes Payable 9,058,685 12,000,000
Taxes Payable 460,405 173,962
------- -------
TOTAL CURRENT LIABILITIES $ 18,670,780 $20,847,812
------------------------- ---------- ----------
LONG-TERM LIABILITIES:
Long-Term Portion of Long-Term Debt (Net
of Discount) $ 2,092,670 $ 3,306,617
Long-Term Portion of Leases Payable 627,502 400,975
------- -----------
TOTAL LONG-TERM LIABILITIES $ 2,720,172 $ 3,707,592
--------------------------- --------- ---------
SHAREHOLDERS' EQUITY:
Preferred Stock $.10 Par Value;
Authorized 1,062,589 shares,
None Issued $ -- $ --
Series A-Senior Preferred Stock, $.10 Par Value;
Authorized 604,078 shares,
Issued and Outstanding 604,078 shares 60,408 60,408
Series A-Junior Participating Preferred Stock,
par value $.10 per share, authorized 3,000
shares, none issued -- --
Common Stock, $.01 Par Value;
Authorized 18,333,333 shares, Issued and
Outstanding 7,222,910 shares in
April 30, 1999 and 7,212,910 shares in
October 31, 1998 72,229 72,129
Additional Paid-In Capital 23,007,915 22,998,015
Accumulated [Deficit] (10,658,583) (6,634,985)
----------- -----------
Totals $ 12,481,969 $16,495,567
Deferred Compensation (221,201) (272,633)
------------ -----------
TOTAL SHAREHOLDERS' EQUITY $ 12,260,768 $16,222,934
-------------------------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 33,651,720 $40,778,338
-------------------- ========== ==========
The Accompanying Notes are an Integral Part of These Financial Statements.
2
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BIO-REFERENCE LABORATORIES, INC.
STATEMENTS OF OPERATIONS
[UNAUDITED]
<TABLE>
Three months ended Nine months ended
July 31, July 31,
-------- --------
1 9 9 9 1 9 9 8 1 9 9 9 1 9 9 8
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET REVENUES: $13,577,696 $13,638,812 $39,637,682 $33,383,740
- ------------ ---------- ----------- ----------- -----------
COST OF SERVICES:
Depreciation $ 204,961 $ 226,634 $ 642,286 $ 471,122
Employee Related Expenses 3,520,582 3,646,239 10,605,806 8,233,478
Reagents and Lab Supplies 1,752,924 1,670,113 5,073,086 3,962,257
Other Cost of Services 2,286,467 2,144,714 6,596,256 5,049,851
--------- ----------- ----------- -----------
TOTAL COST OF SERVICES $ 7,764,934 $ 7,687,700 $22,917,434 $17,716,708
---------------------- ---------- ----------- ----------- -----------
GROSS PROFIT ON REVENUES $ 5,812,762 $ 5,951,112 $16,720,248 $15,667,032
- ------------------------
General and Administrative Expenses:
Depreciation and Amortization $ 242,792 $ 277,642 $ 736,260 638,952
Other General and Admin.
Expenses 3,832,365 3,672,245 12,299,884 9,810,243
Bad Debt Expense 1,822,836 1,608,683 3,882,694 4,347,844
Expenses of Abandoned Asset -- -- 2,924,371 --
----------- ----------- ----------- -----------
TOTAL GENERAL AND
ADMINISTRATIVE EXPENSES $ 5,897,993 $ 5,558,570 $19,843,209 $14,797,039
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) $ (85,231) $ 392,542 $(3,122,961) $ 869,993
-----------------------
OTHER (INCOME) EXPENSES:
Interest Expense $ 356,606 $ 419,952 $ 1,135,603 $ 883,549
Interest Income (42,916) (83,766) (227,241) (273,619)
---------- ----------- ------------ -----------
TOTAL OTHER EXPENSES - NET $ 313,690 $ 336,186 $ 908,362 $ 609,930
-------------------------- ----------- ----------- ------------------------
INCOME (LOSS)BEFORE TAX $ (398,921) $ 56,356 $(4,031,323) $ 260,063
- -----------------------
Provision for Income Taxes 9,581 (3,694) 7,726 (45,411)
----------- ------------ ----------- ------------
NET INCOME (LOSS) $ (389,340) $ 52,662 $(4,023,597) $ 214,652
- ----------------- =========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE -
BASIC: $ (.05) $ .01 $ (.56) $ .03
----- =========== =========== =========== ===========
NUMBER OF SHARES: 7,222,910 6,943,448 7,219,576 6,943,448
- ----------------- ========= ========== =========== ===========
NET INCOME (LOSS) PER SHARE -
ASSUMING DILUTION: $ (.05) $ .01 $ (.51) $ .03
----------------- ========== =========== =========== ===========
NUMBER OF SHARES: 7,977,004 7,697,542 7,973,670 7,661,542
- ---------------- ========== =========== ========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
3
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BIO-REFERENCE LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
[UNAUDITED]
Nine months ended
July 31,
--------
1 9 9 9 1 9 9 8
------- -------
OPERATING ACTIVITIES:
Net Income $ (4,023,597) $ 214,652
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Deferred Compensation 51,432 54,765
Compensation Expense 10,000 --
Depreciation and Amortization 1,378,546 1,110,073
Amortization of Deferred Assets 69,003 --
Expenses of Abandoned Asset 2,924,371 --
Provision for Bad Debts 3,882,694 4,347,844
Change in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable (3,978,742) (8,076,544)
Other Assets (39,126) 34,432
Prepaid Expenses and Other Current Assets 187,502 67,691
Increase (Decrease) in:
Accounts Payable and Accrued Liabilities $ 526,930 (588,940)
----------- ---------
NET CASH - OPERATING ACTIVITIES $ 989,013 $(2,836,027)
------- -----------
INVESTING ACTIVITIES:
Acquisition of Equipment and
Leasehold Improvements $ (413,242) $ (186,571)
Acquisition of Medilabs, Inc. -- (5,500,000)
(Increase) Decrease in Restricted Cash 3,500,000 150,000
Payment for Acquisition of Intangible Assets (250,000) --
--------- -----------
NET CASH - INVESTING ACTIVITIES $ 2,836,758 $(5,536,571)
------------------------------- ---------------------------
FINANCING ACTIVITIES:
Proceeds from Exercise of Options $ -- $ 28,908
Payments of Long-Term Debt (1,446,061) (795,073)
Long-Term Acquisition Debt -- 5,500,000
Payments of Capital Lease Obligations (66,015) (117,640)
Payments of Subordinated Notes Payable -- (1,339)
Increase (Decrease) in Revolving Line of Credit (2,941,315) 4,710,269
----------- ---------
NET CASH - FINANCING ACTIVITIES $ (4,453,391) $ 9,325,125
------------------------------- ------------- -----------
NET INCREASE (DECREASE) IN CASH $ (627,620) $ 952,527
-------------------------------
CASH AT BEGINNING OF PERIODS $ 2,784,147 $ 2,161,825
---------------------------- ------------ -----------
CASH AT END OF PERIODS $ 2,156,527 $ 3,114,352
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,140,103 $ 860,140
Income Taxes $ 15,682 $ 195,750
The Accompanying Notes are an Integral Part of These Financial Statements.
4
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SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
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.
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. 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" as therein defined prior to May 1, 2000.
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. As a result of its
allegations against SBCL, the Company did not make any payments with respect to
the $600,000 note payable. In October 1998, the Company and SBCL exchanged
general releases for this lawsuit and no executory obligations were imposed upon
the Company by the settlement agreement. Therefore, the Company cancelled the
$600,000 note payable as well as the related goodwill of approximately $550,000.
The settlement was subject to the consent of the Company's principal lending
bank which consent was received in January 1999. During the quarter ended April
30, 1999, the Company wrote down the impaired asset and its associated reserve
in connection with the Company's end stage renal dialysis business acquired from
SBCL in the amount of $2,924,371.
In January 1999, the Company issued 10,000 shares to an employee for services
rendered.
From May to July 1999, the Company incurred three capital lease obligations
totaling $318,006 in connection with the acquisition of various equipment and
leasehold improvements.
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
5
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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 present a fair statement of the
results for the interim periods presented. [2] The results of operations for the
nine month period ended July 31, 1999 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, 1998 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.
Three Months Ended Nine Months Ended
July 31, July 31,
1999 1998 1999 1998
---- ---- ---- ----
$ 18,874,215 $ 17,287,159 $ 52,897,148 $ 39,894,563
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.
[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 $14,095,394 at July 31, 1999 and $13,870,519 at
July 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.
6
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[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 July 31, 1999 and July
31, 1998 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] Certain long-term assets of the Company including goodwill are reviewed at
least annually as to whether their carrying value has become impaired, pursuant
to guidance established in Statement of Financial Accounting Standards ["SFAS"]
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." Management considers assets to be impaired if the
carrying value exceeds the future projected cash flows from related operations
undiscounted and without interest charges. If impairment is deemed to exist, the
assets will be written down to fair value or projected discounted cash flows
from related operations. Management also re-evaluates the periods of
amortization to determine whether subsequent events and circumstances warrant
revised estimates of useful lives. Management reviewed the carrying value of
certain long-term assets of the Company during the quarter ended April 30, 1999
associated with its end stage renal dialysis business acquired from Smith Kline
Beecham and the reserves on the associated receivables and determined that
impairment of the long-term assets did exist. The Company decided to take a
charge against earnings of approximately $2,924,000 on these assets. This
decision was based upon an analysis of the profitability of each customer
acquired in the initial transaction and whether the customer was still active.
[13] 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.
[14] 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.
[15] At October 31, 1998, the Company had a deferred tax asset of approximately
$2,000,000 and a valuation allowance of approximately $1,656,000 related to the
asset, a decrease of $ 286,000 since October 31, 1997. The deferred tax asset
primarily relates to net operating loss carry forwards.
[16] At July 31, 1999, the Company had $180,000 of a restricted certificate of
deposit which represents collateral for one demand note issued pursuant to a
bank loan.
[17] At July 31, 1999, the Company had approximately $ 2,149,000 cash in excess
of the federally insured limits, however $180,000 of this amount represents
collateral for a demand loan with the same bank.
[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
7
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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 $180,000 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 2001and 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, 1998 and 1997, the Company was in compliance with the covenant provisions of
this agreement. As of July 31, 1999, $11,058,685 was outstanding pursuant to
this facility.
[19] 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.
The Company is being represented by counsel in connection with various reviews
being conducted by the Company's Medicare carrier. One review involved
overpayments that occur in the normal course of business. The Company believes
the overpayment will be approximately $150,000, of which approximately $75,000
has already been remitted to Medicare. Counsel representing the Company in this
matter has advised that he cannot offer any opinion or projection at this time
as to whether the anticipated liability will be resolved at $150,000 or whether
it will be increased. Counsel has advised that based upon his review of
documents, many of the claims that Medicare thought were duplicate payments were
not in fact duplicates, but rather were properly billed. Counsel also advised
that in view of the complexity of the issue, he believes the final overpayment
will be an amount negotiated between the Company and Medicare.
[20] 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. In August 1998, the Company was advised by the purchaser
that the target revenues had been achieved and to date, the first three
installments have been paid.
8
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THIRD QUARTER 1999 VS THIRD QUARTER 1998
NET REVENUES:
Net revenues for the three month period ended July 31, 1999 were $13,577,696 as
compared to $13,638,812 for the three month period ended July 31, 1998; this
represents a .4% decrease in net revenues.
The number of patients serviced during the three month period ended July 31,
1999 was 317,336 which was 5% greater when compared to the prior fiscal year's
three month period. Net revenue per patient for the three month period ended
July 31, 1999 was $42.79 compared to net revenue per patient of $45.33 for the
three month period ended July 31, 1998, a reduction of $2.54 or 6%.
COST OF SALES:
Cost of Services increased from $7,687,700 for the three month period ended July
31, 1998 to $7,764,934 for the three month period ended July 31, 1999, an
increase of $77,234 or 1%. Direct costs per patient decreased from $25.55 for
the three month period ended July 31, 1998 to $24.47 for the three month period
ended July 31, 1999, a decrease of 4%.
9
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GROSS PROFITS:
Gross profits on net revenues decreased from $5,951,112 for the three month
period ended July 31, 1998 to $5,812,762 for the three month period ended July
31, 1999; a decrease of $148,350 or 2%. The decrease in gross profit margins
from 44% to 43% is primarily attributable to the lower net revenues per patient.
Any continued decrease in net revenue per patient could adversely affect gross
profits.
GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses for the three month period ending July 31,
1999 were $5,897,993 as compared to $5,558,570 for the quarter ended July 31,
1998, an increase of $339,423 or 6% and was primarily attributable to an
increase in bad debt.
INTEREST EXPENSE:
Interest expense decreased from $419,952 during the three month period ending
July 31, 1998 to $356,606 during the three month period ended July 31, 1999 and
is due to the Company's decrease in asset based borrowing.
INCOME (LOSS):
The Company had net income of $52,662 for the three months ended July 31, 1998
as compared to a loss of $389,340 for the three months ended July 31, 1999 a
decrease of $442,002. The primary reason for this loss is the increase in both
direct and indirect expenses of $416,657 (3%). In addition, gross profit margins
decreased from 44% for the three month period ended July 31, 1998 to 43% for the
three month period ended July 31, 1999.
NINE MONTHS 1999 COMPARED TO NINE MONTHS 1998
NET REVENUES:
Net Revenues for the nine month period ended July 31, 1998 were $33,383,740 as
compared to $39,637,682 for the current nine month period ended July 31, 1999;
this represents a 19% increase in net revenues. MLI had net revenues of
approximately $10,272,400 or 26% of the Company's net revenues for the nine
month period ended July 31, 1999.
The number of patients serviced during the nine month period ended July 31, 1999
was 909,649 which was 33% greater when compared to the prior fiscal year's nine
month period. MLI accounted for 35% of the patient count for the nine month
period ended July 31, 1999. Net revenue per patient (including MLI) for the nine
month period ended July 31, 1999 was $43.58, compared to net revenue per patient
for the nine month period ended July 31, 1998 of $48.75, a reduction of $5.17 or
11%. MLI's net revenue per patient was $31.89 for the nine month period ended
July 31, 1999.
In April 1998, the Company acquired MLI and was awarded, as of November, 1998, a
contract to provide laboratory testing by the New York State Department of
Corrections for inmates in its facilities. The Company is seeking to expand its
marketing efforts to other correctional institutions, nursing homes,
pre-employment drug testing for employers and hospital reference testing and has
hired new marketing representatives to specialize in this initiative. Management
believes that the reimbursement rates for these tests will be somewhat lower
than its current reimbursement rates.
10
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COST OF SALES:
Cost of Services increased from $17,716,708 for the nine month period ended July
31, 1998 to $22,917,434 for the nine month period ended July 31, 1999. This
represents a 29% increase in direct operating costs. This increase is the result
of the MLI acquisition. MLI's direct operating costs were approximately
$6,957,000 for the nine month period ended July 31, 1999. The continuing
consolidation of laboratory operations has not been completed.
GROSS PROFITS:
Gross profits on net revenues increased from $15,667,032 for the nine month
period ended July 31, 1998 to $16,720,248 for the nine month period ended July
31, 1999; an increase of $1,053,216 (7%), primarily attributable to the increase
in net revenues. The decrease in gross profit margins, 47% to 42%, is primarily
attributable to the lower net revenues per patient, the increase in direct costs
associated with MLI and the duplication of direct costs that had not been
eliminated as of July 31, 1999 by an optimum consolidation of laboratory
operations. Any continued decrease in net revenue per patient could adversely
affect gross profits.
GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses for the nine month period ending July 31,
1999 were $19,843,209 as compared to $14,797,039 for the nine month period ended
July 31, 1998, an increase of $5,046,170 or 34%. This increase is caused
primarily by a write-down of an impaired asset of $924,371 for the Company's end
stage renal dialysis business acquired from Smith Kline Beecham and its
associated increase in reserves on its accounts receivable of $2,000,000.
Without the adjustment for the impaired asset, the increase in indirect expenses
would have been $2,121,799 or 14%.
INTEREST EXPENSE:
Interest expense increased from $883,549 during the nine month period ending
July 31, 1998 as compared to $1,135,603 during the nine month period ending July
31, 1999 and is the result of the Company's increase in asset based borrowing.
INCOME:
The Company had net income of $214,652 for the nine months ended July 31, 1998
as compared to a loss of $4,023,597 for the nine months ended July 31, 1999 a
decrease of $4,238,249. The primary reason for this loss is the write-down of an
impaired asset and its associated additional reserve on the Company's end stage
renal dialysis business acquired from Smith Kline Beecham ($2,924,371). In
addition, net revenue per patient decreased 11% in the current nine month period
ended July 31, 1999, as compared to the nine month period ended July 31, 1998.
Gross profit margins decreased from 47% for the nine month period ended July 31,
1998 to 42% for the nine month period ended July 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES:
Working capital as of July 31, 1999 was approximately $4,322,206 as compared to
approximately $8,400,000 at October 31, 1998. The Company decreased its cash
position by approximately $630,000 during the current nine month period. The
Company repaid approximately $1,500,000 in existing debt. The Company had
current liabilities of approximately $19,000,000 at July 31, 1999. The three
largest
11
<PAGE>
items in this category are notes payable of approximately $9,100,000, accounts
payable of approximately $5,200,000 and current portion of long-term debt of
approximately $1,900,000.
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. The Company establishes an
allowance for uncollectible accounts.
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.
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
(1) $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 certificates 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 2001 and may be extended for annual periods by
mutual consent 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, 1998 and 1997, the Company was in compliance with the covenant provisions of
this agreement. As of July 31, 1999, the Company has utilized $11,058,685 of
this credit facility.
The Company's cash balances at July 31, 1999 were approximately $2,303,000 as
compared to approximately $2,784,000 at October 31, 1998. The Company believes
that its cash position, the anticipated cash generated from operations, the
expanded use of its credit line with PNC Bank, will meet its future cash needs.
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. Management estimates that the laboratory
operations and billing systems will require changes that translate into
approximately $50,000 in costs. The general accounting systems (which are
supplied by an outside vendor) will cost the Company approximately $25,000 and
were upgraded in February, 1999. 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 Company had not received
notification from New Jersey
12
<PAGE>
Medicaid as of September 13, 1999. Once the general accounting systems are
converted to accommodate the year 2000, the Company is confident that it will
accept the input of all vendor invoices. All of the Company's specimen
processing equipment has been certified Y2K compliant by their manufacturer and
tested by our staff. During May 1998, the General Accounting Office ("GAO")
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." In the "National
Intelligence Report" issue of January 12, 1999 it was disclosed that the Health
Care Financing Administration ("HCFA") has posted some Y2K-related websites, a
table of Medicare claims processing changes required for billing compliance, and
more. HCFA stresses that every piece of hardware or software that is dependent
on a microchip or date entry may be affected. In terms of HCFA's Y2K readiness,
the agency stated that work has been completed to renovate, test, and validate
all internal mission-critical systems and progress has been made with its
carriers and intermediaries. The final systems to be considered by the Company
are those of its vendors. Once the general accounting systems are 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 Quarterly Report on Form 10-Q 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 cause 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
In February 1998, the FASB issued SFAS No. 132, "Employers Disclosure about
Pension and Other Postretirement Benefits, " which is effective for fiscal years
after December 15,1997. The modified disclosure requirements are not expected to
have a material impact on the Company's results of operations, financial
position or cash flows.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for fiscal years
beginning after June 15,1999. The Company does not believe SFAS No. 133 will
have a material impact on the Company's results of operations, financial
position or cash flows.
13
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company has filed no reports on Form 8-K during the quarter ended July
31, 1999.
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: September 17, 1999
14
<PAGE>
September 17, 1999
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Bio-Reference Laboratories, Inc., File No.: 0-15266
Dear Sir or Madam:
Transmitted herewith through EDGAR is Form 10-Q for the 3rd quarter ended July
31, 1999 for Bio-Reference Laboratories, Inc. If you have any questions or
comments, please contact me at (800) 229- 5227.
Very truly yours,
Sam Singer
Chief Financial Officer
<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> 9-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 2,156,527
<SECURITIES> 0
<RECEIVABLES> 18,845,744
<ALLOWANCES> 14,095,394
<INVENTORY> 599,757
<CURRENT-ASSETS> 22,992,986
<PP&E> 4,974,712
<DEPRECIATION> 2,800,105
<TOTAL-ASSETS> 33,651,720
<CURRENT-LIABILITIES> 18,670,780
<BONDS> 13,941,500
0
60,408
<COMMON> 72,229
<OTHER-SE> 23,007,915
<TOTAL-LIABILITY-AND-EQUITY> 33,651,720
<SALES> 39,637,682
<TOTAL-REVENUES> 39,637,682
<CGS> 22,917,434
<TOTAL-COSTS> 42,760,643
<OTHER-EXPENSES> 908,362
<LOSS-PROVISION> 3,882,694
<INTEREST-EXPENSE> 1,135,603
<INCOME-PRETAX> (4,031,323)
<INCOME-TAX> 7,726
<INCOME-CONTINUING> (4,023,597)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,023,597
<EPS-BASIC> (.56)
<EPS-DILUTED> (.51)
</TABLE>
