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, 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 CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 7,222,910 shares of Common Stock
($.01 par value) at March 17, 1998.
BIO-REFERENCE, LABORATORIES, INC.
---------------------------------
FORM 10-Q
---------
JANUARY 31, 1999
----------------
I N D E X
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Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of January 31, 1999 (unaudited)
and October 31, 1998 1
Statements of Operations for the
three months ended January 31, 1999 and January 31,
1998 (unaudited) 3
Statements of Cash Flows for the
three months ended January 31, 1999 and January 31,
1998 (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>
January 31, October 31,
----------- -----------
1999 1998
- - ----------------------
(Unaudited)
----------
<S> <C> <C>
CURRENT ASSETS:
- - --------------
Cash and Cash Equivalents $2,298,164 $2,784,147
Accounts Receivable (Net) 21,748,133 20,749,696
Inventory 582,979 587,101
Other Current Assets 1,629,995 1,444,867
Certificates of Deposit- Restricted 3,646,250 3,646,250
-------- --------
TOTAL CURRENT ASSETS $29,905,521 $29,212,061
-------- --------
PROPERTY, PLANT AND EQUIPMENT $4,295,092 $4,243,464
LESS: Accumulated Depreciation 2,286,483 2,022,928
-------- --------
TOTAL PROPERTY,
PLANT AND EQUIPMENT - NET $2,008,609 $2,220,536
-------- --------
OTHER ASSETS:
Certificate of Deposit - Restricted $ 33,750 $ 33,750
Due from Related Party 181,718 187,118
Deposits 260,207 303,354
Goodwill (Net of Accumulated
Amortization of $1,336,821
$1,248,029 respectively) 5,657,809 5,746,601
Deferred Charges (Net of Accumulated
Amortization of $2,286,232 and
$2,173,034 respectively) 2,393,951 2,507,149
Other Assets 594,122 567,769
-------- --------
TOTAL OTHER ASSETS $9,121,557 $9,345,741
-------- --------
TOTAL ASSETS $41,035,687 $40,778,338
======== ========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
BIO-REFERENCE LABORATORIES, INC.
---------------------------------
BALANCE SHEETS
---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
-----------------------------------------
<TABLE>
January 31, October 31,
----------- -----------
1998 1997
- - ----------------------
(Unaudited)
------------
<S> <C> <C>
CURRENT LIABILITIES:
- - -------------------
Accounts Payable $4,207,452 $$
4,379,961
Salaries and Commissions Payable 809,967 1,367,785
Accrued Expenses 635,721 625,814
Current Portion of Long-Term Debt 2,098,472 2,071,058
Current Portion of Leases Payable 201,923 229,232
Notes Payable 13,205,524 12,000,000
Taxes Payable 391,051 173,962
-------- --------
TOTAL CURRENT LIABILITIES $21,550,110 $20,847,812
-------- --------
LONG-TERM LIABILITIES:
Long-Term Portion of Long-Term Debt (Net of Discount)
2,969,1683,306,617
Long-Term Portion of Leases Payable 373,713 400,975
-------- --------
TOTAL LONG-TERM LIABILITIES $3,342,881 $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 Issued and
Outstanding 604,078 shares 60,408 60,408
Series A - Junior Participating Preferred Stock,
$.10 Par Value, Authorized 3,000 Shares;
Common Stock, $.01 Par Value;
None Issued $ -- $ --
Authorized 18,333,333 shares,
Issued and Outstanding 7,222,910 shares
in January 31, 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] (6,742,727) (6,634,985)
-------- --------
Totals $16,397,825 $16,495,567
Deferred Compensation (255,129) (272,633)
-------- --------
TOTAL SHAREHOLDERS' EQUITY $16,142,696 $16,222,934
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $41,035,687 $40,778,338
======== ========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
BIO-REFERENCE LABORATORIES, INC.
-------------------------------
STATEMENTS OF OPERATIONS
-------------------------
[UNAUDITED]
-----------
<TABLE>
Three months ended
-------------------
January 31,
--------
1 9 9 9 1 9 9 8
------- -------
<S> <C> <C>
NET REVENUES: $12,640,484 $8,936,424
- - ------------ --------------
COST OF SERVICES:
- - ----------------
Depreciation $219,446 $103,245
Employee Related Expenses 3,334,378 2,003,239
Reagents and Lab Supplies 1,615,287 1,061,348
Other Cost of Services 2,037,361 1,331,278
------ -------
TOTAL COST OF SERVICES $7,206,471 $4,499,110
------ -------
GROSS PROFIT ON REVENUES $5,434,012 $4,437,314
GENERAL AND ADMINISTRATIVE EXPENSES:
Depreciation and Amortization $246,100 $154,567
Other General and Admin. Expenses 3,689,604 2,866,135
Bad Debt Expense 1,282,092 1,241,210
------ -------
TOTAL GENERAL AND ADMIN. EXPENSES $5,217,796 $4,261,912
------ -------
OPERATING INCOME $216,216 $175,402
OTHER (INCOME) EXPENSES:
Interest Expense $403,095 $205,316
Interest Income (79,138) (78,624)
------ -------
TOTAL OTHER EXPENSES - NET $323,957 $126,692
------ -------
INCOME BEFORE TAX (107,741) $48,710
Provision for Income Taxes $ -- $10,717
------ -------
NET INCOME (107,741) $37,993
===== =======
NET INCOME PER SHARE: $ (.01) $ .01
NUMBER OF SHARES: 7,206,299 6,685,155
NET INCOME (LOSS) PER SHARE - ASSUMING DILUTION: $(.01) $ .01
NUMBER OF SHARES: 7,977,004 7,379,913
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
BIO-REFERENCE LABORATORIES, INC.
----------------------------------
STATEMENTS OF CASH FLOWS
------------------------
[UNAUDITED]
----------
<TABLE>
Three months ended
--------------
January 31,
-----------
1 9 9 9 1 9 9 8
-------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income (Loss) $(107,741) $ 37,993
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Deferred Compensation 17,504 17,526
Depreciation and Amortization 465,545 257,812
Provision for Bad Debts 1,282,092 1,241,210
Change in Assets and Liabilities
(Increase) Decrease in:
Accounts Receivable (280,529) (2,051,100)
Other Assets 48,547 22,713
Prepaid Expenses and Other Current Assets (181,006) (289,338)
Deferred Charges and Goodwill -- (4,375)
Increase (Decrease) in:
Accounts Payable and Accrued Liabilities (496,684) (432,751)
--------- --------
NET CASH - OPERATING ACTIVITIES $(1,252,272) $(1,200,310)
INVESTING ACTIVITIES:
Acquisition of Equipment and
Leasehold Improvements $ (51,628) $(118,757)
FINANCING ACTIVITIES:
Payments of Long-Term Debt $(333,036) $(138,487)
Payments of Capital Lease Obligations (54,571) (21,435)
Payments of Subordinated Notes Payable -- (1,339)
Increase in Revolving Line of Credit 1,205,524 1,506,303
--------- --------
NET CASH - FINANCING ACTIVITIES $ 817,917 $1,345,042
--------- --------
NET INCREASE (DECREASE) IN CASH $(485,983) $ 25,975
CASH AT BEGINNING OF PERIODS $2,784,147 $2,161,825
--------- --------
CASH AT END OF PERIODS $2,298,164 $2,187,800
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 404,751 $ 204,048
Income Taxes $ 15,682 $ 192,150
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
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.
On April 9, 1998, the Company acquired the assets and certain liabilities of
Medilabs, Inc. ["MLI"] from LTC Service and Holdings, Inc. ["Holdings"], a
wholly-owned subsidiary of Long-Term Care Services, Inc. ["LTC"]. The
acquisition was effective April 9, 1998 for accounting purposes and is being
accounted for under the purchase method. The operations of Medilabs, Inc. 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 the Company 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 the Company of its $1,500,000 promissory note
payable without interest in three semi-annual installments commencing one year
after the closing. In addition, the Company paid MLI obligations 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 the Company if certain revenues
are realized by MLI after the closing which may result in the recording of
additional goodwill. Goodwill of approximately $4,600,000 will be amortized
over 20 years under the straight line method.
<TABLE>
Assets Acquired and Liabilities Assumed
---------------------------------------
<S> <C>
Cash in Banks $ 86,400
Accounts Receivable [Net] 2,306,100
Other Assets 393,800
Fixed Assets 1,465,300
Accounts Payable (2,632,100)
Accrued Expenses (629,700)
Debt (452,927)
--------
Net Assets $ 536,873
=========
</TABLE>
The unaudited pro-forma results of operations of the Company for the year ended
October 31, 1998 and 1997 assumes the acquisition had occurred at the beginning
of the periods.
<TABLE>
Years Ended
-----------
October 31,
-----------
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
Net Revenue $52,106,280 $53,419,105
Net Income [Loss] $ 559,475 $(7,533,864)
Net Income [Loss] Per Common Share $ .08 $ (1.13)
Net Income [Loss] Per Common Share -
Assuming Dilution $ .07 $ --
</TABLE>
The pro-forma results reflect amortization of goodwill and other intangible
assets. The unaudited pro forma information is not necessary indicative of the
actual results of operations, 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.
In January 1999, the Company issued 10,000 shares to an employee for services
rendered.
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 present a fair statement of the
results for the interim periods presented.
[2] The results of operations for the nine month period ended January 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.
<TABLE>
Three Months Ended
Jan 31
1999 1998
---- ----
<C> <C>
$15,708,22 $10,200,640
</TABLE>
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 $11,742,488 at January 31, 1999 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 July 31, 1998 and July
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] 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. As of October 31, 1998, management expects
these assets to be fully recoverable.
[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, 1997, 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 October 31, 1997. The deferred tax asset
primarily relates to net operating loss carry forwards.
[16] At January 31, 1999, the Company had $3,680,000 of restricted cash which
represents collateral for three demand notes issued pursuant to bank loans.
[17] At July 31, 1999, the Company had $6,973,871 in cash in excess of the
federally insured limits, however $ 3,680,000 of this amount represents
collateral for demand loans with the same banks.
[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, 1998 and 1997, the Company was in compliance with
the covenant provisions of this agreement. As of January 31, 1998, $13,471,978
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 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.
[21] 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.
[22] 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 MLI will be included in the Company's results of operations
commencing April 9, 1998. In connection with the acquisition of MLI, certain
key MLI 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.
<TABLE>
Assets Acquired and Liabilities Assumed
----------------------------------------
<S> <C>
Cash in Banks $ 86,400
Accounts Receivable [Net] 2,306,100
Other Assets 393,800
Fixed Assets 1,465,300
Accounts Payable (2,632,100)
Accrued Expenses (629,700)
Debt (452,927)
--------
Net Assets $ 536,873
=========
</TABLE>
The unaudited pro-forma results of operations of the Company for the year ended
October 31, 1998 and 1997 assumes the acquisition had occurred at the beginning
of the periods.
<TABLE>
Years Ended
-----------
October 31,
-----------
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
Net Revenue $52,106,280 $53,419,105
Net Income [Loss] $ 559,475 $(7,533,864)
Net Income [Loss] Per Common Share $ .08 $ (1.13)
Net Income [Loss] Per Common Share -
Assuming Dilution $ .07 $ --
</TABLE>
The pro-forma results reflect amortization of goodwill and other intangible
assets. The unaudited pro forma information is not necessary indicative of the
actual results of operations, 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
---------------------
NET REVENUES:
Net revenues for the three month period ended January 31, 1999 were $12,640,484,
as compared to $8,936,424 for the three month period ended January 31, 1998;
this represents a 41% increase in net revenues. The Company acquired Medilabs,
Inc. ("MLI") in April of 1998. MLI had net revenues of $3,285,539 or 26% of the
Company's net revenues for the quarter. There were no revenues from MLI in the
three month period ended January 31, 1998.
The number of patients processed during the three month period ended January 31,
1999 was 279,744 which was 63% greater when compared to the comparable quarter
in 1998. MLI accounted for 35% of the patient count for the three month period
ended January 31, 1999. Net revenue per patient for the three month period ended
January 31, 1998 was $52.04 compared to net revenue per patient for the three
month period ended January 31, 1999 of $45.18, a reduction of $6.86 or 13%.
MLI's net revenue per patient was $33.14 for the three month period ended
January 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.
COST OF SALES:
Cost of Services increased from $4,499,110 for the three month period ended
January 31, 1998 to $7,206,471 for the three month period ended January 31,
1999, an increase of $2,707,361 or 60%. This increase is the result of the MLI
acquisition. MLI's direct operating costs were approximately $2,203,470 for the
three month period ended January 31, 1999. The continuing consolidation of
laboratory operations has not been completed. No significant positive impact
on the Company's cost structure is expected until later in fiscal year 1999.
GROSS PROFITS:
Gross profit on net revenues increased from $4,437,314 for the three month
period ended January 31, 1998 to $5,434,012 for the three month period ended
January 31, 1999; an increase of $996,698 primarily attributable to the increase
in revenues. Gross profit margins decreased from 50% for the three month period
ended January 31, 1998 to 43% for the three month period ended January 31, 1999.
This decrease in gross profit margins 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 January 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 three month period ended January 31,
1999 were $5,217,796 as compared to $4,261,912 for the quarter ended January 31,
1998, an increase of $955,884 or 22%. MLI contributed approximately $800,000 or
82% of this increase.
INTEREST EXPENSE:
Interest expense increased from $205,316 during the three month period ending
January 31, 1998 to $ 403,095 during the three month period ending January 31,
1999, which is reflected in the financing of the MLI acquisition and the funding
of its operations since its acquisitions, offset by payment on existing debt of
approximately $400,000.
INCOME (LOSS):
The Company's net income (loss) for the three months ended January 31, 1999 and
1998 was $(107,741) and $37,993, respectively. The main reason for the
approximate $146,000 decrease in net income is the 13% decrease in revenues per
patient. The reduction in gross profit percentage of approximately 7% was caused
by the increase in direct expenses because of less than optimum consolidation of
laboratory operations. The increase in general administrative expenses and the
increase in debt expense was due to the MLI acquisition.
LIQUIDITY AND CAPITAL RESOURCES:
Working capital as of January 31, 1999 was approximately $8,400,00 as compared
to approximately $8,400,000 at October 31, 1998. The Company decreased its cash
position by approximately $500,000 during the current quarter. The Company
utilized approximately $1,300,000 in cash for operating activities. To offset
this use of cash the Company borrowed $1,200,000 in short-term debt and repaid
approximately $400,000 in existing debt. The Company had current liabilities of
approximately $21,600,000 at January 31, 1998. The three largest items in this
category are notes payable of approximately $13,200,000, accounts payable of
approximately $4,200,000 and current portion of long-term debt of approximately
$2,100,000.
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 January 31, 1999, the Company was utilizing $13,205,524
of this credit facility.
The Company's cash balances at January 31, 1999 was $2,298,164 as compared to
$2,784,147 at October 31, 1997. The Company believes that its cash position,
the anticipated cash generated from operations, the expanded use of its credit
line with PNC Bank, the utilization of certificates of deposits maturing during
the second quarter of fiscal year 1999 and the interest due thereupon, 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 Medicaid as of January 26, 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. 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 is converted to accommodate the year 2000, the
Company is confident that it will accept the input of all vendor invoices.
Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-K contains historical information as well as
forward-looking statements. Statements looking forward in time are included in
this Annual Report pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Such statements involve known and
unknown risks and uncertainties that may 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
The Financial Accounting Standards Board ["FASB"] issued Statement of Financial
Accounting Standards ["SFAS"] No. 130, "Reporting Comprehensive Income. " SFAS
No. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The adoption of SFAS No. 130 is not expected
to have a material impact on the Company's consolidated results of operations,
financial position or cash flows.
The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information." SFAS No. 131 changes how operating segments are
reported in annual financial statements and requires the reporting of selected
information about operating segments in interim financial reports issued to
shareholders, SFAS No. 131 is effective for periods beginning after December 15,
1997, and comparative information for earlier years is required to be restated.
SFAS No. 131 need not be applied to interim financial statements in the initial
year of its application. The adoption of SFAS No. 131 is not expected to have a
material impact on the Company's consolidated results of operations, financial
position or cash flows.
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 will evaluate the new standard to
determine any required new disclosures or accounting.
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,
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, M.D.
------------------------------------
-------------------------
Marc D. Grodman, M.D.
President
/S/ Sam Singer
--------------
Sam Singer
Chief Financial and Accounting Officer
Date: March 22, 1999
<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-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 2,298,164
<SECURITIES> 0
<RECEIVABLES> 21,748,133
<ALLOWANCES> 11,742,488
<INVENTORY> 582,979
<CURRENT-ASSETS> 29,905,521
<PP&E> 4,295,092
<DEPRECIATION> 2,286,483
<TOTAL-ASSETS> 41,035,687
<CURRENT-LIABILITIES> 21,550,110
<BONDS> 18,848,800
0
60,408
<COMMON> 72,229
<OTHER-SE> 23,007,915
<TOTAL-LIABILITY-AND-EQUITY> 41,035,687
<SALES> 12,640,484
<TOTAL-REVENUES> 12,640,484
<CGS> 7,206,471
<TOTAL-COSTS> 12,424,267
<OTHER-EXPENSES> 323,957
<LOSS-PROVISION> 1,282,092
<INTEREST-EXPENSE> 403,095
<INCOME-PRETAX> (107,741)
<INCOME-TAX> 0
<INCOME-CONTINUING> (107,741)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (107,741)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
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