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, 2000
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: 8,140,449 shares of common stock
($.01 par value) at September 13, 2000.
<PAGE>
BIO-REFERENCE, LABORATORIES, INC.
FORM 10-Q
JULY 31, 2000
I N D E X
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of July 31, 2000 (unaudited) 1
and October 31, 1999
Statements of Operations for the
three months and nine months ended July 31, 2000
and July 31, 1999 (unaudited) 3
Statements of Cash Flows for the
nine months ended July 31, 2000 and July 31,
1999 (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 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 15
<PAGE>
BIO-REFERENCE LABORATORIES, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
2000 1999
----------- -----------
(UNAUDITED)
CURRENT ASSETS:
<S> <C> <C>
Cash and Cash Equivalents $ 1,056,162 $ 2,128,474
Accounts Receivable (Net) 22,218,261 18,615,496
Inventory 650,290 572,279
Other Current Assets 478,454 404,124
----------- -----------
TOTAL CURRENT ASSETS $ 24,403,167 $ 21,720,373
----------- -----------
PROPERTY, PLANT AND EQUIPMENT $ 5,578,768 $ 5,211,467
LESS: Accumulated Depreciation 3,720,224 3,039,128
----------- -----------
TOTAL PROPERTY,
PLANT AND EQUIPMENT - NET $ 1,858,544 2,172,339
----------- -----------
OTHER ASSETS:
Due from Related Party 89,918 138,518
Deposits 276,691 278,619
Goodwill (Net of Accumulated
Amortization of $1,876,588 and $1,597,767 respectively) 5,118,042 5,396,863
Intangible Assets (Net of Accumulated
Amortization of $2,525,174 and $2,271,436 respectively) 3,826,722 1,764,740
Surrender Value of Officers Life Insurance 793,915 567,769
Other Assets 530,855 278,777
----------- -----------
TOTAL OTHER ASSETS $ 10,636,143 8,425,286
----------- -----------
TOTAL ASSETS $ 36,897,854 32,317,998
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
1
<PAGE>
BIO-REFERENCE LABORATORIES, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
2000 1999
----------- -----------
(UNAUDITED)
CURRENT LIABILITIES:
<S> <C> <C>
Accounts Payable $ 6,256,186 $ 5,540,787
Salaries and Commissions Payable 1,074,037 1,349,175
Accrued Expenses 478,020 849,463
Current Portion of Long-Term Debt 1,533,158 1,215,671
Current Portion of Leases Payable 324,516 308,251
Notes Payable 12,000,000 8,700,905
Taxes Payable 322,790 304,098
---------- ----------
TOTAL CURRENT LIABILITIES $21,988,677 $18,268,350
---------- ----------
LONG-TERM LIABILITIES:
Long-Term Portion of Long-Term Debt (Net of Discount) 1,829,865 2,000,000
Long-Term Portion of Leases Payable 697,540 680,538
---------- ----------
TOTAL LONG-TERM LIABILITIES $ 2,527,405 2,680,538
---------- ----------
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;
Authorized 18,333,333 shares,
Issued and Outstanding 8,140,449 shares
at July 31, 2000 and 7,700,777 shares at
October 31, 1999 81,405 77,008
Additional Paid-In Capital 24,358,045 23,294,673
Accumulated [Deficit] (11,786,355) (11,613,433)
---------- ----------
Totals $12,713,503 $11,818,656
Deferred Compensation (331,731) (449,546)
--------- ----------
TOTAL SHAREHOLDERS' EQUITY $12,381,772 $11,369,110
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $36,897,854 $32,317,998
========== ==========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
2
<PAGE>
BIO-REFERENCE LABORATORIES, INC.
STATEMENTS OF OPERATIONS
[UNAUDITED]
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET REVENUES: $ 17,171,598 $ 13,577,696 $ 48,487,299 $ 39,637,682
----------- ------------ ----------- -----------
COST OF SERVICES:
Depreciation $ 197,015 $ 204,961 $ 587,417 $ 642,286
Employee Related Expenses 4,178,949 3,520,582 12,160,853 10,605,806
Reagents and Lab Supplies 2,712,758 1,752,924 6,924,512 5,073,086
Other Cost of Services 2,355,372 2,286,467 7,400,908 6,596,256
----------- ------------ ----------- -----------
TOTAL COST OF SERVICES $ 9,444,094 $ 7,764,934 $ 27,073,690 $ 22,917,434
----------- ------------ ----------- -----------
GROSS PROFIT ON REVENUES $ 7,727,504 $ 5,812,762 $ 21,413,609 $16,720,248
GENERAL AND ADMINISTRATIVE EXPENSES:
Depreciation and Amortization $ 202,179 $ 242,792 $ 626,238 736,260
Other General and Admin. Expenses 4,607,722 3,832,365 13,339,751 12,299,884
Bad Debt Expense 2,447,841 1,822,836 6,494,240 3,882,694
Expenses of Abandoned Asset -- -- -- 2,924,371
----------- ------------ ----------- -----------
TOTAL GENERAL AND ADMIN. EXPENSES $ 7,257,742 $ 5,897,993 $ 20,460,229 $ 19,843,209
----------- ------------ ----------- -----------
OPERATING INCOME (LOSS) $ 469,762 $ (85,231) $ 953,380 $ (3,122,961)
OTHER (INCOME) EXPENSES:
Interest Expense $ 440,480 $ 356,606 $ 1,184,060 $ 1,135,603
Interest Income (15,647) (42,916) (57,760) (227,241)
----------- ------------ ----------- ------------
TOTAL OTHER EXPENSES - NET $ 424,833 $ 313,690 $ 1,126,300 $ 908,362
----------- ------------ ----------- ----------
INCOME (LOSS) BEFORE TAX $ 44,929 $ (398,921) $ (172,920) $ (4,031,323)
Provision for Income Taxes -- 9,581 -- 7,726
----------- ------------ ----------- -----------
NET INCOME (LOSS) $ 44,929 $ (389,340) $ (172,920) $ (4,023,597)
=========== ============ =========== ===========
NET INCOME (LOSS) PER SHARE - BASIC: $ .01 $ (.05) $ (.02) $ (.56)
=========== ============ =========== ===========
NUMBER OF SHARES: 8,140,449 7,222,910 8,073,968 7,219,576
========== ========= =========== ===========
NET INCOME (LOSS) PER SHARE -
ASSUMING DILUTION: $ .01 $ (.05) $ (.02) $ (.51)
== == == ==
NUMBER OF SHARES: 9,494,673 7,977,004 9,428,192 7,973,670
========= ========== =========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
3
<PAGE>
BIO-REFERENCE LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
[UNAUDITED]
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JULY 31,
2000 1999
------- -----
OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ (172,920) $ (4,023,597)
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Deferred Compensation 117,816 51,432
Compensation Expense 24,840 10,000
Depreciation and Amortization 1,213,655 1,378,546
Amortization of Deferred Assets 69,003 69,003
Expenses of Abandoned Asset -- 2,924,371
Provision for Bad Debts 6,494,240 3,882,694
Change in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable (10,097,008) (3,978,742)
Other Assets (427,696) (39,126)
Prepaid Expenses and Other Current Assets (152,341) 187,502
Increase (Decrease) in:
Accounts Payable and Accrued Liabilities $ 87,481 526,930
------------ -------
NET CASH - OPERATING ACTIVITIES $ (2,842,930) $ 989,013
----------- -------
INVESTING ACTIVITIES:
Acquisition of Equipment and
Leasehold Improvements $ (104,446) $ (413,242)
Payment for Acquisition of Intangible Assets (1,290,520) (250,000)
Decrease in Restricted Cash -- 3,500,000
------------ -----------
NET CASH - INVESTING ACTIVITIES $ (1,394,966) $ 2,836,758
------------ -----------
FINANCING ACTIVITIES:
Proceeds from Exercise of Options $ 17,729 $ --
Payments of Long-Term Debt (1,842,383) (1,446,061)
Long-Term Acquisition Debt 1,920,731 --
Payments of Capital Lease Obligations (229,588) (66,015)
Increase (Decrease) in Revolving Line of Credit 3,299,095 (2,941,315)
------------ -----------
NET CASH - FINANCING ACTIVITIES $ 3,165,584 $ (4,453,391)
------------ -----------
NET INCREASE (DECREASE) IN CASH $ (1,072,312) $ (627,620)
------------ ------------
CASH AT BEGINNING OF PERIODS $ 2,128,474 $ 2,784,147
------------ -----------
CASH AT END OF PERIODS $ 1,056,162 $ 2,156,527
============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,110,961 $ 1,140,103
Income Taxes $ 25,778 $ 15,682
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
4
<PAGE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During fiscal 1999, the Company incurred seven capital lease obligations
totaling $598,122 in connection with the acquisition of various equipment and
leasehold improvements.
On December 30, 1996, the Company commenced a lawsuit against SmithKline Beecham
Clinical Laboratories ["SBCL"]. 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 canceled a
$600,000 note payable as well as the related goodwill of approximately $550,000.
During the quarter ended April 30, 1999, the Company wrote off the impaired
asset, namely its end-stage renal dialysis business acquired from SBCL, and the
associated reserve, in the amount of $2,924,371.
In January 1999, the Company issued 10,000 shares of its common stock to an
employee for services rendered.
In May 1999, the Company recorded $625,000 in intangible assets and accrued
expenses related to an employment agreement.
In December 1999, the Company entered into an agreement with one of its vendors
to convert approximately $670,000 of accounts payable obligations into a three
year long-term debt. In addition, the Company issued 400,000 shares of its
common stock and options to purchase an additional 100,000 shares of its common
stock for purchasing certain assets of two unrelated companies. (See Note 21).
In April 2000, the Company issued 15,000 shares of its common stock to a vendor
for services rendered.
During fiscal 2000, the Company incurred three capital lease obligations
totaling $266,011 in connection with the acquisition of various equipment and
leasehold improvements.
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
5
<PAGE>
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 and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
[2] The results of operations for the three month and nine month periods ended
July 31, 2000 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, 1999 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 Nine Months Ended
July 31, July 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
$ 23,197,950 $ 18,874,215 $ 61,311,788 $ 52,897,148
</TABLE>
A number of proposals for legislation or regulation continue to be 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 $22,789,956 at July 31, 2000 and $14,095,394 at
July 31, 1999.
[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 15 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
<PAGE>
(UNAUDITED)
[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 stock, if dilutive. At July 31, 2000 and July
31, 1999 the potential issuance of common stock upon exercise of outstanding
options and warrants was anti-dilutive. The effects of deferred compensation is
included by applying the treasury stock method if dilutive.
[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 based upon the 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 July 31, 2000, management
expected 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, 1999, the Company had a deferred tax asset of approximately
$4,000,000 and a valuation allowance of approximately $4,000,000 related to the
asset, an increase of $2,344,000 from October 31, 1998. The deferred tax asset
primarily relates to net operating loss carry forwards.
[16] At July 31, 2000, the Company had $693,503 in cash balances in excess of
the federally insured limits.
[17] 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 any
certificates of deposit pledged as collateral for this loan minus the amount of
any portion of the outstanding principal balance of any 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 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 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, 1999, the Company was in default of
certain covenants (tangible net worth, net worth and capital expenditures),
however, the Company has received waivers for these defaults. As of July 31,
2000, $12,000,000 was outstanding pursuant to this facility.
7
<PAGE>
(UNAUDITED)
[18] 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 an annual basis, management evaluates
whether the carrying value of these intangible assets has become impaired.
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 does exist, the assets will be written down to
fair value.
[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. The Company had
reserved $150,000 in its October 31, 1999 financial statements with respect to
this matter, which amount continued to be reserved at July 31, 2000 on the
Company's financial statements.
In January 2000, the Company commenced negotiations with New Jersey Medicaid
regarding a claim made against the Company by the State of New Jersey. The
alleged claim was received by the Company on December 28, 1999. The claim
alleged that the Company was reimbursed by the State for claims submitted based
on test requisitions which, although authorized by the physician, did not bear
the physician's actual signature. The Company immediately disputed the claim.
The Company believes it has been compliant with all requirements regarding
claims submitted for payment by New Jersey Medicaid and in fact requires actual
physician signatures before it bills New Jersey Medicaid. However, the Company
and New Jersey Medicaid entered into a compromise agreement on January 19, 2000
to a full settlement for this claim in the amount of $227,000. The Company has
accrued this settlement amount in its October 31, 1999 financials. The
settlement is subject to the parties' execution of a written agreement setting
forth its terms and to the approval of the Director of the New Jersey Division
of Medical Assistance. Approval of the settlement is being recommended to the
Director. The matter is still pending. As of July 31, 2000, all monies were
disbursed pursuant to this claim. On June 8, 2000, the State of New Jersey,
Department of Human Services filed a warrant to discharge the Certificate of
Debt against Bio-Reference Laboratories, Inc. with the Superior Court of New
Jersey.
[20] 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 was effective April 9, 1998 for accounting purposes. The operations
of MLI were 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 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 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 was continued to be used by MLI
after the closing. The Stock Purchase Agreement also provides for a maximum of
$1,250,000 in additional payments to be made by
8
<PAGE>
the Company if certain revenues were realized by MLI after closing. On April 1,
2000, the Company made its final payment on the $1,500,000 promissory note. On
May 17, 2000 LTC was notified that MLI had achieved its revenue goals so that
$1,250,000 in additional payments will be made by the Company in three
installments through May 1, 2001. The Company has paid $625,000 of this
additional payment.
[21] On December 2, 1999, the Company entered into an agreement to purchase
certain assets utilized by a company engaged in selling Internet website design
and other Internet-oriented services to medical professionals and other
healthcare professionals. The Company delivered 140,000 shares of its common
stock in payment for the web business along with 60,000 shares of its common
stock in consideration for related non-competition agreements. The fair value of
the 200,000 shares of common stock was approximately $200,000. The Company also
paid $10,000 to a former executive officer of the website company and executed a
one year consulting agreement with the website company for a minimum consulting
fee of $40,000 in the initial year and $50,000 in any subsequent year. The
Company granted the website business an option to purchase a maximum of 100,000
shares of the Company's common stock exercisable at $3.00 per share with certain
vesting restrictions based upon meeting certain milestones within a
predetermined measuring period in the future.
On December 14, 1999, the Company entered into an agreement to purchase certain
assets utilized by a company engaged in the manufacture of certain health food
products. The Company delivered 180,000 shares of its common stock in payment
for the health food business along with 20,000 shares of its common stock in
consideration for a related non-competition agreement. The fair value of the
200,000 shares of common stock was approximately $200,000. The Company also
entered into an employment agreement in connection with the purchase providing
for an annual salary of $150,000 plus commissions and a signing bonus of
$100,000 payable in 24 monthly installments. The Company had a loss of
approximately $327,000 during the nine month period ended July 31, 2000
pertaining to this line of business.
To date these acquisitions have not been material to the Company.
[22] Capital Transactions - In April 2000, the Company issued 15,000 shares of
its common stock with a fair market value of $24,840.00 to a vendor for services
rendered. In addition, an employee exercised options for 24,667 shares of the
Company's common stock.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THIRD QUARTER 2000 VS THIRD QUARTER 1999
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 QUARTERLY 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. FOR A FURTHER DISCUSSION CONCERNING RISKS TO THE COMPANY'S BUSINESS, THE
RESULTS OF ITS OPERATIONS AND ITS FINANCIAL CONDITION, REFERENCE IS MADE TO THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED OCTOBER 31, 1999.
9
<PAGE>
NET REVENUES:
Net revenues for the three month period ended July 31, 2000 were $17,171,598 as
compared to $13,577,696 for the three month period ended July 31, 1999; which
represents a 26% increase in net revenues. This increase is due to a 14%
increase in patient counts and a 11% increase in net revenues per patient. The
Company acquired certain assets of Right Body Foods ("RBF") in December 1999.
RBF had net revenues of $29,585 for the quarter ended July 31, 2000.
The number of patients serviced during the three month period ended July 31,
2000 was 360,285 which was 14% greater when compared to the prior fiscal year's
three month period. Net revenue per patient for the three month period ended
July 31, 2000 was $47.58 compared to net revenue per patient of $42.79 for the
three month period ended July 31, 1999, an increase of $4.79 or 11%. The Company
believes that the increase in net revenues per patient during the three month
period in the current fiscal year was primarily attributable to higher
reimbursement rates.
COST OF SALES:
Cost of Sales, excluding RBF, increased from $7,764,934 for the three month
period ended July 31, 1999 to $9,300,685 for the three month period ended July
31, 2000, an increase of $1,535,751 or 20%. This increase is related to the
increase in net revenues of 26%. RBF had cost of sales of $143,283.
GROSS PROFITS:
Gross profits, excluding RBF, increased to $7,841,327 for the three month period
ended July 31, 2000 from $5,812,762 for the three month period ended July 31,
1999; an increase of $2,028,565 or 35%. This is primarily attributable to the
increase in net revenues. The increase in gross profit margins to 46% from 43%
is primarily attributable to the increase in net revenues and the operating
efficiencies realized with regard to the increase in net revenues. Management
believes that once the Company's automated chemistry laboratory is completed
during fiscal year 2000, capacity will be adequate to handle the projected
increase in patient volume. The Company's total gross profit was $7,727,504 for
the most recent quarter. RBF had a gross loss of $113,698 on net revenues of
$29,585.
GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses for the three month period ending July 31,
2000 was $7,257,742 as compared to $5,897,993 for the quarter ended July 31,
1999, an increase of $1,359,749 or 23%. Indirect expenses for the three month
period ending July 31, 2000, excluding RBF was $7,077,131 as compared to
$5,897,983 for the quarter ended July 31, 1999, an increase of $1,179,148 or 20%
compared with an increase in net revenues of 26%. This increase is made up of
primarily of an increase in bad debt expense of $655,000 and an increase of
$296,000 in marketing related expenses, both of which are attributable to the
Company's increase in net revenues. RBF had general and administrative expenses
of approximately $44,000.
INTEREST EXPENSE:
Interest expense increased from $356,606 during the three month period ending
July 31, 1999 to $440,480 during the three month period ended July 31, 2000 and
is due to the Company's increase in asset based borrowing; this trend is
expected to continue.
INCOME (LOSS):
The Company had income of $44,929 for the three months ended July 31, 2000 as
compared to a loss of $389,340 for the period ended July 31, 1999. Excluding the
impact of RBF for the three month period ended July 31, 2000, the Company had a
profit of $339,362 for the three months ended July 31, 2000 as compared to a
loss of $389,340 for the three month period ended July 31, 1999. RBF had a loss
of approximately $157,000. There has been no significant activity in the
Company's PSIMedica project or CareEvolve during the three month period ended
July 31, 2000
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NINE MONTHS 1999 COMPARED TO NINE MONTHS 2000
NET REVENUES:
Net Revenues for the nine month period ended July 31, 2000 were $48,487,299 as
compared to $39,637,682 for the nine month period ended July 31, 1999; this
represents a 22% increase in net revenues. This increase is due to a 11%
increase in patient counts and a 10% increase in net revenues per patient. RBF
had net revenues of $66,497 during this period.
The number of patients serviced during the nine month period ended July 31, 2000
was 1,012,784 which was 11% greater when compared to the prior fiscal year's
nine month period. Net revenue per patient for the six month period ended July
31, 2000 was $47.80, compared to net revenue per patient for the nine month
period ended July 31, 1999 of $43.57, an increase of $4.23 or 10%. The Company
believes that the increase in net revenues per patient during the nine month
period in the current fiscal year was primarily attributable to higher
reimbursement rates.
In June 1999, the Company licensed software from a third party to allow for the
grouping for analysis of medical claims data and has proceeded to develop its
own proprietary algorithms and enhancements to the licensed software so as to
include laboratory and prescription data. This project, called PSIMedica
(Population Strategies and Interventions in Medicine), is currently negotiating
with two ERISA funds which total over 60,000 lives as beta sites for its
analytical tools and programs. The Company expects to seek customers for its
services by the end of fiscal year 2000.
In December 1999, the Company announced the acquisition of certain assets of
DoctorNY.com (www.doctorny.com), a health portal which, with its associated
domain sites and existing physician websites, includes website development
capabilities for health care providers, together with a search engine which
allows consumers to locate physicians by region, credentials, specialty or other
parameters. The Company announced the consumer view represented by DoctorNY.com
was part of its entry into the e-health marketplace.
In February 2000, the Company announced the formation of its
business-to-business Internet strategy which was assigned to its new
CareEvolve.com business unit. This unit is currently developing physician
services to enhance physician-patient and physician-payor electronic
communications on a secure basis (i.e., preserving confidentiality), including
communicating laboratory results, e-mail prescriptions, refills, payor
verification and eligibility. The CareEvolve system will further offer
physicians claims processing, CME credits, immunization records and promote
e-commerce services, including physician supplies, office supplies and computer
hardware. The Company intends to market these services to its existing physician
network as well as to other individual physicians and groups of physicians
through its existing marketing staff.
In December 1999, the Company acquired certain assets of Right Body Foods, Inc.,
a manufacturer and distributor of freshly prepared, starch free, low-calorie,
low carbohydrate, food products, located in Syosset, New York. Its products are
sold through health professionals, dieticians, nutritionists and physicians. The
Company expects to use its marketing staff and physician network to increase the
distribution of these products.
In August 2000, the Company announced that its GenPath business unit will resume
full service oncology testing to physicians and institutions. While GenPath has
been offering limited oncology testing services since it was formed after the
sale of the GenCare Laboratory to Impath in 1997, Bio-Reference has announced
that through GenPath, it will once again offer full service hematology/oncology
and some genomic testing to its customers. Bio-Reference is assembling a
scientific staff and a marketing sales force in order to duplicate the success
that GenCare had in this market.
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COST OF SALES:
Cost of Sales, excluding RBF, increased from $22,917,434 for the nine month
period ended July 31, 1999 to $26,769,070 for the nine month period ended July
31, 2000. This represents a 17% increase in direct operating costs. This
increase is related to the increase in net revenues of 22%. RBF had cost of
sales of $304,485 during this period.
GROSS PROFITS:
Gross profits on net revenues, excluding RBF, increased to $21,651,732 for the
nine month period ended July 31, 2000 from $16,720,248 for the nine month period
ended July 31, 1999; an increase of $4,931,484 (29%), primarily attributable to
the increase in net revenues. Gross profit margins increased to 44% from 42%,
primarily attributable to the increase in net revenues per patient and the
operating efficiencies realized with regard to the increase in net revenues.
Management believes that once the Company's automated chemistry laboratory is
completed during fiscal year 2000, it will have enough capacity to handle the
projected increase in patient volume. The Company's total gross profit was
$21,413,609. RBF had a gross loss of $237,999 for the nine month period ended
July 31, 2000.
GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses for the nine month period ending July 31,
2000 were $20,460,229 as compared to $19,843,209 for the nine month period ended
July 31, 1999, an increase of $617,020 or 3%. During the nine month period ended
July 31, 1999, the Company wrote down an impaired asset of $924,371 attributable
to its end stage renal dialysis business acquired from Smith Kline Beecham and
the associated increase in reserves on its accounts receivable of $2,000,000.
Without the write-down and increase in reserves, the increase in indirect
expenses would have been $3,541,391 or 21%. This increase was caused primarily
by two factors, 1) an increase in marketing related expense of $782,000, and 2)
an increase in bad debt of $2,611,000 all of which are attributable to the
Company's increase in net revenues. RBF had general and administrative expenses
of approximately $89,000 for the nine months ended July 31, 2000.
INTEREST EXPENSE:
Interest expense increased from $1,135,603 during the nine month period ending
July 31, 1999 as compared to $1,184,060 during the nine month period ending July
31, 2000 an increase of $48,457. Management believes that this trend will
continue in the future due to the expected increased use of the Company's
revolving line of credit.
INCOME:
The Company had income of $291,452 for the nine months ended July 31, 2000 as
compared to a loss of $1,099,226 for the nine month period ended July 31, 1999
(after excluding RBF and factoring out the impact of the write-down during the
quarter ended April 30, 1999 of the impaired asset and its associated additional
reserve attributable to the Company's end stage renal dialysis business acquired
from Smith Kline Beecham). Without excluding these items from consideration, the
Company had a loss of $172,920 for the nine months ended July 31, 2000 as
compared to a loss of $4,023,592 for the period ended July 31, 1999. RBF had a
loss of $327,234 for the nine months ended July 31, 2000. There has been no
significant activity in PSIMedica or CareEvolve during the nine month period
ended July 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES:
Working capital as of July 31, 2000 was approximately $2,400,000 as compared to
approximately $3,500,000 at October 31, 1999. The Company decreased its cash
position by approximately $1,072,000 during the current period. The Company
utilized approximately $2,843,000 in cash for operating activities. To offset
this use of cash the Company borrowed $3,300,000 in short-term debt and repaid
approximately $2,100,000 in existing debt. The Company had current liabilities
of approximately $22,000,000 at July 31, 2000. The three largest items in this
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category are notes payable of $12,000,000, accounts payable of approximately
$6,300,000 and current portion of long-term debt of approximately $1,500,000 The
Company entered into an agreement with one of its vendors to convert
approximately $670,000 of accounts payable obligations into a three year term
debt.
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
and maintains an allowance for uncollectible accounts based upon collection
history and anticipated collection, and as a consequence, believes that its
accounts receivable credit risk exposure beyond such allowance is not material
to the financial statements.
A number of proposals for legislation continue to be 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. On a positive note, Medicare announced that it would more
than double the reimbursement rate for Pap tests (from $7.15 to $14.60) and
would commence to reimburse for PSA tests starting January 1, 2000.
In January 2000, the Company commenced negotiations with New Jersey Medicaid
regarding a claim (the "Claim") made by the State in December 1999 that with
respect to certain clinical laboratory tests for which reimbursements were made
by the State to the Company. Although such tests were authorized by the
physician, the underlying laboratory test requisitions did not bear the actual
signature of the physician ordering the test.
The Company believes it has been compliant with all requirements regarding
claims submitted for payment by New Jersey Medicaid and in fact requires actual
physician signatures before it bills New Jersey Medicaid. However, the Company
and New Jersey Medicaid have entered into an oral agreement in January 2000 to a
settlement of approximately $227,000 to cover the Claim and the Company accrued
this settlement amount in its October 31, 1999 financial statements. The
settlement is subject to the parties' execution of a written agreement setting
forth its terms and to the approval of the Director of the New Jersey Division
of Medical Assistance. Approval of the settlement is being recommended to the
Director. All of the monies have been forwarded to the State of New Jersey and
on June 8, 2000, a Warrant to Discharge the Certificate of Debt was filed by the
State with the Superior Court of New Jersey.
New Jersey Medicaid is the only payor the Company does business with that
requires an actual physician signature on every laboratory requisition. In the
fiscal year ending October 31, 1999, New Jersey Medicaid represented
approximately 3% of the Company's total net revenues.
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 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. The Company has accrued
this amount ($150,000) in its October 31, 1999 financial statements.
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
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accounts receivable [as defined in the agreement] plus 100% of the face amount
of any 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 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, the Company was in compliance
with the covenant provisions of this agreement and was utilizing $12,000,000 of
this credit facility. As of October 31, 1999, the Company was in default of
certain covenants, however, the Company subsequently received waivers for these
defaults on January 20, 2000. As of October 31, 1999, the Company was utilizing
$8,700,905 of this credit facility. As of July 31, 2000, the Company was
utilizing $12,000,000 of this credit facility.
The Company has various employment and consulting agreements for terms of up to
seven years with commitments totaling approximately $5,700,000 and operating
leases with commitments totaling approximately $4,500,000 (of which
approximately $1,560,000 and $1,600,000 are due during fiscal 2000)
The Company's cash balances at July 31, 2000 were $1,056,162 as compared to
$2,128,474 at October 31, 1999. The Company believes that its cash position, the
anticipated cash generated from operations, the utilization of certificates of
deposits maturing during the fourth quarter of fiscal year 2000 and the interest
due thereupon, will meet its future cash needs for the remainder of the fiscal
year.
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 QUARTERLY 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. FOR A FURTHER DISCUSSION CONCERNING RISKS TO THE COMPANY'S BUSINESS, THE
RESULTS OF ITS OPERATIONS AND ITS FINANCIAL CONDITION, REFERENCE IS MADE TO THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED OCTOBER 31, 1999.
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. 137, "Accounting for Derivative Instruments
and Hedging Activities-Deferral of Effective Date of FASB Statements No. 133."
The Statement defers for one year the effective date of FASB Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The rule now
will apply to all fiscal quarters of all fiscal years beginning after June 15,
2000. The Statement will require the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be adjusted to
fair value through income. If the derivative is a hedge, depending on the value
of the hedged assets, liabilities, or firm commitments are recognized through
earnings or are recognized in other comprehensive income until the hedged item
is recognized in earnings. The ineffective portion of a derivative's change in
fair value will be immediately recognized in earnings. The adoption of SFAS No.
137 is not expected to have a material impact on the Company's consolidated
results of operation, financial position or cash flows.
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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,
2000.
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 and Chief Executive Officer
/S/ SAM SINGER
----------------------------------------
Sam Singer
Chief Financial and Accounting Officer
Date: September 14, 2000.
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