FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended APRIL 30, 2000
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AND
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-15266
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BIO-REFERENCE LABORATORIES, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2405059
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
481 EDWARD H. ROSS DRIVE, ELMWOOD PARK, NJ 07407
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (201) 791-2600
------------------
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(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
stock, as of the latest practicable date: 8,140,449($.01 par value) at June 8,
2000.
<PAGE>
BIO-REFERENCE, LABORATORIES, INC.
FORM 10-Q
APRIL 30, 2000
I N D E X
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of April 30, 2000 (unaudited)
and October 31, 1999 1
Statements of Operations for the
three months and six months ended April 30, 2000
and April 30, 1999 (unaudited) 3
Statements of Cash Flows for the
six months ended April 30, 2000 and April 30,
1999 (unaudited) 4
Notes to financial statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
<PAGE>
BIO-REFERENCE LABORATORIES, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
-------- -----------
2000 1999
------------ -------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
--------------
Cash and Cash Equivalents $ 1,580,010 $ 2,128,474
Accounts Receivable (Net) 21,259,645 18,615,496
Inventory 588,070 572,279
Other Current Assets 393,172 404,124
----------- -----------
TOTAL CURRENT ASSETS $23,820,897 $21,720,373
-------------------- ----------- -----------
PROPERTY, PLANT AND EQUIPMENT $ 5,556,107 $ 5,211,467
LESS: Accumulated Depreciation 3,511,419 3,039,128
------------------------------- ----------- -----------
TOTAL PROPERTY,
PLANT AND EQUIPMENT - NET $ 2,044,688 $ 2,172,339
------------------------- ----------- -----------
OTHER ASSETS:
Due from Related Party 106,118 138,518
Deposits 266,756 278,619
Goodwill (Net of Accumulated
Amortization of $1,773,535 and $1,597,767 respectively) 5,221,095 5,396,863
Intangible Assets (Net of Accumulated
Amortization of $2,437,837 and $2,271,436 respectively) 2,664,059 1,764,740
Surrender Value of Officers Life Insurance 780,296 567,769
Other Assets 304,474 278,777
----------- -----------
TOTAL OTHER ASSETS $ 9,342,798 $ 8,425,286
------------------ ----------- -----------
TOTAL ASSETS $35,208,383 $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>
APRIL 30, OCTOBER 31,
--------- -----------
2000 1999
------ -------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
-------------------
Accounts Payable $ 5,776,199 $ 5,540,787
Salaries and Commissions Payable 1,263,213 1,349,175
Accrued Expenses 566,516 849,463
Current Portion of Long-Term Debt 981,235 1,215,671
Current Portion of Leases Payable 325,435 308,251
Notes Payable 10,824,713 8,700,905
Taxes Payable 453,241 304,098
------------ ------------
TOTAL CURRENT LIABILITIES $ 20,190,522 $ 18,268,350
------------------------- ------------ ------------
LONG-TERM LIABILITIES:
----------------------
Long-Term Portion of Long-Term Debt (Net of Discount) 1,984,955 2,000,000
Long-Term Portion of Leases Payable 734,944 680,538
------------ ------------
TOTAL LONG-TERM LIABILITIES $ 2,719,899 $ 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
April 30, 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] (11,831,284) (11,613,433)
------------ ------------
Totals $ 12,668,574 $ 11,818,656
Deferred Compensation (370,642) (449,546)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY $ 12,297,932 $ 11,369,110
--------------------------- ------------ ------------
TOTAL LIABILITIES AND
---------------------
SHAREHOLDERS' EQUITY $ 35,208,383 $ 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 SIX MONTHS ENDED
------------------ ----------------
APRIL 30, APRIL 30,
-------- --------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET REVENUES: $ 16,286,141 $ 13,419,503 $ 31,315,702 $ 26,059,986
------------- ------------ ------------ ------------ ------------
COST OF SERVICES:
-----------------
Depreciation $ 195,996 $ 217,879 $ 390,402 $ 437,325
Employee Related Expenses 4,130,387 3,750,846 7,981,904 7,085,224
Reagents and Lab Supplies 2,166,415 1,704,875 4,190,432 3,320,162
Other Cost of Services 2,631,355 2,272,428 5,066,858 4,309,788
------------ ------------ ------------ ------------
TOTAL COST OF SERVICES $ 9,124,153 $ 7,946,027 $ 17,629,596 $ 15,152,499
---------------------- ------------ ------------ ------------ ------------
GROSS PROFIT ON REVENUES $ 7,161,988 $ 5,473,476 $ 13,686,106 $ 10,907,487
------------------------
GENERAL AND ADMINISTRATIVE EXPENSES:
-----------------------------------
Depreciation and Amortization $ 210,218 $ 247,368 $ 424,059 $ 493,468
Other General and Admin. Expenses 4,400,125 3,855,399 8,732,029 7,545,003
Bad Debt Expense 2,302,122 1,702,139 4,046,399 2,984,230
Expenses of Impaired Asset -- 2,924,371 -- 2,924,371
------------ ------------ ------------ ------------
TOTAL GENERAL AND ADMIN. EXPENSES $ 6,912,465 $ 8,729,277 $ 13,202,487 $ 13,947,072
--------------------------------- ------------ ------------ ------------ ------------
OPERATING INCOME $ 249,523 $ (3,255,801) $ 483,616 $ (3,039,585)
----------------
OTHER (INCOME) EXPENSES:
------------------------
Interest Expense $ 392,553 $ 375,903 $ 743,580 $ 778,997
Interest Income (20,747) (105,187) (42,113) (184,325)
------------ ------------ ------------ ------------
TOTAL OTHER EXPENSES - NET $ 371,806 $ 270,716 $ 701,467 $ 594,672
-------------------------- ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE TAX $ (122,283) $ (3,526,517) $ (217,848) $ (3,634,257)
------------------------
Provision for Income Taxes -- -- -- --
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (122,283) $ (3,526,517) $ (217,848) $ (3,634,257)
----------------- ============ ============ ============ ============
NET INCOME (LOSS) PER SHARE (BASIC & DILUTED): $ (.02) $ (.49) $ (.03) $
---------------------------------------------- ------------ ------------ ============ ============
(.50)
NUMBER OF SHARES: 8,114,004 7,216,243 8,045,726 7,214,576
---------------- ============ ============ ============ ============
</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>
SIX MONTHS ENDED
APRIL 30,
2000 1999
------ ------
<S> <C> <C>
OPERATING ACTIVITIES:
--------------------
Net Income $ (217,847) $(3,634,257)
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Deferred Compensation 78,904 35,007
Compensation Expense 24,840 10,000
Depreciation and Amortization 814,460 930,793
Amortization of Deferred Assets 46,002 46,002
Expenses of Impaired Asset -- 2,924,371
Provision for Bad Debts 4,046,399 2,984,230
Change in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable (6,690,551) (3,247,690)
Other Assets (193,962) 50,283
Prepaid Expenses and Other Current Assets (4,839) 284,107
Increase (Decrease) in:
Accounts Payable and Accrued Liabilities 686,377 597,363
----------- -----------
NET CASH - OPERATING ACTIVITIES $(1,410,217) $ 980,209
-------------------------------
INVESTING ACTIVITIES:
---------------------
Acquisition of Equipment and
Leasehold Improvements $ (122,079) $ (274,344)
Payment for Acquisition of Intangible Assets $ (40,520) --
----------- -----------
NET CASH - INVESTING ACTIVITIES $ (162,599) (274,344)
-------------------------------
FINANCING ACTIVITIES:
--------------------
Proceeds from Exercise of Options $ 17,729 $ --
Payments of Long-Term Debt (966,214) (1,142,604)
Payments of Capital Lease Obligations (150,971) (17,433)
Increase in Revolving Line of Credit 2,123,808 --
----------- -----------
NET CASH - FINANCING ACTIVITIES $ 1,024,352 $(1,160,037)
------------------------------- ----------- -----------
NET INCREASE (DECREASE) IN CASH $ (548,464) $ (454,172)
-------------------------------
CASH AT BEGINNING OF PERIODS 2,128,474 2,784,147
---------------------------- ----------- -----------
CASH AT END OF PERIODS $ 1,580,010 2,329,975
---------------------- =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
--------------------------------------------------
Cash paid during the period for:
Interest $ 692,502 $ 781,086
Income Taxes $ 20,914 $ 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:
---------------------------------------------------------------------
(UNAUDITED)
-----------
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 down the impaired
asset and its associated reserve in connection with the Company's end stage
renal dialysis business acquired from SBCL in the amount of $2,924,371.
In January 1999, the Company issued 10,000 shares 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.
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 six month periods ended
April 30, 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 Six Months Ended
April 30, April 30,
------------------ ------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
$ 21,015,838 $ 18,314,710 $ 38,113,838 $ 34,022,933
</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 $18,418,895 at April 30, 2000 and $13,239,835 at
April 30, 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 April 30, 2000 and April
30, 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 April 30, 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 April 30, 2000, the Company had $1,218,557 in cash 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 April 30,
2000, $10,824,713 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.
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 April 30, 2000, approximately
$43,000 was outstanding pursuant to this claim.
[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>
(UNAUDITED)
the Company if certain revenues are 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.
[21] On December 2, 1999, the Company entered into an agreement to purchase
certain assets utilized by a company that is 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 that is 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 $170,000 during the six month period ended April 30, 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 to a vendor for services rendered. In addition, an employee
exercised options for 24,667 shares of the Company's common stock.
9
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF SECOND QUARTER 2000 VS SECOND 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.
NET REVENUES:
------------
Net revenues for the three month period ended April 30, 2000 were $16,286,141 as
compared to $13,419,503 for the three month period ended April 30, 1999; which
represents a 21% increase in net revenues. This increase is due to a 9% increase
in patient counts and a 12% increase in net revenues per patient. The Company
acquired certain assets of Right Body Foods ("RBF") in December 1999. RBF had
net revenues of $27,591 for the quarter ended April 30, 2000.
The number of patients serviced during the three month period ended April 30,
2000 was 340,108 which was 9% greater when compared to the prior fiscal year's
three month period. Net revenue per patient for the three month period ended
April 30, 2000 was $47.89 compared to net revenue per patient of $42.93 for the
three month period ended April 30, 1999, an increase of $4.96 or 12%.
COST OF SALES:
-------------
Cost of Sales, excluding RBF, increased from $7,946,027 for the three month
period ended April 30, 1999 to $9,002,803 for the three month period ended April
30, 2000, an increase of $1,056,776 or 13%. This increase is related to the
increase in net revenues of 21%. RBF had cost of sales of $121,350.
GROSS PROFITS:
-------------
Gross profits, excluding RBF, increased to $7,255,747 for the three month period
ended April 30, 2000 from $5,473,476 for the three month period ended April 30,
1999; an increase of $1,782,271 or 33%. This is primarily attributable to the
increase in net revenues. The increase in gross profit margins to 45% from 41%
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 $7,161,988 for
the most recent quarter. RBF had a gross loss on net revenues of $93,759.
GENERAL AND ADMINISTRATIVE EXPENSES:
-----------------------------------
General and administrative expenses for the three month period ending April 30,
2000 was $6,912,465 as
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compared to $8,729,277 for the quarter ended April 30, 1999, a decrease of
$1,816,812 or 21%. Indirect expenses for the three month period ending April 30,
2000, excluding RBF, was $6,879,465 as compared to $8,729,277 for the quarter
ended April 30, 1999, a decrease of $1,849,812 or 21%. During the quarter ended
April 30, 1999, the Company wrote down an impaired asset of $924,371 for the
Company's end stage renal dialysis business acquired from Smith Kline Beecham
and increased its associated reserves on its accounts receivable of $2,000,000.
Without this adjustment of $2,924,371, general and administrative expenses would
have increased $1,074,559 or 19% compared with the increase in net revenue of
21%. This increase is made up of primarily of an increase in bad debt expense of
$600,000 and an increase of $222,000 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 $33,000.
INTEREST EXPENSE:
----------------
Interest expense increased from $375,903 during the three month period ending
April 30, 1999 to $392,553 during the three month period ended April 30, 2000
and is due to the Company's increase in asset based borrowing; this trend is
expected to continue.
INCOME (LOSS):
-------------
The Company had a loss of $122,283 for the three months ended April 30, 2000 as
compared to a loss of $3,526,517 for the period ended April 30, 1999. Excluding
the impact of RBF for the three month period ended April 30, 2000 and the impact
of the write-down of the impaired asset and its associated additional reserve on
the Company's end stage renal dialysis business acquired from Smith Kline
Beecham during the quarter ended April 30, 1999, the Company had a profit of
$4,569 for the three months ended April 30, 2000 as compared to a loss of
$607,146 for the three month period ended April 30, 1999. RBF had a loss of
$126,852 for the three months ended April 30, 2000. There has been no
significant activity in the Company's PSIMedica or CareEvolve projects during
the three month period ended April 30, 2000.
SIX MONTHS 1999 COMPARED TO SIX MONTHS 2000
-------------------------------------------
NET REVENUES:
------------
Net Revenues for the six month period ended April 30, 2000 were $31,315,702 as
compared to $26,059,986 for the six month period ended April 30, 1999; this
represents a 20% increase in net revenues. This increase is due to a 10%
increase in patient counts and a 9% increase in net revenues per patient. RBF
had net revenues of $36,912 during this period.
The number of patients serviced during the six month period ended April 30, 1999
was 652,499 which was 10% greater when compared to the prior fiscal year's six
month period. Net revenue per patient for the six month period ended April 30,
2000 was $47.94, compared to net revenue per patient for the six month period
ended April 30, 1999 of $44.00, an increase of $3.94 or 9%.
In June 1999, the Company licensed software from a third party to allow for the
grouping of the 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 mid 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
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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 January 2000, the Company announced that
Donald D. Bennett, Chairman and CEO of Richfoods Holdings, will chair the RBF
advisory board which will consist of industry experts to help guide the RBF
concept and product line through its expansion.
COST OF SALES:
-------------
Cost of Sales, excluding RBF, increased from $15,152,499 for the six month
period ended April 30, 1999 to $17,468,384 for the six month period ended April
30, 2000. This represents a 15% increase in direct operating costs. This
increase is related to the increase in net revenues of 20%. RBF had cost of
sales of $161,212 during this period.
GROSS PROFITS:
-------------
Gross profits on net revenues, excluding RBF, increased to $13,810,406 for the
six month period ended April 30, 2000 from $10,907,487 for the six month period
ended April 30, 1999; an increase of $2,902,919 (27%), 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
$13,686,106. RBF had a gross loss of $124,300 for the six month period ended
April 30, 2000.
GENERAL AND ADMINISTRATIVE EXPENSES:
-----------------------------------
General and administrative expenses for the six month period ending April 30,
2000 were $13,202,487 as compared to $13,947,072 for the six month period ended
April 30, 1999, a decrease of $744,585 or 5%. This decrease was caused primarily
by a write-down of an impaired asset of $924,371 for the Company's end stage
renal dialysis business acquired from Smith Kline Beecham and its associated
increase in reserves on its accounts receivable of $2,000,000, during the six
month period ended April 30, 1999. Without the adjustment, the increase in
indirect expenses would have been $2,179,786 or 20%. This increase was caused
primarily by three factors, 1) an increase in marketing related expense of
$486,000, 2) an increase in data processing costs of $231,000 and 3) an increase
in bad debt of $1,062,000, all of
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which are attributable to the Company's increase in net revenues. RBF had
general and administrative expenses of $45,638 for the six months ended April
30, 2000.
INTEREST EXPENSE:
----------------
Interest expense decreased from $778,997 during the six month period ending
April 30, 1999 as compared to $743,580 during the six month period ending April
30, 2000 a decrease of $35,417. Management believes that this trend will not
continue in the future due to the expected increased use of the Company's
revolving line of credit.
INCOME:
-------
Excluding RBF, the Company had a loss of $47,910 for the six months ended April
30, 2000 as compared to a loss of $709,886 for the six month period ended April
30, 1999 once you factor out the impact of the write-down of the impaired asset
and its associated additional reserve on the Company's end stage renal dialysis
business acquired from Smith Kline Beecham during the quarter ended April 30,
1999. Without excluding these items from consideration, the Company had a loss
of $217,848 for the six months ended April 30, 2000 as compared to a loss of
$3,634,257 for the period ended April 30, 1999. This decrease of $3,416,409 is
primarily attributable to the Smith Kline Beecham transaction previously noted.
RBF had a loss of $169,938 for the six months ended April 30, 2000. There has
been no significant activity in either PSIMedica or CareEvolve during the six
month period ended April 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES:
-------------------------------
Working capital as of April 30, 2000 was approximately $3,600,000 as compared to
approximately $3,500,000 at October 31, 1999. The Company decreased its cash
position by approximately $548,000 during the current period. The Company
utilized approximately $1,410,000 in cash for operating activities. To offset
this use of cash the Company borrowed $2,100,000 in short-term debt and repaid
approximately $1,100,000 in existing debt. The Company had current liabilities
of approximately $20,200,000 at April 30, 2000. The three largest items in this
category are notes payable of approximately $10,800,000, accounts payable of
approximately $5,800,000 and salaries and commissions payable of approximately
$1,300,000 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 has announced that it will
more than double the reimbursement rate for Pap tests (from $7.15 to $14.60) and
will 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
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<PAGE>
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. Approximately $43,000 was outstanding pursuant to this claim as of
April 30, 2000.
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
(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 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 April 30, 2000, the Company was
utilizing $10,824,713 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 April 30, 2000 were $1,580,000 as compared to
$2,128,474 at October 31, 1999. The Company believes that its cash position, the
anticipated cash generated from operations,
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<PAGE>
the expanded use of its credit line with PNC Bank, the utilization of
certificates of deposits maturing during the third 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.
PART II - OTHER INFORMATION
Item 6
EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
The Company filed no reports on Form 8-K during the quarter ended April 30,
2000.
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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 and Chief Executive Officer
/s/ Sam Singer
--------------------------------------
Sam Singer
Chief Financial and Accounting Officer
Date: June 14, 2000
16
