FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended January 31, 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
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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 (IRS Employer Identification No.)
incorporation or organization)
481 Edward H. Ross Drive, Elmwood Park, NJ 07407
- ------------------------------------------ --------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (201) 791-2600
-------------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes /X/ No ---
--
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 8,100,782 shares of Common Stock
($.01 par value) at March 15, 2000.
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BIO-REFERENCE, LABORATORIES, INC.
FORM 10-Q
JANUARY 31, 2000
I N D E X
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of January 31, 2000 (unaudited)
and October 31, 1999. 1
Statements of Operations (unaudited) for the
three months ended January 31, 2000 and January 31,
1999 3
Statements of Cash Flows (unaudited) for the three months
ended January 31, 2000 and January 31, 1999 4
Notes to financial statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION 12
Item 6. Exhibits and Reports on Form 8-K
Signatures 13
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BIO-REFERENCE LABORATORIES, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
January 31, October 31,
2000 1999
------------ -----------
(Unaudited)
CURRENT ASSETS:
- --------------
<S> <C> <C>
Cash and Cash Equivalents $ 2,225,059 $ 2,128,474
Accounts Receivable (Net) 19,785,723 18,615,496
Inventory 584,284 572,279
Other Current Assets 450,895 404,124
----------- -----------
TOTAL CURRENT ASSETS $ 23,045,961 $ 21,720,373
-------------------- ---------- ----------
PROPERTY, PLANT AND EQUIPMENT $ 5,475,008 $ 5,211,467
-----------------------------
LESS: Accumulated Depreciation 3,279,970 3,039,128
---- --------- ---------
TOTAL PROPERTY,
PLANT AND EQUIPMENT - NET $ 2,195,038 $ 2,172,339
------------------------- --------- ---------
OTHER ASSETS:
- ------------
Due from Related Party 122,318 138,518
Deposits 253,878 278,619
Goodwill (Net of Accumulated
Amortization of $1,686,106 and $1,597,767 respectively) 5,308,524 5,396,863
Deferred Charges (Net of Accumulated
Amortization of $2,350,502 and $2,271,436 respectively) 2,751,394 1,764,740
Other Assets 927,762 846,546
---------- ----------
TOTAL OTHER ASSETS $ 9,363,876 $ 8,425,286
------------------ --------- ---------
TOTAL ASSETS $ 34,604,875 $ 32,317,998
------------ ========== ==========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
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BIO-REFERENCE LABORATORIES, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
January 31, October 31,
2000 1999
------------- -------------
(Unaudited)
-----------
CURRENT LIABILITIES:
- -------------------
<S> <C> <C>
Accounts Payable $ 4,955,513 $ 5,540,787
Salaries and Commissions Payable 1,180,423 1,349,175
Accrued Expenses 784,733 849,463
Current Portion of Long-Term Debt 1,281,235 1,215,671
Current Portion of Leases Payable 332,405 308,251
Notes Payable 10,122,324 8,700,905
Taxes Payable 403,994 304,098
------------ -----------
TOTAL CURRENT LIABILITIES $ 19,060,627 $ 18,268,350
------------------------- ------------ ----------
LONG-TERM LIABILITIES:
- ---------------------
Long-Term Portion of Long-Term Debt (Net of Discount) 2,411,618 2,000,000
Long-Term Portion of Leases Payable 794,436 680,538
------------ ----------
TOTAL LONG-TERM LIABILITIES $ 3,206,054 $ 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
8,100,782 shares at January 31, 2000 and 7,700,777 shares
at October 31, 1999 81,008 77,008
Additional Paid-In Capital 24,315,873 23,294,673
Accumulated [Deficit] (11,709,001) (11,613,433)
------------ ----------
Totals $ 12,748,288 $ 11,818,656
Deferred Compensation (410,094) (449,546)
------------ ----------
TOTAL SHAREHOLDERS' EQUITY $ 12,338,194 $ 11,369,110
-------------------------- ------------ ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 34,604,875 $ 32,317,998
-------------------- ============ ==========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
2
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BIO-REFERENCE LABORATORIES, INC.
STATEMENTS OF OPERATIONS
[UNAUDITED]
<TABLE>
<CAPTION>
Three months ended
January 31,
------------------
2000 1999
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<S> <C> <C>
NET REVENUES: $15,029,560 $ 12,640,484
- ------------ ---------- ----------
COST OF SERVICES:
- ----------------
Depreciation $ 194,406 $ 219,446
Employee Related Expenses 3,851,517 3,334,378
Reagents and Lab Supplies 2,024,297 1,615,287
Other Cost of Services 2,435,223 2,037,361
--------- ---------
TOTAL COST OF SERVICES $ 8,505,443 $ 7,206,471
---------------------- --------- ---------
GROSS PROFIT ON REVENUES $ 6,524,117 $ 5,434,012
- ------------------------
GENERAL AND ADMINISTRATIVE EXPENSES:
- -----------------------------------
Depreciation and Amortization $ 213,841 $ 246,100
Other General and Admin. Expenses 4,331,904 3,689,604
Bad Debt Expense 1,744,277 1,282,092
--------- ---------
TOTAL GENERAL AND ADMIN. EXPENSES $ 6,290,022 $ 5,217,796
--------------------------------- --------- ---------
OPERATING INCOME $ 234,095 $ 216,216
----------------
OTHER (INCOME) EXPENSES:
- -----------------------
Interest Expense $ 351,027 $ 403,095
Interest Income (21,367) (79,138)
--------- ---------
TOTAL OTHER EXPENSES - NET $ 329,660 $ 323,957
-------------------------- --------- ---------
LOSS BEFORE TAX (95,565) $ (107,741)
- ---------------
Provision for Income Taxes $ -- $ --
--------- ---------
NET (LOSS) INCOME $ (95,565) $ (107,741)
- ------------------
NET (LOSS) INCOME PER SHARE: $ (.01) $ (.01)
- ---------------------------
NUMBER OF SHARES: 7,967,449 7,206,299
- ----------------
NET (LOSS) INCOME PER SHARE - ASSUMING DILUTION: $ (.01) $ (.01)
- ------------------------------------------------
NUMBER OF SHARES- ASSUMING DILUTION: 7,967,449 7,977,004
- -----------------------------------
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
3
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BIO-REFERENCE LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
[UNAUDITED]
<TABLE>
<CAPTION>
Three months ended
January 31,
------------------
2000 1999
-------- -------
OPERATING ACTIVITIES:
- --------------------
<S> <C> <C>
Net Income (Loss) $ (95,565) $ (107,741)
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Deferred Compensation 39,452 17,504
Depreciation and Amortization 408,247 465,545
Amortization of Deferred Asset 23,001 --
Provision for Bad Debts 1,744,277 1,282,092
Change in Assets and Liabilities
(Increase) Decrease in:
Accounts Receivable (2,914,507) (2,280,529)
Other Assets (40,275) 48,547
Prepaid Expenses and Other Current Assets (58,776) (181,006)
Deferred Charges and Goodwill (40,520) --
Increase (Decrease) in:
Accounts Payable and Accrued Liabilities (48,129) (496,684)
---------- ------------
NET CASH - OPERATING ACTIVITIES $ (982,795) $ (1,252,272)
-------------------------------
INVESTING ACTIVITIES:
- --------------------
Acquisition of Equipment and
Leasehold Improvements $ (40,980) $ (51,628)
FINANCING ACTIVITIES:
- --------------------
Payments of Long-Term Debt $ (216,550) $ (333,036)
Payments of Capital Lease Obligations (84,509) (54,571)
Increase in Revolving Line of Credit 1,421,419 1,205,524
----------- ------------
NET CASH - FINANCING ACTIVITIES $ 1,120,360 $ 817,917
------------------------------- ---------- ------------
NET INCREASE (DECREASE) IN CASH $ 96,585 $ (485,983)
-------------------------------
CASH AT BEGINNING OF PERIODS $ 2,128,474 $ 2,784,147
---------------------------- ---------- ------------
CASH AT END OF PERIODS $ 2,225,059 $ 2,298,164
---------------------- =========- ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
- -------------------------------------------------
Cash paid during the period for:
Interest $ 336,068 $ 404,751
Income Taxes $ 14,825 $ 15,682
The Accompanying Notes are an Integral Part of These Financial Statements.
</TABLE>
4
<PAGE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
- --------------------------------------------------------------------
During fiscal 1998, Bio-Reference Laboratories, Inc. ("BRLI" or "the Company")
incurred two capital lease obligations totaling $93,143 in connection with the
acquisition of medical equipment.
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 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).
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
5
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BIO-REFERENCE LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
[1] In the opinion of management, the accompanying unaudited condensed financial
statements reflect all adjustments [consisting only of normal adjustments and
recurring accruals] which are necessary to present a fair statement of the
results for the interim periods presented.
[2] The results of operations for the three month period ended January 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.
Three Months Ended
January 31
2000 1999
---- ----
$ 17,098,000 $ 15,708,223
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 $15,790,113 at January 31, 2000 and $11,742,488
at January 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 8 years. Leasehold improvements are amortized over the
life of the lease, which is approximately five years. On sale or retirement, the
asset cost and related accumulated depreciation or amortization are removed from
the accounts, and any related gain or loss is reflected in income. Repairs and
maintenance are charged to expense when incurred.
[8] The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
[9] Cash equivalents are comprised of certain highly liquid investments with a
maturity of three months or less when purchased.
[10] The Company adopted SFAS 128, "Earnings per share" in these financial
statements. Basic income per share is based on the weighted average number of
shares of common stock outstanding during each period. Diluted income per share
includes the effects of assumed exercise of outstanding options and warrants and
the issuance of potential common shares, if dilutive. At January 31, 2000 and
January 31, 1999 the potential issuance of common shares upon exercise of
outstanding options and warrants was anti-dilutive. The effects of deferred
compensation is included by applying the treasury stock method.
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[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 January 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 January 31, 2000, the Company had $1,790,858 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 its 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 January 31,
2000, $10,122,324 was outstanding pursuant to this facility.
[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 a quarterly 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
7
<PAGE>
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 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.
[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 BRLI at the closing (including $50,000 of payments for
non-competition agreements with LTC, Holdings, two affiliated corporations and
an employee of LTC and $200,000 of payments for access and use through April 8,
1999 of a laboratory hardware and software system of significant importance to
the MLI business) and delivery by BRLI of its $1,500,000 promissory note payable
without interest in three semi-annual installments commencing one year after the
closing. In addition, BRLI paid an MLI obligation of $122,366 at the closing to
an MLI affiliated entity for MLI's use through the closing date of a piece of
analytical equipment which 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 BRLI if certain revenues are realized by MLI
after closing.
[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.
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 Company
entered into an employment agreement in connection with this purchase. The fair
value of the 200,000 shares of common stock was approximately $200,000. The
Company also entered into an employment agreement providing for an annual salary
of $150,000 plus commissions and a signing bonus of $100,000 payable in 24
monthly installments.
These acquisitions are not material to the Company.
8
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Note Regarding Forward-Looking Statements
- -----------------------------------------
This Quarterly Report on Form 10-Q contains historical information as well as
forward-looking statements. Statements looking forward in time are included in
this Annual Report pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Such statements involve known and
unknown risks and uncertainties that may cause the Company's actual results in
future periods to be materially different from any future performance suggested
herein.
NET REVENUES:
- ------------
Net revenues for the three month period ended January 31, 2000 were $15,029,560,
as compared to $12,640,484 for the three month period ended January 31, 1999;
this represents a 19% increase in net revenues. Medilabs ("MLI") had net
revenues of $3,110,366 or 21% of the Company's net revenues for the most recent
quarter as compared to $3,285,539 or 26% for the three month period ended
January 31, 1999. The Company acquired certain assets of Right Body Foods
("RBF") in December 1999. RBF had net revenues of $9,321 for the quarter ended
January 31,2000.
The number of patients processed during the three month period ended January 31,
2000 was 312,391 which was 12% greater when compared to the comparable quarter
in 1999. MLI accounted for 33% of the patient count for the three month period
ended January 31, 2000 and 35% for the three month period ended January 31,
1999. Net revenue per patient for the three month period ended January 31, 1999
was $45.18 compared to net revenue per patient for the three month period ended
January 31, 2000 of $48.11, an increase of $2.93 or 6%. MLI's net revenue per
patient was $29.96 for the three month period ended January 31, 2000 and $33.14
for the three month period ended January 31, 1999.
In June 1999, the Company licensed software 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 business unit, 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 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.
9
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COST OF SERVICES:
- ----------------
Cost of Services increased from $7,206,471 for the three month period ended
January 31, 1999 to $8,085,443 for the three month period ended January 31,
2000, an increase of $878,972 or 12%. This increase is in line with the increase
in net revenues of 19%. RBF contributed approximately $40,000 to this increase.
GROSS PROFITS:
- -------------
Gross profit on net revenues increased from $5,434,012 for the three month
period ended January 31, 1999 to $6,524,117 for the three month period ended
January 31, 2000; an increase of $1,090,105 primarily attributable to the
increase in revenues. Profit margins increased by approximately 1% and is
primarily attributable to the increased net revenues per patient and the
decrease in direct costs relative to the increase in net revenues. Management
believes that capacity, once the Company's automated chemistry laboratory is
completed during fiscal 2000, will be more than adequate to handle the projected
increase in patient volume.
GENERAL AND ADMINISTRATIVE EXPENSES:
- -----------------------------------
General and administrative expenses for the three month period ended January 31,
2000 were $6,290,022 as compared to $ 5,217,796 for the quarter ended January
31, 1999, an increase of $1,072,266 or 21%. Of this increase, $460,000 (or 45%)
was related to an increase in bad debt expense which is reflected in the
Company's increase in revenues. The balance of this increase is attributable to
(1) a 24% (approximately $250,000) increase in marketing expenses and (2) a 36%
(approximately $390,000) increase in telephone and data processing expenses.
INTEREST EXPENSE:
- ----------------
Interest expense decreased from $403,095 for the three month period ended
January 31, 1999 to $351,027 for the three month period ended January 31, 2000,
a decrease of $52,068 or 13%. Management believes that this trend will not
continue in the future due to the increased use of its revolving line of credit.
INCOME (LOSS):
- -------------
The Company's net loss for the three month period ended January 31, 2000 was
$95,565. Of this loss, approximately $43,000 was attributable to the start up
costs related to the expansion of the RBF product line. Without the effect of
RBF, the Company had a loss of approximately $52,565, compared to a loss of
$107,741 for the comparable period ended January 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES:
- -------------------------------
Working capital as of January 31, 2000 was approximately $4,000,000 as compared
to approximately $3,500,000 at October 31, 1999. The Company increased its cash
position by approximately $96,000 during the current quarter. The Company
utilized approximately $1,000,000 in cash for operating activities. To offset
this use of cash the Company borrowed $1,000,000 in short-term debt and repaid
approximately $300,000 in existing debt. The Company had current liabilities of
approximately $19,000,000 at January 31, 2000. The three largest items in this
category are notes payable of approximately $10,100,000, accounts payable of
approximately $1,200,000 and current portion of long-term debt 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.
10
<PAGE>
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 other
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 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.
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 January 31, 2000, the Company was
utilizing $10,122,324 of this credit facility.
11
<PAGE>
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 January 31, 2000 were $2,225,059 as compared to
$2,128,474 at October 31, 1999. Historically, the Company experiences a use of
cash from operating activities during the first quarter. However, the Company
believes that its cash position, the anticipated cash generated from operations,
the expanded use of its credit line with PNC Bank, the utilization of
certificates of deposits maturing during the second quarter of fiscal year 2000
and the interest due thereupon, will meet its future cash needs.
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.
Note Regarding Forward-Looking Statements
- -----------------------------------------
This Quarterly Report on Form 10-Q contains historical information as well as
forward-looking statements. Statements looking forward in time are included in
this Annual Report pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Such statements involve known and
unknown risks and uncertainties that may cause the Company's actual results in
future periods to be materially different from any future performance suggested
herein.
PART II
Item 6
EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------
No reports on Form 8-K have been filed during the quarter ended January 31,
2000.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BIO-REFERENCE LABORATORIES, INC.
(Registrant)
/S/ Marc D. Grodman, M.D.
--------------------------------------
Marc D. Grodman, M.D.
President
/S/ Sam Singer
--------------------------------------
Sam Singer
Chief Financial and Accounting Officer
Date: March 15, 2000
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from (a) the
Balance Sheet and Statement of Operations filed as part of the Quarterly Report
on Form 10-Q and is qualified in its entirety by reference to such (b) Report on
Form 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-2000
<PERIOD-END> JAN-31-2000
<CASH> 2,225,059
<SECURITIES> 0
<RECEIVABLES> 19,795,723
<ALLOWANCES> 15,790,113
<INVENTORY> 584,284
<CURRENT-ASSETS> 23,045,961
<PP&E> 5,475,008
<DEPRECIATION> 3,279,970
<TOTAL-ASSETS> 34,604,875
<CURRENT-LIABILITIES> 19,060,627
<BONDS> 14,942,018
0
60,408
<COMMON> 81,008
<OTHER-SE> 24,315,873
<TOTAL-LIABILITY-AND-EQUITY> 34,604,875
<SALES> 15,029,560
<TOTAL-REVENUES> 15,029,560
<CGS> 8,505,443
<TOTAL-COSTS> 14,795,465
<OTHER-EXPENSES> 329,660
<LOSS-PROVISION> 1,744,277
<INTEREST-EXPENSE> 351,027
<INCOME-PRETAX> (95,565)
<INCOME-TAX> 0
<INCOME-CONTINUING> (95,565)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (95,565)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
