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, 2001
----------------
AND
- --------------------------------------------------------------------------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission File Number 0-15266
-------
BIO-REFERENCE LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
- --------------------------------------------------------------------------------
NEW JERSEY 22-2405059
-------------- -------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
481 EDWARD H. ROSS DRIVE, ELMWOOD PARK, NJ 07407
- ------------------------------------------ ---------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (201) 791-2600
---------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 8,727,449 shares of Common Stock
($.01 par value) at March 13, 2001.
BIO-REFERENCE, LABORATORIES, INC.
FORM 10-Q
JANUARY 31, 2001
I N D E X
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of January 31, 2001 (unaudited)
and October 31, 2000. 1
Statements of Operations (unaudited) for the
three months ended January 31, 2001 and January 31,
2000 3
Statements of Cash Flows (unaudited) for the three months
ended January 31, 2001 and January 31, 2000 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
BIO-REFERENCE LABORATORIES, INC.
BALANCE SHEETS
ASSETS
JANUARY 31, OCTOBER 31,
2001 2000
----------- -----------
(UNAUDITED)
CURRENT ASSETS:
Cash and Cash Equivalents $ -- $ 440,131
Accounts Receivable (Net) 26,391,136 24,048,223
Inventory 738,399 734,688
Other Current Assets 480,081 506,366
----------- -----------
TOTAL CURRENT ASSETS $ 27,609,616 $ 25,729,408
---------- ----------
PROPERTY, PLANT AND EQUIPMENT $ 5,291,050 $ 5,186,269
LESS: Accumulated Depreciation 3,559,856 3,367,372
--------- ---------
TOTAL PROPERTY,
PLANT AND EQUIPMENT - NET $ 1,731,194 $ 1,818,897
--------- ---------
OTHER ASSETS:
Due from Related Party 57,518 73,718
Deposits 289,752 316,113
Goodwill (Net of Accumulated
Amortization of $2,087,014 and $1,982,221 respectively) 6,157,616 6,262,409
Deferred Charges (Net of Accumulated
Amortization of $2,720,719 and $2,628,351 respectively) 2,631,177 2,723,544
Other Assets 1,695,012 1,424,692
------------ ------------
TOTAL OTHER ASSETS $ 10,831,075 $ 10,800,476
---------- ----------
TOTAL ASSETS $ 40,171,885 $ 38,348,781
========== ==========
The Accompanying Notes are an Integral Part of These Financial Statements.
1
BIO-REFERENCE LABORATORIES, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
JANUARY 31, OCTOBER 31,
2001 2000
----------- -----------
(UNAUDITED)
CURRENT LIABILITIES:
Cash Overdraft $ 34,986 $ --
Accounts Payable 7,115,495 6,751,841
Salaries and Commissions Payable 1,345,428 1,158,636
Accrued Taxes and Expenses 968,100 1,653,955
Current Portion of Long-Term Debt 1,034,233 1,029,617
Current Portion of Leases Payable 310,402 315,221
Notes Payable 14,000,000 12,000,000
------------ ------------
TOTAL CURRENT LIABILITIES $ 24,808,644 $ 22,909,270
------------ ------------
LONG-TERM LIABILITIES:
Long-Term Portion of Long-Term Debt 1,200,404 1,459,879
Long-Term Portion of Leases Payable 701,612 697,497
Other Long-Term Liabilities 220,740 220,740
------------ ------------
TOTAL LONG-TERM LIABILITIES $ 2,122,756 $ 2,378,116
------------ ------------
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 8,505,449 shares at
January 31, 2001 and 8,505,449 shares at
October 31, 2000 85,054 85,054
Additional Paid-In Capital 24,873,414 24,873,414
Accumulated [Deficit] (11,386,248) (11,508,278)
------------ ------------
Totals $ 13,632,628 $ 13,510,598
Deferred Compensation (392,141) (449,203)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY $ 13,240,487 $ 13,061,395
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 40,171,885 $ 38,348,781
============ ============
The Accompanying Notes are an Integral Part of These Financial Statements.
2
BIO-REFERENCE LABORATORIES, INC.
STATEMENTS OF OPERATIONS
[UNAUDITED]
THREE MONTHS ENDED
JANUARY 31,
------------------
2 0 0 1 2 0 0 0
------- -------
NET REVENUES: $ 18,387,172 $ 15,029,560
------------ ------------
COST OF SERVICES:
Depreciation $ 179,432 $ 194,406
Employee Related Expenses 4,753,595 3,851,517
Reagents and Lab Supplies 2,880,238 2,024,297
Other Cost of Services 2,447,460 2,435,223
------------ ------------
TOTAL COST OF SERVICES $ 10,260,725 $ 8,505,443
------------ ------------
GROSS PROFIT ON REVENUES $ 8,126,447 $ 6,524,117
GENERAL AND ADMINISTRATIVE EXPENSES:
Depreciation and Amortization $ 210,212 $ 213,841
Other General and Admin. Expenses 5,070,383 4,331,904
Bad Debt Expense 2,286,727 1,744,277
------------ ------------
TOTAL GENERAL AND ADMIN. EXPENSES $ 7,567,322 $ 6,290,022
------------
OPERATING INCOME $ 559,125 $ 234,095
OTHER (INCOME) EXPENSES:
Interest Expense $ 441,443 $ 351,027
Interest Income (4,347) (21,367)
------------ ------------
TOTAL OTHER EXPENSES - NET $ 437,096 $ 329,660
------------ ------------
INCOME (LOSS) BEFORE TAX 122,029 (95,565)
Provision for Income Taxes $ -- $ --
------------ ------------
NET INCOME (LOSS) $ 122,029 (95,565)
============ ============
NET INCOME (LOSS) PER SHARE: $ .01 $ (.01)
NUMBER OF SHARES: 8,505,444 7,967,449
NET INCOME (LOSS) PER SHARE - ASSUMING DILUTION: $ .01 $ (.01)
NUMBER OF SHARES- ASSUMING DILUTION: 9,356,077 7,967,449
The Accompanying Notes are an Integral Part of These Financial Statements
3
BIO-REFERENCE LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
[UNAUDITED]
THREE MONTHS ENDED
JANUARY 31,
------------------
2 0 0 1 2 0 0 0
------- -------
OPERATING ACTIVITIES:
Net Income (Loss) $ 122,029 $ (95,565)
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Deferred Compensation 57,062 39,452
Depreciation and Amortization 389,644 408,247
Amortization of Deferred Asset -- 23,001
Provision for Bad Debts 2,286,727 1,744,277
Change in Assets and Liabilities
(Increase) Decrease in:
Accounts Receivable (4,629,641) (2,914,507)
Other Assets (227,759) (40,275)
Prepaid Expenses and Other Current Assets 22,574 (58,776)
Deferred Charges and Goodwill -- (40,520)
Increase (Decrease) in:
Accounts Payable and Accrued Liabilities (135,409) (48,129)
----------- -----------
NET CASH - OPERATING ACTIVITIES $(2,114,773) $ (982,795)
INVESTING ACTIVITIES:
Acquisition of Equipment and
Leasehold Improvements $ (29,781) $ (40,980)
FINANCING ACTIVITIES:
Payments of Long-Term Debt $ (254,859) $ (216,550)
Payments of Capital Lease Obligations (75,704) (84,509)
Increase in Revolving Line of Credit 2,000,000 1.421.419
Cash Overdraft 34,986 --
----------- -----------
NET CASH - FINANCING ACTIVITIES $ 1,704,423 $ 1,120,360
----------- -----------
NET INCREASE (DECREASE) IN CASH $ (440,131) $ 96,585
CASH AT BEGINNING OF PERIODS $ 440,131 $ 2,128,474
----------- -----------
CASH AT END OF PERIODS $ -- $ 2,225,059
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 397,290 $ 336,068
Income Taxes $ 4,780 $ 14,825
The Accompanying Notes are an Integral Part of These Financial Statements.
4
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In January 1999, the Company issued 10,000 shares to an employee for services
rendered.
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 20).
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
5
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 months ended January 31, 2001 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, 2000 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 are net of the following amounts for allowances and
discounts.
Three Months Ended
January 31,
2001 2000
---- ----
$ 24,331, 055 $ 17,098,000
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 $25,017,052 at January 31, 2001 and $15,790,113
at January 31, 2000.
[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
BIO-REFERENCE LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
[10] In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ["SFAS 133"],"Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 [as amended by SFAS 138 in June
2000] establishes new standards of accounting and reporting for derivative
instruments and hedging activities. SFAS 133 requires that all derivatives be
recognized at fair value in the statement of financial position, and that the
corresponding gains or losses be reported either in the statement of operations
or as a component of comprehensive income, depending on the type of hedging
relationship that exists. In July 1999, the Financial Account Standards Board
issued SFAS No. 137 ["SFAS 137"], "Accounting for Derivative Instruments and
Hedging Activities-Deferral of Effective Date of SFAS 133." SFAS 137 deferred
the effective date of SFAS 133 until the first quarter of fiscal years beginning
after June 15, 2000. The Company does not currently hold derivative instruments
or engage in hedging activities. The Company expects the adoption of SFAS 133,
SFAS 137 and SFAS 138 will not have a material impact on its financial
statements and related disclosures.
[11] In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ["SAB 101"], "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying accounting principles
generally accepted in the United States to revenue recognition in financial
statements and is effective in the fourth quarter of all fiscal years beginning
after December 15, 1999. The Company's accounting policies are consistent with
the requirements of SAB 101, so the implementation of SAB 101 is not expected to
have an impact on the Company's operating results.
[12] In April 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 ["FIN 44"], "Accounting for Certain Transactions Involving
Stock Compensation," an interpretation of APB Opinion No. 25. FIN 44 is
effective for transactions occurring after July 1, 2000. The application of FIN
44 did not have a material impact on the Company's financial statements.
[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, 2000, the Company had a deferred tax asset of approximately
$3,148,000 and a valuation allowance of approximately $3,082,000 related to the
asset, a decrease of $918,000 from October 31, 1999. The deferred tax asset
primarily relates to net operating loss carry forwards.
[16] The Company funds its operations through a revolving loan agreement (the
"Loan Agreement") with PNC Bank. At October 31, 2000, the Company was utilizing
$12,000,000 of this credit facility. This loan was due on March 31, 2001 and has
been extended to September 30, 2001. If the Company is unable to obtain a
renewal or an extension of the loan beyond its September 30, 2001 due date, it
will be forced to seek replacement funding for its operations which may not be
available on acceptable terms. The Loan Agreement requires the Company to be in
compliance with various affirmative and negative covenants concerning its
operations and financial condition. Failure to comply could result in PNC Bank
declaring the Company to be in default thereby rendering all outstanding
indebtedness under the Loan Agreement immediately due and payable. One covenant
requires the Company to have at least $2,800,000 of working capital at the end
of each fiscal quarter. Another covenant requires the Company to have a minimum
Tangible Net Worth at fiscal year end; $5,500,000 at October 31, 2000
7
BIO-REFERENCE LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
and $6,000,000 at October 31, 2001. At the end of one quarter in fiscal 2000
(but not at October 31, 2000), the Company's working capital was less than
$2,800,000. In addition, at October 31, 2000, the Company's Tangible Net Worth
was approximately $1,720,000 less than the minimum required $5,500,000. PNC Bank
has waived the Company's failure to be in compliance during or at the conclusion
of fiscal 2000 with these two covenants as well as a third covenant limiting the
Company's ability to lend funds. Assuming the loan is extended to October 31,
2001 or beyond said date, the Company will be required to be in compliance with
the minimum Tangible Net Worth requirement of $6,000,000 at October 31, 2001.
Therefore, the Company must increase its Tangible Net Worth during fiscal 2001
by at least $2,200,000, through earnings and/or sales of equity. No assurance
can be given that the Company will be able to effect such an increase. If it is
unable to increase its Tangible Net Worth to $6,000,000 at October 31, 2001, (or
is not in compliance with any other covenant) the Company will be required to
obtain a waiver from PNC Bank, the availability of which cannot be assured. A
failure to obtain a renewal or an extension of the loan, or to obtain a waiver,
if required, would have a material adverse effect on the Company's business and
financial condition.
[17] 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.
[18] 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 effect on the
Company's financial position or results of operations.
At November 1, 1998, the Company was 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 has remitted approximately $75,000 to Medicare in connection with this
matter. Counsel representing the Company in this matter advised at such time
that he could not offer any opinion or projection as to whether the anticipated
liability will be resolved at $150,000 or whether it will be increased. Counsel
further 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
this issue, he believed the final overpayment would be an amount negotiated
between the Company and Medicare. During fiscal 2000, there was no change in the
status of this matter. The Company continued to reserve the sum of $150,000 on
its October 31, 2000 and January 31, 2001 financial statements as the estimated
liability in connection therewith.
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 that it had
been in compliance with all requirements regarding bills submitted for payment
by New Jersey Medicaid and requires actual physician signatures before it bills
New Jersey Medicaid. However, in order to dispose of the issue, the Company
entered into an oral agreement with New Jersey Medicaid in January 2000 to
settle the Claim for approximately $227,000. The Company accrued the estimated
settlement of $227,000 on its October 31, 1999 financial statements. The
settlement was approved by the Director of the New Jersey Division of Medical
Assistance. The Company paid the settlement amount during fiscal 2000 and the
Claim was extinguished.
8
BIO-REFERENCE LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On December 19, 2000, the Company and its wholly owned BRLI No.1 Acquisition
Corp. subsidiary, as plaintiffs, instituted a lawsuit in the United States
District Court for the District of New Jersey against Rebecca Klafter, her
husband Mitchell Klafter and Right Body Foods, Inc. ("RBF") as defendants. In
its complaint, the plaintiffs alleged that in connection with their December
1999 purchase of the health food business of RBF and the simultaneous employment
of Rebecca Klafter as the Director of the business purchased, the defendants
made material misrepresentations and misleading statements to the plaintiffs
regarding the business being purchased. In its lawsuit the plaintiffs are
seeking rescission of the acquisition and all of the agreements entered into in
connection therewith, together with restitution, with interest, of all monies
paid and consideration given, including shares of Bio-Reference Common Stock, to
any of the defendants in connection therewith, or in the alternative, damages in
excess of $1 million plus interest and costs.
The defendants filed an answer and counterclaims in this lawsuit on January 22,
2001 naming the plaintiffs as well as the Company's chief executive officer and
its chief operating officer as counterclaim defendants. In addition to denying
the substantive allegations of the complaint and stating various affirmative
defenses, the defendants demanded that Rebecca Klafter be rehired, that all
payments required to be made to her under her agreements with the plaintiffs be
made and that the plaintiffs be required to remove all restrictions against her
ability to sell the shares received by her in the acquisition. In addition, the
defendants asserted a claim of sexual harassment on behalf of Rebecca Klafter
against the Company and BRLI No.1 Acquisition Corp. and alleged that the two
officers aided and abetted the two corporations in discriminating and in
retaliating against Ms. Klafter. In addition to seeking the removal of
restrictions against the shares, the defendants are seeking an indeterminate
amount of compensatory damages including back pay, "front" pay, bonuses,
incentive pay and overtime, punitive damages, interest and costs.
The litigation is in its initial stages so that no prediction can be made as to
probable outcome of this lawsuit.
[19] 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 provided for a maximum of
$1,250,000 in additional payments to be made by the Company if certain revenues
were realized by MLI after closing. On April 1, 2000, the Company made its final
payment on the $1,500,000 promissory note. On May 17, 2000, LTC was notified
that MLI had achieved its revenue goals so that $1,250,000 in additional
payments will be made by the Company in three installments through May 1, 2001.
The
9
BIO-REFERENCE LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Company has paid $937,500 of this additional payment.
[20] On December 2, 1999, the Company entered into an agreement to purchase
certain assets utilized by a company engaged in selling Internet website design
and other Internet-oriented services to medical professionals and other
healthcare professionals. The Company delivered 140,000 shares of its common
stock in payment for the web business along with 60,000 shares of its common
stock in consideration for related non-competition agreements. The fair value of
the 200,000 shares of common stock was approximately $200,000. The Company also
paid $10,000 to a former executive officer of the website company and executed a
one year consulting agreement with the website company for a minimum consulting
fee of $40,000 in the initial year and $50,000 in any subsequent year. The
Company granted the website business an option to purchase a maximum of 100,000
shares of the Company's common stock exercisable at $3.00 per share with certain
vesting restrictions based upon meeting certain milestones within a
predetermined measuring period in the future.
On December 14, 1999, the Company entered into an agreement to purchase certain
assets utilized by Right Body Foods, Inc. ("RBF"), a company engaged in the
manufacture of certain health food products. The Company delivered 180,000
shares of its common stock in payment for the health food business along with
20,000 shares of its common stock in consideration for a related non-competition
agreement. The fair value of the 200,000 shares of common stock was
approximately $200,000. The Company also entered into an employment agreement in
connection with the purchase providing for an annual salary of $150,000 plus
commissions and a signing bonus of $100,000 payable in 24 monthly installments.
The Company had a loss of approximately $50,000 during the three month period
ended January 31, 2001 pertaining to this line of business. See the above
description of the Company's December 19, 2000 lawsuit against RBF, Rebecca
Klafter, and her husband Mitchell Klafter seekling to rescind the acquisition.
To date these acquisitions have not been material to the Company.
10
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF FIRST QUARTER 2001 VS FIRST QUARTER 2000
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, 2000.
NET REVENUES:
The Company had net revenues for the three month period ended January 31, 2001
of $18,387,172, as compared to $15,029,560 for the three month period ended
January 31, 2000. This represents a 22% increase in net revenues. This increase
is due to a 19% increase in the number of patients serviced and a 3% increase in
net revenues per patient. The Company's laboratory operations had net revenues
of $18,357,010 during the quarter ended January 31, 2000. The Company's other
subsidiaries had combined net revenues of approximately $30,000 for the quarter
ended January 31, 2001.
The number of patients serviced during the quarter ended January 31, 2001 was
370,251 which was 19% greater when compared to the prior fiscal year's quarter
ended January 31, 2000. Net revenue per patient for the quarter ended January
31, 2001 was $49.57 compared to net revenue per patient for the quarter ended
January 31, 2000 of $48.08, an increase of 3%.
The Company was awarded a contract to provide services to New York City's
Riker's Island prison system, and an extension of its contract for New York
State Prisons. The Riker's Island contract for overall healthcare services was
awarded to PHS, one of the nation's largest private correctional healthcare
service businesses. PHS, in turn, has sub-contracted with Bio-Reference to
provide the laboratory services component of the contract.
Through its MediLabs division, Bio-Reference has also received renewal of the
New York State Prisons contract. This renewal represents the third year the
contract has been awarded to MediLabs. The aggregate value of the Riker's Island
contract and the New York State Prisons contract is estimated at approximately
$9,000,000 annually.
COST OF SERVICES:
Cost of Services increased from $8,505,443 for the three month period ended
January 31, 2000 to $10,260,725 for the three month period ended January 31,
2001, an increase of $2,175,282 or $1,775,282. This increase is in line with the
increase in net revenues of 22%. The Company's subsidiaries contributed
approximately $50,000 to this increase.
GROSS PROFITS:
Gross profit on net revenues increased from $6,524,117 for the three month
period ended January 31, 2000 to $8,126,448 for the three month period ended
January 31, 2001; an increase of $1,602,331 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 since the completion of its automated chemistry laboratory during
the last quarter of fiscal year 2000, the Company has increased its capacity by
40%.
11
GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses for the three month period ended January 31,
2001 were $7,567,322 as compared to $6,290,022 for the quarter ended January 31,
2000, an increase of $1,277,300 or 20%. Of this increase, $542,450 (or 42%) was
related to an increase in bad debt expense which is attributable to the
Company's increase in revenues. The balance of this increase is attributable to
(1) a 21% (approximately $300,000) increase in marketing expenses and (2) a 135%
(approximately $160,000) increase in legal and consulting fees.
INTEREST EXPENSE:
Interest expense increased from $351,027 for the three month period ended
January 31, 2000 to $441,443 for the three month period ended January 31, 2001,
an increase of $90,416 or 26%. Management believes that this trend will continue
in the future due to the Company's increased use of its revolving line of
credit.
INCOME:
The Company's laboratory operations realized net income of $260,527 for the
quarter ended January 31, 2001, as compared to a loss of $52,479 for the quarter
ended January 31, 2000. This turnaround is related by and large to an increase
in net revenues. The Company's subsidiaries had a loss of approximately
$138,000.
LIQUIDITY AND CAPITAL RESOURCES:
Working capital as of January 31, 2001 was approximately $2,800,000 as compared
to approximately $2,800,000 at October 31, 2000. The Company's cash position
decreased by approximately $430,000 during the current period. The Company
utilized approximately $2,080,000 in cash for operating activities in the most
recent quarter. To offset this use of cash the Company borrowed $2,000,000 in
short-term debt and repaid approximately $330,000 in existing debt. The Company
had current liabilities of approximately $25,000,000 at January 31, 2001. The
three largest items in this category are notes payable of $14,000,000, accounts
payable of approximately $7,100,000 and salaries and commissions payable of
approximately $1,300,000.
Credit risk with respect to accounts receivable is generally diversified due to
the large number of patients comprising the client base. The Company does have
significant receivable balances with government payors and various insurance
carriers. Generally, the Company does not require collateral or other security
to support customer receivables, however, the Company continually monitors and
evaluates its client acceptance and collection procedures to minimize potential
credit risks associated with its accounts receivable. The Company establishes
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.
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 has
remitted approximately $75,000 to Medicare in connection with the matter.
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, 2000 and its January 31, 2001 financial statements.
12
The Company funds its operations through a revolving loan agreement (the "Loan
Agreement") with PNC Bank. At January 31, 2001, the Company was utilizing
$14,000,000 of this credit facility. This loan was due on March 31, 2001 and has
been extended to September 30, 2001. If the Company is unable to obtain a
renewal or an extension of the loan beyond its September 30, 2001 due date, it
will be forced to seek replacement funding for its operations which may not be
available on acceptable terms.The Loan Agreement requires the Company to be in
compliance with various affirmative and negative covenants concerning its
operations and financial condition. Failure to comply could result in PNC Bank
declaring the Company to be in default thereby rendering all outstanding
indebtedness under the Loan Agreement immediately due and payable. One covenant
requires the Company to have at least $2,800,000 of working capital at the end
of each fiscal quarter. Another covenant requires the Company to have a minimum
Tangible Net Worth at fiscal year end; $5,500,000 at October 31, 2000 and
$6,000,000 at October 31, 2001. At the end of one quarter in fiscal 2000 (but
not at October 31, 2000), the Company's working capital was less than
$2,800,000. In addition, at October 31, 2000, the Company's Tangible Net Worth
was approximately $1,720,000 less than the minimum required $5,500,000. PNC Bank
has waived the Company's failure to be in compliance during or at the conclusion
of fiscal 2000 with these two covenants as well as a third covenant limiting the
Company's ability to lend funds. Assuming the loan is extended to October 31,
2001 or beyond said date, the Company will be required to be in compliance with
the minimum Tangible Net Worth requirement of $6,000,000 at October 31, 2001.
Therefore, the Company must increase its Tangible Net Worth during fiscal 2001
by at least $2,200,000, through earnings and/or sales of equity. No assurance
can be given that the Company will be able to effect such an increase. If it is
unable to increase its Tangible Net Worth to $6,000,000 at October 31, 2001, (or
is not in compliance with any other covenant) the Company will be required to
obtain a waiver from PNC Bank, the availability of which cannot be assured. A
failure to obtain a renewal or an extension of the loan, or to obtain a waiver,
if required, would have a material adverse effect on the Company's business and
financial condition.
The Company has various employment and consulting agreements for terms of up to
seven years with commitments totaling approximately $5,500,000 and operating
leases with commitments totaling approximately $3,800,000 (of which
approximately $1,670,000 and $1,070,000 are due during fiscal 2001)
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, 2000.
IMPACT OF INFLATION
To date, inflation has not had a material effect on the Company's operations.
NEW AUTHORITATIVE PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ["SAB 101"], "Revenue Recognition in Financial Statements." SAB
101 provides guidance on applying accounting principles generally accepted in
the United States to revenue recognition in financial statements and is
effective in the fourth quarter of all fiscal years beginning after December 15,
1999. The Company's accounting policies are consistent with the requirements of
SAB 101, so the implementation of SAB 101 is not expected to have an impact on
the Company's operating results.
In April 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 ["FIN 44"], "Accounting for Certain Transactions Involving
Stock Compensation," an interpretation of APB Opinion No. 25. FIN 44 is
effective for transactions occurring after July 1, 2000. The application of FIN
44 did not have a material impact on the Company's financial statements.
13
PART II - OTHER INFORMATION
Item 6
EXHIBITS AND REPORTS ON FORM 8-K
The Company has filed no reports on Form 8-K during the quarter ended January
31, 2001
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 13, 2001
14