Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the quarterly period ended July 31, 2010

 

Or

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECUTRIES 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 incorporation or organization)

 

(IRS Employer Identification No.)

 

 

 

481 Edward H. Ross Drive, Elmwood Park, NJ

 

07407

(Address of principal executive offices)

 

(Zip Code)

 

(201) 791-2600

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes o   No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated file in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated Filer x

 

 

 

Non-accelerated Filer o

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o   No x

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of the issuer’s common stock, as of the latest practicable date: 27,826,204 shares of Common Stock ($.01 par value) at September 3, 2010.

 

 

 



Table of Contents

 

BIO-REFERENCE LABORATORIES, INC.

 

FORM 10-Q

 

July 31, 2010

 

I N D E X

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets as of July 31, 2010 (unaudited) and October 31, 2009

2

 

 

 

 

Consolidated Statements of Operations for the three months and nine months ended July 31, 2010 and July 31, 2009 (unaudited)

4

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended July 31, 2010 and July 31, 2009 (unaudited)

5

 

 

 

 

Notes to consolidated financial statements (unaudited)

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

10

 

 

 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

15

 

 

 

Item 4.

Controls and Procedures

15

 

 

 

PART II

OTHER INFORMATION

15

 

 

 

Item 6.

Exhibits

15

 

 

 

Signatures

16

 

 

 

Certifications

18-21

 



Table of Contents

 

Item 1

 

BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARIES

PART I — FINANCIAL INFORMATION

CONSOLIDATED BALANCE SHEETS

[Dollars In Thousands Except Per Share Data]

 

ASSETS

 

 

 

July 31,

 

October
31,

 

 

 

2010

 

2009

 

 

 

(Unaudited)

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

17,349

 

$

16,995

 

Accounts Receivable - Net

 

123,762

 

104,995

 

Inventory

 

6,048

 

4,148

 

Other Current Assets

 

2,259

 

1,879

 

Deferred Tax Assets

 

16,262

 

12,456

 

TOTAL CURRENT ASSETS

 

165,680

 

140,473

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT - AT COST

 

61,850

 

53,645

 

LESS: Accumulated Depreciation

 

(27,787

)

(25,885

)

PROPERTY AND EQUIPMENT - NET

 

34,063

 

27,760

 

 

 

 

 

 

 

OTHER ASSETS:

 

 

 

 

 

Deposits

 

1,416

 

630

 

Goodwill - Net

 

21,876

 

21,386

 

Intangible Assets - Net

 

8,578

 

4,588

 

Other Assets

 

1,507

 

1,373

 

Deferred Tax Asset

 

544

 

1,180

 

 

 

 

 

 

 

TOTAL OTHER ASSETS

 

33,921

 

29,157

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

233,664

 

$

197,390

 

 

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.

 

2



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BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

[Dollars In Thousands Except Per Share Data]

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

July 31,

 

October 31,

 

 

 

2010

 

2009

 

 

 

(Unaudited)

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts Payable

 

$

34,061

 

$

30,570

 

Accrued Salaries and Commissions Payable

 

8,290

 

8,758

 

Accrued Taxes and Expenses

 

5,544

 

9,108

 

Revolving Note Payable - Bank

 

30,625

 

12,452

 

Current Maturities of Long-Term Debt

 

1,210

 

1,192

 

Capital Lease Obligations - Short-Term Portion

 

2,349

 

2,409

 

TOTAL CURRENT LIABILITIES

 

82,079

 

64,489

 

 

 

 

 

 

 

LONG-TERM LIABILITIES

 

 

 

 

 

Capital Lease Obligations - Long-Term Portion

 

3,564

 

3,843

 

Long - Term Debt - Net of Current Portion

 

3,625

 

4,535

 

Other Long Term Acquisition Payable

 

750

 

 

TOTAL LONG-TERM LIABILITIES

 

7,939

 

8,378

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

Preferred Stock $.10 Par Value; Authorized 1,666,667 shares, including 3,000 shares of Series A Junior Preferred Stock None Issued

 

 

 

Common Stock, $.01 Par Value; Authorized 35,000,000 shares: Issued and Outstanding 27,818,204 and 27,694,876 at July 31, 2010 and at October 31, 2009, respectively

 

278

 

276

 

 

 

 

 

 

 

Additional Paid-In Capital

 

44,397

 

43,080

 

Retained Earnings

 

98,971

 

81,167

 

 

 

 

 

 

 

TOTAL SHAREHOLDERS’ EQUITY

 

143,646

 

124,523

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

233,664

 

$

197,390

 

 

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.

 

3



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BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

[Dollars In Thousands Except Per Share Data]

[UNAUDITED]

 

 

 

Three months ended

 

Nine months ended

 

 

 

July 31,

 

July 31,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

NET REVENUES:

 

$

121,719

 

$

97,424

 

$

331,428

 

$

260,342

 

 

 

 

 

 

 

 

 

 

 

COST OF SERVICES:

 

 

 

 

 

 

 

 

 

Depreciation and Amortization

 

2,223

 

1,842

 

6,201

 

5,288

 

Employee Related Expenses

 

26,386

 

22,478

 

76,435

 

61,931

 

Reagents and Laboratory Supplies

 

20,821

 

14,824

 

55,875

 

41,478

 

Other Cost of Services

 

10,659

 

9,019

 

30,110

 

24,393

 

TOTAL COST OF SERVICES

 

60,089

 

48,163

 

168,621

 

133,090

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT ON REVENUES

 

61,630

 

49,261

 

162,807

 

127,252

 

 

 

 

 

 

 

 

 

 

 

GENERAL AND ADMINISTRATIVE EXPENSES:

 

 

 

 

 

 

 

 

 

Depreciation and Amortization

 

824

 

636

 

2,279

 

1,827

 

General and Administrative Expenses

 

29,677

 

22,854

 

82,054

 

63,248

 

Bad Debt Expense

 

16,188

 

13,793

 

45,221

 

36,872

 

TOTAL GENERAL AND ADMINISTRATIVE EXPENSES

 

46,689

 

37,283

 

129,554

 

101,947

 

 

 

 

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

14,941

 

11,978

 

33,253

 

25,305

 

 

 

 

 

 

 

 

 

 

 

OTHER (INCOME) EXPENSE:

 

 

 

 

 

 

 

 

 

Interest Expense

 

403

 

351

 

1,115

 

1,208

 

Interest Income

 

(40

)

(44

)

(108

)

(136

)

Other (Income) Expense

 

 

 

 

(1,600

)

TOTAL OTHER EXPENSES (INCOME) - NET

 

363

 

307

 

1,007

 

(528

)

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

14,578

 

11,671

 

32,246

 

25,833

 

Provision for Income Taxes

 

6,565

 

5,232

 

14,442

 

11,166

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

8,013

 

$

6,439

 

$

17,804

 

$

14,667

 

 

 

 

 

 

 

 

 

 

 

NET INCOME PER COMMON SHARE - BASIC:

 

$

0.29

 

$

0.23

 

$

0.64

 

$

0.53

 

WEIGHTED AVERAGE NUMBER OF SHARES - BASIC:

 

27,815,204

 

27,627,516

 

27,767,264

 

27,598,728

 

 

 

 

 

 

 

 

 

 

 

NET INCOME PER COMMON SHARE - DILUTED:

 

$

0.29

 

$

0.23

 

$

0.63

 

$

0.53

 

WEIGHTED AVERAGE NUMBER OF SHARES - DILUTED:

 

28,098,319

 

27,923,176

 

28,098,319

 

27,845,658

 

 

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements

 

4



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BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

[Dollars In Thousands]

[UNAUDITED]

 

 

 

Nine months ended

 

 

 

July 31,

 

 

 

2010

 

2009

 

OPERATING ACTIVITIES:

 

 

 

 

 

Net Income

 

$

17,804

 

$

14,667

 

Adjustments to Reconcile Net Income to Cash Provided by (Used for) Operating Activities:

 

 

 

 

 

Depreciation and Amortization

 

8,480

 

7,115

 

Deferred Income Tax (Benefit) Expense

 

(3,170

)

(2,683

)

Stock Based Compensation

 

290

 

40

 

(Gain) Loss on Disposal of Fixed Assets

 

292

 

197

 

Change in Assets and Liabilities, (Increase) Decrease in:

 

 

 

 

 

Accounts Receivable

 

(26,369

)

(12,563

)

Provision for Doubtful Accounts

 

7,602

 

5,441

 

Inventory

 

(1,900

)

(352

)

Other Current Assets

 

(380

)

(127

)

Other Assets

 

(134

)

(126

)

Deposits

 

(786

)

(127

)

Increase (Decrease) in:

 

 

 

 

 

Accounts Payable and Accrued Liabilities

 

1,773

 

743

 

 

 

 

 

 

 

NET CASH - OPERATING ACTIVITIES

 

3,502

 

12,225

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

Acquisition of Equipment and Leasehold Improvements

 

(12,348

)

(5,289

)

Business Acquisitions and Related Costs

 

(1,917

)

(2,059

)

 

 

 

 

 

 

NET CASH - INVESTING ACTIVITIES

 

(14,265

)

(7,348

)

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

Payments of Long-Term Debt

 

(892

)

(882

)

Payments of Capital Lease Obligations

 

(2,056

)

(1,917

)

Increase (Decrease) in Revolving Line of Credit

 

13,433

 

(341

)

Proceeds from Exercise of Options

 

632

 

445

 

 

 

 

 

 

 

NET CASH - FINANCING ACTIVITIES

 

11,117

 

(2,695

)

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

354

 

2,182

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIODS

 

16,995

 

12,696

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIODS

 

$

17,349

 

$

14,878

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

  Cash paid during the period for:

 

 

 

 

 

Interest

 

$

1,067

 

$

1,245

 

Income Taxes

 

$

19,246

 

$

14,405

 

 

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.

 

5



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SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

[Dollars In Thousands]

 

During the nine month periods ended July 31, 2010 and July 31, 2009 the Company entered into capital leases totaling $1,717 and $1,573 respectively.

 

During the nine month periods ended July 31, 2010 and July 31, 2009, the Company wrote-off approximately $5,920 and $934 of furniture and equipment that were fully depreciated.

 

During the nine month periods ended July 31, 2010 and July 31, 2009 the Company wrote-off approximately $-0- and $300 of intangible assets that were fully amortized.

 

During the nine month periods ended July 31, 2010 and July 31, 2009 the Company recorded approximately $290 and $40 of stock based compensation expense related to granting of stock options and Company’s stock to employees.

 

During the nine month periods ended July 31, 2010 the Company financed the acquisition of certain assets of Lenetix for $5,490.  See Note 12 for additional information regarding this acquisition.

 

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.

 

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BIO-REFERENCE LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

[Dollars In Thousands Except Per Share Data, Or Unless Otherwise Noted]

(UNAUDITED)

 

[1] The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes necessary for a fair presentation of the financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. However, in the opinion of the management of the Company, all adjustments necessary for a fair presentation of the financial position and operating results have been included in the statements. Interim results are not necessarily indicative of results for a full year. Reference is made to the October 31, 2009 consolidated financial statements of Bio-Reference Laboratories, Inc. contained in its Annual Report on Form 10-K for the year ended October 31, 2009.

 

[2] The consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes for the year ended October 31, 2009 as filed with the Securities and Exchange Commission in the Company’s Annual Report on Form 10-K.

 

[3] The significant accounting policies followed by the Company are set forth in Note 2 to the Company’s consolidated financial statements in the October 31, 2009 Form 10-K.  “Fair Value Measurements” disclosure under topic 820 of Accounting Standards Codification (“ASC”) based on a three-level hierarchy for the inputs used in the valuation techniques to derive fair values where Level 1 is having the highest priority and Level 3 having the lowest priority is as follows:

 

 

 

 

 

Quoted Prices in
Active Markets for
Identical
Assets/Liabilities

 

Significant Other
Observable Inputs

 

Significant
Unobservable
Inputs

 

 

 

7/31/2010

 

Level 1

 

Level 2

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

Cash surrender value of officers’ life insurance policies

 

$

1,507

 

 

$

1,507

 

 

 

As of July 31, 2010, the Company’s financial instruments primarily consist of cash, short-term trade receivables and payables for which their carrying amounts approximate fair values, and long term debt, for which based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities, its carrying amount approximates its fair value.

 

The Company has evaluated subsequent events through the date the financial statements are issued as evidenced by the date of filing of this report with the Securities and Exchange Commission.  Accordingly, the Management believes that no such events have occurred that would warrant such recognition in the Company’s financial statements.

 

[4] Certain prior year amounts may have been reclassified to conform to the current year presentation.

 

[5] Service revenues are principally generated from laboratory testing services including chemical diagnostic tests such as blood analysis, urine analysis and genetic testing among others. Net service revenues are recognized at the time the testing services are performed and are reported at their estimated net realizable amounts. Net realizable amounts from patients, third party payors and others for services rendered, are accrued on an estimated basis in the period the related services are rendered, and are adjusted in subsequent periods based upon an analysis of the Company’s collection experience from each category of payor group as well as prospectively determined contractual adjustments and discounts with third party payors. Differences between these adjustments and any subsequent revisions are included in the statement of operations in which the revisions are made and are disclosed, if material. Applying this methodology and aggregating its collection experience from all payor groups, the Company has not been required to record an adjustment related to revenue recorded in prior periods that was material in nature. Revenues on the statements of operations are net of the following amounts for allowances and discounts.

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

July 31

 

July 31

 

 

 

[Unaudited]

 

[Unaudited]

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Medicare/Medicaid

 

$

73,920

 

$

67,030

 

$

208,114

 

$

180,797

 

Other

 

302,021

 

222,429

 

818,971

 

581,291

 

 

 

$

375,941

 

$

289,459

 

$

1,027,085

 

$

762,088

 

 

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 or introducing cost sharing to beneficiaries. 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.

 

[6] An allowance for contractual credits and discounts is estimated by payor group and determined based upon a review of the reimbursement policies and subsequent collections from the different types of payors. The Company has not been required to record an adjustment in a subsequent period

 

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related to revenue recorded in a prior period, which was material in nature. Agings of accounts receivable are monitored by billing personnel and follow-up activities are conducted as necessary. Bad debt expense is recorded within selling, general and administrative expenses as a percentage of sales considered necessary to maintain an allowance for doubtful accounts at an appropriate level, based on the Company’s experience with its accounts receivable. The Company writes off accounts receivable against the allowance for doubtful accounts when they are deemed to be uncollectible. For client billing, accounts are written off when all reasonable collection efforts prove to be unsuccessful. Patient accounts are written off after the normal dunning cycle has occurred, which may include transfer to a third party collection agency. Third party accounts are written off when they exceed the payer’s timely filing limits. Accounts Receivable on the balance sheets are net of the following amounts for contractual credits and doubtful accounts:

 

 

 

[Unaudited]

 

 

 

 

 

July 31, 2010

 

October 31, 2009

 

 

 

 

 

 

 

Contractual Credits/Discounts

 

$

170,229

 

$

130,974

 

Doubtful Accounts

 

33,649

 

26,047

 

Total Allowance

 

$

203,878

 

$

157,021

 

 

[7] On 1/21/2010 FASB issued Accounting Standards Update (“ASU”) No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements.  This update requires reporting entities to provide information about movements of assets among Levels 1 and 2 of the three-tier fair value hierarchy established by Financial Accounting Standards Board (“FASB”) ASC 820. The guidance is effective for any fiscal year that begins after December 15, 2010, and it should be used for quarterly and annual filings.  This update is not expected to have a material impact on the Company’s financial statements.

 

On 7/21/2010 FASB issued Accounting Standards Update (“ASU”) No. 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.  This update requires companies to improve their disclosures about the credit quality of their financing receivables and the credit reserves held against them.  The amendments in this Update affect all entities with financing receivables, excluding short-term trade accounts receivable or receivables measured at fair value or lower of cost or fair value.  This update is effective as of the end of interim or annual reports for the periods ending after December 15, 2010.  This update is not expected to have a material impact on the Company’s financial statements.

 

[8] During the period ended January 31, 2009, the Company executed a Restitution Agreement with a former Vice President in sales (the “former employee”). The former employee paid the Company $1,600,000 (Not in Thousands) for payments made to him and others that were from our perspective, improperly paid. These payments were paid for a) recruiting fees for new hires paid to parties with an undisclosed relationship to him and b) reimbursement to him or others of improperly or insufficiently documented expenses; both of which were in violation of the Company’s policies (see Form 8-K; filed January 26, 2009 for more information). This amount is presented as “Other Income” in the Company’s Consolidated Statements of Operations.

 

[9] The following disclosures present certain information on the Company’s intangible assets as of July 31, 2010 (Unaudited) and October 31, 2009. All intangible assets are being amortized over their estimated useful lives, as indicated below, with no estimated residual value.

 

July 31, 2010

 

 

 

 

 

 

 

 

 

(Unaudited)

 

Weighted-Average Initial

 

 

 

Accumulated

 

Net of Accumulated

 

Intangible Asset

 

Amortization Period

 

Cost

 

Amortization

 

Amortization

 

 

 

 

 

 

 

 

 

 

 

Customer Lists

 

20

 

$

4,573

 

$

2,084

 

$

2,489

 

Covenants Not-to-Compete

 

5

 

4,305

 

3,248

 

1,057

 

Patents and Licenses

 

17

 

5,296

 

264

 

5,032

 

 

 

 

 

 

 

 

 

 

 

Totals

 

 

 

$

14,174

 

$

5,596

 

$

8,578

 

 

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October 31, 2009

 

Weighted-Average Initial

 

 

 

Accumulated

 

Net of Accumulated

 

Intangible Asset

 

Amortization Period

 

Cost

 

Amortization

 

Amortization

 

 

 

 

 

 

 

 

 

 

 

Customer Lists

 

20

 

$

4,573

 

$

1,902

 

$

2,671

 

Covenants Not-to-Compete

 

5

 

4,205

 

2,610

 

1,595

 

Patents and Licenses

 

17

 

457

 

135

 

322

 

 

 

 

 

 

 

 

 

 

 

Totals

 

 

 

$

9,235

 

$

4,647

 

$

4,588

 

 

The aggregate intangible amortization expense for the three months ended July 31, 2010 and 2009 was $364 and $281, respectively, and for the nine months ended July 31, 2010 and 2009 was $949 and $848, respectively. The estimated intangible asset amortization expense for the fiscal year ending October 31, 2010 and thereafter is as follows:

 

Year Ended

 

Amortization

 

October 31,

 

Expense

 

2010

 

$

348

 

2011

 

1,336

 

2012

 

559

 

2013

 

557

 

2014

 

544

 

Thereafter

 

5,234

 

Total

 

$

8,578

 

 

[10] In May 2008, the Company entered into an amended revolving note payable loan agreement with PNC Bank, N.A. (“the bank”).  The maximum amount of the credit line available to the Company pursuant to the loan agreement is the lesser of (i) $40,000 or (ii) 50% of the Company’s qualified accounts receivable [as defined in the agreement].  The amendment to the Loan and Security Agreement provides for interest on advances to be subject to the bank’s prime rate or the Eurodollar rate of interest plus, in certain instances, an additional interest percentage.  The additional interest percentage charges on Eurodollar borrowings range from 1% to 4% and are determined based upon certain financial ratios achieved by the Company.  At July 31, 2010, the Company had elected to have all of the total advances outstanding to be subject to the bank’s prime rate of interest of 3.25%.  The credit line is collateralized by substantially all of the Company’s assets. The line of credit is available through October 2012 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, fixed charge coverage, and the prohibition of the payment by the Company of cash dividends. As of July 31, 2010, the Company utilized $30,625 of the available credit under this revolving note payable loan agreement.

 

Effective as of October 31, 2007, we executed a fifth amendment to the Loan Agreement formalizing the repayment terms of the $5 million term loan from PNC Bank used by our wholly-owned BRLI No. 2 Acquisition Corp. subsidiary to fund the $5 million acquisition cash payment in connection with its purchase of the operating assets of GeneDx, Inc. The term loan is evidenced by a secured promissory note payable over a nine year term in equal monthly principal payments of approximately $69, plus interest at an annual rate of 6.85%. The balance on this note as of July 31, 2010 is approximately $1,875.

 

In January 2007, the Company issued a ten year term note of $4,100 for the financing of equipment.  The note is payable in equal monthly installments of approximately $47 including principal and interest, with payment commencing on March 1, 2007 at an effective interest rate of 6.63% per annum. The balance on this note as of July 31, 2010 is approximately $2,961.

 

[11] The provision for income taxes for the three months ended July 31, 2010 consists of a current tax provision of $7,242 and a deferred tax benefit of $676.  The provision for income taxes for the nine months ended July 31, 2010 consists of a current tax provision of $17,278 and a deferred tax benefit of $2,836.  The provision for income taxes for the three months ended July 31, 2009, consists of a current tax provision of $6,701 and a deferred tax benefit of $1,469. The provision for income taxes for the nine months ended July 31, 2009, consists of a current tax provision of $14,047 and a deferred tax benefit of $2,881.  On July 31, 2009, the Company had a current deferred tax asset of $9,951 included in other current assets and a long-term deferred tax asset of $1,275 included in other assets.  On July 31, 2010 the Company had a current deferred tax asset of $16,262 and a long-term deferred tax asset of $544 included in other assets.

 

[12] On March 2, 2010, the Company completed the purchase of substantially all of the tangible and intangible assets, excluding cash, receivables and certain other assets, of Lenetix Medical Screening Laboratory, Inc. (“Lenetix”) from Lenetix and its sole stockholder.  These assets were utilized in Lenetix’s operation of a clinical testing laboratory located in Mineola, New York.  The laboratory performs both clinical laboratory diagnostic testing and genetic testing. The purchase price of $5,490,000 included a down payment of $4,740,000 and a hold-back of $750,000 to insure the accuracy of the Sellers’ representations and to protect the Company from any claims based on the operations of the Laboratory prior to the closing.  This acquisition resulted in an addition to Goodwill in the amount of $490.

 

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Table of Contents

 

Item 2.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

 

OVERVIEW

 

We are a clinical laboratory located in northeastern New Jersey. Our regional footprint lies within the New York City metropolitan area and the surrounding areas of New Jersey and southern New York State as well eastern Pennsylvania and some areas of western Connecticut; under certain circumstances, we provide services further into New York State, Pennsylvania, Delaware and Maryland. As a regional provider, we are a full-service laboratory that primarily services physician office practices; our drivers pick up samples and deliver reports and supplies, we provide sophisticated technical support, phlebotomy services or patient service centers where appropriate, and electronic communication services in many cases. We have also developed a national reputation for our expertise in certain focused areas of clinical testing. GenPath, the label under which we provide our cancer and oncology services, is recognized for the superior hematopathology services it provides throughout the country. Physicians outside of our regional footprint send samples to our laboratory in order to take advantage of the expertise that we are able to provide in blood-based cancer pathology and associated diagnostics. Our correctional healthcare services are used throughout the country at prisons and jails. The focused markets we serve on a national basis outside of our regional footprint do not require many of the logistical and other ancillary support services required within the region. Even within our regional footprint, we provide the same services that we provide on a national basis as well as some regional focused diagnostic services, such as histology and pathology support services, substance abuse testing, fertility testing, hemostasis testing, women’s health testing, and molecular diagnostics that are unavailable from many of the smaller regional competitors; testing in some of these areas may be provided outside of physician offices.

 

Over the last few years, there have been fundamental changes in the laboratory services industry. In the 1990s, the industry was negatively impacted by the growth of managed care, increased government regulation, and investigations into fraud and abuse. These factors led to revenue and profit declines and industry consolidations, especially among commercial laboratories. There are currently only three publicly-traded full service laboratories operating in the U.S. While that means that the two national mega-laboratories and BioReference Laboratories are the only remaining publicly traded full service commercial laboratories, there are numerous hospital outreach programs and smaller reference laboratories that compete for the commercial clinical laboratory business scattered throughout the country. Clinical laboratories have had to improve efficiency, leverage economies of scale, comply with government regulations and other laws and develop more profitable approaches to pricing. Moreover, there has been a proliferation of technology advancements in clinical diagnostics over the last decade that has created significant opportunities for new testing and growth.

 

As a full service clinical laboratory, we are constantly looking for new technologies and new methodologies that will help us to grow. Since the turn of the century, our size alone has made us attractive to companies that are driving the advances in technology. We represent a significant opportunity for these companies to market their products in one of the major population centers of the world—the New York Metropolitan area. We have had several successful strategic relationships with such technology opportunities. In addition to new technology opportunities, we have an extremely seasoned and talented management staff that has been able to identify emerging laboratory markets that are under-served or under-utilized. We are currently developing programs for cardiology, histology and women’s health to go along with our existing hemostasis, hematopathology and correctional healthcare initiatives which have already been established and in which we have been increasing our market share for the past several years. We will continue to vigilantly seek focused diagnostic marketing opportunities where we can provide information, technology, service or support that expand and grow our clinical laboratory.

 

During the fourth quarter of fiscal 2006, the Company acquired the operating assets of GeneDx, a leading DNA sequencing laboratory.  As molecular testing in general becomes a more significant element in the diagnostic testing industry, the Company believes that genetic testing will become an essential diagnostic tool of the future.  GeneDx was started by two geneticists from the National Institute of Health in 2000.  Over the next nine years, based on the reputation and expertise of the founders and the outstanding team they built around themselves, along with a very focused and dedicated understanding of the science of genetics, GeneDx became known as one of the premier genetic testing laboratories for the diagnosis of rare genetic diseases.  The Company believed that the promise of genetic testing is in the diagnosis of the genetic variants of common diseases.  It is the Company’s intention to leverage the expertise and reputation of GeneDx in order to take a leadership role in the expanding area of genetic testing.  The Company is seeking cutting edge methods of testing that will be commercially viable diagnostic tools for the advancement of genetic testing. During the past year, GeneDx introduced GenomeDx, a new test based on Comparative Genomic Hybridization Array technology, a high-speed, chip-based technology, that has allowed GeneDx to move to the forefront of an emerging technology platform. The Company is already expanding the menu of tests offered and employing marketing techniques that were extremely successful in building GenPath, our oncology laboratory.  In addition to scientists and technicians to manage testing, GeneDx employs several genetic counselors to help patients and referring physicians and geneticists understand the meaning of the test results.  Prior to the acquisition, GeneDx’s revenues and profits were increasing at an accelerating rate. This increase has continued through the first two quarters of fiscal 2010.  During the third quarter of fiscal 2010, the Company acquired operating assets of Lenetix, a clinical testing laboratory located in Mineola, New York.

 

While we recognize that we are a clinical laboratory that processes samples, we also understand that we are an information company that needs to effectively communicate the results of our efforts back to healthcare providers. Laboratory results play a major role in the implementation of physician healthcare. Laboratory results are used to diagnose, monitor and classify health concerns. In many cases, laboratory results represent the confirming data in diagnosing complicated health issues. Since laboratory results play such an important role in routine physician care, we have developed informatic solutions that leverage our role in healthcare. We needed to build a web-based solution to quickly, accurately, conveniently and competitively collect ordering information and deliver results, so we built an internal solution that we call CareEvolve. That solution has been essential to our own operations. We license the technology to other laboratories throughout the country which they utilize to more effectively compete against the national laboratories. These other laboratories licensing our technology are not our competitors since they are outside our regional footprint.

 

We have also created our PSIMedica business unit which has developed a Clinical Knowledge Management (CKM) System that takes data from enrollment, claims, pharmacy, laboratory results and any other available electronic source to provide both administrative and clinical analysis of a population. The system uses proprietary algorithms to cleanse and configure the data and transfer the resulting information into a healthcare data repository. Using advanced cube technology methodologies, the data can be analyzed from a myriad of views and from highly granular transactional detail to global trended overview. Events such as the Katrina disaster in Louisiana and general pressures from the government have made development of an electronic medical record system and Pay-for Performance reimbursement priority goals in the healthcare industry. A large portion of an individual’s medical record consists of laboratory data and a key performance indicator in any Pay-for-Performance initiative is laboratory result data. Our CKM system is a mature, full functioning solution that will allow us to play a role in these important national initiatives.

 

To date, neither our PSIMedica business unit nor CareEvolve has produced significant revenues.

 

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Summary

 

During the period ended January 31, 2009, the Company executed a Restitution Agreement with John Littleton, a former Vice President in sales. Mr. Littleton paid the Company $1,600,000 for payments made to him and others that were from our perspective, improperly paid. These payments were paid for a) recruiting fees for new hires paid to parties with an undisclosed relationship to him and b) reimbursement to him or others of improperly or insufficiently documented expenses; both of which are in violation of the Company’s policies (See “Other Income” in table below). As such, in certain areas within the Management’s Discussion and Analysis we will present an analysis of our operating results including the restitution amount and pro-forma operating results excluding the restitution amount (it will be labeled as such).

 

(Dollars in Thousands except Per Share Data)

(Unaudited)

Nine Months Ended

July 31,

 

 

 

2010

 

2009 Pro Forma

 

2009

 

Net Revenues

 

$

331,428

 

$

260,342

 

$

260,342

 

Total Cost of Services

 

$

168,621

 

$

133,090

 

$

133,090

 

Gross Profit on Revenues

 

$

162,807

 

$

127,252

 

$

127,252

 

General and Administrative Expenses

 

$

129,554

 

$

101,947

 

$

101,947

 

Operating Income

 

$

33,253

 

$

25,305

 

$

25,305

 

Other Expense, Net

 

$

1,007

 

$

1,072

 

$

(528

)

Income Before Taxes

 

$

32,246

 

$

24,233

 

$

25,833

 

Taxes

 

$

14,442

 

$

10,475

 

$

11,166

 

Net Income

 

$

17,804

 

$

13,758

 

$

14,667

 

Income Per Share

 

$

0.64

 

$

0.50

 

$

0.53

 

Number of Shares

 

27,767,264

 

27,598,728

 

27,598,728

 

Income Per Share (Diluted)

 

$

0.63

 

$

0.49

 

$

0.53

 

Number of Shares (Diluted)

 

28,098,319

 

27,845,658

 

27,845,658

 

 

OPERATING RESULTS (In Thousands)

 

COMPARISON OF THIRD QUARTER 2010 VS THIRD QUARTER 2009

[In Thousands Except Per Share Data, Or Unless Otherwise Noted]

 

NET REVENUES:

 

Net revenues for the three month period ended July 31, 2009 were $97,424 as compared to $121,719 for the three month period ended July 31, 2010; which represents a 25% increase in net revenues. This increase is due to a 17% increase in patient counts and an increase in revenue per patient of 7% due to a shift in business to higher reimbursement esoteric testing which continues to be the principal driver in net revenue per patient.

 

The number of patients serviced during the three month period ended July 31, 2010 was 1,460 which was 17% greater when compared to the prior fiscal year’s three month period. Net revenue per patient for the three month period ended July 31, 2009 was $77.61 compared to net revenue per patient of $82.70 for the three month period ended July 31, 2010, an increase of $5.09 or 7%.

 

COST OF SERVICES:

 

Cost of Services increased from $48,163 for the three month period ended July 31, 2009 to $60,089 for the three month period ended July 31, 2010, an increase of $11,926 or 25%.  This increase in Cost of Services is basically in line with the increase in sales.  However, technical and professional salaries increased on average approximately 33%.  Most of this increase was attributable to molecular and genetic testing.

 

GROSS PROFITS:

 

Gross profits increased from $49,261 for the three month period ended July 31, 2009 to $61,630 for the three month period ended July 31, 2010, an increase of $12,369 or 25%.  Gross profit margin remained unchanged at 51%.

 

GENERAL AND ADMINISTRATIVE EXPENSES:

 

General and administrative expenses for the three month period ending July 31, 2009 were $37,283 as compared to $46,689 for the quarter ended July 31, 2010, an increase of $9,406 or 25%. This increase is in line with the increase in net revenues.

 

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INTEREST EXPENSE:

 

Interest expense increased to $403 during the three month period ending July 31, 2010 from $351 during the three month period ended July 31, 2009. This increase is due to an increase in PNC Bank’s credit line utilization.

 

INCOME:

 

We realized net income of $8,013 for the three month period ended July 31, 2010, as compared to $6,439 for the three month period ended July 31, 2009, an increase of $1,574 or 24%.  Pre-tax income for the period ended July 31, 2010 was $14,578, compared to $11,671 for the three month period ended July 31, 2009, an increase of $2,907 or 25%.  The provision for income taxes increased from $5,232 for the three month period ended July 31, 2009 to $6,565 for the period ended July 31, 2010.

 

NINE MONTHS 2010 COMPARED TO NINE MONTHS 2009

 

NET REVENUES:

 

Net Revenues for the nine month period ended July 31, 2009 were $260,342 as compared to $331,428 for the nine month period ended July 31, 2010; this represents a 27% increase in net revenues. This increase is due to a 22% increase in patient counts and an increase in revenue per patient of 4%.

 

The number of patients serviced during the nine month period ended July 31, 2010 was 4,072 which was 22% greater when compared to the prior fiscal year’s nine month period. Net revenue per patient for the nine month period ended July 31, 2009 was $77.37, compared to net revenue per patient for the nine month period ended July 31, 2010 of $80.73, an increase of $3.36 or 4%.

 

COST OF SERVICES:

 

Cost of Services increased to $168,621 for the nine month period ended July 31, 2010 from $133,090 for the nine month period ended July 31, 2009. This represents a 27% increase in direct operating costs.  This increase in cost of services is basically in line with the increase in sales.  However, technical and professional salaries increased on average approximately 35%.  Most of this increase was attributable to molecular and genetic testing.

 

GROSS PROFITS:

 

Gross profits on net revenues increased to $162,807 for the nine month period ended July 31, 2010 from $127,252 for the nine month period ended July 31, 2009; an increase of $35,555 (28%). Gross profit margins remained constant between comparable periods at 49%.

 

GENERAL AND ADMINISTRATIVE EXPENSES:

 

General and administrative expenses for the nine month period ended July 31, 2009 were $101,947 as compared to $129,554 for the nine month period ended July 31, 2010.  This represents an increase of $27,607 or 27%. This increase is in line with the increase in net revenues.

 

INTEREST EXPENSE:

 

Interest expense decreased to $1,115 during the nine month period ending July 31, 2010 as compared to $1,208 during the nine month period ending July 31, 2009, a decrease of $93.  This decrease is due to a decrease in PNC Bank’s prime rate to 3.25%. Management believes that this trend will continue in the short-term due to the bank’s lower prime rate.

 

INCOME:

 

We realized net income of $17,804 for the nine month period ended July 31, 2010 as compared to $14,667 for the nine month period ended July 31, 2009, an increase of 21%. On a pro-forma basis (which excludes the restitution amount), the increase year over year would have been 29% not 21% as reported above.

 

Pre-tax income for the period ended July 31, 2010 was $32,246 as compared to $25,833 for the period ended July 31, 2009, an increase of $6,413 (25%). The provision for income taxes increased from $11,166 for the period ended July 31, 2009, to $14,442 (29%) for the current nine month period. Our tax rate increased from 43% to 45%.  However, on a pro-forma basis our pretax income for the period ended July 31, 2010 would have increased by $8,013 (33%). Our tax provision would have increased by $3,968 or 38%.

 

The most profound change attributable to the pro-forma basis computation would have been that our fully-diluted earnings per share (EPS) went from $.49 on the pro forma basis to $.63 under current operating results - a difference of $.14 per share, which is more reflective of our true operating results.

 

LIQUIDITY AND CAPITAL RESOURCES [In Thousands]:

 

Our working capital at July 31, 2010 was $83,601 as compared to $75,984 at October 31, 2009 an increase of $7,617. Our cash position decreased by $354 during the current period. We increased our short term debt by $18,173 and repaid $892 in existing debt. We had current liabilities of $82,079 at July 31, 2010. We generated $3,502 in cash from operations, compared to generating $12,225 in cash from operations for the quarter ended July 31, 2009, an overall decrease of $8,723 in cash generated from operations year over year.

 

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Accounts receivable, net of allowance for doubtful accounts, totaled $123,762 at July 31, 2010, an increase of $18,767 from October 31, 2009 or 18%. This increase was primarily attributable to increased revenue.  Cash collected during the three month period ended July 31, 2010 increased 18% over the comparable three month period in 2009.

 

Credit risk with respect to accounts receivable is generally diversified due to the large number of patients comprising our client base.  We have significant receivable balances with government payors and various insurance carriers.  Generally, we do not require collateral or other security to support customer receivables. However, we continually monitor and evaluate our client acceptance and collection procedures to minimize potential credit risks associated with our accounts receivable and establish an allowance for uncollectible accounts. As a consequence, we believe that our 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, we could experience a significant decrease in revenues from Medicare and Medicaid, which could have a material adverse effect on us. We are unable to predict, however, the extent to which such actions will be taken.

 

Billing for laboratory services is complicated and we must bill various payors, such as the individual, the insurance company, the government (federal or state), the private company or the health clinic. Other factors that may complicate billing include:

 

Differences between fee schedules and reimbursement rates.

 

Incomplete or inaccurate billing information as provided by the physician.

 

Disparity in coverage and information requirements.

 

Disputes with payors.

 

Internal and external compliance policies and procedures.

 

Significant costs are incurred as a result of our participation in government programs since billing and reimbursement for laboratory tests are subject to complex regulations. We perform the requested tests and report the results whether the information is correct or not or even missing. This adds to the complexity and slows the collection process and increases the aging of our accounts receivable (“A/R”). When patient invoices are not collected in a timely manner the item is written off to the allowance. Days Sales Outstanding (“DSO”) for the period ended July 31, 2010 was 94 days, a decrease of 1 day, or 1%, from the 95 days that we reported for the period ended July 31, 2009.

 

See note 10 to our Consolidated Financial Statements for information on the Company’s long term debt.

 

Tabular Disclosure of Contractual Obligations

 

 

 

Five Years

 

FY2010

 

Long - Term Debt

 

$

5,727

 

$

1,192

 

Capital Leases

 

 6,882

 

2,685

 

Operating Leases

 

 3,742

 

2,948

 

Purchase Obligations

 

44,723

 

13,425

 

Employment/Consultant Contracts

 

  8,061

 

4,342

 

Total

 

$

69,135

 

$

  24,592

 

 

Our cash balance at July 31, 2010 totaled $17,349 as compared to $16,995 at October 31, 2009.  We believe that our cash position, the anticipated cash generated from future operations, and the availability of our credit line with PNC Bank, will meet our anticipated cash needs in fiscal 2010.

 

Impact of Inflation - To date, inflation has not had a material effect on our operations.

 

New Authoritative Pronouncements

 

See Note 7 to our Consolidated Financial Statements for a discussion of new authoritative pronouncements.

 

Critical Accounting Policies

 

The preparation of financial statements in conformity with U.S. 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 reported periods.

 

Accounting for Goodwill.

 

We evaluate the recoverability and measure the possible impairment of goodwill under FASB Codification 350-20 “Goodwill”.   The impairment test is a two-step process that begins with the estimation of the fair value of the reporting unit. The first step screens for potential impairment and the second step measures the amount of the impairment, if any.  Management’s estimate of fair value considers publicly available information regarding our market capitalization as well as (i) publicly available information regarding comparable publicly-traded companies in the clinical laboratory testing industry, (ii) the financial projections and future prospects of our business, including its growth opportunities and likely operational improvements, and (iii) comparable sales prices, if available. As part of the first step to assess potential impairment, management compares the estimate of fair value to book value on a consolidated net assets basis.  If the book value of the consolidated net assets is greater than the estimate of fair value, we then proceed to the second step to measure the impairment, if any.  The second step compares the implied fair value of goodwill with its carrying value

 

The implied fair value is determined by allocating the fair value of the reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.  The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill.  If the carrying amount of the goodwill is greater than its implied fair value, an impairment loss will be recognized in that period.

 

Accounting for Intangible and Other Long-Lived Assets.

 

We evaluate the possible impairment of our long-lived assets, including intangible assets. We review the recoverability of our long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable.  Evaluation of possible impairment is based on our ability to recover the asset from the expected future pretax cash flows (undiscounted and without interest charges) of the related

 

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operations. If the expected undiscounted pretax cash flows are less than the carrying amount of such asset, an impairment loss is recognized for the difference between the estimated fair value and the carrying amount of the asset.

 

Accounting for Revenue

 

Service revenues are principally generated from laboratory testing services including chemical diagnostic tests such as blood analysis, urine analysis and genetic testing among others. Net service revenues are recognized at the time the testing services are performed and are reported at their estimated net realizable amounts. These estimated net realizable amounts from patients, third party payors and others for services rendered, are accrued on an estimated basis in the period the related services are rendered and adjusted in subsequent periods based upon an analysis of the Company’s collection experience from each category of payor group as well as prospectively determined contractual adjustments and discounts with third party payors. Differences between these adjustments and any subsequent revisions are included in the statement of operations in which the revisions are made and are disclosed, if material. Applying this methodology and aggregating its collection experience from all payor groups, the Company has not been required to record an adjustment related to revenue recorded in prior periods that was material in nature.

 

Accounting for Contractual Credits and Doubtful Accounts

 

An allowance for contractual credits and discounts is estimated by payor group and determined based upon a review of the reimbursement policies and subsequent collections from the different types of payors. The Company has not been required to record an adjustment in a subsequent period related to revenue recorded in a prior period that was material in nature.

 

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 our actual results in future periods to be materially different from any future performance suggested herein.

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. While many aspects of our business are subject to complex federal, state and local regulations, the accounting for our business is generally straightforward.  Our revenues are primarily comprised of a high volume of relatively low dollar transactions, and about 37% of all our costs consist of employee compensation and benefits.  Revenues are recognized at the time the services are performed and are reported at the estimated net realizable amounts from patients, third-party payors and others for services rendered including prospectively determined adjustments under reimbursement agreements with third-party payors.  These adjustments are accrued on an estimated basis in the period the services are rendered and adjusted in future periods as final settlements are determined.  These estimates are reviewed and adjusted, if warranted, by senior management on a monthly basis.  We believe that our estimates and assumptions are correct; however, several factors could cause actual results to differ materially from those currently anticipated due to a number of factors in addition to those discussed under the caption “Risk Factors” contained in Item 1A of our Annual Report on Form 10-K for the year ended October 31, 2009, as well as elsewhere herein including:

 

our failure to integrate newly acquired businesses (if any) and the cost related to such integration.

 

our failure to obtain and retain new customers and alliance partners, or a reduction in tests ordered or specimens submitted by existing customers.

 

adverse results from investigations of clinical laboratories by the government, which may include significant monetary damages and/or exclusion from the Medicare and Medicaid programs.

 

loss or suspension of a license or imposition of a fine or penalties under, or future changes in, the law or regulations of CLIA-88, or those of Medicare, Medicaid or other federal, state or local agencies.

 

failure to comply with the Federal Occupational Safety and Health Administration requirements and Needlestick Safety and Prevention Act.

 

failure to comply with HIPAA, which could result in significant fines as well as substantial criminal penalties.

 

changes in payor mix.

 

failure to maintain acceptable days sales outstanding levels.

 

increased competition, including price competition.

 

our ability to attract and retain experienced and qualified personnel.

 

adverse litigation results.

 

liabilities that result from our inability to comply with new corporate governance requirements.

 

failure to comply with the Sarbanes-Oxley Act of 2002.

 

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Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We do not invest in or trade market risk sensitive instruments. We also do not have any significant foreign operations or significant foreign sales so that our exposure to foreign currency exchange rate risk is minimal.

 

We do have exposure to both rising and falling interest rates. At July 31, 2010, advances of approximately $30,625 under our Loan Agreement with PNC Bank were subject to interest charges at the Bank’s then prime rate of 3.25%.

 

We estimate that our monthly cash interest expense at July 31, 2010 was approximately $124 and that a one percentage point increase or decrease in short-term rates would increase or decrease our monthly interest expense by approximately $29.

 

Item 4 — CONTROLS AND PROCEDURES

 

An evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and principal financial officer concluded that those disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

 

PART II - OTHER INFORMATION

 

Item 5.   Other Information.

 

See Exhibit 22.1 of Item 6 of this Part II.

 

Item 6.

 

EXHIBITS

 

22.1        Report regarding matters submitted to vote of security holders

31.1        Certification of Chief Executive Officer

31.2        Certification of Chief Financial Officer

32.1        Certification Pursuant to 18 U.S.C. Section 1350 of Chief Executive Officer

32.2        Certification Pursuant to 18 U.S.C. Section 1350 of Chief Financial Officer

 

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Table of Contents

 

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: September 3, 2010

 

 

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