<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
<TABLE>
<CAPTION>
(MARK ONE)
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
/ / 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 0-28328
</TABLE>
------------------------
UROCOR, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2117882
(State of incorporation) (IRS Employer Identification No.)
800 RESEARCH PARKWAY, OKLAHOMA CITY, OK 73104
(Address of principal executive (zip code)
offices)
</TABLE>
(405) 290-4000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(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 Exchange Act of
1934 during the preceding 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 / /
The number of shares of issuer's Common Stock, $.01 par value, outstanding
on October 31, 1997 was 10,336,606 shares.
- --------------------------------------------------------------------------------
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<PAGE>
UROCOR, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
PART I--FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Balance Sheets as of September 30, 1997 and December 31, 1996.................................. 3
Statements of Operations for the three and nine months ended September 30, 1997 and 1996....... 4
Statements of Cash Flows for the nine months ended September 30, 1997 and 1996................. 5
Notes to Unaudited Interim Financial Statements--September 30, 1997............................ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......... 7-10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.................................... 10
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.............................................................................. 11
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...................................................... 11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................................................ 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................ 11
ITEM 5. OTHER INFORMATION.............................................................................. 12-15
Cautionary Statements
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................................... 15
Signatures................................................................................................ 16
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UROCOR, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1996
SEPTEMBER 30, --------------
1997
-------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................ $ 12,062,710 $ 15,796,070
Short-term marketable investments................................................ 6,004,874 5,975,500
Accounts receivable, net of allowance for doubtful accounts of $1,838,533 in 1997
and $1,123,562 in 1996......................................................... 12,715,020 8,188,715
Prepaid expenses................................................................. 817,125 666,662
Laboratory supplies, at average cost............................................. 462,073 683,408
Other current assets............................................................. 1,000,960 530,796
------------- --------------
Total current assets........................................................... 33,062,762 31,841,151
------------- --------------
LONG-TERM MARKETABLE INVESTMENTS................................................... 7,697,867 11,703,521
PROPERTY AND EQUIPMENT, net........................................................ 7,871,370 4,745,662
INTANGIBLE AND OTHER ASSETS, net................................................... 2,218,861 1,979,575
------------- --------------
Total assets................................................................... $ 50,850,860 $ 50,269,909
------------- --------------
------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................. $ 1,411,770 $ 1,960,446
Accrued compensation............................................................. 284,768 1,225,976
Other accrued liabilities........................................................ 86,893 114,352
Current installments of obligations under capital leases......................... 517,143 623,446
------------- --------------
Total current liabilities...................................................... 2,300,574 3,924,220
OBLIGATIONS UNDER CAPITAL LEASES, net of current
installments..................................................................... 296,390 659,131
------------- --------------
Total liabilities.............................................................. 2,596,964 4,583,351
------------- --------------
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.01 par value--authorized 6,000,000 shares at
September 30, 1997 and at December 31, 1996; issued in series; no shares
outstanding at September 30, 1997 and at December 31, 1996..................... -- --
Common stock, $.01 par value, authorized 20,000,000 shares at September 30, 1997
and at December 31, 1996; 10,200,939 shares issued and outstanding at September
30, 1997 and 10,101,307 shares issued and outstanding at December 31, 1996..... 102,009 101,013
Additional paid-in capital....................................................... 57,779,823 57,576,724
Accumulated deficit.............................................................. (9,627,936) (11,991,179)
------------- --------------
Total stockholders' equity..................................................... 48,253,896 45,686,558
------------- --------------
Total liabilities and stockholders' equity..................................... $ 50,850,860 $ 50,269,909
------------- --------------
------------- --------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
<PAGE>
UROCOR, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER NINE MONTHS ENDED SEPTEMBER
30, 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUE............................................. $ 7,785,528 $ 6,475,839 $ 23,658,800 $ 18,832,561
OPERATING EXPENSES:
Direct cost of services and products.............. 3,170,621 2,575,929 9,075,557 7,104,132
Selling, general and administrative expenses...... 3,953,187 3,158,679 11,633,297 9,124,414
Research and development.......................... 497,852 540,156 1,719,308 1,832,469
------------- ------------- ------------- -------------
Total operating expenses........................ 7,621,660 6,274,764 22,428,162 18,061,015
------------- ------------- ------------- -------------
Income from operations............................ 163,868 201,075 1,230,638 771,546
OTHER INCOME (EXPENSE):
Interest income................................... 390,608 494,796 1,258,182 732,147
Interest expense.................................. (32,668) (60,890) (125,598) (170,782)
------------- ------------- ------------- -------------
Total other income.............................. 357,940 433,906 1,132,584 561,365
------------- ------------- ------------- -------------
Income before income taxes.......................... 521,808 634,981 2,363,222 1,332,911
Income taxes........................................ -- -- -- --
------------- ------------- ------------- -------------
NET INCOME.......................................... $ 521,808 $ 634,981 $ 2,363,222 $ 1,332,911
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
NET INCOME PER SHARE................................ $ .05 $ .06 $ .21 $ .14
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
SHARES USED IN COMPUTING NET INCOME PER SHARE....... 11,069,309 11,189,263 11,097,105 9,391,369
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
UROCOR, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
30,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................................... $ 2,363,222 $ 1,332,911
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization.................................................. 1,105,727 808,019
Stock option compensation expense.............................................. 96,032 97,071
Loss on disposition of equipment............................................... 6,960 --
Changes in assets and liabilities:
Increase in accounts receivable.............................................. (4,526,305) (2,032,968)
Increase in prepaid expense.................................................. (150,463) (374,260)
(Increase) decrease in laboratory supplies................................... 221,335 (352,407)
Increase in other current assets............................................. (470,164) (222,646)
Increase (decrease) in accounts payable...................................... (548,676) 175,262
Increase (decrease) in accrued liabilities................................... (27,459) 26,504
Decrease in accrued compensation............................................. (941,208) (275,210)
------------- -------------
Net cash used in operating activities...................................... (2,870,999) (817,724)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities (purchases) of short-term marketable investments, net................. (29,374) (4,002,594)
Maturities (purchases) of long-term marketable investments, net.................. 4,005,654 (7,988,710)
Capital expenditures............................................................. (4,205,348) (1,494,491)
Proceeds from capital leases..................................................... -- 385,511
Intangible and other assets...................................................... (272,312) (192,646)
------------- -------------
Net cash used in investing activities.......................................... (501,380) (13,292,930)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from stock issuances................................................ -- 34,603,514
Proceeds from exercise of stock options.......................................... 108,063 15,350
Principal payments under capital lease obligations and other indebtedness........ (469,044) (680,796)
Proceeds from line of credit..................................................... -- 600,000
Payments on line of credit....................................................... -- (1,300,000)
------------- -------------
Net cash provided by (used in) financing activities............................ (360,981) 33,238,068
------------- -------------
Net increase (decrease) in cash and cash equivalents............................... (3,733,360) 19,127,414
CASH AND CASH EQUIVALENTS, beginning of year....................................... 15,796,070 3,125,296
------------- -------------
CASH AND CASH EQUIVALENTS, end of period........................................... $ 12,062,710 $ 22,252,710
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest........................................................... $ 115,282 $ 150,852
Cash paid for income taxes....................................................... 350,000 48,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
UROCOR, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1997
NOTE 1--BASIS OF PRESENTATION:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring items) considered necessary for a fair presentation have been
included. These interim financial statements should be read in conjunction with
the financial statements and notes included in the Company's Form 10-K filed on
March 28, 1997.
Operating results for the nine-month period ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the full year
ended December 31, 1997.
NOTE 2--NET INCOME PER SHARE:
Net income per share has been computed based upon the weighted average
number of common shares and common share equivalents outstanding during each
period. Common share equivalents recognize the potential dilutive effects of the
conversion of Preferred, Class A and Class B Stock to Common Stock for periods
prior to the Company's initial public offering and the impact of outstanding
options and warrants to acquire Common Stock using the treasury stock method and
the Company's estimate of the fair value of common stock during each period.
Pursuant to the rules of the Securities and Exchange Commission, common and
common share equivalent shares issued in the 12 months prior to the Company's
initial public offering have been included in the computation of common and
common equivalent shares as if they were outstanding for all prior periods
presented.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128").
SFAS 128 requires adoption of certain new accounting and disclosure rules for
earnings per share in financial statements dated after December 15, 1997, and
early adoption is prohibited. Upon adoption, SFAS 128 will require that all
prior-period earnings per share ("EPS") data presented be restated to conform
with the new requirements. The shares used to calculate net income per share, as
presented in these financial statements, will approximate the shares to be used
for Diluted EPS under SFAS 128. To calculate Basic EPS under SFAS 128, the
shares used in computing net income per share for the periods presented in these
financial statements will be reduced by approximately 886,000 and 1,172,000
shares for each of the three month periods ended September 30, 1997 and 1996,
respectively and 935,000 and 1,104,000 for each of the nine month periods ended
September 30, 1997 and 1996, respectively.
NOTE 3--INITIAL PUBLIC OFFERING:
The Company's initial public offering was consummated on May 22, 1996,
pursuant to which the Company sold a total of 3,450,000 common shares at an
offering price to the public of $11 per share. The net proceeds to the Company
were approximately $34,500,000 after deducting expenses and underwriting
discount.
NOTE 4--INVESTMENTS:
Pursuant to the Company's investment policy, idle and excess funds are
invested in high grade, fixed income securities generally for no more than two
years. These securities are classified as Available-for-Sale as of September 30,
1997. The Company considers any net unrealized gain or loss on these investments
to be temporary, and reflects such gains or losses as a component of
stockholders' equity. As of September 30, 1997, there was not a material net
unrealized gain or loss on these investments.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of operations and financial condition of the
Company should be read in conjunction with the Financial Statements and Notes
thereto included elsewhere in this Quarterly Report on Form 10-Q. Special Note:
Certain statements set forth below constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended and
the Securities Exchange Act of 1934, as amended. See "Special Note Regarding
Forward-Looking Statements" and "Cautionary Statements".
OVERVIEW
UroCor provides a broad range of diagnostic services for the clinical
management of certain urological cancers and diseases. The Company's goal is to
complement its diagnostic services with therapeutic products and information
services in order to become an integrated disease management company serving the
urology market. The Company has established four business groups,
UroDiagnostics, UroSciences, UroTherapeutics and Disease Management Information
Systems, to serve the needs of urologists and managed care organizations for the
diagnostic, prognostic and therapeutic care of patients throughout the entire
course of their diseases.
The Company currently derives substantially all of its revenue from
diagnostic products and services that its UroDiagnostics Group provides to the
urology market to assist in the diagnosis, prognosis and management of prostate
cancer, bladder cancer and kidney stones disease. The Company recognizes revenue
when products are sold or services are rendered. The Company typically bills
various third-party payors for its products and services, including governmental
programs such as Medicare, private insurance and managed care plans, as well as
individual patients. For the nine months ended September 30, 1997, approximately
47%, 38%, 10% and 5% of the Company's revenue was attributable to Medicare,
private insurance and managed care, individual patients, and physicians and
hospitals, respectively.
The Company has acquired co-promotion rights to two therapeutic products.
The Company also has acquired distribution rights to another therapeutic
product, currently before the the United States Food and Drug Administration
(the "FDA") for approval. The Company intends to market these products to
urologists through it existing sales force, as well as expand its sales force
beginning in late 1997.
RESULTS OF OPERATIONS
REVENUE. Revenue increased 20.2%, from approximately $6.5 million in the
three months ended September 30, 1996 to approximately $7.8 million in the three
months ended September 30, 1997, and increased 25.6%, from approximately $18.8
million in the first nine months of 1996 to approximately $23.7 million in the
first nine months of 1997. These increases resulted from an increase in case
volume of 21.6% and 33.1% for the three and nine month periods, respectively,
due primarily to expansion of the Company's client base, increased utilization
of the Company's diagnostic products and services by existing clients and
increased utilization of the Company's kidney stone product line. Case volume
increased at a higher rate than revenue, primarily due to the continued
expansion of the kidney stone product line, introduced in early 1996, and an
increase in serum based tests, each of which generally has average selling
prices below those of most of the Company's other products. Case volume and
resulting revenue for the three months ended September 30, 1997 were adversely
impacted by the United Parcel Services ("UPS") strike in August 1997.
DIRECT COST OF SERVICES AND PRODUCTS. Direct cost of services and products
increased 23.1%, from approximately $2.6 million in the three months ended
September 30, 1996 to approximately $3.2 million in the three months ended
September 30, 1997, and increased 27.7%, from approximately $7.1 million in the
first nine months of 1996 to approximately $9.1 million in the first nine months
of 1997. These increases were due principally to higher personnel costs and
supply and distribution costs, resulting primarily from
7
<PAGE>
increased case volume and service enhancement initiatives, as well as higher
shipping costs incurred during the August 1997 UPS strike. As a percentage of
revenue, direct expenses increased to 40.7% for the three months ended September
30, 1997 from 39.8% for the three months ended September 30, 1996, and increased
to 38.4% of revenue for the first nine months of 1997 from 37.7% for the first
nine months of 1996. These increases are due principally to continued growth of
the Company's kidney stone and serum based tests, with each of these products
having lower profit margins than those of most of the Company's other products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 25.2%, from approximately $3.2 million in the
three months ended September 30, 1996 to approximately $4.0 million in the three
months ended September 30, 1997, and increased 27.5%, from approximately $9.1
million in the first nine months of 1996 to approximately $11.6 million in the
first nine months of 1997. These increases were due principally to higher
personnel costs related to expansion of marketing, sales staff and management
information services personnel, increased provision for doubtful accounts due to
higher revenues, and expanded investor relations activities. As a percentage of
revenue, selling, general and administrative expenses increased to 50.8% for the
three months ended September 30, 1997 from 48.8% for the three months ended
September 30, 1996, and increased to 49.2% of revenue for the first nine months
of 1997 from 48.5% for the first nine months of 1996.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development costs decreased
7.8%, from approximately $540,000 in the three months ended September 30, 1996
to approximately $498,000 in the three months ended September 30, 1997, and
decreased 6.2%, from approximately $1.8 million in the first nine months of 1996
to approximately $1.7 million in the first nine months of 1997. These decreases
were due primarily to timing of lapsing external research agreements. As a
percentage of revenue, research and development expenses decreased to 6.4% for
the three months ended September 30, 1997 from 8.3% for the three months ended
September 30, 1996, and decreased to 7.3% of revenue for the first nine months
of 1997 from 9.7% for the first nine months of 1996.
OTHER INCOME (EXPENSE). Interest income decreased in the three-month period
ended September 30, 1997 compared to the same period of 1996, due principally to
a decrease in cash, cash equivalents and investments, resulting from capital
expenditures and an increase in accounts receivable. Interest expense decreased
in the three and nine month periods ended September 30, 1997 compared to the
same periods of 1996, primarily because of a decrease in obligations under
capital leases and the expiration, in February 1997, of the Company's bank
credit facility, which it did not renew. The Company had no borrowings under
this facility during the nine month period ended September 30, 1997, but had
borrowings thereunder during the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company had cash and cash equivalents of
approximately $12.1 million, short-term marketable investments of approximately
$6.0 million and long-term marketable investments of approximately $7.7 million.
Such marketable investments consisted principally of high-grade fixed income
securities, with a maturity of less than two years. As of September 30, 1997 the
Company's working capital was approximately $30.8 million.
Accounts receivable, net of allowance for doubtful accounts, totaled
approximately $12.7 million at September 30, 1997, an increase of 55% from
December 31, 1996. At September 30, 1997, the Company's average number of days
sales in receivables was approximately 154 compared to 97 at December 31, 1996.
During 1996 and 1997, the Company's Medicare intermediary and certain other
third-party payors have continued a general trend of increased time between
their receipt of claims and payment to the Company. The increase in accounts
receivable during the nine months ended September 30, 1997 was due to payor
delays caused by systems changes enacted by several of the Company's larger
payors as well as additional documentation requirements imposed by Medicare and
other third party payor's which further complicate
8
<PAGE>
the billing process. The Company is working with these payors and its physician
clients to resolve systems, documentation and related processing issues. In an
effort to reduce its average number of days sales in receivables, the Company
has implemented staffing, systems and process changes and is undertaking
additional initiatives intended to improve its claims and collections
efficiencies.
The Company monitors the collection quality of its accounts receivable
through analytical review of aging categories by payor group and collections
performance compared to historical trends. The Company maintains what it
believes to be an adequate level of an allowance for doubtful accounts through
charges to operations which are included in selling, general and administrative
expenses. The Company historically has not experienced any material write-off or
collection problems for which adequate reserves had not been established through
its regular provision for doubtful accounts.
Operating activities used net cash of approximately $2.9 million for the
nine months ended September 30, 1997 compared to approximately $818,000 for the
nine months ended September 30, 1996. The net cash used in operating activities
was primarily the result of an approximate $4.5 million increase in accounts
receivable, an approximate $549,000 decrease in accounts payable, an approximate
$941,000 decrease in accrued compensation, and an approximate $470,000 increase
in other current assets offset in part by net income of approximately $2.4
million and depreciation and amortization of approximately $1.1 million.
Net cash used by investing activities was approximately $501,000 for the
nine months ended September 30, 1997 and consisted primarily of capital
expenditures of approximately $4.2 million and an increase in intangibles and
other assets of approximately $272,000, offset by net sales of long-term
investments of approximately $4.0 million. Net cash used in financing activities
was approximately $361,000 for the first nine months of 1997, consisting
primarily of principal payments under capital leases and other indebtedness of
approximately $469,000 offset by proceeds from exercise of stock options of
approximately $108,000.
The Company's capital expenditures of approximately $4.2 million for the
nine months ended September 30, 1997, were primarily for computer hardware and
software, furniture and fixtures and software development for the Company's
information services. Of the total amount, approximately $816,000 related to
internal software development costs for information services. While future
capital expenditures will depend upon a number of factors, the level of
expenditures is expected to be higher than the historical level of such
expenditures as the Company expands to deliver therapeutics and information
services and continues to enhance current diagnostic services and operational
capabilities. The Company intends to finance the majority of these capital
expenditures with existing cash and investment balances.
In December 1994, the Company obtained distribution rights to a therapeutic
product currently under review for marketing approval by the FDA. The total cost
of the distribution rights is $3.0 million, which is payable in installments
based on achievement of certain milestones by the manufacturer. The Company made
an initial payment of $750,000 in December 1994 and a second installment of
$500,000 in 1995 after the product was submitted for FDA review in April 1995.
The Company is obligated to pay an additional milestone payment of $1.75 million
if and when the product is approved by the FDA for marketing in the United
States. If the Company makes this payment in 1998, it intends to make any such
payment from existing cash and investment balances.
The Company reported no tax expense for the three and nine month periods
ended September 30, 1997, as a result of utilization of net operating loss
carryforwards. Prior to 1997, a valuation allowance against the future benefits
of these net deferred tax assets was recorded due to uncertainty regarding the
realizability of such assets through sustained profitable operations. As
realizability of this asset becomes more certain through a demonstrated positive
earnings history, the Company will continue to evaluate the appropriateness of
recognizing these future benefits to a greater extent later in 1997. Using an
assumed tax rate of 38%, the recognition of such net deferred tax benefits
totaled approximately $198,000 or $0.02 per
9
<PAGE>
share, for the third quarter of 1997 and $898,000 or $0.08 per share, for the
nine months ended September 30, 1997.
The Company believes that its existing capital resources will be sufficient
to provide the funds necessary to maintain its present level of operations and
implement its currently planned growth strategy. However, there may be
circumstances or new business opportunities that would require additional
resources. In such event, the Company may be required to seek additional
financing and there is no assurance that the Company would be able to obtain
such financing on acceptable terms.
The Company believes that it has prepared its computer systems and related
applications to accommodate date-sensitive information relating to the Year
2000. The Company expects that any additional costs related to ensuring such
systems to be Year 2000 compliant will not be material to the financial
condition or results of operations of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
10
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
USE OF PROCEEDS:
The effective date of the registration statement for the Company's Initial
Public Offering and for which this use of proceeds information is being
disclosed was May 16, 1996 and the Commission file number assigned to the
registration statement was 333-3182. The offering commenced on May 16, 1996. The
offering has terminated, but did not terminate before all registered securities
were sold. The managing underwriters of the offering were Montgomery Securities
and Volpe, Welty & Company. A total of 3,450,000 shares of Common Stock, par
value $.01, were registered and sold resulting in aggregate offering proceeds of
$37,950,000. Total aggregate expenses directly or indirectly paid to others in
connection with the issuance and distribution of these securities were
$3,400,141, which includes underwriting discounts and commissions of $2,656,500,
expenses paid to or for underwriters of $49,743 and other expenses of $693,898.
No finders' fees were paid and none of such expenses were paid directly or
indirectly to directors, officers, general partners or their associates, to
persons owning 10% or more of any class of equity securities or affiliates.
Resulting net proceeds from the offering were $34,549,859.
From the effective date of the registration statement through September 30,
1997, the following table identifies the purposes and amounts of the net
proceeds paid directly or indirectly to others:
<TABLE>
<S> <C>
Construction of plant, building and facilities.......................... $ --
Purchase and installation of machinery and equipment.................... 2,881,490
Purchases of real estate................................................ --
Acquisition of other business(es)....................................... --
Repayment of indebtedness............................................... 1,707,036
Working Capital......................................................... 3,641,287
Temporary Investments:
Short-term Commercial Paper........................................... 6,004,874
Long-term Corporate and Treasury Notes................................ 7,697,867
Cash Equivalents...................................................... 5,564,497
Other Purposes:
Development and Expansion of Diagnostic Product Line.................. 3,219,000
Development of Information Products and Services and Urological
Disease Databases................................................... 2,138,501
Development of Therapeutic Product Line............................... 480,546
Development and Expansion of Clinical and Research Laboratories and
Lab Information System.............................................. 1,214,761
</TABLE>
None of the net proceeds have been paid directly or indirectly to directors,
officers, general partners or their associates, to persons owning 10% or more of
any class of equity securities or affiliates.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
11
<PAGE>
ITEM 5. OTHER INFORMATION
Cautionary Statements:
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS. This Quarterly
Report on Form 10-Q includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All
statements other than statements of historical facts included in this
Report, including without limitation, statements regarding the Company's
financial position, business strategy, products, products under development,
markets, budgets and plans and objectives of management for future
operations, are forward-looking statements. Although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to
have been correct. Important factors that could cause actual results to
differ materially from the Company's expectations ("Cautionary Statements")
are disclosed under "Cautionary Statements" and elsewhere in this Report,
including, without limitation, in conjunction with the forward-looking
statements included in this Report. All subsequent written and oral forward-
looking statements attributable to the Company, or persons on its behalf,
are expressly qualified in their entirety by the Cautionary Statements.
NEED FOR FUTURE FUNDING; UNCERTAINTY OF ACCESS TO CAPITAL. The
Company's growth since 1991 has required, and any future growth will
require, significant amounts of working capital. Although the Company
believes that existing capital resources will be adequate to fund its
present level of
operations and implement its currently planned growth strategy, there may be
circumstances or new business opportunities that would require additional
resources. In such event, the Company may be required to seek additional
financing, and there is no assurance that the Company would be able to
obtain such financing on acceptable terms.
UNCERTAINTIES RELATED TO THIRD-PARTY REIMBURSEMENT; POTENTIAL HEALTH
CARE REFORM. The Company typically bills governmental programs such as
Medicare and other third-party payors such as private insurance and managed
care plans for its products and services. Such third-party payors are
increasingly negotiating prices with the goal of lowering reimbursement
rates, which may result in lower profit margins for the Company.
Reimbursement rates have been established for most but not all of the
services performed by the Company. The Company cannot collect from Medicare
or other third-party payors for services that those payors have not approved
for reimbursement. There can be no assurance that the Free/Total PSA assay
currently provided by the Company or any other products under development
will be approved for reimbursement by Medicare or other third-party payors.
From time to time, the public and federal government focus significant
attention on reforming the health care system in the United States. Any
future changes in Medicare and other third-party payor reimbursement which
may result from health care reform or deficit reduction legislation will
likely continue the downward pressure on prices. A number of legislative
proposals have been introduced in Congress and state legislatures in recent
years that would effect major reforms of the health care system and
otherwise reduce health care spending. The Balanced Budget Act of 1997 made
many changes to Medicare and Medicaid payment systems that affect health
care providers, including clinical laboratories. Among the provisions is one
that eliminates the Medicare charge update to the clinical lab fee schedule
for years 1998 through 2002. The provision also reduces the cap on allowable
laboratory charges used in establishing areawide fee schedules, currently
set at 76% of the median of such charges to 74% effective January 1, 1998.
Another provision changes the manner in which states are required to pay for
the portion of allowable charges not paid by Medicare for certain "Qualified
Medicare Beneficiaries" and other dually-eligible beneficiaries. Because of
the uncertainties surrounding the nature, timing and extent of any such
reform initiatives, the Company is unable to predict the effects of any such
changes on the Company.
12
<PAGE>
UNCERTAINTIES RELATED TO ACCOUNTS RECEIVABLE. Since 1994, the Company's
Medicare intermediary and certain other third-party payors have increased
the amount of time between their receipt of claims for reimbursement and
payment to the Company as well as significantly increased the documentation
and information requirements, further complicating the billing process. At
September 30, 1997, the Company's average days sales in receivables was
approximately 154, compared to 97 at December 31, 1996. Such changes have
resulted in the Company's accounts receivable increasing at a rate grater
than revenue growth and, therefore, have affected the Company's cash flow
from operations. There can be no assurance that these payors will not
further modify their payment practices and impose other requirements, which
could have a material adverse affect on the Company's financial condition
and results of operations. In addition, as a result of the increase in
accounts receivable, the Company's allowance for doubtful accounts has
increased. Although the Company maintains what it believes to be an adequate
reserve for doubtful accounts, there can be no assurance that the Company
will not be required to provide additional reserves, which could have an
adverse affect on the Company's results of operations.
DEPENDENCE ON CERTAIN PRODUCT LINES. A significant portion of the
Company's revenue has been, and is expected to continue to be, dependent
upon the Company's prostate tissue analysis and bladder cellular analysis
product lines. Any negative event related to these product lines, such as
increased competition, pricing pressures and clinical or technological
obsolescence would have a material and adverse effect on the Company's
financial condition and results of operations.
NO ASSURANCE OF SUCCESSFUL ACQUISITION OF DISTRIBUTION RIGHTS FOR
THERAPEUTIC PRODUCTS. Through its UroTherapeutics Group, the Company is
developing a therapeutic products distribution business. The Company
currently has acquired distribution or co-promotion rights for three
therapeutic products. There can be no assurance that the Company will be
successful in negotiating any additional distribution or other agreements
related to therapeutic products in the future. Additionally, the Company has
never marketed or distributed any therapeutic products, and there can be no
assurance that the Company's efforts will be successful.
UNCERTAINTY RELATED TO GOVERNMENT REGULATION. The Company's diagnostic
laboratory operations currently are required to be certified or licensed
under the federal Clinical Laboratory Improvement Act of 1967, as amended in
1988 ("CLIA"), the Medicare and Medicaid programs and various state and
local laws. In some instances, the Company is also subject to licensing or
regulation under federal and state laws relating to the handling and
disposal of medical specimens, infectious and hazardous waste and
radioactive materials, as well as to the safety and health of laboratory
employees. The sanctions for failure to comply with these regulations may
include denial of the right to conduct business, significant fines and
criminal penalties. The loss of a license, imposition of a fine or an
increase in the complexity or substantive requirements of such federal,
state and local laws and regulations could have a material adverse effect on
the Company's financial condition and results of operations.
The Company's diagnostic laboratory operations currently are not
regulated by the FDA. While the FDA now indicates that it does not plan to
regulate assays developed by laboratories for in-house use, the FDA has in
the past considered drafting guidelines for regulation of such assays. If in
the future the FDA were to issue guidelines for the clinical laboratory
market sector, such guidelines might require the Company to meet certain FDA
medical device approval requirements for the Company's in-house assays. Such
regulations, if enacted in a way that affects the Company, would increase
the cost of development and approval of new products, slow their
introduction to the market and could have a material adverse effect on the
Company's financial condition and results of operations.
The FDA currently regulates a number of the products which the Company
purchases from third parties for use in its diagnostic services. The
manufacturers of such products are responsible for
13
<PAGE>
compliance with FDA regulations relating to such products. There can be no
assurance, however, that action by the manufacturers or by the FDA would not
impair the Company's ability to obtain and offer certain services. The
unavailability of certain services and materials used in the Company's
diagnostics business would have a material adverse effect on the Company's
financial condition and results of operations.
Although the Company's existing and proposed information services
products currently are not subject to regulation by the FDA, the FDA could
determine in the future that the predictive applications of these products
are deemed to be medical devices subject to FDA regulation. In that event,
the Company could experience delays in developing and marketing new services
and increases in research and development costs.
As a provider of health care related services, the Company is subject to
extensive and frequently changing federal, state and local laws and
regulations governing licensure, billing, financial relationships,
referrals, conduct of operations, purchase of existing businesses,
cost-containment, direct employment of licensed professionals by business
corporations and other aspects of the Company's business relationships. The
Company cannot predict the timing or impact of any changes in such laws and
regulations or their interpretations by regulatory bodies, and no assurance
can be given that any such changes will not have a material adverse effect
on the Company's financial condition and results of operations.
UNCERTAINTIES RELATED TO THE FDA APPROVAL OF THERAPEUTIC PRODUCT. The
Company has a distribution agreement with BioChem Vaccines Inc. ('BioChem'),
for a therapeutic product for use in treating certain types of bladder
cancer. Pursuant to the distribution agreement, BioChem is responsible for
obtaining approvals from the FDA for marketing the therapeutic product in
the United States. In April 1995, BioChem filed its initial applications
with the FDA. In April 1996, the FDA advised BioChem that its application
was not approvable and requested additional data regarding certain aspects
of manufacturing and testing of the product, which BioChem filed with the
FDA through an amended application in August 1996. Following a May 1997 site
inspection of BioChem's manufacturing facilities and operations, the FDA
issued a report on FDA Form 483 indicating that additional requirements
related to BioChem's facility, process and documentation were required
before these applications could be approved. Although BioChem has advised
the Company that it believes it can satisfy the FDA requirements, there can
be no assurance that approval will be obtained.
UNCERTAINTIES RELATED TO MANAGED CARE. Managed care organizations are
gaining increasing control over access to health care and payment for an
increasing number of patients with urological diseases. There can be no
assurance that the Company will be able to maintain its existing contracts
with managed care organizations or that it will be able to obtain additional
contracts with such organizations in the future which could preclude the
Company from serving large groups of patients in certain markets. The
Company has experienced increasing pricing pressure from managed care
organizations, and such pressure is expected to continue. There can be no
assurance that such pricing pressure and any contract restrictions will not
have a material adverse effect on the Company's financial condition and
results of operations.
NO ASSURANCE OF ACCESS TO AND DELIVERY OF NEW DIAGNOSTIC
TECHNOLOGY. The markets for the Company's diagnostic products and services
are characterized by rapidly changing technology, frequent new product
introductions and enhancement and, therefore, rapid product obsolescence.
There can be no assurance the Company will be able to identify new products,
trends or opportunities, develop and bring to market new products, respond
effectively to new technological changes or product announcements by others,
develop or obtain access to advanced materials and technologies, or receive
commercial acceptance for its products.
14
<PAGE>
UNCERTAINTIES RELATED TO INVESTMENTS IN DISEASE MANAGEMENT INFORMATION
SYSTEMS. The Company has been and expects to continue investing in the
development of information-based capabilities and services which it plans to
introduce in the future related to the clinical management of urologists'
patients and the business management of their practices. Development and
delivery of these new services will require substantial additional
investment and represents an expansion of the type of services the Company
presently provides to urologists. There can be no assurance that any future
revenues from these services will be sufficient to cover or otherwise
justify the costs of development and introduction.
UNCERTAINTIES ASSOCIATED WITH COMPETITIVE PRESSURES. The industry in
which the Company's diagnostics business operates is characterized by
intense competition with many different types of competitors including
specialty laboratories, diagnostic kit and instrumentation manufacturers,
local and regional pathology services, hospital laboratories and large
general reference clinical laboratories. Many of the Company's competitors
are significantly larger and have significantly greater financial, technical
and administrative resources than the Company; many also have long
established relationships with the Company's current and prospective
customers and with managed care organizations. There can be no assurance
that the Company will be able to compete successfully with such entities in
the marketing of products and services and in the acquisition of new
technologies.
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH. The Company has recently
experienced substantial growth and expanded its operational capabilities.
The Company is also planning to offer a therapeutic product line and
information and business management services. This growth and expansion has
placed, and will continue to place, a significant strain on the Company's
management, production, technical, financial and other resources. To date,
the Company primarily has experience in managing a diagnostics service
business. There can be no assurance that the Company will be able to manage
expansion into and operation of therapeutics, business management or
information services businesses.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS. The Company's quarterly
and annual operating results are affected by a wide variety of factors, many
of which are outside the Company's control, which have in the past and could
in the future materially and adversely affect revenue, operating expenses
and income. These factors include seasonality, the quantities and timing of
specimens received, competitive pricing pressures, availability and cost of
diagnostic supplies, availability and cost of logistic services, changes in
the mix of products sold, timing and costs of new product and technology
introductions by the Company or its competitors, retention and expansion of
the sales force and timing of payments from Medicare and other third-party
payors. The need for continued investment in research and development and
expansion of its product lines could limit the Company's ability to reduce
expenses quickly. As a result of these factors, the Company expects its
operating results to continue to fluctuate.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
EXHIBIT NUMBER AND DESCRIPTION
11.1 Statement Regarding Computation of Per Share Earnings
(b) Reports on Form 8-K
None
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UROCOR, INC.
By: /s/ WILLIAM A. HAGSTROM
-----------------------------------
William A. Hagstrom
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF
EXECUTIVE OFFICER
November 11, 1997
By: /s/ MICHAEL N. MCDONALD
-----------------------------------
Michael N. McDonald
VICE-PRESIDENT AND CHIEF FINANCIAL
OFFICER
November 11, 1997
16
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description
- ------- -----------
11.1 Statement Regarding Computation of Per Share Earnings
27.1 Financial Data Schedule
17
<PAGE>
EXHIBIT 11.1
UROCOR, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income............................................... $ 521,808 $ 634,981 $ 2,363,222 $ 1,332,911
------------ ------------ ------------ ------------
Divided by;
Weighted average shares outstanding (1)................ 11,069,309 11,189,263 11,907,105 9,261,512
Plus:
Supplemental shares (2)................................ -- -- -- 129,857
------------ ------------ ------------ ------------
Total weighted average shares outstanding................ 11,069,309 11,189,263 11,907,105 9,391,369
------------ ------------ ------------ ------------
Earnings per share....................................... $ .05 $ .06 $ .21 $ .14
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
- ------------------------
(1) Convertible Preferred Stock, Class A Stock and Class B Stock are reflected
on an "as if converted" basis for periods prior to the Company's initial
public offering. Common Stock issuable upon exercise of outstanding options
and warrants is reflected using the treasury stock method.
(2) Reflects common and common stock equivalent shares issued in the 12 months
prior to the Company's initial public offering at an exercise price below
the public offering price of $11.00 per share. After the first three months
of 1996, such common stock equivalent shares are included in the calculation
of the "weighted average shares outstanding" above.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET FOR SEPTEMBER 30, 1997 AND THE STATEMENT OF OPERATIONS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 12,062,710
<SECURITIES> 6,004,874
<RECEIVABLES> 14,553,553
<ALLOWANCES> 1,838,533
<INVENTORY> 462,073
<CURRENT-ASSETS> 33,062,762
<PP&E> 11,693,149
<DEPRECIATION> 3,821,779
<TOTAL-ASSETS> 50,850,860
<CURRENT-LIABILITIES> 2,300,574
<BONDS> 0
0
0
<COMMON> 102,009
<OTHER-SE> 48,151,887
<TOTAL-LIABILITY-AND-EQUITY> 50,850,860
<SALES> 0
<TOTAL-REVENUES> 23,658,800
<CGS> 0
<TOTAL-COSTS> 9,075,557
<OTHER-EXPENSES> 12,126,366
<LOSS-PROVISION> 1,226,239
<INTEREST-EXPENSE> 125,598
<INCOME-PRETAX> 2,363,222
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,363,222
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,363,222
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
