<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
<TABLE>
<CAPTION>
(MARK ONE)
<S> <C>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
</TABLE>
For the transition period from ___________________ to ___________________
Commission file number 0-28328
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 offices) (zip code)
</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 April 30, 1997 was 10,155,173 shares.
- --------------------------------------------------------------------------------
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<PAGE>
UROCOR, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
INDEX
PART I--FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Balance Sheets as of March 31, 1997 and December 31, 1996................................ 3
Statements of Operations for the three months ended March 31, 1997
and 1996............................................................................... 4
Statements of Cash Flows for the three months ended March 31, 1997
and 1996............................................................................... 5
Notes to Unaudited Interim Financial Statements--March 31, 1997.......................... 6
Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations.... 7-9
Item 3. Quantitative and Qualitative Disclosures About Market Risks.............................. 9
PART II--OTHER INFORMATION
Item 1. Legal Proceedings........................................................................ 10
Item 2. Changes in Securities.................................................................... 10
Item 3. Defaults Upon Senior Securities.......................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders...................................... 10
Item 5. Other Information........................................................................ 10-13
Cautionary Statements
Item 6. Exhibits and Reports on Form 8-K......................................................... 13
Signatures............................................................................................. 14
Exhibits 11.1 Statement Re Computation of Per Share Earnings...................................... 15
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UROCOR, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, 1997 1996
-------------- --------------
<S> <C> <C>
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents....................................................... $ 17,241,057 $ 15,796,070
Short-term marketable investments............................................... 897,856 5,975,500
Accounts receivable, net of allowance for doubtful accounts of $1,416,480 in
1997 and $822,044 in 1996..................................................... 10,429,093 8,188,715
Prepaid expenses................................................................ 819,645 666,662
Laboratory supplies, at average cost............................................ 703,195 683,408
Other current assets............................................................ 631,602 530,796
-------------- --------------
Total current assets.......................................................... 30,722,448 31,841,151
-------------- --------------
LONG-TERM MARKETABLE INVESTMENTS.................................................. 11,700,879 11,703,521
PROPERTY AND EQUIPMENT, net....................................................... 5,663,258 4,745,662
INTANGIBLE AND OTHER ASSETS, net.................................................. 2,079,773 1,979,575
-------------- --------------
Total assets.................................................................. $ 50,166,358 $ 50,269,909
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................ $ 1,504,565 $ 1,960,446
Accrued compensation............................................................ 429,665 1,225,976
Other accrued liabilities....................................................... 149,584 114,352
Current installments of obligations under capital leases........................ 600,100 623,446
-------------- --------------
Total current liabilities..................................................... 2,683,914 3,924,220
LINE OF CREDIT, long-term......................................................... -- --
OBLIGATIONS UNDER CAPITAL LEASES, net of current installments..................... 513,963 659,131
-------------- --------------
Total liabilities............................................................. 3,197,877 4,583,351
-------------- --------------
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.01 par value--authorized 6,000,000 shares at
March 31, 1997 and at December 31, 1996; issued in series; no shares
outstanding at March 31, 1997 and at December 31, 1996........................ -- --
Common stock, $.01 par value, authorized 20,000,000 shares at March 31, 1997 and
at December 31, 1996; 10,153,998 shares issued and outstanding at March 31,
1997 and 10,101,307 shares issued and outstanding at December 31, 1996........ 101,540 101,013
Additional paid-in capital...................................................... 57,657,026 57,576,724
Accumulated deficit............................................................. (10,790,085) (11,991,179)
-------------- --------------
Total stockholders' equity.................................................... 46,968,481 45,686,558
-------------- --------------
Total liabilities and stockholders' equity.................................... $ 50,166,358 $ 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
MARCH 31,
---------------------------
1997 1996
------------- ------------
<S> <C> <C>
REVENUE.............................................................................. $ 8,078,565 $ 5,907,549
OPERATING EXPENSES:
Direct cost of services and products............................................... 2,981,103 2,138,043
Selling, general and administrative expenses....................................... 3,689,364 2,861,877
Research and development........................................................... 610,050 643,772
------------- ------------
Total operating expenses......................................................... 7,280,517 5,643,692
------------- ------------
Income from operations............................................................. 798,048 263,857
OTHER INCOME (EXPENSE):
Interest income.................................................................... 453,616 23,288
Interest expense................................................................... (50,580) (56,506)
------------- ------------
Total other income (expense)..................................................... 403,036 (33,218)
------------- ------------
Income before income taxes........................................................... 1,201,084 230,639
Income taxes......................................................................... -- --
------------- ------------
NET INCOME........................................................................... $ 1,201,084 $ 230,639
------------- ------------
------------- ------------
NET INCOME PER SHARE................................................................. $ .11 $ .03
------------- ------------
------------- ------------
SHARES USED IN COMPUTING NET INCOME PER SHARE........................................ 11,131,532 7,522,946
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
UROCOR, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1996
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................................................... $ 1,201,084 $ 230,639
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization.................................................... 314,039 251,742
Stock option compensation expense................................................ 32,300 33,525
Loss on disposition of equipment................................................. 519 --
Other............................................................................ -- (768)
Changes in assets and liabilities:
Increase in accounts receivable................................................ (2,240,378) (576,691)
Increase in prepaid expense.................................................... (152,983) (197,401)
Increase in laboratory supplies................................................ (19,787) (188,103)
Increase in other current assets............................................... (100,806) (24,942)
Decrease in accounts payable................................................... (455,881) (7,492)
Increase (decrease) in accrued liabilities..................................... 35,238 (125,923)
Increase (decrease) in accrued compensation.................................... (796,311) 144,224
------------- ------------
Net cash used in operating activities........................................ (2,182,965) (461,191)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of short-term marketable investments, net of purchases.................. 5,077,643 --
Maturities of long-term marketable investments, net of purchases................... 2,642 --
Capital expenditures............................................................... (1,223,162) (535,510)
Proceeds from capital leases....................................................... -- 171,031
Intangible and other assets........................................................ (109,187) (96,070)
------------- ------------
Net cash provided by (used in) investing activities.............................. 3,747,935 (460,549)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options............................................ 48,529 12,500
Principal payments under capital lease obligations and other
indebtedness..................................................................... (168,512) (215,210)
Payments on line of credit......................................................... -- (700,000)
------------- ------------
Net cash used by financing activities............................................ (119,983) (902,710)
------------- ------------
Net increase (decrease) in cash and cash equivalents................................. 1,444,987 (1,824,450)
CASH AND CASH EQUIVALENTS, beginning of year......................................... 15,796,070 3,125,296
------------- ------------
CASH AND CASH EQUIVALENTS, end of period............................................. $ 17,241,057 $ 1,300,846
------------- ------------
------------- ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................................................. $ 45,628 $ 50,013
Cash paid for income taxes......................................................... 15,000 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
UROCOR, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 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 three-month period ended March 31, 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 991,000 and 969,000 shares
for each of the three month periods ended March 31, 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 March 31,
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 March 31, 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 Company's expectations with respect to future results of operations that
may be embodied in oral and written forward-looking statements, including any
forward-looking statements that may be contained in this Quarterly Report on
Form 10-Q, are subject to risks and uncertainties that must be considered when
evaluating the likelihood of the Company's realization of such expectations. The
Company's actual results could differ materially. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in Item 5 of Part II of this Report.
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 three months ended March 31, 1997, approximately
49%, 36%, 10% and 5% of the Company's revenue was attributable to Medicare,
private insurance and managed care, individual patients, and physicians and
hospitals, respectively.
RESULTS OF OPERATIONS
REVENUE. Revenue increased 36.7%, from approximately $5.9 million in the
three months ended March 31, 1996 to approximately $8.1 million in the three
months ended March 31, 1997. This increase resulted from an increase in case
volume of 52.1% for the three-month period over the same period in the prior
year 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
since its introduction in February 1996. Case volume increased at a higher rate
than revenue primarily due to the shift in product and price mix resulting from
the introduction of the kidney stone product line 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.
DIRECT COST OF SERVICES AND PRODUCTS. Direct cost of services and products
increased 39.4%, from approximately $2.1 million in the three months ended March
31, 1996 to approximately $3.0 million in the three months ended March 31, 1997.
This increase was due principally to higher personnel costs and supply and
distribution costs resulting from increased case volume. As a percentage of
revenue, direct expenses increased to 36.9% for the three months ended March 31,
1997 from 36.2% for the three months ended March 31, 1996. This increase is due
principally to the continued growth of the Company's kidney stone product line
which was introduced in early 1996 and an increase in 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 28.9%, from approximately $2.9 million in the
three months ended March 31, 1996 to approximately $3.7 million in the three
months ended March 31, 1997. This increase was due principally to higher
personnel costs related to marketing, sales staff and management information
services personnel, as well as
7
<PAGE>
increases in insurance, taxes, and professional services. As a percentage of
revenue, selling, general and administrative expenses decreased to 45.7% for the
three months ended March 31, 1997 from 48.4% for the three months ended March
31, 1996.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development costs decreased
from approximately $644,000 in the three months ended March 31, 1996 to
approximately $610,000 in the three months ended March 31, 1997. As a percentage
of revenue, research and development expenses decreased to 7.6% for the three
months ended March 31, 1997 from 10.9% for the three months ended March 31,
1996.
OTHER INCOME (EXPENSE). Interest income increased in the three-month period
ended March 31, 1997 compared to the same period of 1996, due principally to the
increased cash, cash equivalents and investments that resulted from the proceeds
of the Company's initial public offering in May 1996. Interest expense decreased
in the three-month period ended March 31, 1997 compared to the same period of
1996, as of result of no borrowing on the Company's bank credit facility during
the first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had cash and cash equivalents of
approximately $17.2 million, short-term marketable investments of approximately
$898,000 and long-term marketable investments of approximately $11.7 million.
The Company's working capital was approximately $28.0 million.
Accounts receivable, net of allowance for doubtful accounts, totaled
approximately $10.4 million at March 31, 1997, an increase of 27% from December
31, 1996. At March 31, 1997, the Company's average number of days sales in
receivables was approximately 117 compared to 97 at December 31, 1996. During
1996 and 1997, the Company's current Medicare intermediary and certain other
third-party payors have continued a general trend of increased time between
their receipt of claims for reimbursement and payment to the Company. Revenue
attributable to managed care and private insurance plans has continued to
increase as a percentage of total revenue and such payors generally have longer
payment times than Medicare. These trends have resulted in a lengthening of the
overall collection cycle and the Company's accounts receivable have increased at
a rate greater than the revenue growth rate, reducing the Company's cash flow
from operations. In the first quarter of 1997, a new local Medicare intermediary
was announced by the Health Care Financing Administration with a transition
planned during the second and third quarters of 1997. In addition, the Company
is implementing certain systems and process changes intended to improve its
claims and collections efficiencies. The Company expects the impact of these two
changes to be a net reduction in days sales in receivables.
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 $2.2 million for the
three months ended March 31, 1997 compared to approximately $461,000 for the
three months ended March 31, 1996. The net cash used in operating activities was
primarily the result of an approximate $2.2 million increase in accounts
receivable, an approximate $796,000 decrease in accrued compensation, an
approximate $456,000 decrease in accounts payable, an approximate $153,000
increase in prepaid expenses, and an approximate $101,000 decrease in other
current assets offset in part by net income of approximately $1.2 million and
depreciation and amortization of approximately $314,000. Accrued compensation
decreased as a result of annual management incentive compensation program
payments.
8
<PAGE>
Net cash provided by investing activities was approximately $3.7 million and
consisted primarily of net sales of short-term investments of approximately $5.1
million, offset by capital expenditures of approximately $1.2 million and
expenditures for intangible assets of approximately $109,000. Net cash used in
financing activities was approximately $120,000 for the first three months of
1997, consisting primarily of principal payments under capital leases and other
indebtedness of approximately $169,000 offset by proceeds from exercise of stock
options of approximately $49,000.
The Company's capital expenditures of approximately $1.2 million for the
three months ended March 31, 1997, were primarily for computer hardware and
software, office equipment and software development for the Company's
information services. Of the total amount, approximately $189,000 relates 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 increase over the historical level of such
expenditures as the Company expands to deliver therapeutics and information
services and continues to enhance current diagnostic services. 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 United States Food
and Drug Administration (the "FDA"). The total cost of the distribution rights
is $3.0 million, which is being paid 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. The Company expects to
make this payment in 1997 and intends to make any such payment from existing
cash and investment balances.
The Company reported no tax expense for the three months ended March 31,
1997, as a result of utilization of its 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
$456,000 or $0.04 per share, for the first quarter of 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
Cautionary Statements:
The Company's expectations with respect to future results of operations
that may be embodied in oral and written forward-looking statements,
including any forward-looking statements that may be contained in this
Quarterly Report on Form 10-Q, are subject to risks and uncertainties that
must be considered when evaluating the likelihood of the Company's
realization of such expectations. The Company's actual results could differ
materially. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed below.
HISTORY OF LOSSES; LIMITED HISTORY OF PROFITABLE OPERATIONS. The
Company recorded net losses of approximately $1.5 million, $1.5 million,
$2.2 million and $2.3 million for the years ended December 31, 1991, 1992,
1993 and 1994, respectively. While the Company reported net income of
approximately $533,000 and $2.4 million for the years ended December 31,
1995 and 1996, respectively, the Company may experience losses in the future
until such time, if ever, as its operations consistently generate sufficient
revenue to cover its costs. At March 31, 1997, the Company had an
accumulated deficit of approximately $10.8 million. There can be no
assurance that the Company will ever be consistently profitable.
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 Company's Free/Total
PSA product 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
10
<PAGE>
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 Clinton
Administration's recently proposed fiscal year 1998 federal budget contains
many provisions, which if enacted, will substantively affect Medicare
reimbursement. 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.
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 rights for only one therapeutic product.
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 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.
11
<PAGE>
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, 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 IAF BioVac, Inc. ("BioVac"), for a
therapeutic product for use in treating certain types of bladder cancer.
Pursuant to the distribution agreement, BioVac is responsible for obtaining
approvals from the FDA for marketing the therapeutic product in the United
States. In April 1995, BioVac filed its initial applications with the FDA.
In April 1996, the FDA advised BioVac that its application was not
approvable and requested additional data regarding certain aspects of
manufacturing and testing of the product, which BioVac filed with the FDA
through an amended application in August 1996. Although BioVac has advised
the Company that it believes it can satisfy 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 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.
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
12
<PAGE>
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, 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
<TABLE>
<CAPTION>
EXHIBIT NUMBER AND DESCRIPTION PAGE
- --------------------------------------------------------------------------------------- -----
<S> <C>
11.1 Computation of Earnings per Share................................................. 14
</TABLE>
(b) Reports on Form 8-K
None
13
<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
May 14, 1997
By: /s/ MICHAEL N. MCDONALD
-----------------------------------------
Michael N. McDonald
VICE-PRESIDENT AND CHIEF FINANCIAL OFFICER
May 14, 1997
14
<PAGE>
EXHIBIT 11.1
UROCOR, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1996
------------- ------------
<S> <C> <C>
Net income (loss).......................................................... $ 1,201,084 $ 230,639
------------- ------------
Divided by;
Weighted average shares outstanding (1).................................. 11,131,532 7,160,873
Plus:
Supplemental shares (2).................................................. -- 362,073
------------- ------------
Total weighted average shares outstanding.................................. 11,131,532 7,522,946
------------- ------------
Earnings per share......................................................... $ .11 $ .03
------------- ------------
------------- ------------
</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.
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET FOR MARCH 31, 1997 AND THE STATEMENT OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 17,241,057
<SECURITIES> 897,856
<RECEIVABLES> 11,845,573
<ALLOWANCES> 1,416,480
<INVENTORY> 703,195
<CURRENT-ASSETS> 30,722,448
<PP&E> 8,811,015
<DEPRECIATION> 3,147,757
<TOTAL-ASSETS> 50,166,358
<CURRENT-LIABILITIES> 2,683,914
<BONDS> 0
0
0
<COMMON> 101,540
<OTHER-SE> 46,866,941
<TOTAL-LIABILITY-AND-EQUITY> 50,166,358
<SALES> 0
<TOTAL-REVENUES> 8,078,565
<CGS> 0
<TOTAL-COSTS> 2,981,103
<OTHER-EXPENSES> 3,893,131
<LOSS-PROVISION> 406,283
<INTEREST-EXPENSE> 50,580
<INCOME-PRETAX> 1,201,084
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,201,084
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,201,084
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
