<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
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
------------------------
UROCOR, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2117882
(State of incorporation) (IRS Employer Identification No.)
800 RESEARCH PARKWAY, OKLAHOMA CITY, OK 73104
(Address of principal executive offices) (zip code)
(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 July 23, 1998 was 10,414,902 shares.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
UROCOR, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
INDEX
PART I--FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Balance Sheets as of June 30, 1998 and December 31, 1997................................... 3
Statements of Operations for the three and six months ended June 30, 1998 and 1997......... 4
Statements of Cash Flows for the six months ended June 30, 1998 and 1997................... 5
Notes to Unaudited Interim Financial Statements--June 30, 1998............................. 6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...... 8-11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS................................ 11
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.......................................................................... 12
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.................................................. 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES............................................................ 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................ 13
ITEM 5. OTHER INFORMATION.......................................................................... 14-19
Cautionary Statements
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................................... 19
Signatures............................................................................................... 20
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UROCOR, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1997
JUNE 30, -------------
1998
-------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................................... $ 13,879,476 $ 6,896,033
Short-term marketable investments................................................. 6,088,621 16,697,067
Accounts receivable, net of allowance for doubtful accounts of $3,224,820 in 1998
and $2,619,485 in 1997.......................................................... 18,566,222 13,541,416
Prepaid expenses.................................................................. 1,182,667 988,659
Laboratory supplies, at average cost.............................................. 443,736 497,639
Deferred tax asset--current....................................................... 1,411,781 1,470,781
Other current assets.............................................................. 632,231 776,699
------------- -------------
Total current assets............................................................ 42,204,734 40,868,294
------------- -------------
------------- -------------
LONG-TERM MARKETABLE INVESTMENTS.................................................... 1,030,559 2,012,656
PROPERTY AND EQUIPMENT, net......................................................... 9,668,544 8,555,511
NON-CURRENT DEFERRED TAX, net....................................................... 303,684 358,684
INTANGIBLE AND OTHER ASSETS, net.................................................... 2,807,099 2,656,974
------------- -------------
Total assets.................................................................... $ 56,014,620 $ 54,452,119
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................................. $ 2,680,982 $ 2,263,645
Accrued compensation.............................................................. 847,939 665,817
Current installments of obligations under capital leases.......................... 314,599 441,435
Other accrued liabilities......................................................... 99,212 108,421
------------- -------------
Total current liabilities....................................................... 3,942,732 3,479,318
OBLIGATIONS UNDER CAPITAL LEASES, net of current installments....................... 77,568 217,697
------------- -------------
Total liabilities............................................................... 4,020,300 3,697,015
------------- -------------
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.01 par value--authorized 6,000,000 shares at June
30, 1998 and at December 31, 1997; issued in series; no shares outstanding at
June 30, 1998 and at December 31, 1997.......................................... -- --
Common stock, $.01 par value, authorized 20,000,000 shares at June 30, 1998 and at
December 31, 1997; 10,414,535 shares issued and outstanding at June 30, 1998 and
10,345,616 shares issued and outstanding at December 31, 1997................... 104,145 103,456
Additional paid-in capital........................................................ 58,677,319 58,390,646
Accumulated deficit............................................................... (6,787,144) (7,738,998)
------------- -------------
Total stockholders' equity...................................................... 51,994,320 50,755,104
------------- -------------
Total liabilities and stockholders' equity...................................... $ 56,014,620 $ 54,452,119
------------- -------------
------------- -------------
</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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUE............................................. $ 11,264,046 $ 7,794,707 $ 21,877,841 $ 15,873,272
OPERATING EXPENSES:
Direct cost of services and products.............. 4,420,462 2,923,834 8,468,454 5,904,936
Selling, general and administrative expenses...... 5,931,452 3,990,749 11,500,558 7,680,110
Research and development.......................... 499,180 611,403 1,007,554 1,221,456
------------- ------------- ------------- -------------
Total operating expenses........................ 10,851,094 7,525,986 20,976,566 14,806,502
------------- ------------- ------------- -------------
OPERATING INCOME:................................... 412,952 268,721 901,275 1,066,770
OTHER INCOME (EXPENSE):
Interest income................................... 319,053 413,957 680,383 867,574
Interest expense.................................. (21,717) (42,350) (46,975) (92,930)
------------- ------------- ------------- -------------
Total other income.............................. 297,336 371,607 633,408 774,644
------------- ------------- ------------- -------------
Income before income taxes.......................... 710,288 640,328 1,534,683 1,841,414
Income taxes........................................ 270,000 -- 583,000 --
------------- ------------- ------------- -------------
NET INCOME.......................................... $ 440,288 $ 640,328 $ 951,683 $ 1,841,414
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
NET INCOME PER SHARE:
Basic:
Net Income Per Common Share....................... $ .04 $ .06 $ .09 $ .18
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted Average Common and Common Equivalent
Shares Outstanding.............................. 10,374,727 10,160,600 10,362,553 10,150,617
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Diluted:
Net Income Per Common Share--Assuming Dilution.... $ .04 $ .06 $ .09 $ .17
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted Average Common and Common Equivalent
Shares Outstanding--Assuming Dilution........... 11,069,285 11,076,759 11,052,295 11,108,336
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
UROCOR, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................................... $ 951,683 $ 1,841,414
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization.................................................. 1,249,799 685,563
Deferred income tax............................................................ 114,000 --
Stock option compensation expense.............................................. 62,627 64,254
(Gain) loss on disposition of equipment........................................ (4,972) 1,140
Changes in assets and liabilities:
Increase in accounts receivable.............................................. (5,024,806) (4,367,110)
Increase in prepaid expense.................................................. (194,008) (282,307)
Decrease in laboratory supplies.............................................. 53,903 187,290
Decrease (increase) in other current assets.................................. 144,468 (562,358)
Increase (decrease) in accounts payable...................................... 417,337 (869,138)
Increase (decrease) in accrued compensation.................................. 182,122 (679,652)
Increase (decrease) in accrued liabilities................................... (9,209) 35,187
------------- -------------
Net cash used in operating activities...................................... (2,057,056) (3,945,717)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of short-term marketable investments, net........................... 10,608,446 2,976,586
Maturities (purchases) of long-term marketable investments, net................ 982,097 (1,001,539)
Capital expenditures........................................................... (2,292,364) (2,810,799)
Intangible and other assets.................................................... (214,912) (124,232)
------------- -------------
Net cash provided by (used in) investing activities.......................... 9,083,267 (959,984)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from employee stock purchase plan....................................... 103,434 --
Proceeds from exercise of stock options.......................................... 120,763 70,425
Principal payments under capital lease obligations and other indebtedness........ (266,965) (318,760)
------------- -------------
Net cash used in financing activities.......................................... (42,768) (248,335)
------------- -------------
Net increase (decrease) in cash and cash equivalents............................... 6,983,443 (5,154,036)
CASH AND CASH EQUIVALENTS, beginning of year....................................... 6,896,033 15,796,070
------------- -------------
CASH AND CASH EQUIVALENTS, end of period........................................... $ 13,879,476 $ 10,642,034
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest......................................................... $ 28,700 $ 85,296
Cash paid for income taxes..................................................... 350,000 350,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
UROCOR, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
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 Annual Report on
Form 10-K filed with the Securities and Exchange Commission on March 30, 1998.
Certain reclassifications have been made in the 1997 balance sheet to
conform with the 1998 presentation. Total assets and net income for 1997 were
not affected by the reclassifications.
Operating results for the three and six month periods ended June 30, 1998
are not necessarily indicative of the results that may be expected for the full
year ending December 31, 1998.
NOTE 2--INVESTMENT IN AND OPERATIONS OF UROLOGY SUPPORT SERVICES:
The Company has invested in its Urology Support Services ("USS") business
since 1997 with the intent to deliver certain business management services to
its urology customers. Management believes that an opportunity exists for USS to
serve growing demand by urologists for a broader range of services. To
capitalize on this opportunity, USS would require resources and management focus
at a level which could result in dilution of management's focus on UroCor's core
clinical services business. Consequently, the Company recently decided to pursue
the transfer of the business and assets of USS to an independently financed
company and retain a minority interest in the resulting company by the end of
1998. The related assets are included on the balance sheet as of June 30, 1998
at net book value of approximately $1,520,000 in net property and equipment and
accounts receivable. No gain or loss is anticipated on the transfer of these
assets.
Revenue, as reported for the three and six months ended June 30, 1998
includes USS revenue of approximately $31,000 and $54,000, respectively.
Operating Income, as reported for the three and six months ended June 30, 1998
includes operating losses for USS of approximately $411,000 and $723,000,
respectively. USS operating losses are anticipated to continue until the
transfer of the USS business later in 1998.
NOTE 3--IMPACT OF ACCOUNTING STANDARDS NOT YET ADOPTED BY THE COMPANY:
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 ("SOP 98-5"), Reporting on the Costs of Start-Up
Activities. SOP 98-5 requires that costs of start-up activities, as defined by
SOP 98-5, be expensed as incurred in financial statements for fiscal years
beginning after December 15, 1998. The Company has historically capitalized
certain costs associated with start-up activities for new products, processes or
operations and amortized the costs over a relatively short period of time
(usually 12 to 24 months). The Company will adopt SOP 98-5 in January 1999. The
Company currently has approximately $570,000 in start-up costs included on the
balance sheet as Prepaid Expenses, and Intangible and Other Assets, net,
principally related to the start-up of Urology Support Services. Given the
current rate of amortization of these start-up costs, the impact of this change
in accounting principle in January 1999 will be approximately $380,000 as a
pre-tax write-off of remaining balances.
6
<PAGE>
UROCOR, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1998
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 considered available-for-sale as of June 30, 1998.
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 June 30, 1998, there was not a material net unrealized gain or
loss on these investments.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of operations and financial condition of UroCor,
Inc. ("UroCor" or 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 Section 21E of the Securities Exchange Act of 1934,
as amended. See "Special Note Regarding Forward-Looking Statements" and
"Cautionary Statements" included elsewhere in this Report.
OVERVIEW
UroCor provides a broad range of diagnostic services for the clinical
management of certain urological cancers and diseases. The Company complements
its diagnostic services by marketing and co-promoting therapeutic products for
certain of these diseases. The Company is also developing and offering related
information services intended to enhance and expand services to its clients. The
Company has established integrated capabilities 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 over 85% 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 six months ended June 30, 1998, approximately 45%,
42%, 8% and 5% of the Company's revenue was attributable to Medicare, private
insurance and managed care, individual patients, and physicians and hospitals,
respectively.
In the fourth quarter of 1997, the Company acquired co-promotion rights to
two therapeutic products and began marketing these products to urologists. These
co-promotion efforts result in revenue that is recognized as earned under the
related agreement. The Company also has distribution rights for another
therapeutic product currently under review by the United States Food and Drug
Administration (the "FDA").
In the fourth quarter of 1997, the Company started operations of the Urology
Support Services business ("USS"), which currently provides limited business
management services, primarily billing and accounts receivable management, to
selected urologist clients. The Company believes that an opportunity exists for
USS to serve growing demand by urologists for a range of business management
services that is broader than the services currently offered by USS. In order to
capitalize on this opportunity, the Company believes USS would require
deployment of resources and management focus at a level which could result in
dilution of management's focus on UroCor's core clinical services business.
Consequently, the Company recently decided to pursue the transfer of the
business and assets of USS to an independent company in which UroCor would
retain a minority interest, as a result of which USS would be independently
financed and focused solely on providing business management services to
specialty physicians. The Company expects to complete the transfer of USS by the
end of 1998.
RESULTS OF OPERATIONS
REVENUE. Revenue increased 44.5%, from approximately $7.8 million in the
three months ended June 30, 1997 to approximately $11.3 million in the three
months ended June 30, 1998, and increased 37.8%, from approximately $15.9
million in the first six months of 1997 to approximately $21.9 million in the
first six months of 1998. These increases resulted from an increase in case
volume of 37.7% and 30.5% for the three and six month periods respectively, due
primarily to expansion of the Company's client base and increased utilization of
the Company's diagnostic products and services by existing clients. Revenue also
increased as a result of therapeutic product co-promotion revenue.
8
<PAGE>
DIRECT COST OF SERVICES AND PRODUCTS. Direct cost of services and products
increased 51.2%, from approximately $2.9 million in the three months ended June
30, 1997 to approximately $4.4 million in the three months ended June 30, 1998,
and increased 43.4%, from $5.9 million in the first six months of 1997 to $8.5
million in the first six months of 1998. These increases were due principally to
higher personnel costs and supply and distribution costs resulting from
increased case volume. Incremental costs also resulted from USS business
operations and expanded utilization of the Company's wide area network report
delivery system by the Company's clients. As a percentage of revenue, direct
expenses increased to 39.2% for the three months ended June 30, 1998 from 37.5%
for the three months ended June 30, 1997, and increased to 38.7% of revenue for
the first six months of 1998 from 37.2% for the first six months of 1997. These
increases were due primarily to USS operations costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 48.6%, from approximately $4.0 million in the
three months ended June 30, 1997 to approximately $5.9 million in the three
months ended June 30, 1998, and increased 49.7%, from $7.7 million in the first
six months of 1997 to $11.5 million in the first six months of 1998. These
increases were due principally to higher personnel costs related to sales staff
and management information services personnel and professional services, and
increased provision for doubtful accounts. As a percentage of revenue, selling,
general and administrative expenses increased to 52.7% for the three months
ended June 30, 1998 from 51.2% for the three months ended June 30, 1997, and
increased to 52.6% of revenue for the first six months of 1998 from 48.4% for
the first six months of 1997.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development costs decreased
18.4%, from approximately $611,000 in the three months ended June 30, 1997 to
approximately $499,000 in the three months ended June 30, 1998, and decreased
17.5%, from $1.2 million in the first six months of 1997 to $1.0 million in the
first six months of 1998. This decline was due primarily to completion of
certain external research agreements. As a percentage of revenue, research and
development expenses decreased to 4.4% for the three months ended June 30, 1998
from 7.8% for the three months ended June 30, 1997, and decreased to 4.6% of
revenue for the first six months of 1998 from 7.7% for the first six months of
1997.
OTHER INCOME (EXPENSE). Interest income decreased in the three and six
month periods ended June 30, 1998 compared to the same periods of 1997, due
principally to the decreased cash, cash equivalents and investments that
resulted from capital expenditures and an increase in accounts receivable.
Interest expense decreased in the three and six month periods ended June 30,
1998 compared to the same periods of 1997, primarily because of a decrease in
obligations under capital leases.
INCOME TAXES. The income tax provisions for the three and six months ended
June 30, 1998 of approximately $270,000 and $583,000, respectively, reflect
federal, state and local income tax expense at a 38% effective rate. No income
tax provision was recognized for the three and six month periods ended June 30,
1997 as a result of utilization of net operating loss carryforwards. Using an
effective tax rate of 38%, the recognition of tax benefits reduced the tax
provision for the second quarter of 1997 approximately $243,000 or $.02 per
share and $700,000 or $.06 per share for the six months ended June 30, 1997. As
of June 30, 1997, a valuation allowance against future benefits of net deferred
tax assets was recorded due to uncertainty regarding the realizability of such
assets through sustained profitable operations. As realizability of this asset
became more certain through a demonstrated positive earning history during 1997,
the Company reevaluated the appropriateness of recognizing these future benefits
and recorded a deferred tax asset in the fourth quarter of 1997.
UROLOGY SUPPORT SERVICES. The following table sets forth the effects of the
operating losses of USS on UroCor's reported results for the three and six month
periods ended June 30, 1998. Operations of USS are
9
<PAGE>
expected to continue to incur losses until the transfer of this business to an
independently financed company is completed. No gain or loss is expected on the
transfer of USS' assets.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1998
------------------- -----------------
<S> <C> <C>
Operating income, as reported............................................ $ 412,952 $ 901,275
Operating income, excluding USS operating losses......................... 823,652 1,623,884
-------- -----------------
Net income, as reported.................................................. $ 440,288 $ 951,683
Net income, excluding USS operating losses............................... 694,200 1,399,700
-------- -----------------
Diluted earnings per share, as reported.................................. $ .04 $ .09
Diluted earnings per share, excluding USS operating losses............... $ .06 $ .13
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company had cash and cash equivalents of
approximately $13.9 million, short-term marketable investments of approximately
$6.0 million and long-term marketable investments of approximately $1.0 million.
Such marketable investments consisted principally of high-grade fixed income
securities, with a maturity of less than two years. As of June 30, 1998, cash,
cash equivalents and marketable investments totaled approximately $21.0 million
and the Company's working capital was approximately $38.3 million.
Accounts receivable, net of allowance for doubtful accounts, totaled
approximately $18.6 million at June 30, 1998, an increase of approximately $5.0
million from December 31, 1997 or 37%. At June 30, 1998, the Company's average
number of days sales in receivables was approximately 155 compared to 142 at
December 31, 1997. The increase in accounts receivable during the six months
ended June 30, 1998 was due primarily to additional payor documentation
requirements imposed by Medicare and other third party payors which further
complicate and lengthen the billing process and systems changes necessary to
satisfy revised billing protocols by the Medicare payor. The Company believes
that it has made progress in implementing certain systems and processing changes
intended to resolve systems, documentation and related processing issues. In an
effort to reduce its average number of days sales in receivables, the Company is
continuing additional staffing, systems and process changes and is undertaking
additional initiatives intended to improve its claims and collections
efficiencies. The increase in accounts receivable is also partially attributable
to initial revenue from therapeutics co-promotion activities and USS operations.
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.
Operating activities used net cash of approximately $2.0 million for the six
months ended June 30, 1998 compared to approximately $3.9 million for the six
months ended June 30, 1997. The net cash used in operating activities was
primarily the result of an approximate $5.0 million increase in accounts
receivable offset in part by net income of approximately $952,000, depreciation
and amortization of approximately $1.2 million and an approximate $417,000
increase in accounts payable.
Net cash provided by investing activities was approximately $9.1 million for
the six months ended June 30, 1998 and consisted primarily of maturities of
short-term marketable investments of approximately $10.6 million and maturities
of long-term marketable investments $982,000, offset by capital expenditures of
approximately $2.3 million, and an increase in intangibles and other assets of
approximately $215,000. Net cash used in financing activities was approximately
$43,000 for the first six months of 1998, consisting primarily of principal
payments under capital leases and other indebtedness of approximately $267,000
offset by proceeds from exercise of stock options of approximately $121,000 and
proceeds of stock issuances pursuant to the employee stock purchase plan of
approximately $103,000.
10
<PAGE>
The Company's capital expenditures of approximately $2.3 million for the six
months ended June 30, 1998, were primarily for computer hardware and software,
furniture and fixtures and software development for the Company's information
services. Of the total amount, approximately $453,000 was 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, 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 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.
11
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES
During the quarter ended June 30, 1998, the Company issued a total of 28,238
shares of Common Stock for an aggregate consideration of $93,701 to various
stockholders of the Company pursuant to the exercise of certain stock purchase
warrants. None of the foregoing transactions involved underwriters. The Company
considers these securities to have been offered and sold in transactions not
involving a public offering and, therefore, to be exempted from registration
under Section 4(2) of the Securities Act of 1933, as amended.
USE OF PROCEEDS:
The effective date of the registration statement for the Company's initial
public offering of Common Stock 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.
From the effective date of the registration statement through June 30, 1998,
the following table identifies the purposes and amounts of the net proceeds paid
directly or indirectly to others:
<TABLE>
<CAPTION>
<S> <C>
Construction of plant, building and facilities.................................. $ --
Purchase and installation of machinery and equipment............................ 4,660,931
Purchases of real estate........................................................ --
Acquisition of other business(es)............................................... --
Repayment of indebtedness....................................................... 2,128,403
Working Capital................................................................. 3,641,287
TEMPORARY INVESTMENTS:
Short-term Commercial Paper................................................... 6,088,621
Long-term Corporate and Treasury Notes........................................ 1,030,559
Cash Equivalents.............................................................. 6,308,154
OTHER PURPOSES:
Development and Expansion of Diagnostic Product Line.......................... 4,911,952
Development of Information Products and Services and Urological Disease
Databases................................................................... 2,560,405
Development of Therapeutic Product Line....................................... 724,556
Development and Expansion of Clinical and Research Laboratories and Lab
Information System.......................................................... 2,494,991
</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
12
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 22, 1998, at the Company's annual meeting of stockholders:
A) The individuals listed below were elected to serve as Class II directors
until the 2001 annual meeting. Set forth is the tabulation of votes cast.
<TABLE>
<CAPTION>
NAME SHARES VOTED FOR SHARES WITHHELD BROKER NON-VOTES
- ---------------------------------------- ---------------- --------------- -------------------
<S> <C> <C> <C>
Aaron Beam, Jr.......................... 8,173,767 556,022 0
Thomas C. Ramey......................... 8,173,767 556,022 0
</TABLE>
B) The stockholders approved the First Amendment to the UroCor, Inc. Second
Amended and Restated 1992 Stock Option Plan to increase the number shares for
which options may be granted under such Plan from 1,700,000 to 2,000,000. The
tabulation of votes with respect to this item was as follows:
<TABLE>
<CAPTION>
SHARES VOTED
SHARES VOTED FOR AGAINST SHARES ABSTAINED BROKER NON-VOTES
- ---------------- ------------------- ----------------- ----------------
<S> <C> <C> <C>
7,479,257 174,278 10,341 1,065,913
</TABLE>
C) The stockholders approved the UroCor, Inc. 1997 Employee Stock Purchase
Plan. The tabulation of votes with respect to this item was as follows:
<TABLE>
<CAPTION>
SHARES VOTED
SHARES VOTED FOR AGAINST SHARES ABSTAINED BROKER NON-VOTES
- ---------------- ------------------- ----------------- ----------------
<S> <C> <C> <C>
7,135,493 519,483 8,900 1,065,913
</TABLE>
13
<PAGE>
ITEM 5. OTHER INFORMATION
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. 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 are
disclosed in statements set forth 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
and such other statements.
CAUTIONARY STATEMENTS
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH. Over the last several years,
the Company has experienced substantial growth and expanded its operational
capabilities. The Company is also planning to offer additional therapeutic
products 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.
UNCERTAINTY RELATED TO GOVERNMENT REGULATION. 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 various types of regulatory activity affect the Company's business by
controlling its growth, restricting licensure of the business entity or by
controlling the reimbursement for services provided. 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.
Existing federal laws governing federal health care programs, including
Medicare, as well as some state laws, regulate certain aspects of the
relationship between health care providers, including the Company, and their
referral sources, including physicians, hospitals and other facilities. The
Social Security Act, and the anti-kickback and self-referral rules thereunder,
prohibit providers and others from soliciting, offering, receiving or paying,
directly or indirectly, any remuneration in return for either making a referral
for a service or item and prohibit physicians, subject to certain exceptions,
from making such referrals to certain entities in which they have an investment
interest or with which they have a compensation arrangement. Violation of these
prohibitions is punishable by disallowance of submitted claims, civil monetary
penalties and criminal penalties and exclusion from the Medicare and other
federally funded programs. In recent months, the federal government has expanded
its investigative and enforcement activities in these areas. The federal
government also has become more aggressive recently in examining billing by
laboratories and other health care providers, and in seeking repayments and even
penalties based
14
<PAGE>
on how the services were billed (e.g. the billing codes used), regardless of
whether carriers had furnished clear guidance on this subject.
In July 1998, the Company received a Civil Investigative Demand (the "CID")
from the United States Department of Justice (the "DOJ") concerning allegations
that the Company may have submitted false claims in connection with bills for
services submitted to Medicare and other federal insurance programs. The CID
requires the Company to produce certain documents to the DOJ. The Company
intends to cooperate fully with the DOJ with respect to this investigation.
Although the Company seeks to structure its practices to comply with all
applicable laws, and management believes its practices are in compliance, no
assurances may be given regarding the resolution of this matter, and the Company
is unable to predict its impact, if any, on the Company. If the DOJ were to
pursue and prevail on matters that may arise from this investigation, any
significant recoupment of funds or civil or criminal penalty or exclusion from
the Medicare program potentially resulting from such proceedings would have a
material adverse effect on the Company.
The Company's diagnostic laboratory operations currently are required to be
certified or licensed under the federal Clinical Laboratory Improvement Act of
1976, as amended in 1988, 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.
While the Company currently knows of no plans that the FDA has to require
FDA approval of assays developed by laboratories for in-house use, the FDA has
in the past considered drafting guidelines for such regulation. 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. Additionally, in a recent rule, the FDA stated that in some
circumstances involving in-house assays, laboratories will be required, upon
effectiveness of the rule, to indicate that the assay has not been cleared by
the FDA. There can be no assurance that such disclosure will not have an adverse
impact on reimbursement.
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.
The FDA regulates products licensed or otherwise acquired from third parties
and distributed or marketed by the Company. The manufacturers of such products
are responsible for compliance with the approval and marketing regulations of
the FDA. The ability of such third parties to address their FDA regulatory
issues is outside the Company's control. There can be no assurance that the
failure of such third parties to address their FDA regulatory matters adequately
will not have a material adverse effect on the Company's results of operations
and financial condition.
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
15
<PAGE>
could experience delays in developing and marketing new services and increases
in research and development costs.
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. Furthermore, Medicare and other third party payors have, on occasion,
ceased reimbursement when certain tests are ordered for patients with certain
diagnoses while maintaining reimbursement when those tests are ordered for other
diagnoses deemed appropriate by the carrier. This practice has recently become
more prevalent with respect to Medicare. Medicare may retroactively audit and
review its payments to the Company and may determine that certain payments for
services must be returned. From time to time, the public and federal government
focus significant attention on reforming the health care system in the United
States. In 1997, Congress enacted the Balanced Budget Act of 1997 that effected
numerous changes to the Medicare and Medicaid programs that could affect health
care providers, including clinical laboratories. The 1997 act also revised the
resource-based relative value scale system that could affect health care
providers that offer physician pathology services. These 1997 changes and 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 other 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. Because of the uncertainties surrounding the
nature, timing and extent of any such reimbursement changes, audits and reform
initiatives, the Company is unable to predict the effects of any such
matterschanges on the Company.
UNCERTAINTIES RELATED TO ACCOUNTS RECEIVABLE. In recent years, 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 June
30, 1998, the Company's average days sales in receivables was approximately 155,
compared to 142 at December 31, 1997. Such changes have resulted in the
Company's accounts receivable increasing at a rate greater 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.
RISKS RELATED TO UROLOGY SUPPORT SERVICES. The Company currently provides
limited business management services, primarily accounts receivable management,
to selected urologist clients, through the Company's USS business. The Company
recently decided to pursue the transfer of the business and assets of USS to an
independently financed company in which UroCor intends to retain a minority
interest. The Company has made capital investments and incurred other expenses
to develop the infrastructure and systems for USS. There are a number of factors
outside the Company's control which may delay or hinder the transfer of USS. The
operating losses of USS have had a negative impact on the Company during this
initial development phase and are expected to continue through the completion of
the transfer of the business. The Company anticipates no gain or loss on the
transfer of the business, however, since a
16
<PAGE>
transaction has not yet been negotiated, there can be no assurance that the
Company will be able to complete the transfer of this business, or if effected,
that the terms of such transaction will allow the Company to recover its
investment in the assets of USS. In addition, if a transfer of the business is
not completed, the Company may incur losses upon disposition that could have a
material adverse effect on the Company's results of operations.
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. The Company has
developed and introduced, on a limited basis, disease outcomes reporting
capabilities in one disease state. Further 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 directly or indirectly from
these services will be sufficient to cover or otherwise justify the costs of
development and introduction.
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.
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, reimbursement changes 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 business. The Company currently has acquired
distribution or co-promotion rights for three therapeutic products. The Company
has recently begun to co-market two of the therapeutic products, and there can
be no assurance that the Company's efforts will be successful. There can also be
no assurance that the Company will be successful in negotiating any additional
distribution or other agreements related to therapeutic products in the future.
UNCERTAINTIES RELATED TO THE FDA APPROVAL OF THERAPEUTIC PRODUCT. The
Company has a distribution agreement with BioChem Vaccines, Inc. ("BioChem"), a
subsidiary of BioChem Pharma, Inc., 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.
RISKS ASSOCIATED WITH DEVELOPMENT OF DATABASE. The confidentiality of
patient medical records is subject to substantial regulation by the state and
federal governments. State and federal laws and regulations govern both the
disclosure and the use of confidential patient medical record information.
17
<PAGE>
Legislation governing the dissemination and use of medical record information is
being proposed continually at both the state and federal levels. For example,
the Health Insurance Portability and Accountability Act of 1996 requires the
Secretary of the United States Department of Health and Human Services to
recommend legislation or to promulgate regulations governing privacy standards
for individually identifiable health information. Additional legislation may
require that holders or users of confidential patient medical information
implement measures to maintain the security of such information and may regulate
the dissemination of even anonymous patient information. Physicians and other
persons providing patient information to the Company are also required to comply
with these laws and regulations. If a patient's privacy is violated, or if the
Company is found to have violated any state or federal statute or regulation
with regard to the confidentiality, dissemination or use of patient medical
information, the Company could be liable for damages, or for fines or penalties.
The Company believes that it complies in all material respects with all
applicable state and federal laws and regulations governing the confidentiality,
dissemination and use of medical record information. However, there can be no
assurance that differing interpretations of existing laws and regulations or the
adoption of new laws and regulations would not have a material adverse effect on
the ability of the Company to obtain or use patient information which, in turn,
could have a material adverse effect on the Company's plans to develop and
market its urology disease information database and related treatment. The
Company intends to continue to monitor and review the interpretation and
enactment of laws and regulations which affect the Company's plans to develop
and market its urology disease information database. In addition, the American
Medical Association (the "AMA") has issued an opinion to the effect that a
physician who does not obtain a patient's consent to the disclosure of the
patient's medical record information violates the AMA's ethical standards. While
the AMA's opinions are not law, they may influence the willingness of physicians
to obtain patient consents or to disclose patient medical information to the
Company and thus could have a material adverse effect on the Company's plans to
develop and market its urology disease information database.
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.
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.
18
<PAGE>
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, reimbursement changes, 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's operating results may continue to
fluctuate in the future.
YEAR 2000 RISKS. Although the Company does not expect to incur significant
expenditures to address year 2000 issues, there can be no assurance that this
will be the case. Additionally, the ability of third parties with whom the
Company transacts business to address their year 2000 issues adequately is
outside the Company's control. There can be no assurance that the failure of the
Company or such third parties to address their respective year 2000 issues
adequately will not have a material adverse effect on the Company's results of
operations and financial condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<S> <C> <C>
(a) Exhibits:
Exhibits designated by the symbol * are filed with this Quarterly Report on Form 10-Q. All
exhibits not so designated are incorporated by reference to a prior filing as indicated.
10.1* Form of Indemnity Agreement between UroCor, Inc. and each of the individuals
named in Schedule 10.1 thereto.
10.2 The UroCor, Inc. 1997 Employee Stock Purchase Plan (incorporated by reference
to Exhibit No. 4.4 to the Registrant's Registration Statement on Form S-8 (Reg.
No. 333-58017), filed with the Commission on June 29, 1998).
10.3 The UroCor, Inc. Second Amended and Restated 1992 Stock Option Plan, as
amended, (incorporated by reference to Exhibit 4.4 to the Registrant's
Registration Statement on Form S-8 (Reg. No. 333-58015) filed with the
Commission on June 29, 1998).
27 Financial Data Schedule
(b) Reports on Form 8-K
None
</TABLE>
19
<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.
<TABLE>
<S> <C> <C>
UROCOR, INC.
By: /s/ WILLIAM A. HAGSTROM
-----------------------------------------
William A. Hagstrom
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
</TABLE>
July 28, 1998
<TABLE>
<S> <C> <C>
By: /s/ MICHAEL N. MCDONALD
-----------------------------------------
Michael N. McDonald
VICE-PRESIDENT AND CHIEF FINANCIAL OFFICER
</TABLE>
July 28, 1998
20
<PAGE>
EXHIBIT 10.1
INDEMNITY AGREEMENT
THIS AGREEMENT (this "Agreement") is made as of the 17th day of
February, 1998, between UroCor, Inc., a Delaware corporation (the
"Corporation"), and __________________________ ("Indemnified Party").
WITNESSETH:
WHEREAS, Indemnified Party is, or is about to become, an officer or a
member of the Board of Directors of the Corporation and in such capacity is
performing a valuable service for Corporation;
WHEREAS, Indemnified Party may from time to time serve as a director,
officer, employee, agent or fiduciary of other corporations, partnerships,
joint ventures, trusts or other enterprises, entities or plans at the request
of the Corporation in order to pursue the Corporation's interests;
WHEREAS, the Bylaws (the "Bylaws") of Corporation provide for the
mandatory indemnification of the officers, directors, agents and employees of
the Corporation to the maximum extent authorized by Section 145 of the
Delaware General Corporation Statute, as amended hereafter (the "State
Statute");
WHEREAS, such Bylaws and the State Statute specifically provide that
they are not exclusive and thereby contemplate that contracts or other
arrangements not inconsistent with the State Statute may be entered into
between the Corporation and the members of its Board of Directors and its
officers with respect to indemnification of such directors and officers;
WHEREAS, in accordance with the authorization provided by the State
Statute, Corporation has purchased and will maintain a policy of Directors'
and Officers' Liability Insurance ("D&O Insurance"), covering certain
liabilities that may be incurred by its directors and officers in the
performance of their services for Corporation, possibly including certain
liabilities for which indemnification by the Corporation is not authorized or
permitted under the State Statute;
WHEREAS, uncertainties with respect to the terms and availability of D&O
Insurance and with respect to the application, amendment and enforcement of
statutory and by-law indemnification provisions make it desirable to
supplement and enhance the adequacy and reliability of the protection
afforded to directors and officers thereby; and
WHEREAS, to supplement and enhance the protection afforded Indemnified
Party and to induce Indemnified Party to continue to serve as a member of the
Board of Directors or as an officer of the Corporation, the Corporation has
determined and agreed to enter into this Agreement with Indemnified Party,
which has been approved and adopted by the Corporation's Board of Directors;
NOW, THEREFORE, in consideration of Indemnified Party's continued
service as a director or an officer of the Corporation after the date hereof
the parties hereto agree as follows:
A. DEFINITIONS. For purposes of this Agreement:
"Litigation Costs" means costs, charges, expenses and obligations,
including, without limitation, all bonds, expenses of investigation, fees and
expenses of experts, accountants or other professionals, travel and lodging
expenses, court costs, transcript costs, duplicating costs, printing and
binding costs, telephone charges, postage, delivery fees and attorneys' fees,
retainers and expenses, reasonably incurred or contracted for in the
investigation, defense or prosecution of or other
-1-
<PAGE>
involvement in any Proceeding and any appeal therefrom, and all costs of
appeal, attachment, supersedes and other bonds that may be relevant to any
Proceeding.
"Losses" means the total of all amounts which Indemnified Party becomes,
or may become, legally obligated to pay in connection with any Proceeding,
including (without limitation) judgments, penalties, fines, court or
investigative costs, amounts paid in settlement, amounts lost or ordered
forfeited pursuant to injunctive sanctions, and all Litigation Costs.
"Proceeding" means any threatened, pending or completed action, suit,
arbitration, mediation, alternative dispute resolutions mechanism,
proceeding, subpoena compliance, inquiry or investigation, whether civil,
criminal, administrative or investigative (whether external and involving
outside parties or internal to the Corporation, including, but not limited
to, an action by or in the right of the Corporation and any internal
investigation conducted by the Board of Directors or any committee or other
designee thereof or any other person), and whether formal or informal.
2. INDEMNITY OF INDEMNIFIED PARTY. The Corporation hereby agrees to
indemnify Indemnified Party to the fullest extent authorized or permitted by
the provisions of the State Statute, including, but not limited to, (a) the
maximum extent permitted by the provisions of the State Statute which provide
that the State Statute is not the exclusive basis for indemnification of
directors and officers and (b) the maximum extent authorized or permitted by
any amendment thereof or other statutory provision authorizing or permitting
such indemnification which is adopted after the date hereof.
3. ADDITIONAL INDEMNITY. In addition to and not in substitution for
or diminution of the obligations of indemnification set forth in Section 2
hereof, the Corporation hereby further agrees to indemnify Indemnified Party
to the fullest extent permitted by law against any and all Litigation Costs
and Losses of Indemnified Party in connection with any Proceeding to which
Indemnified Party is, was or at any time becomes a party, or is threatened to
be made a party or otherwise becomes involved (other than as plaintiff except
where being a plaintiff or intervenor is necessary to avoid RES JUDICATA or
collateral estoppel or other estoppel or other result as to matters which may
adversely impact Indemnified Party) by reason of the fact that Indemnified
Party is, was or at any time becomes a director, officer, employee, agent or
fiduciary of the Corporation, or is or was serving or at any time serves at
the request of the Corporation as a director, officer, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust or other
enterprise or any benefit plan related to the business and affairs of the
Corporation, and specifically including any Proceeding brought pursuant to
the provisions of Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any other provision under the Exchange Act
and the Securities Act of 1933, as amended, and the rules and regulations
thereunder.
4. LIMITATIONS ON INDEMNITY. No amounts of Indemnity pursuant to
Section 2 or 3 hereof shall be paid by the Corporation:
(a) except to the extent that the aggregate of Litigation Costs
and Losses in any Proceeding or group of related Proceedings to be
indemnified hereunder exceeds the amount of Litigation Costs and
Losses for which the Indemnified Party actually receives
indemnification payments or on whose behalf indemnification payments
are made pursuant to any D&O Insurance policy or from any other
source;
(b) on account of any payments required to be paid by an
Indemnified Party as a result of any Proceeding in which a final,
non-appealable judgment is rendered against Indemnified Party for an
accounting or disgorgement of profits made from the purchase or sale
by Indemnified Party of securities of the Corporation pursuant to the
provisions of Section 16(b) of the Exchange Act;
(c) on account of Indemnified Party's conduct which is finally
adjudged in any Proceeding to have been knowingly fraudulent,
deliberately dishonest or an act or omission involving willful
misconduct; or
(d) if a final non-appealable decision by a court having
jurisdiction over the parties and the subject matter shall determine
that such indemnification is not lawful.
-2-
<PAGE>
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Indemnified
Party is a director, officer, employee, agent or fiduciary of the Corporation
(or is or was serving at the request of the Corporation as a director,
officer, employee, agent or fiduciary of another corporation, partnership,
joint venture, trust or other enterprise or any benefit plan related to the
business and affairs of the Corporation or of any of its affiliates,
subsidiaries, associates or other entities in which it is interested) and
shall continue thereafter so long as Indemnified Party shall be subject to
any possible Litigation Costs or Losses in any Proceeding by reason of the
fact that Indemnified Party was a director, officer, employee, agent or
fiduciary of the Corporation (or is or was serving at the request of the
Corporation as a director, officer, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust or other enterprise or any
such benefit plan).
6. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by
Indemnified Party of notice of the commencement of any Proceeding,
Indemnified Party shall, if a claim in respect thereof is to be made against
the Corporation under this Agreement, give written notice to the Corporation
of the commencement thereof as promptly as practicable; but the omission so
to notify the Corporation will not relieve the Corporation from any liability
that it may have to Indemnified Party unless the Corporation can demonstrate
by clear and convincing evidence that it was materially prejudiced by the
failure to receive such notice. With respect to any such Proceeding as to
which Indemnified Party becomes involved:
(a) the Corporation will be entitled to participate therein at
its own expense;
(b) except as otherwise provided below, to the extent that it
may wish, the Corporation may, jointly with any other indemnifying
party, assume the defense thereof, with outside counsel that must be
reasonably satisfactory to Indemnified Party. After notice from the
Corporation to Indemnified Party of its election so to assume the
defense thereof (and consent of Indemnified Party as to the
Corporation's choice of outside counsel, which consent will not be
unreasonably withheld), the Corporation will be liable to Indemnified
Party under this Agreement for all Litigation Costs (subject to
Section 4 above and other than as provided below with respect to
attorneys' fees) incurred in connection therewith. Indemnified Party
shall have the right to employ personal counsel in such Proceeding,
but the fees and expenses of such counsel incurred after notice from
the Corporation of its assumption of the defense thereof (and consent
of Indemnified Party as to the Corporation's choice of outside
counsel) shall be at the expense of Indemnified Party, unless (i) the
employment of counsel for Indemnified Party has been authorized by the
Corporation, (ii) Indemnified Party shall have concluded in good faith
that there may be a conflict of interest between the Corporation and
Indemnified Party in the conduct of the defense (or part of the
defense) of such action, or (iii) the Corporation in fact shall not
have employed counsel to assume the defense of such action, in each of
which cases the fees and expenses of counsel shall be at the expense
of the Corporation. The Corporation shall not be entitled to assume
the defense of any Proceeding brought by or on behalf of the
Corporation or as to which Indemnified Party shall have made the
conclusion provided for in clause (ii) of this Section 6(b); and
(c) the Corporation shall not be liable to indemnify Indemnified
Party under this Agreement for any Losses paid in settlement of any
Proceeding or claim effected without its written consent. The
Corporation shall not settle any Proceeding or claim in any manner
that would impose any penalty, sanction or limitation on Indemnified
Party, or otherwise effectively indicate the existence of any wrongful
act by Indemnified Party, without Indemnified Party's written consent.
Neither the Corporation nor Indemnified Party shall unreasonably
withhold its consent to any proposed settlement. Without intending to
limit the circumstances in which it would be unreasonable for the
Corporation to withhold its consent to a settlement, the parties
hereto agree it would be unreasonable for the Corporation to withhold
its consent to a settlement in an amount that did not exceed, in the
business judgment of the Board of Directors of the Corporation, the
estimated amount of Litigation Costs of Indemnified Party to litigate
the Proceeding to conclusion, provided that there is no other
materially adverse consequence to the Corporation from such
settlement.
-3-
<PAGE>
7. NO PRESUMPTIONS. The termination of any Proceeding by judgment,
order, settlement, conviction or upon a plea of NOLO CONTENDERE or its
equivalent, shall not, of itself, create a presumption that (a) Indemnified
Party did not act in good faith, (b) with respect to any criminal action or
proceeding, Indemnified Party had reasonable cause to believe that his or her
conduct constituted a criminal violation or (c) Indemnified Party was
knowingly fraudulent, deliberately dishonest or committed an act, or made an
omission, involving willful misconduct.
8. MANDATORY ADVANCEMENT OF EXPENSES. At the request of Indemnified
Party, Litigation Costs incurred or contracted for by him or her in any
Proceeding shall be paid by the Corporation on a continuing and current
basis, in advance of the final disposition of such matter, with the
undertaking which Indemnified Party makes hereby that if it shall be
ultimately determined that Indemnified Party was not entitled to be
indemnified therefor, or was not entitled to be fully indemnified therefor,
Indemnified Party shall repay to the Corporation the amount, or appropriate
portion thereof, so advanced. Such advancement and current payment of
Litigation Costs by the Corporation shall be made promptly (but in any event
within 10 days) after receipt by the Corporation of Indemnified Party's
request therefor.
9. REPAYMENT OF EXPENSES. Indemnified Party agrees that Indemnified
Party will reimburse the Corporation for all Litigation Costs paid by the
Corporation in connection with any Proceeding in which Indemnified Party is
involved in the event and only to the extent that it shall be ultimately
determined by final non-appealable judgment of a court of competent
jurisdiction that Indemnified Party is not entitled to be indemnified by the
Corporation for such Litigation Costs under the provisions of the State
Statute, the Bylaws and this Agreement.
10. PROCEDURE.
(a) Indemnification hereunder shall be made promptly and in any
event within 30 days of Indemnified Party's written request therefor,
unless (i) an affirmative determination is made reasonably and within
such 30-day period by the Corporation in the manner provided in
Section 10(b) below that Indemnified Party is not entitled to
indemnity hereunder for any reason other than as contemplated by
clause (ii) of this Section 10(a), or (ii) an affirmative
determination is required by the State Statute or other applicable law
that the Indemnified Party met an applicable standard of conduct, in
which case the Corporation will cause such determination to be made
within 60 days from the date of the written request for indemnity.
(b) The determination to be made by the Corporation under
Section 10(a) above shall be based on the facts known at the time and
shall be made (i) by the Board of Directors of the Corporation, by a
majority vote of a quorum consisting of directors who are not parties
to the Proceeding ("disinterested directors"), or (ii) if such a
quorum is not obtainable, by independent legal counsel in a written
opinion, or (iii) even if such a quorum is obtainable, by independent
legal counsel in a written opinion if the Board of Directors of the
Corporation, by a majority vote of a quorum consisting of
disinterested directors, so directs, or (iv) by the stockholders of
the Corporation. Any such determination may be contested by
Indemnified Party as hereinafter contemplated.
(c) A failure to make any required determination within the
period of time specified shall be deemed to be a determination
favorable to the Indemnified Party.
11. ENFORCEMENT.
(a) The Corporation expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on the
Corporation hereby and has obtained the approval of its Board of
Directors to induce Indemnified Party to serve or continue serving as
a director or an officer of Corporation and acknowledges that
Indemnified Party is relying upon this Agreement in agreeing to serve
or continue serving in such capacity.
-4-
<PAGE>
(b) In the event Indemnified Party is required to bring any
action to enforce rights or to collect moneys due under this
Agreement, the Corporation shall reimburse Indemnified Party, on a
continuing and current basis, for all of Indemnified Party's
reasonable fees and expenses in bringing and pursuing such action and
Indemnified Party shall have no obligation to reimburse the
Corporation therefor unless Indemnified Party is not successful in
such action after rendition of a final, non-appealable judgment by a
court of competent jurisdiction.
(c) The right to indemnification hereunder shall be enforceable
by Indemnified Party in any court of competent jurisdiction if
Indemnified Party's claim therefor is denied, in whole or in part, in
the manner provided herein, or if no disposition of such claim is made
within 60 days from the receipt by the Corporation of Indemnified
Party's request for indemnification hereunder.
12. SEVERABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others so that if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof. To the extent necessary to
give effect to this Agreement, should any provision hereof be held invalid or
unenforceable, this Agreement shall be reformed in such a manner as to
provide the maximum indemnity contemplated hereby to Indemnified Party, it
being the intention of the parties hereto that this Agreement be otherwise
given its maximum effect consistent with the laws and, to the extent
applicable, public policies of the State of Delaware.
13. OBLIGATION TO AMEND. The Corporation agrees to take all actions
necessary to amend this Agreement in the future to increase or otherwise
maximize the indemnity protections intended to be afforded hereby to the
extent then permitted by law.
14. NOTICE. Any notice, request or other communication hereunder to
the Corporation or Indemnified Party shall be in writing and delivered or
sent by postage prepaid first class mail or by hand delivery or express mail
service or by facsimile transmission as follows: (a) if to the Corporation,
addressed to UroCor, Inc., 800 Research Parkway, Oklahoma City, Oklahoma
73104, facsimile 405/290-4150, and (b) if to Indemnified Party, to the
address shown on the signature page hereof or to such other address as
Indemnified Party shall designate from time to time to the Corporation in
writing.
15. GOVERNING LAW; BINDING EFFECT; AMENDMENT AND TERMINATION.
(a) This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
(b) This Agreement shall be binding upon Indemnified Party and
upon the Corporation, its successors and assigns, and shall inure to
the benefit of Indemnified Party, his or her heirs, personal
representatives and assigns and to the benefit of the Corporation, its
successors and assigns. The Corporation shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or any substantial part of the business or assets of
the Corporation, by agreement in form and substance satisfactory to
Indemnified Party, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the
Corporation would be required to perform it if no such succession had
taken place. Failure of the Corporation to obtain such agreement
prior to effectiveness of any succession shall be a breach of this
Agreement and shall entitle Indemnified Party to appropriate equitable
relief or monetary damages from the Corporation in an amount necessary
to provide Indemnified Party with the protections to which he or she
would be entitled hereunder. As used in this Agreement, the
"Corporation" shall mean the Corporation as hereinbefore defined and
any successor to its business or assets as aforesaid that executes and
delivers the agreement provided for by this Section 15(b) or that
otherwise becomes bound by all of the terms and provisions of this
Agreement by operation of law.
(c) No amendment, modification, termination or cancellation of
this Agreement shall be effective unless in writing signed by both
parties hereto.
-5-
<PAGE>
16. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and understanding between the parties relating to the subject matter hereof
and supersedes all prior agreements between the parties relating to the
subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
UroCor, Inc.
By:
--------------------------------
William A. Hagstrom
President and Chief
Executive Officer
[Name of Indemnified Party]
-----------------------------------
Address:
-------------------------
-------------------------
-------------------------
Facsimile:
-------------------------
-6-
<PAGE>
SCHEDULE 10.1
INDEMNITY AGREEMENTS
CURRENT BOARD MEMBERS
Paul A. Brown, M.D. Herbert J. Conrad
Louis M. Sherwood, M.D. Michael E. Herbert
Aaron Beam, Jr. Thomas C. Ramey
CURRENT EMPLOYEES
William A. Hagstrom Socrates H. Choumbakos
Robert W. Veltri, Ph.D. Mark G. Dimitroff
Kathryn L.W. Ingerly Karl K. Nigg
Michael N. McDonald Lou Rye Carmichael
Gerard O'Dowd Larry S. Compton
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET FOR JUNE 30, 1998 AND THE STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<CIK> 0000946945
<NAME> UROCOR, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 13,879,476
<SECURITIES> 6,088,621
<RECEIVABLES> 21,791,042
<ALLOWANCES> 3,224,820
<INVENTORY> 443,736
<CURRENT-ASSETS> 42,204,734
<PP&E> 14,844,070
<DEPRECIATION> 5,175,526
<TOTAL-ASSETS> 56,014,620
<CURRENT-LIABILITIES> 3,942,732
<BONDS> 0
0
0
<COMMON> 104,145
<OTHER-SE> 51,890,175
<TOTAL-LIABILITY-AND-EQUITY> 56,014,620
<SALES> 0
<TOTAL-REVENUES> 21,877,841
<CGS> 0
<TOTAL-COSTS> 8,468,454
<OTHER-EXPENSES> 10,946,134
<LOSS-PROVISION> 1,561,978
<INTEREST-EXPENSE> 46,975
<INCOME-PRETAX> 1,534,683
<INCOME-TAX> 583,000
<INCOME-CONTINUING> 951,683
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 951,683
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
