UROCOR INC, 10-Q, 2000-05-04

UROCOR INC
10-Q, 2000-05-04
MEDICAL LABORATORIES

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------------

FORM 10-Q

(MARK ONE)

<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000

<TABLE>
<C> <S>
/ / 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

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UROCOR, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 75-2117882
(State of incorporation) (IRS Employer Identification No.)

840 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 May 1, 2000 was 9,875,054 shares.

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UROCOR, INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2000

INDEX

PART I--FINANCIAL INFORMATION

<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

Balance Sheets as of March 31, 2000 and December 31, 1999... 3

Statements of Operations for the three months ended
March 31, 2000 and 1999................................... 4

Statements of Cash Flows for the three months ended
March 31, 2000 and 1999................................... 5

Notes to Unaudited Interim Financial Statements--March 31,
2000...................................................... 6-8

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 9-12

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISKS..................................................... 12

PART II--OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS........................................... 13

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS................... 13

ITEM 3. DEFAULTS UPON SENIOR SECURITIES............................. 13

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 13

ITEM 5. OTHER INFORMATION........................................... 14-22
Cautionary Statements

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 22

Signatures........................................................... 23
</TABLE>

2
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PART I--FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UROCOR, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 6,780,883 $ 5,259,218
Short-term marketable investments......................... 5,371,881 3,107,392
Accounts receivable, net of allowance for doubtful
accounts of $5,158,329 at March 31, 2000 and $5,173,414
at December 31, 1999.................................... 10,192,803 11,032,693
Prepaid expenses.......................................... 949,500 824,164
Laboratory supplies, at average cost...................... 478,492 616,087
Inventory................................................. 213,625 210,013
Deferred tax asset--current, net.......................... 3,671,216 3,817,722
Other current assets...................................... 1,505,699 782,962
------------ ------------
Total current assets.................................... 29,164,099 25,650,251
------------ ------------
LONG-TERM MARKETABLE INVESTMENTS............................ -- 2,687,292
PROPERTY AND EQUIPMENT, net................................. 8,973,119 8,868,120
NON-CURRENT DEFERRED TAX ASSET, net......................... 1,739,004 1,842,018
INTANGIBLES AND OTHER ASSETS, net........................... 4,589,860 3,114,094
------------ ------------
Total assets............................................ $ 44,466,082 $ 42,161,775
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 2,870,961 $ 3,457,851
Accrued compensation...................................... 706,160 401,657
Current installments of obligations under capital
leases.................................................. -- 8,454
Accrued contract payments................................. 1,750,000 --
Other accrued liabilities................................. 213,398 162,768
------------ ------------
Total current liabilities............................... 5,540,519 4,030,730
DEFERRED COMPENSATION....................................... 348,477 256,810
------------ ------------
Total liabilities....................................... 5,888,996 4,287,540
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, authorized 6,000,000
shares at March 31, 2000 and at December 31, 1999; no
shares issued and outstanding at March 31, 2000 or at
December 31, 1999....................................... -- --
Common stock, $.01 par value, authorized 20,000,000 shares
at March 31, 2000 and at December 31, 1999; 10,968,020
shares issued at March 31, 2000 and 10,769,102 shares
issued at December 31, 1999............................. 109,680 107,691
Common stock held in treasury at cost, 1,576,266 shares at
March 31, 2000 and December 31, 1999.................... (7,174,508) (7,174,508)
Additional paid-in capital................................ 59,559,019 59,265,256
Accumulated deficit....................................... (13,917,105) (14,324,204)
------------ ------------
Total stockholders' equity.............................. 38,577,086 37,874,235
------------ ------------
Total liabilities and stockholders' equity.............. $ 44,466,082 $ 42,161,775
============ ============
</TABLE>

The accompanying notes are an integral part of these financial statements.

3
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UROCOR, INC.

STATEMENTS OF OPERATIONS

(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
REVENUE..................................................... $12,040,557 $12,277,104

OPERATING EXPENSES:
Direct cost of services and products...................... 4,376,323 4,581,145
Selling, general and administrative expenses.............. 6,756,252 6,047,949
Research and development.................................. 398,715 378,152
----------- -----------
Total operating expenses................................ 11,531,290 11,007,246
----------- -----------
OPERATING INCOME............................................ 509,267 1,269,858

OTHER INCOME (LOSS):
Interest, net............................................. 171,529 256,529
Other income (loss)....................................... (24,183) --
----------- -----------
Total other income, net................................. 147,346 256,529
----------- -----------
Income before income taxes.................................. 656,613 1,526,387
Income tax provision........................................ 249,520 580,979
----------- -----------
NET INCOME.................................................. $ 407,093 $ 945,408
=========== ===========
NET INCOME PER SHARE:
Basic:
Net Income Per Common Share............................... $ .04 $ .09
=========== ===========
Weighted Average Common and Common Equivalent Shares
Outstanding............................................. 9,367,268 10,497,237
=========== ===========
Diluted:
Net Income Per Common Share--Assuming Dilution............ $ .04 $ .09
=========== ===========
Weighted Average Common and Common Equivalent Shares
Outstanding--Assuming Dilution............................ 9,662,141 11,074,498
=========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

4
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UROCOR, INC.

STATEMENTS OF CASH FLOWS

(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 407,093 $ 945,408
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 704,040 658,798
Deferred income tax..................................... 249,520 207,689
Deferred compensation expense........................... 91,667 44,816
Stock option compensation expense....................... 2,063 2,288
(Gain) loss on disposition of equipment................. 24,183 (1,620)
Changes in assets and liabilities:
Decrease in accounts receivable......................... 839,890 1,319,086
(Increase) decrease in prepaid expense.................. (125,336) 246,685
Decrease in laboratory supplies......................... 137,595 28,724
(Increase) decrease in inventory........................ (3,612) 3,040
(Increase) decrease in other current assets............. (722,737) 481,787
Decrease in accounts payable............................ (604,890) (977,321)
Increase in accrued compensation........................ 304,503 19,317
Increase in accrued liabilities......................... 50,630 5,840
----------- -----------
Net cash provided by operating activities............. 1,354,609 2,984,537
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities (purchases) of short-term marketable
investments, net........................................ (2,264,489) 5,043,045
Maturities (purchases) of long-term marketable
investments, net........................................ 2,687,292 (1,848,650)
Capital expenditures...................................... (794,340) (1,539,735)
Intangibles and other assets.............................. 253,359 (124,243)
----------- -----------
Net cash used in (provided by) investing activities... (118,178) 1,530,417
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options................... 266,688 20,241
Proceeds from exercise of warrants........................ 27,000 --
Principal payments under capital lease obligations and
other indebtedness...................................... (8,454) (72,531)
----------- -----------
Net cash used in (provided by) financing activities... 285,234 (52,290)
----------- -----------
Net increase in cash and cash equivalents................... 1,521,665 4,462,664

CASH AND CASH EQUIVALENTS, beginning of year................ 5,259,218 11,034,123
----------- -----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 6,780,883 $15,496,787
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ -- $ 5,158
Cash paid for income taxes................................ $ -- $ --
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Obligations under therapeutic product distribution
agreement............................................... $ 1,750,000 $ --
</TABLE>

The accompanying notes are an integral part of these financial statements.

5
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UROCOR, INC.

NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED)

MARCH 31, 2000

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 for the year ended December 31, 1999 filed with the Securities and
Exchange Commission on March 10, 2000.

Operating results for the three-month period ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the full year
ending December 31, 2000.

NOTE 2--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 March 31, 2000
and December 31, 1999. 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, 2000 and December 31, 1999,
there was not a material net unrealized gain or loss on these investments.

NOTE 3--COMMITMENTS AND CONTINGENCIES:

In July 1998 and March 1999, the Company received Civil Investigative
Demands ("CID") from the Department of Justice ("DOJ"). 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
federal and state health care programs potentially resulting from such
proceedings could have a material adverse effect on the financial condition and
results of operations of the Company.

NOTE 4--SUBSEQUENT EVENT:

On April 17, 2000, UroCor acquired Mills Biopharmaceuticals, the
manufacturer of UroCor's ProstaSeed-Registered Trademark- I-125 sources for
radiation treatment of prostate cancer. The terms of the purchase agreement
called for a combination of cash and stock valued at $3.5 million, in addition
to certain royalty payments dependent upon the achievement of future sales
levels. Under the agreement, Dr. Stanley Mills, Mills Biopharmaceuticals'
president and founder, was appointed UroCor's Vice President Product Development
for radiation therapies subject to a separate employment agreement; his spouse,
Jacqueline Mills, was retained as a consultant for the Company pursuant to terms
of a consulting agreement; and the Company agreed to lease the production
facilities from the Mills.

NOTE 5--STOCK REPURCHASE PROGRAM:

On April 20, 1999, the Board of Directors of the Company authorized the
repurchase by the Company of up to $10 million of UroCor common stock.
Management expects that the repurchase program will be conducted from time to
time on the open market or in privately negotiated transactions, depending upon
market conditions, securities regulations and other factors. As of May 1, 2000,
the Company had

6
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UROCOR, INC.

NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

MARCH 31, 2000

NOTE 5--STOCK REPURCHASE PROGRAM: (CONTINUED)
repurchased approximately $7.2 million (or approximately 1.6 million shares) of
common stock. Management also expects that, depending upon the number of shares
purchased, the Company may elect to supplement its cash position with new debt.

NOTE 6--SEGMENT REPORTING:

Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures
about Segments of an Enterprise and Related Information, requires selected
information about reportable segments in interim financial reports that is
consistent with that made available to management to assess financial
performance. With the regulatory approvals for two therapeutic products
occurring in the first quarter of 2000, the Company is now operating in two
reportable segments--1) diagnostic services and 2) therapeutic products. The
diagnostic services segment provides testing services to urologists for
diagnosing, selecting appropriate therapies and managing patients with urologic
diseases. The therapeutic products segment now offers ProstaSeed-Registered
Trademark- for early stage prostate cancer, PACIS BCG-Registered Trademark- for
bladder cancer and Persist-Registered Trademark- for incontinence; the
therapeutic revenue activity prior to 2000 was related to a co-promotion
agreement with Zeneca, Inc., which entailed the Company's sales force selling
two prostate cancer products to urologists, however, the Company had no other
direct costs related to sales of these co-promotion products. The Company's
management evaluates performance based on several factors. However, the primary
measurement focus is Gross Profit (revenue less direct costs) and Operating
Income, excluding special charges and any other unusual items. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies contained in the Company's Annual Report on Form
10-K filed with the Securities and Exchange Commission for the year ended
December 31, 1999. Corporate expenses include overhead expenses not allocated to
specific business segments, including administrative expenses and information
services expenses. The expenses that are allocated to business segments after
the gross profit calculation to result in the operating income figures include
sales and marketing expenses, administrative expenses directly attributable to
the segments and bad debt expense. Asset information by segment is not reported,
because the Company does not yet produce such information internally. The table
below presents information about the Company's segments for the three months
ended March 31, 2000 and 1999:

<TABLE>
<CAPTION>
DIAGNOSTIC THERAPEUTIC
THREE MONTHS ENDED MARCH 31: SERVICES PRODUCTS TOTAL
- ---------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
2000:
Revenue................................. $11,985,320 $ 55,237 $12,040,557
Gross profit............................ $ 7,648,035 $ 16,215 $ 7,664,250
Operating Income........................ $ 3,250,093 $(615,146) $ 2,634,947

1999:
Revenue................................. $11,626,184 $ 650,920 $12,277,104
Gross Profit............................ $ 7,047,793 $ 433,226 $ 7,481,019
Operating Income........................ $ 2,880,575 $ 235,974 $ 3,116,549
</TABLE>

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UROCOR, INC.

NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

MARCH 31, 2000

NOTE 6--SEGMENT REPORTING: (CONTINUED)
Reconciliation of operating income above to corresponding totals in the
accompanying financial statements:

<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Total for reportable segments........................ $2,634,947 $3,116,549
Less: Corporate expenses............................. 2,125,680 1,846,691
---------- ----------
Operating income..................................... $ 509,267 $1,269,858
========== ==========
</TABLE>

NOTE 7--BASIC EARNINGS PER SHARE AND DILUTED EARNINGS PER SHARE:

Basic earnings per share of common stock has been computed on the basis of
the weighted average number of shares outstanding during each period. The
diluted net income per share of common stock includes the dilutive effect of the
outstanding stock options and warrants.

The following table summarizes the calculation of basic earnings per share
("EPS") and the diluted EPS components:

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000 THREE MONTHS ENDED MARCH 31, 1999
-------------------------------------- --------------------------------------
INCOME SHARES INCOME SHARES
(NUMERATOR) (DENOMINATOR) EPS (NUMERATOR) (DENOMINATOR) EPS
----------- ------------- -------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Net income/shares............... $407,093 9,367,268 $945,408 10,497,237
Basic EPS....................... $.04 $.09
Effect of Dilutive Securities:
Stock options/warrants........ 294,873 577,261
Adjusted net income/shares...... $407,093 9,662,141 $945,408 11,074,498
Diluted EPS..................... $.04 $.09
</TABLE>

NOTE 8--RECLASSIFICATIONS:

Certain reclassifications have been made in the 1999 financial statements to
conform with the 2000 presentation. Total assets and net income for 1999 were
not affected by the reclassifications.

8
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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 markets a comprehensive range of integrated products and services
directly to urologists and managed care organizations to assist in detecting,
diagnosing, treating and managing prostate cancer, bladder cancer, kidney stones
and other complex urologic disorders. The Company's primary focus is helping
urologists improve patient care and outcomes while reducing the total cost of
managing these diseases.

During the three months ended March 31, 2000, the Company derived over 99%
of its revenue from diagnostic products and services that UroCor Labs-TM-
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, such as private insurance, managed care plans and governmental
programs (e.g., Medicare), as well as individual patients and physicians. During
the three months ended March 31, 2000, approximately 56%, 34%, 7% and 3% of the
Company's diagnostic revenue was attributable to Medicare, private insurance and
managed care, individual patients, and physicians and hospitals, respectively.

During the three months ended March 31, 2000, the Company derived
approximately $55,000 of its revenue from the marketing of a therapeutic
product, ProstaSeed, a UroCor-branded line of radiation implants (also referred
to as "seeds") used in brachytherapy for early stage prostate cancer. This
product received clearance for marketing from the United States Food and Drug
Administration (the "FDA") in April 1999 and approval from the Nuclear
Regulatory Commission (the "NRC") in January 2000. The Company began marketing
this product in the United States in January 2000.

Additionally, the Company has distribution rights for PACIS BCG, a
therapeutic product for use in treating certain types of bladder cancer. The
manufacturer of the product received clearance by the FDA to market in the
United States in March 2000, and the Company expects to begin marketing this
product by early in the third quarter of 2000.

The Company also markets Persist, a therapeutic product for the treatment of
incontinence.

RESULTS OF OPERATIONS

REVENUE. Revenue for the three months ended March 31, 2000 was
approximately $12.0 million versus $12.3 million for the three months ended
March 31, 1999, a decrease of 1.9%.

Diagnostic services revenue increased 3.0% for the 2000 three-month period
resulting from the Company's price increase effective January 1, 2000 and an
increase in Medicare's reimbursement allowance for most of the Company's tests.
The Company's price increase and the increase in Medicare reimbursement
allowance resulted in approximately a $1.9 million increase in revenue for the
first quarter 2000 versus the first quarter of 1999. This increase was partially
offset by a 10% decrease in case volume in first quarter 2000 versus the first
quarter of 1999. Diagnostic volumes declined during the first quarter of 2000
primarily as the result of the elimination of certain managed care related
marketing programs during the second quarter 1999 and related collection efforts
that resulted in the loss of some clients and decreased product usage from other
clients. Additionally, the Company focused its marketing efforts on its

9
<PAGE>
higher priced products and placed less marketing effort on lower priced products
during the first quarter of 2000. In the 2000 first quarter, the Company's
client base was approximately 2,575 urologists of which 46% used two or more
products compared to 2,625 urologists and over 50% for the first quarter of
1999. The Company intends to focus its marketing and sales efforts for the
remainder of 2000 on improving the diagnostics growth rates and shifting the
product mix to its most profitable products.

Therapeutic products revenue decreased 91.5% from approximately $651,000
during the three months ended March 31, 1999 to approximately $55,000 during the
three months ended March 31, 2000, principally due to the termination on
December 31, 1999 of a co-promotion agreement with Zeneca, Inc. The Company's
marketing of ProstaSeed accounted for substantially all of the therapeutic
products revenue for the first quarter of 2000. Therapeutic products revenue in
subsequent periods is contingent upon the successful marketing of ProstaSeed,
PACIS BCG and Persist and any future acquisition of rights to other therapeutic
products that could be marketed by the Company.

DIRECT COST OF SERVICES AND PRODUCTS. As a percentage of revenue, direct
expenses decreased to 36.3% for the three months ended March 31, 2000 from 37.3%
for the three months ended March 31, 1999. In the aggregate, direct cost of
services and products decreased 4.5%, from approximately $4.6 million in the
three months ended March 31, 1999 to approximately $4.4 million in the three
months ended March 31, 2000. The decrease in the percentage to revenue for the
2000 three-month period compared to the 1999 three-month period resulted
primarily from a shift of diagnostic volumes towards higher margin products.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenue,
selling, general and administrative expenses increased to 56.1% for the three
months ended March 31, 2000 from 49.3% for the three months ended March 31,
1999. In the aggregate, selling, general and administrative expenses increased
11.7%, from approximately $6.0 million in the three months ended March 31, 1999
to approximately $6.8 million in the three months ended March 31, 2000. The
increase in selling, general and administrative expenses was due principally to
increased management personnel, increased provision for doubtful accounts and
the incurrence of approximately $630,000 of expenses for the three months ended
March 31, 2000 related to personnel, marketing and information systems in
anticipation of the launch of the Company's ProstaSeed product, partially offset
by decreases in professional services and convention and meeting costs.

RESEARCH AND DEVELOPMENT EXPENSES. As a percentage of revenue, research and
development expenses increased to 3.3% for the three months ended March 31, 2000
from 3.1% for the three months ended March 31, 1999. In the aggregate, research
and development costs increased 5.4%, from approximately $378,000 in the three
months ended March 31, 1999 to approximately $399,000 in the three months ended
March 31, 2000.

OTHER INCOME (EXPENSE). Interest income net of interest expense decreased
33.1%, from approximately $257,000 in the three months ended March 31, 1999 to
approximately $172,000 in the three months ended March 31, 2000. The decline was
due principally to decreased cash, cash equivalents and investments compared to
the 1999 period, resulting from the use of such resources to fund stock
repurchases and capital expenditures. Other expense of approximately $24,000 for
the three months ended March 31, 2000 was primarily due to routine disposition
of assets.

INCOME TAXES. Income tax expense recorded in the three months ended
March 31, 1999 was approximately $581,000 compared to income tax expense of
approximately $250,000 recorded in the three months ended March 31, 2000 based
on a 38.0% effective combined federal and state income tax rate.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2000, cash, cash equivalents and marketable investments
totaled approximately $12.2 million, and the Company's working capital was
approximately $23.6 million. As of March 31, 2000, the components of cash, cash
equivalents and marketable investments were approximately $6.8 million of cash

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<PAGE>
and cash equivalents and approximately $5.4 million in short-term marketable
investments, consisting principally of high-grade fixed income securities with a
maturity of less than one year.

Accounts receivable, net of allowance for doubtful accounts, totaled
approximately $10.2 million at March 31, 2000, a decrease of approximately
$840,000 from December 31, 1999, or 7.6%, principally attributable to increased
collections including payment from Zeneca, Inc. relating to the termination of a
co-promotion agreement at December 31, 1999.

At March 31, 2000 and December 31, 1999, the Company's average number of
days sales in net diagnostics receivables was approximately 78 and 90,
respectively.

Virtually all of the Company's diagnostic services are rendered on a
fee-for-service basis. Accordingly, the Company assumes the financial risk
related to collection, including potential inability to collect accounts, long
collection cycles for accounts receivable, difficulties in gathering complete
and accurate billing information and delays attendant to reimbursement by
third-party payors, such as governmental programs, private insurance plans and
managed care organizations.

The Company monitors the collection quality of its accounts receivable
through analytical review of aging categories by payor group and collections
performance. While the Company maintains what it believes to be an adequate
allowance for doubtful accounts, there can be no assurance that the Company's
ongoing assessment of accounts receivable will not result in the need for
additional provision for doubtful accounts. Such additional provision could have
an adverse effect on the Company's financial position and results of operations.

Therapeutic products revenue for the remainder of 2000 and subsequent
periods are contingent upon the successful marketing of ProstaSeed, PACIS BCG,
and Persist and any future acquisition of rights to other therapeutic products
that could be marketed by the Company.

Operating activities provided net cash of approximately $1.4 million for the
three months ended March 31, 2000 compared to net cash provided of approximately
$3.0 million for the three months ended March 31, 1999. The net cash provided by
operating activities was primarily the result of net income of approximately
$407,000 and related income tax expense of approximately $250,000, a decrease in
accounts receivable of approximately $840,000 resulting from increased
collections including payment of the Zeneca termination fee and depreciation and
amortization of approximately $704,000, partially offset by an increase in other
current assets of approximately $723,000, principally due to advances to a
manufacturer relating to future milestone payments, and a decrease in accounts
payable of approximately $605,000.

Net cash used by investing activities was approximately $118,000 for the
three months ended March 31, 2000 and consisted primarily of purchases of
short-term marketable investments of approximately $2.3 million, capital
expenditures of approximately $794,000 and an increase in other assets of
approximately $253,000 related to primarily to increase deferred compensation,
partially offset by maturities of long-term marketable investments of $2.7
million.

Net cash provided by financing activities was approximately $285,000 for the
first three months of 2000, consisting primarily of exercise of stock options by
employees and warrants by shareholders.

The Company's capital expenditures of approximately $794,000 for the three
months ended March 31, 2000, were primarily for leasehold improvements,
furniture and fixtures, and computer equipment and software. Of the total
amount, approximately $66,000 related to internal software development costs for
information services. While future capital expenditures will depend upon a
number of factors, the Company expects such expenditures to be comparable to
recent levels as the Company continues to expand to deliver therapeutics and
information services and 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 and possibly new debt.

11
<PAGE>
In March 2000, a therapeutic product for bladder cancer for which the
Company has distribution rights received clearance from the FDA for marketing in
the United States. The total cost of the distribution rights for the product is
$3.0 million, of which the Company has paid $1.25 million. With the FDA
clearance of this product, all milestones have been met. The Company is now
obligated to pay the remaining $1.75 million in three payments during 2000. The
first payment of $750,000 is due in April 2000, the second payment of $500,000
is due in July 2000 and the final payment of $500,000 is due in October 2000.
The Company intends to pay these milestones out of existing cash and investment
balances or possibly new debt.

In April 2000, the Company acquired the manufacturer of its ProstaSeed
product. Pursuant to the terms of the purchase agreement, the Company paid
approximately $1.6 million in cash and issued 477,700 shares of its common
stock. The Company also is obligated to pay certain royalties dependent upon the
achievement of future sales levels. The Company expects to make additional
investments relating to the purchased assets intended to improve production
capabilities. The Company intends to make any additional payments for such
manufacturing capabilities from its existing cash and investment balances or
possibly new debt.

In April 1999, the Company's Board of Directors authorized the repurchase of
up to $10 million of the Company's common stock. As of March 31, 2000, the
Company had repurchased approximately $7.2 million (or approximately 1.6 million
shares) of its common stock. The Company intends to fund any such purchases
using available cash and cash flow from operations, and may elect to supplement
its cash position with new debt.

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 a timely basis or on acceptable terms.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 and are classified as Available-for-Sale. Marketable securities at
March 31, 2000 consisted primarily of debt securities with maturities as long as
one year. 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, 2000 and December 31, 1999, there were no
material net unrealized gains or losses on these investments.

12
<PAGE>
PART II--OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

RECENT ISSUANCES OF UNREGISTERED SECURITIES

During the quarter ended March 31, 2000, the Company issued 21,600 shares of
Common Stock for consideration of $27,000 to a stockholder of the Company
pursuant to the exercise of certain stock purchase warrants. In April 2000, the
Company issued a total of 477,700 shares of Common Stock out of treasury stock
pursuant to the acquisition of Mills Biopharmaceuticals. Neither 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. The Commission file number assigned to the
registration statement was 333-3182.

From the effective date of the registration statement through March 31,
2000, the following table identifies the purposes and amounts of the net
proceeds paid directly or indirectly to others:

<TABLE>
<S> <C>
Construction of plant, building and facilities.............. $ --
Purchase and installation of machinery and equipment........ 6,953,252
Purchases of real estate.................................... --
Acquisition of other business(es)........................... --
Repayment of indebtedness................................... 2,375,404
Working Capital............................................. 3,641,287
Temporary Investments:
Short-term Commercial Paper............................... 4,051,970
Long-term Corporate and Treasury Notes.................... --
Cash Equivalents.......................................... --
Other Purposes:
Development and Expansion of Diagnostic Product Line...... 6,231,192
Development of Information Products and Services and
Urological Disease Databases............................ 2,732,386
Development of Therapeutic Product Line................... 4,622,232
Development and Expansion of Clinical and Research
Laboratories and Lab Information System................. 3,942,136
</TABLE>

None of the net proceeds have been paid directly or indirectly to directors,
officers, general partners or their associates, to persons owning 10% or more of
any class of equity securities or affiliates.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

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<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 also intends to continue to develop and expand its
therapeutic products business and to offer additional information services
products. 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 successfully the operation and expansion of its therapeutics 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, reimbursement changes, availability and
cost of diagnostic supplies, availability and cost of logistic and delivery
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 Company relies principally upon Federal Express, UPS and
Airborne Express for inbound and outbound shipping of specimens and kits for its
diagnostics operations; any disruption in the availability of such logistics and
delivery services could have a material adverse effect on the Company's
operating results. 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.

UNCERTAINTIES RELATED TO GOVERNMENT REGULATION AND ENFORCEMENT. 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 any

14
<PAGE>
such changes could 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
federal Anti-Fraud and Abuse Amendments to the Social Security Act (the "Federal
Anti-Kickback Law") and the physician self-referral and payment prohibition
(commonly referred to as the "Stark law") generally 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/or exclusion from Medicare and other federally funded
programs. 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 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 ("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 Company
received a second CID from the DOJ in March 1999 concerning allegations that the
Company may have submitted false claims for payments, submitted false statements
in support of false claims, or conspired to submit false claims to government
officials in connection with bills for services submitted to Medicare and other
federal insurance programs by, among other things, bundling tests, billing for
medically unnecessary tests and upcoding. The DOJ has given the Company no
further information regarding the allegations. The CIDs require the Company to
produce certain documents to the DOJ. The Company produced documents to the DOJ
in response to both CIDs and is cooperating with the DOJ at this stage in the
investigation. Although the Company seeks to structure its practices to comply
with all applicable laws, 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 federal and state health care programs potentially
resulting from such proceedings could have a material adverse effect on the
financial condition and results of operations of the Company. Although the
Company cannot confirm what prompted the DOJ investigation, such an
investigation may or may not have been prompted by the filing of a QUI TAM or
"whistleblower" action under the Federal Civil False Claims Act. If that were
the case, even if the DOJ chose not to pursue any matters arising from its
investigation, the QUI TAM plaintiff or "whistleblower" would be free to pursue
the allegations in such a complaint against the Company. If any such plaintiff
were to prevail, any judgment resulting from such litigation or administrative
penalties, including exclusion from federal and state health care programs,
potentially resulting from such proceedings could have a material adverse effect
on the financial condition and results of operations of 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. Any exclusion or
suspension from participation in the Medicare program or certain state programs,
any loss of licensure or accreditation or

15
<PAGE>
any inability to obtain any required license or permit, whether arising from any
action by the Department of Health and Human Services ("DHHS") or any state or
any other regulatory authority, would have a material adverse effect on the
Company's business. Any significant civil monetary or criminal penalty resulting
from such proceedings could have a material adverse effect on the Company's
financial condition and results of operations. Although the Company seeks to
structure its practices to comply with such laws and regulations, no assurances
can be given regarding compliance in any particular factual situation.

Additionally, with the acquisition of Mills Biopharmaceuticals in
April 2000, the Company is now subject to regulation by the United States
Environmental Protection Agency, the NRC and other federal, state and municipal
regulatory agencies for the hazardous waste generated through the Mills
manufacturing facility. Such waste is segregated and disposed of through
hazardous waste transporters. Although the Company believes that it is currently
in compliance in all material respects with applicable environmental
regulations, failure to comply fully with any such regulations could result in
the imposition of penalties, fines or sanctions that 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, an FDA rule provides that in some circumstances
involving in-house assays, laboratories must 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 that 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 currently regulates products that the Company licenses or otherwise
acquires from third parties for distribution or marketing by the Company. The
manufacturers of such products are responsible for compliance with the approval
and marketing regulations of the FDA. The ability of third parties to address
their FDA regulatory issues is outside the Company's control. Failure of such
third parties to address their FDA regulatory matters adequately could have a
material adverse effect on the Company's financial condition and results of
operations.

The FDA currently also regulates the sale, manufacturing, labeling and
record-keeping of the therapeutic products that the Company currently markets
and that it may market in the future. In addition, most users of the Company's
ProstaSeed product are required to possess licenses issued by the state in which
they reside or by the NRC. The Company has received 510(k) marketing approval
from the FDA and NRC approval for the ProstaSeed product. Future discovery of
previously unknown problems may result in restrictions on a product's marketing,
or withdrawal of the product from the market. The commercial distribution in the
U.S. of any new products developed by the Company will be dependent upon
obtaining the prior approval or clearance of the FDA and/or other regulatory
agencies, which can take many years and entail significant costs.

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

16
<PAGE>
could experience delays in developing and marketing new services, the
possibility of the regulation of existing services and increases in research and
development costs.

The Company is also required to adhere to the applicable FDA quality system
regulation (QSR) and other applicable regulations, and is subject to periodic
FDA inspections to assure compliance with these regulations. The regulations
require that devices, such as the Company's ProtaSeed product, be manufactured
in a prescribed manner and that certain documents be maintained. Failure to
comply with applicable QSR requirements could have a material adverse effect on
the Company.

In countries where the Company's products are not currently approved, the
use or sale of the Company's products may require approval by local government
agencies with missions comparable to the FDA's. The process of obtaining such
approvals may be lengthy, expensive and uncertain.

UNCERTAINTIES RELATED TO THIRD-PARTY REIMBURSEMENT. 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 only may collect from Medicare or other
third-party payors for services that those payors have approved for
reimbursement. The Company routinely bills for direct reimbursement for both
medical services and products. As is common with all suppliers of medical
services and devices, there is a certain amount of variability with respect to
reimbursement among third party payor sources. The Company's Persist product
currently is not widely accepted for reimbursement within the healthcare market.
The product has been marketed for approximately one year and remains a
relatively new approach to treating incontinence. The Company recently obtained
a Durable Medical Equipment ("DME") supplier number to allow for billing of
Persist if Medicare reimbursement is approved. There can be no assurance that
Persist or any other new products the Company currently has under development
will be accepted for reimbursement by Medicare or other third party payors. Such
uncertainty makes the amount and timing of such products' reimbursement
difficult to predict, which potentially subjects the Company to reimbursement
risks with respect to accounts receivable. 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.

Medicare reimbursement amounts for brachytherapy products, such as
ProstaSeed, are currently significantly less than for an alternative treatment,
a radical prostatectomy. Although brachytherapy requires less physician time
than a radical prostatectomy, lesser reimbursement amounts, combined with
physician familiarity with a radical prostatectomy, may provide disincentives
for urologists to perform brachytherapy. Current or future limitations on
reimbursement by Medicare or other third party payors for prostate cancer
treatment could materially adversely affect the market for the ProstaSeed
product and there can be no assurance that such reimbursement will continue at
rates that enable the Company to maintain prices at levels sufficient to realize
an appropriate profit. The occurrence of any such factors could have a material
adverse effect on the results of operations and financial condition of the
Company.

POTENTIAL HEALTH CARE REFORM. 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 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

17
<PAGE>
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 matters 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, 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 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.

NO ASSURANCE OF SUCCESSFUL MARKETING ARRANGEMENTS FOR OR MANUFACTURING OF
THERAPEUTIC PRODUCTS. The Company conducts marketing activities for therapeutic
products. The Company currently has acquired distribution or co-promotion rights
for three therapeutic products. The Company has entered into marketing and
distribution agreements with other product distributors for sales of the
Company's ProstaSeed product. These agreements can be terminated by either
party. While the Company has previous experience marketing two other therapeutic
products, there can be no assurance that the Company's future efforts will be
successful or that the other product distributors' efforts will be successful.
UroCor's future therapeutics marketing efforts are dependent, in part, upon
acquiring, licensing and co-promoting additional pharmaceuticals from others.
Other companies, including those with substantially greater resources than the
Company, are competing with UroCor for the rights to such products. There can be
no assurance that UroCor will be able to acquire, license or co-promote
additional pharmaceuticals on acceptable terms, if at all. The failure to
acquire, license, co-promote or market commercially successful pharmaceuticals
could have a material adverse effect on the Company's financial condition and
results of operations. There can be no assurance that, once it has obtained
rights to a pharmaceutical product and committed to payment terms, UroCor will
be able to generate sales sufficient to create a profit or otherwise avoid a
loss on such product. Additionally, the Company has not previously marketed
directly to the radiation oncology and medical oncology markets that are being
pursued for sales of the Company's ProstaSeed product, and there can be no
assurance that the Company will be successful in these marketing and sales
efforts.

In addition, the Company is and will be dependent on third party
manufacturers to produce the products that are the subject of the Company's
marketing and distribution agreements. If such manufacturers are unable to
produce the products, produce adequate quantities or produce them in a manner
that is compliant with all regulatory requirements, the Company's marketing and
distribution agreements are subject to termination and potential liabilities
that could have a material and adverse effect on the Company's financial
condition and results of operations. In addition, in the case of the Company's
ProstaSeed product, UroCor, through its wholly-owned subsidiary, Mills
BioPharmaceuticals, has not previously manufactured this therapeutic product nor
any other product in large quantities, and there can be no assurance of UroCor's
ability to produce quantities effectively or in a manner compliant with all
regulatory requirements.

POTENTIAL THERAPEUTICS PRODUCT LIABILITY OR RECALL. UroCor intends to
increase its marketing of therapeutic products; if the Company is successful in
these efforts, it will face increasing exposure to product liability claims in
the event that the use of any of its therapeutic products is alleged to have

18
<PAGE>
resulted in adverse effects. Such risks will exist even with respect to those
products that receive regulatory approval for commercial sale. While UroCor has
taken, and intends to continue to take, what it believes are appropriate
precautions, there can be no assurance that it will avoid significant product
liability exposure or product recalls. UroCor currently has product liability
insurance; however, there can be no assurance that the level or breadth of any
insurance coverage will be sufficient to cover potential claims. There can be no
assurance that adequate insurance coverage will be available in the future at
acceptable costs, if at all, or that a product liability claim or recall would
not have a material adverse effect on the Company's financial condition and
results of operations.

UNCERTAINTIES RELATED TO ACCOUNTS RECEIVABLE. Virtually all of the
Company's diagnostic services are rendered on a fee-for-service basis.
Accordingly, the Company assumes the financial risk related to collection,
including potential inability to collect accounts, long collection cycles for
accounts receivable, difficulties in gathering complete and accurate billing
information and delays attendant to reimbursement by third-party payors, such as
governmental programs, private insurance plans and managed care organizations.
At times, the Company's accounts receivable have increased at a rate greater
than revenue growth and, therefore, have affected the Company's cash flow from
operations. In addition, in 1998, the Company determined that it had not sent
invoices timely to certain patients, primarily managed care patients, for
certain co-pays, deductibles and other amounts relating principally to services
rendered in 1998. In December 1998, the Company commenced collection efforts for
certain of these amounts. As a result of delay in sending such invoices, the
Company has had difficulty in its collection efforts. During the second quarter
of 1999, the Company discontinued certain managed care and payor related
marketing programs and identified significantly aged segments of its accounts
receivable for which the likelihood of collectibility was doubtful and recorded
an additional provision. The Company has previously taken steps to implement
systems and processing changes intended to improve billing procedures and
related collections results and, in response to the unsent invoices, it has
undertaken additional initiatives to further improve claims efficiencies and
collections results, in addition to assessing the ultimate collectibility of
outstanding balances. While the Company's management believes it has made
progress by reorganizing and streamlining its accounts receivable and billing
functions, and the Company maintains what it believes to be an adequate
allowance for doubtful accounts, there can be no assurance that the Company's
ongoing assessment of accounts receivable will not result in the need for
additional provision for doubtful accounts. Such additional provision could have
a material adverse affect on the Company's results of operations.

RISKS ASSOCIATED WITH INVESTMENTS IN 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 or use
in the future related to the clinical management of urologists' patients. 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 may 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.

RISKS ASSOCIATED WITH DEVELOPMENT OF DATABASES. The confidentiality of
patient medical records is subject to considerable regulation by the state and
federal governments. Most state and federal laws and regulations govern both the
disclosure and the use of confidential patient medical record information.
Legislation and regulations governing the dissemination and use of medical
record information are being proposed continually at both the state and federal
levels. For example, pursuant to requirements under the Health Insurance
Portability and Accountability Act ("HIPAA"), the Secretary of the DHHS recently
published proposed regulations governing privacy standards for individually
identifiable health information that is electronically transmitted or
maintained. The final rule will be published later this year. Additional
proposed 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

19
<PAGE>
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, and/or civil and/or criminal 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 urologic 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. In addition, the
Company is focused on the field of urology, and managed care providers tend to
contract exclusively only with companies that serve a wider breadth of the
healthcare market. There can be no assurance that the Company will be able to
overcome this managed care trend. If the Company is unable to become an approved
participating provider under certain managed care programs that cover a number
of patients of any particular physician, that physician, to simplify purchasing
and billing, may elect to use a competitor of UroCor that is approved by such
managed care organizations for all of his or her needs, regardless of whether
other patients are covered by Medicare or other third party payors. The loss of
business from key urologists and their patients could have a material adverse
affect on the Company's financial condition and results of operations.

UNCERTAINTIES RELATED TO PATENTS AND PROPRIETARY RIGHTS. While UroCor's
success does not depend on its ability to obtain patents, there can be no
assurance that it can operate without infringing upon the proprietary rights of
others. UroCor has licenses or license rights to certain United States patent
and patent applications. On UroCor's own patent applications, there can be no
assurance that patents, United States or foreign, will be obtained, or that, if
issued or licensed, they will be enforceable or will provide substantial
protection from competition or be of commercial benefit, or that UroCor will
possess the financial resources necessary to enforce or defend any of its patent
rights. Federal court decisions establishing legal standards for determining the
validity and scope of patents in the field are in transition. There can be no
assurance that the historical legal standards surrounding questions of validity
and scope will continue to be applied or that current defenses as to issued
patents in the field will offer protection in the future. UroCor must also avoid
infringing patents issued to competitors and must maintain technology licenses
upon which certain of its current products are, or any future products under
development might be, based. Litigation, which could result in substantial cost
to the Company, may be necessary to enforce its patent and license rights or to
determine the scope and validity of proprietary rights of third parties. If any
of UroCor's products are found to infringe upon patents or other rights owned by
third parties, it could be required to obtain a license to continue to utilize
or market such products. There can be no assurance that

20
<PAGE>
licenses to such patent rights would be made available to the Company on
commercially reasonable terms, it at all. If UroCor does not obtain such
licenses, it could encounter delays in marketing affected products or be
precluded from marketing them at all.

The Company also relies to a significant degree on trade secrets,
proprietary know-how and technological advances that are either not patentable
or that the Company chooses not to patent. The Company seeks to protect
non-patented proprietary information, in part, by confidentiality agreements
with suppliers, employees and consultants. There can be no assurance that these
agreements will not be breached, that the Company would have adequate remedies
for any breach, or that the Company's trade secrets and proprietary know-how
will not otherwise become known or independently discovered by third parties.
The disclosure to third parties of proprietary non-patented information could
have a material adverse effect on the Company's financial condition and results
of operations.

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, regional and national pathology services,
hospital laboratories and 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.

Many companies, including large pharmaceutical firms with financial and
marketing resources and development capabilities substantially greater than
those of UroCor, are engaged in developing, marketing and selling therapeutic
products that compete with the drugs and devices offered or planned to be
offered by the Company. The selling prices of such products frequently decline
as competition increases. Further, other products now in use or under
development by others may be more effective than UroCor's current or future
products. The industry is characterized by rapid technological change, and new
or presently competing products may prevent the Company's products from gaining
sufficient market share to attain profitability. There can be no assurance that
the Company will be able to compete successfully in marketing therapeutic
products.

The Company's ProstaSeed product is subject to brachytherapy competition. In
addition, other products using alternative technologies may continue to be
developed which would compete with the Company's brachytherapy products.
Developments by any of the Company's competitors or others could render the
Company's products obsolete, or clinical evidence could be found to show
brachytherapy to be less clinically effective than currently believed.
Additional companies with substantially greater financial resources than the
Company, as well as more extensive experience in research and development, the
regulatory approval process and manufacturing and marketing, may develop seed
treatments and products that are similar to the Company's ProstaSeed product.
There can be no assurance that such future competition will not have a material
adverse effect on the Company's financial condition and results of operations.

As a result of increasing competition in marketing to urologists, the
Company's ability to attract and retain sales representatives and management may
also affect its ability to compete in the marketing of both diagnostic services
and therapeutic products.

SOURCES AND AVAILABILITY OF RAW MATERIALS. The Company is dependent upon a
limited number of outside unaffiliated suppliers for its radioisotopes. To date,
the Company has been able to obtain the required radioisotopes for its products.
The Company believes that it will be able to continue to obtain required
radioisotopes from these or other sources, although there can be no assurance
thereof. The delay or unavailability of radioisotopes could have a material
adverse effect on the Company's production and sales levels and consequently
upon its financial condition and results of operations.

21
<PAGE>
DEPENDENCE ON KEY CUSTOMERS. The Company currently markets its ProstaSeed
product pursuant to agreements with Mallinckrodt, Inc. and Prostate Services of
America ("PSA"), and, on a limited basis, through its own sales force. During
the first quarter of 2000, sales to Mallinckrodt, accounted for approximately
85% of the Company's therapeutic products revenue. Significant customers may
continue to account for a substantial percentage of the Company's therapeutic
products revenue in the future. In particular, the Company expects that
Mallinckrodt and PSA will continue to be significant customers in the future for
the distribution of the ProstaSeed product. There can be no assurance that such
customers will maintain their volume of business with the Company. A loss or
significant decrease of the Company's sales to such customers could have a
material adverse effect on the Company's financial condition and results of
operations.

ACCESS TO CAPITAL. Historically, the Company's growth 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 the
Company to seek additional resources. There is no assurance that the Company
would be able to obtain such financing on acceptable terms.

POSSIBLE VOLATILITY OF STOCK PRICE OF COMMON STOCK. There has been a
history of significant volatility in the market prices for shares of companies
engaged in the health care and biotechnology fields, and the market price of the
shares of the Common Stock may be highly volatile. Factors such as fluctuations
in the Company's quarterly revenues and operating results, announcements of
technological innovations or new analytical services by the Company and its
competitors and changes in third-party reimbursement and governmental regulation
may have a significant effect on the market price of the Common Stock. In
addition, any regulatory announcements or action with respect to the DOJ
investigation could have a negative impact on the Common Stock market price
pending and regardless of the ultimate outcome of any matter under
investigation.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits:

None.

(b) Reports on Form 8-K

None.

22
<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/ MICHAEL W. GEORGE
-----------------------------------------
Michael W. George
May 3, 2000 PRESIDENT AND CHIEF EXECUTIVE OFFICER

By: /s/ BRUCE C. HAYDEN
-----------------------------------------
Bruce C. Hayden
SENIOR VICE-PRESIDENT, CHIEF FINANCIAL
May 3, 2000 OFFICER, TREASURER AND SECRETARY
</TABLE>

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET FOR MARCH 31, 2000 AND THE STATEMENT OF OPERATIONS FOR THE THREE MONTH
PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 6,780,883
<SECURITIES> 5,371,881
<RECEIVABLES> 15,351,132
<ALLOWANCES> 5,158,329
<INVENTORY> 692,117
<CURRENT-ASSETS> 29,164,099
<PP&E> 16,265,160
<DEPRECIATION> 7,292,041
<TOTAL-ASSETS> 44,466,082
<CURRENT-LIABILITIES> 5,540,519
<BONDS> 0
0
0
<COMMON> 109,680
<OTHER-SE> 38,467,406
<TOTAL-LIABILITY-AND-EQUITY> 44,466,082
<SALES> 0
<TOTAL-REVENUES> 12,040,557
<CGS> 0
<TOTAL-COSTS> 4,376,323
<OTHER-EXPENSES> 6,121,338
<LOSS-PROVISION> 1,033,629
<INTEREST-EXPENSE> 268
<INCOME-PRETAX> 656,613
<INCOME-TAX> 249,520
<INCOME-CONTINUING> 407,093
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 407,093
<EPS-BASIC> .04
<EPS-DILUTED> .04

</TABLE>