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

Amendment No. 1 to Form 10-Q
On Form 10-Q/A

(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, 2001
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 (State of incorporation) 840 Research Parkway, Oklahoma City, OK (Address of principal executive offices)		75-2117882 (IRS Employer Identification No.) 73104 (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 September 28, 2001 was 10,029,218 shares.

TABLE OF CONTENTS


	Item 1. Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
SIGNATURES

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

UROCOR, INC.
CONSOLIDATED BALANCE SHEETS


					June 30,			December 31,
					2001			2000

					(Unaudited)
				ASSETS




CURRENT ASSETS:




	Cash and cash equivalents				$	9,198,435		$	11,006,568




	Short-term marketable investments					3,573,014			488,587




	Accounts receivable, net of allowance for doubtful accounts of $5,215,582 at June 30, 2001 and $4,130,275 at December 31, 2000					13,494,280			12,476,454




	Prepaid expenses					621,983			565,167




	Laboratory supplies, at average cost					490,161			473,205




	Inventory					247,716			309,308




	Deferred tax asset, net					1,026,108			2,286,619




	Other current assets					428,349			760,726

		Total current assets				29,080,046			28,366,634

LONG-TERM MARKETABLE INVESTMENTS						511,713			996,261




PROPERTY AND EQUIPMENT, net						9,595,965			10,037,696




NON-CURRENT DEFERRED TAX ASSET, net						2,616,149			4,371,456




GOODWILL, net of accumulated amortization of $254,381 at June 30, 2001 and $155,224 at December 31, 2000						3,754,940			3,859,336




INTANGIBLE AND OTHER ASSETS, net						2,012,967			3,697,979

		Total assets			$	47,571,780		$	51,329,362

			LIABILITIES AND STOCKHOLDERS’ EQUITY




CURRENT LIABILITIES:




	Accounts payable				$	2,364,820		$	3,257,018




	Accrued compensation					2,196,409			856,648




	Current installments of obligations under capital leases					352,373			249,679




	Accrued special charges					—			9,892,432




	Other accrued liabilities					942,884			728,516

		Total current liabilities				5,856,486			14,984,293




DEFERRED COMPENSATION						594,393			469,855




OBLIGATIONS UNDER CAPITAL LEASES, net of current installments						531,753			594,280




LONG-TERM DEBT						—			175,000

		Total liabilities				6,982,632			16,223,428

STOCKHOLDERS’ EQUITY:




	Preferred stock, $.01 par value, authorized 6,000,000 shares at June 30, 2001 and at December 31, 2000; no shares issued and outstanding at June 30, 2001 or at December 31, 2000					—			—




	Common stock, $.01 par value, authorized 20,000,000 shares at June 30, 2001 and at December 31, 2000; 11,145,751 shares issued at June 30, 2001 and 11,030,131 shares issued at December 31, 2000					111,458			110,301




	Additional paid-in capital					60,185,946			59,536,736




	Common stock held in treasury at cost, 1,172,060 shares at June 30, 2001 and 1,194,604 at December 31, 2000					(5,301,837	)		(5,397,308	)




	Accumulated deficit					(14,406,419	)		(19,143,795	)

		Total stockholders’ equity				40,589,148			35,105,934

		Total liabilities and stockholders’ equity			$	47,571,780		$	51,329,362

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

UROCOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)


			Three Months Ended						Six Months Ended
			June 30,						June 30,
			2001			2000			2001			2000

REVENUE			$	15,857,756		$	12,320,146		$	31,328,177		$	24,360,703




OPERATING EXPENSES:




	Direct cost of services and products			5,638,557			4,655,424			10,866,918			9,031,747




	Selling, general and administrative expenses			6,732,331			5,688,971			13,286,008			11,411,594




	Provision for bad debts			1,284,902			984,464			2,816,108			2,018,093




	Research and development			309,115			388,092			636,458			786,807

		Total operating expenses		13,964,905			11,716,951			27,605,492			23,248,241

OPERATING INCOME				1,892,851			603,195			3,722,685			1,112,462




OTHER INCOME (EXPENSE):




	Gain on termination of therapeutic agreement			—			—			4,597,010			—




	Interest, net			27,965			164,742			249,471			336,271




	Other			(786,867	)		(4,459	)		(815,972	)		(28,642	)

		Total other income, net		(758,902	)		160,283			4,030,509			307,629

Income before income taxes				1,133,949			763,478			7,753,194			1,420,091




Income tax provision				440,932			305,875			3,015,818			555,395

NET INCOME			$	693,017		$	457,603		$	4,737,376		$	864,696

NET INCOME PER SHARE:




Basic:




	Net Income Per Common Share		$	.07		$	.05		$	.48		$	.09

	Weighted Average Common and Common Equivalent Shares Outstanding			9,897,001			9,768,329			9,877,585			9,568,243

Diluted:




	Net Income Per Common Share — Assuming Dilution		$	.06		$	.05		$	.44		$	.09

	Weighted Average Common and Common Equivalent Shares Outstanding — Assuming Dilution			10,830,185			9,962,083			10,707,977			9,805,686

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

UROCOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)


					Six Months Ended
					June 30,
					2001			2000

CASH FLOWS FROM OPERATING ACTIVITIES:




	Net income				$	4,737,376		$	864,696




	Adjustments to reconcile net income to net cash provided by operating activities:




				Depreciation and amortization		1,388,589			1,438,955




				Deferred income tax provision		3,015,818			555,395




				Deferred compensation expense		124,538			156,583




				Stock option compensation expense		—			4,126




				Loss on disposition of equipment		85,353			3,857




				Loss on asset write downs		49,998			—




				Gain on termination of therapeutic agreement		(4,597,010	)		—




				Equity in net income of subsidiary		(9,889	)		—




	Changes in assets and liabilities:					(1,017,826	)		921,145




	(Increase) decrease in accounts receivable




				(Increase) decrease in prepaid expense		(56,816	)		69,024




				(Increase) decrease in laboratory supplies		(16,956	)		40,327




				(Increase) decrease in inventory		61,592			(296,970	)




				(Increase) decrease in other current assets		332,377			(83,141	)




				(Decrease) in accounts payable		(892,198	)		(622,431	)




				Increase in accrued compensation		1,339,761			5,622




				Increase in accrued liabilities		214,368			158,329




				Decrease in accrued special charges		(9,892,432	)		—

		Net cash (used in) provided by operating activities				(5,133,357	)		3,215,517

CASH FLOWS FROM INVESTING ACTIVITIES:




				Purchases of short-term marketable investments		(3,084,427	)		(241,109	)




				Maturities of long-term marketable investments		484,548			2,687,292




				Cash acquired in acquisition of subsidiary		—			(30,543	)




				Cash paid for acquisition of subsidiary		—			(650,000	)




				Capital expenditures		(900,127	)		(1,683,823	)




				Milestone payments for therapeutic product		—			(750,000	)




				Proceeds from termination of therapeutic agreement		7,000,000			—




				Intangibles and other assets		(785,775	)		(866,643	)

		Net cash provided by (used in) investing activities				2,714,219			(1,534,826	)

CASH FLOWS FROM FINANCING ACTIVITIES:




				Proceeds from employee stock purchase plan		58,034			55,687




				Repurchases of Common Stock		—			(311,996	)




				Proceeds from exercise of stock options		687,804			274,839




				Proceeds from exercise of warrants		—			27,000




				Payment of long term debt		(175,000	)		—




				Proceeds from fixed asset sale/leaseback		236,253			—




				Principal payments under capital lease obligations		(196,086	)		(8,454	)

			Net cash provided by financing activities			611,005			37,076

Net increase in cash and cash equivalents						(1,808,133	)		1,717,767




CASH AND CASH EQUIVALENTS, beginning of year						11,006,568			5,259,218

CASH AND CASH EQUIVALENTS, end of period					$	9,198,435		$	6,976,985

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:




		Cash paid for interest			$	193,267		$	—




SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:




		Obligations under therapeutic product distribution agreement			$	—		$	1,000,000




		Current liabilities assumed in acquisition of subsidiary			$	—		$	265,740




		Long-term liabilities assumed in acquisition of subsidiary			$	—		$	175,000




		Issuance of 477,700 common shares in acquisition of subsidiary			$	—		$	1,910,800

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

UROCOR, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2001

NOTE 1 — BASIS OF PRESENTATION:

The accompanying unaudited consolidated 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, 2000 filed with the Securities and Exchange Commission on April 2, 2001.

The consolidated financial statements include the accounts of all majority-owned subsidiaries. All significant intercompany transactions have been eliminated. Operating results for the six-month period ended June 30, 2001 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2001.

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 June 30, 2001 and December 31, 2000. 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, 2001 and December 31, 2000, there was not a material net unrealized gain or loss on these investments.

NOTE 3 — COMMITMENTS AND CONTINGENCIES:

Effective June 29, 2001, the Company received final judicial and governmental approvals of a settlement agreement with the United States Department of Justice (“DOJ”) previously announced on February 16, 2001, concerning matters covered by the DOJ’s investigation into actions of UroCor during 1992 through 1998 in connection with billing claims submitted by UroCor to Medicare and other federal and state insurance programs for its diagnostics testing services. Under the final settlement agreement, UroCor refunded the various programs a total of $9.0 million that was accrued at December 31, 2000. The settlement covers UroCor liabilities to the federal government and the state insurance programs with respect to matters under investigation through December 31, 2000. Under the terms of the settlement, there was no admission by UroCor of any wrongdoing in connection with matters covered by the investigation. UroCor also has agreed to operate under a corporate integrity agreement for a period of up to five years. Among other things, the corporate integrity agreement requires UroCor to cooperate with the United States Attorney’s Office for the Western District of Oklahoma in connection with a criminal investigation of others related to the DOJ investigation. UroCor has incurred and expects to continue to incur expenses relating to the DOJ investigation, including without limitation, the administration of the DOJ settlement (including compliance with the corporate integrity agreement), and may incur additional expenses in connection with any related governmental investigations or proceedings (including the criminal investigation) and any potential indemnification of legal and other fees and costs for current and past directors, officers and employees of UroCor. UroCor currently estimates that it could incur up to $6 million in potential indemnification expenses.

NOTE 4 — STOCK REPURCHASE PROGRAM:

On April 20, 1999, the Company’s Board of Directors 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 June 30, 2001, the Company had repurchased approximately $7.6 million (or approximately 1.7 million shares) of common stock, reissued 477,700 treasury shares for the acquisition of Mills Biopharmaceuticals, Inc. and reissued 22,544 shares pursuant to the terms of the employee stock purchase plan. There were no stock repurchases during the six months ended June 30, 2001.

NOTE 5 — 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. The Company operates 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 currently offers ProstaSeed® for early stage prostate cancer and offered PACIS BCG® for bladder cancer until February 2001, when an agreement was reached with the manufacturer of PACIS BCG to terminate the related distribution agreement, resulting in a gain of approximately $4.6 million. 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, 2000. 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, certain 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 following table presents information about the Company’s segments for the three months ended June 30, 2001 and 2000:


	Diagnostic Services		Therapeutic Products			Total

Three months ended June 30:
2001:




Revenue	$	15,245,027	$	612,729		$	15,857,756




Gross Profit	$	10,375,135	$	(155,936	)	$	10,219,199




Operating Income (Loss)	$	5,234,357	$	(615,356	)	$	4,619,001




2000:




Revenue	$	12,040,407	$	279,739		$	12,320,146




Gross Profit	$	7,812,194	$	(147,472	)	$	7,664,722




Operating Income (Loss)	$	3,707,035	$	(915,407	)	$	2,791,628




Six months ended June 30:
2001:




Revenue	$	30,155,922	$	1,172,255		$	31,328,177




Gross Profit	$	20,779,326	$	(318,067	)	$	20,461,259




Operating Income (Loss)	$	10,510,292	$	(1,357,882	)	$	9,152,410




2000:




Revenue	$	24,025,727	$	334,976		$	24,360,703




Gross Profit	$	15,460,213	$	(131,257	)	$	15,328,956




Operating Income (Loss)	$	6,957,109	$	(1,530,553	)	$	5,426,556

Reconciliation of operating income above to corresponding totals in the accompanying financial statements:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2001		2000		2001		2000

Total for reportable segments	$	4,619,001	$	2,791,628	$	9,152,410	$	5,426,556




Less: Corporate expenses		2,726,150		2,188,433		5,429,725		4,314,094

Operating income	$	1,892,851	$	603,195	$	3,722,685	$	1,112,462

NOTE 6 — 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:


	Three months ended June 30, 2001						Three months ended June 30, 2000

	Income		Shares				Income		Shares
	(Numerator)		(Denominator)		EPS		(Numerator)		(Denominator)		EPS

Net income/shares	$	693,017		9,897,001			$	457,603		9,768,329




Basic EPS					$	.07					$	.05




Effect of Dilutive Securities (stock options/warrants)				933,184						193,754




Adjusted net income/shares	$	693,017		10,830,185			$	457,603		9,962,083




Diluted EPS					$	.06					$	.05


	Six months ended June 30, 2001						Six months ended June 30, 2000

	Income		Shares				Income		Shares
	(Numerator)		(Denominator)		EPS		(Numerator)		(Denominator)		EPS

Net income/shares	$	4,737,376		9,877,585			$	864,696		9,568,243




Basic EPS					$	.48					$	.09




Effect of Dilutive Securities (stock options/warrants)				830,392						237,443




Adjusted net income/shares	$	4,737,376		10,707,977			$	864,696		9,805,686




Diluted EPS					$	.44					$	.09

NOTE 7 — RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:

In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets.” SFAS 142 addresses financial accounting and reporting for intangible assets and goodwill. The statement requires that goodwill and intangible assets having indefinite useful lives not be amortized, rather tested at least annually for impairment. Intangible assets that have finite useful lives will continue to be amortized over their useful lives. As required by SFAS 142, UroCor will adopt this new accounting standard January 1, 2002. The Company is currently analyzing the provisions of SFAS 142 and have not yet determined the impact on our financial statements.

NOTE 8 — PROPOSED ACQUISITION OF UROCOR BY DIANON SYSTEMS, INC.:

On June 28, 2001, DIANON Systems, Inc. and UroCor announced that the companies had signed a definitive merger agreement for the acquisition of UroCor by DIANON. Pursuant to the terms of the merger agreement, at the closing of the transaction, each stockholder of UroCor would receive 0.4064 shares of common stock of DIANON for each share of UroCor common stock, subject to adjustment as described in the merger agreement. The consummation of the merger is subject to customary conditions, including approval of the stockholders of both companies and necessary regulatory approvals and is expected to close in the fourth quarter of 2001.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of financial condition and results of operations of UroCor, Inc. (“UroCor” or the “Company”) should be read in conjunction with the Consolidated 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 six months ended June 30, 2001, the Company derived approximately 96% of its revenue from diagnostic products and services that UroCor Labs™ 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 six months ended June 30, 2001, approximately 44%, 43%, 9% and 4% of the Company’s diagnostic revenue was attributable to Medicare, private insurance and managed care, individual patients, and physicians and hospitals, respectively.

During the six months ended June 30, 2001, the Company derived approximately 4% of its revenue from the sales of its therapeutic product, ProstaSeed. ProstaSeed is a UroCor-branded line of radiation implants (also referred to as “seeds”) used in brachytherapy for early stage prostate cancer that received regulatory approval for marketing in January 2000.

Results of Operations

Revenue. Revenue for the three months ended June 30, 2001 increased 28.7% to approximately $15.9 million compared to $12.3 million for the three months ended June 30, 2000, and increased from approximately $24.4 million for the first six months of 2000 to approximately $31.3 million for the first six months of 2001.

Diagnostic services revenue increased 26.6% for the three-month period ending June 30, 2001 and 25.5% for the six-month period ending June 30, 2001 resulting primarily from the Company’s price increase effective August 14, 2000 and an overall positive reimbursement change from Medicare effective January 1, 2001. The Company’s price increase and the overall increase in Medicare reimbursement resulted in an increase of approximately $2.0 million in revenue for the three months ended June 30, 2001 compared to the same period in 2000 and $3.8 million for the six months ended June 30, 2001 compared to the 2000 period. Case volume for the three months ended June 30, 2001 increased 6.2% compared to the three months ended June 30, 2000, while case volume for the six months ended June 30, 2001 decreased 1.9% compared to the 2000 period. The decline in diagnostic volumes for the six-month period was primarily the result of the revision of pricing on contractual programs during the first quarter of 2000 that resulted in the loss of some clients and decreased product usage from other clients. The Company’s client base for the second quarter of 2001 was approximately 2,540 urologists of which approximately 46% used two or more products compared to approximately 2,475 urologists and approximately 46% using more than one product for the second quarter of 2000.

Therapeutic products revenue increased from approximately $280,000 during the three months ended June 30, 2000 to approximately $613,000 during the three months ended June 30, 2001 and increased from approximately $335,000 for the six months ended June 30, 2000 to approximately $1.2 million for same period in 2001. The Company’s marketing of ProstaSeed accounted for substantially all of the therapeutic products revenue in both periods. Increases in therapeutic products revenue in subsequent periods is contingent upon success in increasing the sales of ProstaSeed and the success in the acquisition of rights for, and the obtaining of appropriate United States Food and Drug Administration (the “FDA”) or other regulatory approvals for, any 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 35.6% for the three months ended June 30, 2001 from 37.8% for the three months ended June 30, 2000 and decreased to 34.7% for the six months ended June 30, 2000 from 37.1 % for the six months ended June 30, 2001. In the aggregate, direct cost of services and products increased 21.1%, from approximately $4.7 million for the three months ended June 30, 2000 to approximately $5.6 million for the three months ended June 30, 2001 and decreased 20.3% from approximately $9.0 million for the six months ended June 30, 2000 to approximately $10.9 million for the six months ended June 30, 2001.

Direct costs for diagnostic services, as a percentage of revenue, decreased to 31.9% for the three months ended June 30, 2001 from 35.1% for the three months ended June 30, 2000 and decreased to 31.1% for the six months ended June 30, 2001 from 35.7% for the six months ended June 30, 2000. The Company’s price increases discussed above in “Revenue” contributed to these decreased percentages, along with shifts in volume mix towards the Company’s higher margin tests. In the aggregate, direct costs for diagnostic services increased 15.2%, from approximately $4.2 million for the three months ended June 30, 2000 to approximately $4.9 million for the three months ended June 30, 2001 and increased 9.5% from approximately $8.6 million for the six months ended June 30, 2000 to approximately $9.4 million for the six months ended June 30, 2001. These increases were primarily related to personnel costs for initial data-entry and specimen processing.

Direct costs for therapeutic products for the three and six months ended June 30, 2001 and 2000 were principally comprised of the manufacturing and overhead costs related to ProstaSeed. Before the Company acquired the manufacturer of ProstaSeed in April 2000, direct costs were for acquisition of the product. These direct costs exceeded revenue by 25.4% for the three-month period ended June 30, 2001 and 52.7% for the three-month period ended June 30, 2000 and 27.1% for the six months ended June 30, 2001 and 39.2% for the six months ended June 30, 2000. In aggregate, the direct costs for therapeutic products increased to approximately $769,000 for the three-month period ended June 30, 2001 from approximately $427,000 for the three-month period ended June 30, 2000 and to approximately $1.5 million for the six months ended June 30, 2001 from approximately $466,000 for the six months ended June 30, 2000. Attainment of positive gross profit margins for the Company’s ongoing ProstaSeed marketing efforts is contingent upon increasing sales volumes, which is dependent on the efforts and results of the Company’s product distributors.

Selling, General and Administrative Expenses. As a percentage of revenue, selling, general and administrative expenses decreased to 42.5% for the three months ended June 30, 2001 from 46.2% for the three months ended June 30, 2000 and to 42.4% for the six months ended June 30, 2001 from 46.8% for the six months ended June 30, 2000. In the aggregate, selling, general and administrative expenses increased 18.3%, from approximately $5.7 million in the three months ended June 30, 2000 to approximately $6.7 million in the three months ended June 30, 2001 and increased 16.4% from approximately $11.4 million for the six months ended June 30, 2000 to $13.3 million for the six months ended June 30, 2001. The increase in selling, general and administrative expenses for the three-month period was due principally to increased sales and administrative personnel costs of approximately $808,000, increased professional service costs of approximately $276,000 and increased facilities and equipment rent of approximately $109,000, offset by a decrease in therapeutic advertising and promotions of approximately $120,000. The increase in selling, general and administrative expenses for the six-month period was due principally to increased sales and administrative personnel costs of approximately $1.6 million, increased professional service costs of approximately $294,000, increased facilities and equipment rent of approximately $208,000 and increased conventions and meetings costs of approximately $161,000, offset by a decrease in therapeutic advertising and promotions of approximately $238,000.

Provision for Bad Debts. As a percentage of revenue, provision for bad debts increased to 8.1% for the three months ended June 30, 2001 from 8.0% for the three months ended June 30, 2000 and to 9.0% for the six months ended June 30, 2001 from 8.3% for the six months ended June 30, 2000. In the aggregate, provision for bad debts increased 30.5%, from approximately $1.0 million in the three months ended June 30, 2000 to approximately $1.3 million in the three months ended June 30, 2001 and increased 39.5%, from approximately $2.0 million for the six months ended June 30, 2000 to approximately $2.8 million for the six months ended June 30, 2001. The Company monitors the collection quality of its accounts receivable through analytical review of aging categories by payor group and collections performance. The Company provides an amount on a monthly basis for estimated future bad debts on current period revenues. In addition, from time to time, there are specific events for which management makes an additional provision. There have been no such additional provisions made in the three- or six-month periods ended June 30, 2000 or June 30, 2001.

Research and Development Expenses. As a percentage of revenue, research and development expenses decreased to 1.9% for the three months ended June 30, 2001 from 3.1% for the three months ended June 30, 2000 and to 2.0% for the six months ended June 30, 2001 from 3.2% for the six months ended June 30, 2000. In the aggregate, research and development costs decreased 20.4%, from approximately $388,000 in the three months ended June 30, 2000 to approximately $309,000 in the three months ended June 30, 2001 and decreased 19.1% from approximately $787,000 for the six months ended June 30, 2000 to approximately $636,000 in the six months ended June 30, 2001. The decrease in expenses was due primarily to the Company’s focus on strategic projects that it has determined have the highest commercial potential, which has resulted in overall lower base research and development program costs.

Other Income (Expense). Other income, net of interest expense decreased from income of approximately $160,000 in the three months ended June 30, 2000 to expense of approximately $759,000 in the three months ended June 30, 2001, primarily due to approximately $694,000 of costs related to the proposed merger of the Company with DIANON Systems, Inc. and increased from approximately $308,000 for the six months ended June 30, 2000 to approximately $4.0 million in the six months ended June 30, 2001. This increase was due principally to the realized gain of approximately $4.6 million attributable to the termination in February 2001 of the Company’s distribution agreement with the manufacturer of PACIS BCG, a therapeutic product previously distributed by the Company.

Income Taxes. Income tax expense recorded in the three months ended June 30, 2001 was approximately $441,000 resulting in an effective 38.9% federal and state income tax rate. Income tax expense recorded in the three months ended June 30, 2000 was approximately $306,000 based upon an effective 40.1% federal and state income tax rate. For the six months ended June 30, 2001, income tax expense was approximately $3.0 million at an effective tax rate of 38.9%, while income tax expense of approximately $555,000 was recorded for the six months ended June 30, 2000 based upon a 39.1% effective tax rate.

Liquidity and Capital Resources

As of June 30, 2001, cash, cash equivalents and marketable investments totaled approximately $13.3 million, and the Company’s working capital was approximately $23.2 million. As of June 30, 2001, the components of cash, cash equivalents and marketable investments were approximately $9.2 million of cash and cash equivalents, and short-term and long-term marketable investments of approximately $3.6 million and $512,000, respectively, consisting principally of high-grade fixed income securities with maturities of less than one year.

Accounts receivable, net of allowance for doubtful accounts, totaled approximately $13.5 million at June 30, 2001, an increase of approximately $1.0 million from December 31, 2000, or 8.2%, principally attributable to increased revenue.

At June 30, 2001 and December 31, 2000, the Company’s average number of days sales in net diagnostics receivables was approximately 78 and 77, 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 such as Medicare, 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.

Operating activities used net cash of approximately $5.1 million for the six months ended June 30, 2001 compared to net cash provided of approximately $3.2 million for the six months ended June 30, 2000. For the six months ended June 30, 2001, the net cash used by operating activities was primarily the result of net income of approximately $4.7 million, depreciation and amortization of approximately $1.4 million, deferred income tax provision of approximately $3.0 million, and increase in accrued compensation of approximately $1.3 million, more than offset by the gain on termination of therapeutic agreement of approximately $4.6 million, an increase in accounts receivable of approximately $1.0 million, a decrease in accounts payable of approximately $892,000 and a decrease in accrued liabilities of approximately $9.7 million.

Net cash provided by investing activities was approximately $2.7 million for the six months ended June 30, 2001 and consisted primarily of the proceeds of approximately $7.0 million from the termination of the PACIS BCG distribution agreement offset by

capital expenditure purchases of approximately $900,000, net purchases of marketable securities of $2.6 million and an increase in other assets of approximately $786,000.

Net cash provided by financing activities was approximately $611,000 for the six months ended June 30, 2001, consisting primarily of approximately $688,000 from the exercise of stock options by employees, $58,000 from issuances of stock pursuant to the Company’s employee stock purchase plan and $236,000 of additional proceeds for financing of fixed assets, offset by payment of debt of $175,000 and capital lease principal payments of approximately $196,000.

The Company’s capital expenditures of approximately $900,000 for the six months ended June 30, 2001, were primarily for leasehold improvements, furniture and fixtures, and computer equipment and software. Of the total amount, approximately $353,000 related to internal software development costs related primarily to installation and customization of third-party software. 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 debt.

Effective June 29, 2001, the Company received final judicial and governmental approvals of a settlement agreement with the United States Department of Justice (“DOJ”) previously announced on February 16, 2001, concerning matters covered by the DOJ’s investigation into actions of UroCor during 1992 through 1998 in connection with billing claims submitted by UroCor to Medicare and other federal and state insurance programs for its diagnostics testing services. Under the final settlement agreement, UroCor refunded the various programs a total of $9.0 million and agreed to operate under a corporate integrity agreement for a period of up to five years. Among other things, the corporate integrity agreement requires UroCor to cooperate with the United States Attorney’s Office for the Western District of Oklahoma in connection with a criminal investigation of others related to the DOJ investigation. UroCor has incurred and expects to continue to incur expenses relating to the DOJ investigation, including without limitation, the administration of the DOJ settlement (including compliance with the corporate integrity agreement), and may incur additional expenses in connection with any related governmental investigations or proceedings (including the criminal investigation) and any potential indemnification of legal and other fees and costs for current and past directors, officers and employees of UroCor. UroCor currently estimates that it could incur up to $6 million in potential indemnification expenses.

In March 2001, the Company entered into a collaborative agreement with a manufacturer of therapeutic products giving UroCor the exclusive rights to distribute one of the manufacturer’s products in the United States. Under the terms of the agreement, UroCor paid $750,000 during the first quarter of 2001 and will pay up to an additional $2.3 million in milestone payments in subsequent years during the development and potential product launch of the product. As milestones are achieved, the Company intends to make the additional payments from existing cash and investment balances or debt.

The Company intends to pursue the acquisition, licensing or co-promotion of new therapeutic products and to acquire diagnostic products or possibly existing business. As such opportunities are identified, the Company intends to make any related acquisition payments from existing cash and investment balances or 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 June 30, 2001, the Company had repurchased approximately $7.6 million (or approximately 1.7 million shares) of its common stock, reissued 477,700 treasury shares for the acquisition of Mills Biopharmaceuticals, Inc. and reissued 22,544 shares pursuant to the terms of the employee stock purchase plan.

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. There may be circumstances or new business opportunities, however, 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.

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.


		By: /s/ Bruce C. Hayden Bruce C. Hayden Senior Vice-President, Chief Financial Officer, Treasurer and Secretary




October 9, 2001

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

UROCOR INC 10-Q/A