SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarter ended March 31, 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 1-10492
ORASURE TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 36-4370966
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
150 Webster Street, Bethlehem, Pennsylvania 18015
(Address of Principal Executive Offices) (Zip code)
(610) 882-1820
(Registrant's Telephone Number, Including Area Code)
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 [ ]
Number of shares of Common Stock, par value $.000001 per share, outstanding as
of May 9, 2001: 36,625,703
PART I. FINANCIAL INFORMATION
PAGE NO.
--------
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)............................ 3
Balance Sheets at March 31, 2001 and December 31, 2000........... 3
Statements of Operations for the three months
ended March 31, 2001 and 2000................................. 4
Statement of Stockholders' Equity for the three months
ended March 31, 2001.......................................... 5
Statements of Cash Flows for the three months
ended March 31, 2001 and 2000................................. 6
Notes to Financial Statements.................................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ..................................... 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.... 14
PART II. OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.............................. 15
2
Item 1. FINANCIAL STATEMENTS
ORASURE TECHNOLOGIES, INC.
BALANCE SHEETS
(UNAUDITED)
MARCH 31, 2001 DECEMBER 31, 2000
-------------- -----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,030,738 $ 5,095,639
Short-term investments 10,638,537 14,956,779
Accounts receivable, net of allowance for doubtful
accounts of $107,138 and $114,685 5,942,355 5,276,772
Notes receivable from officer 181,318 175,649
Inventories 1,847,373 1,495,604
Prepaid expenses and other 1,105,796 1,189,210
------------- -------------
Total current assets 25,746,117 28,189,653
------------- -------------
PROPERTY AND EQUIPMENT, net 7,011,092 6,738,034
PATENTS AND PRODUCT RIGHTS, net 2,312,423 2,402,386
OTHER ASSETS 387,700 406,099
------------- -------------
$ 35,457,332 $ 37,736,172
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,146,921 $ 1,125,138
Accounts payable 1,575,740 1,522,295
Accrued expenses 2,870,722 4,047,231
------------- -------------
Total current liabilities 5,593,383 6,694,664
------------- -------------
LONG-TERM DEBT 4,347,713 4,644,098
------------- -------------
OTHER LIABILITIES 209,631 225,334
------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.000001, 25,000,000 shares authorized,
none issued - -
Common stock, par value $.000001, 120,000,000 shares authorized,
36,510,733 and 36,434,004 shares issued and outstanding 36 36
Additional paid-in capital 149,057,565 148,767,789
Accumulated other comprehensive loss (389,735) (231,247)
Accumulated deficit (123,361,261) (122,364,502)
------------- -------------
Total stockholders' equity 25,306,605 26,172,076
------------- -------------
$ 35,457,332 $ 37,736,172
============= =============
The accompanying notes are an integral part of these statements.
3
ORASURE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
---- ----
REVENUES:
Product $ 6,890,727 $ 6,487,499
Licensing and product development 513,297 131,874
---------- ----------
7,404,024 6,619,373
---------- ----------
COSTS AND EXPENSES:
Cost of products sold 2,693,644 2,508,977
Research and development 2,166,659 1,717,305
Sales and marketing 1,860,362 1,396,823
General and administrative 1,465,511 1,889,187
Restructuring-related 450,000 -
---------- ----------
8,636,176 7,512,292
---------- ----------
Operating loss (1,232,152) (892,919)
INTEREST EXPENSE (105,564) (128,165)
INTEREST INCOME 293,629 227,862
FOREIGN CURRENCY GAIN 63,295 15,424
---------- ----------
Loss before income taxes (980,792) (777,798)
INCOME TAXES 15,967 55,950
---------- ----------
NET LOSS $ (996,759) $ (833,748)
========== ==========
BASIC AND DILUTED NET LOSS PER SHARE $ (0.03) $ (0.03)
========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 36,456,576 33,441,765
========== ==========
The accompanying notes are an integral part of these statements.
4
ORASURE TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
ACCUMULATED
OTHER
COMMON STOCK COMPREHENSIVE
------------ ADDITIONAL INCOME ACCUMULATED
SHARES AMOUNT PAID-IN CAPITAL (LOSS) DEFICIT TOTAL
------ ------ --------------- ------------- ----------- -----
BALANCE AT DECEMBER 31, 2000 36,434,004 $36 $148,767,789 $(231,247) $(122,364,502) $26,172,076
Common stock issued upon exercise
of options 76,729 - 219,196 - - 219,196
Compensation expense for stock
option grants - - 70,580 - - 70,580
----------
Comprehensive loss:
Net loss - - - - (996,759) (996,759)
Currency translation adjustment - - - (108,213) - (108,213)
Unrealized loss on marketable
securities - - - (50,275) - (50,275)
----------
Total comprehensive loss - - - - - (1,155,247)
---------- --- ------------ --------- ------------- ----------
BALANCE AT MARCH 31, 2001 36,510,733 $36 $149,057,565 $(389,735) $(123,361,261) $25,306,605
========== === ============ ========= ============= ===========
The accompanying notes are an integral part of these statements.
5
ORASURE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS (Unaudited)
THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
---- ----
OPERATING ACTIVITIES:
Net loss $ (996,759) $ (833,748)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation expense 70,580 28,373
Amortization of deferred revenue (35,833) (35,833)
Depreciation and amortization 502,601 422,850
Loss on disposition of assets 7,283 40
Changes in assets and liabilities:
Accounts receivable (665,583) (657,733)
Inventories (351,769) (10,945)
Prepaid expenses and other assets 99,294 (19,155)
Accounts payable and accrued expenses (1,102,934) (499,129)
---------- ----------
Net cash used in operating activities (2,473,120) (1,605,280)
---------- ----------
INVESTING ACTIVITIES:
Purchases of short-term investments (11,218,333) (6,247,322)
Proceeds from the sale of short-term investments 15,483,150 6,896,239
Purchases of property and equipment (720,943) (750,194)
Proceeds from the sale of property and equipment 27,964 -
Purchase of patents and product rights - (7,649)
Investment in affiliated company - (10,095)
---------- ----------
Net cash provided by (used in) investing activities 3,571,838 (119,021)
---------- ----------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 219,196 8,306,837
Repayments of term debt (274,602) (256,638)
---------- ----------
Net cash provided by (used in) financing activities (55,406) 8,050,199
---------- ----------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH (108,213) (17,094)
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 935,099 6,308,804
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,095,639 2,049,644
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,030,738 $ 8,358,448
========== ==========
The accompanying notes are an integral part of these statements.
6
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. THE COMPANY
OraSure Technologies, Inc. (the "Company") develops, manufactures and markets
oral specimen collection devices using its proprietary oral fluid technologies,
oral fluid assays, proprietary diagnostic products including in vitro diagnostic
tests, and other medical devices. These products are sold to public and
private-sector clients, clinical laboratories, physician offices, hospitals, and
for workplace testing in the United States and certain foreign countries.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The accompanying financial statements are unaudited and,
in the opinion of management, include all adjustments (consisting only of normal
and recurring adjustments) necessary for a fair presentation of the results for
these interim periods. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2000. Results of
operations for the period ended March 31, 2001 are not necessarily indicative of
the results of operations expected for the full year. Certain reclassifications
have been made to the prior year financial statements to conform to the current
year presentation.
USE OF ESTIMATES. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Inventories. Inventories are stated at the lower of cost or market determined on
a first-in, first-out basis and are comprised of the following:
MARCH 31, DECEMBER 31,
2001 2000
---------- ----------
Raw materials $ 584,961 $ 473,575
Work-in-process 430,862 348,819
Finished goods 831,550 673,210
---------- ----------
$1,847,373 $1,495,604
========== ==========
REVENUE RECOGNITION. The Company recognizes product revenues when products are
shipped. The Company does not grant price protection or product return rights to
its customers. Up-front licensing fees are deferred and recognized ratably over
the related license period. Product development revenues are recognized over the
period the related product development efforts are performed. Amounts received
prior to the performance of product development efforts are recorded as deferred
revenues.
In December 1999, the U.S. Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 draws on existing accounting rules and provides specific guidance
on revenue recognition of up-front, non-refundable license and development fees.
The Company has applied the provisions of SAB 101 in the accompanying financial
statements.
SIGNIFICANT CUSTOMER CONCENTRATION. In the first quarter of 2001, one customer
accounted for 24 percent of total revenues as compared to 23 percent for the
same quarter of 2000. The Company believes its relationship with this customer
is strong and that the customer will purchase comparable or increasing volumes
of the Company's products for the foreseeable future. There can be no assurance,
however, that sales to this customer will not decrease or that this customer
will not choose to replace the Company's products with those of competitors. The
loss of this customer or a significant decrease in the volume of products
purchased by it would have a material adverse effect on the Company.
7
RESEARCH AND DEVELOPMENT. Research and development costs are charged to expense
as incurred.
FOREIGN CURRENCY TRANSLATION. Pursuant to Statement of Financial Accounting
Standards ("SFAS") No. 52, "Foreign Currency Translation," the assets and
liabilities of the Company's foreign operations are translated into U.S. dollars
at current exchange rates as of the balance sheet date, and revenues and
expenses are translated at average exchange rates for the period. Resulting
translation adjustments are reflected as a separate component of stockholders'
equity.
NET LOSS PER COMMON SHARE. The Company has presented basic and diluted net loss
per common share pursuant to SFAS No. 128, "Earnings per Share" ("SFAS 128"),
and the Securities and Exchange Commission Staff Accounting Bulletin No. 98. In
accordance with SFAS 128, basic and diluted net loss per common share has been
computed using the weighted-average number of shares of common stock outstanding
during the period. Diluted loss per common share is generally computed assuming
the conversion or exercise of all dilutive securities such as common stock
options and warrants; however, outstanding common stock options and warrants to
purchase 4,596,878 and 5,606,622 shares were excluded from the computation of
diluted net loss per common share for the three month periods ended March 31,
2001 and 2000, respectively, because they were anti-dilutive due to the
Company's losses.
OTHER COMPREHENSIVE INCOME (LOSS). The Company follows SFAS No. 130, "Reporting
Comprehensive Income." This statement requires the classification of items of
other comprehensive income (loss) by their nature and disclosure of the
accumulated balance of other comprehensive income (loss), separately from
retained earnings and additional paid-in capital in the equity section of the
balance sheet.
RESTRUCTURING-RELATED EXPENSES. In February, 2001, the Company announced plans
to realign certain of its manufacturing operations. Accordingly, during the
three months ended March 31, 2001, the Company incurred $450,000 in
non-recurring restructuring costs, primarily comprised of expenses for employee
severance, travel and transport resulting from relocating and consolidating
manufacturing operations. As of March 31, 2001, approximately $135,000 of
restructuring costs, which will be paid in the second quarter of 2001, were
included in accrued expenses.
3. SEGMENT AND GEOGRAPHIC AREA INFORMATION
Under the disclosure requirements of SFAS No. 131, "Segment Disclosures and
Related Information," the Company operates within one segment, medical devices
and products. The Company's products are sold principally in the United States
and Europe. Operating income and identifiable assets are not included herein
since all of the Company's revenues outside the United States are export sales.
The following table represents total revenues by geographic area (amounts in
thousands):
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------
2001 2000
---- ----
United States $5,962 $5,936
Europe 950 423
Other regions 492 260
----- -----
$7,404 $6,619
===== =====
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Statements below regarding future events or performance are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These include statements about expected revenues, earnings, expenses,
cash flow or other financial performance. Forward-looking statements are not
guarantees of future performance or results. Factors that could cause actual
performance or results to be materially different from those expressed or
implied in these statements include: ability to market products; impact of
competitors, competing products and technology changes; ability to develop,
commercialize and market new products; market acceptance of oral fluid testing
products and up-converting phosphor technology products; ability to fund
research and development and other projects and operations; ability to obtain
and timing of obtaining necessary regulatory approvals; ability to develop
product distribution channels; uncertainty relating to patent protection and
potential patent infringement claims; ability to enter into international
manufacturing agreements; obstacles to international marketing and manufacturing
of products; loss or impairment of sources of capital; exposure to product
liability and other types of litigation; changes in international, federal or
state laws and regulations; changes in relationships with strategic partners and
reliance on strategic partners for the performance of critical activities under
collaborative arrangements; changes in accounting practices and interpretation
of accounting requirements; equipment failures and ability to obtain needed raw
materials and components; and general business and economic conditions. These
and other factors that could cause the forward-looking statements to be
materially different are described in greater detail in the Sections entitled,
"Forward-Looking Statements" and "Risk Factors," in Item 1 and elsewhere in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000.
Although forward-looking statements help to provide information about future
prospects, they may not be reliable. The forward-looking statements are made as
of the date of this Report and the Company undertakes no duty to update these
statements.
9
Results of Operations
Comparative results of operations (in thousands, except %) are summarized as
follows:
Three Months Ended March 31,
-----------------------------------------------------------------------------
Percentage of
Dollars Total Revenue (%)
---------------------------- -----------------------------
Percent
2001 2000 Change (%) 2001 2000
------------- ------------- --------------- ------------- -------------
Revenue
Product $6,891 $6,487 6 93 98
License and product development 513 132 289 7 2
------ ------ --- ---
7,404 6,619 12 100 100
------ ------ --- ---
Cost and expenses
Cost of products sold 2,694 2,509 7 36 38
Research and development 2,167 1,717 26 29 26
Sales and marketing 1,860 1,397 33 25 21
General and administrative 1,465 1,889 (22) 20 29
Restructuring-related 450 - N/A 6 -
------ ------ --- ---
8,636 7,512 15 117 113
------ ------ --- ---
Operating loss (1,232) (893) (38) (17) (13)
Interest expense (106) (128) 17 (1) (2)
Interest income 294 228 29 4 3
Foreign currency gain 63 15 320 1 0
------ ------ --- ---
Loss before income taxes (981) (778) (26) (13) (12)
Income taxes 16 56 71 - 1
------ ------ --- ---
Net Loss $ (997) $ (834) (20) (13) (13)
====== ====== === ===
Total revenue increased 12% to approximately $7.4 million in the first quarter
of 2001 from approximately $6.6 million in the comparable quarter in 2000,
primarily as a result of strong international demand. Excluding revenue in the
prior period for the discontinued Serum Western Blot product line, total revenue
would have increased 18%.
10
The table below shows the amount of the Company's total revenue (in thousands,
except for %) generated by each of its principal products and by license and
product development activities.
Three Months Ended March 31,
-----------------------------------------------------------------------------
Percentage of
Dollars Total Revenue (%)
---------------------------- -----------------------------
Percent
2001 2000 Change (%) 2001 2000
------------- ------------- --------------- ------------- -------------
Product revenue
Oral specimen collection devices $ 3,253 $2,528 29 44 38
OraQuick 234 - N/A 3 0
Histofreezer cryosurgical systems 1,220 1,364 (11) 16 21
Immunoassay tests 1,670 1,762 (5) 23 27
Western Blot HIV confirmatory
tests 224 416 (46) 3 6
Other product revenue 290 417 (30) 4 6
------ ------ --- ---
6,891 6,487 6 93 98
License and product development 513 132 289 7 2
------ ------ --- ---
Total revenues $7,404 $6,619 12 100 100
====== ====== === ===
Product revenue increased 6% to approximately $6.9 million for the first quarter
of 2001 from approximately $6.5 million in the first quarter of 2000. Sales of
oral specimen collection devices increased 29% to approximately $3.3 million as
a result of increased sales to the public health market. Histofreezer revenues
decreased 11% to approximately $1.2 million largely as a result of sales
staffing turnover and inventory consolidation at the distributor level in the
U.S. market. OraQuick, which began shipping in December 2000, generated
approximately $234,000 of revenue for the first quarter as a result of market
introduction into sub-Saharan Africa. Intercept generated approximately $470,000
in revenue as a result of strong demand both domestically and internationally.
Immunoassay test sales decreased 5% to approximately $1.7 million in the first
quarter of 2001. During the first quarter of 2000, immunoassay test sales
increased in the life insurance testing market as a result of regulatory changes
in life insurance policy reserve levels. Sales of the Western Blot products
declined 46% to approximately $224,000 for the first quarter as a result of the
discontinuation of the Serum Western Blot product in January 2001. Other
revenues, which consisted primarily of sales of the Q.E.D. saliva alcohol test,
declined 30% to approximately $290,000 as a result of a non-recurring
international Q.E.D. sale to a single client in the first quarter of 2000. As a
percentage of product revenues, international product sales increased to
approximately 18% in the first quarter of 2001 from 11% in 2000 as a result of
increased international sales of the Histofreezer product and oral fluid
collection devices.
11
The table below shows the amount of the Company's total revenue (in thousands,
except %) generated in each of its principal markets and by license and product
development activities.
Three Months Ended March 31,
---------------------------------------------------------------
Percentage of
Dollars Total Revenue (%)
----------------------- -----------------------
Percent
2001 2000 Change (%) 2001 2000
----------- ---------- ------------- ---------- -----------
Market sales
Insurance testing $2,933 $3,312 (11) 40 50
Public health 1,447 851 70 20 13
Physician offices 1,220 1,364 (11) 16 21
Substance abuse testing 1,184 822 44 16 12
Other markets 107 138 (22) 1 2
------ ------ --- ---
6,891 6,487 6 93 98
License and product development 513 132 289 7 2
------ ------ --- ---
Total revenues $7,404 $6,619 12 100 100
====== ====== === === ===
Sales to the insurance testing market declined by 11% to approximately $2.9
million in the first quarter of 2001 as a result of the decreased activity in
the life insurance testing market referred to above and the discontinuation of
the Serum Western Blot product. Sales to the public health market increased 70%
to approximately $1.5 million in the first quarter as a result of increased
penetration by the Company's higher priced public health HIV test kit and the
initial OraQuick shipments to sub-Saharan Africa. Sales to physician offices,
which consisted solely of the Histofreezer cryosurgical system, decreased 11% to
approximately $1.2 million in the first quarter of 2001 as a result of sales
staff turnover and inventory consolidation at the distributor level in the U.S.
market. Sales to the substance abuse testing market increased 44% to
approximately $1.2 million in the first quarter of 2001 as a result of the
market introduction of Intercept and increased forensic toxicology sales.
License and product development revenue increased 289% to approximately $513,000
in the first quarter of 2001 from approximately $132,000 in 2000. This increase
was attributable principally to additional income from the Company's research
agreement with Drager to develop drugs-of-abuse analytes for the UPlink testing
system.
The Company's gross margin increased to 64% in the first quarter of 2001 from
62% in 2000. The increase is the result of improved product mix, negotiated
contract savings, and higher license and product development revenues, partially
offset by the incremental costs associated with the ramp up of OraQuick
manufacturing. Gross margins are anticipated to continue to improve in the
second quarter of 2001 as a result of the Company's manufacturing restructuring.
In February 2001, the Company announced plans to restructure its manufacturing
operations. The Company has since eliminated OraQuick manufacturing in
Beaverton, Oregon and has commenced OraQuick assembly in Thailand. The
restructuring provides greatly expanded capacity for OraQuick production, and is
expected to have no financial impact in 2001.
Research and development expenses increased 26% to approximately $2.2 million in
the first quarter of 2001 from approximately $1.7 million in 2000, as a result
of continued development of the UPlink reader, test cassette and collector, DNA
feasibility studies, the clinical trial expenses for the OraQuick HIV-1/2 rapid
test, and additional Intercept products. Research and development expenses are
expected to increase during 2001 as clinical trials for OraQuick and UPlink
research activities continue.
12
Sales and marketing expenses increased 33% to approximately $1.9 million in the
first quarter of 2001 from approximately $1.4 million in 2000. This increase was
primarily the result of costs to develop and establish foreign markets for
OraQuick, costs associated with the continued marketing of the Intercept
drugs-of-abuse service, and expanded sales activities for the Company's other
product lines.
General and administrative expenses decreased 22% to approximately $1.5 million
in the first quarter of 2001 from approximately $1.9 million in 2000. This
decrease reflects cost savings from the consolidation of duplicative overhead
structures as a result of the merger of STC Technologies, Inc. and Epitope, Inc.
into the Company. General and administrative expenses, as a percentage of first
quarter revenues, declined to 20% from 29% a year ago.
Restructuring-related expenses were approximately $450,000 in the first quarter
of 2001 as a result of the manufacturing restructuring. These non-recurring
costs primarily included expenses for employee severance, travel and transport
resulting from relocating and consolidating manufacturing operations.
Operating loss increased to approximately $1.2 million in the first quarter
ended March 31, 2001 from approximately $893,000 in 2000 as a result of expenses
associated with the manufacturing restructuring, increased research and
development costs, and increased sales and marketing costs. Excluding the
non-recurring manufacturing restructuring expenses, the operating loss would
have been approximately $782,000 in the first quarter of 2001.
Interest expense decreased by 17% to approximately $106,000 in the first quarter
of 2001 from approximately $128,000 in 2000 as a result of principal loan
repayments.
Interest income increased to approximately $294,000 in the first quarter of 2001
from approximately $228,000 in 2000 as a result of higher cash and cash
equivalents available for investment.
Foreign currency gain was approximately $63,000 in the first quarter of 2001
compared to a gain of approximately $15,000 in 2000.
During the first quarter of 2001, a provision for foreign income taxes of
approximately $16,000 was recorded.
Net loss was approximately $997,000 in the first quarter of 2001 compared to
approximately $834,000 in 2000. Excluding the non-recurring manufacturing
restructuring expenses, the net loss would have been approximately $547,000 in
the first quarter of 2001.
LIQUIDITY AND CAPITAL RESOURCES
March 31, December 31,
2001 2000
-------- -----------
(In thousands)
Cash and cash equivalents $ 6,031 $ 5,096
Short-term investments 10,639 14,957
Working capital 20,153 21,495
The Company's cash, cash equivalents and short-term investments position
decreased $3.4 million during the first quarter of 2001 to approximately $16.7
million at March 31, 2001, primarily as a result of the first quarter loss,
increased accounts receivable and inventory levels, and an upgrade of the
Bethlehem manufacturing facility. At March 31, 2001, the Company's working
capital was approximately $20.2 million.
13
The combination of the Company's current cash position, available borrowings
under the Company's credit facilities, and the Company's cash flow from
operations is expected to be sufficient to fund the Company's foreseeable
operating and capital needs. However, the Company's cash requirements may vary
materially from those now planned due to many factors, including, but not
limited to, the progress of the Company's research and development programs, the
scope and results of clinical testing, changes in existing and potential
relationships with strategic partners, the time and cost in obtaining regulatory
approvals, the costs involved in obtaining and enforcing patents, proprietary
rights and any necessary licenses, the ability of the Company to establish
development and commercialization capacities or relationships, the costs of
manufacturing, market acceptance of new products and other factors.
Net cash used in operating activities was approximately $2.5 million for the
first quarter of 2001, as a direct result of the first quarter net loss,
increased accounts receivable and inventory levels caused by continued sales
growth, and the payment of certain year-end accruals.
Net cash provided by investing activities during the first quarter of 2001 was
approximately $3.6 million as a result of the sale of securities to fund
short-term cash needs. In addition, the Company also made $721,000 of capital
expenditures, primarily reflecting the Company's investment into the Bethlehem
facility in anticipation of the installation of fully automated lateral flow
manufacturing equipment.
Net cash used in financing activities was approximately $55,000 during the first
quarter of 2001 as a result of term debt repayments, partially offset by the
proceeds from the issuance of approximately $219,000 of common stock, as a
result of option exercises.
At March 31, 2001, the Company had a $1.0 million working capital line of credit
in place that accrues interest at LIBOR plus 235 basis points and a $1.0 million
equipment line of credit in place that accrues interest at a rate fixed at prime
at the time of draw down. There were no borrowings under these lines of credit
at March 31, 2001. These lending facilities expire June 30, 2001 and are
expected to be renewed.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company does not hold any derivative financial instruments or derivative
commodity instruments, and does not hold material amounts of other financial
instruments. Accordingly, the Company has no material market risk to report
under this Item.
The Company's holdings of financial instruments are comprised of U.S. corporate
debt, certificates of deposit, government securities and commercial paper. All
such instruments are classified as securities available for sale. The Company's
debt security portfolio represents funds held temporarily pending use in its
business and operations. The Company seeks reasonable assuredness of the safety
of principal and market liquidity by investing in rated fixed income securities
while at the same time seeking to achieve a favorable rate of return. Market
risk exposure consists principally of exposure to changes in interest rates. If
changes in interest rates would affect the investments adversely, the Company
continues to hold the security to maturity. The Company's holdings are also
exposed to the risks of changes in the credit quality of issuers. The Company
typically invests in the shorter end of the maturity spectrum.
The Company does not currently have any foreign currency exchange contracts or
purchase currency options to hedge local currency cash flows. The Company has
operations in The Netherlands which are subject to foreign currency
fluctuations. As currency rates change, translation of income statements of
these operations from local currencies to U.S. dollars affects year-to-year
comparability of operating results. The Company's operations in The Netherlands
represented approximately $0.5 million or 6.1% of the Company's revenues for the
three months ended March 31, 2001. Management does not expect the risk of
foreign currency fluctuations to be material.
14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibits are listed on the attached exhibit index following the signature page
of this report.
(b) Reports on Form 8-K.
Current Report on Form 8-K dated March 30, 2001, reporting under Item 5 certain
additional information relating to the change from PricewaterhouseCoopers LLP to
Arthur Andersen LLP as the Company's independent public accountants.
Current Report on Form 8-K dated April 2, 2001, filing under Item 5 a set of
"Frequently Asked Questions" concerning the Company and answers to those
questions.
15
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.
ORASURE TECHNOLOGIES, INC.
/s/ Richard D. Hooper
Date: May 15, 2001 Richard D. Hooper
Vice President of Finance and
Chief Financial Officer
(Principal Financial Officer)
/s/ Mark L. Kuna
Date: May 15, 2001 Mark L. Kuna
Controller
(Principal Accounting Officer)
16
EXHIBIT INDEX
EXHIBIT
10 Description of Nonemployee Director Compensation Policy*
99 Description of OraSure Technologies Capital Stock
- ----------------------
* Management contract or compensatory plan or arrangement
17
EXHIBIT 10
----------
DESCRIPTION OF NONEMPLOYEE COMPENSATION POLICY
----------------------------------------------
In December 2000, the Company adopted a compensation policy for nonemployee
Directors (the "Policy"). Pursuant to the Policy, nonemployee Directors receive
an annual fee for service on the Board of $12,000 payable quarterly in advance.
No additional fee is paid for service on a committee of the Board. Nonemployee
Directors also receive an initial grant of 40,000 stock options upon joining the
Board (the "Initial Grant") and an annual grant of 20,000 stock options each
year thereafter (the "Annual Grant") on the annual option grant date for
officers and employees of the Company. In April 2001, the Policy was amended to
provide for an additional grant of 40,000 stock options for any Director who
becomes Chairman of the Board (the "Chairman Grant") and to increase the Annual
Grant for any nonemployee Director who serves as Chairman of the Board to 30,000
stock options.
The options granted to nonemployee Directors are nonqualified stock options, and
have an exercise price equal to the mean between the high and low sales prices
of the Company's Common Stock as quoted on The Nasdaq Stock Market on the grant
date. Each Initial Grant and Chairman Grant generally vests on a monthly basis
over the 24 months immediately following the grant date, and each Annual Grant
generally vests on a monthly basis over the 12 months immediately following the
grant date. All vesting of the options will cease 90 days after the nonemployee
Director ceases to serve on the Board. Options become exercisable in full
immediately upon the occurrence of a change in control of the Company. A change
in control of the Company would occur on the happening of such events as the
beneficial ownership by a person or group of 30 percent or more of the
outstanding Common Stock of the Company, certain changes in Board membership
affecting a majority of positions, certain mergers or consolidations, a sale or
other transfer of all or substantially all the Company's assets, or approval by
the stockholders of a plan of liquidation or dissolution of the Company, as well
as any change in control required to be reported by the proxy disclosure rules
of the Securities and Exchange Commission. Payment of the exercise price may be
made in cash or by delivery of previously acquired shares of Common Stock having
a fair market value equal to the aggregate exercise price.
EXHIBIT 99
----------
DESCRIPTION OF ORASURE TECHNOLOGIES CAPITAL STOCK
General
- -------
The authorized capital stock of OraSure Technologies, Inc., a corporation
organized under the laws of the state of Delaware, consists of 120,000,000
shares of common stock, par value $.000001 per share, and 25,000,000 shares of
preferred stock, par value $.000001 per share, 120,000 shares of which have been
designated Series A Preferred Stock and reserved for issuance upon the exercise
of the rights distributed to the holders of OraSure Technologies common stock
pursuant to the rights agreement described below under "Description of Rights."
All of the outstanding shares of the capital stock of OraSure Technologies are
duly authorized, validly issued, fully paid and nonassessable, and no class is
entitled to preemptive rights.
OraSure Technologies Common Stock
- ---------------------------------
Subject to the rights of holders of any outstanding OraSure Technologies
preferred stock, the holders of outstanding shares of OraSure Technologies
common stock are entitled to share ratably in dividends declared out of assets
legally available therefor at such time and in such amounts as the OraSure
Technologies Board of Directors may from time to time lawfully determine.
Each holder of OraSure Technologies common stock is entitled to one vote for
each share held and, except as otherwise provided by law or by the OraSure
Technologies Board of Directors with respect to any series of OraSure
Technologies preferred stock, the holders of OraSure Technologies common stock
will exclusively possess all voting power. Holders of OraSure Technologies
common stock are not entitled to accumulate votes for the election of directors.
The OraSure Technologies common stock is not entitled to conversion or
preemptive rights and is not subject to redemption or assessment. Subject to the
rights of holders of any outstanding OraSure Technologies preferred stock, upon
liquidation, dissolution or winding up of OraSure Technologies, any assets
legally available for distribution to stockholders as such are to be distributed
ratably among the holders of the OraSure Technologies common stock at that time
outstanding.
OraSure Technologies Preferred Stock
- ------------------------------------
The OraSure Technologies Board of Directors has the authority to issue OraSure
Technologies preferred stock in one or more series with such distinctive serial
designations, at such price or prices and for such other consideration as may be
fixed by the OraSure Technologies Board of Directors. OraSure Technologies
preferred stock of all series shall be in all respects entitled to the same
preferences, rights and privileges and subject to the same qualifications,
limitations and restrictions; provided, however, that different series of
OraSure Technologies preferred stock may vary with respect to, among other
things, dividend rates, conversion rights, voting rights, redemption rights,
liquidation preferences and the number of shares constituting each such series
as shall be determined and fixed by resolution or resolutions of the OraSure
Technologies Board of Directors providing for the issuance of such series,
without any further vote or action by the stockholders of OraSure Technologies.
All the shares of any one series will be alike in all respects. OraSure
Technologies' charter provides that no share of any series of preferred stock
may be entitled to more than one vote. The ability of the OraSure Technologies
Board of Directors to issue OraSure Technologies preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of OraSure Technologies.
Description of Rights
- ---------------------
On May 6, 2000, the OraSure Technologies Board of Directors adopted a Rights
Plan. Pursuant to the Rights Plan, OraSure Technologies has distributed a
dividend of one right to purchase shares of capital stock of OraSure
Technologies under certain circumstances specified in the Rights Plan, for each
outstanding share of common stock. We refer to these purchase rights as the
"Rights." The Rights trade with the common stock and will detach and become
exercisable only if, in a transaction not approved by the OraSure Technologies
Board of Directors, ten
1
business days elapse after either a person (together with that person's
affiliates or associates) acquires 15% or more of the outstanding shares of
OraSure Technologies common stock, or announces a tender offer the completion of
which would result in ownership by a person (together with such person's
affiliates or associates) of 15% or more of those shares.
If the Rights detach and become exercisable as a result of the commencement of a
tender offer, unless subsequently redeemed, each Right then would entitle its
holder to purchase one one-thousandth of a share of the Series A Preferred Stock
for an exercise price specified in the Rights Plan (which is intended to equal
the estimated value of OraSure Technologies common stock at the end of the
ten-year life of the Rights). If OraSure Technologies were to be involved in a
merger or other business combination transaction after the Rights become
exercisable, each Right would entitle its holder to purchase, for the Right's
exercise price, a number of the acquiring or surviving company's shares of
common stock having a market value equal to twice the exercise price. If, in a
transaction not approved by the OraSure Technologies Board of Directors, a
person (together with such person's affiliates or associates) acquires 15% or
more of the outstanding shares of OraSure Technologies common stock, each Right
would entitle its holder (other than the acquiring person and its affiliates and
associates, all of whose Rights become automatically void) to purchase, for the
Right's exercise price, a number of shares of OraSure Technologies common stock
having a market value equal to twice the exercise price. At any time after a
person (together with such person's affiliates or associates) acquires at least
15%, but not more than 50%, of the outstanding shares of OraSure Technologies
common stock, the OraSure Technologies Board of Directors can elect to exchange
one share of common stock for each Right (other than Rights held by such
acquiring person and its affiliates and associates). OraSure Technologies would
be entitled to redeem the Rights at $.01 per Right at any time until ten
business days following a public announcement that a person (together with such
person's affiliates or associates) has acquired beneficial ownership of 15% or
more of the outstanding shares of common stock. Following such an announcement,
or, subject to certain exceptions specified in the Rights Plan, the acquisition
of beneficial ownership of 15% or more of the outstanding shares of common stock
by the acquirer (together with such person's affiliates or associates), the
Rights acquired by such person or persons would be null and void. Prior to the
date upon which the Rights detach, the terms of the Rights Plan could be amended
by the OraSure Technologies Board of Directors without the consent of the
holders of the Rights. The Rights expire on May 6, 2010, unless earlier redeemed
by OraSure Technologies.
The Rights Plan may deter takeover bids for OraSure Technologies. To the extent
an acquirer would be discouraged by the Rights Plan from acquiring an equity
position in OraSure Technologies, stockholders may be deprived from receiving a
premium for their shares. The issuance of additional shares of common stock
prior to the time the Rights become exercisable would result in an increase in
the number of Rights outstanding.
We anticipate that the Series A Preferred Stock, if issued, would rank junior to
all other series of preferred stock as to the payment of dividends and the
distribution of assets in liquidation, unless the terms of any such other series
provide otherwise. Each share of Series A Preferred Stock would have a quarterly
dividend rate per share equal to 1,000 times the per share amount of any
dividend (other than a dividend payable in shares of common stock or a
subdivision of the common stock) declared from time to time on the common stock,
subject to certain adjustments. The holders of Series A Preferred Stock would be
entitled to receive a preferred liquidation payment per share of $1,000 (plus
accrued and unpaid dividends) or, if greater, an amount equal to 1,000 times the
payment to be made per share of common stock. Generally, the holder of each
share of Series A Preferred Stock would vote together with the common stock (and
any other series of preferred stock entitled to vote on such matter) on any
matter as to which the common stock is entitled to vote, including the election
of directors. The holder of each share of Series A Preferred Stock would be
entitled to 1,000 votes, or one vote for each one one-thousandth of a share. In
the event of any merger, consolidation, combination or other transaction in
which shares of common stock are exchanged for or changed into other stock or
securities, cash and/or property, the holder of each share of Series A Preferred
Stock would be entitled to receive 1,000 times the aggregate amount of stock,
securities, cash and/or property into which or for which each share of common
stock is changed or exchanged.
The foregoing dividend, voting and liquidation rights of the Series A Preferred
Stock would be protected against dilution in the event that additional shares of
common stock are issued pursuant to a stock split or stock dividend. Because of
the nature of the Series A Preferred Stock's dividend, voting, liquidation and
other rights, the value of the one one-thousandth of a share of Series A
Preferred Stock purchasable with each Right is intended to approximate the value
of one share of common stock.
2
Statutory Business Combination Provision
- ----------------------------------------
OraSure Technologies will be subject to Section 203 of the Delaware General
Corporation Law, which generally prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the time that the person became an interested
stockholder, unless (i) prior to such time the Board of Directors of the
corporation approved either the business combination or the transaction in which
the person became an interested stockholder, (ii) upon consummation of the
transaction that resulted in the stockholder becoming an interested stockholder,
the interested stockholder owns at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding shares
owned by directors who are also officers of the corporation and by certain
employee stock plans, or (iii) at or after such time the business combination is
approved by the Board of Directors of the corporation and by the affirmative
vote of at least 66 2/3% of the outstanding voting stock of the corporation that
is not owned by the interested stockholder. A "business combination" generally
includes mergers, asset sales and similar transactions between the corporation
and the interested stockholder, and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person who owns 15%
or more of the corporation's voting stock or who is an affiliate or associate of
the corporation and, together with his or her affiliates and associates, has
owned 15% or more of the corporation's voting stock within the three year period
immediately prior to the date on which it is sought to be determined whether
such person is an interested stockholder.
Other Matters
- -------------
The certificate of incorporation of OraSure Technologies provides that the
number of directors shall be as determined by the Board of Directors from time
to time, but shall be at least three and not more than twelve. It also provides
that directors may be removed only for cause, and then only by the affirmative
vote of the holders of at least a majority of all outstanding voting stock
entitled to vote in an election of directors. This provision, in conjunction
with the provision in the certificate of incorporation authorizing the Board of
Directors to fill vacant directorships, will prevent stockholders from removing
incumbent directors without cause and filling the resulting vacancies with their
own nominees.
The certificate of incorporation further provides that the OraSure Technologies'
Board of Directors will be divided into three classes, with each class
containing as nearly as possible one-third of the total number of directors and
the members of each class serving for staggered three-year terms. At each annual
meeting of OraSure Technologies' stockholders, the number of directors equal to
the number of the class whose term expires at the time of such meeting will be
elected to hold office until the third succeeding annual meeting of
stockholders. This provision could make it more difficult for stockholders to
take control of the Board of Directors.
The certificate of incorporation provides that stockholders may act only at an
annual or special meeting of stockholders and may not act by written consent
unless such consent is unanimous. The certificate of incorporation provides that
special meetings of the stockholders can be called only by the Chairman of the
Board, the Chief Executive Officer, the President, or the Board of Directors
pursuant to a resolution approved by a majority of the whole Board of Directors.
This provision will prevent stockholders from removing board members by calling
a special meeting of stockholders without the consent of the Chairman of the
Board, the Chief Executive Officer, the President or the Board of Directors.
The certificate of incorporation authorizes the Board of Directors to take into
account (in addition to any other considerations which the Board of Directors
may lawfully take into account) in determining whether to take or to refrain
from taking corporate action on any possible acquisition proposals, including
proposing any related matter to the stockholders of OraSure Technologies, the
long-term as well as short-term interests of OraSure Technologies and its
stockholders, including the possibility that these may be best served by the
continued independence of OraSure Technologies, customers, employees and other
constituencies of OraSure Technologies and any subsidiaries, as well as the
effect upon communities in which OraSure Technologies and any subsidiaries do
business. In considering the foregoing and other pertinent factors, the Board of
Directors is not required, in considering the best interests of OraSure
Technologies, to regard any particular corporate interest or the interest of any
particular group affected by such action as a controlling interest.
3
The bylaws of OraSure Technologies contain provisions (i) requiring that advance
notice be delivered to OraSure Technologies of any business to be brought by a
stockholder before any meeting of stockholders and (ii) establishing procedures
to be followed by stockholders in nominating persons for election to the Board
of Directors. Generally, such advance notice provisions provide that written
notice must be given to the Secretary of OraSure Technologies by a stockholder,
with respect to director nominations or stockholder proposals, not less than 50
nor more than 75 days prior to the meeting (except that if less than 65 days
notice or prior public disclosure of the date of the meeting is given or made to
stockholders, then notice by the stockholder, to be timely, must be received
within 15 days of the date on which notice of the date of the meeting was mailed
or such public disclosure was made, whichever first occurs). Such notice must
set forth specific information regarding such stockholder and such business or
director nominee, as described in the bylaws.
Certain provisions of the certificate of incorporation and bylaws of OraSure
Technologies, including those described above, may only be amended by
stockholders upon the affirmative vote of the holders of at least 66.6% of the
outstanding voting capital stock entitled to vote on such amendment.
4