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) <TABLE> <S> <C> <C> 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 ============= ============= </TABLE> 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) <TABLE> ACCUMULATED OTHER COMMON STOCK COMPREHENSIVE ------------ ADDITIONAL INCOME ACCUMULATED SHARES AMOUNT PAID-IN CAPITAL (LOSS) DEFICIT TOTAL ------ ------ --------------- ------------- ----------- ----- <S> <C> <C> <C> <C> <C> <C> 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 ========== === ============ ========= ============= =========== </TABLE> The accompanying notes are an integral part of these statements. 5
ORASURE TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS (Unaudited) <TABLE> THREE MONTHS ENDED MARCH 31, ---------------------------- 2001 2000 ---- ---- OPERATING ACTIVITIES: <S> <C> <C> 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 ========== ========== </TABLE> 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: <TABLE> Three Months Ended March 31, ----------------------------------------------------------------------------- Percentage of Dollars Total Revenue (%) ---------------------------- ----------------------------- Percent 2001 2000 Change (%) 2001 2000 ------------- ------------- --------------- ------------- ------------- Revenue <S> <C> <C> <C> <C> <C> 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) ====== ====== === === </TABLE> 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. <TABLE> Three Months Ended March 31, ----------------------------------------------------------------------------- Percentage of Dollars Total Revenue (%) ---------------------------- ----------------------------- Percent 2001 2000 Change (%) 2001 2000 ------------- ------------- --------------- ------------- ------------- Product revenue <S> <C> <C> <C> <C> <C> 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 ====== ====== === === </TABLE> 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. <TABLE> Three Months Ended March 31, --------------------------------------------------------------- Percentage of Dollars Total Revenue (%) ----------------------- ----------------------- Percent 2001 2000 Change (%) 2001 2000 ----------- ---------- ------------- ---------- ----------- Market sales <S> <C> <C> <C> <C> <C> 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 ====== ====== === === === </TABLE> 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