-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WO4mURQkmmEMQtScBphBX/QJZdQju4YLlCK8TlDzQRw8DyBQDZeXy4MO9b8JDGbw QcbB1OWq/whkE2135jal+g== 0000806637-96-000011.txt : 19960814 0000806637-96-000011.hdr.sgml : 19960814 ACCESSION NUMBER: 0000806637-96-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: ONCOR INC CENTRAL INDEX KEY: 0000806637 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 521310084 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16177 FILM NUMBER: 96609807 BUSINESS ADDRESS: STREET 1: 209 PERRY PKWY CITY: GAITHERSBURG STATE: MD ZIP: 20877 BUSINESS PHONE: 3019633500 MAIL ADDRESS: STREET 1: 209 PERRY PKWY CITY: GAITHERSBURG STATE: MD ZIP: 20877 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended June 30, 1996 Commission file number 0-16177 ONCOR, Inc. (Exact name of registrant as specified in its charter) Maryland 52-1310084 (State of Incorporation) (I.R.S Employer Identification No.) 209 Perry Parkway Gaithersburg, Maryland 20877 (Address of principal executive offices) (Zip code) (301) 963-3500 (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 At July 31, 1996, there were 23,301,011 shares of Common Stock outstanding. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. The unaudited consolidated balance sheet as of June 30, 1996, the audited consolidated balance sheet as of December 31, 1995, and the unaudited consolidated statements of operations for the three month and six month periods ended June 30, 1996 and 1995, and of cash flows for the six month periods ended June 30, 1996 and 1995, set forth below, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "Commission"). Certain information and note disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. Oncor, Inc. (the "Company") believes that the disclosures made are adequate to make the information presented not misleading. In the opinion of management of the Company, the accompanying financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of results for the periods presented. It is suggested that this financial information be read in conjunction with the Form 10-K, including "Item 1. Business - Additional Risk Factors," filed with the Commission for the year ended December 31, 1995. The results for the second quarter and six months ended June 30, 1996, presented in the accompanying financial statements, are not necessarily indicative of the results for the entire year. ONCOR, INC. CONSOLIDATED BALANCE SHEETS
As of ------------------------------ June 30, 1996 Dec.31, 1995 Unaudited --------------- -------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $5,248,384 $14,249,925 Short-term investments, at market 282,792 1,580,127 Accounts receivable, net of allowance for doubtful accounts of approxi- mately $310,000 and $341,000 2,875,970 3,946,147 Inventories 5,093,936 6,356,041 Other current assets 1,689,681 1,714,030 ------------- ------------- Total current assets 15,190,763 27,846,270 ------------- ------------- NON-CURRENT ASSETS: Property and equipment, net (Note 5) 5,523,592 7,445,214 Deposits and other non-current assets 256,548 718,183 Investment in and advances to affiliate (Note 5) 5,433,577 832,809 Intangible assets, net 7,619,332 9,278,376 ------------- ------------- Total non-current assets 18,833,049 18,274,582 ------------- ------------- Total assets $34,023,812 $46,120,852 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $3,279,331 $3,679,034 Accrued expenses and other current liabilities 1,398,259 1,596,203 Short-term borrowings 44,372 227,839 Current portion of long-term debt 1,363,076 2,302,156 ------------- ------------- Total current liabilities 6,085,038 7,805,232 ------------- ------------- NON-CURRENT LIABILITIES: Long-term debt 2,738,040 9,301,408 Deferred rent - 18,223 ------------- ------------- Total non-current liabilities 2,738,040 9,319,631 ------------- ------------- Total liabilities 8,823,078 17,124,863 ------------- ------------- COMMITMENTS AND CONTINGENCY MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 407 3,008,637 ------------- ------------- STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value, 1,000,000 shares authorized, no shares issued - - Common stock, $.01 par value, 50,000,000 shares authorized, 23,353,253 and 21,822,477 issued; 23,273,844 and 21,743,068 outstanding 232,738 217,431 Additional paid-in capital 111,651,526 98,233,612 Unrealized (loss) gain on investments (434) 556 Cumulative translation adjustment 11,589 412,787 Accumulated deficit (86,474,173) (72,656,522) Less - 79,409 shares of common stock held in treasury, at cost (220,512) (220,512) ------------- ------------- Total stockholders' equity 25,200,734 25,987,352 ------------- ------------- Total liabilities and stockholders' equity $34,023,812 $46,120,852 ============= ============= The accompanying notes are an integral part of these Consolidated Financial Statements.
ONCOR, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------------ -------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- GROSS REVENUES: Product sales $3,900,521 $4,257,725 $7,823,893 $7,933,514 Grants and contracts 221,696 315,999 493,721 595,588 ------------ ------------ ------------ ------------- Gross revenues 4,122,217 4,573,724 8,317,614 8,529,102 OPERATING EXPENSES: Direct cost of sales 2,510,866 1,878,941 4,923,981 3,814,084 Product discontinuation costs (Note 7) 1,975,000 - 1,975,000 - Amortization of intangibles 337,767 339,636 682,146 659,826 Selling, general and administrative 3,697,455 3,340,329 7,156,271 6,303,948 Research and development 1,804,933 1,966,308 3,791,410 3,831,241 Clinical and regulatory 511,994 335,165 1,004,273 691,318 ------------ ------------ ------------ ------------- Total operating expenses 10,838,015 7,860,379 19,533,081 15,300,417 ------------ ------------ ------------ ------------- LOSS FROM OPERATIONS (6,715,798) (3,286,655) (11,215,467) (6,771,315) ------------ ------------ ------------ ------------- OTHER INCOME (EXPENSE): Investment income 58,135 390,398 237,099 707,910 Other expense, net (80,932) (107,811) (232,627) (201,846) Foreign exchange profit (loss) (35,975) 3,493 (57,140) (24,103) Equity in net loss of affiliates (952,744) (613,161) (2,549,516) (1,130,462) ------------- ------------ ------------- ------------- (1,011,516) (327,081) (2,602,184) (648,501) Net loss ($7,727,314) ($3,613,736) ($13,817,651) ($7,419,816) ============= ============ ============= ============= NET LOSS PER SHARE ($0.34) ($0.17) ($0.62) ($0.36) ============= ============ ============= ============= WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING 23,025,997 20,874,978 22,420,711 20,819,642 ============= ============ ============= ============= The accompanying notes are an integral part of these Consolidated Financial Statements.
ONCOR, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the six months ended June 30, --------------------------------- 1996 1995 --------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ($13,817,651) ($7,419,816) Adjustments to reconcile net loss to net cash used in operating activities: Issuance of common stock for interest payment of convertible note 95,708 - Issuance of common stock in connection with research and and development agreements 192,525 - Depreciation and amortization 1,457,903 1,394,601 Non-cash product discontinuation 1,619,473 - Equity in net loss of affiliates 2,549,516 1,136,777 Changes in operating assets and liabilities: Accounts receivable 970,262 (470,881) Inventories 369,615 (1,682,456) Other current assets (355,378) (717,528) Deposits and other non-current assets 17,113 5,187 Accounts payable (207,507) 355,676 Customer deposits - (105,671) Accrued expenses and other current liabilities (153,195) (403,899) Deferred rent (18,223) (36,429) ------------- ------------- Net cash used in operating activities (7,279,839) (7,944,439) ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (371,553) (1,278,576) Purchase of stock in affiliate (300,000) (82,315) Redemptions of investments 777,105 2,874,488 ------------- ------------- Net cash provided by investing activities 105,552 1,513,597 ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Exercise of stock options and warrants 558,518 366,400 Proceeds from sales of stock of subsidiary - 3,034,328 Offering costs of private placement (54,100) - Repayment on long term debt (1,727,721) (1,579,851) Long term borrowings 207,410 567,506 ------------- ------------- Net cash (used in) provided by activities (1,015,893) 2,388,383 ------------- ------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (20,331) (45,770) ------------- ------------- Net decrease in cash and cash equivalents (8,210,511) (4,088,229) CASH AND CASH EQUIVALENTS, beginning of the period 13,458,895 9,749,911 ------------- ------------- CASH AND CASH EQUIVALENTS, end of the period $5,248,384 $5,661,682 ============= ============= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest $157,296 $200,789 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: In April 1996, the Company issued 834,894 shares of its common stock valued at $3,950,000 in connection with conversion of convertible debt. In March 1996, the Company issued 498,081 shares of its common stock valued at $2,100,000 in connection with conversion of convertible debt. In February 1995, the Company entered into a $1,235,504 capital lease of a building. The accompanying notes are an integral part of these Consolidated Financial Statements.
ONCOR, INC. NOTES TO FINANCIAL STATEMENTS AS OF JUNE 30, 1996 (Unaudited) 1. Cash Equivalents and Investments Cash equivalents and investments consist primarily of funds invested in money market instruments, commercial paper and U.S. government treasury bills. Investments with maturities between three months and one year are classified as short-term investments. Investments in securities with original maturities of three months or less are considered cash equivalents. Cash of $2.3 million is pledged on a reducing basis over approximately seven months as security to a bank which guaranteed the principal and interest of a note issued in an acquisition. Investments that are classified as available-for-sale securities are carried at fair market value. Unrealized holding gains and losses are excluded from earnings and reported as a net amount in a separate component of stockholders' equity until realized. 2. Intangible Assets The intangible assets comprise technology acquired, the estimated value of contractual positions, and the excess of the purchase price of acquisitions over the fair market value of the tangible assets acquired. The intangible assets are being amortized on a straight line method over periods of two to 10 years, with a weighted average amortization period of eight years. 3. Net Loss Per Share Net loss per share is determined using the weighted-average number of shares of Common Stock outstanding during the periods presented. The effects of options and warrants have not been considered since the effects would be antidilutive. 4. Investments in Debt Securities at June 30, 1996 The aggregate fair value of investments in debt securities as of June 30, 1996 is as follows: Government securities $U.S. denominated $ 688,458 Commercial paper 932,856 Total $1,621,314 5. OncorPharm Private Placement On April 2, 1996, OncorPharm, Inc. ("OncorPharm"), a 53%-owned subsidiary, completed a private placement of 670,000 of its preferred shares of stock at $3.00 per share. The effect of this transaction was to reduce the Company's ownership interest in OncorPharm to approximately 46%. On June 28, 1996, OncorPharm completed a second private placement of 342,667 of its preferred shares of stock at $3.00 per share. The Company purchased 100,000 shares in this second private placement. As a net result, the Company's ownership interest in OncorPharm was further reduced to approximately 45%. As the Company's voting interest is now less than 50%, the Company has accounted for its investment in OncorPharm using the equity method of accounting in the second quarter. The financial statements of the Company for the three months ended March 31, 1996 have been retroactively adjusted to record the results of OncorPharm pursuant to the equity method of accounting from January 1, 1996. Accordingly, the Company has reflected in the financial statements presented for all periods in 1996 only its proportionate share of the earnings or losses of OncorPharm. The restatement had no impact on the Company's consolidated net loss or net loss per share. OncorPharm realized net cash proceeds of approximately $3.0 million from sale of the shares. 6. Subsequent Event In July 1996, Appligene Oncor S.A., the European subsidiary of the Company, completed an initial public offering of its common shares for approximately $9.3 million. The Company retained an 80% interest in Appligene Oncor S.A. In August 1996, the Company issued 260,209 shares of its Common Stock in connection with conversion of $950,000 in convertible debt. 7. Product Discontinuation Costs In the second quarter of 1996, the Company adopted a plan to discontinue the development, manufacture, sale, and support of certain imaging, research, and non-diagnostic genetics products. The product discontinuation costs of $1,975,000 comprise the revaluation of inventory of discontinued products, charge off of goodwill associated with such products, and severance payments to employees terminated in conjunction with the plan. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company's results of operations and financial condition. The discussion should be read in conjunction with the audited consolidated financial statements of the Company and notes thereto, which were included in the Company's Annual Report on Form 10-K for fiscal year ended December 31, 1995. This Form 10-Q contains certain statements of a forward-looking nature relating to future events or the future financial performance of the Company. Readers are cautioned that such statements are only predictions and that actual events or results may differ materially. In evaluating such statements, readers should specifically consider the various factors identified in this Report which could cause actual results to differ materially from those indicated by such forward-looking statements, including the matters set forth in "Risk Factors." General In the second quarter of 1996, the Company adopted a plan to discontinue the development, manufacture, sale and support of certain imaging, research and non-diagnostic genetics products. Related to this plan, the Company took a charge of approximately $2.0 million in the second quarter to revalue the inventory of discontinued products, charge off goodwill associated with such products and provide severance payments to employees terminated in conjunction with the plan. The Company believes that the actions taken and to be taken with respect to this plan will reduce manufacturing, selling, general and administrative expenses beginning in the second half of 1996. Also, in the second quarter of 1996 and as further described in Note 5 to the consolidated financial statements found elsewhere in this Form 10-Q, the Company no longer owns a majority of capital stock of OncorPharm and, as a result, deconsolidated the results of operations of OncorPharm effective January 1, 1996. Accordingly, the consolidated operating results include the operating results of OncorPharm in the 1995 periods presented and exclude them in the 1996 periods presented. Beginning in 1996, the Company's proportionate share of losses incurred by OncorPharm are included in Equity in Net Loss of Affiliates. Results of Operations Revenues decreased 10% and 2% to $4.1 million and $8.3 million for the three months and six months, respectively, ended June 30, 1996, as compared to $4.6 million and $8.5 million, respectively, for the corresponding periods of 1995, due to the discontinuation of certain products (as described in General above) and the completion of certain research grants. Application for renewal of the research grants has been made, but there can be no assurance that such renewals will be granted. Gross profit as a percentage of product revenues decreased to 36% in the second quarter of 1996 from 56% in the corresponding period of 1995. The decrease was due to continuing efforts to reduce inventory levels and the development of manufacturing processes to comply with U.S. Food and Drug Administration ("FDA") regulations for diagnostic products. Selling, general and administrative expenses increased by $0.4 million and $0.9 million for the second quarter and first half, respectively, of 1996 from the corresponding periods of 1995. Approximately $0.2 million and $0.3 million, respectively, of the increases are due to the expenses associated with the continuing development of a sales and marketing staff in Europe. The remainder of the increases are due to (i) expenses associated with the Company's financing efforts of the Company and its European subsidiary, (ii) executive recruitment and relocation expenses, (iii) costs associated with the realignment of certain distributor relationships, and (iv) the legal expenses associated with certain intellectual property issues. The increases more than offset the decreases in such expenses resulting from the deconsolidation of the operating results of OncorPharm in 1996. OncorPharm selling, general, and administrative expenses were $0.1 million and $0.3 million for the second quarter and first half of 1995, respectively. Research and development expenses decreased by $0.2 million for the second quarter of 1996 from the corresponding period of 1995, and remained unchanged for the first half of 1996 compared to the corresponding period in 1995. The decreases resulted primarily from the deconsolidation of the operating results of OncorPharm in 1996. OncorPharm research and development expenses accounted for $0.4 million and $0.8 million for the second quarter and the first half of 1995, respectively. Such decrease was almost entirely offset in 1996 by (i)initial payments, made largely in Common Stock of the Company, at the inception of two research collaboration agreements with The John Hopkins University, (ii) a license agreement with Yale University, and (iii) substantial increased activity associated with the development of diagnostic products. Clinical and regulatory expenses increased $0.2 million and $0.3 million in the second quarter and first half of 1996, respectively, from the corresponding periods of 1995. This increase is due to professional fees incurred to support the Company's applications for diagnostic products with the FDA. Other net non-operating expenses increased by $0.7 million and $2.0 million for the second quarter and first half of 1996, respectively, compared to the corresponding periods in 1995. The Company's proportionate share of net losses attributable to OncorPharm for the second quarter and first half of 1996 were $0.4 million and $1.4 million, respectively. The remainder of the increase is due to a decrease in interest income included in other net non-operating expenses. As a result of the factors discussed above, net loss increased to $7.7 million ($0.34 per share) and $13.8 million ($0.62 per share) in the second quarter and the first half of 1996 from $3.6 million ($0.17 per share) and $7.4 million ($0.36 per share), respectively, in the corresponding periods of 1995. Liquidity and Capital Resources The following table sets forth the most significant elements of the cash flows of the Company in the first half of 1996 (in millions): Cash and liquid investments at January 1, 1996 $14.5 Net cash loss (7.9) Cash generated from the decline in working capital 0.6 Purchases of equipment (0.4) Principal portion of debt service (1.7) Proceeds from exercise of options, long-term borrowings and other 0.4 Cash and liquid investments at June 30, 1996 $5.5 Net cash loss is discussed under Results of Operations found elsewhere in this Management's Discussion and Analysis. The decline in working capital represents a decrease in inventory and accounts receivable of $1.3 million, partially offset by a decline in current liabilities of $0.4 million. Purchases of equipment are for the on-going replacement of laboratory equipment. The Company expects property and equipment purchases to continue at this rate. Principal portion of debt service is expected to decline substantially after the third quarter of 1996. In July 1996, the European subsidiary of the Company completed a $9.3 million initial public offering of its common stock (the "IPO"). The Company retained an 80% interest in the subsidiary and, accordingly, will continue to include its results of operations in the consolidated financial statements of the Company. The subsidiary remitted approximately $1.5 million of the proceeds to the Company in satisfaction of outstanding trade indebtedness. The remainder of the proceeds are restricted for use in the further development of the subsidiary's business. In addition, in July 1996, the Company sold the technology related to its industrial inspection products (the "Technology") for approximately $0.4 million of cash and certain future royalties. The Company believes that the cash and liquid investments of the Company at June 30, 1996 together with the unrestricted portion of the proceeds from the IPO and the proceeds from the sale of the Technology will be sufficient to fund its operations through the remainder of 1996. The Company has entered into discussions with potential private investors with the objective of securing sufficient additional financing such that the Company will have adequate cash to fund operations for the next twelve months. There can be no assurance that such efforts will be successful or that, if successful, the resulting funding will be sufficient such that operations will be adequately funded for the next twelve months. The current fair market value of that portion of the Company's holdings of publicly traded common stock in affiliates which are not subject to contractual restrictions is approximately $15 million. The Company believes that a portion of these investments could be converted into cash, if necessary. However, as of the date of this report, the Company has no plans to do so. In August 1996, certain holders of convertible debt securities elected to convert approximately $1.0 million principal amount into approximately 260,000 shares of Common Stock of the Company. Risk Factors Risk Associated with the HER-2/neu Gene-Based Test System In November 1995, an FDA advisory panel (the "Panel") made a recommendation against final approval of the Company's Pre-Market Approval ("PMA") application for the use of its HER-2/neu gene-based test system for diagnostic purposes. No assurance can be given that the Panel will reconsider its position or that the FDA will overturn the recommendation of the Panel or that the Company will obtain FDA approval for its HER-2/neu gene-based test system. The failure to obtain FDA approval for its HER-2/neu gene-based test system on a timely basis, or at all, would have a material and adverse effect on the Company's business, financial condition and results of operations. In the event that the Company receives FDA approval for its HER-2/neu gene-based test system, there can be no assurance that the Company will be capable of manufacturing the test system in commercial quantities at reasonable costs or marketing the product successfully, that the test system will be accepted by the medical diagnostic community, or that the market demand for the test system will be sufficient to allow profitable sales. No Assurance of Regulatory Approvals; Government Regulation The Company is currently pursuing FDA approval of certain existing products and expects to pursue FDA approval of certain additional products under development. There can be no assurance that the Company will receive regulatory approval for any of its products or, even if it does receive regulatory approval for a particular product, that the Company will ever recover its costs in connection with obtaining such approval. The timing of regulatory approvals is not within the control of the Company. The failure of the Company to receive requisite approval, or significant delays in obtaining such approval, could have a material and adverse effect on the business, financial condition and results of operations of the Company. Approval by the FDA requires lengthy, detailed and costly laboratory procedures, clinical testing procedures and application preparation and defense efforts to demonstrate a product's efficacy and safety before a product can be sold for diagnostic use. Even if such regulatory approval is obtained for a product, its manufacturer and its manufacturing facilities are subject to continual review and periodic inspections by the FDA and other regulatory agencies. The regulatory standards for manufacturing are applied stringently by the FDA. Discovery of previously unknown problems with a product, manufacturer or facility may result in restrictions on such product or manufacturer, including costly recalls or even withdrawal of the product from the market. Furthermore, approval may entail ongoing requirements for postmarketing studies. Failure to maintain requisite manufacturing standards or discovery of previously unknown problems could have a material and adverse effect on the Company's business, financial condition or results of operations. Patents and Proprietary Rights The Company's success will depend in large part on its, or its licensors, ability to obtain patents, defend its patents, maintain trade secrets and operate without infringing upon the proprietary rights of others, both in the United States and in foreign countries. The patent position of firms relying upon biotechnology is highly uncertain in general and involves complex legal and factual questions. To date there has emerged no consistent policy regarding the breadth of claims allowed in biotechnology patents or the degree of protection afforded under such patents. The Company relies on certain patents and pending United States and foreign patent applications relating to various aspects of its products. These patents and patent applications are either owned by the Company or rights under them are licensed to the Company. There can be no assurance that patents will issue as a result of any such pending applications or that, if issued, such patents will be sufficiently broad to afford protection against competitors with similar technology. In addition, there can be no assurance that any patents issued to the Company, or for which the Company has license rights, will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide competitive advantages to the Company. The commercial success of the Company will also depend upon avoiding the infringement of patents issued to competitors and upon maintaining the technology licenses upon which certain of the Company's current products are, or any future products under development might be, based. Litigation, which could result in substantial cost to the Company, may be necessary to enforce the Company's patent and license rights or to determine the scope and validity of others' proprietary rights. If competitors of the Company prepare and file patent applications in the United States that claim technology also claimed by the Company, the Company may have to participate in interference proceedings declared by the United States Patent and Trademark Office ("PTO") to determine the priority of invention, which could result in substantial cost to the Company, even if the outcome is favorable to the Company. An adverse outcome could subject the Company to significant liabilities to third parties and require the Company to license disputed rights from third parties or cease using the technology. A United States patent application is maintained under conditions of confidentiality while the application is pending in the PTO, so that the Company cannot determine the inventions being claimed in pending patent applications filed by its competitors in the PTO. Further, United States patents do not provide any remedies for infringement that occurred before the patent is granted. The University of California and its licensee, Vysis, Inc. ("Vysis"), filed suit against Oncor on September 5, 1995 for infringement of U.S. Patent No. 5,447,841 entitled Methods and Compositions for Chromosome Specific Staining which issued on that same date. The patent relates to a method of performing in situ hybridization using a blocking nucleic acid that is complementary to repetitive sequences. A failure to successfully defend against or settle this suit may result in damages being assessed against the Company and an injunction against the sale of some of the Company's probes. The University of California and Vysis have offered to grant the Company a non-exclusive license. The Company has licensed rights to inventions disclosed in United States and foreign patent applications relating to methods and probes for detecting the presence of the Fragile X syndrome. The Company believes that its licensors are original inventors and are entitled to patent protection in the United States, but the Company is aware that certain third parties also have filed patent applications in the United States and abroad and claim to be entitled to patents related to this technology. The Company has initiated an interference proceeding with these third parties in the PTO to resolve which party is entitled to a United States patent, if any. The application licensed by the Company is senior in the interference. An unfavorable decision in such a proceeding could have an adverse effect on the Company. The Company currently has certain licenses from third parties and in the future may require additional licenses from other parties to develop, manufacture and market commercially viable products effectively. There can be no assurance that such licenses will be obtainable on commercially reasonable terms, if at all, that the patents underlying such licenses will be valid and enforceable or that the proprietary nature of the patented technology underlying such licenses will remain proprietary. The Company relies substantially on certain technologies that are not patentable or proprietary and are therefore available to the Company's competitors. The Company also relies on certain proprietary trade secrets and know-how that are not patentable. Although the Company has taken steps to protect its unpatented trade secrets and know-how, in part through the use of confidentiality agreements with its employees, consultants and certain of its contractors, there can be no assurance that these agreements will not be breached, that the Company would have adequate remedies for any breach, or that the Company's trade secrets will not otherwise become known or be independently developed or discovered by competitors. Uncertainties Relating to Product Development Most of the Company's products have not been approved by the FDA and may be sold only for research purposes. The Company has undertaken to seek FDA approval for certain of these products, and may in the future undertake to seek such approval for other products, and substantial additional investment, laboratory development, clinical testing and FDA approval will be required prior to the commercialization of such products for diagnostic purposes. There can be no assurance that the Company will be successful in developing such existing or future products, that such products will prove to be efficacious in clinical trials, that required regulatory approvals can be obtained for such products, that such products, if developed and approved, will be capable of being manufactured in commercial quantities at reasonable costs, will be marketed successfully or will be accepted by the medical diagnostic community, or that market demand for such products will be sufficient to allow profitable operations. International Sales and Foreign Exchange Risk The Company derived approximately $9.0 million or 56% of its total product revenues, from customers outside of the United States for the year ended December 31, 1995. The Company anticipates that a significant amount of its sales will take place in European countries and likely will be denominated in currencies other than the U.S. dollar. These sales may be adversely affected by changing economic conditions in foreign countries and by fluctuations in currency exchange rates. Any significant decline in the applicable rates of exchange could have a material adverse effect on the Company's business, financial condition and results of operations. Additional risks inherent in the Company's international business activities generally include unexpected changes in regulatory requirements, tariffs and other trade barriers, lack of acceptance of products in foreign markets, longer accounts receivable payment cycles, difficulties in managing international operations, potentially adverse tax consequences, restrictions on repatriation of earnings and the burdens of complying with a wide variety of foreign laws. There can be no assurance that such factors will not have a material adverse effect on the Company's future international revenues and, consequently, on the Company's business, financial condition and results of operations. Competition and Technological Change The diagnostic and biotechnology industries are subject to intense competition and rapid and significant technological change. Competitors of the Company in the United States and in foreign countries are numerous and include, among others, diagnostic, health care, pharmaceutical, biotechnology and chemical companies, academic institutions, government agencies and other public and private research organizations. Many of these competitors have substantially greater financial and technical resources and production and marketing capabilities than the Company. There can be no assurance that these competitors will not succeed in developing technologies and products that are more effective, easier to use or less expensive than those that have been or are being developed by the Company or that would render the Company's technology and products obsolete and noncompetitive. The Company also competes with various companies in acquiring technology from academic institutions, government agencies and research organizations. In addition, many of the Company's competitors have significantly greater experience than the Company in conducting clinical trials of new diagnostic products and in obtaining FDA and other regulatory approvals of products for use in health care. Accordingly, the Company's competitors may succeed in obtaining regulatory approval for products more rapidly than the Company. Other Factors Other factors that may affect the Company's business, financial condition and results of operations, include the Company's limited manufacturing, marketing and distribution experience, the level and availability of government funding, the Company's ability to attract and retain key personnel, potential health care reform measures and the availability of third-party reimbursement, potential product liability claims, and environmental risks. Item 4. Submission of Matters to a Vote of Security Holders. a. The annual meeting of the stockholders was held on July 9, 1996. b. Motions before the stockholders: (1) To elect five directors. Stephen Turner Votes for 18,290,442 Withheld 101,610 Philip S. Schein Votes for 18,288,442 Withheld 103,610 Timothy J. Triche Votes for 18,288,442 Withheld 103,610 William H. Taylor II Votes for 18,290,422 Withheld 101,610 George W. Scherer Votes for 18,290,442 Withheld 101,610 (2) To ratify the selection of Arthur Andersen LLP as independent public accountants of the Company for the year 1996. Votes for 18,344,603 Votes against 27,299 Abstain 20,150 (3) To approve an amendment to the Company's 1992 Stock Option Plan to increase the total number of shares authorized for issuance thereunder by 500,000 shares to a total of 5,015,604 shares. Votes for 16,813,475 Votes against 1,516,074 Abstain 62,503 Item 5. Other Information. Effective August 9, 1996, George W. Scherer resigned from the Board of Directors of the Company. He stated that the resignation was largely for personal reasons. Item 6. Exhibits and Reports on Form 8-K. a. The following exhibits are filed as part of this report on Form 10-Q. 27. Financial Data Schedule. b. Reports on Form 8-K. None. 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. ONCOR, INC. (Registrant) Date: August 13, 1996 Stephen Turner, Chairman and Chief Executive Officer Date: August 13, 1996 John L. Coker, Vice President of Finance and Administration, Chief Financial Officer 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. ONCOR, INC. (Registrant) Date: August 13, 1996 /s/ Stephen Turner Stephen Turner, Chairman and Chief Executive Officer Date: August 13, 1996 /s/ John L. Coker John L. Coker, Vice President of Finance and Administration, Chief Financial Officer EX-27 2
5 6-MOS DEC-31-1996 JUN-30-1996 5248384 0 3185970 (310000) 5093936 15190763 10923406 (5399814) 34023812 6085038 0 0 0 232738 24967996 34023812 7823893 8317614 4923981 19533081 (2602184) 0 253004 (13817651) 0 (13817651) 0 0 0 (13817651) (0.62) (0.62)
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